Q4 2023 NBT Bancorp Inc Earnings Call

January 24, 2024

Okay.

Good day, everyone and welcome to the conference call covering MBT Bancorp's fourth quarter and full year 2023 financial results.

This call is being recorded and has been made accessible to the public in accordance with U S. He sees regulation FD corresponding presentation slides may be found on the company's website at N. B T. Bancorp dotcom before the call begins N P Chief management would like to remind listeners that as noted on slide two.

Today's presentation may contain forward looking statements.

And by the Securities and Exchange Commission actual results may differ from those projected in addition, not certain non-GAAP measures will be discussed reconciliations for those numbers all contained within the apex apex appendix of today's presentation. At this time all participants are in a listen only.

Later, well conduct a question and answer session and instructions will follow at that time as a reminder, this call is being recorded I would now like to turn the conference over to N V T Bancorp President.

And Chief Executive Officer, John H Watch junior for the opening remarks, Mr. Watt Europe. Please begin.

Good morning, Thank you Norma and thank you all for participating in this earnings call covering MBT Banc Corp's fourth quarter and full year 2023 results.

Joining me today are <unk>, Chief Financial Officer, Scott Kingsley, Our Chief Accounting Officer of net earnings our Treasurer, Joe on <unk> as well as our president of retail banking Jo Stagg Liana.

It was a very active quarter at MBT, while navigating the volatile interest rate environment, we observed that the consumer is still spending.

That small businesses are still investing.

At the same time, we continued to experience movement to a normalized pre pandemic credit environment.

I will note that the successful integration of our August acquisition of Salisbury Bancorp positions <unk> well for growth in adjacent markets for future strategic growth.

Let me take a moment to highlight activity across our businesses first.

Our operating results include earnings per share of <unk> 72 for the fourth quarter and $3 23 for the year.

Return on tangible equity was $15, 7% to 8% for the full year and the year end tangible equity ratio grew 11% to 793%.

Excluding the Salisbury acquisition, we achieved commercial and consumer loan growth of 4%.

That growth was diverse with our core commercial lending business banking residential mortgage and indirect auto businesses all participated.

Yes.

As noted in 2023, we experienced a resilient consumer and business owner, our indirect auto business had a productive quarter with originations of over $141 million and $575 million for the full year.

Small business originations were up 9% year over year.

Credit quality.

Quality at MPT is normalizing, although each of our core credit portfolio continues to perform at levels better than those we experienced prior to the pandemic. We have seen some migration into the critics criticize category in our commercial lending business, often historically low base.

Yes.

Like the rest of our industry our cost of funds has risen as our customers continue to seek out higher yielding deposit products.

Our full cycle deposit beta at year end was 28%.

We continue to enjoy high account retention levels are funding sources are robust and we have the headroom we need to continue to execute on our organic growth plans in 2024.

Thanks for watching! Good day everyone and welcome to the conference call covering NBT Bancorp's fourth quarter and full year 2023 financial results. This call is being recorded and has been made accessible to the public in accordance with the SEC's regulations. Corresponding presentation slides may be found on the company's website at nbtbankcorp.com. Before the call begins, NBT's management would like to remind listeners that, as noted on slide 2, today's presentation may contain forward-looking statements as defined by the Securities and Exchange Commission, and actual results may differ from those projected. In addition, certain non-GAAP measures will be discussed. Reconciliations for those numbers are contained within the APIC appendix of today's presentation. At this time, all participants are in a listen-only mode.

Our fee based businesses continued their solid performance in Q4 and for the full year for.

For the year, our combined benefits administration wealth management and insurance businesses generated revenues of almost $100 million.

Total noninterest income was 29% of total revenue for the full year.

Activity, along the upstate New York Chip corridor was positive in Q4 with large public and private investments being announced.

Most significantly the Albany Nano-tech complex called New York creates received 10 billion in investment commitments from large semiconductor manufacturers and the federal government.

Speaker Change: Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this call is being made. I would now like to turn the conference over to NBT's Bank Corp President and Chief Executive Officer John H. Watts, Jr. for the opening remarks. Mr. Watt, you're welcome.

Sure.

The activity generated along the chip corridor will drive long term transformational economic growth across our core markets and promote long term success at NBC.

On Monday, our board approved a 32 said dividend payable in March which represents a six 7% increase over the dividend paid in the first quarter of 2023.

Speaker Change: Good morning. Thank you, Norma. And thank you all for participating in this earnings call covering NBT Bank Corp's fourth quarter and full year 2023 results. Joining me today are MBT's Chief Financial Officer Scott Kingsley, our Chief Accounting Officer Annette Burns, our Treasurer Joe Ondesco, as well as our President of Retail Banking Joe Staglian. It was a very active quarter at NBT.

It's also notable that we marked 11 consecutive years of annual dividend increases in 2023.

Going into 2024, and BT is positioned with strong liquidity and capital levels, a diversified business mix highly effective risk management practices.

Speaker Change: While navigating the volatile interest rate environment, we observed that the consumer is still spending, and small businesses are still investing. At the same time, we continue to experience movement to a normalized pre-pandemic credit environment. I will note that the successful integration of our August acquisition of Salisbury Bank Corp positions NBT well for growth in adjacent markets and for future strategic growth. First, I will take a moment to highlight activity across our businesses. Our operating results include earnings per share of $0.72 for the fourth quarter and $3.23 for the year. Return on tangible equity was 15.78% for the full year, and the year-end tangible equity ratio grew 11% to 7.93%.

And an expanded team of experienced professionals.

Speaker Change: I will turn the call over to Scott and an AD to talk in greater detail about the outcomes associated with our financial performance for the fourth quarter and the full year.

Scott Kingsley: Following their remarks, we will take your questions.

Scott Kingsley: <unk> over to you.

Speaker Change: Thank you John and good morning, everyone turning to the results overview page of our earnings presentation. Our first quarter earnings per share were <unk> 64 cents.

<unk> earnings per share were <unk>, 72 cents, which excludes <unk> <unk> per share of acquisition expenses securities gains and an impairment of a minority interest equity investment we incurred in the quarter. The fourth quarter had the full impact of the Salisbury acquisition, which was completed in August of 2023.

Speaker Change: The fourth quarter operating results of our <unk> and.

Speaker Change: <unk> 12 cents lower than the fourth quarter of last year and linked third quarter respectively.

Speaker Change: We continue to experience increases in funding costs that have exceeded the improvements in earning asset yields which have challenge net interest income growth tangible book value per share of $21 72 at December 31 was that.

Speaker Change: Excluding the Salisbury acquisition, we achieved commercial and consumer loan growth of 4%. That growth was diverse, with our core commercial lending, business banking, residential mortgage, and indirect auto businesses all participating. As noted, in 2023, we experienced a resilient consumer and business owner. Our indirect auto business had a productive quarter with originations of over 141 million and 575 million for the full year. Small business originations were up 9% year over year.

Speaker Change: $8 33 per share from the end of the third quarter and up $8 seven for the fourth quarter of 2022.

Speaker Change: The next page shows trends in outstanding loans.

Speaker Change: Total loans were up $1 $5 billion from the fourth quarter of 2022 and included 118 million of loans acquired from follow up Barry.

Speaker Change: Quite productive growth in our indirect auto residential mortgage and commercial real estate portfolios quarter end loans were down $17 million from the end of the third quarter and reflected lower commercial line utilization.

Speaker Change: Planned run off of our other consumer loan portfolio and principal amortization of our solar residential loans.

Speaker Change: Quarter loan yields were up 11 basis points from the third quarter of 2023 reflective of continued higher new origination yields our total loan portfolio of $9 $65 billion remains very well diversified and is comprised of 52% and commercial relationships and 48% consumer loans.

Speaker Change: On page six total deposits of $11 billion were up $1 5 billion in 2023 and included $1 3 billion of deposits acquired from Salisbury at.

Speaker Change: At the end of the fourth quarter deposits were down from the end of the third quarter as expected municipal deposits declined $225 million from the seasonally high third quarter generally in most of our markets municipal tax collections are concentrated in the first and third quarters of each year.

Speaker Change: Our funding sources are robust, and we have the headroom we need to continue to execute on our organic growth plans in 2025. Our fee-based businesses continued their solid performance in Q4 and for the full year. For the year, our combined benefits administration, wealth management, and insurance businesses generated revenues of almost $100 million. Total non-interest income was 29% of total revenue for the full year.

Speaker Change: In addition, following the industry wide liquidity challenges, which arose near the end of the first quarter 'twenty three the company proactively added over a quarter million dollars of incremental wholesale deposits and liquidity profile has continued to remain very stable and as such in the fourth quarter, we allowed $132 million of those balances to control.

Speaker Change: Activity along the upstate New York chip corridor was positive in Q4, with large public and private investments being announced. Most significantly, the Albany nanotech complex called New York Creates received $10 billion in investment commitments from large semiconductor manufacturers and the federal government. The activity generated along the CHIP corridor will drive long-term transformational economic growth across our core markets and promote long-term success at NVT. On Monday, our board approved a $0.32 dividend payable in March, which represents a 6.7% increase over the dividend paid in the first quarter of 2023. It's also notable that we marked 11 consecutive years of annual dividend increases in 2023.

Speaker Change: Actually run off.

Speaker Change: The company continued to experience remixing from its no interest and low interest checking and savings account and to higher yielding money market and time deposit instruments again in the fourth quarter.

Accordingly cost of total deposits increased to 151 basis points compared to 118 basis points in the linked third quarter and total cost of funds increased 22 basis points from the prior quarter.

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

Speaker Change: The next slide looks at the detailed changes in our net interest income and margin the fourth quarter net interest income was $4 3 million above the linked quarter third quarter <unk>.

Speaker Change: <unk>, primarily from the full quarter impact of the Salisbury acquisition, which was partially offset by a six basis point decline in our net interest margin during most of the fourth quarter <unk> made a fed fund sold position, which created incremental interest income given robust short term yields although we experienced a slower rate of growth in <unk>.

Speaker Change: Going into 2024, NBT is positioned with strong liquidity and capital levels, a diversified business mix, highly effective risk management practices, and an expanded team of experienced professionals. I will turn the call over to Scott and Annette to talk in greater detail about the results associated with our financial performance for the fourth quarter and the full year. Following their remarks, we'll take your questions. Annette, over to you.

Speaker Change: Cost of funds late in the fourth quarter, we continue to expect modest additional funding pressures to persist in 2024.

I'll now turn it over to Scott to review the rest of the results.

Scott Kingsley: Thank you Annette and good morning, everyone. The trends in noninterest income are summarized on page eight excluding securities gains our fee income was up $3 $7 million or 11% from the fourth quarter of 2000 $22 million to $38 million and down 6% from the linked third quarter as expected.

Annette Burns: Thank you, John, and good morning, everyone. Turning to the results overview page of our earnings presentation, our fourth-quarter earnings per share were $0.64. Operating earnings per share were $0.72, which excludes $0.08 per share of acquisition expenses, securities gains, and an impairment of a minority interest equity investment we incurred in the quarter.

Scott Kingsley: From a retirement plan administration business were down $1 $6 million from the third quarter and included certain actuarial and compliance services, which are seasonally concentrated in the third quarter. Our insurance agency revenues were $700000 lower than the prior quarter, reflecting higher commercial policy renewals in the third quarter.

Annette Burns: The fourth quarter had the full impact of the Salisbury acquisition, which was completed in August of 2023. The fourth quarter operating results were $0.14 and $0.12 lower than the fourth quarter of last year and the linked third quarter, respectively. We continue to experience increases in funding costs that have exceeded the improvements in earning asset yields, which have challenged net interest income growth. Tangible book value per share of $21.72 at December 31st was up $1.33 per share from the end of the third quarter and up $1.07 from the fourth quarter of 2022.

Scott Kingsley: The diversification of our revenue generation sources continues to be a core strength of the company the annualized run rate of our combined third and fourth quarter noninterest income generation was over $155 million.

Scott Kingsley: Turning now to noninterest expense, our total operating expenses, excluding acquisition expenses and an impairment charge were $87 7 million for the quarter, which was $5 million or 6% above the linked quarter and 11, 7% above the fourth quarter of 2022.

Annette Burns: The next page shows trends in outstanding loans. Total loans were up $1.5 billion from the fourth quarter of 2022 and included $1.18 billion of loans acquired from Salisbury. Despite productive growth in our indirect auto, residential mortgage, and commercial real estate portfolios, quarter-end loans were down $17 million from the end of the third quarter and reflected lower commercial line utilization, the continued plan runoff of our other consumer loan portfolio, and principal amortization of our solar residential. Fourth quarter loan yields were up 11 basis points from the third quarter of 2023, reflective of our continued higher new origination yields. Our total loan portfolio of $9.65 billion remains very well diversified and is comprised of 52% commercial relationships and 48% consumer loans.

Scott Kingsley: Quarter over quarter increases in salaries and employee benefits technology services occupancy advertising in FDIC assessment costs included a full quarter of Salisbury expenses.

Scott Kingsley: As indicated in our earnings release, we did record a full $4 $8 million impairment to our minority interest investment and a provider of financial and technology services to residential solar equipment installers, Although we believe their technology platform and broad network of installers has demonstrated market acceptance.

Scott Kingsley: Significant challenges and constraints and capital markets has resulted in uncertainties related to their ability to continue ongoing operations.

Annette Burns: On page six, total deposits of $11 billion were up $1.5 billion in 2023 and included $1.3 billion of deposits acquired from Salisbury. At the end of the fourth quarter, deposits were down from the end of the third quarter, as expected. Municipal deposits declined $225 million from the seasonally high third quarter.

Scott Kingsley: On the next slide we provide an overview of key asset quality metrics, we recorded a loan loss provision expense of $5 1 million in the fourth quarter, which was $1 2 million or <unk> a share higher than the $3 9 million provision recorded in the linked third quarter, excluding the Salisbury day, one acquisition related provision.

Scott Kingsley: <unk> in the third quarter.

Annette Burns: Generally, in most of our markets, municipal tax collections are concentrated in the first and third quarters of each year. In addition, following the industry-wide liquidity challenges which arose near the end of the first quarter of 2023, the company proactively added over a quarter million dollars of incremental wholesale deposits. NBT's liquidity profile has continued to remain very stable, and as such, in the fourth quarter, we allowed $132 million of those balances to contractually run off. The company continued to experience remixing from its no interest and low interest checking and savings accounts into higher yielding money market and time deposit instruments again in the fourth quarter. Our quarterly cost of total deposits increased to 151 basis points compared to 118 basis points in the linked third quarter, and total cost of funds increased 22 basis points from the prior quarter. We have included a summary of our deposit mix by type, which illustrates the diversification and deep granularity of our customer base.

Scott Kingsley: Net charge offs were 22 basis points in the fourth quarter of 2023 compared to 18 basis points in the prior quarter.

Reserve coverage of 119% of total loans was consistent with the linked third quarter and five basis points lower than the fourth quarter of 2022 reflective of continued portfolio mix changes.

Scott Kingsley: We believe that charge off activity will continue to return to more historical norms and expected balance sheet growth and continued mix changes will likely be the drivers of future provisioning needs.

Scott Kingsley: Nonperforming loans increased $13 $6 million from the end of the third quarter attributable to a single diversified multi tenant commercial real estate development relationship in which we are a participant which was placed into non accrual status during the quarter.

Scott Kingsley: The relationship is being actively managed and recent appraised values continue to support its carrying value.

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

Scott Kingsley: Allowed us to productively offset a portion of the challenges on net interest income generation.

Scott Kingsley: Lastly, our post acquisition capital levels continue to put us in a favorable position as we consider future growth and deployment opportunities.

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

Scott Kingsley: As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced.

Annette Burns: The next slide looks at the detailed changes in our net interest income and margins. The fourth quarter net interest income was $4.3 million above the linked third quarter results, primarily due to the full quarter impact of the Salisbury acquisition, which was partially offset by a six basis point decline in our net interest margin. During most of the fourth quarter, NBT took a Fed Funds Sold position, which created incremental interest income given robust short-term yields. Although we experienced a slower rate of growth in the cost of funds late in the fourth quarter, we continue to expect modest additional funding pressures to persist in 2024. I will now turn it over to Scott to review the rest of the results. Thank you, Annette, and good morning, everyone.

Scott Kingsley: Please standby, while we compile the Q&A roster.

Scott Kingsley: One moment for your first question. Please.

Scott Kingsley: And our first question comes from the line of Steve Moss with Raymond James Your line is now open.

Stephen M. Moss: Hi, good morning.

Speaker Change: Good morning, Steve Good morning, Steve.

Stephen M. Moss: Maybe just starting off here with on the funding side of the equation.

Stephen M. Moss: I'm, just curious to where deposit costs ended it ended the quarter and just kind of how youre thinking about the first half of funding costs ahead of potential rate hikes here.

Speaker Change: Yes, so thanks, Steve.

Speaker Change: Part of the question obviously, we ended the year at about a 155 total deposit cost.

We've watched that screwed up a little bit here as we've started the new year, but not a lot.

Scott Kingsley: The trends in non-interest income are summarized on page eight. Excluding securities gains, our fee income was up $3.7 million, or 11% from the fourth quarter of 2022 to $38 million and down 6% from the length of the third quarter, as expected. Revenues from our retirement plan administration business were down $1.6 million from the third quarter and included certain actuarial and compliance services which are seasonally concentrated in the third quarter. Our insurance agency revenues were $700,000 lower than the prior quarter, reflecting higher commercial policy renewals in the third quarter.

The pressure that seems more pronounced through the mid October mid November timeframe appears to be dissipating.

Speaker Change: And so we're holding much closer to stability.

Speaker Change: From a rate standpoint, and our balances standpoint.

Speaker Change: Okay.

Speaker Change: Got it and then just as we think about rate cuts here.

Speaker Change: If we get.

Speaker Change: Starts cutting rates, just kind of curious as to how youre thinking about the margin.

Speaker Change: Maybe how quickly you might pivot on the funding costs going forward.

Speaker Change: Against the really the important thing for us from a pricing standpoint.

Speaker Change: We have on a forward look we've presumed that there are fed rate declines in 2024.

Speaker Change: The forward curve suggests six or seven.

Speaker Change: <unk> suggests half of that we're probably forecasting somewhere in the middle.

Scott Kingsley: The fourth quarter wealth management services included a full quarter contribution from the Salisbury Trust and advisory businesses, but comparatively offset by certain third quarter tax preparation. The diversification of our revenue generation sources continues to be a core strength of the company. The annualized run rate of our combined third and fourth quarter non-interest income generation was over $155 million.

Speaker Change: For us.

Those rate cuts start.

Speaker Change: Gives us an opportunity to have a.

Speaker Change: <unk> with our customers relative to lowering funding costs, we can get out in front of that on time deposits.

Speaker Change: So for expiring time deposits short term Cds, we can set different rates upon exploration and we're in the process of doing that the opportunity for us to lower cost truly comes from our money market portfolio, a little over $3 billion of funds that have a high 3% cost attached to them.

Scott Kingsley: Turning now to non-interest expense, our total operating expenses, excluding acquisition expenses and an impairment charge, were $87.7 million for the quarter, which was $5 million, or 6% above the length of the quarter and 11.7% above the fourth quarter of 2022. Quarter over quarter increases in salaries and employee benefits, technology services, occupancy, advertising, and FDIC assessment costs included a full quarter of Salisbury expenses. As indicated in our earnings release, we did record a full $4.8 million impairment to our minority interest investment in a provider of financial and technology services to residential solar equipment installers. Although we believe their technology platform and broad network of installers have demonstrated market acceptance, significant challenges and constraints in capital markets have resulted in uncertainties related to their ability to continue ongoing operations. On the next slide, we provide an overview of key asset quality metrics. We recorded a loan loss provision expense of $5.1 million in the fourth quarter, which was $1.2 million, or two cents a share, higher than the $3.9 million provision recorded in the linked third quarter, excluding the Salisbury Day One acquisition-related provision recorded in the third quarter.

Speaker Change: Currently that once we start to get some momentum on the downside Thats. The group that we can discretionary we start to move and simultaneous have really logical discussions with our customer.

Speaker Change: Okay.

Speaker Change: That's helpful. Scott I appreciate that.

Speaker Change: On the on the lending side, just curious where.

Speaker Change: How youre feeling about the loan pipeline and the thoughts around the outlook for growth here I realized it looks like the solar piece is going to be in a bit of a run off mode.

Speaker Change: It's a little bit of a headwind or just kind of curious on.

Speaker Change: So think about all of that.

Speaker Change: Steve Here's how we're thinking about the year.

Stephen M. Moss: Mid single digit growth still achieve a very achievable.

Stephen M. Moss: <unk>.

Stephen M. Moss: The year over year pipelines slightly lower going into first Q, but traditionally.

Stephen M. Moss: Traditionally in the markets we serve.

Stephen M. Moss: <unk> was lower than the rest of the year. So we would expect they will pick up on the business banking side.

Stephen M. Moss: <unk> had a really strong year last year that we fully expect that's going to carryover into two.

Stephen M. Moss: 2024, so for the core business mid single digits is how we're thinking about.

Okay, great. Thank you very much I appreciate all the color.

Stephen M. Moss: Great. Thank you I appreciate the questions.

Speaker Change: Thank you one moment our next question please.

Speaker Change: Our next question comes from the line of Chris O'donnell with VW. Your line is now open.

Chris O'donnell: Hey, good morning.

Chris O'donnell: And congrats to Chris.

Scott Kingsley: Net charge-offs were 22 basis points in the fourth quarter of 2023 compared to 18 basis points in the prior quarter. Reserve coverage of 1.19 percent of total loans was consistent with the length of the third quarter and five basis points lower than the fourth quarter of 2022, reflective of continued portfolio mix change. We believe that charge-off activity will continue to return to more historical norms, and expected balance sheet growth and continued mixed changes will likely be the drivers of future provisioning. Non-performing loans increased $13.6 million from the end of the third quarter, attributable to a single diversified multi-tenant commercial real estate development relationship in which we are a participant, which was placed into non-accrual status during the quarter.

Chris O'donnell: John on the retirement announcement and Scott.

Chris O'donnell: Joe on the promotions.

Speaker Change: Thank you, Chris and thanks, Chris.

Joe: So just wanted to.

Joe: Start off on the fee side I know you guys mentioned some seasonality that occurred in the fourth quarter.

Joe: On the insurance and benefit plan, just hoping to get where you think those could rebound two as a starting point for <unk>.

Joe: So we like to think about 2020, Florida run rate by starting with combining the third and fourth quarter.

Joe: Average as the third and fourth quarter together as kind of the base run rate.

Joe: And then kind of think about it mid mid single digit growth rate off of that base.

Joe: That's kind of how we're thinking about the 2025 run rate.

Speaker Change: Okay got it.

Speaker Change: Sure.

Speaker Change: And then.

Speaker Change: As far as the expenses.

Speaker Change: I know that there was some some cleanup and some expense as mentioned.

Speaker Change: <unk>.

Speaker Change: Sounds very acquisition.

Speaker Change: They brought some things up in the fourth quarter.

Scott Kingsley: The relationship is being actively managed, and recent appraised values continue to support its carrying value. As I wrap up, prepared remarks, and some closing thoughts. The market volatility and uncertainty that arose in early March accelerated our funding cost pressures, which has resulted in lower net interest margins. Our well-balanced organic loan growth, constructive results from our recurring fee income lines, and solid credit quality outcomes have allowed us to productively offset a portion of the challenges in net interest income generation. Lastly, our post-acquisition capital levels continue to put us in a favorable position as we consider future growth and deployment opportunities. With that said, we're happy to answer any questions you may have at this time. Norma?

Speaker Change: Can you just remind us as to like how much of that maybe it comes out and whether there are some offsets and where we could start off the year on the expense side.

Speaker Change: Sure, Chris I'll take a run at that one.

Speaker Change: So yes.

Speaker Change: Historically and.

Speaker Change: Similar to our fourth quarter of this year, we're a little seasonally higher and operating expenses in the fourth quarter some of that relates to finishing out certain initiatives.

Speaker Change: A little bit more pronounced this year because some of the things that we're working on internally.

Speaker Change: We've put aside as we finished the Salisbury transaction a couple of things to think about.

Speaker Change: As it relates to customer retention and branding activities those are a little higher for us in the fourth quarter than they would've been otherwise because we were focused on the Salisbury customer as well both from a retention standpoint, and growing and some additional new markets that we previously had not had access to.

Speaker Change: So as we think about that quarter, and 87% and have $88 million run rate when we rolled into the first quarter with the exception of reminding everyone again, usually for us in the first quarter, we pick up a couple cents a share additional costs associated with payroll taxes in the first quarter in stock based compensation.

Norma: Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again.

Norma: Please wait for your name to be announced; please stand by while we compile the Q&A roster. One moment for our first question. And our first question comes from the line of Steve Moss with Raymond James. Your line is now open.

Speaker Change: We usually have another <unk> <unk> per share in incremental seasonal utility costs. Yes. It has started to snow in upstate New York.

Speaker Change: The clouds are out in the heat is on.

We also expect Chris a two 5% merit change for our people and we usually do that towards the tail end of the first quarter, usually the month of March. So we would expect that on a going forward basis.

Stephen M. Moss: All right, good morning. Morning, Steve. Maybe just starting off here with, on the funding side of the equation, I'm just curious about where deposit costs ended at the end of the quarter and just kind of how you're thinking about the first half of funding costs ahead of potential rate hikes. Yeah, so thanks, Steve. You know, a pertinent question, obviously.

Speaker Change: In terms of how we will think about.

Speaker Change: Incremental hiring for the organization given there are some headwinds relative to revenue generation very opportunistic and structural support only.

Speaker Change: Otherwise, we will be thinking about replacement of the folks that we need within our structure, but in terms of adding people to the organization opportunistic and again necessary structural adds.

Speaker Change: We ended the year at about a $1.55 total deposit cost. You know, we've watched that scoot up a little bit here as we start the new year, but not by much. The pressure that seemed more pronounced through the mid-October, mid-November timeframe appears to be dissipating. And, you know, we're holding much closer to stability, both from a rate standpoint and a balances standpoint. Okay, Scott.

Speaker Change: Great. That's helpful and do you guys have.

Speaker Change: Overall expense growth target, either X or including Salisbury for the full year.

Speaker Change: Chris on a full year basis, probably have to come back to you with that one I think if we looked at it from a growth off of fourth quarter full quarter inclusion of Salisbury.

Speaker Change: If we think about a two five or so percent change on the salaries and benefits line and then maybe something a little smaller than that for the rest of our non operating expenses.

Scott Kingsley: And then just as we think about rate cuts here, you know, if we get, you know, the Fed starts cutting rates, just kind of curious as to, you know, how you're thinking about the margin and, you know, maybe how quickly you might pivot on funding costs going forward. Again, Steve, really, you know, the important thing for us, you know, from a pricing standpoint, we have presumed on a forward look that there will be Fed rate declines in 2024. You know, the forward curve suggests six or seven, the dot plot suggests half of that, and we're probably forecasting somewhere in the middle.

Speaker Change: Remembering that we think we got a full quarter worth of Salisbury costs in there and honestly, we think we've got a full quarter worth of the cost saves that we thought we would get in the Salisbury acquisition.

Speaker Change: Great.

Speaker Change: And then on the on the seasonal Muni decline.

Speaker Change: Given the environment.

Speaker Change: Just how difficult it is I mean, what's the confidence level that that.

Speaker Change: Volume is able to come back in to the first quarter.

Speaker Change: And rebound and if so do you think it will come back and the same types of products or will it be.

Speaker Change: Higher yielding types of products, yes, so Chris it really good question. So I think as you know.

Speaker Change: We don't bank very very large municipalities.

Scott Kingsley: So for us, you know, if those rate cuts start, it gives us an opportunity to have a dialogue with our customers relative to lowering funding costs. We can get out in front of that on time deposits, you know, for expiring time deposits, short-term CDs, we can set different rates upon expiration, and we're in the process of doing that. The opportunity for us to lower costs truly comes from our money market portfolio, you know, a little over $3 billion of funds that have a high 3% cost attached to them currently. Once we start to get some momentum on the downside, that's the group that we can discretionarily start to move and simultaneously have really logical discussions with our customers. Okay, that's helpful, Scott. I appreciate that.

Speaker Change: We tend to bank counties towns villages school districts, So as tax collections start to roll in for them. We would expect that they would be using a product mix similar to what they had.

Speaker Change: In the second half of 2023.

Speaker Change: That being said most treasury functions are very aware of interest.

Speaker Change: Interest, earning opportunities whether it's on our balance sheet or someplace else. So I think that goes across our base not even just the municipal base.

Speaker Change: So I think we're always wary of that but that being said I think the pattern of utilization of how organizations have to cash flow themselves is likely to stay very similar so.

Speaker Change: After people get done making their real estate payments towards the end of January we would expect those levels to kind of move back to where we were in the fourth quarter as it relates to the commercial side of our customer base and maybe even the consumer side.

Speaker Change: We think we saw instances of people using their own money to pay back their debt obligations in the fourth quarter.

Speaker Change: So people just looking thinking about balance sheet efficiency. Despite the fact that there were still short term yield opportunities out there that we're so much more robust and they enjoyed for the last five or 10 years.

Speaker Change: And on the lending side, just curious where you are feeling about the loan pipeline. And, you know, the thoughts around the outlook for growth here. I realized, you know, the solar piece is going to be in a bit of a runoff mode. So that might be a little bit of a headwind, but just kind of curious about how things go about all that.

Speaker Change: But I think again, it's just a line of how does how do our customers handle their treasury efficiency and obviously, we provide tools for them to do that and give them. Good advice along the lines of what's the most productive thing for them to do.

Speaker Change: As the cycle starts to evolve and maybe when we get into a lower rate cycle I think thats why we can actually go to our customer and say you know what's happening in the market because we've been having so much dialogue with them about what's happening on the way up.

Speaker Change: Steve, here's how we're thinking about the year. Mid-single-digit growth is still very achievable. The year-over-year pipelines are slightly lower going into first Q, but traditionally, in the markets we serve, first Q is slower than the rest of the year. So we would expect them to pick up. On the business banking side, you know, they had a really strong year last year, and we fully expect that's going to carry over into 2024. So for the core business, mid-single digits is how we're thinking about it. Okay, great. Thank you very much.

Speaker Change: Great really helpful and last one for me I know you guys give the fixed and floating breakdown.

Loans, I think it's 39% adjustable or floating.

Speaker Change: But do you have the percentage of loans.

Speaker Change: That would immediately reprice.

Speaker Change: After a fed cut.

Speaker Change: Sure I think for modeling purposes, I would use $2 billion of.

Speaker Change: Of loans that would reprice immediately with the change in fed funds, which presumes, an immediate and correlation down in sulfur.

Speaker Change: In terms of sulfur.

Speaker Change: So it's mostly commercial loans for us, there's probably some home equity type instruments that are out there, but for us relatively small.

Speaker Change: I appreciate all the power. Thanks Steve. I appreciate it. Thank you. One moment for our next question. Our next question comes from the line of Chris O'Donnell with KBW. Your line is now open. Hey, good morning.

Speaker Change: Great. Thanks for taking my questions I appreciate it great. Thank you. Thanks, Chris Thank you.

Speaker Change: Reminder, to ask a question you will need to press star one one on your telephone.

Chris O'donnell: Congratulations, John, on the retirement announcement and Scott, Annette, and Joe on the promotion. Thank you, Chris. So just wanted to start off on the fee side. I know that you guys mentioned some seasonality that occurred in the fourth quarter on the insurance and benefit plan. Just hoping to get you know where you think those could rebound to as a starting point for one.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Alex <unk> from Piper Sandler.

Alex: Your line is now open.

Alex: Hey, good morning, all.

Alex: Good morning, good morning.

Speaker Change: With respect to the sort of the NIM conversation I appreciate all the color you've given so far but.

Speaker Change: Maybe just kind of your thoughts for the NIM in the first couple of quarters of the year, assuming we don't get any rate cuts until kind of that may timeframe, which I think is what the forward curve is today.

Chris: So we like to think about 2024's run rate by starting with combining the third and fourth quarter averages as a third and fourth quarter together as kind of the base run rate. And then kind of think about a mid single-digit growth rate off of that base. And that's kind of how we're thinking about the 2024 run rate. Okay, got it. Um, and then.

Speaker Change: Yes, so Alex I think if we were framing it this way we would say that.

Speaker Change: We have I think a much better chance of thinking that our improvement in asset yields with the repricing of.

Speaker Change: New product has a chance to catch back up to where the funding cost increases or whether we get there in the first quarter or not.

Speaker Change: Jury's still out on that but I think that the fact that we've been losing six to nine basis points a quarter on that net change in other words asset yields have been followed new asset yields just haven't kept up with where funding needs that need to be I think we've reached a point where stability could be the outcome. So if we were handicapping net interest margin.

Speaker Change: As far as the expenses go, I mean, I know that there was some cleanup and some expenses mentioned, you know, post the Salisbury acquisition, that they brought some things up in the fourth quarter. Can you just remind us as to how much of that maybe comes out and whether there's some offsets and where we could start off the year on the expense side? Sure, Chris, I'll take a run at that one.

Speaker Change: Somewhere around where we finished in the fourth quarter, you know plus or minus three or four basis points.

Speaker Change: Okay.

Speaker Change: Then.

Speaker Change: Just kind of given the commentary on deposits.

Speaker Change: Sort of trying to replace them as quickly as possible I guess.

Speaker Change: Given we get like one or two rate cuts in may for like a third and fourth quarter of the year.

Speaker Change: Do you think you have enough pricing power on the deposits to actually offset that $2 billion of.

Speaker Change: Loans that reprice and all the cash that would reprice lower.

Speaker Change: I think if we have an orderly stepped down at 25 basis points, a quarter or a 25 basis points.

Speaker Change: No.

Speaker Change: One or two or three times, we could be close to that Alex I think if we get six or seven cuts and they go much faster, it's much harder to accomplish that.

Speaker Change: As it relates to customer retention and branding activities, those were a little higher for us in the fourth quarter than they would have been otherwise because we were focused on the Salisbury customer as well, both from a retention standpoint and growing in some additional new markets that we previously had not had access to. So as we think about that quarter-end $87.5 million, $88 million run rate, when we roll into the first quarter, with the exception of reminding everyone again, usually for us in the first quarter, we pick up a couple cents a share additional costs associated with payroll taxes in the first quarter and stock-based compensation. We usually have another $0.01 per share in incremental seasonal utility costs. Yes, it has started to snow in upstate New York.

Speaker Change: Because now Youre out there multiple times with your deposit customer changing that outcome remember, we don't have any dialogue with our variable rate.

Speaker Change: Asset customer they just get the new rate.

Speaker Change: So I think it just takes more shepherding in the field.

Speaker Change: Okay.

Speaker Change: And maybe just a little bit of commentary on sort of the loan growth and sort of what youre seeing out there.

Lower loan growth this quarter more reflective of a little bit more competition coming in saying rates are going to go down we will give you a better rate than you guys not chasing after that.

Or is it just less demand in the market or I guess sort of what what do you think sort of happened in the fourth quarter that kind of kept that.

Speaker Change: Overall loan growth subdued.

Speaker Change: A couple of things come to mind.

Speaker Change: I have been focusing on our line of credit usage, historically, low and Scott indicated and I agree that.

Speaker Change: So the plows are out, and the heat is on. We also expect, Chris, a 2.5% merit change for our people. And we usually do that toward the tail end of the first quarter, usually the month of March. So we'd expect that on a going forward basis. In terms of how we'll think about incremental hiring for the organization, given there are some headwinds relative to revenue generation, very opportunistic and structural support only. Otherwise, we will be thinking about replacement of the folks that we need within our structure, but in terms of adding people to the organization, opportunistic and, again, necessary structural support. Great, that's helpful. And do you guys have an overall expense growth target, either X or including Salisbury for the full year? You know, Chris, on a full year basis. I'll probably have to come back to you with that one.

Smart customers are using their excess cash too.

Speaker Change: Pay down debt, so we see that.

Speaker Change: Eventually that's going to come back.

Speaker Change: We had a couple of.

Speaker Change: Payoffs in Q.

Speaker Change: Q4 that we did not anticipate.

Speaker Change: I think thats episodic.

Speaker Change: <unk> not added to the loan growth story in Q4.

Speaker Change: I say this all the time, it's brutally competitive out there all the time.

Speaker Change: So do we see.

Speaker Change: Pricing challenges on the loan side that are any different than they have been forever mode, but it's brutally competitive in.

Speaker Change: From a risk management perspective, we're very thoughtful about what we want to do and what we don't want to do.

Speaker Change: What other products and services. We can also offer our customer at the same time to ensure robust profitability with all of our relationships. So.

Speaker Change: I think if we looked at it from the growth of a fourth quarter, full quarter inclusion of Salisbury, you know, if we think about a two and a half percent change on the salaries and benefits line and then maybe something a little smaller than that for the rest of our non-operating expenses, remembering that, you know, we think that we got a full quarter worth of Salisbury costs in there. And honestly, we think we got a full quarter's worth of the cost savings that we thought we would get in the Salisbury acquisition. Great And then on the seasonal muni decline, given the environment and just how difficult it is, I mean, what's the confidence level that that volume is able to come back into the first quarter and rebound? And if so, do you think it'll come back in the same types of products, or will it be higher-yielding types of products?

Speaker Change: Mid single digits for MPT in these markets.

Speaker Change: That's not an unusual year.

Speaker Change: Sometimes a little higher than that.

Speaker Change: But.

Speaker Change: What I do know is the team that is on the ground across all seven states.

Speaker Change: Is ready to and has identified the opportunities that are attractive to us and we will be there at the table when they're off.

Speaker Change: Got it that's helpful. I mean would you say that spreads in general.

Speaker Change: <unk>.

Speaker Change: With the five year coming down on commercial deals.

Speaker Change: The pricing kind of remain sort of sticky, even though even though the five years come down or is it.

Speaker Change: Customers, saying, Hey, wait a second rates have come down you guys got to do a little bit better.

Speaker Change: Yes.

Speaker Change: Alex It's a great question in our customers mind right. We spent the last 15 years with the customer being coached into a spread off the five 3% or 77 point of the curve the mid point of the curve.

Speaker Change: Yeah, so Chris, a really good question. So I think, you know, we don't bank on very, very large municipalities. You know, we tend to bank on counties, towns, villages, and school districts. So as tax collections start to roll in for them, we would expect that they would be using a product mix similar to what they had in the second half of 2023. That being said, most treasury functions are very aware of interest earning opportunities, whether it's on our balance sheet or somewhere else. So I think that goes across our base, not just the municipal base.

Speaker Change: And what did we have to do during part of last year as we had to say we're not sure we're capable of actually living with that outcome for certain of our credits.

Speaker Change: Cuz of where short term pricing was from a funding standpoint.

Speaker Change: And sometimes we have to remind ourselves.

Speaker Change: Higher for longer was the tenant out there through the first of December it wasn't until the first of December where people said Oh, we're going to have this naturally substantial walk down in rates. So if you think about what that was even if we were making commitments under that premise those loans, probably hasnt closed yet anyways.

Speaker Change: Got it and then just last one for me just remaining outlook for this spring stone wind down in terms of charge offs as that portfolio gets lowers your charge offs go down or you think this day in that two $5 million to $3 million a quarter range they've been for the last year or so.

Speaker Change: So I think we're always wary of that. But that being said, I think the pattern of utilization of how organizations have to cashflow themselves is likely to stay very similar. So, you know, after people get done making their real estate payments, you know, toward the end of January, we would expect those levels to kind of move back to where we were in the fourth quarter. As it relates to the commercial side of our customer base, and maybe even the consumer side, we think we saw instances of people using their own money to pay back their debt obligations in the fourth quarter.

Speaker Change: I think we probably expect a couple more quarters and similar to what we incurred in the fourth quarter, but you are right as the asset numbers go down hopefully the amount of things that we end up charging off keeps coming down with it needless to say youre at the back end or at the tail end of that portfolio. So people that have not extinguish their instrument are probably.

Speaker Change: Have some additional credit constraints that maybe some of our broad section customers do not have so.

Speaker Change: We think by the time, we get to the end of the year that will be a subject matter, we're not spending a lot of time talking about anyway.

Speaker Change: You know, people just think about balance sheet efficiency despite the fact that there are still short-term yield opportunities out there that are so much more robust than they enjoyed for the last five or 10 years. But I think, again, it's just the line of, you know, how do our customers handle their treasury efficiency? And obviously, we provide tools for them to do that and give them good advice along the lines of what's the most productive thing for them to do.

Speaker Change: Great. Thanks for taking all my questions.

Speaker Change: Thanks, Alex Thank you.

Speaker Change: And I'm not showing any further questions at this time I will turn the call back over to Mr. John Walsh for closing remarks.

John Walsh: Thank you Norma and thank you all for your interest in <unk>.

John Walsh: We appreciate the opportunity to talk about our story.

John Walsh: 23, <unk> and going forward look forward to having the same opportunity in April.

Speaker Change: Please all have a good day thanks.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

Speaker Change: As the cycle starts to evolve, and maybe we get into a lower rate cycle, I think that's why we can actually go to our customers and say, you know what's happening in the market, because we've been having so much dialogue with them about what's happening on the way up. Great, really helpful. And last one for me. I know you guys give the, you know, fix and floating breakdown of loans. I think it's 39% adjustable or floating.

Speaker Change: But do you have the percentage of loans that would immediately reprice after a fed fund cut? Sure. I think for modeling purposes, I'd use $2 billion of loans that would reprice immediately with a change in Fed funds, which presumes an immediate correlation down in SOFR, in terms of SOFR. So it's mostly commercial loans for us. There's probably some home equity type instruments that are out there, but for us, relatively small.

Speaker Change: Great. Thanks for taking my question. I appreciate it, Chris.

Speaker Change: Thank you. Thanks, Chris. Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone.

Speaker Change: [music].

Speaker Change: One moment for our next question. Our next question comes from Alex Twerdahl from Piper Sandler. Your line is now open. Hey, good morning, all. Good morning, Alex. Good morning.

Speaker Change: Okay.

Speaker Change: [music].

Alexander Roberts Huxley Twerdahl: Back to the NIM conversation. I appreciate all the color you've given so far, but maybe just kind of your thoughts on NIM in the first couple quarters of the year, assuming we don't get any rate cuts until kind of that May timeframe, which I think is what the forward curve says today. Yeah. So, Alex, I think if we were framing it this way, we would say that we have, I think, a much better chance of thinking that our improvement in asset yields with the repricing of new products has a chance to catch back up to where the funding cost increases are. Whether we get there in the first quarter or not, you know, the jury's still out on that.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].

Yes.

[music].

Speaker Change: Okay.

Alexander Roberts Huxley Twerdahl: But I think that, you know, the fact that we've been losing six to nine basis points a quarter on that net change, in other words, asset yields have been followed, you know, new asset yields just haven't kept up with where funding needs to be. I think we've reached a point where stability could be the outcome. So if we were handicapping, you know, net interest margin, you know, somewhere around where we finished in the fourth quarter, plus or minus three or four basis points. Okay.

Alexander Roberts Huxley Twerdahl: And then, you know, just kind of given the commentary and deposits and, you know, sort of trying to rephrase them as quickly as possible, I guess, you know, given we get like one or two rate cuts in May for the third or fourth quarter of the year, do you think you have enough pricing power on the deposits to actually offset that $2 billion of loans that reprice and all the cash that would reprice lower? I think if we have an orderly step down at 25 basis points a quarter or at 25 basis points in one or two or three times, we could be close to that, Alex. I think if we get six or seven cuts and they go much faster, it's much harder to accomplish that because now you're out there multiple times with your deposit customer changing that outcome. Remember, we don't have to have any dialogue with our variable rate asset customer.

Alexander Roberts Huxley Twerdahl: They just get the new rate. So I think it just takes more shepherding in the field. OK. And maybe just a little bit of commentary on sort of the loan growth and sort of what you're seeing out there. Is lower loan growth this quarter more reflective of a little bit more competition coming in saying, you know, rates are going to go down, we'll give you a better rate, and you guys not chasing after that? Or is it just less demand in the market? Or, you know, I guess sort of what I think sort of happened in the fourth quarter that kind of kept that overall loan growth subdued? A couple of things come to mind, Alex.

Speaker Change: [music].

Alexander Roberts Huxley Twerdahl: You know, I've been focusing on line of credit usage, and it's historically low, and Scott indicated, and I agree that smart customers are using their excess cash to pay down debt. So we see that, you know, eventually that's going to come back. You know, we had a couple of payoffs in Q4 that we did not anticipate. You know, I think that's episodic, and it doesn't add to the long growth story in Q4. You know, I say this all the time; it's brutally competitive out there all the time.

Alexander Roberts Huxley Twerdahl: So, do we see pricing challenges on the loan side that are any different than they have been forever? No, but it's brutally competitive, and from a risk management perspective, we're very thoughtful about what we want to do and what we don't want to do and what other products and services we can also offer our customers at the same time to ensure robust profitability with all of our relationships. So mid-single digit for NBT in these markets, that's not an unusual year, sometimes a little higher than that. But what I do know is the team that is on the ground across all seven states is ready to and has identified the opportunities that are attractive to us and will be there at the table when they're offered. Got it. That's helpful. I mean, would you say that it spreads in general?

Speaker Change: You know, with the FIBRA coming down on commercial deals, has the pricing kind of remained sort of sticky, even though the five years have come down? Or is it, you know, are customers saying, wait a second, you know, rates have come down, you guys got to do a little bit better? Yeah, you know, Alex, it's a great question.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: In our customers' minds, right, we, you know, we've spent the last 15 years with the customer being coached into a spread off the five, three, or seven point, seven year point of the curve, the midpoint of the curve. And what we had to do during part of last year was we had to say, we're not sure we're capable of actually living with that outcome for certain of our credits because of where short-term pricing was from a funding standpoint. So, you know, and remind yourself, sometimes we have to remind ourselves, you Higher for longer was the tenant out there through the 1st of December. It wasn't until the 1st of December that people said, oh, we're going to have this naturally substantial walk-down in rates. So if you think about what that was, even if we were making commitments under that premise, those loans probably haven't closed yet anyway. I got it.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: And then just last one for me, just remaining outlook for Springstone's wind down in terms of charge-offs, as that portfolio gets lower, should charges go down? Or do you think this day in that two and a half to three million and a quarter range they've been for the last year or so? I think we probably expect a couple more quarters like what we incurred in the fourth quarter. But you're right, as the asset numbers go down, hopefully the amount of things that we end up charging off keeps coming down with them. Needless to say, you're at the back end or at the tail end of that portfolio, so people that have not extinguished their instruments probably have some additional credit constraints that maybe some of our broad section customers do not have. You know, we think by the time we get to the end of the year, that will be a topic. We're not spending a lot of time talking about it.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Great, thanks for taking all my questions. Thanks Alex. Thank you. And I'm not answering any further questions at this time. I'll turn the call back over to Mr. John Watt for closing remarks. Thank you, Norma.

John Watt: And thank you all for your interest in NBT. And we appreciate the opportunity to talk about our story in 2023, 4Q and going forward. Look forward to having the same opportunity in April. Please, all have a good day.

Speaker Change: Right.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Thanks. This concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: Everyone have a wonderful day, www.larryweaver.com A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? This call is being recorded and has been made accessible to the public in accordance with the SEC's regulation. Corresponding presentation slides may be found on the company's website at nbtbankcorp.com. Before the call begins, NBT's management would like to remind listeners that, as noted on slide 2, today's presentation may contain forward-looking statements as defined by the Securities and Exchange Commission. Actual results may differ from those projected.

Speaker Change: Okay.

Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Good day, everyone and welcome to the conference call covering MBT Bancorp fourth quarter and full year 2023 financial results. This call is being recorded and has been made accessible to the public in accordance with the Sec's regulation FD corresponding presentation slides may be found on the company's website.

Speaker Change: MBT Bancorp Dot com.

Speaker Change: Before the call begins Mbt's management would like to remind listeners.

Speaker Change: <unk> noted on slide two today's presentation may contain forward looking statements as defined by the Securities and Exchange Commission actual results may differ from those projected in addition, non certain non-GAAP measures will be discussed reconciliations for those numbers all contained within the apex apex.

Speaker Change: In addition, certain non-GAAP measures will be discussed. Reconciliations for those numbers are contained within the APICS appendix of today's presentation. At this time, all participants are in a listen-only mode.

Speaker Change: 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 call is being recorded I would now like to turn the conference over to Anne Bt's Bancorp President.

Speaker Change: Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this call is being recorded. I would now like to turn the conference over to NBT's Bank Corp President and Chief Executive Officer John H. Watts, Jr. for the opening remarks. Mr. Watt, you're welcome.

Speaker Change: And Chief Executive Officer, John H Blacks, Jr. For the opening remarks, Mr. Watt Europe. Please begin.

Watt Europe: Good morning, Thank you Norma.

Watt Europe: You all for participating in this earnings call covering MBT Banc Corp's fourth quarter and full year 2023 results.

Speaker Change: Good morning. Thank you, Norma, and thank you all for participating in this earnings call covering NBT Bank Corp's fourth quarter and full year 2023 results. Joining me today are MBT's Chief Financial Officer Scott Kingsley, our Chief Accounting Officer Annette Burns, our Treasurer Joe Ondesco, as well as our President of Retail Banking Joe Stagliani. It was a very active quarter at NBT.

Speaker Change: Joining me today are <unk>, Chief Financial Officer, Scott Kingsley, Our Chief Accounting officer of net Burns, our treasurer, Joe on desktop as well as our president of retail banking Jo Stagg Liana.

Speaker Change: It was a very active quarter at NBC, while navigating the volatile interest rate environment, we observed that the consumer is still spending and that small businesses are still investing.

Speaker Change: At the same time, we continue to experience movement to a normalized pre pandemic credit environment.

Speaker Change: I will note that the successful integration of our August acquisition of Salisbury Bancorp positions <unk> well for growth in adjacent markets and for future strategic growth.

Speaker Change: Let me take a moment to highlight activity across our businesses.

Speaker Change: First.

Speaker Change: Our operating results include earnings per share of <unk> 72 cents for the fourth quarter and $3 23 for the year.

Speaker Change: Return on tangible equity was $15, 7% to 8% for the full year and the year end tangible equity ratio grew 11% to 793%.

Speaker Change: Excluding the Salisbury acquisition, we achieved commercial and consumer loan growth of 4%.

Speaker Change: That growth was diverse with our core commercial lending business banking residential mortgage and indirect auto businesses all participated.

Speaker Change: As noted in 2023, we experienced a resilient consumer and business owner, our indirect auto business had a productive quarter with originations of over $141 million.

Speaker Change: $575 million for the full year.

Speaker Change: Small business originations were up 9% year over year.

Speaker Change: Credit quality at MPT is normalizing, although each of our core credit portfolio continues to perform at levels better than those we experienced prior to the pandemic. We have seen some migration into the critics criticize category in our commercial lending business often has.

Speaker Change: Storage really low base.

Speaker Change: Like the rest of our industry our cost of funds has risen as our customers continue to seek out higher yielding deposit products.

Speaker Change: Our full cycle deposit beta at year end was 28%.

Speaker Change: We continue to enjoy high account retention levels are funding sources are robust and we have the headroom we need to continue to execute on our organic growth plans in 2024.

Speaker Change: Credit quality at NBT is normalizing. Although each of our core credit portfolios continues to perform at levels better than those we experienced prior to the pandemic, we have seen some migration into the criticized category in our commercial lending business, often on a historically low base. Like the rest of our industry, our cost of funds has risen as our customers continue to seek out higher-yielding deposit products. Our full cycle deposit beta at year end was 28%. We continue to enjoy high account retention levels. Our funding sources are robust, and we have the headroom we need to continue to execute on our organic growth plans in 2025. Our fee-based businesses continued their solid performance in Q4 and for the full year. For the year, our combined benefits administration, wealth management, and insurance businesses generated revenues of almost $100 million. Total non-interest income was 29% of total revenue for the full year.

Speaker Change: Our fee based businesses continued their solid performance in Q4 and for the full year.

Speaker Change: For the year, our combined benefits administration wealth management and insurance businesses generated revenues of almost $100 million.

Speaker Change: Total noninterest income was 29% of total revenue for the full year.

Speaker Change: Activity, along the upstate New York Chip corridor was positive in Q4 with large public and private investments being announced.

Speaker Change: Most significantly the Albany Nano-tech complex called New York creates received 10 billion in investment commitments from large semiconductor manufacturers and the federal government.

Speaker Change: The activity.

Speaker Change: Activity along the upstate New York chip corridor was positive in Q4, with large public and private investments being announced. Most significantly, the Albany nanotech complex called New York Creates received $10 billion in investment commitments from large semiconductor manufacturers and the federal government. The activity generated along the CHIP corridor will drive long-term transformational economic growth across our core markets and promote long-term success at NBT. On Monday, our board approved a $0.32 dividend payable in March, which represents a 6.7% increase over the dividend paid in the first quarter of 2023. It's also notable that we marked 11 consecutive years of annual dividend increases in 2023.

Speaker Change: <unk> generated along the chip corridor will drive long term transformational economic growth across our core markets and promote long term success at NBC.

Speaker Change: On Monday, our board approved a 32 said dividend payable in March which represents a six 7% increase over the dividend paid in the first quarter of 2023.

Speaker Change: It's also notable that we marked 11 consecutive years of annual dividend increases in 2023.

Speaker Change: Going into 2024, and BT is positioned with strong liquidity and capital levels, a diversified business mix highly effective risk management practices and an expanded team of experienced professionals.

Speaker Change: I will turn the call over to Scott and an AD to talk in greater detail about the outcomes associated with our financial performance for the fourth quarter and the full year.

Scott Kingsley: Following their remarks, we'll take your questions.

Scott Kingsley: <unk> over to you.

Speaker Change: Thank you John and good morning, everyone turning to the results overview page of our earnings presentation, our fourth quarter earnings per share were <unk> 64 cents.

Speaker Change: Operating earnings per share were <unk>, 72 cents, which excludes <unk> <unk> per share of acquisition expenses securities gains and an impairment of a minority interest equity investment we incurred in the quarter.

The fourth quarter had the full impact of the Salisbury acquisition, which was completed in August of 2023, the fourth quarter operating results were 14.

Speaker Change: And 12 cents lower than the fourth quarter of last year and linked third quarter, respectively. We continue to experience increases in funding costs that have exceeded the improvements in earning asset yields which have challenge net interest income growth tangible book value per share of $21.72 at December 31 was up.

Annette Burns: Thank you, John, and good morning everyone. Turning to the results overview page of our earnings presentation, our fourth-quarter earnings per share were $0.64. Operating earnings per share were $0.72, which excludes $0.08 per share of acquisition expenses, securities gains, and an impairment of a minority interest equity investment we incurred in the quarter.

Speaker Change: $8 33 per share from the end of the third quarter and up $8 seven for the fourth quarter of 2022 the.

Speaker Change: The next page shows trends in outstanding loans total loans were up $1 $5 billion from the fourth quarter of 2022 and included $1 $108 million of loans acquired from Salisbury, Despite productive growth in our indirect auto residential mortgage and commercial real estate portfolios quarter end loans were down 17.

Annette Burns: The fourth quarter had the full impact of the Salisbury acquisition, which was completed in August of 2023. The fourth quarter operating results were $0.14 and $0.12 lower than the fourth quarter of last year and the linked third quarter, respectively. We continue to experience increases in funding costs that have exceeded the improvements in earning asset yields, which have challenged net interest income growth. Tangible book value per share of $21.72 at December 31 was up $1.33 per share from the end of the third quarter and up $1.07 from the fourth quarter of 2022.

From the end of the third quarter and reflected lower commercial line utilization. The continued planned run off of our other consumer loan portfolio and principal amortization of our solar residential loans fourth quarter loan yields were up 11 basis points from the third quarter of 2023 reflective of continued higher new.

Speaker Change: <unk> yields our total loan portfolio of $9 $65 billion remains very well diversified and is comprised of 52% commercial relationships and 48% consumer loans.

Speaker Change: On page six total deposits of $11 billion were up $1 5 billion in 2023 and included $1 3 billion of deposits acquired from Salisbury.

Annette Burns: The next page shows trends in outstanding loans. Total loans were up $1.5 billion from the fourth quarter of 2022 and included $1.18 billion of loans acquired from Salisbury. Despite productive growth in our indirect auto, residential mortgage, and commercial real estate portfolios, quarter-end loans were down $17 million from the end of the third quarter and reflected lower commercial line utilization, the continued plan run-off of our other consumer loan portfolio, and principal amortization of our solar residential. Fourth quarter loan yields were up 11 basis points from the third quarter of 2023, reflective of our continued higher new origination yields. Our total loan portfolio of $9.65 billion remains very well diversified and is comprised of 52% commercial relationships and 48% consumer loans.

Speaker Change: <unk> run off.

Speaker Change: Our quarterly cost of total deposits increased to 151 basis points compared to 118 basis points in the linked third quarter and total cost of funds increased 22 basis points from the prior quarter.

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

Speaker Change: The next slide looks at the detailed changes in our net interest income and margin the fourth quarter net interest income was $4 $3 million above the linked quarter third quarter.

Speaker Change: <unk>, primarily from the full quarter impact of the Salisbury acquisition, which was partially offset by a six basis point decline in our net interest margin during most of the fourth quarter <unk> fed funds sold position, which created incremental interest income given robust short term yields.

Speaker Change: We experienced a slower rate of growth in cost of funds late in the fourth quarter. We continue to expect modest additional funding pressures to persist in 2024.

Annette Burns: Generally, in most of our markets, municipal tax collections are concentrated in the first and third quarters of each year. In addition, following the industry-wide liquidity challenges which arose near the end of the first quarter of 2023, the company proactively added over a quarter million dollars of incremental wholesale deposits. NBT's liquidity profile has continued to remain very stable, and as such, in the fourth quarter, we allowed $132 million of those balances to contractually run off. The company continued to experience remixing from its no-interest and low-interest checking and savings accounts into higher-yielding money market and time deposit instruments again in the fourth quarter. Our quarterly cost of total deposits increased to 151 basis points compared to 118 basis points in the linked third quarter, and total cost of funds increased 22 basis points from the prior quarter. We have included a summary of our deposit mix by type, which illustrates the diversification and deep granularity of our customer base.

Speaker Change: I will now turn it over to Scott to review the rest of the results.

Scott Kingsley: <unk> from a retirement plan administration business were down $1 $6 million from the third quarter and included certain actuarial and compliant services, which are seasonally concentrated in the third quarter our.

Scott Kingsley: Our insurance agency revenues were $700000 lower than the prior quarter, reflecting higher commercial policy renewals in the third quarter.

Annette Burns: The next slide looks at the detailed changes in our net interest income and margins. The fourth quarter net interest income was $4.3 million above the linked third quarter results, primarily due to the full quarter impact of the Salisbury acquisition, which was partially offset by a six basis point decline in our net interest margin. During most of the fourth quarter, NVT took a Fed Fund Sold position, which created incremental interest income given robust short-term yields. Although we experienced a slower rate of growth in the cost of funds late in the fourth quarter, we continue to expect modest additional funding pressures to persist in 2024. I will now turn it over to Scott to review the rest of the results. Thank you, Annette, and good morning, everyone.

Scott Kingsley: Quarter over quarter increases in salaries and employee benefits technology services occupancy advertising in FDIC assessment costs included a full quarter of Salisbury expenses.

As indicated in our earnings release, we did record a full $4 $8 million impairment to our minority interest investment and a provider of financial and technology services to residential solar equipment installers.

Scott Kingsley: Although we believe their technology platform and broad network of installers has demonstrated market acceptance significant challenges and constraints in capital markets has resulted in uncertainties related to their ability to continue ongoing operations.

Scott Kingsley: The trends in non-interest income are summarized on page eight. Excluding securities gains, our fee income was up 3.7 million dollars, or 11 percent from the fourth quarter of 2022 to 38 million dollars, and down 6 percent from the linked third quarter, as expected. Revenues from our retirement plan administration business were down $1.6 million from the third quarter and included certain actuarial and compliance services which are seasonally concentrated in the third quarter. Our insurance agency revenues were $700,000 lower than the prior quarter, reflecting higher commercial policy renewals in the third quarter.

Scott Kingsley: On the next slide we provide an overview of key asset quality metrics, we recorded a loan loss provision expense of $5 1 million in the fourth quarter, which was $1 2 million or <unk>, a share higher than the $3 $9 million provision recorded in the linked third quarter, excluding the Salisbury day, one acquisition related provision.

Scott Kingsley: <unk> in the third quarter.

Scott Kingsley: Net charge offs were 22 basis points in the fourth quarter of 2023 compared to 18 basis points in the prior quarter reserve coverage of 119% of total loans was consistent with the linked third quarter and five basis points lower than the fourth quarter of 2022 reflective of continued portfolio mix changes.

Scott Kingsley: The relationship is being actively managed and recent appraised values continue to support its carrying value.

Scott Kingsley: To productively offset a portion of the challenges on net interest income generation.

Scott Kingsley: Lastly, our post acquisition capital levels continue to put us in a favorable position as we consider future growth and deployment opportunities with that we're happy to answer any questions. You may have at this time Norma. Thank you.

Speaker Change: Remind me to ask a question Youll need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: One moment for your first question. Please.

Speaker Change: And our first question comes from the line of Steve Moss with Raymond James Your line is now open.

Stephen M. Moss: Hi, good morning.

Speaker Change: Good morning, Steve Good morning, Steve.

Stephen M. Moss: Maybe just starting off here with on the funding side of the equation.

Stephen M. Moss: Just curious to where deposit costs ended it ended the quarter and just kind of how youre thinking about the first half of funding costs ahead of potential rate hikes here.

Speaker Change: Yes, so thanks, Steve.

Speaker Change: Part of the question obviously, we ended the year at about a 155 total deposit cost.

Speaker Change: We've watched that screwed up a little bit here as we've started the new year, but not a lot.

Scott Kingsley: On the next slide, we provide an overview of key asset quality metrics. We recorded a loan loss provision expense of $5.1 million in the fourth quarter, which was $1.2 million, or two cents a share, higher than the $3.9 million provision recorded in the linked third quarter, excluding the Salisbury Day 1 acquisition-related provision recorded in the third quarter. Net charge-offs were 22 basis points in the fourth quarter of 2023 compared to 18 basis points in the prior quarter.

Speaker Change: The pressure that seems more pronounced through the mid October mid November timeframe appears to be dissipating.

So we're holding much closer to stability.

Speaker Change: From a rate standpoint, and our balances standpoint.

Speaker Change: Okay.

Speaker Change: Got it and then just as we think about rate cuts here.

Speaker Change: If we get.

Speaker Change: That starts cutting rates, just kind of curious as to how youre thinking about the margin and.

Speaker Change: And maybe how quickly you might pivot on on the funding costs going forward.

Speaker Change: Against the really the important thing for us from a pricing standpoint.

Scott Kingsley: Reserve coverage of 1.19 percent of total loans was consistent with the length of the third quarter and five basis points lower than the fourth quarter of 2022, reflective of continued portfolio mix change. We believe that charge-off activity will continue to return to more historical norms, and expected balance sheet growth and continued mixed changes will likely be the drivers of future provisioning needs. Non-performing loans increased $13.6 million from the end of the third quarter, attributable to a single diversified multi-tenant commercial real estate development relationship in which we are a participant, which was placed into non-accrual status during the quarter.

Speaker Change: We have on a forward look we've presumed that there are fed rate declines in 2024.

Speaker Change: The forward curve suggests six or seven.

Speaker Change: <unk> suggests half of that.

Speaker Change: We're probably forecasting somewhere in the middle.

Speaker Change: So for us if those rate cuts start it gives us an opportunity to have a dialogue with our customers relative to lowering funding costs, we can get out in front of that on time deposits.

Speaker Change: For so for expiring time deposits short term Cds, we can set different rates upon exploration and we're in the process of doing that the opportunity for us to lower cost truly comes from our money market portfolio, a little over $3 billion of funds that have a high 3%.

Speaker Change: Cost attached to them currently that once we start to get some momentum on the downside thats. The group that we can discretionary we start to move and simultaneous have really logical discussions with our customer.

Speaker Change: No.

Speaker Change: Scott I appreciate that.

Speaker Change: On the on the lending side, just curious where.

Speaker Change: How youre feeling about the loan pipeline and the thoughts around the outlook for growth here I realized it looks like the solar piece is going to be in a bit of a run off mode.

Speaker Change: It's a little bit of a headwind or just kind of curious on.

Speaker Change: So think about all of that.

Steve Here's how we're thinking about the year.

Stephen M. Moss: Mid single digit growth still achieve a very achievable.

Speaker Change: Yes.

Speaker Change: The year over year pipelines slightly lower going into first Q, but.

Speaker Change: <unk> in the markets we serve.

Speaker Change: First Q is slower than the rest of the year. So we would expect they will pick up on the business banking side.

Norma: Thank you. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please wait for your name to be announced.

They had a really strong year last year that we fully expect that's going to carryover into.

Speaker Change: 2024, so for the core business mid single digits is how we're thinking about.

Norma: Please stand by while we compile the Q&A roster. One moment for our first question. And our first question comes from the line of Steve Moss with Raymond James. Your line is now open. Good morning.

Speaker Change: Okay, great. Thank you very much I appreciate all the color.

Speaker Change: Thanks, Andy I appreciate the question.

Stephen M. Moss: Morning, Steve. Maybe just starting off here with, uh, on the funding side of the equation, you know, I'm just curious about where deposit costs ended at the end of the quarter and just kind of how you think about the first half of funding costs ahead of potential rate hikes. Yeah, so thanks, Steve. You know, pertinent question: obviously, we ended the year at about a 155 total deposit cost. You know, we've watched that scoot up a little bit here as we start the new year, but not by much. The pressure that seems more pronounced through the mid October, mid November timeframes appears to be dissipating. And, you know, we're holding much closer to stability, both from a rate standpoint and a balance standpoint. I got it.

Speaker Change: Thank you one moment our next question please.

Speaker Change: Our next question comes from the line of Chris O'donnell with K BW. Your line is now open.

Chris O'donnell: Hey, good morning.

Chris O'donnell: And congrats to Chris.

Chris O'donnell: John on the retirement announcement and Scott net Joe on the promotions.

Speaker Change: Thank you, Chris and thanks, Chris.

Speaker Change: So just wanted to.

Speaker Change: Start off on the fee side.

Speaker Change: You guys mentioned, some seasonality that occurred in the fourth quarter.

Speaker Change: On the insurance and benefit plan ahead, and just hoping to get where you think those could rebound two as a starting point for <unk>.

Speaker Change: So we like to think about 2020, <unk> run rate by starting with combining the third and fourth quarter.

Speaker Change: Average as the third and fourth quarter together as kind of the base run rate.

Speaker Change: And then kind of think about it mid mid single digit growth rate off of that base and that's kind of how we're thinking about the 2025 run rate.

Stephen M. Moss: And then just as we think about rate cuts here, you know, if we get, you know, the Fed starts cutting rates, just kind of curious as to, you know, how you're thinking about the margin and, you know, maybe how quickly you might pivot on the funding costs going forward. Again, Steve, really, you know, the important thing for us, you know, from a pricing standpoint, we have, on a forward look, we presume that there will be Fed rate declines in 2024. You know, the forward curve suggests six or seven, the dot plot suggests half of that, and we're probably forecasting somewhere in the middle.

Speaker Change: Okay got it.

Okay.

Speaker Change: And then.

Speaker Change: As far as the expenses.

Speaker Change: I know that there was some cleanup and some expense as mentioned.

Speaker Change: The Salisbury acquisition.

Speaker Change: They brought some things up in the fourth quarter.

Speaker Change:

Speaker Change: Can you just remind us as to like how much of that maybe it comes out and whether there are some offsets and where we could start off the year on the expense side.

Speaker Change: Sure, Chris I'll take a run at that one.

Speaker Change: So yes.

Historically and.

Speaker Change: Similar to our fourth quarter. This year were a little seasonally higher and operating expenses in the fourth quarter some of that relates to finishing out certain initiatives.

Speaker Change: Maybe a little bit more pronounced this year because some of the things that we're working on internally.

Stephen M. Moss: So for us, you know, if those rate cuts start, it gives us an opportunity to have a dialogue with our customers relative to lowering funding costs. We can get out in front of that on time deposits, you know, for expiring time deposits, short-term CDs, we can set different rates upon expiration. And we're in the process of doing that. The opportunity for us to lower costs truly comes from our money market portfolio, you know, a little over $3 billion of funds that have a high 3% cost attached to them currently. Once we start to get some momentum on the downside, that's the group that we can discretionarily start to move and simultaneously have really logical discussions with our customers. Okay, that's helpful, Scott. I appreciate that.

We've put aside as we finished the Salisbury transaction a couple of things to think about.

Speaker Change: So as we think about that quarter, and 87% and have $88 million run rate when we roll into the first quarter with the exception of reminding everyone again, usually for us in the first quarter, we pick up a couple cents a share additional costs associated with payroll taxes in the first quarter in stock based compensation.

Speaker Change: We usually have another <unk> <unk> per share in incremental seasonal utility costs. Yes. It has started to snow in upstate New York.

Speaker Change: The clouds are out in the heat is on.

Speaker Change: And on the lending side, just curious where you are feeling about the loan pipeline. And, you know, the thoughts around the outlook for growth here. I realized, you know, the solar piece is going to be in a bit of a runoff mode. So that might be a little bit of a headwind. I'm just kind of curious how things go about all that.

Speaker Change: We also expect Chris a two 5% merit change for our people and we usually do that towards the tail end of the first quarter, usually the month of March. So we would expect that on a going forward basis.

Speaker Change: In terms of how we will think about.

Speaker Change: Incremental hiring for the organization given there are some headwinds relative to revenue generation very opportunistic and structural support only.

Speaker Change: Steve, here's how we're thinking about the year. Mid-single-digit growth is still very achievable. The year-over-year pipelines are slightly lower going into first Q, but traditionally, in the markets we serve, first Q is slower than the rest of the year. So we would expect they'll pick up. On the business banking side, you know, they had a really strong year last year.

Speaker Change: Great. That's helpful and do you guys have.

Speaker Change: Overall expense growth target, either X or including Salisbury for the full year.

Speaker Change: Chris on a full year basis, probably have to come back to you with that one I think if we looked at it from a growth off of fourth quarter full quarter inclusion of Salisbury.

Stephen M. Moss: That we fully expect that it's going to carry over into 2024. So for the core business, mid-single digits is how we're thinking about it. Okay, great. Thank you very much. I appreciate all the color.

Speaker Change: If we think about a two and a half or so percent change on the salaries and benefits line and then maybe something a little smaller than that for the rest of our non operating expenses.

Speaker Change: Thank you, Steve. I appreciate the questions. Thank you. One moment for our next question. Our next question comes from the line of Chris O'Donnell with KBW. Your line is now open. Hey, good morning.

Speaker Change: Remembering that we think we got a full quarter's worth of Salisbury costs in there and honestly, we think we've got a full quarter worth of the cost savings that we thought we would get in the Salisbury acquisition.

Speaker Change: Great.

Chris O'donnell: Congratulations, John, on the retirement announcement and Scott, Annette, and Joe on the promotion. Thank you, Chris. Thanks, Chris. So just wanted to start off on the fee side. I know that you guys mentioned some seasonality that occurred in the fourth quarter on the insurance and benefit plan. Just hoping to get you know where you think those could rebound to as a starting point for one.

Speaker Change: And then on the on the seasonal Muni decline.

Speaker Change: Given the environment.

Speaker Change: Just how difficult it is I mean, what's the confidence level that that.

Speaker Change: Volume is able to come back in to the first quarter.

Speaker Change: And rebound and if so do you think it will come back and the same types of products or will it be.

Speaker Change: Higher yielding types of products, yes, so Chris it really good question. So I think as you know.

Speaker Change: So we like to think about 2024's run rate by starting with combining the third and fourth quarter averages as a third and fourth quarter together as kind of the base run rate, and then kind of think about a mid single-digit growth rate off of that base. And that's kind of how we're thinking about the 2024 run rate. Okay, got it, um, And then... As far as the expenses go, I mean, I know that there was some cleanup and some expenses mentioned, you know, post the Salisbury acquisition, that they brought some things up in the fourth quarter. Can you just remind us as to how much of that maybe comes out and whether there's some offsets and where we could start off the year on the expense side? Sure, Chris, I'll take a run at that one.

Speaker Change: We don't bank very very large municipalities.

Speaker Change: We tend to bank counties towns villages school districts, So as tax collections start to roll in for them. We would expect that they will be using a product mix similar to what they had.

Speaker Change: In the second half of 2023.

Speaker Change: Being said most treasury functions are very aware of it.

Speaker Change: Interest, earning opportunities whether it's on our balance sheet or someplace else. So I think that goes across our base not even just the municipal base.

Speaker Change: So I think we're always wary of that but that being said.

Speaker Change: I think the pattern of utilization of how organizations have to cash flow themselves is likely to stay very similar so.

Speaker Change: We think we saw instances of people using their own money to pay back their debt obligations in the fourth quarter.

Speaker Change: So yes, historically, and similar to our fourth quarter this year, we're a little seasonally higher in operating expenses in the fourth quarter. Some of that relates to finishing out certain initiatives. It was probably a little bit more pronounced this year because some of the things that we were working on internally, we put aside as we finished the Salisbury transaction. A couple of things to think about, as it relates to customer retention and branding activities, those were a little higher for us in the fourth quarter than they would have been otherwise, because we were focused on the Salisbury customer as well, both from a retention standpoint and growing in some additional new markets So as we think about that quarter end, 87 and a half cents a share additional costs associated with payroll taxes in the first quarter and stock-based compensation. We usually have another one cent a share in incremental seasonal utility costs. Yes, it has started to snow in upstate New York, so the plows are out, and the heat is on.

Speaker Change: But I think again, it's just a line of how does how do our customers handled their treasury efficiency and obviously, we provide tools for them to do that and give them. Good advice along the lines of what's the most productive thing for them to do.

Speaker Change: As the cycle starts to evolve and maybe we get into a lower rate cycle I think thats why we can actually go to our customer and say you know what's happening in the market because we've been having so much dialogue with them about what's happening on the way up.

Speaker Change: Great really helpful and last one for me I know you guys give the fixed and floating breakdown.

Speaker Change: Loans, I think it's 39% adjustable or floating.

Speaker Change: But do you have the percentage of loans.

Speaker Change: That would immediately reprice.

Speaker Change: After a fed funds cut.

Speaker Change: Sure I think for modeling purposes, I would use $2 billion of.

Speaker Change: Of loans that would reprice immediately with the change in fed funds, which presumes, an immediate and correlation down in sulfur.

Speaker Change: We also expect, Chris, a two and a half percent merit change for our people, and we usually do that toward the tail end of the first quarter, usually the month of March. So we'd expect that on a going forward basis. You know, in terms of how we'll think about incremental hiring for the organization, given there are some headwinds relative to revenue generation, very opportunistic and structural support only. Otherwise, we will be thinking about replacement of the folks that we need within our structure, but in terms of adding people to the organization, opportunistic and again, a necessary structural add. Great, that's helpful. And do you guys have an overall expense growth target, either X or including Salisbury for the full year? You know, Chris, on a full year basis. I'll probably have to come back to you with that one.

Speaker Change: In terms ofer.

Speaker Change: So it's mostly commercial loans for us, there's probably some home equity type instruments that are out there, but for us relatively small.

Speaker Change: Great. Thanks for taking my questions I appreciate it great. Thank you. Thanks, Chris Thank you.

Speaker Change: Reminder, to ask a question you will need to press star one one on your telephone.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Alex <unk> from Piper Sandler.

Alex: Your line is now open.

Alex: Hey, good morning, all.

Alex: Good morning, Alex Good morning.

Speaker Change: With respect to the sort of the NIM the NIM conversation I appreciate all the color you've given so far but.

Speaker Change: Yeah, So Alex I think if we were framing it this way we would say that.

Speaker Change: We have I think a much better chance of thinking that our improvement in asset yields with the repricing of.

New product has a chance to catch back up to where the funding cost increases or whether we get there in the first quarter or not.

Speaker Change: Jury's still out on that but I think that the fact that we've been losing six to nine basis points a quarter on that net change in other words asset yields have been following new asset yields just haven't kept up with where funding needs that need to be I think we've reached a point where stability could be the outcome. So if we were handicapping net interest margin.

Speaker Change: Somewhere around where we finished in the fourth quarter, you know plus or minus three or four basis points.

Speaker Change: Okay.

Speaker Change: Then.

Speaker Change: Just kind of given the commentary on deposits.

Sort of trying to replace them as quickly as possible I guess.

Speaker Change: Given we get like one or two rate cuts in May you know for like a third fourth quarter of the year.

Speaker Change: Yeah, so Chris, a really good question. So I think, as you know, we don't bank very, very large municipalities. You know, we tend to bank on counties, towns, villages, and school districts. So as tax collections start to roll in for them, we would expect that they would be using a product mix similar to what they had in the second half of 2023. That being said, most treasury functions are very aware of interest earning opportunities, whether it's on our balance sheet or somewhere else. So I think that goes across our base, not just the municipal base. So I think we're always wary of that. But that being said, I think the pattern of utilization of how organizations have to cash flow themselves is likely to stay very similar.

Do you think you have enough pricing power on the deposits to actually offset that $2 billion of.

Speaker Change: Loans that reprice and all the cash that would reprice lower.

Speaker Change: I think if we have an orderly step down at 25 basis points, a quarter or a 25 basis points.

Speaker Change: No.

One or two or three times, we could be close to that Alex I think if we get six or seven cuts and they go much faster, it's much harder to accomplish that.

Speaker Change: Because now Youre out there multiple times with your deposit customer changing that outcome remember, we don't have any dialogue with our variable rate.

Speaker Change: Asset customer they just get the new rate.

Speaker Change: So I think it just takes more shepherding in the field.

Speaker Change: Okay.

Speaker Change: And maybe just a little bit of commentary on sort of the loan growth and sort of what youre seeing out there.

Speaker Change: So, you know, after people get done making their real estate payments, you know, toward the end of January, we would expect those levels to kind of move back to where we were in the fourth quarter. As it relates to the commercial side of our customer base, and maybe even the consumer side, we think we saw instances of people using their own money to pay back their debt obligations in the fourth quarter.

Speaker Change: As lower loan growth this quarter more reflective of a little bit more competition coming in saying rates are going to go down we will give you a better rate than you guys not chasing after that.

Speaker Change: Or is it just less demand in the market or I guess sort of what what do you think sort of happened in the fourth quarter that kind of get that.

Speaker Change: Overall loan growth subdued.

Speaker Change: A couple of things come to mind Alex.

Speaker Change: I have been focusing on our line of credit usage.

Speaker Change: Historically, low and Scott indicated and I agree that.

Speaker Change: Smart customers are using their excess cash to pay.

Speaker Change: Pay down debt, so we see that.

Speaker Change: Eventually that's going to come back.

Speaker Change: We had a couple of <unk>.

Speaker Change: Payoffs in.

Speaker Change: Q4 that we did not.

Speaker Change: Dissipate.

Speaker Change: I think thats episodic.

Speaker Change: <unk> not added to the loan growth story in Q4.

Speaker Change: I say this all the time, it's firmly competitive out there all the time.

Or do we see.

Speaker Change: Pricing challenges on the loan side that are any different than they have been forever mode, but it's brutally competitive in.

Speaker Change: From a risk management perspective, we're very thoughtful about what we want to do and what we don't want to do.

Speaker Change: What other products and services. We can also offer our customer at the same time to ensure robust profitability with all of our relationships. So.

Speaker Change: Mid single digits for MPT in these markets.

Speaker Change: Great. Thanks for taking my question. Appreciate it, Chris. Thank you. Thank you, Chris. Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone.

Speaker Change: That's not an unusual year.

Speaker Change: Sometimes a little higher than that.

Speaker Change: But.

Speaker Change: What I do know is the team that is on the ground across all seven states.

Speaker Change: One moment for our next question. Our next question comes from Alex Twerdahl from Piper Sandler. Your line is now open. Hey, good morning, all. Good morning, Alex. Good morning.

Speaker Change: Is ready to and has identified the opportunities that are attractive to us and we'll be there at the table when theyre up.

Alexander Roberts Huxley Twerdahl: Just back to the NIM conversation, I appreciate all the color you've given so far, but maybe just kind of your thoughts for NIM in the first couple quarters of the year, assuming we don't get any rate cuts until kind of that May timeframe, which I think is what the forward curve says today. Yeah, so Alex, I think if we were framing it this way, we would say that we have a, I think, a much better chance of thinking that our improvement in asset yields with the repricing of new products has a chance to catch back up to where the funding cost increases are. Whether we get there in the first quarter or not, you know, the jury's still out on that, but I think that, you know, the fact that we've been losing six to nine basis points a quarter on that net change, in other words, asset yields have been followed, you know, new asset yields just haven't kept up with where funding needs to be. I think we've reached a point where stability could be the outcome.

Speaker Change: Got it that's helpful. I mean would you say the spreads in general.

Speaker Change: With the five year coming down on commercial deals.

Speaker Change: Is the pricing kind of remain sort of sticky, even though even though the five years come down or is it.

Speaker Change: Our customers, saying, Hey, wait a second rates have come down you guys got to do a little bit better.

Speaker Change: Yes.

Speaker Change: And what did we have to do during part of last year as we had to say we're not sure we're capable of actually living with that outcome for certain of our credits.

Speaker Change: Cause of where short term pricing was from a funding standpoint.

Speaker Change: So.

Speaker Change: Sometimes we have to remind ourselves.

Speaker Change: Higher for longer was the tenant out there through the first of December it wasn't until the first of December where people said Oh, we're going to have this naturally substantial walk down in rates. So if you think about what that what even if we were making commitments under that premise those loans, probably hasnt closed yet anyways.

Alexander Roberts Huxley Twerdahl: So if we were handicapping, you know, net interest margin, you know, somewhere around where we finished in the fourth quarter, plus or minus three or four basis points. Okay. And then, you know, just kind of given the commentary and deposits and, you know, sort of trying to rephrase them as quickly as possible, I guess, you know, given we get like one or two rate cuts in May for the third or fourth quarter of the year, do you think you have enough pricing power on the deposits to actually offset that $2 billion of loans that reprice and all the cash that would reprice lower? I think if we have an orderly I think if we get six or seven cuts and they go much faster, it's much harder to accomplish that because now you're out there multiple times with your deposit customer changing that outcome. Remember, we don't have to have any dialogue with our variable rate asset customer.

Speaker Change: Got it and then just last one for me just remaining outlook for the spring stone wind down in terms of charge offs as that portfolio gets lowers your charge offs go down or you think this day in that two $5 million to $3 million a quarter range they've been for the last year or so.

I think we probably expect a couple more quarters and similar to what we incurred in the fourth quarter, but you are right as the asset numbers go down hopefully the amount of things that we end up charging off keeps coming down with it needless to say youre at the back end or at the tail end of that portfolio. So people that have not extinguish their instrument are probably.

Speaker Change: Some additional credit constraints that maybe some of our broad section customers do not have so.

We think by the time, we get to the end of the year that will be a subject matter, we're not spending a lot of time talking about anyways.

Alexander Roberts Huxley Twerdahl: They just get the new rate. So I think it just takes more shepherding in the field. Okay, and maybe just a little bit of commentary on sort of the loan growth and sort of what you're seeing out there. You know, is lower loan growth this quarter more reflective of a little bit more competition coming in saying, you know, rates are going to go down, we'll give you a better rate, and you guys not chasing after that? Or is it just less demand in the market? Or, you know, I guess sort of what do you think sort of happened in the fourth quarter that kind of kept that overall loan growth subdued? A couple of things come to mind, Alex.

Speaker Change: Great. Thanks for taking all my questions.

Speaker Change: Thanks, Alex Thank you.

Speaker Change: And I'm not showing any further questions at this time I will turn the call back over to Mr. John Walsh for closing remarks.

John Walsh: Thank you Nora and thank you all for your interest in <unk> and we appreciate the opportunity to talk about our story.

John Walsh: 2023, <unk> and going forward look forward to having the same opportunity in April.

Speaker Change: Please fall have a good day thanks.

Alexander Roberts Huxley Twerdahl: You know, I've been focusing on line of credit usage, and it's historically low, and Scott indicated, and I agree that smart customers are using their excess cash to pay down debt. So we see that, you know, eventually that's going to come back. You know, we had a couple of payoffs in Q4 that we did not anticipate. I think that's episodic, not added to the long growth story in Q4. You know, I say this all the time, it's brutally competitive out there all the time.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.

Speaker Change: You know, with FIBRA coming down on commercial deals, has the pricing kind of remained sort of sticky, even though the five years have come down? Or are our customers saying, wait a second, you know, rates have come down. You guys have to do a little bit better.

Speaker Change: Yeah, you know, Alex, it's a great question. In our customers' minds, right? We've spent the last 15 years with the customer being coached into a spread off the 5, 3, or 7 year point of the curve, the midpoint of the curve. And what we had to do during part of last year was we had to say we're not sure we're capable of actually living with that outcome for certain of our credits because of where short-term pricing was from a funding standpoint. So, you know, sometimes we have to remind ourselves. Higher for longer was the tenant out there through the 1st of December.

Speaker Change: It wasn't until the 1st of December that people said, oh, we're going to have this naturally substantial walk-down in rates. So if you think about what that was, even if we were making commitments under that premise, those loans probably haven't closed in anyway. Got it. And then, last one for me, just the remaining outlook for Springstone's wind down in terms of charge-offs. As that portfolio gets lower, should charge-offs go down, or do you think they'll stay in that $2.5 to $3 million a quarter range they've been for the last year or so? I think we probably expect a couple more quarters like what we incurred in the fourth quarter. But you're right, as the asset numbers go down, hopefully, the amount of things that we end up charging off keeps coming down with it. Needless to say, you're at the back end or at the tail end of that portfolio, so people that have not extinguished their instruments probably have some additional credit constraints that maybe some of our broad section customers do not have.

Speaker Change: You know, we think by the time we get to the end of the year, that will be a topic. We're not spending a lot of time talking about it. Great, thanks for taking all my questions. Thanks Alex. Thank you. And I'm not taking any further questions at this time. I'll turn the call back over to Mr. John Watt for closing remarks.

John Watt: Thank you, Norma. And thank you all for your interest in NBT. We appreciate the opportunity to talk about our story in 2023, 4Q and going forward. Look forward to having the same opportunity in April. Please all have a good day. Thanks. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.

Q4 2023 NBT Bancorp Inc Earnings Call

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