Q4 2024 NBT Bancorp Inc Earnings Call
Good day everyone. Welcome to the conference call covering NBT, Bancorp's fourth quarter, and full year 2024 financial results.
This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD.
Speaker Change: Before the call begins, MBT'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.
Speaker Change: Actual results may differ from those projected. In addition, certain non-GAP measures will be discussed.
Speaker Change: Reconciliations for these numbers are contained within the appendix of today's presentation. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time.
As a reminder, this call is being recorded.
Speaker Change: I will now turn the conference over to NBT Bancorp President and CEO Scott Kingsley for his opening remarks. Mr. Kingsley, please begin.
Scott Kingsley: Thank you Daniel. Good morning and thank you for joining us this morning. With me and Snowy Norwich today are NBT's Chief Financial Officer Annette Burns and Joe Stagliano, President of NBT Bank NA.
Scott Kingsley: Our operating performance for the quarter and full year 2024 continue to reflect the strength of our balance sheet, our diversified business model, and the collaboration and diligence of our team.
Scott Kingsley: During the fourth quarter, we productively grew loans, improved our funding profile, and boosted net interest margin for the third consecutive quarter. Incrementally lower funding costs more than offset a five basis points decline in earning asset yields.
Scott Kingsley: Non-interest income continued to be a highlight, making up 30% of total revenues for 2024, with each of our non-banking businesses achieving new record years for revenue and earnings generation.
Scott Kingsley: We also declared a $0.34 quarterly cash dividend to shareholders, which was 6.3% above the $0.32 dividend we declared in last year's first quarter.
Scott Kingsley: This represents our 12th consecutive year of annual dividend increases and it demonstrates our commitment to provide consistent and favorable long-term returns to our shareholders.
Scott Kingsley: We added $100 million to shareholders' equity in 2024 from productive earnings generation despite the higher level of dividends paid, adding to our already desirable level of capital flexibility.
Activity continued to progress.
Scott Kingsley: to progress across upstate New York's semiconductor chip corridor in the fourth quarter, including several announcements about new expansion and structural investments, as well as certain site-specific milestones being reached at Micron's planned complex outside of Syracuse.
Scott Kingsley: NBT is uniquely positioned to play a significant role in providing financial services to all types of customers and prospects living and working along the upstate New York semiconductor chip corridor.
Scott Kingsley: In September, we announced that NBT reached an agreement to merge with Evans Bank Corp, a $2.3 billion community bank headquartered in Williamsville, New York. Our partnership with Evans is a natural geographic expansion of NBT's footprint into the western region of New York.
Scott Kingsley: Expanding into Buffalo and Rochester, Upstate New York's largest markets by population, complements our meaningful presence in Central New York, the Capital District, and the Hudson Valley, and it will position us as the community bank with the largest deposit market share in Upstate New York.
Scott Kingsley: In December, we received the required regulatory approvals to proceed with the merger, as well as approval from Evans Shareholders, who demonstrated strong support for the partnership.
Scott Kingsley: We continue to work toward a second quarter 2025 closing and a concurrent core systems conversion.
Scott Kingsley: Our transition and integration activities with the Evans team these past four months have reaffirmed our belief that they are a customer, employee, and community-focused organization with dedicated and talented professionals.
Scott Kingsley: At this time I'll turn the meeting over to Annette to review our fourth quarter results with you in detail. Annette?
Thank you, Scott, and good morning.
Annette Burns: Turning to the results overview page of our earnings presentation, for the fourth quarter, we reported net income of $36 million, or $0.76 per share.
Annette Burns: Excluding merger costs and securities gains, our operating earnings per share were $0.77, a decrease of $0.03 per share compared to the prior quarter.
Annette Burns: Tangible book value per share of $23.88 as of December 31st was up 5 cents per share from the end of the third quarter marking another all-time high for NBT.
Annette Burns: The next page shows trends in outstanding loans. Total loans were up $319 million for the year, or 3.3%. It included growth in our C&I, commercial real estate, indirect auto, and residential lending portfolios.
Annette Burns: Our loan portfolio of $10 billion remains very well diversified and is comprised of 53% commercial relationships and 47% consumer loans.
Annette Burns: Fourth quarter loan yields declined by nine basis points from the third quarter of 2024.
Annette Burns: as approximately $2.1 billion of loans repriced downward with a decrease in short-term rates, partially offset by the reinvestment of earning asset cash flows into instruments with rates higher than existing portfolio yields.
Annette Burns: On page 6, total deposits of $11.6 billion were up $578 million, or 5.3%.
Annette Burns: from the December 2023 timeframe. 58% of our deposit portfolios consist of no and low-cost checking and savings accounts, and 42% in time and money market accounts.
Annette Burns: The company's quarterly cost of total deposits decreased 12 basis points from the third quarter to 1.60%.
Annette Burns: primarily due to a decrease in the cost of deposits and a more favorable funding mix, including increases in demand deposits.
Annette Burns: The fourth quarter's net interest income was $4.4 million above the length third quarter.
Annette Burns: The primary drivers to the increase in net interest income were the decrease in the cost of interest-bearing liabilities and the $257.5 million growth in average earning assets.
Annette Burns: Our asset liability management positioning remains fairly neutral, with approximately $2.1 billion in variable rate loans repricing almost immediately, with changes in short-term rates.
Annette Burns: which requires us to actively manage our funding costs downward to more than offset that impact, as evidenced by the 12 basis point decline in our deposit costs for the quarter.
Annette Burns: As a reminder, approximately $5 billion of our deposits are price sensitive. The amount of potential positive lift in yield from the reinvestment of loan portfolio cash flows will be dependent on the shape of the yield curve.
The trends in non-interest income are outlined on page 8.
Annette Burns: Excluding securities gains and losses, our fee income was $42.2 million, an increase of 11.1% compared to the fourth quarter of 2023, but, consistent with prior years, was seasonally lower than the previous quarter.
Annette Burns: Total operating expenses, excluding merger costs, were $99.8 million for the quarter, a 4.8% increase above the linked third quarter.
Annette Burns: This increase is primarily driven by higher health and welfare costs and an increase in other employee benefits, including higher levels of performance-based incentive compensation.
Slide 10 provides an overview of key asset quality metrics.
Annette Burns: We recorded a loan loss provision expense of $2.2 million in the fourth quarter, which was $700,000 lower than the prior quarter. This decrease was primarily due to the runoff of the other consumer and residential solar portfolios, partially offset by a higher level of net charge-offs.
Annette Burns: Net charge-offs to total loans were 23 basis points in the fourth quarter of 2024, compared to 16 basis points in the prior quarter.
Annette Burns: The increase in net charge-offs during the quarter was driven by two commercial relationships totaling $2.4 million, of which $1.7 million was previously specifically reserved.
Annette Burns: Non-performing assets to total assets increased $14.4 million from the prior quarter attributable to a commercial real estate relationship that was placed into non-accrual status in the fourth quarter of 2024.
Annette Burns: This relationship is being actively managed, and its remaining carrying value is supported by the fair value of the underlying real estate.
Annette Burns: Reserve coverage was 1.16% of total loans and covered more than two times the level of non-performing loans. We believe that the expected balance sheet growth and continued changes in loan mix will be the drivers of future provisioning needs.
Annette Burns: In closing, Net Interest Margin and Net Interest Income trends are positive with growth for the three consecutive quarters. Our well-balanced loan growth, granular deposit base, stable asset quality trends, and strong fee income generation contributed to our solid operating performance in 2024.
Annette Burns: The continued strength of our capital position has provided the flexibility to deliver 12 consecutive years of dividend increases to our shareholders, the ability to support organic growth and to capitalize on opportunities, all while effectively managing risk.
Annette Burns: Thank you for your continued support, and at this time, we welcome any questions you may have.
Annette Burns: Thank you. Anyone with a question at this time can press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again.
One moment for our questions.
unknown: And our first question comes from Steve Moss with Raymond James. Your line is open.
Good morning. Hey, good morning, Steve.
Steve: Morning, Scott. Morning, Annette. Maybe just, you know, starting off on the margin here, you know, good margin trends. Just kind of curious, you know, you've talked in the past about, call it $2 billion in annual cash flows, repricing up 75 to 100 base points. Just kind of curious.
unknown: if that trend remains the same or, you know, kind of where loan pricing is these days.
unknown: That's correct. I think that's spot on. We have right around $2.2 billion in loans, cash flowing annually. We expect those to reprice into higher rates and, you know, depending on the shape of the yield curve, we typically price between that.
two to five to seven year on the
on the curb.
unknown: And you're correct as well, you know, if you look at our new volume rates versus our portfolio rates, you know, for auto we're probably 50 basis points higher, commercial 75 to 100 basis points higher, and residential still about 200 basis points higher.
unknown: In addition, we also have investment securities cash flows that come in right around $325 million expected for 2025.
unknown: So, Steve, to follow up on Annette's comment to your question, yes, you know, $2.1 billion of commercial relationships that are essentially SOFR-based, and so they will change anytime there's a change in short-term rates.
unknown: five-year or seven-year type renewal window, you know, over the course of the next year or two, but generally that's what comes down immediately. And we probably experienced 65 to 75 percent of that in the fourth quarter based on the 100 basis points of change that's happened since September.
Okay, great.
unknown: And then on the expense side, you know, expenses stepped up this quarter. You know, I realize there's various things on the compensation side and other just kind of curious how you guys are thinking about the run rate for you guys on a standalone basis going forward.
Speaker Change: Sure, Steve. I think if we were to look at the run rate of the last two quarters, you're correct, the fourth quarter had some higher levels of incentive compensation and a little bit of noise and other expenses, but if we took an average of the last two quarters run rate, that's somewhere in the 97 to 99.
a million dollars a quarter.
Speaker Change: We think that that's probably a good place to think about at least the first half of the year.
Speaker Change: Just to remember a few things that happened in the first quarter.
Speaker Change: higher payroll costs, higher stock-based compensation costs, a little bit higher occupancy costs around snow removal and heating and things like that.
Speaker Change: So the first quarter might pick up a little higher, closer to the $99 million, and then on average, if you took a 4% to 5% increase on our full year 2024 run rate, that's probably
where we're thinking operating costs will be for 2025.
Okay.
Speaker Change: Great, appreciate that. And just one one last one for me here, just in terms of the loan loss reserve ratio trends, you know, just kind of curious.
Speaker Change: the drivers of the decline in the consumer portfolio. I realize that's in runoff.
Speaker Change: But I guess it was a bit more of a step off than I was thinking would happen here. And also, you know, it looks like some of the decline in the CRE was related to that charge-off on not performing. Just curious, you know, do you build back the reserve on commercial real estate over time?
Speaker Change: You're correct, the decrease in the coverage ratio related to CREs
Speaker Change: directly related to the release of that specific reserve as we charge that portion of the loan down.
Speaker Change: So I think that if you were to look at that, X that.
Speaker Change: It's pretty consistent with where we were, so, you know, we feel like we're adequately reserved in our CRE portfolio. I wouldn't expect that to
Speaker Change: change materially from where we are at the fourth quarter unless we see, you know, changes in our forecast.
Speaker Change: or something to that effect. So overall, the reserve mix is changing. If you think about our solar and lending club portfolio runs off maybe about 35 million a quarter and they have an allowance allocation of about three and a half percent.
Speaker Change: So then, as we build and grow new loans in our other books, the kind of the average...
coverage ratio for those loans is about 90 basis points.
Speaker Change: So that is having an impact on the amount of provisioning needs we need.
Speaker Change: just due to that change in mix. Yeah, even as a follow-up to Annette's comment, Steve, if you're running off, you know, 30 to $35 million of solar and specialty consumer and you're adding all of the other things that, you know, we're holistically trying to grow the balance sheet with, you know, you can probably have, you know, a quote, net neutral outcome in your provisioning, you know, and you could have 100 to $125 million of growth in every.
Speaker Change: because of the net differential in the mix. And that's something we've been experiencing in 2024, essentially for every quarter, but knowing full well that the CECL modeling makes you reserve for stuff in the period of growth.
Speaker Change: a period of growth that we had in the first half of the year had a higher provision complement associated with that.
Speaker Change: Okay, great. I appreciate all the talk and I'll step back. Thank you very much.
Thank you, Steve.
Speaker Change: Thank you. Our next question comes from Chris O'Connell with KBW. Your line is open.
Hey, good morning.
Hey, good morning.
Speaker Change: So, just wanted to follow up on the expense outlook. So, is the 97, like the $99 million range on an organic basis?
Speaker Change: Is that the good range that you were thinking, you know, as a run rate into 2025 organically, or is it that plus the, you know, annual merit increases?
Speaker Change: I think that that's a good rate run rate organically and includes consideration for merit increases So like I said, probably if you were to look at a full year basis, it's
Speaker Change: somewhere between a 4% to 5% increase, which is kind of where we're at historically. As a reminder, our merit increase does happen in March of each year.
Speaker Change: So, you know, you won't have a full quarter impact of that in the first quarter, but we also have two less payroll days in the first quarter as well, so there's some offsetting there.
Okay, got it.
And then just on the, you know, the fee businesses.
Speaker Change: Just, you know, wondering what you're seeing, you know, in terms of, you know, growth in the primary businesses, you know, as far as your outlook into 2025 regarding, you know, the retirement business, you know, the wealth business, the insurance businesses.
Speaker Change: Yeah, so I'm happy to take that one, Chris. And so just to give you a, you know, sort of a capsule of, you know, where we finished the year. Retirement plan administration for us is a 57 million dollar business, wealth management almost 42, and insurance a little over 17. So combined, between 115 and 120 million dollars of revenue today for us, with very attractive returns from a margin standpoint.
Speaker Change: To Annette's point, over the last five years, compounded growth rates 9%-ish, you know, combination of very robust organic growth with some timely acquisitions.
Speaker Change: 2024 was really really strong year. You know, the market was our friend in retirement administration and in wealth management. We had solid organic...
keep generating capital.
Speaker Change: and at a level that it's almost hard to reinvest their capital generation over some kind of extended period of time into just their businesses. So, we think they're a net provider of capital that, you know, creates, you know, dividend consideration opportunities for us consistently. And again, we've reached requisite size where operating margins are very attractive.
Speaker Change: Great, and as far as, you know, the organic growth, you know, absent, you know, the market impact here in the deal.
Speaker Change: close. Are you guys still thinking kind of, you know, mid to high single digits, you know, is a good, you know, run rate for each of those, or is there any change given, yeah?
Speaker Change: Chris, we feel good about mid single digits, you know, mid to high single digits when the combined outcomes were 70 to 75 million, a little bit easier to obtain now that you're in this 120 outcome, you know, a little bit more of a task there. But, you know, we think we're just positioned well in terms of the breadth of the products we have in all of those enterprises, you know, so we think that there's upside opportunity.
Great. Thanks, Scott.
Speaker Change: And then just, you know, on the, you know, Evans merger, you know, obviously you guys got, you know, an extremely, you know, fast, you know, approvals here, relative to, you know, what we've seen over the past few years.
Speaker Change: You know, was there any discussion around, you know, moving up, you know, the actual closed date from 2Q into either, you know, earlier 2Q or into 1Q given, you know, how quickly you guys got the approvals?
Speaker Change: So, Chris, to your point, very pleased to have gotten the approvals prior to the end of the year. You know, probably expected that we were going to get them sometime early in 2025, but very happy that our regulators got through that in an appropriate amount of time and asked, again, all the right questions relative to the impact, reminding you and other people that we have no overlap here.
Speaker Change: with no overlap so you know there's not a lot of things that need to be talked about relative to market influences and lack of you know competitive balance and some of those things. To your question about whether we talked about moving up we did not.
Speaker Change: I think it probably goes underappreciated that the technical conversion of core systems is a task.
Speaker Change: We think there's a lot of risk involved with that, in running two separate systems and bringing those things together. So for us, really important that we do it at the same time. Over the next three months, we'll have an opportunity to do a full-blown mock conversion. We'll have a chance to see where all of the mapping criteria comes out for the mix of our products versus the Evans products.
Speaker Change: and then we'll, you know, feel good about ourselves going into that early May type closing period.
Okay, great.
Speaker Change: And just, you know, on the deal, you know, you guys have, you know, had a little bit, you know, to contemplate, you know, the deal and the two balance sheets being put together, you know, any, any thoughts or anything being contemplated in terms of
Speaker Change: Yeah, so, you know, as you know, you know, we really don't control a lot of the balance sheet we're about to acquire for, you know, over the next handful of months, but have we thought about early deploying some cash flows on the investment portfolio side for us?
Speaker Change: so that we don't end up in a position where we're either selling or buying investment securities all in a concentrated period after the closing. Much like us and a lot of other banks, Evans also has a requirement for pledging for municipal securities, so there will definitely need to be investment portfolio assets retained or replaced.
Speaker Change: prior to the closing, so that we can support our customers who have those kinds of needs.
Speaker Change: Relative to the rest of the balance sheet, we have not spent a lot of time thinking about if there were certain pieces of asset classes or funding dynamics.
Annette. Thanks everybody.
Great. Thanks, Scott. I'll step out.
Thanks Chris.
Speaker Change: Thank you. Our next question comes from Manuel Navas with DA Davidson. Your line is open.
Hey, good morning.
Speaker Change: Morning. Can we talk a little bit about expected kind of legacy loan growth right now? Is kind of the optimism with the change of administration showing up in increased growth, or is that more to ramp across the year, and you're staying within your past mid-single-digit guidelines for loan growth with some runoff?
Speaker Change: So, meanwhile, I would start with saying that we haven't noticed any substantive change in our markets. Our markets had a very good 2024, and I think the optimism in the markets has probably, quote, stayed the same. You know, whether that's in southern Maine, across southern New Hampshire, into Vermont.
Speaker Change: into all parts of upstate New York. There's a general sense of optimism in most of our markets that either comes from planned investments that we see coming, much like the, you know, the semiconductor manufacturing opportunities across upstate New York, as well as just, you know, the stability that exists in our core markets.
Speaker Change: So for us, you know, when we talk about, and Annette made the comment that, you know, essentially last year we grew loans 6% less the portfolios that we had in a planned runoff status, you know, I think those, you know, those types of factors and variables kind of think, or how we're framing the first half of 2025 as well. I think when you look at, you know, the extension into western New York for us, I think we, again, feel very bullish.
that there's growth opportunities for us.
and the market from a participation standpoint.
Speaker Change: so you know we don't think that there's a market today that we're in that doesn't feel investable nor does it feel like you know activity has either stopped or is a little bit stale
Speaker Change: Our portfolio pipelines are as good as they were at the beginning of the year last year. And the beauty for us is they seem to be spread generally across almost all of our markets.
Speaker Change: You know, we've made this point a couple different times. We, like a lot of people, are motivated to think about how to capture holistic relationships, whether that's on the commercial side or on the retail side. And with that, you know, one-off transactional things are not probably as attractive for us as the ability to bank the customer on both sides of their balance sheet.
Speaker Change: That's great. Early in your comments you brought up kind of big picture some of the announcements around the CHIP corridor, new expansion, structural investments.
Speaker Change: It all understood big picture. What are things that are happening right now that you're excited about? I know a lot of it still has a long tail into the future, but what are some of the markers that you're seeing?
Speaker Change: more recently that have you excited that everything's progressing as expected for this huge opportunity within the CHIPS corridor?
Speaker Change: Sure, so specific to the Micron opportunity, it's that they've worked through all of the documentation and the agreements, you know, with the federal government, or in certain cases with the state of New York, relative to support for the growth activities.
Speaker Change: and they're all talking about capital expenditures that goes into whether it's chip fabrication, research and development or tool construction. So getting one's arms around that that is a long-term play is really important. That, you know, you're probably not going to talk about something starting at the beginning of a quarter and being done at the end of a quarter. It's a much longer time frame for that. But the support activities that exist
Scott Kingsley, Annette Burns
Speaker Change: We're really bullish on what's happened 14 or 16 months later after our Salisbury acquisition in the lower Hudson Valley and in parts of northern Connecticut. One of our pipelines that's the most prolific right now is in Connecticut. So we've had really good opportunities
Speaker Change: all the way from, you know, West Hartford back to the New York border and really look forward to building those things out.
Speaker Change: That's good color. Can I just tack on one thing on the nymn?
Speaker Change: Deposit costs have come down a bit. Is there more room to go, or is it harder to keep cutting costs? And just how has that come together with some of the loan yield commentary before for near-term NIM?
Speaker Change: There is more room to go. We talked about the $5 billion in assets that we think have the ability to reprice since the remaining $7 billion is low in deposit costs already.
Speaker Change: So, if you break out that $5 billion, you've got right around $3.4 billion of money market accounts. You know, we think we can react fairly quickly to changes in rates.
Speaker Change: You know, we think that probably not all of the December rate cut, you know, was in the fourth quarter, so we'll see a little bit of that benefit into the first quarter, even without any rate changes.
Speaker Change: And then the remaining $1.4 billion in CDs will be a little kind of lag, right, because of the timing of maturities. But we'll see that leg in as well. So I think there's still some opportunity in those books to continue to reprice downward.
Speaker Change: and this all has you headed into Evans close with a stronger NIM and any update on kind of combined financial metrics and and I'll step back into the queue after this
Scott Kingsley: So like Scott said, you know, we're going to take some time once Evans releases their full year results and refresh our marks so we'll have a better feel for that in the first into the first quarter.
Scott Kingsley: But I think your comment, you know, if you think about this, you know, four or five months ago, is do we feel like our net interest income opportunities and net interest margins on a legacy basis are improved for what they probably looked like early in the, or late in the third quarter? We do. Do we presume that that construct will probably be consistent with Evans? We do.
Scott Kingsley: and, you know, so to your point, you know, feel as good if not a little bit better than when we announced the transaction.
Looking forward to future updates. Thank you very much.
Thanks for the questions.
Speaker Change: Thank you. As a reminder, to ask a question, please press star 11. Again, if you have a question, please press star 11.
Speaker Change: Our next question comes from Matthew Brees with Stevens. Your line is open.
Hey, good morning.
Matthew Brees: Morning, Annette. A lot of my questions have been answered, maybe just a quick two or three. I guess the first one is...
Speaker Change: With Evans going to be behind you, what is the time frame before you start thinking about additional M&A opportunities on the whole bank side? And then geography-wise, what parts of the map to you make the most sense?
Annette Burns: Well, Matt, appreciate that in terms of a question. So, we are monoline focused on evidence and, you know, you know
Annette Burns: evaluating other opportunities on a straight M&A standpoint, but we truly want to get through a period of time where we know, you know, that we've done everything and applied all of our resources to making sure that Evans goes right.
Annette Burns: for the Evans employees and for the Evans customer base. So that is paramount and number one.
Annette Burns: Have we had people, you know, continue to reach out to us, you know, now that we've been, you know, have finished an acquisition and have announced another one and plan to close one? Absolutely. I would kind of take the franchise and look at it this way, Matt, that are there places where now with our larger span from a geographic standpoint that we have opportunities to build out within the structure of our current franchise, we do. So as an example...
Annette Burns: We have a branch coming online in South Burlington in March. Is there additional opportunities for us to continue to build out the Vermont franchise, working south and a little bit further into the state? Today our markets are really covering Chittenden County. We think there are still opportunities to enhance our concentration in southern Maine and southern New Hampshire, where, again, we have great representation, but we think our concentration could improve over time.
Joe Stagliano: Joe has made this comment a couple different times, that we're probably going to commit to something in the Syracuse marketplace closer to, you know, the Micron installation and maybe something else generally there. Can we extend our franchise north of Syracuse into, you know, Jefferson, Lewis County, where we're not represented today? That still creates an opportunity.
Joe Stagliano: We're spending time in the markets in the upper and lower Hudson Valley where we really think that, you know, connecting some of the stuff that we got in the Salisbury acquisition to our legacy markets is appropriate and opportunistic.
Joe Stagliano: So, you know, and if I went, you know, to just add one more, how do we extend, you know, a little further into the Poconos in northeast Pennsylvania and potentially into the Lehigh Valley?
Joe Stagliano: Whether we need to do that via M&A or can do that organically, I think it's both. And I think that opportunity will present itself over the next one, two, three years in multiple different places. So we're really excited about filling in the franchise, you know, now that we've had the opportunity over the last two or two and a half years to really extend into markets we want to participate in.
Annette Burns: Excellent. Next one for me was Annette, what's a good tax rate for next year? It's been bouncing between 20 and 22. Is that still the right range? I've been using kind of 22 and a half to 23.
Annette Burns: I think 22.5 to 23 is a good estimate for next year's tax rate.
Speaker Change: All right, and then, you know, Scott, maybe just going back to that.
Speaker Change: That last comment, you know, the excitement is there, and from a macro standpoint, you certainly have a lot of wind at your back from a number of different fronts.
Speaker Change: I was hoping maybe you could, you know, one, you know, outside of some of these organic growth opportunities, you know,
Speaker Change: Where are you spending the most time, investments internally, product services, new hires?
Speaker Change: and maybe could you paint a picture for us either in terms of potential profitability outcomes or EPS over the next handful of years as all this kind of comes to fruition and it certainly feels like the wind is at your back. Thank you.
Speaker Change: Thanks for the question Matt. You know, that's a deep one. You're dipping into meaning of life on that, so thank you. But to your point, we like where the opportunities are in the markets from a standpoint of just sheer market activity and market growth opportunities.
Speaker Change: So that is something that is important to us, and that's why it supports
Speaker Change: our ability to say we think all of our markets are investable, all of our lines of business are investable. You know, I think today, you know, we're, you know, we tend to be focused on how do we improve the experience for the customer.
Speaker Change: for our employee at the same time. So we're working on how do we grow the institution, you know, and how do we improve our processes at the same time.
Speaker Change: At our size, we also have our eye on the build-out of enterprise risk management as a holistic outcome for the company.
Speaker Change: The expectations are clearly there from a regulatory standpoint that we will continue to progress on that. We think we've made great strides on that over the last handful of years, but we know that the bar just moves up on that in terms of that expectation.
But in fairness...
Speaker Change: So, you know, I think we are, you know, very pleased with where we're positioned today. We like the trend line and the momentum that comes out of our last two quarters. You know, it clearly feels better to go to market as a company when your margin is in the mid-3.30s than it did when it was in the low 3% level. That gives you an opportunity from a revenue generation to consider some of these investments.
Speaker Change: on the expense front or the capital front that you do want to make in improving your organization. So, you know, we think, quite frankly, it's tactical management, and we probably think we've got as much flexibility in that tactical management today as we've had over the past eight quarters.
Speaker Change: Understood. And just to slide another one in there, you had said, you know,
Speaker Change: feels better to go to the market. Is there any sort of capital?
Speaker Change: suggestion between the lines there, especially with some of the stuff that comes in later this year.
Speaker Change: That's all. That's a great question. You know, pretty granular and happy to take that up with you a little bit offline, but at the same point in time, yes, you know, we we have a sub-debt issuance that that Annette worked diligently on from her house in 2020 during the pandemic that you know that gets to remark capacity in mid-year. Should we replace that with another instrument in the capital stack or should we just pay it off?
Speaker Change: which we have the flexibility to do because we've been building cash reserves at the holding company to accomplish that. But we'd like to think about if there was opportunistic spots that we could replace that with, we'd be really interested in thinking about that. And we spend time talking about that.
Speaker Change: I'll leave it there. Thank you for taking my questions. Sounds good. Thank you.
Speaker Change: Thank you. And our next question comes from Steve Moss with Raymond James. Your line is open.
Steve Moss: Just one more follow-up here that, well I've got to answer right there, but in terms of, if you want to circle back on the commercial real estate non-performer that that went to non-performing status this quarter, just kind of curious about the type of loan it is and kind of how you think about resolution here. I'm assuming it was the $700,000 charge-off.
Speaker Change: Yeah, so Steve, it's a new multifamily housing project in one of our better markets in upstate New York, and it's just been very slow to lease up. Whether the developer or the sponsor, you know, is modestly priced differently than the market will accept today, it's a great question. But, you know, there's really not much more to it than that. But it's in a marketplace where historically, assets have performed very well.
and we think over time this one will as well.
Okay, and what's this participation?
We do have a partner in this one.
Okay, great. Appreciate all the color there. Thanks.
Thank you.
Speaker Change: Our next question comes from Chris O'Connell with KBW. Your line is open.
Chris O'connell: Hey, real quick. Just wanted to follow up and see if you guys had the spot margin and or the spot interest bearing deposit costs at the end of December.
Chris O'connell: I will follow up with you offline with that, Chris. From a margin perspective, we ended the year very similar to what we had for the quarter.
Chris O'connell: And then just thinking about like more long-term beyond, you know, the next couple of quarters.
Just curious if you had any update on...
Chris O'connell: you know, where you thought, you know, the eventual end point of the runoff and the residential solar, you know, might end up, you know, after, you know, a couple years now, I think a runoff. And then, you know, how much of
Chris O'connell: is within the other consumer, you know, that's non-lending club related.
Chris O'connell: Sure. So, Chris, while we see if we've got some of that detailed information in front of you, I would say this, you know, the $90 to $100 million of decline that we experienced in solar residential in 2024 is likely to be approximately for what we would expect going forward. You remember that, you know, the instruments in solar residential, because they are essentially a home improvement, tend to have a, you know, a longer duration or
Chris O'connell: longer contractual maturity than standard consumer financing, maybe even financing consistent with auto lending. So I would use that as a proxy for that.
Speaker Change: I'm going to guess this, and Annette's probably going to tell me differently, but that our consumer loan portfolio that is not the Springstone Lending Club is in the ballpark of $50 million to $60 million today.
That's a good ballpark.
Perfect. Thank you.
Thanks, Chris.
Speaker Change: Thank you. And our next question comes from Manuel Navas with DA Davidson. Your line is open.
Manuel Navas: Hey, just wanted to hop back on to ask about the legacy fee growth and the mid-single digits. That doesn't include any potential cross-sell in Evans. And has that...
Manuel Navas: Has that kind of been explored further? Is there any way we can size it yet? Or is that more something to consider for 26? And then my other question on fees is.
How does M&A look on the fee side?
Manuel Navas: So, two good questions. So, one, what I would say is our people that deliver solutions in wealth management and insurance are really excited about the extension into the marketplace in western New York. Do we think that that opportunity will be able to be capitalized on early after the close? We do. What that will mean in terms of the materiality to those growth, to the business growth in 2025? Probably not material.
Manuel Navas: really bullish on what that might look like going forward because those solutions today are offered at Evans, but in a very modest way today.
Manuel Navas: Great question on the M&A side for the fee-based businesses. We are always looking to find partners in our footprint on the wealth management and the insurance side that will allow us to create some positive operating leverage in thinking about buying books of business.
Manuel Navas: It's the networking of our current business leaders that creates most of those opportunities. And remembering, it's unusual for us to acquire an enterprise in any of those lines of business that has north of $5 million in revenue.
Manuel Navas: You know, our sweet spot tends to be between one and five, and we're really good at integrating those into each of our businesses. So, you know, always happy to look at those and always thinking about that as an opportunity, but more within the confines of, you know, the footprint we currently have.
That's great, I appreciate the commentary. Thank you very much.
Thanks very much.
Thank you.
Manuel Navas: I'm not showing any further questions at this time. I will now turn the call back to Scott Kingsley for closing remarks.
Manuel Navas: Daniel, thank you. In closing, I wanna thank everyone for participating on the call with us today and your interest in NVT, and we look forward to talking to you again in the early spring. Have a great day.
Speaker Change: Thank you. Mr. Kingsley, this concludes our program. You may disconnect. Have a great day.
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