NBT Bancorp (NBTB) reported its fourth-quarter 2024 earnings, meeting analyst expectations with an earnings per share (EPS) of $0.77. Despite this alignment with forecasts, the company's stock fell by 4.02% in after-hours trading, closing at $46.09. The revenue for the quarter was $148.9 million, surpassing the forecasted $146.16 million. According to InvestingPro data, the company maintains strong fundamentals with a GOOD Financial Health Score and impressive 13.66% revenue growth over the last twelve months. The stock's decline suggests investor concerns despite the positive revenue surprise and appears undervalued based on InvestingPro's Fair Value analysis.
Key Takeaways
- NBT Bancorp's EPS met expectations at $0.77.
- Revenue exceeded forecasts, reaching $148.9 million.
- The stock price fell 4.02% in after-hours trading.
- The company announced a merger with Evans Bancorp (NYSE:EVBN).
- Expansion into Western New York markets is underway.
Company Performance
NBT Bancorp demonstrated steady performance in Q4 2024, with net income recorded at $36 million. The bank's operating EPS of $0.77 was a slight decrease from the previous quarter. Total (EPA:TTEF) loans increased by $319 million, and deposits rose by $578 million compared to December 2023. The net interest margin improved to 3.34%, reflecting a positive trend in the bank's core operations. With a market capitalization of $2.25 billion and a P/E ratio of 15.91, the bank shows strong shareholder commitment through its 12-year consecutive dividend growth streak. InvestingPro subscribers can access additional insights through the comprehensive Pro Research Report, which reveals more key metrics and growth indicators.
Financial Highlights
- Revenue: $148.9 million, up from the forecasted $146.16 million.
- Earnings per share: $0.77, matching analyst expectations.
- Total loans: Increased by $319 million year-over-year.
- Total deposits: Increased by $578 million from the previous year.
- Net interest margin: Improved to 3.34%.
Earnings vs. Forecast
NBT Bancorp's earnings per share of $0.77 met the forecasted figure, while revenue exceeded expectations by $2.74 million. This positive revenue surprise contrasts with the slight EPS decline from the previous quarter, suggesting mixed investor sentiment.
Market Reaction
Following the earnings announcement, NBT Bancorp's stock fell by 4.02% in after-hours trading, closing at $46.09. This decline occurred despite the revenue beat, indicating potential investor concerns about future growth or the impact of strategic initiatives. The stock's current price is closer to its 52-week low of $32.79 than its high of $52.44.
Outlook & Guidance
Looking forward, NBT Bancorp anticipates mid-single-digit growth in its fee businesses and loan growth around 6%, excluding planned runoff portfolios. The company is focused on geographic expansion, particularly through its merger with Evans Bancorp, expected to be completed in Q2 2025. InvestingPro analysis reveals the company has maintained dividend payments for 40 consecutive years, demonstrating remarkable financial stability. Two additional ProTips and extensive financial metrics are available to InvestingPro subscribers, offering deeper insights into the company's growth potential and market position.
Executive Commentary
CEO Scott Kingsley expressed optimism about the company's market activities, stating, "We like where the opportunities are in the markets from a standpoint of just sheer market activity and market growth opportunities." He also highlighted the company's bullish stance following the Salisbury acquisition.
Risks and Challenges
- Integration challenges with Evans Bancorp could affect operations.
- Potential loan repricing opportunities may impact profitability.
- Deposit cost reduction strategies need careful management.
- The commercial real estate non-performing loan situation requires attention.
- Economic conditions in key markets could influence growth.
Q&A
During the earnings call, analysts inquired about the Evans merger integration plans and potential loan repricing opportunities. Discussions also covered strategies for reducing deposit costs and managing non-performing loans in the commercial real estate sector.
Full transcript - NBT Bancorp Inc (NASDAQ:NBTB) Q4 2024:
Daniel, Conference Call Moderator, NBT Bancorp: Good day, everyone. Welcome to the conference call covering NBT Bancorp's 4th Quarter and Full Year 20 24 Financial Results. This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD. Corresponding presentation slides can be found on the company's website at mbtbancorp.com. Before the call begins, 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.
Actual results may differ from those projected. In addition, certain non GAAP measures will be discussed. Reconciliations for these numbers are contained within the appendix of today's presentation. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session.
Instructions will follow at that time. As a reminder, this call is being recorded. I will now turn the conference over to NBT Bancorp President and CEO, Scott Kingsley, for his opening remarks. Mr. Kingsley, please begin.
Scott Kingsley, President and CEO, NBT Bancorp: Thank you, Daniel. Good morning, and thank you for joining us this morning. With me in snowy Norwich today are NBT's Chief Financial Officer, Annette Burns and Joe Stegmaiano, President of NBT Bank NA. 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. During the Q4, we productively grew loans, improved our funding profile and boosted net interest margin for the 3rd consecutive quarter.
Incrementally lower funding costs more than offset a 5 basis points decline in earning asset yields. Non interest income continued to be a highlight, making up 30% of total revenues for 2024 with each of our non banking businesses achieving new record years for revenue and earnings generation. We also declared a $0.34 quarterly cash dividend to shareholders, which was 6.3% above the $0.32 dividend we declared in last year's Q1. This represents our 12th consecutive year of annual dividend increases and it demonstrates our commitment to provide consistent and favorable long term returns to our shareholders. We added $100,000,000 to shareholders' equity in 2024 from productive earnings generation despite the higher level of dividends paid adding to our already desirable level of capital flexibility.
Activity continued to progress across Upstate New York's semiconductor chip corridor in the Q4, including several announcements about new expansion and structural investments as well as certain site specific milestones being reached at Micron (NASDAQ:MU)'s planned complex outside of Syracuse. NBT is uniquely positioned to play a significant role in providing financial services to all types of customers and prospects living and working along the Upstate New York Semiconductor Chip Corridor. In September, we announced that NBT reached an agreement to merge with Evans Bancorp, a $2,300,000,000 community bank headquartered in Williamsville, New York. Our partnership with Evans is a natural geographic expansion of NBT's footprint into the Western region of New York. Expanding into Buffalo and Rochester, Upstate New York's largest markets by population, complements our meaningful presence in Central New York, the Capital District and the Hudson (NYSE:HUD) Valley, and it will position us as the community bank with the largest deposit market share in Upstate New York.
In December, we received the required regulatory approvals to proceed with the merger as well as approval from Evans shareholders who demonstrated strong support for the partnership. We continue to work toward a second quarter 2025 closing and a concurrent core systems conversion. Our transition and integration activities with the Evans team these past 4 months have reaffirmed our belief that they are a customer, employee and community focused organization with dedicated and talented professionals. At this time, I'll turn the meeting over to Annette to review our Q4 results with you in detail. Annette?
Annette Burns, Chief Financial Officer, NBT Bancorp: Thank you, Scott, and good morning. Turning to the results overview page of our earnings presentation. For the Q4, we reported net income of $36,000,000 or $0.76 per share. 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. Tangible book value per share of $23.88 as of December 31 was up $0.05 per share from the end of the 3rd quarter, marking another all time high for NBT.
The next page shows trends in outstanding loans. Total loans were up $319,000,000 for the year or 3.3% and included growth in our C and I, commercial real estate, indirect auto and residential lending portfolios. Excluding the other consumer and residential solar portfolios that are in a planned contractual runoff status, loans increased $479,000,000
Steve Moss, Analyst, Raymond (NSE:RYMD) James: or
Annette Burns, Chief Financial Officer, NBT Bancorp: 6%. Our loan portfolio of $10,000,000,000 remains very well diversified and is comprised of 53 percent commercial relationships and 47 percent consumer loans. 4th quarter loan yields declined by 9 basis points from the Q3 of 2024 as approximately 2,100,000,000 dollars of loans repriced downward with a decrease in short term rates, partially offset by the reinvestment of earning asset cash flows into instruments with rates higher than existing portfolio yields. On Page 6, total deposits of $11,600,000,000 were up $578,000,000 or 5.3 percent from the December 2023 time frame. 58% of our deposit portfolios consist of no and low cost checking and savings accounts and 42% in time and money market accounts.
The company's quarterly cost of total deposits decreased 12 basis points from the 3rd quarter to 1.60 percent. The next slide highlights the detailed changes in our net interest income and margin. Our net interest income in the Q4 of 2024 was 3 point 3 4%, which was up 7 basis points from the prior quarter, primarily due to a decrease in the cost of deposits and a more favorable funding mix including increases in demand deposits. The 4th quarter's net interest income was $4,400,000 above the LINK's 3rd quarter. The primary drivers to the increase in net interest income were the decrease in the cost of interest bearing liabilities and the $257,500,000 growth in average earning assets.
Our asset liability management positioning remains fairly neutral with approximately $2,100,000,000 in variable rate loans repricing almost immediately with changes in short term rates, which requires us to actively manage our funding costs downward to more than offset that impact as evidenced by the 12 basis point decline in our deposit costs for the quarter. As a reminder, approximately $5,000,000,000 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. Excluding securities gains and losses, our fee income was $42,200,000 an increase of 11.1 percent compared to the Q4 of 2023, but consistent with prior years was seasonally lower than the previous quarter.
The diversification of our revenue sources remains a core strength for the company. Our fee income business lines of Retirement Plan Administration, Wealth Management and the insurance agency have demonstrated a meaningful 5 year compounded annual growth rate of 9%. Total operating expenses excluding merger costs were $99,800,000 for the quarter, a 4.8% increase above the linked Q3. Salaries and employee benefit costs were $61,700,000 an increase of $2,100,000 from the prior quarter. This increase is primarily driven by higher health and welfare costs and an increase in other employee benefits including higher levels of performance based incentive compensation.
Slide 10 provides an overview of key asset quality metrics. We recorded a loan loss provision expense of $2,200,000 in the 4th 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 higher level of net charge offs. Net charge offs to total loans were 23 basis points in the Q4 of 2024 compared to 16 basis points in the prior quarter. The increase in net charge offs during the quarter was driven by 2 commercial relationships totaling $2,400,000 of which $1,700,000 was previously specifically reserved.
Non performing assets to total assets increased $14,400,000 from the prior quarter attributable to a commercial real estate relationship that was placed into non accrual status in the Q4 of 2024. This relationship is being actively managed and its remaining carrying value is supported by the fair value of the underlying real estate. Reserve coverage was 1.16% of total loans and covered more than 2 times the level of non performing loans. We believe that the expected balance sheet growth and continued changes in loan mix will be the drivers of future provisioning needs. In closing, net interest margin and net interest income trends are positive with growth for the 3 consecutive quarters.
Our well balanced loan growth granular deposit base, stable asset quality trends and strong fee income generation contributed to our solid operating performance in 2024. The continued strength of our capital position has provided the flexibility to deliver 12 consecutive years of dividend increases to our shareholders, the ability to support organic growth and to capitalize on opportunities, all while effectively managing risk. Thank you for your continued support. And at this time, we welcome any questions you may have.
Daniel, Conference Call Moderator, NBT Bancorp: Thank you. And our first question comes from Steve Moss with Raymond James. Your line is open.
Steve Moss, Analyst, Raymond James: Good morning.
Scott Kingsley, President and CEO, NBT Bancorp: Hi, good morning, Steve.
Steve Moss, Analyst, Raymond James: Good morning, Steve. Good morning, Steve. Good morning, Scott. Good morning, Annette. Maybe just starting off on the margin here, good margin trends.
Just kind of curious, you talked in the past about call it $2,000,000,000 in annual cash flows, repricing up 75 to 100 basis points. Just kind of curious if that trend remains the same or kind of where loan pricing is these days?
Annette Burns, Chief Financial Officer, NBT Bancorp: Steve, that's correct. I think that's spot on. We have right around $2,200,000,000 in loans, cash flowing annually. We expect those to reprice into higher rates and depending on the shape of the yield curve, we typically price between that 2 to 5 to 7 year on the curve. And you're correct as well.
If you look at our new volume rates versus our portfolio rates, for auto we're probably 50 basis points higher, commercial 75 to 100 basis points higher and residential still about 200 basis points higher. In addition, we also have investment securities cash flows that come in right around $325,000,000 expected for 2025.
Scott Kingsley, President and CEO, NBT Bancorp: So Steve to follow-up on Annette's comment to your question. Yes, dollars 2,100,000,000 of commercial relationships that are essentially sulfur based and so they will change anytime there's a change in short term rates and usually change within a month of the impact and change of fed funds rates. So that stays about the same. There is a portion of those that probably reach a natural 5 year or 7 year type renewal window over the course of the next year or 2. But generally, that's what comes down immediately.
And we probably experienced 65% to 75% of that in the Q4 based on the 100 basis points of change that's happened since September.
Steve Moss, Analyst, Raymond James: Okay, great. And then on the expense side, expenses stepped up this quarter. 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?
Annette Burns, Chief Financial Officer, NBT Bancorp: Sure, Steve. I think if we were to look at the run rate of the last two quarters, you're correct. The 4th quarter had some higher levels of incentive compensation and a little bit of noise in other expenses. But we took an average of the last two quarters run rate that's somewhere in the $97,000,000 to $99,000,000 a quarter. We think that that's probably a good place to think about at least the first half of the year.
Just to remember a few things that happened in the Q1. We have higher payroll costs, higher stock based compensation costs, a little bit higher occupancy costs around snow removal and heating and things like that. So the Q1 might pick up a little higher closer to the $99,000,000 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.
Steve Moss, Analyst, Raymond James: Okay. Great. Appreciate that. And just one last one for me here. Just in terms of the loan loss reserve ratio trends, just kind of curious the drivers of the decline in the consumer portfolio.
I realize that's a runoff, but I guess it was a bit more of a step off than I was thinking would happen here. And also, it looks like some of the decline in the CRE was related to that charge off on non performing. Just curious, do you build back the reserve on commercial real estate over time?
Annette Burns, Chief Financial Officer, NBT Bancorp: You're correct. The decrease in the coverage ratio related to CRE is directly related to the release of that specific reserve as we charge that portion of the loan down. So I think that if you were to look at that ex that, it's pretty consistent with where we were. So we feel like we're adequately reserved in our CRE portfolio. I wouldn't expect that to change materially from where we are at the Q4 unless we see changes in our forecast or something to that effect.
So overall, the reserve mix is changing. If you think about our Solar and LendingClub (NYSE:LC) portfolio runs off maybe about $35,000,000 a quarter and they have an allowance allocation of about 3.5%. 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. So that is having impact on the amount of provisioning needs we need just due to that change in mix.
Scott Kingsley, President and CEO, NBT Bancorp: Yes. Even as a follow-up to Annette's comments, Steve, if you're running off $30,000,000 to $35,000,000 of solar and specialty consumer and you're adding all of the other things that we're holistically trying to grow the balance sheet with, you can probably have a net neutral outcome in your provisioning and you could have $100,000,000 to $125,000,000 of growth and everything else just 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 reserved for stuff in a period of growth, a period of growth that we had in the first half of the year had a higher provision complement associated with that.
Steve Moss, Analyst, Raymond James: Okay, great. I appreciate all the color and I'll step back. Thank you very much.
Scott Kingsley, President and CEO, NBT Bancorp: Thank you, Steve.
Daniel, Conference Call Moderator, NBT Bancorp: Thank you. Our next question comes from Chris O'Connell with KBW. Your line is open.
Scott Kingsley, President and CEO, NBT Bancorp: Hey, good morning. Hey, good morning, Chris.
Chris O'Connell, Analyst, KBW: So just wanted to follow-up on the expense outlook. So is the $97,000,000 like to $99,000,000 range on an organic basis, Is that the good range that you were thinking as a run rate into 2025 organically? Or is it that plus the annual merit increases?
Annette Burns, Chief Financial Officer, NBT Bancorp: I think that that's a good run rate organically. It includes consideration for merit increases. So like I said, probably if you were to look at a full year basis, it's somewhere between a 4 percent 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. So you won't have a full quarter impact of that in the Q1, but we also have 2 less payroll days in the Q1 as well.
So there's some offsetting there.
Chris O'Connell, Analyst, KBW: Okay. Got it. And then just on the fee businesses, just wondering what you're seeing in terms of growth in the primary businesses as far as your outlook into 2025 regarding the retirement business, the wealth business, the insurance businesses?
Scott Kingsley, President and CEO, NBT Bancorp: Yes. So I'm happy to take that one, Kristen. So just to give you a sort of a capsule of where we finished the year, retirement plan and administration for us is a $57,000,000 business, wealth management almost 42 and Insurance a little over 17. So combined between $115,000,000 $120,000,000 of revenue today for us with very attractive returns from a margin standpoint. To Annette's point, over the last 5 years compounded growth rates 9% -ish, combination of very robust organic growth with some timely acquisitions.
2024 was really, really strong year. The market was our friend in Retirement Administration and in Wealth Management. We had solid organic account adds, customer adds from an acquisition standpoint. And the insurance business benefited from market rates actually moving up as well. So really bullish on those businesses going forward, really investable businesses in any way we look at those today.
And remember, in those businesses, the capital complement necessary to grow those is very, very modest. If you can grow those businesses organically, which we've demonstrated we they just keep generating capital 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 creates dividend consideration opportunities for us consistently. And again, we've reached requisite size where operating margins are very attractive.
Chris O'Connell, Analyst, KBW: Great. And as far as the organic growth, absent the market impact here in the deal close, are you guys still thinking kind of mid to high single digits? Is a good run rate for each of those? Or is there any change given yes?
Scott Kingsley, President and CEO, NBT Bancorp: Chris, we feel good about mid single digits. Mid to high single digits when the combined outcomes were $70,000,000 to $75,000,000 a little bit easier to obtain. Now that you're in this $120,000,000 outcome, a little bit more of a task there. But we think we're just positioned well in terms of the breadth of the products we have in all of those enterprises. So we think that there's upside opportunity.
Chris O'Connell, Analyst, KBW: Great. Thanks, Scott. And then just on the Evans merger, obviously, you guys got an extremely fast approvals here relative to what we've seen over the past few years. Any was there any discussion around moving up the actual close date from 2Q into either earlier 2Q or into 1Q given how quickly you guys got the approvals?
Scott Kingsley, President and CEO, NBT Bancorp: So, Chris, to your point, very pleased to have gotten the approvals prior to the end of the year, but 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 and we have no overlap here. This isn't a market extension with no overlap. So there's not a lot of things that need to be talked about relative to market influences and lack of competitive balance and some of those things. To your question about whether we talked about moving it up, we did not.
I think it probably goes underappreciated that the technical conversion of core systems is a task. Now other people may have a process, other people who are acquirers may have a process in their companies where they can close legally and then do a conversion 4 months, 6 months, 8 months later. We've never done that. And we don't think embracing that is appropriate for us. We think there's a lot of risk involved with that in running 2 separate systems and bringing those things together.
So for us, really important that we do it at the same time. This over the next 3 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. And then we'll feel good about ourselves going into that early May type closing period.
Chris O'Connell, Analyst, KBW: Okay, great. And just on the deal, you guys have had a little bit to contemplate the deal and the two balance sheets being put together. Any thoughts or anything being contemplated in terms of balance sheet actions on either the loan or securities side alongside or kind of shortly after the merger close? Basically, is there any difference in what you want the optimal balance sheet to be between now and kind of post deal close?
Scott Kingsley, President and CEO, NBT Bancorp: Yes. So as you know, we really don't control a lot of the balance sheet we're about to acquire over the next handful of months. But have we thought about early deploying some cash flows on the investment portfolio side for us, 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 prior to the closing, so that we can support our customers who have those kinds of needs.
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 that we did not want to retain. We pretty like pretty much like everything that's on the balance sheet. So I'm certain that sometime in the Q1 after we see full year run rates from Evans and we get a chance to talk about fair value marks, we will recalibrate our expectations. Today, we don't think that they're far off what we communicated from an expectation standpoint in September. But obviously, changes in interest rates and changes in earnings run rates will impact that from a net accretion standpoint.
But we feel pretty good about the assumptions we used in the transaction, including the synergy side and feel like we're in a great position to go forward.
Steve Moss, Analyst, Raymond James: Great. Thanks, Scott. I'll step out.
Scott Kingsley, President and CEO, NBT Bancorp: Thanks, Chris.
Daniel, Conference Call Moderator, NBT Bancorp: Thank you. Our next question comes from Manuel Nieves with D. A. Davidson. Your line is open.
Matthew Breese, Analyst, Stephens: Hey, good morning.
Steve Moss, Analyst, Raymond James: Good 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?
Scott Kingsley, President and CEO, NBT Bancorp: 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, whether that's in Southern Maine, across Southern New Hampshire, into Vermont, 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 semiconductor manufacturing opportunities across Upstate New York, as well as just the stability that exists in our core markets. So for us, when we talk about and Annette made the comment that essentially last year we grew loans 6% less the portfolios that we had in a planned runoff status. I think those types of factors and variables kind of think or how we're framing the first half of twenty twenty five as well.
I think when you look at the extension into Western New York for us, I think we again feel very bullish that there's growth opportunities for us in the market from a participation standpoint. So we don't think that there's a market today that we're in that doesn't feel investable nor does it feel like activity has either stopped or is a little bit stale. 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. We've made this point a couple of 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, 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.
Steve Moss, Analyst, Raymond James: That's great. Earlier in your comments, you brought up kind of big picture, some of the announcements around the chip corridor, new expansion, structural investments. It all understood big picture. What are things that are like happening right now that you're excited about? And anything 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 more recently that have you excited that everything's progressing as expected for this huge opportunity within the chips corridor?
Scott Kingsley, President and CEO, NBT Bancorp: Sure. So specific to the Micron opportunity, it's that they've worked through all of the documentation and the agreements with the federal government or in certain cases with the State of New York relative to support for the growth activities. That not only applies to Micron, but applies to the New York CREATES organization in Albany, essentially the Nanotech Research Facility in Albany. There's been some announcements at Global Foundries in the Capital District or Saratoga marketplace, as well as Global Foundries in outside of Burlington (NYSE:BURL), Vermont. So I think the path stays very robust and consistent relative to that from a growth standpoint.
Understanding that there's a lot of 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'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 timeframe for that. But the support activities that exist around those opportunities also were in play. There's a whole bunch of structural investments both from a highway standpoint and other things in upstate New York that are underway as we speak.
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 all the way from West Hartford back to the New York border and really look forward to building those things out.
Steve Moss, Analyst, Raymond James: That's good color. Can I just tack on one thing on the NIM? Deposit costs have come down a bit. Is there more room to go? Or is it harder to keep cutting costs?
And just how does that come together with some of the loan yield commentary before for near term NIM?
Annette Burns, Chief Financial Officer, NBT Bancorp: So there is more room to go. We talked about the $5,000,000,000 in assets that we think are have the ability to reprice since the remaining $7,000,000,000 is low in deposit costs already. So if you break out that $5,000,000,000 you've got right around $3,400,000,000 of money market accounts. As we think we can react fairly quickly to changes in rates, we think that probably not all of the December rate cut was in the Q4. So we'll see a little bit of that benefit into the Q1 even without any rate changes.
And then the remaining $1,400,000,000 in CDs will be a little kind of lag, right, because of the timing of maturities. But we'll see that lag in as well. So I think there's still some opportunity in those books, to continue to reprice downward.
Steve Moss, Analyst, Raymond James: And this all has you headed into Evans close with a stronger NIM. And any update on kind of combined financial metrics? And I'll step back into the queue after this.
Annette Burns, Chief Financial Officer, NBT Bancorp: So like Scott said, 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 into the Q1.
Scott Kingsley, President and CEO, NBT Bancorp: But I think your comment, if you think about this 4 or 5 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 Q3? We do. Do we presume that that construct will probably be consistent with Evans? We do. And so
Steve Moss, Analyst, Raymond James: to your
Scott Kingsley, President and CEO, NBT Bancorp: point, feel as good if not a little bit better than when we announced the transaction.
Steve Moss, Analyst, Raymond James: Looking forward to future updates. Thank you very much.
Scott Kingsley, President and CEO, NBT Bancorp: Thanks for the questions.
Daniel, Conference Call Moderator, NBT Bancorp: Thank you. Our next question comes from Matthew Breese with Stephens. Your line is open.
Matthew Breese, Analyst, Stephens: Hey, good morning. Good morning, Matt. Good morning, Matt. A lot of my questions have been answered. Maybe just a quick 2 or 3.
I guess the first one is, with Evans going to be behind you, what is the timeframe before you start thinking about additional M and A opportunities on the whole bank side? And then geography wise, what parts of that map to you make the most sense?
Scott Kingsley, President and CEO, NBT Bancorp: Well, Matt, I appreciate that in terms of a question. So we are monoline focused on Evans. And since it's not planned to close until the Q2, that's all we're thinking about. And again, as we've said before, the incremental opportunities that we think will present themselves to us in Western New York are really worth capitalizing on. So we really want to get that right.
So I won't say that we have a timeline in our head relative to evaluating other opportunities on a strict M and A standpoint. But we truly want to get through a period of time where we know that we've done everything and applied all of our resources to making sure that Evans goes right for the Evans employees and for the Evans customer base. So that is paramount and number 1. Have we had people continue to reach out to us now that we've been 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, 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's 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.
I think Joe has made this comment a couple of different times that we're probably going to commit to something in the Syracuse marketplace closer to the Micron installation and maybe something else generally there. Can we extend our franchise north of Syracuse into Jefferson, Lewis (JO:LEWJ) County where we're not represented today that still creates an opportunity. We're spending time in the markets in the upper and lower Hudson Valley where we really think that connecting some of the stuff that we got in the Salisbury acquisition to our legacy markets is appropriate and opportunistic. So, and if I went to just add one more, how do we extend a little further into the Poconos in Northeast Pennsylvania and potentially into the Lehigh Valley? Whether we need to do that via M and A or can do that organically, I think it's both.
And I think that opportunity will present itself over the next 1, 2, 3 years in multiple different places. So we're really excited about filling in the franchise now that we've had the opportunity over the last 2 or two and a half years to really extend into markets we want to participate in.
Matthew Breese, Analyst, Stephens: Excellent. Next (LON:NXT) one for me was Annette, what's a good tax rate for next year? It's been bouncing between 2020 22. Is that still the right range? I've been using kind of 22.5% to 23%.
Annette Burns, Chief Financial Officer, NBT Bancorp: So I think 22.5% to 23% is a good estimate for next year's tax rate.
Steve Moss, Analyst, Raymond James: Okay. All
Matthew Breese, Analyst, Stephens: right. And then, Scott, maybe just going back to that last comment, the excitement is there. And from a macro standpoint, you certainly have a lot of wind that you're back from a number of different fronts. I was hoping maybe you could, one, outside of some of these organic growth opportunities, where are you spending the most time investments internally, product services, new hires? 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 win is at your back?
Thank you.
Scott Kingsley, President and CEO, NBT Bancorp: Thanks for the question, Matt. 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. So that is something that is important to us and that's why it supports our ability to say we think all of our markets are investable, all of our lines of business are investable.
I think today, we tend to be focused on how do we improve the experience for the customer for our employee at the same time. So we're working on how do we grow the institution and how do we improve our processes at the same time. At our size, we also have our eye on the build out of enterprise risk management as a holistic outcome for the company. 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, it's not even a bad expectation. It's actually the right things for us to do. Having more evolved stress testing in our portfolios is a positive thing. We learn more about our customer. We learn more about ourselves.
And we think about that relative to how do we prioritize where we want to make some of those investments go forward. Would we like to accomplish some of those things with just improvements in systems? But do we need really bright people to help us get to that point? We absolutely do. So I think we are very pleased with where we're positioned today.
We like the trend line and the momentum that comes out of our last two quarters. It clearly feels better to go to market as a company when your margin is in the mid-330s 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 on the expense front or the capital front that you do want to make in improving your organization. So 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 8 quarters.
Matthew Breese, Analyst, Stephens: Understood. And just to slide another one in there. You had said, it feels better to go to the market. Is there any sort of capital suggestion between the lines there, especially with some of the sub that come due later this year? That's all I
Steve Moss, Analyst, Raymond James: can say.
Daniel, Conference Call Moderator, NBT Bancorp: That's a
Scott Kingsley, President and CEO, NBT Bancorp: great question. Pretty granular and happy to take that up with you a little bit offline. But at the same point in time, yes, we have a sub debt issuance that a network diligently on from her house in 2020 during the pandemic 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, 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.
Matthew Breese, Analyst, Stephens: Great. I'll leave it there. Thank you for taking my questions. Sounds good. Thank you.
Daniel, Conference Call Moderator, NBT Bancorp: Thank you. And our next question comes from Steve Moss with Raymond James. Your line is open.
Steve Moss, Analyst, Raymond James: Just one more follow-up here. Lot got answered right there. But in terms of I want to circle back on the commercial real estate non performer that went to nonperforming status this quarter. Just kind of curious about the type
Chris O'Connell, Analyst, KBW: of loan it is and kind of how
Steve Moss, Analyst, Raymond James: you're thinking about resolution here? I'm assuming it was the $700,000 charge off. Yes.
Scott Kingsley, President and CEO, NBT Bancorp: 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 is modestly priced differently than the market will accept today. It's a great question. But 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.
Steve Moss, Analyst, Raymond James: Okay. And was this participation?
Scott Kingsley, President and CEO, NBT Bancorp: We do have a partner in this one.
Steve Moss, Analyst, Raymond James: Okay. Great. Appreciate all the color there. Thanks.
Matthew Breese, Analyst, Stephens: Thanks.
Daniel, Conference Call Moderator, NBT Bancorp: Thank you. Our next question comes from Chris O'Connell with KBW. Your line is open.
Chris O'Connell, Analyst, KBW: 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 1st December?
Annette Burns, Chief Financial Officer, NBT Bancorp: 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, Analyst, KBW: Okay.
Steve Moss, Analyst, Raymond James: And
Chris O'Connell, Analyst, KBW: then just thinking about like more long term beyond the next couple of quarters, just curious if you had any update on where you thought the eventual endpoint of the runoff in the residential solar might end up after a couple of years now, I think, of runoff? And then how much of is within the other consumer that's non LendingClub related?
Scott Kingsley, President and CEO, NBT Bancorp: Sure. So, Chris, while we see if we've got some of that detailed information in front of you, I would say this, the $90,000,000 to $100,000,000 of decline that we experienced in solar residential in 2024 is likely to be a proxy for what we would expect going forward. You remember that the instruments in solar residential because they are essentially a home improvement tend to have a longer duration or longer contractual maturities than standard consumer financing, maybe even financing consistent with auto lending. So I would use that as a proxy for that. 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 $50,000,000 to $60,000,000 today.
Annette Burns, Chief Financial Officer, NBT Bancorp: That's a good ballpark.
Chris O'Connell, Analyst, KBW: Perfect. Thank you.
Scott Kingsley, President and CEO, NBT Bancorp: Thanks, Chris.
Daniel, Conference Call Moderator, NBT Bancorp: Thank you. And our next question comes from Manuel Nieves with D. A. Davidson. Your line is open.
Steve Moss, Analyst, Raymond James: Hey, just wanted to hop back on to ask about the legacy fee growth in the mid single digits. That doesn't include any potential cross sell in Evans. And has that kind of been explored further? Is there any way we could size it yet? Or is that more something to consider for 20 26?
And then my other question on fees is, how does M and A look on the fee side?
Scott Kingsley, President and CEO, NBT Bancorp: 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. But really bullish on what that might look like going forward because that those solutions today are offered at Evans, but in a very modest way today.
Great question on the M and 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. Those are things that are almost episodic. The ability to evaluate those on an ongoing basis is more of a networking function, meeting people that also do that either on an independent basis or that you've had some other relationship with. A little bit different in retirement plan administration because that's a national business for us, the scope of things we get asked to potentially think about.
But I would say the same thing that how do we find or how do we source potential additions, 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 $5,000,000 in revenue. Our sweet spot tends to be between $1,000,000 and $5,000,000 and we're really good at integrating those into each of those in each of our businesses. So always happy to look at those and always thinking about that as an opportunity, but more within the confines of the footprint we currently have.
Steve Moss, Analyst, Raymond James: That's great. I appreciate the commentary. Thank you very much.
Scott Kingsley, President and CEO, NBT Bancorp: Thanks very much.
Daniel, Conference Call Moderator, NBT Bancorp: Thank you. I'm not showing any further questions at this time. I will now turn the call back to Scott Kingsley for closing remarks.
Scott Kingsley, President and CEO, NBT Bancorp: Daniel, thank you. In closing, I want to thank everyone for participating on the call with us today and your interest in NBT, and we look forward to talking to you again in the early spring. Have a great day.
Daniel, Conference Call Moderator, NBT Bancorp: Thank you. Mr. Kingsley, this concludes our program. You may disconnect. Have a great day.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.