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Annette Burns

Thank you, Scott, and good morning. Turning to the results overview page of our earnings presentation, in the first quarter, we reported net income of $36.7 million or $0.77 per share. Excluding merger costs and securities losses, our operating earnings per share were $0.80, an increase of $0.03 per share compared to the prior quarter.
Revenues were 4.4% from the prior quarter and almost 12% from the first quarter of the prior year, driven by improvements in both net interest income and fee-based revenues. Tangible book value per share of $24.74 as of March 31, was up $0.86 per share from the end of the fourth quarter of 2024, marking another all-time high for NBT.
The next stage shows trends in outstanding loans. Excluding the other consumer and residential solar portfolios that are in a planned runoff contractual runoff status, loans increased $40 million or 1.8% annualized. Our total loan portfolio of $10 billion remains very well diversified, and it's comprised of 53% commercial relationships and 47% consumer loans.
On page 6, total deposits of $11.7 billion were up $162 million from the linked fourth quarter, primarily due to the inflow of seasonal municipal deposits during the quarter. Generally, in most of our markets, municipal tax collections are concentrated in the first and third quarters of each year.
58% of our deposit portfolio consists of no and low-cost checking and savings accounts, while 42% is held in time and money market accounts. We have included a summary of our deposit mix by type which illustrates the diversification and deep granularity of our customer base.
The next slide highlights the detailed changes in our net interest income and margin. Our net interest margin in the first quarter increased 10 basis points to 3.44% from the linked fourth quarter, primarily driven by the decrease in the cost of interest-bearing deposits.
Net interest income for the first quarter was $107.2 million an increase of $1.1 million above the linked fourth quarter, and $12 million above the first quarter of 2024. The increase in net interest income from the prior quarter was primarily driven by a decrease in the cost of deposits partially offset by the impact of two less calendar days in the quarter.
Loan yields decreased 3 basis points from the prior quarter to 5.62%, primarily due to the re-pricing of $2.1 billion in variable rate loans following the prior quarters, federal funds rate decreases. We were able to actively manage our funding costs downwards to more than offset that impact, as evidenced by the 11 basis points decline in our total cost of deposits to 1.49% for the quarter.
As a reminder, approximately $5 billion of our deposits, principal money market, and CD accounts remain price sensitive. Looking ahead, the opportunity for upward movement and yields will depend on the shape of the yield curve and how we reinvest loan portfolio cash flows.
The trends in non-interest income are outlined on page 8. Excluding securities gains and losses, our fee income was $47.6 million an increase of 12.7% compared to the linked fourth quarter. Non-interest income represented 31% of total revenues in the first quarter, reflecting continued improvement and strength of our diversified revenue base.
Total operating expenses, excluding acquisition expenses were $98.7 million for the quarter, a 1.1% decrease from the linked fourth quarter. Salaries and employee benefit costs were $60.7 million a decrease of $1.1 million from the prior quarter. This decrease was primarily driven by lower medical and other benefit costs, lower levels of incentive compensation, and lower salary expense resulting from two fewer payroll days in the quarter.
These increases were partially offset by seasonally higher payroll taxes and an increase in stock-based compensation. The quarter-over-quarter increase in occupancy expenses was expected, driven by increases in seasonal costs, including utilities and higher maintenance costs.
Slide 10 provides an overview of key asset quality metrics. Net charge-offs to average loans were 27 basis points in the first quarter of 2025 compared to the 23 basis points in the prior quarter. Included in net charge-off was a $2.1 million write down of a commercial real estate loan that has been in a non-performing status for the past several quarters.
The loan was charged down to its updated estimated fare value based on new information received during the quarter. Excluding the $2.1 million write down, net charge-offs to average loans were 18 basis points for the quarter. Past due loans to total loans were 32 basis points and was in line with the past several quarters.
Reserve coverage was 1.17% of total loans and covered more than two times the level of non-performing loans. We believe that expected balance sheet growth, economic forecast conditions, and continued changes in loan mix will be the drivers of future provisioning needs.
In closing, growth in both net income and fee-based income drove the generation of the sequential and year over year positive operating leverage and contributed to our solid operating performance in the first quarter of 2025. Our continued capital strength has us well positioned to support organic growth and our other strategic initiatives.
Thank you for your continued support, and at this time, we welcome any questions you may have.

Question and Answer Session

Operator

(Operator instructions)
Steve Moss, Raymond James.

Hey, Scott, Nanette, this is Thomas on for Steve. Good morning and thank you for taking my question. So I just want to -- just wanted to see, maybe can you share your high-level thoughts on the demand for credit in your markets, our pipelines good? Were you seeing strength and weakness and maybe what are some of the things you're hearing from clients anecdotally? Thanks.

Scott Kingsley

It's an excellent question, and thanks for that. So pipelines are good, consistent with the levels we were enjoying most of last year in terms of individual markets very consistent across our footprints, whether that's northern New England, upstate New York, Pennsylvania, Connecticut, so really good pipelines.
Will we acknowledge that macro uncertainties have people asking questions about timing of certain things. For sure and generally I think a little bit more certainty when you're making a capital expenditure or when you're hiring people, is always welcomed and certainly always easier.
But to date, we haven't seen customers who are abandoning projects, who are looking at the current levels of uncertainties and saying I'm not sure how to step forward. So I would say pretty consistent and pretty stable and probably pretty in line or requisite with our markets.

Okay, that's good to hear and then maybe you know shifting gears to the other side of the equation, the supply of credit, how is competition or, what are you seeing in terms of spreads, it's pricing remaining rational?

Scott Kingsley

For the most part, I would say, there are certain certainly episodic situations in some of our markets because we compete with such a broad group of financial institutions but generally pretty reasonable, pretty disciplined.
There'd be a handful of small banks defending, smaller markets or 13 to 15 branch type setups somewhere that are competing maybe a little bit outside of our comfortability levels a few times but not overarching.

Okay, and then just one more from me, with Evans here that this closed shortly, they were a smaller institution. Are you guys seeing, do you have any, do you see opportunities for those bankers to maybe leverage your balance sheet in the near term to expand their existing client relationships, could help loan growth there. Do you see any potential for that?

Scott Kingsley

Yeah, absolutely, and that was really a piece of our value proposition, when we started speaking with the Evans folks is that ability to use a larger balance sheet so that they can compete or that they could fully cover certain client relationships where maybe the size of their balance sheet forced them to participate, at a sooner at a lower level.
So our on-boarding process and our transition process with the bankers from Evans is going exceptionally well. It's a really high-quality group of people in western New York and as much as I think we'll be defending existing client relationships, after the close of the transaction, I think we'll also have some opportunities for, some assertive growth characteristics relatively soon.

Great. All of that is good to hear. Thanks again, Scott and Nanette, for taking my questions.

Scott Kingsley

Appreciate it, Thomas. Thank you.

Operator

Matthew Breese, Stephens.

Matthew Breese

Hey, good morning. I was hoping we could start just with the CHIPS Act, given some of Trump's comments to Congress, from everything is there any ability or intent to actually rescind or revisit some of the committed dollars and ultimately do you expect. You know what was said to factor into, any delays for micron or other chips related projects.

Scott Kingsley

So let me take a run at both ends of those. Matt, quickly, is, the, are there contractual obligations that the government has relative to the CHIPS Act relative to the projects that have been awarded? Absolutely. What have we found in the last four to six weeks is that maybe that matters and maybe it doesn't.
So I won't say that there can't be adjustment. Maybe it's not rescinding, but there could be adjustment in some of those. That being said, the underlying tone of wanting to, source manufacturing for semiconductor, high electronics, I think, still resonates with the existing and the current administration.
So I think maybe you'll see some rebranding of that and maybe somebody will take credit for renegotiating something and calling it something else, but I think the general tenor is this is stuff we should be manufacturing, in the United States. So to answer that one, and I'm far from being able to, answer the legal question relative to, commitments, from a legal standpoint.
Your question about timing, we've been reminded of this a couple of times because Micron has pushed back their shovels in the ground timing a couple of times since the original announcement. So I think all of these projects are more company specific situations, as the folks in Columbus, Ohio are finding out with Intel that, maybe there's going to be a delay.
So we get reminded that, infrastructure moves along. This is a long-term project, and we would expect, meaningful start points out there. Acquisition of land is happening, in multiple spots in Central New York today, to support the project, things on the water and the and the sewer projects are underway currently.
We know that Micron has filed their environmental. Impact reports. So I think it's moving along at a pace that's probably pretty reasonable. So for now I think we're sort of hanging in there and thinking it's late this year, underway from shovels in the ground standpoint and still looking at a production window sometime in mid-'27, early '28.

Matthew Breese

Appreciate all that. Maybe just turning to some of the forecasting items, fee income drivers, particularly, the big ones, wealth, insurance, retirement, all the pretty solid this quarter. And you know the market's been volatile so I'm curious if you have any updated thoughts on how 2Q might shape up.
I'm not sure when those or how those fees are calculated on a, average market basis or end of period. Could you update us on fees and expected, hopscotch a little bit, but expected loan growth in the second quarter as well.

Annette Burns

Sure, Matt, I can help frame that for you. So when we back out the bully gain that we had during the quarter, our fee income was about $46 million. There was a little bit of seasonality in our retirement plan services and our insurance, but in the second quarter, things like service charges on deposit accounts will kind of pick up. So all in, the $46 million is probably a good run rate from a market sensitivity. Our most sensitive fee-based income to market is our wealth management business.
About 70% of the revenue is sensitive to market rates. And typically, that, it's priced all along the quarter, but a lot of it happens near quarter end and RPS, our retirement plan services, that's probably about 30% market sensitive and that kind of happens all throughout the quarter. So market volatility could have an impact on our run rate for the second quarter, but that probably helps you get a picture of the sensitivity towards that.

Scott Kingsley

And I'll pick it up from there on your question relative to loan growth. Obviously in the first quarter, but very modest loan growth, a couple things, we did not enjoy winter this year, or I take that back. If you like winter, you had a really robust year in our marketplaces, but so I think some of the things that were projects for some of our customers got underway a little bit late.
That being said, residential mortgage. We have historically been putting on the balance sheet, long term resi mortgage, did not have a very positive first quarter. I don't think it's just our marketplaces where, home sales were not robust in the first part of the year, and we did actually sell a few more long dated 30-year instruments in the secondary market than we had in past quarters, more because we think that the demand.
And going forward, including the western part of New York State, will mean that we should have all of our funding sources capable and retested, which is what we did in the first quarter. So if we were talking to you, Matt, a quarter ago and we said sort of a 3% to 5% growth rate, we're probably more in like the 2% to 3% thought process now after seeing the first quarter and understanding how some of our customers are dealing with macro uncertainty.

Matthew Breese

Got it. I appreciate that. Last one for me is just on the on the charge off and I could totally be connecting the wrong dots here, but I feel like there was a larger commercial real estate credit from late '23 for a bunch of the upstate New York banks the participation, am I right in kind of connecting those dots and could you re-familiarize us with the size of the credit, your portion, and you know how do you feel about the reserve and where it was valued at? Relative to the collateral.

Annette Burns

So you're correct that is the same credit and we now have remaining exposure to that credit right around 11.5 to $12 million on our books, it was written down to fair value so we're feeling comfortable that that's that that we're good and there will be no further exposure there it's been disclosed that that's moving into foreclosure so expect it might move. To be a nonperforming asset but move into ORE and sometime in the second quarter.

Scott Kingsley

I think the only other thing to add to that is the occupancy rate of that of that property is in the low 80%. So generating positive cash flow today, but you know the dynamics of, the ownership base and the principal, whether it makes itself all the way through to foreclosure.
We'll probably know that in the next four to six weeks, but generally speaking, the revised appraisal based on existing tenants and, other fixed costs in the property suggested that another write down was appropriate for this quarter.

Matthew Breese

Great I appreciate that thank you. I'll leave It there.

Scott Kingsley

Appreciate it Matt.

Operator

Manuel Navas, D.A. Davidson.

Manuel Navas

Hey, good morning. The strong deposit cost push downs, really helped them in this quarter. Is there any more of that still to come? I'm sure there'll be some CD renewals, but other accounts as well, is, or is that kind of more stable and on pause with the Evans deal?

Scott Kingsley

So I'll start that and then please jump in that I think you're accurate relative to we are making sure from a liquidity standpoint, from all sources of liquidity that as we go into the Evans closing that we have ample in fact more than we need probably just to be cautious with that said, I, we probably accelerated some of the deposit declines in the first quarter at a pace probably faster than we thought we were initially capable of, which probably means going forward without another Fed funds rate action, those will slow down. Our ability to stay competitive and to keep our balances, it will be challenged unless there's another stimulus out there in the market to do that.

Manuel Navas

I heard a little bit slower growth just because of macro uncertainty, but you're still entering this deal with much stronger than any other kind of shifts to Evan's expectations, or we'll kind of wait more for an update next quarter.

Annette Burns

I can share a little bit of our thought process around that based on some of our recent modeling. When we disclosed the announced the deal in September, we were expecting to see maybe about 5% tangible book value dilution and right around $0.38 of earnings accretion.
Purchase accounting marks have decreased a little bit in our modeling, so we're probably 100 basis points lower on tangible book value dilution, so right around 4%. And you know accretion for earnings is probably closer to $0.30 and that's assuming that all our cost saves achievements are in place, which we think that'll probably occur probably by the end of 2025, so hopefully that helps.

Manuel Navas

Yeah, that is helpful. Is there any shifts in your kind of go forward cost base just kind of on the legacy basis? How should I kind of think of the expense run rate going into the deal, and then we'll layer it and it's on top of it?

Annette Burns

Sure, I can speak to that. Our expenses were about $98.7 million for the quarter. We think that's probably a good run rate for us, excluding Evans during the quarter, salaries and benefits were right around $61 million. We have some, higher seasonal payroll taxes and stock-based comp, but that was offset by fewer calendar days, payroll days, so when we look into the second quarter, you're adding an additional payroll day and we have our annual merit increases in the month of March.
So really that's going to kind of offset each other and we'll probably land right around $61 million. In salaries and benefits as a good proxy for the quarter, occupancy costs, a couple $100,000 higher this quarter just because of seasonal maintenance and the harsher winter that we experience, so that'll come in just a little bit. But all in all, I think the current quarter's run rate is a good proxy.

Manuel Navas

Okay, that's very helpful. Thank you for the commentary.

Operator

(Operator instructions)
Christopher O'Connell, KBW.

Christopher O'Connell

Hi, good morning, just wanted to follow up on. Hey Scott, just wanted to follow up on the Evans update, given that, you provided the EPS accretion and dilution, which is helpful. Do you have an update as far as the overall you know purchase accounting accretion in the margin?

Scott Kingsley

I think it's safe to say, Chris, that any decline from what we described when we released in September on EPS secretion is all mark related.

Christopher O'Connell

Okay, got it. And then as you guys are looking forward for your margin, can you remind us how much, fixed asset repricing, I know you guys give the securities, flows in the deck, but, in particular I guess on the loan side over the remainder of 2025 and 2026 and what those yields are coming off that?

Scott Kingsley

Yeah, so it, I think we have a short description of that in the deck, Chris, but as a quick reminder, we've got $2 billion of cash flows off the loan portfolio that we expect an opportunity to re-price on. And if I was framing that today, I would tell you that on the consumer side for us, which is really dominated by indirect auto, new production and existing portfolio yields are really close to each other.
So we've probably got or crossed over on that one, whereas there's still a lot of pickup is on the commercial side, where new production, is in the ballpark of 75basis points to 100 basis points over where we are today, and then secondarily is residential real estate. So, we're not accounting -- we are not assuming a lot of volume in resi real estate where new loans are going on. Somewhere between, 6.25% and 7%, versus the existing portfolio yields which are in the low fours.
So if we were portfolioing all of our production, you might get a little bit more, beta on that particular side. But I think for now, just given where we are from a volume expectation, that opportunity for improvement is probably mostly focused on commercial cash flows.

Christopher O'Connell

Okay, great, and then you know as you guys are, looking in your markets and observing I guess in particular some of the, other consumer, runoff portfolios as well as the indirect, I mean just a general sense of of health on the consumer, in your markets, more recently.

Annette Burns

So we're seeing, not a lot of changes to our delinquencies, we're, feeling like they're, balance sheets are strong, what will really impact defaults and ultimately charge off is really linked to unemployment rates. So if economic conditions deteriorate and we're seeing higher unemployment, that's when we'll probably see the uptick in delinquencies and expectation of higher charge offs.

Scott Kingsley

Yeah, we've yet, Chris, to see where any of our customers have told us that their inputs, their price of raw material has been impacted by tariffs or certain other price changes. But remember, so much of that happened late in the month of March as we continue to have dialogue with our customers in the month of April, we've seen a few circumstances around that, a few episodic things, some of our customers that are more in northern New York that might be buying things like feed from Southern Ontario are already experiencing tariff outcomes. So, but again, I would call them more episodic at this point than systematic.

Christopher O'Connell

Okay, yeah. And then just, on the, closing of the Evans deal, you're obviously, Pretty much there, a week away at this point. So, is there any, runoff actions, balance sheet actions, anything else kind of contemplated with, the pro forma, loan or securities books and kind of how to manage that, especially, you guys have, a good amount of liquidity here or anything that you'll be changing, with your balance sheet, just, subsequent to deal close.

Scott Kingsley

So of course, not significant, but I will say this, once we knew that, once we had announced the Evans transaction, we started to deploy, some of on a leverage basis buying some investments in advance of the transaction. So, maybe in the ballpark of $25 million of securities a month for the last six to eight months.
Why do we want to do that? We don't want to put ourselves in a position that if we made the decision to sell the Evans portfolio, both from a duration or some other factor outcome, that we were now buying securities all in one day or essentially all in one block of time. That's been pretty successful actually.
That's worked really appropriately for us, remembering that we have to probably think. Having at least $200 million of investment securities to be able to collateralize the municipal deposits of Evans, so I would never expect the investment base to be lower than that on a going forward basis on the Evans portfolio.
And in fairness, if we see some other opportunities, to add to our. Portfolio productively where we think, yields and durations, peacefully coexist we would probably do that. Evans had a nice portfolio, the assets were were well selected for them. Is our preference for maybe something with a little bit lower duration probably so I think it's likely we see some modest churn of that portfolio, after the close.

Christopher O'Connell

Great. And then just on overall, M&A. What I guess what what's your appetite, here in this market, given, the kind of, overall market sell off a little bit more economic uncertainty, are you guys still, looking for deals post, Evans closing integration and, any change in kind of, what you'd be looking for, given the change of environment.

Scott Kingsley

Yeah, so a reasonable question. I will say this with no uncertainty. We are fixated on one acquisition right now, and that is Evans, and we will be fixated on that for a while because we think there's really good opportunities. They have a really high quality group of people in the Rochester and Buffalo marketplaces, and we really would like to be able to support, natural growth post acquisition in those spots first.
That said, are we capable of having discussions with other like-minded smaller community banks to either fill in spots in our existing franchise, that now is about to go from Portland to Buffalo, improve some of our concentration in a few spots, natural dialogue with smaller institutions happens all the time, and we've continued to have productive conversations.
We'd like to think that we're a high-quality buyer, from a stand. Point of we're really looking for institutions that fit our needs, but I think you know we're again a credible buyer, and I think people look at us from a currency standpoint for their own shareholders and say, partnering with us is a reasonable way forward.
So no current plans, but absolutely, looking at our opportunities at the same time, I think we've looked at some of our marketplaces, and I think we've said this before, where some of our Concentration characteristics or we have some gaps in some of our coverage. So in 2024 we opened an incremental branch in the Malta area, outside of Albany and in Binghamton.
In the first quarter we added South Burlington, and we added our first branch in Rochester up in Webster. So we think we're capable of doing that on a selected basis and there's some other marketplaces. Is in, a couple of parts of northern New York, southern and northern and lower Hudson Valley, certainly some spots in Vermont, New Hampshire, and Maine where we're underrepresented from a concentration standpoint.
So I think we'll be very deliberate about how we fill those in. But I see us doing that on both an organic basis and then evaluating whether there's a way to accelerate that, with an M&A transaction.

Christopher O'Connell

Great appreciate it. Thanks, Scott. Thanks a lot.

Scott Kingsley

Thanks. Thank.

Operator

(Operator instructions)
Feddie Strickland, Hovde Research.

Feddie Strickland

Hey, good morning, apologies I hopped on a little late, but I was just wondering on the credit side if you could, is it fair to assume charge offs are still likely, led by auto and residential solar for the next quarters, and is there any other portfolios you're looking at a little bit more closely, just with, all the uncertainty.

Annette Burns

That's a good question. I would say yes, the majority of our charge offs will probably come from auto and the residential solar book. Our commercial charge offs are much more episodic and generally can appropriately manage those. So I think that's a good way to frame it.

Feddie Strickland

Perfect. And it just, what was the total level of wealth assets under management and epic retirement assets under administration as fast forward I didn't see it in the in the deck this quarter.

Scott Kingsley

That we'll, Annette and I will get, with you offline on that after I'm not sure that we brought that forward, into any of the things that we presented today.

Feddie Strickland

Understood perfect. I think everything else has been asked and answered so thank you very much appreciate you taking my questions.

Scott Kingsley

Appreciate the questions. Thanks so much.

Operator

And I'm not showing any further questions at this time. I'll turn the call back over to Scott Kingsley for his closing remarks.

Scott Kingsley

Thank you, Kevin. In closing, I want to thank everyone on the call for participating this morning and your continued interest in NBT, and we look forward to catching up with you at the end of July, after we've gotten through the Evans transaction, which for us is really exciting and something we're really looking forward to. So I appreciate the support and appreciate the questions. Talk soon.

Operator

Thank you, Mr. Kingsley. This concludes our program. You may now disconnect. Have a great day.