Executive Summary / Key Takeaways

• NBT Bancorp is executing a multi-faceted growth strategy, combining organic expansion, strategic M&A (highlighted by the recent Evans Bancorp acquisition), and leveraging its diversified fee-based businesses to enhance its footprint and revenue streams across the Northeast.
• Recent financial performance, particularly in Q1 2025, demonstrates positive operating leverage driven by improving net interest margin and robust noninterest income growth, signaling momentum despite a challenging rate environment.
• The Company's unique positioning within the burgeoning Upstate New York semiconductor chip corridor presents a significant long-term growth opportunity, expected to drive increased demand for banking and financial services.
• NBTB maintains a strong capital position and ample liquidity, providing flexibility to support continued organic growth, execute strategic initiatives, and deliver consistent shareholder returns through its long-standing dividend increase policy.
• Key factors to watch include the successful integration of the Evans acquisition, the pace of economic development in the chip corridor, and the Company's ability to manage credit quality and funding costs amidst evolving macroeconomic conditions and digital competition.

A Regional Powerhouse Forges Ahead

NBT Bancorp Inc. (NASDAQ: NBTB) stands as a community-oriented financial institution with a rich history dating back to its incorporation in 1986. Primarily operating through its subsidiary, NBT Bank, N.A., the Company has steadily expanded its reach across upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine, and central and northwestern Connecticut. NBTB's foundational philosophy centers on local decision-making and providing a comprehensive suite of commercial banking, retail banking, and wealth management services tailored to its communities. This approach has shaped a business model that balances traditional banking with diversified, fee-generating activities.

Positioned within the competitive Northeast banking landscape, NBTB operates alongside larger regional players such as M&T Bank (MTB), KeyCorp (KEY), Citizens Financial Group (CFG), and Webster Financial Corporation (WBS), as well as smaller local institutions and increasingly, fintech alternatives. While NBTB's estimated market share of 0.5-1% is smaller than some larger peers like MTB (1-2%) or KEY (1%), its strategy focuses on leveraging its community-centric model and diversified offerings to differentiate itself. NBTB's branch network, while potentially less digitally advanced than some competitors, fosters customer loyalty and contributes to lower operating costs per unit in certain areas, such as an estimated 10-15% lower cost per branch compared to MTB or 10-15% lower operating costs per loan compared to WBS. However, the Company acknowledges a "digital innovation lag" compared to peers like CFG (20-25% faster processing) and KEY (30% faster transaction processing), a vulnerability in an increasingly digital banking world.

A key differentiator for NBTB lies in its diversified fee-based businesses, particularly EPIC Retirement Plan Services. This platform offers specialized services like retirement plan administration and recordkeeping. Specific quantifiable technological advantages for EPIC beyond "20% faster recordkeeping" were not detailed. This capability contributes to NBTB's competitive moat against broader financial institutions and supports its wealth management services. The Company is also investing in "customer facing digital platform solutions" and enhancing its "enterprise risk management" technology, signaling a commitment to addressing its digital vulnerabilities and strengthening operational resilience.

NBTB's strategic trajectory is defined by a blend of organic growth and targeted acquisitions. Recent organic expansion includes opening new branches in key markets like Malta, Binghamton, South Burlington, VT, and Webster, NY, aimed at filling geographic gaps and enhancing market concentration. Acquisitions have been instrumental in expanding the franchise and diversifying revenue. The Salisbury Bancorp (SAL) acquisition in 2023 added significant scale, and recent smaller acquisitions in insurance (Karl W. Reynard) and third-party administration (PACO, Inc.) bolster fee income capabilities. The most significant strategic move is the recently completed acquisition of Evans Bancorp, Inc. (EVBN) on May 2, 2025. This merger is a natural geographic extension into the attractive Buffalo and Rochester markets, positioning NBTB as the largest community bank in Upstate New York by deposit market share and providing former Evans bankers with the capacity of a larger balance sheet to compete more effectively.

Performance Reflecting Strategic Momentum

NBTB's financial performance in the first quarter of 2025 reflects the positive impact of its strategic focus and operational discipline. Net income for Q1 2025 was $36.7 million, or $0.77 per diluted common share, an increase from $33.8 million ($0.71 per diluted share) in Q1 2024 and $36.0 million ($0.76 per diluted share) in Q4 2024. Operating diluted earnings per share, a non-GAAP measure, stood at $0.80 in Q1 2025, up from $0.68 in Q1 2024 and $0.77 in Q4 2024, demonstrating positive operating leverage.

Net interest income continues to show positive momentum, improving for the fourth consecutive quarter to $107.2 million in Q1 2025. The FTE Net Interest Margin (NIM) was 3.44%, a 10 basis point increase from Q4 2024 and a 30 basis point increase from Q1 2024. This expansion was primarily driven by a decrease in the cost of interest-bearing deposits, which more than offset a slight decrease in loan yields resulting from the repricing of variable rate loans following prior quarter federal funds rate reductions. Management highlighted that approximately $5 billion of their deposits remain price-sensitive, offering potential for further cost reduction depending on the interest rate environment. Acquisition-related net accretion also contributed to net interest income, totaling $2.2 million in Q1 2025.

Noninterest income remains a significant strength, contributing 31% of total revenues in Q1 2025. Excluding securities gains/losses, noninterest income was $47.6 million, a 12.7% increase from Q4 2024 and a 10.1% increase from Q1 2024. This growth was broad-based across the fee businesses. Retirement Plan Administration fees increased significantly, driven by higher seasonal activity, organic growth, and contributions from the Q4 2024 TPA acquisition. Insurance services also saw an increase due to organic growth, policy renewals, and seasonality. Wealth Management fees grew due to performance and new customer accounts. BOLI income saw a notable increase due to a $1.3 million claim gain. These fee businesses (Retirement Plan Administration, Wealth Management, Insurance) have demonstrated a meaningful five-year compounded annual growth rate of 9% and are viewed by management as net providers of capital due to their attractive operating margins and modest capital requirements for organic growth.

Noninterest expense in Q1 2025 decreased slightly from Q4 2024, primarily due to lower compensation costs (medical benefits, incentive pay, fewer payroll days), partially offset by seasonally higher payroll taxes and occupancy costs. Compared to Q1 2024, expenses increased, driven by higher salaries and benefits (merit increases, increased headcount) and occupancy costs (seasonal maintenance, new branches). Management expects the operating expense run rate for 2025 to increase by 4-5% annually from the 2024 base, reflecting ongoing investments in the franchise.

Loan growth in Q1 2025 was modest, with total loans at $9.98 billion, up slightly from $9.97 billion at December 31, 2024. Excluding planned run-off portfolios (other consumer and residential solar), loans grew at an annualized rate of 1.8%. Deposit growth was stronger, increasing by $161.8 million to $11.71 billion in Q1 2025, primarily due to seasonal municipal deposit inflows. The Company's deposit base is diverse and granular, with over 561,000 accounts averaging $20,834.

Asset Quality and Risk Management

NBTB's asset quality metrics reflect careful management in a dynamic economic environment. The Allowance for Credit Losses (ACL) totaled $117.0 million at March 31, 2025, representing 1.17% of total loans, an increase from 1.16% at December 31, 2024. The Provision for Loan Losses (PLL) was $7.6 million in Q1 2025, up from $2.2 million in Q4 2024 and $5.6 million in Q1 2024. This increase was attributed to higher net charge-offs and a deterioration in economic forecasts used in the CECL model, partially offset by model refreshment and loan mix shifts.

The CECL methodology requires significant judgment, particularly regarding macroeconomic forecasts. In Q1 2025, NBTB's quantitative model incorporated a baseline economic outlook (75% weighting) anticipating a slight increase in unemployment (4.1% to 4.4%) and fluctuating Northeast GDP growth, alongside a downside scenario (25% weighting) projecting national unemployment rising to 7.6% by Q2 2026. Sensitivity analysis highlights the impact of these assumptions, with a 10% shift in scenario weighting resulting in a 4% change in the allowance, and a 100% downside weighting causing a 30% increase.

Net charge-offs totaled $6.6 million in Q1 2025, or 27 basis points annualized, up from 23 basis points in Q4 2024. This included a $2.1 million write-down on a nonperforming commercial real estate (CRE) loan relationship that had been previously reserved. Nonperforming assets were $48.0 million (0.35% of total assets) at March 31, 2025, down from $51.8 million (0.38%) at December 31, 2024, primarily due to the aforementioned CRE charge-off. Nonperforming loans were $47.7 million (0.48% of total loans), down from $51.6 million (0.52%).

Potential problem loans (performing loans classified as substandard with potential weaknesses) increased to $125.2 million from $116.1 million, mainly due to a few CRE relationships facing construction delays, rising costs, and leasing challenges. Management emphasizes a diversified loan portfolio with no significant industry concentrations and a focus on originating loans within its footprint to mitigate credit risk.

Interest rate risk is the most significant market risk. NBTB manages this through asset/liability management and derivative instruments, maintaining a near-neutral interest rate sensitivity position. Earnings at risk modeling shows that projected changes in net interest income under various rate scenarios (+/- 100-300 bps) are within internal policy limits. The trajectory of net interest income remains sensitive to the path of short-to-mid-term rates and deposit pricing dynamics.

Liquidity risk is managed through guidelines covering assets, liabilities, and off-balance sheet items. The Basic Surplus measurement, indicating access to reliable cash sources relative to funding stability, was strong at 16.9% of total assets ($2.34 billion) in Q1 2025, well above the 5% minimum policy level.

The Company has significant borrowing capacity available from the FHLB ($1.7 billion), unpledged securities ($1.01 billion), brokered deposits/other facilities ($2.02 billion), and the FRB Borrower-in-Custody program ($1.16 billion). While elevated rates and broader banking system deposit trends pose potential liquidity challenges, enhanced monitoring is in place.

Strategic Outlook and Future Catalysts

NBTB's outlook is centered on leveraging its expanded franchise and capitalizing on unique market opportunities. The successful integration of the Evans Bancorp acquisition is a key near-term focus, with core systems conversion planned shortly after closing. Management anticipates approximately 4% tangible book value dilution and around $0.30 in EPS accretion from the Evans deal, assuming cost saves and synergies are realized by the end of 2025. This expansion into Western New York is expected to drive future growth by allowing NBTB to compete more effectively in larger markets and build upon Evans' established relationships.

A significant long-term catalyst is NBTB's strategic positioning within the Upstate New York semiconductor chip corridor. The planned Micron (MU) complex near Syracuse, supported by substantial federal and state investments ($6.1 billion grant, $5.5 billion tax credit, infrastructure funding), represents a potential $100 billion investment over time. While construction is expected to begin in the second half of 2025 with fabrication starting around 2028, the project is projected to create thousands of construction, direct, and indirect jobs. NBTB is actively engaged with economic development agencies and aims to be a leading financial services provider in this growing ecosystem, believing this demographic change will "rise all boats" in the region.

Management's guidance for 2025 includes expected legacy loan growth in the 2-3% range, reflecting current market conditions and customer uncertainty. Fee income is projected to maintain a strong run rate, estimated at around $46 million quarterly (excluding the Q1 BOLI gain), with continued organic growth and market performance driving results. Operating expenses are expected to increase by 4-5% annually, balancing cost management with necessary investments. The effective tax rate is estimated to be between 22.5% and 23% for the year.

NBTB's capital allocation priorities remain focused on supporting organic growth, maintaining a strong dividend (12 consecutive years of increases), and evaluating opportunistic M&A. The Company's experience with the Salisbury integration, which saw dilution earned back in under a year, provides confidence in its ability to execute the Evans transaction successfully. While the competitive landscape, particularly the digital capabilities of larger peers and fintechs, presents challenges, NBTB's focus on community banking, diversified services, and strategic expansion positions it to capitalize on regional growth opportunities.

Conclusion

NBT Bancorp is executing a clear strategy to enhance its position as a leading community bank in the Northeast. The recent completion of the Evans Bancorp acquisition significantly expands its footprint into key Upstate New York markets, complementing its existing strengths and providing a platform for future growth. Supported by a diversified revenue stream, particularly robust fee income businesses, and a disciplined approach to expense management, NBTB has demonstrated positive operating leverage and improving financial performance. While macroeconomic uncertainties, credit quality management, and the need for continued digital investment remain pertinent risks, the Company's strong capital base, ample liquidity, and unique opportunities like the Upstate New York semiconductor chip corridor provide compelling catalysts for long-term value creation. NBTB's commitment to organic growth, strategic M&A, and consistent shareholder returns underscores its investment thesis as a resilient regional financial institution poised for continued evolution.