NBT Bancorp Inc. (NBTB) Earnings Call Transcript & Summary

Good day, everyone. Welcome to the conference call hosted by NBT Bancorp, Inc. regarding the definitive agreement between NBT and Evans Bancorp Inc. to merge Evans with and into NBT. This call is 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 nbtbancorp.com. Before the call begins, NBT's management would like to remind listeners that as noted on Slides 2 and 3, today's presentation may contain forward-looking statements as defined by the Securities and Exchange Commission. Actual results may differ from those projected. These forward-looking statements reflect NBT's best estimates and assumptions based on its understanding of information known to NBT today. These forward-looking statements are subject to the risks and uncertainties that face NBT and Evans and the industry in which they operate. You are encouraged to review the joint press release from NBT and Evans issued yesterday for more information on these risk factors as well as both company's filings with the SEC. Please also see additional legal statements at the end of the press release. In addition, certain non-GAAP measures will be discussed. Reconciliations for these numbers are contained within the appendix of today's presentation. [Operator Instructions] 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.

Thank you, Liz. Good morning. Thank you for joining our call and for your interest in NBT. With me this morning is our CFO, Annette Burns; and Joe Stagliano, President of NBT Bank and our CIO. We are very pleased to have announced yesterday afternoon that NBT has reached an agreement to merge with Evans Bancorp Inc., a $2.3 billion community bank headquartered in Williamsville, New York. Our partnership with Evans is a natural geographic extension of NBT's footprint into the attractive Buffalo and Rochester markets of Western New York. This expansion into Buffalo and Rochester, Upstate New York's largest 2 markets by population, complements our meaningful presence in Central New York, the Capital District and the Hudson Valley, positioning us as the largest community bank in Upstate New York. Importantly, Evans is a high-quality partner that is culturally aligned with our vision, values and mission. This is also a terrific opportunity for us to accelerate growth and build additional scale, which is a key value driver. Dave Nasca, President and CEO of Evans, is extremely well respected in the Western New York region and someone I have known for many years. I am pleased that Dave will join NBT's Board of Directors when the transaction closes. Evans has attracted and developed a talented and experienced group of professionals. There is no overlap of our franchises. And as such, we expect to retain all branch offices and the vast majority of retail and business development team members. Our banking footprint, both retail and commercial, is uniquely positioned to benefit from the economic growth in the Upstate New York chip and technology corridor for many years to come. As you will hear from Annette, this is a financially attractive transaction, which will provide double-digit earnings accretion to the combined shareholder base.

Thank you, Scott, and good morning. As Scott stated, we are very excited to announce our agreement to partner with Evans Bancorp. I wanted to share some of the key transaction highlights including certain assumptions and expected financial impacts. Consideration will be all stock, with a fixed exchange ratio of 0.91 shares of NBT common stock for each outstanding share of Evans. That results in a per share value of $42.11 per share using NBT's September 6 closing stock price of $46.28 per share, which represents an 18% market premium for Evans shareholders. The total deal value is approximately $236 million, and Evans shareholders will own approximately 10% of the combined company. The purchase price represents 1.32x Evans tangible book value per share as of June 30, 2024. We expect to record total marks on loans of 6.4% of outstanding balances, with 1% attributed credit marks and 5.4% related to interest rate marks. We have assumed approximately $46 million after tax of fair value marks on Evans available-for-sale investment securities, which are reflected in their current financial statements through AOCI. We also expect to create a core deposit intangible of 3% of Evans' core deposits. We expect the transaction to be $0.38 or 13.6% accretive to our -- the full -- the first full year GAAP earnings while being 4.7% dilutive to our tangible book value with an earn-back period of just over 2 years. We expect our tangible common equity ratio to be approximately 7.5% after the closing of the transaction. And all capital ratios to be and remain significantly above the required level to be well capitalized for regulatory purposes. With that, we're happy to answer any questions you may have at this time.

[Operator Instructions] Our first question comes from Steve Moss with Raymond James.

Congratulations on the transaction here. I guess maybe just starting with your expansion here into Western New York. Curious, Scott, if you're thinking as you integrate Evans, are you looking to do any de novo branches by any chance? Or would you prefer to do additional infill acquisitions?

Great question, Steve. And thanks for that. Absolutely, I think it creates a terrific opportunity to fill in some gaps between Syracuse and the Rochester market and the Finger Lakes communities that we really like, and I think that are terrific for us to think about going forward, the Greater Auburn community, places like Elmira, Penn Yan, Seneca Falls, Geneva, great marketplaces in the Finger Lakes that once we get our feet on the ground in Western New York, will certainly be spots where we would be open to expansion.

Okay. And then in terms of just the combined companies here, I saw the accretion schedules. Just curious, are you looking to sell any loan portfolios or a portion of the Evans securities portfolio when this deal closes just maybe to clean off the balance sheet or shorten the duration?

Steve, we'll continue to look at that. We'll run our ALCO models and really understand what we look like on a combined basis. So we're still working through that. With the securities mark, there is an opportunity to look at some potential restructurings for that. But we'll take some time and evaluate that. And keep in mind that we'll probably have to keep about half of that securities book to collateralize muni deposits related to Evans book. So -- but still thinking through that, and we think there's some opportunities to evaluate that and build on our net interest income there.

Okay. Got it. And I guess last one for me, just curious here, was this a negotiated transaction? Or was this a bid situation?

So as much as we have known Dave and the Evans organization for a long time, we do think that there was people that had interest besides us. So yes.

Our next question comes from the line of Matthew Breese with Stephens.

Maybe just to level set, once the deal is completed, how much impact do you expect to see on the NIM? So where is the pro forma NIM? And how much of the benefit or NIM benefit will be from accretable yield?

So maybe I could explain it this way for you, Matt, if we were to just look at our loan interest mark and our liability mark together, that's probably [indiscernible] about $15 million annually of net interest income. And we just layer that on top of what Evans has for net interest income. That's [indiscernible] margin right around [ 30, in mid-30s ]. So I wouldn't expect that our overall margin has any dilution by adding Evans [indiscernible] including those marks.

Okay. And then the other one I was just hoping for a little bit of guidance on was given the EPS accretion figures are based on year-to-date earnings, once we see this deal closed and cost saves completed, where do you expect the pro forma ROA to kind of shake out fully executed?

So when we did our modeling, we looked at both Evans and NBT annualized their first half of 2024. So building off that and if you think about Evans earnings source is primarily through net interest income. So we'll bring on their average earning assets or they're -- bring on their assets. So if you combine that and look at our ROA on a pro forma combined basis, we think that will improve it by maybe 3 to 5 basis points based on our modeling using the first half of 2024 annualized.

And Matt, I'll jump in on that, too, to say we just thought it was more appropriate to use known items as opposed to items that might be more prognosticated into the future like consensus for 2025 or '26. We knew what our performance looked like for the first half of the year. We knew what their performance looked like. I thought that that was the best baseline to work off. So if interest rate changes in the market, changes in yield curve dynamics versus the current inversion that we're experiencing are out there, do we think that performance longer term could be better? I'm sure we do. But it just didn't seem to make sense to try to take advantage of some of those things and put those into our forward-looking estimates.

Understood. Okay. Just 2 other ones for me. The first one is with the new markets, Rochester and Buffalo, big dense markets for you, what do you expect the impact to be on the go-forward loan growth outlook? And secondarily, how much and where do you expect to spend dollars to kind of get both of those areas where you want them to be?