NBT Bancorp Inc. (NBTB) Q4 2021 Earnings Report, Transcript and Summary

Good day, everyone. Welcome to the NBT Bancorp Fourth Quarter 2021 Financial Results Conference Call. 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 nbtbancorp.com. Before the call begins, NBT'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. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to NBT Bancorp President and CEO, John H. Watt Jr., for his opening remarks. Mr. Watt, please begin.

All right. Thank you. And good morning, and welcome from 14 degrees below 0 Norwich, New York. And thank you for participating in our earnings call covering NBT Bancorp's fourth quarter and full year 2021 results. Joining me today is Scott Kingsley, our Chief Financial Officer; as well as Annette Burns, our Chief Accounting Officer; and Joe Ondesko, our Treasurer. At NBT, we achieved record results in a year defined by great progress and consistently building momentum, we are very pleased to report earnings per share of $0.86 for the quarter and $3.54 for the year. Our capital position is strong with tangible book value per share up 8% from the prior year-end. This foundation provides us with optionality as we consider strategic investments to drive NBT's continued growth. Our fee-based businesses achieved new levels of success year-over-year. And at the end of the fourth quarter, AUM and AUA exceeded $10 billion. Loan growth, excluding PPP, was 5% with the commercial business and our Sungage solar lending business finishing strong in the fourth quarter. Across our markets and despite the recent COVID surge, our commercial customers are active, and their sentiment is optimistic. In 2021, our customers continued to embrace digital service with a 64% increase in consumer adoption. Yesterday, our Board approved a $0.28 dividend, payable on March 15, and that would be our 520th consecutive dividend payment, and it is $0.01 higher than the prior year. Yesterday, the Board also welcomed our newest director, Heidi Hoeller, a former partner with PwC. With over 25 years of experience in public accounting and financial services, we look forward to adding Heidi's valuable perspective to the discussions guiding NBT forward. So I'll conclude my remarks by emphasizing that it was the talented and dedicated team at NBT who made our 2021 success possible. We could not be more optimistic about how well the team has positioned us as we enter 2022. And now I'll turn it over to Scott, and he'll walk us through our financial performance on a more detailed basis. Scott, it's yours.

Thank you, John, and good morning, everyone. Turning to Slide 4 of our earnings presentation. As John mentioned, our fourth quarter earnings per share were $0.86, which was consistent with the linked third quarter and $0.08 a share above the fourth quarter of 2020. These results were driven by increases in net interest income, including a higher level of PPP interest and fees, favorable credit results and strong fee income, offset by higher operating expenses. We recorded a provision expense of $3.1 million after 4 consecutive quarters of provision benefits. Charge-offs increased to 22 basis points of loans compared to 11 basis points in the prior quarter, with almost all of that change related to one commercial relationship that had been specifically reserved for in the previous period. Our reserve coverage decreased to 1.24%, excluding PPP loans from 1.28% in the third quarter of 2021. We continue to be pleased with our underlying operating performance. Slide 5 shows trends in outstanding loans. On a core basis, excluding PPP, loans were up approximately $107 million for the quarter and included strength in our consumer mortgage and consumer specialty lending portfolios as well as growth in commercial outstandings. The lack of vehicle inventories has continued to challenge net results in our indirect auto portfolio, and we experienced another quarter of declines in outstandings. Also, as a reminder, we have some additional information on PPP lending on Slide 13 in the appendix of today's presentation. Our total PPP balances as of year-end 2021 were just over $100 million, with forgiveness almost complete for both the 2020 and 2021 vintage loans. We recognized $7.5 million of interest and fees associated with PPP lending during the quarter and have $3.4 million in unamortized fees remaining. We expect a significant portion of these to be recognized in 2022. Moving now to Slide 6. Deposits were up $39 million for the quarter. Customer balances remain elevated from liquidity associated with the various government support programs and continued higher savings rates. Our quarterly cost of deposits declined to 8 basis points, and we continue to add new accounts in the quarter. Next, on Slide 7, you'll see the detailed changes in our net interest income and margin. Net interest income increased $7.5 million as compared to the third quarter and included $4.7 million of additional PPP income. The net interest margin was 20 basis points -- was up 20 basis points, primarily due to PPP forgiveness, but also included a modest increase in earning asset yields and a decline in the cost of interest-bearing liabilities. Excess liquidity continued to be a drag on our margin, but we again remind ourselves that low-cost core funding should always be viewed as a long-term value driver. Looking forward, despite the growing sentiment of rising short-term rates in 2022, we would expect to experience general core margin stability, excluding the impact of PPP income recognition before reaching an upward inflection point later in the year. We would plan to deploy some of our $1.1 billion of excess liquidity into more productive earning assets over the next several quarters to improve core net interest income results as those opportunities present themselves. Slide 8 shows trends in noninterest income. Excluding securities gains and losses, our fee income was up linked quarter to $41.1 million. More broadly, non-spread revenue was 33% of our total revenue, which remains a key strength for NBT and we like the trajectory of each of the nonbanking businesses we are in. Our wealth management and retirement plan administration businesses continued their trends of strong quarterly growth from new business wins and market appreciation. Turning now to noninterest expense on Slide 9. Our total operating expenses were $75.1 million for the quarter. We did incur an additional $0.3 million of nonrecurring costs in the quarter related to a litigation settlement we've referenced in previous quarters. Fourth quarter operating expenses were again seasonally higher than the linked third quarter, consistent with previous results in previous years. We'd expect core operating expenses to continue to drift upward over the next several quarters, including expected 2022 merit-related wage increases as well as our continued efforts to fill a higher-than-historical level of open positions in support of customer engagement and growth objectives. In addition to investing in our people, we continue to expect to invest in technology-related applications and tools in order to advance to our customer-facing and processing infrastructure. On Slide 10, we provide an overview of key asset quality metrics. As I previously mentioned, excluding the impact of PPP, charge-offs increased to 22 basis points of loans compared to 12 basis points in the prior quarter. Both NPLs and NPAs declined again this quarter. We are continuing to benefit from our conservative underwriting and thus far, observed credit metrics have been much better than we would have been suggested in those CECL models from 12 to 18 months ago. On Slide 11, we provide a walk forward of our reserve. Clearly, the economic outlook continues to improve, but uncertainty remains elevated. Excluding PPP, our allowance to loans -- our allowance to loan ratio was 124 basis points, an appropriately conservative estimate of the credit risk in our portfolio today. We continue to believe that the path of charge-off activity will return to more historical norms and along with expected balance sheet growth will likely be the drivers of future provisioning needs for the company. As I wrap up prepared remarks, some closing thoughts. We started 2021 on strong footing, and we are pleased with the fundamental results considering everything that has been impacted by COVID-19 pandemic. Stable net interest income, solid results from our recurring fee income lines, sustained expense discipline and exceptional credit quality outcomes have been clear highlights. It's also worth mentioning, we've added over $130 million to capital over these last historically challenging 8 quarters, while at the same time paying dividends to our shareholders of $95 million and buying back $30 million of our own shares. These meaningful capital accumulation results put us in an enviable position as we consider growth opportunities for 2022 and beyond. With that, we're happy to answer any questions you may have at this time.

[Operator Instructions] Our first question comes from Alex Twerdahl from Piper Sandler.

First off, Scott, I missed what you said on the expense guide. Did you say that -- I think you said that there was some nonrecurring this quarter and then kind of the trajectory. Can you just go over that again, please?

Sure. So we had another $300,000 of costs associated with the litigation settlement where we had had $4 million worth of charges combined in the second and the third quarter to hopefully bring that to conclusion. Then from there, Alex, for the company, fourth quarter spending has always been a little bit higher than, say, the linked second and third quarters, and that was no different for this year. That included some additional spending in professional fees as we paid for some services relative to some of the initiatives, outside audits, things that we would say are generally recurring in nature, but just tend to be seasonally higher in the fourth quarter. We typically have a significantly higher concentration of charitable giving in our fiscal fourth quarter than we do in the 3 previous quarters. So back to that kind of a point. Fourth quarter was meaningfully higher than the third quarter. Some of that stuff is seasonal. Some of that stuff was completion of some initiatives that got some modest deferral in them from earlier in the year. Kind of rolled back from that a little bit, Alex, I think we're thinking that on a run rate, including what we expect to do with our employees relative to merit changes, we're probably at $73.5 million to $74.5 million quarterly run rate headed into 2022, understanding that there's some seasonality in our numbers. We're generally more expensive in the first quarter where we have a higher level of payroll taxes and higher levels of equity compensation awards that require immediate expensing. As well as the fact that as it turns out -- to turn the heat on when it's minus 14 is a bit more expensive than turning on the air conditioner in June. So hopefully, that helps?

Okay. So yes, it's 270 -- I'm sorry, $73.5 million to $74.5 million implies kind of 4% to 5% annual expense growth, and that's kind of in line with sort of what your expectations are?

I think that's pretty close.

Okay. Great. And then maybe you could talk a little bit about -- I mean, you talked about the NIM guide, I think, exclusive of rate hike, can you maybe just remind us kind of the percentage of the portfolio that floats and sort of what the impact of some short-term rate hikes that seems pretty likely in the near term would be on the balance sheet, please?

Yes. Great point. So for us, in that -- closing in on $11 billion of earning assets, which by the way, there's still $1 billion of that, that sits in essentially short-term overnight funds. So if you kind of start with that, the presumption is any kind of Fed rate hikes would impact that $1 billion pretty fast. And so instead of earning the very de minimis amount that we're earning today, we would earn a slightly higher level from the Fed on that. We've also got about $2 billion of mostly commercial loans that are in a variable state -- and so we would expect to benefit on rate hikes. The moment that happens in that part of the portfolio, they're tied to either LIBOR or to a certain extent, on some of the small business banking, a prime number or some other off-treasury index. So again, we expect to get instant benefit on that piece of it. The piece that's probably just as significant or probably quite frankly, more significant to the total is we'd expect new asset generation in a higher rate or rising rate environment with a slightly steeper yield curve in the "belly of the curve," where we tend to price most of our assets kind of in that sort of 3-year to 6- or 7-year point of the curve. To present an opportunity to price new cash flows at slightly higher rates than what we've had that opportunity to do over the course of the last couple of years requires diligence, as you know, Alex, means you can't compete that away. And given all the liquidity that's out there on everyone's balance sheets, the jury is still out on whether people will actually realize some of that inherent benefit that "this improved yield curve or improved rate environment actually creates." Again, I think the impact for the first couple of quarters of the year will be pretty nominal. And it's probably a second half of the year discussion relative to inflection.

Okay. Great. That's great commentary. And then one final question for me just on credit. Historically, the fourth quarter has been a little bit of a cleanup quarter, if I'm not mistaken, on indirect and taking charge-offs and anything that's kind of teetering you kind of push through. Was that again the case this quarter? I'm just trying to get a sense, I know you're talking about net charge-offs normalizing, you're heading back towards normal in 2022. But just wondering how quickly we're going to get back to or towards that of a normalized charge-off level and whether or not that normalize is going to really be kind of pre-pandemic or if it's going to be a little bit lower in your opinion?

Well, that's a really good question. And one that one has difficulty prognosticating. So if I took you backwards a little bit, Alex, 2019 for the company was 36 basis points of charge-offs across all of our portfolios. And as you might expect, heavily dominated by our consumer lending portfolios, whether that was the old Springstone portfolios or indirect auto, the combination there of -- a company has been very fortunate at a very modest amount of commercial losses over the last 3-year period, and honestly, historically. So then we dropped to 24 and 13 basis points of loss in the 2 years with the pandemic. So inherently, do we think that number starts to move back up? We think the first impacted portfolio, again or probably these consumer portfolios. Alex, nobody is losing any money today on losses on indirect auto because there's not enough cars out there and anything that is making it to the auction is selling at retail at the auction. So losses in that portfolio are very modest. Does that continue for the first half of the year? Probably. And then maybe we start to drift more towards historical loss rates in indirect auto. Nothing on the horizon that we see from a problem standpoint. Back to your question about did you clean stuff up? We had one relationship, a little over $1.5 million that we had specifically reserved for in a previous quarter and brought that to a charge-off determination in the quarter. And so that represented roughly 35% to 40% of the charge-offs for the entire quarter. Where’d the rest of the charge-offs come from? Probably specialty lending on the consumer specialty side. Seeing a little bit of -- maybe a little bit of delinquency tick up in some of those consumer lines, but still well below historical norms. So I feel really good about where we are from a credit perspective on an overall basis. But I think it's probably hard to sustain 13 basis points of charge-offs with our mix.

Our next question comes from the line of Eric Zwick from Boenning and Scattergood.

Within your commentary about expense growth in 2022, you mentioned continued digital investments would be part of that kind of creeping up in the expenses. Just curious what you have on the agenda in terms of kind of planned investments or systems enhancements for this coming year?

We have several projects ongoing. And I think we've talked in the past about our -- and see [indiscernible] adoption, and that was launched in the beginning of the fourth Q, and we'll incur additional expense as we get it rolled out across the platform in 2022. We've enhanced the indirect auto platform with a offering to the dealers that digitizes all of the documentation associated with doing those individual indirect auto loans. And that's rolling out last 2 quarters of last year and again, first Q, probably in the second Q, this year. Internally, we're upgrading our human resources system moving away from one vendor into a more integrated vendor, a lot more efficiency associated with it. That gets rolled out in another 4, 5 weeks. So that add-on will add a little cost here. In addition, now that Scott's had an opportunity to look at how our financial infrastructure is put together. He's made some recommendations on how to improve from a system perspective, some of the work we do on the financial side, and there's a system there that will go in 2022. So at a high level, those are some of the bigger projects underway. Underlying that, we're making some enhancements in our business banking platform to enable customers to access us more quickly and to get decisioning on a more real-time basis and that will roll out as well.

John, I appreciate the color there.

You're welcome.

Turning to loans. I noticed in the press release that the commercial utilization rate seems to be kind of just hovering in that kind of 21% range. Curious as PPP funds get used and it seems like loan demand is increasing, would you expect that to potentially start to go up this year? And wondering if you could remind me what you would consider kind of a normal level of utilization for your portfolio?

Yes. So good question. In terms of that -- and I think everyone will be saying this quarter, yes, we see good opportunities for our commercial and business banking customers. They just have way more liquidity than they've had on their own balance sheets than historically. So in fairness, from an efficiency standpoint, sometimes the best use of their next initiative is the cash they currently have. So we would like to see that number walk up to more historical utilization levels, which would be in the high 20s to low 30s. And honestly, that's why the instruments are out there for people, not just to be acknowledged. I don't think we're going to see a lot of utilization characteristically different for the first half of the year. But that being said, not everybody's excess cash is at the business that potentially needs borrowing opportunities. I think the other thing that's happened with generally our business banking, our more small business, medium-sized businesses, is the uncertainty that's continued to circulate has resulted in deferral of commitments from a -- certainly from a capital spending standpoint and to a certain extent, even some of the initiatives they might have had on spending that runs through their P&Ls. So if we could get through a period of a little bit less uncertainty both from a pandemic standpoint, and sort of an inflationary direction, I think we'd probably see a bit more utilization and a bit more certainty with our customers relative to moving forward with value-added projects.

And maybe just a bit of a follow-up on loans. Kind of with that in mind, I guess, as you look at the pipeline today, what would be your kind of general expectations for organic growth in this year?

So we'll talk about total loan growth first. And we previously stated and we continue to believe that we can do mid-single-digit growth this year, consumer and commercial. And I think the commercial number itself can be a little bit higher than that. And certainly, we've targeted internally higher levels than that and will incent for that. The pipelines are pretty vibrant. Coming out of a really strong fourth quarter, the pipelines are still going to enable us to have a good first Q. This is commercial. So we feel pretty good about that. Calling activity is high. As I said earlier, customer enthusiasm is uniformly strong about things that they want to achieve. I agree with Scott that December, January, a little bit of a heads up in terms of charging hard because of Omicron, but I think that's going to be behind us pretty soon. We're planning that way in any event. And going into the rest of the year, nice optimism levels, and we would expect great momentum.

[Operator Instructions] So our next question comes from the line of Chris O'Connell from KBW.

So just want to start on the fee side. I know you guys noted in the release that there's good pop in service charges this quarter, but it's still below pre-pandemic levels. There is also a pretty solid increase in the retirement plan fees. Just wondering if there's anything kind of onetime in nature that might reverse on the retirement plan side? Or if that's a good kind of baseline level headed in 2022? And if there's room left for the deposit service charges to creep back up to pre-pandemic levels here in the next couple of quarters?

So let me take that 1 head on, Chris. So good observations on all fronts. Let's start with retirement plan administration. Yes, we probably did have about $0.5 million of -- they're not necessarily onetime, but they are not necessarily "annual frequency" on some document restatement fees that tend to be -- tend to be necessary items that when you're administering people's plans that happens, but they don't necessarily happen every quarter. And a lot of times, they don't happen every year. So good observation on that one being a little bit higher than probably the trend that we would expect going into 2022 from an inflection standpoint. The impact of improved market conditions is meaningful to both the retirement plan administration business and wealth management. And obviously, the fourth quarter was another quarter of hitting some all-time highs. But remembering a lot of people that -- their assets reside in -- under our administration or management have blended portfolios. This is not just an equity-only outcome. And if we start to get a little bit higher rates on some of the fixed income items, maybe you’d get a little bit of that back if there's some market choppiness on the equity side. And that being said, part of our compensation in those businesses is fee-for-service and part is based on basis points of assets under administration. On the banking fee side, kind of 2 things to think about, of importance for us going into next year. The first one is we do have $11 million-ish within our deposit service categories that are overdraft program related revenues, that's -- clearly, there's a lot of dialogue going on around that and probably like most people, we're analyzing our programs, and John, may have some other comments to that point. So we haven't really projected much growth in that particular area, honestly. On the debit interchange side, so a couple of things worth reminding. We are growing the number of talents we have. We're growing the number of occurrences of debit swipes today and actually enjoyed really strong growth in that line of business or that revenue line in 2021 as activity levels have come back to close to pre-pandemic levels. So with that said, reminding everyone that on July 1, the elements of the Durbin amendment and the fixed pricing controls of interchange compensation because we're over $10-billion and then some impact us starting the midyear next year. We've estimated that impact to be about $14 million a year, of which half of that gets incurred in 2022. So the third and the fourth quarter, combined have roughly $7 million of expectation of lower earnings from that. Certainly not something we invited, but at the same point in time, certainly knew it was coming and have done a whole lot of things around trying to mitigate some of those outcomes in multiple other places. But that's how we kind of think about that. I still think that we'll have very robust debit card activity from our customer base going forward, but we're just going to pay a little less for that activity.

Chris, let me also add to that as Scott teed up there, and I know several of you on this call are interested in this subject, and I have asked about it. With respect to the overdraft product, want to make sure everybody understands the position NBT has in the markets we serve. We're out there focused on the financial needs of the communities that we're in. And because of that, we recently launched an iSelect checking account product that is no fee, simple checking account, no maintenance, no minimum balance, no overdraft, no inactivity, no early closure fees. And that's targeted to customers who look for access to a community bank or financial institution that may not always be available to them. So we want to make sure we're looking at the underbanked and have financial services available to them. With respect to -- and by the way, Bank On adopted and acknowledged our iSelect product, and we have now the Bank On designation associated with it. With respect to our existing product offerings, we're looking at all options on whether or not we should modify but would expect as part of that review that will replace lost revenue from other sources of revenue. To us, this is not an all or nothing analysis and exercise. And if the outcome of that work is material, and you can be assured we'll share it with you when we're able to calculate the impact of any modifications we make. But as of today, we're still working really hard to make sure we understand what the options are, what the market is demanding, what the regulators expect. And we'll keep that right at the top of our list in the near term.

That was great, really helpful color. Just wanted to take a look at loan growth this quarter. It seems that specialty lending was up considerably. Just wondering if there's anything particular driving that?

Well, certainly, there is. As we've talked about in the past, we have a great partnership with a solar lender, headquartered in Boston called Sungage, and we're the sole funder of their originated loans through a nationally based install network. And in this environment, where the focus on the environment and global warming is so high and where the incentives in many states are very attractive, and where the investment community is also focused from an ESG perspective, we've seen a lot of activity and a lot of growth in prime and super prime FICO levels. And in the fourth Q, each one of those 3 months experienced significant fundings that are carrying us through the end of the year. And there'll be a little bit of a pause perhaps in the first 60 days while we replenish the pipeline. But we would expect that this year as well we’ll be very strong there. The portfolio from a credit perspective performed extremely well during the depths of the pandemic and the related recession and is performing well now. And it’s turned out to be a significant positive additive line for us, and we'll continue to invest in it as we go forward.

Great. And then I was hoping to just get an update on how you guys are thinking about the utilization of the buyback authorization and kind of target or ideal capital levels going forward?

Great. I'll take that one, Chris. So in the fourth quarter, we bought a couple of hundred thousand shares. Why did we do that? We were trying to get out in front of what we would have assumed our 2022 share creep was going to be relative to equity award programs for the company. So in other words, at least keep your comparisons like kind on a year-over-year basis, and we think we accomplished that. Going forward, share buybacks are not the top priority relative to capital utilization for us. I think they trail organic growth support from a capital standpoint and they probably trail opportunistic evaluation of potential M&A opportunities for us. And they probably trail our considerations relative to dividend award. So -- but are there times where that's appropriate and beneficial to the shareholder? There are. And so we just think it's good housekeeping to have the authorization out there, periods of time where there's some potential market impacts that make that more reasonable. And we're very disciplined about that like we would be from an acquisition. We start to think about the dilution characteristics associated with the buyback similar to how we think about dilution characteristics associated with an M&A transaction. So again, I would just kind of say it's a necessary tool to have in the belt. And although we don't have big plans for a ton of that use, it's there when the opportunity creates itself. One thing I should acknowledge with this is pointing both to our people, remembering that the PPP program was very, very successful for our bank. And over the 2-year period, we generated $35 million in incremental pretax earnings from that program. So even if you said we added that program by itself, added to capital to the tune of $27 million or $28 million, that was capital we didn't actually plan to have. So could one say utilization in a buyback or something of that was appropriate, to date, we have not done that. We certainly have not exhausted that much of it. But at the same point in time, certainly a net positive both for us and clearly for our customer base.

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

I want to go back to specialty lending for a second. First, what are the loan yields in that segment? And then secondly, as we think about mid-single-digit loan growth and the potential commercial to outpace that bogey, with specialty lending now at -- I think it's just a hair over 10% of loans, should we expect the concentration of these loans to increase? Or is there a limit on this segment that we should keep in mind?

So Matt, great question. So let me -- let's try to frame that in multiple buckets here for a second. Your point is well taken. We're closer to $800 million of specialty loans than any other number. And that's a combination of almost now $0.5 billion worth of lending in that Sungage portfolio that John just mentioned. We really like the credit profile of that business. And because it has what we think is a much better profile on credit side, it doesn't carry a yield that's much above mid-single digits in terms of that outcome. And -- but at the same point in time, we're currently with the Springstone -- the Springstone LendingClub relationship since they purchased that business, yields were much higher in that portfolio, maybe closer to a blended 10%. But those typically -- or the way they sit today, we're thinking about that as a portfolio that's more running down than being added to. So from a rate exchange standpoint, we're getting a little bit lower rate of our new growth but we're expecting a lower level of loss content on a longer-term basis. Concentration is a really good question. So we are in the midst of having dialogues around what should that be? What are we comfortable with? And if we're not comfortable with a meaningful increase above that, we're certainly -- we're confident we can -- our balance sheet can handle more increase there. But should we be considering securitization of certain assets if they get above a certain level? Like, maybe a lot of other businesses in the solar space, we're enjoying really good opportunities through our partner, Sungage. And up until now, we have been certainly capable of meeting all the funding needs there. If that's influx and we get to even a higher number, I think that's when we think about maybe alternatively not holding everything on the balance sheet and maybe that can give us some rise to some other financing alternatives. Did I get the whole question, Matt? Or do you have one other one?

No, you got it all. I did want to go back to the margin discussion. So if I look at your most recent 10-Q and you're kind of plus 100 basis point interest rate scenario, I would call MVP kind of moderately asset sensitive with a 3.2% expected increase to NII. And it does feel like a plus 100 basis scenario today is realistic. I was just curious if there's any kind of underlying assumptions you would highlight, particularly on the deposit beta front just given your performance last cycle was really solid. I'm curious if there's any underlying assumptions on that front worth flagging?

Yes. I think that's great, and thanks for queuing it up for us. So we did have great success in sort of that 2016 to 2019 cycle. And as you appreciate, not every 100 basis points is created equal. But the first 100, the inflection on the deposit beta side was very, very modest for us in the single-digit basis points. Certainly, a little bit more, maybe 1/3 of the next 100. But as you know, what happened with that cycle is by the time we got to the consideration of the third group of hundreds, we suddenly hit the pandemic, and so the world went back to start over again. So I think we're highly confident, Matt, that in that first 100, we will have only nominal needs for deposit changes in terms of rate. Everybody's balance sheet from a competition standpoint enjoys a ton of liquidity today. That was not the case in 2016 and '17. So some people who historically had not been best-in-class core deposit gatherers, today, their balance sheet looks like they might be. So I think the jury is out once you get past maybe this first 100, Matt, as you referred to it. Whether the folks who really were more maybe more CD funded or promotional money market funded, what do they do outside of that first 100? I think what we'll probably experience in 2022 is everybody will be pretty responsible. And certainly, in the markets that we compete, we expect most of our significant competitors to be very responsible. They also enjoy very low-cost funding today as well. So I think the story is going to be -- we aspire to be sprinters on the way down. We think we're going to be one of the slower people in the race on the way up.

And you've been with us a long time, Matt, you know that it's in our DNA to execute on the lag, and I see no reason why our experience there wouldn't repeat itself this year.

Great. And then just a follow-up on the margin. What are the kind of the incremental blended loan yields in the pipeline are coming on the books today versus what's on the average balance sheet? And are we at the point where we're seeing a positive roll-on versus roll-off? Or is it still negative?

Well, that's a great question, Matt. So if you look at our fourth quarter, you would actually think we actually achieved it. But we have to admit that we are very mix-dependent right now. So when you go through a quarter that had a very robust growth rate attached to some of those specialty lending lines, we had a net benefit. And we've probably reached the inflection point in commercial banking. Have we reached that inflection point in indirect auto and in mortgage lending? Probably not yet. So to answer your question, it's kind of portfolio specific. The blend in the fourth quarter let us achieve that. I think what we've been thinking going forward in 2022 is we were probably still fighting a little bit of higher loan yield runoffs on the lending side than we were putting on in net new assets. And we're really close on the investment portfolio right now. Obviously, we're probably not quite there, but we're really close. So I think that's why we've kind of postured ourselves to say general stability, a couple of basis points here or there for the first half of the year. And then if we get into the second half of the year and the Fed has pushed through a couple of changes or maybe as indicating we're headed for a third by the third quarter, I think at that point in time, we will have probably crossed over.

Okay. And then last one for me is just historically, the bank has attacked new markets over time. Examples are Vermont, Maine, New Hampshire, now Connecticut. So first, maybe an update on those markets and the contribution of loan growth from the New England areas versus legacy Upstate New York? And then two, as we think about the path ahead, are there any other geographies that you envision entering organically at this point? And just curious about some of these strategic priorities for the franchise over the next year or 2?

Sure. Let me take that one. Good question. I'll talk about the strategy, and then we'll give you a little bit of color on what's going on in New England, particularly. So clearly, the disruption in New England continues and we're executing against it in Vermont, New Hampshire, Maine, particularly in Connecticut. And we've been able to convert customers and hire bankers, and that initiative will continue this year and next year and on into the future. And that will drive incremental growth in each one of those regions. As you know, we also consider in those markets in New England, the potential to partner with strategically aligned whole banks and those dialogues also continue. And if they will supplement our already stated growth strategies there, we'll engage. So I'll just say that conversations are always ongoing there. We've been thinking, Matt, where else we should invest outside of New England. I think there is a significant opportunity in the Lehigh Valley, for instance. And we're actively engaged in that analysis, and there are several routes by which we could enter that market. And now that we've got the worst part of the pandemic behind us, we're able to do some more things to drive execution there. So keep an eye out on what's going on there with us. Traditionally, as you know, we've been focused to the East of Route 81 in New York State. However, from time to time, strategic opportunities present themselves in Western New York State. And if and when one of those preferred opportunities present themselves, I think Scott talked about our capital position and our optionality, we have ability to engage in those discussions as well. Just talking regionally from a growth perspective color in New England, 58% of the commercial originations in the 4Q came out of New England, Maine was 27% of that. And I think -- and I know the pipelines in several of those regions are robust. And I think in Connecticut we’ll continue to drive a whole bunch of singles and doubles, which is right in our wheelhouse. And the more the uncertainty persists, the more accelerated the pace will be there. So we're feeling pretty good about there, New Hampshire, Maine. It's a little bit more mature up in Burlington in terms of our effort there now over 10 years. So we deal with the payoffs and amortization there. But still, there will be loan growth in Vermont as well. So I hope that color is useful to you.

Very much.

Thank you, Matt.

Good to talk to you.

Thank you. I'm not showing any further questions. I will now turn the call back to John Watt for his closing remarks.

Well, again, thank you all for participating today, and we appreciate your interest in NBT and look forward to interacting in the future, perhaps in a warmer climate. Thanks, everybody. Have a good day.

Thank you.

Thank you. Ms. Watt. This concludes our program. You may disconnect. Have a great day.