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NBT Bank saw its quarterly profits dragged down by higher funding costs as customers continue to seek higher-yield deposits, despite the bank’s gains in loans and deposits from its August acquisition of Salisbury Bank.

The $13.3 billion-asset regional bank has nearly 150 branches in the northeast, including Connecticut branches in West Hartford and Glastonbury.

NBT’s net income for the fourth quarter was at $30.4 million, which is higher than the $24.6 million a quarter ago but lower than the $36.2 million profit the same fourth quarter a year ago. Net interest income ended at $99.8 million, an increase from $95.5 million from the third quarter as the bank benefited from the full-quarter impact of the Salisbury acquisition but was partially offset by higher funding costs outpacing improvement in asset yields during the quarter.

The bank’s net interest margin was down to 3.15 percent from 3.21 percent the prior quarter on higher funding costs. Total cost of funds was up to 1.72 percent from 1.50 percent the prior quarter, and from 0.37 percent the fourth quarter of 2022.

Deposits in the fourth quarter landed at $10.97 billion, which included $1.3 billion worth of deposits from Salisbury Bank. This performance was lower than the $11.4 billion deposits in the third quarter as due to seasonal outflows, executives said in this morning’s earnings call, as well as depositors continue to migrate from low or non-interest bearing accounts to high yielding money market and time deposit instruments such as certificates of deposits.

Total loans were $9.65 billion, slightly down from the $9.67 billion the bank reported last quarter. This included the $1.18 billion loans acquired from Salisbury Bank, leading to a year-on-year increase from the $8.15 billion loans in the fourth quarter of 2022.

“NBT’s fourth quarter and full year results reflect our consistent dedication to improving our traditional banking franchise while growing our diversified revenue sources,” outgoing NBT  President and CEO John H. Watt, Jr. said in a statement. “In a year characterized by unprecedented market volatility, we grew loans and deposits, maintained strong asset quality, improved our capital position, completed the high-value acquisition of Salisbury Bancorp, Inc., and continued to deliver best-in-class customer service.”

The bank noted that its non-performing loans went up to $37.8 million, from $24.2 million the previous quarter, due to one commercial real estate loan that went into non-accrual, or non-paying, status.

“Non-performing loans increased $13.6 million from the end of the third quarter attributable to a single diversified multi-tenant commercial real estate development relationship in which we are a participant, which was placed into non accrual status in the quarter,” Scott Kingsley, NBT chief financial officer, said during the bank’s earnings call. “The relationship is being actively managed and recent appraised values continue to support its carrying value.”

NBT also noted some $2 billion worth of loans will reprice immediately once the Federal Reserve proceeds with the interest rate cuts this year. Kingsley said these loans are commercial loans and a small amount of home equity loans.

Moving forward, the company plans to focus on growth prospects primarily in the Upstate New York “chip corridor,” the recipient $10 billion in investment commitments from the semiconductor industry and the government.

The company recently announced its CEO succession plan, where CEO John H. Watt Jr. will step down from his position effective May 21 and be replaced by Kingsley.