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KBRA Assigns Ratings to NBT Bancorp Inc.

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Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB+, a subordinated debt rating of BBB, and a short-term debt rating of K2 to Norwich, NY based NBT Bancorp Inc. (NASDAQ:NBTB) ("the company"). In addition, KBRA assigns deposit and senior unsecured debt ratings of A-, a subordinated debt rating of BBB+, and short-term deposit and debt ratings of K2 to its principal subsidiary, NBT Bank, National Association. The Outlook for all long-term ratings is Stable.

The ratings are supported by NBTB's strong market share positions in its core NY and Northern PA footprint, as well as growing presence in New England, as the company is led by an experienced management team with a clearly defined strategic vision and balanced risk appetite. The ratings also consider NBTB's above peer revenue diversification, including a +30% core fee to revenue component that has supported earnings stability (recent ROA in a 1.2%-1.3% range prior to COVID-19). NBTB's attractive, low cost deposit base – total average cost of 47 bps in 1Q20 with more than 30% noninterest bearing deposits – fully funds loans and has undoubtedly aided in preserving a defensible NIM. Core capital metrics (TCE and CET1 ratios of 8.6% and 10.9%, respectively, at 1Q20), while moderately below peer averages, are considered appropriately managed given NBTB's risk profile. Though NBTB's recent NCO ratio (30-40 bps) has tracked modestly above some peers, it is primarily reflective of somewhat higher loss content (but higher yielding) consumer specialty finance loans. Importantly, NBTB's long-term asset quality performance has been very favorable, including a distinctly better than peer financial crisis period, highlighted by a peak loss rate of just 77 bps. Exposure to industries considered most vulnerable to COVID-19 is contained at ~10% of loans, while loss absorbing capacity is considered ample with recently enhanced reserve coverage, solid earnings power, and adequate capital support.

KBRA continues to monitor the potential direct and indirect effects of the coronavirus on the banking and other sectors. Please refer to our publication U.S. Bank 1Q 2020 Ratings Compendium for our latest thoughts.

The ratings are based on KBRA's Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.

Click here to view the report. To access ratings and relevant documents, click here.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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