2017 ANNUAL REPORT FOR THE YEAR 2017 2016 PER COMMON SHARE DATA 0.92% 13.13% 3.43% 1.81 1.80 0.90 2.20% fi nancial highlights (all dollar amounts in thousands except share and per share data) FOR THE YEAR PERFORMANCE 2017 2016 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,151 $ 78,409 Return on average assets . . . . . . . . . . . . . . . . . Return on average tangible equity . . . . . . . . Net interest margin . . . . . . . . . . . . . . . . . . . . . . . 0.91% 12.82% 3.47% Basic earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Diluted earnings . . . . . . . . . . . . . . . . . . . . . . . . . . $ Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.89 1.87 0.92 $ $ $ Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.50% AT DECEMBER 31 BALANCE SHEET DATA Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,136,812 $ 8,867,268 Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,584,773 $ 6,198,057 Allowance for loan losses . . . . . . . . . . . . . . . . . $ 69,500 $ 65,200 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,170,636 $ 6,973,688 Total shareholders’ equity . . . . . . . . . . . . . . . . . $ 958,177 $ 913,316 ASSET QUALITY Nonperforming loans . . . . . . . . . . . . . . . . . . . . . $ 31,118 Nonperforming assets . . . . . . . . . . . . . . . . . . . . $ 35,647 $ $ 40,522 46,103 Nonperforming loans to total loans . . . . . . . 0.47% 0.65% CAPITAL Common equity tier 1 capital ratio . . . . . . . . Total risk-based capital ratio . . . . . . . . . . . . . . Book value per share . . . . . . . . . . . . . . . . . . . . . $ Tangible book value per share . . . . . . . . . . . . $ 10.06% 11.42% 12.42% 22.01 15.54 9.98% 11.42% 12.39% 21.11 14.61 41.88 $ $ $ Closing stock price . . . . . . . . . . . . . . . . . . . . . . . $ 36.80 Ending shares outstanding . . . . . . . . . . . . . . . 43,542,809 43,257,750 Market capitalization . . . . . . . . . . . . . . . . . . . . . $ 1,602,375 $ 1,811,635 Like many other companies benefi ting from a lower tax rate, NBT Bancorp Inc. (NBT) incurred a one-time, $4.4 million ($0.10 diluted earnings per share) non-cash charge in 2017 associated with the Tax Cuts and Jobs Act. This charge is excluded from each of the adjusted measures under the Operating Performance heading. OPERATING PERFORMANCE Net income . . . . . . . . . . . . . . . . . . . . . $ 86,561 $ 78,409 Return on average assets . . . . . . . . . . . . . . . . 0.96% 0.92% Return on average tangible equity . . . . . . . . . . . . . . . 13.48% 13.13% Diluted earnings per share . . . . . . $ 1.97 $ 1.80 company profi le • NBT Bancorp Inc. is a fi nancial holding company incorporated in 1986 in the state of Delaware. • The Company primarily operates through NBT Bank, N.A. and two fi nancial services companies. • NBT Bank, N.A. off ers personal banking, commercial banking and wealth management services through Pennsylvania, Vermont, Massachusetts, New Hampshire, and Maine) and through its online and mobile channels. • EPIC Advisors, Inc., based in Rochester, NY, is a full-service 401(k) recordkeeping fi rm. • NBT Insurance Agency, LLC, is a full-service insurance agency based in Norwich, NY. Previously known as NBT-Mang, the Agency began conducting business 152 locations in six states (including New York, Tier 1 capital ratio. . . . . . . . . . . . . . . . . . . . . . . . . as NBT Insurance Agency in the fi rst quarter of 2018. WEALTH MANAGEMENT DIVISION Assets under management and administration . . . . . . . . . . . . . . . . . . . . . $ 7,150,645 $ 6,346,337 2 2017 ANNUAL REPORT $90 $80 $70 $60 $50 5-Year Performance (Net Income dollars in millions) 2013* 2014 2015 2016 2017** Adjusted Net Income Diluted Earnings Per Share $2.20 $2.00 $1.80 $1.60 $1.40 *2013 includes merger expenses related to the acquisition of Alliance Financial Corporation **Excludes one-time, non-cash charge of $4.4 million related to the Tax Cuts and Jobs Act which equates to $0.10 per diluted share to our shareholders Fellow Shareholders, We write this letter having achieved record-setting performance for the last 5 years by doing what we do best: gathering deposits, making smart loans, diversifying our business, and supporting our talented team. Over time, we have implemented strategies in support of each of our core businesses, including: • Introducing technology to enhance customer convenience and satisfaction; • Growing and enabling the geographic diversifi cation of our commercial and retail branch-based banking businesses; • Growing our wealth management, retirement services, and insurance businesses organically and through acquisition; • Delivering consumer lending products through multiple channels, including at the point of purchase through partnerships with nonbank technology companies; and • Recruiting and developing the best team in community banking. The success of these strategies is driven by our highly-motivated employees, their ability to collaborate, and their focus on our customers and the communities we serve. Leveraging our many strengths in this way has served us well, even when market conditions and regulatory requirements presented challenges. As we experience lift from the tailwinds associated with a stronger economy, low unemployment, higher consumer confi dence, accelerated capital investment, corporate tax relief, and regulatory reform, we are more confi dent than ever about NBT’s long-term growth and, therefore, your investment in us. The Company’s 2017 performance certainly reinforces our optimism. For the fi fth year in a row, NBT set a new earnings record, generating operating net income of $86.6 million in 2017, up from $78.4 million in 2016—a 10.4% increase. Operating diluted earnings per share of $1.97 for 2017— up from $1.80 the prior year—also set a new record. 2017 Loan Mix 6% 8% Other Consumer (2%) Specialty Lending Our focus on our loan yields, loan growth, and cost of funds combined with a more favorable interest rate environment drove a $19.1 million increase in net interest income in 2017. Home Equity The net interest margin increased 4 basis points to 3.47%. 18% Dealer Finance 20% Residential Mortgage 20% Commercial and Industrial 26% Commercial Real Estate This was the fi rst time NBT experienced margin expansion in 7 years due to the challenging rate environment. Loans grew 6.2% in 2017 with our teams in 6 states delivering these results. That equates to $387 million that was well balanced across our commercial and consumer business lines. This diversifi cation—both geographically and in terms of loan mix—is a core strength of NBT’s balance sheet. 100% 80% 60% 40% 20% 0% Total Loans $6.6 Billion 3 NBT BANCORP INC. $5.6 MILLION 2017 Noninterest Income Increase $9.1 BILLION 2017 Year-End Assets 4 To help fund those loans, we grew low-cost demand deposit accounts by 8% in 2017. In fact, over the last 10 years, our average demand deposit growth has been 11.2% (excluding acquisitions). The growth in deposits has reduced our reliance on borrowings translating to lower-cost funding that has improved our bottom line. While achieving this growth, we were able to hold deposit costs constant. Looking forward, the federal funds rate and related market rates are projected to rise further and higher rates paid on deposits are a likely result. We believe the strong relationships we have with our customers will benefi t us 2017 Average Deposit Mix 12% Time 31% Demand 57% Savings, NOW, and Money Market 100% 80% 60% 40% 20% 0% in managing our costs while providing a fair return to our Total Deposits $7 Billion deposit customers. Noninterest income rose $5.6 million to $121.3 million in 2017. The drivers include a 7% increase in the contribution from our Wealth Management Division and a $1.9 million increase in ATM and debit card fees. 2017 Total Revenue Total Revenue $405 Million Wealth Management (including our traditional trust and fi duciary business, fi nancial services, our insurance agency, and retirement plan services businesses) accounts for more than half of our total noninterest income, and noninterest income to total revenues was 30% for 2017 compared to peer median at 25%. Like our deep well of core deposits, this revenue mix is one of our key strengths and competitive advantages. NBT ended 2017 with $9.1 billion in assets, up from $8.9 billion at the close of 2016. As we grow closer to the $10 billion mark, we are well prepared to cross that threshold with confi dence. Our team has developed a detailed and adaptable readiness plan that will help us see this journey through. In the meantime, we keep an eye on the legislation pending in Congress to streamline the Dodd-Frank Act and its requirements for banks with assets of $10 billion or more. As we have expressed in the past, we are supportive of reasonable regulatory reform. BUSINESS STRATEGIES We continue to execute key business strategies that allow NBT to deliver our customer-focused approach to banking and fi nancial services in new markets and through new channels. • Our New England expansion has exceeded expectations since we began in 2009. We fi nished 2017 with 19 locations across four states: Vermont, Massachusetts, New Hampshire, and Maine. Our talented and growing team of bankers has originated $1.1 billion in outstanding and committed loans across the region, representing year-over-year growth of 17% or 40% of our total loan growth. • Our digital initiatives continue to evolve in support of the customer experience. When our lines of business collaborate, smart solutions emerge that make us more responsive, convenient, and effi cient. In 2017, numerous enhancements to our mobile and online services were introduced, including biometric authentication for multiple device types, mobile check images, and text alerts. Technology will always be a focus for NBT as a means of increasing customer convenience, creating new opportunities for face-to-face consultation, and streamlining internal processes. We have placed particular focus on how we can use technology to reduce friction points between us and our customers. • Through our Specialty Lending line of business, we are originating consumer loans at the point of purchase enabled by technology developed and deployed by our nonbank partners. NBT has over a decade of experience in this area through partnerships with technology companies where we provide consumer fi nancing for personal and household expenditures. In 2017, we launched a new partnership with Sungage Financial, Inc. of Boston to originate loans that fi nance solar energy solutions for homeowners. To support Sungage and other partners, we established a presence for our Specialty Lending team in Woburn, Massachusetts. • Reti rement Plan Services is another dynamic line of business for NBT. In April 2017, we acquired Downeast Pension Services, Inc. (DPS) located in New Gloucester, Maine. DPS not only added another dimension to our presence in New England, it added 850 clients, 38,000 plan participants, and over $2 billion in assets under management to our retirement plan business. INVESTING IN OUR TEAM, OUR CUSTOMERS, AND OUR COMMUNITIES At the heart of the Company’s record-setting performance in 2017 was our team, which is our greatest asset. We are focused on cultivating their talents and abilities through our learning and development programs and employee engagement initiatives, including four distinct programs focused on the development of high performers. We appointed a Chief Diversity Offi cer in 2017 to provide leadership on our journey of fostering diversity and inclusion in our workforce. We will continue to enable an environment that is open and welcoming to all, leading to high employee engagement and job performance. We believe this will enable NBT to perform at higher levels and, as a result, enhance shareholder return. The federal Tax Cuts and Jobs Act that took eff ect January 1, 2018, created another opportunity to invest in our people. With the support of our Board of Directors, we increased the starting hourly 2017 ANNUAL REPORT 2017 Strategy Highlights 40% Total Loan Growth Occurred In New England OVER 60% Mobile/Online Banking Adoption By Checking Customers New Solar Specialty Lending Partnership 183,000 Retirement Plan Participants 5 NBT BANCORP INC. pay rate to $15 per hour and provided eligible employees earning base pay of $50,000 or less with a permanent minimum increase of 5%. This action is positively impacting over 60% of the Company’s workforce. By supporting the intent of the Act in this way, we have enhanced a critical component of our strategy to recruit and retain a high-performing workforce. Tax relief has also provided us with the opportunity to allocate capital toward additional investments in customer-facing technology that we will introduce this year and to increase resources available for contributions to nonprofi t organizations across our footprint. While these actions are enabled by this unique opportunity, they are also consistent with NBT’s long-standing commitment to our customers and communities as a locally-focused community bank. In 2017, NBT achieved a favorable Community Reinvestment Act rating from our regulators. One of the innovative programs we off er in support of our communities is called “Home in the City.” Available in 25 cities across our footprint, this special program partners NBT with municipalities and nonprofi t housing organizations to provide access to homeowner counseling, grant programs for down payment and closing cost assistance, and a discounted interest rate for fi rst-time homebuyers. We are proud to have launched this program and to support its growth. CONCLUSION We appreciate the support of our shareholders and have a long and consistent history of returning capital to you in the form of cash dividends. In fact, we recently announced an 8.7% increase in our dividend for shareholders of record as of June 1, 2018. This dividend, payable June 15, 2018, will be the Company’s 505th consecutive cash dividend. 3.93% 2018* 5-Year Dividend Compound Annual Growth Rate $0.81 2013 Dividend Growth $0.84 $0.87 $0.98 $0.90 $0.92 2014 2015 2016 2017 2018* *Annualized based on second quarter 2018 dividend declared of $0.25 As we look to the future, we are optimistic about our prospects for continued growth. That optimism is grounded in the tailwinds that are lifting our economy and in the knowledge that our team is strong. The potential for regulatory reform is an additional source of positive momentum, and we support current eff orts in Congress to accomplish this reform. We believe the fundamentals we operate under and the smart execution of our strategies have NBT well positioned for the future. 6 John H. Watt, Jr. President and Chief Executive Offi cer Martin A. Dietrich Chairman of the Board 2017 ANNUAL REPORT leadership Executive Management Team Board of Directors John H. Watt, Jr. President and Chief Executive Offi cer Michael J. Chewens Senior Executive Vice President and Chief Financial Offi cer Timothy L. Brenner Executive Vice President and President of Wealth Management Matthew K. Durkee Executive Vice President and President of New England Region Sarah A. Halliday Executive Vice President and President of Commercial Banking F. Sheldon Prentice Executive Vice President, General Counsel and Corporate Secretary Catherine M. Scarlett Executive Vice President and Chief Ethics and Human Resources Offi cer Joseph R. Stagliano Executive Vice President, Operations and Retail Banking Amy Wiles Executive Vice President and Chief Credit and Risk Offi cer Martin A. Dietrich Chairman John H. Watt, Jr. President and Chief Executive Offi cer Patricia T. Civil Timothy E. Delaney James H. Douglas Andrew S. Kowalczyk, III, Esq. John C. Mitchell V. Daniel Robinson, II Matthew J. Salanger Joseph A. Santangelo Lowell A. Seifter, Esq. Robert A. Wadsworth Jack H. Webb NBT Bank Honorary Directors Richard Chojnowski, Daryl R. Forsythe, Peter B. Gregory, DDS, Paul D. Horger, Esq., Janet H. Ingraham, Andrew S. Kowalczyk, Jr., Esq., Van Ness D. Robinson, Paul M. Solomon, and Paul O. Stillman. Additional information regarding our Executive Management Team and Board of Directors can be found in the proxy statement for our 2018 Annual Meeting of Shareholders. Regional Presidents John F. Buff a, Mohawk Valley David Krupski, Capital Region Jeff rey D. Lake, Greater Binghamton Stephen P. Lubelczyk, New Hampshire Richard J. Shirtz, Syracuse Kimberly J. Twitchell, Maine EPIC Advisors, Inc. Manuel Marques, CPC, QPA, QKA, QPFC, AIF® President NBT Insurance Agency, LLC Tucker H. Lounsbury, CIC President shareholder information Annual Meeting Tuesday, May 22, 2018 10:00 a.m. DoubleTree by Hilton Hotel 225 Water Street Binghamton, NY 13901 Stock Symbol: NBTB Market: Nasdaq Global Select Corporate Headquarters NBT Bancorp Inc. 52 South Broad Street Norwich, NY 13815 800.NBT.BANK Financial Reports and Releases Copies of the Company’s annual report to the Securities and Exchange Commission on Form 10-K, quarterly reports on Form 10-Q, and news releases may be obtained without charge by visiting our website at www.nbtbancorp.com or by writing to Chief Financial Offi cer Michael J. Chewens at the corporate headquarters address provided at left. Shareholder Relations Information regarding the Company, our dividend reinvestment and stock purchase plan, and direct deposit of dividends can be found on our website at www.nbtbancorp.com. Those seeking additional information should contact Shareholder Relations by phone at 800.NBT.BANK (800.628.2265), Option 7, or by mail to: NBT Bank, 52 South Broad Street, Norwich, NY 13815. Stock Transfer and Registrar Agent American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219 800.NBT.BANK (800.628.2265), Option 7 www.astfi nancial.com help@astfi nancial.com Independent Auditors KPMG LLP 515 Broadway Albany, NY 12207 7 www.nbtbancorp.com | 800.NBT.BANK www.nbtbank.com www.nbtmang.com www.epic1st.com