NBT BANCORP INC 10-Q

Item 1 – FINANCIAL STATEMENTS NBT Bancorp Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) March 31, December 31, 2022 2021 (In thousands, except share and per share data) Assets Cash and due from banks $ 180,865 $ 157,775 Short-term interest-bearing accounts 913,315 1,111,296 Equity securities, at fair value 32,554 33,550 Securities available for sale, at fair value 1,662,697 1,687,361 Securities held to maturity (fair value $ 851,635 and $ 735,260 , respectively) 895,005 733,210 Federal Reserve and Federal Home Loan Bank stock 25,005 25,098 Loans held for sale 263 830 Loans 7,649,826 7,498,459 Less allowance for loan losses 90,000 92,000 Net loans $ 7,559,826 $ 7,406,459 Premises and equipment, net 71,030 72,093 Goodwill 280,541 280,541 Intangible assets, net 8,291 8,927 Bank owned life insurance 228,979 228,238 Other assets 289,462 266,733 Total assets $ 12,147,833 $ 12,012,111 Liabilities Demand (noninterest bearing) $ 3,751,268 $ 3,689,556 Savings, NOW and money market 6,222,378 6,043,441 Time 487,977 501,472 Total deposits $ 10,461,623 $ 10,234,469 Short-term borrowings 65,022 97,795 Long-term debt 13,971 13,995 Subordinated debt, net 98,599 98,490 Junior subordinated debt 101,196 101,196 Other liabilities 205,172 215,713 Total liabilities $ 10,945,583 $ 10,761,658 Stockholders’ equity Preferred stock, $ 0.01 par value. Authorized 2,500,000 shares at March 31, 2022 and December 31, 2021 $ - $ - Common stock, $ 0.01 par value. Authorized 100,000,000 shares at March 31, 2022 and December 31, 2021, issued 49,651,493 at March 31, 2022 and December 31, 2021 497 497 Additional paid-in-capital 577,374 576,976 Retained earnings 883,246 856,203 Accumulated other comprehensive loss ( 91,375 ) ( 23,344 ) Common stock in treasury, at cost, 6,659,170 and 6,483,481 shares at March 31, 2022 and December 31, 2021, respectively ( 167,492 ) ( 159,879 ) Total stockholders’ equity $ 1,202,250 $ 1,250,453 Total liabilities and stockholders’ equity $ 12,147,833 $ 12,012,111 See accompanying notes to unaudited interim consolidated financial statements. 3 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Income (unaudited) Three Months Ended March 31, 2022 2021 (In thousands, except per share data) Interest, fee and dividend income Interest and fees on loans $ 73,343 $ 75,093 Securities available for sale 6,840 5,544 Securities held to maturity 3,493 3,382 Other 525 291 Total interest, fee and dividend income $ 84,201 $ 84,310 Interest expense Deposits $ 1,842 $ 3,172 Short-term borrowings 16 70 Long-term debt 87 124 Subordinated debt 1,359 1,359 Junior subordinated debt 549 530 Total interest expense $ 3,853 $ 5,255 Net interest income $ 80,348 $ 79,055 Provision for loan losses 596 ( 2,796 ) Net interest income after provision for loan losses $ 79,752 $ 81,851 Noninterest income Service charges on deposit accounts $ 3,688 $ 3,027 Card services income 8,695 7,550 Retirement plan administration fees 13,279 10,098 Wealth management 8,640 7,910 Insurance services 3,788 3,461 Bank owned life insurance income 1,654 1,381 Net securities (losses) gains ( 179 ) 467 Other 3,094 3,144 Total noninterest income $ 42,659 $ 37,038 Noninterest expense Salaries and employee benefits $ 45,508 $ 41,601 Technology and data services 8,547 8,892 Occupancy 6,793 6,889 Professional fees and outside services 4,276 3,589 Office supplies and postage 1,424 1,499 FDIC expenses 802 808 Advertising 654 451 Amortization of intangible assets 636 812 Loan collection and other real estate owned, net 384 590 Other 3,119 2,757 Total noninterest expense $ 72,143 $ 67,888 Income before income tax expense $ 50,268 $ 51,001 Income tax expense 11,142 11,155 Net income $ 39,126 $ 39,846 Earnings per share Basic $ 0.91 $ 0.91 Diluted $ 0.90 $ 0.91 See accompanying notes to unaudited interim consolidated financial statements. 4 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (unaudited) Three Months Ended March 31, 2022 2021 (In thousands) Net income $ 39,126 $ 39,846 Other comprehensive (loss) income, net of tax: Securities available for sale: Unrealized net holding (losses) arising during the period, gross $ ( 91,030 ) $ ( 23,311 ) Tax effect 22,758 5,827 Unrealized net holding (losses) arising during the period, net $ ( 68,272 ) $ ( 17,484 ) Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, gross $ 137 $ 142 Tax effect ( 35 ) ( 35 ) Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, net $ 102 $ 107 Total securities available for sale, net $ ( 68,170 ) $ ( 17,377 ) Cash flow hedges: Reclassification of net unrealized losses on cash flow hedges to interest expense, gross $ - $ 21 Tax effect - ( 5 ) Reclassification of net unrealized losses on cash flow hedges to interest expense, net $ - $ 16 Total cash flow hedges, net $ - $ 16 Pension and other benefits: Amortization of prior service cost and actuarial losses, gross $ 186 $ 326 Tax effect ( 47 ) ( 81 ) Amortization of prior service cost and actuarial losses, net $ 139 $ 245 Total pension and other benefits, net $ 139 $ 245 Total other comprehensive (loss) $ ( 68,031 ) $ ( 17,116 ) Comprehensive (loss) income $ ( 28,905 ) $ 22,730 See accompanying notes to unaudited interim consolidated financial statements. 5 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Stockholders’ Equity (unaudited) Common Stock Additional Paid-in- Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Common Stock in Treasury Total (In thousands, except share and per share data) Balance at December 31, 2021 $ 497 $ 576,976 $ 856,203 $ ( 23,344 ) $ ( 159,879 ) $ 1,250,453 Net income - - 39,126 - - 39,126 Cash dividends - $ 0.28 per share - - ( 12,083 ) - - ( 12,083 ) Purchase of 217,100 treasury shares - - - - ( 8,152 ) ( 8,152 ) Net issuance of 41,411 shares to employee and other stock plans - ( 2,074 ) - - 539 ( 1,535 ) Stock-based compensation - 2,472 - - - 2,472 Other comprehensive (loss) - - - ( 68,031 ) - ( 68,031 ) Balance at March 31, 2022 $ 497 $ 577,374 $ 883,246 $ ( 91,375 ) $ ( 167,492 ) $ 1,202,250 Balance at December 31, 2020 $ 497 $ 578,082 $ 749,056 $ 417 $ ( 140,434 ) $ 1,187,618 Net income - - 39,846 - - 39,846 Cash dividends - $ 0.27 per share - - ( 11,732 ) - - ( 11,732 ) Purchase of 257,031 treasury shares - - - - ( 9,020 ) ( 9,020 ) Net issuance of 53,139 shares to employee and other stock plans - ( 2,153 ) - - 870 ( 1,283 ) Stock-based compensation - 2,668 - - - 2,668 Other comprehensive (loss) - - - ( 17,116 ) - ( 17,116 ) Balance at March 31, 2021 $ 497 $ 578,597 $ 777,170 $ ( 16,699 ) $ ( 148,584 ) $ 1,190,981 See accompanying notes to unaudited interim consolidated financial statements. 6 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) Three Months Ended March 31, 2022 2021 (In thousands) Operating activities Net income $ 39,126 $ 39,846 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses 596 ( 2,796 ) Depreciation and amortization of premises and equipment 2,420 2,441 Net amortization on securities 1,036 1,477 Amortization of intangible assets 636 812 Amortization of operating lease right-of-use assets 1,688 1,821 Excess tax benefit on stock-based compensation ( 168 ) ( 107 ) Stock-based compensation expense 2,472 2,668 Bank owned life insurance income ( 1,654 ) ( 1,381 ) Amortization of subordinated debt issuance costs 109 110 Proceeds from sale of loans held for sale 2,106 13,877 Originations of loans held for sale ( 1,479 ) ( 13,943 ) Net gain on sale of loans held for sale ( 60 ) ( 110 ) Net security losses (gains) 179 ( 467 ) Net gains on sale of other real estate owned ( 211 ) - Net change in other assets and other liabilities ( 11,652 ) ( 1,946 ) Net cash provided by operating activities $ 35,144 $ 42,302 Investing activities Securities available for sale: Proceeds from maturities, calls and principal paydowns $ 72,281 $ 95,274 Purchases ( 139,273 ) ( 158,196 ) Securities held to maturity: Proceeds from maturities, calls and principal paydowns 29,028 66,282 Purchases ( 191,092 ) ( 42,760 ) Other: Net increase in loans ( 153,963 ) ( 136,778 ) Proceeds from Federal Home Loan Bank stock redemption 93 2,252 Purchases of Federal Reserve Bank and Federal Home Loan Bank stock - ( 26 ) Proceeds from settlement of bank owned life insurance 913 357 Purchases of premises and equipment, net ( 1,312 ) ( 901 ) Proceeds from sales of other real estate owned 378 140 Net cash used in investing activities $ ( 382,947 ) $ ( 174,356 ) Financing activities Net increase in deposits $ 227,154 $ 734,238 Net decrease in short-term borrowings ( 32,773 ) ( 73,048 ) Repayments of long-term debt ( 24 ) ( 25,027 ) Proceeds from the issuance of shares to employee and other stock plans - 112 Cash paid by employer for tax-withholding on stock issuance ( 1,210 ) ( 1,125 ) Purchase of treasury stock ( 8,152 ) ( 9,020 ) Cash dividends ( 12,083 ) ( 11,732 ) Net cash provided by financing activities $ 172,912 $ 614,398 Net (decrease) increase in cash and cash equivalents $ ( 174,891 ) $ 482,344 Cash and cash equivalents at beginning of period 1,269,071 672,681 Cash and cash equivalents at end of period $ 1,094,180 $ 1,155,025 7 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (continued) Three Months Ended March 31, 2022 2021 Supplemental disclosure of cash flow information Cash paid during the period for: Interest expense $ 5,238 $ 7,105 Income taxes paid, net of refund 2,448 2,540 See accompanying notes to unaudited interim consolidated financial statements. 8 Table of Contents NBT Bancorp Inc. and Subsidiaries Notes to Unaudited Interim Consolidated Financial Statements March 31, 2022 1. Description of Business NBT Bancorp Inc. (the “Company”) is a registered financial holding company incorporated in the state of Delaware in 1986, with its principal headquarters located in Norwich, New York. The principal assets of the Company consist of all of the outstanding shares of common stock of its subsidiaries, including NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc. (“NBT Financial”), NBT Holdings, Inc. (“NBT Holdings”), CNBF Capital Trust I, NBT Statutory Trust I, NBT Statutory Trust II, Alliance Financial Capital Trust I and Alliance Financial Capital Trust II (collectively, the “Trusts”). The Company’s principal sources of revenue are the management fees and dividends it receives from the Bank, NBT Financial and NBT Holdings. The Company’s business, primarily conducted through the Bank, consists of providing commercial banking, retail banking and wealth management services primarily to customers in its market area, which includes central and upstate New York, northeastern Pennsylvania, New Hampshire, Massachusetts, Vermont, Maine and Connecticut. The Company has been, and intends to continue to be, a community-oriented financial institution offering a variety of financial services. The Company’s business philosophy is to operate as a community bank with local decision-making, providing a broad array of banking and financial services to retail, commercial and municipal customers. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited interim consolidated financial statements include the accounts of NBT Bancorp Inc. and its wholly-owned subsidiaries: the Bank, NBT Financial and NBT Holdings. Collectively, NBT Bancorp Inc. and its subsidiaries are referred to herein as (the “Company”). In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods in accordance with generally accepted accounting principles in the United States of America (“GAAP”). These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2021 Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. All material intercompany transactions have been eliminated in consolidation. Amounts previously reported in the consolidated financial statements are reclassified whenever necessary to conform to current period presentation. The Company combined ATM and debit cards fees with card related income previously reported in Other noninterest income which is now disclosed as Card services income. The Company reclassified Data processing and communications expense into Technology and data services expense. The Company reclassified Equipment expense into Occupancy expense and Technology and data services expense. The Company has evaluated subsequent events for potential recognition and/or disclosure and there were none identified. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences could be material to the financial statements. 3. Recent Accounting Pronouncements Accounting Standards Issued Not Yet Adopted In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . On January 7, 2021, the FASB issued ASU 2021-01, which refines the scope of Accounting Standards Codification (“ASC 848”) and clarifies some of its guidance. The ASU and related amendments provide temporary optional expedients and exceptions to the existing guidance for applying GAAP to affected contract modifications and hedge accounting relationships in the transition away from the London Interbank Offered Rate (“LIBOR”) or other interbank offered rate on financial reporting. The guidance also allows a one-time election to sell and/or reclassify to available for sale (“AFS”) or trading held to maturity (“HTM”) debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective March 12, 2020 through December 31, 2022 and permits relief solely for reference rate reform actions and permits different elections over the effective date for legacy and new activity. The Company does not expect that the impact of adopting the new guidance on the consolidated financial statements will have a material impact on the consolidated financial statements . In March 2022, the FASB issued ASU 2022-02, Financial Instruments - CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures . The ASU eliminates the guidance on Troubled Debt Restructurings (“TDRs”) and requires an evaluation on all loan modifications to determine if they result in a new loan or a continuation of the existing loan. The ASU also requires that entities disclose current-period gross charge-offs by year of origination. The elimination of the TDR guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. The amendments in this ASU are effective for the Company on January 1, 2023, with early adoption permitted. The Company is evaluating the impact of adopting the new guidance on the consolidated financial statements and does not expect it will have a material impact on the consolidated financial statements . 9 Table of Contents 4. Securities The amortized cost, estimated fair value and unrealized gains (losses) of AFS securities are as follows: (In thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value As of March 31, 2022 U.S. treasury $ 122,444 $ - $ 4,809 $ 117,635 Federal agency 248,445 - 22,833 225,612 State & municipal 95,339 - 7,037 88,302 Mortgage-backed: Government-sponsored enterprises 510,500 355 25,782 485,073 U.S. government agency securities 75,846 59 2,581 73,324 Collateralized mortgage obligations: Government-sponsored enterprises 462,288 149 26,908 435,529 U.S. government agency securities 190,310 57 7,897 182,470 Corporate 56,000 246 1,494 54,752 Total AFS securities $ 1,761,172 $ 866 $ 99,341 $ 1,662,697 As of December 31, 2021 U.S. treasury $ 73,016 $ 59 $ 6 $ 73,069 Federal agency 248,454 - 8,523 239,931 State & municipal 95,531 116 1,559 94,088 Mortgage-backed: Government-sponsored enterprises 538,036 8,036 5,589 540,483 U.S. government agency securities 65,339 1,108 255 66,192 Collateralized mortgage obligations: Government-sponsored enterprises 484,550 2,723 5,113 482,160 U.S. government agency securities 139,380 939 884 139,435 Corporate 50,500 1,516 13 52,003 Total AFS securities $ 1,694,806 $ 14,497 $ 21,942 $ 1,687,361 There was no allowance for credit losses on AFS securities as of March 31, 2022 and December 31, 2021. During the three months ended March 31, 2022 and 2021 there were no gains or losses reclassified out of accumulated other comprehensive income (loss) (“AOCI”) and into earnings. 10 Table of Contents The amortized cost, estimated fair value and unrealized gains (losses) of securities HTM are as follows: (In thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value As of March 31, 2022 Federal agency $ 100,000 $ - $ 10,872 $ 89,128 Mortgage-backed: Government-sponsored enterprises 269,153 137 16,499 252,791 U.S. government agency securities 7,425 50 6 7,469 Collateralized mortgage obligations: Government-sponsored enterprises 111,254 105 2,722 108,637 U.S. government agency securities 74,596 76 3,755 70,917 State & municipal 332,577 394 10,278 322,693 Total HTM securities $ 895,005 $ 762 $ 44,132 $ 851,635 As of December 31, 2021 Federal agency $ 100,000 $ - $ 4,365 $ 95,635 Mortgage-backed: Government-sponsored enterprises 161,462 2,232 1,319 162,375 U.S. government agency securities 9,112 514 - 9,626 Collateralized mortgage obligations: Government-sponsored enterprises 94,342 1,932 129 96,145 U.S. government agency securities 44,473 336 674 44,135 State & municipal 323,821 5,026 1,503 327,344 Total HTM securities $ 733,210 $ 10,040 $ 7,990 $ 735,260 At March 31, 2022 and December 31, 2021, all of the mortgaged-backed HTM securities were comprised of U.S. government agency and Government-sponsored enterprises securities. There was no allowance for credit losses on HTM securities as of March 31, 2022 and December 31, 2021 because the expectations of nonrepayment of the amortized cost is zero, except for State & municipal which is inconsequential. Included in net realized gains (losses), the Company recorded gains from calls on HTM securities of approximately $ 4 thousand and $ 15 thousand for the three months ended March 31, 2021 and 2022, respectively. AFS and HTM securities with amortized costs totaling $ 1.8 billion at March 31, 2022 and $ 1.6 billion at December 31, 2021 were pledged to secure public deposits and for other purposes required or permitted by law. Additionally, at March 31, 2022 and December 31, 2021, AFS and HTM securities with an amortized cost of $ 144.9 million and $ 162.1 million, respectively, were pledged as collateral for securities sold under repurchase agreements. The following table sets forth information with regard to gains and (losses) on equity securities: Three Months Ended March 31, (In thousands) 2022 2021 Net (losses) and gains recognized on equity securities $ ( 183 ) $ 452 Less: Net (losses) and gains recognized on equity securities sold during the period - - Unrealized (losses) and gains recognized on equity securities still held $ ( 183 ) $ 452 As of March 31, 2022 and December 31, 2021, the carrying value of equity securities without readily determinable fair values was $ 1.0 million. The Company performed a qualitative assessment to determine whether the investments were impaired and identified no areas of concern as of March 31, 2022 and 2021. There were no impairments, downward or upward adjustments recognized for equity securities without readily determinable fair values during the three months ended March 31, 2022 and 2021. 11 Table of Contents The following table sets forth information with regard to contractual maturities of debt securities at March 31, 2022: (In thousands) Amortized Cost Estimated Fair Value AFS debt securities: Within one year $ 112 $ 116 From one to five years 159,032 151,684 From five to ten years 780,821 732,172 After ten years 821,207 778,725 Total AFS debt securities $ 1,761,172 $ 1,662,697 HTM debt securities: Within one year $ 103,973 $ 103,988 From one to five years 67,047 67,061 From five to ten years 242,804 228,349 After ten years 481,181 452,237 Total HTM debt securities $ 895,005 $ 851,635 Maturities of mortgage-backed, collateralized mortgage obligations and asset-backed securities are stated based on their estimated average lives. Actual maturities may differ from estimated average lives or contractual maturities because, in certain cases, borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Except for U.S. Government securities and government-sponsored enterprises securities, there were no holdings, when taken in the aggregate, of any single issuer that exceeded 10% of consolidated stockholders’ equity at March 31, 2022 and December 31, 2021. 12 Table of Contents The following table sets forth information with regard to investment securities with unrealized losses, for which an allowance for credit losses has not been recorded, segregated according to the length of time the securities had been in a continuous unrealized loss position: Less Than 12 Months 12 Months or Longer Total (In thousands) Fair Value Unrealized Losses Number of Positions Fair Value Unrealized Losses Number of Positions Fair Value Unrealized Losses Number of Positions As of March 31, 2022 AFS securities: U.S. treasury $ 117,635 $ ( 4,809 ) 7 $ - $ - - $ 117,635 $ ( 4,809 ) 7 Federal agency 2,586 ( 269 ) 1 223,026 ( 22,564 ) 15 225,612 ( 22,833 ) 16 State & municipal 74,201 ( 5,690 ) 55 14,097 ( 1,347 ) 10 88,298 ( 7,037 ) 65 Mortgage-backed 333,335 ( 11,186 ) 105 182,752 ( 17,177 ) 19 516,087 ( 28,363 ) 124 Collateralized mortgage obligations 569,994 ( 33,158 ) 88 20,422 ( 1,647 ) 7 590,416 ( 34,805 ) 95 Corporate 44,507 ( 1,494 ) 14 - - - 44,507 ( 1,494 ) 14 Total securities with unrealized losses $ 1,142,258 $ ( 56,606 ) 270 $ 440,297 $ ( 42,735 ) 51 $ 1,582,555 $ ( 99,341 ) 321 HTM securities: Federal agency $ - $ - - $ 89,128 $ ( 10,872 ) 4 $ 89,128 $ ( 10,872 ) 4 Mortgage-backed 238,120 ( 16,505 ) 27 - - - 238,120 ( 16,505 ) 27 Collateralized mortgage obligations 165,781 ( 6,477 ) 35 - - - 165,781 ( 6,477 ) 35 State & municipal 115,512 ( 7,299 ) 116 26,492 ( 2,979 ) 24 142,004 ( 10,278 ) 140 Total securities with unrealized losses $ 519,413 $ ( 30,281 ) 178 $ 115,620 $ ( 13,851 ) 28 $ 635,033 $ ( 44,132 ) 206 As of December 31, 2021 AFS securities: U.S. treasury $ 49,105 $ ( 6 ) 2 $ - $ - - $ 49,105 $ ( 6 ) 2 Federal agency 41,618 ( 1,846 ) 4 198,313 ( 6,677 ) 12 239,931 ( 8,523 ) 16 State & municipal 87,515 ( 1,559 ) 61 - - - 87,515 ( 1,559 ) 61 Mortgage-backed 281,217 ( 4,319 ) 24 39,491 ( 1,525 ) 6 320,708 ( 5,844 ) 30 Collateralized mortgage obligations 341,673 ( 5,495 ) 34 15,774 ( 502 ) 4 357,447 ( 5,997 ) 38 Corporate 9,987 ( 13 ) 2 - - - 9,987 ( 13 ) 2 Total securities with unrealized losses $ 811,115 $ ( 13,238 ) 127 $ 253,578 $ ( 8,704 ) 22 $ 1,064,693 $ ( 21,942 ) 149 HTM securities: Federal agency $ - $ - - $ 95,635 $ ( 4,365 ) 4 $ 95,635 $ ( 4,365 ) 4 Mortgage-backed 103,789 ( 1,319 ) 10 - - - 103,789 ( 1,319 ) 10 Collateralized mortgage obligations 54,612 ( 803 ) 6 - - - 54,612 ( 803 ) 6 State & municipal 52,783 ( 1,189 ) 40 8,950 ( 314 ) 10 61,733 ( 1,503 ) 50 Total securities with unrealized losses $ 211,184 $ ( 3,311 ) 56 $ 104,585 $ ( 4,679 ) 14 $ 315,769 $ ( 7,990 ) 70 The Company does not believe the AFS securities that were in an unrealized loss position as of March 31, 2022 and December 31, 2021, which consisted of 321 and 149 individual securities, respectively, represented a credit loss impairment. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. As of March 31, 2022 and December 31, 2021, the majority of the AFS securities in an unrealized loss position consisted of debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises that carry the explicit and/or implicit guarantee of the U.S. government, which are widely recognized as “risk-free” and have a long history of zero credit losses. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. The Company does not intend to sell, nor is it more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may be at maturity. The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities. AIR on AFS debt securities totaled $ 4.0 million at March 31, 2022 and $ 3.9 million at December 31, 2021 and is excluded from the estimate of credit losses and reported in the financial statement line for other assets. 13 Table of Contents None of the Bank’s HTM debt securities were past due or on nonaccrual status as of March 31, 2022 and December 31, 2021. There was no accrued interest reversed against interest income for the three months ended March 31, 2022 or the year ended December 31, 2021 as all securities remained on accrual status. In addition, there were no collateral-dependent HTM debt securities as of March 31, 2022 and December 31, 2021. As of March 31, 2022 and December 31, 2021, 63 % and 56 %, respectively, of the Company’s HTM debt securities were issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for these securities as of March 31, 2022 and December 31, 2021. The remaining HTM debt securities at March 31, 2022 and December 31, 2021 were comprised of state and municipal obligations with bond ratings of A to AAA. Utilizing the Current Expected Credit Losses (“CECL”) approach, the Company determined that the expected credit loss on its HTM municipal bond portfolio was immaterial and therefore no allowance for credit loss was recorded as of March 31, 2022 and December 31, 2021. AIR on HTM debt securities totaled $ 3.0 million at March 31, 2022 and $ 2.7 million at December 31, 2021 and is excluded from the estimate of credit losses and reported in the other assets financial statement line. 5. Allowance for Credit Losses and Credit Quality of Loans The allowance for credit losses totaled $ 90.0 million at March 31, 2022, compared to $ 92.0 million at December 31, 2021. The allowance for credit losses as a percentage of loans was 1.18 % at March 31, 2022, compared to 1.23 % at December 31, 2021. The March 31, 2022, December 31, 2021, March 31, 2021 and December 31, 2020 allowance for credit losses calculation incorporated a 6-quarter forecast period to account for forecast economic conditions under each scenario utilized in the measurement. For periods beyond the 6-quarter forecast, the model reverts to long-term economic conditions over a 4-quarter reversion period on a straight-line basis. The Company considers a baseline, upside, and downside economic forecast in measuring the allowance. The quantitative model as of March 31, 2022 incorporated a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party to accommodate other potential economic conditions in the model, particularly significant unknowns relating to downside risks as of the measurement date. The baseline outlook reflected an unemployment rate environment initially above pre-COVID-19 levels at 4.3% but falling below pre-coronavirus (“COVID-19”) pandemic levels by the fourth quarter of the forecast period and to a low of 3.4%. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the second quarter of 2022 at approximately 9% and hover around 5.5% by the middle and end of the forecast period. Other utilized economic variables either improved or remained relatively flat, with retail sales and business output remaining steady from the prior quarter and housing starts increasing from the prior quarter’s forecast. Key assumptions in the baseline economic outlook included continued abatement of COVID-19, the containment of the European conflict to only Russia and Ukraine, further increase of interest rates by the Federal Reserve, and achievement of full employment by the end of 2022. The alternative downside scenario assumed deteriorated economic and epidemiological conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 4.8% in the first quarter of 2022 to a peak of 7.15% in the second quarter of 2023. The alternative upside scenario incorporated a more optimistic outlook than the baseline scenario, with an imminent return to full employment with northeast unemployment declining to 2.99% by the end of the forecast period. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of March 31, 2022. At March 31, 2022, the weightings were 60%, 0% and 40% for the baseline, upside and downside economic forecasts, respectively. The Company also continued to monitor the level of criticized and classified loans in the first quarter of 2022 compared to the level contemplated by the model during similar, historical economic conditions, and determined that an adjustment was no longer required. The quantitative model as of December 31, 2021 incorporated a baseline economic outlook along with alternative upside and downside scenarios sourced from a reputable third-party to accommodate other potential economic conditions in the model. The baseline outlook reflected an unemployment rate environment initially above pre-COVID-19 levels at 4.8% but falling below pre-COVID-19 levels by the end of the forecast period to 3.5%. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the first quarter of 2022 at approximately 9% and hovering around 5% by the middle and end of the forecast period. Other utilized economic variables showed mixed changes in their respective forecasts, with retail sales and business output declining from the prior quarter and housing starts increasing from the prior quarter’s forecast. Key assumptions in the baseline economic outlook included continued abatement of the COVID-19 pandemic, enactment of the Build Back Better Act by the end of 2021, near-term peaking of consumer price acceleration, accelerated asset purchase tapering at the Federal Reserve, and full employment by the end of 2022. The alternative downside scenario assumed deteriorated economic and epidemiological conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 5.7% in the fourth quarter of 2021 to a peak of 8% in the first quarter of 2023, remaining around or above 7% for the entire forecast period. The alternative upside scenario incorporated a more optimistic outlook than the baseline scenario, with a swift return to full employment by the second quarter of 2022 and with northeast unemployment moving down to 3.1% by the end of the forecast period. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2021. At December 31, 2021, the weightings were 60%, 10% and 30% for the baseline, upside and downside economic forecasts, respectively. Additional adjustments were made for COVID-19 related factors not incorporated in the forecasts, such as the mitigating impact of unprecedented stimulus in the second and third quarters of 2020, including direct payments to individuals, increased unemployment benefits, the Company’s loan deferral and modification initiatives and various government sponsored loan programs. The Company also continued to monitor the level of criticized and classified loans in the fourth quarter of 2021 compared to the level contemplated by the model during similar, historical economic conditions, and an adjustment was made to estimate potential additional losses above modeled losses. Additionally, qualitative adjustments were made for Moody’s baseline economic forecast to include impacts of the Build Back Better Act not passing by December 31, 2021 and to address potential economic deterioration due to Omicron, as well as isolated model limitations related to modeled outputs given abnormally high retail sales and business output growth rates in historical periods. These factors were considered through separate quantitative processes and incorporated into the estimate of current expected credit losses at December 31, 2021. 14 Table of Contents There were no loans purchased with credit deterioration during the three months ended March 31, 2022 or the year ended December 31, 2021. During 2022, the Company purchased $ 3.0 million of residential loans at a 1.35 % premium and $ 33.5 million in consumer loans at par. The allowance for credit losses recorded for these loans on the purchase date was $ 2.1 million. During 2021, the Company purchased $ 58.9 million of residential loans at a 2 %- 5 % premium and $ 92.5 million in consumer loans at par. The allowance for credit losses recorded for these loans on the purchase date was $ 6.8 million. The Company made a policy election to report AIR in the other assets line item on the balance sheet. AIR on loans totaled $ 19.1 million at March 31, 2022 and $ 19.5 million at December 31, 2021 and there was no estimated allowance for credit losses related to AIR as of March 31, 2022 and December 31, 2021. The provision for loan losses was an expense of $ 0.6 million and a benefit of $ 2.8 million for the three months ended March 31, 2022 and March 31, 2021, respectively. The increase in provision expense was driven by providing for the increase in loan balances in the first quarter of 2022 and the changes in the economic condition forecasts from quarter to quarter. The following tables present the activity in the allowance for credit losses by our portfolio segments: (In thousands) Commercial Loans Consumer Loans Residential Total Balance as of December 31, 2021 $ 28,941 $ 44,253 $ 18,806 $ 92,000 Charge-offs ( 588 ) ( 3,591 ) ( 312 ) ( 4,491 ) Recoveries 93 1,652 150 1,895 Provision 111 1,277 ( 792 ) 596 Ending balance as of March 31 , 2022 $ 28,557 $ 43,591 $ 17,852 $ 90,000 Balance as of December 31, 2020 $ 50,942 $ 37,803 $ 21,255 $ 110,000 Charge-offs ( 242 ) ( 4,348 ) ( 70 ) ( 4,660 ) Recoveries 118 2,075 263 2,456 Provision ( 773 ) ( 950 ) ( 1,073 ) ( 2,796 ) Ending balance as of March 31 , 2021 $ 50,045 $ 34,580 $ 20,375 $ 105,000 The decrease in the allowance for credit losses from December 31, 2021 to March 31, 2022 was primarily due to an improvement in the economic forecast, partly offset by providing for the increase in loan balances. The decrease in the allowance for credit losses from December 31, 2020 to March 31, 2021 was primarily due to an improvement in the economic forecast. Individually Evaluated Loans As of March 31, 2022, there were five relationships identified to be evaluated for loss on an individual basis which had an amortized cost basis of $ 9.9 million and no allowance for credit loss. As of December 31, 2021, the same five relationships were identified to be evaluated for loss on an individual basis with an amortized cost basis of $ 10.2 million and no allowance for credit loss. 15 Table of Contents The following table sets forth information with regard to past due and nonperforming loans by loan segment: (In thousands) 31-60 Days Past Due Accruing 61-90 Days Past Due Accruing Greater Than 90 Days Past Due Accruing Total Past Due Accruing Nonaccrual Current Recorded Total Loans As of March 31 , 2022 Commercial loans: C&I $ 476 $ 633 $ - $ 1,109 $ 3,345 $ 1,171,795 $ 1,176,249 CRE 1,066 - - 1,066 12,552 2,615,792 2,629,410 PPP 77 - - 77 - 50,900 50,977 Total commercial loans $ 1,619 $ 633 $ - $ 2,252 $ 15,897 $ 3,838,487 $ 3,856,636 Consumer loans: Auto $ 6,250 $ 1,038 $ 455 $ 7,743 $ 1,622 $ 850,425 $ 859,790 Other consumer 3,303 1,643 927 5,873 301 888,977 895,151 Total consumer loans $ 9,553 $ 2,681 $ 1,382 $ 13,616 $ 1,923 $ 1,739,402 $ 1,754,941 Residential $ 1,761 $ 532 $ 562 $ 2,855 $ 7,992 $ 2,027,402 $ 2,038,249 Total loans $ 12,933 $ 3,846 $ 1,944 $ 18,723 $ 25,812 $ 7,605,291 $ 7,649,826 (In thousands) 31-60 Days Past Due Accruing 61-90 Days Past Due Accruing Greater Than 90 Days Past Due Accruing Total Past Due Accruing Nonaccrual Current Recorded Total Loans As of December 31 , 2021 Commercial loans: C&I $ 622 $ - $ - $ 622 $ 3,618 $ 1,126,430 $ 1,130,670 CRE 1,219 132 - 1,351 12,726 2,550,910 2,564,987 PPP - - - - - 101,222 101,222 Total commercial loans $ 1,841 $ 132 $ - $ 1,973 $ 16,344 $ 3,778,562 $ 3,796,879 Consumer loans: Auto $ 6,911 $ 1,547 $ 545 $ 9,003 $ 1,295 $ 816,210 $ 826,508 Other consumer 3,789 1,816 1,105 6,710 233 832,447 839,390 Total consumer loans $ 10,700 $ 3,363 $ 1,650 $ 15,713 $ 1,528 $ 1,648,657 $ 1,665,898 Residential $ 2,481 $ 420 $ 808 $ 3,709 $ 12,413 $ 2,019,560 $ 2,035,682 Total loans $ 15,022 $ 3,915 $ 2,458 $ 21,395 $ 30,285 $ 7,446,779 $ 7,498,459 As of March 31, 2022 and December 31, 2021, there were no loans in nonaccrual without an allowance for credit losses. Credit Quality Indicators The Company has developed an internal loan grading system to evaluate and quantify the Company’s loan portfolio with respect to quality and risk. The system focuses on, among other things, financial strength of borrowers, experience and depth of borrower’s management, primary and secondary sources of repayment, payment history, nature of the business and outlook on particular industries. The internal grading system enables the Company to monitor the quality of the entire loan portfolio on a consistent basis and provide management with an early warning system, enabling recognition and response to problem loans and potential problem loans. Commercial Grading System For Commercial and Industrial (“C&I”), Paycheck Protection Program (“PPP”) and Commercial Real Estate (“CRE”) loans, the Company uses a grading system that relies on quantifiable and measurable characteristics when available. This includes comparison of financial strength to available industry averages, comparison of transaction factors (loan terms and conditions) to loan policy and comparison of credit history to stated repayment terms and industry averages. Some grading factors are necessarily more subjective such as economic and industry factors, regulatory environment and management. C&I and CRE loans are graded Doubtful, Substandard, Special Mention and Pass. 16 Table of Contents Doubtful A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as a loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on the new information. Nonaccrual treatment is required for Doubtful assets because of the high probability of loss. Substandard Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision by bank management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some Substandard loans, the likelihood of full collection of interest and principal may be in doubt and those loans should be placed on nonaccrual. Although Substandard assets in the aggregate will have a distinct potential for loss, an individual asset’s loss potential does not have to be distinct for the asset to be rated Substandard. Special Mention Special Mention loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date. These loans pose elevated risk, but their weakness does not yet justify a Substandard classification. Borrowers may be experiencing adverse operating trends (i.e., declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (i.e., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a Special Mention rating. Although a Special Mention loan has a higher probability of default than a Pass asset, its default is not imminent. Pass Loans graded as Pass encompass all loans not graded as Doubtful, Substandard or Special Mention. Pass loans are in compliance with loan covenants and payments are generally made as agreed. Pass loans range from superior quality to fair quality. Pass loans also include any portion of a government guaranteed loan, including PPP loans. Consumer and Residential Grading System Consumer and Residential loans are graded as either Nonperforming or Performing. Nonperforming Nonperforming loans are loans that are (1) over 90 days past due and interest is still accruing or (2) on nonaccrual status. Performing All loans not meeting any of the above criteria are considered Performing. 17 Table of Contents The following tables illustrate the Company’s credit quality by loan class by vintage: (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total As of March 31 , 2022 C&I By internally assigned grade: Pass $ 93,408 $ 312,325 $ 210,961 $ 108,348 $ 59,572 $ 43,397 $ 303,639 $ 2,964 $ 1,134,614 Special mention - 142 3,497 2,493 1,969 3,192 11,591 - 22,884 Substandard - 1,468 840 6,790 509 5,300 3,824 19 18,750 Doubtful - - - - - 1 - - 1 Total C&I $ 93,408 $ 313,935 $ 215,298 $ 117,631 $ 62,050 $ 51,890 $ 319,054 $ 2,983 $ 1,176,249 CRE By internally assigned grade: Pass $ 120,316 $ 486,375 $ 444,779 $ 362,644 $ 234,268 $ 660,198 $ 153,714 $ 21,009 $ 2,483,303 Special mention 616 783 815 10,766 1,122 68,783 - 1,294 84,179 Substandard - - 139 4,828 12,796 35,421 4,026 - 57,210 Doubtful - - - - - 4,718 - - 4,718 Total CRE $ 120,932 $ 487,158 $ 445,733 $ 378,238 $ 248,186 $ 769,120 $ 157,740 $ 22,303 $ 2,629,410 PPP By internally assigned grade: Pass $ - $ 49,017 $ 1,960 $ - $ - $ - $ - $ - $ 50,977 Total PPP $ - $ 49,017 $ 1,960 $ - $ - $ - $ - $ - $ 50,977 Auto By payment activity: Performing $ 140,144 $ 320,921 $ 112,646 $ 158,224 $ 83,689 $ 42,089 $ - $ - $ 857,713 Nonperforming 7 743 312 502 305 208 - - 2,077 Total auto $ 140,151 $ 321,664 $ 112,958 $ 158,726 $ 83,994 $ 42,297 $ - $ - $ 859,790 Other consumer By payment activity: Performing $ 129,573 $ 391,276 $ 138,270 $ 105,863 $ 69,913 $ 39,194 $ 19,828 $ 6 $ 893,923 Nonperforming - 294 304 185 208 217 1 19 1,228 Total other consumer $ 129,573 $ 391,570 $ 138,574 $ 106,048 $ 70,121 $ 39,411 $ 19,829 $ 25 $ 895,151 Residential By payment activity: Performing $ 72,366 $ 345,762 $ 224,010 $ 172,010 $ 171,770 $ 803,616 $ 229,871 $ 10,290 $ 2,029,695 Nonperforming - 158 724 317 1,008 6,312 17 18 8,554 Total residential $ 72,366 $ 345,920 $ 224,734 $ 172,327 $ 172,778 $ 809,928 $ 229,888 $ 10,308 $ 2,038,249 Total loans $ 556,430 $ 1,909,264 $ 1,139,257 $ 932,970 $ 637,129 $ 1,712,646 $ 726,511 $ 35,619 $ 7,649,826 18 Table of Contents (In thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total As of December 31, 2021 C&I By internally assigned grade: Pass $ 335,685 $ 219,931 $ 114,617 $ 64,310 $ 20,137 $ 32,146 $ 280,476 $ 15,731 $ 1,083,033 Special mention 148 5,255 4,641 2,430 2,699 1,111 11,835 522 28,641 Substandard 1,482 874 7,010 187 2,582 3,272 3,512 34 18,953 Doubtful - - - 1 42 - - - 43 Total C&I $ 337,315 $ 226,060 $ 126,268 $ 66,928 $ 25,460 $ 36,529 $ 295,823 $ 16,287 $ 1,130,670 CRE By internally assigned grade: Pass $ 489,300 $ 434,866 $ 370,377 $ 236,274 $ 251,082 $ 441,310 $ 141,367 $ 43,942 $ 2,408,518 Special mention 789 826 11,235 3,544 15,379 53,372 780 420 86,345 Substandard - 77 4,539 12,934 12,424 34,563 744 - 65,281 Doubtful - - - - - 4,843 - - 4,843 Total CRE $ 490,089 $ 435,769 $ 386,151 $ 252,752 $ 278,885 $ 534,088 $ 142,891 $ 44,362 $ 2,564,987 PPP By internally assigned grade: Pass $ 92,884 $ 8,338 $ - $ - $ - $ - $ - $ - $ 101,222 Total PPP $ 92,884 $ 8,338 $ - $ - $ - $ - $ - $ - $ 101,222 Auto By payment activity: Performing $ 351,778 $ 129,419 $ 183,959 $ 101,441 $ 46,007 $ 12,064 $ - $ - $ 824,668 Nonperforming 305 319 457 411 266 82 - - 1,840 Total auto $ 352,083 $ 129,738 $ 184,416 $ 101,852 $ 46,273 $ 12,146 $ - $ - $ 826,508 Other consumer By payment activity: Performing $ 427,401 $ 151,300 $ 116,451 $ 78,523 $ 29,705 $ 15,660 $ 19,011 $ 1 $ 838,052 Nonperforming 216 429 249 134 238 33 18 21 1,338 Total other consumer $ 427,617 $ 151,729 $ 116,700 $ 78,657 $ 29,943 $ 15,693 $ 19,029 $ 22 $ 839,390 Residential By payment activity: Performing $ 345,338 $ 226,723 $ 179,087 $ 179,575 $ 146,611 $ 687,863 $ 246,103 $ 11,161 $ 2,022,461 Nonperforming - 1,411 643 1,072 1,534 8,522 - 39 13,221 Total residential $ 345,338 $ 228,134 $ 179,730 $ 180,647 $ 148,145 $ 696,385 $ 246,103 $ 11,200 $ 2,035,682 Total loans $ 2,045,326 $ 1,179,768 $ 993,265 $ 680,836 $ 528,706 $ 1,294,841 $ 703,846 $ 71,871 $ 7,498,459 Allowance for Credit Losses on Off-Balance Sheet Credit Exposures As of March 31, 2022, the allowance for losses on unfunded commitments totaled $ 4.8 million, compared to $ 5.1 million as of December 31, 2021. 19 Table of Contents Troubled Debt Restructuring When the Company modifies a loan in a TDR, such modifications generally include one or a combination of the following: an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; temporary reduction in the interest rate; or change in scheduled payment amount. Residential and Consumer TDRs occurring during 2022 and 2021 were due to the reduction in the interest rate or extension of the term. An allowance for impaired commercial and consumer loans that have been modified in a TDR is measured based on the present value of the expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs. If management determines that the value of the modified loan is less than the recorded investment in the loan an impairment charge would be recorded. The Company began offering loan modifications to assist borrowers during the COVID-19 national emergency. The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), along with a joint agency statement issued by banking regulatory agencies, provides that modifications made in response to COVID-19 do not need to be accounted for as a TDR. The Company evaluated the modification programs provided to its borrowers and has concluded the modifications were generally made in accordance with the CARES Act guidance to borrowers who were in good standing prior to the COVID-19 pandemic and are not required to be designated as TDRs. The following tables illustrate the recorded investment and number of modifications designated as TDRs, including the recorded investment in the loans prior to a modification and the recorded investment in the loans after restructuring: Three Months Ended March 31, 2022 Three Months Ended March 31 , 2021 (Dollars in thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Residential 2 $ 118 $ 124 3 $ 242 $ 252 Total TDRs 2 $ 118 $ 124 3 $ 242 $ 252 The following table illustrates the recorded investment and number of modifications for TDRs where a concession has been made and subsequently defaulted during the period: Three Months Ended March 31, 2022 Three Months Ended March 31, 2021 (Dollars in thousands) Number of Contracts Recorded Investment Number of Contracts Recorded Investment Consumer loans: Auto 1 $ 11 2 $ 18 Total consumer loans 1 $ 11 2 $ 18 Residential 20 $ 900 17 $ 624 Total TDRs 21 $ 911 19 $ 642 20 Table of Contents 6. Defined Benefit Post-Retirement Plans The Company has a qualified, noncontributory, defined benefit pension plan (“the Plan”) covering substantially all of its employees at March 31, 2022. Benefits paid from the Plan are based on age, years of service, compensation and social security benefits and are determined in accordance with defined formulas. The Company’s policy is to fund the Plan in accordance with Employee Retirement Income Security Act of 1974 standards. Assets of the Plan are invested in publicly traded stocks and mutual funds. In addition to the Plan, the Company provides supplemental employee retirement plans to certain current and former executives. The Company also assumed supplemental retirement plans for former executives of Alliance Financial Corporation (“Alliance”) when the Company acquired Alliance. These supplemental employee retirement plans and the Plan are collectively referred to herein as “Pension Benefits.” In addition, the Company provides certain health care benefits for retired employees. Benefits were accrued over the employees’ active service period. Only employees that were employed by the Company on or before January 1, 2000 are eligible to receive post-retirement health care benefits. In addition, the Company assumed post-retirement medical life insurance benefits for certain Alliance employees, retirees and their spouses, if applicable, in the Alliance acquisition. These post-retirement benefits are referred to herein as “Other Benefits.” The Company made no voluntary contributions to the pension and other benefits plans during the three months ended March 31, 2022 and 2021. The components of expense for Pension Benefits and Other Benefits are set forth below: Pension Benefits Other Benefits Three Months Ended March 31, Three Months Ended March 31, (In thousands) 2022 2021 2022 2021 Components of net periodic (benefit) cost: Service cost $ 534 $ 485 $ 2 $ 2 Interest cost 694 677 41 45 Expected return on plan assets ( 2,228 ) ( 2,203 ) - - Net amortization 185 313 1 13 Total net periodic (benefit) cost $ ( 815 ) $ ( 728 ) $ 44 $ 60 The service cost component of net periodic (benefit) cost is included in Salaries and Employee Benefits and the interest cost, expected return on plan assets and net amortization components are included in Other Noninterest Expense on the unaudited interim consolidated statements of income. 21 Table of Contents 7. Earnings Per Share Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity (such as the Company’s dilutive stock options and restricted stock units). The following is a reconciliation of basic and diluted EPS for the periods presented in the unaudited interim consolidated statements of income: Three Months Ended March 31, (In thousands, except per share data) 2022 2021 Basic EPS: Weighted average common shares outstanding 43,141 43,559 Net income available to common stockholders $ 39,126 $ 39,846 Basic EPS $ 0.91 $ 0.91 Diluted EPS: Weighted average common shares outstanding 43,141 43,559 Dilutive effect of common stock options and restricted stock 244 331 Weighted average common shares and common share equivalents 43,385 43,890 Net income available to common stockholders $ 39,126 $ 39,846 Diluted EPS $ 0.90 $ 0.91 There was a nominal number of weighted average stock options outstanding for the three months ended March 31, 2022 and March 31, 2021, that were not considered in the calculation of diluted EPS since the stock options’ exercise prices were greater than the average market price during these periods. 22 Table of Contents 8. Reclassification Adjustments Out of Other Comprehensive Income (Loss) The following table summarizes the reclassification adjustments out of AOCI: Detail About AOCI Components Amount Reclassified from AOCI Affected Line Item in the Consolidated Statements of Comprehensive Income (Loss) Three Months Ended (In thousands) March 31, 2022 March 31, 2021 AFS securities: Amortization of unrealized gains related to securities transfer $ 137 $ 142 Interest income Tax effect $ ( 35 ) $ ( 35 ) Income tax (benefit) Net of tax $ 102 $ 107 Cash flow hedges: Net unrealized losses on cash flow hedges reclassified to interest expense $ - $ 21 Interest expense Tax effect $ - $ ( 5 ) Income tax (benefit) Net of tax $ - $ 16 Pension and other benefits: Amortization of net losses $ 157 $ 298 Other noninterest expense Amortization of prior service costs 29 28 Other noninterest expense Tax effect $ ( 47 ) $ ( 81 ) Income tax (benefit) Net of tax $ 139 $ 245 Total reclassifications, net of tax $ 241 $ 368 23 Table of Contents 9. Derivative Instruments and Hedging Activities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Generally, the Company may use derivative financial instruments to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments. Currently, the Company has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. Derivatives Not Designated as Hedging Instruments The Company enters into interest rate swaps to facilitate customer transactions and meet their financing needs. These swaps are considered derivatives, but are not designated in hedging relationships. These instruments have interest rate and credit risk associated with them. To mitigate the interest rate risk, the Company enters into offsetting interest rate swaps with counterparties. The counterparty swaps are also considered derivatives and are also not designated in hedging relationships. Interest rate swaps are recorded within other assets or other liabilities on the consolidated balance sheet at their estimated fair value. Changes to the fair value of assets and liabilities arising from these derivatives are included, net, in other operating income in the consolidated statement of incom e. The Company is subject to over-the-counter derivative clearing requirements, which require certain derivatives to be cleared through central clearing houses. Accordingly, the Company began to clear certain derivative transactions through the Chicago Mercantile Exchange Clearing House (“CME”) in January of 2021. The CME requires the Company to post initial and variation margin payments to mitigate the risk of non-payment, the latter of which is received or paid daily based on the net asset or liability position of the contracts. A daily settlement occurs through the CME for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared through the daily clearing agent. As a result, the total fair values of loan level derivative assets and liabilities recognized on the Company’s financial statements are not equal and offsetting. As of March 31, 2022 and December 31, 2021, the Company had sixteen and eighteen risk participation agreements, respectively, with financial institution counterparties for interest rate swaps related to participated loans. Risk participation agreements provide credit protection to the financial institution that originated the swap transaction should the borrower fail to perform on its obligation. The Company enters into both risk participation agreements in which it purchases credit protection from other financial institutions and those in which it provides credit protection to other financial institutions . Derivatives Designated as Hedging Instruments The Company has previously entered into interest rate swaps to modify the interest rate characteristics of certain short-term Federal Home Loan Bank (“FHLB”) advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market interest rate changes. These agreements are designated as cash flow hedges. 24 Table of Contents The following table summarizes the derivatives outstanding: (In thousands) Notional Amount Balance Sheet Location Fair Value Notional Amount Balance Sheet Location Fair Value As of March 31 , 2022 Derivatives not designated as hedging instruments Interest rate derivatives $ 1,381,076 Other assets $ 49,054 $ 1,381,076 Other liabilities $ 49,054 Risk participation agreements 90,456 Other assets 174 22,556 Other liabilities 34 Total derivatives not designated as hedging instruments $ 49,228 $ 49,088 Netting adjustments (1) 7,292 34 Net derivatives in the balance sheet $ 41,936 $ 49,054 Derivatives not offset on the balance sheet $ 8,524 $ 8,524 Cash collateral (2) - 2,900 Net derivative amounts $ 33,412 $ 37,630 As of December 31, 2021 Derivatives not designated as hedging instruments Interest rate derivatives $ 1,342,187 Other assets $ 60,203 $ 1,342,187 Other liabilities $ 60,203 Risk participation agreements 90,938 Other assets 252 37,193 Other liabilities 60 Total derivatives not designated as hedging instruments $ 60,455 $ 60,263 Netting adjustments (1) ( 170 ) 5,482 Net derivatives in the balance sheet $ 60,625 $ 54,781 Derivatives not offset on the balance sheet $ 5,455 $ 5,455 Cash collateral (2) - 43,420 Net derivative amounts $ 55,170 $ 5,906 (1) Netting adjustments represents the amounts recorded to convert derivatives assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance on the settle to market rules for cleared derivatives. The CME legally characterizes the variation margin posted between counterparties as settlements of the outstanding derivative contracts instead of cash collateral. Company began to clear certain derivative transactions through the CME in 2021. (2) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consist of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above. F or derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period during which the hedge transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s short-term rate borrowings. During the three months ended March 31, 2021 the Company’s final cash flow hedge of interest rate risk matured and the renaming balance was reclassified from AOCI as a reduction to interest expense. There is no additional amount that will be reclassified from AOCI as a reduction to interest expense . The following table indicates the effect of cash flow hedge accounting on AOCI and on the unaudited interim consolidated statement of income: March 31, (In thousands) 2022 2021 D erivatives designated as hedging instruments: Interest rate derivatives - included component Amount of loss reclassified from AOCI into interest expense $ - $ 21 The following table indicates the gain or loss recognized in income on derivatives not designated as a hedging relationship: March 31, (In thousands) 2022 2021 Derivatives not designated as hedging instruments: (Decrease) in other income $ ( 52 ) $ ( 115 ) 25 Table of Contents 10. Fair Value Measurements and Fair Value of Financial Instruments G AAP states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy exists within GAAP that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, many other sovereign government obligations, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy. The Company does not adjust the quoted prices for such instruments. The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid agency securities, less liquid listed equities, state, municipal and provincial obligations and certain physical commodities. Such instruments are generally classified within Level 2 of the fair value hierarchy. Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices). Other investment securities are reported at fair value utilizing Level 1 and Level 2 inputs. The prices for Level 2 instruments are obtained through an independent pricing service or dealer market participants with whom the Company has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the methodologies used in pricing the securities by its third-party providers. Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions. Valuations are adjusted to reflect illiquidity and/or non-transferability and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate will be used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets and changes in financial ratios or cash flow s. 26 Table of Contents The following tables sets forth the Company’s financial assets and liabilities measured on a recurring basis that were accounted for at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement: (In thousands) Level 1 Level 2 Level 3 March 31, 2022 Assets: AFS securities U.S. treasury $ 117,635 $ - $ - $ 117,635 Federal agency - 225,612 - 225,612 State & municipal - 88,302 - 88,302 Mortgage-backed - 558,397 - 558,397 Collateralized mortgage obligations - 617,999 - 617,999 Corporate - 54,752 - 54,752 Total AFS securities $ 117,635 $ 1,545,062 $ - $ 1,662,697 Equity securities 31,554 1,000 - 32,554 Derivatives - 49,486 - 49,486 Total $ 149,189 $ 1,595,548 $ - $ 1,744,737 Liabilities: Derivatives $ - $ 49,088 $ - $ 49,088 Total $ - $ 49,088 $ - $ 49,088 (In thousands) Level 1 Level 2 Level 3 December 31, 2021 Assets: AFS securities U.S. treasury $ 73,069 $ - $ - $ 73,069 Federal agency - 239,931 - 239,931 State & municipal - 94,088 - 94,088 Mortgage-backed - 606,675 - 606,675 Collateralized mortgage obligations - 621,595 - 621,595 Corporate - 52,003 - 52,003 Total AFS securities $ 73,069 $ 1,614,292 $ - $ 1,687,361 Equity securities 32,550 1,000 - 33,550 Derivatives - 60,625 - 60,625 Total $ 105,619 $ 1,675,917 $ - $ 1,781,536 Liabilities: Derivatives $ - $ 60,263 $ - $ 60,263 Total $ - $ 60,263 $ - $ 60,263 G AAP requires disclosure of assets and liabilities measured and recorded at fair value on a non-recurring basis such as goodwill, loans held for sale, other real estate owned, collateral-dependent impaired loans and HTM securities. The non-recurring fair value measurements recorded during the three month period ended March 31, 2022 and the year ended December 31, 2021 were related to impaired loans and write-downs of other real estate owned. The Company uses the fair value of underlying collateral, less costs to sell, to estimate the allowance for credit losses for individually evaluated collateral dependent loans. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses ranging from 10 % to 50 %. Based on the valuation techniques used, the fair value measurements for collateral dependent individually evaluated loans are classified as Level 3. As of March 31, 2022, the Company had collateral dependent individually evaluated loans with a carrying value of $ 9.9 million, which had no estimated allowance for credit loss. As of December 31, 2021, the Company had collateral dependent individually evaluated loans with a carrying value of $ 10.2 million, which had no estimated allowance for credit loss. The following table sets forth information with regard to estimated fair values of financial instruments. This table excludes financial instruments for which the carrying amount approximates fair value. Financial instruments for which the fair value approximates carrying value include cash and cash equivalents, AFS securities, equity securities, accrued interest receivable, non-maturity deposits, short-term borrowings, accrued interest payable and derivatives. 27 Table of Contents March 31, 2022 December 31, 2021 (In thousands) Fair Value Hierarchy Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Financial assets: HTM securities 2 $ 895,005 $ 851,635 $ 733,210 $ 735,260 Net loans 3 7,560,089 7,611,744 7,407,289 7,530,768 Financial liabilities: Time deposits 2 $ 487,977 $ 480,294 $ 501,472 $ 500,717 Long-term debt 2 13,971 13,983 13,995 14,260 Subordinated debt 1 100,000 102,218 100,000 107,402 Junior subordinated debt 2 101,196 102,624 101,196 107,569 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Company has a substantial wealth operation that contributes net fee income annually. The wealth management operation is not considered a financial instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities include the benefits resulting from the low-cost funding of deposit liabilities as compared to the cost of borrowing funds in the market and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimate of fair value. HTM Securities The fair value of the Company’s HTM securities is primarily measured using information from a third-party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Net Loans Net loans include portfolio loans and loans held for sale. Loans were first segregated by type and then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments, which also includes credit risk, illiquidity risk and other market factors to calculate the exit price fair value in accordance with ASC 820. Time Deposits The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value. Long-Term Debt The fair value of long-term debt was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. Subordinated Debt The fair value of subordinated debt has been measured using the observable market price as of the period reported. Junior Subordinated Debt The fair value of junior subordinated debt has been estimated using a discounted cash flow analysis. 28 Table of Contents 11. Commitments and Contingencies The Company is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit, standby letters of credit and certain agricultural real estate loans sold to investors with recourse, with the sold portion having a government guarantee that is assignable back to the Company upon repurchase of the loan in the event of default. The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, unused lines of credit, standby letters of credit and loans sold with recourse is represented by the contractual amount of those investments. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness. Commitments to extend credit and unused lines of credit totaled $ 2.2 billion at March 31, 2022 and $ 2.3 billion at December 31, 2021. Since many loan commitments, standby letters of credit and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows. The Company does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit. The Company guarantees the obligations or performance of customers by issuing standby letters of credit to third-parties. These standby letters of credit are generally issued in support of third-party debt, such as corporate debt issuances, industrial revenue bonds and municipal securities. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers and letters of credit are subject to the same credit origination, portfolio maintenance and management procedures in effect to monitor other credit and off-balance sheet products. Typically, these instruments have one year expirations with an option to renew upon annual review; therefore, the total amounts do not necessarily represent future cash requirements. Standby letters of credit totaled $ 54.5 million at March 31, 2022 and $ 55.1 million at December 31, 2021. A s of March 31, 2022 and December 31, 2021 , the fair value of the Company’s standby letters of credit was not significant. 29 Table of Contents NBT BANCORP INC. AND SUBSIDIARIES