NBT BANCORP INC 10-Q

Item 1 – FINANCIAL STATEMENTS NBT Bancorp Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) September 30, December 31, 2022 2021 (In thousands, except share and per share data) Assets Cash and due from banks $ 223,755 $ 157,775 Short-term interest-bearing accounts 97,303 1,111,296 Equity securities, at fair value 30,428 33,550 Securities available for sale, at fair value 1,556,501 1,687,361 Securities held to maturity (fair value $ 814,100 and $ 735,260 , respectively) 929,541 733,210 Federal Reserve and Federal Home Loan Bank stock 24,892 25,098 Loans held for sale 87 830 Loans 7,904,784 7,498,459 Less allowance for loan losses 96,800 92,000 Net loans $ 7,807,984 $ 7,406,459 Premises and equipment, net 69,338 72,093 Goodwill 281,204 280,541 Intangible assets, net 7,879 8,927 Bank owned life insurance 230,990 228,238 Other assets 380,840 266,733 Total assets $ 11,640,742 $ 12,012,111 Liabilities Demand (noninterest bearing) $ 3,714,342 $ 3,689,556 Savings, NOW and money market 5,758,736 6,043,441 Time 445,673 501,472 Total deposits $ 9,918,751 $ 10,234,469 Short-term borrowings 74,554 97,795 Long-term debt 3,322 13,995 Subordinated debt, net 98,817 98,490 Junior subordinated debt 101,196 101,196 Other liabilities 287,556 215,713 Total liabilities $ 10,484,196 $ 10,761,658 Stockholders’ equity Preferred stock, $ 0.01 par value. Authorized 2,500,000 shares at September 30 , 2022 and December 31, 2021 $ - $ - Common stock, $ 0.01 par value. Authorized 100,000,000 shares at September 30 , 2022 and December 31, 2021 ; issued 49,651,493 at September 30 , 2022 and December 31, 2021 497 497 Additional paid-in-capital 577,899 576,976 Retained earnings 935,170 856,203 Accumulated other comprehensive loss ( 183,539 ) ( 23,344 ) Common stock in treasury, at cost, 6,812,238 and 6,483,481 shares at September 30 , 2022 and December 31, 2021 , respectively ( 173,481 ) ( 159,879 ) Total stockholders’ equity $ 1,156,546 $ 1,250,453 Total liabilities and stockholders’ equity $ 11,640,742 $ 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 September 30, Nine Months Ended September 30 , 2022 2021 2022 2021 (In thousands, except per share data) Interest, fee and dividend income Interest and fees on loans $ 85,266 $ 72,817 $ 237,148 $ 222,705 Securities available for sale 7,665 5,898 21,822 17,204 Securities held to maturity 4,854 2,976 12,532 9,454 Other 1,429 524 3,396 1,206 Total interest, fee and dividend income $ 99,214 $ 82,215 $ 274,898 $ 250,569 Interest expense Deposits $ 2,233 $ 2,548 $ 5,831 $ 8,582 Short-term borrowings 84 28 113 130 Long-term debt 20 89 140 301 Subordinated debt 1,360 1,359 4,078 4,077 Junior subordinated debt 1,039 517 2,325 1,572 Total interest expense $ 4,736 $ 4,541 $ 12,487 $ 14,662 Net interest income $ 94,478 $ 77,674 $ 262,411 $ 235,907 Provision for loan losses 4,484 ( 3,342 ) 9,470 ( 11,354 ) Net interest income after provision for loan losses $ 89,994 $ 81,016 $ 252,941 $ 247,261 Noninterest income Service charges on deposit accounts $ 3,581 $ 3,489 $ 11,032 $ 9,544 Card services income 5,654 9,101 24,100 25,835 Retirement plan administration fees 11,496 10,495 37,451 30,372 Wealth management 8,402 8,783 25,294 25,099 Insurance services 3,892 3,720 11,258 10,689 Bank owned life insurance income 1,560 1,548 4,625 4,588 Net securities (losses) gains ( 148 ) ( 100 ) ( 914 ) 568 Other 2,735 3,293 8,641 9,988 Total noninterest income $ 37,172 $ 40,329 $ 121,487 $ 116,683 Noninterest expense Salaries and employee benefits $ 48,371 $ 44,190 $ 140,595 $ 128,462 Technology and data services 9,096 8,421 26,588 26,154 Occupancy 6,481 6,154 19,761 19,413 Professional fees and outside services 3,817 3,784 11,999 11,403 Office supplies and postage 1,469 1,364 4,441 4,478 FDIC expense 787 772 2,399 2,243 Advertising 559 583 1,943 1,502 Amortization of intangible assets 544 663 1,725 2,157 Loan collection and other real estate owned, net 549 706 1,690 1,959 Other 5,021 6,232 13,815 14,405 Total noninterest expense $ 76,694 $ 72,869 $ 224,956 $ 212,176 Income before income tax expense $ 50,472 $ 48,476 $ 149,472 $ 151,768 Income tax expense 11,499 11,043 33,598 34,193 Net income $ 38,973 $ 37,433 $ 115,874 $ 117,575 Earnings per share Basic $ 0.91 $ 0.86 $ 2.70 $ 2.71 Diluted $ 0.90 $ 0.86 $ 2.68 $ 2.69 See accompanying notes to unaudited interim consolidated financial statements. 4 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three Months Ended September 30, Nine Months Ended September 30 , 2022 2021 2022 2021 (In thousands) Net income $ 38,973 $ 37,433 $ 115,874 $ 117,575 Other comprehensive income (loss), net of tax: Securities available for sale: Unrealized net holding (losses) gains arising during the period, gross $ ( 78,653 ) $ ( 7,426 ) $ ( 214,543 ) $ ( 21,329 ) Tax effect 19,663 1,857 53,636 5,332 Unrealized net holding (losses) gains arising during the period, net $ ( 58,990 ) $ ( 5,569 ) $ ( 160,907 ) $ ( 15,997 ) Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, gross $ 125 $ 149 $ 393 $ 434 Tax effect ( 31 ) ( 38 ) ( 98 ) ( 109 ) Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, net $ 94 $ 111 $ 295 $ 325 Total securities available for sale, net $ ( 58,896 ) $ ( 5,458 ) $ ( 160,612 ) $ ( 15,672 ) 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 $ 185 $ 344 $ 557 $ 996 Tax effect ( 47 ) ( 86 ) ( 140 ) ( 249 ) Amortization of prior service cost and actuarial losses, net $ 138 $ 258 $ 417 $ 747 Total pension and other benefits, net $ 138 $ 258 $ 417 $ 747 Total other comprehensive (loss) $ ( 58,758 ) $ ( 5,200 ) $ ( 160,195 ) $ ( 14,909 ) Comprehensive (loss) income $ ( 19,785 ) $ 32,233 $ ( 44,321 ) $ 102,666 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 June 30, 2022 $ 497 $ 577,345 $ 909,029 $ ( 124,781 ) $ ( 173,534 ) $ 1,188,556 Net income - - 38,973 - - 38,973 Cash dividends - $ 0.30 per share - - ( 12,832 ) - - ( 12,832 ) Net issuance of 2,849 shares to employee and other stock plans - ( 116 ) - - 53 ( 63 ) Stock-based compensation - 670 - - - 670 Other comprehensive (loss) - - - ( 58,758 ) - ( 58,758 ) Balance at September 30 , 2022 $ 497 $ 577,899 $ 935,170 $ ( 183,539 ) $ ( 173,481 ) $ 1,156,546 Balance at June 30, 2021 $ 497 $ 576,732 $ 805,722 $ ( 9,292 ) $ ( 148,603 ) $ 1,225,056 Net income - - 37,433 - - 37,433 Cash dividends - $ 0.28 per share - - ( 12,138 ) - - ( 12,138 ) Purchase of 119,342 treasury shares - - - - ( 4,212 ) ( 4,212 ) Net issuance of 1,672 shares to employee and other stock plans - ( 73 ) - - 28 ( 45 ) Stock-based compensation - 563 - - - 563 Other comprehensive (loss) - - - ( 5,200 ) - ( 5,200 ) Balance at September 30 , 2021 $ 497 $ 577,222 $ 831,017 $ ( 14,492 ) $ ( 152,787 ) $ 1,241,457 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 - - 115,874 - - 115,874 Cash dividends - $ 0.86 per share - - ( 36,907 ) - - ( 36,907 ) Purchase of 400,000 treasury shares - - - - ( 14,713 ) ( 14,713 ) Net issuance of 71,243 shares to employee and other stock plans - ( 3,026 ) - - 1,111 ( 1,915 ) Stock-based compensation - 3,949 - - - 3,949 Other comprehensive (loss) - - - ( 160,195 ) - ( 160,195 ) Balance at September 30 , 2022 $ 497 $ 577,899 $ 935,170 $ ( 183,539 ) $ ( 173,481 ) $ 1,156,546 Balance at December 31, 2020 $ 497 $ 578,082 $ 749,056 $ 417 $ ( 140,434 ) $ 1,187,618 Net income - - 117,575 - - 117,575 Cash dividends - $ 0.82 per share - - ( 35,614 ) - - ( 35,614 ) Purchase of 400,000 treasury shares - - - - ( 14,083 ) ( 14,083 ) Net issuance of 108,599 shares to employee and other stock plans - ( 4,679 ) - - 1,730 ( 2,949 ) Stock-based compensation - 3,819 - - - 3,819 Other comprehensive (loss) - - - ( 14,909 ) - ( 14,909 ) Balance at September 30 , 2021 $ 497 $ 577,222 $ 831,017 $ ( 14,492 ) $ ( 152,787 ) $ 1,241,457 See accompanying notes to unaudited interim consolidated financial statements. 6 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, 2022 2021 (In thousands) Operating activities Net income $ 115,874 $ 117,575 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses 9,470 ( 11,354 ) Depreciation and amortization of premises and equipment 7,581 7,339 Net amortization on securities 2,736 4,460 Amortization of intangible assets 1,725 2,157 Amortization of operating lease right-of-use assets 4,989 5,401 Excess tax benefit on stock-based compensation ( 183 ) ( 321 ) Stock-based compensation expense 3,949 3,819 Bank owned life insurance income ( 4,625 ) ( 4,588 ) Amortization of subordinated debt issuance costs 327 328 Proceeds from sale of loans held for sale 4,238 48,371 Originations of loans held for sale ( 3,573 ) ( 47,996 ) Net gains on sale of loans held for sale ( 112 ) ( 280 ) Net security losses (gains) 914 ( 568 ) Net gains on sale of other real estate owned ( 259 ) ( 44 ) Net change in other assets and other liabilities 10,470 12,501 Net cash provided by operating activities $ 153,521 $ 136,800 Investing activities Net cash used in acquisitions $ ( 2,534 ) $ ( 1,550 ) Securities available for sale: Proceeds from maturities, calls and principal paydowns 177,704 308,688 Purchases ( 262,861 ) ( 560,884 ) Securities held to maturity: Proceeds from maturities, calls and principal paydowns 154,194 149,200 Purchases ( 351,390 ) ( 216,205 ) Equity securities: Proceeds from calls - 1,000 Purchases ( 1,000 ) - Other: Net increase in loans ( 410,805 ) ( 73,344 ) Proceeds from Federal Home Loan Bank stock redemption 6,491 2,355 Purchases of Federal Reserve Bank and Federal Home Loan Bank stock ( 6,285 ) ( 163 ) Proceeds from settlement of bank owned life insurance 1,873 3,571 Purchases of bank owned life insurance - ( 40,000 ) Purchases of premises and equipment, net ( 4,749 ) ( 5,007 ) Proceeds from sales of other real estate owned 426 784 Net cash used in investing activities $ ( 698,936 ) $ ( 431,555 ) Financing activities Net (decrease) increase in deposits $ ( 315,718 ) $ 1,113,486 Net decrease in short-term borrowings ( 23,241 ) ( 68,671 ) Repayments of long-term debt ( 10,673 ) ( 25,077 ) Proceeds from the issuance of shares to employee and other stock plans - 112 Cash paid by employer for tax-withholdings on stock issuance ( 1,346 ) ( 1,973 ) Purchase of treasury stock ( 14,713 ) ( 14,083 ) Cash dividends ( 36,907 ) ( 35,614 ) Net cash (used in) provided by financing activities $ ( 402,598 ) $ 968,180 Net (decrease) increase in cash and cash equivalents $ ( 948,013 ) $ 673,425 Cash and cash equivalents at beginning of period 1,269,071 672,681 Cash and cash equivalents at end of period $ 321,058 $ 1,346,106 7 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (continued) Nine Months Ended September 30, 2022 2021 Supplemental disclosure of cash flow information Cash paid during the period for: Interest expense $ 14,456 $ 17,161 Income taxes paid, net of refund 41,903 39,025 Noncash investing activities: Loans transferred to other real estate owned $ - $ 141 Acquisitions: Fair value of assets acquired $ 705 $ - 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 September 30, 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, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central 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 presentation of the results for the interim periods in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and in accordance with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, the consolidated financial statements do not include all of the information and notes necessary for complete financial statements in conformity with 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 card 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 848 (“ASC 848”) and clarifies some of its guidance. ASU 2020-04 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 permit relief solely for reference rate reform actions and permit 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 . 9 Table of Contents 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 . 4. Securities The amortized cost, estimated fair value and unrealized gains and losses of AFS securities are as follows: (In thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value As of September 30 , 2022 U.S. treasury $ 132,600 $ - $ 11,978 $ 120,622 Federal agency 248,427 - 43,637 204,790 State & municipal 98,126 - 14,311 83,815 Mortgage-backed: Government-sponsored enterprises 469,757 8 60,393 409,372 U.S. government agency securities 82,086 19 7,966 74,139 Collateralized mortgage obligations: Government-sponsored enterprises 513,088 35 58,833 454,290 U.S. government agency securities 175,425 1 19,332 156,094 Corporate 58,980 - 5,601 53,379 Total AFS securities $ 1,778,489 $ 63 $ 222,051 $ 1,556,501 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 September 30, 2022 and December 31, 2021. During the three and nine months ended September 30, 2022 and 2021 there were no gains or losses reclassified out of accumulated other comprehensive income (loss) (“AOCI”) and into earnings. The amortized cost, estimated fair value and unrealized gains and losses of HTM securities are as follows: (In thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value As of September 30 , 2022 Federal agency $ 100,000 $ - $ 21,179 $ 78,821 Mortgage-backed: Government-sponsored enterprises 254,889 - 40,946 213,943 U.S. government agency securities 18,403 4 573 17,834 Collateralized mortgage obligations: Government-sponsored enterprises 203,213 - 14,608 188,605 U.S. government agency securities 67,940 1 9,071 58,870 State & municipal 285,096 2 29,071 256,027 Total HTM securities $ 929,541 $ 7 $ 115,448 $ 814,100 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 10 Table of Contents At September 30, 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 September 30, 2022 and December 31, 2021 because the expectation of nonrepayment of the amortized cost is zero, except for state & municipal securities, which such expected losses from nonrepayment are immaterial . T he Company recorded no gains from calls on HTM securities for the three months ended September 30, 2022. Included in net realized gains (losses), the Company recorded gains from calls on HTM securities of approximately $ 14 thousand for the three months ended September 30, 2021. Included in net realized gains (losses), the Company recorded gains from calls on HTM securities of approximately $ 4 thousand and $ 29 thousand for the nine months ended September 30, 2022 and 2021, respectively. AFS and HTM securities with amortized costs totaling $ 1.74 billion at September 30, 2022 and $ 1.63 billion at December 31, 2021 were pledged to secure public deposits and for other purposes required or permitted by law. Additionally, at September 30, 2022 and December 31, 2021, AFS and HTM securities with an amortized cost of $ 126.2 million and $ 162.1 million, respectively, were pledged as collateral for securities sold under repurchase agreements. The following tables set forth information with regard to gains and (losses) on equity securities: Three Months Ended September 30, (In thousands) 2022 2021 Net (losses) and gains recognized on equity securities $ ( 148 ) $ ( 114 ) Less: Net (losses) and gains recognized on equity securities sold during the period - - Unrealized (losses) and gains recognized on equity securities still held $ ( 148 ) $ ( 114 ) Nine Months Ended September 30, (In thousands) 2022 2021 Net (losses) and gains recognized on equity securities $ ( 918 ) $ 539 Less: Net (losses) and gains recognized on equity securities sold during the period - - Unrealized (losses) and gains recognized on equity securities still held $ ( 918 ) $ 539 As of September 30, 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 September 30, 2022 and 2021. There were no impairments, downward or upward adjustments recognized for equity securities without readily determinable fair values during the three and nine months ended September 30, 2022 and 2021. The following table sets forth information with regard to contractual maturities of debt securities at September 30, 2022: (In thousands) Amortized Cost Estimated Fair Value AFS debt securities: Within one year $ 1,644 $ 1,636 From one to five years 253,118 233,059 From five to ten years 741,574 638,816 After ten years 782,153 682,990 Total AFS debt securities $ 1,778,489 $ 1,556,501 HTM debt securities: Within one year $ 56,687 $ 56,676 From one to five years 77,429 74,329 From five to ten years 291,847 253,807 After ten years 503,578 429,288 Total HTM debt securities $ 929,541 $ 814,100 11 Table of Contents 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 September 30, 2022 and December 31, 2021. 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 September 30 , 2022 AFS securities: U.S. treasury $ 120,622 $ ( 11,978 ) 8 $ - $ - - $ 120,622 $ ( 11,978 ) 8 Federal agency - - - 204,790 ( 43,637 ) 16 204,790 ( 43,637 ) 16 State & municipal 19,439 ( 2,716 ) 16 64,376 ( 11,595 ) 52 83,815 ( 14,311 ) 68 Mortgage-backed 245,801 ( 22,675 ) 160 236,256 ( 45,684 ) 24 482,057 ( 68,359 ) 184 Collateralized mortgage obligations 381,916 ( 37,494 ) 96 223,569 ( 40,671 ) 26 605,485 ( 78,165 ) 122 Corporate 53,379 ( 5,601 ) 17 - - - 53,379 ( 5,601 ) 17 Total securities with unrealized losses $ 821,157 $ ( 80,464 ) 297 $ 728,991 $ ( 141,587 ) 118 $ 1,550,148 $ ( 222,051 ) 415 HTM securities: Federal agency $ - $ - - $ 78,821 $ ( 21,179 ) 4 $ 78,821 $ ( 21,179 ) 4 Mortgage-backed 159,823 ( 24,108 ) 25 71,827 ( 17,411 ) 9 231,650 ( 41,519 ) 34 Collateralized mortgage obligation 204,362 ( 13,975 ) 47 42,467 ( 9,704 ) 6 246,829 ( 23,679 ) 53 State & municipal 154,286 ( 17,017 ) 189 40,517 ( 12,054 ) 42 194,803 ( 29,071 ) 231 Total securities with unrealized losses $ 518,471 $ ( 55,100 ) 261 $ 233,632 $ ( 60,348 ) 61 $ 752,103 $ ( 115,448 ) 322 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 12 Table of Contents The Company does not believe the AFS securities that were in an unrealized loss position as of September 30, 2022 and December 31, 2021, which consisted of 415 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 September 30, 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 $ 4.3 million at September 30, 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. None of the Bank’s HTM debt securities were past due or on nonaccrual status as of September 30, 2022 and December 31, 2021. There was no accrued interest reversed against interest income for the three and nine months ended September 30, 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 September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, 69 % 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 losses. Therefore, the Company did not record an allowance for credit losses for these securities as of September 30, 2022 and December 31, 2021. The remaining HTM debt securities at September 30, 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 September 30, 2022 and December 31, 2021. AIR on HTM debt securities totaled $ 3.3 million at September 30, 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 $ 96.8 million at September 30, 2022, compared to $ 92.0 million at December 31, 2021. The allowance for credit losses as a percentage of loans was 1.22 % at September 30, 2022, compared to 1.23 % at December 31, 2021. The 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 September 30, 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 at pre-coronavirus (“COVID-19”) pandemic levels of 3.8% and maintaining those levels to the end of the forecast period. Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the fourth quarter of 2022 at about 4.5% and hover around that level across the forecast period. Other utilized economic variables worsened overall during the fourth quarter of the forecast, with outlooks for annualized growth in retail sales and business output declining from the prior quarter along with housing starts. Key assumptions in the baseline economic outlook included the economy reaching full employment in the coming quarters, further interest rate increases by the Federal Reserve, and the global oil market remaining relatively balanced into 2023. The alternative downside scenario assumed deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 4.0% in the third quarter of 2022 to a peak of 6.9% in the fourth quarter of 2023. The alternative upside scenario incorporated a more optimistic outlook than the baseline scenario, with an imminent return to full employment and northeast unemployment declining to 3.3% 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 September 30, 2022. At September 30, 2022, the weightings were 50%, 0% and 50% for the baseline, upside and downside economic forecasts, respectively. Qualitative adjustments were made for isolated model limitations related to modeled inputs and outputs given abnormally high retail sales and business output growth rates in prior quarters. Additionally, a qualitative adjustment for inflation was added to adjust for potential model limitations arising from the use of a macroeconomic variable denominated in nominal dollar terms. These factors were considered through separate quantitative processes and incorporated into the estimate of current expected credit losses at September 30, 2022. 13 Table of Contents The quantitative model as of June 30, 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 at pre-COVID-19 levels of 3.8% but falling below pre-COVID-19 levels by the end of the forecast period to a low of 3.4%. Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the third quarter of 2022 at about 9.5% and hover around 5% by the end of the forecast period. Other utilized economic variables worsened overall during the quarter, with outlooks for annualized growth in retail sales and business output declining from the prior quarter along with housing starts. Key assumptions in the baseline economic outlook included the containment of the European conflict to only Russia and Ukraine, further interest rate increases by the Federal Reserve, and achievement of full employment by the end of 2022. The alternative downside scenario assumed deteriorated economic and pandemic related conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 4.2% in the second quarter of 2022 to a peak of 7.0% in the third 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 2.9% 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 June 30, 2022. At June 30, 2022, the weightings were 50%, 0% and 50% for the baseline, upside and downside economic forecasts, respectively. Additionally, qualitative adjustments were made for isolated model limitations related to modeled outputs given abnormally high retail sales and business output growth rates in prior quarters. These factors were considered through separate quantitative processes and incorporated into the estimate of current expected credit losses at June 30, 2022. 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 hover around 5% by the middle and end of the forecast period. The alternative downside scenario assumed deteriorated economic and pandemic related conditions from the baseline outlook. Under this scenario, northeast unemployment rose 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. There were no loans purchased with credit deterioration during the nine months ended September 30, 2022 or the year ended December 31, 2021. During 2022, the Company purchased $ 8.0 million of residential loans at a slight discount and $ 50.1 million in consumer loans at par. The allowance for credit losses recorded for these loans on the purchase date was $ 3.2 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 $ 21.2 million at September 30, 2022 and $ 19.5 million at December 31, 2021 and there was no estimated allowance for credit losses related to AIR as of September 30, 2022 and December 31, 2021. The following tables present the activity in the allowance for credit losses by portfolio segment: (In thousands) Commercial Loans Consumer Loans Residential Total Balance as of June 30, 2022 $ 32,358 $ 44,940 $ 16,302 $ 93,600 Charge-offs ( 624 ) ( 3,951 ) ( 118 ) ( 4,693 ) Recoveries 1,282 1,924 203 3,409 Provision ( 60 ) 5,397 ( 853 ) 4,484 Ending balance as of September 30, 2022 $ 32,956 $ 48,310 $ 15,534 $ 96,800 Balance as of June 30, 2021 $ 44,191 $ 34,881 $ 19,428 $ 98,500 Charge-offs ( 1,492 ) ( 3,083 ) ( 312 ) ( 4,887 ) Recoveries 354 2,143 232 2,729 Provision ( 9,875 ) 7,130 ( 597 ) ( 3,342 ) Ending balance as of September 30 , 2021 $ 33,178 $ 41,071 $ 18,751 $ 93,000 14 Table of Contents (In thousands) Commercial Loans Consumer Loans Residential Total Balance as of December 31, 2021 $ 28,941 $ 44,253 $ 18,806 $ 92,000 Charge-offs ( 1,659 ) ( 11,051 ) ( 520 ) ( 13,230 ) Recoveries 2,212 5,693 655 8,560 Provision 3,462 9,415 ( 3,407 ) 9,470 Ending balance as of September 30, 2022 $ 32,956 $ 48,310 $ 15,534 $ 96,800 Balance as of December 31, 2020 $ 50,942 $ 37,803 $ 21,255 $ 110,000 Charge-offs ( 2,123 ) ( 10,702 ) ( 731 ) ( 13,556 ) Recoveries 533 6,506 871 7,910 Provision ( 16,174 ) 7,464 ( 2,644 ) ( 11,354 ) Ending balance as of September 30 , 2021 $ 33,178 $ 41,071 $ 18,751 $ 93,000 The increase in the allowance for credit losses from December 31, 2021 and June 30, 2022 to September 30, 2022 was due to an increase in loan balances and a modest deterioration in the economic forecast. The decrease in the allowance for credit losses from December 31, 2020 and June 30, 2021 to September 30, 2021 was primarily due to an improvement in the economic forecast. Individually Evaluated Loans As of September 30, 2022, there were four relationships identified to be evaluated for loss on an individual basis which, in aggregate, had an amortized cost basis of $ 4.3 million, with no allowance for credit loss. As of December 31, 2021, there were five relationships identified to be evaluated for loss on an individual basis with an aggregate amortized cost basis of $ 10.2 million and no allowance for credit loss. The decrease in the amortized cost basis on an individual basis from December 31, 2021 to September 30, 2022 was primarily due to principal payments and resolution of one relationship in which the cost basis was substantially collected and the related $ 0.8 million allowance for credit losses was reversed. 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 September 30 , 2022 Commercial loans: C&I $ 356 $ 272 $ - $ 628 $ 3,951 $ 1,232,057 $ 1,236,636 CRE - - - - 5,839 2,604,852 2,610,691 PPP 60 - - 60 - 3,268 3,328 Total commercial loans $ 416 $ 272 $ - $ 688 $ 9,790 $ 3,840,177 $ 3,850,655 Consumer loans: Auto $ 7,969 $ 1,047 $ 462 $ 9,478 $ 1,399 $ 913,068 $ 923,945 Other consumer 5,234 2,104 1,086 8,424 357 1,031,095 1,039,876 Total consumer loans $ 13,203 $ 3,151 $ 1,548 $ 17,902 $ 1,756 $ 1,944,163 $ 1,963,821 Residential $ 3,182 $ 390 $ 1,184 $ 4,756 $ 7,552 $ 2,078,000 $ 2,090,308 Total loans $ 16,801 $ 3,813 $ 2,732 $ 23,346 $ 19,098 $ 7,862,340 $ 7,904,784 (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 15 Table of Contents As of September 30, 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, which facilitates 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. 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 and/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 (e.g., declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (e.g., increasing inventory without an increase in sales, high leverage, and/or 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. 16 Table of Contents 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. The following tables illustrate the Company’s credit quality by loan class by year of origination (vintage): (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total As of September 30 , 2022 C&I By internally assigned grade: Pass $ 245,005 $ 266,027 $ 184,084 $ 97,714 $ 43,160 $ 34,942 $ 332,028 $ 3,795 $ 1,206,755 Special mention 832 591 194 172 1,575 1,340 2,285 - 6,989 Substandard - 1,661 490 3,725 116 3,550 11,991 1,353 22,886 Doubtful - - - - - 6 - - 6 Total C&I $ 245,837 $ 268,279 $ 184,768 $ 101,611 $ 44,851 $ 39,838 $ 346,304 $ 5,148 $ 1,236,636 CRE By internally assigned grade: Pass $ 280,862 $ 471,072 $ 443,924 $ 332,477 $ 224,344 $ 600,377 $ 142,329 $ 36,163 $ 2,531,548 Special mention 609 771 35 2,663 4,686 26,099 850 - 35,713 Substandard - - 59 4,068 2,049 31,701 5,553 - 43,430 Total CRE $ 281,471 $ 471,843 $ 444,018 $ 339,208 $ 231,079 $ 658,177 $ 148,732 $ 36,163 $ 2,610,691 PPP By internally assigned grade: Pass $ - $ 3,328 $ - $ - $ - $ - $ - $ - $ 3,328 Total PPP $ - $ 3,328 $ - $ - $ - $ - $ - $ - $ 3,328 Auto By payment activity: Performing $ 383,328 $ 262,078 $ 85,865 $ 115,909 $ 55,123 $ 19,781 $ - $ - $ 922,084 Nonperforming 273 519 389 418 237 25 - - 1,861 Total auto $ 383,601 $ 262,597 $ 86,254 $ 116,327 $ 55,360 $ 19,806 $ - $ - $ 923,945 Other consumer By payment activity: Performing $ 400,118 $ 325,016 $ 118,278 $ 88,449 $ 56,685 $ 30,060 $ 19,820 $ 7 $ 1,038,433 Nonperforming 182 649 199 125 39 211 13 25 1,443 Total other consumer $ 400,300 $ 325,665 $ 118,477 $ 88,574 $ 56,724 $ 30,271 $ 19,833 $ 32 $ 1,039,876 Residential By payment activity: Performing $ 200,520 $ 347,085 $ 215,272 $ 161,759 $ 162,244 $ 742,940 $ 240,655 $ 11,097 $ 2,081,572 Nonperforming 109 833 644 268 847 5,894 21 120 8,736 Total residential $ 200,629 $ 347,918 $ 215,916 $ 162,027 $ 163,091 $ 748,834 $ 240,676 $ 11,217 $ 2,090,308 Total loans $ 1,511,838 $ 1,679,630 $ 1,049,433 $ 807,747 $ 551,105 $ 1,496,926 $ 755,545 $ 52,560 $ 7,904,784 17 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 The allowance for losses on unfunded commitments totaled $ 5.3 million as of September 30, 2022, compared to $ 5.1 million as of December 31, 2021. 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; a temporary reduction in the interest rate; or a change in scheduled payment amount. Residential and Consumer TDRs occurring during 2022 and 2021 were due to reductions in the interest rate and/or extensions of the term. 18 Table of Contents 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 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 September 30, 2022 Three Months Ended September 30 , 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 Consumer loans: Auto - $ - $ - 1 $ 20 $ 20 Total consumer loans - $ - $ - 1 $ 20 $ 20 Residential 6 $ 613 $ 682 3 $ 460 $ 507 Total TDRs 6 $ 613 $ 682 4 $ 480 $ 527 Nine Months Ended September 30, 2022 Nine Months Ended September 30 , 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 Consumer loans: Auto - $ - $ - 2 $ 38 $ 38 Total consumer loans - $ - $ - 2 $ 38 $ 38 Residential 10 $ 829 $ 928 9 $ 1,071 $ 1,183 Total TDRs 10 $ 829 $ 928 11 $ 1,109 $ 1,221 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 September 30, 2022 Three Months Ended September 30, 2021 (Dollars in thousands) Number of Contracts Recorded Investment Number of Contracts Recorded Investment Commercial loans: C&I 1 $ 320 - $ - Total commercial loans 1 $ 320 - $ - Residential 18 $ 869 19 $ 1,401 Total TDRs 19 $ 1,189 19 $ 1,401 Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021 (Dollars in thousands) Number of Contracts Recorded Investment Number of Contracts Recorded Investment Commercial loans: C&I 1 $ 320 - $ - Total commercial loans 1 $ 320 - $ - Consumer loans: Auto 1 $ 11 2 $ 18 Total consumer loans 1 $ 11 2 $ 18 Residential 44 $ 2,320 39 $ 2,356 Total TDRs 46 $ 2,651 41 $ 2,374 19 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 September 30, 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 and 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 and nine months ended September 30, 2022 and 2021. The components of expense for Pension Benefits and Other Benefits are set forth below: Pension Benefits Other Benefits Three Months Ended September 30, Three Months Ended September 30, (In thousands) 2022 2021 2022 2021 Components of net periodic (benefit) cost: Service cost $ 506 $ 517 $ 2 $ 2 Interest cost 690 679 42 45 Expected return on plan assets ( 2,220 ) ( 2,197 ) - - Net amortization 183 331 2 13 Total net periodic (benefit) cost $ ( 841 ) $ ( 670 ) $ 46 $ 60 Pension Benefits Other Benefits Nine Months Ended September 30, Nine Months Ended September 30, (In thousands) 2022 2021 2022 2021 Components of net periodic (benefit) cost: Service cost $ 1,574 $ 1,486 $ 6 $ 6 Interest cost 2,078 2,034 124 135 Expected return on plan assets ( 6,676 ) ( 6,602 ) - - Net amortization 553 957 4 39 Total net periodic (benefit) cost $ ( 2,471 ) $ ( 2,125 ) $ 134 $ 180 The service cost component of the 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. 20 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 September 30, (In thousands, except per share data) 2022 2021 Basic EPS: Weighted average common shares outstanding 42,838 43,360 Net income available to common stockholders $ 38,973 $ 37,433 Basic EPS $ 0.91 $ 0.86 Diluted EPS: Weighted average common shares outstanding 42,838 43,360 Dilutive effect of common stock options and restricted stock 273 271 Weighted average common shares and common share equivalents 43,111 43,631 Net income available to common stockholders $ 38,973 $ 37,433 Diluted EPS $ 0.90 $ 0.86 Nine Months Ended September 30, (In thousands, except per share data) 2022 2021 Basic EPS: Weighted average common shares outstanding 42,940 43,464 Net income available to common stockholders $ 115,874 $ 117,575 Basic EPS $ 2.70 $ 2.71 Diluted EPS: Weighted average common shares outstanding 42,940 43,464 Dilutive effect of common stock options and restricted stock 254 305 Weighted average common shares and common share equivalents 43,194 43,769 Net income available to common stockholders $ 115,874 $ 117,575 Diluted EPS $ 2.68 $ 2.69 There was a nominal number of weighted average stock options outstanding for the three and nine months ended September 30, 2022 and September 30, 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. 21 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 Statement of Comprehensive Income (Loss) Three Months Ended (In thousands) September 30, 2022 September 30, 2021 AFS securities: Amortization of unrealized gains related to securities transfer $ 125 $ 149 Interest income Tax effect $ ( 31 ) $ ( 38 ) Income tax (benefit) Net of tax $ 94 $ 111 Cash flow hedges: Net unrealized losses on cash flow hedges reclassified to interest expense $ - $ - Interest expense Tax effect $ - $ - Income tax (benefit) Net of tax $ - $ - Pension and other benefits: Amortization of net losses $ 156 $ 317 Other noninterest expense Amortization of prior service costs 29 27 Other noninterest expense Tax effect $ ( 47 ) $ ( 86 ) Income tax (benefit) Net of tax $ 138 $ 258 Total reclassifications, net of tax $ 232 $ 369 Detail About AOCI Components Amount Reclassified from AOCI Affected Line item in the Consolidated Statement of Comprehensive Income (Loss) Nine Months Ended (In thousands) September 30, 2022 September 30, 2021 AFS securities: Amortization of unrealized gains related to securities transfer $ 393 $ 434 Interest income Tax effect $ ( 98 ) $ ( 109 ) Income tax (benefit) Net of tax $ 295 $ 325 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 $ 470 $ 913 Other noninterest expense Amortization of prior service costs 87 83 Other noninterest expense Tax effect $ ( 140 ) $ ( 249 ) Income tax (benefit) Net of tax $ 417 $ 747 Total reclassifications, net of tax $ 712 $ 1,088 22 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 risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative instruments. Specifically, the Company enters 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 as 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 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 September 30, 2022 and December 31, 2021, the Company had fifteen 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 with currently none outstanding. 23 Table of Contents T he following table summarizes the derivatives outstanding: (In thousands) Notional Amount Balance Sheet Location Fair Value Notional Amount Balance Sheet Location Fair Value As of September 30, 2022 Derivatives not designated as hedging instruments Interest rate derivatives $ 1,380,347 Other assets $ 124,892 $ 1,380,347 Other liabilities $ 124,892 Risk participation agreements 89,472 Other assets 51 18,982 Other liabilities 11 Total derivatives not designated as hedging instruments $ 124,943 $ 124,903 Netting adjustments (1) 26,369 ( 41 ) Net derivatives in the balance sheet $ 98,574 $ 124,944 Derivatives not offset on the balance sheet $ 9 $ 9 Cash collateral (2) - - Net derivative amounts $ 98,565 $ 124,935 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. The 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 consists 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 remaining 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: Three Months Ended September 30, Nine Months Ended September 30 , (In thousands) 2022 2021 2022 2021 Derivatives 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: Three Months Ended September 30, Nine Months Ended September 30 , (In thousands) 2022 2021 2022 2021 Derivatives not designated as hedging instruments: (Decrease) in other income $ ( 33 ) $ ( 307 ) $ ( 152 ) $ ( 382 ) 24 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 (e.g., 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 quote from 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 by its third-party providers in pricing the securities. 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. 25 Table of Contents The following tables set 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 September 30, 2022 Assets: AFS securities U.S. treasury $ 120,622 $ - $ - $ 120,622 Federal agency - 204,790 - 204,790 State & municipal - 83,815 - 83,815 Mortgage-backed - 483,511 - 483,511 Collateralized mortgage obligations - 610,384 - 610,384 Corporate - 53,379 - 53,379 Total AFS securities $ 120,622 $ 1,435,879 $ - $ 1,556,501 Equity securities 29,428 1,000 - 30,428 Derivatives - 124,943 - 124,943 Total $ 150,050 $ 1,561,822 $ - $ 1,711,872 Liabilities: Derivatives $ - $ 124,903 $ - $ 124,903 Total $ - $ 124,903 $ - $ 124,903 (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 and nine month periods ended September 30, 2022 and the year ended December 31, 2021 were related to impaired loans, write-downs of other real estate owned and write-down of branch assets to fair value. 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. 26 Table of Contents 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. September 30, 2022 December 31, 2021 (In thousands) Fair Value Hierarchy Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Financial assets: HTM securities 2 $ 929,541 $ 814,100 $ 733,210 $ 735,260 Net loans 3 7,808,071 7,538,178 7,407,289 7,530,768 Financial liabilities: Time deposits 2 $ 445,673 $ 428,762 $ 501,472 $ 500,717 Long-term debt 2 3,322 3,066 13,995 14,260 Subordinated debt 1 100,000 96,025 100,000 107,402 Junior subordinated debt 2 101,196 96,107 101,196 107,569 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, including 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. 27 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 credit worthiness. Commitments to extend credit and unused lines of credit totaled $ 2.40 billion at September 30, 2022 and $ 2.30 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 $ 54.3 million at September 30, 2022 and $ 55.1 million at December 31, 2021. A s of September 30, 2022 and December 31, 2021 , the fair value of the Company’s standby letters of credit was not significant. 28 Table of Contents NBT BANCORP INC. AND SUBSIDIARIES