What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-09 · 815 added, 1153 removed, 891 unchanged (69% of the section changed)

3 unchanged sentences

Balance Sheets (unaudited)

September 30,

(In thousands, except share and per share data)

3 unchanged sentences

Securities available for sale, at fair value

Securities held to maturity (fair value of $ 783,986 and $ 812,647 , respectively)

Securities held to maturity (fair value $ 793,319 and $ 814,524 , respectively)

Federal Reserve and Federal Home Loan Bank stock

15 unchanged sentences

Preferred stock, $ 0.01

par value, 2,500,000 shares authorized

Common stock, $ 0.01

par value, 100,000,000 shares authorized;

53,974,492 and 49,651,493 shares

issued, respectively

2,500,000 shares authorized

Common stock, $ 0.01 par value.

100,000,000 shares authorized;

shares issued

Additional paid-in-capital

7 unchanged sentences

and Subsidiaries

Statements of

Consolidated Statements

Income (unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30 ,

(In thousands, except per share data)

20 unchanged sentences

Bank owned life insurance income

Net securities (losses)

Net securities gains (losses)

Total noninterest income

15 unchanged sentences

and Subsidiaries

Statements of

Comprehensive Income (Loss)

Consolidated Statements of

Comprehensive Income (Loss) (unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30 ,

(In thousands)

1 unchanged sentence

Securities available for sale:

Unrealized net holding (losses) arising during the period, gross

Unrealized net holding (losses) arising during the period, net

Unrealized net holding (losses) gains arising during the period, gross

Unrealized net holding (losses) gains arising during the period, net

Reclassification adjustment for net losses in net income, gross

7 unchanged sentences

Total pension and other benefits, net

Total other comprehensive (loss)

Comprehensive income (loss)

Total other comprehensive (loss) income

Comprehensive income

See accompanying notes to unaudited interim consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Statements of Changes in

Consolidated Statements of

Stockholders’ Equity (unaudited)

2 unchanged sentences

(Loss) Income

Balance at June 30, 2023

Cash dividends - $ 0.32

Issuance of 4,322,999

shares of common

stock for acquisition

Purchase of 68,500 treasury

Net issuance of 6,334

shares to employee

and other stock plans

Stock-based compensation

Other comprehensive (loss)

Balance at September 30 , 2023

Balance at June 30, 2022

Balance at December 31, 2023

Cash dividends - $ 0.32

Purchase of 1,900 treasury shares

Net issuance of 47,016

3 unchanged sentences

Other comprehensive (loss)

Balance at September 30 , 2022

(In thousands, except share and per share data)

Comprehensive

(Loss) Income

Balance at March 31 , 2024

Balance at December 31, 2022

2 unchanged sentences

Cash dividends - $ 0.30

Issuance of 4,322,999

shares of common

stock for acquisition

Purchase of 155,500 treasury shares

Net issuance of 46,509

employee and other stock plans

Stock-based compensation

Other comprehensive (loss)

Balance at September 30 , 2023

Balance at December 31, 2021

Cash dividends - $ 0.86

Purchase of 400,000

treasury shares

Net issuance of 71,243

employee and other stock plans

shares to employee

and other stock plans

Stock-based compensation

Other comprehensive (loss)

Balance at September 30 , 2022

Other comprehensive income

Balance at March 31 , 2023

See accompanying notes to unaudited interim consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

13 unchanged sentences

Net gain on sale of loans held for sale

Net securities losses

Net gains on sale of other real estate owned

Net securities (gains) losses

Net change in other assets and other liabilities

1 unchanged sentence

Investing activities

Net cash provided by (used in) acquisitions

Net cash used in acquisitions

Securities available for sale:

6 unchanged sentences

Proceeds from Federal Home Loan Bank stock redemption

Purchases of Federal Reserve and Federal Home Loan Bank stock

Purchases of Federal Home Loan Bank stock

Proceeds from settlement of bank owned life insurance

Purchases of premises and equipment, net

Proceeds from sales of other real estate owned

Net cash used in investing activities

Financing activities

Net increase (decrease) in deposits

Net increase in deposits

Net decrease in short-term borrowings

4 unchanged sentences

Cash dividends

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Consolidated Statements of Cash Flows (unaudited) (continued)

Nine Months Ended

September 30,

Three Months Ended

Supplemental disclosure of cash flow information

2 unchanged sentences

Income taxes paid, net of refund

Noncash investing activities:

Loans transferred to other real estate owned

Acquisitions:

Fair value of assets acquired, excluding acquired cash and goodwill

Fair value of liabilities assumed

Fair value of assets acquired

See accompanying notes to unaudited interim consolidated financial statements.

1 unchanged sentence

and Subsidiaries

to Unaudited Interim Consolidated Financial Statements

September 30, 2023

to Unaudited Interim

Consolidated Financial Statements

March 31, 2024

Description of Business

6 unchanged sentences

(“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.

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 principal sources of revenue for NBT Bancorp Inc.

are the management fees and dividends it receives from the Bank, NBT Financial and NBT Holdings.

management fees and dividends it receives from the Bank, NBT Financial and NBT Holdings.

Collectively, NBT Bancorp Inc.

13 unchanged sentences

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 2022 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 has evaluated subsequent events for potential

recognition and/or disclosure and there were none identified.

consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods in accordance with 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 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 2023 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 has evaluated subsequent events for potential recognition and/or disclosure and there were none identified.

Use of Estimates in the Preparation of Financial Statements

2 unchanged sentences

Actual results may differ from those estimates and such differences could be material to the financial statements.

Estimates associated with the

allowance for credit losses, pension accounting, provision for income taxes, fair values of financial instruments and status of contingencies are particularly susceptible to material change in the near term.

Recent Accounting Pronouncements

R ecently Adopted Accounting Standards

I n March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2022-02, Financial Instruments - CECL Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”).

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 were effective for the Company on January 1, 2023, with early adoption permitted.

The Company adopted ASU 2022-02 on January 1, 2023 (“Day 1”) using the modified retrospective method and

recorded a net increase to retained earnings of $ 0.5 million.

The transition adjustment includes a $ 0.6 million impact to the allowance for credit losses on loans and a $ 0.1 million impact to the deferred tax asset .

Accounting Standards Issued Not Yet Adopted

Standards Issued Not Yet Adopted

In October 2023, the FASB issued ASU 2023-06, Disclosure

6 unchanged sentences

Early adoption is not permitted.

The adoption is not expected to have a material impact on the consolidated financial statements.

Salisbury Bancorp, Inc.

On August 11, 2023, the Company completed the acquisition of Salisbury Bancorp, Inc.

(“Salisbury”) through the merger of Salisbury with and into

the Company, with the Company surviving the merger, for $ 161.7 million in stock.

Salisbury was a Connecticut-chartered commercial bank

headquartered in Lakeville, Connecticut with 13 banking offices.

The acquisition enhances the Company’s presence in Massachusetts’

Berkshire county, as well as extends its footprint into New York’s Dutchess, Orange and Ulster counties and in Connecticut’s Litchfield county.

In connection with the acquisition, the Company issued 4.32 million shares and acquired approximately $ 1.46 billion of

identifiable assets.

Preliminary goodwill of $ 78.1 million was recognized as a result of the merger and is not amortizable or deductible

for tax purposes.

The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

As a result of the full integration of the operations of Salisbury, it is not practicable to determine

all revenue or net income included in the Company’s operating results relating to Salisbury since the date of acquisition as Salisbury results cannot be separately identified.

The Company determined that this acquisition constitutes a business combination and therefore was accounted for using the acquisition method of

Accordingly, as of the date of the acquisition, the Company recorded the assets acquired, liabilities assumed and consideration paid at fair value based on management’s best estimates using information available at the date of the

acquisition and these estimates are subject to adjustment based on updated information not available at the time of the acquisition.

The amount of goodwill arising from the acquisition consists largely of the synergies and economies of scale

expected from combining the operations of the Company with Salisbury.

Accrued income taxes, deferred taxes, and certain fixed assets associated with the Salisbury acquisition were recorded on a provisional basis and could vary from the actual

recorded balance once market-based appraisals and tax provisions and returns are finalized.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed:

August 11, 2023

(In thousands)

Salisbury Bancorp, Inc.

Consideration:

Cash paid to shareholders (fractional shares)

Common stock issuance

Total net consideration

Recognized amounts of identifiable assets acquired and (liabilities) assumed:

Cash and cash equivalents

Securities available for sale

Loans, net of allowance for credit losses on purchased credit deteriorated loans

Premises and equipment, net

Core deposit intangibles

Wealth management customer intangible

Bank owned life insurance

Total identifiable assets acquired

Other liabilities

Total liabilities assumed

Total identifiable assets, net

The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed.

Company used an independent valuation specialist to assist with the determination of fair values for certain acquired assets and assumed liabilities.

Cash and due from banks - The estimated fair value was determined to approximate the carrying amount of these assets.

Securities available for sale - The estimated fair value of the investment portfolio was based on quoted market prices and dealer quotes.

The investment securities were sold immediately after the merger and no gains or losses were recorded.

estimated fair value of loans were based on a discounted cash flow methodology applied on a pooled basis for non-purchased credit deteriorated (“non-PCD”) loans and for purchased credit deteriorated (“PCD”) loans.

The valuation considered

underlying characteristics including loan type, term, rate, payment schedule and credit rating.

Other factors included assumptions related to prepayments, probability of default and loss given default.

The discount rates applied were based on a

build-up approach considering the funding mix, servicing costs, liquidity premium and factors related to performance risk.

Core deposit intangible - The core deposit intangible was valued utilizing the cost savings method approach, which recognizes the cost savings represented by the expense of maintaining the core deposit base versus the cost of an alternative funding source.

valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates.

Wealth management customer intangible - The wealth management customer intangible was valued utilizing the income approach, which employs a present value analysis, which calculates the expected after-tax cash flow benefits of the net revenues generated by the

acquired customers over the expected lives of the acquired customers, discounted at a long-term market-oriented after-tax rate of return on investment.

The value assigned to the acquired customers represents the future economic benefit from

acquiring the customers (net of operating expenses).

Deposits - The

fair value of noninterest bearing demand deposits, interest checking, money market and savings deposit accounts from Salisbury were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand.

Certificate of deposit (time deposit accounts) were valued at the present value of the certificates’ expected contractual payments discounted at market rates for similar certificates.

Borrowings - The

estimated fair value of short-term borrowings was determined to approximate stated value.

Subordinated debt was valued using a discounted cash flow approach incorporating a discount rate that incorporated similar terms, maturity and credit

Accounting for Acquired Loans

Acquired loans are classified into two categories PCD loans and non-PCD loans.

PCD loans are defined as a loan or group of loans that have experienced more than

insignificant credit deterioration since origination.

Non-PCD loans will have an allowance established on acquisition date, which is recognized as an expense through the provision for credit losses.

For PCD loans, an allowance is recognized on day

1 by adding it to the fair value of the loan, which is the “Day 1 amortized cost”.

There is no provision for credit loss expense recognized on PCD loans because the initial allowance is established by grossing-up the amortized cost of the PCD loan.

A day 1 allowance for credit losses on non-PCD loans of $ 8.8 million was recorded through the provision for loan losses within the

unaudited interim consolidated statements of income.

following table provides details related to the fair value of acquired PCD loans.

(In thousands)

Par value of PCD loans at acquisition

Allowance for credit losses at acquisition

Discount at acquisition

Fair value of PCD loans at acquisition

Direct costs related to the acquisition were expensed as incurred.

Merger and acquisition integration-related expenses were $ 7.9 million and $ 9.7 million during the

three and nine months ended September 30, 2023, respectively.

These amounts have been separately stated in the unaudited interim consolidated statements of income.

Supplemental Pro Forma Financial Information (Unaudited)

The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the three and nine months ended

September 30, 2023 and 2022, as if Salisbury had been acquired on January 1, 2023.

This unaudited pro forma information combines the historical results of Salisbury with the Company’s consolidated historical results and includes certain adjustments

reflecting the estimated impact of certain fair value adjustments for the respective periods.

The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the

The unaudited pro forma information does not consider any changes to the provision expense resulting from recording loan assets at fair value, cost savings or business synergies.

As a result, actual amounts would have differed from the

unaudited pro forma information presented and the differences could be significant.

Pro Forma (Unaudited)

Three Months Ended

Nine Months Ended

(In thousands)

September 30, 2023

September 30, 2022

September 30, 2023

September 30, 2022

Total revenue, net of interest expense

The amortized cost, estimated fair value and unrealized gains (losses) of availa ble for sale (“AFS”) securit ies are as follows:

The adoption , other than to meet the new disclosure requirements, is

not expected to have a material impact on the consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Improvements

to Reportable Segment Disclosures , to improve the reportable segment disclosure requirements by requiring disclosure of incremental segment information on an annual and interim basis.

In addition, the amendments will enhance interim

disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure

requirements.

The amendments in this ASU are effective for the Company for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted.

The adoption,

other than to meet the new disclosure requirements, is not expected to have a material impact on the consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures , that addresses requests for improved income tax disclosures from investors, lenders, creditors and other allocators of capital that use the financial statements to make capital allocation decisions.

The ASU requires

enhanced disclosures primarily related to existing rate reconciliation and income taxes paid information to help investors better assess how the Company’s operations and related tax risks and tax planning and operational opportunities affect the

Company’s tax rate and prospects for future cash flows.

The ASU 2023-09 improves the transparency of income tax disclosures.

The amendments in this ASU are effective for the Company on January 1, 2025 and should be applied on a prospective basis.

Retrospective application and early adoption are permitted.

The adoption, other than to meet the new disclosure requirements, is not expected to have a material impact on the consolidated financial statements.

The amortized cost, estimated fair value and unrealized gains (losses) of AFS securities are as follows:

(In thousands)

As of September 30 , 2023

As of March 31, 2024

Federal agency

18 unchanged sentences

There was no allowance for credit losses on AFS

securities as of September 30, 2023 and December 31, 2022.

During the three months ended September 30, 2023, there were no gains or losses reclassified out of accumulated other comprehensive income (loss) (“AOCI”) and into earnings.

During the nine months ended September 30, 2023, there were $ 4.5 million of gross realized losses reclassified out of AOCI and into earnings and the Company incurred a $ 5.0 million loss on the write-off of an AFS corporate debt security from a subordinated debt investment of a financial institution that failed.

These losses were reclassified

out of AOCI and into earnings in net securities losses in the consolidated statements of income.

During the three and nine months ended September 30, 2022 there were no gains or losses reclassified out of AOCI and into earnings.

The amortized cost, estimated fair value and unrealized gains (losses) of held to maturity

(“HTM”) securities are as follows:

securities as of March 31, 2024 and December 31, 2023.

During the three months ended March 31, 2023, the Company incurred a $ 5.0 million loss on the write-off of an AFS corporate debt security from a subordinated debt investment of a financial institution that failed.

The $ 5.0 million loss was reclassified out of AOCI and into earnings in net securities gains (losses) in the unaudited interim consolidated statements of

During the three months ended March 31, 2024 the Company sold the previously written-off security and

recognized a gain of $ 2.3 million into earnings in net securities gains (losses) in the unaudited interim consolidated statements of

During the three months ended March 31, 2024, there were no gains or losses reclassified out of AOCI and into

The amortized cost, estimated fair value and unrealized gains (losses) of HTM securities are as follows:

(In thousands)

As of September 30 , 2023

As of March 31, 2024

Federal agency

17 unchanged sentences

Total HTM securities

At September 30, 2023 and

December 31, 2022, 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, 2023 and December 31, 2022 because the expectation of nonrepayment of the amortized cost was zero,

except for state & municipal securities, which such expected losses from nonrepayment were immaterial .

The Company recorded no gains from calls on HTM securities for the three months ended September 30, 2023

The Company recorded no gains from calls on HTM securities for the nine months ended September 30, 2023.

Included in net

realized gains (losses), the Company recorded gains from calls on HTM securities of approximately $ 4 thousand for the nine months ended

September 30, 2022.

At March 31, 2024 and December 31, 2023, all of the mortgaged-backed HTM securities were comprised of U.S.

government agency and government-sponsored enterprises

The Company recorded no gains from calls on HTM

securities for the three months ended March 31, 2024 and 2023.

AFS and HTM securities with amortized costs totaling $ 1.99

billion at September 30,

2023 and $ 1.73 billion at December 31, 2022 were pledged to secure public deposits and for other purposes required or permitted by law.

Additionally, at September 30, 2023 and December 31, 2022, AFS and HTM securities with an amortized cost totaling $ 157.4 million and $ 149.5 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:

billion at March 31, 2024 and $ 2.03 billion at December 31, 2023 were pledged to secure public deposits and for other purposes required or

permitted by law.

Additionally, at March 31, 2024 and December 31, 2023, AFS and HTM securities with an amortized cost of $ 159.3 million

and $ 177.2 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

September 30,

(In thousands)

Net (losses) recognized on equity securities

Net (losses) recognized on equity securities sold during the period

Unrealized (losses) recognized on equity securities still held

Nine Months Ended

September 30,

(In thousands)

Net (losses) recognized on equity securities

Net (losses) recognized on equity securities sold during the period

Unrealized (losses) recognized on equity securities still held

As of September 30, 2023 and December 31, 2022, 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, 2023 and 2022.

There were no impairments, or downward or upward

adjustments recognized for equity securities without readily determinable fair values during the three and nine months ended September 30, 2023 and 2022.

The following table sets forth information with regard to contractual maturities of debt securities at September 30, 2023:

Net (losses) and gains recognized on equity securities

Net (losses) and gains recognized on equity securities sold during the period

Unrealized (losses) and gains recognized on equity securities still held

As of March 31, 2024 and December 31, 2023, 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, 2024 and 2023.

There were no impairments, or downward or upward adjustments recognized for equity securities without

readily determinable fair values during the three months ended March 31, 2024 and 2023.

The following table sets forth information with regard to contractual maturities of debt securities at March 31, 2024:

(In thousands)

11 unchanged sentences

Total HTM debt securities

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.

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, 2023 and

December 31, 2022.

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, 2024 and December 31, 2023.

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,

3 unchanged sentences

(In thousands)

As of September 30 , 2023

As of March 31, 2024

AFS securities:

23 unchanged sentences

Total securities with unrealized losses

The Company does not believe the AFS securities that were in an unrealized loss position as of September 30, 2023 and December 31, 2022, which consisted of 412 and 415 individual securities,

The Company does not believe the AFS securities that were in an unrealized loss position as of March 31, 2024 and December 31, 2023, which consisted of 394 and 388 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, 2023 and December 31, 2022, the majority of the AFS

As of March 31, 2024 and December 31, 2023, the majority of the AFS

securities in an unrealized loss position consisted of debt securities issued by U.S.

7 unchanged sentences

The Company elected to exclude

accrued interest receivable (“AIR”) from the amortized cost basis of debt securities.

AIR on AFS debt securities totaled $ 3.9 million at

September 30, 2023 and $ 4.2 million at December 31, 2022 and is excluded from the estimate of credit losses and reported in the other assets financial statement line.

AIR from the amortized cost basis of debt securities.

AIR on AFS debt securities totaled $ 3.9 million at March 31, 2024 and December

31, 2023, and is excluded from the estimate of credit losses and reported in the other assets financial statement line.

None of the Bank’s HTM debt securities were past due

or on nonaccrual status as of September 30, 2023 and December 31, 2022.

There was no accrued interest reversed against interest income

for the three and nine months ended September 30, 2023 or the year ended December 31, 2022 as all securities remained on accrual status.

In addition, there were no collateral-dependent HTM debt securities as of September 30, 2023 and December 31, 2022.

As of September 30, 2023 and December 31, 2022, 66 % and 70 %, respectively, of the Company’s HTM debt securities

were issued by U.S.

or on nonaccrual status as of March 31, 2024 and December 31, 2023.

There was no accrued interest reversed against interest income for

the three months ended March 31, 2024 or the year ended December 31, 2023 as all securities remained in accrual status.

In addition, there were no

collateral-dependent HTM debt securities as of March 31, 2024 and December 31, 2023.

There was no allowance for credit losses on HTM securities as of March 31, 2024 and December 31, 2023.

As of March 31, 2024 and December 31,

2023, 66 % 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, which are widely recognized as “risk-free,” and have a long history of zero credit

Therefore, the Company did not record an allowance for credit losses for these securities as of September 30, 2023 and December 31, 2022.

The remaining HTM debt securities at September 30, 2023 and December 31, 2022 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, 2023 and December 31, 2022.

AIR on HTM debt securities totaled $ 3.8 million

at September 30, 2023 and December 31, 2022 and is excluded from the estimate of credit losses and reported in the other assets

financial statement line.

Allowance for Credit Losses and Credit Quality of Loans

As described in Note 3 Recent Accounting Pronouncements, the

Company’s adoption of ASU 2022-02 resulted in an insignificant change to its methodology for estimating the allowance for credit losses on TDRs.

The Day 1 decrease in allowance for credit loss on TDR loans relating to adoption of ASU 2022-02 was $ 0.6 million.

The allowance for credit losses totaled $ 114.6 million at

September 30, 2023, compared to $ 100.8 million at December 31, 2022.

The allowance for credit losses as a percentage of loans was 1.19 % at September 30, 2023, compared to 1.24 %

at December 31, 2022.

the first quarter of 2023, the Company made adjustments to the class segments within the portfolios to better align risk characteristics and reflect the monitoring and assessment of risks as the portfolios continue to evolve.

Paycheck Protection

Program was consolidated with Commercial & Industrial, as the portfolio had decreased to less than $ 1 million and no longer warranted

a material class segment.

The Other Consumer class segment was further separated into Residential Solar and Other Consumer.

The growth in our Residential Solar loans warranted evaluation of this class separately from the Other Consumer class

The change to the class segments was applied retrospectively and did not have a significant impact on the allowance for loan losses.

The following table illustrates the portfolio and class segments for the Company’s loan portfolio:

Portfolio Segment

Commercial Loans

securities 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.

Therefore, the Company did not record an allowance for credit losses for these

securities as of March 31, 2024 and December 31, 2023.

The remaining HTM debt securities at March 31, 2024 and December 31, 2023 were comprised of state and municipal obligations generally with bond ratings of A to AAA.

Utilizing the CECL

methodology, 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, 2024 and December 31, 2023.

AIR on HTM debt securities

totaled $ 5.1 million at March 31, 2024 and $ 4.7

million at December 31, 2023 and is excluded from the estimate of credit losses and reported in the other assets financial statement

A summary of loans, net of deferred fees and origination costs, by category is as follows:

(In thousands)

March 31, 2024

December 31, 2023

Commercial & industrial

Commercial real estate

Consumer Loans

Residential real estate

Indirect auto

Residential solar

Other consumer

Residential Loans

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, 2023 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 projected a relatively low

unemployment rate of 3.7%, rising modestly to 4.13% by the end of the forecast period.

Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the fourth quarter of 2023 at 3.5%, decreasing slightly to 2.9%, and then

increasing to 3.8% by the end of the forecast period.

Other utilized economic variables remained stable overall, with outlooks for annualized growth in retail sales improving, business output slightly deteriorating, and housing starts staying

relatively unchanged.

Key assumptions in the baseline economic outlook include the economy being at full employment in the coming quarters, recent bank failures not being symptomatic of broader issues in the financial system, and the reduction in

the Federal Reserve’s balance sheet remaining on autopilot.

The alternative downside scenario assumes deteriorated economic conditions from the baseline outlook.

Under this scenario, northeast unemployment increases to 5.1% in the fourth quarter of

2023 and rises to a peak of 6.9% in the fourth quarter of 2024.

These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of September 30, 2023.

At September 30, 2023, the

weightings were 70%, 0%, and 30% for the baseline, upside and downside economic forecasts, respectively.

Qualitative adjustments were made for isolated model limitations related to modeled inputs given abnormally high historical retail sales and

business output growth rates in prior quarters along with low unemployment.

Additionally, a qualitative adjustment for inflation is applied to adjust for potential model limitations arising from the use of a macroeconomic variable denominated in

nominal dollar terms as well as a qualitative adjustment for potential weakness in auto and commercial real estate collateral values.

These factors were considered through separate quantitative processes and incorporated into the estimate of

current expected credit losses at September 30, 2023.

The quantitative model as of June 30, 2023 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 increasing gradually to 4.2% by the end of the forecast period.

Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the third quarter of 2023 at about 3.6% and reach 4.1% by the end of the forecast period.

Other utilized economic variables worsened overall, with outlooks for annualized growth in retail sales and business output declining from the prior quarter and housing starts staying relatively unchanged.

Key assumptions in the baseline economic

outlook include the economy being at full employment in the coming quarters, recent bank failures not being symptomatic of broader issues in the financial system, and the reduction in the Federal Reserve’s balance sheet remaining on autopilot.

The alternative downside scenario assumes deteriorated economic conditions from the baseline outlook.

Under this scenario, northeast unemployment increases to 5.2% in the third quarter of 2023 and rises to a peak of 7.0% in the third quarter of

These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of June 30, 2023.

At June 30, 2023, the weightings were 60%, 0% and 40% for the baseline, upside and downside

economic forecasts, respectively.

Qualitative adjustments were made for isolated model limitations related to modeled inputs given abnormally high retail sales and business output growth rates in prior quarters along with low unemployment.

Additionally, a qualitative adjustment for inflation is applied to adjust for potential model limitations arising from the use of a macroeconomic variable denominated in nominal dollar terms as well as a qualitative adjustment for potential

weakness in auto collateral values.

These factors were considered through separate quantitative processes and incorporated into the estimate of current expected credit losses at June 30, 2023.

The quantitative model as of December 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.

At December 31, 2022, the weightings were 50%, 0% and 50% for the baseline, upside and downside economic forecasts, respectively.

outlook reflected an unemployment rate environment initially around pre-COVID-19 levels at 3.9% that increases slightly during the forecast period to 4.0%.

Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the first

quarter of 2023 at approximately 3.9% and hovering around 4.6% by the end of the forecast period.

Other utilized economic variables have generally deteriorated in their respective forecasts, with retail sales and housing starts forecasts declining

from the prior year.

Key assumptions in the baseline economic outlook included a full employment economy being realized in the near future, continued tapering of the Federal Reserve balance sheet, an increasing yield on ten-year treasury

securities, and a gradual decline in global oil prices.

The alternative downside scenario assumed deteriorated economic and pandemic related conditions from the baseline outlook.

Under this scenario, northeast unemployment rises from 3.9% in the

fourth quarter of 2022 to a peak of 6.9% in the first quarter of 2024.

Included in the above loans are net deferred loan origination (fees) costs totaling

$ 89.2 million and $ 98.2

million at March 31, 2024 and December 31, 2023, respectively.

Allowance for Credit Losses and Credit Quality of Loans

The allowance for credit losses totaled $ 115.3 million

at March 31, 2024, compared to $ 114.4 million at December 31, 2023.

The allowance for credit losses as a percentage of loans was 1.19 % at March 31, 2024 and December 31, 2023.

The Company’s January 1, 2023 adoption of ASU 2022-02, Financial Instruments - CECL Losses (Topic 326):

Troubled Debt

Restructurings and Vintage Disclosure s resulted in an insignificant change to its methodology for estimating the allowance for credit losses on TDRs.

The ASU eliminated the guidance on 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 decrease in allowance for credit loss on TDR loans relating to adoption of ASU 2022-02 was $ 0.6 million.

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.

Company considers a baseline, upside and downside economic forecast in measuring the allowance.

The quantitative model as of March 31, 2024 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.

At March 31, 2024, the weightings were 70% and 30% for the baseline and downside economic forecasts,

respectively.

The baseline outlook reflects an economic environment where the unemployment rate increases slightly from 3.8% to 4.1% during the forecast period.

Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the second

quarter of 2024 at approximately 3.3% and decrease to 2.8% before increasing to 3.4% by the end of the forecast period.

Key assumptions in the baseline economic outlook included the Federal Reserve cutting rates with three 25 basis point cuts at the

June, September, and December meetings, the economy remaining at full employment, and continued tapering of the Federal Reserve balance sheet.

The alternative downside scenario assumed deteriorated economic conditions from the baseline outlook.

this scenario, national unemployment rises from 3.8% in the first quarter of 2024 to a peak of 7.7% in the second quarter of 2025.

These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s

expectations as of March 31, 2024.

Additional adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation, and recent trends in asset value

Additional monitoring for industry concentrations, loan growth, and policy exceptions was also conducted.

The quantitative model as of December 31, 2023 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.

At December 31, 2023, the weightings were 70% and 30% for the baseline and downside economic

forecasts, respectively.

The baseline outlook reflected an unemployment rate environment starting at 3.8% and increasing slightly during the forecast period to 4.1%.

Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the

first quarter of 2024 at approximately 3.7% before decreasing to a low of 2.9% in the third quarter of 2024 and then increasing to 3.8% by the end of the forecast period.

Other utilized economic variable forecasts are mixed compared to the prior

year, with retail sales improving, business output mixed and housing starts down.

Key assumptions in the baseline economic outlook included currently being in a full employment economy, continued tapering of the Federal Reserve balance sheet and the

FOMC beginning to cut rates in the second quarter of 2024.

The alternative downside scenario assumed deteriorated economic conditions from the baseline outlook.

Under this scenario, northeast unemployment increases to a peak of 7.0% in the first

quarter of 2025.

These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2023.

Additional adjustments were

made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation, and recent trends in asset value indices.

Additional monitoring for industry concentrations, loan

growth, and policy exceptions was also conducted.

All these factors were considered through separate quantitative processes and incorporated when applicable into the estimate of current expected credit losses at December 31, 2022.

There were $ 219.5 million of PCD loans

acquired from Salisbury during the three and nine months ended September 30, 2023 which resulted in an allowance for credit losses at acquisition of $ 5.8

There were no loans purchased with credit deterioration during the year ended December 31, 2022.

During 2023, the Company

purchased $ 2.4 million of residential loans at a 7.01 % premium with a $ 17 thousand allowance for credit losses recorded for

During 2022, the Company purchased $ 11.5 million of residential loans at a 1.53 % premium and $ 50.1 million in consumer loans at par with an

allowance for credit losses recorded on the purchase date of $ 3.2 million.

The Company made a policy election to report AIR in the other assets line item on the balance sheet.

AIR on loans totaled $ 32.5 million at September 30, 2023 and $ 25.0 million at December

31, 2022 and there was no estimated allowance for credit losses related to AIR as of September 30, 2023 and December 31, 2022.

The following tables present the activity in the allowance for credit losses by our portfolio segments:

(In thousands)

Balance as of June 30, 2023

Allowance for credit loss on PCD acquired loans

Ending balance as of September 30, 2023

Balance as of June 30, 2022

Ending balance as of September 30 , 2022

Additional qualitative adjustments were made for factors not incorporated in the

forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation and recent trends in asset value indices.

Additional monitoring for industry concentrations, loan growth and policy exceptions was also

There were no loans purchased with credit deterioration during the three months ended March 31, 2024.

There were $ 219.5 million of PCD loans acquired from Salisbury during the year ended December 31, 2023, which resulted in an allowance for credit losses at acquisition of $ 5.8 million.

During the three months ended March 31, 2024, the Company purchased $ 0.4 million of residential loans at a 7.0 % premium with a $ 4 thousand allowance for credit losses recorded for these loans.

During 2023, the Company purchased $ 3.8 million of residential loans at a 7.0 % premium with a $ 31 thousand allowance for credit losses recorded for these loans.

The Company made a policy election to report AIR in the other assets line item on the consolidated balance sheets.

AIR on loans totaled $ 34.4 million at March 31, 2024 and $ 34.1 million at December 31,

2023 and there was no estimated allowance for credit losses related to AIR as of March 31, 2024 and December 31, 2023 as it is

excluded from amortized cost.

The following tables present the activity in the allowance for credit losses by our

portfolio segments:

(In thousands)

Balance as of January

1, 2023 (after adoption of ASU 2022-02)

Allowance for credit loss on PCD acquired loans

Ending balance as of September 30 ,

Balance as of December

Ending balance as of September 30 ,

allowance for credit losses as of September 30, 2023 increased compared to the allowance estimates as of December 31, 2022 and June 30, 2023 due to the day 1 $ 14.5 million of allowance for acquired Salisbury loans which included both the $ 8.8 million of non-PCD

Ending balance as of March 31 , 2024

Balance as of January 1, 2023 (after adoption of ASC 2022-02)

Ending balance as of March 31 , 2023

The allowance for credit losses as of March 31, 2024 increased compared to the allowance estimates as of December

31, 2023 primarily due to the slowing of prepayment speed assumptions partly offset by the decline in consumer loans with higher allowance levels and a decline in the PCD

allowance as purchased loan balances decreased.

The increase in the allowance for credit losses from March 31, 2023

to March 31, 2024 was primarily due to the recording of $ 14.5

million of allowance for acquired Salisbury loans as of the acquisition date, which included both the $ 8.8 million of non-PCD

allowance recognized through the provision for loan losses and the $ 5.8 million of PCD allowance reclassified from loans.

The increase in

the allowance for credit losses from December 31, 2022 and June 30, 2023 to September 30, 2023 was due to an increase in loan balances and a modest deterioration in the economic forecast.

The provision expense for the three and nine months ended

September 30, 2023 includes the $ 8.8 million of acquisition-related provision for credit losses.

Individually Evaluated Loans

As of September 30, 2023, there was one

relationship identified to be evaluated for loss on an individual basis which had an amortized cost basis of $ 1.9 million, with no allowance for credit loss.

As of December 31, 2022, two

different relationships were identified to be evaluated for loss on an individual basis, which in aggregate, had an amortized cost basis of $ 2.4

millio n, with no allowance for credit loss .

The following table sets forth information with regard to past due and nonperforming loans by loan segment:

The threshold for evaluating classified, commercial and commercial real estate loans risk graded substandard or doubtful, and nonperforming loans

specifically evaluated for individual credit loss is $ 1.0 million.

March 31, 2024, there were two relationships identified to be evaluated for loss on an individual basis which had an amortized cost

basis of $ 17.1 million, with no

allowance for credit loss.

As of December 31, 2023, the same two relationships were identified to be evaluated for loss on an

individual basis which had an amortized cost basis of $ 17.3 million, with no allowance for credit loss.

The decrease in the amortized cost basis on an individual basis from December 31, 2023 to March 31, 2024 was primarily due to principal

payments received during the first quarter of 2024.

As of March 31, 2024 and December 31, 2023, there were $ 17.1 million and $ 17.3 million, respectively, of loans in nonaccrual that

were specifically evaluated for individual expected credit loss without an allowance for credit losses.

The following table sets forth information with regard to past due and nonperforming

loans by loan segment:

(In thousands)

As of September 30 , 2023

As of March 31 , 2024

Commercial loans:

12 unchanged sentences

Total consumer loans

As of September 30, 2023 and December 31, 2022, there were $ 1.9

million and $ 1.1 million, respectively, of loans in nonaccrual that were specifically evaluated for individual expected credit loss 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 timely recognition and response to problem loans and potential problem loans.

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”) 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.

For C&I and 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.

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

C&I and CRE loans are graded Doubtful, Substandard, Special

Mention and Pass.

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 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

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

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

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, 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.

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.

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 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.

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 Paycheck Protection Program loans.

Pass loans also include any portion of a government guaranteed loan,

including Paycheck Protection Program loans.

Consumer and Residential Grading System

1 unchanged sentence

Nonperforming

Nonperforming loans are loans that are (1) over 90

days past due and interest is still accruing or (2) on nonaccrual status.

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 vintage and, beginning in 2023 with the Company’s January 1, 2023 adoption of ASU 2022-02, also includes gross charge-offs by loan class by vintage for the nine

months ended September 30, 2023.

Included in other consumer

gross charge-offs, the Company recorded $ 0.2 million in overdrawn deposit accounts reported as 2022 originations and $ 0.5 million in overdrawn deposit accounts reported as 2023 originations, for the nine months ended September 30, 2023.

Nonperforming loans are loans that are (1) over 90 days past due and interest is still accruing or (2) on nonaccrual status.

All loans not meeting any of the above criteria are considered

The following tables illustrate the Company’s credit quality by loan class by

vintage and includes gross charge-offs by loan class by vintage.

Included in other consumer gross charge-offs for the three months ended March 31, 2024, the Company recorded $ 0.2 million in overdrawn deposit accounts reported as 2023 originations.

Included in other consumer gross charge-offs for the year ended December 31, 2023, the Company recorded $ 0.2 million in overdrawn deposit accounts reported as 2022 originations and $ 0.8 million in overdrawn deposit accounts reported as 2023 originations.

(In thousands)

As of September 30 , 2023

As of March 31 , 2024

By internally assigned grade:

26 unchanged sentences

Special mention

Current-period gross charge-offs

By internally assigned grade:

Special mention

Current-period gross charge-offs

By payment activity:

Nonperforming

Current-period

gross charge-offs

Residential solar

2 unchanged sentences

Total residential solar

Current-period gross charge-offs

Other consumer

2 unchanged sentences

Total other consumer

Current-period gross charge-offs

By payment activity:

1 unchanged sentence

Total residential

Current-period gross charge-offs

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The allowance for losses on unfunded commitments totaled $ 4.8

million as of September 30, 2023, which included $ 0.8 million of acquisition-related provision for unfunded loan commitments, compared to $ 5.1 million as of December 31, 2022.

The allowance for losses on unfunded commitments totaled $ 4.7 million as March 31, 2024, compared to $ 5.1

million as of December 31, 2023.

Loan Modifications to Borrowers Experiencing Financial Difficulties

As discussed in Note 3 Recent Accounting Pronouncements, the Company’s January 1, 2023 adoption of ASU 2022-02 eliminates

the recognition and measurement of TDRs.

Upon adoption of this guidance, the Company no longer recognizes an allowance for credit losses for the economic concession granted to a borrower for changes in the timing and amount of contractual cash

flows when a loan is restructured.

The adoption of ASU 2022-02 resulted in a change to reporting for loan modifications to borrowers experiencing financial difficulties.

With the adoption of ASU 2022-02 these modifications required enhanced

reporting on the type of modifications granted and the financial magnitude of the concessions granted.

When the Company modifies a loan with financial difficulty, such modifications generally include one or a combination of

the following:

When the Company modifies a loan with financial difficulty, such modifications generally include one or a combination of the

an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk;

1 unchanged sentence

or principal forgiveness.

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty,

disaggregated by class of financing receivable and type of concession granted:

Three Months Ended September 30, 2023

Interest Rate Reduction

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers

experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted:

Three Months Ended March 31, 2024

Term Extension

Combination - Term

Extension and Interest Rate

(Dollars in thousands)

% of Total Class

Nine Months Ended September 30, 2023

Interest Rate Reduction

Amortized Cost

% of Total Class of

Financing Receivables

Three Months Ended March 31, 2023

Term Extension

Combination - Term

Extension and Interest Rate

(Dollars in thousands)

% of Total Class

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulties:

Three Months Ended September 30, 2023

Amortized Cost

% of Total Class of

Financing Receivables

The following table describes the financial effect of the modifications made to

borrowers experiencing financial difficulties:

Three Months Ended March 31, 2024

Term Extension

Interest Rate Reduction

Added a weighted-average 17 years to the

life of loans, which reduced monthly

payment amounts for the borrowers.

Interest rates were reduced by an

average of one percent

Nine Months Ended September 30, 2023

Added a weighted-average 7.4

years to the life of loans, which reduced monthly payment amounts for the borrowers.

Three Months Ended March 31, 2023

Term Extension

Interest Rate Reduction

Added a weighted-average 15 years to the

life of loans, which reduced monthly payment

amounts for the borrowers.

Interest rates were reduced by an

average of two and a quarter percent

The following

table depicts the financing receivables that had a payment default that were modified to borrowers experiencing financial difficulty since the adoption of ASU 2022-02 effective January 1, 2023:

Three Months Ended September 30, 2023

Amortized Cost Basis of

Modified Financing Receivables

that Subsequently Defaulted

(In thousands)

Interest Rate Reduction

Nine Months Ended September 30, 2023

Amortized Cost Basis of

Modified Financing Receivables

that Subsequently Defaulted

(In thousands)

Interest Rate Reduction

The following table depicts the performance of loans that have been modified since the adoption of ASU 2022-02 effective January 1, 2023:

Added a weighted-average 18 years to the life of

loans, which reduced monthly payment amounts for the borrowers.

There were no financing receivables that had a

payment default during the three months ended March 31, 2024 and 2023, that were modified to borrowers experiencing financial difficulty that were modified in the twelve months prior to that default.

following table depicts the performance of loans that have been modified to borrowers experiencing financial difficulty that were modified in the prior twelve months:

Payment Status (Amortized Cost Basis)

2 unchanged sentences

Days Past Due

Three Months Ended September 30, 2023

Payment Status (Amortized Cost Basis)

As of March 31, 2024

Short-Term Borrowings

addition to the liquidity provided by balance sheet cash flows, liquidity must also be supplemented with additional sources such as credit lines from correspondent banks as well as borrowings from the FHLB and the Federal Reserve Bank.

funding alternatives may also be appropriate from time to time, including wholesale and retail repurchase agreements and brokered CD accounts.

Information related to short-term borrowings

is summarized as follows:

(In thousands)

Greater than 90

Days Past Due

Nine Months Ended September 30, 2023

Troubled Debt Restructuring

Prior to the adoption of ASU 2022-02 on January 1, 2023, the Company accounted for loan modifications to borrowers experiencing financial difficulty when

concessions were granted as TDRs.

The following tables are disclosures related to TDRs in prior periods.

The following table illustrates the recorded investments 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,

Nine Months Ended September 30, 2022

(Dollars in thousands)

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

Nine Months Ended

September 30, 2022

(Dollars in thousands)

Commercial loans:

Total commercial loans

Consumer loans:

Total consumer loans

March 31, 2024

December 31, 2023

Federal funds purchased

Securities sold under repurchase agreements

Other short-term borrowings

Total short-term borrowings

Note 4 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements.

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, 2023.

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 has a qualified, noncontributory, defined benefit pension plan (the “Plan”) covering substantially all of its employees at March 31, 2024.

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

1974 standards.

Assets of the Plan are invested in publicly traded stocks, bonds 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

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.

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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.”

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The Company made no voluntary contributions to the

pension and other benefits plans during the three and nine months ended September 30, 2023 and 2022.

Pension Benefits and Other Benefits plans during the three months ended March 31, 2024 and 2023.

The components of expense for Pension Benefits and Other Benefits are set forth below:

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Three Months Ended

September 30,

Three Months Ended

September 30,

(In thousands)

Components of net periodic cost (benefit):

Interest cost

Expected return on plan assets

Net amortization

Total net periodic cost (benefit)

Pension Benefits

Other Benefits

Nine Months Ended

September 30,

Nine Months Ended

September 30,

(In thousands)

Components of net periodic cost (benefit):

Components of net periodic (benefit) cost:

Interest cost

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Net amortization

Total net periodic cost (benefit)

The service cost component of the net periodic cost (benefit) is included in Salaries and Employee Benefits and the interest cost, expected return on plan assets and net

Total net periodic (benefit) cost

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.

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 and the anti-dilutive stock options and restricted stock outstanding for the periods presented in the

unaudited interim consolidated statements of income:

Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the

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)

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Net income available to common stockholders

Anti-dilutive stock options and restricted stock outstanding

Nine Months Ended

September 30,

(In thousands, except per share data)

Weighted average common shares outstanding

Net income available to common stockholders

Weighted average common shares outstanding

Dilutive effect of common stock options and restricted stock

Weighted average common shares and common share equivalents

Net income available to common stockholders

Anti-dilutive stock options and restricted stock outstanding

There was a nominal number of weighted average stock options outstanding for the three months ended March 31, 2024 and March 31, 2023, 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.

Reclassification Adjustments Out of Other Comprehensive Income (Loss)

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(In thousands)

September 30,

AFS securities:

Amortization of unrealized gains related to securities transfer

Interest income

Income tax (benefit)

Pension and other benefits:

Amortization of net losses

Other noninterest expense

Amortization of prior service costs

Other noninterest expense

Income tax (benefit)

Total reclassifications, net of tax

Detail About AOCI Components

Amount Reclassified from AOCI

Affected Line item in the

Consolidated Statements of

Comprehensive Income (Loss)

Nine Months Ended

(In thousands)

September 30,

March 31, 2024

March 31, 2023

AFS securities:

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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.

Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

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

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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.

Interest rate swaps are recorded within other assets or other liabilities on the consolidated balance sheets at their estimated fair value.

Changes to the fair

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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 clears certain derivative transactions through the Chicago Mercantile Exchange Clearing House (“CME”).

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.

Accordingly, the Company clears certain derivative transactions through the CME.

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.

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.

In 2017, the U.K.

Financial Conduct Authority announced its intention to stop compelling banks to submit rates for the

calculation of London Interbank Offered Rate (“LIBOR”) after 2021.

In 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on the Secured Overnight Financing

Rate (“SOFR”) that replaced LIBOR in certain financial contracts after June 30, 2023.

As of September 30, 2023, the Company has transitioned all of its financial instruments to an alternative benchmark rate.

As of September 30, 2023 and December 31, 2022, the Company had twelve and fifteen 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.

T he following table summarizes the derivatives outstanding:

Financial Conduct Authority announced its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021.

In 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act

by identifying benchmark rates based on SOFR that replaced LIBOR in certain financial contracts after June 30, 2023.

In 2023, the Company transitioned all of its financial instruments to an alternative benchmark rate.

As of March 31, 2024 and December 31, 2023, the Company had thirteen and twelve 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 .

The following table summarizes the derivatives outstanding:

(In thousands)

As of September 30 , 2023

Balance Sheet

As of March 31 , 2024

Derivatives not designated as hedging instruments

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Net derivative amounts

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.

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.

(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.

(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.

The following table indicates the gain or loss recognized in income on

derivatives not designated as a hedging relationship:

Therefore, excess other

collateral, if any, is not reflected above.

The following table indicates the gain or loss recognized in

income on derivatives not designated as a hedging relationship:

Three Months Ended

September 30,

September 30 ,

(In thousands)

Derivatives not designated as hedging instruments:

(Decrease) in other income

Increase in other income

Fair Value Measurements and Fair Value of Financial Instruments

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(In thousands)

September 30, 2023

March 31, 2024

AFS securities:

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recorded at fair value on a non-recurring basis such as goodwill, loans held for sale, other real estate owned, collateral-dependent loans individually evaluated for expected credit losses and HTM securities.

The non-recurring fair value

measurements recorded during the nine month period ended September 30, 2023 and the year ended December 31, 2022 were related to loans individually evaluated for expected credit losses with fair value of $ 1.9 million and $ 1.1 million as of September 30, 2023 and

December 31, 2022, respectively.

There were no loans individually evaluated for expected credit losses where the amortized cost was adjusted to fair value as of March 31, 2024 and December 31,

2023, respectively.

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.

The appraisals may be adjusted by management for

qualitative factors such as economic conditions and estimated liquidation expenses ranging from 10 % to 50 % .

valuation techniques used, the fair value measurements for collateral dependent individually evaluated loans are classified as Level 3.

The following table sets forth information with regard to estimated fair values of financial instruments.

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borrowings, accrued interest payable and derivatives.

September 30, 2023

March 31, 2024

December 31, 2023

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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.

letters of credit and loans sold with recourse is represented by the contractual amount of those instruments.

The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that

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Collateral may be obtained based on management’s assessment of the customer’s creditworthiness.

Commitments to extend credit and unused lines of credit totaled $ 2.71 billion at September 30, 2023 and $ 2.42 billion at December 31, 2022.

Commitments to extend credit and unused lines of credit totaled $ 2.73 billion at March 31, 2024 and $ 2.25 billion at December 31, 2023.

Since many loan commitments, standby letters of credit and guarantees and indemnification contracts expire without being funded in whole or in part, the contract

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Standby letters of credit totaled $ 42.0

million at September 30, 2023 and $ 53.3 million at December 31,

A s of September 30, 2023 and December 31, 2022 , the fair value of the Company’s standby letters of credit was not significant.

million at March 31, 2024 and $ 44.7 million at December 31, 2023.

A s of March 31, 2024 and December 31, 2023 , the fair value of the Company’s standby letters of credit was not significant.

NBT BANCORP INC.

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(“NBT Holdings”) (collectively referred to herein as the “Company”).

This discussion will focus on results

of operations, financial condition, capital resources and asset/liability management.

This discussion will focus on results of

operations, financial condition, capital resources and asset/liability management.

Reference should be made to the Company’s consolidated financial statements and footnotes thereto included in this Form 10‑Q as well as to the Company’s Annual

Report on Form 10‑K for the year ended December 31, 2023 for an understanding of the following discussion and analysis.

Operating results for the three and nine month periods ending September 30, 2023 are not necessarily indicative of the results

of the full year ending December 31, 2023 or any future period.

Operating results for the three month period ending March 31, 2024 are not necessarily indicative of the results of the full

year ending December 31, 2024 or any future period.

Forward-Looking Statements

Certain statements in this filing and future filings by the Company with the Securities and Exchange Commission (“SEC”), in the Company’s press releases or other public or stockholder communications

or in oral statements made with the approval of an authorized executive officer, contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995.

These statements may be identified by the use of phrases such

as “anticipate,” “believe,” “expect,” “forecasts,” “projects,” “will,” “can,” “would,” “should,” “could,” “may,” or other similar terms.

There are a number of factors, many of which are beyond the Company’s control, that could cause actual

results to differ materially from those contemplated by the forward-looking statements.

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following

possibilities:

(1) local, regional, national and international economic conditions, including actual or potential stress in the banking industry, and the impact they may have on the Company and its customers and the Company’s assessment of that

(2) changes in the level of nonperforming assets and charge-offs;

Certain statements in this filing and future filings by the Company with the SEC, in the Company’s press releases or other public or stockholder communications or in oral statements made with the

approval of an authorized executive officer, contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995.

These statements may be identified by the use of phrases such as “anticipate,” “believe,” “expect,”

“forecasts,” “projects,” “will,” “can,” “would,” “should,” “could,” “may,” or other similar terms.

There are a number of factors, many of which are beyond the Company’s control, that could cause actual results to differ materially from those

contemplated by the forward-looking statements.

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities:

(1) local, regional, national

and international economic conditions, including actual or potential stress in the banking industry, and the impact they may have on the Company and its customers and the Company’s assessment of that impact;

(2) changes in the level of

nonperforming assets and charge-offs;

(3) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

(4) the effects of and

changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board (“FRB”);

(4) the effects of and changes in trade and monetary and

fiscal policies and laws, including the interest rate policies of the FRB;

(5) inflation, interest rate, securities market and monetary fluctuations;

(6) political instability;

of war, including international military conflicts, or terrorism;

(7) acts of war, including international military conflicts, or

(8) the timely development and acceptance of new products and services and the perceived overall value of these products and services by users;

(9) changes in consumer spending,

borrowing and saving habits;

(10) changes in the financial performance and/or condition of the Company’s borrowers;

(9) changes in consumer spending, borrowing and saving habits;

(10) changes in the financial

performance and/or condition of the Company’s borrowers;

(11) technological changes;

(12) acquisition and integration of acquired businesses;

(13) the possibility that NBT and Salisbury

Bancorp, Inc.

(“Salisbury”) may be unable to achieve expected synergies and operating efficiencies in the merger within the expected timeframes;

(13) the ability to increase market share and control expenses;

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including those under the Dodd-Frank Act, and the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018;

(17) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as

the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters;

(16) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the

Public Company Accounting Oversight Board, the FASB and other accounting standard setters;

(17) changes in the Company’s organization, compensation and benefit plans;

(19) the costs and effects of legal and

regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews;

(20) greater than expected costs or difficulties related to the

integration of new products and lines of business;

(18) the costs and effects of legal and regulatory developments, including the

resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews;

(19) greater than expected costs or difficulties related to the integration of new products and lines of business;

and (20) the Company’s success at managing the risks involved in the foregoing items.

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Non-GAAP Measures

This Quarterly Report on Form 10-Q contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America

Where non-GAAP disclosures are used in this Form 10-Q, the comparable GAAP measure, as well as a reconciliation to the comparable GAAP measure, is provided in the accompanying tables.

Management believes that these non-GAAP measures

provide useful information that is important to an understanding of the results of the Company’s core business as well as provide information standard in the financial institution industry.

Non-GAAP measures should not be considered a substitute

for financial measures determined in accordance with GAAP and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial

condition of the Company.

Amounts previously reported in the consolidated financial statements are reclassified whenever necessary to conform to current period presentation.

This Quarterly Report on Form 10-Q contains financial information determined by methods other than in accordance with GAAP.

Where non-GAAP disclosures are used in this Form 10-Q, the comparable GAAP

measure, as well as a reconciliation to the comparable GAAP measure, is provided in the accompanying tables.

Management believes that these non-GAAP measures provide useful information that is important to an understanding of the results of the

Company’s core business as well as provide information standard in the financial institution industry.

Non-GAAP measures should not be considered a substitute for financial measures determined in accordance with GAAP and investors should consider

the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company.

Amounts previously reported in the consolidated financial statements

are reclassified whenever necessary to conform to current period presentation.

Critical Accounting Estimates

SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with GAAP that involve a significant level

of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.

The Company follows financial accounting and reporting policies that are in

accordance with GAAP.

estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.

The Company follows financial accounting and reporting policies that are in accordance

The more significant of these policies are summarized in Note 1 to the consolidated financial statements presented in our 2023 Annual Report on Form 10-K.

Refer to Note 3 in this Quarterly Report on Form 10-Q for recently

adopted accounting standards.

Refer to Note 3 to the unaudited interim consolidated financial statements in this

Quarterly Report on Form 10-Q for recently adopted accounting standards.

Not all significant accounting policies require management to make difficult, subjective or complex judgments.

The allowance for credit losses and the allowance for unfunded commitments policies noted below are

deemed to meet the SEC’s definition of a critical accounting estimate.

The allowance for credit losses and the allowance for unfunded

commitments policies are deemed to meet the SEC’s definition of a critical accounting estimate.

Allowance for Credit Losses and Unfunded Commitments

The allowance for credit losses consists of the allowance for credit losses and the allowance for losses on unfunded commitments.

The measurement of Current Expensed Credit Losses (“CECL”) on

financial instruments requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures).

The estimate of expected credit losses under the CECL approach is based on relevant information about past events,

current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

The measurement of CECL on financial instruments requires an estimate

of the credit losses expected over the life of an exposure (or pool of exposures).

The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable

forecasts that affect the collectability of the reported amounts.

Historical loss experience is generally the starting point for estimating expected credit losses.

The Company then considers

whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used.

Finally, the Company

considers forecasts about future economic conditions that are reasonable and supportable.

The allowance for credit losses for loans, as reported in our consolidated statements of financial condition, is adjusted by an expense for credit losses,

which is recognized in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

The allowance for losses on unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded

commitments to extend credit and standby letters of credit.

However, a liability is not recognized for commitments unconditionally cancellable by the Company.

The allowance for losses on unfunded commitments is determined by estimating future

draws and applying the expected loss rates on those draws.

The Company then considers whether the historical loss experience should be adjusted

for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used.

Finally, the Company considers forecasts about future economic conditions that are

reasonable and supportable.

The allowance for credit losses for loans, as reported in our consolidated statements of financial condition, is adjusted by an expense for credit losses, which is recognized in earnings, and reduced by the charge-off of

loan amounts, net of recoveries.

The allowance for losses on unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit.

liability is not recognized for commitments unconditionally cancellable by the Company.

The allowance for losses on unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws.

Management of the Company considers the accounting policy relating to the allowance for credit losses to be a critical accounting estimate given the uncertainty in evaluating the level of the

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While management’s current evaluation of the allowance for credit losses indicates that the allowance is appropriate, the allowance may need to be increased under adversely different conditions or assumptions.

Going forward, the impact of

utilizing the CECL approach to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized.

Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings.

One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the

forecast period.

The quantitative model as of September 30, 2023, 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 projected a relatively low unemployment rate of 3.7% rising modestly to 4.13% by the end of the forecast period.

Northeast GDP’s

annualized growth (on a quarterly basis) was expected to start the fourth quarter of 2023 at 3.5%, decreasing slightly to 2.9%, and then increasing to 3.8% by the end of the forecast period.

The alternative downside scenario assumes deteriorated

economic conditions from the baseline outlook.

Under this scenario, northeast unemployment increases to 5.1% in the fourth quarter of 2023 and rises to a peak of 6.9% in the fourth quarter of 2024.

These scenarios and their respective weightings

are evaluated at each measurement date and reflect management’s expectations as of September 30, 2023.

All else held equal, the changes in the weightings of our forecasted scenarios would impact the amount of estimated allowance for credit losses

through changes in the quantitative reserve and scenario-specific qualitative adjustments.

To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of September 30, 2023, the

Company attributed the change in scenario weightings to the change in the allowance for credit losses, with a 10% decrease to the downside scenario and a 10% increase to the baseline scenario causing a 3.9% decrease in the overall estimated

allowance for credit losses.

To further demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of September 30, 2023, the Company increased the downside scenario to 100% which

resulted in a 25% increase in the overall estimated allowance for credit losses.

The Company’s policies on the CECL method for allowance for credit losses are disclosed in Note 1 to the consolidated financial statements presented in our 2022 Annual Report on Form 10-K.

The impact of utilizing the CECL

approach to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized.

Material changes to

these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings.

One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast

As of March 31, 2024, the quantitative model incorporates 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.

31, 2024, the weightings were 70% and 30% for the baseline and downside economic forecasts, respectively.

The baseline outlook reflects an economic environment where the unemployment rate increases slightly from 3.8% to 4.1% during the forecast

Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the second quarter of 2024 at approximately 3.3% and decrease to 2.8% before increasing to 3.4% by the end of the forecast period.

Key assumptions in the baseline

economic outlook included the Federal Reserve cutting rates with three 25 basis point cuts at the June, September, and December meetings, the economy remaining at full employment, and continued tapering of the Federal Reserve balance sheet.

alternative downside scenario assumed deteriorated economic conditions from the baseline outlook.

Under this scenario, national unemployment rises from 3.8% in the first quarter of 2024 to a peak of 7.7% in the second quarter of 2025.

scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of March 31, 2024.

All else held equal, the changes in the weightings of our forecasted scenarios would impact the amount of

estimated allowance for credit losses through changes in the quantitative reserve and scenario-specific qualitative adjustments.

To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings

assumptions as of March 31, 2024, the Company attributed the change in scenario weightings to the change in the allowance for credit losses, with a 10% decrease to the downside scenario and a 10% increase to the baseline scenario causing a 3%

decrease in the overall estimated allowance for credit losses.

To further demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of March 31, 2024, the Company increased the

downside scenario to 100% which resulted in a 23% increase in the overall estimated allowance for credit losses.

The Company’s policies on the CECL methodology for allowance for credit losses are disclosed in Note 1 to the consolidated financial statements presented in our 2023 Annual Report on Form 10-K.

accounting policies are important and as such, the Company encourages the reader to review each of the policies included in Note 1 to the consolidated financial statements presented in our 2023 Annual Report on Form 10-K to obtain a better

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Significant factors management reviews to evaluate the Company’s operating results and financial condition include, but are not limited to:

net income and earnings per share, return on average

assets and equity, net interest margin, noninterest income, operating expenses, asset quality indicators, loan and deposit growth, capital management, liquidity and interest rate sensitivity, enhancements to customer products and services,

technology advancements, market share and peer comparisons.

The following information should be considered in connection with the Company’s results for the three and nine months ended September 30, 2023:

the acquisition of Salisbury by the merger of Salisbury with and into the Company was completed on August 11, 2023;

net income for the three months ended September 30, 2023 was $24.6 million, down $14.4 million from the third quarter of 2022 and down $5.5 million from the second quarter of 2023;

diluted earnings per share of $0.54 for the three months ended September 30, 2023, down $0.36 from the third quarter of 2022 and down $0.16 from the second quarter of 2023;

excluding acquisition expenses, acquisition-related provision for credit losses and securities gains (losses), net income and diluted earnings per share for the three months ended September 30, 2023 were $38.3

million and $0.84, respectively;

excluding securities gains (losses), noninterest income represents 30% of total revenues and was $40.4 million for the three months ended September 30, 2023, up $3.1 million, or 8.3%, from the third quarter of

2022 and up $3.7 million, or 10.2%, from the second quarter of 2023;

noninterest expense, excluding $7.9 million of acquisition expenses in the third quarter of 2023 and $1.2 million in the second quarter of 2023, respectively, was up $6.2 million, or 8.1%, from the third quarter

of 2022 and up $5.3 million, or 6.8%, from the second quarter of 2023;

period end total loans were $9.67 billion, up $1.52 billion from December 31, 2022, excluding the $1.18 billion of loans acquired from Salisbury, loans grew $337.2 million, or 5.5% annualized, since December 31,

period end total deposits were $11.40 billion, up $1.91 billion from December 31, 2022, excluding the $1.31 billion of deposits acquired from Salisbury, deposits increased $596.5 million, since December 31,

book value per share of $28.94 at September 30, 2023;

tangible book value per share (1) was $20.39 at September 30, 2023, $21.55 at June 30, 2023 and $20.25 at September 30, 2022.

net income and EPS, return on average assets and equity,

NIM, noninterest income, operating expenses, asset quality indicators, loan and deposit growth, capital management, liquidity and interest rate sensitivity, enhancements to customer products and services, technology advancements, market share and

peer comparisons.

The following information should be considered in connection with the Company’s results for the three months ended March 31, 2024:

Net income for the three months ended March 31, 2024 was $33.8 million, comparable to the first quarter of 2023 and up $3.4 million from the fourth quarter of 2023.

Diluted earnings per share were $0.71 for the three months ended March 31, 2024, down $0.07 from the first quarter of 2023 and up $0.07 from the fourth quarter of 2023.

Operating net income (1) , a non-GAAP measure, which excludes acquisition expenses, securities gains (losses) and an impairment of a

minority interest equity investment, net of tax, was $32.1 million, or $0.68 per diluted common share, for the three months ended March 31, 2024, compared to $0.88 for the first quarter of 2023 and $0.72 for the fourth quarter of 2023.

Excluding securities gains (losses), noninterest income represented 31% of total revenues and was $43.2 million for the three months ended March 31, 2024, up $5.2 million, or 13.8%, from the fourth quarter of 2023

and up $6.8 million, or 18.7%, from the first quarter of 2023.

Period end total loans were $9.69 billion, up $37.4 million, or 1.6%, annualized, from December 31, 2023.

Credit quality metrics including net charge-offs to average loans were 0.19%, annualized, and allowance for loan losses to total loans was 1.19%.

Period end total deposits were $11.20 billion, up $226.3 million, or 2.1%, from December 31, 2023.

Book value per share was $30.57 at March 31, 2024;

tangible book value per share (1) was $22.07 at March 31, 2024, $21.72 at December

31, 2023 and $21.52 at March 31, 2023.

Non-GAAP measure - Refer to non-GAAP reconciliation below.

Salisbury Bancorp, Inc.

On August 11, 2023, NBT completed its acquisition of Salisbury.

Salisbury was a Connecticut-chartered commercial bank with 13 banking offices in northwestern Connecticut, the Hudson Valley region of

New York, and southwestern Massachusetts.

In connection with the acquisition, the Company issued 4.32 million shares and acquired approximately $1.46 billion of identifiable assets, including $1.18 billion of loans, $122.7 million in investment

securities which were sold immediately after the merger, $31.2 million of core deposit intangibles and $4.7 million in a wealth management customer intangible, as well as $1.31 billion in deposits.

As of the acquisition date, the fair value

discount was $78.7 million for loans, net of the reclassification of the purchase credit deteriorated allowance, and was $3.0 million for subordinated debt, respectively.

Results of Operations

Net income for the three months ended September 30, 2023 was $24.6 million, or $0.54 per diluted common share, down $5.5 million from $30.1 million, or $0.70 per diluted common share for the three

months ended June 30, 2023 and down $14.4 million from $39.0 million, or $0.90 per diluted common share for the third quarter of 2022.

Excluding the impact of acquisition expenses, acquisition-related provision for credit losses and securities gains (losses), the Company generated $0.84 per diluted share of earnings in the third quarter of

2023, compared to $0.91 per diluted share in the third quarter of 2022 and $0.80 per diluted share in the second quarter of 2023.

The Company incurred acquisition expenses of $7.9 million ($0.14 per diluted share) and $1.2 million ($0.02 per diluted share) related to the merger with Salisbury in the third quarter of 2023 and the second

quarter of 2023, respectively.

Net income for the nine months ended September 30, 2023 was $88.3 million, or $2.01 per diluted common share, down $27.5 million from $115.9 million, or $2.68 per diluted common share for the nine

months ended September 30, 2022.

Excluding the impact of acquisition expenses, acquisition-related provision for credit losses and securities gains (losses), the Company generated $2.53 per diluted share of earnings for the nine months ended

September 30, 2023, compared to $2.70 per diluted share for the nine months ended September 30, 2022.

In the nine months ended September 30, 2023, the Company incurred a $4.5 million ($0.08 per diluted share) securities loss on the sale of two subordinated debt securities held in the available for sale (“AFS”)

portfolio and a $5.0 million ($0.09 per diluted share) securities loss on the write-off of a subordinated debt security of a failed financial institution.

The Company incurred acquisition expenses of $9.7 million ($0.17 per diluted share) related to the merger with Salisbury in the nine months ended September 30, 2023.

Net income for the three months ended March 31, 2024 was $33.8 million, or $0.71 per diluted common share, up $3.4 million from $30.4 million, or $0.64 per diluted common share for the three months

ended December 31, 2023 and up $0.2 million from $33.7 million, or $0.78 per diluted common share for the first quarter of 2023.

The Company generated $0.68 per diluted share of operating earnings (1) in the first quarter of 2024, compared to $0.88 for the first

quarter of 2023 and $0.72 for the fourth quarter of 2023.

Net interest income for the three months ended March 31, 2024 was $95.2 million, down $4.0 million, or 4.0% from the fourth quarter of 2023 and up $0.1 million, or 0.1%, from the first quarter of 2023.

The Company recorded a provision for loan losses of $5.6 million ($0.09 per diluted share) for the three months ended March 31, 2024, compared to $3.9 million ($0.07 per diluted share) in the first quarter of 2023

and $5.1 million ($0.08 per diluted share) in the fourth quarter of 2023.

Noninterest expense, excluding $0.3 million of acquisition expenses in the fourth quarter of 2023 and $0.6 million of acquisition expenses in the first quarter of 2023, and the $4.8 million impairment of a

minority interest equity investment in the fourth quarter of 2023, increased 4.6% compared to the previous quarter and increased 16.6% from the first quarter of 2023.

In the first quarter of 2023, the Company incurred a $5.0 million ($0.09 per diluted share) securities loss on the write-off of an AFS subordinated debt investment of a failed financial institution.

quarter of 2024, the Company sold the previously written-off subordinated debt security and recognized a gain of $2.3 million ($0.04 per diluted share).

The Company incurred acquisition expenses of $0.3 million and $0.6 million related to the merger with Salisbury in the fourth quarter of 2023 and the first quarter of 2023, respectively.

In the fourth quarter of 2023, the Company recorded a $4.8 million ($0.08 per diluted share) impairment of its minority interest equity investment in a provider of financial and technology services to residential

solar equipment installers due to the uncertainty in the realizability of the investment in other noninterest expense in the consolidated statements of income.

The following table sets forth certain financial highlights:

Three Months Ended

Nine Months Ended

September 30,

Performance :

Diluted earnings per share

2 unchanged sentences

Return on average tangible common equity (2)

Net interest margin, fully taxable equivalent (“FTE”) (2)

Net interest margin, (FTE) (2)

Equity to assets

6 unchanged sentences

Total risk-based capital ratio

The following table provides non-GAAP reconciliations:

The following tables provide non-GAAP reconciliations:

Three Months Ended

Nine Months Ended

(In thousands, except per share data)

September 30,

Return on average tangible common equity:

13 unchanged sentences

Tangible book value per share

Operating net income:

Acquisition expenses

Impairment of a minority interest equity investment

Securities (gains) losses

Adjustments to net income

Adjustments to net income (net of tax)

Operating net income

Operating diluted earnings per share

Net Interest Income

Net interest income is the difference between interest income on earning assets, primarily loans and securities and interest expense on interest-bearing liabilities, primarily deposits and

Net interest income is the difference between interest income on earning assets, primarily loans and securities and interest expense on interest-bearing liabilities, primarily deposits and borrowings.

Net interest income is affected by the interest rate spread, the difference between the yield on interest-earning assets and cost of interest-bearing liabilities, as well as the volumes of such assets and liabilities.

income is one of the key determining factors in a financial institution’s performance as it is the principal source of earnings.

Net interest income was $94.9 million for the third quarter of 2023, up $5.8 million, or 6.5%, from the previous quarter.

The FTE net interest margin was 3.21% for the three months ended September

30, 2023, a decrease of 6 basis points (“bps”) from the previous quarter.

Interest income increased $16.5 million, or 13.7%, as the yield on average interest-earning assets increased 21 bps from the prior quarter to 4.63%, while average

interest-earning assets of $11.80 billion increased $819.7 million from the prior quarter, primarily due to the Salisbury acquisition and organic loan growth.

Interest expense was up $10.7 million, or 33.9%, as the cost of interest-bearing

liabilities increased 38 bps to 2.18% for the quarter ended September 30, 2023, driven by interest-bearing deposit costs increasing 49 bps.

Included in net interest income was $1.4 million of acquisition-related net accretion which positively

impacted net interest margin by 5 bps.

Net interest income was $94.9 million for the third quarter of 2023, up $0.4 million, or 0.4%, from the third quarter of 2022.

The FTE net interest margin was 3.21% for the three months ended

September 30, 2023, a decrease of 30 bps from the third quarter of 2022.

Interest income increased $37.9 million, or 38.2%, as the yield on average interest-earning assets increased 95 bps from the same period in 2022 to 4.63%, while average

interest-earning assets of $11.80 billion increased $1.08 billion from the third quarter of 2022 primarily due to the Salisbury acquisition and organic loan growth.

Interest expense increased $37.5 million, or 791.0%, as the cost of

interest-bearing liabilities increased 189 bps to 2.18% for the quarter ended September 30, 2023, driven by interest-bearing deposit costs increasing 165 bps, as well as a $533.9 million increase in the average balances of short-term borrowings

and a 534 bps rate paid on those borrowings.

Included in net interest income was $1.4 million of acquisition-related net accretion which positively impacted net interest margin by 5 bps.

Net interest income for the first nine months of 2023 was $279.0 million, up $16.6 million, or 6.3%, from the same period in 2022.

FTE net interest margin was 3.34% for the nine months ended

September 30, 2023, an increase of 12 bps from the same period in 2022.

Interest income increased $97.0 million, or 35.3%, as the yield on average interest-earning assets increased 107 bps from the same period in 2022 to 4.44%, while average

interest-earning assets of $11.24 billion increased $303.6 million primarily due to the Salisbury acquisition and organic loan growth partially offset by the decrease in short-term interest-bearing accounts (“excess liquidity”).

Interest expense

was up $80.3 million, or 643.4%, for the nine months ended September 30, 2023 as compared to the same period in 2022 driven by interest-bearing deposit costs increasing 118 bps, as well as a $483.6 million increase in the average balances of

short-term borrowings and a 522 bps rate paid on those borrowings.

Included in net interest income was $1.4 million of acquisition-related net accretion which positively impacted net interest margin by 2 bps.

Net interest income is one of

the key determining factors in a financial institution’s performance as it is the principal source of earnings.

Net interest income was $95.2 million for the first quarter of 2024, down $4.0 million, or 4.0%, from the previous quarter.

The FTE net interest margin was 3.14% for the three months ended March 31,

2024, a decrease of 1 bp from the previous quarter.

Interest income decreased $4.0 million, or 2.6%, as the yield on average interest-earning assets increased 5 bps from the prior quarter to 4.84%, while average interest-earning assets of $12.27

billion decreased $290.4 million from the prior quarter, primarily due to a decrease in average short-term interest-bearing accounts (“excess liquidity”) and the interest on those funds and one less day in the first quarter of 2024 compared to the

fourth quarter of 2023.

Interest expense for the three months ended March 31, 2024 was consistent with prior quarter due to lower average balances of short-term borrowings which were offset by the increase in the cost of interest-bearing deposits.

Included in net interest income was $2.5 million of acquisition-related net accretion for the three months ended March 31, 2024 and $2.6 million of acquisition-related net accretion for the three months ended December 31, 2023.

Net interest income was $95.2 million for the first quarter of 2024, up $0.1 million, or 0.1%, from the first quarter of 2023.

The FTE net interest margin was 3.14% for the three months ended March

31, 2024, a decrease of 41 bps from the first quarter of 2023.

Interest income increased $32.7 million, or 28.7%, as the yield on average interest-earning assets increased 58 bps from the same period in 2023 to 4.84%, while average interest-earning

assets increased $1.36 billion, or 12.5%, from the first quarter of 2023 primarily due to the Salisbury acquisition and organic loan growth.

Interest expense increased $32.6 million, or 170.6%, as the cost of interest-bearing liabilities increased

138 bps to 2.52% for the quarter ended March 31, 2024, primarily due to both a 158 bps increase in interest-bearing deposit costs and a $1.59 billion increase in interest-bearing deposits as a result of the Salisbury acquisition.

Included in net

interest income was $2.5 million of acquisition-related net accretion for the three months ended March 31, 2024.

Average Balances and Net Interest Income

2 unchanged sentences

Three Months Ended

September 30, 2023

September 30, 2022

(Dollars in thousands)

Short-term interest-bearing accounts

Securities taxable (1)

Securities tax-exempt (1)(3)

Federal Reserve Bank and FHLB stock

Total interest-earning assets

Liabilities and stockholders’ equity:

Money market deposit accounts

NOW deposit accounts

Savings deposits

Time deposits

Total interest-bearing deposits

Federal funds purchased

Repurchase agreements

Short-term borrowings

Long-term debt

Subordinated debt, net

Junior subordinated debt

Total interest-bearing liabilities

Demand deposits

Other liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Net interest income (FTE)

Interest rate spread

Net interest margin (FTE)

Taxable equivalent adjustment

Net interest income

Securities are shown at average amortized cost.

For purposes of these computations, nonaccrual loans and loans held for sale are included in the average loan balances outstanding.

Interest income for tax-exempt securities and loans have been adjusted to a FTE basis using the statutory Federal income tax rate of 21%.

Nine Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

December 31, 2023

March 31, 2023

(Dollars in thousands)

2 unchanged sentences

Securities tax-exempt (1) (3)

Federal Reserve Bank and FHLB stock

FRB and FHLB stock

Loans (2) (3)

Total interest-earning assets

23 unchanged sentences

For purposes of these computations, nonaccrual loans and loans held for sale are included in the average loan balances outstanding.

Interest income for tax-exempt securities and loans have been adjusted to a FTE basis using the statutory Federal income tax rate of 21%.

Interest income for tax-exempt securities and loans have been adjusted to an FTE basis using the statutory Federal income tax rate of 21%.

The following table presents changes in interest income and interest expense attributable to changes in volume (change in average balance multiplied by prior year rate), changes in rate (change in

1 unchanged sentence

The net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of change.

Three Months Ended September 30,

Three Months Ended March 31,

Increase (Decrease)

4 unchanged sentences

Securities tax-exempt

Federal Reserve Bank and FHLB stock

FRB and FHLB stock

Total FTE interest income

11 unchanged sentences

Change in FTE net interest income

Nine Months Ended September 30,

Increase (Decrease)

2023 over 2022

(In thousands)

Short-term interest-bearing accounts

Securities taxable

Securities tax-exempt

Federal Reserve Bank and FHLB stock

Total FTE interest income

Money market deposit accounts

NOW deposit accounts

Savings deposits

Time deposits

Federal funds purchased

Repurchase agreements

Short-term borrowings

Long-term debt

Subordinated debt, net

Junior subordinated debt

Total FTE interest expense

Change in net FTE interest income

Noninterest Income

2 unchanged sentences

noninterest income for the periods indicated:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

(In thousands)

5 unchanged sentences

Bank owned life insurance income

Net securities (losses)

Net securities gains (losses)

Total noninterest income

Noninterest income for the three months ended September 30, 2023 was $40.2 million, up $8.2 million, or 25.6%, from the prior quarter and up $3.1 million, or 8.2%, from the third quarter of 2022.

Excluding net securities gains (losses), noninterest income for the three months ended September 30, 2023 was $40.4 million, up $3.7 million, or 10.2%, from the prior quarter and up $3.1 million, or 8.3%, from the third quarter of 2022.

increase from the prior quarter was primarily driven by an increase in card services income, retirement plan administration, wealth management fees and insurance services.

The increase from the third quarter of 2022 was driven by an increase in

retirement plan administration, wealth management and insurance services fees.

The increase in retirement plan administration from both the prior quarter and the third quarter of 2022 was due primarily to seasonal activity-based fees in the

quarter, favorable market conditions, new account growth and the acquisition of Retirement Direct, LLC on July 1, 2023.

Wealth management fees increased from both the prior quarter and the third quarter of 2022 due primarily to the Salisbury

acquisition and seasonal activity-based fees.

Noninterest income for the nine months ended September 30, 2023 was $103.7 million, down $17.8 million, or 14.6%, from the same period in 2022.

During the nine months ended September 30, 2023, the

Company incurred a $4.5 million securities loss on the sale of two subordinated debt securities held in the AFS portfolio and a $5.0 million securities loss on the write-off of a subordinated debt security of a failed financial institution.

Excluding net securities gains (losses), noninterest income for the nine months ended September 30, 2023 was $113.5 million, down $8.9 million, or 7.3%, from the same period in 2022.

The decrease from the prior year was primarily due to lower

card services income from the impact of the statutory price cap provisions of the Durbin Amendment of approximately $8.0 million and lower retirement plan administration fees driven by a decrease in certain activity-based fees.

Noninterest income for the three months ended March 31, 2024 was $45.4 million, up $6.9 million, or 17.9%, from the prior quarter and up $14.0 million, or 44.5%, from the first quarter of 2023.

the three months ended March 31, 2023, the Company incurred a $5.0 million securities loss on the write-off of a subordinated debt security of a failed financial institution.

During the three months ended March 31, 2024, the Company sold the

previously written-off subordinated debt security and recognized a gain of $2.3 million.

Excluding net securities gains (losses), noninterest income for the three months ended March 31, 2024 was $43.2 million, up $5.2 million, or 13.8%, from the

prior quarter and up $6.8 million, or 18.7%, from the first quarter of 2023.

The increase from the prior quarter was primarily driven by an increase in retirement plan administration fees, wealth management fees and insurance services.

in retirement plan administration fees from the prior quarter was due primarily to certain seasonal activity-based fees in the first quarter, organic growth and market performance.

Wealth management fees increased from the prior quarter due

primarily to organic growth and market performance.

Insurance services increased from the prior quarter due to organic growth, higher levels of policy renewals and first quarter seasonality.

The increase from the first quarter of 2023 was driven by

an increase in retirement plan administration fees, wealth management fees and insurance services.

The increase in retirement plan administration fees from the first quarter of 2023 includes the impact from the acquisition of Retirement Direct, LLC

on July 1, 2023, organic growth and market performance.

Wealth management fees increased from the first quarter of 2023 driven by the Salisbury acquisition, organic growth and market performance.

Insurance services increased from the first quarter

of 2023 due to higher levels of policy renewals and organic growth.

In addition, the increases in service charges on deposit accounts and card services income were impacted by the Salisbury acquisition revenues.

Noninterest Expense

1 unchanged sentence

The following table sets forth the major components of noninterest expense for the periods indicated:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

(In thousands)

8 unchanged sentences

Total noninterest expense

Noninterest expense for the three months ended September 30, 2023 was $90.8 million, up $12.0 million, or 15.2%, from the prior quarter and up $14.1 million, or 18.4%, from the third quarter of

The Company incurred acquisition expenses of $7.9 million and $1.2 million, related to the merger with Salisbury in the third and second quarter of 2023, respectively.

Excluding acquisition expenses, noninterest expense for the three months

ended September 30, 2023 was $82.9 million, up $5.3 million, or 6.8%, from the prior quarter and up $6.2 million, or 8.1%, from the third quarter of 2022.

The increase from the prior quarter was primarily driven by the Salisbury acquisition and

merit increases for employees.

The increase from the third quarter of 2022 was driven by the Salisbury acquisition and merit increases, the increase in Federal Deposit Insurance Corporation (“FDIC”) assessment expense was driven by the statutory

increase in the FDIC assessment rate and the increase in amortization of intangible assets was due to the amortization of intangible assets related to the Salisbury acquisition.

The Company recorded a core deposit intangible of $31.2 million and

a wealth management customer list intangible of $4.7 million related to the Salisbury acquisition.

Noninterest expense for the nine months ended September 30, 2023 was $248.9 million, up $24.0 million, or 10.6%, from the same period in 2022.

The Company incurred acquisition expenses of $9.7

million for the nine months ended September 30, 2023.

Excluding acquisition expenses, noninterest expense for the nine months ended September 30, 2023 was $239.2 million, up $14.2 million, or 6.3%, from the same period in 2022.

The increase from

the prior year was driven by higher salaries and employee benefits due to the Salisbury acquisition, increased salaries and wages including merit pay increases and higher health and welfare benefits, which were partially offset by lower levels of

incentive compensation.

In addition, the increase in technology and data services was due to continued investment in digital platform solutions, the increase in FDIC assessment expense was driven by the statutory increase in the FDIC assessment

rate, increased occupancy costs were driven by the addition of Salisbury locations and other expenses were higher due to the increase in actuarially determined expenses related to the Company’s retirement plans.

Income tax expense for the three months ended September 30, 2023 was $7.1 million, down $1.6 million from the prior quarter and down $4.4 million from the third quarter of 2022 due to a decrease in

pre-tax net income.

The effective tax rate was 22.4% for the third quarter of 2023, consistent with the prior quarter and compared to 22.8% for the third quarter of 2022.

Income tax expense for the nine months ended September 30, 2023 was $25.3 million, down $8.3 million from the same period of 2022 due to a decrease in pre-tax net income.

Noninterest expense for the three months ended March 31, 2024 was $91.8 million, down $1.0 million, or 1.1%, from the prior quarter and up $12.5 million, or 15.7%, from the first quarter of 2023.

Company incurred acquisition expenses in the fourth quarter of 2023 and the first quarter of 2023 of $0.3 million and $0.6 million, respectively related to the merger with Salisbury.

Included in other noninterest expenses in the fourth quarter of

2023, the Company recorded a $4.8 million impairment of a minority interest equity investment in a provider of financial and technology services to residential solar equipment installers due to the uncertainty in the realizability of the

Excluding acquisition expenses and the impairment of a minority interest equity investment, noninterest expense for the three months ended March 31, 2024 was $91.8 million, up $4.0 million, or 4.6%, from the prior quarter and up $13.1

million, or 16.6%, from the first quarter of 2023.

The increase from the prior quarter was driven by higher salaries and employee benefits due to higher incentive compensation costs, seasonally higher payroll taxes and stock-based compensation

expenses and merit pay increases which were effective in March.

In addition, the increase in occupancy costs was driven by seasonal costs including utilities expenses, timing of maintenance activities and additional expenses from the Salisbury

These costs were partially offset by decreases in other expenses due primarily to timing of expenses including travel and lower amortization expenses associated with the Company’s retirement plans.

The increase from the first quarter

of 2023 was driven by higher salaries and employee benefits due to the Salisbury acquisition and higher stock-based compensation expenses.

In addition, the increase in technology and data services, occupancy expense professional fees and outside

services and amortization of intangible assets were impacted by additional expenses from the Salisbury acquisition.

Income tax expense for the three months ended March 31, 2024 was $9.4 million, up $0.1 million from the prior quarter and down $0.2 million from the first quarter of 2023.

The effective tax rate was

22.3% for the nine months ended September 30, 2023, compared to 22.5% for the nine months ended September 30, 2022.

21.7% for the first quarter of 2024 compared to 23.5% for the prior quarter and 22.2% for the first quarter of 2023.

The decrease in the effective tax rate from the prior quarter and the first quarter of 2023 was due to a higher level of tax-exempt

income as a percentage of total taxable income.

ANALYSIS OF FINANCIAL CONDITION

Total securities decreased $128.4 million, or 5.2%, from December 31, 2022 to September 30, 2023.

The securities portfolio represented 17.0% of total assets as of September 30, 2023 as compared to

21.1% of total assets as of December 31, 2022.

The following table details the composition of securities available for sale, securities held to maturity and equity securities for the periods indicated:

September 30, 2023

Total securities decreased $24.9 million, or 1.0%, from December 31, 2023 to March 31, 2024.

The securities portfolio represented 17.5% of total assets as of March 31, 2024 as compared to 17.8% of

total assets as of December 31, 2023.

The following table details the composition of securities AFS, securities HTM and equity securities for the periods indicated:

March 31, 2024

December 31, 2023

6 unchanged sentences

The Company’s mortgage-backed securities, U.S.

agency notes and collateralized mortgage obligations are all guaranteed by Fannie Mae, Freddie Mac, the Federal Home Loan Bank,

Federal Farm Credit Banks or Ginnie Mae (“GNMA”).

agency notes and collateralized mortgage obligations are all guaranteed by Fannie Mae, Freddie Mac, FHLB, Federal Farm Credit Banks or Ginnie Mae

GNMA securities are considered similar in credit quality to U.S.

Treasury securities, as they are backed by the full faith and credit of the U.S.

Currently, there are no subprime

mortgages in our investment portfolio .

A summary of the loan portfolio by major categories (1) , net of deferred fees and origination costs, for the periods indicated follows:

Currently, there are no subprime mortgages in our investment portfolio.

A summary of the loan portfolio by major categories (1) , net of deferred fees and origination costs, for the periods

indicated is as follows:

(In thousands)

September 30, 2023

March 31, 2024

December 31, 2023

5 unchanged sentences

Other consumer

Loans are summarized by business line which does not align to how the Company assesses credit risk in the estimate for credit losses under CECL.

Total loans increased by $1.52 billion, or 24.9% annualized, from December 31, 2022 to September 30, 2023, which included $1.18 billion of loans acquired from Salisbury.

Commercial and industrial loans increased

$158.5 million to $1.42 billion;

Loans are summarized by business line which do not align to how the Company assesses credit risk in the allowance for credit losses.

Total loans increased by $37.4 million, or 1.6% annualized, from December 31, 2023 to March 31, 2024.

Excluding the other consumer and residential solar portfolios that are in a planned run-off

status, period end loans increased $77.9 million, or 3.6% annualized.

Commercial and industrial loans decreased $0.8 million to $1.35 billion;

commercial real estate loans increased $19.8 million to $3.65 billion;

and total consumer loans increased $591.0 million to $4.67 billion.

Excluding loans acquired from Salisbury, loans grew $337.2 million, or

5.5% annualized, since December 31, 2022.

Total loans represent approximately 69.9% of total assets as of September 30, 2023, as compared to 69.4% as of December 31, 2022.

and total consumer loans increased

$18.3 million to $4.69 billion.

Total loans represent approximately 72.1% of assets as of March 31, 2024, as compared to 72.5% as of December 31, 2023.

Loans in the C&I and CRE portfolios consist primarily of loans made to small and medium-sized entities.

The Company offers a variety of loan options to meet the specific needs of our commercial

customers including term loans, time notes and lines of credit.

Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion, equipment purchases, livestock purchases and seasonal crop

These loans are usually collateralized by business assets such as equipment, accounts receivable and perishable agricultural products, which are exposed to industry price volatility.

The Company extends CRE loans to facilitate various

real estate transactions, encompassing acquisitions, refinancing, expansions and enhancements to both commercial and agricultural properties.

These loans are secured by liens on real estate assets, covering a spectrum of properties including

apartments, commercial structures, healthcare facilities and others, whether occupied by owners or non-owners.

Risks associated with the CRE portfolio pertain to the borrowers’ capacity to meet interest and principal payments throughout the loan’s

duration, as well as their ability to secure financing upon the loan’s maturity.

The Company has a risk management framework that includes rigorous underwriting standards, targeted portfolio stress testing, interest rate sensitivities on commercial

borrowers and comprehensive credit risk monitoring mechanisms.

The Company remains vigilant in monitoring market trends, economic indicators and regulatory developments to promptly adapt our risk management strategies as needed.

Within the CRE portfolio, approximately 79% comprises Non-Owner Occupied CRE, with the remaining 21% being Owner-Occupied CRE.

Non-Owner Occupied CRE includes diverse sectors across the Company’s

markets such as apartments (31%), office spaces (17%) and construction (14%), along with retail, manufacturing, small commercial, accommodations and others.

Notably, office CRE loans account for 5% of the total outstanding loans, predominantly

serving suburban medical and professional tenants across suburban and small urban markets.

These loans carry an average size of $2.5 million, with 12% maturing over the next two years.

As of March 31, 2024 and December 31, 2023, the total CRE

construction and development loans amounted to $373.4 million and $347.2 million, respectively.

Allowance for Credit Losses, Provision for Loan Losses and Nonperforming Assets

Beginning January 1, 2023, the Company adopted Accounting Standards Updates (“ASU”) 2022-02 Financial Instruments - CECL Losses (Topic 326):

Troubled Debt Restructurings and

Vintage Disclosures (“ASU 2022-02”) which resulted in an insignificant change to the Company’s methodology for estimating the allowance for credit losses on Troubled Debt Restructurings (“TDRs”) since December 31, 2022.

The January 1,

2023 decrease in allowance for credit loss on TDR loans relating to adoption of ASU 2022-02 was $0.6 million, which increased retained earnings by $0.5 million and decreased the deferred tax asset by $0.1 million .

Beginning January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments - CECL Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures

which resulted in an insignificant change to the Company’s methodology for estimating the allowance for credit losses on TDRs since December 31, 2022.

The January 1, 2023 decrease in the allowance for credit loss on TDR loans relating to adoption

of ASU 2022-02 was $0.6 million, which increased retained earnings by $0.5 million and decreased the deferred tax asset by $0.1 million.

Management considers the accounting policy relating to the allowance for credit losses to be a critical estimate given the degree of judgment exercised in evaluating the level of the allowance

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The CECL approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans).

The allowance for credit losses is a valuation account that is deducted from, or

added to, the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans.

The allowance for credit losses is a valuation account that is deducted from, or added

to, the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans.

Loan losses are charged off against the allowance when management believes a loan balance is confirmed to be uncollectible.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Required additions or reductions to the allowance for credit losses are made periodically by charges or credits to the provision for loan losses.

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allowance may fluctuate from one reporting period to another.

These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in management’s assessment of any or all of the determining factors discussed

These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in management’s assessment of any or all of the determining factors discussed above.

Management considers the allowance for credit losses to be appropriate based on evaluation and analysis of the loan portfolio.

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Significant management judgment is required at each point in the measurement process.

The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar

risk characteristics exist.

The respective quantitative allowance for each segment is measured using an econometric, discounted probability of default and loss given default modeling methodology in which distinct, segment-specific multi-variate

regression models are applied to multiple, probabilistically weighted external economic forecasts.

Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference

between the net present value of modeled cash flows and amortized cost basis.

After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit loss is reflective of the estimate of lifetime

losses that exist in the loan portfolio at the balance sheet date .

The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics

applied to multiple, probabilistically weighted external economic forecasts.

Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present

value of modeled cash flows and amortized cost basis.

After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the

loan portfolio at the balance sheet date.

Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses.

Upon adoption of CECL, management revised

the manner in which loans were pooled for similar risk characteristics.

Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation and have been

combined or subsegmented as needed to ensure loans of similar risk profiles are appropriately pooled.

Additional information about our Allowance for Loan Losses is included in Note 6 to the consolidated financial statements.

The Company’s management considers the allowance for credit losses to be

appropriate based on evaluation and analysis of the loan portfolio.

The allowance for credit losses totaled $114.6 million at September 30, 2023, compared to $100.4 million at June 30, 2023 and $96.8 million at September 30, 2022.

The allowance for

credit losses as a percentage of loans was 1.19% at September 30, 2023, compared to 1.20% at June 30, 2023 and 1.22% at September 30, 2022.

The allowance for credit losses was 472.31% of nonperforming loans at September 30, 2023, compared to

510.01% at June 30, 2023 and 443.43% at September 30, 2022.

The allowance for credit losses was 552.67% of nonaccrual loans at September 30, 2023, compared to 593.00% of nonaccrual loans at June 30, 2023 and compared to 506.86% at September 30,

The increase in allowance for credit losses from June 30, 2023 to September 30, 2023 was due to the $14.5 million of allowance for acquired Salisbury loans which included both the $5.8 million allowance for purchase credit deteriorated

(“PCD”) loans reclassified from loans and the $8.8 million allowance for non-PCD loans recognized through the provision for loan losses.

The increase in the allowance for credit losses from September 30, 2022 to September 30, 2023 was

primarily due to the Salisbury acquisition and organic loan growth.

The provision for loan losses was $12.6 million for three months ended September 30, 2023, compared to $3.6 million in the prior quarter and $4.5 million for the same period in the prior year.

Included in the

provision expense for the three months ended September 30, 2023 was $8.8 million of acquisition-related provision for loan losses due to the Salisbury acquisition.

Net charge-offs totaled $4.2 million during the three months ended September 30,

2023, compared to net charge-offs of $3.5 million during the second quarter of 2023 and $1.3 million in the third quarter of 2022.

Net charge-offs to average loans was 18 bps for the three months ended September 30, 2023, compared to 17 bps for

the second quarter of 2023 and 7 bps for the three months ended September 30, 2022.

The provision for loan losses was $20.1 million for the nine months ended September 30, 2023, compared to $9.5 million for the nine months ended September 30, 2022.

Provision expense increased from the same period

in the prior year due primarily to the $8.8 million of acquisition-related provision for loan losses due to the Salisbury acquisition and an increase in net charge-offs during the nine months ended September 30, 2023.

Net charge-offs totaled

$11.5 million during the nine months ended September 30, 2023, compared to net charge-offs of $4.7 million during the nine months ended September 30, 2022.

Net charge-offs to average loans was 18 bps for the nine months ended September 30, 2023,

compared to 8 bps for the nine months ended September 30, 2022.

The increase in net charge-offs was due to an increase in charge-offs in the Company’s other consumer portfolio, which is in a run-off status.

As of September 30, 2023, the unfunded commitment reserve totaled $4.8 million, which included $0.8 million of acquisition-related provision for unfunded commitment due to the Salisbury acquisition,

compared to $4.4 million as of June 30, 2023 and $5.3 million as of September 30, 2022.

Nonperforming assets consist of nonaccrual loans, loans over 90 days past due and still accruing, troubled loans modifications, other real estate owned (“OREO”) and

nonperforming securities.

Loans are generally placed on nonaccrual when principal or interest payments become 90 days past due, unless the loan is well secured and in the process of collection.

Loans may also be placed on nonaccrual when

circumstances indicate that the borrower may be unable to meet the contractual principal or interest payments.

The threshold for evaluating classified and nonperforming loans specifically evaluated for individual credit loss is $1.0 million.

Upon adoption of CECL, management revised the

manner in which loans were pooled for similar risk characteristics.

Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation and have been combined or

subsegmented as needed to ensure loans of similar risk profiles are appropriately pooled.

Additional information about our allowance for credit losses is included in Note 6 to the unaudited interim consolidated financial statements in this Quarterly Report on Form 10-Q as well as in the

“Critical Accounting Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Company’s management considers the allowance for credit losses to be appropriate based on evaluation and analysis

of the loan portfolio.

The allowance for credit losses totaled $115.3 million at March 31, 2024, compared to $114.4 million at December 31, 2023 and $100.3 million at March 31, 2023.

The allowance for credit losses as a

percentage of loans was 1.19% at March 31, 2024 and December 31, 2023, compared to 1.21% at March 31, 2023.

The increase in allowance for credit losses from December 31, 2023 compared to March 31, 2024 was primarily due the slowing of prepayment

speeds partly offset by the decline in consumer loans with higher allowance levels and a decline in the PCD allowance as purchased loan balances decreased.

The increase in the allowance for credit losses from March 31, 2023 to March 31, 2024 was

primarily due to the $14.5 million of allowance for acquired Salisbury loans which included both the $5.8 million allowance for PCD loans reclassified from loans and the $8.8 million allowance for non-PCD loans recognized through the provision for

The allowance for credit losses was 305.12% of nonperforming loans at March 31, 2024, compared to 302.05% at December 31, 2023 and 538.63% at March 31, 2023.

The allowance for credit losses was

327.66% of nonaccrual loans at March 31, 2024, compared to 334.38% of nonaccrual loans at December 31, 2023 and 615.63% of nonaccrual loans at March 31, 2023.

The decline in the coverage of the allowance to nonperforming and nonaccrual loans from

March 31, 2023 to March 31, 2024 largely relates to one nonperforming relationship that is individually evaluated for purposes of the allowance for credit losses which had no reserve established at March 31, 2024 and December 31, 2023.

The provision for loan losses was $5.6 million for three months ended March 31, 2024, compared to $5.1 million in the prior quarter and $3.9 million for the same period in the prior year.

expense increased from the prior quarter due to the slowing of prepayment speeds offset by a slight decline in net charge-offs.

The increase in provision expense from March 31, 2023, was driven largely due to higher net charge-offs.

Net charge-offs

totaled $4.7 million during the three months ended March 31, 2024, compared to net charge-offs of $5.3 million during the fourth quarter of 2023 and $3.8 million in the first quarter of 2023.

Net charge-offs to average loans was 19 bps for the

three months ended March 31, 2024, compared to 22 bps for the fourth quarter of 2023 and 19 bps for the three months ended March 31, 2023.

As of March 31, 2024, the unfunded commitment reserve totaled $4.7 million, compared to $5.1 million as of December 31, 2023 and $4.5 million as of March 31, 2023.

Nonperforming assets consist of nonaccrual loans, loans over 90 days past due and still accruing, troubled loans modifications, OREO and nonperforming securities.

Loans are generally placed on

nonaccrual when principal or interest payments become 90 days past due, unless the loan is well secured and in the process of collection.

Loans may also be placed on nonaccrual when circumstances indicate that the borrower may be unable to meet the

contractual principal or interest payments.

The threshold for evaluating classified, commercial and commercial real estate loans risk graded substandard or doubtful, and nonperforming loans specifically evaluated for individual credit loss is $1.0

OREO represents property acquired through foreclosure and is valued at the lower of the carrying amount or fair value, less any estimated disposal costs.

September 30, 2023

March 31, 2024

December 31, 2023

(Dollars in thousands)

Nonaccrual loans:

N o naccrual loans:

Troubled loan modifications

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Total allowance for loan losses to nonaccrual loans

TDRs prior to adoption of ASU 2022-02.

Total nonperforming assets were $24.3 million at September 30, 2023, compared to $21.2 million at December 31, 2022 and $21.8 million at September 30, 2022.

Nonperforming loans at September 30, 2023

were $24.3 million, or 0.25% of total loans, compared with $21.1 million, or 0.26% of total loans at December 31, 2022 and $21.8 million, or 0.28% of total loans at September 30, 2022.

The increase in nonperforming loans from September 30, 2022

primarily resulted from an increase in residential nonaccrual loans driven by the Salisbury acquisition partially offset by a decrease in commercial nonaccrual loans.

Total nonaccrual loans were $20.7 million or 0.21% of total loans at September

30, 2023, compared to $17.2 million or 0.21% of total loans at December 31, 2022 and compared to $19.1 million or 0.24% of total loans at September 30, 2022.

Past due loans as a percentage of total loans was 0.49% at September 30, 2023, up from

0.33% at December 31, 2022 and up from 0.30% at September 30, 2022.

In addition to nonperforming loans discussed above, the Company has also identified approximately $92.4 million in potential problem loans at September 30, 2023 as compared to $52.0 million at

December 31, 2022 and $58.4 million at September 30, 2022.

Total nonperforming assets were $37.8 million at March 31, 2024, compared to $37.9 million at December 31, 2023 and $18.7 million at March 31, 2023.

Nonperforming loans at March 31, 2024 were $37.8

million or 0.39% of total loans, compared with $37.9 million or 0.39% of total loans at December 31, 2023 and $18.6 million or 0.23% of total loans at March 31, 2023.

The increase in nonperforming assets was attributable to a diversified,

multi-tenant commercial real estate development relationship that was placed into a nonaccrual status in the fourth quarter of 2023, in which NBT is a participant.

The relationship is being actively managed and recent appraised values continue to

support its carrying value, and as such, no specific reserve has been established.

Total nonaccrual loans were $35.2 million or 0.36% of total loans at March 31, 2024, compared to $34.2 million or 0.35% of total loans at December 31, 2023 and $16.3

million or 0.20% of total loans at March 31, 2023.

Past due loans as a percentage of total loans was 0.33% at March 31, 2024, up from 0.32% at December 31, 2023 and up from 0.30% at March 31, 2023.

In addition to nonperforming loans discussed above, the Company has also identified approximately $112.7 million in potential problem loans at March 31, 2024 as compared to $87.7 million at December

31, 2023 and $55.9 million at March 31, 2023.

Potential problem loans are loans that are currently performing, with a possibility of loss if weaknesses are not corrected.

Such loans may need to be disclosed as nonperforming at some

time in the future.

Potential problem loans are classified by the Company’s loan rating system as “substandard.” The increase in potential problem loans from December 31, 2022 and September 30, 2022 is primarily due to the migration of commercial

loan balances of $40.3 million and $32.8 million, respectively, to substandard, the bulk of which is adequately secured by real estate collateral.

Management cannot predict the extent to which economic conditions may worsen or other factors,

which may impact borrowers and the potential problem loans.

Accordingly, there can be no assurance that other loans will not become over 90 days past due, be placed on nonaccrual, become troubled loans modifications or require increased allowance

coverage and provision for loan losses.

To mitigate this risk the Company maintains a diversified loan portfolio, has no significant concentration in any particular industry and originates loans primarily within its footprint.

Total deposits were $11.40 billion at September 30, 2023, up $1.91 billion, or 20.1%, from December 31, 2022, which included $1.31 billion in deposits acquired from Salisbury.

Excluding deposits

acquired from Salisbury, deposits increased $596.5 million since December 31, 2022.

As of September 30, 2023 there were $296.6 million of brokered time deposits, up from $19.4 million as of December 31, 2022.

The Company continues to experience

the migration from no interest and low interest checking and savings accounts into higher cost money market and time deposit instruments.

Total average deposits decreased $0.3 million, or 3.3%, from the same period last year.

The decrease was

driven primarily by a decrease of $270.5 million, or 7.3%, in demand deposits, combined with a decrease in interest-bearing deposits of $61.9 million, or 1.0%, primarily due to decreases in money market accounts and savings accounts partially

offset by an increase in time accounts.

The decrease in average balances was due primarily to larger commercial customers taking advantage of higher yielding investment opportunities in both the Company’s wealth management solutions as well as

other offerings in the market.

As of September 30, 2023 and December 31, 2022 the estimated amounts of uninsured deposits based on the methodologies and assumptions used for the bank regulatory reporting were $4.3 billion and $3.6 billion,

respectively.

Such loans may need to be disclosed as nonperforming at some time in the

Potential problem loans are classified by the Company’s loan rating system as “substandard.” Potential problem loans have increased to more normalized levels and the increase primarily relates to a few commercial real estate relationships

reflecting changing conditions in commercial real estate markets including construction delays, rising costs and delays in leasing up spaces.

The increase in potential problem loans from March 31, 2023 is primarily due to the migration of $75.7

million to substandard, partially offset by an increase of $18.9 million in nonaccrual loan balances.

Management cannot predict the extent to which economic conditions may worsen or other factors, which may impact borrowers and the potential

problem loans.

Accordingly, there can be no assurance that other loans will not become over 90 days past due, be placed on nonaccrual, become troubled loans modifications or require increased allowance coverage and provision for loan losses.

mitigate this risk the Company maintains a diversified loan portfolio, has no significant concentration in any particular industry and originates loans primarily within its footprint.

Total deposits were $11.20 billion at March 31, 2024, up $226.3 million, or 2.1%, from December 31, 2023.

As of March 31, 2024 there were $134.5 million of brokered time deposits, down from $155.2

million as of December 31, 2023.

The Company continues to experience the migration from no interest and low interest checking and savings accounts into higher cost money market and time deposit instruments.

The increase in deposits was primarily

due to the inflow of seasonal municipal deposits during the first quarter of 2024.

The Company’s composition of total deposits is diverse and granular with over 561,000 accounts with an average per account balance of $19,947 as of March 31, 2024.

As of March 31, 2024 and December 31, 2023 the estimated amounts of uninsured deposits based on the same methodologies and assumptions used for the bank regulatory reporting was $4.1 billion.

Total average deposits increased $1.44 billion, or

15.0%, from the same period last year.

The increase in average balances was primarily due to the $1.31 billion in deposits acquired from Salisbury in the third quarter of 2023.

Borrowed Funds

The Company’s borrowed funds consist of short-term borrowings and long-term debt.

Short-term borrowings totaled $490.2 million at September 30, 2023 compared to $585.0 million at December 31, 2022.

Long-term debt was $29.8 million at September 30, 2023 compared to $4.8 million at December 31, 2022.

Short-term borrowings totaled $267.1 million at March 31, 2024 compared to $386.7 million at December 31, 2023.

Long-term debt was $29.8 million at March 31, 2024 and December 31, 2023.

For more information about the Company’s borrowing capacity and liquidity position, see “Liquidity Risk” below.

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The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual

rate of 5.00%, payable semi-annually in arrears commencing on January 1, 2021, and a floating rate of interest equivalent to the three-month Secured Overnight Financing Rate (“SOFR”) plus a spread of 4.85%, payable quarterly in arrears commencing

on October 1, 2025.

The subordinated debt issuance cost of $2.2 million is being amortized on a straight-line basis into interest expense over five years.

Subordinated debt assumed with the Salisbury acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031.

The subordinated notes, which qualify as Tier 2 capital,

bear interest at an annual rate of 3.50%, payable quarterly in arrears commencing on June 30, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 2.80%, payable quarterly in arrears commencing on June 30,

As of the acquisition date, the fair value discount was $3.0 million for the acquired subordinated debt.

As of September 30, 2023 and December 31, 2022 the subordinated debt net of unamortized issuance costs was $119.4 million and $96.9 million, respectively.

rate of 5.00%, payable semi-annually in arrears commencing on January 1, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 4.85%, payable quarterly in arrears commencing on October 1, 2025.

The subordinated

debt issuance cost of $2.2 million is being amortized on a straight-line basis into interest expense over five years.

The Company repurchased $2.0 million of the subordinated notes in 2022 at a discount of $0.1 million.

Subordinated notes assumed in connection with the Salisbury acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031.

The subordinated notes, which qualify as

Tier 2 capital, bear interest at an annual rate of 3.50%, payable quarterly in arrears commencing on June 30, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 2.80%, payable quarterly in arrears commencing

on June 30, 2026.

As of the acquisition date, the fair value discount was $3.0 million, which will be amortized into interest expense over the expected call or maturity date.

As of March 31, 2024 and December 31, 2023 the subordinated debt net of unamortized issuance costs and fair value discount was $120.1 million and $119.7 million, respectively.

Capital Resources

Stockholders’ equity of $1.36 billion represented 9.86% of total assets at September 30, 2023 compared with $1.17 billion, or 10.00% of total assets, as of December 31, 2022.

Stockholders’

equity increased $189.3 million from December 31, 2022 driven by the Salisbury acquisition adding $161.7 million of capital and net income generation of $88.3 million for the nine months ended September 30, 2023, partially offset by dividends

declared of $40.8 million, the repurchase of common stock of $4.9 million and a $17.5 million decrease in accumulated other comprehensive income due primarily to the change in market value of securities available for sale.

The Company purchased 68,500 shares of its common stock during the third quarter of 2023 at an average price of $31.61 per share under its previously announced share repurchase program.

may repurchase shares of its common stock from time to time to mitigate the potential dilutive effects of stock-based incentive plans and other potential uses of common stock for corporate purposes.

As of September 30, 2023, there were 1,444,500

shares available for repurchase under this plan authorized on December 20, 2021 and set to expire on December 31, 2023.

As the capital ratios in the following table indicate, the Company remained “well capitalized” at September 30, 2023 under applicable bank regulatory requirements.

Capital measurements are well in

excess of regulatory minimum guidelines and meet the requirements to be considered well capitalized for all periods presented.

To be considered well capitalized, tier 1 leverage, common equity tier 1 capital, tier 1 capital and total risk-based

capital ratios must be 5%, 6.5%, 8% and 10%, respectively.

Stockholders’ equity of $1.44 billion represented 10.73% of total assets at March 31, 2024 compared with $1.43 billion, or 10.71% of total assets, as of December 31, 2023.

Stockholders’ equity

increased $15.7 million from December 31, 2023 driven by net income of $33.8 million for the three months ended March 31, 2024, partially offset by dividends declared of $15.1 million and a $3.6 million increase in accumulated other comprehensive

loss due primarily to the change in the fair value of securities available for sale.

The Company purchased 1,900 shares of its common stock during the three months ended March 31, 2024 at an average price of $33.03 per share under its previously announced share repurchase program.

Company may repurchase shares of its common stock from time to time to mitigate the potential dilutive effect of stock-based incentive plans and other potential uses of common stock for corporate purposes.

As of March 31, 2024, there were 1,998,100

shares available for repurchase under the plan authorized on December 18, 2023, which is set to expire on December 31, 2025.

As the capital ratios in the following table indicate, the Company remained “well capitalized” at March 31, 2024 under applicable bank regulatory requirements.

Capital measurements are well in excess

of regulatory minimum guidelines and meet the requirements to be considered well capitalized for all periods presented.

To be considered well capitalized, tier 1 leverage, common equity tier 1 capital, tier 1 capital and total risk-based capital

ratios must be 5%, 6.5%, 8% and 10%, respectively.

Capital Measurements

September 30, 2023

March 31, 2024

December 31, 2023

9 unchanged sentences

Non-GAAP measure - Stockholders’ equity less goodwill and intangible assets divided by total assets less goodwill and intangible assets.

In March 2020, the Office of Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System and the FDIC announced an interim final rule to delay the

estimated impact on regulatory capital stemming from the implementation of CECL.

Under the modified CECL transition provision, the regulatory capital impact of the January 1, 2020 CECL adoption date adjustment to the allowance for credit losses

(after-tax) was deferred and was phased into regulatory capital at 25% per year commencing January 1, 2022.

For the ongoing impact of CECL, the Company was allowed to defer the regulatory capital impact of the allowance for credit losses in an

amount equal to 25% of the change in the allowance for credit losses (pre-tax) recognized through earnings for each period between January 1, 2020 and December 31, 2021.

The cumulative adjustment to the allowance for credit losses between January

1, 2020 and December 31, 2021, was also phased into regulatory capital at 25% per year commencing January 1, 2022.

In March 2020, the OCC, the Board of Governors of the Federal Reserve System and the FDIC announced an interim final rule to delay the estimated impact on regulatory capital stemming from the

implementation of CECL.

Under the modified CECL transition provision, the regulatory capital impact of the January 1, 2020 CECL adoption date adjustment to the allowance for credit losses (after-tax) has been deferred and will phase into regulatory

capital at 25% per year commencing January 1, 2022.

For the ongoing impact of CECL, the Company was allowed to defer the regulatory capital impact of the allowance for credit losses in an amount equal to 25% of the change in the allowance for

credit losses (pre-tax) recognized through earnings for each period between January 1, 2020 and December 31, 2021.

The cumulative adjustment to the allowance for credit losses between January 1, 2020 and December 31, 2021, will also phase into

regulatory capital at 25% per year commencing January 1, 2022.

The Company adopted the capital transition relief over the permissible five-year period.

4 unchanged sentences

Interest rate risk is defined as an exposure to a movement in interest rates that could have an adverse effect on the Company’s net interest income.

Net interest income is susceptible to interest

rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than earning assets.

When interest-bearing liabilities mature or reprice more quickly than earning assets in a given period, a significant increase

in market rates of interest could adversely affect net interest income.

Net interest income is susceptible to interest rate

risk to the degree that interest-bearing liabilities mature or reprice on a different basis than earning assets.

When interest-bearing liabilities mature or reprice more quickly than earning assets in a given period, a significant increase in

market rates of interest could adversely affect net interest income.

Similarly, when earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income.

1 unchanged sentence

Management’s Asset Liability Committee (“ALCO”) meets monthly to review the

Company’s interest rate risk position and profitability and to recommend strategies for consideration by the Board of Directors.

Management also reviews loan and deposit pricing and the Company’s securities portfolio, formulates investment and

funding strategies and oversees the timing and implementation of transactions to assure attainment of the Board’s objectives in the most effective manner.

Notwithstanding the Company’s interest rate risk management activities, the potential for

changing interest rates is an uncertainty that can have an adverse effect on net income.

In managing the Company’s asset/liability position, the Board and management aim to regulate the Company’s interest rate risk while minimizing net interest margin compression.

At times, depending on

the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Company’s interest rate risk position somewhat in

order to increase its net interest margin.

Company’s interest rate risk position and profitability and to recommend strategies for consideration by the Board of Directors (the “Board”).

Management also reviews loan and deposit pricing and the Company’s securities portfolio, formulates

investment and funding strategies and oversees the timing and implementation of transactions to assure attainment of the Board’s objectives in the most effective manner.

Notwithstanding the Company’s interest rate risk management activities, the

potential for changing interest rates is an uncertainty that can have an adverse effect on net income.

In managing the Company’s asset/liability position, the Board and management aim to manage the Company’s interest rate risk while minimizing net interest margin compression.

At times, depending on the

level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Company’s interest rate risk position somewhat in order

to increase its net interest margin.

The Company’s results of operations and net portfolio values remain vulnerable to changes in interest rates and fluctuations in the difference between long and short-term interest rates.

The primary tool utilized by the ALCO to manage interest rate risk is earnings at risk modeling (interest rate sensitivity analysis).

Information, such as principal balance,

interest rate, maturity date, cash flows, next repricing date (if needed) and current rates are uploaded into the model to create an ending balance sheet.

In addition, the ALCO makes certain assumptions regarding prepayment speeds for loans and

mortgage related investment securities along with any optionality within the deposits and borrowings.

Information, such as principal balance, interest rate, maturity

date, cash flows, next repricing date (if needed) and current rates are uploaded into the model to create an ending balance sheet.

In addition, the ALCO makes certain assumptions regarding prepayment speeds for loans and mortgage related investment

securities along with any optionality within the deposits and borrowings.

The model is first run under an assumption of a flat rate scenario (i.e.

no change in current interest rates) with a static balance sheet.

additional models are run in which a gradual increase of 200 bps, a gradual increase of 100 bps and a gradual decrease of 200 bps takes place over a 12-month period with a static balance sheet.

Under these scenarios, assets subject to prepayments

are adjusted to account for faster or slower prepayment assumptions.

Three additional models are run in

which a gradual increase of 200 bps, a gradual increase of 100 bps and a gradual decrease of 200 bps takes place over a 12-month period with a static balance sheet.

Under these scenarios, assets subject to prepayments are adjusted to account for

faster or slower prepayment assumptions.

Any investment securities or borrowings that have callable options embedded in them are handled accordingly based on the interest rate scenario.

The resulting changes in net

interest income are then measured against the flat rate scenario.

The resulting changes in net interest income are then measured

against the flat rate scenario.

The Company also runs other interest rate scenarios to highlight potential interest rate risk.

In the declining rate scenario, net interest income is projected to decrease when compared to the forecasted net interest income in the flat rate scenario through the simulation period.

The decrease in net interest

income is a result of earning assets repricing and rolling over at lower yields at a faster pace than interest-bearing liabilities decline and/or reach their floors.

In the rising rate scenarios, net interest income is projected to experience an

increase from the flat rate scenario; however, the potential impact on earnings may be affected by the ability to lag deposit repricing on NOW, savings, money market deposit accounts and time accounts.

Net interest income for the next twelve

months in the +200/+100/-200 bp scenarios, as described above, is within the internal policy risk limits of not more than a 7.5% reduction in net interest income.

The following table summarizes the percentage change in net interest income in the

rising and declining rate scenarios over a 12-month period from the forecasted net interest income in the flat rate scenario using the September 30, 2023 balance sheet position:

The Company’s Interest Rate Sensitivity has migrated to a near neutral position.

In the declining rate scenario, net interest income is projected to modestly decrease when compared to the forecasted

net interest income in the flat rate scenario through the simulation period.

The decrease in net interest income is a result of earning assets repricing and rolling over at lower yields at a faster pace than interest-bearing liabilities decline

and/or reach their floors.

In the rising rate scenarios, net interest income is near neutral, impacted by slowing prepayments speeds and increased deposit reactivity;

the magnitude of potential impact on earnings may be affected by the ability to

lag deposit repricing on NOW, savings, money market deposit accounts and time accounts.

Net interest income for the next twelve months in the +200/+100/-200 bp scenarios, as described above, is within the internal policy risk limits of not more

than a 7.5% reduction in net interest income.

The following table summarizes the percentage change in net interest income in the rising and declining rate scenarios over a 12-month period from the forecasted net interest income in the flat rate

scenario using the March 31, 2024 balance sheet position:

Interest Rate Sensitivity Analysis

2 unchanged sentences

net interest income

The Company anticipates that the trajectory of net interest income will continue to depend significantly on the timing and path of short to mid-term interest rates which are

heavily driven by inflationary pressures and Federal Open Market Committee monetary policy.

In response to the economic impact of the pandemic, the federal funds rate was reduced to near zero in March 2020, term interest rates fell sharply across

the yield curve and the Company reduced deposit rates.

Post-pandemic, inflationary pressures have resulted in a higher overall yield curve with Federal Funds increases of 425 bps in 2022 and an additional 100 bps in 2023.

Current expectations are

for short-term interest rates to normalize at current levels in the near-term as inflation levels have moderated.

While deposit rates have increased meaningfully in 2023 in conjunction with the increase to short term interest rates, the Company

continues to focus on managing deposit expense and overall deposit levels in an environment with elevated demand for liquidity.

The Company anticipates that the trajectory of net interest income will continue to depend significantly on the timing and path of short to mid-term interest rates which are heavily driven by

inflationary pressures and FOMC monetary policy.

In response to the economic impact of the pandemic, the federal funds rate was reduced to near zero in March 2020, term interest rates fell sharply across the yield curve and the Company reduced

deposit rates.

Post-pandemic, inflationary pressures have resulted in a higher overall yield curve with Federal Funds increases of 425 bps in 2022 with an additional 100 bps of increases in 2023.

While deposit rates increased meaningfully in 2023

and have continued to increase in 2024 in conjunction with elevated short term interest rates, there has been some moderation to the level of increase.

The Company continues to focus on managing deposit expense in an environment of elevated

interest rates while allowing assets to reprice upward.

Liquidity Risk

Liquidity risk arises from the possibility that the Company may not be able to satisfy current or future financial commitments or may become unduly reliant on alternate funding sources.

objective of liquidity management is to ensure the Company can fund balance sheet growth, meet the cash flow requirements of depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their

credit needs.

The objective

of liquidity management is to ensure the Company can fund balance sheet growth, meet the cash flow requirements of depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit

ALCO is responsible for liquidity management and has developed guidelines, which cover all assets and liabilities, as well as off-balance sheet items that are potential sources or uses of liquidity.

Liquidity policies must also

provide the flexibility to implement appropriate strategies, along with regular monitoring of liquidity and testing of the contingent liquidity plan.

Requirements change as loans grow, deposits and securities mature and payments on borrowings are

Liquidity policies must also provide the

flexibility to implement appropriate strategies, along with regular monitoring of liquidity and testing of the contingent liquidity plan.

Requirements change as loans grow, deposits and securities mature and payments on borrowings are made.

Liquidity management includes a focus on interest rate sensitivity management with a goal of avoiding widely fluctuating net interest margins through periods of changing economic conditions.

Loan repayments and maturing investment

securities are a relatively predictable source of funds.

However, deposit flows, calls of investment securities and prepayments of loans and mortgage-related securities are strongly influenced by interest rates, the housing market, general and

local economic conditions, and competition in the marketplace.

Loan repayments and maturing investment securities are a

relatively predictable source of funds.

However, deposit flows, calls of investment securities and prepayments of loans and mortgage-related securities are strongly influenced by interest rates, the housing market, general and local economic

conditions, and competition in the marketplace.

Management continually monitors marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset prepayments.

The primary liquidity measurement the Company utilizes is called “Basic Surplus,” which captures the adequacy of its access to reliable sources of cash relative to the stability of its funding mix

of average liabilities.

average liabilities.

This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources, which can be accessed when necessary.

September 30, 2023, the Company’s Basic Surplus measurement was 12.1% of total assets, or $1.67 billion, as compared to the December 31, 2022 Basic Surplus of 13.2%, or $1.55 billion, and was above the Company’s minimum of 5% (calculated at

$691.4 million and $587.0 million of period end total assets as September 30, 2023 and December 31, 2022, respectively) set forth in its liquidity policies.

At September 30, 2023 and December 31, 2022, Federal Home Loan Bank (“FHLB”) advances outstanding totaled $429.7 million and $443.8 million, respectively.

At September 30, 2023 and December 31,

2022, the Bank had $71.0 million and $8.0 million, respectively, of collateral encumbered by municipal letters of credit.

The Bank is a member of the FHLB system and had additional borrowing capacity from the FHLB of approximately $1.04 billion

at September 30, 2023 and $1.17 billion at December 31, 2022.

In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional $536.8 million and $898.1 million at September 30, 2023 and December

31, 2022, respectively, or used to collateralize other borrowings, such as repurchase agreements.

The Company also has the ability to issue brokered time deposits and to borrow against established borrowing facilities with other banks (federal

funds), which could provide additional liquidity of $1.96 billion at September 30, 2023 and $1.92 billion at December 31, 2022.

In addition, the Bank has a “Borrower-in-Custody” program with the FRB with the addition of the ability to pledge

automobile and residential solar loans as collateral.

At September 30, 2023 and December 31, 2022, the Bank had the capacity to borrow $982.3 million and $622.7 million, respectively, from this program.

The Company’s internal policy authorizes

borrowing up to 25% of assets.

Under this policy, remaining available borrowing capacity totaled $2.94 billion at September 30, 2023 and $2.41 billion at December 31, 2022.

2024, the Company’s Basic Surplus measurement was 16.2% of total assets, or $2.18 billion, as compared to the December 31, 2023 Basic Surplus of 11.6%, or $1.54 billion, and was above the Company’s minimum of 5% (calculated at $672.0 million and

$665.5 million of period end total assets at March 31, 2024 and December 31, 2023, respectively) set forth in its liquidity policies.

At March 31, 2024 and December 31, 2023, FHLB advances outstanding totaled $132.7 million and $322.7 million, respectively.

At March 31, 2024 and December 31, 2023, the Bank had $99.0 million and

$77.0 million, respectively, of collateral encumbered by municipal letters of credit.

The Bank is a member of the FHLB system and had additional borrowing capacity from the FHLB of approximately $1.81 billion at March 31, 2024 and $1.11 billion at

December 31, 2023.

In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional $662.9 million and $823.3 million at March 31, 2024 and December 31, 2023, respectively, or used to collateralize

other borrowings, such as repurchase agreements.

The Company also has the ability to issue brokered time deposits and to borrow against established borrowing facilities with other banks (federal funds), which could provide additional liquidity of

$2.03 billion at March 31, 2024 and $2.01 billion at December 31, 2023.

In addition, the Bank has a “Borrower-in-Custody” program with the FRB with the addition of the ability to pledge automobile and residential solar loans as collateral.

31, 2024 and December 31, 2023, the Bank had the capacity to borrow $1.06 billion and $1.02 billion, respectively, from this program.

The Company’s internal policies authorize borrowings up to 25% of assets.

Under this policy, remaining available

borrowing capacity totaled $3.13 billion at March 31, 2024 and $2.99 billion at December 31, 2023.

This Basic Surplus approach enables the Company to appropriately manage liquidity from both operational and contingency perspectives.

By tempering the need for cash flow

liquidity with reliable borrowing facilities, the Company is able to operate with a more fully invested and, therefore, higher interest income generating securities portfolio.

The makeup and term structure of the securities portfolio is, in part,

impacted by the overall interest rate sensitivity of the balance sheet.

By tempering the need for cash flow liquidity with reliable

borrowing facilities, the Company is able to operate with a more fully invested and, therefore, higher interest income generating securities portfolio.

The makeup and term structure of the securities portfolio is, in part, impacted by the overall

interest rate sensitivity of the balance sheet.

Investment decisions and deposit pricing strategies are impacted by the liquidity position.

The Company considers its Basic Surplus position to be strong.

However, certain

events may adversely impact the Company’s liquidity position in 2023.

However, certain events may adversely impact

the Company’s liquidity position in 2024.

Continued increases to interest rates could result in deposit declines as depositors have alternative opportunities for yield on their excess funds.

In the current economic

environment, draws against lines of credit could drive asset growth higher.

In the current economic environment, draws against lines

of credit could drive asset growth higher.

Disruptions in wholesale funding markets could spark increased competition for deposits.

These scenarios could lead to a decrease in the Company’s Basic Surplus measure

below the minimum policy level of 5%.

Note, enhanced liquidity monitoring was put in place to quickly respond to the changing environment during the coronavirus pandemic including increasing the frequency of monitoring and adding additional

sources of liquidity.

While, the pandemic has come to an end, this enhanced monitoring continues as rising interest rates and the recent bank failures have led to a deposit decline in the banking system and increased volatility to liquidity risk.

At September 30, 2023, a portion of the Company’s loans and securities were pledged as collateral on borrowings.

Therefore, once on-balance-sheet liquidity is reduced, future growth of earning

assets will depend upon the Company’s ability to obtain additional funding, through growth of core deposits and collateral management and may require further use of brokered time deposits or other higher cost borrowing arrangements.

The Company’s primary source of funds is the Bank.

Certain restrictions exist regarding the ability of the subsidiary bank to transfer funds to the Company in the form of cash dividends.

The approval of the OCC is

required to pay dividends when a bank fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two

years as specified in applicable OCC regulations.

At September 30, 2023, approximately $95.0 million of the total stockholders’ equity of the Bank was available for payment of dividends to the Company without approval by the OCC.

ability to pay dividends is also subject to the Bank being in compliance with regulatory capital requirements.

These scenarios could lead to a decrease in the Company’s Basic Surplus measure below the minimum policy level of

Note, enhanced liquidity monitoring was put in place to quickly respond to the changing environment during the COVID-19 pandemic including increasing the frequency of monitoring and adding additional sources of liquidity.

While the pandemic has

come to an end, this enhanced monitoring continues as rising interest rates and the recent bank failures have led to a deposit decline in the banking system and increased volatility to liquidity risk.

At March 31, 2024, a portion of the Company’s loans and securities were pledged as collateral on borrowings.

Therefore, once on-balance-sheet liquidity is reduced, future growth of earning assets will

depend upon the Company’s ability to obtain additional funding, through growth of core deposits and collateral management and may require further use of brokered time deposits or other higher cost borrowing arrangements.

The Company’s primary source of funds is dividends from its subsidiaries.

Various laws and regulations restrict the ability of banks to pay dividends to their stockholders.

Generally, the payment of

dividends by the Company in the future as well as the payment of interest on the capital securities will require the generation of sufficient future earnings by its subsidiaries.

Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends.

The approval of the OCC is required to pay dividends when a bank fails to

meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations.

March 31, 2024, approximately $77.1 million of the total stockholders’ equity of the Bank was available for payment of dividends to the Company without approval by the OCC.

The Bank’s ability to pay dividends is also subject to the Bank being in

compliance with regulatory capital requirements.

The Bank is currently in compliance with these requirements.

Under the State of Delaware General Corporation Law, the Company may

declare and pay dividends either out of accumulated net retained earnings or capital surplus.

Under the State of Delaware General Corporation Law, the Company may declare and pay dividends either out of accumulated net retained

earnings or capital surplus.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information called for by Item 3 is contained in the Liquidity and Interest Rate Sensitivity Management section of the Management’s Discussion and Analysis of Financial Condition and Results of

Information called for by Item 3 is contained in the Liquidity and Interest Rate Sensitivity Management section of Management’s Discussion and Analysis of Financial Condition and Results of

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements