NBT BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS NBT Bancorp Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) June 30, December 31, (In thousands, except share and per share data) 2024 2023 Assets Cash and due from banks $ 172,313 $ 173,811 Short-term interest-bearing accounts 35,207 31,378 Equity securities, at fair value 40,087 37,591 Securities available for sale, at fair value 1,439,445 1,430,858 Securities held to maturity (fair value $ 780,490 and $ 814,524 , respectively) 878,909 905,267 Federal Reserve and Federal Home Loan Bank stock 38,314 45,861 Loans held for sale 3,183 3,371 Loans 9,854,347 9,650,713 Less allowance for loan losses 120,500 114,400 Net loans $ 9,733,847 $ 9,536,313 Premises and equipment, net 78,713 80,675 Goodwill 361,851 361,851 Intangible assets, net 36,835 40,443 Bank owned life insurance 269,310 265,732 Other assets 413,895 395,889 Total assets $ 13,501,909 $ 13,309,040 Liabilities Demand (noninterest bearing) $ 3,333,828 $ 3,413,829 Savings, NOW and money market 6,532,834 6,230,456 Time 1,404,797 1,324,709 Total deposits $ 11,271,459 $ 10,968,994 Short-term borrowings 224,703 386,651 Long-term debt 29,721 29,796 Subordinated debt, net 120,462 119,744 Junior subordinated debt 101,196 101,196 Other liabilities 292,413 276,968 Total liabilities $ 12,039,954 $ 11,883,349 Stockholders’ equity 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 shares issued 540 540 Additional paid-in-capital 741,933 740,943 Retained earnings 1,058,187 1,021,831 Accumulated other comprehensive loss ( 162,919 ) ( 160,934 ) Common stock in treasury, at cost, 6,809,123 and 6,864,593 shares, respectively ( 175,786 ) ( 176,689 ) Total stockholders’ equity $ 1,461,955 $ 1,425,691 Total liabilities and stockholders’ equity $ 13,501,909 $ 13,309,040 See accompanying notes to unaudited interim consolidated financial statements. 4 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Income (unaudited) Three Months Ended June 30, Six Months Ended June 30 , (In thousands, except per share data) 2024 2023 2024 2023 Interest, fee and dividend income Interest and fees on loans $ 136,606 $ 106,935 $ 269,752 $ 207,834 Securities available for sale 7,562 7,493 14,686 15,109 Securities held to maturity 5,190 4,991 10,493 10,026 Other 1,408 1,170 2,772 1,812 Total interest, fee and dividend income $ 150,766 $ 120,589 $ 297,703 $ 234,781 Interest expense Deposits $ 46,688 $ 19,986 $ 91,027 $ 31,130 Short-term borrowings 2,899 8,126 6,320 13,045 Long-term debt 291 290 581 337 Subordinated debt 1,806 1,335 3,606 2,669 Junior subordinated debt 1,908 1,767 3,821 3,449 Total interest expense $ 53,592 $ 31,504 $ 105,355 $ 50,630 Net interest income $ 97,174 $ 89,085 $ 192,348 $ 184,151 Provision for loan losses 8,899 3,606 14,478 7,515 Net interest income after provision for loan losses $ 88,275 $ 85,479 $ 177,870 $ 176,636 Noninterest income Service charges on deposit accounts $ 4,219 $ 3,733 $ 8,336 $ 7,281 Card services income 5,587 5,121 10,782 9,966 Retirement plan administration fees 14,798 11,735 29,085 23,197 Wealth management 10,173 8,227 19,870 16,314 Insurance services 3,848 3,716 8,236 7,647 Bank owned life insurance income 1,834 1,528 4,186 3,406 Net securities (losses) gains ( 92 ) ( 4,641 ) 2,091 ( 9,639 ) Other 2,865 2,626 6,038 5,282 Total noninterest income $ 43,232 $ 32,045 $ 88,624 $ 63,454 Noninterest expense Salaries and employee benefits $ 55,393 $ 46,834 $ 111,097 $ 94,989 Technology and data services 9,249 9,305 18,999 18,312 Occupancy 7,671 6,923 15,769 14,143 Professional fees and outside services 4,565 4,159 9,418 8,337 Office supplies and postage 1,804 1,676 3,669 3,304 FDIC assessment 1,667 1,344 3,402 2,740 Advertising 873 525 1,685 1,174 Amortization of intangible assets 2,133 458 4,301 994 Loan collection and other real estate owned, net 715 691 1,268 1,546 Acquisition expenses - 1,189 - 1,807 Other 5,518 5,690 11,753 10,770 Total noninterest expense $ 89,588 $ 78,794 $ 181,361 $ 158,116 Income before income tax expense $ 41,919 $ 38,730 $ 85,133 $ 81,974 Income tax expense 9,203 8,658 18,594 18,244 Net income $ 32,716 $ 30,072 $ 66,539 $ 63,730 Earnings per share Basic $ 0.69 $ 0.70 $ 1.41 $ 1.49 Diluted $ 0.69 $ 0.70 $ 1.40 $ 1.48 See accompanying notes to unaudited interim consolidated financial statements. 5 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three Months Ended June 30, Six Months Ended June 30 , (In thousands) 2024 2023 2024 2023 Net income $ 32,716 $ 30,072 $ 66,539 $ 63,730 Other comprehensive income (loss), net of tax: Securities available for sale: Unrealized net holding gains (losses) arising during the period, gross $ 1,556 $ ( 26,783 ) $ ( 3,736 ) $ ( 11,058 ) Tax effect ( 389 ) 6,696 934 2,765 Unrealized net holding gains (losses) arising during the period, net $ 1,167 $ ( 20,087 ) $ ( 2,802 ) $ ( 8,293 ) Reclassification adjustment for net losses in net income, gross $ - $ 4,450 $ - $ 9,450 Tax effect - ( 1,113 ) - ( 2,363 ) Reclassification adjustment for net losses in net income, net $ - $ 3,337 $ - $ 7,087 Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, gross $ 91 $ 109 $ 187 $ 223 Tax effect ( 23 ) ( 28 ) ( 47 ) ( 56 ) Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, net $ 68 $ 81 $ 140 $ 167 Total securities available for sale, net $ 1,235 $ ( 16,669 ) $ ( 2,662 ) $ ( 1,039 ) Pension and other benefits: Amortization of prior service cost and actuarial losses, gross $ 1,451 $ 649 $ 1,903 $ 1,298 Tax effect ( 363 ) ( 162 ) ( 476 ) ( 325 ) Amortization of prior service cost and actuarial losses, net $ 1,088 $ 487 $ 1,427 $ 973 Increase in unrecognized actuarial loss, gross $ ( 1,000 ) $ - $ ( 1,000 ) $ - Tax effect 250 - 250 - Increase in unrecognized actuarial loss, net $ ( 750 ) $ - $ ( 750 ) $ - Total pension and other benefits, net $ 338 $ 487 $ 677 $ 973 Total other comprehensive income (loss) $ 1,573 $ ( 16,182 ) $ ( 1,985 ) $ ( 66 ) Comprehensive income $ 34,289 $ 13,890 $ 64,554 $ 63,664 See accompanying notes to unaudited interim consolidated financial statements. 6 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity (unaudited) (In thousands, except share and per share data) Common Stock Additional Paid-in- Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Common Stock in Treasury Total Balance at March 31, 2024 $ 540 $ 740,792 $ 1,040,563 $ ( 164,492 ) $ ( 175,988 ) $ 1,441,415 Net income - - 32,716 - - 32,716 Cash dividends - $ 0.32 per share - - ( 15,092 ) - - ( 15,092 ) Purchase of 5,700 treasury shares - - - - ( 188 ) ( 188 ) Net issuance of 16,054 shares to employee and other stock plans - ( 766 ) - - 390 ( 376 ) Stock-based compensation - 1,907 - - - 1,907 Other comprehensive income - - - 1,573 - 1,573 Balance at June 30 , 2024 $ 540 $ 741,933 $ 1,058,187 $ ( 162,919 ) $ ( 175,786 ) $ 1,461,955 Balance at March 31, 2023 $ 497 $ 577,952 $ 979,722 $ ( 173,918 ) $ ( 172,594 ) $ 1,211,659 Net income - - 30,072 - - 30,072 Cash dividends - $ 0.30 per share - - ( 12,874 ) - - ( 12,874 ) Purchase of 87,000 treasury shares - - - - ( 2,778 ) ( 2,778 ) Net issuance of 9,432 shares to employee and other stock plans - ( 477 ) - - 226 ( 251 ) Stock-based compensation - 847 - - - 847 Other comprehensive (loss) - - - ( 16,182 ) - ( 16,182 ) Balance at June 30 , 2023 $ 497 $ 578,322 $ 996,920 $ ( 190,100 ) $ ( 175,146 ) $ 1,210,493 (In thousands, except share and per share data) Common Stock Additional Paid-in- Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Common Stock in Treasury Total Balance at December 31 , 2023 $ 540 $ 740,943 $ 1,021,831 $ ( 160,934 ) $ ( 176,689 ) $ 1,425,691 Net income - - 66,539 - - 66,539 Cash dividends - $ 0.64 per share - - ( 30,183 ) - - ( 30,183 ) Purchase of 7,600 treasury shares - - - - ( 251 ) ( 251 ) Net issuance of 63,070 shares to employee and other stock plans - ( 3,201 ) - - 1,154 ( 2,047 ) Stock-based compensation - 4,191 - - - 4,191 Other comprehensive (loss) - - - ( 1,985 ) - ( 1,985 ) Balance at June 30 , 2024 $ 540 $ 741,933 $ 1,058,187 $ ( 162,919 ) $ ( 175,786 ) $ 1,461,955 Balance at December 31, 2022 $ 497 $ 577,853 $ 958,433 $ ( 190,034 ) $ ( 173,195 ) $ 1,173,554 Cumulative effect adjustment for ASU 2022-02 implementation as of January 1, 2023 - - 502 - - 502 Net income - - 63,730 - - 63,730 Cash dividends - $ 0.60 per share - - ( 25,745 ) - - ( 25,745 ) Purchase of 87,000 treasury shares - - - - ( 2,778 ) ( 2,778 ) Net issuance of 55,941 shares to employee and other stock plans - ( 2,843 ) - - 827 ( 2,016 ) Stock-based compensation - 3,312 - - - 3,312 Other comprehensive (loss) - - - ( 66 ) - ( 66 ) Balance at June 30 , 2023 $ 497 $ 578,322 $ 996,920 $ ( 190,100 ) $ ( 175,146 ) $ 1,210,493 See accompanying notes to unaudited interim consolidated financial statements. 7 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, (In thousands) 2024 2023 Operating activities Net income $ 66,539 $ 63,730 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses 14,478 7,515 Depreciation and amortization of premises and equipment 5,721 5,145 Net amortization on securities 1,305 1,392 Amortization of intangible assets 4,301 994 Amortization of operating lease right-of-use assets 3,729 3,278 Excess tax benefit on stock-based compensation ( 135 ) ( 241 ) Stock-based compensation expense 4,191 3,312 Bank owned life insurance income ( 4,186 ) ( 3,406 ) Amortization of subordinated debt issuance costs 219 218 Proceeds from sale of loans held for sale 51,664 12,550 Originations of loans held for sale ( 51,139 ) ( 13,476 ) Net gain on sale of loans held for sale ( 72 ) ( 62 ) Net securities (gains) losses ( 2,091 ) 9,639 Net change in other assets and other liabilities ( 7,261 ) ( 23,417 ) Net cash provided by operating activities $ 87,263 $ 67,171 Investing activities Net cash used in acquisitions $ ( 743 ) $ ( 2,213 ) Securities available for sale: Proceeds from maturities, calls and principal paydowns 54,196 59,168 Proceeds from sales 2,284 2,550 Purchases ( 66,970 ) - Securities held to maturity: Proceeds from maturities, calls and principal paydowns 85,547 52,554 Purchases ( 59,856 ) ( 46,559 ) Equity securities: Purchases ( 16 ) - Other: Net increase in loans ( 212,351 ) ( 215,634 ) Proceeds from Federal Home Loan Bank stock redemption 51,481 65,923 Purchases of Federal Reserve and Federal Home Loan Bank stock ( 43,934 ) ( 74,286 ) Proceeds from settlement of bank owned life insurance 608 2,415 Purchases of premises and equipment, net ( 3,804 ) ( 2,876 ) Net cash used in investing activities $ ( 193,558 ) $ ( 158,958 ) Financing activities Net increase in deposits $ 302,465 $ 33,986 Net (decrease) increase in short-term borrowings ( 161,948 ) 67,401 Proceeds from long-term debt - 25,000 Repayments of long-term debt ( 75 ) ( 51 ) Cash paid by employer for tax-withholding on stock issuance ( 1,382 ) ( 1,488 ) Purchase of treasury stock ( 251 ) ( 2,778 ) Cash dividends ( 30,183 ) ( 25,745 ) Net cash provided by financing activities $ 108,626 $ 96,325 Net increase in cash and cash equivalents $ 2,331 $ 4,538 Cash and cash equivalents at beginning of period 205,189 197,350 Cash and cash equivalents at end of period $ 207,520 $ 201,888 8 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (continued) Six Months Ended June 30, 2024 2023 Supplemental disclosure of cash flow information Cash paid during the period for: Interest expense $ 108,183 $ 40,751 Income taxes paid, net of refund 9,213 21,318 Noncash investing activities: Loans transferred to other real estate owned $ 74 $ 74 Acquisitions: Fair value of assets acquired $ 693 $ 150 See accompanying notes to unaudited interim consolidated financial statements. 9 Table of Contents NBT Bancorp Inc. and Subsidiaries Notes to Unaudited Interim Consolidated Financial Statements June 30, 2024 1. Description of Business NBT Bancorp Inc. is a registered financial holding company incorporated in the state of Delaware in 1986, with its principal headquarters located in Norwich, New York. The principal assets of NBT Bancorp Inc. consist of all of the outstanding shares of common stock of its subsidiaries, including: NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc. (“NBT Financial”), NBT Holdings, Inc. (“NBT Holdings”), CNBF Capital Trust I, NBT Statutory Trust I, NBT Statutory Trust II, Alliance Financial Capital Trust I and Alliance Financial Capital Trust II (collectively, the “Trusts”) . The principal sources of revenue for NBT Bancorp Inc. are the management fees and dividends it receives from the Bank, NBT Financial and NBT Holdings. Collectively, NBT Bancorp Inc. and its subsidiaries are referred to herein as (the “Company”). The Company’s business, primarily conducted through the Bank, consists of providing commercial banking, retail banking and wealth management services primarily to customers in its market area, which includes upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central and northwestern Connecticut. The Company has been, and intends to continue to be, a community-oriented financial institution offering a variety of financial services. The Company’s business philosophy is to operate as a community bank with local decision-making, providing a broad array of banking and financial services to retail, commercial and municipal customers. The Company completed the acquisition of Salisbury in August of 2023, a commercial bank with $ 1.46 billion in assets with 13 banking offices in northwestern Connecticut, the Hudson Valley region of New York and southwestern Massachusetts. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited interim consolidated financial statements include the accounts of NBT Bancorp Inc. and its wholly-owned subsidiaries: the Bank, NBT Financial and NBT Holdings. 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 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 the 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 The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences could be material to the financial statements. 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. 3. Recent Accounting Pronouncements Accounting Standards Issued Not Yet Adopted In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements , which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. The ASU was issued in response to the SEC’s August 2018 final rule that updated and simplified disclosure requirements that the SEC believed were redundant, duplicative, overlapping, outdated, or superseded. The new guidance is intended to align GAAP requirements with those of the SEC. The ASU will become effective on the earlier of the date on which the SEC removes its disclosure requirements for the related disclosure or June 30, 2027. Early adoption is not 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 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. 10 Table of Contents 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. 4. Securities The amortized cost, estimated fair value and unrealized gains (losses) of AFS securit ies are as follows: (In thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value As of June 30 , 2024 U.S. treasury $ 143,571 $ 5 $ ( 8,266 ) $ 135,310 Federal agency 248,366 - ( 34,040 ) 214,326 State & municipal 95,856 - ( 9,854 ) 86,002 Mortgage-backed: Government-sponsored enterprises 375,011 1 ( 45,918 ) 329,094 U.S. government agency securities 70,600 9 ( 7,371 ) 63,238 Collateralized mortgage obligations: Government-sponsored enterprises 477,441 71 ( 49,064 ) 428,448 U.S. government agency securities 168,095 - ( 27,055 ) 141,040 Corporate 48,461 - ( 6,474 ) 41,987 Total AFS securities $ 1,627,401 $ 86 $ ( 188,042 ) $ 1,439,445 As of December 31 , 2023 U.S. treasury $ 133,302 $ - $ ( 8,278 ) $ 125,024 Federal agency 248,384 - ( 33,644 ) 214,740 State & municipal 96,251 11 ( 9,956 ) 86,306 Mortgage-backed: Government-sponsored enterprises 399,532 7 ( 44,264 ) 355,275 U.S. government agency securities 74,281 14 ( 7,302 ) 66,993 Collateralized mortgage obligations: Government-sponsored enterprises 452,715 15 ( 48,257 ) 404,473 U.S. government agency securities 162,171 - ( 25,100 ) 137,071 Corporate 48,442 - ( 7,466 ) 40,976 Total AFS securities $ 1,615,078 $ 47 $ ( 184,267 ) $ 1,430,858 There was no allowance for credit losses on AFS securities as of June 30, 2024 and December 31, 2023. During the three months ended June 30, 2024, there were no gains or losses reclassified out of AOCI and into earnings. During the three months ended June 30, 2023, there were $ 4.5 million of gross realized losses reclassified out of AOCI and into earnings. During the six months ended June 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. 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 income. During the six months ended June 30, 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 income. 11 Table of Contents The amortized cost, estimated fair value and unrealized gains (losses) of HTM securities are as follows: (In thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value As of June 30 , 2024 Federal agency $ 100,000 $ - $ ( 18,048 ) $ 81,952 Mortgage-backed: Government-sponsored enterprises 218,862 - ( 34,162 ) 184,700 U.S. government agency securities 16,733 1 ( 734 ) 16,000 Collateralized mortgage obligations: Government-sponsored enterprises 177,833 - ( 13,515 ) 164,318 U.S. government agency securities 62,490 - ( 11,533 ) 50,957 State & municipal 302,991 77 ( 20,505 ) 282,563 Total HTM securities $ 878,909 $ 78 $ ( 98,497 ) $ 780,490 As of December 31 , 2023 Federal agency $ 100,000 $ - $ ( 17,784 ) $ 82,216 Mortgage-backed: Government-sponsored enterprises 228,720 - ( 31,613 ) 197,107 U.S. government agency securities 17,086 3 ( 566 ) 16,523 Collateralized mortgage obligations: Government-sponsored enterprises 187,457 57 ( 12,021 ) 175,493 U.S. government agency securities 63,878 - ( 10,908 ) 52,970 State & municipal 308,126 211 ( 18,122 ) 290,215 Total HTM securities $ 905,267 $ 271 $ ( 91,014 ) $ 814,524 At June 30, 2024 and December 31, 2023, all of the mortgage-backed HTM securities were comprised of U.S. government agency and government-sponsored enterprises securities. The Company recorded no gains from calls on HTM securities for the three and six months ended June 30, 2024 and 2023. AFS and HTM securities with amortized costs totaling $ 2.04 billion at June 30, 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 June 30, 2024 and December 31, 2023, AFS and HTM securities with an amortized cost totaling $ 198.9 million and $ 177.2 million, respectively, were pledged as collateral for securities sold under repurchase agreements. The following tables set forth information with regard to gains and (losses) on equity securities: Three Months Ended June 30, (In thousands) 2024 2023 Net (losses) recognized on equity securities $ ( 92 ) $ ( 191 ) Less: Net (losses) recognized on equity securities sold during the period - - Unrealized (losses) recognized on equity securities still held $ ( 92 ) $ ( 191 ) Six Months Ended June 30, (In thousands) 2024 2023 Net (losses) recognized on equity securities $ ( 193 ) $ ( 189 ) Less: Net (losses) recognized on equity securities sold during the period - - Unrealized (losses) recognized on equity securities still held $ ( 193 ) $ ( 189 ) As of June 30, 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 credit concerns as of June 30, 2024 and 2023. There were no impairments, or downward or upward adjustments recognized for equity securities without readily determinable fair values during the three and six months ended June 30, 2024 and 2023. 12 Table of Contents The following table sets forth information with regard to contractual maturities of debt securities at June 30, 2024: (In thousands) Amortized Cost Estimated Fair Value AFS debt securities: Within one year $ 56,084 $ 55,606 From one to five years 579,028 521,402 From five to ten years 305,590 269,587 After ten years 686,699 592,850 Total AFS debt securities $ 1,627,401 $ 1,439,445 HTM debt securities: Within one year $ 102,069 $ 101,871 From one to five years 120,724 114,731 From five to ten years 244,994 212,360 After ten years 411,122 351,528 Total HTM debt securities $ 878,909 $ 780,490 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 June 30, 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, segregated according to the length of time the securities had been in a continuous unrealized loss position: Less Than 12 Months 12 Months or Longer Total (In thousands) Fair Value Unrealized Losses Number of Positions Fair Value Unrealized Losses Number of Positions Fair Value Unrealized Losses Number of Positions As of June 30 , 2024 AFS securities: U.S. treasury $ 4,976 $ ( 6 ) 1 $ 115,324 $ ( 8,260 ) 7 $ 120,300 $ ( 8,266 ) 8 Federal agency - - - 214,326 ( 34,040 ) 16 214,326 ( 34,040 ) 16 State & municipal 758 ( 7 ) 1 85,244 ( 9,847 ) 66 86,002 ( 9,854 ) 67 Mortgage-backed 284 ( 3 ) 6 391,446 ( 53,286 ) 157 391,730 ( 53,289 ) 163 Collateralized mortgage obligations 26,485 ( 118 ) 3 510,558 ( 76,001 ) 120 537,043 ( 76,119 ) 123 Corporate 1,448 ( 22 ) 1 40,539 ( 6,452 ) 14 41,987 ( 6,474 ) 15 Total securities with unrealized losses $ 33,951 $ ( 156 ) 12 $ 1,357,437 $ ( 187,886 ) 380 $ 1,391,388 $ ( 188,042 ) 392 HTM securities: Federal agency $ - $ - - $ 81,952 $ ( 18,048 ) 4 $ 81,952 $ ( 18,048 ) 4 Mortgage-backed - - - 200,630 ( 34,896 ) 34 200,630 ( 34,896 ) 34 Collateralized mortgage obligation 7,822 ( 84 ) 1 207,453 ( 24,964 ) 52 215,275 ( 25,048 ) 53 State & municipal 6,557 ( 83 ) 6 178,192 ( 20,422 ) 203 184,749 ( 20,505 ) 209 Total securities with unrealized losses $ 14,379 $ ( 167 ) 7 $ 668,227 $ ( 98,330 ) 293 $ 682,606 $ ( 98,497 ) 300 As of December 31 , 2023 AFS securities: U.S. treasury $ - $ - - $ 125,024 $ ( 8,278 ) 8 $ 125,024 $ ( 8,278 ) 8 Federal agency - - - 214,740 ( 33,644 ) 16 214,740 ( 33,644 ) 16 State & municipal - - - 85,528 ( 9,956 ) 66 85,528 ( 9,956 ) 66 Mortgage-backed 53 ( 1 ) 7 421,259 ( 51,565 ) 156 421,312 ( 51,566 ) 163 Collateralized mortgage obligations 1,333 ( 6 ) 2 536,678 ( 73,351 ) 118 538,011 ( 73,357 ) 120 Corporate 1,379 ( 75 ) 1 39,597 ( 7,391 ) 14 40,976 ( 7,466 ) 15 Total securities with unrealized losses $ 2,765 $ ( 82 ) 10 $ 1,422,826 $ ( 184,185 ) 378 $ 1,425,591 $ ( 184,267 ) 388 HTM securities: Federal agency $ - $ - - $ 82,216 $ ( 17,784 ) 4 $ 82,216 $ ( 17,784 ) 4 Mortgage-backed 12,221 ( 365 ) 1 201,320 ( 31,814 ) 33 213,541 ( 32,179 ) 34 Collateralized mortgage obligations - - - 219,820 ( 22,929 ) 54 219,820 ( 22,929 ) 54 State & municipal 14,422 ( 127 ) 21 171,904 ( 17,995 ) 189 186,326 ( 18,122 ) 210 Total securities with unrealized losses $ 26,643 $ ( 492 ) 22 $ 675,260 $ ( 90,522 ) 280 $ 701,903 $ ( 91,014 ) 302 13 Table of Contents The Company does not believe the AFS securities that were in an unrealized loss position as of June 30, 2024 and December 31, 2023, which consisted of 392 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 June 30, 2024 and December 31, 2023, the majority of the AFS securities in an unrealized loss position consisted of debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises that carry the explicit and/or implicit guarantee of the U.S. government, which are widely recognized as “risk- free” and have a long history of zero credit losses. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. The Company does not intend to sell, nor is it more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may be at maturity. The Company elected to exclude AIR from the amortized cost basis of debt securities. AIR on AFS debt securities totaled $ 4.0 million at June 30, 2024 and $ 3.9 million at 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 June 30, 2024 and December 31, 2023. There was no accrued interest reversed against interest income for the three and six months ended June 30, 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 June 30, 2024 and December 31, 2023. There was no allowance for credit losses on HTM securities as of June 30, 2024 and December 31, 2023. As of June 30, 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 losses. Therefore, the Company did not record an allowance for credit losses for these securities as of June 30, 2024 and December 31, 2023. The remaining HTM debt securities at June 30, 2024 and December 31, 2023 were comprised of state and municipal obligations 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 June 30, 2024 and December 31, 2023. AIR on HTM debt securities totaled $ 4.2 million at June 30, 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 line. 5 . Loans A summary of loans, net of deferred fees and origination costs, by category is as follows: (In thousands) June 30, 2024 December 31, 2023 Commercial & industrial $ 1,397,935 $ 1,354,248 Commercial real estate 3,784,214 3,626,910 Residential real estate 2,134,875 2,125,804 Home equity 326,556 337,214 Indirect auto 1,225,786 1,130,132 Residential solar 861,883 917,755 Other consumer 123,098 158,650 Total loans $ 9,854,347 $ 9,650,713 Included in the above loans are net deferred loan origination (fees) costs totaling $ 80.9 million and $ 98.2 million at June 30, 2024 and December 31, 2023, respectively. 6. Allowance for Credit Losses and Credit Quality of Loans The allowance for credit losses totaled $ 120.5 million at June 30, 2024, compared to $ 114.4 million at December 31, 2023. The allowance for credit losses as a percentage of loans was 1.22 % at June 30, 2024, compared to 1.19 % at December 31, 2023. 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 June 30, 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 June 30, 2024, the weightings were 80% and 20% for the baseline and downside economic forecasts, respectively. The baseline outlook reflects an economic environment where the Northeast unemployment rate increases slightly from 4.0% to 4.1% during the forecast period. Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the third quarter of 2024 at approximately 3.7% and increase slightly to 3.8% before the end of the forecast period. Key assumptions in the baseline economic outlook included the Federal Reserve cutting rates with two 25 basis point cuts at the 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. Under this scenario, Northeast unemployment rises from 4.0% in the second quarter of 2024 to a peak of 7.2% in the fourth quarter of 2025. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of June 30, 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 indices. Additional monitoring for industry concentrations, loan growth, and policy exceptions was also conducted. 14 Table of Contents The methodology for prepayment assumptions was revised during the second quarter of 2024 from a static, current rate experience approach to one that includes both current experience and long-term average behavior. The change to the methodology increased the allowance for loan losses by approximately 3% as of June 30, 2024. The longer-average effective life portfolios such as the residential mortgage and residential solar segments experienced a greater impact resulting from the change in methodology. The change in prepayment methodology provided an improved estimate of expected prepayments, particularly for the longer-lived portfolios. 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 reflected 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) was 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. 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. 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 indices. 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 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 conducted. There were no loans purchased with credit deterioration during the six months ended June 30, 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 six months ended June 30, 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 $ 36.0 million at June 30, 2024 and $ 34.1 million at December 31, 2023 and there was no estimated allowance for credit losses related to AIR as of June 30, 2024 and December 31, 2023 as it is excluded from amortized cost. The Company’s January 1, 2023 adoption of ASU 2022-02, Financial Instruments - CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures 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. 15 Table of Contents The following tables present the activity in the allowance for credit losses by our portfolio segments: (In thousands) Commercial Loans Consumer Loans Residential Total Balance as of March 31, 2024 $ 44,472 $ 47,419 $ 23,409 $ 115,300 Charge-offs ( 299 ) ( 5,328 ) - ( 5,627 ) Recoveries 292 1,559 77 1,928 Provision 2,243 4,268 2,388 8,899 Ending balance as of June 30, 2024 $ 46,708 $ 47,918 $ 25,874 $ 120,500 Balance as of March 31, 2023 $ 36,040 $ 48,820 $ 15,390 $ 100,250 Charge-offs ( 207 ) ( 4,837 ) ( 105 ) ( 5,149 ) Recoveries 97 1,441 155 1,693 Provision 1,033 2,459 114 3,606 Ending balance as of June 30 , 2023 $ 36,963 $ 47,883 $ 15,554 $ 100,400 (In thousands) Commercial Loans Consumer Loans Residential Total Balance as of December 31, 2023 $ 45,903 $ 46,427 $ 22,070 $ 114,400 Charge-offs ( 1,284 ) ( 10,909 ) ( 114 ) ( 12,307 ) Recoveries 490 3,210 229 3,929 Provision 1,599 9,190 3,689 14,478 Ending balance as of June 30 , 2024 $ 46,708 $ 47,918 $ 25,874 $ 120,500 Balance as of January 1, 2023 (after adoption of ASU 2022-02) $ 34,662 $ 50,951 $ 14,539 $ 100,152 Charge-offs ( 376 ) ( 10,179 ) ( 444 ) ( 10,999 ) Recoveries 638 2,818 276 3,732 Provision 2,039 4,293 1,183 7,515 Ending balance as of June 30 , 2023 $ 36,963 $ 47,883 $ 15,554 $ 100,400 The allowance for credit losses as of June 30, 2024 increased compared to the allowance estimates as of December 31, 2023 and March 31, 2024 primarily due to providing for the second quarter’s loan growth, the slowing of prepayment speed assumptions, including the changes in prepayment model assumptions and an additional specific reserve established relating to a commercial relationship individually evaluated for credit loss, partly offset by a change in forecast scenario weightings from 70 % baseline and 30 % downside to 80 % baseline and 20 % downside. The increase in the allowance for credit losses from June 30, 2023 to June 30, 2024 was primarily due to providing for loan growth, slowing of prepayment speed assumptions and 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. Individually Evaluated Loans The threshold for evaluating classified, commercial and commercial real estate loans risk graded substandard or doubtful, and nonperforming loans individually evaluated for credit loss is $ 1.0 million. As of June 30, 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 $ 1.7 million of 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 millio n, with no allowance for credit loss. As of June 30, 2024 and December 31, 2023, there were $ 1.8 million and $ 17.3 million, respectively, of loans in nonaccrual status that were individually evaluated for expected credit loss without an allowance for credit losses. 16 Table of Contents The following table sets forth information with regard to past due and nonperforming loans by loan segment: (In thousands) 31-60 Days Past Due Accruing 61-90 Days Past Due Accruing Greater Than 90 Days Past Due Accruing Total Past Due Accruing Nonaccrual Current Recorded Total Loans As of June 30 , 2024 Commercial loans: C&I $ 929 $ 1,149 $ 12 $ 2,090 $ 2,586 $ 1,454,003 $ 1,458,679 CRE 790 238 - 1,028 18,357 3,534,517 3,553,902 Total commercial loans $ 1,719 $ 1,387 $ 12 $ 3,118 $ 20,943 $ 4,988,520 $ 5,012,581 Consumer loans: Auto $ 9,653 $ 1,735 $ 995 $ 12,383 $ 2,079 $ 1,179,800 $ 1,194,262 Residential solar 4,038 1,356 1,043 6,437 122 855,324 861,883 Other consumer 1,523 960 787 3,270 259 134,602 138,131 Total consumer loans $ 15,214 $ 4,051 $ 2,825 $ 22,090 $ 2,460 $ 2,169,726 $ 2,194,276 Residential $ 3,312 $ 903 $ 496 $ 4,711 $ 11,352 $ 2,631,427 $ 2,647,490 Total loans $ 20,245 $ 6,341 $ 3,333 $ 29,919 $ 34,755 $ 9,789,673 $ 9,854,347 (In thousands) 31-60 Days Past Due Accruing 61-90 Days Past Due Accruing Greater Than 90 Days Past Due Accruing Total Past Due Accruing Nonaccrual Current Recorded Total Loans As of December 31, 2023 Commercial loans: C&I $ 414 $ 33 $ 1 $ 448 $ 3,441 $ 1,393,616 $ 1,397,505 CRE 803 835 - 1,638 18,126 3,413,984 3,433,748 Total commercial loans $ 1,217 $ 868 $ 1 $ 2,086 $ 21,567 $ 4,807,600 $ 4,831,253 Consumer loans: Auto $ 10,115 $ 2,011 $ 1,067 $ 13,193 $ 2,106 $ 1,084,143 $ 1,099,442 Residential solar 3,074 1,301 915 5,290 245 912,220 917,755 Other consumer 2,343 1,811 1,124 5,278 215 164,867 170,360 Total consumer loans $ 15,532 $ 5,123 $ 3,106 $ 23,761 $ 2,566 $ 2,161,230 $ 2,187,557 Residential $ 3,836 $ 399 $ 554 $ 4,789 $ 10,080 $ 2,617,034 $ 2,631,903 Total loans $ 20,585 $ 6,390 $ 3,661 $ 30,636 $ 34,213 $ 9,585,864 $ 9,650,713 Credit Quality Indicators The Company has developed an internal loan grading system to evaluate and quantify the Company’s loan portfolio with respect to quality and risk. The system focuses on, among other things, financial strength of borrowers, experience and depth of borrower’s management, primary and secondary sources of repayment, payment history, nature of the business and outlook on particular industries. The internal grading system enables the Company to monitor the quality of the entire loan portfolio on a consistent basis and provide management with an early warning system, which facilitates recognition and response to problem loans and potential problem loans. Commercial Grading System For 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. 17 Table of Contents Doubtful A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as a loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on the new information. Nonaccrual treatment is required for Doubtful assets because of the high probability of loss. Substandard Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision by bank management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some Substandard loans, the likelihood of full collection of interest and principal may be in doubt and those loans should be placed on nonaccrual. Although Substandard assets in the aggregate will have a distinct potential for loss, an individual asset’s loss potential does not have to be distinct for the asset to be rated Substandard. Special Mention Special Mention loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date. These loans pose elevated risk, but their weakness does not yet justify a Substandard classification. Borrowers may be experiencing adverse operating trends (i.e., declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (i.e., increasing inventory without an increase in sales, high leverage and/or tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a Special Mention rating. Although a Special Mention loan has a higher probability of default than a Pass asset, its default is not imminent. Pass Loans graded as Pass encompass all loans not graded as Doubtful, Substandard or Special Mention. Pass loans are in compliance with loan covenants and payments are generally made as agreed. Pass loans range from superior quality to fair quality. Pass loans also include any portion of a government guaranteed loan, including Paycheck Protection Program loans. Consumer and Residential Grading System Consumer and Residential loans are graded as either Nonperforming or Performing. Nonperforming Nonperforming loans are loans that are (1) over 90 days past due and interest is still accruing or (2) on nonaccrual status. Performing All loans not meeting any of the above criteria are considered Performing. 18 Table of Contents 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 six months ended June 30, 2024, the Company recorded $ 0.2 million in overdrawn deposit accounts reported as 2023 originations and $ 0.2 million in overdrawn deposit accounts reported as 2024 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) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total As of June 30 , 2024 C&I By internally assigned grade: Pass $ 149,845 $ 199,272 $ 219,561 $ 207,165 $ 136,993 $ 115,577 $ 338,577 $ 13,847 $ 1,380,837 Special mention 557 4,909 5,531 434 4,003 1,892 25,194 370 42,890 Substandard 332 3,800 2,295 1,631 250 5,997 20,381 137 34,823 Doubtful - 99 1 19 - 10 - - 129 Total C&I $ 150,734 $ 208,080 $ 227,388 $ 209,249 $ 141,246 $ 123,476 $ 384,152 $ 14,354 $ 1,458,679 Current-period gross charge-offs $ - $ ( 58 ) $ ( 915 ) $ ( 4 ) $ - $ ( 307 ) $ - $ - $ ( 1,284 ) CRE By internally assigned grade: Pass $ 231,892 $ 358,866 $ 492,938 $ 523,952 $ 432,230 $ 975,497 $ 311,534 $ 54,559 $ 3,381,468 Special mention 947 9,375 10,017 7,754 4,035 31,354 4,288 - 67,770 Substandard - 2,163 18,890 17,926 3,290 61,121 1,274 - 104,664 Total CRE $ 232,839 $ 370,404 $ 521,845 $ 549,632 $ 439,555 $ 1,067,972 $ 317,096 $ 54,559 $ 3,553,902 Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Auto By payment activity: Performing $ 318,277 $ 392,472 $ 299,349 $ 120,481 $ 29,789 $ 30,820 $ - $ - $ 1,191,188 Nonperforming 151 1,004 847 732 158 182 - - 3,074 Total auto $ 318,428 $ 393,476 $ 300,196 $ 121,213 $ 29,947 $ 31,002 $ - $ - $ 1,194,262 Current-period gross charge-offs $ ( 21 ) $ ( 591 ) $ ( 913 ) $ ( 499 ) $ ( 35 ) $ ( 225 ) $ - $ - $ ( 2,284 ) Residential solar By payment activity: Performing $ 1,803 $ 132,249 $ 413,160 $ 173,286 $ 61,333 $ 78,887 $ - $ - $ 860,718 Nonperforming - 123 742 160 60 80 - - 1,165 Total residential solar $ 1,803 $ 132,372 $ 413,902 $ 173,446 $ 61,393 $ 78,967 $ - $ - $ 861,883 Current-period gross charge-offs $ - $ ( 143 ) $ ( 2,036 ) $ ( 251 ) $ ( 34 ) $ ( 492 ) $ - $ - $ ( 2,956 ) Other consumer By payment activity: Performing $ 10,904 $ 9,020 $ 18,664 $ 39,443 $ 15,264 $ 21,743 $ 22,044 $ 3 $ 137,085 Nonperforming - 12 127 422 167 297 13 8 1,046 Total other consumer $ 10,904 $ 9,032 $ 18,791 $ 39,865 $ 15,431 $ 22,040 $ 22,057 $ 11 $ 138,131 Current-period gross charge-offs $ ( 191 ) $ ( 270 ) $ ( 1,383 ) $ ( 2,749 ) $ ( 574 ) $ ( 502 ) $ - $ - $ ( 5,669 ) Residential By payment activity: Performing $ 86,396 $ 250,760 $ 335,011 $ 442,457 $ 258,291 $ 989,436 $ 253,709 $ 19,582 $ 2,635,642 Nonperforming - 832 866 1,923 293 7,905 29 - 11,848 Total residential $ 86,396 $ 251,592 $ 335,877 $ 444,380 $ 258,584 $ 997,341 $ 253,738 $ 19,582 $ 2,647,490 Current-period gross charge-offs $ - $ - $ - $ - $ - $ ( 114 ) $ - $ - $ ( 114 ) Total loans $ 801,104 $ 1,364,956 $ 1,817,999 $ 1,537,785 $ 946,156 $ 2,320,798 $ 977,043 $ 88,506 $ 9,854,347 Current-period gross charge-offs $ ( 212 ) $ ( 1,062 ) $ ( 5,247 ) $ ( 3,503 ) $ ( 643 ) $ ( 1,640 ) $ - $ - $ ( 12,307 ) 19 Table of Contents (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total As of December 31, 2023 C&I By internally assigned grade: Pass $ 229,249 $ 270,796 $ 241,993 $ 158,051 $ 74,469 $ 63,826 $ 299,248 $ 2,923 $ 1,340,555 Special mention 420 1,672 277 3,524 87 1,854 19,489 - 27,323 Substandard 1,496 2,461 1,609 282 2,266 5,632 14,266 1,607 29,619 Doubtful - 1 2 - 4 1 - - 8 Total C&I $ 231,165 $ 274,930 $ 243,881 $ 161,857 $ 76,826 $ 71,313 $ 333,003 $ 4,530 $ 1,397,505 Current-period gross charge-offs $ ( 24 ) $ ( 3,021 ) $ ( 5 ) $ ( 86 ) $ - $ ( 600 ) $ - $ - $ ( 3,736 ) CRE By internally assigned grade: Pass $ 353,161 $ 518,201 $ 561,897 $ 452,110 $ 327,804 $ 739,189 $ 294,039 $ 33,705 $ 3,280,106 Special mention 3,577 4,472 10,711 7,055 9,967 39,460 2,970 - 78,212 Substandard 370 731 21,807 1,146 2,996 37,418 10,962 - 75,430 Total CRE $ 357,108 $ 523,404 $ 594,415 $ 460,311 $ 340,767 $ 816,067 $ 307,971 $ 33,705 $ 3,433,748 Current-period gross charge-offs $ - $ - $ - $ - $ ( 114 ) $ ( 304 ) $ - $ - $ ( 418 ) Auto By payment activity: Performing $ 474,369 $ 363,516 $ 157,251 $ 42,644 $ 45,406 $ 13,071 $ 12 $ - $ 1,096,269 Nonperforming 532 1,241 830 190 306 74 - - 3,173 Total auto $ 474,901 $ 364,757 $ 158,081 $ 42,834 $ 45,712 $ 13,145 $ 12 $ - $ 1,099,442 Current-period gross charge-offs $ ( 102 ) $ ( 1,183 ) $ ( 1,066 ) $ ( 340 ) $ ( 301 ) $ ( 295 ) $ - $ - $ ( 3,287 ) Residential solar By payment activity: Performing $ 155,425 $ 430,855 $ 178,839 $ 65,382 $ 46,554 $ 39,540 $ - $ - $ 916,595 Nonperforming - 837 205 18 47 53 - - 1,160 Total residential solar $ 155,425 $ 431,692 $ 179,044 $ 65,400 $ 46,601 $ 39,593 $ - $ - $ 917,755 Current-period gross charge-offs $ ( 150 ) $ ( 1,930 ) $ ( 923 ) $ ( 45 ) $ ( 558 ) $ ( 345 ) $ - $ - $ ( 3,951 ) Other consumer By payment activity: Performing $ 13,089 $ 27,394 $ 57,876 $ 21,087 $ 14,548 $ 15,964 $ 19,042 $ 21 $ 169,021 Nonperforming - 244 685 144 56 161 4 45 1,339 Total other consumer $ 13,089 $ 27,638 $ 58,561 $ 21,231 $ 14,604 $ 16,125 $ 19,046 $ 66 $ 170,360 Current-period gross charge-offs $ ( 885 ) $ ( 3,744 ) $ ( 7,511 ) $ ( 1,329 ) $ ( 832 ) $ ( 568 ) $ - $ - $ ( 14,869 ) Residential By payment activity: Performing $ 212,799 $ 366,860 $ 453,206 $ 267,845 $ 167,860 $ 876,563 $ 260,836 $ 15,300 $ 2,621,269 Nonperforming 134 430 1,121 385 591 7,460 - 513 10,634 Total residential $ 212,933 $ 367,290 $ 454,327 $ 268,230 $ 168,451 $ 884,023 $ 260,836 $ 15,813 $ 2,631,903 Current-period gross charge-offs $ - $ - $ ( 81 ) $ ( 30 ) $ - $ ( 406 ) $ - $ - $ ( 517 ) Total loans $ 1,444,621 $ 1,989,711 $ 1,688,309 $ 1,019,863 $ 692,961 $ 1,840,266 $ 920,868 $ 54,114 $ 9,650,713 Current-period gross charge-offs $ ( 1,161 ) $ ( 9,878 ) $ ( 9,586 ) $ ( 1,830 ) $ ( 1,805 ) $ ( 2,518 ) $ - $ - $ ( 26,778 ) Allowance for Credit Losses on Off-Balance Sheet Credit Exposures The allowance for losses on unfunded commitments totaled $ 4.3 million as of June 30, 2024, compared to $ 5.1 million as of December 31, 2023. Loan Modifications to Borrowers Experiencing Financial Difficulties When the Company modifies a loan with financial difficulty, such modifications generally include one or a combination of the following: an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a change in scheduled payment amount; or principal forgiveness. 20 Table of Contents 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 June 30, 2024 Term Extension Combination - Term Extension and Interest Rate Reduction (Dollars in thousands) Amortized Cost % of Total Class of Financing Receivables Amortized Cost % of Total Class of Financing Receivables Residential $ 184 0.007 % $ 30 0.001 % Total $ 184 $ 30 Three Months Ended June 30, 2023 Term Extension Combination - Term Extension and Interest Rate Reduction (Dollars in thousands) Amortized Cost % of Total Class of Financing Receivables Amortized Cost % of Total Class of Financing Receivables Residential $ 199 0.009 % $ 171 0.008 % Total $ 199 $ 171 Six Months Ended June 30, 2024 Term Extension Combination - Term Extension and Interest Rate Reduction (Dollars in thousands) Amortized Cost % of Total Class of Financing Receivables Amortized Cost % of Total Class of Financing Receivables Residential $ 478 0.018 % $ 30 0.001 % Total $ 478 $ 30 Six Months Ended June 30, 2023 Term Extension Combination - Term Extension and Interest Rate Reduction (Dollars in thousands) Amortized Cost % of Total Class of Financing Receivables Amortized Cost % of Total Class of Financing Receivables Residential $ 242 0.011 % $ 171 0.008 % Total $ 242 $ 171 21 Table of Contents The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulties: Three Months Ended June 30, 2024 Loan Type Term Extension Interest Rate Reduction Residential Added a weighted-average 5.3 years to the life of loans, which reduced monthly payment amounts for the borrowers Interest Rates were reduced by an average of one percent Three Months Ended June 30, 2023 Loan Type Term Extension Interest Rate Reduction Residential Added a weighted-average 10 years to the life of loans, which reduced monthly payment amounts for the borrowers Interest Rates were reduced by an average of three and a half percent Six Months Ended June 30, 2024 Loan Type Term Extension Interest Rate Reduction Residential Added a weighted-average 6.3 years to the life of loans, which reduced monthly payment amounts for the borrowers Interest Rates were reduced by an average of one percent Six Months Ended June 30, 2023 Loan Type Term Extension Interest Rate Reduction Residential Added a weighted-average 14 years to the life of loans, which reduced monthly payment amounts for the borrowers Interest Rates were reduced by an average of three and a half percent The following table depicts the financing receivables that had a payment default that were modified to borrowers experiencing financial difficulty in the previous 12 months: Three and Six Months Ended June 30, 2024 (In thousands) Amortized Cost Basis of Modified Financing Receivables that Subsequently Defaulted Term Extension Residential $ 171 Total $ 171 There were no financing receivables that had a payment default during the three and six months ended June 30, 2023, that were modified to borrowers experiencing financial difficulty that were modified in the twelve months prior to that default. The 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) (In thousands) Current 31-60 Days Past Due 61-90 Days Past Due Greater than 90 Days Past Due As of June 30, 2024 Residential $ 567 $ 120 $ - $ 78 Total $ 567 $ 120 $ - $ 78 22 Table of Contents 7. Short-Term Borrowings In 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. Other 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) June 30, 2024 December 31, 2023 Federal funds purchased $ 15,000 $ - Securities sold under repurchase agreements 95,703 93,651 Other short-term borrowings 114,000 293,000 Total short-term borrowings $ 224,703 $ 386,651 See Note 4 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements. 8. Defined Benefit Post-Retirement Plans The Company has a qualified, noncontributory, defined benefit pension plan (the “Plan”) covering substantially all of its employees at June 30, 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 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. These supplemental employee retirement plans and the Plan are collectively referred to herein as “Pension Benefits.” In addition, the Company provides certain health care benefits for retired employees. Benefits were accrued over the employees’ active service period. Only employees that were employed by the Company on or before January 1, 2000 are eligible to receive post-retirement health care benefits. These post-retirement benefits are referred to herein as “Other Benefits.” Accounting standards require an employer to: (1) recognize the overfunded or underfunded status of defined benefit post-retirement plans, which is measured as the difference between plan assets at fair value and the benefit obligation, as an asset or liability in its balance sheet; (2) recognize changes in that funded status in the year in which the changes occur through comprehensive income; and (3) measure the defined benefit plan assets and obligations as of the date of its year-end balance sheet. The Company made no voluntary contributions to the Pension Benefits and Other Benefits plans during the three and six months ended June 30, 2024 and 2023. The components of expense for Pension Benefits and Other Benefits are set forth below: Pension Benefits Other Benefits Three Months Ended June 30, Three Months Ended June 30, (In thousands) 2024 2023 2024 2023 Components of net periodic cost (benefit): Service cost $ 513 $ 482 $ 1 $ 1 Interest cost 1,006 1,010 55 56 Expected return on plan assets ( 1,982 ) ( 1,853 ) - - Net amortization 1,452 670 ( 1 ) ( 21 ) Total net periodic cost (benefit) $ 989 $ 309 $ 55 $ 36 Pension Benefits Other Benefits Six Months Ended June 30, Six Months Ended June 30, (In thousands) 2024 2023 2024 2023 Components of net periodic cost (benefit): Service cost $ 1,027 $ 964 $ 2 $ 2 Interest cost 2,011 2,020 110 112 Expected return on plan assets ( 3,965 ) ( 3,706 ) - - Net amortization 1,905 1,340 ( 2 ) ( 42 ) Total net periodic cost (benefit) $ 978 $ 618 $ 110 $ 72 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 amortization components are included in Other Noninterest Expense on the unaudited interim consolidated statements of income. 23 Table of Contents 9. Earnings Per Share 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 period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity (such as the Company’s dilutive stock options and restricted stock units). The following is a reconciliation of basic and diluted EPS for the periods presented in the unaudited interim consolidated statements of income: Three Months Ended June 30, (In thousands, except per share data) 2024 2023 Basic EPS: Weighted average common shares outstanding 47,158 42,905 Net income available to common stockholders $ 32,716 $ 30,072 Basic EPS $ 0.69 $ 0.70 Diluted EPS: Weighted average common shares outstanding 47,158 42,905 Dilutive effect of common stock options and restricted stock 225 221 Weighted average common shares and common share equivalents 47,383 43,126 Net income available to common stockholders $ 32,716 $ 30,072 Diluted EPS $ 0.69 $ 0.70 Anti-dilutive stock options and restricted stock outstanding 2 61 Six Months Ended June 30, (In thousands, except per share data) 2024 2023 Basic EPS: Weighted average common shares outstanding 47,153 42,900 Net income available to common stockholders $ 66,539 $ 63,730 Basic EPS $ 1.41 $ 1.49 Diluted EPS: Weighted average common shares outstanding 47,153 42,900 Dilutive effect of common stock options and restricted stock 228 229 Weighted average common shares and common share equivalents 47,381 43,129 Net income available to common stockholders $ 66,539 $ 63,730 Diluted EPS $ 1.40 $ 1.48 Anti-dilutive stock options and restricted stock outstanding 2 24 24 Table of Contents 10. Reclassification Adjustments Out of Other Comprehensive Income (Loss) The following table summarizes the reclassification adjustments out of AOCI: Detail About AOCI Components Amount Reclassified from AOCI Affected Line Item in the Consolidated Statements of Comprehensive Income (Loss) Three Months Ended (In thousands) June 30, 2024 June 30, 2023 AFS securities: Losses on AFS securities $ - $ 4,450 Net securities (gains) losses Amortization of unrealized gains related to securities transfer 91 109 Interest income Tax effect $ ( 23 ) $ ( 1,141 ) Income tax (benefit) Net of tax $ 68 $ 3,418 Pension and other benefits: Amortization of net losses $ 1,454 $ 640 Other noninterest expense Amortization of prior service costs ( 3 ) 9 Other noninterest expense Tax effect $ ( 363 ) $ ( 162 ) Income tax (benefit) Net of tax $ 1,088 $ 487 Total reclassifications, net of tax $ 1,156 $ 3,905 Detail About AOCI Components Amount Reclassified from AOCI Affected Line item in the Consolidated Statements of Comprehensive Income (Loss) Six Months Ended (In thousands) June 30, 2024 June 30, 2023 AFS securities: Losses on AFS securities $ - $ 9,450 Net securities (gains) losses Amortization of unrealized gains related to securities transfer 187 223 Interest income Tax effect $ ( 47 ) $ ( 2,419 ) Income tax (benefit) Net of tax $ 140 $ 7,254 Pension and other benefits: Amortization of net losses $ 1,908 $ 1,280 Other noninterest expense Amortization of prior service costs ( 5 ) 18 Other noninterest expense Tax effect $ ( 476 ) $ ( 325 ) Income tax (benefit) Net of tax $ 1,427 $ 973 Total reclassifications, net of tax $ 1,567 $ 8,227 11. Derivative Instruments and Hedging Activities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative instruments. Specifically, the Company 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 is 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 resulting from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. Derivatives Not Designated as Hedging Instruments The Company enters into interest rate swaps to facilitate customer transactions and meet their financing needs. These swaps are considered derivatives, but are not designated as hedging relationships. These instruments have interest rate and credit risk associated with them. To mitigate the interest rate risk, the Company enters into offsetting interest rate swaps with counterparties. The counterparty swaps are also considered derivatives and are also not designated as hedging relationships. 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 value of assets and liabilities arising from these derivatives are included, net, in other operating income in the consolidated statements of incom e. 25 Table of Contents 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 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. 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 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 June 30, 2024 and December 31, 2023, the Company had sixteen 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. T he following table summarizes the derivatives outstanding: (In thousands) Notional Amount Balance Sheet Location Fair Value Notional Amount Balance Sheet Location Fair Value As of June 30 , 2024 Derivatives not designated as hedging instruments Interest rate derivatives $ 1,402,621 Other assets $ 115,638 $ 1,402,621 Other liabilities $ 115,662 Risk participation agreements 91,453 Other assets 89 14,994 Other liabilities 2 Total derivatives not designated as hedging instruments $ 115,727 $ 115,664 Netting adjustments (1) 24,541 - Net derivatives in the balance sheet $ 91,186 $ 115,664 Derivatives not offset on the balance sheet $ 2,519 $ 2,519 Cash collateral (2) - - Net derivative amounts $ 88,667 $ 113,145 As of December 31, 2023 Derivatives not designated as hedging instruments Interest rate derivatives $ 1,303,711 Other assets $ 95,972 $ 1,303,711 Other liabilities $ 95,869 Risk participation agreements 62,112 Other assets 19 16,146 Other liabilities 6 Total derivatives not designated as hedging instruments $ 95,991 $ 95,875 Netting adjustments (1) 20,849 - Net derivatives in the balance sheet $ 75,142 $ 95,875 Derivatives not offset on the balance sheet $ 2,930 $ 2,930 Cash collateral (2) - - Net derivative amounts $ 72,212 $ 92,945 (1) Netting adjustments represents the amounts recorded to convert derivative 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: Three Months Ended June 30, Six Months Ended June 30 , (In thousands) 2024 2023 2024 2023 Derivatives not designated as hedging instruments: Increase (decrease) in other income $ 11 $ ( 7 ) $ 86 $ - 26 Table of Contents 12. Fair Value Measurements and Fair Value of Financial Instruments G AAP states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy exists within GAAP that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, many other sovereign government obligations, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy. The Company does not adjust the quoted prices for such instruments. The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations or quote from alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid agency securities, less liquid listed equities, state, municipal and provincial obligations and certain physical commodities. Such instruments are generally classified within Level 2 of the fair value hierarchy. Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices). Other investment securities are reported at fair value utilizing Level 1 and Level 2 inputs. The prices for Level 2 instruments are obtained through an independent pricing service or dealer market participants with whom the Company has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the methodologies used by its third-party providers in pricing the securities. Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions. Valuations are adjusted to reflect illiquidity and/or non-transferability and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate will be used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets and changes in financial ratios or cash flow s. 27 Table of Contents The following tables set forth the Company’s financial assets and liabilities measured on a recurring basis that were accounted for at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement: (In thousands) Level 1 Level 2 Level 3 June 30, 2024 Assets: AFS securities: U.S. treasury $ 135,310 $ - $ - $ 135,310 Federal agency - 214,326 - 214,326 State & municipal - 86,002 - 86,002 Mortgage-backed - 392,332 - 392,332 Collateralized mortgage obligations - 569,488 - 569,488 Corporate - 41,987 - 41,987 Total AFS securities $ 135,310 $ 1,304,135 $ - $ 1,439,445 Equity securities 39,087 1,000 - 40,087 Derivatives - 91,186 - 91,186 Total $ 174,397 $ 1,396,321 $ - $ 1,570,718 Liabilities: Derivatives $ - $ 115,664 $ - $ 115,664 Total $ - $ 115,664 $ - $ 115,664 (In thousands) Level 1 Level 2 Level 3 December 31, 2023 Assets: AFS securities: U.S. treasury $ 125,024 $ - $ - $ 125,024 Federal agency - 214,740 - 214,740 State & municipal - 86,306 - 86,306 Mortgage-backed - 422,268 - 422,268 Collateralized mortgage obligations - 541,544 - 541,544 Corporate - 40,976 - 40,976 Total AFS securities $ 125,024 $ 1,305,834 $ - $ 1,430,858 Equity securities 36,591 1,000 - 37,591 Derivatives - 75,142 - 75,142 Total $ 161,615 $ 1,381,976 $ - $ 1,543,591 Liabilities: Derivatives $ - $ 95,875 $ - $ 95,875 Total $ - $ 95,875 $ - $ 95,875 GAAP requires disclosure of assets and liabilities measured and recorded at fair value on a non-recurring basis such as goodwill, loans held for sale, other real estate owned, collateral-dependent loans individually evaluated for expected credit losses and HTM securities. Loans with fair value of $ 1.7 million as of June 30, 2024 were individually evaluated for expected credit losses where the amortized cost was adjusted to fair value. There were no loans individually evaluated for expected credit losses where the amortized cost was adjusted to fair value as of December 31, 2023 . 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 following table sets forth information with regard to estimated fair values of financial instruments. This table excludes financial instruments for which the carrying amount approximates fair value. Financial instruments for which the fair value approximates carrying value include cash and cash equivalents, AFS securities, equity securities, accrued interest receivable, non-maturity deposits, short-term borrowings, accrued interest payable and derivatives. June 30, 2024 December 31, 2023 (In thousands) Fair Value Hierarchy Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Financial assets: HTM securities 2 $ 878,909 $ 780,490 $ 905,267 $ 814,524 Net loans 3 9,737,030 9,366,639 9,539,684 9,216,162 Financial liabilities: Time deposits 2 $ 1,404,797 $ 1,384,422 $ 1,324,709 $ 1,285,999 Long-term debt 2 29,721 29,531 29,796 29,416 Subordinated debt 1 120,880 113,768 120,380 113,757 Junior subordinated debt 2 101,196 103,563 101,196 102,337 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 28 Table of Contents Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Company has a substantial wealth operation that contributes net fee income annually. The wealth management operation is not considered a financial instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities include the benefits resulting from the low-cost funding of deposit liabilities as compared to the cost of borrowing funds in the market and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimate of fair value. HTM Securities The fair value of the Company’s HTM securities is primarily measured using information from a third-party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Net Loans Net loans include portfolio loans and loans held for sale. Loans were first segregated by type and then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments, and those expected future cash flows also includes credit risk, illiquidity risk and other market factors to calculate the exit price fair value in accordance with ASC 820. Time Deposits The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value. Long-Term Debt The fair value of long-term debt was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. Subordinated Debt The fair value of subordinated debt has been measured using the observable market price as of the period reported. Junior Subordinated Debt The fair value of junior subordinated debt has been estimated using a discounted cash flow analysis. 13. Commitments and Contingencies The Company is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit, standby letters of credit and certain agricultural real estate loans sold to investors with recourse, with the sold portion having a government guarantee that is assignable back to the Company upon repurchase of the loan in the event of default. The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, unused lines of credit, standby letters of credit and loans sold with recourse is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness. Commitments to extend credit and unused lines of credit totaled $ 2.68 billion at June 30, 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 amounts are not necessarily indicative of future cash flows. The Company does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit. The Company guarantees the obligations or performance of customers by issuing standby letters of credit to third-parties. These standby letters of credit are generally issued in support of third-party debt, such as corporate debt issuances, industrial revenue bonds and municipal securities. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers and letters of credit are subject to the same credit origination, portfolio maintenance and management procedures in effect to monitor other credit and off-balance sheet products. Typically, these instruments have one year expirations with an option to renew upon annual review; therefore, the total amounts do not necessarily represent future cash requirements. Standby letters of credit totaled $ 42.6 million at June 30, 2024 and $ 44.7 million at December 31, 2023. A s of June 30, 2024 and December 31, 2023 , the fair value of the Company’s standby letters of credit was not significant. 29 Table of Contents NBT BANCORP INC. AND SUBSIDIARIES