NBT BANCORP INC 10-Q

ITEM 1. FINANCIAL STATEMENTS NBT Bancorp Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) September 30, December 31, (In thousands, except share and per share data) 2024 2023 Assets Cash and due from banks $ 250,788 $ 173,811 Short-term interest-bearing accounts 231,671 31,378 Equity securities, at fair value 41,974 37,591 Securities available for sale, at fair value 1,509,338 1,430,858 Securities held to maturity (fair value $ 781,868 and $ 814,524 , respectively) 854,941 905,267 Federal Reserve and Federal Home Loan Bank stock 37,732 45,861 Loans held for sale 3,713 3,371 Loans 9,907,041 9,650,713 Less allowance for loan losses 119,500 114,400 Net loans $ 9,787,541 $ 9,536,313 Premises and equipment, net 80,133 80,675 Goodwill 362,010 361,851 Intangible assets, net 35,843 40,443 Bank owned life insurance 271,178 265,732 Other assets 372,690 395,889 Total assets $ 13,839,552 $ 13,309,040 Liabilities Demand (noninterest bearing) $ 3,476,218 $ 3,413,829 Savings, NOW and money market 6,678,936 6,230,456 Time 1,433,124 1,324,709 Total deposits $ 11,588,278 $ 10,968,994 Short-term borrowings 204,959 386,651 Long-term debt 29,682 29,796 Subordinated debt, net 120,829 119,744 Junior subordinated debt 101,196 101,196 Other liabilities 272,628 276,968 Total liabilities $ 12,317,572 $ 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 742,524 740,943 Retained earnings 1,080,245 1,021,831 Accumulated other comprehensive loss ( 125,736 ) ( 160,934 ) Common stock in treasury, at cost, 6,797,664 and 6,864,593 shares, respectively ( 175,593 ) ( 176,689 ) Total stockholders’ equity $ 1,521,980 $ 1,425,691 Total liabilities and stockholders’ equity $ 13,839,552 $ 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 September 30, Nine Months Ended September 30 , (In thousands, except per share data) 2024 2023 2024 2023 Interest, fee and dividend income Interest and fees on loans $ 141,991 $ 122,097 $ 411,743 $ 329,931 Securities available for sale 7,815 7,495 22,501 22,604 Securities held to maturity 5,042 5,281 15,535 15,307 Other 1,382 2,221 4,154 4,033 Total interest, fee and dividend income $ 156,230 $ 137,094 $ 453,933 $ 371,875 Interest expense Deposits $ 49,106 $ 30,758 $ 140,133 $ 61,888 Short-term borrowings 1,431 7,612 7,751 20,657 Long-term debt 292 294 873 631 Subordinated debt 1,810 1,612 5,416 4,281 Junior subordinated debt 1,922 1,923 5,743 5,372 Total interest expense $ 54,561 $ 42,199 $ 159,916 $ 92,829 Net interest income $ 101,669 $ 94,895 $ 294,017 $ 279,046 Provision for loan losses 2,920 12,633 17,398 20,148 Net interest income after provision for loan losses $ 98,749 $ 82,262 $ 276,619 $ 258,898 Noninterest income Service charges on deposit accounts $ 4,340 $ 3,979 $ 12,676 $ 11,260 Card services income 5,897 5,503 16,679 15,469 Retirement plan administration fees 14,578 12,798 43,663 35,995 Wealth management 10,929 9,297 30,799 25,611 Insurance services 4,913 4,361 13,149 12,008 Bank owned life insurance income 1,868 1,568 6,054 4,974 Net securities gains (losses) 476 ( 183 ) 2,567 ( 9,822 ) Other 2,773 2,913 8,811 8,195 Total noninterest income $ 45,774 $ 40,236 $ 134,398 $ 103,690 Noninterest expense Salaries and employee benefits $ 59,641 $ 49,248 $ 170,738 $ 144,237 Technology and data services 9,920 9,677 28,919 27,989 Occupancy 7,754 7,090 23,523 21,233 Professional fees and outside services 4,871 4,149 14,289 12,486 Office supplies and postage 1,756 1,700 5,425 5,004 FDIC assessment 1,815 1,657 5,217 4,397 Advertising 711 667 2,396 1,841 Amortization of intangible assets 2,062 1,609 6,363 2,603 Loan collection and other real estate owned, net 560 569 1,828 2,115 Acquisition expenses 543 7,917 543 9,724 Other 6,112 6,514 17,865 17,284 Total noninterest expense $ 95,745 $ 90,797 $ 277,106 $ 248,913 Income before income tax expense $ 48,778 $ 31,701 $ 133,911 $ 113,675 Income tax expense 10,681 7,095 29,275 25,339 Net income $ 38,097 $ 24,606 $ 104,636 $ 88,336 Earnings per share Basic $ 0.81 $ 0.54 $ 2.22 $ 2.02 Diluted $ 0.80 $ 0.54 $ 2.21 $ 2.01 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 September 30, Nine Months Ended September 30 , (In thousands) 2024 2023 2024 2023 Net income $ 38,097 $ 24,606 $ 104,636 $ 88,336 Other comprehensive income (loss), net of tax: Securities available for sale: Unrealized net holding gains (losses) arising during the period, gross $ 49,019 $ ( 24,059 ) $ 45,283 $ ( 35,117 ) Tax effect ( 12,255 ) 6,015 ( 11,321 ) 8,780 Unrealized net holding gains (losses) arising during the period, net $ 36,764 $ ( 18,044 ) $ 33,962 $ ( 26,337 ) Reclassification adjustment for net losses in net income, gross $ - $ - $ - $ 9,450 Tax effect - - - ( 2,363 ) Reclassification adjustment for net losses in net income, net $ - $ - $ - $ 7,087 Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, gross $ 87 $ 105 $ 274 $ 328 Tax effect ( 21 ) ( 26 ) ( 68 ) ( 82 ) Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, net $ 66 $ 79 $ 206 $ 246 Total securities available for sale, net $ 36,830 $ ( 17,965 ) $ 34,168 $ ( 19,004 ) Pension and other benefits: Amortization of prior service cost and actuarial losses, gross $ 471 $ 648 $ 2,374 $ 1,946 Tax effect ( 118 ) ( 162 ) ( 594 ) ( 487 ) Amortization of prior service cost and actuarial losses, net $ 353 $ 486 $ 1,780 $ 1,459 Increase in unrecognized actuarial loss, gross $ - $ - $ ( 1,000 ) $ - Tax effect - - 250 - Increase in unrecognized actuarial loss, net $ - $ - $ ( 750 ) $ - Total pension and other benefits, net $ 353 $ 486 $ 1,030 $ 1,459 Total other comprehensive income (loss) $ 37,183 $ ( 17,479 ) $ 35,198 $ ( 17,545 ) Comprehensive income $ 75,280 $ 7,127 $ 139,834 $ 70,791 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 June 30, 2024 $ 540 $ 741,933 $ 1,058,187 $ ( 162,919 ) $ ( 175,786 ) $ 1,461,955 Net income - - 38,097 - - 38,097 Cash dividends - $ 0.34 per share - - ( 16,039 ) - - ( 16,039 ) Net issuance of 11,459 shares to employee and other stock plans - ( 373 ) - - 193 ( 180 ) Stock-based compensation - 964 - - - 964 Other comprehensive income - - - 37,183 - 37,183 Balance at September 30 , 2024 $ 540 $ 742,524 $ 1,080,245 $ ( 125,736 ) $ ( 175,593 ) $ 1,521,980 Balance at June 30, 2023 $ 497 $ 578,322 $ 996,920 $ ( 190,100 ) $ ( 175,146 ) $ 1,210,493 Net income - - 24,606 - - 24,606 Cash dividends - $ 0.32 per share - - ( 15,067 ) - - ( 15,067 ) Issuance of 4,322,999 shares of common stock for acquisition 43 161,680 - - - 161,723 Purchase of 68,500 treasury shares - - - - ( 2,166 ) ( 2,166 ) Net issuance of 6,334 shares to employee and other stock plans - ( 250 ) - - 136 ( 114 ) Stock-based compensation - 825 - - - 825 Other comprehensive (loss) - - - ( 17,479 ) - ( 17,479 ) Balance at September 30 , 2023 $ 540 $ 740,577 $ 1,006,459 $ ( 207,579 ) $ ( 177,176 ) $ 1,362,821 (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 - - 104,636 - - 104,636 Cash dividends - $ 0.98 per share - - ( 46,222 ) - - ( 46,222 ) Purchase of 7,600 treasury shares - - - - ( 251 ) ( 251 ) Net issuance of 74,529 shares to employee and other stock plans - ( 3,574 ) - - 1,347 ( 2,227 ) Stock-based compensation - 5,155 - - - 5,155 Other comprehensive income - - - 35,198 - 35,198 Balance at September 30 , 2024 $ 540 $ 742,524 $ 1,080,245 $ ( 125,736 ) $ ( 175,593 ) $ 1,521,980 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 - - 88,336 - - 88,336 Cash dividends - $ 0.92 per share - - ( 40,812 ) - - ( 40,812 ) Issuance of 4,322,999 shares of common stock for acquisition 43 161,680 - - - 161,723 Purchase of 155,500 treasury shares - - - - ( 4,944 ) ( 4,944 ) Net issuance of 62,275 shares to employee and other stock plans - ( 3,093 ) - - 963 ( 2,130 ) Stock-based compensation - 4,137 - - - 4,137 Other comprehensive (loss) - - - ( 17,545 ) - ( 17,545 ) Balance at September 30 , 2023 $ 540 $ 740,577 $ 1,006,459 $ ( 207,579 ) $ ( 177,176 ) $ 1,362,821 See accompanying notes to unaudited interim consolidated financial statements. 7 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, (In thousands) 2024 2023 Operating activities Net income $ 104,636 $ 88,336 Adjustments to reconcile net income to net cash provided by operating activities Provision for loan losses 17,398 20,148 Depreciation and amortization of premises and equipment 8,609 7,808 Net amortization on securities 1,926 2,057 Amortization of intangible assets 6,363 2,603 Amortization of operating lease right-of-use assets 5,615 5,029 Excess tax benefit on stock-based compensation ( 185 ) ( 239 ) Stock-based compensation expense 5,155 4,137 Bank owned life insurance income ( 6,054 ) ( 4,974 ) Amortization of subordinated debt issuance costs 328 328 Proceeds from sale of loans held for sale 85,479 26,108 Originations of loans held for sale ( 85,484 ) ( 29,167 ) Net gain on sale of loans held for sale ( 136 ) ( 88 ) Net securities (gains) losses ( 2,567 ) 9,822 Net gains on sale of other real estate owned - ( 50 ) Net change in other assets and other liabilities ( 1,688 ) ( 10,054 ) Net cash provided by operating activities $ 139,395 $ 121,804 Investing activities Net cash (used in) provided by acquisitions $ ( 983 ) $ 44,564 Securities available for sale: Proceeds from maturities, calls and principal paydowns 101,583 90,415 Proceeds from sales 2,284 124,577 Purchases ( 135,436 ) - Securities held to maturity: Proceeds from maturities, calls and principal paydowns 121,314 81,949 Purchases ( 71,984 ) ( 77,930 ) Equity securities: Purchases ( 18 ) ( 4 ) Other: Net increase in loans ( 268,954 ) ( 349,168 ) Proceeds from Federal Home Loan Bank stock redemption 70,143 84,378 Purchases of Federal Reserve and Federal Home Loan Bank stock ( 62,014 ) ( 88,260 ) Proceeds from settlement of bank owned life insurance 608 3,185 Purchases of premises and equipment, net ( 8,111 ) ( 6,333 ) Proceeds from sales of other real estate owned - 229 Net cash used in investing activities $ ( 251,568 ) $ ( 92,398 ) Financing activities Net increase in deposits $ 619,284 $ 596,543 Net decrease in short-term borrowings ( 181,692 ) ( 128,214 ) Proceeds from long-term debt - 25,000 Repayments of long-term debt ( 114 ) ( 80 ) Proceeds from the issuance of shares to employee and other stock plans 61 - Cash paid by employer for tax-withholding on stock issuance ( 1,623 ) ( 1,595 ) Purchase of treasury stock ( 251 ) ( 4,944 ) Cash dividends ( 46,222 ) ( 40,812 ) Net cash provided by financing activities $ 389,443 $ 445,898 Net increase in cash and cash equivalents $ 277,270 $ 475,304 Cash and cash equivalents at beginning of period 205,189 197,350 Cash and cash equivalents at end of period $ 482,459 $ 672,654 8 Table of Contents NBT Bancorp Inc. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (continued) Nine Months Ended September 30, 2024 2023 Supplemental disclosure of cash flow information Cash paid during the period for: Interest expense $ 162,973 $ 78,130 Income taxes paid, net of refund 17,115 26,663 Noncash investing activities: Loans transferred to other real estate owned $ 127 $ 74 Acquisitions: Fair value of assets acquired, excluding acquired cash and goodwill $ 1,763 $ 1,417,392 Fair value of liabilities assumed - 1,380,386 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 September 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 for the 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 none were 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 and pension accounting 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. A side from meeting the new disclosure requirements, the adoption 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 annual and interim disclosure of incremental segment information. 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 include 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. Aside from meeting the new disclosure requirements, the adoption 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. Aside from meeting the new disclosure requirements, the adoption is not expected to have a material impact on the consolidated financial statements. 4. Acquisitions Pending Acquisition of Evans Bancorp, Inc. On September 9, 2024, the Company and the Bank, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Evans and Evans Bank, Evans’s subsidiary, pursuant to which the Company will acquire Evans. Evans, with assets of approximately $ 2.28 billion at September 30, 2024, is headquartered in Williamsville, New York. Its primary subsidiary, Evans Bank, is a federally-chartered national banking association with 18 banking locations in Western New York. Subject to the terms and conditions of the Merger Agreement, which has been approved by the boards of directors of each party, Evans will merge with and into the Company, with the Company as the surviving entity, and immediately thereafter, Evans Bank will merge with and into the Bank, with the Bank as the surviving bank (the “Merger”). Under the terms of the Merger Agreement, each outstanding share of Evans common stock will be converted into the right to receive 0.91 shares of the Company’s common stock. The Merger is subject to customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of Evans, and is expected to close in the second quarter of 2025. Prior Period Acquisitions On August 11, 2023, the Company completed the acquisition of Salisbury through the merger of Salisbury with and into the Company, with the Company surviving the merger, for $ 161.7 million in stock. Salisbury Bank, Salisbury’s subsidiary, was a Connecticut-chartered commercial bank headquartered in Lakeville, Connecticut with 13 banking offices. The acquisition enhanced the Company’s presence in Massachusetts’ Berkshire county, and extended its footprint into New York’s Dutchess, Orange and Ulster counties and into Connecticut’s Litchfield county. In connection with the acquisition, the Company issued 4.32 million shares of common stock and acquired approximately $ 1.46 billion of identifiable assets. Preliminary goodwill of $ 78.1 million was recognized during the quarter ended September 30, 2023 as a result of the merger and is not amortizable or deductible for tax purposes. During the fourth quarter of 2023, the Company revised the estimated fair value of premises and equipment, net and related deferred income taxes based upon receipt of land and building appraisals, which resulted in a $ 1.7 million increase in goodwill. Total goodwill of $ 79.7 million was recognized as a result of the merger. 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 constituted a business combination and therefore was accounted for using the acquisition method of accounting. 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. 11 Table of Contents 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) $ 15 Common stock issuance 161,723 Total net consideration $ 161,738 Recognized amounts of identifiable assets acquired and (liabilities) assumed: Cash and cash equivalents $ 48,665 Securities available for sale 122,667 Loans, net of allowance for credit losses on purchased credit deteriorated loans 1,174,237 Premises and equipment, net 13,026 Core deposit intangibles 31,188 Wealth management customer intangible 4,654 Bank owned life insurance 30,315 Other assets 37,631 Total identifiable assets acquired $ 1,462,383 Deposits $ ( 1,308,976 ) Borrowings ( 55,461 ) Other liabilities ( 15,949 ) Total liabilities assumed $ ( 1,380,386 ) Total identifiable assets, net $ 81,997 Goodwill $ 79,741 The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. The 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. Loans - The estimated fair value of loans were based on a discounted cash flow methodology applied on a pooled basis for non-PCD loans and for 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. The 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. 12 Table of Contents 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 rating. 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 had an allowance established on acquisition date, which was recognized as an expense through the provision for credit losses. For PCD loans, an allowance was recognized by adding it to the fair value of the loan, which is the 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. The 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. The following table provides details related to the fair value of acquired PCD loans. (In thousands) PCD Loans Par value of PCD loans at acquisition $ 219,076 Allowance for credit losses at acquisition 5,772 Discount at acquisition ( 24,512 ) Fair value of PCD loans at acquisition $ 200,336 Direct costs related to the acquisition were expensed as incurred. 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 and are included in operating activities in the unaudited interim consolidated statements of cash flows. 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, 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 acquisition. 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, 2023 Total revenue, net of interest expense $ 130,881 $ 404,580 Net income 12,182 81,859 Other Acquisitions In July 2024, the Company, through its subsidiary, NBT Insurance Agency, LLC, a full-service insurance agency, completed the acquisition of substantially all of the assets of Karl W. Reynard, Inc. located in Stamford, NY for a total consideration of $ 1.2 million. Karl W. Reynard, Inc. was a long-established property and casualty agency offering personal and commercial lines. This strategic acquisition expands the presence of NBT Insurance Agency, LLC in the Catskills, where the agency and the Bank are well established. As part of the acquisition, the Company recorded goodwill of $ 0.2 million and a $ 1.0 million contingent consideration recorded in other liabilities on the unaudited interim consolidated balance sheets. In July 2023, the Company, through its subsidiary, EPIC Advisors Inc., completed its acquisition of certain assets of Retirement Direct, LLC, a retirement plan administration business based near Charlotte, North Carolina for a total consideration of $ 2.8 million. As part of the acquisition, the Company recorded goodwill of $ 0.9 million and a $ 1.0 million contingent consideration recorded in other liabilities on the unaudited interim consolidated balance sheets. The operating results of the acquired companies are included in the consolidated results after the date of acquisition. 13 Table of Contents 5. 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 September 30 , 2024 U.S. treasury $ 133,704 $ 118 $ ( 5,284 ) $ 128,538 Federal agency 248,357 - ( 25,718 ) 222,639 State & municipal 95,657 7 ( 6,761 ) 88,903 Mortgage-backed: Government-sponsored enterprises 387,388 138 ( 33,068 ) 354,458 U.S. government agency securities 72,076 14 ( 4,824 ) 67,266 Collateralized mortgage obligations: Government-sponsored enterprises 478,051 303 ( 36,269 ) 442,085 U.S. government agency securities 184,570 116 ( 22,642 ) 162,044 Corporate 48,472 - ( 5,067 ) 43,405 Total AFS securities $ 1,648,275 $ 696 $ ( 139,633 ) $ 1,509,338 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 September 30, 2024 and December 31, 2023. During the three months ended September 30, 2024 and September 30, 2023, no gains or losses were reclassified out of 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. 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 nine months ended September 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. 14 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 September 30 , 2024 Federal agency $ 100,000 $ - $ ( 14,264 ) $ 85,736 Mortgage-backed: Government-sponsored enterprises 213,569 - ( 26,732 ) 186,837 U.S. government agency securities 15,616 2 ( 139 ) 15,479 Collateralized mortgage obligations: Government-sponsored enterprises 172,596 84 ( 8,240 ) 164,440 U.S. government agency securities 61,657 - ( 9,481 ) 52,176 State & municipal 291,503 169 ( 14,472 ) 277,200 Total HTM securities $ 854,941 $ 255 $ ( 73,328 ) $ 781,868 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 September 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 nine months ended September 30, 2024 and 2023. AFS and HTM securities with amortized costs totaling $ 1.88 billion at September 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 September 30, 2024 and December 31, 2023, AFS and HTM securities with an amortized cost totaling $ 190.7 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 September 30, (In thousands) 2024 2023 Net gains (losses) recognized on equity securities $ 476 $ ( 183 ) Less: Net gains (losses) recognized on equity securities sold during the period - - Unrealized gains (losses) recognized on equity securities still held $ 476 $ ( 183 ) Nine Months Ended September 30, (In thousands) 2024 2023 Net gains (losses) recognized on equity securities $ 283 $ ( 372 ) Less: Net gains (losses) recognized on equity securities sold during the period - - Unrealized gains (losses) recognized on equity securities still held $ 283 $ ( 372 ) As of September 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 September 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 nine months ended September 30, 2024 and 2023. 15 Table of Contents The following table sets forth information with regard to contractual maturities of debt securities at September 30, 2024: (In thousands) Amortized Cost Estimated Fair Value AFS debt securities: Within one year $ 40,409 $ 40,282 From one to five years 637,648 590,469 From five to ten years 244,195 224,850 After ten years 726,023 653,737 Total AFS debt securities $ 1,648,275 $ 1,509,338 HTM debt securities: Within one year $ 94,236 $ 94,130 From one to five years 143,062 139,223 From five to ten years 218,104 194,873 After ten years 399,539 353,642 Total HTM debt securities $ 854,941 $ 781,868 Maturities of mortgage-backed, collateralized mortgage obligations and asset-backed securities are 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, 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 were in a continuous unrealized loss position: Less Than 12 Months 12 Months or Longer Total (In thousands) Fair Value Unrealized Losses Number of Positions Fair Value Unrealized Losses Number of Positions Fair Value Unrealized Losses Number of Positions As of September 30 , 2024 AFS securities: U.S. treasury $ - $ - - $ 118,430 $ ( 5,284 ) 7 $ 118,430 $ ( 5,284 ) 7 Federal agency - - - 222,639 ( 25,718 ) 16 222,639 ( 25,718 ) 16 State & municipal - - - 88,132 ( 6,761 ) 66 88,132 ( 6,761 ) 66 Mortgage-backed 15,893 ( 47 ) 2 389,558 ( 37,845 ) 153 405,451 ( 37,892 ) 155 Collateralized mortgage obligations 36,841 ( 74 ) 5 510,166 ( 58,837 ) 119 547,007 ( 58,911 ) 124 Corporate 1,455 ( 24 ) 1 41,950 ( 5,043 ) 14 43,405 ( 5,067 ) 15 Total securities with unrealized losses $ 54,189 $ ( 145 ) 8 $ 1,370,875 $ ( 139,488 ) 375 $ 1,425,064 $ ( 139,633 ) 383 HTM securities: Federal agency $ - $ - - $ 85,736 $ ( 14,264 ) 4 $ 85,736 $ ( 14,264 ) 4 Mortgage-backed - - - 202,256 ( 26,871 ) 34 202,256 ( 26,871 ) 34 Collateralized mortgage obligation - - - 208,993 ( 17,721 ) 52 208,993 ( 17,721 ) 52 State & municipal 2,908 ( 2 ) 3 174,003 ( 14,470 ) 187 176,911 ( 14,472 ) 190 Total securities with unrealized losses $ 2,908 $ ( 2 ) 3 $ 670,988 $ ( 73,326 ) 277 $ 673,896 $ ( 73,328 ) 280 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 16 Table of Contents The Company does not believe that the AFS securities in an unrealized loss position as of September 30, 2024 and December 31, 2023, which consisted of 383 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, 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, nor is it more likely than not that the Company will be required to sell these securities 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 $ 4.1 million at September 30, 2024 and $ 3.9 million at December 31, 2023, and is excluded from the estimate of credit losses and is 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, 2024 and December 31, 2023. There was no accrued interest reversed against interest income for the three and nine months ended September 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 September 30, 2024 and December 31, 2023. There was no allowance for credit losses on HTM securities as of September 30, 2024 and December 31, 2023. As of September 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 September 30, 2024 and December 31, 2023. The remaining HTM debt securities at September 30, 2024 and December 31, 2023 were comprised of state and municipal obligations with bond ratings of A to AAA. Based on the Company's CECL methodology, the expected credit loss on the HTM municipal bond portfolio was deemed immaterial, therefore no allowance for credit loss was recorded as of September 30, 2024 and December 31, 2023. AIR on HTM debt securities totaled $ 3.8 million at September 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. 6. Loans A summary of loans, net of deferred fees and origination costs, by category is as follows: (In thousands) September 30, 2024 December 31, 2023 Commercial & industrial $ 1,458,926 $ 1,354,248 Commercial real estate 3,792,498 3,626,910 Residential real estate 2,143,766 2,125,804 Home equity 328,687 337,214 Indirect auto 1,235,175 1,130,132 Residential solar 839,659 917,755 Other consumer 108,330 158,650 Total loans $ 9,907,041 $ 9,650,713 Included in the above loans are net deferred loan origination (fees) costs totaling ($ 72.8 ) million and ($ 98.2 ) million at September 30, 2024 and December 31, 2023, respectively. 7. Allowance for Credit Losses and Credit Quality of Loans The allowance for credit losses totaled $ 119.5 million at September 30, 2024, compared to $ 114.4 million at December 31, 2023. The allowance for credit losses as a percentage of loans was 1.21 % at September 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 September 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 September 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 but remains around 4.1% during the forecast period. Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the fourth quarter of 2024 at approximately 3.9% and remains relatively stable during the forecast period. Key assumptions in the baseline economic outlook included the Federal Reserve cutting rates 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 third quarter of 2024 to a peak of 7.5% 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 September 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. 17 Table of Contents 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 reflected 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) was 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. 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 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 nine months ended September 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 nine months ended September 30, 2024, the Company purchased $ 2.0 million of residential loans at a 7.0 % premium with a $ 20 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 $ 34.2 million at September 30, 2024 and $ 34.1 million at December 31, 2023 with no estimated allowance for credit losses related to AIR as of September 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. 18 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 June 30, 2024 $ 46,708 $ 47,918 $ 25,874 $ 120,500 Charge-offs ( 1,117 ) ( 4,926 ) ( 34 ) ( 6,077 ) Recoveries 275 1,789 93 2,157 Provision 1,372 835 713 2,920 Ending balance as of September 30, 2024 $ 47,238 $ 45,616 $ 26,646 $ 119,500 Balance as of June 30, 2023 $ 36,963 $ 47,883 $ 15,554 $ 100,400 Allowance for credit loss on PCD acquired loans 5,300 19 453 5,772 Charge-offs ( 138 ) ( 6,167 ) ( 16 ) ( 6,321 ) Recoveries 474 1,549 94 2,117 Provision 4,121 3,990 4,522 12,633 Ending balance as of September 30 , 2023 $ 46,720 $ 47,274 $ 20,607 $ 114,601 (In thousands) Commercial Loans Consumer Loans Residential Total Balance as of December 31, 2023 $ 45,903 $ 46,427 $ 22,070 $ 114,400 Charge-offs ( 2,401 ) ( 15,835 ) ( 148 ) ( 18,384 ) Recoveries 765 4,999 322 6,086 Provision 2,971 10,025 4,402 17,398 Ending balance as of September 30 , 2024 $ 47,238 $ 45,616 $ 26,646 $ 119,500 Balance as of January 1, 2023 (after adoption of ASU 2022-02) $ 34,662 $ 50,951 $ 14,539 $ 100,152 Allowance for credit loss on PCD acquired loans 5,300 19 453 5,772 Charge-offs ( 514 ) ( 16,346 ) ( 460 ) ( 17,320 ) Recoveries 1,112 4,367 370 5,849 Provision 6,160 8,283 5,705 20,148 Ending balance as of September 30 , 2023 $ 46,720 $ 47,274 $ 20,607 $ 114,601 The allowance for credit losses as of September 30, 2024 was consistent with the allowance estimates as of June 30, 2024 and increased compared to the allowance estimates as of December 31, 2023. The increase from December 31, 2023 was primarily due to providing for current year loan growth, the slowing of prepayment speed assumptions, including the changes in prepayment model assumptions and an additional specific reserve established in the second quarter of 2024 relating to a commercial relationship individually evaluated for credit loss. These increases to the allowance for credit losses were partially offset by the change in forecast scenario weightings from 70 % baseline and 30 % downside to 80 % baseline and 20 % downside, and the shift in loan composition driven by other consumer and residential solar portfolios that are in a planned run-off status. The allowance for credit losses as of September 30, 2023 incorporated 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 September 30, 2024, two relationships were identified for individual credit loss evaluation which had an amortized cost basis of $ 16.6 million, with $ 1.7 million of allowance for credit loss. As of December 31, 2023, the same two relationships were identified for individual credit loss evaluation which had an amortized cost basis of $ 17.3 millio n, with no allowance for credit loss. As of September 30, 2024 and December 31, 2023, there were $ 1.3 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. 19 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 September 30 , 2024 Commercial loans: C&I $ 2,485 $ 97 $ - $ 2,582 $ 2,452 $ 1,455,471 $ 1,460,505 CRE 5,439 133 - 5,572 18,009 3,595,502 3,619,083 Total commercial loans $ 7,924 $ 230 $ - $ 8,154 $ 20,461 $ 5,050,973 $ 5,079,588 Consumer loans: Auto $ 10,200 $ 1,757 $ 919 $ 12,876 $ 1,679 $ 1,189,734 $ 1,204,289 Residential solar 2,973 1,837 1,284 6,094 190 833,375 839,659 Other consumer 1,626 1,029 754 3,409 304 119,995 123,708 Total consumer loans $ 14,799 $ 4,623 $ 2,957 $ 22,379 $ 2,173 $ 2,143,104 $ 2,167,656 Residential $ 3,850 $ 465 $ 1,024 $ 5,339 $ 10,704 $ 2,643,754 $ 2,659,797 Total loans $ 26,573 $ 5,318 $ 3,981 $ 35,872 $ 33,338 $ 9,837,831 $ 9,907,041 (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, focusing on, among other things, borrowers financial strength, experience and depth of borrower’s management, primary and secondary sources of repayment, payment history, nature of the business and industry outlook. 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. 20 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. 21 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 nine months ended September 30, 2024, the Company recorded $ 0.2 million in overdrawn deposit accounts reported as 2023 originations and $ 0.5 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 September 30 , 2024 C&I By internally assigned grade: Pass $ 205,707 $ 185,044 $ 210,068 $ 193,872 $ 128,275 $ 106,919 $ 354,396 $ 1,006 $ 1,385,287 Special mention - 3,627 4,333 354 3,273 1,237 29,624 156 42,604 Substandard 1,574 3,590 2,234 1,465 210 5,108 18,208 107 32,496 Doubtful - 86 2 30 - - - - 118 Total C&I $ 207,281 $ 192,347 $ 216,637 $ 195,721 $ 131,758 $ 113,264 $ 402,228 $ 1,269 $ 1,460,505 Current-period gross charge-offs $ - $ ( 60 ) $ ( 970 ) $ ( 46 ) $ - $ ( 1,325 ) $ - $ - $ ( 2,401 ) CRE By internally assigned grade: Pass $ 320,351 $ 340,273 $ 531,189 $ 528,054 $ 425,647 $ 954,218 $ 304,846 $ 59,356 $ 3,463,934 Special mention 1,086 5,838 13,492 5,873 5,137 18,463 2,156 1,135 53,180 Substandard - 1,056 19,195 17,812 3,353 58,387 1,666 500 101,969 Total CRE $ 321,437 $ 347,167 $ 563,876 $ 551,739 $ 434,137 $ 1,031,068 $ 308,668 $ 60,991 $ 3,619,083 Current-period gross charge-offs $ - $ - $ - $ - $ - $ - $ - $ - $ - Auto By payment activity: Performing $ 428,158 $ 356,542 $ 267,785 $ 104,174 $ 24,059 $ 20,973 $ - $ - $ 1,201,691 Nonperforming 330 688 803 537 147 93 - - 2,598 Total auto $ 428,488 $ 357,230 $ 268,588 $ 104,711 $ 24,206 $ 21,066 $ - $ - $ 1,204,289 Current-period gross charge-offs $ ( 76 ) $ ( 1,047 ) $ ( 1,266 ) $ ( 692 ) $ ( 74 ) $ ( 292 ) $ - $ - $ ( 3,447 ) Residential solar By payment activity: Performing $ 2,835 $ 126,251 $ 405,550 $ 169,484 $ 58,968 $ 75,097 $ - $ - $ 838,185 Nonperforming - 28 1,086 120 87 153 - - 1,474 Total residential solar $ 2,835 $ 126,279 $ 406,636 $ 169,604 $ 59,055 $ 75,250 $ - $ - $ 839,659 Current-period gross charge-offs $ - $ ( 441 ) $ ( 3,152 ) $ ( 582 ) $ ( 103 ) $ ( 561 ) $ - $ - $ ( 4,839 ) Other consumer By payment activity: Performing $ 14,484 $ 7,740 $ 15,144 $ 32,682 $ 13,025 $ 18,494 $ 21,058 $ 23 $ 122,650 Nonperforming - 39 239 419 116 224 1 20 1,058 Total other consumer $ 14,484 $ 7,779 $ 15,383 $ 33,101 $ 13,141 $ 18,718 $ 21,059 $ 43 $ 123,708 Current-period gross charge-offs $ ( 473 ) $ ( 311 ) $ ( 1,706 ) $ ( 3,493 ) $ ( 831 ) $ ( 735 ) $ - $ - $ ( 7,549 ) Residential By payment activity: Performing $ 141,624 $ 221,221 $ 369,507 $ 432,012 $ 252,908 $ 956,789 $ 258,040 $ 15,968 $ 2,648,069 Nonperforming - 796 319 1,782 190 8,552 - 89 11,728 Total residential $ 141,624 $ 222,017 $ 369,826 $ 433,794 $ 253,098 $ 965,341 $ 258,040 $ 16,057 $ 2,659,797 Current-period gross charge-offs $ - $ ( 34 ) $ - $ - $ - $ ( 114 ) $ - $ - $ ( 148 ) Total loans $ 1,116,149 $ 1,252,819 $ 1,840,946 $ 1,488,670 $ 915,395 $ 2,224,707 $ 989,995 $ 78,360 $ 9,907,041 Current-period gross charge-offs $ ( 549 ) $ ( 1,893 ) $ ( 7,094 ) $ ( 4,813 ) $ ( 1,008 ) $ ( 3,027 ) $ - $ - $ ( 18,384 ) 22 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 $ 4.6 million as of September 30, 2024, compared to $ 5.1 million as of December 31, 2023. The reserve for unfunded loan commitments was $ 0.3 million for three months ended September 30, 2024, compared to ($ 0.4 ) million in the prior quarter and $ 0.5 million for the same period in the prior year. Included in the reserve for unfunded loan commitments for the three months ended September 30, 2023, was $ 0.8 million of acquisition-related provision for unfunded loan commitments due to the Salisbury acquisition. The reserve for unfunded loan commitments was ($ 0.6 ) million for the nine months ended September 30, 2024, compared to ($ 0.3 ) million for the nine months ended September 30, 2023. 23 Table of Contents 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. 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, 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 $ 576 0.022 % $ 254 0.010 % Total $ 576 $ 254 Three Months Ended September 30, 2023 Term Extension Interest Rate Reduction (Dollars in thousands) Amortized Cost % of Total Class of Financing Receivables Amortized Cost % of Total Class of Financing Receivables Residential $ 145 0.006 % $ 31 0.001 % Total $ 145 $ 31 Nine Months Ended September 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 $ 1,054 0.040 % $ 284 0.011 % Total $ 1,054 $ 284 Nine Months Ended September 30, 2023 Term Extension Interest Rate Reduction 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 Amortized Cost % of Total Class of Financing Receivables Residential $ 386 0.015 % $ 31 0.001 % $ 165 0.006 % Total $ 386 $ 31 $ 165 24 Table of Contents The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulties: Three Months Ended September 30, 2024 Loan Type Term Extension Interest Rate Reduction Residential Added a weighted-average 8.2 years to the life of loans, which reduced monthly payment amounts for the borrowers Interest Rates were reduced by an average of 0.25 % Three Months Ended September 30, 2023 Loan Type Term Extension Interest Rate Reduction Residential 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 1 % Nine Months Ended September 30, 2024 Loan Type Term Extension Interest Rate Reduction Residential Added a weighted-average 6.5 years to the life of loans, which reduced monthly payment amounts for the borrowers Interest Rates were reduced by an average of 0.6 % Nine Months Ended September 30, 2023 Loan Type Term Extension Interest Rate Reduction Residential 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 2.25 % There were no financing receivables that had a payment default during the three months ended September 30, 2024 , that were modified to borrowers experiencing financial difficulty modified in the twelve months prior to that default. There were $ 171 thousand in financing receivables with term extension modifications that had payment defaults during the nine months ended September 30, 2024 , that were modified to borrowers experiencing financial difficulty modified in the twelve months prior to that default. There were no financing receivables that had a payment default during the three and nine months ended September 30, 2023, that were modified to borrowers experiencing financial difficulty 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 September 30, 2024 Residential $ 1,232 $ - $ - $ 163 Total $ 1,232 $ - $ - $ 163 8. 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) September 30, 2024 December 31, 2023 Securities sold under repurchase agreements $ 104,959 $ 93,651 Other short-term borrowings 100,000 293,000 Total short-term borrowings $ 204,959 $ 386,651 See Note 5 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements. 25 Table of Contents 9. 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, 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 nine months ended September 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 September 30, Three Months Ended September 30, (In thousands) 2024 2023 2024 2023 Components of net periodic cost: Service cost $ 552 $ 476 $ 1 $ 1 Interest cost 1,007 999 58 56 Expected return on plan assets ( 1,972 ) ( 1,844 ) - - Net amortization 472 669 ( 1 ) ( 21 ) Total net periodic cost $ 59 $ 300 $ 58 $ 36 Pension Benefits Other Benefits Nine Months Ended September 30, Nine Months Ended September 30, (In thousands) 2024 2023 2024 2023 Components of net periodic cost: Service cost $ 1,579 $ 1,440 $ 3 $ 3 Interest cost 3,018 3,019 168 168 Expected return on plan assets ( 5,937 ) ( 5,550 ) - - Net amortization 2,377 2,009 ( 3 ) ( 63 ) Total net periodic cost $ 1,037 $ 918 $ 168 $ 108 The service cost component of the net periodic 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. 26 Table of Contents 10. 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 September 30, (In thousands, except per share data) 2024 2023 Basic EPS: Weighted average common shares outstanding 47,172 45,163 Net income available to common stockholders $ 38,097 $ 24,606 Basic EPS $ 0.81 $ 0.54 Diluted EPS: Weighted average common shares outstanding 47,172 45,163 Dilutive effect of common stock options and restricted stock 301 236 Weighted average common shares and common share equivalents 47,473 45,399 Net income available to common stockholders $ 38,097 $ 24,606 Diluted EPS $ 0.80 $ 0.54 Anti-dilutive stock options and restricted stock outstanding - 27 Nine Months Ended September 30, (In thousands, except per share data) 2024 2023 Basic EPS: Weighted average common shares outstanding 47,159 43,662 Net income available to common stockholders $ 104,636 $ 88,336 Basic EPS $ 2.22 $ 2.02 Diluted EPS: Weighted average common shares outstanding 47,159 43,662 Dilutive effect of common stock options and restricted stock 251 234 Weighted average common shares and common share equivalents 47,410 43,896 Net income available to common stockholders $ 104,636 $ 88,336 Diluted EPS $ 2.21 $ 2.01 Anti-dilutive stock options and restricted stock outstanding 1 25 27 Table of Contents 11. 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) September 30, 2024 September 30, 2023 AFS securities: Amortization of unrealized gains related to securities transfer $ 87 $ 105 Interest income Tax effect $ ( 21 ) $ ( 26 ) Income tax (benefit) Net of tax $ 66 $ 79 Pension and other benefits: Amortization of net losses $ 474 $ 638 Other noninterest expense Amortization of prior service costs ( 3 ) 10 Other noninterest expense Tax effect $ ( 118 ) $ ( 162 ) Income tax (benefit) Net of tax $ 353 $ 486 Total reclassifications, net of tax $ 419 $ 565 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, 2024 September 30, 2023 AFS securities: Losses on AFS securities $ - $ 9,450 Net securities (gains) losses Amortization of unrealized gains related to securities transfer 274 328 Interest income Tax effect $ ( 68 ) $ ( 2,445 ) Income tax (benefit) Net of tax $ 206 $ 7,333 Pension and other benefits: Amortization of net losses $ 2,382 $ 1,918 Other noninterest expense Amortization of prior service costs ( 8 ) 28 Other noninterest expense Tax effect $ ( 594 ) $ ( 487 ) Income tax (benefit) Net of tax $ 1,780 $ 1,459 Total reclassifications, net of tax $ 1,986 $ 8,792 12. 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. 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. 28 Table of Contents 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 September 30, 2024 and December 31, 2023, the Company had twenty 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 September 30 , 2024 Derivatives not designated as hedging instruments Interest rate derivatives $ 1,393,024 Other assets $ 80,351 $ 1,393,024 Other liabilities $ 80,218 Risk participation agreements 91,093 Other assets 136 19,740 Other liabilities 8 Total derivatives not designated as hedging instruments $ 80,487 $ 80,226 Netting adjustments (1) 17,120 ( 10 ) Net derivatives in the balance sheet $ 63,367 $ 80,236 Derivatives not offset on the balance sheet $ 9,696 $ 9,696 Cash collateral (2) - - Net derivative amounts $ 53,671 $ 70,540 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 September 30, Nine Months Ended September 30 , (In thousands) 2024 2023 2024 2023 Derivatives not designated as hedging instruments: Increase (decrease) in other income $ 65 $ ( 65 ) $ 151 $ ( 65 ) 13. 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). 29 Table of Contents 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. The following tables set forth the Company’s financial assets and liabilities measured on a recurring basis that were accounted for at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement: (In thousands) Level 1 Level 2 Level 3 September 30, 2024 Assets: AFS securities: U.S. treasury $ 128,538 $ - $ - $ 128,538 Federal agency - 222,639 - 222,639 State & municipal - 88,903 - 88,903 Mortgage-backed - 421,724 - 421,724 Collateralized mortgage obligations - 604,129 - 604,129 Corporate - 43,405 - 43,405 Total AFS securities $ 128,538 $ 1,380,800 $ - $ 1,509,338 Equity securities 40,974 1,000 - 41,974 Derivatives - 63,367 - 63,367 Total $ 169,512 $ 1,445,167 $ - $ 1,614,679 Liabilities: Derivatives $ - $ 80,236 $ - $ 80,236 Total $ - $ 80,236 $ - $ 80,236 (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 30 Table of Contents 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 $ 3.0 million as of September 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. September 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 $ 854,941 $ 781,868 $ 905,267 $ 814,524 Net loans 3 9,791,254 9,536,670 9,539,684 9,216,162 Financial liabilities: Time deposits 2 $ 1,433,124 $ 1,424,694 $ 1,324,709 $ 1,285,999 Long-term debt 2 29,682 29,666 29,796 29,416 Subordinated debt 1 121,138 117,140 120,380 113,757 Junior subordinated debt 2 101,196 103,968 101,196 102,337 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. 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. 31 Table of Contents 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. 14. 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 $ 2.86 billion at September 30, 2024 and $ 2.68 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 $ 47.5 million at September 30, 2024 and $ 44.7 million at December 31, 2023. A s of September 30, 2024 and December 31, 2023 , the fair value of the Company’s standby letters of credit was not significant. 32 Table of Contents NBT BANCORP INC. AND SUBSIDIARIES