What changed in this filing

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Item 1. Financial Statements

2025-05-09 compared with 2024-11-08 · 1220 added, 644 removed, 647 unchanged (74% of the section changed)

3 unchanged sentences

Balance Sheets (unaudited)

September 30,

(In thousands, except share and per share data)

21 unchanged sentences

Preferred stock, $ 0.01

2,500,000 shares authorized

Common stock, $ 0.01 par value.

100,000,000 shares authorized;

par value, 2,500,000 shares authorized

Common stock, $ 0.01 par value, 100,000,000 shares authorized;

shares issued

8 unchanged sentences

and Subsidiaries

Statements of

Consolidated Statements

Income (unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30 ,

(In thousands, except per share data)

20 unchanged sentences

Bank owned life insurance income

Net securities gains (losses)

Net securities (losses) gains

Total noninterest income

15 unchanged sentences

and Subsidiaries

Statements of

Comprehensive Income (Loss)

Consolidated Statements of

Comprehensive Income (Loss) (unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30 ,

(In thousands)

3 unchanged sentences

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

Reclassification adjustment for net losses in net income, gross

Reclassification adjustment for net losses in net income, net

Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, gross

4 unchanged sentences

Amortization of prior service cost and actuarial losses, net

Increase in unrecognized actuarial loss, gross

Increase in unrecognized actuarial loss, net

Total pension and other benefits, net

4 unchanged sentences

and Subsidiaries

Statements of

Consolidated Statements of

Stockholders’ Equity (unaudited)

2 unchanged sentences

(Loss) Income

Balance at June 30, 2024

Balance at December 31, 2024

Cash dividends - $ 0.34

4 unchanged sentences

Other comprehensive income

Balance at September 30 , 2024

Balance at June 30, 2023

Cash dividends - $ 0.32

Issuance of 4,322,999 shares of

common stock for acquisition

Purchase of 68,500 treasury

Net issuance of 6,334

shares to employee

and other stock plans

Stock-based compensation

Other comprehensive (loss)

Balance at September 30 , 2023

(In thousands, except share and per share data)

Comprehensive

(Loss) Income

Balance at March 31 , 2025

Balance at December 31, 2023

2 unchanged sentences

Net issuance of 47,016

employee and other stock plans

Stock-based compensation

Other comprehensive income

Balance at September 30 , 2024

Balance at December 31, 2022

Cumulative effect adjustment for ASU 2022-02 implementation as of January 1, 2023

Cash dividends - $ 0.92

Issuance of 4,322,999 shares of

common stock for acquisition

Purchase of 155,500

treasury shares

Net issuance of 62,275

employee and other stock plans

shares to employee

and other stock plans

Stock-based compensation

Other comprehensive (loss)

Balance at September 30 , 2023

Balance at March 31 , 2024

See accompanying notes to unaudited interim consolidated financial statements.

1 unchanged sentence

and Subsidiaries

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

13 unchanged sentences

Net gain on sale of loans held for sale

Net securities (gains) losses

Net gains on sale of other real estate owned

Net securities losses (gains)

Net change in other assets and other liabilities

1 unchanged sentence

Investing activities

Net cash (used in) provided by acquisitions

Net cash used in acquisitions

Securities available for sale:

6 unchanged sentences

Proceeds from Federal Home Loan Bank stock redemption

Purchases of Federal Reserve and Federal Home Loan Bank stock

Purchases of Federal Home Loan Bank stock

Proceeds from settlement of bank owned life insurance

Purchases of premises and equipment, net

Proceeds from sales of other real estate owned

Net cash used in investing activities

2 unchanged sentences

Net decrease in short-term borrowings

Proceeds from long-term debt

Repayments of long-term debt

Proceeds from the issuance of shares to employee and other stock plans

Cash paid by employer for tax-withholding on stock issuance

2 unchanged sentences

Net cash provided by financing activities

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Consolidated Statements of Cash Flows (unaudited) (continued)

Nine Months Ended

September 30,

Three Months Ended

Supplemental disclosure of cash flow information

1 unchanged sentence

Interest expense

Income taxes paid, net of refund

Income taxes paid, net of refunds

Noncash investing activities:

1 unchanged sentence

Acquisitions:

Fair value of assets acquired, excluding acquired cash and goodwill

Fair value of liabilities assumed

Fair value of assets acquired

See accompanying notes to unaudited interim consolidated financial statements.

3 unchanged sentences

Consolidated Financial Statements

September 30, 2024

March 31, 2025

Description of Business

17 unchanged sentences

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.

Summary of Significant Accounting Policies

2 unchanged sentences

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.

and its wholly-owned subsidiaries mentioned above.

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 U.S.

generally accepted accounting principles (“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 Securities and Exchange Commission (“SEC”).

Accordingly, the consolidated financial statements do not include all of the information and notes necessary for complete financial statements in

conformity with GAAP.

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2024 Annual Report on Form 10-K.

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.

Amounts previously

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

The Company has evaluated subsequent events for potential recognition and/or disclosure.

Refer to Note 16 to the

unaudited interim consolidated financial statements in this Quarterly Report on Form 10-Q for the subsequent event related to the Evans Bancorp, Inc.

Use of Estimates in the Preparation of Financial Statements

2 unchanged sentences

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

Estimates associated with the

allowance for credit losses and pension accounting are particularly susceptible to material change in the near term.

Estimates associated with the allowance for credit losses are particularly susceptible to material

change in the near term.

Recent Accounting Pronouncements

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.

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.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Improvements to Income Tax Disclosures , in response to requests from investors, lenders, creditors and other allocators of capital for enhanced income tax disclosures to support capital allocation decisions.

The ASU requires

2 unchanged sentences

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.

The amendments in this ASU are effective for the Company for annual periods beginning after December 15, 2024, 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.

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.

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

August 11, 2023

(In thousands)

Salisbury Bancorp, Inc.

Consideration:

Cash paid to shareholders (fractional shares)

Common stock issuance

Total net consideration

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

Cash and cash equivalents

Securities available for sale

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

Premises and equipment, net

Core deposit intangibles

Wealth management customer intangible

Bank owned life insurance

Total identifiable assets acquired

Other liabilities

Total liabilities assumed

Total identifiable assets, net

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

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

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

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

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

estimated fair value of loans were based on a discounted cash flow methodology applied on a pooled basis for non-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.

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

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

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

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

acquiring the customers (net of operating expenses).

Deposits - The

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

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

Borrowings - The estimated fair value of short-term borrowings was

determined to approximate stated value.

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

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

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)

Par value of PCD loans at acquisition

Allowance for credit losses at acquisition

Discount at acquisition

Fair value of PCD loans at acquisition

Direct costs related to the acquisition were expensed as incurred.

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

Total revenue, net of interest expense

Aside from complying with the new disclosure requirements, the adoption is not expected to have a material impact on the consolidated financial

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense

Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses , that addresses longstanding investor requests for more information regarding expenses included in the expense captions presented on the face of

the income statement.

The ASU will require a tabular disclosure that disaggregates certain income statement expenses including employee compensation, depreciation and intangible asset amortization.

In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the Effective Date, which revises the effective date of ASU 2024-03.

will become effective in the annual reporting periods beginning after December 15, 2026, and early adoption is permitted.

Aside from complying with the new disclosure requirements, the adoption is not expected to have a material impact on the

consolidated financial statements.

Subsequent Period Acquisition of Evans Bancorp, Inc.

On May 2, 2025, the Company

completed the acquisition of Evans Bancorp, Inc.

(“Evans”) through the merger of Evans with and into the Company, with the Company surviving the merger, with total consideration of approximately $ 222 million in stock.

Evans, with assets of approximately $ 2.19

billion at December 31, 2024, was headquartered in Williamsville, New York.

Its primary subsidiary, Evans Bank, National Association, was a federally-chartered national banking association operating 18 banking locations in Western New York.

The acquisition of Evans is being accounted for as a business combination in accordance with Accounting Standards Codification

(“ASC”) 805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting.

Due to the close proximity of the acquisition date and the Company’s filing of its Quarterly Report on Form 10-Q for the three months ended March 31,

2025, the initial accounting for the business combination is incomplete.

Accordingly, the Company is unable to disclose the preliminary allocation of consideration or other information required by ASC 805 at this time.

The Company will include

relevant disclosures as required in the second quarter of 2025.

The Company incurred

acquisition expenses related to the Merger of $ 1.2 million for the three months ended March 31, 2025.

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.

In November 2024, the Company, through its subsidiary, NBT Bank, National Association, completed its acquisition of certain assets of PACO, Inc, a third-party administration

business based in West Des Moines, Iowa for a total consideration of $ 3.3 million.

As part of the acquisition the Company recorded

goodwill of $ 0.7 million and $ 2.9

million contingent considerations recorded in other liabilities on the consolidated balance sheets as of December 31, 2024.

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.

1 unchanged sentence

Reynard, Inc.

long-established property and casualty agency offering personal and commercial lines.

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.

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 consolidated balance sheets as of December 31, 2024.

The operating results of the acquired companies are included in the consolidated results after the date of acquisition.

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

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

(In thousands)

As of September 30 , 2024

As of March 31, 2025

Federal agency

18 unchanged sentences

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.

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

securities as of March 31, 2025 and December 31, 2024.

During the three months ended March 31, 2025, there were no gains or losses reclassified out of accumulated other comprehensive income (loss) (“AOCI”) and into earnings.

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

sold an AFS corporate debt security from a subordinated debt investment issued by a financial institution that failed and was previously written-off and recognized a gain of $ 2.3 million into earnings in net securities (losses) gains in the

unaudited interim consolidated statements of income.

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

(In thousands)

As of September 30 , 2024

As of March 31, 2025

Federal agency

17 unchanged sentences

Total HTM securities

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.

At March 31, 2025 and December 31, 2024, all of the mortgaged-backed HTM securities were comprised of U.S.

government agency and government-sponsored enterprises

The Company recorded no gains from calls on HTM

securities for the three months ended March 31, 2025 and 2024.

AFS and HTM securities with amortized costs totaling $ 1.77

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:

billion at March 31, 2025 and $ 1.60 billion at December 31, 2024, were pledged to secure public deposits and for other purposes required or

permitted by law.

Additionally, at March 31, 2025 and December 31, 2024, AFS and HTM securities with an amortized cost of $ 223.0 million

and $ 234.2 million, respectively, were pledged as collateral for securities sold under repurchase agreements.

The following table sets forth information with regard to gains and (losses) on equity securities:

Three Months Ended

September 30,

(In thousands)

Net gains (losses) recognized on equity securities

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

Unrealized gains (losses) recognized on equity securities still held

Nine Months Ended

September 30,

(In thousands)

Net gains (losses) recognized on equity securities

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

Unrealized gains (losses) recognized on equity securities still held

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.

The following table sets forth information with regard to contractual maturities of debt securities at September 30, 2024:

Net losses recognized on equity securities

Net losses recognized on equity securities sold during the period

Unrealized losses recognized on equity securities still held

As of March 31, 2025 and December 31, 2024, the carrying value of equity securities without readily determinable fair values was $ 1.0 million.

The Company performed a qualitative assessment to determine whether the investments were impaired and identified no areas of credit

concern as of March 31, 2025 and 2024.

There were no impairments, or downward or upward adjustments recognized for equity securities

without readily determinable fair values during the three months ended March 31, 2025 and 2024.

The following table sets forth information with regard to contractual maturities of debt securities at March 31, 2025:

(In thousands)

11 unchanged sentences

Total HTM debt securities

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.

Maturities of mortgage-backed, collateralized mortgage obligations and asset-backed securities are stated based on their estimated average lives.

Actual maturities may

differ from estimated average lives or contractual maturities because, in certain cases, borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Except for U.S.

government securities and government-sponsored enterprises securities , there were no holdings, when taken in the aggregate, of any single issuer that exceeded 10% of consolidated stockholders’ equity at September 30, 2024 and

December 31, 2023.

government securities and government-sponsored enterprises securities, there were no holdings, when taken in the aggregate, of any single issuer that exceeded 10% of consolidated stockholders’ equity at March 31, 2025 and December 31, 2024.

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:

segregated according to the length of time the securities had been in a continuous unrealized loss position:

Less Than 12 Months

1 unchanged sentence

(In thousands)

As of September 30 , 2024

As of March 31, 2025

AFS securities:

23 unchanged sentences

Total securities with unrealized losses

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,

The Company does not believe the AFS securities that were in an unrealized loss position as of March 31, 2025 and December 31, 2024, which consisted of 387 and 401 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

As of March 31, 2025 and December 31, 2024, the majority of the AFS

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

5 unchanged sentences

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.

The Company does not intend to sell, nor is it more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases, which may be at maturity.

The Company elected to

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

AIR on AFS debt securities totaled $ 4.5

million and $ 4.4 million at March 31, 2025 and December 31, 2024, respectively, and is excluded from the estimate of credit losses and

reported in the other assets financial statement line.

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

or on nonaccrual status as of September 30, 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.

or on nonaccrual status as of March 31, 2025 and December 31, 2024.

There was no accrued interest reversed against interest income for

the three months ended March 31, 2025 or the year ended December 31, 2024 as all securities remained in accrual status.

In addition, there were no

collateral-dependent HTM debt securities as of March 31, 2025 and December 31, 2024.

There was no allowance for credit losses on HTM securities as of March 31, 2025 and December 31, 2024.

As of March 31, 2025 and December 31,

2024, 65 % and 66 %,

respectively, of the Company’s HTM debt securities were issued by U.S.

government agencies or U.S.

government-sponsored enterprises.

These securities carry the explicit and/or implicit guarantee of the

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.

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.

government-sponsored enterprises with bond ratings of A to AAA.

These securities carry the explicit and/or implicit guarantee of the U.S.

which are widely recognized as “risk-free” and have a long history of zero credit losses.

Therefore, the Company did not record an allowance for credit losses for these securities as of March 31, 2025 and December 31, 2024.

The remaining HTM debt

securities at March 31, 2025 and December 31, 2024 were comprised of state and municipal obligations with bond ratings of A to AAA excluding the $ 99.4

million of local municipal bonds which are not rated.

Based on the Company’s current expected credit losses (“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 March 31, 2025 and December 31, 2024.

AIR on HTM debt securities totaled $ 4.8 million at March 31, 2025 and $ 4.4 million at December 31, 2024 and is excluded from the estimate of credit losses and reported in the other assets financial statement line.

A summary of loans, net of deferred fees and origination costs, by category (1) is as follows:

(In thousands)

September 30, 2024

March 31, 2025

December 31, 2024

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Other consumer

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

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

$( 57.8 ) million and $( 64.7 )

million at September 30, 2024 and December 31, 2023, respectively.

million at March 31, 2025 and December 31, 2024, respectively.

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.

The allowance for credit losses totaled $ 117.0 million at March 31, 2025, compared to $ 116.0

million at December 31, 2024.

The allowance for credit losses as a percentage of loans was 1.17 % at March 31, 2025, compared to 1.16 % at December 31, 2024.

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.

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 Company considers a

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

The quantitative model as of March 31, 2025 incorporated a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party

to accommodate other potential economic conditions in the model.

At March 31, 2025, the weightings were 75% and 25% for the baseline and downside economic forecasts, respectively.

The baseline outlook reflected an economic environment where the

unemployment rate increases from 4.1% to 4.4% during the forecast period.

Northeast Gross Domestic Product (“GDP’s”) annualized growth (on a quarterly basis) is expected to start the second quarter of 2025 at approximately 5% and decrease to 3.9%

before increasing to 4.1% by 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, national unemployment rises from 4.1% in the

first quarter of 2025 to a peak of 7.6% in the second quarter of 2026.

These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of March 31, 2025.

Additional qualitative

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

Additional monitoring for industry concentrations, loan growth and

policy exceptions was also conducted .

During the quarter, the Company performed an annual update to its econometric, probability of default (“PD”)/ loss given default (“LGD”) models.

Segment specific, multi-variate regression model

inputs and assumptions were updated and recent period observed losses and behavior were incorporated into the models (“model refreshment”).

The incorporation of recent observations did not have a material impact on most loan class segments

except for the Auto class segment which resulted in an improvement in PD/LGD outcomes.

The total allowance decreased by approximately 3 %

as of March 31, 2025 due to the model refreshment.

The quantitative model as of December 31, 2024 incorporated a baseline economic outlook along with an alternative downside scenario sourced from

a reputable third-party to accommodate other potential economic conditions in the model.

At December 31, 2024, the weightings were 80% and 20% for the baseline and downside economic forecasts, respectively.

The baseline outlook reflected a

Northeast unemployment rate environment starting at 4.1% and increasing slightly during the forecast period to 4.2%.

Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the first quarter of 2025 at approximately 3.8%

before decreasing to a low of 2.6% in the third quarter of 2025 and then increasing to 3.9% by the end of the forecast period.

Key assumptions in the baseline economic outlook included two 25 basis point federal funds rate cuts in 2025,

quantitative tightening ending in early 2025, a post-election fiscal outlook with lower spending, lower taxes, and higher tariffs, and the economy currently being near full employment.

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.

Under this scenario, Northeast unemployment increases to a peak of 7.5% in the first quarter of 2026.

These scenarios and their respective weightings are evaluated at each measurement date and

reflect management’s expectations as of December 31, 2024.

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.

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.

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.

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.

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.

There were no loans purchased with credit deterioration during the three months ended March 31, 2025 and the year ended December 31, 2024.

During the three months ended March 31,

2025, the Company purchased $ 1.3 million of residential loans at a 6.6 % premium with a $ 13 thousand allowance for credit losses

recorded for these loans.

During 2024, the Company purchased $ 3.0 million of residential loans at a 7.0 % premium with a $ 31 thousand

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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):

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.

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

(In thousands)

Balance as of June 30, 2024

Ending balance as of September 30, 2024

Balance as of June 30, 2023

Allowance for credit loss on PCD acquired loans

Ending balance as of September 30 , 2023

AIR on loans totaled $ 34.8 million at March 31, 2025 and December 31, 2024 and with no

estimated allowance for credit losses related to AIR as of March 31, 2025 and December 31, 2024 as it is excluded from amortized cost.

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

our portfolio segments:

(In thousands)

Balance as of

December 31, 2024

Ending Balance as of

March 31 , 2025

Balance as of December 31, 2023

Ending balance as of September 30 ,

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

Allowance for credit loss on PCD acquired loans

Ending balance as of September 30 ,

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.

Ending Balance as of

March 31 , 2024

The allowance for credit losses as of March 31, 2025 increased compared to the allowance estimates as of December 31, 2024 and March 31, 2024 primarily due to the

deterioration in the economic forecast including the change in the forecast scenario and the change in forecast scenario weightings from 80 %

baseline and 20 % downside to 75 %

baseline and 25 % downside.

The increases to the allowance for credit losses were partially offset by model refreshment and the shift in

loan composition driven by other consumer and residential solar portfolios that are in a planned run-off status.

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.

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

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

The threshold for evaluating classified, Commercial & Industrial (“C&I”) and Commercial Real Estate (“CRE”) loans risk graded substandard or

doubtful, and nonperforming loans specifically evaluated for individual credit loss is $ 1.0 million.

As of March 31, 2025, three relationships were identified for individual credit loss evaluation which

had an amortized cost basis of $ 26.7 million.

These relationships were in nonaccrual status with no allowance for credit loss.

As of December 31, 2024, the same three relationships were identified for individual credit loss evaluation, had an amortized cost basis of $ 28.8

million and were in nonaccrual status with no allowance for credit loss.

decrease in the amortized cost basis on an individual relationship basis from December 31, 2024 to March 31, 2025 was primarily due to a partial charge-off of $ 2.1 million on one of the relationships to the estimated fair value that

resulted from a new appraisal received in the first quarter of 2025.

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

nonperforming loans by loan segment:

(In thousands)

As of September 30 , 2024

As of March 31 , 2025

Commercial loans:

13 unchanged sentences

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.

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, borrower’s 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.

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

For C&I and CRE loans, the Company uses a grading system that relies on

quantifiable and measurable characteristics when available.

This includes comparison of financial strength to available industry averages, comparison of transaction factors (loan terms and conditions) to loan policy and comparison of credit history

to stated repayment terms and industry averages.

Some grading factors are necessarily more subjective such as economic and industry factors, regulatory environment and management.

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

Mention and Pass.

A Doubtful loan has a high probability of total or substantial

loss, but because of specific pending events that may strengthen the asset, its classification as a loss is deferred.

Doubtful borrowers are usually in default, lack adequate liquidity or capital and lack the resources necessary to remain an

operating entity.

Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral and refinancing.

Generally, pending events should be resolved within

a relatively short period and the ratings will be adjusted based on the new information.

Nonaccrual treatment is required for Doubtful assets because of the high probability of loss.

Substandard loans have a high probability of payment default or they have other well-defined weaknesses.

They require more intensive supervision by

bank management.

Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity or marginal capitalization.

Repayment may depend on collateral or other credit

risk 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

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

Although Substandard assets in the aggregate will have a distinct potential for loss, an individual asset’s loss potential does not have to be distinct for the asset to be rated Substandard.

Special Mention

loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date.

These loans pose elevated risk, but their weakness does not yet justify a Substandard

classification.

Borrowers may be experiencing adverse operating trends (i.e., declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (i.e., increasing inventory without an increase in sales, high leverage

and/or tight liquidity).

Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a Special Mention rating.

Although a Special Mention loan has a higher probability of default than

a Pass asset, its default is not imminent.

Loans graded as Pass encompass all loans not graded as Doubtful, Substandard or Special Mention.

Pass loans are in compliance with loan covenants

and payments are generally made as agreed.

Special Mention loans have potential weaknesses that may, if

not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date.

These loans pose elevated risk, but their weakness does not yet justify a Substandard classification.

Borrowers may be experiencing

adverse operating trends (i.e., declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (i.e., increasing inventory without an increase in sales, high leverage and/or tight liquidity).

Adverse economic or market

conditions, such as interest rate increases or the entry of a new competitor, may also support a Special Mention rating.

Although a Special Mention loan has a higher PD than a Pass asset, its default is not imminent.

Loans graded as Pass encompass all loans not graded as

Doubtful, Substandard or Special Mention.

Pass loans are in compliance with loan covenants and payments are generally made as agreed.

Pass loans range from superior quality to fair quality.

Pass loans also include any portion of a government guaranteed loan, including Paycheck Protection Program loans.

Pass loans also include any portion of a government

guaranteed loan, including Paycheck Protection Program loans.

Consumer and Residential Grading System

1 unchanged sentence

Nonperforming

Nonperforming loans are loans that are (1) over 90

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

All loans not meeting any of the above criteria are considered Performing.

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

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

All loans not meeting any of the above criteria are considered

The following

tables illustrate the Company’s credit quality by loan class by vintage and includes gross charge-offs by loan class by vintage.

Included in other consumer gross charge-offs for the three months ended March 31, 2025, the Company recorded $ 0.3 million in overdrawn deposit accounts reported as 2024 originations.

Included in other consumer gross charge-offs for the year ended December 31,

2024, the Company recorded $ 0.2 million in overdrawn deposit accounts reported as 2023 originations and $ 0.7 million in overdrawn deposit accounts reported as 2024 originations .

(In thousands)

As of September 30 , 2024

As of March 31 , 2025

By internally assigned grade:

32 unchanged sentences

Nonperforming

Current-period gross charge-offs

Current-period

gross charge-offs

Residential solar

13 unchanged sentences

Current-period gross charge-offs

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.

Allowance for Credit Losses on Off-Balance Sheet Credit

The allowance for credit losses on unfunded commitments totaled $ 4.5 million as of March 31, 2025, compared to $ 4.4

million as of December 31, 2024.

The reserve for unfunded loan commitments was

million for the nine months ended September 30, 2024, compared to ($ 0.3 ) million for the nine months ended September 30, 2023.

$ 0.1 million for the three months ended March 31, 2025, compared to $( 0.5 ) million for the three months ended March 31, 2024 was recorded within other noninterest expense in the unaudited interim consolidated statements of income.

Loan Modifications to Borrowers Experiencing Financial Difficulties

4 unchanged sentences

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

(Dollars in thousands)

% of Total Class

Three Months Ended September 30, 2023

Term Extension

Interest Rate

(Dollars in thousands)

% of Total Class

Nine Months Ended September 30, 2024

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

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

Three Months Ended March 31, 2025

Term Extension

Combination - Term

Extension and Interest Rate

(Dollars in thousands)

% of Total Class

Nine Months Ended September 30, 2023

Amortized Cost

% of Total Class of

Financing Receivables

Three Months Ended March 31, 2024

Term Extension

Interest Rate Reduction

Combination - Term

Extension and Interest Rate

(Dollars in thousands)

% of Total Class

of Financing Receivables

of Total Class

The following table describes the financial effect of the

modifications made to borrowers experiencing financial difficulties:

Three Months Ended September 30, 2024

Term Extension

Interest Rate Reduction

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

Term Extension

Interest Rate Reduction

Added a weighted-average 17 years to the life of loans, which reduced monthly payment

amounts for the borrowers

Interest Rates were reduced by an average of 1 %

Nine Months Ended September 30, 2024

Amortized Cost

% of Total Class of

Financing Receivables

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

borrowers experiencing financial difficulties:

Three Months Ended March 31, 2025

Term Extension

Interest Rate Reduction

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

Added a weighted-average 5.2

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

Three Months Ended March 31, 2024

Term Extension

Interest Rate Reduction

Added a weighted-average 15 years to the life of loans, which reduced monthly payment

amounts for the borrowers

Interest Rates were reduced by an average of 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:

Added a weighted-average 7.4 years to the life of

loans, which reduced monthly payment amounts for the borrowers.

the three months ended March 31, 2025, there were $ 59 thousand in Residential financing receivables with term extension modifications

that had payment defaults during the period, that were modified to borrowers experiencing financial difficulty in the twelve months prior to the default.

There were no financing receivables that had payment defaults during the three months ended March 31, 2024, that were modified to borrowers experiencing financial difficulty in the prior twelve

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)

2 unchanged sentences

Days Past Due

As of September 30, 2024

As of March 31, 2025

Payment Status (Amortized Cost Basis)

(In thousands)

Greater than 90

Days Past Due

As of March 31, 2024

Short-Term Borrowings

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

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

Information related to short-term borrowings

is summarized as follows:

Federal Reserve Bank.

Other funding alternatives may also be appropriate from time to time, including wholesale and retail repurchase agreements and brokered certificate of deposit accounts.

related to short-term borrowings is summarized as follows:

(In thousands)

September 30, 2024

March 31, 2025

December 31, 2024

4 unchanged sentences

Defined Benefit Post-Retirement Plans

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.

The Company has a qualified, noncontributory, defined benefit pension plan (the “Plan”) covering substantially all of its employees at March 31, 2025.

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

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

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.”

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.

(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 months ended March

31, 2025 and 2024.

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

1 unchanged sentence

Other Benefits

Three Months Ended September 30,

(In thousands)

Components of net periodic cost:

Interest cost

Expected return on plan assets

Net amortization

Total net periodic cost

Pension Benefits

Other Benefits

Nine Months Ended September 30,

Three Months Ended

(In thousands)

Components of net periodic cost:

Components of net periodic cost (benefit):

Interest cost

1 unchanged sentence

Net amortization

Total net periodic cost

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

Total net periodic cost (benefit)

The service cost component of net periodic cost (benefit) is included in salaries and employee benefits and the interest cost, expected return on plan assets and net

amortization components are included in other noninterest expense on the unaudited interim consolidated statements of income.

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

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).

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares

outstanding for the period.

in the earnings of the entity (such as the Company’s dilutive restricted stock units and stock options).

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)

5 unchanged sentences

Net income available to common stockholders

Anti-dilutive stock options and restricted stock outstanding

Nine Months Ended

September 30,

(In thousands, except per share data)

Weighted average common shares outstanding

Net income available to common stockholders

Weighted average common shares outstanding

Dilutive effect of common stock options and restricted stock

Weighted average common shares and common share equivalents

Net income available to common stockholders

Anti-dilutive stock options and restricted stock outstanding

There was a nominal number of weighted average stock options outstanding for the three months ended March 31, 2025 and March 31, 2024, that were not considered in the

calculation of diluted EPS since the stock options’ exercise prices were greater than the average market price during these periods.

Reclassification Adjustments Out of Other Comprehensive Income (Loss)

7 unchanged sentences

(In thousands)

September 30,

AFS securities:

Amortization of unrealized gains related to securities transfer

Interest income

Income tax (benefit)

Pension and other benefits:

Amortization of net losses

Other noninterest expense

Amortization of prior service costs

Other noninterest expense

Income tax (benefit)

Total reclassifications, net of tax

Detail About AOCI Components

Amount Reclassified from AOCI

Affected Line item in the

Consolidated Statements of

Comprehensive Income (Loss)

Nine Months Ended

(In thousands)

September 30,

March 31, 2025

March 31, 2024

AFS securities:

Losses on AFS securities

Net securities (gains) losses

Amortization of unrealized gains related to securities transfer

10 unchanged sentences

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.

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

principally manages its exposures to a wide variety of business and operational risks through management of its core business activities.

The Company manages economic risks, including interest rate 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

1 unchanged sentence

These swaps are considered derivatives, but are not

designated as hedging relationships.

designated in hedging relationships.

These instruments have interest rate and credit risk associated with them.

1 unchanged sentence

The counterparty swaps

are also considered derivatives and are also not designated as hedging relationships.

are also considered derivatives and are also not designated in hedging relationships.

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

2 unchanged sentences

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.

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

The CME requires the Company to post initial and variation margin payments to mitigate the risk of non-payment, the

latter of which is received or paid daily based on the net asset or liability position of the contracts.

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

Not all of the derivatives are

required to be cleared through the daily clearing agent.

As a result, the total fair values of loan level derivative assets and liabilities recognized on the Company’s financial statements are not equal and offsetting.

In 2017, the U.K.

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

calculation of LIBOR after 2021.

In 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR that replaced LIBOR in certain financial contracts after June

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:

As of March 31, 2025 and December 31, 2024, the Company had twenty one and twenty risk participation

agreements, respectively, with financial institution counterparties for interest rate swaps related to participated loans.

Risk participation agreements provide credit protection to the financial institution that originated the swap transaction

should the borrower fail to perform on its obligation.

The Company enters into both risk participation agreements in which it purchases credit protection from other financial institutions and those in which it provides credit protection to other

financial institutions .

The following table summarizes the derivatives outstanding:

(In thousands)

As of September 30 , 2024

Balance Sheet

As of March 31 , 2025

Derivatives not designated as hedging instruments

21 unchanged sentences

Net derivative amounts

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.

Cash collateral represents the amount that cannot be used to offset our

derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance.

The other collateral consists of securities and is exchanged under bilateral collateral and master netting

agreements that allow us to offset the net derivative position with the related collateral.

(1) Netting adjustments represent

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:

Therefore, excess other

collateral, if any, is not reflected above.

The following table indicates the gain or loss recognized in

income on derivatives not designated as a hedging relationship:

Three Months Ended

September 30,

September 30 ,

(In thousands)

Derivatives not designated as hedging instruments:

Increase (decrease) in other income

Increase in other income

Fair Value Measurements and Fair Value of Financial Instruments

18 unchanged sentences

The Company does not adjust the quoted prices for such

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

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations or quotes 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

24 unchanged sentences

(In thousands)

September 30, 2024

March 31, 2025

AFS securities:

16 unchanged sentences

for expected credit losses and HTM securities.

Loans with fair value of $ 3.0 million as of September 30, 2024 were individually evaluated

Loans with fair value of $ 26.7 million as of March 31, 2025 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 .

Loans with fair value of $ 28.8 million as of December 31,

2024 were individually evaluated for expected credit losses

where the amortized cost was adjusted to fair value.

The Company uses the fair value of underlying collateral, less costs to sell, to estimate the allowance for credit losses for individually evaluated collateral dependent loans.

4 unchanged sentences

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

Financial instruments for which the fair value approximates carrying value include cash and cash equivalents, AFS securities, equity securities, AIR, non-maturity deposits, short-term borrowings, accrued

interest payable and derivatives.

March 31, 2025

December 31, 2024

51 unchanged sentences

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.

Commitments to extend credit and unused lines of credit totaled $ 2.79 billion at March 31, 2025 and $ 2.84 billion at December 31, 2024.

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

9 unchanged sentences

Standby letters of credit totaled $ 56.2

million at September 30, 2024 and $ 44.7 million at December 31,

A s of September 30, 2024 and December 31, 2023 , the fair value of the Company’s standby letters of credit was not significant.

million at March 31, 2025 and $ 50.8 million at December 31, 2024.

A s of March 31, 2025 and December 31, 2024 , the fair value of the Company’s standby letters of credit was not significant.

In the normal course of business there are various outstanding legal proceedings.

If legal costs are deemed material by management, the Company accrues for the estimated loss from a loss contingency

if the information available indicates that it is probable that a liability had been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.

Segment Reporting

Historically, the Company has operated as a single reportable segment, providing a

full range of banking services to retail and commercial customers.

However, in accordance with ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , and as the Bank has

grown, management reassessed its operating segment structure to enhance transparency in how financial performance is evaluated and resources are allocated by the chief operating decision maker (“CODM”).

The updated guidance enhances disclosures by

requiring more detailed information on segment profitability and certain key performance metrics used by management.

Segments are components of an enterprise that are regularly evaluated by the CODM to allocate resources and assess performance.

Company’s CODM is its Chief Executive Officer.

As a result of this reassessment, beginning with the fiscal year ended December

31, 2024, the Company has determined that it now operates through two reportable segments:

Banking – Provides commercial banking, retail banking, and wealth management services primarily to customers in its market area, offering a broad array of banking and financial

services to retail, commercial, and municipal customers.

Included in Banking are the revenue and expenses from the wealth management business and the parent holding company.

The parent company’s principal activities include the direct and

indirect ownership of banking and non-banking subsidiaries, as well as the issuance of debt and equity.

The parent company’s principal sources of revenue are the management fees and dividends it receives from its subsidiaries.

includes corporate shared service costs such as the majority of equity compensation expense, as well as other general and administrative shared services costs including pension, retirement plan and supplemental retirement plan costs.

there is no allocation of these costs to other operating segments.

Retirement Plan Administration – Includes retirement plan and health savings account recordkeeping and administration, investment management, third-party administration, and

actuarial services.

Our CODM reviews actual net income versus budgeted net income to assess segment

performance and to make decisions about allocating capital and personnel to the segments.

The CODM regularly receives expense information at a level consistent with that disclosed in the Company’s consolidated statements of income.

Reported segments and their financial information are not necessarily comparable

to similar information reported by other financial institutions.

Additionally, due to interrelationships among the various segments, the information presented is not indicative of how the segments would perform as independent entities.

management structure, allocation methodologies, or procedures may result in future revisions to previously reported segment financial data.

For the three months ended March 31, 2024, the Company only disclosed one reportable segment, as operations were assessed on a consolidated basis.

Accordingly, prior year segment data has been retrospectively adjusted to

conform to the current period presentation.

The Company will continue to evaluate its segment disclosures in accordance with ASU 2023-07 and make necessary adjustments as business operations evolve.

Information about reportable segments and reconciliation of the information to the

consolidated financial statements follows:

Three Months Ended March 31, 2025

(In thousands)

Administration

All Other (1)

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Noninterest income

Service charges on deposit accounts

Card services income

Retirement plan administration fees

Wealth management

Insurance services

Bank owned life insurance income

Net securities (losses) gains

Total noninterest income

Noninterest expense

Salaries and employee benefits

Technology and data services

Professional fees and outside services

Office supplies and postage

FDIC assessment

Amortization of intangible assets

Loan collection and other real estate owned, net

Acquisition expenses

Total noninterest expense

Income before income tax expense

Income tax expense

Intangible assets, net

(1) Included in All Other is the revenue and expenses from certain other non-bank subsidiaries of the parent, including the insurance subsidiary, along with eliminating amounts that do not meet the definition of an operating segment.

Three Months Ended March 31, 2024

(In thousands)

Administration

All Other (1)

Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Noninterest income

Service charges on deposit accounts

Card services income

Retirement plan administration fees

Wealth management

Insurance services

Bank owned life insurance income

Net securities gains (losses)

Total noninterest income

Noninterest expense

Salaries and employee benefits

Technology and data services

Professional fees and outside services

Office supplies and postage

FDIC assessment

Amortization of intangible assets

Loan collection and other real estate owned, net

Acquisition expenses

Total noninterest expense

Income before income tax expense

Income tax expense

Intangible assets, net

(1) Included in All Other is the revenue

and expenses from certain other non-bank subsidiaries of the parent, including the insurance subsidiary, along with eliminating amounts that do not meet the definition of an operating segment.

Subsequent Event

As noted in Note 4, on May 2, 2025, the

Company completed the acquisition of Evans, with total consideration of approximately $ 222 million in stock.

The acquisition of Evans is

being accounted for as a business combination in accordance with ASC 805, using the acquisition method of accounting.

Due to the close proximity of the acquisition date and the Company’s filing of its Quarterly Report on Form 10-Q for the three

months ended March 31, 2025, the initial accounting for the business combination is incomplete.

Accordingly, the Company is unable to disclose the preliminary allocation of consideration or other information required by ASC 805 at this time.

Company will include relevant disclosures as required in the second quarter of 2025.

NBT BANCORP INC.

AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this discussion and analysis is to provide a concise description of the consolidated financial condition and results of operations of NBT Bancorp Inc.

(“NBT”) and its wholly-owned

subsidiaries, including NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc.

(“NBT Financial”) and NBT Holdings, Inc.

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

When references to “NBT,” “we,” “our,”

“us,” and “the Company” are made in this report, we mean NBT Bancorp Inc.

and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, NBT Bancorp Inc.

When we refer to the “Bank” in this report, we

mean our only bank subsidiary, NBT Bank, National Association, and its subsidiaries.

This discussion will focus on results of operations, financial condition, capital resources and asset/liability management.

Reference should be made to the

Company’s consolidated financial statements and footnotes thereto included in this Form 10‑Q as well as to the Company’s Annual Report on Form 10‑K for the year ended December 31, 2024 for an understanding of the following discussion and

Operating results for the three month period ending March 31, 2025 are not necessarily indicative of the results of the full year ending December 31, 2025 or any future period.

Forward-Looking Statements

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

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

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

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

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

those contemplated by the forward-looking statements.

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

(1) local, regional,

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

(2) changes in the level of

nonperforming assets and charge-offs;

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

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

fiscal policies and laws, including the interest rate policies of the FRB and international trade disputes (including threatened or implemented tariffs imposed by the U.S.

and threatened or implemented tariffs imposed by foreign countries in

retaliation);

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

(6) political instability;

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

(8) the timely development and acceptance of new

products and services and the perceived overall value of these products and services by users;

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

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

(11) technological changes;

(12) acquisition and integration of acquired businesses;

(13) the possibility that NBT may be unable to achieve expected synergies and operating efficiencies in the merger within the expected timeframes or at all or to

successfully integrate Evans operations and those of NBT;

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

(15) changes in the competitive environment among financial holding companies;

(16) the effect of changes in laws and

regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply, including those under the Dodd-Frank Act, and the Economic Growth, Regulatory Relief, and

Consumer Protection Act of 2018;

(17) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the FASB and other accounting standard

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

(19) the costs and effects of legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, and

the results of regulatory examinations or reviews;

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

and (21) the Company’s success at managing the risks involved in the foregoing

The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advises readers that various factors, including, but not limited

to, those described above and other factors discussed in the Company’s annual and quarterly reports previously filed with the SEC, could affect the Company’s financial performance and could cause the Company’s actual results or circumstances for

future periods to differ materially from those anticipated or projected.

Unless required by law, the Company does not undertake, and specifically disclaims any obligations to, publicly release any revisions that may be made to any forward-looking statements to reflect the occurrence of

anticipated or unanticipated events or circumstances after the date of such statements.

Non-GAAP Measures

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

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

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

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

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

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

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

Amounts previously reported in the consolidated financial statements

are reclassified whenever necessary to conform to current period presentation.

Critical Accounting Estimates

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

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

The Company follows financial accounting and reporting policies that are in

accordance with GAAP.

The more significant of these policies are summarized in Note 1 to the consolidated financial statements presented in our 2024 Annual Report on Form 10-K.

Refer to Note 3 to the unaudited interim consolidated financial

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

The allowance for credit losses and unfunded commitments policies are deemed to meet the SEC’s definition of a critical accounting estimate.

Allowance for Credit Losses and Unfunded Commitments

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

The measurement of CECL on financial instruments requires an

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

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

and supportable forecasts that affect the collectability of the reported amounts.

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

The Company then considers whether the historical loss experience

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

Finally, the Company considers forecasts about future economic

conditions that are reasonable and supportable.

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

reduced by the charge-off of loan amounts, net of recoveries.

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

letters of credit.

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

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

on those draws.

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

allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio.

Determining the appropriateness of the allowance is complex and requires judgment by management about the

effect of matters that are inherently uncertain.

Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods.

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

The impact of utilizing the CECL

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

Material changes

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

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

forecast period.

As of March 31, 2025, the quantitative model 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

At March 31, 2025, the weightings were 75% and 25% for the baseline and downside economic forecasts, respectively.

The baseline outlook reflected an economic environment where the unemployment rate increases from 4.1% to 4.4% during the

forecast period.

Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the second quarter of 2025 at approximately 5% and decrease to 3.9% before increasing to 4.1% by 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.

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

Under this scenario, national unemployment rises from 4.1% in the first quarter of 2025 to a peak of 7.6% in the second quarter of 2026.

scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of March 31, 2025.

Additional qualitative adjustments were made for factors not incorporated in the forecasts or the model,

such as loss rate expectations for certain loan pools and recent trends in asset value indices.

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

To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of March 31, 2025, the Company attributed the change in scenario

weightings to the change in the allowance for credit losses, with a 10% decrease to the downside scenario and a 10% increase to the baseline scenario causing a 4% decrease in the overall estimated allowance for credit losses.

demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of March 31, 2025, the Company increased the downside scenario to 100% which resulted in a 30% increase in the overall

estimated allowance for credit losses.

The Company’s policies on the CECL methodology for allowance for credit losses are disclosed in Note 1 to the consolidated financial statements presented in our 2024 Annual Report on Form 10-K.

accounting policies are important and as such, the Company encourages the reader to review each of the policies included in Note 1 to the consolidated financial statements presented in our 2024 Annual Report on Form 10-K to obtain a better

understanding of how the Company’s financial performance is reported.

Refer to Note 3 to the unaudited interim consolidated financial statements in this Quarterly Report on Form 10-Q for recently adopted accounting standards.

Evans Bancorp, Inc.

On May 2, 2025, the Company completed the acquisition of Evans, through the merger of Evans with and into the Company, with the Company surviving the merger, with total consideration of

approximately $222 million in stock.

Evans, with assets of approximately $2.19 billion at December 31, 2024, was headquartered in Williamsville, New York.

Its primary subsidiary, Evans Bank, was a federally-chartered national banking association

operating 18 banking locations in Western New York.

The acquisition of Evans is being accounted for as a business combination in accordance with ASC 805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting.

close proximity of the acquisition date and the Company’s filing of its Quarterly Report on Form 10-Q for the three months ended March 31, 2025, the initial accounting for the business combination is incomplete.

Accordingly, the Company is unable

to disclose the preliminary allocation of consideration or other information required by ASC 805 at this time.

The Company will include relevant disclosures as required in the second quarter of 2025.

The Company incurred acquisition expenses related to the Merger of $1.2 million for the three months ended March 31, 2025.

Executive Summary

Significant factors management reviews to evaluate the Company’s operating results and financial condition include, but are not limited to, net income and EPS, return on average assets and equity,

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

peer comparisons.

Net income for the three months ended March 31, 2025 was $36.7 million, up $0.7 million from the fourth quarter of 2024 and up $2.9 million from the first quarter of 2024.

Diluted earnings per share

were $0.77 for the three months ended March 31, 2025, up $0.01 from the fourth quarter of 2024 and up $0.06 from the first quarter of 2024.

Operating net income (1) , a non-GAAP measure, was $37.8 million, or $0.80 per diluted common share, for the three

months ended March 31, 2025, compared to $0.77 per diluted common share for the fourth quarter of 2024 and $0.68 per diluted common share for the first quarter of 2024.

In the first quarter of 2024, the Company sold an AFS corporate debt security from a subordinated debt investment issued by a financial institution that failed and was previously written-off and

recognized a gain of $2.3 million.

The following information should be considered in connection with the Company’s results for the three months ended March 31, 2025:

Net interest income for the three months ended March 31, 2025 was $107.2 million, up $1.1 million, or 1.1%, from the fourth quarter of 2024 and up $12.0 million, or 12.7%, from the first quarter of 2024.

The Company recorded a provision for loan losses of $7.6 million for the three months ended March 31, 2025, compared to $2.2 million in the fourth quarter of 2024 and $5.6 million in the first quarter of

Excluding securities gains (losses), noninterest income represented 31% of total revenues and was $47.6 million for the three months ended March 31, 2025, up $5.4 million, or 12.7%, from the fourth quarter

of 2024 and up $4.3 million, or 10.1%, from the first quarter of 2024.

Noninterest expense, excluding acquisition expenses, was down $1.1 million, or 1.1%, from the fourth quarter of 2024 and was up $6.9 million, or 7.5%, from the first quarter of 2024.

Period end total loans were $9.98 billion, up $10.4 million, or 0.4% annualized, from December 31, 2024.

Credit quality metrics including net charge-offs to average loans were 0.27%, annualized, and allowance for loan losses to total loans was 1.17%.

Period end total deposits were $11.71 billion, up $161.8 million, or 1.4%, from December 31, 2024.

The loan to deposit ratio was 85.2% as of March 31, 2025 and 86.3% as of December 31, 2024.

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

Results of Operations

The following table sets forth certain financial highlights:

Three Months Ended

Diluted earnings per share

Return on average assets (2)

Return on average equity (2)

Return on average tangible common equity (1)(2)

Net interest margin, (FTE) (1)(2)

Equity to assets

Tangible equity ratio (1)

Book value per share

Tangible book value per share (1)

Leverage ratio

Common equity tier 1 capital ratio

Tier 1 capital ratio

Total risk-based capital ratio

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

The following tables provide non-GAAP reconciliations:

Three Months Ended

(In thousands, except per share data)

Return on average tangible common equity:

Amortization of intangible assets (net of tax)

Net income, excluding intangible amortization

Average stockholders’ equity

average goodwill and other intangibles

Average tangible common equity

Return on average tangible common equity (2)

Tangible equity ratio:

Stockholders’ equity

Tangible equity ratio

Tangible book value per share:

Stockholders’ equity

Tangible equity

Diluted common shares outstanding

Tangible book value per share

Operating net income:

Acquisition expenses

Securities losses (gains)

Adjustments to net income

Adjustments to net income (net of tax)

Operating net income

Operating diluted earnings per share

FTE adjustment

Net interest income

FTE adjustment

Net interest income (FTE)

Average earnings assets

Net interest margin (FTE) (2)

Net Interest Income

Net interest income is the difference between the interest and dividend income earned on interest-earning assets, primarily loans and securities and the interest expense paid on interest-bearing

liabilities, primarily deposits and borrowings.

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

assets and liabilities.

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

Net interest income was $107.2 million for the first quarter of 2025, up $1.1 million, or 1.1%, from the previous quarter.

FTE NIM was 3.44% for the three months ended March 31, 2025, an increase of

10 bps from the previous quarter.

Interest income decreased $3.3 million, or 2.1%, as the yield on average interest-earning assets decreased 1 bp from the prior quarter to 4.95%, while average interest-earning assets of $12.70 billion decreased

$3.5 million from the prior quarter.

The decrease in interest income was primarily due to lower yields on loans and short-term interest-bearing accounts from the two 25 bps federal funds rate decreases in the fourth quarter of 2024, as well as

two fewer days in the first quarter of 2025 compared to the fourth quarter of 2024.

The decrease was partially offset by an increase in interest income on securities due to higher average balances and yields.

Interest expense decreased $4.5

million, or 8.6%, as the cost of interest-bearing liabilities decreased 17 bps to 2.23% for the three months ended March 31, 2025 as compared to the prior quarter, primarily due to a 17 bps decrease in interest-bearing deposit costs.

net interest income was $2.2 million of acquisition-related net accretion for the three months ended March 31, 2025 and $2.6 million of acquisition-related net accretion for the three months ended December 31, 2024.

Net interest income was $107.2 million for the first quarter of 2025, up $12.0 million, or 12.7%, from the first quarter of 2024.

FTE NIM was 3.44% for the three months ended March 31, 2025, an

increase of 30 bps from the first quarter of 2024.

Interest income increased $7.4 million, or 5.0%, as the yield on average interest-earning assets increased 11 bps from the same period in 2024 to 4.95%, while average interest-earning assets

increased $427.5 million, or 3.5%, from the first quarter of 2024, primarily due to organic loan growth and an increase in securities.

Interest expense decreased $4.6 million, or 8.9%, as the cost of interest-bearing liabilities decreased 29 bps

to 2.23% for the three months ended March 31, 2025, primarily due to a 21 bps decrease in interest-bearing deposit costs, a $511.7 million increase in interest-bearing deposits and lower average balances of short-term borrowings.

Included in net

interest income was $2.2 million of acquisition-related net accretion for the three months ended March 31, 2025 and $2.5 million of acquisition-related net accretion for the three months ended March 31, 2024.

Average Balances and Net Interest Income

The following table includes the condensed consolidated average balance sheet, an analysis of interest income/expense and average yield/rate for each major category of earning assets and

interest-bearing liabilities on a taxable equivalent basis.

Three Months Ended

March 31, 2025

December 31, 2024

March 31, 2024

(Dollars in thousands)

Short-term interest-bearing accounts

Securities taxable (1)

Securities tax-exempt (1) (3)

FRB and FHLB stock

Loans (2) (3)

Total interest-earning assets

Liabilities and stockholders’ equity:

Money market deposit accounts

NOW deposit accounts

Savings deposits

Time deposits

Total interest-bearing deposits

Federal funds purchased

Repurchase agreements

Short-term borrowings

Long-term debt

Subordinated debt, net

Junior subordinated debt

Total interest-bearing liabilities

Demand deposits

Other liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Net interest income (FTE)

Interest rate spread

Net interest margin (FTE)

Taxable equivalent adjustment

Net interest income

(1) Securities are shown at average amortized cost.

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

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

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

rate multiplied by prior year volume) and the net change in net interest income.

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

Three Months Ended March 31,

Increase (Decrease)

2025 over 2024

(In thousands)

Short-term interest-bearing accounts

Securities taxable

Securities tax-exempt

FRB and FHLB stock

Total FTE interest income

Money market deposit accounts

NOW deposit accounts

Savings deposits

Time deposits

Federal funds purchased

Repurchase agreements

Short-term borrowings

Long-term debt

Subordinated debt, net

Junior subordinated debt

Total FTE interest expense

Change in FTE net interest income

Noninterest Income

Noninterest income is a significant source of revenue for the Company and an important factor in the Company’s results of operations.

The following table sets forth information by category of

noninterest income for the periods indicated:

Three Months Ended

(In thousands)

Service charges on deposit accounts

Card services income

Retirement plan administration fees

Wealth management

Insurance services

Bank owned life insurance income

Net securities (losses) gains

Total noninterest income

Noninterest income for the three months ended March 31, 2025 was $47.5 million, up $5.0 million, or 11.8%, from the prior quarter and up $2.1 million, or 4.5%, from the first quarter of 2024.

Excluding net securities gains (losses), noninterest income for the three months ended March 31, 2025 was $47.6 million, up $5.4 million, or 12.7%, from the prior quarter and up $4.3 million, or 10.1%, from the first quarter of 2024.

from the prior quarter was primarily driven by an increase in retirement plan administration fees, insurance services and bank owned life insurance income.

The increase in retirement plan administration fees from the prior quarter was primarily

due to higher seasonal activity-based fees in the first quarter, organic growth and the additional revenue from the acquisition of a small third party administrator (“TPA”) in the fourth quarter of 2024.

Insurance services increased from the

prior quarter due to organic growth, higher levels of policy renewals and first quarter seasonality.

Bank owned life insurance income increased from the prior quarter due to a $1.3 million gain recognized from a claim.

The increase from the first

quarter of 2024 was driven by an increase in retirement plan administration fees, wealth management fees and bank owned life insurance income.

The increase in retirement plan administration fees from the first quarter of 2024 was driven by the

additional revenues from new customer plans, the TPA acquisition and higher market values of assets under administration.

Wealth management fees increased from the first quarter of 2024 driven by performance and growth in new customer accounts.

Bank owned life insurance income increased from the first quarter of 2024 due to a $1.3 million gain recognized from a claim.

Noninterest Expense

Noninterest expenses are also an important factor in the Company’s results of operations.

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

Three Months Ended

(In thousands)

Salaries and employee benefits

Technology and data services

Professional fees and outside services

Office supplies and postage

FDIC assessment

Amortization of intangible assets

Loan collection and other real estate owned, net

Acquisition expenses

Total noninterest expense

Noninterest expense for the three months ended March 31, 2025 was $99.9 million, down $0.9 million, or 0.9%, from the prior quarter and up $8.1 million, or 8.9%, from the first quarter of 2024.

Excluding acquisition expenses, noninterest expense for the three months ended March 31, 2025 was $98.7 million, down $1.1 million, or 1.1%, from the prior quarter and up $6.9 million, or 7.5%, from the first quarter of 2024.

The decrease from

the prior quarter was driven by lower salaries and employee benefits due to lower medical and other benefit costs, lower levels of incentive compensation and lower salaries due to two fewer payroll days in the quarter, partially offset by

seasonally higher payroll taxes and stock-based compensation expenses.

In addition, other expenses decreased $1.6 million due primarily to timing of expenses and Company initiatives in the fourth quarter of 2024.

These costs were partially offset

by the increase in occupancy costs which was driven by seasonal maintenance and utilities costs.

The increase from the first quarter of 2024 was driven by higher salaries and employee benefits driven by merit pay increases which were effective

annually in March, an increase in employees supporting growth in our markets and higher medical and other benefit costs.

In addition, occupancy costs increased $0.9 million primarily due to higher seasonal maintenance and utilities given the

harsher winter and higher facilities costs related to new banking locations.

Income tax expense for the three months ended March 31, 2025 was $10.5 million, up $0.9 million from the prior quarter and up $1.1 million from the first quarter of 2024.

The effective tax rate was

22.2% for the first quarter of 2025 compared to 20.9% for the prior quarter and 21.7% for the first quarter of 2024.

The increase in the effective tax rate from the prior quarter and the first quarter of 2024 was due to a lower level of

tax-exempt income as a percentage of total taxable income.

ANALYSIS OF FINANCIAL CONDITION

Total securities increased $123.1 million, or 5.0%, from December 31, 2024 to March 31, 2025.

The securities portfolio represented 18.6% of total assets as of March 31, 2025 as compared to 17.8% of

total assets as of December 31, 2024.

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

March 31, 2025

December 31, 2024

Mortgage-backed securities:

With maturities 15 years or less

With maturities greater than 15 years

Collateral mortgage obligations

Municipal securities

Equity securities

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

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

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

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

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

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

indicated is as follows:

(In thousands)

March 31, 2025

December 31, 2024

Commercial & industrial

Commercial real estate

Residential real estate

Indirect auto

Residential solar

Other consumer

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

Total loans were $9.98 billion and $9.97 billion at March 31, 2025 and December 31, 2024, respectively.

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

status, period end loans increased $40.5 million, or 1.8% annualized.

C&I loans increased $10.5 million to $1.44 billion;

CRE loans increased $13.4 million to $3.89 billion;

and total consumer loans decreased $13.6 million to $4.65 billion.

Total loans represent approximately 72.0% of assets as of March 31, 2025, as compared to 72.3% as of December 31, 2024.

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

The Company offers a variety of loan products tailored to meet the needs of commercial

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

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

crop expenses.

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

The Company extends CRE loans to

support real estate transactions, including acquisitions, refinancings, expansions and property improvements to both commercial and agricultural properties.

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

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

Risks associated with the CRE portfolio pertain to the borrowers’ ability to meet interest and principal payments over the

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

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

commercial borrowers and comprehensive credit risk monitoring mechanisms.

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

Within the CRE portfolio, approximately 81% comprises Non-Owner Occupied CRE, with the remaining 19% being Owner-Occupied CRE.

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

markets such as residential rental properties (43%) and office spaces (17%), along with retail, manufacturing, mixed use, hotels and others.

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

medical and professional tenants across suburban and small urban markets.

These loans carry an average size of $1.9 million, with 9% maturing over the next two years.

As of March 31, 2025 and December 31, 2024, the total CRE construction and

development loans amounted to $316.4 million and $314.8 million, respectively.

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

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

required to estimate expected credit losses over the expected contractual life of our loan portfolio and the material effect that such judgments can have on the consolidated results of operations.

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

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

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

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

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

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

These are necessary to maintain the allowance at a

level which management believes is reasonably reflective of the overall loss expected over the contractual life of the loan portfolio, adjusted for expected prepayments and curtailments.

While management uses available information to recognize

losses on loans, additions or reductions to the allowance may fluctuate from one reporting period to another.

These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in management’s assessment of

any or all of the determining factors discussed above.

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

Management estimates the allowance for credit losses using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and

supportable forecasts.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

Company historical loss experience was supplemented with peer information when there was insufficient loss data for the

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

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

The respective quantitative allowance for each segment is measured using an econometric, discounted PD and LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to multiple,

probabilistically weighted external economic forecasts.

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

cash flows and amortized cost basis.

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

portfolio as of the balance sheet date.

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

Upon adoption of CECL, management revised

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

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

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

During the quarter, the Company performed an annual update to its econometric, PD/LGD models.

Segment specific, multi-variate regression model inputs and assumptions were updated and recent period

observed losses and behavior were incorporated into the models (“model refreshment”).

The incorporation of recent observations did not have a material impact on most loan class segments except for the Auto class segment which resulted in an

improvement in PD/LGD outcomes.

The total allowance decreased by approximately 3% as of March 31, 2025 due to the model refreshment.

Additional information about our Allowance for Credit Losses is included in Note 7 to the unaudited interim consolidated financial statements in this Quarterly Report on Form 10-Q as well as in the

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

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

analysis of the loan portfolio.

The allowance for credit losses totaled $117.0 million at March 31, 2025, compared to $116.0 million at December 31, 2024.

The allowance for credit losses as a percentage of loans was 1.17% at March

31, 2025, compared to 1.16% at December 31, 2024.

The allowance for credit losses as of March 31, 2025 increased compared to the allowance estimates as of December 31, 2024 primarily due to deterioration in the economic forecast including the

change in the forecast scenario and the change in forecast scenario weightings from 80% baseline and 20% downside to 75% baseline and 25% downside.

The increase to the allowance for credit losses were partially offset by model refreshment 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 was 245.33% of nonperforming loans at March 31, 2025, compared to 224.73% at December 31, 2024.

The allowance for credit losses was 260.99% of nonaccrual loans at

March 31, 2025, compared to 253.17% of nonaccrual loans at December 31, 2024.

The increase in the coverage of the allowance to nonperforming and nonaccrual loans from December 31, 2024 to March 31, 2025 largely relates to the increase in

allowance primarily due to deterioration in economic conditions during the quarter and the $2.1 million charge-off on a nonperforming relationship that is individually evaluated for purposes of the allowance for credit losses.

The provision for loan losses was $7.6 million for the three months ended March 31, 2025, compared to $2.2 million in the prior quarter and $5.6 million for the same period in the prior year.

Provision expense increased from the prior quarter due to an increase in net charge-offs and an increase in the March 31, 2025 allowance due primarily to a deterioration in economic forecasts.

The increase in provision expense from March 31,

2024, was driven largely due to higher net charge-offs and a deterioration in economic forecasts.

Net charge-offs totaled $6.6 million during the three months ended March 31, 2025, compared to net charge-offs of $5.7 million during the fourth

quarter of 2024 and $4.7 in the first quarter of 2024.

Net charge-offs to average loans were 27 bps for the three months ended March 31, 2025, compared to 23 bps for the fourth quarter of 2024 and 19 bps for the three months ended March 31, 2024.

As of March 31, 2025, the unfunded commitment reserve totaled $4.5 million, compared to $4.4 million as of December 31, 2024.

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

Loans are generally placed on

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

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

the contractual principal or interest payments.

The threshold for evaluating classified, commercial and CRE loans risk graded substandard or doubtful, and nonperforming loans individually evaluated for credit loss is $1.0 million.

OREO represents

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

March 31, 2025

December 31, 2024

(Dollars in thousands)

N onaccrual loans:

Troubled loan modifications

Total nonaccrual loans

Loans over 90 days past due and still accruing:

Total loans over 90 days past due and still accruing

Total nonperforming loans

Total nonperforming assets

Total nonaccrual loans to total loans

Total nonperforming loans to total loans

Total nonperforming assets to total assets

Total allowance for loan losses to total nonperforming loans

Total allowance for loan losses to nonaccrual loans

Total nonperforming assets were $48.0 million at March 31, 2025, compared to $51.8 million at December 31, 2024.

Nonperforming loans at March 31, 2025 were $47.7 million or 0.48% of total loans,

compared with $51.6 million or 0.52% of total loans at December 31, 2024.

The decrease in nonperforming assets from December 31, 2024 to March 31, 2025 was attributable to the previously mentioned $2.1 million charge-off in the first quarter of

2025 on an individually evaluated CRE relationship in which NBT is a participant.

This relationship is being actively managed and its current carrying value is supported by recent appraised values.

Total nonaccrual loans were $44.8 million or

0.45% of total loans at March 31, 2025, compared to $45.8 million or 0.46% of total loans at December 31, 2024.

Past due loans as a percentage of total loans was 0.32% at March 31, 2025, down from 0.34% at December 31, 2024.

In addition to nonperforming loans discussed above, the Company has also identified approximately $125.2 million in potential problem loans at March 31, 2025 as compared to $116.1 million at

December 31, 2024.

Potential problem loans are loans that are currently performing, with a possibility of loss if weaknesses are not corrected.

Such loans may need to be disclosed as nonperforming at some time in the future.

Potential problem

loans are classified by the Company’s loan rating system as “substandard.” Potential problem loans have increased to more normalized levels and the increase primarily relates to a few CRE relationships reflecting changing conditions in certain

CRE markets including construction delays, rising costs and delays in leasing up spaces.

The increase in potential problem loans from December 31, 2024, is primarily due to the net migration of $8.8 million in commercial loan balances to

Management cannot predict the extent to which economic conditions may worsen or other factors, which may impact borrowers and the potential problem loans.

Accordingly, there can be no assurance that other loans will not become over

90 days past due, be placed on nonaccrual, become troubled loans modifications or require increased allowance coverage and provision for loan losses.

To mitigate this risk the Company maintains a diversified loan portfolio, has no significant

concentration in any particular industry and originates loans primarily within its footprint.

Total deposits were $11.71 billion at March 31, 2025, up $161.8 million, or 1.4%, from December 31, 2024.

As of March 31, 2025 there were $294.7 million of brokered time deposits, down from $295.8

million as of December 31, 2024.

The Company continues to experience some incremental migration from noninterest bearing and low interest checking and savings accounts into higher cost money market and time deposit instruments.

The increase in

deposits was primarily due to the inflow of seasonal municipal deposits during the first quarter of 2025.

The Company’s composition of total deposits is diverse and granular with over 561,000 accounts with an average per account balance of

$20,834 as of March 31, 2025.

As of March 31, 2025 and December 31, 2024 the estimated amounts of uninsured deposits based on the same methodologies and assumptions used for the bank regulatory reporting were $4.85 billion and $4.73 billion,

respectively.

Total average deposits increased $540.1 million, or 4.9%, from the same period last year.

Borrowed Funds

The Company’s borrowed funds consist of short-term borrowings and long-term debt.

Short-term borrowings totaled $85.6 million at March 31, 2025 compared to $162.9 million at December 31, 2024.

Long-term debt was $4.6 million at March 31, 2025, compared to $29.6 million at December 31, 2024.

The decrease in long-term debt was due to a maturity of a $25.0 million borrowing that matured in the first quarter of 2025.

For more information about the Company’s borrowing capacity and liquidity position, see “Liquidity Risk” below.

Subordinated Debt

On June 23, 2020, the Company issued $100.0 million of 5.00% fixed-to-floating rate subordinated notes due 2030.

The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual

rate of 5.00%, payable semi-annually in arrears commencing on January 1, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 4.85%, payable quarterly in arrears commencing on October 1, 2025.

The subordinated

debt issuance cost of $2.2 million is being amortized on a straight-line basis into interest expense over five years.

The Company repurchased $2.0 million of the subordinated notes in 2022 at a discount of $0.1 million.

Subordinated notes assumed in connection with the Salisbury acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031.

The subordinated notes, which qualify as

Tier 2 capital, bear interest at an annual rate of 3.50%, payable quarterly in arrears commencing on June 30, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 2.80%, payable quarterly in arrears commencing

on June 30, 2026.

As of the acquisition date, the fair value discount was $3.0 million, which is being amortized into interest expense over the expected call or maturity date.

As of March 31, 2025 and December 31, 2024 the subordinated debt net of unamortized issuance costs and fair value discount was $121.6 million and $121.2 million, respectively.

Capital Resources

Stockholders’ equity of $1.57 billion represented 11.29% of total assets at March 31, 2025 compared with $1.53 billion, or 11.07% of total assets, as of December 31, 2024.

Stockholders’ equity

increased $39.6 million from December 31, 2024 driven by net income of $36.7 million for the three months ended March 31, 2025 and a $20.3 million decrease in accumulated other comprehensive loss, partially offset by dividends declared of $16.1

The Company did not purchase shares of its common stock during the three months ended March 31, 2025.

Under its share repurchase program, the Company may repurchase shares of its common stock from

time to time to mitigate the potential dilutive effects of stock-based incentive plans and other potential uses of common stock for corporate purposes.

As of March 31, 2025, there were 1,992,400 shares available for repurchase under this program

authorized on December 18, 2023, which is set to expire on December 31, 2025.

As the capital ratios in the following table indicate, the Company remained “well capitalized” at March 31, 2025 under applicable bank regulatory requirements.

Capital measurements are well in

excess of regulatory minimum guidelines and meet the requirements to be considered well capitalized for all periods presented.

To be considered well capitalized, tier 1 leverage, common equity tier 1 capital, tier 1 capital and total risk-based

capital ratios must be 5%, 6.5%, 8% and 10%, respectively.

Capital Measurements

March 31, 2025

December 31, 2024

Tier 1 leverage ratio

Common equity tier 1 capital ratio

Tier 1 capital ratio

Total risk-based capital ratio

Cash dividends as a percentage of net income

Per common share:

Tangible book value (1)

Tangible equity ratio (2)

(1) Stockholders’ equity less goodwill and intangible assets divided by common shares outstanding.

(2) Non-GAAP measure - Stockholders’ equity less goodwill and intangible assets divided by total assets less goodwill and intangible assets.

In March 2020, the OCC, the Board of Governors of the Federal Reserve System and the FDIC announced an interim final rule to delay the estimated impact on regulatory capital stemming from the

implementation of CECL.

Under the modified CECL transition provision, the regulatory capital impact of the January 1, 2020 CECL adoption date adjustment to the allowance for credit losses (after-tax) has been deferred and will phase into

regulatory capital at 25% per year commencing January 1, 2022.

For the ongoing impact of CECL, the Company was allowed to defer the regulatory capital impact of the allowance for credit losses in an amount equal to 25% of the change in the

allowance for credit losses (pre-tax) recognized through earnings for each period between January 1, 2020 and December 31, 2021.

The cumulative adjustment to the allowance for credit losses between January 1, 2020 and December 31, 2021, will also

phase into regulatory capital at 25% per year commencing January 1, 2022.

The Company adopted the capital transition relief over the permissible five-year period.

Liquidity and Interest Rate Sensitivity Management

Interest rate risk is the most significant market risk affecting the Company.

Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the

normal course of the Company’s business activities or are immaterial to the results of operations.

Interest rate risk is defined as an exposure to a movement in interest rates that could have an adverse effect on the Company’s net interest income.

Net interest income is susceptible to interest

rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than earning assets.

When interest-bearing liabilities mature or reprice more quickly than earning assets in a given period, a significant increase

in market rates of interest could adversely affect net interest income.

Similarly, when earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income.

To manage the Company’s exposure to changes in interest rates, management monitors the Company’s interest rate risk.

Management’s Asset Liability Committee (“ALCO”) meets monthly to review the

Company’s interest rate risk position and profitability and to recommend strategies for consideration by the Board of Directors (the “Board”).

Management also reviews loan and deposit pricing and the Company’s securities portfolio, formulates

investment and funding strategies and oversees the timing and implementation of transactions to assure attainment of the Board’s objectives in the most effective manner.

Notwithstanding the Company’s interest rate risk management activities, the

potential for changing interest rates is an uncertainty that can have an adverse effect on net income.

In managing the Company’s asset/liability position, the Board and management aim to manage the Company’s interest rate risk while minimizing NIM compression.

At times, depending on the level of

general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Company’s interest rate risk position somewhat in order to

increase its NIM.

The Company’s results of operations and net portfolio values remain vulnerable to changes in interest rates and fluctuations in the difference between long and short-term interest rates.

The primary tool utilized by the ALCO to manage interest rate risk is earnings at risk modeling (interest rate sensitivity analysis).

Information, such as principal balance, interest rate, maturity

date, cash flows, next repricing date (if needed) and current rates are uploaded into the model to create an ending balance sheet.

In addition, the ALCO makes certain assumptions regarding prepayment speeds for loans and mortgage related

investment securities along with any optionality within the deposits and borrowings.

The model is first run under an assumption of a flat rate scenario (e.g., no change in current interest rates) with a static balance sheet.

Six additional models

are run in which gradual increases of 300 bps, 200 bps and 100 bps, and gradual decreases of 100 bps, 200 bps and 300 bps takes place over a 12-month period with a static balance sheet.

Under these scenarios, assets subject to prepayments are

adjusted to account for faster or slower prepayment assumptions.

Any investment securities or borrowings that have callable options embedded in them are handled accordingly based on the interest rate scenario.

The resulting changes in net

interest income are then measured against the flat rate scenario.

The Company also runs other interest rate scenarios to highlight potential interest rate risk.

The Company’s Interest Rate Sensitivity has remained in a near neutral position.

In the declining rate scenarios, net interest income is projected to modestly decrease when compared to the

forecasted net interest income in the flat rate scenario through the simulation period.

The decrease in net interest income is a result of earning assets repricing and rolling over at lower yields at a faster pace than interest-bearing

liabilities decline and/or reach their floors.

In the rising rate scenarios, net interest income is near neutral, impacted by slowing prepayments speeds and increased deposit reactivity;

the magnitude of potential impact on earnings may be

affected by the ability to lag deposit repricing on NOW, savings, MMDA and time accounts.

Net interest income for the next twelve months in the +300/+200/+100/-100/-200/-300 bps scenarios, as described above, is within the internal policy risk

limits of not more than a 5.0% reduction in net interest income in the +100/-100 bps scenarios, of not more than a 7.5% reduction in net interest income in the +200/-200 bps scenarios and of not more than a 12.0% reduction in net interest income

in the +300/-300 bps scenarios.

The following table summarizes the percentage change in net interest income in the rising and declining rate scenarios over a 12-month period from the forecasted net interest income in the flat rate scenario using

the March 31, 2025 balance sheet position:

Interest Rate Sensitivity Analysis

Change in interest rates

Percent change in

net interest income

The Company anticipates that the trajectory of net interest income will continue to depend significantly on the timing and path of short to mid-term interest rates which are heavily driven by

inflationary pressures and FOMC monetary policy.

Post-pandemic, inflationary pressures have resulted in a higher overall yield curve with federal funds increases of 425 bps in 2022 with an additional 100 bps of increases in 2023.

tightening cycle ended in September of 2024, when the FRB lowered the federal funds rate by 50 bps, followed by consecutive 25 bps reductions in November and December of 2024 for a total of 100 bps of federal funds rate reductions by the end of

While deposit rates increased meaningfully in 2023 and continued to increase in early 2024 in conjunction with elevated short-term interest rates, the recent federal funds rate reductions have provided the catalyst for the Company to begin

reducing deposit rates.

The Company continues to focus on managing deposit expense in an environment of still elevated but declining short-term interest rates while allowing assets to reprice upward in relation to existing portfolio asset yields.

Liquidity Risk

Liquidity risk arises from the possibility that the Company may not be able to satisfy current or future financial commitments or may become unduly reliant on alternate funding sources.

objective of liquidity management is to ensure the Company can fund balance sheet growth, meet the cash flow requirements of depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their

credit needs.

ALCO is responsible for liquidity management and has developed guidelines, which cover all assets and liabilities, as well as off-balance sheet items that are potential sources or uses of liquidity.

Liquidity policies must also

provide the flexibility to implement appropriate strategies, along with regular monitoring of liquidity and testing of the contingent liquidity plan.

Requirements change as loans grow, deposits and securities mature and payments on borrowings are

Liquidity management includes a focus on interest rate sensitivity management with a goal of avoiding widely fluctuating net interest margins through periods of changing economic conditions.

Loan repayments and maturing investment

securities are a relatively predictable source of funds.

However, deposit flows, calls of investment securities and prepayments of loans and mortgage-related securities are strongly influenced by interest rates, the housing market, general and

local economic conditions, and competition in the marketplace.

Management continually monitors marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset prepayments.

The primary liquidity measurement the Company utilizes is called “Basic Surplus,” which captures the adequacy of its access to reliable sources of cash relative to the stability of its funding mix

of average liabilities.

This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources, which can be accessed when necessary.

31, 2025, the Company’s Basic Surplus measurement was 16.9% of total assets, or $2.34 billion, as compared to the December 31, 2024 Basic Surplus of 17.0%, or $2.34 billion, and was above the Company’s minimum of 5% (calculated at $693.2 million

and $689.3 million of period end total assets as of March 31, 2025 and December 31, 2024, respectively) set forth in its liquidity policies.

At March 31, 2025 and December 31, 2024, FHLB advances outstanding totaled $4.6 million and $45.6 million, respectively.

At March 31, 2025 and December 31, 2024, the Bank had $204.0 million and

$199.0 million, respectively, of collateral encumbered by municipal letters of credit.

The Bank is a member of the FHLB system and had additional borrowing capacity from the FHLB of approximately $1.70 billion at March 31, 2025 and $1.71 billion

at December 31, 2024.

In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional $1.01 billion and $957.3 million at March 31, 2025 and December 31, 2024, respectively, or used to

collateralize other borrowings, such as repurchase agreements.

The Company also has the ability to issue brokered time deposits and to borrow against established borrowing facilities with other banks (federal funds), which could provide

additional liquidity of $2.02 billion at March 31, 2025 and $2.01 billion at December 31, 2024.

In addition, the Bank has a “Borrower-in-Custody” program with the FRB with the addition of the ability to pledge automobile and residential solar

loans as collateral.

At March 31, 2025 and December 31, 2024, the Bank had the capacity to borrow $1.16 billion and $1.13 billion, respectively, from this program.

The Company’s internal policies authorize borrowing up to 25% of assets.

this policy, remaining available borrowing capacity totaled $3.44 billion at March 31, 2025 and $3.38 billion at December 31, 2024.

This Basic Surplus approach enables the Company to appropriately manage liquidity from both operational and contingency perspectives.

By tempering the need for cash flow liquidity with reliable

borrowing facilities, the Company is able to operate with a more fully invested and, therefore, higher interest income generating securities portfolio.

The makeup and term structure of the securities portfolio is, in part, impacted by the overall

interest rate sensitivity of the balance sheet.

Investment decisions and deposit pricing strategies are impacted by the liquidity position.

The Company considers its Basic Surplus position to be strong.

However, certain events may adversely

impact the Company’s liquidity position in 2025.

While short-term interest rates have declined, they remain elevated relative to recent history, which could result in deposit declines as depositors have alternative opportunities for yield on

their excess funds.

In the current economic environment, draws against lines of credit could drive asset growth higher.

Disruptions in wholesale funding markets could spark increased competition for deposits.

These scenarios could lead to a

decrease in the Company’s Basic Surplus measure below the minimum policy level of 5%.

Note, enhanced liquidity monitoring was put in place to quickly respond to the changing environment during the pandemic including increasing the frequency of

monitoring and adding additional sources of liquidity.

While the pandemic has come to an end, this enhanced monitoring continues as elevated interest rates and the bank failures of 2023 have led to a deposit decline in the banking system and

increased volatility to liquidity risk.

At March 31, 2025, a portion of the Company’s loans and securities were pledged as collateral on borrowings.

Therefore, once on-balance sheet liquidity is reduced, future growth of earning assets

will depend upon the Company’s ability to obtain additional funding, through growth of core deposits and collateral management and may require further use of brokered time deposits or other higher cost borrowing arrangements.

The Company’s primary source of funds is dividends from its subsidiaries.

Various laws and regulations restrict the ability of banks to pay dividends to their stockholders.

Generally, the payment of

dividends by the Company in the future as well as the payment of interest on the capital securities will require the generation of sufficient future earnings by its subsidiaries.

Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends.

The approval of the OCC is required to pay dividends when a bank fails to

meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations.

At March 31, 2025, approximately $70.2 million of the total stockholders’ equity of the Bank was available for payment of dividends to the Company without approval by the OCC.

The Bank’s ability to pay dividends also is subject to the Bank being

in compliance with regulatory capital requirements.

The Bank is currently in compliance with these requirements.

Under the State of Delaware General Corporation Law, the Company may declare and pay dividends either out of accumulated net retained

earnings or capital surplus.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information called for by Item 3 is contained in the Liquidity and Interest Rate Sensitivity Management section of the Management’s Discussion and Analysis of Financial Condition and Results of

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements