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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023.
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.
COMMISSION FILE NUMBER 0-14703
NBT BANCORP INC.
(Exact name of registrant as specified in its charter)

Delaware |  | 16-1268674
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

52 South Broad Street, Norwich, New York 13815
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (607) 337-2265
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Stock, par value $0.01 per share |  | NBTB |  | The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2023, there were 47,087,868 shares outstanding of the Registrant’s Common Stock, $0.01 par value per share.

NBT BANCORP INC.
FORM 10-Q - Quarter Ended September 30, 2023
TABLE OF CONTENTS

PART I | FINANCIAL INFORMATION |
ITEM 1. | FINANCIAL STATEMENTS (unaudited) |
| Consolidated Balance Sheets at September 30, 2023 and December 31, 2022 | 3
| Consolidated Statements of Income for the three and nine month periods ended September 30, 2023 and 2022 | 4
| Consolidated Statements of Comprehensive Income (Loss) for the three and nine month periods ended September 30, 2023 and 2022 | 5
| Consolidated Statements of Stockholders’ Equity for the three and nine month periods ended September 30, 2023 and 2022 | 6
| Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2023 and 2022 | 7
| Notes to Unaudited Interim Consolidated Financial Statements | 9
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 33
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 50
ITEM 4. | CONTROLS AND PROCEDURES | 50
PART II | OTHER INFORMATION |
ITEM 1. | LEGAL PROCEEDINGS | 51
ITEM 1A. | RISK FACTORS | 51
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 51
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 51
ITEM 4. | MINE SAFETY DISCLOSURES | 51
ITEM 5. | OTHER INFORMATION | 51
ITEM 6. | EXHIBITS | 52
SIGNATURES |  | 53

Table of Contents
ITEM 1. FINANCIAL STATEMENTS
NBT Bancorp Inc. and Subsidiaries
Consolidated Balance Sheets (unaudited)

|  | September 30, |  |  | December 31, |
(In thousands, except share and per share data) |  | 2023 |  |  | 2022 |
Assets |  |  |  |  |  |
Cash and due from banks |  | $ | 213,358 |  |  | $ | 166,488 |
Short-term interest-bearing accounts |  |  | 459,296 |  |  |  | 30,862 |
Equity securities, at fair value |  |  | 35,600 |  |  |  | 30,784 |
Securities available for sale, at fair value |  |  | 1,399,032 |  |  |  | 1,527,225 |
Securities held to maturity (fair value of $783,986 and $812,647, respectively) |  |  | 914,520 |  |  |  | 919,517 |
Federal Reserve and Federal Home Loan Bank stock |  |  | 50,333 |  |  |  | 44,713 |
Loans held for sale |  |  | 4,113 |  |  |  | 562 |
Loans |  |  | 9,667,375 |  |  |  | 8,150,147 |
Less allowance for loan losses |  |  | 114,601 |  |  |  | 100,800 |
Net loans |  | $ | 9,552,774 |  |  | $ | 8,049,347 |
Premises and equipment, net |  |  | 82,837 |  |  |  | 69,047 |
Goodwill |  |  | 360,171 |  |  |  | 281,204 |
Intangible assets, net |  |  | 42,574 |  |  |  | 7,341 |
Bank owned life insurance |  |  | 264,537 |  |  |  | 232,409 |
Other assets |  |  | 448,483 |  |  |  | 379,797 |
Total assets |  | $ | 13,827,628 |  |  | $ | 11,739,296 |
Liabilities |  |  |  |  |  |  |  |
Demand (noninterest bearing) |  | $ | 3,716,309 |  |  | $ | 3,617,324 |
Savings, NOW and money market |  |  | 6,340,944 |  |  |  | 5,444,837 |
Time |  |  | 1,344,199 |  |  |  | 433,772 |
Total deposits |  | $ | 11,401,452 |  |  | $ | 9,495,933 |
Short-term borrowings |  |  | 490,180 |  |  |  | 585,012 |
Long-term debt |  |  | 29,834 |  |  |  | 4,815 |
Subordinated debt, net |  |  | 119,393 |  |  |  | 96,927 |
Junior subordinated debt |  |  | 101,196 |  |  |  | 101,196 |
Other liabilities |  |  | 322,752 |  |  |  | 281,859 |
Total liabilities |  | $ | 12,464,807 |  |  | $ | 10,565,742 |
Stockholders’ equity |  |  |  |  |  |  |  |
Preferred stock, $0.01 par value, 2,500,000 shares authorized |  | $ | - |  |  | $ | - |
Common stock, $0.01 par value, 100,000,000 shares authorized; 53,974,492 and 49,651,493 shares issued, respectively |  |  | 540 |  |  |  | 497 |
Additional paid-in-capital |  |  | 740,577 |  |  |  | 577,853 |
Retained earnings |  |  | 1,006,459 |  |  |  | 958,433 |
Accumulated other comprehensive loss |  |  | (207,579 | ) |  |  | (190,034 | )
Common stock in treasury, at cost, 6,886,895 and 6,793,670 shares, respectively |  |  | (177,176 | ) |  |  | (173,195 | )
Total stockholders’ equity |  | $ | 1,362,821 |  |  | $ | 1,173,554 |
Total liabilities and stockholders’ equity |  | $ | 13,827,628 |  |  | $ | 11,739,296 |

See accompanying notes to unaudited interim consolidated financial statements.
3

Table of Contents
NBT Bancorp Inc. and Subsidiaries
Consolidated Statements of Income (unaudited)

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
(In thousands, except per share data) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Interest, fee and dividend income |  |  |  |  |  |  |  |  |  |  |  |
Interest and fees on loans |  | $ | 122,097 |  |  | $ | 85,266 |  |  | $ | 329,931 |  |  | $ | 237,148 |
Securities available for sale |  |  | 7,495 |  |  |  | 7,665 |  |  |  | 22,604 |  |  |  | 21,822 |
Securities held to maturity |  |  | 5,281 |  |  |  | 4,854 |  |  |  | 15,307 |  |  |  | 12,532 |
Other |  |  | 2,221 |  |  |  | 1,429 |  |  |  | 4,033 |  |  |  | 3,396 |
Total interest, fee and dividend income |  | $ | 137,094 |  |  | $ | 99,214 |  |  | $ | 371,875 |  |  | $ | 274,898 |
Interest expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 30,758 |  |  | $ | 2,233 |  |  | $ | 61,888 |  |  | $ | 5,831 |
Short-term borrowings |  |  | 7,612 |  |  |  | 84 |  |  |  | 20,657 |  |  |  | 113 |
Long-term debt |  |  | 294 |  |  |  | 20 |  |  |  | 631 |  |  |  | 140 |
Subordinated debt |  |  | 1,612 |  |  |  | 1,360 |  |  |  | 4,281 |  |  |  | 4,078 |
Junior subordinated debt |  |  | 1,923 |  |  |  | 1,039 |  |  |  | 5,372 |  |  |  | 2,325 |
Total interest expense |  | $ | 42,199 |  |  | $ | 4,736 |  |  | $ | 92,829 |  |  | $ | 12,487 |
Net interest income |  | $ | 94,895 |  |  | $ | 94,478 |  |  | $ | 279,046 |  |  | $ | 262,411 |
Provision for loan losses |  |  | 12,633 |  |  |  | 4,484 |  |  |  | 20,148 |  |  |  | 9,470 |
Net interest income after provision for loan losses |  | $ | 82,262 |  |  | $ | 89,994 |  |  | $ | 258,898 |  |  | $ | 252,941 |
Noninterest income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service charges on deposit accounts |  | $ | 3,979 |  |  | $ | 3,581 |  |  | $ | 11,260 |  |  | $ | 11,032 |
Card services income |  |  | 5,503 |  |  |  | 5,654 |  |  |  | 15,469 |  |  |  | 24,100 |
Retirement plan administration fees |  |  | 12,798 |  |  |  | 11,496 |  |  |  | 35,995 |  |  |  | 37,451 |
Wealth management |  |  | 9,297 |  |  |  | 8,402 |  |  |  | 25,611 |  |  |  | 25,294 |
Insurance services |  |  | 4,361 |  |  |  | 3,892 |  |  |  | 12,008 |  |  |  | 11,258 |
Bank owned life insurance income |  |  | 1,568 |  |  |  | 1,560 |  |  |  | 4,974 |  |  |  | 4,625 |
Net securities (losses) |  |  | (183 | ) |  |  | (148 | ) |  |  | (9,822 | ) |  |  | (914 | )
Other |  |  | 2,913 |  |  |  | 2,735 |  |  |  | 8,195 |  |  |  | 8,641 |
Total noninterest income |  | $ | 40,236 |  |  | $ | 37,172 |  |  | $ | 103,690 |  |  | $ | 121,487 |
Noninterest expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  | $ | 49,248 |  |  | $ | 48,371 |  |  | $ | 144,237 |  |  | $ | 140,595 |
Technology and data services |  |  | 9,677 |  |  |  | 9,096 |  |  |  | 27,989 |  |  |  | 26,588 |
Occupancy |  |  | 7,090 |  |  |  | 6,481 |  |  |  | 21,233 |  |  |  | 19,761 |
Professional fees and outside services |  |  | 4,149 |  |  |  | 3,817 |  |  |  | 12,486 |  |  |  | 11,999 |
Office supplies and postage |  |  | 1,700 |  |  |  | 1,469 |  |  |  | 5,004 |  |  |  | 4,441 |
FDIC assessment |  |  | 1,657 |  |  |  | 787 |  |  |  | 4,397 |  |  |  | 2,399 |
Advertising |  |  | 667 |  |  |  | 559 |  |  |  | 1,841 |  |  |  | 1,943 |
Amortization of intangible assets |  |  | 1,609 |  |  |  | 544 |  |  |  | 2,603 |  |  |  | 1,725 |
Loan collection and other real estate owned, net |  |  | 569 |  |  |  | 549 |  |  |  | 2,115 |  |  |  | 1,690 |
Acquisition expenses |  |  | 7,917 |  |  |  | - |  |  |  | 9,724 |  |  |  | - |
Other |  |  | 6,514 |  |  |  | 5,021 |  |  |  | 17,284 |  |  |  | 13,815 |
Total noninterest expense |  | $ | 90,797 |  |  | $ | 76,694 |  |  | $ | 248,913 |  |  | $ | 224,956 |
Income before income tax expense |  | $ | 31,701 |  |  | $ | 50,472 |  |  | $ | 113,675 |  |  | $ | 149,472 |
Income tax expense |  |  | 7,095 |  |  |  | 11,499 |  |  |  | 25,339 |  |  |  | 33,598 |
Net income |  | $ | 24,606 |  |  | $ | 38,973 |  |  | $ | 88,336 |  |  | $ | 115,874 |
Earnings per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.54 |  |  | $ | 0.91 |  |  | $ | 2.02 |  |  | $ | 2.70 |
Diluted |  | $ | 0.54 |  |  | $ | 0.90 |  |  | $ | 2.01 |  |  | $ | 2.68 |

See accompanying notes to unaudited interim consolidated financial statements.
4

Table of Contents
NBT Bancorp Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss) (unaudited)

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
(In thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net income |  | $ | 24,606 |  |  | $ | 38,973 |  |  | $ | 88,336 |  |  | $ | 115,874 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized net holding (losses) arising during the period, gross |  | $ | (24,059 | ) |  | $ | (78,653 | ) |  | $ | (35,117 | ) |  | $ | (214,543 | )
Tax effect |  |  | 6,015 |  |  |  | 19,663 |  |  |  | 8,780 |  |  |  | 53,636 |
Unrealized net holding (losses) arising during the period, net |  | $ | (18,044 | ) |  | $ | (58,990 | ) |  | $ | (26,337 | ) |  | $ | (160,907 | )
Reclassification adjustment for net losses in net income, gross |  | $ | - |  |  | $ | - |  |  | $ | 9,450 |  |  | $ | - |
Tax effect |  |  | - |  |  |  | - |  |  |  | (2,363 | ) |  |  | - |
Reclassification adjustment for net losses in net income, net |  | $ | - |  |  | $ | - |  |  | $ | 7,087 |  |  | $ | - |
Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, gross |  | $ | 105 |  |  | $ | 125 |  |  | $ | 328 |  |  | $ | 393 |
Tax effect |  |  | (26 | ) |  |  | (31 | ) |  |  | (82 | ) |  |  | (98 | )
Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, net |  | $ | 79 |  |  | $ | 94 |  |  | $ | 246 |  |  | $ | 295 |
Total securities available for sale, net |  | $ | (17,965 | ) |  | $ | (58,896 | ) |  | $ | (19,004 | ) |  | $ | (160,612 | )
Pension and other benefits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization of prior service cost and actuarial losses, gross |  | $ | 648 |  |  | $ | 185 |  |  | $ | 1,946 |  |  | $ | 557 |
Tax effect |  |  | (162 | ) |  |  | (47 | ) |  |  | (487 | ) |  |  | (140 | )
Amortization of prior service cost and actuarial losses, net |  | $ | 486 |  |  | $ | 138 |  |  | $ | 1,459 |  |  | $ | 417 |
Total pension and other benefits, net |  | $ | 486 |  |  | $ | 138 |  |  | $ | 1,459 |  |  | $ | 417 |
Total other comprehensive (loss) |  | $ | (17,479 | ) |  | $ | (58,758 | ) |  | $ | (17,545 | ) |  | $ | (160,195 | )
Comprehensive income (loss) |  | $ | 7,127 |  |  | $ | (19,785 | ) |  | $ | 70,791 |  |  | $ | (44,321 | )

See accompanying notes to unaudited interim consolidated financial statements.
5

Table of Contents
NBT Bancorp Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

(In thousands, except share and per share data) |  | Common Stock |  |  | Additional Paid-in- Capital |  |  | Retained Earnings |  |  | Accumulated Other Comprehensive (Loss) Income |  |  | Common Stock in Treasury |  |  | Total |
Balance at June 30, 2023 |  | $ | 497 |  |  | $ | 578,322 |  |  | $ | 996,920 |  |  | $ | (190,100 | ) |  | $ | (175,146 | ) |  | $ | 1,210,493 |
Net income |  |  | - |  |  |  | - |  |  |  | 24,606 |  |  |  | - |  |  |  | - |  |  |  | 24,606 |
Cash dividends - $0.32 per share |  |  | - |  |  |  | - |  |  |  | (15,067 | ) |  |  | - |  |  |  | - |  |  |  | (15,067 | )
Issuance of 4,322,999 shares of common stock for acquisition |  |  | 43 |  |  |  | 161,680 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 161,723 |
Purchase of 68,500 treasury shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2,166 | ) |  |  | (2,166 | )
Net issuance of 6,334 shares to employee and other stock plans |  |  | - |  |  |  | (250 | ) |  |  | - |  |  |  | - |  |  |  | 136 |  |  |  | (114 | )
Stock-based compensation |  |  | - |  |  |  | 825 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 825 |
Other comprehensive (loss) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (17,479 | ) |  |  | - |  |  |  | (17,479 | )
Balance at September 30, 2023 |  | $ | 540 |  |  | $ | 740,577 |  |  | $ | 1,006,459 |  |  | $ | (207,579 | ) |  | $ | (177,176 | ) |  | $ | 1,362,821 |
Balance at June 30, 2022 |  | $ | 497 |  |  | $ | 577,345 |  |  | $ | 909,029 |  |  | $ | (124,781 | ) |  | $ | (173,534 | ) |  | $ | 1,188,556 |
Net income |  |  | - |  |  |  | - |  |  |  | 38,973 |  |  |  | - |  |  |  | - |  |  |  | 38,973 |
Cash dividends - $0.30 per share |  |  | - |  |  |  | - |  |  |  | (12,832 | ) |  |  | - |  |  |  | - |  |  |  | (12,832 | )
Net issuance of 2,849 shares to employee and other stock plans |  |  | - |  |  |  | (116 | ) |  |  | - |  |  |  | - |  |  |  | 53 |  |  |  | (63 | )
Stock-based compensation |  |  | - |  |  |  | 670 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 670 |
Other comprehensive (loss) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (58,758 | ) |  |  | - |  |  |  | (58,758 | )
Balance at September 30, 2022 |  | $ | 497 |  |  | $ | 577,899 |  |  | $ | 935,170 |  |  | $ | (183,539 | ) |  | $ | (173,481 | ) |  | $ | 1,156,546 |

(In thousands, except share and per share data) |  | Common Stock |  |  | Additional Paid-in- Capital |  |  | Retained Earnings |  |  | Accumulated Other Comprehensive (Loss) Income |  |  | Common Stock in Treasury |  |  | Total |
Balance at December 31, 2022 |  | $ | 497 |  |  | $ | 577,853 |  |  | $ | 958,433 |  |  | $ | (190,034 | ) |  | $ | (173,195 | ) |  | $ | 1,173,554 |
Cumulative effect adjustment for ASU 2022-02 implementation as of January 1, 2023 |  |  | - |  |  |  | - |  |  |  | 502 |  |  |  | - |  |  |  | - |  |  |  | 502 |
Net income |  |  | - |  |  |  | - |  |  |  | 88,336 |  |  |  | - |  |  |  | - |  |  |  | 88,336 |
Cash dividends - $0.92 per share |  |  | - |  |  |  | - |  |  |  | (40,812 | ) |  |  | - |  |  |  | - |  |  |  | (40,812 | )
Issuance of 4,322,999 shares of common stock for acquisition |  |  | 43 |  |  |  | 161,680 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 161,723 |
Purchase of 155,500 treasury shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (4,944 | ) |  |  | (4,944 | )
Net issuance of 62,275 shares to employee and other stock plans |  |  | - |  |  |  | (3,093 | ) |  |  | - |  |  |  | - |  |  |  | 963 |  |  |  | (2,130 | )
Stock-based compensation |  |  | - |  |  |  | 4,137 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,137 |
Other comprehensive (loss) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (17,545 | ) |  |  | - |  |  |  | (17,545 | )
Balance at September 30, 2023 |  | $ | 540 |  |  | $ | 740,577 |  |  | $ | 1,006,459 |  |  | $ | (207,579 | ) |  | $ | (177,176 | ) |  | $ | 1,362,821 |
Balance at December 31, 2021 |  | $ | 497 |  |  | $ | 576,976 |  |  | $ | 856,203 |  |  | $ | (23,344 | ) |  | $ | (159,879 | ) |  | $ | 1,250,453 |
Net income |  |  | - |  |  |  | - |  |  |  | 115,874 |  |  |  | - |  |  |  | - |  |  |  | 115,874 |
Cash dividends - $0.86 per share |  |  | - |  |  |  | - |  |  |  | (36,907 | ) |  |  | - |  |  |  | - |  |  |  | (36,907 | )
Purchase of 400,000 treasury shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (14,713 | ) |  |  | (14,713 | )
Net issuance of 71,243 shares to employee and other stock plans |  |  | - |  |  |  | (3,026 | ) |  |  | - |  |  |  | - |  |  |  | 1,111 |  |  |  | (1,915 | )
Stock-based compensation |  |  | - |  |  |  | 3,949 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,949 |
Other comprehensive (loss) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (160,195 | ) |  |  | - |  |  |  | (160,195 | )
Balance at September 30, 2022 |  | $ | 497 |  |  | $ | 577,899 |  |  | $ | 935,170 |  |  | $ | (183,539 | ) |  | $ | (173,481 | ) |  | $ | 1,156,546 |

See accompanying notes to unaudited interim consolidated financial statements.
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NBT Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)

|  | Nine Months Ended September 30, |
(In thousands) |  | 2023 |  |  | 2022 |
Operating activities |  |  |  |  |  |
Net income |  | $ | 88,336 |  |  | $ | 115,874 |
Adjustments to reconcile net income to net cash provided by operating activities |  |  |  |  |  |  |  |
Provision for loan losses |  |  | 20,148 |  |  |  | 9,470 |
Depreciation and amortization of premises and equipment |  |  | 7,808 |  |  |  | 7,581 |
Net amortization on securities |  |  | 2,057 |  |  |  | 2,736 |
Amortization of intangible assets |  |  | 2,603 |  |  |  | 1,725 |
Amortization of operating lease right-of-use assets |  |  | 5,029 |  |  |  | 4,989 |
Excess tax benefit on stock-based compensation |  |  | (239 | ) |  |  | (183 | )
Stock-based compensation expense |  |  | 4,137 |  |  |  | 3,949 |
Bank owned life insurance income |  |  | (4,974 | ) |  |  | (4,625 | )
Amortization of subordinated debt issuance costs |  |  | 328 |  |  |  | 327 |
Proceeds from sale of loans held for sale |  |  | 26,108 |  |  |  | 4,238 |
Originations of loans held for sale |  |  | (29,167 | ) |  |  | (3,573 | )
Net gain on sale of loans held for sale |  |  | (88 | ) |  |  | (112 | )
Net securities losses |  |  | 9,822 |  |  |  | 914 |
Net gains on sale of other real estate owned |  |  | (50 | ) |  |  | (259 | )
Net change in other assets and other liabilities |  |  | (10,054 | ) |  |  | 10,470 |
Net cash provided by operating activities |  | $ | 121,804 |  |  | $ | 153,521 |
Investing activities |  |  |  |  |  |  |  |
Net cash provided by (used in) acquisitions |  | $ | 44,564 |  |  | $ | (2,534 | )
Securities available for sale: |  |  |  |  |  |  |  |
Proceeds from maturities, calls and principal paydowns |  |  | 90,415 |  |  |  | 177,704 |
Proceeds from sales |  |  | 124,577 |  |  |  | - |
Purchases |  |  | - |  |  |  | (262,861 | )
Securities held to maturity: |  |  |  |  |  |  |  |
Proceeds from maturities, calls and principal paydowns |  |  | 81,949 |  |  |  | 154,194 |
Purchases |  |  | (77,930 | ) |  |  | (351,390 | )
Equity securities: |  |  |  |  |  |  |  |
Purchases |  |  | (4 | ) |  |  | (1,000 | )
Other: |  |  |  |  |  |  |  |
Net increase in loans |  |  | (349,168 | ) |  |  | (410,805 | )
Proceeds from Federal Home Loan Bank stock redemption |  |  | 84,378 |  |  |  | 6,491 |
Purchases of Federal Reserve and Federal Home Loan Bank stock |  |  | (88,260 | ) |  |  | (6,285 | )
Proceeds from settlement of bank owned life insurance |  |  | 3,185 |  |  |  | 1,873 |
Purchases of premises and equipment, net |  |  | (6,333 | ) |  |  | (4,749 | )
Proceeds from sales of other real estate owned |  |  | 229 |  |  |  | 426 |
Net cash used in investing activities |  | $ | (92,398 | ) |  | $ | (698,936 | )
Financing activities |  |  |  |  |  |  |  |
Net increase (decrease) in deposits |  | $ | 596,543 |  |  | $ | (315,718 | )
Net decrease in short-term borrowings |  |  | (128,214 | ) |  |  | (23,241 | )
Proceeds from long-term debt |  |  | 25,000 |  |  |  | - |
Repayments of long-term debt |  |  | (80 | ) |  |  | (10,673 | )
Cash paid by employer for tax-withholding on stock issuance |  |  | (1,595 | ) |  |  | (1,346 | )
Purchase of treasury stock |  |  | (4,944 | ) |  |  | (14,713 | )
Cash dividends |  |  | (40,812 | ) |  |  | (36,907 | )
Net cash provided by (used in) financing activities |  | $ | 445,898 |  |  | $ | (402,598 | )
Net increase (decrease) in cash and cash equivalents |  | $ | 475,304 |  |  | $ | (948,013 | )
Cash and cash equivalents at beginning of period |  |  | 197,350 |  |  |  | 1,269,071 |
Cash and cash equivalents at end of period |  | $ | 672,654 |  |  | $ | 321,058 |

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NBT Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited) (continued)

|  | Nine Months Ended September 30, |
|  | 2023 |  |  | 2022 |
Supplemental disclosure of cash flow information |  |  |  |  |  |
Cash paid during the period for: |  |  |  |  |  |
Interest expense |  | $ | 78,130 |  |  | $ | 14,456 |
Income taxes paid, net of refund |  |  | 26,663 |  |  |  | 41,903 |
Noncash investing activities: |  |  |  |  |  |  |  |
Loans transferred to other real estate owned |  | $ | 74 |  |  | $ | - |
Acquisitions: |  |  |  |  |  |  |  |
Fair value of assets acquired, excluding acquired cash and goodwill |  | $ | 1,417,392 |  |  | $ | 705 |
Fair value of liabilities assumed |  |  | 1,380,386 |  |  |  | - |

See accompanying notes to unaudited interim consolidated financial statements.
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NBT Bancorp Inc. and Subsidiaries
Notes to Unaudited Interim Consolidated Financial Statements
September 30, 2023

1. | Description of Business

NBT Bancorp Inc. is a registered financial holding company incorporated in the state of Delaware in 1986, with its principal headquarters located in Norwich, New York. The principal assets of NBT Bancorp Inc. consist of all of the outstanding shares of common stock of its subsidiaries, including: NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc. (“NBT Financial”), NBT Holdings, Inc. (“NBT Holdings”), CNBF Capital Trust I, NBT Statutory Trust I, NBT Statutory Trust II, Alliance Financial Capital Trust I and Alliance Financial Capital Trust II. The principal sources of revenue for NBT Bancorp Inc. are the management fees and dividends it receives from the Bank, NBT Financial and NBT Holdings. Collectively, NBT Bancorp Inc. and its subsidiaries are referred to herein as (the “Company”).
The Company’s business, primarily conducted through the Bank, consists of providing commercial banking, retail banking and wealth management services primarily to customers in its market area, which includes upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central and northwestern Connecticut. The Company has been, and intends to continue to be, a community-oriented financial institution offering a variety of financial services. The Company’s business philosophy is to operate as a community bank with local decision-making, providing a broad array of banking and financial services to retail, commercial and municipal customers.

2. | Summary of Significant Accounting Policies

Basis of Presentation
The accompanying unaudited interim consolidated financial statements include the accounts of NBT Bancorp Inc. and its wholly-owned subsidiaries: the Bank, NBT Financial and NBT Holdings. In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and in accordance with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, the consolidated financial statements do not include all of the information and notes necessary for complete financial statements in conformity with GAAP. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2022 Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. All material intercompany transactions have been eliminated in consolidation. Amounts previously reported in the consolidated financial statements are reclassified whenever necessary to conform to current period presentation. The Company has evaluated subsequent events for potential recognition and/or disclosure and there were none identified.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences could be material to the financial statements.

3. | Recent Accounting Pronouncements

Recently Adopted Accounting Standards
I n March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2022-02, Financial Instruments - CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). The ASU eliminates the guidance on Troubled Debt Restructurings (“TDRs”) and requires an evaluation on all loan modifications to determine if they result in a new loan or a continuation of the existing loan. The ASU also requires that entities disclose current-period gross charge-offs by year of origination. The elimination of the TDR guidance may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would also apply to loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. The amendments in this ASU were effective for the Company on January 1, 2023, with early adoption permitted. The Company adopted ASU 2022-02 on January 1, 2023 (“Day 1”) using the modified retrospective method and recorded a net increase to retained earnings of $0.5 million. The transition adjustment includes a $0.6 million impact to the allowance for credit losses on loans and a $0.1 million impact to the deferred tax asset.
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Accounting Standards Issued Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements, which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. The ASU was issued in response to the SEC’s August 2018 final rule that updated and simplified disclosure requirements that the SEC believed were redundant, duplicative, overlapping, outdated, or superseded. The new guidance is intended to align GAAP requirements with those of the SEC. The ASU will become effective on the earlier of the date on which the SEC removes its disclosure requirements for the related disclosure or June 30, 2027. Early adoption is not permitted. The adoption is not expected to have a material impact on the consolidated financial statements.

4. | Acquisitions

Salisbury Bancorp, Inc.
On August 11, 2023, the Company completed the acquisition of Salisbury Bancorp, Inc. (“Salisbury”) through the merger of Salisbury with and into the Company, with the Company surviving the merger, for $161.7 million in stock. Salisbury was a Connecticut-chartered commercial bank headquartered in Lakeville, Connecticut with 13 banking offices. The acquisition enhances the Company’s presence in Massachusetts’ Berkshire county, as well as extends its footprint into New York’s Dutchess, Orange and Ulster counties and in Connecticut’s Litchfield county. In connection with the acquisition, the Company issued 4.32 million shares and acquired approximately $1.46 billion of identifiable assets. Preliminary goodwill of $78.1 million was recognized as a result of the merger and is not amortizable or deductible for tax purposes. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date. As a result of the full integration of the operations of Salisbury, it is not practicable to determine all revenue or net income included in the Company’s operating results relating to Salisbury since the date of acquisition as Salisbury results cannot be separately identified.
The Company determined that this acquisition constitutes a business combination and therefore was accounted for using the acquisition method of 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. Accrued income taxes, deferred taxes, and certain fixed assets associated with the Salisbury acquisition were recorded on a provisional basis and could vary from the actual recorded balance once market-based appraisals and tax provisions and returns are finalized.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed:

|  | August 11, 2023 |
(In thousands) |  | Salisbury Bancorp, Inc. |
Consideration: |  |  |
Cash paid to shareholders (fractional shares) |  | $ | 15 |
Common stock issuance |  |  | 161,723 |
Total net consideration |  | $ | 161,738 |
Recognized amounts of identifiable assets acquired and (liabilities) assumed: |  |  |  |
Cash and cash equivalents |  | $ | 48,665 |
Securities available for sale |  |  | 122,667 |
Loans, net of allowance for credit losses on purchased credit deteriorated loans |  |  | 1,174,237 |
Premises and equipment, net |  |  | 15,254 |
Core deposit intangibles |  |  | 31,188 |
Wealth management customer intangible |  |  | 4,654 |
Bank owned life insurance |  |  | 30,315 |
Other assets |  |  | 37,083 |
Total identifiable assets acquired |  | $ | 1,464,063 |
Deposits |  | $ | (1,308,976 | )
Borrowings |  |  | (55,461 | )
Other liabilities |  |  | (15,949 | )
Total liabilities assumed |  | $ | (1,380,386 | )
Total identifiable assets, net |  | $ | 83,677 |
Goodwill |  | $ | 78,061 |

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The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. The Company used an independent valuation specialist to assist with the determination of fair values for certain acquired assets and assumed liabilities.
Cash and due from banks - The estimated fair value was determined to approximate the carrying amount of these assets.
Securities available for sale - The estimated fair value of the investment portfolio was based on quoted market prices and dealer quotes. The investment securities were sold immediately after the merger and no gains or losses were recorded.
Loans - The estimated fair value of loans were based on a discounted cash flow methodology applied on a pooled basis for non-purchased credit deteriorated (“non-PCD”) loans and for purchased credit deteriorated (“PCD”) loans. The valuation considered underlying characteristics including loan type, term, rate, payment schedule and credit rating. Other factors included assumptions related to prepayments, probability of default and loss given default. The discount rates applied were based on a build-up approach considering the funding mix, servicing costs, liquidity premium and factors related to performance risk.
Core deposit intangible - The core deposit intangible was valued utilizing the cost savings method approach, which recognizes the cost savings represented by the expense of maintaining the core deposit base versus the cost of an alternative funding source. The valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates.
Wealth management customer intangible - The wealth management customer intangible was valued utilizing the income approach, which employs a present value analysis, which calculates the expected after-tax cash flow benefits of the net revenues generated by the acquired customers over the expected lives of the acquired customers, discounted at a long-term market-oriented after-tax rate of return on investment. The value assigned to the acquired customers represents the future economic benefit from acquiring the customers (net of operating expenses).
Deposits - The fair value of noninterest bearing demand deposits, interest checking, money market and savings deposit accounts from Salisbury were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit (time deposit accounts) were valued at the present value of the certificates’ expected contractual payments discounted at market rates for similar certificates.
Borrowings - The estimated fair value of short-term borrowings was determined to approximate stated value. Subordinated debt was valued using a discounted cash flow approach incorporating a discount rate that incorporated similar terms, maturity and credit rating.
Accounting for Acquired Loans
Acquired loans are classified into two categories PCD loans and non-PCD loans. PCD loans are defined as a loan or group of loans that have experienced more than insignificant credit deterioration since origination. Non-PCD loans will have an allowance established on acquisition date, which is recognized as an expense through the provision for credit losses. For PCD loans, an allowance is recognized on day 1 by adding it to the fair value of the loan, which is the “Day 1 amortized cost”. There is no provision for credit loss expense recognized on PCD loans because the initial allowance is established by grossing-up the amortized cost of the PCD loan. A day 1 allowance for credit losses on non-PCD loans of $8.8 million was recorded through the provision for loan losses within the unaudited interim consolidated statements of income. The following table provides details related to the fair value of acquired PCD loans.

(In thousands) |  | PCD Loans |
Par value of PCD loans at acquisition |  | $ | 219,076 |
Allowance for credit losses at acquisition |  |  | 5,772 |
Discount at acquisition |  |  | (24,512 | )
Fair value of PCD loans at acquisition |  | $ | 200,336 |

Direct costs related to the acquisition were expensed as incurred. Merger and acquisition integration-related expenses were $7.9 million and $9.7 million during the three and nine months ended September 30, 2023, respectively. These amounts have been separately stated in the unaudited interim consolidated statements of income.
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Supplemental Pro Forma Financial Information (Unaudited)
The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the three and nine months ended September 30, 2023 and 2022, as if Salisbury had been acquired on January 1, 2023. This unaudited pro forma information combines the historical results of Salisbury with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the 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) |  |  | Pro Forma (Unaudited) |
|  | Three Months Ended |  |  | Nine Months Ended |
(In thousands) |  | September 30, 2023 |  |  | September 30, 2022 |  |  | September 30, 2023 |  |  | September 30, 2022 |
Total revenue, net of interest expense |  | $ | 130,881 |  |  | $ | 147,621 |  |  | $ | 404,580 |  |  | $ | 427,440 |
Net income |  |  | 12,182 |  |  |  | 43,374 |  |  |  | 81,859 |  |  |  | 127,209 |

5. | Securities

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

(In thousands) |  | Amortized Cost |  |  | Unrealized Gains |  |  | Unrealized Losses |  |  | Estimated Fair Value |
As of September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury |  | $ | 133,160 |  |  | $ | - |  |  | $ | (11,565 | ) |  | $ | 121,595 |
Federal agency |  |  | 248,392 |  |  |  | - |  |  |  | (44,636 | ) |  |  | 203,756 |
State & municipal |  |  | 96,449 |  |  |  | - |  |  |  | (13,164 | ) |  |  | 83,285 |
Mortgage-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprises |  |  | 412,257 |  |  |  | - |  |  |  | (61,231 | ) |  |  | 351,026 |
U.S. government agency securities |  |  | 74,812 |  |  |  | 6 |  |  |  | (10,076 | ) |  |  | 64,742 |
Collateralized mortgage obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprises |  |  | 463,436 |  |  |  | 2 |  |  |  | (63,389 | ) |  |  | 400,049 |
U.S. government agency securities |  |  | 164,418 |  |  |  | - |  |  |  | (31,056 | ) |  |  | 133,362 |
Corporate |  |  | 48,432 |  |  |  | - |  |  |  | (7,215 | ) |  |  | 41,217 |
Total AFS securities |  | $ | 1,641,356 |  |  | $ | 8 |  |  | $ | (242,332 | ) |  | $ | 1,399,032 |
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury |  | $ | 132,891 |  |  | $ | - |  |  | $ | (11,233 | ) |  | $ | 121,658 |
Federal agency |  |  | 248,419 |  |  |  | - |  |  |  | (42,000 | ) |  |  | 206,419 |
State & municipal |  |  | 97,036 |  |  |  | 5 |  |  |  | (14,190 | ) |  |  | 82,851 |
Mortgage-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprises |  |  | 454,177 |  |  |  | 9 |  |  |  | (54,675 | ) |  |  | 399,511 |
U.S. government agency securities |  |  | 81,844 |  |  |  | 15 |  |  |  | (7,676 | ) |  |  | 74,183 |
Collateralized mortgage obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprises |  |  | 498,021 |  |  |  | 9 |  |  |  | (59,473 | ) |  |  | 438,557 |
U.S. government agency securities |  |  | 171,090 |  |  |  | - |  |  |  | (21,284 | ) |  |  | 149,806 |
Corporate |  |  | 60,404 |  |  |  | - |  |  |  | (6,164 | ) |  |  | 54,240 |
Total AFS securities |  | $ | 1,743,882 |  |  | $ | 38 |  |  | $ | (216,695 | ) |  | $ | 1,527,225 |

There was no allowance for credit losses on AFS securities as of September 30, 2023 and December 31, 2022.
During the three months ended September 30, 2023, there were no gains or losses reclassified out of accumulated other comprehensive income (loss) (“AOCI”) and into earnings. During the nine months ended September 30, 2023, there were $4.5 million of gross realized losses reclassified out of AOCI and into earnings and the Company incurred a $5.0 million loss on the write-off of an AFS corporate debt security from a subordinated debt investment of a financial institution that failed. These losses were reclassified out of AOCI and into earnings in net securities losses in the consolidated statements of income. During the three and nine months ended September 30, 2022 there were no gains or losses reclassified out of AOCI and into earnings.
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The amortized cost, estimated fair value and unrealized gains (losses) of held to maturity (“HTM”) securities are as follows:

(In thousands) |  | Amortized Cost |  |  | Unrealized Gains |  |  | Unrealized Losses |  |  | Estimated Fair Value |
As of September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Federal agency |  | $ | 100,000 |  |  | $ | - |  |  | $ | (23,003 | ) |  | $ | 76,997 |
Mortgage-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprises |  |  | 233,580 |  |  |  | - |  |  |  | (45,066 | ) |  |  | 188,514 |
U.S. government agency securities |  |  | 17,094 |  |  |  | - |  |  |  | (1,328 | ) |  |  | 15,766 |
Collateralized mortgage obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprises |  |  | 192,243 |  |  |  | - |  |  |  | (18,562 | ) |  |  | 173,681 |
U.S. government agency securities |  |  | 64,537 |  |  |  | - |  |  |  | (13,259 | ) |  |  | 51,278 |
State & municipal |  |  | 307,066 |  |  |  | - |  |  |  | (29,316 | ) |  |  | 277,750 |
Total HTM securities |  | $ | 914,520 |  |  | $ | - |  |  | $ | (130,534 | ) |  | $ | 783,986 |
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal agency |  | $ | 100,000 |  |  | $ | - |  |  | $ | (20,678 | ) |  | $ | 79,322 |
Mortgage-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprises |  |  | 249,511 |  |  |  | - |  |  |  | (36,819 | ) |  |  | 212,692 |
U.S. government agency securities |  |  | 18,396 |  |  |  | 4 |  |  |  | (619 | ) |  |  | 17,781 |
Collateralized mortgage obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government-sponsored enterprises |  |  | 207,738 |  |  |  | 200 |  |  |  | (14,876 | ) |  |  | 193,062 |
U.S. government agency securities |  |  | 66,628 |  |  |  | - |  |  |  | (9,842 | ) |  |  | 56,786 |
State & municipal |  |  | 277,244 |  |  |  | 5 |  |  |  | (24,245 | ) |  |  | 253,004 |
Total HTM securities |  | $ | 919,517 |  |  | $ | 209 |  |  | $ | (107,079 | ) |  | $ | 812,647 |

At September 30, 2023 and December 31, 2022, all of the mortgaged-backed HTM securities were comprised of U.S. government agency and government-sponsored enterprises securities. There was no allowance for credit losses on HTM securities as of September 30, 2023 and December 31, 2022 because the expectation of nonrepayment of the amortized cost was zero, except for state & municipal securities, which such expected losses from nonrepayment were immaterial.
The Company recorded no gains from calls on HTM securities for the three months ended September 30, 2023 and 2022. The Company recorded no gains from calls on HTM securities for the nine months ended September 30, 2023. Included in net realized gains (losses), the Company recorded gains from calls on HTM securities of approximately $4 thousand for the nine months ended September 30, 2022.
AFS and HTM securities with amortized costs totaling $1.99 billion at September 30, 2023 and $1.73 billion at December 31, 2022 were pledged to secure public deposits and for other purposes required or permitted by law. Additionally, at September 30, 2023 and December 31, 2022, AFS and HTM securities with an amortized cost totaling $157.4 million and $149.5 million, respectively, were pledged as collateral for securities sold under repurchase agreements.
The following tables set forth information with regard to gains and (losses) on equity securities:

|  | Three Months Ended September 30, |
(In thousands) |  | 2023 |  |  | 2022 |
Net (losses) recognized on equity securities |  | $ | (183 | ) |  | $ | (148 | )
Less: Net (losses) recognized on equity securities sold during the period |  |  | - |  |  |  | - |
Unrealized (losses) recognized on equity securities still held |  | $ | (183 | ) |  | $ | (148 | )

|  | Nine Months Ended September 30, |
(In thousands) |  | 2023 |  |  | 2022 |
Net (losses) recognized on equity securities |  | $ | (372 | ) |  | $ | (918 | )
Less: Net (losses) recognized on equity securities sold during the period |  |  | - |  |  |  | - |
Unrealized (losses) recognized on equity securities still held |  | $ | (372 | ) |  | $ | (918 | )

As of September 30, 2023 and December 31, 2022, the carrying value of equity securities without readily determinable fair values was $1.0 million. The Company performed a qualitative assessment to determine whether the investments were impaired and identified no areas of concern as of September 30, 2023 and 2022. There were no impairments, or downward or upward adjustments recognized for equity securities without readily determinable fair values during the three and nine months ended September 30, 2023 and 2022.
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The following table sets forth information with regard to contractual maturities of debt securities at September 30, 2023:

(In thousands) |  | Amortized Cost |  |  | Estimated Fair Value |
AFS debt securities: |  |  |  |  |  |
Within one year |  | $ | 16,971 |  |  | $ | 16,676 |
From one to five years |  |  | 509,520 |  |  |  | 447,316 |
From five to ten years |  |  | 423,813 |  |  |  | 359,342 |
After ten years |  |  | 691,052 |  |  |  | 575,698 |
Total AFS debt securities |  | $ | 1,641,356 |  |  | $ | 1,399,032 |
HTM debt securities: |  |  |  |  |  |  |  |
Within one year |  | $ | 88,319 |  |  | $ | 88,240 |
From one to five years |  |  | 100,237 |  |  |  | 95,052 |
From five to ten years |  |  | 279,872 |  |  |  | 234,309 |
After ten years |  |  | 446,092 |  |  |  | 366,385 |
Total HTM debt securities |  | $ | 914,520 |  |  | $ | 783,986 |

Maturities of mortgage-backed, collateralized mortgage obligations and asset-backed securities are stated based on their estimated average lives. Actual maturities may differ from estimated average lives or contractual maturities because, in certain cases, borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Except for U.S. government securities and government-sponsored enterprises securities, there were no holdings, when taken in the aggregate, of any single issuer that exceeded 10% of consolidated stockholders’ equity at September 30, 2023 and December 31, 2022.
The following table sets forth information with regard to investment securities with unrealized losses, for which an allowance for credit losses has not been recorded, segregated according to the length of time the securities had been in a continuous unrealized loss position:

|  | Less Than 12 Months |  |  | 12 Months or Longer |  |  | Total |
(In thousands) |  | Fair Value |  |  | Unrealized Losses |  |  | Number of Positions |  |  | Fair Value |  |  | Unrealized Losses |  |  | Number of Positions |  |  | Fair Value |  |  | Unrealized Losses |  |  | Number of Positions |
As of September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AFS securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury |  | $ | - |  |  | $ | - |  |  |  | - |  |  | $ | 121,595 |  |  | $ | (11,565 | ) |  |  | 8 |  |  | $ | 121,595 |  |  | $ | (11,565 | ) |  |  | 8 |
Federal agency |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 203,756 |  |  |  | (44,636 | ) |  |  | 16 |  |  |  | 203,756 |  |  |  | (44,636 | ) |  |  | 16 |
State & municipal |  |  | 747 |  |  |  | (21 | ) |  |  | 1 |  |  |  | 82,538 |  |  |  | (13,143 | ) |  |  | 66 |  |  |  | 83,285 |  |  |  | (13,164 | ) |  |  | 67 |
Mortgage-backed |  |  | 463 |  |  |  | (7 | ) |  |  | 25 |  |  |  | 414,686 |  |  |  | (71,300 | ) |  |  | 157 |  |  |  | 415,149 |  |  |  | (71,307 | ) |  |  | 182 |
Collateralized mortgage obligations |  |  | 3,825 |  |  |  | (31 | ) |  |  | 6 |  |  |  | 528,324 |  |  |  | (94,414 | ) |  |  | 118 |  |  |  | 532,149 |  |  |  | (94,445 | ) |  |  | 124 |
Corporate |  |  | 1,344 |  |  |  | (101 | ) |  |  | 1 |  |  |  | 39,873 |  |  |  | (7,114 | ) |  |  | 14 |  |  |  | 41,217 |  |  |  | (7,215 | ) |  |  | 15 |
Total securities with unrealized losses |  | $ | 6,379 |  |  | $ | (160 | ) |  |  | 33 |  |  | $ | 1,390,772 |  |  | $ | (242,172 | ) |  |  | 379 |  |  | $ | 1,397,151 |  |  | $ | (242,332 | ) |  |  | 412 |
HTM securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal agency |  | $ | - |  |  | $ | - |  |  |  | - |  |  | $ | 76,997 |  |  | $ | (23,003 | ) |  |  | 4 |  |  | $ | 76,997 |  |  | $ | (23,003 | ) |  |  | 4 |
Mortgage-backed |  |  | 11,610 |  |  |  | (975 | ) |  |  | 1 |  |  |  | 192,576 |  |  |  | (45,419 | ) |  |  | 33 |  |  |  | 204,186 |  |  |  | (46,394 | ) |  |  | 34 |
Collateralized mortgage obligation |  |  | 8,834 |  |  |  | (134 | ) |  |  | 2 |  |  |  | 216,125 |  |  |  | (31,687 | ) |  |  | 53 |  |  |  | 224,959 |  |  |  | (31,821 | ) |  |  | 55 |
State & municipal |  |  | 24,593 |  |  |  | (1,080 | ) |  |  | 31 |  |  |  | 164,058 |  |  |  | (28,236 | ) |  |  | 193 |  |  |  | 188,651 |  |  |  | (29,316 | ) |  |  | 224 |
Total securities with unrealized losses |  | $ | 45,037 |  |  | $ | (2,189 | ) |  |  | 34 |  |  | $ | 649,756 |  |  | $ | (128,345 | ) |  |  | 283 |  |  | $ | 694,793 |  |  | $ | (130,534 | ) |  |  | 317 |
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AFS securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury |  | $ | 55,616 |  |  | $ | (3,864 | ) |  |  | 5 |  |  | $ | 66,042 |  |  | $ | (7,369 | ) |  |  | 3 |  |  | $ | 121,658 |  |  | $ | (11,233 | ) |  |  | 8 |
Federal agency |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 206,419 |  |  |  | (42,000 | ) |  |  | 16 |  |  |  | 206,419 |  |  |  | (42,000 | ) |  |  | 16 |
State & municipal |  |  | 3,679 |  |  |  | (341 | ) |  |  | 2 |  |  |  | 78,395 |  |  |  | (13,849 | ) |  |  | 64 |  |  |  | 82,074 |  |  |  | (14,190 | ) |  |  | 66 |
Mortgage-backed |  |  | 204,447 |  |  |  | (15,048 | ) |  |  | 149 |  |  |  | 267,926 |  |  |  | (47,303 | ) |  |  | 32 |  |  |  | 472,373 |  |  |  | (62,351 | ) |  |  | 181 |
Collateralized mortgage obligations |  |  | 211,612 |  |  |  | (14,458 | ) |  |  | 77 |  |  |  | 374,376 |  |  |  | (66,299 | ) |  |  | 49 |  |  |  | 585,988 |  |  |  | (80,757 | ) |  |  | 126 |
Corporate |  |  | 34,434 |  |  |  | (2,970 | ) |  |  | 12 |  |  |  | 19,806 |  |  |  | (3,194 | ) |  |  | 6 |  |  |  | 54,240 |  |  |  | (6,164 | ) |  |  | 18 |
Total securities with unrealized losses |  | $ | 509,788 |  |  | $ | (36,681 | ) |  |  | 245 |  |  | $ | 1,012,964 |  |  | $ | (180,014 | ) |  |  | 170 |  |  | $ | 1,522,752 |  |  | $ | (216,695 | ) |  |  | 415 |
HTM securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal agency |  | $ | - |  |  | $ | - |  |  |  | - |  |  | $ | 79,322 |  |  | $ | (20,678 | ) |  |  | 4 |  |  | $ | 79,322 |  |  | $ | (20,678 | ) |  |  | 4 |
Mortgage-backed |  |  | 91,417 |  |  |  | (9,096 | ) |  |  | 21 |  |  |  | 138,936 |  |  |  | (28,342 | ) |  |  | 13 |  |  |  | 230,353 |  |  |  | (37,438 | ) |  |  | 34 |
Collateralized mortgage obligations |  |  | 191,644 |  |  |  | (13,863 | ) |  |  | 47 |  |  |  | 48,289 |  |  |  | (10,855 | ) |  |  | 8 |  |  |  | 239,933 |  |  |  | (24,718 | ) |  |  | 55 |
State & municipal |  |  | 110,727 |  |  |  | (4,930 | ) |  |  | 149 |  |  |  | 82,949 |  |  |  | (19,315 | ) |  |  | 76 |  |  |  | 193,676 |  |  |  | (24,245 | ) |  |  | 225 |
Total securities with unrealized losses |  | $ | 393,788 |  |  | $ | (27,889 | ) |  |  | 217 |  |  | $ | 349,496 |  |  | $ | (79,190 | ) |  |  | 101 |  |  | $ | 743,284 |  |  | $ | (107,079 | ) |  |  | 318 |

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The Company does not believe the AFS securities that were in an unrealized loss position as of September 30, 2023 and December 31, 2022, which consisted of 412 and 415 individual securities, respectively, represented a credit loss impairment. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. As of September 30, 2023 and December 31, 2022, the majority of the AFS securities in an unrealized loss position consisted of debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises that carry the explicit and/or implicit guarantee of the U.S. government, which are widely recognized as “risk- free” and have a long history of zero credit losses. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. The Company does not intend to sell, nor is it more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may be at maturity. The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities. AIR on AFS debt securities totaled $3.9 million at September 30, 2023 and $4.2 million at December 31, 2022 and is excluded from the estimate of credit losses and reported in the other assets financial statement line.
None of the Bank’s HTM debt securities were past due or on nonaccrual status as of September 30, 2023 and December 31, 2022. There was no accrued interest reversed against interest income for the three and nine months ended September 30, 2023 or the year ended December 31, 2022 as all securities remained on accrual status. In addition, there were no collateral-dependent HTM debt securities as of September 30, 2023 and December 31, 2022. As of September 30, 2023 and December 31, 2022, 66% and 70%, respectively, of the Company’s HTM debt securities were issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, which are widely recognized as “risk-free,” and have a long history of zero credit losses. Therefore, the Company did not record an allowance for credit losses for these securities as of September 30, 2023 and December 31, 2022. The remaining HTM debt securities at September 30, 2023 and December 31, 2022 were comprised of state and municipal obligations with bond ratings of A to AAA. Utilizing the Current Expected Credit Losses (“CECL”) approach, the Company determined that the expected credit loss on its HTM municipal bond portfolio was immaterial and therefore no allowance for credit loss was recorded as of September 30, 2023 and December 31, 2022. AIR on HTM debt securities totaled $3.8 million at September 30, 2023 and December 31, 2022 and is excluded from the estimate of credit losses and reported in the other assets financial statement line.

6. | Allowance for Credit Losses and Credit Quality of Loans

As described in Note 3 Recent Accounting Pronouncements, the Company’s adoption of ASU 2022-02 resulted in an insignificant change to its methodology for estimating the allowance for credit losses on TDRs. The Day 1 decrease in allowance for credit loss on TDR loans relating to adoption of ASU 2022-02 was $0.6 million.
The allowance for credit losses totaled $114.6 million at September 30, 2023, compared to $100.8 million at December 31, 2022. The allowance for credit losses as a percentage of loans was 1.19% at September 30, 2023, compared to 1.24% at December 31, 2022.
During the first quarter of 2023, the Company made adjustments to the class segments within the portfolios to better align risk characteristics and reflect the monitoring and assessment of risks as the portfolios continue to evolve. Paycheck Protection Program was consolidated with Commercial & Industrial, as the portfolio had decreased to less than $1 million and no longer warranted a material class segment. The Other Consumer class segment was further separated into Residential Solar and Other Consumer. The growth in our Residential Solar loans warranted evaluation of this class separately from the Other Consumer class segments. The change to the class segments was applied retrospectively and did not have a significant impact on the allowance for loan losses. The following table illustrates the portfolio and class segments for the Company’s loan portfolio:

Portfolio Segment | Class
Commercial Loans | Commercial & Industrial
| Commercial Real Estate
Consumer Loans | Auto
| Residential Solar
| Other Consumer
Residential Loans

The allowance for credit losses calculation incorporated a 6-quarter forecast period to account for forecast economic conditions under each scenario utilized in the measurement. For periods beyond the 6-quarter forecast, the model reverts to long-term economic conditions over a 4-quarter reversion period on a straight-line basis. The Company considers a baseline, upside and downside economic forecast in measuring the allowance.
The quantitative model as of September 30, 2023 incorporated a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party to accommodate other potential economic conditions in the model, particularly significant unknowns relating to downside risks as of the measurement date. The baseline outlook projected a relatively low unemployment rate of 3.7%, rising modestly to 4.13% by the end of the forecast period. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the fourth quarter of 2023 at 3.5%, decreasing slightly to 2.9%, and then increasing to 3.8% by the end of the forecast period. Other utilized economic variables remained stable overall, with outlooks for annualized growth in retail sales improving, business output slightly deteriorating, and housing starts staying relatively unchanged. Key assumptions in the baseline economic outlook include the economy being at full employment in the coming quarters, recent bank failures not being symptomatic of broader issues in the financial system, and the reduction in the Federal Reserve’s balance sheet remaining on autopilot. The alternative downside scenario assumes deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment increases to 5.1% in the fourth quarter of 2023 and rises to a peak of 6.9% in the fourth quarter of 2024. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of September 30, 2023. At September 30, 2023, the weightings were 70%, 0%, and 30% for the baseline, upside and downside economic forecasts, respectively. Qualitative adjustments were made for isolated model limitations related to modeled inputs given abnormally high historical retail sales and business output growth rates in prior quarters along with low unemployment. Additionally, a qualitative adjustment for inflation is applied to adjust for potential model limitations arising from the use of a macroeconomic variable denominated in nominal dollar terms as well as a qualitative adjustment for potential weakness in auto and commercial real estate collateral values. These factors were considered through separate quantitative processes and incorporated into the estimate of current expected credit losses at September 30, 2023.
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The quantitative model as of June 30, 2023 incorporated a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party to accommodate other potential economic conditions in the model, particularly significant unknowns relating to downside risks as of the measurement date. The baseline outlook reflected an unemployment rate environment at pre-coronavirus (“COVID-19”) pandemic levels of 3.8% and increasing gradually to 4.2% by the end of the forecast period. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the third quarter of 2023 at about 3.6% and reach 4.1% by the end of the forecast period. Other utilized economic variables worsened overall, with outlooks for annualized growth in retail sales and business output declining from the prior quarter and housing starts staying relatively unchanged. Key assumptions in the baseline economic outlook include the economy being at full employment in the coming quarters, recent bank failures not being symptomatic of broader issues in the financial system, and the reduction in the Federal Reserve’s balance sheet remaining on autopilot. The alternative downside scenario assumes deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment increases to 5.2% in the third quarter of 2023 and rises to a peak of 7.0% in the third quarter of 2024. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of June 30, 2023. At June 30, 2023, the weightings were 60%, 0% and 40% for the baseline, upside and downside economic forecasts, respectively. Qualitative adjustments were made for isolated model limitations related to modeled inputs given abnormally high retail sales and business output growth rates in prior quarters along with low unemployment. Additionally, a qualitative adjustment for inflation is applied to adjust for potential model limitations arising from the use of a macroeconomic variable denominated in nominal dollar terms as well as a qualitative adjustment for potential weakness in auto collateral values. These factors were considered through separate quantitative processes and incorporated into the estimate of current expected credit losses at June 30, 2023.
The quantitative model as of December 31, 2022 incorporated a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party to accommodate other potential economic conditions in the model. At December 31, 2022, the weightings were 50%, 0% and 50% for the baseline, upside and downside economic forecasts, respectively. The baseline outlook reflected an unemployment rate environment initially around pre-COVID-19 levels at 3.9% that increases slightly during the forecast period to 4.0%. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the first quarter of 2023 at approximately 3.9% and hovering around 4.6% by the end of the forecast period. Other utilized economic variables have generally deteriorated in their respective forecasts, with retail sales and housing starts forecasts declining from the prior year. Key assumptions in the baseline economic outlook included a full employment economy being realized in the near future, continued tapering of the Federal Reserve balance sheet, an increasing yield on ten-year treasury securities, and a gradual decline in global oil prices. The alternative downside scenario assumed deteriorated economic and pandemic related conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 3.9% in the fourth quarter of 2022 to a peak of 6.9% in the first quarter of 2024. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2022. Additional adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation, and recent trends in asset value indices. Additional monitoring for industry concentrations, loan growth, and policy exceptions was also conducted. All these factors were considered through separate quantitative processes and incorporated when applicable into the estimate of current expected credit losses at December 31, 2022.
There were $219.5 million of PCD loans acquired from Salisbury during the three and nine months ended September 30, 2023 which resulted in an allowance for credit losses at acquisition of $5.8 million. There were no loans purchased with credit deterioration during the year ended December 31, 2022. During 2023, the Company purchased $2.4 million of residential loans at a 7.01% premium with a $17 thousand allowance for credit losses recorded for these loans. During 2022, the Company purchased $11.5 million of residential loans at a 1.53% premium and $50.1 million in consumer loans at par with an allowance for credit losses recorded on the purchase date of $3.2 million.
The Company made a policy election to report AIR in the other assets line item on the balance sheet. AIR on loans totaled $32.5 million at September 30, 2023 and $25.0 million at December 31, 2022 and there was no estimated allowance for credit losses related to AIR as of September 30, 2023 and December 31, 2022.
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The following tables present the activity in the allowance for credit losses by our portfolio segments:

(In thousands) |  | Commercial Loans |  |  | Consumer Loans |  |  | Residential |  |  | Total |
Balance as of June 30, 2023 |  | $ | 36,963 |  |  | $ | 47,883 |  |  | $ | 15,554 |  |  | $ | 100,400 |
Allowance for credit loss on PCD acquired loans |  |  | 5,300 |  |  |  | 19 |  |  |  | 453 |  |  |  | 5,772 |
Charge-offs |  |  | (138 | ) |  |  | (6,167 | ) |  |  | (16 | ) |  |  | (6,321 | )
Recoveries |  |  | 474 |  |  |  | 1,549 |  |  |  | 94 |  |  |  | 2,117 |
Provision |  |  | 4,121 |  |  |  | 3,990 |  |  |  | 4,522 |  |  |  | 12,633 |
Ending balance as of September 30, 2023 |  | $ | 46,720 |  |  | $ | 47,274 |  |  | $ | 20,607 |  |  | $ | 114,601 |
Balance as of June 30, 2022 |  | $ | 32,358 |  |  | $ | 44,940 |  |  | $ | 16,302 |  |  | $ | 93,600 |
Charge-offs |  |  | (624 | ) |  |  | (3,951 | ) |  |  | (118 | ) |  |  | (4,693 | )
Recoveries |  |  | 1,282 |  |  |  | 1,924 |  |  |  | 203 |  |  |  | 3,409 |
Provision |  |  | (60 | ) |  |  | 5,397 |  |  |  | (853 | ) |  |  | 4,484 |
Ending balance as of September 30, 2022 |  | $ | 32,956 |  |  | $ | 48,310 |  |  | $ | 15,534 |  |  | $ | 96,800 |

(In thousands) |  | Commercial Loans |  |  | Consumer Loans |  |  | Residential |  |  | Total |
Balance as of January 1, 2023 (after adoption of ASU 2022-02) |  | $ | 34,662 |  |  | $ | 50,951 |  |  | $ | 14,539 |  |  | $ | 100,152 |
Allowance for credit loss on PCD acquired loans |  |  | 5,300 |  |  |  | 19 |  |  |  | 453 |  |  |  | 5,772 |
Charge-offs |  |  | (514 | ) |  |  | (16,346 | ) |  |  | (460 | ) |  |  | (17,320 | )
Recoveries |  |  | 1,112 |  |  |  | 4,367 |  |  |  | 370 |  |  |  | 5,849 |
Provision |  |  | 6,160 |  |  |  | 8,283 |  |  |  | 5,705 |  |  |  | 20,148 |
Ending balance as of September 30, 2023 |  | $ | 46,720 |  |  | $ | 47,274 |  |  | $ | 20,607 |  |  | $ | 114,601 |
Balance as of December 31, 2021 |  | $ | 28,941 |  |  | $ | 44,253 |  |  | $ | 18,806 |  |  | $ | 92,000 |
Charge-offs |  |  | (1,659 | ) |  |  | (11,051 | ) |  |  | (520 | ) |  |  | (13,230 | )
Recoveries |  |  | 2,212 |  |  |  | 5,693 |  |  |  | 655 |  |  |  | 8,560 |
Provision |  |  | 3,462 |  |  |  | 9,415 |  |  |  | (3,407 | ) |  |  | 9,470 |
Ending balance as of September 30, 2022 |  | $ | 32,956 |  |  | $ | 48,310 |  |  | $ | 15,534 |  |  | $ | 96,800 |

The allowance for credit losses as of September 30, 2023 increased compared to the allowance estimates as of December 31, 2022 and June 30, 2023 due to the day 1 $14.5 million of allowance for acquired Salisbury loans which included both the $8.8 million of non-PCD allowance recognized through the provision for loan losses and the $5.8 million of PCD allowance reclassified from loans. The increase in the allowance for credit losses from December 31, 2022 and June 30, 2023 to September 30, 2023 was due to an increase in loan balances and a modest deterioration in the economic forecast. The provision expense for the three and nine months ended September 30, 2023 includes the $8.8 million of acquisition-related provision for credit losses.
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Individually Evaluated Loans
As of September 30, 2023, there was one relationship identified to be evaluated for loss on an individual basis which had an amortized cost basis of $1.9 million, with no allowance for credit loss. As of December 31, 2022, two different relationships were identified to be evaluated for loss on an individual basis, which in aggregate, had an amortized cost basis of $2.4 million, with no allowance for credit loss.
The following table sets forth information with regard to past due and nonperforming loans by loan segment:

(In thousands) |  | 31-60 Days Past Due Accruing |  |  | 61-90 Days Past Due Accruing |  |  | Greater Than 90 Days Past Due Accruing |  |  | Total Past Due Accruing |  |  | Nonaccrual |  |  | Current |  |  | Recorded Total Loans |
As of September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 737 |  |  | $ | 99 |  |  | $ | - |  |  | $ | 836 |  |  | $ | 3,753 |  |  | $ | 1,456,241 |  |  | $ | 1,460,830 |
CRE |  |  | 19,661 |  |  |  | 18 |  |  |  | - |  |  |  | 19,679 |  |  |  | 4,660 |  |  |  | 3,375,132 |  |  |  | 3,399,471 |
Total commercial loans |  | $ | 20,398 |  |  | $ | 117 |  |  | $ | - |  |  | $ | 20,515 |  |  | $ | 8,413 |  |  | $ | 4,831,373 |  |  | $ | 4,860,301 |
Consumer loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Auto |  | $ | 8,974 |  |  | $ | 1,402 |  |  | $ | 514 |  |  | $ | 10,890 |  |  | $ | 1,652 |  |  | $ | 1,056,554 |  |  | $ | 1,069,096 |
Residential solar |  |  | 3,449 |  |  |  | 938 |  |  |  | 506 |  |  |  | 4,893 |  |  |  | 373 |  |  |  | 928,816 |  |  |  | 934,082 |
Other consumer |  |  | 2,594 |  |  |  | 1,498 |  |  |  | 1,496 |  |  |  | 5,588 |  |  |  | 402 |  |  |  | 186,214 |  |  |  | 192,204 |
Total consumer loans |  | $ | 15,017 |  |  | $ | 3,838 |  |  | $ | 2,516 |  |  | $ | 21,371 |  |  | $ | 2,427 |  |  | $ | 2,171,584 |  |  | $ | 2,195,382 |
Residential |  | $ | 4,075 |  |  | $ | 326 |  |  | $ | 1,012 |  |  | $ | 5,413 |  |  | $ | 9,896 |  |  | $ | 2,596,383 |  |  | $ | 2,611,692 |
Total loans |  | $ | 39,490 |  |  | $ | 4,281 |  |  | $ | 3,528 |  |  | $ | 47,299 |  |  | $ | 20,736 |  |  | $ | 9,599,340 |  |  | $ | 9,667,375 |

(In thousands) |  | 31-60 Days Past Due Accruing |  |  | 61-90 Days Past Due Accruing |  |  | Greater Than 90 Days Past Due Accruing |  |  | Total Past Due Accruing |  |  | Nonaccrual |  |  | Current |  |  | Recorded Total Loans |
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
C&I |  | $ | 342 |  |  | $ | 99 |  |  | $ | 4 |  |  | $ | 445 |  |  | $ | 2,244 |  |  | $ | 1,238,468 |  |  | $ | 1,241,157 |
CRE |  |  | 336 |  |  |  | 96 |  |  |  | - |  |  |  | 432 |  |  |  | 5,780 |  |  |  | 2,689,196 |  |  |  | 2,695,408 |
Total commercial loans |  | $ | 678 |  |  | $ | 195 |  |  | $ | 4 |  |  | $ | 877 |  |  | $ | 8,024 |  |  | $ | 3,927,664 |  |  | $ | 3,936,565 |
Consumer loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Auto |  | $ | 8,640 |  |  | $ | 1,393 |  |  | $ | 785 |  |  | $ | 10,818 |  |  | $ | 1,494 |  |  | $ | 950,389 |  |  | $ | 962,701 |
Residential solar |  |  | 2,858 |  |  |  | 731 |  |  |  | 474 |  |  |  | 4,063 |  |  |  | 79 |  |  |  | 852,656 |  |  |  | 856,798 |
Other consumer |  |  | 3,483 |  |  |  | 1,838 |  |  |  | 1,789 |  |  |  | 7,110 |  |  |  | 94 |  |  |  | 272,384 |  |  |  | 279,588 |
Total consumer loans |  | $ | 14,981 |  |  | $ | 3,962 |  |  | $ | 3,048 |  |  | $ | 21,991 |  |  | $ | 1,667 |  |  | $ | 2,075,429 |  |  | $ | 2,099,087 |
Residential |  | $ | 2,496 |  |  | $ | 555 |  |  | $ | 771 |  |  | $ | 3,822 |  |  | $ | 7,542 |  |  | $ | 2,103,131 |  |  | $ | 2,114,495 |
Total loans |  | $ | 18,155 |  |  | $ | 4,712 |  |  | $ | 3,823 |  |  | $ | 26,690 |  |  | $ | 17,233 |  |  | $ | 8,106,224 |  |  | $ | 8,150,147 |

As of September 30, 2023 and December 31, 2022, there were $1.9 million and $1.1 million, respectively, of loans in nonaccrual that were specifically evaluated for individual expected credit loss without an allowance for credit losses.
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Credit Quality Indicators
The Company has developed an internal loan grading system to evaluate and quantify the Company’s loan portfolio with respect to quality and risk. The system focuses on, among other things, financial strength of borrowers, experience and depth of borrower’s management, primary and secondary sources of repayment, payment history, nature of the business and outlook on particular industries. The internal grading system enables the Company to monitor the quality of the entire loan portfolio on a consistent basis and provide management with an early warning system, enabling timely recognition and response to problem loans and potential problem loans.
Commercial Grading System
For Commercial and Industrial (“C&I”) and Commercial Real Estate (“CRE”) loans, the Company uses a grading system that relies on quantifiable and measurable characteristics when available. This includes comparison of financial strength to available industry averages, comparison of transaction factors (loan terms and conditions) to loan policy and comparison of credit history to stated repayment terms and industry averages. Some grading factors are necessarily more subjective such as economic and industry factors, regulatory environment and management. C&I and CRE loans are graded Doubtful, Substandard, Special Mention and Pass.
Doubtful
A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as a loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on the new information. Nonaccrual treatment is required for Doubtful assets because of the high probability of loss.
Substandard
Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision by bank management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some Substandard loans, the likelihood of full collection of interest and principal may be in doubt and those loans should be placed on nonaccrual. Although Substandard assets in the aggregate will have a distinct potential for loss, an individual asset’s loss potential does not have to be distinct for the asset to be rated Substandard.
Special Mention
Special Mention loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date. These loans pose elevated risk, but their weakness does not yet justify a Substandard classification. Borrowers may be experiencing adverse operating trends (i.e., declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (i.e., increasing inventory without an increase in sales, high leverage, and/or tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a Special Mention rating. Although a Special Mention loan has a higher probability of default than a Pass asset, its default is not imminent.
Pass
Loans graded as Pass encompass all loans not graded as Doubtful, Substandard or Special Mention. Pass loans are in compliance with loan covenants and payments are generally made as agreed. Pass loans range from superior quality to fair quality. Pass loans also include any portion of a government guaranteed loan, including Paycheck Protection Program loans.
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Table of Contents
Consumer and Residential Grading System
Consumer and Residential loans are graded as either Nonperforming or Performing.
Nonperforming
Nonperforming loans are loans that are (1) over 90 days past due and interest is still accruing or (2) on nonaccrual status.
Performing
All loans not meeting any of the above criteria are considered Performing.
The following tables illustrate the Company’s credit quality by loan class by vintage and, beginning in 2023 with the Company’s January 1, 2023 adoption of ASU 2022-02, also includes gross charge-offs by loan class by vintage for the nine months ended September 30, 2023. Included in other consumer gross charge-offs, the Company recorded $0.2 million in overdrawn deposit accounts reported as 2022 originations and $0.5 million in overdrawn deposit accounts reported as 2023 originations, for the nine months ended September 30, 2023.

(In thousands) |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | Prior |  |  | Revolving Loans Amortized Cost Basis |  |  | Revolving Loans Converted to Term |  |  | Total |
As of September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
C&I |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By internally assigned grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 171,431 |  |  | $ | 302,023 |  |  | $ | 257,555 |  |  | $ | 164,254 |  |  | $ | 83,519 |  |  | $ | 75,504 |  |  | $ | 351,672 |  |  | $ | 2,666 |  |  | $ | 1,408,624 |
Special mention |  |  | - |  |  |  | 3,110 |  |  |  | 415 |  |  |  | 3,494 |  |  |  | 655 |  |  |  | 11,151 |  |  |  | 10,676 |  |  |  | - |  |  |  | 29,501 |
Substandard |  |  | 1,521 |  |  |  | 8 |  |  |  | 705 |  |  |  | 312 |  |  |  | 2,285 |  |  |  | 4,317 |  |  |  | 13,413 |  |  |  | 14 |  |  |  | 22,575 |
Doubtful |  |  | - |  |  |  | 1 |  |  |  | 66 |  |  |  | 58 |  |  |  | 4 |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | 130 |
Total C&I |  | $ | 172,952 |  |  | $ | 305,142 |  |  | $ | 258,741 |  |  | $ | 168,118 |  |  | $ | 86,463 |  |  | $ | 90,973 |  |  | $ | 375,761 |  |  | $ | 2,680 |  |  | $ | 1,460,830 |
Current-period gross charge-offs |  | $ | - |  |  | $ | (1 | ) |  | $ | (5 | ) |  | $ | (65 | ) |  | $ | - |  |  | $ | (329 | ) |  | $ | - |  |  | $ | - |  |  | $ | (400 | )
CRE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By internally assigned grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 278,517 |  |  | $ | 510,690 |  |  | $ | 549,056 |  |  | $ | 470,616 |  |  | $ | 329,634 |  |  | $ | 775,502 |  |  | $ | 276,477 |  |  | $ | 67,162 |  |  | $ | 3,257,654 |
Special mention |  |  | 3,678 |  |  |  | 2,236 |  |  |  | 9,041 |  |  |  | 8,082 |  |  |  | 13,915 |  |  |  | 21,829 |  |  |  | 8,250 |  |  |  | - |  |  |  | 67,031 |
Substandard |  |  | 384 |  |  |  | 191 |  |  |  | 6,887 |  |  |  | 3,202 |  |  |  | 3,093 |  |  |  | 44,750 |  |  |  | 1,549 |  |  |  | 14,730 |  |  |  | 74,786 |
Total CRE |  | $ | 282,579 |  |  | $ | 513,117 |  |  | $ | 564,984 |  |  | $ | 481,900 |  |  | $ | 346,642 |  |  | $ | 842,081 |  |  | $ | 286,276 |  |  | $ | 81,892 |  |  | $ | 3,399,471 |
Current-period gross charge-offs |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | (114 | ) |  |  | - |  |  | $ | - |  |  | $ | - |  |  | $ | (114 | )
Auto |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By payment activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 369,178 |  |  | $ | 395,362 |  |  | $ | 176,026 |  |  | $ | 49,917 |  |  | $ | 56,455 |  |  | $ | 19,979 |  |  | $ | 13 |  |  | $ | - |  |  | $ | 1,066,930 |
Nonperforming |  |  | 143 |  |  |  | 812 |  |  |  | 674 |  |  |  | 237 |  |  |  | 192 |  |  |  | 108 |  |  |  | - |  |  |  | - |  |  |  | 2,166 |
Total auto |  | $ | 369,321 |  |  | $ | 396,174 |  |  | $ | 176,700 |  |  | $ | 50,154 |  |  | $ | 56,647 |  |  | $ | 20,087 |  |  | $ | 13 |  |  | $ | - |  |  | $ | 1,069,096 |
Current-period gross charge-offs |  | $ | (75 | ) |  | $ | (827 | ) |  | $ | (865 | ) |  | $ | (283 | ) |  | $ | (219 | ) |  | $ | (243 | ) |  | $ | - |  |  | $ | - |  |  | $ | (2,512 | )
Residential solar |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By payment activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 155,132 |  |  | $ | 438,855 |  |  | $ | 182,153 |  |  | $ | 67,562 |  |  | $ | 48,362 |  |  | $ | 41,139 |  |  | $ | - |  |  | $ | - |  |  | $ | 933,203 |
Nonperforming |  |  | - |  |  |  | 594 |  |  |  | 59 |  |  |  | 56 |  |  |  | 72 |  |  |  | 98 |  |  |  | - |  |  |  | - |  |  |  | 879 |
Total residential solar |  | $ | 155,132 |  |  | $ | 439,449 |  |  | $ | 182,212 |  |  | $ | 67,618 |  |  | $ | 48,434 |  |  | $ | 41,237 |  |  | $ | - |  |  | $ | - |  |  | $ | 934,082 |
Current-period gross charge-offs |  | $ | (121) |  |  | $ | (1,244 | ) |  | $ | (696 | ) |  | $ | (45 | ) |  | $ | (447 | ) |  | $ | (193 | ) |  | $ | - |  |  | $ | - |  |  | $ | (2,746 | )
Other consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By payment activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 11,221 |  |  | $ | 31,813 |  |  | $ | 68,732 |  |  | $ | 24,152 |  |  | $ | 17,234 |  |  | $ | 18,599 |  |  | $ | 18,552 |  |  | $ | 3 |  |  | $ | 190,306 |
Nonperforming |  |  | - |  |  |  | 490 |  |  |  | 742 |  |  |  | 147 |  |  |  | 139 |  |  |  | 347 |  |  |  | 1 |  |  |  | 32 |  |  |  | 1,898 |
Total other consumer |  | $ | 11,221 |  |  | $ | 32,303 |  |  | $ | 69,474 |  |  | $ | 24,299 |  |  | $ | 17,373 |  |  | $ | 18,946 |  |  | $ | 18,553 |  |  | $ | 35 |  |  | $ | 192,204 |
Current-period gross charge-offs |  | $ | (561 | ) |  | $ | (2,788 | ) |  | $ | (5,742 | ) |  | $ | (1,099 | ) |  | $ | (595 | ) |  | $ | (303 | ) |  | $ | - |  |  | $ | - |  |  | $ | (11,088 | )
Residential |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By payment activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 149,700 |  |  | $ | 363,044 |  |  | $ | 457,105 |  |  | $ | 272,533 |  |  | $ | 171,854 |  |  | $ | 904,002 |  |  | $ | 265,049 |  |  | $ | 17,497 |  |  | $ | 2,600,784 |
Nonperforming |  |  | 144 |  |  |  | 442 |  |  |  | 1,226 |  |  |  | 314 |  |  |  | 462 |  |  |  | 8,320 |  |  |  | - |  |  |  | - |  |  |  | 10,908 |
Total residential |  | $ | 149,844 |  |  | $ | 363,486 |  |  | $ | 458,331 |  |  | $ | 272,847 |  |  | $ | 172,316 |  |  | $ | 912,322 |  |  | $ | 265,049 |  |  | $ | 17,497 |  |  | $ | 2,611,692 |
Current-period gross charge-offs |  | $ | - |  |  | $ | - |  |  | $ | (81 | ) |  | $ | - |  |  | $ | - |  |  | $ | (379 | ) |  | $ | - |  |  | $ | - |  |  | $ | (460 | )
Total loans |  | $ | 1,141,049 |  |  | $ | 2,049,671 |  |  | $ | 1,710,442 |  |  | $ | 1,064,936 |  |  | $ | 727,875 |  |  | $ | 1,925,646 |  |  | $ | 945,652 |  |  | $ | 102,104 |  |  | $ | 9,667,375 |
Current-period gross charge-offs |  | $ | (757 | ) |  | $ | (4,860 | ) |  | $ | (7,389 | ) |  | $ | (1,492 | ) |  | $ | (1,375 | ) |  | $ | (1,447 | ) |  | $ | - |  |  | $ | - |  |  | $ | (17,320 | )

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(In thousands) |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | 2018 |  |  | Prior |  |  | Revolving Loans Amortized Cost Basis |  |  | Revolving Loans Converted to Term |  |  | Total |
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
C&I |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By internally assigned grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 296,562 |  |  | $ | 252,480 |  |  | $ | 164,976 |  |  | $ | 91,497 |  |  | $ | 39,394 |  |  | $ | 32,413 |  |  | $ | 327,166 |  |  | $ | 3,133 |  |  | $ | 1,207,621 |
Special mention |  |  | 1,044 |  |  |  | 524 |  |  |  | 4,531 |  |  |  | 194 |  |  |  | 1,108 |  |  |  | 417 |  |  |  | 5,234 |  |  |  | - |  |  |  | 13,052 |
Substandard |  |  | 76 |  |  |  | 459 |  |  |  | 231 |  |  |  | 3,098 |  |  |  | 91 |  |  |  | 3,969 |  |  |  | 12,348 |  |  |  | 163 |  |  |  | 20,435 |
Doubtful |  |  | - |  |  |  | 20 |  |  |  | - |  |  |  | 28 |  |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | 49 |
Total C&I |  | $ | 297,682 |  |  | $ | 253,483 |  |  | $ | 169,738 |  |  | $ | 94,817 |  |  | $ | 40,593 |  |  | $ | 36,800 |  |  | $ | 344,748 |  |  | $ | 3,296 |  |  | $ | 1,241,157 |
CRE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By internally assigned grade: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 374,313 |  |  | $ | 465,990 |  |  | $ | 439,012 |  |  | $ | 333,568 |  |  | $ | 217,141 |  |  | $ | 566,783 |  |  | $ | 201,563 |  |  | $ | 24,735 |  |  | $ | 2,623,105 |
Special mention |  |  | 605 |  |  |  | 764 |  |  |  | 868 |  |  |  | 2,641 |  |  |  | 4,649 |  |  |  | 24,023 |  |  |  | 850 |  |  |  | - |  |  |  | 34,400 |
Substandard |  |  | 309 |  |  |  | - |  |  |  | 2,316 |  |  |  | 3,937 |  |  |  | 1,822 |  |  |  | 23,819 |  |  |  | 713 |  |  |  | 4,987 |  |  |  | 37,903 |
Total CRE |  | $ | 375,227 |  |  | $ | 466,754 |  |  | $ | 442,196 |  |  | $ | 340,146 |  |  | $ | 223,612 |  |  | $ | 614,625 |  |  | $ | 203,126 |  |  | $ | 29,722 |  |  | $ | 2,695,408 |
Auto |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By payment activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 488,776 |  |  | $ | 239,090 |  |  | $ | 75,853 |  |  | $ | 99,615 |  |  | $ | 44,061 |  |  | $ | 13,027 |  |  | $ | - |  |  | $ | - |  |  | $ | 960,422 |
Nonperforming |  |  | 590 |  |  |  | 655 |  |  |  | 404 |  |  |  | 385 |  |  |  | 216 |  |  |  | 29 |  |  |  | - |  |  |  | - |  |  |  | 2,279 |
Total auto |  | $ | 489,366 |  |  | $ | 239,745 |  |  | $ | 76,257 |  |  | $ | 100,000 |  |  | $ | 44,277 |  |  | $ | 13,056 |  |  | $ | - |  |  | $ | - |  |  | $ | 962,701 |
Residential solar |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By Payment Activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 485,942 |  |  | $ | 193,971 |  |  | $ | 74,532 |  |  | $ | 54,662 |  |  | $ | 36,119 |  |  | $ | 11,019 |  |  | $ | - |  |  | $ | - |  |  | $ | 856,245 |
Nonperforming |  |  | 320 |  |  |  | 98 |  |  |  | 50 |  |  |  | 25 |  |  |  | 16 |  |  |  | 44 |  |  |  | - |  |  |  | - |  |  |  | 553 |
Total residential solar |  | $ | 486,262 |  |  | $ | 194,069 |  |  | $ | 74,582 |  |  | $ | 54,687 |  |  | $ | 36,135 |  |  | $ | 11,063 |  |  | $ | - |  |  | $ | - |  |  | $ | 856,798 |
Other consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By payment activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 52,545 |  |  | $ | 110,624 |  |  | $ | 36,412 |  |  | $ | 27,383 |  |  | $ | 15,536 |  |  | $ | 15,735 |  |  | $ | 19,218 |  |  | $ | 250 |  |  | $ | 277,703 |
Nonperforming |  |  | 238 |  |  |  | 838 |  |  |  | 395 |  |  |  | 247 |  |  |  | 57 |  |  |  | 87 |  |  |  | 8 |  |  |  | 15 |  |  |  | 1,885 |
Total other consumer |  | $ | 52,783 |  |  | $ | 111,462 |  |  | $ | 36,807 |  |  | $ | 27,630 |  |  | $ | 15,593 |  |  | $ | 15,822 |  |  | $ | 19,226 |  |  | $ | 265 |  |  | $ | 279,588 |
Residential |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
By payment activity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Performing |  | $ | 251,012 |  |  | $ | 349,498 |  |  | $ | 212,161 |  |  | $ | 156,957 |  |  | $ | 157,755 |  |  | $ | 717,621 |  |  | $ | 233,056 |  |  | $ | 28,122 |  |  | $ | 2,106,182 |
Nonperforming |  |  | 267 |  |  |  | 384 |  |  |  | 408 |  |  |  | 555 |  |  |  | 1,028 |  |  |  | 5,651 |  |  |  | - |  |  |  | 20 |  |  |  | 8,313 |
Total residential |  | $ | 251,279 |  |  | $ | 349,882 |  |  | $ | 212,569 |  |  | $ | 157,512 |  |  | $ | 158,783 |  |  | $ | 723,272 |  |  | $ | 233,056 |  |  | $ | 28,142 |  |  | $ | 2,114,495 |
Total loans |  | $ | 1,952,599 |  |  | $ | 1,615,395 |  |  | $ | 1,012,149 |  |  | $ | 774,792 |  |  | $ | 518,993 |  |  | $ | 1,414,638 |  |  | $ | 800,156 |  |  | $ | 61,425 |  |  | $ | 8,150,147 |

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Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The allowance for losses on unfunded commitments totaled $4.8 million as of September 30, 2023, which included $0.8 million of acquisition-related provision for unfunded loan commitments, compared to $5.1 million as of December 31, 2022.
Loan Modifications to Borrowers Experiencing Financial Difficulties
As discussed in Note 3 Recent Accounting Pronouncements, the Company’s January 1, 2023 adoption of ASU 2022-02 eliminates the recognition and measurement of TDRs. Upon adoption of this guidance, the Company no longer recognizes an allowance for credit losses for the economic concession granted to a borrower for changes in the timing and amount of contractual cash flows when a loan is restructured. The adoption of ASU 2022-02 resulted in a change to reporting for loan modifications to borrowers experiencing financial difficulties. With the adoption of ASU 2022-02 these modifications required enhanced reporting on the type of modifications granted and the financial magnitude of the concessions granted.
When the Company modifies a loan with financial difficulty, such modifications generally include one or a combination of the following: an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a change in scheduled payment amount; or principal forgiveness.
The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of concession granted:

|  | Three Months Ended September 30, 2023 |
|  | Interest Rate Reduction |  |  | Term Extension |  |  | Combination - Term Extension and Interest Rate Reduction |
(Dollars in thousands) |  | Amortized Cost |  |  | % of Total Class of Financing Receivables |  |  | Amortized Cost |  |  | % of Total Class of Financing Receivables |  |  | Amortized Cost |  |  | % of Total Class of Financing Receivables |
Residential |  | $ | 31 |  |  |  | 0.001 | % |  | $ | 145 |  |  |  | 0.006 | % |  | $ | - |  |  |  | - |
Total |  | $ | 31 |  |  |  |  |  |  | $ | 145 |  |  |  |  |  |  | $ | - |  |  |  |  |

|  | Nine Months Ended September 30, 2023 |
|  | Interest Rate Reduction |  |  | Term Extension |  |  | Combination - Term Extension and Interest Rate Reduction |
(Dollars in thousands) |  | Amortized Cost |  |  | % of Total Class of Financing Receivables |  |  | Amortized Cost |  |  | % of Total Class of Financing Receivables |  |  | Amortized Cost |  |  | % of Total Class of Financing Receivables |
Residential |  | $ | 31 |  |  |  | 0.001 | % |  | $ | 386 |  |  |  | 0.015 | % |  | $ | 165 |  |  |  | 0.006 | %
Total |  | $ | 31 |  |  |  |  |  |  | $ | 386 |  |  |  |  |  |  | $ | 165 |  |  |  |  |

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

|  | Three Months Ended September 30, 2023
Loan Type |  | Term Extension |  | Interest Rate Reduction
Residential |  | Added a weighted-average 17 years to the life of loans, which reduced monthly payment amounts for the borrowers. |  | Interest rates were reduced by an average of one percent

|  | Nine Months Ended September 30, 2023
Loan Type |  | Term Extension |  | Interest Rate Reduction
Residential |  | Added a weighted-average 15 years to the life of loans, which reduced monthly payment amounts for the borrowers. |  | Interest rates were reduced by an average of two and a quarter percent

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

| Three Months Ended September 30, 2023 |
| Amortized Cost Basis of Modified Financing Receivables that Subsequently Defaulted |
(In thousands) | Interest Rate Reduction |
Residential |  | $ | 31 |
Total |  | $ | 31 |

| Nine Months Ended September 30, 2023 |
| Amortized Cost Basis of Modified Financing Receivables that Subsequently Defaulted |
(In thousands) | Interest Rate Reduction |
Residential |  | $ | 31 |
Total |  | $ | 31 |

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

|  | Payment Status (Amortized Cost Basis) |
(In thousands) |  | Current |  |  | 31-60 Days Past Due |  |  | 61-90 Days Past Due |  |  | Greater than 90 Days Past Due |
Three Months Ended September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Residential |  | $ | 145 |  |  | $ | 31 |  |  | $ | - |  |  | $ | - |
Total |  | $ | 145 |  |  | $ | 31 |  |  | $ | - |  |  | $ | - |

|  | Payment Status (Amortized Cost Basis) |
(In thousands) |  | Current |  |  | 31-60 Days Past Due |  |  | 61-90 Days Past Due |  |  | Greater than 90 Days Past Due |
Nine Months Ended September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Residential |  | $ | 549 |  |  | $ | 31 |  |  | $ | - |  |  | $ | - |
Total |  | $ | 549 |  |  | $ | 31 |  |  | $ | - |  |  | $ | - |

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Troubled Debt Restructuring
Prior to the adoption of ASU 2022-02 on January 1, 2023, the Company accounted for loan modifications to borrowers experiencing financial difficulty when concessions were granted as TDRs. The following tables are disclosures related to TDRs in prior periods.
The following table illustrates the recorded investments and number of modifications designated as TDRs, including the recorded investment in the loans prior to a modification and the recorded investment in the loans after restructuring:

|  | Three Months Ended September 30, 2022 |  |  | Nine Months Ended September 30, 2022 |
(Dollars in thousands) |  | Number of Contracts |  |  | Pre- Modification Outstanding Recorded Investment |  |  | Post- Modification Outstanding Recorded Investment |  |  | Number of Contracts |  |  | Pre- Modification Outstanding Recorded Investment |  |  | Post- Modification Outstanding Recorded Investment |
Residential |  |  | 6 |  |  | $ | 613 |  |  | $ | 682 |  |  |  | 10 |  |  | $ | 829 |  |  | $ | 928 |
Total TDRs |  |  | 6 |  |  | $ | 613 |  |  | $ | 682 |  |  |  | 10 |  |  | $ | 829 |  |  | $ | 928 |

The following table illustrates the recorded investment and number of modifications for TDRs where a concession has been made and subsequently defaulted during the period:

|  | Three Months Ended September 30, 2022 |  |  | Nine Months Ended September 30, 2022 |
(Dollars in thousands) |  | Number of Contracts |  |  | Recorded Investment |  |  | Number of Contracts |  |  | Recorded Investment |
Commercial loans: |  |  |  |  |  |  |  |  |  |  |  |
C&I |  |  | 1 |  |  | $ | 320 |  |  |  | 1 |  |  | $ | 320 |
Total commercial loans |  |  | 1 |  |  | $ | 320 |  |  |  | 1 |  |  | $ | 320 |
Consumer loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Auto |  |  | - |  |  | $ | - |  |  |  | 1 |  |  | $ | 11 |
Total consumer loans |  |  | - |  |  | $ | - |  |  |  | 1 |  |  | $ | 11 |
Residential |  |  | 18 |  |  | $ | 869 |  |  |  | 44 |  |  | $ | 2,320 |
Total TDRs |  |  | 19 |  |  | $ | 1,189 |  |  |  | 46 |  |  | $ | 2,651 |

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7. | Defined Benefit Post-Retirement Plans

The Company has a qualified, noncontributory, defined benefit pension plan (the “Plan”) covering substantially all of its employees at September 30, 2023. Benefits paid from the Plan are based on age, years of service, compensation and social security benefits and are determined in accordance with defined formulas. The Company’s policy is to fund the Plan in accordance with Employee Retirement Income Security Act of 1974 standards. Assets of the Plan are invested in publicly traded stocks, bonds and mutual funds. In addition to the Plan, the Company provides supplemental employee retirement plans to certain current and former executives. The Company also assumed supplemental retirement plans for former executives of Alliance Financial Corporation (“Alliance”) when the Company acquired Alliance. These supplemental employee retirement plans and the Plan are collectively referred to herein as “Pension Benefits.”
In addition, the Company provides certain health care benefits for retired employees. Benefits were accrued over the employees’ active service period. Only employees that were employed by the Company on or before January 1, 2000 are eligible to receive post-retirement health care benefits. In addition, the Company assumed post-retirement medical life insurance benefits for certain Alliance employees, retirees and their spouses, if applicable, in the Alliance acquisition. These post-retirement benefits are referred to herein as “Other Benefits.”
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 and other benefits plans during the three and nine months ended September 30, 2023 and 2022.
The components of expense for Pension Benefits and Other Benefits are set forth below:

|  | Pension Benefits |  |  | Other Benefits |
|  | Three Months Ended September 30, |  |  | Three Months Ended September 30, |
(In thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Components of net periodic cost (benefit): |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 476 |  |  | $ | 506 |  |  | $ | 1 |  |  | $ | 2 |
Interest cost |  |  | 999 |  |  |  | 690 |  |  |  | 56 |  |  |  | 42 |
Expected return on plan assets |  |  | (1,844 | ) |  |  | (2,220 | ) |  |  | - |  |  |  | - |
Net amortization |  |  | 669 |  |  |  | 183 |  |  |  | (21 | ) |  |  | 2 |
Total net periodic cost (benefit) |  | $ | 300 |  |  | $ | (841 | ) |  | $ | 36 |  |  | $ | 46 |

|  | Pension Benefits |  |  | Other Benefits |
|  | Nine Months Ended September 30, |  |  | Nine Months Ended September 30, |
(In thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Components of net periodic cost (benefit): |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 1,440 |  |  | $ | 1,574 |  |  | $ | 3 |  |  | $ | 6 |
Interest cost |  |  | 3,019 |  |  |  | 2,078 |  |  |  | 168 |  |  |  | 124 |
Expected return on plan assets |  |  | (5,550 | ) |  |  | (6,676 | ) |  |  | - |  |  |  | - |
Net amortization |  |  | 2,009 |  |  |  | 553 |  |  |  | (63 | ) |  |  | 4 |
Total net periodic cost (benefit) |  | $ | 918 |  |  | $ | (2,471 | ) |  | $ | 108 |  |  | $ | 134 |

The service cost component of the net periodic cost (benefit) is included in Salaries and Employee Benefits and the interest cost, expected return on plan assets and net amortization components are included in Other Noninterest Expense on the unaudited interim consolidated statements of income.
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8. | Earnings Per Share

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity (such as the Company’s dilutive stock options and restricted stock units).
The following is a reconciliation of basic and diluted EPS and the anti-dilutive stock options and restricted stock outstanding for the periods presented in the unaudited interim consolidated statements of income:

|  | Three Months Ended September 30, |
(In thousands, except per share data) |  | 2023 |  |  | 2022 |
Basic EPS: |  |  |  |  |  |
Weighted average common shares outstanding |  |  | 45,163 |  |  |  | 42,838 |
Net income available to common stockholders |  | $ | 24,606 |  |  | $ | 38,973 |
Basic EPS |  | $ | 0.54 |  |  | $ | 0.91 |
Diluted EPS: |  |  |  |  |  |  |  |
Weighted average common shares outstanding |  |  | 45,163 |  |  |  | 42,838 |
Dilutive effect of common stock options and restricted stock |  |  | 236 |  |  |  | 273 |
Weighted average common shares and common share equivalents |  |  | 45,399 |  |  |  | 43,111 |
Net income available to common stockholders |  | $ | 24,606 |  |  | $ | 38,973 |
Diluted EPS |  | $ | 0.54 |  |  | $ | 0.90 |
Anti-dilutive stock options and restricted stock outstanding |  |  | 27 |  |  |  | 2 |

|  | Nine Months Ended September 30, |
(In thousands, except per share data) |  | 2023 |  |  | 2022 |
Basic EPS: |  |  |  |  |  |
Weighted average common shares outstanding |  |  | 43,662 |  |  |  | 42,940 |
Net income available to common stockholders |  | $ | 88,336 |  |  | $ | 115,874 |
Basic EPS |  | $ | 2.02 |  |  | $ | 2.70 |
Diluted EPS: |  |  |  |  |  |  |  |
Weighted average common shares outstanding |  |  | 43,662 |  |  |  | 42,940 |
Dilutive effect of common stock options and restricted stock |  |  | 234 |  |  |  | 254 |
Weighted average common shares and common share equivalents |  |  | 43,896 |  |  |  | 43,194 |
Net income available to common stockholders |  | $ | 88,336 |  |  | $ | 115,874 |
Diluted EPS |  | $ | 2.01 |  |  | $ | 2.68 |
Anti-dilutive stock options and restricted stock outstanding |  |  | 25 |  |  |  | 2 |

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9. | Reclassification Adjustments Out of Other Comprehensive Income (Loss)

The following table summarizes the reclassification adjustments out of AOCI:

Detail About AOCI Components |  | Amount Reclassified from AOCI |  | Affected Line Item in the Consolidated Statements of Comprehensive Income (Loss)
|  | Three Months Ended |  |
(In thousands) |  | September 30, 2023 |  |  | September 30, 2022 |  |
AFS securities: |  |  |  |  |  |  |
Amortization of unrealized gains related to securities transfer |  | $ | 105 |  |  | $ | 125 |  | Interest income
Tax effect |  | $ | (26 | ) |  | $ | (31 | ) | Income tax (benefit)
Net of tax |  | $ | 79 |  |  | $ | 94 |  |
Pension and other benefits: |  |  |  |  |  |  |  |  |
Amortization of net losses |  | $ | 638 |  |  | $ | 156 |  | Other noninterest expense
Amortization of prior service costs |  |  | 10 |  |  |  | 29 |  | Other noninterest expense
Tax effect |  | $ | (162 | ) |  | $ | (47 | ) | Income tax (benefit)
Net of tax |  | $ | 486 |  |  | $ | 138 |  |
Total reclassifications, net of tax |  | $ | 565 |  |  | $ | 232 |  |

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, 2023 |  |  | September 30, 2022 |  |
AFS securities: |  |  |  |  |  |  |
Losses on AFS securities |  | $ | 9,450 |  |  | $ | - |  | Net securities (gains) losses
Amortization of unrealized gains related to securities transfer |  |  | 328 |  |  |  | 393 |  | Interest income
Tax effect |  | $ | (2,445 | ) |  | $ | (98 | ) | Income tax (benefit)
Net of tax |  | $ | 7,333 |  |  | $ | 295 |  |
Pension and other benefits: |  |  |  |  |  |  |  |  |
Amortization of net losses |  | $ | 1,918 |  |  | $ | 470 |  | Other noninterest expense
Amortization of prior service costs |  |  | 28 |  |  |  | 87 |  | Other noninterest expense
Tax effect |  | $ | (487 | ) |  | $ | (140 | ) | Income tax (benefit)
Net of tax |  | $ | 1,459 |  |  | $ | 417 |  |
Total reclassifications, net of tax |  | $ | 8,792 |  |  | $ | 712 |  |

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10. | Derivative Instruments and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Generally, the Company may use derivative financial instruments to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments. Currently, the Company has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.
Derivatives Not Designated as Hedging Instruments
The Company enters into interest rate swaps to facilitate customer transactions and meet their financing needs. These swaps are considered derivatives, but are not designated in hedging relationships. These instruments have interest rate and credit risk associated with them. To mitigate the interest rate risk, the Company enters into offsetting interest rate swaps with counterparties. The counterparty swaps are also considered derivatives and are also not designated in hedging relationships. Interest rate swaps are recorded within other assets or other liabilities on the consolidated balance sheet at their estimated fair value. Changes to the fair value of assets and liabilities arising from these derivatives are included, net, in other operating income in the consolidated statements of income.
The Company is subject to over-the-counter derivative clearing requirements, which require certain derivatives to be cleared through central clearing houses. Accordingly, the Company clears certain derivative transactions through the Chicago Mercantile Exchange Clearing House (“CME”). The CME requires the Company to post initial and variation margin payments to mitigate the risk of non-payment, the latter of which is received or paid daily based on the net asset or liability position of the contracts. A daily settlement occurs through the CME for changes in the fair value of centrally cleared derivatives. Not all of the derivatives are required to be cleared through the daily clearing agent. As a result, the total fair values of loan level derivative assets and liabilities recognized on the Company’s financial statements are not equal and offsetting.
In 2017, the U.K. Financial Conduct Authority announced its intention to stop compelling banks to submit rates for the calculation of London Interbank Offered Rate (“LIBOR”) after 2021. In 2022, the Federal Reserve adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on the Secured Overnight Financing Rate (“SOFR”) that replaced LIBOR in certain financial contracts after June 30, 2023. As of September 30, 2023, the Company has transitioned all of its financial instruments to an alternative benchmark rate.
As of September 30, 2023 and December 31, 2022, the Company had twelve and fifteen risk participation agreements, respectively, with financial institution counterparties for interest rate swaps related to participated loans. Risk participation agreements provide credit protection to the financial institution that originated the swap transaction should the borrower fail to perform on its obligation. The Company enters into both risk participation agreements in which it purchases credit protection from other financial institutions and those in which it provides credit protection to other financial institutions.
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The following table summarizes the derivatives outstanding:

(In thousands) |  | Notional Amount |  | Balance Sheet Location |  | Fair Value |  |  | Notional Amount |  | Balance Sheet Location |  | Fair Value |
As of September 30, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate derivatives |  | $ | 1,304,523 |  | Other assets |  | $ | 143,716 |  |  | $ | 1,304,523 |  | Other liabilities |  | $ | 143,596 |
Risk participation agreements |  |  | 62,467 |  | Other assets |  |  | 7 |  |  |  | 16,716 |  | Other liabilities |  |  | 3 |
Total derivatives not designated as hedging instruments |  |  |  |  |  |  | $ | 143,723 |  |  |  |  |  |  |  | $ | 143,599 |
Netting adjustments(1) |  |  |  |  |  |  |  | 30,583 |  |  |  |  |  |  |  |  | - |
Net derivatives in the balance sheet |  |  |  |  |  |  | $ | 113,140 |  |  |  |  |  |  |  | $ | 143,599 |
Derivatives not offset on the balance sheet |  |  |  |  |  |  | $ | 143 |  |  |  |  |  |  |  | $ | 143 |
Cash collateral(2) |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  |  | - |
Net derivative amounts |  |  |  |  |  |  | $ | 112,997 |  |  |  |  |  |  |  | $ | 143,456 |
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate derivatives |  | $ | 1,275,708 |  | Other assets |  | $ | 117,247 |  |  | $ | 1,275,708 |  | Other liabilities |  | $ | 117,247 |
Risk participation agreements |  |  | 88,963 |  | Other assets |  |  | 47 |  |  |  | 18,421 |  | Other liabilities |  |  | 10 |
Total derivatives not designated as hedging instruments |  |  |  |  |  |  | $ | 117,294 |  |  |  |  |  |  |  | $ | 117,257 |
Netting adjustments(1) |  |  |  |  |  |  |  | 24,109 |  |  |  |  |  |  |  |  | - |
Net derivatives in the balance sheet |  |  |  |  |  |  | $ | 93,185 |  |  |  |  |  |  |  | $ | 117,257 |
Derivatives not offset on the balance sheet |  |  |  |  |  |  | $ | 352 |  |  |  |  |  |  |  | $ | 352 |
Cash collateral(2) |  |  |  |  |  |  |  | - |  |  |  |  |  |  |  |  | - |
Net derivative amounts |  |  |  |  |  |  | $ | 92,833 |  |  |  |  |  |  |  | $ | 116,905 |

(1) | Netting adjustments represents the amounts recorded to convert derivatives assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance on the settle to market rules for cleared derivatives. The CME legally characterizes the variation margin posted between counterparties as settlements of the outstanding derivative contracts instead of cash collateral.

(2) | Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consists of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above.

The following table indicates the gain or loss recognized in income on derivatives not designated as a hedging relationship:

|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
(In thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
(Decrease) in other income |  | $ | (65 | ) |  | $ | (33 | ) |  | $ | (65 | ) |  | $ | (152 | )

11. | Fair Value Measurements and Fair Value of Financial Instruments

GAAP states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy exists within GAAP that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
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A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, many other sovereign government obligations, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy. The Company does not adjust the quoted prices for such instruments.
The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations or quote from alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid agency securities, less liquid listed equities, state, municipal and provincial obligations and certain physical commodities. Such instruments are generally classified within Level 2 of the fair value hierarchy. Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices). Other investment securities are reported at fair value utilizing Level 1 and Level 2 inputs. The prices for Level 2 instruments are obtained through an independent pricing service or dealer market participants with whom the Company has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the methodologies used by its third-party providers in pricing the securities.
Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions. Valuations are adjusted to reflect illiquidity and/or non-transferability and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate will be used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Subsequent to inception, management only changes Level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt markets and changes in financial ratios or cash flows.
The following tables set forth the Company’s financial assets and liabilities measured on a recurring basis that were accounted for at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | September 30, 2023 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
AFS securities |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury |  | $ | 121,595 |  |  | $ | - |  |  | $ | - |  |  | $ | 121,595 |
Federal agency |  |  | - |  |  |  | 203,756 |  |  |  | - |  |  |  | 203,756 |
State & municipal |  |  | - |  |  |  | 83,285 |  |  |  | - |  |  |  | 83,285 |
Mortgage-backed |  |  | - |  |  |  | 415,768 |  |  |  | - |  |  |  | 415,768 |
Collateralized mortgage obligations |  |  | - |  |  |  | 533,411 |  |  |  | - |  |  |  | 533,411 |
Corporate |  |  | - |  |  |  | 41,217 |  |  |  | - |  |  |  | 41,217 |
Total AFS securities |  | $ | 121,595 |  |  | $ | 1,277,437 |  |  | $ | - |  |  | $ | 1,399,032 |
Equity securities |  |  | 34,600 |  |  |  | 1,000 |  |  |  | - |  |  |  | 35,600 |
Derivatives |  |  | - |  |  |  | 113,140 |  |  |  | - |  |  |  | 113,140 |
Total |  | $ | 156,195 |  |  | $ | 1,391,577 |  |  | $ | - |  |  | $ | 1,547,772 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives |  | $ | - |  |  | $ | 143,599 |  |  | $ | - |  |  | $ | 143,599 |
Total |  | $ | - |  |  | $ | 143,599 |  |  | $ | - |  |  | $ | 143,599 |

(In thousands) |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | December 31, 2022 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
AFS securities |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury |  | $ | 121,658 |  |  | $ | - |  |  | $ | - |  |  | $ | 121,658 |
Federal agency |  |  | - |  |  |  | 206,419 |  |  |  | - |  |  |  | 206,419 |
State & municipal |  |  | - |  |  |  | 82,851 |  |  |  | - |  |  |  | 82,851 |
Mortgage-backed |  |  | - |  |  |  | 473,694 |  |  |  | - |  |  |  | 473,694 |
Collateralized mortgage obligations |  |  | - |  |  |  | 588,363 |  |  |  | - |  |  |  | 588,363 |
Corporate |  |  | - |  |  |  | 54,240 |  |  |  | - |  |  |  | 54,240 |
Total AFS securities |  | $ | 121,658 |  |  | $ | 1,405,567 |  |  | $ | - |  |  | $ | 1,527,225 |
Equity securities |  |  | 29,784 |  |  |  | 1,000 |  |  |  | - |  |  |  | 30,784 |
Derivatives |  |  | - |  |  |  | 93,185 |  |  |  | - |  |  |  | 93,185 |
Total |  | $ | 151,442 |  |  | $ | 1,499,752 |  |  | $ | - |  |  | $ | 1,651,194 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives |  | $ | - |  |  | $ | 117,257 |  |  | $ | - |  |  | $ | 117,257 |
Total |  | $ | - |  |  | $ | 117,257 |  |  | $ | - |  |  | $ | 117,257 |

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GAAP requires disclosure of assets and liabilities measured and recorded at fair value on a non-recurring basis such as goodwill, loans held for sale, other real estate owned, collateral-dependent loans individually evaluated for expected credit losses and HTM securities. The non-recurring fair value measurements recorded during the nine month period ended September 30, 2023 and the year ended December 31, 2022 were related to loans individually evaluated for expected credit losses with fair value of $1.9 million and $1.1 million as of September 30, 2023 and December 31, 2022, respectively. The Company uses the fair value of underlying collateral, less costs to sell, to estimate the allowance for credit losses for individually evaluated collateral dependent loans. The appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses ranging from 10% to 50%. Based on the valuation techniques used, the fair value measurements for collateral dependent individually evaluated loans are classified as Level 3.
The following table sets forth information with regard to estimated fair values of financial instruments. This table excludes financial instruments for which the carrying amount approximates fair value. Financial instruments for which the fair value approximates carrying value include cash and cash equivalents, AFS securities, equity securities, accrued interest receivable, non-maturity deposits, short-term borrowings, accrued interest payable and derivatives.

|  |  |  |  | September 30, 2023 |  |  | December 31, 2022 |
(In thousands) |  | Fair Value Hierarchy |  |  | Carrying Amount |  |  | Estimated Fair Value |  |  | Carrying Amount |  |  | Estimated Fair Value |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
HTM securities |  |  | 2 |  |  | $ | 914,520 |  |  | $ | 783,986 |  |  | $ | 919,517 |  |  | $ | 812,647 |
Net loans |  |  | 3 |  |  |  | 9,556,887 |  |  |  | 9,097,545 |  |  |  | 8,049,909 |  |  |  | 7,840,350 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Time deposits |  |  | 2 |  |  | $ | 1,344,199 |  |  | $ | 1,301,989 |  |  | $ | 433,772 |  |  | $ | 413,868 |
Long-term debt |  |  | 2 |  |  |  | 29,834 |  |  |  | 29,114 |  |  |  | 4,815 |  |  |  | 4,539 |
Subordinated debt |  |  | 1 |  |  |  | 120,061 |  |  |  | 110,057 |  |  |  | 98,000 |  |  |  | 92,883 |
Junior subordinated debt |  |  | 2 |  |  |  | 101,196 |  |  |  | 99,259 |  |  |  | 101,196 |  |  |  | 98,372 |

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Company has a substantial wealth operation that contributes net fee income annually. The wealth management operation is not considered a financial instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities include the benefits resulting from the low-cost funding of deposit liabilities as compared to the cost of borrowing funds in the market and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimate of fair value.
HTM Securities
The fair value of the Company’s HTM securities is primarily measured using information from a third-party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
Net Loans
Net loans include portfolio loans and loans held for sale. Loans were first segregated by type and then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments, and those expected future cash flows also includes credit risk, illiquidity risk and other market factors to calculate the exit price fair value in accordance with ASC 820.
Time Deposits
The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.
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Long-Term Debt
The fair value of long-term debt was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments.
Subordinated Debt
The fair value of subordinated debt has been measured using the observable market price as of the period reported.
Junior Subordinated Debt
The fair value of junior subordinated debt has been estimated using a discounted cash flow analysis.

12. | Commitments and Contingencies

The Company is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit, standby letters of credit and certain agricultural real estate loans sold to investors with recourse, with the sold portion having a government guarantee that is assignable back to the Company upon repurchase of the loan in the event of default. The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, unused lines of credit, standby letters of credit and loans sold with recourse is represented by the contractual amount of those investments. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness. Commitments to extend credit and unused lines of credit totaled $2.71 billion at September 30, 2023 and $2.42 billion at December 31, 2022.
Since many loan commitments, standby letters of credit and guarantees and indemnification contracts expire without being funded in whole or in part, the contract amounts are not necessarily indicative of future cash flows. The Company does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit.
The Company guarantees the obligations or performance of customers by issuing standby letters of credit to third-parties. These standby letters of credit are generally issued in support of third-party debt, such as corporate debt issuances, industrial revenue bonds and municipal securities. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers and letters of credit are subject to the same credit origination, portfolio maintenance and management procedures in effect to monitor other credit and off-balance sheet products. Typically, these instruments have one year expirations with an option to renew upon annual review; therefore, the total amounts do not necessarily represent future cash requirements. Standby letters of credit totaled $40.5 million at September 30, 2023 and $53.3 million at December 31, 2022. As of September 30, 2023 and December 31, 2022, the fair value of the Company’s standby letters of credit was not significant.
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NBT BANCORP INC. AND SUBSIDIARIES

ITEM 2. | 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”). 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, 2022 for an understanding of the following discussion and analysis. Operating results for the three and nine month periods ending September 30, 2023 are not necessarily indicative of the results of the full year ending December 31, 2023 or any future period.
Forward-Looking Statements
Certain statements in this filing and future filings by the Company with the Securities and Exchange Commission (“SEC”), in the Company’s press releases or other public or stockholder communications or in oral statements made with the approval of an authorized executive officer, contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of phrases such as “anticipate,” “believe,” “expect,” “forecasts,” “projects,” “will,” “can,” “would,” “should,” “could,” “may,” or other similar terms. There are a number of factors, many of which are beyond the Company’s control, that could cause actual results to differ materially from those contemplated by the forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) local, regional, national and international economic conditions, including actual or potential stress in the banking industry, and the impact they may have on the Company and its customers and the Company’s assessment of that impact; (2) changes in the level of nonperforming assets and charge-offs; (3) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (4) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board (“FRB”); (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 and Salisbury Bancorp, Inc. (“Salisbury”) may be unable to achieve expected synergies and operating efficiencies in the merger within the expected timeframes; (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 Financial Accounting Standards Board and other accounting standard setters; (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 items.
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 accounting principles generally accepted in the United States of America (“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.
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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 2022 Annual Report on Form 10-K. Refer to Note 3 in this Quarterly Report on Form 10-Q for recently adopted accounting standards. Not all significant accounting policies require management to make difficult, subjective or complex judgments. The allowance for credit losses and the allowance for unfunded commitments policies noted below are deemed to meet the SEC’s definition of a critical accounting estimate.
The allowance for credit losses consists of the allowance for credit losses and the allowance for losses on unfunded commitments. The measurement of Current Expensed Credit Losses (“CECL”) on financial instruments requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. 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. Going forward, the impact of utilizing the CECL approach to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings.
One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. The quantitative model as of September 30, 2023, incorporated a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party to accommodate other potential economic conditions in the model, particularly significant unknowns relating to downside risks as of the measurement date. The baseline outlook projected a relatively low unemployment rate of 3.7% rising modestly to 4.13% by the end of the forecast period. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the fourth quarter of 2023 at 3.5%, decreasing slightly to 2.9%, and then increasing to 3.8% by the end of the forecast period. The alternative downside scenario assumes deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment increases to 5.1% in the fourth quarter of 2023 and rises to a peak of 6.9% in the fourth quarter of 2024. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of September 30, 2023. All else held equal, the changes in the weightings of our forecasted scenarios would impact the amount of estimated allowance for credit losses through changes in the quantitative reserve and scenario-specific qualitative adjustments. To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of September 30, 2023, the Company attributed the change in scenario weightings to the change in the allowance for credit losses, with a 10% decrease to the downside scenario and a 10% increase to the baseline scenario causing a 3.9% decrease in the overall estimated allowance for credit losses. To further demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of September 30, 2023, the Company increased the downside scenario to 100% which resulted in a 25% increase in the overall estimated allowance for credit losses.
The Company’s policies on the CECL method for allowance for credit losses are disclosed in Note 1 to the consolidated financial statements presented in our 2022 Annual Report on Form 10-K. All 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 2022 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.
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Overview
Significant factors management reviews to evaluate the Company’s operating results and financial condition include, but are not limited to: net income and earnings per share, return on average assets and equity, net interest margin, noninterest income, operating expenses, asset quality indicators, loan and deposit growth, capital management, liquidity and interest rate sensitivity, enhancements to customer products and services, technology advancements, market share and peer comparisons. The following information should be considered in connection with the Company’s results for the three and nine months ended September 30, 2023:

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

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

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

| ● | excluding acquisition expenses, acquisition-related provision for credit losses and securities gains (losses), net income and diluted earnings per share for the three months ended September 30, 2023 were $38.3 million and $0.84, respectively;

| ● | excluding securities gains (losses), noninterest income represents 30% of total revenues and was $40.4 million for the three months ended September 30, 2023, up $3.1 million, or 8.3%, from the third quarter of 2022 and up $3.7 million, or 10.2%, from the second quarter of 2023;

| ● | noninterest expense, excluding $7.9 million of acquisition expenses in the third quarter of 2023 and $1.2 million in the second quarter of 2023, respectively, was up $6.2 million, or 8.1%, from the third quarter of 2022 and up $5.3 million, or 6.8%, from the second quarter of 2023;

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

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

| ● | book value per share of $28.94 at September 30, 2023; tangible book value per share(1) was $20.39 at September 30, 2023, $21.55 at June 30, 2023 and $20.25 at September 30, 2022.

(1) | Non-GAAP measure - Refer to non-GAAP reconciliation below.

Salisbury Bancorp, Inc. Merger
On August 11, 2023, NBT completed its acquisition of Salisbury. Salisbury was a Connecticut-chartered commercial bank with 13 banking offices in northwestern Connecticut, the Hudson Valley region of New York, and southwestern Massachusetts. In connection with the acquisition, the Company issued 4.32 million shares and acquired approximately $1.46 billion of identifiable assets, including $1.18 billion of loans, $122.7 million in investment securities which were sold immediately after the merger, $31.2 million of core deposit intangibles and $4.7 million in a wealth management customer intangible, as well as $1.31 billion in deposits. As of the acquisition date, the fair value discount was $78.7 million for loans, net of the reclassification of the purchase credit deteriorated allowance, and was $3.0 million for subordinated debt, respectively.
Results of Operations
Net income for the three months ended September 30, 2023 was $24.6 million, or $0.54 per diluted common share, down $5.5 million from $30.1 million, or $0.70 per diluted common share for the three months ended June 30, 2023 and down $14.4 million from $39.0 million, or $0.90 per diluted common share for the third quarter of 2022.

| ● | Excluding the impact of acquisition expenses, acquisition-related provision for credit losses and securities gains (losses), the Company generated $0.84 per diluted share of earnings in the third quarter of 2023, compared to $0.91 per diluted share in the third quarter of 2022 and $0.80 per diluted share in the second quarter of 2023.

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

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Net income for the nine months ended September 30, 2023 was $88.3 million, or $2.01 per diluted common share, down $27.5 million from $115.9 million, or $2.68 per diluted common share for the nine months ended September 30, 2022.

| ● | Excluding the impact of acquisition expenses, acquisition-related provision for credit losses and securities gains (losses), the Company generated $2.53 per diluted share of earnings for the nine months ended September 30, 2023, compared to $2.70 per diluted share for the nine months ended September 30, 2022.

| ● | In the nine months ended September 30, 2023, the Company incurred a $4.5 million ($0.08 per diluted share) securities loss on the sale of two subordinated debt securities held in the available for sale (“AFS”) portfolio and a $5.0 million ($0.09 per diluted share) securities loss on the write-off of a subordinated debt security of a failed financial institution.

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

The following table sets forth certain financial highlights:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2023 |  |  | June 30, 2023 |  |  | September 30, 2022 |  |  | September 30, 2023 |  |  | September 30, 2022 |
Performance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Diluted earnings per share |  | $ | 0.54 |  |  | $ | 0.70 |  |  | $ | 0.90 |  |  | $ | 2.01 |  |  | $ | 2.68 |
Return on average assets(2) |  |  | 0.76 | % |  |  | 1.02 | % |  |  | 1.33 | % |  |  | 0.97 | % |  |  | 1.31 | %
Return on average equity(2) |  |  | 7.48 | % |  |  | 9.91 | % |  |  | 12.87 | % |  |  | 9.54 | % |  |  | 12.79 | %
Return on average tangible common equity(2) |  |  | 10.73 | % |  |  | 13.13 | % |  |  | 17.12 | % |  |  | 13.00 | % |  |  | 17.00 | %
Net interest margin, fully taxable equivalent (“FTE”)(2) |  |  | 3.21 | % |  |  | 3.27 | % |  |  | 3.51 | % |  |  | 3.34 | % |  |  | 3.22 | %
Capital: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity to assets |  |  | 9.86 | % |  |  | 10.18 | % |  |  | 9.94 | % |  |  | 9.86 | % |  |  | 9.94 | %
Tangible equity ratio |  |  | 7.15 | % |  |  | 7.95 | % |  |  | 7.64 | % |  |  | 7.15 | % |  |  | 7.64 | %
Book value per share |  | $ | 28.94 |  |  | $ | 28.26 |  |  | $ | 27.00 |  |  | $ | 28.94 |  |  | $ | 27.00 |
Tangible book value per share |  | $ | 20.39 |  |  | $ | 21.55 |  |  | $ | 20.25 |  |  | $ | 20.39 |  |  | $ | 20.25 |
Leverage ratio |  |  | 10.23 | % |  |  | 10.51 | % |  |  | 10.21 | % |  |  | 10.23 | % |  |  | 10.21 | %
Common equity tier 1 capital ratio |  |  | 11.31 | % |  |  | 12.29 | % |  |  | 12.17 | % |  |  | 11.31 | % |  |  | 12.17 | %
Tier 1 capital ratio |  |  | 12.23 | % |  |  | 13.35 | % |  |  | 13.27 | % |  |  | 12.23 | % |  |  | 13.27 | %
Total risk-based capital ratio |  |  | 14.45 | % |  |  | 15.50 | % |  |  | 15.50 | % |  |  | 14.45 | % |  |  | 15.50 | %

The following table provides non-GAAP reconciliations:

|  | Three Months Ended |  |  | Nine Months Ended |
(In thousands, except per share data) |  | September 30, 2023 |  |  | June 30, 2023 |  |  | September 30, 2022 |  |  | September 30, 2023 |  |  | September 30, 2022 |
Return on average tangible common equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 24,606 |  |  | $ | 30,072 |  |  | $ | 38,973 |  |  | $ | 88,336 |  |  | $ | 115,874 |
Amortization of intangible assets (net of tax) |  |  | 1,206 |  |  |  | 344 |  |  |  | 408 |  |  |  | 1,952 |  |  |  | 1,294 |
Net income, excluding intangible amortization |  | $ | 25,812 |  |  | $ | 30,416 |  |  | $ | 39,381 |  |  | $ | 90,288 |  |  | $ | 117,168 |
Average stockholders’ equity |  | $ | 1,305,686 |  |  | $ | 1,217,306 |  |  | $ | 1,201,656 |  |  | $ | 1,238,192 |  |  | $ | 1,210,998 |
Less: average goodwill and other intangibles |  |  | 350,912 |  |  |  | 287,974 |  |  |  | 289,296 |  |  |  | 309,309 |  |  |  | 289,366 |
Average tangible common equity |  | $ | 954,774 |  |  | $ | 929,332 |  |  | $ | 912,360 |  |  | $ | 928,883 |  |  | $ | 921,632 |
Return on average tangible common equity(2) |  |  | 10.73 | % |  |  | 13.13 | % |  |  | 17.12 | % |  |  | 13.00 | % |  |  | 17.00 | %
Tangible equity ratio: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stockholders’ equity |  | $ | 1,362,821 |  |  | $ | 1,210,493 |  |  | $ | 1,156,546 |  |  | $ | 1,362,821 |  |  | $ | 1,156,546 |
Intangibles |  |  | 402,745 |  |  |  | 287,701 |  |  |  | 289,083 |  |  |  | 402,745 |  |  |  | 289,083 |
Assets |  | $ | 13,827,628 |  |  | $ | 11,890,497 |  |  | $ | 11,640,742 |  |  | $ | 13,827,628 |  |  | $ | 11,640,742 |
Tangible equity ratio |  |  | 7.15 | % |  |  | 7.95 | % |  |  | 7.64 | % |  |  | 7.15 | % |  |  | 7.64 | %
Tangible book value per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stockholders’ equity |  | $ | 1,362,821 |  |  | $ | 1,210,493 |  |  | $ | 1,156,546 |  |  | $ | 1,362,821 |  |  | $ | 1,156,546 |
Intangibles |  |  | 402,745 |  |  |  | 287,701 |  |  |  | 289,083 |  |  |  | 402,745 |  |  |  | 289,083 |
Tangible equity |  | $ | 960,076 |  |  | $ | 922,792 |  |  | $ | 867,463 |  |  | $ | 960,076 |  |  | $ | 867,463 |
Diluted common shares outstanding |  |  | 47,088 |  |  |  | 42,827 |  |  |  | 42,839 |  |  |  | 47,088 |  |  |  | 42,839 |
Tangible book value per share |  | $ | 20.39 |  |  | $ | 21.55 |  |  | $ | 20.25 |  |  | $ | 20.39 |  |  | $ | 20.25 |

(2) | Annualized.

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Net Interest Income
Net interest income is the difference between interest income on earning assets, primarily loans and securities and interest expense on interest-bearing liabilities, primarily deposits and 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 $94.9 million for the third quarter of 2023, up $5.8 million, or 6.5%, from the previous quarter. The FTE net interest margin was 3.21% for the three months ended September 30, 2023, a decrease of 6 basis points (“bps”) from the previous quarter. Interest income increased $16.5 million, or 13.7%, as the yield on average interest-earning assets increased 21 bps from the prior quarter to 4.63%, while average interest-earning assets of $11.80 billion increased $819.7 million from the prior quarter, primarily due to the Salisbury acquisition and organic loan growth. Interest expense was up $10.7 million, or 33.9%, as the cost of interest-bearing liabilities increased 38 bps to 2.18% for the quarter ended September 30, 2023, driven by interest-bearing deposit costs increasing 49 bps. Included in net interest income was $1.4 million of acquisition-related net accretion which positively impacted net interest margin by 5 bps.
Net interest income was $94.9 million for the third quarter of 2023, up $0.4 million, or 0.4%, from the third quarter of 2022. The FTE net interest margin was 3.21% for the three months ended September 30, 2023, a decrease of 30 bps from the third quarter of 2022. Interest income increased $37.9 million, or 38.2%, as the yield on average interest-earning assets increased 95 bps from the same period in 2022 to 4.63%, while average interest-earning assets of $11.80 billion increased $1.08 billion from the third quarter of 2022 primarily due to the Salisbury acquisition and organic loan growth. Interest expense increased $37.5 million, or 791.0%, as the cost of interest-bearing liabilities increased 189 bps to 2.18% for the quarter ended September 30, 2023, driven by interest-bearing deposit costs increasing 165 bps, as well as a $533.9 million increase in the average balances of short-term borrowings and a 534 bps rate paid on those borrowings. Included in net interest income was $1.4 million of acquisition-related net accretion which positively impacted net interest margin by 5 bps.
Net interest income for the first nine months of 2023 was $279.0 million, up $16.6 million, or 6.3%, from the same period in 2022. FTE net interest margin was 3.34% for the nine months ended September 30, 2023, an increase of 12 bps from the same period in 2022. Interest income increased $97.0 million, or 35.3%, as the yield on average interest-earning assets increased 107 bps from the same period in 2022 to 4.44%, while average interest-earning assets of $11.24 billion increased $303.6 million primarily due to the Salisbury acquisition and organic loan growth partially offset by the decrease in short-term interest-bearing accounts (“excess liquidity”). Interest expense was up $80.3 million, or 643.4%, for the nine months ended September 30, 2023 as compared to the same period in 2022 driven by interest-bearing deposit costs increasing 118 bps, as well as a $483.6 million increase in the average balances of short-term borrowings and a 522 bps rate paid on those borrowings. Included in net interest income was $1.4 million of acquisition-related net accretion which positively impacted net interest margin by 2 bps.
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Average Balances and Net Interest Income
The following tables include 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 |  | September 30, 2023 |  |  | September 30, 2022 |
(Dollars in thousands) |  | Average Balance |  |  | Interest |  |  | Yield/ Rates |  |  | Average Balance |  |  | Interest |  |  | Yield/ Rates |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term interest-bearing accounts |  | $ | 121,384 |  |  | $ | 1,304 |  |  |  | 4.26 | % |  | $ | 191,463 |  |  | $ | 1,209 |  |  |  | 2.51 | %
Securities taxable(1) |  |  | 2,364,809 |  |  |  | 11,314 |  |  |  | 1.90 | % |  |  | 2,491,315 |  |  |  | 11,478 |  |  |  | 1.83 | %
Securities tax-exempt(1)(3) |  |  | 219,427 |  |  |  | 1,850 |  |  |  | 3.34 | % |  |  | 211,306 |  |  |  | 1,318 |  |  |  | 2.47 | %
Federal Reserve Bank and FHLB stock |  |  | 53,841 |  |  |  | 917 |  |  |  | 6.76 | % |  |  | 25,182 |  |  |  | 220 |  |  |  | 3.47 | %
Loans(2)(3) |  |  | 9,043,582 |  |  |  | 122,277 |  |  |  | 5.36 | % |  |  | 7,808,025 |  |  |  | 85,326 |  |  |  | 4.34 | %
Total interest-earning assets |  | $ | 11,803,043 |  |  | $ | 137,662 |  |  |  | 4.63 | % |  | $ | 10,727,291 |  |  | $ | 99,551 |  |  |  | 3.68 | %
Other assets |  |  | 968,220 |  |  |  |  |  |  |  |  |  |  |  | 887,378 |  |  |  |  |  |  |  |  |
Total assets |  | $ | 12,771,263 |  |  |  |  |  |  |  |  |  |  | $ | 11,614,669 |  |  |  |  |  |  |  |  |
Liabilities and stockholders’ equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market deposit accounts |  | $ | 2,422,451 |  |  | $ | 17,739 |  |  |  | 2.91 | % |  | $ | 2,332,341 |  |  | $ | 877 |  |  |  | 0.15 | %
NOW deposit accounts |  |  | 1,513,420 |  |  |  | 2,165 |  |  |  | 0.57 | % |  |  | 1,548,115 |  |  |  | 800 |  |  |  | 0.21 | %
Savings deposits |  |  | 1,707,094 |  |  |  | 176 |  |  |  | 0.04 | % |  |  | 1,854,122 |  |  |  | 149 |  |  |  | 0.03 | %
Time deposits |  |  | 1,178,352 |  |  |  | 10,678 |  |  |  | 3.60 | % |  |  | 455,168 |  |  |  | 407 |  |  |  | 0.35 | %
Total interest-bearing deposits |  | $ | 6,821,317 |  |  | $ | 30,758 |  |  |  | 1.79 | % |  | $ | 6,189,746 |  |  | $ | 2,233 |  |  |  | 0.14 | %
Federal funds purchased |  |  | 6,033 |  |  |  | 82 |  |  |  | 5.39 | % |  |  | 1,522 |  |  |  | 13 |  |  |  | 3.39 | %
Repurchase agreements |  |  | 71,516 |  |  |  | 253 |  |  |  | 1.40 | % |  |  | 69,048 |  |  |  | 17 |  |  |  | 0.10 | %
Short-term borrowings |  |  | 540,380 |  |  |  | 7,277 |  |  |  | 5.34 | % |  |  | 6,440 |  |  |  | 54 |  |  |  | 3.33 | %
Long-term debt |  |  | 29,800 |  |  |  | 294 |  |  |  | 3.91 | % |  |  | 3,331 |  |  |  | 20 |  |  |  | 2.38 | %
Subordinated debt, net |  |  | 109,160 |  |  |  | 1,612 |  |  |  | 5.86 | % |  |  | 98,748 |  |  |  | 1,360 |  |  |  | 5.46 | %
Junior subordinated debt |  |  | 101,196 |  |  |  | 1,923 |  |  |  | 7.54 | % |  |  | 101,196 |  |  |  | 1,039 |  |  |  | 4.07 | %
Total interest-bearing liabilities |  | $ | 7,679,402 |  |  | $ | 42,199 |  |  |  | 2.18 | % |  | $ | 6,470,031 |  |  | $ | 4,736 |  |  |  | 0.29 | %
Demand deposits |  | $ | 3,498,424 |  |  |  |  |  |  |  |  |  |  | $ | 3,708,131 |  |  |  |  |  |  |  |  |
Other liabilities |  |  | 287,751 |  |  |  |  |  |  |  |  |  |  |  | 234,851 |  |  |  |  |  |  |  |  |
Stockholders’ equity |  |  | 1,305,686 |  |  |  |  |  |  |  |  |  |  |  | 1,201,656 |  |  |  |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 12,771,263 |  |  |  |  |  |  |  |  |  |  | $ | 11,614,669 |  |  |  |  |  |  |  |  |
Net interest income (FTE) |  |  |  |  |  | $ | 95,463 |  |  |  |  |  |  |  |  |  |  | $ | 94,815 |  |  |  |  |
Interest rate spread |  |  |  |  |  |  |  |  |  |  | 2.45 | % |  |  |  |  |  |  |  |  |  |  | 3.39 | %
Net interest margin (FTE) |  |  |  |  |  |  |  |  |  |  | 3.21 | % |  |  |  |  |  |  |  |  |  |  | 3.51 | %
Taxable equivalent adjustment |  |  |  |  |  | $ | 568 |  |  |  |  |  |  |  |  |  |  | $ | 337 |  |  |  |  |
Net interest income |  |  |  |  |  | $ | 94,895 |  |  |  |  |  |  |  |  |  |  | $ | 94,478 |  |  |  |  |

(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 a FTE basis using the statutory Federal income tax rate of 21%.

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Nine Months Ended |  | September 30, 2023 |  |  | September 30, 2022 |
(Dollars in thousands) |  | Average Balance |  |  | Interest |  |  | Yield/ Rates |  |  | Average Balance |  |  | Interest |  |  | Yield/ Rates |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term interest-bearing accounts |  | $ | 61,677 |  |  | $ | 1,751 |  |  |  | 3.80 | % |  | $ | 575,517 |  |  | $ | 2,742 |  |  |  | 0.64 | %
Securities taxable(1) |  |  | 2,400,237 |  |  |  | 34,218 |  |  |  | 1.91 | % |  |  | 2,406,042 |  |  |  | 31,460 |  |  |  | 1.75 | %
Securities tax-exempt(1)(3) |  |  | 207,812 |  |  |  | 4,675 |  |  |  | 3.01 | % |  |  | 242,033 |  |  |  | 3,664 |  |  |  | 2.02 | %
Federal Reserve Bank and FHLB stock |  |  | 48,860 |  |  |  | 2,282 |  |  |  | 6.24 | % |  |  | 25,064 |  |  |  | 654 |  |  |  | 3.49 | %
Loans(2)(3) |  |  | 8,516,793 |  |  |  | 330,314 |  |  |  | 5.19 | % |  |  | 7,683,159 |  |  |  | 237,290 |  |  |  | 4.13 | %
Total interest-earning assets |  | $ | 11,235,379 |  |  | $ | 373,240 |  |  |  | 4.44 | % |  | $ | 10,931,815 |  |  | $ | 275,810 |  |  |  | 3.37 | %
Other assets |  |  | 880,655 |  |  |  |  |  |  |  |  |  |  |  | 905,931 |  |  |  |  |  |  |  |  |
Total assets |  | $ | 12,116,034 |  |  |  |  |  |  |  |  |  |  | $ | 11,837,746 |  |  |  |  |  |  |  |  |
Liabilities and stockholders’ equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market deposit accounts |  | $ | 2,207,126 |  |  | $ | 36,107 |  |  |  | 2.19 | % |  | $ | 2,541,927 |  |  | $ | 2,801 |  |  |  | 0.15 | %
NOW deposit accounts |  |  | 1,525,089 |  |  |  | 4,989 |  |  |  | 0.44 | % |  |  | 1,570,318 |  |  |  | 1,260 |  |  |  | 0.11 | %
Savings deposits |  |  | 1,732,205 |  |  |  | 462 |  |  |  | 0.04 | % |  |  | 1,831,485 |  |  |  | 442 |  |  |  | 0.03 | %
Time deposits |  |  | 893,407 |  |  |  | 20,330 |  |  |  | 3.04 | % |  |  | 475,966 |  |  |  | 1,328 |  |  |  | 0.37 | %
Total interest-bearing deposits |  | $ | 6,357,827 |  |  | $ | 61,888 |  |  |  | 1.30 | % |  | $ | 6,419,696 |  |  | $ | 5,831 |  |  |  | 0.12 | %
Federal funds purchased |  |  | 32,784 |  |  |  | 1,266 |  |  |  | 5.16 | % |  |  | 513 |  |  |  | 13 |  |  |  | 3.39 | %
Repurchase agreements |  |  | 66,162 |  |  |  | 416 |  |  |  | 0.84 | % |  |  | 67,279 |  |  |  | 46 |  |  |  | 0.09 | %
Short-term borrowings |  |  | 485,804 |  |  |  | 18,975 |  |  |  | 5.22 | % |  |  | 2,170 |  |  |  | 54 |  |  |  | 3.33 | %
Long-term debt |  |  | 22,373 |  |  |  | 631 |  |  |  | 3.77 | % |  |  | 7,509 |  |  |  | 140 |  |  |  | 2.49 | %
Subordinated debt, net |  |  | 101,114 |  |  |  | 4,281 |  |  |  | 5.66 | % |  |  | 98,641 |  |  |  | 4,078 |  |  |  | 5.53 | %
Junior subordinated debt |  |  | 101,196 |  |  |  | 5,372 |  |  |  | 7.10 | % |  |  | 101,196 |  |  |  | 2,325 |  |  |  | 3.07 | %
Total interest-bearing liabilities |  | $ | 7,167,260 |  |  | $ | 92,829 |  |  |  | 1.73 | % |  | $ | 6,697,004 |  |  | $ | 12,487 |  |  |  | 0.25 | %
Demand deposits |  | $ | 3,439,275 |  |  |  |  |  |  |  |  |  |  | $ | 3,709,761 |  |  |  |  |  |  |  |  |
Other liabilities |  |  | 271,307 |  |  |  |  |  |  |  |  |  |  |  | 219,983 |  |  |  |  |  |  |  |  |
Stockholders’ equity |  |  | 1,238,192 |  |  |  |  |  |  |  |  |  |  |  | 1,210,998 |  |  |  |  |  |  |  |  |
Total liabilities and stockholders’ equity |  | $ | 12,116,034 |  |  |  |  |  |  |  |  |  |  | $ | 11,837,746 |  |  |  |  |  |  |  |  |
Net interest income (FTE) |  |  |  |  |  | $ | 280,411 |  |  |  |  |  |  |  |  |  |  | $ | 263,323 |  |  |  |  |
Interest rate spread |  |  |  |  |  |  |  |  |  |  | 2.71 | % |  |  |  |  |  |  |  |  |  |  | 3.12 | %
Net interest margin (FTE) |  |  |  |  |  |  |  |  |  |  | 3.34 | % |  |  |  |  |  |  |  |  |  |  | 3.22 | %
Taxable equivalent adjustment |  |  |  |  |  | $ | 1,365 |  |  |  |  |  |  |  |  |  |  | $ | 912 |  |  |  |  |
Net interest income |  |  |  |  |  | $ | 279,046 |  |  |  |  |  |  |  |  |  |  | $ | 262,411 |  |  |  |  |

(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 a FTE basis using the statutory Federal income tax rate of 21%.

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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 September 30, |  | Increase (Decrease) 2023 over 2022 |
(In thousands) |  | Volume |  |  | Rate |  |  | Total |
Short-term interest-bearing accounts |  | $ | (549 | ) |  | $ | 644 |  |  | $ | 95 |
Securities taxable |  |  | (596 | ) |  |  | 432 |  |  |  | (164 | )
Securities tax-exempt |  |  | 52 |  |  |  | 480 |  |  |  | 532 |
Federal Reserve Bank and FHLB stock |  |  | 380 |  |  |  | 317 |  |  |  | 697 |
Loans |  |  | 14,784 |  |  |  | 22,167 |  |  |  | 36,951 |
Total FTE interest income |  | $ | 14,072 |  |  | $ | 24,039 |  |  | $ | 38,111 |
Money market deposit accounts |  | $ | 35 |  |  | $ | 16,827 |  |  | $ | 16,862 |
NOW deposit accounts |  |  | (18 | ) |  |  | 1,383 |  |  |  | 1,365 |
Savings deposits |  |  | (13 | ) |  |  | 40 |  |  |  | 27 |
Time deposits |  |  | 1,522 |  |  |  | 8,749 |  |  |  | 10,271 |
Federal funds purchased |  |  | 58 |  |  |  | 11 |  |  |  | 69 |
Repurchase agreements |  |  | 1 |  |  |  | 235 |  |  |  | 236 |
Short-term borrowings |  |  | 7,171 |  |  |  | 52 |  |  |  | 7,223 |
Long-term debt |  |  | 253 |  |  |  | 21 |  |  |  | 274 |
Subordinated debt, net |  |  | 150 |  |  |  | 102 |  |  |  | 252 |
Junior subordinated debt |  |  | - |  |  |  | 884 |  |  |  | 884 |
Total FTE interest expense |  | $ | 9,158 |  |  | $ | 28,305 |  |  | $ | 37,463 |
Change in FTE net interest income |  | $ | 4,914 |  |  | $ | (4,266 | ) |  | $ | 648 |

Nine Months Ended September 30, |  | Increase (Decrease) 2023 over 2022 |
(In thousands) |  | Volume |  |  | Rate |  |  | Total |
Short-term interest-bearing accounts |  | $ | (4,300 | ) |  | $ | 3,309 |  |  | $ | (991 | )
Securities taxable |  |  | (76 | ) |  |  | 2,834 |  |  |  | 2,758 |
Securities tax-exempt |  |  | (575 | ) |  |  | 1,586 |  |  |  | 1,011 |
Federal Reserve Bank and FHLB stock |  |  | 889 |  |  |  | 739 |  |  |  | 1,628 |
Loans |  |  | 27,708 |  |  |  | 65,316 |  |  |  | 93,024 |
Total FTE interest income |  | $ | 23,645 |  |  | $ | 73,785 |  |  | $ | 97,430 |
Money market deposit accounts |  | $ | (417 | ) |  | $ | 33,723 |  |  | $ | 33,306 |
NOW deposit accounts |  |  | (37 | ) |  |  | 3,766 |  |  |  | 3,729 |
Savings deposits |  |  | (25 | ) |  |  | 45 |  |  |  | 20 |
Time deposits |  |  | 2,075 |  |  |  | 16,927 |  |  |  | 19,002 |
Federal funds purchased |  |  | 1,243 |  |  |  | 10 |  |  |  | 1,253 |
Repurchase agreements |  |  | (1 | ) |  |  | 371 |  |  |  | 370 |
Short-term borrowings |  |  | 18,873 |  |  |  | 48 |  |  |  | 18,921 |
Long-term debt |  |  | 390 |  |  |  | 101 |  |  |  | 491 |
Subordinated debt, net |  |  | 103 |  |  |  | 100 |  |  |  | 203 |
Junior subordinated debt |  |  | - |  |  |  | 3,047 |  |  |  | 3,047 |
Total FTE interest expense |  | $ | 22,204 |  |  | $ | 58,138 |  |  | $ | 80,342 |
Change in net FTE interest income |  | $ | 1,442 |  |  | $ | 15,646 |  |  | $ | 17,088 |

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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 September 30, |  |  | Nine Months Ended September 30, |
(In thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Service charges on deposit accounts |  | $ | 3,979 |  |  | $ | 3,581 |  |  | $ | 11,260 |  |  | $ | 11,032 |
Card services income |  |  | 5,503 |  |  |  | 5,654 |  |  |  | 15,469 |  |  |  | 24,100 |
Retirement plan administration fees |  |  | 12,798 |  |  |  | 11,496 |  |  |  | 35,995 |  |  |  | 37,451 |
Wealth management |  |  | 9,297 |  |  |  | 8,402 |  |  |  | 25,611 |  |  |  | 25,294 |
Insurance services |  |  | 4,361 |  |  |  | 3,892 |  |  |  | 12,008 |  |  |  | 11,258 |
Bank owned life insurance income |  |  | 1,568 |  |  |  | 1,560 |  |  |  | 4,974 |  |  |  | 4,625 |
Net securities (losses) |  |  | (183 | ) |  |  | (148 | ) |  |  | (9,822 | ) |  |  | (914 | )
Other |  |  | 2,913 |  |  |  | 2,735 |  |  |  | 8,195 |  |  |  | 8,641 |
Total noninterest income |  | $ | 40,236 |  |  | $ | 37,172 |  |  | $ | 103,690 |  |  | $ | 121,487 |

Noninterest income for the three months ended September 30, 2023 was $40.2 million, up $8.2 million, or 25.6%, from the prior quarter and up $3.1 million, or 8.2%, from the third quarter of 2022. Excluding net securities gains (losses), noninterest income for the three months ended September 30, 2023 was $40.4 million, up $3.7 million, or 10.2%, from the prior quarter and up $3.1 million, or 8.3%, from the third quarter of 2022. The increase from the prior quarter was primarily driven by an increase in card services income, retirement plan administration, wealth management fees and insurance services. The increase from the third quarter of 2022 was driven by an increase in retirement plan administration, wealth management and insurance services fees. The increase in retirement plan administration from both the prior quarter and the third quarter of 2022 was due primarily to seasonal activity-based fees in the quarter, favorable market conditions, new account growth and the acquisition of Retirement Direct, LLC on July 1, 2023. Wealth management fees increased from both the prior quarter and the third quarter of 2022 due primarily to the Salisbury acquisition and seasonal activity-based fees.
Noninterest income for the nine months ended September 30, 2023 was $103.7 million, down $17.8 million, or 14.6%, from the same period in 2022. During the nine months ended September 30, 2023, the Company incurred a $4.5 million securities loss on the sale of two subordinated debt securities held in the AFS portfolio and a $5.0 million securities loss on the write-off of a subordinated debt security of a failed financial institution. Excluding net securities gains (losses), noninterest income for the nine months ended September 30, 2023 was $113.5 million, down $8.9 million, or 7.3%, from the same period in 2022. The decrease from the prior year was primarily due to lower card services income from the impact of the statutory price cap provisions of the Durbin Amendment of approximately $8.0 million and lower retirement plan administration fees driven by a decrease in certain activity-based fees.
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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 September 30, |  |  | Nine Months Ended September 30, |
(In thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Salaries and employee benefits |  | $ | 49,248 |  |  | $ | 48,371 |  |  | $ | 144,237 |  |  | $ | 140,595 |
Technology and data services |  |  | 9,677 |  |  |  | 9,096 |  |  |  | 27,989 |  |  |  | 26,588 |
Occupancy |  |  | 7,090 |  |  |  | 6,481 |  |  |  | 21,233 |  |  |  | 19,761 |
Professional fees and outside services |  |  | 4,149 |  |  |  | 3,817 |  |  |  | 12,486 |  |  |  | 11,999 |
Office supplies and postage |  |  | 1,700 |  |  |  | 1,469 |  |  |  | 5,004 |  |  |  | 4,441 |
FDIC assessment |  |  | 1,657 |  |  |  | 787 |  |  |  | 4,397 |  |  |  | 2,399 |
Advertising |  |  | 667 |  |  |  | 559 |  |  |  | 1,841 |  |  |  | 1,943 |
Amortization of intangible assets |  |  | 1,609 |  |  |  | 544 |  |  |  | 2,603 |  |  |  | 1,725 |
Loan collection and other real estate owned, net |  |  | 569 |  |  |  | 549 |  |  |  | 2,115 |  |  |  | 1,690 |
Acquisition expenses |  |  | 7,917 |  |  |  | - |  |  |  | 9,724 |  |  |  | - |
Other |  |  | 6,514 |  |  |  | 5,021 |  |  |  | 17,284 |  |  |  | 13,815 |
Total noninterest expense |  | $ | 90,797 |  |  | $ | 76,694 |  |  | $ | 248,913 |  |  | $ | 224,956 |

Noninterest expense for the three months ended September 30, 2023 was $90.8 million, up $12.0 million, or 15.2%, from the prior quarter and up $14.1 million, or 18.4%, from the third quarter of 2022. The Company incurred acquisition expenses of $7.9 million and $1.2 million, related to the merger with Salisbury in the third and second quarter of 2023, respectively. Excluding acquisition expenses, noninterest expense for the three months ended September 30, 2023 was $82.9 million, up $5.3 million, or 6.8%, from the prior quarter and up $6.2 million, or 8.1%, from the third quarter of 2022. The increase from the prior quarter was primarily driven by the Salisbury acquisition and merit increases for employees. The increase from the third quarter of 2022 was driven by the Salisbury acquisition and merit increases, the increase in Federal Deposit Insurance Corporation (“FDIC”) assessment expense was driven by the statutory increase in the FDIC assessment rate and the increase in amortization of intangible assets was due to the amortization of intangible assets related to the Salisbury acquisition. The Company recorded a core deposit intangible of $31.2 million and a wealth management customer list intangible of $4.7 million related to the Salisbury acquisition.
Noninterest expense for the nine months ended September 30, 2023 was $248.9 million, up $24.0 million, or 10.6%, from the same period in 2022. The Company incurred acquisition expenses of $9.7 million for the nine months ended September 30, 2023. Excluding acquisition expenses, noninterest expense for the nine months ended September 30, 2023 was $239.2 million, up $14.2 million, or 6.3%, from the same period in 2022. The increase from the prior year was driven by higher salaries and employee benefits due to the Salisbury acquisition, increased salaries and wages including merit pay increases and higher health and welfare benefits, which were partially offset by lower levels of incentive compensation. In addition, the increase in technology and data services was due to continued investment in digital platform solutions, the increase in FDIC assessment expense was driven by the statutory increase in the FDIC assessment rate, increased occupancy costs were driven by the addition of Salisbury locations and other expenses were higher due to the increase in actuarially determined expenses related to the Company’s retirement plans.
Income Taxes
Income tax expense for the three months ended September 30, 2023 was $7.1 million, down $1.6 million from the prior quarter and down $4.4 million from the third quarter of 2022 due to a decrease in pre-tax net income. The effective tax rate was 22.4% for the third quarter of 2023, consistent with the prior quarter and compared to 22.8% for the third quarter of 2022.
Income tax expense for the nine months ended September 30, 2023 was $25.3 million, down $8.3 million from the same period of 2022 due to a decrease in pre-tax net income. The effective tax rate was 22.3% for the nine months ended September 30, 2023, compared to 22.5% for the nine months ended September 30, 2022.
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ANALYSIS OF FINANCIAL CONDITION
Securities
Total securities decreased $128.4 million, or 5.2%, from December 31, 2022 to September 30, 2023. The securities portfolio represented 17.0% of total assets as of September 30, 2023 as compared to 21.1% of total assets as of December 31, 2022.
The following table details the composition of securities available for sale, securities held to maturity and equity securities for the periods indicated:

|  | September 30, 2023 |  |  | December 31, 2022 |
Mortgage-backed securities: |  |  |  |  |  |
With maturities 15 years or less |  |  | 12 | % |  |  | 13 | %
With maturities greater than 15 years |  |  | 10 | % |  |  | 11 | %
Collateral mortgage obligations |  |  | 36 | % |  |  | 37 | %
Municipal securities |  |  | 17 | % |  |  | 15 | %
U.S. agency notes |  |  | 21 | % |  |  | 21 | %
Corporate |  |  | 2 | % |  |  | 2 | %
Equity securities |  |  | 2 | % |  |  | 1 | %
Total |  |  | 100 | % |  |  | 100 | %

The Company’s mortgage-backed securities, U.S. agency notes and collateralized mortgage obligations are all guaranteed by Fannie Mae, Freddie Mac, the Federal Home Loan Bank, Federal Farm Credit Banks or Ginnie Mae (“GNMA”). 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. government. Currently, there are no subprime mortgages in our investment portfolio.
Loans
A summary of the loan portfolio by major categories(1), net of deferred fees and origination costs, for the periods indicated follows:

(In thousands) |  | September 30, 2023 |  |  | December 31, 2022 |
Commercial & industrial |  | $ | 1,424,579 |  |  | $ | 1,266,031 |
Commercial real estate |  |  | 3,575,595 |  |  |  | 2,807,941 |
Residential real estate |  |  | 2,111,670 |  |  |  | 1,649,870 |
Indirect auto |  |  | 1,099,558 |  |  |  | 989,587 |
Residential solar |  |  | 934,082 |  |  |  | 856,798 |
Home equity |  |  | 340,777 |  |  |  | 314,124 |
Other consumer |  |  | 181,114 |  |  |  | 265,796 |
Total loans |  | $ | 9,667,375 |  |  | $ | 8,150,147 |

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

Total loans increased by $1.52 billion, or 24.9% annualized, from December 31, 2022 to September 30, 2023, which included $1.18 billion of loans acquired from Salisbury. Commercial and industrial loans increased $158.5 million to $1.42 billion; commercial real estate loans increased $767.7 million to $3.58 billion; and total consumer loans increased $591.0 million to $4.67 billion. Excluding loans acquired from Salisbury, loans grew $337.2 million, or 5.5% annualized, since December 31, 2022. Total loans represent approximately 69.9% of total assets as of September 30, 2023, as compared to 69.4% as of December 31, 2022.
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Allowance for Credit Losses, Provision for Loan Losses and Nonperforming Assets
Beginning January 1, 2023, the Company adopted Accounting Standards Updates (“ASU”) 2022-02 Financial Instruments - CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) which resulted in an insignificant change to the Company’s methodology for estimating the allowance for credit losses on Troubled Debt Restructurings (“TDRs”) since December 31, 2022. The January 1, 2023 decrease in allowance for credit loss on TDR loans relating to adoption of ASU 2022-02 was $0.6 million, which increased retained earnings by $0.5 million and decreased the deferred tax asset by $0.1 million.
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 approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses is a valuation account that is deducted from, or added to, the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans. 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. 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 balance 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 Company. Significant management judgment is required at each point in the measurement process.
The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics exist. The respective quantitative allowance for each segment is measured using an econometric, discounted probability of default and loss given default modeling methodology in which distinct, segment-specific multi-variate regression models are applied to multiple, probabilistically weighted external economic forecasts. Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date.
Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Upon adoption of CECL, management revised the manner in which loans were pooled for similar risk characteristics. Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation and have been combined or subsegmented as needed to ensure loans of similar risk profiles are appropriately pooled.
Additional information about our Allowance for Loan Losses is included in Note 6 to the consolidated financial statements. The Company’s management considers the allowance for credit losses to be appropriate based on evaluation and analysis of the loan portfolio.
The allowance for credit losses totaled $114.6 million at September 30, 2023, compared to $100.4 million at June 30, 2023 and $96.8 million at September 30, 2022. The allowance for credit losses as a percentage of loans was 1.19% at September 30, 2023, compared to 1.20% at June 30, 2023 and 1.22% at September 30, 2022. The allowance for credit losses was 472.31% of nonperforming loans at September 30, 2023, compared to 510.01% at June 30, 2023 and 443.43% at September 30, 2022. The allowance for credit losses was 552.67% of nonaccrual loans at September 30, 2023, compared to 593.00% of nonaccrual loans at June 30, 2023 and compared to 506.86% at September 30, 2022. The increase in allowance for credit losses from June 30, 2023 to September 30, 2023 was due to the $14.5 million of allowance for acquired Salisbury loans which included both the $5.8 million allowance for purchase credit deteriorated (“PCD”) loans reclassified from loans and the $8.8 million allowance for non-PCD loans recognized through the provision for loan losses. The increase in the allowance for credit losses from September 30, 2022 to September 30, 2023 was primarily due to the Salisbury acquisition and organic loan growth.
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The provision for loan losses was $12.6 million for three months ended September 30, 2023, compared to $3.6 million in the prior quarter and $4.5 million for the same period in the prior year. Included in the provision expense for the three months ended September 30, 2023 was $8.8 million of acquisition-related provision for loan losses due to the Salisbury acquisition. Net charge-offs totaled $4.2 million during the three months ended September 30, 2023, compared to net charge-offs of $3.5 million during the second quarter of 2023 and $1.3 million in the third quarter of 2022. Net charge-offs to average loans was 18 bps for the three months ended September 30, 2023, compared to 17 bps for the second quarter of 2023 and 7 bps for the three months ended September 30, 2022.
The provision for loan losses was $20.1 million for the nine months ended September 30, 2023, compared to $9.5 million for the nine months ended September 30, 2022. Provision expense increased from the same period in the prior year due primarily to the $8.8 million of acquisition-related provision for loan losses due to the Salisbury acquisition and an increase in net charge-offs during the nine months ended September 30, 2023. Net charge-offs totaled $11.5 million during the nine months ended September 30, 2023, compared to net charge-offs of $4.7 million during the nine months ended September 30, 2022. Net charge-offs to average loans was 18 bps for the nine months ended September 30, 2023, compared to 8 bps for the nine months ended September 30, 2022. The increase in net charge-offs was due to an increase in charge-offs in the Company’s other consumer portfolio, which is in a run-off status.
As of September 30, 2023, the unfunded commitment reserve totaled $4.8 million, which included $0.8 million of acquisition-related provision for unfunded commitment due to the Salisbury acquisition, compared to $4.4 million as of June 30, 2023 and $5.3 million as of September 30, 2022.
Nonperforming assets consist of nonaccrual loans, loans over 90 days past due and still accruing, troubled loans modifications, other real estate owned (“OREO”) and nonperforming securities. Loans are generally placed on nonaccrual when principal or interest payments become 90 days past due, unless the loan is well secured and in the process of collection. Loans may also be placed on nonaccrual when circumstances indicate that the borrower may be unable to meet the contractual principal or interest payments. The threshold for evaluating classified and nonperforming loans specifically evaluated for individual credit loss is $1.0 million. OREO represents property acquired through foreclosure and is valued at the lower of the carrying amount or fair value, less any estimated disposal costs.

|  | September 30, 2023 |  |  | December 31, 2022 |
(Dollars in thousands) |  | Amount |  |  | % |  |  | Amount |  |  | % |
Nonaccrual loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 8,413 |  |  |  | 41 | % |  | $ | 7,664 |  |  |  | 44 | %
Residential |  |  | 9,514 |  |  |  | 46 | % |  |  | 4,835 |  |  |  | 28 | %
Consumer |  |  | 2,427 |  |  |  | 12 | % |  |  | 1,667 |  |  |  | 10 | %
Troubled loan modifications(1) |  |  | 382 |  |  |  | 1 | % |  |  | 3,067 |  |  |  | 18 | %
Total nonaccrual loans |  | $ | 20,736 |  |  |  | 100 | % |  | $ | 17,233 |  |  |  | 100 | %
Loans over 90 days past due and still accruing: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | - |  |  |  | - |  |  | $ | 4 |  |  |  | - |
Residential |  |  | 1,012 |  |  |  | 29 | % |  |  | 771 |  |  |  | 20 | %
Consumer |  |  | 2,516 |  |  |  | 71 | % |  |  | 3,048 |  |  |  | 80 | %
Total loans over 90 days past due and still accruing |  | $ | 3,528 |  |  |  | 100 | % |  | $ | 3,823 |  |  |  | 100 | %
Total nonperforming loans |  | $ | 24,264 |  |  |  |  |  |  | $ | 21,056 |  |  |  |  |
OREO |  |  | - |  |  |  |  |  |  |  | 105 |  |  |  |  |
Total nonperforming assets |  | $ | 24,264 |  |  |  |  |  |  | $ | 21,161 |  |  |  |  |
Total nonaccrual loans to total loans |  |  | 0.21 | % |  |  |  |  |  |  | 0.21 | % |  |  |  |
Total nonperforming loans to total loans |  |  | 0.25 | % |  |  |  |  |  |  | 0.26 | % |  |  |  |
Total nonperforming assets to total assets |  |  | 0.18 | % |  |  |  |  |  |  | 0.18 | % |  |  |  |
Total allowance for loan losses to total nonperforming loans |  |  | 472.31 | % |  |  |  |  |  |  | 478.72 | % |  |  |  |
Total allowance for loan losses to nonaccrual loans |  |  | 552.67 | % |  |  |  |  |  |  | 584.92 | % |  |  |  |

(1) | TDRs prior to adoption of ASU 2022-02.

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Total nonperforming assets were $24.3 million at September 30, 2023, compared to $21.2 million at December 31, 2022 and $21.8 million at September 30, 2022. Nonperforming loans at September 30, 2023 were $24.3 million, or 0.25% of total loans, compared with $21.1 million, or 0.26% of total loans at December 31, 2022 and $21.8 million, or 0.28% of total loans at September 30, 2022. The increase in nonperforming loans from September 30, 2022 primarily resulted from an increase in residential nonaccrual loans driven by the Salisbury acquisition partially offset by a decrease in commercial nonaccrual loans. Total nonaccrual loans were $20.7 million or 0.21% of total loans at September 30, 2023, compared to $17.2 million or 0.21% of total loans at December 31, 2022 and compared to $19.1 million or 0.24% of total loans at September 30, 2022. Past due loans as a percentage of total loans was 0.49% at September 30, 2023, up from 0.33% at December 31, 2022 and up from 0.30% at September 30, 2022.
In addition to nonperforming loans discussed above, the Company has also identified approximately $92.4 million in potential problem loans at September 30, 2023 as compared to $52.0 million at December 31, 2022 and $58.4 million at September 30, 2022. Potential problem loans are loans that are currently performing, with a possibility of loss if weaknesses are not corrected. Such loans may need to be disclosed as nonperforming at some time in the future. Potential problem loans are classified by the Company’s loan rating system as “substandard.” The increase in potential problem loans from December 31, 2022 and September 30, 2022 is primarily due to the migration of commercial loan balances of $40.3 million and $32.8 million, respectively, to substandard, the bulk of which is adequately secured by real estate collateral. Management cannot predict the extent to which economic conditions may worsen or other factors, which may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become over 90 days past due, be placed on nonaccrual, become troubled loans modifications or require increased allowance coverage and provision for loan losses. To mitigate this risk the Company maintains a diversified loan portfolio, has no significant concentration in any particular industry and originates loans primarily within its footprint.
Deposits
Total deposits were $11.40 billion at September 30, 2023, up $1.91 billion, or 20.1%, from December 31, 2022, which included $1.31 billion in deposits acquired from Salisbury. Excluding deposits acquired from Salisbury, deposits increased $596.5 million since December 31, 2022. As of September 30, 2023 there were $296.6 million of brokered time deposits, up from $19.4 million as of December 31, 2022. The Company continues to experience the migration from no interest and low interest checking and savings accounts into higher cost money market and time deposit instruments. Total average deposits decreased $0.3 million, or 3.3%, from the same period last year. The decrease was driven primarily by a decrease of $270.5 million, or 7.3%, in demand deposits, combined with a decrease in interest-bearing deposits of $61.9 million, or 1.0%, primarily due to decreases in money market accounts and savings accounts partially offset by an increase in time accounts. The decrease in average balances was due primarily to larger commercial customers taking advantage of higher yielding investment opportunities in both the Company’s wealth management solutions as well as other offerings in the market. As of September 30, 2023 and December 31, 2022 the estimated amounts of uninsured deposits based on the methodologies and assumptions used for the bank regulatory reporting were $4.3 billion and $3.6 billion, respectively.
Borrowed Funds
The Company’s borrowed funds consist of short-term borrowings and long-term debt. Short-term borrowings totaled $490.2 million at September 30, 2023 compared to $585.0 million at December 31, 2022. Long-term debt was $29.8 million at September 30, 2023 compared to $4.8 million at December 31, 2022.
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 Secured Overnight Financing Rate (“SOFR”) plus a spread of 4.85%, payable quarterly in arrears commencing on October 1, 2025. The subordinated debt issuance cost of $2.2 million is being amortized on a straight-line basis into interest expense over five years.
Subordinated debt assumed with the Salisbury acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031. The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual rate of 3.50%, payable quarterly in arrears commencing on June 30, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 2.80%, payable quarterly in arrears commencing on June 30, 2026. As of the acquisition date, the fair value discount was $3.0 million for the acquired subordinated debt.
As of September 30, 2023 and December 31, 2022 the subordinated debt net of unamortized issuance costs was $119.4 million and $96.9 million, respectively.
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Capital Resources
Stockholders’ equity of $1.36 billion represented 9.86% of total assets at September 30, 2023 compared with $1.17 billion, or 10.00% of total assets, as of December 31, 2022. Stockholders’ equity increased $189.3 million from December 31, 2022 driven by the Salisbury acquisition adding $161.7 million of capital and net income generation of $88.3 million for the nine months ended September 30, 2023, partially offset by dividends declared of $40.8 million, the repurchase of common stock of $4.9 million and a $17.5 million decrease in accumulated other comprehensive income due primarily to the change in market value of securities available for sale.
The Company purchased 68,500 shares of its common stock during the third quarter of 2023 at an average price of $31.61 per share under its previously announced share repurchase program. 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 September 30, 2023, there were 1,444,500 shares available for repurchase under this plan authorized on December 20, 2021 and set to expire on December 31, 2023.
As the capital ratios in the following table indicate, the Company remained “well capitalized” at September 30, 2023 under applicable bank regulatory requirements. Capital measurements are well in excess of regulatory minimum guidelines and meet the requirements to be considered well capitalized for all periods presented. To be considered well capitalized, tier 1 leverage, common equity tier 1 capital, tier 1 capital and total risk-based capital ratios must be 5%, 6.5%, 8% and 10%, respectively.

Capital Measurements |  | September 30, 2023 |  |  | December 31, 2022 |
Tier 1 leverage ratio |  |  | 10.23 | % |  |  | 10.32 | %
Common equity tier 1 capital ratio |  |  | 11.31 | % |  |  | 12.12 | %
Tier 1 capital ratio |  |  | 12.23 | % |  |  | 13.19 | %
Total risk-based capital ratio |  |  | 14.45 | % |  |  | 15.38 | %
Cash dividends as a percentage of net income |  |  | 46.20 | % |  |  | 32.74 | %
Per common share: |  |  |  |  |  |  |  |
Book value |  | $ | 28.94 |  |  | $ | 27.38 |
Tangible book value(1) |  | $ | 20.39 |  |  | $ | 20.65 |
Tangible equity ratio(2) |  |  | 7.15 | % |  |  | 7.73 | %

(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 Office of Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System and the FDIC announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. Under the modified CECL transition provision, the regulatory capital impact of the January 1, 2020 CECL adoption date adjustment to the allowance for credit losses (after-tax) was deferred and was phased into regulatory capital at 25% per year commencing January 1, 2022. For the ongoing impact of CECL, the Company was allowed to defer the regulatory capital impact of the allowance for credit losses in an amount equal to 25% of the change in the allowance for credit losses (pre-tax) recognized through earnings for each period between January 1, 2020 and December 31, 2021. The cumulative adjustment to the allowance for credit losses between January 1, 2020 and December 31, 2021, was also phased into regulatory capital at 25% per year commencing January 1, 2022. The Company adopted the capital transition relief over the permissible five-year period.
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Liquidity and Interest Rate Sensitivity Management
Market Risk
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. Management also reviews loan and deposit pricing and the Company’s securities portfolio, formulates investment and funding strategies and oversees the timing and implementation of transactions to assure attainment of the Board’s objectives in the most effective manner. Notwithstanding the Company’s interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income.
In managing the Company’s asset/liability position, the Board and management aim to regulate the Company’s interest rate risk while minimizing net interest margin compression. At times, depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Company’s interest rate risk position somewhat in order to increase its net interest margin. 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 (i.e. no change in current interest rates) with a static balance sheet. Three additional models are run in which a gradual increase of 200 bps, a gradual increase of 100 bps and a gradual decrease of 200 bps takes place over a 12-month period with a static balance sheet. Under these scenarios, assets subject to prepayments are adjusted to account for faster or slower prepayment assumptions. Any investment securities or borrowings that have callable options embedded in them are handled accordingly based on the interest rate scenario. The resulting changes in net interest income are then measured against the flat rate scenario. The Company also runs other interest rate scenarios to highlight potential interest rate risk.
In the declining rate scenario, net interest income is projected to decrease when compared to the forecasted net interest income in the flat rate scenario through the simulation period. The decrease in net interest income is a result of earning assets repricing and rolling over at lower yields at a faster pace than interest-bearing liabilities decline and/or reach their floors. In the rising rate scenarios, net interest income is projected to experience an increase from the flat rate scenario; however, the potential impact on earnings may be affected by the ability to lag deposit repricing on NOW, savings, money market deposit accounts and time accounts. Net interest income for the next twelve months in the +200/+100/-200 bp scenarios, as described above, is within the internal policy risk limits of not more than a 7.5% reduction in net interest income. The following table summarizes the percentage change in net interest income in the rising and declining rate scenarios over a 12-month period from the forecasted net interest income in the flat rate scenario using the September 30, 2023 balance sheet position:

Interest Rate Sensitivity Analysis Change in interest rates (in bps) |  |  | Percent change in net interest income |
| +200 |  |  |  | 1.17 | %
| +100 |  |  |  | 0.86 | %
| -200 |  |  |  | (1.60 | %)

The Company anticipates that the trajectory of net interest income will continue to depend significantly on the timing and path of short to mid-term interest rates which are heavily driven by inflationary pressures and Federal Open Market Committee monetary policy. In response to the economic impact of the pandemic, the federal funds rate was reduced to near zero in March 2020, term interest rates fell sharply across the yield curve and the Company reduced deposit rates. Post-pandemic, inflationary pressures have resulted in a higher overall yield curve with Federal Funds increases of 425 bps in 2022 and an additional 100 bps in 2023. Current expectations are for short-term interest rates to normalize at current levels in the near-term as inflation levels have moderated. While deposit rates have increased meaningfully in 2023 in conjunction with the increase to short term interest rates, the Company continues to focus on managing deposit expense and overall deposit levels in an environment with elevated demand for liquidity.
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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. The objective of liquidity management is to ensure the Company can fund balance sheet growth, meet the cash flow requirements of depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit 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 made. Liquidity management includes a focus on interest rate sensitivity management with a goal of avoiding widely fluctuating net interest margins through periods of changing economic conditions. Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayments of loans and mortgage-related securities are strongly influenced by interest rates, the housing market, general and local economic conditions, and competition in the marketplace. 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. At September 30, 2023, the Company’s Basic Surplus measurement was 12.1% of total assets, or $1.67 billion, as compared to the December 31, 2022 Basic Surplus of 13.2%, or $1.55 billion, and was above the Company’s minimum of 5% (calculated at $691.4 million and $587.0 million of period end total assets as September 30, 2023 and December 31, 2022, respectively) set forth in its liquidity policies.
At September 30, 2023 and December 31, 2022, Federal Home Loan Bank (“FHLB”) advances outstanding totaled $429.7 million and $443.8 million, respectively. At September 30, 2023 and December 31, 2022, the Bank had $71.0 million and $8.0 million, respectively, of collateral encumbered by municipal letters of credit. The Bank is a member of the FHLB system and had additional borrowing capacity from the FHLB of approximately $1.04 billion at September 30, 2023 and $1.17 billion at December 31, 2022. In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional $536.8 million and $898.1 million at September 30, 2023 and December 31, 2022, respectively, or used to collateralize other borrowings, such as repurchase agreements. The Company also has the ability to issue brokered time deposits and to borrow against established borrowing facilities with other banks (federal funds), which could provide additional liquidity of $1.96 billion at September 30, 2023 and $1.92 billion at December 31, 2022. In addition, the Bank has a “Borrower-in-Custody” program with the FRB with the addition of the ability to pledge automobile and residential solar loans as collateral. At September 30, 2023 and December 31, 2022, the Bank had the capacity to borrow $982.3 million and $622.7 million, respectively, from this program. The Company’s internal policy authorizes borrowing up to 25% of assets. Under this policy, remaining available borrowing capacity totaled $2.94 billion at September 30, 2023 and $2.41 billion at December 31, 2022.
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 2023. Continued increases to interest rates could result in deposit declines as depositors have alternative opportunities for yield on their excess funds. In the current economic environment, draws against lines of credit could drive asset growth higher. Disruptions in wholesale funding markets could spark increased competition for deposits. These scenarios could lead to a decrease in the Company’s Basic Surplus measure below the minimum policy level of 5%. Note, enhanced liquidity monitoring was put in place to quickly respond to the changing environment during the coronavirus pandemic including increasing the frequency of monitoring and adding additional sources of liquidity. While, the pandemic has come to an end, this enhanced monitoring continues as rising interest rates and the recent bank failures have led to a deposit decline in the banking system and increased volatility to liquidity risk.
At September 30, 2023, a portion of the Company’s loans and securities were pledged as collateral on borrowings. Therefore, once on-balance-sheet liquidity is reduced, future growth of earning assets will depend upon the Company’s ability to obtain additional funding, through growth of core deposits and collateral management and may require further use of brokered time deposits or other higher cost borrowing arrangements.
The Company’s primary source of funds is the Bank. Certain restrictions exist regarding the ability of the subsidiary bank to transfer funds to the Company in the form of cash dividends. The approval of the OCC is required to pay dividends when a bank fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations. At September 30, 2023, approximately $95.0 million of the total stockholders’ equity of the Bank was available for payment of dividends to the Company without approval by the OCC. The Bank’s ability to pay dividends is also subject to the Bank being in compliance with regulatory capital requirements. The Bank is currently in compliance with these requirements. Under the State of Delaware General Corporation Law, the Company may declare and pay dividends either out of accumulated net retained earnings or capital surplus.
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ITEM 3. | 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 Operations.

ITEM 4. | CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, the Company’s disclosure controls and procedures were effective.
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PART II OTHER INFORMATION

ITEM 1. | LEGAL PROCEEDINGS

There are no material legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is subject.

ITEM 1A. | RISK FACTORS

There are no material changes to the risk factors as previously discussed in Part II, Item 1A. of our March 31, 2023 Quarterly Report on Form 10-Q and in Part I, Item 1A. of our 2022 Annual Report on Form 10-K.

ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth the information with respect to purchases made by the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a) (3) under the Securities Exchange Act of 1934) of our common stock during the quarter ended September 30, 2023:

| Period |  | Total Number of Shares Purchased |  |  | Average Price Paid Per Share |  |  | Total Number of Shares Purchased as Part of Publicly Announced Plan |  |  | Maximum Number of Shares That May Yet be Purchased Under the Plans(1) |
| 7/1/23 - 7/31/23 |  |  | 68,500 |  |  | $ | - |  |  |  | 68,500 |  |  |  | 1,444,500 |
| 8/1/23 - 8/31/23 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,444,500 |
| 9/1/23 - 9/30/23 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,444,500 |
| Total |  |  | 68,500 |  |  | $ | 31.61 |  |  |  | 68,500 |  |  |  | 1,444,500 |

(1) | The Company purchased 68,500 shares of its common stock during the third quarter of 2023 at an average price of $31.61 per share under its previously announced share repurchase program. 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 September 30, 2023, there were 1,444,500 shares available for repurchase under this plan announced on December 20, 2021, and set to expire on December 31, 2023.

ITEM 3. | DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. | MINE SAFETY DISCLOSURES

None

ITEM 5. | OTHER INFORMATION

During the three months ended September 30, 2023, there were no Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements adopted, modified or terminated by any director or officer of the Company.
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ITEM 6. | EXHIBITS

2.1 | First Amendment to Agreement and Plan of Merger, dated as of August 9, 2023, by and among NBT Bancorp Inc., NBT Bank, National Association, Salisbury Bancorp, Inc. and Salisbury Bank and Trust Company (filed as Exhibit 2.2 to Registrant’s Form 8-K, filed on August 14, 2023 and incorporated herein by reference).
3.1 | Restated Certificate of Incorporation of NBT Bancorp Inc. as amended through July 1, 2015 (filed as Exhibit 3.1 to Registrant’s Form 10-Q, filed on August 10, 2015 and incorporated herein by reference).
3.2 | Amended and Restated Bylaws of NBT Bancorp Inc. effective May 22, 2018 (filed as Exhibit 3.1 to Registrant’s Form 8-K, filed on May 23, 2018 and incorporated herein by reference).
3.3 | Certificate of Designation of the Series A Junior Participating Preferred Stock (filed as Exhibit A to Exhibit 4.1 of the Registrant’s Form 8-K, filed on November 18, 2004 and incorporated herein by reference).
31.1 | Certification by the Chief Executive Officer pursuant to Rules 13(a)-14(a)/15(d)-14(e) of the Securities and Exchange Act of 1934.
31.2 | Certification by the Chief Financial Officer pursuant to Rules 13(a)-14(a)/15(d)-14(e) of the Securities and Exchange Act of 1934.
32.1 | Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH | Inline XBRL Taxonomy Extension Schema Document.
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, this 9th day of November 2023.

| NBT BANCORP INC. |
By: | /s/ Scott A. Kingsley |
| Scott A. Kingsley |
| Chief Financial Officer |

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