NBT Bancorp NBTB Form 10-Q filing Q2 FY2026

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GLOSSARY OF ABBREVIATIONS AND ACRONYMS

When references to “NBT”, “we,” “our,” “us,” and “the Company” are made in this report, we mean NBT Bancorp Inc. and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, NBT Bancorp Inc. When we refer to the “Bank” in this report, we mean our only bank subsidiary, NBT Bank, National Association, and its subsidiaries.

The acronyms and abbreviations identified below are used throughout this report, including the Notes to Unaudited Interim Consolidated Financial Statements. You may find it helpful to refer to this page as you read this report.

AFS available for sale

AIR accrued interest receivable

AOCI accumulated other comprehensive income (loss)

ASC Accounting Standards Codification

ASU Accounting Standards Update

bp(s) basis point(s)

C&I commercial & industrial

CECL current expected credit losses

CME Chicago Mercantile Exchange Clearing House

CODM chief operating decision maker

CRE commercial real estate

EPS earnings per share

Evans Evans Bancorp, Inc.

Evans Bank Evans Bank, National Association

FASB Financial Accounting Standards Board

FDIC Federal Deposit Insurance Corporation

FHLB Federal Home Loan Bank

FOMC Federal Open Market Committee

FRB Federal Reserve Board

FTE fully taxable equivalent

GAAP generally accepted accounting principles in the United States of America

GDP Gross Domestic Product

HTM held to maturity

LGD loss given default

MMDA money market deposit accounts

NASDAQ The NASDAQ Stock Market LLC

NIM net interest margin

OCC Office of the Comptroller of the Currency

OREO other real estate owned

PCD purchased credit deteriorated

PD probability of default

SEC U.S. Securities and Exchange Commission

SOFR Secured Overnight Financing Rate

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ITEM 1.

Item 1. FINANCIAL STATEMENTS (Unaudited) FINANCIAL STATEMENTS

See accompanying notes to unaudited interim consolidated financial statements.

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See accompanying notes to unaudited interim consolidated financial statements.

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See accompanying notes to unaudited interim consolidated financial statements.

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See accompanying notes to unaudited interim consolidated financial statements.

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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

June 30, 2026

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, Alliance Financial Capital Trust II and Evans Capital Trust I (collectively, the “Trusts”). The principal sources of revenue for NBT Bancorp Inc. are the management fees and dividends it receives from the Bank, NBT Financial and NBT Holdings. Collectively, NBT Bancorp Inc. and its subsidiaries are referred to herein as (the “Company”).

The Company’s business, primarily conducted through the Bank, consists of providing commercial banking, retail banking and wealth management services primarily to customers in its market area, which includes upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central and northwestern Connecticut. The Company has been, and intends to remain, 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 mentioned above. In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods in accordance with U.S. generally accepted accounting principles (“GAAP”) and in accordance with the instructions for the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, the consolidated financial statements do not include all of the information and notes necessary for complete financial statements in conformity with GAAP. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2025 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 none were identified.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences could be material to the financial statements. Estimates associated with the allowance for credit losses are particularly susceptible to material changes in the near term.

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3. Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In November 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-08, Financial Instruments-Credit Losses (Topic 326): Purchased Loans. The ASU expands the population of acquired financial assets subject to the gross-up approach in Topic 326, Financial Instrument-Credit Losses. In accordance with the amendments in this update, loans acquired without credit deterioration and deemed seasoned are purchased seasoned loans and accounted for using the gross-up approach at acquisition. The amendments apply prospectively and will be effective for fiscal periods beginning after December 15, 2026. The Company elected to early-adopt the ASU as of January 1, 2026.

Accounting Standards Issued Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, that addresses longstanding investor requests for more information regarding expenses included in the expense captions presented on the face of the income statement. The ASU will require a tabular disclosure that disaggregates certain income statement expenses including employee compensation, depreciation and intangible asset amortization. In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which revises the effective date of ASU 2024-03. The ASU will become effective in the annual reporting periods beginning after December 15, 2026, and early adoption is permitted. Aside from complying with the new disclosure requirements, the adoption is not expected to have a material impact on the consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. Aside from complying with the new disclosure requirements, the adoption is not expected to have a material impact on the consolidated financial statements.

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4. Acquisitions

Evans Bancorp, Inc.

On May 2, 2025, the Company completed the acquisition of Evans Bancorp, Inc. (“Evans”) through the merger of Evans with and into the Company, with the Company surviving the merger. Total consideration for the acquisition was $221.8 million in common stock. Evans, with assets of $2.19 billion at December 31, 2024, was headquartered in Williamsville, New York. Its primary subsidiary, Evans Bank, National Association (“Evans Bank”), was a federally-chartered national banking association operating 18 banking locations in Western New York. The acquisition enhances the Company’s presence in Western New York, including the Buffalo and Rochester communities. In connection with the acquisition, the Company issued 5.1 million shares of common stock and acquired approximately $131.2 million of identifiable net assets. Preliminary goodwill of $91.4 million was recognized as a result of the merger and is not amortizable or deductible for tax purposes. During the fourth quarter of 2025, the Company revised the accrued income taxes and deferred taxes associated with the Evans acquisition, which resulted in a $0.8 million decrease in goodwill. Total goodwill of $90.6 million was recognized as a result of the merger. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since May 2, 2025. As a result of the full integration of the operations of Evans, it is not practicable to determine all revenue or net income included in the Company’s operating results relating to Evans since the date of acquisition as Evans results cannot be separately identified.

The acquisition of Evans is being accounted for as a business combination in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), using the acquisition method of accounting. 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. These estimates were subject to adjustment based on updated information not available at the time of the acquisition and all amounts have now been finalized. 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 Evans.

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

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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 (“AFS”) - The estimated fair value of the AFS investment portfolio was primarily determined using quoted market prices and dealer quotes. The investment securities were sold immediately after the merger and no gains or losses were recorded.

Securities held to maturity (“HTM”) - The estimated fair value of the HTM investment portfolio, which consisted of local municipal securities, was retained at par, which is estimated to be equal to fair value.

Loans - The estimated fair value of loans were based on a discounted cash flow methodology applied on a pooled basis. Loans were first segmented by purchased credit deteriorated (“PCD”) or non-purchased credit deteriorated (“non-PCD”) status, and then further grouped according to Federal Deposit Insurance Corporation (“FDIC”) call report segmentation. The valuation considered key loan characteristics including loan type, term, rate, payment schedule and loan performance attributes. Certain key assumptions related to prepayment speeds, probability of default (“PD”), loss given default (“LGD”) and discount rate were also considered. The discount rates applied were based on a build-up approach factoring in 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 incorporated assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates.

Deposits - The fair value of noninterest bearing demand deposits, interest-bearing checking, money market and savings deposit accounts were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit (“CD”) (time deposit accounts) were valued at the present value of the certificates’ expected contractual payments discounted at market rates for similar certificates which approximates carrying value.

Borrowings - The estimated fair value of short-term borrowings was determined to approximate stated value. Long-term debt, subordinated debt and junior subordinated debt were valued using a discounted cash flow approach incorporating a discount rate that incorporated similar terms, maturity and credit rating.

Accounting for Acquired Loans - Acquired loans are classified into two categories: PCD loans and non-PCD loans. PCD loans are defined as a loan or group of loans that have experienced more than insignificant credit deterioration since origination. Non-PCD loans had an allowance established on acquisition date, which is recognized as an expense through the provision for credit losses. For PCD loans, an allowance is recognized by adding it to the fair value of the loan, which is the amortized cost. There is no provision for credit loss expense recognized on PCD loans because the initial allowance is established by grossing-up the amortized cost of the PCD loan. The allowance for credit losses on non-PCD loans of $13.0 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.

The non-PCD loans acquired from Evans had an acquisition date fair value of $1.37 billion, compared to $1.43 billion in gross contractual amounts receivable. At the acquisition date, the Company estimated that $13.0 million of the contractual cash flows were not expected to be collected.

Direct costs related to the acquisition were expensed as incurred. Acquisition integration-related expenses were $17.2 million and $18.4 million during the three and six months ended June 30, 2025, respectively. These amounts have been separately stated in the unaudited interim consolidated statements of income and are included in operating activities in the unaudited interim consolidated statements of cash flow.

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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 six months ended June 30, 2025, as if Evans had been acquired on January 1, 2025. This unaudited pro forma information combines the historical results of Evans 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 taken place at 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.

5. Securities

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

There was no allowance for credit losses on AFS securities as of June 30, 2026 and December 31, 2025.

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During the three and six months ended June 30, 2026 and 2025, there were no gains or losses reclassified out of accumulated other comprehensive income (loss) (“AOCI”) and into earnings.

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

At June 30, 2026 and December 31, 2025 all of the mortgage-backed HTM securities were comprised of U.S. government agency and government-sponsored enterprises securities.

The Company recorded no gains from calls on HTM securities for the three and six months ended June 30, 2026 and 2025.

AFS and HTM securities with amortized costs totaling $1.80 billion at June 30, 2026 and $1.87 billion at December 31, 2025, were pledged to secure public deposits and for other purposes required or permitted by law. Additionally, at June 30, 2026 and December 31, 2025, AFS and HTM securities with an amortized cost of $209.6 million and $207.6 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:

As of June 30, 2026 and December 31, 2025, the carrying value of equity securities without readily determinable fair values was $1.0 million. The Company performed a qualitative assessment to determine whether the investments were impaired and identified no areas of credit concern as of June 30, 2026 and 2025. There were no impairments, or downward or upward adjustments recognized for equity securities without readily determinable fair values during the three and six months ended June 30, 2026 and 2025.

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The following table sets forth information with regard to contractual maturities of debt securities at June 30, 2026:

Maturities of mortgage-backed, collateralized mortgage obligations and asset-backed securities are stated based on their estimated average lives. Actual maturities may differ from estimated average lives or contractual maturities because, in certain cases, borrowers have the right to call or prepay obligations, with or without call or prepayment penalties.

Except for U.S. government securities and government-sponsored enterprises securities, there were no holdings, when taken in the aggregate, of any single issuer that exceeded 10% of consolidated stockholders’ equity at June 30, 2026 and December 31, 2025.

The following table sets forth information with regard to investment securities with unrealized losses, for which an allowance for credit losses has not been recorded, segregated according to the length of time the securities were in a continuous unrealized loss position:

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The Company does not believe the AFS securities that were in an unrealized loss position as of June 30, 2026 and December 31, 2025, which consisted of 384 and 350 individual securities, respectively, represented a credit loss impairment. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. As of June 30, 2026 and December 31, 2025, 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 securities before recovery of their amortized cost bases, which may be at maturity. The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities. AIR on AFS debt securities totaled $6.5 million and $5.6 million at June 30, 2026 and December 31, 2025, respectively, and is excluded from the estimate of credit losses and reported in the other assets financial statement line.

None of the Bank’s HTM debt securities were past due or on nonaccrual status as of June 30, 2026 and December 31, 2025. There was no accrued interest reversed against interest income for the three and six months ended June 30, 2026 or the year ended December 31, 2025 as all securities remained in accrual status. In addition, there were no collateral-dependent HTM debt securities as of June 30, 2026 and December 31, 2025. There was no allowance for credit losses on HTM securities as of June 30, 2026 and December 31, 2025. As of June 30, 2026 and December 31, 2025, 63% and 65%, respectively, of the Company’s HTM debt securities were issued by U.S. government agencies or U.S. government-sponsored enterprises with bond ratings of A to AAA. These securities carry the explicit and/or implicit guarantee of the U.S. government, which are widely recognized as “risk-free” and have a long history of zero credit losses. Therefore, the Company did not record an allowance for credit losses for these securities as of June 30, 2026 and December 31, 2025. The remaining HTM debt securities at June 30, 2026 and December 31, 2025 were comprised of state and municipal obligations with bond ratings of A to AAA excluding the $113.9 million and $85.7 million, respectively, of local municipal bonds which are not rated. Based on the Company’s current expected credit losses (“CECL”) methodology, the expected credit loss on the HTM municipal bond portfolio was deemed immaterial, therefore no allowance for credit loss was recorded as of June 30, 2026 and December 31, 2025. AIR on HTM debt securities totaled $4.0 million at June 30, 2026 and $3.9 million at December 31, 2025 and is excluded from the estimate of credit losses and reported in the other assets financial statement line.

6. Loans

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

(1)

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

Included in the above loans are net deferred loan origination (fees) costs totaling $(27.6) million and $(37.9) million at June 30, 2026 and December 31, 2025, respectively.

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7. Allowance for Credit Losses and Credit Quality of Loans

The allowance for credit losses totaled $140.5 million at June 30, 2026, compared to $138.0 million at December 31, 2025. The allowance for credit losses as a percentage of loans was 1.18% at June 30, 2026, compared to 1.19% at December 31, 2025.

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. From the second quarter of 2025 through the fourth quarter of 2025, the Company included an additional downside scenario with stagflation conditions, which is characterized as an economic environment where inflation rises alongside unemployment. Stagflation was identified as an emerging risk as tariff policies impacted the economy.

The quantitative model as of June 30, 2026 incorporated a baseline economic outlook along with alternative upside and downside scenarios sourced from a reputable third-party to accommodate other potential economic conditions in the model. At June 30, 2026, the weightings were 60%, 5% and 35% for the baseline, upside and downside economic forecast scenarios, respectively. The baseline outlook reflected an economic environment where the northeast unemployment rate increases from 4.46% in the second quarter of 2026 to 4.65% by the end of the forecast period, with a peak northeast unemployment rate of 4.69% in the second quarter of 2027. National Gross Domestic Product (“GDP”) annualized growth (on a quarterly basis) is expected to start the third quarter of 2026 at approximately 1.95% and decrease to 1.93% by the end of the forecast period. Key assumptions in the baseline economic outlook included the Federal Reserve keeping their policy rate in the current range of 3.50%-3.75% and the economy remaining at full employment. The alternative upside scenario assumes improved economic conditions from the baseline outlook. Under this scenario, northeast unemployment falls from 4.46% in the second quarter of 2026 to 3.85% in the third quarter of 2027 and eventually settles at 3.90% by the end of the forecast period. The alternative downside scenario with recessionary conditions assumes deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 4.46% in the second quarter of 2026 to a peak of 7.81% in the third quarter of 2027. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of June 30, 2026. Additional qualitative adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools.

The quantitative model as of March 31, 2026 incorporated a baseline economic outlook along with alternative upside and downside scenarios sourced from a reputable third-party to accommodate other potential economic conditions in the model. At March 31, 2026, the weightings were 60%, 5% and 35% for the baseline, upside and downside economic forecast scenarios, respectively. The baseline outlook reflected an economic environment where the northeast unemployment rate decreases from 4.6% in the second quarter of 2026 to 4.56% by the end of the forecast period, with a peak northeast unemployment rate of 4.6% in the third quarter of 2026. National GDP annualized growth (on a quarterly basis) is expected to start the second quarter of 2026 at approximately 2.75% and decrease to 1.72% by the end of the forecast period. Key assumptions in the baseline economic outlook included the Federal Reserve cutting rates with two 25 basis point cuts at the June and September meetings and the economy remaining at full employment. The alternative upside scenario assumes improved economic conditions from the baseline outlook. Under this scenario, northeast unemployment falls from 4.6% in the first quarter of 2026 to 3.7% in the second quarter of 2027 and eventually settles at 3.8% by the end of the forecast period. The alternative downside scenario with recessionary conditions assumes deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 4.6% in the first quarter of 2026 to a peak of 7.8% in the second quarter of 2027. The alternative downside stagflation scenario was removed in the first quarter of 2026 following a recalibration of the scenario’s narrative and model by the reputable third-party, which no longer provided a relevant stagflation scenario. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of March 31, 2026. Additional qualitative adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools and recent trends in asset value indices. Additional monitoring for industry concentrations, loan growth and policy exceptions was also conducted.

The quantitative model as of December 31, 2025 incorporated a baseline economic outlook along with alternative upside scenario and two equally weighted downside scenarios, recessionary conditions and stagflation, sourced from a reputable third-party to accommodate other potential economic conditions in the model. At December 31, 2025, the weightings were 65%, 5% and 30% for the baseline, upside and downside economic forecast scenarios, respectively. The baseline outlook reflected an economic environment where the northeast unemployment rate increases from 4.5% in the first quarter of 2026 to 4.8% by the end of the forecast period, with a peak northeast unemployment rate of 4.9% in the fourth quarter of 2026. National GDP annualized growth (on a quarterly basis) is expected to start the first quarter of 2026 at approximately 2.55% and decrease to 1.8% by the end of the forecast period. Key assumptions in the baseline economic outlook included the Federal Reserve cutting rates with one 25 basis point cut at the December meeting and the economy remaining at full employment. The alternative upside scenario assumes improved economic conditions from the baseline outlook. Under this scenario, northeast unemployment falls from 4.4% in the fourth quarter of 2025 to 4.0% in the second quarter of 2026 and eventually settles at 4.1% by the end of the forecast period. The alternative downside scenario with recessionary conditions assumes deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 4.4% in the fourth quarter of 2025 to a peak of 7.8% in the first quarter of 2027. The alternative downside stagflation scenario assumes deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 4.4% in the fourth quarter of 2025 to 6% by the end of the forecast period in the second quarter of 2027, with a peak northeast unemployment rate of 8.2% in the first quarter of 2028. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2025. Additional qualitative adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, reversion adjustments for the stagflation scenario and recent trends in asset value indices. Additional monitoring for industry concentrations, loan growth and policy exceptions was also conducted.

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There were no loans purchased with credit deterioration during the three and six months ended June 30, 2026. There were $336.4 million of PCD loans acquired from Evans during the year ended December 31, 2025, which resulted in an allowance for credit losses at acquisition of $7.7 million. During six months ended June 30, 2026, the Company purchased $7.7 million of residential loans at a 4.5% premium with an $82 thousand allowance for credit losses recorded for these loans. During 2025, the Company purchased $21.3 million of residential loans at a 4.5% premium with a $234 thousand allowance for credit losses recorded for these loans.

The Company made a policy election to report AIR in the other assets line item on the consolidated balance sheets. AIR on loans totaled $42.0 million at June 30, 2026 and $42.5 million at December 31, 2025 and with no estimated allowance for credit losses related to AIR at June 30, 2026 and December 31, 2025 as it is excluded from amortized cost.

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

The allowance for credit losses as of June 30, 2026 increased compared to December 31, 2025 and June 30, 2025 primarily due to providing for current year loan growth, change in scenario weightings and the establishment of specific reserves during the first quarter of 2026 for newly identified individually evaluated loans. These increases to the allowance for credit losses were partially offset by model adjustment, accelerated prepayment speeds and changes in loan composition and balances, including reductions driven by other consumer and residential solar portfolios that are in a planned run-off status. First quarter 2026 model adjustments lowered the allowance, as updates from the annual model review and recalibration process incorporated recent delinquency and loss experience which reflected improved default estimates across most portfolio segments.

Individually Evaluated Loans

The threshold for evaluating commercial loans risk graded substandard or doubtful, and nonperforming loans specifically evaluated for individual credit loss is $1.0 million. As of June 30, 2026, ten relationships were identified for individual credit loss evaluation with an amortized cost basis of $31.8 million, with $3.1 million of allowance for credit loss. As of June 30, 2026, there were $26.4 million of loans in nonaccrual status that were specifically evaluated for individual credit loss with no allowance for credit loss as the fair value of the underlying collateral supported the amortized cost. As of December 31, 2025, five relationships with an amortized cost basis of $12.2 million were identified for individual credit loss evaluation. These relationships were in nonaccrual status and with no allowance for credit loss as the fair value of the underlying collateral supported the amortized cost.

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

Credit Quality Indicators

The Company has developed an internal loan grading system to evaluate and quantify the Company’s loan portfolio with respect to quality and risk, focusing on, among other things, borrower’s financial strength, experience and depth of borrower’s management, primary and secondary sources of repayment, payment history, nature of the business and industry outlook. The internal grading system enables the Company to monitor the quality of the entire loan portfolio on a consistent basis and provide management with an early warning system, which facilitates recognition of and response to problem loans and potential problem loans.

Commercial Grading System

For Commercial & 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.

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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 PD 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.

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 includes gross charge-offs by loan class by vintage. Included in other consumer gross charge-offs for the six months ended June 30, 2026, the Company recorded $0.4 million in overdrawn deposit accounts reported as 2025 originations and $0.3 million in overdrawn deposit accounts reported as 2026 originations. Included in other consumer gross charge-offs for the year ended December 31, 2025, the Company recorded $0.3 million in overdrawn deposit accounts reported as 2024 originations and $0.8 million in overdrawn deposit accounts reported as 2025 originations.

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Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The allowance for credit losses on unfunded commitments totaled $5.5 million as of June 30, 2026, compared to $5.8 million as of December 31, 2025. There was no reserve for unfunded loan commitments for the three months ended June 30, 2026, compared to $1.7 million for the three months ended June 30, 2025. The reserve for unfunded loan commitments was $(0.3) million for the six months ended June 30, 2026, compared to $1.8 million for the six months ended June 30, 2025. The reserve for unfunded loan commitments was recorded within other noninterest expense in the unaudited interim consolidated statements of income. Included in the reserve for unfunded loan commitments for the three and six months ended June 30, 2025, was $0.5 million of acquisition-related provision for unfunded loan commitments due to the Evans acquisition.

Loan Modifications to Borrowers Experiencing Financial Difficulties

When the Company modifies a loan with financial difficulty, such modifications generally include one or a combination of the following: an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a change in scheduled payment amount; or principal forgiveness.

The following tables show 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:

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The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulties:

Three Months Ended June 30, 2026

Loan Type Term Extension

Auto Added a weighted-average 1.8 years to the life of loans, which reduced monthly payment amounts for the borrowers

Residential Added a weighted-average 8.0 years to the life of loans, which reduced monthly payment amounts for the borrowers

Three Months Ended June 30, 2025

Loan Type Term Extension Interest Rate Reduction

Residential Added a weighted-average 9.8 years to the life of loans, which reduced monthly payment amounts for the borrowers Reduced interest by weighted average of 0.62%, which reduced the monthly payment amount for the borrowers

Six Months Ended June 30, 2026

Loan Type Term Extension

Auto Added a weighted-average 1.8 years to the life of loans, which reduced monthly payment amounts for the borrowers

Residential Added a weighted-average 5.4 years to the life of loans, which reduced monthly payment amounts for the borrowers

Six Months Ended June 30, 2025

Loan Type Term Extension Interest Rate Reduction

Residential Added a weighted-average 7.5 years to the life of loans, which reduced monthly payment amounts for the borrowers Reduced interest by weighted average of 0.62%, which reduced the monthly payment amount for the borrowers

There were no financing receivables that had a payment default during the three and six months ended June 30, 2026 that were modified to borrowers experiencing financial difficulty in the twelve months prior to the default. During the three and six months ended June 30, 2025, there were $11 thousand and $69 thousand, respectively, of residential financing receivables with term extension modifications that had payment defaults during the period, that were modified to borrowers experiencing financial difficulty in the twelve months prior to the default.

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

8. Borrowings

Short-Term Borrowings

In addition to the liquidity provided by balance sheet cash flows, liquidity must also be supplemented with additional sources such as credit lines from correspondent banks as well as borrowings from the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank. Other funding alternatives may also be appropriate from time to time, including wholesale and retail repurchase agreements and brokered certificate of deposit accounts.

Information related to short-term borrowings is summarized as follows:

See Note 5 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements.

Subordinated Debt

The subordinated notes assumed in connection with the Salisbury Bancorp, Inc. acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031. The subordinated notes, which qualified as Tier 2 capital, had a maturity date of March 31, 2031 and bore 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 Secured Overnight Financing Rate (“SOFR”) plus a spread of 2.80%, payable quarterly in arrears commencing on June 30, 2026. The subordinated notes were redeemable, without penalty, on or after March 31, 2026. On June 30, 2026, the Company redeemed these subordinated notes in full using existing liquidity sources.

The following table summarizes the Company’s subordinated debt:

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9. Defined Benefit Post-Retirement Plans

The Company has a qualified, noncontributory, defined benefit pension plan (the “Plan”) covering substantially all of its employees at June 30, 2026. Benefits paid from the Plan are based on age, years of service, compensation and social security benefits and are determined in accordance with defined formulas. The Company’s policy is to fund the Plan in accordance with Employee Retirement Income Security Act of 1974 standards. Assets of the Plan are invested in publicly traded stocks, bonds and mutual funds. In addition to the Plan, the Company provides supplemental employee retirement plans to certain current and former executives. These supplemental employee retirement plans and the Plan are collectively referred to herein as “Pension Benefits.”

In addition, the Company provides certain health care benefits for retired employees. Benefits were accrued over the employees’ active service period. Only employees that were employed by the Company on or before January 1, 2000 are eligible to receive post-retirement health care benefits. These post-retirement benefits are referred to herein as “Other Benefits.”

In connection with the Evans acquisition, the Company assumed the non-contributory, qualified, defined benefit pension plan and the nonqualified supplemental executive retirement plans. Effective May 2, 2025, the Evans defined benefit pension plan was merged into the Plan. The merging of the plans required a valuation as of the merger date and resulted in a $0.9 million adjustment to AOCI. The merging of the plans did not have a significant impact on the Company’s financial statements and related footnotes.

Accounting standards require an employer to: (1) recognize the overfunded or underfunded status of defined benefit post-retirement plans, which is measured as the difference between plan assets at fair value and the benefit obligation, as an asset or liability in its balance sheet; (2) recognize changes in that funded status in the year in which the changes occur through comprehensive income; and (3) measure the defined benefit plan assets and obligations as of the date of its year-end balance sheet.

The Company made no voluntary contributions to the Pension Benefits and Other Benefits plans during the three and six months ended June 30, 2026 and 2025.

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

The service cost component of the net periodic (benefit) cost is included in salaries and employee benefits and the interest cost, expected return on plan assets and net amortization components are included in other noninterest expense on the unaudited interim consolidated statements of income.

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10. 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 restricted stock units).

The following is a reconciliation of basic and diluted EPS for the periods presented in the unaudited interim consolidated statements of income:

There were twenty-three thousand shares of anti-dilutive restricted stock outstanding for the three months ended June 30, 2025 that were not considered in the calculation of diluted EPS. There were no shares of anti-dilutive restricted stock outstanding for the three and six months ended June 30, 2026 and the six months ended June 30, 2025.

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11. Reclassification Adjustments Out of Other Comprehensive Income (Loss)

The following table summarizes the reclassification adjustments out of AOCI:

12. Derivative Instruments and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which is determined by interest rates. Generally, the Company may use derivative financial instruments to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments. Currently, the Company has interest rate derivatives resulting from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

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Derivatives Not Designated as Hedging Instruments

The Company enters into interest rate swaps to facilitate customer transactions and meet their financing needs. These swaps are considered derivatives, but are not designated as hedging instruments. These instruments have interest rate and credit risk associated with them. To mitigate the interest rate risk, the Company enters into offsetting interest rate swaps with counterparties. The counterparty swaps are also considered derivatives and are also not designated as hedging instruments. Interest rate swaps are recorded within other assets or other liabilities on the consolidated balance sheets at their estimated fair value. Changes to the fair value of assets and liabilities arising from these derivatives are included, net, in other operating income in the consolidated statements of 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.

As of June 30, 2026 and December 31, 2025, the Company had twenty-four and twenty-two risk participation agreements, respectively, with financial institution counterparties for interest rate swaps related to participated loans. Risk participation agreements provide credit protection to the financial institution that originated the swap transaction should the borrower fail to perform on its obligation. The Company enters into both risk participation agreements in which it purchases credit protection from other financial institutions and those in which it provides credit protection to other financial institutions.

The following table summarizes the derivatives outstanding:

(1)

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

(2)

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

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

13. 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).

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 quotes from alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid agency securities, less liquid listed equities, state, municipal and provincial obligations and certain 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 factors. 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.

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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:

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. As of June 30, 2026, the Company had collateral dependent individually evaluated loans with a carrying value of $31.8 million which were classified within Level 3 of the fair value hierarchy. Included in this amount were loans with fair value of $17.8 million where the amortized cost was adjusted to fair value. As of December 31, 2025, the Company had collateral dependent individually evaluated loans with a carrying value of $12.2 million which were classified within Level 3 of the fair value hierarchy. These loans with fair value of $12.2 million had their amortized cost adjusted to fair value. The Company uses the fair value of underlying collateral, less costs to sell, to estimate the allowance for credit losses for individually evaluated collateral dependent loans. 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, AIR, non-maturity deposits, short-term borrowings, accrued interest payable and derivatives.

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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 factors.

Net Loans - Net loans include portfolio loans and loans held for sale. Loans were first segregated by type and then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments, and those expected future cash flows also includes credit risk, illiquidity risk and other market factors to calculate the exit price fair value in accordance with ASC 820.

Time Deposits - The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.

Long-Term Debt - The fair value of long-term debt was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments.

Subordinated Debt - The fair value of subordinated debt has been measured using the observable market price as of the period reported.

Junior Subordinated Debt - The fair value of junior subordinated debt has been estimated using a discounted cash flow analysis.

14. Commitments and Contingencies

The Company is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit, standby letters of credit and certain agricultural real estate loans sold to investors with recourse, with the sold portion having a government guarantee that is assignable back to the Company upon repurchase of the loan in the event of default. The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, unused lines of credit, standby letters of credit and loans sold with recourse is represented by the contractual amount of those instruments. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s creditworthiness. Commitments to extend credit and unused lines of credit totaled $3.59 billion at June 30, 2026 and $3.40 billion at December 31, 2025.

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 $63.5 million at June 30, 2026 and $58.5 million at December 31, 2025. As of June 30, 2026 and December 31, 2025, the fair value of the Company’s standby letters of credit was not significant.

In the normal course of business there are various outstanding legal proceedings. The Company accrues for material estimated losses from loss contingencies if the information available indicates that it is probable that a liability had been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.

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15. Segment Reporting

Management assesses its operating segment structure to enhance transparency in how financial performance is evaluated and resources are allocated by the chief operating decision maker (“CODM”). Segments are components of an enterprise that are regularly evaluated by the CODM to allocate resources and assess performance. The Company’s CODM is its Chief Executive Officer.

The Company has determined that it operates through two reportable segments:

Banking – Provides commercial banking, retail banking, and wealth management services primarily to customers in its market area, offering a broad array of banking and financial services to retail, commercial, and municipal customers. Included in Banking are the revenue and expenses from the wealth management business and the parent holding company. The parent company’s principal activities include the direct and indirect ownership of banking and non-banking subsidiaries, as well as the issuance of debt and equity. The parent company’s principal sources of revenue are the management fees and dividends it receives from its subsidiaries. Banking also includes corporate shared service costs such as the majority of equity compensation expense, as well as other general and administrative shared services costs including pension, retirement plan and supplemental retirement plan costs. Currently there is no allocation of these costs to other operating segments.

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

Our CODM reviews actual net income versus budgeted net income to assess segment performance and to make decisions about allocating capital and personnel to the segments. The CODM regularly receives expense information at a level consistent with that disclosed in the Company’s consolidated statements of income.

Reported segments and their financial information are not necessarily comparable to similar information reported by other financial institutions. Additionally, due to interrelationships among the various segments, the information presented is not indicative of how the segments would perform as independent entities. Changes in management structure, allocation methodologies, or procedures may result in future revisions to previously reported segment financial data. There have been no changes to the Company’s operating segments since those disclosed in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2025. The Company will continue to evaluate its segment disclosures and make necessary adjustments as business operations evolve.

Information about reportable segments and reconciliation of the information to the consolidated financial statements follows:

(1)

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

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(1)

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

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(1)

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

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(1)

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

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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”). When references to “NBT,” “we,” “our,” “us,” and “the Company” are made in this report, we mean NBT Bancorp Inc. and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, NBT Bancorp Inc. When we refer to the “Bank” in this report, we mean our only bank subsidiary, NBT Bank, National Association, and its subsidiaries. This discussion will focus on results of operations and financial condition, including 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, 2025 for an understanding of the following discussion and analysis. Operating results for the three and six months ended June 30, 2026 are not necessarily indicative of the results of the full year ending December 31, 2026 or any future period.

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Non-GAAP Measures

This Quarterly Report on Form 10-Q contains financial information determined by methods other than in accordance with GAAP. Where non-GAAP disclosures are used in this Form 10-Q, the comparable GAAP measure, as well as a reconciliation to the comparable GAAP measure, is provided in the accompanying tables. Management believes that these non-GAAP measures provide useful information that is important to an understanding of the results of the Company’s core business as well as provide information standard in the financial institution industry. Non-GAAP measures should not be considered a substitute for financial measures determined in accordance with GAAP and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Amounts previously reported in the consolidated financial statements are reclassified whenever necessary to conform to current period presentation.

Critical Accounting Estimates

SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. The Company follows financial accounting and reporting policies that are in accordance with GAAP. The more significant of these policies are summarized in Note 1 to the consolidated financial statements presented in our 2025 Annual Report on Form 10-K. Management has reviewed the application of these estimates with the Audit Committee of NBT’s Board of Directors. The allowance for credit losses and unfunded commitments policies are deemed to meet the SEC’s definition of a critical accounting estimate.

Allowance for Credit Losses and Unfunded Commitments

The allowance for credit losses consists of the allowance for credit losses and the allowance for losses on unfunded commitments. The measurement of CECL on financial instruments requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses under the CECL methodology is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. The Company then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, the Company considers forecasts about future economic conditions that are reasonable and supportable. The allowance for credit losses for loans, as reported in our consolidated statements of financial condition, is adjusted by an expense for credit losses, which is recognized in earnings, and reduced by the charge-off of loan amounts, net of recoveries. The allowance for losses on unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by the Company. The allowance for losses on unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws.

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Management of the Company considers the accounting policy relating to the allowance for credit losses to be a critical accounting estimate given the uncertainty in evaluating the level of the allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. While management’s current evaluation of the allowance for credit losses indicates that the allowance is appropriate, the allowance may need to be increased under adversely different conditions or assumptions. The impact of utilizing the CECL methodology to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings.

One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. At June 30, 2026, the weightings were 60%, 5% and 35% for the baseline, upside and downside economic forecast scenarios, respectively. The baseline outlook reflected an economic environment where the northeast unemployment rate increases from 4.46% in the second quarter of 2026 to 4.65% by the end of the forecast period, with a peak northeast unemployment rate of 4.69% in the second quarter of 2027. National GDP annualized growth (on a quarterly basis) is expected to start the third quarter of 2026 at approximately 1.95% and decrease to 1.93% by the end of the forecast period. Key assumptions in the baseline economic outlook included the Federal Reserve keeping their policy rate in the current range of 3.50%-3.75% and the economy remaining at full employment. The alternative upside scenario assumes improved economic conditions from the baseline outlook. Under this scenario, northeast unemployment falls from 4.46% in the second quarter of 2026 to 3.85% in the third quarter of 2027 and eventually settles at 3.90% by the end of the forecast period. The alternative downside scenario with recessionary conditions assumes deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 4.46% in the second quarter of 2026 to a peak of 7.81% in the third quarter of 2027. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of June 30, 2026. Additional qualitative adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools.

To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of June 30, 2026, the Company changed the scenario weightings, with a 10% increase to the downside scenario and a 10% decrease to the baseline scenario causing a 3.6% increase in the overall estimated allowance for credit losses. If instead the upside scenario was increased 10% and the baseline scenario was decreased 10%, the overall estimated allowance for credit losses decreased 0.8%. To further demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of June 30, 2026, the Company increased the downside scenario to 100% which resulted in a 23.8% increase in the overall estimated allowance for credit losses.

The Company’s policies on the CECL methodology for allowance for credit losses are disclosed in Note 1 to the consolidated financial statements presented in our 2025 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 2025 Annual Report on Form 10-K to obtain a better understanding of how the Company’s financial performance is reported. The Company’s critical accounting policies are described in detail in Part II Item 7. in the 2025 Annual Report on Form 10-K and there have been no material changes in such policies since the date of that report. Refer to Note 3 to the unaudited interim consolidated financial statements in this Quarterly Report on Form 10-Q for recently adopted accounting standards.

Evans Bancorp, Inc. Merger

On May 2, 2025, the Company completed the acquisition of Evans, through the merger of Evans with and into the Company, with the Company surviving the merger. Total consideration for the acquisition was $221.8 million in common stock. Evans, with assets of $2.19 billion at December 31, 2024, was headquartered in Williamsville, New York. Its primary subsidiary, Evans Bank, was a federally-chartered national banking association operating 18 banking locations in Western New York. The acquisition enhances the Company’s presence in Western New York, including the Buffalo and Rochester communities. In connection with the acquisition, the Company issued 5.1 million shares of common stock and acquired approximately $131.2 million of identifiable net assets, including $1.67 billion of loans, $255.5 million in AFS investment securities, which were sold during the second quarter of 2025, $33.2 million of core deposit intangibles and $1.86 billion in deposits. As of the acquisition date, the fair value discount was $95.2 million for loans, net of the reclassification of the PCD allowance and $0.6 million net discount related to long-term debt.

The Company incurred acquisition expenses related to the merger of $17.2 million and $18.4 million for the three and six months ended June 30, 2025, respectively.

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Executive Summary

Significant factors management reviews to evaluate the Company’s operating results and financial condition include, but are not limited to, net income and EPS, return on average assets and equity, NIM, noninterest income, operating expenses, asset quality indicators, loan and deposit growth, capital management, liquidity and interest rate sensitivity, enhancements to customer products and services, technology advancements, market share and peer comparisons.

Net income for the three months ended June 30, 2026 was $53.0 million, up $1.9 million from the first quarter of 2026 and up $30.5 million from the second quarter of 2025. Diluted earnings per share were $1.02 for the three months ended June 30, 2026, up $0.04 from the first quarter of 2026 and up $0.58 from the second quarter of 2025. Net income for the six months ended June 30, 2026 was $104.2 million, or $1.99 per diluted common share, up $44.9 million from $59.3 million, or $1.21 per diluted common share for the six months ended June 30, 2025.

Operating net income(1), a non-GAAP measure, was $52.9 million, or $1.01 per diluted common share, for the three months ended June 30, 2026, compared to $0.97 per diluted common share for the first quarter of 2026 and $0.88 per diluted common share for the second quarter of 2025. Operating net income(1) for the six months ended June 30, 2026 was $103.7 million, or $1.98 per diluted common share, up $20.3 million from $83.4 million, or $1.70 per diluted common share for the six months ended June 30, 2025.

The following information should be considered in connection with the Company’s results for the three and six months ended June 30, 2026:

• Net interest income for the three months ended June 30, 2026 was $137.0 million, up $2.6 million, or 1.9%, from the first quarter of 2026 and up $12.7 million, or 10.3%, from the second quarter of 2025. Net interest income for the six months ended June 30, 2026 was $271.3 million, up $39.9 million, or 17.2%, from the same period in 2025.
• FTE NIM(1), a non-GAAP measure, was 3.73% for the three months ended June 30, 2026, an increase of 1 bp from the previous quarter and an increase of 14 bps from the second quarter of 2025. FTE NIM was 3.73% for the six months ended June 30, 2026, an increase of 21 bps from the same period in 2025.
• The Company recorded a provision for loan losses of $6.1 million for the three months ended June 30, 2026, compared to $5.6 million in the first quarter of 2026 and $17.8 million in the second quarter of 2025. Provision for loan losses was $11.7 million for the six months ended June 30, 2026, down $13.7 million from the same period in 2025. Included in the provision expense for the three and six months ended June 30, 2025 was $13.0 million of acquisition-related provision for loan losses.
• Excluding securities gains, noninterest income represented 27% of total revenues and was $49.6 million for the three months ended June 30, 2026, consistent with the first quarter of 2026 and up $2.7 million, or 5.8%, from the second quarter of 2025. Excluding securities gains, noninterest income was $99.2 million for the six months ended June 30, 2026 up $4.9 million from the same period in 2025.
• Noninterest expense, excluding acquisition expenses, was down $0.8 million, or 0.7%, from the first quarter of 2026 and was up $6.0 million, or 5.7%, from the second quarter of 2025. Noninterest expense, excluding acquisition expenses, was $223.7 million for the six months ended June 30, 2026, up $19.6 million from the same period in 2025.
• Period end total loans were $11.87 billion, up $276.0 million, or 2.4%, from December 31, 2025.
• Credit quality metrics including net charge-offs to average loans were 0.16%, annualized, and allowance for loan losses to total loans was 1.18%.
• Period end total deposits were $13.54 billion, up $38.1 million from December 31, 2025. The loan to deposit ratio was 87.7% as of June 30, 2026 and 85.9% as of December 31, 2025.
• On June 30, 2026, the Company redeemed $25 million of subordinated debt that had a fixed rate of 3.50% using existing liquidity sources. The $25 million of subordinated debt converted to a floating rate at 6.50% in the second quarter of 2026.
• The acquisition of Evans through the merger of Evans with and into the Company was completed on May 2, 2025. The Company incurred acquisition expenses of $17.2 million and $18.4 million for the three and six months ended June 30, 2025, respectively, related to the merger with Evans in 2025.

(1)

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

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Results of Operations

The following table sets forth certain financial highlights:

(1)

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

(2)

Annualized.

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The following table provides non-GAAP reconciliations:

(2)

Annualized.

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Net Interest Income

Net interest income is the difference between the interest and dividend income earned on interest-earning assets, primarily loans and securities and the interest expense paid on interest-bearing liabilities, primarily deposits and borrowings. Net interest income is affected by the interest rate spread, the difference between the yield on interest-earning assets and the 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 $137.0 million for the second quarter of 2026, up $2.6 million, or 1.9%, from the previous quarter. The FTE NIM was 3.73% for the three months ended June 30, 2026, an increase of 1 bp from the previous quarter. Interest income increased $3.1 million, or 1.7%, as average interest-earning assets of $14.80 billion increased $109.8 million from the prior quarter, while the yield on average interest-earning assets decreased 1 bp from the prior quarter to 5.05%. The increase in interest income was primarily due to one additional day in the second quarter of 2026 and organic growth in interest-earning assets. Interest expense increased $0.5 million, or 1.0%, as the cost of interest-bearing liabilities decreased 1 bp to 1.94% for the three months ended June 30, 2026 as compared to the prior quarter, primarily due to a 3 bps decrease in interest-bearing deposit costs. Included in net interest income was $5.7 million of acquisition-related net accretion for the three months ended June 30, 2026, compared to $6.7 million of acquisition-related net accretion for the three months ended March 31, 2026.

Net interest income was $137.0 million for the second quarter of 2026, up $12.7 million, or 10.3%, from the second quarter of 2025. The FTE NIM was 3.73% for the three months ended June 30, 2026, an increase of 14 bps from the second quarter of 2025. Interest income increased $8.2 million, or 4.6%, as average interest-earning assets increased $846.2 million, or 6.1%, from the second quarter of 2025, primarily due to the addition of $1.95 billion in interest-earning assets in May 2025 from the Evans acquisition and organic earning asset growth. The yield on average interest-earning assets decreased 7 bps from the same period in 2025 to 5.05%, primarily due to the Federal Reserve interest rates cuts in 2025. Interest expense decreased $4.6 million, or 8.5%, primarily due to the decrease in the cost of interest-bearing liabilities and the redemption of $118 million of subordinated debt in the third quarter of 2025. Included in net interest income was $5.7 million of acquisition-related net accretion for the three months ended June 30, 2026, compared to $5.0 million of acquisition-related net accretion for the three months ended June 30, 2025.

Net interest income for the six months ended June 30, 2026 was $271.3 million, up $39.9 million, or 17.2%, from the same period in 2025. The FTE NIM was 3.73% for the six months ended June 30, 2026, an increase of 21 bps from the same period in 2025. Interest income increased $36.4 million, or 11.0%, as the yield on average interest-earning assets increased 1 bp from the same period in 2025 to 5.05%. Average interest-earning assets of $14.75 billion increased $1.42 billion primarily due to the addition of $1.95 billion in interest-earning assets in May 2025 from the Evans acquisition and organic earning asset growth. Interest expense decreased $3.4 million, or 3.4%, for the six months ended June 30, 2026 as compared to the same period in 2025 driven by interest-bearing deposit costs decreasing 25 bps and lower average balances of subordinated debt. The decrease in interest expense was partially offset by the addition of $1.62 billion in interest-bearing liabilities in May 2025 from the Evans acquisition and organic growth. Included in net interest income was $12.4 million of acquisition-related net accretion for the six months ended June 30, 2026, compared to $7.2 million of acquisition-related net accretion for the six months ended June 30, 2025.

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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.

(1)

Securities are shown at average amortized cost.

(2)

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

(3)

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

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(1)

Securities are shown at average amortized cost.

(2)

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

(3)

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

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The following tables present 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.

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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:

Noninterest income for the three months ended June 30, 2026 was $49.7 million, down $0.4 million, or 0.8%, from the prior quarter and up $2.8 million, or 6.0%, from the second quarter of 2025. Excluding net securities gains, noninterest income for the three months ended June 30, 2026 was $49.6 million, down $0.1 million, or 0.3%, from the prior quarter and up $2.7 million, or 5.8%, from the second quarter of 2025.

The increase from the prior quarter was primarily driven by an increase in card services income and retirement plan administration fees. Card services income increased from the prior quarter driven by seasonal increased volumes. Retirement plan administration fees increased from the prior quarter driven by higher activity-based fees, additional fees from new customer relationships and increased market values of assets under administration.

The increase from the second quarter of 2025 was driven by an increase in service charges on deposit accounts and card services income due to the Evans acquisition. In addition, noninterest income increased from the second quarter of 2025 due to an increase in retirement plan administration fees driven by higher activity-based fees, additional fees from new customer relationships and increased market values of assets under administration.

Noninterest income for the six months ended June 30, 2026 was $99.9 million, up $5.5 million, or 5.8%, from the same period in 2025. Excluding net securities gains, noninterest income for the six months ended June 30, 2026 was $99.2 million, up $4.9 million, or 5.2%, from the same period in 2025. The increase from the prior year was primarily due to an increase in retirement plan administration fees, which were driven by higher activity-based fees, additional fees from new customer relationships and increased market values of assets under administration. Service charges on deposit accounts and card services income increased from the same period in 2025 primarily due to the Evans acquisition.

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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:

Noninterest expense for the three months ended June 30, 2026 was $111.4 million, down $0.8 million, or 0.7%, from the prior quarter and down $11.2 million, or 9.1%, from the second quarter of 2025. Excluding acquisition expenses, noninterest expense for the three months ended June 30, 2026 was $111.4 million, down $0.8 million, or 0.7%, from the prior quarter and up $6.0 million, or 5.7%, from the second quarter of 2025.

The decrease from the prior quarter was primarily driven by a decrease in occupancy costs due to the first quarter of 2026 having higher seasonal maintenance and utilities costs due to harsh winter conditions across the footprint. The decrease from the prior quarter was partially offset by an increase in salaries and employee benefits driven by a full quarter of merit pay increases, one additional payroll day and higher medical expenses, which were partially offset by lower payroll taxes and stock-based compensation expenses which are seasonally higher in the first quarter.

The increase from the second quarter of 2025 was driven by the Evans acquisition. Salaries and employee benefits increased from the second quarter of 2025 driven by the impact of the Evans acquisition, annual merit pay increases and higher medical expenses. Technology and data services increased from the second quarter of 2025 primarily due to the Evans acquisition, timing of planned activities and ongoing investment in enterprise technology initiatives. In addition, the increase in occupancy expense was impacted by additional expenses from the Evans acquisition and higher facilities costs related to new banking locations. Professional fees and outside services increased from the second quarter of 2025 primarily due to the Evans acquisition and the timing of various initiatives. Other expense decreased from the second quarter of 2025 primarily due to the $1.7 million reserve for unfunded loan commitments for the three months ended June 30, 2025 including $0.5 million of acquisition-related provision for unfunded loan commitments due to the Evans acquisition.

Noninterest expense for the six months ended June 30, 2026 was $223.7 million, up $1.2 million, or 0.5%, from the same period in 2025. Excluding acquisition expenses, noninterest expense for the six months ended June 30, 2026 was $223.7 million, up $19.6 million, or 9.6%, from the same period in 2025. The increase from the prior year was driven by higher salaries and employee benefits due to the Evans acquisition, merit pay increases, higher medical expenses, higher incentive compensation expenses and other benefit costs. The increase in technology and data services was driven by the Evans acquisition, timing of planned activities and ongoing investment in enterprise technology initiatives. Occupancy expense was impacted by additional expenses from the Evans acquisition, higher utilities and higher facilities costs related to new banking locations. Professional fees and outside services increased from the prior year primarily due to the Evans acquisition and the timing of various initiatives. In addition, the increase in amortization of intangible assets was due to the amortization of the core deposit intangible asset related to the Evans acquisition.

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Income Taxes

Income tax expense for the three months ended June 30, 2026 was $16.1 million, up $0.6 million from the prior quarter and up $7.9 million from the second quarter of 2025. The effective tax rate was 23.3% for the second quarter of 2026, which was consistent with the prior quarter and down from 26.7% for the second quarter of 2025. The decrease in the effective tax rate from the second quarter of 2025 was primarily due to the second quarter of 2025 estimated impact of nondeductible acquisition expenses related to the Evans acquisition and a lower level of tax-exempt income as a percentage of total pretax income.

Income tax expense for the six months ended June 30, 2026 was $31.6 million, up $12.9 million from the same period in 2025. The effective tax rate was 23.3% for the six months ended June 30, 2026, compared to 24.0% for the six months ended June 30, 2025. The decrease in the effective tax rate from 2025 was primarily due to the 2025 estimated impact of nondeductible acquisition expenses related to the Evans acquisition and a lower level of tax-exempt income as a percentage of total pretax income.

ANALYSIS OF FINANCIAL CONDITION

Securities

Total securities increased $137.7 million, or 5.1% from December 31, 2025 to June 30, 2026. The securities portfolio represented 17.3% of total assets as of June 30, 2026 as compared to 16.7% of total assets as of December 31, 2025.

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

The Company’s mortgage-backed securities, U.S. agency notes and collateralized mortgage obligations are all guaranteed by Fannie Mae, Freddie Mac, FHLB, Federal Farm Credit Banks or Ginnie Mae (“GNMA”). 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.

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Loans

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

(1)

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

Total loans were $11.87 billion and $11.60 billion at June 30, 2026 and December 31, 2025, respectively. Period end loans increased by $276.0 million from December 31, 2025 to June 30, 2026, which included a $52.4 million decrease in the other consumer and residential solar portfolios, which are in a planned run-off status. From December 31, 2025 to June 30, 2026 C&I loans increased $83.1 million to $1.76 billion; CRE loans increased $94.6 million to $4.89 billion; and total consumer loans increased $98.2 million to $5.23 billion. Total loans represent approximately 73.2% of assets as of June 30, 2026, as compared to 72.5% as of December 31, 2025.

Loans in the C&I and CRE portfolios consist primarily of loans extended to small and medium-sized entities. The Company offers a variety of loan products tailored to meet the needs of commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion, equipment purchases, livestock purchases and seasonal crop expenses. These loans are typically collateralized by business assets such as equipment, accounts receivable and perishable agricultural products, which are inherently subject to industry price volatility. The Company extends CRE loans to support real estate transactions, including acquisitions, refinancings, expansions and property improvements to both commercial and agricultural properties. These loans are secured by liens on real estate assets, covering a spectrum of properties including apartments, commercial structures, healthcare facilities and others, whether occupied by owners or non-owners. Risks associated with the CRE portfolio pertain to the borrowers’ ability to meet interest and principal payments over the life of the loan, as well as their ability to secure financing upon the loan’s maturity. The Company has a risk management framework that includes rigorous underwriting standards, targeted portfolio stress testing, interest rate sensitivities on commercial borrowers and comprehensive credit risk monitoring mechanisms. The Company remains vigilant in monitoring market trends, economic indicators and regulatory developments to promptly adapt our risk management strategies as needed.

Within the CRE portfolio, approximately 79% are comprised of Non-Owner Occupied CRE, with the remaining 21% being Owner-Occupied CRE. Non-Owner Occupied CRE includes diverse sectors across the Company’s markets such as residential rental properties (45%) and office spaces (13%), along with retail, manufacturing, mixed use, hotels and others. As of June 30, 2026 and December 31, 2025, the total CRE construction and development loans amounted to $431.1 million and $405.3 million, respectively.

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

Management considers the accounting policy relating to the allowance for credit losses to be a critical estimate given the degree of judgment exercised in evaluating the level of the allowance required to estimate expected credit losses over the expected contractual life of our loan portfolio and the material effect that such judgments can have on the consolidated results of operations.

The CECL methodology requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses is a valuation account that is deducted from, or added to, the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans. Loan losses are charged off against the allowance when management believes a loan balance is confirmed to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Required additions or reductions to the allowance for credit losses are made periodically by charges or credits to the provision for loan losses. These are necessary to maintain the allowance at a level which management believes is reasonably reflective of the overall loss expected over the contractual life of the loan portfolio, adjusted for expected prepayments and curtailments. While management uses available information to recognize losses on loans, additions or reductions to the allowance may fluctuate from one reporting period to another. These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in management’s assessment of any or all of the determining factors discussed above. Management considers the allowance for credit losses to be appropriate based on evaluation and analysis of the loan portfolio.

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Management estimates the allowance for credit losses using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Company historical loss experience was supplemented with peer information when there was insufficient loss data for the 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 PD and LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to multiple, probabilistically weighted external economic forecasts. Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio as of the balance sheet date.

Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Consistent with CECL guidance, management has pooled loans with similar risk characteristics and identified segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation and have been combined or subsegmented as needed to ensure loans of similar risk profiles are appropriately pooled.

Additional information about our Allowance for Credit Losses is included in Note 7 to the unaudited interim consolidated financial statements in this Quarterly Report on Form 10-Q as well as in the “Critical Accounting Estimates” section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company’s management considers the allowance for credit losses to be appropriate based on evaluation and analysis of the loan portfolio.

The allowance for credit losses totaled $140.5 million at June 30, 2026, compared to $138.6 million at March 31, 2026 and $140.2 million at June 30, 2025. The allowance for credit losses as a percentage of loans was 1.18% at June 30, 2026, compared to 1.20% at March 31, 2026 and 1.21% at June 30, 2025. The allowance for credit losses was 215.13% of nonperforming loans at June 30, 2026, compared to 226.27% at March 31, 2026 and to 302.21% at June 30, 2025. The allowance for credit losses as of June 30, 2026 increased compared to the allowance estimates as of March 31, 2026, primarily due to providing for loan growth and slight deterioration in the economic forecast. These increases to the allowance for credit losses were partially offset by accelerated prepayment speeds and the change in loan composition and balances including reductions driven by other consumer and residential solar portfolios that are in a planned run-off status.

The allowance for credit losses as of June 30, 2026 increased compared to the allowance estimates as of June 30, 2025, primarily due to providing for the second quarter of 2026 loan growth, change in scenario weightings and the establishment of specific reserves for individually evaluated loans in the first quarter of 2026. These increases to the allowance for credit losses were largely offset by model adjustments, accelerated prepayment speeds and the changes in loan composition and balances including reductions driven by other consumer and residential solar portfolios that are in a planned run-off status. First quarter 2026 model adjustments lowered the allowance, as updates from the annual model review and recalibration process incorporated recent delinquency and loss experience which reflected improved default estimates across most portfolio segments.

The provision for loan losses was $6.1 million for the three months ended June 30, 2026, compared to $5.6 million in the prior quarter and $17.8 million for the same period in the prior year. Provision expense increased from the prior quarter primarily due to providing for the second quarter of 2026 loan growth, which was partially offset by a decrease in net charge-offs in the current quarter. Provision expense decreased from the same period in the prior year primarily due to $13.0 million of acquisition-related provision for loan losses for non-PCD loans acquired from Evans recorded in the second quarter of 2025. Net charge-offs totaled $4.2 million during the three months ended June 30, 2026, compared to net charge-offs of $5.0 million during the first quarter of 2026 and $2.4 million in the second quarter of 2025. Net charge-offs to average loans were 15 bps for the three months ended June 30, 2026, compared to 17 bps for the first quarter of 2026 and 9 bps for the three months ended June 30, 2025.

The provision for loan losses was $11.7 million for the six months ended June 30, 2026, compared to $25.4 million for the six months ended June 30, 2025. Provision expense decreased from the same period in the prior year primarily due to $13.0 million of acquisition-related provision for loan losses for non-PCD loans acquired from Evans recorded in 2025. Net charge-offs totaled $9.2 million during the six months ended June 30, 2026, compared to net charge-offs of $8.9 million during the six months ended June 30, 2025. Net charge-offs to average loans were 16 bps for the six months ended June 30, 2026, compared to 17 bps for the six months ended June 30, 2025.

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As of June 30, 2026 and March 31, 2026, the unfunded commitment reserve totaled $5.5 million, compared to $6.2 million as of June 30, 2025. The decrease from the same period in the prior year was caused by a decrease in expected loss rates, partially offset by a slight increase in pipeline exposure.

Nonperforming assets consist of nonaccrual loans, loans over 90 days past due and still accruing, troubled loan modifications, OREO and nonperforming securities. Loans are generally placed on nonaccrual when principal or interest payments become 90 days past due, unless the loan is well secured and in the process of collection. Loans may also be placed on nonaccrual when circumstances indicate that the borrower may be unable to meet the contractual principal or interest payments. The threshold for evaluating commercial loans risk graded substandard or doubtful, 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.

Total nonperforming assets were $65.3 million at June 30, 2026, compared to $52.1 million at December 31, 2025 and $46.7 million at June 30, 2025. Nonperforming loans at June 30, 2026 were $65.3 million or 0.55% of total loans, compared with $51.7 million or 0.45% of total loans at December 31, 2025 and $46.4 million or 0.40% of total loans at June 30, 2025. The increase in nonperforming assets and nonperforming loans from the prior period was attributable to an increase in commercial nonaccrual loans, partially offset by a decrease in residential and consumer accruing loans past due over 90 days. The increase from June 30, 2025 is attributable to an increase in commercial nonaccrual loans. Total nonaccrual loans were $62.9 million or 0.53% of total loans at June 30, 2026, compared to $44.6 million or 0.38% of total loans at December 31, 2025 and $43.2 million or 0.37% of total loans at June 30, 2025. Past due loans as a percentage of total loans was 0.63% at June 30, 2026, up from 0.38% at December 31, 2025 and up from 0.38% at June 30, 2025.

In addition to nonperforming loans discussed above, the Company has also identified approximately $228.7 million in potential problem loans at June 30, 2026 as compared to $271.8 million at December 31, 2025. 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 decrease in potential problem loans from December 31, 2025 is primarily due to the net migration of $26.0 million in commercial loan balances to pass status, due to improved borrower performance and an increase in commercial nonaccrual loan balances. Management cannot predict the extent to which economic conditions may worsen or other factors, which may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become over 90 days past due, be placed on nonaccrual, become troubled loan 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.

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Deposits

Total deposits were $13.54 billion at June 30, 2026, up $38.1 million, or 0.3%, from December 31, 2025. As of June 30, 2026, there were $25.0 million of brokered time deposits, down from $98.9 million as of December 31, 2025. Demand, interest-bearing checking, savings and money market deposits increased, partially offset by a decrease in time deposits. The Company continues to experience growth within consumer and municipal business lines. The Company’s composition of total deposits is diverse and granular with over 611,000 accounts with an average per account balance of $22,129 as of June 30, 2026. As of June 30, 2026 and December 31, 2025 the estimated amounts of uninsured deposits based on the same methodologies and assumptions used for the bank regulatory reporting were $5.82 billion and $5.86 billion, respectively. Total average deposits increased $1.35 billion, or 11.1%, from the same period last year.

Borrowed Funds

The Company’s borrowed funds consist of short-term borrowings and long-term debt. Short-term borrowings totaled $316.4 million at June 30, 2026 compared to $148.1 million at December 31, 2025. Long-term debt was $43.0 million at June 30, 2026 compared to $43.2 million at December 31, 2025.

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

Subordinated Debt

The subordinated notes assumed in connection with the Salisbury Bancorp, Inc. acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031. The subordinated notes, which qualified as Tier 2 capital, bore 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. On June 30, 2026, the Company redeemed these subordinated notes in full using existing liquidity sources.

As of December 31, 2025 the subordinated debt net of fair value discount was $24.5 million.

Junior Subordinated Debt

In connection with the Evans acquisition, the Company acquired Evans Capital Trust I, a statutory business trust wholly-owned by the Company, which issued $11.0 million in aggregate principal amount of floating rate preferred capital securities due November 23, 2034 to various investors and $0.3 million of common securities. As of the acquisition date, the fair value discount was $0.9 million which is being amortized into interest expense over the life of the debt instrument.

Collectively, the Company sponsors six business trusts, CNBF Capital Trust I, NBT Statutory Trust I, NBT Statutory Trust II, Alliance Financial Capital Trust I, Alliance Financial Capital Trust II and Evans Capital Trust I (collectively, the “Trusts”).

Despite the fact that the Trusts are not included in the Company’s consolidated financial statements, $108 million of the $112 million in trust preferred securities issued by these subsidiary trusts was included in the Tier 1 capital of the Company for regulatory capital purposes as allowed by the FRB (NBT Bank owns $1.0 million of CNBF Trust I securities) through March 31, 2025. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires bank holding companies with assets greater than $500 million to be subject to the same capital requirements as insured depository institutions, meaning, for instance, that such bank holding companies will not be able to count trust preferred securities issued after May 19, 2010 as Tier 1 capital. The aforementioned Trusts are grandfathered with respect to this enactment based on their date of issuance. As of June 30, 2025 in connection with the completion of the Evans acquisition and the Company’s assets exceeding $15 billion, the Trusts are now included in Tier 2 capital of the Company for regulatory capital purposes.

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Capital Resources

Stockholders’ equity of $1.94 billion represented 11.99% of total assets at June 30, 2026 compared with $1.90 billion, or 11.85% of total assets, as of December 31, 2025. Stockholders’ equity increased $47.7 million from December 31, 2025 driven by net income generation of $104.2 million for the six months ended June 30, 2026, partially offset by dividends declared of $38.5 million, the repurchase of common stock of $14.0 million and a $6.5 million increase in accumulated other comprehensive loss reflecting the change in fair value securities available for sale.

The Company purchased 68,595 shares of its common stock during the three months ended June 30, 2026, for a total of $3.0 million at an average price of $43.96 per share under its previously announced stock repurchase program. Under its stock 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 June 30, 2026, there were 1,431,405 shares available for repurchase under this program authorized on October 27, 2025, which is set to expire on December 31, 2027.

As the capital ratios in the following table indicate, the Company remained “well capitalized” at June 30, 2026 under applicable bank regulatory requirements. Capital measurements are well in excess of regulatory minimum requirements and meet the standard 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.

(1)

Non-GAAP measure - 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.

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 (the “Board”). Management also reviews loan and deposit pricing and the Company’s securities portfolio, formulates investment and funding strategies and oversees the timing and implementation of transactions to assure attainment of the Board’s objectives in the most effective manner. Notwithstanding the Company’s interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income.

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In managing the Company’s asset/liability position, the Board and management aim to manage the Company’s interest rate risk while minimizing NIM compression. At times, depending on the level of general interest rates, the relationship between long and short-term interest rates, market conditions and competitive factors, the Board and management may determine to increase the Company’s interest rate risk position somewhat in order to increase its NIM. The Company’s results of operations and net portfolio values remain vulnerable to changes in interest rates and fluctuations in the difference between long and short-term interest rates.

The primary tool utilized by the ALCO to manage interest rate risk is earnings at risk modeling (interest rate sensitivity analysis). Information, such as principal balance, interest rate, maturity date, cash flows, next repricing date (if needed) and current rates are uploaded into the model to create an ending balance sheet. In addition, the ALCO makes certain assumptions regarding prepayment speeds for loans and mortgage related investment securities along with any optionality within the deposits and borrowings. The model is first run under an assumption of a flat rate scenario (e.g., no change in current interest rates) with a static balance sheet. Six additional models are run in which gradual increases of 300 bps, 200 bps and 100 bps, and gradual decreases of 100 bps, 200 bps and 300 bps takes place over a 12-month period with a static balance sheet. Under these scenarios, assets subject to prepayments are adjusted to account for faster or slower prepayment assumptions. Any investment securities or borrowings that have callable options embedded in them are handled accordingly based on the interest rate scenario. The resulting changes in net interest income are then measured against the flat rate scenario. The Company also runs other interest rate scenarios to highlight potential interest rate risk.

The Company’s Interest Rate Sensitivity has remained in a near neutral position. In the declining rate scenarios, net interest income is projected to modestly decrease when compared to the forecasted net interest income in the flat rate scenario through the simulation period. The decrease in net interest income is a result of earning assets repricing and rolling over at lower yields at a faster pace than interest-bearing liabilities decline and/or reach their floors. Conversely in the rising rate scenarios, net interest income increases modestly, impacted by slowing prepayment speeds and increased deposit reactivity; the magnitude of potential impact on earnings may be affected by the ability to lag deposit repricing on interest-bearing checking, savings, MMDA and time accounts. Net interest income for the next twelve months in the +300/+200/+100/-100/-200/-300 bps scenarios, as described above, is within the internal policy risk limits of not more than a 5.0% reduction in net interest income in the +100/-100 bps scenarios, of not more than a 7.5% reduction in net interest income in the +200/-200 bps scenarios and of not more than a 12.0% reduction in net interest income in the +300/-300 bps scenarios. The following table summarizes the percentage change in net interest income in the rising and declining rate scenarios over a 12-month period from the forecasted net interest income in the flat rate scenario using the June 30, 2026 balance sheet position:

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, employment levels and FOMC monetary policy. In 2025, the FOMC shifted to an easing cycle, cutting the federal funds rate three times (September, October and December) by 25 bps each, bringing the target range down from 4.25-4.50% towards a more neutral stance of 3.50-3.75% as inflation pressures eased but growth softened. Actions included rate cuts, open market operations to manage liquidity, and adjustments to reinvestment policies for Treasury and mortgage-backed securities. The Fed remains committed to its 2% inflation target and maximum employment goals. The 2025 federal funds rate reductions and initial expectations for continued reductions in 2026 provided the catalyst for the Company to begin reducing deposit rates in late 2025 and early 2026. However, the onset of the Iran War in 2026 has contributed to higher interest rates and an expectation for an elevated yield curve in the near term. The Company continues to focus on managing deposit expense in an environment of still elevated short-term interest rates (compared to recent years) while maintaining lending spreads in an effort to allow new and repricing asset yields to remain above existing portfolio asset yields where possible.

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.

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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 June 30, 2026, the Company’s Basic Surplus measurement was 17.1% of total assets, or $2.77 billion, as compared to the December 31, 2025 Basic Surplus of 18.7%, or $2.98 billion, and was above the Company’s minimum of 5% (calculated at $810.7 million and $799.8 million of period end total assets as June 30, 2026 and December 31, 2025, respectively) set forth in its liquidity policies.

At June 30, 2026 and December 31, 2025, FHLB advances outstanding totaled $199.9 million and $43.0 million, respectively. At June 30, 2026 and December 31, 2025, the Bank had $379.0 million and $353.0 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 $1.94 billion at June 30, 2026 and $2.10 billion at December 31, 2025. In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional $1.31 billion and $1.11 billion at June 30, 2026 and December 31, 2025, respectively, or used to collateralize other borrowings, such as repurchase agreements. The Company also has the ability to issue brokered time deposits and to borrow against established borrowing facilities with other banks (federal funds), which could provide additional liquidity of $2.60 billion at June 30, 2026 and $2.53 billion at December 31, 2025. 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 June 30, 2026 and December 31, 2025, the Bank had the capacity to borrow $1.12 billion and $1.18 billion, respectively, from this program. The Company’s internal policies authorize borrowing up to 25% of assets. Under this policy, remaining available borrowing capacity totaled $3.79 billion at June 30, 2026 and $3.94 billion at December 31, 2025.

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 2026. While short-term interest rates have declined, they remain elevated relative to recent history, which could result in deposit declines as depositors continue to 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%.

At June 30, 2026, a portion of the Company’s loans and securities were pledged as collateral on borrowings. Therefore, once on-balance sheet liquidity is reduced, future growth of earning assets will depend upon the Company’s ability to obtain additional funding, through growth of core deposits and collateral management and may require further use of brokered time deposits or other higher cost borrowing arrangements.

The Company’s primary source of funds is dividends from its subsidiaries. Various laws and regulations restrict the ability of banks to pay dividends to their stockholders. Generally, the payment of dividends by the Company in the future as well as the payment of interest on the capital securities will require the generation of sufficient future earnings by its subsidiaries.

Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends. The approval of the OCC is required to pay dividends when a bank fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations. At June 30, 2026 and December 31, 2025, approximately $110.0 million and $115.9 million, respectively, 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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