SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October ~~30, 2020,~~29, 2021, there were ~~43,625,286~~43,349,877 shares outstanding of the Registrant’s Common Stock, $0.01 par value per share.

Item 1 – FINANCIAL STATEMENTS

NBT Bancorp Inc. and Subsidiaries

Consolidated Balance Sheets (unaudited)

~~(1) Beginning January 1, 2020, calculation is based on current expected loss methodology. Prior to January 1, 2020, calculation was based on incurred loss methodology.~~

Securities held to maturity (fair value $689,129 and $636,827, respectively)

Preferred stock, $0.01 par value. Authorized 2,500,000 shares at September 30, 2021 and December 31, 2020

Common stock, $0.01 par value. Authorized 100,000,000 shares at September 30, 2021 and December 31, 2020; issued 49,651,493 at September 30, 2021 and December 31, 2020

Common stock in treasury, at cost, 6,313,800 and 6,022,399 shares at September 30, 2021 and December 31, 2020, respectively

NBT Bancorp Inc. and Subsidiaries

Consolidated Statements of Income (unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020 2019 2020 2019
(In thousands, except per share data)
Interest, fee and dividend income
Interest and fees on loans $ 74,998 $ 81,082 $ 230,996 $ 241,674
Securities available for sale 5,603 5,711 16,956 17,664
Securities held to maturity 3,734 4,586 11,751 14,892
Other 659 1,002 2,138 2,728
Total interest, fee and dividend income $ 84,994 $ 92,381 $ 261,841 $ 276,958
Interest expense
Deposits $ 4,267 $ 10,745 $ 18,183 $ 29,805
Short-term borrowings 446 1,989 3,215 7,986
Long-term debt 398 498 1,184 1,391
Subordinated debt 1,375 0 1,503 0
Junior subordinated debt 565 1,095 2,186 3,404
Total interest expense $ 7,051 $ 14,327 $ 26,271 $ 42,586
Net interest income $ 77,943 $ 78,054 $ 235,570 $ 234,372
Provision for loan losses (1) 3,261 6,324 51,741 19,408
Net interest income after provision for loan losses $ 74,682 $ 71,730 $ 183,829 $ 214,964
Noninterest income
Service charges on deposit accounts $ 3,087 $ 4,330 $ 9,613 $ 12,790
ATM and debit card fees 7,194 6,277 19,184 17,958
Retirement plan administration fees 9,685 7,600 26,840 23,170
Wealth management 7,695 7,630 21,791 21,315
Insurance 3,742 4,000 11,303 12,291
Bank owned life insurance income 1,255 1,556 4,010 4,119
Net securities gains (losses) 84 4,036 (548 ) 4,024
Other 4,985 4,291 15,968 12,115
Total noninterest income $ 37,727 $ 39,720 $ 108,161 $ 107,782
Noninterest expense
Salaries and employee benefits $ 40,451 $ 39,352 $ 120,918 $ 117,275
Occupancy 5,294 5,335 16,354 17,053
Data processing and communications 4,058 4,492 12,370 13,599
Professional fees and outside services 3,394 3,535 10,694 10,562
Equipment 5,073 4,487 14,494 13,762
Office supplies and postage 1,530 1,667 4,621 4,835
FDIC expense (credit) 645 (20 ) 1,949 1,946
Advertising 530 677 1,461 1,821
Amortization of intangible assets 856 874 2,573 2,735
Loan collection and other real estate owned, net 620 976 2,365 2,722
Other 3,857 8,374 14,730 18,130
Total noninterest expense $ 66,308 $ 69,749 $ 202,529 $ 204,440
Income before income tax expense $ 46,101 $ 41,701 $ 89,461 $ 118,306
Income tax expense 10,988 9,322 19,267 26,245
Net income $ 35,113 $ 32,379 $ 70,194 $ 92,061
Earnings per share
Basic $ 0.80 $ 0.74 $ 1.61 $ 2.10
Diluted $ 0.80 $ 0.73 $ 1.60 $ 2.09

~~(1) Beginning January 1, 2020, calculation is based on current expected loss methodology. Prior to January 1, 2020, calculation was based on incurred loss methodology.~~

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
(In thousands, except per share data)
Interest, fee and dividend income
Interest and fees on loans	$	72,817		$	74,998	$	222,705		$	230,996
Securities available for sale		5,898			5,603		17,204			16,956
Securities held to maturity		2,976			3,734		9,454			11,751
Other		524			659		1,206			2,138
Total interest, fee and dividend income	$	82,215		$	84,994	$	250,569		$	261,841
Interest expense
Deposits	$	2,548		$	4,267	$	8,582		$	18,183
Short-term borrowings		28			446		130			3,215
Long-term debt		89			398		301			1,184
Subordinated debt		1,359			1,375		4,077			1,503
Junior subordinated debt		517			565		1,572			2,186
Total interest expense	$	4,541		$	7,051	$	14,662		$	26,271
Net interest income	$	77,674		$	77,943	$	235,907		$	235,570
Provision for loan losses		(3,342	)		3,261		(11,354	)		51,741
Net interest income after provision for loan losses	$	81,016		$	74,682	$	247,261		$	183,829
Noninterest income
Service charges on deposit accounts	$	3,489		$	3,087	$	9,544		$	9,613
ATM and debit card fees		8,172			7,194		23,343			19,184
Retirement plan administration fees		10,495			9,685		30,372			26,840
Wealth management fees		8,783			7,695		25,099			21,791
Insurance services		3,720			3,742		10,689			11,303
Bank owned life insurance income		1,548			1,255		4,588			4,010
Net securities (losses) gains		(100	)		84		568			(548	)
Other		4,222			4,985		12,480			15,968
Total noninterest income	$	40,329		$	37,727	$	116,683		$	108,161
Noninterest expense
Salaries and employee benefits	$	44,190		$	40,451	$	128,462		$	120,918
Occupancy		5,117			5,294		16,281			16,354
Data processing and communications		3,881			4,058		13,039			12,370
Professional fees and outside services		3,784			3,394		11,403			10,694
Equipment		5,577			5,073		16,247			14,494
Office supplies and postage		1,364			1,530		4,478			4,621
FDIC expense		772			645		2,243			1,949
Advertising		583			530		1,502			1,461
Amortization of intangible assets		663			856		2,157			2,573
Loan collection and other real estate owned, net		706			620		1,959			2,365
Other		6,232			3,857		14,405			14,730
Total noninterest expense	$	72,869		$	66,308	$	212,176		$	202,529
Income before income tax expense	$	48,476		$	46,101	$	151,768		$	89,461
Income tax expense		11,043			10,988		34,193			19,267
Net income	$	37,433		$	35,113	$	117,575		$	70,194
Earnings per share
Basic	$	0.86		$	0.80	$	2.71		$	1.61
Diluted	$	0.86		$	0.80	$	2.69		$	1.60

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

NBT Bancorp Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020 2019 2020 2019
(In thousands)
Net income $ 35,113 $ 32,379 $ 70,194 $ 92,061
Other comprehensive income (loss), net of tax:

Securities available for sale:
Unrealized net holding (losses) gains arising during the period, gross $ (1,263 ) $ 2,360 $ 26,509 $ 26,787
Tax effect 316 (590 ) (6,627 ) (6,697 )
Unrealized net holding (losses) gains arising during the period, net $ (947 ) $ 1,770 $ 19,882 $ 20,090

Reclassification adjustment for net (gains) losses in net income, gross $ 0 $ (20 ) $ (3 ) $ 79
Tax effect 0 5 1 (20 )
Reclassification adjustment for net (gains) losses in net income, net $ 0 $ (15 ) $ (2 ) $ 59

Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, gross $ 157 $ 190 $ 495 $ 556
Tax effect (39 ) (47 ) (124 ) (139 )
Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, net $ 118 $ 143 $ 371 $ 417

Total securities available for sale, net $ (829 ) $ 1,898 $ 20,251 $ 20,566

Cash flow hedges:
Unrealized gains (losses) on derivatives (cash flow hedges), gross $ 0 $ 9 $ (274 ) $ (475 )
Tax effect 0 (2 ) 69 119
Unrealized gains (losses) on derivatives (cash flow hedges), net $ 0 $ 7 $ (205 ) $ (356 )

Reclassification of net unrealized losses (gains) on cash flow hedges to interest (income), gross $ 101 $ (395 ) $ 192 $ (1,932 )
Tax effect (25 ) 98 (48 ) 483
Reclassification of net unrealized losses (gains) on cash flow hedges to interest (income), net $ 76 $ (297 ) $ 144 $ (1,449 )

Total cash flow hedges, net $ 76 $ (290 ) $ (61 ) $ (1,805 )

Pension and other benefits:
Amortization of prior service cost and actuarial losses, gross $ 381 $ 672 $ 1,143 $ 1,985
Tax effect (95 ) (168 ) (286 ) (496 )
Amortization of prior service cost and actuarial losses, net $ 286 $ 504 $ 857 $ 1,489

Total pension and other benefits, net $ 286 $ 504 $ 857 $ 1,489

Total other comprehensive income $ (467 ) $ 2,112 $ 21,047 $ 20,250
Comprehensive income $ 34,646 $ 34,491 $ 91,241 $ 112,311

~~See accompanying notes to unaudited interim consolidated financial statements.~~

~~Table of Contents~~

~~NBT Bancorp Inc. and Subsidiaries~~

~~Consolidated Statements of Stockholders’ Equity (unaudited)~~

Common
Stock

Additional
Paid-in-
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income

Common
Stock in
Treasury
Total
(In thousands, except share and per share data)
Balance at June 30, 2020 $ 497 $ 577,197 $ 703,322 $ 2,488 $ (140,852 ) $ 1,142,652
Net income 0 0 35,113 0 0 35,113
Cash dividends - $0.27 per share 0 0 (11,785 ) 0 0 (11,785 )
Net issuance of 3,030 shares to employee and other stock plans 0 (108 ) 0 0 58 (50 )
Stock-based compensation 0 648 0 0 0 648
Other comprehensive (loss) 0 0 0 (467 ) 0 (467 )
Balance at September 30, 2020 $ 497 $ 577,737 $ 726,650 $ 2,021 $ (140,794 ) $ 1,166,111

Balance at June 30, 2019 $ 497 $ 575,794 $ 658,107 $ (25,036 ) $ (134,539 ) $ 1,074,823
Net income 0 0 32,379 0 0 32,379
Cash dividends - $0.26 per share 0 0 (11,396 ) 0 0 (11,396 )
Net issuance of 17,234 shares to employee and other stock plans 0 (104 ) 0 0 331 227
Stock-based compensation 0 456 0 0 0 456
Other comprehensive income 0 0 0 2,112 0 2,112
Balance at September 30, 2019 $ 497 $ 576,146 $ 679,090 $ (22,924 ) $ (134,208 ) $ 1,098,601

Common
Stock

Additional
Paid-in-
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income

Common
Stock in
Treasury
Total
(In thousands, except share and per share data)
Balance at December 31, 2019 $ 497 $ 576,708 $ 696,214 $ (19,026 ) $ (133,996 ) $ 1,120,397
Net income 0 0 70,194 0 0 70,194
Cumulative effect adjustment for ASU 2016-13 implementation 0 0 (4,339 ) 0 0 (4,339 )
Cash dividends - $0.81 per share 0 0 (35,419 ) 0 0 (35,419 )
Purchase of 263,507 treasury shares 0 0 0 0 (7,980 ) (7,980 )
Net issuance of 78,276 shares to employee and other stock plans 0 (2,928 ) 0 0 1,182 (1,746 )
Stock-based compensation 0 3,957 0 0 0 3,957
Other comprehensive income 0 0 0 21,047 0 21,047
Balance at September 30, 2020 $ 497 $ 577,737 $ 726,650 $ 2,021 $ (140,794 ) $ 1,166,111

Balance at December 31, 2018 $ 497 $ 575,466 $ 621,203 $ (43,174 ) $ (136,083 ) $ 1,017,909
Net income 0 0 92,061 0 0 92,061
Cash dividends - $0.78 per share 0 0 (34,174 ) 0 0 (34,174 )
Net issuance of 113,679 shares to employee and other stock plans 0 (2,916 ) 0 0 1,875 (1,041 )
Stock-based compensation 0 3,596 0 0 0 3,596
Other comprehensive income 0 0 0 20,250 0 20,250
Balance at September 30, 2019 $ 497 $ 576,146 $ 679,090 $ (22,924 ) $ (134,208 ) $ 1,098,601

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
(In thousands)
Net income	$	37,433		$	35,113		$	117,575		$	70,194
Other comprehensive income (loss), net of tax:

Securities available for sale:
Unrealized net holding (losses) gains arising during the period, gross	$	(7,426	)	$	(1,263	)	$	(21,329	)	$	26,509
Tax effect		1,857			316			5,332			(6,627	)
Unrealized net holding (losses) gains arising during the period, net	$	(5,569	)	$	(947	)	$	(15,997	)	$	19,882

Reclassification adjustment for net gains in net income, gross	$	0		$	0		$	0		$	(3	)
Tax effect		0			0			0			1
Reclassification adjustment for net gains in net income, net	$	0		$	0		$	0		$	(2	)

Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, gross	$	149		$	157		$	434		$	495
Tax effect		(38	)		(39	)		(109	)		(124	)
Amortization of unrealized net gains for the reclassification of available for sale securities to held to maturity, net	$	111		$	118		$	325		$	371

Total securities available for sale, net	$	(5,458	)	$	(829	)	$	(15,672	)	$	20,251

Cash flow hedges:
Unrealized losses on derivatives (cash flow hedges), gross	$	0		$	0		$	0		$	(274	)
Tax effect		0			0			0			69
Unrealized losses on derivatives (cash flow hedges), net	$	0		$	0		$	0		$	(205	)

Reclassification of net unrealized losses on cash flow hedges to interest (income), gross	$	0		$	101		$	21		$	192
Tax effect		0			(25	)		(5	)		(48	)
Reclassification of net unrealized losses on cash flow hedges to interest (income), net	$	0		$	76		$	16		$	144

Total cash flow hedges, net	$	0		$	76		$	16		$	(61	)

Pension and other benefits:
Amortization of prior service cost and actuarial losses, gross	$	344		$	381		$	996		$	1,143
Tax effect		(86	)		(95	)		(249	)		(286	)
Amortization of prior service cost and actuarial losses, net	$	258		$	286		$	747		$	857

Total pension and other benefits, net	$	258		$	286		$	747		$	857

Total other comprehensive (loss) income	$	(5,200	)	$	(467	)	$	(14,909	)	$	21,047
Comprehensive income	$	32,233		$	34,646		$	102,666		$	91,241

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

NBT Bancorp Inc. and Subsidiaries

Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity (unaudited)

Nine Months Ended
September 30,

2020 2019
(In thousands)
Operating activities
Net income $ 70,194 $ 92,061
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 51,741 19,408
Depreciation and amortization of premises and equipment 7,378 7,106
Net amortization on securities 2,812 2,495
Amortization of intangible assets 2,573 2,735
Amortization of operating lease right-of-use assets 5,549 5,396
Excess tax benefit on stock-based compensation (188 ) (371 )
Stock-based compensation expense 3,957 3,596
Bank owned life insurance income (4,010 ) (4,119 )
Amortization of subordinated debt issuance costs 121 0
Proceeds from sale of loans held for sale 153,732 109,661
Originations of loans held for sale (144,105 ) (119,753 )
Net gains on sale of loans held for sale (1,892 ) (475 )
Net security losses (gains) 548 (4,024 )
Net gains on sale of other real estate owned (243 ) (178 )
Net change in other assets and other liabilities (40,760 ) (9,579 )
Net cash provided by operating activities $ 107,407 $ 103,959
Investing activities
Net cash used in acquisitions
$ (3,899 ) $ 0
Securities available for sale:
Proceeds from maturities, calls and principal paydowns 239,622 226,070
Proceeds from sales 0 26,203
Purchases (437,827 ) (160,781 )
Securities held to maturity:
Proceeds from maturities, calls and principal paydowns 181,143 165,997
Proceeds from sales 996 0
Purchases (215,327 ) (61,150 )
Equity securities:
Proceeds from sales 0 3,966
Purchases 0 (93 )
Other:
Net increase in loans (436,630 ) (146,778 )
Proceeds from Federal Home Loan Bank stock redemption 58,799 147,200
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock (42,663 ) (131,461 )
Proceeds from settlement of bank owned life insurance 531 1,085
Purchases of premises and equipment, net (4,512 ) (4,018 )
Proceeds from sales of other real estate owned 1,113 1,129
Net cash (used in) provided by investing activities $ (658,654 ) $ 67,369
Financing activities
Net increase in deposits $ 1,370,363 $ 374,955
Net decrease in short-term borrowings (471,803 ) (428,430 )
Proceeds from issuance of subordinated debt 100,000 0
Payment of subordinated debt issuance costs (2,178 ) 0
Proceeds from issuance of long-term debt 0 10,598
Repayments of long-term debt (85 ) (83 )
Proceeds from the issuance of shares to employee and other stock plans 184 543
Cash paid by employer for tax-withholdings on stock issuance (1,218 ) (1,596 )
Purchase of treasury stock (7,980 ) 0
Cash dividends (35,419 ) (34,174 )
Net cash provided by (used in) financing activities $ 951,864 $ (78,187 )
Net increase in cash and cash equivalents $ 400,617 $ 93,141
Cash and cash equivalents at beginning of period 216,843 180,955
Cash and cash equivalents at end of period $ 617,460 $ 274,096

	Common Stock		Additional Paid-in- Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Common Stock in Treasury			Total
(In thousands, except share and per share data)
Balance at June 30, 2021	$	497	$	576,732		$	805,722		$	(9,292	)	$	(148,603	)	$	1,225,056
Net income		0		0			37,433			0			0			37,433
Cash dividends - $0.28 per share		0		0			(12,138	)		0			0			(12,138	)
Purchase of 119,342 treasury shares		0		0			0			0			(4,212	)		(4,212	)
Net issuance of 1,672 shares to employee and other stock plans		0		(73	)		0			0			28			(45	)
Stock-based compensation		0		563			0			0			0			563
Other comprehensive (loss)		0		0			0			(5,200	)		0			(5,200	)
Balance at September 30, 2021	$	497	$	577,222		$	831,017		$	(14,492	)	$	(152,787	)	$	1,241,457

Balance at June 30, 2020	$	497	$	577,197		$	703,322		$	2,488		$	(140,852	)	$	1,142,652
Net income		0		0			35,113			0			0			35,113
Cash dividends - $0.27 per share		0		0			(11,785	)		0			0			(11,785	)
Net issuance of 3,030 shares to employee and other stock plans		0		(108	)		0			0			58			(50	)
Stock-based compensation		0		648			0			0			0			648
Other comprehensive (loss)		0		0			0			(467	)		0			(467	)
Balance at September 30, 2020	$	497	$	577,737		$	726,650		$	2,021		$	(140,794	)	$	1,166,111

~~Table of Contents~~

Nine Months Ended
September 30,

2020 2019
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest expense $ 26,373 $ 42,709
Income taxes paid, net of refund 38,137 19,945
Noncash investing activities:
Loans transferred to other real estate owned $ 1,017 $ 654
Acquisitions:

Fair value of assets acquired $ 3,328 $ 0

	Common Stock		Additional Paid-in- Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Common Stock in Treasury			Total
(In thousands, except share and per share data)
Balance at December 31, 2020	$	497	$	578,082		$	749,056		$	417		$	(140,434	)	$	1,187,618
Net income		0		0			117,575			0			0			117,575
Cash dividends - $0.82 per share		0		0			(35,614	)		0			0			(35,614	)
Purchase of 400,000 treasury shares		0		0			0			0			(14,083	)		(14,083	)
Net issuance of 108,599 shares to employee and other stock plans		0		(4,679	)		0			0			1,730			(2,949	)
Stock-based compensation		0		3,819			0			0			0			3,819
Other comprehensive (loss)		0		0			0			(14,909	)		0			(14,909	)
Balance at September 30, 2021	$	497	$	577,222		$	831,017		$	(14,492	)	$	(152,787	)	$	1,241,457

Balance at December 31, 2019	$	497	$	576,708		$	696,214		$	(19,026	)	$	(133,996	)	$	1,120,397
Net income		0		0			70,194			0			0			70,194
Cumulative effect adjustment for ASU 2016-13 implementation		0		0			(4,339	)		0			0			(4,339	)
Cash dividends - $0.81 per share		0		0			(35,419	)		0			0			(35,419	)
Purchase of 263,507 treasury shares		0		0			0			0			(7,980	)		(7,980	)
Net issuance of 78,276 shares to employee and other stock plans		0		(2,928	)		0			0			1,182			(1,746	)
Stock-based compensation		0		3,957			0			0			0			3,957
Other comprehensive income		0		0			0			21,047			0			21,047
Balance at September 30, 2020	$	497	$	577,737		$	726,650		$	2,021		$	(140,794	)	$	1,166,111

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

NBT Bancorp Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

	Nine Months Ended September 30,
	2021			2020
(In thousands)
Operating activities
Net income	$	117,575		$	70,194
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		(11,354	)		51,741
Depreciation and amortization of premises and equipment		7,339			7,378
Net amortization on securities		4,460			2,812
Amortization of intangible assets		2,157			2,573
Amortization of operating lease right-of-use assets		5,401			5,549
Excess tax benefit on stock-based compensation		(321	)		(188	)
Stock-based compensation expense		3,819			3,957
Bank owned life insurance income		(4,588	)		(4,010	)
Amortization of subordinated debt issuance costs		328			121
Proceeds from sale of loans held for sale		48,371			153,732
Originations of loans held for sale		(47,996	)		(144,105	)
Net gains on sale of loans held for sale		(280	)		(1,892	)
Net security (gains) losses		(568	)		548
Net gains on sale of other real estate owned		(44	)		(243	)
Net change in other assets and other liabilities		10,951			(40,760	)
Net cash provided by operating activities	$	135,250		$	107,407
Investing activities
Net cash used in acquisitions	$	0		$	(3,899	)
Securities available for sale:
Proceeds from maturities, calls and principal paydowns		308,688			239,622
Purchases		(560,884	)		(437,827	)
Securities held to maturity:
Proceeds from maturities, calls and principal paydowns		149,200			181,143
Proceeds from sales		0			996
Purchases		(216,205	)		(215,327	)
Equity securities:
Proceeds from calls		1,000			0
Other:
Net increase in loans		(73,344	)		(436,630	)
Proceeds from Federal Home Loan Bank stock redemption		2,355			58,799
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock		(163	)		(42,663	)
Proceeds from settlement of bank owned life insurance		3,571			531
Purchases of bank owned life insurance		(40,000	)		0
Purchases of premises and equipment, net		(5,007	)		(4,512	)
Proceeds from sales of other real estate owned		784			1,113
Net cash used in investing activities	$	(430,005	)	$	(658,654	)
Financing activities
Net increase in deposits	$	1,113,486		$	1,370,363
Net decrease in short-term borrowings		(68,671	)		(471,803	)
Proceeds from issuance of subordinated debt		0			100,000
Payment of subordinated debt issuance costs		0			(2,178	)
Repayments of long-term debt		(25,077	)		(85	)
Proceeds from the issuance of shares to employee and other stock plans		112			184
Cash paid by employer for tax-withholdings on stock issuance		(1,973	)		(1,218	)
Purchase of treasury stock		(14,083	)		(7,980	)
Cash dividends		(35,614	)		(35,419	)
Net cash provided by financing activities	$	968,180		$	951,864
Net increase in cash and cash equivalents	$	673,425		$	400,617
Cash and cash equivalents at beginning of period		672,681			216,843
Cash and cash equivalents at end of period	$	1,346,106		$	617,460

Table of Contents

NBT Bancorp Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited) (continued)

	Nine Months Ended September 30,
	2021		2020
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest expense	$	17,161	$	26,373
Income taxes paid, net of refund		39,025		38,137
Noncash investing activities:
Loans transferred to other real estate owned	$	141	$	1,017
Acquisitions:
Fair value of assets acquired	$	0	$	3,328

See accompanying notes to unaudited interim consolidated financial statements.

Table of Contents

NBT Bancorp Inc. and Subsidiaries

Notes to Unaudited Interim Consolidated Financial Statements

September 30, ~~2020~~2021

1.	Description of Business

NBT Bancorp Inc. (the “Company”) 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 the Company consist of all of the outstanding shares of common stock of its subsidiaries, including: NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc. (“NBT Financial”), NBT Holdings, Inc. (“NBT Holdings”), CNBF Capital Trust I, NBT Statutory Trust I, NBT Statutory Trust II, Alliance Financial Capital Trust I and Alliance Financial Capital Trust II (collectively, the “Trusts”). The Company’s principal sources of revenue are the management fees and dividends it receives from the Bank, NBT Financial and NBT Holdings.

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 central and upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, the southern coastal Maine area and ~~now entering~~central Connecticut. The Company has been, and intends to continue to be, a community-oriented financial institution offering a variety of financial services. The Company’s business philosophy is to operate as a community bank with local decision-making, providing a broad array of banking and financial services to retail, commercial and municipal customers.

2.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of NBT Bancorp Inc. and its wholly-owned subsidiaries, the Bank, NBT Financial and NBT Holdings. Collectively, NBT Bancorp Inc. and its subsidiaries are referred to herein as (“the Company”). The interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods in accordance with generally accepted accounting principles in the United States of America (“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 ~~2019~~2020 Annual Report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. All material intercompany transactions have been eliminated in consolidation. Amounts previously reported in the consolidated financial statements are reclassified whenever necessary to conform to current period presentation. The Company has evaluated subsequent events for potential recognition and/or disclosure and there were none identified.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences could be material to the financial statements.

~~Allowance for Credit Losses – Loans~~

~~Accounting Standards Update (“ASU”) 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ (“CECL”) approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans). It replaces the incurred loss approach’s threshold that required the recognition of a credit loss when it was probable a loss event was incurred. 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.

Management estimates the allowance balance 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. Peer selection was based on a review of institutions with comparable loss experience as well as loan yield, bank size, portfolio concentration and geography. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term as well as changes in environmental conditions, such as changes in unemployment rates, production metrics, property values, or other relevant factors. Significant management judgment is required at each point in the measurement process.

Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Upon adoption of CECL, management revised the manner in which loans were pooled for similar risk characteristics. Management developed segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation and have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled.

~~The following table illustrates the portfolio and class segments for the Company’s loan portfolio in 2020:~~

~~Portfolio Segment~~	~~Class~~
~~Commercial Loans~~	~~Commercial & Industrial~~ ~~Paycheck Protection Program~~ ~~Commercial Real Estate~~
~~Consumer Loans~~	~~Auto~~ ~~Other Consumer~~
~~Residential Loans~~

~~Commercial Loans~~

The Company offers a variety of commercial loan products. The Company’s underwriting analysis for commercial loans typically includes credit verification, independent appraisals, a review of the borrower’s financial condition and a detailed analysis of the borrower’s underlying cash flows.

~~Commercial and Industrial (“C&I”)~~ – The Company offers a variety of loan options to meet the specific needs of our C&I customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs and are typically collateralized by business assets such as equipment, accounts receivable and perishable agricultural products, which are exposed to industry price volatility. To reduce these risks, management also attempts to obtain personal guarantees of the owners or to obtain government loan guarantees to provide further support.

~~Paycheck Protection Program (“PPP”)~~ ~~– Section 1102 of the~~ ~~Coronavirus Aid, Relief and Economic Security Act (“~~CARES Act”) created the Paycheck Protection Program, a program administered by the Small Business Administration (the “SBA”) to provide loans to small businesses for payroll and other basic expenses during the COVID-19 pandemic. The Company has participated in the PPP as a lender. These loans are eligible to be forgiven if certain conditions are satisfied and are fully guaranteed by the SBA. Additionally, loan payments will also be deferred for six months of the loan. The PPP commenced on April 3, 2020 and was available to qualified borrowers through August 8, 2020, or as long as the appropriated funding was available. No collateral or personal guarantees are required. Neither the government nor lenders are permitted to charge the recipients any fees. The Company began accepting applications from qualified borrowers on April 3, 2020 and as of September 30, 2020 processed approximately 3,000 loans totaling over $548 million in relief.

~~Commercial Real Estate (“CRE”)~~ – The Company offers CRE loans to finance real estate purchases, refinancing’s, expansions and improvements to commercial and agricultural properties. CRE loans are loans that are secured by liens on the real estate, which may include both owner-occupied and ~~nonowner-occupied properties~~, such as apartments, commercial structures, health care facilities and other facilities. The Company’s underwriting analysis includes credit verification, independent appraisals, a review of the borrower’s financial condition and a detailed analysis of the borrower’s underlying cash flows. These loans are typically originated in amounts of no more than 80% of the appraised value of the property. Government loan guarantees may be obtained to provide further support for agricultural property.

~~Consumer Loans~~

~~The Company offers a variety of Consumer loan products including Auto and Other Consumer loans.~~

~~Auto~~ – The Company provides both direct and indirect financing of automobiles (“Auto”). The Company maintains relationships with many dealers primarily in the communities that we serve. Through these relationships, the Company primarily finances the purchases of automobiles indirectly through dealer relationships. Most of these loans carry a fixed rate of interest with principal repayment terms typically ranging from ~~three~~ ~~to six years, based upon the nature of the collateral and the size of the loan.~~

~~Other Consumer~~ – The Other Consumer loan segment consists primarily of specialty lending loans and direct consumer loans. The Company offers unsecured specialty lending consumer loans across a national footprint originated through our relationships with national technology-driven consumer lending companies to finance such things as dental and medical procedures, K-12 tuition, solar energy installations and other consumer purpose loans. Advances of credit through this specialty lending business line are subject to the Company’s underwriting standards including criteria such as FICO score and debt to income thresholds. The Company offers a variety of direct consumer installment loans to finance various personal expenditures. In addition to installment loans, the Company also offers personal lines of credit, overdraft protection, debt consolidation, education and other uses. Consumer installment loans carry a fixed rate of interest with principal repayment terms typically ranging from ~~one~~ to fifteen years, based upon the nature of the collateral and the size of the loan. Consumer installment loans are often secured with collateral consisting of a perfected lien on the asset being purchased or a perfected lien on a consumer’s deposit account. Risk is reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower’s financial condition and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real estate.

~~Residential~~

Residential loans consist primarily of loans secured by a first or second mortgage on primary residences, home equity loans and lines of credit in first and second lien positions and residential construction loans. We originate adjustable-rate and fixed rate, one-to-four-family residential loans for the construction or purchase of a residential property or the refinancing of a mortgage. These loans are collateralized by properties located in the Company’s market area. Loans on one-to-four-family residential are generally originated in amounts of no more than 85% of the purchase price or appraised value (whichever is lower) or have private mortgage insurance. Mortgage title insurance and hazard insurance are normally required. Construction loans have a unique risk because they are secured by an incomplete dwelling. This risk is reduced through periodic site inspections, including one at each loan draw period. For home equity loans, consumers are able to borrow up to 85% of the equity in their homes and are generally tied to Prime with a ten-year draw followed by a fifteen-year amortization. These loans carry a higher risk than first mortgage residential loans as they are often in a second position with respect to collateral.

For the 2019 disclosures for the allowance for credit losses, the loan portfolio was segmented into the Commercial, Consumer and Residential Real Estate portfolio segments. The Commercial segment was further pooled into three classes: Commercial and Industrial, Commercial Real Estate and Business Banking. The Consumer segment was further pooled into three classes: Indirect Auto, Specialty Lending and Direct. For a description of these portfolio segments’ and classes’ risk characteristics, see Note 5 Allowance for Loan Losses and Credit Quality of Loans to the consolidated financial statements presented in our 2019 Annual Report on Form 10-K.

Historical credit loss experience for both the Company and segment-specific peers provides the basis for the estimation of expected credit losses, where observed credit losses are converted to probability of default rate (“PD”) curves through the use of segment-specific loss given default (“LGD”) risk factors that convert default rates to loss severity based on industry-level, observed relationships between the two variables for each asset class, primarily due to the nature of the underlying collateral. These risk factors were assessed for reasonableness against the Company’s own loss experience and adjusted in certain cases when the relationship between the Company’s historical default and loss severity deviate from that of the wider industry. The historical PDR curves, together with corresponding economic conditions, establish a quantitative relationship between economic conditions and loan performance through an economic cycle.

Using the historical relationship between economic conditions and loan performance, management’s expectation of future loan performance is incorporated using externally developed economic forecasts which are probabilistically weighted to reflect potential forecast inaccuracy and model limitations. These forecasts are applied over a period that management has determined to be reasonable and supportable. Beyond the period over which management can develop or source a reasonable and supportable forecast, the model will revert to long-term average economic conditions using a straight-line, time-based methodology.

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/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. Contractual cash flows over the contractual life of the loans are the basis for modeled cash flows, adjusted for modeled defaults and expected prepayments and discounted at the loan-level stated interest rate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring (“TDR”) will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio at the balance sheet date. Qualitative considerations include limitations inherent in the quantitative model; trends experienced in nonperforming and delinquent loans; changes in value of underlying collateral; changes in lending policies and procedures; nature and composition of loans; portfolio concentrations that may affect loss experience across one or more components of the portfolio; the experience, ability and depth of lending management and staff; the Company’s credit review system; and the effect of external factors; such as competition, legal and regulatory requirements.

Loans that do not share risk characteristics and meet materiality criteria are evaluated on an individual basis and are excluded from the pooled evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. If the loan is not collateral dependent, the allowance for credit losses related to individually assessed loans is based on discounted expected cash flows using the loan’s initial effective interest rate. Generally, individually assessed loans are collateral dependent.

A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties is considered to be a TDR. The allowance for credit losses on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.

~~Allowance for Credit Losses on Off-Balance Sheet Credit Exposures~~

The Company estimates expected credit losses over the contractual period in which the Company has exposure to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as an expense in other noninterest expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. Estimating credit losses on unfunded commitments requires the Bank to consider the following categories of off-balance sheet credit exposure: unfunded commitments to extend credit, unfunded lines of credit, and standby letters of credit. Each of these unfunded commitments is then analyzed for a probability of funding to calculate a probable funding amount. The life of loan loss factor by related portfolio segment from the loan allowance for credit loss calculation is then applied to the probable funding amount to calculate a reserve on unfunded commitments.

~~Allowance for Credit Losses – Held-to-Maturity (“HTM”) Debt Securities~~

The Company’s HTM debt securities are also required to utilize the CECL approach to estimate expected credit losses. Management measures expected credit losses on HTM debt securities on a collective basis by major security types that share similar risk characteristics, such as (as applicable): internal or external (third-party) credit score or credit ratings, risk ratings or classification, financial asset type, collateral type, size, effective interest rate, term, geographical location, industry of the borrower, vintage, historical or expected credit loss patterns, and reasonable and supportable forecast periods. Management classifies the HTM portfolio into the following major security types: U.S. government agency or U.S. government sponsored mortgage-backed and collateralized mortgage obligations securities, and state and municipal debt securities.

The mortgage-backed and collateralized mortgage obligations HTM securities are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government as to timely repayment of principal and interest, are highly rated by major rating agencies, and have a long history of no credit losses. Therefore, the Company did not record a credit loss for these securities.

State and municipal bonds carry a Moody’s rating of A to AAA. In addition, the Company has a limited amount of New York state local municipal bonds that are not rated. The estimate of expected credit losses on the HTM portfolio is based on the expected cash flows of each individual CUSIP over its contractual life and considers historical credit loss information, current conditions and reasonable and supportable forecasts. Given the rarity of municipal defaults and losses, the Company utilized Moody’s Municipal Loss Forecast Model as the sole source of municipal default and loss rates which provides decades of data across all municipal sectors and geographies. As with the loan portfolio, cash flows are forecast over a 6-quarter period under various, weighted economic conditions, with a reversion to long-term average economic conditions over a 4-quarter period on a straight-line basis. Management may exercise discretion to make adjustments based on environmental factors. As of March 31, 2020, June 30, 2020 and September 30, 2020, the Company determined that the expected credit loss on its municipal bond portfolio was de minimis, and therefore, an allowance for credit losses was not recorded.

~~Allowance for Credit Losses – Available-for Sales (“AFS”) Debt Securities~~

The impairment model for AFS debt securities differs from the CECL approach utilized by HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost. For AFS debt securities in an unrealized loss position, the Bank first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, in making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, adverse conditions specifically related to the security, failure of the issuer of the debt security to make scheduled interest or principal payments, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. The cash flows should be estimated using information relevant to the collectability of the security, including information about past events, current conditions and reasonable and supportable forecasts. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the AFS debt security is uncollectible or when either of the criteria regarding intent or requirement to sell is met. As of March 31, 2020, June 30, 2020 and September 30, 2020, the Company determined that the unrealized loss positions in the AFS debt securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded.

~~Accrued Interest Receivable~~

Upon adoption of CECL on January 1, 2020, the Company made the following elections regarding accrued interest receivable: (1) presented accrued interest receivable balances separately within other assets balance sheet line item; (2) excluded interest receivable that is included in amortized cost of financing receivables from related disclosures requirements and (3) continued our policy to write off accrued interest receivable by reversing interest income. For loans, write off typically occurs upon becoming over 90 to 120 days past due and therefore the amount of such write offs are immaterial. For loans given short-term loan modifications to assist borrowers during the COVID-19 national emergency, this accounting policy would not apply as the length of time between interest recognition and the write-off of uncollectible interest could exceed ~~120~~ days. Therefore, the Company estimated an allowance for credit losses for accrued interest receivable related to loans with short-term modifications due to the pandemic. Historically, the Company has not experienced uncollectible accrued interest receivable on investment securities.

3.	Recent Accounting Pronouncements

Recently Adopted Accounting Standards

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ and all related subsequent amendments thereto. ASU 2016-13 introduces new guidance that make substantive changes to the accounting for credit losses. ASU 2016-13 introduces the CECL model, which applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures. This includes loans, loan commitments, standby letters of credit, net investments in leases recognized by a lessor and HTM debt securities. The CECL model requires an entity to estimate credit losses expected over the life of an exposure, considering information about historical events, current conditions and reasonable and supportable forecasts and is generally expected to result in earlier recognition of credit losses. ASU 2016-13 also modifies certain provisions of the current other-than-temporary impairment model for AFS debt securities. Credit losses on AFS debt securities will be limited to the difference between the security’s amortized cost basis and its fair value and will be recognized through an allowance for credit losses rather than as a direct reduction in amortized cost basis. ASU 2016-13 also provides for a simplified accounting model for purchased financial assets with more than insignificant credit deterioration since their origination. ASU 2016-13 requires expanded disclosures including, but not limited to, (1) information about the methods and assumptions used to estimate expected credit losses, including changes in the factors that influenced management’s estimate and the reasons for those changes, (2) financing receivables and net investment in leases measured at amortized cost, further disaggregation of information about the credit quality of those assets and (3) a rollforward of the allowance for credit losses for HTM and AFS securities. The standard also changes the accounting for purchased credit-impaired debt securities and loans. ASU 2016-13 was effective for the Company on January 1, 2020. Management expects that the CECL model may create more volatility in the level of our allowance for loan losses from quarter to quarter as changes in the level of allowance for loan losses will be dependent upon, among other things, macroeconomic forecasts and conditions, loan portfolio volumes and credit quality.

The Company adopted CECL on January 1, 2020 (“Day 1”) using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $4.3 million as of January 1, 2020 for the cumulative effect of adopting ASC 326. The transition adjustment includes a $3.0 million impact due to the allowance for credit losses on loans, $2.8 million impact due to the allowance for credit losses on off-balance sheet credit exposure, and $1.5 million impact to the deferred tax asset. The Company did not record an allowance for HTM debt securities on January 1, 2020 as the amount of credit risk was deemed immaterial. The Company did not record an allowance for credit losses on its AFS debt securities under the newly codified AFS debt security impairment model, as the majority of these securities are government agency-backed securities for which the risk of loss is minimal. Refer to Note 4 Securities and Note 5 Allowance for Credit Losses and Credit Quality of Loans to the Company’s unaudited interim consolidated financial statements included in this Form 10-Q for more information.

In December 2018, the Office of Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (“FDIC”) approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company adopted the capital transition relief over the permissible five-year period.

On March 22, 2020, a statement was issued by the Company’s banking regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the recent coronavirus (“COVID-19”) pandemic. Additionally, Section 4013 of the CARES Act, which was enacted on March 27, 2020, further provides that a qualified loan modification is exempt by law from classification as a troubled debt restructuring as defined by GAAP. To be eligible, each loan modification must be (1) related to the COVID-19 event; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the National Emergency or (b) December 31, 2020. On August 3, 2020, the Federal Financial Institutions Examination Council (“FFIEC”) issued a joint statement on additional loan accommodations related to COVID-19. The joint statement clarifies that for loan modifications in which Section 4013 is being applied, subsequent modifications could also be eligible under Section 4013. Accordingly, the Company is offering modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment. Accordingly, the Company does not account for such loan modifications as TDRs. As of September 30, 2020, there were $233 million in loans in modification programs related to COVID-19.

~~Table of Contents~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair value Measurement~~. The provisions of ASU 2018-13 modify the disclosure requirements on fair value measurements in ASC 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 is effective January 1, 2020. The adoption did not have a material impact on the consolidated financial statements and related disclosures.

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract~~. ASU 2018-15 amends existing guidance and requires a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize and which costs to expense. ASU 2018-15 is effective for the Company on January 1, 2020. The adoption did not have a material impact on the consolidated financial statements and related disclosures.

~~Accounting Standards Issued Not Yet Adopted~~

~~In March 2020, the FASB issued ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~. The ASU provides temporary optional expedients and exceptions to the existing guidance for applying GAAP to affected contract modifications and hedge accounting relationships in the transition away from LIBOR or other interbank offered rate on financial reporting. The guidance also allows a one-time election to sell and/or reclassify to AFS or trading HTM debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective March 12, 2020 through December 31, 2022. The Company is evaluating the impact of adopting the new guidance on the consolidated financial statements.

In December 2019, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Updates (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU removes specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intraperiod tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: (1) franchise taxes that are partially based on income; (2) transactions with a government that result in a step up in the tax basis of goodwill; (3) separate financial statements of legal entities that are not subject to tax; and (4) enacted changes in tax laws in interim periods. The amendments in this ASU ~~are~~were effective for the Company on January 1, 2021, and interim periods within those fiscal years. ~~Early~~The adoption ~~is permitted.~~did not have a material impact on the consolidated financial statements and related disclosures.

Accounting Standards Issued Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. On January 7, 2021, the FASB issued ASU 2021-01, which refines the scope of Accounting Standards Codification 848 (“ASC 848”) and clarifies some of its guidance. ASU 2020-04 and related amendments provide temporary optional expedients and exceptions to the existing guidance for applying GAAP to affected contract modifications and hedge accounting relationships in the transition away from the London Interbank Offered Rate (“LIBOR”) or other interbank offered rate on financial reporting. The guidance also allows a one-time election to sell and/or reclassify to available for sale (“AFS”) or trading held to maturity (“HTM”) debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective March 12, 2020 through December 31, 2022 and permits relief solely for reference rate reform actions and permits different elections over the effective date for legacy and new activity. The Company is ~~currently~~ evaluating the impact of adopting the new guidance on the consolidated financial ~~statements.~~

~~In August 2018, the FASB issued ASU 2018-14,~~ ~~Compensation – Retirement Benefits – Defined Benefit Plans - General (Subtopic 715-20)~~, provides changes to the disclosure requirements for defined benefit plans. The amended guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments are a result of the disclosure framework project that focuses on improvements to the effectiveness of disclosures in the notes to financial statements. The amendments removestatements and add certain disclosure requirements. The disclosure requirements being removed relating to public companies are: (1) the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, (2) the amount and timing of plan assets expected to be returned to the employer, (3) the 2001 disclosure requirement relating to Japanese Welfare Pension Insurance Law, (4) related party disclosures about the amount of future annual benefits covered by insurance, and (5) the effects of a one-percentage-point change in assumed health care cost trends on the benefit cost and obligation. The disclosure requirements being added relating to public companies are (1) the weighted-average interest crediting rates for cash balance plans, and (2) an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. ASU 2018-14 is effective for the Company on January 1, 2021 and early adoption is permitted. The amendments should be applied retrospectively and the Company does not expect ~~the guidance to~~it will have a material impact on ~~its disclosures to~~ the consolidated financial ~~statements.~~statements.

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4.	Securities

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

(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
As of September 30, 2020
As of September 30, 2021
Federal agency	$	195,588	$	97	$	541	$	195,144	$	248,462	$	0	$	5,496	$	242,966
State & municipal		10,712		173		2		10,883		84,636		138		753		84,021
Mortgage-backed:
Government-sponsored enterprises		406,495		18,216		0		424,711		575,884		10,907		3,959		582,832
U.S. government agency securities		55,259		2,358		9		57,608		65,762		1,710		109		67,363
Collateralized mortgage obligations:
Government-sponsored enterprises		350,114		8,539		2		358,651		438,255		5,002		2,004		441,253
U.S. government agency securities		128,965		4,136		0		133,101		115,873		1,774		189		117,458
Corporate		17,500		331		4		17,827		38,500		1,637		0		40,137
Total AFS securities	$	1,164,633	$	33,850	$	558	$	1,197,925	$	1,567,372	$	21,168	$	12,510	$	1,576,030
As of December 31, 2019
As of December 31, 2020
Federal agency	$	34,998	$	3	$	243	$	34,758	$	245,590	$	59	$	2,052	$	243,597
State & municipal		2,533		0		20		2,513		42,550		630		0		43,180
Mortgage-backed:
Government-sponsored enterprises		453,614		4,982		239		458,357		521,448		17,079		22		538,505
U.S. government agency securities		44,758		667		156		45,269		55,049		2,332		47		57,334
Collateralized mortgage obligations:
Government-sponsored enterprises		328,499		1,949		467		329,981		311,710		7,549		58		319,201
U.S. government agency securities		104,152		718		408		104,462		114,864		3,739		0		118,603
Corporate										27,500		778		0		28,278
Total AFS securities	$	968,554	$	8,319	$	1,533	$	975,340	$	1,318,711	$	32,166	$	2,179	$	1,348,698

There was 0 allowance for credit losses on AFS securities as of ~~the quarter ending~~ September 30, 2021 and December 31, 2020.

~~The components of net realized~~During the three and nine months ended September 30, 2021 there were 0 gains ~~(losses) on AFS securities are as follows. These amounts were~~or losses reclassified out of accumulated other comprehensive income (loss) (“AOCI”) and into ~~earnings~~.

Three Months Ended
September 30,

(In thousands) 2020 2019
Gross realized gains $ 0 $ 20
Gross realized (losses) 0 0
Net AFS realized gains (losses) $ 0 $ 20

Nine Months Ended
September 30,

(In thousands) 2020 2019
Gross realized gains $ 3 $ 73
Gross realized (losses) 0 (152 )
Net AFS realized gains (losses) $ 3 $ (79 )

earnings. During the three months ended September 30, 2020 there were 0 gains or losses reclassified out of AOCI and into earnings. During the nine months ended September 30, 2020, there were $3 thousand of gross realized gains reclassified out of AOCI and into earnings. Included in net realized gains (losses) on AFS securities, the Company recorded gains from calls of approximately $3$3 thousand for the nine months ended September 30, 2020. ~~There were~~ 0 ~~gains from calls for the three months ended September 30, 2020. The Company recorded gains from calls of approximately $~~20 ~~thousand for the three months ended September 30, 2019 and $~~25 ~~thousand for the nine months ended September 30, 2019.~~

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

(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
As of September 30, 2020
As of September 30, 2021
Federal agency	$	100,000	$	47	$	772	$	99,275	$	100,000	$	0	$	3,821	$	96,179
Mortgage-backed:
Government-sponsored enterprises		126,446		4,847		0		131,293		121,040		2,851		568		123,323
U.S. government agency securities		11,544		865		0		12,409		9,121		659		0		9,780
Collateralized mortgage obligations:
Government-sponsored enterprises		119,402		5,087		0		124,489		75,852		3,050		0		78,902
U.S. government agency securities		92,654		4,680		0		97,334		54,587		679		341		54,925
State & municipal		213,042		7,096		76		220,062		322,503		5,021		1,504		326,020
Total HTM securities	$	663,088	$	22,622	$	848	$	684,862	$	683,103	$	12,260	$	6,234	$	689,129
As of December 31, 2019
As of December 31, 2020
Federal agency									$	100,000	$	0	$	1,658	$	98,342
Mortgage-backed:
Government-sponsored enterprises	$	149,448	$	3,184	$	155	$	152,477		107,914		4,583		0		112,497
U.S. government agency securities		13,667		584		0		14,251		11,533		979		0		12,512
Collateralized mortgage obligations:
Government-sponsored enterprises		189,402		2,165		368		191,199		103,105		4,477		0		107,582
U.S. government agency securities		110,498		3,256		100		113,654		79,145		3,950		0		83,095
State & municipal		167,059		2,628		6		169,681		214,863		7,953		17		222,799
Total HTM securities	$	630,074	$	11,817	$	629	$	641,262	$	616,560	$	21,942	$	1,675	$	636,827

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At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, all of the mortgaged-backed HTM securities were comprised of U.S. government agency and Government-sponsored enterprises securities. There was 0 allowance for credit losses on HTM securities as of September 30, 2021 and December 31, 2020.

Included in net realized gains (losses), the Company recorded gains from calls on HTM securities of approximately $14 thousand for the three months ended September 30, 2021 and approximately $29 thousand for the nine months ended September 30, 2021. Included in net realized gains (losses), the Company recorded gains from calls on HTM securities of approximately $11 thousand for the three months ended September 30, 2020 and $15approximately $15 thousand for thenine months ended September 30, ~~2020. Included in net realized gains (losses), the Company recorded gains from calls on HTM securities of approximately $~~4 ~~thousand for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~month period ended~~ ~~September 30, 2019.~~2020.

There were 0 sales of HTM securities during the three and nine months ended September 30, 2021. During the nine months ended September 30, 2020, the Company sold HTM securities with an amortized cost of $1.0 million and resulted in a realized loss of $1 thousand. Due to significant deterioration in the creditworthiness of the issuer of the HTM securities, the circumstances caused the Company to change its intent to hold the HTM securities sold to maturity, which did not affect the Company’s intent to hold the remainder of the HTM portfolio to maturity. ~~There were 0 sales of HTM securities during the three and nine month periods ended September 30, 2019.~~

AFS and HTM securities with amortized costs totaling ~~$1.4~~$1.6 billion at September 30, ~~2020~~2021 and ~~$1.3~~$1.4 billion at December 31, ~~2019~~2020 were pledged to secure public deposits and for other purposes required or permitted by law. Additionally, at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, AFS and HTM securities with an amortized cost of ~~$227.4~~$149.2 million and ~~$189.8~~$305.2 million, respectively, were pledged as collateral for securities sold under repurchase agreements.

The following tables set forth information with regard to gains and ~~losses~~(losses) on equity securities:

Three Months Ended September 30,
(In thousands) 2020 2019
Net gains and (losses) recognized on equity securities $ 73 $ 4,012
Less: Net gains and (losses) recognized during the period on equity securities sold during the period 0 3,966
Unrealized gains and (losses) recognized on equity securities still held $ 73 $ 46

	Three Months Ended September 30,
(In thousands)	2021			2020
Net (losses) and gains recognized on equity securities	$	(114	)	$	73
Less: Net (losses) and gains recognized on equity securities sold during the period		0			0
Unrealized (losses) and gains recognized on equity securities still held	$	(114	)	$	73

	Nine Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2020			2019		2021		2020
Net gains and (losses) recognized on equity securities	$	(565	)	$	4,099	$	539	$	(565	)
Less: Net gains and (losses) recognized during the period on equity securities sold during the period		0			3,966
Less: Net gains and (losses) recognized on equity securities sold during the period							0		0
Unrealized gains and (losses) recognized on equity securities still held	$	(565	)	$	133	$	539	$	(565	)

~~Included in the net realized gains and (losses) recognized on equity securities during the three and nine months ended September 30, 2019, the Company recorded a $4.0~~ ~~million gain from the sale of Visa Class B common stock, which had no readily determinable fair value at the time of the sale.~~ As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the carrying value of equity securities without readily determinable fair values was ~~$4.0 million.~~$1.0 million and $2.0 million, respectively. The Company performed a qualitative assessment to determine whether the investments were impaired and identified no areas of concern as of September 30, ~~2020~~2021 and ~~2019.~~2020. There were 0 impairments, downward or upward adjustments recognized for equity securities without readily determinable fair values during the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

The following ~~tables set~~table sets forth information with regard to contractual maturities of debt securities at September 30, ~~2020:~~2021:

(In thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
AFS debt securities:
Within one year	$	706	$	731	$	1,258	$	1,262
From one to five years		20,281		21,010		56,017		56,596
From five to ten years		356,717		362,435		642,112		639,238
After ten years		786,929		813,749		867,985		878,934
Total AFS debt securities	$	1,164,633	$	1,197,925	$	1,567,372	$	1,576,030
HTM debt securities:
Within one year	$	17,239	$	17,257	$	97,203	$	97,239
From one to five years		60,391		61,713		56,120		57,485
From five to ten years		241,783		248,329		226,478		227,026
After ten years		343,675		357,563		303,302		307,379
Total HTM debt securities	$	663,088	$	684,862	$	683,103	$	689,129

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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~~government securities and ~~Government-sponsored~~government-sponsored enterprises securities, there were 0 holdings, when taken in the aggregate, of any single issuer that exceeded 10% of consolidated stockholders’ equity at September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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 at September 30, ~~2020,~~2021, segregated according to the length of time the securities had been in a continuous unrealized loss position:

	Less Than 12 Months							12 Months or Longer							Total							Less Than 12 Months							12 Months or Longer							Total
(In thousands)	Fair Value		Unrealized Losses			Number of Positions		Fair Value		Unrealized Losses			Number of Positions		Fair Value		Unrealized Losses			Number of Positions		Fair Value		Unrealized Losses			Number of Positions		Fair Value		Unrealized Losses			Number of Positions		Fair Value		Unrealized Losses			Number of Positions
As of September 30, 2020
AFS securities:
Federal agency	$	154,448	$	(541	)		10	$	0	$	0			0	$	154,448	$	(541	)		10
State & municipal		1,448		(2	)		1		0		0			0		1,448		(2	)		1
Mortgage-backed		0		0			0		786		(9	)		3		786		(9	)		3
Collateralized mortgage obligations		553		(2	)		1		0		0			0		553		(2	)		1
Corporate		4,996		(4	)		1		0		0			0		4,996		(4	)		1
Total securities with unrealized losses	$	161,445	$	(549	)		13	$	786	$	(9	)		3	$	162,231	$	(558	)		16

HTM securities:
Federal agency	$	74,228	$	(772	)		3	$	0	$	0			0	$	74,228	$	(772	)		3
State & municipal		10,594		(76	)		10		0		0			0		10,594		(76	)		10
Total securities with unrealized losses	$	84,822	$	(848	)		13	$	0	$	0			0	$	84,822	$	(848	)		13

As of December 31, 2019
As of September 30, 2021
AFS securities:
Federal agency	$	14,891	$	(109	)		2	$	9,866	$	(134	)		1	$	24,757	$	(243	)		3	$	101,674	$	(1,799	)		7	$	141,292	$	(3,697	)		9	$	242,966	$	(5,496	)		16
State & municipal		2,503		(20	)		1		0		0			0		2,503		(20	)		1		68,492		(753	)		45		0		0			0		68,492		(753	)		45
Mortgage-backed		67,986		(273	)		21		37,745		(122	)		16		105,731		(395	)		37		239,779		(4,060	)		18		761		(8	)		4		240,540		(4,068	)		22
Collateralized mortgage obligations		113,121		(316	)		24		49,632		(559	)		17		162,753		(875	)		41		247,618		(1,793	)		24		12,816		(400	)		2		260,434		(2,193	)		26
Total securities with unrealized losses	$	198,501	$	(718	)		48	$	97,243	$	(815	)		34	$	295,744	$	(1,533	)		82	$	657,563	$	(8,405	)		94	$	154,869	$	(4,105	)		15	$	812,432	$	(12,510	)		109

HTM securities:
Federal agency																						$	0	$	0			0	$	96,179	$	(3,821	)		4	$	96,179	$	(3,821	)		4
Mortgage-backed																							56,996		(568	)		5		0		0			0		56,996		(568	)		5
Collateralized mortgage obligation																							31,809		(341	)		5		0		0			0		31,809		(341	)		5
State & municipal																							67,806		(1,381	)		50		3,453		(123	)		4		71,259		(1,504	)		54
Total securities with unrealized losses																						$	156,611	$	(2,290	)		60	$	99,632	$	(3,944	)		8	$	256,243	$	(6,234	)		68

As of December 31, 2020
AFS securities:
Federal agency																						$	148,537	$	(2,052	)		10	$	0	$	0			0	$	148,537	$	(2,052	)		10
Mortgage-backed	$	0	$	0			0	$	25,370	$	(155	)		2	$	25,370	$	(155	)		2		47,269		(60	)		3		800		(9	)		4		48,069		(69	)		7
Collateralized mortgage obligations		18,040		(181	)		3		22,389		(287	)		5		40,429		(468	)		8		17,837		(58	)		6		0		0			0		17,837		(58	)		6
Total securities with unrealized losses																						$	213,643	$	(2,170	)		19	$	800	$	(9	)		4	$	214,443	$	(2,179	)		23

HTM securities:
Federal agency																						$	98,342	$	(1,658	)		4	$	0	$	0			0	$	98,342	$	(1,658	)		4
State & municipal		2,257		(6	)		4		0		0			0		2,257		(6	)		4		4,805		(17	)		5		0		0			0		4,805		(17	)		5
Total securities with unrealized losses	$	20,297	$	(187	)		7	$	47,759	$	(442	)		7	$	68,056	$	(629	)		14	$	103,147	$	(1,675	)		9	$	0	$	0			0	$	103,147	$	(1,675	)		9

The Company does not believe the AFS securities that were in an unrealized loss position as of September 30, 2021 and December 31, 2020, which consisted of 16109 and 23 individual securities, respectively, represented a credit loss impairment. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. As of September 30, 2021 and December 31, 2020, the majority of the AFS securities in an unrealized loss position consisted of debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises that carry the explicit and/or implicit guarantee of the U.S. government, which are widely recognized as “risk-free” and have a long history of zero credit losses. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. The Company does not intend to sell, nor is it more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may be at maturity. The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt ~~securities disclosed throughout this footnote.~~securities. AIR on AFS debt securities totaled ~~$2.6~~$3.3 million at September 30, 2021 and December 31, 2020 and is excluded from the estimate of credit losses and reported in the financial statement line for other assets.

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NaN of the bank’s HTM debt securities were past due or on non-accrual status as of ~~the quarter ending~~ September 30, 2021 and December 31, 2020. There was 0 accrued interest reversed against interest income for the ~~quarter~~three and nine months ended September 30, 2021 or the year-ended December 31, 2020 as all securities remained on accrual status. In addition, there were 0 ~~collateral dependent~~collateral-dependent HTM debt securities as of September 30, 2021 and December 31, 2020. As of September 30, 2021 and December 31, 2020, 53% and 65%, respectively, of the Company’s HTM debt securities ~~are~~were issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for these securities as of September 30, 2021 and December 31, 2020. The remaining HTM debt securities at September 30, 2021 and December 31, 2020 were comprised of state and municipal obligations with bond ratings of A to AAA. Utilizing the ~~CECL~~Current Expected Credit Losses (“CECL”) approach, the Company determined that the expected credit loss on its HTM municipal bond portfolio was immaterial and therefore no allowance for credit loss was recorded as of September 30, 2021 and December 31, 2020. AIR on HTM debt securities totaled $2.6 million and $2.7 million at September 30, 2021 and December 31, 2020, respectively, and is excluded from the estimate of credit losses and reported in the other assets financial statement ~~line for other assets.~~

line.

5.	Allowance for Credit Losses and Credit Quality of Loans

~~As previously mentioned in Note 2 Summary of Significant Accounting Policies, the Company’s January 1, 2020 adoption of CECL resulted in a significant change to our methodology for estimating the~~The allowance for credit losses ~~since~~totaled $93.0 million at September 30, 2021, compared to $110.0 million at December 31, ~~2019. Portfolio segmentation has been redefined under CECL and therefore prior year tables are presented separately.~~2020. The allowance for credit losses as a percentage of loans was 1.23% at September 30, 2021, compared to 1.47% at December 31, 2020.

The Day 1 increase in the allowance for credit loss on loans relating to adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrumentswas ~~$3.0~~$3.0 million, which decreased retained earnings by ~~$2.3~~$2.3 million and increased the deferred tax asset by ~~$0.7~~$0.7 million.

~~There were 0 new loans purchased with credit deterioration during the nine months ended~~The September 30, ~~2020. During the third quarter of~~2021, June 30, 2021, December 31, 2020, the Company purchased $46.4 million of consumer loans at a 1% discount. The allowance for credit losses recorded for these loans on the purchase date was $3.2 million. The Company made a policy election to report AIR in the other assets line item on the balance sheet. AIR on loans totaled $25.5 million at September 30, 2020 and was included in the allowance for loan credit losses to estimate the impact of accrued interest receivable related to loans with short-term modifications due to the pandemic as the length of time between interest recognition and the write-off of uncollectible interest could exceed 120 days which exempts these loans from our policy election for accrued interest receivable. The estimated allowance for credit losses related to AIR at September 30, 2020 was $0.5 million.

~~The~~ Day 1 ~~and September 30, 2020~~ 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 ~~reverted~~reverts to long-term economic conditions over a 4-quarter reversion period on a straight-line basis. The Company considers a baseline, upside and downside economic forecast in measuring the allowance.

The quantitative model as of September 30, 2021 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. The baseline outlook reflected an unemployment rate environment initially above pre-COVID-19 levels although steadily improving to below 4% mid-way through the forecast period. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the fourth quarter of 2021 at approximately 10% and steadily fall back down to normalized levels by the end of 2022. Other utilized economic variables showed mixed changes in their respective forecasts, with retail sales and business output declining from the prior quarter and housing starts increasing from the prior quarter’s forecast. Key assumptions in the baseline economic outlook included abatement of the coronavirus (“COVID-19”) pandemic in November, additional legislation focused on infrastructure and social benefits programs enacted by the end of 2021 totaling $2.5 trillion, and full employment reached by the end of 2022. The alternative downside scenario assumed deteriorated economic and epidemiological conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 6.2% in the third quarter of 2021 to a peak of 8.2% in the fourth quarter of 2022, remaining above 7% for the entire forecast period. The alternative upside scenario incorporated a more optimistic outlook than the baseline scenario, with a swift return to full employment by the first quarter of 2022 and with northeast unemployment moving down to 3.1% by the end of the forecast period. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of September 30, 2021. Additional adjustments were made for COVID-19 related factors not incorporated in the forecasts, such as the mitigating impact of unprecedented stimulus in the second and third quarters of 2020, including direct payments to individuals, increased unemployment benefits, the Company’s loan deferral and modification initiatives and various government sponsored loan programs. The Company also continued to monitor the level of criticized and classified loans in the third quarter of 2021 compared to the level contemplated by the model during similar, historical economic conditions, and an adjustment was made to estimate potential additional losses above modeled losses. Additionally, a qualitative adjustment was made for isolated model limitations related to modeled outputs given abnormally high retail sales and business output growth rates. These factors were considered through separate quantitative processes and incorporated into the estimate of current expected credit losses at September 30, 2021.

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The quantitative model as of June 30, ~~2020~~2021 incorporated a baseline economic outlook along with alternative upside and downside scenarios sourced from a reputable third-party that reflected continued economic deterioration from the March 31, 2020 forecasts, with unemployment peaking in the quarter of measurement but sharply improving in the third quarter 2020, while remaining elevated well above the pre-COVID-19 pandemic levels for the entire forecast period and into 2023. National GDP is forecast to rebound strongly in the third quarter 2020 followed by moderately negative growth in the fourth quarter 2020 with increasing growth through 2022 and stabilization in 2023. The June 30, 2020 allowance for credit losses calculation incorporated a 6-quarter forecast period with a 4-quarter reversion period to long-term economic conditions on a straight-line basis. A short-term reduction in prepayment and curtailment speeds was also applied to more reasonably model payment behavior during the COVID-19 national emergency. Additionally, downside and upside scenarios were incorporated and weighted, along with the baseline outlook, to accommodate other potential economic conditions in the ~~quantitative~~ model. The baseline outlook reflected an unemployment rate environment above pre-COVID-19 levels for the entire forecast period, though steadily improving to below 4% by the end of 2022. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start in the second half of 2021 in the high single digits (9.86%) and steadily fall back down to normalized levels by the end of 2022. Other utilized economic variables showed mixed changes in their respective forecasts, with retail sales and business output being relatively unchanged and housing starts lowered from the prior quarter forecast. Key assumptions in the baseline economic outlook included herd “resiliency” expected by summer-2021, additional legislation focused on infrastructure and social benefits enacted in the second half of 2021 and high, near-term GDP growth expectations. The alternative downside scenario assumed deteriorated economic and epidemiological conditions from the baseline outlook. Under this scenario, northeast unemployment rose from 8.1% in the third quarter of 2021 to a peak of 8.7% in the second quarter of 2022, remaining above 8% for the entire forecast period. The alternative upside scenario incorporated a more optimistic outlook than the baseline scenario, with a swift return to full employment by the first quarter of 2022 and down to a low of 3.5% by the end of the forecast period. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of June 30, ~~2020.~~2021. Additional adjustments were made for COVID-19 related factors ~~were~~ not incorporated in the forecasts, such as the mitigating impact of unprecedented stimulus in the second and third quarters of 2020, including direct payments to individuals, increased unemployment benefits, ~~deferral/~~the Company’s loan deferral and modification initiatives and various ~~government-sponsored~~government sponsored loan programs. The ~~commercial & industrial~~Company also continued to identify a slightly higher level of criticized and ~~consumer segment models were based upon percent change~~classified loans in ~~unemployment, with forecast values as~~the second quarter of ~~June 30, 2020, well outside~~2021 than those contemplated by the ~~observed~~model during similar, historical ~~experience. Therefore,~~economic conditions for which an adjustment was ~~required~~made to ~~produce~~estimate potential additional losses above modeled losses. Additionally, a qualitative adjustment was made for isolated model limitations related to modeled outputs ~~more aligned with default expectations~~ given ~~the forecast economic environment.~~abnormally high retail sales and business output growth rates. These factors were considered through a separate quantitative ~~process~~processes and incorporated into the estimate ~~for allowance for~~of current expected credit losses at June 30, ~~2020.~~2021.

The quantitative model as of ~~September 30,~~December 31, 2020 incorporated a baseline economic outlook, along with alternative upside and downside scenarios sourced from a reputable third-party ~~which~~to accommodate other potential economic conditions in the model. The baseline outlook reflected an unemployment rate environment ~~well~~ above pre-COVID-19 levels for the entire forecast period, ~~and a gradual return~~though steadily improving, before returning to low single digits by the end of 2023. Northeast ~~U.S. GDP~~GDP’s annual growth was expected to ~~grow moderately over the forecast period after a strong rebound~~start 2021 in the ~~third~~low to mid-single digits, with a peak growth rate of 8% in the fourth quarter of ~~2020 with stabilization by the end of 2023.~~2021 and steadily falling back down to normalized levels through 2023 and 2024. Other utilized economic variables show improvement in their respective forecasts, namely business output. Key assumptions in the baseline economic outlook included ~~a large and effective~~an additional stimulus package ~~by September 30,~~passed at the same timing and a comparable level to that of the actual $900 billion COVID-19 relief package passed in December 2020 along with no significant secondary surge in COVID-19 cases or pandemic-related business closures. AThe alternative downside scenario ~~was incorporated and equally weighted, along with the baseline outlook in the quantitative model, which~~ assumed deteriorated economic and epidemiological conditions from the ~~base model as~~baseline outlook. In the same way, the alternative upside scenario assumed a ~~stimulus package was not in place by the end~~faster economic recovery and more effective management of the ~~third quarter and~~COVID-19 virus from the ~~related impact on credit losses is not yet known.~~baseline outlook. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of ~~September 30,~~December 31, 2020. Additional adjustments were made for COVID-19 related factors not incorporated in the forecasts, such as the mitigating impact of unprecedented stimulus in 2020, including direct payments to individuals, increased unemployment benefits, ~~deferral/~~the Company’s loan deferral and modification initiatives and various government-sponsored loan programs. The commercial & industrial and consumer segment models were based upon percent change in unemployment with ~~forecast~~modeled values as of ~~September 30,~~December 31, 2020 well outside the observed historical experience. Therefore, adjustments were required to produce outputs more aligned with default expectations given the forecast economic environment. Additionally, the Company identified a slightly higher level of criticized and classified loans during 2020 than those contemplated by the model during similar economic conditions in the past for which an adjustment was made for estimated expected additional losses above modeled output. These factors were considered through a separate quantitative process and incorporated into the estimate for allowance for credit losses at ~~September 30,~~December 31, 2020.

On August 3, 2020, the Federal Financial Institutions Examination Council (“FFIEC”) issued a joint statement on additional loan accommodations related to COVID-19. The joint statement clarifies that for loan modifications in which Section 4013 is being applied, subsequent modifications could also be eligible under section 4013 (“Section 4013”) of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). Accordingly, the Company is offering modifications made in response to COVID-19 to borrowers who were current and otherwise not past due in accordance with the criteria stated in Section 4013. These include short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment. Accordingly, the Company did not account for such loan modifications as TDRs. As of September 30, 2021, there were $2.0 million in loans in modification programs related to COVID-19. On December 27, 2020, the Consolidated Appropriations Act amended section 2014 of the CARES Act extending the exemption of qualified loan modifications from classification as a troubled debt restructuring as defined by GAAP to the earlier of January 1, 2022, or 60 days after the National Emergency concerning COVID-19 ends.

There were 0 loans purchased with credit deterioration during the nine months ended September 30, 2021 or the year ended December 31, 2020. During 2021, the Company purchased $52.4 million of residential loans at a 2% premium and $60.3 million in consumer loans at par. The allowance for credit losses recorded for these loans on the purchase date was $4.6 million. During 2020, the Company purchased $51.9 million of consumer loans at a 1% discount. The allowance for credit losses recorded for these loans on the purchase date was $3.6 million. The Company made a policy election to report AIR in the other assets line item on the balance sheet. AIR on loans totaled $20.4 million at September 30, 2021 and $23.7 million at December 31, 2020 and was included in the allowance for loan credit losses to estimate the impact of accrued interest receivable related to loans with modifications due to the pandemic as the length of time between interest recognition and the write-off of uncollectible interest could exceed 120 days, exempting these loans from our policy election for accrued interest receivable. There was 0 estimated allowance for credit losses related to AIR at September 30, 2021 and $0.6 million at December 31, 2020.

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The following tables present the activity in the allowance for credit losses by portfolio ~~segment~~segment::

(In thousands)	Commercial Loans			Consumer Loans			Residential			Total			Commercial Loans			Consumer Loans			Residential			Total
Balance as of June 30, 2021													$	44,191		$	34,881		$	19,428		$	98,500
Charge-offs														(1,492	)		(3,083	)		(312	)		(4,887	)
Recoveries														354			2,143			232			2,729
Provision														(9,875	)		7,130			(597	)		(3,342	)
Ending balance as of September 30, 2021													$	33,178		$	41,071		$	18,751		$	93,000

Balance as of June 30, 2020	$	50,386		$	40,094		$	23,020		$	113,500		$	50,386		$	40,094		$	23,020		$	113,500
Charge-offs		(624	)		(4,097	)		(58	)		(4,779	)		(624	)		(4,097	)		(58	)		(4,779	)
Recoveries		333			2,123			62			2,518			333			2,123			62			2,518
Provision		1,651			442			1,168			3,261			1,651			442			1,168			3,261
Ending Balance as of September 30, 2020	$	51,746		$	38,562		$	24,192		$	114,500
Ending balance as of September 30, 2020													$	51,746		$	38,562		$	24,192		$	114,500

(In thousands)	Commercial Loans			Consumer Loans			Residential			Total			Commercial Loans			Consumer Loans			Residential			Total
Balance as of December 31, 2020													$	50,942		$	37,803		$	21,255		$	110,000
Charge-offs														(2,123	)		(10,702	)		(731	)		(13,556	)
Recoveries														533			6,506			871			7,910
Provision														(16,174	)		7,464			(2,644	)		(11,354	)
Ending balance as of September 30, 2021													$	33,178		$	41,071		$	18,751		$	93,000

Balance as of January 1, 2020 (after adoption of ASC 326)	$	27,156		$	32,122		$	16,721		$	75,999		$	27,156		$	32,122		$	16,721		$	75,999
Charge-offs		(2,353	)		(17,166	)		(863	)		(20,382	)		(2,353	)		(17,166	)		(863	)		(20,382	)
Recoveries		674			6,168			300			7,142			674			6,168			300			7,142
Provision		26,269			17,438			8,034			51,741			26,269			17,438			8,034			51,741
Ending Balance as of September 30, 2020	$	51,746		$	38,562		$	24,192		$	114,500
Ending balance as of September 30, 2020													$	51,746		$	38,562		$	24,192		$	114,500

The ~~increase~~decrease in the allowance for credit losses from December 31, 2020 to June 30, ~~2020 to~~2021 and September 30, ~~2020~~2021 was primarily due to an improvement in the specific allowance for credit losses on individually analyzed credits and a change in loan portfolio mix shift within the consumer portfolio as indirect auto balances declined and other consumer balances increased.economic forecast. The increase in the allowance for credit losses from Day 1 to June 30, 2020 and September 30, 2020 was primarily due to the deterioration of macroeconomic factors surrounding the COVID-19 pandemic.

Individually Evaluated Loans

As of September 30, ~~2020,~~2021, there were 25 relationships identified to be evaluated for loss on an individual basis which had an amortized cost basis of ~~$10.9~~$12.5 million. ~~The~~These loans’ allowance for credit loss was ~~$3.0~~$1.3 million and was determined by an estimate of the fair value of the collateral which consisted of business assets (accounts receivable, inventory, ~~and~~ machinery ~~real estate~~ and equipment). As of ~~June 30,~~December 31, 2020, ~~there~~these same 5 relationships were ~~0 relationships~~ identified to be evaluated for loss on an individual ~~basis. As~~basis with an amortized cost basis of ~~Day 1, there were no relationships identified to be~~$15.2 million and an allowance for credit loss of $3.2 million. The decrease in the allowance for credit losses evaluated ~~for loss~~ on an individual ~~basis.~~basis from December 31, 2020 to September 30, 2021 was primarily due to decrease in the amortized cost basis on the loans due to a principal payments and charge-offs.

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

(In thousands)
31-60 Days
Past Due
Accruing

61-90 Days
Past Due
Accruing

Greater
Than
90 Days
Past Due
Accruing

Total Past
Due
Accruing
Nonaccrual Current
Recorded Total
Loans

As of September 30, 2020
Commercial Loans:
C&I $ 703 $ 79 $ 12 $ 794 $ 4,172 $ 1,116,189 $ 1,121,155
CRE 367 51 0 418 17,242 2,324,815 2,342,475
PPP 0 0 0 0 0 514,558 514,558
Total Commercial Loans $ 1,070 $ 130 $ 12 $ 1,212 $ 21,414 $ 3,955,562 $ 3,978,188
Consumer Loans:
Auto $ 7,639 $ 1,534 $ 826 $ 9,999 $ 2,901 $ 938,433 $ 951,333
Other Consumer 3,373 1,447 1,121 5,941 370 634,011 640,322
Total Consumer Loans $ 11,012 $ 2,981 $ 1,947 $ 15,940 $ 3,271 $ 1,572,444 $ 1,591,655
Residential $ 1,505 $ 256 $ 620 $ 2,381 $ 11,211 $ 1,977,208 $ 1,990,800
Total Loans $ 13,587 $ 3,367 $ 2,579 $ 19,533 $ 35,896 $ 7,505,214 $ 7,560,643

(In thousands)	31-60 Days Past Due Accruing		61-90 Days Past Due Accruing		Greater Than 90 Days Past Due Accruing		Total Past Due Accruing		Nonaccrual		Current		Recorded Total Loans
As of September 30, 2021
Commercial loans:
C&I	$	2,518	$	106	$	0	$	2,624	$	4,261	$	1,110,920	$	1,117,805
CRE		11,759		1,754		441		13,954		16,084		2,528,193		2,558,231
PPP		0		0		0		0		0		276,195		276,195
Total commercial loans	$	14,277	$	1,860	$	441	$	16,578	$	20,345	$	3,915,308	$	3,952,231
Consumer loans:
Auto	$	6,455	$	1,110	$	580	$	8,145	$	1,407	$	829,585	$	839,137
Other consumer		3,473		2,003		810		6,286		210		748,241		754,737
Total consumer loans	$	9,928	$	3,113	$	1,390	$	14,431	$	1,617	$	1,577,826	$	1,593,874
Residential	$	1,879	$	734	$	1,109	$	3,722	$	13,775	$	2,002,840	$	2,020,337
Total loans	$	26,084	$	5,707	$	2,940	$	34,731	$	35,737	$	7,495,974	$	7,566,442

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(In thousands)	31-60 Days Past Due Accruing		61-90 Days Past Due Accruing		Greater Than 90 Days Past Due Accruing		Total Past Due Accruing		Nonaccrual		Current		Recorded Total Loans
As of December 31, 2020
Commercial loans:
C&I	$	2,235	$	2,394	$	23	$	4,652	$	4,278	$	1,116,686	$	1,125,616
CRE		682		0		470		1,152		19,971		2,391,162		2,412,285
PPP		0		0		0		0		0		430,810		430,810
Total commercial loans	$	2,917	$	2,394	$	493	$	5,804	$	24,249	$	3,938,658	$	3,968,711
Consumer loans:
Auto	$	9,125	$	1,553	$	866	$	11,544	$	2,730	$	877,831	$	892,105
Other consumer		3,711		1,929		1,272		6,912		290		640,952		648,154
Total consumer loans	$	12,836	$	3,482	$	2,138	$	18,456	$	3,020	$	1,518,783	$	1,540,259
Residential	$	2,719	$	309	$	518	$	3,546	$	17,378	$	1,968,991	$	1,989,915
Total loans	$	18,472	$	6,185	$	3,149	$	27,806	$	44,647	$	7,426,432	$	7,498,885

As of September 30, 2021 and December 31, 2020, there were 0 loans in non-accrual without an allowance for credit losses.

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Credit Quality Indicators

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

Commercial Grading System

For ~~C&I, PPP~~Commercial and ~~CRE~~Industrial (“C&I”), Paycheck Protection Program (“PPP”) 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. The increase in non-pass credits from December 31, 2019 was primarily due to the Company’s proactive approach to downgrade loans that were both in payment deferral due to the COVID-19 pandemic and in higher risk industries such as entertainment, restaurants, retail, healthcare and accommodations.

Doubtful

A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as a loss is deferred. Doubtful borrowers are usually in default, lack adequate liquidity or capital and lack the resources necessary to remain an operating entity. Pending events can include mergers, acquisitions, liquidations, capital injections, the perfection of liens on additional collateral, the valuation of collateral and refinancing. Generally, pending events should be resolved within a relatively short period and the ratings will be adjusted based on the new information. Nonaccrual treatment is required for Doubtful assets because of the high probability of loss.

Substandard

Substandard loans have a high probability of payment default or they have other well-defined weaknesses. They require more intensive supervision by bank management. Substandard loans are generally characterized by current or expected unprofitable operations, inadequate debt service coverage, inadequate liquidity or marginal capitalization. Repayment may depend on collateral or other credit risk mitigants. For some Substandard loans, the likelihood of full collection of interest and principal may be in doubt and those loans should be placed on nonaccrual. Although Substandard assets in the aggregate will have a distinct potential for loss, an individual asset’s loss potential does not have to be distinct for the asset to be rated Substandard.

Special Mention

Special Mention loans have potential weaknesses that may, if not checked or corrected, weaken the asset or inadequately protect the Company’s position at some future date. These loans pose elevated risk, but their weakness does not yet justify a Substandard classification. Borrowers may be experiencing adverse operating trends (i.e., declining revenues or margins) or may be struggling with an ill-proportioned balance sheet (i.e., increasing inventory without an increase in sales, high leverage, tight liquidity). Adverse economic or market conditions, such as interest rate increases or the entry of a new competitor, may also support a Special Mention rating. Although a Special Mention loan has a higher probability of default than a Pass asset, its default is not imminent.

Pass

Loans graded as Pass encompass all loans not graded as Doubtful, Substandard or Special Mention. Pass loans are in compliance with loan covenants and payments are generally made as agreed. Pass loans range from superior quality to fair quality. Pass loans also include any portion of a government guaranteed loan, including PPP loans.

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Consumer and Residential Grading System

Consumer and Residential loans are graded as either Nonperforming or Performing.

Nonperforming

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

~~Table of Contents~~

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~~vintage:

(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of September 30, 2021
C&I
By Internally Assigned Grade:
By internally assigned grade:
Pass	$	249,835	$	204,978	$	100,664	$	51,944	$	41,297	$	36,030	$	335,169	$	273	$	1,020,190	$	258,044	$	256,285	$	127,995	$	71,024	$	23,541	$	40,962	$	282,471	$	6,724	$	1,067,046
Special Mention		14,004		10,680		6,410		5,684		3,547		3,634		20,136		50		64,145
Special mention																				163		4,277		5,157		3,339		3,063		3,381		8,477		0		27,857
Substandard		635		5,614		9,437		3,574		920		5,510		9,586		9		35,285		14		367		7,286		1,684		2,675		2,939		2,796		4,829		22,590
Doubtful		0		1,351		0		184		0		0		0		0		1,535		0		0		0		126		185		1		0		0		312
Total C&I	$	264,474	$	222,623	$	116,511	$	61,386	$	45,764	$	45,174	$	364,891	$	332	$	1,121,155	$	258,221	$	260,929	$	140,438	$	76,173	$	29,464	$	47,283	$	293,744	$	11,553	$	1,117,805

CRE
By Internally Assigned Grade:
By internally assigned grade:
Pass	$	313,029	$	376,023	$	250,936	$	309,705	$	216,756	$	417,746	$	88,356	$	14,816	$	1,987,367	$	325,092	$	453,138	$	390,834	$	249,362	$	264,620	$	486,685	$	152,622	$	16,661	$	2,339,014
Special Mention		3,215		41,533		36,718		56,202		40,432		67,110		10,004		0		255,214
Special mention																				796		933		21,467		4,747		20,344		67,530		1,140		0		116,957
Substandard		282		2,937		8,942		8,573		5,709		57,484		6,455		0		90,382		0		79		15,692		15,555		12,541		50,428		1,239		0		95,534
Doubtful		0		1,897		0		0		0		7,615		0		0		9,512		0		0		0		0		0		6,726		0		0		6,726
Total CRE	$	316,526	$	422,390	$	296,596	$	374,480	$	262,897	$	549,955	$	104,815	$	14,816	$	2,342,475	$	325,888	$	454,150	$	427,993	$	269,664	$	297,505	$	611,369	$	155,001	$	16,661	$	2,558,231

PPP
By Internally Assigned Grade:
By internally assigned grade:
Pass	$	514,558	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	514,558	$	256,940	$	19,255	$	0	$	0	$	0	$	0	$	0	$	0	$	276,195
Total PPP	$	514,558	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	514,558	$	256,940	$	19,255	$	0	$	0	$	0	$	0	$	0	$	0	$	276,195

Auto
By Payment Activity:
By payment activity:
Performing	$	153,299	$	347,290	$	229,833	$	138,721	$	58,144	$	20,296	$	23	$	0	$	947,606	$	280,805	$	145,585	$	211,921	$	121,108	$	59,047	$	18,684	$	0	$	0	$	837,150
Nonperforming		208		1,135		1,353		655		376		0		0		0		3,727		148		320		712		538		269		0		0		0		1,987
Total Auto	$	153,507	$	348,425	$	231,186	$	139,376	$	58,520	$	20,296	$	23	$	0	$	951,333
Total auto																			$	280,953	$	145,905	$	212,633	$	121,646	$	59,316	$	18,684	$	0	$	0	$	839,137

Other Consumer
By Payment Activity:
Other consumer
By payment activity:
Performing	$	181,867	$	195,369	$	141,910	$	63,712	$	17,729	$	19,465	$	18,498	$	281	$	638,831	$	298,505	$	166,111	$	128,954	$	88,311	$	34,858	$	18,447	$	18,516	$	15	$	753,717
Nonperforming		169		509		305		220		99		179		10		0		1,491		96		290		235		96		191		109		3		0		1,020
Total Other Consumer	$	182,036	$	195,878	$	142,215	$	63,932	$	17,828	$	19,644	$	18,508	$	281	$	640,322
Total other consumer																			$	298,601	$	166,401	$	129,189	$	88,407	$	35,049	$	18,556	$	18,519	$	15	$	754,737

Residential
By Payment Activity:
By payment activity:
Performing	$	158,672	$	222,947	$	225,715	$	191,436	$	171,022	$	724,257	$	271,304	$	13,616	$	1,978,969	$	263,254	$	229,961	$	187,776	$	185,798	$	155,725	$	722,718	$	248,727	$	11,494	$	2,005,453
Nonperforming		548		137		718		1,138		364		8,788		11		127		11,831		0		1,530		733		1,772		1,632		9,086		39		92		14,884
Total Residential	$	159,220	$	223,084	$	226,433	$	192,574	$	171,386	$	733,045	$	271,315	$	13,743	$	1,990,800
Total residential																			$	263,254	$	231,491	$	188,509	$	187,570	$	157,357	$	731,804	$	248,766	$	11,586	$	2,020,337

Total Loans	$	1,590,321	$	1,412,400	$	1,012,941	$	831,748	$	556,395	$	1,368,114	$	759,552	$	29,172	$	7,560,643
Total loans																			$	1,683,857	$	1,278,131	$	1,098,762	$	743,460	$	578,691	$	1,427,696	$	716,030	$	39,815	$	7,566,442

Table of Contents

(In thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2020
C&I
By internally assigned grade:
Pass	$	331,921	$	182,329	$	91,230	$	41,856	$	32,625	$	32,609	$	322,674	$	412	$	1,035,656
Special mention		20,064		6,534		5,053		4,702		1,624		2,830		13,614		0		54,421
Substandard		338		6,364		10,219		3,388		791		4,272		9,945		14		35,331
Doubtful		0		0		0		207		0		1		0		0		208
Total C&I	$	352,323	$	195,227	$	106,502	$	50,153	$	35,040	$	39,712	$	346,233	$	426	$	1,125,616

CRE
By internally assigned grade:
Pass	$	469,919	$	361,187	$	256,154	$	271,874	$	212,197	$	383,690	$	113,128	$	4,034	$	2,072,183
Special mention		2,051		44,034		22,260		55,039		36,830		43,537		1,297		11,524		216,572
Substandard		536		5,307		18,298		15,691		6,018		62,168		1,501		4,642		114,161
Doubtful		0		1,897		0		0		0		7,472		0		0		9,369
Total CRE	$	472,506	$	412,425	$	296,712	$	342,604	$	255,045	$	496,867	$	115,926	$	20,200	$	2,412,285

PPP
By internally assigned grade:
Pass	$	430,810	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	430,810
Total PPP	$	430,810	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	430,810

Auto
By payment activity:
Performing	$	197,881	$	314,034	$	201,850	$	115,977	$	45,495	$	13,250	$	22	$	0	$	888,509
Nonperforming		359		1,140		1,135		525		437		0		0		0		3,596
Total auto	$	198,240	$	315,174	$	202,985	$	116,502	$	45,932	$	13,250	$	22	$	0	$	892,105

Other consumer
By payment activity:
Performing	$	234,628	$	178,411	$	127,549	$	55,676	$	14,255	$	17,414	$	18,588	$	71	$	646,592
Nonperforming		339		418		307		265		90		133		10		0		1,562
Total other consumer	$	234,967	$	178,829	$	127,856	$	55,941	$	14,345	$	17,547	$	18,598	$	71	$	648,154

Residential
By payment activity:
Performing	$	237,338	$	210,505	$	213,437	$	182,993	$	164,424	$	684,495	$	268,878	$	9,991	$	1,972,061
Nonperforming		1,245		659		2,318		2,535		902		10,195		0		0		17,854
Total residential	$	238,583	$	211,164	$	215,755	$	185,528	$	165,326	$	694,690	$	268,878	$	9,991	$	1,989,915

Total loans	$	1,927,429	$	1,312,819	$	949,810	$	750,728	$	515,688	$	1,262,066	$	749,657	$	30,688	$	7,498,885

Table of Contents

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

As of September 30, 2021, the allowance for losses on unfunded commitments totaled $5.3 million, compared to $6.4 million as of December 31, 2020.

Troubled Debt Restructuring

When the Company modifies a loan in a troubled debt restructuring (“TDR”), 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; temporary reduction in the interest rate; or change in scheduled payment amount. Residential and Consumer TDRs occurring during 2021 and 2020 were due to the reduction in the interest rate or extension of the term.

An allowance for impaired commercial and consumer loans that have been modified in a TDR is measured based on the present value of the expected future cash flows, discounted at the contractual interest rate of the original loan agreement, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs. If management determines that the value of the modified loan is less than the recorded investment in the loan an impairment charge would be recorded.

The Company began offering loan modifications to assist borrowers during the COVID-19 national emergency. The CARES Act, along with a joint agency statement issued by banking regulatory agencies, provides that modifications made in response to COVID-19 do not need to be accounted for as a TDR. The Company evaluated the modification programs provided to its borrowers and has concluded the modifications were generally made in accordance with the CARES Act guidance to borrowers who were in good standing prior to the COVID-19 pandemic and are not required to be designated as TDRs. ~~See Note 3 Recent Accounting Pronouncements for more information~~.

The following tables illustrate the recorded investment and number of modifications designated as TDRs, including the recorded investment in the loans prior to a modification and the recorded investment in the loans after restructuring:

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020						Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
(Dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Consumer Loans:
Consumer loans:
Auto		0	$	0	$	0		1	$	44	$	44		1	$	20	$	20		0	$	0	$	0
Total Consumer Loans		0	$	0	$	0		1	$	44	$	44
Total consumer loans														1	$	20	$	20		0	$	0	$	0
Residential		10	$	659	$	715		24	$	1,619	$	1,745		3	$	460	$	507		10	$	659	$	715
Total Troubled Debt Restructurings		10	$	659	$	715		25	$	1,663	$	1,789
Total TDRs														4	$	480	$	527		10	$	659	$	715

	Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
(Dollars in thousands)	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Consumer loans:
Auto		2	$	38	$	38		1	$	44	$	44
Total consumer loans		2	$	38	$	38		1	$	44	$	44
Residential		9	$	1,071	$	1,183		24	$	1,619	$	1,745
Total TDRs		11	$	1,109	$	1,221		25	$	1,663	$	1,789

Table of Contents

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

Three Months Ended
September 30, 2020

Nine Months Ended
September 30, 2020

(Dollars in thousands)
Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment

Commercial Loans:
C&I 0 $ 0 1 $ 387
CRE 0 0 1 168
Total Commercial Loans 0 $ 0 2 $ 555
Residential 9 $ 299 45 $ 2,280
Total Troubled Debt Restructurings 9 $ 299 47 $ 2,835

	Three Months Ended September 30, 2021				Three Months Ended September 30, 2020
(Dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Residential		19	$	1,401		9	$	299
Total TDRs		19	$	1,401		9	$	299

~~Allowance for Loan Losses~~

~~Prior to the adoption of ASU~~ ~~2016-13~~ on ~~January 1, 2020, the Company’s calculated allowance for loan losses used the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.~~

~~The following table illustrates the changes in the allowance for loan losses by our portfolio segments:~~

(In thousands)
Commercial
Loans

Consumer
Loans

Residential
Real Estate
Total
Balance as of June 30, 2019 $ 33,152 $ 36,534 $ 2,479 $ 72,165
Charge-offs (865 ) (6,976 ) (174 ) (8,015 )
Recoveries 132 1,746 13 1,891
Provision 1,021 5,031 272 6,324
Ending Balance as of September 30, 2019 $ 33,440 $ 36,335 $ 2,590 $ 72,365

(In thousands)
Commercial
Loans

Consumer
Loans

Residential
Real Estate
Total
Balance as of December 31, 2018 $ 32,759 $ 37,178 $ 2,568 $ 72,505
Charge-offs (2,783 ) (21,336 ) (782 ) (24,901 )
Recoveries 344 4,887 122 5,353
Provision 3,120 15,606 682 19,408
Ending Balance as of September 30, 2019 $ 33,440 $ 36,335 $ 2,590 $ 72,365

~~The following table illustrates the allowance for loan losses and the recorded investment by portfolio segments:~~

(In thousands)

Commercial
Loans

Consumer
Loans

Residential
Real Estate
Total
As of December 31, 2019
Allowance for loan losses $ 34,525 $ 35,647 $ 2,793 $ 72,965
Allowance for loans individually evaluated for impairment 0 0 0 0
Allowance for loans collectively evaluated for impairment $ 34,525 $ 35,647 $ 2,793 $ 72,965
Ending balance of loans $ 3,444,266 $ 2,246,676 $ 1,445,156 $ 7,136,098
Ending balance of originated loans individually evaluated for impairment 3,488 7,044 7,721 18,253
Ending balance of acquired loans collectively evaluated for impairment 115,266 23,733 125,879 264,878
Ending balance of originated loans collectively evaluated for impairment $ 3,325,512 $ 2,215,899 $ 1,311,556 $ 6,852,967

~~The following tables set forth information with regard to past due and nonperforming loans by loan class:~~

(In thousands)
31-60 Days
Past Due
Accruing

61-90 Days
Past Due
Accruing

Greater
Than
90 Days
Past Due
Accruing

Total
Past Due
Accruing
Nonaccrual Current
Recorded
Total
Loans

As of December 31, 2019
Originated
Commercial Loans:
C&I $ 1,227 $ 0 $ 0 $ 1,227 $ 1,177 $ 838,502 $ 840,906
CRE 3,576 0 0 3,576 4,847 1,941,143 1,949,566
Business Banking 794 162 0 956 7,035 530,537 538,528
Total Commercial Loans $ 5,597 $ 162 $ 0 $ 5,759 $ 13,059 $ 3,310,182 $ 3,329,000
Consumer Loans:
Indirect Auto $ 11,860 $ 2,108 $ 1,005 $ 14,973 $ 2,175 $ 1,176,487 $ 1,193,635
Specialty Lending 3,153 2,087 1,307 6,547 0 535,516 542,063
Direct 2,564 564 478 3,606 2,475 481,164 487,245
Total Consumer Loans $ 17,577 $ 4,759 $ 2,790 $ 25,126 $ 4,650 $ 2,193,167 $ 2,222,943
Residential Real Estate $ 1,179 $ 190 $ 663 $ 2,032 $ 5,872 $ 1,311,373 $ 1,319,277
Total Originated Loans $ 24,353 $ 5,111 $ 3,453 $ 32,917 $ 23,581 $ 6,814,722 $ 6,871,220

Acquired
Commercial Loans:
C&I $ 149 $ 0 $ 0 $ 149 $ 0 $ 19,215 $ 19,364
CRE 0 0 0 0 0 60,937 60,937
Business Banking 397 287 0 684 382 33,899 34,965
Total Commercial Loans $ 546 $ 287 $ 0 $ 833 $ 382 $ 114,051 $ 115,266
Consumer Loans:
Direct $ 136 $ 58 $ 0 $ 194 $ 105 $ 23,434 $ 23,733
Total Consumer Loans $ 136 $ 58 $ 0 $ 194 $ 105 $ 23,434 $ 23,733
Residential Real Estate $ 575 $ 20 $ 264 $ 859 $ 1,106 $ 123,914 $ 125,879
Total Acquired Loans $ 1,257 $ 365 $ 264 $ 1,886 $ 1,593 $ 261,399 $ 264,878

Total Loans $ 25,610 $ 5,476 $ 3,717 $ 34,803 $ 25,174 $ 7,076,121 $ 7,136,098

~~The following table provides information on impaired loans specifically evaluated for impairment:~~

December 31, 2019
(In thousands)
Recorded
Investment
Balance (Book)

Unpaid
Principal
Balance (Legal)

Related
Allowance

Originated
With no related allowance recorded:
Commercial Loans:
C&I $ 76 $ 302 $
CRE 2,410 2,437
Business Banking 1,002 1,443
Total Commercial Loans $ 3,488 $ 4,182
Consumer Loans:
Indirect Auto $ 154 $ 242
Direct 6,862 8,335
Specialty Lending 28 28
Total Consumer Loans $ 7,044 $ 8,605
Residential Real Estate $ 7,721 $ 9,754
Total $ 18,253 $ 22,541

Total Loans $ 18,253 $ 22,541 $ 0

~~The following table summarizes the average recorded investments on loans specifically evaluated for impairment and the interest income recognized:~~

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2019
(In thousands)
Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized

Originated
Commercial Loans:
C&I $ 115 $ 0 $ 291 $ 1
CRE 2,554 30 3,577 91
Business Banking 1,002 7 1,111 18
Total Commercial Loans $ 3,671 $ 37 $ 4,979 $ 110
Consumer Loans:
Indirect Auto $ 213 $ 3 $ 201 $ 9
Direct 7,293 95 7,518 291
Total Consumer Loans $ 7,506 $ 98 $ 7,719 $ 300
Residential Real Estate $ 7,629 $ 93 $ 7,428 $ 252
Total Originated $ 18,806 $ 228 $ 20,126 $ 662

Total Loans $ 18,806 $ 228 $ 20,126 $ 662

~~The following tables illustrate the Company’s credit quality by loan class:~~

(In thousands) As of December 31, 2019
Originated
Commercial Credit Exposure
By Internally Assigned Grade:
C&I CRE Total
Pass $ 782,763 $ 1,868,678 $ 2,651,441
Special Mention 28,380 30,519 58,899
Substandard 29,257 50,369 79,626
Doubtful 506 0 506
Total $ 840,906 $ 1,949,566 $ 2,790,472

Business Banking Credit Exposure
By Internally Assigned Grade:

Business
Banking
Total
Non-classified $ 524,725 $ 524,725
Classified 13,803 13,803
Total $ 538,528 $ 538,528

Consumer Credit Exposure
By Payment Activity:

Indirect
Auto

Specialty
Lending
Direct Total
Performing $ 1,190,455 $ 540,756 $ 484,292 $ 2,215,503
Nonperforming 3,180 1,307 2,953 7,440
Total $ 1,193,635 $ 542,063 $ 487,245 $ 2,222,943

Residential Real Estate Credit Exposure
By Payment Activity:

Residential
Real Estate
Total
Performing $ 1,312,742 $ 1,312,742
Nonperforming 6,535 6,535
Total $ 1,319,277 $ 1,319,277

Acquired
Commercial Credit Exposure
By Internally Assigned Grade: C&I CRE Total
Pass $ 17,801 $ 60,545 $ 78,346
Special Mention 1,269 0 1,269
Substandard 294 392 686
Total $ 19,364 $ 60,937 $ 80,301

Business Banking Credit Exposure
By Internally Assigned Grade:

Business
Banking
Total
Non-classified $ 32,030 $ 32,030
Classified 2,935 2,935
Total $ 34,965 $ 34,965

Consumer Credit Exposure
By Payment Activity: Direct Total
Performing $ 23,628 $ 23,628
Nonperforming 105 105
Total $ 23,733 $ 23,733

Residential Real Estate Credit Exposure
By Payment Activity:

Residential
Real Estate
Total
Performing $ 124,509 $ 124,509
Nonperforming 1,370 1,370
Total $ 125,879 $ 125,879

The following table illustrates the recorded investment and number of modifications for modified loans, including the recorded investment in the loans prior to a modification and the recorded investment in the loans after restructuring:

Three Months Ended
September 30, 2019

Nine Months Ended
September 30, 2019

(Dollars in thousands)
Number of
Contracts

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Number of
Contracts

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment

Commercial Loans:
C&I 0 $ 0 $ 0 1 $ 65 $ 65
Business Banking 0 0 0 2 388 388
Total Commercial Loans 0 $ 0 $ 0 3 $ 453 $ 453
Consumer Loans:
Indirect Auto 0 $ 0 $ 0 9 $ 134 $ 134
Direct 1 30 37 9 418 434
Total Consumer Loans 1 $ 30 $ 37 18 $ 552 $ 568
Residential Real Estate 2 $ 186 $ 203 10 $ 942 $ 990
Total Troubled Debt Restructurings 3 $ 216 $ 240 31 $ 1,947 $ 2,011

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

Three Months Ended
September 30, 2019

Nine Months Ended
September 30, 2019

(Dollars in thousands)
Number of
Contracts

Recorded
Investment

Number of
Contracts

Recorded
Investment

Consumer Loans:
Indirect Auto 1 $ 10 2 $ 17
Direct 9 332 24 1,109
Total Consumer Loans 10 $ 342 26 $ 1,126
Residential Real Estate 9 $ 572 19 $ 1,087
Total Troubled Debt Restructurings 19 $ 914 45 $ 2,213

6.	~~Subordinated Debt~~

~~On June 23, 2020, the Company issued $100.0 million aggregate principal amount of 5.00% fixed-to-floating rate subordinated notes due~~ ~~2030. The subordinated notes, which qualifies as Tier 2 capital, bear interest at an annual rate of 5.00%, payable~~ ~~semi-annually~~ ~~in arrears commencing on January 1, 2021, and a floating rate of interest equivalent to the three-month~~ ~~Secured Overnight Financing Rate (“SOFR”)~~ plus a spread of 4.85%, payable quarterly in arrears commencing on October 1, 2025. The subordinated notes issuance costs of $2.2 million are being amortized on a straight line basis into interest expense over five years.

~~The Company may redeem the subordinated notes (1) in whole or in part beginning with the interest payment date of~~ ~~July 1, 2025~~, and on any interest payment date thereafter or (2) in whole but not in part upon the occurrence of a “Tax Event”, a “Tier 2 Capital Event” or in the event the Company is required to register as an investment company pursuant to the Investment Company Act of 1940, as amended. The redemption price for any redemption is 100% of the principal amount of the subordinated notes being redeemed, plus accrued and unpaid interest thereon to, but excluding, the date of redemption. Any redemption of the subordinated notes will be subject to the receipt of the approval of the Board of Governors of the Federal Reserve System to the extent then required under applicable laws or regulations, including capital regulations.

~~The following table summarizes the Company’s subordinated debt:~~

(Dollars in thousands) September 30, 2020
Subordinated notes issued June 2020 – fixed interest rate of 5.00% through June 2025 and a variable interest rate equivalent to three-month SOFR plus 4.85% thereafter, maturing July 1, 2030 $ 100,000
Unamortized debt issuance costs (2,057 )
Total subordinated debt, net $ 97,943

7.	Defined Benefit Post-Retirement Plans

The Company has a qualified, noncontributory, defined benefit pension plan (“the Plan”) covering substantially all of its employees at September 30, ~~2020.~~2021. 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 and mutual funds.

In addition to the Plan, the Company provides supplemental employee retirement plans to certain current and former executives. The Company also assumed supplemental retirement plans for former executives of Alliance Financial Corporation (“Alliance”) when the Company acquired Alliance.

These supplemental employee retirement plans and the Plan are collectively referred to herein as “Pension Benefits”.

In addition, the Company provides certain health care benefits for retired employees. Benefits were accrued over the employees’ active service period. Only employees that were employed by the Company on or before January 1, 2000 are eligible to receive post-retirement health care benefits. In addition, the Company assumed post-retirement medical life insurance benefits for certain Alliance employees, retirees and their spouses, if applicable, in the Alliance acquisition. These post-retirement benefits are referred to herein as “Other Benefits”.

The Company made 0 voluntary contributions to the pension and other benefits plans during the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

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

	Pension Benefits						Other Benefits				Pension Benefits						Other Benefits
	Three Months Ended September 30,						Three Months Ended September 30,				Three Months Ended September 30,						Three Months Ended September 30,
(In thousands)	2020			2019			2020		2019		2021			2020			2021		2020
Components of net periodic (benefit) cost:
Service cost	$	446		$	431		$	2	$	1	$	517		$	446		$	2	$	2
Interest cost		809			986			55		67		679			809			45		55
Expected return on plan assets		(2,105	)		(1,869	)		0		0		(2,197	)		(2,105	)		0		0
Net amortization		368			658			13		14		331			368			13		13
Total net periodic (benefit) cost	$	(482	)	$	206		$	70	$	82	$	(670	)	$	(482	)	$	60	$	70

	Pension Benefits						Other Benefits				Pension Benefits						Other Benefits
	Nine Months Ended September 30,						Nine Months Ended September 30,				Nine Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2020			2019			2020		2019		2021			2020			2021		2020
Components of net periodic (benefit) cost:
Service cost	$	1,338		$	1,301		$	6	$	5	$	1,486		$	1,338		$	6	$	6
Interest cost		2,427			2,948			165		229		2,034			2,427			135		165
Expected return on plan assets		(6,315	)		(5,615	)		0		0		(6,602	)		(6,315	)		0		0
Net amortization		1,104			1,936			39		49		957			1,104			39		39
Total net periodic (benefit) cost	$	(1,446	)	$	570		$	210	$	283	$	(2,125	)	$	(1,446	)	$	180	$	210

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.

8.7.	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 ~~the~~ securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity (such as the Company’s dilutive stock options and restricted stock units).

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

	Three Months Ended September 30,				Three Months Ended September 30,
(In thousands, except per share data)	2020		2019		2021		2020
Basic EPS:
Weighted average common shares outstanding		43,643		43,825		43,360		43,643
Net income available to common stockholders	$	35,113	$	32,379	$	37,433	$	35,113
Basic EPS	$	0.80	$	0.74	$	0.86	$	0.80

Diluted EPS:
Weighted average common shares outstanding		43,643		43,825		43,360		43,643
Dilutive effect of common stock options and restricted stock		299		313		271		299
Weighted average common shares and common share equivalents		43,942		44,138		43,631		43,942
Net income available to common stockholders	$	35,113	$	32,379	$	37,433	$	35,113
Diluted EPS	$	0.80	$	0.73	$	0.86	$	0.80

	Nine Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2020		2019		2021		2020
Basic EPS:
Weighted average common shares outstanding		43,704		43,806		43,464		43,704
Net income available to common stockholders	$	70,194	$	92,061	$	117,575	$	70,194
Basic EPS	$	1.61	$	2.10	$	2.71	$	1.61

Diluted EPS:
Weighted average common shares outstanding		43,704		43,806		43,464		43,704
Dilutive effect of common stock options and restricted stock		293		302		305		293
Weighted average common shares and common share equivalents		43,997		44,108		43,769		43,997
Net income available to common stockholders	$	70,194	$	92,061	$	117,575	$	70,194
Diluted EPS	$	1.60	$	2.09	$	2.69	$	1.60

There ~~were 3,250~~was a nominal number of stock options outstanding for the three and nine months ended September 30, 2021 and September 30, 2020,, that were not considered in the calculation of diluted EPS since the stock options’ exercise ~~price was~~prices were greater than the average market price during these periods.

~~There were~~ 20~~1,500~~ stock options for the three and nine months ended September 30, 2019, that were not considered in the calculation of diluted EPS since the stock options’ exercise price was greater than the average market price during these periods.

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

The following table summarizes the reclassification adjustments out of AOCI:

Detail About AOCI Components	Amount Reclassified From AOCI						Affected Line Item in the Consolidated Statement of Comprehensive Income (Loss)	Amount Reclassified from AOCI						Affected Line Item in the Consolidated Statement of Comprehensive Income (Loss)
	Three Months Ended							Three Months Ended
(In thousands)	September 30, 2020			September 30, 2019				September 30, 2021			September 30, 2020
AFS securities:
(Gains) on AFS securities	$	0		$	(20	)	Net securities (gains)
Gains on AFS securities								$	0		$	0		Net securities (gains) losses
Amortization of unrealized gains related to securities transfer	$	157		$	190		Interest income	$	149		$	157		Interest income
Tax effect	$	(39	)	$	(42	)	Income tax (benefit)	$	(38	)	$	(39	)	Income tax (benefit)
Net of tax	$	118		$	128			$	111		$	118

Cash flow hedges:
Net unrealized losses (gains) on cash flow hedges reclassified to interest expense	$	101		$	(395	)	Interest expense
Net unrealized losses on cash flow hedges reclassified to interest expense								$	0		$	101		Interest expense
Tax effect	$	(25	)	$	98		Income tax (benefit) expense	$	0		$	(25	)	Income tax (benefit)
Net of tax	$	76		$	(297	)		$	0		$	76

Pension and other benefits:
Amortization of net losses	$	359		$	649		Other noninterest expense	$	317		$	359		Other noninterest expense
Amortization of prior service costs		22			23		Other noninterest expense		27			22		Other noninterest expense
Tax effect	$	(95	)	$	(168	)	Income tax (benefit)	$	(86	)	$	(95	)	Income tax (benefit)
Net of tax	$	286		$	504			$	258		$	286

Total reclassifications, net of tax	$	480		$	335			$	369		$	480

Detail About AOCI Components Amount Reclassified From AOCI
Affected Line item in the Consolidated
Statement of Comprehensive Income (Loss)
Nine Months Ended
(In thousands)
September 30,
2020

September 30,
2019

AFS securities:
(Gains) losses on AFS securities $ (3 ) $ 79 Net securities (gains) losses
Amortization of unrealized gains related to securities transfer 495 556 Interest income
Tax effect $ (123 ) $ (159 ) Income tax (benefit)
Net of tax $ 369 $ 476

Cash flow hedges:
Net unrealized losses (gains) on cash flow hedges reclassified to interest expense $ 192 $ (1,932 ) Interest expense
Tax effect $ (48 ) $ 483 Income tax (benefit) expense
Net of tax $ 144 $ (1,449 )

Pension and other benefits:
Amortization of net losses $ 1,075 $ 1,916 Other noninterest expense
Amortization of prior service costs 68 69 Other noninterest expense
Tax effect $ (286 ) $ (496 ) Income tax (benefit)
Net of tax $ 857 $ 1,489

Total reclassifications, net of tax $ 1,370 $ 516

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~~10.~~9.

Derivative Instruments and Hedging Activities

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

Derivatives Not Designated as Hedging Instruments

The Company enters into interest rate swaps to facilitate customer transactions and meet their financing needs. These swaps are considered derivatives, but are not designated in hedging relationships. These instruments have interest rate and credit risk associated with them. To mitigate the interest rate risk, the Company enters into offsetting interest rate swaps with counterparties. The counterparty swaps are also considered derivatives and are also not designated in hedging relationships. Interest rate swaps are recorded within other assets or other liabilities on the consolidated balance sheet at their estimated fair value. Changes to the fair value of assets and liabilities arising from these derivatives are included, net, in other operating income in the consolidated statement of ~~income.~~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 began to clear certain derivative transactions through the Chicago Mercantile Exchange Clearing House (“CME”) in January 2021. 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 September 30, 2021 and December 31, 2020, the Company had 1618 and 17 risk participation agreements, respectively, with financial institution counterparties for interest rate swaps related to participated loans. The fair values included in other assets and other liabilities on the unaudited interim consolidated balance sheet applicable to these agreements amounted to $350 thousand and $152 thousand, respectively as of September 30, 2020. As of December 31, 2019, the Company had 15 risk participation agreements with financial institution counterparties for interest rate swaps related to participated loans. The fair values included in other assets and other liabilities on the unaudited interim consolidated balance sheet applicable to these agreements amounted to $112 thousand and $82 thousand, respectively. 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.

Derivatives Designated as Hedging Instruments

The Company has previously entered into interest rate swaps to modify the interest rate characteristics of certain short-term Federal Home Loan Bank (“FHLB”) advances from variable rate to fixed rate in order to reduce the impact of changes in future cash flows due to market interest rate changes. These agreements are designated as cash flow hedges.

~~The following table depicts the fair value adjustment recorded related to the notional amount of derivatives outstanding as well as the notional amount of risk participation agreements:~~

September 30, December 31,
(In thousands) 2020 2019
Derivatives Not Designated as Hedging Instruments:
Fair value adjustment included in other assets and other liabilities
Interest rate derivatives $ 122,546 $ 41,650
Notional amount:
Interest rate derivatives 2,265,651 963,209
Risk participation agreements 109,311 97,614
Derivatives Designated as Hedging Instruments:
Fair value adjustment included in other assets
Interest rate derivatives 0 4
Fair value adjustment included in other liabilities
Interest rate derivatives 136 45
Notional amount:
Interest rate derivatives 25,000 50,000

Table of Contents

The following table summarizes the derivatives outstanding:

~~For~~

(In thousands)	Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value
As of September 30, 2021
Derivatives not designated as hedging instruments
Interest rate derivatives	$	1,346,853	Other assets	$	71,246	$	1,346,853	Other liabilities	$	71,246
Risk participation agreements		91,348	Other assets		235		37,852	Other liabilities		68
Total derivatives not designated as hedging instruments				$	71,481				$	71,314
Netting adjustments⁽¹⁾					0					3,684
Net derivatives in the balance sheet				$	71,481				$	67,630
Derivatives not offset on the balance sheet				$	4,869				$	4,869
Cash collateral⁽²⁾					0					55,730
Net derivative amounts				$	66,612				$	7,031

As of December 31, 2020
Derivatives designated as hedging instruments
Interest rate derivatives	$	0	Other assets	$	0	$	25,000	Other liabilities	$	34

Derivatives not designated as hedging instruments
Interest rate derivatives	$	1,223,584	Other assets	$	108,487	$	1,223,584	Other liabilities	$	108,487
Risk participation agreements		72,528	Other assets		292		39,785	Other liabilities		125
Total derivatives not designated as hedging instruments				$	108,779				$	108,612
Cash collateral⁽²⁾					0					107,350
Net derivative amounts				$	108,779				$	1,262

(1)

Netting adjustments represents the amounts recorded to convert derivatives assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance on the settle to market rules for cleared derivatives. The CME legally characterizes the variation margin posted between counterparties as settlements of the outstanding derivative contracts instead of cash collateral. Company began to clear certain derivative transactions through the CME in 2021.

(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.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period during which the ~~hedged~~hedge transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s short-term rate borrowings. During the ~~next twelve~~three months ended March 31, 2021 the ~~Company estimates~~Company’s final cash flow hedge of interest rate risk matured and the remaining balance was reclassified from AOCI as a reduction to interest expense. There is 0 additional amount that ~~an additional $124 thousand~~ will be reclassified from AOCI as a reduction to interest ~~expense.~~expense.

The following table indicates the effect of cash flow hedge accounting on AOCI and on the unaudited interim consolidated statement of income:

Three Months Ended
September 30,

Nine Months Ended
September 30,

(In thousands) 2020 2019 2020 2019
Derivatives Designated as Hedging Instruments:
Interest rate derivatives - included component
Amount of gain (loss) recognized in other comprehensive income $ 0 $ 9 $ (274 ) $ (475 )
Amount of loss (gain) reclassified from AOCI into interest expense 101 (395 ) 192 (1,932 )

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2021		2020		2021		2020
Derivatives designated as hedging instruments:
Interest rate derivatives - included component
Amount of (loss) recognized in other comprehensive income	$	0	$	0	$	0	$	(274	)
Amount of loss reclassified from AOCI into interest expense		0		101		21		192

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

(In thousands) 2020 2019 2020 2019
Derivatives Not Designated as Hedging Instruments:
(Decrease) increase in other income $ (20 ) $ (10 ) $ 127 $ 96

~~11.~~10.

Fair Value Measurements and Fair Value of Financial Instruments

~~GAAP~~

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;

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 alternative pricing sources with reasonable levels of price transparency include most investment-grade and high-yield corporate bonds, less liquid mortgage products, less liquid agency securities, less liquid listed equities, state, municipal and provincial obligations and certain physical commodities. Such instruments are generally classified within Level 2 of the fair value hierarchy. Certain common equity securities are reported at fair value utilizing Level 1 inputs (exchange quoted prices). Other investment securities are reported at fair value utilizing Level 1 and Level 2 inputs. The prices for Level 2 instruments are obtained through an independent pricing service or dealer market participants with whom the Company has historically transacted both purchases and sales of investment securities. Prices obtained from these sources include prices derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Management reviews the methodologies used in pricing the securities by its third-party providers.

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.~~flows.

The following tables set forth the Company’s financial assets and liabilities measured on a recurring basis that were accounted for at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:

(In thousands)	Level 1		Level 2		Level 3		September 30, 2020		Level 1		Level 2		Level 3		September 30, 2021
Assets:
AFS securities
Federal agency	$	0	$	195,144	$	0	$	195,144	$	0	$	242,966	$	0	$	242,966
State & municipal		0		10,883		0		10,883		0		84,021		0		84,021
Mortgage-backed		0		482,319		0		482,319		0		650,195		0		650,195
Collateralized mortgage obligations		0		491,752		0		491,752		0		558,711		0		558,711
Corporate		0		17,827		0		17,827		0		40,137		0		40,137
Total AFS securities	$	0	$	1,197,925	$	0	$	1,197,925	$	0	$	1,576,030	$	0	$	1,576,030
Equity securities		26,758		4,000		0		30,758		32,013		1,000		0		33,013
Derivatives		0		122,896		0		122,896		0		71,481		0		71,481
Total	$	26,758	$	1,324,821	$	0	$	1,351,579	$	32,013	$	1,648,511	$	0	$	1,680,524

Liabilities:
Derivatives	$	0	$	122,834	$	0	$	122,834	$	0	$	71,314	$	0	$	71,314
Total	$	0	$	122,834	$	0	$	122,834	$	0	$	71,314	$	0	$	71,314

(In thousands)	Level 1		Level 2		Level 3		December 31, 2019		Level 1		Level 2		Level 3		December 31, 2020
Assets:
AFS securities
Federal agency	$	0	$	34,758	$	0	$	34,758	$	0	$	243,597	$	0	$	243,597
State & municipal		0		2,513		0		2,513		0		43,180		0		43,180
Mortgage-backed		0		503,626		0		503,626		0		595,839		0		595,839
Collateralized mortgage obligations		0		434,443		0		434,443		0		437,804		0		437,804
Corporate										0		28,278		0		28,278
Total AFS securities	$	0	$	975,340	$	0	$	975,340	$	0	$	1,348,698	$	0	$	1,348,698
Equity securities		23,771		4,000		0		27,771		28,737		2,000		0		30,737
Derivatives		0		41,766		0		41,766		0		108,779		0		108,779
Total	$	23,771	$	1,021,106	$	0	$	1,044,877	$	28,737	$	1,459,477	$	0	$	1,488,214

Liabilities:
Derivatives	$	0	$	41,777	$	0	$	41,777	$	0	$	108,646	$	0	$	108,646
Total	$	0	$	41,777	$	0	$	41,777	$	0	$	108,646	$	0	$	108,646

~~GAAP~~

Table of Contents

GAAP requires disclosure of assets and liabilities measured and recorded at fair value on a non-recurring basis such as goodwill, loans held for sale, other real estate owned, collateral-dependent impaired loans, mortgage servicing rights and HTM securities. The non-recurring fair value measurements recorded during the three and nine month periods ended September 30, ~~2020~~2021 and the year ended December 31, ~~2019~~2020 were related to impaired loans, write-downs of other real estate owned and write-down of branch assets 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.

AsAs of September 30, 2021, the Company had collateral dependent individually evaluated loans with a carrying value of $12.5 million, which had an estimated allowance for credit loss of $1.3 million. As of December 31, 2020, the Company had collateral dependent individually evaluated loans with a carrying value of ~~$10.9~~$15.2 million, which had an estimated allowance for credit loss of ~~$3.0~~$3.2 million. ~~As of December 31, 2019 the Company had 0 collateral dependent loans.~~

During the nine months ended September 30, 2020, the Company recorded a $0.5 million write-off of branch locations due to a pending disposition of the locations. During the three and nine months ended September 30, 2019, the Company recorded a $1.0 million write-down of a branch location to fair value of $0.2 million due to a pending disposition of the location.

The following table sets forth information with regard to estimated fair values of financial instruments. This table excludes financial instruments for which the carrying amount approximates fair value. Financial instruments for which the fair value approximates carrying value include cash and cash equivalents, AFS securities, equity securities, accrued interest receivable, non-maturity deposits, short-term borrowings, accrued interest payable and derivatives.

		September 30, 2020				December 31, 2019						September 30, 2021				December 31, 2020
(In thousands)	Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Fair Value Hierarchy		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
HTM securities	2	$	663,088	$	684,862	$	630,074	$	641,262		2	$	683,103	$	689,129	$	616,560	$	636,827
Net loans	3		7,447,966		7,535,955		7,074,864		6,999,690		3		7,474,466		7,615,405		7,390,004		7,530,033
Financial liabilities:
Time deposits	2	$	659,971	$	666,646	$	861,193	$	858,085		2	$	552,273	$	553,125	$	633,479	$	638,721
Long-term debt	2		64,126		65,086		64,211		64,373		2		14,020		14,376		39,097		39,820
Subordinated debt	1		100,000		102,781		0		0		1		100,000		107,684		100,000		103,277
Junior subordinated debt	2		101,196		104,447		101,196		105,694		2		101,196		109,001		101,196		108,926

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, the Company has a substantial wealth operation that contributes net fee income annually. The wealth management operation is not considered a financial instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities include the benefits resulting from the low-cost funding of deposit liabilities as compared to the cost of borrowing funds in the market and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimate of fair value.

HTM Securities

The fair value of the Company’s HTM securities is primarily measured using information from a third-party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Table of Contents

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, which 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.

~~12.~~11.

Commitments and Contingencies

The Company is a party to certain financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused lines of credit, standby letters of credit and certain agricultural real estate loans sold to investors with recourse, with the sold portion having a government guarantee that is assignable back to the Company upon repurchase of the loan in the event of default. The Company’s exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit, unused lines of credit, standby letters of credit and loans sold with recourse is represented by the contractual amount of those investments. The credit risk associated with commitments to extend credit and standby and commercial letters of credit is essentially the same as that involved with extending loans to customers and is subject to normal credit policies. Collateral may be obtained based on management’s assessment of the customer’s credit worthiness. Commitments to extend credit and unused lines of credit totaled ~~$2.1~~$2.3 billion at September 30, ~~2020~~2021 and ~~$1.9~~$2.2 billion at December 31, ~~2019.~~2020.

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 ~~frequently~~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 ~~$52.3~~$50.6 million at September 30, ~~2020~~2021 and ~~$34.5~~$54.0 million at December 31, ~~2019. As~~2020. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the fair value of the Company’s standby letters of credit was not significant.

~~NBT~~

BANCORP INC. AND SUBSIDIARIES

Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this discussion and analysis is to provide a concise description of the consolidated financial condition and results of operations of NBT Bancorp Inc. (“NBT”) and its wholly owned subsidiaries, including NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc. (“NBT Financial”) and NBT Holdings, Inc. (“NBT Holdings”) (collectively referred to herein as the “Company”). This discussion will focus on results of operations, financial condition, capital resources and asset/liability management. Reference should be made to the Company’s consolidated financial statements and footnotes thereto included in this Form 10‑Q as well as to the Company’s Annual Report on Form 10‑K for the year ended December 31, ~~2019~~2020 for an understanding of the following discussion and analysis. Operating results for the three and nine month periods ending September 30, ~~2020~~2021 are not necessarily indicative of the results of the full year ending December 31, ~~2020~~2021 or any future period.

Forward-looking Statements

Certain statements in this filing and future filings by the ~~Company~~NBT Bancorp Inc. (the “Company”) with the ~~SEC,~~Securities and Exchange Commission (“SEC”), in the Company’s press releases or other public or stockholder communications or in oral statements made with the approval of an authorized executive officer, contain forward-looking statements, as defined in the Private Securities Litigation Reform Act. These statements may be identified by the use of phrases such as “anticipate,” “believe,” “expect,” “forecasts,” “projects,” “will,” “can,” “would,” “should,” “could,” “may,” or other similar terms. There are a number of factors, many of which are beyond the Company’s control that could cause actual results to differ materially from those contemplated by the forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) local, regional, national and international economic conditions and the impact they may have on the Company and its customers and the Company’s assessment of that impact; (2) changes in the level of nonperforming assets and charge-offs; (3) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (4) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board (“FRB”); (5) inflation, interest rate, securities market and monetary fluctuations; (6) political instability; (7) acts of war or terrorism; (8) the timely development and acceptance of new products and services and perceived overall value of these products and services by users; (9) changes in consumer spending, borrowings and savings habits; (10) changes in the financial performance and/or condition of the Company’s borrowers; (11) technological changes; (12) acquisitions and integration of acquired businesses; (13) the ability to increase market share and control expenses; (14) changes in the competitive environment among financial holding companies; (15) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply, including those under the Dodd-Frank Act, Economic Growth, Regulatory Relief, Consumer Protection Act of 2018, Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), and other legislative and regulatory ~~pronouncements around CARES Act;~~responses to the coronavirus (“COVID-19”) pandemic; (16) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (“FASB”) and other accounting standard setters; (17) changes in the Company’s organization, compensation and benefit plans; (18) the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; (19) greater than expected costs or difficulties related to the integration of new products and lines of business; (20) the adverse impact on the U.S. economy, including the markets in which we operate, of the ~~novel coronavirus, which causes the Coronavirus disease 2019 (“COVID-19”),~~COVID-19 global pandemic; ~~(21) the impact of a slowing U.S. economy~~ and ~~increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products; and (22)~~(21) the Company’s success at managing the risks involved in the foregoing items.

Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company’s forward-looking statements is the potential adverse effect of the current COVID-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company, its customers and the global economy and financial markets. The extent to which the COVID-19 pandemic impacts the Company will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, and its impact on the Company’s customers and demand for financial services, the actions governments, businesses and individuals take in response to the pandemic, the impact of the COVID-19 pandemic and actions taken in response to the pandemic on global and regional economies, national and local economic activity, the speed and effectiveness of vaccine and treatment developments and their deployment, including public adoption rates of COVID-19 vaccines, and the pace of recovery when the COVID-19 pandemic subsides, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section entitled “Risk Factors” in our Form 10-K for the year ended December 31, ~~2019~~2020 as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.

The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advises readers that various factors, including, but not limited to, those described above and other factors discussed in the Company’s annual and quarterly reports previously filed with the ~~Securities and Exchange Commission,~~SEC, could affect the Company’s financial performance and could cause the Company’s actual results or circumstances for future periods to differ materially from those anticipated or projected.

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Unless required by law, the Company does not undertake, and specifically disclaims any obligations to, publicly release any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Non-GAAP Measures

This Quarterly Report on Form 10-Q contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Where non-GAAP disclosures are used in this Form 10-Q, the comparable GAAP measure, as well as a reconciliation to the comparable GAAP measure, is provided in the accompanying tables. Management believes that these non-GAAP measures provide useful information that is important to an understanding of the results of the Company’s core business as well as provide information standard in the financial institution industry. Non-GAAP measures should not be considered a substitute for financial measures determined in accordance with GAAP and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company.

Critical Accounting Policies

The Company has identified policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently ~~uncertain~~uncertain. The judgment and ~~because~~assumptions made are based upon historical experience or other factors that management believes to be reasonable under the circumstances. Because of the ~~likelihood that materially different amounts would be reported under different conditions or using different assumptions.~~nature of the judgment and assumptions, actual results could differ from estimates, which could have a material effect on our financial condition and results of operations. These policies relate to the allowance for credit losses, pension accounting and provision for income taxes.

The allowance for credit losses consists of the allowance for credit losses and the ~~reserve~~allowance for losses on unfunded commitments. ~~As a result of the Company’s January 1, 2020, adoption of Accounting Standards Updates (“ASU”) 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326):~~ Measurement of Credit Losses on Financial Instruments (“CECL”) and its related amendments, our methodology for estimating the reserve for credit losses changed significantly from December 31, 2019. The standard replaced the “incurred loss” approach with an “expected loss” approach known as current expected credit loss. The CECL approach requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). ~~It removes the incurred loss approach’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was “incurred.”~~ The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. The Company then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, the Company considers forecasts about future economic conditions that are reasonable and supportable. The ~~reserve~~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 ~~reserve~~allowance for losses on unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws.

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

Management is required to make various assumptions in valuing the Company’s pension assets and liabilities. These assumptions include the expected rate of return on plan assets, the discount rate, ~~and~~ the rate of increase in future compensation ~~levels.~~levels and interest rate of credit for cash balance plans. Changes to these assumptions could impact earnings in future periods. The Company takes into account the plan asset mix, funding obligations and expert opinions in determining the various rates used to estimate pension expense. The Company also considers ~~the Citigroup Pension Liability Index,~~ market interest rates and discounted cash flows in setting the appropriate discount rate. In addition, the Company reviews expected inflationary and merit increases to compensation in determining the rate of increase in future compensation levels.

The Company is subject to examinations from various taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgments used to record tax-related assets or liabilities have been appropriate. Should tax laws change or the taxing authorities determine that management’s assumptions were inappropriate, an adjustment may be required which could have a material effect on the Company’s results of operations.

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The Company’s policies on the ~~incurred~~CECL method for ~~the~~ allowance for ~~loan~~credit losses, pension accounting and provision for income taxes are disclosed in Note 1 to the consolidated financial statements presented in our ~~2019~~2020 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 ~~2019~~2020 Annual Report on Form 10-K to obtain a better understanding of how the Company’s financial performance is reported. ~~The Company’s policies on the CECL method for allowance for credit losses is presented in Note 2 to the unaudited interim consolidated finance statements in this Quarterly Report on Form 10- Q.~~ Refer to Note 3 to the unaudited interim consolidated finance statements in this Quarterly Report on Form 10-Q for recently adopted accounting standards.

Overview

Significant factors management reviews to evaluate the Company’s operating results and financial condition include, but are not limited to: net income and earnings per share, return on average assets and equity, net interest margin, noninterest income, operating expenses, asset quality indicators, loan and deposit growth, capital management, liquidity and interest rate sensitivity, enhancements to customer products and services, technology advancements, market share and peer comparisons. The Company’s results in ~~the first nine months of~~2021 and 2020 have been impacted by the COVID-19 pandemic and the CECL accounting methodology, including the estimated impact of the COVID-19 pandemic on expected credit losses. The following information should be considered in connection with the Company’s results for the three and nine months ended September 30, ~~2020:~~2021:

~~Net income up $10.4 million from the second quarter of 2020 and up $2.7 million from the third quarter of 2019.~~

~~Diluted earnings per share up $0.24 from the second quarter of 2020 and up $0.07 from the third quarter of 2019.~~

Provision expense for the three months ended September 30, 2020 was $3.3 million, with an increase from the second quarter of 2020 in allowance to total loans due to $3.0 million in specific reserves for two nonperforming commercial relationships and a change in loan mix while net charge-offs of $2.3 million were down compared with the prior quarter.

The net interest margin on a fully table equivalent (“FTE”) basis for the third quarter of 2020 was 3.17%, down 21 basis points (“bps”) from the second quarter of 2020 and down 40 bps from the third quarter of 2019.

•●

~~Pre-provision~~ net ~~revenue (“PPNR”)~~⁽¹⁾income for the three months ended September 30, 2021 was $37.4 million, up $2.3 million from the third quarter of 2020 ~~was $49.6~~ and down $2.9 million ~~compared to $50.7 million in~~from the ~~previous quarter and $48.2 million in the third~~second quarter of ~~2019. The 2% decline in PPNR from the previous quarter reflected lower net interest income, slightly higher operating expenses, partly offset by higher noninterest income.~~2021;

•●

~~Book~~diluted earnings per share of $0.86 for the three months ended September 30, 2021, up $0.06 from the third quarter of 2020 and down $0.06 from the second quarter of 2021;

●

period end loans were $7.6 billion, up 1%, annualized, from December 31, 2020 (4.2% excluding Paycheck Protection Program (“PPP”) loans);

●

net charge-offs to average loans of 0.11%, annualized (0.12% excluding PPP loans) and allowance for loan losses to total loans at 1.23% (1.28% excluding PPP loans and related allowance);

●

book value per share of ~~$26.74~~$28.65 at September 30, ~~2020;~~2021; tangible book value per share grew 3%2% for the quarter and 8%10% from ~~prior year to $20.02~~⁽²⁾at September 30, ~~2020.~~2020 to $21.95⁽¹⁾.

(1) PPNR is a Non-GAAP financial measure that management believes is useful in evaluating the underlying operating results of the Company excluding the volatility in loan loss provision due to CECL adoption and the impact of the COVID-19 pandemic, net securities gains (losses) and non-recurring income and/or expense.

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

(In thousands) 2020 2019 2020 2019
Net income before income tax expense $ 46,101 $ 41,701 $ 89,461 $ 118,306
FTE adjustment 325 374 983 1,318
Provision for loan losses 3,261 6,324 51,741 19,408
Net securities (gains) losses (84 ) (4,036 ) 548 (4,024 )
Nonrecurring expense - 3,800 650 3,800
Unfunded loan commitments reserve - - 1,800 -
PPNR $ 49,603 $ 48,163 $ 145,183 $ 138,808

~~(2) Non-GAAP measure - Stockholders’ equity less goodwill and intangible assets divided by common shares outstanding.~~

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COVID-19 Pandemic and Company Response

The year 2020 began with overall stable U.S. economic conditions that were significantly impacted by the COVID-19 pandemic and subsequent shut-down of non-essential business throughout the Company’s footprint. A prolonged global pandemic like COVID-19 could adversely affect our operations. The results of operations and the ultimate effect of pandemic will depend on numerous factors that are highly uncertain including how long restrictions for business and individuals will last, further information around the severity of the virus itself, additional actions taken by federal, state and local governments to contain and treat COVID-19 and what, if any, additional government relief will be provided. The expected impact of the pandemic on the Company’s business, financial condition, results of operations, and its customers has not fully manifested. The fiscal stimulus and relief programs appear to have delayed or mitigated any materially adverse financial impact to the Company. Once these stimulus programs have been exhausted, the Company’s credit metrics may worsen and loan losses could ultimately materialize. Any potential loan losses will be contingent upon the resurgence of the virus, including any new strains, offset by the potency of the vaccine along with its extensive distribution, and the ability for customers and businesses to return to their prepandemic routines. However, economic uncertainty remains relatively high and volatility is expected to continue in 2021.

In response, the Company immediately formed an Executive Task Force and engaged its established Incident Response Team under its Business Continuity Plan to execute a comprehensive pandemic response plan. The Company has taken significant steps to address the needs of its customers impacted by COVID-19. The Company provided payment relief for all its customers for 180 days or less, waiving associated late fees while not reporting these payment deferrals as late payments to the credit bureaus for all its consumer customers who were current prior to this event. The Company has also offered longer payment deferral options on a limited, case by case basis to address certain customers’ hardships related to the pandemic where we are able to gather information on the ongoing viability of the borrower’s long-term ability to return to full payment. The Company continues to responsibly lend to qualified consumer and commercial customers and designed special lending programs as well as participating in government sponsored relief programs to respond to customers’ needs during the pandemic. The Company believes our historically strong underwriting practices, diverse and granular portfolios, and geographic footprint will help to mitigate any adverse impact to the Company.

The Company has been a participant in the Small Business Administration’s Paycheck Protection Program, ~~(“PPP”),~~ a ~~new~~ loan guarantee program created under the CARES Act targeted to provide small businesses with support to cover payroll and certain other expenses. Loans made under the PPP are fully guaranteed by the Small Business Administration (“SBA”), whose guarantee is backed by the full faith and credit of the United States. PPP covered loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness. Lenders receive pre-determined fees for processing and servicing PPP loans. In addition, PPP loans are risk-weighted at zero percent under the generally-applicable Standardized Approach used to calculate risk-weighted assets for regulatory capital purposes. The Company processed approximately 3,100 loans totaling $287 million in relief during the nine months ended September 30, 2021 as compared to 3,000 loans totaling over $548 million in ~~relief. An online solution for~~2020. The Company is supporting the PPP ~~loan~~application and forgiveness ~~process launched~~processes with online resources, educational webinars and a partnership with a ~~successful pilot completed in~~certified public accounting firm. As of September 30, 2021, the ~~third quarter.~~Company has received payment from the SBA on 2,622 of our loans totaling $449.8 million.

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On December 27, 2020, the President signed into law the Consolidated Appropriation Act (“CAA”). The CAA, among other things, extends the life of the PPP, effectively creating a second round of PPP loans for eligible businesses. The Company ~~also~~ is participating in the ~~Main Street Lending Program as defined~~CAA’s second round of PPP lending. In mid-January the Company opened its lending portal and began processing PPP loan applications from current and new customers. As of September 30, 2021, the Company has originated $287 million in ~~the CARES Act.~~PPP loans during this round with an average loan size of $93,000.

The Company established a committee to ensure employee and customer safety ~~through staged reopening~~ and ~~monitoring.~~a nimble response across geographic and functional areas. The five focus areas for the Company’s reopening are employee well-being, alternate work plans, physical workspace, working with customers and vendors, and policies, training and communication. The Committee monitored state and local responses and adapted physical locations across its footprint in its re-opening plans and will continue to monitor and adapt its response as the impact of COVID-19 continues to develop. The Company has taken ~~significant actions~~several steps to address the ~~needs~~safety of its employees and ~~customers:~~

~~● Employees~~

~~- 90% of non-branch employees moved to remote work by April 1; 45% have since returned to a worksite; remaining 55% are either hybrid or full-time remote.~~

~~- Adopted~~its customers including health and safety ~~precautions in our branches.~~

~~- Offered~~protocols to protect branch and onsite workers, full-time remote and hybrid work arrangement, additional benefits for health, childcare/eldercare needs and well-being ~~including paid-time-off flexibility~~ and ~~childcare assistance program.~~

~~- Cross-training~~new mobile, online, business banking and ~~redeployment programs directing staff resources to areas of greatest need.~~

~~● Customers~~

~~- All branch lobbies are open.~~

~~- Leveraged technology tools such as robotic process automation for payment extension requests and onboarding loans; increased use of electronic signatures.~~

~~- Digital communication channels significantly enhanced with dedicated webpages, emails and social media content.~~

~~- Offered payment deferrals and forbearance.~~mortgage platforms were launched in 2020.

Results of Operations

Net income for the three months ended September 30, ~~2020~~2021 was ~~$35.1~~$37.4 million, ~~up $10.4~~down $2.9 million from ~~$24.7~~$40.3 million for the second quarter of ~~2020~~2021 and up ~~$2.7~~$2.3 million from ~~$32.4~~$35.1 million for the third quarter of ~~2019.~~2020. Diluted earnings per share for the three months ended September 30, ~~2020~~2021 was ~~$0.80,~~$0.86, as compared with ~~$0.56~~$0.92 for the prior quarter, and ~~$0.73~~$0.80 for the third quarter of ~~2019.~~2020. Return on average assets (annualized) was ~~1.29%~~1.26% for the three months ended September 30, ~~2020~~2021 as compared to ~~0.94%~~1.39% for the prior quarter and ~~1.34%~~1.29% for the same period last year. Return on average equity (annualized) was 12.04% for the three months ended September 30, 2021 as compared to 13.42% for the prior quarter and 12.09% for the three months ended September 30, ~~2020 as compared to 8.76% for the prior quarter and 11.83% for the three months ended September 30, 2019.~~2020. Return on average tangible common equity (annualized) was 15.97% for the three months ended September 30, 2021 as compared to 17.93% for the prior quarter and 16.51% for the three months ended September 30, ~~2020 as compared to 12.14% for the prior quarter and 16.43% for the three months ended September 30, 2019.~~2020.

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Net income for the nine months ended September 30, ~~2020~~2021 was ~~$70.2~~$117.6 million, ~~down $21.9~~up $47.4 from ~~$92.1~~$70.2 million for the same period last year. Diluted earnings per share for the nine months ended September 30, ~~2020~~2021 was ~~$1.60~~$2.69 as compared with ~~$2.09~~$1.60 for the same period in ~~2019.~~2020. Return on average assets (annualized) was ~~0.90%~~1.37% for the nine months ended September 30, ~~2020~~2021 as compared to ~~1.29%~~0.90% for the same period last year. Return on average equity (annualized) was 13.00% for the nine months ended September 30, 2021 as compared to 8.23% for the nine months ended September 30, ~~2020 as compared to 11.66% for the nine months ended September 30, 2019.~~2020. Return on average tangible common equity (annualized) was 17.35% for the nine months ended September 30, 2021 as compared to 11.36% for the nine months ended September 30, ~~2020 as compared to 16.42% for the nine months ended September 30, 2019.~~2020.

Return on average tangible common equity is a non-GAAP measure and excludes amortization of intangible assets (net of tax) from net income and average tangible equity calculated as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Net income	$	35,113	$	32,379	$	70,194	$	92,061	$	37,433	$	35,113	$	117,575	$	70,194
Amortization of intangible assets (net of tax)		642		656		1,930		2,051		497		642		1,618		1,930
Net income, excluding intangible amortization	$	35,755	$	33,035	$	72,124	$	94,112	$	37,930	$	35,755	$	119,193	$	72,124

Average stockholders’ equity	$	1,155,056	$	1,085,961	$	1,139,871	$	1,055,375	$	1,233,045	$	1,155,056	$	1,209,586	$	1,139,871
Less: average goodwill and other intangibles		293,572		288,077		291,472		288,967		290,492		293,572		291,177		291,472
Average tangible common equity	$	861,484	$	797,884	$	848,399	$	766,408	$	942,553	$	861,484	$	918,409	$	848,399

Net Interest Income

Net interest income is the difference between interest income on earning assets, primarily loans and securities and interest expense on interest-bearing liabilities, primarily deposits and borrowings. Net interest income is affected by the interest rate spread, the difference between the yield on interest-earning assets and cost of interest-bearing liabilities, as well as the volumes of such assets and liabilities. Net interest income is one of the key determining factors in a financial institution’s performance as it is the principal source of earnings.

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Net interest income was ~~$77.9~~$77.7 million for the third quarter of ~~2020,~~2021, down ~~$2.5~~$1.5 million, or ~~3.1%~~1.9%, from the previous quarter. ~~The FTE net~~PPP loan interest ~~margin was 3.17%~~and fees recognized into interest income for the three months ended September 30, ~~2020, down 21~~2021 was $2.9 million compared to $4.7 million for the previous quarter. The fully taxable equivalent (“FTE”) net interest margin was 2.88% for the three months ended September 30, 2021, a decrease of 12 bps from the previous quarter. Interest income decreased ~~$2.5~~$1.8 million, or ~~2.8%~~2.2%, as the yield on average interest-earning assets decreased 2313 bps from the prior quarter to ~~3.45%~~3.05%, while average interest-earning assets of ~~$9.8~~$10.7 billion increased ~~$220.9~~$96.4 million from the prior quarter, primarily due to an increase in short-term interest-bearing accounts due to higher levels of short-term interest bearing accounts (“excess liquidity”) and an increase in average investment securities. Interest expense was down $0.3 million, or 6.7%, as the cost of interest-bearing liabilities decreased 2 bps to 0.27% for the quarter ended September 30, 2021, driven by interest-bearing deposit costs decreasing 2 bps.

Net interest income was $77.7 million for the third quarter of 2021, down $0.3 million, or 0.3%, from the third quarter of 2020. PPP loan interest and fees recognized into interest income for the three months ended September 30, 2021 was $2.9 million compared to $4.6 million for the third quarter of 2020. The FTE net interest margin was 2.88% for the three months ended September 30, 2021, a decrease of 29 bps from the third quarter of 2020. Interest income decreased $2.8 million, or 3.3%, as the yield on average interest-earning assets decreased 40 bps from the same period in 2020 to 3.05%, while average interest-earning assets of $10.7 billion increased $0.9 billion from the third quarter of 2020, primarily due to excess liquidity and an increase in average investment securities. Interest expense was ~~comparable to the prior quarter,~~down $2.5 million, or 35.6%, as the cost of interest-bearing liabilities ~~remained flat at 0.45%~~decreased 18 bps to 0.27% for the quarter ended September 30, ~~2020,~~2021, driven by interest-bearing deposit costs decreasing 414 bps along with ~~average interest-bearing liability decreasing $28.6 million.~~a 53 bps decrease in short-term borrowings cost.

Net interest income for the first nine months of 2021 was ~~$77.9~~$235.9 million, up $0.3 million, or 0.1%, from the same period in 2020. PPP loan interest and fees recognized into interest income for the nine months ended September 30, 2021 was $13.8 million compared to $8.5 million for the ~~third quarter of 2020, flat from the third quarter of 2019. The~~same period in 2020. FTE net interest margin ~~was 3.17%~~of 3.01% for the ~~three~~nine months ended September 30, ~~2020,~~2021, was down ~~40 bps~~ from 3.35% for the ~~third quarter of 2019.~~same period in 2020. Interest income decreased ~~$7.4~~$11.3 million, or ~~8.0%~~4.3%, as the yield on average interest-earning assets decreased 7752 bps from the same period in ~~2019~~2020 to ~~3.45%~~3.20%, while average interest-earning assets of $10.5 billion increased $1.1 billion primarily due to excess liquidity and an increase in average ~~loans due to PPP loan originations.~~investment securities. Interest expense ~~decreased $7.3~~was down $11.6 million, or ~~50.8%~~44.2%, for the nine months ended September 30, 2021 as compared to the same period in 2020 as the cost of interest-bearing liabilities decreased 5127 bps to 0.30%, driven by interest-bearing deposit costs decreasing 5125 bps along with a 9787 bps decrease in short-term borrowings cost. The Federal Reserve lowered its target fed funds rate by 150 basis points in the first quarter of 2020.

Net interest income for the first nine months of 2020 was $235.6 million, up $1.2 million, or 0.5%, from the same period in 2019. FTE net interest margin of 3.35% for the nine months ended September 30, 2020, was down from 3.61% for the same period in 2019. Interest income decreased $15.1 million, or 5.5%, as the yield on average interest-earning assets decreased 54 bps from the same period in 2019 to 3.72%, while average interest-earning assets increased $693.3 million primarily due to excess liquidity and an increase in average loans due to PPP loan originations. Interest expense was down $16.3 million, or 38.3%, for the nine months ended September 30, 2020 as compared to the same period in 2019 as the cost of interest-bearing liabilities decreased 38 bps to 0.57%, driven by interest-bearing deposit costs decreasing

32 ~~bps along with the 72 bps decrease in short-term borrowings cost. The Federal Reserve lowered its target fed funds rate by 150 basis points in the first quarter of 2020.~~

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Average Balances and Net Interest Income

The following tables include the condensed consolidated average balance sheet, an analysis of interest income/expense and average yield/rate for each major category of earning assets and interest-bearing liabilities on a taxable equivalent basis.

Three Months Ended	September 30, 2020							September 30, 2019							September 30, 2021							September 30, 2020
(Dollars in thousands)	Average Balance		Interest		Yield/ Rates			Average Balance		Interest		Yield/ Rates			Average Balance		Interest		Yield/ Rates			Average Balance		Interest		Yield/ Rates
Assets:
Short-term interest-bearing accounts	$	477,946	$	130		0.11	%	$	57,530	$	283		1.95	%	$	1,014,120	$	403		0.16	%	$	477,946	$	130		0.11	%
Securities available for sale ^{(1) (3)}		1,137,604		5,603		1.96	%		940,256		5,711		2.41	%		1,513,071		5,898		1.55	%		1,137,604		5,603		1.96	%
Securities held to maturity^{(1) (3)}		621,812		4,008		2.56	%		698,617		4,879		2.77	%		657,314		3,234		1.95	%		621,812		4,008		2.56	%
Federal Reserve Bank and FHLB stock		29,720		529		7.08	%		40,525		719		7.04	%		25,154		121		1.91	%		29,720		529		7.08	%
Loans ^{(2) (3)}		7,559,218		75,049		3.95	%		6,987,476		81,163		4.61	%		7,517,839		72,857		3.84	%		7,559,218		75,049		3.95	%
Total interest-earning assets	$	9,826,300	$	85,319		3.45	%	$	8,724,404	$	92,755		4.22	%	$	10,727,498	$	82,513		3.05	%	$	9,826,300	$	85,319		3.45	%
Other assets		967,194							852,616							1,019,797							967,194
Total assets	$	10,793,494						$	9,577,020						$	11,747,295						$	10,793,494

Liabilities and stockholders’ equity:
Money market deposit accounts	$	2,364,606	$	1,680		0.28	%	$	2,015,297	$	6,281		1.24	%	$	2,580,570	$	1,266		0.19	%	$	2,364,606	$	1,680		0.28	%
NOW deposit accounts		1,207,064		144		0.05	%		1,056,001		340		0.13	%		1,442,678		183		0.05	%		1,207,064		144		0.05	%
Savings deposits		1,447,021		192		0.05	%		1,274,793		188		0.06	%		1,691,539		219		0.05	%		1,447,021		192		0.05	%
Time deposits		684,708		2,251		1.31	%		893,837		3,936		1.75	%		565,216		880		0.62	%		684,708		2,251		1.31	%
Total interest-bearing deposits	$	5,703,399	$	4,267		0.30	%	$	5,239,928	$	10,745		0.81	%	$	6,280,003	$	2,548		0.16	%	$	5,703,399	$	4,267		0.30	%
Short-term borrowings		277,890		446		0.64	%		490,694		1,989		1.61	%		99,703		28		0.11	%		277,890		446		0.64	%
Long-term debt		64,137		398		2.47	%		84,250		498		2.35	%		14,029		89		2.52	%		64,137		398		2.47	%
Subordinated debt		97,934		1,375		5.59	%		-		-		-			98,311		1,359		5.48	%		97,934		1,375		5.59	%
Junior subordinated debt		101,196		565		2.22	%		101,196		1,095		4.29	%		101,196		517		2.03	%		101,196		565		2.22	%
Total interest-bearing liabilities	$	6,244,556	$	7,051		0.45	%	$	5,916,068	$	14,327		0.96	%	$	6,593,242	$	4,541		0.27	%	$	6,244,556	$	7,051		0.45	%
Demand deposits	$	3,111,617						$	2,389,617						$	3,676,883						$	3,111,617
Other liabilities		282,265							185,374							244,125							282,265
Stockholders’ equity		1,155,056							1,085,961							1,233,045							1,155,056
Total liabilities and stockholders’ equity	$	10,793,494						$	9,577,020						$	11,747,295						$	10,793,494
Net interest income (FTE)			$	78,268						$	78,428						$	77,972						$	78,268
Interest rate spread						3.00	%						3.26	%						2.78	%						3.00	%
Net interest margin (FTE)						3.17	%						3.57	%						2.88	%						3.17	%
Taxable equivalent adjustment			$	325						$	374						$	298						$	325
Net interest income			$	77,943						$	78,054						$	77,674						$	77,943

(1)	Securities are shown at average amortized cost.

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

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

Table of Contents

Nine Months Ended	September 30, 2020							September 30, 2019							September 30, 2021							September 30, 2020
(Dollars in thousands)	Average Balance		Interest		Yield/ Rates			Average Balance		Interest		Yield/ Rates			Average Balance		Interest		Yield/ Rates			Average Balance		Interest		Yield/ Rates
Assets:
Short-term interest-bearing accounts	$	311,577	$	464		0.20	%	$	30,970	$	457		1.97	%	$	860,067	$	763		0.12	%	$	311,577	$	464		0.20	%
Securities available for sale^{(1) (3)}		1,028,962		16,956		2.20	%		968,517		17,695		2.44	%		1,438,117		17,204		1.60	%		1,028,962		16,956		2.20	%
Securities held to maturity^{(1) (3)}		619,379		12,562		2.71	%		750,305		15,921		2.84	%		623,284		10,237		2.20	%		619,379		12,562		2.71	%
Federal Reserve Bank and FHLB stock		35,349		1,674		6.33	%		45,254		2,271		6.71	%		25,290		443		2.34	%		35,349		1,674		6.33	%
Loans ^{(2) (3)}		7,437,566		231,168		4.15	%		6,944,518		241,932		4.66	%		7,555,276		222,821		3.94	%		7,437,566		231,168		4.15	%
Total interest-earning assets	$	9,432,833	$	262,824		3.72	%	$	8,739,564	$	278,276		4.26	%	$	10,502,034	$	251,468		3.20	%	$	9,432,833	$	262,824		3.72	%
Other assets		938,296							821,859							984,372							938,296
Total assets	$	10,371,129						$	9,561,423						$	11,486,406						$	10,371,129

Liabilities and stockholders’ equity:
Money market deposit accounts	$	2,275,765	$	8,646		0.51	%	$	1,912,572	$	16,255		1.14	%	$	2,557,172	$	4,022		0.21	%	$	2,275,765	$	8,646		0.51	%
NOW deposit accounts		1,153,780		548		0.06	%		1,105,919		1,157		0.14	%		1,419,102		531		0.05	%		1,153,780		548		0.06	%
Savings deposits		1,369,219		553		0.05	%		1,269,723		550		0.06	%		1,633,941		625		0.05	%		1,369,219		553		0.05	%
Time deposits		762,548		8,436		1.48	%		929,819		11,843		1.70	%		590,385		3,404		0.77	%		762,548		8,436		1.48	%
Total interest-bearing deposits	$	5,561,312	$	18,183		0.44	%	$	5,218,033	$	29,805		0.76	%	$	6,200,600	$	8,582		0.19	%	$	5,561,312	$	18,183		0.44	%
Short-term borrowings		412,312		3,215		1.04	%		607,155		7,986		1.76	%		103,314		130		0.17	%		412,312		3,215		1.04	%
Long-term debt		64,165		1,184		2.46	%		80,162		1,391		2.32	%		15,976		301		2.52	%		64,165		1,184		2.46	%
Subordinated debt		35,750		1,503		5.62	%		-		-		-			98,204		4,077		5.55	%		35,750		1,503		5.62	%
Junior subordinated debt		101,196		2,186		2.89	%		101,196		3,404		4.50	%		101,196		1,572		2.08	%		101,196		2,186		2.89	%
Total interest-bearing liabilities	$	6,174,735	$	26,271		0.57	%	$	6,006,546	$	42,586		0.95	%	$	6,519,290	$	14,662		0.30	%	$	6,174,735	$	26,271		0.57	%
Demand deposits	$	2,800,297						$	2,332,965						$	3,514,005						$	2,800,297
Other liabilities		256,226							166,537							243,525							256,226
Stockholders’ equity		1,139,871							1,055,375							1,209,586							1,139,871
Total liabilities and stockholders’ equity	$	10,371,129						$	9,561,423						$	11,486,406						$	10,371,129
Net interest income (FTE)			$	236,553						$	235,690						$	236,806						$	236,553
Interest rate spread						3.15	%						3.31	%						2.90	%						3.15	%
Net interest margin (FTE)						3.35	%						3.61	%						3.01	%						3.35	%
Taxable equivalent adjustment			$	983						$	1,318						$	899						$	983
Net interest income			$	235,570						$	234,372						$	235,907						$	235,570

(1)	Securities are shown at average amortized cost.

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

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

Table of Contents

The following table presents changes in interest income and interest expense attributable to changes in volume (change in average balance multiplied by prior year rate), changes in rate (change in rate multiplied by prior year volume) and the net change in net interest income. The net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of change.

Three Months Ended September 30,	Increase (Decrease) 2020 over 2019									Increase (Decrease) 2021 over 2020
(In thousands)	Volume			Rate			Total			Volume			Rate			Total
Short-term interest-bearing accounts	$	337		$	(490	)	$	(153	)	$	194		$	79		$	273
Securities available for sale		1,069			(1,177	)		(108	)		1,625			(1,330	)		295
Securities held to maturity		(519	)		(352	)		(871	)		221			(995	)		(774	)
Federal Reserve Bank and FHLB stock		(194	)		4			(190	)		(71	)		(337	)		(408	)
Loans		6,198			(12,312	)		(6,114	)		(375	)		(1,817	)		(2,192	)
Total FTE interest income	$	6,891		$	(14,327	)	$	(7,436	)	$	1,594		$	(4,400	)	$	(2,806	)
Money market deposit accounts	$	929		$	(5,530	)	$	(4,601	)	$	144		$	(558	)	$	(414	)
NOW deposit accounts		43			(239	)		(196	)		30			9			39
Savings deposits		24			(20	)		4			32			(5	)		27
Time deposits		(812	)		(873	)		(1,685	)		(341	)		(1,030	)		(1,371	)
Short-term borrowings		(646	)		(897	)		(1,543	)		(183	)		(235	)		(418	)
Long-term debt		(125	)		25			(100	)		(317	)		8			(309	)
Subordinated debt		1,375			-			1,375			6			(22	)		(16	)
Junior subordinated debt		-			(530	)		(530	)		-			(48	)		(48	)
Total FTE interest expense	$	788		$	(8,064	)	$	(7,276	)	$	(629	)	$	(1,881	)	$	(2,510	)
Change in FTE net interest income	$	6,103		$	(6,263	)	$	(160	)	$	2,223		$	(2,519	)	$	(296	)

Nine Months Ended September 30,	Increase (Decrease) 2020 over 2019									Increase (Decrease) 2021 over 2020
(In thousands)	Volume			Rate			Total			Volume			Rate			Total
Short-term interest-bearing accounts	$	755		$	(748	)	$	7		$	548		$	(249	)	$	299
Securities available for sale		1,069			(1,808	)		(739	)		5,636			(5,388	)		248
Securities held to maturity		(2,669	)		(690	)		(3,359	)		78			(2,403	)		(2,325	)
Federal Reserve Bank and FHLB stock		(473	)		(124	)		(597	)		(383	)		(848	)		(1,231	)
Loans		16,542			(27,306	)		(10,764	)		3,560			(11,907	)		(8,347	)
Total FTE interest income	$	15,224		$	(30,676	)	$	(15,452	)	$	9,439		$	(20,795	)	$	(11,356	)
Money market deposit accounts	$	2,657		$	(10,266	)	$	(7,609	)	$	958		$	(5,582	)	$	(4,624	)
NOW deposit accounts		48			(657	)		(609	)		112			(129	)		(17	)
Savings deposits		42			(39	)		3			102			(30	)		72
Time deposits		(1,964	)		(1,443	)		(3,407	)		(1,613	)		(3,419	)		(5,032	)
Short-term borrowings		(2,101	)		(2,670	)		(4,771	)		(1,456	)		(1,629	)		(3,085	)
Long-term debt		(290	)		83			(207	)		(908	)		25			(883	)
Subordinated debt		1,503			-			1,503			2,592			(18	)		2,574
Junior subordinated debt		-			(1,218	)		(1,218	)		-			(614	)		(614	)
Total FTE interest expense	$	(105	)	$	(16,210	)	$	(16,315	)	$	(213	)	$	(11,396	)	$	(11,609	)
Change in net FTE interest income	$	15,329		$	(14,466	)	$	863		$	9,652		$	(9,399	)	$	253

Table of Contents

Noninterest Income

Noninterest income is a significant source of revenue for the Company and an important factor in the Company’s results of operations. The following table sets forth information by category of noninterest income for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2020		2019		2020			2019		2021			2020		2021		2020
Service charges on deposit accounts	$	3,087	$	4,330	$	9,613		$	12,790	$	3,489		$	3,087	$	9,544	$	9,613
ATM and debit card fees		7,194		6,277		19,184			17,958		8,172			7,194		23,343		19,184
Retirement plan administration fees		9,685		7,600		26,840			23,170		10,495			9,685		30,372		26,840
Wealth management		7,695		7,630		21,791			21,315
Insurance		3,742		4,000		11,303			12,291
Wealth management fees											8,783			7,695		25,099		21,791
Insurance services											3,720			3,742		10,689		11,303
Bank owned life insurance		1,255		1,556		4,010			4,119		1,548			1,255		4,588		4,010
Net securities gains (losses)		84		4,036		(548	)		4,024		(100	)		84		568		(548	)
Other		4,985		4,291		15,968			12,115		4,222			4,985		12,480		15,968
Total noninterest income	$	37,727	$	39,720	$	108,161		$	107,782	$	40,329		$	37,727	$	116,683	$	108,161

Noninterest income for the three months ended September 30, ~~2020~~2021 was ~~$37.7~~$40.3 million, up ~~$2.7~~$1.0 million, or ~~7.8%~~2.6%, from the prior quarter and ~~down $2.0~~up $2.6 million, or ~~5.0%~~6.9%, from the third quarter of ~~2019.~~2020. Excluding net securities gains (losses), noninterest income for the three months ended September 30, ~~2020 would have been $37.6~~2021 was $40.4 million, up ~~$2.8~~$1.3 million, or ~~8.1%~~3.4%, from the prior quarter and up ~~$2.0~~$2.8 million, or ~~5.5%~~7.4%, from the third quarter of ~~2019.~~2020. The increase from the prior quarter was primarily driven by higher service charges on deposit accounts, higher retirement plan administration fees due to ~~lower overdraft charges during~~market performance and organic growth in relationships and higher wealth management fees driven by market performance and organic growth. The increase from the ~~COVID-19 pandemic that recovered but continue~~third quarter of 2020 was primarily due to ~~run lower than that prior year levels,~~ higher ATM and debit card fees due to increased volume and higher per transaction rates, higher wealth management fees driven by market performance and organic growth, an increase in retirement plan administration fees driven by driven by market performance and organic growth, and higher service charges on deposit accounts due to lower overdraft charges during the COVID-19 pandemic, partly offset by lower swap fees and lower mortgage banking income.

Noninterest income for the nine months ended September 30, 2021 was $116.7 million, up $8.5 million, or 7.9%, from the same period in 2020. Excluding net securities gains (losses), noninterest income for the nine months ended September 30, 2021 would have been $116.1 million, up $7.4 million, or 6.8%, from the same period in 2020. The increase from the prior year was primarily due to higher ATM and debit card fess due to increased volume and higher per transaction rates, higher wealth management fees driven by market performance and organic growth and an increase in retirement plan administration fees driven by the April 1, 2020 acquisition of Alliance Benefit Group of Illinois, Inc. (“ABG”), which contributed $1.7 million in revenues during the third quarter of 2020 and higher wealth management fees due to seasonality of tax revenue and market conditions. The increase from the third quarter of 2019 was primarily due to the increase in retirement plan administration fees due to the ABG acquisition, higher ATM and debit card fess due to increased volume and higher per transaction rates, an increase in other noninterest income due primarily to higher mortgage banking income, which was partly offset by lower ~~service charges on deposit accounts due to~~swap fees and lower ~~overdraft charges during the COVID-19 pandemic.~~

Noninterest income for the nine months ended September 30, 2020 was $108.2 million, up $0.4 million, or 0.4%, from the same period in 2019. Excluding net securities gains (losses), noninterest income for the nine months ended September 30, 2020 would have been $108.7 million, up $5.0 million, or 4.8%, from the same period in 2019. The increase from the prior year was driven by an increase in retirement plan administration fees due to the ABG acquisition, an increase in other noninterest income due primarily to higher swap fee income and mortgage banking income, and an increase in ATM and debit card fees due to increased volume and higher per transaction rates, partly offset by lower service charges on deposit accounts due to lower overdraft charges during the COVID-19 pandemic.income.

Noninterest Expense

Noninterest expenses are also an important factor in the Company’s results of operations. The following table sets forth the major components of noninterest expense for the periods indicated:

	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2020		2019			2020		2019		2021		2020		2021		2020
Salaries and employee benefits	$	40,451	$	39,352		$	120,918	$	117,275	$	44,190	$	40,451	$	128,462	$	120,918
Occupancy		5,294		5,335			16,354		17,053		5,117		5,294		16,281		16,354
Data processing and communications		4,058		4,492			12,370		13,599		3,881		4,058		13,039		12,370
Professional fees and outside services		3,394		3,535			10,694		10,562		3,784		3,394		11,403		10,694
Equipment		5,073		4,487			14,494		13,762		5,577		5,073		16,247		14,494
Office supplies and postage		1,530		1,667			4,621		4,835		1,364		1,530		4,478		4,621
FDIC expense (credit)		645		(20	)		1,949		1,946
FDIC expense											772		645		2,243		1,949
Advertising		530		677			1,461		1,821		583		530		1,502		1,461
Amortization of intangible assets		856		874			2,573		2,735		663		856		2,157		2,573
Loan collection and other real estate owned, net		620		976			2,365		2,722		706		620		1,959		2,365
Other		3,857		8,374			14,730		18,130		6,232		3,857		14,405		14,730
Total noninterest expense	$	66,308	$	69,749		$	202,529	$	204,440	$	72,869	$	66,308	$	212,176	$	202,529

~~Table of Contents~~

Noninterest expense for the three months ended September 30, ~~2020~~2021 was ~~$66.3~~$72.9 million, up ~~$1.0~~$1.5 million, or ~~1.5%~~2.0%, from the prior quarter and ~~down $3.4~~up $6.6 million, or ~~4.9%~~9.9%, from the third quarter of ~~2019.~~2020. The increase from the prior quarter was due to higher salaries and employee benefits due to ~~timing~~one additional day of payroll in the third quarter, increased medical expenses ~~during the COVID-19 pandemic~~ and ~~equipment expense was~~ higher incentive compensation accruals. Other expenses increased due to ~~higher technology~~$2.3 million in non-recurring costs, ~~associated with several digital upgrades.~~primarily from estimated litigation settlement costs related to a pending lawsuit regarding certain of the Company’s deposit products and related disclosures. The ~~decrease~~Company does not anticipate further material accruals related to this legal matter. The increase in noninterest expense from the third quarter of ~~2019~~2020 was due to lower travel and training expenses during the pandemic, lower pension costs and $3.1 million in reorganization expenses incurred during the third quarter of 2019 primarily related to branch optimization strategies to improve future operating efficiencies. This was partly offset by higher salaries and employee benefits due to ~~the addition of ABG’s salaries~~annual merit pay increases, increased medical expenses and ~~benefits,~~ higher ~~FDIC expense due to the benefit of the FDIC insurance assessment small bank credit in the third quarter of 2019 and higher~~incentive compensation accrual. Higher equipment expense due to higher technology costs associated with several digital upgrades. Other expenses increased due to $2.3 million in non-recurring costs, including the previously mentioned estimated litigation settlement costs.

Table of Contents

Noninterest expense for the nine months ended September 30, ~~2020~~2021 was ~~$202.5~~$212.2 million, ~~down $1.9~~up $9.6 million, or ~~0.9%~~4.8%, from the same period in ~~2019.~~2020. The ~~decrease~~increase from the prior year was driven by the previously mentioned $3.1 million in reorganization expenses in 2019, and lower data processing communication expense and lower occupancy expense driven by the COVID-19 pandemic. This was partly offset by higher salaries and employee benefits due to annual merit pay increases, the ABG acquisition and higher medical expenses, increase in data processing communication expense driven by continued investments in digital platform solutions including a PPP specific platform, an increase in professional fees and outside services as a result of projects paused during the COVID-19 pandemic, higher equipment expense due to higher technology costs associated with several digital upgrades.

Income Taxes

Income tax expense for the three months ended September 30, ~~2020~~2021 was $11.0 million, ~~up $4.4~~down $1.0 million from the prior quarter and up ~~$1.7~~$0.1 million from the third quarter of ~~2019.~~2020. The effective tax rate was 22.8% for the third quarter of 2021, 22.9% in the prior quarter and 23.8% for the third quarter of ~~2020 was higher compared to 21.0% in the prior quarter and higher compared to 22.4% for the third quarter of 2019.~~2020. The higher effective tax rate compared to the second quarter of 2020 was due to higher level of taxable income relative to total income and included a true-up of tax expense to bring the full year estimated effective tax rate to 21.8%. The higherlower effective tax rate compared to the third quarter of ~~2019~~2020 was due to ~~a higher~~the change in the level of taxable income ~~relative~~ to ~~total income.~~bring the nine months ended September 30, 2020 estimated effective tax rate to 21.75%.

Income tax expense for the nine months ended September 30, ~~2020~~2021 was ~~$19.3~~$34.2 million, ~~down $7.0~~up $14.9 million from the same period of ~~2019.~~2020. The effective tax rate of ~~21.5%~~22.5% for the first nine months of ~~2020~~2021 was ~~down~~up from ~~22.2%~~21.5% for the same period in the prior year. The ~~decrease~~increase in income tax expense from the prior year was due to a ~~lower~~higher level of taxable income as a result of the COVID-19 pandemic and ~~increased~~decreased provision for loan losses.

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ANALYSIS OF FINANCIAL CONDITION

Securities

Total securities increased ~~$258.6~~$296.2 million, or ~~15.8%~~14.8%, from December 31, ~~2019~~2020 to September 30, ~~2020.~~2021. The securities portfolio ~~represents 17.4%~~represented 19.1% of total assets as of September 30, ~~2020~~2021 as compared to ~~16.8%~~18.3% of total assets as of December 31, ~~2019.~~2020.

The following table details the composition of securities available for sale, securities held to maturity and equity securities for the periods indicated:

	September 30, 2020			December 31, 2019			September 30, 2021			December 31, 2020
Mortgage-backed securities:
With maturities 15 years or less		19	%		25	%		20	%		21	%
With maturities greater than 15 years		10	%		12	%		8	%		8	%
Collateralized mortgage obligations		38	%		45	%		33	%		35	%
Municipal securities		12	%		10	%		18	%		13	%
U.S. agency notes		19	%		6	%		18	%		20	%
Corporate		1	%		-			2	%		1	%
Equity securities		1	%		2	%		1	%		2	%
Total		100	%		100	%		100	%		100	%

The Company’s mortgage-backed securities, U.S. agency notes and collateralized mortgage obligations are all guaranteed by Fannie Mae, Freddie Mac, Federal Home Loan Bank, Federal Farm Credit Banks or Ginnie Mae (“GNMA”). GNMA securities are considered similar in credit quality to U.S. Treasury securities, as they are backed by the full faith and credit of the U.S. government. Currently, there are no subprime mortgages in our investment portfolio. ~~Refer to Note 3 to the Company’s unaudited interim consolidated financial statements included in this Form 10-Q for information related to credit impairment considerations.~~

Loans

A summary of loans, net of deferred fees and origination costs, by type⁽¹⁾for the periods indicated follows:

(In thousands)	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Commercial	$	1,297,408	$	1,302,209	$	1,466,597	$	1,451,560
Commercial real estate		2,281,843		2,142,057		2,320,341		2,196,477
Paycheck protection program		514,558		-		276,195		430,810
Residential real estate mortgages		1,448,530		1,445,156
Residential real estate						1,549,684		1,466,662
Indirect auto		989,369		1,193,635		873,860		931,286
Specialty lending		566,973		542,063		692,919		579,644
Home equity		404,346		444,082		339,316		387,974
Other consumer		57,616		66,896		47,530		54,472
Total loans	$	7,560,643	$	7,136,098	$	7,566,442	$	7,498,885

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

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

Total loans increased by ~~$424.5~~$67.6 million from December 31, ~~2019~~2020 to September 30, ~~2020.~~2021. Total PPP loans as of September 30, 2021 were $276.2 million (net of unamortized fees). The following PPP loan activity occurred during the nine months ended September 30, 2021: $286.6 million in PPP loan originations, $449.8 million of loans forgiven and $13.8 million of interest and fees recognized into interest income. Excluding PPP loans, period end loans ~~decreased $90.0~~increased $222.2 million from December 31, ~~2019.~~2020. Commercial and industrial loans ~~decreased $4.8~~increased $15.0 million to ~~$1.3~~$1.5 billion; commercial real estate loans increased ~~$139.8~~$123.9 million to $2.3 billion; and total consumer loans ~~decreased $225.0~~increased $83.3 million to $3.5 ~~billion, driven by managed run-off of indirect auto loans.~~billion. Total loans represent approximately ~~69.7%~~63.1% of assets as of September 30, ~~2020,~~2021, as compared to ~~73.4%~~68.6% as of December 31, ~~2019.~~2020.

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

Management considers the accounting policy relating to the allowance for credit losses to be a critical accounting policy 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.

~~Table of Contents~~

As a result of our January 1, 2020, adoption of CECL and its related amendments, our methodology for estimating the reserve for credit losses changed significantly from December 31, 2019. The Company recorded a net decrease to retained earnings of $4.3 million as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13. The transition adjustment includes a $3.0 million impact due to the allowance for credit losses on loans, $2.8 million impact due to the allowance for unfunded commitments reserve, and $1.5 million impact to the deferred tax asset. After a thorough consideration and validation of the factors discussed in Note 2 to the Company’s unaudited interim consolidated financial statements included in this Form 10-Q, requiredRequired additions or reductions to the allowance for credit losses are made periodically by charges or credits to the provision for loan losses. These are necessary to maintain the allowance at a level which management believes is reasonably reflective of the overall loss expected over the contractual life of the loan portfolio. While management uses available information to recognize losses on loans, additions or reductions to the allowance may fluctuate from one reporting period to another. These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in management’s assessment of any or all of the determining factors discussed above. Management considers the allowance for credit losses to be appropriate based on evaluation and analysis of the loan portfolio.

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The allowance for credit losses totaled $93.0 million at September 30, 2021, compared to $98.5 million at June 30, 2021 and $114.5 million at September 30, ~~2020, compared to $113.5 million at June 30, 2020 and $72.4 million at September 30, 2019.~~2020. The allowance for credit losses as a percentage of loans was 1.23% (1.28% excluding PPP loans) at September 30, 2021, compared to 1.31% (1.38% excluding PPP loans) at June 30, 2021 and 1.51% (1.62% excluding PPP loans) at September 30, ~~2020, compared to 1.49% (1.59% excluding PPP loans) at June 30, 2020 and 1.03% at September 30, 2019.~~2020. The ~~increase~~decrease in the allowance for credit losses from June 30, 2021 and September 30, 2020 to September 30, ~~2020~~2021 was primarily due to the specific allowance for credit losses on individually analyzed credits and a change in loan portfolio mix shift within the consumer portfolio as indirect auto balances declined and other consumer balances increased. The increaseimproved economic conditions in the ~~allowance for credit losses from September 30, 2019 was primarily due to the implementation of~~ CECL ~~and the incorporation of a deteriorated economic forecast due to the COVID-19 pandemic.~~forecast.

The provision for loan losses was a net benefit of $3.3 million for three months ended September 30, ~~2020,~~2021, compared to ~~$18.8~~a net benefit of $5.2 million in the prior quarter and ~~$6.3~~a provision expense of $3.3 million for the same period in the prior year. Provision expense ~~decreased~~increased from the prior quarter due primarily to ~~lower~~increased net charge-offs and ~~a fairly stable~~higher reserves established due to ~~somewhat improved~~change in loan mix, partly offset by continued improvement in economic conditions in the CECL forecast. Provision expense decreased from the same period in the prior year due primarily to ~~a decrease~~the improved economic condition forecast in ~~net charge-offs.~~the current quarter as compared to deterioration of the economic forecast that took place at the end of the third quarter in 2020 due to COVID-19. Net charge-offs totaled ~~$2.3~~$2.2 million during the three months ended September 30, ~~2020,~~2021, compared to net charge-offs of ~~$5.3~~$1.3 million during the second quarter of ~~2020~~2021 and ~~$6.1~~$2.3 million in the third quarter of ~~2019.~~2020.

The provision for loan losses was a net benefit of $11.4 million for the nine months ended September 30, 2021, compared to a provision expense of $51.7 million for the nine months ended September 30, ~~2020,~~2020. Provision expense decreased from the same period in the prior year due primarily to the improved economic condition forecast in the current quarter as compared to ~~$19.4 million for~~significant deterioration of the economic forecast that took place at the end of the nine months ended September 30, ~~2019.~~2020 due to COVID-19. Net charge-offs totaled $5.6 million during the nine months ended September 30, 2021, compared to net charge-offs of $13.2 million during the nine months ended September 30, 2020, compared to net charge-offs of $19.5 million during the nine months ended September 30, 2019. The higher provision for loan losses in the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019 was driven by both the implementation of CECL and the incorporation of a deteriorated economic forecast due to the COVID-19 pandemic. The Company expects that with the adoption of CECL beginning on January 1, 2020, provision expense may become more volatile due to changes in CECL model assumptions of credit quality, macroeconomic factors and conditions, and loan composition, which drive the allowance for credit losses balance.2020.

As of September 30, ~~2020,~~2021, the unfunded commitment reserve totaled ~~$5.5~~$5.3 million, compared to ~~$5.5~~$5.8 million as of June 30, ~~2020~~2021 and ~~$0.9~~$5.5 million as of September 30, 2019. The increase in the unfunded commitment reserve in 2020 compared to 2019 is related to an increase in expected losses due to the adoption of CECL and the deterioration of the economic forecast due to COVID-19.2020.

Nonperforming assets consist of nonaccrual loans, loans 90 days or more past due and still accruing, restructured loans, other real estate owned (“OREO”) and nonperforming securities. Loans are generally placed on nonaccrual when principal or interest payments become 90 days past due, unless the loan is well secured and in the process of collection. Loans may also be placed on nonaccrual when circumstances indicate that the borrower may be unable to meet the contractual principal or interest payments. ~~In the third quarter of 2019 the~~The threshold for evaluating classified and nonperforming loans specifically evaluated for impairment ~~was increased from $750 thousand to~~is $1.0 million. OREO represents property acquired through foreclosure and is valued at the lower of the carrying amount or fair value, less any estimated disposal costs.

September 30, 2020 December 31, 2019
(Dollars in thousands) Amount % Amount %
Nonaccrual loans:
Commercial $ 20,707 58 % $ 12,379 49 %
Residential real estate 7,986 22 % 5,233 21 %
Consumer 3,270 9 % 4,046 16 %
Troubled debt restructured loans 3,933 11 % 3,516 14 %
Total nonaccrual loans $ 35,896 100 % $ 25,174 100 %

Loans 90 days or more past due and still accruing:
Commercial $ 12 - $ - -
Residential real estate 620 24 % 927 25 %
Consumer 1,947 76 % 2,790 75 %
Total loans 90 days or more past due and still accruing $ 2,579 100 % $ 3,717 100 %

Total nonperforming loans $ 38,475 $ 28,891
OREO 1,605 1,458
Total nonperforming assets $ 40,080 $ 30,349

Total nonperforming loans to total loans 0.51 % 0.40 %
Total nonperforming assets to total assets 0.37 % 0.31 %
Allowance for loan losses to total nonperforming loans 297.60 % 252.55 %

	September 30, 2021						December 31, 2020
(Dollars in thousands)	Amount			%			Amount			%
Nonaccrual loans:
Commercial	$	19,726			55	%	$	23,557			53	%
Residential		10,139			28	%		13,082			29	%
Consumer		1,585			5	%		3,020			7	%
Troubled debt restructured loans		4,287			12	%		4,988			11	%
Total nonaccrual loans	$	35,737			100	%	$	44,647			100	%

Loans 90 days or more past due and still accruing:
Commercial	$	441			15	%	$	493			16	%
Residential		1,109			38	%		518			16	%
Consumer		1,390			47	%		2,138			68	%
Total loans 90 days or more past due and still accruing	$	2,940			100	%	$	3,149			100	%

Total nonperforming loans	$	38,677					$	47,796
OREO		859						1,458
Total nonperforming assets	$	39,536					$	49,254

Total nonperforming loans to total loans		0.51	%					0.64	%
Total nonperforming assets to total assets		0.33	%					0.45	%
Allowance for loan losses to total nonperforming loans		240.45	%					230.14	%

~~Excluding PPP loan originations,~~Total nonperforming ~~loans~~assets were $39.5 million at September 30, 2021, compared to ~~total loans was 0.55%~~$49.3 million at December 31, 2020 and $40.1 million at September 30, 2020 ~~up 16 bps from 0.39%~~. Nonperforming loans at ~~June 30, 2020 and up 8 bps from 0.47% at~~ September 30, ~~2019. The increase in nonperforming~~2021 were $38.7 million, or 0.51%, of total loans ~~resulted primarily from two COVID-19 impacted commercial relationships totaling $10.9~~(0.53% excluding PPP loan originations), compared with $47.8 million, ~~moving~~or 0.64% of total loans (0.68% excluding PPP loan originations) at December 31, 2020 and $38.5 million, or 0.51% of total loans (0.55% excluding PPP loan originations) at September 30, 2020.

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Nonperforming loans were consistent compared to ~~non-accrual.~~a year ago. Past due loans as a percentage of total loans was 0.46% at September 30, 2021 (0.48% excluding PPP loan originations), up from 0.37% at December 31, 2020 (0.39% excluding PPP loan originations) and up from 0.26% at September 30, 2020 (0.28% excluding PPP loan originations)~~, down from 0.30% at June 30, 2020 (0.32% excluding PPP loan originations) and down from 0.57% at September 30, 2019.~~.

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The Company began offering short-term loan modifications to assist borrowers during the COVID-19 ~~national emergency.~~pandemic. The CARES Act, along with a joint agency statement issued by banking regulatory agencies, provides that short-term modifications made in response to COVID-19 do not need to be accounted for as a ~~TDR.~~troubled debt restructuring (“TDR”). The Company evaluated the short-term modification programs provided to its borrowers and has concluded the modifications were generally made to borrowers who were in good standing prior to the COVID-19 pandemic and the modifications were temporary and minor in nature and therefore do not qualify for designation as TDRs. As of September 30, 2021, $2.0 million of total loans outstanding were in payment deferral programs, of which 71% are commercial borrowers and 29% are consumer borrowers. As of December 31, 2020, ~~3.1%~~$106.0 million of total loans outstanding were in payment deferral programs, of which 80% ~~are~~were commercial borrowers and 20% ~~are~~were consumer borrowers. ~~As of September 30, 2020, there were $233 million in loans in modification programs related to COVID-19.~~

In addition to nonperforming loans discussed above, the Company has also identified approximately ~~$134.1~~$105.7 million in potential problem loans at September 30, ~~2020~~2021 as compared to ~~$84.1~~$136.6 million at December 31, ~~2019.~~2020 and $117.7 million at September 30, 2020. The increase in potential problem loans from September 30, 2020 is primarily due to the Company’s proactive approach to risk ratings throughout the deferral process and relates to higher risk industries impacted by the COVID-19 pandemic. Higher risk industries include entertainment, restaurants, retail, healthcare and accommodations. As of September 30, ~~2020, 9.5%~~2021, 8.7% of the Company’s outstanding loans were in higher risk industries due to the COVID-19 pandemic. 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.” 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 90 days or more past due, be placed on nonaccrual, become restructured or require increased allowance coverage and provision for loan losses. To mitigate this risk the Company maintains a diversified loan portfolio, has no significant concentration in any particular industry and originates loans primarily within its footprint.

Deposits

Total deposits were ~~$9.0~~$10.2 billion at September 30, ~~2020,~~2021, up ~~$1.4~~$1.1 billion, or ~~18.1%~~12.3%, from December 31, ~~2019.~~2020. Total average deposits increased ~~$810.6 million,~~$1.4 billion, or ~~10.7%~~16.2%, from the same period last year. The growth was driven primarily by an increase of ~~$467.3~~$713.7 million, or ~~20.0%~~25.5%, in demand deposits, combined with an increase in interest-bearing deposits of ~~$343.3~~$639.3 million, or ~~6.6%~~11.5%, due to growth in money market deposit ~~account~~accounts (“MMDA”), NOW deposit accounts and savings deposit accounts, partly offset by a decrease in time accounts. The high rate of deposit growth was primarily due to funding of PPP loans and various government support programs.

Borrowed Funds

The Company’s borrowed funds consist of short-term borrowings and long-term debt. Short-term borrowings totaled ~~$183.5~~$99.7 million at September 30, ~~2020~~2021 compared to ~~$655.3~~$168.4 million at December 31, ~~2019.~~2020. The notional value of interest rate swaps hedging cash flows related to short-term borrowings totaled $25.0 million at December 31, 2020 and matured during the nine months ended September 30, ~~2020~~2021. Long-term debt was $14.0 million at September 30, 2021 and ~~$50.0~~$39.1 million at December 31, ~~2019. Long-term debt was $64.1 million at September 30, 2020 and $64.2 million at December 31, 2019.~~2020.

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

Subordinated Debt

On June 23, 2020, the Company issued $100.0 million of 5.00% fixed-to-floating rate subordinated notes due 2030. The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual rate of 5.00%, payable semi-annually in arrears commencing on January 1, 2021, and a floating rate of interest equivalent to the three-month Secured Overnight Financing Rate ~~(“SOFR”)~~ plus a spread of 4.85%, payable quarterly in arrears commencing on October 1, 2025. The subordinated debt issuance cost, which is being amortized on a straight-line basis, was $2.2 million. As of September 30, 2021 and December 31, 2020 the subordinated debt net of unamortized issuance costs was ~~$97.9 million.~~$98.4 million and $98.1 million, respectively.

Capital Resources

Stockholders’ equity of $1.2 billion represented ~~10.75%~~10.35% of total assets at September 30, ~~2020~~2021 compared with ~~$1.1~~$1.2 billion, or ~~11.53%~~10.86% of total assets, as of December 31, ~~2019.~~2020. Stockholders’ equity was consistent with December 31, ~~2019~~2020 as net income of ~~$70.2~~$117.6 million for the nine months ending September 30, ~~2020 and an increase~~2021 was offset by a decrease in accumulated other comprehensive income of ~~$21.0~~$14.9 million, ~~was offset by~~ dividends declared of ~~$35.4~~$35.6 million during the period and repurchase of common stock of ~~$8.0 million and a $4.3 million negative adjustment due to the adoption~~$14.1 million.

Table of ~~CECL~~.Contents

The Company repurchased ~~263,507~~119,342 shares of common stock during the ~~first~~third quarter of ~~2020~~2021 at a weighted average price of ~~$30.25~~$35.30 per share excluding commissions under a previous announced plan. As of September 30, ~~2020,~~2021, there were ~~736,493~~1,600,000 shares available for repurchase under this plan authorized on October 28, 2019, amended on March 23, 2020 and January 27, 2021, and set to expire on December 31, 2021. ~~The Company suspended repurchases during the first quarter and does not expect to repurchase additional shares at this time.~~

~~Table of Contents~~

The Board of Directors considers the Company’s capital levels, earnings position and earnings potential when making dividend decisions. The Board of Directors approved a fourth-quarter ~~2020~~2021 cash dividend of ~~$0.27~~$0.28 per share at a meeting held on October ~~26, 2020.~~25, 2021. The dividend will be paid on December 15, ~~2020~~2021 to ~~stockholders~~shareholders of record as of December 1, ~~2020.~~2021.

As the capital ratios in the following table indicate, the Company remained “well capitalized” at September 30, ~~2020~~2021 under applicable bank regulatory requirements. Capital measurements are well in excess of regulatory minimum guidelines and meet the requirements to be considered well capitalized for all periods presented. To be considered well capitalized, tier 1 leverage, common equity tier 1 capital, tier 1 capital and total risk-based capital ratios must be 5%, 6.5%, 8% and 10%, respectively.

Capital Measurements	September 30, 2020			December 31, 2019			September 30, 2021			December 31, 2020
Tier 1 leverage ratio		9.48	%		10.33	%		9.47	%		9.56	%
Common equity tier 1 capital ratio		11.63	%		11.29	%		12.20	%		11.84	%
Tier 1 capital ratio		12.88	%		12.56	%		13.39	%		13.09	%
Total risk-based capital ratio		15.43	%		13.52	%		15.74	%		15.62	%
Cash dividends as a percentage of net income		50.46	%		38.02	%		30.29	%		45.22	%
Per common share:
Book value	$	26.74		$	25.58		$	28.65		$	27.22
Tangible book value⁽¹⁾	$	20.02		$	19.03		$	21.95		$	20.52
Tangible equity ratio⁽²⁾		8.27	%		8.84	%		8.13	%		8.41	%

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

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

In March 2020, the Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System, and the ~~FDIC~~Federal Deposit Insurance Corporation (“FDIC”) announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. Under the modified CECL transition provision, the regulatory capital impact of the January 1, 2020 CECL adoption date adjustment to the allowance for credit losses (after-tax) has been deferred and will phase into regulatory capital at 25% per year commencing January 1, 2022. For the ongoing impact of CECL, the Company is allowed to defer the regulatory capital impact of the allowance for credit losses in an amount equal to 25% of the change in the allowance for credit losses (pre-tax) recognized through earnings for each period between January 1, 2020 and December 31, 2021. The cumulative adjustment to the allowance for credit losses between January 1, 2020 and December 31, 2021, will also phase into regulatory capital at 25% per year commencing January 1, 2022. The Company adopted the capital transition relief over the permissible five-year period.

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Liquidity and Interest Rate Sensitivity Management

Market Risk

Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Company’s business activities or are immaterial to the results of operations.

Interest rate risk is defined as an exposure to a movement in interest rates that could have an adverse effect on the Company’s net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than earning assets. When interest-bearing liabilities mature or reprice more quickly than earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income.

To manage the Company’s exposure to changes in interest rates, management monitors the Company’s interest rate risk. Management’s Asset Liability Committee (“ALCO”), meets monthly to review the Company’s interest rate risk position and profitability and to recommend strategies for consideration by the Board of Directors. Management also reviews loan and deposit pricing and the Company’s securities portfolio, formulates investment and funding strategies and oversees the timing and implementation of transactions to assure attainment of the Board’s objectives in the most effective manner. Notwithstanding the Company’s interest rate risk management activities, the potential for changing interest rates is an uncertainty that can have an adverse effect on net income.

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

The primary tool utilized by the ALCO to manage interest rate risk is earnings at risk modeling (interest rate sensitivity analysis). Information, such as principal balance, interest rate, maturity date, cash flows, next repricing date (if needed) and current rates are uploaded into the model to create an ending balance sheet. In addition, the ALCO makes certain assumptions regarding prepayment speeds for loans and mortgage related investment securities along with any optionality within the deposits and borrowings. The model is first run under an assumption of a flat rate scenario (i.e. no change in current interest rates) with a static balance sheet. Three additional models are run in which a gradual increase of 200 bps, a gradual increase of 100 bps and a gradual decrease of 50 bps ~~take~~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 ~~risks.~~risk.

In the declining rate scenario, net interest income is projected to decrease when compared to the forecasted net interest income in the flat rate scenario through the simulation period. The decrease in net interest income is a result of earning assets rolling over at lower yields while interest-bearing liabilities remain at or near their floors. In the rising rate scenarios, net interest income is projected to experience a modest increase from the flat rate scenario; however, the potential impact on earnings may be affected by the ability to lag deposit repricing on NOW, savings, MMDA and time accounts. Net interest income for the next twelve months in the ~~+ 200/~~+200/+100/-50 bp scenarios, as described above, is within the internal policy risk limits of not more than a 7.5% change in net interest income. The following table summarizes the percentage change in net interest income in the rising and declining rate scenarios over a 12-month period from the forecasted net interest income in the flat rate scenario using the September 30, ~~2020~~2021 balance sheet position:

Interest Rate Sensitivity Analysis
Change in interest rates	Percent change in
(in bps points)	net interest income

Change in interest rates (in bps points)		Percent change in net interest income
+200	0.89%	6.93%
+100	1.37%	3.22%
-50	(0.26%)	(0.84%)

The Company anticipates that the trajectory of net interest income will depend significantly on the ~~depth~~timing and ~~duration~~path of the ~~current~~recovery from the recent economic downturn. In response to the economic impact of the pandemic, the federal funds rate was reduced by 150 bps in March 2020, and term interest rates fell sharply across the yield curve. The Company has reduced deposit rates, but future reductions are likely to be smaller and more selective. With deposit rates near their lower bound, the Company will focus on managing asset yields in order to maintain the net interest margin. Competitive pressure may limit the Company’s ability to maintain asset yields in the current environment, however.

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Liquidity Risk

Liquidity involves the ability to 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, 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.

The primary liquidity measurement the Company utilizes is called ~~the~~ “Basic ~~Surplus”,~~Surplus,” which captures the adequacy of its access to reliable sources of cash relative to the stability of its funding mix of average liabilities. This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources, which can be accessed when necessary. At September 30, ~~2020,~~2021, the Company’s Basic Surplus measurement was ~~25.5%~~29.4% of total assets or approximately ~~$2.8~~$3.5 billion as compared to the December 31, ~~2019~~2020 Basic Surplus of ~~15.8%~~25.7% or ~~$1.5~~$2.8 billion and was above the Company’s minimum of 5% (calculated at ~~$542.5~~$599.7 million and ~~$485.8~~$546.6 million, of period end total assets as September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively) set forth in its liquidity policies.

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, Federal Home Loan Bank (“FHLB”) advances outstanding totaled ~~$159.2~~$14.0 million and ~~$585.8~~$64.1 million, respectively. At September 30, 2021 and December 31, 2020, the Bank had $130.0 million and $74.0 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 ~~$1.5~~$1.7 billion at September 30, ~~2020~~2021 and ~~$1.2~~$1.6 billion at December 31, ~~2019.~~2020. In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional ~~$720.8~~$901.2 million and ~~$627.6~~$839.4 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, or used to collateralize other borrowings, such as repurchase agreements. The Company also has the ability to ~~purchase~~issue brokered time deposits and to borrow against established borrowing facilities with other banks (federal funds), which could provide additional liquidity of ~~$1.8~~$2.0 billion at September 30, ~~2020~~2021 and ~~$1.4~~$1.8 billion at December 31, ~~2019.~~2020. In addition, the Bank has a “Borrower-in-Custody” program with the FRB with the addition of the ability to pledge automobile loans as collateral. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Bank had the capacity to borrow ~~$713.6~~$588.3 million and ~~$837.3~~$658.1 million, respectively, from this program. The Company’s internal policies authorize borrowing up to 25% of assets. Under this policy, remaining available borrowing capacity totaled ~~$2.6~~$2.8 billion at September 30, ~~2020~~2021 and ~~$1.8~~$2.6 billion at December 31, ~~2019.~~2020.

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 considered its Basic Surplus position to be ~~very~~ strong. However, certain events may adversely impact the Company’s liquidity position in ~~2020.~~2021. The large inflow of deposits experienced in the second quarter of 2020 could reverse itself and flow out. 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%. Significant monetary and fiscal policy actions taken by the federal government have helped to mitigate these risks. Enhanced liquidity monitoring was put in place to quickly respond to the changing environment during the COVID-19 pandemic including increasing the frequency of monitoring and adding additional sources of liquidity.

At September 30, ~~2020,~~2021, a portion of the Company’s loans and securities were pledged as collateral on borrowings. Therefore, once on-balance-sheet liquidity is depleted, future growth of earning assets will depend upon the Company’s ability to obtain additional funding, through growth of core deposits and collateral management and may require further use of brokered time deposits or other higher cost borrowing arrangements.

The Company’s primary source of funds is the Bank. Certain restrictions exist regarding the ability of the subsidiary bank to transfer funds to the Company in the form of cash dividends. The approval of the OCC is required to pay dividends when a bank fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations. At September 30, ~~2020,~~2021, approximately ~~$173.5~~$193.0 million of the total stockholders’ equity of the Bank was available for payment of dividends to the Company without approval by the OCC. The Bank’s ability to pay dividends is also subject to the Bank being in compliance with regulatory capital requirements. The Bank is currently in compliance with these requirements. Under the State of Delaware General Corporation Law, the Company may declare and pay dividends either out of accumulated net retained earnings or capital surplus.

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Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4 - CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, ~~2020,~~2021, the Company’s disclosure controls and procedures were effective.

Effective January 1, 2020, the Company adopted the CECL accounting standard. The Company designed new controls and modified existing controls as part of its adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data. There were no other changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II OTHER INFORMATION

Item 1 – LEGAL PROCEEDINGS

There are no material legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of their property is subject, except as described in the Company’s ~~2019~~2020 Annual Report on Form 10-K.

Item 1A – RISK FACTORS

There are no material changes to the risk factors as previously discussed in Part I, Item 1A of our ~~2019~~2020 Annual Report on Form ~~10-K, for the year ended December 31, 2019 and updated in Part II, Item 1A of our Quarterly Report on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020.~~10-K.

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Item 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)	Not applicable

~~(a) Not applicable~~

(b)	Not applicable

(c)	The table below sets forth the information with respect to purchases made by the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a) (3) under the Securities Exchange Act of 1934) of our common stock during the quarter ended September 30, 2021:

~~(b) Not applicable~~

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Number of Shares That May Yet be Purchased Under the Plans(1)
7/1/21 - 7/31/21		119,342	$	35.30		119,342		1,600,000
8/1/21 - 8/31/21		-		-		-		1,600,000
9/1/21 - 9/30/21		-		-		-		1,600,000
Total		119,342	$	35.30		119,342		1,600,000

~~(c) None~~

(1)

The Company purchased 119,342 shares of its common stock during the third quarter of 2021 at an average price of $35.30 per share under a previously announced plan. As of September 30, 2021, there were 1,600,000 shares available for repurchase under this plan announced on October 28, 2019, amended on March 23, 2020 and January 27, 2021, and set to expire on December 31, 2021.

Item 3 – DEFAULTS UPON SENIOR SECURITIES

None

Item 4 – MINE SAFETY DISCLOSURES

None

Item 5 – OTHER INFORMATION

None

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Item 6 – EXHIBITS~~EXHIBITS~~

3.1	Restated Certificate of Incorporation of NBT Bancorp Inc. as amended through July 1, 2015 (filed as Exhibit 3.1 to Registrant’s Form 10-Q, filed on August 10, 2015 and incorporated herein by reference).
3.2	Amended and Restated Bylaws of NBT Bancorp Inc. effective May 22, 2018 (filed as Exhibit 3.1 to Registrant’s Form 8-K, filed on May 23, 2018 and incorporated herein by reference).
3.3	Certificate of Designation of the Series A Junior Participating Preferred Stock (filed as Exhibit A to Exhibit 4.1 of the Registrant’s Form 8-K, filed on November 18, 2004 and incorporated herein by reference).
10.1	Employment Agreement, dated August 5, 2021, by and between NBT Bancorp, Inc. and Scott A. Kingsley (filed as Exhibit 10.1 to Registrant’s Form 10-Q filed on August 6, 2021 and incorporated herein by reference).
31.1	Certification by the Chief Executive Officer pursuant to Rules 13(a)-14(a)/15(d)-14(e) of the Securities and Exchange Act of 1934.
31.2	Certification by the Chief Financial Officer pursuant to Rules 13(a)-14(a)/15(d)-14(e) of the Securities and Exchange Act of 1934.
32.1	Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH	Inline XBRL Taxonomy Extension Schema Document.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, this ~~6th~~9th day of November ~~2020.~~2021.

	NBT BANCORP INC.

By:	/s/ ~~John V. Moran~~Scott A. Kingsley
	~~John V. Moran~~Scott A. Kingsley
	Executive Vice President
	Chief Financial Officer

6048

Delaware		16-1268674
(State of Incorporation)		(I.R.S. Employer Identification No.)

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

	September 30,			December 31,
	2020			2019
(In thousands, except share and per share data)
Assets
Cash and due from banks	$	167,169		$	170,595
Short-term interest-bearing accounts		450,291			46,248
Equity securities, at fair value		30,758			27,771
Securities available for sale, at fair value		1,197,925			975,340
Securities held to maturity (fair value $684,862 and $641,262, respectively)		663,088			630,074
Federal Reserve and Federal Home Loan Bank stock		28,484			44,620
Loans held for sale		1,823			11,731
Loans		7,560,643			7,136,098
Less allowance for loan losses (1)		114,500			72,965
Net loans	$	7,446,143		$	7,063,133
Premises and equipment, net		73,055			75,631
Goodwill		280,541			274,769
Intangible assets, net		12,557			12,020
Bank owned life insurance		185,227			181,748
Other assets		313,151			202,245
Total assets	$	10,850,212		$	9,715,925
Liabilities
Demand (noninterest bearing)	$	3,163,717		$	2,414,383
Savings, NOW and money market		5,134,495			4,312,244
Time		659,971			861,193
Total deposits	$	8,958,183		$	7,587,820
Short-term borrowings		183,472			655,275
Long-term debt		64,126			64,211
Subordinated debt, net		97,943			0
Junior subordinated debt		101,196			101,196
Other liabilities		279,181			187,026
Total liabilities	$	9,684,101		$	8,595,528
Stockholders’ equity
Preferred stock, $0.01 par value. Authorized 2,500,000 shares at September 30, 2020 and December 31, 2019	$	0		$	0
Common stock, $0.01 par value. Authorized 100,000,000 shares at September 30, 2020 and December 31, 2019; issued 49,651,493 at September 30, 2020 and December 31, 2019		497			497
Additional paid-in-capital		577,737			576,708
Retained earnings		726,650			696,214
Accumulated other comprehensive income (loss)		2,021			(19,026	)
Common stock in treasury, at cost, 6,040,113 and 5,854,882 shares at September 30, 2020 and December 31, 2019, respectively		(140,794	)		(133,996	)
Total stockholders’ equity	$	1,166,111		$	1,120,397
Total liabilities and stockholders’ equity	$	10,850,212		$	9,715,925

Item 1	Financial Statements

	Consolidated Balance Sheets at September 30, ~~2020~~2021 and December 31, ~~2019~~2020	31

	Consolidated Statements of Income for the three and nine month periods ended September 30, ~~2020~~2021 and ~~2019~~2020	42

	Consolidated Statements of Comprehensive Income for the three and nine month periods ended September 30, ~~2020~~2021 and ~~2019~~2020	53

	Consolidated Statements of Stockholders’ Equity for the three and nine month periods ended September 30, ~~2020~~2021 and ~~2019~~2020	64

	Consolidated Statements of Cash Flows for the nine month periods ended September 30, ~~2020~~2021 and ~~2019~~2020	75

	Notes to Unaudited Interim Consolidated Financial Statements	97

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4028

Item 3	Quantitative and Qualitative Disclosures about Market Risk	5644

Item 4	Controls and Procedures	5644

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	5745
Item 1A	Risk Factors	5745
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	5846
Item 3	Defaults Upon Senior Securities	5846
Item 4	Mine Safety Disclosures	5846
Item 5	Other Information	5846
Item 6	Exhibits	5947

SIGNATURES		6048

	Nine Months Ended September 30, 2021				Nine Months Ended September 30, 2020
(Dollars in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial loans:
C&I		0	$	0		1	$	387
CRE		0		0		1		168
Total commercial loans		0	$	0		2	$	555
Consumer loans:
Auto		2	$	18		0	$	0
Total consumer loans		2	$	18		0	$	0
Residential		39	$	2,356		45	$	2,280
Total TDRs		41	$	2,374		47	$	2,835

	December 31, 2019
(In thousands)	Recorded Investment Balance (Book)		Unpaid Principal Balance (Legal)		Related Allowance
Originated
With no related allowance recorded:
Commercial Loans:
C&I	$	76	$	302	$
CRE		2,410		2,437
Business Banking		1,002		1,443
Total Commercial Loans	$	3,488	$	4,182
Consumer Loans:
Indirect Auto	$	154	$	242
Direct		6,862		8,335
Specialty Lending		28		28
Total Consumer Loans	$	7,044	$	8,605
Residential Real Estate	$	7,721	$	9,754
Total	$	18,253	$	22,541

Total Loans	$	18,253	$	22,541	$	0

Business Banking Credit Exposure By Internally Assigned Grade:	Business Banking		Total
Non-classified	$	524,725	$	524,725
Classified		13,803		13,803
Total	$	538,528	$	538,528

Consumer Credit Exposure By Payment Activity:	Indirect Auto		Specialty Lending		Direct		Total
Performing	$	1,190,455	$	540,756	$	484,292	$	2,215,503
Nonperforming		3,180		1,307		2,953		7,440
Total	$	1,193,635	$	542,063	$	487,245	$	2,222,943

Residential Real Estate Credit Exposure By Payment Activity:	Residential Real Estate		Total
Performing	$	1,312,742	$	1,312,742
Nonperforming		6,535		6,535
Total	$	1,319,277	$	1,319,277

Acquired
Commercial Credit Exposure
By Internally Assigned Grade:	C&I		CRE		Total
Pass	$	17,801	$	60,545	$	78,346
Special Mention		1,269		0		1,269
Substandard		294		392		686
Total	$	19,364	$	60,937	$	80,301

Consumer Credit Exposure
By Payment Activity:	Direct		Total
Performing	$	23,628	$	23,628
Nonperforming		105		105
Total	$	23,733	$	23,733

	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
(Dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial Loans:
C&I		0	$	0	$	0		1	$	65	$	65
Business Banking		0		0		0		2		388		388
Total Commercial Loans		0	$	0	$	0		3	$	453	$	453
Consumer Loans:
Indirect Auto		0	$	0	$	0		9	$	134	$	134
Direct		1		30		37		9		418		434
Total Consumer Loans		1	$	30	$	37		18	$	552	$	568
Residential Real Estate		2	$	186	$	203		10	$	942	$	990
Total Troubled Debt Restructurings		3	$	216	$	240		31	$	1,947	$	2,011

(Dollars in thousands)	September 30, 2020
Subordinated notes issued June 2020 – fixed interest rate of 5.00% through June 2025 and a variable interest rate equivalent to three-month SOFR plus 4.85% thereafter, maturing July 1, 2030	$	100,000
Unamortized debt issuance costs		(2,057	)
Total subordinated debt, net	$	97,943