NBT Bancorp Inc: Form 10-Q for the period ended Jun 30, 2026

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

The purpose of this discussion and analysis is to provide a concise description of the consolidated financial condition and results of operations of NBT Bancorp Inc. (“NBT”) and its wholly-owned subsidiaries, including NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc. (“NBT Financial”) and NBT Holdings, Inc. (“NBT Holdings”) (collectively referred to herein as the “Company”). When references to “NBT,” “we,” “our,” “us,” and “the Company” are made in this report, we mean NBT Bancorp Inc. and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, NBT Bancorp Inc. When we refer to the “Bank” in this report, we mean our only bank subsidiary, NBT Bank, National Association, and its subsidiaries. This discussion will focus on results of operations and financial condition, including capital resources and asset/liability management. Reference should be made to the Company’s consolidated financial statements and footnotes thereto included in this Form 10‑Q as well as to the Company’s Annual Report on Form 10‑K for the year ended December 31, 2025 for an understanding of the following discussion and analysis. Operating results for the three and six months ended June 30, 2026 are not necessarily indicative of the results of the full year ending December 31, 2026 or any future period.

Forward-Looking Statements

Certain statements in this filing and future filings by the Company with the SEC, in the Company’s press releases or other public or stockholder communications or in oral statements made with the approval of an authorized executive officer, contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of phrases such as “anticipate,” “believe,” “expect,” “forecasts,” “projects,” “will,” “can,” “would,” “should,” “could,” “may,” or other similar terms. There are a number of factors, many of which are beyond the Company’s control, that could cause actual results to differ materially from those contemplated by any forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) local, regional, national and international economic conditions, including actual or potential stress in the banking industry, and the impact they may have on the Company and its customers, and the Company’s assessment of that impact; (2) changes in the level of nonperforming assets and charge-offs; (3) changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; (4) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the FRB and international trade disputes (including threatened or implemented tariffs imposed by the U.S. and threatened or implemented tariffs imposed by foreign countries in retaliation); (5) inflation, interest rate, securities market and monetary fluctuations; (6) political instability; (7) acts of war, including international military conflicts, or terrorism; (8) the timely development and acceptance of new products and services and the perceived overall value of these products and services by users; (9) changes in consumer spending, borrowing and saving habits; (10) changes in the financial performance and/or condition of the Company’s borrowers; (11) technological changes; (12) acquisition and integration of acquired businesses; (13) the 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, and the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018; (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 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; and (20) the Company’s success at managing the risks involved in the foregoing items.

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

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

Non-GAAP Measures

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

Critical Accounting Estimates

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

Allowance for Credit Losses and Unfunded Commitments

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

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

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

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

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

Evans Bancorp, Inc. Merger

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

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

Executive Summary

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

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

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

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

Net interest income for the three months ended June 30, 2026 was $137.0 million, up $2.6 million, or 1.9%, from the first quarter of 2026 and up $12.7 million, or 10.3%, from the second quarter of 2025. Net interest income for the six months ended June 30, 2026 was $271.3 million, up $39.9 million, or 17.2%, from the same period in 2025.

FTE NIM(1), a non-GAAP measure, was 3.73% for the three months ended June 30, 2026, an increase of 1 bp from the previous quarter and an increase of 14 bps from the second quarter of 2025. FTE NIM was 3.73% for the six months ended June 30, 2026, an increase of 21 bps from the same period in 2025.

The Company recorded a provision for loan losses of $6.1 million for the three months ended June 30, 2026, compared to $5.6 million in the first quarter of 2026 and $17.8 million in the second quarter of 2025. Provision for loan losses was $11.7 million for the six months ended June 30, 2026, down $13.7 million from the same period in 2025. Included in the provision expense for the three and six months ended June 30, 2025 was $13.0 million of acquisition-related provision for loan losses.

Excluding securities gains, noninterest income represented 27% of total revenues and was $49.6 million for the three months ended June 30, 2026, consistent with the first quarter of 2026 and up $2.7 million, or 5.8%, from the second quarter of 2025. Excluding securities gains, noninterest income was $99.2 million for the six months ended June 30, 2026 up $4.9 million from the same period in 2025.

Noninterest expense, excluding acquisition expenses, was down $0.8 million, or 0.7%, from the first quarter of 2026 and was up $6.0 million, or 5.7%, from the second quarter of 2025. Noninterest expense, excluding acquisition expenses, was $223.7 million for the six months ended June 30, 2026, up $19.6 million from the same period in 2025.

Period end total loans were $11.87 billion, up $276.0 million, or 2.4%, from December 31, 2025.

Credit quality metrics including net charge-offs to average loans were 0.16%, annualized, and allowance for loan losses to total loans was 1.18%.

Period end total deposits were $13.54 billion, up $38.1 million from December 31, 2025. The loan to deposit ratio was 87.7% as of June 30, 2026 and 85.9% as of December 31, 2025.

On June 30, 2026, the Company redeemed $25 million of subordinated debt that had a fixed rate of 3.50% using existing liquidity sources. The $25 million of subordinated debt converted to a floating rate at 6.50% in the second quarter of 2026.

The acquisition of Evans through the merger of Evans with and into the Company was completed on May 2, 2025. The Company incurred acquisition expenses of $17.2 million and $18.4 million for the three and six months ended June 30, 2025, respectively, related to the merger with Evans in 2025.

(1)

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

Results of Operations

The following table sets forth certain financial highlights:

(1)

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

(2)

Annualized.

The following table provides non-GAAP reconciliations:

(In thousands, except per share data)

(2)

Annualized.

Net Interest Income

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

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

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

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

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.

(Dollars in thousands)

(1)

Securities are shown at average amortized cost.

(2)

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

(3)

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

(Dollars in thousands)

(1)

Securities are shown at average amortized cost.

(2)

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

(3)

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

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

(In thousands)

(In thousands)

46

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:

(In thousands)

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

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

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

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

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:

(In thousands)

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

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

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

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

Income Taxes

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

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

ANALYSIS OF FINANCIAL CONDITION

Securities

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

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

The Company’s mortgage-backed securities, U.S. agency notes and collateralized mortgage obligations are all guaranteed by Fannie Mae, Freddie Mac, FHLB, Federal Farm Credit Banks or Ginnie Mae (“GNMA”). GNMA securities are considered similar in credit quality to U.S. Treasury securities, as they are backed by the full faith and credit of the U.S. government. Currently, there are no subprime mortgages in our investment portfolio.

Loans

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

(In thousands)

(1)

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

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

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

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

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

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

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

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

Management estimates the allowance for credit losses using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Company historical loss experience was supplemented with peer information when there was insufficient loss data for the Company. Significant management judgment is required at each point in the measurement process.

The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics exist. The respective quantitative allowance for each segment is measured using an econometric, discounted PD and LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to multiple, probabilistically weighted external economic forecasts. Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio as of the balance sheet date.

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

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

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

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

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

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

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

Nonperforming assets consist of nonaccrual loans, loans over 90 days past due and still accruing, troubled loan modifications, OREO and nonperforming securities. Loans are generally placed on nonaccrual when principal or interest payments become 90 days past due, unless the loan is well secured and in the process of collection. Loans may also be placed on nonaccrual when circumstances indicate that the borrower may be unable to meet the contractual principal or interest payments. The threshold for evaluating commercial loans risk graded substandard or doubtful, and nonperforming loans specifically evaluated for individual credit loss is $1.0 million. OREO represents property acquired through foreclosure and is valued at the lower of the carrying amount or fair value, less any estimated disposal costs.

(Dollars in thousands)

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

In addition to nonperforming loans discussed above, the Company has also identified approximately $228.7 million in potential problem loans at June 30, 2026 as compared to $271.8 million at December 31, 2025. Potential problem loans are loans that are currently performing, with a possibility of loss if weaknesses are not corrected. Such loans may need to be disclosed as nonperforming at some time in the future. Potential problem loans are classified by the Company’s loan rating system as “substandard.” The decrease in potential problem loans from December 31, 2025 is primarily due to the net migration of $26.0 million in commercial loan balances to pass status, due to improved borrower performance and an increase in commercial nonaccrual loan balances. Management cannot predict the extent to which economic conditions may worsen or other factors, which may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become over 90 days past due, be placed on nonaccrual, become troubled loan modifications or require increased allowance coverage and provision for loan losses. To mitigate this risk the Company maintains a diversified loan portfolio, has no significant concentration in any particular industry and originates loans primarily within its footprint.

Deposits

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

Borrowed Funds

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

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

Subordinated Debt

The subordinated notes assumed in connection with the Salisbury Bancorp, Inc. acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031. The subordinated notes, which qualified as Tier 2 capital, bore interest at an annual rate of 3.50%, payable quarterly in arrears commencing on June 30, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 2.80%, payable quarterly in arrears commencing on June 30, 2026. On June 30, 2026, the Company redeemed these subordinated notes in full using existing liquidity sources.

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

Junior Subordinated Debt

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

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

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

Capital Resources

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

The Company purchased 68,595 shares of its common stock during the three months ended June 30, 2026, for a total of $3.0 million at an average price of $43.96 per share under its previously announced stock repurchase program. Under its stock repurchase program, the Company may repurchase shares of its common stock from time to time to mitigate the potential dilutive effects of stock-based incentive plans and other potential uses of common stock for corporate purposes. As of June 30, 2026, there were 1,431,405 shares available for repurchase under this program authorized on October 27, 2025, which is set to expire on December 31, 2027.

As the capital ratios in the following table indicate, the Company remained “well capitalized” at June 30, 2026 under applicable bank regulatory requirements. Capital measurements are well in excess of regulatory minimum requirements and meet the standard to be considered well capitalized for all periods presented. To be considered well capitalized, tier 1 leverage, common equity tier 1 capital, tier 1 capital and total risk-based capital ratios must be 5%, 6.5%, 8% and 10%, respectively.

(1)

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

(2)

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

Liquidity and Interest Rate Sensitivity Management

Market Risk

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

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

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

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

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

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

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

Liquidity Risk

Liquidity risk arises from the possibility that the Company may not be able to satisfy current or future financial commitments or may become unduly reliant on alternate funding sources. The objective of liquidity management is to ensure the Company can fund balance sheet growth, meet the cash flow requirements of depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. ALCO is responsible for liquidity management and has developed guidelines, which cover all assets and liabilities, as well as off-balance sheet items that are potential sources or uses of liquidity. Liquidity policies must also provide the flexibility to implement appropriate strategies, along with regular monitoring of liquidity and testing of the contingent liquidity plan. Requirements change as loans grow, deposits and securities mature and payments on borrowings are made. Liquidity management includes a focus on interest rate sensitivity management with a goal of avoiding widely fluctuating net interest margins through periods of changing economic conditions. Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayments of loans and mortgage-related securities are strongly influenced by interest rates, the housing market, general and local economic conditions, and competition in the marketplace. Management continually monitors marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset prepayments.

The primary liquidity measurement the Company utilizes is called “Basic Surplus,” which captures the adequacy of its access to reliable sources of cash relative to the stability of its funding mix of average liabilities. This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources, which can be accessed when necessary. At June 30, 2026, the Company’s Basic Surplus measurement was 17.1% of total assets, or $2.77 billion, as compared to the December 31, 2025 Basic Surplus of 18.7%, or $2.98 billion, and was above the Company’s minimum of 5% (calculated at $810.7 million and $799.8 million of period end total assets as June 30, 2026 and December 31, 2025, respectively) set forth in its liquidity policies.

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

This Basic Surplus approach enables the Company to appropriately manage liquidity from both operational and contingency perspectives. By tempering the need for cash flow liquidity with reliable borrowing facilities, the Company is able to operate with a more fully invested and, therefore, higher interest income generating securities portfolio. The makeup and term structure of the securities portfolio is, in part, impacted by the overall interest rate sensitivity of the balance sheet. Investment decisions and deposit pricing strategies are impacted by the liquidity position. The Company considers its Basic Surplus position to be strong. However, certain events may adversely impact the Company’s liquidity position in 2026. While short-term interest rates have declined, they remain elevated relative to recent history, which could result in deposit declines as depositors continue to have alternative opportunities for yield on their excess funds. In the current economic environment, draws against lines of credit could drive asset growth higher. Disruptions in wholesale funding markets could spark increased competition for deposits. These scenarios could lead to a decrease in the Company’s Basic Surplus measure below the minimum policy level of 5%.

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

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

Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends. The approval of the OCC is required to pay dividends when a bank fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations. At June 30, 2026 and December 31, 2025, approximately $110.0 million and $115.9 million, respectively, of the total stockholders’ equity of the Bank was available for payment of dividends to the Company without approval by the OCC. The Bank’s ability to pay dividends is also subject to the Bank being in compliance with regulatory capital requirements. The Bank is currently in compliance with these requirements. Under the State of Delaware General Corporation Law, the Company may declare and pay dividends either out of accumulated net retained earnings or capital surplus.

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.

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 June 30, 2026, the Company’s disclosure controls and procedures were effective.

RISK FACTORS

There are no material changes to the risk factors as previously discussed in Part I, Item 1A. of our 2025 Annual Report on Form 10-K.