NBT BANCORP INC

Previous wording

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 we refer to “NBT,” “we,” “our,” “us,” and “the Company”, 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”, we mean our only bank subsidiary, NBT Bank, National Association, and its subsidiaries. This discussion will focus on results of operations for the fiscal years ended December 31, 2023, 2022, and 2021, and financial condition as of December 31, 2023 and 2022, including capital resources and asset/liability management. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes.

Current wording

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 for the fiscal years ended December 31, 2024, 2023, and 2022, and financial condition as of December 31, 2024 and 2023, including capital resources and asset/liability management. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes.

Previous wording

Certain statements in this filing and future filings by the Company with the Securities and Exchange Commission (“SEC”), in the Company’s press releases or other public or stockholder communications or in oral statements made with the approval of an authorized executive officer, contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of phrases such as “anticipate,” “believe,” “expect,” “forecasts,” “projects,” “will,” “can,” “would,” “should,” “could,” “may,” or other similar terms. There are a number of factors, many of which are beyond the Company’s control that could cause actual results to differ materially from those contemplated by the forward-looking statements. The discussion in Item 1A, “Risk Factors,” lists some of the factors that could cause our actual results to vary materially from those expressed or implied by any forward-looking statements, and such discussion is incorporated into this discussion by reference.

Current wording

Certain statements in this filing and future filings by the Company with the SEC, in the Company’s press releases or other public or stockholder communications or in oral statements made with the approval of an authorized executive officer, contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of phrases such as “anticipate,” “believe,” “expect,” “forecasts,” “projects,” “will,” “can,” “would,” “should,” “could,” “may,” or other similar terms. There are a number of factors, many of which are beyond the Company’s control that could cause actual results to differ materially from those contemplated by the forward-looking statements. The discussion in Item 1A. Risk Factors lists some of the factors that could cause our actual results to vary materially from those expressed or implied by any forward-looking statements, and such discussion is incorporated into this discussion by reference.

Previous wording

NBT Bancorp Inc. is a financial holding company headquartered in Norwich, NY, with total assets of $13.31 billion at December 31, 2023. The Company’s business, primarily conducted through the Bank and its full-service retirement plan administration and recordkeeping subsidiary and full-service insurance agency subsidiary, consists of providing commercial banking, retail banking, wealth management and other financial services primarily to customers in its market area, which includes upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central and northwestern Connecticut. The Company’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. The financial review that follows focuses on the factors affecting the consolidated financial condition and results of operations of the Company and its wholly-owned subsidiaries, the Bank, NBT Financial and NBT Holdings during 2023 and, in summary form, the preceding two years. Net interest margin is presented in this discussion on a fully taxable equivalent (“FTE”) basis. Average balances discussed are daily averages unless otherwise described. The audited consolidated financial statements and related notes as of December 31, 2023 and 2022 and for each of the years in the three-year period ended December 31, 2023 should be read in conjunction with this review.

Current wording

NBT Bancorp Inc. is a registered financial holding company headquartered in Norwich, NY, with total assets of $13.79 billion at December 31, 2024. The Company’s business, primarily conducted through the Bank and its full-service retirement plan administration and recordkeeping subsidiary and full-service insurance agency subsidiary, consists of providing commercial banking, retail banking, wealth management and other financial services primarily to customers in its market area, which includes upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central and northwestern Connecticut. The Company’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. The financial review that follows focuses on the factors affecting the consolidated financial condition and results of operations of the Company and its wholly-owned subsidiaries, the Bank, NBT Financial and NBT Holdings during 2024 and, in summary form, the preceding two years. NIM is presented in this discussion on a FTE basis. Average balances discussed are daily averages unless otherwise described. The audited consolidated financial statements and related notes as of December 31, 2024 and 2023 and for each of the years in the three-year period ended December 31, 2024 should be read in conjunction with this review.

Previous wording

The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the financial services industry. In the course of normal business activity, management must select and apply many accounting policies and methodologies and make estimates and assumptions that lead to the financial results presented in the Company’s consolidated financial statements and accompanying notes. There are uncertainties inherent in making these estimates and assumptions, which could materially affect the Company’s results of operations and financial position.

Current wording

The SEC defines critical accounting policies as accounting policies that are most important to a company’s financial results and condition. These policies are often subjective and require management to make estimates about uncertain matters. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles GAAP and to general practices within the financial services industry. In the course of normal business activity, management must select and apply many accounting policies and methodologies and make estimates and assumptions that lead to the financial results presented in the Company’s consolidated financial statements and accompanying notes. There are uncertainties inherent in making these estimates and assumptions, which could materially affect the Company’s results of operations and financial position.

Previous wording

Goodwill represents the cost of the acquired business in excess of the fair value of the related net assets acquired. Following a merger, the determination of fair values for acquired assets and assumed liabilities, including intangible assets such as goodwill, becomes critical. All acquired assets, including goodwill and other intangible assets, and assumed liabilities in purchase acquisitions are recorded at fair value as of the acquisition date. The Company expenses all acquisition-related costs as incurred as required by Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations.”

Current wording

Goodwill represents the cost of the acquired business in excess of the fair value of the related net assets acquired. Following a merger, the determination of fair values for acquired assets and assumed liabilities, including intangible assets such as goodwill, becomes critical. All acquired assets, including goodwill and other intangible assets, and assumed liabilities in purchase acquisitions are recorded at fair value as of the acquisition date. The Company expenses all acquisition-related costs as incurred as required by ASC Topic 805, “Business Combinations.”

Previous wording

The determination of fair values for acquired loans in a business combination is a significant aspect of our financial reporting process. The valuation of acquired loans relied on a discounted cash flow approach applied on a pooled basis, utilizing a forecast of principal and interest payments. This methodology segmented the acquired loan portfolio by loan type, term, interest rate, payment frequency and payment, and incorporated specific key valuation assumptions, encompassing prepayments, probability of default, loss given default, and the discount rate to ascertain the fair value of these assets. Given the inherent subjectivity and reliance on future cash flows and market conditions, this process involves considerable judgment and estimation uncertainty.

Current wording

The determination of fair values for acquired loans in a business combination is a significant aspect of our financial reporting process. The valuation of acquired loans relied on a discounted cash flow approach applied on a pooled basis, utilizing a forecast of principal and interest payments. This methodology segmented the acquired loan portfolio by loan type, term, interest rate, payment frequency and payment, and incorporated specific key valuation assumptions, encompassing prepayments, PD, LGD, and the discount rate to ascertain the fair value of these assets. Given the inherent subjectivity and reliance on future cash flows and market conditions, this process involves considerable judgment and estimation uncertainty.

Previous wording

SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with U.S. generally accepted accounting principles 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 allowance for credit losses and the allowance for unfunded commitments policies are deemed to meet the SEC’s definition of a critical accounting estimate.

Current wording

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

Previous wording

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

Current wording

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.

Previous wording

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 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.

Current wording

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.

Previous wording

One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. As of December 31, 2023, the quantitative model incorporates a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party to accommodate other potential economic conditions in the model. At December 31, 2023, the weightings were 70% and 30% for the baseline and downside economic forecasts, respectively. The baseline outlook reflected an unemployment rate environment starting at 3.8% and increasing slightly during the forecast period to 4.1%. Northeast GDP’s annualized growth (on a quarterly basis) was expected to start the first quarter of 2024 at approximately 3.7% before decreasing to a low of 2.9% in the third quarter of 2024 and then increasing to 3.8% by the end of the forecast period. Other utilized economic variable forecasts are mixed compared to the prior year, with retail sales up, business output mixed, and housing starts down. Key assumptions in the baseline economic outlook included currently being in a full employment economy, continued tapering of the Federal Reserve balance sheet, and the Federal Open Market Committee (“FOMC”) beginning to cut rates in the second quarter of 2024. The alternative downside scenario assumed deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment increases to a peak of 7.0% in the first quarter of 2025. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2023. All else held equal, the changes in the weightings of our forecasted scenarios would impact the amount of estimated allowance for credit losses through changes in the quantitative reserve and scenario-specific qualitative adjustments. To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of December 31, 2023, the Company attributed the change in scenario weightings to the change in the allowance for credit losses, with a 10% decrease to the downside scenario and a 10% increase to the baseline scenario causing a 4% decrease in the overall estimated allowance for credit losses. To further demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of December 31, 2023, the Company increased the downside scenario to 100% which resulted in a 26% increase in the overall estimated allowance for credit losses.

Current wording

One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. As of December 31, 2024, the quantitative model incorporated a baseline economic outlook along with an alternative downside scenario sourced from a reputable third-party to accommodate other potential economic conditions in the model. At December 31, 2024, the weightings were 80% and 20% for the baseline and downside economic forecasts, respectively. The baseline outlook reflected a Northeast unemployment rate environment starting at 4.1% and increasing slightly during the forecast period to 4.2%. Northeast GDP’s annualized growth (on a quarterly basis) is expected to start the first quarter of 2025 at approximately 3.8% before decreasing to a low of 2.6% in the third quarter of 2025 and then increasing to 3.9% by the end of the forecast period. Key assumptions in the baseline economic outlook included two 25 basis point federal funds rate cuts in 2025, quantitative tightening ending in early 2025, a post-election fiscal outlook with lower spending, lower taxes, and higher tariffs, and the economy currently being near full employment. The alternative downside scenario assumed deteriorated economic conditions from the baseline outlook. Under this scenario, Northeast unemployment increases to a peak of 7.5% in the first quarter of 2026. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2024. Additional qualitative adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, considerations for inflation and recent trends in asset value indices. Additional monitoring for industry concentrations, loan growth and policy exceptions was also conducted.

Previous wording

On August 11, 2023, NBT completed its acquisition of Salisbury. Salisbury Bank was a Connecticut-chartered commercial bank with 13 banking offices in northwestern Connecticut, the Hudson Valley region of New York, and southwestern Massachusetts. In connection with the acquisition, the Company issued 4.32 million shares and acquired approximately $1.46 billion of identifiable assets, including $1.18 billion of loans, $122.7 million in investment securities which were sold immediately after the merger, $31.2 million of core deposit intangibles and $4.7 million in a wealth management customer intangible, as well as $1.31 billion in deposits. As of the acquisition date, the fair value discount was $78.7 million for loans, net of the reclassification of the purchase credit deteriorated allowance, and was $3.0 million for subordinated debt. The Company established a $14.5 million allowance for acquired Salisbury loans which included both the $5.8 million allowance for purchase credit deteriorated (“PCD”) loans reclassified from loans and the $8.8 million allowance for non-PCD loans recognized through the provision for loan losses.

Current wording

On August 11, 2023, NBT completed its acquisition of Salisbury. Salisbury Bank was a Connecticut-chartered commercial bank headquartered in Lakeville, Connecticut, operating 13 banking offices in northwestern Connecticut, the Hudson Valley region of New York, and southwestern Massachusetts. In connection with the acquisition, the Company issued 4.32 million shares of common stock and acquired approximately $1.46 billion of identifiable assets, including $1.18 billion of loans, $122.7 million in investment securities which were sold immediately after the merger, $31.2 million of core deposit intangibles and $4.7 million in a wealth management customer intangible, as well as $1.31 billion in deposits. As of the acquisition date, the fair value discount was $78.7 million for loans, net of the reclassification of the purchase credit deteriorated allowance, and was $3.0 million for subordinated debt. The Company established a $14.5 million allowance for acquired Salisbury loans which included both the $5.8 million allowance for PCD loans reclassified from loans and the $8.8 million allowance for non-PCD loans recognized through the provision for loan losses.

Previous wording

Noninterest expense for the year ended December 31, 2023 was $341.7 million, up $37.2 million or 12.2%, from the year ended December 31, 2022. The Company incurred acquisition expenses for the year ended December 31, 2023 and December 31, 2022 of $10.0 million and $1.0 million, respectively, related to the merger with Salisbury. Included in other noninterest expenses for the year ended December 31, 2023, the Company recorded a $4.8 million impairment of its minority interest equity investment in a provider of financial and technology services to residential solar equipment installers due to the uncertainty in the realizability of the investment. Excluding acquisition expenses and the impairment of a minority interest equity investment, noninterest expense for the year ended December 31, 2023 was $326.9 million, up $23.4 million or 7.7%, from the year ended December 31, 2022. The increase from the prior year was driven by higher salaries and employee benefits due to the Salisbury acquisition, increased salaries and wages including merit pay increases and higher health and welfare benefits, which were partially offset by lower levels of incentive compensation. In addition, the increase in technology and data services was due to continued investment in digital platforms solutions, the increase in the FDIC assessment expense was driven by the statutory increase in the FDIC assessment rate, increased occupancy expense was driven by the addition of Salisbury locations and other expenses were higher due to the increase in actuarially determined expense related to the Company’s retirement plans.

Current wording

The Company incurred acquisition expenses related to the merger with Salisbury of $10.0 million and $1.0 million for the years ended December 31, 2023 and 2022, respectively.

Previous wording

Significant factors management reviews to evaluate the Company’s operating results and financial condition include, but are not limited to: net income and earnings per share, return on average assets and equity, net interest margin, noninterest income, operating expenses, asset quality indicators, loan and deposit growth, capital management, liquidity and interest rate sensitivity, enhancements to customer products and services, technology advancements, market share and peer comparisons. The following information should be considered in connection with the Company’s results for the fiscal year ended December 31, 2023:

Current wording

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.

Previous wording

Net income for the year ended December 31, 2023 was $118.8 million, or $2.65 per diluted common share, compared to $152.0 million, or $3.52 per diluted share, in the prior year.

Current wording

Net income for the year ended December 31, 2024 was $140.6 million, or $2.97 per diluted common share, up $21.9 million from $118.8 million, or $2.65 per diluted common share, for the year ended December 31, 2023.

Previous wording

While economic indicators have remained mixed, they have trended toward the decline of inflation. Given this decline in inflation the probability for Federal Funds rate reductions in 2024 have increased. This anticipated interest rate decline, coupled with strong consumer and corporate balance sheets support a view that the potential for recession has been reduced and that any form of economic slowdown could be mild. Significant items that may have an impact on 2024 results include:

Current wording

Economic indicators remained mixed, but trended toward an improved yet elevated level of inflation. While inflation has declined, continued economic resilience has lowered the probability of further Federal Funds rate reductions in 2025. The “higher for longer” interest rate environment is expected to persist, though strong consumer and corporate balance sheets suggest that any potential economic slowdown may be mild. Significant items that may have an impact on 2025 results include:

Previous wording

Net interest income for the year ended December 31, 2023 was $378.2 million, up $16.0 million, or 4.4%, from 2022. FTEnet interest margin was 3.29% for the year ended December 31, 2023, a decrease of 5 basis points (“bps”) from 2022. Interest income increased $138.7 million, or 36.1%, as the yield on average interest-earning assets increased 100 bps from 2022 to 4.54%, while average interest-earning assets of $11.57 billion increased $671.4 million primarily due to the Salisbury acquisition and organic loan growth partially offset by the decrease in short-term interest bearing accounts (“excess liquidity”). Interest expense was up $122.7 million, or 560.7%, for the year ended December 31, 2023 as compared to the year ended December 31, 2022, driven by interest-bearing deposit costs increasing 140 bps to 1.56%, as well as a $404.0 million increase in the average balances of short-term borrowings and a 524 bps rate paid on those borrowings. The increase was also driven by the Company shifting from an excess liquidity position to an overnight borrowing position beginning in the fourth quarter of 2022. Included in net interest income was $4.3 million of acquisition-related net accretion, which positively impacted net interest margin by 4 bps. The Federal Reserve raised its target fed funds rate to 550 basis points in 2023, positively impacting our yields on earning assets.

Current wording

Net interest income for the year ended December 31, 2024 was $400.1 million, up $21.9 million, or 5.8%, from 2023. FTENIM was 3.23% for the year ended December 31, 2024, a decrease of 6 bps from 2023. Interest income increased $88.9 million, or 17.0%, as the yield on average interest-earning assets increased 39 bps from 2023 to 4.93%, while average interest-earning assets of $12.45 billion increased $878.8 million primarily due to the Salisbury acquisition and organic loan growth, partially offset by a decrease in securities. Interest expense was up $67.0 million, or 46.3%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, driven by interest-bearing deposit costs increasing 80 bps to 2.36% and a $1.22 billion increase in interest-bearing deposits as a result of the Salisbury acquisition, partly offset by a decrease of $346.4 million in the average balances of short-term borrowings and the 548 bps rate paid on those borrowings. Included in net interest income was $10.4 million and $4.3 million for the years ended December 31, 2024 and 2023, respectively, of acquisition-related net accretion.

Previous wording

The average balance of loans increased by approximately $1.03 billion, or 13.3%, from 2022 to 2023 driven by the Salisbury acquisition and organic loan growth, with increases in commercial and industrial (“C&I”), commercial real estate (“CRE”), indirect auto, residential solar and residential mortgage portfolios being partly offset by a reduction in the average balance of other consumer loans. The yield on average loans increased from 4.28% in 2022 to 5.26% in 2023, as loans re-priced upward due to the interest rate environment in 2023. FTE interest income from loans increased 39.1%, from $333.0 million in 2022 to $463.3 million in 2023. This increase was due to the increases in yields and an increase in the average balance.

Current wording

The average balance of loans increased by approximately $1.01 billion, or 11.5%, from 2023 to 2024 driven by the Salisbury acquisition and organic loan growth, with increases in C&I, CRE, indirect auto and residential mortgage portfolios being partially offset by a reduction in the average balance of residential solar and other consumer loans. The yield on average loans increased from 5.26% in 2023 to 5.64% in 2024, as loans re-priced upward due to the interest rate environment in 2024. FTE interest income from loans increased 19.5%, from $463.3 million in 2023 to $553.8 million in 2024. This increase was due to the increases in yields and an increase in the average balance.

Previous wording

The following table reflects the loan portfolio by major categories(1), net of deferred fees and origination costs, for the years indicated:

Current wording

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

Previous wording

Total loans were $9.65 billion and $8.15 billion at December 31, 2023 and 2022, respectively. Period end loans increased $1.50 billion or 18.4% from December 31, 2022, which included $1.18 billion of loans acquired from Salisbury. Commercial and industrial loans increased $88.2 million to $1.35 billion; commercial real estate loans increased $819.0 million to $3.63 billion; and total consumer loans increased $593.4 million to $4.67 billion. Total loans represent approximately 72.5% of assets as of December 31, 2023, as compared to 69.4% as of December 31, 2022.

Current wording

Total loans were $9.97 billion and $9.65 billion at December 31, 2024 and 2023, respectively. Excluding the other consumer and residential solar portfolios that are in a planned run-off status, period end loans increased $478.6 million, or 5.6%. C&I loans increased $72.2 million to $1.43 billion; CRE loans increased $249.8 million to $3.88 billion; and total consumer loans decreased $2.8 million to $4.67 billion. Total loans represent approximately 72.3% of assets as of December 31, 2024, as compared to 72.5% as of December 31, 2023.

Previous wording

Loans in the C&I and CRE portfolios, consist primarily of loans made to small and medium-sized entities. The Company offers a variety of loan options to meet the specific needs of our 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 usually collateralized by business assets such as equipment, accounts receivable and perishable agricultural products, which are exposed to industry price volatility. The Company extends CRE loans to facilitate various real estate transactions, encompassing acquisitions, refinancing, expansions, and enhancements 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’ capacity to meet interest and principal payments throughout the loan’s duration, as well as their ability to secure refinancing 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.

Current wording

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.

Previous wording

Within the CRE portfolio, approximately 78% comprises Non-Owner Occupied CRE, with the remaining 22% being Owner-Occupied CRE. Non-Owner Occupied CRE includes diverse sectors across the Company’s markets such as apartments (33%), office spaces (17%), and construction (13%), along with retail, manufacturing, small commercial, accommodations, and others. Notably, office CRE loans account for 5% of the total outstanding loans, predominantly serving suburban medical and professional tenants across suburban and small urban markets. These loans carry an average size of $2.5 million, with 14% maturing over the next two years. As of December 31, 2023, the total CRE construction and development loans amounted to $347.2 million.

Current wording

Within the CRE portfolio, approximately 81% comprises Non-Owner Occupied CRE, with the remaining 19% being Owner-Occupied CRE. Non-Owner Occupied CRE includes diverse sectors across the Company’s markets such as residential rental properties (43%) and office spaces (18%), along with retail, manufacturing, mixed use, hotels and others. Notably, office CRE loans account for 6% of the total outstanding loans, predominantly serving suburban medical and professional tenants across suburban and small urban markets. These loans carry an average size of $1.9 million, with 9% maturing over the next two years. As of December 31, 2024 and December 31, 2023, the total CRE construction and development loans amounted to $314.8 million and $347.2 million, respectively.

Previous wording

Residential real estate loans consist primarily of loans secured by a first or second mortgage on primary residences. We originate adjustable-rate and fixed-rate, one-to-four-family residential loans for the construction or purchase of a residential property or refinancing of a mortgage. These loans are collateralized by properties located in the Company’s market area. Subprime mortgage lending, which has been the riskiest sector of the residential housing market, is not a market that the Company has ever actively pursued. The market does not apply a uniform definition of what constitutes “subprime” lending. Our reference to subprime lending relies upon the “Statement on Subprime Mortgage Lending” issued by the Office of Thrift Supervision and the other federal bank regulatory agencies (the “Agencies”), on June 29, 2007, which further referenced the “Expanded Guidance for Subprime Lending Programs,” or the Expanded Guidance, issued by the Agencies by press release dated January 31, 2001. As of December 31, 2023, there were $39.9 million in residential construction and development loans included in total loans.

Current wording

Residential real estate loans consist primarily of loans secured by a first or second mortgage on primary residences. The Company originates both adjustable-rate and fixed-rate, one-to-four-family residential loans for the construction or purchase of a residential property or refinancing of a mortgage. These loans are collateralized by properties located in the Company’s market area. The Company has never actively participated in subprime mortgage lending, which has historically been one of the riskiest sectors in the residential housing market. Given the absence of a universally accepted definition of what constitutes “subprime” lending, the Company follows guidance from the Office of Thrift Supervision and other federal bank regulators (the “Agencies”), as outlined in the “Expanded Guidance for Subprime Lending Programs,” or the Expanded Guidance, issued by the Agencies by press release dated January 31, 2001. As of December 31, 2024, there were $40.5 million in residential construction and development loans included in total loans.

Previous wording

In 2017, the Company partnered with Sungage Financial, LLC. to offer financing to consumers for solar ownership with the program tailored for delivery through solar installers. Advances of credit through this business line are to prime borrowers and are subject to the Company’s underwriting standards. Typically, the Company collects fees at origination that are deferred and recognized into interest income over the estimated life of the loan.

Current wording

In 2017, the Company partnered with Sungage Financial, LLC. to offer financing to consumers for solar ownership with the program tailored for delivery through solar installers. Advances of credit through this business line are to prime borrowers and are subject to the Company’s underwriting standards. Typically, the Company collects fees at origination that are deferred and recognized into interest income over the estimated life of the loan. Residential solar loans are in a planned-run off status.

Previous wording

The average balance of taxable securities AFS and held to maturity (“HTM”) decreased $47.3 million, or 2.0%, from 2022 to 2023. The yield on average taxable securities was 1.90% for 2023 compared to 1.78% in 2022. The average balance of tax-exempt securities AFS and HTM decreased from $233.5 million in 2022 to $214.1 million in 2023. The FTE yield on tax-exempt securities increased from 2.17% in 2022 to 3.14% in 2023.

Current wording

The average balance of taxable securities AFS and HTM decreased $91.9 million, or 3.9%, from 2023 to 2024. The yield on average taxable securities was 1.99% for 2024 compared to 1.90% in 2023. The average balance of tax-exempt securities AFS and HTM increased from $214.1 million in 2023 to $221.3 million in 2024. The FTE yield on tax-exempt securities increased from 3.14% in 2023 to 3.52% in 2024.

Previous wording

The average balance of Federal Reserve Bank and Federal Home Loan Bank (“FHLB”) stock increased to $48.6 million in 2023 from $27.0 million in 2022. The yield on investments in Federal Reserve Bank and FHLB stock increased from 3.68% in 2022 to 6.92% in 2023.

Current wording

The average balance of FRB and FHLB stock decreased to $37.8 million in 2024 from $48.6 million in 2023. The yield on investments in FRB and FHLB stock increased from 6.92% in 2023 to 7.07% in 2024.

Previous wording

The following tables set forth information with regard to contractual masturities of debt securities shown in amortized cost ($) and weighted average yield (%) at December 31, 2023. Weighted-average yields are an arithmetic computation of income (not FTE adjusted) divided by amortized cost. 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.

Current wording

The following tables set forth information with regard to contractual maturities of debt securities shown in amortized cost ($) and weighted average yield (%) at December 31, 2024. Weighted-average yields are an arithmetic computation of income (not FTE adjusted) divided by amortized cost. 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.

Previous wording

The Company utilizes traditional deposit products such as time, savings, NOW, money market and demand deposits as its primary source for funding. Other sources, such as short-term FHLB advances, federal funds purchased, securities sold under agreements to repurchase, brokered time deposits and long-term FHLB borrowings are utilized as necessary to support the Company’s growth in assets and to achieve interest rate sensitivity objectives. The average balance of interest-bearing liabilities totaled $7.47 billion in 2023 and increased $815.0 million from 2022. The increase was primarily driven by the interest-bearing deposits acquired from Salisbury and an increase in short-term borrowings. The rate paid on interest-bearing liabilities increased from 0.33% in 2022 to 1.93% in 2023. This increase in rates caused an increase in interest expense of $122.7 million, or 560.7%, from $21.9 million in 2022 to $144.6 million in 2023.

Current wording

The Company utilizes traditional deposit products such as time, savings, NOW, money market and demand deposits as its primary source for funding. Other sources, such as short-term FHLB advances, federal funds purchased, securities sold under agreements to repurchase, brokered time deposits and long-term FHLB borrowings are utilized as necessary to support the Company’s growth in assets and to achieve interest rate sensitivity objectives. The average balance of interest-bearing liabilities totaled $8.38 billion in 2024 and increased $906.1 million from 2023. The increase was primarily driven by the interest-bearing deposits acquired from Salisbury partially offset by a decrease in short-term borrowings. The rate paid on interest-bearing liabilities increased from 1.93% in 2023 to 2.52% in 2024. This increase in rates caused an increase in interest expense of $67.0 million, or 46.3%, from $144.6 million in 2023 to $211.5 million in 2024.

Previous wording

Average interest-bearing deposits increased $375.4 million, or 5.9%, from 2022 to 2023. Average money market deposits decreased $29.5 million, or 1.2% during 2023 compared to 2022. Average NOW accounts decreased $23.4 million, or 1.5% during 2023 as compared to 2022. The average balance of savings accounts decreased $113.6 million, or 6.2%, during 2023 compared to 2022. The average balance of time deposits increased $542.0 million, or 116.6%, from 2022 to 2023. The average balance of demand deposits decreased $233.3 million, or 6.3%, during 2023 compared to 2022. The Company continues to experience the migration from no interest and low interest checking and savings accounts into higher cost money market and time deposit instruments. The decrease in average balances was due primarily to larger commercial customers shifting balances to higher yielding investment opportunities in both the Company’s wealth management solutions as well as other offerings in the market. The Company’s composition of total deposits is diverse and granular with over 563,000 accounts with an average per account balance of $19,483 as of December 31, 2023.

Current wording

Average interest-bearing deposits increased $1.22 billion, or 18.2%, from 2023 to 2024. Average money market deposits increased $890.0 million, or 36.8%, during 2024 compared to 2023. Average NOW accounts increased $62.0 million, or 4.0%, during 2024 as compared to 2023. The average balance of savings accounts decreased $135.2 million, or 7.9%, during 2024 compared to 2023. The average balance of time deposits increased $401.5 million, or 39.9%, from 2023 to 2024. The average balance of demand deposits decreased $86.3 million, or 2.5%, during 2024 compared to 2023. The Company continues to experience some migration incremental from noninterest bearing and low interest checking and savings accounts into higher cost money market and time deposit instruments. The increase in average balances was primarily due to the $1.31 billion in deposits acquired from Salisbury in the third quarter of 2023. The Company’s composition of total deposits is diverse and granular with over 561,000 accounts with an average per account balance of $20,574 as of December 31, 2024.

Previous wording

The rate paid on average interest-bearing deposits was up 140 bps to 1.56% for 2023. The rate paid for money market deposit accounts increased 238 bps to 2.58% from 2022 to 2023. The rate paid for NOW deposit accounts increased from 0.16% in 2022 to 0.53% in 2023. The rate paid for savings deposits increased from 0.03% in 2022 to 0.04% in 2023. The rate paid for time deposits increased from 0.38% during 2022 to 3.30% during 2023.

Current wording

The rate paid on average interest-bearing deposits was up 80 bps to 2.36% for 2024. The rate paid for MMDA increased 96 bps to 3.54% from 2023 to 2024. The rate paid for NOW deposit accounts increased from 0.53% in 2023 to 0.83% in 2024. The rate paid for savings deposits increased from 0.04% in 2023 to 0.05% in 2024. The rate paid for time deposits increased from 3.30% during 2023 to 3.96% during 2024.

Previous wording

Average federal funds purchased increased to $24.6 million in 2023. The rate paid on federal funds purchased was 5.16% in 2023. Average repurchase agreements increased to $70.3 million in 2023 from $69.6 million in 2022. The average rate paid on repurchase agreements increased from 0.10% in 2022 to 1.06% in 2023. Average short-term borrowings increased to $450.4 million in 2023 from $46.4 million in 2022. The average rate paid on short-term borrowings increased from 4.24% in 2022 to 5.24% in 2023. Average long-term debt increased from $6.6 million in 2022 to $24.2 million in 2023. The average balance of junior subordinated debt remained at $101.2 million in 2023. The average rate paid for junior subordinated debt in 2023 was 7.23%, up from 3.70% in 2022.

Current wording

Average federal funds purchased decreased to $13.0 million in 2024. The rate paid on federal funds purchased was 5.54% in 2024. Average repurchase agreements increased to $95.9 million in 2024 from $70.3 million in 2023. The average rate paid on repurchase agreements increased from 1.06% in 2023 to 2.35% in 2024. Average short-term borrowings decreased to $104.0 million in 2024 from $450.4 million in 2023. The average rate paid on short-term borrowings increased from 5.24% in 2023 to 5.48% in 2024. Average long-term debt increased from $24.2 million in 2023 to $29.7 million in 2024. The average balance of junior subordinated debt remained at $101.2 million in 2024. The average rate paid for junior subordinated debt in 2024 was 7.44%, up from 7.23% in 2023.

Previous wording

Total short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, which generally represent overnight borrowing transactions and other short-term borrowings, primarily FHLB advances, with original maturities of one year or less. The Company has unused lines of credit with the FHLB and access to brokered deposits available for short-term financing. Those sources totaled approximately $2.87 billion and $2.90 billion at December 31, 2023 and 2022, respectively. Securities collateralizing repurchase agreements are held in safekeeping by nonaffiliated financial institutions and are under the Company’s control. Long-term debt, which is comprised primarily of FHLB advances, are collateralized by the FHLB stock owned by the Company, certain of its mortgage-backed securities and a blanket lien on its residential real estate mortgage loans.

Current wording

Total short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, which generally represent overnight borrowing transactions and other short-term borrowings, primarily FHLB advances, with original maturities of one year or less. The Company has unused lines of credit with the FHLB and access to brokered deposits available for short-term financing. Those sources totaled approximately $3.46 billion and $2.87 billion at December 31, 2024 and 2023, respectively. Securities collateralizing repurchase agreements are held in safekeeping by nonaffiliated financial institutions and are under the Company’s control. Long-term debt, which is comprised primarily of FHLB advances, are collateralized by the FHLB stock owned by the Company, certain of its mortgage-backed securities and a blanket lien on its residential real estate mortgage loans.

Previous wording

On June 23, 2020, the Company issued $100.0 million of 5.00% fixed-to-floating rate subordinated notes due 2030. The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual rate of 5.00%, payable semi-annually in arrears commencing on January 1, 2021, and a floating rate of interest equivalent to the three-month Secured Overnight Financing Rate (“SOFR”) plus a spread of 4.85%, payable quarterly in arrears commencing on October 1, 2025. The subordinated debt issuance cost of $2.2 million is being amortized on a straight-line basis into interest expense over five years. The Company repurchased $2.0 million of the subordinated notes during the year ended December 31, 2022 at a discount of $0.1 million.

Current wording

On June 23, 2020, the Company issued $100.0 million of 5.00% fixed-to-floating rate subordinated notes due 2030. The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual rate of 5.00%, payable semi-annually in arrears commencing on January 1, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 4.85%, payable quarterly in arrears commencing on October 1, 2025. The subordinated debt issuance cost of $2.2 million is being amortized on a straight-line basis into interest expense over five years. The Company repurchased $2.0 million of the subordinated notes in 2022 at a discount of $0.1 million.

Previous wording

Subordinated notes assumed in connection with the Salisbury acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031. The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual rate of 3.50%, payable quarterly in arrears commencing on June 30, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 2.80%, payable quarterly in arrears commencing on June 30, 2026. As of the acquisition date, the fair value discount was $3.0 million.

Current wording

Subordinated notes assumed in connection with the Salisbury acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031. The subordinated notes, which qualify as Tier 2 capital, bear interest at an annual rate of 3.50%, payable quarterly in arrears commencing on June 30, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 2.80%, payable quarterly in arrears commencing on June 30, 2026. As of the acquisition date, the fair value discount was $3.0 million, which will be amortized into interest expense over the expected call or maturity date.

Previous wording

As of December 31, 2023 and December 31, 2022 the subordinated debt net of unamortized issuance costs and fair value discount was $119.7 million and $96.9 million, respectively. Which will be amortized into interest expense over the expected call or maturity date.

Current wording

As of December 31, 2024 and December 31, 2023 the subordinated debt net of unamortized issuance costs and fair value discount was $121.2 million and $119.7 million, respectively.

Previous wording

On August 16, 2022, H.R. 5376, the Inflation Reduction Act (“IRA”), was signed into law. The IRA, among other things, introduced a corporate alternative minimum tax, excise tax on stock repurchases and a clean vehicle credit. The Company does not expect the impact to be material and will continue to monitor the impacts of the IRA on the business to determine if any future tax impacts may result from this legislation.

Current wording

On August 16, 2022, H.R. 5376, the Inflation Reduction Act (“IRA”), was signed into law. The IRA, among other things, introduced a corporate alternative minimum tax, excise tax on stock repurchases and a clean vehicle credit. The Company has evaluated the impact of the IRA and does not expect it to be material. However, the Company will continue to monitor any future implication on its tax position and business operations.

Previous wording

Income tax expense for the year ended December 31, 2023 was $34.7 million, down $9.5 million, or 21.5%, from the year ended December 31, 2022. The effective tax rate was 22.6% in 2023 and was 22.5% in 2022.

Current wording

Income tax expense for the year ended December 31, 2024 was $38.8 million, up $4.1 million, or 11.9%, from the year ended December 31, 2023. The effective tax rate was 21.6% in 2024 and was 22.6% in 2023. The decrease in the effective tax rate from 2023 was due to a higher level of tax-exempt income as a percentage of total taxable income.

Previous wording

Credit risk is managed through a network of loan officers, credit committees, loan policies and oversight from senior credit officers and the Board of Directors. Management follows a policy of continually identifying, analyzing and grading credit risk inherent in each loan portfolio. An ongoing independent review of individual credits in the commercial loan portfolio is performed by the independent loan review function. These components of the Company’s underwriting and monitoring functions are critical to the timely identification, classification and resolution of problem credits.

Current wording

Credit risk is managed through a network of loan officers, credit committees, loan policies and oversight from senior credit officers and the Board. Management follows a policy of continually identifying, analyzing and grading credit risk inherent in each loan portfolio. An ongoing independent review of individual credits in the commercial loan portfolio is performed by the independent loan review function. These components of the Company’s underwriting and monitoring functions are critical to the timely identification, classification and resolution of problem credits.

Previous wording

Beginning January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments - CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures(“ASU 2022-02”), which resulted in an insignificant change to the Company’s methodology for estimating the allowance for credit losses on Troubled Debt Restructurings (“TDRs”) since December 31, 2022. The January 1, 2023 decrease in allowance for credit loss on TDR loans relating to adoption of ASU 2022-02 was $0.6 million, which increased retained earnings by $0.5 million and decreased the deferred tax asset by $0.1 million.

Current wording

Beginning January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments - CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures(“ASU 2022-02”), which resulted in an insignificant change to the Company’s methodology for estimating the allowance for credit losses on TDRs since December 31, 2022. The January 1, 2023 decrease in allowance for credit loss on TDR loans relating to adoption of ASU 2022-02 was $0.6 million, which increased retained earnings by $0.5 million and decreased the deferred tax asset by $0.1 million.

Previous wording

The 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 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.

Current wording

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.

Previous wording

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

Current wording

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.