EDGAR 10-K Filing

Company CIK: 743367
Filing Year: 2025
Filename: 743367_10-K_2025_0001558370-25-002653.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS.
FORWARD-LOOKING STATEMENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K (the “Form 10-K” or “Annual Report”) that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-K the words “believe,” “anticipate,” “expect,” “may,” “will,” “assume,” “should,” “predict,” “could,” “would,” “intend,” “targets,” “estimates,” “projects,” “plans,” and “potential,” and other similar words and expressions of the future, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements about our future financial and operating results and plans, objectives, and intentions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of our company to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to:
● deterioration in the financial performance and/or condition of borrowers of the Bank, including as a result of the negative impact of inflationary pressures on our customers and their businesses resulting in significant increases in credit losses and provisions for those losses;
● the possibility that our asset quality could decline or that we experience greater loan losses than anticipated;
● increased levels of other real estate owned, primarily as a result of foreclosures;
● the impact of liquidity needs on our results of operations and financial condition;
● competition from financial institutions and other financial service providers;
● the effect of interest rate increases on the cost of deposits;
● unanticipated weakness in loan demand or loan pricing;
● adverse conditions in the national or local economies including in our markets throughout Northern New England;
● changes in consumer spending, borrowing and saving habits;
● the emergence and effects related to a future pandemic, epidemic or outbreak of an infectious disease, including actions taken by governmental officials to curb the spread of such an infectious disease, and the resulting impact on general economic and financial market conditions and on the Company’s and our customers' business, results of operations, asset quality and financial condition;
● the effects of civil unrest, international hostilities or other geopolitical events, including the war in Ukraine and ongoing hostilities in the Middle East;
● inflation, interest rate, market, and monetary fluctuations;
● lack of strategic growth opportunities or our failure to execute on available opportunities;
● the ability to grow and retain low-cost core deposits and retain large, uninsured deposits;
● our ability to effectively manage problem credits;
● our ability to successfully implement efficiency initiatives on time and with the results projected;
● our ability to successfully develop and market new products and technology;
● the impact of negative developments in the financial industry and United States and global capital and credit markets;
● our ability to retain executive officers and key employees and their customer and community relationships;
● our ability to adapt to technological changes and to implement new technology effectively;
● the vulnerability of the Bank’s computer and information technology systems and networks, and the systems and networks of third parties with whom the Company or the Bank contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches and interruptions;
● changes in the reliability of our vendors, internal control systems or information systems;
● ongoing competition in the labor markets and increased employee turnover;
● the potential impact of climate change;
● our ability to comply with various governmental and regulatory requirements applicable to financial institutions;
● changes in state and federal laws, rules, regulations, or policies applicable to banks or bank holding companies, including regulatory or legislative developments;
● the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”);
● adverse impacts (including costs, fines, reputational harm, or other negative effects) from and risks associated with current or future litigation, regulatory examinations, or other legal and/or regulatory actions; and
● general competitive, economic, political, and market conditions, including economic conditions in the local markets where we operate.
Other factors not identified above, including those described in the Annual Report under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these factors in connection with considering any forward-looking statements that may be made by us. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.
GENERAL
Bar Harbor Bankshares (the “Company,” “we,” “our” or “us” or similar terms) is the parent company of Bar Harbor Bank & Trust (the "Bank”), which is the only community bank headquartered in Northern New England with branches in Maine, New Hampshire, and Vermont. The Bank is a regional community bank that thinks differently about banking. The Bank provides the technology offerings and capabilities of larger banks, accompanied by access to local decision makers who are acutely focused on their local markets. Having recently celebrated the 138th anniversary of the Bank’s founding, we remain focused on helping our customers achieve their goals as the key to the Bank’s success. With over 450 dedicated professionals and more than 50 locations, we are committed to servicing and building enduring relationships by providing a higher standard of banking. We offer a variety of financial products and services designed around our customers in order to serve their banking and financial needs. Through these efforts, we continue to be a relationship-focused community bank, maintaining our credit quality and serving businesses, entrepreneurs, and individuals within our footprint. Our corporate goal is to be one of the most consistently high performing community banks in New England, and our business model is centered on the following:
●Employee and customer experience is the foundation of superior performance, which leads to significant financial benefit to shareholders
●Geography, heritage, and performance are key while remaining true to a community-focused culture
●Commitment to risk management while balancing growth and earnings
●Service and sales driven culture with a focus on core business growth
●Fee income is fundamental to our profitability through trust and treasury management services, customer derivatives, and secondary market mortgage sales
●Investment in processes, products, technology, training, leadership, and infrastructure
●Expansion of our brand and business to deepen market presence
●Opportunity and growth for existing employees while adding catalyst recruits across all levels
Shown below is a profile and geographical footprint of the Bank as of December 31, 2024:
We serve affluent and growing markets in Maine, New Hampshire, and Vermont with more than 49 thousand, 48 thousand, and 24 thousand customers, respectively in those states. Within these markets, tourism, agriculture, and fishing industries remain strong and continue to drive economic activity. These core markets have also maintained their strength through diversification into various service industries.
Maine
We have 22 full-service branches in operation and two wealth management offices principally located in the regions of downeast, midcoast, and central Maine, which are generally characterized as rural areas. We also have a commercial loan production office in Portland, Maine. In Maine, we consider our primary market areas to be Hancock, Penobscot, Washington, Kennebec, Knox, and Sagadahoc counties. The economies in these counties are based primarily on tourism, healthcare, fishing and lobstering, agriculture, state government, and small local businesses. They are also supported by a large contingent of retirees.
New Hampshire
We have 21 full-service branches in operation and five wealth management offices in New Hampshire located in the Lake Sunapee, Upper Valley, and Merrimack Valley regions. There are several distinct markets within each of these regions. The towns or cities of Nashua, Manchester, and Concord are considered part of the Merrimack Valley. Nashua, New Hampshire is a regional commercial, entertainment, and dining destination. With its border to Massachusetts, it also enjoys a vibrant high-tech industry and a robust retail industry due in part to New Hampshire’s absence of a sales tax. The Upper Valley region of New Hampshire includes the towns of Lebanon and Hanover, which are home to Dartmouth-Hitchcock Medical Center and Dartmouth College, respectively. The Lake Sunapee market is a popular year-round recreation and resort area that includes both Lake Sunapee and Mount Sunapee and includes the towns of Claremont, New London, and Newport.
Vermont
We have 10 full-service branches in operation in Vermont. The branches are primarily located in central Vermont within Rutland, Windsor, and Orange counties. These markets are home to many attractions, including Killington Mountain and the city of Rutland. Popular vacation destinations in this region include Woodstock, Brandon, and Ludlow.
SUBSIDIARY ACTIVITIES
Bar Harbor Bankshares is a legal entity separate and distinct from its first-tier bank subsidiary, Bar Harbor Bank & Trust, and its second-tier subsidiaries, Bar Harbor Wealth Management (“BHWM”) and Cottage Street Corporation.
There are two Connecticut statutory trusts for which all of the common stock is owned by the Company. These capital trusts are unconsolidated, and their only material asset is a $20.6 million trust preferred security related to the junior subordinated debentures reported in Note 7 - Borrowed Funds of the Consolidated Financial Statements.
AVAILABLE INFORMATION
Annual, quarterly, and current reports, proxy statements and other information are required to be filed with the Securities and Exchange Commission (“SEC”). The SEC maintains a website at www.sec.gov that contains reports, proxy statements, and information statements, and other information regarding issuers that file electronically with the SEC.
The Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to those documents filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are also available free of charge on our website at www.barharbor.bank under the Shareholders Relations link as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.
Our Code of Ethics for Senior Financial Officers, Code of Conduct and Business Ethics, Securities and Insider Trading Policy and the charters of our Board of Directors’ audit committee, governance committee, and compensation and human resources committee are also available on our website (www.barharbor.bank) and in print free of charge to any shareholder who requests them. Requests should be sent by mail to our corporate secretary at our executive office. We intend to disclose on our website any amendments or waivers to our Code of Ethics for Senior Financial Officers or Code of Conduct and Business Ethics that are required to be disclosed pursuant to Item 5.05 of Form 8-K.
Investors should note announcements of material information to investors and others are performed using SEC filings, press releases, and postings on our website (www.barharbor.bank), including news and announcements regarding financial performance, key personnel, brands, and business strategy. Information posted on the corporate website could be deemed material to investors. Investors are encouraged to review the information posted on these channels. Updates may be made, from time to time, to the list of channels used to communicate information that could be deemed material, and any such change will be posted on www.barharbor.bank. The information on the website is not, and shall not be deemed to be, a part hereof or incorporated into this or any other filings with the SEC.
COMPETITION
Major competitors in market areas include local independent banks, local branches of large regional and national bank affiliates, thrift institutions, savings and loan institutions, mortgage companies, and credit unions.
We effectively compete with other financial institutions by emphasizing quality customer service, making decisions at the local level, maintaining long-term customer relationships, building customer loyalty, and providing products and services designed to address customers’ specific needs. However, no assurance can be provided regarding the ongoing ability to compete effectively with other financial institutions in the future.
No part of the business is materially dependent upon one or a few customers or upon a particular industry segment, the loss of which would have a material adverse impact on our results of operations.
LENDING ACTIVITIES
General
Loans are originated in four basic portfolio categories, which are discussed below. These portfolios include the categories commercial real estate, commercial and industrial, residential real estate and other consumer loans. Loan interest rates and other key loan terms are affected principally by our lending policy, asset/liability strategy, loan demand, competition, and
the supply of money available for lending purposes. The amount of long-term fixed-rate lending and adjustable-rate lending is monitored according to the Bank’s interest rate management policy. Loans originated are held for investment except for certain residential mortgages that are underwritten with the intention to be sold in the secondary mortgage market.
Loan Portfolio Analysis
The following table sets forth the year-end composition of the loan portfolio in dollar amounts and as a percentage of the portfolio for the years indicated. Further information about the composition of the loan portfolio is contained in Note 3 - Loans and Allowance for Credit Losses of the Consolidated Financial Statements.
(in thousands, except
% of
% of
percentages)
Amount
Total
Amount
Total
Commercial construction
$
131,617
%
$
154,048
%
Commercial real estate owner occupied
302,074
310,015
Commercial real estate non-owner occupied
1,358,903
1,144,566
Tax exempt and other
44,275
43,688
Commercial and industrial
319,766
310,883
Residential real estate
888,251
940,334
Home equity
94,141
87,683
Consumer other
8,069
-
7,832
-
Total loans
$
3,147,096
%
$
2,999,049
%
Commercial Loan Exposure and Industries
All commercial loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. The following table summarizes the major industries of the commercial loan portfolio as of December 31, 2024 and 2023:
(in thousands, except percentages)
Loans
Total Exposure
% of Total Portfolio
Loans
Total Exposure
% of Total Commercial Portfolio
Real Estate and Rental and Leasing
$
1,109,613
$
1,286,712
%
$
1,018,035
$
1,196,273
%
Accommodation and Food Services
415,321
444,028
334,838
347,588
Health Care and Social Assistance
96,767
105,873
99,601
109,771
Retail Trade
77,771
95,424
78,036
94,074
Finance and Insurance
79,692
117,718
59,753
103,444
Wholesale Trade
62,832
112,913
63,088
110,703
Agriculture, Forestry, Fishing and Hunting
47,591
58,335
55,214
63,052
Educational Services
47,635
56,855
51,512
63,731
Public Administration
37,106
38,191
35,995
40,669
-
Manufacturing
36,627
56,644
44,277
67,221
Arts, Entertainment, and Recreation
29,794
32,221
30,914
33,441
Construction
23,817
67,060
23,086
44,518
Transportation and Warehousing
12,069
14,411
14,424
22,139
-
All other
80,000
115,435
51,566
79,691
Total commercial loans
$
2,156,635
$
2,601,820
%
$
1,963,200
$
2,376,315
%
Within our non-owner-occupied commercial real estate portfolio (considered “Commercial construction” and “Commercial Real Estate Non-Owner Occupied” above), the top 10 loans represent approximately 12.7% of total commercial real estate loans outstanding. The average loan size in the CRE segment is approximately $2.1 million. Delinquencies within the segment were nominal at less than 0.02% as a percentage of the total segment as of December 31, 2024. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. The weighted average loan-to-value ratio for the top 10 loans within the non-owner occupied segment was 60.7% as of December 31, 2024. The top 10 office loans represent approximately 8.3% of the total commercial real estate segment exposure inclusive of unfunded commitments and 9.0% of the outstanding balances. The weighted average loan-to-value for the top 10 loans within the office segment is 68.8%. Our total commercial portfolio has a pass rating of 95%, included in the commercial portfolio are office loans of $247.8 million which have a pass rating of 85%.
Maturity and Sensitivity of the Loan Portfolio
The following table shows contractual maturities of selected loan categories at December 31, 2024. The contractual maturities do not reflect premiums, discounts, deferred costs, or prepayments.
Within
1 to 5
5 to 15
After
(in thousands, except percentages)
1 year
Years
Years
15 Years
Total
% of Total
Contractual Maturity
Commercial construction
$
24,794
$
62,021
40,307
4,495
$
131,617
%
Commercial real estate owner occupied
14,956
95,317
176,464
15,337
302,074
Commercial real estate non-owner occupied
105,868
678,114
564,631
10,290
1,358,903
Tax exempt and other
27,276
2,282
14,716
44,275
Commercial and industrial
43,043
118,343
123,573
34,807
319,766
Residential real estate
2,210
37,579
135,969
712,493
888,251
Home equity
2,427
3,057
12,902
75,755
94,141
Consumer other
2,827
4,810
8,069
-
Total loans
$
223,401
$
1,001,523
$
1,068,852
$
853,320
$
3,147,096
%
Repricing Date
Fixed-rate
107,184
424,840
507,205
582,517
1,621,746
Floating or adjustable rate
116,217
576,683
561,647
270,803
1,525,350
Total loans
$
223,401
$
1,001,523
$
1,068,852
$
853,320
$
3,147,096
%
Problem Assets
There is a preference to work with borrowers to resolve problems rather than proceeding to foreclosure. For commercial loans, this may result in a period of forbearance or restructuring of the loan, which is normally done at current market terms and may not result in a “troubled” loan designation. For residential mortgage loans, the Consumer Financial Protection Bureau (“CFPB”) guidelines are followed to attempt a restructuring that will enable owner-occupants to remain in their home. However, if these processes fail to result in a performing loan, foreclosure or other proceedings will be initiated no later than the 120th day of a delinquency, as necessary, to minimize any potential loss. Management reports on delinquent loans and non-performing assets to the Company’s Board of Directors monthly through the Board Risk Committee. Loans are generally removed from accruing status when they reach 90 days delinquent, except for certain loans which are well secured and in the process of collection. Loan collections are managed by a combination of the related business units and the managed assets group.
The following table presents the problem assets for the years indicated:
(in thousands, except ratios)
Non-accruing loans:
Commercial construction
$
-
$
-
Commercial real estate owner occupied
Commercial real estate non-owner occupied
Tax exempt and other
-
-
Commercial and industrial
1,099
Residential real estate
3,591
3,908
Home equity
1,267
Consumer other
Total loans
6,994
5,528
Non-Performing securities available for sale
5,760
-
Other real estate owned
-
-
Total non-performing assets
$
12,754
$
5,528
Total non-performing loans/total loans
0.22
%
0.18
%
Total non-performing assets/total assets
0.31
0.14
Allowance for Credit Losses
Our loan portfolio is regularly reviewed by management to evaluate the adequacy of the allowance for credit losses (“ACL”). The allowance represents management’s estimate of inherent losses that are probable and estimable as of the date of the financial statements. The ACL is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans. The ACL is discussed further in Note 1 - Summary of Significant Accounting Policies of the Consolidated Financial Statements.
The following table presents an analysis of the ACL for the years indicated:
(in thousands, except ratios)
Balance at beginning of year
$
28,142
$
25,860
Charged-off loans:
Commercial construction
-
-
Commercial real estate owner occupied
(3)
-
Commercial real estate non-owner occupied
-
-
Tax exempt and other
-
-
Commercial and industrial
(187)
(664)
Residential real estate
-
(8)
Home equity
-
(12)
Consumer other
(277)
(289)
Total charged-off loans
(467)
(973)
Recoveries on charged-off loans:
Commercial construction
-
-
Commercial real estate owner occupied
-
Commercial real estate non-owner occupied
-
-
Tax exempt and other
-
-
Commercial and industrial
Residential real estate
Home equity
Consumer other
Total recoveries on charged-off loans
Net (charge-offs) recoveries
(353)
(626)
Provision for credit losses
2,908
Balance at end of year
$
28,744
$
28,142
Ratios:
Net charge-offs (recoveries)/average loans
0.01
%
0.02
%
Recoveries/charged-off loans
Allowance for credit losses/total loans
0.91
0.94
Allowance for credit losses/non-accruing loans
The following table presents year-end data for the approximate allocation of the ACL by loan categories at the dates indicated. For each loan category, the table shows the amount of the allowance allocated to that category as a percentage of the outstanding loans in that category. The allocation of the allowance to each category is not indicative of future losses and does not restrict the use of any of the allowance to absorb losses in any category.
% Allocated to
% Allocated to
(in thousands, except ratios)
Amount
Total Loans
Amount
Total Loans
Commercial construction
$
2,096
0.07
%
$
4,261
0.14
%
Commercial real estate owner occupied
2,794
0.09
2,863
0.10
Commercial real estate non-owner occupied
11,104
0.35
9,443
0.31
Tax exempt and other
0.01
-
Commercial and industrial
5,064
0.16
3,259
0.11
Residential real estate
6,732
0.21
7,352
0.25
Home equity
0.02
0.03
Consumer other
-
-
Total
$
28,744
0.91
%
$
28,142
0.94
%
INVESTMENT SECURITIES ACTIVITIES
The objective of the investment portfolio is to provide liquidity when loan demand is high, and to absorb excess funds when demand is low. The securities portfolio also provides a medium for certain interest rate risk measures intended to maintain an appropriate balance between interest income from loans and total interest expense. For additional information, see Item 7A of this Annual Report.
We invest in what we believe to be high-quality investment-grade securities. Investment decisions are made in accordance with the investment and treasury policies and include consideration of risk, return, duration, and portfolio concentrations. For further discussion on investments see Note 2 - Securities Available for Sale of the Consolidated Financial Statements.
The following table presents the amortized cost and fair value of securities available for sale for the years indicated:
Amortized
Amortized
(in thousands)
Cost
Fair Value
Cost
Fair Value
Debt Securities:
Obligations of US Government-sponsored enterprises
$
1,344
$
1,318
$
2,021
$
1,992
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises
208,818
177,316
223,602
193,282
US Government agency
115,177
103,916
85,005
74,213
Private label
40,633
39,564
60,888
59,051
Obligations of states and political subdivisions thereof
116,421
105,452
119,857
110,168
Corporate bonds
100,923
93,452
105,552
95,868
Total
$
583,316
$
521,018
$
596,925
$
534,574
The following table presents the amortized cost and weighted average yields of securities available for sale at by maturity:
December 31, 2024
Within
Over 1 Year
Over 5 Years
Over
(in thousands, except ratios)
1 Year
to 5 Years
to 10 years
10 Years
Total
Debt Securities:
Obligations of US Government-sponsored enterprises
$
-
$
$
$
$
1,344
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises
2,657
16,361
189,013
208,818
US Government agency
3,466
111,546
115,177
Private label
-
4,000
26,074
10,559
40,633
Obligations of states and political subdivisions thereof
-
2,768
113,053
116,421
Corporate bonds
3,000
51,469
41,454
5,000
100,923
Total
$
3,795
$
59,213
$
90,428
$
429,880
$
583,316
Weighted Average Yield
7.42
%
5.68
%
5.27
%
2.56
%
3.33
%
DERIVATIVE FINANCIAL INSTRUMENTS
Interest swap derivatives are utilized to minimize fluctuations in earnings and cash flows caused by interest rate volatility either in the form of interest rate swaps on wholesale funding and variable rate loans designated as cash flow hedges or partial interest rate hedges on securities accounted for as fair value hedges. For further discussion on derivatives see Note 10 - Derivative Financial Instruments and Hedging Activities of the Consolidated Financial Statements.
Derivative products are offered in the form of interest rate swaps and interest rate caps, to commercial loan customers to facilitate their risk management strategies. An interest rate swap is entered into with a customer, while at the same time an offsetting interest rate swap with another financial institution is entered into to offset. These interest rate swap transactions allow customers to effectively fix the interest rate on their loans. Customer loan derivative income is recognized for the upfront fee paid by the customer at origination. These swaps are designated as economic hedges and transactions are cleared through arrangements with third-party financial institutions.
Mortgage banking activities result in two types of derivative instruments. Interest rate lock commitments are offered to residential loan customers, to allow them the ability to lock into a fixed interest rate prior to closing, for loans intended to sell are classified as non-hedging derivatives. To offset this risk, an offsetting forward sale commitment may be entered into with national financial institutions to purchase the loans selected for sale under a best efforts or mandatory delivery contract accounted for as an economic hedge.
Floating-rate fundings are certain hedging transactions and certain products, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate, such as the secured interbank overnight financing rate (“SOFR”), or to an index, basket or other financial metric.
DEPOSIT ACTIVITIES
A variety of deposit products to consumers, businesses and institutional customers with a wide range of interest rates and terms are offered. Deposits consist of interest-bearing and non-interest-bearing demand accounts, savings accounts, money market deposit accounts, and certificates of deposit. Deposits are solicited primarily in the market area, excluding brokered deposits. Competitive pricing policies, marketing and customer service to attract and retain deposits are relied upon.
Customer-related deposit fees are a significant source of fee income and principally derived from debit card interchange fees earned from transaction fees that merchants pay whenever a customer uses a debit card to make a purchase. Customer deposit fees are also earned from a variety of deposit accounts with various fee schedules and terms, which are designed to meet the customer’s financial needs. Other depositor-related fee services provided to customers include ATMs, remote deposit capture, ACH origination, wire transfers, internet bill pay, and other cash management services.
Pricing of deposits is managed in keeping with the asset/liability management, liquidity and profitability objectives, subject to market competitive factors. Based on our experience, deposits are relatively stable sources of funds. Despite this stability, the ability to attract and maintain these deposits and rates are significantly affected by market conditions.
The following table presents the average balances and weighted average rates for deposits for the years indicated:
(in thousands, except ratios)
Average Balance
Percent of Total
Weighted Average Rate
Average Balance
Percent of Total
Weighted Average Rate
Non-interest bearing demand
$
570,787
%
-
%
$
618,685
%
-
%
Interest-bearing demand
886,272
1.41
900,035
0.98
Savings
546,517
0.67
594,959
0.39
Money market
379,997
3.02
406,759
2.48
Time deposits
791,228
4.30
532,981
3.19
Total
$
3,174,801
%
1.94
%
$
3,053,419
%
1.25
%
Estimated uninsured non-maturity deposits were $404.7 million as of December 31, 2024 and $525.3 million as of December 31, 2023. Estimated uninsured time deposits were $85.3 million and $60.0 million as of December 31, 2024 and 2023, respectively.
The following table presents the scheduled maturities of time deposits greater than $250 thousand at December 31, 2024:
(in thousands, except ratios)
Amount
Three months or less
$
39,188
Over 3 months through 6 months
62,799
Over 6 months through 12 months
81,767
Over 12 months
2,910
Total
$
186,664
BORROWING ACTIVITIES
Borrowings may be utilized as an alternative source of funds which can be invested at a positive interest rate spread when additional capacity to fund loan demand is desired or when asset/liability management goals are met to diversify funding sources and enhance interest rate risk management.
Borrowings historically have included advances from the Federal Home Loan Bank of Boston ("FHLB"), securities sold under repurchase agreements, and a correspondent bank unsecured line of credit. Advances may be obtained from the FHLB by collateralizing the advances with certain loans and investment securities. These advances may be made pursuant to several different credit programs, each of which has its own interest rate, range of maturities and call features.
We also have subordinated notes, junior subordinated debenture and other sources of liquidity that are fully described in Note 7 -Borrowed Funds of the Consolidated Financial Statements.
RETAIL BROKERAGE SERVICES
Bar Harbor Financial Services principally serves the brokerage needs of individuals ranging from first-time purchasers to sophisticated investors. It also offers a line of life insurance, annuity, and retirement products, as well as financial planning services. These products are not deposits, are not insured by the Federal Deposit Insurance Corporation (“FDIC”) or any other government agency, are not guaranteed by the Bank or any affiliate, and may be subject to investment risk, including possible loss of principal.
Bar Harbor Financial Services is a branch office of Osaic Institutions, Inc., (“Osaic”) a full-service third-party broker-dealer, conducting business under the assumed business name “Bar Harbor Financial Services.” Osaic is an independent registered broker-dealer and is not affiliated with the Company or its subsidiaries. Osaic was formed by a group of member banks, and is one of the largest providers of third-party investment and insurance services to banks and their customers in New England. Through Osaic, the expertise, capabilities, and experience of a well-established third-party broker-dealer is obtained in a cost effective manner.
TRUST MANAGEMENT SERVICES
The Bank has one wholly-owned subsidiary, BHWM, that provides a comprehensive array of fiduciary services including trust and estate administration, wealth advisory services, and investment management services to individuals, businesses, not-for-profit organizations, and municipalities. As a New Hampshire-chartered trust company, BHWM is subject to New Hampshire laws applicable to trust companies and fiduciaries. Professional advisors help individuals and families structure accounts that will meet their long-term financial needs. To many wealth management clients, the effective transfer of wealth to future generations is of paramount importance. The trust services act as a fiduciary for various types of trusts and serves as the investment manager for these accounts. Outside of trust services, they also provide 401(k) plan services, financial, estate and charitable planning, investment management, family office, municipal and tax services. The
employees include credentialed investment professionals with extensive experience. At December 31, 2024 and 2023, trust management services had total assets under management (“AUM”) of $2.8 billion and $2.5 billion, respectively.
HUMAN CAPITAL
We are very fortunate to have a committed team throughout Maine, New Hampshire, and Vermont who are capable, determined and empowered to drive our company forward. As of December 31, 2024, we had 458 full time equivalent employees. None of our colleagues are represented by unions. All employment decisions are based on talent and potential for growth. Our ability to attract and retain top-tier talent while sustaining and deepening the current relationships is critical to maintaining a best-in-class customer and colleague experience. The opportunity for personal and professional development is a critically important focus of ours and one that helps us retain top talent. We are keenly aware of our ability to be a positive impact in the communities we serve, as such we are committed to supporting, developing, and encouraging colleague engagement with their communities.
We invest in our employees and continuously encourage them to build the skills they need to become an even more valuable team member. Opportunities are provided for colleagues to take on challenging and intriguing work to advance their career goals and transition into new roles as the banking industry evolves. In addition, we provide colleagues with access to a variety of programs developed to align with the knowledge, skills and capabilities that are critical to our organization’s success both now and in the future.
Attracting, retaining, and rewarding high-performing talent is key to our success. Our total rewards program is designed to recognize and reward top talent and keep colleagues engaged effectively. A critical component of our total rewards program is compensation. Our compensation strategy is deeply rooted in a pay for performance philosophy. The intent of this strategy is to align colleague contributions and rewards with the success of the organization. We participate in several market studies, including peers in the banking industry, to ensure competitive pay, benefits, and programs. Annual merit increases align with market data and performance to ensure fair and equitable practices are adhered to. Incentive programs are a meaningful component of colleague compensation and are tied to both company and individual performance. To complement these programs, colleagues are also able to provide and receive recognition through our online portal, Bar Harbor Connect. When recognized colleagues receive points that they can then redeem for rewards of their choice such as gift cards, logo items, and concert tickets.
Beyond compensation, our total rewards program underscores our commitment to colleague’s health and well-being. We offer comprehensive benefit packages, including medical, dental, vision, life, disability, and several other voluntary programs. We also contribute to employee-owned health savings accounts and utilize our wellness program to encourage colleagues to stay fit physically and mentally. The retirement savings programs include a 401(k) plan with a generous company match that vests immediately, along with an Employee Stock Purchase Plan (ESPP) that allows colleagues to be owners of the Company at a reduced price. ESPP provides a benefit to our colleagues while also encouraging them to think and make decisions like shareholders.
Providing work-life balance choices results in our colleagues’ making more meaningful contributions in the workplace. We have a generous paid time off program as well as paid volunteer time to support this. In addition, we offer Flexible Work Arrangements, which offers options such as fully remote, partially remote, condensed workweeks, and flexible hours. The flexibility of these various arrangements allows colleagues to manage their work-life needs while continuing to deliver stellar results in the workplace.
Embracing unique perspectives and supporting inclusivity are at the core of who we are. We strive to understand the unique opportunities and challenges that our customers and colleagues face and are committed to fostering an inclusive and equitable work environment.
Serving the needs of all of the members of our communities also remains an important part of our commitment and strategy. For more than 137 years, the Bank has contributed to the economic health and vitality of the communities we serve. We are proud that our employees are involved in the communities in which we live and work. Each year, colleagues volunteer countless hours of their time on community projects and serve on nonprofit boards. In addition to these efforts, we have
provided charitable donations to more than 450 community organizations across the Northern New England states of Maine, New Hampshire, and Vermont.
REGULATION AND SUPERVISION
The following discussion addresses elements of the regulatory framework applicable to the Company. This regulatory framework is intended primarily to protect the safety and soundness of depository institutions, the federal deposit insurance system and depositors, rather than the shareholders of a bank holding company such as the Company.
The following discussion is qualified in its entirety by reference to the full text of the statutes, regulations, policies and guidelines described below.
Regulation of the Company
As a bank holding company, the Company is subject to regulation, supervision and examination by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and the Maine Bureau of Financial Institutions (the “BFI”).
The Federal Reserve Board has the authority, among other things, to order bank holding companies to cease and desist from unsafe or unsound banking practices; to assess civil money penalties; and to order termination of non-banking activities or termination of ownership and control of a non-banking subsidiary by a bank holding company.
Source of Strength. Under the BHC Act, as amended by the Dodd-Frank Act, the Company is required to serve as a source of financial strength for the Bank. This support may be required at times when the Company may not have the resources to provide support to the Bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Acquisitions and Activities. The BHC Act prohibits a bank holding company, without prior approval of the Federal Reserve Board, from acquiring all or substantially all the assets of a bank, acquiring control of a bank, merging or consolidating with another bank holding company, or acquiring direct or indirect ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, the acquiring bank holding company would control more than 5% of any class of the voting shares of such other bank or bank holding company.
The BHC Act also generally prohibits a bank holding company from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiary banks. However, among other permitted activities, a bank holding company may engage directly or indirectly in, and acquire control of companies engaged in, activities that the Federal Reserve Board has determined to be closely related to banking, subject to certain notification requirements.
Limitations on Acquisitions of Company Common Stock. The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company unless the Federal Reserve Board has been notified and has not objected to the transaction. Under rebuttable presumptions of control established by the Federal Reserve Board, the acquisition of control of voting securities of a bank holding company constitutes an acquisition of control under the Change in Bank Control Act, requiring prior notice to the Federal Reserve Board, if, immediately after the transaction, the acquiring person (or persons acting in concert) will own, control, or hold with power to vote 10% or more of any class of voting securities of the bank holding company, and if either (i) the bank holding company has registered securities under Section 12 of the Exchange Act, or (ii) no other person will own, control, or hold the power to vote a greater percentage of that class of voting securities immediately after the transaction. On July 30, 2024, the FDIC approved a notice of proposed rulemaking to amend the FDIC’s rules implementing the Change in Bank Control Act. If adopted, the proposed rule would eliminate an exemption from prior notice to the FDIC for a proposed change in control involving the acquisition of voting securities of a depository institution holding company for which the Federal Reserve Board reviews a notice pursuant to the Change in Bank Control Act. As a result, if the proposed rule is adopted, the acquisition of control of a bank holding company for an insured state nonmember bank would require prior notice to both the FDIC and the Federal Reserve Board.
In addition, the BHC Act prohibits any company from acquiring control of a bank or bank holding company without first having obtained the approval of the Federal Reserve Board. Among other circumstances, under the BHC Act, a company has control of a bank or bank holding company if the company owns, controls or holds with power to vote 25% or more of a class of voting securities of the bank or bank holding company, controls in any manner the election of a majority of directors or trustees of the bank or bank holding company, or the Federal Reserve Board has determined, after notice and opportunity for hearing, that the company has the power to exercise a controlling influence over the management or policies of the bank or bank holding company. The Federal Reserve has established presumptions of control under which the acquisition of control of 5% or more of a class of voting securities of a bank holding company, together with other factors enumerated by the Federal Reserve, could constitute the acquisition of control of a bank holding company for purposes of the BHC Act.
Maine law also requires that any “person or company” obtain the approval of the Maine Superintendent of Financial Institutions before acquiring control of a Maine financial institution. For purposes of Maine law, a “person” means an individual or individuals acting in concert, and a company may be deemed to control a Maine financial institution, among other circumstances, if it would be presumed to control the financial institution under the Change in Bank Control Act, including through acting in concert with other persons or entities.
Other Regulations
As a Maine corporation, the Company is subject to certain limitations and restrictions under applicable Maine corporate law. For example, state law restrictions in Maine include limitations and restrictions relating to indemnification of directors, distributions and dividends to shareholders, transactions involving directors, officers or interested shareholders, maintenance of books, records, and minutes, and observance of certain corporate formalities. Further, as a Maine financial institution holding company, the Company is also subject to certain requirements and restrictions under applicable Maine banking law.
The Company is also under the jurisdiction of the SEC and is subject to the disclosure and regulatory requirements of the Securities Act and the Exchange Act. The Company’s common stock is listed on the New York Stock Exchange American exchange (“NYSE American”) under the trading symbol “BHB,” and is subject to the rules of NYSE American for listed companies.
Regulation of the Bank
As a Maine-chartered financial institution, the Bank is subject to supervision, regular examination, and regulation by the Maine Bureau of Financial Institutions (“BFI”) and the FDIC as its primary federal regulator and as its deposit insurer. The Bank is also subject to various Maine business and banking regulations and the regulations issued by the Consumer Financial Protection Bureau (“CFPB”) (as enforced by the FDIC). The Federal Reserve Board may also directly examine the subsidiaries of the Company, including the Bank.
The FDIC and the BFI have the authority to issue cease and desist orders; to terminate insurance of deposits; to assess civil money penalties; to issue directives to increase capital; to place the bank into receivership; and to initiate injunctive actions against banking organizations and institution-related parties.
Deposit Insurance. The deposit obligations of the Bank are insured by the FDIC’s Deposit Insurance Fund up to $250,000 per depositor with respect to deposits held in the same right and capacity. Deposit insurance premiums are based on assets. The FDIC calculates deposit insurance assessment rates for established small banks, generally those banks with less than $10 billion of assets that have been insured for at least five years, using the CAMELS rating system and other factors. The CAMELS rating system is a supervisory rating system designed to take into account and reflect various financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to market risk. To determine a bank’s assessment rate, each of seven financial ratios and a weighted average of CAMELS component ratings are multiplied by a corresponding pricing multiplier. The sum of these products is added to a uniform amount, with the resulting sum being an institution’s initial base assessment rate (subject to minimum or maximum assessment rates based on a bank’s CAMELS composite rating). This method takes into account various
measures, including an institution’s leverage ratio, brokered deposit ratio, one year asset growth, the ratio of net income before taxes to total assets and considerations related to asset quality.
The FDIC has the authority to adjust deposit insurance assessment rates at any time. The FDIC is also required to recover losses to its Deposit Insurance Fund arising from the use of the systemic risk exception invoked on March 12, 2023, by the Secretary of the Treasury, acting on the recommendation of the Board of Directors of the FDIC and the Federal Reserve, and after consultation with the President, to allow the FDIC to complete its resolution of both Silicon Valley Bank and Signature Bank in a manner that fully protected depositors. The FDIC is required to recover such losses through one or more special assessments on insured depository institution, depository institution holding companies (with the concurrence of the Secretary of the Treasury with respect to holding companies), or both, as the FDIC determines appropriate. On November 16, 2023, the FDIC approved a final rule to implement a special assessment to recover such losses. For 2024, the FDIC insurance expense for the Bank was $1.8 million.
In addition, under the Federal Deposit Insurance Act (the “FDIA”), the FDIC may terminate deposit insurance, among other circumstances, upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Acquisitions and Branching. Prior approval from the BFI and the FDIC is required in order for the Bank to acquire another bank or establish a new branch office. Well capitalized and well managed banks may acquire other banks in any state, subject to certain deposit concentration limits and other conditions, pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended by the Dodd-Frank Act. In addition, the Dodd-Frank Act authorizes a state-chartered bank, such as the Bank, to establish new branches on an interstate basis to the same extent a bank chartered by the host state may establish branches.
Activities and Investments of Insured State-Chartered Banks. The FDIA generally limits the types of equity investments an FDIC-insured state-chartered bank, such as the Bank, may make and the kinds of activities in which such a bank may engage, as a principal, to those that are permissible for national banks. Further, the GLBA permits national banks and state banks, to the extent permitted under state law, to engage via financial subsidiaries in certain activities that are permissible for subsidiaries of a financial holding company. In order to form a financial subsidiary, a state-chartered bank must be “well capitalized,” and such banks must comply with certain capital deduction, risk management and affiliate transaction rules, among other requirements.
Brokered Deposits. The FDIA and FDIC regulations generally limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution’s capital category is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” Certain depository institutions that have brokered deposits in excess of 10% of total assets may be subject to increased FDIC deposit insurance premium assessments. However, for institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, reciprocal deposits are deducted from brokered deposits, and established small banks (generally those with less than $10 billion in assets) are not subject to a brokered deposit adjustment. Section 202 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”), which was enacted in 2018, amends the FDIA to exempt a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions.
Community Reinvestment Act. The CRA requires the FDIC to evaluate the Bank’s performance in helping to meet the credit needs of the entire community it serves, including low- and moderate-income neighborhoods, consistent with its safe and sound banking operations, and to take this record into consideration when evaluating certain applications. The FDIC’s CRA regulations are generally based upon objective criteria of the performance of institutions under three key assessment tests: (i) a lending test, to evaluate the institution’s record of making loans in its service areas; (ii) an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low- or moderate-income individuals and businesses; and (iii) a service test, to evaluate the institution’s delivery of services through its branches, ATMs and other offices. Failure of an institution to receive at least a “satisfactory” rating could inhibit the Bank or the Company from undertaking certain activities, including engaging in activities permitted as a financial holding company under GLBA and acquisitions of other financial institutions. On October 23, 2023, the FDIC approved changes to its CRA regulations, maintaining the existing CRA ratings (outstanding, satisfactory, needs to
improve, and substantial noncompliance) but modifying the evaluation framework to replace the existing tests generally applicable to banks with at least $2 billion in assets (the lending, investment, and services tests) with four new tests and associated performance metrics. On February 5, 2024, the American Bankers Association, the U.S. Chamber of Commerce, the Independent Community Bankers of America, along with four state trade associations jointly sued the Federal Reserve Board, FDIC, and Office of Comptroller of the Currency for exceeding their statutory authority in adopting revised regulations to implement the CRA. The lawsuit filed in the U.S. District Court for the Northern District of Texas requested the regulatory agencies vacate the rule and sought a preliminary injunction pausing the new rules while the court decided the merits of the case. On March 29, 2024, the district court judge granted a temporary injunction to pause the implementation of CRA final rule with respect to the plaintiff trade associations while the case moves forward. The banking agencies have appealed the issuance of the injunction to the U.S. Court of Appeals for the Fifth Circuit. However, the new CRA regulations are currently expected to become effective on January 1, 2026. The Bank has achieved a rating of “satisfactory” on its most recent examination dated.
Lending Restrictions. Federal law limits a bank’s authority to extend credit to directors and executive officers of the bank or its affiliates and persons or companies that own, control or have power to vote more than 10% of any class of securities of a bank or an affiliate of a bank, as well as to entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons. Also, the terms of such extensions of credit may not involve more than the normal risk of repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the bank’s capital.
Capital Adequacy and Safety and Soundness
Regulatory Capital Requirements. The Federal Reserve Board and the FDIC have issued substantially similar risk-based and leverage capital rules applicable to U.S. banking organizations such as the Company and the Bank. These rules are intended to reflect the relationship between a banking organization’s capital and the degree of risk associated with its operations based on transactions recorded on-balance sheet as well as off-balance sheet items. The Federal Reserve Board and the FDIC may from time to time require that a banking organization maintain capital above the minimum levels discussed below, due to the banking organization’s financial condition or actual or anticipated growth.
The capital adequacy rules define qualifying capital instruments and specify minimum amounts of capital as a percentage of assets that banking organizations are required to maintain. Common equity Tier 1 generally includes common stock and related surplus, retained earnings and, in certain cases and subject to certain limitations, minority interests in consolidated subsidiaries, less goodwill, other non-qualifying intangible assets and certain other deductions. Tier 1 capital generally consists of the sum of common equity Tier 1 elements, non-cumulative perpetual preferred stock, and related surplus and, in certain cases and subject to limitations, minority interests in consolidated subsidiaries that do not qualify as common equity Tier 1 capital, less certain deductions. Tier 2 capital generally consists of hybrid capital instruments, perpetual debt and mandatory convertible debt securities, cumulative perpetual preferred stock, term subordinated debt and intermediate-term preferred stock, and, subject to limitations, ACL on loans. The sum of Tier 1 and Tier 2 capital less certain required deductions represents qualifying total risk-based capital. Prior to the effectiveness of certain provisions of the Dodd-Frank Act, bank holding companies were permitted to include trust preferred securities and cumulative perpetual preferred stock in Tier 1 capital, subject to limitations. However, the Federal Reserve Board’s capital rule applicable to bank holding companies permanently grandfathers non-qualifying capital instruments, including trust preferred securities, issued before May 19, 2010 by depository institution holding companies with less than $15 billion in total assets as of December 31, 2009, subject to a limit of 25% of Tier 1 capital. The Company’s currently outstanding trust preferred securities were grandfathered under this rule.
Under the capital rules, risk-based capital ratios are calculated by dividing common equity Tier 1 capital, Tier 1 capital and total capital, respectively, by risk-weighted assets. Assets and off-balance sheet credit equivalents are assigned one of several categories of risk weights based primarily on relative risk. Under the Federal Reserve Board’s rules applicable to the Company and the FDIC’s capital rules applicable to the Bank, the Company and the Bank are each required to maintain a minimum common equity Tier 1 capital to risk-weighted assets ratio of 4.5%, a minimum Tier 1 capital to risk-weighted assets ratio of 6.0%, a minimum total capital to risk-weighted assets ratio of 8.0% and a minimum leverage ratio
requirement of 4.0%. Additionally, these rules require an institution to establish a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements for “adequately capitalized” institutions of more than 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases.
Under the FDIC’s prompt corrective action rules, an FDIC supervised institution is considered “well capitalized” if it (i) has a total capital to risk-weighted assets ratio of 10.0% or greater; (ii) a Tier 1 capital to risk-weighted assets ratio of 8.0% or greater; (iii) a common Tier 1 equity ratio of 6.5% or greater, (iv) a leverage capital ratio of 5.0% or greater; and (v) is not subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. The Bank is considered “well capitalized” under this definition.
Generally, a bank, upon receiving notice that it is not adequately capitalized (i.e., that it is “undercapitalized”), becomes subject to the prompt corrective action provisions of Section 38 of FDIA that, for example, (i) restrict payment of capital distributions and management fees, (ii) require that its federal bank regulator monitor the condition of the institution and its efforts to restore its capital, (iii) require submission of a capital restoration plan, (iv) restrict the growth of the institution’s assets and (v) require prior regulatory approval of certain expansion proposals. A bank that is required to submit a capital restoration plan must concurrently submit a performance guarantee by each company that controls the bank. A bank that is “critically undercapitalized” (i.e., has a ratio of tangible equity to total assets that is equal to or less than 2.0%) will be subject to further restrictions, and generally will be placed in conservatorship or receivership within 90 days.
Current capital rules do not establish standards for determining whether a bank holding company is well capitalized. However, for purposes of processing regulatory applications and notices, the Federal Reserve Board’s Regulation Y provides that a bank holding company is considered “well capitalized” if (i) on a consolidated basis, the bank holding company maintains a total risk-based capital ratio of 10.0% or greater; (ii) on a consolidated basis, the bank holding company maintains a Tier 1 risk-based capital ratio of 6.0% or greater; and (iii) the bank holding company is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board to meet and maintain a specific capital level for any capital measure. The Company is considered “well capitalized” under this definition. A banking organization that qualifies for and elects to use the community bank leverage framework described below will be considered well capitalized as long as it is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board to meet and maintain a specific capital level for any capital measure.
Safety and Soundness Standard. Guidelines adopted by the federal bank regulatory agencies pursuant to the FDIA establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings, and compensation and benefits. In general, these guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, the federal banking agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order restricting asset growth, requiring an institution to increase its ratio of tangible equity to assets or directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA. See “-Regulatory Capital Requirements” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties.
Dividend Restrictions
The Company is a legal entity separate and distinct from the Bank and its other subsidiaries. Revenues of the Company are derived primarily from dividends paid to it by the Bank. The right of the Company, and consequently the right of shareholders of the Company, to participate in any distribution of the assets or earnings of its subsidiaries, through the payment of such dividends or otherwise, is subject to the prior claims of creditors of the subsidiaries, including, with
respect to the Bank, depositors of the Bank, except to the extent that certain claims of the Company in a creditor capacity may be recognized.
Restrictions on Bank Holding Company Dividends. The Federal Reserve Board has the authority to prohibit bank holding companies from paying dividends if such payment is deemed to be an unsafe or unsound practice. The Federal Reserve Board has indicated generally that it may be an unsafe or unsound practice for bank holding companies to pay a dividend that exceeds earnings for the period for which the dividend is being paid. Further, under the Federal Reserve Board’s capital rules, the Company’s ability to pay dividends is restricted if it does not maintain the required capital conservation buffer. See “-Capital Adequacy and Safety and Soundness-Regulatory Capital Requirements” above.
Restrictions on Bank Dividends. The FDIC has the authority to use its enforcement powers to prohibit a bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law also prohibits the payment of dividends by a bank that will result in the bank failing to meet its applicable capital requirements on a pro forma basis. Maine law requires the approval of the BFI for any dividend that would reduce a bank’s capital below prescribed limits. In addition, the ability of shareholders to participate in any distribution of the assets or earnings of the Bank through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of the Bank (including depositors).
Certain Transactions by Bank Holding Companies with their Affiliates
There are various statutory restrictions on the extent to which bank holding companies and their non-bank subsidiaries may borrow, obtain credit from or otherwise engage in “covered transactions” with their insured depository institution subsidiaries. An insured depository institution (and its subsidiaries) may not lend money to, or engage in covered transactions with, its non-depository institution affiliates if the aggregate amount of “covered transactions” outstanding involving the bank, plus the proposed transaction, exceeds the following limits: (i) in the case of any one such affiliate, the aggregate amount of “covered transactions” of the insured depository institution and its subsidiaries cannot exceed 10% of the capital stock and surplus of the insured depository institution; and (ii) in the case of all affiliates, the aggregate amount of covered transactions of the insured depository institution and its subsidiaries cannot exceed 20% of the capital stock and surplus of the insured depository institution. For this purpose, “covered transactions” are defined by statute to include: a loan or extension of credit to an affiliate, a purchase of or investment in securities issued by an affiliate, a purchase of assets from an affiliate unless exempted by the Federal Reserve, the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any person or company, the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate, securities borrowing or lending transactions with an affiliate that creates a credit exposure to such affiliate, or a derivatives transaction with an affiliate that creates a credit exposure to such affiliate. “Covered transactions” are also subject to certain collateral security requirements. “Covered transactions” as well as other types of transactions between a bank and a bank holding company must be conducted under terms and conditions, including credit standards, that are at least as favorable to the bank as prevailing market terms. If a banking organization elects to use the community bank leverage ratio framework described in “Capital Adequacy and Safety and Soundness - Regulatory Capital Requirements” above, the banking organization would be required to measure the amount of covered transactions as a percentage of Tier 1 capital, subject to certain adjustments. Moreover, Section 106 of the Bank Holding Company Act Amendments of 1970 provides that, to further competition, a bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property of any kind, or the furnishing of any service.
Consumer Protection Regulation
General. The Company and the Bank are subject to federal and state laws designed to protect consumers and prohibit unfair or deceptive business practices including the Equal Credit Opportunity Act, Fair Housing Act, Home Ownership Protection Act, Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”), the GLBA, the Truth in Lending Act (“TILA”), the CRA, the Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, National Flood Insurance Act and various state law counterparts. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must interact with customers when taking deposits, making loans, collecting loans and providing other services. Further, the CFPB also has a broad mandate to prohibit unfair, deceptive or abusive acts and practices and is specifically empowered to require certain
disclosures to consumers and draft model disclosure forms. Failure to comply with consumer protection laws and regulations can subject financial institutions to enforcement actions, fines and other penalties. The FDIC examines the Bank for compliance with CFPB rules and enforces CFPB rules with respect to the Bank.
The Dodd-Frank Act prescribes certain standards that mortgage lenders must consider before making a residential mortgage loan, including verifying a borrower’s ability to repay such mortgage loan and allows borrowers to assert violations of certain provisions of the TILA as a defense to foreclosure proceedings. Additionally, the CFPB’s qualified mortgage rule, requires creditors, such as the Bank, to make a reasonable good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling. The Economic Growth Act included provisions that ease certain requirements related to residential mortgage transactions for certain institutions with less than $10 billion in total consolidated assets.
Privacy and Customer Information Security. The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to nonaffiliated third parties. In general, the Bank must provide its customers with an initial and annual disclosure that explains its policies and procedures regarding the disclosure of such nonpublic personal information, and, except as otherwise required or permitted by law, the Bank is prohibited from disclosing such information except as provided in such policies and procedures. However, an annual disclosure is not required to be provided by a financial institution if the financial institution only discloses information under exceptions from GLBA that do not require an opt out to be provided and if there has been no change in its privacy policies and procedures since its most recent disclosure provided to consumers. The GLBA also requires that the Bank develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information (as defined under GLBA), to protect against anticipated threats or hazards to the security or integrity of such information; and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. The Bank is also required to send a notice to customers whose sensitive information has been compromised if unauthorized use of the information is reasonably possible. Most states, including the states where the Bank operates, have enacted legislation concerning breaches of data security and the duties of the Bank in response to a data breach. Congress continues to consider federal legislation that would require consumer notice of data security breaches. In addition, individual states in our market area have promulgated data security regulations with respect to personal information of their residents. Pursuant to the FACT Act, the Bank had to develop and implement a written identity theft prevention program to detect, prevent, and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts. Additionally, the FACT Act amended the Fair Credit Reporting Act to generally prohibit a person from using information received from an affiliate to make a solicitation for marketing purposes to a consumer, unless the consumer is given notice and a reasonable opportunity and method to opt out of the making of such solicitations.
Anti-Money Laundering
The Bank Secrecy Act. Under the Bank Secrecy Act (the “BSA”), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction. Financial institutions are generally required to report to the U.S. Treasury any cash transactions involving at least $10,000. In addition, financial institutions are required to file suspicious activity reports for any transaction or series of transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), which amended the BSA, together with the implementing regulations of various federal regulatory agencies, has caused financial institutions, such as the Bank, to adopt and implement additional policies or amend existing policies and procedures with respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction reporting, customer identity verification and customer risk analysis. In evaluating an application to acquire a bank or to merge banks or effect a purchase of assets and assumption of deposits and other liabilities, the applicable federal banking regulator must consider the anti-money laundering compliance record of both the applicant and the target. In addition, under the USA PATRIOT Act financial institutions are required to take steps to monitor their correspondent banking and private banking relationships as well as, if applicable, their relationships with “shell banks.”
Office of Foreign Assets Control. The U.S. has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. These sanctions, which are administered by U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial or other transactions relating to a sanctioned country or with certain designated persons and entities; (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons); and (iii) restrictions on transactions with or involving certain persons or entities. Blocked assets (for example, property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences for the Bank.
Other Significant Banking Regulations Applicable to the Bank
BHWM, a New Hampshire chartered non-depository trust company and an indirect subsidiary of the Bank, is subject to supervision, regular examination, and regulation by the New Hampshire Banking Department. On April 30, 2022, Bar Harbor Trust Services, which was a Maine chartered non-depository trust company and a wholly-owned subsidiary of the Bank, merged with and into BHWM (formerly named Charter Trust Company).
In accordance with NH RSA 383-C:5-502, BHWM’s Capital Plan requires minimum capital of $1.0 million to be invested in accordance with NH RSA 564-B:9-902. As of December 31, 2024, BHWM’s total capital was $13.2 million and it had liquidation reserves of $505 thousand held in a money market account. BHWM also had operating reserves of $11.2 million held primarily at the Bank. As of December 31, 2024, BHWM had an appropriate liquidation reserve, minimum capital in excess of statutory requirements, and all funds were held in accordance with prudent investor standards of NH RSA 564-B:9-902 and as required by NH RSA 383-C:5-502.
Employee Retirement Income Security Act of 1974. The Bank and BHWM are each also subject to ERISA, and related regulations, to the extent it is a “fiduciary” under ERISA with respect to some of its clients. ERISA and related provisions of the Internal Revenue Code of 1986, as amended, impose duties on persons who are fiduciaries under ERISA, and prohibit certain transactions involving the assets of each ERISA plan that is a client of the Bank or BHWM, as applicable, as well as certain transactions by the fiduciaries (and several other related parties) to such plans.
The foregoing laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict BHWM from conducting business in the event it fails to comply with such laws and regulations. Possible sanctions that may be imposed in the event of such noncompliance include the suspension of individual employees, limitations on business activities for specified periods of time, revocation of registration as an investment adviser, commodity trading adviser and/or other registrations, and other censures and fines.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This Annual Report is qualified in its entirety by these risk factors.
If any of the events described in the risk factors should actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment.
Liquidity and Interest Rate Risks
Interest rate volatility could significantly reduce our profitability.
Our earnings and cash flows are largely dependent upon net interest income. Net interest income is the difference between interest income earned on interest-bearing assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, both domestic and foreign, demand for loans, securities and deposits, policies of various governmental and regulatory agencies. Changes in monetary policy, including changes in interest rates, fiscal policy, including expansion of U.S. federal deficit spending and resultant debt issuance, or the slope of the yield curve could influence not only the interest received on loans and securities and the amount of interest paid on deposits and borrowings, but such changes could also affect (i) the ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, and (iii) the average duration of loans and securities that are collateralized by mortgages. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. If interest rates decline, higher-rate loans and investments may be subject to prepayment risk, which could negatively impact our net interest margin. Conversely, if interest rates increase, loans and investment securities may be subject to extension risk, which could negatively impact our net interest margin as well.
We are required to maintain sufficient capital and adequate liquidity.
As a banking organization, our capital and liquidity are subject to regulation and supervision by banking regulators. We are required to maintain minimum levels of capital. The proportion of the Bank’s deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk as it relates to maintaining such levels of capital as uninsured depositors historically have been more likely to withdraw their deposits. In addition, our banking regulators could require us to maintain more and higher quality capital than previously expected. Our banking regulators could also require us to hold higher levels of short-term investments, thereby limiting our ability to invest in longer-term or less liquid assets at higher yields. The need to maintain capital and liquidity could result in our being required to take steps to increase our regulatory capital and may dilute shareholder value or limit our ability to pay dividends or otherwise return capital to our investors through stock repurchases. In addition, if we fail to maintain appropriate levels of capital or liquidity, we could become subject to formal or informal enforcement actions that may impose restrictions on our business, including limiting our lending activities or our ability to expand, requiring us to raise additional capital (which may be dilutive to shareholders) or requiring regulatory approval to pay dividends or otherwise return capital to shareholders. See Item 1. “Business-Regulation and Supervision-Capital Adequacy and Prompt Corrective Action” for additional information on capital requirements applicable to us and the Bank.
The Company’s earnings may not grow if we are unable to successfully attract core deposits and lending opportunities and execute opportunities to generate fee-based income.
The Company has experienced growth, and our future business strategy is to continue to expand. Historically, the growth of our loans and deposits has been the principal factor in our increase in net-interest income. In the event that we are unable to execute our business strategy of continued growth in loans and deposits, our earnings could be adversely impacted. The Company’s ability to continue to grow depends, in part, upon our ability to expand our market share, to successfully attract core deposits and identify loan and investment opportunities, as well as opportunities to generate fee-based income. Our ability to manage growth successfully will also depend on whether we can continue to efficiently fund asset growth and maintain asset quality and cost controls, as well as on factors beyond our control, such as economic conditions and interest-rate trends.
Wholesale funding sources may prove insufficient to replace deposits and support operations and future growth.
We must maintain sufficient funds to respond to the needs of customers. To manage liquidity, we use a number of funding sources in addition to core deposit growth, loan repayments and maturities of loans and securities. These sources include FHLB and the Federal Reserve Bank (“FRB”) advances, proceeds from the sale of securities and loans and liquidity resources at the holding company. Our ability to manage liquidity will be severely constrained if unable to maintain access to funding or if adequate financing is not available to accommodate future growth at acceptable costs. In addition, if we need to rely heavily on more expensive funding sources to support future growth, revenues may not increase proportionately to cover costs. In this case, our operating margins and profitability would be adversely affected.
Additionally, any deterioration in the FHLB’s performance or financial condition may affect our ability to access funding and/or require us to deem the required investment in FHLB stock to be impaired. If we are not able to access funding through the FHLB, we may not be able to meet our liquidity needs, which could have an adverse effect on our results of operations or financial condition. Similarly, if we deem all or part of our investment in FHLB stock impaired, such action could have an adverse effect on our financial condition or results of operations.
Loss of deposits or a change in deposit mix could increase our cost of funding.
Deposits are a low cost and stable source of funding. We compete with banks and other financial institutions for deposits. Funding costs may increase if deposits are lost and we are forced to replace them with more expensive sources of funding, if customers shift their deposits into higher cost products or if we need to raise interest rates to avoid losing deposits. Higher funding costs reduce our net interest income, net interest margin, and net income.
If we are unable to access the capital markets, have prolonged net deposit outflows, or our borrowing costs increase, our liquidity and competitive position will be negatively affected.
Liquidity is essential to our business. We must maintain sufficient funds to respond to the needs of depositors and borrowers. To manage liquidity, we draw upon a number of funding sources in addition to in-market deposit growth and repayments and maturities of loans and investments. Any inability to access the capital markets, illiquidity or volatility in the capital markets, the decrease in value of eligible collateral or increased collateral requirements (including as a result of credit concerns for short-term borrowing), changes to our relationships with our funding providers based on real or perceived changes in our risk profile, prolonged federal government shutdowns, or changes in regulations or regulatory guidance, or other events could negatively affect our access to or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, or fund asset growth and new business initiatives at a reasonable cost, in a timely manner and without adverse consequences. Additionally, our liquidity or cost of funds may be negatively impacted by the unwillingness or inability of the Federal Reserve Board to act as lender of last resort, unexpected simultaneous draws on lines of credit or deposits, the withdrawal of or failure to attract customer deposits, or increased regulatory liquidity, capital and margin requirements.
Although we maintain a liquid asset portfolio and have implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, changes in assets, liabilities, and off-balance sheet commitments under various economic conditions, a substantial, unexpected, or prolonged change in the level or cost of liquidity could have a material adverse effect on us. If the cost effectiveness or the availability of supply in these credit markets is reduced for a prolonged period of time, our funding needs may require us to access funding and manage liquidity by other means. These alternatives may include generating client deposits, extending the maturity of wholesale borrowings, borrowing under certain secured borrowing arrangements, using relationships developed with a variety of fixed income investors, selling or securitizing loans, and further managing loan growth and investment opportunities. These alternative means of funding may result in an increase to the overall cost of funds and may not be available under stressed conditions, which would cause us to liquidate a portion of our liquid asset portfolio to meet any funding needs.
Our access to funds from subsidiaries may be restricted.
The Company is a separate and distinct legal entity from the Bank and its non-banking subsidiaries. The Company depends on dividends, distributions and other payments from its banking and non-banking subsidiaries to fund dividend payments on its common stock, debt service of subordinated borrowings, fund stock repurchase program and to fund strategic initiatives or other obligations. The Company’s subsidiaries are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the Company based on assertion that certain payments from subsidiaries are considered an unsafe or unsound practice, which could impede our access to funds that we may need to make payments on our obligations or dividend payments, if and when declared from time to time by our board of directors in its sole discretion out of funds legally available for that purpose.
Prepayments of loans may negatively impact our business as customers may prepay the principal amount of their outstanding loans at any time.
The speeds at which such prepayments occur, as well as the size of such prepayments, are within the customers’ discretion. Fluctuations in interest rates, in certain circumstances, may also lead to high levels of loan prepayments, which may also have an adverse impact on net interest income. If customers prepay the principal amount of their loans, and we are unable to lend those funds to other borrowers or invest the funds at the same or higher interest rates, interest income will be
reduced. A significant reduction in interest income could have a negative impact on results of operations and financial condition.
Secondary mortgage market conditions may adversely affect our financial condition and earnings.
The secondary mortgage markets are impacted by interest rates and investor demand for residential mortgage loans and increased investor yield requirements for these loans. These conditions may fluctuate in the future. As a result, a prolonged period of secondary market illiquidity may reduce our loan production volumes, change loan portfolio composition, and reduce operating results. Secondary markets are affected by Fannie Mae, Freddie Mac, and Ginny Mae for loan purchases that meet their conforming loan requirements. These agencies could limit purchases of conforming loans due to capital constraints, changes in conforming loan criteria or other factors. Proposals to reform mortgage finance could affect the role of these agencies and the market for conforming loans.
The performance of our investment securities portfolio is subject to fluctuation due to changes in interest rates and market conditions, including credit deterioration of the issuers of individual securities.
Changes in interest rates can negatively affect the performance of most of our investment securities. Interest rate volatility can reduce unrealized gains or increase unrealized losses in our portfolio, as was the case in 2023 with the rising rate environment. Interest rates are highly sensitive to many factors including monetary policies, domestic and international economic, social and political conditions and issues, including trade disputes, global health pandemics, and other factors beyond our control. Fluctuations in interest rates can materially affect both the returns on and market value of our investment securities.
In addition, from time to time we may restructure portions of our investment securities portfolio as part of our asset liability management strategies or in response to liquidity needs, and we may incur losses, which may be material, in connection with any such restructuring. If we were to sell any of these securities before their value recovers, including as a result of asset liability management strategies or in response to liquidity needs, we would be required to recognize these losses and the recognition of those losses could materially and adversely affect our results of operations, capital and financial.
Impairment of investment securities or goodwill could result in a negative impact on our results of operations.
In assessing whether the impairment of securities is related to a deterioration in credit factors, we consider the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability to retain the securities for a period of time sufficient to allow for any anticipated recovery in fair value in the near term.
Under current accounting standards, goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. A decline in our stock price or occurrence of a triggering event following any of its quarterly earnings releases and prior to the filing of the periodic report for that period could, under certain circumstances, require performance of a goodwill impairment test and result in an impairment charge being recorded for that period which was not reflected in such earnings release. During 2024, our annual impairment test conducted in October, using discounted cash flows and market-based approaches, indicated that the estimated fair value of our sole reporting unit “Bar Harbor Bank & Trust” exceeded the carrying value. In a future assessment, we could conclude that all or a portion of our goodwill is impaired, which would result in a non-cash charge to earnings.
Revenues from our wealth management business are significant to earnings.
Generating returns that satisfy customers in a variety of asset classes is important to maintaining existing business and attracting new business. Administering or managing assets in accordance with the terms of governing documents and applicable laws is also important to client satisfaction. Failure in either of the foregoing areas can expose us to liability, and result in a decrease in revenues and earnings.
Our wealth management business may be negatively affected by changes in economic and market conditions.
A decline in economic conditions, such as recession, economic downturn, and/or inflationary conditions, changes in domestic and foreign economic conditions, volatility in financial markets, and general trends in business and finance, all of which are beyond our control, could adversely impact the market value of wealth management AUM, which are primarily marketable securities, and the fee revenues derived from the management of these assets. Market volatility that
results in clients liquidating investments, as well as lower asset values, can reduce the level of AUM and decrease our wealth management revenues, which could materially adversely affect our results of operations.
Credit Risks
Deterioration in local economies or real estate markets may adversely affect our financial performance, as our borrowers’ ability to repay loans and the value of the collateral securing the loans may decline.
We serve individuals and businesses located in Maine, New Hampshire, and Vermont. A substantial portion of the loan portfolio is secured by real estate in these areas and the value of the associated collateral is subject to local real estate market conditions. Furthermore, many customers in the hospitality industry rely upon a high number of tourists to vacation destinations and attractions within our markets. Our success is largely dependent on the economic conditions, including employment levels, population growth, income levels, savings trends and government policies in those market areas. A downturn in the local economies may adversely affect collateral values, sources of funds, and demand for products, all of which could have a negative impact on results of operations, financial condition and business expansion.
High concentrations of commercial loans may increase exposure to credit loss upon borrower default.
As of December 31, 2024, approximately 67% of our loan portfolio consisted of commercial real estate, commercial and industrial and construction loans. Commercial loan portfolio concentration generally exposes lenders to greater risk of delinquency and loss than residential real estate loans because repayment of the loans often depends on the successful operation and income streams from the property. Commercial loans typically involve larger balances to single borrowers or groups of related borrowers as compared to residential real estate loans. As our loan portfolio contains a significant number of large commercial loans, the deterioration of one or a few of these loans could cause a significant increase in non-performing loans, provision for loan losses, and/or an increase in loan charge-offs, all of which could adversely affect our financial condition and results of operations.
Greater than anticipated credit losses in the loan portfolios may adversely affect our earnings.
Credit losses are inherent in the business of making loans and could have a material adverse effect on operating results. We make various assumptions and judgments about the collectability of the loan portfolio and provide an ACL based on a number of factors. The ACL is evaluated on a periodic basis using current information, including the quality of the loan portfolio, economic conditions, and value of the underlying collateral and the level of non-accrual loans. Although we believe the ACL is appropriate to absorb probable losses in the loan portfolio, this allowance may not be adequate. Increases in the allowance will result in an expense for the period, thereby reducing reported net income.
We are exposed to risk of environmental liabilities with respect to properties to which we take title.
In the course of business, we may own or foreclose and take title to real estate that may be subject to environmental liabilities with respect to subject property. As a result, we may be held liable for property damage, personal injury, investigation and restoration costs. The cost associated with investigation or restoration activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property.
Operational Risks
We are subject to a variety of operational risks, including reputational risk, and the risk of fraud or theft by employees or outsiders, which may adversely affect our business and results of operations.
We are exposed to many types of operational risks, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, and unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems. If personal, non-public, confidential, or proprietary information of customers in our possession were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage, and financial loss.
Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon automated systems to record and process transactions and its large transaction volume may further increase the risk that technical flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. We may also be
subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control (e.g., computer viruses or electrical or telecommunications outages, natural disaster, pandemics, or other damage to property or physical assets), which may give rise to disruption of service to customers and to financial loss or liability. We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees) and to the risk that our vendors’ business continuity and data security systems prove to be inadequate. The occurrence of any of these risks could result in a diminished ability to operate (e.g., by requiring us to expend significant resources to correct the defect), as well as potential liability to customers, reputational damage, and regulatory intervention.
In addition, we are dependent on our reputation within our market area, as a trusted and responsible financial company, for all aspects of our relationships with customers, employees, vendors, third-party service providers and others with whom we conduct business or potential future business, particularly because our business is primarily concentrated in Northern New England. Our actual or perceived failure, including, to (i) identify and address potential conflicts of interest, ethical issues, money-laundering, or privacy issues; (ii) meet legal and regulatory requirements applicable to the Bank and to the Company; (iii) maintain the privacy of customer and accompanying personal information; (iv) maintain adequate record keeping; (v) engage in proper sales and trading practices; and (vi) identify the legal, reputational, credit, liquidity and market risks inherent in our products; or any action of one of our employees that results in actual or perceived misconduct or error, among other things, could give rise to reputational risk that could cause harm to the Bank and our business prospects. If we fail to address any of these issues in an appropriate manner, we could be subject to additional legal risks, which, in turn, could increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses. Because we primarily serve individuals and businesses located in Northern New England, any negative impact resulting from reputational harm, including any impact on our ability to attract and retain customers and employees, likely would be greater than if our business were more geographically diverse.
Disruptions to our information systems and security breaches may adversely affect our business and reputation.
In the ordinary course of business, we rely on electronic communications and information systems to conduct its businesses and to store sensitive data, including financial information regarding its customers. The integrity of information systems is under significant threat from cyberattacks by third parties, including through coordinated attacks sponsored by foreign nations and criminal organizations to disrupt business operations and other compromises to data and systems for political or criminal purposes. We employ an in-depth, layered, defense approach that leverages people, processes and technology to manage and maintain cybersecurity controls. Notwithstanding the strength of defensive measures, the threat from cyberattacks is severe, attacks are sophisticated and attackers respond rapidly to changes in defensive measures. Cybersecurity risks may also occur with our third-party service providers, and may interfere with their ability to fulfill their contractual obligations to us, with additional potential for financial loss or liability that could adversely affect our financial condition or results of operations. We offer our customers the ability to bank remotely and provide other technology-based products and services, which services include the secure transmission of confidential information over the Internet and other remote channels. To the extent that our customers’ systems are not secure or are otherwise compromised, our network could be vulnerable to unauthorized access, malicious software, phishing schemes and other security breaches. To the extent that our activities or the activities of its customers or third-party service providers involve the storage and transmission of confidential information, security breaches and malicious software could expose us to claims, regulatory scrutiny, litigation and other possible liabilities.
Information security risks have generally increased in recent years, and continue to increase, in part because of the proliferation of new technologies, the implementation of work-from-home arrangements, the use of the Internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists, and other external parties, some of which may be linked to terrorist organizations or hostile foreign governments. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our systems or to investigate and remediate vulnerabilities. System enhancements and updates may also create risks associated with implementing and integrating new systems. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our systems can itself create a risk of systems disruptions and security issues.
While to date we believe that we have not experienced a significant compromise, significant data loss or material financial losses related to cybersecurity attacks, our systems and those of our customers and third-party service providers, are under constant threat and may experience a significant event in the future. We may suffer material financial losses related to these risks or be subject to liability for compromises to its customers or third-party providers. Any such losses or liabilities could adversely affect our financial condition or results of operations, and could expose us to reputation risk, the loss of client business, increased operational costs, as well as additional regulatory scrutiny, possible litigation, and related financial liability. These risks also include possible business interruption, including the inability to access critical information and systems.
We have a continuing need for technological change, and we may not have the resources to implement new technology effectively, or we may experience operational challenges when implementing new technology or technology needed to compete effectively with larger institutions may not be available to us on a cost-effective basis.
The financial services industry undergoes rapid technological changes with frequent introductions of new technology-driven products and services, including developments in artificial intelligence. In addition to serving clients better, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, at least in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations as we continue to grow and expand our products and service offerings. We offer electronic banking services for consumer and business customers via our website, including Internet banking and electronic bill payment, as well as mobile banking. We also offer debit cards, ATM cards, and automatic and ACH transfers. We may experience operational challenges as we implement these new technology enhancements or products, which could impair our ability to realize the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner.
Many of our larger competitors have substantially greater resources to invest in technological improvements. Third parties upon which we rely for our technology needs may not be able to develop on a cost-effective basis the systems that will enable us to keep pace with such developments. As a result, competitors may be able to offer additional or superior products compared to those that we will be able to provide, which would put us at a competitive disadvantage. We may lose clients seeking new technology-driven products and services to the extent we are unable to provide such products and services. Accordingly, the ability to keep pace with technological change is important and the failure to do so could adversely affect our business, financial condition and results of operations.
Our operations are reliant on outside vendors.
Our operations are dependent on the use of certain outside vendors for its day-to-day operations. Vendors may not perform in accordance with established performance standards required in their agreements for any number of reasons including a change in the vendor’s senior management, financial condition, product line or mix and how they support existing customers, or simply change their strategic focus putting us at risk. While we have comprehensive policies and procedures in place to mitigate risk in all phases of vendor management from selection to performance monitoring, the failure of a vendor to perform in accordance with contractual agreements could be disruptive to our business, which could have a material adverse effect on our financial condition and results of operations.
We may incur significant losses as a result of ineffective risk management processes and strategies.
We seek to monitor and control our risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance, and legal reporting systems; internal controls; management review processes; and other mechanisms. In some cases, management of our risks depends upon the use of analytical and/or forecasting models, which, in turn, rely on assumptions and estimates. If the models used to mitigate these risks are inadequate, or the assumption or estimates are inaccurate or otherwise flawed, we may fail to adequately protect against risks and may incur losses. While we believe that we have adopted appropriate management and compliance programs, compliance risks will continue to exist, particularly as we anticipate and adapt to new and evolving laws, rules and regulations and evolving interpretations by regulatory authorities. In addition there may be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated, which could lead to unexpected losses and our results of operations or financial condition could be materially adversely affected.
Our internal controls, procedures and policies may fail or be circumvented.
Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
We may be adversely affected by the soundness of other financial institutions.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty and other relationships. Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. If such events were to occur again in the future and result in the receivership of financial institutions, there is no guarantee that the systemic risk exception would be invoked to allow the FDIC to complete its resolution of such financial institutions in a manner that fully protects depositors or counterparties. We have exposure to a number of different counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, other commercial banks, investment banks, and other financial institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or customer. In addition, our credit risk may be exacerbated when the collateral held by us cannot be liquidated or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due to us. There is no assurance that any such losses would not materially and adversely affect our results of operations.
Changes in the federal, state or local tax laws may negatively impact our financial performance and we are subject to examinations and challenges by tax authorities.
We are subject to federal and applicable state tax laws and regulations. Changes in these tax laws and regulations, some of which may be retroactive to previous periods, could increase our effective tax rates and, as a result, could negatively affect our current and future financial performance. Furthermore, tax laws and regulations are often complex and require interpretation. In the normal course of business, we are routinely subject to examinations and challenges from federal and applicable state tax authorities regarding the amount of taxes due in connection with investments we have made and the businesses in which we have engaged. Recently, federal and state taxing authorities have become increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning. The challenges made by tax authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have a material adverse effect on our business, financial condition and results of operations.
Strategic and External Risks
Changes and instability in economic conditions, geopolitical matters and financial markets, including a contraction of economic activity, could adversely impact our business, results of operations and financial condition.
Our success depends, to a certain extent, upon global, domestic and local economic and political conditions, as well as governmental monetary policies. Unfavorable or uncertain economic conditions can be caused by declines in economic growth, business activity, or investor or business confidence; limitations on the availability of or increases in the cost of credit and capital; increases in inflation or interest rates; uncertainties regarding fiscal and monetary policies; the timing and impact of changing governmental policies, including changes in guidance and interpretation by regulatory authorities; changes in trade policies by the U.S. or other countries, such as tariffs or retaliatory tariffs as those proposed by the new U.S. Administration; supply chain disruptions; consumer spending; employment levels; labor shortages; challenging labor market conditions; wage stagnation; federal government shutdowns; energy prices; home prices; commercial property values; bankruptcies and a default by a significant market participant or class of counterparties; natural disasters; climate change; epidemics; pandemics; terrorist attacks; acts of war; or a combination of these or other factors.
Monetary policy and economic environment could impact our financial performance.
Our earnings are significantly affected by the monetary and fiscal policies of governmental authorities, including the Federal Reserve Board. Among the instruments of monetary policy used by the Federal Reserve Board to implement these objectives are open-market operations in U.S. Government securities and federal funds, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These instruments of monetary policy are used in varying combinations to influence the overall level of bank loans, investments, and deposits, and the interest rates charged on loans and paid for deposits. The Federal Reserve Board frequently uses these instruments of monetary policy, especially its open-market operations and the discount rate, to influence the level of interest rates, thereby affecting the strength of the economy, the level of inflation, or the price of the dollar in foreign exchange markets. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of banking institutions in the past and are expected to continue to do so in the future. It is not possible to predict the nature of future changes in monetary and fiscal policies, or the effect which they may have on our business and earnings.
Increased market volatility and adverse changes in financial or capital market conditions may increase our market risk.
Our liquidity, competitive position, business, results of operations and financial condition are affected by market risks such as changes in interest rates, fluctuations in equity, commodity and futures prices, the implied volatility of interest rates and credit spreads and other economic and business factors. These market risks may adversely affect, among other things, the value of our securities, the cost of debt capital and our access to credit markets, the value of wealth management AUM and the fee income related to wealth management AUM, customer allocation of capital among investment alternatives, and our competitiveness with respect to deposit pricing. In times of market stress or other unforeseen circumstances, previously uncorrelated indicators may become correlated, which may limit the effectiveness of our strategies to manage these risks.
Involvement in wealth management creates risks associated with the industry.
Our wealth management operations present special risks not borne by institutions that focus exclusively on other traditional retail and commercial banking products. For example, the investment advisory industry is subject to fluctuations in the stock market and interest rate volatility that may have a significant adverse effect on transaction fees, client activity and client investment portfolio gains and losses. Also, additional or modified regulations may adversely affect our wealth management operations. In addition, our wealth management operations, are dependent on a small number of established financial advisors, whose departure could result in the loss of a significant number of client accounts. A significant decline in fees and commissions or trading losses suffered in the investment portfolio could adversely affect our income and potentially require the contribution of additional capital to support our operations.
Strong competition within our markets may significantly impact profitability.
We compete with an ever-increasing array of financial service providers. See the section entitled “Competition” in Part I. Item 1, “Business” of this Annual Report for additional competitor information. Competition from nationwide banks, as well as local institutions, continues to mount in our markets. To compete, we focus on quality customer service, making decisions at the local level, maintaining long-term customer relationships, building customer loyalty, and providing products and services designed to address the specific needs of customers. Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect growth and profitability.
Market changes may adversely affect demand for our services and impact revenue, costs, and earnings.
Channels for servicing our customers are evolving rapidly, with less reliance on traditional branch facilities, increased use of e-commerce channels, and demand for universal bankers and other relationship managers who can service multiple product lines. We have an ongoing process for evaluating the profitability of its branch system and other office and operational facilities. The identification of unprofitable operations and facilities can lead to restructuring charges and introduce the risk of disruptions to revenues and customer relationships. We compete with larger financial institutions who are rapidly evolving their service channels and escalating the costs of evolving the service process.
Expansion, growth, and acquisitions could negatively impact earnings if not successful.
We may grow organically both by geographic expansion and through business line expansion, as well as through acquisitions. Success of these activities depends on our ability to continue to maintain and develop an infrastructure appropriate to support and integrate such growth. Success may also depend on acceptance of the Bank by customers in these new markets and, in the case of expansion through acquisitions, these factors include the long-term recruitment and
retention of key personnel and acquired customer relationships. Profitability depends on whether the marginal revenue generated in the new markets will offset the increased expenses of operating a larger entity, with more staff, more locations, and more product offerings. Failure to achieve any of these success factors may have a negative impact on our financial condition and results of operations.
Future pandemics, severe weather, natural disasters, acts of war or terrorism, and other external events could significantly impact our business and the business of our customers.
Future pandemics, severe weather, natural disasters, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. In particular, such events may have a particularly negative impact upon the business of customers who are engaged in the hospitality industry in our markets, which could have a direct negative impact on our business and results of operations. Further, work-from-home and other modified business practices may introduce additional operational risks, including cybersecurity and execution risks, which may result in inefficiencies or delays, and may affect our ability to, or the manner in which we, conduct our business activities.
Legal, Regulatory and Compliance Risks
We are subject to extensive government regulation and supervision, which may interfere with the ability to conduct business and may negatively impact our financial results.
Banking regulations are primarily intended to protect depositors’ funds, the Federal Deposit Insurance Fund and the safety and soundness of the banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. We expect to become subject to future laws, rules and regulations beyond those currently proposed, adopted or contemplated in the U.S., as well as evolving interpretations of existing and future laws, rules and regulations. These and other restrictions could subject us to additional costs, limit the types of financial services and products we can offer, and/or limit the pricing we can charge on certain banking services, among other things. Compliance personnel and resources may increase costs of operations and adversely impact earnings.
We face significant legal risks, both from regulatory investigations and proceedings and from private actions brought against us.
As a participant in the financial services industry, many aspects of our business involve substantial risk of legal liability. From time to time, customers and others make claims and take legal action pertaining to the performance of our responsibilities, including our responsibilities as a fiduciary. Whether customer claims and legal action related to the performance of our responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant expenses, attention from management and financial liability. Any financial liability or reputational damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations. There is no assurance that litigation with private parties will not increase in the future. Actions currently pending against us may result in judgments, settlements, fines, penalties or other results adverse to us, which could materially adversely affect our business, financial condition or results of operations, or cause serious reputational harm to us.
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act, and other fair lending laws and regulations impose community investment and nondiscriminatory lending requirements on financial institutions. The CFPB, the Department of Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the CRA, the Equal Credit Opportunity Act, the Fair Housing Act or other fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions, restrictions on expansion and restrictions on entering new business lines. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations.
We may become subject to enforcement actions even though noncompliance was inadvertent or unintentional.
The financial services industry is subject to intense scrutiny from bank supervisors in the examination process and aggressive enforcement of federal and state regulations, particularly with respect to mortgage-related practices and other consumer compliance matters, and compliance with anti-money laundering, BSA and OFAC regulations, and economic sanctions against certain foreign countries and nationals. Enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. We maintain systems and procedures designed to ensure that we comply with applicable laws and regulations; however, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there was in place at the time systems and procedures designed to ensure compliance. Failure to comply with these and other regulations, and supervisory expectations related thereto, may result in fines, penalties, lawsuits, regulatory sanctions, reputation damage, or restrictions on our business.
The Federal Reserve Board may require us to commit capital resources to support the Bank.
Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary bank and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the Federal Reserve Board may require a holding company to make capital injections into a troubled subsidiary bank and may charge the holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may require the holding company to borrow the funds or raise capital. Any loans by a holding company to its subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the institution’s general unsecured creditors, including the holders of its note obligations. Thus, any borrowing that must be done by us to make a required capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations.
We are subject to stringent capital requirements which may adversely impact return on equity, require additional capital raises, or limit the ability to pay dividends or repurchase shares.
Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and define “capital” for calculating these ratios. The minimum capital requirements are: (i) a common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. The regulations also establish a “capital conservation buffer” of 2.5%, which if complied will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the capital conservation buffer amount. The application of these capital requirements could, among other things, require us to maintain higher capital resulting in lower returns on equity, and we may be required to obtain additional capital to comply or result in regulatory actions if we are unable to comply with such requirements.
Fee revenues from overdraft protection programs constitute a significant portion of our noninterest income and may be subject to increased supervisory scrutiny.
Revenues derived from transaction fees associated with overdraft protection programs offered to our customers represent a significant portion of its noninterest income. In response to recent increased congressional and regulatory scrutiny, and in anticipation of enhanced supervision and enforcement of overdraft protection practices in the future, certain banking organizations have begun to modify their overdraft protection programs, including by discontinuing the imposition of overdraft transaction fees. These competitive pressures, as well as any adoption by the Bank’s regulators of new rules or supervisory guidance or more aggressive examination and enforcement policies in respect of banks' overdraft protection practices, could cause it to modify programs and practices in ways that may have a negative impact on revenue and our earnings.
General Risk Factors
Changes in accounting policies or in accounting standards could materially affect our results of operations, and financial condition.
Accounting policies are fundamental to understanding our results of operations, and financial condition. Some of the accounting policies are critical because they require us to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. We may experience material losses if such estimates or assumptions underlying in our financial statements are incorrect.
From time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our external financial statements. These changes could materially impact how we report our results of operations and financial condition. New or revised standards could also require retroactive application, which could result in the restatement of our prior period financial statements in material amounts.
Internal controls may become ineffective in preventing or detecting material errors.
We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the controls are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition.
We may be unable to attract and retain key personnel.
Our success depends, in large part, on its ability to attract and retain key personnel. Competition for qualified personnel in the financial services industry can be intense and we may not be able to hire or retain the key personnel. In addition, the Bank’s rural geographic marketplace, combined with relatively expensive real estate purchase prices in the many tourist communities we serve, create additional risks for the our ability to attract and retain key personnel. The unexpected loss of key personnel could have an adverse impact on our business because of their skills, knowledge of the markets in which we operate, years of industry experience and the difficulty of promptly finding qualified replacement personnel.
Future capital offerings may adversely affect the market price of our common stock.
In the future, we may attempt to increase our capital resources or, if our banking subsidiaries’ capital ratios fall below required minimums, we could be forced to raise additional capital by making additional offerings of debt, common or preferred stock, trust preferred securities, and senior or subordinated notes. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Moreover, we cannot assure you that such capital will be available to us on acceptable terms or at all. Our inability to raise sufficient additional capital on acceptable terms when needed could adversely affect our businesses, financial condition and results of operations.
The market price and trading volume of our common stock may be volatile.
The market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:
• quarterly variations in our operating results or the quality of our assets;
• operating results that vary from the expectations of management, securities analysts and investors;
• changes in expectations as to our future financial performance;
• announcements of innovations, new products, strategic developments, significant contracts, acquisitions and other material events by us or our competitors;
• the operating and securities price performance of other companies that investors believe are comparable to us;
• our past and future dividend practices;
• future sales of our equity or equity-related securities; and
• changes in global financial markets and global economies and general market conditions, such as interest rates, stock, commodity or real estate valuations or volatility.
Attractive acquisition opportunities may not be available to us in the future, which could limit the growth of our business.
We may not be able to sustain a positive rate of growth or expand our business. We expect that other banking and financial service companies, many of which have significantly greater resources than us, will compete with us in acquiring other financial institutions if we pursue such acquisitions. This competition could increase prices for potential acquisitions that we believe are attractive. Also, acquisitions are subject to various regulatory approvals. If we fail to receive the appropriate regulatory approvals for a transaction, we will not be able to consummate such transaction which we believe to be in our best interests. Among other things, our regulators consider our capital, liquidity, profitability, regulatory compliance and levels of goodwill and intangibles when considering acquisition and expansion proposals. Other factors, such as economic conditions and legislative considerations, may also impede or prohibit our ability to expand our market presence. If we are not able to successfully grow our business, our financial condition and results of operations could be adversely affected.
Anti-takeover provisions could negatively impact our stockholders.
Provisions of the articles of incorporation, Bylaws and applicable Maine law may delay or discourage transactions involving an actual or potential change in the Company’s control or change in its management, including transactions in which shareholders might otherwise receive a premium for their shares, or transactions that its shareholders might otherwise deem to be in their best interests. Our articles of organization authorize our Board of Directors to issue preferred stock without stockholder approval and such preferred stock could be issued as a defensive measure in response to a takeover proposal. These and other provisions could make it more difficult for a third party to acquire us.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Our principal executive office is in a building located at 82 Main Street, Bar Harbor, Maine. We provide full-banking services at 53 locations throughout Maine, New Hampshire and Vermont, of which 34 are owned and 19 are leased. We also have one stand-alone drive-up window in Vermont. In addition to banking offices, we also have Operations Centers located in Ellsworth, Maine, and Newport, New Hampshire that house our operations and data processing centers. We have leased spaces in Hampden, Maine, Portland, Maine, Rockland, Maine and Manchester, New Hampshire where back office support for multiple lines of business and related functions are located. Additionally, we own a Wealth Management office located in Concord, New Hampshire. In the opinion of management, our physical properties are considered adequate to meet the needs of customers in the communities served.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
We are from time to time subject to claims and litigation arising in the ordinary course of business. These claims and litigation may include, among other things, allegations of violation of banking and other applicable regulations, competition laws, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. We intend to defend ourselves vigorously against any pending or future claims and litigation.
At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The common stock of the Company is traded on the NYSE American, under the trading symbol “BHB”. As of March 7, 2025, there were 15,317,222 shares of Bar Harbor Bankshares common stock, par value $2.00 per share, outstanding and approximately 1,315 shareholders of record, as obtained through the Company’s transfer agent.
Cash dividends declared and paid totaled $0.30 per share in the second, third and fourth quarters of 2024 and $0.28 per share in the first quarter of 2024. We currently expect that comparable cash dividends will continue to be paid in the future. However, no assurances can be given that any dividends will be declared or paid on the Company’s common stock in the future, or, if declared and paid, the amount or frequency of those dividends. The ability of the Company to pay dividends is contingent on the ability of the Bank to dividend funds to the Company to finance the payment of those dividends. The ability of the Company and the Bank to pay dividends is restricted by certain laws and regulations, and the payment of dividends by the Company and the Bank is within the discretion of their respective boards of directors.
Recent Sale of Unregistered Securities and Use of Proceeds from Registered Securities
No unregistered equity securities were sold by the Company during the year ended December 31, 2024.
On April 18, 2024, the Board approved a 12-month plan to repurchase up to 5% of the Company’s outstanding shares of common stock, representing 761,000 shares. No shares were repurchased by the Company during the year ended December 31, 2024 and the maximum number of shares that may yet be purchased under the plan is 761,000 shares. We will continue examine buying opportunities considering market conditions, including interest rate volatility and potential loan and risk-weighted asset growth.
Common Stock Performance Graph
The following graph illustrates the estimated yearly change in value of the cumulative total shareholder return on our common stock for each of the last five years. Total shareholder return is computed by taking the difference between the ending price of the common stock at the end of the previous year and the current year, plus any dividends paid divided by the ending price of the common stock at the end of the previous year. For purposes of comparison, the graph also matches our cumulative 5-Year total shareholder return on common stock with the cumulative total returns of the NYSE American Composite Index, and the S&P U.S. Small Cap Banks Index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2019 to December 31, 2024.
Period Ending
Index
12/31/19
12/30/20
12/31/21
12/31/22
12/31/23
12/30/24
Bar Harbor Bankshares
100.00
92.77
122.76
140.87
134.60
146.22
NYSE American Composite Index
100.00
95.27
141.37
174.07
197.50
206.76
S&P U.S. Small Cap Banks Index
100.00
90.82
126.43
111.47
112.03
132.44

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is management's analysis to assist in the understanding and evaluation of the consolidated financial condition and results of operations of the Company. It should be read in conjunction with the consolidated financial statements and footnotes and selected financial data presented elsewhere in this Annual Report. Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes. The detailed financial discussion that follows focuses on 2024 results compared to 2023. For a discussion of 2023 results compared to 2022, see the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
GENERAL
The Company is a bank holding company headquartered in Maine, providing a broad array of banking and nonbanking products and services to businesses and consumers primarily within our three-state footprint. The Company's primary sources of revenue, through the Bank, are net interest income (predominantly from loans and investment securities) and noninterest income (principally fees and other revenue from financial services provided to customers or ancillary services tied to loans and deposits).
ANNUAL PERFORMANCE SUMMARY
Earnings (For year ended December 31, 2024 compared to the same period of 2023)
● Net income was $43.5 million compared to $44.9, a decrease of 3%, driven primarily due to higher net interest expense as deposits repriced to higher rates. Diluted earnings per share was $2.84, compared to $2.95 for the previous year.
● Return on assets was 1.09% compared to 1.14%. Return on equity was 9.75% compared to 10.88%. Both ratios include higher cost of funds and relatively flat unrealized losses on securities as noted below under the “Financial Position” section.
● Net interest income was $113.8 million, compared to $117.7 million in the previous year. Net interest margin was 3.15% compared to 3.29% for 2023. The decrease is primarily due to the repricing of deposits and continued loan growth offset by higher borrowing costs and cost of interest-bearing liabilities.
● The provision for credit losses was an expense of $2.1 million in 2024 compared to $2.9 million in 2023.
● Non-interest income was $36.9 million, compared to $35.1 million primarily due to $1.4 million higher Trust and investment management fee income driven by increased assets under management and improved market performance.
● Non-interest expense was $96.0 million versus $92.7 million. Salaries and benefits expense increased $2.3 million driven by cost of living increases, higher commissions and incentive costs. Other expenses increased $1.7 million driven by increased Debit, ATM and credit card expenses, software costs and adjustments in cash surrender values on a split dollar policy.
● Efficiency ratio was 61.83% compared to 58.47% at the end of 2023.
Financial Position (For year ended December 31, 2024 compared to the same period of 2023)
● Total assets increased $86.1 million to $4.1 billion mainly due to loan growth offset by available for sale security pay-downs.
● Cash and cash equivalents were $72.2 million compared to $94.8 million in the previous year primarily due to loan growth and paydown of borrowings.
● Total securities were $533.3 million, or 13% of total assets, compared to $547.4 million, or 14% of total assets. Net unrealized losses were flat at $62.3 million, compared with a gain of $62.4 million in the previous period, or 12% and 11% of gross securities for the respective periods. All securities are classified as available for sale preserving capital flexibility.
● Total loans grew 5% annualized year over year. The increase was the net result of the strategy to grow commercial construction and commercial real estate owner-occupied segments.
● The ratio of the allowance for credit losses to total loans was 0.91%, increasing from 0.94%, reflecting updated economic forecasting, especially in the national unemployment figures and decreases in specific reserves, offset with loan portfolio growth. Net charge-offs were 0.01% of average loans, a nominal increase compared to last year.
● Deposit balances increased 4% annualized due to consumers’ migration to money market accounts and higher yielding time deposits.
● Borrowings decreased to $40.9 million primarily due to excess cash available generated from operations used to pay off $20 million in subordinated debt and $30 million, net in Bank Term Funding Program borrowings with the FRB offset by a $10 million increase in FHLB advances.
● Total book value per share was $30.00 compared to $28.48. The dividend increased to $0.30 per share an increase of 9.7% to yield an annualized dividend yield of 3.92%.
SELECTED FINANCIAL DATA
At or For the Years Ended December 31,
(in millions, except ratios and share data)
Financial Condition Data:
Total assets
$
4,083
$
3,971
$
3,910
Total earning assets(1)
3,782
3,664
3,601
Total investments
Total loans
3,147
2,999
2,903
Allowance for credit losses
Total goodwill and intangible assets
Total deposits
3,268
3,141
3,043
Total borrowings
Total shareholders' equity
Operating Data:
Total interest and dividend income
$
$
$
Total interest expense
Net interest income
Non-interest income
Net revenue(2)
Provision for credit losses
Total non-interest expense
Income tax expense
Net income
Ratios and Other Data:
Per Common Share Data
Basic earnings
$
2.86
$
2.96
$
2.90
Diluted earnings
2.84
2.95
2.88
Total book value(5)
30.00
28.48
26.09
Dividends
1.18
1.10
1.02
Common stock price:
High
38.47
32.42
33.11
Low
23.26
19.55
24.00
Close
30.58
29.36
32.04
Weighted average common shares outstanding (in thousands):
Basic
15,240
15,142
15,040
Diluted
15,311
15,195
15,112
At or For the Years Ended December 31,
(in millions, except ratios and share data)
Performance Ratios:(3)(4)
Return on assets
1.09
%
1.14
%
1.16
%
Return on equity
9.75
10.88
10.91
Interest rate spread
2.61
2.86
3.24
Net interest margin(5)
3.15
3.29
3.36
Dividend payout ratio
40.85
36.93
35.20
Organic Growth Ratios:
Total commercial loans
%
%
%
Total loans
Total deposits
(0)
Asset Quality and Condition Ratios:
Non-accruing loans/total loans
0.22
%
0.18
%
0.23
%
Net charge-offs (recoveries)/average loans
0.01
-
(0.01)
Allowance for credit losses/total loans
0.91
0.94
0.89
Loans/deposits
Capital Ratios:
Tier 1 capital to average assets - Company
10.30
%
9.70
%
9.21
%
Tier 1 capital to risk-weighted assets - Company
12.06
11.96
11.02
Tier 1 capital to average assets - Bank
10.66
10.50
10.10
Tier 1 capital to risk-weighted assets - Bank
12.50
12.96
12.67
Shareholders equity to total assets(5)
11.23
10.88
10.06
(1) Earning assets includes non-accruing loans and interest-bearing deposits with other banks. Securities are valued at amortized cost.
(2) Net revenue is defined as net interest income plus non-interest income.
(3) All performance ratios are based on average balance sheet amounts, where applicable.
(4) Fully taxable equivalent considers the impact of tax advantaged securities and loans.
(5) Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures for additional information.
AVERAGE BALANCES AND AVERAGE YIELDS/RATES
The following table presents average balances and average rates and yields on a fully taxable equivalent basis for the periods included:
Year Ended December 31,
Average
Interest
Yield/
Average
Interest
Yield/
Average
Interest
Yield/
(in millions, except ratios)
Balance
(3)
Rate(3)
Balance
(3)
Rate(3)
Balance
(3)
Rate(3)
Assets
Interest-earning deposits with other banks
$
$
5.54
%
$
5.33
%
$
$
1.07
%
Securities available for sale and FHLB stock(2)(3)
4.03
3.88
2.99
Loans:
Commercial real estate
1,626
5.59
1,537
5.27
1,340
4.13
Commercial and industrial(3)
6.75
6.39
4.25
Paycheck protection program
-
-
-
-
-
-
-
17.27
Residential
4.12
3.82
3.55
Consumer
7.14
6.75
4.41
Total loans (1)
3,051
5.40
2,976
5.04
2,724
3.98
Total earning assets
3,677
5.18
%
3,623
4.85
%
3,426
3.73
%
Cash and due from banks
Allowance for credit losses
(29)
(27)
(24)
Goodwill and other intangible assets
Other assets
Total assets
$
3,986
$
3,934
$
3,747
Liabilities
Interest-bearing demand
$
$
1.41
%
$
0.98
%
$
$
0.16
%
Savings
0.67
0.39
0.10
Money market
3.02
2.48
0.63
Time
4.30
3.19
0.61
Total interest bearing deposits
2,604
2.37
2,435
1.57
2,397
0.31
Borrowings
4.40
4.56
2.71
Total interest bearing liabilities
2,904
2.58
%
2,836
1.99
%
2,600
0.49
%
Non-interest bearing demand deposits
Other liabilities
Total liabilities
3,540
3,522
3,348
Total shareholders' equity
Total liabilities and shareholders' equity
$
3,986
$
3,934
$
3,747
Net interest spread
2.61
%
2.86
%
3.24
%
Net interest margin
3.15
3.29
3.36
(1) The average balances of loans include non-accrual loans and unamortized deferred fees and costs.
(2) The average balance for securities is based on amortized cost.
(3) Fully taxable equivalent considers the impact of tax-advantaged securities and loans.
RATE/VOLUME ANALYSIS
The following table presents the effects of rate and volume changes on the fully taxable equivalent net interest income. Tax exempt interest revenue is shown on a tax-equivalent basis for proper comparison. For each category of interest- earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by prior year volume), (2) changes in volume (change in volume multiplied by prior year rate), and (3) changes in volume/rate (change in rate multiplied by change in volume) have been allocated proportionately based on the absolute value of the change due to the rate and the change due to volume.
2024 Compared with 2023
2023 Compared with 2022
Increases (Decreases) due to
Increases (Decreases) due to
(in thousands)
Rate
Volume
Net
Rate
Volume
Net
Interest income:
Interest-earning deposits with other banks
$
$
(91)
$
(13)
$
1,595
$
(369)
$
1,226
Securities available for sale and FHLB stock
(812)
5,424
(575)
4,849
Loans:
Commercial real estate
5,100
4,724
9,824
17,630
8,110
25,740
Commercial and industrial
1,698
1,886
3,584
9,360
1,168
10,528
Paycheck protection program
-
-
-
-
(223)
(223)
Residential
2,605
(1,761)
2,376
1,142
3,518
Consumer
2,280
(109)
2,171
Total loans
9,785
5,009
14,794
31,646
10,088
41,734
Total interest income
$
10,792
$
4,106
$
14,898
$
38,665
$
9,144
$
47,809
Interest expense:
Deposits:
NOW
$
3,790
$
(135)
$
3,655
$
7,342
$
(12)
$
7,330
Savings
1,546
(190)
1,356
1,707
(66)
1,641
Money market
2,059
(663)
1,396
7,517
(376)
7,141
Time deposits
8,818
8,239
17,057
13,761
1,015
14,776
Total deposits
16,213
7,251
23,464
30,327
30,888
Borrowings
(461)
(4,625)
(5,086)
7,406
5,368
12,774
Total interest expense
$
15,752
$
2,626
$
18,378
$
37,733
$
5,929
$
43,662
Change in net interest income
$
(4,960)
$
1,480
$
(3,480)
$
$
3,215
$
4,147
NON-GAAP FINANCIAL MEASURES
Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America ("GAAP") and the prevailing practices in the financial services industry. However, we also evaluate our performance by reference to certain additional financial measures discussed in this Annual Report that we identify as being “non-GAAP financial measures.” In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.
These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company's GAAP financial information. Because non-GAAP financial measures presented in this Annual Report are not measurements determined in accordance with GAAP and are susceptible to varying calculations, these non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures presented by other companies. A reconciliation of non-GAAP financial measures to GAAP measures is provided herein. In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders. An item which management excludes when computing non-GAAP financial measures can be of substantial importance to the Company’s results for any particular quarter or year. Each non-GAAP measure used by the Company in this Annual Report as supplemental financial data should be considered in conjunction with the Company's GAAP financial information. The Company utilizes these non-GAAP financial measures for purposes of measuring our performance against our peer group and other financial institutions and analyzing our internal performance. We also believe these non-GAAP financial measures help investors better understand the Company’s operating performance and trends and allow for better performance comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of unusual items that may obscure trends in the Company’s underlying performance.
The non-GAAP financial measures that we discuss in this Annual Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Annual Report may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures we have discussed in this Annual Report when comparing such non-GAAP financial measures. The following reconciliation table provides a more detailed analysis of these, and reconciliation for, each of non-GAAP financial measures.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table summarizes the reconciliation of non-GAAP items for the time periods presented:
Year Ended December 31,
(in thousands)
Calculations
Net income
$
43,544
$
44,852
$
43,557
Non-recurring items:
Gain on sale of securities, net
(50)
(34)
(53)
Gain on sale of premises and equipment, net
(192)
Acquisition, conversion and other expenses
Income tax expense (1)
(104)
(51)
Total non-recurring items
(169)
Total adjusted income(2)
(A)
$
43,375
$
45,179
$
43,729
Net interest income
(B)
$
113,839
$
117,675
$
113,681
Plus: Non-interest income
36,888
35,073
34,647
Total Revenue
150,727
152,748
148,328
Gain on sale of securities, net
(50)
(34)
(53)
Total adjusted revenue(2)
(C)
$
150,677
$
152,714
$
148,275
Total non-interest expense
$
95,987
$
92,723
$
90,579
Non-recurring expenses:
Gain on sale of premises and equipment, net
(182)
(10)
Acquisition, conversion and other expenses
(20)
(283)
(266)
Total non-recurring expenses
(465)
(276)
Adjusted non-interest expense(2)
(D)
$
96,159
$
92,258
$
90,303
Total revenue
150,727
152,748
148,328
Total non-interest expense
95,987
92,723
90,579
Pre-tax, pre-provision net revenue
$
54,740
$
60,025
$
57,749
Adjusted revenue(2)
150,677
152,714
148,275
Adjusted non-interest expense(2)
96,159
92,258
90,303
Adjusted pre-tax, pre-provision net revenue(2)
(U)
$
54,518
$
60,456
$
57,972
(in millions)
Average earning assets
(E)
$
3,677
$
3,623
$
3,425
Average assets
(F)
3,986
3,934
3,747
Average shareholders' equity
(G)
Average tangible shareholders' equity(2)(3)
(H)
Tangible shareholders' equity, period-end(2)(3)
(I)
Tangible assets, period-end(2)(3)
(J)
3,960
3,847
3,784
Year Ended December 31,
Calculations
(in thousands)
Common shares outstanding, period-end
(K)
15,280
15,172
15,083
Average diluted shares outstanding
(L)
15,311
15,195
15,112
Adjusted earnings per share, diluted(2)
(A/L)
$
2.84
$
2.95
2.89
Tangible book value per share, period-end(2)
(I/K)
21.93
20.28
17.78
Total tangible shareholders' equity/total tangible assets(2)
(I/J)
8.46
8.00
7.09
Performance ratios(4)
Return on assets
1.09
%
1.14
%
1.16
%
Core return on assets(2)
(A/F)
1.09
1.15
1.17
Pre-tax, pre-provision return on assets
1.37
1.53
1.54
Adjusted pre-tax, pre-provision return on assets(2)
(U/F)
1.37
1.54
1.49
Return on equity
9.75
10.88
10.91
Core return on equity(2)
(A/G)
9.72
10.96
10.96
Return on tangible equity
13.72
15.84
16.20
Adjusted return on tangible equity(1)(2)
(A+Q)/H
13.67
15.96
16.26
Efficiency ratio(1)(2)(5)
(D-O-Q)/(C+N)
61.83
58.47
59.54
Net interest margin
(B+P)/E
3.15
3.29
3.36
Supplementary data (in thousands)
Taxable equivalent adjustment for efficiency ratio
(N)
$
2,455
$
2,392
2,020
Franchise taxes included in non-interest expense
(O)
Tax equivalent adjustment for net interest margin
(P)
1,905
1,550
1,398
Intangible amortization
(Q)
Interest and fees on PPP loans
(T)
-
-
(1) 2024 assumes a marginal tax rate of 23.73% for the fourth quarter, 23.82% for the second and third quarters and 24.01% for the first quarter.
2023 assumes a marginal tax rate of 24.01% for the fourth quarter and 23.80% for the first three quarters. 2022 assumes a marginal tax rate of 23.53% for the fourth quarter and 23.41% for the first three quarters.
(2) Non-GAAP financial measure.
(3) Tangible shareholders’ equity is computed by taking total shareholders’ equity less the intangible assets at period-end. Tangible assets are computed by taking total assets less the intangible assets at period-end.
(4) All performance ratios are based on average balance sheet amounts, where applicable.
(5) Efficiency ratio is computed by using adjusted non-interest expense net of franchise taxes and intangible amortization divided by adjusted revenue tax effected for tax-advantaged assets.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2024 AND 2023
Cash and cash equivalents
Total cash and cash equivalents at December 31, 2024 were $72.2 million, compared to $94.8 million at December 31, 2023. Interest-earning cash held with other banks totaled $37.9 million at year-end 2024 compared to $52.6 million at year-end 2023 carrying a yield of 5.54% in 2024 versus 5.33% in 2023.
Securities
Securities totaled $533.3 million at year-end 2024 and $547.4 million at year-end 2023. During 2024, security purchases totaled $53.5 million and were offset by $64.4 million of maturities, calls and pay-downs of amortizing securities. There were $21.4 million of purchases and $21.9 million in sales of FHLB stock during the year. Fair value adjustments decreased the security portfolio by $62.3 million in 2024 compared to a $62.4 million unrealized loss in 2023. Unrealized losses stabilized in 2024 due to changes in the long-term treasury yield curve. The weighted average yield of the securities portfolio was 4.03% as of December 31, 2024 compared to 3.88% at year-end 2023. At the end of 2024, our securities portfolio had an average life of 9 years with an effective duration of 5 years for both periods respectively. All securities remain classified as available for sale to provide flexibility in loan funding and management of our cost of funds.
Loans
Loans increased by $148.1 million from year-end 2023 or 5% annualized. The growth was primarily in real estate and rental and leasing, and partially in finance and insurance industries. Total commercial loans were $2.1 billion, growing 9% annualized in 2024 and 6% in 2023 which was driven mostly from new relationships primarily to commercial borrowers. Total residential loans decreased 7% annualized or $63.4 million from year-end 2023, due to lower demand for prevailing mortgage rates and the continued strategy to sell production to the secondary market. Home Equity lines increased 7% or $6.5 million from year-end 2023 due to record available home equity levels and increased demand for credit. By borrowing some of the value of a home, homeowners are able to make home improvements or consolidate, pay down or pay off higher-interest debts.
Allowance for Credit Losses
The allowance for credit losses on loans was $28.7 million at December 31, 2024 compared to $28.1 million as of December 31, 2023. The increase was primarily due to commercial real estate prices, and loan portfolio growth. Net charge offs to average loans were 0.01% in 2024 compared to 0.02% in 2023. Non-accruing loans increased $1.4 million to $7.0 million, or 0.22% of total loans at the end of 2024 from $5.5 million or 0.18% of total loans at year-end 2023 driven by increases in commercial and industrial, commercial real estate owner occupied and home equity loans. Net charge-offs decreased to $353 thousand in 2024 from $626 thousand in 2023 compared driven by the resolution of one non-accruing C&I loan.
The allowance for credit losses on available for sale investments increased to $568 thousand at December 31, 2024, driven by two corporate securities with a book value of $9.0 million, unrealized non-credit losses of $2.7 million and unrealized credit losses of $568 thousand. There was no ACL on available for sale securities at December 31, 2023.
Premises and Equipment
Premises and equipment increased $2.9 million at December 31, 2024 to $51.2 million compared to $48.3 million at December 31, 2023, driven by $10.5 million in additions of $4.6 million in building and land improvement, $3.5 million in aircraft and $2.3 million in furniture and equipment. The additional expenses were largely attributed to facilities renovations and improvements at our 135 High Street location in Ellsworth, Maine and our disposal of our Avery Lane location earlier in the year offset by $4.2 million in depreciation expense.
Other Assets
Total other assets increased $356 thousand to $307.7 million at December 31, 2024 from $307.3 million as of December 31, 2023. The increase is attributed to a $1.8 million increase in cash surrender value of bank owned life insurance and deferred tax assets, net, of $351 thousand million as of December 31, 2024 compared to 2023 offset by intangible asset amortization of $931 thousand and fair value adjustments in derivative assets attributed to a maturity and the interest rate environment.
Deposits
Total deposits increased $126.5 million to $3.3 billion at the end of 2024 compared to $3.1 billion at the end of 2023. Non-maturity deposits remained relatively flat decreasing $3.5 million in 2024. 10,135 non-maturity deposit accounts were opened with consumer customers while 1,479 non-maturity deposit accounts were opened with business customers in 2024. Time deposits increased $130.0 million to $830.3 million at year-end 2024 versus $700.3 million in 2023. Our retail teams opened 8,787 new time deposit accounts in 2024. Retail time deposits increased $62.2 million as customers moved funds from non-maturity deposits into higher yielding alternatives. Our deposit composition at year-end 2024 and 2023 was 47% commercial customers and 53% consumer customers. Brokered deposits increased $36.4 million and comprised 8% of total deposits at December 31, 2024 compared to 7% of total deposits at December 31, 2023.
Borrowings
Total borrowings decreased $40.9 million to $290.6 million at December 31, 2024 compared to $331.5 million as of December 31, 2023 primarily due to excess cash available generated from operations. The Bank Term Funding Program (the “BTFP”) was an additional source of liquidity with favorable prepayment terms of which during the fourth quarter of 2024, we prepaid our outstanding BTFP advance of $30 million, net of current activity which was held at a fixed rate of 4.76%. Our Subordinated Note Purchase Agreement had a fixed interest rate of 4.63% through December 1, 2024 payable semi-annually in arrears. From December 1, 2024 and thereafter the interest rate shall be reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate (“SOFR”) plus 3.27%. Beginning with the interest payment date of December 1, 2024, and on any scheduled payment date thereafter, we had the option to redeem the Notes, in whole or in part upon prior approval of the Federal Reserve. During the fourth quarter of 2024 we obtained approval from the Federal Reserve and redeemed $20.0 million of the outstanding subordinated notes. These paydowns were partially offset by an increase in FHLB advances of $10.3 million to $243.0 million at December 31, 2024 compared to $233.0 million at December 31, 2023.
Derivative Financial Instruments and Other Liabilities
Other liabilities totaled $66.6 million at the end of 2024 compared to $66.2 million as of December 31, 2023. The $447 thousand increase was primarily driven by a $1.9 million increase in lease obligations driven by extensions and $1.3 million in higher brokered CD interest payable offset by a $1.4 million decrease in fair value of loan hedge liabilities and $1.2 million in unpaid services payable due to year over year lower renovation accruals and paydowns of outstanding commitments. The reserve for unfunded commitments declined $775 thousand at the end of 2024 to $3.1 million compared to $3.9 million at December 31, 2023, which are also recorded in other liabilities.
Equity
Total equity was $458.4 million at year-end 2024, compared with $432.1 million at year-end 2023. Book value per share was $30.00 as of December 31, 2024 compared with $28.48 at December 31, 2023. Equity included securities adjustments, net of tax, totaling a $47.7 million loss at the end of 2024 compared to a $47.6 million loss at year-end 2023.
During 2024 and 2023, the Company declared and distributed regular cash dividends on its common stock in the aggregate amounts of $17.8 million compared to $16.6 million, respectively. The Company’s 2024 dividend payout ratio amounted to 42%, compared with 37% in 2023. Total cash dividends paid in 2024 was $1.18 per share of common stock, compared with $1.10 per share of common stock in 2023.
The Company and the Bank remained well-capitalized under regulatory guidelines at period end as further described in Note 12 - Shareholders’ Equity and Earnings Per Common Share on the Consolidated Financial Statements.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
Net Interest Income
Net interest income for 2024 was $113.8 million compared with $117.7 million in 2023. The net interest margin was 3.15% in 2024 compared to 3.29% in the prior year. The yield on earning assets totaled 5.18% compared at December 31, 2024 compared to 3.73% at December 31, 2023. The yield on loans was 5.40% in 2024 and 5.04% in 2023. Costs of interest-bearing liabilities increased in 2024 to 2.58% from 1.99% in 2023 due to increased deposit rates and market competition. Interest expense on borrowings decreased $5.1 million in 2024 compared to 2023 driven by a decrease in
average borrowings by $101 million and at an average rate of 4.40% from 4.56%, respectively, reflecting lower interest rates and decreased average borrowings.
Provision for Credit Losses
The provision for credit losses was $2.1 million at December 31, 2024 compared to $2.9 million expense at December 31, 2023. The expense in 2024 was primarily due to more refined economic forecasting, especially in the national unemployment figures and in commercial real estate prices, and loan portfolio growth.
Non-Interest Income
Non-interest income in 2024 was $36.9 million compared to $35.1 million in 2023. Trust management fees were $15.7 million in 2024 compared to $14.3 million in 2023 due to higher market valuation of assets under management (“AUM”) throughout the year. AUM was $2.8 billion compared to $2.5 billion in 2023, the increase of $327 million primarily due to higher security valuations throughout 2024. Customer service fees decreased 2.2% to $14.8 million in 2024 from $15.2 million in 2023 due to lower transaction volumes. BOLI income decreased $395 thousand in 2024 compared to 2023 related to one-time death benefits during the first quarter of 2023.
Non-Interest Expense
Non-interest expense increased $3.3 million to $96.0 million in 2024 compared to $92.7 million in 2023. Salaries and benefits expense increased $2.3 million to $54.9 million in 2024 driven by $1.1 million in salaries and other incentive benefits, $617 thousand in commissions, and $642 thousand increase in stock compensation expense due to the revaluation of our long term incentive obligations. Other expenses increased $1.7 million driven by Debit and ATM card expenses of $354 thousand for current year replacement initiative, a decrease in cash surrender value of a split dollar insurance arrangement for $353 thousand, software expenses of $290 thousand, credit card expenses of $199 thousand, $98 thousand in higher charitable donations and $369 thousand in miscellaneous expenses.
Income Tax Expense
Income tax expense was $9.1 million for the year ended December 31, 2024 compared to $12.3 million for the year ended December 31, 2023. The effective tax rate decreased to 17.26% in 2024 from 21.5% in 2023 due to a one-time multiple year tax refund on tax exempt loan income and a state apportionment adjustment in the third quarter of 2024 in addition to lower income before taxes year over year.
LIQUIDITY AND CASH FLOWS
Liquidity is measured by the ability to meet short-term cash needs at a reasonable cost or minimal loss. Favorable sources of liabilities are sought to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Besides serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer initiated needs. Many factors affect the ability to meet liquidity needs, including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions.
The liquidity position is actively managed through target ratios established under our liquidity and funding policy. Continual monitoring of these ratios, by using historical data and through forecasts under multiple rate and stress scenarios, allows the ability to employ strategies necessary to maintain adequate liquidity. The policy is to maintain a liquidity position of at least 8% of total assets. A portion of the deposit base has been historically seasonal in nature, with balances typically declining in the winter months through late spring, during which period the liquidity position tightens.
A liquidity contingency plan is approved by the Bank’s Board of Directors. This plan addresses the steps that would be taken in the event of a liquidity crisis, and identifies other sources of liquidity available to the Company. Management believes that the level of liquidity is sufficient to meet current and future funding requirements. However, changes in economic conditions, including consumer savings habits and availability or access to the brokered deposit market could potentially have a significant impact on the liquidity position.
The existing cash and cash equivalents (including an interest-bearing deposit at the FRB Boston), securities available for sale and cash flows from operating activities will be sufficient to meet anticipated cash needs for at least the next 12 months. Future working capital needs will depend on many factors, including the rate of business and revenue growth.
To the extent cash and cash equivalents, securities available for sale and cash flows from operating activities are insufficient to fund future activities, the need to raise additional funds through debt arrangements or public or private debt or equity financings may be utilized. The need to raise additional funds may be needed in the event it is determined in the future to effect one or more acquisitions of banks or businesses. If additional funding is required, we may not be able to obtain debt arrangements or to effect an equity or debt financing on terms acceptable or at all.
Capital Resources
Consistent with our long-term goal of operating a sound and profitable organization, at December 31, 2024, we continue to be a “well-capitalized” financial institution according to applicable regulatory standards. Management believes this to be vital in promoting depositor and investor confidence and providing a solid foundation for future growth.
At December 31, 2024, available same-day liquidity totaled approximately $1.0 billion, including cash, borrowing capacity at FHLB and the Federal Reserve Discount Window and various lines of credit. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from the Company's amortizing securities and loan portfolios. At December 31, 2024, we had unused borrowing capacity at the FHLB of $307.7 million, unused borrowing capacity at the Federal Reserve of $105.6 million and unused lines of credit totaling $41.0 million, in addition to over $200 million in unencumbered, liquid investment portfolio assets.
Purchase Obligations
In the normal course of conducting our banking and financial services business, and in connection with providing products and services to our customers, a variety of traditional third-party contracts for support services have been entered into. Examples of such contractual agreements include, but are not limited to: services providing core banking systems, ATM and debit card processing, trust services software, accounting software and the leasing of T-1 telecommunication lines and other technology infrastructure supporting our network. These types of purchase obligations that will come due during 2024 approximates $10.2 million as of December 31, 2024 which is expected to be funded by cash flows generated from our operations.
Impact of Inflation and Changing Prices
A banking organization’s assets and liabilities are primarily monetary. Changes in the rate of inflation do not have as great an impact on the financial condition of a bank as do changes in interest rates. Moreover, interest rates do not necessarily change at the same percentage as inflation. Accordingly, changes in inflation are not expected to have a material impact on the Company.
The FOMC often applies contractionary monetary policies during times of high inflation, resulting in elevated interest rates. Elevated interest rates may lower the market value of existing balance sheet assets and often result in a significant unrealized loss position. These lower market values may negatively affect the Bank’s liquidity position as it results in a lower value of the Bank’s liquid assets.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Please refer to the notes on Recently Adopted Accounting Principles and Future Application of Accounting Pronouncements in Note 1 - Summary of Significant Accounting Policies of the Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Note 1 - Summary of Significant Accounting Policies to our audited Consolidated Financial Statements for the year ended December 31, 2024 contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated statements of financial condition at estimated fair value or the lower of cost or estimated fair value. Policies with respect to the methodology used to determine the allowance for credit losses is a critical accounting policy and estimate because of its importance to the presentation of our financial condition and results of operations. The critical accounting policy involves a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition.
Allowance for credit losses on loans (the “allowance”)
The allowance is sensitive to a number of internal factors, such as modifications in the mix and level of loan balances outstanding, portfolio performance and assigned risk ratings. The allowance is also sensitive to external factors such as the general health of the economy, as evidenced by changes in unemployment rates, home pricing index, gross domestic product, retail sales and changes in commercial real estate values. We consider these variables and all other available information when establishing the final level of the allowance. These variables and others have the ability to result in actual loan losses that differ from the originally estimated amounts.
Changes in the factors used by management to determine the appropriateness of the allowance or the availability of new information could cause the allowance to be increased or decreased in future periods. Additionally, changes in circumstances related to individually large credits, or certain macroeconomic forecast assumptions may result in volatility.
It is difficult to estimate how potential changes in any one economic factor might affect the overall allowance because a wide variety of factors and inputs are considered in the allowance estimate. Changes in the factors and inputs may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. However, to consider the impact of a hypothetical stressed forecast, we estimated the allowance using forecast inputs that were severely unfavorable to the expected scenario for each macroeconomic variable.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Interest rate risk is the most significant market risk affecting the Company. Other types of market risk do not arise in the normal course of our business activities.
The responsibility for interest rate risk management oversight is the function of the Bank’s Asset and Liability Committee (“ALCO”), chaired by the Chief Financial Officer and composed of various members of senior management. ALCO meets regularly to review balance sheet structure, formulate strategies in light of current and expected economic conditions, adjust product prices as necessary, implement policy, monitor liquidity, and review performance against guidelines established to control exposure to the various types of inherent risk.
Interest Rate Risk:
Interest rate risk can be defined as an exposure to movement in interest rates that could have an adverse impact on the net interest income. Interest rate risk arises from the imbalance in the re-pricing, maturity and/or cash flow characteristics of assets and liabilities. Management’s objectives are to measure, monitor and develop strategies in response to the interest rate risk profile inherent in the Bank’s balance sheet. The objectives in managing the balance sheet are to preserve the sensitivity of net interest income to actual or potential changes in interest rates, and to enhance profitability through strategies that promote sufficient reward for understood and controlled risk.
The interest rate risk measurement and management techniques incorporate the re-pricing and cash flow attributes of balance sheet and off-balance sheet instruments as each relate to current and potential changes in interest rates. The level of interest rate risk, measured in terms of the potential future effect on net interest income, is determined through the use of modeling and other techniques under multiple interest rate scenarios. Interest rate risk is evaluated in depth on a quarterly basis and reviewed by ALCO and the Board of Directors.
The Asset Liability Management Policy, approved annually by the Bank’s Board of Directors, establishes interest rate risk limits in terms of variability of net interest income under rising, flat, and decreasing rate scenarios. It is the role of the ALCO to evaluate the overall risk profile and to determine actions to maintain and achieve a posture consistent with policy guidelines.
Interest Rate Sensitivity Modeling:
The Bank utilizes an interest rate risk model widely recognized in the financial industry to monitor and measure interest rate risk. The model simulates the behavior of interest income and expense for all balance sheet and off-balance sheet instruments, under different interest rate scenarios together with a dynamic future balance sheet. Interest rate risk is measured in terms of potential changes in net interest income based upon shifts in the yield curve.
The interest rate risk sensitivity model requires that assets and liabilities be broken down into components as to fixed, variable, and adjustable interest rates, as well as other homogeneous groupings, which are segregated as to maturity and type of instrument. The model includes assumptions about how the balance sheet is likely to evolve through time and in different interest rate environments. The model uses contractual re-pricing dates for variable products, contractual maturities for fixed rate products, and product-specific assumptions for deposit accounts, such as money market accounts, that are subject to re-pricing based on current market conditions. Re-pricing margins are also determined for adjustable rate assets and incorporated in the model. Investment securities and borrowings with option provisions are examined on an individual basis in each rate environment to estimate the likelihood of exercise. Prepayment assumptions for mortgage loans are calibrated using specific Bank experience while mortgage-backed securities are developed from industry standard models of prepayment speeds, based upon similar coupon ranges and degree of seasoning. Cash flows and maturities are then determined, and for certain assets, prepayment assumptions are estimated under different interest rate scenarios. Interest income and interest expense are then simulated under several hypothetical interest rate conditions.
The simulation models a parallel and pro rata shift in rates over a 12-month period. Using this approach, we are able to produce simulation results that illustrate the effect that both a gradual “rate ramp” and a “rate shock” have on earnings expectations. Our net interest income sensitivity analysis reflects changes to net interest income assuming no balance sheet growth and a parallel shift in interest rates. All rate changes were “ramped” over the first 12-month period and then maintained at those levels over the remainder of the simulation horizon. Changes in net interest income based upon these simulations are measured against the flat interest rate scenario.
As of December 31, 2024, interest rate sensitivity modeling results indicate that the Bank’s balance sheet was asset sensitive over the one- and two-year horizons.
The following table presents the changes in sensitivities on net interest income for the periods ended December 31, 2024 and 2023:
Change in Interest Rates-Basis Points (Rate Ramp)
1 - 12 Months
13 - 24 Months
(in thousands, except ratios)
$ Change
% Change
$ Change
% Change
At December 31, 2024
$
(6,422)
(5.3)
%
$
(14,688)
(11.1)
%
(3,511)
(2.9)
(7,321)
(5.5)
+100
2,597
2.0
5,625
4.2
+200
5,127
4.2
10,880
8.2
At December 31, 2023
$
(6,229)
(5.0)
%
$
(12,776)
(9.7)
%
(3,310)
(2.7)
(6,468)
(4.9)
+100
2,421
2.0
4,818
3.7
+200
4,938
4.0
9,143
6.9
Assuming short-term and long-term interest rates decline 200 basis points from current levels (i.e., a parallel yield curve shift) over the next twelve months and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will deteriorate over the one year horizon while deteriorating further from that level over the two-year horizon.
Assuming short-term and long-term interest rates increase 200 basis points from current levels (i.e., a parallel yield curve shift) over the next twelve months and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will improve over the one year horizon while improving further from that level over the two-year horizon.
As compared to December 31, 2023, asset sensitivity has increased in both year one and year two.
The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels and yield curve shape, prepayment speeds on loans and securities, deposit rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows, and renegotiated loan terms with borrowers. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.
As market conditions vary from those assumed in the sensitivity analysis, actual results may also differ due to: prepayment and refinancing levels deviating from those assumed; the impact of interest rate changes, caps or floors on adjustable rate assets; the potential effect of changing debt service levels on customers with adjustable rate loans; depositor early withdrawals and product preference changes; and other such variables. The sensitivity analysis also does not reflect additional actions that the Bank’s senior executive team and Board of Directors might take in responding to or anticipating changes in interest rates, and the anticipated impact on the Bank’s net interest income.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Bar Harbor Bankshares and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bar Harbor Bankshares and Subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 11, 2025, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses on Loans
As described in Notes 1 and 3 to the consolidated financial statements, the allowance for credit losses on loans is established through a provision for credit losses and represents an amount which, in management’s judgment, will be adequate to absorb losses on existing loans. The Company’s consolidated allowance for credit losses on loan balances was $28.7 million at December 31, 2024. The allowance for credit losses on loans is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans.
The Company uses the discounted cash flow method to estimate expected credit losses for all loan portfolio segments measured on a pool basis wherein payment expectations are adjusted for estimated prepayment speeds, probability of default (PD), and loss given default (LGD). The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime PD. This analysis also determines how expected PD and LGD will react to forecasted levels of the loss drivers. Management utilizes various economic indicators such as changes in unemployment rates, gross domestic product (GDP), real estate values, and other relevant factors as loss drivers and has determined that, due to historical volatility in economic data, two quarters currently represents a reasonable and supportable forecast period, followed by a six-period reversion to historical mean levels for each of the various economic indicators. The allowance evaluation also considers various qualitative factors, such as: (i) changes to lending policies, underwriting standards and/or management personnel performing such functions, (ii) delinquency and other credit quality trends, (iii) credit risk concentrations, if any, (iv) changes to the nature of the Company’s business impacting the loan portfolio, (v) and other external factors, that may include, but are not limited to, results of internal loan reviews, stress testing, examinations by bank regulatory agencies, or other events such as a natural disaster. The development of the loan loss allocation for pools of loans with similar risk characteristics requires a significant amount of judgment by management and the assumptions utilized are subject to changing economic conditions.
We identified the Company’s allowance for credit losses on loans as a critical audit matter, specifically the economic forecasts and qualitative factors, because they involved complex auditor judgment in the evaluation of the Company’s assumptions. Additionally, complex auditor judgment was required to examine the methodology that underpins the allowance for credit losses on pools of loans with similar risk characteristics, specifically the determination of PD and LGD that is embedded in the DCF model.
Our audit procedures related to this critical audit matter included the following, among others:
● We obtained an understanding of the relevant controls related to the allowance for credit losses on loans and tested such controls for design and operating effectiveness, including those over model approval, validation and approval of key data inputs such as economic forecasts and qualitative factors.
● We tested the completeness and accuracy of data used by management in determining inputs to the PD and LGD, by agreeing those inputs to internal or external information sources.
● We evaluated management’s judgments used in the identification of peer banks for PD and LGD calculations, by comparing peer banks to those used in prior periods and to external information sources.
● We evaluated management’s forecasts of future economic indicators for reasonableness, which included unemployment, real estate values, and national GDP growth, among others, by comparing these forecasts to external and internal information sources.
● We evaluated management’s judgments and assumptions used in the development of the qualitative factors for reasonableness and tested the reliability of the underlying data on which these factors are based, by comparing information to source documents and external information sources.
/s/ RSM US LLP
We have served as the Company's auditor since 2015.
Hartford, Connecticut
March 11, 2025
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, 2024
December 31, 2023
Assets
Cash and cash equivalents:
Cash and due from banks
$
34,266
$
42,221
Interest-earning deposits with other banks
37,896
52,621
Total cash and cash equivalents
72,162
94,842
Securities:
Securities available for sale
521,018
534,574
Federal Home Loan Bank stock
12,237
12,788
Total securities
533,255
547,362
Less: Allowance for credit losses on securities available for sale
(568)
-
Net securities
532,687
547,362
Loans held for sale
1,235
2,189
Total loans
3,147,096
2,999,049
Less: Allowance for credit losses
(28,744)
(28,142)
Net loans
3,118,352
2,970,907
Premises and equipment, net
51,237
48,287
Other real estate owned
-
-
Goodwill
119,477
119,477
Other intangible assets
3,938
4,869
Cash surrender value of bank-owned life insurance
81,858
80,037
Deferred tax assets, net
23,330
22,979
Other assets
79,051
79,936
Total assets
$
4,083,327
$
3,970,885
Liabilities
Deposits:
Non-interest bearing demand
$
575,649
$
569,714
Interest-bearing demand
910,191
946,978
Savings
545,816
553,963
Money market
405,758
370,242
Time
830,274
700,260
Total deposits
3,267,688
3,141,157
Borrowings:
Senior
249,981
271,044
Subordinated
40,620
60,461
Total borrowings
290,601
331,505
Other liabilities
66,610
66,164
Total liabilities
3,624,899
3,538,826
Shareholders’ equity
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares; outstanding 15,279,783 shares and 15,172,131 shares at December 31, 2024 and December 31, 2023, respectively
32,857
32,857
Additional paid-in capital
194,607
193,114
Retained earnings
297,857
272,101
Accumulated other comprehensive loss
(51,536)
(49,862)
Less: 1,148,605 and 1,256,257 shares of treasury stock, at cost, at December 31, 2024 and December 31, 2023, respectively
(15,357)
(16,151)
Total shareholders’ equity
458,428
432,059
Total liabilities and shareholders’ equity
$
4,083,327
$
3,970,885
The accompanying notes are an integral part of these consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(in thousands, except earnings per share data)
Interest and dividend income
Loans
$
163,846
$
149,420
$
107,797
Securities and other
24,878
24,762
18,729
Total interest and dividend income
188,724
174,182
126,526
Interest expense
Deposits
61,696
38,232
7,344
Borrowings
13,189
18,275
5,501
Total interest expense
74,885
56,507
12,845
Net interest income
113,839
117,675
113,681
Provision for credit losses on securities available for sale
1,171
-
-
Provision for credit losses on loans
2,908
2,904
Net interest income after provision for credit losses
111,713
114,767
110,777
Non-interest income
Trust and investment management fee income
15,701
14,283
14,573
Customer service fees
14,839
15,168
14,791
Gain on sales of securities, net
Mortgage banking income
2,093
1,587
1,580
Bank-owned life insurance income
2,304
2,699
2,000
Customer derivative income
Other income
1,340
Total non-interest income
36,888
35,073
34,647
Non-interest expense
Salaries and employee benefits
54,849
52,516
48,657
Occupancy and equipment
13,788
13,386
13,283
Depreciation
4,196
4,198
4,292
(Gain) loss on sales of premises and equipment, net
(192)
Outside services
1,558
1,671
1,578
Professional services
1,422
1,586
1,612
Communication
Marketing
2,014
1,696
1,561
Amortization of intangible assets
FDIC assessment
1,808
1,743
1,019
Acquisition, conversion and other expenses
Provision for unfunded commitments
(775)
(85)
1,758
Other expenses
15,608
13,918
14,731
Total non-interest expense
95,987
92,723
90,579
Income before income taxes
52,614
57,117
54,845
Income tax expense
9,070
12,265
11,288
Net income
$
43,544
$
44,852
$
43,557
Earnings per share:
Basic
$
2.86
$
2.96
$
2.90
Diluted
$
2.84
$
2.95
$
2.88
Weighted average common shares outstanding:
Basic
15,240
15,142
15,040
Diluted
15,311
15,195
15,112
The accompanying notes are an integral part of these consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31,
(in thousands)
Net income
$
43,544
$
44,852
$
43,557
Other comprehensive income (loss), before tax:
Changes in unrealized gain (loss) on securities available for sale
9,481
(74,412)
Changes in unrealized (loss) gain on hedging derivatives
(2,046)
1,011
(3,463)
Changes in unrealized (loss) gain on pension
(25)
(973)
Income taxes related to other comprehensive income (loss):
Changes in unrealized (gain) loss on securities available for sale
(145)
(1,884)
17,181
Changes in unrealized loss (gain) on hedging derivatives
(227)
Changes in unrealized loss (gain) on pension
(38)
Total other comprehensive (loss) income
(1,674)
8,478
(60,643)
Total comprehensive income (loss)
$
41,870
$
53,330
$
(17,086)
The accompanying notes are an integral part of these consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Accumulated
Common
Additional
other
stock
paid-in
Retained
comprehensive
Treasury
(in thousands, except per share data)
amount
capital
earnings
income (loss)
stock
Total
Balance at December 31, 2021
$
32,857
$
190,876
$
215,592
$
2,303
$
(17,481)
$
424,147
Net income
-
-
43,557
-
-
43,557
Other comprehensive loss
-
-
-
(60,643)
-
(60,643)
Cash dividends declared ($1.02 per share)
-
-
(15,334)
-
-
(15,334)
Net issuance (81,359 shares) to employee stock plans, including related tax effects
-
(892)
-
-
(215)
Recognition of stock based compensation
-
1,938
-
-
-
1,938
Balance at December 31, 2022
$
32,857
$
191,922
$
243,815
$
(58,340)
$
(16,804)
$
393,450
Net income
-
-
44,852
-
-
44,852
Other comprehensive income
-
-
-
8,478
-
8,478
Cash dividends declared ($1.10 per share)
-
-
(16,566)
-
-
(16,566)
Net issuance (89,443 shares) to employee stock plans, including related tax effects
-
(1,458)
-
-
(805)
Recognition of stock based compensation
-
2,650
-
-
-
2,650
Balance at December 31, 2023
$
32,857
$
193,114
$
272,101
$
(49,862)
$
(16,151)
$
432,059
Net income
-
-
43,544
-
-
43,544
Other comprehensive loss
-
-
-
(1,674)
-
(1,674)
Cash dividends declared ($1.18 per share)
-
-
(17,788)
-
-
(17,788)
Net issuance (107,652 shares) to employee stock plans, including related tax effects
-
(1,799)
-
-
(1,005)
Recognition of stock based compensation
-
3,292
-
-
-
3,292
Balance at December 31, 2024
$
32,857
$
194,607
$
297,857
$
(51,536)
$
(15,357)
$
458,428
The accompanying notes are an integral part of these consolidated financial statements.
21,053BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
(in thousands)
Cash flows from operating activities:
Net income
$
43,544
$
44,852
$
43,557
Adjustments to reconcile net income to net cash provided by operating activities:
Net change in loans held for sale
(2,189)
5,523
Provision for credit losses on loans
2,908
2,904
Provision for credit losses on securities available for sale
1,171
-
-
Net amortization of securities
1,655
2,429
2,869
Deferred tax (benefit) expense
(366)
(686)
(707)
Change in unamortized net loan costs and premiums
(1,057)
(145)
Premises and equipment depreciation
4,196
4,198
4,292
Stock-based compensation expense
3,292
2,650
1,938
Amortization of other intangibles
Income from cash surrender value of bank-owned life insurance policies
(2,304)
(2,699)
(2,000)
Gain on sales of securities, net
(50)
(34)
(53)
Amortization of right-of-use lease assets
(1,712)
1,204
1,196
Decrease in lease liabilities
1,918
(1,179)
(1,142)
Gain on premises and equipment, net
(192)
Net change in other assets and liabilities
(565)
(5,020)
(3,580)
Net cash provided by operating activities
52,371
47,403
55,909
Cash flows from investing activities:
Proceeds from sales, maturities, calls and prepayments of securities available for sale
64,391
42,184
80,870
Purchases of securities available for sale
(53,496)
(7,521)
(109,019)
Net change in loans
(147,343)
(96,840)
(370,712)
Purchase of Federal Home Loan Bank stock
(21,375)
(18,370)
(11,016)
Proceeds from sale of Federal Home Loan Bank stock
21,926
20,473
3,507
Purchase of premises and equipment, net
(7,396)
(6,533)
(2,518)
Proceeds from sale of premises held for sale
1,408
-
Proceeds from death benefit of bank-owned life insurance policy
-
3,904
-
Net cash used in investing activities
(141,885)
(62,290)
(408,888)
Cash flows from financing activities:
Net change in deposits
126,531
97,726
(5,113)
Net change in short-term borrowings
(21,053)
(60,604)
235,567
Repayments of long-term borrowings
(10)
(2,317)
(20,020)
Net change in subordinated debt
-
-
Repayments of subordinated debt
(20,000)
-
-
Net issuance to employee stock plans
(1,005)
(805)
(215)
Cash dividends paid on common stock
(17,788)
(16,566)
(15,334)
Net cash provided by financing activities
66,834
17,434
194,885
Net change in cash and cash equivalents
(22,680)
2,547
(158,094)
Cash and cash equivalents at beginning of year
94,842
92,295
250,389
Cash and cash equivalents at end of period
$
72,162
$
94,842
$
92,295
Supplemental cash flow information:
Interest paid
$
73,399
$
51,973
$
12,451
Income taxes paid, net
9,863
15,026
10,598
The accompanying notes are an integral part of these consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation: The consolidated financial statements (the “financial statements”) of Bar Harbor Bankshares and its subsidiaries (the “Company,” or “we”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Bar Harbor Bankshares is a Maine Financial Institution Holding Company for the purposes of the laws of the State of Maine, and as such, is subject to the jurisdiction of the Superintendent of the Maine Bureau of Financial Institutions. These financial statements include the accounts of the Company, its wholly-owned subsidiary Bar Harbor Bank & Trust (the "Bank") and the Bank’s consolidated subsidiaries. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly-owned and majority-owned subsidiaries are consolidated unless U.S. GAAP requires otherwise.
Consolidation: The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. The consolidated financial statements include the accounts of Bar Harbor Bankshares and its wholly-owned subsidiaries, Bar Harbor Bank & Trust, Bar Harbor Wealth Management, and Cottage Street Corporation. In 2022, Charter Trust Company and Bar Harbor Trust Services merged to become Bar Harbor Wealth Management. All significant inter-company balances and transactions have been eliminated in consolidation. Assets held in a fiduciary capacity are not assets of the Company, but assets of customers, and therefore, are not included in the consolidated balance sheet.
Reclassifications: Whenever necessary, amounts in the prior years’ financial statements are reclassified to conform to current presentation. The reclassifications had no impact on net income in the Company’s consolidated income statement.
Use of estimates: In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the allowance for credit losses (“ACL”), off-balance sheet credit exposures, available for sale securities, the accounting for business combinations including subsequent impairment analyses for goodwill and other intangible assets, accounting for income taxes, post-retirement benefits, and asset impairment assessments.
Subsequent Events: Events and transactions subsequent to December 31, 2024 are evaluated for potential recognition or disclosure as required by GAAP.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and amounts due from banks, interest-bearing deposits with other banks, federal funds sold, and other short-term investments with maturities less than 90 days.
Securities: All securities held at December 31, 2024 and 2023 were classified as available-for-sale (“AFS”). Available for sale securities primarily consist of mortgage-backed securities, obligations of state and political subdivisions thereof, and corporate bonds and are carried at estimated fair value. Changes in estimated fair value of AFS securities, net of applicable income taxes, are reported in accumulated other comprehensive income (loss) as a separate component of shareholders’ equity unless deemed to have a credit loss as discussed below.
Premiums and discounts on securities are amortized and accreted over the term or to first call of the securities using the level yield method. Municipal security premiums are accreted over full term straight-line and discounts are amortized over the call term on a straight light basis. Gains and losses on the sale of securities are recognized at the trade date using the specific-identification method and are shown separately in the Consolidated Statements of Income.
Allowance for Credit Loss on AFS Debt Securities: Credit quality of AFS debt securities is monitored through credit ratings from various rating agencies and substantial price changes. Credit ratings express opinions about the credit quality of a security and are utilized by us to make informed decisions. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment grade, or significant pricing changes. For securities without credit ratings, we utilize other financial information indicating the financial health of the underlying
municipality, agency, or organization associated with the underlying security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance on AFS debt securities is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. When assessing an AFS debt security for credit loss, securities with identical CUSIPs are pooled together to assess for impairment using the average cost basis. Any impairment that is non-credit related and has not been recorded through an allowance is recognized in other comprehensive income.
A change in the allowance on AFS debt securities may be in full or a portion thereof, is recorded as expense (credit) within provision for credit losses on the consolidated statements of income. Losses are charged against the allowance when management believes an AFS debt security is uncollectible based on the above described analysis. Refer to Note 2 - Securities Available for Sale of the consolidated financial statements for further discussion.
Federal Home Loan Bank Stock: Federal Home Loan Bank (“FHLB”) stock is a non-marketable equity security and therefore is reported at cost, which generally equals par value. Shares held in excess of the minimum required by the FHLB are generally redeemable at par value. Dividends from FHLB stock are reported in interest and dividend income.
FHLB stock is periodically evaluated for impairment based on the capital adequacy of the FHLB and its overall financial condition. Based on the capital adequacy, liquidity position and sustained profitability of the FHLB, there was no impairment related to the carrying amount of FHLB stock as of December 31, 2024 and 2023.
Loans Held for Sale: Residential loans originated with the intent to be sold in the secondary market are accounted for at fair value. Fair value is primarily determined based on quoted prices for similar loans in active markets. Residential loans held for sale are generally sold with servicing rights retained. The carrying value of loans sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of residential loans (sales proceeds minus carrying value) are recorded in non-interest income. The loan portfolio is consistently evaluated in conjunction with asset/liability management practices, and certain residential mortgage loans may be sold to manage interest rate exposure and for other business purposes, including generating fee income through mortgage sale gains.
Loans: Loans held for investment are reported at amortized cost. Amortized cost is the principal balance outstanding net of the unamortized balance of any deferred fees or costs and the unamortized balance of any premiums or discounts on loans purchased or acquired.
For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual term of the loan using either the level-yield for loans with defined repayment terms, or straight-line method for open ended loans such as lines of credit. When a loan is paid off, the unamortized portion of deferred fees or costs are recognized in interest income. Interest income on originated loans is accrued based upon the daily principal amount outstanding except for loans on non-accrual status.
For acquired loans, interest income is accrued based upon the daily principal amount outstanding and is then further adjusted by the accretion of any discount or amortization of any premium associated with the loan that was recognized based on the acquisition date fair value. When a loan is paid off, the unamortized portion of any premiums or discounts on loans are recognized in interest income.
Purchase Credit Deteriorated (PCD) Loans: Loans acquired in acquisitions include some loans that have experienced more than insignificant credit deterioration since origination. The initial ACL is determined on a collective basis and allocated to the individual loans. The sum of the loan’s purchase price and ACL becomes its initial amortized cost. The difference between the initial amortized cost and the par value of the loan is a discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.
Non-performing loans: Residential real estate and home equity loans are generally placed on non-accrual status when reaching 90 days past due, are in process of foreclosure, or sooner if considered appropriate by management. Consumer other loans are generally placed on non-accrual when reaching 90 days or more past due, or sooner if considered
appropriate by management. Secured consumer other loans are written down to net realizable value and unsecured consumer loans are charged-off upon reaching 120 days past due. Commercial real estate loans and commercial and industrial loans that are 90 days or more past due are generally placed on non-accrual status, unless secured by sufficient cash or other assets immediately convertible to cash, and the loan is in the process of collection. Commercial real estate and commercial and industrial loans may be placed on non-accrual status prior to the 90 days delinquency date if considered appropriate by management.
When a loan has been placed on non-accrual status, previously accrued and uncollected interest is reversed against interest on the loan. The interest on non-accrual loans is accounted for using the cash-basis or cost-recovery method depending on corresponding credit risk, until qualifying for return to accrual status. A loan can be returned to accrual status when collectability of principal is reasonably assured and the loan has performed for a period of time, a minimum of six months.
Acquired loans that meet the criteria for non-accrual of interest prior to an acquisition are considered non-performing acquired loans that meet the criteria for non-accrual consistent with originated loans.
Loan Modifications to Borrowers Experiencing Financial Difficulty: In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” which eliminated the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, we are no longer required to establish a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, modified loans are generally included in their respective category and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the ACL.
Loans are considered to have been modified in a troubled debt restructuring, when, due to a borrower’s financial difficulties, certain concessions are made to the borrower that would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified to borrowers experiencing financial difficulty will remain on non-accrual status for a period of at least 6 months to demonstrate that the borrower is able to meet the terms of the modified loan before being considered a candidate to return to accrual status.
However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status.
Allowance for Credit Losses: The allowance for credit losses (the “allowance”) is a significant accounting estimate used in the preparation of the Company’s consolidated financial statements. The allowance is comprised of the allowance for credit losses on loans and the allowance for off-balance sheet credit exposures, which is accounted for as a separate liability in other liabilities on the balance sheet. The level of the allowance represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date.
The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged- off. The allowance is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, which generally includes larger non-accruing commercial loans.
The discounted cash flow (“DCF”) method is used to estimate expected credit losses for all loan portfolio segments measured on a collective (pool) basis. For each loan segment, cash flow projections are generated at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, probability of default, and loss given default. The modeling of prepayment speeds is based on historical internal data.
Regression analysis of historical internal and peer data is used to determine suitable loss drivers to utilize when modeling lifetime probability of default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes various economic indicators such as changes in unemployment rates, gross domestic product, real estate values, and other relevant factors as loss drivers. For all DCF models, management has determined that due to historic volatility in economic data, two quarters currently represents a reasonable and supportable forecast period, followed by a six-period reversion to historical mean levels for each of the various economic indicators.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Specific instrument effective yields are calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level Net Present Value (“NPV”). An allowance is established for the difference between the instrument’s NPV and amortized cost basis.
The allowance evaluation also considers various qualitative factors, such as: (i) changes to lending policies, underwriting standards and/or management personnel performing such functions, (ii) delinquency and other credit quality trends, (iii) credit risk concentrations, if any, (iv) changes to the nature of the Company's business impacting the loan portfolio, and (v) other external factors, that may include, but are not limited to, results of internal loan reviews, stress testing, examinations by bank regulatory agencies, or other events such as a natural disaster.
Arriving at an appropriate level of allowance involves a high degree of judgment. The determination of the adequacy of the allowance and provisioning for estimated losses is evaluated regularly based on review of loans, with particular emphasis on non-performing and other loans that management believes warrant special consideration. While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance.
Individually Evaluated Loans: Loans that do not share risk characteristics with existing pools are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and management expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral or going concern, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
Accrued Interest. Accrued interest receivable balances are presented within other assets on the consolidated balance sheet. Accrued interest is excluded from the measurement of the allowance for credit losses, including investments and loans. Generally, accrued interest is reversed when a loan is placed on non-accrual or is written-off. Current year accrued interest is reversed through interest income while accrued interest from prior years is written-off through the ACL.
Allowance for off-balance sheet credit exposures: The exposure is a component of other liabilities in the consolidated balance sheet and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include unused portions of lines of credit and standby and commercial letters of credit. The process used to determine the allowance for these exposures is consistent with the process for determining the allowance for loans, as adjusted for estimated funding probabilities or loan equivalency factors. A charge (credit) to provision for credit losses on the consolidated statements of income is made to account for the change in the allowance on off-balance sheet exposures between reporting periods.
Premises and Equipment: Land is carried at cost. Premises and equipment and related improvements are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the lesser of the lease term or estimated useful lives of related assets; generally five to 39 years for premises and three to eight years for furniture and
equipment. Software costs are stated at cost less accumulated depreciation within other assets on the consolidated balance sheet. Amortization expense on software is calculated using the straight-line method over the estimated useful lives of the related assets.
Transfers of Financial Assets: Transfers of an entire financial asset, group of entire financial assets, or a participating interest in an entire financial asset are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from total Company assets, (2) the transferee obtains the right to pledge or exchange the transferred assets, and (3) effective control is not maintained over the transferred assets.
Other Real Estate Owned: Other real estate owned consists of properties acquired through foreclosure proceedings or acceptance of a deed-in-lieu of foreclosure. These properties are recorded at fair value less estimated costs to sell the property. Initially at transfer if the recorded investment in the loan exceeds the property’s fair value at the time of acquisition, a charge-off is recorded against the allowance. If the fair value of the property initially at transfer exceeds the carrying amount of the loan, the excess is recorded either as a recovery to the allowance if a charge-off had previously been recorded, or as a gain on initial transfer in other non-interest income. Subsequent decreases in the property’s fair value and operating expenses of the property are recognized through charges to other non-interest expense. The fair value of the property acquired and ongoing valuation is based on third-party appraisals, broker price opinions, recent sales activity, or a combination thereof, subject to management judgment. Due to changing market conditions the amount ultimately realized on the other real estate owned may differ from the amounts reflected in the financial statements.
Goodwill: Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is assessed annually for impairment, and more frequently if events or changes in circumstances indicate that there may be an impairment. Adverse changes in the economic environment, declining operations, unanticipated competition, loss of key personnel, or other factors could result in a decline in the implied fair value of goodwill. Subsequent reversals of goodwill impairment are prohibited.
Other Intangibles: Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability.
The fair values of these assets are generally determined based on appraisals and are subsequently amortized on a straight-line basis or an accelerated basis over their estimated lives. Management assesses the recoverability of these intangible assets at least annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount exceeds fair value, an impairment charge is recorded to income.
Bank-Owned Life Insurance: Bank-owned life insurance (“BOLI”) represents life insurance on the lives of certain current and retired employees who had provided positive consent allowing the Bank to be the beneficiary of such policies. Increases in the cash value of the policies, as well as insurance proceeds received in excess of the cash value, are recorded in other non-interest income, and are not subject to income taxes.
Capitalized Servicing Rights: Capitalized servicing rights are recognized as assets when residential loans are sold and the rights to service those loans are retained.
Capitalized servicing rights are initially recorded at fair value. Fair values are established by using a discounted cash flow model to calculate the present value of estimated future net servicing income. Changes in the fair value of capitalized servicing rights are primarily due to changes in valuation inputs, assumptions, and the collection and realization of expected cash flows. However, these capitalized servicing rights are amortized in proportion to and over the period of estimated net servicing income, which includes prepayment assumptions. An impairment analysis is prepared on a quarterly basis by estimating the fair value of the capitalized servicing rights and comparing that value to the carrying amount. A valuation allowance is established when the carrying amount of these capitalized servicing rights exceeds fair value. The capitalized servicing rights are included in other assets on the consolidated balance sheet.
Derivative Financial Instruments: Derivative instruments are recognized on the consolidated balance sheet at fair value. On the inception date, management designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). Management formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. Both at the hedge’s inception and on an ongoing basis, management assesses whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items. The fair value of the derivative is reflected on the Consolidated Balance Sheet in either other assets or liabilities.
Changes in the fair value of derivative instruments that are highly effective and qualify as cash flow hedge are recorded in other comprehensive income (loss). Any ineffective portion is recorded in earnings. For fair value hedges that are highly effective, the gain or loss on the derivative and the loss or gain on the hedged item attributable to the hedged risk are both recognized in earnings, with the differences (if any) representing hedge ineffectiveness. Management discontinues hedge accounting when it is determined that the derivative is no longer highly effective in offsetting changes of the hedged risk on the hedged item, or determines that the designation of the derivative as a hedging instrument is no longer appropriate.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense based on the item being hedged. Net cash settlements on derivatives that do not quality for hedge accounting are reporting in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as cash flows of the items being hedged.
Commitments to fund mortgage loans with borrowers (interest rate locks) and forward commitments for the future delivery of these mortgage loans for sale on the secondary market are classified as free standing derivatives. These derivatives are designed to hedge against inherent interest rate and pricing risk associated with selling loans. The commitments to lend generally terminate once the loan is funded, the lock period expires or the borrower decides not to contract for the loan. The forward commitments generally terminate once the loan is sold or the commitment period expires. These commitments are considered derivatives which are accounted for by recognizing their estimated fair value on the Consolidated Balance Sheet in either other assets or other liabilities.
Senior and Subordinated Borrowings: Senior borrowings include retail and wholesale repurchase agreements, FHLB overnight, FHLB short-term and long-term advances, federal funds purchased, credit facilities, and line of credit advances. Subordinated borrowings consist of subordinated notes issued to investors. At times, posting of collateral is required for which it, cash, loans and/or investment securities are used.
Off-Balance Sheet Financial Instruments: Off-balance sheet financial instruments consist of commitments to extend credit, and unused or unfunded loan funds and letters of credit. These financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received.
Stock Based Compensation: Equity award plans include stock options, restricted stock awards restricted stock units and performance stock units, which are described more fully in Note 13 - Stock Based Compensation Plans of the Consolidated Financial Statements. Stock based compensation expenses are recognized for stock options and restricted awards based on the fair value of these awards as of the grant date. For restricted stock units and performance stock units the expense is recognized over the vesting periods of the grants. Treasury shares are used for issuing shares upon option exercises, restricted stock awards, restricted stock unit vesting and performance stock unit vesting.
Employee Stock Purchase Plan: Compensation expense is recognized based on the difference between the market price and the discounted price of shares issued from participant enrollment over each six month enrollment period.
Post-retirement Plans: Non-qualified supplemental retirement benefit payments are provided or promised to certain ex-employees and retired officers based on contractual agreements. This plan is described more fully in Note 8 - Employee Benefit Plans of the Consolidated Financial Statements. The plan agreements provide payments in installments over a period of years upon reaching a certain age, retirement or death. Benefit obligations are recognized as the net present value of payments associated with the agreements over the service periods of the participants. Compensation expense is recognized from interest costs and the impact of changes in mortality rates on the benefit obligations.
Pension Plan: The pension plan is an inherited, frozen, noncontributory, qualified, defined benefit plan for certain employees who met age and service requirements. This plan is described more fully in Note 8 - Employee Benefit Plans of the Consolidated Financial Statements. In order to measure the expense associated with the Plans, various assumptions are made including the discount rate, expected return on plan assets, anticipated mortality rates, and expected future healthcare costs. The assumptions are based on historical experience as well as current facts and circumstances. As of the measurement date December 31, 2024, plan assets are determined based on fair value, generally representing observable market prices. The projected benefit obligation is primarily determined based on the present value of projected benefit distributions at an assumed discount rate.
Net periodic pension benefit costs include interest costs based on an assumed discount rate, the expected return on plan assets based on actuarially derived market-related values, and the amortization of net actuarial losses. Differences between expected and actual results in each year are included in the net actuarial gain or loss amount, which is recognized in other comprehensive income. The net actuarial gain or loss in excess of a 10% corridor is amortized in net periodic benefit cost over the average remaining service period of active participants in the Plans. The prior service credit is amortized over the average remaining service period to full eligibility for participating employees expected to receive benefits.
At the end of each year the Plans’ assets and obligations are examined to determine its funded status as of the end of the fiscal year and recognizes those changes in other comprehensive income, net of tax. The plans over or under funded status is recognized in the consolidated balance sheet as an asset or liability, respectively.
401(k) Plan: The employer sponsored 401(k) plan to which participants may make contributions in the form of salary deferrals also provides participants with matching contributions in accordance with the terms of the plan. Contributions due under the terms of the defined contribution plans are accrued through compensation expense as earned by employees.
Income Taxes: The asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information indicates that it is more likely than not that deferred tax assets will not be realized, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Treasury Stock: Shares of the Company’s common stock that are repurchased are recorded in treasury stock at cost. On the date of subsequent re-issuance, the treasury stock account is reduced by the cost of such stock on an average cost basis.
Earnings Per Share: Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in earnings, such as dilutive stock options.
Revenue Recognition: Non-interest revenue is recognized in accordance with ASC 606, "Revenue from Contracts with Customers." ASC 606 requires a five step process: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) a performance obligation is satisfied. Revenue recognition under ASC 606 depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or service. See Note 15 - Revenue from Contracts with Customers of the Company’s Consolidated Financial Statements for additional information on revenue recognition.
Wealth Management: Wealth management assets held in a fiduciary or agent capacity are not included in the accompanying Consolidated Balance Sheets because the ownership is held by customers. Trust and investment management fees are primarily comprised of fees earned from investment management, trust administration, tax return preparation, and financial planning. The performance obligation for revenue recognition is generally satisfied over time
and the resulting in monthly fee income, based on the daily accrual of the market value of the investment accounts and the applicable fee rate.
Marketing Costs: Marketing costs are expensed as incurred.
Segment Reporting: The Company’s reportable segment is determined by the Chief Executive Officer, who is designated as the chief operating decision maker (“CODM”), based upon information provided about the Company’s products and services offered, primarily banking operations. Operations of the Company are solely within community banking industry and include traditional community banking services, including lending activities, acceptance of demand, savings and time deposits, business services, investment management, trust and third-party brokerage services. These products and services have similar distribution methods, types of customers and regulatory responsibilities. An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and evaluate performance. Consolidated net income of the company is the primary performance metric utilized by the CODM. The CODM uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The CODM uses consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment performance and in establishing compensation. The majority of the Company’s revenue is from the business of banking. While the Company has assigned certain management responsibilities by business lines, the Company’s CODM monitors and evaluates financial performance on a Company-wide basis. Accordingly, segment information is not presented in the Consolidated Financial Statements. Therefore, the Company has determined that its business is conducted in one reportable segment and represents the consolidated financial statements of the Company.
Recent Accounting Pronouncements
The following table provides a brief description of accounting standards that could have a material impact to the Company’s consolidated financial statements upon adoption:
Standard
Description
Required Date
of Adoption
Effect on financial statements
Standards Adopted in 2024
ASU2025-01 Income Statement-Reporting
Comprehensive Income-Expense
Disaggregation Disclosures
(Subtopic 220-40)
The amendment in this Update amends the effective date of Update 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of Update 2024-03 is permitted.
Annual reporting periods beginning after December 15, 2026, and interim
periods within annual reporting periods beginning after December 15, 2027.
Early adoption of Update 2024-03 is permitted.
The adoption of this ASU did not have a material impact on our consolidated financial statements. Depreciation was broken out from Occupancy and Equipment expenses prospectively and retrospectively.
ASU 2024-04 Debt-Debt with Conversion and other options (subtopic 470-20): Induced Conversions of Convertible Debt Instruments
The amendments in this Update clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. Under the amendments, to account for a settlement of a convertible debt instrument as an induced conversion, an inducement offer is required to provide the debt holder with, at a minimum, the consideration (in form and amount) issuable under the conversion privileges provided in the terms of the instrument. The amendments do not change the other criteria that are required to be satisfied to account for a settlement transaction as an induced conversion.
December 15, 2025
The adoption of this ASU does not have an impact on our consolidated financial statements as we do not hold convertible debt instruments.
ASU 2024-03 Income Statement- Reporting Comprehensive Income- Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
The amendments in this Update require disclosure, in the notes to financial statements, of specified information about certain costs and expenses. The amendments require that at each interim and annual reporting period an entity:
1. Disclose the amounts of (a) purchases of inventory, (b) employee
compensation, (c) depreciation, (d) intangible asset amortization, and
(e) depreciation, depletion, and amortization recognized as part of oil and gas-producing activities (DD&A) (or other amounts of depletion expense) included in each relevant expense caption. A relevant expense caption is an expense caption presented on the face of the
income statement within continuing operations that contains any of the expense categories listed in (a)-(e).
2. Include certain amounts that are already required to be disclosed
under current generally accepted accounting principles (GAAP) in the
same disclosure as the other disaggregation requirements.
3. Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.
4. Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.
Annual reporting periods
beginning after December 15, 2026, and interim reporting periods beginning
after December 15, 2027. Early adoption is permitted.
The adoption of this ASU did not have a material impact on our consolidated financial statements. Depreciation was broken out from Occupancy and Equipment expenses prospectively and retrospectively.
ASU 2024-02 Codification Improvements-Amendments to
Remove References to the Concepts Statements
This Update contains amendments to the Codification that remove references to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior Statements to provide guidance in certain topical areas
December 15, 2024
The adoption of this ASU did not have a material impact on our consolidated financial statements.
ASU 2024-01 Compensation-Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards
The amendments in this Update related to the scope application issue apply to all reporting entities that account for profits interest awards as compensation to employees or nonemployees in return for goods or services to various Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance.
Annual periods
beginning after December 15, 2024, and interim periods within those annual
periods
The adoption of this ASU did not have an impact on our consolidated financial statements.
Standards Not Yet Adopted
ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures
The amendments in this update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate).
Annual periods beginning after December 15, 2024
We do not expect adoption of this ASU to have a material impact on our consolidated financial statements.
NOTE 2. SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for sale:
Gross
Gross
Unrealized
Unrealized
(in thousands)
Amortized Cost
Gains
Losses
Fair Value
Allowance
December 31, 2024
Debt securities:
Obligations of US Government-sponsored enterprises
$
1,344
$
-
$
(26)
$
1,318
$
-
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises
208,818
(31,524)
177,316
-
US Government agency
115,177
(11,314)
103,916
-
Private label
40,633
(1,094)
39,564
-
Obligations of states and political subdivisions thereof
116,421
5,564
(16,533)
105,452
-
Corporate bonds
100,923
(7,761)
93,452
(568)
Total securities available for sale
$
583,316
$
5,954
$
(68,252)
$
521,018
$
(568)
Gross
Gross
Unrealized
Unrealized
(in thousands)
Amortized Cost
Gains
Losses
Fair Value
Allowance
December 31, 2023
Debt securities:
Obligations of US Government-sponsored enterprises
$
2,021
$
-
$
(29)
$
1,992
$
-
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises
223,602
(30,332)
193,282
-
US Government agency
85,005
(10,937)
74,213
-
Private label
60,888
(1,855)
59,051
-
Obligations of states and political subdivisions thereof
119,857
4,515
(14,204)
110,168
-
Corporate bonds
105,552
(9,703)
95,868
-
Total securities available for sale
$
596,925
$
4,709
$
(67,060)
$
534,574
$
-
Credit Quality Information
We monitor the credit quality of available for sale securities through credit ratings from various rating agencies and substantial price changes. In an effort to make informed decisions, we utilize credit ratings that express opinions about the credit quality of a security. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment-grade, or significant pricing changes. For securities without credit ratings, we utilize other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security.
The amortized cost and estimated fair value of available for sale securities segregated by contractual maturity at December 31, 2024 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.
Available for sale
(in thousands)
Amortized Cost
Fair Value
Within 1 year
$
3,000
$
2,618
Over 1 year to 5 years
52,398
48,177
Over 5 years to 10 years
44,527
42,074
Over 10 years
118,763
107,353
Total bonds and obligations
218,688
200,222
Mortgage-backed securities and collateralized mortgage obligations
364,628
320,796
Total securities available for sale
$
583,316
$
521,018
The following table summarizes proceeds from the sale of AFS securities and realized gains and losses:
Proceeds from Sale
of Securities
(in thousands)
Available for Sale
Realized Gains
Realized Losses
Net
$
3,000
$
$
-
$
2,000
-
7,130
(98)
There were no sales of securities in 2024, the $3.0 million represents proceeds from a called security with a $50 thousand realized gain. There were no sales of securities in 2023, the $2.0 million represents proceeds from a called security with a $34 thousand realized gain.
Accrued interest receivable on available for sale securities totaled $3.3 million at December 31, 2024 and $4.0 million at December 31, 2023, which is reported in other assets on the statement of financial position.
The following tables summarize available for sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded at December 31, 2024 and 2023, aggregated by major security type and length of time in a continuous unrealized loss position:
Less Than Twelve Months
Over Twelve Months
Total
Gross
Gross
Gross
Unrealized
Fair
Unrealized
Fair
Unrealized
Fair
(in thousands)
Losses
Value
Losses
Value
Losses
Value
December 31, 2024
Debt securities:
Obligations of US Government-sponsored enterprises
$
$
$
$
$
$
1,318
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises
8,003
31,415
165,116
31,524
173,119
US Government agency
35,174
10,497
60,789
11,314
95,963
Private label
1,093
19,839
1,094
20,787
Obligations of states and political subdivisions thereof
4,962
16,418
99,109
16,533
104,071
Corporate bonds
2,438
4,495
75,002
4,521
77,440
Total securities available for sale
$
1,070
$
52,232
$
63,942
$
420,466
$
65,012
$
472,698
Less Than Twelve Months
Over Twelve Months
Total
Gross
Gross
Gross
Unrealized
Fair
Unrealized
Fair
Unrealized
Fair
(in thousands)
Losses
Value
Losses
Value
Losses
Value
December 31, 2023
Debt securities:
Obligations of US Government-sponsored enterprises
$
$
1,084
$
$
$
$
1,991
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises
3,439
30,322
188,611
30,332
192,050
US Government agency
10,935
68,891
10,937
69,011
Private label
-
1,855
59,007
1,855
59,033
Obligations of states and political subdivisions thereof
3,099
14,178
101,036
14,204
104,135
Corporate bonds
4,913
9,547
84,950
9,703
89,863
Total securities available for sale
$
$
12,681
$
66,865
$
503,402
$
67,060
$
516,083
Obligations of US Government-sponsored enterprises
7 out of the total 7 securities in our portfolio of AFS obligations of US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 1.96% of the amortized cost of securities in unrealized loss positions. The US Small Business Administration guarantees the contractual cash flows of all of our obligations of US Government-sponsored enterprises. The securities are investment-grade rated and there were no material underlying credit downgrades during the quarter.
US Government-sponsored enterprises
460 out of the total 484 securities in our portfolio of AFS US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 15.40% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation guarantee the contractual cash flows of all of our US Government-sponsored enterprises. The securities are investment grade rated and there were no material underlying credit downgrades during the year.
US Government agency
137 out of the total 161 securities in our portfolio of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented 10.55% of the amortized cost of securities in unrealized loss positions. The Government National Mortgage Association guarantees the contractual cash flows of all of our US government agency securities. The securities are rated investment grade and there were no material underlying credit downgrades during the year.
Private label
18 of the total 24 securities in our portfolio of AFS private label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 5.00% of the amortized cost of securities in unrealized loss positions. We expect to receive all of the future contractual cash flows related to the amortized cost on these securities.
Obligations of states and political subdivisions thereof
62 of the total 67 securities in our portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 14.37% of the amortized cost of securities in unrealized loss positions. We continually monitor the municipal bond sector of the market carefully and periodically evaluate the appropriate level of exposure to the market. At this time, we believe (i) the bonds in this portfolio carry minimal risk of default and (ii) we are appropriately compensated for that risk. There were no material underlying credit downgrades during the year.
Corporate bonds
27 of the total 32 securities in our portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents 5.31% of the amortized cost of securities in unrealized loss positions. We review the financial strength of all of these bonds, and have concluded that the amortized cost remains supported by the expected future cash flows of these securities. The most recent review includes all bond issuers and their current credit ratings, financial performance and capitalization.
We expect to recover the amortized cost basis on all securities in our AFS portfolio. Furthermore, we do not intend to sell nor do we anticipate that we will be required to sell any securities in an unrealized loss position as of December 31, 2024, prior to this recovery. Our ability and intent to hold these securities until recovery is supported by our capital and liquidity positions as well as historically low portfolio turnover.
Management recorded and allowance for credit losses on two corporate notes where there was a change in future estimated cash flows during the year ended December 31, 2024. A discounted cash flow approach is used to determine the amount of the allowance. The cash flows expected to be collected, after considering expected prepayments, are discounted at the original effective interest rate. The amount of the allowance is limited to the difference between the amortized cost basis of the security and its estimated fair value.
The table below presents a rollforward by major security type for the year ended December 31, 2024 of the allowance for credit losses on available for sale debt securities held at period end:
(in thousands)
Obligations of US Government-sponsored enterprises
US Government -sponsored enterprises
US Government agency
Private Label
Obligations of states and political subdivisions thereof
Corporate Bonds
Total
Balance at January 1, 2024
$
-
$
-
$
-
$
-
$
-
$
-
$
-
Credit losses on securities for which credit losses were not previously recorded
-
-
-
-
-
1,171
1,171
Credit losses on previously impaired securities
-
-
-
-
-
-
-
Write-offs charged against the allowance
-
-
-
-
-
(603)
(603)
Recoveries of amounts previously written off
-
-
-
-
-
-
-
Balance at December 31, 2024
$
-
$
-
$
-
$
-
$
-
$
$
As of December 31, 2023, we carried no allowance on available for sale debt securities in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments.
The Company recorded a change in the allowance for credit losses due to the passage of time in interest income of $603 thousand in December 31, 2024. There was no allowance for credit losses on interest income for the year ended December 31, 2023.
We have nonaccrual securities available for sale of $9 million that have $568 thousand in related allowance for credit losses as of December 31, 2024. There were no available for sale debt securities in nonaccrual status and no related allowance for credit losses as of December 31, 2023.
A summary of securities pledged as collateral for certain deposits and borrowing arrangements for the years ended December 31, 2024 and 2023 is as follows:
December 31, 2024
December 31, 2023
Carrying
Estimated
Carrying
Estimated
(in thousands)
Value
Fair Value
Value
Fair Value
Securities pledged for deposits
$
18,483
$
15,821
$
24,347
$
21,341
Securities pledged for repurchase agreements
16,764
14,020
18,841
16,230
Securities pledged for borrowings (1)
35,819
30,634
113,775
95,318
Total securities pledged
$
71,066
$
60,475
$
156,963
$
132,889
(1) The Bank pledged securities as collateral for certain borrowing arrangements with the Federal Home Loan Bank of Boston and Federal Reserve Bank of Boston.
The following table summarizes the balance of securities available for sale at December 31, 2024 that represent greater than 10% of shareholders’ equity:
(in thousands)
Amortized Cost
Fair Value
Federal National Mortgage Association
$
138,375
$
118,106
Federal Home Loan Mortgage Corporation
70,443
59,210
Government National Mortgage Association
115,177
103,916
Obligations of states and political subdivisions thereof
116,421
105,452
Corporate Bonds
100,923
93,452
NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES
We evaluate risk characteristics of loans based on regulatory call report code with segmentation based on the underlying collateral for certain loan types. The following is a summary of total loans by regulatory call report code segmentation based on underlying collateral for certain loan types:
December 31,
December 31,
(in thousands)
Commercial construction
$
131,617
$
154,048
Commercial real estate owner occupied
302,074
310,015
Commercial real estate non-owner occupied
1,358,903
1,144,566
Tax exempt and other
44,275
43,688
Commercial and industrial
319,766
310,883
Residential real estate
888,251
940,334
Home equity
94,141
87,683
Consumer other
8,069
7,832
Total loans
3,147,096
2,999,049
Allowance for credit losses
28,744
28,142
Net loans
$
3,118,352
$
2,970,907
Total unamortized net costs and premiums included in loan totals were as follows:
December 31,
December 31,
(in thousands)
Net unamortized loan origination costs
$
1,982
$
3,039
Net unamortized fair value discount on acquired loans
(2,442)
(2,891)
Total
$
(460)
$
We exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of December 31, 2024 and 2023, accrued interest receivable for loans totaled $10.5 million and $11.9 million, respectively, and is included in the “other assets” line item on the Company’s consolidated balance sheets.
Characteristics of each loan portfolio segment are as follows:
Commercial construction - Loans in this segment primarily include raw land, land development and construction of commercial and multifamily residential properties. Collateral values are determined based upon appraisals and evaluations of the completed structure in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy guidelines that are more restrictive than on stabilized commercial real estate transactions. Construction loans are primarily paid by the cash flow generated from the completed structure, such as operating leases, rents, or other operating cash flows from the borrower.
Commercial real estate owner occupied and non-owner occupied - Loans in these segments are primarily owner-occupied or income-producing properties. Loans to Real Estate Investment Trusts and unsecured loans to developers that closely correlate to the inherent risk in commercial real estate markets are also included. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.
Tax Exempt and other - Loans in this segment primarily include loans to various state and municipal government entities. Loans made to these borrowers may provide us with tax-exempt income. While governed and underwritten similar to commercial loans they do have unique requirements based on established polices. Almost all state and municipal loans are considered a general obligation of the issuing entity. Given the size of many municipal borrowers, borrowings are normally not rated by major rating agencies.
Commercial and industrial loans - Loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment in this segment. Generally loans are secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Some loans in this category may be unsecured or guaranteed by government agencies such as the U.S. Small Business Administration. Loans are primarily paid by the operating cash flow of the borrower.
Residential real estate - All loans in this segment are collateralized by one-to-four family homes. Residential real estate loans held in the loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to various underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.
Home equity - All loans and lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.
Consumer other - Loans in this segment include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto loans, recreational equipment, overdraft protection or other consumer loans. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines, as applicable.
Allowance for Credit Losses
The Allowance for Credit Losses (“ACL”) is comprised of the allowance for loan losses and the allowance for unfunded commitments which is accounted for as a separate liability in other liabilities on our consolidated balance sheet. The level of the ACL represents management’s estimate of expected credit losses over the expected life of the loans at the consolidated balance sheet date.
The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged off. The ACL is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans.
The activity in the allowance for credit losses for the periods ended are as follows:
At or for the Year Ended December 31, 2024
Balance at
Beginning of
Balance at
(in thousands)
Period
Charge Offs
Recoveries
Provision
End of Period
Commercial construction
$
4,261
$
-
$
-
$
(2,165)
$
2,096
Commercial real estate owner occupied
2,863
(3)
-
(66)
2,794
Commercial real estate non-owner occupied
9,443
-
-
1,661
11,104
Tax exempt and other
-
-
Commercial and industrial
3,259
(187)
1,963
5,064
Residential real estate
7,352
-
(635)
6,732
Home equity
-
(37)
Consumer other
(277)
Total
$
28,142
$
(467)
$
$
$
28,744
At or for the Year Ended December 31, 2023
Balance at
Beginning of
Balance at
(in thousands)
Period
Charge Offs
Recoveries
Provision
End of Period
Commercial construction
$
2,579
$
-
$
-
$
1,682
$
4,261
Commercial real estate owner occupied
2,189
-
2,863
Commercial real estate non-owner occupied
9,341
-
-
9,443
Tax exempt and other
-
-
Commercial and industrial
3,493
(664)
3,259
Residential real estate
7,274
(8)
7,352
Home equity
(12)
(38)
Consumer other
(289)
Total
$
25,860
$
(973)
$
$
2,908
$
28,142
At or for the Year Ended December 31, 2022
Balance at
Beginning of
Balance at
(in thousands)
Period
Charge Offs
Recoveries
Provision
End of Period
Commercial construction
$
2,111
$
-
$
-
$
$
2,579
Commercial real estate owner occupied
2,751
-
(682)
2,189
Commercial real estate non-owner occupied
5,650
-
-
3,691
9,341
Tax exempt and other
-
-
Commercial and industrial
5,369
(8)
(2,209)
3,493
Residential real estate
5,862
(84)
1,390
7,274
Home equity
(7)
(21)
Consumer other
(267)
Total
$
22,718
$
(366)
$
$
2,904
$
25,860
Unfunded Commitments
The allowance for credit losses on unfunded commitments is recognized as a liability (other liabilities on the consolidated balance sheet), with adjustments to the reserve recognized in other non-interest expense in the consolidated statement of operations. The activity in the allowance for credit losses on unfunded commitments for the periods ended was as follows:
At or for the Years Ended December 31,
(in thousands)
Beginning Balance
$
3,825
$
3,910
$
2,152
Provision for credit losses
(776)
(85)
1,758
Ending Balance
$
3,049
$
3,825
$
3,910
Loan Origination/Risk Management: We have certain lending policies and procedures in place designed to maximize loan income within an acceptable level of risk. Our Board of Directors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the Board of Directors with frequent reports related to loan production, loan quality, and concentration of credit, loan delinquencies, non-performing loans and potential problem loans. We seek to diversify the loan portfolio as a means of managing risk associated with fluctuations in economic conditions.
Credit Quality Indicators: In monitoring the credit quality of the portfolio, management applies a credit quality indicator and uses an internal risk rating system to categorize commercial loans. These credit quality indicators range from one through nine, with a higher number correlating to increasing risk of loss. Consistent with regulatory guidelines, the Company provides for the classification of loans which are considered to be of lesser quality as special mention, substandard, doubtful, or loss (i.e. risk-rated 6, 7, 8 and 9, respectively).
The following are the definitions of our credit quality indicators:
Pass: Loans we consider in the commercial portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes there is a low risk of loss related to these loans considered pass-rated.
Special Mention: Loans considered having some potential weaknesses, but are deemed to not carry levels of risk inherent in one of the subsequent categories, are designated as special mention. A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. This might include loans that may require a higher level of supervision or internal reporting because of: (i) declining industry trends; (ii) increasing reliance on secondary sources of repayment; (iii) the poor condition of or lack of control over collateral; or (iv) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or market conditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose us to sufficient risks to warrant classification.
Substandard: Loans we consider as substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well-defined weakness that jeopardizes liquidation of the debt. Substandard loans include those loans where there is the distinct possibility of some loss of principal, if the deficiencies are not corrected.
Doubtful: Loans we consider as doubtful have all of the weaknesses inherent in those loans that are classified as substandard. These loans have the added characteristic of a well-defined weakness which is inadequately protected by the current sound worth and paying capacity of borrower or of the collateral pledged, if any, and calls into question the collectability of the full balance of the loan. The possibility of loss is high but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the loan, its classification as loss is deferred until its more exact status is determined. Pending factors include proposed merger, acquisition, or liquidation
procedures, capital injection, perfecting liens on additional collateral and refinancing plans. The entire amount of the loan might not be classified as doubtful when collection of a specific portion appears highly probable. Loans are generally not classified doubtful for an extended period of time (i.e., over a year).
Loss: Loans we consider as losses are those considered uncollectible and of such little value that their continuance as an asset is not warranted and the uncollectible amounts are charged-off. This classification does not mean the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this worthless asset even though partial recovery may be affected in the future. Losses are taken in the period in which they are determined to be uncollectible.
The following tables presents our loans by year of origination, loan segmentation and risk indicator as of December 31, 2024 and 2023:
(in thousands)
Prior
Total
Commercial construction
Risk rating:
Pass
$
34,320
$
27,251
$
55,825
$
$
4,404
$
9,046
$
131,617
Special mention
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Total
$
34,320
$
27,251
$
55,825
$
$
4,404
$
9,046
$
131,617
Current period gross write-offs
-
-
-
-
-
-
-
Commercial real estate owner occupied
Risk rating:
Pass
$
42,705
$
46,869
$
60,102
$
29,808
$
20,761
$
96,123
$
296,368
Special mention
-
-
-
-
2,070
2,198
Substandard
-
-
-
-
-
3,442
3,442
Doubtful
-
-
-
-
-
Total
$
42,705
$
46,997
$
60,102
$
29,808
$
20,761
$
101,701
$
302,074
Current period gross write-offs
-
-
-
-
-
Commercial real estate non-owner occupied
Risk rating:
Pass
$
142,348
$
47,986
$
405,235
$
234,520
$
156,873
$
295,646
$
1,282,608
Special mention
-
-
-
20,446
3,913
26,969
51,328
Substandard
-
7,702
-
-
-
17,265
24,967
Doubtful
-
-
-
-
-
-
-
Total
$
142,348
$
55,688
$
405,235
$
254,966
$
160,786
$
339,880
$
1,358,903
Current period gross write-offs
-
-
-
-
-
-
-
Tax exempt and other
Risk rating:
Pass
$
11,026
$
2,669
$
6,283
$
$
$
23,517
$
44,275
Special mention
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Total
$
11,026
$
2,669
$
6,283
$
$
$
23,517
$
44,275
Current period gross write-offs
-
-
-
-
-
-
-
Commercial and industrial
Risk rating:
Pass
$
79,211
$
62,047
$
47,739
$
12,154
$
32,239
$
65,002
$
298,392
Special mention
14,878
1,266
17,679
Substandard
-
2,866
3,695
Doubtful
-
-
-
-
-
-
-
Total
$
79,348
$
76,997
$
49,413
$
13,209
$
32,299
$
68,500
$
319,766
Current period gross write-offs
-
(in thousands)
Prior
Total
Residential real estate
Performing
$
35,872
$
67,708
$
174,677
$
154,229
$
89,752
$
362,421
$
884,659
Nonperforming
-
-
-
2,940
3,592
Total
$
35,872
$
67,902
$
175,135
$
154,229
$
89,752
$
365,361
$
888,251
Current period gross write-offs
-
-
-
-
-
-
-
Home equity
Performing
$
19,175
$
15,762
$
12,515
$
6,648
$
5,536
$
33,238
$
92,874
Nonperforming
-
-
-
1,016
1,267
Total
$
19,175
$
15,762
$
12,713
$
6,701
$
5,536
$
34,254
$
94,141
Current period gross write-offs
-
-
-
-
-
-
-
Consumer other
Performing
$
4,432
$
1,644
$
$
$
$
$
8,045
Nonperforming
-
-
-
Total
$
4,432
$
1,652
$
$
$
$
$
8,069
Current period gross write-offs
-
-
Total Loans
$
369,226
$
294,918
$
765,576
$
460,563
$
313,824
$
942,989
$
3,147,096
The following table presents our loans by year of origination, loan segmentation and risk indicator as of December 31, 2023:
(in thousands)
Prior
Total
Commercial construction
Risk rating:
Pass
$
14,040
$
99,115
$
35,978
$
3,992
$
-
$
$
154,048
Special mention
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Total
$
14,040
$
99,115
$
35,978
$
3,992
$
-
$
$
154,048
Current period gross write-offs
-
-
-
-
-
-
-
Commercial real estate owner occupied
Risk rating:
Pass
$
57,603
$
61,015
$
43,228
$
20,209
$
20,462
$
91,187
$
293,704
Special mention
7,488
1,596
-
3,066
12,697
Substandard
-
-
-
-
-
3,497
3,497
Doubtful
-
-
-
-
-
Total
$
57,763
$
61,402
$
50,716
$
21,805
$
20,462
$
97,867
$
310,015
Current period gross write-offs
-
-
-
-
-
-
-
Commercial real estate non-owner occupied
Risk rating:
Pass
$
41,270
$
353,613
$
199,311
$
127,231
$
78,759
$
238,973
$
1,039,157
Special mention
7,809
-
14,134
37,249
15,246
17,108
91,546
Substandard
-
-
-
-
-
13,863
13,863
Doubtful
-
-
-
-
-
-
-
Total
$
49,079
$
353,613
$
213,445
$
164,480
$
94,005
$
269,944
$
1,144,566
Current period gross write-offs
-
-
-
-
-
-
-
Tax exempt and other
Risk rating:
Pass
$
6,340
$
8,468
$
$
$
$
27,295
$
43,688
Special mention
-
-
-
-
-
-
-
Substandard
-
-
-
-
-
-
-
Total
$
6,340
$
8,468
$
$
$
$
27,295
$
43,688
Current period gross write-offs
-
-
-
-
-
-
-
Commercial and industrial
Risk rating:
Pass
$
80,942
$
69,402
$
22,205
$
38,824
$
14,739
$
77,273
$
303,385
Special mention
1,446
-
3,588
6,202
Substandard
1,074
Doubtful
-
-
-
-
Total
$
81,364
$
70,942
$
22,391
$
39,709
$
14,949
$
81,528
$
310,883
Current period gross write-offs
-
-
-
-
(in thousands)
Prior
Total
Residential real estate
Performing
$
72,395
$
194,109
$
165,434
$
96,016
$
62,648
$
345,823
$
936,425
Nonperforming
-
-
-
3,634
3,909
Total
$
72,395
$
194,109
$
165,475
$
96,016
$
62,882
$
349,457
$
940,334
Current period gross write-offs
-
-
-
-
-
Home equity
Performing
$
15,582
$
15,334
$
7,873
$
6,633
$
4,800
$
36,652
$
86,874
Nonperforming
-
-
-
-
-
Total
$
15,582
$
15,334
$
7,873
$
6,633
$
4,800
$
37,461
$
87,683
Current period gross write-offs
-
-
-
-
-
Consumer other
Performing
$
4,128
$
1,787
$
$
$
$
$
7,827
Nonperforming
-
-
-
-
Total
$
4,128
$
1,787
$
$
$
$
$
7,832
Current period gross write-offs
-
-
Total Loans
$
300,691
$
804,770
$
497,365
$
333,145
$
197,739
$
865,339
$
2,999,049
Past Due Loans
The following is a summary of past due loans for the periods ended:
December 31, 2024
(in thousands)
30-59
60-89
90+
Total Past Due
Current
Total Loans
Commercial construction
$
-
$
-
$
-
$
-
$
131,617
$
131,617
Commercial real estate owner occupied
-
-
302,068
302,074
Commercial real estate non-owner occupied
-
1,358,626
1,358,903
Tax exempt and other
-
-
-
-
44,275
44,275
Commercial and industrial
1,233
318,533
319,766
Residential real estate
14,076
2,426
17,165
871,086
888,251
Home equity
1,597
92,544
94,141
Consumer other
8,013
8,069
Total
$
15,686
$
3,114
$
1,534
$
20,334
$
3,126,762
$
3,147,096
December 31, 2023
(in thousands)
30-59
60-89
90+
Total Past Due
Current
Total Loans
Commercial construction
$
-
$
-
$
-
$
-
$
154,048
$
154,048
Commercial real estate owner occupied
-
-
-
-
310,015
310,015
Commercial real estate non-owner occupied
-
-
1,144,463
1,144,566
Tax exempt and other
-
-
-
-
43,688
43,688
Commercial and industrial
310,029
310,883
Residential real estate
1,520
1,999
4,146
936,188
940,334
Home equity
-
86,746
87,683
Consumer other
-
7,820
7,832
Total
$
2,595
$
$
2,769
$
6,052
$
2,992,997
$
2,999,049
Non-Accrual Loans
The following is a summary of non-accrual loans for the periods ended:
December 31, 2024
Nonaccrual With No
90+ Days Past
(in thousands)
Nonaccrual
Related Allowance
Due and Accruing
Commercial construction
$
-
$
-
$
-
Commercial real estate owner occupied
-
Commercial real estate non-owner occupied
-
Tax exempt and other
-
-
-
Commercial and industrial
1,099
-
Residential real estate
3,591
-
Home equity
1,267
Consumer other
-
Total
$
6,994
$
2,050
$
December 31, 2023
Nonaccrual With No
90+ Days Past
(in thousands)
Nonaccrual
Related Allowance
Due and Accruing
Commercial construction
$
-
$
-
$
-
Commercial real estate owner occupied
-
Commercial real estate non-owner occupied
-
Tax exempt and other
-
-
-
Commercial and industrial
-
Residential real estate
3,908
1,131
Home equity
Consumer other
-
-
Total
$
5,528
$
1,406
$
Our policy is to reverse previously recorded interest income when a loan is placed on non-accrual, as such, the Company did not record any interest income on its non-accrual for the year ended December 31, 2024 and 2023.
Collateral Dependent Loans
Loans that do not share risk characteristics are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where we have determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and we expect repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.
The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment for the periods ended.
December 31, 2024
December 31, 2023
(in thousands)
Real Estate
Other
Real Estate
Other
Commercial construction
$
-
$
-
$
-
$
-
Commercial real estate owner occupied
-
-
Commercial real estate non-owner occupied
-
-
Tax exempt and other
-
-
-
-
Commercial and industrial
1,099
-
Residential real estate
3,591
-
3,908
-
Home equity
1,267
-
-
Consumer other
-
-
Total
$
6,994
$
-
$
5,394
$
Loan Modifications to Borrowers Experiencing Financial Difficulty
In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” which eliminated the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, we are no longer required to establish a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective category and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the ACL.
These modifications typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions.
The following table presents the amortized cost basis of loans that were both experiencing financial difficulty and modified during the twelve months ended December 31, 2024 and 2023, by class and by type of modification.
(in thousands)
Principal Forgiveness
Payment Delay
Term Extension
Interest Rate Reduction
Combination Interest Rate Reduction and Term Extension
% of Total Class of Loans
Twelve Months Ended December 31, 2024
Commercial construction
$
-
$
-
$
-
$
-
$
-
-
%
Commercial real estate owner occupied
-
-
-
-
-
-
Commercial real estate non-owner occupied
-
-
-
-
-
-
Tax exempt and other
-
-
-
-
-
-
Commercial and industrial
-
-
-
-
0.00
Residential real estate
-
-
0.02
Home equity
-
-
-
-
-
-
Consumer other
-
-
-
-
-
-
Total
$
-
$
$
$
-
$
0.01
%
(in thousands)
Principal Forgiveness
Payment Delay
Term Extension
Interest Rate Reduction
Combination Interest Rate Reduction and Term Extension
% of Total Class of Loans
Twelve Months Ended December 31, 2023
Commercial construction
$
-
$
-
$
-
$
-
$
-
-
%
Commercial real estate owner occupied
-
-
-
-
-
-
Commercial real estate non-owner occupied
-
-
-
-
-
-
Tax exempt and other
-
-
-
-
-
-
Commercial and industrial
-
-
-
0.08
Residential real estate
-
-
-
-
0.01
Home equity
-
-
-
-
-
-
Consumer other
-
-
-
-
-
-
Total
$
-
$
$
$
$
-
0.01
%
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31, 2024 and 2023.
Weighted-Average Months of Payment Delay
Weighted-Average Months of Term Extension
Weighted-Average Interest Rate Reduction
Twelve Months Ended December 31, 2024
Commercial construction
-
-
-
%
Commercial real estate owner occupied
-
-
-
Commercial real estate non-owner occupied
-
-
-
Tax exempt and other
-
-
-
Commercial and industrial
-
-
Residential real estate
1.25
Home equity
-
-
-
Consumer other
-
-
-
Weighted-Average Months of Payment Delay
Weighted-Average Months of Term Extension
Weighted-Average Interest Rate Reduction
Twelve Months Ended December 31, 2023
Commercial construction
-
-
-
%
Commercial real estate owner occupied
-
-
-
Commercial real estate non-owner occupied
-
-
-
Tax exempt and other
-
-
-
Commercial and industrial
-
Residential real estate
-
-
1.38
Home equity
-
-
-
Consumer other
-
-
-
Foreclosure
Residential mortgage loans collateralized by real estate that are in the process of foreclosure as of December 31, 2024 and December 31, 2023 totaled $83 thousand and $430 thousand, respectively.
Loan Concentrations
Loan concentrations in specific industries may occasionally emerge as a result of economic conditions, changes in local demands, natural loan growth and runoff. At December 31, 2024, the largest industry concentration outside of commercial real estate was the hospitality industry which represents 19% or $415.3 million of the Company’s total loan portfolio, compared with 11% or $334.8 million at December 31, 2023.
Loans to Related Parties
In the ordinary course of business, the Bank has made loans at prevailing rates and terms to directors, officers and other related parties. In management’s opinion, such loans do not present more than the normal risk of collectability or incorporate other unfavorable features, and were made under terms that are consistent with the Bank’s lending policies.
Loan to related parties at December 31, 2024 and December 31, 2023 are summarized below:
(in thousands)
Beginning balance
$
4,045
$
4,763
Changes in composition(1)
-
-
New loans
-
Less: repayments
(1,525)
(718)
Ending balance
$
2,555
$
4,045
(1) Adjustments to reflect changes in status of directors and officers for each year presented.
Mortgage Banking
Loans sold
For the years ended December 31, 2024, 2023 and 2022, we sold $54.9 million, $38.8 million, and $38.6 million respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $663 thousand, $192 thousand, and $161 thousand respectively.
Loans Held for Sale
We had $1.2 million of loans held for sale as of December 31, 2024, and $2.2 million as of December 31, 2023. Loans held for sale at December 31, 2024 and 2023 had an unpaid principal balance of $1.2 million and $2.1 million, respectively. The interest rate exposure on loans held for sale is mitigated through forward delivery commitments with certain approved secondary market investors. Forward sale commitments had a notional amount of $4.8 million at December 31, 2024, and $5.0 million at December 31, 2023. Refer to Note 10 for further discussion of forward delivery commitments.
Servicing Assets
The Bank sells loans in the secondary market and retains the ability to service many of these loans. The Bank earns fees for the servicing provided. At year end 2024 and 2023, the Bank was servicing loans for participants totaling $591.8 million and $595.2 million, respectively. Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to changes in prepayments that result from shifts in interest rates. Contractually-specified servicing fees were $2.1 million for the year ended 2024 and $1.6 million for the years ended 2023 and 2022, and are included as a component of other income within non-interest income.
Servicing rights activity during 2024 and 2023, included in other assets, was as follows:
At or for the Twelve Months Ended
December 31,
(in thousands)
Balance at beginning of year
$
3,161
$
3,383
Additions
Amortization
(602)
(560)
Balance at end of year
$
3,089
$
3,161
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 2024 and December 31, 2023 are summarized as follows:
Estimated Useful
(in thousands, except years)
Life
Land
$
4,807
$
3,882
N/A
Buildings and improvements
59,860
60,168
5-39 years
Furniture and equipment
19,590
17,630
3-8 years
Premises and equipment, gross
84,257
81,680
Accumulated depreciation
(33,020)
(33,393)
Premises and equipment, net
$
51,237
$
48,287
Depreciation expense for the years ended December 31, 2024 and 2023 amounted to $4.2 million, and was $4.3 million for the year ended December 31, 2022.
Premises held for sale for the years ended December 31, 2024, 2023 and 2022 were $419 thousand, $1.2 million and $252 thousand, respectively, and are included in other assets. We measure premises held for sale at the lower of amortized cost or estimated fair value less anticipated selling costs. We sold $903 thousand of premises held for sale in 2024 that resulted in a gain of $232 thousand, which is included in the gain on sales of premises and equipment, net. We did not sell any premises held for sale in 2023 or 2022. There were no impairment charges recognized in 2024, 2023 and 2022.
NOTE 5. GOODWILL AND OTHER INTANGIBLES
The activity impacting goodwill in 2024 and 2023 is as follows:
(in thousands)
Balance at beginning of year
$
119,477
$
119,477
Acquisition
-
-
Balance at end of year
$
119,477
$
119,477
In the third quarter of 2024, management completed its annual goodwill impairment testing using balance sheet and market data as of June 30, 2024. The analysis was performed at the consolidated Bank-level of the Company, which is considered the smallest reporting unit carrying goodwill. Based on an analysis performed, the Company’s estimated fair value to a market participant as of September 30, 2024, exceeded its carrying amount resulting in no impairment charge for the period. Management evaluated current conditions and concluded there have been no significant changes in the economic environment or future projections and therefore, believes that there has been no further decline in the Company’s fair value as of September 30, 2024. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes. No goodwill impairment was recognized for the years ended December 31, 2024, 2023 and 2022.
The components of other intangible assets in 2024 and 2023 are as follows:
Gross
Accumulated
Net Intangible
(in thousands)
Intangible Assets
Amortization
Assets
Core deposit intangible (non-maturity deposits)
$
9,483
$
(6,423)
$
3,060
Customer list and other intangibles
2,118
(1,240)
Total
$
11,601
$
(7,663)
$
3,938
Gross
Accumulated
Net Intangible
(in thousands)
Intangible Assets
Amortization
Assets
Core deposit intangible (non-maturity deposits)
$
9,483
$
(5,686)
$
3,797
Customer list and other intangibles
2,118
(1,046)
1,072
Total
$
11,601
$
(6,732)
$
4,869
Other intangible assets are amortized on a straight-line basis over their estimated lives, which range from five years to 11 years. Amortization expenses related to intangibles totaled $932 thousand in 2024, $932 thousand in 2023 and $932 thousand in 2022.
The estimated aggregate future amortization expense for other intangible assets remaining at year end 2024 is as follows:
Other Intangible
(in thousands)
Assets
$
and thereafter
-
Total
$
3,938
NOTE 6. DEPOSITS
A summary of time deposits at December 31, 2024 and December 31, 2023 are as follows:
(in thousands)
December 31, 2024
December 31, 2023
Time less than $100,000
$
439,648
$
381,902
Time $100,000 through $250,000
203,962
163,933
Time $250,000 or more
186,664
154,425
Total
$
830,274
$
700,260
At December 31, 2024 and December 31, 2023, the scheduled maturities by year for time deposits are as follows:
(in thousands)
December 31, 2024
December 31, 2023
Within 1 year
$
806,974
$
670,961
Over 1 year to 2 years
16,422
17,000
Over 2 years to 3 years
4,028
6,932
Over 3 years to 4 years
1,805
3,434
Over 4 years to 5 years
1,795
Over 5 years
Total
$
830,274
$
700,260
Included in time deposits are brokered deposits of $256.0 million and $219.6 million at December 31, 2024 and December 31, 2023, respectively. Also included in time deposits are reciprocal deposits of $62.5 million and $43.3 million at December 31, 2024 and December 31, 2023, respectively.
NOTE 7. BORROWED FUNDS
Borrowed funds at December 31, 2024 and December 31, 2023 are summarized, as follows:
December 31, 2024
December 31, 2023
Weighted
Weighted
(dollars in thousands)
Carrying Value
Average Rate
Carrying Value
Average Rate
Short-term borrowings
Advances from the FHLB
$
242,650
4.49
%
$
232,300
5.46
%
Advances from the FRB BTFP
-
-
30,000
4.90
Other borrowings
7,062
0.19
8,465
0.56
Total short-term borrowings
249,712
4.35
270,765
5.22
Long-term borrowings
Advances from the FHLB
4.50
4.39
Subordinated borrowings
40,620
6.60
60,461
6.22
Total long-term borrowings
40,889
6.59
60,740
6.21
Total
$
290,601
4.75
%
$
331,505
5.40
%
Short-term debt includes FHLB advances with a remaining maturity of less than one year. We also maintain a $1.0 million secured line of credit with the FHLB that bears a daily adjustable rate calculated by the FHLB. There was no outstanding balance on the FHLB line of credit for the years ended December 31, 2024 and 2023. We have no variable rate short-term FHLB borrowings.
We have the capacity to borrow funds on a secured basis utilizing the Borrower in Custody program, and the Discount Window at the Federal Reserve Bank of Boston (the “Reserve Bank”). As of December 31, 2024 and 2023 our available secured line of credit at the Reserve Bank was $105.6 million and $156.6 million, respectively. We have pledged certain loans and securities to the Reserve Bank to support this arrangement.
The Bank Term Funding Program (the “BTFP”) was an additional source of liquidity with favorable prepayment terms. During the fourth quarter of 2024, we prepaid our outstanding BTFP advance of $45 million at a fixed rate of 4.76%.
We maintain an unused unsecured federal funds line of credit with a correspondent bank that has an aggregate overnight borrowing capacity of $40 million as of December 31, 2024 and December 31, 2023. There was no outstanding balance on the line of credit as of December 31, 2024 and December 31, 2023.
Long-term FHLB advances consist of advances with a remaining maturity of more than one year. The advances outstanding at December 31, 2024 include no callable advances and amortizing advances of $269 thousand. There were no callable advances and amortizing advances of $279 thousand in 2023. All FHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally residential first mortgage loans and certain securities. There are no variable rate long-term FHLB borrowings.
A summary of maturities of FHLB advances as of December 31, 2024 is as follows:
Weighted Average
(in thousands, except rates)
Amount
Rate
$
242,650
4.49
%
Thereafter
4.50
Total FHLB advances
$
242,919
4.49
%
We executed a Subordinated Note Purchase Agreement with an aggregate of $40.0 million of subordinated notes (the “Notes”) to accredited investors on November 26, 2019. The Notes have a maturity date of December 1, 2029 and bear a fixed interest rate of 4.63% through December 1, 2024 payable semi-annually in arrears. From December 1, 2024 and thereafter the interest rate shall be reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate (“SOFR”) plus 3.27%. We have the option beginning with the interest payment date of December 1, 2024, and on any scheduled payment date thereafter, to redeem the Notes, in whole or in part upon prior approval of the Federal Reserve. During the fourth quarter of 2024 we paid down $20.0 million of the outstanding subordinated notes. The transaction included debt issuance costs of $158 thousand net of amortization as of December 31, 2023, which are netted against the subordinated debt. The issuance costs were fully amortized by December 31, 2024.
We also have $20.6 million in floating Junior Subordinated Deferrable Interest Debentures (“Debentures”) issued by NHTB Capital Trust II (“Trust II”) and NHTB Capital Trust III (“Trust III”), which are both Connecticut statutory trusts. The Debentures issued on March 30, 2004, carry a variable interest rate of three-month SOFR plus 2.79%, and mature in 2034. The debt is callable by the Company at the time when any interest payment is made. Trust II and Trust III are considered variable interest entities for which we are not the primary beneficiary. Accordingly, Trust II and Trust III are not consolidated into our financial statements.
Repurchase Agreements
We can raise additional liquidity by entering into repurchase agreements at our discretion. In a security repurchase agreement transaction, we will generally sell a security, agreeing to repurchase either the same or substantially identical security on a specified later date, at a greater price than the original sales price. The difference between the sale price and purchase price is the cost of the proceeds, which is recorded as interest expense on the consolidated statements of income. The securities underlying the agreements are delivered to counterparties as security for the repurchase obligations. Since the securities are treated as collateral and the agreement does not qualify for a full transfer of effective control, the transactions do not meet the criteria to be classified as sales, and are therefore considered secured borrowing transactions for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement, we are subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, we either deal with established firms when entering into these transactions or with customers whose agreements stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by our safekeeping agents.
Our repurchase agreements accounted for as secured borrowings, as of December 31, 2024 and December 31, 2023 are as follows:
(in thousands)
December 31, 2024
December 31, 2023
Customer Repurchase Agreements
US Government-sponsored enterprises
$
7,062
$
8,465
Total
$
7,062
$
8,465
NOTE 8. EMPLOYEE BENEFIT PLANS
Pension Plans
We maintain a legacy, employer-sponsored defined benefit pension plan (the “Plan”) for which participation and benefit accruals were frozen on January 13, 2017. Accordingly, no employees are permitted to commence participation in the Plan and future salary increases and years of credited service are not considered when computing an employee’s benefits under the Plan. As of December 31, 2024, all minimum Employee Retirement Income Security Act (“ERISA”) funding requirements have been met.
The following tables set forth information about the plan for the year ended December 31, 2024 and 2023:
(in thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year
$
6,365
$
6,245
Service cost
-
-
Interest cost
Actuarial (loss)/gain
(340)
Benefits paid
(338)
(317)
Settlements
(4)
-
Projected benefit obligation at end of year
5,993
6,365
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
9,349
9,044
Expected (loss)/return on plan assets
(36)
Benefits paid
(338)
(317)
Settlements
(4)
-
Fair value of plan assets at end of year
8,971
9,349
Overfunded status
$
(2,978)
$
(2,984)
Amounts recognized in consolidated balance sheet:
Other assets
$
2,978
$
2,984
Net periodic pension cost/(benefit) is comprised of the following for the years ended December 31, 2024 and 2023:
(in thousands)
Interest cost
$
$
Expected return on plan assets
(367)
(355)
Unrecognized loss
Net periodic pension (cost)/benefit
$
(22)
$
Amounts recognized in other comprehensive income for the years ended December 31, 2024 and 2023 included:
(in thousands)
Net actuarial loss (gain)
$
$
(148)
Recognized loss
(35)
(53)
Net period pension benefit (credit)/cost
(22)
Total recognized loss/(gain) in other comprehensive income
$
$
(185)
Change in plan assets and benefit obligations recognized in accumulated other comprehensive income as of December 31, 2024 and 2023 are as follows:
(in thousands)
Beginning of the year Accumulated other comprehensive income
$
1,309
$
1,510
Net actuarial loss (gain)
(148)
Recognized (loss) gain
(35)
(53)
Prior service cost
-
-
Amounts Recognized in accumulated other comprehensive loss/(gain) (pre-tax)
$
$
(201)
Ending Accumulated other comprehensive income
$
1,336
$
1,309
The after tax components of accumulated other comprehensive loss, which have not yet been recognized in net periodic pension cost, related to the Plan are a net loss of $1.2 million. We expect to make no cash contributions to the pension trust during the 2025 fiscal year. The amount expected to be amortized from accumulated other comprehensive loss into net periodic pension cost over the next fiscal year is zero.
The principal actuarial assumptions used at December 31, 2024 and 2023 were as follows:
Projected benefit obligation
Discount rate
5.58
%
5.00
%
Net periodic pension cost
Discount rate
5.00
%
5.23
%
Long-term rate of return on plan assets
4.00
4.00
The discount rate that is used in the measurement of the pension obligation is determined by comparing the expected future retirement payment cash flows of the plan to the Citigroup Above Median Double-A Curve as of the measurement date. The expected long-term rate of return on Plan assets reflects expectations of future returns as applied to the plan’s target allocation of asset classes. In estimating that rate, appropriate consideration was given to historical returns earned by equities and fixed income securities.
Our overall investment strategy with respect to the Plan’s assets is to maintain assets at a level that will sufficiently cover future beneficiary obligations while achieving long term growth in assets. The Plan’s targeted asset allocation is 20% equity securities and 80% fixed-income securities primarily consisting of long-term products.
The fair values for investment securities are determined by quoted prices in active markets, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
The fair value of the Plan’s assets by category and level within fair value hierarchy are as follows at December 31, 2024 and 2023:
(in thousands)
Total
Level 1
Level 2
Equity mutual funds:
Large-cap
$
$
$
-
Mid-cap
-
Small-cap
-
International
-
Fixed income funds:
Fixed-income - core plus
-
-
-
Intermediate duration
-
-
-
Long duration
6,093
6,093
-
Common stock
-
Common/collective trusts - large-cap
-
Cash equivalents - money market
-
Total
$
8,971
$
8,771
$
(in thousands)
Total
Level 1
Level 2
Equity mutual funds:
Large-cap
$
$
$
-
Mid-cap
-
Small-cap
-
International
-
Fixed income funds:
Long duration
6,698
6,698
-
Common stock
-
Common/collective trusts - large-cap
-
Cash equivalents - money market
-
Total
$
9,349
$
9,169
$
The Plan did not hold any assets classified as Level 3, and there were no transfers between levels during 2024 and 2023.
Estimated benefit payments under our pension plan over the next 10 years at December 31, 2024 are as follows:
(in thousands)
Payments
$
2030-2034
2,285
Total
$
4,331
Non-qualified Supplemental Executive Retirement Plan
We have non-qualified supplemental executive retirement agreements with certain retired officers. The agreements provide supplemental retirement benefits payable in installments over a period of years upon retirement or death. This agreement
provides a stream of future payments in accordance with individually defined vesting schedules upon retirement, termination, or in the event that the participating executive leaves the Company following a change of control event.
The following table sets forth changes in benefit obligation, changes in plan assets, and the funded status of the plan as of and for the years ended December 31, 2024 and December 31, 2023:
(in thousands)
Change in benefit obligation:
Projected benefit obligation at beginning of year
$
1,925
$
2,093
Service cost
-
-
Interest cost
Actuarial (gain) loss
(5)
Benefits paid
(260)
(260)
Projected benefit obligation at end of year
$
1,759
$
1,925
Change in fair value of plan assets:
Fair value of plan assets at beginning of year
$
-
$
-
Expected return on plan assets
-
-
Contributions by employer
Benefits paid
(260)
(260)
Fair value of plan assets at end of year
$
-
$
-
Underfunded status
$
1,759
$
1,925
Amounts recognized in consolidated balance sheet
Other liabilities
$
1,759
$
1,925
Net periodic benefit cost is comprised of the following for the years ended December 31, 2024 and 2023:
(in thousands)
Interest cost
$
$
Expected return on plan assets
-
-
Amortization of unrecognized actuarial loss
Net periodic benefit cost
$
$
Amounts recognized in other comprehensive income for the years ended December 31, 2024 and 2023 included:
(in thousands)
Net actuarial loss
$
$
Amortization of unrecognized actuarial loss
(10)
(7)
Total recognized (gain)/loss in other comprehensive Income
$
(2)
$
Change in plan assets and benefit obligations recognized in accumulated other comprehensive income in 2024 and 2023 are as follows:
(in thousands)
Accumulated other comprehensive loss at beginning of the year (pre-tax)
$
$
Actuarial loss
Amortization of actuarial loss
(10)
(7)
Total recognized (gain)/loss in other comprehensive Income
$
(2)
$
Accumulated other comprehensive loss at end of year (pre-tax)
$
$
The after tax components of accumulated other comprehensive loss, which have not yet been recognized in net periodic benefit cost, related to the non-qualified supplemental executive retirement agreements are a net loss of $151 thousand. The amount expected to be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $10 thousand.
The principal actuarial assumptions used at December 31, 2024 and December 31, 2023 were as follows:
Discount rate beginning of year
4.72
%
4.92
%
Discount rate end of year
5.15
4.72
The discount rate used in the measurement of the non-qualified supplemental executive retirement plan obligation is determined by comparing the expected future retirement payment cash flows to the Citigroup Above Median Double- A Curve as of the measurement date.
We expect to contribute the following amounts to fund benefit payments under the supplemental executive retirement plans:
(in thousands)
Payments
$
2030-2034
Total
$
2,084
401(k) Plan
We maintain a Section 401(k) savings plan for substantially all of its employees. Employees are eligible to participate in the 401(k) Plan on the first day of any quarter following their date of hire and attainment of age 21½. Under the plan, we make a matching contribution of a portion of the amount contributed by each participating employee, up to a percentage of the employee’s annual salary. The plan allows for supplementary profit sharing contributions by Bar Harbor, at its discretion, for the benefit of participating employees. The total expense for this plan in 2024, 2023, and 2022 was $1.2 million.
Other Plans
As a result of the acquisition of a business combination in 2017, we assumed salary continuation agreements for supplemental retirement income with certain prior executives and senior officers along with an executive indexed supplemental retirement plan for one prior executive. The total liability for these agreements included in other liabilities was $5.8 million at December 31, 2024 and $6.3 million at December 31, 2023. Expense recorded in 2024 was $90 thousand compared to expense recorded in 2023 was $255 thousand. We recorded income in 2022 under these agreements of $1.2 million.
We also assumed split-dollar life insurance agreements from the 2017 business combination with an accrued liability of $674 thousand at December 31, 2024 and $709 thousand at December 31, 2023. We recorded income for the split-dollar life insurance agreements of $32 thousand in 2024 and expense of $30 thousand in 2023. We recorded expense of $197 thousand in 2022.
NOTE 9. INCOME TAXES
The following table summarizes the current and deferred components of income tax expense (benefit) for each of the years ended December 31, 2024, 2023 and 2022:
(in thousands)
Current:
Federal tax expense
$
7,688
$
10,704
$
10,444
State tax expense
1,748
2,247
1,551
Total current tax expense
9,436
12,951
11,995
Deferred tax (benefit) expense
(366)
(686)
(707)
Total income tax expense
$
9,070
$
12,265
$
11,288
The following table reconciles the expected federal income tax expense (computed by applying the federal statutory tax rate of 21%) to recorded income tax expense for the years ended December 31, 2024, 2023 and 2022:
(in thousands, except ratios)
Amount
Rate
Amount
Rate
Amount
Rate
Statutory tax rate
$
11,049
21.00
%
$
11,995
21.00
%
$
11,517
21.00
%
Increase (decrease) resulting from:
State taxes, net of federal benefit
1,287
2.45
1,539
2.69
1,477
2.69
Tax exempt interest
(1,405)
(2.67)
(1,042)
(1.82)
(1,003)
(1.83)
Federal tax credits
(239)
(0.45)
(471)
(0.82)
(241)
(0.44)
Officers' life insurance
(416)
(0.79)
(578)
(1.01)
(498)
(0.91)
Gain on disposal of low income housing tax credit investments
-
-
-
-
-
-
Stock-based compensation plans
(37)
(0.07)
0.03
(16)
(0.03)
Other
(1,169)
(2.22)
1.40
0.10
Effective tax rate
$
9,070
17.25
%
$
12,265
21.47
%
$
11,288
20.58
%
The net deferred tax asset was $23.3 million at December 31, 2024 and $23.0 million at December 31, 2023.
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31, 2024 and 2023 are summarized below:
(in thousands)
Assets
Liabilities
Assets
Liabilities
Allowance for credit losses
$
6,872
$
-
$
6,593
$
-
Deferred compensation
3,941
-
3,678
-
Unrealized gain or loss on securities available for sale
14,557
-
14,702
-
Unrealized gain or loss on derivatives
-
-
Depreciation
-
1,403
-
1,101
Deferred loan origination fees, net
-
-
Non-accrual interest
-
-
Branch acquisition costs and goodwill
-
2,363
-
1,987
Core deposit intangible
-
-
Acquisition fair value adjustments
-
-
Prepaid expenses
-
-
Mortgage servicing rights
-
-
Equity compensation
1,269
-
1,016
-
Prepaid pension
-
-
Contract incentives
-
-
Right of use asset
-
2,053
-
1,611
Lease liability
2,209
-
1,716
-
Other
-
-
Total
$
31,394
$
8,064
$
30,203
$
7,224
The Company has determined that a valuation allowance is not required for its net deferred tax asset since it is more likely than not that this asset is realizable principally through future taxable income and future reversal of existing temporary differences.
GAAP requires the measurement of unrecorded tax benefits related to uncertain tax positions. An unrecorded tax benefit is the difference between the tax benefit of a position taken, or expected to be taken on a tax return and the benefit recorded for accounting purposes. At December 31, 2024 and 2023, we had no unrecorded tax benefits and do not expect our position to significantly change within the next 12 months.
We are subject to income tax in the U.S. federal jurisdiction and also in the states of Maine, New Hampshire, Massachusetts and various other states. We are no longer subject to examination by taxing authorities for years before 2021.
NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
We use derivative instruments to minimize fluctuations in earnings and cash flows caused by interest rate volatility. Our interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so the changes in interest rates do not have a significant effect on net interest income. Thus, all of our derivative contracts are considered to be interest rate contracts.
We recognize our derivative instruments on the consolidated balance sheet at fair value. On the date the derivative instrument is entered into, we designate whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). We formally document relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking hedge transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items. Changes in fair value of derivative instruments that are highly effective and qualify as cash flow hedges are recorded in other comprehensive income or loss.
We offer derivative products in the form of interest rate swaps, to commercial loan customers to facilitate their risk management strategies. These instruments are executed through Master Netting Arrangements (“MNA”) with financial institution counterparties or Risk Participation Agreements (“RPA”) with commercial bank counterparties, for which we assume a pro rata share of the credit exposure associated with a borrower's performance related to the derivative contract with the counterparty.
Information about derivative assets and liabilities at December 31, 2024 and December 31, 2023, follows:
December 31, 2024
Weighted
Notional
Average
Fair Value
Location Fair
Amount
Maturity
Asset (Liability)
Value Asset
(in thousands)
(in years)
(in thousands)
(Liability)
Cash flow hedges:
Interest rate swap on wholesale funding
$
25,000
0.3
$
Other assets
Interest rate swap on variable rate loans
50,000
1.2
(2,036)
Other liabilities
Total cash flow hedges
75,000
(1,775)
Fair value hedges:
Interest rate swap on securities
37,190
4.6
3,969
Other assets
Total fair value hedges
37,190
3,969
Economic hedges:
Forward sale commitments
4,786
-
Other assets
Customer Loan Swaps-MNA Counterparty
240,031
4.3
(14,243)
Other liabilities
Customer Loan Swaps-RPA Counterparty
162,302
5.2
(286)
Other liabilities
Customer Loan Swaps-Customer
402,333
4.7
14,529
Other assets
Total economic hedges
809,452
Non-hedging derivatives:
Interest rate lock commitments
3,760
0.1
Other assets
Total non-hedging derivatives
3,760
Total
$
925,402
$
2,292
December 31, 2023
Weighted
Notional
Average
Fair Value
Location Fair
Amount
Maturity
Asset (Liability)
Value Asset
(in thousands)
(in years)
(in thousands)
(Liability)
Cash flow hedges:
Interest rate swap on wholesale funding
$
75,000
1.0
$
2,803
Other assets
Interest rate swap on variable rate loans
50,000
2.2
(3,459)
Other liabilities
Total cash flow hedges
125,000
(656)
Fair value hedges:
Interest rate swap on securities
37,190
5.6
3,844
Other assets
Total fair value hedges
37,190
3,844
Economic hedges:
Forward sale commitments
5,000
-
(20)
Other liabilities
Customer Loan Swaps-MNA Counterparty
197,683
4.9
(14,842)
Other liabilities
Customer Loan Swaps-RPA Counterparty
133,703
4.9
(286)
Other liabilities
Customer Loan Swaps-Customer
331,386
4.9
15,128
Other assets
Total economic hedges
667,772
(20)
Non-hedging derivatives:
Interest rate lock commitments
3,153
0.1
Other assets
Total non-hedging derivatives
3,153
Total
$
833,115
$
3,231
As of December 31, 2024, and 2023, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges:
Cumulative Amount of Fair
Location of Hedged Item on
Carrying Amount of Hedged
Value Hedging Adjustment in
Balance Sheet
Assets
Carrying Amount
December 31, 2024
Interest rate swap on securities
Securities available for sale
$
31,627
$
(5,563)
December 31, 2023
Interest rate swap on securities
Securities available for sale
$
32,680
$
(4,510)
Information about derivative assets and liabilities for December 31, 2024 and December 31, 2023, follows:
Year Ended December 31, 2024
Amount of
Amount of
Gain (Loss)
Gain (Loss)
Recognized in
Reclassified
Location of
Amount of
Other
Location of Gain (Loss)
from Other
Gain (Loss)
Gain (Loss)
Comprehensive
Reclassified from Other
Comprehensive
Recognized in
Recognized
(in thousands)
Income
Comprehensive Income
Income
Income
in Income
Cash flow hedges:
Interest rate swap on wholesale funding
$
(1,941)
Interest expense
$
-
Interest expense
$
3,020
Interest rate swap on variable rate loans
1,082
Interest income
-
Interest income
(2,269)
Total cash flow hedges
(859)
-
Fair value hedges:
Interest rate swap on securities
(713)
Interest income
-
Interest income
1,429
Total fair value hedges
(713)
-
1,429
Economic hedges:
Forward commitments
-
Other income
-
Mortgage banking income
Total economic hedges
-
-
Non-hedging derivatives:
Interest rate lock commitments
-
Other income
-
Mortgage banking income
Total non-hedging derivatives
-
-
Total
$
(1,572)
$
-
$
2,235
(1) As of December 31, 2024, we do not expect any gains or losses from accumulated other comprehensive income into earnings within the next 12 months.
Year Ended December 31, 2023
Amount of
Amount of
Gain (Loss)
Gain (Loss)
Recognized in
Reclassified
Location of
Amount of
Other
Location of Gain (Loss)
from Other
Gain (Loss)
Gain (Loss)
Comprehensive
Reclassified from Other
Comprehensive
Recognized in
Recognized
(in thousands)
Income
Comprehensive Income
Income
Income
in Income
Cash flow hedges:
Interest rate swap on wholesale funding
$
(1,687)
Interest expense
$
-
Interest expense
$
3,062
Interest rate swap on variable rate loans
1,157
Interest income
-
Interest income
(2,167)
Total cash flow hedges
(530)
-
Fair value hedges:
Interest rate swap on securities
1,314
Interest income
-
Interest income
1,359
Total economic hedges
1,314
-
1,359
Economic hedges:
Forward commitments
-
Other income
-
Mortgage banking income
(20)
Total economic hedges
-
-
(20)
Non-hedging derivatives:
Interest rate lock commitments
-
Other income
-
Mortgage banking income
(20)
Total non-hedging derivatives
-
-
(20)
Total
$
$
-
$
2,214
The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the years ended December 31, 2024 and 2023:
Year Ended December 31, 2024
Interest and Dividend Income
Interest Expense
(in thousands)
Loans
Securities and other
Deposits
Borrowings
Non-interest Income
Income and expense line items presented in the consolidated statements of income
$
163,846
$
24,878
$
61,696
$
13,189
$
36,888
The effects of cash flow and fair value hedging:
Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding
-
-
-
3,020
-
Interest rate swap on variable rate loans
(2,269)
-
-
-
-
Gain (loss) on fair value hedges:
Interest rate swap on securities
-
1,429
-
-
-
Year Ended December 31, 2023
Interest and Dividend Income
Interest Expense
(in thousands)
Loans
Securities and other
Deposits
Borrowings
Non-interest Income
Income and expense line items presented in the consolidated statements of income
$
149,420
$
24,762
$
38,232
$
18,275
$
35,829
The effects of cash flow and fair value hedging:
Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding
-
-
-
3,062
-
Interest rate swap on variable rate loans
(2,167)
-
-
-
-
Gain (loss) on fair value hedges:
Interest rate swap on securities
-
1,359
-
-
-
The effect of economic hedges and derivatives not designated as hedging instruments on the consolidated statements of income for the three and twelve months ended December 31, 2024 and 2023 is as follows:
Location of Gain (Loss) Recognized
Year Ended December 31,
(In thousands)
in Non-interest Income
Economic hedges:
Forward commitments
Mortgage banking income
$
$
(20)
Non-hedging derivatives:
Interest rate lock commitments
Mortgage banking income
(20)
Cash flow hedges
Interest rate swaps on wholesale funding
As of December 31, 2024, we have one interest rate swap on wholesale borrowings (the “Swaps”) to limit its exposure to rising interest rates over a five year term on 3-month FHLB borrowings or brokered certificates, or a combination thereof at each maturity date. The agreement was entered in April 2020 with a $25.0 million notional amount and pays a fixed rate
of 0.59%. The financial institution counterparty pays us interest on the daily SOFR rate plus 26 basis points. We designated the Swaps as cash flow hedges.
Interest rate swap on variable rate loans
We have an interest rate swap that effectively fixes our interest rate on $50 million at the daily SOFR rate plus 11 basis points of based loan assets at 0.806% plus the credit spread on the loans that reprices on weighted average basis. The instrument is specifically designed to hedge the risk of changes in its cash flows from interest receipts attributable to changes in a contractually specified interest rate, on an amount of our variable rate loan assets equal to $50 million. We designated the swap as a cash flow hedge.
Fair value hedges
Interest rate swap on securities
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. We utilize interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable securities available-for-sale. The hedging strategy on securities converts the fixed interest rates to SOFR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. During 2019, we entered into eight swap transactions with a notional amount of $37.2 million designated as fair value hedges. These derivatives are intended to protect against the effects of changing interest rates on the fair values of fixed rate securities. The fixed rates on the transactions have a weighted average rate of 1.696%.
Economic hedges
Forward sale commitments
We utilize forward sale commitments on residential mortgage loans to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans originated for sale. The forward sale commitments are accounted for as derivatives. We typically use a combination of best efforts and mandatory delivery contracts. The contracts are loan sale agreements where we commit to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, we enter into contracts just prior to the loan closing with a customer.
Customer loan derivatives
We enter into customer loan derivatives to facilitate the risk management strategies for commercial banking customers. We mitigate this risk by entering into equal and offsetting loan swap agreements with highly rated third-party financial institutions. The loan swap agreements are free standing derivatives and are recorded at fair value in our consolidated balance sheet. We are party to master netting arrangements with our financial institutional counterparties; however, we do not offset assets and liabilities under these arrangements for financial statement presentation purposes.
The master netting arrangements provide for a single net settlement of all loan swap agreements, as well as collateral or cash funds, in the event of default on, or termination of, any one contract. Collateral is provided by cash or securities received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds.
The below table describes the potential effect of master netting arrangements on the consolidated balance sheet and the financial collateral pledged for these arrangements:
Gross Amounts Offset in the Consolidated Balance Sheet
Derivative
Cash Collateral
(in thousands)
Liabilities
Derivative Assets
Pledged
Net Amount
As of December 31, 2024
Customer Loan Derivatives:
MNA counterparty
$
(14,243)
$
14,243
$
-
$
-
RPA counterparty
(286)
-
-
Total
$
(14,529)
$
14,529
$
-
$
-
Non-hedging derivatives
Interest rate lock commitments
We enter into interest rate lock commitments (“IRLCs”) for residential mortgage loans, which commit us to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs relate to the origination of residential mortgage loans that are held for sale and are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose us to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free standing derivatives, which are carried at fair value with changes recorded in non-interest income in our Consolidated Statements of Income. Changes in the fair value of IRLCs subsequent to inception are based on (i) changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and (ii) changes in the probability when the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
NOTE 11. OTHER COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ACTIVITIES
Customer Obligations
We are a party to financial instruments in the normal course of business to meet financing needs of our customers. These financial instruments include commitments to extend credit, unused or unadvanced loan funds, and letters of credit. We use the same lending policies and procedures to make such commitments as we use for other lending products. Customer’s creditworthiness is evaluated on a case-by-case basis.
Commitments to originate loans, including unused or unadvanced loan funds, are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require customer payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally become payable upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and a third party. The contractual amount of these letters of credit represents the maximum potential future payments guaranteed by us. Typically these letters of credit expire if unused; therefore the total amounts do not necessarily represent future cash requirements.
The following table summarizes the contractual amounts of commitments and contingent liabilities to customers as of December 31, 2024 and December 31, 2023:
(in thousands)
Commitments to originate new loans
$
50,889
$
55,163
Unused funds on commercial and other lines of credit
283,967
202,516
Unadvanced funds on home equity lines of credit
115,406
118,794
Unadvanced funds on construction and real estate loans
230,451
188,794
Commercial and standby letters of credit
2,683
4,217
Letters of credit securing municipal deposits
254,750
232,500
Total
$
938,146
$
801,984
Legal Claims
Various legal claims arise from time to time in the normal course of business. As of December 31, 2024, neither the Company nor its subsidiaries were involved in any pending legal proceedings believed by management to be material to our financial condition or results of operations. Periodically, there have been various claims and lawsuits involving the Company, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans, and other issues incident in the normal course of our business. However, neither the Company nor its subsidiaries are a party to any pending legal proceedings that it believes, either individually or in the aggregate, would have a material adverse effect on our financial condition or operations. Additionally, future, probable losses cannot be estimated as of December 31, 2024.
NOTE 12. SHAREHOLDERS’ EQUITY AND EARNINGS PER COMMON SHARE
The Company and the Bank are subject to various regulatory capital requirements administered by the Federal Reserve and the FDIC. Failure to meet minimum capital requirements can result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s unaudited Consolidated Financial Statements.
Under the capital rules, risk-based capital ratios are calculated by dividing Tier 1, common equity Tier 1, and total risk-based capital, respectively, by risk-weighted assets. Assets and off-balance sheet credit equivalents are assigned to one of several risk-weight categories, based primarily on relative risk. The rules require banks and bank holding companies to maintain a minimum common equity Tier 1 capital ratio of 4.5%, a minimum Tier 1 capital ratio of 6.0% and a total capital ratio of 8.0%. In addition, a Tier 1 leverage ratio of 4.0% is required. Additionally, the capital rules require a bank holding company to maintain a capital conservation buffer of common equity Tier 1 capital in an amount above the minimum risk-based capital requirements equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay dividends, pay discretionary bonuses, and to engage in share repurchases.
Under the FDIC’s prompt corrective action rules, an insured state nonmember bank is considered “well capitalized” if its capital ratios meet or exceed the ratios as set forth in the following table and is not subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. The Bank must meet well capitalized requirements under prompt corrective action provisions. Prompt corrective action provisions are not applicable to bank holding companies.
A bank holding company is considered “well capitalized” if the bank holding company (i) has a total risk-based capital ratio of at least 10.0%, (ii) has a Tier 1 risk-based capital ratio of at least 6.0%, and (iii) is not subject to any written agreement order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure.
At December 31, 2024, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements, and their regulatory capital ratios were above the minimum levels required to be considered well capitalized for regulatory purposes.
The actual and required capital ratios at December 31, 2024 and December 31, 2023 are set forth as follows:
December 31, 2024
Minimum Required for
Actual
Capital Adequacy purposes
(in thousands, except ratios)
Amount
Ratio
Amount
Ratio
Company (consolidated)
Total capital to risk-weighted assets
$
454,960
13.47
%
$
270,206
8.00
%
Common equity Tier 1 capital to risk-weighted assets
386,548
11.45
151,918
4.50
Tier 1 capital to risk-weighted assets
407,168
12.06
202,571
6.00
Tier 1 capital to average assets (leverage ratio)
407,168
10.30
158,123
4.00
Bank
Total capital to risk-weighted assets
$
452,823
13.44
%
$
269,538
8.00
%
Common equity Tier 1 capital to risk-weighted assets
421,031
12.50
151,571
4.50
Tier 1 capital to risk-weighted assets
421,031
12.50
202,095
6.00
Tier 1 capital to average assets (leverage ratio)
421,031
10.66
157,985
4.00
December 31, 2023
Minimum Required for
Actual
Capital Adequacy purposes
(in thousands, except ratios)
Amount
Ratio
Amount
Ratio
Company (consolidated)
Total capital to risk-weighted assets
$
450,160
14.24
%
$
252,888
8.00
%
Common equity Tier 1 capital to risk-weighted assets
357,574
11.31
142,249
4.50
Tier 1 capital to risk-weighted assets
378,194
11.96
189,666
6.00
Tier 1 capital to average assets (leverage ratio)
378,194
9.70
156,022
4.00
Bank
Total capital to risk-weighted assets
$
441,278
13.97
%
$
252,642
8.00
%
Common equity Tier 1 capital to risk-weighted assets
409,312
12.96
142,111
4.50
Tier 1 capital to risk-weighted assets
409,312
12.96
189,482
6.00
Tier 1 capital to average assets (leverage ratio)
409,312
10.50
155,908
4.00
Accumulated Other Comprehensive Income
Components of accumulated other comprehensive income at December 31, 2024 and December 31, 2023 are as follows:
(in thousands)
December 31, 2024
December 31, 2023
Accumulated other comprehensive loss, before tax:
Net unrealized loss on AFS securities
$
(62,298)
$
(62,351)
Net unrealized loss on hedging derivatives
(3,368)
(1,322)
Net unrealized loss on post-retirement plans
(1,565)
(1,540)
Income taxes related to items of accumulated other comprehensive loss:
Net unrealized loss on AFS securities
14,557
14,702
Net unrealized loss on hedging derivatives
Net unrealized loss on post-retirement plans
Accumulated other comprehensive loss
$
(51,536)
$
(49,862)
The following table presents the components of other comprehensive income in 2024, 2023 and 2022:
(in thousands)
Before Tax
Tax Effect
Net of Tax
Year Ended December 31, 2024
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period
$
$
(157)
$
(54)
Less: reclassification adjustment for gains (losses) realized in net income
(12)
Net unrealized loss on AFS securities
(145)
(92)
Net unrealized loss on hedging derivatives:
Net unrealized loss arising during the period
(2,046)
(1,572)
Less: reclassification adjustment for gains (losses) realized in net income
-
-
-
Net unrealized loss on hedging derivatives
(2,046)
(1,572)
Net unrealized loss on post-retirement plans:
Net unrealized loss arising during the period
(25)
(10)
Less: reclassification adjustment for gains (losses) realized in net income
-
-
-
Net unrealized loss on post-retirement plans
(25)
(10)
Other comprehensive loss
$
(2,018)
$
$
(1,674)
Year Ended December 31, 2023
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period
$
9,515
$
(1,892)
$
7,623
Less: reclassification adjustment for gains (losses) realized in net income
(8)
Net unrealized gain on AFS securities
9,481
(1,884)
7,597
Net unrealized gain on hedging derivatives:
Net unrealized gain arising during the period
1,011
(227)
Less: reclassification adjustment for gains (losses) realized in net income
-
-
-
Net unrealized gain on hedging derivatives
1,011
(227)
Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period
(38)
Less: reclassification adjustment for gains (losses) realized in net income
-
-
-
Net unrealized gain on post-retirement plans
(38)
Other comprehensive gain
$
10,627
$
(2,149)
$
8,478
Year Ended December 31, 2022
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period
$
(74,359)
$
17,169
$
(57,190)
Less: reclassification adjustment for gains (losses) realized in net income
(12)
Net unrealized gain on AFS securities
(74,412)
17,181
(57,231)
Net unrealized gain on hedging derivatives:
Net unrealized gain arising during the period
(3,463)
(2,664)
Less: reclassification adjustment for gains (losses) realized in net income
-
-
-
Net unrealized gain on hedging derivatives
(3,463)
(2,664)
Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period
(973)
(748)
Less: reclassification adjustment for gains (losses) realized in net income
-
-
-
Net unrealized gain on post-retirement plans
(973)
(748)
Other comprehensive gain
$
(78,848)
$
18,205
$
(60,643)
The following table presents the changes in each component of accumulated other comprehensive income/(loss) in 2024, 2023 and 2022:
Net unrealized
Net gain (loss) on
Net unrealized
gain (loss)
effective cash
loss
on AFS
flow hedging
on pension
(in thousands)
Securities
derivatives
plans
Total
Year Ended December 31, 2024
Balance at beginning of period
$
(47,649)
$
(1,010)
$
(1,203)
$
(49,862)
Other comprehensive loss before reclassifications
(54)
(1,572)
(10)
(1,636)
Less: amounts reclassified from accumulated other comprehensive income
-
-
Total other comprehensive loss
(92)
(1,572)
(10)
(1,674)
Balance at end of period
$
(47,741)
$
(2,582)
$
(1,213)
$
(51,536)
Year Ended December 31, 2023
Balance at beginning of period
$
(55,246)
$
(1,794)
$
(1,300)
$
(58,340)
Other comprehensive gain before reclassifications
7,623
8,504
Less: amounts reclassified from accumulated other comprehensive income
-
-
Total other comprehensive gain
7,597
8,478
Balance at end of period
$
(47,649)
$
(1,010)
$
(1,203)
$
(49,862)
Year Ended December 31, 2022
Balance at beginning of period
$
1,985
$
$
(552)
$
2,303
Other comprehensive gain before reclassifications
(57,190)
(2,664)
(748)
(60,602)
Less: amounts reclassified from accumulated other comprehensive income
-
-
Total other comprehensive gain
(57,231)
(2,664)
(748)
(60,643)
Balance at end of period
$
(55,246)
$
(1,794)
$
(1,300)
$
(58,340)
The following tables presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) in 2024, 2023 and 2022:
Affected Line Item where
(in thousands)
Net Income is Presented
Net realized gains on AFS securities:
Before tax
$
$
$
Non-interest income
Tax effect
(12)
(8)
(12)
Tax expense
Total reclassifications for the period
$
$
$
Earnings per Share
Earnings per share have been computed based on the following:
(in thousands, except per share and share data)
Net income
$
43,544
$
44,852
$
43,557
Average number of basic common shares outstanding
15,240,446
15,142,188
15,040,162
Plus: dilutive effect of stock options and awards outstanding
70,275
53,048
71,799
Average number of diluted common shares outstanding(1)
15,310,721
15,195,236
15,111,961
Earnings per share:
Basic
$
2.86
$
2.96
$
2.90
Diluted
$
2.84
$
2.95
$
2.88
(1) Average diluted shares outstanding are computed using the treasury stock method.
NOTE 13. STOCK-BASED COMPENSATION PLANS
We have several stock-based compensation plans that allow for grants of restricted stock, restricted shares, performance share units, performance shares and restricted stock units to our employees and non-employee directors. Our stock-based compensation plans are administered by the Compensation Committee of the Board of Directors. For the years ended December 31, 2024, 2023 and 2022, all common stock issuances in connection with stock-based compensation arrangements were issued from unissued shares. As of December 31, 2024, total shares authorized under the stock-based compensation 2019 plan for employees and directors were 500,000 shares, of which 124,424 shares were available for future grants.
Compensation expense recognized in connection with the stock-based compensation plans are presented in the following table for the years ended December 31, 2024, 2023, and 2022:
(in thousands)
Stock options
$
-
$
-
$
-
Restricted stock awards
Performance stock units
1,145
Restricted stock units
1,047
1,098
Total compensation expense
$
3,168
$
2,525
$
1,857
Tax benefits recognized from stock-based compensation plans for the years ended December 31, 2024, 2023, and 2022 are, as follows:
(in thousands)
Stock options(1)
$
$
$
Restricted stock awards
Performance stock units
Restricted stock units
Total tax benefit
$
$
$
(1) We do not receive a tax benefit on this plan until disqualifying dispositions are made.
Stock Options
A summary of stock options as of December 31, 2024 and 2023, and changes during the year then ended is presented below:
Number of
Weighted
Aggregate
Stock Options
Average
Intrinsic Value
Stock Options
Outstanding
Exercise Price
(in thousands)
Outstanding at January 1, 2024
35,838
$
22.08
Granted
-
-
Exercised
(25,500)
22.05
Forfeited
-
-
Expired
-
-
Outstanding at December 31, 2024
10,338
$
22.15
$
Ending vested and expected to vest December 31, 2024
10,338
$
22.15
$
Exercisable at December 31, 2024
10,338
22.15
Number of
Weighted
Aggregate
Stock Options
Average
Intrinsic Value
Stock Options
Outstanding
Exercise Price
(in thousands)
Outstanding at January 1, 2023
47,327
$
21.47
Granted
-
-
Exercised
(8,166)
20.64
Forfeited
-
-
Expired
(3,323)
16.99
Outstanding at December 31, 2023
35,838
$
22.08
$
Ending vested and expected to vest December 31, 2023
35,838
$
22.08
$
Exercisable at December 31, 2023
35,838
22.08
All outstanding options were fully vested with no unrecognized compensation cost as of December 31, 2021. The intrinsic value of the options exercised for the years ended December 31, 2024, 2023, and 2022, was approximately $257 thousand, $74 thousand and $94 thousand, respectively. The weighted average remaining contractual term of outstanding options is approximately 1 year.
Restricted Stock Awards
Restricted stock awards (“RSAs”) are granted to certain directors and executive officers and vest immediately. A summary of RSAs as of December 31, 2024 and 2023, and changes during the year then ended is presented below:
Number of
Restricted Stock
Weighted Average
Awards
Grant Date Fair
Restricted Stock Awards
Outstanding
Value
Outstanding at January 1, 2024
41,174
$
29.78
Awarded
36,783
27.70
Vested
(26,407)
32.07
Forfeited
-
-
Outstanding at December 31, 2024
51,550
$
27.12
Number of
Restricted Stock
Weighted Average
Awards
Grant Date Fair
Restricted Stock Awards
Outstanding
Value
Outstanding at January 1, 2023
24,824
$
28.49
Awarded
39,585
29.16
Vested
(23,235)
27.36
Forfeited
-
-
Outstanding at December 31, 2023
41,174
$
29.78
Unrecognized expense for non-vested RSAs totaled $539 thousand as of December 31, 2024, which is expected to be recognized over the weighted average remaining contractual maturity term of 1.8 years.
Performance Stock Units
We have a long-term incentive plan where performance unit awards (“PSUs”) are granted to certain executive officers providing the opportunity to earn shares of common stock of the Company based on our performance compared to peers. Participants in the plan were collectively granted PSUs ranging from zero to 47,028 in 2024 and from zero to 43,247 in 2023. The PSUs granted will vest only if the performance measures are achieved over a three year performance period. Failure to achieve the performance measures will result in all or a portion of shares being forfeited. On the grant dates in 2024 and 2023, PSUs had a weighted average fair value per share of $24.54 and $30.64, respectively. Expense is recognized over the performance period and is adjusted for changes in probability of the Company achieving profitability metrics.
The following table summarizes PSUs at target as of December 31, 2024 and 2023:
Number of
Weighted Average
Performance Stock
Grant Date Fair
Performance Stock Units
Units Outstanding
Value
Nonvested at January 1, 2024
84,915
$
27.53
Awarded
32,151
24.54
Vested and exercised
(27,681)
23.16
Forfeited
(2)
22.51
Nonvested at December 31, 2024
89,383
$
27.79
Number of
Weighted Average
Performance Stock
Grant Date Fair
Performance Stock Units
Units Outstanding
Value
Nonvested at January 1, 2023
78,435
$
25.70
Awarded
28,831
30.64
Vested and exercised
(15,601)
25.29
Forfeited
(6,750)
25.30
Nonvested at December 31, 2023
84,915
$
27.53
Unrecognized expense for non-vested PSUs totaled $1.9 million as of December 31, 2024, which is expected to be recognized over the weighted average remaining contractual maturity term of 1.8 years. PSUs do not carry an exercise price and therefore have no intrinsic value as of December 31, 2024.
Restricted Stock Units
During 2024 and 2023, restricted stock units (“RSUs”) were granted to certain executive officers and senior vice presidents. Awards to executives vest annually over 3 years while awards to senior vice presidents cliff vest at the end of three years. The RSUs granted were valued between $25.67 and $35.86 and were $29.36 for 2023 the fair value at the date of grant and are expensed over three years.
The following table summarizes RSUs activity in 2024 and 2023:
Number of
Weighted Average
Restricted Stock
Grant Date Fair
Units Outstanding
Value
Outstanding at January 1, 2024
102,695
$
27.07
Granted
36,428
32.52
Vested and exercised
(31,331)
26.58
Forfeited
(6,784)
22.77
Outstanding at December 31, 2024
101,008
$
29.14
Number of
Weighted Average
Restricted Stock
Grant Date Fair
Units Outstanding
Value
Outstanding at January 1, 2023
115,816
$
25.25
Granted
36,354
26.12
Vested and exercised
(43,341)
21.77
Forfeited
(6,134)
25.84
Outstanding at December 31, 2023
102,695
$
27.07
RSUs include cash-based restricted stock units (“CRSUs”), total CRSUs vested and exercised during 2024 and 2023 were 36,428 and 29,043 shares, respectively. Unrecognized expense for non-vested RSUs totaled $1.5 million as of December 31, 2024, which is expected to be recognized over the weighted average remaining contractual maturity term of 2.0 years.
Employee Stock Purchase Plan
We maintain an employee stock purchase plan (“ESPP”) under which employees, through payroll deductions, are able to purchase shares of Company’s common stock. The purchase price is 92% of the lower of the market price on the first or last day of the offering period. The maximum number of shares issuable during any offering period is 200,000 shares; however, as of December 31, 2024, December 31, 2023 and December 31, 2022, there were 175,950, 177,415 and 179,079 shares available for issuance under the ESPP, respectively. Participants may not purchase more than 400 shares during any offering period and, in any event, no more than $25 thousand worth of common stock in any calendar year. The ESPP has been determined to be non-compensatory in nature. As a result, we expect that expenses related to the ESPP will not be material. During the years ended December 31, 2024, 2023 and 2022, there were 24,050, 22,585 and 20,921 shares of common stock issued under the ESPP, respectively.
NOTE 14. FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2024 and December 31, 2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
December 31, 2024
Level 1
Level 2
Level 3
Total
(in thousands)
Inputs
Inputs
Inputs
Fair Value
Available for sale securities:
Obligations of US Government-sponsored enterprises
$
-
$
1,318
$
-
$
1,318
Mortgage-backed securities:
US Government-sponsored enterprises
-
177,316
-
177,316
US Government agency
-
103,916
-
103,916
Private label
-
39,564
-
39,564
Obligations of states and political subdivisions thereof
-
105,452
-
105,452
Corporate bonds
-
93,452
-
93,452
Loans held for sale
-
1,235
-
1,235
Derivative assets
-
18,759
18,857
Derivative liabilities
-
(16,565)
-
(16,565)
December 31, 2023
Level 1
Level 2
Level 3
Total
(in thousands)
Inputs
Inputs
Inputs
Fair Value
Available for sale securities:
Obligations of US Government-sponsored enterprises
$
-
$
1,992
$
-
$
1,992
Mortgage-backed securities:
US Government-sponsored enterprises
-
193,282
-
193,282
US Government agency
-
74,213
-
74,213
Private label
-
59,051
-
59,051
Obligations of states and political subdivisions thereof
-
110,168
-
110,168
Corporate bonds
-
95,868
-
95,868
Loans held for sale
-
2,189
-
2,189
Derivative assets
-
21,775
21,838
Derivative liabilities
-
(18,587)
(20)
(18,607)
Securities Available for Sale: All securities and major categories of securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, we obtain fair value measurements from independent pricing providers. The fair value measurements used by the pricing providers consider observable data that may include dealer quotes, market maker quotes and live trading systems. If quoted prices are not readily available, fair values are determined using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as market pricing spreads, credit information, callable features, cash flows, the US Treasury yield curve, trade execution data, market consensus prepayment speeds, default rates, and the securities’ terms and conditions, among other things.
Loans Held for Sale: The valuation of our loans held for sale are determined on an individual basis using quoted secondary market prices and are classified as Level 2 measurements.
Derivative Assets and Liabilities
Cash Flow Hedges. The valuation of our cash flow hedges are obtained from a third party. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The inputs used to value the cash flow hedges are all classified as Level 2 measurements.
Interest Rate Lock Commitments. We enter into IRLCs for residential mortgage loans, which commit us to lend funds to potential borrowers at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood of a loan in a lock position will ultimately close. The closing ratio is derived from internal data and is adjusted using significant management judgment. As such, IRLCs are classified as Level 3 measurements.
Forward Sale Commitments. We utilize forward sale commitments as economic hedges against potential changes in the values of the IRLCs and loans originated for sale. The fair values of mandatory delivery loan sale commitments are determined similarly to the IRLCs using quoted prices in the marketplace that are observable. However, closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are not considered observable factors. As such, mandatory delivery forward commitments are classified as Level 3 measurements.
Customer Loan Derivatives. The valuation of our customer loan derivatives is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. We incorporate credit valuation adjustments to appropriately reflect our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the derivative contracts for the effect of nonperformance risk, we have considered the impact of master netting arrangements and any applicable credit enhancements, such as collateral postings.
Although we have determined that the majority of the inputs used to value customer loan derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and counterparties. However, as of December 31, 2024, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis in 2024 and 2023.
Assets (Liabilities)
Interest Rate Lock
Forward
(in thousands)
Commitments
Commitments
Year Ended December 31, 2024
Balance at beginning of period
$
$
(20)
Realized gain (loss) recognized in non-interest income
Balance at end of period
$
$
Year Ended December 31, 2023
Balance at beginning of period
$
-
$
-
Realized gain (loss) recognized in non-interest income
(20)
Balance at end of period
$
$
(20)
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is as follows:
Fair Value
(in thousands,
December 31,
Valuation
Unobservable
Unobservable
except ratios)
Techniques
Inputs
Input Value
Assets (Liabilities)
Interest Rate Lock Commitment
$
Pull-through Rate Analysis
Closing Ratio
%
Pricing Model
Origination Costs, per loan
$
1.7
Discount Cash Flows
Mortgage Servicing Asset
1.0
%
Forward Commitments
Quoted prices for similar loans in active markets
Freddie Mac pricing system
$99 to $102.9
Total
$
Fair Value
Significant
December 31,
Valuation
Unobservable
Unobservable
(in thousands, except ratios)
Techniques
Inputs
Input Value
Assets (Liabilities)
Interest Rate Lock Commitment
$
Pull-through Rate Analysis
Closing Ratio
%
Pricing Model
Origination Costs, per loan
$
1.7
Discount Cash Flows
Mortgage Servicing Asset
1.0
%
Forward Commitments
(20)
Quoted prices for similar loans in active markets
Freddie Mac pricing system
$100.9 to $103.3
Total
$
There were no level 3 assets and liabilities that were measured at fair value on a recurring basis in 2024 and 2023.
Non-Recurring Fair Value Measurements
We are required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with U.S. GAAP. The following is a summary of applicable non-recurring fair value measurements.
Fair Value
Year Ended
Measurement Date as of
Dec 31, 2024
Dec 31, 2023
December 31, 2024
December 31, 2024
Level 3
Level 3
Total
Level 3
(in thousands)
Inputs
Inputs
Gains (Losses)
Inputs
Assets
Individually evaluated loans
$
3,224
$
3,500
$
(276)
December 2024
Capitalized servicing rights
7,285
6,764
December 2024
Premises held for sale
1,154
(735)
December 2024
Total
$
10,928
$
11,418
$
(490)
Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets as of December 31, 2024 and December 31, 2023 is as follows:
(in thousands, except ratios)
Fair Value December 31, 2024
Valuation Techniques
Unobservable Inputs
Range (Weighted Average)(a)
Assets
Individually evaluated loans
$
2,733
Fair value of collateral-appraised value
Loss severity
10% to 65%
Appraised value
$257 to $1,260
Individually evaluated loans
Discount cash flow
Discount rate
4.00% to 4.99%
Cash flows
$497 to $501
Capitalized servicing rights
7,285
Discounted cash flow
Constant prepayment rate
6.52%
Discount rate
10.06%
Premises held for sale
Fair value of asset less selling costs
Appraised value
$440
Selling Costs
5%
Total
$
10,928
(a) Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.
(in thousands, except ratios)
Fair Value December 31, 2023
Valuation Techniques
Unobservable Inputs
Range (Weighted Average)(a)
Assets
Individually evaluated loans
$
2,437
Fair value of collateral-appraised value
Loss severity
10% to 43%
Appraised value
$80 to $965
Individually evaluated loans
1,063
Discount cash flow
Discount rate
3.25% to 7.13%
Cash flows
$2 to $520
Capitalized servicing rights
6,764
Discounted cash flow
Constant prepayment rate
7.20%
Discount rate
10.06%
Premises held for sale
1,154
Fair value of asset less selling costs
Appraised value
$1,223
Selling Costs
6%
Total
$
11,418
(a) Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individuals properties.
There were no Level 1 or Level 2 non-recurring fair value measurements for the periods ended December 31, 2024 and December 31, 2023.
Individually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, we record non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, non-recurring fair value measurement adjustments relating to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral supporting commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.
Capitalized loan servicing rights. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of loan servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
Other real estate owned or OREO. OREO results from the foreclosure process on residential or commercial loans issued by the Bank. Upon assuming the real estate, we record the property at the fair value of the asset less the estimated sales costs. Thereafter, OREO properties are recorded at the lower of cost or fair value less the estimated sales costs. OREO fair values are primarily determined based on Level 3 data including sales comparables and appraisals. There was no other real estate owned as of December 31, 2024 and 2023.
Premises held for sale. Assets held for sale, identified as part of our strategic review and branch optimization exercise, were transferred from premises and equipment at the lower of amortized cost or fair value less the estimated sales costs. Assets held for sale fair values are primarily determined based on Level 3 data including sales comparables and appraisals.
Summary of Estimated Fair Values of Financial Instruments
The estimated fair values, and related carrying amounts, of our financial instruments are included in the table below. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.
December 31, 2024
Carrying
Fair
(in thousands)
Amount
Value
Level 1
Level 2
Level 3
Financial Assets
Cash and cash equivalents
$
72,162
$
72,162
$
72,162
$
-
$
-
Securities available for sale
521,018
521,018
-
521,018
-
FHLB stock
12,237
12,237
-
12,237
-
Loans held for sale
1,235
1,235
-
1,235
-
Net loans
3,147,096
2,999,290
-
-
2,999,290
Accrued interest receivable
3,974
3,974
-
3,974
-
Cash surrender value of bank-owned life insurance policies
81,858
81,858
-
81,858
-
Derivative assets
18,857
18,857
-
18,759
Financial Liabilities
Non-maturity deposits
$
2,437,414
$
2,282,389
$
-
$
2,282,389
$
-
Time deposits
830,274
828,068
-
828,068
-
Securities sold under agreements to repurchase
7,062
7,062
-
7,062
-
FHLB advances
242,919
242,779
-
242,779
-
Subordinated borrowings
40,620
46,070
-
46,070
-
Derivative liabilities
16,565
16,565
-
16,565
-
December 31, 2023
Carrying
Fair
(in thousands)
Amount
Value
Level 1
Level 2
Level 3
Financial Assets
Cash and cash equivalents
$
94,842
$
94,842
$
94,842
$
-
$
-
Securities available for sale
534,574
534,574
-
534,574
-
FHLB stock
14,834
14,834
-
14,834
-
Loans held for sale
2,189
2,189
-
2,189
-
Net loans
2,970,907
2,832,173
-
-
2,832,173
Accrued interest receivable
4,921
4,921
-
4,921
-
Cash surrender value of bank-owned life insurance policies
80,037
80,037
-
80,037
-
Derivative assets
21,838
21,838
-
21,775
Financial Liabilities
Non-maturity deposits
$
2,482,012
$
2,325,307
$
-
$
2,325,307
$
-
Time deposits
658,482
651,855
-
651,855
-
Securities sold under agreements to repurchase
8,465
8,465
-
8,465
-
FRB advances
30,000
30,000
-
30,000
-
FHLB advances
232,579
232,375
-
232,375
-
Subordinated borrowings
60,422
67,635
-
67,635
-
Derivative liabilities
15,607
15,607
-
15,587
NOTE 15. REVENUE FROM CONTRACTS WITH CUSTOMERS
We have accounted for the various non-interest revenue streams and related contracts under ASC 606.
Disaggregation of Revenue
The following tables present disaggregation of our non-interest revenue by major business line and timing of revenue recognition for the transfer of products or services:
Year Ended December 31,
(in thousands)
Non-interest income within the scope of ASC 606:
Trust management fees
$
13,846
$
12,766
$
13,022
Financial services fees
1,855
1,517
1,551
Interchange fees
7,727
7,845
7,736
Customer deposit fees
6,046
6,280
5,935
Other customer service fees
1,066
1,043
1,120
Total non-interest income within the scope of ASC 606
30,540
29,451
29,364
Total non-interest income not within the scope of ASC 606
6,348
5,622
5,283
Total non-interest income
$
36,888
$
35,073
$
34,647
Year Ended December 31,
(in thousands)
Timing of Revenue Recognition
Products and services transferred at a point in time
$
15,757
$
15,751
$
15,552
Products and services transferred over time
14,783
13,700
13,812
Total
$
30,540
$
29,451
$
29,364
Trust Management Fees
The trust management business generates revenue through a range of fiduciary services including trust and estate administration, financial advice, and investment management to individuals, businesses, not-for-profit organizations, and municipalities. These fees are primarily earned over time as we charge our customers on a monthly or quarterly basis in accordance with investment advisory agreements. Fees are generally assessed based on a tiered scale of the accounts market value. Certain fees, such as bill paying fees, distribution fees, real estate sale fees, and supplemental tax service fees, are recorded as revenue at a point in time upon the completion of the service.
Financial Services Fees
Bar Harbor Financial Services is a branch office of Osaic, an independent registered broker dealer offering securities and insurance products not affiliated with the Company or its subsidiaries. We have a revenue sharing agreement with Osaic for any financial service fee income generated. Financial services fees are recognized at a point in time upon the completion of service requirements.
Interchange Fees
We earn interchange fees from transaction fees that merchants pay whenever a customer uses a debit card to make a purchase from their store. The fees are paid to the card-issuing bank to cover handling costs, fraud, bad debt costs and the risk involved in approving the payment. Interchange fees are generally recognized as revenue at a point in time upon the completion of a debit card transaction.
Customer Deposit Fees
The customer deposit business offers a variety of deposit accounts with a range of interest rates, fee schedules and other terms, which are designed to meet the customer's financial needs. Additional depositor-related services provided to customers include ATM, bank-by-phone, internet banking, internet bill pay, mobile banking, and other cash management services which include remote deposit capture, ACH origination, and wire transfers. These customer deposit fees are generally recognized at a point in time upon the completion of the service.
Other Customer Service Fees
We have certain incentive and referral fee arrangements with independent third parties in which fees are earned for new account activity, product sales, or transaction volume generated for the respective third parties. We also earn a percentage of the fees generated from third-party credit card plans promoted through the Bank. Revenue from these incentive and referral fee arrangements is recognized over time using the right to invoice measure of progress.
Contract Balances with Customers
The following table provides information about contract assets or receivables and contract liabilities or deferred revenues from contracts with customers:
(in thousands)
December 31, 2024
December 31, 2023
Balances from contracts with customers only:
Other Assets
$
1,479
$
1,178
Other Liabilities
1,360
1,769
The timing of revenue recognition, billings and cash collections results in contract assets or receivables and contract liabilities or deferred revenue on the consolidated balance sheets. For most customer contracts, fees are deducted directly from customer accounts and, therefore, there is no associated impact on the accounts receivable balance. For certain types of service contracts, we have an unconditional right to consideration under the service contract and an accounts receivable balance is recorded for services completed. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.
Costs to Obtain and Fulfill a Contract
We currently expense contract costs for processing and administrative fees for debit card transactions. We also expense custody fees and transactional costs associated with securities transactions as well as third party tax preparation fees. We have elected the practical expedient in ASC 340-40-25-4, whereby we recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets we otherwise would have recognized is one year or less.
NOTE 16. LEASES
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Most of our leases are for branches, ATM locations, and office space and have terms extending through 2040. All leases are classified as operating leases, and are recognized on the consolidated balance sheets as a right-of-use (“ROU”) asset with a corresponding lease liability.
The following table presents the consolidated statements of condition classification of the ROU assets and lease liabilities:
(in thousands)
Classification
December 31, 2024
December 31, 2023
Lease Right-of-Use Assets
Operating lease right-of-use assets
Other assets
$
8,586
$
6,874
Lease Liabilities
Operating lease liabilities
Other liabilities
9,240
7,322
The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used for the present value of the minimum lease payments. The lease agreements often include one or more options to renew at our discretion. If at lease inception, we consider the exercising of a renewal option to be reasonably certain, we will include the extended term in the calculation of the ROU asset and lease liability.
The following table presents the weighted average lease term and discount rate of the leases:
December 31, 2024
December 31, 2023
Weighted-average remaining lease term (in years)
Operating leases
11.74
6.28
Weighted-average discount rate
Operating leases
2.83
%
3.10
%
The following table represents lease costs and other lease information. As we have elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as real estate taxes, common area maintenance and utilities.
Year Ended
(in thousands)
December 31, 2024
December 31, 2023
December 31, 2022
Lease Costs
Operating lease cost
$
1,647
$
1,343
$
1,344
Variable lease cost
Total lease cost
$
1,667
$
1,828
$
1,746
Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2024 are, as follows:
(in thousands)
Payments
Twelve Months Ended:
December 31, 2025
$
1,339
December 31, 2026
1,288
December 31, 2027
1,200
December 31, 2028
December 31, 2029
Thereafter
4,535
Total future minimum lease payments
10,097
Amounts representing interest
(857)
Present value of net future minimum lease payments
$
9,240
NOTE 17. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
The condensed balance sheets of Bar Harbor Bankshares as of December 31, 2024 and 2023, and the condensed statements of income and cash flows for the years ended December 31, 2024, 2023 and 2022 are presented below:
CONDENSED BALANCE SHEETS
December 31,
(in thousands)
Assets
Cash
$
7,127
$
7,850
Investment in subsidiaries
493,692
484,574
Premises and equipment
Other assets
4,905
5,070
Total assets
$
506,528
$
498,279
Liabilities and Shareholders’ Equity
Subordinated notes
$
40,620
$
60,461
Accrued expenses
7,480
5,759
Shareholders’ equity
458,428
432,059
Total liabilities and shareholders’ equity
$
506,528
$
498,279
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
(in thousands)
Income:
Dividends from subsidiaries
$
35,935
$
23,156
$
20,682
Other income
1,176
1,142
Total income
37,111
24,298
21,658
Interest expense
3,721
3,691
2,981
Non-interest expense
6,852
5,834
5,183
Total expense
10,573
9,525
8,164
Income before taxes and equity in undistributed income of subsidiaries
26,538
14,773
13,493
Income tax benefit
(2,218)
(1,985)
(1,709)
Income before equity in undistributed income of subsidiaries
28,756
16,758
15,202
Equity in undistributed income of subsidiaries
14,788
28,094
28,355
Net income
$
43,544
$
44,852
$
43,557
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(in thousands)
Cash flows from operating activities:
Net income
$
43,544
$
44,852
$
43,557
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in undistributed income of subsidiaries
(14,788)
(28,094)
(28,355)
Other, net
2,015
(1,537)
3,187
Net cash provided by operating activities
30,771
15,221
18,389
Cash flows from investing activities:
Acquisitions, net of cash paid
-
-
-
Purchase of securities
-
-
-
Capital contribution to subsidiary
4,000
-
-
Other, net
Net cash (used in) investing activities
4,007
-
-
Cash flows from financing activities:
Proceeds from issuance of subordinated debt
-
-
-
Repayment of subordinated debt
(20,000)
-
-
Net proceeds from common stock
2,287
1,845
1,723
Net proceeds from reissuance of treasury stock
-
-
-
Common stock cash dividends paid
(17,788)
(16,566)
(15,334)
Net cash used in financing activities
(35,501)
(14,721)
(13,611)
Net change in cash and cash equivalents
(723)
4,778
Cash and cash equivalents at beginning of year
7,850
7,350
2,572
Cash and cash equivalents at end of year
$
7,127
$
7,850
$
7,350
NOTE 18. SUBSEQUENT EVENTS
There were no significant subsequent events between December 31, 2024 and through the date the financial statements are issued.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures: The Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this Annual Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures designed to ensure that the information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and are operating in an effective manner.
Management Report on Internal Control over Financial Reporting: Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013).
Based on its assessment, management believes that as of December 31, 2024, the Company’s internal control over financial reporting is effective, based on the criteria set forth by COSO in Internal Control - Integrated Framework (2013).
The Company’s independent registered public accounting firm has issued an audit report on the effectiveness of the Company’s internal control over financial reporting. This audit report appears within Item 8 of this Annual Report.
Changes in Internal Control Over Financial Reporting: No change in the internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the last fiscal year that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
Trading Arrangements
During the quarter ended December 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" as such terms are defined in Item 408(a) of Regulation S-K.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required in response to this Item 10 is incorporated herein by reference to the Company’s Definitive Proxy Statement relating to the 2025 Annual Meeting of Shareholders (the “2025 Proxy Statement”) to be filed with the SEC pursuant to Regulation 14A of the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report and is incorporated herein by reference. The Company has adopted the Bar Harbor Bankshares and Subsidiaries Insider Trading and Securities Policy and related procedures governing the purchase, sale, and/or other disposition of its securities by its directors, officers, and employees that the Company believes are reasonably designed to promote compliance with insider trading laws, rules, and regulations, and applicable NYSE listing standards. A copy of the Bar Harbor Bankshares and Subsidiaries Insider Trading and Securities Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K. In addition, with regard to the Company’s trading in its own securities, it is the Company’s policy to comply with the federal securities laws and the applicable NYSE listing requirements.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is set forth in our 2025 Proxy Statement, and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information called for by this item is set forth in our 2025 Proxy Statement, and is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information called for by this item is set forth in our 2025 Proxy Statement, and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information called for by this item is set forth in our 2025 Proxy Statement, and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1.All Financial Statements
The consolidated financial statements of the Company and report of the Company’s independent registered public accounting firm incorporated herein are included in Item 8 of this Annual Report as follows:
Item
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 49)
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2.Financial Statement Schedules. Schedules have been omitted because they are not applicable or are not required under the instructions contained in Regulation S-X or because the information required to be set forth therein is included in the consolidated financial statements or notes thereto.
EXHIBIT INDEX
Exhibit No.
Description
3.1
Articles of Incorporation, as amended to date (incorporated herein by reference to Exhibit 3.1 to the Quarterly Report to Form 10-Q filed on November 5, 2015)
3.2
Amended and Restated Bylaws of Bar Harbor Bankshares (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on May 18, 2020)
4.1
Certificate of Designations, Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on January 21, 2009)
4.2
Form of Specimen Stock Certificate for Series A Preferred Stock (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on January 21, 2009)
4.3
Debt Securities Purchase Agreement (incorporated herein by reference to Exhibit 4.5 to the Annual Report on Form 10-K filed on March 16, 2009)
4.4
Form of Subordinated Debt Security of Bar Harbor Bank & Trust (incorporated herein by reference to Exhibit 4.6 to the Annual Report on Form 10-K filed on March 16, 2009)
4.5
Description of Company Common Stock (incorporated herein by reference to Exhibit 99.1 to the Current Report on Form 8-K filed on August 7, 2015)
4.6*
Indenture, dated as of November 26, 2019, by and between Bar Harbor Bankshares and U.S. Bank, National Association. (incorporated herein by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on November 26, 2019)
4.7
Form of 4.625% Fixed-to-floating Subordinated Note due 2029 of Bar Harbor Bankshares (incorporated herein by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on November 26, 2019)
Exhibit No.
Description
10.1†
Bar Harbor Bankshares Executive Change in Control Severance Plan (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 21, 2018)
10.2†
Bar Harbor Bankshares Executive Change in Control Severance Plan Participation Agreement (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on November 21, 2018)
10.3†
Employment Agreement, dated as of February 22, 2018, between Bar Harbor Bankshares, Bar Harbor Bank & Trust and Curtis C. Simard (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on February 22, 2018)
10.4†
Employment Agreement, dated as of March 8, 2024, between Bar Harbor Bankshares, Bar Harbor Bank & Trust and Josephine Iannelli (incorporated herein by reference to Exhibit 10.4 to the Annual Report on Form 10-K filed on March 11, 2024)
10.5†
2021 through 2023 Long Term Executive Incentive Program Guidelines (incorporated herein by reference to Exhibit 10.7 to the Annual Report on Form 10-K filed on March 14, 2022)
10.6†
2022 through 2024 Long Term Executive Incentive Program Guidelines (incorporated herein by reference to Exhibit 10.8 to the Annual Report on Form 10-K filed on March 14, 2023)
10.7†
2023 through 2025 Long Term Executive Incentive Program Guidelines (incorporated herein by reference to Exhibit 10.9 to the Annual Report on Form 10-K filed on March 14, 2023)
10.8†**
2024 through 2026 Long Term Executive Incentive Program Guidelines
10.9†**
2025 through 2027 Long Term Executive Incentive Program Guidelines
10.10†**
2024 Executive Annual Incentive Program
10.11†
Bar Harbor Bankshares and Subsidiaries Equity Incentive Plan of 2015 (incorporated herein by reference to Exhibit 10 to the Current Report on Form 8-K filed on May 22, 2015).
10.12†
Form of Incentive Stock Option Agreement under Equity Incentive Plan of 2015.Form of Restricted Stock Agreement (Directors) under Equity Incentive Plan of 2015 (incorporated herein by reference to Exhibit 10.2 to the Registration Statement on Form S-8 filed on August 18, 2015)
10.13†
Form of Restricted Stock Agreement (Directors) under Equity Incentive Plan of 2015 (incorporated herein by reference to Exhibit 10.3 to the Registration Statement on Form S-8 filed on August 18, 2015)
10.14†
Form of Restricted Stock and Performance-Based Restricted Stock Unit Agreement under Equity Incentive Plan of 2015 (incorporated herein by reference to Exhibit 10.4 to the Registration Statement on Form S-8 filed on August 18, 2015)
10.15†
Bar Harbor Bankshares 2019 Equity Plan (incorporated herein by reference to Appendix B to the Company’s Definitive Proxy Statement on Form DEF 14A dated April 15, 2019)
10.16
Bar Harbor Bankshares 2018 Employee Stock Purchase Plan (Appendix B to the Company’s Definitive Proxy Statement on Form DEF 14A dated April 3, 2018)
10.17†
Form of Restricted Stock and Performance-Based Restricted Stock Unit Agreement under Bar Harbor Bankshares 2019 Equity Plan (incorporated herein by reference to Exhibit 10.14 to the Annual Report on Form 10-K filed on March 14, 2023)
10.18†
Form of Subordinated Note Purchase Agreement, dated as of November 26, 2019, by and among Bar Harbor Bankshares and the several purchasers of 4.625% Fixed-to-Floating Subordinated Notes due 2029 (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 26, 2019)
Exhibit No.
Description
10.19
Somesville Bank Branch Lease dated October 27, 2005 (incorporated herein by reference to Exhibit 10 to the Annual Report on Form 10-K filed on March 16, 2006)
19.1**
Bar Harbor Bankshares and Subsidiaries Insider Trading and Securities Policy
21.1
Subsidiaries of the Registrant (incorporated herein by reference to Exhibit 21.1 to the Annual Report on Form 10-K filed on March 14, 2023)
23.1**
Consent of Independent Registered Public Accounting Firm, RSM US LLP
31.1**
Certification of Chief Executive Officer under Rule 13a-14(a)/15d-14(a)
31.2**
Certification of Chief Financial Officer under Rule 13a-14(a)/15d-14(a)
32.1***
Certification of Chief Executive Officer under 18 U.S.C. Sec. 1350.
32.2***
Certification of Chief Financial Officer under 18 U.S.C. Sec. 1350.
Bar Harbor Bankshares Incentive-Based Compensation Recovery Policy (incorporated herein by reference to Exhibit 97 to the Annual Report on Form 10-K filed on March 11, 2024)
101**
The following financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 is formatted in inline XBRL: (i) Consolidated Condensed Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to the Consolidated Condensed Financial Statements
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101)
*
Certain schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant will furnish a copy of any omitted schedule to the Securities and Exchange Commission upon request.
†
Indicates management contract or compensatory plan.
**
Filed herewith.
***
Furnished herewith.