Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2025
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-13349
BAR HARBOR BANKSHARES
(Exact name of registrant as specified in its charter)
Maine
01-0393663
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
PO Box 400
82 Main Street, Bar Harbor, ME
04609-0400
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (207) 288-3314
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $2.00 per share
BHB
NYSE American
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ◻ Accelerated Filer ⌧ Non-Accelerated Filer ◻ Smaller Reporting Company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ⌧
The registrant had 15,321,763 shares of common stock, par value $2.00 per share, outstanding as of May 5, 2025.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
INDEX
Page
PART I.
FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024
4
Consolidated Statements of Income for the Three Months Ended March 31, 2025 and 2024
5
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2025 and 2024
6
Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2025 and 2024
7
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024
8
Condensed Notes to Unaudited Consolidated Interim Financial Statements
Note 1
Basis of Presentation
9
Note 2
Securities Available for Sale
11
Note 3
Loans and Allowance for Credit Losses
15
Note 4
Borrowed Funds
25
Note 5
Deposits
27
Note 6
Capital Ratios and Shareholders' Equity
28
Note 7
Earnings per Share
31
Note 8
Derivative Financial Instruments and Hedging Activities
32
Note 9
Fair Value Measurements
39
Note 10
Revenue from Contracts with Customers
45
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
47
Selected Financial Data
54
Consolidated Loan and Deposit Analysis
55
Average Balances and Average Yields/Rates
56
Reconciliation of Non-GAAP Financial Measures
57
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
59
Item 4.
Controls and Procedures
61
PART II.
OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
63
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
64
Signatures
65
Bar Harbor Bankshares conducts business operations principally through Bar Harbor Bank & Trust, which may be referred to as the “Bank” and which is a subsidiary of Bar Harbor Bankshares. Unless the context requires otherwise, references in this report to “the Company,” "our," "us," and similar terms refer to Bar Harbor Bankshares and its subsidiaries, including the Bank, collectively.
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "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-Q 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 the Company’s future financial and operating results and the Company’s 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 the 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:
Other factors not identified above, including those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “Form 10-K”), our Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website at http://www.sec.gov, may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements, and 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.
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
March 31, 2025
December 31, 2024
Assets
Cash and cash equivalents:
Cash and due from banks
$
33,802
34,266
Interest-earning deposits with other banks
54,329
37,896
Total cash and cash equivalents
88,131
72,162
Securities:
Securities available for sale
513,961
521,018
Less: Allowance for credit losses on securities available for sale
(1,204)
(568)
Net securities
512,757
520,450
Federal Home Loan Bank stock
10,695
12,237
Loans held for sale
1,515
1,235
Total loans held for investment
3,124,240
3,147,096
Less: Allowance for credit losses
(28,614)
(28,744)
Net loans held for investment
3,095,626
3,118,352
Premises and equipment, net
51,659
51,237
Other real estate owned
—
Goodwill
119,477
Other intangible assets
3,705
3,938
Cash surrender value of bank-owned life insurance
82,471
81,858
Deferred tax assets, net
23,298
23,330
Other assets
73,892
79,051
Total assets
4,063,226
4,083,327
Liabilities
Deposits:
Non-interest bearing demand
547,401
575,649
Interest-bearing demand
930,031
910,191
Savings
551,280
545,816
Money market
405,326
405,758
Time
862,773
830,274
Total deposits
3,296,811
3,267,688
Borrowings:
Senior
199,982
249,981
Subordinated
40,620
Total borrowings
240,602
290,601
Other liabilities
58,502
66,610
Total liabilities
3,595,915
3,624,899
Shareholders’ equity
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,384,353 shares and 16,428,388 shares; outstanding 15,317,222 shares and 15,279,783 shares at March 31, 2025 and December 31, 2024, respectively
32,769
32,857
Additional paid-in capital
194,776
194,607
Retained earnings
303,448
297,857
Accumulated other comprehensive loss
(48,824)
(51,536)
Less: 1,067,131 and 1,148,605 shares of treasury stock, at cost, at March 31, 2025 and December 31, 2024, respectively
(14,858)
(15,357)
Total shareholders’ equity
467,311
458,428
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31,
(in thousands, except earnings per share data)
2025
2024
Interest and dividend income
Loans
41,804
39,470
Securities and other
5,283
5,530
137
288
314
535
Total interest and dividend income
47,538
45,823
Interest expense
15,512
14,532
Borrowings
3,019
3,236
Total interest expense
18,531
17,768
Net interest income
29,007
28,055
Provision for credit losses on securities available for sale
636
Provision for credit losses on loans
(57)
289
Net interest income after provision for credit losses
28,428
27,766
Non-interest income
Trust and investment management fee income
3,916
3,670
Customer service fees
3,525
3,710
Mortgage banking income
456
257
Bank-owned life insurance income
614
561
Customer derivative income
212
Other income
195
188
Total non-interest income
8,918
8,386
Non-interest expense
Salaries and employee benefits
13,733
13,248
Occupancy and equipment
3,325
3,432
Depreciation
1,049
1,041
Loss gain on sales of premises and equipment, net
90
(15)
Outside services
482
338
Professional services
592
400
Communication
166
189
Marketing
518
567
Amortization of intangible assets
233
FDIC assessment
452
Acquisition, conversion and other expenses
239
20
Provision for unfunded commitments
(74)
(185)
Other expenses
3,842
3,768
Total non-interest expense
24,651
23,488
Income before income taxes
12,695
12,664
Income tax expense
2,484
2,569
Net income
10,211
10,095
Earnings per share:
Basic
0.67
0.66
Diluted
Weighted average common shares outstanding:
15,304
15,198
15,393
15,270
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
Other comprehensive income (loss), before tax:
Changes in unrealized gain (loss) on securities available for sale
5,065
(2,597)
Changes in unrealized (loss) gain on hedging derivatives
(1,954)
(937)
Changes in unrealized gain (loss) on pension
22
Income taxes related to other comprehensive income (loss):
Changes in unrealized (gain) loss on securities available for sale
(883)
613
Changes in unrealized loss (gain) on hedging derivatives
484
221
Changes in unrealized loss (gain) on pension
(28)
Total other comprehensive income (loss)
2,712
(2,706)
Total comprehensive income
12,923
7,389
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
Accumulated
Common
Additional
other
stock
paid-in
Retained
comprehensive
Treasury
(in thousands, except per share data)
amount
capital
earnings
income (loss)
Total
Balance at December 31, 2023
193,114
272,101
(49,862)
(16,151)
432,059
Other comprehensive loss
Cash dividends declared ($0.28 per share)
(4,205)
Net issuance (39,476 shares) to employee stock plans, including related tax effects
(355)
339
(16)
Recognition of stock based compensation
487
Balance at March 31, 2024
193,246
277,991
(52,568)
(15,812)
435,714
Balance at December 31, 2024
Other comprehensive income
Cash dividends declared ($0.30 per share)
(4,620)
Net issuance (37,439 shares) to employee stock plans, including related tax effects
(167)
240
73
Reclassification of shares
(88)
(171)
259
507
Balance at March 31, 2025
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Net change in loans held for sale
(280)
(948)
Net amortization of securities
283
485
Change in unamortized net loan costs and premiums
62
(265)
Premises and equipment depreciation
Stock-based compensation expense
Amortization of other intangibles
Income from cash surrender value of bank-owned life insurance policies
(614)
(561)
Amortization of right-of-use lease assets
311
126
Decrease in lease liabilities
(313)
(126)
Loss (gain) on premises and equipment, net
Net change in other assets and liabilities
(2,798)
(2,326)
Net cash provided by operating activities
9,320
8,515
Cash flows from investing activities:
Proceeds from maturities, calls and prepayments of securities available for sale
28,336
7,738
Purchases of securities available for sale
(18,982)
(4,762)
Net change in loans
22,721
(12,434)
Purchase of Federal Home Loan Bank stock
(1,495)
(3,244)
Proceeds from redemption of Federal Home Loan Bank stock
3,037
6,072
Purchase of premises and equipment, net
(1,545)
(671)
Proceeds from sale of premises held for sale
74
Net cash provided by (used in) investing activities
32,072
(7,227)
Cash flows from financing activities:
Net change in deposits
29,123
(14,081)
Net change in short-term borrowings
(49,996)
(1,604)
Repayments of long-term borrowings
(3)
(5)
Net issuance to employee stock plans
Cash dividends paid on common stock
Net cash used in financing activities
(25,423)
(19,911)
Net change in cash and cash equivalents
15,969
(18,623)
Cash and cash equivalents at beginning of year
94,842
Cash and cash equivalents at end of period
76,219
Supplemental cash flow information:
Interest paid
17,839
15,941
Income taxes paid, net
5,826
4,303
Transfer of non-cash assets
1,000
CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements (unaudited) (the “financial statements”) of Bar Harbor Bankshares and its subsidiaries (the “Company,” “we,” “our,” “us” or similar terms) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company 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 our accounts, the accounts of our 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 GAAP requires otherwise.
In addition, these interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures normally included in financial statements prepared according to GAAP have been omitted.
The results for any interim period are not necessarily indicative of results for the full year. The consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures in the Form 10-K previously filed with the Securities and Exchange Commission (the “SEC”). In management's opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented.
Reclassifications: Whenever necessary, amounts in the consolidated financial statements are reclassified to conform to current presentation. The reclassifications had no impact on net income, total shareholders’ equity or total assets and liabilities in the Company’s consolidated financial statements.
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 recent accounting standards updates (“ASU”) 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 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 and interim periods beginning after December 15, 2025
We are currently evaluating the impact on our consolidated financial statements.
10
NOTE 2. SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for sale (“AFS”):
Gross
Unrealized
Amortized Cost
Gains
Losses
Fair Value
Allowance
Debt securities:
Obligations of US Government-sponsored enterprises
1,276
(19)
1,257
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises
207,165
(27,668)
179,587
US Government agency
126,947
168
(10,153)
116,962
Private label
21,260
(974)
20,293
Obligations of states and political subdivisions thereof
121,653
1
(19,813)
101,841
Corporate bonds
99,940
410
(6,329)
94,021
Total securities available for sale
578,241
676
(64,956)
1,344
(26)
1,318
208,818
(31,524)
177,316
115,177
53
(11,314)
103,916
40,633
(1,094)
39,564
116,421
5,564
(16,533)
105,452
100,923
290
(7,761)
93,452
583,316
5,954
(68,252)
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, significant pricing changes, or drops below investment-grade. 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.
Management recorded an 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 quarter ended March 31, 2025 of the allowance for credit losses on available for sale debt securities held at period end:
US Government -sponsored enterprises
Private Label
Corporate Bonds
Balance at January 1, 2025
568
Change in provision for credit losses
1,204
As of March 31, 2024, we carried no allowance on available for sale securities in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments.
We have nonaccrual corporate bonds of $8.0 million that we have $1.2 million in related allowance for credit losses as of March 31, 2025. At December 31, 2024 we had $9.0 million of corporate bonds that we allocated $568 thousand in related allowance for credit losses. In the first quarter of 2025, a $1.0 million nonaccrual security matured and was transferred to a financing receivable non-cash asset.
The amortized cost and estimated fair value of available for sale securities segregated by contractual maturity at March 31, 2025 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities and collateralized mortgage obligations are shown in total, as their maturities are highly variable.
Available for sale
Within 1 year
2,011
1,997
Over 1 year to 5 years
52,367
48,951
Over 5 years to 10 years
45,512
43,377
Over 10 years
122,979
102,794
Total bonds and obligations
222,869
197,119
Mortgage-backed securities and collateralized mortgage obligations
355,372
316,842
The proceeds from sales, calls and maturities of securities available for sale, gross realized gains and gross realized losses for the three months ended March 31, 2025 and 2024 are as follows:
Proceeds from sales
Proceeds from calls/paydowns
7,739
Proceeds from maturities
Gross realized gains
Gross realized losses
Accrued interest receivable on available for sale securities totaled $3.4 million at March 31, 2025 and $3.3 million at December 31, 2024, which is reported in other assets on the balance sheets.
12
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 March 31, 2025 and December 31, 2024, aggregated by major security type and length of time in continuous unrealized loss position:
Less Than Twelve Months
Over Twelve Months
Fair
Value
702
18
554
19
1,256
5,737
27,641
163,863
27,668
169,600
627
29,919
9,526
63,329
10,153
93,248
8,243
967
12,026
974
20,269
106
4,804
19,707
95,656
19,813
100,460
10,939
4,462
63,044
4,493
73,983
799
60,344
62,321
398,472
63,120
458,816
707
24
611
26
109
8,003
31,415
165,116
31,524
173,119
817
35,174
10,497
60,789
11,314
95,963
948
1,093
19,839
1,094
20,787
115
4,962
16,418
99,109
16,533
104,071
2,438
4,495
75,002
4,521
77,440
1,070
52,232
63,942
420,466
65,012
472,698
The following summarizes, by investment security type, the impact of performing securities in an unrealized loss position at March 31, 2025:
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 1.51% 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.
13
430 out of the total 482 securities in our portfolio of AFS US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 14.03% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association and 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 quarter.
131 out of the total 164 securities in our portfolio of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented 9.82% 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 investment grade rated and there were no material underlying credit downgrades during the quarter.
17 of the total 20 securities in our portfolio of AFS private label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 4.59% 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.
62 of the total 67 securities in our portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 17.50% 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 the risk. There were no material underlying credit downgrades during the quarter.
25 out of the total 32 securities in our portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents 5.51% of the amortized cost of bonds in unrealized loss positions. We review the financial strength of all of these bonds, and we 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.
A summary of securities pledged as collateral for certain deposits and borrowing arrangements for the months ended March 31, 2025 and December 31, 2024 is as follows:
Carrying
Estimated
Securities pledged for deposits
17,834
15,588
18,483
15,821
Securities pledged for repurchase agreements
16,354
13,959
16,764
14,020
Securities pledged for borrowings (1)
35,758
29,164
35,819
30,634
Total securities pledged
69,946
58,711
71,066
60,475
14
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 based on regulatory call report code segmentation for certain loan types:
December 31,
Commercial construction
141,060
131,617
Commercial real estate owner occupied
308,674
302,074
Commercial real estate non-owner occupied
1,361,692
1,358,903
Tax exempt and other
36,042
44,275
Commercial and industrial
301,378
319,766
Residential real estate
871,816
888,251
Home equity
95,882
94,141
Consumer other
7,696
8,069
Total loans
Allowance for credit losses
28,614
28,744
Net loans
Total unamortized net costs and premiums included in loan totals were as follows:
Net unamortized loan origination costs
2,044
1,982
Net unamortized fair value discount on acquired loans
(2,354)
(2,442)
(310)
(460)
We exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of March 31, 2025 and December 31, 2024, accrued interest receivable for loans totaled $13.6 million and $10.5 million, respectively, and is included in the “other assets” line item on the 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 underwritten 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 - 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 businesses 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 US 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, the allowance for securities losses and the allowance for unfunded commitments which is accounted for as a separate liability in other liabilities on our consolidated balance sheets. 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.
16
The activity in the ACL for the periods ended are as follows:
At or for the Three Months Ended March 31, 2025
Balance at
Beginning of
Period
Charge Offs
Recoveries
Provision
End of Period
2,096
(31)
2,065
2,794
36
2,830
11,104
(181)
10,923
128
112
5,064
(39)
387
5,414
6,732
(289)
6,447
741
(2)
744
85
(45)
79
(84)
At or for the Three Months Ended March 31, 2024
4,261
(564)
3,697
2,863
3,081
9,443
(288)
9,155
Tax exempt
119
(6)
113
3,259
(65)
639
3,834
7,352
294
7,651
767
(18)
752
78
72
28,142
(113)
37
28,355
Unfunded Commitments
The ACL on unfunded commitments is recognized as a liability (other liabilities on the consolidated balance sheets), with adjustments to the reserve recognized in other non-interest expense in the consolidated statement of operations. The activity in the ACL on unfunded commitments for the periods ended was as follows:
Beginning Balance
3,049
3,825
Provision for credit losses
(186)
Ending Balance
2,975
3,639
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,
17
substandard, doubtful, or loss (i.e. risk-rated 6, 7, 8 and 9, respectively). Residential, home equity and consumer loans are classified as performing or non-performing based on payment performance.
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 which 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 effected in the future. Losses are taken in the period in which they are determined to be uncollectible.
The following table presents our loans by year of origination, loan segmentation and risk indicator as of March 31, 2025:
2023
2022
2021
Prior
Risk rating:
Pass
4,262
42,127
22,912
58,356
12,651
Special mention
Substandard
Current period gross write-offs
6,731
39,069
44,631
70,730
31,662
111,095
303,918
705
2,046
2,870
1,824
Doubtful
44,750
32,367
115,027
15,631
151,336
65,096
375,528
219,707
445,413
1,272,711
33,922
19,155
53,077
7,685
28,219
35,904
72,781
253,629
492,787
4,126
2,669
6,283
538
22,406
23,188
63,397
54,763
48,400
11,739
93,214
294,701
83
1,169
1,185
717
4,473
146
69
384
972
1,811
393
23,271
64,110
56,001
49,969
12,731
95,296
Performing
6,349
37,888
64,208
167,851
151,554
439,113
866,963
Nonperforming
1,048
3,395
4,853
64,397
168,072
152,602
442,508
4,236
18,830
15,498
12,256
6,392
37,617
94,829
147
52
854
1,053
12,403
6,444
38,471
1,743
2,810
1,409
208
788
7,660
1,429
804
40
Total Loans
62,243
360,296
280,437
742,043
459,271
1,219,950
The following table presents our loans by year of origination, loan segmentation and risk indicator as of December 31, 2024:
2020
34,320
27,251
55,825
771
4,404
9,046
42,705
46,869
60,102
29,808
20,761
96,123
296,368
2,070
2,198
3,442
66
46,997
101,701
142,348
47,986
405,235
234,520
156,873
295,646
1,282,608
20,446
3,913
26,969
51,328
7,702
17,265
24,967
55,688
254,966
160,786
339,880
11,026
602
178
23,517
79,211
62,047
47,739
12,154
32,239
65,002
298,392
14,878
1,266
834
60
632
17,679
408
2,866
3,695
79,348
76,997
49,413
13,209
32,299
68,500
48
187
35,872
67,708
174,677
154,229
89,752
362,421
884,659
194
458
2,940
3,592
67,902
175,135
365,361
19,175
15,762
12,515
6,648
5,536
33,238
92,874
198
1,016
1,267
12,713
6,701
34,254
4,432
1,644
870
276
108
715
8,045
1,652
277
730
204
369,226
294,918
765,576
460,563
313,824
942,989
Past Dues
The following is a summary of past due loans for the periods ended:
30-59
60-89
90+
Total Past Due
Current
438
444
308,230
87
1,361,605
86
939
1,091
300,287
11,886
965
13,389
858,427
992
171
1,352
94,530
33
30
7,631
13,415
1,224
1,789
16,428
3,107,812
302,068
184
93
1,358,626
428
227
578
1,233
318,533
14,076
2,426
663
17,165
871,086
963
441
193
1,597
92,544
35
8,013
15,686
3,114
1,534
20,334
3,126,762
Non-Accrual Loans
The following is a summary of non-accrual loans for the periods ended:
Nonaccrual With No
90+ Days Past
Nonaccrual
Related Allowance
Due and Accruing
640
1,355
547
686
8,086
1,875
21
736
671
1,099
295
3,591
898
6,994
2,050
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 loans for the period ended March 31, 2025 and December 31, 2024.
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:
Real Estate
Other
656
1,161
2,210
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 three months ended March 31, 2025 and 2024, by class and by type of modification.
Principal Forgiveness
Payment Delay
Term Extension
Interest Rate Reduction
Combination Interest Rate Reduction and Term Extension
% of Total Class of Loans
Three Months Ended March 31, 2025
%
0.09
0.01
Three Months Ended March 31, 2024
0.00
23
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2025 and 2024.
Weighted-Average Months of Payment Delay
Weighted-Average Months of Term Extension
Weighted-Average Interest Rate Reduction
Foreclosure
There were $174 thousand of residential mortgage loans collateralized by real estate that are in the process of foreclosure as of March 31, 2025. Residential mortgage loans collateralized by real estate that are in the process of foreclosure as of December 31, 2024 totaled $83 thousand.
Mortgage Banking
Loans held for sale at March 31, 2025 had an unpaid principal balance of $1.5 million and $1.2 million as of December 31, 2024. The interest rate exposure on loans held for sale is mitigated through forward sale commitments with certain approved secondary market investors. Forward sale commitments had a notional amount of $3.0 million at March 31, 2025, and $4.8 million at December 31, 2024. Refer to Note 8 for further discussion of forward sale commitments.
For the three months ended March 31, 2025 and 2024, we sold $9.8 million and $8.4 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 $174 thousand and $31 thousand, respectively.
We sell residential loans on the secondary market while primarily retaining the servicing of these loans. Servicing sold loans helps to maintain customer relationships and earn fees over the servicing period. Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to level of prepayments that result from shifts in interest rates. We obtain third-party valuations of our servicing assets portfolio quarterly, and the assumptions are reflected in Fair Value disclosures.
NOTE 4. BORROWED FUNDS
Borrowed funds at March 31, 2025 and December 31, 2024 are summarized, as follows:
Weighted
(dollars in thousands)
Carrying Value
Average Rate
Short-term borrowings
Advances from the FHLB
193,750
4.42
242,650
4.49
Other borrowings
5,966
0.19
7,062
Total short-term borrowings
199,716
4.28
249,712
4.35
Long-term borrowings
266
4.52
269
4.50
Subordinated borrowings
7.71
6.60
Total long-term borrowings
40,886
7.69
40,889
6.59
4.86
4.75
Short-term debt includes Federal Home Loan Bank of Boston (“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 periods ended March 31, 2025 and December 31, 2024. There are 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”). At March 31, 2025, our available secured line of credit at the Reserve Bank was $103.8 million versus $105.6 million at December 31, 2024. We have pledged certain loans and securities to the Reserve Bank to support this arrangement.
We maintain an unused unsecured federal funds line of credit with a correspondent bank that has an aggregate overnight borrowing capacity of $40.0 million as of March 31, 2025 and December 31, 2024. There was no outstanding balance on the line of credit as of March 31, 2025 and December 31, 2024.
Long-term FHLB advances consist of advances with a remaining maturity of more than one year. The advances outstanding at March 31, 2025 include no callable advances and amortizing advances of $266 thousand. There were no callable advances outstanding and $269 thousand of amortizing advances at December 31, 2024. 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 March 31, 2025 is, as follows:
Weighted Average
(in thousands, except rates)
Amount
Rate
Thereafter
Total FHLB advances
194,016
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. As of March 31, 2025 we had an outstanding subordinated notes balance of $20.0 million.
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.
Customer Repurchase Agreements
NOTE 5. DEPOSITS
A summary of time deposits is, as follows:
Time less than $100,000
443,078
439,648
Time $100,000 through $250,000
216,969
203,962
Time $250,000 or more
202,726
186,664
At March 31, 2025 and December 31, 2024, the scheduled maturities by year for time deposits are, as follows:
839,325
806,974
Over 1 year to 2 years
16,667
16,422
Over 2 years to 3 years
3,864
4,028
Over 3 years to 4 years
1,414
1,805
Over 4 years to 5 years
1,483
931
Over 5 years
114
Included in time deposits are brokered deposits of $250.9 million and $256.0 million at March 31, 2025 and December 31, 2024, respectively. Also included in time deposits are reciprocal deposits of $63.9 million and $62.5 million at March 31, 2025 and December 31, 2024, respectively.
NOTE 6. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY
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 March 31, 2025, 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 are, as follows:
Minimum Required for
Minimum Required to
Actual
Capital Adequacy purposes
be Well Capitalized
(in thousands, except ratios)
Ratio
Company (consolidated)
Total capital to risk-weighted assets
461,309
13.69
269,669
8.00
N/A
Common equity Tier 1 capital to risk-weighted assets
392,951
11.66
151,689
Tier 1 capital to risk-weighted assets
413,571
12.27
202,252
6.00
Tier 1 capital to average assets (leverage ratio)
10.30
160,540
4.00
Bank
457,937
13.61
269,086
336,357
10.00
426,199
12.67
151,360
218,631
6.50
201,813
269,084
10.63
160,365
200,457
5.00
454,960
13.47
270,206
386,548
11.45
151,918
407,168
12.06
202,571
158,123
452,823
13.44
269,538
336,922
421,031
12.50
151,571
218,936
202,095
269,460
10.66
157,985
197,482
Accumulated other comprehensive income (loss)
Components of accumulated other comprehensive income (loss) is, as follows:
Accumulated other comprehensive loss, before tax:
Net unrealized loss on AFS securities, net of reclassifications
(57,233)
(62,298)
Net unrealized loss on hedging derivatives
(5,322)
(3,368)
Net unrealized loss on post-retirement plans
(1,565)
Income taxes related to items of accumulated other comprehensive loss:
13,674
14,557
1,270
786
352
The following table presents the components of other comprehensive income (loss) for the three months ended March 31, 2025 and 2024:
Before Tax
Tax Effect
Net of Tax
Net unrealized gain (loss) on AFS securities, net of reclassifications:
Net unrealized gain (loss) arising during the period
3,861
(732)
3,129
Less: reclassification adjustment for gains (losses) realized in net income
151
(1,053)
Net unrealized gain (loss) on AFS securities
4,182
Net unrealized gain (loss) on hedging derivatives:
(1,470)
Net unrealized gain (loss) on cash flow hedging derivatives
Net unrealized gain (loss) on post-retirement plans:
Net unrealized gain (loss) on post-retirement plans
Other comprehensive gain (loss)
3,111
(399)
(1,984)
(716)
(3,512)
806
29
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax impacts, for the three months ended March 31, 2025 and 2024:
Net unrealized
gain (loss)
loss
on AFS
on hedging
on pension
Securities
derivatives
plans
Balance at beginning of period
(47,741)
(2,582)
(1,213)
Other comprehensive gain (loss) before reclassifications
1,659
Less: amounts reclassified from accumulated other comprehensive income
Total other comprehensive gain (loss)
Balance at end of period
(43,559)
(4,052)
(47,649)
(1,010)
(1,203)
(49,633)
(1,726)
(1,209)
NOTE 7. EARNINGS PER SHARE
The following table presents the calculation of earnings per share:
(in thousands, except per share and share data)
Average number of basic common shares outstanding
15,303,645
15,198,337
Plus: dilutive effect of stock options and awards outstanding
88,894
71,496
Average number of diluted common shares outstanding(1)
15,392,539
15,269,833
NOTE 8. 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 sheets 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 (“MNAs”) with financial institution counterparties or Risk Participation Agreements (“RPAs”) 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 March 31, 2025 and December 31, 2024, follows:
Notional
Average
Location Fair
Maturity
Asset (Liability)
Value Asset
(in years)
(Liability)
Cash flow hedges:
Interest rate swap on wholesale funding
25,000
Interest rate swap on variable rate loans
50,000
1.0
(1,563)
Total cash flow hedges
75,000
(1,547)
Fair value hedges:
Interest rate swap on securities
37,190
4.3
3,273
Total fair value hedges
Economic hedges:
Forward sale commitments
3,015
0.1
(8)
Customer Loan Swaps-MNA Counterparty
239,954
4.1
(10,542)
Customer Loan Swaps-RPA Counterparty
181,306
5.2
(1,206)
Customer Loan Swaps-Customer
421,260
4.5
11,748
Total economic hedges
845,535
Non-hedging derivatives:
Interest rate lock commitments
Total non-hedging derivatives
961,430
1,832
0.3
261
1.2
(2,036)
(1,775)
4.6
3,969
4,786
240,031
(14,243)
162,302
(286)
402,333
4.7
14,529
809,452
3,760
925,402
2,292
As of March 31, 2025 and December 31, 2024, the following amounts were recorded on the consolidated balance sheets 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
Carrying Amount
30,142
(7,048)
31,627
(5,563)
Information about derivative assets and liabilities for three months ended March 31, 2025 and 2024, follows:
Amount of
Gain (Loss)
Recognized in
Reclassified
Location of
Location of Gain (Loss)
from Other
Comprehensive
Reclassified from Other
Recognized
Income
Comprehensive Income
in Income
(188)
252
370
Interest income
(455)
182
(203)
(1,652)
275
Forward commitments
Mortgage banking expense
(21)
Other expense
80
34
(338)
827
(111)
(585)
(449)
242
(268)
(7)
(717)
609
The effect of cash flow hedging and fair value accounting on the consolidated statements of income for three months ended March 31, 2025 and 2024:
Interest and Dividend Income
Interest Expense
Non-interest Income
Income and expense line items presented in the consolidated statements of income
5,734
The effects of cash flow and fair value hedging:
Gain (loss) on cash flow hedges:
Gain (loss) on fair value hedges:
6,353
8,586
The effect of economic hedges and derivatives not designated as hedging instruments on the consolidated statements of income for three months ended March 31, 2025 and 2024 is as follows:
Location of Gain (Loss) Recognized
(In thousands)
in Non-interest Income
Cash flow hedges
Interest rate swaps on wholesale funding
As of March 31, 2025, 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 into 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 Swap as a cash flow hedge.
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 a 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
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
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 sheets. We are party to MNAs with our financial institutional counterparties; however, we do not offset assets and liabilities under these arrangements for financial statement presentation purposes.
The MNAs 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 tables describe the potential effect of master netting arrangements on the consolidated balance sheets and the financial collateral pledged for these arrangements:
Gross Amounts Offset in the Consolidated Balance Sheet
Derivative
Cash Collateral
Derivative Assets
Pledged
Net Amount
As of March 31, 2025
Customer Loan Derivatives:
MNA counterparty
10,542
RPA counterparty
1,206
(11,748)
As of December 31, 2024
14,243
286
(14,529)
Non-hedging derivatives
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.
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NOTE 9. 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 March 31, 2025 and December 31, 2024, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Level 1
Level 2
Level 3
Inputs
Available for sale securities:
Mortgage-backed securities:
20,292
Derivative assets
15,037
15,151
Derivative liabilities
(13,311)
(13,319)
18,759
98
18,857
(16,565)
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 the Company’s 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 valuations 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 market place 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 MNAs 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 March 31, 2025, 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 for the three months ended March 31, 2025 and 2024:
Assets (Liabilities)
Interest Rate Lock
Forward
Commitments
Realized gain (loss) recognized in non-interest income
(20)
Realized (loss) gain recognized in non-interest income
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is, as follows:
Significant
Valuation
Unobservable
Techniques
Input Value
Interest Rate Lock Commitment
Pull-through Rate Analysis
Closing Ratio
89
Pricing Model
Origination Costs, per loan
1.7
Discount Cash Flows
Mortgage Servicing Asset
Forward Commitments
Quoted prices for similar loans in active markets
Freddie Mac pricing system
$101 to $104.1
$99 to $102.9
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 GAAP. The following is a summary of applicable non-recurring fair value measurements:
Measurement Date as of
Mar 31, 2025
Dec 31, 2024
Gains (Losses)
Individually evaluated loans
3,436
3,224
March 2025
Capitalized servicing rights
6,887
7,285
(398)
Premises held for sale
419
10,716
10,928
(212)
There are no liabilities measured at fair value on a non-recurring basis as of March 31, 2025 and December 31, 2024.
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Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets follows:
Fair Value March 31, 2025
Valuation Techniques
Unobservable Inputs
Range (Weighted Average)(a)
Fair value of collateral-appraised value
Loss severity
10% to 65%
Appraised value
$257 to $1,260
1,226
Discount cash flow
Discount rate
4.00% to 8.99%
Cash flows
$301 to $497
Discounted cash flow
Constant prepayment rate
7.07%
10.06%
Fair value of asset less selling costs
$413
Selling Costs
5%
Fair Value December 31, 2024
2,733
491
4.00% to 4.99%
$497 to $501
6.52%
$440
There were no Level 1 or Level 2 non-recurring fair value measurements for the periods ended March 31, 2025 and December 31, 2024.
42
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 ACL. 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 (“OREO”)
OREO results from the foreclosure process on residential or commercial loans issued by the Company. 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 OREO as of March 31, 2025 and December 31, 2024.
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.
43
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.
Financial Assets
Cash and cash equivalents
FHLB stock
2,985,780
Accrued interest receivable
3,973
Financial Liabilities
Non-maturity deposits
2,434,038
2,288,605
Time deposits
860,280
Securities sold under agreements to repurchase
FHLB advances
193,980
45,869
13,319
13,311
2,999,290
3,974
Cash surrender value of bank-owned life insurance policies
2,437,414
2,282,389
828,068
242,919
242,779
46,070
16,565
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NOTE 10. REVENUE FROM CONTRACTS WITH CUSTOMERS
We account for our various non-interest revenue streams and related contracts in accordance with “Revenue from Contracts with Customers” (“ASC 606”). ASC 606 is based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. Revenue is recognized when we satisfy our performance obligation, which is generally when services are rendered and can be either satisfied at a point in time or over time. We recognize revenue at a point in time that is transactional in nature. We recognize revenue over time that is earned as services are performed and performance obligations are satisfied over time.
A substantial portion of our revenue is specifically excluded from the scope of ASC 606. This exclusion is associated with financial instruments, including interest income on loans and investment securities, in addition to loan derivative income and gains on loan and investment sales.
Disaggregation of Revenue
The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606:
Non-interest income within the scope of ASC 606:
Trust management fees
3,459
3,243
Financial services fees
457
427
Interchange fees
1,921
1,970
Customer deposit fees
1,377
1,502
Other customer service fees
238
Total non-interest income within the scope of ASC 606
7,441
7,380
Total non-interest income not within the scope of ASC 606
1,477
1,006
Timing of Revenue Recognition
Products and services transferred at a point in time
3,810
3,926
Products and services transferred over time
3,631
3,454
Trust Management Fees
The trust management business generates revenue through a range of fiduciary services including trust and estate administration 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 average monthly market value of assets under management. 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 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. 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 are recognized over time using the right to invoice measure of progress.
Contract Balances from Contracts with Customers
The following table provides information about contract assets or receivables and contract liabilities or deferred revenues from contracts with customers:
Balances from contracts with customers only:
Other Assets
1,504
1,479
Other Liabilities
1,128
1,360
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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management’s discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three months ended March 31, 2025 and should be read in conjunction with our unaudited consolidated financial statements and condensed notes thereto included elsewhere in this Form 10-Q as well as our audited consolidated financial statements and notes thereto included in our Form 10-K. The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Factors that could cause such differences are discussed in the sections titled "Cautionary Statement Regarding Forward-Looking Statements", “Part I, Item 1.A. Risk Factors” for the year ended December 31, 2024, and "Part II, Item 1A. Risk Factors" in this Form 10-Q. All amounts, dollars and percentages presented in this Form 10-Q are rounded and therefore approximate.
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).
NON-GAAP FINANCIAL MEASURES
Our accounting and reporting policies conform to 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 Form 10-Q 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, 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.
The non-GAAP financial measures that we discuss in this Form 10-Q 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 Form 10-Q 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 Form 10-Q when comparing such non-GAAP financial measures.
QUARTERLY PERFORMANCE SUMMARY
Earnings (first quarter 2025, compared to the same period of 2024 unless otherwise stated)
Financial Position (March 31, 2025, compared to December 31, 2024 unless otherwise stated)
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2025 AND DECEMBER 31, 2024
Total cash and cash equivalents were $88.1 million at the end of the first quarter 2025, compared to $72.2 million at the end of the fourth quarter 2024. Interest-earning deposits held with other banks increased to $54.3 million at the end of the first quarter 2025, compared to $37.9 million at the end of the fourth quarter and yielded 4.55% and 4.92%, respectively. The change in cash balances was driven by pay downs in loans and investments.
Securities available for sale was $514.0 million compared to $521.0 million in the fourth quarter 2024 driven primarily by pay downs of $28.3 million, partially offset by $19.0 million in purchases. The average yield of the total securities portfolio for the first quarter 2025 was 3.80% compared to 3.69% for the previous quarter primarily due to the change in the profile of the yield curve and a shift from commercial lending obligation investments to agencies. Fair value adjustments were $57.2 million at the end of the first quarter 2025 compared to $62.3 million at the end of the fourth quarter 2024. As of the end of the first quarter 2025 and fourth quarter 2024, respectively, our securities portfolio maintained an average life of eight and nine years with an effective duration of five years for both quarters and all securities remain classified as available for sale to provide flexibility in asset funding and other opportunities as they arise.
The allowance for credit losses on available for sale securities increased to $1.2 million at March 31, 2025 compared to $568 thousand at December 31, 2024, driven by one corporate security with a book value of $8.0 million and unrealized losses of $1.8 million.
Federal Home Loan Bank Stock
Federal Home Loan Bank (“FHLB”) stock decreased to $10.7 million at the end of the first quarter 2025 compared to $12.2 million at the end of the fourth quarter 2024 driven by $50 million in pay downs of borrowings.
Total loans remained at $3.1 billion with a slight decrease of 3% on an annualized basis driven by seasonality and the interest rate environment. Commercial loans increased $2.9 million comprised of a $20.9 million increase in commercial real estate offset by a $17.9 million decrease in commercial and industrial. Residential real estate loans decreased $19.0 million.
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The allowance for credit losses on available for sale securities increased to $1.2 million at March 31, 2025 compared to $568 thousand at December 31, 2024, driven by one corporate debt security with a book value of $8.0 million and unrealized losses of $1.8 million.
The allowance for credit losses on loans decreased $130 thousand to $28.6 million at the end of the first quarter 2025 compared to $28.7 million at the end of the fourth quarter 2024. The allowance for credit losses to total loans coverage ratio of 0.92% compared to 0.91% in the fourth quarter 2024. Strong asset quality metrics and general macroeconomic trends in the loan portfolio drive ACL levels. There were minor shifts in balances as commercial real estate increased and commercial and industrial and residential real estate decreased, but the main driver was a decrease in residential loans. Charge-offs and individually analyzed reserves on non-accruing loans continue to be nominal, supported by relatively strong collateral values.
Total deposits remained flat at $3.3 billion at the first quarter of 2025 and the fourth quarter 2024 respectively. We witnessed a shift in deposit mix driven by the interest rate environment and expected seasonal outflows in the first quarter 2025 as non-interest bearing demand deposits decreased $28.2 million to $547 million offset by an increase of $19.8 million in interest-bearing demand deposits. Time deposits increased 16% on an annualized basis to $863 million driven by the volatile economic rate environment as investors continue to seek a safe place with a competitive rate to house their money.
Senior borrowings decreased $50.0 million to $200.0 million driven by pay downs in investments and loans. FHLB borrowings decreased $48.9 million to $194.1 million at the end of the first quarter 2025 compared to $243.0 million at the end of the fourth quarter 2024.
Equity
The Company's book value per share was $30.51 as of the end of the first quarter 2025 compared to $30.00 at the end of the fourth quarter 2024. Tangible book value per share (non-GAAP) was $22.47 at the end of the first quarter 2025, compared to $21.93 at the end of the fourth quarter 2024.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND MARCH 31, 2024
Net Income
First quarter 2025 GAAP net income of $10.2 million or $0.66 per diluted share and core (Non-GAAP) net income of $10.5 million or $0.68 per diluted share compared to $10.1 million or $0.66 per diluted share for the first quarter 2024.
Total interest and dividend income increased by 3.7% to $47.5 million in the first quarter 2025 compared to $45.8 million in the prior year primarily driven by the repricing of commercial adjustable-rate loans and a $146 million higher loan balances within the commercial portfolio. Yields on earning assets grew to 5.16% compared to 5.10% in the first quarter 2024. The yield on commercial real estate loans grew to 5.58% in the first quarter 2025 from 5.47% in the first quarter 2024. Total loan yield growth also experienced an increase in the residential real estate yield from 4.09% to 4.22% for the first quarter 2025, and the commercial and industrial yield decline from 6.68% in the first quarter of 2024 to 6.57% in the first quarter 2025.
Net Interest Income and Net Interest Margin
The net interest margin remained stable at 3.17% in the first quarter 2025 compared to 3.14% in same respective quarter 2024. As loan balances grew $112.6 million year over year, the yield on loans grew 11 basis points to 5.42% in the first
50
quarter 2025, up from 5.31% in the same quarter 2024. Costs of interest-bearing deposits grew 5 basis points to 2.31% from 2.26% in the first quarter 2024 driven by the continued competitive pricing within the interest rate environment.
Total interest expense increased by 4.3% to $18.5 million in the first quarter 2025 compared to $17.8 million in the first quarter 2024 driven by an increase in cost of funds on deposits compounded with a $169.7 million increase in deposits. The growth in deposits was relatively even in mix with $84.2 million growth in non-maturity deposits and $85.6 million growth in time deposits. Interest-bearing demand accounts and savings accounts increased $41.2 million in 2025 compared to the same quarter 2024. Money Market accounts increased $40.0 million in the first quarter 2025 compared to the first quarter 2024. Borrowing costs decreased to $3.0 million in the first quarter 2025 compared to $3.2 million from the first quarter 2024, driven by a $33.1 million in pay down offset by an increase in costs to 4.61% in the first quarter 2025 compared to 4.35% in the first quarter 2024.
Provision for Credit Losses
The provision for credit losses on loans was a recapture of $57 thousand in first quarter 2025 compared to a provision of $289 thousand in the first quarter 2024 as credit quality continues to remain strong.
The provision for credit losses on investments was a charge of $636 thousand in the current quarter. There was no provision for investments in the first quarter of 2024. The reserve is related to one corporate debt security as discussed above.
Non-Interest Income
Non-interest income was $8.9 million in the first quarter 2025 compared to $8.4 million in the same quarter 2024. Wealth management income grew 6.7% to $3.9 million compared to $3.7 million in the first quarter 2024. Non-brokerage assets under management grew 6.0% or $300 million to $2.8 billion from $2.5 billion in the first quarter 2025 compared to the previous year driven by higher security valuations. Mortgage banking income increased $199 thousand in the first quarter 2025 compared to the first quarter 2024 driven by higher gains on sale of loans. Customer derivative income increased $212 thousand in the first quarter 2025 driven by an increase in dollars and volume on customer swaps due to the interest rate environment. Increases were offset by a $185 thousand or 5% decrease in customer service fees driven by lower non-sufficient funds fees and interchange income.
Non-Interest Expense
Non-interest expenses increased $1.2 million to $24.7 million in the first quarter 2025 compared to $23.5 million in the first quarter 2024 driven by a 4% increase or $485 thousand increase in salaries and benefits driven by cost of living increases and losses on sales of premises and equipment of $90 thousand in the current quarter driven by outdated ATMs. Acquisition, conversion expenses increased $219 thousand driven by merger agreement entered into in the first quarter of 2025. Outside services increased $144 thousand driven by an increase in recruiting fees in the first quarter 2025 compared to the first quarter 2024. Professional services increased $192 thousand driven by consulting fees for technology infrastructure enhancements other projects.
Income Tax Expense
Income tax expense was $2.5 million in the first quarter 2025, compared to $2.6 million in the first quarter 2024.
Liquidity and Cash Flows
Liquidity is measured by our ability to meet short-term cash needs at a reasonable cost or minimal loss. We seek to obtain favorable sources of liabilities and 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 our ability to meet liquidity needs, including variations in the markets served by our network of offices, mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions.
The Bank actively manages its liquidity position through target ratios established under its Asset-Liability Management Policy. Continual monitoring of these ratios, by using historical data and through forecasts under multiple rate and stress scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity. The Bank's policy is to maintain a liquidity position of at least 8% of total assets. A portion of the Bank’s deposit base has been historically seasonal in
51
nature, with balances typically declining in the winter months through late spring, during which period the Bank’s liquidity position tightens.
As of March 31, 2025, 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 our amortizing securities and loan portfolios. As of March 31, 2025, we had unused borrowing capacity at the FHLB of $359.1 million, unused borrowing capacity at the Reserve Bank of $103.8 million and unused lines of credit totaling $41.0 million, in addition to $88.1 million in cash.
The Bank maintains a liquidity contingency plan 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 us. Our management believes 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 our liquidity position.
Capital Resources
Please refer to “Comparison of Financial Condition at March 31, 2025 and December 31, 2024 - Equity” for a discussion of shareholders’ equity together with Note 6 - “Capital Ratios and Shareholders’ Equity” in the unaudited consolidated financial statements. Additional information about regulatory capital is contained in the notes to the consolidated financial statements and in our most recent Form 10-K.
We expect to continue our current practice of paying quarterly cash dividends with respect to our common stock subject to our Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. We believe our quarterly dividend rate per share as approved by our Board of Directors, enables us to balance our multiple objectives of managing our business and returning a portion of our earnings to our shareholders. Historically, and a practice we intend to continue, our principal cash expenditure is the payment of dividends on our common stock, if as and when declared by our Board of Directors. Dividends were paid to our shareholders in the aggregate amount of $4.5 million and $4.2 million for the three months ended March 31, 2025 and 2024, respectively. All dividends declared and distributed by us will be in compliance with applicable state corporate law and regulatory requirements.
Off-Balance Sheet Arrangements
We are, from time to time, a party to certain off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that may be material to investors.
Our off-balance sheet arrangements are limited to standby letters of credit whereby the Bank guarantees the obligations or performance of certain customers. These letters of credit are sometimes issued in support of third-party debt. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and such letters of credit are subject to the same origination, portfolio maintenance and management procedures in effect to monitor other credit products. The amount of collateral obtained, if deemed necessary by the Bank upon issuance of a standby letter of credit, is based upon management's credit evaluation of the customer.
Our off-balance sheet arrangements have not changed materially since previously reported in our Form 10-K.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Please refer to Note 1 – “Basis of Presentation - Recent Accounting Pronouncements” of the Consolidated Financial Statements in this Form 10-Q and Note 1 - “Summary of Significant Accounting Policies” of the Consolidated Financial Statements to our Form 10-K.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements were prepared in accordance with GAAP and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1—“Summary of Significant Accounting Policies” of the Consolidated Financial Statements to our Form 10-K. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the Consolidated
Financial Statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the Consolidated Financial Statements. These factors include among other things, whether the policy requires management 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. The accounting policies which we believe to be most critical in preparing our Consolidated Financial Statements are presented in the section titled “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” included in our Form 10-K. There have been no significant changes in our application of critical accounting policies and estimates since December 31, 2024. Refer to Note 1 – “Basis of Presentation - Recent Accounting Pronouncements” of the consolidated financial statements for discussion of accounting pronouncements issued but yet to be adopted and implemented.
SELECTED FINANCIAL DATA
The following summary data is based in part on the unaudited consolidated financial statements and accompanying notes and other information appearing elsewhere in this Form 10-Q or prior SEC filings.
PER SHARE DATA
Net earnings, diluted
Adjusted earnings, diluted(1)
0.68
Total book value
30.51
28.64
Tangible book value per share(1)
22.47
20.48
Market price at period end
29.50
26.48
Dividends
0.30
0.28
PERFORMANCE RATIOS(2)
Return on assets
1.02
1.03
Adjusted return on assets(1)
1.04
Pre-tax, pre-provision return on assets
1.32
Adjusted pre-tax, pre-provision return on assets (1)
1.35
Return on equity
8.88
9.32
Adjusted return on equity(1)
9.09
Return on tangible equity
13.26
Adjusted return on tangible equity(1)
12.57
13.27
Net interest margin, fully taxable equivalent(1) (3)
3.17
3.14
Efficiency ratio(1)
62.00
62.71
FINANCIAL DATA (In millions)
4,063
3,959
Total earning assets(4)
3,761
3,663
Total investments
514
528
3,124
3,012
Total allowance for credit losses
Total goodwill and intangible assets
123
124
3,297
3,127
Total shareholders' equity
467
436
Adjusted income(1)
ASSET QUALITY AND CONDITION RATIOS
Net charge-offs (recoveries)(5)/average loans
Allowance for credit losses/total loans
0.92
0.94
Loans/deposits
95
96
Shareholders' equity to total assets
11.50
11.01
Tangible shareholders' equity to total tangible assets(1)
8.73
8.13
CONSOLIDATED LOAN AND DEPOSIT ANALYSIS (UNAUDITED)
The following tables present the quarterly trend in loans by collateral type and deposits and accompanying growth rates as of March 31, 2025 on an annualized basis:
LOAN ANALYSIS
Annualized
Growth %
Quarter
Sep 30, 2024
Jun 30, 2024
Mar 31, 2024
to Date
Commercial real estate
1,762,132
1,741,223
1,677,310
1,634,658
1,574,802
370,683
388,599
382,554
421,297
412,567
Total commercial loans
2,132,815
2,129,822
2,059,864
2,055,955
1,987,369
807,514
826,492
836,566
854,718
873,213
(9)
Consumer
105,404
103,803
103,415
99,776
95,838
78,507
86,979
81,890
53,732
55,252
3,081,735
3,064,181
3,011,672
DEPOSIT ANALYSIS
604,963
553,067
544,495
913,910
882,068
888,591
544,235
544,980
551,493
380,624
359,208
365,289
Total non-maturity deposits
2,443,732
2,339,323
2,349,868
(1)
817,354
801,143
777,208
3,261,086
3,140,466
3,127,076
AVERAGE BALANCES AND AVERAGE YIELDS/RATES (UNAUDITED)
The following tables present average balances and average yields and rates on an annualized fully taxable equivalent basis for the periods included:
Yield/
Balance
Interest(3)
Rate(3)
27,999
4.55
36,608
5.88
587,878
5,507
3.80
595,124
5,752
3.89
11,623
4.78
9,534
12.15
Loans:
1,759,321
24,203
5.58
1,558,506
21,187
5.47
469,331
7,598
6.57
464,762
7,718
6.68
Residential
820,837
8,539
4.22
884,767
9,004
4.09
104,413
1,809
7.03
96,163
1,726
7.22
Total loans (1)
3,153,902
42,149
5.42
3,004,198
39,635
5.31
Total earning assets
3,781,402
48,107
5.16
3,645,464
46,210
5.10
29,972
29,900
(29,143)
(28,122)
Goodwill and other intangible assets
123,295
124,225
171,477
166,538
4,077,003
3,938,005
916,129
3,178
1.41
899,349
3,000
1.34
547,672
955
0.71
552,231
863
0.63
401,268
2,737
2.77
390,720
2,986
3.07
853,105
8,642
4.11
738,683
7,683
4.18
Total interest bearing deposits
2,718,174
2.31
2,580,983
2.26
265,780
4.61
298,918
Total interest bearing liabilities
2,983,954
2.52
2,879,901
2.48
Non-interest bearing demand deposits
560,310
554,816
66,589
67,327
3,610,853
3,502,044
466,150
435,961
Total liabilities and shareholders' equity
Net interest spread
2.64
2.62
Net interest margin
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)
The following reconciliation table provides a more detailed analysis of these, and reconciliation for, each of non-GAAP financial measures:
Calculations
Non-recurring items:
Gain on sale of securities, net
Gain on sale of premises and equipment, net
Income tax expense (1)
(80)
Total non-recurring items
249
Total adjusted income(2)
(A)
10,460
10,099
(B)
Plus: Non-interest income
Total Revenue
37,925
36,441
Total adjusted revenue(2)
(C)
Non-recurring expenses:
(90)
(239)
Total non-recurring expenses
(329)
Adjusted non-interest expense(2)
(D)
24,322
23,483
Total revenue
Pre-tax, pre-provision net revenue(2)
(S)
13,274
12,953
Adjusted revenue(2)
Adjusted pre-tax, pre-provision net revenue(2)
(U)
13,603
12,958
(in millions)
Average earning assets
(E)
3,781
3,645
Average assets
(F)
4,077
Average shareholders' equity
(G)
466
Average tangible shareholders' equity(2)(3)
(H)
343
312
Tangible shareholders' equity, period-end(2)(3)
(I)
344
Tangible assets, period-end(2)(3)
(J)
3,940
3,835
Common shares outstanding, period-end
(K)
15,317
15,212
Average diluted shares outstanding
(L)
Adjusted earnings per share, diluted(2)
(A/L)
Tangible book value per share, period-end(2)
(I/K)
Total tangible shareholders' equity/total tangible assets(2)
(I/J)
Performance ratios(4)
Core return on assets(2)
(A/F)
Pre-tax, pre-provision return on assets(2)
(S/F)
Adjusted pre-tax, pre-provision return on assets(2)
(U/F)
Core return on equity(2)
(A/G)
Adjusted return on tangible equity(1)(2)
(A+Q)/H
Efficiency ratio(1)(2)(5)
(D-O-Q)/(C+N)
Net interest margin, fully taxable equivalent(2)
(B+P)/E
Supplementary data (in thousands)
Taxable equivalent adjustment for efficiency ratio
(N)
523
Franchise taxes included in non-interest expense
(O)
131
70
Tax equivalent adjustment for net interest margin
(P)
388
Intangible amortization
(Q)
58
ITEM 3. 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. The most significant market risk that affects us is interest rate risk. 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, or ALCO, chaired by the Bank’s Chief Financial Officer and composed of various members of the Bank’s 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 Bank's 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 Bank's 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 Bank’s 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 Bank’s Board of Directors.
The Bank's 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 March 31, 2025, 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 March 31, 2025 and 2024:
Change in Interest Rates-Basis Points (Rate Ramp)
1 - 12 Months
13 - 24 Months
$ Change
% Change
At March 31, 2025
-200
(7,070)
(5.6)
(16,840)
(12.2)
-100
(3,827)
(3.0)
(8,265)
(6.0)
+100
2,736
2.2
6,405
+200
5,375
13,364
9.0
At March 31, 2024
(6,051)
(5.0)
(12,235)
(9.6)
(3,304)
(2.7)
(6,138)
(4.8)
2,297
1.9
4,306
3.4
4,525
3.8
8,307
6.5
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 March 31, 2024, 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.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our senior management, consisting of our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Form 10-Q. Based on this evaluation, our management, including our principal executive officer and principal financial officer, concluded that as of March 31, 2025, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by using our Exchange Act reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We and our subsidiaries are parties to certain ordinary routine litigation incidental to the normal conduct of their respective businesses. Although the Company is not able to predict the outcome of such actions, 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 the Company’s consolidated financial position as a whole. 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.
ITEM 1A. RISK FACTORS
Except as set forth below, there were no material changes to the risk factors discussed in Part I, Item 1A. “Risk Factors” of our Form 10-K.
The Company may fail to realize the anticipated benefits of its previously announced merger with Guaranty Bancorp, Inc.
The Company and Guaranty Bancorp, Inc. (“Guaranty”) entered into an Agreement and Plan of Merger, dated as of March 11, 2025 (the “Merger Agreement”), pursuant to which Guaranty will merge with and into the Company (the “Merger”). The Company and Guaranty have operated independently and will continue to do so until the completion of the Merger. The success of the Merger, including anticipated benefits and cost savings, will depend on, among other things, the Company’s ability to successfully combine the businesses of the Company and Guaranty, including by minimizing any disruptions to the existing customer relationships and business functions of the Company or Guaranty, and avoiding any inconsistencies in standards, controls, procedures and policies. If the Company is not able successfully to achieve these objectives, the anticipated benefits of the Merger may not be realized fully, or at all, or may take longer to realize than expected. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy and could have an adverse effect on the Company’s business, financial condition, operating results and prospects. Among the factors considered by the boards of directors of each of the Company and Guaranty in connection with their respective approvals of the Merger Agreement were the anticipated
benefits that could result from the Merger Agreement. There can be no assurance that these benefits will be realized within the time periods contemplated or at all.
Regulatory approvals regarding the Merger may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.
Before the transactions contemplated in the Merger Agreement can be completed, various approvals must be obtained from bank regulatory agencies and other governmental authorities. In deciding whether to grant regulatory approval, the relevant governmental entities will consider a variety of factors, including the regulatory standing of each of the parties. An adverse condition or development in either party’s regulatory standing or other factors could prevent or delay the receipt of one or more of the required regulatory approvals. Even if granted, the terms and conditions of the approvals may impose requirements, limitations or costs or place restrictions on the conduct of the combined company’s business. Despite the parties’ commitments to use their reasonable best efforts to obtain regulatory approvals, under the terms of the Merger Agreement, the Company and Guaranty will not be required to complete the Merger if any such approval imposes a burdensome condition. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying the completion of the Merger, imposing additional material costs on or materially limiting the revenues of the combined company following the Merger or otherwise reduce the anticipated benefits of the Merger if the Merger were completed successfully within the expected timeframe. Additionally, the completion of the Merger is subject to the satisfaction or waiver of certain other closing conditions, including the absence of certain orders, injunctions or decrees by any governmental authority that would prohibit or make illegal the completion of the Merger.
Because of the closing conditions in the Merger Agreement and the ability of either the Company or Guaranty to terminate the Merger Agreement in specific instances, there can be no assurance when or if the Merger will be completed.
The Merger Agreement is subject to a number of conditions that must be satisfied or waived to complete the Merger. Those conditions include, among other things, (i) the accuracy of the other party’s representations and warranties, subject to certain materiality standards, including the accuracy of the other party’s representation and warranty of the absence of a material adverse effect on the other party, (ii) the other party’s performance in all material respects of its obligations under the Merger Agreement, (iii) the approval of the Merger Agreement and the transactions contemplated thereby by Guaranty shareholders, (iv) the absence of any proceeding in connection with, or that could prevent, delay, make illegal or interfere with, any of the transactions contemplated by the Merger Agreement, (v) the receipt of required regulatory approvals, (vi) the effectiveness of the registration statement of which this proxy statement/prospectus forms a part, (vii) the receipt by each party of an opinion from such party’s counsel to the effect that the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, and (viii) the approval for listing on the NYSE American of the shares of Company common stock issuable in the Merger. These conditions to the closing of the Merger may not be fulfilled in a timely manner or at all, and, accordingly, the Merger may not be completed. In addition, the parties can mutually decide to terminate the Merger Agreement at any time, before or after the required Guaranty shareholder approval, or the Company or Guaranty may elect to terminate the Merger Agreement in certain other circumstances, including that Guaranty is permitted to terminate the Merger Agreement if, as of the date regulatory approvals for the Merger are received, the price of the Company’s common stock has both decreased by 20% percent or more and decreased by 20% or more relative to a specified banking index, as more fully described in the Merger Agreement.
The Company and Guaranty will incur transaction and integration costs in connection with the Merger.
Each of the Company and Guaranty has incurred and expects that it will incur significant, nonrecurring costs in connection with consummating the Merger. In addition, the Company will incur integration costs following the completion of the Merger, including facilities and systems consolidation costs and employment-related costs. There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs over time. The Company and Guaranty may also incur additional costs to maintain employee morale and to retain key employees and will also incur significant legal, financial advisor, accounting, banking and consulting fees, fees relating to regulatory filings and notices, SEC filing fees, printing and mailing fees and other costs associated with the Merger.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
No unregistered equity securities were sold by the Company during the quarter ended March 31, 2025.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the quarter ended March 31, 2025, 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.
ITEM 6. EXHIBITS
2.1
Agreement and Plan of Merger, dated as of March 11, 2025, between Bar Harbor Bankshares and Guaranty Bancorp, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on March 11, 2025)
10.1
Form of Voting Agreement, dated as of March 11, 2025, by and between Bar Harbor Bankshares and each of the shareholders of Guaranty Bancorp, Inc. listed on the signature pages therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 11, 2025)
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
101*
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 is formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Changes in Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Condensed Notes to the Consolidated Financial Statements
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Filed herewith
**Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 8, 2025
By:
/s/ Curtis C. Simard
Curtis C. Simard
President & Chief Executive Officer
(Principal Executive Officer)
/s/ Josephine Iannelli
Josephine Iannelli
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)