SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended:
September 30,
For the transition period from to
Commission File Number:
001-13349BAR 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:
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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
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"large accelerated filer,” “accelerated filer”" "accelerated filer", “smaller"smaller reporting company”company", or "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer
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
The Registrant had 15,433,95714,986,786 shares of common stock, par value $2.00 per share, outstanding as of November 3, 2017.5, 2021.
FORM 10-Q
| | Page | |||||
| |||||||
| | | |||||
| |||||||
| | | |||||
| |||||||
| | | |||||
| 6 | ||||||
| | | |||||
| 7 | ||||||
| | | |||||
| 8 | ||||||
| | | |||||
| 9 | ||||||
| | | |||||
| | ||||||
| | 11 | |||||
| | ||||||
21 | |||||||
| | 24 | |||||
| | 36 | |||||
| | ||||||
| | ||||||
39 | |||||||
| | 44 | |||||
| | ||||||
| | 54 | |||||
| | 61 | |||||
| | 63 | |||||
| | | | | |||
| | | | | |||
65 | |||||||
| | ||||||
66 | |||||||
| | ||||||
67 | |||||||
| | ||||||
68 | |||||||
| | ||||||
70 | |||||||
| | 71 | |||||
| | 73 | |||||
| | | |||||
79 | |||||||
| | | |||||
81 | |||||||
| |||||||
| | | |||||
| |||||||
| | | |||||
81 | |||||||
| | | |||||
81 | |||||||
| | | |||||
82 | |||||||
| | | |||||
83 | |||||||
| | | |||||
| |||||||
84 |
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 company, "our," "us," and similar terms refer to Bar Harbor Bankshares and its subsidiaries, including the Bank, collectively.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions are intended to identify forward-looking statements, but these terms are not the exclusive means of identifying forward-looking statements. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission, including but not limited to those discussed in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Because of these and other uncertainties, the Company’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, the Company’s past results of operations do not necessarily indicate future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. The Company is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. The Company qualifies all of its forward-looking statements by these cautionary statements.
3
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| | | | | | |
(in thousands, except share data) |
| September 30, 2021 |
| December 31, 2020 | ||
Assets |
| |
|
| |
|
Cash and cash equivalents: | | | | | | |
Cash and due from banks | | $ | 39,081 | | $ | 27,566 |
Interest-bearing deposits with other banks | |
| 302,118 | |
| 198,441 |
Total cash and cash equivalents | |
| 341,199 | |
| 226,007 |
| | | | | | |
Securities: | | | | | | |
Securities available for sale | |
| 545,327 | |
| 585,046 |
Federal Home Loan Bank stock | |
| 10,192 | |
| 14,036 |
Total securities | |
| 555,519 | |
| 599,082 |
| | | | | | |
Loans held for sale | | | 7,505 | | | 23,988 |
| | | | | | |
Total loans | |
| 2,534,154 | |
| 2,562,885 |
Less: Allowance for credit losses | |
| (22,448) | |
| (19,082) |
Net loans | |
| 2,511,706 | |
| 2,543,803 |
| | | | | | |
Premises and equipment, net | |
| 50,070 | |
| 52,458 |
Goodwill | |
| 119,477 | |
| 119,477 |
Other intangible assets | |
| 6,966 | |
| 7,670 |
Cash surrender value of bank-owned life insurance | |
| 79,380 | |
| 77,870 |
Deferred tax assets, net(1) | |
| 5,811 | |
| 3,047 |
Other assets(1) | |
| 60,712 | |
| 70,873 |
Total assets(1) | | $ | 3,738,345 | | $ | 3,724,275 |
| | | | | | |
Liabilities | |
|
| |
|
|
Deposits: | |
|
| |
|
|
Demand | | $ | 664,395 | | $ | 544,636 |
NOW | |
| 888,021 | |
| 738,849 |
Savings | |
| 605,977 | |
| 521,638 |
Money market | |
| 379,651 | |
| 402,731 |
Time | |
| 469,221 | |
| 698,361 |
Total deposits | |
| 3,007,265 | |
| 2,906,215 |
| | | | | | |
Borrowings: | |
|
| |
|
|
Senior | |
| 190,267 | |
| 276,062 |
Subordinated | |
| 60,083 | |
| 59,961 |
Total borrowings | |
| 250,350 | |
| 336,023 |
| | | | | | |
Other liabilities(1) | |
| 62,295 | |
| 74,972 |
Total liabilities(1) | |
| 3,319,910 | |
| 3,317,210 |
| | | | | | |
(continued)
4
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (continued)
| | | | | | |
(in thousands, except share data) |
| September 30, 2021 |
| December 31, 2020 | ||
Shareholders’ equity |
| | |
| | |
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares at September 30, 2021 and December 31, 2020 |
| | 32,857 |
| | 32,857 |
Additional paid-in capital |
| | 190,892 |
| | 190,084 |
Retained earnings |
| | 209,426 |
| | 195,607 |
Accumulated other comprehensive income(1) |
| | 2,888 |
| | 6,740 |
Less: 1,441,763 and 1,512,465 shares of treasury stock at September 30, 2021 and December 31, 2020, respectively |
| | (17,628) |
| | (18,223) |
Total shareholders’ equity(1) |
| | 418,435 |
| | 407,065 |
Total liabilities and shareholders’ equity(1) | | $ | 3,738,345 | | $ | 3,724,275 |
(In thousands, except share data) | September 30, 2017 | December 31, 2016 | ||||||
Assets | ||||||||
Cash and due from banks | $ | 31,223 | $ | 8,219 | ||||
Interest-bearing deposit with the Federal Reserve Bank | 17,501 | 220 | ||||||
Total cash and cash equivalents | 48,724 | 8,439 | ||||||
Securities available for sale, at fair value | 718,459 | 528,856 | ||||||
Federal Home Loan Bank stock | 37,107 | 25,331 | ||||||
Total securities | 755,566 | 554,187 | ||||||
Commercial real estate | 793,572 | 418,119 | ||||||
Commercial and industrial | 357,072 | 151,240 | ||||||
Residential real estate | 1,152,628 | 506,612 | ||||||
Consumer | 125,590 | 53,093 | ||||||
Total loans | 2,428,862 | 1,129,064 | ||||||
Less: Allowance for loan losses | (11,950 | ) | (10,419 | ) | ||||
Net loans | 2,416,912 | 1,118,645 | ||||||
Premises and equipment, net | 48,309 | 23,419 | ||||||
Other real estate owned | 122 | 90 | ||||||
Goodwill | 100,255 | 4,935 | ||||||
Other intangible assets | 8,811 | 377 | ||||||
Cash surrender value of bank-owned life insurance | 57,613 | 24,450 | ||||||
Deferred tax assets, net | 13,052 | 5,990 | ||||||
Other assets | 26,368 | 14,817 | ||||||
Total assets | $ | 3,475,732 | $ | 1,755,349 | ||||
Liabilities | ||||||||
Demand and other non-interest bearing deposits | $ | 357,398 | $ | 98,856 | ||||
NOW deposits | 442,085 | 175,150 | ||||||
Savings deposits | 373,118 | 77,623 | ||||||
Money market deposits | 300,398 | 282,234 | ||||||
Time deposits | 802,110 | 416,437 | ||||||
Total deposits | 2,275,109 | 1,050,300 | ||||||
Senior borrowings | 775,582 | 531,596 | ||||||
Subordinated borrowings | 43,048 | 5,000 | ||||||
Total borrowings | 818,630 | 536,596 | ||||||
Other liabilities | 28,534 | 11,713 | ||||||
Total liabilities | 3,122,273 | 1,598,609 | ||||||
Shareholders’ equity | ||||||||
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,387 and 10,182,611 shares at September 30, 2017 and December 31, 2016, respectively | 32,858 | 13,577 | ||||||
Additional paid-in capital | 186,220 | 23,027 | ||||||
Retained earnings | 141,251 | 130,489 | ||||||
Accumulated other comprehensive loss | (1,435 | ) | (4,326 | ) | ||||
Less: cost of 996,531 and 1,067,016 shares of treasury stock at September 30, 2017 and December 31, 2016, respectively | (5,435 | ) | (6,027 | ) | ||||
Total shareholders’ equity | 353,459 | 156,740 | ||||||
Total liabilities and shareholders’ equity | $ | 3,475,732 | $ | 1,755,349 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements.
5
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Interest and dividend income | |||||||||||||||
Loans | $ | 24,661 | $ | 10,295 | $ | 70,081 | $ | 30,627 | |||||||
Securities and other | 5,402 | 3,828 | 15,832 | 12,014 | |||||||||||
Total interest and dividend income | 30,063 | 14,123 | 85,913 | 42,641 | |||||||||||
Interest expense | |||||||||||||||
Deposits | 3,177 | 1,755 | 7,926 | 4,931 | |||||||||||
Borrowings | 3,408 | 1,369 | 9,327 | 3,993 | |||||||||||
Total interest expense | 6,585 | 3,124 | 17,253 | 8,924 | |||||||||||
Net interest income | 23,478 | 10,999 | 68,660 | 33,717 | |||||||||||
Provision for loan losses | 660 | 139 | 2,191 | 754 | |||||||||||
Net interest income after provision for loan losses | 22,818 | 10,860 | 66,469 | 32,963 | |||||||||||
Non-interest income | |||||||||||||||
Trust and investment management fee income | 3,040 | 975 | 9,228 | 2,878 | |||||||||||
Insurance and brokerage service income | 329 | — | 1,020 | — | |||||||||||
Customer service fees | 2,638 | 706 | 5,990 | 1,999 | |||||||||||
Gain on sales of securities, net | 19 | 1,354 | 19 | 4,489 | |||||||||||
Bank-owned life insurance income | 380 | 197 | 1,165 | 540 | |||||||||||
Other income | 554 | 140 | 2,043 | 408 | |||||||||||
Total non-interest income | 6,960 | 3,372 | 19,465 | 10,314 | |||||||||||
Non-interest expense | |||||||||||||||
Salaries and employee benefits | 9,617 | 4,832 | 30,065 | 14,648 | |||||||||||
Occupancy and equipment | 2,894 | 1,156 | 8,573 | 3,466 | |||||||||||
Loss on premises and equipment, net | (1 | ) | 216 | 94 | 216 | ||||||||||
Outside services | 907 | 181 | 2,220 | 430 | |||||||||||
Professional services | 428 | 250 | 1,357 | 1,084 | |||||||||||
Communication | 382 | 128 | 1,040 | 492 | |||||||||||
Amortization of intangible assets | 189 | 1 | 534 | 25 | |||||||||||
Acquisition expenses | 346 | 320 | 5,917 | 812 | |||||||||||
Other expenses | 2,824 | 1,666 | 8,663 | 4,305 | |||||||||||
Total non-interest expense | 17,586 | 8,750 | 58,463 | 25,478 | |||||||||||
Income before income taxes | 12,192 | 5,482 | 27,471 | 17,799 | |||||||||||
Income tax expense | 3,575 | 1,850 | 8,085 | 5,450 | |||||||||||
Net income | $ | 8,617 | $ | 3,632 | $ | 19,386 | $ | 12,349 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 0.56 | $ | 0.40 | $ | 1.27 | $ | 1.37 | |||||||
Diluted | $ | 0.56 | $ | 0.40 | $ | 1.27 | $ | 1.35 | |||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 15,420 | 9,064 | 15,098 | 9,037 | |||||||||||
Diluted | 15,511 | 9,162 | 15,204 | 9,138 |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands, except earnings per share data) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Interest and dividend income | | | | | | | | | | | | |
Loans | | $ | 25,094 | | $ | 25,918 | | $ | 72,490 | | $ | 80,398 |
Securities and other | |
| 3,821 | |
| 4,557 | |
| 11,792 | |
| 15,006 |
Total interest and dividend income | |
| 28,915 | |
| 30,475 | |
| 84,282 | |
| 95,404 |
Interest expense | |
|
| |
|
| |
|
| |
|
|
Deposits | |
| 1,555 | |
| 3,869 | |
| 7,109 | |
| 14,437 |
Borrowings | |
| 1,778 | |
| 1,941 | |
| 5,415 | |
| 7,149 |
Total interest expense | |
| 3,333 | |
| 5,810 | |
| 12,524 | |
| 21,586 |
Net interest income | |
| 25,582 | |
| 24,665 | |
| 71,758 | |
| 73,818 |
Provision for credit losses | |
| (174) | |
| 1,800 | |
| (1,428) | |
| 4,265 |
Net interest income after provision for loan losses | |
| 25,756 | |
| 22,865 | |
| 73,186 | |
| 69,553 |
| | | | | | | | | | | | |
Non-interest income | |
|
| |
|
| |
|
| |
|
|
Trust and investment management fee income | |
| 3,868 | |
| 3,532 | |
| 11,335 | |
| 10,060 |
Customer service fees | |
| 3,515 | |
| 2,886 | |
| 9,742 | |
| 8,437 |
Gain on sales of securities, net | |
| 1,930 | |
| — | |
| 1,980 | |
| 1,486 |
Mortgage banking income | | | 850 | | | 2,649 | | | 4,973 | | | 4,230 |
Bank-owned life insurance income | |
| 494 | |
| 492 | |
| 1,510 | |
| 1,525 |
Customer derivative income | |
| 341 | |
| 316 | |
| 837 | |
| 1,417 |
Other income | |
| 352 | |
| 227 | |
| 726 | |
| 1,078 |
Total non-interest income | |
| 11,350 | |
| 10,102 | |
| 31,103 | |
| 28,233 |
| | | | | | | | | | | | |
Non-interest expense | |
|
| |
|
| |
|
| |
|
|
Salaries and employee benefits | |
| 11,743 | |
| 11,809 | |
| 35,275 | |
| 35,602 |
Occupancy and equipment | |
| 4,029 | |
| 4,279 | |
| 12,251 | |
| 12,559 |
Loss (gain) on sales of premises and equipment, net | |
| (146) | |
| — | |
| (137) | |
| 90 |
Outside services | |
| 547 | |
| 438 | |
| 1,512 | |
| 1,414 |
Professional services | |
| 491 | |
| 479 | |
| 1,200 | |
| 1,488 |
Communication | |
| 188 | |
| 215 | |
| 707 | |
| 698 |
Marketing | |
| 339 | |
| 300 | |
| 1,163 | |
| 970 |
Amortization of intangible assets | |
| 233 | |
| 256 | |
| 707 | |
| 768 |
Loss on debt extinguishment | | | 1,768 | | | — | | | 1,768 | | | 1,351 |
Acquisition, conversion and other expenses | |
| 318 | |
| 691 | |
| 1,759 | |
| 952 |
Other expenses | |
| 3,862 | |
| 3,952 | |
| 11,382 | |
| 11,152 |
Total non-interest expense | |
| 23,372 | |
| 22,419 | |
| 67,587 | |
| 67,044 |
| | | | | | | | | | | | |
Income before income taxes | |
| 13,734 | |
| 10,548 | |
| 36,702 | |
| 30,742 |
Income tax expense | |
| 2,706 | |
| 2,146 | |
| 7,169 | |
| 6,138 |
Net income | | $ | 11,028 | | $ | 8,402 | | $ | 29,533 | | $ | 24,604 |
| | | | | | | | | | | | |
Earnings per share: | |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 0.74 | | $ | 0.56 | | $ | 1.97 | | $ | 1.60 |
Diluted | | $ | 0.73 | | $ | 0.56 | | $ | 1.96 | | $ | 1.60 |
| | | | | | | | | | | | |
Weighted average common shares outstanding: | |
|
| |
|
| |
|
| |
|
|
Basic | |
| 14,983 | |
| 15,079 | |
| 14,961 | |
| 15,359 |
Diluted | |
| 15,051 | |
| 15,103 | |
| 15,035 | |
| 15,382 |
The accompanying notes are an integral part of these consolidated financial statements.
6
| | | | | | | | | | | | |
|
| Three Months Ended |
| Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net income | | $ | 11,028 | | $ | 8,402 | | $ | 29,533 | | $ | 24,604 |
Other comprehensive income, before tax: | |
|
| |
|
| |
|
| |
|
|
Changes in unrealized (loss) gain on securities available for sale | |
| (3,700) | |
| 351 | |
| (7,328) | |
| 7,922 |
Changes in unrealized (loss) gain on hedging derivatives(1) | |
| (203) | |
| 1,302 | |
| 2,311 | |
| (7,568) |
Changes in unrealized loss on pension | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
| | | | | | | | | | | | |
Income taxes related to other comprehensive income: | |
|
| |
|
| |
|
| |
|
|
Changes in unrealized loss (gain) on securities available for sale | |
| 861 | |
| (82) | |
| 1,703 | |
| (1,791) |
Changes in unrealized loss (gain) on hedging derivatives(1) | |
| 48 | |
| (308) | |
| (538) | |
| 1,776 |
Changes in unrealized loss on pension | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Total other comprehensive (loss) income(1) | |
| (2,994) | |
| 1,263 | |
| (3,852) | |
| 339 |
Total comprehensive income(1) | | $ | 8,034 | | $ | 9,665 | | $ | 25,681 | | $ | 24,943 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 8,617 | $ | 3,632 | $ | 19,386 | $ | 12,349 | ||||||||
Other comprehensive income (loss), before tax: | ||||||||||||||||
Changes in unrealized loss on securities available-for-sale | 512 | (5,577 | ) | 5,119 | 3,041 | |||||||||||
Changes in unrealized loss on derivative hedges | (84 | ) | (92 | ) | (805 | ) | (1,309 | ) | ||||||||
Changes in unrealized loss on pension | 5 | 8 | 45 | 86 | ||||||||||||
Income taxes related to other comprehensive income (loss): | ||||||||||||||||
Changes in unrealized loss on securities available-for-sale | (192 | ) | 1,952 | (1,839 | ) | (1,064 | ) | |||||||||
Changes in unrealized loss on derivative hedges | 31 | 32 | 373 | 458 | ||||||||||||
Changes in unrealized loss on pension | (2 | ) | (3 | ) | (2 | ) | (30 | ) | ||||||||
Total other comprehensive income | 270 | (3,680 | ) | 2,891 | 1,182 | |||||||||||
Total comprehensive income | $ | 8,887 | $ | (48 | ) | $ | 22,277 | $ | 13,531 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements.
7
| | | | | | | | | | | | | | | | | | |
|
| |
| | | |
| | | | Accumulated |
| | |
| | | |
| | Common | | Additional | | | | | other | | | | | | | |||
| | stock | | paid-in | | Retained | | comprehensive | | Treasury | | | | |||||
(in thousands, except per share data) |
| amount |
| capital |
| earnings |
| income (loss)(1) |
| stock |
| Total(1) | ||||||
Balance at December 31, 2019 |
| $ | 32,857 | | $ | 188,536 | | $ | 175,780 | | $ | 3,792 | | $ | (4,677) | | $ | 396,288 |
Net income | |
| 0 | |
| 0 | |
| 16,202 | |
| 0 | |
| 0 | |
| 16,202 |
Other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| (924) | |
| 0 | |
| (924) |
Cash dividends declared ($0.44 per share) | |
| 0 | |
| 0 | |
| (6,819) | |
| 0 | |
| 0 | |
| (6,819) |
Treasury stock purchased (405,208 shares) | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (7,467) | |
| (7,467) |
Net issuance (61,025 shares) to employee stock plans, including related tax effects | |
| 0 | |
| 406 | |
| 0 | |
| 0 | |
| 251 | |
| 657 |
Recognition of stock based compensation | |
| 0 | |
| 584 | |
| 0 | |
| 0 | |
| 0 | |
| 584 |
Balance at June 30, 2020 | | $ | 32,857 | | $ | 189,526 | | $ | 185,163 | | $ | 2,868 | | $ | (11,893) | | $ | 398,521 |
Net income | |
| 0 | |
| 0 | |
| 8,402 | |
| 0 | |
| 0 | |
| 8,402 |
Other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| 1,263 | |
| 0 | |
| 1,263 |
Cash dividends declared ($0.22 per share) | |
| 0 | |
| 0 | |
| (3,316) | |
| 0 | |
| 0 | |
| (3,316) |
Common stock purchased (297,658 shares) | |
| 0 | |
| 0 | |
| 0 | |
| 0 | |
| (6,003) | |
| (6,003) |
Net issuance (12,275 shares) to employee stock plans, including related tax effects | |
| 0 | |
| (199) | |
| 0 | |
| 0 | |
| 224 | |
| 25 |
Recognition of stock based compensation | |
| 0 | |
| 279 | |
| 0 | |
| 0 | |
| 0 | |
| 279 |
Balance at September 30, 2020 | | $ | 32,857 | | $ | 189,606 | | $ | 190,249 | | $ | 4,131 | | $ | (17,672) | | $ | 399,171 |
| | | | | | | | | | | | | | | | | | |
Balance at December 31, 2020 | | $ | 32,857 | | $ | 190,084 | | $ | 195,607 | | $ | 6,740 | | $ | (18,223) | | $ | 407,065 |
Allowance for credit losses cumulative-effect adjustment - ASU 2016-13 (Note 1) | | | 0 | | | 0 | | | (5,242) | | | 0 | | | 0 | | | (5,242) |
Net income | |
| 0 | |
| 0 | |
| 18,505 | |
| 0 | |
| 0 | |
| 18,505 |
Other comprehensive loss | |
| 0 | |
| 0 | |
| 0 | |
| (858) | |
| 0 | |
| (858) |
Cash dividends declared ($0.46 per share) | |
| 0 | |
| 0 | |
| (6,876) | |
| 0 | |
| 0 | |
| (6,876) |
Net issuance (56,290 shares) to employee stock plans, including related tax effects | |
| 0 | |
| (280) | |
| 0 | |
| 0 | |
| 449 | |
| 169 |
Recognition of stock based compensation | |
| 0 | |
| 997 | |
| 0 | |
| 0 | |
| 0 | |
| 997 |
Balance at June 30, 2021 | | $ | 32,857 | | $ | 190,801 | | $ | 201,994 | | $ | 5,882 | | $ | (17,774) | | $ | 413,760 |
Net income | |
| 0 | |
| 0 | |
| 11,028 | |
| 0 | |
| 0 | |
| 11,028 |
Other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| (2,994) | |
| 0 | |
| (2,994) |
Cash dividends declared ($0.24 per share) | |
| 0 | |
| 0 | |
| (3,596) | |
| 0 | |
| 0 | |
| (3,596) |
Net issuance (14,412 shares) to employee stock plans, including related tax effects | |
| 0 | |
| (276) | |
| 0 | |
| 0 | |
| 146 | |
| (130) |
Recognition of stock based compensation | |
| 0 | |
| 367 | |
| 0 | |
| 0 | |
| 0 | |
| 367 |
Balance at September 30, 2021 | | $ | 32,857 | | $ | 190,892 | | $ | 209,426 | | $ | 2,888 | | $ | (17,628) | | $ | 418,435 |
(In thousands) | Common stock amount | Additional paid-in capital | Retained earnings | Accumulated other comprehensive income | Treasury stock | Total | ||||||||||||||||||
Balance at December 31, 2015 | $ | 13,577 | $ | 21,624 | $ | 122,260 | $ | 3,629 | $ | (6,938 | ) | $ | 154,152 | |||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | — | — | 12,349 | — | — | 12,349 | ||||||||||||||||||
Other comprehensive loss | — | — | — | 1,182 | — | 1,182 | ||||||||||||||||||
Total comprehensive income | — | — | 12,349 | 1,182 | — | 13,531 | ||||||||||||||||||
Cash dividends declared ($0.54 per share) | — | — | (4,880 | ) | — | — | (4,880 | ) | ||||||||||||||||
Treasury stock purchased (23,072) | — | — | — | — | (497 | ) | (497 | ) | ||||||||||||||||
Net issuance (91,466) to employee stock plans, including related tax effects | — | 35 | (127 | ) | — | 1,140 | 1,048 | |||||||||||||||||
Recognition of stock based compensation | — | 982 | — | — | 982 | |||||||||||||||||||
Balance at September 30, 2016 | $ | 13,577 | $ | 22,641 | $ | 129,602 | $ | 4,811 | $ | (6,295 | ) | $ | 164,336 | |||||||||||
Balance at December 31, 2016 | $ | 13,577 | $ | 23,027 | $ | 130,489 | $ | (4,326 | ) | $ | (6,027 | ) | $ | 156,740 | ||||||||||
Comprehensive income: | ||||||||||||||||||||||||
Net income | — | — | 19,386 | — | — | 19,386 | ||||||||||||||||||
Other comprehensive loss | — | — | — | 2,891 | — | 2,891 | ||||||||||||||||||
Total comprehensive income | — | — | 19,386 | 2,891 | — | 22,277 | ||||||||||||||||||
Cash dividends declared ($0.56 per share) | — | — | (8,624 | ) | — | — | (8,624 | ) | ||||||||||||||||
Acquisition of Lake Sunapee Bank Group | 8,328 | 173,591 | — | — | — | 181,919 | ||||||||||||||||||
Treasury stock purchased (9,603 shares) | — | — | — | — | (282 | ) | (282 | ) | ||||||||||||||||
Net issuance (80,448 shares) to employee stock plans, including related tax effects | — | (265 | ) | — | — | 874 | 609 | |||||||||||||||||
Three-for-two stock split | 10,953 | (10,968 | ) | — | — | — | (15 | ) | ||||||||||||||||
Recognition of stock based compensation | — | 835 | — | — | — | 835 | ||||||||||||||||||
Balance at September 30, 2017 | $ | 32,858 | $ | 186,220 | $ | 141,251 | $ | (1,435 | ) | $ | (5,435 | ) | $ | 353,459 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
The accompanying notes are an integral part of these consolidated financial statements.
8
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | |
| | Nine Months Ended September 30, | ||||
(in thousands) |
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
|
|
| | |
|
Net income |
| $ | 29,533 | | $ | 24,604 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
|
Provision for credit losses | |
| (1,428) | |
| 4,265 |
Net amortization of securities | |
| 3,788 | |
| 2,472 |
Change in unamortized net loan costs and premiums | |
| (2,739) | |
| 1,923 |
Premises and equipment depreciation | |
| 3,466 | |
| 3,571 |
Stock-based compensation expense | |
| 1,364 | |
| 863 |
Accretion of purchase accounting entries, net | |
| 10 | |
| 7 |
Amortization of other intangibles | |
| 704 | |
| 768 |
Income from cash surrender value of bank-owned life insurance policies | |
| (1,510) | |
| (1,525) |
Gain on sales of securities, net | |
| (1,980) | |
| (1,486) |
Decrease (increase) in right-of-use lease assets | | | 851 | | | (578) |
(Decrease) increase in lease liabilities | | | (786) | | | 625 |
Loss on other real estate owned | |
| — | |
| 366 |
(Gain) loss on premises and equipment, net | |
| (137) | |
| 90 |
Net change in other assets and liabilities | |
| (373) | |
| (3,978) |
Net cash provided by operating activities | |
| 30,763 | |
| 31,987 |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Proceeds from sales of securities available for sale | |
| 54,388 | |
| 87,521 |
Proceeds from maturities, calls and prepayments of securities available for sale | |
| 99,580 | |
| 109,314 |
Purchases of securities available for sale | |
| (123,335) | |
| (131,107) |
Net change in loans | |
| 47,519 | |
| (71,233) |
Purchase of FHLB stock | |
| (790) | |
| (4,044) |
Proceeds from sale of FHLB stock | |
| 4,634 | |
| 10,748 |
Purchase of premises and equipment, net | |
| (1,216) | |
| (4,449) |
Net investment in community limited partnerships | | | (1,112) | | | — |
Acquisitions, net of cash acquired | | | — | | | (340) |
Proceeds from sale of other real estate owned | | | — | | | (113) |
Net cash provided by (used in) investing activities | |
| 79,668 | |
| (3,703) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Net change in deposits | |
| 101,050 | |
| 239,164 |
Net change in short-term senior borrowings | | | 9,324 | | | (273,268) |
Proceeds from long-term senior borrowings | | | — | | | 273,342 |
Repayments of long-term senior borrowings | | | (89,018) | | | (71,187) |
Net change in short-term other borrowings | |
| (6,112) | |
| (14,784) |
Net change subordinated debt issuance costs | | | — | | | 119 |
Exercise of stock options | | | 39 | | | 682 |
Purchase of treasury and common stock | | | — | | | (13,470) |
Cash dividends paid on common stock | |
| (10,472) | |
| (10,135) |
Net cash provided by financing activities | |
| 4,811 | |
| 130,463 |
(continued) |
9
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, | ||||||||
(In thousands) | 2017 | 2016 | ||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 19,386 | $ | 12,349 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for loan losses | 2,191 | 754 | ||||||
Net amortization of securities | 4,006 | 2,293 | ||||||
Deferred tax benefit | (237 | ) | — | |||||
Change in unamortized net loan costs and premiums | (368 | ) | — | |||||
Premises and equipment depreciation and amortization expense | 2,745 | 1,159 | ||||||
Stock-based compensation expense | 835 | 982 | ||||||
Accretion of purchase accounting entries, net | (2,482 | ) | — | |||||
Amortization of other intangibles | 542 | 69 | ||||||
Income from cash surrender value of bank-owned life insurance policies | (1,165 | ) | (540 | ) | ||||
Gain on sales of securities, net | (19 | ) | (4,489 | ) | ||||
Loss on premises and equipment, net | 95 | — | ||||||
Net change in other | (2,387 | ) | (695 | ) | ||||
Net cash provided by operating activities | 23,142 | 11,882 | ||||||
Cash flows from investing activities: | ||||||||
Proceeds from sales of securities available for sale | 1,581 | 66,431 | ||||||
Proceeds from maturities, calls and prepayments of securities available for sale | 92,817 | 78,190 | ||||||
Purchases of securities available for sale | (138,785 | ) | (171,702 | ) | ||||
Net change in loans | (71,669 | ) | (2,842 | ) | ||||
Purchase of loans | (18,621 | ) | (95,421 | ) | ||||
Purchase of Federal Home Loan Bank stock | (327 | ) | (2,233 | ) | ||||
Purchase of premises and equipment, net | (3,011 | ) | (3,567 | ) | ||||
Acquisitions, net of cash (paid) acquired | 39,537 | — | ||||||
Proceeds from sale of other real estate | 322 | — | ||||||
Net cash used in investing activities | (98,156 | ) | (131,144 | ) | ||||
Cash flows from financing activities: | ||||||||
Net decrease in deposits | 74,725 | 90,738 | ||||||
Net change in short-term advances from the Federal Home Loan Bank | 110,801 | 31,250 | ||||||
Net change in long term advances from the Federal Home Loan Bank | (62,531 | ) | 8,238 | |||||
Net change in securities sold repurchase agreements | 672 | (1,784 | ) | |||||
Exercise of stock options | 451 | 1,048 | ||||||
Purchase of treasury stock | (196 | ) | (497 | ) | ||||
Common stock cash dividends paid | (8,623 | ) | (4,880 | ) | ||||
Net cash provided by financing activities | 115,299 | 124,113 | ||||||
Net change in cash and cash equivalents | 40,285 | 4,851 | ||||||
Cash and cash equivalents at beginning of year | 8,439 | 9,720 | ||||||
Cash and cash equivalents at end of year | $ | 48,724 | $ | 14,571 | ||||
Supplemental cash flow information: | ||||||||
Interest paid | $ | 16,184 | $ | 8,858 | ||||
Income taxes paid, net | 6,764 | 5,342 | ||||||
Acquisition of non-cash assets and liabilities: | ||||||||
Assets acquired | 1,454,076 | — | ||||||
Liabilities assumed | 1,406,672 | — | ||||||
Other non-cash changes: | ||||||||
Real estate owned acquired in settlement of loans | 32 | — |
| | | | | | |
| | Nine Months Ended September 30, | ||||
(in thousands) |
| 2021 |
| 2020 | ||
Net change in cash and cash equivalents | |
| 115,242 | |
| 158,747 |
Cash and cash equivalents at beginning of year | |
| 226,007 | |
| 56,910 |
Cash and cash equivalents at end of period | | $ | 341,249 | | $ | 215,657 |
| | | | | | |
Supplemental cash flow information: | |
|
| |
|
|
Interest paid | | $ | 13,052 | | $ | 22,085 |
Income taxes paid, net | |
| 7,755 | |
| 4,806 |
| | | | | | |
Acquisition of non-cash assets and liabilities: | | | | | | |
Assets acquired | | | — | | | 1,171 |
Liabilities acquired | | | — | | | (343) |
The accompanying notes are an integral part of these consolidated financial statements.
10
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements (the “financial statements”) of Bar Harbor Bankshares and its subsidiaries (the “Company” or “Bar Harbor”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Bar Harbor Bankshares is a Maine Financial Institution Holding Company for the purposes of the laws of the state of Maine, and as such is subject to the jurisdiction of the Superintendent of the Maine Bureau of Financial Institutions. These financial statements include the accounts of the Company, its wholly-ownedwholly owned subsidiary Bar Harbor Bank & Trust (the "Bank") and the Bank’s consolidated subsidiaries. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly-ownedwholly owned and majority-ownedmajority owned subsidiaries are consolidated unless U.S. 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 U.S. GAAP have been omitted.
The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures for the Company's Annual Report on Form 10-K for the year ended December 31, 20162020 previously filed with the Securities and Exchange Commission.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 prior years’ financial statements are reclassified to conform to current presentation. The reclassifications had no impact on net income in the Company’s consolidated income statement.
Summary of Significant Accounting Policies
The disclosures below supplement updates the accounting policies previously disclosed in NOTE 1 – Summary of Significant Accounting Policies of the Lake Sunapee Group acquisition,Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The updates reflect the adoption of the Financial Accounting Standards Board (FASB) Accounting Standards Updates (ASU) 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments”, referred to as ASC 326 or, more commonly, referred to as Current Expected Credit Losses (CECL).
Allowance for Credit Loss on AFS Debt Securities: Upon adoption of CECL, effective January 1, 2021, the Company monitors the credit quality of available for sale (AFS) debt securities through credit ratings from various rating agencies and substantial price changes. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment grade, or significant pricing changes. For securities without credit ratings, the following new significantCompany utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and critical accounting policy regardingan allowance on AFS debt securities is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. When assessing an AFS debt security for credit loss, securities with identical CUSIPs are pooled together to assess for impairment using the average cost basis. Any impairment that has not been recorded through an allowance is recognized in other comprehensive income.
A change in the allowance on AFS debt securities may be in full or a portion thereof, is recorded as expense (credit) within provision for credit losses on the consolidated statements of income. Losses are charged against the allowance when management believes the uncollectibility of an AFS debt security is confirmed based on the above described analysis. As
11
of September 30, 2021 and January 1, 2021 (i.e. ASU 2016-13 adoption), there was 0 allowance carried on the Company's AFS debt securities. Refer to Note 2 of the consolidated financial statements for further discussion.
Loans: Loans held for investment by the Company are reported at amortized cost. Amortized cost is the principal balance outstanding net of the unamortized balance of any deferred fees or costs and the unamortized balance of any premiums or discounts on loans purchased or acquired loans:
For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual term of the loan using the level-yield method over the estimated lives of the related loans. When a loan is paid off, the unamortized portion of deferred fees or costs are recognized in interest income. Interest income on originated loans is accrued based upon the daily principal amount outstanding except for loans on non-accrual status.
For acquired loans, interest income is accrued based upon the daily principal amount outstanding and is then further adjusted by the accretion of any discount or amortization of any premium associated with the loan that was recognized based on the acquisition date fair value. When a loan is paid off, the unamortized portion of any premiums or discounts on loans are recognized in interest income.
Purchase Credit Deteriorated (PCD) Loans:
Loans that the Company acquired in
The Company adopted CECL using the prospective transition approach for financial assets purchased with no carryovercredit deterioration that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the standard, the Company did not reassess whether PCI assets met the definition of PCD assets as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets representing the noncredit discount will be accreted into interest income using the level-yield method over the estimated lives of the related loans. The converted PCD assets of $12.5 million were then pooled by call report coding and an additional allowance was calculated on the pooled assets separately from other loan pools totaling $524 thousand.
Non-performing loans: Residential real estate and consumer loans are generally placed on non-accrual status when reaching 90 days past due, or in process of foreclosure, or sooner if considered appropriate by management. Secured consumer loans are written down to net realizable value and unsecured consumer loans are charged-off upon reaching 120 days past due. Commercial real estate loans and commercial business loans that are 90 days or more past due are generally placed on non-accrual status, unless secured by sufficient cash or other assets immediately convertible to cash, and the loan is in the process of collection. Commercial real estate and commercial business loans may be placed on non-accrual status prior to the 90 days delinquency date if considered appropriate by management.
When a loan has been placed on non-accrual status, previously accrued and uncollected interest is reversed against interest on the loan. The interest on non-accrual loans is accounted for using the cash-basis or cost-recovery method depending on corresponding credit losses. Determiningrisk, until qualifying for return to accrual status. A loan can be returned to accrual status when collectability of principal is reasonably assured and the fairloan has performed for a period of time, generally six months.
Previously, acquired loans that met the criteria for non-accrual of interest prior to the acquisition were considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company could reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans involves estimatingand any change in performance would have impacted accretable yield. After adoption of ASC 326 on January 1, 2021 the amountCompany now treats these non-performing acquired loans that meet the criteria for non-accrual consistent with originated loans.
Allowance for Credit Losses: The allowance for credit losses (the “allowance”) is a significant accounting estimate used in the preparation of the Company’s consolidated financial statements. The Allowance is comprised of the allowance for
12
loan losses and timingthe allowance for off-balance sheet credit exposures, which is accounted for as a separate liability in other liabilities on the balance sheet. The level of principal and interest cash flows initiallythe allowance represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date.
Upon adoption of ASC 326 or CECL on January 1, 2021, the Company replaced the incurred loss impairment model that recognizes losses when it became probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged- off. The allowance is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans and discounting thoseTDRs.
The Company uses the discounted cash flow (DCF) method to estimate expected credit losses for all loan portfolio segments measured on a collective (pool) basis. For each loan segment, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, probability of default, and loss given default. The modeling of prepayment speeds is based on historical internal data.
The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes various economic indicators such as changes in unemployment rates, gross domestic product, property values, housing starts, and other relevant factors as loss drivers. For all DCF models, management has determined that due to historic volatility in economic data, two quarters currently represents a reasonable and supportable forecast period, followed by a six-period reversion to historical mean levels for each of the various economic indicators.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Specific instrument effective yields are calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level Net Present Value (NPV). An allowance is established for the difference between the instrument’s NPV and amortized cost basis.
The allowance evaluation also considers various qualitative factors, such as: (i) changes to lending policies, underwriting standards and/or management personnel performing such functions, (ii) delinquency and other credit quality trends, (iii) credit risk concentrations, if any, (iv) changes to the nature of the Company's business impacting the loan portfolio, (v) and other external factors, that may include, but are not limited to, results of internal loan reviews, stress testing, examinations by bank regulatory agencies, or other events such as a natural disaster.
Arriving at an appropriate market ratelevel of interest. Going forward,allowance involves a high degree of judgment. The determination of the adequacy of the allowance and provisioning for estimated losses is evaluated regularly based on review of loans, with particular emphasis on non-performing and other loans that management believes warrant special consideration. While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance.
Individually Evaluated Loans: Prior to the adoption of CECL on January 1, 2021, a loan was individually evaluated when the loan was considered impaired. Impaired loans were based on current information and events, it is probable that the Company will continuenot be able to evaluate reasonablenesscollect all amounts due from the borrower in accordance with the contractual terms of expectations for the timingloan, including scheduled interest payments.
With the adoption of CECL, loans that do not share risk characteristics with existing pools are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the amountCompany expects repayment of cashthe financial asset to be collected. Subsequent decreasesprovided substantially through the operation or increases insale of the collateral, the ACL is measured
13
based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected cash flows may result in changes into be from the amortization or accretionoperation of fair market value adjustments, and in some cases may result in the loan being considered impaired. For collateral, dependent loans with deterioratedthe specific credit quality,loss reserve is calculated as the Company estimatesamount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral of the loans. These values are discounted using market derived rates of return, with consideration givenless estimated cost to the period of time and costs associated with the foreclosure and disposition of the collateral.
Accrued Interest. Upon adoption of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 isCECL, effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of the beginning of the fiscal year of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned above is not permitted. The Company has performed a preliminary evaluation of the provisions of ASU No. 2016-01. Based on this evaluation,January 1, 2021, the Company has determined that ASU No. 2016-01 is not expected to have a material impact on the Company’s Consolidated Financial Statements; however, the Company will continue to closely monitor developments and additional guidance.
Allowance for off-balance sheet credit exposures: The exposure is a component of potential impact the new guidance will haveother liabilities on the Company’s Consolidated Financial Statements.
14
Impact of Adoption
The following table illustrates the yearadoption of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December CECL on January 1, 2021:
| | | | | | | | | | | | | | | |
| | | | | Reclassification | | Pre-CECL | | Post-CECL | | | | |||
| | | | | to CECL | | Adoption | | Adoption | | Impact of | ||||
| | Pre-CECL | | Portfolio | | Portfolio | | Portfolio | | CECL | |||||
(in thousands) |
| Adoption |
| Segmentation |
| Segmentation |
| Segmentation |
| Adoption | |||||
Assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
Loans: |
| |
|
| |
|
| |
|
| |
|
| |
|
Commercial construction | | $ | 131,123 | | $ | (13,241) | | $ | 117,882 | | $ | 117,882 | | $ | — |
Commercial real estate | |
| 953,258 | |
| (953,258) | |
| — | |
| — | |
| — |
Commercial real estate owner occupied | |
| — | |
| 219,217 | |
| 219,217 | |
| 219,217 | |
| — |
Commercial real estate non-owner occupied | |
| — | |
| 716,776 | |
| 716,776 | |
| 716,776 | |
| — |
Tax exempt | |
| 63,431 | |
| (15,569) | |
| 47,862 | |
| 47,862 | |
| — |
Commercial and industrial | |
| 377,638 | |
| (21,954) | |
| 355,684 | |
| 355,684 | |
| — |
Residential real estate | |
| 923,891 | |
| 71,325 | |
| 995,216 | |
| 995,216 | |
| — |
Home equity | |
| 102,464 | |
| (2,368) | |
| 100,096 | |
| 100,096 | |
| — |
Consumer other | |
| 11,080 | |
| (928) | |
| 10,152 | |
| 10,152 | |
| — |
Total loans | | $ | 2,562,885 | | $ | — | | $ | 2,562,885 | | $ | 2,562,885 | | $ | — |
| | | | | | | | | | | | | | | |
Allowance for credit losses on loans | |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial construction | | $ | 1,044 | | $ | (220) | | $ | 824 | | $ | 2,020 | | $ | 1,196 |
Commercial real estate | |
| 10,199 | |
| (10,199) | |
| — | |
| — | |
| — |
Commercial real estate owner occupied | |
| — | |
| 1,783 | |
| 1,783 | |
| 2,491 | |
| 708 |
Commercial real estate non-owner occupied | |
| — | |
| 7,864 | |
| 7,864 | |
| 5,856 | |
| (2,008) |
Tax exempt | |
| 80 | |
| (22) | |
| 58 | |
| 98 | |
| 40 |
Commercial and industrial | |
| 3,302 | |
| (165) | |
| 3,137 | |
| 6,133 | |
| 2,996 |
Residential real estate | |
| 4,078 | |
| 932 | |
| 5,010 | |
| 6,742 | |
| 1,732 |
Home equity | |
| 258 | |
| 27 | |
| 285 | |
| 888 | |
| 603 |
Consumer other | |
| 121 | |
| — | |
| 121 | |
| 82 | |
| (39) |
Total allowance for credit losses on loans | | $ | 19,082 | | $ | — | | $ | 19,082 | | $ | 24,310 | | $ | 5,228 |
| | | | | | | | | | | | | | | |
Liabilities: | |
|
| ��� |
|
| |
|
| |
|
| |
|
|
Allowance for credit losses on unfunded commitments | | $ | 359 | | $ | — | | $ | 359 | | $ | 1,975 | | $ | 1,616 |
| | | | | | | | | | | | | | | |
Total allowance for credit losses | | $ | 19,441 | | $ | — | | $ | 19,441 | | $ | 26,285 | | $ | 6,844 |
| | | | | | | | | | | | | | | |
Retained earnings: | |
|
| |
|
| |
|
| |
|
| |
|
|
Total increase in Allowance for credit losses | |
|
| |
|
| |
|
| |
|
| | $ | 6,844 |
Tax effect | |
|
| |
|
| |
|
| |
|
| |
| (1,602) |
Decrease to retained earnings | |
|
| |
|
| |
|
| |
|
| | $ | 5,242 |
15 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as
Revision of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the Company’s ConsolidatedPreviously Issued Financial Statements
The Company has revised amounts reported in particularpreviously issued financial statements for the level of the reserve for credit losses. However, the Company continues to evaluate the extent of the potential impact.
The following tables present the statementrevisions to the line items of cash flows, ASU No. 2016-15 is not expectedour previously issued financial statements to reflect the correction of errors:
| | | | | | | | | |
Consolidated Balance Sheets | | | | | | | | | |
| | | | | | | | | |
December 31, 2020 | | As Reported | | Adjustment | | As Revised | |||
Deferred tax assets, net | | $ | 1,745 | | $ | 1,302 | | $ | 3,047 |
Other assets | | | 73,662 | | | (2,789) | | | 70,873 |
Total assets | | $ | 3,725,762 | | $ | (1,487) | | $ | 3,724,275 |
| | | | | | | | | |
Other liabilities | | $ | 72,183 | | $ | 2,789 | | $ | 74,972 |
Total liabilities | | | 3,314,421 | | | 2,789 | | | 3,317,210 |
Total shareholders' equity | | | 411,341 | | | (4,276) | | | 407,065 |
Total liabilities and shareholders' equity | | $ | 3,725,762 | | $ | (1,487) | | $ | 3,724,275 |
| | | | | | | | | |
Consolidated Statements of Comprehensive Income (Unaudited) | |||||||||
| | | | | | | | | |
Three months ended September 30, 2020 | | As Reported | | Adjustment | | As Revised | |||
Other comprehensive income, before tax: | | | | | | | | | |
Changes in unrealized gain (loss) on hedging derivatives | | $ | 805 | | $ | 497 | | $ | 1,302 |
| | | | | | | | | |
Income taxes related to other comprehensive income: | | | | | | | | | |
Changes in unrealized (gain) loss on hedging derivatives | | | (190) | | | (118) | | | (308) |
Total other comphrensive income | | | 884 | | | 379 | | | 1,263 |
Total comphrensive income | | $ | 9,286 | | $ | 379 | | $ | 9,665 |
| | | | | | | | | |
Nine months ended September 30, 2020 | | As Reported | | Adjustment | | As Revised | |||
Other comprehensive income, before tax: | | | | | | | | | |
Changes in unrealized gain (loss) on hedging derivatives | | $ | (833) | | $ | (6,735) | | $ | (7,568) |
| | | | | | | | | |
Income taxes related to other comprehensive income: | | | | | | | | | |
Changes in unrealized (gain) loss on hedging derivatives | | | 195 | | | 1,580 | | | 1,776 |
Total other comphrensive income | | | 5,494 | | | (5,155) | | | 339 |
Total comphrensive income | | $ | 30,098 | | $ | (5,155) | | $ | 24,943 |
16
| | | | | | | | | |
Consolidated Statements of Changes in Shareholder's Equity (Unaudited) | |||||||||
| | | | | | | | | |
| | As Reported | | Adjustment | | As Revised | |||
Balance at December 31, 2019 | | $ | 396,407 | | $ | (119) | | $ | 396,288 |
Beginning accumulated other comprehensive income | | | 3,911 | | | (119) | | | 3,792 |
Other comprehensive income | | | 4,610 | | | (5,534) | | | (924) |
Ending accumulated other comprehensive income | | | 8,521 | | | (5,653) | | | 2,868 |
| | | | | | | | | |
Balance at June 30, 2020 | | $ | 404,174 | | $ | (5,653) | | $ | 398,521 |
Beginning accumulated other comprehensive income | | | 8,521 | | | (5,653) | | | 2,868 |
Other comprehensive income | | | 884 | | | 379 | | | 1,263 |
Ending accumulated other comprehensive income | | | 9,405 | | | (5,274) | | | 4,131 |
| | | | | | | | | |
Balance at September 30, 2020 | | $ | 404,445 | | $ | (5,274) | | $ | 399,171 |
| | | | | | | | | |
Balance at December 31, 2020 | | $ | 411,341 | | $ | (4,276) | | $ | 407,065 |
Beginning accumulated other comprehensive income | | | 11,016 | | | (4,276) | | | 6,740 |
Other comprehensive income | | | (3,322) | | | 2,464 | | | (858) |
Ending accumulated other comprehensive income | | | 7,694 | | | (1,812) | | | 5,882 |
| | | | | | | | | |
Balance at June 30, 2021 | | $ | 415,572 | | $ | (1,812) | | $ | 413,760 |
17
Recent Accounting Pronouncements
The following table provides a brief description of recent accounting standards updates (ASU) that could have a material impact onto the Company’s Consolidated Financial Statements.
(in thousands) | As Acquired | Fair Value Adjustments | As Recorded at Acquisition | |||||||||||
Consideration paid: | ||||||||||||||
Bar Harbor Bankshares common stock issued to Lake Sunapee Bank Group stockholders (4,163,853 shares) | $ | 181,919 | ||||||||||||
Cash paid for fractional shares | 27 | |||||||||||||
Total consideration paid | 181,946 | |||||||||||||
Recognized amounts of identifiable assets acquired and liabilities assumed, at fair value: | ||||||||||||||
Cash and short-term investments | $ | 40,970 | $ | (1,406 | ) | (a) | $ | 39,564 | ||||||
Investment securities | 156,960 | (1,381 | ) | (b) | 155,579 | |||||||||
Loans | 1,217,927 | (9,728 | ) | (c) | 1,208,199 | |||||||||
Premises and equipment | 22,561 | (351 | ) | (d) | 22,210 | |||||||||
Core deposit intangible | — | 7,786 | (e) | 7,786 | ||||||||||
Other assets | 102,298 | (50,419 | ) | (f) | 51,879 | |||||||||
Deposits | (1,149,865 | ) | (746 | ) | (g) | (1,150,611 | ) | |||||||
Borrowings | (232,261 | ) | (16 | ) | (h) | (232,277 | ) | |||||||
Deferred taxes, net | (1,921 | ) | 10,217 | (i) | 8,296 | |||||||||
Other liabilities | (19,924 | ) | (4,087 | ) | (j) | (24,011 | ) | |||||||
Total identifiable net assets | $ | 136,745 | $ | (50,131 | ) | $ | 86,614 | |||||||
Goodwill | $ | 95,332 |
| | | | | | | | | |
Standard | Description | Required Date | Effect on |
financial statements | |||||||||
Standards Adopted in 2021 | | | | ||||||
ASU 2016-13, Measurement of Credit Losses on Financial Instruments ASU 2018‑19, Codification Improvements to ASU 2016-13 | | | This ASU amends Topic 326, Financial Instruments- Credit Losses to replace the |
While the The ASU should be adopted on | | | January 1, 2022 | | | Adoption of this ASU primarily changed how the Company estimates credit losses with the application of the expected credit loss model. The Company applied the standard's provisions as a | |||
ASU 2018-14 Compensation- Disclosure Requirements for Defined Pension Plans Topic 715-20 | | | This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other post-retirement benefit plans. | | | January 1, 2021 | | | Adoption of this ASU did not have a |
18
| | | | | | | | | |
Standard | Description | Required Date | Effect on financial statements | ||||||
Standards Adopted in 2021 | | | | ||||||
ASU 2020-01, Investments—Equity Securities, Investments Equity Method and Joint Ventures, and Derivatives and Hedging | | | In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which added Topic 321, Investments – Equity Securities, and made targeted improvements to address certain aspects of accounting for financial instruments. The amendments in this Update affect all entities that apply the guidance in Topics 321, 323, and 815 and (1) elect to apply the measurement alternative or (2) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. | | | December 15, 2020 | | | The adoption had no material impact on the |
Standard | Description | Required Date | Effect on financial statements | ||||||
Standards Not Yet Adopted | | | | ||||||
ASU 2020-04 Facilitation of the | | | This ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the | | | May be elected through December 31, 2022. | | | The Company is currently evaluating all of its contracts, hedging relationships and other transactions that will be effected by reference rates are being discontinued. The following elections have been made in regards to our cash flow hedges as outlined on the |
19
Rate Reform Elections
Adherence to ISDA Fallback Protocol
The ISDA 2020 IBOR Fallbacks Protocol (the “ISDA Fallback Protocol”) was made available for adherence on October 23, 2020 with an effective date of January 25, 2021. Once adhered to by both counterparties in a bilateral relationship and the effective date is reached, the ISDA Fallback Protocol represents a change to the contractual terms of derivatives governed by each respective ISDA agreement between the Company and a derivative counterparty. The change relates to reference rate reform and represents the potential for addition of or changes to contractual terms and was developed by a private-sector working group convened by a regulator as referenced in 848-20-15-5(g). For all of the Company’s interest rate swaps that meet the scope requirements of 848-10-15-3 and 848-10-15-3A and for which the Company adhered to the ISDA Fallback Protocol, the Company makes the following elections:
• | Modification related elections |
• | Option to change the contractual terms of a hedging instrument, hedged item, or forecasted transaction and to not dedesignate a hedging relationship (paragraph 848-30-25-5) |
Cash flow hedges
The Company amends the hedge documentation, without dedesignating and redesignating, for all outstanding cash flow hedging relationships for the following elections:
Probability of forecasted transactions: The Company elects the |
New hedging activity
The Company makes the same elections for collateral dependent loans with deteriorated credit quality,each hedging relationship designated subsequent to March 31, 2021. Any hedging relationship-specific elections beyond the fair values for loans acquired were estimated using cash flow projections based onelections noted above will be documented in the remaining maturityrespective inception hedge documentation. Subsequent election of optional expedients and repricing terms. Cash flows were adjusted by estimating future credit losses andexceptions after the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. To estimate the fair value for collateral dependent loans with deteriorated credit quality, we analyzed the underlying collateral of the loans assuming the fair values of the loans were derived from the eventual sale of the collateral. Those values were discounted using market derived rates of return, with consideration given to the period of time and costs associatedMarch 31, 2021 will be documented in accordance with the foreclosure and dispositionelections being made here.
20
ASC 310-30 Loans | |||
Gross contractual receivable amounts at acquisition | $ | 23,338 | |
Contractual cash flows not expected to be collected (nonaccretable discount) | (3,801 | ) | |
Expected cash flows at acquisition | 19,537 | ||
Interest component of expected cash flows (accretable discount) | (1,089 | ) | |
Fair value of acquired loans | $ | 18,448 |
Pro Forma (unaudited) Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Net interest income | $ | 69,846 | $ | 67,670 | ||||
Non-interest income | 20,883 | 25,808 | ||||||
Net income | 26,133 | 21,371 | ||||||
Pro forma earnings per share: | ||||||||
Basic | $ | 1.69 | $ | 1.40 | ||||
Diluted | $ | 1.68 | $ | 1.39 |
NOTE 3.2. SECURITIES AVAILABLE FOR SALE
The following is a summary of securities available for sale:
(In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
September 30, 2017 | ||||||||||||||||
Securities available for sale | ||||||||||||||||
Debt securities: | ||||||||||||||||
Obligations of US Government sponsored enterprises | $ | 6,952 | $ | 27 | $ | — | $ | 6,979 | ||||||||
Mortgage-backed securities: | ||||||||||||||||
US Government-sponsored enterprises | 438,332 | 3,413 | 3,788 | 437,957 | ||||||||||||
US Government agency | 102,044 | 695 | 601 | 102,138 | ||||||||||||
Private label | 562 | 162 | 5 | 719 | ||||||||||||
Obligations of states and political subdivisions thereof | 140,475 | 2,818 | 1,311 | 141,982 | ||||||||||||
Corporate bonds | 28,245 | 441 | 2 | 28,684 | ||||||||||||
Total securities available for sale | $ | 716,610 | $ | 7,556 | $ | 5,707 | $ | 718,459 | ||||||||
December 31, 2016 | ||||||||||||||||
Securities available for sale | ||||||||||||||||
Debt securities: | ||||||||||||||||
Obligations of US Government sponsored enterprises | $ | — | $ | — | $ | — | $ | — | ||||||||
Mortgage-backed securities: | ||||||||||||||||
US Government-sponsored enterprises | 330,635 | 2,682 | 4,865 | 328,452 | ||||||||||||
US Government agency | 76,722 | 797 | 613 | 76,906 | ||||||||||||
Private label | 936 | 207 | 11 | 1,132 | ||||||||||||
Obligations of states and political subdivisions thereof | 123,832 | 1,941 | 3,407 | 122,366 | ||||||||||||
Corporate bonds | — | — | — | — | ||||||||||||
Total securities available for sale | $ | 532,125 | $ | 5,627 | $ | 8,896 | $ | 528,856 |
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized | | Unrealized | | | | ||
(in thousands) |
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||
September 30, 2021 |
| |
|
| |
|
| |
|
| |
|
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 181,821 | | $ | 3,386 | | $ | (1,939) | | $ | 183,268 |
US Government agency | |
| 53,475 | |
| 1,470 | |
| (239) | |
| 54,706 |
Private label | |
| 62,843 | |
| 185 | |
| (114) | |
| 62,914 |
Obligations of states and political subdivisions thereof | |
| 158,914 | |
| 2,090 | |
| (827) | |
| 160,177 |
Corporate bonds | |
| 82,533 | |
| 2,376 | |
| (647) | |
| 84,262 |
Total securities available for sale | | $ | 539,586 | | $ | 9,507 | | $ | (3,766) | | $ | 545,327 |
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized | | Unrealized | | | | ||
(in thousands) |
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||
December 31, 2020 | |
|
| |
|
| |
|
| |
|
|
Mortgage-backed securities: | |
|
| |
|
| |
|
| |
|
|
US Government-sponsored enterprises | | $ | 206,834 | | $ | 6,018 | | $ | (462) | | $ | 212,390 |
US Government agency | |
| 82,878 | |
| 2,870 | |
| (116) | |
| 85,632 |
Private label | |
| 19,810 | |
| 40 | |
| (141) | |
| 19,709 |
Obligations of states and political subdivisions thereof | |
| 164,766 | |
| 4,244 | |
| (6) | |
| 169,004 |
Corporate bonds | |
| 97,689 | |
| 1,465 | |
| (843) | |
| 98,311 |
Total securities available for sale | | $ | 571,977 | | $ | 14,637 | | $ | (1,568) | | $ | 585,046 |
Credit Quality Information
The Company monitors the credit quality of available for sale debt securities through credit ratings from various rating agencies and substantial price changes. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment grade, or significant pricing changes. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security.
As of September 30, 2021 the Company carried 0 allowance on available for sale debt securities in accordance with ASU 2016-13.
The amortized cost and estimated fair value of available for sale (“AFS”) securities segregated by contractual maturity at September 30, 20172021 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.
| | | | | | |
| | Available for sale | ||||
(in thousands) |
| Amortized Cost |
| Fair Value | ||
Within 1 year |
| $ | 11,755 | | $ | 11,664 |
Over 1 year to 5 years | |
| 23,313 | |
| 23,863 |
Over 5 years to 10 years | |
| 48,500 | |
| 47,493 |
Over 10 years | |
| 157,879 | |
| 161,419 |
Total bonds and obligations | |
| 241,447 | |
| 244,439 |
Mortgage-backed securities | |
| 298,139 | |
| 300,888 |
Total securities available for sale | | $ | 539,586 | | $ | 545,327 |
21
Available for sale | ||||||||
Amortized | Fair | |||||||
(In thousands) | Cost | Value | ||||||
Within 1 year | $ | 3,613 | $ | 3,627 | ||||
Over 1 year to 5 years | 18,499 | 18,735 | ||||||
Over 5 years to 10 years | 73,997 | 75,366 | ||||||
Over 10 years | 620,501 | 620,731 | ||||||
Total securities available for sale | $ | 716,610 | $ | 718,459 |
The following table presents the gains and losses from the sale of AFS securities for the periods presented:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Gross gains on sales of available for sale securities | | $ | 1,980 | | $ | — | | $ | 2,030 | | $ | 1,508 |
Gross losses on sales of available for sale securities | |
| (50) | |
| — | |
| (50) | |
| (22) |
Net gains on sale of available for sale securities | | $ | 1,930 | | $ | — | | $ | 1,980 | | $ | 1,486 |
Securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:
| | | | | | | | | | | | | | | | | | |
| | Less Than Twelve Months | | Over Twelve Months | | Total | ||||||||||||
| | Gross |
| | |
| Gross |
| | |
| Gross |
| | | |||
| | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | ||||||
(in thousands) |
| Losses |
| Value |
| Losses |
| Value |
| Losses |
| Value | ||||||
September 30, 2021 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 1,408 | | $ | 77,412 | | $ | 531 | | $ | 16,618 | | $ | 1,939 | | $ | 94,030 |
US Government agency | |
| 130 | |
| 10,488 | |
| 109 | |
| 4,729 | |
| 239 | |
| 15,217 |
Private label | |
| 109 | |
| 42,852 | |
| 5 | |
| 17 | |
| 114 | |
| 42,869 |
Obligations of states and political subdivisions thereof | |
| 827 | |
| 48,355 | |
| — | |
| — | |
| 827 | |
| 48,355 |
Corporate bonds | |
| 14 | |
| 2,486 | |
| 633 | |
| 11,617 | |
| 647 | |
| 14,103 |
Total securities available for sale | | $ | 2,488 | | $ | 181,593 | | $ | 1,278 | | $ | 32,981 | | $ | 3,766 | | $ | 214,574 |
| | | | | | | | | | | | | | | | | | |
| | Less Than Twelve Months | | Over Twelve Months | | Total | ||||||||||||
|
| Gross |
| | |
| Gross |
| | |
| Gross |
| | | |||
| | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | ||||||
(in thousands) | | Losses | | Value | | Losses | | Value | | Losses | | Value | ||||||
December 31, 2020 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 209 | | $ | 40,285 | | $ | 253 | | $ | 4,323 | | $ | 462 | | $ | 44,608 |
US Government agency | |
| 45 | |
| 6,776 | |
| 71 | |
| 3,297 | |
| 116 | |
| 10,073 |
Private label | |
| — | |
| — | |
| 141 | |
| 19,514 | |
| 141 | |
| 19,514 |
Obligations of states and political subdivisions thereof | |
| 6 | |
| 5,577 | |
| — | |
| — | |
| 6 | |
| 5,577 |
Corporate bonds | |
| 555 | |
| 21,774 | |
| 288 | |
| 11,712 | |
| 843 | |
| 33,486 |
Total securities available for sale | | $ | 815 | | $ | 74,412 | | $ | 753 | | $ | 38,846 | | $ | 1,568 | | $ | 113,258 |
22
Less Than Twelve Months | Over Twelve Months | Total | ||||||||||||||||||||||
(In thousands) | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | ||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Obligations of US Government sponsored enterprises | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
US Government-sponsored enterprises | 1,559 | 150,524 | 2,229 | 64,882 | 3,788 | 215,406 | ||||||||||||||||||
US Government agency | 345 | 48,529 | 256 | 11,880 | 601 | 60,409 | ||||||||||||||||||
Private label | — | 7 | 5 | 134 | 5 | 141 | ||||||||||||||||||
Obligations of states and political subdivisions thereof | 89 | 8,838 | 1,222 | 31,570 | 1,311 | 40,408 | ||||||||||||||||||
Corporate bonds | 2 | 3,038 | — | — | 2 | 3,038 | ||||||||||||||||||
Total securities available for sale | $ | 1,995 | $ | 210,936 | $ | 3,712 | $ | 108,466 | $ | 5,707 | $ | 319,402 | ||||||||||||
December 31, 2016 | ||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Obligations of US Government sponsored enterprises | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
US Government-sponsored enterprises | 4,369 | 197,914 | 496 | 10,120 | 4,865 | 208,034 | ||||||||||||||||||
US Government agency | 472 | 36,941 | 141 | 4,263 | 613 | 41,204 | ||||||||||||||||||
Private label | — | 107 | 11 | 312 | 11 | 419 | ||||||||||||||||||
Obligations of states and political subdivisions thereof | 3,252 | 76,803 | 155 | 3,916 | 3,407 | 80,719 | ||||||||||||||||||
Corporate bonds | — | — | — | — | — | — | ||||||||||||||||||
Total securities available for sale | $ | 8,093 | $ | 311,765 | $ | 803 | $ | 18,611 | $ | 8,896 | $ | 330,376 |
Three Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Estimated credit losses as of June 30, | $ | 1,697 | $ | 1,697 | |||
Reductions for securities paid off during the period | — | — | |||||
Estimated credit losses at end of the period | $ | 1,697 | $ | 1,697 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Estimated credit losses as of prior year-end, | $ | 1,697 | $ | 3,180 | |||
Reductions for securities paid off during the period | — | 1,483 | |||||
Estimated credit losses at end of the period | $ | 1,697 | $ | 1,697 |
The Company expects to recover its amortized cost basis on all debt securities in its AFS portfolio. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of September 30, 2017,2021, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.
The following summarizes, by investment security type, the basis for the conclusion that the debtimpact of securities in an unrealized loss position within the Company’s AFS were not other-than-temporarily impairedfor greater than 12 months at September 30, 2017:
US Government-sponsored enterprises
49 out of the total 789528 securities in the Company’s portfolios of AFS US Government sponsoredGovernment-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 1.7%1.07% of the amortized cost of securities in unrealized loss positions.Thepositions. The Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) guarantee the contractual cash flows of all of the Company’s US
US Government agencies
11 out of the total 208150 securities in the Company’s portfolios of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented 1.0%0.45% of the amortized cost of securities in unrealized loss positions. The Government National Mortgage Association (“GNMA”) guarantees the contractual cash flows of all of the Company’s US governmentGovernment agency securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
Private label
14 of the total 2631 securities in the Company’s portfolio of AFS private-labelprivate label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 3.3%0.18% of the amortized cost of securities in unrealized loss positions. Based upon the foregoing considerations, and the expectation that the Company will receive all of the future contractual cash flows related to the amortized cost on these securities, the Company does not consider there to be any additional other-than-temporary impairment with respect to these securities.
Obligations of states and political subdivisions thereof
12 of the total 262119 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 3.1%0.52% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for thatthe risk. There were no material underlying credit downgrades during the quarter. All securities are performing.
Corporate bonds
4 out of 12the total 27 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents 0.1%0.78% of the amortized cost of bonds in unrealized loss positions. The Company reviews the financial strength of all of these bonds and has 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.
23
Upon adoption of ASC 326 or CECL, at January 1, 2021, the Company evaluates its risk characteristics of loans based on regulatory call report code with segmentation based on the underlying collateral for certain loan portfolio is comprisedtypes. Prior to the adoption of ASC 326, under the incurred loss model, the Company evaluated its risk characteristics of loans based on purpose of the following segments: commercial real estate, commercial and industrial, residential real estate, and consumer loans. Commercial real estate loans includes single and multi-family, commercial construction and land, and other commercial real estate classes. Commercial and industrial loans includes loans to commercial businesses, agricultural and other loans to farmers, and tax exempt loans. Residential real estate loans consists of mortgages for 1 to 4 family housing. Consumer loans include home equity loans, indirect auto and other installment lending.
The following is a summary of total loans:
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
(In thousands) | Business Activities Loans | Acquired Loans | Total | Business Activities Loans | Acquired Loans | Total | ||||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||||||
Construction and land development | $ | 33,692 | $ | 15,593 | $ | 49,285 | $ | 14,695 | $ | — | $ | 14,695 | ||||||||||||
Other commercial real estate | 455,847 | 288,440 | 744,287 | 403,424 | — | 403,424 | ||||||||||||||||||
Total Commercial Real Estate: | 489,539 | 304,033 | 793,572 | 418,119 | — | 418,119 | ||||||||||||||||||
Commercial and Industrial: | ||||||||||||||||||||||||
Other Commercial | 172,186 | 68,090 | 240,276 | 103,586 | — | 103,586 | ||||||||||||||||||
Agricultural and other loans to farmers | 30,483 | — | 30,483 | 31,808 | — | 31,808 | ||||||||||||||||||
Tax exempt | 40,776 | 45,537 | 86,313 | 15,846 | — | 15,846 | ||||||||||||||||||
Total Commercial and Industrial: | 243,445 | 113,627 | 357,072 | 151,240 | — | 151,240 | ||||||||||||||||||
Total Commercial Loans: | 732,984 | 417,660 | 1,150,644 | 569,359 | — | 569,359 | ||||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||||||
Residential mortgages | 568,277 | 584,351 | 1,152,628 | 506,612 | — | 506,612 | ||||||||||||||||||
Total Residential Real Estate: | 568,277 | 584,351 | 1,152,628 | 506,612 | — | 506,612 | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Home equity | 50,610 | 64,695 | 115,305 | 46,921 | �� | 46,921 | ||||||||||||||||||
Other consumer | 7,645 | 2,640 | 10,285 | 6,172 | — | 6,172 | ||||||||||||||||||
Total Consumer: | 58,255 | 67,335 | 125,590 | 53,093 | — | 53,093 | ||||||||||||||||||
Total Loans: | $ | 1,359,516 | $ | 1,069,346 | $ | 2,428,862 | $ | 1,129,064 | $ | — | $ | 1,129,064 |
| | | | | | |
| | September 30, | | December 31, | ||
(in thousands) |
| 2021 |
| 2020 | ||
Commercial construction | | $ | 152,700 | | $ | 117,882 |
Commercial real estate owner occupied | |
| 253,792 | |
| 219,217 |
Commercial real estate non-owner occupied | |
| 733,353 | |
| 716,776 |
Tax exempt | |
| 42,448 | |
| 47,862 |
Commercial and industrial | |
| 336,989 | |
| 355,684 |
Residential real estate | |
| 917,301 | |
| 995,216 |
Home equity | |
| 88,002 | |
| 100,096 |
Consumer other | |
| 9,569 | |
| 10,152 |
Total loans | |
| 2,534,154 | |
| 2,562,885 |
Allowance for credit losses | |
| 22,448 | |
| 19,082 |
Net loans | | $ | 2,511,706 | | $ | 2,543,803 |
Total unamortized net costs and premiums included in accordance with ASC 310-30. These purchased credit-impaired loans presently maintain a carrying value of $14.4 million (and a note balance of $19.5 million). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. Loans considered not impaired at acquisition date had a carrying amount of $1.055 billion.
Three Months Ended September 30, | ||||||||
(In thousands) | 2017 | 2016 | ||||||
Balance at beginning of period | $ | 4,567 | $ | — | ||||
Acquisitions | — | — | ||||||
Reclassification from nonaccretable difference for loans with improved cash flows | 513 | — | ||||||
Accretion | (423 | ) | — | |||||
Balance at end of period | $ | 4,657 | $ | — |
Nine Months Ended September 30, | ||||||||
(In thousands) | 2017 | 2016 | ||||||
Balance at beginning of period | $ | — | $ | — | ||||
Acquisitions | 3,398 | — | ||||||
Reclassification from nonaccretable difference for loans with improved cash flows | 2,257 | — | ||||||
Accretion | (998 | ) | — | |||||
Balance at end of period | $ | 4,657 | $ | — |
(in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | Current | Total Loans | Past Due > 90 days and Accruing | |||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||||||||||
Construction and land development | $ | — | $ | — | $ | 637 | $ | 637 | $ | 33,055 | $ | 33,692 | $ | — | ||||||||||||||
Other commercial real estate | 407 | 121 | 702 | 1,230 | 454,617 | 455,847 | — | |||||||||||||||||||||
Total Commercial Real Estate: | 407 | 121 | 1,339 | 1,867 | 487,672 | 489,539 | — | |||||||||||||||||||||
Commercial and Industrial: | ||||||||||||||||||||||||||||
Other Commercial | 401 | 150 | 159 | 710 | 171,476 | 172,186 | — | |||||||||||||||||||||
Agricultural and other loans to farmers | 600 | 90 | 10 | 700 | 29,783 | 30,483 | — | |||||||||||||||||||||
Tax exempt | — | — | — | — | 40,776 | 40,776 | — | |||||||||||||||||||||
Total Commercial and Industrial: | 1,001 | 240 | 169 | 1,410 | 242,035 | 243,445 | — | |||||||||||||||||||||
Total Commercial Loans: | 1,408 | 361 | 1,508 | 3,277 | 729,707 | 732,984 | — | |||||||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||||||||||
Residential mortgages | 2,904 | 172 | 1,260 | 4,336 | 563,941 | 568,277 | — | |||||||||||||||||||||
Total Residential Real Estate: | 2,904 | 172 | 1,260 | 4,336 | 563,941 | 568,277 | — | |||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||
Home equity | 306 | 25 | 100 | 431 | 50,179 | 50,610 | — | |||||||||||||||||||||
Other consumer | 60 | 21 | 26 | 107 | 7,538 | 7,645 | — | |||||||||||||||||||||
Total Consumer: | 366 | 46 | 126 | 538 | 57,717 | 58,255 | — | |||||||||||||||||||||
— | ||||||||||||||||||||||||||||
Total Loans: | $ | 4,678 | $ | 579 | $ | 2,894 | $ | 8,151 | $ | 1,351,365 | $ | 1,359,516 | $ | — |
(in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | Current | Total Loans | Past Due > 90 days and Accruing | |||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||||||||||
Construction and land development | $ | — | $ | — | $ | — | $ | — | $ | 14,695 | $ | 14,695 | $ | — | ||||||||||||||
Other commercial real estate | 195 | 554 | 1,665 | 2,414 | 401,010 | 403,424 | — | |||||||||||||||||||||
Total Commercial Real Estate: | 195 | 554 | 1,665 | 2,414 | 415,705 | 418,119 | — | |||||||||||||||||||||
Commercial and Industrial: | ||||||||||||||||||||||||||||
Other Commercial | 61 | 45 | 201 | 307 | 103,279 | 103,586 | — | |||||||||||||||||||||
Agricultural and other loans to farmers | 231 | — | — | 231 | 31,577 | 31,808 | — | |||||||||||||||||||||
Tax exempt | — | — | — | — | 15,846 | 15,846 | — | |||||||||||||||||||||
Total Commercial and Industrial: | 292 | 45 | 201 | 538 | 150,702 | 151,240 | — | |||||||||||||||||||||
Total Commercial Loans: | 487 | 599 | 1,866 | 2,952 | 566,407 | 569,359 | — | |||||||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||||||||||
Residential mortgages | 4,484 | 429 | 938 | 5,851 | 500,761 | 506,612 | — | |||||||||||||||||||||
Total Residential Real Estate: | 4,484 | 429 | 938 | 5,851 | 500,761 | 506,612 | — | |||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||
Home equity | — | — | 15 | 15 | 46,906 | 46,921 | — | |||||||||||||||||||||
Other consumer | 103 | 1 | 6 | 110 | 6,062 | 6,172 | — | |||||||||||||||||||||
Total Consumer: | 103 | 1 | 21 | 125 | 52,968 | 53,093 | — | |||||||||||||||||||||
— | ||||||||||||||||||||||||||||
Total Loans: | $ | 5,074 | $ | 1,029 | $ | 2,825 | $ | 8,928 | $ | 1,120,136 | $ | 1,129,064 | $ | — |
(in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | Acquired Credit Impaired | Total Loans | Past Due > 90 days and Accruing | |||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||||||||||
Construction and land development | $ | 20 | $ | 10 | $ | — | $ | 30 | $ | 258 | $ | 15,593 | $ | — | ||||||||||||||
Other commercial real estate | 314 | 25 | 591 | 930 | 9,760 | 288,440 | — | |||||||||||||||||||||
Total Commercial Real Estate: | 334 | 35 | 591 | 960 | 10,018 | 304,033 | — | |||||||||||||||||||||
Commercial and Industrial: | ||||||||||||||||||||||||||||
Other Commercial | 396 | 144 | — | 540 | 917 | 68,090 | 163 | |||||||||||||||||||||
Agricultural and other loans to farmers | — | — | — | — | — | — | — | |||||||||||||||||||||
Tax exempt | — | — | — | — | — | 45,537 | — | |||||||||||||||||||||
Total Commercial and Industrial: | 396 | 144 | — | 540 | 917 | 113,627 | 163 | |||||||||||||||||||||
Total Commercial Loans: | 730 | 179 | 591 | 1,500 | 10,935 | 417,660 | 163 | |||||||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||||||||||
Residential mortgages | 1,089 | 13 | 868 | 1,970 | 3,398 | 584,351 | — | |||||||||||||||||||||
Total Residential Real Estate: | 1,089 | 13 | 868 | 1,970 | 3,398 | 584,351 | — | |||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||
Home equity | 388 | 155 | 193 | 736 | 40 | 64,695 | — | |||||||||||||||||||||
Other consumer | 12 | 144 | 49 | 205 | 3 | 2,640 | — | |||||||||||||||||||||
Total Consumer: | 400 | 299 | 242 | 941 | 43 | 67,335 | — | |||||||||||||||||||||
— | ||||||||||||||||||||||||||||
Total Loans: | $ | 2,219 | $ | 491 | $ | 1,701 | $ | 4,411 | $ | 14,376 | $ | 1,069,346 | $ | 163 |
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
(In thousands) | Business Activities Loans | Acquired Loans | Total | Business Activities Loans | Acquired Loans | Total | ||||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||||||
Construction and land development | $ | 637 | $ | — | $ | 637 | $ | — | $ | — | $ | — | ||||||||||||
Other commercial real estate | 1,238 | 591 | 1,829 | 2,564 | — | 2,564 | ||||||||||||||||||
Total Commercial Real Estate: | 1,875 | 591 | 2,466 | 2,564 | — | 2,564 | ||||||||||||||||||
Commercial and Industrial: | ||||||||||||||||||||||||
Other Commercial | 183 | — | 183 | 284 | — | 284 | ||||||||||||||||||
Agricultural and other loans to farmers | 53 | — | 53 | 31 | — | 31 | ||||||||||||||||||
Tax exempt | — | — | — | — | — | — | ||||||||||||||||||
Total Commercial and Industrial: | 236 | — | 236 | 315 | — | 315 | ||||||||||||||||||
Total Commercial Loans: | 2,111 | 591 | 2,702 | 2,879 | — | 2,879 | ||||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||||||
Residential mortgages | 2,751 | 868 | 3,619 | 3,419 | — | 3,419 | ||||||||||||||||||
Total Residential Real Estate: | 2,751 | 868 | 3,619 | 3,419 | — | 3,419 | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Home equity | 151 | 193 | 344 | 90 | — | 90 | ||||||||||||||||||
Other consumer | 103 | 49 | 152 | 108 | — | 108 | ||||||||||||||||||
Total Consumer: | 254 | 242 | 496 | 198 | — | 198 | ||||||||||||||||||
Total Loans: | $ | 5,116 | $ | 1,701 | $ | 6,817 | $ | 6,496 | $ | — | $ | 6,496 |
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
September 30, 2017 | ||||||||||||||||||||
Loans receivable: | ||||||||||||||||||||
Balance at end of period | ||||||||||||||||||||
Individually evaluated for impairment | $ | 2,585 | $ | 138 | $ | 1,744 | $ | 68 | $ | 4,535 | ||||||||||
Collectively evaluated | 486,954 | 243,307 | 566,533 | 58,187 | 1,354,981 | |||||||||||||||
Total | $ | 489,539 | $ | 243,445 | $ | 568,277 | $ | 58,255 | $ | 1,359,516 |
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
December 31, 2016 | ||||||||||||||||||||
Loans receivable: | ||||||||||||||||||||
Balance at end of period | ||||||||||||||||||||
Individually evaluated for impairment | $ | 4,481 | $ | 486 | $ | 1,709 | $ | 33 | $ | 6,709 | ||||||||||
Collectively evaluated | 413,638 | 150,754 | 504,903 | 53,060 | 1,122,355 | |||||||||||||||
Total | $ | 418,119 | $ | 151,240 | $ | 506,612 | $ | 53,093 | $ | 1,129,064 |
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
September 30, 2017 | ||||||||||||||||||||
Loans receivable: | ||||||||||||||||||||
Balance at end of period | ||||||||||||||||||||
Individually evaluated for impairment | $ | 408 | $ | 470 | $ | 271 | $ | 156 | $ | 1,305 | ||||||||||
Purchased Credit Impaired | 10,018 | 917 | 3,398 | 43 | 14,376 | |||||||||||||||
Collectively evaluated | 293,607 | 112,240 | 580,682 | 67,136 | 1,053,665 | |||||||||||||||
Total | $ | 304,033 | $ | 113,627 | $ | 584,351 | $ | 67,335 | $ | 1,069,346 |
| | | | | | |
| | September 30, | | December 31, | ||
(in thousands) |
| 2021 |
| 2020 | ||
Unamortized net loan origination costs | | $ | 4,015 | | $ | 5,157 |
Unamortized net premium on purchased loans | |
| (65) | |
| (85) |
Total unamortized net costs and premiums | | $ | 3,950 | | $ | 5,072 |
The following is a summary of impaired loans at September 30, 2017 and December 31, 2016:
September 30, 2017 | ||||||||||||
(In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||
With no related allowance: | ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||
Commercial real estate other | 1,198 | 1,175 | — | |||||||||
Commercial other | 96 | 97 | — | |||||||||
Agricultural and other loans to farmers | — | — | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | 1,257 | 1,267 | — | |||||||||
Home equity | 13 | 13 | — | |||||||||
Consumer other | — | — | — | |||||||||
With an allowance recorded: | ||||||||||||
Construction and land development | $ | 637 | $ | 2,563 | $ | 59 | ||||||
Commercial real estate other | 750 | 808 | 331 | |||||||||
Commercial other | 42 | 42 | 2 | |||||||||
Agricultural and other loans to farmers | — | — | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | 487 | 487 | 44 | |||||||||
Home equity | 55 | 55 | 55 | |||||||||
Consumer other | — | — | — | |||||||||
Total | ||||||||||||
Commercial real estate | $ | 2,585 | $ | 4,546 | $ | 390 | ||||||
Commercial and industrial | 138 | 139 | 2 | |||||||||
Residential real estate | 1,744 | 1,754 | 44 | |||||||||
Consumer | 68 | 68 | 55 | |||||||||
Total impaired loans | $ | 4,535 | $ | 6,507 | $ | 491 |
September 30, 2017 | ||||||||||||
(In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||
With no related allowance: | ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||
Commercial real estate other | 108 | 107 | — | |||||||||
Commercial other | 470 | 483 | — | |||||||||
Agricultural and other loans to farmers | — | — | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | 271 | 278 | — | |||||||||
Home equity | 156 | 156 | — | |||||||||
Consumer other | — | — | — | |||||||||
With an allowance recorded: | ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||
Commercial real estate other | 300 | 302 | 168 | |||||||||
Commercial other | — | — | — | |||||||||
Agricultural and other loans to farmers | — | — | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | — | — | — | |||||||||
Home equity | — | — | — | |||||||||
Consumer other | — | — | — | |||||||||
Total | ||||||||||||
Commercial real estate | $ | 408 | $ | 409 | $ | 168 | ||||||
Commercial and industrial | 470 | 483 | — | |||||||||
Residential real estate | 271 | 278 | — | |||||||||
Consumer | 156 | 156 | — | |||||||||
Total impaired loans | $ | 1,305 | $ | 1,326 | $ | 168 |
December 31, 2016 | ||||||||||||
(In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||
With no related allowance: | ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||
Commercial real estate other | 2,831 | 2,919 | — | |||||||||
Commercial other | 130 | 130 | — | |||||||||
Agricultural and other loans to farmers | 139 | 139 | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | 1,387 | 1,504 | — | |||||||||
Home equity | 16 | 16 | — | |||||||||
Consumer other | 2 | 2 | — | |||||||||
With an allowance recorded: | ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||
Commercial real estate other | 1,650 | 3,575 | 193 | |||||||||
Commercial other | 217 | 367 | 173 | |||||||||
Agricultural and other loans to farmers | — | — | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | 322 | 322 | 49 | |||||||||
Home equity | — | — | — | |||||||||
Consumer other | 15 | 15 | 9 | |||||||||
Total | ||||||||||||
Commercial real estate | $ | 4,481 | $ | 6,494 | $ | 193 | ||||||
Commercial and industrial | 486 | 636 | 173 | |||||||||
Residential real estate | 1,709 | 1,826 | 49 | |||||||||
Consumer | 33 | 33 | 9 | |||||||||
Total impaired loans | $ | 6,709 | $ | 8,989 | $ | 424 |
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||||
(in thousands) | Average Recorded Investment | Cash Basis Interest Income Recognized | Average Recorded Investment | Cash Basis Interest Income Recognized | ||||||||||||
With no related allowance: | ||||||||||||||||
Construction and land development | $ | — | $ | — | $ | — | $ | — | ||||||||
Commercial real estate other | 1,716 | 64 | 2,713 | 131 | ||||||||||||
Commercial other | 99 | 6 | 141 | 2 | ||||||||||||
Agricultural and other loans to farmers | 8 | 1 | 131 | 8 | ||||||||||||
Tax exempt loans | — | — | — | — | ||||||||||||
Residential real estate | 1,245 | 31 | 1,344 | 55 | ||||||||||||
Home equity | 13 | — | 17 | 1 | ||||||||||||
Consumer other | 5 | 2 | — | 1 | ||||||||||||
With an allowance recorded: | ||||||||||||||||
Construction and land development | $ | 637 | $ | — | $ | 928 | $ | — | ||||||||
Commercial real estate other | 693 | — | 551 | — | ||||||||||||
Commercial other | 44 | 1 | 221 | — | ||||||||||||
Agricultural and other loans to farmers | — | — | — | — | ||||||||||||
Tax exempt loans | — | — | — | — | ||||||||||||
Residential real estate | 268 | 5 | 331 | — | ||||||||||||
Home equity | 12 | — | — | — | ||||||||||||
Consumer other | — | — | 17 | — | ||||||||||||
Total | ||||||||||||||||
Commercial real estate | $ | 3,046 | $ | 64 | $ | 4,192 | $ | 131 | ||||||||
Commercial and industrial | 151 | 8 | 493 | 10 | ||||||||||||
Residential real estate | 1,513 | 36 | 1,675 | 55 | ||||||||||||
Consumer | 30 | 2 | 34 | 2 | ||||||||||||
Total impaired loans | $ | 4,740 | $ | 110 | $ | 6,394 | $ | 198 |
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||||
(in thousands) | Average Recorded Investment | Cash Basis Interest Income Recognized | Average Recorded Investment | Cash Basis Interest Income Recognized | ||||||||||||
With no related allowance: | ||||||||||||||||
Construction and land development | $ | — | $ | — | $ | — | $ | — | ||||||||
Commercial real estate other | 89 | — | — | — | ||||||||||||
Commercial other | 171 | — | — | — | ||||||||||||
Agricultural and other loans to farmers | — | — | — | — | ||||||||||||
Tax exempt loans | — | — | — | — | ||||||||||||
Residential real estate | 254 | 1 | — | — | ||||||||||||
Home equity | 47 | — | — | — | ||||||||||||
Consumer other | 9 | — | — | — | ||||||||||||
With an allowance recorded: | ||||||||||||||||
Construction and land development | $ | — | $ | — | $ | — | $ | — | ||||||||
Commercial real estate other | 46 | — | — | — | ||||||||||||
Commercial other | — | — | — | — | ||||||||||||
Agricultural and other loans to farmers | — | — | — | — | ||||||||||||
Tax exempt loans | — | — | — | — | ||||||||||||
Residential real estate | — | — | — | — | ||||||||||||
Home equity | — | — | — | — | ||||||||||||
Consumer other | — | — | — | — | ||||||||||||
Total | ||||||||||||||||
Commercial real estate | $ | 135 | $ | — | $ | — | $ | — | ||||||||
Commercial and industrial | 171 | — | — | — | ||||||||||||
Residential real estate | 254 | 1 | — | — | ||||||||||||
Consumer | 56 | — | — | — | ||||||||||||
Total impaired loans | $ | 616 | $ | 1 | $ | — | $ | — |
Three Months Ended September 30, 2017 | |||||||||||
(Dollars in thousands) | Number of Modifications | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | ||||||||
Troubled Debt Restructurings | |||||||||||
Commercial installment | 5 | $ | 483 | $ | 483 | ||||||
Agricultural and other loans to farmers | — | — | — | ||||||||
Commercial real estate | 4 | 144 | 144 | ||||||||
Residential real estate | — | — | — | ||||||||
Home equity | — | — | — | ||||||||
Consumer other | — | — | — | ||||||||
Total | 9 | $ | 627 | $ | 627 |
Three Months Ended September 30, 2016 | |||||||||||
(Dollars in thousands) | Number of Modifications | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | ||||||||
Troubled Debt Restructurings | |||||||||||
Commercial installment | 2 | $ | 51 | $ | 51 | ||||||
Commercial real estate | 2 | 936 | 915 | ||||||||
Consumer other | 1 | 9 | 9 | ||||||||
Total | 5 | $ | 996 | $ | 975 |
Nine Months Ended September 30, 2017 | |||||||||||
(Dollars in thousands) | Number of Modifications | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | ||||||||
Troubled Debt Restructurings | |||||||||||
Commercial installment | 6 | $ | 563 | $ | 549 | ||||||
Agricultural and other loans to farmers | 1 | 19 | 18 | ||||||||
Commercial real estate | 6 | 388 | 333 | ||||||||
Residential real estate | 3 | 692 | 675 | ||||||||
Home equity | 1 | 13 | 13 | ||||||||
Consumer other | 1 | 38 | 37 | ||||||||
Total | 18 | $ | 1,713 | $ | 1,625 |
Nine Months Ended September 30, 2016 | |||||||||||
(Dollars in thousands) | Number of Modifications | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | ||||||||
Troubled Debt Restructurings | |||||||||||
Commercial installment | 2 | $ | 51 | $ | 51 | ||||||
Agricultural and other loans to farmers | 2 | 30 | 24 | ||||||||
Commercial real estate | 5 | 1,361 | 1,326 | ||||||||
Consumer Other | 1 | 9 | 9 | ||||||||
Total | 10 | $ | 1,451 | $ | 1,410 |
The CARES Act and subsequent legislation established the Payroll Protection Program (PPP), administered directly by the Small Business Administration (SBA). The Company has participated in both 2020 and 2021 rounds of foreclosure asfunding. As of September 30, 20172021 and December 31, 2016 totaled $772 thousand2020, the Company had 404 and $2.4746 PPP loans outstanding, with an outstanding principal balance of $24.2 million and $53.8 million, respectively. AsThe PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible costs. PPP loans are included in the commercial and industrial portfolio segment.
Characteristics of December 31, 2016, foreclosedeach 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 existing structures. 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.
24
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 (REITs) and unsecured loans to developers that closely correlate to the inherent risk in commercial real estate markets are also included. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, totaled $90 thousand.
Tax Exempt - Loans in this segment primarily include loans to various state and municipal government entities. Loans made in these borrowers may provide the Company with tax-exempt income. While governed and underwritten similar to commercial loans they do have unique requirements based on established polices. Almost all state and municipal loans are considered a general obligation of the issuing entity. Given the size of many municipal borrowers, borrowings are normally not rated by major rating agencies.
Commercial and industrial loans - Loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment in this segment. Generally loans are secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Some loans in this category may be unsecured or guaranteed by government agencies such as the SBA. 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 Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to various underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.
Home equity - All loans and lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.
Consumer other - Loans in this segment include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto loans, recreational equipment, overdraft protection or other consumer loans. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines, as applicable.
Allowance for Credit Losses
The Allowance for Credit Losses (ACL) is comprised of the allowance for loan losses and the allowance for unfunded commitments which is accounted for as a separate liability in other liabilities on the balance sheet. The level of the ACL represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date.
Upon adoption of CECL on January 1, 2021, the Company replaced the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged off. The 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 and TDRs.
25
The Company’s activity in the allowance for credit losses for the nine monthsperiods ended September 30, 2017 and 2016are as follows:
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 | |||||||||||||
| | Balance at | | | | | | | | | | | | | |
| | Beginning of | | | | | | | | | | | Balance at | ||
(in thousands) |
| Period |
| Charge Offs |
| Recoveries |
| Provision |
| End of Period | |||||
Commercial construction | | $ | 2,372 | | $ | — | | $ | — | | $ | (286) | | $ | 2,086 |
Commercial real estate owner occupied | |
| 2,552 | |
| (142) | |
| 72 | |
| 237 | |
| 2,719 |
Commercial real estate non-owner occupied | |
| 5,604 | |
| — | |
| — | |
| (22) | |
| 5,582 |
Tax exempt | |
| 91 | |
| — | |
| — | |
| (6) | |
| 85 |
Commercial and industrial | |
| 5,225 | |
| (24) | |
| — | |
| 105 | |
| 5,306 |
Residential real estate | |
| 6,069 | |
| (6) | |
| 19 | |
| (290) | |
| 5,792 |
Home equity | |
| 822 | |
| (49) | |
| 1 | |
| 30 | |
| 804 |
Consumer other | |
| 80 | |
| (65) | |
| 1 | |
| 58 | |
| 74 |
Total | | $ | 22,815 | | $ | (286) | | $ | 93 | | $ | (174) | | $ | 22,448 |
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | ||||||||||||||||
| | Balance at | | | | | | | | | | | | | | | | |
| | Beginning of | | Impact of ASC | | | | | | | | | | | Balance at | |||
(in thousands) |
| Period |
| 326 |
| Charge Offs |
| Recoveries |
| Provision |
| End of Period | ||||||
Commercial construction | | $ | 824 | | $ | 1,196 | | $ | — | | $ | 18 | | $ | 48 | | $ | 2,086 |
Commercial real estate owner occupied | |
| 1,783 | |
| 708 | |
| (403) | |
| 72 | |
| 559 | |
| 2,719 |
Commercial real estate non-owner occupied | |
| 7,864 | |
| (2,008) | |
| — | |
| 4 | |
| (278) | |
| 5,582 |
Tax exempt | |
| 58 | |
| 40 | |
| — | |
| — | |
| (13) | |
| 85 |
Commercial and industrial | |
| 3,137 | |
| 2,996 | |
| (44) | |
| 14 | |
| (797) | |
| 5,306 |
Residential real estate | |
| 5,010 | |
| 1,732 | |
| (67) | |
| 141 | |
| (1,024) | |
| 5,792 |
Home equity | |
| 285 | |
| 603 | |
| (108) | |
| 48 | |
| (24) | |
| 804 |
Consumer other | |
| 121 | |
| (39) | |
| (119) | |
| 10 | |
| 101 | |
| 74 |
Total | | $ | 19,082 | | $ | 5,228 | | $ | (741) | | $ | 307 | | $ | (1,428) | | $ | 22,448 |
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | |||||||||||||
| | Balance at | | | | | | | | | | | | | |
| | Beginning of | | | | | | | | | | | Balance at | ||
(in thousands) |
| Period |
| Charge Offs |
| Recoveries |
| Provision |
| End of Period | |||||
Commercial construction | | $ | 532 | | $ | — | | $ | — | | $ | 185 | | $ | 717 |
Commercial real estate owner occupied | |
| 1,524 | |
| — | |
| — | |
| 370 | |
| 1,894 |
Commercial real estate non-owner occupied | |
| 5,926 | |
| (266) | |
| 14 | |
| 783 | |
| 6,457 |
Tax exempt | |
| 64 | |
| — | |
| — | |
| 4 | |
| 68 |
Commercial and industrial | |
| 3,056 | |
| (24) | |
| 14 | |
| 236 | |
| 3,282 |
Residential real estate | |
| 4,991 | |
| — | |
| 1 | |
| 86 | |
| 5,078 |
Home equity | |
| 318 | |
| — | |
| — | |
| (4) | |
| 314 |
Consumer other | |
| 98 | |
| (149) | |
| 8 | |
| 140 | |
| 97 |
Total | | $ | 16,509 | | $ | (439) | | $ | 37 | | $ | 1,800 | | $ | 17,907 |
26
| | | | | | | | | | | | | | | |
| | | |||||||||||||
| | Nine Months Ended September 30, 2020 | |||||||||||||
| | Balance at | | | | | | | | | | | | | |
| | Beginning of | | | | | | | | | | | Balance at | ||
(in thousands) |
| Period |
| Charge Offs |
| Recoveries |
| Provision |
| End of Period | |||||
Commercial construction | | $ | 317 | | $ | — | | $ | — | | $ | 400 | | $ | 717 |
Commercial real estate owner occupied | |
| 2,368 | |
| — | |
| — | |
| (474) | |
| 1,894 |
Commercial real estate non-owner occupied | |
| 4,695 | |
| (1,137) | |
| 109 | |
| 2,790 | |
| 6,457 |
Tax exempt | |
| 67 | |
| — | |
| — | |
| 1 | |
| 68 |
Commercial and industrial | |
| 3,262 | |
| (360) | | | 25 | |
| 355 | |
| 3,282 |
Residential real estate | |
| 4,213 | |
| (32) | |
| 12 | |
| 885 | |
| 5,078 |
Home equity | |
| 320 | |
| — | |
| — | |
| (6) | |
| 314 |
Consumer other | |
| 111 | |
| (341) | |
| 13 | |
| 314 | |
| 97 |
Total | | $ | 15,353 | | $ | (1,870) | | $ | 159 | | $ | 4,265 | | $ | 17,907 |
Unfunded Commitments
The Company’s allowance for credit losses on unfunded commitments is recognized as a liability (other liabilities on the consolidated balance sheet), with adjustments to the reserve recognized in other non-interest expense in the consolidated statement of operations. The Company’s activity in the allowance for credit losses on unfunded commitments for the periods ended was as follows:
Business Activities Loans | At or for the Nine Months Ended September 30, 2017 | |||||||||||||||||||
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
Balance at beginning of period | $ | 5,145 | $ | 1,952 | $ | 2,721 | $ | 601 | $ | 10,419 | ||||||||||
Charged-off loans | (124 | ) | (189 | ) | (226 | ) | (87 | ) | (626 | ) | ||||||||||
Recoveries on charged-off loans | 9 | 7 | 65 | 7 | 88 | |||||||||||||||
Provision/(releases) for loan losses | 310 | 405 | 941 | 40 | 1,696 | |||||||||||||||
Balance at end of period | $ | 5,340 | $ | 2,175 | $ | 3,501 | $ | 561 | $ | 11,577 | ||||||||||
Individually evaluated for impairment | 391 | 2 | 44 | 55 | 492 | |||||||||||||||
Collectively evaluated | 4,949 | 2,173 | 3,457 | 506 | 11,085 | |||||||||||||||
Total | $ | 5,340 | $ | 2,175 | $ | 3,501 | $ | 561 | $ | 11,577 |
Business Activities Loans | At or for the Nine Months Ended September 30, 2016 | |||||||||||||||||||
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
Balance at beginning of period | $ | 4,430 | $ | 1,590 | $ | 2,747 | $ | 672 | $ | 9,439 | ||||||||||
Charged-off loans | (133 | ) | (90 | ) | (141 | ) | (19 | ) | (383 | ) | ||||||||||
Recoveries on charged-off loans | 35 | 200 | 36 | 22 | 293 | |||||||||||||||
Provision/(releases) for loan losses | 719 | 39 | 38 | (42 | ) | 754 | ||||||||||||||
Balance at end of period | $ | 5,051 | $ | 1,739 | $ | 2,680 | $ | 633 | $ | 10,103 | ||||||||||
Individually evaluated for impairment | 100 | 174 | 87 | 10 | 371 | |||||||||||||||
Collectively evaluated | 4,951 | 1,565 | 2,593 | 623 | 9,732 | |||||||||||||||
Total | $ | 5,051 | $ | 1,739 | $ | 2,680 | $ | 633 | $ | 10,103 |
Acquired Loans | At or for the Nine Months Ended September 30, 2017 | |||||||||||||||||||
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
Balance at beginning of period | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Charged-off loans | (54 | ) | (18 | ) | (31 | ) | (19 | ) | (122 | ) | ||||||||||
Recoveries on charged-off loans | — | — | — | — | — | |||||||||||||||
Provision/(releases) for loan losses | 360 | 49 | 67 | 19 | 495 | |||||||||||||||
Balance at end of period | $ | 306 | $ | 31 | $ | 36 | $ | — | $ | 373 | ||||||||||
Individually evaluated for impairment | 168 | — | — | — | 168 | |||||||||||||||
Collectively evaluated | 138 | 31 | 36 | — | 205 | |||||||||||||||
Total | $ | 306 | $ | 31 | $ | 36 | $ | — | $ | 373 |
| | | | | | |
(in thousands) | | Three Months Ended September 30, 2021 |
| Nine Months Ended September 30, 2021 | ||
Begininng Balance | | $ | 1,921 | | $ | 359 |
Impact of CECL adoption | | | — | | | 1,616 |
Provision for credit losses | |
| 280 | |
| 226 |
Ending Balance | | $ | 2,201 | | $ | 2,201 |
| | | | | �� | |
(in thousands) | | Three Months Ended September 30, 2020 |
| Nine Months Ended September 30, 2020 | ||
Begininng Balance | | $ | 319 | | $ | 314 |
Provision for credit losses | |
| 2 | |
| 7 |
Ending Balance | | $ | 321 | | $ | 321 |
Loan Origination/Risk Management:
The
Credit Quality Indicators/Classified Loans:
The following are the definitions of the Bank’sCompany’s credit quality indicators:
Pass:
Loans
27
Special Mention: Loans the Company considers having some potential weaknesses, but are considered pass.
Substandard:
Doubtful:
Loans
Loss:
Loans
28
The following tables present the Company’s loans by year of origination, loan segmentation and risk rating atindicator as of September 30, 2017 and December 31, 2016:2021:
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
(in thousands) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | |||||||
Commercial construction |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Risk rating: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Pass | | $ | 22,192 | | $ | 76,226 | | $ | 44,453 | | $ | 9,829 | | $ | — | | $ | — | | $ | 152,700 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 22,192 | | $ | 76,226 | | $ | 44,453 | | $ | 9,829 | | $ | — | | $ | — | | $ | 152,700 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial real estate owner occupied | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 9,937 | | $ | 16,003 | | $ | 35,366 | | $ | 47,026 | | $ | 20,038 | | $ | 110,663 | | $ | 239,033 |
Special mention | |
| — | |
| — | |
| 767 | |
| — | |
| — | |
| 3,125 | |
| 3,892 |
Substandard | |
| — | |
| — | |
| — | |
| 248 | |
| 248 | |
| 10,030 | |
| 10,526 |
Doubtful | | | — | | | — | | | — | | | 172 | | | — | | | 169 | | | 341 |
Total | | $ | 9,937 | | $ | 16,003 | | $ | 36,133 | | $ | 47,446 | | $ | 20,286 | | $ | 123,987 | | $ | 253,792 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial real estate non-owner occupied | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 101,706 | | $ | 147,754 | | $ | 90,963 | | $ | 40,545 | | $ | 147,197 | | $ | 186,056 | | $ | 714,221 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 15,612 | |
| 15,612 |
Substandard | |
| — | |
| — | |
| — | |
| 131 | |
| 131 | |
| 3,086 | |
| 3,348 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | 172 | | | 172 |
Total | | $ | 101,706 | | $ | 147,754 | | $ | 90,963 | | $ | 40,676 | | $ | 147,328 | | $ | 204,926 | | $ | 733,353 |
| | | | | | | | | | | | | | | | | | | | | |
Tax exempt | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 1,511 | | $ | 604 | | $ | 975 | | $ | 14,453 | | $ | 5,387 | | $ | 19,518 | | $ | 42,448 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 1,511 | | $ | 604 | | $ | 975 | | $ | 14,453 | | $ | 5,387 | | $ | 19,518 | | $ | 42,448 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 104,179 | | $ | 64,303 | | $ | 36,010 | | $ | 17,635 | | $ | 35,407 | | $ | 73,972 | | $ | 331,506 |
Special mention | |
| 619 | |
| 222 | |
| 717 | |
| 596 | |
| 202 | |
| 1,429 | |
| 3,785 |
Substandard | |
| 98 | |
| — | |
| 549 | |
| 14 | |
| 50 | |
| 677 | |
| 1,388 |
Doubtful | | | — | | | — | | | — | | | — | | | 122 | | | 188 | | | 310 |
Total | | $ | 104,896 | | $ | 64,525 | | $ | 37,276 | | $ | 18,245 | | $ | 35,781 | | $ | 76,266 | | $ | 336,989 |
| | | | | | | | | | | | | | | | | | | | | |
(continued) |
29
Construction and land development | Commercial real estate other | Total commercial real estate | ||||||||||||||||||||||
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||||||||
Grade: | ||||||||||||||||||||||||
Pass | $ | 33,008 | $ | 14,695 | $ | 433,934 | $ | 376,968 | $ | 466,942 | $ | 391,663 | ||||||||||||
Special mention | 47 | — | 6,820 | 5,868 | 6,867 | 5,868 | ||||||||||||||||||
Substandard | 637 | — | 15,093 | 20,588 | 15,730 | 20,588 | ||||||||||||||||||
Total | $ | 33,692 | $ | 14,695 | $ | 455,847 | $ | 403,424 | $ | 489,539 | $ | 418,119 |
Commercial other | Agricultural and other loans to farmers | Tax exempt loans | Total commercial and industrial | |||||||||||||||||||||||||||||
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||||||||||
Pass | $ | 168,608 | $ | 98,968 | $ | 30,075 | $ | 31,279 | $ | 40,610 | $ | 15,679 | $ | 239,293 | $ | 145,926 | ||||||||||||||||
Special mention | 1,757 | 2,384 | 91 | 251 | 166 | 167 | 2,014 | 2,802 | ||||||||||||||||||||||||
Substandard | 1,821 | 2,234 | 317 | 278 | — | — | 2,138 | 2,512 | ||||||||||||||||||||||||
Total | $ | 172,186 | $ | 103,586 | $ | 30,483 | $ | 31,808 | $ | 40,776 | $ | 15,846 | $ | 243,445 | $ | 151,240 |
Commercial construction and land development | Commercial real estate other | Total commercial real estate | ||||||||||||||||||||||
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||||||||
Grade: | ||||||||||||||||||||||||
Pass | $ | 15,336 | $ | — | $ | 278,134 | $ | — | $ | 293,470 | $ | — | ||||||||||||
Special mention | 233 | — | 2,475 | — | 2,708 | — | ||||||||||||||||||
Substandard | 24 | — | 7,831 | — | 7,855 | — | ||||||||||||||||||
Total | $ | 15,593 | $ | — | $ | 288,440 | $ | — | $ | 304,033 | $ | — |
Commercial other | Agricultural and other loans to farmers | Tax exempt loans | Total commercial and industrial | |||||||||||||||||||||||||||||
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||||||||||
Pass | $ | 63,941 | $ | — | $ | — | $ | — | $ | 45,537 | $ | — | $ | 109,478 | $ | — | ||||||||||||||||
Special mention | 2,053 | — | — | — | — | — | 2,053 | — | ||||||||||||||||||||||||
Substandard | 2,096 | — | — | — | — | — | 2,096 | — | ||||||||||||||||||||||||
Total | $ | 68,090 | $ | — | $ | — | $ | — | $ | 45,537 | $ | — | $ | 113,627 | $ | — |
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | |||||||
Residential real estate |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Performing | | $ | 143,071 | | $ | 126,171 | | $ | 95,942 | | $ | 70,062 | | $ | 69,486 | | $ | 404,395 | | $ | 909,127 |
Nonperforming | |
| — | |
| — | |
| — | |
| 576 | |
| 183 | |
| 7,415 | |
| 8,174 |
Total | | $ | 143,071 | | $ | 126,171 | | $ | 95,942 | | $ | 70,638 | | $ | 69,669 | | $ | 411,810 | | $ | 917,301 |
| | | | | | | | | | | | | | | | | | | | | |
Home equity | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Performing | | $ | 8,227 | | $ | 10,946 | | $ | 9,775 | | $ | 7,647 | | $ | 6,975 | | $ | 43,133 | | $ | 86,703 |
Nonperforming | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 1,299 | |
| 1,299 |
Total | | $ | 8,227 | | $ | 10,946 | | $ | 9,775 | | $ | 7,647 | | $ | 6,975 | | $ | 44,432 | | $ | 88,002 |
| | | | | | | | | | | | | | | | | | | | | |
Consumer other | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Performing | | $ | 3,037 | | $ | 1,942 | | $ | 1,023 | | $ | 803 | | $ | 329 | | $ | 2,429 | | $ | 9,563 |
Nonperforming | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 6 | |
| 6 |
Total | | $ | 3,037 | | $ | 1,942 | | $ | 1,023 | | $ | 803 | | $ | 329 | | $ | 2,435 | | $ | 9,569 |
| | | | | | | | | | | | | | | | | | | | | |
Total Loans | | $ | 394,577 | | $ | 444,171 | | $ | 316,540 | | $ | 209,737 | | $ | 285,755 | | $ | 883,374 | | $ | 2,534,154 |
The following table summarizes credit risk exposure indicators by portfolio segment, under the incurred loss methodology, as of the period indicated:
| | | | | | | | | | | | | | | |
|
| December 31, 2020 | |||||||||||||
| | Commercial | | Commercial | | Residential | |
| | |
| | |||
| | Real Estate | | and Industrial | | Real Estate | | Consumer | | Total | |||||
Grade: |
| |
| |
|
| |
|
| |
|
| |
| |
Pass |
| $ | 1,053,773 | | $ | 422,016 | | $ | — | | $ | — | | $ | 1,475,789 |
Performing | | | — | | | — | | | 914,749 | | | 112,190 | | | 1,026,939 |
Special mention |
| | 6,075 | | | 2,771 | | | — | | | — | | | 8,846 |
Substandard |
| | 22,267 | | | 15,180 | | | — | | | — | | | 37,447 |
Doubtful |
| | 2,265 | | | 1,100 | | | — | | | — | | | 3,365 |
Loss |
| | 1 | | | 2 | | | — | | | — | | | 3 |
Non-performing | | | — | | | — | | | 9,142 | | | 1,354 | | | 10,496 |
Total |
| $ | 1,084,381 | | $ | 441,069 | | $ | 923,891 | | $ | 113,544 | | $ | 2,562,885 |
Past Dues
The following is a summary of past due loans for the periods ended:
| | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | ||||||||||||||||
(in thousands) |
| 30-59 |
| 60-89 |
| 90+ |
| Total Past Due |
| Current |
| Total Loans | ||||||
Commercial construction | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 152,700 | | $ | 152,700 |
Commercial real estate owner occupied | |
| — | |
| 10 | |
| 627 | |
| 637 | |
| 253,155 | |
| 253,792 |
Commercial real estate non-owner occupied | |
| 314 | |
| — | |
| 117 | |
| 431 | |
| 732,922 | |
| 733,353 |
Tax exempt | |
| — | |
| — | |
| — | |
| — | |
| 42,448 | |
| 42,448 |
Commercial and industrial | |
| 44 | |
| 35 | |
| 313 | |
| 392 | |
| 336,597 | |
| 336,989 |
Residential real estate | |
| 414 | |
| 1,007 | |
| 2,796 | |
| 4,217 | |
| 913,084 | |
| 917,301 |
Home equity | |
| 344 | |
| 95 | |
| 62 | |
| 501 | |
| 87,501 | |
| 88,002 |
Consumer other | |
| 32 | |
| 2 | |
| — | |
| 34 | |
| 9,535 | |
| 9,569 |
Total | | $ | 1,148 | | $ | 1,149 | | $ | 3,915 | | $ | 6,212 | | $ | 2,527,942 | | $ | 2,534,154 |
30
| | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||||||||
(in thousands) |
| 30-59 |
| 60-89 |
| 90+ |
| Total Past Due |
| Current |
| Total Loans | ||||||
Commercial construction | | $ | 74 | | $ | — | | $ | 1 | | $ | 75 | | $ | 117,807 | | $ | 117,882 |
Commercial real estate owner occupied | |
| 1,309 | |
| 464 | |
| 438 | |
| 2,211 | |
| 217,006 | |
| 219,217 |
Commercial real estate non-owner occupied | |
| 503 | |
| 674 | |
| 624 | |
| 1,801 | |
| 714,975 | |
| 716,776 |
Tax exempt | |
| — | |
| — | |
| — | |
| — | |
| 47,862 | |
| 47,862 |
Commercial and industrial | |
| 161 | |
| — | |
| 193 | |
| 354 | |
| 355,330 | |
| 355,684 |
Residential real estate | |
| 9,178 | |
| 2,511 | |
| 3,200 | |
| 14,889 | |
| 980,327 | |
| 995,216 |
Home equity | |
| 1,062 | |
| 614 | |
| 375 | |
| 2,051 | |
| 98,045 | |
| 100,096 |
Consumer other | |
| 20 | |
| — | |
| 2 | |
| 22 | |
| 10,130 | |
| 10,152 |
Total | | $ | 12,307 | | $ | 4,263 | | $ | 4,833 | | $ | 21,403 | | $ | 2,541,482 | | $ | 2,562,885 |
Non-Accrual Loans
The following is a summary of non-accrual loans for the periods ended:
| | | | | | | | | |
| | September 30, 2021 | |||||||
| | | | | Nonaccrual With No | | 90+ Days Past | ||
(in thousands) |
| Nonaccrual |
| Related Allowance |
| Due and Accruing | |||
Commercial construction | | $ | — | | $ | — | | $ | — |
Commercial real estate owner occupied | |
| 1,184 | |
| 808 | |
| 366 |
Commercial real estate non-owner occupied | |
| 770 | |
| 314 | |
| — |
Tax exempt | |
| — | |
| — | |
| — |
Commercial and industrial | |
| 775 | |
| 629 | |
| 149 |
Residential real estate | |
| 8,174 | |
| 3,217 | |
| 105 |
Home equity | |
| 1,298 | |
| 316 | |
| — |
Consumer other | |
| 6 | |
| — | |
| — |
Total | | $ | 12,207 | | $ | 5,284 | | $ | 620 |
| | | | | | | | | |
| | December 31, 2020 | |||||||
| | | | | Nonaccrual With No | | 90+ Days Past | ||
(in thousands) |
| Nonaccrual |
| Related Allowance |
| Due and Accruing | |||
Commercial construction | | $ | 258 | | $ | — | | $ | — |
Commercial real estate owner occupied | |
| 3,038 | |
| 929 | |
| — |
Commercial real estate non-owner occupied | |
| 383 | |
| 118 | |
| — |
Tax exempt | |
| — | |
| — | |
| — |
Commercial and industrial | |
| 1,223 | |
| 1,065 | |
| — |
Residential real estate | |
| 5,883 | |
| 4,948 | |
| — |
Home equity | |
| 1,345 | |
| 1,346 | |
| 267 |
Consumer other | |
| 58 | |
| 58 | |
| — |
Total | | $ | 12,188 | | $ | 8,464 | | $ | 267 |
31
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 the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects 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.
| | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | ||||||||
(in thousands) |
| Real Estate |
| Other |
| Real Estate |
| Other | ||||
Commercial construction | | $ | — | | $ | — | | $ | 259 | | $ | — |
Commercial real estate owner occupied | |
| 1,184 | |
| — | |
| 3,441 | |
| — |
Commercial real estate non-owner occupied | |
| 770 | |
| — | |
| 383 | |
| — |
Tax exempt | |
| — | |
| — | |
| — | |
| — |
Commercial and industrial | |
| 436 | |
| 339 | |
| 625 | |
| 607 |
Residential real estate | |
| 8,174 | |
| — | |
| 7,432 | |
| — |
Home equity | |
| 1,298 | |
| — | |
| 1,493 | |
| — |
Consumer other | |
| 6 | |
| — | |
| 60 | |
| — |
Total | | $ | 11,868 | | $ | 339 | | $ | 13,693 | | $ | 607 |
Pre Adoption of ASC 326 – Impaired Loans
For periods prior to the adoption of CECL, loans were considered impaired when, based on current information about totaland events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. The Company identified loan relationships having aggregate balances in excess of $150 thousand with potential credit weaknesses. Such loan relationships were identified primarily through the Company's analysis of internal loan evaluations, past due loan reports, TDRs and loans rated Special Mentionadversely classified. Each loan so identified was then individually evaluated for impairment. Substantially all impaired loans have historically been collateral dependent, meaning repayment of the loan was expected or higherwas considered to be provided solely from the sale of the loan's underlying collateral. For such loans, the Company measured impairment based on the fair value of the loan's collateral, which is generally determined utilizing current appraisals. A specific reserve was established in an amount equal to the excess, if any, of the recorded investment in each impaired loan over the fair value of its underlying collateral, less estimated costs to sell. The Company's policy was to re-evaluate the fair value of collateral dependent loans at least every twelve months unless there is a known deterioration in the collateral's value, in which case a new appraisal is obtained.
32
The tables reflects the activity associated with impaired loans in 2020 prior to the adoption of CECL.
| | | | | | | | | | | | | | | |
|
| December 31, 2020 | |||||||||||||
| | Recorded |
| Unpaid Principal |
| Related |
| Average Recorded |
| Interest | |||||
(in thousands) | | Investment | | Balance | | Allowance | | Investment | | Income Recognized | |||||
With no related allowance: |
| |
|
| |
|
| |
|
| |
|
| |
|
Construction and land development | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — |
Other commercial real estate | |
| 2,001 | |
| 2,047 | |
| — | |
| 1,610 | |
| — |
Commercial | |
| 1,095 | |
| 1,254 | |
| — | |
| 1,140 | |
| 4 |
Agricultural | |
| 361 | |
| 150 | |
| — | |
| 114 | |
| 2 |
Tax exempt loans | |
| — | |
| — | |
| — | |
| — | |
| — |
Residential real estate | |
| 2,745 | |
| 3,165 | |
| — | |
| 1,077 | |
| 17 |
Home equity | |
| — | |
| — | |
| — | |
| — | |
| — |
Other consumer | |
| — | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | | | | |
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
| |
|
|
Construction and land development | |
| 258 | |
| 258 | |
| 205 | |
| 203 | |
| — |
Other commercial real estate | |
| 1,963 | |
| 2,108 | |
| 1,038 | |
| 1,973 | |
| 17 |
Commercial | |
| 282 | |
| 289 | |
| 164 | |
| 73 | |
| — |
Agricultural | |
| — | |
| — | |
| — | |
| — | |
| — |
Tax exempt loans | |
| — | |
| — | |
| — | |
| — | |
| — |
Residential real estate | |
| 887 | |
| 944 | |
| 106 | |
| 1,865 | |
| 37 |
Home equity | |
| 13 | |
| 13 | |
| — | |
| 12 | |
| 1 |
Other consumer | |
| — | |
| — | |
| — | |
| — | |
| — |
| | | | | | | | | | | | | | | |
Total | |
|
| |
|
| |
|
| |
|
| |
|
|
Commercial real estate | |
| 4,222 | |
| 4,413 | |
| 1,243 | |
| 3,786 | |
| 17 |
Commercial and industrial | |
| 1,738 | |
| 1,693 | |
| 164 | |
| 1,327 | |
| 6 |
Residential real estate | |
| 3,632 | |
| 4,109 | |
| 106 | |
| 2,942 | |
| 54 |
Consumer | |
| 13 | |
| 13 | |
| — | |
| 12 | |
| 1 |
Total impaired loans | | $ | 9,605 | | $ | 10,228 | | $ | 1,513 | | $ | 8,067 | | $ | 78 |
33
Troubled Debt Restructuring Loans
The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring (TDR), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as non-performing at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.
The following tables include the recorded investment and number of modifications identified during the periods ended. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Modifications may include adjustments to interest rates, payment amounts, extensions of maturity, court ordered concessions or other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. There were 0 modifications qualifying as TDR’s for the three and nine months ended September 30, 2021.
| | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | |||||||||
| | | | Pre-Modification | | Post-Modification | | | | ||
| | Number of | | Outstanding | | Outstanding | | | | ||
(in thousands) |
| Modifications |
| Balance |
| Balance |
| Reserve | |||
Commercial and industrial |
| 1 | |
| 86 | |
| 86 | |
| — |
Total |
| 1 | | $ | 86 | | $ | 86 | | $ | — |
| | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | |||||||||
| | | | Pre-Modification | | Post-Modification | | | | ||
| | Number of | | Outstanding | | Outstanding | | | | ||
(in thousands) |
| Modifications |
| Balance |
| Balance |
| Reserve | |||
Commercial construction | | — | | $ | — | | $ | — | | $ | — |
Commercial real estate owner occupied |
| — | |
| — | |
| — | |
| — |
Commercial real estate non-owner occupied |
| 1 | |
| 54 | |
| 247 | |
| — |
Tax exempt |
| — | |
| — | |
| — | |
| — |
Commercial and industrial |
| 4 | |
| 127 | |
| 248 | |
| — |
Residential real estate |
| — | |
| — | |
| — | |
| — |
Home equity |
| 1 | |
| 26 | |
| 24 | |
| — |
Consumer other |
| 1 | |
| 9 | |
| 9 | |
| — |
Total |
| 7 | | $ | 216 | | $ | 528 | | $ | — |
The following tables summarize the types of loan concessions made for the periods presented:
| | | | | | | | | | |
| | September 30, 2021 | | September 30, 2020 | ||||||
|
| |
| Post-Modification |
| |
| Post-Modification | ||
| | Number of | | Outstanding | | Number of | | Outstanding | ||
(in thousands) | | Modifications | | Balance | | Modifications | | Balance | ||
Interest rate, forbearance and maturity concession |
| — | | $ | — |
| 4 | | $ | 409 |
Forbearance and interest only payments |
| — | |
| — |
| 1 | |
| 24 |
Maturity concession |
| — | |
| — |
| 2 | |
| 95 |
Total |
| — | | $ | — |
| 7 | | $ | 528 |
For the three months ended September 30, 2021 there were 0 loans that were restructured that had subsequently defaulted during the period. The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs.
Modifications in response to COVID-19
The Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. The CARES Act along with a joint agency statement issued by banking agencies, provides that short-term modifications
34
made in response to COVID-19 do not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. See Note 1 - Basis of Presentation in December 31, 2020 10-K for more information.
Foreclosure
Residential mortgage loans collateralized by real estate that are in the process of foreclosure as of September 30, 20172021 and December 31, 2016. 2020 totaled $734 thousand and $917 thousand, respectively.
Mortgage Banking
The table below includes consumerCompany had identified and designated loans thatwith an unpaid principal balance of $7.5 million and $24.0 million as residential loans held for sale at September 30, 2021 and December 31, 2020, respectively. The interest rate exposure on loans held for sale are special mentionmitigated through forward delivery commitments with certain approved secondary market investors. Forward delivery commitments were $14.5 million, and substandard accruing that$50.6 million, respectively. Refer to Note 8 for further discussion of the Company's forward delivery commitments.
For the three months ended September 30, 2021 and 2020, the Company sold $28.5 million and $86.2 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 $682 thousand and $2.2 million, respectively. For the nine months ended September 30, 2021 and 2020, the Company sold $153.9 million and $156.0 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 $3.6 million and $3.1 million, respectively.
The Company sells residential loans on the secondary market with the Company primarily retaining the servicing of these loans. Servicing sold loans helps to maintain customer relationships and the Company earns fees over the servicing period. Loans serviced for others are classifiednot included in the above table as performing based on payment activity.accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to level of prepayments that result from shifts in interest rates. The Company obtains third party valuations of its servicing assets portfolio quarterly, which assumptions are reflected in Fair Value disclosures.
35
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
(In thousands) | Business Activities Loans | Acquired Loans | Total | Business Activities Loans | Acquired Loans | Total | ||||||||||||||||||
Non-accrual | $ | 5,116 | $ | 3,452 | $ | 8,568 | $ | 2,733 | $ | — | $ | 2,733 | ||||||||||||
Substandard accruing | 15,774 | 9,627 | 25,401 | 20,368 | — | 20,368 | ||||||||||||||||||
Total classified | 20,890 | 13,079 | 33,969 | 23,101 | — | 23,101 | ||||||||||||||||||
Special mention | 8,864 | 4,762 | 13,626 | 8,669 | — | 8,669 | ||||||||||||||||||
Total Criticized | $ | 29,754 | $ | 17,841 | $ | 47,595 | $ | 31,770 | $ | — | $ | 31,770 |
Borrowed funds at September 30, 20172021 and December 31, 20162020 are summarized, as follows:
September 30, 2017 | December 31, 2016 | |||||||||||||
(dollars in thousands) | Carrying Value | Weighted Average Rate | Carrying Value | Weighted Average Rate | ||||||||||
Short-term borrowings | ||||||||||||||
Advances from the FHLBB | $ | 506,000 | 1.36 | % | $ | 372,700 | 0.97 | % | ||||||
Other borrowings | 41,600 | 0.56 | 21,780 | 0.29 | ||||||||||
Total short-term borrowings | 547,600 | 1.30 | 394,480 | 0.93 | ||||||||||
Long-term borrowings | ||||||||||||||
Advances from the FHLBB | 227,982 | 1.50 | 137,116 | 1.59 | ||||||||||
Subordinated borrowings | 38,048 | 5.46 | — | — | ||||||||||
Junior subordinated borrowings | 5,000 | 4.81 | 5,000 | 4.41 | ||||||||||
Total long-term borrowings | 271,030 | 2.11 | 142,116 | 1.69 | ||||||||||
Total | $ | 818,630 | 1.57 | % | $ | 536,596 | 1.13 | % |
| | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| |||||||
| | | | | Weighted | | | | | Weighted | | |
(dollars in thousands) |
| Carrying Value |
| Average Rate | | Carrying Value |
| Average Rate |
| |||
Short-term borrowings | |
| | |
| | |
| | |
|
|
Advances from the FHLB | | $ | 75,000 |
| 0.30 | % | | $ | 65,676 |
| 1.19 | % |
Other borrowings | |
| 21,667 |
| 0.13 | | |
| 27,779 |
| 0.15 | |
Total short-term borrowings | |
| 96,667 |
| 0.18 | | |
| 93,455 |
| 0.44 | |
Long-term borrowings | |
|
|
|
| | |
|
|
|
| |
Advances from the FHLB | |
| 93,600 |
| 1.57 | | |
| 182,607 |
| 1.73 | |
Subordinated borrowings | |
| 60,083 |
| 4.34 | | |
| 59,961 |
| 4.34 | |
Total long-term borrowings | |
| 153,683 |
| 2.65 | | |
| 242,568 |
| 2.37 | |
Total | | $ | 250,350 |
| 1.06 | % | | $ | 336,023 |
| 1.41 | % |
Short-term debt includes Federal Home Loan Bank of Boston (“FHLBB”)(FHLB) advances with an originala maturity of less than one year. The BankCompany also maintains a
The Bank also hadCompany has 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 “FRB”). At September 30, 2017,2021, the Bank’sCompany’s available secured line of credit at the FRB was $114.6$72.0 million. The BankCompany has pledged certain loans and securities to the FRB to support this arrangement. There were no borrowings0 outstanding advances with the FRB for the periods ended September 30, 20172021 and December 31, 2016.
The Company maintains, with a correspondent bank, an unused unsecured federal funds line of credit that has an aggregate overnight borrowing capacity of $50.0 million as of September 30, 2021 and December 31, 2020. There was 0 outstanding balance on the line of credit as of September 30, 2021 and December 31, 2020.
Long-term FHLBBFHLB advances consist of advances with a maturity of more than one year. The advances outstanding at September 30, 20172021 include callable advances totaling $27.0of $20.0 million and amortizing advances totaling $689of $300 thousand. The advances outstanding at December 31, 2016 include2020 included $20.0 million of callable advances totaling $17.0and $307 million and noof amortizing advances. All FHLBBFHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.
A summary of maturities of FHLBBFHLB advances as of September 30, 20172021 is, as follows:
September 30, 2017 | |||||||
(in thousands, except rates) | Carrying Value | Weighted Average Rate | |||||
Fixed rate advances maturing: | |||||||
2017 | $ | 416,000 | 1.32 | % | |||
2018 | 165,805 | 1.49 | |||||
2019 | 104,947 | 1.63 | |||||
2020 | 29,911 | 1.76 | |||||
2021 | 1,630 | 1.49 | |||||
2022 and thereafter | 15,689 | 0.36 | |||||
Total FHLBB advances | $ | 733,982 | 1.40 | % |
| | | | | | |
|
| | |
| Weighted Average |
|
(in thousands, except rates) | | Amount | | Rate |
| |
2021 | | $ | 75,000 |
| 0.30 | % |
2022 | |
| 15,000 |
| 1.76 | |
2023 | |
| 51,000 |
| 1.71 | |
2024 | |
| 7,300 |
| 1.16 | |
2025 | |
| 20,000 |
| 1.21 | |
2026 and thereafter | |
| 300 |
| 3.39 | |
Total FHLB advances | | $ | 168,600 |
| 1.01 | % |
On November 26, 2019, the Company and the Bank. The subordinated debt securities are callable by the Bank
36
month SOFR plus 3.27%. The Company may, at itshas the option beginning with the interest payment date of NovemberDecember 1, 2019,2024, and on any interestscheduled payment date thereafter, to redeem the Notes, in whole or in part at par plus accrued and unpaid interest to the date of redemption. Any partial redemption will be made pro rata among allupon prior approval of the noteholders. Federal Reserve. Netted with subordinated borrowings is amortized subordinated debt issuance costs of $537 thousand as of September 30, 2021 and issuance costs of $659 thousand net of amortization as of December 31, 2020.
The Notes are not subject to repayment at the option of the noteholders. The Notes are unsecured, subordinated obligations of the Company and rank junioralso has $20.6 million in right of payment to the Company’s senior indebtedness and to the Company’s obligations to its general creditors.
37
A summary of time deposits is, as follows:
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
Time less than $100,000 | $ | 541,585 | $ | 304,393 | ||||
Time $100,000 or more | 260,525 | 112,044 | ||||||
Total time deposits | $ | 802,110 | $ | 416,437 |
| | | | | | |
(in thousands) |
| September 30, 2021 |
| December 31, 2020 | ||
Time less than $100,000 | | $ | 199,312 | | $ | 325,646 |
Time $100,000 through $250,000 | |
| 192,497 | |
| 278,940 |
Time $250,000 or more | |
| 77,412 | |
| 93,775 |
Total | | $ | 469,221 | | $ | 698,361 |
At September 30, 2021 and December 31, 2020, the scheduled maturities by year for time deposits are, as follows:
| | | | | | |
(in thousands) |
| September 30, 2021 | | December 31, 2020 | ||
Within 1 year | | $ | 362,774 | | $ | 574,007 |
Over 1 year to 2 years | |
| 56,926 | |
| 61,584 |
Over 2 years to 3 years | |
| 31,888 | |
| 41,145 |
Over 3 years to 4 years | |
| 9,182 | |
| 12,875 |
Over 4 years to 5 years | |
| 6,272 | |
| 8,728 |
Over 5 years | |
| 2,179 | |
| 22 |
Total | | $ | 469,221 | | $ | 698,361 |
Included in time deposits are brokered deposits of $362.7$31.4 million and $237.9$193.7 million at September 30, 20172021 and December 31, 2016,2020, respectively. IncludedAlso included in the deposit balances contained on the balance sheettime deposits are reciprocal deposits of $49.3$238.5 million and $43.1$125.0 million at September 30, 20172021 and December 31, 2016,2020, respectively.
38
NOTE 8.6. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY
The actual and required capital ratios wereare, as follows:
| | | | | | | | | |
|
| |
| Regulatory |
| |
| Regulatory |
|
| | September 30, | | Minimum to be | | December 31, | | Minimum to be |
|
| | 2021 | | "Well-Capitalized" | | 2020 | | "Well-Capitalized" |
|
Company (consolidated) |
|
|
|
|
|
|
|
| |
Total capital to risk-weighted assets(1) |
| 14.12 | % | 10.50 | % | 13.57 | % | 10.50 | % |
Common equity tier 1 capital to risk-weighted assets(1) |
| 10.92 |
| 7.00 |
| 10.49 |
| 7.00 | |
Tier 1 capital to risk-weighted assets(1) |
| 11.70 |
| 8.50 |
| 11.29 |
| 8.50 | |
Tier 1 capital to average assets |
| 8.54 |
| 5.00 |
| 8.12 |
| 5.00 | |
| | | | | | | | | |
Bank |
|
|
|
|
|
|
|
| |
Total capital to risk-weighted assets(1) |
| 13.92 | % | 10.50 | % | 13.27 | % | 10.50 | % |
Common equity tier 1 capital to risk-weighted assets(1) |
| 13.02 |
| 7.00 |
| 12.53 |
| 7.00 | |
Tier 1 capital to risk-weighted assets(1) |
| 13.02 |
| 8.50 |
| 12.52 |
| 8.50 | |
Tier 1 capital to average assets |
| 9.50 |
| 5.00 |
| 9.02 |
| 5.00 | |
September 30, 2017 | Regulatory Minimum to be Well Capitalized | December 31, 2016 | Regulatory Minimum to be Well Capitalized | |||||||||
Company (consolidated) | ||||||||||||
Total capital to risk weighted assets | 13.8 | % | 10.0 | % | 16.5 | % | 10.0 | % | ||||
Common equity tier 1 capital to risk weighted assets | 11.3 | 6.5 | 15.0 | 6.5 | ||||||||
Tier 1 capital to risk weighted assets | 12.7 | 8.0 | 15.0 | 8.0 | ||||||||
Tier 1 capital to average assets | 8.0 | 5.0 | 8.9 | 5.0 | ||||||||
Bank | ||||||||||||
Total capital to risk weighted assets | 13.8 | % | 10.0 | % | 16.7 | % | 10.0 | % | ||||
Common equity tier 1 capital to risk weighted assets | 13.0 | 6.5 | 15.2 | 6.5 | ||||||||
Tier 1 capital to risk weighted assets | 13.0 | 8.0 | 15.2 | 8.0 | ||||||||
Tier 1 capital to average assets | 8.5 | 5.0 | 9.1 | 5.0 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
At each date shown, the Company and the Bank met the conditions to be classified as “well capitalized”“well-capitalized” under the relevant regulatory framework. To be categorized as well capitalized,"well-capitalized," an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.
The Company and the Bank becameare subject to the Basel III rule that requires the Company and the Bank to assess their Common equity tier 1 capital to risk weightedrisk-weighted assets and the Company and the Bank each exceed the minimum to be well capitalized. In addition, the final capital rules added a requirement to maintain a minimum conservation buffer, composed of common equity tier 1 capital, of 2.5% of risk-weighted assets, to be phased in over three years and applied to the common equity tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio and the Total risk-based capital ratio. Accordingly, banking organizations, on a fully phased in basis no later than"well-capitalized." Effective January 1, 2019 all banking organizations must maintain a minimum Common equity tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5% and a minimum Total risk-based capital ratio of 10.5%.
Accumulated other comprehensive loss
Components of accumulated other comprehensive income is, as follows:
| | | | | | |
(in thousands) |
| September 30, 2021 |
| December 31, 2020 | ||
Accumulated other comprehensive income, before tax: |
| |
|
| |
|
Net unrealized gain on AFS securities | | $ | 5,741 | | $ | 13,069 |
Net unrealized gain on hedging derivatives(1) | |
| (121) | |
| (2,432) |
Net unrealized loss on post-retirement plans | |
| (1,850) | |
| (1,850) |
| | | | | | |
Income taxes related to items of accumulated other comprehensive income: | |
|
| |
|
|
Net unrealized gain on AFS securities | |
| (1,343) | |
| (3,046) |
Net unrealized gain on hedging derivatives(1) | |
| 29 | |
| 567 |
Net unrealized loss on post-retirement plans | |
| 432 | |
| 432 |
Accumulated other comprehensive income(1) | | $ | 2,888 | | $ | 6,740 |
(In thousands) | September 30, 2017 | December 31, 2016 | ||||||
Other accumulated comprehensive income (loss), before tax: | ||||||||
Net unrealized holding gain/(loss) on AFS securities | $ | 1,849 | $ | (3,269 | ) | |||
Net unrealized loss on effective cash flow hedging derivatives | (3,570 | ) | (2,766 | ) | ||||
Net unrealized holding loss on post-retirement plans | (577 | ) | (622 | ) | ||||
Income taxes related to items of accumulated other comprehensive loss: | ||||||||
Net unrealized holding (loss)/gain on AFS securities | (695 | ) | 1,144 | |||||
Net unrealized loss on effective cash flow hedging derivatives | 1,341 | 968 | ||||||
Net unrealized holding loss on post-retirement plans | 217 | 219 | ||||||
Accumulated other comprehensive loss | $ | (1,435 | ) | $ | (4,326 | ) |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
39
The following tablestable presents the components of other comprehensive income (loss) for the three and nine months ended September 30, 20172021 and 2016:
(In thousands) | Before Tax | Tax Effect | Net of Tax | |||||||||
Three Months Ended September 30, 2017 | ||||||||||||
Net unrealized holding gain on AFS securities: | x | |||||||||||
Net unrealized gain arising during the period | $ | 531 | $ | (199 | ) | $ | 332 | |||||
Less: reclassification adjustment for gains (losses) realized in net income | 19 | (7 | ) | 12 | ||||||||
Net unrealized holding gain on AFS securities | 512 | (192 | ) | 320 | ||||||||
Net unrealized loss on cash flow hedging derivatives: | ||||||||||||
Net unrealized loss arising during the period | (84 | ) | 31 | (53 | ) | |||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized gain on cash flow hedging derivatives | (84 | ) | 31 | (53 | ) | |||||||
Net unrealized holding loss on post-retirement plans: | ||||||||||||
Net unrealized gain/(loss) arising during the period | 5 | (2 | ) | 3 | ||||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized holding gain/(loss) on post-retirement plans | 5 | (2 | ) | 3 | ||||||||
Other comprehensive income | $ | 433 | $ | (163 | ) | $ | 270 | |||||
Three Months Ended September 30, 2016 | ||||||||||||
Net unrealized holding gains on AFS securities: | ||||||||||||
Net unrealized gains arising during the period | $ | (4,223 | ) | $ | 1,478 | $ | (2,745 | ) | ||||
Less: reclassification adjustment for gains realized in net income | 1,354 | (474 | ) | 880 | ||||||||
Net unrealized holding gains on AFS securities | (5,577 | ) | 1,952 | (3,625 | ) | |||||||
Net unrealized (loss) on cash flow hedging derivatives: | ||||||||||||
Net unrealized (loss) arising during the period | (92 | ) | 32 | (60 | ) | |||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized (loss) on cash flow hedging derivatives | (92 | ) | 32 | (60 | ) | |||||||
Net unrealized holding gain on post-retirement plans: | ||||||||||||
Net unrealized gain arising during the period | 8 | (3 | ) | 5 | ||||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized holding gain on post-retirement plans | 8 | (3 | ) | 5 | ||||||||
Other comprehensive income | $ | (5,661 | ) | $ | 1,981 | $ | (3,680 | ) |
| | | | | | | | | |
(in thousands) |
| Before Tax |
| Tax Effect |
| Net of Tax | |||
Three Months Ended September 30, 2021 |
| |
|
| |
|
| |
|
Net unrealized gain on AFS securities: |
| |
|
| |
|
| |
|
Net unrealized gain arising during the period | | $ | (1,770) | | $ | 403 | | $ | (1,367) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| 1,930 | |
| (458) | |
| 1,472 |
Net unrealized gain on AFS securities | |
| (3,700) | |
| 861 | |
| (2,839) |
| | | | | | | | | |
Net unrealized gain on hedging derivatives: | |
|
| |
|
| |
| |
Net unrealized gain arising during the period | |
| (203) | |
| 48 | |
| (155) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized gain on cash flow hedging derivatives | |
| (203) | |
| 48 | |
| (155) |
| | | | | | | | | |
Net unrealized loss on post-retirement plans: | |
|
| |
|
| |
| |
Net unrealized loss arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive loss | | $ | (3,903) | | $ | 909 | | $ | (2,994) |
| | | | | | | | | |
Three Months Ended September 30, 2020 | |
|
| |
|
| |
|
|
Net unrealized gain on AFS securities: | |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | | $ | 351 | | $ | (82) | | $ | 269 |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized gain on AFS securities | |
| 351 | |
| (82) | |
| 269 |
| | | | | | | | | |
Net unrealized gain on derivative hedgess: | |
|
| |
|
| |
| |
Net unrealized gain arising during the period(1) | |
| 1,302 | |
| (308) | |
| 994 |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized gain on cash flow derivative hedges(1) | |
| 1,302 | |
| (308) | �� |
| 994 |
| | | | | | | | | |
Net unrealized loss on post-retirement plans: | |
|
| |
|
| |
| |
Net unrealized loss arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive income(1) | | $ | 1,653 | | $ | (390) | | $ | 1,263 |
(In thousands) | Before Tax | Tax Effect | Net of Tax | |||||||||
Nine Months Ended September 30, 2017 | ||||||||||||
Net unrealized holding gain on AFS securities: | x | |||||||||||
Net unrealized gain arising during the period | $ | 5,138 | $ | (1,846 | ) | $ | 3,292 | |||||
Less: reclassification adjustment for gains (losses) realized in net income | 19 | (7 | ) | 12 | ||||||||
Net unrealized holding gain on AFS securities | 5,119 | (1,839 | ) | 3,280 | ||||||||
Net unrealized loss on cash flow hedging derivatives: | ||||||||||||
Net unrealized loss arising during the period | (805 | ) | 373 | (432 | ) | |||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized gain on cash flow hedging derivatives | (805 | ) | 373 | (432 | ) | |||||||
Net unrealized holding loss on post-retirement plans: | ||||||||||||
Net unrealized gain arising during the period | 45 | (2 | ) | 43 | ||||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized holding gain on post-retirement plans | 45 | (2 | ) | 43 | ||||||||
Other comprehensive income | $ | 4,359 | $ | (1,468 | ) | $ | 2,891 | |||||
Nine Months Ended September 30, 2016 | ||||||||||||
Net unrealized holding gains on AFS securities: | ||||||||||||
Net unrealized gains arising during the period | $ | 7,530 | $ | (2,635 | ) | $ | 4,895 | |||||
Less: reclassification adjustment for gains realized in net income | 4,489 | (1,571 | ) | 2,918 | ||||||||
Net unrealized holding gains on AFS securities | 3,041 | (1,064 | ) | 1,977 | ||||||||
Net unrealized (loss) on cash flow hedging derivatives: | ||||||||||||
Net unrealized (loss) arising during the period | (1,309 | ) | 458 | (851 | ) | |||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized (loss) on cash flow hedging derivatives | (1,309 | ) | 458 | (851 | ) | |||||||
Net unrealized holding gain on post-retirement plans: | ||||||||||||
Net unrealized gain arising during the period | 86 | (30 | ) | 56 | ||||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized holding gain on post-retirement plans | 86 | (30 | ) | 56 | ||||||||
Other comprehensive income | $ | 1,818 | $ | (636 | ) | $ | 1,182 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
40
| | | | | | | | | |
(in thousands) |
| Before Tax |
| Tax Effect |
| Net of Tax | |||
Nine Months Ended September 30, 2021 |
| |
|
| |
|
| |
|
Net unrealized loss on AFS securities: |
| |
|
| |
|
| |
|
Net unrealized loss arising during the period | | $ | (5,348) | | $ | 1,234 | | $ | (4,114) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| 1,980 | |
| (469) | |
| 1,511 |
Net unrealized loss on AFS securities | |
| (7,328) | |
| 1,703 | |
| (5,625) |
| | | | | | | | | |
Net unrealized loss on derivative hedges: | |
| | |
|
| |
|
|
Net unrealized loss arising during the period | |
| 2,311 | |
| (538) | |
| 1,773 |
Less: reclassification adjustment for (losses) gains realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on derivative hedges | |
| 2,311 | |
| (538) | |
| 1,773 |
| | | | | | | | | |
Net unrealized loss on post-retirement plans: | |
|
| |
|
| |
|
|
Net unrealized loss arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive loss | | $ | (5,017) | | $ | 1,165 | | $ | (3,852) |
| | | | | | | | | |
Nine Months Ended September 30, 2020 | |
|
| |
|
| |
|
|
Net unrealized gain on AFS securities: | |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | | $ | 9,408 | | $ | (2,143) | | $ | 7,265 |
Less: reclassification adjustment for gains realized in net income | |
| 1,486 | |
| (352) | |
| 1,134 |
Net unrealized gain on AFS securities | |
| 7,922 | |
| (1,791) | |
| 6,131 |
| | | | | | | | | |
Net unrealized loss on cash flow hedging derivatives: | |
|
| |
|
| |
|
|
Net unrealized loss arising during the period(1) | |
| (7,568) | |
| 1,776 | |
| (5,792) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on cash flow hedging derivatives(1) | |
| (7,568) | |
| 1,776 | |
| (5,792) |
| | | | | | | | | |
Net unrealized gain on post-retirement plans: | |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized gain on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive income(1) | | $ | 354 | | $ | (15) | | $ | 339 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
41
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax impacts, for the three and nine months ended September 30, 20172021 and 2016:
| | | | | | | | | | | | |
|
| Net unrealized |
| Net loss on |
| Net unrealized |
| | | |||
| | gain | | effective cash | | loss | | | | |||
| | on AFS | | flow hedging | | on pension | | | | |||
(in thousands) | | Securities | | derivatives(1) | | plans | | Total(1) | ||||
Three Months Ended September 30, 2021 | |
| | |
| | |
| | |
| |
Balance at beginning of period | | $ | 7,237 | | $ | 63 | | $ | (1,418) | | $ | 5,882 |
Other comprehensive gain before reclassifications | |
| (1,367) | |
| (155) | |
| 0 | |
| (1,522) |
Less: amounts reclassified from accumulated other comprehensive income | |
| 1,472 | |
| 0 | |
| 0 | |
| 1,472 |
Total other comprehensive income | |
| (2,839) | |
| (155) | |
| 0 | |
| (2,994) |
Balance at end of period | | $ | 4,398 | | $ | (92) | | $ | (1,418) | | $ | 2,888 |
| | | | | | | | | | | | |
Three Months Ended September 30, 2020 | |
|
| |
|
| |
|
| |
| |
Balance at beginning of period | | $ | 11,412 | | $ | (7,387) | | $ | (1,157) | | $ | 2,868 |
Other comprehensive gain before reclassifications | |
| 269 | |
| 994 | |
| 0 | |
| 1,263 |
Less: amounts reclassified from accumulated other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Total other comprehensive income | |
| 269 | |
| 994 | |
| 0 | |
| 1,263 |
Balance at end of period | | $ | 11,681 | | $ | (6,393) | | $ | (1,157) | | $ | 4,131 |
| | | | | | | | | | | | |
Nine Months Ended September 30, 2021 | |
|
| |
|
| |
|
| |
| |
Balance at beginning of period | | $ | 10,023 | | $ | (1,865) | | $ | (1,418) | | $ | 6,740 |
Other comprehensive loss before reclassifications | |
| (4,114) | |
| 1,773 | |
| 0 | |
| (2,341) |
Less: amounts reclassified from accumulated other comprehensive income | |
| 1,511 | |
| 0 | |
| 0 | |
| 1,511 |
Total other comprehensive loss | |
| (5,625) | |
| 1,773 | |
| 0 | |
| (3,852) |
Balance at end of period | | $ | 4,398 | | $ | (92) | | $ | (1,418) | | $ | 2,888 |
| | | | | | | | | | | | |
Nine Months Ended September 30, 2020 | | | | | | | | | | | | |
Balance at beginning of period | | $ | 5,550 | | $ | (601) | | $ | (1,157) | | $ | 3,792 |
Other comprehensive gain (loss) before reclassifications | |
| 7,265 | |
| (5,792) | |
| 0 | |
| 1,473 |
Less: amounts reclassified from accumulated other comprehensive income | |
| 1,134 | |
| 0 | |
| 0 | |
| 1,134 |
Total other comprehensive income (loss) | |
| 6,131 | |
| (5,792) | |
| 0 | |
| 339 |
Balance at end of period | | $ | 11,681 | | $ | (6,393) | | $ | (1,157) | | $ | 4,131 |
(in thousands) | Net unrealized holding gain on AFS Securities | Net loss on effective cash flow hedging derivatives | Net unrealized holding loss on pension plans | Total | ||||||||||||
Three Months Ended September 30, 2017 | ||||||||||||||||
Balance at beginning of period | $ | 836 | $ | (2,177 | ) | $ | (364 | ) | $ | (1,705 | ) | |||||
Other comprehensive gain(loss) before reclassifications | 332 | (53 | ) | 3 | 282 | |||||||||||
Less: amounts reclassified from accumulated other comprehensive income | 12 | — | — | 12 | ||||||||||||
Total other comprehensive income | 320 | (53 | ) | 3 | 270 | |||||||||||
Balance at end of period | $ | 1,156 | $ | (2,230 | ) | $ | (361 | ) | $ | (1,435 | ) | |||||
Three Months Ended September 30, 2016 | ||||||||||||||||
Balance at beginning of period | $ | 11,315 | $ | (2,412 | ) | $ | (412 | ) | $ | 8,491 | ||||||
Other comprehensive gain before reclassifications | (2,745 | ) | (60 | ) | 5 | (2,800 | ) | |||||||||
Less: amounts reclassified from accumulated other comprehensive income | 880 | — | — | 880 | ||||||||||||
Total other comprehensive income | (3,625 | ) | (60 | ) | 5 | (3,680 | ) | |||||||||
Balance at end of period | $ | 7,690 | $ | (2,472 | ) | $ | (407 | ) | $ | 4,811 | ||||||
Nine Months Ended September 30, 2017 | ||||||||||||||||
Balance at beginning of period | $ | (2,124 | ) | $ | (1,798 | ) | $ | (404 | ) | $ | (4,326 | ) | ||||
Other comprehensive gain(loss) before reclassifications | 3,292 | (432 | ) | 43 | 2,903 | |||||||||||
Less: amounts reclassified from accumulated other comprehensive income | 12 | — | — | 12 | ||||||||||||
Total other comprehensive income | 3,280 | (432 | ) | 43 | 2,891 | |||||||||||
Balance at end of period | $ | 1,156 | $ | (2,230 | ) | $ | (361 | ) | $ | (1,435 | ) | |||||
Nine Months Ended September 30, 2016 | ||||||||||||||||
Balance at beginning of period | $ | 5,713 | $ | (1,621 | ) | $ | (463 | ) | $ | 3,629 | ||||||
Other comprehensive gain before reclassifications | 4,895 | (851 | ) | 56 | 4,100 | |||||||||||
Less: amounts reclassified from accumulated other comprehensive income | 2,918 | — | — | 2,918 | ||||||||||||
Total other comprehensive income | 1,977 | (851 | ) | 56 | 1,182 | |||||||||||
Balance at end of period | $ | 7,690 | $ | (2,472 | ) | $ | (407 | ) | $ | 4,811 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
42
The following tables presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 20172021 and 2016:
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Affected Line Item where | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| Net Income is Presented | ||||
Net realized gains on AFS securities: | |
| | |
| | |
| | |
| | |
|
Before tax (1) | | $ | 1,930 | | $ | — | | $ | 1,980 | | $ | 1,486 |
| Non-interest income |
Tax effect | |
| (458) | |
| — | |
| (469) | |
| (352) |
| Tax expense |
Total reclassifications for the period | | $ | 1,472 | | $ | — | | $ | 1,511 | | $ | 1,134 | | |
Three Months Ended September 30, | Affected Line Item in the Statement where Net Income is Presented | |||||||||
(in thousands) | 2017 | 2016 | ||||||||
Realized gains on AFS securities: | ||||||||||
$ | 19 | $ | 1,354 | Non-interest income | ||||||
(7 | ) | (474 | ) | Tax expense | ||||||
Total reclassifications for the period | $ | 12 | $ | 880 | Net of tax |
(a) | Net realized gains before tax include $1.9 million realized gains for the three months ended September 30, 2021 and $2.0 million for the nine months ended September 30, 2021 and gross realized losses of $50 thousand for both of the respective periods. There were 0 net realized gains or losses for the three months ended September 30, 2020. Net realized gains before tax include gross realized gains $1.5 million and realized losses of $22 thousand for the nine months ended September 30, 2020. |
43
Nine Months Ended September 30, | Affected Line Item in the Statement where Net Income is Presented | |||||||||
(in thousands) | 2017 | 2016 | ||||||||
Realized gains on AFS securities: | ||||||||||
$ | 19 | $ | 4,489 | Non-interest income | ||||||
(7 | ) | (1,571 | ) | Tax expense | ||||||
Total reclassifications for the period | $ | 12 | $ | 2,918 | Net of tax |
NOTE 9.7. EARNINGS PER SHARE
The following table presents the calculation of earnings per share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(in thousands, except per share and share data) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Net income | | $ | 11,028 | | $ | 8,402 | | $ | 29,533 | | $ | 24,604 |
| | | | | | | | | | | | |
Average number of basic common shares outstanding | |
| 14,982,766 | |
| 15,079,413 | |
| 14,960,753 | |
| 15,358,803 |
Plus: dilutive effect of stock options and awards outstanding | |
| 67,990 | |
| 23,421 | |
| 73,829 | |
| 23,063 |
Average number of diluted common shares outstanding(1) | |
| 15,050,756 | |
| 15,102,834 | |
| 15,034,582 | |
| 15,381,866 |
| | | | | | | | | | | | |
Earnings per share: | |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 0.74 | | $ | 0.56 | | $ | 1.97 | | $ | 1.60 |
Diluted | | $ | 0.73 | | $ | 0.56 | | $ | 1.96 | | $ | 1.60 |
(1) | Average diluted shares outstanding are computed using the treasury stock method. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands, except per share and share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 8,617 | $ | 3,632 | $ | 19,386 | $ | 12,349 | ||||||||
Average number of basic common shares outstanding | 15,420,499 | 9,063,576 | 15,098,377 | 9,036,548 | ||||||||||||
Plus: dilutive effect of stock options and awards outstanding | 90,026 | 98,112 | 105,661 | 101,009 | ||||||||||||
Average number of diluted common shares outstanding | 15,510,525 | 9,161,688 | 15,204,038 | 9,137,557 | ||||||||||||
Anti-dilutive options excluded from earnings calculation | — | 101,826 | 8,247 | 107,535 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.56 | $ | 0.40 | $ | 1.27 | $ | 1.37 | ||||||||
Diluted | $ | 0.56 | $ | 0.40 | $ | 1.27 | $ | 1.35 |
44
NOTE 10.8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
The Company uses derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank’sCompany’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so thatthe changes in interest rates do not have a significant effect on net interest income.
The Company recognizes its derivative instruments on the consolidated balance sheet at fair value. On the date the derivative instrument is entered into, the BankCompany designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The BankCompany formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The BankCompany also assesses,
The Company offers derivative products in earnings. The Bank discontinues hedge accounting when it is determined thatthe form of interest rate swaps, to commercial loan customers to facilitate their risk management strategies. These instruments are executed through Master Netting Arrangements (MNA) with financial institution counterparties or Risk Participation Agreements (RPA) with commercial bank counterparties, for which the Company assumes a pro rata share of the credit exposure associated with a borrower's performance related to the derivative is no longer effective in offsetting changes ofcontract with the hedged risk on the hedged item, or management determines that the designation of the derivative as a hedging instrument is no longer appropriate.
The following tables present information about derivative assets and liabilities at September 30, 2017, follows:2021 and December 31, 2020:
| | | | | | | | | | | |
| | September 30, 2021 | |||||||||
| | | | Weighted | | |
| | |||
| | Notional | | Average | | Fair Value | | Location Fair | |||
| | Amount | | Maturity | | Asset (Liability) |
| Value Asset | |||
|
| (in thousands) |
| (in years) |
| (in thousands) |
| (Liability) | |||
Cash flow hedges: | | | | | | | | | | | |
Interest rate swap on wholesale fundings | | $ | 75,000 |
| | 3.3 | | $ | (1,168) | | Other liabilities |
Interest rate swap on variable rate loans | | | 50,000 | | | 4.5 | | | (121) | | Other liabilities |
Total cash flow hedges | |
| 125,000 |
| | | | | (1,289) | | |
| | | | | | | | | | | |
Fair value hedges: | | | | | | | | | | | |
Interest rate swap on securities | |
| 37,190 |
| | 7.8 | |
| (841) | | Other liabilities |
Total fair value hedges | |
| 37,190 |
| | | | | (841) | | |
| | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | |
Forward sale commitments | |
| 14,533 |
| | 0.1 | |
| (140) | | Other liabilities |
Customer Loan Swaps-MNA Counterparty | | | 250,852 | | | 6.4 | | | (10,258) | | Other liabilities |
Customer Loan Swaps-RPA Counterparty | | | 119,285 | | | 7.1 | | | (5,892) | | Other liabilities |
Customer Loan Swaps-Customer | | | 370,137 | | | 6.6 | | | 16,150 | | Other assets |
Total economic hedges | |
| 754,807 |
| | | | | (140) | | |
| | | | | | | | | | | |
Non-hedging derivatives: | | | | | | | | | | | |
Interest rate lock commitments | |
| 12,885 |
| | 0.1 | |
| 47 | | Other assets |
Total non-hedging derivatives | |
| 12,885 |
| | | | | 47 | | |
| | | | | | | | | | | |
Total | | $ | 929,882 | | | | | $ | (2,223) | | |
45
| | | | | | | | | | | |
| | December 31, 2020 | |||||||||
| | | | Weighted | | |
| | |||
| | Notional | | Average | | Fair Value | | Location Fair | |||
| | Amount | | Maturity | | Asset (Liability) |
| Value Asset | |||
|
| (in thousands) |
| (in years) |
| (in thousands) |
| (Liability) | |||
Cash flow hedges: |
| |
|
| |
|
| |
| | |
Interest rate swap on wholesale fundings | | $ | 75,000 |
| | 4.0 | | $ | (2,664) | | Other liabilities |
Total cash flow hedges | |
| 75,000 |
| | | | | (2,664) | | |
| | | | | | | | | | | |
Fair value hedges: | | | | | | | | | | | |
Interest rate swap on securities(1) | |
| 37,190 |
| | 8.6 | |
| (2,789) | | Other liabilities |
Total fair value hedges | |
| 37,190 |
| | | | | (2,789) | | |
| | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | |
Forward sale commitments | | | 50,629 |
| | 0.2 | |
| (95) | | Other liabilities |
Customer Loan Swaps-MNA Counterparty | | | 235,947 | | | 6.8 | | | (15,938) | | Other liabilities |
Customer Loan Swaps-RPA Counterparty | | | 119,285 | | | 7.9 | | | (9,957) | | Other liabilities |
Customer Loan Swaps-Customer | | | 355,232 | | | 7.1 | | | 25,895 | | Other assets |
Total economic hedges | |
| 761,093 |
| | | | | (95) | | |
| | | | | | | | | | | |
Non-hedging derivatives: | |
| | | | | | | | | |
Interest rate lock commitments | |
| 3,320 |
| | 0.1 | |
| 22 | | Other assets |
Total non-hedging derivatives | |
| 3,320 |
| | | | | 22 | | |
| | | | | | | | | | | |
Total | | $ | 876,603 | | | | | $ | (5,526) | | |
Weighted Average Maturity | Estimated Fair Value Asset (Liability) | |||||||||
Notional Amount | ||||||||||
(In thousands) | (In years) | (In thousands) | ||||||||
Cash flow hedges: | ||||||||||
Interest rate caps agreements | $ | 90,000 | 5.4 | $ | 793 | |||||
Total cash flow hedges | 90,000 | 5.4 | 793 | |||||||
Economic hedges: | ||||||||||
Forward sale commitments | 16,547 | 0.2 | (173 | ) | ||||||
Total economic hedges | 16,547 | 0.2 | (173 | ) | ||||||
Non-hedging derivatives: | ||||||||||
Interest rate lock commitments | 16,742 | 0.2 | 16 | |||||||
Total non-hedging derivatives | 16,742 | 0.2 | 16 | |||||||
Total | $ | 123,289 | $ | 636 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements. |
As of September 30, 2021 and December 31, 2016,2020, the Company had interest rate cap agreements totaling $90 million (notional amount), with a weighted average maturity of 6.1 years, and an estimatedfollowing amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges:
| | | | | | | | |
|
| |
| | |
| Cumulative Amount of Fair | |
| | Location of Hedged Item on | | Carrying Amount of Hedged | | Value Hedging Adjustment in | ||
|
| Balance Sheet |
| Assets |
| Carrying Amount | ||
September 30, 2021 |
|
|
| |
|
| |
|
Interest rate swap on securities |
| Securities Available for Sale | | $ | 39,200 | | $ | 2,010 |
| | | | | | | | |
December 31, 2020 |
|
| |
|
| |
|
|
Interest rate swap on securities |
| Securities Available for Sale | | $ | 40,209 | | $ | 3,019 |
46
Information about derivative assets and liabilities for the three and nine months ended September 30, 20172021 and December 31, 2020, follows:
| | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) |
| Income |
| Comprehensive Income |
| Income |
| Income |
| in Income | |||
Cash flow hedges: |
| |
|
|
|
| |
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | 167 | | Interest expense | | $ | — |
| Interest expense | | $ | (205) |
Interest rate swap on variable rate loans | | | (101) | | Interest income | | | — | | Interest income | | | 92 |
Total cash flow hedges | |
| 66 |
| | |
| — |
|
| |
| (113) |
| | | | | | | | | | | | | |
Fair value hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| (221) |
| Interest income | |
| — |
| Interest income | |
| (144) |
Total fair value hedges | |
| (221) |
| | |
| — |
|
| |
| (144) |
| | | | | | | | | | | | | |
Economic hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Other income | |
| (96) |
Total economic hedges | |
| — |
| | |
| — |
|
| |
| (96) |
| | | | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Other income | |
| 22 |
Total non-hedging derivatives | |
| — |
| | |
| — |
|
| |
| 22 |
| | | | | | | | | | | | | |
Total | | $ | (155) | | | | $ | — |
|
| | $ | (331) |
47
| | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) |
| Income |
| Comprehensive Income |
| Income |
| Income |
| in Income | |||
Cash flow hedges: |
| |
|
|
|
| |
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | 1,148 | | Interest expense | | $ | — |
| Interest expense | | $ | (589) |
Interest rate swap on variable rate loans | | | (93) | | Interest income | | | — | | Interest income | | | 189 |
Total cash flow hedges | |
| 1,055 |
| | |
| — |
|
| |
| (400) |
| | | | | | | | | | | | | |
Fair value hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| 720 |
| Interest income | |
| — |
| Interest income | |
| (421) |
Total fair value hedges | |
| 720 |
| | |
| — |
|
| |
| (421) |
| | | | | | | | | | | | | |
Economic hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Other income | |
| (45) |
Total economic hedges | |
| — |
| | |
| — |
|
| |
| (45) |
| | | | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Other income | |
| 26 |
Total non-hedging derivatives | |
| — |
| | |
| — |
|
| |
| 26 |
| | | | | | | | | | | | | |
Total | | $ | 1,775 | | | | $ | — |
|
| | $ | (840) |
The Company expects approximately $1.0 million of losses (pre-tax) related to the Company’s cash flow hedges to be reclassified to earnings from AOCI over the next 12 months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of September 30, 2016, follows:2021.
48
| | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) | | Income(1) | | Comprehensive Income | | Income | | Income | | in Income | |||
Cash flow hedges: |
| |
|
|
| |
|
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | 362 |
| Interest expense | | $ | — |
| Interest expense | | $ | (427) |
Total cash flow hedges | | | 362 | | | |
| — |
| | |
| (427) |
| |
| | | | | | | | | | | |
Fair value hedges: | | |
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| 635 |
| Interest income | |
| — |
| Interest income | |
| (204) |
Total economic hedges | | | 635 | | | |
| — |
|
| |
| (204) |
| | | | | | | | | | | | | |
Economic hedges: | | |
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Other income | |
| 40 |
Total economic hedges | | | — | | | |
| — |
|
| |
| 40 |
| |
| | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Other Income | |
| (39) |
Total non-hedging derivatives | | | — | | | |
| — |
|
| |
| (39) |
| | | | | | | | | | | | | |
Total | | $ | 997 |
|
| | $ | — |
|
| | $ | (630) |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
| | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) | | Income(1) | | Comprehensive Income | | Income | | Income | | in Income | |||
Cash flow hedges: |
| |
|
|
| |
|
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | (4,247) |
| Interest expense | | $ | — |
| Interest expense | | $ | (642) |
Total cash flow hedges | | | (4,247) | | | |
| — |
| | |
| (642) |
| |
| | | | | | | | | | | |
Fair value hedges: | | |
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| (1,545) |
| Interest income | |
| — |
| Interest income | |
| (145) |
Total economic hedges | | | (1,545) | | | |
| — |
|
| |
| (145) |
| | | | | | | | | | | | | |
Economic hedges: | | |
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Other income | |
| (3) |
Total economic hedges | | | — | | | |
| — |
|
| |
| (3) |
| |
| | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Other Income | |
| (35) |
Total non-hedging derivatives | | | — | | | |
| — |
|
| |
| (35) |
| | | | | | | | | | | | | |
Total | | $ | (5,792) |
|
| | $ | — |
|
| | $ | (825) |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Cash flow hedges: | ||||||||||||||||
Interest rate cap agreements | ||||||||||||||||
Realized in interest expense | $ | 74 | $ | 14 | $ | 168 | $ | 24 | ||||||||
Economic hedges: | ||||||||||||||||
Forward commitments | ||||||||||||||||
Realized loss in other non-interest income | 58 | — | (29 | ) | — | |||||||||||
Non-hedging derivatives: | ||||||||||||||||
Interest rate lock commitments | ||||||||||||||||
Realized loss in other non-interest income | 19 | — | (5 | ) | — |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
49
The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the three months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 | |||||||||||||
| | Interest and Dividend Income | | Interest Expense | | | | ||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | |||||
Income and exepense line items presented in the consolidated statements of income |
| $ | 25,094 | | $ | 3,821 | | $ | 1,555 | | $ | 1,778 | | $ | 11,350 |
|
| |
| | | |
| |
| | | |
| |
|
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | |
Interest rate swap on wholesale funding | | | — | | | — | | | — | | | (205) | | | — |
Interest rate swap on variable rate loans | |
| 92 | | | — | |
| — | | | — | |
| — |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
|
Interest rate swap on securities | | | — | | | (144) | | | — | | | — | | | — |
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 | |||||||||||||
| | Interest and Dividend Income | | Interest Expense | | | | ||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | |||||
Income and exepense line items presented in the consolidated statements of income |
| $ | 25,918 | | $ | 4,557 | | $ | 3,869 | | $ | 1,941 | | $ | 10,102 |
|
| |
| | | |
| |
| | | |
| |
|
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | |
Interest rate swap on wholesale funding | | | — | | | — | | | (365) | | | (62) | | | — |
Interest rate swap on variable rate loans | |
| — | | | — | |
| — | | | — | |
| — |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
|
Interest rate swap on securities | | | — | | | (204) | | | — | | | — | | | — |
50
The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 | |||||||||||||
| | Interest and Dividend Income | | Interest Expense | | | | ||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | |||||
Income and exepense line items presented in the consolidated statements of income |
| $ | 72,490 | | | 11,792 | | $ | 7,109 | | | 5,415 | | $ | 31,103 |
|
| |
| | | |
| |
| | | |
| |
|
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | |
Interest rate swap on wholesale funding | | | — | | | — | | | — | | | (589) | | | — |
Interest rate swap on variable rate loans | |
| 189 | | | — | |
| — | | | — | |
| — |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
|
Interest rate swap on securities | | | — | | | (421) | | | — | | | — | | | — |
| | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 | |||||||||||||
| | Interest and Dividend Income | | Interest Expense | | | | ||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | |||||
Income and exepense line items presented in the consolidated statements of income |
| $ | 80,398 | | | 15,006 | | $ | 14,437 | | | 7,149 | | $ | 28,233 |
|
| |
| | | |
| |
| | | |
| |
|
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | |
Interest rate swap on wholesale funding | | | — | | | — | | | (580) | | | (62) | | | — |
Interest rate swap on variable rate loans | |
| — | | | — | |
| — | | | — | |
| — |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
|
Interest rate swap on securities | | | — | | | (145) | | | — | | | — | | | — |
Cash flow hedges
Interest rate swaps on wholesale funding
As of September 30, 2021 the Company has 2 interest rate cap agreements were purchasedswaps on wholesale borrowings (the "SWAPS") to limit the Bank’sits exposure to rising interest rates over a five year term on four rolling, three-month3-month FHLB borrowings indexed to three month LIBOR. Under the termsor brokered certificates, or a combination thereof at each maturity date. The first of the 2 agreements were entered in November 2019 with a $50.0 million notional amount and pays a fixed interest rate of 1.53%. A second agreement was entered on April 2020 with a $25.0 million notional amount and pays a fixed rate of 0.59%. The financial institution counterparty pays the Bank paid total premiums of $4,566 forCompany interest on the right to receivethree-month LIBOR rate. The Company designated the swaps as a cash flow payments if 3-month LIBOR rises abovehedge.
Interest rate swap on variable rate loans
In March 2021, the capsCompany entered into a contract with a counterparty to manage interest rate risk associated with its variable rate loans. The instrument is specifically designed to hedge the risk of 3.00%, thus effectively ensuringchanges in its cash flows from interest expensereceipts attributable to changes in a contractually specified interest rate, on the borrowings at maximum rates of 3.00% for the durationan amount of the agreements.Company’s variable rate loan assets equal to $50 million. The interest rate cap agreements wereswap will effectively fix the Company’s interest rate on $50 million of 1 month USD-LIBOR-BBA (or LIBOR less two days) based loan assets at 0.806% plus the credit spread on the loans that reprices on weighted average basis. The Company designated the swap as a cash flow hedge.
51
Fair value hedges
Interest rate swap on securities
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The Company utilizes interest rate swaps designated as cash flow hedges. Thefair 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 rate cap agreementsrates to LIBOR-based variable interest rates. These derivatives are included in other assetsdesignated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. During 2019, the Company entered into 8 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 Company’s consolidated balance sheets. Changes in the fair value, representing unrealized gains or losses, are recorded in accumulated other comprehensive income, netvalues of tax.fixed rate securities. The premiums paidfixed rates on the interest rate cap agreements are being recognized as increases in interest expense over the durationtransactions have a weighted average of the agreements using the caplet method.
Economic hedges
Forward sale commitments
The Company utilizes 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 with changes in fair value recorded in current period earnings.derivatives. The Company typically uses a combination of best efforts and mandatory delivery contracts. The contracts which are loan sale agreements where the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, the Company may enter into mandatory delivery contracts shortly afterjust prior to the loan closesclosing with a customer.
Customer loan derivatives
The Company enters into customer loan derivatives to facilitate the risk management strategies for commercial banking customers. The Company mitigates 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 the Company's consolidated balance sheet. The Company is party to master netting arrangements with its financial institutional counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes.
The master netting arrangements provide for a single net settlement of all loan swap agreements, as well as collateral or cash funds, in the event of default on, or termination of, any one contract. Collateral is provided by cash or securities received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds. Currently, the Company has posted cash of $17.0 million with counterparties.
| | | | | | | | | | | | |
| | Gross Amounts Offset in the Consolidated Balance Sheet | ||||||||||
| | Derivative | | | | Cash Collateral | | | | |||
(in thousands) |
| Liabilities |
| Derivative Assets |
| Pledged |
| Net Amount | ||||
As of September 30, 2021 | |
| | |
| | |
| | |
| |
Customer Loan Derivatives: |
| |
|
| |
|
| |
|
| |
|
MNA counterparty | | $ | (10,258) | | $ | 10,258 | | $ | 17,000 | | $ | 17,000 |
RPA counterparty | |
| (5,892) | |
| 5,892 | |
| — | |
| — |
Total | | $ | (16,150) | | $ | 16,150 | | $ | 17,000 | | $ | 17,000 |
| | | | | | | | | | | | |
| | Gross Amounts Offset in the Consolidated Balance Sheet | ||||||||||
| | Derivative | | | | Cash Collateral | | | | |||
(in thousands) |
| Liabilities |
| Derivative Assets |
| Pledged |
| Net Amount | ||||
As of December 31, 2020 | |
| | |
| | |
| | |
| |
Customer Loan Derivatives: |
| |
|
| |
|
| |
|
| |
|
MNA counterparty | | $ | (15,938) | | $ | 15,938 | | $ | 23,450 | | $ | 23,450 |
RPA counterparty | |
| (9,957) | |
| 9,957 | |
| — | |
| — |
Total | | $ | (25,895) | | $ | 25,895 | | $ | 23,450 | | $ | 23,450 |
52
Interest rate lock commitments
The Company enters into interest rate lock commitments (“IRLCs”)(IRLCs) for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of residential mortgage loans that will beare held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company 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-standingfree standing derivatives which are carried at fair value with changes recorded in noninterestnon-interest income in the Company’s consolidated statementsConsolidated Statements of income.Income. Changes in the fair value of IRLCs subsequent to inception are based onon; (i) changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and (ii) changes in the probability thatwhen the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
53
NOTE 11.9. FAIR VALUE MEASUREMENTS
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.
Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 20172021 and December 31, 2016,2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.
| | | | | | | | | | | | |
| | September 30, 2021 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
(in thousands) | | Inputs | | Inputs | | Inputs | | Fair Value | ||||
Available for sale securities: | | | | |
| | |
| | |
| |
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 0 | | $ | 183,268 | | $ | 0 | | $ | 183,268 |
US Government agency | |
| 0 | |
| 54,706 | |
| 0 | |
| 54,706 |
Private label | |
| 0 | |
| 62,914 | |
| 0 | |
| 62,914 |
Obligations of states and political subdivisions thereof | |
| 0 | |
| 160,177 | |
| 0 | |
| 160,177 |
Corporate bonds | |
| 0 | |
| 84,262 | |
| 0 | |
| 84,262 |
Derivative assets | |
| 0 | |
| 16,149 | |
| 47 | |
| 16,196 |
Derivative liabilities | |
| 0 | |
| (18,159) | |
| (140) | |
| (18,299) |
| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
(in thousands) | | Inputs | | Inputs | | Inputs | | Fair Value | ||||
Available for sale securities: | |
| | |
| | |
| | |
| |
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | — | | $ | 212,390 | | $ | — | | $ | 212,390 |
US Government agency | |
| — | |
| 85,632 | |
| — | |
| 85,632 |
Private label | |
| — | |
| 19,709 | |
| — | |
| 19,709 |
Obligations of states and political subdivisions thereof | |
| — | |
| 169,004 | |
| — | |
| 169,004 |
Corporate bonds | |
| — | |
| 98,311 | |
| — | |
| 98,311 |
Derivative assets(1) | |
| — | |
| 28,895 | |
| 22 | |
| 28,917 |
Derivative liabilities(1) | |
| — | |
| (31,348) | |
| (95) | |
| (31,443) |
September 30, 2017 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | Inputs | Inputs | Inputs | Fair Value | ||||||||||||
Available for sale securities: | ||||||||||||||||
Obligations of US Government sponsored enterprises | $ | — | $ | 6,979 | $ | — | $ | 6,979 | ||||||||
Mortgage-backed securities: | ||||||||||||||||
US Government-sponsored enterprises | — | 437,957 | — | 437,957 | ||||||||||||
US Government agency | — | 102,138 | — | 102,138 | ||||||||||||
Private label | — | 719 | — | 719 | ||||||||||||
Obligations of states and political subdivisions thereof | — | 141,982 | — | 141,982 | ||||||||||||
Corporate bonds | — | 28,684 | — | 28,684 | ||||||||||||
Derivative assets | — | 793 | 16 | 809 | ||||||||||||
Derivative liabilities | — | — | (173 | ) | (173 | ) |
December 31, 2016 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | Inputs | Inputs | Inputs | Fair Value | ||||||||||||
Available for sale securities: | ||||||||||||||||
Obligations of US Government sponsored enterprises | $ | — | $ | — | $ | — | $ | — | ||||||||
Mortgage-backed securities: | ||||||||||||||||
US Government-sponsored enterprises | — | 328,452 | — | 328,452 | ||||||||||||
US Government agency | — | 76,906 | — | 76,906 | ||||||||||||
Private label | — | 1,132 | — | 1,132 | ||||||||||||
Obligations of states and political subdivisions thereof | — | 122,366 | — | 122,366 | ||||||||||||
Corporate bonds | — | — | — | — | ||||||||||||
Derivative assets | — | 1,748 | — | 1,748 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
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, the Company obtains 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 U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, default rates, and the securities’ terms and conditions, among other things.
Derivative Assets and Liabilities
Cash Flow and Fair Value Hedges. The valuation of the Company's 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 Company's cash flow hedges are all classified as Level 2 measurements.
54
Interest Rate Lock Commitments. The Company enters into IRLCs for residential mortgage loans, which commit the Company to lend funds to a potential borrower 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 that theof a loan in a lock position will ultimately close. The closing ratio is derived from the Bank’sCompany’s internal data and is adjusted using significant management judgment. As such, IRLCs are classified as Level 3 measurements.
Forward Sale Commitments
. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the IRLCs and loans originated for sale. The fair values of the Company’s 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
Customer Loan Derivatives. The valuation of the Company’s 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. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of master netting arrangements and any applicable credit enhancements, such as collateral postings.
Although the Company has determined that the majority of the inputs used to value its customer loan derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2021, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
55
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 and nine months ended September 30, 2017.
Assets (Liabilities) | ||||||||
Interest Rate Lock | Forward | |||||||
(In thousands) | Commitments | Commitments | ||||||
Three Months Ended September 30, 2017 | ||||||||
June 30, 2017 | $ | (3 | ) | $ | (231 | ) | ||
Realized gain recognized in non-interest income | 19 | 58 | ||||||
September 30, 2017 | $ | 16 | $ | (173 | ) | |||
Nine Months Ended September 30, 2017 | ||||||||
December 31, 2016 | $ | — | $ | — | ||||
Acquisition of Lake Sunapee Bank, January 13, 2017 | 96 | 23 | ||||||
Goodwill adjustment Lake Sunapee Bank Merger | (75 | ) | (167 | ) | ||||
Realized (loss) recognized in non-interest income | (5 | ) | (29 | ) | ||||
September 30, 2017 | $ | 16 | $ | (173 | ) |
| | | | | | |
| | Assets (Liabilities) | ||||
| | Interest Rate Lock | | Forward | ||
(in thousands) |
| Commitments |
| Commitments | ||
Three Months Ended September 30, 2021 | |
| | |
| |
Balance at beginning of period | | $ | 25 | | $ | (45) |
Realized gain recognized in non-interest income | |
| 22 | |
| (95) |
Balance at end of period | | $ | 47 | | $ | (140) |
| | | | | | |
Three Months Ended September 30, 2020 | |
| | |
| |
Balance at beginning of period | | $ | 63 | | $ | (126) |
Realized gain recognized in non-interest income | |
| (39) | |
| 39 |
Balance at end of period | | $ | 24 | | $ | (87) |
| | | | | | |
Nine Months Ended September 30, 2021 | |
|
| |
|
|
Balance at beginning of period | | $ | 22 | | $ | (95) |
Realized loss recognized in non-interest income | |
| 25 | |
| (45) |
Balance at end of period | | $ | 47 | | $ | (140) |
| | | | | | |
Nine Months Ended September 30, 2020 | |
|
| |
|
|
Balance at beginning of period | | $ | 59 | | $ | (84) |
Realized loss recognized in non-interest income | |
| (35) | |
| (3) |
Balance at end of period | | $ | 24 | | $ | (87) |
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is, as follows:
| | | | | | | | | | | | | | |
|
| | | | | | | |
| |
| Significant |
| |
| | Fair Value | | Fair Value | | | | | | Unobservable | | |||
(in thousands, except ratios) |
| September 30, 2021 |
| December 31, 2020 | | Valuation Techniques |
| Unobservable Inputs |
| Input Value | | |||
Assets (Liabilities) | |
| | |
| | |
| |
| |
| |
|
Interest Rate Lock Commitment |
| $ | 47 | | $ | 22 | | Historical trend |
| Closing Ratio |
| | 85 | % |
| |
| | |
| | | Pricing Model | | Origination Costs, per loan | | $ | 1.7 | |
| | | | | | | | |
| | | | | |
Forward Commitments | |
| (140) | |
| (95) | | Quoted prices for similar loans in active markets |
| Freddie Mac pricing system | |
| Pair-off contract price | |
Total | | $ | (93) | | $ | (73) | |
|
|
| |
|
| |
56
(In thousands, except ratios) | Fair Value September 30, 2017 | Valuation Techniques | Unobservable Inputs | Significant Unobservable Input Value | ||||||||
Assets (Liabilities) | ||||||||||||
Interest Rate Lock Commitment | $ | 16 | Historical trend | Closing Ratio | 90 | % | ||||||
Pricing Model | Origination Costs, per loan | $ | 1.7 | |||||||||
Forward Commitments | (173 | ) | Quoted prices for similar loans in active markets. | Freddie Mac pricing system | Pair-off contract price | |||||||
Total | $ | (157 | ) |
The Company is required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with U.S. GAAP. The following is a summary of applicable non-recurring fair value measurements. measurements:
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | Fair Value Measurement Date as of September 30, 2021 | ||||
| | Level 3 | | Level 3 | | Total | | Total | | Level 3 | ||||
(in thousands) |
| Inputs |
| Inputs |
| Gains (Losses) |
| Gains (Losses) |
| Inputs | ||||
Assets | |
| | |
| | |
| | |
| | |
|
Individually evaluated loans | | $ | 9,247 | | $ | 8,746 | | $ | 707 | | $ | (501) | | September 2021 |
Capitalized servicing rights | |
| 4,867 | | | 3,605 |
| | (136) |
| | (1,262) |
| September 2021 |
Premises held for sale | |
| 822 | | | 962 |
| | 149 |
| | 140 |
| December 2020 |
Total | | $ | 14,936 | | $ | 13,313 | | $ | 720 | | $ | (1,623) |
|
|
There are no0 liabilities measured at fair value on a non-recurring basis.basis in 2021 and 2020.
57
September 30, 2017 | December 31, 2016 | Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | Fair Value Measurement Date as of September 30, 2017 | ||||||||||||
(In thousands) | Level 3 Inputs | Level 3 Inputs | Total Gains (Losses) | Total Gains (Losses) | Level 3 Inputs | |||||||||||
Assets | ||||||||||||||||
Impaired loans | $ | 10,251 | $ | 6,709 | (43 | ) | (139 | ) | September 2017 | |||||||
Capitalized servicing rights | 3,871 | 5 | — | — | September 2017 | |||||||||||
Other real estate owned | 122 | 90 | — | — | Jan 2017 - March 2017 | |||||||||||
Total | $ | 14,244 | $ | 6,804 | (43 | ) | (139 | ) |
Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is, as follows:
| | | | | | | | | | | |
| | | | | | | | |
| ||
(in thousands, except ratios) |
| Fair Value September 30, 2021 |
| Valuation Techniques |
| Unobservable Inputs |
| Range (Weighted Average)(a) |
| ||
Assets |
| |
|
|
|
|
| | |
| |
Individually evaluated loans | | $ | 6,226 |
| Fair value of collateral-appraised value |
| Loss severity | | | 10% to 70% | |
| | | | | |
| Appraised value | | | $71 to $1,792 | |
| | | | | | | | | | | |
Individually evaluated loans | |
| 3,021 |
| Discount cash flow |
| Discount rate |
| | 2.88% to 9.50% | |
| | | | | |
| Cash flows | | | $6 to $939 | |
| | | | | | | | | | | |
Capitalized servicing rights | |
| 4,867 |
| Discounted cash flow |
| Constant prepayment rate (CPR) |
| | 13.66% | |
| |
|
|
|
|
| Discount rate |
| | 9.53% | |
| | | | | | | | | | | |
Premises held for sale | |
| 822 |
| Fair value of asset less selling costs |
| Appraised value | | | $220 to $386 | |
| |
| |
|
|
| Selling Costs |
| | 6% | |
Total | | $ | 14,936 |
|
|
|
|
| |
| |
Fair Value | ||||||||||||
(in thousands, except ratios) | September 30, 2017 | Valuation Techniques | Unobservable Inputs | Range (Weighted Average) (a) | ||||||||
Assets | ||||||||||||
Impaired loans | $ | 3,489 | Fair value of collateral - appraised value | Loss severity | 0% to 63% | |||||||
Appraised value | $0 to $1,170 | |||||||||||
Impaired loans | 6,762 | Discount cash flow | Discount rate | 0% to 18% | ||||||||
Cash flows | $0 to $1,046 | |||||||||||
Capitalized servicing rights | 3,871 | Discounted cash flow | Constant prepayment rate (CPR) | 12.42 | % | |||||||
Discount rate | 10.11 | % | ||||||||||
Other real estate owned | 122 | Fair value of collateral | Appraised value | $122 | ||||||||
Total | $ | 14,244 |
(b) | |
Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to |
(c) | The carrying value of premises held for sale was $822 thousand as of September 30, 2021. |
| | | | | | | | | | | |
| | | | | | | | | | ||
(in thousands, except ratios) |
| Fair Value Dec 31, 2020 |
| Valuation Techniques |
| Unobservable Inputs |
| Range (Weighted Average)(a) | | ||
Assets | | | | | | | | | | | |
Individually evaluated loans | | $ | 6,128 | | Fair value of collateral-appraised value | | Loss severity | | | 0% to 70% | |
| | | | | | | Appraised value | | | $0 to $1730 | |
| | | | | | | | | | | |
Individually evaluated loans | |
| 2,618 | | Discount cash flow | | Discount rate |
| | 3.50% to 9.50% | |
| | | | | | | Cash flows | | | $19 to $953 | |
| | | | | | | | | | | |
Capitalized servicing rights | |
| 3,605 | | Discounted cash flow | | Constant prepayment rate (CPR) |
| | 18.53% | |
| | | | | | | Discount rate |
| | 10.05% | |
| | | | | | | | | | | |
Premises held for sale | |
| 962 | | Fair value of asset less selling costs | | Appraised value |
| | $220 to $386 | |
| | | | | | | Selling Costs |
| | 6% | |
Total | | $ | 13,313 | | | | | | | | |
Fair Value | |||||||||||
(in thousands) | December 31, 2016 | Valuation Techniques | Unobservable Inputs | Range (Weighted Average) (a) | |||||||
Assets | |||||||||||
Impaired loans | $ | 3,268 | Fair value of collateral - appraised value | Loss severity | 0% to 51% | ||||||
Appraised value | $0 to $1,732 | ||||||||||
Impaired loans | 3,441 | Discount cash flow | Discount rate | 3.25% to 18.25% | |||||||
Cash flows | $6 to $861 | ||||||||||
Capitalized servicing rights | 5 | Discounted cash flow | Constant prepayment rate (CPR) | 17.09 | % | ||||||
Discount rate | 7.55 | % | |||||||||
Other real estate owned | 90 | Fair value of collateral | Appraised value | 120 | |||||||
Total | $ | 6,804 |
(a) | Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to |
There were no Level 1 or Level 2 non-recurring fair value measurements for the periods ended September 30, 20172021 and December 31, 2016.2020.
58
Individually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, nonrecurringnon-recurring fair value measurement adjustments that relaterelating to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supportssupporting 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).
Premises held for sale. Assets held for sale, identified as part of the Company’s 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.
59
Summary of Estimated Fair Values of Financial Instruments. Instruments
The estimated fair values, and related carrying amounts, of the Company’s financial instruments follow.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.
| | | | | | | | | | | | | | | |
| | September 30, 2021 | |||||||||||||
| | Carrying | | Fair | | | | | | | | | | ||
(in thousands) |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 341,199 | | $ | 341,199 | | $ | 341,199 | | $ | 0 | | $ | 0 |
Securities available for sale | |
| 545,327 | |
| 545,327 | |
| 0 | |
| 545,327 | |
| 0 |
FHLB stock | |
| 10,192 | |
| 10,192 | |
| 0 | |
| 10,192 | |
| 0 |
Loans held for sale | | | 7,505 | | | 7,505 | | | 0 | | | 0 | | | 7,505 |
Net loans | |
| 2,511,706 | |
| 2,472,108 | |
| 0 | |
| 0 | |
| 2,472,108 |
Accrued interest receivable | |
| 3,272 | |
| 3,272 | |
| 0 | |
| 3,272 | |
| 0 |
Cash surrender value of bank-owned life insurance policies | |
| 79,380 | |
| 79,380 | |
| 0 | |
| 79,380 | |
| 0 |
Derivative assets | |
| 17,019 | |
| 17,019 | |
| 0 | |
| 16,972 | |
| 47 |
| | | | | | | | | | | | | | | |
Financial Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
|
Non-maturity deposits | | $ | 2,538,044 | | $ | 2,452,990 | | $ | 0 | | $ | 2,452,990 | | $ | 0 |
Time deposits | | | 469,221 | | | 470,000 | | | 0 | | | 470,000 | | | 0 |
Securities sold under agreements to repurchase | | | 21,667 | | | 21,667 | | | 0 | | | 21,667 | | | 0 |
FHLB advances | |
| 168,600 | |
| 169,815 | |
| 0 | |
| 169,815 | |
| 0 |
Subordinated borrowings | |
| 60,083 | |
| 63,660 | |
| 0 | |
| 63,660 | |
| 0 |
Derivative liabilities | |
| 18,299 | |
| 18,299 | |
| 0 | |
| 18,159 | |
| 140 |
| | | | | | | | | | | | | | | |
| | December 31, 2020 | |||||||||||||
| | Carrying | | Fair | | | | | | | | | | ||
(in thousands) |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 226,007 | | $ | 226,007 | | $ | 226,007 | | $ | — | | $ | — |
Securities available for sale | |
| 585,046 | |
| 585,046 | |
| — | |
| 585,046 | |
| — |
FHLB stock | |
| 14,036 | |
| 14,036 | |
| — | |
| 14,036 | |
| — |
Loans held for sale | | | 23,988 | | | 24,163 | | | — | | | — | | | 24,163 |
Net loans | |
| 2,543,803 | |
| 2,547,970 | |
| — | |
| — | |
| 2,547,970 |
Accrued interest receivable | |
| 2,964 | |
| 2,964 | |
| — | |
| 2,964 | |
| — |
Cash surrender value of bank-owned life insurance policies | |
| 77,870 | |
| 77,870 | |
| — | |
| 77,870 | |
| — |
Derivative assets(1) | |
| 28,895 | |
| 25,895 | |
| — | |
| 25,917 | |
| 22 |
| | | | | | | | | | | | | | | |
Financial Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
|
Non-maturity deposits | | $ | 2,207,854 | | $ | 2,122,222 | | $ | — | | $ | 2,122,222 | | $ | — |
Time deposits | | | 698,361 | | | 694,700 | | | — | | | 694,700 | | | — |
Short-term other borrowings | |
| 27,779 | |
| 27,779 | |
| — | |
| 27,779 | |
| — |
FHLB advances | |
| 248,283 | |
| 252,698 | |
| — | |
| 252,698 | |
| — |
Subordinated borrowings | |
| 59,961 | |
| 57,091 | |
| — | |
| 57,091 | |
| — |
Derivative liabilities(1) | |
| 31,348 | |
| 31,348 | |
| — | |
| 31,443 | |
| 95 |
(1) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
September 30, 2017 | ||||||||||||||||||||
(In thousands) | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 48,724 | $ | 48,724 | $ | 48,724 | $ | — | $ | — | ||||||||||
Securities available for sale | 718,459 | 718,459 | — | 718,459 | — | |||||||||||||||
FHLBB bank stock | 37,107 | 37,107 | — | 37,107 | — | |||||||||||||||
Net loans | 2,416,912 | 2,392,284 | — | — | 2,392,284 | |||||||||||||||
Accrued interest receivable | 3,194 | 3,194 | — | 3,194 | — | |||||||||||||||
Cash surrender value of bank-owned life insurance policies | 57,613 | 57,613 | — | 57,613 | — | |||||||||||||||
Derivative assets | 809 | 809 | — | 793 | 16 | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Total deposits | $ | 2,275,109 | $ | 2,250,483 | $ | — | $ | 2,250,483 | $ | — | ||||||||||
Securities sold under agreements to repurchase | 41,600 | 41,578 | — | 41,578 | — | |||||||||||||||
Federal Home Loan Bank advances | 733,982 | 733,632 | — | 733,632 | — | |||||||||||||||
Subordinated borrowings | 38,048 | 38,048 | — | 38,048 | — | |||||||||||||||
Junior subordinated borrowings | 5,000 | 3,564 | — | 3,564 | — | |||||||||||||||
Derivative liabilities | (173 | ) | (173 | ) | — | — | (173 | ) |
60
NOTE 10. REVENUE FROM CONTRACTS WITH CUSTOMER
The Company has accounted for the various non-interest revenue streams and related contracts under ASC 606.
Disaggregation of Revenue
The following tables present disaggregation of the Company’s non-interest revenue by major business line and timing of revenue recognition for the transfer of products or services:
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Major Products/Service Lines |
| |
|
| |
|
| |
|
| |
|
Trust management fees | | $ | 3,403 | | $ | 3,256 | | $ | 10,052 | | $ | 9,193 |
Financial services fees | |
| 465 | |
| 276 | |
| 1,283 | |
| 867 |
Interchange fees | |
| 1,882 | |
| 1,709 | |
| 5,509 | |
| 4,910 |
Customer deposit fees | |
| 1,363 | |
| 937 | |
| 3,542 | |
| 2,836 |
Other customer service fees | |
| 270 | |
| 240 | |
| 691 | |
| 691 |
Total | | $ | 7,383 | | $ | 6,418 | | $ | 21,077 | | $ | 18,497 |
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Timing of Revenue Recognition |
| |
|
| |
|
| |
|
| |
|
Products and services transferred at a point in time | | $ | 3,737 | | $ | 3,133 | | $ | 10,593 | | $ | 9,026 |
Products and services transferred over time | |
| 3,646 | |
| 3,285 | |
| 10,484 | |
| 9,471 |
Total | | $ | 7,383 | | $ | 6,418 | | $ | 21,077 | | $ | 18,497 |
Trust Management Fees
The trust management business generates revenue through a range of fiduciary services including trust and estate administration, wealth advisory, and investment management to individuals, businesses, not-for-profit organizations, and municipalities. These fees are primarily earned over time as the Company charges its customers on a monthly or quarterly basis in accordance with its investment advisory agreements. Fees are generally assessed based on a tiered scale of the market value of assets under management at month end. 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 Infinex, an independent registered broker dealer offering securities and insurance products not affiliated with the Company or its subsidiaries. The Company has a revenue sharing agreement with Infinex 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
The Company earns 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 by the Company at a point in time upon the completion of the service.
61
December 31, 2016 | ||||||||||||||||||||
(In thousands) | Carrying Amount | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 8,439 | $ | 8,439 | $ | 8,439 | $ | — | $ | — | ||||||||||
Securities available for sale | 528,856 | 528,856 | — | 528,856 | — | |||||||||||||||
FHLBB bank stock | 25,331 | 25,331 | — | 25,331 | — | |||||||||||||||
Net loans | 1,118,645 | 1,100,601 | — | — | 1,100,601 | |||||||||||||||
Accrued interest receivable | 6,051 | 6,051 | — | 6,051 | — | |||||||||||||||
Cash surrender value of bank-owned life insurance policies | 24,450 | 24,450 | — | 24,450 | — | |||||||||||||||
Derivative assets | 1,748 | 1,748 | — | 1,748 | — | |||||||||||||||
Financial Liabilities | ||||||||||||||||||||
Total deposits | $ | 1,050,300 | $ | 1,048,932 | $ | — | $ | 1,048,932 | $ | — | ||||||||||
Securities sold under agreements to repurchase | 21,780 | 21,773 | — | 21,773 | — | |||||||||||||||
Federal Home Loan Bank advances | 509,816 | 509,793 | — | 509,793 | — | |||||||||||||||
Subordinated borrowings | — | — | — | — | — | |||||||||||||||
Junior subordinated borrowings | — | 3,560 | — | 3,560 | — |
Other thanCustomer Service Fees
The Company has 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. The Company also earns 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:
| | | | | | |
|
| |
| | ||
(in thousands) | | September 30, 2021 | | December 31, 2020 | ||
Balances from contracts with customers only: |
| |
|
| |
|
Other Assets | | $ | 1,277 | | $ | 1,121 |
Other Liabilities | |
| 2,467 | |
| 2,785 |
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, the Company has 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 discussed above,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
The Company currently expenses contract costs for processing and administrative fees for debit card transactions. The Company also expenses custody fees and transactional costs associated with securities transactions as well as third party tax preparation fees. The Company has elected the practical expedient in ASC 340-40-25-4, whereby the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets the Company otherwise would have recognized is one year or less.
62
NOTE 11. LEASES
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” and all subsequent ASUs modifying ASC 842. Substantially all of the leases pursuant to which the Company is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2040. All leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. With the adoption of ASC 842, operating lease agreements are required to be recognized on the consolidated balance sheets as a right-of-use (ROU) asset with a corresponding lease liability using the modified retrospective approach.
The Company elected the following methods and assumptions were used by management to estimatepractical expedients in conjunction with implementation of ASC 842 as follows:
● | Package of practical expedients: |
o | Lease classification as an operating lease under the prior standards is grandfathered. |
o | Re-evaluation of embedded leases evaluated under the prior standards is not required. |
o | No re-assessment of previously recorded initial direct lease costs. |
● | Election to exclude short-term leases (i.e., leases with initial terms of twelve months or less), from capitalization on the consolidated balance sheets. |
The following table presents the fair valueconsolidated statements of significant classes of financial instruments for which it is practicable to estimate that value.
| | | | | | | | |
(in thousands) |
| Classification |
| September 30, 2021 |
| December 31, 2020 | ||
Lease Right-of-Use Assets |
| | | |
| | |
|
Operating lease right-of-use assets |
| Other assets | | $ | 9,488 | | $ | 10,338 |
| | | | | | | | |
Lease Liabilities |
|
| |
|
| |
|
|
Operating lease liabilities |
| Other liabilities | |
| 9,841 | |
| 10,627 |
The calculated amount of life insurance policies.
The fair valuefollowing table presents the weighted average lease term and discount rate of the loans is estimated by discounting future cash flows using the current interest rates atCompany’s leases:
| | | | | | |
|
| September 30, 2021 |
| December 31, 2020 | ||
Weighted-average remaining lease term (in years) | |
| | |
| |
Operating leases | | 8.57 | | | 9.26 | |
| | | | | | |
Weighted-average discount rate | |
| | |
| |
Operating leases | | 3.15 | % | | 3.15 | % |
63
The following table represents lease costs, which similar loans with similar terms would be made to borrowers of similar credit quality.
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
(in thousands) | | September 30, 2021 |
| September 30, 2020 |
| September 30, 2021 |
| September 30, 2020 | ||||
Lease Costs | | |
|
| |
|
| |
|
| |
|
Operating lease cost | | $ | 324 | | $ | 344 | | $ | 966 | | $ | 988 |
Variable lease cost | |
| 43 | |
| 59 | |
| 179 | |
| 177 |
Total lease cost | | $ | 367 | | $ | 403 | | $ | 1,145 | | $ | 1,165 |
Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, 2021 are, as follows:
| | | |
(in thousands) |
| Payments | |
Twelve Months Ended: |
| |
|
September 30, 2022 | | $ | 1,314 |
September 30, 2023 | |
| 1,318 |
September 30, 2024 | |
| 1,319 |
September 30, 2025 | |
| 1,125 |
September 30, 2026 | |
| 1,032 |
Thereafter | |
| 4,301 |
Total future minimum lease payments | |
| 10,409 |
Amounts representing interest | |
| (568) |
Present value of net future minimum lease payments | | $ | 9,841 |
64
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this document and with the Company’s consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2016 Annual Report on Form 10-K. In the following discussion, income statement comparisons are against the same period of the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results10-K for the year 2017 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable.
Bar Harbor Bankshares
(the "Company") is the parent company of Bar Harbor Bank & Trust● | Employee and customer experience is the foundation of superior performance, which leads to significant financial benefit to shareholders |
● | Geography, heritage, and performance are key while remaining true to a community-focused culture |
● | Strong commitment to risk management while balancing growth and earnings |
● | Service and sales driven culture with a focus on core business growth |
● | Fee income is fundamental to the Company’s profitability through trust and treasury management services, customer derivatives, and secondary market mortgage sales |
● | Investment in processes, products, technology, training, leadership, and infrastructure |
● | Expansion of the Company’s brand and business to deepen market presence |
● | Opportunity and growth for existing employees while adding catalyst recruits across all levels of the Company |
Shown below is the foundation of superior performance, which leads to significant financial benefit to shareholders
![]() |
65
The following summary data is based in part on the consolidated financial statements and accompanying notes and other information appearing elsewhere in this or prior Forms 10-Q
| | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended |
| ||||||||
| | September 30, | | | September 30, |
| ||||||||
|
| 2021 |
| 2020 |
| | 2021 |
| 2020 |
| ||||
PER SHARE DATA | | | | | | | | | | | | | | |
Net earnings, diluted | | $ | 0.73 | | $ | 0.56 | | | $ | 1.97 | | $ | 1.60 | |
Adjusted earnings, diluted(1) | |
| 0.73 | |
| 0.61 | | |
| 2.04 | |
| 1.66 | |
Total book value(5) | |
| 27.92 | |
| 26.74 | | |
| 27.92 | |
| 26.74 | |
Tangible book value(1) (5) | |
| 19.48 | |
| 18.21 | | |
| 19.48 | |
| 18.21 | |
Market price at period end | |
| 28.05 | |
| 20.55 | | |
| 28.05 | |
| 20.55 | |
Dividends | |
| 0.24 | |
| 0.22 | | |
| 0.70 | |
| 0.66 | |
| | | | | | | | | | | | | | |
PERFORMANCE RATIOS(2) | | | | | | | | | | | | | | |
Return on assets | |
| 1.16 | % |
| 0.88 | % | |
| 1.05 | % |
| 0.87 | % |
Adjusted return on assets(1) | |
| 1.16 | |
| 0.96 | | |
| 1.09 | |
| 0.91 | |
Pre-tax, pre-provision return on assets | | | 1.43 | |
| 1.29 | | |
| 1.26 | |
| 1.24 | |
Adjusted pre-tax, pre-provision return on assets (1) (2) | | | 1.43 | |
| 1.39 | | |
| 1.31 | |
| 1.29 | |
Return on equity(5) | |
| 10.38 | |
| 8.25 | | |
| 9.54 | |
| 8.10 | |
Adjusted return on equity(1) (5) | |
| 10.39 | |
| 9.02 | | |
| 9.98 | |
| 8.42 | |
Return on tangible equity(5) | | | 15.08 | | | 12.32 | | | | 14.01 | | | 12.10 | |
Adjusted return on tangible equity(1) (5) | |
| 15.09 | |
| 13.44 | | |
| 14.50 | |
| 12.57 | |
Net interest margin, fully taxable equivalent (FTE)(1) (3) | |
| 3.02 | |
| 2.90 | | |
| 2.88 | |
| 2.95 | |
Adjusted net interest margin(1) (5) | |
| 2.75 | |
| 2.89 | | |
| 2.73 | |
| 2.94 | |
Efficiency ratio(1) | |
| 59.18 | |
| 59.47 | | |
| 61.48 | |
| 61.62 | |
| | | | | | | | | | | | | | |
FINANCIAL DATA (In millions) | | | | | | | | | | | | | | |
Total assets | | $ | 3,738 | | $ | 3,861 | | | $ | 3,738 | | $ | 3,861 | |
Total earning assets(4) | |
| 3,394 | |
| 3,505 | | |
| 3,394 | |
| 3,505 | |
Total investments | |
| 556 | |
| 619 | | |
| 556 | |
| 619 | |
Total loans | |
| 2,534 | |
| 2,685 | | |
| 2,534 | |
| 2,685 | |
Allowance for loan losses | |
| 22 | |
| 18 | | |
| 22 | |
| 18 | |
Total goodwill and intangible assets | |
| 126 | |
| 127 | | |
| 126 | |
| 127 | |
Total deposits | |
| 3,007 | |
| 2,935 | | |
| 3,007 | |
| 2,935 | |
Total shareholders' equity(5) | |
| 418 | |
| 399 | | |
| 418 | |
| 399 | |
Net income | |
| 11 | |
| 8 | | |
| 30 | |
| 25 | |
Adjusted income(1) | |
| 11 | |
| 9 | | |
| 31 | |
| 26 | |
| | | | | | | | | | | | | | |
ASSET QUALITY AND CONDITION RATIOS | | | | | | | | | | | | | | |
Net charge-offs (annualized)/average loans | |
| 0.03 | % |
| 0.06 | % | |
| (0.02) | % |
| 0.07 | % |
Allowance for credit losses/total loans | |
| 0.89 | |
| 0.67 | | |
| 0.89 | |
| 0.67 | |
Loans/deposits | |
| 84 | |
| 91 | | |
| 84 | |
| 91 | |
Shareholders' equity to total assets(5) | |
| 11.19 | |
| 10.34 | | |
| 11.19 | |
| 10.34 | |
Tangible shareholders' equity to tangible assets(1) (5) | |
| 8.08 | |
| 7.27 | | |
| 8.08 | |
| 7.27 | |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
PER SHARE DATA | ||||||||||||||||
Net earnings, diluted | $ | 0.56 | $ | 0.40 | $ | 1.27 | $ | 1.35 | ||||||||
Adjusted earnings, diluted (1) (2) | 0.57 | 0.34 | 1.52 | 1.11 | ||||||||||||
Total book value | 22.90 | 18.09 | 22.90 | 18.09 | ||||||||||||
Tangible book value (2) | 15.84 | 17.51 | 15.84 | 17.51 | ||||||||||||
Market price at period end | 31.36 | 24.48 | 31.36 | 24.48 | ||||||||||||
Dividends | 0.19 | 0.18 | 0.56 | 0.54 | ||||||||||||
PERFORMANCE RATIOS | ||||||||||||||||
Return on assets | 0.99 | % | 0.86 | % | 0.75 | % | 1.00 | % | ||||||||
Adjusted return on assets (1) (2) | 1.01 | 0.73 | 0.90 | 0.82 | ||||||||||||
Return on equity | 9.67 | 8.78 | 7.43 | 10.20 | ||||||||||||
Adjusted return on equity (1) (2) | 9.90 | 7.49 | 8.86 | 8.34 | ||||||||||||
Adjusted return on tangible equity (1) (2) | 14.51 | 7.75 | 12.98 | 8.88 | ||||||||||||
Net interest margin, fully taxable equivalent (FTE) (4) | 3.06 | 2.84 | 3.13 | 2.90 | ||||||||||||
Net interest margin (FTE), excluding purchased loan accretion (4) | 2.93 | 2.84 | 3.00 | 4.86 | ||||||||||||
Efficiency ratio (2) | 53.59 | 61.24 | 56.44 | 59.34 | ||||||||||||
GROWTH (Year-to-date) | ||||||||||||||||
Total commercial loans, (organic annualized) (2) | 22.1 | % | 3.3 | % | 20.5 | % | 5.3 | % | ||||||||
Total loans, (organic annualized) (2) | 8.8 | 15.0 | 12.2 | 9.9 | ||||||||||||
Total deposits, (organic annualized) (2) | 11.2 | 17.7 | 10.6 | 9.6 | ||||||||||||
FINANCIAL DATA (In millions) | ||||||||||||||||
Total assets | $ | 3,476 | $ | 1,718 | $ | 3,476 | $ | 1,718 | ||||||||
Total earning assets | 3,184 | 1,649 | 3,184 | 1,649 | ||||||||||||
Total investments | 756 | 561 | 756 | 561 | ||||||||||||
Total loans | 2,429 | 1,088 | 2,429 | 1,088 | ||||||||||||
Allowance for loan losses | 12 | 10 | 12 | 10 | ||||||||||||
Total goodwill and intangible assets | 109 | 5 | 109 | 5 | ||||||||||||
Total deposits | 2,275 | 1,034 | 2,275 | 1,034 | ||||||||||||
Total shareholders' equity | 353 | 164 | 353 | 164 | ||||||||||||
Net income | 9 | 4 | 19 | 12 | ||||||||||||
Adjusted income (4) | 9 | 3 | 23 | 10 | ||||||||||||
ASSET QUALITY AND CONDITION RATIOS | ||||||||||||||||
Net charge-offs (current quarter annualized)/average loans (5) | 0.03 | % | (0.03 | )% | 0.03 | % | (0.03 | )% | ||||||||
Allowance for loan losses/total loans (5) | 0.49 | 0.93 | 0.49 | 0.93 | ||||||||||||
Loans/deposits | 107 | 105 | 107 | 105 | ||||||||||||
Shareholders' equity to total assets | 10.17 | 9.57 | 10.17 | 9.57 | ||||||||||||
Tangible shareholders' equity to tangible assets (2) | 7.26 | 9.29 | 7.26 | 9.29 |
(1) |
(2) |
All performance ratios are annualized and are based on average balance sheet amounts, where applicable. |
(3) | |
Fully taxable equivalent considers the impact of |
(4) | |
BAR HARBOR BANKSHARES | ||||||||||||||||||||||||||
CONSOLIDATED LOAN & DEPOSIT ANALYSIS - UNAUDITED | ||||||||||||||||||||||||||
LOAN ANALYSIS | ||||||||||||||||||||||||||
Organic Annualized Growth % (1) September 30, 2017 | ||||||||||||||||||||||||||
(in thousands) | Sep 30, 2017 Balance | Jun 30, 2017 Balance | Mar 31, 2017 Balance | Acquired Lake Sunapee Bank Balance (2) | Dec 31, 2016 Balance | Quarter End | Year to Date | |||||||||||||||||||
Commercial real estate | $ | 793,572 | $ | 738,584 | $ | 779,635 | $ | 345,586 | $ | 418,119 | 29.8 | % | 10.7 | % | ||||||||||||
Commercial and industrial | 270,759 | 269,960 | 236,526 | 89,259 | 135,564 | 1.2 | 50.8 | |||||||||||||||||||
Total commercial loans | 1,064,331 | 1,008,544 | 1,016,161 | 434,845 | 553,683 | 22.1 | 20.5 | |||||||||||||||||||
Residential real estate | 1,152,628 | 1,160,832 | 1,155,436 | 652,255 | 506,612 | (2.8 | ) | (1.8 | ) | |||||||||||||||||
Consumer | 125,590 | 127,229 | 127,370 | 76,489 | 53,093 | (5.2 | ) | (11.3 | ) | |||||||||||||||||
Tax exempt and other | 86,313 | 80,042 | 73,469 | 44,611 | 15,676 | 31.3 | 249.0 | |||||||||||||||||||
Total loans | $ | 2,428,862 | $ | 2,376,647 | $ | 2,372,436 | $ | 1,208,200 | $ | 1,129,064 | 8.8 | % | 12.2 | % |
(5) | |
66
CONSOLIDATED LOAN AND DEPOSIT ANALYSIS
The following tables present the quarterly trend in loan and deposit data and accompanying quarterly growth rates as of September 30, 2021 on an annualized basis:
LOAN ANALYSIS
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Annualized Growth % | ||||
(in thousands, except ratios) |
| Sep 30, 2021 |
| Jun 30, 2021 |
| Mar 31, 2021 |
| Dec 31, 2020 |
| Sep 30, 2020 |
| Quarter To Date | | Year To Date | |||||||
Commercial real estate | | $ | 1,170,372 | | $ | 1,135,857 | | $ | 1,118,669 | | $ | 1,084,381 | | $ | 1,045,635 |
| 12 | % | | 11 | % |
Commercial and industrial | |
| 331,091 | |
| 327,729 | |
| 317,500 | |
| 323,864 | |
| 324,647 |
| 4 |
| | 3 | |
Paycheck Protection Program (PPP) | | | 24,227 | | | 65,918 | | | 77,878 | | | 53,774 | | | 131,537 | | * | | | (74) | |
Total commercial loans | |
| 1,525,690 | |
| 1,529,504 | |
| 1,514,047 | |
| 1,462,019 | |
| 1,501,819 |
| (1) | | | 6 | |
Total commercial loans, excluding PPP | | | 1,501,463 | | | 1,463,586 | | | 1,436,169 | | | 1,408,245 | | | 1,370,282 | | 10 | | | 9 | |
| | | | | | | | | | | | | | | | | | | | | |
Residential real estate | |
| 849,692 | |
| 822,774 | |
| 868,084 | |
| 923,891 | |
| 997,485 |
| 13 |
| | (11) | |
Consumer | |
| 100,933 | |
| 103,589 | |
| 106,835 | |
| 113,544 | |
| 119,340 |
| (10) |
| | (15) | |
Tax exempt and other | |
| 57,839 | |
| 59,693 | |
| 62,098 | |
| 63,431 | |
| 66,326 |
| (12) |
| | (12) | |
Total loans | | $ | 2,534,154 | | $ | 2,515,560 | | $ | 2,551,064 | | $ | 2,562,885 | | $ | 2,684,970 |
| 3 | % | | (1) | % |
DEPOSIT ANALYSIS
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Annualized Growth % | ||||
(in thousands, except ratios) |
| Sep 30, 2021 |
| Jun 30, 2021 |
| Mar 31, 2021 |
| Dec 31, 2020 |
| Sep 30, 2020 |
| Quarter To Date | | Year To Date | |||||||
Demand | | $ | 664,395 | | $ | 599,598 | | $ | 586,487 | | $ | 544,636 | | $ | 515,064 |
| 43 | % | | 29 | % |
NOW | |
| 888,021 | |
| 802,681 | |
| 761,817 | |
| 738,849 | |
| 706,048 |
| 43 |
| | 27 | |
Savings | |
| 605,977 | |
| 578,361 | |
| 560,095 | |
| 521,638 | |
| 511,938 |
| 19 |
| | 22 | |
Money market | |
| 379,651 | |
| 371,075 | |
| 365,507 | |
| 402,731 | |
| 388,356 |
| 9 |
| | (8) | |
Total non-maturity deposits | |
| 2,538,044 | |
| 2,351,715 | |
| 2,273,906 | |
| 2,207,854 | |
| 2,121,406 |
| 32 |
| | 20 | |
Total time deposits | |
| 469,221 | |
| 470,758 | |
| 638,436 | |
| 698,361 | |
| 813,509 |
| (1) |
| | (44) | |
Total deposits | | $ | 3,007,265 | | $ | 2,822,473 | | $ | 2,912,342 | | $ | 2,906,215 | | $ | 2,934,915 |
| 26 | % | | 5 | % |
67
DEPOSIT ANALYSIS | ||||||||||||||||||||||||||
Organic Annualized Growth % (1) September 30, 2017 | ||||||||||||||||||||||||||
(in thousands) | Sep 30, 2017 Balance | Jun 30, 2017 Balance | Mar 31, 2017 Balance | Acquired Lake Sunapee Bank Balance (2) | Dec 31, 2016 Balance | Quarter End | Year to Date | |||||||||||||||||||
Demand | $ | 357,398 | $ | 332,339 | $ | 349,896 | $ | 248,051 | $ | 98,856 | 30.2 | % | 15.9 | % | ||||||||||||
NOW | 442,085 | 451,171 | 242,876 | 39,999 | 175,150 | (8.1 | ) | 194.4 | ||||||||||||||||||
Money market | 300,398 | 285,312 | 349,491 | 103,142 | 282,234 | 21.2 | (45.2 | ) | ||||||||||||||||||
Savings | 373,118 | 360,306 | 511,091 | 467,735 | 77,623 | 14.2 | (332.8 | ) | ||||||||||||||||||
Total non-maturity deposits | 1,472,999 | 1,429,128 | 1,453,354 | 858,927 | 633,863 | 12.3 | (4.7 | ) | ||||||||||||||||||
Total time deposits | 802,110 | 783,876 | 720,899 | 291,684 | 416,437 | 9.3 | 33.9 | |||||||||||||||||||
Total deposits | $ | 2,275,109 | $ | 2,213,004 | $ | 2,174,253 | $ | 1,150,611 | $ | 1,050,300 | 11.2 | % | 10.6 | % |
The following table presentstables present average balances and an analysis of average ratesyields and yieldsrates on an annualized fully taxable equivalent basis for the periods included:
| | | | | | | | | | | | | | | | | | |
|
| Three Months Ended September 30, |
| |||||||||||||||
| | 2021 | | | 2020 |
| ||||||||||||
| | Average | | | | | | | | Average | | | | | |
| ||
(in thousands, except ratios) |
| Balance |
| Interest(3) |
| Yield/Rate(3) |
| | Balance |
| Interest(3) |
| Yield/Rate(3) |
| ||||
Assets |
| |
|
| |
|
|
|
| | |
|
| |
|
|
| |
Interest-bearing deposits with other banks(4) | | $ | 284,429 | | $ | 110 | | 0.15 | % | | $ | 92,066 | | $ | 21 | | 0.09 | % |
Securities available for sale and FHLB stock(2)(3) | | | 610,381 | | | 3,986 | | 2.59 | | | | 627,162 | | | 4,787 | | 3.04 | |
Loans: | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | 1,153,813 | | | 10,269 |
| 3.53 | | | | 1,012,194 | | | 9,691 |
| 3.81 | |
Commercial and industrial | |
| 391,191 | |
| 3,739 |
| 3.79 | | |
| 399,734 | |
| 4,411 |
| 4.39 | |
Paycheck protection program | | | 45,835 | | | 2,690 | | 23.28 | | | | 131,605 | | | 1,052 | | 3.18 | |
Residential | |
| 824,686 | |
| 7,574 |
| 3.64 | | |
| 1,060,084 | |
| 9,886 |
| 3.71 | |
Consumer | |
| 101,545 | |
| 968 |
| 3.78 | | |
| 121,248 | |
| 1,042 |
| 3.42 | |
Total loans (1) | |
| 2,517,070 | |
| 25,240 |
| 3.98 | | |
| 2,724,865 | |
| 26,082 |
| 3.81 | |
Total earning assets | |
| 3,411,880 | |
| 29,336 |
| 3.41 | % | |
| 3,444,093 | |
| 30,890 |
| 3.57 | % |
Other assets(6) | |
| 352,208 | | | |
|
| | |
| 370,335 | |
|
|
| | |
Total assets(6) | | $ | 3,764,088 | | | |
|
| | | $ | 3,814,428 | |
|
|
| | |
| | | | | | | | | | | | | | | | | | |
Liabilities | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
NOW | | $ | 860,206 | | $ | 272 |
| 0.13 | % | | $ | 677,706 | | $ | 243 |
| 0.14 | % |
Savings | |
| 591,440 | |
| 124 |
| 0.08 | | |
| 488,508 | |
| 157 |
| 0.13 | |
Money market | |
| 381,755 | |
| 115 |
| 0.12 | | |
| 396,351 | |
| 163 |
| 0.16 | |
Time deposits | |
| 471,934 | |
| 1,044 |
| 0.88 | | |
| 777,424 | |
| 3,307 |
| 1.69 | |
Total interest bearing deposits | |
| 2,305,335 | |
| 1,555 |
| 0.27 | | |
| 2,339,989 | |
| 3,870 |
| 0.66 | |
Borrowings | |
| 334,097 | |
| 1,778 |
| 2.11 | | |
| 481,687 | |
| 1,941 |
| 1.60 | |
Total interest bearing liabilities | |
| 2,639,432 | |
| 3,333 |
| 0.50 | % | |
| 2,821,676 | |
| 5,811 |
| 0.82 | % |
Non-interest bearing demand deposits | |
| 641,769 | |
|
|
|
| | |
| 507,844 | |
|
|
| | |
Other liabilities(6) | |
| 61,436 | |
|
|
|
| | |
| 79,848 | |
|
|
| | |
Total liabilities(6) | |
| 3,342,637 | |
|
|
|
| | |
| 3,409,368 | |
|
|
| | |
| | | | | | | | | | | | | | | | | | |
Total shareholders' equity(6) | |
| 421,451 | |
|
|
|
| | |
| 405,060 | |
|
|
| | |
| | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders' equity(6) | | $ | 3,764,088 | |
|
|
|
| | | $ | 3,814,428 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Net interest spread | |
|
| |
|
|
| 2.91 | % | |
|
| |
|
|
| 2.75 | % |
Net interest margin (1) | | | | | | | | 3.02 | | |
|
| |
|
|
| 2.90 | |
Adjusted net interest margin(5) | |
|
| |
|
|
| 2.75 | | | | | | | | | 2.89 | |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||
(In thousands) | Average Balance | Yield/Rate (FTE basis) (3) | Average Balance | Yield/Rate (FTE basis) (3) | Average Balance | Yield/Rate (FTE basis) (3) | Average Balance | Yield/Rate (FTE basis) (3) | ||||||||||||||||
Assets | ||||||||||||||||||||||||
Loans (1) | $ | 2,402,171 | 4.13 | % | $ | 1,058,253 | 3.89 | % | $ | 2,379,190 | 4.10 | % | $ | 1,033,070 | 3.97 | % | ||||||||
Securities and other (2) | 754,450 | 3.13 | 551,456 | 3.07 | 758,748 | 3.11 | 543,513 | 3.07 | ||||||||||||||||
Total earning assets | 3,156,621 | 3.89 | % | 1,609,709 | 3.62 | % | 3,137,938 | 3.86 | % | 1,576,583 | 3.66 | % | ||||||||||||
Other non-earning assets | 295,924 | 79,826 | 305,735 | 76,431 | ||||||||||||||||||||
Total assets | $ | 3,452,545 | $ | 1,689,535 | $ | 3,443,673 | $ | 1,653,014 | ||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Interest bearing deposits | $ | 1,901,501 | 0.66 | % | $ | 897,703 | 0.78 | % | $ | 1,863,091 | 0.57 | % | $ | 874,666 | 0.75 | % | ||||||||
Borrowings | 812,938 | 1.66 | 514,999 | 1.06 | 835,274 | 1.49 | 520,508 | 1.03 | ||||||||||||||||
Total interest-bearing liabilities | 2,714,439 | 0.96 | % | 1,412,702 | 0.88 | % | 2,698,365 | 0.85 | % | 1,395,174 | 0.86 | % | ||||||||||||
Non-interest-bearing demand deposits | 354,470 | 103,971 | 327,547 | 88,652 | ||||||||||||||||||||
Other non-earning liabilities | 30,079 | 7,376 | 68,973 | 7,281 | ||||||||||||||||||||
Total liabilities | 3,098,988 | 1,524,049 | 3,094,885 | 1,491,107 | ||||||||||||||||||||
Total shareholders' equity | 353,557 | 165,486 | 348,788 | 161,907 | ||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 3,452,545 | $ | 1,689,535 | $ | 3,443,673 | $ | 1,653,014 | ||||||||||||||||
Net interest spread | 2.93 | % | 2.74 | % | 3.01 | % | 2.81 | % | ||||||||||||||||
Net interest margin | 3.06 | 2.84 | 3.13 | 2.90 |
(1) | The average balances of loans include |
(2) | The average balance for securities available for sale is based on amortized cost. |
(3) | Fully taxable equivalent considers the impact of |
(4) | Income from interest-bearing deposits with other banks has been separated from securities and restated for prior periods to conform to the current period presentation. |
(5) | Adjusted net interest margin excludes Paycheck Protection Program loans. |
(6) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
68
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | ||||||||||||||||
| | 2021 | | 2020 |
| |||||||||||||
| | Average | | | | | Yield/ | | Average | | | | | Yield/ | ||||
(in thousands, except ratios) |
| Balance |
| Interest(3) |
| Rate(3) | | Balance |
| Interest(3) |
| Rate(3) | ||||||
Assets | | | | | | | | | | | | | | | | | | |
Interest-bearing deposits with other banks(4) | | $ | 229,235 | | $ | 203 | | 0.12 | % | | $ | 52,326 | | $ | 84 | | 0.21 | % |
Securities available for sale and FHLB stock(2)(3) | | | 617,373 | | | 12,424 | | 2.69 | | | | 643,978 | | | 15,798 | | 3.28 | |
Loans: | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | 1,128,134 | | | 30,177 |
| 3.58 | | | | 972,330 | | | 29,895 |
| 4.11 | |
Commercial and industrial(3) | |
| 381,753 | |
| 10,727 |
| 3.76 | | |
| 414,532 | |
| 13,847 |
| 4.46 | |
Paycheck protection program | | | 62,562 | | | 5,058 | | 10.81 | | | | 78,782 | | | 1,921 | | 3.26 | |
Residential | |
| 861,629 | |
| 24,145 |
| 3.75 | | |
| 1,103,442 | |
| 31,386 |
| 3.80 | |
Consumer | |
| 105,371 | |
| 2,833 |
| 3.59 | | |
| 126,189 | |
| 3,929 |
| 4.16 | |
Total loans (1) | |
| 2,539,449 | |
| 72,940 |
| 3.84 | | |
| 2,695,275 | |
| 80,978 |
| 4.01 | |
Total earning assets | |
| 3,386,057 | |
| 85,567 |
| 3.38 | % | |
| 3,391,579 | |
| 96,860 |
| 3.81 | % |
Other assets(6) | |
| 357,334 | | | |
|
| | |
| 371,792 | | | |
|
| |
Total assets(6) | | $ | 3,743,391 | | | |
|
| | | $ | 3,763,371 | | | |
|
| |
| | | | | | | | | | | | | | | | | | |
Liabilities | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
NOW | | $ | 801,292 | | $ | 760 |
| 0.13 | % | | $ | 622,702 | | $ | 1,021 |
| 0.22 | % |
Savings | |
| 568,726 | |
| 431 |
| 0.10 | | |
| 451,952 | |
| 587 |
| 0.17 | |
Money market | |
| 376,775 | |
| 354 |
| 0.13 | | |
| 393,702 | |
| 1,511 |
| 0.51 | |
Time deposits | |
| 583,529 | |
| 5,565 |
| 1.28 | | |
| 813,442 | |
| 11,320 |
| 1.86 | |
Total interest bearing deposits | |
| 2,330,322 | |
| 7,110 |
| 0.41 | | |
| 2,281,798 | |
| 14,439 |
| 0.85 | |
Borrowings | |
| 336,432 | |
| 5,415 |
| 2.15 | | |
| 547,557 | |
| 7,149 |
| 1.74 | |
Total interest bearing liabilities | |
| 2,666,754 | |
| 12,525 |
| 0.63 | % | |
| 2,829,355 | |
| 21,588 |
| 1.02 | % |
Non-interest bearing demand deposits | |
| 598,434 | |
|
|
|
| | |
| 464,476 | |
|
|
|
| |
Other liabilities(6) | |
| 64,360 | |
|
|
|
| | |
| 63,812 | |
|
|
|
| |
Total liabilities(6) | |
| 3,329,548 | |
|
|
|
| | |
| 3,357,643 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Total shareholders' equity(6) | |
| 413,843 | |
|
|
|
| | |
| 405,728 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders' equity(6) | | $ | 3,743,391 | |
|
|
|
| | | $ | 3,763,371 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Net interest spread | | | | | | | | 2.75 | % | | | | | | | | 2.79 | % |
Net interest margin | |
|
| |
|
|
| 2.88 | | |
|
| |
|
|
| 2.95 | |
Adjusted net interest margin(5) | | | | | | | | 2.73 | | | | | | | | | 2.94 | |
(1) | The average balances of loans include non-accrual loans and unamortized deferred fees and costs. |
(2) | The average balance for securities available for sale is based on amortized cost. |
(3) | Fully taxable equivalent considers the impact of tax-advantaged securities and loans. |
(4) | Income from interest-bearing deposits with other banks has been separated from securities and restated for prior periods to conform to the current period presentation. |
(5) | Adjusted net interest margin excludes Paycheck Protection Program loans. |
(6) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
69
This document contains certain non-GAAP financial measures in addition to results presented in accordance with U.S Generally Accepted Accounting Principles (“GAAP”accounting principles generally accepted in the United States of America ("GAAP"). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’sCompany's GAAP financial information. The Company’sA reconciliation of non-GAAP financial measures may not be comparable to similar non-GAAP information which may be presented by other companies.GAAP measures is provided below. In all cases, it should be understood that non-GAAP operating measures do not depict amounts that accrue directly to the benefit of shareholders. An item whichthat management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company’sCompany's results and condition for any particular quarter or year. A reconciliation ofThe Company's non-GAAP adjusted earnings information set forth is not necessarily comparable to non-GAAP information that may be presented by other companies. Each non-GAAP measure used by the Company in this report as supplemental financial measures todata should be considered in conjunction with the Company's GAAP measures is provided below.
The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for operatingadjusted revenue and expense. These measures exclude amounts whichthat the Company views as unrelated to its normalized operations, including gains/losses on securities, gains/losses,premises, equipment and other real estate owned, acquisition costs, restructuring costs, legal settlements, and systems conversion costs. TheseNon-GAAP adjustments are presented net of an adjustment for related income tax expense. This adjustment is determined as the difference between the GAAP tax rate and the effective tax rate applicable to adjusted income.
The Company also calculates several non-GAAP performance measuresadjusted earnings per share based on its measure of adjusted earnings, including adjusted earnings per share, adjusted return on assets, adjusted return on equity, and the efficiency ratio.earnings. The Company views these amounts as important to understanding its performanceoperating trends, particularly due to the impact of accounting standards related to acquisition activity. Several of these measures are used as performance metrics in assessing the achievement of short and long term incentive compensation for management. Analysts also rely on these measures in estimating and evaluating the Company’sCompany's performance. Management also believes that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community and as componentscommunity.
70
The following table summarizes the reconciliation of non-GAAP items recorded for the time periods and dates indicatedpresented:
| | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
(in thousands) |
| Calculations |
| 2021 |
| 2020 | | 2021 |
| 2020 | ||||
Net income |
|
| | $ | 11,028 | | $ | 8,402 | | $ | 29,533 | | $ | 24,604 |
Non-recurring items: | | | | | | | | | | | | | | |
Gain on sale of securities, net |
|
| |
| (1,930) | |
| — | |
| (1,980) | |
| (1,486) |
Loss (gain) on sale of premises and equipment, net |
|
| |
| (146) | |
| — | |
| (137) | |
| 90 |
Loss on other real estate owned |
|
| |
| — | |
| 335 | |
| (11) | |
| 366 |
Loss on debt extinguishment | | | | | 1,768 | | | — | | | 1,768 | | | 1,351 |
Acquisition, conversion and other expenses |
|
| |
| 318 | |
| 691 | |
| 1,759 | |
| 952 |
Income tax expense (1) |
|
| |
| (2) | |
| (245) | |
| (332) | |
| (304) |
Total non-recurring items | | | | | 8 | | | 781 | | | 1,067 | | | 969 |
Total adjusted income(2) |
| (A) | | $ | 11,036 | | $ | 9,183 | | $ | 30,600 | | $ | 25,573 |
| | | | | | | | | | | | | | |
Net interest income |
| (B) | | $ | 25,582 | | $ | 24,665 | | $ | 71,758 | | $ | 73,818 |
Plus: Non-interest income |
|
| |
| 11,350 | |
| 10,102 | |
| 31,103 | |
| 28,233 |
Total Revenue |
|
| |
| 36,932 | |
| 34,767 | |
| 102,861 | |
| 102,051 |
Gain on sale of securities, net |
|
| |
| (1,930) | |
| ��� | |
| (1,980) | |
| (1,486) |
Total adjusted revenue(2) |
| (C) | | $ | 35,002 | | $ | 34,767 | | $ | 100,881 | | $ | 100,565 |
| | | | | | | | | | | | | | |
Total non-interest expense |
|
| | $ | 23,372 | | $ | 22,419 | | $ | 67,587 | | $ | 67,044 |
Non-recurring expenses: | | | | | | | | | | | | | | |
(Loss) gain on sale of premises and equipment, net |
|
| |
| 146 | |
| — | |
| 137 | |
| (90) |
Loss on other real estate owned |
|
| |
| — | |
| (335) | |
| 11 | |
| (366) |
Loss on debt extinguishment | | | | | (1,768) | | | — | | | (1,768) | | | (1,351) |
Acquisition, conversion and other expenses |
|
| |
| (318) | |
| (691) | |
| (1,759) | |
| (952) |
Total non-recurring expenses | | | | | (1,940) | | | (1,026) | | | (3,379) | | | (2,759) |
Adjusted non-interest expense(2) |
| (D) | | $ | 21,432 | | $ | 21,393 | | $ | 64,208 | | $ | 64,285 |
| | | | | | | | | | | | | | |
Total revenue | | | | | 36,932 | | | 34,767 | | | 102,861 | | | 102,051 |
Total non-interest expense | | | | | 23,372 | | | 22,419 | | | 67,587 | | | 67,044 |
Pre-tax, pre-provision net revenue | | | | $ | 13,560 | | $ | 12,348 | | $ | 35,274 | | $ | 35,007 |
| | | | | | | | | | | | | | |
Adjusted revenue(2) | | | | | 35,002 | | | 34,767 | | | 100,881 | | | 100,565 |
Adjusted non-interest expense(2) | | | | | 21,432 | | | 21,393 | | | 64,208 | | | 64,285 |
Adjusted pre-tax, pre-provision net revenue(2) | | | | $ | 13,570 | | $ | 13,374 | | $ | 36,673 | | $ | 36,280 |
| | | | | | | | | | | | | | |
(in millions) |
|
| |
|
| |
|
| |
|
| |
|
|
Average earning assets |
| (E) | | $ | 3,412 | | $ | 3,444 | | $ | 3,386 | | $ | 3,392 |
Average paycheck protection program (PPP) loans | | (R) | | | 46 | | | 132 | | | 63 | | | 79 |
Average earning assets, excluding PPP loans | | (S) | | | 3,366 | | | 3,312 | | | 3,323 | | | 3,313 |
Average assets |
| (F) | |
| 3,764 | |
| 3,814 | |
| 3,743 | |
| 3,763 |
Average shareholders' equity(8) |
| (G) | |
| 421 | |
| 405 | |
| 414 | |
| 406 |
Average tangible shareholders' equity(2)(3)(8) |
| (H) | |
| 295 | |
| 278 | |
| 287 | |
| 278 |
Tangible shareholders' equity, period-end(2)(3)(8) |
| (I) | |
| 292 | |
| 272 | |
| 292 | |
| 272 |
Tangible assets, period-end(2)(3)(8) |
| (J) | |
| 3,612 | |
| 3,734 | |
| 3,612 | |
| 3,734 |
| | | | | | | | | | | | | | |
71
| | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, |
| Nine Months Ended September 30, | | ||||||||
| | Calculations | | 2021 | | 2020 | | 2021 | | 2020 | | ||||
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
| |
Common shares outstanding, period-end |
| (K) | |
| 14,987 | |
| 14,929 | |
| 14,987 | |
| 14,929 | |
Average diluted shares outstanding |
| (L) | |
| 15,051 | |
| 15,103 | |
| 15,035 | |
| 15,382 | |
| | | | | | | | | | | | | | | |
Adjusted earnings per share, diluted(2) |
| (A/L) | | $ | 0.73 | | $ | 0.61 | | $ | 2.04 | | $ | 1.66 | |
Tangible book value per share, period-end(2)(8) |
| (I/K) | |
| 19.48 | |
| 18.21 | |
| 19.48 | |
| 18.21 | |
Securities adjustment, net of tax(1)(4) |
| (M) | |
| 4,398 | |
| 11,681 | |
| 4,398 | |
| 11,681 | |
Tangible book value per share, excluding securities adjustment(2)(4)(8) |
| (I+M)/K | |
| 19.19 | |
| 17.42 | |
| 19.19 | |
| 17.42 | |
Total tangible shareholders' equity/total tangible assets(2)(8) |
| (I/J) | |
| 8.08 | |
| 7.28 | |
| 8.08 | |
| 7.28 | |
| | | | | | | | | | | | | | | |
Performance ratios(5) | | | | | | | | | | | | | | | |
Return on assets | |
| | | 1.16 | % | | 0.88 | | | 1.05 | % | | 0.87 | % |
Adjusted return on assets(2) | | (A/F) | | | 1.16 | | | 0.96 | | | 1.09 | | | 0.91 | |
Pre-tax, pre-provision return on assets | | | | | 1.43 | | | 1.29 | | | 1.26 | | | 1.24 | |
Adjusted pre-tax, pre-provision return on assets (2) | | (U/F) | | | 1.43 | | | 1.39 | | | 1.31 | | | 1.29 | |
Return on equity(8) | |
| | | 10.38 | | | 8.25 | | | 9.54 | | | 8.10 | |
Adjusted return on equity(2)(8) | | (A/G) | | | 10.39 | | | 9.02 | | | 9.98 | | | 8.42 | |
Return on tangible equity(8) | | | | | 15.08 | | | 12.32 | | | 14.01 | | | 12.10 | |
Adjusted return on tangible equity(1)(2)(8) | | (A+Q)/H | | | 15.09 | | | 13.44 | | | 14.50 | | | 12.57 | |
Efficiency ratio(2)(6) | | (D-O-Q)/(C+N) | | | 59.18 | | | 59.47 | | | 61.48 | | | 61.62 | |
Net interest margin | | (B+P)/E | | | 3.02 | | | 2.90 | | | 2.88 | | | 2.95 | |
Adjusted net interest margin(2)(7) | | (B+P-T)/S | | | 2.75 | | | 2.89 | | | 2.73 | | | 2.94 | |
| | | | | | | | | | | | | | | |
Supplementary data (in thousands) | |
| | |
| | |
| | |
| | |
| |
Taxable equivalent adjustment for efficiency ratio | | (N) | | $ | 576 | | $ | 570 | | $ | 1,757 | | $ | 1,395 | |
Franchise taxes included in non-interest expense | | (O) | | | 143 | | | 121 | | | 396 | | | 360 | |
Tax equivalent adjustment for net interest margin | | (P) | | | 421 | | | 416 | | | 1,284 | | | 1,041 | |
Intangible amortization | | (Q) | | | 233 | | | 256 | | | 707 | | | 768 | |
Interest and fees on PPP loans | | (T) | | | 2,690 | | | 1,052 | | | 5,058 | | | 1,921 | |
BAR HARBOR BANKSHARES | |||||||||||||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY DATA- UNAUDITED | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 8,617 | $ | 3,632 | $ | 19,386 | $ | 12,349 | |||||||||
Adj: Security Gains | (19 | ) | (1,354 | ) | (19 | ) | (4,489 | ) | |||||||||
Adj: Loss on sale of fixed assets, net | (1 | ) | 216 | 94 | 216 | ||||||||||||
Adj: Acquisition expense | 346 | 320 | 5,917 | 812 | |||||||||||||
Adj: Income taxes (37.57% in 2017, 35.0% in 2016) | (122 | ) | 286 | (2,251 | ) | 1,211 | |||||||||||
Total adjusted income (4) | (A) | $ | 8,821 | $ | 3,100 | $ | 23,127 | $ | 10,099 | ||||||||
Net-interest income | (B) | $ | 23,478 | $ | 10,999 | $ | 68,659 | $ | 33,717 | ||||||||
Plus: Non-interest income | 6,960 | 3,372 | 19,465 | 10,314 | |||||||||||||
Total Revenue | 30,438 | 14,371 | 88,124 | 44,031 | |||||||||||||
Adj: Net security gains | (19 | ) | (1,354 | ) | (19 | ) | (4,489 | ) | |||||||||
Total adjusted revenue (4) | (C) | $ | 30,419 | $ | 13,017 | $ | 88,105 | $ | 39,542 | ||||||||
Total non-interest expense | $ | 17,586 | $ | 8,750 | $ | 58,463 | $ | 25,478 | |||||||||
Less: Acquisition expense | (346 | ) | (320 | ) | (5,917 | ) | (812 | ) | |||||||||
Adjusted non-interest expense (4) | (D) | $ | 17,240 | $ | 8,430 | $ | 52,546 | $ | 24,666 | ||||||||
(in millions) | |||||||||||||||||
Total average earning assets | (E) | $ | 3,157 | $ | 1,610 | $ | 3,138 | $ | 1,577 | ||||||||
Total average assets | (F) | 3,453 | 1,690 | 3,444 | 1,653 | ||||||||||||
Total average shareholders' equity | (G) | 354 | 165 | 349 | 162 | ||||||||||||
Total average tangible shareholders' equity | (H) | 244 | 160 | 242 | 157 | ||||||||||||
Total tangible shareholders' equity, period-end (1) | (I) | 244 | 159 | 244 | 159 | ||||||||||||
Total tangible assets, period-end (1) | (J) | 3,367 | 1,713 | 3,367 | 1,713 | ||||||||||||
(in thousands) | |||||||||||||||||
Total common shares outstanding, period-end | (K) | 15,432 | 9,084 | 15,432 | 9,084 | ||||||||||||
Average diluted shares outstanding | (L) | 15,511 | 9,162 | 15,204 | 9,138 | ||||||||||||
Adjusted earnings per share, diluted | (A/L) | $ | 0.57 | $ | 0.34 | $ | 1.52 | $ | 1.11 | ||||||||
Tangible book value per share, period-end | (I/K) | 15.84 | 17.51 | 15.84 | 17.51 | ||||||||||||
Total tangible shareholders' equity/total tangible assets | (H/J) | 7.26 | 9.29 | 7.26 | 9.29 | ||||||||||||
Performance ratios (2) | |||||||||||||||||
GAAP return on assets | 0.99 | % | 0.86 | % | 0.75 | % | 1.00 | % | |||||||||
Adjusted return on assets (4) | (A/F) | 1.01 | 0.73 | 0.90 | 0.82 | ||||||||||||
GAAP return on equity | 9.67 | 8.78 | 7.43 | 10.20 | |||||||||||||
Adjusted return on equity (4) | (A/G) | 9.90 | 7.49 | 8.86 | 8.34 | ||||||||||||
Adjusted return on tangible equity (3) (4) | (A/I) | 14.51 | 7.75 | 12.98 | 8.88 | ||||||||||||
Efficiency ratio (4)(5) | (D-N-P)/(C+M) | 53.59 | 61.24 | 56.44 | 59.34 | ||||||||||||
Net interest margin | (B+O)/E | 3.06 | 2.84 | 3.13 | 2.90 |
Supplementary data (in thousands) | |||||||||||||||||
Taxable equivalent adjustment for efficiency ratio | (M) | $ | 1,107 | $ | 434 | $ | 3,269 | $ | 1,061 | ||||||||
Franchise taxes included in non-interest expense | (N) | 154 | 36 | 438 | 103 | ||||||||||||
Tax equivalent adjustment for net interest margin | (O) | 878 | 168 | 2,568 | 528 | ||||||||||||
Intangible amortization | (P) | 189 | 157 | 534 | 471 |
(1) |
(2) | Non-GAAP financial measure. |
(3) | Tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. |
(4) | Securities adjustment, net of tax represents the total unrealized loss on available-for-sale securities recorded on the Company's consolidated balance sheets within total common shareholders' equity. |
(6) | |
Efficiency ratio is computed by dividing |
(7) | Adjusted net interest margin excludes Paycheck Protection Program loans. |
(8) | Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement. |
72
The Company reported third quarter 20172021 net income of $8.6$11.0 million or 56 cents$0.73 per share.diluted share, up from $8.4 million or $0.56 per diluted share in the same quarter of 2020. Adjusted earnings totaled $8.8(non-GAAP) were also $11.0 million or 57 cents$0.73 per diluted share in the third quarter of 2021, compared to $9.2 million, or $0.61 per share representing a for the same period of 2020.
THIRD QUARTER HIGHLIGHTS (ratios compared to the third quarter 2020)
● | 1.16% return on assets, for both GAAP and non-GAAP measures |
● | 10% annualized commercial loan growth, excluding Paycheck Protection Program (PPP) loans |
● | 32% annualized core deposit growth |
● | 3.02% net interest margin (NIM) compared to 2.90% |
● | 15% increase in fee income, excluding mortgage banking income and security gains |
● | Bar Harbor Bank & Trust named as America’s Best Bank in Maine by Newsweek Magazine |
Adjusted earnings per share (non-GAAP) in the third quarter 2021 grew 20% over the prior quarter.same quarter of 2020. The increase reflects the strength of the Company's now expanded footprint and seasoned team. As discussed in an earlier section, the Company uses the non-GAAP measure of adjusted earnings, and related metrics, to evaluate the results of its operations.
While fee income and efficiency improvements contributed to increased profitability, the quarterly results also benefited from a 13 basis point expansion in the margin to 2.99% compared with 2.86% in the second quarter 2021 on a normalized basis (excluding PPP and excess cash effects). This improvement is a direct result of increased core deposit funding as the Company gained market share and reduced reliance on wholesale borrowings. As of September 30, 2021, the Company’s wholesale borrowings as a percentage of funding was 9%, down from 23% in the prior year.
The Company’s commercial teams continue to deliver strong loan growth despite the competitive landscape within its footprint. Commercial real estate loan growth this quarter was driven by new multi-family residential and light industrial & manufacturing relationships with proven operators. Risk management remains at the forefront of all that the Company does. The Company saw yields bottoming out on residential loans this quarter and was able to increase contractual rates at times. Given the overall interest rate risk position of the balance sheet and this recent rate increase, the Company strategically directed more residential mortgage production onto the balance sheet rather than sell in the secondary market.”
The Company executed another delever and security remix strategy during the third quarter, prepaying $89 million of FHLB borrowings and selling $44 million of credit sensitive municipal and corporate bonds. The additional purchase of securities was completed subsequent to quarter end. This transaction is expected to expand the NIM by 12 basis points and will be accretive to earnings by $0.02 on a quarterly basis.
The Company continues to position itsbuild long term shareholder value while providing a favorable dividend rate relative to other community banks. The Company’s return on equity for the third quarter rose to 10.38% from 8.25% in the same quarter of 2020. The Company remains committed to underwriting standards as evidenced by further improvement in past-due accounts, non-accruals and a near zero net-charge-off ratio.
The Company was named by Newsweek Magazine as one of "America's Best Banks." Best Bank winners were selected from over 2,500 financial institutions and assessed on more than 30 separate factors including the overall health of the bank, customer service performance and features, digital and branch presence, account and loan options, interest rate offerings, and fees.
73
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2021 AND DECEMBER 31, 2020
Total assets were $3.7 billion at the end of the third quarter 2021 as well as at year-end 2020. In the third quarter the Company executed a balance sheet delever and security remix strategy, prepaying $89.0 million of Federal Home Loan Bank advances and selling $43.5 million of securities. The replenishment of those securities is expected to optimize performance,be fulfilled in the fourth quarter 2021. Total loans decreased $28.7 million from year-end 2020 primarily due to PPP loan forgiveness outpacing 2021 originations by $29.5 million from year-end 2020. Non-maturity deposits (core deposits) increased $330.2 million from the end of 2020 as is evidenced by strong loan growth and superior credit quality. Additionally,over 800 new accounts were opened during the quarter, continuing a trend of almost 1,000 new accounts per quarter. The loan to deposit ratio remained flat despite funding significant production during the quarter.
Cash
Total cash and cash equivalents at September 30, 2021 were $341.2 million, compared to $226.0 million at December 31, 2020. Interest bearing deposits held with other banks totaled $302.1 million at quarter end and $198.4 million at year-end 2020 carrying a yield of 0.15% and 0.11% respectively. The increase in cash balances reflects the growth in core deposits.
Securities
Securities totaled $555.5 million in the third quarter 2021 and $599.1 million at year-end 2020 representing 15% and 16% of total assets, respectively. The decrease is primarily due to the security sale of $43.5 million as a part of the balance sheet delever and security remix strategy. In the first nine months of 2021 purchases totaled $123.3 million and were offset by $52.4 million of sales, $103.4 million of maturities, calls and pay-downs of amortizing securities and a $3.8 million reduction in FHLB stock. Fair value adjustments increased the security portfolio by $7.3 million at the end of the third quarter 2021 and $13.1 million at year-end 2020. Unrealized gains decreased for the nine months ended September 30, 2021 due to sales and changes in the long-term treasury yield curve. The weighted average yield of the Company's securities portfolio was 2.82% as of September 30, 2021 compared to 2.96% at year-end 2020. At the end of the third quarter 2021 securities held by the Company had an average life of 5.1 years and an effective duration of 4.4 years compared to 4.8 years and 4.3 years at the end of 2020, respectively.
Loans Held For Sale
Held for sale loans decreased to $7.5 million at September 30, 2021 from $24.0 million at December 31, 2020. The Company sold $28.5 million of residential loan originations in the third quarter 2021 compared with $86.2 million in the same quarter of 2020. Sales in the nine month period of 2021 totaled $153.9 million and $156.0 million in the comparable period of 2020. The decrease in sales reflects the Company strategically directing residential loan production to the balance sheet when rates were higher in the quarter.
Loans
Loan balances in the third quarter 2021 were $2.5 billion compared $2.6 billion at year-end 2020. Commercial loans grew 9% on a year-to-date annualized basis, excluding PPP loans and included 2 new relationships totaling $21.2 million during the third quarter. Commercial real estate and commercial and industrial loans, excluding PPP, increased 11% and 3% on a year-to-date annualized basis, respectively. PPP loans totaled $24.2 million at quarter-end, consisting of $24.1 million from 2021 and $145 thousand from 2020, and were $53.8 million at year-end 2020. COVID loan modifications totaled $4.7 million, down from $68.6 million at year-end, as the majority of modified loans have resumed normal payment schedules. Total residential loans decreased $74.2 million from year-end 2020, which includes $156.3 million of originations recorded on the balance sheet and $230.5 million of prepayments/amortization.
Allowance for Credit Losses
The allowance for credit losses (ACL) totaled $22.4 million at the end of the third quarter 2021 and $19.0 million at year-end 2020. The increase is primarily due to the Company’s adoption of CECL as of January 1, 2021, which increased the ACL by $5.2 million and unfunded commitment reserves by $1.6 million. Since adoption the ACL has decreased due to improved economic forecasts and lower reserves on specific loans offset by changes in loan mix.
74
Net charge offs totaled $434 thousand in the first nine months of 2021, or 0.02% of total average loans, compared to $1.9 million, or 0.07% of total average loans, for the same period of 2020. Non-accruing loans were $12.2 million, or 0.48% of total loans, at the end of the third quarter 2021 and were $12.2 million or 0.48% of total loans at year-end 2020. The ratio of accruing past due loans to total loans improved to 0.12% of total loans, decreasing from 0.58% as of December 31, 2020.
Other Assets
Total other assets were $322.4 million at the end of the third quarter 2021 compared to $331.4 million as of December 31, 2020. The decrease is primarily from a $9.7 million decrease in the fair value in customer loan derivatives offset by $2.9 million increase in community limited partnership investments. Additionally, derivative balances and deferred taxes have been restated for prior periods as described in Note 1 Revision of Previously Issued Financial Statements.
Deposits and Borrowings
Total deposits were $3.0 billion at the end of the third quarter 2021 compared to $2.9 billion at year-end 2020. Non-maturity deposits increased $330.2 million over the first nine months of 2021, or 20% on an annualized basis due to growth in new accounts with over 2,900 new customer relationships added. Growth in core deposits during 2021 and the Company believes that can expand even furtherprepayment of $89.0 million in FHLB borrowings resulted in a reduction of wholesale funding as a percentage of total funding to 9% from 18% at year-end 2020. Time deposits decreased $229.1 million to $469.2 million at quarter-end as $162.3 million of brokered deposits matured in the first nine months of 2021 and were not replaced due to excess liquidity. Retail time deposits decreased $66.9 million as customers moved funds to transactional accounts upon contractual maturity. Total borrowings decreased by adhering$85.7 million primarily from the aforementioned delever strategy. The average cost of deposits was 0.27% in the third quarter of 2021 compared to a disciplined model of balancing growth and profitability.
Derivative Financial Instruments and Other Liabilities
The decisionnotional balance of derivative financial instruments increased to sell$929.9 million at the end of the third quarter 2021 from $876.6 million at year-end 2020. The increase is principally due to a $50.0 million new hedge on variable rate loans tied to one-month LIBOR. The net fair value of all derivatives was drivena liability of $2.2 million at the end of the third quarter 2021 compared to liability of $5.5 million at year-end 2020. The reduction in net derivative fair values reflects the rise in long-term interest rates. Additionally, derivative balances have been restated for prior periods as described in Note 1 Revision of Previously Issued Financial Statements.
Other liabilities totaled $62.3 million at the end of the third quarter 2021 compared to $75.0 million as of December 31, 2020. The decrease primarily reflects the $9.7 million reduction in the fair value of customer loan derivatives and a $3.3 million decrease in cash flow and fair value hedges.
Equity
Total equity was $418.4 million, compared with $407.1 million at year-end 2020. The Company’s book value per share was $27.92 as of September 30, 2021 compared with $27.29 at December 31, 2020. Equity included net unrealized securities totaling $4.4 million at the end of the third quarter 2021 and $10.0 million at year-end 2020. Equity was reduced by $5.2 million due to the Company’s focus on its core banking areas and investments that representCECL adoption in the most efficient usefirst quarter 2021. Additionally, accumulated other comprehensive income has been restated for prior periods as described in Note 1 Revision of capital. Transactions like this along with adhering to its business model will ultimately benefit shareholders and remain consistent with the Company’s brand as a true community bank.
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20172021 AND 2016
Summary
Net income in 2017 include the Lake Sunapee operations acquired on January 13, 2017. As a result, many measures of revenue, expense, income, and average balances increasedthird quarter 2021 was $11.0 million, or $0.73 per diluted share, compared to prior periods.
75
quarter of 2020. Non-recurring items (non-GAAP) reduced net income increased to $0.57 per share from $0.34 for these respective periods. Results increased due to expanded operationsby $8 thousand and improved profitability. GAAP results$781 thousand in third quarters of 2021 and 2020, respectively. The Company's return on assets ratio was 1.16% in the current year include charges related tothird quarter of 2021 and 0.88% in the Lake Sunapee Bank Group acquisition,same quarter of 2020. Adjusted return on assets (non-GAAP) was 1.16% and prior year0.96% for the third quarters of 2021 and 2020, respectively evidencing continued execution of strategic initiatives that balance growth and earnings
The Company reported year-to-date 2021 net income benefited from gains from sales of securities.
Net Interest Income
Net interest income was $25.6 million in the past five quarters depending upon acquisition related chargesthird quarter 2021 compared with $24.7 million in the same quarter of 2020. Net interest margin was 3.02% compared to 2.90% in third quarter of 2020. Acceleration of PPP loan fee amortization due to forgiveness contributed 28 basis points to NIM in the third quarter 2021 and gains1 basis point in the same period of 2020. Interest-bearing cash balances, held mostly at the Federal Reserve Bank, reduced NIM by 26 basis points in the quarter and 8 basis points in the third quarter 2020. The yield on security sales.earning assets totaled 3.41% compared to 3.57% in the third quarter 2020. Excluding the impact of PPP and excess cash, the yield on earning assets totaled 3.42% and 3.67% for the same periods. The Company’s profitability has benefitedyield on loans was 3.98% in the third quarter 2021and 3.81% in the third quarter of 2020. Excluding PPP loans the yield on loans was 3.62% in the third quarter of 2021, and 3.83% in the third quarter of 2020. Costs of funds decreased to 0.50% from both a higher non-interest0.82% in the third quarter 2020 due to increased core deposit levels, lower deposit rates and reduced wholesale borrowings.
For the first nine months of 2021, net interest income as well as improved efficiency. Operational enhancementswas $71.8 million compared with $73.9 million in 2017 are reflectedthe same period of 2020. Net interest margin for the nine months ended was 2.88% in the third quarter 2021 compared to 2.95% in the third quarter of 2020. The decrease in net interest income and NIM was driven by rate compression triggered by the pandemic, combined with growth in the Company’s efficiency ratio trend, which startedinterest-bearing cash balances. PPP loan accretion in 2021 helped to offset interest rate compression on yields. Costs of funds for the firstnine months ended September 30, 2021 decreased to 0.63% from 1.02% due to increased core deposit levels, lower deposit rates and reduced wholesale borrowings.
Provision for Credit Losses
The provision for credit losses (the “provision”) for the quarter at 62%, but then improvedwas a benefit of $174 thousand, compared to 55% in second quarter and 54%an expense of $1.8 million in the third quarter. The efficiency ratio isquarter of 2020. For the first nine months of 2021, the provision was a non-GAAP financial measure that compares adjusted expenses and revenuesbenefit of $1.4 million compared to assess how well the Company is managing its costs. Higher ratios in prior periods represent gradual investments made in infrastructure and key employees to support operations across a broader footprint and larger revenue producing institution.
Non-Interest Income
Non-interest income in the endthird quarter 2021 was $11.4 million, compared to $10.1 million in the same quarter of 2017. The Company views investments in fee income businesses such as trust, secondary marketing mortgage operations, and treasury management services as vehicles to expand return on assets.
Non-interest income for the first nine months of the year, net interest income increased year2021 was $31.1 million compared to year by $34.9 million to $68.7 million. The increase primarily reflects the inclusion of Lake Sunapee Bank’s operations, and purchased loan accretion of $2.9 million during 2017.
76
Non-Interest Expense
Non-interest expense was $23.4 million in the third quarter 2017 increased to $660 thousand2021 from $139 thousand for the same quarter in 2016. On a year-to-date basis, the loan loss provision was $2.2$22.4 million in 2017 compared to $754 thousand in 2016. The amount of the provision exceeded net charge-offs in all periods shown, as the amount of the allowance has risen gradually based on loan portfolio growth and offset in part by the ongoing improvement in loan performance and credit quality. The provision for loan losses is a charge to earnings in an amount sufficient to maintain the allowance for loan losses at a level deemed adequate by the Company as an estimate of the probable and estimable loan losses in the portfolio as of period-end. The level of the allowance is a critical accounting estimate, which is subject to uncertainty. The level of the allowance is included in the discussion of financial condition.
For the first nine months of 2017 totaled $5.9 compared to $812 thousand2021, non-interest expense was $67.6 million and $67.0 million in the same period of 2016. All other increases2020. The Company’s year-to-date efficiency ratio was 61.48% in non-interest2021 compared to 61.62% in 2020 which reflects managements disciplined approach to expense management as revenue grows and the above noted expense initiatives. Non-recurring expenses (non-GAAP) in the first nine months of 2021 totaled $3.3 million and $2.8 million in the same period of 2020. In the first nine months of 2021 these expenses mostly consisted of workforce reduction charges and loss on debt extinguishment and in 2020 primarily consisted of a year-to-date basis are consistent with quarterly trends.
Income Tax Expense
The third quarter effective tax was 29.3%rate decreased to 19.7% in the third quarter 20172021 compared to 33.7%with 20.3% in the same quarter of 2016. The decrease in the quarterly rate is due 2017 tax benefits realized from filing amended tax returns. The rate in 2016 was also2020, reflecting higher due to having a lower proportion of tax-advantagepre-tax income to total income resulting from security gains. On a year to date basis, the 2017 rate decreased to 29.4% from 30.6% in the prior year reflecting the same factors as the quarterly comparison.
Liquidity and Cash Flows
Liquidity is measured by the Company’sCompany's ability to meet short-term cash needs at a reasonable cost or minimal loss. The Company seeks 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 initiatedcustomer-initiated needs. Many factors affect the Company’sCompany's ability to meet liquidity needs,
The Bank actively manages its liquidity position through target ratios established under its Asset LiabilityAsset-Liability Management Policy. Continual monitoring of these ratios, bothby 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 4% of total assets. A portion of the Bank’sBank's deposit base has been historically seasonal in nature, with balances typically declining in the winter months through late spring, during which period the Bank’sBank's liquidity position tightens.
The Bank uses a basic surplus model to measure its liquidity over 30 and 90-day time horizons. The relationship between liquid assets and short-term liabilities that are vulnerable to non-replacement are routinely monitored. The Bank’s policy is to maintain aCompany’s liquidity position remains strong. During the quarter we initiated pandemic-specific liquidity stress tests to analyze potential impacts from payment deferrals, unanticipated use of at least 4%committed lines of total assets.credit, as well as the possibility of required servicer advances on sold loans. At September 30, 2017,2021, available same-day liquidity as measured by the basic surplus model, was 6.6% over the 30-day horizon and 10.8% over the 90-day horizon.
The Bank maintains a liquidity contingency plan approved by the Bank’sBank's Board of Directors. This plan addresses the steps that would be taken in the event of a liquidity crisis, and identifies other sources of liquidity available to the Company. Company management believes that the level of liquidity is sufficient to meet current and future funding requirements. However, changes in economic conditions, including consumer savings habits and availability or access to the brokered deposit market could potentially have a significant impact on the Company’sCompany's liquidity position.
77
Capital Resources
Please see the “Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with the Note 6 Capital Ratios and Shareholders’ Equity in the consolidated financial statements. Additional information about regulatory capital is contained in the notes to the consolidated financial statements and in the Company's most recent Form 10-K.
The Company’s principal cash requirement is the payment of dividends on our common stock, as and when declared by the Company's Board of Directors. Dividends to shareholders in the aggregate amount of $10.5 million and $10.1 million for the nine months ended September 30, 2021 and 2020, respectively. All dividends declared and distributed by the Company will be in compliance with applicable state corporate law and regulatory requirements.
Off-Balance Sheet Arrangements
The Company is, 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 the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that may be material to investors.
The Company’s 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 they 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.
The Company’s off-balance sheet arrangements have not changed materially since previously reported in our Annual Report on Form 10-K for the year ended December 31, 2020.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES, AND RECENT ACCOUNTING PRONOUNCEMENTS
The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements in this Form 10-Q and in the most recent Form 10-K. Please see those policies in conjunction with this discussion. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.
Management believes that the following policies would be considered critical under the SEC’s definition:
• | Allowance for Credit Losses |
• | Income Taxes |
• | Goodwill and Identifiable Intangible Assets |
• | Fair Value of Financial Instruments |
78
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. Interest rate risk is the most significant market risk affecting the Company. Other types of market risk do not arise in the normal course of the Company’s business activities.
The responsibility for interest rate risk management oversight is the function of the Bank’s Asset and Liability Committee (“ALCO”), chaired by the Chief Financial Officer and composed of various members of senior management. ALCO meets regularly to review balance sheet structure, formulate strategies in light of current and expected economic conditions, adjust product prices as necessary, implement policy, monitor liquidity, and review performance against guidelines established to control exposure to the various types of inherent risk.
Interest Rate Risk:
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 Company’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 call provisions are examined on an individual basis in each rate environment to estimate the likelihood of a call.exercise. Prepayment assumptions for mortgage loans and mortgage-backed securities are developed from industry median estimates 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 including:
A flat interest rate scenario in which current prevailing rates are locked in and the only balance sheet fluctuations that occur are due to cash flows, maturities, new volumes, and re-pricing volumes consistent with this flat rate assumption;
79
A 200 basis point rise or decline in interest rates (or as appropriate given the absolute level of market rates) applied against a parallel shift in the yield curve over a twelve-month horizon together with a dynamic balance sheet anticipated to be consistent with such interest rate changes;
Various non-parallel shifts in the yield curve, including changes in either short-term or long-term rates over a twelve-month horizon, together with a dynamic balance sheet anticipated to be consistent with such interest rate changes; and
An extension of the foregoing simulations to each of two, three, four and five year horizons to determine the interest rate risk with the level of interest rates stabilizing in years two through five. Even though rates remain stable during this two to five year time period, re-pricing opportunities driven by maturities, cash flow, and adjustable rate products will continue to change the balance sheet profile for each of the interest rate conditions.
Changes in net interest income based upon the foregoing simulations are measured against the flat interest rate scenario and actions are taken to maintain the balance sheet interest rate risk within established policy guidelines.
As of September 30, 20172021 interest rate sensitivity modeling results indicate that the Bank’s balance sheet in years 1 and 2 was moderately liability sensitive over the one- and two-year horizons (i.e., moderately exposed to rising interest rates).
Assuming short-term and long-term interest rates decline 100 basis points from current levels (i.e., a parallel yield curve shift) and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will improve slightlydeteriorate over the one year horizon (+.2%(-2.4% versus the base case) while remaining relatively stabledeteriorating further from that level over the two-year horizon (+.3%(-9.8% versus the base case). Should the yield curve steepen as rates fall, the model suggests that accelerated earning asset prepayments will slow, resulting in a more stabilized level of net interest income. Management anticipates that moderate to strong earning asset growth will be needed to meaningfully increase the Bank’s current level of net interest income should both long-term and short-term interest rates decline in parallel.
Assuming the Bank’s balance sheet structure and size remain at current levels and the Federal Reserve increases short-term interest rates by 200 basis points with the balance of the yield curve shifting in parallel with these increases, management believes net interest income will decline moderatelyimprove over the one and two-year horizons (-3.1%(10.6% and -6.7%21.8%, respectively, versus the base case) as increased funding costs outpace increases in earning asset yields. The interest rate sensitivity simulation model suggests that as interest rates rise, the Bank’s funding costs will initially re-price disproportionately with earning asset yields to a moderate degree. As funding costs begin to stabilize early in the third year of the simulation, the model suggests that the earning asset portfolios will continue to re-price at prevailing interest rate levels and cash flows from the Bank’s earning asset portfolios will be reinvested into higher yielding earning assets, resulting in a widening of spreads and a stabilization of net interest income over the three year horizon and beyond. Management believes moderate to strong earning asset growth will be necessary to meaningfully increase the current level of net interest income over the one-year and two-year horizons should short-term and long-term interest rates rise in parallel.
As compared to June 30, 2017,December 31, 2020, the year-one sensitivity in the down 100 basis points scenario decreasedwas up slightly for the quarter (+.7%nine months ended September 30, 2021 (-2.6% prior, versus +.2%-2.4% current). The year-two sensitivities in the down 100 basis points scenario showed a small changewere mostly unchanged going from +.8%-9.5% to +.3%-9.8%. In the year-one up 200 basis points scenario, results improvedwere up slightly going from the prior quarter (-3.8% prior, versus -3.1% current)7.7% to 10.6%. Year-two, up 200 basis points shows a slightly more negative result (-6.2%was up (18.4% prior, versus -6.7%21.8% current), although on balance, the current aggregate position is consistent with the prior quarter’s.
The preceding sensitivity analysis does not represent a Company 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
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.
80
ITEM 4. CONTROLS AND PROCEDURES
(a) | |
Disclosure controls and procedures. |
Under the supervision and with the participation of our senior management, consisting of the Company’s principal executive officers, including theofficer and our principal financial officer, based on theirthe Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, (asas defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q, have10-Q. Based on this evaluation, the Company’s management, including its principal executive officer and principal financial officer, concluded that as of September 30, 2021 the Company’s disclosure controls and procedures were effective.
(b) | Changes in internal control over financial reporting. |
There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to certain ordinary routine litigation incidental to the normal conduct of their respective businesses, which in the opinion of management based upon currently available information will have no material effect on the Company's consolidated financial statements.
ITEM 1A. RISK FACTORS
There were no material changes to the risk factors discussed in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.In addition to the other information set forth in this report, you should carefully consider thethose risk factors, discussed below and in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition orand future operating results. The risks described in this formThose risk factors are not the only risks that we face.facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affecthave a material adverse effect on our business, financial condition and/orand operating results.
81
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)On April 20, 2021, Company's Board of Directors approved a twelve-month plan to repurchase up to 5% of its outstanding common stock, representing 747,000 shares.
The following table provides certain information with regard toindicates that no shares were repurchased by the Company in the third quarter of 2017:2021:
| | | | | | | | | |
| | | | | | Total number of shares | | Maximum number of | |
| | | | | | | purchased as a part of | | shares that may yet be |
| | Total number of | | Average price | publicly announced | purchased under | |||
Period | shares purchased | paid per share | plans or programs | the plans or programs | |||||
July 1-31, 2021 | — | | $ | — | — | 747,000 | |||
August 1-31, 2021 | — | | — | — | 747,000 | ||||
September 1-30, 2021 | — | | — | — | 747,000 | ||||
Total | — | | $ | — | — | 747,000 |
82
Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as a part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs (1) | |||||||||
July 1-31, 2017 | 6,742 | $ | 29 | 6,742 | 404,706 | ||||||||
August 1-31, 2017 | — | — | — | 404,706 | |||||||||
September 1-30, 2017 | — | — | — | 404,706 | |||||||||
Total | 6,742 | $ | 29 | 6,742 | 404,706 |
ITEM 6. EXHIBITS
| | |||
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. | |||
| | | ||
32.2 | Certification of Chief Financial Officer under 18 U.S.C. Sec. | |||
| | |||
101 | The following financial information from the Company’s | |||
| | |||
104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document) |
83
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.
| | | |
| |||
BAR HARBOR BANKSHARES | |||
| | ||
| | | |
Dated: November 8, | By: | /s/ Curtis C. Simard | |
| | Curtis C. Simard | |
| | President & Chief Executive Officer | |
| | ||
| | ||
Dated: November 8, | By: | /s/ Josephine Iannelli | |
| | Josephine Iannelli | |
| | Executive Vice President & Chief Financial Officer |
84