UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~June 30, 2023~~March 31, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-13349

BAR HARBOR BANKSHARES

(Exact name of registrant as specified in its charter)


Maine		01-0393663
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

PO Box 400
82 Main Street, Bar Harbor, ME		04609-0400
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (207) 288-3314

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, par value $2.00 per share		BHB		NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ◻ Accelerated Filer ⌧ Non-Accelerated Filer ◻ Smaller Reporting Company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ⌧

The ~~Registrant~~registrant had ~~15,156,071~~15,232,425 shares of common stock, par value $2.00 per share, outstanding as of ~~August 3, 2023.~~May 6, 2024.

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BAR HARBOR BANKSHARES AND SUBSIDIARIES

FORM 10-Q

INDEX

				Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheets as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023			5

	Consolidated Statements of Income for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~			76

	Consolidated Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~			87

	Consolidated Statements of Changes in Shareholders’ Equity for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~			98

	Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~			109

	Condensed Notes to Unaudited Consolidated Interim Financial Statements
		Note 1	Basis of Presentation	1110
		Note 2	Securities Available for Sale	12
		Note 3	Loans and Allowance for Credit Losses	1516
		Note 4	Borrowed Funds	2625
		Note 5	Deposits	2827
		Note 6	Capital Ratios and Shareholders' Equity	2928
		Note 7	Earnings per Share	3331
		Note 8	Derivative Financial Instruments and Hedging Activities	3432
		Note 9	Fair Value Measurements	4439
		Note 10	Revenue from Contracts with Customers	5145



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			5347
		Selected Financial Data		5953
		Consolidated Loan and Deposit Analysis		6054
		Average Balances and Average Yields/Rates		6155
		Reconciliation of Non-GAAP Financial Measures		6356


Item 3.	Quantitative and Qualitative Disclosures about Market Risk			6558

Item 4.	Controls and Procedures			6760


PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings			6760

Item 1A.	Risk Factors			6760

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			6861

Item 5.	Other Information			6861

Item 6.	Exhibits			6962

Signatures				7063

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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.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q the words “believe,” “anticipate,” “expect,” “may,” “will,” “assume,” “should,” “predict,” “could,” “would,” “intend,” “targets,” “estimates,” “projects,” “plans,” and “potential,” and other similar words and expressions of the future, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements about the Company’s future financial and operating results and the Company’s plans, objectives, and intentions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to:

●

deterioration in the financial performance and/or condition of borrowers of the Bank, including as a result of the negative impact of inflationary pressures on our customers and their businesses resulting in significant increases in ~~loan~~credit losses and provisions for those losses;

●

the possibility that our asset quality could decline or that we experience greater loan losses than anticipated;

●

increased levels of other real estate owned, primarily as a result of foreclosures;

●

the impact of liquidity needs on our results of operations and financial condition;

●

competition from financial institutions and other financial service providers;

●

the effect of interest rate increases on the cost of deposits;

●

unanticipated weakness in loan demand or loan pricing;

●

adverse conditions in the national or local economies including in our markets throughout Northern New England;

●

changes in consumer spending, borrowing and saving habits;

●

the emergence and effects related to a future pandemic, epidemic or outbreak of ~~new outbreaks of COVID-19,~~an infectious disease, including actions taken by governmental officials to curb the spread of ~~the virus,~~such an infectious disease, and the resulting impact on general economic and financial market conditions and on the Company’s and our customers' business, results of operations, asset quality and financial condition;

●

the effects of civil unrest, international hostilities or other geopolitical events, including the war in ~~Ukraine;~~Ukraine and recent hostilities in the Middle East;

●

~~inflation, interest rate, market, and monetary fluctuations;~~

●

lack of strategic growth opportunities or our failure to execute on available opportunities;

●

the ability to grow and retain low-cost core deposits and retain large, uninsured deposits;

●

our ability to effectively manage problem credits;

●

our ability to successfully implement efficiency initiatives on time and with the results projected;

●

our ability to successfully develop and market new products and ~~technology;~~implement technology effectively;

●

the impact of negative developments in the financial industry and United States and global capital and credit markets;

●

our ability to retain executive officers and key employees and their customer and community ~~relationships~~;relationships;

●

our ability ~~to implement and~~ to adapt to technological changes;

●

risks associated with litigation, including reputational and financial risks and the applicability of insurance coverage;

●

the vulnerability of the Bank’s computer and information technology systems and networks, and the systems and networks of third parties with whom the Company or the Bank contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches and interruptions;

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●

changes in the reliability of our vendors, internal control systems or information systems;

●

ongoing competition in the labor markets and increased employee turnover;

●

the potential impact of climate change;

●

~~the impact of pandemics, epidemics, or any other health-related crisis;~~

~~Table of Contents~~

●

our ability to comply with various governmental and regulatory requirements applicable to financial institutions;

●

changes in state and federal laws, rules, regulations, or policies applicable to banks or bank or financial holding companies, including regulatory or legislative developments;

●

~~governmental~~the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

●

adverse impacts (including costs, fines, reputational harm, financial risks and the applicability of insurance coverage or other negative effects) from current or future litigation, regulatory examinations, or other legal and/or regulatory actions; and

●

general competitive, economic, political, and market conditions, including economic conditions in the local markets where we operate.

Other factors not identified above, including those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2022~~2023 (the “Form 10-K”), our Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website at http://www.sec.gov, may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements, and you should consider these factors in connection with considering any forward-looking statements that may be made by us. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)

June 30, 2023

December 31, 2022
Assets




Cash and cash equivalents:

Cash and due from banks

$
46,532

$
39,933
Interest-earning deposits with other banks

77,253

52,362
Total cash and cash equivalents

123,785

92,295

Securities:

Securities available for sale

538,178

559,516
Federal Home Loan Bank stock

17,784

14,893
Total securities

555,962

574,409

Loans held for sale

3,669

—

Total loans

3,007,480

2,902,690
Less: Allowance for credit losses

(27,362)

(25,860)
Net loans

2,980,118

2,876,830

Premises and equipment, net

47,412

47,622
Goodwill

119,477

119,477
Other intangible assets

5,335

5,801
Cash surrender value of bank-owned life insurance

78,967

81,197
Deferred tax assets, net

24,181

24,443
Other assets

89,641

87,729
Total assets

$
4,028,547

$
3,909,803

Liabilities




Deposits:




Demand

$
602,667

$
676,350
NOW

911,488

900,730
Savings

588,769

664,514
Money market

351,762

478,398
Time

635,559

323,439
Total deposits

3,090,245

3,043,431

Borrowings:




Senior

398,972

333,957
Subordinated

60,371

60,289
Total borrowings

459,343

394,246

Other liabilities

68,243

78,676
Total liabilities

3,617,831

3,516,353

~~(continued)~~

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~~BAR HARBOR BANKSHARES AND SUBSIDIARIES~~

~~CONSOLIDATED BALANCE SHEETS (UNAUDITED) (continued)~~


(in thousands, except share data)	March 31, 2024		December 31, 2023
Assets
Cash and cash equivalents:
Cash and due from banks	$	30,770	$	42,221
Interest-earning deposits with other banks		45,449		52,621
Total cash and cash equivalents		76,219		94,842

Securities:
Securities available for sale		527,603		534,574
Federal Home Loan Bank stock		9,960		12,788
Total securities		537,563		547,362

Loans held for sale		3,137		2,189

Total loans		3,011,672		2,999,049
Less: Allowance for credit losses		(28,355)		(28,142)
Net loans		2,983,317		2,970,907

Premises and equipment, net		47,849		48,287
Other real estate owned		—		—
Goodwill		119,477		119,477
Other intangible assets		4,637		4,869
Cash surrender value of bank-owned life insurance		80,642		80,037
Deferred tax assets, net		23,849		22,979
Other assets		82,285		79,936
Total assets	$	3,958,975	$	3,970,885

Liabilities
Deposits:
Demand	$	544,495	$	569,714
Interest-bearing demand deposits		888,591		946,978
Savings		551,493		553,963
Money market		365,289		370,242
Time		777,208		700,260
Total deposits		3,127,076		3,141,157

Borrowings:
Senior		269,437		271,044
Subordinated		60,501		60,461
Total borrowings		329,938		331,505

Other liabilities		66,247		66,164
Total liabilities		3,523,261		3,538,826


(in thousands, except share data)	June 30, 2023		December 31, 2022
Shareholders’ equity
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,384,353 shares; outstanding 15,124,451 shares and 15,001,329 shares at June 30, 2023 and December 31, 2022 respectively		32,857		32,857
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares; outstanding 15,211,877 shares and 15,172,131 shares at March 31, 2024 and December 31, 2023, respectively						32,857		32,857
Additional paid-in capital		192,341		191,922		193,246		193,114
Retained earnings		259,470		243,815		277,991		272,101
Accumulated other comprehensive loss		(57,564)		(58,340)		(52,568)		(49,862)
Less: 1,284,195 and 1,345,700 shares of treasury stock, at cost, at June 30, 2023 and December 31, 2022, respectively		(16,388)		(16,804)
Less: 1,216,511 and 1,256,257 shares of treasury stock, at cost, at March 31, 2024 and December 31, 2023, respectively						(15,812)		(16,151)
Total shareholders’ equity		410,716		393,450		435,714		432,059
Total liabilities and shareholders’ equity	$	4,028,547	$	3,909,803	$	3,958,975	$	3,970,885

The accompanying notes are an integral part of these consolidated financial statements.

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BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(in thousands, except earnings per share data)	2023		2022		2023		2022		2024		2023
Interest and dividend income
Loans	$	36,917	$	24,581	$	71,477	$	47,252	$	39,470	$	34,560
Securities and other		5,964		4,207		11,755		8,033		6,353		5,791
Total interest and dividend income		42,881		28,788		83,232		55,285		45,823		40,351
Interest expense
Deposits		8,590		1,195		13,855		2,384		14,532		5,265
Borrowings		5,501		1,074		9,681		2,084		3,236		4,180
Total interest expense		14,091		2,269		23,536		4,468		17,768		9,445
Net interest income		28,790		26,519		59,696		50,817		28,055		30,906
Provision for credit losses		750		534		1,548		911		289		798
Net interest income after provision for credit losses		28,040		25,985		58,148		49,906		27,766		30,108

Non-interest income
Trust and investment management fee income		3,805		3,829		7,360		7,583		3,670		3,555
Customer service fees		3,774		3,656		7,451		7,272		3,710		3,677
Gain on sales of securities, net		—		—		34		9		—		34
Mortgage banking income		378		488		657		1,112		257		279
Bank-owned life insurance income		503		504		1,651		1,005		561		1,148
Customer derivative income		83		137		215		155		—		132
Other income		437		347		796		1,134		388		359
Total non-interest income		8,980		8,961		18,164		18,270		8,586		9,184

Non-interest expense
Salaries and employee benefits		13,223		11,368		25,994		23,515		13,248		12,771
Occupancy and equipment		4,392		4,373		8,806		8,796		4,473		4,414
(Gain) loss on sales of premises and equipment, net		(86)		10		(99)		(65)
Gain on sales of premises and equipment, net										(15)		(13)
Outside services		424		410		780		750		338		356
Professional services		355		528		781		701		400		426
Communication		175		188		337		413		189		162
Marketing		476		369		885		632		567		409
Amortization of intangible assets		233		233		466		466		233		233
Acquisition, conversion and other expenses		—		—		20		325		20		20
Provision for unfunded commitments		45		45		(130)		371		(185)		(175)
Other expenses		4,155		4,176		8,256		7,682		4,420		4,101
Total non-interest expense		23,392		21,700		46,096		43,586		23,688		22,704

Income before income taxes		13,628		13,246		30,216		24,590		12,664		16,588
Income tax expense		2,837		2,743		6,413		4,975		2,569		3,576
Net income	$	10,791	$	10,503	$	23,803	$	19,615	$	10,095	$	13,012

Earnings per share:
Basic	$	0.71	$	0.70	$	1.57	$	1.31	$	0.66	$	0.86
Diluted	$	0.71	$	0.70		1.57		1.30	$	0.66	$	0.86

Weighted average common shares outstanding:
Basic		15,139		15,018		15,125		15,014		15,198		15,110
Diluted		15,180		15,077		15,186		15,094		15,270		15,190

The accompanying notes are an integral part of these consolidated financial statements.

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BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(in thousands)	2023		2022		2023		2022		2024		2023
Net income	$	10,791	$	10,503	$	23,803	$	19,615	$	10,095	$	13,012
Other comprehensive income (loss), before tax:
Changes in unrealized loss on securities available for sale		(6,057)		(23,409)		(51)		(52,253)
Changes in unrealized gain (loss) on hedging derivatives		321		(1,997)		1,088		(3,878)
Changes in unrealized (loss) gain on securities available for sale										(2,597)		6,006
Changes in unrealized (loss) gain on hedging derivatives										(937)		767
Changes in unrealized gain (loss) on pension										22		—

Income taxes related to other comprehensive income:
Income taxes related to other comprehensive income (loss):
Changes in unrealized loss (gain) on securities available for sale		1,396		5,330		(10)		11,964		613		(1,406)
Changes in unrealized (gain) loss on hedging derivatives		(73)		460		(251)		893
Changes in unrealized loss (gain) on hedging derivatives										221		(178)
Changes in unrealized (gain) loss on pension										(28)		—
Total other comprehensive (loss) income		(4,413)		(19,616)		776		(43,274)		(2,706)		5,189
Total comprehensive income (loss)	$	6,378	$	(9,113)	$	24,579	$	(23,659)
Total comprehensive income									$	7,389	$	18,201

The accompanying notes are an integral part of these consolidated financial statements.

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BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)


							Accumulated												Accumulated
	Common		Additional				other						Common		Additional				other
	stock		paid-in		Retained		comprehensive		Treasury				stock		paid-in		Retained		comprehensive		Treasury
(in thousands, except per share data)	amount		capital		earnings		income (loss)		stock		Total		amount		capital		earnings		income (loss)		stock		Total
Balance at December 31, 2021	$	32,857	$	190,876	$	215,592	$	2,303	$	(17,481)	$	424,147

Net income		—		—		9,112		—		—		9,112
Other comprehensive loss		—		—		—		(23,658)		—		(23,658)
Cash dividends declared ($0.24 per share)		—		—		(3,603)		—		—		(3,603)
Net issuance (11,277 shares) to employee stock plans, including related tax effects		—		436		—		—		111		547
Recognition of stock based compensation		—		454		—		—		—		454
Balance at March 31, 2022	$	32,857	$	191,766	$	221,101	$	(21,355)	$	(17,370)	$	406,999

Net income		—		—		10,503		—		—		10,503
Other comprehensive income		—		—		—		(19,616)		—		(19,616)
Cash dividends declared ($0.26 per share)		—		—		(3,906)		—		—		(3,906)
Net issuance (13,491 shares) to employee stock plans, including related tax effects		—		(60)		—		—		37		(23)
Recognition of stock based compensation		—		(360)		—		—		—		(360)
Balance at June 30, 2022	$	32,857	$	191,346	$	227,698	$	(40,971)	$	(17,333)	$	393,597

Balance at December 31, 2022	$	32,857	$	191,922	$	243,815	$	(58,340)	$	(16,804)	$	393,450	$	32,857	$	191,922	$	243,815	$	(58,340)	$	(16,804)	$	393,450

Net income		—		—		13,012		—		—		13,012		—		—		13,012		—		—		13,012
Other comprehensive income		—		—		—		5,189		—		5,189		—		—		—		5,189		—		5,189
Cash dividends declared ($0.26 per share)		—		—		(3,943)		—		—		(3,943)		—		—		(3,943)		—		—		(3,943)
Net issuance (41,763 shares) to employee stock plans, including related tax effects		—		40		—		—		363		403		—		40		—		—		363		403
Recognition of stock based compensation		—		299		—		—		—		299		—		299		—		—		—		299
Balance at March 31, 2023	$	32,857	$	192,261	$	252,884	$	(53,151)	$	(16,441)	$	408,410	$	32,857	$	192,261	$	252,884	$	(53,151)	$	(16,441)	$	408,410

Balance at December 31, 2023													$	32,857	$	193,114	$	272,101	$	(49,862)	$	(16,151)	$	432,059

Net income		—		—		10,791		—		—		10,791		—		—		10,095		—		—		10,095
Other comprehensive income		—		—		—		(4,413)		—		(4,413)
Other comprehensive loss														—		—		—		(2,706)		—		(2,706)
Cash dividends declared ($0.28 per share)		—		—		(4,205)		—		—		(4,205)		—		—		(4,205)		—		—		(4,205)
Net issuance (19,707 shares) to employee stock plans, including related tax effects		—		(304)		—		—		53		(251)
Net issuance (39,746 shares) to employee stock plans, including related tax effects														—		(355)		—		—		339		(16)
Recognition of stock based compensation		—		384		—		—		—		384		—		487		—		—		—		487
Balance at June 30, 2023	$	32,857	$	192,341	$	259,470	$	(57,564)	$	(16,388)	$	410,716
Balance at March 31, 2024													$	32,857	$	193,246	$	277,991	$	(52,568)	$	(15,812)	$	435,714

The accompanying notes are an integral part of these consolidated financial statements.

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BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30,
(in thousands)

2023

2022
Cash flows from operating activities:




Net income

$
23,803

$
19,615
Adjustments to reconcile net income to net cash provided by operating activities:

Net change in loans held for sale

(3,669)

1,950
Provision for credit losses

1,548

911
Net amortization of securities

1,202

1,532
Change in unamortized net loan costs and premiums

159

(1,556)
Premises and equipment depreciation

2,112

2,132
Stock-based compensation expense

683

94
Amortization of other intangibles

466

466
Income from cash surrender value of bank-owned life insurance policies

(1,651)

(1,005)
Gain on sales of securities, net

(34)

(9)
Amortization of right-of-use lease assets

597

593
Decrease in lease liabilities

(582)

(563)
Gain on premises and equipment, net

(99)

(65)
Net change in other assets and liabilities

(12,153)

(5,481)
Net cash provided by operating activities

12,382

18,614

Cash flows from investing activities:




Proceeds from sales, maturities, calls and prepayments of securities available for sale

22,456

47,570
Purchases of securities available for sale

(1,000)

(77,408)
Net change in loans

(104,995)

(193,681)
Purchase of Federal Home Loan Bank stock

(14,262)

(461)
Proceeds from sale of Federal Home Loan Bank stock

11,371

1,273
Purchase of premises and equipment, net

(2,194)

(1,138)
Proceeds from death benefit of bank-owned life insurance policy

3,904

—
Net cash used in investing activities

(84,720)

(223,845)

Cash flows from financing activities:




Net change in deposits

46,814

30,001
Net change in short-term borrowings

65,020

19,952
Repayments of long-term borrowings

(10)

(21,010)
Net issuance to employee stock plans

152

524
Cash dividends paid on common stock

(8,148)

(7,509)
Net cash provided by financing activities

103,828

21,958

Net change in cash and cash equivalents

31,490

(183,273)
Cash and cash equivalents at beginning of year

92,295

250,389
Cash and cash equivalents at end of period

$
123,785

$
67,116

Supplemental cash flow information:




Interest paid

$
21,708

$
2,128
Income taxes paid, net

8,530

4,418


	Three Months Ended March 31,
(in thousands)	2024		2023
Cash flows from operating activities:
Net income	$	10,095	$	13,012
Adjustments to reconcile net income to net cash provided by operating activities:
Net change in loans held for sale		948		463
Provision for credit losses		289		798
Net amortization of securities		485		540
Change in unamortized net loan costs and premiums		(265)		49
Premises and equipment depreciation		1,036		1,048
Stock-based compensation expense		487		299
Amortization of other intangibles		233		233
Income from cash surrender value of bank-owned life insurance policies		(561)		(1,148)
Gain on sales of securities, net		—		(34)
Amortization of right-of-use lease assets		126		298
Decrease in lease liabilities		(126)		(290)
Gain on premises and equipment, net		(15)		(13)
Net change in other assets and liabilities		(4,217)		2,098
Net cash provided by operating activities		8,515		17,353

Cash flows from investing activities:
Proceeds from sales, maturities, calls and prepayments of securities available for sale		7,738		2,534
Purchases of securities available for sale		(4,762)		(1,000)
Net change in loans		(12,434)		(41,582)
Purchase of Federal Home Loan Bank stock		(3,244)		(5,030)
Proceeds from sale of Federal Home Loan Bank stock		6,072		4,205
Purchase of premises and equipment, net		(671)		(1,153)
Proceeds from sale of premises and equipment		74		—
Proceeds from death benefit of bank-owned life insurance policy		—		3,909
Net cash used in investing activities		(7,227)		(38,117)

Cash flows from financing activities:
Net change in deposits		(14,081)		10,383
Net change in short-term borrowings		(1,604)		4,290
Repayments of long-term borrowings		(5)		(3)
Net change in subordinated debt issuance costs		—		41
Net issuance to employee stock plans		(16)		403
Cash dividends paid on common stock		(4,205)		(3,943)
Net cash provided by financing activities		(19,911)		11,171

Net change in cash and cash equivalents		(18,623)		(9,593)
Cash and cash equivalents at beginning of year		94,842		92,295
Cash and cash equivalents at end of period	$	76,219	$	82,702

Supplemental cash flow information:
Interest paid	$	15,941	$	9,417
Income taxes paid, net		4,303		5,219

109

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BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The consolidated financial statements (unaudited) (the “financial statements”) of Bar Harbor Bankshares and its subsidiaries (the “Company,” “we,” “our,” “us” or similar terms) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company is a Maine Financial Institution Holding Company for the purposes of the laws of the State of Maine, and as such is subject to the jurisdiction of the Superintendent of the Maine Bureau of Financial Institutions. These financial statements include our accounts, the accounts of our wholly owned subsidiary Bar Harbor Bank & Trust (the “Bank”) and the Bank’s consolidated subsidiaries. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly owned and majority owned subsidiaries are consolidated unless GAAP requires otherwise.

In addition, these interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures normally included in financial statements prepared according to GAAP have been omitted.

The results for any interim period are not necessarily indicative of results for the full year. ~~These~~The consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures in the Form 10-K previously filed with the Securities and Exchange Commission (the ~~"SEC"~~“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 consolidated income statement.

Goodwill assessment: In connection with acquisitions, management generally records as assets on our consolidated financial statements both goodwill and other intangible assets, such as core deposit and acquired customer relationship intangibles.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in accordance with the purchase method of accounting for business combinations. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, or more frequently, if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. The impairment testing process is conducted by assigning assets and goodwill to each reporting unit. Currently, our goodwill is evaluated at the entity level as there is only one reporting unit. Management, at our discretion, assesses certain qualitative factors to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value. An impairment charge is recognized if the carrying fair value of goodwill exceeds the implied fair value of goodwill.

In the fourth quarter 2023, management completed its annual goodwill impairment testing using balance sheet and market data as of September 30, 2023. The analysis was performed at the consolidated Bank-level of the Company, which is considered the smallest reporting unit carrying goodwill. Based on an analysis performed, the Company's estimated fair value to a market participant as of September 30, 2023, exceeded its carrying amount resulting in no impairment charge for the period. Management evaluated current conditions and concluded there have been no significant changes in the economic environment or future projections and therefore, believes that there has been no further decline in the Company's fair value as of September 30, 2023. Management will continue to evaluate the economic conditions at future reporting periods for applicable changes.

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Recent Accounting Pronouncements

The following table provides a brief description of recent accounting standards updates (“ASU”) that could have a material impact to the Company’s consolidated financial statements upon adoption:


Standard	Description	Required Date of Adoption	Effect on financial statements
Standards Adopted in 2023
ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures	The amendments in this update eliminate TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an ~~exisiting~~existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.	January 1, 2023	The adoption of this ASU did not have a material impact on our consolidated financial statements.
~~Standards Not Yet Adopted~~
ASU 2023-02 Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method	The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.	December 15, 2023, including interim periods within the fiscal year	The adoption of this ASU did not have a material impact on our consolidated financial statements.
Standards Not Yet Adopted
ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures	The amendments in this update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate).	Annual periods beginning after December 15, 2024	We do not expect adoption of this ASU to have a material impact on our consolidated financial statements.

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NOTE 2. SECURITIES AVAILABLE FOR SALE

The following is a summary of securities available for sale (“AFS”):


			Gross		Gross						Gross		Gross
			Unrealized		Unrealized						Unrealized		Unrealized
(in thousands)	Amortized Cost		Gains		Losses		Fair Value		Amortized Cost		Gains		Losses		Fair Value
June 30, 2023
Mortgage-backed securities:
March 31, 2024
Debt securities:
Obligations of US Government-sponsored enterprises									$	1,718	$	—	$	(31)	$	1,687
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises	$	237,839	$	2	$	(34,081)	$	203,760		218,631		4		(32,811)		185,824
US Government agency		89,021		4		(12,002)		77,023		87,527		79		(11,424)		76,182
Private label		61,679		24		(2,846)		58,857		60,520		18		(1,506)		59,032
Obligations of states and political subdivisions thereof		120,024		5,811		(17,495)		108,340		118,605		5,425		(15,924)		108,106
Corporate bonds		101,498		33		(11,333)		90,198		105,550		1		(8,779)		96,772
Total securities available for sale	$	610,061	$	5,874	$	(77,757)	$	538,178	$	592,551	$	5,527	$	(70,475)	$	527,603


			Gross		Gross						Gross		Gross
			Unrealized		Unrealized						Unrealized		Unrealized
(in thousands)	Amortized Cost		Gains		Losses		Fair Value		Amortized Cost		Gains		Losses		Fair Value
December 31, 2022
Mortgage-backed securities:
December 31, 2023
Debt securities:
Obligations of US Government-sponsored enterprises									$	2,021	$	—	$	(29)	$	1,992
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises	$	249,838	$	14	$	(34,825)	$	215,027		223,602		12		(30,332)		193,282
US Government agency		93,010		21		(10,765)		82,266		85,005		145		(10,937)		74,213
Private label		64,056		34		(3,936)		60,154		60,888		18		(1,855)		59,051
Obligations of states and political subdivisions thereof		121,939		7,149		(21,351)		107,737		119,857		4,515		(14,204)		110,168
Corporate bonds		102,505		33		(8,206)		94,332		105,552		19		(9,703)		95,868
Total securities available for sale	$	631,348	$	7,251	$	(79,083)	$	559,516	$	596,925	$	4,709	$	(67,060)	$	534,574

Credit Quality Information

We monitor the credit quality of available for sale debt securities through credit ratings from various rating agencies and substantial price changes. In an effort to make informed decisions, we utilize credit ratings that express opinions about the credit quality of a security. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, significant pricing changes, or drops below ~~investment grade,~~investment-grade, or significant pricing changes. For securities without credit ratings, we utilize other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security.

As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, we carried no allowance on available for sale debt securities in accordance with ASC 326, Measurement of Credit Losses on Financial Instruments.

The amortized cost and estimated fair value of available for sale securities segregated by contractual maturity at ~~June 30, 2023~~March 31, 2024 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities and collateralized mortgage obligations are shown in total, as their maturities are highly variable.

Available for sale
(in thousands)

Amortized Cost

Fair Value
Within 1 year

$
3,195

$
3,112
Over 1 year to 5 years

36,271

33,518
Over 5 years to 10 years

54,326

52,686
Over 10 years

127,730

109,222
Total bonds and obligations

221,522

198,538
Mortgage-backed securities

388,539

339,640
Total securities available for sale

$
610,061

$
538,178

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	Available for sale
(in thousands)	Amortized Cost		Fair Value
Within 1 year	$	4,024	$	4,024
Over 1 year to 5 years		52,916		49,626
Over 5 years to 10 years		42,276		43,158
Over 10 years		126,657		109,757
Total bonds and obligations		225,873		206,565
Mortgage-backed securities and collateralized mortgage obligations		366,678		321,038
Total securities available for sale	$	592,551	$	527,603

The following table presents the realized gains and losses from the sale of AFS securities for the periods presented:


	Three Months Ended
	March 31,
(in thousands)	2024		2023
Gross gains on sales of available for sale securities	$	—	$	34
Gross losses on sales of available for sale securities		—		—
Net gains on sale of available for sale securities	$	—	$	34

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
March 31, 2024
Debt securities:
Obligations of US Government-sponsored enterprises	$	1	$	865	$	30	$	823	$	31	$	1,688
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises		50		3,071		32,761		182,199		32,811		185,270
US Government agency		62		6,901		11,362		66,391		11,424		73,292
Private label		1		23		1,505		57,494		1,506		57,517
Obligations of states and political subdivisions thereof		26		4,922		15,898		100,867		15,924		105,789
Corporate bonds		70		6,952		8,709		88,789		8,779		95,741
Total securities available for sale	$	210	$	22,734	$	70,265	$	496,563	$	70,475	$	519,297

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~~The following table presents the gains and losses from the sale of AFS securities for the periods presented:~~


	Less Than Twelve Months				Over Twelve Months				Total
	Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(in thousands)	Losses		Value		Losses		Value		Losses		Value
December 31, 2023
Debt securities:
Obligations of US Government-sponsored enterprises	$	1	$	1,084	$	28	$	907	$	29	$	1,991
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises		10		3,439		30,322		188,611		30,332		192,050
US Government agency		2		120		10,935		68,891		10,937		69,011
Private label		—		26		1,855		59,007		1,855		59,033
Obligations of states and political subdivisions thereof		26		3,099		14,178		101,036		14,204		104,135
Corporate bonds		156		4,913		9,547		84,950		9,703		89,863
Total securities available for sale	$	195	$	12,681	$	66,865	$	503,402	$	67,060	$	516,083

Three Months Ended

Six Months Ended

June 30,

June 30,

(in thousands)

2023

2022

2023

2022

Gross gains on sales of available for sale securities

$
—

$
—

$
34

$
9

Gross losses on sales of available for sale securities

—

—

—

—

Net gains on sale of available for sale securities

$
—

$
—

$
34

$
9

~~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
June 30, 2023












Mortgage-backed securities:












US Government-sponsored enterprises

$
1,766

$
33,148

$
32,315

$
169,804

$
34,081

$
202,952
US Government agency

1,100

20,772

10,902

54,776

12,002

75,548
Private label

—

26

2,846

58,807

2,846

58,833
Obligations of states and political subdivisions thereof

200

9,792

17,295

95,851

17,495

105,643
Corporate bonds

4,504

31,481

6,829

55,684

11,333

87,165
Total securities available for sale

$
7,570

$
95,219

$
70,187

$
434,922

$
77,757

$
530,141

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, 2022












Mortgage-backed securities:












US Government-sponsored enterprises

$
7,005

$
82,483

$
27,820

$
127,745

$
34,825

$
210,228
US Government agency

2,902

42,865

7,863

34,988

10,765

77,853
Private label

841

15,694

3,095

44,396

3,936

60,090
Obligations of states and political subdivisions thereof

7,990

48,799

13,361

55,702

21,351

104,501
Corporate bonds

4,733

65,279

3,473

25,027

8,206

90,306
Total securities available for sale

$
23,471

$
255,120

$
55,612

$
287,858

$
79,083

$
542,978

~~Table of Contents~~

We expect to recover the amortized cost basis on all securities in our AFS portfolio. Furthermore, we do not intend to sell nor do we anticipate that we will be required to sell any securities in an unrealized loss position as of ~~June 30, 2023,~~March 31, 2024, prior to this recovery. Our ability and intent to hold these securities until recovery is supported by our capital and liquidity positions as well as historically low portfolio turnover.

The following summarizes, by investment security type, the impact of securities in an unrealized loss position at ~~June 30, 2023:~~March 31, 2024:

Obligations of US Government-sponsored enterprises

8 out of the total 8 securities in our portfolio of AFS obligations of US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 1.77% of the amortized cost of securities in unrealized loss positions. The US Small Business Administration guarantees the contractual cash flows of all of our obligations of US Government-sponsored enterprises. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter.

US Government-sponsored enterprises

~~492~~466 out of the total ~~506~~493 securities in our ~~portfolios~~portfolio of AFS US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented ~~14.38%~~15.05% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association and Federal Home Loan Mortgage Corporation guarantee the contractual cash flows of all of our US Government-sponsored enterprises. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter.

US Government agency

~~148~~139 out of the total ~~158~~154 securities in our ~~portfolios~~portfolio of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented ~~13.71%~~13.49% of the amortized cost of securities in unrealized loss positions. The Government National Mortgage Association guarantees the contractual cash flows of all of our US Government agency securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter.

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Private label

2625 of the total 28 securities in our portfolio of AFS private label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented ~~4.61%~~2.55% of the amortized cost of securities in unrealized loss positions. We expect to receive all of the future contractual cash flows related to the amortized cost on these securities.

Obligations of states and political subdivisions thereof

6461 of the total 7169 securities in our portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented ~~14.91%~~13.69% of the amortized cost of securities in unrealized loss positions. We continually monitor the municipal bond sector of the market carefully and periodically evaluate the appropriate level of exposure to the market. At this time, we ~~think~~believe (i) the bonds in this portfolio carry minimal risk of default and (ii) we are appropriately compensated for the risk. There were no material underlying credit downgrades during the quarter.

Corporate bonds

3033 out of the total 3335 securities in our portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents ~~11.51%~~8.40% of the amortized cost of bonds in unrealized loss positions. We review the financial strength of all of these bonds, and we have concluded that the amortized cost remains supported by the expected future cash flows of these securities. The most recent review includes all bond issuers and their current credit ratings, financial performance and capitalization.

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NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

We evaluate risk characteristics of loans based on regulatory call report code with segmentation based on the underlying collateral for certain loan types. The following is a summary of total loans bybased on regulatory call report code segmentation ~~based on underlying collateral~~ for certain loan types:


	June 30,		December 31,		March 31,		December 31,
(in thousands)	2023		2022		2024		2023
Commercial construction	$	147,654	$	117,577	$	158,270	$	154,048
Commercial real estate owner occupied		288,351		244,814		323,581		310,015
Commercial real estate non-owner occupied		1,161,649		1,146,674		1,155,297		1,144,566
Tax exempt		46,472		42,879		39,261		43,688
Commercial and industrial		309,865		297,112		306,844		310,883
Residential real estate		957,312		954,968		933,911		940,334
Home equity		88,381		90,865		86,879		87,683
Consumer other		7,796		7,801		7,629		7,832
Total loans		3,007,480		2,902,690		3,011,672		2,999,049
Allowance for credit losses		27,362		25,860		28,355		28,142
Net loans	$	2,980,118	$	2,876,830	$	2,983,317	$	2,970,907

Total unamortized net costs and premiums included in loan totals were as follows:


	June 30,		December 31,		March 31,		December 31,
(in thousands)	2023		2022		2024		2023
Net unamortized loan origination costs	$	3,020	$	3,184	$	2,774	$	3,039
Net unamortized fair value discount on acquired loans		(3,183)		(3,506)		(2,781)		(2,891)
Total	$	(163)	$	(322)	$	(7)	$	148

We exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of ~~June 30, 2023~~

March 31, 2024 and December 31, ~~2022,~~2023, accrued interest receivable for loans totaled ~~$11.5~~$13.2 million and ~~$10.7~~$11.9 million, respectively, and is included in the “other assets” line item on the consolidated balance sheets.

Characteristics of each loan portfolio segment are as follows:

Commercial construction - Loans in this segment primarily include raw land, land development and construction of commercial and multifamily residential properties. Collateral values are determined based upon appraisals and evaluations of the completed structure in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy guidelines that are more restrictive than on stabilized commercial real estate transactions. Construction loans are primarily paid by the cash flow generated from the completed structure, such as operating leases, rents, or other operating cash flows from the borrower.

Commercial real estate owner occupied and non-owner occupied - Loans in these segments are primarily owner-occupied or income-producing properties. Loans to Real Estate Investment Trusts and unsecured loans to developers that closely correlate to the inherent risk in commercial real estate markets are also included. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

Tax Exempt - Loans in this segment primarily include loans to various state and municipal government entities. Loans made to these borrowers may provide us with tax-exempt income. While governed and underwritten similar to commercial loans they do have unique requirements based on established polices. Almost all state and municipal loans are considered a general obligation of the issuing entity. Given the size of many municipal borrowers, borrowings are normally not rated by major rating agencies.

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Table of Contents

Commercial and industrial loans - Loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment in this segment. Generally, loans are secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Some loans in this category may be unsecured or guaranteed by government agencies such as the ~~U.S.~~US Small Business Administration. Loans are primarily paid by the operating cash flow of the borrower.

Residential real estate - All loans in this segment are collateralized by one-to-four family homes. Residential real estate loans held in the loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to various underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Home equity - All loans and lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Consumer other - Loans in this segment include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto loans, recreational equipment, overdraft protection or other consumer loans. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines, as applicable.

Allowance for Credit Losses

The Allowance for Credit Losses (“ACL”) is comprised of the allowance for loan losses and the allowance for unfunded commitments which is accounted for as a separate liability in other liabilities on our consolidated balance sheet. The level of the ACL represents management’s estimate of expected credit losses over the expected life of the loans at the consolidated balance sheet date.

The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged off. The ACL is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans.

1617

Table of Contents

The activity in the ACL for the periods ended are as follows:

At or for the Three Months Ended June 30, 2023

Balance at

Beginning of

Balance at
(in thousands)

Period

Charge Offs

Recoveries

Provision

End of Period
Commercial construction

$
3,034

$
—

$
—

$
343

$
3,377
Commercial real estate owner occupied

2,348

—

139

79

2,566
Commercial real estate non-owner occupied

9,344

—

—

137

9,481
Tax exempt

93

—

—

8

101
Commercial and industrial

3,615

(121)

49

70

3,613
Residential real estate

7,305

(4)

7

68

7,376
Home equity

792

(12)

2

(14)

768
Consumer other

76

(62)

7

59

80
Total

$
26,607

$
(199)

$
204

$
750

$
27,362

At or for the Six Months Ended June 30, 2023

Balance at

Beginning of

Balance at
(in thousands)

Period

Charge Offs

Recoveries

Provision

End of Period
Commercial construction

$
2,579

$
—

$
—

$
798

$
3,377
Commercial real estate owner occupied

2,189

—

139

238

2,566
Commercial real estate non-owner occupied

9,341

—

—

140

9,481
Tax exempt

93

—

—

8

101
Commercial and industrial

3,493

(122)

55

187

3,613
Residential real estate

7,274

(8)

15

95

7,376
Home equity

811

(12)

4

(35)

768
Consumer other

80

(125)

8

117

80
Total

$
25,860

$
(267)

$
221

$
1,548

$
27,362


	At or for the Three Months Ended June 30, 2022										At or for the Three Months Ended March 31, 2024
	Balance at										Balance at
	Beginning of								Balance at		Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period		Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	1,001	$	—	$	—	$	9	$	1,010	$	4,261	$	—	$	—	$	(564)	$	3,697
Commercial real estate owner occupied		2,673		—		61		(12)		2,722		2,863		(3)		—		221		3,081
Commercial real estate non-owner occupied		7,007		—		—		354		7,361		9,443		—		—		(288)		9,155
Tax exempt		—		—		—		105		105		119		—		—		(6)		113
Commercial and industrial		4,739		—		12		69		4,820		3,259		(65)		1		639		3,834
Residential real estate		6,878		—		6		(78)		6,806		7,352		—		5		294		7,651
Home equity		827		(4)		15		27		865		767		—		3		(18)		752
Consumer other		65		(58)		—		60		67		78		(45)		28		11		72
Total	$	23,190	$	(62)	$	94	$	534	$	23,756	$	28,142	$	(113)	$	37	$	289	$	28,355


	At or for the Three Months Ended March 31, 2023
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	2,579	$	—	$	—	$	455	$	3,034
Commercial real estate owner occupied		2,189		—		—		159		2,348
Commercial real estate non-owner occupied		9,341		—		—		3		9,344
Tax exempt		93		—		—		—		93
Commercial and industrial		3,493		(1)		6		117		3,615
Residential real estate		7,274		(4)		8		27		7,305
Home equity		811		—		2		(21)		792
Consumer other		80		(63)		1		58		76
Total	$	25,860	$	(68)	$	17	$	798	$	26,607

~~Table of Contents~~

At or for the Six Months Ended June 30, 2022

Balance at

Beginning of

Balance at
(in thousands)

Period

Charge Offs

Recoveries

Provision

End of Period
Commercial construction

$
2,111

$
—

$
—

$
(1,101)

$
1,010
Commercial real estate owner occupied

2,751

—

113

(142)

2,722
Commercial real estate non-owner occupied

5,650

—

—

1,711

7,361
Tax exempt

86

—

—

19

105
Commercial and industrial

5,369

—

37

(586)

4,820
Residential real estate

5,862

(15)

98

861

6,806
Home equity

814

(6)

20

37

865
Consumer other

75

(124)

4

112

67
Total

$
22,718

$
(145)

$
272

$
911

$
23,756

Unfunded Commitments

The ACL on unfunded commitments is recognized as a liability (other liabilities on the consolidated balance sheet), with adjustments to the reserve recognized in other non-interest expense in the consolidated statement of operations. The activity in the ACL on unfunded commitments for the periods ended was as follows:

(in thousands)

Three Months Ended June 30, 2023

Six Months Ended June 30, 2023

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022
Beginning Balance

$
3,735

$
3,910

$
2,182

$
2,152
Provision for credit losses

45

(130)

341

371
Ending Balance

$
3,780

$
3,780

$
2,523

$
2,523


(in thousands)	Three Months Ended March 31, 2024		Three Months Ended March 31, 2023
Beginning Balance	$	3,825	$	3,910
Provision for credit losses		(186)		(175)
Ending Balance	$	3,639	$	3,639

Loan Origination/Risk Management: We have certain lending policies and procedures in place designed to maximize loan income within an acceptable level of risk. Our Board of Directors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the Board of Directors with frequent reports related to loan production, loan quality, and concentration of credit, loan delinquencies, non-performing loans and potential problem loans. We seek to diversify the loan portfolio as a means of managing risk associated with fluctuations in economic conditions.

Credit Quality Indicators: In monitoring the credit quality of the portfolio, management applies a credit quality indicator and uses an internal risk rating system to categorize commercial loans. These credit quality indicators range from one through nine, with a higher number correlating to increasing risk of loss. Consistent with regulatory guidelines, the

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Company provides for the classification of loans which are considered to be of lesser quality as special mention, substandard, doubtful, or loss (i.e. risk-rated 6, 7, 8 and 9, respectively).

The following are the definitions of our credit quality indicators:

Pass: Loans we consider in the commercial portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes there is a low risk of loss related to these loans considered pass-rated.

Special Mention: Loans considered having some potential weaknesses, but are deemed to not carry levels of risk inherent in one of the subsequent categories, are designated as special mention. A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. This might include loans which may require a higher level of supervision or internal reporting because of: (i) declining industry trends; (ii) increasing reliance on secondary sources of repayment; (iii) the poor condition of or lack of control over collateral; or (iv) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or marketconditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an

~~Table of Contents~~

adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose us to sufficient risks to warrant classification.

Substandard: Loans we consider as substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans have a well-defined weakness that jeopardizes liquidation of the debt. Substandard loans include those loans where there is the distinct possibility of some loss of principal, if the deficiencies are not corrected.

Doubtful: Loans we consider as doubtful have all of the weaknesses inherent in those loans that are classified as substandard. These loans have the added characteristic of a well-defined weakness which is inadequately protected by the current sound worth and paying capacity of borrower or of the collateral pledged, if any, and calls into question the collectability of the full balance of the loan. The possibility of loss is high but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the loan, its classification as loss is deferred until its more exact status is determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. The entire amount of the loan might not be classified as doubtful when collection of a specific portion appears highly probable. Loans are generally not classified doubtful for an extended period of time (i.e., over a year).

Loss: Loans we consider as losses are those considered uncollectible and of such little value that their continuance as an asset is not warranted and the uncollectible amounts are charged-off. This classification does not mean the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this worthless asset even though partial recovery may be effected in the future. Losses are taken in the period in which they are determined to be uncollectible.

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The following table presents our loans by year of origination, loan segmentation and risk indicator as of ~~June 30, 2023:~~March 31, 2024:



(in thousands)	2023		2022		2021		2020		2019		Prior		Total		2024		2023		2022		2021		2020		Prior		Total
Commercial construction
Risk rating:
Pass	$	2,109	$	102,477	$	36,746	$	5,382	$	—	$	940	$	147,654	$	1,219	$	23,199	$	107,106	$	20,918	$	4,415	$	1,413	$	158,270
Special mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	2,109	$	102,477	$	36,746	$	5,382	$	—	$	940	$	147,654	$	1,219	$	23,199	$	107,106	$	20,918	$	4,415	$	1,413	$	158,270
Current period gross write-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Commercial real estate owner occupied
Risk rating:
Pass	$	36,758	$	30,523	$	31,082	$	20,946	$	29,938	$	122,915	$	272,162	$	1,328	$	52,491	$	67,078	$	60,467	$	19,975	$	115,429	$	316,768
Special mention		—		—		7,485		1,672		653		2,153		11,963		—		152		—		—		1,565		3,382		5,099
Substandard		—		—		—		—		—		4,097		4,097		—		—		—		—		—		1,604		1,604
Doubtful		—		—		—		—		—		129		129		—		—		—		—		—		110		110
Total	$	36,758	$	30,523	$	38,567	$	22,618	$	30,591	$	129,294	$	288,351	$	1,328	$	52,643	$	67,078	$	60,467	$	21,540	$	120,525	$	323,581
Current period gross write-offs		—		—		—		—		—		—		—		—		—		—		—		—		3		3

Commercial real estate non-owner occupied
Risk rating:
Pass	$	26,282	$	354,472	$	227,982	$	139,508	$	73,747	$	252,023	$	1,074,014	$	10,379	$	41,205	$	342,797	$	198,618	$	135,808	$	321,447	$	1,050,254
Special mention		—		—		13,605		28,213		14,881		16,208		72,907		—		7,782		9,363		21,525		27,946		20,597		87,213
Substandard		—		—		—		—		102		14,490		14,592		—		—		—		—		—		17,830		17,830
Doubtful		—		—		—		—		—		136		136		—		—		—		—		—		—		—
Total	$	26,282	$	354,472	$	241,587	$	167,721	$	88,730	$	282,857	$	1,161,649	$	10,379	$	48,987	$	352,160	$	220,143	$	163,754	$	359,874	$	1,155,297
Current period gross write-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Tax exempt
Risk rating:
Pass	$	2,676	$	11,949	$	922	$	243	$	698	$	29,984	$	46,472	$	501	$	2,832	$	8,468	$	724	$	208	$	26,528	$	39,261
Special mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	2,676	$	11,949	$	922	$	243	$	698	$	29,984	$	46,472	$	501	$	2,832	$	8,468	$	724	$	208	$	26,528	$	39,261
Current period gross write-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Commercial and industrial
Risk rating:
Pass	$	43,961	$	87,084	$	25,591	$	40,800	$	19,721	$	85,061	$	302,218	$	25,552	$	79,412	$	62,520	$	18,175	$	33,714	$	79,651	$	299,024
Special mention		44		1,354		—		10		863		3,902		6,173		—		306		1,419		124		704		3,442		5,995
Substandard		52		102		195		119		365		641		1,474		—		155		201		123		124		1,001		1,604
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		221		221
Total	$	44,057	$	88,540	$	25,786	$	40,929	$	20,949	$	89,604	$	309,865	$	25,552	$	79,873	$	64,140	$	18,422	$	34,542	$	84,315	$	306,844
Current period gross write-offs		—		—		—		—		5		117		122		—		—		—		62		3		—		65


Residential real estate
Performing	$	7,076	$	76,695	$	186,939	$	162,848	$	94,344	$	401,684	$	929,586
Nonperforming		—		—		403		662		—		3,260		4,325
Total	$	7,076	$	76,695	$	187,342	$	163,510	$	94,344	$	404,944	$	933,911
Current period gross write-offs		—		—		—		—		—		—		—

Home equity
Performing	$	2,620	$	15,816	$	15,200	$	7,107	$	6,138	$	39,038	$	85,919
Nonperforming		—		—		—		57		—		903		960
Total	$	2,620	$	15,816	$	15,200	$	7,164	$	6,138	$	39,941	$	86,879
Current period gross write-offs		—		—		—		—		—		—		—

Consumer other
Performing	$	1,913	$	2,618	$	1,476	$	572	$	212	$	827	$	7,618
Nonperforming		—		—		—		6		5		—		11
Total	$	1,913	$	2,618	$	1,476	$	578	$	217	$	827	$	7,629
Current period gross write-offs		—		4		1		—		—		40		45

Total Loans	$	50,588	$	302,663	$	802,970	$	491,926	$	325,158	$	1,038,367	$	3,011,672

Table of Contents

(in thousands)

2023

2022

2021

2020

2019

Prior

Total
Residential real estate














Performing

$
42,042

$
197,429

$
173,301

$
102,057

$
66,109

$
372,770

$
953,708
Nonperforming

—

—

42

—

47

3,515

3,604
Total

$
42,042

$
197,429

$
173,343

$
102,057

$
66,156

$
376,285

$
957,312
Current period gross write-offs

—

—

—

—

—

8

8

Home equity














Performing

$
7,456

$
16,743

$
9,297

$
6,910

$
5,141

$
42,277

$
87,824
Nonperforming

—

—

—

—

—

557

557
Total

$
7,456

$
16,743

$
9,297

$
6,910

$
5,141

$
42,834

$
88,381
Current period gross write-offs

—

—

—

—

—

12

12

Consumer other














Performing

$
2,796

$
2,349

$
982

$
606

$
116

$
939

$
7,788
Nonperforming

—

—

5

3

—

—

8
Total

$
2,796

$
2,349

$
987

$
609

$
116

$
939

$
7,796
Current period gross write-offs

—

52

8

2

—

$
63

125

Total Loans

$
164,165

$
804,482

$
527,235

$
346,469

$
212,381

$
952,748

$
3,007,480

The following table presents our loans by year of origination, loan segmentation and risk indicator as of December 31, ~~2022:~~2023:



(in thousands)	2022		2021		2020		2019		2018		Prior		Total		2023		2022		2021		2020		2019		Prior		Total
Commercial construction
Risk rating:
Pass	$	49,722	$	38,837	$	2,865	$	1,011	$	964	$	—	$	93,399	$	14,040	$	99,115	$	35,978	$	3,992	$	—	$	923	$	154,048
Special mention		—		—		24,178		—		—		—		24,178		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	49,722	$	38,837	$	27,043	$	1,011	$	964	$	—	$	117,577	$	14,040	$	99,115	$	35,978	$	3,992	$	—	$	923	$	154,048
Current period gross write-offs																—		—		—		—		—		—		—

Commercial real estate owner occupied
Risk rating:
Pass	$	22,371	$	11,290	$	23,014	$	31,352	$	46,398	$	103,295	$	237,720	$	57,603	$	61,015	$	43,228	$	20,209	$	20,462	$	91,187	$	293,704
Special mention		—		—		243		666		173		1,870		2,952		160		387		7,488		1,596		—		3,066		12,697
Substandard		—		—		—		—		77		3,924		4,001		—		—		—		—		—		3,497		3,497
Doubtful		—		—		—		—		—		141		141		—		—		—		—		—		117		117
Total	$	22,371	$	11,290	$	23,257	$	32,018	$	46,648	$	109,230	$	244,814	$	57,763	$	61,402	$	50,716	$	21,805	$	20,462	$	97,867	$	310,015
Current period gross write-offs																—		—		—		—		—		—		—

Commercial real estate non-owner occupied
Risk rating:
Pass	$	370,856	$	228,414	$	145,096	$	88,111	$	35,213	$	238,395	$	1,106,085	$	41,270	$	353,613	$	199,311	$	127,231	$	78,759	$	238,973	$	1,039,157
Special mention		—		21,390		—		127		911		16,612		39,040		7,809		—		14,134		37,249		15,246		17,108		91,546
Substandard		—		—		—		—		—		1,404		1,404		—		—		—		—		—		13,863		13,863
Doubtful		—		—		—		—		—		145		145		—		—		—		—		—		—		—
Total	$	370,856	$	249,804	$	145,096	$	88,238	$	36,124	$	256,556	$	1,146,674	$	49,079	$	353,613	$	213,445	$	164,480	$	94,005	$	269,944	$	1,144,566
Current period gross write-offs																—		—		—		—		—		—		—

Tax exempt
Risk rating:
Pass	$	8,686	$	1,020	$	252	$	772	$	13,231	$	18,918	$	42,879	$	6,340	$	8,468	$	787	$	208	$	590	$	27,295	$	43,688
Special mention		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Total	$	8,686	$	1,020	$	252	$	772	$	13,231	$	18,918	$	42,879	$	6,340	$	8,468	$	787	$	208	$	590	$	27,295	$	43,688
Current period gross write-offs																—		—		—		—		—		—		—

Commercial and industrial
Risk rating:
Pass	$	83,151	$	26,948	$	62,835	$	27,491	$	9,511	$	81,316	$	291,252	$	80,942	$	69,402	$	22,205	$	38,824	$	14,739	$	77,273	$	303,385
Special mention		1,450		—		53		803		201		619		3,126		364		1,446		—		776		28		3,588		6,202
Substandard		—		113		111		65		299		2,106		2,694		58		94		186		109		95		532		1,074
Doubtful		—		—		—		—		—		40		40		—		—		—		—		87		135		222
Total	$	84,601	$	27,061	$	62,999	$	28,359	$	10,011	$	84,081	$	297,112	$	81,364	$	70,942	$	22,391	$	39,709	$	14,949	$	81,528	$	310,883

Current period gross write-offs																—		—		—		—		5		659		664


Performing	$	72,395	$	194,109	$	165,434	$	96,016	$	62,648	$	345,823	$	936,425
Nonperforming		—		—		41		—		234		3,634		3,909
Total	$	72,395	$	194,109	$	165,475	$	96,016	$	62,882	$	349,457	$	940,334
Current period gross write-offs		—		—		—		—		—		8		8

Home equity
Performing	$	15,582	$	15,334	$	7,873	$	6,633	$	4,800	$	36,652	$	86,874
Nonperforming		—		—		—		—		—		809		809
Total	$	15,582	$	15,334	$	7,873	$	6,633	$	4,800	$	37,461	$	87,683
Current period gross write-offs		—		—		—		—		—		12		12

Consumer other
Performing	$	4,128	$	1,787	$	696	$	301	$	51	$	864	$	7,827
Nonperforming		—		—		4		1		—		—		5
Total	$	4,128	$	1,787	$	700	$	302	$	51	$	864	$	7,832
Current period gross write-offs		—		52		18		5		—		214		289

Total Loans	$	300,691	$	804,770	$	497,365	$	333,145	$	197,739	$	865,339	$	2,999,049

Table of Contents

(in thousands)

2022

2021

2020

2019

2018

Prior

Total
Residential real estate














Performing

$
195,320

$
177,480

$
111,021

$
69,170

$
47,797

$
349,795

$
950,583
Nonperforming

—

45

—

49

641

3,650

4,385
Total

$
195,320

$
177,525

$
111,021

$
69,219

$
48,438

$
353,445

$
954,968

Home equity














Performing

$
17,107

$
10,638

$
8,139

$
6,830

$
6,997

$
40,191

$
89,902
Nonperforming

—

—

—

—

—

963

963
Total

$
17,107

$
10,638

$
8,139

$
6,830

$
6,997

$
41,154

$
90,865

Consumer other














Performing

$
4,321

$
1,341

$
863

$
265

$
64

$
942

$
7,796
Nonperforming

—

—

5

—

—

—

5
Total

$
4,321

$
1,341

$
868

$
265

$
64

$
942

$
7,801

Total Loans

$
752,984

$
517,516

$
378,675

$
226,712

$
162,477

$
864,326

$
2,902,690

Past Dues

The following is a summary of past due loans for the periods ended:


	June 30, 2023												March 31, 2024
(in thousands)	30-59		60-89		90+		Total Past Due		Current		Total Loans		30-59		60-89		90+		Total Past Due		Current		Total Loans
Commercial construction	$	—	$	399	$	—	$	399	$	147,255	$	147,654	$	—	$	—	$	—	$	—	$	158,270	$	158,270
Commercial real estate owner occupied		59		—		—		59		288,292		288,351		262		359		—		621		322,960		323,581
Commercial real estate non-owner occupied		249		—		127		376		1,161,273		1,161,649		217		—		94		311		1,154,986		1,155,297
Tax exempt		—		—		—		—		46,472		46,472		—		—		—		—		39,261		39,261
Commercial and industrial		420		—		303		723		309,142		309,865		527		183		1,010		1,720		305,124		306,844
Residential real estate		265		996		2,268		3,529		953,783		957,312		1,138		1,112		787		3,037		930,874		933,911
Home equity		104		165		372		641		87,740		88,381		187		150		348		685		86,194		86,879
Consumer other		32		17		—		49		7,747		7,796		66		8		7		81		7,548		7,629
Total	$	1,129	$	1,577	$	3,070	$	5,776	$	3,001,704	$	3,007,480	$	2,397	$	1,812	$	2,246	$	6,455	$	3,005,217	$	3,011,672


	December 31, 2022												December 31, 2023
(in thousands)	30-59		60-89		90+		Total Past Due		Current		Total Loans		30-59		60-89		90+		Total Past Due		Current		Total Loans
Commercial construction	$	—	$	—	$	—	$	—	$	117,577	$	117,577	$	—	$	—	$	—	$	—	$	154,048	$	154,048
Commercial real estate owner occupied		385		—		—		385		244,429		244,814		—		—		—		—		310,015		310,015
Commercial real estate non-owner occupied		45		145		139		329		1,146,345		1,146,674		—		—		103		103		1,144,463		1,144,566
Tax exempt		—		—		—		—		42,879		42,879		—		—		—		—		43,688		43,688
Commercial and industrial		169		—		9		178		296,934		297,112		465		59		330		854		310,029		310,883
Residential real estate		803		348		2,029		3,180		951,788		954,968		1,520		627		1,999		4,146		936,188		940,334
Home equity		216		160		246		622		90,243		90,865		600		—		337		937		86,746		87,683
Consumer other		41		8		—		49		7,752		7,801		10		2		—		12		7,820		7,832
Total	$	1,659	$	661	$	2,423	$	4,743	$	2,897,947	$	2,902,690	$	2,595	$	688	$	2,769	$	6,052	$	2,992,997	$	2,999,049

Non-Accrual Loans

The following is a summary of non-accrual loans for the periods ended:


	March 31, 2024
			Nonaccrual With No		90+ Days Past
(in thousands)	Nonaccrual		Related Allowance		Due and Accruing
Commercial construction	$	—	$	—	$	—
Commercial real estate owner occupied		95		—		—
Commercial real estate non-owner occupied		327		201		—
Tax exempt		—		—		—
Commercial and industrial		1,152		516		—
Residential real estate		4,325		726		—
Home equity		960		1		—
Consumer other		11		1		—
Total	$	6,870	$	1,445	$	—

Table of Contents

~~Non-Accrual Loans~~

~~The following is a summary of non-accrual loans for the periods ended:~~

June 30, 2023

Nonaccrual With No

90+ Days Past
(in thousands)

Nonaccrual

Related Allowance

Due and Accruing
Commercial construction

$
—

$
—

$
—
Commercial real estate owner occupied

117

51

—
Commercial real estate non-owner occupied

603

385

—
Tax exempt

—

—

—
Commercial and industrial

1,814

270

—
Residential real estate

3,604

1,253

386
Home equity

557

1

182
Consumer other

8

—

—
Total

$
6,703

$
1,960

$
568

December 31, 2022

Nonaccrual With No

90+ Days Past
(in thousands)

Nonaccrual

Related Allowance

Due and Accruing
Commercial construction

$
—

$
—

$
—
Commercial real estate owner occupied

439

360

—
Commercial real estate non-owner occupied

550

411

—
Tax exempt

—

—

—
Commercial and industrial

207

145

—
Residential real estate

4,385

1,361

202
Home equity

963

57

14
Consumer other

5

—

—
Total

$
6,549

$
2,334

$
216


	December 31, 2023
			Nonaccrual With No		90+ Days Past
(in thousands)	Nonaccrual		Related Allowance		Due and Accruing
Commercial construction	$	—	$	—	$	—
Commercial real estate owner occupied		103		44		—
Commercial real estate non-owner occupied		340		224		—
Tax exempt		—		—		—
Commercial and industrial		363		6		—
Residential real estate		3,908		1,131		118
Home equity		809		1		22
Consumer other		5		—		—
Total	$	5,528	$	1,406	$	140

Collateral Dependent Loans

Loans that do not share risk characteristics are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where we have determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and we expect repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.

The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment for the periods ~~ended.~~ended:


	June 30, 2023				December 31, 2022				March 31, 2024				December 31, 2023
(in thousands)	Real Estate		Other		Real Estate		Other		Real Estate		Other		Real Estate		Other
Commercial construction	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate owner occupied		117		—		439		—		95		—		104		—
Commercial real estate non-owner occupied		603		—		550		—		327		—		340		—
Tax exempt		—		—		—		—		—		—		—		—
Commercial and industrial		385		1,429		91		116		1,019		133		229		134
Residential real estate		3,604		—		4,385		—		4,325		—		3,908		—
Home equity		557		—		963		—		960		—		808		—
Consumer other		8		—		5		—		11		—		5		—
Total	$	5,274	$	1,429	$	6,433	$	116	$	6,737	$	133	$	5,394	$	134

Table of Contents

Loan Modifications to Borrowers Experiencing Financial Difficulty

In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” which eliminated the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, we are no longer required to establish a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective category and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the ACL.

These modifications typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. ~~There were no qualifying modifications for the three and six months ended June 30, 2022.~~

The following table presents the amortized cost basis of loans that were both experiencing financial difficulty and modified during the three ~~and six~~ months ended ~~June 30, 2023,~~March 31, 2024, by class and by type of modification.


(in thousands)	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Combination Interest Rate Reduction and Term Extension		% of Total Class of Loans		Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Combination Interest Rate Reduction and Term Extension		% of Total Class of Loans
Three Months Ended June 30, 2023
Three Months Ended March 31, 2024
Commercial construction	$	—	$	—	$	—	$	—	$	—	—	%	$	—	$	—	$	—	$	—	$	—	—	%
Commercial real estate owner occupied		—		—		—		—		—	—			—		—		—		—		—	—
Commercial real estate non-owner occupied		—		—		—		—		—	—			—		—		—		—		—	—
Tax exempt		—		—		—		—		—	—			—		—		—		—		—	—
Commercial and industrial		—		—		1,419		—		18	0.46			—		—		—		—		—	—
Residential real estate		—		—		—		101		—	0.01			—		—		33		—		—	0.00
Home equity		—		—		—		—		—	—			—		—		—		—		—	—
Consumer other		—		—		—		—		—	—			—		—		—		—		—	—
Total	$	—	$	—	$	1,419	$	101	$	18	0.05	%	$	—	$	—	$	33	$	—	$	—	0.00	%

Six Months Ended June 30, 2023
Commercial construction	$	—	$	—	$	—	$	—	$	—	—	%
Commercial real estate owner occupied		—		—		—		—		—	—
Commercial real estate non-owner occupied		—		—		—		—		—	—
Tax exempt		—		—		—		—		—	—
Commercial and industrial		—		—		1,419		—		18	0.46
Residential real estate		—		—		—		101		—	0.01
Home equity		—		—		—		—		—	—
Consumer other		—		—		—		—		—	—
Total	$	—	$	—	$	1,419	$	101	$	18	0.05	%

~~Table of Contents~~

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three ~~and six~~ months ended ~~June 30,~~March 31, 2024.


(in thousands)	Weighted-Average Months of Payment Delay		Weighted-Average Months of Term Extension		Weighted-Average Interest Rate Reduction
Three Months Ended March 31, 2024
Commercial construction		—		—	—	%
Commercial real estate owner occupied		—		—	—
Commercial real estate non-owner occupied		—		—	—
Tax exempt		—		—	—
Commercial and industrial		—		—	—
Residential real estate		—		64	—
Home equity		—		—	—
Consumer other		—		—	—
Total		—		64	—	%

There were no qualifying modifications for the three months ended March 31, 2023.

(in thousands)

Weighted-Average Months of Term Extension

Weighted-Average Interest Rate Reduction
Three Months Ended June 30, 2023

Commercial construction

—

—
%
Commercial real estate owner occupied

—

—

Commercial real estate non-owner occupied

—

—

Tax exempt

—

—

Commercial and industrial

3.82

3.75

Residential real estate

—

1.38

Home equity

—

—

Consumer other

—

—

Total

3.82

5.13
%

Six Months Ended June 30, 2023

Commercial construction

—

—
%
Commercial real estate owner occupied

—

—

Commercial real estate non-owner occupied

—

—

Tax exempt

—

—

Commercial and industrial

3.82

3.75

Residential real estate

—

1.38

Home equity

—

—

Consumer other

—

—

Total

3.82

5.13
%

Table of Contents

Foreclosure

There were no residential mortgage loans collateralized by real estate that are in the process of foreclosure as of March 31, 2024. Residential mortgage loans collateralized by real estate that are in the process of foreclosure as of ~~June 30, 2023 and~~ December 31, ~~2022~~2023 totaled ~~$808 thousand and $253 thousand, respectively.~~$430 thousand.

Mortgage Banking

Loans held for sale at ~~June 30, 2023~~March 31, 2024 had an unpaid principal balance of ~~$3.7~~$3.1 million and ~~there were no loans held for sale~~$2.2 million as of December 31, ~~2022.~~2023. The interest rate exposure on loans held for sale is mitigated through forward sale commitments with certain approved secondary market investors. Forward sale commitments had a notional amount of ~~$11.5~~$6.0 million at ~~June 30, 2023,~~March 31, 2024, and ~~we had no open forward sale commitments~~$5.0 million at December 31, ~~2022.~~2023.

For the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ we sold ~~$5.4~~$8.4 million and ~~$11.1 million,~~$691 thousand, respectively, of residential mortgage loans on the secondary market, which resulted in a net ~~gain~~loss on sale of loans (net of costs, including direct and indirect origination costs) of ~~$16~~$31 thousand and $150 thousand, respectively. For the six months ended June 30, 2023 and 2022, we sold $6.1 million and $31.9 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~~ $8 ~~thousand and $333~~ thousand, respectively.

We sell residential loans on the secondary market while primarily retaining the servicing of these loans. Servicing sold loans helps to maintain customer relationships and earn fees over the servicing period. Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to level of prepayments that result from shifts in interest rates. We obtain third-party valuations of our servicing assets portfolio quarterly, and the assumptions are reflected in Fair Value disclosures.

~~Table of Contents~~

NOTE 4. BORROWED FUNDS

Borrowed funds at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 are summarized, as follows:


	June 30, 2023				December 31, 2022				March 31, 2024				December 31, 2023
			Weighted				Weighted				Weighted				Weighted
(dollars in thousands)	Carrying Value		Average Rate		Carrying Value		Average Rate		Carrying Value		Average Rate		Carrying Value		Average Rate
Short-term borrowings
Advances from the FHLB	$	384,500	5.32	%	$	318,000	3.84	%	$	196,000	5.44	%	$	232,300	5.46	%
Advances from the FRB BTFP										65,000	4.79			30,000	4.90
Other borrowings		11,889	0.10			13,369	0.13			8,161	0.14			8,465	0.13
Total short-term borrowings		396,389	3.40			331,369	2.20			269,161	3.00			270,765	2.88
Long-term borrowings
Advances from the FHLB		2,583	0.48			2,588	0.48			276	4.42			279	4.39
Subordinated borrowings		60,371	6.04			60,289	4.95			60,501	6.24			60,461	6.22
Total long-term borrowings		62,954	5.81			62,877	4.76			60,777	6.23			60,740	6.21
Total	$	459,343	3.63	%	$	394,246	2.45	%	$	329,938	3.34	%	$	331,505	3.24	%

Short-term debt includes Federal Home Loan Bank of Boston (“FHLB”) advances with a remaining maturity of less than one year. We also maintain a $1.0 million secured line of credit with the FHLB that bears a daily adjustable rate calculated by the FHLB. There was no outstanding balance on the FHLB line of credit for the periods ended ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. There are no variable rate short-term FHLB borrowings.

We have the capacity to borrow funds on a secured basis utilizing the Bank Term Funding Program (the “BTFP”), the Borrower in Custody program, and the Discount Window at the Federal Reserve Bank of Boston (the “FRB”). At ~~June 30, 2023,~~March 31, 2024, our available secured line of credit at the FRB was ~~$162.9 million.~~$155.9 million versus $156.6 million at December 31, 2023. We have pledged certain loans and securities to the FRB to support this arrangement. ~~There were no borrowings~~The BTFP enables depository institutions to pledge eligible investment securities to the Federal Reserve with borrowing capacity based upon the ~~FRB~~par value of the collateral.

As of March 31, 2024, we maintained a BTFP balance of $65 million at a fixed rate of 4.76% with a maturity date of January 16, 2025. During the first quarter 2024, we prepaid our existing advance of $30 million at a rate of 4.85%, and entered into a new advance for $65 million at a rate of 4.76%. The BTFP was an additional source of liquidity with

Table of Contents

favorable prepayment terms, as we may prepay at any time without penalty. As announced by the ~~periods ended June 30, 2023 and December 31, 2022.~~Federal Reserve Board on January 24, 2024, the BTFP has ceased making new loans effective March 11, 2024.

We maintain ~~with a correspondent bank,~~ an unused unsecured federal funds line of credit with a correspondent bank that has an aggregate overnight borrowing capacity of $50.0 million as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. There was no outstanding balance on the line of credit as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

Long-term FHLB advances consist of advances with a remaining maturity of more than one year. The advances outstanding at ~~June 30, 2023~~March 31, 2024 include no callable advances and amortizing advances of ~~$283~~$276 thousand. There were no callable advances outstanding and ~~$288~~$279 thousand of amortizing advances at December 31, ~~2022.~~2023. All FHLB 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. There are no variable rate long-term FHLB borrowings.

A summary of maturities of FHLB advances as of ~~June 30, 2023~~March 31, 2024 is, as follows:


			Weighted Average				Weighted Average
(in thousands, except rates)	Amount		Rate		Amount		Rate
2023	$	384,500	5.32	%
2024		2,300	—		$	196,000	5.44	%
2025		—	—
2026		—	—
2027		—	—
Thereafter		283	4.34			276	4.42
Total FHLB advances	$	387,083	5.28	%	$	196,276	5.44	%

~~On November 26, 2019, we entered into~~We executed a Subordinated Note Purchase ~~Agreements~~Agreement with ~~certain qualified institutional buyers and accredited investors pursuant to which we sold and issued~~an aggregate of $40.0 million ~~in aggregate principal amount~~ of subordinated notes ~~due 2029~~ (the “Notes”). to accredited investors on November 19, 2019. The Notes have a maturity date of December 1, 2029 and bear a fixed interest rate of 4.63% through December 1, 2024 payable semi-annually in arrears. From December 1, 2024 and thereafter the

~~Table of Contents~~

interest rate shall be reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate ~~(SOFR)~~(“SOFR”) plus 3.27%. We have the option beginning with the interest payment date of December 1, 2024, and on any scheduled payment date thereafter, to redeem the Notes, in whole or in part upon prior approval of the Federal Reserve. The transaction included debt issuance costs of ~~$249~~$119 thousand as of ~~June 30, 2023~~March 31, 2024 and ~~$331~~$158 thousand net of amortization as of December 31, ~~2022, that~~2023, which are netted against the subordinated debt.

We also have $20.6 million in floating Junior Subordinated Deferrable Interest Debentures (“Debentures”) issued by NHTB Capital Trust II (“Trust II”) and NHTB Capital Trust III (“Trust III”), which are both Connecticut statutory trusts. The Debentures ~~were~~ issued on March 30, 2004 carry a variable interest rate of three-month ~~LIBOR~~SOFR plus 2.79%, and mature in 2034. The debt is callable by usthe Company at the time when any interest payment is made. Trust II and Trust III are considered variable interest entities for which we are not the primary beneficiary. Accordingly, Trust II and Trust III are not consolidated into our financial statements.

Repurchase Agreements

We can raise additional liquidity by entering into repurchase agreements at our discretion. In a security repurchase agreement transaction, we will generally sell a security, agreeing to repurchase either the same or substantially identical security on a specified later date, at a greater price than the original sales price. The difference between the sale price and purchase price is the cost of the proceeds, which is recorded as interest expense on the consolidated statements of income. The securities underlying the agreements are delivered to counterparties as security for the repurchase obligations. Since the securities are treated as collateral and the agreement does not qualify for a full transfer of effective control, the transactions do not meet the criteria to be classified as sales, and are therefore considered secured borrowing transactions for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement, we are subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, we either deal with established firms when entering into these transactions or with customers whose agreements stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by our safekeeping agents.

(in thousands)

June 30, 2023

December 31, 2022
Customer Repurchase Agreements

US Government-sponsored enterprises

$
11,889

$
13,369
Total

$
11,889

$
13,369


(in thousands)	March 31, 2024		December 31, 2023
Customer Repurchase Agreements
US Government-sponsored enterprises	$	8,161	$	8,465
Total	$	8,161	$	8,465

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NOTE 5. DEPOSITS

A summary of time deposits is, as follows:


(in thousands)	June 30, 2023		December 31, 2022		March 31, 2024		December 31, 2023
Time less than $100,000	$	354,323	$	157,263	$	445,450	$	381,902
Time $100,000 through $250,000		146,414		118,655		173,118		163,933
Time $250,000 or more		134,822		47,521		158,640		154,425
Total	$	635,559	$	323,439	$	777,208	$	700,260

At ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the scheduled maturities by year for time deposits are, as follows:


(in thousands)	June 30, 2023		December 31, 2022		March 31, 2024		December 31, 2023
Within 1 year	$	515,745	$	262,338	$	750,747	$	670,961
Over 1 year to 2 years		103,284		37,937		15,827		17,000
Over 2 years to 3 years		9,046		12,936		5,830		6,932
Over 3 years to 4 years		3,872		5,410		3,377		3,434
Over 4 years to 5 years		3,399		4,319		1,299		1,795
Over 5 years		213		499		128		138
Total	$	635,559	$	323,439	$	777,208	$	700,260

Included in time deposits are brokered deposits of ~~$202.6~~$275.0 million and ~~$15.1~~$219.6 million at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Also included in time deposits are reciprocal deposits of ~~$36.5~~$49.3 million and ~~$27.4~~$43.3 million at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

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NOTE 6. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios are, as follows:


	June 30, 2023								March 31, 2024
					Minimum Regulatory								Minimum Regulatory
	Actual				Capital Requirements				Actual				Capital Requirements
(in thousands, except ratios)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Company (consolidated)
Total capital to risk-weighted assets	$	435,229	13.62	%	$	257,458	8.00	%	$	456,781	14.36	%	$	254,393	8.00	%
Common equity tier 1 capital to risk-weighted assets		343,470	10.67			144,819	4.50			364,168	11.45			143,097	4.50
Tier 1 capital to risk-weighted assets		364,090	11.31			193,093	6.00			384,788	12.10			190,795	6.00
Tier 1 capital to average assets (leverage ratio)		364,090	9.40			154,881	4.00			384,788	9.92			155,105	4.00

Bank
Total capital to risk-weighted assets	$	427,327	13.29	%	$	257,232	8.00	%	$	447,860	14.10	%	$	254,134	8.00	%
Common equity tier 1 capital to risk-weighted assets		396,188	12.33			144,594	4.50			415,867	13.09			142,950	4.50
Tier 1 capital to risk-weighted assets		396,188	12.33			192,792	6.00			415,867	13.09			190,600	6.00
Tier 1 capital to average assets (leverage ratio)		396,188	10.24			154,761	4.00			415,867	10.73			154,978	4.00


	December 31, 2022								December 31, 2023
					Minimum Regulatory								Minimum Regulatory
	Actual				Capital Requirements				Actual				Capital Requirements
(in thousands, except ratios)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Company (consolidated)
Total capital to risk-weighted assets	$	416,900	13.50	%	$	247,041	8.00	%	$	450,160	14.24	%	$	252,888	8.00	%
Common equity tier 1 capital to risk-weighted assets		326,513	10.57			138,960	4.50			357,574	11.31			142,249	4.50
Tier 1 capital to risk-weighted assets		347,133	11.24			185,281	6.00			378,194	11.96			189,666	6.00
Tier 1 capital to average assets (leverage ratio)		347,133	9.21			150,772	4.00			378,194	9.70			156,022	4.00

Bank
Total capital to risk-weighted assets	$	410,053	13.29	%	$	246,812	8.00	%	$	441,278	13.97	%	$	252,642	8.00	%
Common equity tier 1 capital to risk-weighted assets		380,286	12.33			138,832	4.50			409,312	12.96			142,111	4.50
Tier 1 capital to risk-weighted assets		380,286	12.33			185,110	6.00			409,312	12.96			189,482	6.00
Tier 1 capital to average assets (leverage ratio)		380,286	10.10			150,655	4.00			409,312	10.50			155,908	4.00

In order to be classified as “well-capitalized” under the relevant regulatory framework, (i) the Company must, on a consolidated basis, maintain a total risk-based capital ratio of 10.00% or greater and a Tier 1 risk-based capital ratio of 6.00% or greater; and (ii) the Bank must maintain a total risk-based capital ratio of 10.00% or greater, a Tier 1 risk-based capital ratio of 8.00% or greater, a common equity Tier 1 capital ratio of 6.50% or greater, and a leverage ratio of 5.00% or greater. At each date shown in the tables above, the Company and the Bank met the conditions to be classified as “well-capitalized” under the relevant regulatory framework.

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Accumulated other comprehensive (loss) income

Components of accumulated other comprehensive loss is, as follows:


(in thousands)	June 30, 2023		December 31, 2022		March 31, 2024		December 31, 2023
Accumulated other comprehensive income, before tax:
Accumulated other comprehensive loss, before tax:
Net unrealized loss on AFS securities	$	(71,883)	$	(71,832)	$	(64,948)	$	(62,351)
Net unrealized loss on hedging derivatives		(1,245)		(2,333)		(2,259)		(1,322)
Net unrealized loss on post-retirement plans		(1,675)		(1,691)		(1,518)		(1,540)

Income taxes related to items of accumulated other comprehensive income:
Income taxes related to items of accumulated other comprehensive loss:
Net unrealized loss on AFS securities		16,576		16,586		15,315		14,702
Net unrealized loss on hedging derivatives		288		539		533		312
Net unrealized loss on post-retirement plans		375		391		309		337
Accumulated other comprehensive loss	$	(57,564)	$	(58,340)	$	(52,568)	$	(49,862)

The following table presents the components of other comprehensive income (loss) for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~2022:~~2023:

(in thousands)

Before Tax

Tax Effect

Net of Tax
Three Months Ended June 30, 2023






Net unrealized loss on AFS securities:






Net unrealized loss arising during the period

$
(6,057)

$
1,396

$
(4,661)
Less: reclassification adjustment for gains (losses) realized in net income

—

—

—
Net unrealized loss on AFS securities

(6,057)

1,396

(4,661)

Net unrealized gain on hedging derivatives:





Net unrealized gain arising during the period

321

(73)

248
Less: reclassification adjustment for gains (losses) realized in net income

—

—

—
Net unrealized gain on cash flow hedging derivatives

321

(73)

248

Other comprehensive (loss) income

$
(5,736)

$
1,323

$
(4,413)

Three Months Ended June 30, 2022






Net unrealized loss on AFS securities:






Net unrealized loss arising during the period

$
(23,409)

$
5,330

$
(18,079)
Less: reclassification adjustment for gains (losses) realized in net income

—

—

—
Net unrealized loss on AFS securities

(23,409)

5,330

(18,079)

Net unrealized loss on hedging derivatives:





Net unrealized loss arising during the period

(1,997)

460

(1,537)
Less: reclassification adjustment for gains (losses) realized in net income

—

—

—
Net unrealized loss on cash flow hedging derivatives

(1,997)

460

(1,537)

Other comprehensive (loss) income

$
(25,406)

$
5,790

$
(19,616)


(in thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended March 31, 2024
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period	$	(2,597)	$	613	$	(1,984)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on AFS securities		(2,597)		613		(1,984)

Net unrealized loss on hedging derivatives:
Net unrealized loss arising during the period		(937)		221		(716)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on cash flow hedging derivatives		(937)		221		(716)

Net unrealized loss on post-retirement plans:
Net unrealized loss arising during the period		22		(28)		(6)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on post-retirement plans		22		(28)		(6)

Other comprehensive loss	$	(3,512)	$	806	$	(2,706)

Three Months Ended March 31, 2023
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period	$	6,040	$	(1,414)	$	4,626
Less: reclassification adjustment for gains (losses) realized in net income		34		(8)		26
Net unrealized loss on AFS securities		6,006		(1,406)		4,600

Net unrealized loss on hedging derivatives:
Net unrealized loss arising during the period		767		(178)		589
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on cash flow hedging derivatives		767		(178)		589

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	$	6,773	$	(1,584)	$	5,189

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(in thousands)

Before Tax

Tax Effect

Net of Tax
Six Months Ended June 30, 2023






Net unrealized loss on AFS securities:






Net unrealized loss arising during the period

$
(17)

$
(18)

$
(35)
Less: reclassification adjustment for gains realized in net income

34

(8)

26
Net unrealized loss on AFS securities

(51)

(10)

(61)

Net unrealized gain on hedging derivatives:




Net unrealized gain arising during the period

1,088

(251)

837
Less: reclassification adjustment for gains (losses) realized in net income

—

—

—
Net unrealized gain on hedging derivatives

1,088

(251)

837

Other comprehensive income

$
1,037

$
(261)

$
776

Six Months Ended June 30, 2022






Net unrealized loss on AFS securities:






Net unrealized loss arising during the period

$
(52,244)

$
11,962

$
(40,282)
Less: reclassification adjustment for gains realized in net income

9

(2)

7
Net unrealized loss on AFS securities

(52,253)

11,964

(40,289)

Net unrealized loss on hedging derivatives:






Net unrealized loss arising during the period

(3,878)

893

(2,985)
Less: reclassification adjustment for gains (losses) realized in net income

—

—

—
Net unrealized loss on cash flow hedging derivatives

(3,878)

893

(2,985)

Other comprehensive loss

$
(56,131)

$
12,857

$
(43,274)

~~Table of Contents~~

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax impacts, for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~2022:~~2023:



	Net unrealized		Net gain (loss) on		Net unrealized				Net unrealized		Net gain (loss) on		Net unrealized
	gain (loss)		effective cash		loss				gain (loss)		effective cash		loss
	on AFS		flow hedging		on pension				on AFS		flow hedging		on pension
(in thousands)	Securities		derivatives		plans		Total		Securities		derivatives		plans		Total
Three Months Ended June 30, 2023
Balance at beginning of period	$	(50,646)	$	(1,205)	$	(1,300)	$	(53,151)
Other comprehensive loss before reclassifications		(4,661)		248		—		(4,413)
Less: amounts reclassified from accumulated other comprehensive income		—		—		—		—
Total other comprehensive income		(4,661)		248		—		(4,413)
Balance at end of period	$	(55,307)	$	(957)	$	(1,300)	$	(57,564)

Three Months Ended June 30, 2022
Three Months Ended March 31, 2024
Balance at beginning of period	$	(20,225)	$	(578)	$	(552)	$	(21,355)	$	(47,649)	$	(1,010)	$	(1,203)	$	(49,862)
Other comprehensive gain before reclassifications		(18,079)		(1,537)		—		(19,616)		(1,984)		(716)		(6)		(2,706)
Less: amounts reclassified from accumulated other comprehensive income		—		—		—		—		—		—		—		—
Total other comprehensive income		(18,079)		(1,537)		—		(19,616)		(1,984)		(716)		(6)		(2,706)
Balance at end of period	$	(38,304)	$	(2,115)	$	(552)	$	(40,971)	$	(49,633)	$	(1,726)	$	(1,209)	$	(52,568)

Six Months Ended June 30, 2023
Three Months Ended March 31, 2023
Balance at beginning of period	$	(55,246)	$	(1,794)	$	(1,300)	$	(58,340)	$	(55,246)	$	(1,794)	$	(1,300)	$	(58,340)
Other comprehensive loss before reclassifications		(35)		837		—		802		4,626		589		—		5,215
Less: amounts reclassified from accumulated other comprehensive income		26		—		—		26		26		—		—		26
Total other comprehensive loss		(61)		837		—		776		4,600		589		—		5,189
Balance at end of period	$	(55,307)	$	(957)	$	(1,300)	$	(57,564)	$	(50,646)	$	(1,205)	$	(1,300)	$	(53,151)

Six Months Ended June 30, 2022
Balance at beginning of period	$	1,985	$	870	$	(552)	$	2,303
Other comprehensive loss before reclassifications		(40,282)		(2,985)		—		(43,267)
Less: amounts reclassified from accumulated other comprehensive income		7		—		—		7
Total other comprehensive loss		(40,289)		(2,985)		—		(43,274)
Balance at end of period	$	(38,304)	$	(2,115)	$	(552)	$	(40,971)

~~Table of Contents~~

The following tables presents the amounts reclassified out of each component of accumulated other comprehensive income for three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~2022:~~2023:

Three Months Ended June 30,

Six Months Ended June 30,

Affected Line Item where
(in thousands)

2023

2022

2023

2022


Net Income is Presented
Net realized gains on AFS securities:










Before tax

$
—

$
—

$
34

$
9

Non-interest income
Tax effect

—

—

(8)

(2)

Tax expense
Total reclassifications for the period

$
—

$
—

$
26

$
7

Three Months Ended June 30,

Six Months Ended June 30,

Affected Line Item where
(in thousands)

2023

2022

2023

2022


Net Income is Presented
Net realized loss on hedging derivatives:










Before tax

$
—

$
—

$
—

$
4,852

Non-interest income
Tax effect

—

—

—

(917)

Tax expense
Total reclassifications for the period

$
—

$
—

$
—

$
3,935

~~(1)~~


	Three Months Ended March 31,				Affected Line Item where
(in thousands)	2024		2023		Net Income is Presented
Net realized gains on AFS securities:
Before tax	$	—	$	34	Non-interest income
Tax effect		—		(8)	Tax expense
Total reclassifications for the period	$	—	$	26

Table of Contents

NOTE 7. EARNINGS PER SHARE

The following table presents the calculation of earnings per share:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(in thousands, except per share and share data)	2023		2022		2023		2022		2024		2023
Net income	$	10,791	$	10,503	$	23,803	$	19,615	$	10,095	$	13,012

Average number of basic common shares outstanding		15,139,057		15,017,943		15,124,533		15,014,408		15,198,337		15,109,847
Plus: dilutive effect of stock options and awards outstanding		40,882		59,484		61,249		79,219		71,496		80,242
Average number of diluted common shares outstanding⁽¹⁾		15,179,939		15,077,427		15,185,782		15,093,627		15,269,833		15,190,089

Earnings per share:
Basic	$	0.71	$	0.70	$	1.57	$	1.31	$	0.66	$	0.86
Diluted	$	0.71	$	0.70		1.57		1.30		0.66		0.86

(1)	Average diluted shares outstanding are computed using the treasury stock method.

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NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

We use derivative instruments to minimize fluctuations in earnings and cash flows caused by interest rate volatility. Our interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so the changes in interest rates do not have a significant effect on net interest income. Thus, all of our derivative contracts are considered to be interest rate contracts.

We recognize our derivative instruments on the consolidated balance sheet at fair value. On the date the derivative instrument is entered into, we designate whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). We formally document relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking hedge transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items. Changes in fair value of derivative instruments that are highly effective and qualify as cash flow hedges are recorded in other comprehensive income or loss.

We offer derivative products in the form of interest rate swaps, to commercial loan customers to facilitate their risk management strategies. These instruments are executed through Master Netting Arrangements (“~~MNA”~~MNAs”) with financial institution counterparties or Risk Participation Agreements (“~~RPA”~~RPAs”) with commercial bank counterparties, for which we ~~assumes~~assume a pro rata share of the credit exposure associated with a borrower's performance related to the derivative contract with the counterparty.

The following tables present information about derivative assets and liabilities at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


	June 30, 2023							March 31, 2024
			Weighted							Weighted
	Notional		Average		Fair Value		Location Fair	Notional		Average		Fair Value		Location Fair
	Amount		Maturity		Asset (Liability)		Value Asset	Amount		Maturity		Asset (Liability)		Value Asset
	(in thousands)		(in years)		(in thousands)		(Liability)	(in thousands)		(in years)		(in thousands)		(Liability)
Cash flow hedges:
Interest rate swap on wholesale fundings	$	75,000		1.5	$	4,687	Other assets
Interest rate swap on wholesale funding								$	75,000		0.8	$	2,361	Other assets
Interest rate swap on variable rate loans		50,000		2.7		(4,770)	Other liabilities		50,000		2.0		(3,604)	Other liabilities
Total cash flow hedges		125,000				(83)			125,000				(1,243)

Fair value hedges:
Interest rate swap on securities		37,190		6.1		4,646	Other assets		37,190		5.3		4,407	Other assets
Total fair value hedges		37,190				4,646			37,190				4,407

Economic hedges:
Forward sale commitments		11,508		—		49	Other assets		6,000		0.1		(16)	Other liabilities
Customer Loan Swaps-MNA Counterparty		188,948		5.2		(19,837)	Other liabilities		177,994		4.9		(17,037)	Other liabilities
Customer Loan Swaps-RPA Counterparty		112,750		5.5		—	Other liabilities		142,199		4.7		—	Other liabilities
Customer Loan Swaps-Customer		301,698		5.3		19,837	Other assets		320,193		4.8		17,037	Other assets
Total economic hedges		614,904				49			646,386				(16)

Non-hedging derivatives:
Interest rate lock commitments		9,169		0.1		36	Other assets		3,397		0.4		56	Other assets
Total non-hedging derivatives		9,169				36			3,397				56

Total	$	786,263			$	4,648		$	811,973			$	3,204

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	December 31, 2022							December 31, 2023
			Weighted							Weighted
	Notional		Average		Fair Value		Location Fair	Notional		Average		Fair Value		Location Fair
	Amount		Maturity		Asset (Liability)		Value Asset	Amount		Maturity		Asset (Liability)		Value Asset
	(in thousands)		(in years)		(in thousands)		(Liability)	(in thousands)		(in years)		(in thousands)		(Liability)
Cash flow hedges:
Interest rate swap on wholesale fundings	$	75,000		2.0	$	4,978	Other assets
Interest rate swap on wholesale funding								$	75,000		1.0	$	2,803	Other assets
Interest rate swap on variable rate loans		50,000		3.2		(4,941)	Other liabilities		50,000		2.2		(3,459)	Other liabilities
Total cash flow hedges		125,000				37			125,000				(656)

Fair value hedges:
Interest rate swap on securities		37,190		6.6		4,774	Other assets		37,190		5.6		3,844	Other assets
Total fair value hedges		37,190				4,774			37,190				3,844

Economic hedges:
Forward sale commitments		—		—		—	Other assets		5,000		—		(20)	Other assets
Customer Loan Swaps-MNA Counterparty		191,987		5.8		(20,287)	Other liabilities		184,826		5.0		(14,842)	Other liabilities
Customer Loan Swaps-RPA Counterparty		113,928		6.0		—	Other liabilities		142,199		4.9		(286)	Other liabilities
Customer Loan Swaps-Customer		305,914		5.9		20,287	Other assets		327,025		4.9		15,128	Other assets
Total economic hedges		611,829				—			659,050				(20)

Non-hedging derivatives:
Interest rate lock commitments		—		—		—	Other assets		3,153		0.1		63	Other assets
Total non-hedging derivatives		—				—			3,153				63

Total	$	774,019			$	4,811		$	824,393			$	3,231

As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustments for fair value hedges:


				Cumulative Amount of Fair					Cumulative Amount of Fair
	Location of Hedged Item on	Carrying Amount of Hedged		Value Hedging Adjustment in		Location of Hedged Item on	Carrying Amount of Hedged		Value Hedging Adjustment in
	Balance Sheet	Assets		Carrying Amount		Balance Sheet	Assets		Carrying Amount
June 30, 2023
March 31, 2024
Interest rate swap on securities	Securities available for sale	$	31,381	$	(5,809)	Securities available for sale	$	31,767	$	(5,423)

December 31, 2022
December 31, 2023
Interest rate swap on securities	Securities available for sale	$	30,045	$	(7,145)	Securities available for sale	$	32,680	$	(4,510)

3533

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Information about derivative assets and liabilities for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ follows:


	Three Months Ended June 30, 2023								Three Months Ended March 31, 2024
	Amount of			Amount of					Amount of			Amount of
	Gain (Loss)			Gain (Loss)					Gain (Loss)			Gain (Loss)
	Recognized in			Reclassified		Location of	Amount of		Recognized in			Reclassified		Location of	Amount of
	Other		Location of Gain (Loss)	from Other		Gain (Loss)	Gain (Loss)		Other		Location of Gain (Loss)	from Other		Gain (Loss)	Gain (Loss)
	Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized		Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized
(in thousands)	Income		Comprehensive Income	Income		Income	in Income		Income		Comprehensive Income	Income		Income	in Income
Cash flow hedges:
Interest rate swap on wholesale funding	$	387	Interest expense	$	—	Interest expense	$	745	$	(338)	Interest expense	$	—	Interest expense	$	827
Interest rate swap on variable rate loans		(462)	Interest income		—	Interest income		(531)		(111)	Interest income		—	Interest income		(585)
Total cash flow hedges		(75)			—			214		(449)			—			242

Fair value hedges:
Interest rate swap on securities		321	Interest income		—	Interest income		330		(268)	Interest income		—	Interest income		370
Total fair value hedges		321			—			330		(268)			—			370

Economic hedges:
Forward commitments		—	Other income		—	Mortgage banking income		49		—	Other income		—	Mortgage banking income		4
Total economic hedges		—			—			49		—			—			4

Non-hedging derivatives:
Interest rate lock commitments		—	Other expense		—	Mortgage banking income		(111)		—	Other expense		—	Mortgage banking income		(7)
Total non-hedging derivatives		—			—			(111)		—			—			(7)

Total	$	246		$	—		$	482	$	(717)		$	—		$	609

3634

Table of Contents

Three Months Ended June 30, 2022


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

$
605

Interest expense

$
—

Interest expense

$
(28)
Interest rate swap on variable rate loans

(510)

Interest income

—

Interest income

(17)
Total cash flow hedges

95

—

(45)

Fair value hedges:





Interest rate swap on securities

(1,632)

Interest income

—

Interest income

(68)
Total economic hedges

(1,632)

—



(68)

Economic hedges:





Forward commitments

—

Other income

—

Mortgage banking income

(213)
Total economic hedges

—

—



(213)

Non-hedging derivatives:





Interest rate lock commitments

—

Other income

—

Mortgage banking income

55
Total non-hedging derivatives

—

—



55

Total

$
(1,537)



$
—



$
(271)


	Three Months Ended March 31, 2023
	Amount of			Amount of
	Gain (Loss)			Gain (Loss)
	Recognized in			Reclassified		Location of	Amount of
	Other		Location of Gain (Loss)	from Other		Gain (Loss)	Gain (Loss)
	Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized
(in thousands)	Income		Comprehensive Income	Income		Income	in Income
Cash flow hedges:
Interest rate swap on wholesale funding	$	(610)	Interest expense	$	—	Interest expense	$	664
Interest rate swap on variable rate loans		592	Interest income		—	Interest income		(466)
Total cash flow hedges		(18)			—			198

Fair value hedges:
Interest rate swap on securities		607	Interest income		—	Interest income		286
Total economic hedges		607			—			286

Economic hedges:
Forward commitments		—	Other income		—	Mortgage banking income		—
Total economic hedges		—			—			—

Non-hedging derivatives:
Interest rate lock commitments		—	Other expense		—	Mortgage banking income		8
Total non-hedging derivatives		—			—			8

Total	$	589		$	—		$	492

~~Table of Contents~~

Six Months Ended June 30, 2023


Amount of



Amount of




Gain (Loss)

Gain (Loss)

Recognized in

Reclassified

Location of

Amount of

Other

Location of Gain (Loss)

from Other

Gain (Loss)

Gain (Loss)

Comprehensive

Reclassified from Other

Comprehensive

Recognized in

Recognized
(in thousands)

Income

Comprehensive Income

Income

Income

in Income
Cash flow hedges:










Interest rate swap on wholesale funding

$
(222)

Interest expense

$
—

Interest expense

$
1,409
Interest rate swap on variable rate loans

130

Interest income

—

Interest income

(997)
Total cash flow hedges

(92)

—



412

Fair value hedges:





Interest rate swap on securities

929

Interest income

—

Interest income

616
Total fair value hedges

929

—



616

Economic hedges:





Forward commitments

—

Other income

—

Mortgage banking income

49
Total economic hedges

—

—



49

Non-hedging derivatives:





Interest rate lock commitments

—

Other expense

—

Mortgage banking income

(103)
Total non-hedging derivatives

—

—



(103)

Total

$
837

$
—



$
974

~~Table of Contents~~

Six Months Ended June 30, 2022


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

$
2,796

Interest expense

$
—

Interest expense

$
(141)
Interest rate swap on variable rate loans

(2,308)

Interest income

—

Interest income

(1)
Total cash flow hedges

488

—

(142)

Fair value hedges:





Interest rate swap on securities

(3,473)

Interest income

—

Interest income

(203)
Total economic hedges

(3,473)

—



(203)

Economic hedges:





Forward commitments

—

Other income

—

Mortgage banking income

(26)
Total economic hedges

—

—



(26)

Non-hedging derivatives:





Interest rate lock commitments

—

Other income

—

Mortgage banking income

(233)
Total non-hedging derivatives

—

—



(233)

Total

$
(2,985)



$
—



$
(604)

3935

Table of Contents

The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~2022:~~2023:


	Three Months Ended June 30, 2023										Three Months Ended March 31, 2024
	Interest and Dividend Income				Interest Expense						Interest and Dividend Income				Interest Expense
(in thousands)	Loans		Securities and other		Deposits		Borrowings		Non-interest Income		Loans		Securities and other		Deposits		Borrowings		Non-interest Income
Income and expense line items presented in the consolidated statements of income	$	36,917	$	5,964	$	8,590	$	5,501	$	8,980	$	39,470	$	6,353	$	14,532	$	3,236	$	8,586

The effects of cash flow and fair value hedging:

Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding		—		—		—		745		—		—		—		—		827		—
Interest rate swap on variable rate loans		(531)		—		—		—		—		(585)		—		—		—		—

Gain (loss) on fair value hedges:
Interest rate swap on securities		—		330		—		—		—		—		370		—		—		—

	Three Months Ended June 30, 2022										Three Months Ended March 31, 2023
	Interest and Dividend Income				Interest Expense						Interest and Dividend Income				Interest Expense
(in thousands)	Loans		Securities and other		Deposits		Borrowings		Non-interest Income		Loans		Securities and other		Deposits		Borrowings		Non-interest Income
Income and expense line items presented in the consolidated statements of income	$	24,581	$	4,207	$	1,195	$	1,074	$	8,961	$	34,560	$	5,791	$	5,265	$	4,180	$	9,184

The effects of cash flow and fair value hedging:

Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding		—		—		—		(28)		—		—		—		—		664		—
Interest rate swap on variable rate loans		(17)		—		—		—		—		(466)		—		—		—		—

Gain (loss) on fair value hedges:
Interest rate swap on securities		—		(68)		—		—		—		—		286		—		—		—

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Table of Contents

Six Months Ended June 30, 2023

Interest and Dividend Income

Interest Expense

(in thousands)

Loans

Securities and other

Deposits

Borrowings

Non-interest Income
Income and expense line items presented in the consolidated statements of income

$
71,477

$
11,755

$
13,855

$
9,681

$
18,164






The effects of cash flow and fair value hedging:






Gain (loss) on cash flow hedges:

Interest rate swap on wholesale funding

—

—

—

1,409

—
Interest rate swap on variable rate loans

(997)

—

—

—

—






Gain (loss) on fair value hedges:




Interest rate swap on securities

—

616

—

—

—

Six Months Ended June 30, 2022

Interest and Dividend Income

Interest Expense

(in thousands)

Loans

Securities and other

Deposits

Borrowings

Non-interest Income
Income and expense line items presented in the consolidated statements of income

$
47,252

$
8,033

$
2,384

$
2,084

$
18,270






The effects of cash flow and fair value hedging:






Gain (loss) on cash flow hedges:

Interest rate swap on wholesale funding

—

—

—

(141)

—
Interest rate swap on variable rate loans

(1)

—

—

—

—






Gain (loss) on fair value hedges:




Interest rate swap on securities

—

(203)

—

—

—

~~Table of Contents~~

The effect of derivatives not designated as hedging instruments on the consolidated statements of income for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~2022:~~2023:


	Location of Gain (Loss) Recognized	Three Months Ended June 30,				Six Months Ended June 30,				Location of Gain (Loss) Recognized	Three Months Ended March 31,
(In thousands)	in Non-interest Income	2023			2022	2023			2022	in Non-interest Income	2024			2023
Derivatives not designated as hedging instruments

Economic hedges:
Forward commitments	Mortgage banking income	$	49	$	(213)	$	49	$	(26)	Mortgage banking income	$	4	$	-
Non-hedging derivatives:
Interest rate lock commitments	Mortgage banking income		(111)		55		(103)		(233)	Mortgage banking income		(7)		8

Cash flow hedges

Interest rate swaps on wholesale funding

As of ~~June 30, 2023,~~March 31, 2024, we have two interest rate swaps on wholesale borrowings to limit our exposure to rising interest rates over a five-year term on 3-month FHLB borrowings or brokered certificates, or a combination thereof at each maturity date. The first of the two agreements was entered into in November 2019 with a $50.0 million notional amount and pays a fixed interest rate of 1.53%. A second agreement was entered into in April 2020 with a $25.0 million notional amount and pays a fixed rate of 0.59%. The financial institution counterparty pays us interest on the ~~three-month LIBOR rate.~~daily SOFR rate plus 26 basis points. We designated the swaps as cash flow hedges.

Interest rate swap on variable rate loans

We have an interest rate swap that effectively fixes our interest rate on $50 million at the daily SOFR rate plus 11 basis points of ~~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 instrument is specifically designed to hedge the risk of changes in its cash flows from interest receipts attributable to changes in a contractually specified interest rate, on an amount of our variable rate loan assets equal to $50 million. We designated the swap as a cash flow hedge.

Fair value hedges

Interest rate swap on securities

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. We utilize interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable securities available-for-sale. The hedging strategy on securities converts the fixed interest rates to ~~LIBOR-based~~SOFR based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. During 2019, we entered into eight swap transactions with a notional amount of $37.2 million designated as fair value hedges. These derivatives are intended to protect against the effects of changing interest rates on the fair values of fixed rate securities. The fixed rates on the transactions have a weighted average of ~~2.19%~~1.70%.

Economic hedges

Forward sale commitments

We utilize forward sale commitments on residential mortgage loans to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans originated for sale. The forward sale commitments are accounted for as derivatives. We typically use a combination of best efforts and mandatory delivery contracts. The contracts are loan sale agreements where we commit to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, we enter into contracts just prior to the loan closing with a customer.

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Table of Contents

Customer loan derivatives

We enter into customer loan derivatives to facilitate the risk management strategies for commercial banking customers. We mitigate this risk by entering into equal and offsetting loan swap agreements with highly rated third-party financial institutions. The loan swap agreements are free standing derivatives and are recorded at fair value in our consolidated balance sheet. We are party to MNAs with our financial institutional counterparties; however, we do not offset assets and liabilities under these arrangements for financial statement presentation purposes.

The MNAs provide for a single net settlement of all loan swap agreements, as well as collateral or cash funds, in the event of default on, or termination of, any one contract. Collateral is provided by cash or securities received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds.

Gross Amounts Offset in the Consolidated Balance Sheet

Derivative

Cash Collateral

(in thousands)

Liabilities

Derivative Assets

Pledged

Net Amount
As of June 30, 2023









Customer Loan Derivatives:








MNA counterparty

$
(19,837)

$
19,837

$
—

$
—
RPA counterparty

—

—

—

—
Total

$
(19,837)

$
19,837

$
—

$
—

The below tables describe the potential effect of master netting arrangements on the consolidated balance sheet and the financial collateral pledged for these arrangements:


	Gross Amounts Offset in the Consolidated Balance Sheet								Gross Amounts Offset in the Consolidated Balance Sheet
	Derivative				Cash Collateral				Derivative				Cash Collateral
(in thousands)	Liabilities		Derivative Assets		Pledged		Net Amount		Liabilities		Derivative Assets		Pledged		Net Amount
As of December 31, 2022
As of March 31, 2024
Customer Loan Derivatives:
MNA counterparty	$	(20,287)	$	20,287	$	—	$	—	$	(17,037)	$	17,037	$	—	$	—
RPA counterparty		—		—		—		—		—		—		—		—
Total	$	(20,287)	$	20,287	$	—	$	—	$	(17,037)	$	17,037	$	—	$	—


	Gross Amounts Offset in the Consolidated Balance Sheet
	Derivative				Cash Collateral
(in thousands)	Liabilities		Derivative Assets		Pledged		Net Amount
As of December 31, 2023
Customer Loan Derivatives:
MNA counterparty	$	(14,842)	$	14,842	$	—	$	—
RPA counterparty		(286)		286		—		—
Total	$	(15,128)	$	15,128	$	—	$	—

Non-hedging derivatives

Interest rate lock commitments

We enter into interest rate lock commitments (“IRLCs”) for residential mortgage loans, which commit us to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs relate to the origination of residential mortgage loans that are held for sale and are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose us to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free standing derivatives, which are carried at fair value with changes recorded in non-interest income in our Consolidated Statements of Income. Changes in the fair value of IRLCs subsequent to inception are based on (i) changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and (ii) changes in the probability when the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.

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Table of Contents

NOTE 9. FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	June 30, 2023								March 31, 2024
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
(in thousands)	Inputs		Inputs		Inputs		Fair Value		Inputs		Inputs		Inputs		Fair Value
Available for sale securities:
Obligations of US Government-sponsored enterprises									$	—	$	1,687	$	—	$	1,687
Mortgage-backed securities:
US Government-sponsored enterprises	$	—	$	203,760	$	—	$	203,760		—		185,824		—		185,824
US Government agency		—		77,023		—		77,023		—		76,182		—		76,182
Private label		—		58,857		—		58,857		—		59,032		—		59,032
Obligations of states and political subdivisions thereof		—		108,340		—		108,340		—		108,106		—		108,106
Corporate bonds		—		90,198		—		90,198		—		96,772		—		96,772
Loans held for sale		—		3,669		—		3,669		—		3,137		—		3,137
Derivative assets		—		29,219		36		29,255		—		23,805		56		23,861
Derivative liabilities		—		(24,604)		—		(24,604)		—		(20,641)		(16)		(20,657)


	December 31, 2022								December 31, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
(in thousands)	Inputs		Inputs		Inputs		Fair Value		Inputs		Inputs		Inputs		Fair Value
Available for sale securities:
Obligations of US Government-sponsored enterprises									$	—	$	1,992	$	—	$	1,992
Mortgage-backed securities:
US Government-sponsored enterprises	$	—	$	215,027	$	—	$	215,027		—		193,282		—		193,282
US Government agency		—		82,266		—		82,266		—		74,213		—		74,213
Private label		—		60,154		—		60,154		—		59,051		—		59,051
Obligations of states and political subdivisions thereof		—		107,737		—		107,737		—		110,168		—		110,168
Corporate bonds		—		94,332		—		94,332		—		95,868		—		95,868
Loans held for sale		—		—		—		—		—		2,189		—		2,189
Derivative assets		—		30,039		—		30,039		—		21,775		63		21,838
Derivative liabilities		—		(25,228)		—		(25,228)		—		(18,587)		(20)		(18,607)

Securities Available for Sale: All securities and major categories of securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, we obtain fair value measurements from independent pricing providers. The fair value measurements used by the pricing providers consider observable data that may include dealer quotes, market maker quotes and live trading systems. If quoted prices are not readily available, fair values are determined using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as market pricing spreads, credit information, callable features, cash flows, the US Treasury yield curve, trade execution data, market consensus prepayment speeds, default rates, and the securities’ terms and conditions, among other things.

Loans Held for Sale: The valuation of the Company’s loans held for sale are determined on an individual basis using quoted secondary market prices and are classified as Level 2 measurements.

Derivative Assets and Liabilities

Cash Flow Hedges. The valuation of our cash flow hedges are obtained from a third party. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The inputs used to value the cash flow hedges are all classified as Level 2 measurements.

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Table of Contents

Interest Rate Lock Commitments. We enter into IRLCs for residential mortgage loans, which commit us to lend funds to potential borrowers at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood of a loan in a lock position will ultimately close. The closing ratio is derived from internal data and is adjusted using significant management judgment. As such, IRLCs are classified as Level 3 measurements.

Forward Sale Commitments. We utilize forward sale commitments as economic hedges against potential changes in the values of the IRLCs and loans originated for sale. The fair values of mandatory delivery loan sale commitments are determined similarly to the IRLCs using quoted prices in the market place that are observable. However, closing ratios included in the calculation are internally generated and are based on management’s judgment and prior experience, which are not considered observable factors. As such, mandatory delivery forward commitments are classified as Level 3 measurements.

Customer Loan Derivatives. The valuation of our customer loan derivatives is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. We incorporate credit valuation adjustments to appropriately reflect our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the derivative contracts for the effect of nonperformance risk, we have considered the impact of MNAs and any applicable credit enhancements, such as collateral postings.

Although we have determined that the majority of the inputs used to value customer loan derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and counterparties. However, as of ~~June 30, 2023,~~March 31, 2024, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three months ended March 31, 2024 and 2023:


	Assets (Liabilities)
	Interest Rate Lock		Forward
(in thousands)	Commitments		Commitments
Three Months Ended March 31, 2024
Balance at beginning of period	$	63	$	(20)
Realized gain recognized in non-interest income		(7)		4
Balance at end of period	$	56	$	(16)

Three Months Ended March 31, 2023
Balance at beginning of period	$	—	$	—
Realized loss recognized in non-interest income		8		—
Balance at end of period	$	8	$	—

4540

Table of Contents

~~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 six months ended June 30, 2023 and 2022:~~

Assets (Liabilities)

Interest Rate Lock

Forward
(in thousands)

Commitments

Commitments
Three Months Ended June 30, 2023





Balance at beginning of period

$
8

$
—
Realized gain recognized in non-interest income

28

49
Balance at end of period

$
36

$
49

Three Months Ended June 30, 2022





Balance at beginning of period

$
(5)

$
15
Realized gain (loss) recognized in non-interest income

55

(26)
Balance at end of period

$
50

$
(11)

Six Months Ended June 30, 2023




Balance at beginning of period

$
—

$
—
Realized gain recognized in non-interest income

36

49
Balance at end of period

$
36

$
49

Six Months Ended June 30, 2022




Balance at beginning of period

$
283

$
15
Realized loss recognized in non-interest income

(233)

(26)
Balance at end of period

$
50

$
(11)

Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is, as follows:

Fair Value

(in thousands,

June 30,

Valuation

Unobservable

March 31,

Valuation

Unobservable

except ratios)

2023

Techniques

Inputs

Input Value

2024

Techniques

Inputs

Input Value

Assets (Liabilities)

Interest Rate Lock Commitment

Pull-through Rate Analysis

Closing Ratio

Pull-through Rate Analysis

Closing Ratio

Pricing Model

Origination Costs, per loan

1.7

Pricing Model

Origination Costs, per loan

1.7

Discount Cash Flows

Mortgage Servicing Asset

1.0

Discount Cash Flows

Mortgage Servicing Asset

1.0

Forward Commitments

Quoted prices for similar loans in active markets

Freddie Mac pricing system

$97.2 to $101.4

(16)

Quoted prices for similar loans in active markets

Freddie Mac pricing system

$99.3 to $102.8

Total

Fair Value

Significant

Fair Value

Significant

December 31,

Valuation

Unobservable

December 31,

Valuation

Unobservable

(in thousands, except ratios)

2022

Techniques

Inputs

Input Value

2023

Techniques

Inputs

Input Value

Assets (Liabilities)

Interest Rate Lock Commitment

283

Pull-through Rate Analysis

Closing Ratio

Pull-through Rate Analysis

Closing Ratio

Pricing Model

Origination Costs, per loan

1.7

Pricing Model

Origination Costs, per loan

1.7

Discount Cash Flows

Mortgage Servicing Asset

1.0

Discount Cash Flows

Mortgage Servicing Asset

1.0

Forward Commitments

Quoted prices for similar loans in active markets

Freddie Mac pricing system

$99.8 to $103.2

(20)

Quoted prices for similar loans in active markets

Freddie Mac pricing system

$100.9 to $103.3

Total

298

~~Table of Contents~~

Non-Recurring Fair Value Measurements

We are required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with GAAP. The following is a summary of applicable non-recurring fair value measurements:


									Fair Value							Fair Value
					Three Months Ended		Six Months Ended		Measurement Date as of							Measurement Date as of
	Jun 30, 2023		Dec 31, 2022		June 30, 2023		June 30, 2023		June 30, 2023	Mar 31, 2024		Dec 31, 2023		March 31, 2024		March 31, 2024
	Level 3		Level 3		Total		Total		Level 3	Level 3		Level 3		Total		Level 3
(in thousands)	Inputs		Inputs		Gains (Losses)		Gains (Losses)		Inputs	Inputs		Inputs		Gains (Losses)		Inputs
Assets
Individually evaluated loans	$	13,095	$	16,477	$	(2,418)	$	(3,382)	June 2023	$	2,911	$	3,500	$	(589)	March 2024
Capitalized servicing rights		6,761		6,845		191		(84)	June 2023		6,991		6,764		227	March 2024
Premises held for sale		252		252		—		—	June 2023		1,154		1,154		—	March 2024
Total	$	20,108	$	23,574	$	(2,227)	$	(3,466)		$	11,056	$	11,418	$	(362)

There are no liabilities measured at fair value on a non-recurring basis in ~~2023~~2024 and ~~2022.~~2023.

~~Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is, as follows:~~

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(in thousands, except ratios)

Fair Value June 30, 2023

Valuation Techniques

Unobservable Inputs

Range (Weighted Average)^(a)

Assets









Individually evaluated loans

$
10,220

Fair value of collateral-appraised value

Loss severity

10% to 53%

Appraised value

$80 to $2,941

Individually evaluated loans

2,875

Discount cash flow

Discount rate

3.38% to 6.24%

Cash flows

$3 to $703

Capitalized servicing rights

6,761

Discounted cash flow

Constant prepayment rate

7.03%





Discount rate

9.55%

Premises held for sale

252

Fair value of asset less selling costs

Appraised value

$267



Selling Costs

6%

Total

$
20,108

Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is, as follows:


(in thousands, except ratios)	Fair Value March 31, 2024		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)^(a)
Assets
Individually evaluated loans	$	2,254	Fair value of collateral-appraised value	Loss severity		0% to 40%
				Appraised value		$215 to $916

Individually evaluated loans		657	Discount cash flow	Discount rate		3.25% to 4.99%
				Cash flows		$320 to $513

Capitalized servicing rights		6,991	Discounted cash flow	Constant prepayment rate		6.87%
				Discount rate		10.06%

Premises held for sale		1,154	Fair value of asset less selling costs	Appraised value		$1,223
				Selling Costs		6%
Total	$	11,056

(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 individual properties.

(in thousands, except ratios)

Fair Value December 31, 2022

Valuation Techniques

Unobservable Inputs

Range (Weighted Average)^(a)

Fair Value December 31, 2023

Valuation Techniques

Unobservable Inputs

Range (Weighted Average)^(a)

Assets

Individually evaluated loans

13,587

Fair value of collateral-appraised value

Loss severity

1% to 40%

2,437

Fair value of collateral-appraised value

Loss severity

10% to 43%

Appraised value

$80 to $3,859

Appraised value

$80 to $965

Individually evaluated loans

2,890

Discount cash flow

Discount rate

3.63% to 6.38%

1,063

Discount cash flow

Discount rate

3.25% to 7.13%

Cash flows

$100 to $539

Cash flows

$2 to $520

Capitalized servicing rights

6,845

Discounted cash flow

Constant prepayment rate

7.29%

6,764

Discounted cash flow

Constant prepayment rate

7.20%

Discount rate

9.54%

Discount rate

10.06%

Premises held for sale

252

Fair value of asset less selling costs

Appraised value

$267

1,154

Fair value of asset less selling costs

Appraised value

$1,223

Selling Costs

Total

23,574

11,418

(a)	Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individual properties.

There were no Level 1 or Level 2 non-recurring fair value measurements for the periods ended ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

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Individually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, we record non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the ACL. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, non-recurring fair value measurement adjustments relating to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral supporting commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

Capitalized loan servicing rights. A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of loan servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

Other real estate owned (“OREO”). OREO results from the foreclosure process on residential or commercial loans issued by the Company. Upon assuming the real estate, we record the property at the fair value of the asset less the estimated sales costs. Thereafter, OREO properties are recorded at the lower of cost or fair value less the estimated sales costs. OREO fair values are primarily determined based on Level 3 data including sales comparables and appraisals. There was no OREO as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

Premises held for sale. Assets held for sale, identified as part of our strategic review and branch optimization exercise, were transferred from premises and equipment at the lower of amortized cost or fair value less the estimated sales costs. Assets held for sale fair values are primarily determined based on Level 3 data including sales comparables and appraisals.

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Summary of Estimated Fair Values of Financial Instruments

The estimated fair values, and related carrying amounts, of our financial instruments are included in the table below. Certain financial instruments and all non-financial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.


	June 30, 2023										March 31, 2024
	Carrying		Fair								Carrying		Fair
(in thousands)	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	123,785	$	123,785	$	123,785	$	—	$	—	$	76,219	$	76,219	$	76,219	$	—	$	—
Securities available for sale		538,178		538,178		—		538,178		—		527,603		527,603		—		527,603		—
FHLB stock		17,784		17,784		—		17,784		—		9,960		9,960		—		9,960		—
Loans held for sale		3,669		3,669		—		3,669		—		3,137		3,137		—		3,137		—
Net loans		3,007,480		2,861,936		—		—		2,861,936		2,983,317		2,844,033		—		—		2,844,033
Accrued interest receivable		4,623		4,623		—		4,623		—		5,317		5,317		—		5,317		—
Cash surrender value of bank-owned life insurance policies		78,967		78,967		—		78,967		—		80,642		80,642		—		80,642		—
Derivative assets		29,255		29,255		—		29,219		36		23,861		23,861		—		23,805		56

Financial Liabilities
Non-maturity deposits	$	2,454,686	$	2,188,295	$	—	$	2,188,295	$	—	$	2,349,868	$	2,177,428	$	—	$	2,177,428	$	—
Time deposits		635,559		624,656		—		624,656		—		777,208		769,302		—		769,302		—
Securities sold under agreements to repurchase		11,889		11,889		—		11,889		—		8,161		8,161		—		8,161		—
FRB advances												65,000		65,000		—		65,000		—
FHLB advances		387,083		386,800		—		386,800		—		196,276		196,159		—		196,159		—
Subordinated borrowings		60,371		67,671		—		67,671		—		60,501		67,691		—		67,691		—
Derivative liabilities		24,604		24,604		—		24,604		—		20,657		20,657		—		20,641		16


	December 31, 2022										December 31, 2023
	Carrying		Fair								Carrying		Fair
(in thousands)	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	92,295	$	92,295	$	92,295	$	—	$	—	$	94,842	$	94,842	$	94,842	$	—	$	—
Securities available for sale		559,516		559,516		—		559,516		—		534,574		534,574		—		534,574		—
FHLB stock		14,893		14,893		—		14,893		—		14,834		14,834		—		14,834		—
Loans held for sale		—		—		—		—		—		2,189		2,189		—		2,189		—
Net loans		2,902,690		2,774,863		—		—		2,774,863		2,970,907		2,832,173		—		—		2,832,173
Accrued interest receivable		4,257		4,257		—		4,257		—		4,921		4,921		—		4,921		—
Cash surrender value of bank-owned life insurance policies		81,197		81,197		—		81,197		—		80,037		80,037		—		80,037		—
Derivative assets		30,039		30,039		—		30,039		—		21,838		21,838		—		21,775		63

Financial Liabilities
Non-maturity deposits	$	2,719,992	$	2,309,555	$	—	$	2,309,555	$	—	$	2,482,012	$	2,325,307	$	—	$	2,325,307	$	—
Time deposits		323,439		315,180		—		315,180		—		658,482		651,855		—		651,855		—
Securities sold under agreements to repurchase		13,369		13,369		—		13,369		—		8,465		8,465		—		8,465		—
FRB advances												30,000		30,000		—		30,000		—
FHLB advances		320,588		320,244		—		320,244		—		232,579		232,375		—		232,375		—
Subordinated borrowings		60,289		66,846		—		66,846		—		60,422		67,635		—		67,635		—
Derivative liabilities		25,228		25,228		—		25,228		—		15,607		15,607		—		15,587		20

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NOTE 10. REVENUE FROM CONTRACTS WITH CUSTOMERS

We account for our various non-interest revenue streams and related contracts in accordance with “Revenue from Contracts with Customers” (“ASC 606”). ASC 606 is based on the consideration specified in the contract with a customer and excludes amounts collected on behalf of third parties. Revenue is recognized when we satisfy our performance obligation, which is generally when services are rendered and can be either satisfied at a point in time or over time. We recognize revenue at a point in time that is transactional in nature. We recognize revenue over time that is earned as services are performed and performance obligations are satisfied over time.

A substantial portion of our revenue is specifically excluded from the scope of ASC 606. This exclusion is associated with financial instruments, including interest income on loans and investment securities, in addition to loan derivative income and gains on loan and investment sales.

Disaggregation of Revenue

The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(in thousands)	2023		2022		2023		2022		2024		2023
Non-interest income within the scope of ASC 606:
Trust management fees	$	3,498	$	3,462	$	6,589	$	6,865	$	3,243	$	3,091
Financial services fees		307		367		771		718		427		464
Interchange fees		1,928		1,921		3,938		3,895		1,970		2,010
Customer deposit fees		1,590		1,470		3,019		2,841		1,502		1,429
Other customer service fees		256		265		494		536		238		238
Total non-interest income within the scope of ASC 606		7,579		7,485		14,811		14,855		7,380		7,232
Total non-interest income not within the scope of ASC 606		1,401		1,476		3,353		3,415		1,206		1,952
Total non-interest income	$	8,980	$	8,961	$	18,164	$	18,270	$	8,586	$	9,184


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(in thousands)	2023		2022		2023		2022		2024		2023
Timing of Revenue Recognition
Products and services transferred at a point in time	$	3,848	$	3,978	$	7,797	$	7,735	$	3,926	$	3,950
Products and services transferred over time		3,731		3,507		7,014		7,120		3,454		3,282
Total	$	7,579	$	7,485	$	14,811	$	14,855	$	7,380	$	7,232

Trust Management Fees

The trust management business generates revenue through a range of fiduciary services including trust and estate administration, financial advice, and investment management to individuals, businesses, not-for-profit organizations, and municipalities. These fees are primarily earned over time as we charge our customers on a monthly or quarterly basis in accordance with investment advisory agreements. Fees are generally assessed based on a tiered scale of the 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,~~Osaic Institutions, Inc., (“Osaic”) a full-service third-party broker-dealer, conducting business under the assumed business name “Bar Harbor Financial Services.” Osaic is an independent registered ~~broker dealer offering securities~~broker-dealer and ~~insurance products~~is not affiliated with the Company or its subsidiaries. We have a revenue sharing agreement with ~~Infinex~~Osaic for any financial service fee income generated. Financial services fees are recognized at a point in time upon the completion of service requirements.

Interchange Fees

We earn interchange fees from transaction fees that merchants pay whenever a customer uses a debit card to make a purchase from their store. The fees are paid to the card-issuing bank to cover handling costs, fraud, bad debt costs and the

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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.

~~Table of Contents~~

Customer Deposit Fees

The Customer Deposit business offers a variety of deposit accounts with a range of interest rates, fee schedules and other terms, which are designed to meet the customer's financial needs. Additional depositor-related services provided to customers include ATM, bank-by-phone, internet banking, internet bill pay, mobile banking, and other cash management services, which include remote deposit capture, ACH origination, and wire transfers. These customer deposit fees are generally recognized at a point in time upon the completion of the service.

Other Customer Service Fees

We have certain incentive and referral fee arrangements with independent third parties in which fees are earned for new account activity, product sales, or transaction volume generated for the respective third parties. We also earn a percentage of the fees generated from third-party credit card plans promoted through the Bank. Revenue from these incentive and referral fee arrangements are recognized over time using the right to invoice measure of progress.

Contract Balances from Contracts with Customers

The following table provides information about contract assets or receivables and contract liabilities or deferred revenues from contracts with customers:



(in thousands)	June 30, 2023		December 31, 2022		March 31, 2024		December 31, 2023
Balances from contracts with customers only:
Other Assets	$	1,061	$	1,211	$	1,107	$	1,178
Other Liabilities		2,109		2,345		1,720		1,769

The timing of revenue recognition, billings and cash collections results in contract assets or receivables and contract liabilities or deferred revenue on the consolidated balance sheets. For most customer contracts, fees are deducted directly from customer accounts and, therefore, there is no associated impact on the accounts receivable balance. For certain types of service contracts, we have an unconditional right to consideration under the service contract and an accounts receivable balance is recorded for services completed. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.

Costs to Obtain and Fulfill a Contract

We currently expense contract costs for processing and administrative fees for debit card transactions. We also expense custody fees and transactional costs associated with securities transactions as well as third-party tax preparation fees. We have elected the practical expedient in ASC 340-40-25-4, whereby we recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets we otherwise would have recognized is one year or less.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and should be read in conjunction with our unaudited consolidated financial statements and condensed notes thereto included elsewhere in this Form 10-Q as well as our audited consolidated financial statements and notes thereto included in our Form 10-K. The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Factors that could cause such differences are discussed in the sections titled "Cautionary Statement Regarding Forward-Looking Statements" and "Part II, Item 1A. Risk Factors" in this Form 10-Q. All amounts, dollars and percentages presented in this Form 10-Q are rounded and therefore approximate.

GENERAL

The Company is a bank holding company headquartered in Maine, providing a broad array of banking and nonbanking products and services to businesses and consumers primarily within our three-state footprint. The Company's primary sources of revenue, through the Bank, are net interest income (predominantly from loans and investment securities) and noninterest income (principally fees and other revenue from financial services provided to customers or ancillary services tied to loans and deposits).

NON-GAAP FINANCIAL MEASURES

Our accounting and reporting policies conform to GAAP and the prevailing practices in the financial services industry. However, we also evaluate our performance by reference to certain additional financial measures discussed in this Form 10-Q that we identify as being “non-GAAP financial measures.” In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, ~~that are included or excluded,~~ as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

The non-GAAP financial measures that we discuss in this Form 10-Q should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Form 10-Q may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures we have discussed in this Form 10-Q when comparing such non-GAAP financial measures.

Recent Banking Crisis

In light of ~~recent~~ events in the last year or so in the banking sector, including ~~recent~~ bank failures, ~~continuing~~elevated interest ~~rate hikes~~rates and possible recessionary concerns, we intend to continue to position our balance sheet to mitigate the risks affecting the Company and the overall banking industry in order to serve our clients and communities.

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●

Liquidity remains strong, with cash and available for sale securities representing approximately ~~17%~~15.5% of our total assets at ~~June 30, 2023.~~March 31, 2024. We maintain the ability to access considerable sources of contingent liquidity at the FHLB and the FRB. We consider the Company's current liquidity position to be adequate to meet both short-term and long-term liquidity needs. Refer to “Liquidity and Cash Flows” for additional information.

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●

Capital remains strong, with capital ratios of both the Company and the Bank remaining well-capitalized under regulatory guidelines at period end as further described in Note 6 – “Capital Ratios and Shareholders’ Equity” to our unaudited consolidated financial statements.

●

Asset quality remains solid, with a non-performing asset ~~ratio~~to total assets of 0.17% of our total assets as of ~~June 30, 2023~~March 31, 2024 and net charge-offs of ~~near zero,~~$76 thousand, reflecting our disciplined underwriting and conservative lending philosophy which has supported the Company's strong credit performance during prior financial crises.

We will continue our safe and sound banking practices, but the continuing impact of the banking crisis and further extent on the Company's operations and financial results for the remainder of ~~2023~~2024 is uncertain and cannot be predicted.

QUARTERLY PERFORMANCE SUMMARY

Earnings (~~second~~first quarter ~~of 2023,~~2024, compared to the same period of ~~2022)~~2023)

●

Net income was ~~$10.8~~$10.1 million, compared to ~~$10.5~~$13.0 million. Diluted earnings per share was ~~$0.71,~~$0.66, compared to ~~$0.70.~~$0.86. The ~~increase is~~decrease was primarily ~~due to an increase~~driven by a higher cost of funds offset by rising asset yields in ~~net interest income, flat non-interest income, offset in part by an increase in non-interest expense.~~ the first quarter 2024.

●

Return on assets was ~~1.10%~~1.03% versus ~~1.14%,~~1.36% and return on equity was ~~10.49%~~9.31% compared to ~~10.58%~~12.96%. ~~Both~~The decrease in both ratios ~~include the benefit of~~reflect higher respective average asset and equity balances and slightly lower net income ~~see~~driven by increased cost of funds. See the “Financial Position” section for further ~~discussion of changes in assets and equity.~~discussion.

●

Net interest income was ~~$28.8~~$28.1 million ~~an increase of 9%. Net~~compared to $30.9 million and net interest margin (“NIM”) was ~~3.22%~~3.14%, versus ~~3.19%~~3.54%. The ~~increase~~decrease was primarily driven by ~~loan growth and the repricing~~higher cost of funds offset in part by yield expansion on a majority of our variable rate loans to the most recent Federal Reserve hikes while managing deposit costs at a relationship level. Since the Federal Reserve started the cycle of interest rate hikes, our accumulated deposit beta stands at 22% at quarter-end.earnings assets.

●

The provision for credit losses was an expense of ~~$750~~$289 thousand compared with ~~$534 thousand. The increase is largely driven by a combination~~$798 million. Our credit trends continue to remain strong. Non-performing assets remain at 17 basis points of ~~loan growth and general macroeconomic trends.~~total assets while net charge-offs to average loans remain near zero.

●

~~Our quarterly credit trends remained strong as we saw a favorable reduction to nonaccrual loans across all products and improvements in delinquencies.~~

●

Non-interest income was ~~$9.0~~$8.6 million ~~flat with~~compared to $9.2 million in the ~~prior year quarter. Increases in customer service~~ same quarter 2023 primarily driven by elevated bank-owned life insurance (“BOLI”) income ~~during the current quarter was offset by lower mortgage income and customer derivative income, while trust and investment management fee income.~~of $622 thousand related to one-time death benefits.

●

Non-interest expense was ~~$23.4~~$23.7 million ~~versus $21.7 million. The increase is primarily due~~in the first quarter 2024 compared to ~~higher salaries~~$22.7 million in the first quarter 2023 driven by salary and ~~employee benefit expenses along with higher revaluations of stock compensation~~benefits, marketing and ~~supplemental post retirement plan obligations.~~other expenses.

●

Efficiency ratio was ~~to 60.25%~~62.91% compared to ~~59.25%~~54.72% reflecting ~~higher~~lower net interest ~~income offset by the increase in non-interest expense.~~income.

Financial Position (~~June 30, 2023,~~March 31, 2024, compared to ~~March~~December 31, 2023)

●

Total assets ~~increased to a Company record of~~were $4.0 billion ~~up from $3.9 billion mainly~~at the end of both the first quarter 2024 and the fourth quarter 2023, primarily due to loan ~~growth.~~growth offset by lower cash and security balances during the first quarter 2024.

●

~~Cash~~Total cash and cash equivalents ~~increased~~were $76.2 million, compared to ~~$123.8~~$94.8 million ~~from $82.7~~at year-end 2023. Interest-earning cash held with other banks totaled $45.3 million ~~principally due~~compared to ~~an increase in wholesale borrowings.~~ $52.6 million at year-end 2023.

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●

Securities ~~were $556.0~~decreased to $527.6 million ~~or 14% of total assets,~~ compared to ~~$572.8~~$534.6 million ~~or 15% of total assets. Net unrealized losses increased to $71.9 million from $65.8 million as prevailing market rates for similar duration~~at year-end 2023 driven primarily by amortizing securities ~~increased during the current quarter.~~ pay-downs offset by security purchases.

●

Total loans ~~grew 9%, led by commercial loans, which increased 12%. We continue to be selective in commercial loan growth with proven business partners~~were $3.0 billion at the end of both the first quarter 2024 and ~~lending limits, representing a mix of real estate loans, commercial and industrial loans, and lines of credit.~~fourth quarter 2023.

●

The ratio of the ACL to total loans was ~~0.91% compared with 0.90%.~~0.94% for both periods. Net charge-offs continue to be ~~insignificant.~~

●

Total deposits increased by $36 million to $3.1 billion. Time deposits increased $231.3 million, including $134.5 million of brokered accounts, while non-maturity deposit balances decreased $194.9 million. insignificant and near zero.

●

~~Borrowings were $459.3 million compared to $398.6 million as wholesale funds were primarily used to grow loans during~~Total deposits remained at $3.1 billion at the ~~quarter.~~end of the first quarter 2024 and the end of the fourth quarter 2023.

●

~~Total~~Senior borrowings remained relatively flat at $269.4 million in the first quarter 2024 compared to $271.0 million at the end of the fourth quarter of 2023.

●

The Company's book value per share was ~~$27.12~~$28.64 as of March 31, 2024 compared to ~~$27.00. Net income during the second quarter 2023 increased our~~$28.48 as of December 31, 2023. Unrealized losses on securities, net of taxes, reduced book value per share by ~~$0.71, which was offset by a cash dividend~~$3.26 and $3.14 at the end of ~~$0.28~~those respective periods. Tangible book value per share ~~paid~~(non-GAAP measure) was $20.48 at the end of the first quarter 2024, compared to ~~shareholders and $0.31 per share due to~~$20.28 at the ~~increase in unrealized losses on our securities portfolio.~~end of the fourth quarter 2023.

We are honored and proud to be recognized by Forbes as one of the “World’s Best Banks” again for the second consecutive year in the first quarter ~~of 2023,~~2024, based largely on service and trust metrics. Of the 75 ~~U.S.-based~~US-based banks to make the list, Bar Harbor Bank & Trust is one of only three banks headquartered in Northern New England. We believe that this recognition is a reflection of our customers’ experience with us and their trust in Bar Harbor Bank & Trust.

In May 2023, our Board of Directors authorized a stock repurchase plan for up to 5% of our outstanding shares of common stock, which represents approximately 756,000 shares. No repurchases were made in the second quarter 2023, but we will continue examine buying opportunities considering market conditions, including interest rate volatility and potential loan and risk-weighted asset growth.

COMPARISON OF FINANCIAL CONDITION AT ~~JUNE 30, 2023~~MARCH 31, 2024 AND DECEMBER 31, ~~2022~~2023

Cash and cash equivalents

Total cash and cash equivalents were ~~$123.8~~$76.2 million, ~~as of June 30, 2023,~~ compared to ~~$92.3~~$94.8 million at ~~year-end.~~year-end 2023. Interest-earning cash held with other banks totaled ~~$77.3~~$45.3 million compared to ~~$52.4~~$52.6 million at year-end ~~2022~~2023 and yielded ~~5.59%~~5.88% and ~~4.00%~~6.42%, respectively.

Securities

Securities ~~totaled $556.0~~decreased to $527.6 million ~~at June 30, 2023 and were $574.4~~compared to $534.6 million at year-end ~~2022. Year to date,~~2023 driven by $485 thousand in net amortization, and $7.8 million of amortizing securities pay-downs offset by security purchases ~~totaled $1.0 million and were offset by $23.6 million~~ of ~~maturities, calls and pay-downs of amortizing securities. There were also $2.9 million of purchases of FHLB stock during the first half of 2023.~~$4.8 million. Fair value adjustments decreased the security portfolio by ~~$71.9~~$64.9 million at quarter-end compared to ~~a $71.8~~$62.4 million at year-end. The year to date weighted average yield of the securities portfolio was ~~3.68% at June 30, 2023~~4.02% compared to ~~3.58%~~3.85% at ~~year-end.~~year-end primarily due to a run-off of lower coupon fixed-rate securities. As of quarter-end and year-end, our securities portfolio had an average life of nine years with an effective duration of five ~~years. All~~years and all securities remain classified as available for sale to provide flexibility in ~~loan~~asset funding and ~~management of our cost of funds.~~other opportunities as they arise.

Loans

~~Loans increased $104.8 million to $3.0~~Total loans grew 2%, on an annualized basis and remained at $3 billion at the end of both the ~~second~~first quarter 2024 and fourth quarter 2023. ~~The increase was~~Commercial loans grew by $35.1 million or 7% annualized primarily driven by ~~commercial loans that grew by $92.0~~a $22.7 million ~~of which $41.1 million was with new customers primarily~~or 6% increase in ~~the finance and~~commercial real estate and ~~leasing industries.~~$12.4 million or 12% increase in commercial and industrial growth. Residential loans ~~grew~~decreased by ~~annualized growth rate of 2% as we believe it was more profitable~~$16.7 million or 8% compared to ~~sell most of higher yielding originations~~the fourth quarter 2023, primarily due to continued lower demand for ~~gains in~~prevailing mortgage rates and sales into the secondary market. ~~Consumer~~Tax exempt loans ~~dropped~~decreased by ~~$3.9~~$4.7 million ~~due~~or 31% driven by payoffs within the first quarter 2024.

Allowance for Credit Losses

The ACL remained flat at $28.4 million at the end of the first quarter 2024 compared to ~~run-off~~$28.1 million at the end of ~~balances associated with~~ the ~~repricing~~fourth quarter 2023. Our ACL continues to be driven by a combination of ~~home equity lines of~~portfolio loan growth, nominal credit movement and general macroeconomic trends. Non-accruing loans increased during the first quarter 2024 to ~~the higher interest rate environment.~~$6.9 million from $5.5

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~~Allowance for Credit Losses~~

~~The ACL was $27.4~~ million at June 30, 2023 compared to $25.9 million at year-end. The increase ACL balance is largely due to loan growth during the first half of 2023, however, the ratio of ACL to total loans increased to 0.91% from 0.89% at year-end due to more refined economic forecasting, especially in the ~~national unemployment figures. Non-accruing~~fourth quarter 2023, but declined on a year-over-year basis. Charge-offs and specific reserves on non-accruing loans ~~were $6.7 million compared~~remain nominal, with $6.5 million at year-end primarily due to one lending relationship that is expected to be collected in full. Past due accounts between 30 to 89 days as a percentage of total loans was 0.09% at June 30, 2023 compared to 0.08% at year-end.these non-accruing relationships supported by relatively strong collateral values.

Deposits and Borrowings

Total deposits ~~increased $46.8 million to~~remained at $3.1 billion at the end ~~quarter. Demand~~of the first quarter 2024 and ~~other~~the end of fourth quarter 2023. The $58.4 million decrease in interest bearing demand deposits and the $25.2 million decrease in non-interest bearing demand deposits ~~decreased $73.7~~in the first quarter 2024 were offset by an increase in time deposits of $76.9 million ~~driven by large institutional outflows mainly~~primarily due to ~~seasonality. While our~~remix in higher yielding deposit ~~base does contain some larger institutional~~categories as customers are anticipating rates to decrease and are maximizing their own returns. Brokered certificate of deposit accounts ~~our community banking model caters~~(“CDs”) increased by $55 million, and senior borrowings remained relatively flat at $269.4 million in the first quarter 2024 compared to ~~the high volume, lower average balance accounts, which generally are less rate sensitive and less likely to run-off. Time deposits increased $312.1~~$271.0 million due to a shift of interest-bearing deposits to higher interest-bearing accounts, and a $187.6 million increase in brokered deposits. Savings deposits decreased $75.7 million evenly throughout the quarter. Our deposit composition at the end of the fourth quarter was 46% commercial customers and 54% consumer customers, compared with 47% and 53%, respectively at year-end. Our uninsured or otherwise unsecured deposits represents 8% of our total deposits, which ranks us on the low end in risk for the industry, and, specifically, in comparison to others within our footprint. Total borrowings increased by $65.1 million during the quarter due to support loan growth.2023.

Equity

Total equity was ~~$410.7~~$435.7 million at ~~June 30, 2023~~March 31, 2024 compared with ~~$393.4~~$432.1 million at year-end. Tangible book value per share (non-GAAP) was ~~$18.88~~$20.48 at ~~June 30, 2023~~March 31, 2024 compared with ~~$17.78~~$20.28 at year-end. Equity included ~~net unrealized losses on securities totaling a $55.3~~Fair value adjustments decreased the security portfolio by $64.9 million ~~loss~~ at ~~June 30, 2023 and~~quarter-end compared to $62.4 million at year-end 2022. Excluding unrealized net losses on securities, our tangible book value per share was $22.53 per share at June 30, 2023 compared with $21.44 per share at year-end, which is an annualized increase of 10%.year-end.

COMPARISON OF OPERATING RESULTS FOR THE THREE ~~AND SIX~~ MONTHS ENDED ~~JUNE 30,~~MARCH 31, 2024 AND MARCH 31, 2023 ~~AND 2022~~

Net Income

Net income was $10.1 million, compared to $13.0 million. Diluted earnings per share was $0.66, compared to $0.86. The decrease was primarily driven by a higher cost of funds offset by rising asset yields in the first quarter 2024.

Interest and Dividend Income

Total interest and dividend income increased by $5.4 million or 13.4% to $45.8 million compared to $40.4 million in the first quarter 2023 primarily driven by the repricing of adjustable loans and originations of higher fixed rate loans within the commercial portfolio. The yield on commercial real estate loans grew 39 basis points to 5.47% at the end of the first quarter 2024 from 5.08% in the first quarter 2023. Commercial and industrial yield grew 79 basis points to yield 6.68% at the end of the first quarter 2024 compared to 5.89% at the end of the first quarter 2023. Increases in yields were driven by the current rate environment.

Net Interest Income

Net ~~income~~interest margin was 3.14% compared to 3.54% in the ~~second~~first quarter 2023 was $10.8 million, or $0.71 per diluted share, versus $10.5 million, or $0.70 per diluted share, in the same quarter of 2022. NIM increased to 3.22% in the second quarter 2023 compared to 3.19% in the same quarter of 2022.2023. The ~~increase~~decrease was primarily driven ~~by new loans and yield expansion on existing variable rate loans, which were partially offset~~ by a higher cost of ~~funds. Interest-bearing cash balances increased NIM~~funds offset by ~~2 basis points~~rising asset yields in the ~~second~~first quarter ~~2023 compared to a decrease of 5 basis points in the prior year quarter.~~2024. The yield on loans ~~expanded~~grew 49 basis points to ~~4.99% at~~5.31% in the ~~end of the second~~first quarter ~~2023,~~2024, up from ~~3.71%~~4.82% in the same quarter ~~of 2022.~~2023. Costs of interest-bearing liabilities increased to ~~1.99%~~2.48% from 1.39% in the ~~second~~first quarter 2023 ~~from 0.36% in~~showing evolution of the ~~same quarter 2022~~market pricing amongst interest-bearing demand deposits, money market accounts and time deposits as ~~our costs~~customers are seeking out more competitive rates. We continue to ~~drift upwards from subsequent interest rate hikes. We also experienced~~experience a shift in deposit composition from non-maturity deposits to ~~time deposits as some customers continue~~CDs. Interest expense increased $8.3 million in the first quarter 2024 compared to ~~seek higher returns. In~~ the ~~second~~first quarter of 2023 driven by the rate environment. Cost of borrowing decreased $944 thousand or 22.5% in the first quarter 2024 compared to the first quarter 2023 ~~we had~~driven by a ~~heavier reliance on whole-sale borrowings than~~$68.8 million reduction in ~~the second quarter 2022, which also has a cost that is almost 200 basis points higher than in the prior year quarter.~~

~~For the first six months of 2023, net interest income was $59.7~~borrowing to $269.4 million ~~compared with $50.8~~from $338.2 million in the same period of 2022. The comparison of NIM and earning asset yields for the respective six month periods of 2023 and 2022 were 3.39% and 4.70%, and 3.07% and 3.34%. Interest-bearing cash balances increased NIM by 1 basis point in the first half of 2023 compared to a decrease of 9 basis points in the same period in prior year. The explanations for the improvement in NIM are consistent with those provided in the year-over-year three month comparison above.quarter 2023.

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Provision for Credit Losses

The provision for credit losses was ~~$750~~$289 thousand compared to $798 thousand in the ~~second~~first quarter 2023 compared to $534 thousand in the prior year quarter. For the first half of 2023, provision for credit losses was $1.5 million and $911 thousand in the same period of 2022. The increase is primarily driven by loan growth and slightly higher provisioning given current market conditions. The ratio ofas net charge-offs to total loans ~~was near zero for~~continue to remain nominal. Credit quality continues to be strong as non-accruing loans to total loans declined 3 basis points to 0.23% at the ~~second~~end of the first quarter ~~of 2023 and year-to-date June 30, 2023 as well~~2024 compared to 0.26% in the ~~same comparative periods~~first quarter 2023. Total delinquent and non-accruing loans to total loans declined 15 basis points from 0.52% at the end of ~~2022. Net charge-offs have been at historic lows for~~ the ~~past five years, which we believe is due~~first quarter 2023 to ~~our underwriting standards.~~0.37% in the first quarter 2024.

Non-Interest Income

Non-interest income was ~~$9.0~~$8.6 million in the ~~second~~first quarter ~~2023 and 2022. Customer service fees grew~~2024 compared to ~~$3.8 million in the second quarter 2023 from $3.7~~$9.2 million in the same quarter 2023 primarily driven by elevated BOLI income of ~~2022 on a higher number~~$622 thousand related to one-time death benefits, and customer derivative income

Table of ~~transactional accounts.~~Contents

$132 thousand at the end of the first quarter 2023. Wealth management income ~~was $3.8~~grew 3% to $3.7 million compared to $3.6 million in the ~~second~~first quarter ~~2023 and 2022 as higher inflows of cash since 2022 were offset by lower security valuations of assets under management in~~ 2023. Mortgage banking income was $378 thousand in the second quarter of 2023, compared to $488 thousand in the same period of 2022 reflecting fewer sales and increased on balance sheet activity related to higher interest rates.

Non-Interest Expense

Non-interest expense was ~~$23.4~~$23.7 million in the ~~second~~first quarter ~~of 2023~~2024 compared to ~~$21.7~~$22.7 million in the ~~same~~first quarter ~~of 2022 principally due to higher~~2023 driven by salary and ~~benefit expense.~~benefits, marketing and other expenses. Salary and benefit ~~expense~~expenses increased ~~due~~4% or $477 thousand from the comparative quarter driven by cost of living increases in the first quarter 2024. Marketing expenses increased to ~~annual salary adjustments that were effective at~~$567 thousand compared to $409 thousand in the ~~end of~~first quarter 2023. Other expenses increased to $4.4 million from $4.1 million in the first quarter of 2023 primarily due to increases in assessments, software expenses, and higher stock compensation and post-retirement expense in 2023 as compared to the prior year quarter. The increase in stock compensation expense is due the revaluation of our long term incentive obligation based on a smaller changedebit card replacement costs in the Company stock price as compared to the second quarter 2022. Post-retirement expense also increased because of a smaller revaluation of obligations, which based on changes in the FTSE Above Median Double-A Index, as compared to the secondfirst quarter of ~~2022.~~

For the first six months of 2023, non-interest expense was $46.1 million and $43.6 million in the same period of 2022. The increase in non-interest expense is due to the same reasons as discussed in the quarterly period above. The Company's year-to-date efficiency ratio was 57.40% in 2023 compared to 60.78% in 2022 which reflects managements’ disciplined approach to expense management as revenue continues to grow.2024.

Income Tax Expense

Income tax expense was ~~$2.8~~$2.6 million in the ~~second~~first quarter ~~2023~~2024 compared with ~~$2.7~~$3.6 million in the prior year quarter. The effective tax rate ~~increased~~was 20.3% the first quarter 2024 compared to ~~20.8% in~~21.6% the ~~second~~first quarter ~~2023, which is flat with 20.7% prior year quarter due to relatively consistent pre-tax income.~~2023.

Liquidity and Cash Flows

Liquidity is measured by our ability to meet short-term cash needs at a reasonable cost or minimal loss. We seek to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Besides serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer-initiated needs. Many factors affect our ability to meet liquidity needs, including variations in the markets served by our network of offices, mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions.

The Bank actively manages its liquidity position through target ratios established under its Asset-Liability Management Policy. Continual monitoring of these ratios, by using historical data and through forecasts under multiple rate and stress scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity. The Bank's policy is to maintain a liquidity position of at least 8% of total assets. A portion of the Bank’s deposit base has been historically seasonal in nature, with balances typically declining in the winter months through late spring, during which period the Bank’s liquidity position tightens.

As of ~~June 30, 2023,~~March 31, 2024, available same-day liquidity totaled approximately ~~$557.0 million,~~$1.1 billion, including cash, borrowing capacity at FHLB and the Federal Reserve Discount Window and various lines of credit. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from our amortizing securities and loan portfolios. We

~~Table~~As of ~~Contents~~

March 31, 2024, we had unused borrowing capacity at the FHLB of ~~$219.3~~$426.1 million, unused borrowing capacity at the Federal Reserve of ~~$162.9~~$90.9 million and unused lines of credit totaling $51.0 million, in addition to ~~$123.8~~$76.2 million in cash.

The Bank maintains a liquidity contingency plan approved by the Bank’s Board of Directors. This plan addresses the steps that would be taken in the event of a liquidity crisis, and identifies other sources of liquidity available to us. Our management believes the level of liquidity is sufficient to meet current and future funding requirements. However, changes in economic conditions, including consumer savings habits and availability or access to the brokered deposit market could potentially have a significant impact on our liquidity position.

Capital Resources

Please refer to “Comparison of Financial Condition at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 - Equity” for a discussion of shareholders’ equity together with Note 6 “Capital Ratios and Shareholders’ Equity” in the unaudited consolidated financial statements. Additional information about regulatory capital is contained in the notes to the consolidated financial statements and in our most recent Form 10-K.

We expect to continue our current practice of paying quarterly cash dividends with respect to our common stock subject to our Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. We believe our quarterly dividend rate per share as approved by our Board of Directors, enables us to balance our multiple objectives of managing our business and returning a portion of our earnings to our shareholders. Historically, and a practice we intend to continue, our principal cash expenditure is the payment of dividends on our common stock, if as and when declared by our Board of Directors. Dividends were paid to our shareholders in the aggregate amount of ~~$8.1~~ $4.2

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million and ~~$7.5~~$3.9 million for the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively. All dividends declared and distributed by us will be in compliance with applicable state corporate law and regulatory requirements.

Off-Balance Sheet Arrangements

We are, from time to time, a party to certain off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that may be material to investors.

Our off-balance sheet arrangements are limited to standby letters of credit whereby the Bank guarantees the obligations or performance of certain customers. These letters of credit are sometimes issued in support of third-party debt. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and such letters of credit are subject to the same origination, portfolio maintenance and management procedures in effect to monitor other credit products. The amount of collateral obtained, if deemed necessary by the Bank upon issuance of a standby letter of credit, is based upon management's credit evaluation of the customer.

Our off-balance sheet arrangements have not changed materially since previously reported in our Form 10-K.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

Please refer to Note 1 – “Basis of Presentation—Recent Accounting Pronouncements” of the Consolidated Financial Statements in this Form 10-Q and Note 1—“Summary of Significant Accounting Policies” of the Consolidated Financial Statements to our Form 10-K.

CRITICAL ACCOUNTING POLICIES

Our Consolidated Financial Statements were prepared in accordance with GAAP and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1—“Summary of Significant Accounting Policies” of the Consolidated Financial Statements to our Form 10-K. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the Consolidated Financial Statements. These factors include among other things, whether the policy requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our Consolidated Financial Statements are presented

~~Table of Contents~~

in the section titled “Management's Discussion and Analysis of Financial Condition and Results of ~~Operations--Critical~~Operations - Critical Accounting Policies and Estimates” included in our Form 10-K. There have been no significant changes in our application of critical accounting policies since December 31, ~~2022.~~2023. Refer to Note 1 – “Basis of ~~Presentation--Recent~~Presentation - Recent Accounting Pronouncements” of the consolidated financial statements for discussion of accounting pronouncements issued but yet to be adopted and implemented.

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SELECTED FINANCIAL DATA

The following summary data is based in part on the unaudited consolidated financial statements and accompanying notes and other information appearing elsewhere in this Form 10-Q or prior SEC filings.


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2023			2022			2023			2022			2024			2023
PER SHARE DATA
Net earnings, diluted	$	0.71		$	0.70		$	1.57		$	1.30		$	0.66		$	0.86
Adjusted earnings, diluted⁽¹⁾		0.71			0.70			1.56			1.30			0.66			0.86
Total book value		27.12			26.19			27.11			26.19			28.64			27.00
Tangible book value per share⁽¹⁾		18.88			17.83			18.87			17.83			20.48			18.74
Market price at period end		24.64			25.86			24.64			25.86			26.48			26.45
Dividends		0.28			0.26			0.54			0.50			0.28			0.26

PERFORMANCE RATIOS⁽²⁾
Return on assets		1.10	%		1.14	%		1.23	%		1.07	%		1.03	%		1.36	%
Adjusted return on assets⁽¹⁾		1.09			1.14			1.22			1.07			1.03			1.36
Pre-tax, pre-provision return on assets		1.47			1.50			1.64			1.39			1.32			1.81
Adjusted pre-tax, pre-provision return on assets ⁽¹⁾		1.46			1.50			1.63			1.40			1.32			1.81
Return on equity		10.49			10.58			11.71			9.72			9.32			12.96
Adjusted return on equity⁽¹⁾		10.42			10.59			11.67			9.74			9.32			12.94
Return on tangible equity		15.28			15.74			17.10			14.33			13.26			18.97
Adjusted return on tangible equity⁽¹⁾		15.19			15.76			17.04			14.37			13.27			18.94
Net interest margin, fully taxable equivalent^{(1) (3)}		3.22			3.19			3.39			3.07			3.14			3.54
Efficiency ratio⁽¹⁾		60.25			59.25			57.40			60.78			62.91			54.72

FINANCIAL DATA (In millions)
Total assets	$	4,029		$	3,716		$	4,029		$	3,716		$	3,959		$	3,928
Total earning assets⁽⁴⁾		3,716			3,399			3,716			3,399			3,663			3,628
Total investments		556			593			556			593			538			573
Total loans		3,007			2,727			3,007			2,727			3,012			2,944
Allowance for credit losses		27			24			27			24			28			27
Total goodwill and intangible assets		125			126			125			126			124			125
Total deposits		3,090			3,079			3,090			3,079			3,127			3,054
Total shareholders' equity		411			394			411			394			436			408
Net income		11			11			24			20			10			13
Adjusted income⁽¹⁾		11			11			24			20			10			13

ASSET QUALITY AND CONDITION RATIOS
Net charge-offs (recoveries) (annualized)/average loans		—	%		—	%		0.01	%		(0.01)	%		0.01	%		0.01	%
Allowance for credit losses/total loans		0.91			0.87			0.91			0.87			0.94			0.90
Loans/deposits		97			89			97			89			96			96
Shareholders' equity to total assets		10.20			10.59			10.20			10.59			11.01			10.40
Tangible shareholders' equity to total tangible assets⁽¹⁾		7.32			7.46			7.32			7.46			8.13			7.45

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(1)	Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Form 10-Q for additional information.

(2)	All performance ratios are annualized and are based on average balance sheet amounts, where applicable.

(3)	Fully taxable equivalent considers the impact of tax-advantaged investment securities and loans.

(4)	Earning assets includes non-accruing loans and securities are valued at amortized cost.

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CONSOLIDATED LOAN AND DEPOSIT ANALYSIS (UNAUDITED)

The following tables present the quarterly trend in loan and deposit data and accompanying growth rates as of ~~June 30, 2023~~March 31, 2024 on an annualized basis:

LOAN ANALYSIS


											Annualized														Annualized
											Growth %														Growth %
											Quarter		Year												Quarter
(in thousands, except ratios)	Jun 30, 2023		Mar 31, 2023		Dec 31, 2022		Sep 30, 2022		Jun 30, 2022		to Date		to Date		Mar 31, 2024		Dec 31, 2023		Sep 30, 2023		Jun 30, 2023		Mar 31, 2023		to Date
Commercial real estate	$	1,551,748	$	1,519,219	$	1,495,452	$	1,421,962	$	1,331,860	9	%	8	%	$	1,574,802	$	1,552,061	$	1,548,835	$	1,551,748	$	1,519,219	6	%
Commercial and industrial		388,430		364,315		352,735		376,624		360,304	26		20			412,567		400,169		391,347		388,430		364,315	12
Paycheck Protection Program (PPP)		—		—		—		—		170	—		—
Total commercial loans		1,940,178		1,883,534		1,848,187		1,798,586		1,692,334	12		10			1,987,369		1,952,230		1,940,182		1,940,178		1,883,534	7
Total commercial loans, excluding PPP		1,940,178		1,883,534		1,848,187		1,798,586		1,692,164	12		10

Residential real estate		907,741		906,059		898,192		896,618		876,644	1		2			873,213		889,904		896,757		907,741		906,059	(8)
Consumer		96,947		98,616		100,855		100,822		100,816	(7)		(8)			95,838		97,001		95,160		96,947		98,616	(5)
Tax exempt and other		62,614		55,796		55,456		54,338		57,480	49		26			55,252		59,914		60,692		62,614		55,796	(31)
Total loans	$	3,007,480	$	2,944,005	$	2,902,690	$	2,850,364	$	2,727,274	9	%	7	%	$	3,011,672	$	2,999,049	$	2,992,791	$	3,007,480	$	2,944,005	2	%

DEPOSIT ANALYSIS


											Annualized														Annualized
											Growth %														Growth %
											Quarter		Year												Quarter
(in thousands, except ratios)	Jun 30, 2023		Mar 31, 2023		Dec 31, 2022		Sep 30, 2022		Jun 30, 2022		to Date		to Date		Mar 31, 2024		Dec 31, 2023		Sep 30, 2023		Jun 30, 2023		Mar 31, 2023		to Date
Demand	$	602,667	$	636,710	$	676,350	$	700,218	$	670,268	(21)	%	(22)	%	$	544,495	$	569,714	$	618,421	$	602,667	$	636,710	(18)	%
NOW		911,488		908,483		900,730		918,822		883,239	1		2			888,591		946,978		929,481		911,488		908,483	(25)
Savings		588,769		628,798		664,514		669,317		663,676	(25)		(23)			551,493		553,963		572,271		588,769		628,798	(2)
Money market		351,762		475,577		478,398		513,075		499,456	*		(53)			365,289		370,242		361,839		351,762		475,577	(5)
Total non-maturity deposits		2,454,686		2,649,568		2,719,992		2,801,432		2,716,639	(29)		(20)			2,349,868		2,440,897		2,482,012		2,454,686		2,649,568	(15)
Total time deposits		635,559		404,246		323,439		334,248		361,906	*		*			777,208		700,260		658,482		635,559		404,246	44
Total deposits	$	3,090,245	$	3,053,814	$	3,043,431	$	3,135,680	$	3,078,545	5	%	3	%	$	3,127,076	$	3,141,157	$	3,140,494	$	3,090,245	$	3,053,814	(2)	%

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AVERAGE BALANCES AND AVERAGE YIELDS/RATES (UNAUDITED)

The following tables present average balances and average yields and rates on an annualized fully taxable equivalent basis for the periods included:


	Three Months Ended June 30,												Three Months Ended March 31,
	2023						2022						2024						2023
	Average				Yield/		Average				Yield/		Average				Yield/		Average				Yield/
(in thousands, except ratios)	Balance		Interest⁽³⁾		Rate⁽³⁾		Balance		Interest⁽³⁾		Rate⁽³⁾		Balance		Interest⁽³⁾		Rate⁽³⁾		Balance		Interest⁽³⁾		Rate⁽³⁾
Assets
Interest-earning deposits with other banks	$	21,440	$	299	5.59	%	$	63,317	$	127	0.80	%	$	36,608	$	535	5.88	%	$	19,819	$	209	4.28	%
Securities available for sale and FHLB stock⁽²⁾⁽³⁾		636,088		5,888	3.71			637,881		4,276	2.69			604,658		6,040	4.02			643,523		5,807	3.66
Loans:
Commercial real estate		1,536,035		19,960	5.21			1,296,162		12,348	3.82			1,558,506		21,187	5.47			1,505,681		18,862	5.08
Commercial and industrial		434,384		6,958	6.42			412,518		3,771	3.67			464,762		7,718	6.68			413,921		6,009	5.89
Paycheck protection program		—		—	—			788		27	13.99
Residential		911,788		8,537	3.76			863,172		7,635	3.55			884,767		9,004	4.09			902,348		8,260	3.71
Consumer		97,518		1,621	6.67			98,588		938	3.82			96,163		1,726	7.22			100,124		1,572	6.37
Total loans ⁽¹⁾		2,979,725		37,076	4.99			2,671,228		24,719	3.71			3,004,198		39,635	5.31			2,922,074		34,703	4.82
Total earning assets		3,637,253		43,263	4.77	%		3,372,426		29,122	3.46	%		3,645,464		46,210	5.10	%		3,585,416		40,719	4.61	%
Other assets		293,449						315,950						292,541						299,516
Total assets	$	3,930,702					$	3,688,376					$	3,938,005					$	3,884,932

Liabilities
NOW	$	885,091	$	2,081	0.94	%	$	893,239	$	304	0.14	%
Interest-bearing demand deposits													$	899,349	$	3,000	1.34	%	$	883,134	$	1,106	0.51	%
Savings		602,724		559	0.37			657,047		138	0.08			552,231		863	0.63			646,291		485	0.30
Money market		423,013		2,657	2.52			457,088		213	0.19			390,720		2,986	3.07			481,951		2,542	2.14
Time deposits		468,188		3,293	2.82			375,782		540	0.58			738,683		7,683	4.18			342,994		1,132	1.34
Total interest bearing deposits		2,379,016		8,590	1.45			2,383,156		1,195	0.20			2,580,983		14,532	2.26			2,354,370		5,265	0.91
Borrowings		466,402		5,501	4.73			178,519		1,074	2.41			298,918		3,236	4.35			398,837		4,180	4.25
Total interest bearing liabilities		2,845,418		14,091	1.99	%		2,561,675		2,269	0.36	%		2,879,901		17,768	2.48	%		2,753,207		9,445	1.39	%
Non-interest bearing demand deposits		608,180						661,412						554,816						651,885
Other liabilities		64,346						67,069						67,561						72,693
Total liabilities		3,517,944						3,290,156						3,502,278						3,477,785

Total shareholders' equity		412,758						398,220						435,727						407,147

Total liabilities and shareholders' equity	$	3,930,702					$	3,688,376					$	3,938,005					$	3,884,932

Net interest spread					2.78	%					3.10	%					2.62	%					3.22	%
Net interest margin					3.22						3.19						3.14						3.54

(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.

~~Table of Contents~~

Six Months Ended June 30,

2023

2022

Average

Interest

Yield/

Average

Interest

Yield/
(in millions, except ratios)

Balance

⁽³⁾

Rate⁽³⁾

Balance

⁽³⁾

Rate⁽³⁾
Assets

Interest-earning deposits with other banks

$
22,506

$
508

4.55
%

$
100,052

$
183

0.37
%
Securities available for sale and FHLB stock⁽²⁾⁽³⁾

623,488

11,695

3.78

630,443

8,239

2.64

Loans:

Commercial real estate

1,522,470

38,823

5.14

1,282,528

23,255

3.66

Commercial and industrial⁽³⁾

425,676

12,967

6.14

392,006

7,132

3.67

Paycheck protection program

—

—

—

16,112

223

2.80

Residential

906,979

16,797

3.73

857,109

15,125

3.56

Consumer

98,817

3,193

6.52

98,824

1,782

3.64

Total loans ⁽¹⁾

2,953,942

71,780

4.90

2,646,579

47,517

3.62

Total earning assets

3,599,936

83,983

4.70
%

3,377,074

55,939

3.34
%



Other assets

311,354

325,144





Total assets

$
3,911,290



$
3,702,218



Liabilities













NOW

$
885,317

$
3,187

0.73
%

$
911,420

$
618

0.14
%
Savings

622,662

1,044

0.34

649,652

275

0.09

Money market

447,543

5,198

2.34

438,189

331

0.15

Time deposits

416,849

4,425

2.14

390,040

1,160

0.60

Total interest bearing deposits

2,372,371

13,854

1.18

2,389,301

2,384

0.20

Borrowings

432,867

9,681

4.51

178,643

2,084

2.35

Total interest bearing liabilities

2,805,238

23,535

1.69
%

2,567,944

4,468

0.35
%
Non-interest bearing demand deposits

628,663





661,677





Other liabilities

67,437





65,669





Total liabilities

3,501,338





3,295,290





Total shareholders' equity

409,952





406,928





Total liabilities and shareholders' equity

$
3,911,290





$
3,702,218





Net interest spread

3.01
%

2.99
%
Net interest margin





3.39





3.07

~~(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.~~

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)

The following reconciliation table provides a more detailed analysis of these, and reconciliation for, each of non-GAAP financial measures:




		Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended March 31,
(in thousands)	Calculations		2023		2022			2023		2022	Calculations		2024		2023
Net income		$	10,791	$	10,503		$	23,803	$	19,615		$	10,095	$	13,012
Non-recurring items:
Gain on sale of securities, net			—		—			(34)		(9)			—		(34)
Gain on sale of premises and equipment, net			(86)		10			(99)		(65)			(15)		(13)
Acquisition, conversion and other expenses			—		—			20		325			20		20
Income tax expense ⁽¹⁾			20		(2)			28		(205)			(1)		6
Total non-recurring items			(66)		8			(85)		46			4		(21)
Total adjusted income⁽²⁾	(A)	$	10,725	$	10,511		$	23,718	$	19,661	(A)	$	10,099	$	12,991

Net interest income	(B)	$	28,790	$	26,519		$	59,696	$	50,817	(B)	$	28,055	$	30,906
Plus: Non-interest income			8,980		8,961			18,164		18,270			8,586		9,184
Total Revenue			37,770		35,480			77,860		69,087			36,641		40,090
Gain on sale of securities, net			—		—			(34)		(9)			—		(34)
Total adjusted revenue⁽²⁾	(C)	$	37,770	$	35,480		$	77,826	$	69,078	(C)	$	36,641	$	40,056

Total non-interest expense		$	23,392	$	21,700		$	46,096	$	43,586		$	23,688	$	22,704
Non-recurring expenses:
Gain on sale of premises and equipment, net			86		(10)			99		65			15		13
Acquisition, conversion and other expenses			—		—			(20)		(325)			(20)		(20)
Total non-recurring expenses			86		(10)			79		(260)			(5)		(7)
Adjusted non-interest expense⁽²⁾	(D)	$	23,478	$	21,690		$	46,175	$	43,326	(D)	$	23,683	$	22,697

Total revenue			37,770		35,480			77,860		69,087			36,641		40,090
Total non-interest expense			23,392		21,700			46,096		43,586			23,688		22,704
Pre-tax, pre-provision net revenue		$	14,378	$	13,780		$	31,764	$	25,501		$	12,953	$	17,386

Adjusted revenue⁽²⁾			37,770		35,480			77,826		69,078			36,641		40,056
Adjusted non-interest expense⁽²⁾			23,478		21,690			46,175		43,326			23,683		22,697
Adjusted pre-tax, pre-provision net revenue⁽²⁾	(U)	$	14,292	$	13,790		$	31,651	$	25,752	(U)	$	12,958	$	17,359

(in millions)
Average earning assets	(E)		3,637		3,372	��	$	3,600	$	3,377	(E)	$	3,645	$	3,585
Average paycheck protection program (PPP) loans	(R)		—		1			—		16
Average earning assets, excluding PPP loans	(S)		3,931		3,371			3,600		3,361
Average assets	(F)		413		3,688			3,911		3,702	(F)		3,938		3,885
Average shareholders' equity	(G)		288		398			410		407	(G)		436		407
Average tangible shareholders' equity⁽²⁾⁽³⁾	(H)		286		272			410		281	(H)		312		282
Tangible shareholders' equity, period-end⁽²⁾⁽³⁾	(I)		3,904		268			283		268	(I)		312		283
Tangible assets, period-end⁽²⁾⁽³⁾	(J)		—		3,590			3,904		3,590	(J)		3,835		3,803

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		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
	Calculations		2023			2022			2023			2022		Calculations		2024			2023
(in thousands)
Common shares outstanding, period-end	(K)		15,144			15,026			15,125			15,026		(K)		15,212			15,124
Average diluted shares outstanding	(L)		15,180			15,077			15,186			15,094		(L)		15,270			15,190

Adjusted earnings per share, diluted⁽²⁾	(A/L)	$	0.71		$	0.70		$	1.57		$	1.30		(A/L)	$	0.66		$	0.86
Tangible book value per share, period-end⁽²⁾	(I/K)		18.88			17.83			18.88			17.83		(I/K)		20.48			18.74
Securities adjustment, net of tax⁽¹⁾⁽⁴⁾	(M)		(55,307)			(38,304)			(55,307)			(38,304)		(M)		(49,633)			(50,646)
Tangible book value per share, excluding securities adjustment⁽²⁾⁽⁴⁾	(I+M)/K		22.53			20.38			22.53			20.38		(I+M)/K		23.75			22.08
Total tangible shareholders' equity/total tangible assets⁽²⁾	(I/J)		7.32			7.46			7.45			7.46		(I/J)		8.13			7.45

Performance ratios⁽⁵⁾
Return on assets			1.10	%		1.14	%		1.23	%		1.07	%			1.03	%		1.36	%
Core return on assets⁽²⁾	(A/F)		1.09			1.14			1.22			1.07		(A/F)		1.03			1.36
Pre-tax, pre-provision return on assets			1.47			1.50			1.64			1.39				1.32			1.81
Adjusted pre-tax, pre-provision return on assets⁽²⁾	(U/F)		1.63			1.50			1.63			1.40		(U/F)		1.32			1.81
Return on equity			10.49			10.58			11.71			9.72				9.32			12.96
Core return on equity⁽²⁾	(A/G)		10.42			10.59			11.67			9.74		(A/G)		9.32			12.94
Return on tangible equity			15.28			15.74			17.10			14.33				13.26			18.97
Adjusted return on tangible equity⁽¹⁾⁽²⁾	(A+Q)/H		15.19			15.76			17.04			14.37		(A+Q)/H		13.27			18.94
Efficiency ratio^(1)(2)(6)	(D-O-Q)/(C+N)		60.25			59.25			57.40			60.78		(D-O-Q)/(C+N)		62.91			54.72
Net interest margin	(B+P)/E		3.22			3.19			3.39			3.07		(B+P)/E		3.14			3.54

Supplementary data (in thousands)
Taxable equivalent adjustment for efficiency ratio	(N)	$	539		$	491		$	1,266		$	967		(N)	$	523		$	727
Franchise taxes included in non-interest expense	(O)		163			144			311			285		(O)		70			148
Tax equivalent adjustment for net interest margin	(P)		382			334			750			654		(P)		388			368
Intangible amortization	(Q)		233			233			466			466		(Q)		233			233
Interest and fees on PPP loans	(T)		—			27			—			223

(1)	Assumes a marginal tax rate of 24.01% for 2024 and 23.80% for ~~2023 and 23.41% for 2022.~~2023.

(2)	Non-GAAP financial measure.

(3)	Tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. Tangible assets is computed by taking total assets less the intangible assets at period-end.

(4)	Securities adjustment, net of tax represents the total unrealized losses and gains on available-for-sale securities recorded on our consolidated balance sheets within total common shareholders' equity.

(5)	All performance ratios are based on average balance sheet amounts, where applicable.

(6)	Efficiency ratio is computed by dividing core non-interest expense net of franchise taxes and intangible amortization divided by core revenue on a fully taxable equivalent basis.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. The most significant market risk that affects us is interest rate risk. Other types of market risk do not arise in the normal course of our business activities.

The responsibility for interest rate risk management oversight is the function of the Bank’s Asset and Liability Committee (“ALCO”), chaired by the Bank’s Chief Financial Officer and composed of various members of the Bank’s senior management. ALCO meets regularly to review balance sheet structure, formulate strategies in light of current and expected economic conditions, adjust product prices as necessary, implement policy, monitor liquidity, and review performance against guidelines established to control exposure to the various types of inherent risk.

Interest Rate Risk

Interest rate risk can be defined as an exposure to movement in interest rates that could have an adverse impact on the Bank's net interest income. Interest rate risk arises from the imbalance in the re-pricing, maturity and/or cash flow characteristics of assets and liabilities. Management’s objectives are to measure, monitor and develop strategies in response to the interest rate risk profile inherent in the Bank’s balance sheet. The objectives in managing the Bank's balance sheet are to preserve the sensitivity of net interest income to actual or potential changes in interest rates, and to enhance profitability through strategies that promote sufficient reward for understood and controlled risk.

The Bank’s interest rate risk measurement and management techniques incorporate the re-pricing and cash flow attributes of balance sheet and off-balance sheet instruments as each relate to current and potential changes in interest rates. The level of interest rate risk, measured in terms of the potential future effect on net interest income, is determined through the use of modeling and other techniques under multiple interest rate scenarios. Interest rate risk is evaluated in depth on a quarterly basis and reviewed by ALCO and the Bank’s Board of Directors.

The Bank's Asset Liability Management Policy, approved annually by the Bank’s Board of Directors, establishes interest rate risk limits in terms of variability of net interest income under rising, flat, and decreasing rate scenarios. It is the role of the ALCO to evaluate the overall risk profile and to determine actions to maintain and achieve a posture consistent with policy guidelines.

Interest Rate Sensitivity Modeling:

The Bank utilizes an interest rate risk model widely recognized in the financial industry to monitor and measure interest rate risk. The model simulates the behavior of interest income and expense for all balance sheet and off-balance sheet instruments, under different interest rate scenarios together with a dynamic future balance sheet. Interest rate risk is measured in terms of potential changes in net interest income based upon shifts in the yield curve.

The interest rate risk sensitivity model requires that assets and liabilities be broken down into components as to fixed, variable, and adjustable interest rates, as well as other homogeneous groupings, which are segregated as to maturity and type of instrument. The model includes assumptions about how the balance sheet is likely to evolve through time and in different interest rate environments. The model uses contractual re-pricing dates for variable products, contractual maturities for fixed rate products, and product-specific assumptions for deposit accounts, such as money market accounts, that are subject to re-pricing based on current market conditions. Re-pricing margins are also determined for adjustable rate assets and incorporated in the model. Investment securities and borrowings with option provisions are examined on an individual basis in each rate environment to estimate the likelihood of exercise. Prepayment assumptions for mortgage loans are calibrated using specific Bank experience while mortgage-backed securities are developed from industry standard models of prepayment speeds, based upon similar coupon ranges and degree of seasoning. Cash flows and maturities are then determined, and for certain assets, prepayment assumptions are estimated under different interest rate scenarios. Interest income and interest expense are then simulated under several hypothetical interest rate conditions.

The simulation models a parallel and pro rata shift in rates over a 12-month period. Using this approach, we are able to produce simulation results that illustrate the effect that both a gradual “rate ramp” and a “rate shock” have on earnings

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expectations. Our net interest income sensitivity analysis reflects changes to net interest income assuming no balance sheet growth and a parallel shift in interest rates. All rate changes were “ramped” over the first 12-month period and then maintained at those levels over the remainder of the simulation horizon. Changes in net interest income based upon these simulations are measured against the flat interest rate scenario.

As of ~~June 30, 2023,~~March 31, 2024, interest rate sensitivity modeling results indicate that the Bank’s balance sheet was asset sensitive over the one- and two-year horizons.

The following table presents the changes in sensitivities on net interest income for the periods ended ~~June 30, 2023~~March 31, 2024 and ~~2022:~~2023:


Change in Interest Rates-Basis Points (Rate Ramp)	1 - 12 Months				13 - 24 Months				1 - 12 Months				13 - 24 Months
(in thousands, except ratios)	$ Change		% Change		$ Change		% Change		$ Change		% Change		$ Change		% Change
At June 30, 2023
At March 31, 2024
-200	$	(4,283)	(3.3)	%	$	(12,042)	(8.6)	%	$	(6,051)	(5.0)	%	$	(12,235)	(9.6)	%
-100		(2,214)	(1.7)			(5,442)	(3.9)			(3,304)	(2.7)			(6,138)	(4.8)
+100		1,194	0.9			3,048	2.2			2,297	1.9			4,306	3.4
+200		2,225	1.7			5,505	3.9			4,525	3.8			8,307	6.5
At June 30, 2022
At March 31, 2023
-200		(9,239)	(7.5)			(24,179)	(18.8)		$	(4,936)	(3.6)	%	$	(14,923)	(10.3)	%
-100		(3,979)	(3.2)			(11,446)	(8.9)			(2,593)	(1.9)			(7,028)	(4.8)
+100		2,917	2.4			8,441	6.6			1,000	0.7			4,618	3.2
+200		5,070	4.1			15,789	12.3			2,068	1.5			8,422	5.8

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 deteriorate over the one-year horizon while deteriorating further from that level over the two-year horizon.

Assuming short-term and long-term interest rates increase 200 basis points from current levels (i.e., a parallel yield curve shift) over the next twelve months and the Bank’s balance sheet structure and size remain at current levels, ~~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 improve over ~~both~~ the ~~one- and~~one year horizon while improving further from that level over the two-year ~~horizons.~~horizon.

As compared to ~~June 30, 2022,~~March 31, 2023, asset sensitivity has increased in year one while in year two sensitivity decreased to ~~both a down 100 basis point~~downward rate ~~movement~~movements and ~~an up 200 basis point~~increased to upward rate ~~movement has decreased.~~movements.

The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels and yield curve shape, prepayment speeds on loans and securities, deposit rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows, and renegotiated loan terms with borrowers. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.

As market conditions vary from those assumed in the sensitivity analysis, actual results may also differ due to: prepayment and refinancing levels deviating from those assumed; the impact of interest rate changes, caps or floors on adjustable rate assets; the potential effect of changing debt service levels on customers with adjustable rate loans; depositor early withdrawals and product preference changes; and other such variables. The sensitivity analysis also does not reflect additional actions that the Bank’s ~~senior management~~Senior Executive Team and ~~the Bank’s~~ Board of Directors might take in responding to or anticipating changes in interest rates, and the anticipated impact on the Bank’s net interest income.

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ITEM 4. CONTROLS AND PROCEDURES

(a)	Disclosure controls and procedures.

Under the supervision and with the participation of our senior management, consisting of our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Form 10-Q. Based on this evaluation, our management, including our principal executive officer and principal financial officer, concluded that as of ~~June 30, 2023,~~March 31, 2024, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by using our Exchange Act reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b)	Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We and our subsidiaries are parties to certain ordinary routine litigation incidental to the normal conduct of their respective businesses. Although the Company is not able to predict the outcome of such actions, at this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on the Company’s consolidated financial position as a whole. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.

ITEM 1A. RISK FACTORS

Investing in the Company involves various risks which are particular to our Company, our industry and our market area. We believe there were no material changes to the risk factors discussed in Part I, Item 1A. of our Form 10-K. In addition to the other information set forth in this Form 10-Q, you should carefully consider those risk factors, which could materially affect our business, financial condition and future operating results. Those risk factors are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition and operating results.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

No unregistered equity securities were sold by the Company during the quarter ended ~~June 30, 2023.~~March 31, 2024.

On ~~May 22, 2023,~~April 18, 2024, the Board of Directors approved a 12-month plan to repurchase up to 5% of the Company’s outstanding shares of common stock, representing ~~756,000~~approximately 761,000 shares. No shares were repurchased by the Company in the ~~second~~first quarter ~~of 2023~~2024 and the maximum number of shares that may yet be purchased under the plan is ~~756,000~~761,000 shares. We will continue examine buying opportunities considering market conditions, including interest rate volatility and potential loan and risk-weighted asset growth.

ITEM 5. OTHER INFORMATION

During the ~~fiscal~~ quarter ended ~~June 30, 2023, none of the Company’s directors~~March 31, 2024, no director or ~~or officers~~officer (as defined in Rule 16a-1(f) under the Exchange Act) ~~adopted~~ or ~~terminated~~ ~~any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)~~ of the ~~Exchange Act~~Company adopted or terminated any ~~non~~-~~Rule~~"Rule 10b5-1 trading ~~arrangement.~~arrangement" or "non-Rule 10b5-1 trading arrangement" as such terms are defined in Item 408(a) of Regulation S-K.

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ITEM 6. EXHIBITS



10.1	Employment Agreement, dated as of March 8, 2024, between Bar Harbor Bankshares, Bar Harbor Bank & Trust and Josephine Iannelli (incorporated herein by reference to Exhibit 10.4 to the Annual Report on Form 10-K filed with the SEC on March 11, 2024)

10.2	2024 through 2026 Long Term Executive Incentive Program Guidelines (incorporated herein by reference to Exhibit 10.9 to the Annual Report on Form 10-K filed with the SEC on March 11, 2024)

31.1*	Certification of Chief Executive Officer under Rule 13a-14(a)/15d-14(a)

31.2*	Certification of Chief Financial Officer under Rule 13a-14(a)/15d-14(a)

32.1**	Certification of Chief Executive Officer under 18 U.S.C. Sec. 1350

32.2**	Certification of Chief Financial Officer under 18 U.S.C. Sec. 1350

101*	The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2023~~March 31, 2024 is formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Changes in Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Condensed Notes to the Consolidated Financial Statements

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Filed herewith

**Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	BAR HARBOR BANKSHARES


Dated: ~~August 7, 2023~~May 8, 2024	By:	/s/ Curtis C. Simard
		Curtis C. Simard
		President & Chief Executive Officer (Principal Executive Officer)


Dated: ~~August 7, 2023~~May 8, 2024		/s/ Josephine Iannelli
		Josephine Iannelli
		Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer)

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(in thousands, except ratios)	Fair Value June 30, 2023		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)^(a)
Assets
Individually evaluated loans	$	10,220	Fair value of collateral-appraised value	Loss severity		10% to 53%
				Appraised value		$80 to $2,941

Individually evaluated loans		2,875	Discount cash flow	Discount rate		3.38% to 6.24%
				Cash flows		$3 to $703

Capitalized servicing rights		6,761	Discounted cash flow	Constant prepayment rate		7.03%
				Discount rate		9.55%

Premises held for sale		252	Fair value of asset less selling costs	Appraised value		$267
				Selling Costs		6%
Total	$	20,108