0000743367us-gaap:ConsumerPortfolioSegmentMemberbhb:OtherConsumerLoansMember2019-12-31

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

BAR HARBOR BANKSHARES AND SUBSIDIARIES

Table of Contents

~~PART I~~

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," "we" and similar terms refer to Bar Harbor Bankshares and its subsidiaries, including the Bank, collectively.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions are intended to identify forward-looking statements, but these terms are not the exclusive means of identifying forward-looking statements. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission, including but not limited to those discussed in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Because of these and other uncertainties, the Company’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, the Company’s past results of operations do not necessarily indicate future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. The Company is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. The Company qualifies all of its forward-looking statements by these cautionary statements.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data) September 30,
2017 December 31,
2016
Assets

Cash and due from banks $ 31,223
$ 8,219
Interest-bearing deposit with the Federal Reserve Bank 17,501
220
Total cash and cash equivalents 48,724
8,439
Securities available for sale, at fair value 718,459
528,856
Federal Home Loan Bank stock 37,107
25,331
Total securities 755,566
554,187
Commercial real estate 793,572
418,119
Commercial and industrial 357,072
151,240
Residential real estate 1,152,628
506,612
Consumer 125,590
53,093
Total loans 2,428,862
1,129,064
Less: Allowance for loan losses (11,950 ) (10,419 )
Net loans 2,416,912
1,118,645
Premises and equipment, net 48,309
23,419
Other real estate owned 122
90
Goodwill 100,255
4,935
Other intangible assets 8,811
377
Cash surrender value of bank-owned life insurance 57,613
24,450
Deferred tax assets, net 13,052
5,990
Other assets 26,368
14,817
Total assets $ 3,475,732
$ 1,755,349

Liabilities

Demand and other non-interest bearing deposits $ 357,398
$ 98,856
NOW deposits 442,085
175,150
Savings deposits 373,118
77,623
Money market deposits 300,398
282,234
Time deposits 802,110
416,437
Total deposits 2,275,109
1,050,300
Senior borrowings 775,582
531,596
Subordinated borrowings 43,048
5,000
Total borrowings 818,630
536,596
Other liabilities 28,534
11,713
Total liabilities 3,122,273
1,598,609
Shareholders’ equity

Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,387 and 10,182,611 shares at September 30, 2017 and December 31, 2016, respectively 32,858
13,577
Additional paid-in capital 186,220
23,027
Retained earnings 141,251
130,489
Accumulated other comprehensive loss (1,435 ) (4,326 )
Less: cost of 996,531 and 1,067,016 shares of treasury stock at September 30, 2017 and December 31, 2016, respectively (5,435 ) (6,027 )
Total shareholders’ equity 353,459
156,740
Total liabilities and shareholders’ equity $ 3,475,732
$ 1,755,349


(in thousands, except share data)	March 31, 2020		December 31, 2019
Assets
Cash and due from banks	$	68,481	$	37,261
Interest-bearing deposit with the Federal Reserve Bank		17,174		19,649
Total cash and cash equivalents		85,655		56,910

Securities:
Securities available for sale, at fair value		626,341		663,230
Federal Home Loan Bank stock		19,897		20,679
Total securities		646,238		683,909

Loans:
Commercial real estate		948,178		930,661
Commercial and industrial		426,357		423,291
Residential real estate		1,132,328		1,151,857
Consumer		128,120		135,283
Total loans		2,634,983		2,641,092
Less: Allowance for loan losses		(15,297)		(15,353)
Net loans		2,619,686		2,625,739

Premises and equipment, net		49,978		51,205
Other real estate owned		2,205		2,236
Goodwill		119,477		118,649
Other intangible assets		8,398		8,641
Cash surrender value of bank-owned life insurance		76,400		75,863
Deferred tax assets, net		3,166		3,865
Other assets		66,139		42,111
Total assets	$	3,677,342	$	3,669,128

Liabilities
Deposits:
Demand	$	400,410	$	414,534
NOW		578,320		575,809
Savings		423,345		388,683
Money market		404,385		384,090
Time		844,097		932,635
Total deposits		2,650,557		2,695,751

Borrowings:
Senior		497,580		471,396
Subordinated		59,849		59,920
Total borrowings		557,429		531,316

Other liabilities		65,601		45,654
Total liabilities		3,273,587		3,272,721

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~~

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share data) 2017 2016 2017 2016
Interest and dividend income

Loans $ 24,661
$ 10,295
$ 70,081
$ 30,627
Securities and other 5,402
3,828
15,832
12,014
Total interest and dividend income 30,063
14,123
85,913
42,641
Interest expense

Deposits 3,177
1,755
7,926
4,931
Borrowings 3,408
1,369
9,327
3,993
Total interest expense 6,585
3,124
17,253
8,924
Net interest income 23,478
10,999
68,660
33,717
Provision for loan losses 660
139
2,191
754
Net interest income after provision for loan losses 22,818
10,860
66,469
32,963
Non-interest income

Trust and investment management fee income 3,040
975
9,228
2,878
Insurance and brokerage service income 329
—
1,020
—
Customer service fees 2,638
706
5,990
1,999
Gain on sales of securities, net 19
1,354
19
4,489
Bank-owned life insurance income 380
197
1,165
540
Other income 554
140
2,043
408
Total non-interest income 6,960
3,372
19,465
10,314
Non-interest expense

Salaries and employee benefits 9,617
4,832
30,065
14,648
Occupancy and equipment 2,894
1,156
8,573
3,466
Loss on premises and equipment, net (1 ) 216
94
216
Outside services 907
181
2,220
430
Professional services 428
250
1,357
1,084
Communication 382
128
1,040
492
Amortization of intangible assets 189
1
534
25
Acquisition expenses 346
320
5,917
812
Other expenses 2,824
1,666
8,663
4,305
Total non-interest expense 17,586
8,750
58,463
25,478

Income before income taxes 12,192
5,482
27,471
17,799
Income tax expense 3,575
1,850
8,085
5,450
Net income $ 8,617
$ 3,632
$ 19,386
$ 12,349

Earnings per share:

Basic $ 0.56
$ 0.40
$ 1.27
$ 1.37
Diluted $ 0.56
$ 0.40
$ 1.27
$ 1.35

Weighted average common shares outstanding:
Basic 15,420
9,064
15,098
9,037
Diluted 15,511
9,162
15,204
9,138

BALANCE SHEETS (continued)


(in thousands, except share data)	March 31, 2020		December 31, 2019
Shareholders’ equity
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares at March 31, 2020 and December 31, 2019		32,857		32,857
Additional paid-in capital		189,314		188,536
Retained earnings		180,072		175,780
Accumulated other comprehensive income		6,190		3,911
Less: 841,029 and 870,257 shares of treasury stock at March 31, 2020 and December 31, 2019, respectively		(4,678)		(4,677)
Total shareholders’ equity		403,755		396,407
Total liabilities and shareholders’ equity	$	3,677,342	$	3,669,128

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

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Net income $ 8,617
$ 3,632
$ 19,386
$ 12,349
Other comprehensive income (loss), before tax:

Changes in unrealized loss on securities available-for-sale 512
(5,577 ) 5,119
3,041
Changes in unrealized loss on derivative hedges (84 ) (92 ) (805 ) (1,309 )
Changes in unrealized loss on pension 5
8
45
86
Income taxes related to other comprehensive income (loss):

Changes in unrealized loss on securities available-for-sale (192 ) 1,952
(1,839 ) (1,064 )
Changes in unrealized loss on derivative hedges 31
32
373
458
Changes in unrealized loss on pension (2 ) (3 ) (2 ) (30 )
Total other comprehensive income 270
(3,680 ) 2,891
1,182
Total comprehensive income $ 8,887
$ (48 ) $ 22,277
$ 13,531


	Three Months Ended
	March 31,
(in thousands, except earnings per share data)	2020		2019
Interest and dividend income
Loans	$	27,987	$	26,864
Securities and other		5,507		6,363
Total interest and dividend income		33,494		33,227
Interest expense
Deposits		6,020		6,307
Borrowings		2,911		5,155
Total interest expense		8,931		11,462
Net interest income		24,563		21,765
Provision for loan losses		1,111		324
Net interest income after provision for loan losses		23,452		21,441

Non-interest income
Trust and investment management fee income		3,369		2,757
Customer service fees		3,112		2,165
Gain on sales of securities, net		135		—
Bank-owned life insurance income		537		542
Customer derivative income		588		—
Other income		680		703
Total non-interest income		8,421		6,167

Non-interest expense
Salaries and employee benefits		11,884		10,519
Occupancy and equipment		4,420		3,386
Loss on premises and equipment, net		92		—
Outside services		534		411
Professional services		672		544
Communication		289		235
Marketing		388		295
Amortization of intangible assets		256		207
Acquisition, restructuring and other expenses		103		—
Other expenses		3,721		3,027
Total non-interest expense		22,359		18,624

Income before income taxes		9,514		8,984
Income tax expense		1,793		1,703
Net income	$	7,721	$	7,281

Earnings per share:
Basic	$	0.50	$	0.47
Diluted	$	0.50	$	0.47

Weighted average common shares outstanding:
Basic		15,558		15,523
Diluted		15,593		15,587

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~~

(In thousands) Common stock amount Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock Total
Balance at December 31, 2015 $ 13,577
$ 21,624
$ 122,260
$ 3,629
$ (6,938 ) $ 154,152

Comprehensive income:
Net income —
—
12,349
—
—
12,349
Other comprehensive loss —
—
—
1,182
—
1,182
Total comprehensive income —
—
12,349
1,182
—
13,531
Cash dividends declared ($0.54 per share) —
—
(4,880 ) —
—
(4,880 )
Treasury stock purchased (23,072) —
—
—
—
(497 ) (497 )
Net issuance (91,466) to employee stock plans, including related tax effects —
35
(127 ) —
1,140
1,048
Recognition of stock based compensation —
982
—
—
982
Balance at September 30, 2016 $ 13,577
$ 22,641
$ 129,602
$ 4,811
$ (6,295 ) $ 164,336

Balance at December 31, 2016 $ 13,577
$ 23,027
$ 130,489
$ (4,326 ) $ (6,027 ) $ 156,740

Comprehensive income:
Net income —
—
19,386
—
—
19,386
Other comprehensive loss —
—
—
2,891
—
2,891
Total comprehensive income —
—
19,386
2,891
—
22,277
Cash dividends declared ($0.56 per share) —
—
(8,624 ) —
—
(8,624 )
Acquisition of Lake Sunapee Bank Group 8,328
173,591
—
—
—
181,919
Treasury stock purchased (9,603 shares) —
—
—
—
(282 ) (282 )
Net issuance (80,448 shares) to employee stock plans, including related tax effects —
(265 ) —
—
874
609
Three-for-two stock split 10,953
(10,968 ) —
—
—
(15 )
Recognition of stock based compensation —
835
—
—
—
835
Balance at September 30, 2017 $ 32,858
$ 186,220
$ 141,251
$ (1,435 ) $ (5,435 ) $ 353,459

COMPREHENSIVE INCOME


	Three Months Ended
	March 31,
(in thousands)	2020		2019
Net income	$	7,721	$	7,281
Other comprehensive income, before tax:
Changes in unrealized gain on securities available-for-sale		5,357		8,900
Changes in unrealized loss on hedging derivatives		(2,382)		(845)
Changes in unrealized loss on pension		—		—
Income taxes related to other comprehensive income:
Changes in unrealized gain on securities available-for-sale		(1,346)		(2,079)
Changes in unrealized loss on hedging derivatives		650		198
Changes in unrealized loss on pension		—		—
Total other comprehensive income		2,279		6,174
Total comprehensive income	$	10,000	$	13,455

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~~

Nine Months Ended September 30,
(In thousands) 2017 2016
Cash flows from operating activities:

Net income $ 19,386
$ 12,349
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 2,191
754
Net amortization of securities 4,006
2,293
Deferred tax benefit (237 ) —
Change in unamortized net loan costs and premiums (368 ) —
Premises and equipment depreciation and amortization expense 2,745
1,159
Stock-based compensation expense 835
982
Accretion of purchase accounting entries, net (2,482 ) —
Amortization of other intangibles 542
69
Income from cash surrender value of bank-owned life insurance policies (1,165 ) (540 )
Gain on sales of securities, net (19 ) (4,489 )
Loss on premises and equipment, net 95
—
Net change in other (2,387 ) (695 )
Net cash provided by operating activities 23,142
11,882

Cash flows from investing activities:

Proceeds from sales of securities available for sale 1,581
66,431
Proceeds from maturities, calls and prepayments of securities available for sale 92,817
78,190
Purchases of securities available for sale (138,785 ) (171,702 )
Net change in loans (71,669 ) (2,842 )
Purchase of loans (18,621 ) (95,421 )
Purchase of Federal Home Loan Bank stock (327 ) (2,233 )
Purchase of premises and equipment, net (3,011 ) (3,567 )
Acquisitions, net of cash (paid) acquired 39,537
—
Proceeds from sale of other real estate 322
—
Net cash used in investing activities (98,156 ) (131,144 )

Cash flows from financing activities:

Net decrease in deposits 74,725
90,738
Net change in short-term advances from the Federal Home Loan Bank 110,801
31,250
Net change in long term advances from the Federal Home Loan Bank (62,531 ) 8,238
Net change in securities sold repurchase agreements 672
(1,784 )
Exercise of stock options 451
1,048
Purchase of treasury stock (196 ) (497 )
Common stock cash dividends paid (8,623 ) (4,880 )
Net cash provided by financing activities 115,299
124,113

Net change in cash and cash equivalents 40,285
4,851
Cash and cash equivalents at beginning of year 8,439
9,720
Cash and cash equivalents at end of year $ 48,724
$ 14,571
Supplemental cash flow information:

Interest paid $ 16,184
$ 8,858
Income taxes paid, net 6,764
5,342

Acquisition of non-cash assets and liabilities:
Assets acquired 1,454,076
—
Liabilities assumed 1,406,672
—

Other non-cash changes:
Real estate owned acquired in settlement of loans 32
—

CHANGES IN SHAREHOLDERS’ EQUITY


							Accumulated
	Common		Additional				other
	stock		paid-in		Retained		comprehensive		Treasury
(in thousands, except per share data)	amount		capital		earnings		income (loss)		stock		Total
Balance at December 31, 2018	$	32,857	$	187,653	$	166,526	$	(11,802)	$	(4,655)	$	370,579

Net income		—		—		7,281		—		—		7,281
Other comprehensive income		—		—		—		6,174		—		6,174
Cash dividends declared ($0.20 per share)		—		—		(3,105)		—		—		(3,105)
Net issuance (441 shares) to employee stock plans, including related tax effects		—		(173)		—		—		4		(169)
Recognition of stock based compensation		—		263		—		—		—		263
Balance at March 31, 2019		32,857		187,743		170,702		(5,628)		(4,651)		381,023

Balance at December 31, 2019	$	32,857	$	188,536	$	175,780	$	3,911	$	(4,677)	$	396,407

Net income		—		—		7,721		—		—		7,721
Other comprehensive income		—		—		—		2,279		—		2,279
Cash dividends declared ($0.22 per share)		—		—		(3,429)		—		—		(3,429)
Treasury stock purchased (5,586 shares)		—		—		—		—		(130)		(130)
Net issuance (23,010 shares) to employee stock plans, including related tax effects		—		660		—		—		129		789
Recognition of stock based compensation		—		118		—		—		—		118
Balance at March 31, 2020	$	32,857	$	189,314	$	180,072	$	6,190	$	(4,678)	$	403,755

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


	Three Months Ended March 31,
(in thousands)	2020		2019
Cash flows from operating activities:
Net income	$	7,721	$	7,281
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,111		324
Net amortization of securities		686		693
Change in unamortized net loan costs and premiums		(132)		(85)
Premises and equipment depreciation		1,182		952
Stock-based compensation expense		118		90
Accretion of purchase accounting entries, net		(1,489)		(886)
Amortization of other intangibles		256		207
Income from cash surrender value of bank-owned life insurance policies		(537)		(542)
Gain on sales of securities, net		(135)		—
Loss on other real estate owned		31		—
Loss on premises and equipment, net		92		—
Net change in other assets and liabilities		(5,900)		(3,757)
Net cash provided by operating activities		3,004		4,277

Cash flows from investing activities:
Proceeds from sales of securities available for sale		32,017		—
Proceeds from maturities, calls and prepayments of securities available for sale		24,899		21,709
Purchases of securities available for sale		(15,739)		(35,290)
Net change in loans		6,300		(36,209)
Purchase of FHLB stock		(3,161)		(5,567)
Proceeds from sale of FHLB stock		3,943		6,119
Purchase of premises and equipment, net		(628)		(1,809)
Acquisitions, net of cash acquired		(340)		—
Proceeds from sale of other real estate owned		51		—
Net cash provided by (used in) investing activities		47,342		(51,047)

Cash flows from financing activities:
Net decrease in deposits		(44,959)		(17,260)
Net change in short-term FHLB borrowings		(160,970)		59,716
Net change in short-term FRB borrowings		62,000		—
Proceeds from long-term borrowings from the FHLB		139,000		—
Repayments of long-term borrowings from the FHLB		—		(35,705)
Net change in short-term other borrowings		(13,831)		(1,531)
Repayments of subordinated debt		(32)		—
Payment of subordinated debt issuance costs		(39)		—
Net issuance to employee stock plans		789		4
Purchase of treasury stock		(130)		—
Cash dividends paid on common stock		(3,429)		(3,105)
Net cash (used in) provided by financing activities		(21,601)		2,119

Net change in cash and cash equivalents		28,745		(44,651)
Cash and cash equivalents at beginning of year		56,910		98,754
Cash and cash equivalents at end of year	$	85,655	$	54,103

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 (continued)


	Three Months Ended March 31,
(in thousands)	2020		2019
Supplemental cash flow information:
Interest paid	$	8,455	$	11,490
Income taxes paid, net		1,205		1,506

Acquisition of non-cash assets and liabilities:
Assets acquired		1,171		—
Liabilities acquired		(343)		—

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

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BAR HARBOR BANKSHARES AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The consolidated financial statements (the “financial statements”) of Bar Harbor Bankshares and its subsidiaries (the “Company” or “Bar Harbor”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“~~U.S.~~ GAAP”). Bar Harbor Bankshares is a Maine Financial Institution Holding Company for the purposes of the laws of the state of Maine, and as such is subject to the jurisdiction of the Superintendent of the Maine Bureau of Financial Institutions. These financial statements include the accounts of the Company, its ~~wholly-owned~~wholly owned subsidiary Bar Harbor Bank & Trust (the "Bank") and the Bank’s consolidated subsidiaries. ~~In consolidation, all significant intercompany accounts and transactions are eliminated.~~ The results of operations of companies or assets acquired are included only from the dates of acquisition. All material ~~wholly-owned~~wholly owned and ~~majority-owned~~majority owned subsidiaries are consolidated unless ~~U.S.~~ GAAP requires otherwise.

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

The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures for the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 previously filed with the Securities and Exchange ~~Commission.~~Commission (the "SEC"). In management's opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented.

~~As a result of the Lake Sunapee Group acquisition, the Company has the following new significant and critical accounting policy regarding acquired loans:~~

~~Acquired Loans:~~ Loans that the Company acquired in business combinations are initially recorded at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. Going forward, the Company will continue to evaluate reasonableness of expectations for the timing and the amount of cash to be collected. Subsequent decreases or increases in expected cash flows may result in changes

Reclassifications: Whenever necessary, amounts in the amortization or accretion of fair market value adjustments, and in some cases may result in the loan being considered impaired. For collateral dependent loans with deteriorated credit quality, the Company estimates the fair value of the underlying collateral of the loans. These valuesprior years’ financial statements are ~~discounted using market derived rates of return, with consideration given~~reclassified to ~~the period of time and costs associated with the foreclosure and disposition of the collateral.~~

~~Recently Adopted Accounting Principles~~

~~In March 2016, the FASB issued ASU No. 2016-09, “Improvements~~conform to Employee Share-Based Payment Accounting.” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated.current presentation. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required

currently, or recognized when they occur. ASU No. 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. The Company adopted ASU No. 2016-09 on January 1, 2017 and elected to recognize forfeitures as they occur. As allowed by the ASU, the Company’s adoption was prospective, therefore, prior periods have not been adjusted. The adoption of ASU No. 2016-09 could result in increased volatility to reported income tax expense related to excess tax benefits and tax deficiencies for employee share-based transactions, however, the actual amounts recognized in income tax expense will be dependent on the amount of employee share-based transactions and the stock price at the time of vesting or exercise. In 2017, the adoption of ASU No. 2016-09 resulted in an insignificant decrease to the provision for income taxes primarily due to the tax benefit from the exercise of stock options and the vesting of restricted stock.

In March 2017, the FASB issued ASU No. 2017-08, “Premium Amortization on Purchased Callable Debt Securities.” This ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Today, entities generally amortize the premium over the contractual life of the security. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company elected to adopt the provisions of ASU No. 2017-08 as of March 31, 2017, whichreclassifications had no impact on net income in the Company’s ~~Consolidated Financial Statements.~~consolidated income statement.

Summary of Significant Accounting Policies

The disclosures below supplement the accounting policies in previously disclosed in NOTE 1 – Summary of Significant Accounting Policies of the Company’s 2019 Annual Report on Form 10-K.

Operating, Accounting and Reporting Considerations related to COVID-19:

The COVID-19 pandemic has negatively impacted the global economy. In response to this crisis, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law on March 27, 2020. The CARES Act provides an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the economy by supporting individuals and businesses through loans, grants, tax changes, and other types of relief. Some of the provisions applicable to the Company include, but are not limited to:


•	Accounting for Loan Modifications - The CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes.
•	Paycheck Protection Program - The CARES Act established the Paycheck Protection Program (“PPP”), an expansion of the Small Business Administration’s 7(a) loan program and the Economic Injury Disaster Loan Program (“EIDL”), administered directly by the SBA.
•	Mortgage Forbearance - Under the CARES Act, through the earlier of December 31, 2020, or the termination date of the COVID-19 national emergency, a borrower with a federally backed mortgage loan that is experiencing financial hardship due to COVID-19 may request a forbearance. A multifamily borrower with a federally backed multifamily mortgage loan that was current as of February 1, 2020, and is experiencing financial hardship due to COVID-19 may request forbearance on the loan for up to 30 days, with up to two additional 30-day periods at the borrower’s request.

~~Future Application~~

Table of ~~Accounting Pronouncements~~Contents

~~In May 2014,~~

Also in response to the ~~FASB~~COVID-19 pandemic, the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”), the Office of the Comptroller of the Currency (“OCC”), and the ~~International Accounting Standards Board (the “IASB”~~Consumer Financial Protection Bureau (“CFPB”) ~~jointly~~, in consultation with the state financial regulators (collectively, the “agencies”) issued a ~~comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under U.S. GAAP and International Financial Reporting Standards (“IFRS”)~~joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Current revenue recognition guidance in U.S. GAAP consists of broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. In contrast, IFRS provided limited revenue recognition guidance and, consequently, could be difficult to apply to complex transactions. Accordingly, the FASB and the IASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (1) remove inconsistencies and weaknesses in revenue requirements; (2) provide a more robust framework for addressing revenue issues; (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) provide more useful information to users of financial statements through improved disclosure requirements; and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The common revenue standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard was initially effective for public entities for interim and annual reporting periods beginning after December 15, 2016; early adoption was not permitted. However, in August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers - DeferralSome of the Effective Date” which deferred the effective date by one year (i.e., interim and annual reporting periods beginning after December 15, 2017). For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied onlyprovisions applicable to the ~~most current period presented in the financial statements with the cumulative effect~~Company include, but are not limited to:


•	Accounting for Loan Modifications - Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment.
•	Past Due Reporting - With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral.
•	Nonaccrual Status and Risk Rating - During short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as having a classified risk rating.

Table of ~~initially applying the standard recognized at the date~~Contents

Recent Accounting Pronouncements

The following table provides a brief description of ~~initial application. In addition, the FASB has begun to issue targeted~~recent accounting standards updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Identifying Performance Obligations and Licensing,” ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” and ASU No. 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” Since the guidance does not apply to revenue associated with financial instruments, including loans and securities("ASU") that ~~are accounted for under other U.S. GAAP, the Company does not expect the new guidance to~~could have a material impact ~~on revenue most~~

closely associated with financial instruments, including interest income. The Company is currently performing an overall assessment of revenue streams and reviewing contracts potentially affected by the ASU including trust and asset management fees, deposit related fees, interchange fees, and merchant income, to determine the potential impact the new guidance is expected to have on the Company’s Consolidated Financial Statements. In addition, the Company continues to follow certain implementation issues relevant to the banking industry which are still pending resolution. The Company plans to adopt ASU No. 2014-09 on January 1, 2018 utilizing the modified retrospective approach.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to U.S. GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of the beginning of the fiscal year of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned above is not permitted. The Company has performed a preliminary evaluation of the provisions of ASU No. 2016-01. Based on this evaluation, the Company has determined that ASU No. 2016-01 is not expected to have a material impact on the Company’s Consolidated Financial Statements; however, the Company will continue to closely monitor developments and additional guidance.

In February 2016, the FASB issued ASU No. 2016-02, “Leases.” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): (1) a lease liability, which is the present value of a lessee’s obligation to make lease payments, and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief; full retrospective application is prohibited. The Company has several lease agreements, such as branch locations, which are currently considered operating leases, and therefore, not recognized on the Company’s consolidated financial statements ~~of condition. The Company expects the new guidance will require these lease~~

agreements to now be recognized on the consolidated statements of condition as a right-of-use asset and a corresponding lease liability. Therefore, the Company’s preliminary evaluation indicates the provisions of ASU No. 2016-02 are expected to impact the Company’s consolidated statements of condition. However, the Company continues to evaluate the extent of potential impact the new guidance will have on the Company’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact the Company’s Consolidated Financial Statements, in particular the level of the reserve for credit losses. However, the Company continues to evaluate the extent of the potential impact.

In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.” Current U.S. GAAP is unclear or does not include specific guidance on how to classify certain transactions in the statement of cash flows. This ASU is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU No. 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU No. 2016-15 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019, applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. The Company expects to early adopt upon ~~the next goodwill impairment test in 2017. ASU No. 2017-04 is not expected to have a material impact on the Company’s Consolidated Financial Statements.~~

In March 2017, the FASB issued ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost.” Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs (e.g., Salaries and Benefits) arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately from the line item (e.g., Other Noninterest Expense) that includes the service cost. ASU No. 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, however, the Company has decided

not to early adopt. Employers will apply the guidance on the presentation of the components of net periodic benefit cost in the income statement retrospectively. The guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component will be applied prospectively. The Company expects to utilize the ASU’s practical expedient allowing entities to estimate amounts for comparative periods using the information previously disclosed in their pension and other post-retirement benefit plan footnote. ASU No. 2017-07 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In May 2017, the FASB issued ASU No. 2017-09, “Stock Compensation, Scope of Modification Accounting.” This ASU clarifies when changes to the terms of conditions of a share-based payment award must be accounted for as modifications. Companies will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. The new guidance should reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications, as the guidance will allow companies to make certain non-substantive changes to awards without accounting for them as modifications. It does not change the accounting for modifications. ASU No. 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017; early adoption is permitted. ASU No. 2017-09 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In August 2017, the FASB issued ASU No. 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” This ASU’s objectives are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities; and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The Company’s interest rate cap agreements are derivative financial instruments that are designated as formal hedging relationships. The Company is currently evaluating this ASU to determine whether its provisions will enhance the Company’s ability to employ risk management strategies, while improving the transparency and understanding of those strategies for financial statement users.

~~NOTE 2.ACQUISITION~~

~~Lake Sunapee Bank Group~~

On January 13, 2017, the Company completed its acquisition of Lake Sunapee Bank Group (“Lake Sunapee”). Lake Sunapee, as a holding company, had one banking subsidiary (“Lake Sunapee Bank”) that had 33 full service branches located throughout New Hampshire and Vermont. As a result of the transaction, Lake Sunapee Bank Group merged into Bar Harbor Bankshares, and Lake Sunapee Bank merged into Bar Harbor Bank. This business combination expanded the Company's geographic footprint and increased market share in its New England based franchise. The goodwill recognized results from the expected synergies and earnings accretion from this combination, including future cost savings related to the operations of Lake Sunapee Bank Group.

On the acquisition date, Lake Sunapee had 8.38 million common shares outstanding, which were exchanged for 4.16 million of the Company's common shares based on a 0.4970 exchange ratio as defined in the merger agreement. The merger qualified as a reorganization for federal income tax purposes, and as a result, Lake Sunapee common shares exchanged for the Company's common shares were transferred on a tax-free basis. Bar Harbor Bankshares common stock issued in this exchange was valued at $43.69 per share based on the closing price posted on January 13, 2017 resulting in a consideration value of $181.92 million. The Company also paid $27 thousand to Lake Sunapee shareholders in lieu of the issuance of fractional shares. Total consideration paid at closing reflected the increase in Bar Harbor Bankshare's stock price since the time of the announcement.

The results of Lake Sunapee's operations are included in the Company's Consolidated Statement of Income from the date of acquisition. The assets and liabilities in the Lake Sunapee acquisition were recorded at their fair value based on management’s best estimate using information available as of the date of acquisition.

~~Consideration paid, and fair values of Lake Sunapee’s assets acquired and liabilities assumed, along with the resulting goodwill, are summarized in the following tables:~~

(in thousands) As Acquired Fair Value Adjustments As Recorded at Acquisition
Consideration paid:
Bar Harbor Bankshares common stock issued to Lake Sunapee Bank Group stockholders (4,163,853 shares) $ 181,919
Cash paid for fractional shares 27
Total consideration paid 181,946
Recognized amounts of identifiable assets acquired and liabilities assumed, at fair value:
Cash and short-term investments $ 40,970
$ (1,406 ) (a) $ 39,564
Investment securities 156,960
(1,381 ) (b) 155,579
Loans 1,217,927
(9,728 ) (c) 1,208,199
Premises and equipment 22,561
(351 ) (d) 22,210
Core deposit intangible —
7,786
(e) 7,786
Other assets 102,298
(50,419 ) (f) 51,879
Deposits (1,149,865 ) (746 ) (g) (1,150,611 )
Borrowings (232,261 ) (16 ) (h) (232,277 )
Deferred taxes, net (1,921 ) 10,217
(i) 8,296
Other liabilities (19,924 ) (4,087 ) (j) (24,011 )
Total identifiable net assets $ 136,745
$ (50,131 ) $ 86,614

Goodwill $ 95,332

~~Explanation of Certain Fair Value Adjustments~~

adoption:

Standard	Description	Required Date of Adoption	Effect on financial statements
				Standards Adopted in 2020
a. ASU 2017-04, Simplifying the Test for Goodwill Impairment	~~Represents in-process payments that were made~~ This ASU amends Topic 350, Intangibles-Goodwill and Other, and eliminates Step 2 from the goodwill impairment test. The Company still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary	January 1, 2020	The Company has adopted ASU 2017-04 effective January 1, 2020, as required, and the ASU did not have a material impact on its financial statements. Goodwill testing is normally scheduled to be completed during the ~~date~~fourth quarter, but was evaluated in the first quarter in light of ~~acquisition that were not recorded on Lake Sunapee's general ledger until after acquisition.~~

	the economic impacts of COVID-19. The Company recognized no impairments to goodwill in the first quarter of 2020. See management’s discussion and analysis for further details.
b.	~~Represents~~	Early adoption is permitted
ASU 2018-13 Changes to Disclosure Requirements Fair Value Measurement, Topic 820	This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the ~~write down~~changes, entities will no longer be required to disclose the amount and reasons for transfers between Level 1 and Level 2 of the ~~book value of investments to their estimated~~ fair value ~~based on~~hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair ~~values on~~value measurements.	January 1, 2020	The Company has adopted ASU 2018-13, as of January 1, 2020, as required, and the ~~date~~ASU did not have a material impact to the disclosures as a result of ~~acquisition.~~

	the adoption.
c.	~~Represents~~	Early adoption is permitted.
Standards Not Yet Adopted
ASU 2016-13, Measurement of Credit Losses on Financial Instruments ASU 2018-19, Codification Improvements to ASU 2016-13	This ASU amends Topic 326, Financial Instruments- Credit Losses to replace the ~~write down~~current incurred loss accounting model with a current expected credit loss approach (CECL) for financial instruments measured at amortized cost and other commitments to extend credit. The amendments require entities to consider all available relevant information when estimating current expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts. The resulting allowance for credit losses is to reflect the portion of the ~~book value~~amortized cost basis that the entity does not expect to collect. The amendments also eliminate the current accounting model for purchased credit impaired loans and certain off-balance sheet exposures. Additional quantitative and qualitative disclosures are required upon adoption. While the CECL model does not apply to available for sale debt securities, the ASU does require entities to record an allowance when recognizing credit losses for available for sale securities with unrealized losses, rather than reduce the amortized cost of ~~loans~~the securities by direct write-offs. The guidance will require companies to ~~their~~recognize improvements to estimated ~~fair value based~~credit losses immediately in earnings rather than interest income over time. The ASU should be adopted on current interest rates and expected cash flows, which includes an estimate of expected loan loss inherent in the portfolio. The adjustments also includes the reversal of Lake Sunapee Bank's historic allowance for loan losses. Loansa modified retrospective basis. Entities that ~~met the criteria and are being accounted for in accordance with ASC 310-30, Loans and Securities Acquired with Deteriorated Credit Quality, had a book value of $23.34 million and~~ have ~~a fair value $18.45 million. Non-impaired~~ loans accounted for under ASC ~~310-10, Overall, had a book value of $1.20 billion and have a fair value of $1.188 billion. ASC~~ 310-30 loans have a $1.09 million fair value adjustment discount that is accretable in earnings over the weighted average life of three years using the effective yield as determined on the date of acquisition. The effective yield is periodically adjusted for changes in expected flows. ASC 310-10 loans have a $11.40 million fair value adjustment discount that is amortized into expense over the remaining term of the loans using the effective interest method, or a straight-line method if the loan is a revolving credit facility.


d.	Represents the adjustment of the book value of buildings and equipment, to their estimated fair value based on appraisals and other methods. The adjustments will be depreciated over the estimated economic lives of the assets.


e.	Represents the value of the core deposit base assumed in the acquisition. The core deposit asset was recorded as an identifiable intangible asset and will be amortized using a straight-line method over the average life of the deposit base, which is estimated to be twelve years.


f.	Primarily represents the write-off of historical goodwill and unamortized intangibles recorded by Lake Sunapee from prior acquisitions that are not carried over to the Company's balance sheet. These adjustments are not

~~accretable into earnings in the statement of income. Also represents the value of customer list intangibles which are accretable into earnings in the statement of income.~~


g.	~~Represents adjustments made to time deposits due to the weighted average contractual interest rates exceeding the cost of similar funding~~ at the time of ~~acquisition.~~adoption should prospectively apply the guidance in this amendment for purchase credit deteriorated assets.	January 1, 2020	Adoption of this ASU is expected to primarily change how the Company estimates credit losses with the application of the expected credit loss model. The ~~amount~~Company will ~~be amortized using~~apply the standard's provisions as a ~~straight-line method over~~cumulative effect adjustment to retained earnings as of the ~~estimated useful life~~beginning of ~~one year.~~

~~Represents~~ the ~~present value difference between cash flows~~first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company's CECL implementation efforts in the first quarter focused on model validation, developing new disclosures, establishing formal policies and procedures and other governance and control documentation. Certain elements of ~~current debt instruments using contractual rates~~the calculation were finalized in the first quarter, including refinement of the model assumptions, the qualitative framework, internal control design, model validation, and ~~those~~the operational control framework to support the new process. Furthermore, changes to the economic forecasts within the model could positively or negatively impact the actual results.

The ASU was effective for the Company beginning in the first quarter of ~~similar borrowings on~~2020; however, the ~~date of acquisition. The adjustment will be amortized over the remaining four year weighted average contractual life.~~

Table of Contents

Standard	Description	Required Date of Adoption	Effect on financial statements
Standards Not Yet Adopted
ASU 2020-04 Facilitation of the Effects of Reference Rate Reform, Topic 848	This ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other ~~purchase~~interbank offered rates to alternative reference rates, such as SOFR. For instance, companies can (1) elect not to apply certain modification accounting ~~adjustments.~~requirements to contracts affected by reference rate reform, if certain criteria are met. A company that makes this election would not have to re-measure the contracts at the modification date or reassess a previous accounting determination. Companies, can also (2) elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. Finally, companies can (3) make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform.	May be elected between March 12, 2020 through December 31, 2022.	The Company is currently evaluating all of its contracts, hedging relationships and other transactions that will be effected by reference rates that are being discontinued and determining which elections that need to be made.


j.	~~Primarily represents the impact of change in control effects on post-retirement liabilities assumed by the Company, which are not accretable into earnings in the statement of income.~~

Except for collateral dependent loans with deteriorated credit quality, the fair values for loans acquired were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. To estimate the fair value for collateral dependent loans with deteriorated credit quality, we analyzed the underlying collateral of the loans assuming the fair values of the loans were derived from the eventual sale of the collateral. Those values were discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral. There was no carryover of the seller’s allowance for credit losses associated with the loans that were acquired in the acquisition as the loans were initially recorded at fair value.

~~Information about the acquired loan portfolio subject to ASC 310-30 as of January 13, 2017 is, as follows (in thousands):~~

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ASC 310-30 Loans
Gross contractual receivable amounts at acquisition $ 23,338
Contractual cash flows not expected to be collected (nonaccretable discount) (3,801 )
Expected cash flows at acquisition 19,537
Interest component of expected cash flows (accretable discount) (1,089 )
Fair value of acquired loans $ 18,448

Direct acquisition and integration costs were expensed as incurred, and totaled $5.9 million during the nine months ending September 30, 2017 and were $812 thousand for the same period of 2016. For the three months ending September 30, 2017 direct acquisition and integration costs totaled $346 thousand and were $320 thousand for the same period of 2016.

~~Pro Forma Information (unaudited)~~

The following table presents selected unaudited pro forma financial information reflecting the acquisition of Lake Sunapee Bank Group assuming the acquisition was completed as of January 1, 2016. The unaudited pro forma financial information includes adjustments for scheduled amortization and accretion of fair value adjustments recorded at the acquisition. These adjustments would have been different if they had been recorded on January 1, 2016, and they do not include the impact of prepayments. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the combined financial results of the Company and Lake Sunapee had the transaction actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full-year period. Pro forma basic and diluted earnings per common share were calculated using the Company's actual weighted-average shares outstanding for the periods presented plus 4.16 million shares issued as a result of the acquisition. The unaudited pro forma information is based on the actual financial statements of the Company and Lake Sunapee for the periods shown until the date of acquisition, at which time Lake Sunapee operations became included in the Company's financial statements. The Company has determined it is impractical to report the amounts of revenue and earnings of the acquired entity since the acquisition date. Due to the integration of its operations with those of the organization, the Company does not record revenue and earnings separately for these operations.

The unaudited pro forma information, for the nine months ended September 30, 2017 and 2016, set forth below reflects adjustments related to amortization and accretion of purchase accounting fair value adjustments and an estimated tax rate of 37.57%. Direct acquisition expenses incurred by the Company during 2017, as noted above, are reversed for the purposes of this unaudited pro forma information. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing or anticipated cost-savings that could occur as a result of the acquisition.

~~Information in the following table is shown in thousands, except earnings per share:~~

Pro Forma (unaudited)
Nine Months Ended September 30,
2017 2016
Net interest income $ 69,846
$ 67,670
Non-interest income 20,883
25,808
Net income 26,133
21,371

Pro forma earnings per share:
Basic $ 1.69
$ 1.40
Diluted $ 1.68
$ 1.39

NOTE 3.2. SECURITIES AVAILABLE FOR SALE

The following is a summary of securities available for sale:

(In thousands) Amortized Cost
Gross
Unrealized
Gains

Gross
Unrealized
Losses
Fair Value
September 30, 2017

Securities available for sale

Debt securities:

Obligations of US Government sponsored enterprises $ 6,952
$ 27
$ —
$ 6,979
Mortgage-backed securities:

  US Government-sponsored enterprises 438,332
3,413
3,788
437,957
  US Government agency 102,044
695
601
102,138
  Private label 562
162
5
719
Obligations of states and political subdivisions thereof 140,475
2,818
1,311
141,982
Corporate bonds 28,245
441
2
28,684
Total securities available for sale $ 716,610
$ 7,556
$ 5,707
$ 718,459

December 31, 2016

Securities available for sale

Debt securities:

Obligations of US Government sponsored enterprises $ —
$ —
$ —
$ —
Mortgage-backed securities:
  US Government-sponsored enterprises 330,635
2,682
4,865
328,452
  US Government agency 76,722
797
613
76,906
  Private label 936
207
11
1,132
Obligations of states and political subdivisions thereof 123,832
1,941
3,407
122,366
Corporate bonds —
—
—
—
Total securities available for sale $ 532,125
$ 5,627
$ 8,896
$ 528,856


			Gross		Gross
			Unrealized		Unrealized
(in thousands)	Amortized Cost		Gains		Losses		Fair Value
March 31, 2020
Debt securities:
Mortgage-backed securities:
US Government-sponsored enterprises	$	284,925	$	11,349	$	(617)	$	295,657
US Government agency		98,059		3,801		(191)		101,669
Private label		20,209		62		(1,772)		18,499
Obligations of states and political subdivisions thereof		134,258		3,636		(315)		137,579
Corporate bonds		76,191		1,497		(4,751)		72,937
Total securities available for sale	$	613,642	$	20,345	$	(7,646)	$	626,341


			Gross		Gross
			Unrealized		Unrealized
(in thousands)	Amortized Cost		Gains		Losses		Fair Value
December 31, 2019
Debt securities:
Mortgage-backed securities:
US Government-sponsored enterprises	$	319,064	$	4,985	$	(2,080)	$	321,969
US Government agency		98,568		1,640		(547)		99,661
Private label		20,212		68		(747)		19,533
Obligations of states and political subdivisions thereof		139,240		3,034		(268)		142,006
Corporate bonds		78,804		1,478		(221)		80,061
Total securities available for sale	$	655,888	$	11,205	$	(3,863)	$	663,230

The amortized cost and estimated fair value of available for sale (“AFS”) securities segregated by contractual maturity at ~~September 30, 2017~~March 31, 2020 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable.


	Available for sale
(in thousands)	Amortized Cost		Fair Value
Within 1 year	$	—	$	—
Over 1 year to 5 years		30,554		31,547
Over 5 years to 10 years		56,401		52,656
Over 10 years		123,494		126,313
Total bonds and obligations		210,449		210,516
Mortgage-backed securities		403,193		415,825
Total securities available for sale	$	613,642	$	626,341

Available for sale
Amortized Fair
(In thousands) Cost Value
Within 1 year $ 3,613
$ 3,627
Over 1 year to 5 years 18,499
18,735
Over 5 years to 10 years 73,997
75,366
Over 10 years 620,501
620,731
Total securities available for sale $ 716,610
$ 718,459

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
(In thousands)
Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value
Gross
Unrealized
Losses Fair
Value
September 30, 2017

Securities available for sale

Debt securities:

Obligations of US Government sponsored enterprises $ —
$ —
$ —
$ —
$ —
$ —
Mortgage-backed securities:

  US Government-sponsored enterprises 1,559
150,524
2,229
64,882
3,788
215,406
  US Government agency 345
48,529
256
11,880
601
60,409
  Private label —
7
5
134
5
141
Obligations of states and political subdivisions thereof 89
8,838
1,222
31,570
1,311
40,408
Corporate bonds 2
3,038
—
—
2
3,038
Total securities available for sale $ 1,995
$ 210,936
$ 3,712
$ 108,466
$ 5,707
$ 319,402

December 31, 2016

Securities available for sale

Debt securities:
Obligations of US Government sponsored enterprises $ —
$ —
$ —
$ —
$ —
$ —
Mortgage-backed securities:
  US Government-sponsored enterprises 4,369
197,914
496
10,120
4,865
208,034
  US Government agency 472
36,941
141
4,263
613
41,204
  Private label —
107
11
312
11
419
Obligations of states and political subdivisions thereof 3,252
76,803
155
3,916
3,407
80,719
Corporate bonds —
—
—
—
—
—
Total securities available for sale $ 8,093
$ 311,765
$ 803
$ 18,611
$ 8,896
$ 330,376


	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, 2020
Debt securities:
Mortgage-backed securities:
US Government-sponsored enterprises	$	165	$	9,548	$	452	$	6,608	$	617	$	16,156
US Government agency		180		11,899		11		4,122		191		16,021
Private label		10		124		1,762		18,234		1,772		18,358
Obligations of states and political subdivisions thereof		315		17,862		—		—		315		17,862
Corporate bonds		3,831		29,977		920		5,330		4,751		35,307
Total securities available for sale	$	4,501	$	69,410	$	3,145	$	34,294	$	7,646	$	103,704


	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, 2019
Debt securities:
Mortgage-backed securities:
US Government-sponsored enterprises	$	1,074	$	43,429	$	1,006	$	49,712	$	2,080	$	93,141
US Government agency		432		19,717		115		9,120		547		28,837
Private label		380		9,843		367		9,411		747		19,254
Obligations of states and political subdivisions thereof		137		29,355		131		1,682		268		31,037
Corporate bonds		142		9,888		79		12,276		221		22,164
Total securities available for sale	$	2,165	$	112,232	$	1,698	$	82,201	$	3,863	$	194,433

Securities Impairment: As a part of the Company’s ongoing security monitoring process, the Company identifies securities in an unrealized loss position that could potentially be other-than-temporarily impaired. For the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 the Company did not record any other-than-temporary impairment (“OTTI”) losses.

Three Months Ended September 30,
2017 2016
Estimated credit losses as of June 30, $ 1,697
$ 1,697
Reductions for securities paid off during the period —
—
Estimated credit losses at end of the period $ 1,697
$ 1,697

Nine Months Ended September 30,
2017 2016
Estimated credit losses as of prior year-end, $ 1,697
$ 3,180
Reductions for securities paid off during the period —
1,483
Estimated credit losses at end of the period $ 1,697
$ 1,697

~~Visa Class B Common Shares~~

The ~~Company was a member of~~following table presents the ~~Visa USA payment network and was issued Class B shares~~changes in connection with the Visa Reorganization and the Visa Inc. initial public offering in March 2008. The Visa Class B shares are transferable only under limited circumstances until they can be converted into shares of the publicly traded class of Visa stock. This conversion cannot happen until the settlement of certain litigation, which is indemnifiedestimated credit losses recognized by Visa members. Since its initial public offering, Visa has funded a litigation reserve based upon a change in the conversion ratio of Visa Class B shares into Visa Class A shares. At its discretion, Visa may continue to increase the conversion rate in connection with any settlements in excess of amounts then in escrow for that purpose and reduce the conversion rate to the extent that it adds any funds to the escrow in the future. Based on the existing transfer restriction and the uncertainty of the litigation, the Company ~~has recorded its Visa Class B shares on its statements of condition at zero value~~ for ~~all reporting~~the periods since 2008. At September 30, 2017, the Company owned 11,623 of Visa Class B shares with a then current conversion ratio to Visa Class A shares of 1.648 (or 19,158 Visa Class A shares). Upon termination of the existing transfer restriction and settlement of the litigation, and to the extent that the Company continues to own such Visa Class B shares in the future, the Company expects to record its Visa Class B shares at fair value.

~~For securities with unrealized losses, the following information was considered in determining that the impairments were not other-than-temporary:~~

presented:


	Three Months Ended
	March 31,
	2020		2019
Estimated credit losses as of prior year-end	$	1,697	$	1,697
Reductions for securities paid off during the period		—		—
Estimated credit losses at end of the period	$	1,697	$	1,697

The Company expects to recover its amortized cost basis on all ~~debt~~ securities in its AFS portfolio. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of ~~September 30, 2017,~~March 31, 2020, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.

Table of Contents

The following summarizes, by investment security type, the basis for the conclusion that ~~the debt~~ securities in an unrealized loss position ~~within the Company’s AFS~~ were not other-than-temporarily impaired at ~~September 30, 2017:~~

March 31, 2020:

US Government-sponsored enterprises

~~At September 30, 2017, 275~~

43 out of the total ~~789~~675 securities in the Company’s portfolios of AFS US ~~Government sponsored~~Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented ~~1.7%~~3.83% of the amortized cost of securities in unrealized loss ~~positions.The Federal National Mortgage Association (“FNMA”)~~positions. The FNMA and ~~Federal Home Loan Mortgage Corporation (“FHLMC”)~~FHLMC guarantee the contractual cash flows of all of the Company’s US

~~government-sponsored~~ Government-sponsored enterprises. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

US Government ~~agencies~~

~~At September 30, 2017, 62~~agency

22 out of the total ~~208~~179 securities in the Company’s portfolios of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented ~~1.0%~~1.18% of the amortized cost of securities in unrealized loss positions. The Government National Mortgage Association (“GNMA”) guarantees the contractual cash flows of all of the Company’s US ~~government~~Government agency securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

~~Private-label~~

~~At September 30, 2017, 8~~

Private label

12 of the total 2619 securities in the Company’s portfolio of AFS ~~private-label~~private label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented ~~3.3%~~8.80% of the amortized cost of securities in unrealized loss positions. Based upon ~~the foregoing considerations, and~~ the expectation that the Company will receive all of the future contractual cash flows related to the amortized cost on these securities, the Company does not consider there to be any additional other-than-temporary impairment with respect to these securities.

Obligations of states and political subdivisions thereof

~~At September 30, 2017, 79~~

10 of the total ~~262~~210 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented ~~3.1%~~0.91% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for ~~that~~the risk. There were no material underlying credit downgrades during the quarter. All securities are performing.

Corporate bonds

~~At September 30, 2017, one~~

12 out of 12the total 27 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents ~~0.1%~~12.13% of the amortized cost of bonds in unrealized loss positions. The Company reviews the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities.

Table of Contents

NOTE 4.3. LOANS

The Company’s loan portfolio is comprised of the following segments: commercial real estate, commercial and industrial, residential real estate, and consumer loans. Commercial real estate loans ~~includes single and~~include multi-family, commercial construction and land development, and other commercial real estate classes. Commercial and industrial loans ~~includes~~include loans to commercial ~~businesses,~~and agricultural ~~and other loans to farmers,~~businesses and tax exempt ~~loans.~~entities. Residential real estate loans ~~consists~~consist of mortgages for ~~1 to 4~~1-to-4 family housing. Consumer loans include home equity loans, ~~indirect~~ auto and other installment ~~lending.~~

loans.

The Company’s lending activities are principally conducted in Maine, New Hampshire, and Vermont.

Total loans include business activity loans and acquired loans. Acquired loans are those loans previously acquired from ~~Lake Sunapee Bank Group.~~other institutions. The following is a summary of total loans:

September 30, 2017 December 31, 2016
(In thousands)
Business
Activities Loans

Acquired
Loans
Total
Business
Activities Loans

Acquired
Loans
Total
Commercial Real Estate:

Construction and land development $ 33,692
$ 15,593
$ 49,285
$ 14,695
$ —
$ 14,695
Other commercial real estate 455,847
288,440
744,287
403,424
—
403,424
Total Commercial Real Estate: 489,539
304,033
793,572
418,119
—
418,119

Commercial and Industrial:

Other Commercial 172,186
68,090
240,276
103,586
—
103,586
Agricultural and other loans to farmers 30,483
—
30,483
31,808
—
31,808
Tax exempt 40,776
45,537
86,313
15,846
—
15,846
Total Commercial and Industrial: 243,445
113,627
357,072
151,240
—
151,240

Total Commercial Loans: 732,984
417,660
1,150,644
569,359
—
569,359

Residential Real Estate:

Residential mortgages 568,277
584,351
1,152,628
506,612
—
506,612
Total Residential Real Estate: 568,277
584,351
1,152,628
506,612
—
506,612

Consumer:

Home equity 50,610
64,695
115,305
46,921
��
46,921
Other consumer 7,645
2,640
10,285
6,172
—
6,172
Total Consumer: 58,255
67,335
125,590
53,093
—
53,093

Total Loans: $ 1,359,516
$ 1,069,346
$ 2,428,862
$ 1,129,064
$ —
$ 1,129,064


	March 31, 2020						December 31, 2019
	Business						Business
	Activities		Acquired				Activities		Acquired
(in thousands)	Loans		Loans		Total		Loans		Loans		Total
Commercial real estate:
Construction and land development	$	49,157	$	2,422	$	51,579	$	31,387	$	2,903	$	34,290
Other commercial real estate		680,578		216,021		896,599		666,051		230,320		896,371
Total commercial real estate		729,735		218,443		948,178		697,438		233,223		930,661

Commercial and industrial:
Commercial		288,082		52,713		340,795		239,692		59,072		298,764
Agricultural		18,597		200		18,797		20,018		206		20,224
Tax exempt		55,694		11,071		66,765		66,860		37,443		104,303
Total commercial and industrial		362,373		63,984		426,357		326,570		96,721		423,291

Total commercial loans		1,092,108		282,427		1,374,535		1,024,008		329,944		1,353,952

Residential real estate:
Residential mortgages		742,710		389,618		1,132,328		740,687		411,170		1,151,857
Total residential real estate		742,710		389,618		1,132,328		740,687		411,170		1,151,857

Consumer:
Home equity		64,514		53,030		117,544		59,368		63,033		122,401
Other consumer		9,226		1,350		10,576		11,167		1,715		12,882
Total consumer		73,740		54,380		128,120		70,535		64,748		135,283

Total loans	$	1,908,558	$	726,425	$	2,634,983	$	1,835,230	$	805,862	$	2,641,092

The carrying amount of the acquired loans at ~~September 30, 2017~~March 31, 2020 totaled ~~$1.069 billion.~~$726.4 million. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC ~~310-30.~~310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. These purchased credit-impaired loans presently maintain a carrying value of ~~$14.4~~$15.2 million (and atotal note ~~balance~~balances of ~~$19.5~~$19.3 million). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. ~~Loans~~Acquired loans considered not impaired at the acquisition date had a carrying amount of ~~$1.055 billion.~~$711.2 million as of March 31, 2020.

Table of Contents

The following table summarizes activity in the accretable yield for the acquired loan portfolio that falls under the purview of ASC 310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer:

Three Months Ended September 30,
(In thousands) 2017 2016
Balance at beginning of period $ 4,567
$ —
Acquisitions —
—
Reclassification from nonaccretable difference for loans with improved cash flows 513
—
Accretion (423 ) —
Balance at end of period $ 4,657
$ —

Nine Months Ended September 30,
(In thousands) 2017 2016
Balance at beginning of period $ —
$ —
Acquisitions 3,398
—
Reclassification from nonaccretable difference for loans with improved cash flows 2,257
—
Accretion (998 ) —
Balance at end of period $ 4,657
$ —


	Three Months Ended March 31,
(in thousands)	2020		2019
Balance at beginning of period	$	7,367	$	3,509
Reclassification from nonaccretable difference for loans with improved cash flows		—		2,031
Accretion		(528)		(1,063)
Balance at end of period	$	6,839	$	4,477

The following is a summary of past due loans at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~

2019:

Business Activities Loans


					90 Days or								Past Due >
	30-59 Days		60-89 Days		Greater		Total Past						90 days and
(in thousands)	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
March 31, 2020
Commercial real estate:
Construction and land development	$	142	$	—	$	276	$	418	$	48,739	$	49,157	$	—
Other commercial real estate		1,521		533		1,010		3,064		677,514		680,578		—
Total commercial real estate		1,663		533		1,286		3,482		726,253		729,735		—

Commercial and industrial:
Commercial		1,108		1,515		1,251		3,874		284,208		288,082		381
Agricultural		38		—		169		207		18,390		18,597		51
Tax exempt		—		—		—		—		55,694		55,694		—
Total commercial and industrial		1,146		1,515		1,420		4,081		358,292		362,373		432

Total commercial loans		2,809		2,048		2,706		7,563		1,084,545		1,092,108		432

Residential real estate:
Residential mortgages		8,824		69		1,207		10,100		732,610		742,710		293
Total residential real estate		8,824		69		1,207		10,100		732,610		742,710		293

Consumer:
Home equity		471		20		412		903		63,611		64,514		221
Other consumer		19		5		2		26		9,200		9,226		—
Total consumer		490		25		414		929		72,811		73,740		221

Total loans	$	12,123	$	2,142	$	4,327	$	18,592	$	1,889,966	$	1,908,558	$	946

Table of Contents

Acquired Loans


					90 Days or				Acquired				Past Due >
	30-59 Days		60-89 Days		Greater		Total Past		Credit				90 days and
(in thousands)	Past Due		Past Due		Past Due		Due		Impaired		Total Loans		Accruing
March 31, 2020
Commercial real estate:
Construction and land development	$	—	$	—	$	—	$	—	$	245	$	2,422	$	—
Other commercial real estate		1,843		256		1,024		3,123		7,275		216,021		737
Total commercial real estate		1,843		256		1,024		3,123		7,520		218,443		737

Commercial and industrial:
Commercial		97		—		—		97		1,752		52,713		—
Agricultural		—		—		—		—		200		200		—
Tax exempt		—		—		—		—		—		11,071		—
Total commercial and industrial		97		—		—		97		1,952		63,984		—

Total commercial loans		1,940		256		1,024		3,220		9,472		282,427		737

Residential real estate:
Residential mortgages		5,043		99		834		5,976		4,856		389,618		401
Total residential real estate		5,043		99		834		5,976		4,856		389,618		401

Consumer:
Home equity		626		—		199		825		789		53,030		43
Other consumer		1		—		—		1		58		1,350		—
Total consumer		627		—		199		826		847		54,380		43

Total loans	$	7,610	$	355	$	2,057	$	10,022	$	15,175	$	726,425	$	1,181

(in thousands)
30-59 Days
Past Due

60-89 Days
Past Due
90 Days or Greater Past Due
Total Past
Due
Current Total Loans
Past Due >
90 days and
Accruing
September 30, 2017

Commercial Real Estate:

Construction and land development $ —
$ —
$ 637
$ 637
$ 33,055
$ 33,692
$ —
Other commercial real estate 407
121
702
1,230
454,617
455,847
—
Total Commercial Real Estate: 407
121
1,339
1,867
487,672
489,539
—

Commercial and Industrial:
Other Commercial 401
150
159
710
171,476
172,186
—
Agricultural and other loans to farmers 600
90
10
700
29,783
30,483
—
Tax exempt —
—
—
—
40,776
40,776
—
Total Commercial and Industrial: 1,001
240
169
1,410
242,035
243,445
—

Total Commercial Loans: 1,408
361
1,508
3,277
729,707
732,984
—

Residential Real Estate:
Residential mortgages 2,904
172
1,260
4,336
563,941
568,277
—
Total Residential Real Estate: 2,904
172
1,260
4,336
563,941
568,277
—

Consumer:
Home equity 306
25
100
431
50,179
50,610
—
Other consumer 60
21
26
107
7,538
7,645
—
Total Consumer: 366
46
126
538
57,717
58,255
—
—
Total Loans: $ 4,678
$ 579
$ 2,894
$ 8,151
$ 1,351,365
$ 1,359,516
$ —

Table of Contents

Business Activities Loans


					90 Days or								Past Due >
	30-59 Days		60-89 Days		Greater		Total Past						90 days and
(in thousands)	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
December 31, 2019
Commercial real estate:
Construction and land development	$	205	$	53	$	—	$	258	$	31,129	$	31,387	$	—
Other commercial real estate		40		1,534		1,810		3,384		662,667		666,051		—
Total commercial real estate		245		1,587		1,810		3,642		693,796		697,438		—

Commercial and industrial:
Commercial		452		50		894		1,396		238,296		239,692		—
Agricultural		62		34		96		192		19,826		20,018		—
Tax exempt		—		—		—		—		66,860		66,860		—
Total commercial and industrial		514		84		990		1,588		324,982		326,570		—

Total commercial loans		759		1,671		2,800		5,230		1,018,778		1,024,008		—

Residential real estate:
Residential mortgages		7,293		1,243		668		9,204		731,483		740,687		—
Total residential real estate		7,293		1,243		668		9,204		731,483		740,687		—

Consumer:
Home equity		597		43		429		1,069		58,299		59,368		50
Other consumer		36		12		—		48		11,119		11,167		—
Total consumer		633		55		429		1,117		69,418		70,535		50

Total loans	$	8,685	$	2,969	$	3,897	$	15,551	$	1,819,679	$	1,835,230	$	50

(in thousands)
30-59 Days
Past Due

60-89 Days
Past Due
90 Days or Greater Past Due
Total Past
Due
Current Total Loans
Past Due >
90 days and
Accruing
December 31, 2016

Commercial Real Estate:

Construction and land development $ —
$ —
$ —
$ —
$ 14,695
$ 14,695
$ —
Other commercial real estate 195
554
1,665
2,414
401,010
403,424
—
Total Commercial Real Estate: 195
554
1,665
2,414
415,705
418,119
—

Commercial and Industrial:
Other Commercial 61
45
201
307
103,279
103,586
—
Agricultural and other loans to farmers 231
—
—
231
31,577
31,808
—
Tax exempt —
—
—
—
15,846
15,846
—
Total Commercial and Industrial: 292
45
201
538
150,702
151,240
—

Total Commercial Loans: 487
599
1,866
2,952
566,407
569,359
—

Residential Real Estate:
Residential mortgages 4,484
429
938
5,851
500,761
506,612
—
Total Residential Real Estate: 4,484
429
938
5,851
500,761
506,612
—

Consumer:
Home equity —
—
15
15
46,906
46,921
—
Other consumer 103
1
6
110
6,062
6,172
—
Total Consumer: 103
1
21
125
52,968
53,093
—
—
Total Loans: $ 5,074
$ 1,029
$ 2,825
$ 8,928
$ 1,120,136
$ 1,129,064
$ —

Table of Contents

Acquired Loans


					90 Days or				Acquired				Past Due >
	30-59 Days		60-89 Days		Greater		Total Past		Credit				90 days and
(in thousands)	Past Due		Past Due		Past Due		Due		Impaired		Total Loans		Accruing
December 31, 2019
Commercial real estate:
Construction and land development	$	—	$	12	$	—	$	12	$	384	$	2,903	$	—
Other commercial real estate		2,029		245		231		2,505		8,289		230,320		—
Total commercial real estate		2,029		257		231		2,517		8,673		233,223		—

Commercial and industrial:
Commercial		440		335		140		915		2,723		59,072		—
Agricultural		—		—		—		—		173		206		—
Tax exempt		—		—		—		—		36		37,443		—
Total commercial and industrial		440		335		140		915		2,932		96,721		—

Total commercial loans		2,469		592		371		3,432		11,605		329,944		—

Residential real estate:
Residential mortgages		3,185		864		1,015		5,064		5,591		411,170		—
Total residential real estate		3,185		864		1,015		5,064		5,591		411,170		—

Consumer:
Home equity		208		548		217		973		1,291		63,033		217
Other consumer		2		9		—		11		66		1,715		—
Total consumer		210		557		217		984		1,357		64,748		217

Total loans	$	5,864	$	2,013	$	1,603	$	9,480	$	18,553	$	805,862	$	217

(in thousands)
30-59 Days
Past Due

60-89 Days
Past Due
90 Days or Greater Past Due
Total Past
Due

Acquired
Credit
Impaired
Total Loans
Past Due >
90 days and
Accruing
September 30, 2017

Commercial Real Estate:

Construction and land development $ 20
$ 10
$ —
$ 30
$ 258
$ 15,593
$ —
Other commercial real estate 314
25
591
930
9,760
288,440
—
Total Commercial Real Estate: 334
35
591
960
10,018
304,033
—

Commercial and Industrial:
Other Commercial 396
144
—
540
917
68,090
163
Agricultural and other loans to farmers —
—
—
—
—
—
—
Tax exempt —
—
—
—
—
45,537
—
Total Commercial and Industrial: 396
144
—
540
917
113,627
163

Total Commercial Loans: 730
179
591
1,500
10,935
417,660
163

Residential Real Estate:
Residential mortgages 1,089
13
868
1,970
3,398
584,351
—
Total Residential Real Estate: 1,089
13
868
1,970
3,398
584,351
—

Consumer:
Home equity 388
155
193
736
40
64,695
—
Other consumer 12
144
49
205
3
2,640
—
Total Consumer: 400
299
242
941
43
67,335
—
—
Total Loans: $ 2,219
$ 491
$ 1,701
$ 4,411
$ 14,376
$ 1,069,346
$ 163

Table of Contents

~~Non Accrual~~

Non-Accrual Loans

The following is summary information pertaining to non-accrual loans at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~

September 30, 2017 December 31, 2016
(In thousands)
Business
Activities Loans

Acquired
Loans
Total
Business
Activities Loans

Acquired
Loans
Total
Commercial Real Estate:

Construction and land development $ 637
$ —
$ 637
$ —
$ —
$ —
Other commercial real estate 1,238
591
1,829
2,564
—
2,564
Total Commercial Real Estate: 1,875
591
2,466
2,564
—
2,564

Commercial and Industrial:
Other Commercial 183
—
183
284
—
284
Agricultural and other loans to farmers 53
—
53
31
—
31
Tax exempt —
—
—
—
—
—
Total Commercial and Industrial: 236
—
236
315
—
315

Total Commercial Loans: 2,111
591
2,702
2,879
—
2,879

Residential Real Estate:
Residential mortgages 2,751
868
3,619
3,419
—
3,419
Total Residential Real Estate: 2,751
868
3,619
3,419
—
3,419

Consumer:
Home equity 151
193
344
90
—
90
Other consumer 103
49
152
108
—
108
Total Consumer: 254
242
496
198
—
198

Total Loans: $ 5,116
$ 1,701
$ 6,817
$ 6,496
$ —
$ 6,496

2019:


	March 31, 2020						December 31, 2019
	Business						Business
	Activities		Acquired				Activities		Acquired
(in thousands)	Loans		Loans		Total		Loans		Loans		Total
Commercial real estate:
Construction and land development	$	276	$	—	$	276	$	258	$	—	$	258
Other commercial real estate		1,664		287		1,951		2,888		343		3,231
Total commercial real estate		1,940		287		2,227		3,146		343		3,489

Commercial and industrial:
Commercial		1,282		89		1,371		932		626		1,558
Agricultural		625		—		625		278		—		278
Tax exempt		—		—		—		—		—		—
Total commercial and industrial		1,907		89		1,996		1,210		626		1,836

Total commercial loans		3,847		376		4,223		4,356		969		5,325

Residential real estate:
Residential mortgages		4,077		1,012		5,089		3,362		1,973		5,335
Total residential real estate		4,077		1,012		5,089		3,362		1,973		5,335

Consumer:
Home equity		440		284		724		615		254		869
Other consumer		20		—		20		21		—		21
Total consumer		460		284		744		636		254		890

Total loans	$	8,384	$	1,672	$	10,056	$	8,354	$	3,196	$	11,550

Loans evaluated for impairment as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016 were~~2019 are, as follows:

Business Activities Loans


	Commercial		Commercial		Residential
(in thousands)	real estate		and industrial		real estate		Consumer		Total
March 31, 2020
Balance at end of period
Individually evaluated for impairment	$	2,638	$	1,733	$	3,586	$	13	$	7,970
Collectively evaluated		727,097		360,640		739,124		73,727		1,900,588
Total	$	729,735	$	362,373	$	742,710	$	73,740	$	1,908,558

Acquired Loans


	Commercial		Commercial		Residential
(in thousands)	real estate		and industrial		real estate		Consumer		Total
March 31, 2020
Balance at end of period
Individually evaluated for impairment	$	70	$	—	$	296	$	—	$	366
Purchased credit impaired		7,520		1,952		4,856		847		15,175
Collectively evaluated		210,853		62,032		384,466		53,533		710,884
Total	$	218,443	$	63,984	$	389,618	$	54,380	$	726,425

(In thousands)
Commercial
real estate

Commercial and
industrial

Residential
real estate
Consumer Total
September 30, 2017

Loans receivable:

Balance at end of period

Individually evaluated for impairment $ 2,585
$ 138
$ 1,744
$ 68
$ 4,535
Collectively evaluated 486,954
243,307
566,533
58,187
1,354,981
Total $ 489,539
$ 243,445
$ 568,277
$ 58,255
$ 1,359,516

Business Activities Loans

(In thousands)
Commercial
real estate

Commercial and
industrial

Residential
real estate
Consumer Total
December 31, 2016

Loans receivable:

Balance at end of period

Individually evaluated for impairment $ 4,481
$ 486
$ 1,709
$ 33
$ 6,709
Collectively evaluated 413,638
150,754
504,903
53,060
1,122,355
Total $ 418,119
$ 151,240
$ 506,612
$ 53,093
$ 1,129,064


	Commercial		Commercial		Residential
(in thousands)	real estate		and industrial		real estate		Consumer		Total
December 31, 2019
Balance at end of period
Individually evaluated for impairment	$	3,964	$	1,353	$	2,620	$	13	$	7,950
Collectively evaluated		693,474		325,217		738,067		70,522		1,827,280
Total	$	697,438	$	326,570	$	740,687	$	70,535	$	1,835,230

Acquired Loans

(In thousands)
Commercial
real estate

Commercial and
industrial

Residential
real estate
Consumer Total
September 30, 2017

Loans receivable:

Balance at end of period

Individually evaluated for impairment $ 408
$ 470
$ 271
$ 156
$ 1,305
Purchased Credit Impaired 10,018
917
3,398
43
14,376
Collectively evaluated 293,607
112,240
580,682
67,136
1,053,665
Total $ 304,033
$ 113,627
$ 584,351
$ 67,335
$ 1,069,346


	Commercial		Commercial		Residential
(in thousands)	real estate		and industrial		real estate		Consumer		Total
December 31, 2019
Balance at end of period
Individually evaluated for impairment	$	258	$	385	$	1,032	$	—	$	1,675
Purchased credit impaired		8,673		2,932		5,591		1,357		18,553
Collectively evaluated		224,292		93,404		404,547		63,391		785,634
Total	$	233,223	$	96,721	$	411,170	$	64,748	$	805,862

The following is a summary of impaired loans at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~

2019:

Business Activities Loans


	March 31, 2020
	Recorded		Unpaid Principal		Related
(in thousands)	Investment		Balance		Allowance
With no related allowance:
Construction and land development	$	—	$	—	$	—
Other commercial real estate		1,341		2,060		—
Commercial		1,075		1,242		—
Agricultural		67		68		—
Tax exempt loans		—		—		—
Residential real estate		2,603		2,794		—
Home equity		—		—		—
Other consumer		—		—		—

With an allowance recorded:
Construction and land development		265		266		213
Other commercial real estate		1,032		1,082		462
Commercial		230		236		47
Agricultural		361		361		91
Tax exempt loans		—		—		—
Residential real estate		983		1,111		126
Home equity		13		13		—
Other consumer		—		—		—

Total
Commercial real estate		2,638		3,408		675
Commercial and industrial		1,733		1,907		138
Residential real estate		3,586		3,905		126
Consumer		13		13		—
Total impaired loans	$	7,970	$	9,233	$	939

Table of Contents

Acquired Loans


	March 31, 2020
	Recorded		Unpaid Principal		Related
(in thousands)	Investment		Balance		Allowance
With no related allowance:
Construction and land development	$	—	$	—	$	—
Other commercial real estate		—		—		—
Commercial		—		—		—
Agricultural		—		—		—
Tax exempt loans		—		—		—
Residential real estate		134		308		—
Home equity		—		—		—
Other consumer		—		—		—

With an allowance recorded:
Construction and land development		—		—		—
Other commercial real estate		70		71		13
Commercial		—		—		—
Agricultural		—		—		—
Tax exempt loans		—		—		—
Residential real estate		162		185		14
Home equity		—		—		—
Other consumer		—		—		—

Total
Commercial real estate		70		71		13
Commercial and industrial		—		—		—
Residential real estate		296		493		14
Consumer		—		—		—
Total impaired loans	$	366	$	564	$	27

September 30, 2017
(In thousands) Recorded Investment
Unpaid Principal
Balance
Related Allowance
With no related allowance:

Construction and land development $ —
$ —
$ —
Commercial real estate other 1,198
1,175
—
Commercial other 96
97
—
Agricultural and other loans to farmers —
—
—
Tax exempt loans —
—
—
Residential real estate 1,257
1,267
—
Home equity 13
13
—
Consumer other —
—
—

With an allowance recorded:
Construction and land development $ 637
$ 2,563
$ 59
Commercial real estate other 750
808
331
Commercial other 42
42
2
Agricultural and other loans to farmers —
—
—
Tax exempt loans —
—
—
Residential real estate 487
487
44
Home equity 55
55
55
Consumer other —
—
—

Total
Commercial real estate $ 2,585
$ 4,546
$ 390
Commercial and industrial 138
139
2
Residential real estate 1,744
1,754
44
Consumer 68
68
55
Total impaired loans $ 4,535
$ 6,507
$ 491

September 30, 2017
(In thousands) Recorded Investment
Unpaid Principal
Balance
Related Allowance
With no related allowance:

Construction and land development $ —
$ —
$ —
Commercial real estate other 108
107
—
Commercial other 470
483
—
Agricultural and other loans to farmers —
—
—
Tax exempt loans —
—
—
Residential real estate 271
278
—
Home equity 156
156
—
Consumer other —
—
—

With an allowance recorded:
Construction and land development $ —
$ —
$ —
Commercial real estate other 300
302
168
Commercial other —
—
—
Agricultural and other loans to farmers —
—
—
Tax exempt loans —
—
—
Residential real estate —
—
—
Home equity —
—
—
Consumer other —
—
—

Total
Commercial real estate $ 408
$ 409
$ 168
Commercial and industrial 470
483
—
Residential real estate 271
278
—
Consumer 156
156
—
Total impaired loans $ 1,305
$ 1,326
$ 168

Business Activities Loans


	December 31, 2019
	Recorded		Unpaid Principal		Related
(in thousands)	Investment		Balance		Allowance
With no related allowance:
Construction and land development	$	—	$	—	$	—
Other commercial real estate		1,911		1,957		—
Commercial		710		773		—
Agricultural		361		261		—
Tax exempt loans		—		—		—
Residential real estate		2,067		2,227		—
Home equity		—		—		—
Other consumer		—		—		—

With an allowance recorded:
Construction and land development		258		258		205
Other commercial real estate		1,795		1,940		1,026
Commercial		282		289		164
Agricultural		—		—		—
Tax exempt loans		—		—		—
Residential real estate		553		590		57
Home equity		13		13		—
Other consumer		—		—		—

Total
Commercial real estate		3,964		4,155		1,231
Commercial and industrial		1,353		1,423		164
Residential real estate		2,620		2,817		57
Consumer		13		13		—
Total impaired loans	$	7,950	$	8,408	$	1,452

Table of Contents

Acquired Loans


		December 31, 2019
		Recorded		Unpaid Principal		Related
(in thousands)		Investment		Balance		Allowance
With no related allowance:
Construction and land development		$	—	$	—	$	—
Other commercial real estate			90		90		—
Commercial			385		481		—
Agricultural			—		—		—
Tax exempt			—		—		—
Residential mortgages			678		938		—
Home equity			—		—		—
Other consumer			—		—		—

With an allowance recorded:
Construction and land development			—		—		—
Other commercial real estate			168		168		12
Commercial			—		—		—
Agricultural			—		—		—
Tax exempt			—		—		—
Residential mortgages			354		376		49
Home equity			—		—		—
Other consumer			—		—		—
	��
Total
Commercial real estate			258		258		12
Commercial and industrial			385		481		—
Residential real estate			1,032		1,314		49
Consumer			—		—		—
Total impaired loans		$	1,675	$	2,053	$	61

December 31, 2016
(In thousands) Recorded Investment
Unpaid Principal
Balance
Related Allowance
With no related allowance:

Construction and land development $ —
$ —
$ —
Commercial real estate other 2,831
2,919
—
Commercial other 130
130
—
Agricultural and other loans to farmers 139
139
—
Tax exempt loans —
—
—
Residential real estate 1,387
1,504
—
Home equity 16
16
—
Consumer other 2
2
—

With an allowance recorded:
Construction and land development $ —
$ —
$ —
Commercial real estate other 1,650
3,575
193
Commercial other 217
367
173
Agricultural and other loans to farmers —
—
—
Tax exempt loans —
—
—
Residential real estate 322
322
49
Home equity —
—
—
Consumer other 15
15
9

Total
Commercial real estate $ 4,481
$ 6,494
$ 193
Commercial and industrial 486
636
173
Residential real estate 1,709
1,826
49
Consumer 33
33
9
Total impaired loans $ 6,709
$ 8,989
$ 424

Table of Contents

The following is a summary of the average recorded investment and interest income recognized on impaired loans ~~as of September 30, 2017~~for the three months ended March 31, 2020 and ~~2016:~~

2019:

Business Activities ~~Loan~~Loans


	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
	Average Recorded		Interest		Average Recorded		Interest
(in thousands)	Investment		Income Recognized		Investment		Income Recognized
With no related allowance:
Construction and land development	$	—	$	—	$	—	$	—
Other commercial real estate		1,728		3		7,773		26
Commercial		1,071		1		527		2
Agricultural		—		—		—		—
Tax exempt loans		—		—		—		—
Residential real estate		2,589		17		1,965		15
Home equity		—		—		—		—
Other consumer		—		—		—		—

With an allowance recorded:
Construction and land development		261		1		5		—
Other commercial real estate		1,021		—		1,203		—
Commercial		233		—		890		—
Agricultural		—		—		—		—
Tax exempt loans		—		—		—		—
Residential real estate		979		2		652		2
Home equity		12		—		13		—
Other consumer		—		—		—		—

Total
Commercial real estate		3,010		4		8,981		26
Commercial and industrial		1,304		1		1,417		2
Residential real estate		3,568		19		2,617		17
Consumer		12		—		13		—
Total impaired loans	$	7,894	$	24	$	13,028	$	45

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
(in thousands)
Average Recorded
Investment

Cash Basis Interest
Income Recognized

Average Recorded
Investment

Cash Basis Interest
Income Recognized
With no related allowance:

Construction and land development $ —
$ —
$ —
$ —
Commercial real estate other 1,716
64
2,713
131
Commercial other 99
6
141
2
Agricultural and other loans to farmers 8
1
131
8
Tax exempt loans —
—
—
—
Residential real estate 1,245
31
1,344
55
Home equity 13
—
17
1
Consumer other 5
2
—
1

With an allowance recorded:
Construction and land development $ 637
$ —
$ 928
$ —
Commercial real estate other 693
—
551
—
Commercial other 44
1
221
—
Agricultural and other loans to farmers —
—
—
—
Tax exempt loans —
—
—
—
Residential real estate 268
5
331
—
Home equity 12
—
—
—
Consumer other —
—
17
—

Total
Commercial real estate $ 3,046
$ 64
$ 4,192
$ 131
Commercial and industrial 151
8
493
10
Residential real estate 1,513
36
1,675
55
Consumer 30
2
34
2
Total impaired loans $ 4,740
$ 110
$ 6,394
$ 198

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Acquired Loans

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
(in thousands)
Average Recorded
Investment

Cash Basis Interest
Income Recognized

Average Recorded
Investment

Cash Basis Interest
Income Recognized
With no related allowance:

Construction and land development $ —
$ —
$ —
$ —
Commercial real estate other 89
—
—
—
Commercial other 171
—
—
—
Agricultural and other loans to farmers —
—
—
—
Tax exempt loans —
—
—
—
Residential real estate 254
1
—
—
Home equity 47
—
—
—
Consumer other 9
—
—
—

With an allowance recorded:
Construction and land development $ —
$ —
$ —
$ —
Commercial real estate other 46
—
—
—
Commercial other —
—
—
—
Agricultural and other loans to farmers —
—
—
—
Tax exempt loans —
—
—
—
Residential real estate —
—
—
—
Home equity —
—
—
—
Consumer other —
—
—
—

Total
Commercial real estate $ 135
$ —
$ —
$ —
Commercial and industrial 171
—
—
—
Residential real estate 254
1
—
—
Consumer 56
—
—
—
Total impaired loans $ 616
$ 1
$ —
$ —


	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
	Average Recorded		Interest		Average Recorded		Interest
(in thousands)	Investment		Income Recognized		Investment		Income Recognized
With no related allowance:
Construction and land development	$	—	$	—	$	—	$	—
Other commercial real estate		—		—		90		—
Commercial		—		—		479		—
Agricultural		—		—		—		—
Tax exempt loans		—		—		—		—
Residential real estate		195		—		436		—
Home equity		—		—		—		—
Other consumer		—		—		—		—

With an allowance recorded:
Construction and land development		—		—		—		—
Other commercial real estate		70		—		36		—
Commercial		—		—		—		—
Agricultural		—		—		—		—
Tax exempt loans		—		—		—		—
Residential real estate		163		—		367		—
Home equity		—		—		—		—
Other consumer		—		—		—		—

Total
Commercial real estate		70		—		126		—
Commercial and industrial		—		—		479		—
Residential real estate		358		—		803		—
Consumer		—		—		—		—
Total impaired loans	$	428	$	—	$	1,408	$	—

Troubled Debt Restructuring Loans

The Company’s loan portfolio also includes certain loans that have been modified in a Troubled Debt Restructuring ("TDR"), where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as ~~nonperforming~~non-performing at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan.

The following tables include the recorded investment and number of modifications identified during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~for the three and nine months ended September 30, 2016,~~2019, respectively. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Modifications may include adjustments to interest rates, payment amounts, extensions of maturity, court ordered concessions or other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral.

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	Three Months Ended March 31, 2020
		Pre-Modification		Post-Modification
	Number of	Outstanding Recorded		Outstanding Recorded
(in thousands)	Modifications	Investment		Investment
Troubled Debt Restructurings
Other commercial real estate	1	$	54	$	259
Other commercial	3		41		208
Home equity	1		26		25
Other consumer	1		9		9
Total	6	$	130	$	501


	Three Months Ended March 31, 2019
		Pre-Modification			Post-Modification
	Number of	Outstanding Recorded		Outstanding Recorded
(in thousands)	Modifications	Investment		Investment
Troubled Debt Restructurings
Other commercial real estate	3	$	113	$	113
Other commercial	2		31		31
Residential mortgages	6		530		527
Total	11	$	674	$	671

The ~~modifications~~following tables summarize the types of loan concessions made for the three and nine months ended September 30, 2017 were attributable to interest rate concessions, maturity date extensions, reamortization or a combination of two concessions. The modifications for the three and nine months ending September 30, 2016 were attributable to interest rate concessions, maturity date extensions or a combination of both.

Three Months Ended September 30, 2017
(Dollars in thousands)
Number of
Modifications

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment
Troubled Debt Restructurings

Commercial installment 5
$ 483
$ 483
Agricultural and other loans to farmers —
—
—
Commercial real estate 4
144
144
Residential real estate —
—
—
Home equity —
—
—
Consumer other —
—
—
Total 9
$ 627
$ 627

Three Months Ended September 30, 2016
(Dollars in thousands)
Number of
Modifications

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment
Troubled Debt Restructurings
Commercial installment 2
$ 51
$ 51
Commercial real estate 2
936
915
Consumer other 1
9
9
Total 5
$ 996
$ 975

Nine Months Ended September 30, 2017
(Dollars in thousands)
Number of
Modifications

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment
Troubled Debt Restructurings

Commercial installment 6
$ 563
$ 549
Agricultural and other loans to farmers 1
19
18
Commercial real estate 6
388
333
Residential real estate 3
692
675
Home equity 1
13
13
Consumer other 1
38
37
Total 18
$ 1,713
$ 1,625

Nine Months Ended September 30, 2016
(Dollars in thousands)
Number of
Modifications

Pre-Modification
Outstanding Recorded
Investment

Post-Modification
Outstanding Recorded
Investment
Troubled Debt Restructurings
Commercial installment 2
$ 51
$ 51
Agricultural and other loans to farmers 2
30
24
Commercial real estate 5
1,361
1,326
Consumer Other 1
9
9
Total 10
$ 1,451
$ 1,410

periods presented:


	Three Months Ended March 31,
	2020			2019
		Post-Modification			Post-Modification
		Outstanding			outstanding
	Number of	Recorded		Number of	Recorded
(in thousands, except modifications)	Modifications	Investment		Modifications	Investment
Troubled Debt Restructurings
Interest rate and maturity concession	—	$	—	2	$	12
Interest rate, forbearance and maturity concession	4		467	—		—
Amortization and maturity concession	—		—	5		314
Amortization concession	—		—	1		156
Amortization, interest rate and maturity concession	—		—	1		77
Forbearance and interest only payments	1		25	2		112
Maturity concession	1		9	—		—
Total	6	$	501	11	$	671

For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020, there were no0 loans that were restructured that had subsequently defaulted during the period.

The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs.

Modifications in response to COVID-19

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. The CARES Act along with a joint agency statement issued by banking agencies, provides that short-term modifications made in response to COVID-19 do not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. See Note 1 - Basis of Presentation for more information.

Foreclosure

As of ~~September 30, 2017,~~March 31, 2020 and December 31, 2019, the Company maintained ~~foreclosed~~bank-owned residential real estate ~~property~~ with a fair value of ~~$122 thousand.~~$2.2 million. Additionally, residential mortgage loans collateralized by real estate ~~property~~ that are in the process of foreclosure as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 totaled ~~$772~~$931 thousand and ~~$2.4~~$810 thousand, respectively.

Mortgage Banking

Total residential loans included held for sale loans of $11.7 million ~~respectively. As of~~and $6.5 million at March 31, 2020 and December 31, ~~2016, foreclosed~~2019, respectively.

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NOTE 4. ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is maintained at a level considered adequate to provide for an estimate of probable credit losses inherent in the loan portfolio. The allowance is increased by the provision charged to operating expense and reduced by net charge-offs. Loans are charged against the allowance for loan losses when the Company believes collectability has declined to a point where there is a distinct possibility of some loss of principal and interest. While the Company uses the best information available to make the evaluation, future adjustments may be necessary if there are significant changes in conditions.

The allowance is comprised of 4 distinct reserve components: (1) specific reserves related to loans individually evaluated; (2) quantitative reserves related to loans collectively evaluated; (3) qualitative reserves related to loans collectively evaluated; and (4) a temporal estimate is made for incurred loss emergence period for each loan category within the collectively evaluated pools.

A summary of the methodology employed on a quarterly basis with respect to each of these components in order to evaluate the overall adequacy of the Company's allowance for loan losses is as follows:

Specific Reserve for Loans Individually Evaluated

First, the Company identifies loan relationships having aggregate balances in excess of $150 thousand with potential credit weaknesses. Such loan relationships are identified primarily through the Company's analysis of internal loan evaluations, past due loan reports, TDRs and loans adversely classified. Each loan so identified is then individually evaluated for impairment. Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement. Substantially all impaired loans have historically been collateral dependent, meaning repayment of the loan is expected or is considered to be provided solely from the sale of the loan's underlying collateral. For such loans, the Company measures impairment based on the fair value of the loan's collateral, which is generally determined utilizing current appraisals. A specific reserve is established in an amount equal to the excess, if any, of the recorded investment in each impaired loan over the fair value of its underlying collateral, less estimated costs to sell. The Company's policy is to re-evaluate the fair value of collateral dependent loans at least every twelve months unless there is a known deterioration in the collateral's value, in which case a new appraisal is obtained.

Purchase credit impaired (“PCI”) loans are collectively evaluated, but are not included in the general reserve as described below. The evaluation of the PCI loans requires continued quarterly assessment of key assumptions and estimates similar to the initial fair value estimate, including changes in the severity of loss, timing and speed of payments, collateral value changes, expected cash flows and other relevant factors. The quarterly assessment is compared to the initial fair value estimate and a determination is made if an adjustment to the allowance for loan loss is deemed necessary.

Quantitative Reserve for Loans Collectively Evaluated

Second, the Company stratifies the loan portfolio into 2 general business loan pools: substandard (7 risk-rated) and pass-rated (0 to 6 risk-rated) by loan type. Substandard rated loans are subject to higher credit loss rates in the allowance for loan loss calculation. The Company utilizes historical loss rates for commercial real estate and commercial and industrial loans assessed by internal risk rating. Historical loss rates on residential real estate ~~property totaled $90 thousand.~~and consumer loans are not risk graded. Residential real estate and consumer loans are considered as part of the pass-rated portfolio unless removed due to specific reserve evaluation based on past due status and/or other indications of credit deterioration. Quantitative reserves relative to each loan pool are established as follows: for all loan segments an allocation equaling 100% of the respective pool's average 3-year historical net loan charge-off rate (determined based upon the most recent 12 quarters) is applied to the aggregate recorded investment in the pool of loans. Purchased performing loans are collectively evaluated as their own separate category within each loan pool.

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~~NOTE 5. LOAN LOSS ALLOWANCE~~

Qualitative Reserve for Loans Collectively Evaluated

Third, the Company considers the necessity to adjust the average historical net loan charge-off rates relative to each of the above 2 loan pools for potential risks factors that could result in actual losses deviating from prior loss experience. Such qualitative risk factors considered are: (1) lending policies and procedures, (2) business conditions, (3) volume and nature of the loan portfolio, (4) experience, ability and depth of lending management, (5) problem loan trends, (6) quality of the Company’s loan review system, (7) concentrations in the loan portfolio, (8) competition, legal, and regulatory environment and (9) collateral coverage and loan-to-value.

��

Loss Emergence Period for Loans Collectively Evaluated

Fourth, the general allowance related to loans collectively evaluated includes an estimate of incurred losses over an estimated loss emergence period ("LEP"). The LEP is generated utilizing a charge-off look-back analysis, which evaluates the time from the first indication of elevated risk of repayment (or other early event indicating a problem) to eventual charge-off to support the LEP considered in the allowance calculation. This reserving methodology establishes the approximate number of months of LEP that represents incurred losses for each loan portfolio within each portfolio segment in addition to the qualitative reserves.

Activity in the allowance for loan losses for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016 was~~2019 are, as follows:


Business Activities Loans	At or for the Three Months Ended March 31, 2020
	Commercial		Commercial		Residential
(in thousands)	real estate		and industrial		real estate		Consumer		Total
Balance at beginning of period	$	7,668	$	3,608	$	3,402	$	379	$	15,057
Charged-off loans		(770)		(150)		—		(148)		(1,068)
Recoveries on charged-off loans		25		1		—		3		29
Provision for loan losses		738		84		111		150		1,083
Balance at end of period	$	7,661	$	3,543	$	3,513	$	384	$	15,101
Individually evaluated for impairment		675		138		126		—		939
Collectively evaluated		6,986		3,405		3,387		384		14,162
Total	$	7,661	$	3,543	$	3,513	$	384	$	15,101


Acquired Loans	At or for the Three Months Ended March 31, 2020
	Commercial		Commercial		Residential
(in thousands)	real estate		and industrial		real estate		Consumer		Total
Balance at beginning of period	$	147	$	6	$	143	$	—	$	296
Charged-off loans		(101)		(29)		(8)		(5)		(143)
Recoveries on charged-off loans		—		9		6		—		15
(Releases) provision for loan losses		18		17		(12)		5		28
Balance at end of period	$	64	$	3	$	129	$	—	$	196
Individually evaluated for impairment		13		—		14		—		27
Collectively evaluated		51		3		115		—		169
Total	$	64	$	3	$	129	$	—	$	196

Business Activities Loans At or for the Nine Months Ended September 30, 2017

(In thousands)

Commercial
real estate
Commercial and industrial
Residential
real estate
Consumer Total
Balance at beginning of period $ 5,145
$ 1,952
$ 2,721
$ 601
$ 10,419
Charged-off loans (124 ) (189 ) (226 ) (87 ) (626 )
Recoveries on charged-off loans 9
7
65
7
88
Provision/(releases) for loan losses 310
405
941
40
1,696
Balance at end of period $ 5,340
$ 2,175
$ 3,501
$ 561
$ 11,577
Individually evaluated for impairment 391
2
44
55
492
Collectively evaluated 4,949
2,173
3,457
506
11,085
Total $ 5,340
$ 2,175
$ 3,501
$ 561
$ 11,577

Business Activities Loans At or for the Nine Months Ended September 30, 2016

(In thousands)
Commercial
real estate
Commercial and industrial
Residential
real estate
Consumer Total
Balance at beginning of period $ 4,430
$ 1,590
$ 2,747
$ 672
$ 9,439
Charged-off loans (133 ) (90 ) (141 ) (19 ) (383 )
Recoveries on charged-off loans 35
200
36
22
293
Provision/(releases) for loan losses 719
39
38
(42 ) 754
Balance at end of period $ 5,051
$ 1,739
$ 2,680
$ 633
$ 10,103
Individually evaluated for impairment 100
174
87
10
371
Collectively evaluated 4,951
1,565
2,593
623
9,732
Total $ 5,051
$ 1,739
$ 2,680
$ 633
$ 10,103

Acquired Loans At or for the Nine Months Ended September 30, 2017

(In thousands)

Commercial
real estate
Commercial and industrial
Residential
real estate
Consumer Total
Balance at beginning of period $ —
$ —
$ —
$ —
$ —
Charged-off loans (54 ) (18 ) (31 ) (19 ) (122 )
Recoveries on charged-off loans —
—
—
—
—
Provision/(releases) for loan losses 360
49
67
19
495
Balance at end of period $ 306
$ 31
$ 36
$ —
$ 373
Individually evaluated for impairment 168
—
—
—
168
Collectively evaluated 138
31
36
—
205
Total $ 306
$ 31
$ 36
$ —
$ 373

~~There were no loans meeting the definition of acquired for the nine month period ending September 30, 2016.~~


Business Activities Loans	At or for the Three Months Ended March 31, 2019
	Commercial		Commercial		Residential
(in thousands)	real estate		and industrial		real estate		Consumer		Total
Balance at beginning of period	$	6,811	$	2,380	$	3,982	$	408	$	13,581
Charged-off loans		(57)		—		—		(53)		(110)
Recoveries on charged-off loans		16		1		18		3		38
(Releases) provision for loan losses		(195)		397		(47)		38		193
Balance at end of period	$	6,575	$	2,778	$	3,953	$	396	$	13,702
Individually evaluated for impairment		396		53		83		1		533
Collectively evaluated		6,179		2,725		3,870		395		13,169
Total	$	6,575	$	2,778	$	3,953	$	396	$	13,702


Acquired Loans	At or for the Three Months Ended March 31, 2019
	Commercial		Commercial		Residential
(in thousands)	real estate		and industrial		real estate		Consumer		Total
Balance at beginning of period	$	173	$	35	$	77	$	—	$	285
Charged-off loans		—		(16)		(104)		(1)		(121)
Recoveries on charged-off loans		—		—		—		—		—
Provision (releases) for loan losses		(12)		10		132		1		131
Balance at end of period	$	161	$	29	$	105	$	—	$	295
Individually evaluated for impairment		16		—		22		—		38
Collectively evaluated		145		29		83		—		257
Total	$	161	$	29	$	105	$	—	$	295

Loan Origination/Risk Management: The ~~Bank~~Company has certain lending policies and procedures in place ~~that are~~ designed to maximize loan income within an acceptable level of risk. The ~~Bank’s board~~Company’s Board of ~~directors~~Directors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the ~~Bank's board~~Company's Board of ~~directors~~Directors with frequent reports related to loan production, loan quality, ~~concentrations~~concentration of credit, loan delinquencies, ~~and~~ non-performing loans and potential problem loans. The ~~Bank~~Company seeks to diversify the loan portfolio as a means of managing risk associated with fluctuations in economic conditions.

Credit Quality Indicators/Classified Loans: 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. These ratings are used as inputs to the calculation of the allowance for loan losses. Consistent with regulatory guidelines, the ~~Bank~~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~~risk-rated 6, 7, 8 and 9, respectively).

The following are the definitions of the ~~Bank’s~~Company’s credit quality indicators:

Pass: Loans ~~within all classes of~~the Company considers 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 ~~that~~ there is a low risk of loss related to these loans ~~that~~considered pass-rated.

Special Mention: Loans the Company considers having some potential weaknesses, but are ~~considered pass.~~

~~Special mention:Loans that do~~deemed to not ~~expose the Bank to~~carry levels of risk ~~sufficient to warrant classification~~inherent in one of the subsequent categories, ~~but which possess some weaknesses,~~ 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 ~~the lending officer~~ may ~~be unable to supervise properly~~require a higher level of supervision or internal reporting because of: (i) ~~lack~~declining industry trends; (ii) increasing reliance on secondary sources of ~~expertise, inadequate loan agreement; (ii)~~repayment; (iii) the poor condition of or lack of control over collateral; or ~~(iii)~~(iv) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or market conditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point

Table of Contents

where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose the ~~Bank~~Company to sufficient risks to warrant classification.

Substandard: ~~The Bank~~Loans the Company considers ~~a loan~~as substandard ~~if it is~~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 ~~that~~ the ~~Bank classifies~~Company considers as doubtful have all of the weaknesses inherent in those loans that are classified as ~~substandard but also~~substandard. These loans have the added characteristic ~~that~~of a well-defined weakness which is inadequately protected by the ~~weaknesses present make collection~~current sound worth and paying capacity of borrower or ~~liquidation in~~of the collateral pledged, if any, and calls into question the collectability of the full onbalance of the ~~basis of currently existing facts, conditions, and values, highly questionable and improbable.~~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 ~~that~~ the ~~Bank classifies~~Company considers 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 ~~that~~ the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this worthless asset even though partial recovery may be affected in the future. Losses are taken in the period in which they are determined to be uncollectible.

The following tables present the Company’s loans by risk rating at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016:~~

2019:

Business Activities Loans

Commercial Real Estate


	Commercial construction
	and land development				Commercial real estate other				Total commercial real estate
(in thousands)	Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019
Grade:
Pass	$	48,881	$	31,057	$	659,494	$	646,886	$	708,375	$	677,943
Special mention		—		—		8,133		5,483		8,133		5,483
Substandard		11		330		11,824		11,974		11,835		12,304
Doubtful		265		—		1,127		1,708		1,392		1,708
Total	$	49,157	$	31,387	$	680,578	$	666,051	$	729,735	$	697,438

Acquired Loans

Commercial Real Estate


	Commercial construction
	and land development				Commercial real estate other				Total commercial real estate
(in thousands)	Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019
Grade:
Pass	$	2,083	$	2,412	$	205,309	$	218,491	$	207,392	$	220,903
Special mention		—		12		1,742		2,261		1,742		2,273
Substandard		339		479		8,900		9,400		9,239		9,879
Doubtful		—		—		70		168		70		168
Total	$	2,422	$	2,903	$	216,021	$	230,320	$	218,443	$	233,223

~~Credit Risk Profile by Creditworthiness Category~~

Construction and land development Commercial real estate other Total commercial real estate
(In thousands) September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Grade:

Pass $ 33,008
$ 14,695
$ 433,934
$ 376,968
$ 466,942
$ 391,663
Special mention 47
—
6,820
5,868
6,867
5,868
Substandard 637
—
15,093
20,588
15,730
20,588
Total $ 33,692
$ 14,695
$ 455,847
$ 403,424
$ 489,539
$ 418,119

Business Activities Loans

Commercial and Industrial

~~Credit Risk Profile by Creditworthiness Category~~

Commercial other Agricultural and other loans to farmers Tax exempt loans Total commercial and industrial
(In thousands) September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Grade:

Pass $ 168,608
$ 98,968
$ 30,075
$ 31,279
$ 40,610
$ 15,679
$ 239,293
$ 145,926
Special mention 1,757
2,384
91
251
166
167
2,014
2,802
Substandard 1,821
2,234
317
278
—
—
2,138
2,512
Total $ 172,186
$ 103,586
$ 30,483
$ 31,808
$ 40,776
$ 15,846
$ 243,445
$ 151,240


	Commercial				Agricultural				Tax exempt loans				Total commercial and industrial
(in thousands)	Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019
Grade:
Pass	$	268,287	$	221,329	$	17,559	$	18,940	$	55,694	$	66,860	$	341,540	$	307,129
Special mention		3,641		2,744		221		298		—		—		3,862		3,042
Substandard		15,195		14,866		456		780		—		—		15,651		15,646
Doubtful		959		753		361		—		—		—		1,320		753
Total	$	288,082	$	239,692	$	18,597	$	20,018	$	55,694	$	66,860	$	362,373	$	326,570

Acquired Loans

~~Commercial Real Estate~~

~~Credit Risk Profile by Creditworthiness Category~~

Commercial construction and land development Commercial real estate other Total commercial real estate
(In thousands) September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Grade:

Pass $ 15,336
$ —
$ 278,134
$ —
$ 293,470
$ —
Special mention 233
—
2,475
—
2,708
—
Substandard 24
—
7,831
—
7,855
—
Total $ 15,593
$ —
$ 288,440
$ —
$ 304,033
$ —

Commercial and Industrial

~~Credit Risk Profile by Creditworthiness Category~~

Commercial other Agricultural and other loans to farmers Tax exempt loans Total commercial and industrial
(In thousands) September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Grade:






Pass $ 63,941
$ —
$ —
$ —
$ 45,537
$ —
$ 109,478
$ —
Special mention 2,053
—
—
—
—
—
2,053
—
Substandard 2,096
—
—
—
—
—
2,096
—
Total $ 68,090
$ —
$ —
$ —
$ 45,537
$ —
$ 113,627
$ —


	Commercial				Agricultural				Tax exempt loans				Total commercial and industrial
(in thousands)	Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019
Grade:
Pass	$	50,663	$	51,184	$	200	$	58	$	11,071	$	37,407	$	61,934	$	88,649
Special mention		882		5,432		—		—		—		—		882		5,432
Substandard		944		2,115		—		148		—		36		944		2,299
Doubtful		224		341		—		—		—		—		224		341
Total	$	52,713	$	59,072	$	200	$	206	$	11,071	$	37,443	$	63,984	$	96,721

Business Activities Loans

Residential Real Estate and Consumer Loans


	Residential real estate				Home equity				Other consumer				Total residential real estate and consumer
(in thousands)	Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019
Performing	$	738,633	$	737,325	$	64,074	$	58,753	$	9,206	$	11,146	$	811,913	$	807,224
Nonperforming		4,077		3,362		440		615		20		21		4,537		3,998
Total	$	742,710	$	740,687	$	64,514	$	59,368	$	9,226	$	11,167	$	816,450	$	811,222

Acquired Loans

Residential Real Estate and Consumer Loans


	Residential real estate				Home equity				Other consumer				Total residential real estate and consumer
(in thousands)	Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019		Mar 31, 2020		Dec 31, 2019
Performing	$	387,304	$	407,811	$	52,619	$	62,504	$	1,343	$	1,707	$	441,266	$	472,022
Nonperforming		2,314		3,359		411		529		7		8		2,732		3,896
Total	$	389,618	$	411,170	$	53,030	$	63,033	$	1,350	$	1,715	$	443,998	$	475,918

The following table summarizes ~~information about~~ total classified and criticized loans ~~rated Special Mention or higher~~ as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016. The table below includes consumer loans that are special mention and substandard accruing that are classified in the above table as performing based on payment activity.~~2019:


	March 31, 2020						December 31, 2019
	Business						Business
(in thousands)	Activities Loans		Acquired Loans		Total		Activities Loans		Acquired Loans		Total
Non-accrual	$	8,384	$	1,672	$	10,056	$	8,354	$	3,196	$	11,550
Substandard accruing		26,351		11,537		37,888		26,055		13,387		39,442
Total classified		34,735		13,209		47,944		34,409		16,583		50,992
Special mention		11,995		2,624		14,619		8,525		7,705		16,230
Total Criticized	$	46,730	$	15,833	$	62,563	$	42,934	$	24,288	$	67,222

September 30, 2017 December 31, 2016
(In thousands)
Business
Activities Loans
Acquired Loans Total
Business
Activities Loans
Acquired Loans Total
Non-accrual $ 5,116
$ 3,452
$ 8,568
$ 2,733
$ —
$ 2,733
Substandard accruing 15,774
9,627
25,401
20,368
—
20,368
Total classified 20,890
13,079
33,969
23,101
—
23,101
Special mention 8,864
4,762
13,626
8,669
—
8,669
Total Criticized $ 29,754
$ 17,841
$ 47,595
$ 31,770
$ —
$ 31,770

NOTE 6.5. BORROWED FUNDS

Borrowed funds at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 are summarized, as follows:

September 30, 2017 December 31, 2016
(dollars in thousands) Carrying Value
Weighted
Average
Rate
Carrying Value Weighted
Average
Rate
Short-term borrowings

Advances from the FHLBB $ 506,000
1.36 % $ 372,700
0.97 %
Other borrowings 41,600
0.56
21,780
0.29
Total short-term borrowings 547,600
1.30
394,480
0.93
Long-term borrowings
Advances from the FHLBB 227,982
1.50
137,116
1.59
Subordinated borrowings 38,048
5.46
—
—
Junior subordinated borrowings 5,000
4.81
5,000
4.41
Total long-term borrowings 271,030
2.11
142,116
1.69
Total $ 818,630
1.57 % $ 536,596
1.13 %

~~Short term~~


	March 31, 2020				December 31, 2019
(dollars in thousands)	Carrying Value		Weighted Average Rate		Carrying Value		Weighted Average Rate
Short-term borrowings
Advances from the FHLB	$	172,643	1.27	%	$	303,286	1.83	%
Advances from the FRB		62,000	0.25			—	—
Other borrowings		31,001	1.21			44,832	0.99
Total short-term borrowings		265,644	1.03			348,118	1.73
Long-term borrowings
Advances from the FHLB		231,936	1.80			123,278	1.93
Subordinated borrowings		59,849	4.97			59,920	5.53
Total long-term borrowings		291,785	2.45			183,198	2.87
Total	$	557,429	1.77	%	$	531,316	2.11	%

Short-term debt includes Federal Home Loan Bank of Boston (“~~FHLBB”~~FHLB”) advances with ~~an original~~a maturity of less than one year. The ~~Bank~~Company also maintains a ~~$1.0~~$1.0 million secured line of credit with the ~~FHLBB~~FHLB that bears a daily adjustable rate calculated by the ~~FHLBB.~~FHLB. There was no0 outstanding balance on the ~~FHLBB~~FHLB line of credit for the periods ended ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016.~~

2019.

The ~~Bank also had~~Company has the capacity to borrow funds on a secured basis utilizing the Borrower in Custody program and the Discount Window at the Federal Reserve Bank of Boston (the “FRB”). At ~~September 30, 2017,~~March 31, 2020, the ~~Bank’s~~Company’s available secured line of credit at the FRB was ~~$114.6~~$142.1 million. The ~~Bank~~Company has pledged certain loans and securities to the FRB to support this arrangement. There were ~~no borrowings~~$62.0 million of outstanding advances with the FRB for the ~~periods~~period ended ~~September 30, 2017~~March 31, 2020 and 0 borrowings with the FRB as of December 31, 2019.

The Company maintains, with a correspondent bank, an unused unsecured federal funds line of credit that has an aggregate overnight borrowing capacity of $50.0 million as of March 31, 2020 and December 31, ~~2016.~~

2019. There was 0 outstanding balance on the line of credit as of March 31, 2020 and December 31, 2019.

Long-term ~~FHLBB~~FHLB advances consist of advances with a maturity of more than one year. The advances outstanding at ~~September 30, 2017~~March 31, 2020 and December 31, 2019 include 0 callable advances ~~totaling $27.0 million,~~ and ~~amortizing advances totaling $689 thousand. The advances outstanding at December 31, 2016 include callable advances totaling $17.0 million, and no~~$314 thousand of amortizing advances. All ~~FHLBB~~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.

A summary of maturities of ~~FHLBB~~FHLB advances as of ~~September 30, 2017~~March 31, 2020 is, as follows:


	March 31, 2020
			Weighted Average
(in thousands, except rates)	Carrying Value		Rate
Fixed rate advances maturing:
2020	$	142,300	1.19	%
2021		50,665	1.77
2022		104,000	1.97
2023		80,000	1.77
2024		7,300	1.16
2025 and thereafter		20,314	1.22
Total FHLB advances	$	404,579	1.58	%

September 30, 2017
(in thousands, except rates) Carrying Value Weighted
Average
Rate
Fixed rate advances maturing:

2017 $ 416,000
1.32 %
2018 165,805
1.49
2019 104,947
1.63
2020 29,911
1.76
2021 1,630
1.49
2022 and thereafter 15,689
0.36
Total FHLBB advances $ 733,982
1.40 %

~~In April 2008, the Bank issued fifteen year junior subordinated notes in the amount of $5.0 million. These debt securities qualify as Tier 2 capital for~~

On November 26, 2019, the Company ~~and the Bank. The subordinated debt securities are callable by the Bank~~

~~after five years without penalty. The interest rate is three-month LIBOR plus 3.45%. At September 30, 2017 and December 31, 2016 the interest rate was 4.77% and 4.41%, respectively.~~

On January 13, 2017, the Company acquired $17.0 million of subordinated debt in connection with the Lake Sunapee acquisition. The original subordinated debt was issued on October 29, 2014, in connection with the execution ofexecuted a Subordinated Note Purchase Agreement ~~between and among Lake Sunapee Bank Group and certain accredited investors pursuant to which Lake Sunapee Bank Group issued~~with an aggregate of ~~$17.0~~$40.0 million of subordinated notes (the ~~“Notes”~~"Notes") to ~~the~~ accredited investors. The Notes have a maturity date of ~~November~~December 1, 2029 and bear a fixed interest rate of 4.625% through December 1, 2024 payable semi-annually in arrears. From December 1, 2024 and ~~will bear~~thereafter the interest ~~at a fixed~~ rate ~~of 6.75%~~shall be reset quarterly to an interest rate per ~~annum.~~annum equal to the then current three-month SOFR plus 3.27%. The Company ~~may, at its~~has the option beginning with the interest payment date of ~~November~~December 1, ~~2019,~~2024, and on any ~~interest~~scheduled payment date thereafter, to redeem the Notes, in whole or in part ~~at par plus accrued and unpaid interest to the date of redemption. Any partial redemption will be made pro rata among all~~upon prior approval of the ~~noteholders.~~ Federal Reserve. Netted with subordinated borrowings is amortized subordinated debt issuance costs of $739 thousand.

The ~~Notes are not subject to repayment at the option of the noteholders. The Notes are unsecured, subordinated obligations of the~~ Company ~~and rank junior~~also has $20.6 million in ~~right of payment to the Company’s senior indebtedness and to the Company’s obligations to its general creditors.~~

~~Also in connection with the Lake Sunapee acquisition, the Company acquired 100% of the common securities totaling $600 thousand and $20.0 million of~~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 ~~originally~~ issued on March 30, ~~2014,~~2004, carry a variable interest rate of 3-month LIBOR plus 2.79%, and mature in 2034. The debt is callable by the Company at the time when any interest payment is made. ~~NHTB~~ Trust II and Trust III are considered variable interest entities for which the Company is not the primary beneficiary. Accordingly, Trust II and Trust III are not consolidated into the Company’s financial statements.

Table of Contents

NOTE 7. 6. DEPOSITS

A summary of time deposits is, as follows:

(In thousands) September 30, 2017 December 31, 2016
Time less than $100,000 $ 541,585
$ 304,393
Time $100,000 or more 260,525
112,044
Total time deposits $ 802,110
$ 416,437


(in thousands)	March 31, 2020		December 31, 2019
Time less than $100,000	$	559,255	$	600,747
Time $100,000 through $250,000		173,305		225,505
Time $250,000 or more		111,537		106,383
Total time deposits	$	844,097	$	932,635

At March 31, 2020 and December 31, 2019, the scheduled maturities by year for time deposits are, as follows:


(in thousands)	March 31, 2020		December 31, 2019
Within 1 year	$	479,983	$	555,074
Over 1 year to 2 years		295,939		287,934
Over 2 years to 3 years		31,909		51,444
Over 3 years to 4 years		27,811		31,262
Over 4 years to 5 years		8,438		6,883
Over 5 years		17		38
Total	$	844,097	$	932,635

Included in time deposits are brokered deposits of ~~$362.7~~$378.7 million and ~~$237.9~~$526.9 million at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively. ~~Included~~Also included in ~~the deposit balances contained on the balance sheet~~time deposits are reciprocal deposits of ~~$49.3~~$79.3 million and ~~$43.1~~$64.1 million at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, respectively.

Table of Contents

NOTE 8.7. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios ~~were~~are, as follows:

September 30, 2017
Regulatory
Minimum to be
Well Capitalized
December 31, 2016
Regulatory
Minimum to be
Well Capitalized
Company (consolidated)

Total capital to risk weighted assets 13.8 % 10.0 % 16.5 % 10.0 %
Common equity tier 1 capital to risk weighted assets 11.3
6.5
15.0
6.5
Tier 1 capital to risk weighted assets 12.7
8.0
15.0
8.0
Tier 1 capital to average assets 8.0
5.0
8.9
5.0

Bank
Total capital to risk weighted assets 13.8 % 10.0 % 16.7 % 10.0 %
Common equity tier 1 capital to risk weighted assets 13.0
6.5
15.2
6.5
Tier 1 capital to risk weighted assets 13.0
8.0
15.2
8.0
Tier 1 capital to average assets 8.5
5.0
9.1
5.0


			Regulatory				Regulatory
	March 31,		Minimum to be		December 31,		Minimum to be
	2020		"Well Capitalized"		2019		"Well Capitalized"
Company (consolidated)
Total capital to risk-weighted assets	13.61	%	10.50	%	13.61	%	10.50	%
Common equity tier 1 capital to risk-weighted assets	10.61		7.00		10.57		7.00
Tier 1 capital to risk-weighted assets	11.42		8.50		11.39		8.50
Tier 1 capital to average assets	8.25		5.00		8.13		5.00

Bank
Total capital to risk-weighted assets	12.58	%	10.50	%	12.42	%	10.50	%
Common equity tier 1 capital to risk-weighted assets	11.96		7.00		11.79		7.00
Tier 1 capital to risk-weighted assets	11.96		8.50		11.79		8.50
Tier 1 capital to average assets	8.64		5.00		8.39		5.00

At each date shown, the Company and the Bank met the conditions to be classified as ~~“well capitalized”~~“well-capitalized” under the relevant regulatory framework. To be categorized as ~~well capitalized,~~"well-capitalized," an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table above.

~~Effective January 1, 2015, the~~

The Company and the Bank ~~became~~are subject to the Basel III rule that requires the Company and the Bank to assess their Common equity tier 1 capital to ~~risk weighted~~risk-weighted assets and the Company and the Bank each exceed the minimum to be well capitalized. In addition, the final capital rules added a requirement to maintain a minimum conservation buffer, composed of common equity tier 1 capital, of 2.5% of risk-weighted assets, to be phased in over three years and applied to the common equity tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio and the Total risk-based capital ratio. Accordingly, banking organizations, on a fully phased in basis no later than"well-capitalized." Effective January 1, 2019 all banking organizations must maintain a minimum Common equity tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5% and a minimum Total risk-based capital ratio of 10.5%.

The required minimum conservation buffer began to be phased in incrementally, starting at 0.625% on January 1, 2016 and increasing to 1.25% on January 1, 2017. The buffer will increase to 1.875% on January 1, 2018 and 2.5% on January 1, 2019. The final capital rules impose restrictions on capital distributions and certain discretionary cash bonus payments if the minimum capital conservation buffer is not met.

At ~~September 30, 2017,~~March 31, 2020, the capital levels of both the Company and the Bank exceeded all regulatory capital requirements and their regulatory capital ratios were above the minimum levels required to be considered ~~well capitalized~~"well-capitalized" for regulatory purposes. ~~The capital levels of both the Company and the Bank at September 30, 2017 also exceeded the minimum capital requirements including the currently applicable capital conservation buffer of 0.625%.~~

Accumulated other comprehensive ~~loss~~

income (loss)

Components of accumulated other comprehensive income is, as follows:


(in thousands)	March 31, 2020		December 31, 2019
Other accumulated comprehensive income, before tax:
Net unrealized gain on AFS securities	$	12,699	$	7,342
Net unrealized loss on hedging derivatives		(3,099)		(718)
Net unrealized loss on post-retirement plans		(1,512)		(1,512)

Income taxes related to items of accumulated other comprehensive income:
Net unrealized gain on AFS securities		(3,139)		(1,793)
Net unrealized loss on hedging derivatives		886		237
Net unrealized loss on post-retirement plans		355		355
Accumulated other comprehensive income	$	6,190	$	3,911

(In thousands) September 30, 2017 December 31, 2016
Other accumulated comprehensive income (loss), before tax:

Net unrealized holding gain/(loss) on AFS securities $ 1,849
$ (3,269 )
Net unrealized loss on effective cash flow hedging derivatives (3,570 ) (2,766 )
Net unrealized holding loss on post-retirement plans (577 ) (622 )

Income taxes related to items of accumulated other comprehensive loss:
Net unrealized holding (loss)/gain on AFS securities (695 ) 1,144
Net unrealized loss on effective cash flow hedging derivatives 1,341
968
Net unrealized holding loss on post-retirement plans 217
219
Accumulated other comprehensive loss $ (1,435 ) $ (4,326 )

The following ~~tables~~table presents the components of other comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~2019:


(in thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended March 31, 2020
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period	$	5,492	$	(1,378)	$	4,114
Less: reclassification adjustment for gains (losses) realized in net income		135		(32)		103
Net unrealized gain on AFS securities		5,357		(1,346)		4,011

Net unrealized loss on derivative hedges:
Net unrealized loss arising during the period		(2,382)		650		(1,732)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on derivative hedges		(2,382)		650		(1,732)

Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on post-retirement plans		—		—		—
Other comprehensive income	$	2,975	$	(696)	$	2,279

Three Months Ended March 31, 2019
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period	$	8,900	$	(2,079)	$	6,821
Less: reclassification adjustment for gains realized in net income		—		—		—
Net unrealized gain on AFS securities		8,900		(2,079)		6,821

Net unrealized loss on cash flow hedging derivatives:
Net unrealized loss arising during the period		(845)		198		(647)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on cash flow hedging derivatives		(845)		198		(647)

Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on post-retirement plans		—		—		—
Other comprehensive income	$	8,055	$	(1,881)	$	6,174

(In thousands) Before Tax Tax Effect Net of Tax
Three Months Ended September 30, 2017

Net unrealized holding gain on AFS securities: x

Net unrealized gain arising during the period $ 531
$ (199 ) $ 332
Less: reclassification adjustment for gains (losses) realized in net income 19
(7 ) 12
Net unrealized holding gain on AFS securities 512
(192 ) 320

Net unrealized loss on cash flow hedging derivatives:
Net unrealized loss arising during the period (84 ) 31
(53 )
Less: reclassification adjustment for gains (losses) realized in net income —
—
—
Net unrealized gain on cash flow hedging derivatives (84 ) 31
(53 )

Net unrealized holding loss on post-retirement plans:
Net unrealized gain/(loss) arising during the period 5
(2 ) 3
Less: reclassification adjustment for gains (losses) realized in net income —
—
—
Net unrealized holding gain/(loss) on post-retirement plans 5
(2 ) 3
Other comprehensive income $ 433
$ (163 ) $ 270

Three Months Ended September 30, 2016

Net unrealized holding gains on AFS securities:

Net unrealized gains arising during the period $ (4,223 ) $ 1,478
$ (2,745 )
Less: reclassification adjustment for gains realized in net income 1,354
(474 ) 880
Net unrealized holding gains on AFS securities (5,577 ) 1,952
(3,625 )

Net unrealized (loss) on cash flow hedging derivatives:

Net unrealized (loss) arising during the period (92 ) 32
(60 )
Less: reclassification adjustment for gains (losses) realized in net income —
—
—
Net unrealized (loss) on cash flow hedging derivatives (92 ) 32
(60 )

Net unrealized holding gain on post-retirement plans:

Net unrealized gain arising during the period 8
(3 ) 5
Less: reclassification adjustment for gains (losses) realized in net income —
—
—
Net unrealized holding gain on post-retirement plans 8
(3 ) 5
Other comprehensive income $ (5,661 ) $ 1,981
$ (3,680 )

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax impacts, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~

(in thousands)
Net unrealized
holding gain
on AFS Securities

Net loss on
effective cash
flow hedging derivatives

Net unrealized
holding loss
on pension plans
Total
Three Months Ended September 30, 2017

Balance at beginning of period $ 836
$ (2,177 ) $ (364 ) $ (1,705 )
Other comprehensive gain(loss) before reclassifications 332
(53 ) 3
282
Less: amounts reclassified from accumulated other comprehensive income 12
—
—
12
Total other comprehensive income 320
(53 ) 3
270
Balance at end of period $ 1,156
$ (2,230 ) $ (361 ) $ (1,435 )

Three Months Ended September 30, 2016
Balance at beginning of period $ 11,315
$ (2,412 ) $ (412 ) $ 8,491
Other comprehensive gain before reclassifications (2,745 ) (60 ) 5
(2,800 )
Less: amounts reclassified from accumulated other comprehensive income 880
—
—
880
Total other comprehensive income (3,625 ) (60 ) 5
(3,680 )
Balance at end of period $ 7,690
$ (2,472 ) $ (407 ) $ 4,811

Nine Months Ended September 30, 2017
Balance at beginning of period $ (2,124 ) $ (1,798 ) $ (404 ) $ (4,326 )
Other comprehensive gain(loss) before reclassifications 3,292
(432 ) 43
2,903
Less: amounts reclassified from accumulated other comprehensive income 12
—
—
12
Total other comprehensive income 3,280
(432 ) 43
2,891
Balance at end of period $ 1,156
$ (2,230 ) $ (361 ) $ (1,435 )

Nine Months Ended September 30, 2016

Balance at beginning of period $ 5,713
$ (1,621 ) $ (463 ) $ 3,629
Other comprehensive gain before reclassifications 4,895
(851 ) 56
4,100
Less: amounts reclassified from accumulated other comprehensive income 2,918
—
—
2,918
Total other comprehensive income 1,977
(851 ) 56
1,182
Balance at end of period $ 7,690
$ (2,472 ) $ (407 ) $ 4,811

2019:


	Net unrealized		Net loss on		Net unrealized
	gain (loss)		effective cash		loss
	on AFS		flow hedging		on pension
(in thousands)	Securities		derivatives		plans		Total
Three Months Ended March 31, 2020
Balance at beginning of period	$	5,549	$	(481)	$	(1,157)	$	3,911
Other comprehensive gain (loss) before reclassifications		4,114		(1,732)		—		2,382
Less: amounts reclassified from accumulated other comprehensive income		103		—		—		103
Total other comprehensive income (loss)		4,011		(1,732)		—		2,279
Balance at end of period	$	9,560	$	(2,213)	$	(1,157)	$	6,190

Three Months Ended March 31, 2019
Balance at beginning of period	$	(8,665)	$	(2,249)	$	(888)	$	(11,802)
Other comprehensive gain (loss) before reclassifications		6,821		(647)		—		6,174
Less: amounts reclassified from accumulated other comprehensive income		—		—		—		—
Total other comprehensive income (loss)		6,821		(647)		—		6,174
Balance at end of period	$	(1,844)	$	(2,896)	$	(888)	$	(5,628)

The following tables presents the amounts reclassified out of each component of accumulated other comprehensive income ~~(loss)~~ for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016:~~

Three Months Ended September 30, Affected Line Item in the Statement where Net Income is Presented
(in thousands) 2017 2016
Realized gains on AFS securities:

$ 19
$ 1,354
Non-interest income
(7 ) (474 ) Tax expense
Total reclassifications for the period $ 12
$ 880
Net of tax

(1)	Net realized gains before tax include gross realized gains $146 thousand and realized losses of $11 thousand.

NOTE 9.8. EARNINGS PER SHARE

~~Earnings~~

The following table presents the calculation of earnings per ~~share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):~~

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share and share data) 2017 2016 2017 2016
Net income $ 8,617
$ 3,632
$ 19,386
$ 12,349

Average number of basic common shares outstanding 15,420,499
9,063,576
15,098,377
9,036,548
Plus: dilutive effect of stock options and awards outstanding 90,026
98,112
105,661
101,009
Average number of diluted common shares outstanding 15,510,525
9,161,688
15,204,038
9,137,557

Anti-dilutive options excluded from earnings calculation —
101,826
8,247
107,535

Earnings per share:
Basic $ 0.56
$ 0.40
$ 1.27
$ 1.37
Diluted $ 0.56
$ 0.40
$ 1.27
$ 1.35

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

Table of Contents

NOTE ~~10.~~9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

As part of its overall asset and liability management strategy, the ~~Bank periodically~~Company uses derivative instruments to minimize ~~significant unplanned~~ fluctuations in earnings and cash flows caused by interest rate volatility. The ~~Bank’s~~Company’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so ~~that~~the changes in interest rates do not have a significant effect on net interest income.

Thus, all of the Company's derivative contracts are considered to be interest rate contracts.

The Company recognizes its derivative instruments on the consolidated balance sheet at fair value. On the date the derivative instrument is entered into, the ~~Bank~~Company designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The ~~Bank~~Company formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The ~~Bank~~Company also assesses,

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. ~~Any ineffective portion is recorded~~

The Company offers derivative products in ~~earnings. The Bank discontinues hedge accounting when it is determined that~~the form of interest rate swaps, to commercial loan customers to facilitate their risk management strategies. These instruments are executed through Master Netting Arrangements ("MNA") with financial institution counterparties or Risk Participation Agreements ("RPA") with commercial bank counterparties, for which the Company assumes a pro rata share of the credit exposure associated with a borrower's performance related to the derivative ~~is no longer effective in offsetting changes of~~contract with the ~~hedged risk on the hedged item, or management determines that the designation of the derivative as a hedging instrument is no longer appropriate.~~

~~Information~~counterparty.

The following tables present information about derivative assets and liabilities at ~~September 30, 2017, follows:~~

Weighted Average Maturity Estimated Fair Value Asset (Liability)

Notional
Amount

(In thousands) (In years) (In thousands)
Cash flow hedges:

Interest rate caps agreements $ 90,000
5.4 $ 793
Total cash flow hedges 90,000
5.4 793

Economic hedges:

Forward sale commitments 16,547
0.2 (173 )
Total economic hedges 16,547
0.2 (173 )

Non-hedging derivatives:

Interest rate lock commitments 16,742
0.2 16
Total non-hedging derivatives 16,742
0.2 16

Total $ 123,289
$ 636

~~As of~~March 31, 2020 and December 31, ~~2016, the Company had interest rate cap agreements totaling $90 million (notional amount), with a weighted average maturity~~2019:


	March 31, 2020
			Weighted				Location Fair
	Notional		Average		Fair Value		Value Asset
	Amount		Maturity		Asset (Liability)		(Liability)
	(in thousands)		(in years)		(in thousands)
Cash flow hedges:
Interest rate swap on wholesale funding	$	100,000		4.3	$	(6,467)	Other liabilities
Total cash flow hedges		100,000		4.3		(6,467)

Fair value hedges:
Interest rate swap on securities		37,190		9.3		3,368	Other liabilities
Total fair value hedges		37,190				3,368

Economic hedges:
Forward sale commitments		53,751		0.2		(73)	Other liabilities
Customer Loan Swaps-MNA Counterparty		150,490		7.8		(15,463)	Other liabilities (1)
Customer Loan Swaps-RPA Counterparty		78,505		8.7		(9,470)	Other liabilities (1)
Customer Loan Swaps-Customer		228,995		8.1		24,933	Other liabilities (1)
Total economic hedges		511,741				(73)

Non-hedging derivatives:
Interest rate lock commitments		23,146		0.1		93	Other assets
Total non-hedging derivatives		23,146				93

Total	$	672,077			$	(3,079)

(1)	CustomerloanderivativesaresubjecttoMNAorRPAarrangementswithfinancialinstitutioncounterparties.

Table of ~~6.1 years,~~Contents


	December 31, 2019
			Weighted				Location Fair
	Notional		Average		Fair Value		Value Asset
	Amount		Maturity		Asset (Liability)		(Liability)
	(in thousands)		(in years)		(in thousands)
Cash flow hedges:
Interest rate swap on wholesale funding	$	100,000		4.6	$	(1,311)	Other liabilities
Total cash flow hedges		100,000				(1,311)

Fair value hedges:
Interest rate swap on securities		37,190		9.6		593	Other liabilities
Total fair value hedges		37,190				593

Economic hedges:
Forward sale commitments		11,228		0.1		(84)	Other liabilities
Customer Loan Swaps-MNA Counterparty		135,598		7.5		(4,669)	(1)
Customer Loan Swaps-RPA Counterparty		69,505		8.8		(3,377)	(1)
Customer Loan Swaps-Customer		205,103		8.1		8,046	(1)
Total economic hedges		421,434				(84)

Non-hedging derivatives:
Interest rate lock commitments		21,748		0.1		59	Other assets
Total non-hedging derivatives		21,748				59

Total	$	580,372			$	(743)

(1)	Customer loan derivatives are subject to MNA or RPA arrangements with financial institution counterparties, thus assets and liabilities with the counterparty are netted for financial statement presentation.

Asof March 31, 2020 and ~~an estimated~~December31,2019,thefollowingamountswererecordedonthebalancesheetrelatedtocumulative basis adjustments for fair valuehedges:


				Cumulative Amount of Fair
	Location of Hedged Item on	Carrying Amount of Hedged		Value Hedging Adjustment in
	Balance Sheet	Assets (Liabilities)		Carrying Amount
March 31, 2020
Fair value hedges:
Interest rate swap on securities	Securities Available for Sale	$	38,710	$	207

December 31, 2019
Fair value hedges:
Interest rate swap on securities	Securities Available for Sale	$	39,026	$	523

Table of ~~$1,748.~~Contents

Information about derivative assets and liabilities for ~~the three~~March 31, 2020 and ~~nine months ended September 30, 2017 and September 30, 2016,~~December 31, 2019, follows:


	Three Months Ended March 31, 2020
	Amount of			Amount of
	Gain (Loss)			Gain (Loss)
	Recognized in			Reclassified		Location of	Amount of
	Other		Location of Gain (Loss)	from Other		Gain (Loss)	Gain (Loss)
	Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized
(in thousands)	Income		Comprehensive Income	Income⁽¹⁾		Income	in Income
Cash flow hedges:
Interest rate swap on wholesale funding	$	4,949	Other income	$	—	Interest expense	$	1
Total cash flow hedges		4,949			—			1

Fair value hedges:
Interest rate swap on securities		(2,736)	Interest income		—	Interest income		13
Total fair value hedges		(2,736)			—			13

Economic hedges:
Forward commitments		—	Other income		—	Other income		11
Total economic hedges		—			—			11

Non-hedging derivatives:
Interest rate lock commitments		—	Other Income		—	Other Income		34
Total non-hedging derivatives		—			—			34

Total	$	2,213		$	—		$	59

(1)	As of March 31, 2020 the Company does not expect any gains or losses from accumulated other comprehensive income into earnings within the next 12 months.

Three Months Ended March 31, 2019

Amount of

Gain (Loss)

Amount of

Recognized in

Reclassified

Location of

Gain (Loss)

Other

Location of Gain (Loss)

from Other

Gain (Loss)

Recognized

Comprehensive

Reclassified from Other

Comprehensive

Recognized in

Recognized

(in thousands)

Income

Comprehensive Income

Income⁽¹⁾

Income

in Income

Cash flow hedges:

Interest rate swap on wholesale funding

402

Other income

—

Interest expense

—

Interest rate cap agreements

2,494

Acquisition, restructuring, and other expenses

Interest expense

163

Total cash flow hedges

2,896

—

Economic hedges:

Forward commitments

—

Other income

—

Other income

(65)

Total economic hedges

—

Non-hedging derivatives:

Interest rate lock commitments

—

Other income

—

Other Income

Total non-hedging derivatives

—

Total

2,896

—

(1)	As of March 31, 2019 the Company does not expect any gains or losses from accumulated other comprehensive income into earnings within the next 12 months.

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Cash flow hedges:
Interest rate cap agreements
Realized in interest expense $ 74
$ 14
$ 168
$ 24

Economic hedges:

Forward commitments

Realized loss in other non-interest income 58
—
(29 ) —

Non-hedging derivatives:


Interest rate lock commitments


Realized loss in other non-interest income 19
—
(5 ) —

Cash flow hedges

Interest rate cap agreements

In 2014, interest rate cap agreements were purchased to limit the ~~Bank’s~~Company’s exposure to rising interest rates on ~~four~~4 rolling, three-month borrowings indexed to ~~three month~~three-month LIBOR. Under the terms of the agreements, the ~~Bank~~Company paid total premiums of ~~$4,566~~$4.6 million for the right to receive cash flow payments if ~~3-month~~three-month LIBOR rises above the caps of 3.00%, thus effectively ensuring interest expense on the borrowings at maximum rates of 3.00% for the duration of the agreements. The interest rate cap agreements were designated as cash flow ~~hedges.~~hedges, however the caps were terminated in the fourth quarter of 2019, with $3.2 million recognized in acquisition, restructuring and other expenses. The ~~fair values~~caps were terminated because it was probable that the original forecasted transaction would not occur by the end of the original specified period.

Interest rate swap on deposits

In March and November 2019, the Company entered into interest rate ~~cap agreements are included in other assets~~swaps on brokered deposits (the "SWAPS") to limit its exposure to rising interest rates over a five year term. Under the terms of the agreement, the Company has 2 swaps each with a $50.0 million notional amount and pays a fixed interest rate of 2.46% and 1.55% respectively, and the financial institution counterparty pays the Company interest on the ~~Company’s consolidated balance sheets. Changes in~~three-month LIBOR rate. The Company designated the ~~fair value, representing unrealized gains or losses, are recorded in accumulated other comprehensive income, net of tax. The premiums paid on the interest rate cap agreements are being recognized~~swap as ~~increases in interest expense over the duration of the agreements using the caplet method.~~

a cash flow hedge.

Economic hedges

Forward sale commitments

The Company utilizes forward sale commitments on residential mortgage loans to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans originated for sale. The forward sale commitments are accounted for as ~~derivatives with changes in fair value recorded in current period earnings.~~derivatives. The Company typically uses a combination of best efforts and mandatory delivery contracts. The contracts ~~which~~ are loan sale agreements where the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. Generally, the Company may enter into ~~mandatory delivery~~ contracts ~~shortly after~~just prior to the loan ~~closes~~closing with a customer.

Customer loan derivatives

The Company enters into customer loan derivatives to facilitate the risk management strategies for commercial banking customers. The Company mitigates this risk by entering into equal and offsetting loan swap agreements with highly rated third-party financial institutions. The loan swap agreements are free-standing derivatives and are recorded at fair value in the Company's consolidated balance sheet. The Company is party to master netting arrangements with its financial institutional counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes.

The master netting arrangements provide for a single net settlement of all loan swap agreements, as well as collateral or cash funds, in the event of default on, or termination of, any one contract. Collateral is provided by cash or securities received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds. Currently, the Company has posted cash of $26.2 million with counterparties.


	Gross Amounts Offset in the Consolidated Balance Sheet
	Derivative				Cash Collateral
(in thousands)	Liabilities		Derivative Assets		Pledged		Net Amount
As of March 31, 2020
Customer Loan Derivatives:
MNA counterparty	$	(15,463)	$	15,463	$	26,200	$	—
RPA counterparty		(9,470)		9,470		—		—
Total	$	(24,933)	$	24,933	$	26,200	$	—

Table of Contents


	Gross Amounts Offset in the Consolidated Balance Sheet
	Derivative				Cash Collateral
(in thousands)	Liabilities		Derivative Assets		Pledged		Net Amount
As of December 31, 2019
Customer Loan Derivatives:
MNA counterparty	$	(4,669)	$	4,669	$	10,700	$	—
RPA counterparty		(3,377)		3,377		—		—
Total	$	(8,046)	$	8,046	$	10,700	$	—

Non-hedging derivatives

Interest rate lock commitments

The Company enters into interest rate lock commitments (“IRLCs”) for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs ~~that~~ relate to the origination of residential mortgage loans that ~~will be~~are held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in ~~noninterest~~non-interest income in the Company’s ~~consolidated statements~~Consolidated Statements of ~~income.~~Income. Changes in the fair value of IRLCs subsequent to inception are based onon; (i) changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and (ii) changes in the probability ~~that~~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.

Table of Contents

NOTE ~~11.~~10. FAIR VALUE MEASUREMENTS

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities that are carried at fair value.

Recurring Fair Value Measurements

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair ~~value.~~

September 30, 2017
Level 1 Level 2 Level 3 Total
(In thousands) Inputs Inputs Inputs Fair Value
Available for sale securities:
Obligations of US Government sponsored enterprises $ —
$ 6,979
$ —
$ 6,979
Mortgage-backed securities:
  US Government-sponsored enterprises —
437,957
—
437,957
  US Government agency —
102,138
—
102,138
  Private label —
719
—
719
Obligations of states and political subdivisions thereof —
141,982
—
141,982
Corporate bonds —
28,684
—
28,684
Derivative assets —
793
16
809
Derivative liabilities —
—
(173 ) (173 )

December 31, 2016
Level 1 Level 2 Level 3 Total
(In thousands) Inputs Inputs Inputs Fair Value
Available for sale securities:
Obligations of US Government sponsored enterprises $ —
$ —
$ —
$ —
Mortgage-backed securities:
  US Government-sponsored enterprises —
328,452
—
328,452
  US Government agency —
76,906
—
76,906
  Private label —
1,132
—
1,132
Obligations of states and political subdivisions thereof —
122,366
—
122,366
Corporate bonds —
—
—
—
Derivative assets —
1,748
—
1,748

value:


	March 31, 2020
	Level 1		Level 2		Level 3		Total
(in thousands)	Inputs		Inputs		Inputs		Fair Value
Available for sale securities:
Mortgage-backed securities:
US Government-sponsored enterprises	$	—	$	295,657	$	—	$	295,657
US Government agency		—		101,669		—		101,669
Private label		—		18,499		—		18,499
Obligations of states and political subdivisions thereof		—		137,579		—		137,579
Corporate bonds		—		72,937		—		72,937
Derivative assets		—		24,933		93		25,026
Derivative liabilities		—		(28,032)		(73)		(28,105)


	December 31, 2019
	Level 1		Level 2		Level 3		Total
(in thousands)	Inputs		Inputs		Inputs		Fair Value
Available for sale securities:
Mortgage-backed securities:
US Government-sponsored enterprises	$	—	$	321,969	$	—	$	321,969
US Government agency		—		99,661		—		99,661
Private label		—		19,533		—		19,533
Obligations of states and political subdivisions thereof		—		142,006		—		142,006
Corporate bonds		—		80,061		—		80,061
Derivative assets		—		6,791		59		6,850
Derivative liabilities		—		(8,102)		(84)		(8,186)

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

Derivative Assets and Liabilities

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

Interest Rate Lock Commitments. The Company enters into IRLCs for residential mortgage loans, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated

Table of Contents

fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood ~~that the~~of a loan in a lock position will ultimately close. The closing ratio is derived from the ~~Bank’s~~Company’s internal data and is adjusted using significant management judgment. As such, IRLCs are classified as Level 3 measurements.

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

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

Although the Company has determined that the majority of the inputs used to value its customer loan derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2020, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2020:


	Assets (Liabilities)
	Interest Rate Lock		Forward
(in thousands)	Commitments		Commitments
Three Months Ended March 31, 2020
Balance at beginning of period	$	59	$	(84)
Realized gain recognized in non-interest income		34		11
Balance at end of period	$	93	$	(73)

Three Months Ended March 31, 2019
Balance at beginning of period	$	8	$	—
Realized gain recognized in non-interest income		6		(65)
Balance at end of period	$	14	$	(65)

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

(In thousands, except ratios) Fair Value
September 30, 2017 Valuation Techniques Unobservable Inputs
Significant
Unobservable Input
Value
Assets (Liabilities)

Interest Rate Lock Commitment $ 16
Historical trend Closing Ratio 90 %
Pricing Model Origination Costs, per loan $ 1.7

Forward Commitments (173 ) Quoted prices for similar loans in active markets. Freddie Mac pricing system Pair-off contract price
Total $ (157 )

Fair Value

March 31,

December 31,

Valuation

Unobservable

(in thousands, except ratios)

2020

2019

Techniques

Inputs

Input Value

Assets (Liabilities)

Interest Rate Lock Commitment

Historical trend

Closing Ratio

Pricing Model

Origination Costs, per loan

1.7

Forward Commitments

(73)

(84)

Quoted prices for similar loans in active markets.

Freddie Mac pricing system

Pair-off contract price

Total

(25)

Non-Recurring Fair Value Measurements

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


							Fair Value
					Three Months Ended		Measurement Date as of
	March 31, 2020		December 31, 2019		March 31, 2020		March 31, 2020
	Level 3		Level 3		Total		Level 3
(in thousands)	Inputs		Inputs		Gains (Losses)		Inputs
Assets
Impaired loans	$	8,335	$	9,625	$	1,290	March 2020
Capitalized servicing rights		3,897		4,301		—	March 2020
Other real estate owned		2,205		2,236		(31)	August 2019
Premises held for sale		1,764		1,764		—	September 2019
Total	$	16,201	$	17,926	$	1,259

There are no liabilities measured at fair value on a non-recurring ~~basis.~~

September 30, 2017 December 31, 2016 Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017 Fair Value Measurement Date as of September 30, 2017
(In thousands)
Level 3
Inputs
Level 3
Inputs
Total
Gains (Losses)

Total
Gains (Losses)

Level 3
Inputs
Assets

Impaired loans $ 10,251
$ 6,709
(43 ) (139 ) September 2017
Capitalized servicing rights 3,871
5
—
—
September 2017
Other real estate owned 122
90
—
—
Jan 2017 - March 2017
Total $ 14,244
$ 6,804
(43 ) (139 )

basis in 2020 and 2019.

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

Fair Value
(in thousands, except ratios) September 30, 2017 Valuation Techniques Unobservable Inputs Range (Weighted Average) (a)
Assets

Impaired loans $ 3,489
Fair value of collateral - appraised value Loss severity 0% to 63%
Appraised value $0 to $1,170

Impaired loans 6,762
Discount cash flow Discount rate 0% to 18%
Cash flows $0 to $1,046

Capitalized servicing rights 3,871
Discounted cash flow Constant prepayment rate (CPR) 12.42 %
Discount rate 10.11 %

Other real estate owned 122
Fair value of collateral Appraised value
$122
Total $ 14,244

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(b)	The carrying value of premises held for sale was $1.8 million as of March 31, 2020.


	Fair Value				Range
(in thousands, except ratios)	December 31, 2019		Valuation Techniques	Unobservable Inputs	(Weighted Average)^(a)
Assets
Impaired loans	$	6,137	Fair value of collateral -appraised value	Loss severity		0% to 55.00%
				Appraised value		$0 to $6,915

Impaired loans		3,488	Discount cash flow	Discount rate		2.88% to 9.50%
				Cash flows		$22 to $1,002

Capitalized servicing rights		4,301	Discounted cash flow	Constant prepayment rate (CPR)		9.95	%
				Discount rate		10.07	%

Other real estate owned		2,236	Fair value of collateral less selling costs	Appraised value	$	2,695
				Selling Costs		10% to 20%

Premises held for sale^(b)		1,764	Fair value of asset less selling costs	Appraised value	$	$136 to $527
				Selling Costs		6.00	%
Total	$	17,926

Fair Value
(in thousands) December 31, 2016 Valuation Techniques Unobservable Inputs Range (Weighted Average) (a)
Assets

Impaired loans $ 3,268
Fair value of collateral - appraised value Loss severity 0% to 51%
Appraised value $0 to $1,732

Impaired loans 3,441
Discount cash flow Discount rate 3.25% to 18.25%
Cash flows $6 to $861

Capitalized servicing rights 5
Discounted cash flow Constant prepayment rate (CPR) 17.09 %
Discount rate 7.55 %

Other real estate owned 90
Fair value of collateral Appraised value 120
Total $ 6,804


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

(b)	The carrying value of premises held for sale was $1.8 million as of December 31, 2019.

There were no Level 1 or Level 2 non-recurring fair value measurements for the periods ended ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016.~~

2019.

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

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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.

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

Summary of Estimated Fair Values of Financial ~~Instruments.~~ Instruments

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


	March 31, 2020
	Carrying		Fair
(in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	85,655	$	85,655	$	85,655	$	—	$	—
Securities available for sale		626,341		626,341		—		626,341		—
FHLB stock		19,897		19,897		—		19,897		—
Net loans		2,619,686		2,604,406		—		—		2,604,406
Accrued interest receivable		3,268		3,268		—		3,268		—
Cash surrender value of bank-owned life insurance policies		76,400		76,400		—		76,400		—
Derivative assets		25,026		25,026		—		24,933		93

Financial Liabilities
Non-maturity deposits	$	1,806,460	$	1,861,960	$	—	$	1,861,960	$	—
Time deposits		844,097		852,346		—		852,346		—
Short-term other borrowings		31,001		31,000		—		31,000		—
FHLB advances		404,579		410,065		—		410,065		—
FRB advances		62,000		62,000		—		62,000		—
Subordinated borrowings		59,849		59,849		—		59,849		—
Derivative liabilities		28,105		28,105		—		28,032		73

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September 30, 2017
(In thousands)
Carrying
Amount

Fair
Value
Level 1 Level 2 Level 3
Financial Assets

Cash and cash equivalents $ 48,724
$ 48,724
$ 48,724
$ —
$ —
Securities available for sale 718,459
718,459
—
718,459
—
FHLBB bank stock 37,107
37,107
—
37,107
—
Net loans 2,416,912
2,392,284
—
—
2,392,284
Accrued interest receivable 3,194
3,194
—
3,194
—
Cash surrender value of bank-owned life insurance policies 57,613
57,613
—
57,613
—
Derivative assets 809
809
—
793
16

Financial Liabilities
Total deposits $ 2,275,109
$ 2,250,483
$ —
$ 2,250,483
$ —
Securities sold under agreements to repurchase 41,600
41,578
—
41,578
—
Federal Home Loan Bank advances 733,982
733,632
—
733,632
—
Subordinated borrowings 38,048
38,048
—
38,048
—
Junior subordinated borrowings 5,000
3,564
—
3,564
—
Derivative liabilities (173 ) (173 ) —
—
(173 )

December 31, 2016
(In thousands) Carrying
Amount Fair
Value Level 1 Level 2 Level 3
Financial Assets

Cash and cash equivalents $ 8,439
$ 8,439
$ 8,439
$ —
$ —
Securities available for sale 528,856
528,856
—
528,856
—
FHLBB bank stock 25,331
25,331
—
25,331
—
Net loans 1,118,645
1,100,601
—
—
1,100,601
Accrued interest receivable 6,051
6,051
—
6,051
—
Cash surrender value of bank-owned life insurance policies 24,450
24,450
—
24,450
—
Derivative assets 1,748
1,748
—
1,748
—

Financial Liabilities
Total deposits $ 1,050,300
$ 1,048,932
$ —
$ 1,048,932
$ —
Securities sold under agreements to repurchase 21,780
21,773
—
21,773
—
Federal Home Loan Bank advances 509,816
509,793
—
509,793
—
Subordinated borrowings —
—
—
—
—
Junior subordinated borrowings —
3,560
—
3,560
—


	December 31, 2019
	Carrying		Fair
(in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	56,910	$	56,910	$	56,910	$	—	$	—
Securities available for sale		663,230		663,230		—		663,230		—
FHLB stock		20,679		20,679		—		20,679		—
Net loans		2,625,739		2,634,147		—		—		2,634,147
Accrued interest receivable		3,294		3,294		—		3,294		—
Cash surrender value of bank-owned life insurance policies		75,863		75,863		—		75,863		—
Derivative assets		6,850		6,850		—		6,791		59

Financial Liabilities
Non-maturity deposits	$	1,763,116	$	1,751,481	$	—	$	1,751,481	$	—
Time deposits		932,635		932,886		—		932,886		—
Short-term other borrowings		44,832		44,831		—		44,831		—
FHLB advances		426,564		425,989		—		425,989		—
Subordinated borrowings		59,920		59,920		—		59,920		—
Derivative liabilities		8,186		8,186		—		8,102		84

Other than as discussed above, the following methods and assumptions were used by management to estimate the fair value of significant classes of financial instruments for which itthe estimate of fair value goes beyond the carrying value approximating fair value.

Loans, net. The fair value of loans are calculated on an individual basis with consideration given to the loans' underlying characteristics, including account types, remaining terms, annual interest rates or coupons, interest types, timing of principal and interest payments, current market rates, risk ratings, credit ratings and remaining balances. A discounted cash flow model is ~~practicable~~used to estimate ~~that value.~~

~~Cash and cash equivalents.~~ ~~Carrying value is assumed to represent fair value for cash and cash equivalents that have original maturities of ninety days or less.~~

~~FHLBB bank stock and restricted securities.~~ ~~Carrying value approximates fair value based on~~ the ~~redemption provisions of the issuers.~~

~~Cash surrender value of life insurance policies.~~ ~~Carrying value approximates fair value.~~

~~Loans, net.~~ The carrying value of the loans in the loan portfolio is based on the cash flows of the loans discounted over their respective loan origination rates. The origination rates are adjusted for substandard and special mention loans to factor the impact of declines in the loan’s credit standing. The fair value of the loans ~~is estimated by discounting future cash flows~~ using assumptions for the ~~current interest~~coupon rates, ~~at which similar loans with similar terms would be made to borrowers~~remaining maturities, prepayment speeds, liquidity premiums, projected default probabilities, loss given defaults, and estimates of ~~similar credit quality.~~

~~Accrued interest receivable.~~ ~~Carrying value approximates fair value.~~

prevailing discount rates.

Deposits. The fair value of demand, non-interest bearing checking, savings and money market deposits is determined as the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the estimated future cash flows using market rates offered for deposits of similar remaining maturities.

Borrowed funds. The fair value of borrowed funds is estimated by discounting the future cash flows using market rates for similar borrowings. Such funds include all categories of debt and debentures in the table above.

Subordinated borrowings. The Company utilizes a pricing service along with internal models to estimate the valuation of its junior subordinated debentures. The junior subordinated debentures re-price every ~~ninety~~90 days.

Off-balance-sheet financial instruments. Off-balance-sheet financial instruments ~~include~~including standby letters of credit and other financial guarantees and commitments are considered immaterial to the Company’s financial statements.

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NOTE 11. REVENUE FROM CONTRACTS WITH CUSTOMER

The Company has accounted for the various non-interest revenue streams and related contracts under ASC 606.

Disaggregation of Revenue

The following tables present disaggregation of the Company’s non-interest revenue by major business line and timing of revenue recognition for the transfer of products or services:


	Three Months Ended
	March 31,
(in thousands)	2020		2019
Major Products/Service Lines
Trust management fees	$	3,046	$	2,525
Financial services fees		323		233
Interchange fees		1,738		1,031
Customer deposit fees		1,110		907
Other customer service fees		264		226
Total	$	6,481	$	4,922


	Three Months Ended
	March 31,
(in thousands)	2020		2019
Timing of Revenue Recognition
Products and services transferred at a point in time	$	3,273	$	2,267
Products and services transferred over time		3,208		2,655
Total	$	6,481	$	4,922

Trust Management Fees.

The trust management business generates revenue through a range of fiduciary services including trust and estate administration, wealth advisory, and investment management to individuals, businesses, not-for-profit organizations, and municipalities. Revenue from these services are generally recognized over time and is typically based on a time elapsed measure of service. Certain fees, such as bill paying fees, distribution fees, real estate sale fees, and supplemental tax service fees, are recorded as revenue at a point in time upon the completion of the service.

Financial Services Fees.

Bar Harbor Financial Services is a branch office of Infinex, an independent registered broker dealer offering securities and insurance products not affiliated with the Company or its subsidiaries. The Company has a revenue sharing agreement with Infinex for any financial service fee income generated. Financial services fees are recognized at a point in time upon the completion of service requirements.

Interchange Fees.

The Company earns interchange fees from transaction fees that merchants pay whenever a customer uses a debit card to make a purchase from their store. The fees are paid to the card-issuing bank to cover handling costs, fraud, bad debt costs and the risk involved in approving the payment. Interchange fees are generally recognized as revenue at a point in time upon the completion of a debit card transaction.

Customer Deposit Fees.

The Customer Deposit business offers a variety of deposit accounts with a range of interest rates, fee schedules and other terms, which are designed to meet the customer's financial needs. Additional depositor-related services provided to

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customers include ATM, bank-by-phone, internet banking, internet bill pay, mobile banking, and other cash management services which include remote deposit capture, ACH origination, and wire transfers. These customer deposit fees are generally recognized by the Company at a point in time upon the completion of the service.

Other Customer Service Fees.

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

Contract Balances from Contracts with Customers

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


	Balance at		Balance at
(in thousands)	March 31, 2020		December 31, 2019
Balances from contracts with customers only:
Other Assets	$	1,336	$	1,703
Other Liabilities		3,014		3,114

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

Costs to Obtain and Fulfill a Contract

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

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NOTE 12. ~~SUBSEQUENT EVENTS~~

LEASES

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On ~~October 11, 2017~~January 1, 2019, the Company ~~sold~~adopted ASU No. 2016-02 “Leases” and all subsequent ASUs modifying ASC 842. Substantially all of the leases pursuant to which the Company is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2040. All leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated balance sheets. With the adoption of ASC 842, operating lease agreements are required to be recognized on the consolidated balance sheets as a right-of-use (“ROU”) asset with a corresponding lease liability using the modified retrospective approach.

The Company elected the following practical expedients in conjunction with implementation of ASC 842 as follows:

●	Package of practical expedients:

Lease classification as an operating lease under the prior standards is grandfathered.

Re-evaluation of embedded leases evaluated under the prior standards is not required.

No re-assessment of previously recorded initial direct lease costs.

●	Election to exclude short-term leases (i.e., leases with initial terms of twelve months or less), from capitalization on the consolidated balance sheets.

The following table presents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities as of March 31, 2020:


(in thousands)			March 31, 2020		December 31, 2019
Lease Right-of-Use Assets	Classification	��
Operating lease right-of-use assets	Other assets		$	10,129	$	9,623

Lease Liabilities
Operating lease liabilities	Other liabilities			10,205		9,651

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used for the present value of the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. If there are multiple renewals typically only the next lease renewal is considered. Regarding the discount rate, ASC 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its ~~insurance company McCrillis & Eldredge Insurance, Inc.~~incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

The following table presents the weighted average lease term and discount rate of the Company’s leases:


	March 31, 2020		December 31, 2019
Weighted-average remaining lease term (in years)
Operating leases	9.52		8.96

Weighted-average discount rate
Operating leases	3.30	%	3.27	%

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The following table represents lease costs and other lease information. As the Company elected, for all classes of underlying assets, not to ~~Cross Insurance,~~separate lease and non-lease components and instead to account for them as a single lease component, the ~~sale did not have a~~variable lease cost primarily represents variable payments such as real estate taxes, common area maintenance and utilities.


	Three Months Ended		Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
Lease Costs
Operating lease cost	$	234	$	231
Variable lease cost		144		124
Total lease cost	$	378	$	355

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2020 are, as follows:


(in thousands)	Operating Leases
Twelve Months Ended:
March 31, 2021	$	1,285
March 31, 2022		1,300
March 31, 2023		1,319
March 31, 2024		1,323
March 31, 2025		1,240
Thereafter		6,495
Total future minimum lease payments		12,962
Amounts representing interest		(2,757)
Present value of net future minimum lease payments	$	10,205

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NOTE 13. SUBSEQUENT EVENTS

There were no significant ~~impact~~subsequent events between March 31, 2020 and through the date the financial statements are available to ~~the Company's balance sheet position.~~be issued.

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

GENERAL

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of the Company. The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this document and with the Company’s consolidated financial statements and the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company's ~~2016~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2019. In the following discussion, income statement comparisons are against the same period of the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results for the full year ~~2017~~2020 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable.

Bar Harbor Bankshares(the “Company”) is the parent of Bar Harbor Bank & Trust ~~a true~~(the “Bank”), which is the only community bank headquartered in Northern New England with branches in Maine, New Hampshire and Vermont. The Bank is a true community bank providing exceptional commercial, retail, and wealth management banking services from over 50 locations. The Company’s corporate goal is to be among the most profitable banks in New England, and its business model is centered on the following:

●

Employee and customer experience is the foundation of superior performance, which leads to significant financial benefit to shareholders

●

Geography, heritage and performance are key while remaining true to a community culture

●

Strong commitment to risk management while balancing growth and earnings

●

Service and sales driven culture with a focus on core business growth

●

Fee income is fundamental to the Company's profitability through trust and treasury management services, customer derivatives and secondary market mortgage banking

●

Investment in processes, products, technology, training, leadership and infrastructure

●

Expansion of the Company’s brand and business to deepen market presence

●

Opportunity and growth for existing employees while adding catalyst recruits across all levels of the Company

Shown below is ~~the foundation of superior performance, which leads to significant financial benefit to shareholders~~

~~Geography, heritage and performance are key while remaining true to~~ a ~~community culture~~

~~Strong commitment to risk management while balancing growth and earnings~~

~~Service and sales driven culture with a focus on core business growth~~

~~Investment in processes, products, technology, training, leadership and infrastructure~~

~~Expansion~~profile of the ~~Company’s brand and business to deepen market presence~~

~~Opportunity and growth for existing employees while adding catalyst recruits across all levels of the~~ Company



~~• Community bank with $3.5 billion in assets~~ ~~• 53 branches~~ ~~• Commercial banking, retail banking and wealth management~~

~~FORWARD-LOOKING STATEMENTS~~

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the Risk Factors in Item 1A of this report. Because of these and other uncertainties, the Company’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, the Company's past results of operations do not necessarily indicate future results.

Additional factors that could cause results to differ materially from those described in the forward-looking statements relate to the completed acquisition of Lake Sunapee Bank Group. These additional factors that could cause actual results to differ materially from expected results include difficulties in achieving cost savings from the acquisition or in achieving such cost savings within the expected time frame and difficulties in integrating the Company and Lake Sunapee Bank Group, increased competitive pressures, changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the business in which the Company is engaged, changes in the securities markets and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission.

~~No undue reliance should be placed on any of the forward-looking statements, which speak only~~ as of the dates on which they were made. The Company is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. The Company qualifies allMarch 31, 2020:

Table of ~~its forward-looking statements by these cautionary statements.~~Contents

SELECTED FINANCIAL DATA

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


	Three Months Ended
	March 31,
	2020			2019
PER SHARE DATA
Net earnings, diluted	$	0.50		$	0.47
Adjusted earnings, diluted⁽¹⁾		0.50			0.47
Total book value		25.90			24.54
Tangible book value⁽¹⁾		17.70			17.63
Market price at period end		17.28			25.87
Dividends		0.22			0.20

PERFORMANCE RATIOS⁽²⁾
Return on assets		0.85	%		0.83	%
Adjusted return on assets⁽¹⁾		0.86			0.83
Return on equity		7.64			7.83
Adjusted return on equity⁽¹⁾		7.71			7.83
Adjusted return on tangible equity⁽¹⁾		11.54			11.19
Net interest margin, fully taxable equivalent (FTE)^{(1) (3)}		3.06			2.77
Net interest margin (FTE), excluding purchased loan accretion⁽³⁾		2.99			2.67
Efficiency ratio⁽¹⁾		64.82			63.94

GROWTH (Year-to-date)⁽¹⁾
Total commercial loans		6.4	%		(3.3)	%
Total loans		(0.9)			5.9
Total deposits		(6.7)			(2.8)

FINANCIAL DATA (In millions)
Total assets	$	3,677		$	3,629
Total earning assets⁽⁴⁾		3,269			3,312
Total investments		646			782
Total loans		2,635			2,527
Allowance for loan losses		15			14
Total goodwill and intangible assets		129			107
Total deposits		2,651			2,466
Total shareholders' equity		404			381
Net income		8			7
Adjusted income⁽¹⁾		8			7

ASSET QUALITY AND CONDITION RATIOS
Net charge-offs (current quarter annualized)/average loans		0.18	%		0.03	%
Allowance for loan losses/total loans		0.58			0.55
Loans/deposits		99			102
Shareholders' equity to total assets		10.98			10.50
Tangible shareholders' equity to tangible assets⁽¹⁾		7.77			7.77

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
PER SHARE DATA
Net earnings, diluted $ 0.56
$ 0.40
$ 1.27
$ 1.35
Adjusted earnings, diluted (1) (2) 0.57
0.34
1.52
1.11
Total book value 22.90
18.09
22.90
18.09
Tangible book value (2) 15.84
17.51
15.84
17.51
Market price at period end 31.36
24.48
31.36
24.48
Dividends 0.19
0.18
0.56
0.54
PERFORMANCE RATIOS
Return on assets 0.99 % 0.86 % 0.75 % 1.00 %
Adjusted return on assets (1) (2) 1.01
0.73
0.90
0.82
Return on equity 9.67
8.78
7.43
10.20
Adjusted return on equity (1) (2) 9.90
7.49
8.86
8.34
Adjusted return on tangible equity (1) (2) 14.51
7.75
12.98
8.88
Net interest margin, fully taxable equivalent (FTE) (4) 3.06
2.84
3.13
2.90
Net interest margin (FTE), excluding purchased loan accretion (4) 2.93
2.84
3.00
4.86
Efficiency ratio (2) 53.59
61.24
56.44
59.34
GROWTH (Year-to-date)

Total commercial loans, (organic annualized) (2) 22.1 % 3.3 % 20.5 % 5.3 %
Total loans, (organic annualized) (2) 8.8
15.0
12.2
9.9
Total deposits, (organic annualized) (2) 11.2
17.7
10.6
9.6
FINANCIAL DATA (In millions)

Total assets $ 3,476
$ 1,718
$ 3,476
$ 1,718
Total earning assets 3,184
1,649
3,184
1,649
Total investments 756
561
756
561
Total loans 2,429
1,088
2,429
1,088
Allowance for loan losses 12
10
12
10
Total goodwill and intangible assets 109
5
109
5
Total deposits 2,275
1,034
2,275
1,034
Total shareholders' equity 353
164
353
164
Net income 9
4
19
12
Adjusted income (4) 9
3
23
10
ASSET QUALITY AND CONDITION RATIOS
Net charge-offs (current quarter annualized)/average loans (5) 0.03 % (0.03 )% 0.03 % (0.03 )%
Allowance for loan losses/total loans (5) 0.49
0.93
0.49
0.93
Loans/deposits 107
105
107
105
Shareholders' equity to total assets 10.17
9.57
10.17
9.57
Tangible shareholders' equity to tangible assets (2) 7.26
9.29
7.26
9.29


(1)	~~Adjusted measurements are non-GAAP~~Non-GAAP financial ~~measures that are adjusted to exclude net non-operating charges primarily related to acquisitions, and gain on sale of securities.~~measure. Refer to the Reconciliation of Non-GAAP Financial Measures section of Management's Discussion and Analysis for additional information.


(2)	~~Non-GAAP financial measure.~~


~~(3)~~	All performance ratios are annualized and are based on average balance sheet amounts, where applicable.

(3)
~~(4)~~	Fully taxable equivalent considers the impact of ~~tax advantaged~~tax-advantaged investment securities and loans.

(4)

~~(5)~~

Generally accepted accounting principles require that loans acquired in a business combination be recorded at fair value, whereas loans from business activities are recorded at cost. The fair value of loans acquired in a business combinationEarning assets includes expected loan losses, and there is no loan loss allowance recorded for these loans at the time of acquisition. Accordingly, the ratio of the loan loss allowance to total loans is reduced as a result of the existence of suchnon-accruing loans and ~~this measure is not directly comparable to prior periods. Similarly, net loan charge-offs~~securities are normally reduced for loans acquired in a business combination since these loans are recorded net of expected loan losses. Therefore, the ratio of net loan charge-offs to average loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods. Other institutions may have loans acquired in a business combination, and therefore there may be no direct comparability of these ratios between and among other institutions.valued at amortized cost.

Table of Contents

CONSOLIDATED LOAN AND DEPOSIT ANALYSIS

The following tables present the quarterly trend in loan and deposit data and accompanying quarterly growth rates as of March 31, 2020 on an annualized basis:

LOAN ANALYSIS


											Annualized
											Growth %
	March 31,		December 31,		September 30,		June 30,		March 31,		March 31,
(in thousands, except ratios)	2020		2019		2019		2019		2019		2020
Commercial real estate	$	948,178	$	930,661	$	923,773	$	881,479	$	821,567	7.5	%
Commercial and industrial		321,605		318,988		301,590		312,029		305,185	3.3
Total commercial loans		1,269,783		1,249,649		1,225,363		1,193,508		1,126,752	6.4
Residential real estate		1,132,328		1,151,857		1,143,452		1,167,759		1,184,053	(6.8)
Consumer		128,120		135,283		107,375		112,275		111,402	(21.2)
Tax exempt and other		104,752		104,303		101,116		104,696		104,752	1.7
Total loans	$	2,634,983	$	2,641,092	$	2,577,306	$	2,578,238	$	2,526,959	(0.9)	%

DEPOSIT ANALYSIS


											Annualized
											Growth %
	March 31,		December 31,		September 30,		June 30,		March 31,		March 31,
(in thousands, except ratios)	2020		2019		2019		2019		2019		2020
Demand	$	400,410	$	414,534	$	380,707	$	354,125	$	342,030	(13.6)	%
NOW		578,320		575,809		490,315		472,576		470,277	1.7
Savings		423,345		388,683		360,570		352,657		346,813	35.7
Money market		404,385		384,090		359,328		305,506		349,833	21.1
Total non-maturity deposits		1,806,460		1,763,116		1,590,920		1,484,864		1,508,953	9.8
Total time deposits		844,097		932,635		902,665		996,512		956,818	(38.0)
Total deposits	$	2,650,557	$	2,695,751	$	2,493,585	$	2,481,376	$	2,465,771	(6.7)	%

BAR HARBOR BANKSHARES
CONSOLIDATED LOAN & DEPOSIT ANALYSIS - UNAUDITED

LOAN ANALYSIS

Organic Annualized Growth % (1) September 30, 2017
(in thousands) Sep 30, 2017 Balance Jun 30, 2017 Balance Mar 31, 2017 Balance Acquired Lake Sunapee Bank Balance (2) Dec 31, 2016 Balance Quarter End Year to Date
Commercial real estate $ 793,572
$ 738,584
$ 779,635
$ 345,586
$ 418,119
29.8 % 10.7 %
Commercial and industrial 270,759
269,960
236,526
89,259
135,564
1.2
50.8
Total commercial loans 1,064,331
1,008,544
1,016,161
434,845
553,683
22.1
20.5
Residential real estate 1,152,628
1,160,832
1,155,436
652,255
506,612
(2.8 ) (1.8 )
Consumer 125,590
127,229
127,370
76,489
53,093
(5.2 ) (11.3 )
Tax exempt and other 86,313
80,042
73,469
44,611
15,676
31.3
249.0
Total loans $ 2,428,862
$ 2,376,647
$ 2,372,436
$ 1,208,200
$ 1,129,064
8.8 % 12.2 %

AVERAGE BALANCES AND AVERAGE YIELDS/RATES

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In thousands)
Average
Balance
Yield/Rate
(FTE basis) (3)
Average
Balance Yield/Rate
(FTE basis) (3)
Average
Balance
Yield/Rate
(FTE basis) (3)
Average
Balance Yield/Rate
(FTE basis) (3)
Assets
Loans (1) $ 2,402,171
4.13 % $ 1,058,253
3.89 % $ 2,379,190
4.10 % $ 1,033,070
3.97 %
Securities and other (2) 754,450
3.13
551,456
3.07
758,748
3.11
543,513
3.07
Total earning assets 3,156,621
3.89 % 1,609,709
3.62 % 3,137,938
3.86 % 1,576,583
3.66 %
Other non-earning assets 295,924
79,826
305,735
76,431

Total assets $ 3,452,545
$ 1,689,535
$ 3,443,673
$ 1,653,014

Liabilities
Interest bearing deposits $ 1,901,501
0.66 % $ 897,703
0.78 % $ 1,863,091
0.57 % $ 874,666
0.75 %
Borrowings 812,938
1.66
514,999
1.06
835,274
1.49
520,508
1.03
Total interest-bearing liabilities 2,714,439
0.96 % 1,412,702
0.88 % 2,698,365
0.85 % 1,395,174
0.86 %
Non-interest-bearing demand deposits 354,470
103,971
327,547
88,652

Other non-earning liabilities 30,079
7,376
68,973
7,281

Total liabilities 3,098,988
1,524,049
3,094,885
1,491,107

Total shareholders' equity 353,557
165,486
348,788
161,907

Total liabilities and shareholders' equity $ 3,452,545
$ 1,689,535
$ 3,443,673
$ 1,653,014

Net interest spread 2.93 % 2.74 % 3.01 % 2.81 %
Net interest margin 3.06
2.84
3.13
2.90

Table of Contents

NON-GAAP FINANCIAL MEASURES

This document contains certain non-GAAP financial measures in addition to results presented in accordance with ~~U.S Generally Accepted Accounting Principles (“GAAP”~~accounting principles generally accepted in the United States of America ("GAAP"). These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the ~~Company’s~~Company's GAAP financial information. ~~The Company’s~~A reconciliation of non-GAAP financial measures ~~may not be comparable~~ to ~~similar non-GAAP information which may be presented by other companies.~~GAAP measures is provided below. In all cases, it should be understood that non-GAAP ~~operating~~ measures do not depict amounts that accrue directly to the benefit of shareholders. An item ~~which~~that management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the ~~Company’s~~Company's results ~~and condition~~ for any particular quarter or year. ~~A reconciliation of~~The Company's non-GAAP adjusted earnings information set forth is not necessarily comparable to non- GAAP information that may be presented by other companies. Each non-GAAP measure used by the Company in this report as supplemental financial ~~measures to~~data should be considered in conjunction with the Company's GAAP ~~measures is provided below.~~

financial information.

The Company utilizes the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for ~~operating~~adjusted revenue and expense. These measures exclude amounts ~~which~~that the Company views as unrelated to its normalized operations, including gains/losses on securities, ~~gains/losses,~~premises, equipment and other real estate owned, acquisition costs, restructuring costs, legal settlements, and systems conversion costs. ~~These~~Non-GAAP adjustments are presented net of an adjustment for ~~related~~ income tax expense. ~~This adjustment is determined as the difference between the GAAP tax rate and the effective tax rate applicable to adjusted income.~~

The Company also calculates ~~several non-GAAP performance measures~~adjusted earnings per share based on its measure of adjusted ~~earnings, including adjusted earnings per share, adjusted return on assets, adjusted return on equity, and the efficiency ratio.~~earnings. The Company views these amounts as important to understanding its ~~performance~~operating trends, particularly due to the impact of accounting standards related to acquisition activity. ~~Several of these measures are used as performance metrics in assessing the achievement of short and long term incentive compensation for management.~~ Analysts also rely on these measures in estimating and evaluating the ~~Company’s~~Company's performance. Management also believes that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment ~~community and as components~~community.

Table of ~~regulatory capital supervision.~~Contents

~~Charges related to acquisition activity consist primarily of severance and retention, systems conversion and integration, and professional costs.~~

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The following table summarizes the reconciliation of non-GAAP items ~~recorded~~ for the time periods ~~and dates indicated~~presented:


		Three Months Ended March 31,
(in thousands)			2020		2019
GAAP net income		$	7,721	$	7,281
Plus (less):
Gain on sale of securities, net			(135)		—
Loss on sale of premises and equipment, net			92		—
Loss on other real estate owned			31		—
Acquisition, restructuring and other expenses			103		—
Income tax expense⁽¹⁾			(22)		—
Total adjusted income⁽²⁾	(A)	$	7,790	$	7,281

GAAP net interest income	(B)	$	24,563	$	21,765
Plus: Non-interest income			8,421		6,167
Total Revenue			32,984		27,932
Less: Gain on sale of securities, net			(135)		—
Total adjusted revenue⁽²⁾	(C)	$	32,849	$	27,932

GAAP total non-interest expense		$	22,359	$	18,624
Less: Loss on sale of premises and equipment, net			(92)		—
Less: Loss on other real estate owned			(31)		—
Less: Acquisition, restructuring and other expenses			(103)		—
Adjusted non-interest expense⁽²⁾	(D)	$	22,133	$	18,624

(in millions)
Total average earning assets	(E)	$	3,306	$	3,265
Total average assets	(F)		3,662		3,561
Total average shareholders' equity	(G)		406		377
Total average tangible shareholders' equity⁽²⁾⁽³⁾	(H)		278		270
Total tangible shareholders' equity, period-end⁽²⁾⁽³⁾	(I)		276		274
Total tangible assets, period-end⁽²⁾⁽³⁾	(J)		3,549		3,522

(in thousands)
Total common shares outstanding, period-end	(K)		15,587		15,524
Average diluted shares outstanding	(L)		15,593		15,587

Adjusted earnings per share, diluted	(A/L)	$	0.50	$	0.47
Tangible book value per share, period-end⁽²⁾	(I/K)		17.70		17.63
Securities adjustment, net of tax⁽¹⁾⁽⁴⁾	(M)		9,560		(1,842)
Tangible book value per share, excluding securities adjustment⁽²⁾⁽⁴⁾	(I+M)/K		17.09		17.75
Total tangible shareholders' equity/total tangible assets⁽²⁾	(I/J)		7.77		7.77

Table of Contents



			Three Months Ended March 31,
Performance ratios⁽⁵⁾				2020			2019
Return on assets		%		0.85	%		0.83	%
Adjusted return on assets⁽²⁾	(A/F)			0.86			0.83
Return on equity				7.64			7.83
Adjusted return on equity⁽²⁾	(A/G)			7.71			7.83
Adjusted return on tangible equity⁽²⁾⁽⁶⁾	(A+Q)/H			11.54			11.19
Efficiency ratio⁽²⁾⁽⁷⁾	(D-O-Q)/(C+N)			64.82			63.94
Net interest margin⁽²⁾	(B+P)/E			3.06			2.77

Supplementary data (in thousands)
Taxable equivalent adjustment for efficiency ratio	(N)		$	719		$	684
Franchise taxes included in non-interest expense	(O)			119			120
Tax equivalent adjustment for net interest margin	(P)			551			515
Intangible amortization	(Q)			256			207

BAR HARBOR BANKSHARES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY DATA- UNAUDITED
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2017 2016 2017 2016
Net income $ 8,617
$ 3,632
$ 19,386
$ 12,349
Adj: Security Gains (19 ) (1,354 ) (19 ) (4,489 )
Adj: Loss on sale of fixed assets, net (1 ) 216
94
216
Adj: Acquisition expense 346
320
5,917
812
Adj: Income taxes (37.57% in 2017, 35.0% in 2016) (122 ) 286
(2,251 ) 1,211
Total adjusted income (4) (A) $ 8,821
$ 3,100
$ 23,127
$ 10,099

Net-interest income (B) $ 23,478
$ 10,999
$ 68,659
$ 33,717
Plus: Non-interest income 6,960
3,372
19,465
10,314
Total Revenue 30,438
14,371
88,124
44,031
Adj: Net security gains (19 ) (1,354 ) (19 ) (4,489 )
Total adjusted revenue (4) (C) $ 30,419
$ 13,017
$ 88,105
$ 39,542

Total non-interest expense $ 17,586
$ 8,750
$ 58,463
$ 25,478
Less: Acquisition expense (346 ) (320 ) (5,917 ) (812 )
Adjusted non-interest expense (4)                                     (D) $ 17,240
$ 8,430
$ 52,546
$ 24,666

(in millions)

Total average earning assets (E) $ 3,157
$ 1,610
$ 3,138
$ 1,577
Total average assets                                                 (F) 3,453
1,690
3,444
1,653
Total average shareholders' equity                          (G) 354
165
349
162
Total average tangible shareholders' equity (H) 244
160
242
157
Total tangible shareholders' equity, period-end (1) (I) 244
159
244
159
Total tangible assets, period-end (1) (J) 3,367
1,713
3,367
1,713

(in thousands)
Total common shares outstanding, period-end (K) 15,432
9,084
15,432
9,084
Average diluted shares outstanding (L) 15,511
9,162
15,204
9,138

Adjusted earnings per share, diluted (A/L) $ 0.57
$ 0.34
$ 1.52
$ 1.11
Tangible book value per share, period-end (I/K) 15.84
17.51
15.84
17.51
Total tangible shareholders' equity/total tangible assets (H/J) 7.26
9.29
7.26
9.29

Performance ratios (2)

GAAP return on assets 0.99 % 0.86 % 0.75 % 1.00 %
Adjusted return on assets (4) (A/F) 1.01
0.73
0.90
0.82
GAAP return on equity 9.67
8.78
7.43
10.20
Adjusted return on equity (4) (A/G) 9.90
7.49
8.86
8.34
Adjusted return on tangible equity (3) (4) (A/I) 14.51
7.75
12.98
8.88
Efficiency ratio (4)(5) (D-N-P)/(C+M) 53.59
61.24
56.44
59.34
Net interest margin (B+O)/E 3.06
2.84
3.13
2.90

Supplementary data (in thousands)

Taxable equivalent adjustment for efficiency ratio (M) $ 1,107
$ 434
$ 3,269
$ 1,061
Franchise taxes included in non-interest expense (N) 154
36
438
103
Tax equivalent adjustment for net interest margin (O) 878
168
2,568
528
Intangible amortization (P) 189
157
534
471


(1)	~~Total tangible~~Assumes a marginal tax rate of 23.87% in 2020. A marginal tax rate of 23.78% was used in 2019.

(2)	Non-GAAP financial measure.

(3)	Tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. ~~Total tangible~~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 loss on available-for-sale securities recorded on the Company's consolidated balance sheets within total common shareholders' equity.

~~(2)~~(5)

~~Ratios~~All performance ratios are ~~annualized and~~ based on average balance sheet amounts, where applicable. ~~Quarterly data may not sum to year-to-date data due to rounding.~~

(6)

~~(3)~~

Adjusted return on tangible equity is computed by ~~dividing the total core income~~taking adjusted ~~for~~earnings divided by shareholders’ equity less the tax-effected amortization of intangible assets, assuming a marginal rate of ~~37.57%~~23.87% for the first quarter of 2020 and the fourth quarter of 2019, and 23.78% in ~~2017 and 35.0% in 2016, by tangible equity.~~ the first three quarters of 2019.

(7)
~~(4)~~	~~Non-GAAP financial measure.~~


~~(5)~~	Efficiency ratio is computed by dividing ~~total core tangible~~adjusted non-interest expense net of franchise taxes and intangible amortization divided by ~~the sum of total net interest income~~core revenue on a fully taxable equivalent ~~basis and total core non-interest income. The Company uses this non-GAAP measure to provide important information about its operating efficiency.~~ basis.

~~THIRD QUARTER~~

Table of Contents

FINANCIAL SUMMARY

The Company reported ~~third~~first quarter ~~2017~~2020 net income of ~~$8.6~~$7.7 million or ~~56 cents~~$0.50 per share, a 6% increase in net income over the same quarter of 2019 of $7.3 million or $0.47 per share. ~~Adjusted earnings totaled $8.8 million or 57 cents per share representing a 10% increase over~~Financial highlights for the ~~prior quarter.~~ first quarter 2020 include the following (compared to the first quarter of 2019, unless otherwise noted):

●

6% annualized growth in commercial loans

●

10% annualized growth in non-maturity deposits

●

99% loan to deposit ratio, improved from 102%

●

3.06% net interest margin compared to 2.77%

●

37% increase in non-interest income

●

0.38% non-accruing loans to total loans compared to 0.66%

The ~~increase reflects~~Company’s financial performance in the first quarter 2020 was strong while quickly shifting efforts to address COVID-19 developments. The Company is fully dedicated to supporting customers and employees during these difficult times and is confident in the strength of its operating model.

While focusing on the ~~Company's~~challenges posed by the health crisis in the first quarter, the Company remains committed to its cornerstone of business operations: Risk management, ranging from underwriting practices to what is now ~~expanded footprint~~at the forefront, crisis management and ~~seasoned team. As discussed~~business continuity planning. From the onset of the crisis, the Company has maintained open communication with customers and employees alike, and transitioned to a mostly remote working environment. This transition was smooth given the readiness of the Company’s information technology and operations departments. The Company modified its branch model providing safety to customers and employees while balancing a personalized touch to meet the needs of its customers. These modifications include transitioning to mostly drive-up and walk-up windows along with in person meetings by appointment when necessary. The investments the Company has made in the past few years in online and mobile banking platforms have been essential with the current environment while helping to accelerate adoption rates.

The Company recognizes the importance of liquidity, especially in the current economic environment. Therefore, the Company has opportunistically and appropriately utilized many of the various federal programs in an ~~earlier section,~~effort to insulate from potential risk and uncertainty. Further supporting capital levels and the balance sheet the Company ~~uses~~recently refinanced and upsized its subordinated debt in the ~~non-GAAP measure~~fourth quarter 2019. Loan volumes were significant this quarter as originations offset elevated payoff levels as typically seen with the lower rate environment. Growth in commercial loans offset the decrease in the residential portfolio as the Company strategically moved most of ~~adjusted earnings, and related metrics,~~production to ~~evaluate~~ the ~~results of its operations.~~

~~Third quarter financial highlights include~~secondary market. The Company also successfully rolled out the ~~following (comparisons are~~Small Business Administration (SBA) Paycheck Protection Program (PPP) in an effort to ~~prior quarter unless otherwise stated):~~

~~1.01% core return on assets (non-GAAP measure)~~

~~6% increase in non-interest income~~

~~22% annualized commercial loan growth~~

~~11% annualized total deposit growth~~

~~54% efficiency ratio (non-GAAP measure)~~

~~9.90% core return on equity (non-GAAP measure)~~

~~Third quarter 2017 results demonstrate the Company’s stability in~~help its business ~~model while now having~~partners and communities. As of April 30, 2020, the ~~platform for even stronger organic growth.~~ Company has over 1,500 PPP loans approved by the SBA with a total balance of $127 million. In addition, the Company has modified close to 500 existing loans, representing $271 million in balances. The loans modified under these deferment plans are still accruing interest and all contractual principal and interest is expected to be collected.

The Company’s ~~growth~~loan portfolio remains diverse with over 80 different industries and several geographies limiting concentration risk, which is further mitigated by the specific type and strength of the borrowers. These credit relationships are proven successful operators in ~~profitability was reflected~~their industry and have weathered difficult economic times in its key performance metrics as return on assets improved to 0.99% and adjusted return on assets achieved 1.01%. Operational improvements and significant positive operating leverage resulted in a 54% efficiency ratio for the ~~third quarter.~~past. The Company continues to ~~position its balance sheet to optimize performance, as is evidenced by strong loan growth and superior credit quality. Additionally,~~carefully review opportunities with proven borrowers while also stress testing the ~~loan to deposit ratio remained flat despite funding significant production during~~portfolio regularly.

Given the ~~quarter.~~

The Company’s commitment to creating shareholder value is reflected in its return on equity and core return on equity ratios. Those ratios are at the highest levels in the past five quarters as the 10% threshold is approached. Tangible book value continues to grow towards pre-acquisition levels andrecently passed CARES Act, the Company ~~believes that can expand even further by adhering~~has elected to ~~a disciplined model of balancing growth and profitability.~~

~~In October 2017,~~defer the Company announced the sale of its insurance business, which will be accretive to tangible equity in the fourth quarter of this year. The decision to sell was driven by the Company’s focus on its core banking areas and investments that represent the most efficient use of capital. Transactions like this along with adhering to its business model will ultimately benefit shareholders and remain consistent with the Company’s brand as a true community bank.

~~COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016~~

~~Summary~~

~~Results in 2017 include the Lake Sunapee operations acquired on January 13, 2017. As a result, many measures of revenue, expense, income, and average balances increased compared to prior periods.~~

As previously noted, the Company uses a non-GAAP measure of adjusted net income to supplement its evaluation of its operating results. Adjusted net income excludes certain amounts not viewed as part of normalized operations. These non-operating items consist primarily of acquisition, conversion, and net gains realized from sales of assets from the Company’s security portfolio. The Company views its acquisition related costs as part of the economic investmentnew accounting for ~~its acquisition.~~

Third quarter 2017 GAAP net income was $0.56 per share in 2017 compared to $0.40 per share in 2016. Adjusted net income increased to $0.57 per share from $0.34 for these respective periods. Results increased due to expanded operations and improved profitability. GAAP results in the current year include charges related to the Lake Sunapee Bank Group acquisition, and prior year net income benefited from gains from sales of securities.

On a year-to-date basis, GAAP net income per share was $1.27 in 2017 compared to $1.35 in 2016. Adjusted earnings increased to $1.52 per share from $1.11 for these respective periods. These changes largely reflected the same trends discussed above that drove third quarter earnings growth.

Adjusted return on equity and adjusted return on assets improved on a year-over-year basis while respective GAAP basis performance metrics varied in the past five quarters depending upon acquisition related charges and gains on security sales. The Company’s profitability has benefited from both a higher non-interest income as well as improved efficiency. Operational enhancements in 2017 are reflected in the Company’s efficiency ratio trend, which started in the first quarter at 62%, but then improved to 55% in second quarter and 54% in the third quarter. The efficiency ratio is a non-GAAP financial measure that compares adjusted expenses and revenues to assess how well the Company is managing its costs. Higher ratios in prior periods represent gradual investments made in infrastructure and key employees to support operations across a broader footprint and larger revenue producing institution.

The Company continues to focus on non-interest income as the key to higher profitability and is currently in the process of expanding treasury management services for customers. A roll-out of enhanced product offerings is anticipated by the end of 2017. The Company views investments in fee income businesses such as trust, secondary marketing mortgage operations, and treasury management services as vehicles to expand return on assets.

~~Net Interest Income~~

Third quarter net interest income increased year-over-year by $12.5 million to $23.5 million. The increase was driven by a $1.5 billion increase in average earning assets, which includes organic growth and benefit of the Lake Sunapee Bank Group acquisition in the first quarter 2017. Net interest margin increased to 3.06% in the third quarter compared to 2.84% in the same quarter of 2016. Net interest spread increased 19 basis points reflecting higher yields from loans and securities as well as lower cost of interest bearing deposits acquired from Lake Sunapee Bank. Net interest margin in 2017 also benefited from purchased loan accretion totaling $1.0 million in the third quarter. These improvements were partially offset by higher wholesale funding costs resulting from fed fund rate hikes and the Company’s extension of funding maturities. Increases in overall cost of funds are expected to have a negative impact on net interest margin in the near-term as rates increase and the Company employs strategies to mitigate the impact.

For the first nine months of the year, net interest income increased year to year by $34.9 million to $68.7 million. The increase primarily reflects the inclusion of Lake Sunapee Bank’s operations, and purchased loan accretion of $2.9 million during 2017.

~~Non-Interest Income~~

Third quarter non-interest income increased to $7.0 million from $3.3 million in the same quarter of 2016. Non-interest income, excluding gains on securities, increased $4.9 million from the same quarter in 2016. Trust and investment management fee revenue added $2.1 million, which is principally due to the addition of Charter Trust Company (now a wholly owned subsidiary of the Bank) as part of the Lake Sunapee Bank Group acquisition. Customer service fees increased $1.9 million compared to the prior quarter also as a result of the acquisition given the broader customer deposit base and higher number of ATM transactions.

Non-interest income for the nine months of 2017 increased year-over-year by $9.2 million to $19.5 million. The increase in trust and customer service fee income for the nine month period is driven by the same reasons as the quarterly period. However, income from security gains totaled $4.5 in 2016.

~~Loan Loss Provision~~

The provision for loan losses in the third quarter 2017 increased to $660 thousand from $139 thousand for the same quarter in 2016. On a year-to-date basis, the loan loss provision was $2.2 million in 2017 compared to $754 thousand in 2016. The amount of the provision exceeded net charge-offs in all periods shown, as the amount of the allowance has risen gradually based on loan portfolio growth and offset in part by the ongoing improvement in loan performance and credit quality. The provision for loan losses is a charge to earnings in an amount sufficient to maintain the allowance for loan losses known as “CECL” to prioritize resources around customers and communities. At the same time, the Company increased the allowance for loan losses during the quarter due to elevated qualitative economic factors at quarter end. Overall, the Company’s liquidity, capital ratios and overall balance sheet position are strong. Additionally, the Company’s reliance on wholesale borrowing is further declining and the ability to access such funding sources at fair pricing is significant.

The Company continues to execute strategies that will benefit long-term profitability while being mindful of the short-term challenges and operating environment. Lower interest rates and the divergence in FHLB borrowings and brokered

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deposit spreads has provided the Company with an opportunity to lock into favorable rates with longer maturities. The benefits of these activities, along with the balance sheet strategies executed last year, are unveiled as the Company’s net interest margin expanded nearly 30 basis points during the quarter. Non-interest income has also improved for the quarter as the Company continues to provide hedging transactions to help meet customers’ needs. While trust and investment management fee income is up significantly over prior year, it is also sensitive to market conditions and could vary as market dynamics persist with the pandemic. In summary, the Company is focused on activities that create value for long-term shareholders as it continues to build tangible book value at a ~~level deemed adequate by the Company as an estimate~~quarterly annualized rate of ~~the probable and estimable loan losses in the portfolio as of period-end. The level of the allowance is a critical accounting estimate, which is subject~~close to ~~uncertainty. The level of the allowance is included in the discussion of financial condition.~~

~~Non-Interest Expense~~

Third quarter non-interest expense increased to $17.6 million from $8.7 million for the same quarter of 2016. Salary and employee benefit costs increased by $4.8 million compared with the third quarter of 2016 principally due to the Lake Sunapee Bank Group acquisition. Full time equivalent staff totaled 425 in the third quarter 2017 compared to 200 in the same quarter of 2016. Salary and employee benefit costs decreased during the second and third quarters of 2017 reflecting a positive trend of disciplined cost control and realized cost saves with the acquisition. Occupancy expenses increased $1.7 million as compared to the third quarter of 2016 due to costs of operating additional branches from the acquisition. Acquisition related expenses in the third quarter of 2017 are consistent with the same quarter of 2016. Acquisition costs peaked in the first quarter of 2017 and then curtailed in each subsequent quarter as severance and system conversion costs were finalized.

On a year-to-date basis 2017 non-interest expense increased to $58.5 million from $25.5 million in 2016. Acquisition related expenses for the first nine months of 2017 totaled $5.9 compared to $812 thousand in the same period of 2016. All other increases in non-interest expense on a year-to-date basis are consistent with quarterly trends.

~~Income Tax Expense~~

The effective tax was 29.3% in the third quarter 2017 compared to 33.7% in the same quarter of 2016. The decrease in the quarterly rate is due 2017 tax benefits realized from filing amended tax returns. The rate in 2016 was also higher due to having a lower proportion of tax-advantage income to total income resulting from security gains. On a year to date basis, the 2017 rate decreased to 29.4% from 30.6% in the prior year reflecting the same factors as the quarterly comparison.

10%.

COMPARISON OF FINANCIAL CONDITION AT ~~SEPTEMBER 30, 2017~~MARCH 31, 2020 AND DECEMBER 31, ~~2016~~

2019

Summary

Total assets ~~increased~~were $3.7 billion at the end of the first quarter 2020 and at year-end 2019. Asset quality metrics remain strong with an allowance for credit losses to ~~$3.5 billion~~total loans ratio of 0.58% with a coverage ratio to non-accruing loans at 152%, up from 133% as of September 30, 2017 from $1.8 billion at year end 2016. All major categories of assets, liabilities and equity increased due to the acquired balances which as of the acquisition date included $1.2 billion in loans, $155.6 million in securities, $1.2 billion in deposits, and $182 million in equity as a result of the issuance of common shares of the Company to Lake Sunapee shareholders.year-end 2019. The loan to deposit ratio ~~improved~~was 99% compared to ~~107% from 108%~~98% at year-end ~~2016 as loan growth was funded by seasonally higher deposit balances.~~

2019 due to lower deposits in the first quarter. The Company's tangible book value per share increased ~~to $22.90 from $17.19 at the end of 2016 primarily due to the shares issued and net assets acquired~~9%, on annualized basis, in the first quarter ~~2017~~2020.

Securities

Securities totaled $646.2 million in ~~connection~~the first quarter 2020 and $683.9 million at year-end 2019 representing 18% and 19% of total assets, respectively. The decrease in the first quarter is consistent with the ~~acquisition. Conversely,~~Company strategy to de-lever and remix the ~~Company’s tangible book value (non-GAAP measure) decreased to $15.84 from $16.61 at year-end 2016. The dilution is primarily due to the net impact of the additional shares issued~~investment portfolio resulting in a higher year-over-year yield along with acquisition and goodwill recorded as part of the transaction. However, the Company has a strong quarterly trend in GAAP net income, which added tangible book value per share of $0.57, $0.43, and $0.27 during the third, second, and first quarters, respectively.

~~Asset quality continues to improve as the ratio of non-accruing loans to total loans decreased to 0.28%~~lower borrowing levels. Securities purchased in the ~~third~~first quarter ~~from 0.58% at year-end 2016. The ratio of net charge-offs to total loans remain close to zero in past five quarters ending the third quarter at 2 basis points.~~

~~Securities~~

Total securities increased $201.4 million which includes securities acquired from Lake Sunapee Bank Group and $146.2 million in securities purchased during the nine months ended September 30, 2017. Securities purchased2020 included ~~$119.2~~$13.2 million of mortgage-backed securities guaranteed by US Government-sponsored enterprises, ~~$19.6~~$2.5 million of corporate bonds, and ~~$7.4~~a net $782 thousand decrease in FHLB stock. The purchases were offset by $58.0 million of ~~FHLBB stock. The increase was offset by $105.5 million of~~sales, maturities, calls and pay-downs of amortizing securities. Fair value adjustments increased the security portfolio by $12.7 million at the end of the first quarter 2020 and $7.3 million at year-end 2019. The ~~securities portfolio~~improvement in the fair value continues to be ~~a strong source~~the result of ~~liquidity~~lower long-term interest rates. The weighted average yield on the Company's securities profile as of March 31, 2020 was 3.20% for the Company and is comprised primarily of highly rated mortgage-backed securities guaranteed by U.S. Government-sponsored enterprises and U.S. Government agencies, obligations of state and political subdivisions thereof and FHLBB stock. The Company continuesquarter compared to ~~evaluate~~3.42% at year-end 2019. At the ~~securities portfolio in response to established asset/liability management objectives, changing market conditions and the level of interest rate risk to which we are exposed.~~

~~Loans~~

~~The acquisition of Lake Sunapee Bank Group increased the legal lending limit~~end of the ~~Bank~~first quarter 2020 securities held by the Company had an average life of 5.1 years and a duration of 2.7 years compared to 5.0 years and 3.6 years at the end of 2019, respectively.

Loans

Loan balances in the first quarter 2020 were $2.6 billion, flat with year-end 2019. Total commercial loans grew at an annualized rate of 6% led by commercial real estate with an annualized growth rate of 8% as the Company executed on an expanded pipeline. Residential real estate loans were relatively flat with the ~~lending area~~fourth quarter as originations maintained, but were offset by secondary market sales and payoff activity. Payoff activity was experienced across all ~~three~~products lines as seasoned borrowers refinanced given the lower rate environment. Although the commercial portfolio grows each quarter, the product mix of ~~the northern New England states which resulted in organic growth~~total commercial loans remains diversified among 80 industries throughout many geographic regions. Average yields from loans were 4.30% in the ~~loan portfolio. Excluding~~first quarter 2020 as variable rate loans repriced compared with 4.33% in the impact of the acquired balances, total loans increased during the nine month period of 2017 by 12.2% on an annualized basis with 20.5% annualized growth in commercial loans led mostly by commercial and industrial loans.

~~Allowance for loan losses~~

~~During the nine months ending September 30, 2017, the~~fourth quarter 2019.

Asset Quality

The allowance for loan losses totaled $15.3 million at the end of the first quarter 2020 and $14.4 at year-end 2019. In the first quarter 2020, the Company elected to defer implementation of CECL as allowed under the CARES Act. As result, the Company continues to operate its incurred loss model, which has been adjusted higher to reflect current economic conditions. Increases to the allowance associated with those adjustments were offset by improvements in other credit quality factors including several specifically reserved loans that were settled at approximate book value. Past due accounts between 30 to 89 days as a percentage of total loans was 0.84% for the first quarter compared to 0.74% at year-end 2019. The majority of the customers in that range have a history of making payments on a cycle that is about 30 days overdue and is not likely an indication of deteriorated credit quality.

Goodwill

Given current events and the economic situation associated with COVID-19 along with the variation of the Company’s stock price, the fair value of the Company’s business and test for goodwill impairment is required under accounting standards. The Company’s models suggest that the fair value of the business is greater than the book value or market

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capitalization based on the price at which the stock is currently trading. While the Company concluded there is no goodwill impairment in the first quarter 2020, it will continue to evaluate its position as economic conditions change.

Deposits and Borrowings

Total deposits were $2.7 billion at the end of the first quarter 2020 and year-end 2019. Non-maturity deposits increased ~~$1.5~~to $1.8 billion, 10% on annualized basis, during the first quarter 2020. The Company's expanding branch model has helped to increase new accounts, which totaled 3,071 in the first quarter 2020 compared to 2,918 in the fourth quarter 2019 excluding acquired balances. Time deposits decreased $88.6 million, ~~to $11.9 million, which is~~ due to the ~~increase in business activity loans~~Company's strategy to target lower rate and ~~lower charge-off activity reflecting improved asset quality.~~longer duration funding sources. The ~~determination~~average cost of ~~the allowance for loan losses is a critical accounting estimate. The Company considers the allowance for loan losses appropriate~~deposits decreased to ~~cover probable losses which can be reasonably estimated~~1.08% from 1.19% in the ~~loan portfolio as of~~fourth quarter 2019 reflecting the balance sheet date. Under accounting standards for business combinations, acquired loans are recorded at fair value with no loan loss allowance on the date of acquisition. An allowance for loan loss is recorded by the Company for the emergence of new probableFederal Reserve Bank short-term rate cuts in current and estimable losses on acquired loans which were not impaired as of the acquisition date. Because of the accounting for acquired loans, some measures of the loan loss allowance are not comparable to periods prior ~~to the acquisition date or to peer measures.~~

~~Deposits~~

Excluding the impact of acquired balances, total deposits increased 10.6% on annualized basis as of September 30, 2017 when compared to December 31, 2016. Core deposits are still the primary funding source for loan growth and the Company took on additional FHLBB borrowings in order to fund additional loan growth in the period. Historically, the Bank's deposit market area has been seasonal, with lower deposits in the winter and spring months and higher deposits in the summer and autumn months; however, this seasonality is less present in the expanded deposit market areas of New Hampshire and Vermont.

~~Borrowings~~

quarters. Total borrowings increased by ~~$232.0~~$26.1 million ~~during~~as the Company took advantage of lower FRB and FHLB rates opposed to other funding sources. Borrowing costs improved to 2.10% from 2.30% in the fourth 2019 as a result of cuts in short-term interest rates.

Derivative Financial Instruments

The notional balance of derivative financial instruments increased to $672.1 million at the end of the first ~~nine months of 2017, of which $175.7~~quarter 2020 from $580.4 million ~~was assumed from the acquisition. Excluding the impact of the acquisition, the~~at year-end 2019. The increase ~~was mostly in short term FHLBB advances to fund loans and investments during the first half of the year.~~

~~Equity~~

Excluding the $181.9 million of common stock of the Company issued to Lake Sunapee shareholders, total equity increased by $14.8 million, or 9.4% during 2017. Accumulated other comprehensive loss decreased by $2.9 million primarilyis principally due to ~~an improvement~~a $47.8 million increase in customer loan derivatives sold on commercial loans with matching hedges using national bank counterparties and a $42.5 million in forward commitments to sell mortgages in the secondary market. The net ~~after-tax~~ fair value of ~~available for sale securities.~~all derivatives was a liability of $3.1 at the end of the first quarter 2020 compared to $743 thousand at year-end 2019. The increase in the net derivative liability primarily reflects the valuation of the Company’s interest rate swaps on wholesale funding based on lower market rates at the end of the first quarter 2020.

Equity

Total equity was $403.8 million, compared with $396.4 million at year-end 2019. The Company's book value per share increased to $25.90 at the end of the first quarter 2020 from $25.48 at year-end 2019. The increase includes a $4.0 million improvement ~~is related to an overall decrease~~ in ~~market yields since year-end 2016.~~

fair value of securities, net of tax, along with strong net income of $7.7 million offset by $3.4 million in dividends. The Company evaluates changes in tangible book value, a non-GAAP financial measure ~~which~~that is a commonly ~~considered~~used valuation metric ~~used by~~in the investment community, ~~and~~ which parallels some regulatory capital measures. Tangible book value per share (non-GAAP measure) increased to ~~$244.4 million as of September 30, 2017 from $151.0 million~~$17.70 per share at year-end ~~2016. The~~2019 up from $17.30 per share at year-end 2019; an increase ~~is due to the share issuance offset by goodwill and other intangible assets recorded for the Lake Sunapee Bank Group acquisition~~of 9% on annualized basis.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

Summary

Net income in the first quarter ~~2017.~~2020 was $7.7 million, or $0.50 per diluted share, compared with $7.3 million, or $0.47 per diluted share, in the same quarter 2019. Noteworthy improvements in net income include a lower cost of funds and increased non-interest income offset in part by higher operational expenses. The ~~Lake Sunapee Bank Group acquisition resulted~~Company's return on assets ratio was 0.85% during the first quarter of 2020 and 0.83% in the same quarter of 2019 and the return on equity ratio was 7.64% and 7.83% for the same respective periods.

Net Interest Income

Net interest income was $24.6 million compared with $21.8 million in the same quarter of 2019 and net interest margin was 3.06% and 2.77% for the same respective periods. The increase is primarily driven by lower borrowing levels as the average balance decreased to $557 million in the first quarter 2020 from $762 million in the first quarter of 2019 due to deleveraging strategies executed in late 2019 and a lower cost of funds. The balance sheet strategies executed during the second half of last year along with the rate cuts experienced in the first quarter reduced borrowing rates to 2.10% from 2.74% and interest-bearing deposits rates to 1.08% from 1.25% in the first quarter 2019. The Company continues to optimize its funding sources to take advantage of this lower rate environment through a mixture of various debt and derivative instruments. Yields from earning assets declined to 4.14% from 4.19% in the first quarter 2019 reflecting loan originations and repricing of variable rate products in a ~~$95.3~~lower interest rate environment. Purchase loan accretion contributed 0.08% to net interest margin in the first quarter 2020 compared to 0.10% in the first quarter 2019. The loan to deposit ratio was 99% in the first quarter 2020 as the Company maintained its fourth quarter 2019 deposit levels, which is due to strong customer relationships within its branch model.

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Loan Loss Provision

The first quarter 2020 provision for loan losses increased to $1.1 million from $324 thousand in the same quarter 2019. As noted above, the Company is maintaining its incurred loss model for calculating the allowance for loan losses. The year-over-year increase in ~~goodwill. The Company’s ratio of tangible equity~~the provision for loan losses is due to ~~tangible assets stood at 7.26% at~~qualitative adjustments made to reflect a downward economic trend in the ~~end~~first quarter 2020. Those downward adjustments were offset in part by improvements in other credit quality factors such as charge-off history and underwriting practices. While the impact of the ~~third~~health crisis is uncertain, we believe the existing allowance for loan losses is sufficient to absorb inherent losses based on a disciplined credit approach, experienced losses and methodology, and current review of the portfolio.

Non-Interest Income

Non-interest income in the first quarter 2020 increased 37% to $8.4 million from $6.2 million in the same quarter in 2019. Trust income was $3.4 million in the first quarter 2020, up 22% from the same quarter of 2019 based on higher assets under management within an expanded footprint given the branch acquisition which closed in October 2019. Customer service fees also increased significantly to $3.1 million compared to ~~8.65% at~~$2.2 million from the ~~end~~same quarter of ~~2016.~~

2019 due to transaction growth from a higher customer base. Customer loan derivative income also contributed $588 thousand to non-interest income in the first quarter 2020 as demand for these products remains strong within the commercial loan pipeline.

Non-Interest Expense

Non-interest expense was $22.4 million in the first quarter 2020 compared to $18.6 million in the same quarter of 2019. The ~~Company~~increase is primarily due to higher salary and benefit and occupancy and equipment costs to support the ~~Bank remained well capitalized under regulatory guidelines at period-end.~~

Company’s expanded branch model and wealth management business.

Income Tax Expense

The first quarter effective tax rate decreased to 18.8% in 2020 compared with 19.0% in the same quarter of 2019, reflecting a higher level of tax-advantaged income.

Liquidity and Cash Flows

Liquidity is measured by the ~~Company’s~~Company's ability to meet short-term cash needs at a reasonable cost or minimal loss. The Company seeks to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Besides serving as a funding source for maturing obligations, liquidity provides flexibility in responding to ~~customer initiated~~customer-initiated needs. Many factors affect the ~~Company’s~~Company's ability to meet liquidity needs,

including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions.

The Bank actively manages its liquidity position through target ratios established under its ~~Asset Liability~~Asset-Liability Management Policy. Continual monitoring of these ratios, ~~both~~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 4% of total assets. A portion of the ~~Bank’s~~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~~Bank's liquidity position tightens.

~~The~~

At March 31, 2020, same day available liquidity totaled approximately $1.2 billion, including cash, borrowing capacity at the Federal Home Loan Bank uses a basic surplus model to measure its liquidity over 30 and 90-day time horizons. The relationship between liquid assets and short-term liabilities that are vulnerable to non-replacement are routinely monitored. The Bank’s policy is to maintain a liquidity position of ~~at least 4% of total assets. At September 30, 2017, liquidity, as measured by the basic surplus model, was 6.6% over the 30-day horizon and 10.8% over the 90-day horizon.~~

~~The Bank also had capacity to borrow funds on a secured basis utilizing the Borrower in Custody program~~Boston (“FHLB”) and the Federal Reserve Discount Window and various lines of credit. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from the Bank's amortizing securities and loan portfolios. At March 31, 2020, the Company had unused borrowing capacity at the FHLB of $539.0 million, unused borrowing capacity at the Federal Reserve ~~Bank~~ of ~~Boston (the “FRB”). At September 30, 2017, the Bank’s available secured line~~$27.0 million and unused lines of credit at the FRB stood at $114.6 million or 3.3% of the Bank’s total assets. The Bank also has access to the national brokered deposit market, and has used this funding source to bolster its on balance sheet liquidity position.

totaling $51.0 million.

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

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Off-Balance Sheet Arrangements

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

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

The Company’s off-balance sheet arrangements have not changed materially since previously reported in our Annual Report on Form 10-K for the year ended December 31, 2019.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES, AND RECENT ACCOUNTING PRONOUNCEMENTS

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements in this Form 10-Q and in the most recent Form 10-K. Please see those policies in conjunction with this discussion. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. Please see those policies in conjunction with this discussion.

Management ~~believes that the following policies would be considered critical under the SEC’s definition:~~

~~Allowance for Loan Losses:~~ The allowance for loan losses represents probable credit losses that are inherent in the loan portfolio at the financial statement date and which may be estimated. Management uses historical information, as well as current economic data, to assess the adequacy of the allowance for loan losses as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. Although management believes that it uses appropriate available information to establish the allowance for loan losses, future additions to the allowance may be necessary if certain future events occur that cause actual results to differ from the assumptions used in making the evaluation. Conditions in the local economy and real estate values could require the Company to increase provisions for loan losses, which would negatively impact earnings.

amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. Going forward, the Company continues to evaluate reasonableness of expectations for the timing and the amount of cash to be collected. Subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments, and in some cases may result in the loan being considered impaired. For collateral dependent loans with deteriorated credit quality, the Company estimates the fair value of the underlying collateral of the loans. These values are discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral.

~~Income Taxes:~~ Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. The Company uses the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis ofhas identified the Company's ~~assets and liabilities. The realization~~most critical accounting policies as related to:

•

Allowance for Loan Losses

•

Acquired Loans

•

Income Taxes

•

Goodwill and Identifiable Intangible Assets

•

Determination of Other-Than-Temporary Impairment of Securities

•

Fair Value of Financial Instruments

Table of the net deferred tax asset generally depends upon future levels of taxable ordinary income, taxable capital gain income, and the existence of prior years' taxable income, to which carry back refund claims could be made. A valuation allowance would be established for deferred tax assets that management estimates are more likely than not to be unrealizable based on available evidence at the time the estimate is made. There was no valuation allowance as of September 30, 2017.Contents

~~Goodwill and Identifiable Intangible Assets:~~ Goodwill and identifiable intangible assets are recorded as a result of business acquisitions and combinations. These assets are evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of these assets may not be recoverable. When these assets are evaluated for impairment, if the carrying amount exceeds fair value, an impairment charge is recorded to income. The fair value is based on observable market prices, when practicable. Other valuation techniques may be used when market prices are unavailable, including estimated discounted cash flows and analysis of market pricing multiples. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies. In the event of future changes in fair value, the Company may be exposed to an impairment charge that could be material.

~~Determination of Other-Than-Temporary Impairment of Securities:~~ The Company evaluates debt and equity securities within the Company's available for sale for other-than-temporary impairment (OTTI), at least quarterly. If the fair value of a debt security is below the amortized cost basis of the security, OTTI is required to be recognized if any of the following are met: (1) the Company intends to sell the security; (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For all impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the loss is recognized as OTTI through earnings. Credit-related OTTI for all other impaired debt securities is recognized through earnings. Noncredit related OTTI for such debt securities is recognized in other comprehensive income, net of applicable taxes. In evaluating its marketable equity securities portfolios for OTTI, the Company considers its intent and ability to hold an equity security to recovery of its cost basis in addition to various other factors, including the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer. Any OTTI on marketable equity securities is recognized immediately through earnings. Should actual factors and conditions differ materially from those expected by management, the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements.

~~Fair Value of Financial Instruments:~~ The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. Trading assets, securities available for sale, and derivative instruments are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, or to establish a loss allowance or write-down based on the fair value of impaired assets. Further, the notes to financial statements include information about the extent to which fair value is used to measure assets and liabilities, the valuation methodologies used and its impact to earnings. For financial instruments not recorded at fair value, the notes to financial statements disclose the estimate of their fair value. Due to the judgments and uncertainties involved in the estimation process, the estimates could result in materially different results under different assumptions and conditions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

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

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

Interest Rate ~~Risk:~~ 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 Company’s Board of Directors.

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

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

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

●

A flat interest rate scenario in which current prevailing rates are locked in and the only balance sheet fluctuations that occur are due to cash flows, maturities, new volumes, and re-pricing volumes consistent with this flat rate assumption;

A 200 basis point rise or decline in interest rates applied against a parallel shift in the yield curve over a twelve-month horizon together with a dynamic balance sheet anticipated to be consistent with such interest rate changes;

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Various non-parallel shifts in the yield curve, including changes in either short-term or long-term rates over a twelve-month horizon, together with a dynamic balance sheet anticipated to be consistent with such interest rate changes; and

An extension of the foregoing simulations to each of two, three, four and five year horizons to determine the interest rate risk with the level of interest rates stabilizing in years two through five. Even though rates remain stable during this two to five year time period, re-pricing opportunities driven by maturities, cash flow, and adjustable rate products will continue to change the balance sheet profile for each of the interest rate conditions.

●

Changes in net interest income based upon the foregoing simulations are measured against the flat interest rate scenario and actions are taken to maintain the balance sheet interest rate risk within established policy guidelines.

As of ~~September 30, 2017~~March 31, 2020 interest rate sensitivity modeling results indicate that the Bank’s balance sheet ~~was moderately liability sensitive over the one-~~in years 1 and ~~two-year horizons (i.e., moderately exposed to rising interest rates).~~

2 were slightly asset sensitive.

Assuming short-term and long-term interest rates decline 100 basis points from current levels (i.e., a parallel yield curve shift) and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will ~~improve slightly~~deteriorate over the one year horizon ~~(+.2%~~(-2.2% versus the base case) while ~~remaining relatively stable~~deteriorating further from that level over the two-year horizon ~~(+.3%~~(-6.4% versus the base case). Should the yield curve steepen as rates fall, the model suggests that accelerated earning asset prepayments will slow, resulting in a more stabilized level of net interest income. Management anticipates that moderate to strong earning asset growth will be needed to meaningfully increase the Bank’s current level of net interest income should both long-term and short-term interest rates decline in parallel.

Assuming the Bank’s balance sheet structure and size remain at current levels and the Federal Reserve increases short-term interest rates by 200 basis points with the balance of the yield curve shifting in parallel with these increases, management believes net interest income will ~~decline moderately~~improve slightly over the one and two-year horizons ~~(-3.1%~~(1.2% and ~~-6.7%~~3.6%, respectively, versus the base case) as increased funding costs outpace increases in earning asset yields. The interest rate sensitivity simulation model suggests that as interest rates rise, the Bank’s funding costs will initially re-price disproportionately with earning asset yields to a moderate degree. As funding costs begin to stabilize early in the third year of the simulation, the model suggests that the earning asset portfolios will continue to re-price at prevailing interest rate levels and cash flows from the Bank’s earning asset portfolios will be reinvested into higher yielding earning assets, resulting in a widening of spreads and a stabilization of net interest income over the three year horizon and beyond. Management believes moderate to strong earning asset growth will be necessary to meaningfully increase the current level of net interest income over the one-year and two-year horizons should short-term and long-term interest rates rise in parallel.

respectively).

As compared to ~~June 30, 2017,~~December 31, 2019, the year-one sensitivity in the down 100 basis points scenario ~~decreased~~was down slightly for the ~~quarter (+.7%~~three months ended March 31, 2020 (-1.0% prior, versus ~~+.2%~~-2.2% current). The year-two sensitivities in the down 100 basis points scenario ~~showed a small change~~changed going from ~~+.8%~~-3.7% to ~~+.3%~~-6.4%. In the year-one up 200 basis points scenario, results improved going from ~~the prior quarter (-3.8% prior, versus -3.1% current)~~.7% to 1.2%. Year-two, up 200 basis points ~~shows a slightly more negative result (-6.2%~~was flat (3.3% prior, versus ~~-6.7%~~3.6% current)~~, although on balance, the current aggregate position is consistent with the prior quarter’s.~~

Despite four rate hikes over the last eighteen months, the Federal Reserve continues to maintain short-term interest rates at low levels, threatening net interest income. Net interest income exposure is also significantly affected by the shape and level of the U.S. Government securities and interest rate swap yield curve, and changes in the size and composition of the Bank’s loan, investment and deposit portfolios.

The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels and yield curve shape, prepayment speeds on loans and securities, deposit rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows, and renegotiated loan terms with borrowers. While assumptions are developed based upon current economic and local

market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.

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

~~The Bank engages an independent consultant to periodically review its interest rate risk position and the reasonableness~~

Table of assumptions used, with periodic reports provided to the Bank’s Board of Directors. At September 30, 2017, there were no significant differences between the views of the independent consultant and management regarding the Bank’s interest rate risk exposure.

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ITEM 4. CONTROLS AND PROCEDURES

(a)
a)	Disclosure controls and procedures.

~~The~~

Under the supervision and with the participation of our senior management, consisting of the Company’s principal executive ~~officers, including the~~officer and our principal financial officer, ~~based on their~~the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, ~~(as~~as defined in ~~Exchange Act~~ Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form ~~10-Q, have~~10-Q. Based on this evaluation, the Company’s management, including its principal executive officer and principal financial officer, concluded that as of March 31, 2020 the Company’s disclosure controls and procedures were ~~effective.~~

~~b) Changes~~effective to ensure that information required to be disclosed by the Company in ~~internal control over~~the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its Exchange Act reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial ~~reporting.~~

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 the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and its subsidiaries are parties to certain ordinary routine litigation incidental to the normal conduct of their respective businesses, which in the opinion of management based upon currently available information will have no material effect on the Company's consolidated financial statements.

ITEM 1A. RISK FACTORS

~~In addition to~~

The disclosures below supplement the ~~other information set forth in this report, you should carefully consider~~risk factors previously disclosed under Item 1A. of the ~~factors discussed below and in Part I, “Item 1A. Risk Factors” in our~~Company’s 2019 Annual Report on Form ~~10-K for the year ended December 31, 2016, which could materially affect~~10-K.

The COVID-19 pandemic may adversely impact our business and financial ~~condition~~results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.

The COVID-19 pandemic is creating extensive disruptions to the economy and to the lives of individuals. Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief. While the scope, duration, and full effects of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. If these effects continue for a prolonged period or ~~future results. The risks described~~result in ~~this form are not~~sustained economic stress or recession, many of the ~~only risks that we face. Additional risks~~risk factors identified in our Form 10-K could be exacerbated and ~~uncertainties not currently known~~such effects could have an adverse impact on us in a number of ways related to ~~us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.~~credit quality, collateral values, customer demand, funding, operations, interest rate risk, and human capital.

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

~~(a) Not applicable.~~

~~(b) Not applicable.~~

(c)The following table provides certain information with regard to shares repurchased by the Company in the ~~third~~first quarter of ~~2017:~~2020:


				Total number of shares	Maximum number of
				purchased as a part of	shares that may yet be
	Total number of	Average price		publicly announced	purchased under
Period	shares purchased	paid per share		plans or programs	the plans or programs⁽¹⁾
January 1-31, 2020	—	$	—	—	776,000
February 1-29, 2020	—		—	—	776,000
March 1-31, 2020	—		—	—	781,000
Total	—	$	—	—	781,000

Period
Total number of
shares purchased

Average price
paid per share

Total number of shares
purchased as a part of
publicly announced
plans or programs

Maximum number of
shares that may yet
be purchased under
the plans or programs (1)
July 1-31, 2017 6,742
$ 29
6,742
404,706
August 1-31, 2017 —
—
—
404,706
September 1-30, 2017 —
—
—
404,706
Total 6,742
$ 29
6,742
404,706

(1)	On March 12, 2019 and March 12, 2020 the Company's Board of Directors approved a twelve-month plan to repurchase up to 5% of its outstanding common stock, representing 776,000 and 781,000 shares, respectively. The current stock repurchase plan expires on March 20, 2021.

~~(1) In August 2008, the Company’s Board~~

Table of Directors approved a twenty-four month program to repurchase up to 450,000 shares of the Company’s common stock, or approximately 10.2% of the shares then outstanding. The Company’s Board of Directors authorized the continuance of this program for additional twenty-four month periods in August 2010, 2012 and 2014. On August 16, 2016, Bar Harbor Bankshares issued a press release announcing the Company’s Board of Directors has approved the continuation of the Company’s existing stock repurchase plan through August 16, 2018. No other changes were made to the plan. Depending on market conditions and other factors, stock repurchases may be commenced or suspended at any time, or from time to time, without prior notice and may be made in the open market or through privately negotiated transactions. The Company records repurchased shares as treasury stock.

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~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~

~~ITEM 4. MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM 5. OTHER INFORMATION~~

~~None.~~

ITEM 6. EXHIBITS



~~3.1~~		~~Articles of Incorporation, as amended to date~~	~~Incorporated herein by reference to Form 10-Q, Part II, Item 6, Exhibit 3.1, filed with the commission on November 5, 2015 (Commission File No. 00113349).~~

~~3.2~~ 31.1		~~Bylaws, as amended to date~~	~~Incorporated herein by reference to Form 8-K, Item 5.03, Exhibit 3.2, filed with the Commission on November 29, 2011~~.

~~4.1~~		~~Certificate of Designations, Fixed Rate Cumulative Perpetual Preferred Stock, Series A~~	~~Incorporated herein by reference to Form 8-K, Exhibit 3.1, filed with the Commission on January 21, 2009 (Commission File No. 00113349).~~

~~4.2~~		~~Form of Specimen Stock Certificate for Series A Preferred Sock~~	~~Incorporated by reference to Form 8-K, Exhibit 4.1, filed with the Commission on January 21, 2009 (Commission File No. 00113349).~~

~~4.3~~		~~Debt Securities Purchase Agreement~~	~~Incorporated herein by reference to Form 10-K, Part IV, Item 15, Exhibit 4.5, filed with the commission on March 16, 2009 (Commission File No. 00113349).~~

~~4.4~~		~~Form of Subordinated Debt Security of Bar Harbor Bank & Trust~~	~~Incorporated herein by reference to Form 10-K, Part IV, Item 15, Exhibit 4.6, filed with the commission on March 16, 2009 (Commission File No. 00113349).~~

~~4.5~~		~~Description of Company Common Stock~~	~~Incorporated by reference to Form 8-K, Items 8.01 and 9.01, Exhibit 99.1, filed August 7, 2015 (Commission File No. 00113349).~~

~~10.1~~		~~Employment Agreement by and between William J. McIver, Bar Harbor Bankshares and Bar Harbor Bank & Trust, dated May 5, 2016.~~	~~Incorporated by reference to Form 8-K, 8.01, Exhibit 10.2, filed May 9, 2016 (Commission File No. 00113349).~~

~~11.1~~		~~Statement of re computation of per share earnings~~	~~Statement of re computation of per share earnings is provided in Note 1 to the Consolidated Financial Statements in this Report~~

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

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

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

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

101			The following financial information from the Company’s ~~Annual~~Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2017~~March 31, 2020 is formatted in ~~XBRL (eXtensible~~ Inline Extensible Business Reporting ~~Language)~~Language (iXBRL): (i) Consolidated Condensed Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to the Consolidated Condensed Financial Statements

104	Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document).

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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: ~~November~~May 8, ~~2017~~2020	By:	/s/ Curtis C. Simard
		Curtis C. Simard
		President & Chief Executive Officer


Dated: ~~November~~May 8, ~~2017~~2020	By:	/s/ Josephine Iannelli
		Josephine Iannelli
		Executive Vice President & Chief Financial Officer ~~& Principal Accounting Officer~~


Maine		01-0393663
~~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)

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

				Page
PART I.	FINANCIAL INFORMATION
				~~Page~~

~~PART I.~~	~~FINANCIAL INFORMATION~~

Item 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019			4

	Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			5 6

	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			6 7

	Consolidated Statements of Changes in Shareholders’ Equity for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			7 8

	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			8 9

	Notes to Unaudited Consolidated Interim Financial Statements
		Note 1	Basis of Presentation	9 11
		Note 2	~~Acquisition~~	13
		~~Note 3~~	Securities Available for Sale	17 15
		Note 43	Loans	21 18
		Note 54	Allowance for Loan ~~Loss Allowance~~Losses	34 31
		Note 65	Borrowed Funds	38 36
		Note 76	Deposits	39 38
		Note 87	Capital Ratios and Shareholders' Equity	40 39
		Note 98	Earnings per Share	45 42
		Note 109	Derivative Financial Instruments and Hedging Activities	45 43
		Note 1110	Fair Value Measurements	48
		Note 1211	~~Subsequent Events~~Revenue from Contracts with Customers	54
		Note 12	Leases	56
		Note 13	Subsequent Events	58

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			55 59

	Selected Financial Data			57 60

	Consolidated Loan and Deposit Analysis			59 61

	Average Balances and Average Yields/Rates			60 62

	Non-GAAP Financial Measures			61 63
		Reconciliation of Non-GAAP Financial Measures		64
		Financial Summary		64 66

Item 3.	Quantitative and Qualitative Disclosures about Market Risk			70 71

Item 4.	Controls and Procedures			72

73

PART II.	OTHER INFORMATION
~~PART II.~~	~~OTHER INFORMATION~~
Item 1.	Legal Proceedings		73
~~Item 1.~~	~~Legal Proceedings~~	72
Item 1A.	Risk Factors		73
~~Item 1A.~~	~~Risk Factors~~	72

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73 74

Item 3.6.	~~Defaults Upon Senior Securities~~Exhibits	73 75

~~Item 4.~~Signatures	~~Mine Safety Disclosures~~	73

~~Item 5.~~	~~Other Information~~	73

~~Item 6.~~	~~Exhibits~~	74

~~Signatures~~		75 76



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



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



(In thousands, except share data)	September 30, 2017			December 31, 2016
Assets
Cash and due from banks	$	31,223		$	8,219
Interest-bearing deposit with the Federal Reserve Bank	17,501			220
Total cash and cash equivalents	48,724			8,439
Securities available for sale, at fair value	718,459			528,856
Federal Home Loan Bank stock	37,107			25,331
Total securities	755,566			554,187
Commercial real estate	793,572			418,119
Commercial and industrial	357,072			151,240
Residential real estate	1,152,628			506,612
Consumer	125,590			53,093
Total loans	2,428,862			1,129,064
Less: Allowance for loan losses	(11,950		)	(10,419		)
Net loans	2,416,912			1,118,645
Premises and equipment, net	48,309			23,419
Other real estate owned	122			90
Goodwill	100,255			4,935
Other intangible assets	8,811			377
Cash surrender value of bank-owned life insurance	57,613			24,450
Deferred tax assets, net	13,052			5,990
Other assets	26,368			14,817
Total assets	$	3,475,732		$	1,755,349

Liabilities
Demand and other non-interest bearing deposits	$	357,398		$	98,856
NOW deposits	442,085			175,150
Savings deposits	373,118			77,623
Money market deposits	300,398			282,234
Time deposits	802,110			416,437
Total deposits	2,275,109			1,050,300
Senior borrowings	775,582			531,596
Subordinated borrowings	43,048			5,000
Total borrowings	818,630			536,596
Other liabilities	28,534			11,713
Total liabilities	3,122,273			1,598,609
Shareholders’ equity
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,387 and 10,182,611 shares at September 30, 2017 and December 31, 2016, respectively	32,858			13,577
Additional paid-in capital	186,220			23,027
Retained earnings	141,251			130,489
Accumulated other comprehensive loss	(1,435		)	(4,326		)
Less: cost of 996,531 and 1,067,016 shares of treasury stock at September 30, 2017 and December 31, 2016, respectively	(5,435		)	(6,027		)
Total shareholders’ equity	353,459			156,740
Total liabilities and shareholders’ equity	$	3,475,732		$	1,755,349



	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands, except per share data)	2017			2016		2017		2016
Interest and dividend income
Loans	$	24,661		$	10,295	$	70,081	$	30,627
Securities and other	5,402			3,828		15,832		12,014
Total interest and dividend income	30,063			14,123		85,913		42,641
Interest expense
Deposits	3,177			1,755		7,926		4,931
Borrowings	3,408			1,369		9,327		3,993
Total interest expense	6,585			3,124		17,253		8,924
Net interest income	23,478			10,999		68,660		33,717
Provision for loan losses	660			139		2,191		754
Net interest income after provision for loan losses	22,818			10,860		66,469		32,963
Non-interest income
Trust and investment management fee income	3,040			975		9,228		2,878
Insurance and brokerage service income	329			—		1,020		—
Customer service fees	2,638			706		5,990		1,999
Gain on sales of securities, net	19			1,354		19		4,489
Bank-owned life insurance income	380			197		1,165		540
Other income	554			140		2,043		408
Total non-interest income	6,960			3,372		19,465		10,314
Non-interest expense
Salaries and employee benefits	9,617			4,832		30,065		14,648
Occupancy and equipment	2,894			1,156		8,573		3,466
Loss on premises and equipment, net	(1		)	216		94		216
Outside services	907			181		2,220		430
Professional services	428			250		1,357		1,084
Communication	382			128		1,040		492
Amortization of intangible assets	189			1		534		25
Acquisition expenses	346			320		5,917		812
Other expenses	2,824			1,666		8,663		4,305
Total non-interest expense	17,586			8,750		58,463		25,478

Income before income taxes	12,192			5,482		27,471		17,799
Income tax expense	3,575			1,850		8,085		5,450
Net income	$	8,617		$	3,632	$	19,386	$	12,349

Earnings per share:
Basic	$	0.56		$	0.40	$	1.27	$	1.37
Diluted	$	0.56		$	0.40	$	1.27	$	1.35

Weighted average common shares outstanding:
Basic	15,420			9,064		15,098		9,037
Diluted	15,511			9,162		15,204		9,138



	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2017			2016			2017			2016
Net income	$	8,617		$	3,632		$	19,386		$	12,349
Other comprehensive income (loss), before tax:
Changes in unrealized loss on securities available-for-sale	512			(5,577		)	5,119			3,041
Changes in unrealized loss on derivative hedges	(84		)	(92		)	(805		)	(1,309		)
Changes in unrealized loss on pension	5			8			45			86
Income taxes related to other comprehensive income (loss):
Changes in unrealized loss on securities available-for-sale	(192		)	1,952			(1,839		)	(1,064		)
Changes in unrealized loss on derivative hedges	31			32			373			458
Changes in unrealized loss on pension	(2		)	(3		)	(2		)	(30		)
Total other comprehensive income	270			(3,680		)	2,891			1,182
Total comprehensive income	$	8,887		$	(48	)	$	22,277		$	13,531



(In thousands)	Common stock amount		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income			Treasury stock			Total
Balance at December 31, 2015	$	13,577	$	21,624		$	122,260		$	3,629		$	(6,938	)	$	154,152

Comprehensive income:
Net income	—		—			12,349			—			—			12,349
Other comprehensive loss	—		—			—			1,182			—			1,182
Total comprehensive income	—		—			12,349			1,182			—			13,531
Cash dividends declared ($0.54 per share)	—		—			(4,880		)	—			—			(4,880		)
Treasury stock purchased (23,072)	—		—			—			—			(497		)	(497		)
Net issuance (91,466) to employee stock plans, including related tax effects	—		35			(127		)	—			1,140			1,048
Recognition of stock based compensation	—		982			—			—						982
Balance at September 30, 2016	$	13,577	$	22,641		$	129,602		$	4,811		$	(6,295	)	$	164,336

Balance at December 31, 2016	$	13,577	$	23,027		$	130,489		$	(4,326	)	$	(6,027	)	$	156,740

Comprehensive income:
Net income	—		—			19,386			—			—			19,386
Other comprehensive loss	—		—			—			2,891			—			2,891
Total comprehensive income	—		—			19,386			2,891			—			22,277
Cash dividends declared ($0.56 per share)	—		—			(8,624		)	—			—			(8,624		)
Acquisition of Lake Sunapee Bank Group	8,328		173,591			—			—			—			181,919
Treasury stock purchased (9,603 shares)	—		—			—			—			(282		)	(282		)
Net issuance (80,448 shares) to employee stock plans, including related tax effects	—		(265		)	—			—			874			609
Three-for-two stock split	10,953		(10,968		)	—			—			—			(15		)
Recognition of stock based compensation	—		835			—			—			—			835
Balance at September 30, 2017	$	32,858	$	186,220		$	141,251		$	(1,435	)	$	(5,435	)	$	353,459



(in thousands)	As Acquired			Fair Value Adjustments				As Recorded at Acquisition
Consideration paid:
Bar Harbor Bankshares common stock issued to Lake Sunapee Bank Group stockholders (4,163,853 shares)								$	181,919
Cash paid for fractional shares								27
Total consideration paid								181,946
Recognized amounts of identifiable assets acquired and liabilities assumed, at fair value:
Cash and short-term investments	$	40,970		$	(1,406	)	(a)	$	39,564
Investment securities	156,960			(1,381		)	(b)	155,579
Loans	1,217,927			(9,728		)	(c)	1,208,199
Premises and equipment	22,561			(351		)	(d)	22,210
Core deposit intangible	—			7,786			(e)	7,786
Other assets	102,298			(50,419		)	(f)	51,879
Deposits	(1,149,865		)	(746		)	(g)	(1,150,611		)
Borrowings	(232,261		)	(16		)	(h)	(232,277		)
Deferred taxes, net	(1,921		)	10,217			(i)	8,296
Other liabilities	(19,924		)	(4,087		)	(j)	(24,011		)
Total identifiable net assets	$	136,745		$	(50,131	)		$	86,614

Goodwill								$	95,332



	ASC 310-30 Loans
Gross contractual receivable amounts at acquisition	$	23,338
Contractual cash flows not expected to be collected (nonaccretable discount)	(3,801		)
Expected cash flows at acquisition	19,537
Interest component of expected cash flows (accretable discount)	(1,089		)
Fair value of acquired loans	$	18,448



(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2017
Securities available for sale
Debt securities:
Obligations of US Government sponsored enterprises	$	6,952	$	27	$	—	$	6,979
Mortgage-backed securities:
US Government-sponsored enterprises	438,332		3,413		3,788		437,957
US Government agency	102,044		695		601		102,138
Private label	562		162		5		719
Obligations of states and political subdivisions thereof	140,475		2,818		1,311		141,982
Corporate bonds	28,245		441		2		28,684
Total securities available for sale	$	716,610	$	7,556	$	5,707	$	718,459

December 31, 2016
Securities available for sale
Debt securities:
Obligations of US Government sponsored enterprises	$	—	$	—	$	—	$	—
Mortgage-backed securities:
US Government-sponsored enterprises	330,635		2,682		4,865		328,452
US Government agency	76,722		797		613		76,906
Private label	936		207		11		1,132
Obligations of states and political subdivisions thereof	123,832		1,941		3,407		122,366
Corporate bonds	—		—		—		—
Total securities available for sale	$	532,125	$	5,627	$	8,896	$	528,856



	Available for sale
	Amortized		Fair
(In thousands)	Cost		Value
Within 1 year	$	3,613	$	3,627
Over 1 year to 5 years	18,499		18,735
Over 5 years to 10 years	73,997		75,366
Over 10 years	620,501		620,731
Total securities available for sale	$	716,610	$	718,459



	Less Than Twelve Months				Over Twelve Months				Total
(In thousands)	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
September 30, 2017

Securities available for sale
Debt securities:
Obligations of US Government sponsored enterprises	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities:
US Government-sponsored enterprises	1,559		150,524		2,229		64,882		3,788		215,406
US Government agency	345		48,529		256		11,880		601		60,409
Private label	—		7		5		134		5		141
Obligations of states and political subdivisions thereof	89		8,838		1,222		31,570		1,311		40,408
Corporate bonds	2		3,038		—		—		2		3,038
Total securities available for sale	$	1,995	$	210,936	$	3,712	$	108,466	$	5,707	$	319,402


December 31, 2016

Securities available for sale
Debt securities:
Obligations of US Government sponsored enterprises	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities:
US Government-sponsored enterprises	4,369		197,914		496		10,120		4,865		208,034
US Government agency	472		36,941		141		4,263		613		41,204
Private label	—		107		11		312		11		419
Obligations of states and political subdivisions thereof	3,252		76,803		155		3,916		3,407		80,719
Corporate bonds	—		—		—		—		—		—
Total securities available for sale	$	8,093	$	311,765	$	803	$	18,611	$	8,896	$	330,376



(in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans		Past Due > 90 days and Accruing
September 30, 2017
Commercial Real Estate:
Construction and land development	$	—	$	—	$	637	$	637	$	33,055	$	33,692	$	—
Other commercial real estate	407		121		702		1,230		454,617		455,847		—
Total Commercial Real Estate:	407		121		1,339		1,867		487,672		489,539		—

Commercial and Industrial:
Other Commercial	401		150		159		710		171,476		172,186		—
Agricultural and other loans to farmers	600		90		10		700		29,783		30,483		—
Tax exempt	—		—		—		—		40,776		40,776		—
Total Commercial and Industrial:	1,001		240		169		1,410		242,035		243,445		—

Total Commercial Loans:	1,408		361		1,508		3,277		729,707		732,984		—

Residential Real Estate:
Residential mortgages	2,904		172		1,260		4,336		563,941		568,277		—
Total Residential Real Estate:	2,904		172		1,260		4,336		563,941		568,277		—

Consumer:
Home equity	306		25		100		431		50,179		50,610		—
Other consumer	60		21		26		107		7,538		7,645		—
Total Consumer:	366		46		126		538		57,717		58,255		—
													—
Total Loans:	$	4,678	$	579	$	2,894	$	8,151	$	1,351,365	$	1,359,516	$	—



(In thousands)	Commercial real estate		Commercial and industrial		Residential real estate		Consumer		Total
September 30, 2017
Loans receivable:
Balance at end of period
Individually evaluated for impairment	$	2,585	$	138	$	1,744	$	68	$	4,535
Collectively evaluated	486,954		243,307		566,533		58,187		1,354,981
Total	$	489,539	$	243,445	$	568,277	$	58,255	$	1,359,516



	September 30, 2017
(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance:
Construction and land development	$	—	$	—	$	—
Commercial real estate other	1,198		1,175		—
Commercial other	96		97		—
Agricultural and other loans to farmers	—		—		—
Tax exempt loans	—		—		—
Residential real estate	1,257		1,267		—
Home equity	13		13		—
Consumer other	—		—		—

With an allowance recorded:
Construction and land development	$	637	$	2,563	$	59
Commercial real estate other	750		808		331
Commercial other	42		42		2
Agricultural and other loans to farmers	—		—		—
Tax exempt loans	—		—		—
Residential real estate	487		487		44
Home equity	55		55		55
Consumer other	—		—		—

Total
Commercial real estate	$	2,585	$	4,546	$	390
Commercial and industrial	138		139		2
Residential real estate	1,744		1,754		44
Consumer	68		68		55
Total impaired loans	$	4,535	$	6,507	$	491



	Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2016
(in thousands)	Average Recorded Investment		Cash Basis Interest Income Recognized		Average Recorded Investment		Cash Basis Interest Income Recognized
With no related allowance:
Construction and land development	$	—	$	—	$	—	$	—
Commercial real estate other	1,716		64		2,713		131
Commercial other	99		6		141		2
Agricultural and other loans to farmers	8		1		131		8
Tax exempt loans	—		—		—		—
Residential real estate	1,245		31		1,344		55
Home equity	13		—		17		1
Consumer other	5		2		—		1

With an allowance recorded:
Construction and land development	$	637	$	—	$	928	$	—
Commercial real estate other	693		—		551		—
Commercial other	44		1		221		—
Agricultural and other loans to farmers	—		—		—		—
Tax exempt loans	—		—		—		—
Residential real estate	268		5		331		—
Home equity	12		—		—		—
Consumer other	—		—		17		—

Total
Commercial real estate	$	3,046	$	64	$	4,192	$	131
Commercial and industrial	151		8		493		10
Residential real estate	1,513		36		1,675		55
Consumer	30		2		34		2
Total impaired loans	$	4,740	$	110	$	6,394	$	198



	Three Months Ended September 30, 2017
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial installment	5	$	483	$	483
Agricultural and other loans to farmers	—	—		—
Commercial real estate	4	144		144
Residential real estate	—	—		—
Home equity	—	—		—
Consumer other	—	—		—
Total	9	$	627	$	627



	Three Months Ended September 30, 2016
(Dollars in thousands)	Number of Modifications	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings
Commercial installment	2	$	51	$	51
Commercial real estate	2	936		915
Consumer other	1	9		9
Total	5	$	996	$	975



Business Activities Loans	At or for the Nine Months Ended September 30, 2017
(In thousands)	Commercial real estate			Commercial and industrial			Residential real estate			Consumer			Total
Balance at beginning of period	$	5,145		$	1,952		$	2,721		$	601		$	10,419
Charged-off loans	(124		)	(189		)	(226		)	(87		)	(626		)
Recoveries on charged-off loans	9			7			65			7			88
Provision/(releases) for loan losses	310			405			941			40			1,696
Balance at end of period	$	5,340		$	2,175		$	3,501		$	561		$	11,577
Individually evaluated for impairment	391			2			44			55			492
Collectively evaluated	4,949			2,173			3,457			506			11,085
Total	$	5,340		$	2,175		$	3,501		$	561		$	11,577



	September 30, 2017
(in thousands, except rates)	Carrying Value		Weighted Average Rate
Fixed rate advances maturing:
2017	$	416,000	1.32	%
2018	165,805		1.49
2019	104,947		1.63
2020	29,911		1.76
2021	1,630		1.49
2022 and thereafter	15,689		0.36
Total FHLBB advances	$	733,982	1.40	%



	September 30, 2017		Regulatory Minimum to be Well Capitalized		December 31, 2016		Regulatory Minimum to be Well Capitalized
Company (consolidated)
Total capital to risk weighted assets	13.8	%	10.0	%	16.5	%	10.0	%
Common equity tier 1 capital to risk weighted assets	11.3		6.5		15.0		6.5
Tier 1 capital to risk weighted assets	12.7		8.0		15.0		8.0
Tier 1 capital to average assets	8.0		5.0		8.9		5.0

Bank
Total capital to risk weighted assets	13.8	%	10.0	%	16.7	%	10.0	%
Common equity tier 1 capital to risk weighted assets	13.0		6.5		15.2		6.5
Tier 1 capital to risk weighted assets	13.0		8.0		15.2		8.0
Tier 1 capital to average assets	8.5		5.0		9.1		5.0



(In thousands)	Before Tax			Tax Effect			Net of Tax
Three Months Ended September 30, 2017
Net unrealized holding gain on AFS securities:	x
Net unrealized gain arising during the period	$	531		$	(199	)	$	332
Less: reclassification adjustment for gains (losses) realized in net income	19			(7		)	12
Net unrealized holding gain on AFS securities	512			(192		)	320

Net unrealized loss on cash flow hedging derivatives:
Net unrealized loss arising during the period	(84		)	31			(53		)
Less: reclassification adjustment for gains (losses) realized in net income	—			—			—
Net unrealized gain on cash flow hedging derivatives	(84		)	31			(53		)

Net unrealized holding loss on post-retirement plans:
Net unrealized gain/(loss) arising during the period	5			(2		)	3
Less: reclassification adjustment for gains (losses) realized in net income	—			—			—
Net unrealized holding gain/(loss) on post-retirement plans	5			(2		)	3
Other comprehensive income	$	433		$	(163	)	$	270

Three Months Ended September 30, 2016
Net unrealized holding gains on AFS securities:
Net unrealized gains arising during the period	$	(4,223	)	$	1,478		$	(2,745	)
Less: reclassification adjustment for gains realized in net income	1,354			(474		)	880
Net unrealized holding gains on AFS securities	(5,577		)	1,952			(3,625		)

Net unrealized (loss) on cash flow hedging derivatives:
Net unrealized (loss) arising during the period	(92		)	32			(60		)
Less: reclassification adjustment for gains (losses) realized in net income	—			—			—
Net unrealized (loss) on cash flow hedging derivatives	(92		)	32			(60		)

Net unrealized holding gain on post-retirement plans:
Net unrealized gain arising during the period	8			(3		)	5
Less: reclassification adjustment for gains (losses) realized in net income	—			—			—
Net unrealized holding gain on post-retirement plans	8			(3		)	5
Other comprehensive income	$	(5,661	)	$	1,981		$	(3,680	)



(in thousands)	Net unrealized holding gain on AFS Securities			Net loss on effective cash flow hedging derivatives			Net unrealized holding loss on pension plans			Total
Three Months Ended September 30, 2017
Balance at beginning of period	$	836		$	(2,177	)	$	(364	)	$	(1,705	)
Other comprehensive gain(loss) before reclassifications	332			(53		)	3			282
Less: amounts reclassified from accumulated other comprehensive income	12			—			—			12
Total other comprehensive income	320			(53		)	3			270
Balance at end of period	$	1,156		$	(2,230	)	$	(361	)	$	(1,435	)

Three Months Ended September 30, 2016
Balance at beginning of period	$	11,315		$	(2,412	)	$	(412	)	$	8,491
Other comprehensive gain before reclassifications	(2,745		)	(60		)	5			(2,800		)
Less: amounts reclassified from accumulated other comprehensive income	880			—			—			880
Total other comprehensive income	(3,625		)	(60		)	5			(3,680		)
Balance at end of period	$	7,690		$	(2,472	)	$	(407	)	$	4,811

Nine Months Ended September 30, 2017
Balance at beginning of period	$	(2,124	)	$	(1,798	)	$	(404	)	$	(4,326	)
Other comprehensive gain(loss) before reclassifications	3,292			(432		)	43			2,903
Less: amounts reclassified from accumulated other comprehensive income	12			—			—			12
Total other comprehensive income	3,280			(432		)	43			2,891
Balance at end of period	$	1,156		$	(2,230	)	$	(361	)	$	(1,435	)

Nine Months Ended September 30, 2016
Balance at beginning of period	$	5,713		$	(1,621	)	$	(463	)	$	3,629
Other comprehensive gain before reclassifications	4,895			(851		)	56			4,100
Less: amounts reclassified from accumulated other comprehensive income	2,918			—			—			2,918
Total other comprehensive income	1,977			(851		)	56			1,182
Balance at end of period	$	7,690		$	(2,472	)	$	(407	)	$	4,811


	Three Months Ended March 31,				Affected Line Item where
(in thousands)	2020		2019		Net Income is Presented
Net realized gains on AFS securities:
Before tax⁽¹⁾	$	135	$	—	Non-interest income
Tax effect		(32)		—	Tax expense
Total reclassifications for the period	$	103	$	—	Net of tax




	Three Months Ended September 30,						Affected Line Item in the Statement where Net Income is Presented
(in thousands)	2017			2016
Realized gains on AFS securities:
	$	19		$	1,354		Non-interest income
	(7		)	(474		)	Tax expense
Total reclassifications for the period	$	12		$	880		Net of tax


	Three Months Ended
	March 31,
(in thousands, except per share and share data)	2020		2019
Net income	$	7,721	$	7,281

Average number of basic common shares outstanding		15,558,132		15,523,423
Plus: dilutive effect of stock options and awards outstanding ⁽¹⁾		34,463		63,226
Average number of diluted common shares outstanding ⁽¹⁾		15,592,595		15,586,649

Anti-dilutive options excluded from earnings calculation		—		—

Earnings per share:
Basic	$	0.50	$	0.47
Diluted	$	0.50	$	0.47



	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share and share data)	2017		2016		2017		2016
Net income	$	8,617	$	3,632	$	19,386	$	12,349

Average number of basic common shares outstanding	15,420,499		9,063,576		15,098,377		9,036,548
Plus: dilutive effect of stock options and awards outstanding	90,026		98,112		105,661		101,009
Average number of diluted common shares outstanding	15,510,525		9,161,688		15,204,038		9,137,557

Anti-dilutive options excluded from earnings calculation	—		101,826		8,247		107,535

Earnings per share:
Basic	$	0.56	$	0.40	$	1.27	$	1.37
Diluted	$	0.56	$	0.40	$	1.27	$	1.35



			Weighted Average Maturity	Estimated Fair Value Asset (Liability)
	Notional Amount		Weighted Average Maturity	Estimated Fair Value Asset (Liability)
	(In thousands)		(In years)	(In thousands)
Cash flow hedges:
Interest rate caps agreements	$	90,000	5.4	$	793
Total cash flow hedges	90,000		5.4	793

Economic hedges:
Forward sale commitments	16,547		0.2	(173		)
Total economic hedges	16,547		0.2	(173		)

Non-hedging derivatives:
Interest rate lock commitments	16,742		0.2	16
Total non-hedging derivatives	16,742		0.2	16

Total	$	123,289		$	636



	September 30, 2017
	Level 1		Level 2		Level 3			Total
(In thousands)	Inputs		Inputs		Inputs			Fair Value
Available for sale securities:
Obligations of US Government sponsored enterprises	$	—	$	6,979	$	—		$	6,979
Mortgage-backed securities:
US Government-sponsored enterprises	—		437,957		—			437,957
US Government agency	—		102,138		—			102,138
Private label	—		719		—			719
Obligations of states and political subdivisions thereof	—		141,982		—			141,982
Corporate bonds	—		28,684		—			28,684
Derivative assets	—		793		16			809
Derivative liabilities	—		—		(173		)	(173		)



	Assets (Liabilities)
	Interest Rate Lock			Forward
(In thousands)	Commitments			Commitments
Three Months Ended September 30, 2017
June 30, 2017	$	(3	)	$	(231	)
Realized gain recognized in non-interest income	19			58
September 30, 2017	$	16		$	(173	)

Nine Months Ended September 30, 2017
December 31, 2016	$	—		$	—
Acquisition of Lake Sunapee Bank, January 13, 2017	96			23
Goodwill adjustment Lake Sunapee Bank Merger	(75		)	(167		)
Realized (loss) recognized in non-interest income	(5		)	(29		)
September 30, 2017	$	16		$	(173	)



(In thousands, except ratios)	Fair Value September 30, 2017			Valuation Techniques	Unobservable Inputs	Significant Unobservable Input Value
Assets (Liabilities)
Interest Rate Lock Commitment	$	16		Historical trend	Closing Ratio	90		%
				Pricing Model	Origination Costs, per loan	$	1.7

Forward Commitments	(173		)	Quoted prices for similar loans in active markets.	Freddie Mac pricing system	Pair-off contract price
Total	$	(157	)

~~Represents net deferred tax assets resulting from the fair value adjustments~~CARES Act, issued in 2020, provided temporary relief related to the ~~acquired assets~~implementation of this accounting guidance until the earlier of the date on which the national emergency concerning the COVID-19 virus terminates or December 31, 2020. The Company has elected to utilize this relief and ~~liabilities, identifiable intangibles,~~has calculated the allowance for loan losses and the resulting provision for loan losses using the prior incurred loss method at March 31, 2020.

Early adoption is permitted.

ASU 2018-14 Compensation- Disclosure Requirements for Defined Pension Plans Topic 715-20

This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other post-retirement benefit plans.

January 1, 2021

Adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

Early adoption is permitted.