SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended:
For the transition period from to
Commission File Number:
001-13349BAR HARBOR BANKSHARES
(Exact name of registrant as specified in its charter)
| | |
Maine | | 01-0393663 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
PO Box 400 | | |
82 Main Street, Bar Harbor, ME | | 04609-0400 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, par value $2.00 per share | | BHB | | NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large"large accelerated filer,” “accelerated filer”" "accelerated filer", “smaller"smaller reporting company”company", or "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)
Large Accelerated Filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes
The Registrant had 15,433,95715,038,746 shares of common stock, par value $2.00 per share, outstanding as of November 3, 2017.July 29, 2022.
FORM 10-Q
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Bar Harbor Bankshares conducts business operations principally through Bar Harbor Bank & Trust, which may be referred to as the “Bank” and which is a subsidiary of Bar Harbor Bankshares. Unless the context requires otherwise, references in this report to “the Company” "our company, "our," "us," and similar terms refer to Bar Harbor Bankshares and its subsidiaries, including the Bank, collectively.
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 we file with the Securities and Exchange Commission, including but not limited to those discussed in the section titled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Because of these and other uncertainties, our actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, our 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. We are 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. We qualify all of our forward-looking statements by these cautionary statements.
3
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| | | | | | |
(in thousands, except share data) |
| June 30, 2022 |
| December 31, 2021 | ||
Assets |
| |
|
| |
|
Cash and cash equivalents: | | | | | | |
Cash and due from banks | | $ | 40,834 | | $ | 33,508 |
Interest-earning deposits with other banks | |
| 26,282 | |
| 216,881 |
Total cash and cash equivalents | |
| 67,116 | |
| 250,389 |
| | | | | | |
Securities: | | | | | | |
Securities available for sale | |
| 586,142 | |
| 618,276 |
Federal Home Loan Bank stock | |
| 6,572 | |
| 7,384 |
Total securities | |
| 592,714 | |
| 625,660 |
| | | | | | |
Loans held for sale | | | 3,539 | | | 5,523 |
| | | | | | |
Total loans | |
| 2,727,274 | |
| 2,531,910 |
Less: Allowance for credit losses | |
| (23,756) | |
| (22,718) |
Net loans | |
| 2,703,518 | |
| 2,509,192 |
| | | | | | |
Premises and equipment, net | |
| 48,350 | |
| 49,382 |
Goodwill | |
| 119,477 | |
| 119,477 |
Other intangible assets | |
| 6,267 | |
| 6,733 |
Cash surrender value of bank-owned life insurance | |
| 80,262 | |
| 79,020 |
Deferred tax assets, net | |
| 18,405 | |
| 5,547 |
Other assets | |
| 76,109 | |
| 58,310 |
Total assets | | $ | 3,715,757 | | $ | 3,709,233 |
| | | | | | |
Liabilities | |
|
| |
|
|
Deposits: | |
|
| |
|
|
Demand | | $ | 670,268 | | $ | 664,420 |
NOW | |
| 883,239 | |
| 940,631 |
Savings | |
| 663,676 | |
| 628,670 |
Money market | |
| 499,456 | |
| 389,291 |
Time | |
| 361,906 | |
| 425,532 |
Total deposits | |
| 3,078,545 | |
| 3,048,544 |
| | | | | | |
Borrowings: | |
|
| |
|
|
Senior | |
| 117,347 | |
| 118,400 |
Subordinated | |
| 60,206 | |
| 60,124 |
Total borrowings | |
| 177,553 | |
| 178,524 |
| | | | | | |
Other liabilities | |
| 66,062 | |
| 58,018 |
Total liabilities | |
| 3,322,160 | |
| 3,285,086 |
| | | | | | |
(continued)
4
(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 |
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (continued)
| | | | | | |
(in thousands, except share data) |
| June 30, 2022 |
| December 31, 2021 | ||
Shareholders’ equity |
| | |
| | |
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares at June 30, 2022 and December 31, 2021 |
| | 32,857 |
| | 32,857 |
Additional paid-in capital |
| | 191,346 |
| | 190,876 |
Retained earnings |
| | 227,698 |
| | 215,592 |
Accumulated other comprehensive (loss) income |
| | (40,971) |
| | 2,303 |
Less: 1,402,291 and 1,427,059 shares of treasury stock at June 30, 2022 and December 31, 2021, respectively |
| | (17,333) |
| | (17,481) |
Total shareholders’ equity |
| | 393,597 |
| | 424,147 |
Total liabilities and shareholders’ equity | | $ | 3,715,757 | | $ | 3,709,233 |
The accompanying notes are an integral part of these consolidated financial statements.
5
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(In thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | |||||||||||
Interest and dividend income | |||||||||||||||
Loans | $ | 24,661 | $ | 10,295 | $ | 70,081 | $ | 30,627 | |||||||
Securities and other | 5,402 | 3,828 | 15,832 | 12,014 | |||||||||||
Total interest and dividend income | 30,063 | 14,123 | 85,913 | 42,641 | |||||||||||
Interest expense | |||||||||||||||
Deposits | 3,177 | 1,755 | 7,926 | 4,931 | |||||||||||
Borrowings | 3,408 | 1,369 | 9,327 | 3,993 | |||||||||||
Total interest expense | 6,585 | 3,124 | 17,253 | 8,924 | |||||||||||
Net interest income | 23,478 | 10,999 | 68,660 | 33,717 | |||||||||||
Provision for loan losses | 660 | 139 | 2,191 | 754 | |||||||||||
Net interest income after provision for loan losses | 22,818 | 10,860 | 66,469 | 32,963 | |||||||||||
Non-interest income | |||||||||||||||
Trust and investment management fee income | 3,040 | 975 | 9,228 | 2,878 | |||||||||||
Insurance and brokerage service income | 329 | — | 1,020 | — | |||||||||||
Customer service fees | 2,638 | 706 | 5,990 | 1,999 | |||||||||||
Gain on sales of securities, net | 19 | 1,354 | 19 | 4,489 | |||||||||||
Bank-owned life insurance income | 380 | 197 | 1,165 | 540 | |||||||||||
Other income | 554 | 140 | 2,043 | 408 | |||||||||||
Total non-interest income | 6,960 | 3,372 | 19,465 | 10,314 | |||||||||||
Non-interest expense | |||||||||||||||
Salaries and employee benefits | 9,617 | 4,832 | 30,065 | 14,648 | |||||||||||
Occupancy and equipment | 2,894 | 1,156 | 8,573 | 3,466 | |||||||||||
Loss on premises and equipment, net | (1 | ) | 216 | 94 | 216 | ||||||||||
Outside services | 907 | 181 | 2,220 | 430 | |||||||||||
Professional services | 428 | 250 | 1,357 | 1,084 | |||||||||||
Communication | 382 | 128 | 1,040 | 492 | |||||||||||
Amortization of intangible assets | 189 | 1 | 534 | 25 | |||||||||||
Acquisition expenses | 346 | 320 | 5,917 | 812 | |||||||||||
Other expenses | 2,824 | 1,666 | 8,663 | 4,305 | |||||||||||
Total non-interest expense | 17,586 | 8,750 | 58,463 | 25,478 | |||||||||||
Income before income taxes | 12,192 | 5,482 | 27,471 | 17,799 | |||||||||||
Income tax expense | 3,575 | 1,850 | 8,085 | 5,450 | |||||||||||
Net income | $ | 8,617 | $ | 3,632 | $ | 19,386 | $ | 12,349 | |||||||
Earnings per share: | |||||||||||||||
Basic | $ | 0.56 | $ | 0.40 | $ | 1.27 | $ | 1.37 | |||||||
Diluted | $ | 0.56 | $ | 0.40 | $ | 1.27 | $ | 1.35 | |||||||
Weighted average common shares outstanding: | |||||||||||||||
Basic | 15,420 | 9,064 | 15,098 | 9,037 | |||||||||||
Diluted | 15,511 | 9,162 | 15,204 | 9,138 |
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
(in thousands, except earnings per share data) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Interest and dividend income | | | | | | | | | | | | | |
Loans | | $ | 24,581 | | $ | 23,191 | | $ | 47,252 | | $ | 47,396 | |
Securities and other | |
| 4,207 | |
| 3,992 | |
| 8,033 | |
| 7,971 | |
Total interest and dividend income | |
| 28,788 | |
| 27,183 | |
| 55,285 | |
| 55,367 | |
Interest expense | |
|
| |
|
| |
|
| |
|
| |
Deposits | |
| 1,195 | |
| 2,603 | |
| 2,384 | |
| 5,554 | |
Borrowings | |
| 1,074 | |
| 1,826 | |
| 2,084 | |
| 3,637 | |
Total interest expense | |
| 2,269 | |
| 4,429 | |
| 4,468 | |
| 9,191 | |
Net interest income | |
| 26,519 | |
| 22,754 | |
| 50,817 | |
| 46,176 | |
Provision for credit losses | |
| 534 | |
| (765) | |
| 911 | |
| (1,254) | |
Net interest income after provision for credit losses | |
| 25,985 | |
| 23,519 | |
| 49,906 | |
| 47,430 | |
| | | | | | | | | | | | | |
Non-interest income | |
|
| |
|
| |
|
| |
|
| |
Trust and investment management fee income | |
| 3,829 | |
| 3,801 | |
| 7,583 | |
| 7,467 | |
Customer service fees | |
| 3,656 | |
| 3,257 | |
| 7,272 | |
| 6,227 | |
Gain on sales of securities, net | |
| — | |
| 50 | |
| 9 | |
| 50 | |
Mortgage banking income | | | 488 | | | 1,553 | | | 1,112 | | | 4,123 | |
Bank-owned life insurance income | |
| 504 | |
| 498 | |
| 1,005 | |
| 1,016 | |
Customer derivative income | |
| 137 | |
| 86 | |
| 155 | |
| 496 | |
Other income | |
| 347 | |
| 260 | |
| 1,134 | |
| 374 | |
Total non-interest income | |
| 8,961 | |
| 9,505 | |
| 18,270 | |
| 19,753 | |
| | | | | | | | | | | | | |
Non-interest expense | |
|
| |
|
| |
|
| |
|
| |
Salaries and employee benefits | |
| 11,368 | |
| 11,356 | |
| 23,515 | |
| 23,532 | |
Occupancy and equipment | |
| 4,373 | |
| 3,894 | |
| 8,796 | |
| 8,222 | |
Loss (gain) on sales of premises and equipment, net | |
| 10 | |
| 1 | |
| (65) | |
| 9 | |
Outside services | |
| 410 | |
| 533 | |
| 750 | |
| 965 | |
Professional services | |
| 528 | |
| 151 | |
| 701 | |
| 709 | |
Communication | |
| 188 | |
| 198 | |
| 413 | |
| 519 | |
Marketing | |
| 369 | |
| 534 | |
| 632 | |
| 824 | |
Amortization of intangible assets | |
| 233 | |
| 233 | |
| 466 | |
| 474 | |
Acquisition, conversion and other expenses | |
| — | |
| 552 | |
| 325 | |
| 1,441 | |
Other expenses | |
| 4,221 | |
| 4,272 | |
| 8,053 | |
| 7,520 | |
Total non-interest expense | |
| 21,700 | |
| 21,724 | |
| 43,586 | |
| 44,215 | |
| | | | | | | | | | | | | |
Income before income taxes | |
| 13,246 | |
| 11,300 | |
| 24,590 | |
| 22,968 | |
Income tax expense | |
| 2,743 | |
| 2,275 | |
| 4,975 | |
| 4,463 | |
Net income | | $ | 10,503 | | $ | 9,025 | | $ | 19,615 | | $ | 18,505 | |
| | | | | | | | | | | | | |
Earnings per share: | |
|
| |
|
| |
|
| |
|
| |
Basic | | $ | 0.70 | | $ | 0.60 | | $ | 1.31 | | $ | 1.24 | |
Diluted | | $ | 0.70 | | $ | 0.60 | | $ | 1.30 | | $ | 1.23 | |
| | | | | | | | | | | | | |
Weighted average common shares outstanding: | |
|
| |
|
| |
|
| |
|
| |
Basic | |
| 15,018 | |
| 14,965 | |
| 15,014 | |
| 14,950 | |
Diluted | |
| 15,077 | |
| 15,042 | |
| 15,094 | |
| 15,026 | |
The accompanying notes are an integral part of these consolidated financial statements.
6
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 |
| Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net income | | $ | 10,503 | | $ | 9,025 | | $ | 19,615 | | $ | 18,505 |
Other comprehensive (loss) income, before tax: | |
|
| |
|
| |
|
| |
|
|
Changes in unrealized (loss) gain on securities available for sale | |
| (23,409) | |
| 3,557 | |
| (52,253) | |
| (3,628) |
Changes in unrealized (loss) gain on hedging derivatives | |
| (1,997) | |
| 120 | |
| (3,878) | |
| 2,514 |
| | | | | | | | | | | | |
Income taxes related to other comprehensive income: | |
|
| |
|
| |
|
| |
|
|
Changes in unrealized loss (gain) on securities available for sale | |
| 5,330 | |
| (830) | |
| 11,964 | |
| 842 |
Changes in unrealized loss (gain) on hedging derivatives | |
| 460 | |
| (28) | |
| 893 | |
| (586) |
Total other comprehensive (loss) income | |
| (19,616) | |
| 2,819 | |
| (43,274) | |
| (858) |
Total comprehensive (loss) income | | $ | (9,113) | | $ | 11,844 | | $ | (23,659) | | $ | 17,647 |
The accompanying notes are an integral part of these consolidated financial statements.
7
(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 |
| | | | | | | | | | | | | | | | | | |
|
| |
| | | |
| | | | 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, 2020 |
| $ | 32,857 | | $ | 190,084 | | $ | 195,607 | | $ | 6,740 | | $ | (18,223) | | $ | 407,065 |
Allowance for credit losses cumulative-effect adjustment - ASU 2016-13 | | | — | | | — | | | (5,242) | | | — | | | — | | | (5,242) |
Net income | |
| — | |
| — | |
| 9,480 | |
| — | |
| — | |
| 9,480 |
Other comprehensive loss | |
| — | |
| — | |
| — | |
| (3,677) | |
| — | |
| (3,677) |
Cash dividends declared ($0.22 per share) | |
| — | |
| — | |
| (3,284) | |
| — | |
| — | |
| (3,284) |
Net issuance (34,049 shares) to employee stock plans, including related tax effects | |
| — | |
| (186) | |
| — | |
| — | |
| 358 | |
| 172 |
Recognition of stock based compensation | |
| — | |
| 666 | |
| — | |
| — | |
| — | |
| 666 |
Balance at March 31, 2021 | | $ | 32,857 | | $ | 190,564 | | $ | 196,561 | | $ | 3,063 | | $ | (17,865) | | $ | 405,180 |
| |
| | | | | | | | | | | | | | | | |
Net income | |
| — | |
| — | |
| 9,025 | |
| — | |
| — | |
| 9,025 |
Other comprehensive income | |
| — | |
| — | |
| — | |
| 2,819 | |
| — | |
| 2,819 |
Cash dividends declared ($0.24 per share) | |
| — | |
| — | |
| (3,592) | |
| — | |
| — | |
| (3,592) |
Net issuance (22,241 shares) to employee stock plans, including related tax effects | |
| — | |
| (94) | |
| — | |
| — | |
| 91 | |
| (3) |
Recognition of stock based compensation | |
| — | |
| 331 | |
| — | |
| — | |
| — | |
| 331 |
Balance at June 30, 2021 | | $ | 32,857 | | $ | 190,801 | | $ | 201,994 | | $ | 5,882 | | $ | (17,774) | | $ | 413,760 |
| | | | | | | | | | | | | | | | | | |
Balance at December 31, 2021 | | $ | 32,857 | | $ | 190,876 | | $ | 215,592 | | $ | 2,303 | | $ | (17,481) | | $ | 424,147 |
Net income | |
| — | |
| — | |
| 9,112 | |
| — | |
| — | |
| 9,112 |
Other comprehensive loss | |
| — | |
| — | |
| — | |
| (23,658) | |
| — | |
| (23,658) |
Cash dividends declared ($0.24 per share) | |
| — | |
| — | |
| (3,603) | |
| — | |
| — | |
| (3,603) |
Net issuance (11,277 shares) to employee stock plans, including related tax effects | |
| — | |
| 436 | |
| — | |
| — | |
| 111 | |
| 547 |
Recognition of stock based compensation | |
| — | |
| 454 | |
| — | |
| — | |
| — | |
| 454 |
Balance at March 31, 2022 | | $ | 32,857 | | $ | 191,766 | | $ | 221,101 | | $ | (21,355) | | $ | (17,370) | | $ | 406,999 |
| | | | | | | | | | | | | | | | | | |
Net income | |
| — | |
| — | |
| 10,503 | |
| — | |
| — | |
| 10,503 |
Other comprehensive loss | |
| — | |
| — | |
| — | |
| (19,616) | |
| — | |
| (19,616) |
Cash dividends declared ($0.26 per share) | |
| — | |
| — | |
| (3,906) | |
| — | |
| — | |
| (3,906) |
Net issuance (13,491 shares) to employee stock plans, including related tax effects | |
| — | |
| (60) | |
| — | |
| — | |
| 37 | |
| (23) |
Recognition of stock based compensation | |
| — | |
| (360) | |
| — | |
| — | |
| — | |
| (360) |
Balance at June 30, 2022 | | $ | 32,857 | | $ | 191,346 | | $ | 227,698 | | $ | (40,971) | | $ | (17,333) | | $ | 393,597 |
| | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
8
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | |
| | Six Months Ended June 30, | ||||
(in thousands) |
| 2022 |
| 2021 | ||
Cash flows from operating activities: |
|
|
| | |
|
Net income |
| $ | 19,615 | | $ | 18,505 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| |
Originations of loans held for sale | | | (30,641) | | | (65,963) |
Proceeds from loan sales | | | 32,323 | | | 68,776 |
Loss (gain) on sale of loans | | | 268 | | | (2,939) |
Provision for credit losses | |
| 911 | |
| (1,254) |
Net amortization of securities | |
| 1,532 | |
| 1,219 |
Change in unamortized net loan costs and premiums | |
| (1,556) | |
| (2,200) |
Premises and equipment depreciation | |
| 2,132 | |
| 2,341 |
Stock-based compensation expense | |
| 94 | |
| 997 |
Accretion of purchase accounting entries, net | |
| — | |
| (45) |
Amortization of other intangibles | |
| 466 | |
| 472 |
Income from cash surrender value of bank-owned life insurance policies | |
| (1,005) | |
| (1,016) |
Gain on sales of securities, net | |
| (9) | |
| (50) |
Amortization of right-of-use lease assets | | | 593 | | | 565 |
Decrease in lease liabilities | | | (563) | | | (520) |
(Gain) loss on premises and equipment, net | |
| (65) | |
| 9 |
Net change in other assets and liabilities | |
| (4,549) | |
| (5,975) |
Net cash provided by operating activities | |
| 19,546 | |
| 12,922 |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Proceeds from sales of securities available for sale | |
| 11,726 | |
| 4,050 |
Proceeds from maturities, calls and prepayments of securities available for sale | |
| 35,844 | |
| 69,900 |
Purchases of securities available for sale | |
| (77,408) | |
| (115,928) |
Net change in loans | |
| (193,953) | |
| 65,116 |
Recoveries of previously charged off loans | | | 272 | | | 214 |
Purchase of FHLB stock | |
| (461) | |
| (790) |
Proceeds from sale of FHLB stock | |
| 1,273 | |
| 681 |
Purchase of premises and equipment, net | |
| (1,138) | |
| (1,008) |
Net investment in community limited partnerships | | | (932) | | | (917) |
Net cash (used in) provided by investing activities | |
| (224,777) | |
| 21,318 |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Net change in deposits | |
| 30,001 | |
| (83,742) |
Net change in short-term senior borrowings | | | 21,000 | | | 14,324 |
Repayments of long-term senior borrowings | | | (21,010) | | | (14) |
Net change in short-term other borrowings | |
| (1,048) | |
| (10,390) |
Net issuance to employee stock plans | | | 524 | | | 169 |
Cash dividends paid on common stock | |
| (7,509) | |
| (6,876) |
Net cash provided by (used in) financing activities | |
| 21,958 | |
| (86,529) |
| | | | | | |
Net change in cash and cash equivalents | |
| (183,273) | |
| (52,289) |
Cash and cash equivalents at beginning of year | |
| 250,389 | |
| 226,007 |
Cash and cash equivalents at end of period | | $ | 67,116 | | $ | 173,718 |
| | | | | | |
Supplemental cash flow information: | |
|
| |
|
|
Interest paid | | $ | 2,128 | | $ | 10,019 |
Income taxes paid, net | |
| 4,418 | |
| 5,622 |
9
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 | — |
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements (the “financial statements”) of Bar Harbor Bankshares and its subsidiaries (the “Company”(“we”, “our” or “Bar Harbor”“us”) 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 our accounts, the accounts of the Company, its wholly-ownedour wholly owned subsidiary Bar Harbor Bank & Trust (the "Bank"“Bank”) and the Bank’s consolidated subsidiaries. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly-ownedwholly owned and majority-ownedmajority owned subsidiaries are consolidated unless U.S. GAAP requires otherwise.
In addition, these interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, certain information and footnote disclosures normally included in financial statements prepared according to U.S. GAAP have been omitted.
The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures forin the Company's Annual Report on Form 10-K for the year ended December 31, 20162021 previously filed with the Securities and Exchange Commission.Commission (the "SEC"). In management's opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented.
Reclassifications: Whenever necessary, amounts in the 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 givenreclassified to the period of time and costs associated with the foreclosure and disposition of the collateral.
Recent Accounting Pronouncements
The following table provides a comprehensive new revenue recognition standardbrief description of recent accounting standards updates (ASU) that will supersede nearly all existing revenue recognition guidance under U.S. GAAP and International Financial Reporting Standards (“IFRS”). 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 - Deferral 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 only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. In addition, the FASB has begun to issue targeted 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 that are accounted for under other U.S. GAAP, the Company does not expect the new guidance to have a material impact on revenue most
| | | | | | | | | |
| | | | | | | | | |
Standard | Description | Required Date | Effect on financial statements | ||||||
Standards Not Yet Adopted | | | | ||||||
ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures | | | The amendments in this update eliminate TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an exisiting loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. | | | January 1, 2023 | | | We do not expect adoption of this ASU to have a material impact on our consolidated financial statements. |
10
(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 |
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 | ||||
June 30, 2022 |
| |
|
| |
|
| |
|
| |
|
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 250,838 | | $ | 126 | | $ | (23,602) | | $ | 227,362 |
US Government agency | |
| 91,284 | |
| 59 | |
| (6,371) | |
| 84,972 |
Private label | |
| 76,132 | |
| 36 | |
| (4,257) | |
| 71,911 |
Obligations of states and political subdivisions thereof | |
| 128,407 | |
| 5,752 | |
| (18,192) | |
| 115,967 |
Corporate bonds | |
| 89,154 | |
| 589 | |
| (3,813) | |
| 85,930 |
Total securities available for sale | | $ | 635,815 | | $ | 6,562 | | $ | (56,235) | | $ | 586,142 |
| | | | | | | | | | | | |
| | | | | Gross | | Gross | | | | ||
| | | | | Unrealized | | Unrealized | | | | ||
(in thousands) |
| Amortized Cost |
| Gains |
| Losses |
| Fair Value | ||||
December 31, 2021 | |
|
| |
|
| |
|
| |
|
|
Mortgage-backed securities: | |
|
| |
|
| |
|
| |
|
|
US Government-sponsored enterprises | | $ | 237,283 | | $ | 2,289 | | $ | (3,455) | | $ | 236,117 |
US Government agency | |
| 79,143 | |
| 1,016 | |
| (522) | |
| 79,637 |
Private label | |
| 68,691 | |
| 142 | |
| (138) | |
| 68,695 |
Obligations of states and political subdivisions thereof | |
| 140,585 | |
| 1,489 | |
| (298) | |
| 141,776 |
Corporate bonds | |
| 89,994 | |
| 2,479 | |
| (422) | |
| 92,051 |
Total securities available for sale | | $ | 615,696 | | $ | 7,415 | | $ | (4,835) | | $ | 618,276 |
Credit Quality Information
We monitor the credit quality of available for sale debt securities through credit ratings from various rating agencies and substantial price changes. Credit ratings express opinions about the credit quality of a security and are utilized us to make informed decisions. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment grade, or significant pricing changes. For securities without credit ratings, we utilize other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security.
As of June 30, 2022 and December 31, 2021 we carried 0 allowance on available for sale debt securities in accordance with ASU 2016-13, Measurement of Credit Losses on Financial Instruments.
The amortized cost and estimated fair value of available for sale (“AFS”) securities segregated by contractual maturity at SeptemberJune 30, 20172022 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 | |
| 29,232 | |
| 28,306 |
Over 5 years to 10 years | |
| 52,870 | |
| 56,054 |
Over 10 years | |
| 135,459 | |
| 117,537 |
Total bonds and obligations | |
| 217,561 | |
| 201,897 |
Mortgage-backed securities | |
| 418,254 | |
| 384,245 |
Total securities available for sale | | $ | 635,815 | | $ | 586,142 |
11
Available for sale | ||||||||
Amortized | Fair | |||||||
(In thousands) | Cost | Value | ||||||
Within 1 year | $ | 3,613 | $ | 3,627 | ||||
Over 1 year to 5 years | 18,499 | 18,735 | ||||||
Over 5 years to 10 years | 73,997 | 75,366 | ||||||
Over 10 years | 620,501 | 620,731 | ||||||
Total securities available for sale | $ | 716,610 | $ | 718,459 |
The following table presents the gains and losses from the sale of AFS securities for the periods presented:
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Gross gains on sales of available for sale securities | | $ | — | | $ | 50 | | $ | 9 | | $ | 50 |
Gross losses on sales of available for sale securities | |
| — | |
| — | |
| — | |
| — |
Net gains on sale of available for sale securities | | $ | — | | $ | 50 | | $ | 9 | | $ | 50 |
Securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:
| | | | | | | | | | | | | | | | | | |
| | Less Than Twelve Months | | Over Twelve Months | | Total | ||||||||||||
| | Gross |
| | |
| Gross |
| | |
| Gross |
| | | |||
| | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | | Fair | ||||||
(in thousands) |
| Losses |
| Value |
| Losses |
| Value |
| Losses |
| Value | ||||||
June 30, 2022 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 15,205 | | $ | 165,870 | | $ | 8,397 | | $ | 50,520 | | $ | 23,602 | | $ | 216,390 |
US Government agency | |
| 5,160 | |
| 67,111 | |
| 1,211 | |
| 9,803 | |
| 6,371 | |
| 76,914 |
Private label | |
| 2,517 | |
| 39,815 | |
| 1,740 | |
| 31,542 | |
| 4,257 | |
| 71,357 |
Obligations of states and political subdivisions thereof | |
| 15,683 | |
| 93,608 | |
| 2,509 | |
| 7,989 | |
| 18,192 | |
| 101,597 |
Corporate bonds | |
| 3,155 | |
| 51,276 | |
| 658 | |
| 6,592 | |
| 3,813 | |
| 57,868 |
Total securities available for sale | | $ | 41,720 | | $ | 417,680 | | $ | 14,515 | | $ | 106,446 | | $ | 56,235 | | $ | 524,126 |
| | | | | | | | | | | | | | | | | | |
| | 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, 2021 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | 1,589 | | $ | 127,780 | | $ | 1,866 | | $ | 39,717 | | $ | 3,455 | | $ | 167,497 |
US Government agency | |
| 381 | |
| 32,628 | |
| 141 | |
| 4,548 | |
| 522 | |
| 37,176 |
Private label | |
| 133 | |
| 44,372 | |
| 5 | |
| 16 | |
| 138 | |
| 44,388 |
Obligations of states and political subdivisions thereof | |
| 187 | |
| 36,878 | |
| 111 | |
| 6,129 | |
| 298 | |
| 43,007 |
Corporate bonds | |
| 94 | |
| 21,358 | |
| 328 | |
| 11,922 | |
| 422 | |
| 33,280 |
Total securities available for sale | | $ | 2,384 | | $ | 263,016 | | $ | 2,451 | | $ | 62,332 | | $ | 4,835 | | $ | 325,348 |
12
Less Than Twelve Months | Over Twelve Months | Total | ||||||||||||||||||||||
(In thousands) | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | ||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Obligations of US Government sponsored enterprises | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
US Government-sponsored enterprises | 1,559 | 150,524 | 2,229 | 64,882 | 3,788 | 215,406 | ||||||||||||||||||
US Government agency | 345 | 48,529 | 256 | 11,880 | 601 | 60,409 | ||||||||||||||||||
Private label | — | 7 | 5 | 134 | 5 | 141 | ||||||||||||||||||
Obligations of states and political subdivisions thereof | 89 | 8,838 | 1,222 | 31,570 | 1,311 | 40,408 | ||||||||||||||||||
Corporate bonds | 2 | 3,038 | — | — | 2 | 3,038 | ||||||||||||||||||
Total securities available for sale | $ | 1,995 | $ | 210,936 | $ | 3,712 | $ | 108,466 | $ | 5,707 | $ | 319,402 | ||||||||||||
December 31, 2016 | ||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Obligations of US Government sponsored enterprises | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
US Government-sponsored enterprises | 4,369 | 197,914 | 496 | 10,120 | 4,865 | 208,034 | ||||||||||||||||||
US Government agency | 472 | 36,941 | 141 | 4,263 | 613 | 41,204 | ||||||||||||||||||
Private label | — | 107 | 11 | 312 | 11 | 419 | ||||||||||||||||||
Obligations of states and political subdivisions thereof | 3,252 | 76,803 | 155 | 3,916 | 3,407 | 80,719 | ||||||||||||||||||
Corporate bonds | — | — | — | — | — | — | ||||||||||||||||||
Total securities available for sale | $ | 8,093 | $ | 311,765 | $ | 803 | $ | 18,611 | $ | 8,896 | $ | 330,376 |
Three Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Estimated credit losses as of June 30, | $ | 1,697 | $ | 1,697 | |||
Reductions for securities paid off during the period | — | — | |||||
Estimated credit losses at end of the period | $ | 1,697 | $ | 1,697 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Estimated credit losses as of prior year-end, | $ | 1,697 | $ | 3,180 | |||
Reductions for securities paid off during the period | — | 1,483 | |||||
Estimated credit losses at end of the period | $ | 1,697 | $ | 1,697 |
We expect to recover itsthe amortized cost basis on all debt securities in itsour AFS portfolio. Furthermore, the Company doeswe do not intend to sell nor does itdo we anticipate that itwe will be required to sell any of its securities in an unrealized loss position as of SeptemberJune 30, 2017,2022, prior to this recovery. The Company’sOur ability and intent to hold these securities until recovery is supported by the Company’sour strong capital and liquidity positions as well as its historically low portfolio turnover.
The following summarizes, by investment security type, the basis for the conclusion that the debtimpact of securities in an unrealized loss position within the Company’s AFS were not other-than-temporarily impairedfor greater than 12 months at SeptemberJune 30, 2017:
US Government-sponsored enterprises
361 out of the total 789526 securities in the Company’sour portfolios of AFS US Government sponsoredGovernment-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 1.7%8.83% of the amortized cost of securities in unrealized loss positions.Thepositions. The Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage Corporation (“FHLMC”) guarantee the contractual cash flows of all of the Company’sour US
US Government agencies
109 out of the total 208160 securities in the Company’sour portfolios of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented 1.0%7.65% 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’sour US governmentGovernment agency securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.
Private label
31 of the total 2635 securities in the Company’sour portfolio of AFS private-labelprivate label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 3.3%5.63% of the amortized cost of securities in unrealized loss positions. Based upon the foregoing considerations, and the expectation that the Company willWe expect to 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
51 of the total 26284 securities in the Company’sour portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 3.1%15.19% of the amortized cost of securities in unrealized loss positions. The CompanyWe 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 feelswe feel the bonds in this portfolio carry minimal risk of default and the Company iswe are appropriately compensated for thatthe risk. There were no material underlying credit downgrades during the quarter. All securities are performing.
Corporate bonds
18 out of 12the total 28 securities in the Company’sour portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents 0.1%6.17% of the amortized cost of bonds in unrealized loss positions. The Company reviewsWe review the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities. The most recent review includes all bond issuers and their current credit ratings, financial performance and capitalization.
13
We evaluate risk characteristics of loans based on regulatory call report code with segmentation based on the underlying collateral for certain 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 multi-family, commercial construction and land, and other commercial real estate classes. Commercial and industrial loans includes loans to commercial businesses, agricultural and other loans to farmers, and tax exempt loans. Residential real estate loans consists of mortgages for 1 to 4 family housing. Consumer loans include home equity loans, indirect auto and other installment lending.
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 |
| | | | | | |
| | June 30, | | December 31, | ||
(in thousands) |
| 2022 |
| 2021 | ||
Commercial construction | | $ | 86,163 | | $ | 56,263 |
Commercial real estate owner occupied | |
| 250,890 | |
| 257,122 |
Commercial real estate non-owner occupied | |
| 1,003,573 | |
| 887,092 |
Tax exempt | |
| 44,439 | |
| 41,280 |
Commercial and industrial | |
| 301,381 | |
| 307,112 |
Residential real estate | |
| 939,730 | |
| 888,263 |
Home equity | |
| 92,949 | |
| 86,657 |
Consumer other | |
| 8,149 | |
| 8,121 |
Total loans | |
| 2,727,274 | |
| 2,531,910 |
Allowance for credit losses | |
| 23,756 | |
| 22,718 |
Net loans | | $ | 2,703,518 | | $ | 2,509,192 |
Total unamortized net costs and premiums included in loan totals were as follows:
| | | | | | |
| | June 30, | | December 31, | ||
(in thousands) |
| 2022 |
| 2021 | ||
Net unamortized loan origination costs | | $ | 4,276 | | $ | 3,014 |
Net unamortized fair value discount on acquired loans | |
| (4,088) | |
| (4,758) |
Total | | $ | 188 | | $ | (1,744) |
We exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of June 30, 2022 and December 31, 2021, accrued interest receivable for loans totaled $9.3 million and $6.3 million, respectively, and is included in the “other assets” line item on the consolidated balance sheets.
The carrying amountCARES Act and subsequent legislation established the Payroll Protection Program (PPP), administered directly by the Small Business Administration (SBA). As of June 30, 2022 and December 31, 2021, we had 5 and 61 PPP loans outstanding, with an outstanding principal balance of $170 thousand and $6.7 million, respectively. PPP loans are included in the commercial and industrial portfolio segment.
Characteristics of each loan portfolio segment are as follows:
Commercial construction - Loans in this segment primarily include raw land, land development and construction of commercial and multifamily residential properties. Collateral values are determined based upon appraisals and evaluations of the acquired loans at September 30, 2017 totaled $1.069 billion. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted forcompleted structure in accordance with ASC 310-30. These purchased credit-impaired loans presently maintain a carrying value of $14.4 million (and a note balance of $19.5 million). Theseestablished policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy guidelines that are more restrictive than on stabilized commercial real estate transactions. Construction loans are evaluatedprimarily paid by the cash flow generated from the completed structure, such as operating leases, rents, or other operating cash flows from the borrower.
Commercial real estate owner occupied and non-owner occupied - Loans in these segments are primarily owner-occupied or income-producing properties. Loans to Real Estate Investment Trusts (REITs) and unsecured loans to developers that closely correlate to the inherent risk in commercial real estate markets are also included. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.
14
Tax Exempt - Loans in this segment primarily include loans to various state and municipal government entities. Loans made in these borrowers may provide us with tax-exempt income. While governed and underwritten similar to commercial loans they do have unique requirements based on established polices. Almost all state and municipal loans are considered a general obligation of the issuing entity. Given the size of many municipal borrowers, borrowings are normally not rated by major rating agencies.
Commercial and industrial loans - Loans consist of revolving and term loan obligations extended to business and corporate enterprises for impairment through the periodic reforecastingpurpose of expectedfinancing working capital and/or capital investment in this segment. Generally loans are secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Some loans in this category may be unsecured or guaranteed by government agencies such as the SBA. Loans are primarily paid by the operating cash flows. Loans considered not impaired at acquisition date had a carrying amountflow of $1.055 billion.
Residential real estate - All loans in this segment are collateralized by one-to-four family homes. Residential real estate loans held in the accretable yield for the acquired loan portfolio that falls under the purview of ASC 310-30,
Three Months Ended September 30, | ||||||||
(In thousands) | 2017 | 2016 | ||||||
Balance at beginning of period | $ | 4,567 | $ | — | ||||
Acquisitions | — | — | ||||||
Reclassification from nonaccretable difference for loans with improved cash flows | 513 | — | ||||||
Accretion | (423 | ) | — | |||||
Balance at end of period | $ | 4,657 | $ | — |
Nine Months Ended September 30, | ||||||||
(In thousands) | 2017 | 2016 | ||||||
Balance at beginning of period | $ | — | $ | — | ||||
Acquisitions | 3,398 | — | ||||||
Reclassification from nonaccretable difference for loans with improved cash flows | 2,257 | — | ||||||
Accretion | (998 | ) | — | |||||
Balance at end of period | $ | 4,657 | $ | — |
(in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | Current | Total Loans | Past Due > 90 days and Accruing | |||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||||||||||
Construction and land development | $ | — | $ | — | $ | 637 | $ | 637 | $ | 33,055 | $ | 33,692 | $ | — | ||||||||||||||
Other commercial real estate | 407 | 121 | 702 | 1,230 | 454,617 | 455,847 | — | |||||||||||||||||||||
Total Commercial Real Estate: | 407 | 121 | 1,339 | 1,867 | 487,672 | 489,539 | — | |||||||||||||||||||||
Commercial and Industrial: | ||||||||||||||||||||||||||||
Other Commercial | 401 | 150 | 159 | 710 | 171,476 | 172,186 | — | |||||||||||||||||||||
Agricultural and other loans to farmers | 600 | 90 | 10 | 700 | 29,783 | 30,483 | — | |||||||||||||||||||||
Tax exempt | — | — | — | — | 40,776 | 40,776 | — | |||||||||||||||||||||
Total Commercial and Industrial: | 1,001 | 240 | 169 | 1,410 | 242,035 | 243,445 | — | |||||||||||||||||||||
Total Commercial Loans: | 1,408 | 361 | 1,508 | 3,277 | 729,707 | 732,984 | — | |||||||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||||||||||
Residential mortgages | 2,904 | 172 | 1,260 | 4,336 | 563,941 | 568,277 | — | |||||||||||||||||||||
Total Residential Real Estate: | 2,904 | 172 | 1,260 | 4,336 | 563,941 | 568,277 | — | |||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||
Home equity | 306 | 25 | 100 | 431 | 50,179 | 50,610 | — | |||||||||||||||||||||
Other consumer | 60 | 21 | 26 | 107 | 7,538 | 7,645 | — | |||||||||||||||||||||
Total Consumer: | 366 | 46 | 126 | 538 | 57,717 | 58,255 | — | |||||||||||||||||||||
— | ||||||||||||||||||||||||||||
Total Loans: | $ | 4,678 | $ | 579 | $ | 2,894 | $ | 8,151 | $ | 1,351,365 | $ | 1,359,516 | $ | — |
(in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | Current | Total Loans | Past Due > 90 days and Accruing | |||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||||||||||
Construction and land development | $ | — | $ | — | $ | — | $ | — | $ | 14,695 | $ | 14,695 | $ | — | ||||||||||||||
Other commercial real estate | 195 | 554 | 1,665 | 2,414 | 401,010 | 403,424 | — | |||||||||||||||||||||
Total Commercial Real Estate: | 195 | 554 | 1,665 | 2,414 | 415,705 | 418,119 | — | |||||||||||||||||||||
Commercial and Industrial: | ||||||||||||||||||||||||||||
Other Commercial | 61 | 45 | 201 | 307 | 103,279 | 103,586 | — | |||||||||||||||||||||
Agricultural and other loans to farmers | 231 | — | — | 231 | 31,577 | 31,808 | — | |||||||||||||||||||||
Tax exempt | — | — | — | — | 15,846 | 15,846 | — | |||||||||||||||||||||
Total Commercial and Industrial: | 292 | 45 | 201 | 538 | 150,702 | 151,240 | — | |||||||||||||||||||||
Total Commercial Loans: | 487 | 599 | 1,866 | 2,952 | 566,407 | 569,359 | — | |||||||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||||||||||
Residential mortgages | 4,484 | 429 | 938 | 5,851 | 500,761 | 506,612 | — | |||||||||||||||||||||
Total Residential Real Estate: | 4,484 | 429 | 938 | 5,851 | 500,761 | 506,612 | — | |||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||
Home equity | — | — | 15 | 15 | 46,906 | 46,921 | — | |||||||||||||||||||||
Other consumer | 103 | 1 | 6 | 110 | 6,062 | 6,172 | — | |||||||||||||||||||||
Total Consumer: | 103 | 1 | 21 | 125 | 52,968 | 53,093 | — | |||||||||||||||||||||
— | ||||||||||||||||||||||||||||
Total Loans: | $ | 5,074 | $ | 1,029 | $ | 2,825 | $ | 8,928 | $ | 1,120,136 | $ | 1,129,064 | $ | — |
(in thousands) | 30-59 Days Past Due | 60-89 Days Past Due | 90 Days or Greater Past Due | Total Past Due | Acquired Credit Impaired | Total Loans | Past Due > 90 days and Accruing | |||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||||||||||
Construction and land development | $ | 20 | $ | 10 | $ | — | $ | 30 | $ | 258 | $ | 15,593 | $ | — | ||||||||||||||
Other commercial real estate | 314 | 25 | 591 | 930 | 9,760 | 288,440 | — | |||||||||||||||||||||
Total Commercial Real Estate: | 334 | 35 | 591 | 960 | 10,018 | 304,033 | — | |||||||||||||||||||||
Commercial and Industrial: | ||||||||||||||||||||||||||||
Other Commercial | 396 | 144 | — | 540 | 917 | 68,090 | 163 | |||||||||||||||||||||
Agricultural and other loans to farmers | — | — | — | — | — | — | — | |||||||||||||||||||||
Tax exempt | — | — | — | — | — | 45,537 | — | |||||||||||||||||||||
Total Commercial and Industrial: | 396 | 144 | — | 540 | 917 | 113,627 | 163 | |||||||||||||||||||||
Total Commercial Loans: | 730 | 179 | 591 | 1,500 | 10,935 | 417,660 | 163 | |||||||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||||||||||
Residential mortgages | 1,089 | 13 | 868 | 1,970 | 3,398 | 584,351 | — | |||||||||||||||||||||
Total Residential Real Estate: | 1,089 | 13 | 868 | 1,970 | 3,398 | 584,351 | — | |||||||||||||||||||||
Consumer: | ||||||||||||||||||||||||||||
Home equity | 388 | 155 | 193 | 736 | 40 | 64,695 | — | |||||||||||||||||||||
Other consumer | 12 | 144 | 49 | 205 | 3 | 2,640 | — | |||||||||||||||||||||
Total Consumer: | 400 | 299 | 242 | 941 | 43 | 67,335 | — | |||||||||||||||||||||
— | ||||||||||||||||||||||||||||
Total Loans: | $ | 2,219 | $ | 491 | $ | 1,701 | $ | 4,411 | $ | 14,376 | $ | 1,069,346 | $ | 163 |
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
(In thousands) | Business Activities Loans | Acquired Loans | Total | Business Activities Loans | Acquired Loans | Total | ||||||||||||||||||
Commercial Real Estate: | ||||||||||||||||||||||||
Construction and land development | $ | 637 | $ | — | $ | 637 | $ | — | $ | — | $ | — | ||||||||||||
Other commercial real estate | 1,238 | 591 | 1,829 | 2,564 | — | 2,564 | ||||||||||||||||||
Total Commercial Real Estate: | 1,875 | 591 | 2,466 | 2,564 | — | 2,564 | ||||||||||||||||||
Commercial and Industrial: | ||||||||||||||||||||||||
Other Commercial | 183 | — | 183 | 284 | — | 284 | ||||||||||||||||||
Agricultural and other loans to farmers | 53 | — | 53 | 31 | — | 31 | ||||||||||||||||||
Tax exempt | — | — | — | — | — | — | ||||||||||||||||||
Total Commercial and Industrial: | 236 | — | 236 | 315 | — | 315 | ||||||||||||||||||
Total Commercial Loans: | 2,111 | 591 | 2,702 | 2,879 | — | 2,879 | ||||||||||||||||||
Residential Real Estate: | ||||||||||||||||||||||||
Residential mortgages | 2,751 | 868 | 3,619 | 3,419 | — | 3,419 | ||||||||||||||||||
Total Residential Real Estate: | 2,751 | 868 | 3,619 | 3,419 | — | 3,419 | ||||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Home equity | 151 | 193 | 344 | 90 | — | 90 | ||||||||||||||||||
Other consumer | 103 | 49 | 152 | 108 | — | 108 | ||||||||||||||||||
Total Consumer: | 254 | 242 | 496 | 198 | — | 198 | ||||||||||||||||||
Total Loans: | $ | 5,116 | $ | 1,701 | $ | 6,817 | $ | 6,496 | $ | — | $ | 6,496 |
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
September 30, 2017 | ||||||||||||||||||||
Loans receivable: | ||||||||||||||||||||
Balance at end of period | ||||||||||||||||||||
Individually evaluated for impairment | $ | 2,585 | $ | 138 | $ | 1,744 | $ | 68 | $ | 4,535 | ||||||||||
Collectively evaluated | 486,954 | 243,307 | 566,533 | 58,187 | 1,354,981 | |||||||||||||||
Total | $ | 489,539 | $ | 243,445 | $ | 568,277 | $ | 58,255 | $ | 1,359,516 |
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
December 31, 2016 | ||||||||||||||||||||
Loans receivable: | ||||||||||||||||||||
Balance at end of period | ||||||||||||||||||||
Individually evaluated for impairment | $ | 4,481 | $ | 486 | $ | 1,709 | $ | 33 | $ | 6,709 | ||||||||||
Collectively evaluated | 413,638 | 150,754 | 504,903 | 53,060 | 1,122,355 | |||||||||||||||
Total | $ | 418,119 | $ | 151,240 | $ | 506,612 | $ | 53,093 | $ | 1,129,064 |
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
September 30, 2017 | ||||||||||||||||||||
Loans receivable: | ||||||||||||||||||||
Balance at end of period | ||||||||||||||||||||
Individually evaluated for impairment | $ | 408 | $ | 470 | $ | 271 | $ | 156 | $ | 1,305 | ||||||||||
Purchased Credit Impaired | 10,018 | 917 | 3,398 | 43 | 14,376 | |||||||||||||||
Collectively evaluated | 293,607 | 112,240 | 580,682 | 67,136 | 1,053,665 | |||||||||||||||
Total | $ | 304,033 | $ | 113,627 | $ | 584,351 | $ | 67,335 | $ | 1,069,346 |
September 30, 2017 | ||||||||||||
(In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||
With no related allowance: | ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||
Commercial real estate other | 1,198 | 1,175 | — | |||||||||
Commercial other | 96 | 97 | — | |||||||||
Agricultural and other loans to farmers | — | — | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | 1,257 | 1,267 | — | |||||||||
Home equity | 13 | 13 | — | |||||||||
Consumer other | — | — | — | |||||||||
With an allowance recorded: | ||||||||||||
Construction and land development | $ | 637 | $ | 2,563 | $ | 59 | ||||||
Commercial real estate other | 750 | 808 | 331 | |||||||||
Commercial other | 42 | 42 | 2 | |||||||||
Agricultural and other loans to farmers | — | — | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | 487 | 487 | 44 | |||||||||
Home equity | 55 | 55 | 55 | |||||||||
Consumer other | — | — | — | |||||||||
Total | ||||||||||||
Commercial real estate | $ | 2,585 | $ | 4,546 | $ | 390 | ||||||
Commercial and industrial | 138 | 139 | 2 | |||||||||
Residential real estate | 1,744 | 1,754 | 44 | |||||||||
Consumer | 68 | 68 | 55 | |||||||||
Total impaired loans | $ | 4,535 | $ | 6,507 | $ | 491 |
September 30, 2017 | ||||||||||||
(In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||
With no related allowance: | ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||
Commercial real estate other | 108 | 107 | — | |||||||||
Commercial other | 470 | 483 | — | |||||||||
Agricultural and other loans to farmers | — | — | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | 271 | 278 | — | |||||||||
Home equity | 156 | 156 | — | |||||||||
Consumer other | — | — | — | |||||||||
With an allowance recorded: | ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||
Commercial real estate other | 300 | 302 | 168 | |||||||||
Commercial other | — | — | — | |||||||||
Agricultural and other loans to farmers | — | — | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | — | — | — | |||||||||
Home equity | — | — | — | |||||||||
Consumer other | — | — | — | |||||||||
Total | ||||||||||||
Commercial real estate | $ | 408 | $ | 409 | $ | 168 | ||||||
Commercial and industrial | 470 | 483 | — | |||||||||
Residential real estate | 271 | 278 | — | |||||||||
Consumer | 156 | 156 | — | |||||||||
Total impaired loans | $ | 1,305 | $ | 1,326 | $ | 168 |
December 31, 2016 | ||||||||||||
(In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||
With no related allowance: | ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||
Commercial real estate other | 2,831 | 2,919 | — | |||||||||
Commercial other | 130 | 130 | — | |||||||||
Agricultural and other loans to farmers | 139 | 139 | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | 1,387 | 1,504 | — | |||||||||
Home equity | 16 | 16 | — | |||||||||
Consumer other | 2 | 2 | — | |||||||||
With an allowance recorded: | ||||||||||||
Construction and land development | $ | — | $ | — | $ | — | ||||||
Commercial real estate other | 1,650 | 3,575 | 193 | |||||||||
Commercial other | 217 | 367 | 173 | |||||||||
Agricultural and other loans to farmers | — | — | — | |||||||||
Tax exempt loans | — | — | — | |||||||||
Residential real estate | 322 | 322 | 49 | |||||||||
Home equity | — | — | — | |||||||||
Consumer other | 15 | 15 | 9 | |||||||||
Total | ||||||||||||
Commercial real estate | $ | 4,481 | $ | 6,494 | $ | 193 | ||||||
Commercial and industrial | 486 | 636 | 173 | |||||||||
Residential real estate | 1,709 | 1,826 | 49 | |||||||||
Consumer | 33 | 33 | 9 | |||||||||
Total impaired loans | $ | 6,709 | $ | 8,989 | $ | 424 |
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||||
(in thousands) | Average Recorded Investment | Cash Basis Interest Income Recognized | Average Recorded Investment | Cash Basis Interest Income Recognized | ||||||||||||
With no related allowance: | ||||||||||||||||
Construction and land development | $ | — | $ | — | $ | — | $ | — | ||||||||
Commercial real estate other | 1,716 | 64 | 2,713 | 131 | ||||||||||||
Commercial other | 99 | 6 | 141 | 2 | ||||||||||||
Agricultural and other loans to farmers | 8 | 1 | 131 | 8 | ||||||||||||
Tax exempt loans | — | — | — | — | ||||||||||||
Residential real estate | 1,245 | 31 | 1,344 | 55 | ||||||||||||
Home equity | 13 | — | 17 | 1 | ||||||||||||
Consumer other | 5 | 2 | — | 1 | ||||||||||||
With an allowance recorded: | ||||||||||||||||
Construction and land development | $ | 637 | $ | — | $ | 928 | $ | — | ||||||||
Commercial real estate other | 693 | — | 551 | — | ||||||||||||
Commercial other | 44 | 1 | 221 | — | ||||||||||||
Agricultural and other loans to farmers | — | — | — | — | ||||||||||||
Tax exempt loans | — | — | — | — | ||||||||||||
Residential real estate | 268 | 5 | 331 | — | ||||||||||||
Home equity | 12 | — | — | — | ||||||||||||
Consumer other | — | — | 17 | — | ||||||||||||
Total | ||||||||||||||||
Commercial real estate | $ | 3,046 | $ | 64 | $ | 4,192 | $ | 131 | ||||||||
Commercial and industrial | 151 | 8 | 493 | 10 | ||||||||||||
Residential real estate | 1,513 | 36 | 1,675 | 55 | ||||||||||||
Consumer | 30 | 2 | 34 | 2 | ||||||||||||
Total impaired loans | $ | 4,740 | $ | 110 | $ | 6,394 | $ | 198 |
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||||
(in thousands) | Average Recorded Investment | Cash Basis Interest Income Recognized | Average Recorded Investment | Cash Basis Interest Income Recognized | ||||||||||||
With no related allowance: | ||||||||||||||||
Construction and land development | $ | — | $ | — | $ | — | $ | — | ||||||||
Commercial real estate other | 89 | — | — | — | ||||||||||||
Commercial other | 171 | — | — | — | ||||||||||||
Agricultural and other loans to farmers | — | — | — | — | ||||||||||||
Tax exempt loans | — | — | — | — | ||||||||||||
Residential real estate | 254 | 1 | — | — | ||||||||||||
Home equity | 47 | — | — | — | ||||||||||||
Consumer other | 9 | — | — | — | ||||||||||||
With an allowance recorded: | ||||||||||||||||
Construction and land development | $ | — | $ | — | $ | — | $ | — | ||||||||
Commercial real estate other | 46 | — | — | — | ||||||||||||
Commercial other | — | — | — | — | ||||||||||||
Agricultural and other loans to farmers | — | — | — | — | ||||||||||||
Tax exempt loans | — | — | — | — | ||||||||||||
Residential real estate | — | — | — | — | ||||||||||||
Home equity | — | — | — | — | ||||||||||||
Consumer other | — | — | — | — | ||||||||||||
Total | ||||||||||||||||
Commercial real estate | $ | 135 | $ | — | $ | — | $ | — | ||||||||
Commercial and industrial | 171 | — | — | — | ||||||||||||
Residential real estate | 254 | 1 | — | — | ||||||||||||
Consumer | 56 | — | — | — | ||||||||||||
Total impaired loans | $ | 616 | $ | 1 | $ | — | $ | — |
Home equity - All loans and lines of credit are made to qualified individuals and are secured by senior or are expectedjunior mortgage liens on owner-occupied one- to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activitiesfour-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and could include reductions in the interest rate, payment extensions, forgivenessis billed as equal payments comprised of principal forbearance,and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.
Consumer other - Loans in this segment include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto loans, recreational equipment, overdraft protection or other actions. Certain TDRs are classifiedconsumer loans. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines, as nonperforming at the timeapplicable.
Allowance for Credit Losses
The Allowance for Credit Losses (ACL) is comprised 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.
Three Months Ended September 30, 2017 | |||||||||||
(Dollars in thousands) | Number of Modifications | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | ||||||||
Troubled Debt Restructurings | |||||||||||
Commercial installment | 5 | $ | 483 | $ | 483 | ||||||
Agricultural and other loans to farmers | — | — | — | ||||||||
Commercial real estate | 4 | 144 | 144 | ||||||||
Residential real estate | — | — | — | ||||||||
Home equity | — | — | — | ||||||||
Consumer other | — | — | — | ||||||||
Total | 9 | $ | 627 | $ | 627 |
Three Months Ended September 30, 2016 | |||||||||||
(Dollars in thousands) | Number of Modifications | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | ||||||||
Troubled Debt Restructurings | |||||||||||
Commercial installment | 2 | $ | 51 | $ | 51 | ||||||
Commercial real estate | 2 | 936 | 915 | ||||||||
Consumer other | 1 | 9 | 9 | ||||||||
Total | 5 | $ | 996 | $ | 975 |
Nine Months Ended September 30, 2017 | |||||||||||
(Dollars in thousands) | Number of Modifications | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | ||||||||
Troubled Debt Restructurings | |||||||||||
Commercial installment | 6 | $ | 563 | $ | 549 | ||||||
Agricultural and other loans to farmers | 1 | 19 | 18 | ||||||||
Commercial real estate | 6 | 388 | 333 | ||||||||
Residential real estate | 3 | 692 | 675 | ||||||||
Home equity | 1 | 13 | 13 | ||||||||
Consumer other | 1 | 38 | 37 | ||||||||
Total | 18 | $ | 1,713 | $ | 1,625 |
Nine Months Ended September 30, 2016 | |||||||||||
(Dollars in thousands) | Number of Modifications | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | ||||||||
Troubled Debt Restructurings | |||||||||||
Commercial installment | 2 | $ | 51 | $ | 51 | ||||||
Agricultural and other loans to farmers | 2 | 30 | 24 | ||||||||
Commercial real estate | 5 | 1,361 | 1,326 | ||||||||
Consumer Other | 1 | 9 | 9 | ||||||||
Total | 10 | $ | 1,451 | $ | 1,410 |
The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged off. The ACL is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans and troubled debt restructurings (TDRs).
15
The activity in the allowance for credit losses for the nine monthsperiods ended September 30, 2017 and 2016are as follows:
| | | | | | | | | | | | | | | |
| | At or for the Three Months Ended June 30, 2022 | |||||||||||||
| | Balance at | | | | | | | | | | | | | |
| | Beginning of | | | | | | | | | | | Balance at | ||
(in thousands) |
| Period | | Charge Offs |
| Recoveries |
| Provision |
| End of Period | |||||
Commercial construction | | $ | 1,001 | | $ | — | | $ | — | | $ | 9 | | $ | 1,010 |
Commercial real estate owner occupied | |
| 2,673 | |
| — | |
| 61 | |
| (12) | |
| 2,722 |
Commercial real estate non-owner occupied | |
| 7,007 | |
| — | |
| — | |
| 354 | |
| 7,361 |
Tax exempt | |
| — | |
| — | |
| — | |
| 105 | |
| 105 |
Commercial and industrial | |
| 4,739 | |
| — | |
| 12 | |
| 69 | |
| 4,820 |
Residential real estate | |
| 6,878 | |
| — | |
| 6 | |
| (78) | |
| 6,806 |
Home equity | |
| 827 | |
| (4) | |
| 15 | |
| 27 | |
| 865 |
Consumer other | |
| 65 | |
| (58) | |
| — | |
| 60 | |
| 67 |
Total | | $ | 23,190 | | $ | (62) | | $ | 94 | | $ | 534 | | $ | 23,756 |
| | | | | | | | | | | | | | | |
| | At or for the Six Months Ended June 30, 2022 | |||||||||||||
| | Balance at | | | | | | | | | | | | | |
| | Beginning of | | | | | | | | | | Balance at | |||
(in thousands) |
| Period | | Charge Offs |
| Recoveries |
| Provision |
| End of Period | |||||
Commercial construction | | $ | 2,111 | | $ | — | | $ | — | | $ | (1,101) | | $ | 1,010 |
Commercial real estate owner occupied | |
| 2,751 | |
| — | |
| 113 | |
| (142) | |
| 2,722 |
Commercial real estate non-owner occupied | |
| 5,650 | |
| — | |
| — | |
| 1,711 | |
| 7,361 |
Tax exempt | |
| 86 | |
| — | |
| — | |
| 19 | |
| 105 |
Commercial and industrial | |
| 5,369 | |
| — | |
| 37 | |
| (586) | |
| 4,820 |
Residential real estate | |
| 5,862 | |
| (15) | |
| 98 | |
| 861 | |
| 6,806 |
Home equity | |
| 814 | |
| (6) | |
| 20 | |
| 37 | |
| 865 |
Consumer other | |
| 75 | |
| (124) | |
| 4 | |
| 112 | |
| 67 |
Total | | $ | 22,718 | | $ | (145) | | $ | 272 | | $ | 911 | | $ | 23,756 |
16
| | | | | | | | | | | | | | | |
| | At or for the Three Months Ended June 30, 2021 | |||||||||||||
| | Balance at | | | | | | | | | | | | | |
| | Beginning of | | | | | | | | | | Balance at | |||
(in thousands) |
| Period | | Charge Offs |
| Recoveries |
| Provision |
| End of Period | |||||
Commercial construction | | $ | 1,792 | | $ | — | | $ | — | | $ | 580 | | $ | 2,372 |
Commercial real estate owner occupied | |
| 3,352 | |
| (108) | |
| 2 | |
| (694) | |
| 2,552 |
Commercial real estate non-owner occupied | |
| 5,902 | |
| — | |
| — | |
| (298) | |
| 5,604 |
Tax exempt | |
| 94 | |
| — | |
| — | |
| (3) | |
| 91 |
Commercial and industrial | |
| 5,040 | |
| (20) | |
| 13 | |
| 192 | |
| 5,225 |
Residential real estate | |
| 6,569 | |
| (21) | |
| 109 | |
| (588) | |
| 6,069 |
Home equity | |
| 823 | |
| (32) | |
| 36 | |
| (5) | |
| 822 |
Consumer other | |
| 81 | |
| (58) | |
| 6 | |
| 51 | |
| 80 |
Total | | $ | 23,653 | | $ | (239) | | $ | 166 | | $ | (765) | | $ | 22,815 |
| | | | | | | | | | | | | | | | | | |
| | | ||||||||||||||||
| | At or for the Six Months Ended June 30, 2021 | ||||||||||||||||
| | Balance at | | | | | | | | | | | | | | | | |
| | Beginning of | | Impact of ASC | | | | | | | | | | | Balance at | |||
(in thousands) |
| Period | | 326 |
| Charge Offs |
| Recoveries |
| Provision |
| End of Period | ||||||
Commercial construction | | $ | 824 | | $ | 1,196 | | $ | — | | $ | 18 | | $ | 334 | | $ | 2,372 |
Commercial real estate owner occupied | |
| 1,783 | |
| 708 | |
| (261) | |
| 2 | |
| 320 | |
| 2,552 |
Commercial real estate non-owner occupied | |
| 7,864 | |
| (2,008) | |
| — | |
| 4 | |
| (256) | |
| 5,604 |
Tax exempt | |
| 58 | |
| 40 | |
| — | |
| — | |
| (7) | |
| 91 |
Commercial and industrial | |
| 3,137 | |
| 2,996 | |
| (20) | | | 14 | |
| (902) | |
| 5,225 |
Residential real estate | |
| 5,010 | |
| 1,732 | |
| (61) | |
| 122 | |
| (734) | |
| 6,069 |
Home equity | |
| 285 | |
| 603 | |
| (54) | |
| 47 | |
| (59) | |
| 822 |
Consumer other | |
| 121 | |
| (39) | |
| (59) | |
| 7 | |
| 50 | |
| 80 |
Total | | $ | 19,082 | | $ | 5,228 | | $ | (455) | | $ | 214 | | $ | (1,254) | | $ | 22,815 |
17
Unfunded Commitments
The allowance for credit losses on unfunded commitments is recognized as a liability (other liabilities on the consolidated balance sheet), with adjustments to the reserve recognized in other non-interest expense in the consolidated statement of operations. The activity in the allowance for credit losses on unfunded commitments for the periods ended was as follows:
Business Activities Loans | At or for the Nine Months Ended September 30, 2017 | |||||||||||||||||||
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
Balance at beginning of period | $ | 5,145 | $ | 1,952 | $ | 2,721 | $ | 601 | $ | 10,419 | ||||||||||
Charged-off loans | (124 | ) | (189 | ) | (226 | ) | (87 | ) | (626 | ) | ||||||||||
Recoveries on charged-off loans | 9 | 7 | 65 | 7 | 88 | |||||||||||||||
Provision/(releases) for loan losses | 310 | 405 | 941 | 40 | 1,696 | |||||||||||||||
Balance at end of period | $ | 5,340 | $ | 2,175 | $ | 3,501 | $ | 561 | $ | 11,577 | ||||||||||
Individually evaluated for impairment | 391 | 2 | 44 | 55 | 492 | |||||||||||||||
Collectively evaluated | 4,949 | 2,173 | 3,457 | 506 | 11,085 | |||||||||||||||
Total | $ | 5,340 | $ | 2,175 | $ | 3,501 | $ | 561 | $ | 11,577 |
Business Activities Loans | At or for the Nine Months Ended September 30, 2016 | |||||||||||||||||||
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
Balance at beginning of period | $ | 4,430 | $ | 1,590 | $ | 2,747 | $ | 672 | $ | 9,439 | ||||||||||
Charged-off loans | (133 | ) | (90 | ) | (141 | ) | (19 | ) | (383 | ) | ||||||||||
Recoveries on charged-off loans | 35 | 200 | 36 | 22 | 293 | |||||||||||||||
Provision/(releases) for loan losses | 719 | 39 | 38 | (42 | ) | 754 | ||||||||||||||
Balance at end of period | $ | 5,051 | $ | 1,739 | $ | 2,680 | $ | 633 | $ | 10,103 | ||||||||||
Individually evaluated for impairment | 100 | 174 | 87 | 10 | 371 | |||||||||||||||
Collectively evaluated | 4,951 | 1,565 | 2,593 | 623 | 9,732 | |||||||||||||||
Total | $ | 5,051 | $ | 1,739 | $ | 2,680 | $ | 633 | $ | 10,103 |
Acquired Loans | At or for the Nine Months Ended September 30, 2017 | |||||||||||||||||||
(In thousands) | Commercial real estate | Commercial and industrial | Residential real estate | Consumer | Total | |||||||||||||||
Balance at beginning of period | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Charged-off loans | (54 | ) | (18 | ) | (31 | ) | (19 | ) | (122 | ) | ||||||||||
Recoveries on charged-off loans | — | — | — | — | — | |||||||||||||||
Provision/(releases) for loan losses | 360 | 49 | 67 | 19 | 495 | |||||||||||||||
Balance at end of period | $ | 306 | $ | 31 | $ | 36 | $ | — | $ | 373 | ||||||||||
Individually evaluated for impairment | 168 | — | — | — | 168 | |||||||||||||||
Collectively evaluated | 138 | 31 | 36 | — | 205 | |||||||||||||||
Total | $ | 306 | $ | 31 | $ | 36 | $ | — | $ | 373 |
| | | | | | |
| | | | | | |
(in thousands) | | Three Months Ended June 30, 2022 |
| Six Months Ended June 30, 2022 | ||
Beginning Balance | | $ | 2,182 | | $ | 2,152 |
Provision for credit losses | |
| 341 | |
| 371 |
Ending Balance | | $ | 2,523 | | $ | 2,523 |
| | | | | | |
(in thousands) | | Three Months Ended June 30, 2021 |
| Six Months Ended June 30, 2021 | ||
Beginning Balance | | $ | 1,819 | | $ | 359 |
Impact of ASC 326 | | | — | | | 1,616 |
Provision for credit losses | |
| 102 | |
| (54) |
Ending Balance | | $ | 1,921 | | $ | 1,921 |
Loan Origination/Risk Management:
Credit Quality Indicators/Classified Loans:
The following are the definitions of the Bank’sour credit quality indicators:
Pass:
Loans
Special Mention: Loans considered having some potential weaknesses, but are considered pass.
Substandard:
18
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
Loss:
Loans
19
The following tables present the Company’sour loans by year of origination, loan segmentation and risk rating at Septemberindicator as of June 30, 20172022 and December 31, 2016:2021:
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
(in thousands) | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total | |||||||
Commercial construction |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Risk rating: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Pass | | $ | 16,952 | | $ | 25,707 | | $ | 31,927 | | $ | 1,011 | | $ | 10,566 | | $ | — | | $ | 86,163 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 16,952 | | $ | 25,707 | | $ | 31,927 | | $ | 1,011 | | $ | 10,566 | | $ | — | | $ | 86,163 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial real estate owner occupied | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 16,947 | | $ | 12,956 | | $ | 24,170 | | $ | 32,907 | | $ | 38,530 | | $ | 115,912 | | $ | 241,422 |
Special mention | |
| — | |
| — | |
| 246 | |
| — | |
| 978 | |
| 1,819 | |
| 3,043 |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| 853 | |
| 5,253 | |
| 6,106 |
Doubtful | | | — | | | — | | | — | | | — | | | 167 | | | 152 | | | 319 |
Total | | $ | 16,947 | | $ | 12,956 | | $ | 24,416 | | $ | 32,907 | | $ | 40,528 | | $ | 123,136 | | $ | 250,890 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial real estate non-owner occupied | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 186,590 | | $ | 247,260 | | $ | 152,249 | | $ | 90,146 | | $ | 37,524 | | $ | 271,359 | | $ | 985,128 |
Special mention | |
| — | |
| — | |
| — | |
| 151 | |
| 978 | |
| 14,830 | |
| 15,959 |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 2,323 | |
| 2,323 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | 163 | | | 163 |
Total | | $ | 186,590 | | $ | 247,260 | | $ | 152,249 | | $ | 90,297 | | $ | 38,502 | | $ | 288,675 | | $ | 1,003,573 |
| | | | | | | | | | | | | | | | | | | | | |
Tax exempt | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 6,899 | | $ | 1,155 | | $ | 290 | | $ | 925 | | $ | 13,543 | | $ | 21,627 | | $ | 44,439 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 6,899 | | $ | 1,155 | | $ | 290 | | $ | 925 | | $ | 13,543 | | $ | 21,627 | | $ | 44,439 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 39,970 | | $ | 69,858 | | $ | 53,091 | | $ | 31,842 | | $ | 9,726 | | $ | 94,725 | | $ | 299,212 |
Special mention | |
| — | |
| — | |
| 60 | |
| 268 | |
| 442 | |
| 312 | |
| 1,082 |
Substandard | |
| — | |
| 58 | |
| 2 | |
| 304 | |
| — | |
| 620 | |
| 984 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | 103 | | | 103 |
Total | | $ | 39,970 | | $ | 69,916 | | $ | 53,153 | | $ | 32,414 | | $ | 10,168 | | $ | 95,760 | | $ | 301,381 |
| | | | | | | | | | | | | | | | | | | | | |
(continued) |
20
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total | |||||||
Residential real estate |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Performing | | $ | 127,436 | | $ | 183,662 | | $ | 114,026 | | $ | 74,866 | | $ | 54,141 | | $ | 380,464 | | $ | 934,595 |
Nonperforming | |
| — | |
| — | |
| — | |
| — | |
| 647 | |
| 4,488 | |
| 5,135 |
Total | | $ | 127,436 | | $ | 183,662 | | $ | 114,026 | | $ | 74,866 | | $ | 54,788 | | $ | 384,952 | | $ | 939,730 |
| | | | | | | | | | | | | | | | | | | | | |
Home equity | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Performing | | $ | 7,850 | | $ | 11,632 | | $ | 10,339 | | $ | 7,898 | | $ | 7,907 | | $ | 46,163 | | $ | 91,789 |
Nonperforming | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 1,160 | |
| 1,160 |
Total | | $ | 7,850 | | $ | 11,632 | | $ | 10,339 | | $ | 7,898 | | $ | 7,907 | | $ | 47,323 | | $ | 92,949 |
| | | | | | | | | | | | | | | | | | | | | |
Consumer other | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Performing | | $ | 3,156 | | $ | 1,879 | | $ | 1,197 | | $ | 472 | | $ | 409 | | $ | 1,028 | | $ | 8,141 |
Nonperforming | |
| — | |
| — | |
| — | |
| — | |
| 6 | |
| 2 | |
| 8 |
Total | | $ | 3,156 | | $ | 1,879 | | $ | 1,197 | | $ | 472 | | $ | 415 | | $ | 1,030 | | $ | 8,149 |
| | | | | | | | | | | | | | | | | | | | | |
Total Loans | | $ | 405,800 | | $ | 554,167 | | $ | 387,597 | | $ | 240,790 | | $ | 176,417 | | $ | 962,503 | | $ | 2,727,274 |
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
(in thousands) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | |||||||
Commercial construction |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Risk rating: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Pass | | $ | 22,866 | | $ | 4,787 | | $ | 19,211 | | $ | 9,399 | | $ | — | | $ | — | | $ | 56,263 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 22,866 | | $ | 4,787 | | $ | 19,211 | | $ | 9,399 | | $ | — | | $ | — | | $ | 56,263 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial real estate owner occupied | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 12,940 | | $ | 25,240 | | $ | 34,782 | | $ | 49,136 | | $ | 19,292 | | $ | 103,144 | | $ | 244,534 |
Special mention | |
| — | |
| — | |
| 760 | |
| — | |
| — | |
| 2,659 | |
| 3,419 |
Substandard | |
| — | |
| — | |
| 1 | |
| 853 | |
| 247 | |
| 7,737 | |
| 8,838 |
Doubtful | | | — | | | — | | | — | | | 167 | | | — | | | 164 | | | 331 |
Total | | $ | 12,940 | | $ | 25,240 | | $ | 35,543 | | $ | 50,156 | | $ | 19,539 | | $ | 113,704 | | $ | 257,122 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial real estate non-owner occupied | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 235,646 | | $ | 172,785 | | $ | 119,326 | | $ | 39,663 | | $ | 136,120 | | $ | 165,329 | | $ | 868,869 |
Special mention | |
| — | |
| — | |
| 174 | |
| — | |
| — | |
| 14,789 | |
| 14,963 |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 3,097 | |
| 3,097 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | 163 | | | 163 |
Total | | $ | 235,646 | | $ | 172,785 | | $ | 119,500 | | $ | 39,663 | | $ | 136,120 | | $ | 183,378 | | $ | 887,092 |
| | | | | | | | | | | | | | | | | | | | | |
Tax exempt | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 1,249 | | $ | 299 | | $ | 968 | | $ | 14,408 | | $ | 5,329 | | $ | 19,027 | | $ | 41,280 |
Special mention | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Substandard | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — |
Total | | $ | 1,249 | | $ | 299 | | $ | 968 | | $ | 14,408 | | $ | 5,329 | | $ | 19,027 | | $ | 41,280 |
| | | | | | | | | | | | | | | | | | | | | |
Commercial and industrial | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Risk rating: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Pass | | $ | 77,608 | | $ | 80,569 | | $ | 33,405 | | $ | 16,457 | | $ | 33,413 | | $ | 61,594 | | $ | 303,046 |
Special mention | |
| — | |
| — | |
| 584 | |
| 468 | |
| 172 | |
| 1,396 | |
| 2,620 |
Substandard | |
| 58 | |
| 3 | |
| 512 | |
| — | |
| 48 | |
| 578 | |
| 1,199 |
Doubtful | | | — | | | — | | | — | | | — | | | 92 | | | 155 | | | 247 |
Total | | $ | 77,666 | | $ | 80,572 | | $ | 34,501 | | $ | 16,925 | | $ | 33,725 | | $ | 63,723 | | $ | 307,112 |
| | | | | | | | | | | | | | | | | | | | | |
(continued) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
21
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 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total | |||||||
Residential real estate |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Performing | | $ | 191,466 | | $ | 120,495 | | $ | 83,044 | | $ | 62,299 | | $ | 59,642 | | $ | 364,482 | | $ | 881,428 |
Nonperforming | |
| — | |
| — | |
| — | |
| 286 | |
| 178 | |
| 6,371 | |
| 6,835 |
Total | | $ | 191,466 | | $ | 120,495 | | $ | 83,044 | | $ | 62,585 | | $ | 59,820 | | $ | 370,853 | | $ | 888,263 |
| | | | | | | | | | | | | | | | | | | | | |
Home equity | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Performing | | $ | 12,770 | | $ | 10,461 | | $ | 9,005 | | $ | 7,855 | | $ | 6,474 | | $ | 38,823 | | $ | 85,388 |
Nonperforming | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 1,269 | |
| 1,269 |
Total | | $ | 12,770 | | $ | 10,461 | | $ | 9,005 | | $ | 7,855 | | $ | 6,474 | | $ | 40,092 | | $ | 86,657 |
| | | | | | | | | | | | | | | | | | | | | |
Consumer other | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Performing | | $ | 2,525 | | $ | 1,659 | | $ | 792 | | $ | 669 | | $ | 92 | | $ | 2,379 | | $ | 8,116 |
Nonperforming | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 5 | |
| 5 |
Total | | $ | 2,525 | | $ | 1,659 | | $ | 792 | | $ | 669 | | $ | 92 | | $ | 2,384 | | $ | 8,121 |
| | | | | | | | | | | | | | | | | | | | | |
Total Loans | | $ | 557,128 | | $ | 416,298 | | $ | 302,564 | | $ | 201,660 | | $ | 261,099 | | $ | 793,161 | | $ | 2,531,910 |
Past Dues
The following is a summary of past due loans for the periods ended:
| | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | ||||||||||||||||
(in thousands) |
| 30-59 |
| 60-89 |
| 90+ |
| Total Past Due |
| Current |
| Total Loans | ||||||
Commercial construction | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 86,163 | | $ | 86,163 |
Commercial real estate owner occupied | |
| 6 | |
| — | |
| — | |
| 6 | |
| 250,884 | |
| 250,890 |
Commercial real estate non-owner occupied | |
| — | |
| — | |
| — | |
| — | |
| 1,003,573 | |
| 1,003,573 |
Tax exempt | |
| — | |
| — | |
| — | |
| — | |
| 44,439 | |
| 44,439 |
Commercial and industrial | |
| 35 | |
| 11 | |
| — | |
| 46 | |
| 301,335 | |
| 301,381 |
Residential real estate | |
| 762 | |
| 1,278 | |
| 1,679 | |
| 3,719 | |
| 936,011 | |
| 939,730 |
Home equity | |
| 346 | |
| 60 | |
| 401 | |
| 807 | |
| 92,142 | |
| 92,949 |
Consumer other | |
| 57 | |
| 1 | |
| 8 | |
| 66 | |
| 8,083 | |
| 8,149 |
Total | | $ | 1,206 | | $ | 1,350 | | $ | 2,088 | | $ | 4,644 | | $ | 2,722,630 | | $ | 2,727,274 |
| | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||||||||
(in thousands) |
| 30-59 |
| 60-89 |
| 90+ |
| Total Past Due |
| Current |
| Total Loans | ||||||
Commercial construction | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 56,263 | | $ | 56,263 |
Commercial real estate owner occupied | |
| 1,190 | |
| 7 | |
| 1 | |
| 1,198 | |
| 255,924 | |
| 257,122 |
Commercial real estate non-owner occupied | |
| — | |
| — | |
| — | |
| — | |
| 887,092 | |
| 887,092 |
Tax exempt | |
| — | |
| — | |
| — | |
| — | |
| 41,280 | |
| 41,280 |
Commercial and industrial | |
| 31 | |
| 318 | |
| 185 | |
| 534 | |
| 306,578 | |
| 307,112 |
Residential real estate | |
| 5,010 | |
| 1,238 | |
| 1,416 | |
| 7,664 | |
| 880,599 | |
| 888,263 |
Home equity | |
| 699 | |
| 149 | |
| 101 | |
| 949 | |
| 85,708 | |
| 86,657 |
Consumer other | |
| 29 | |
| — | |
| 2 | |
| 31 | |
| 8,090 | |
| 8,121 |
Total | | $ | 6,959 | | $ | 1,712 | | $ | 1,705 | | $ | 10,376 | | $ | 2,521,534 | | $ | 2,531,910 |
22
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 |
Non-Accrual Loans
The following is a summary of non-accrual loans for the periods ended:
| | | | | | | | | |
| | June 30, 2022 | |||||||
| | | | | Nonaccrual With No | | 90+ Days Past | ||
(in thousands) |
| Nonaccrual |
| Related Allowance |
| Due and Accruing | |||
Commercial construction | | $ | — | | $ | — | | $ | — |
Commercial real estate owner occupied | |
| 636 | |
| 383 | |
| — |
Commercial real estate non-owner occupied | |
| 595 | |
| 595 | |
| — |
Tax exempt | |
| — | |
| — | |
| — |
Commercial and industrial | |
| 344 | |
| 232 | |
| — |
Residential real estate | |
| 5,135 | |
| 413 | |
| 704 |
Home equity | |
| 1,160 | |
| 287 | |
| 15 |
Consumer other | |
| 8 | |
| — | |
| — |
Total | | $ | 7,878 | | $ | 1,910 | | $ | 719 |
| | | | | | | | | |
| | December 31, 2021 | |||||||
| | | | | Nonaccrual With No | | 90+ Days Past | ||
(in thousands) |
| Nonaccrual |
| Related Allowance |
| Due and Accruing | |||
Commercial construction | | $ | — | | $ | — | | $ | — |
Commercial real estate owner occupied | |
| 783 | |
| 424 | |
| — |
Commercial real estate non-owner occupied | |
| 622 | |
| 459 | |
| — |
Tax exempt | |
| — | |
| — | |
| — |
Commercial and industrial | |
| 677 | |
| 542 | |
| 30 |
Residential real estate | |
| 6,835 | |
| 2,537 | |
| 41 |
Home equity | |
| 1,269 | |
| 305 | |
| 63 |
Consumer other | |
| 5 | |
| — | |
| — |
Total | | $ | 10,191 | | $ | 4,267 | | $ | 134 |
23
Commercial construction and land development | Commercial real estate other | Total commercial real estate | ||||||||||||||||||||||
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||||||||
Grade: | ||||||||||||||||||||||||
Pass | $ | 15,336 | $ | — | $ | 278,134 | $ | — | $ | 293,470 | $ | — | ||||||||||||
Special mention | 233 | — | 2,475 | — | 2,708 | — | ||||||||||||||||||
Substandard | 24 | — | 7,831 | — | 7,855 | — | ||||||||||||||||||
Total | $ | 15,593 | $ | — | $ | 288,440 | $ | — | $ | 304,033 | $ | — |
Commercial other | Agricultural and other loans to farmers | Tax exempt loans | Total commercial and industrial | |||||||||||||||||||||||||||||
(In thousands) | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||||||||||||||
Grade: | ||||||||||||||||||||||||||||||||
Pass | $ | 63,941 | $ | — | $ | — | $ | — | $ | 45,537 | $ | — | $ | 109,478 | $ | — | ||||||||||||||||
Special mention | 2,053 | — | — | — | — | — | 2,053 | — | ||||||||||||||||||||||||
Substandard | 2,096 | — | — | — | — | — | 2,096 | — | ||||||||||||||||||||||||
Total | $ | 68,090 | $ | — | $ | — | $ | — | $ | 45,537 | $ | — | $ | 113,627 | $ | — |
Collateral Dependent Loans
Loans that do not share risk characteristics are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where we have determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and we expect repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.
The following table summarizes information about totalpresents the amortized cost basis of collateral-dependent loans rated Special Mentionby loan portfolio segment for the periods ended.
| | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | ||||||||
(in thousands) |
| Real Estate |
| Other |
| Real Estate |
| Other | ||||
Commercial construction | | $ | — | | $ | — | | $ | — | | $ | — |
Commercial real estate owner occupied | |
| 636 | |
| — | |
| 783 | |
| — |
Commercial real estate non-owner occupied | |
| 595 | |
| — | |
| 622 | |
| — |
Tax exempt | |
| — | |
| — | |
| — | |
| — |
Commercial and industrial | |
| 122 | |
| 222 | |
| 385 | |
| 292 |
Residential real estate | |
| 5,135 | |
| — | |
| 6,835 | |
| — |
Home equity | |
| 1,160 | |
| — | |
| 1,269 | |
| — |
Consumer other | |
| 8 | |
| — | |
| 5 | |
| — |
Total | | $ | 7,656 | | $ | 222 | | $ | 9,899 | | $ | 292 |
Troubled Debt Restructuring Loans
The 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 higherare expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as non-performing at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan. There were 0 modifications qualifying as TDR’s for the three and six months ended June 30, 2022 and 2021.
Foreclosure
Residential mortgage loans collateralized by real estate that are in the process of foreclosure as of SeptemberJune 30, 20172022 and December 31, 2016.2021 totaled $179 thousand and $574 thousand, respectively.
Mortgage Banking
Loans held for sale had at June 30, 2022 and December 31, 2021 had an unpaid principal balance of $3.5 million and $5.4 million, respectively. The table below includes consumerinterest rate exposure on loans thatheld for sale are special mentionmitigated through forward delivery commitments with certain approved secondary market investors. Forward delivery commitments had a notional amount of $7.0 million, and substandard accruing that$16.6 million at June 30, 2022 and December 31, 2021, respectively. Refer to Note 8 for further discussion of forward delivery commitments.
For the three months ended June 30, 2022 and 2021, we sold $11.1 million and $56.1 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $150 thousand and $1.0 million, respectively. For the six months ended June 30, 2022 and 2021, we sold $31.9 million and $125.4 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $333 thousand and $2.9 million, respectively.
We sell residential loans on the secondary market while primarily retaining the servicing of these loans. Servicing sold loans helps to maintain customer relationships and earn fees over the servicing period. Loans serviced for others are classifiednot included in the above table as performing based on payment activity.accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to level of prepayments that result from shifts in interest rates. We obtain third party valuations of our servicing assets portfolio quarterly, and the assumptions are reflected in Fair Value disclosures.
24
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
(In thousands) | Business Activities Loans | Acquired Loans | Total | Business Activities Loans | Acquired Loans | Total | ||||||||||||||||||
Non-accrual | $ | 5,116 | $ | 3,452 | $ | 8,568 | $ | 2,733 | $ | — | $ | 2,733 | ||||||||||||
Substandard accruing | 15,774 | 9,627 | 25,401 | 20,368 | — | 20,368 | ||||||||||||||||||
Total classified | 20,890 | 13,079 | 33,969 | 23,101 | — | 23,101 | ||||||||||||||||||
Special mention | 8,864 | 4,762 | 13,626 | 8,669 | — | 8,669 | ||||||||||||||||||
Total Criticized | $ | 29,754 | $ | 17,841 | $ | 47,595 | $ | 31,770 | $ | — | $ | 31,770 |
Borrowed funds at SeptemberJune 30, 20172022 and December 31, 20162021 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 | % |
| | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
| |||||||
| | | | | Weighted | | | | | Weighted | | |
(dollars in thousands) |
| Carrying Value |
| Average Rate | | Carrying Value |
| Average Rate |
| |||
Short-term borrowings | |
| | |
| | |
| | |
|
|
Advances from the FHLB | | $ | 96,000 |
| 1.22 | % | | $ | 75,000 |
| 0.30 | % |
Other borrowings | |
| 18,754 |
| 0.12 | | |
| 19,802 |
| 0.17 | |
Total short-term borrowings | |
| 114,754 |
| 0.43 | | |
| 94,802 |
| 0.21 | |
Long-term borrowings | |
|
|
|
| | |
|
|
|
| |
Advances from the FHLB | |
| 2,593 |
| 0.20 | | |
| 23,598 |
| 1.08 | |
Subordinated borrowings | |
| 60,206 |
| 4.70 | | |
| 60,124 |
| 4.34 | |
Total long-term borrowings | |
| 62,799 |
| 4.51 | | |
| 83,722 |
| 3.42 | |
Total | | $ | 177,553 |
| 1.07 | % | | $ | 178,524 |
| 0.91 | % |
Short-term debt includes Federal Home Loan Bank of Boston (“FHLBB”)(FHLB) advances with an originala remaining maturity of less than one year. The BankWe also maintainsmaintain a
We have the capacity to borrow funds on a secured basis utilizing the Borrower in Custody program and the Discount Window at the Federal Reserve Bank of Boston (the “FRB”). At SeptemberJune 30, 2017, the Bank’s2022, our available secured line of credit at the FRB was $114.6$82.7 million. The Bank hasWe have pledged certain loans and securities to the FRB to support this arrangement. There were no0 borrowings with the FRB for the periods ended SeptemberJune 30, 20172022 and December 31, 2016.
We maintain, 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 June 30, 2022 and December 31, 2021. There was 0 outstanding balance on the line of credit as of June 30, 2022 and December 31, 2021.
Long-term FHLBBFHLB advances consist of advances with a remaining maturity of more than one year. The advances outstanding at SeptemberJune 30, 20172022 include 0 callable advances totaling $27.0 million, and amortizing advances totaling $689of $291 thousand. The advances outstanding at December 31, 2016 include2021 included $20.0 million of callable advances totaling $17.0 million, and no$298 thousand of amortizing advances. All FHLBBFHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.
A summary of maturities of FHLBBFHLB advances as of SeptemberJune 30, 20172022 is, as follows:
September 30, 2017 | |||||||
(in thousands, except rates) | Carrying Value | Weighted Average Rate | |||||
Fixed rate advances maturing: | |||||||
2017 | $ | 416,000 | 1.32 | % | |||
2018 | 165,805 | 1.49 | |||||
2019 | 104,947 | 1.63 | |||||
2020 | 29,911 | 1.76 | |||||
2021 | 1,630 | 1.49 | |||||
2022 and thereafter | 15,689 | 0.36 | |||||
Total FHLBB advances | $ | 733,982 | 1.40 | % |
| | | | | | |
|
| | |
| Weighted Average |
|
(in thousands, except rates) | | Amount | | Rate |
| |
2022 | | $ | 95,000 |
| 1.23 | % |
2023 | |
| 1,000 |
| — | |
2024 | |
| 2,300 |
| — | |
2025 | |
| — |
| — | |
2026 | |
| — |
| — | |
2027 and thereafter | |
| 293 |
| 1.82 | |
Total FHLB advances | | $ | 98,593 |
| 1.19 | % |
We have a Subordinated Note Purchase Agreement between and among Lake Sunapee Bank Group and certain accredited investors pursuant to which Lake Sunapee Bank Group issuedwith an aggregate of $17.0$40.0 million of subordinated notes (the “Notes”"Notes") to the accredited investors.investors on November 26, 2019. The Notes have a maturity date of NovemberDecember 1, 2029 and bear a fixed interest rate of 4.63% through December 1, 2024 payable semi-annually in arrears. From December 1, 2024 and will bearthereafter the interest at a fixed rate shall be reset quarterly to an interest rate per annum equal to the then current three-month Secured
25
Overnight Financing Rate ("SOFR") plus 3.27%. We have the option beginning with the interest payment date of NovemberDecember 1, 2019,2024, and on any interestscheduled payment date thereafter, to redeem the Notes, in whole or in part at par plus accrued and unpaid interest to the date of redemption. Any partial redemption will be made pro rata among allupon prior approval of the noteholders.Federal Reserve. The Notestransaction included debt issuance costs of $415 thousand as of June 30, 2022 and $496 thousand net of amortization as of December 31, 2021, that are not subject to repayment atnetted against the option of the noteholders. The Notes are unsecured, subordinated obligations of the Company and rank juniordebt.
We also have $20.6 million in right of payment to the Company’s senior indebtedness and to the Company’s obligations to its general creditors.
Repurchase Agreements
We can raise additional liquidity by entering into repurchase agreements at our discretion. In a security repurchase agreement transaction, we will generally sell a security, agreeing to repurchase either the same or substantially identical security on a specified later date, at a greater price than the original sales price. The difference between the sale price and purchase price is the cost of the proceeds, which is recorded as interest expense on the consolidated statements of income. The securities underlying the agreements are delivered to counterparties as security for the repurchase obligations. Since the securities are treated as collateral and the agreement does not qualify for a full transfer of effective control, the transactions do not meet the criteria to be classified as sales, and are therefore considered secured borrowing transactions for accounting purposes. Payments on such borrowings are interest only until the scheduled repurchase date. In a repurchase agreement we are subject to the risk that the purchaser may default at maturity and not return the securities underlying the agreements. In order to minimize this potential risk, we either deal with established firms when entering into these transactions or with customers whose agreements stipulate that the securities underlying the agreement are not delivered to the customer and instead are held in segregated safekeeping accounts by our safekeeping agents.
| | | | | | |
(in thousands) | | June 30, 2022 | | December 31, 2021 | ||
Customer Repurchase Agreements |
| |
| |
|
|
US Government-sponsored enterprises | | $ | 18,754 | | $ | 19,802 |
Total | | $ | 18,754 | | $ | 19,802 |
26
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) |
| June 30, 2022 |
| December 31, 2021 | ||
Time less than $100,000 | | $ | 172,679 | | $ | 181,586 |
Time $100,000 through $250,000 | |
| 128,676 | |
| 169,645 |
Time $250,000 or more | |
| 60,551 | |
| 74,301 |
Total | | $ | 361,906 | | $ | 425,532 |
At June 30, 2022 and December 31, 2021, the scheduled maturities by year for time deposits are, as follows:
| | | | | | |
(in thousands) |
| June 30, 2022 | | December 31, 2021 | ||
Within 1 year | | $ | 288,071 | | $ | 318,692 |
Over 1 year to 2 years | |
| 46,247 | |
| 71,247 |
Over 2 years to 3 years | |
| 13,945 | |
| 18,201 |
Over 3 years to 4 years | |
| 6,745 | |
| 8,498 |
Over 4 years to 5 years | |
| 5,505 | |
| 6,751 |
Over 5 years | |
| 1,393 | |
| 2,143 |
Total | | $ | 361,906 | | $ | 425,532 |
Included in time deposits are brokered deposits of $362.7$15.7 million and $237.9$16.1 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively. IncludedAlso included in the deposit balances contained on the balance sheettime deposits are reciprocal deposits of $49.3$12.1 million and $43.1$17.3 million at SeptemberJune 30, 20172022 and December 31, 2016,2021, respectively.
27
NOTE 8.6. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY
The actual and required capital ratios wereare, 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 |
| | | | | | | | | | | | |
| | June 30, 2022 | | |||||||||
| | | | | | | | Regulatory Minimum to | | |||
| | Actual | | be "Well-Capitalized" | | |||||||
(in thousands, except ratios) |
| Amount |
| Ratio | | Amount |
| Ratio | | |||
Company (consolidated) | | | | | | | | | | |
| |
Total capital to risk-weighted assets | | $ | 395,301 | | 13.76 | % | | $ | 287,216 | | 10.00 | % |
Common equity tier 1 capital to risk-weighted assets | |
| 308,825 | | 10.75 | | |
| 186,691 | | 6.50 | |
Tier 1 capital to risk-weighted assets | |
| 329,445 | | 11.47 | | |
| 299,773 | | 8.00 | |
Tier 1 capital to average assets | |
| 329,445 | | 9.16 | | |
| 179,785 | | 5.00 | |
| | | | | | | | | | | | |
Bank | | | | | | | | | | | | |
Total capital to risk-weighted assets | | $ | 389,279 | | 13.57 | % | | $ | 286,882 | | 10.00 | % |
Common equity tier 1 capital to risk-weighted assets | |
| 363,423 | | 12.67 | | |
| 186,474 | | 6.50 | |
Tier 1 capital to risk-weighted assets | |
| 363,423 | | 12.67 | | |
| 229,506 | | 8.00 | |
Tier 1 capital to average assets | |
| 363,423 | | 10.12 | | |
| 179,637 | | 5.00 | |
| | | | | | | | | | | | |
| | December 31, 2021 | | |||||||||
| | | | | | | | Regulatory Minimum to | | |||
| | Actual | | be "Well-Capitalized" | | |||||||
(in thousands, except ratios) |
| Amount |
| Ratio | | Amount |
| Ratio | | |||
Company (consolidated) | | | | | | | | | | |
| |
Total capital to risk-weighted assets | | $ | 380,690 | | 14.31 | % | | $ | 265,997 | | 10.00 | % |
Common equity tier 1 capital to risk-weighted assets | |
| 295,635 | | 11.11 | | |
| 172,898 | | 6.50 | |
Tier 1 capital to risk-weighted assets | |
| 316,255 | | 11.89 | | |
| 212,798 | | 8.00 | |
Tier 1 capital to average assets | |
| 316,255 | | 8.66 | | |
| 182,536 | | 5.00 | |
| | | | | | | | | | | | |
Bank | | | | | | | | | | | | |
Total capital to risk-weighted assets | | $ | 375,435 | | 14.13 | % | | $ | 265,733 | | 10.00 | % |
Common equity tier 1 capital to risk-weighted assets | |
| 351,000 | | 13.21 | | |
| 172,726 | | 6.50 | |
Tier 1 capital to risk-weighted assets | |
| 351,000 | | 13.21 | | |
| 212,586 | | 8.00 | |
Tier 1 capital to average assets | |
| 351,000 | | 9.62 | | |
| 182,396 | | 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.
The Company and the Bank becameare subject to the Basel III rule that requires the Company and the Bank to assess their Common equity tier 1 capital to risk weightedrisk-weighted assets and the Company and the Bank each exceed the minimum to be well capitalized. In addition, the final capital rules added a requirement to maintain a minimum conservation buffer, composed of common equity tier 1 capital, of 2.5% of risk-weighted assets, to be phased in over three years and applied to the common equity tier 1 risk-based capital ratio, the Tier 1 risk-based capital ratio and the Total risk-based capital ratio. Accordingly, banking organizations, on a fully phased in basis no later than"well-capitalized." Effective January 1, 2019 all banking organizations must maintain a minimum Common equity tier 1 risk-based capital ratio of 7.0%6.5%, a minimum Tier 1 risk-based capital ratio of 8.5%8.0% and a minimum Total risk-based capital ratio of 10.5%10.0%.
28
Components of accumulated other comprehensive income is, as follows:
(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 | ) |
| | | | | | |
(in thousands) |
| June 30, 2022 |
| December 31, 2021 | ||
Accumulated other comprehensive income, before tax: |
| |
|
| |
|
Net unrealized (loss) gain on AFS securities | | $ | (49,673) | | $ | 2,580 |
Net unrealized (loss) gain on hedging derivatives | |
| (2,748) | |
| 1,130 |
Net unrealized loss on post-retirement plans | |
| (718) | |
| (718) |
| | | | | | |
Income taxes related to items of accumulated other comprehensive income: | |
|
| |
|
|
Net unrealized loss (gain) on AFS securities | |
| 11,369 | |
| (595) |
Net unrealized loss (gain) on hedging derivatives | |
| 633 | |
| (260) |
Net unrealized loss on post-retirement plans | |
| 166 | |
| 166 |
Accumulated other comprehensive (loss) income | | $ | (40,971) | | $ | 2,303 |
The following tablestable presents the components of other comprehensive income (loss) for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:
| | | | | | | | | |
|
| 2022 | |||||||
(in thousands) |
| Before Tax |
| Tax Effect |
| Net of Tax | |||
Three Months Ended June 30, 2022 |
| |
|
| |
|
| |
|
Net unrealized loss on AFS securities: |
| |
|
| |
|
| |
|
Net unrealized loss arising during the period | | $ | (23,409) | | $ | 5,330 | | $ | (18,079) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on AFS securities | |
| (23,409) | |
| 5,330 | |
| (18,079) |
| | | | | | | | | |
Net unrealized loss on hedging derivatives: | |
|
| |
|
| |
| |
Net unrealized loss arising during the period | |
| (1,997) | |
| 460 | |
| (1,537) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on cash flow hedging derivatives | |
| (1,997) | |
| 460 | |
| (1,537) |
| | | | | | | | | |
Net unrealized loss on post-retirement plans: | |
|
| |
|
| |
| |
Net unrealized loss arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive loss | | $ | (25,406) | | $ | 5,790 | | $ | (19,616) |
| | | | | | | | | |
Three Months Ended June 30, 2021 | |
|
| |
|
| |
|
|
Net unrealized gain on AFS securities: | |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | | $ | 3,607 | | $ | (842) | | $ | 2,765 |
Less: reclassification adjustment for gains (losses) realized in net income | |
| 50 | |
| (12) | |
| 38 |
Net unrealized gain on AFS securities | |
| 3,557 | |
| (830) | |
| 2,727 |
| | | | | | | | | |
Net unrealized gain on derivative hedgess: | |
|
| |
|
| |
| |
Net unrealized gain arising during the period | |
| 120 | |
| (28) | |
| 92 |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized gain on cash flow derivative hedges | |
| 120 | |
| (28) | |
| 92 |
| | | | | | | | | |
Net unrealized loss on post-retirement plans: | |
|
| |
|
| |
| |
Net unrealized loss arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive income | | $ | 3,677 | | $ | (858) | | $ | 2,819 |
29
(In thousands) | Before Tax | Tax Effect | Net of Tax | |||||||||
Three Months Ended September 30, 2017 | ||||||||||||
Net unrealized holding gain on AFS securities: | x | |||||||||||
Net unrealized gain arising during the period | $ | 531 | $ | (199 | ) | $ | 332 | |||||
Less: reclassification adjustment for gains (losses) realized in net income | 19 | (7 | ) | 12 | ||||||||
Net unrealized holding gain on AFS securities | 512 | (192 | ) | 320 | ||||||||
Net unrealized loss on cash flow hedging derivatives: | ||||||||||||
Net unrealized loss arising during the period | (84 | ) | 31 | (53 | ) | |||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized gain on cash flow hedging derivatives | (84 | ) | 31 | (53 | ) | |||||||
Net unrealized holding loss on post-retirement plans: | ||||||||||||
Net unrealized gain/(loss) arising during the period | 5 | (2 | ) | 3 | ||||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized holding gain/(loss) on post-retirement plans | 5 | (2 | ) | 3 | ||||||||
Other comprehensive income | $ | 433 | $ | (163 | ) | $ | 270 | |||||
Three Months Ended September 30, 2016 | ||||||||||||
Net unrealized holding gains on AFS securities: | ||||||||||||
Net unrealized gains arising during the period | $ | (4,223 | ) | $ | 1,478 | $ | (2,745 | ) | ||||
Less: reclassification adjustment for gains realized in net income | 1,354 | (474 | ) | 880 | ||||||||
Net unrealized holding gains on AFS securities | (5,577 | ) | 1,952 | (3,625 | ) | |||||||
Net unrealized (loss) on cash flow hedging derivatives: | ||||||||||||
Net unrealized (loss) arising during the period | (92 | ) | 32 | (60 | ) | |||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized (loss) on cash flow hedging derivatives | (92 | ) | 32 | (60 | ) | |||||||
Net unrealized holding gain on post-retirement plans: | ||||||||||||
Net unrealized gain arising during the period | 8 | (3 | ) | 5 | ||||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized holding gain on post-retirement plans | 8 | (3 | ) | 5 | ||||||||
Other comprehensive income | $ | (5,661 | ) | $ | 1,981 | $ | (3,680 | ) |
| | | | | | | | | |
(in thousands) |
| Before Tax |
| Tax Effect |
| Net of Tax | |||
Six Months Ended June 30, 2022 |
| |
|
| |
|
| |
|
Net unrealized loss on AFS securities: |
| |
|
| |
|
| |
|
Net unrealized loss arising during the period | | $ | (52,244) | | $ | 11,962 | | $ | (40,282) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| 9 | |
| (2) | |
| 7 |
Net unrealized loss on AFS securities | |
| (52,253) | |
| 11,964 | |
| (40,289) |
| | | | | | | | | |
Net unrealized loss on hedging derivatives: | |
| | |
|
| |
|
|
Net unrealized loss arising during the period | |
| (3,878) | |
| 893 | |
| (2,985) |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized gain on hedging derivatives | |
| (3,878) | |
| 893 | |
| (2,985) |
| | | | | | | | | |
Net unrealized loss on post-retirement plans: | |
|
| |
|
| |
|
|
Net unrealized loss arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive loss | | $ | (56,131) | | $ | 12,857 | | $ | (43,274) |
| | | | | | | | | |
Six Months Ended June 30, 2021 | |
|
| |
|
| |
|
|
Net unrealized loss on AFS securities: | |
|
| |
|
| |
|
|
Net unrealized loss arising during the period | | $ | (3,578) | | $ | 830 | | $ | (2,748) |
Less: reclassification adjustment for gains realized in net income | |
| 50 | |
| (12) | |
| 38 |
Net unrealized loss on AFS securities | |
| (3,628) | |
| 842 | |
| (2,786) |
| | | | | | | | | |
Net unrealized gain on hedging derivatives: | |
|
| |
|
| |
|
|
Net unrealized gain arising during the period | |
| 2,516 | |
| (588) | |
| 1,928 |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized gain on cash flow hedging derivatives | |
| 2,516 | |
| (588) | |
| 1,928 |
| | | | | | | | | |
Net unrealized loss on post-retirement plans: | |
|
| |
|
| |
|
|
Net unrealized loss arising during the period | |
| — | |
| — | |
| — |
Less: reclassification adjustment for gains (losses) realized in net income | |
| — | |
| — | |
| — |
Net unrealized loss on post-retirement plans | |
| — | |
| — | |
| — |
Other comprehensive income | | $ | (1,112) | | $ | 254 | | $ | (858) |
30
(In thousands) | Before Tax | Tax Effect | Net of Tax | |||||||||
Nine Months Ended September 30, 2017 | ||||||||||||
Net unrealized holding gain on AFS securities: | x | |||||||||||
Net unrealized gain arising during the period | $ | 5,138 | $ | (1,846 | ) | $ | 3,292 | |||||
Less: reclassification adjustment for gains (losses) realized in net income | 19 | (7 | ) | 12 | ||||||||
Net unrealized holding gain on AFS securities | 5,119 | (1,839 | ) | 3,280 | ||||||||
Net unrealized loss on cash flow hedging derivatives: | ||||||||||||
Net unrealized loss arising during the period | (805 | ) | 373 | (432 | ) | |||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized gain on cash flow hedging derivatives | (805 | ) | 373 | (432 | ) | |||||||
Net unrealized holding loss on post-retirement plans: | ||||||||||||
Net unrealized gain arising during the period | 45 | (2 | ) | 43 | ||||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized holding gain on post-retirement plans | 45 | (2 | ) | 43 | ||||||||
Other comprehensive income | $ | 4,359 | $ | (1,468 | ) | $ | 2,891 | |||||
Nine Months Ended September 30, 2016 | ||||||||||||
Net unrealized holding gains on AFS securities: | ||||||||||||
Net unrealized gains arising during the period | $ | 7,530 | $ | (2,635 | ) | $ | 4,895 | |||||
Less: reclassification adjustment for gains realized in net income | 4,489 | (1,571 | ) | 2,918 | ||||||||
Net unrealized holding gains on AFS securities | 3,041 | (1,064 | ) | 1,977 | ||||||||
Net unrealized (loss) on cash flow hedging derivatives: | ||||||||||||
Net unrealized (loss) arising during the period | (1,309 | ) | 458 | (851 | ) | |||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized (loss) on cash flow hedging derivatives | (1,309 | ) | 458 | (851 | ) | |||||||
Net unrealized holding gain on post-retirement plans: | ||||||||||||
Net unrealized gain arising during the period | 86 | (30 | ) | 56 | ||||||||
Less: reclassification adjustment for gains (losses) realized in net income | — | — | — | |||||||||
Net unrealized holding gain on post-retirement plans | 86 | (30 | ) | 56 | ||||||||
Other comprehensive income | $ | 1,818 | $ | (636 | ) | $ | 1,182 |
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax impacts, for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:
| | | | | | | | | | | | |
|
| 2022 | ||||||||||
|
| Net unrealized |
| Net gain (loss) on |
| Net unrealized |
| | | |||
| | gain (loss) | | effective cash | | loss | | | | |||
| | on AFS | | flow hedging | | on pension | | | | |||
(in thousands) | | Securities | | derivatives | | plans | | Total | ||||
Three Months Ended June 30, 2022 | |
| | |
| | |
| | |
| |
Balance at beginning of period | | $ | (20,225) | | $ | (578) | | $ | (552) | | $ | (21,355) |
Other comprehensive loss before reclassifications | |
| (18,079) | |
| (1,537) | |
| 0 | |
| (19,616) |
Less: amounts reclassified from accumulated other comprehensive income | |
| 0 | |
| 0 | |
| 0 | |
| 0 |
Total other comprehensive income | |
| (18,079) | |
| (1,537) | |
| 0 | |
| (19,616) |
Balance at end of period | | $ | (38,304) | | $ | (2,115) | | $ | (552) | | $ | (40,971) |
| | | | | | | | | | | | |
Three Months Ended June 30, 2021 | |
|
| |
|
| |
|
| |
| |
Balance at beginning of period | | $ | 4,510 | | $ | (30) | | $ | (1,418) | | $ | 3,062 |
Other comprehensive gain before reclassifications | |
| 2,765 | |
| 92 | |
| 0 | |
| 2,857 |
Less: amounts reclassified from accumulated other comprehensive income | |
| 38 | |
| 0 | |
| 0 | |
| 38 |
Total other comprehensive income | |
| 2,727 | |
| 92 | |
| 0 | |
| 2,819 |
Balance at end of period | | $ | 7,237 | | $ | 62 | | $ | (1,418) | | $ | 5,881 |
| | | | | | | | | | | | |
Six Months Ended June 30, 2022 | |
|
| |
|
| |
|
| |
| |
Balance at beginning of period | | $ | 1,985 | | $ | 870 | | $ | (552) | | $ | 2,303 |
Other comprehensive loss before reclassifications | |
| (40,282) | |
| (2,985) | |
| 0 | |
| (43,267) |
Less: amounts reclassified from accumulated other comprehensive income | |
| 7 | |
| 0 | |
| 0 | |
| 7 |
Total other comprehensive loss | |
| (40,289) | |
| (2,985) | |
| 0 | |
| (43,274) |
Balance at end of period | | $ | (38,304) | | $ | (2,115) | | $ | (552) | | $ | (40,971) |
| | | | | | | | | | | | |
Six Months Ended June 30, 2021 | | | | | | | | | | | | |
Balance at beginning of period | | $ | 10,023 | | $ | (1,866) | | $ | (1,418) | | $ | 6,739 |
Other comprehensive (loss) gain before reclassifications | |
| (2,748) | |
| 1,928 | |
| 0 | |
| (820) |
Less: amounts reclassified from accumulated other comprehensive income | |
| 38 | |
| 0 | |
| 0 | |
| 38 |
Total other comprehensive loss | |
| (2,786) | |
| 1,928 | |
| 0 | |
| (858) |
Balance at end of period | | $ | 7,237 | | $ | 62 | | $ | (1,418) | | $ | 5,881 |
31
(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 |
The following tables presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016:
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | Affected Line Item where | ||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | Net Income is Presented | ||||
Net realized gains on AFS securities: | |
| | |
| | |
| | |
| |
|
Before tax (1) | | $ | — | | $ | 50 | | $ | 9 | | $ | 50 | Non-interest income |
Tax effect | |
| — | |
| (12) | |
| (2) | |
| (12) | Tax expense |
Total reclassifications for the period | | $ | — | | $ | 38 | | $ | 7 | | $ | 38 | |
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | Affected Line Item where | ||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | Net Income is Presented | ||||
Net realized loss on hedging derivatives: | |
| | |
| | |
| | |
| |
|
Before tax | | $ | — | | $ | — | | $ | 4,852 | | $ | 1,486 | Non-interest income |
Tax effect | |
| — | |
| — | |
| (917) | |
| (355) | Tax expense |
Total reclassifications for the period | | $ | — | | $ | — | | $ | 3,935 | | $ | 1,131 | |
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) | There were 0 net realized gains or losses for the three months ended June 30, 2021. Net realized gains before tax include $9 thousand realized gains for the six months ended June 30, 2022 and 0 gross realized losses. |
32
Nine Months Ended September 30, | Affected Line Item in the Statement where Net Income is Presented | |||||||||
(in thousands) | 2017 | 2016 | ||||||||
Realized gains on AFS securities: | ||||||||||
$ | 19 | $ | 4,489 | Non-interest income | ||||||
(7 | ) | (1,571 | ) | Tax expense | ||||||
Total reclassifications for the period | $ | 12 | $ | 2,918 | Net of tax |
NOTE 9.7. EARNINGS PER SHARE
The following table presents the calculation of earnings per share have been computed based on the following (average diluted shares outstanding are calculated using the treasury stock method):
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
(in thousands, except per share and share data) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net income | | $ | 10,503 | | $ | 9,025 | | $ | 19,615 | | $ | 18,505 |
| | | | | | | | | | | | |
Average number of basic common shares outstanding | |
| 15,017,943 | |
| 14,965,398 | |
| 15,014,408 | |
| 14,949,564 |
Plus: dilutive effect of stock options and awards outstanding | |
| 59,484 | |
| 76,427 | |
| 79,219 | |
| 76,130 |
Average number of diluted common shares outstanding(1) | |
| 15,077,427 | |
| 15,041,825 | |
| 15,093,627 | |
| 15,025,694 |
| | | | | | | | | | | | |
Earnings per share: | |
|
| |
|
| |
|
| |
|
|
Basic | | $ | 0.70 | | $ | 0.60 | | $ | 1.31 | | $ | 1.24 |
Diluted | | $ | 0.70 | | $ | 0.60 | | $ | 1.30 | | $ | 1.23 |
(1) | Average diluted shares outstanding are computed using the treasury stock method. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In thousands, except per share and share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net income | $ | 8,617 | $ | 3,632 | $ | 19,386 | $ | 12,349 | ||||||||
Average number of basic common shares outstanding | 15,420,499 | 9,063,576 | 15,098,377 | 9,036,548 | ||||||||||||
Plus: dilutive effect of stock options and awards outstanding | 90,026 | 98,112 | 105,661 | 101,009 | ||||||||||||
Average number of diluted common shares outstanding | 15,510,525 | 9,161,688 | 15,204,038 | 9,137,557 | ||||||||||||
Anti-dilutive options excluded from earnings calculation | — | 101,826 | 8,247 | 107,535 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.56 | $ | 0.40 | $ | 1.27 | $ | 1.37 | ||||||||
Diluted | $ | 0.56 | $ | 0.40 | $ | 1.27 | $ | 1.35 |
33
NOTE 10.8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
We use derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank’sOur interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so thatthe changes in interest rates do not have a significant effect on net interest income.
We recognize our derivative instruments on the consolidated balance sheet at fair value. On the date the derivative instrument is entered into, the Bank designateswe designate whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The BankWe formally documentsdocument relationships between hedging instruments and hedged items, as well as itsour risk management objective and strategy for undertaking hedge transactions. The BankWe also assesses,
We offer derivative products in earnings. The Bank discontinues hedge accounting when it is determined thatthe form of interest rate swaps, to commercial loan customers to facilitate their risk management strategies. These instruments are executed through Master Netting Arrangements (MNA) with financial institution counterparties or Risk Participation Agreements (RPA) with commercial bank counterparties, for which we assumes a pro rata share of the credit exposure associated with a borrower's performance related to the derivative is no longer effective in offsetting changes ofcontract with the hedged risk on the hedged item, or management determines that the designation of the derivative as a hedging instrument is no longer appropriate.
The following tables present information about derivative assets and liabilities at SeptemberJune 30, 2017, follows:2022 and December 31, 2021:
| | | | | | | | | | | |
| | June 30, 2022 | |||||||||
| | | | Weighted | | |
| | |||
| | Notional | | Average | | Fair Value | | Location Fair | |||
| | Amount | | Maturity | | Asset (Liability) |
| Value Asset | |||
|
| (in thousands) |
| (in years) |
| (in thousands) |
| (Liability) | |||
Cash flow hedges: | | | | | | | | | | | |
Interest rate swap on wholesale fundings | | $ | 75,000 |
| | 2.8 | | $ | 3,513 | | Other assets |
Interest rate swap on variable rate loans | | | 50,000 | | | 4.0 | | | (3,754) | | Other liabilities |
Total cash flow hedges | |
| 125,000 |
| | | | | (241) | | |
| | | | | | | | | | | |
Fair value hedges: | | | | | | | | | | | |
Interest rate swap on securities | |
| 37,190 |
| | 7.3 | |
| 3,154 | | Other assets |
Total fair value hedges | |
| 37,190 |
| | | | | 3,154 | | |
| | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | |
Forward sale commitments | |
| 7,000 |
| | — | |
| (11) | | Other liabilities |
Customer Loan Swaps-MNA Counterparty | | | 191,757 | | | 6.6 | | | (14,000) | | Other liabilities |
Customer Loan Swaps-RPA Counterparty | | | 107,103 | | | 7.1 | | | (364) | | Other liabilities |
Customer Loan Swaps-Customer | | | 298,860 | | | 6.8 | | | 14,364 | | Other assets |
Total economic hedges | |
| 604,720 |
| | | | | (11) | | |
| | | | | | | | | | | |
Non-hedging derivatives: | | | | | | | | | | | |
Interest rate lock commitments | |
| 3,324 |
| | 0.3 | |
| 50 | | Other assets |
Total non-hedging derivatives | |
| 3,324 |
| | | | | 50 | | |
| | | | | | | | | | | |
Total | | $ | 770,234 | | | | | $ | 2,952 | | |
34
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 |
| | | | | | | | | | | |
| | December 31, 2021 | |||||||||
| | | | Weighted | | |
| | |||
| | Notional | | Average | | Fair Value | | Location Fair | |||
| | Amount | | Maturity | | Asset (Liability) |
| Value Asset | |||
|
| (in thousands) |
| (in years) |
| (in thousands) |
| (Liability) | |||
Cash flow hedges: |
| |
|
| |
|
| |
| | |
Interest rate swap on wholesale fundings | | $ | 75,000 |
| | 3.0 | | $ | (121) | | Other liabilities |
Interest rate swap on variable rate loans | | | 50,000 | | | 4.2 | | | (756) | | Other liabilities |
Total cash flow hedges | |
| 125,000 |
| | | | | (877) | | |
| | | | | | | | | | | |
Fair value hedges: | | | | | | | | | | | |
Interest rate swap on securities | |
| 37,190 |
| | 7.6 | |
| (530) | | Other liabilities |
Total fair value hedges | |
| 37,190 |
| | | | | (530) | | |
| | | | | | | | | | | |
Economic hedges: | | | | | | | | | | | |
Forward sale commitments | | | 16,600 |
| | 0.1 | |
| 15 | | Other assets |
Customer Loan Swaps-MNA Counterparty | | | 260,102 | | | 6.2 | | | (9,429) | | Other liabilities |
Customer Loan Swaps-RPA Counterparty | | | 115,285 | | | 6.7 | | | (4,421) | | Other liabilities |
Customer Loan Swaps-Customer | | | 375,387 | | | 6.4 | | | 13,850 | | Other assets |
Total economic hedges | |
| 767,374 |
| | | | | 15 | | |
| | | | | | | | | | | |
Non-hedging derivatives: | |
| | | | | | | | | |
Interest rate lock commitments | |
| 14,059 |
| | 0.1 | |
| 283 | | Other assets |
Total non-hedging derivatives | |
| 14,059 |
| | | | | 283 | | |
| | | | | | | | | | | |
Total | | $ | 943,623 | | | | | $ | (1,109) | | |
As of June 30, 2022 and December 31, 2016,2021, the Company had interest rate cap agreements totaling $90 million (notional amount), with a weighted average maturity of 6.1 years, and an estimatedfollowing amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges:
| | | | | | | | |
|
| |
| | |
| Cumulative Amount of Fair | |
| | Location of Hedged Item on | | Carrying Amount of Hedged | | Value Hedging Adjustment in | ||
|
| Balance Sheet |
| Assets |
| Carrying Amount | ||
June 30, 2022 |
|
|
| |
|
| |
|
Interest rate swap on securities |
| Securities Available for Sale | | $ | 31,530 | | $ | (5,660) |
| | | | | | | | |
December 31, 2021 |
|
| |
|
| |
|
|
Interest rate swap on securities |
| Securities Available for Sale | | $ | 39,726 | | $ | 2,536 |
35
Information about derivative assets and liabilities for the three and ninesix months eneded June 30, 2022 and December 31, 2021, follows:
| | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) |
| Income |
| Comprehensive Income |
| Income |
| Income |
| in Income | |||
Cash flow hedges: |
| |
|
|
|
| |
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | 605 | | Interest expense | | $ | — |
| Interest expense | | $ | (28) |
Interest rate swap on variable rate loans | | | (510) | | Interest income | | | — | | Interest income | | | (17) |
Total cash flow hedges | |
| 95 |
| | |
| — |
|
| |
| (45) |
| | | | | | | | | | | | | |
Fair value hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| (1,632) |
| Interest income | |
| — |
| Interest income | |
| (68) |
Total fair value hedges | |
| (1,632) |
| | |
| — |
|
| |
| (68) |
| | | | | | | | | | | | | |
Economic hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Mortgage banking income | |
| (213) |
Total economic hedges | |
| — |
| | |
| — |
|
| |
| (213) |
| | | | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other expense | |
| — |
| Mortgage banking income | |
| 55 |
Total non-hedging derivatives | |
| — |
| | |
| — |
|
| |
| 55 |
| | | | | | | | | | | | | |
Total | | $ | (1,537) | | | | $ | — |
|
| | $ | (271) |
36
| | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) |
| Income |
| Comprehensive Income |
| Income |
| Income |
| in Income | |||
Cash flow hedges: |
| |
|
|
|
| |
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | 2,796 | | Interest expense | | $ | — |
| Interest expense | | $ | (141) |
Interest rate swap on variable rate loans | | | (2,308) | | Interest income | | | — | | Interest income | | | (1) |
Total cash flow hedges | |
| 488 |
| | |
| — |
|
| |
| (142) |
| | | | | | | | | | | | | |
Fair value hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| (3,473) |
| Interest income | |
| — |
| Interest income | |
| (203) |
Total fair value hedges | |
| (3,473) |
| | |
| — |
|
| |
| (203) |
| | | | | | | | | | | | | |
Economic hedges: | |
|
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Mortgage banking income | |
| (26) |
Total economic hedges | |
| — |
| | |
| — |
|
| |
| (26) |
| | | | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Mortgage banking income | |
| (233) |
Total non-hedging derivatives | |
| — |
| | |
| — |
|
| |
| (233) |
| | | | | | | | | | | | | |
Total | | $ | (2,985) | | | | $ | — |
|
| | $ | (604) |
37
| | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) | | Income | | Comprehensive Income | | Income | | Income | | in Income | |||
Cash flow hedges: |
| |
|
|
| |
|
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | (6) |
| Interest expense | | $ | — |
| Interest expense | | $ | (196) |
Interest rate swap on variable rate loans | | | 221 | | Interest income | | | | | Interest income | | | 89 |
Total cash flow hedges | | | 215 | | | |
| — |
| | |
| (107) |
| | | | | | | | | | | | | |
Fair value hedges: | | |
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| (122) |
| Interest income | |
| — |
| Interest income | |
| (140) |
Total economic hedges | | | (122) | | | |
| — |
|
| |
| (140) |
| | | | | | | | | | | | | |
Economic hedges: | | |
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Mortgage banking income | |
| 40 |
Total economic hedges | | | — | | | |
| — |
|
| |
| 40 |
| | | | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Mortgage banking income | |
| (20) |
Total non-hedging derivatives | | | — | | | |
| — |
|
| |
| (20) |
| | | | | | | | | | | | | |
Total | | $ | 93 |
|
| | $ | — |
|
| | $ | (227) |
38
| | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 | |||||||||||
|
| Amount of |
| |
| Amount of |
| |
| | |||
| | Gain (Loss) | | | | Gain (Loss) | | | | | |||
| | Recognized in | | | | Reclassified | | Location of | | Amount of | |||
| | Other | | Location of Gain (Loss) | | from Other | | Gain (Loss) | | Gain (Loss) | |||
| | Comprehensive | | Reclassified from Other | | Comprehensive | | Recognized in | | Recognized | |||
(in thousands) | | Income(1) | | Comprehensive Income | | Income | | Income | | in Income | |||
Cash flow hedges: |
| |
|
|
| |
|
|
|
|
| |
|
Interest rate swap on wholesale funding | | $ | 981 |
| Interest expense | | $ | — |
| Interest expense | | $ | (384) |
Interest rate swap on variable rate loans | | | 8 | | Interest income | | | | | Interest income | | | 97 |
Total cash flow hedges | | | 989 | | | |
| — |
| | |
| (287) |
| | | | | | | | | | | | | |
Fair value hedges: | | |
|
|
| |
|
|
|
| |
|
|
Interest rate swap on securities | |
| 941 |
| Interest income | |
| — |
| Interest income | |
| (276) |
Total economic hedges | | | 941 | | | |
| — |
|
| |
| (276) |
| | | | | | | | | | | | | |
Economic hedges: | | |
|
|
| |
|
|
|
| |
|
|
Forward commitments | |
| — |
| Other income | |
| — |
| Mortgage banking income | |
| 50 |
Total economic hedges | | | — | | | |
| — |
|
| |
| 50 |
| | | | | | | | | | | | | |
Non-hedging derivatives: | |
|
|
|
| |
|
|
|
| |
|
|
Interest rate lock commitments | |
| — |
| Other income | |
| — |
| Mortgage banking income | |
| 4 |
Total non-hedging derivatives | | | — | | | |
| — |
|
| |
| 4 |
| | | | | | | | | | | | | |
Total | | $ | 1,930 |
|
| | $ | — |
|
| | $ | (509) |
39
The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the three and six months ended SeptemberJune 30, 20172022 and September 30, 2016, follows:2021:
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 | |||||||||||||
| | Interest and Dividend Income | | Interest Expense | | | | ||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | |||||
Income and expense line items presented in the consolidated statements of income |
| $ | 24,581 | | $ | 4,207 | | $ | 1,195 | | $ | 1,074 | | $ | 8,961 |
|
| |
| | | |
| |
| | | |
| |
|
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | |
Interest rate swap on wholesale funding | | | — | | | — | | | — | | | (28) | | | — |
Interest rate swap on variable rate loans | |
| (17) | | | — | |
| — | | | — | |
| — |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
|
Interest rate swap on securities | | | — | | | (68) | | | — | | | — | | | — |
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | |||||||||||||
| | Interest and Dividend Income | | Interest Expense | | | | ||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | |||||
Income and expense line items presented in the consolidated statements of income |
| $ | 23,191 | | $ | 3,992 | | $ | 2,603 | | $ | 1,826 | | $ | 9,505 |
|
| |
| | | |
| |
| | | |
| |
|
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | |
Interest rate swap on wholesale funding | | | — | | | — | | | — | | | (196) | | | — |
Interest rate swap on variable rate loans | |
| 89 | | | — | |
| — | | | — | |
| — |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
|
Interest rate swap on securities | | | — | | | (140) | | | — | | | — | | | — |
| | | | | | | | | | | | | | | |
40
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 | ) | — |
| | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 | |||||||||||||
| | Interest and Dividend Income | | Interest Expense | | | | ||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | |||||
Income and expense line items presented in the consolidated statements of income |
| $ | 47,252 | | | 8,033 | | $ | 2,384 | | | 2,084 | | $ | 18,270 |
|
| |
| | | |
| |
| | | |
| |
|
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | |
Interest rate swap on wholesale funding | | | — | | | — | | | — | | | (141) | | | — |
Interest rate swap on variable rate loans | |
| (1) | | | — | |
| — | | | — | |
| — |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
|
Interest rate swap on securities | | | — | | | (203) | | | — | | | — | | | — |
| | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 | |||||||||||||
| | Interest and Dividend Income | | Interest Expense | | | | ||||||||
(in thousands) |
| Loans | | Securities and other |
| Deposits | | Borrowings |
| Non-interest Income | |||||
Income and expense line items presented in the consolidated statements of income |
| $ | 47,396 | | | 7,971 | | $ | 5,554 | | | 3,637 | | $ | 19,753 |
|
| |
| | | |
| |
| | | |
| |
|
The effects of cash flow and fair value hedging: | | | | | | | | | | | | | | | |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | |
Interest rate swap on wholesale funding | | | — | | | — | | | — | | | (384) | | | — |
Interest rate swap on variable rate loans | |
| 97 | | | — | |
| — | | | — | |
| — |
| |
|
| | | | |
|
| | | | |
|
|
Gain (loss) on fair value hedges: | |
| | | | | |
|
| | | | |
|
|
Interest rate swap on securities | | | — | | | (276) | | | — | | | — | | | — |
Cash flow hedges
Interest rate swaps on wholesale funding
As of June 30, 2022 we have 2 interest rate cap agreements were purchasedswaps on wholesale borrowings (the "SWAPS") to limit the Bank’sour exposure to rising interest rates over a five-year term on four rolling, three-month3-month FHLB borrowings indexed to three month LIBOR. Under the termsor brokered certificates, or a combination thereof at each maturity date. The first of the 2 agreements the Bank paid total premiumswere entered in November 2019 with a $50.0 million notional amount and pays a fixed interest rate of $4,566 for the right to receive cash flow payments if 3-month LIBOR rises above the caps1.53%. A second agreement was entered on April 2020 with a $25.0 million notional amount and pays a fixed rate of 3.00%, thus effectively ensuring0.59%. The financial institution counterparty pays us interest expense on the borrowings at maximum rates of 3.00% forthree-month LIBOR rate. We designated the duration of the agreements. The interest rate cap agreements were designatedswaps as cash flow hedges.
Interest rate swap on variable rate loans
We have an interest rate swap that effectively fixes our interest rate on $50 million of 1 month USD-LIBOR-BBA (or LIBOR less two days) based loan assets at 0.806% plus the credit spread on the loans that reprices on weighted average basis. The instrument is specifically designed to hedge the risk of changes in its cash flows from interest receipts attributable to changes in a contractually specified interest rate, on an amount of our variable rate loan assets equal to $50 million. We designated the swap as a cash flow hedge.
41
Fair value hedges
Interest rate swap on securities
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. We utilize interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable securities available-for-sale. The hedging strategy on securities converts the fixed interest rate cap agreementsrates to LIBOR-based variable interest rates. These derivatives are included in other assetsdesignated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. During 2019, we entered into 8 swap transactions with a notional amount of $37.2 million designated as fair value hedges. These derivatives are intended to protect against the effects of changing interest rates on the Company’s consolidated balance sheets. Changes in the fair value, representing unrealized gains or losses, are recorded in accumulated other comprehensive income, netvalues of tax.fixed rate securities. The premiums paidfixed rates on the interest rate cap agreements are being recognized as increases in interest expense over the durationtransactions have a weighted average of the agreements using the caplet method.
Economic hedges
Forward sale commitments
We utilize forward sale commitments on residential mortgage loans to hedge interest rate risk and the associated effects on the fair value of interest rate lock commitments and loans originated for sale. The forward sale commitments are accounted for as derivatives with changes in fair value recorded in current period earnings. The Companyderivatives. We typically usesuse a combination of best efforts and mandatory delivery contracts. The contracts which are loan sale agreements where the Company commitswe commit 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 maywe enter into mandatory delivery contracts shortly afterjust prior to the loan closesclosing with a customer.
Customer loan derivatives
We enter into customer loan derivatives to facilitate the risk management strategies for commercial banking customers. We mitigate this risk by entering into equal and offsetting loan swap agreements with highly rated third-party financial institutions. The loan swap agreements are free standing derivatives and are recorded at fair value in our consolidated balance sheet. We are party to master netting arrangements with our financial institutional counterparties; however, we do not offset assets and liabilities under these arrangements for financial statement presentation purposes.
The master netting arrangements provide for a single net settlement of all loan swap agreements, as well as collateral or cash funds, in the event of default on, or termination of, any one contract. Collateral is provided by cash or securities received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds.
| | | | | | | | | | | | |
| | Gross Amounts Offset in the Consolidated Balance Sheet | ||||||||||
| | Derivative | | | | Cash Collateral | | | | |||
(in thousands) |
| Liabilities |
| Derivative Assets |
| Pledged |
| Net Amount | ||||
As of June 30, 2022 | |
| | |
| | |
| | |
| |
Customer Loan Derivatives: |
| |
|
| |
|
| |
|
| |
|
MNA counterparty | | $ | (14,000) | | $ | 14,000 | | $ | — | | $ | — |
RPA counterparty | |
| (364) | |
| 364 | |
| — | |
| — |
Total | | $ | (14,364) | | $ | 14,364 | | $ | — | | $ | — |
| | | | | | | | | | | | |
| | Gross Amounts Offset in the Consolidated Balance Sheet | ||||||||||
| | Derivative | | | | Cash Collateral | | | | |||
(in thousands) |
| Liabilities |
| Derivative Assets |
| Pledged |
| Net Amount | ||||
As of December 31, 2021 | |
| | |
| | |
| | |
| |
Customer Loan Derivatives: |
| |
|
| |
|
| |
|
| |
|
MNA counterparty | | $ | (9,429) | | $ | 9,429 | | $ | 12,000 | | $ | 12,000 |
RPA counterparty | |
| (4,421) | |
| 4,421 | |
| — | |
| — |
Total | | $ | (13,850) | | $ | 13,850 | | $ | 12,000 | | $ | 12,000 |
42
Interest rate lock commitments
We enter into interest rate lock commitments (“IRLCs”)(IRLCs) for residential mortgage loans, which commit the Companyus to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of residential mortgage loans that will beare held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Companyus to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standingfree standing derivatives which are carried at fair value with changes recorded in noninterestnon-interest income in the Company’s consolidated statementsour 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 thatwhen the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
43
NOTE 11.9. FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of SeptemberJune 30, 20172022 and December 31, 2016,2021, 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 |
| | | | | | | | | | | | |
| | June 30, 2022 | ||||||||||
|
| 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 | | $ | — | | $ | 227,362 | | $ | — | | $ | 227,362 |
US Government agency | |
| 0 | |
| 84,972 | |
| 0 | |
| 84,972 |
Private label | |
| — | |
| 71,911 | |
| — | |
| 71,911 |
Obligations of states and political subdivisions thereof | |
| 0 | |
| 115,967 | |
| 0 | |
| 115,967 |
Corporate bonds | |
| 0 | |
| 85,930 | |
| 0 | |
| 85,930 |
Loans held for sale | | | — | | | 3,539 | | | — | | | 3,539 |
Derivative assets | |
| 0 | |
| 21,031 | |
| 50 | |
| 21,081 |
Derivative liabilities | |
| 0 | |
| (18,118) | |
| (11) | |
| (18,129) |
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
(in thousands) | | Inputs | | Inputs | | Inputs | | Fair Value | ||||
Available for sale securities: | |
| | |
| | |
| | |
| |
Mortgage-backed securities: |
| |
|
| |
|
| |
|
| |
|
US Government-sponsored enterprises | | $ | — | | $ | 236,117 | | $ | — | | $ | 236,117 |
US Government agency | |
| — | |
| 79,637 | |
| — | |
| 79,637 |
Private label | |
| — | |
| 68,695 | |
| — | |
| 68,695 |
Obligations of states and political subdivisions thereof | |
| — | |
| 141,776 | |
| — | |
| 141,776 |
Corporate bonds | |
| — | |
| 92,051 | |
| — | |
| 92,051 |
Loans held for sale | | | — | | | 5,523 | | | — | | | 5,523 |
Derivative assets | |
| — | |
| 13,850 | |
| 298 | |
| 14,148 |
Derivative liabilities | |
| — | |
| (15,257) | |
| — | |
| (15,257) |
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,
Loans Held for Sale:The valuation of the Company’s loans held for sale are determined on an individual basis using quoted secondary market prices and are classified as Level 2 measurements.
Derivative Assets and Liabilities
Cash Flow Hedges. The valuation of our cash flow hedges are obtained from a third party. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The inputs used to value the cash flow hedges are all classified as Level 2 measurements.
44
Interest Rate Lock Commitments. The Company enters We enter into IRLCs for residential mortgage loans, which commit the Companyus to lend funds to a potential borrowerborrowers at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that theof a loan in a lock position will ultimately close. The closing ratio is derived from the Bank’s internal data and is adjusted using significant management judgment. As such, IRLCs are classified as Level 3 measurements.
Forward Sale Commitments
.
Customer Loan Derivatives. The valuation of our customer loan derivatives is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. We incorporate credit valuation adjustments to appropriately reflect our nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the derivative contracts for the effect of nonperformance risk, we have considered the impact of master netting arrangements and any applicable credit enhancements, such as collateral postings.
Although we have determined that the majority of the inputs used to value customer loan derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and counterparties. However, as of June 30, 2022, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
45
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 ninesix months ended SeptemberJune 30, 2017.
Assets (Liabilities) | ||||||||
Interest Rate Lock | Forward | |||||||
(In thousands) | Commitments | Commitments | ||||||
Three Months Ended September 30, 2017 | ||||||||
June 30, 2017 | $ | (3 | ) | $ | (231 | ) | ||
Realized gain recognized in non-interest income | 19 | 58 | ||||||
September 30, 2017 | $ | 16 | $ | (173 | ) | |||
Nine Months Ended September 30, 2017 | ||||||||
December 31, 2016 | $ | — | $ | — | ||||
Acquisition of Lake Sunapee Bank, January 13, 2017 | 96 | 23 | ||||||
Goodwill adjustment Lake Sunapee Bank Merger | (75 | ) | (167 | ) | ||||
Realized (loss) recognized in non-interest income | (5 | ) | (29 | ) | ||||
September 30, 2017 | $ | 16 | $ | (173 | ) |
| | | | | | |
| | Assets (Liabilities) | ||||
| | Interest Rate Lock | | Forward | ||
(in thousands) |
| Commitments |
| Commitments | ||
Three Months Ended June 30, 2022 | |
| | |
| |
Balance at beginning of period | | $ | (5) | | $ | 15 |
Realized gain (loss) recognized in non-interest income | |
| 55 | |
| (26) |
Balance at end of period | | $ | 50 | | $ | (11) |
| | | | | | |
Three Months Ended June 30, 2021 | |
| | |
| |
Balance at beginning of period | | $ | 46 | | $ | (85) |
Realized (loss) gain recognized in non-interest income | |
| (21) | |
| 40 |
Balance at end of period | | $ | 25 | | $ | (45) |
| | | | | | |
Six Months Ended June 30, 2022 | |
|
| |
|
|
Balance at beginning of period | | $ | 283 | | $ | 15 |
Realized loss recognized in non-interest income | |
| (233) | |
| (26) |
Balance at end of period | | $ | 50 | | $ | (11) |
| | | | | | |
Six Months Ended June 30, 2021 | |
|
| |
|
|
Balance at beginning of period | | $ | 22 | | $ | (95) |
Realized gain recognized in non-interest income | |
| 3 | |
| 50 |
Balance at end of period | | $ | 25 | | $ | (45) |
Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is, as follows:
| | | | | | | | | | | | | | |
|
| Fair Value | | Fair Value | | |
| |
| Significant |
| |||
| | June 30, | | December 31, | | Valuation | | Unobservable | | Unobservable | | |||
(in thousands, except ratios) |
| 2022 |
| 2021 | | Techniques |
| Inputs |
| Input Value | | |||
Assets (Liabilities) | |
| | |
| | |
| |
| |
| |
|
Interest Rate Lock Commitment |
| $ | 50 | | $ | 283 | | Pull-through Rate Analysis |
| Closing Ratio |
| | 93 | % |
| |
| | |
| | | Pricing Model | | Origination Costs, per loan | | $ | 1.7 | |
| | | | | | | | Discount Cash Flows | | Mortgage Servicing Asset | | | 1.0 | % |
| | | | | | | | |
| | | | | |
Forward Commitments | |
| (11) | |
| 15 | | Quoted prices for similar loans in active markets |
| Freddie Mac pricing system | |
| $99.3 to $102.8 | |
Total | | $ | 39 | | $ | 298 | |
|
|
| |
|
| |
46
(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 | ) |
We are required, on a non-recurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements in accordance with U.S. GAAP. The following is a summary of applicable non-recurring fair value measurements. measurements:
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 | | Fair Value Measurement Date as of June 30, 2022 | ||||
| | Level 3 | | Level 3 | | Total | | Total | | Level 3 | ||||
(in thousands) |
| Inputs |
| Inputs |
| Gains (Losses) |
| Gains (Losses) |
| Inputs | ||||
Assets | |
| | |
| | |
| | |
| | |
|
Individually evaluated loans | | $ | 13,610 | | $ | 17,932 | | $ | 0 | | $ | (4,322) | | June 2022 |
Capitalized servicing rights | |
| 7,043 | | | 5,263 |
| | 265 |
| | 1,780 |
| June 2022 |
Premises held for sale | |
| 327 | | | 226 |
| | 0 |
| | 101 |
| February 2022 |
Total | | $ | 20,980 | | $ | 23,421 | | $ | 265 | | $ | (2,441) |
|
|
There are no0 liabilities measured at fair value on a non-recurring basis.basis in 2022 and 2021.
47
September 30, 2017 | December 31, 2016 | Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | Fair Value Measurement Date as of September 30, 2017 | ||||||||||||
(In thousands) | Level 3 Inputs | Level 3 Inputs | Total Gains (Losses) | Total Gains (Losses) | Level 3 Inputs | |||||||||||
Assets | ||||||||||||||||
Impaired loans | $ | 10,251 | $ | 6,709 | (43 | ) | (139 | ) | September 2017 | |||||||
Capitalized servicing rights | 3,871 | 5 | — | — | September 2017 | |||||||||||
Other real estate owned | 122 | 90 | — | — | Jan 2017 - March 2017 | |||||||||||
Total | $ | 14,244 | $ | 6,804 | (43 | ) | (139 | ) |
Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets is, as follows:
| | | | | | | | | | | |
| | | | | | | | |
| ||
(in thousands, except ratios) |
| Fair Value June 30, 2022 |
| Valuation Techniques |
| Unobservable Inputs |
| Range (Weighted Average)(a) |
| ||
Assets |
| |
|
|
|
|
| | |
| |
Individually evaluated loans | | $ | 8,070 |
| Fair value of collateral-appraised value |
| Loss severity | | | 10% to 70% | |
| | | | | |
| Appraised value | | | $71 to $1,175 | |
| | | | | | | | | | | |
Individually evaluated loans | |
| 5,540 |
| Discount cash flow |
| Discount rate |
| | 2.88% to 6.45% | |
| | | | | |
| Cash flows | | | $5 to $943 | |
| | | | | | | | | | | |
Capitalized servicing rights | |
| 7,043 |
| Discounted cash flow |
| Constant prepayment rate (CPR) |
| | 7.18% | |
| |
|
|
|
|
| Discount rate |
| | 9.04% | |
| | | | | | | | | | | |
Premises held for sale | |
| 327 |
| Fair value of asset less selling costs |
| Appraised value | | | $347 | |
| |
| |
|
|
| Selling Costs |
| | 6% | |
Total | | $ | 20,980 |
|
|
|
|
| |
| |
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 |
(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 |
| | | | | | | | | | | |
| | | | | | | | | | ||
(in thousands, except ratios) |
| Fair Value December 31, 2021 |
| Valuation Techniques |
| Unobservable Inputs |
| Range (Weighted Average)(a) | | ||
Assets | | | | | | | | | | | |
Individually evaluated loans | | $ | 12,127 | | Fair value of collateral-appraised value | | Loss severity | | | 10% to 70% | |
| | | | | | | Appraised value | | | $71 to $1,792 | |
| | | | | | | | | | | |
Individually evaluated loans | |
| 5,805 | | Discount cash flow | | Discount rate |
| | 2.88% to 9.50% | |
| | | | | | | Cash flows | | | $6 to $931 | |
| | | | | | | | | | | |
Capitalized servicing rights | |
| 5,263 | | Discounted cash flow | | Constant prepayment rate (CPR) |
| | 12.47% | |
| | | | | | | Discount rate |
| | 9.53% | |
| | | | | | | | | | | |
Premises held for sale | |
| 226 | | Fair value of asset less selling costs | | Appraised value |
| | $240 | |
| | | | | | | Selling Costs |
| | 6% | |
Total | | $ | 23,421 | | | | | | | | |
Fair Value | |||||||||||
(in thousands) | December 31, 2016 | Valuation Techniques | Unobservable Inputs | Range (Weighted Average) (a) | |||||||
Assets | |||||||||||
Impaired loans | $ | 3,268 | Fair value of collateral - appraised value | Loss severity | 0% to 51% | ||||||
Appraised value | $0 to $1,732 | ||||||||||
Impaired loans | 3,441 | Discount cash flow | Discount rate | 3.25% to 18.25% | |||||||
Cash flows | $6 to $861 | ||||||||||
Capitalized servicing rights | 5 | Discounted cash flow | Constant prepayment rate (CPR) | 17.09 | % | ||||||
Discount rate | 7.55 | % | |||||||||
Other real estate owned | 90 | Fair value of collateral | Appraised value | 120 | |||||||
Total | $ | 6,804 |
(a) | Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to |
There were no Level 1 or Level 2 non-recurring fair value measurements for the periods ended SeptemberJune 30, 20172022 and December 31, 2016.2021.
48
Individually evaluated loans. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company recordswe record non-recurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Non-recurring adjustments can also include certain impairment amounts for collateral-dependent loans calculated when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, nonrecurringnon-recurring fair value measurement adjustments that relaterelating to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral that supportssupporting commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.
Capitalized loan servicing rights
.A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of loan servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.
Other real estate owned (“OREO”).
Premises held for sale. Assets held for sale, identified as part of our strategic review and branch optimization exercise, were transferred from premises and equipment at the lower of amortized cost or fair value less the estimated sales costs. Assets held for sale fair values are primarily determined based on Level 3 data including sales comparables and appraisals.
49
Summary of Estimated Fair Values of Financial Instruments. Instruments
The estimated fair values, and related carrying amounts, of the Company’sour 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.
| | | | | | | | | | | | | | | |
| | June 30, 2022 | |||||||||||||
| | Carrying | | Fair | | | | | | | | | | ||
(in thousands) |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 67,116 | | $ | 67,116 | | $ | 67,116 | | $ | — | | $ | — |
Securities available for sale | |
| 586,142 | |
| 586,142 | |
| — | |
| 586,142 | |
| — |
FHLB stock | |
| 6,572 | |
| 6,572 | |
| — | |
| 6,572 | |
| — |
Loans held for sale | | | 3,539 | | | 3,539 | | | — | | | 3,539 | | | — |
Net loans | |
| 2,703,518 | |
| 2,620,097 | |
| — | |
| — | |
| 2,620,097 |
Accrued interest receivable | |
| 3,124 | |
| 3,124 | |
| — | |
| 3,124 | |
| — |
Cash surrender value of bank-owned life insurance policies | |
| 80,262 | |
| 80,262 | |
| — | |
| 80,262 | |
| — |
Derivative assets | |
| 21,081 | |
| 21,081 | |
| — | |
| 21,031 | |
| 50 |
| | | | | | | | | | | | | | | |
Financial Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
|
Non-maturity deposits | | $ | 2,716,639 | | $ | 2,476,000 | | $ | — | | $ | 2,476,000 | | $ | — |
Time deposits | | | 361,906 | | | 355,000 | | | — | | | 355,000 | | | — |
Securities sold under agreements to repurchase | | | 18,754 | | | 18,754 | | | — | | | 18,754 | | | — |
FHLB advances | |
| 98,593 | |
| 98,248 | |
| — | |
| 98,248 | |
| — |
Subordinated borrowings | |
| 60,206 | |
| 69,722 | |
| — | |
| 69,722 | |
| — |
Derivative liabilities | |
| 18,129 | |
| 18,129 | |
| — | |
| 18,118 | |
| 11 |
| | | | | | | | | | | | | | | |
| | December 31, 2021 | |||||||||||||
| | Carrying | | Fair | | | | | | | | | | ||
(in thousands) |
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Financial Assets |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 250,389 | | $ | 250,389 | | $ | 250,389 | | $ | — | | $ | — |
Securities available for sale | |
| 618,276 | |
| 618,276 | |
| — | |
| 618,276 | |
| — |
FHLB stock | |
| 7,384 | |
| 7,384 | |
| — | |
| 7,384 | |
| — |
Loans held for sale | | | 5,523 | | | 5,523 | | | — | | | 5,523 | | | — |
Net loans | |
| 2,509,192 | |
| 2,442,741 | |
| — | |
| — | |
| 2,442,741 |
Accrued interest receivable | |
| 2,712 | |
| 2,712 | |
| — | |
| 2,712 | |
| — |
Cash surrender value of bank-owned life insurance policies | |
| 79,020 | |
| 79,020 | |
| — | |
| 79,020 | |
| — |
Derivative assets | |
| 14,148 | |
| 14,148 | |
| — | |
| 13,850 | |
| 298 |
| | | | | | | | | | | | | | | |
Financial Liabilities | |
|
| |
|
| |
|
| |
|
| |
|
|
Non-maturity deposits | | $ | 2,623,012 | | $ | 2,853,000 | | $ | — | | $ | 2,853,000 | | $ | — |
Time deposits | | | 425,532 | | | 424,000 | | | — | | | 424,000 | | | — |
Securities sold under agreements to repurchase | | | 19,802 | | | 19,802 | | | — | | | 19,802 | | | — |
FHLB advances | |
| 98,598 | |
| 98,439 | |
| — | |
| 98,439 | |
| — |
Subordinated borrowings | |
| 60,124 | |
| 61,884 | |
| — | |
| 61,884 | |
| — |
Derivative liabilities | |
| 15,257 | |
| 15,257 | |
| — | |
| 15,257 | |
| — |
50
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 | — |
NOTE 10. REVENUE FROM CONTRACTS WITH CUSTOMERS
We account for our various non-interest revenue streams and assumptions were used by management to estimate the fair value of significant classes of financial instruments for which it is practicable to estimate that value.
A substantial portion of our revenue is specifically excluded from the scope of Topic 606. This exclusion is associated with financial instruments, including interst income on loans and investment securities, in addition to loan derivative income and gains on loan and investment sales.
Disaggregation of Revenue
The following tables present disaggregation of our non-interest revenue by major business line and timing of revenue recognition for the transfer of products or services:
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Major Products/Service Lines |
| |
|
| |
|
| |
|
| |
|
Trust management fees | | $ | 3,462 | | $ | 3,474 | | $ | 6,865 | | $ | 6,649 |
Financial services fees | |
| 367 | |
| 327 | |
| 718 | |
| 818 |
Interchange fees | |
| 1,921 | |
| 1,915 | |
| 3,895 | |
| 3,627 |
Customer deposit fees | |
| 1,470 | |
| 1,130 | |
| 2,841 | |
| 2,179 |
Other customer service fees | |
| 265 | |
| 212 | |
| 536 | |
| 421 |
Total | | $ | 7,485 | | $ | 7,058 | | $ | 14,855 | | $ | 13,694 |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
(in thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Timing of Revenue Recognition |
| |
|
| |
|
| |
|
| |
|
Products and services transferred at a point in time | | $ | 3,978 | | $ | 3,570 | | $ | 7,735 | | $ | 6,856 |
Products and services transferred over time | |
| 3,507 | |
| 3,488 | |
| 7,120 | |
| 6,838 |
Total | | $ | 7,485 | | $ | 7,058 | | $ | 14,855 | | $ | 13,694 |
Trust Management Fees
The trust management business generates revenue through a range of fiduciary services including trust and estate administration, financial advice, and investment management to individuals, businesses, not-for-profit organizations, and municipalities. These fees are primarily earned over time as we charge our customers on a monthly or quarterly basis in accordance with investment advisory agreements. Fees are generally assessed based on a tiered scale of the loans discountedmarket value of assets under management at month end. Certain fees, such as bill paying fees, distribution fees, real estate sale fees, and supplemental tax service fees, are recorded as revenue at a point in time upon the completion of the service.
Financial Services Fees
Bar Harbor Financial Services is a branch office of Infinex, an independent registered broker dealer offering securities and insurance products not affiliated with the Company or its subsidiaries. We have 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
We earn interchange fees from transaction fees that merchants pay whenever a customer uses a debit card to make a purchase from their store. The fees are paid to the card-issuing bank to cover handling costs, fraud, bad debt costs and the risk involved in approving the payment. Interchange fees are generally recognized as revenue at a point in time upon the completion of a debit card transaction.
51
Customer Deposit Fees
The Customer Deposit business offers a variety of deposit accounts with a range of interest rates, fee schedules and other terms, which are designed to meet the customer's financial needs. Additional depositor-related services provided to customers include ATM, bank-by-phone, internet banking, internet bill pay, mobile banking, and other cash management services which include remote deposit capture, ACH origination, and wire transfers. These customer deposit fees are generally recognized at a point in time upon the completion of the service.
Other Customer Service Fees
We have certain incentive and referral fee arrangements with independent third parties in which fees are earned for new account activity, product sales, or transaction volume generated for the respective third parties. We also earn a percentage of the fees generated from third-party credit card plans promoted through the Bank. Revenue from these incentive and referral fee arrangements are recognized over their respective loan origination rates. time using the right to invoice measure of progress.
Contract Balances from Contracts with Customers
The origination ratesfollowing table provides information about contract assets or receivables and contract liabilities or deferred revenues from contracts with customers:
| | | | | | |
|
| |
| | ||
(in thousands) | | June 30, 2022 | | December 31, 2021 | ||
Balances from contracts with customers only: |
| |
|
| |
|
Other Assets | | $ | 1,321 | | $ | 1,184 |
Other Liabilities | |
| 2,756 | |
| 2,324 |
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 adjusteddeducted directly from customer accounts and, therefore, there is no associated impact on the accounts receivable balance. For certain types of service contracts, we have an unconditional right to consideration under the service contract and an accounts receivable balance is recorded for substandardservices 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 special mention loansall revenue recognition criteria have been met.
Costs to factorObtain and Fulfill a Contract
We currently expense contract costs for processing and administrative fees for debit card transactions. We also expense custody fees and transactional costs associated with securities transactions as well as third party tax preparation fees. We have elected the impactpractical expedient in ASC 340-40-25-4, whereby we recognize the incremental costs of declinesobtaining contracts as an expense when incurred if the amortization period of the assets we otherwise would have recognized is one year or less.
52
NOTE 11. LEASES
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Most of our leases are for branches, ATM locations, and office space and have terms extending through 2040. All leases are classified as operating leases, and are recognized on the consolidated balance sheets as a right- of-use (“ROU”) asset with a corresponding lease liability.
The following table presents the consolidated statements of condition classification of the ROU assets and lease liabilities:
| | | | | | | | |
(in thousands) |
| Classification |
| June 30, 2022 |
| December 31, 2021 | ||
Lease Right-of-Use Assets |
| | | |
| | |
|
Operating lease right-of-use assets |
| Other assets | | $ | 8,681 | | $ | 9,274 |
| | | | | | | | |
Lease Liabilities |
|
| |
|
| |
|
|
Operating lease liabilities |
| Other liabilities | |
| 9,080 | |
| 9,643 |
The calculated amount of the ROU assets and lease liabilities in the loan’s credit standing. The fairtable above are impacted by the length of the lease term and the discount rate used for the present value of the loans is estimated by discounting future cash flows usingminimum lease payments. The lease agreements often include one or more options to renew at our discretion. If at lease inception, we consider the current interest rates at which similar loans with similar terms wouldexercising of a renewal option to be made to borrowers of similar credit quality.
The following table above.
| | | | | | |
|
| June 30, 2022 |
| December 31, 2021 | ||
Weighted-average remaining lease term (in years) | |
| | |
| |
Operating leases | | 7.61 | | | 8.03 | |
| | | | | | |
Weighted-average discount rate | |
| | |
| |
Operating leases | | 3.09 | % | | 3.07 | % |
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 days.
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
(in thousands) | | June 30, 2022 |
| June 30, 2021 |
| June 30, 2022 |
| June 30, 2021 | ||||
Lease Costs | | |
|
| |
|
| |
|
| |
|
Operating lease cost | | $ | 335 | | $ | 322 | | $ | 656 | | $ | 642 |
Variable lease cost | |
| 62 | |
| 55 | |
| 274 | |
| 136 |
Total lease cost | | $ | 397 | | $ | 377 | | $ | 930 | | $ | 778 |
53
Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2022 are, as follows:
| | | |
(in thousands) |
| Payments | |
Twelve Months Ended: |
| |
|
June 30, 2023 | | $ | 1,345 |
June 30, 2024 | |
| 1,353 |
June 30, 2025 | |
| 1,186 |
June 30, 2026 | |
| 1,073 |
June 30, 2027 | |
| 913 |
Thereafter | |
| 3,618 |
Total future minimum lease payments | |
| 9,488 |
Amounts representing interest | |
| (408) |
Present value of net future minimum lease payments | | $ | 9,080 |
54
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is management’s discussion and analysis of financial condition andthe major factors that influenced our results of operations is intended to assist in understanding theand financial condition as of and results of operations offor the Company. The following discussionthree and six months ended June 30, 2022. This analysis should be read in conjunction with our Annual Report on Form 10-K for the Company’syear ended December 31, 2021 and with the unaudited consolidated financial statements and the notes thereto appearingset forth 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 AnnualQuarterly Report on Form 10-K. In the following discussion, income statement comparisons are against the same period of the previous year and balance sheet comparisons are against the previous fiscal year-end, unless otherwise noted. Operating results discussed herein are not necessarily indicative of the results10-Q for the year 2017 or any future period. In management’s discussion and analysis of financial condition and results of operations, certain reclassifications have been made to make prior periods comparable.
Bar Harbor Bankshares
(the "Company" or “we”) is the parent company of Bar Harbor Bank & Trust● | Employee and customer experience is the foundation of superior performance, which leads to significant financial benefit to shareholders |
● | |
● | 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 our profitability through trust and treasury management services, customer derivatives, and secondary market mortgage sales |
● | Investment in processes, products, technology, training, leadership, and infrastructure |
● | Expansion of our brand and business to deepen market presence |
● | Opportunity and growth for existing employees while adding catalyst recruits across all levels |
Shown below is 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.
55
The following summary data is based in part on the consolidated financial statements and accompanying notes and other information appearing elsewhere in this or prior Forms 10-Q
| | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended |
| ||||||||
| | June 30, | | | June 30, |
| ||||||||
|
| 2022 |
| 2021 |
| | 2022 |
| 2021 |
| ||||
PER SHARE DATA | | | | | | | | | | | | | | |
Net earnings, diluted | | $ | 0.70 | | $ | 0.60 | | | $ | 1.30 | | $ | 1.23 | |
Adjusted earnings, diluted(1) | |
| 0.70 | |
| 0.63 | | |
| 1.30 | |
| 1.32 | |
Total book value | |
| 26.19 | |
| 27.64 | | |
| 26.19 | |
| 27.76 | |
Tangible book value(1) | |
| 17.83 | |
| 19.17 | | |
| 17.83 | |
| 19.30 | |
Market price at period end | |
| 25.86 | |
| 28.62 | | |
| 25.86 | |
| 28.62 | |
Dividends | |
| 0.26 | |
| 0.24 | | |
| 0.50 | |
| 0.46 | |
| | | | | | | | | | | | | | |
PERFORMANCE RATIOS(2) | | | | | | | | | | | | | | |
Return on assets | |
| 1.14 | % |
| 0.97 | % | |
| 1.07 | % |
| 1.00 | % |
Adjusted return on assets(1) | |
| 1.14 | |
| 1.01 | | |
| 1.07 | |
| 1.07 | |
Pre-tax, pre-provision return on assets | | | 1.50 | |
| 1.13 | | |
| 1.39 | |
| 1.17 | |
Adjusted pre-tax, pre-provision return on assets (1) | | | 1.50 | |
| 1.18 | | |
| 1.40 | |
| 1.27 | |
Return on equity | |
| 10.58 | |
| 8.77 | | |
| 9.72 | |
| 9.10 | |
Adjusted return on equity(1) | |
| 10.59 | |
| 9.14 | | |
| 9.74 | |
| 9.75 | |
Return on tangible equity | | | 15.74 | | | 12.91 | | | | 14.33 | | | 13.44 | |
Adjusted return on tangible equity(1) | |
| 15.76 | |
| 13.45 | | |
| 14.37 | |
| 14.37 | |
Net interest margin, fully taxable equivalent (FTE)(1) (3) | |
| 3.19 | |
| 2.74 | | |
| 3.07 | |
| 2.81 | |
Adjusted net interest margin(1) | |
| 3.19 | |
| 2.67 | | |
| 3.07 | |
| 2.73 | |
Efficiency ratio(1) | |
| 59.25 | |
| 63.45 | | |
| 60.78 | |
| 62.20 | |
| | | | | | | | | | | | | | |
FINANCIAL DATA (In millions) | | | | | | | | | | | | | | |
Total assets | | $ | 3,716 | | $ | 3,639 | | | $ | 3,716 | | $ | 3,639 | |
Total earning assets(4) | |
| 3,399 | |
| 3,282 | | |
| 3,399 | |
| 3,282 | |
Total investments | |
| 593 | |
| 636 | | |
| 593 | |
| 636 | |
Total loans | |
| 2,727 | |
| 2,516 | | |
| 2,727 | |
| 2,516 | |
Allowance for credit losses | |
| 24 | |
| 23 | | |
| 24 | |
| 23 | |
Total goodwill and intangible assets | |
| 126 | |
| 127 | | |
| 126 | |
| 127 | |
Total deposits | |
| 3,079 | |
| 2,822 | | |
| 3,079 | |
| 2,822 | |
Total shareholders' equity | |
| 394 | |
| 414 | | |
| 394 | |
| 414 | |
Net income | |
| 11 | |
| 9 | | |
| 20 | |
| 19 | |
Adjusted income(1) | |
| 11 | |
| 9 | | |
| 20 | |
| 20 | |
| | | | | | | | | | | | | | |
ASSET QUALITY AND CONDITION RATIOS | | | | | | | | | | | | | | |
Net (recoveries) charge-offs (annualized)/average loans | |
| — | % |
| 0.01 | % | |
| (0.01) | % |
| 0.02 | % |
Allowance for credit losses/total loans | |
| 0.87 | |
| 0.91 | | |
| 0.87 | |
| 0.91 | |
Loans/deposits | |
| 89 | |
| 89 | | |
| 89 | |
| 89 | |
Shareholders' equity to total assets | |
| 10.59 | |
| 11.37 | | |
| 10.59 | |
| 11.42 | |
Tangible shareholders' equity to tangible assets(1) | |
| 7.46 | |
| 8.17 | | |
| 7.46 | |
| 8.23 | |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
PER SHARE DATA | ||||||||||||||||
Net earnings, diluted | $ | 0.56 | $ | 0.40 | $ | 1.27 | $ | 1.35 | ||||||||
Adjusted earnings, diluted (1) (2) | 0.57 | 0.34 | 1.52 | 1.11 | ||||||||||||
Total book value | 22.90 | 18.09 | 22.90 | 18.09 | ||||||||||||
Tangible book value (2) | 15.84 | 17.51 | 15.84 | 17.51 | ||||||||||||
Market price at period end | 31.36 | 24.48 | 31.36 | 24.48 | ||||||||||||
Dividends | 0.19 | 0.18 | 0.56 | 0.54 | ||||||||||||
PERFORMANCE RATIOS | ||||||||||||||||
Return on assets | 0.99 | % | 0.86 | % | 0.75 | % | 1.00 | % | ||||||||
Adjusted return on assets (1) (2) | 1.01 | 0.73 | 0.90 | 0.82 | ||||||||||||
Return on equity | 9.67 | 8.78 | 7.43 | 10.20 | ||||||||||||
Adjusted return on equity (1) (2) | 9.90 | 7.49 | 8.86 | 8.34 | ||||||||||||
Adjusted return on tangible equity (1) (2) | 14.51 | 7.75 | 12.98 | 8.88 | ||||||||||||
Net interest margin, fully taxable equivalent (FTE) (4) | 3.06 | 2.84 | 3.13 | 2.90 | ||||||||||||
Net interest margin (FTE), excluding purchased loan accretion (4) | 2.93 | 2.84 | 3.00 | 4.86 | ||||||||||||
Efficiency ratio (2) | 53.59 | 61.24 | 56.44 | 59.34 | ||||||||||||
GROWTH (Year-to-date) | ||||||||||||||||
Total commercial loans, (organic annualized) (2) | 22.1 | % | 3.3 | % | 20.5 | % | 5.3 | % | ||||||||
Total loans, (organic annualized) (2) | 8.8 | 15.0 | 12.2 | 9.9 | ||||||||||||
Total deposits, (organic annualized) (2) | 11.2 | 17.7 | 10.6 | 9.6 | ||||||||||||
FINANCIAL DATA (In millions) | ||||||||||||||||
Total assets | $ | 3,476 | $ | 1,718 | $ | 3,476 | $ | 1,718 | ||||||||
Total earning assets | 3,184 | 1,649 | 3,184 | 1,649 | ||||||||||||
Total investments | 756 | 561 | 756 | 561 | ||||||||||||
Total loans | 2,429 | 1,088 | 2,429 | 1,088 | ||||||||||||
Allowance for loan losses | 12 | 10 | 12 | 10 | ||||||||||||
Total goodwill and intangible assets | 109 | 5 | 109 | 5 | ||||||||||||
Total deposits | 2,275 | 1,034 | 2,275 | 1,034 | ||||||||||||
Total shareholders' equity | 353 | 164 | 353 | 164 | ||||||||||||
Net income | 9 | 4 | 19 | 12 | ||||||||||||
Adjusted income (4) | 9 | 3 | 23 | 10 | ||||||||||||
ASSET QUALITY AND CONDITION RATIOS | ||||||||||||||||
Net charge-offs (current quarter annualized)/average loans (5) | 0.03 | % | (0.03 | )% | 0.03 | % | (0.03 | )% | ||||||||
Allowance for loan losses/total loans (5) | 0.49 | 0.93 | 0.49 | 0.93 | ||||||||||||
Loans/deposits | 107 | 105 | 107 | 105 | ||||||||||||
Shareholders' equity to total assets | 10.17 | 9.57 | 10.17 | 9.57 | ||||||||||||
Tangible shareholders' equity to tangible assets (2) | 7.26 | 9.29 | 7.26 | 9.29 |
(1) |
(2) |
All performance ratios are annualized and are based on average balance sheet amounts, where applicable. |
(3) | |
Fully taxable equivalent considers the impact of |
(4) | |
56
CONSOLIDATED LOAN AND DEPOSIT ANALYSIS
The following tables present the quarterly trend in loan and deposit data and accompanying growth rates as of June 30, 2022 on an annualized basis:
LOAN ANALYSIS
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Annualized | ||||
| | | | | | | | | | | | | | | | | Growth % | ||||
| | | | | | | | | | | | | | | | | Quarter | | | Year | |
(in thousands, except ratios) |
| Jun 30, 2022 |
| Mar 31, 2022 |
| Dec 31, 2021 |
| Sep 30, 2021 |
| Jun 30, 2021 |
| to Date | | to Date | |||||||
Commercial real estate | | $ | 1,331,860 | | $ | 1,289,968 | | $ | 1,210,580 | | $ | 1,170,372 | | $ | 1,135,857 |
| 13 | % | | 20 | % |
Commercial and industrial | |
| 360,304 | |
| 346,394 | |
| 340,129 | |
| 331,091 | |
| 327,729 |
| 16 |
| | 12 | |
Paycheck Protection Program (PPP) | | | 170 | | | 1,126 | | | 6,669 | | | 24,227 | | | 65,918 | | * | | | * | |
Total commercial loans | |
| 1,692,334 | |
| 1,637,488 | |
| 1,557,378 | |
| 1,525,690 | |
| 1,529,504 |
| 13 | | | 17 | |
Total commercial loans, excluding PPP | | | 1,692,164 | | | 1,636,362 | | | 1,550,709 | | | 1,501,463 | | | 1,463,586 | | 14 | | | 18 | |
| | | | | | | | | | | | | | | | | | | | | |
Residential real estate | |
| 876,644 | |
| 868,382 | |
| 821,004 | |
| 849,692 | |
| 822,774 |
| 4 |
| | 14 | |
Consumer | |
| 100,816 | |
| 96,876 | |
| 98,949 | |
| 100,933 | |
| 103,589 |
| 16 |
| | 4 | |
Tax exempt and other | |
| 57,480 | |
| 51,816 | |
| 54,579 | |
| 57,839 | |
| 59,693 |
| 44 |
| | 11 | |
Total loans | | $ | 2,727,274 | | $ | 2,654,562 | | $ | 2,531,910 | | $ | 2,534,154 | | $ | 2,515,560 |
| 11 | % | | 15 | % |
*Indicates ratios of 100% or greater.
DEPOSIT ANALYSIS
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Annualized | ||||
| | | | | | | | | | | | | | | | | Growth % | ||||
| | | | | | | | | | | | | | | | | Quarter | | | Year | |
(in thousands, except ratios) |
| Jun 30, 2022 |
| Mar 31, 2022 |
| Dec 31, 2021 |
| Sep 30, 2021 |
| Jun 30, 2021 |
| to Date | | to Date | |||||||
Demand | | $ | 670,268 | | $ | 653,471 | | $ | 664,420 | | $ | 664,395 | | $ | 599,598 |
| 10 | % | | 2 | % |
NOW | |
| 883,239 | |
| 918,768 | |
| 940,631 | |
| 888,021 | |
| 802,681 |
| (15) |
| | (12) | |
Savings | |
| 663,676 | |
| 658,834 | |
| 628,670 | |
| 605,977 | |
| 578,361 |
| 3 |
| | 11 | |
Money market | |
| 499,456 | |
| 424,750 | |
| 389,291 | |
| 379,651 | |
| 371,075 |
| 70 |
| | 57 | |
Total non-maturity deposits | |
| 2,716,639 | |
| 2,655,823 | |
| 2,623,012 | |
| 2,538,044 | |
| 2,351,715 |
| 9 |
| | 7 | |
Total time deposits | |
| 361,906 | |
| 391,940 | |
| 425,532 | |
| 469,221 | |
| 470,758 |
| (31) |
| | (30) | |
Total deposits | | $ | 3,078,545 | | $ | 3,047,763 | | $ | 3,048,544 | | $ | 3,007,265 | | $ | 2,822,473 |
| 4 | % | | 2 | % |
57
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 | % |
DEPOSIT ANALYSIS | ||||||||||||||||||||||||||
Organic Annualized Growth % (1) September 30, 2017 | ||||||||||||||||||||||||||
(in thousands) | Sep 30, 2017 Balance | Jun 30, 2017 Balance | Mar 31, 2017 Balance | Acquired Lake Sunapee Bank Balance (2) | Dec 31, 2016 Balance | Quarter End | Year to Date | |||||||||||||||||||
Demand | $ | 357,398 | $ | 332,339 | $ | 349,896 | $ | 248,051 | $ | 98,856 | 30.2 | % | 15.9 | % | ||||||||||||
NOW | 442,085 | 451,171 | 242,876 | 39,999 | 175,150 | (8.1 | ) | 194.4 | ||||||||||||||||||
Money market | 300,398 | 285,312 | 349,491 | 103,142 | 282,234 | 21.2 | (45.2 | ) | ||||||||||||||||||
Savings | 373,118 | 360,306 | 511,091 | 467,735 | 77,623 | 14.2 | (332.8 | ) | ||||||||||||||||||
Total non-maturity deposits | 1,472,999 | 1,429,128 | 1,453,354 | 858,927 | 633,863 | 12.3 | (4.7 | ) | ||||||||||||||||||
Total time deposits | 802,110 | 783,876 | 720,899 | 291,684 | 416,437 | 9.3 | 33.9 | |||||||||||||||||||
Total deposits | $ | 2,275,109 | $ | 2,213,004 | $ | 2,174,253 | $ | 1,150,611 | $ | 1,050,300 | 11.2 | % | 10.6 | % |
The following table presentstables present average balances and an analysis of average ratesyields and yieldsrates on an annualized fully taxable equivalent basis for the periods included:
| | | | | | | | | | | | | | | | | | |
|
| Three Months Ended June 30, |
| |||||||||||||||
| | 2022 | | | 2021 |
| ||||||||||||
| | Average | | | | | | | | Average | | | | | |
| ||
(in thousands, except ratios) |
| Balance |
| Interest(3) |
| Yield/Rate(3) |
| | Balance |
| Interest(3) |
| Yield/Rate(3) |
| ||||
Assets |
| |
|
| |
|
|
|
| | |
|
| |
|
|
| |
Interest-earning deposits with other banks | | $ | 63,317 | | $ | 127 | | 0.80 | % | | $ | 228,825 | | $ | 54 | | 0.09 | % |
Securities available for sale and FHLB stock(2)(3) | | | 637,881 | | | 4,276 | | 2.69 | | | | 635,978 | | | 4,217 | | 2.66 | |
Loans: | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | 1,296,162 | | | 12,348 |
| 3.82 | | | | 1,122,831 | | | 9,921 |
| 3.54 | |
Commercial and industrial | |
| 412,518 | |
| 3,771 |
| 3.67 | | |
| 378,634 | |
| 3,394 |
| 3.60 | |
Paycheck protection program | | | 788 | | | 27 | | 13.99 | | | | 76,701 | | | 1,064 | | 5.56 | |
Residential | |
| 863,172 | |
| 7,635 |
| 3.55 | | |
| 850,119 | |
| 8,063 |
| 3.80 | |
Consumer | |
| 98,588 | |
| 938 |
| 3.82 | | |
| 104,851 | |
| 900 |
| 3.44 | |
Total loans (1) | |
| 2,671,228 | |
| 24,719 |
| 3.71 | | |
| 2,533,136 | |
| 23,342 |
| 3.70 | |
Total earning assets | |
| 3,372,426 | |
| 29,122 |
| 3.46 | % | |
| 3,397,939 | |
| 27,613 |
| 3.26 | % |
Other assets | |
| 315,950 | | | |
|
| | |
| 348,146 | |
|
|
| | |
Total assets | | $ | 3,688,376 | | | |
|
| | | $ | 3,746,085 | |
|
|
| | |
| | | | | | | | | | | | | | | | | | |
Liabilities | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
NOW | | $ | 893,239 | | $ | 304 |
| 0.14 | % | | $ | 781,836 | | $ | 238 |
| 0.12 | % |
Savings | |
| 657,047 | |
| 138 |
| 0.08 | | |
| 568,193 | |
| 138 |
| 0.10 | |
Money market | |
| 457,088 | |
| 213 |
| 0.19 | | |
| 368,826 | |
| 112 |
| 0.12 | |
Time deposits | |
| 375,782 | |
| 540 |
| 0.58 | | |
| 619,454 | |
| 2,116 |
| 1.37 | |
Total interest bearing deposits | |
| 2,383,156 | |
| 1,195 |
| 0.20 | | |
| 2,338,309 | |
| 2,604 |
| 0.45 | |
Borrowings | |
| 178,519 | |
| 1,074 |
| 2.41 | | |
| 345,896 | |
| 1,826 |
| 2.12 | |
Total interest bearing liabilities | |
| 2,561,675 | |
| 2,269 |
| 0.36 | % | |
| 2,684,205 | |
| 4,430 |
| 0.66 | % |
Non-interest bearing demand deposits | |
| 661,412 | |
|
|
|
| | |
| 591,982 | |
|
|
| | |
Other liabilities | |
| 67,069 | |
|
|
|
| | |
| 57,227 | |
|
|
| | |
Total liabilities | |
| 3,290,156 | |
|
|
|
| | |
| 3,333,414 | |
|
|
| | |
| | | | | | | | | | | | | | | | | | |
Total shareholders' equity | |
| 398,220 | |
|
|
|
| | |
| 412,671 | |
|
|
| | |
| | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders' equity | | $ | 3,688,376 | |
|
|
|
| | | $ | 3,746,085 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Net interest spread | |
|
| |
|
|
| 3.10 | % | |
|
| |
|
|
| 2.60 | % |
Net interest margin | | | | | | | | 3.19 | | |
|
| |
|
|
| 2.74 | |
Adjusted net interest margin(4) | |
|
| |
|
|
| 3.19 | | | | | | | | | 2.67 | |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||
(In thousands) | Average Balance | Yield/Rate (FTE basis) (3) | Average Balance | Yield/Rate (FTE basis) (3) | Average Balance | Yield/Rate (FTE basis) (3) | Average Balance | Yield/Rate (FTE basis) (3) | ||||||||||||||||
Assets | ||||||||||||||||||||||||
Loans (1) | $ | 2,402,171 | 4.13 | % | $ | 1,058,253 | 3.89 | % | $ | 2,379,190 | 4.10 | % | $ | 1,033,070 | 3.97 | % | ||||||||
Securities and other (2) | 754,450 | 3.13 | 551,456 | 3.07 | 758,748 | 3.11 | 543,513 | 3.07 | ||||||||||||||||
Total earning assets | 3,156,621 | 3.89 | % | 1,609,709 | 3.62 | % | 3,137,938 | 3.86 | % | 1,576,583 | 3.66 | % | ||||||||||||
Other non-earning assets | 295,924 | 79,826 | 305,735 | 76,431 | ||||||||||||||||||||
Total assets | $ | 3,452,545 | $ | 1,689,535 | $ | 3,443,673 | $ | 1,653,014 | ||||||||||||||||
Liabilities | ||||||||||||||||||||||||
Interest bearing deposits | $ | 1,901,501 | 0.66 | % | $ | 897,703 | 0.78 | % | $ | 1,863,091 | 0.57 | % | $ | 874,666 | 0.75 | % | ||||||||
Borrowings | 812,938 | 1.66 | 514,999 | 1.06 | 835,274 | 1.49 | 520,508 | 1.03 | ||||||||||||||||
Total interest-bearing liabilities | 2,714,439 | 0.96 | % | 1,412,702 | 0.88 | % | 2,698,365 | 0.85 | % | 1,395,174 | 0.86 | % | ||||||||||||
Non-interest-bearing demand deposits | 354,470 | 103,971 | 327,547 | 88,652 | ||||||||||||||||||||
Other non-earning liabilities | 30,079 | 7,376 | 68,973 | 7,281 | ||||||||||||||||||||
Total liabilities | 3,098,988 | 1,524,049 | 3,094,885 | 1,491,107 | ||||||||||||||||||||
Total shareholders' equity | 353,557 | 165,486 | 348,788 | 161,907 | ||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 3,452,545 | $ | 1,689,535 | $ | 3,443,673 | $ | 1,653,014 | ||||||||||||||||
Net interest spread | 2.93 | % | 2.74 | % | 3.01 | % | 2.81 | % | ||||||||||||||||
Net interest margin | 3.06 | 2.84 | 3.13 | 2.90 |
(1) | The average balances of loans include |
(2) | The average balance for securities available for sale is based on amortized cost. |
(3) | Fully taxable equivalent considers the impact of |
58
| | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | ||||||||||||||||
| | 2022 | | 2021 |
| |||||||||||||
| | Average | | Interest | | Yield/ | | Average | | Interest | | Yield/ | ||||||
(in millions, except ratios) |
| Balance |
| (3) |
| Rate(3) | | Balance |
| (3) |
| Rate(3) | ||||||
Assets | | | | | | | | | | | | | | | | | | |
Interest-earning deposits with other banks | | $ | 100,052 | | $ | 183 | | 0.37 | % | | $ | 200,333 | | $ | 93 | | 0.09 | % |
Securities available for sale and FHLB stock(2)(3) | | | 630,443 | | | 8,239 | | 2.64 | | | | 624,866 | | | 8,438 | | 2.72 | |
Loans: | | | | | | | | | | | | | | | | | | |
Commercial real estate | | | 1,282,528 | | | 23,255 |
| 3.66 | | | | 1,112,909 | | | 19,908 |
| 3.61 | |
Commercial and industrial(3) | |
| 392,006 | |
| 7,132 |
| 3.67 | | |
| 378,087 | |
| 6,988 |
| 3.73 | |
Paycheck protection program | | | 16,112 | | | 223 | | 2.80 | | | | 70,925 | | | 2,368 | | 6.73 | |
Residential | |
| 857,109 | |
| 15,125 |
| 3.56 | | |
| 880,174 | |
| 16,571 |
| 3.80 | |
Consumer | |
| 98,824 | |
| 1,782 |
| 3.64 | | |
| 107,079 | |
| 1,865 |
| 3.51 | |
Total loans (1) | |
| 2,646,579 | |
| 47,517 |
| 3.62 | | |
| 2,549,174 | |
| 47,700 |
| 3.77 | |
Total earning assets | |
| 3,377,074 | |
| 55,939 |
| 3.34 | % | |
| 3,374,373 | |
| 56,231 |
| 3.36 | % |
Other assets | |
| 325,144 | | | |
|
| | |
| 353,303 | | | |
|
| |
Total assets | | $ | 3,702,218 | | | |
|
| | | $ | 3,727,676 | | | |
|
| |
| | | | | | | | | | | | | | | | | | |
Liabilities | |
|
| |
|
|
|
| | |
|
| |
|
|
|
| |
NOW | | $ | 911,420 | | $ | 618 |
| 0.14 | % | | $ | 768,616 | | $ | 488 |
| 0.13 | % |
Savings | |
| 649,652 | |
| 275 |
| 0.09 | | |
| 556,146 | |
| 307 |
| 0.11 | |
Money market | |
| 438,189 | |
| 331 |
| 0.15 | | |
| 373,512 | |
| 239 |
| 0.13 | |
Time deposits | |
| 390,040 | |
| 1,160 |
| 0.60 | | |
| 637,193 | |
| 4,521 |
| 1.43 | |
Total interest bearing deposits | |
| 2,389,301 | |
| 2,384 |
| 0.20 | | |
| 2,335,467 | |
| 5,555 |
| 0.48 | |
Borrowings | |
| 178,643 | |
| 2,084 |
| 2.35 | | |
| 342,854 | |
| 3,637 |
| 2.14 | |
Total interest bearing liabilities | |
| 2,567,944 | |
| 4,468 |
| 0.35 | % | |
| 2,678,321 | |
| 9,192 |
| 0.69 | % |
Non-interest bearing demand deposits | |
| 661,677 | |
|
|
|
| | |
| 573,659 | |
|
|
|
| |
Other liabilities | |
| 65,669 | |
|
|
|
| | |
| 65,959 | |
|
|
|
| |
Total liabilities | |
| 3,295,290 | |
|
|
|
| | |
| 3,317,939 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Total shareholders' equity | |
| 406,928 | |
|
|
|
| | |
| 409,737 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders' equity | | $ | 3,702,218 | |
|
|
|
| | | $ | 3,727,676 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | | |
Net interest spread | | | | | | | | 2.99 | % | | | | | | | | 2.67 | % |
Net interest margin | |
|
| |
|
|
| 3.07 | | |
|
| |
|
|
| 2.81 | |
Adjusted net interest margin(4) | | | | | | | | 3.07 | | | | | | | | | 2.73 | |
(1) | The average balances of loans include non-accrual loans and unamortized deferred fees and costs. |
(2) | The average balance for securities available for sale is based on amortized cost. |
(3) | Fully taxable equivalent considers the impact of tax-advantaged securities and loans. |
(4) | Adjusted net interest margin excludes Paycheck Protection Program loans. |
59
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, or 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’sour GAAP financial information. The Company’sA reconciliation of non-GAAP financial measures may not be comparable to similar non-GAAP information which may be presented by other companies.GAAP measures is provided below. In all cases, it should be understood that non-GAAP operating measures do not depict amounts that accrue directly to the benefit of shareholders. An item whichthat management excludes when computing non-GAAP adjusted earnings can be of substantial importance to the Company’sour results and condition for any particular quarter or year. A reconciliation ofOur 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 us in this report as supplemental financial measures todata should be considered in conjunction with our GAAP measures is provided below.
We use the non-GAAP measure of adjusted earnings in evaluating operating trends, including components for operatingadjusted revenue and expense. These measures exclude amounts which the Company viewsthat we view as unrelated to its normalized operations, including gains/losses on securities, gains/losses,premises, equipment and other real estate owned, acquisition costs, restructuring costs, legal settlements, and systems conversion costs. TheseNon-GAAP adjustments are presented net of an adjustment for related income tax expense. This adjustment is determined as the difference between the GAAP tax rate and the effective tax rate applicable to adjusted income. The Company calculates several non-GAAP performance measures based on its measure of adjusted earnings, including
We also calculate adjusted earnings per share based on our measure of adjusted return on assets, adjusted return on equity, and the efficiency ratio. The Company viewsearnings. We view these amounts as important to understanding its performanceoperating trends, particularly due to the impact of accounting standards related to acquisition activity. Several of these measures are used as performance metrics in assessing the achievement of short and long term incentive compensation for management. Analysts also rely on these measures in estimating and evaluating the Company’sour performance. Management also believesWe believe that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Companyus to other companies in the financial services industry. The Company adjustsWe also adjust certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community and as componentscommunity.
60
The following table summarizes the reconciliation of non-GAAP items recorded for the time periods and dates indicatedpresented:
| | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
(in thousands) |
| Calculations |
| 2022 |
| 2021 | | 2022 |
| 2021 | ||||
Net income |
|
| | $ | 10,503 | | $ | 9,025 | | $ | 19,615 | | $ | 18,505 |
Non-recurring items: | | | | | | | | | | | | | | |
Gain on sale of securities, net |
|
| |
| — | |
| (50) | |
| (9) | |
| (50) |
Loss (gain) on sale of premises and equipment, net |
|
| |
| 10 | |
| 1 | |
| (65) | |
| 9 |
Loss on other real estate owned |
|
| |
| — | |
| — | |
| — | |
| 324 |
Acquisition, conversion and other expenses |
|
| |
| — | |
| 552 | |
| 325 | |
| 1,441 |
Income tax expense (1) |
|
| |
| (2) | |
| (119) | |
| (205) | |
| (409) |
Total non-recurring items | | | | | 8 | | | 384 | | | 46 | | | 1,315 |
Total adjusted income(2) |
| (A) | | $ | 10,511 | | $ | 9,409 | | $ | 19,661 | | $ | 19,820 |
| | | | | | | | | | | | | | |
Net interest income |
| (B) | | $ | 26,519 | | $ | 22,754 | | $ | 50,817 | | $ | 46,176 |
Plus: Non-interest income |
|
| |
| 8,961 | |
| 9,505 | |
| 18,270 | |
| 19,753 |
Total Revenue |
|
| |
| 35,480 | |
| 32,259 | |
| 69,087 | |
| 65,929 |
Gain on sale of securities, net |
|
| |
| — | |
| (50) | |
| (9) | |
| (50) |
Total adjusted revenue(2) |
| (C) | | $ | 35,480 | | $ | 32,209 | | $ | 69,078 | | $ | 65,879 |
| | | | | | | | | | | | | | |
Total non-interest expense |
|
| | $ | 21,700 | | $ | 21,724 | | $ | 43,586 | | $ | 44,215 |
Non-recurring expenses: | | | | | | | | | | | | | | |
(Loss) gain on sale of premises and equipment, net |
|
| |
| (10) | |
| (1) | |
| 65 | |
| (9) |
Loss on other real estate owned |
|
| |
| — | |
| — | |
| — | |
| (324) |
Acquisition, conversion and other expenses |
|
| |
| — | |
| (552) | |
| (325) | |
| (1,441) |
Total non-recurring expenses | | | | | (10) | | | (553) | | | (260) | | | (1,774) |
Adjusted non-interest expense(2) |
| (D) | | $ | 21,690 | | $ | 21,171 | | $ | 43,326 | | $ | 42,441 |
| | | | | | | | | | | | | | |
Total revenue | | | | | 35,480 | | | 32,259 | | | 69,087 | | | 65,929 |
Total non-interest expense | | | | | 21,700 | | | 21,724 | | | 43,586 | | | 44,215 |
Pre-tax, pre-provision net revenue | | | | $ | 13,780 | | $ | 10,535 | | $ | 25,501 | | $ | 21,714 |
| | | | | | | | | | | | | | |
Adjusted revenue(2) | | | | | 35,480 | | | 32,209 | | | 69,078 | | | 65,879 |
Adjusted non-interest expense(2) | | | | | 21,690 | | | 21,171 | | | 43,326 | | | 42,441 |
Adjusted pre-tax, pre-provision net revenue(2) | | | | $ | 13,790 | | $ | 11,038 | | $ | 25,752 | | $ | 23,438 |
| | | | | | | | | | | | | | |
(in millions) |
|
| |
|
| |
|
| |
|
| |
|
|
Average earning assets |
| (E) | | $ | 3,372 | | $ | 3,398 | | $ | 3,377 | | $ | 3,374 |
Average paycheck protection program (PPP) loans | | (R) | | | 1 | | | 77 | | | 16 | | | 71 |
Average earning assets, excluding PPP loans | | (S) | | | 3,371 | | | 3,321 | | | 3,361 | | | 3,303 |
Average assets |
| (F) | |
| 3,688 | |
| 3,746 | |
| 3,702 | |
| 3,728 |
Average shareholders' equity |
| (G) | |
| 398 | |
| 413 | |
| 407 | |
| 410 |
Average tangible shareholders' equity(2)(3) |
| (H) | |
| 272 | |
| 286 | |
| 281 | |
| 283 |
Tangible shareholders' equity, period-end(2)(3) |
| (I) | |
| 268 | |
| 287 | |
| 268 | |
| 289 |
Tangible assets, period-end(2)(3) |
| (J) | |
| 3,590 | |
| 3,512 | |
| 3,590 | |
| 3,512 |
| | | | | | | | | | | | | | |
61
| | | | | | | | | | | | | | |
| | | | Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
| | Calculations | | 2022 | | 2021 | | 2022 | | 2021 | ||||
(in thousands) |
|
| |
|
| |
|
| |
|
| |
|
|
Common shares outstanding, period-end |
| (K) | |
| 15,026 | |
| 14,972 | |
| 15,026 | |
| 14,972 |
Average diluted shares outstanding |
| (L) | |
| 15,077 | |
| 15,042 | |
| 15,094 | |
| 15,026 |
| | | | | | | | | | | | | | |
Adjusted earnings per share, diluted(2) |
| (A/L) | | $ | 0.70 | | $ | 0.63 | | $ | 1.30 | | $ | 1.32 |
Tangible book value per share, period-end(2) |
| (I/K) | |
| 17.83 | |
| 19.17 | |
| 17.83 | |
| 19.17 |
Securities adjustment, net of tax(1)(4) |
| (M) | |
| (38,304) | |
| 7,237 | |
| (38,304) | |
| 7,237 |
Tangible book value per share, excluding securities adjustment(2)(4) |
| (I+M)/K | |
| 20.38 | |
| 18.69 | |
| 20.38 | |
| 18.69 |
Total tangible shareholders' equity/total tangible assets(2) |
| (I/J) | |
| 7.46 | |
| 8.17 | |
| 7.46 | |
| 8.17 |
| | | | | | | | | | | | | | |
Performance ratios(5) | | | | | | | | | | | | | | |
Return on assets | |
| | | 1.14 | % | | 0.97 | | | 1.07 | % | | 1.00 |
Adjusted return on assets(2) | | (A/F) | | | 1.14 | | | 1.01 | | | 1.07 | | | 1.07 |
Pre-tax, pre-provision return on assets | | | | | 1.50 | | | 1.13 | | | 1.39 | | | 1.17 |
Adjusted pre-tax, pre-provision return on assets (2) | | (U/F) | | | 1.50 | | | 1.18 | | | 1.40 | | | 1.27 |
Return on equity | |
| | | 10.58 | | | 8.77 | | | 9.72 | | | 9.10 |
Adjusted return on equity(2) | | (A/G) | | | 10.59 | | | 9.14 | | | 9.74 | | | 9.75 |
Return on tangible equity | | | | | 15.74 | | | 12.91 | | | 14.33 | | | 13.44 |
Adjusted return on tangible equity(1)(2) | | (A+Q)/H | | | 15.76 | | | 13.45 | | | 14.37 | | | 14.37 |
Efficiency ratio(2)(6) | | (D-O-Q)/(C+N) | | | 59.25 | | | 63.45 | | | 60.78 | | | 62.20 |
Net interest margin | | (B+P)/E | | | 3.19 | | | 2.74 | | | 3.07 | | | 2.81 |
Adjusted net interest margin(2)(7) | | (B+P-T)/S | | | 3.19 | | | 2.67 | | | 3.07 | | | 2.73 |
| | | | | | | | | | | | | | |
Supplementary data (in thousands) | |
| | |
| | |
| | |
| | |
|
Taxable equivalent adjustment for efficiency ratio | | (N) | | $ | 491 | | $ | 586 | | $ | 967 | | $ | 1,181 |
Franchise taxes included in non-interest expense | | (O) | | | 144 | | | 128 | | | 285 | | | 253 |
Tax equivalent adjustment for net interest margin | | (P) | | | 334 | | | 430 | | | 654 | | | 863 |
Intangible amortization | | (Q) | | | 233 | | | 233 | | | 466 | | | 474 |
Interest and fees on PPP loans | | (T) | | | 27 | | | 1,064 | | | 223 | | | 2,368 |
BAR HARBOR BANKSHARES | |||||||||||||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY DATA- UNAUDITED | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
(in thousands) | 2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 8,617 | $ | 3,632 | $ | 19,386 | $ | 12,349 | |||||||||
Adj: Security Gains | (19 | ) | (1,354 | ) | (19 | ) | (4,489 | ) | |||||||||
Adj: Loss on sale of fixed assets, net | (1 | ) | 216 | 94 | 216 | ||||||||||||
Adj: Acquisition expense | 346 | 320 | 5,917 | 812 | |||||||||||||
Adj: Income taxes (37.57% in 2017, 35.0% in 2016) | (122 | ) | 286 | (2,251 | ) | 1,211 | |||||||||||
Total adjusted income (4) | (A) | $ | 8,821 | $ | 3,100 | $ | 23,127 | $ | 10,099 | ||||||||
Net-interest income | (B) | $ | 23,478 | $ | 10,999 | $ | 68,659 | $ | 33,717 | ||||||||
Plus: Non-interest income | 6,960 | 3,372 | 19,465 | 10,314 | |||||||||||||
Total Revenue | 30,438 | 14,371 | 88,124 | 44,031 | |||||||||||||
Adj: Net security gains | (19 | ) | (1,354 | ) | (19 | ) | (4,489 | ) | |||||||||
Total adjusted revenue (4) | (C) | $ | 30,419 | $ | 13,017 | $ | 88,105 | $ | 39,542 | ||||||||
Total non-interest expense | $ | 17,586 | $ | 8,750 | $ | 58,463 | $ | 25,478 | |||||||||
Less: Acquisition expense | (346 | ) | (320 | ) | (5,917 | ) | (812 | ) | |||||||||
Adjusted non-interest expense (4) | (D) | $ | 17,240 | $ | 8,430 | $ | 52,546 | $ | 24,666 | ||||||||
(in millions) | |||||||||||||||||
Total average earning assets | (E) | $ | 3,157 | $ | 1,610 | $ | 3,138 | $ | 1,577 | ||||||||
Total average assets | (F) | 3,453 | 1,690 | 3,444 | 1,653 | ||||||||||||
Total average shareholders' equity | (G) | 354 | 165 | 349 | 162 | ||||||||||||
Total average tangible shareholders' equity | (H) | 244 | 160 | 242 | 157 | ||||||||||||
Total tangible shareholders' equity, period-end (1) | (I) | 244 | 159 | 244 | 159 | ||||||||||||
Total tangible assets, period-end (1) | (J) | 3,367 | 1,713 | 3,367 | 1,713 | ||||||||||||
(in thousands) | |||||||||||||||||
Total common shares outstanding, period-end | (K) | 15,432 | 9,084 | 15,432 | 9,084 | ||||||||||||
Average diluted shares outstanding | (L) | 15,511 | 9,162 | 15,204 | 9,138 | ||||||||||||
Adjusted earnings per share, diluted | (A/L) | $ | 0.57 | $ | 0.34 | $ | 1.52 | $ | 1.11 | ||||||||
Tangible book value per share, period-end | (I/K) | 15.84 | 17.51 | 15.84 | 17.51 | ||||||||||||
Total tangible shareholders' equity/total tangible assets | (H/J) | 7.26 | 9.29 | 7.26 | 9.29 | ||||||||||||
Performance ratios (2) | |||||||||||||||||
GAAP return on assets | 0.99 | % | 0.86 | % | 0.75 | % | 1.00 | % | |||||||||
Adjusted return on assets (4) | (A/F) | 1.01 | 0.73 | 0.90 | 0.82 | ||||||||||||
GAAP return on equity | 9.67 | 8.78 | 7.43 | 10.20 | |||||||||||||
Adjusted return on equity (4) | (A/G) | 9.90 | 7.49 | 8.86 | 8.34 | ||||||||||||
Adjusted return on tangible equity (3) (4) | (A/I) | 14.51 | 7.75 | 12.98 | 8.88 | ||||||||||||
Efficiency ratio (4)(5) | (D-N-P)/(C+M) | 53.59 | 61.24 | 56.44 | 59.34 | ||||||||||||
Net interest margin | (B+O)/E | 3.06 | 2.84 | 3.13 | 2.90 |
Supplementary data (in thousands) | |||||||||||||||||
Taxable equivalent adjustment for efficiency ratio | (M) | $ | 1,107 | $ | 434 | $ | 3,269 | $ | 1,061 | ||||||||
Franchise taxes included in non-interest expense | (N) | 154 | 36 | 438 | 103 | ||||||||||||
Tax equivalent adjustment for net interest margin | (O) | 878 | 168 | 2,568 | 528 | ||||||||||||
Intangible amortization | (P) | 189 | 157 | 534 | 471 |
(1) |
(2) | Non-GAAP financial measure. |
(3) | Tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. |
(4) | Securities adjustment, net of tax represents the total unrealized losses and gains on available-for-sale securities recorded on our consolidated balance sheets within total common shareholders' equity. |
(6) | |
Efficiency ratio is computed by dividing |
(7) | Adjusted net interest margin excludes Paycheck Protection Program loans. |
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QUARTERLY PERFORMANCE SUMMARY
Earnings (second quarter of 2022 compared to the same quarter of 2021)
• | Net income was $10.5 million, an increase of $1.5 million or 16%, which increased return on assets to 1.14% from 0.97%. Return on equity was 10.58% compared to 8.77%, which includes the benefit of higher net income and lower average equity related to unrealized losses on securities as noted below under the Financial Position section. |
• | Diluted earnings per share was $0.70, an increase of $0.10 or 17%. Earnings per share in the second quarter of 2021 included a $0.05 benefit from Paycheck Protection Program (PPP) loan fee accretion, which was offset by $0.03 of non-recurring expenses. |
• | Net interest income was $26.5 million, an increase of 17%. Net interest margin was 3.19% in the second quarter of 2022, an increase of 45 basis points from the same period in 2021. The increase in the net interest margin from prior year is largely due to a higher interest rate environment, and continued strong loan growth and lower wholesale borrowings. |
• | The provision for credit losses was an expense of $534 thousand principally due to loan growth compared to a net benefit of $765 thousand on improved economic conditions and a reduction in loan balances. |
• | Non-interest income was $9.0 million, a decrease of 6% from lower mortgage banking income offset in part by higher customer service fees. Wealth management income was flat with prior year. |
• | Non-interest expense was $21.7 million in both periods, which improved the efficiency ratio to 59.25% from 63.45% on higher total revenue. |
Financial Position(As of June 30, 2022, compared to March 31, 2022)
• | Total assets increased $23.7 million to $3.7 billion mainly due to loan growth supported by solid growth in non-maturity deposits (core deposits). |
• | Cash and cash equivalents were $67.1 million, compared to $111.0 million. The decrease reflects our continued use of excess cash to fund loan growth in 2022. |
• | Securities were $592.7 million, or 16% of total assets, compared to $611.3 million, or 17% of total assets. Net unrealized losses were $49.7 million, or 8% of gross securities, compared with $26.3 million, or 4% of gross securities as fixed rate securities continued to price reflecting higher interest rates. |
• | Total loans grew 11% on annualized basis during the quarter as balances increased across all product offerings, especially commercial loans, which grew at a 13% annualized rate. Residential loans continued increase during the quarter at a 4% annualized rate as we continue to put more production on the balance sheet given the current profitable market rates. |
• | The ratio of the allowance for credit losses to total loans was 0.87% in both periods. We believe that our disciplined approach and underwriting expertise has allowed us to maintain superior credit quality. We continue to have very low charge-offs offset and a positive cycle of recoveries, along with improvement in almost every credit measurement. |
• | Total deposits grew 4% on annualized basis during the quarter as core deposits expanded at an annualized rate of 9% on an increasing number of customer accounts. |
• | Total book value per share was $26.19 compared to $27.11. Net unrealized security losses reduced book value per share by $2.55 compared to $1.35. Tangible book value per share excluding net unrealized security losses (non-GAAP) increased 6% on annualized basis on strong net income offset by dividends to shareholders. |
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In June 2022, our Board of Directors authorized a stock repurchase plan for up to 5% of outstanding shares of common stock, which represents approximately 751,000 shares. No repurchases were made in the second quarter 2022, but we will continue examine buying opportunities considering market conditions, including interest rate volatility and potential loan and risk-weighted asset growth.
COMPARISON OF FINANCIAL SUMMARY
Securities
Total securities decreased to $592.7 million from $625.6 million at year-end. The Company reported third$32.9 million decrease in total securities included $77.4 million of purchases, $11.8 million in sales, an $8.2 million cost reduction to municipal securities that are hedged, and $37.4 million of maturities, calls and pay-downs of amortizing securities. Fair value adjustments reduced the security portfolio by $49.7 million at the end of the June 2022 compared to an increase of $2.6 million at year-end 2021. Net unrealized losses in the first six months of 2022 resulted from the Federal Reserve increasing the federal funds target interest rate 150 basis points in that period. The weighted average yield of our securities portfolio was 3.21% at quarter-end and 2.63% at year-end. Securities held at quarter-end had an average life of 9.0 years and an effective duration of 5.1 years compared to 5.3 years and 4.2 years at year-end 2021, respectively.
Loans
Total loans increased $195.4 million from year-end 2021, or 15% annualized, to $2.7 billion at June 30, 2022, which included strong growth across all product lines and included 130 new lending relatinships. Commercial loans increased $135.0 million primarily due to new loans with existing customers. PPP loan balances totaled $170 thousand at the end of the quarter, 2017compared to $6.7 million at year-end. Total residential loans increased $55.6 million from the end of the fourth quarter 2021, as we placed more originations on the balance sheet instead of selling into the secondary market. Residential loan origination volume in 2022 is significantly down as compared to respective periods 2021 on lower refinancing activity and increasing market rates.
Allowance for Credit Losses
The allowance for credit losses was $23.8 million at quarter-end as compared to $22.7 million at year-end. A steadying economic forecast and disciplined approach to credit quality resulted in an allowance to total loans coverage ratio of 0.87% compared to 0.90% at year-end. Net recoveries on previously charged-off loans for the first half of 2022 totaled $127 thousand compared to net incomecharge-offs of $8.6$241 thousand for the same period of 2021. Non-accruing loans decreased to $7.9 million or 56 cents per share. Adjusted earnings totaled $8.8from $10.2 million or 57 cents per share representingat year-end with improvement across all loan categories. The progress in non-accrual loans is a 10% increase overquarterly trend seen since the prior quarter.end of year 2020. The ratio of accruing past due loans to total loans improved to 0.12% of total loans at quarter-end from 0.32% at year-end 2021.
Other Assets
Other assets were $348.9 million compared to $318.5 million at year-end 2021. The increase reflects the strength$12.0 million of the Company's now expanded footprintdeferred tax assets recorded in connection with unrealized losses on securities, $6.8 million of investments made in tax credits and seasoned team. As discussed in an earlier section, the Company uses the non-GAAP measure of adjusted earnings,community developments, and related metrics, to evaluate the results of its operations.
Deposits and Borrowings
Total deposits increased $30.0 million from year-end 2021 to $3.1 billion. Core deposits grew $93.6 million, or 7% on an year-to-date annualized commercial loan growth
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Other Liabilities
Other liabilities were $66.1 million compared to $58.0 million at year-end 2021. The $8.0 million increase is principally due to tax credit and community development investment commitments made in the first quarter 2022.
Equity
Total equity at quarter-end was driven by$393.6 million compared to $424.1 million at year-end 2021. The $30.5 million decrease in the Company’s focus on its core banking areas and investments that represent the most efficient usefirst half of capital. Transactions like this along with adhering2022 included net of income totaling $19.6 million, $7.5 million of dividends 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 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172022 AND 2016
Net Income
Net income in 2017 include the Lake Sunapee operations acquired on January 13, 2017. As a result, many measures of revenue, expense, income, and average balances increasedsecond quarter 2022 was $10.5 million, or $0.70 per diluted share, compared to prior periods.
Net income for the first half of 2022 was $19.6 million, or $1.30 per diluted share, compared to $18.5 million, or $1.23 per diluted share, in the same period of 2021. Adjusted earnings (non-GAAP) totaled $19.7 million or $1.30 per diluted share, compared to $19.8 million, or $1.32 per diluted share, in the same period of 2021.
Net Interest Income
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 $1.0income was $26.5 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 six months of 2022, net interest income was $50.8 million compared with $46.2 million in the same quarter of 2021. The comparison of NIM and earning asset yields for the respective six month periods of 2022 and 2021 were 3.07% and 2.81%, and 3.34% and 3.36%. The explanations for the improvement in 2016. TrustNIM are consistent with those provided in the year-over-year three month comparison above.
Provision for Credit Losses
The provision for credit losses for the quarter was $534 thousand, compared to a recapture of $765 thousand in the second quarter of 2022. For the first half of 2022, provision for credit losses for the quarter was $911 thousand and investment management fee revenue added $2.1was a benefit of $1.3 million which is principally duein the same period of 2021. The change in the provisions for credit losses and benefit are mostly attributable to loan growth in 2022 and improved credit quality metrics in 2021, respectively.
Non-Interest Income
Non-interest income in the additionsecond quarter 2022 was $9.0 million, compared to $9.5 million in the same quarter of Charter Trust Company (now a wholly owned subsidiary of the Bank) as part of the Lake Sunapee Bank Group acquisition.2021. Customer service fees increased $1.9were $3.7 million in the second quarter compared to $3.3 million in the priorsame period of 2021. The increase reflects the net new accounts that were opened and a higher volume of customer activity and transactions. Wealth management income was $3.8 million in the second quarter also as a result of 2022 and the acquisition givensecond quarter of 2021 on strong cash inflows offset by market volatility effects on assets under management. Mortgage banking income was $488 thousand, compared to $1.5 million in the broader customer deposit basesame period of 2021 reflecting higher on balance sheet activity and higher numberlower residential loan originations.
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Non-interest income for the nine monthsfirst half of 2017 increased year-over-year by $9.22022 was $18.3 million compared to $19.5 million.$19.8 million in the same period in 2021. The decrease reflects a 17% increase in trust and customer service feefees, 2% in wealth management income, for the nine month period isand 73% decrease in mortgage banking income; all of which were driven by the same reasons as the quarterly period. However, income from security gains totaled $4.5 in 2016.
Non-Interest Expense
Non-interest expense was $21.7 million in the thirdsecond 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 growth2022 and offset in part by the ongoing improvement in loan performance and credit quality. The provision for loan losses is a charge to earnings in an amount sufficient to maintain the allowance for loan losses at a level deemed adequate by the Company as an estimate of the probable and estimable loan losses in the portfolio as of period-end. The level of the allowance is a critical accounting estimate, which is subject to uncertainty. The level of the allowance is included in the discussion of financial condition.
For the first quartersix months of 2017 and then curtailed in each subsequent quarter as severance and system conversion costs were finalized.
Liquidity and Cash Flows
Liquidity is measured by the Company’sour ability to meet short-term cash needs at a reasonable cost or minimal loss. The Company seeksWe seek to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Besides serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer initiatedcustomer-initiated needs. Many factors affect the Company’sour ability to meet liquidity needs,
The Bank actively manages its liquidity position through target ratios established under its Asset LiabilityAsset-Liability Management Policy. Continual monitoring of these ratios, bothby using historical data and through forecasts under multiple rate and stress scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity. The Bank's policy is to maintain a liquidity position of at least 8% of total assets. A portion of the Bank’s deposit base has been historically seasonal in nature, with balances typically declining in the winter months through late spring, during which period the Bank’s liquidity position tightens.
Our liquidity position remains strong. During the quarter we initiated pandemic-specific liquidity stress tests to analyze potential impacts from payment deferrals, unanticipated use of committed lines of credit, as well as the possibility of required servicer advances on sold loans. At June 30, 2022, available same-day liquidity totaled approximately $640.6 million, including cash, borrowing capacity 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 maintains a liquidity contingency plan approved by the Bank’s Board of Directors. This plan addresses the steps that would be taken in the event of a liquidity crisis, and identifies other sources of liquidity available to the Company. Companyus. Our 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’sour liquidity position.
Capital Resources
Please see the “Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with the Note 6 Capital Ratios and Shareholders’ Equity in Note 1the consolidated financial statements. Additional information about regulatory capital is contained in the notes to the consolidated financial statements in this Form 10-Q and in theour most recent Annual Report on Form 10-K. Please see those policies
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Our principal cash requirement is the payment of dividends on our common stock, as and when declared by our Board of Directors. Dividends to shareholders in conjunctionthe aggregate amount of $7.5 million and $6.9 million for the six months ended June 30, 2022 and 2021, respectively. All dividends declared and distributed by us will be in compliance with this discussion.applicable state corporate law and regulatory requirements.
Off-Balance Sheet Arrangements
We are, from time to time, a party to certain off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that may be material to investors.
Our off-balance sheet arrangements are limited to standby letters of credit whereby the Bank guarantees the obligations or performance of certain customers. These letters of credit are sometimes issued in support of third-party debt. The accountingrisk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and reporting policies followedthey 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 Company conform,Bank upon issuance of a standby letter of credit, is based upon management's credit evaluation of the customer.
Our off-balance sheet arrangements have not changed materially since previously reported in all material respects, to accounting principles generally acceptedour Annual Report on Form 10-K for the year ended December 31, 2021.
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements were prepared in the United Statesaccordance with GAAP and tofollow general practices within the financial services industry.industries in which we operate. The preparationmost significant accounting policies we follow are presented in Note 1 to our Annual Report on Form 10-K for the year ended December 31, 2021. Application of financial statements in conformity with accountingthese principles generally accepted in the United States requires managementus to make estimates, assumptions, and assumptionsjudgments that affect the amounts reported in the financial statementsConsolidated Financial Statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemedMost accounting policies are not considered by management to be relevant, actual results could differ from those estimates.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Interest rate risk is theThe most significant market risk affecting the Company.that affects us is interest rate risk. Other types of market risk do not arise in the normal course of the Company’sour business activities.
The responsibility for interest rate risk management oversight is the function of the Bank’s Asset and Liability Committee, (“ALCO”),or ALCO, chaired by the Chief Financial Officer and composed of various members of senior management. ALCO meets regularly to review balance sheet structure, formulate strategies in light of current and expected economic conditions, adjust product prices as necessary, implement policy, monitor liquidity, and review performance against guidelines established to control exposure to the various types of inherent risk.
Interest Rate Risk:
Interest rate risk can be defined as an exposure to movement in interest rates that could have an adverse impact on the Bank's net interest income. Interest rate risk arises from the imbalance in the re-pricing, maturity and and/or cash flow characteristics of assets and liabilities. Management'sManagement’s objectives are to measure, monitor and develop strategies in response to the interest rate risk profile inherent in the Bank'sBank’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'sBank’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 calloption provisions are examined on an individual basis in each rate environment to estimate the likelihood of a call.exercise. Prepayment assumptions for mortgage loans andare calibrated using specific Bank experience while mortgage-backed securities are developed from industry median estimatesstandard models of prepayment speeds, based upon similar coupon ranges and degree of seasoning. Cash flows and maturities are then determined, and for certain assets, prepayment assumptions are estimated under different interest rate scenarios. Interest income and interest expense are then simulated under several hypothetical interest rate conditions including:
The simulation models a parallel and pro rata shift in rates over a 12-month period. Using this approach, we are able to produce simulation results that illustrate the effect that both a gradual “rate ramp” and a “rate shock” have on earnings expectations. Our net interest rate scenario in which current prevailing rates are locked in and the onlyincome sensitivity analysis reflects changes to net interest income assuming no balance sheet fluctuations that occur are due to cash flows, maturities, new volumes,
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growth and re-pricing volumes consistent with this flat rate assumption;
As of SeptemberJune 30, 20172022, interest rate sensitivity modeling results indicate that the Bank’s balance sheet was moderately liabilityasset sensitive over the one- and two-year horizons (i.e., moderately exposed to risinghorizons.
The following table presents the changes in sensitivities on net interest rates).
| | | | | | | | | | | |
Change in Interest Rates-Basis Points (Rate Ramp) | | 1 - 12 Months | | 13 - 24 Months |
| ||||||
(in thousands, except ratios) | | $ Change | | % Change | | $ Change | | % Change |
| ||
At June 30, 2022 |
| |
|
|
|
| |
|
|
| |
-100 | | $ | (3,979) | | (3.2) | % | $ | (11,446) | | (8.9) | % |
+200 | |
| 5,070 | | 4.1 | | | 15,789 | | 12.3 | |
At June 30, 2021 | |
|
|
|
| |
| |
|
| |
-100 | |
| (1,969) |
| (2.1) | | | (5,648) |
| (6.3) | |
+200 | |
| 8,068 |
| 8.5 | |
| 18,905 |
| 21.0 | |
Assuming short-term and long-term interest rates decline 100 basis points from current levels (i.e., a parallel yield curve shift) and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will improve slightlydeteriorate over the one year horizon (+.2% versus the base case) while remaining relatively stabledeteriorating further from that level over the two-year horizon (+.3% versus the base case). Should the yield curve steepen as rates fall, the model suggests that accelerated earning asset prepayments will slow, resulting in a more stabilized level of net interest income. Management anticipates that moderate to strong earning asset growth will be needed to meaningfully increase the Bank’s current level of net interest income should both long-term and short-term interest rates decline in parallel.
Assuming the Bank’s balance sheet structure and size remain at current levels and the Federal Reserve increases short-term interest rates by 200 basis points with the balance of the yield curve shifting in parallel with these increases, management believes net interest income will decline moderatelyimprove over both the one and two-year horizons (-3.1% and -6.7%, respectively, versus the base case) as increased funding costs outpace increases in earning asset yields. The interest rate sensitivity simulation model suggests that as interest rates rise, the Bank’s funding costs will initially re-price disproportionately with earning asset yields to a moderate degree. As funding costs begin to stabilize early in the third year of the simulation, the model suggests that the earning asset portfolios will continue to re-price at prevailing interest rate levels and cash flows from the Bank’s earning asset portfolios will be reinvested into higher yielding earning assets, resulting in a widening of spreads and a stabilization of net interest income over the three year horizon and beyond. Management believes moderate to strong earning asset growth will be necessary to meaningfully increase the current level of net interest income over the one-year and two-year horizons should short-term and long-term interest rates rise in parallel.
As compared to June 30, 2017, the year-one2021, sensitivity in theto a down 100 basis points scenario decreased for the quarter (+.7% prior, versus +.2% current). The year-two sensitivities in the down 100 basis points scenario showed a small change going from +.8%point rate movement has increased while sensitivity to +.3%. In the year-onean up 200 basis points scenario, results improved from the prior quarter (-3.8% prior, versus -3.1% current). Year-two, up 200 basis points showspoint rate movement has decreased on a slightly more negative result (-6.2% prior, versus -6.7% current), although on balance, the current aggregate position is consistent with the prior quarter’s.
The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels and yield curve shape, prepayment speeds on loans and securities, deposit rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows, and renegotiated loan terms with borrowers. While assumptions are developed based upon current economic and local
As market conditions vary from those assumed in the sensitivity analysis, actual results may also differ due to: prepayment and refinancing levels deviating from those assumed; the impact of interest rate changes, caps or floors on adjustable rate assets; the potential effect of changing debt service levels on customers with adjustable rate loans; depositor early withdrawals and product preference changes; and other such variables. The sensitivity analysis also does not reflect additional actions that the Bank’s Senior Executive Team and Board of Directors might take in responding to or anticipating changes in interest rates, and the anticipated impact on the Bank’s net interest income.
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ITEM 4. CONTROLS AND PROCEDURES
(a) | |
Disclosure controls and procedures. |
Under the supervision and with the participation of our senior management, consisting of our principal executive officers, including theofficer and our principal financial officer, based on theirweconducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, (asas defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, have10-Q. Based on this evaluation, our management, including our principal executive officer and principal financial officer, concluded that the Company’sas of June 30, 2022, our disclosure controls and procedures were effective.
(b) | Changes in internal control over financial reporting. |
There were no changes in the Company’sour 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’sour internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
We and itsour 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 consolidatedourconsolidated financial statements.
ITEM 1A. RISK FACTORS
There were no material changes to the risk factors discussed in Part I, Item 1A. of the our Annual Report on Form 10-K for the year ended December 31, 2021.In addition to the other information set forth in this report, you should carefully consider thethose risk factors, discussed below and in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition orand future operating results. The risks described in this formThose risk factors are not the only risks that we face.facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affecthave a material adverse effect on our business, financial condition and/orand operating results.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) The following table provides certain information with regard to shares repurchased by the Company in the third quarter of 2017:
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 |
The following table indicates that no 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 maderepurchased by us in the open market or through privately negotiated transactions. The Company records repurchased shares as treasury stock.second quarter of 2022:
| | | | | | | | | |
| | | | | | 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 | |||||
April 1-30, 2022 | — | | $ | — | — | 747,000 | |||
May 1-31, 2022 | — | | — | — | 747,000 | ||||
June 1-30, 2022 | — | | — | — | 751,000 | ||||
Total | — | | $ | — | — | 751,000 |
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ITEM 6. EXHIBITS
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31.1 | ||||
Certification of Chief Executive Officer under Rule 13a-14(a)/15d-14(a) | | |||
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31.2 | Certification of Chief Financial Officer under Rule 13a-14(a)/15d-14(a) | | ||
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32.1 | Certification of Chief Executive Officer under 18 U.S.C. Sec. | | ||
| | | ||
32.2 | Certification of Chief Financial Officer under 18 U.S.C. Sec. | | ||
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101 | The following financial information from the Company’s | |||
| | |||
104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document) |
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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.
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| |||
BAR HARBOR BANKSHARES | |||
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| | | |
Dated: | By: | /s/ Curtis C. Simard | |
| | Curtis C. Simard | |
| | President & Chief Executive Officer | |
| | ||
| | ||
Dated: | | /s/ Josephine Iannelli | |
| | Josephine Iannelli | |
| | Executive Vice President & Chief Financial Officer |
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