~~0000743367bhb:LoansFromBusinessActivitiesMemberbhb:CommercialAndIndustrialLoansPortfolioSegmentMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-31~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended: September 30, ~~2020~~2021


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

For the transition period from to

Commission File Number: 001-13349

BAR HARBOR BANKSHARES

(Exact name of registrant as specified in its charter)


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

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

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

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

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

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

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

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

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

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

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

The Registrant had ~~14,928,565~~14,986,786 shares of common stock, par value $2.00 per share, outstanding as of ~~October 30, 2020.~~November 5, 2021.

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

FORM 10-Q

INDEX

				Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheets as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020			4

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020			6

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020			7

	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020			8

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020			9

	Notes to Unaudited Consolidated Interim Financial Statements
		Note 1	Basis of Presentation	11
		Note 2	Securities Available for Sale	1521
		Note 3	Loans and Allowance for Credit Losses	1824
		Note 4	~~Allowance for Loan Losses~~Borrowed Funds	36
		Note 5	~~Borrowed Funds~~Deposits	4238
		Note 6	~~Deposits~~Capital Ratios and Shareholders' Equity	4439
		Note 7	~~Capital Ratios and Shareholders' Equity~~Earnings per Share	4544
		Note 8	~~Earnings per Share~~Derivative Financial Instruments and Hedging Activities	4945
		Note 9	~~Derivative Financial Instruments and Hedging Activities~~Fair Value Measurements	5054
		Note 10	~~Fair Value Measurements~~Revenue from Contracts with Customers	5661
		Note 11	~~Revenue from Contracts with Customers~~	62
	~~Note 12~~	Leases	6463


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			6665
		Selected Financial Data		6766
		Consolidated Loan and Deposit Analysis		6867
		Average Balances and Average Yields/Rates		6968
		Non-GAAP Financial Measures		7170
		Reconciliation of Non-GAAP Financial Measures		7271
		Financial Summary		7473

Item 3.	Quantitative and Qualitative Disclosures about Market Risk			8079

Item 4.	Controls and Procedures			8281


PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings			8281

Item 1A.	Risk Factors			8281

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			8382

Item 6.	Exhibits			8483

Signatures				8584

Table of Contents

Bar Harbor Bankshares conducts business operations principally through Bar Harbor Bank & Trust, which may be referred to as ~~“the Bank”~~the “Bank” and which is a subsidiary of Bar Harbor Bankshares. Unless the context requires otherwise, references in this report to “the Company” "our company, "our," "us," and similar terms refer to Bar Harbor Bankshares and its subsidiaries, including the Bank, collectively.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions are intended to identify forward-looking statements, but these terms are not the exclusive means of identifying forward-looking statements. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission, including but not limited to those discussed in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019 and Part II, Item 1A. of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2020. Because of these and other uncertainties, the Company’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, the Company’s past results of operations do not necessarily indicate future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. The Company is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. The Company qualifies all of its forward-looking statements by these cautionary statements.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ~~(UNAUDITED)~~

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in thousands, except share data)	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Assets
Cash and cash equivalents:
Cash and due from banks	$	53,173	$	37,261	$	39,081	$	27,566
Interest-bearing deposits with the Federal Reserve Bank		162,484		19,649
Interest-bearing deposits with other banks						302,118		198,441
Total cash and cash equivalents		215,657		56,910		341,199		226,007

Securities:
Securities available for sale, at fair value		604,529		663,230
Securities available for sale						545,327		585,046
Federal Home Loan Bank stock		13,975		20,679		10,192		14,036
Total securities		618,504		683,909		555,519		599,082

Loans:
Commercial real estate		1,045,635		930,661
Commercial and industrial		522,510		423,291
Residential real estate		1,021,206		1,151,857
Consumer		119,340		135,283
Loans held for sale						7,505		23,988

Total loans		2,708,691		2,641,092		2,534,154		2,562,885
Less: Allowance for loan losses		(17,907)		(15,353)
Less: Allowance for credit losses						(22,448)		(19,082)
Net loans		2,690,784		2,625,739		2,511,706		2,543,803

Premises and equipment, net		51,424		51,205		50,070		52,458
Other real estate owned		1,983		2,236
Goodwill		119,477		118,649		119,477		119,477
Other intangible assets		7,913		8,641		6,966		7,670
Cash surrender value of bank-owned life insurance		77,388		75,863		79,380		77,870
Deferred tax assets, net		2,180		3,865
Other assets		74,400		42,111
Total assets	$	3,859,710	$	3,669,128
Deferred tax assets, net⁽¹⁾						5,811		3,047
Other assets⁽¹⁾						60,712		70,873
Total assets⁽¹⁾					$	3,738,345	$	3,724,275

Liabilities
Deposits:
Demand	$	515,064	$	414,534	$	664,395	$	544,636
NOW		706,048		575,809		888,021		738,849
Savings		511,938		388,683		605,977		521,638
Money market		388,356		384,090		379,651		402,731
Time		813,509		932,635		469,221		698,361
Total deposits		2,934,915		2,695,751		3,007,265		2,906,215

Borrowings:
Senior		385,472		471,396		190,267		276,062
Subordinated		59,920		59,920		60,083		59,961
Total borrowings		445,392		531,316		250,350		336,023

Other liabilities		74,958		45,654
Total liabilities		3,455,265		3,272,721
Other liabilities⁽¹⁾						62,295		74,972
Total liabilities⁽¹⁾						3,319,910		3,317,210

(continued)

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (continued)


(in thousands, except share data)	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Shareholders’ equity
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares at September 30, 2020 and December 31, 2019		32,857		32,857
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares at September 30, 2021 and December 31, 2020						32,857		32,857
Additional paid-in capital		189,606		188,536		190,892		190,084
Retained earnings		190,249		175,780		209,426		195,607
Accumulated other comprehensive income(1)		9,405		3,911		2,888		6,740
Less: 1,499,823 and 870,257 shares of treasury stock at September 30, 2020 and December 31, 2019, respectively		(17,672)		(4,677)
Less: 1,441,763 and 1,512,465 shares of treasury stock at September 30, 2021 and December 31, 2020, respectively						(17,628)		(18,223)
Total shareholders’ equity(1)		404,445		396,407		418,435		407,065
Total liabilities and shareholders’ equity(1)	$	3,859,710	$	3,669,128	$	3,738,345	$	3,724,275

(1)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements.

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

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(in thousands, except earnings per share data)	2020		2019		2020		2019		2021		2020		2021		2020
Interest and dividend income
Loans	$	25,918	$	28,157	$	80,398	$	82,681	$	25,094	$	25,918	$	72,490	$	80,398
Securities and other		4,557		6,105		15,006		18,593		3,821		4,557		11,792		15,006
Total interest and dividend income		30,475		34,262		95,404		101,274		28,915		30,475		84,282		95,404
Interest expense
Deposits		3,869		7,143		14,437		20,336		1,555		3,869		7,109		14,437
Borrowings		1,941		4,674		7,149		15,232		1,778		1,941		5,415		7,149
Total interest expense		5,810		11,817		21,586		35,568		3,333		5,810		12,524		21,586
Net interest income		24,665		22,445		73,818		65,706		25,582		24,665		71,758		73,818
Provision for loan losses		1,800		893		4,265		1,779
Provision for credit losses										(174)		1,800		(1,428)		4,265
Net interest income after provision for loan losses		22,865		21,552		69,553		63,927		25,756		22,865		73,186		69,553

Non-interest income
Trust and investment management fee income		3,532		3,013		10,060		8,836		3,868		3,532		11,335		10,060
Customer service fees		2,886		2,553		8,437		7,336		3,515		2,886		9,742		8,437
Gain on sales of securities, net		—		157		1,486		157		1,930		—		1,980		1,486
Mortgage banking income		2,649		452		4,230		1,094		850		2,649		4,973		4,230
Bank-owned life insurance income		492		497		1,525		1,558		494		492		1,510		1,525
Customer derivative income		316		828		1,417		1,553		341		316		837		1,417
Other income		227		143		1,078		729		352		227		726		1,078
Total non-interest income		10,102		7,643		28,233		21,263		11,350		10,102		31,103		28,233

Non-interest expense
Salaries and employee benefits		11,809		11,364		35,602		33,568		11,743		11,809		35,275		35,602
Occupancy and equipment		4,279		3,415		12,559		10,101		4,029		4,279		12,251		12,559
Loss on premises and equipment, net		—		—		90		21
Loss (gain) on sales of premises and equipment, net										(146)		—		(137)		90
Outside services		438		424		1,414		1,278		547		438		1,512		1,414
Professional services		479		707		1,488		1,821		491		479		1,200		1,488
Communication		215		189		698		707		188		215		707		698
Marketing		300		613		970		1,419		339		300		1,163		970
Amortization of intangible assets		256		207		768		621		233		256		707		768
Loss on debt extinguishment		—		—		1,351		0		1,768		—		1,768		1,351
Acquisition, conversion and other expenses		691		3,039		952		3,319		318		691		1,759		952
Other expenses		3,952		3,442		11,152		10,075		3,862		3,952		11,382		11,152
Total non-interest expense		22,419		23,400		67,044		62,930		23,372		22,419		67,587		67,044

Income before income taxes		10,548		5,795		30,742		22,260		13,734		10,548		36,702		30,742
Income tax expense		2,146		780		6,138		3,847		2,706		2,146		7,169		6,138
Net income	$	8,402	$	5,015	$	24,604	$	18,413	$	11,028	$	8,402	$	29,533	$	24,604

Earnings per share:
Basic	$	0.56	$	0.32	$	1.60	$	1.19	$	0.74	$	0.56	$	1.97	$	1.60
Diluted	$	0.56	$	0.32	$	1.60	$	1.18	$	0.73	$	0.56	$	1.96	$	1.60

Weighted average common shares outstanding:
Basic		15,079		15,547		15,359		15,536		14,983		15,079		14,961		15,359
Diluted		15,103		15,581		15,382		15,582		15,051		15,103		15,035		15,382

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

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(in thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Net income	$	8,402	$	5,015	$	24,604	$	18,413	$	11,028	$	8,402	$	29,533	$	24,604
Other comprehensive income, before tax:
Changes in unrealized gain on securities available for sale		351		3,200		7,922		21,746
Changes in unrealized gain (loss) on hedging derivatives		805		(370)		(833)		(2,372)
Changes in unrealized (loss) gain on securities available for sale										(3,700)		351		(7,328)		7,922
Changes in unrealized (loss) gain on hedging derivatives⁽¹⁾										(203)		1,302		2,311		(7,568)
Changes in unrealized loss on pension		0		0		0		0		0		0		0		0

Income taxes related to other comprehensive income:
Changes in unrealized gain on securities available for sale		(82)		(747)		(1,791)		(5,081)
Changes in unrealized (gain) loss on hedging derivatives		(190)		85		196		554
Changes in unrealized loss (gain) on securities available for sale										861		(82)		1,703		(1,791)
Changes in unrealized loss (gain) on hedging derivatives⁽¹⁾										48		(308)		(538)		1,776
Changes in unrealized loss on pension		0		0		0		0		0		0		0		0
Total other comprehensive income		884		2,168		5,494		14,847
Total other comprehensive (loss) income⁽¹⁾										(2,994)		1,263		(3,852)		339
Total comprehensive income(1)	$	9,286	$	7,183	$	30,098	$	33,260	$	8,034	$	9,665	$	25,681	$	24,943

(1)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements.

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

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

Accumulated




Common

Additional

other

stock

paid-in

Retained

comprehensive

Treasury

(in thousands, except per share data)

amount

capital

earnings

income (loss)

stock

Total
Balance at December 31, 2018

$
32,857

$
187,653

$
166,526

$
(11,802)

$
(4,655)

$
370,579

Net income

0

0

13,398

0

0

13,398
Other comprehensive income

0

0

0

12,679

0

12,679
Cash dividends declared ($0.42 per share)

0

0

(6,524)

0

0

(6,524)
Common stock purchased (8,010 shares)

0

0

0

0

(210)

(210)
Net issuance (21,119 shares) to employee stock plans, including related tax effects

0

(69)

0

0

149

80
Recognition of stock based compensation

0

560

0

0

0

560
Balance at June 30, 2019

32,857

188,144

173,400

877

(4,716)

390,562

Net income

0

0

5,015

0

0

5,015
Other comprehensive income

0

0

0

2,168

0

2,168
Cash dividends declared ($0.22 per share)

0

0

(3,421)

0

0

(3,421)
Common stock purchased (5,482 shares)

0

0

0

0

(136)

(136)
Net issuance (4,297 shares) to employee stock plans, including related tax effects

0

(17)

0

0

132

115
Recognition of stock based compensation

0

156

0

0

0

156
Balance at September 30, 2019

$
32,857

$
188,283

$
174,994

$
3,045

$
(4,720)

$
394,459

Balance at December 31, 2019

$
32,857

$
188,536

$
175,780

$
3,911

$
(4,677)

$
396,407

Net income

0

0

16,202

0

0

16,202
Other comprehensive income

0

0

0

4,610

0

4,610
Cash dividends declared ($0.44 per share)

0

0

(6,819)

0

0

(6,819)
Common stock purchased (405,208 shares)

0

0

0

0

(7,467)

(7,467)
Net issuance (61,025 shares) to employee stock plans, including related tax effects

0

406

0

0

251

657
Recognition of stock based compensation

0

584

0

0

0

584
Balance at June 30, 2020

32,857

189,526

185,163

8,521

(11,893)

404,174

Net income

0

0

8,402

0

0

8,402
Other comprehensive income

0

0

0

884

0

884
Cash dividends declared ($0.22 per share)

0

0

(3,316)

0

0

(3,316)
Common stock purchased (297,658 shares)

0

0

0

0

(6,003)

(6,003)
Net issuance (12,275 shares) to employee stock plans, including related tax effects

0

(199)

0

0

224

25
Recognition of stock based compensation

0

279

0

0

0

279
Balance at September 30, 2020

$
32,857

$
189,606

$
190,249

$
9,405

$
(17,672)

$
404,445


							Accumulated
	Common		Additional				other
	stock		paid-in		Retained		comprehensive		Treasury
(in thousands, except per share data)	amount		capital		earnings		income (loss)⁽¹⁾		stock		Total⁽¹⁾
Balance at December 31, 2019	$	32,857	$	188,536	$	175,780	$	3,792	$	(4,677)	$	396,288
Net income		0		0		16,202		0		0		16,202
Other comprehensive income		0		0		0		(924)		0		(924)
Cash dividends declared ($0.44 per share)		0		0		(6,819)		0		0		(6,819)
Treasury stock purchased (405,208 shares)		0		0		0		0		(7,467)		(7,467)
Net issuance (61,025 shares) to employee stock plans, including related tax effects		0		406		0		0		251		657
Recognition of stock based compensation		0		584		0		0		0		584
Balance at June 30, 2020	$	32,857	$	189,526	$	185,163	$	2,868	$	(11,893)	$	398,521
Net income		0		0		8,402		0		0		8,402
Other comprehensive income		0		0		0		1,263		0		1,263
Cash dividends declared ($0.22 per share)		0		0		(3,316)		0		0		(3,316)
Common stock purchased (297,658 shares)		0		0		0		0		(6,003)		(6,003)
Net issuance (12,275 shares) to employee stock plans, including related tax effects		0		(199)		0		0		224		25
Recognition of stock based compensation		0		279		0		0		0		279
Balance at September 30, 2020	$	32,857	$	189,606	$	190,249	$	4,131	$	(17,672)	$	399,171

Balance at December 31, 2020	$	32,857	$	190,084	$	195,607	$	6,740	$	(18,223)	$	407,065
Allowance for credit losses cumulative-effect adjustment - ASU 2016-13 (Note 1)		0		0		(5,242)		0		0		(5,242)
Net income		0		0		18,505		0		0		18,505
Other comprehensive loss		0		0		0		(858)		0		(858)
Cash dividends declared ($0.46 per share)		0		0		(6,876)		0		0		(6,876)
Net issuance (56,290 shares) to employee stock plans, including related tax effects		0		(280)		0		0		449		169
Recognition of stock based compensation		0		997		0		0		0		997
Balance at June 30, 2021	$	32,857	$	190,801	$	201,994	$	5,882	$	(17,774)	$	413,760
Net income		0		0		11,028		0		0		11,028
Other comprehensive income		0		0		0		(2,994)		0		(2,994)
Cash dividends declared ($0.24 per share)		0		0		(3,596)		0		0		(3,596)
Net issuance (14,412 shares) to employee stock plans, including related tax effects		0		(276)		0		0		146		(130)
Recognition of stock based compensation		0		367		0		0		0		367
Balance at September 30, 2021	$	32,857	$	190,892	$	209,426	$	2,888	$	(17,628)	$	418,435

(1)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements.

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

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BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2020		2019			2021		2020
Cash flows from operating activities:
Net income	$	24,604	$	18,413		$	29,533	$	24,604
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		4,265		1,779
Provision for credit losses							(1,428)		4,265
Net amortization of securities		2,472		2,535			3,788		2,472
Change in unamortized net loan costs and premiums		3,149		(278)			(2,739)		1,923
Premises and equipment depreciation		3,571		2,942			3,466		3,571
Stock-based compensation expense		863		716			1,364		863
Accretion of purchase accounting entries, net		(1,219)		(2,613)			10		7
Amortization of other intangibles		768		621			704		768
Income from cash surrender value of bank-owned life insurance policies		(1,525)		(1,558)			(1,510)		(1,525)
Gain on sales of securities, net		(1,486)		(157)			(1,980)		(1,486)
Increase in right-of-use lease assets		(578)		—
Increase in lease liabilities		625		—
Decrease (increase) in right-of-use lease assets							851		(578)
(Decrease) increase in lease liabilities							(786)		625
Loss on other real estate owned		366		146			—		366
Loss on premises and equipment, net		90		21
(Gain) loss on premises and equipment, net							(137)		90
Net change in other assets and liabilities		(3,978)		(1,722)			(373)		(3,978)
Net cash provided by operating activities		31,987		20,845			30,763		31,987

Cash flows from investing activities:
Proceeds from sales of securities available for sale		87,521		67,983			54,388		87,521
Proceeds from maturities, calls and prepayments of securities available for sale		109,314		77,812			99,580		109,314
Purchases of securities available for sale		(131,107)		(76,620)			(123,335)		(131,107)
Net change in loans		(71,233)		(85,483)			47,519		(71,233)
Purchase of FHLB stock		(4,044)		(10,471)			(790)		(4,044)
Proceeds from sale of FHLB stock		10,748		18,661			4,634		10,748
Purchase of premises and equipment, net		(4,449)		(1,803)			(1,216)		(4,449)
Net investment in community limited partnerships							(1,112)		—
Acquisitions, net of cash acquired		(340)		—			—		(340)
Proceeds from sale of other real estate		(113)		—
Net cash used in investing activities		(3,703)		(9,921)
Proceeds from sale of other real estate owned							—		(113)
Net cash provided by (used in) investing activities							79,668		(3,703)

Cash flows from financing activities:
Net change in deposits		239,164		10,968			101,050		239,164
Net change in short-term senior borrowings		(273,268)		(111,400)			9,324		(273,268)
Proceeds from long-term senior borrowings		273,342		174,000			—		273,342
Repayments of long-term senior borrowings		(71,187)		(106,605)			(89,018)		(71,187)
Net change in short-term other borrowings		(14,784)		5,048			(6,112)		(14,784)
Net change in subordinated debt issuance costs		119		—
Net change subordinated debt issuance costs							—		119
Exercise of stock options		682		195			39		682
Purchase of treasury and common stock		(13,470)		(346)			—		(13,470)
Cash dividends paid on common stock		(10,135)		(9,945)			(10,472)		(10,135)
Net cash provided by (used in) financing activities		130,463		(38,085)

Net change in cash and cash equivalents		158,747		(27,161)
Cash and cash equivalents at beginning of year		56,910		98,754
Cash and cash equivalents at end of year	$	215,657	$	71,593
Net cash provided by financing activities							4,811		130,463
(continued)					(continued)

~~(continued)~~

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BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (continued)


	Nine Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2021		2020
Net change in cash and cash equivalents						115,242		158,747
Cash and cash equivalents at beginning of year						226,007		56,910
Cash and cash equivalents at end of period					$	341,249	$	215,657

Supplemental cash flow information:
Interest paid	$	22,085	$	34,394	$	13,052	$	22,085
Income taxes paid, net		4,806		2,479		7,755		4,806

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

Other non-cash changes:
Real estate owned acquired in settlement of loans		—		250

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

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BAR HARBOR BANKSHARES AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

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

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

The results for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures for the Company's Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 previously filed with the Securities and Exchange Commission (the "SEC"). In management's opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented.

Reclassifications: Whenever necessary, amounts in the prior years’ financial statements are reclassified to conform to current presentation. The reclassifications had no impact on net income in the Company’s consolidated income statement.

Summary of Significant Accounting Policies

The disclosures below supplement updates the accounting policies previously disclosed in NOTE 1 – Summary of Significant Accounting Policies of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. The updates reflect the adoption of the Financial Accounting Standards Board (FASB) Accounting Standards Updates (ASU) 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments”, referred to as ASC 326 or, more commonly, referred to as Current Expected Credit Losses (CECL).

Allowance for Credit Loss on AFS Debt Securities: Upon adoption of CECL, effective January 1, 2021, the Company monitors the credit quality of available for sale (AFS) debt securities through credit ratings from various rating agencies and substantial price changes. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment grade, or significant pricing changes. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance on AFS debt securities is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. When assessing an AFS debt security for credit loss, securities with identical CUSIPs are pooled together to assess for impairment using the average cost basis. Any impairment that has not been recorded through an allowance is recognized in other comprehensive income.

A change in the allowance on AFS debt securities may be in full or a portion thereof, is recorded as expense (credit) within provision for credit losses on the consolidated statements of income. Losses are charged against the allowance when management believes the uncollectibility of an AFS debt security is confirmed based on the above described analysis. As

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of September 30, 2021 and January 1, 2021 (i.e. ASU 2016-13 adoption), there was 0 allowance carried on the Company's AFS debt securities. Refer to Note 2 of the consolidated financial statements for further discussion.

Loans: Loans held for investment by the Company are reported at amortized cost. Amortized cost is the principal balance outstanding net of the unamortized balance of any deferred fees or costs and the unamortized balance of any premiums or discounts on loans purchased or acquired through mergers.

For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual term of the loan using the level-yield method over the estimated lives of the related loans. When a loan is paid off, the unamortized portion of deferred fees or costs are recognized in interest income. Interest income on originated loans is accrued based upon the daily principal amount outstanding except for loans on non-accrual status.

For acquired loans, interest income is accrued based upon the daily principal amount outstanding and is then further adjusted by the accretion of any discount or amortization of any premium associated with the loan that was recognized based on the acquisition date fair value. When a loan is paid off, the unamortized portion of any premiums or discounts on loans are recognized in interest income.

Purchase Credit Deteriorated (PCD) Loans: Loans that the Company acquired in acquisitions include some loans that have experienced more than insignificant credit deterioration since origination. The initial allowance for credit losses is determined on a collective basis and allocated to the individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost. The difference between the initial amortized cost and the par value of the loan is a discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense.

The Company adopted CECL using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the standard, the Company did not reassess whether PCI assets met the definition of PCD assets as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets representing the noncredit discount will be accreted into interest income using the level-yield method over the estimated lives of the related loans. The converted PCD assets of $12.5 million were then pooled by call report coding and an additional allowance was calculated on the pooled assets separately from other loan pools totaling $524 thousand.

~~Operating, Accounting~~Non-performing loans: Residential real estate and ~~Reporting Considerations related~~consumer loans are generally placed on non-accrual status when reaching 90 days past due, or in process of foreclosure, or sooner if considered appropriate by management. Secured consumer loans are written down to ~~COVID-19:~~net realizable value and unsecured consumer loans are charged-off upon reaching 120 days past due. Commercial real estate loans and commercial business loans that are 90 days or more past due are generally placed on non-accrual status, unless secured by sufficient cash or other assets immediately convertible to cash, and the loan is in the process of collection. Commercial real estate and commercial business loans may be placed on non-accrual status prior to the 90 days delinquency date if considered appropriate by management.

When a loan has been placed on non-accrual status, previously accrued and uncollected interest is reversed against interest on the loan. The interest on non-accrual loans is accounted for using the cash-basis or cost-recovery method depending on corresponding credit risk, until qualifying for return to accrual status. A loan can be returned to accrual status when collectability of principal is reasonably assured and the loan has performed for a period of time, generally six months.

Previously, acquired loans that met the criteria for non-accrual of interest prior to the acquisition were considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company could reasonably estimate the timing and amount of the expected cash flows on such loans and if the Company expects to fully collect the new carrying value of the loans and any change in performance would have impacted accretable yield. After adoption of ASC 326 on January 1, 2021 the Company now treats these non-performing acquired loans that meet the criteria for non-accrual consistent with originated loans.

Allowance for Credit Losses: The allowance for credit losses (the “allowance”) is a significant accounting estimate used in the preparation of the Company’s consolidated financial statements. The Allowance is comprised of the allowance for

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loan losses and the allowance for off-balance sheet credit exposures, which is accounted for as a separate liability in other liabilities on the balance sheet. The level of the allowance represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date.

Upon adoption of ASC 326 or CECL on January 1, 2021, the Company replaced the incurred loss impairment model that recognizes losses when it became probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The ~~COVID-19 pandemic has negatively impacted~~allowance for credit losses is a valuation account that is deducted from the ~~global economy. In response~~amortized cost basis of loans to ~~this crisis,~~present the ~~Coronavirus Aid, Relief,~~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 ~~Economic Security (“CARES”) Act was passed by Congress~~expected to be charged- off. The allowance is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans and ~~signed into law~~TDRs.

The Company uses the discounted cash flow (DCF) method to estimate expected credit losses for all loan portfolio segments measured on ~~March 27, 2020.~~a collective (pool) basis. For each loan segment, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, probability of default, and loss given default. The ~~CARES Act provides an estimated $2.2 trillion~~modeling of prepayment speeds is based on historical internal data.

The Company uses regression analysis of historical internal and peer data to ~~fight~~determine suitable loss drivers to utilize when modeling lifetime probability of default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the ~~COVID-19 pandemic and stimulate~~loss drivers. For all loan pools utilizing the ~~economy by supporting individuals and businesses through loans, grants, tax~~DCF method, management utilizes various economic indicators such as changes in unemployment rates, gross domestic product, property values, housing starts, and other ~~types of relief. Some~~relevant factors as loss drivers. For all DCF models, management has determined that due to historic volatility in economic data, two quarters currently represents a reasonable and supportable forecast period, followed by a six-period reversion to historical mean levels for each of the ~~provisions applicable~~various economic indicators.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Specific instrument effective yields are calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level Net Present Value (NPV). An allowance is established for the difference between the instrument’s NPV and amortized cost basis.

The allowance evaluation also considers various qualitative factors, such as: (i) changes to lending policies, underwriting standards and/or management personnel performing such functions, (ii) delinquency and other credit quality trends, (iii) credit risk concentrations, if any, (iv) changes to the ~~Company~~nature of the Company's business impacting the loan portfolio, (v) and other external factors, that may include, but are not limited ~~to:~~to, results of internal loan reviews, stress testing, examinations by bank regulatory agencies, or other events such as a natural disaster.

Arriving at an appropriate level of allowance involves a high degree of judgment. The determination of the adequacy of the allowance and provisioning for estimated losses is evaluated regularly based on review of loans, with particular emphasis on non-performing and other loans that management believes warrant special consideration. While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance.

Individually Evaluated Loans: Prior to the adoption of CECL on January 1, 2021, a loan was individually evaluated when the loan was considered impaired. Impaired loans were based on current information and events, it is probable that the Company will not be able to collect all amounts due from the borrower in accordance with the contractual terms of the loan, including scheduled interest payments.

With the adoption of CECL, loans that do not share risk characteristics with existing pools are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured

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based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

●

~~Accounting for Loan Modifications~~ - The CARES Act provides that a financial institution may elect to suspend (1) the requirements under GAAP for certain loan modifications that may otherwise be categorized as a troubled debt restructuring (“TDR”) and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes.

●	~~Paycheck Protection Program~~ - The CARES Act established the Paycheck Protection Program (“PPP”), an expansion of the Small Business Administration’s 7(a) loan program and the Economic Injury Disaster Loan Program, administered directly by the SBA.

●

~~Mortgage Forbearance~~ - Under the CARES Act, through the earlier of December 31, 2020, or the termination date of the COVID-19 national emergency, a borrower with a federally backed mortgage loan that is experiencing financial hardship due to COVID-19 may request a forbearance. A multifamily borrower with a federally backed multifamily mortgage loan that was current as of February 1, 2020, and is experiencing financial hardship due to COVID-19 may request forbearance on the loan for up to 30 days, with up to two additional 30-day periods at the borrower’s request.

Accrued Interest. Upon adoption of CECL, effective as of January 1, 2021, the Company made the following elections regarding accrued interest receivable: (i) present accrued interest receivable balances within other assets on the consolidated statements of condition; (ii) exclude accrued interest from the measurement of the allowance for credit losses, including investments and loans; and (iii) continue to write-off accrued interest receivable by reversing interest income. The Company has a policy in place to write-off accrued interest when a loan is placed on non-accrual. Historically, the Company has not experienced uncollectible accrued interest receivable on investment debt securities.

Allowance for off-balance sheet credit exposures: The exposure is a component of other liabilities on the Company’s Consolidated Balance Sheet and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include unused portions of lines of credit and standby and commercial letters of credit. The process used to determine the allowance for these exposures is consistent with the process for determining the allowance for loans, as adjusted for estimated funding probabilities or loan equivalency factors. A charge (credit) to provision for credit losses on the consolidated statements of income is made to account for the change in the allowance on off-balance sheet exposures between reporting periods.

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Impact of Adoption

~~Also in response to~~

The following table illustrates the ~~COVID-19 pandemic, the Board~~adoption of Governors of the Federal Reserve Board (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to:CECL on January 1, 2021:


				Reclassification		Pre-CECL		Post-CECL
				to CECL		Adoption		Adoption		Impact of
	Pre-CECL			Portfolio		Portfolio		Portfolio		CECL
(in thousands)	Adoption			Segmentation		Segmentation		Segmentation		Adoption
Assets:
Loans:
Commercial construction	$	131,123		$	(13,241)	$	117,882	$	117,882	$	—
Commercial real estate		953,258			(953,258)		—		—		—
Commercial real estate owner occupied		—			219,217		219,217		219,217		—
Commercial real estate non-owner occupied		—			716,776		716,776		716,776		—
Tax exempt		63,431			(15,569)		47,862		47,862		—
Commercial and industrial		377,638			(21,954)		355,684		355,684		—
Residential real estate		923,891			71,325		995,216		995,216		—
Home equity		102,464			(2,368)		100,096		100,096		—
Consumer other		11,080			(928)		10,152		10,152		—
Total loans	$	2,562,885		$	—	$	2,562,885	$	2,562,885	$	—

Allowance for credit losses on loans
Commercial construction	$	1,044		$	(220)	$	824	$	2,020	$	1,196
Commercial real estate		10,199			(10,199)		—		—		—
Commercial real estate owner occupied		—			1,783		1,783		2,491		708
Commercial real estate non-owner occupied		—			7,864		7,864		5,856		(2,008)
Tax exempt		80			(22)		58		98		40
Commercial and industrial		3,302			(165)		3,137		6,133		2,996
Residential real estate		4,078			932		5,010		6,742		1,732
Home equity		258			27		285		888		603
Consumer other		121			—		121		82		(39)
Total allowance for credit losses on loans	$	19,082		$	—	$	19,082	$	24,310	$	5,228

Liabilities:			��
Allowance for credit losses on unfunded commitments	$	359		$	—	$	359	$	1,975	$	1,616

Total allowance for credit losses	$	19,441		$	—	$	19,441	$	26,285	$	6,844

Retained earnings:
Total increase in Allowance for credit losses										$	6,844
Tax effect											(1,602)
Decrease to retained earnings										$	5,242

●

~~Accounting for Loan Modifications~~ - Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment.

●

~~Past Due Reporting~~ - With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral.

●	~~Nonaccrual Status and Risk Rating~~ - ~~For short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as having a classified risk rating.~~

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Revision of Previously Issued Financial Statements

The Company has revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10-Q related to errors. The revised amounts relate to derivatives that were incorrectly presented as assets instead of liabilities and related equity effects net of tax and the related effects on comprehensive income and shareholders’ equity.

The following tables present the revisions to the line items of our previously issued financial statements to reflect the correction of errors:


Consolidated Balance Sheets

December 31, 2020	As Reported		Adjustment		As Revised
Deferred tax assets, net	$	1,745	$	1,302	$	3,047
Other assets		73,662		(2,789)		70,873
Total assets	$	3,725,762	$	(1,487)	$	3,724,275

Other liabilities	$	72,183	$	2,789	$	74,972
Total liabilities		3,314,421		2,789		3,317,210
Total shareholders' equity		411,341		(4,276)		407,065
Total liabilities and shareholders' equity	$	3,725,762	$	(1,487)	$	3,724,275


Consolidated Statements of Comprehensive Income (Unaudited)

Three months ended September 30, 2020	As Reported		Adjustment		As Revised
Other comprehensive income, before tax:
Changes in unrealized gain (loss) on hedging derivatives	$	805	$	497	$	1,302

Income taxes related to other comprehensive income:
Changes in unrealized (gain) loss on hedging derivatives		(190)		(118)		(308)
Total other comphrensive income		884		379		1,263
Total comphrensive income	$	9,286	$	379	$	9,665

Nine months ended September 30, 2020	As Reported		Adjustment		As Revised
Other comprehensive income, before tax:
Changes in unrealized gain (loss) on hedging derivatives	$	(833)	$	(6,735)	$	(7,568)

Income taxes related to other comprehensive income:
Changes in unrealized (gain) loss on hedging derivatives		195		1,580		1,776
Total other comphrensive income		5,494		(5,155)		339
Total comphrensive income	$	30,098	$	(5,155)	$	24,943

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Consolidated Statements of Changes in Shareholder's Equity (Unaudited)

	As Reported		Adjustment		As Revised
Balance at December 31, 2019	$	396,407	$	(119)	$	396,288
Beginning accumulated other comprehensive income		3,911		(119)		3,792
Other comprehensive income		4,610		(5,534)		(924)
Ending accumulated other comprehensive income		8,521		(5,653)		2,868

Balance at June 30, 2020	$	404,174	$	(5,653)	$	398,521
Beginning accumulated other comprehensive income		8,521		(5,653)		2,868
Other comprehensive income		884		379		1,263
Ending accumulated other comprehensive income		9,405		(5,274)		4,131

Balance at September 30, 2020	$	404,445	$	(5,274)	$	399,171

Balance at December 31, 2020	$	411,341	$	(4,276)	$	407,065
Beginning accumulated other comprehensive income		11,016		(4,276)		6,740
Other comprehensive income		(3,322)		2,464		(858)
Ending accumulated other comprehensive income		7,694		(1,812)		5,882

Balance at June 30, 2021	$	415,572	$	(1,812)	$	413,760

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Recent Accounting Pronouncements

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


Standard	Description		Required Date of Adoption		Effect on financial statements
Standards Adopted in ~~2020~~
~~ASU 2017-04, Simplifying the Test for Goodwill Impairment~~		This ASU amends Topic 350, Intangibles-Goodwill and Other, and eliminates Step 2 from the goodwill impairment test. The Company still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary		January 1, 2020 Early adoption is permitted.		The Company has adopted ASU 2017-04 effective January 1, 2020, as required, and the ASU did not have a material impact on its financial statements. Annual goodwill testing was completed as of September 30, 2020. The Company recognized no impairments to goodwill in the third quarter of 2020. See management’s discussion and analysis for further details.
~~ASU 2018-13 Changes to Disclosure Requirements Fair Value Measurement, Topic 820~~		This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.		January 1, 2020 Early adoption is permitted.		~~The Company has adopted ASU 2018-13, as of January 1, 2020, as required, and the ASU did not have a material impact to the disclosures as a result of the adoption.~~

~~Table of Contents~~


~~Standard~~		~~Description~~		Required Date of Adoption		~~Effect on financial statements~~
~~Standards Not Yet Adopted~~2021
ASU 2016-13, Measurement of Credit Losses on Financial Instruments ASU 2018‑19, Codification Improvements to ASU 2016-13	This ASU amends Topic 326, Financial Instruments- Credit Losses to replace the current incurred loss accounting model with a current expected credit loss approach ~~("CECL")~~(CECL) for financial instruments measured at amortized cost and other commitments to extend ~~credit.~~credit, such as of balance sheet credit exposures (loan comitments, unused line of credit and stand-by letters of credit). The amendments require entities to consider all available relevant information when estimating current expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts. The resulting allowance for credit losses is to reflect the portion of the amortized cost basis that the entity does not expect to collect. The amendments also eliminate the current accounting model for purchased credit impaired loans and certain off-balance sheet exposures. Additional quantitative and qualitative disclosures are required upon adoption. While the CECL model does not apply to available for sale debt securities, the ASU does require entities to record an allowance when recognizing credit losses for available for sale securities with unrealized losses, rather than reduce the amortized cost of the securities by direct write-offs. The guidance will require companies to recognize improvements to estimated credit losses immediately in earnings rather than interest income over time. The ASU should be adopted on a modified retrospective basis. Entities that have loans accounted for under ASC 310-30 at the time of adoption should prospectively apply the guidance in this amendment for purchase credit deteriorated assets.		January 1, ~~2020~~2022		Adoption of this ASU ~~is expected to~~ primarily ~~change~~changed how the Company estimates credit losses with the application of the expected credit loss model. The Company ~~will apply~~applied the standard's provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The ~~Company's~~Company has finalized its CECL implementation, ~~efforts in~~recieved board approval of the ~~third quarter focused on~~final CECL model, ~~validation, continuing to develop new disclosures and establish~~completed modelling of off-balance sheet credit risks, completed formal ~~policies and procedures and other~~ governance and control documentation. Certain elements of the calculation were finalized in the second quarter, including refinement of the model assumptions, the qualitative framework, internal control design, model validation,documentation, and ~~the operational control framework to support the new process. Furthermore, changes to the economic forecasts within the model could positively or negatively impact the actual results.~~developed and presented revised disclosures for board approval. The ASU was originally effective for the Company beginning in the first quarter of 2020; however, after the The Coronavirus Aid, Relief, and Economic Security Act, or CARES CARES Act Act, was enacted on March 27, 2020, the Securities and Exchange Commission (SEC) staff clarified that once the deferral was elected by a registrant, Dec. 31, 2020, adoption of CECL was required, retrospective to Jan. 1, 2020 (ignoring an early termination of the national emergency). Under the amendments, a registrant electing the delay under the CARES Act ~~issued in 2020 provided~~is further delayed until Jan. 1, 2022, effective as of Jan. 1, 2022 (absent an ~~option to delay the implementation~~early termination of ~~CECL until the earlier of when~~ the national ~~emergency associated with COVID-19 virus terminates~~emergency). With regard to the amendments to Section 4014, the SEC staff indicated it would not object to a registrant early adopting on Dec. 31, 2020, retrospective to Jan. 1, 2020, or ~~December 31, 2020.~~ Jan. 1, 2021, effective as of Jan. 1, 2021. The Company ~~elected to delay the adoption. The Allowance~~adopted CECL effective January 1, 2021, which increased its allowance for ~~Loan Loss calculated under the CECL method is estimated to be in a range~~credit losses (ACL) by $5.2 million and reserve for unfunded commitments by $1.6 million. Equity was reduced by $5.2 million, net of ~~$23.0 million to $26.0 million as~~deferred tax of ~~September 30, 2020, compared to $20.0 million to $23.0~~$1.6 million on the ~~effective~~ date of ~~January 1, 2020.~~adoption.
ASU 2018-14 Compensation- Disclosure Requirements for Defined Pension Plans Topic 715-20	This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other post-retirement benefit plans.		January 1, 2021 Early adoption is permitted.		Adoption of this ASU isdid not ~~expected to~~ have a material impact on the Company's consolidated financial statements. The impact will be reflected in the Company’s annual 10-K disclosures of employee benefit plans.

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Standard	Description	Required Date of Adoption	Effect on financial statements
Standards Adopted in 2021
ASU 2020-01, Investments—Equity Securities, Investments Equity Method and Joint Ventures, and Derivatives and Hedging	In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which added Topic 321, Investments – Equity Securities, and made targeted improvements to address certain aspects of accounting for financial instruments. The amendments in this Update affect all entities that apply the guidance in Topics 321, 323, and 815 and (1) elect to apply the measurement alternative or (2) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. The amendments in this Update clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. The amendments in this Update should be applied prospectively.	December 15, 2020	The adoption had no material impact on the Company's consolidated financial statements. The Company’s equity method investments which primarily consist of community limited partnership investments are in compliance with the new guidance prospectively in 2021.
Standard	Description	Required Date of Adoption	Effect on financial statements
Standards Not Yet Adopted ~~(continued)~~
ASU 2020-04 Facilitation of the Effects of Reference Rate Reform, Topic 848, as amended in ASU 2021-01	This ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate ~~("LIBOR")~~(LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ~~("SOFR")~~(SOFR). For instance, companies can (1) elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. A company that makes this election would not have to re-measure the contracts at the modification date or reassess a previous accounting determination. Companies can also (2) elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met. Finally, companies can (3) make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform.	May be elected through December 31, 2022.	The Company is currently evaluating all of its contracts, hedging relationships and other transactions that will be effected by reference rates ~~that~~ are being ~~discontinued and determining which~~discontinued. The following elections ~~need~~have been made in regards to ~~be made.~~our cash flow hedges as outlined on the next page.

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Rate Reform Elections

Adherence to ISDA Fallback Protocol

The ISDA 2020 IBOR Fallbacks Protocol (the “ISDA Fallback Protocol”) was made available for adherence on October 23, 2020 with an effective date of January 25, 2021. Once adhered to by both counterparties in a bilateral relationship and the effective date is reached, the ISDA Fallback Protocol represents a change to the contractual terms of derivatives governed by each respective ISDA agreement between the Company and a derivative counterparty. The change relates to reference rate reform and represents the potential for addition of or changes to contractual terms and was developed by a private-sector working group convened by a regulator as referenced in 848-20-15-5(g). For all of the Company’s interest rate swaps that meet the scope requirements of 848-10-15-3 and 848-10-15-3A and for which the Company adhered to the ISDA Fallback Protocol, the Company makes the following elections:

•

Modification related elections

•

Option to not reassess a previous accounting determination (paragraph 848-20-35-4)

•

Hedge accounting related modifications

•

Option to not dedesignate a hedging relationship due to a change in a critical term (paragraph 848-30-25-3)

•

Option to change the contractual terms of a hedging instrument, hedged item, or forecasted transaction and to not dedesignate a hedging relationship (paragraph 848-30-25-5)

Cash flow hedges

The Company amends the hedge documentation, without dedesignating and redesignating, for all outstanding cash flow hedging relationships for the following elections:

•

Probability of forecasted transactions: The Company elects the expedient in ASC 848-50-25-2 to assert probability of the hedged interest payments/receipts regardless of any expected modification in terms related to reference rate reform.

•

Assessment of effectiveness: In accordance with ASC 848-30-25-4, ASC 848-30-25-8, and ASC 848-50-35-1 through 35-24 the Company has the option to change the method of assessing effectiveness upon a change in the critical terms of the derivative or the hedged transactions and upon the end of relief under ASC 848. At this time the Company elects to continue the method of assessing effectiveness as documented in the original hedge documentation and elects to apply the expedient in ASC 848-50-35-17 so that the reference rate on the hypothetical derivative matches the reference rate on the hedging instrument. For new hedging relationships designated subsequent to the date of this memorandum, the Company elects to apply the expedient in ASC 848-50-25-11 to assume that the reference rate will not be replaced for the remainder of the hedging relationship.

New hedging activity

The Company makes the same elections for each hedging relationship designated subsequent to March 31, 2021. Any hedging relationship-specific elections beyond the elections noted above will be documented in the respective inception hedge documentation. Subsequent election of optional expedients and exceptions after the March 31, 2021 will be documented in accordance with the elections being made here.

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NOTE 2. SECURITIES AVAILABLE FOR SALE

The following is a summary of securities available for sale:


			Gross		Gross						Gross		Gross
			Unrealized		Unrealized						Unrealized		Unrealized
(in thousands)	Amortized Cost		Gains		Losses		Fair Value		Amortized Cost		Gains		Losses		Fair Value
September 30, 2020
Debt securities:
September 30, 2021
Mortgage-backed securities:
US Government-sponsored enterprises	$	226,930	$	8,683	$	(441)	$	235,172	$	181,821	$	3,386	$	(1,939)	$	183,268
US Government agency		92,517		3,413		(145)		95,785		53,475		1,470		(239)		54,706
Private label		20,142		40		(579)		19,603		62,843		185		(114)		62,914
Obligations of states and political subdivisions thereof		149,890		4,267		—		154,157		158,914		2,090		(827)		160,177
Corporate bonds		99,786		1,713		(1,687)		99,812		82,533		2,376		(647)		84,262
Total securities available for sale	$	589,265	$	18,116	$	(2,852)	$	604,529	$	539,586	$	9,507	$	(3,766)	$	545,327


			Gross		Gross						Gross		Gross
			Unrealized		Unrealized						Unrealized		Unrealized
(in thousands)	Amortized Cost		Gains		Losses		Fair Value		Amortized Cost		Gains		Losses		Fair Value
December 31, 2019
Debt securities:
December 31, 2020
Mortgage-backed securities:
US Government-sponsored enterprises	$	319,064	$	4,985	$	(2,080)	$	321,969	$	206,834	$	6,018	$	(462)	$	212,390
US Government agency		98,568		1,640		(547)		99,661		82,878		2,870		(116)		85,632
Private label		20,212		68		(747)		19,533		19,810		40		(141)		19,709
Obligations of states and political subdivisions thereof		139,240		3,034		(268)		142,006		164,766		4,244		(6)		169,004
Corporate bonds		78,804		1,478		(221)		80,061		97,689		1,465		(843)		98,311
Total securities available for sale	$	655,888	$	11,205	$	(3,863)	$	663,230	$	571,977	$	14,637	$	(1,568)	$	585,046

Credit Quality Information

The Company monitors the credit quality of available for sale debt securities through credit ratings from various rating agencies and substantial price changes. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment grade, or significant pricing changes. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security.

As of September 30, 2021 the Company carried 0 allowance on available for sale debt securities in accordance with ASU 2016-13.

The amortized cost and estimated fair value of available for sale ~~(“AFS”)~~ securities segregated by contractual maturity at September 30, ~~2020~~2021 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				Available for sale
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within 1 year	$	—	$	—	$	11,755	$	11,664
Over 1 year to 5 years		25,596		25,849		23,313		23,863
Over 5 years to 10 years		81,687		79,979		48,500		47,493
Over 10 years		142,393		148,141		157,879		161,419
Total bonds and obligations		249,676		253,969		241,447		244,439
Mortgage-backed securities		339,589		350,560		298,139		300,888
Total securities available for sale	$	589,265	$	604,529	$	539,586	$	545,327

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

Three Months Ended

Nine Months Ended

September 30,

September 30,
(In thousands)

2020

2019

2020

2019
Gross gains on sales of available for sale securities

$
—

$
716

$
1,508

$
716
Gross losses on sales of available for sale securities

—

(559)

(22)

(559)
Net gains on sale of available for sale securities

$
—

$
157

$
1,486

$
157

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2021		2020		2021		2020
Gross gains on sales of available for sale securities	$	1,980	$	—	$	2,030	$	1,508
Gross losses on sales of available for sale securities		(50)		—		(50)		(22)
Net gains on sale of available for sale securities	$	1,930	$	—	$	1,980	$	1,486

Securities with unrealized losses, segregated by the duration of their continuous unrealized loss positions, are summarized as follows:


	Less Than Twelve Months					Over Twelve Months				Total				Less Than Twelve Months				Over Twelve Months				Total
	Gross					Gross				Gross				Gross				Gross				Gross
	Unrealized		Fair			Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(In thousands)	Losses		Value			Losses		Value		Losses		Value
September 30, 2020
Debt securities:
(in thousands)														Losses		Value		Losses		Value		Losses		Value
September 30, 2021
Mortgage-backed securities:
US Government-sponsored enterprises	$	193	$	35,087		$	248	$	4,027	$	441	$	39,114	$	1,408	$	77,412	$	531	$	16,618	$	1,939	$	94,030
US Government agency		68		8,671			77		3,458		145		12,129		130		10,488		109		4,729		239		15,217
Private label		1		108			578		19,398		579		19,506		109		42,852		5		17		114		42,869
Obligations of states and political subdivisions thereof		—		247			—		—		—		247		827		48,355		—		—		827		48,355
Corporate bonds		1,687		41,260			—		—		1,687		41,260		14		2,486		633		11,617		647		14,103
Total securities available for sale	$	1,949	$	85,373	��	$	903	$	26,883	$	2,852	$	112,256	$	2,488	$	181,593	$	1,278	$	32,981	$	3,766	$	214,574


	Less Than Twelve Months				Over Twelve Months				Total				Less Than Twelve Months				Over Twelve Months				Total
	Gross				Gross				Gross				Gross				Gross				Gross
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(In thousands)	Losses		Value		Losses		Value		Losses		Value
December 31, 2019
Debt securities:
(in thousands)													Losses		Value		Losses		Value		Losses		Value
December 31, 2020
Mortgage-backed securities:
US Government-sponsored enterprises	$	1,074	$	43,429	$	1,006	$	49,712	$	2,080	$	93,141	$	209	$	40,285	$	253	$	4,323	$	462	$	44,608
US Government agency		432		19,717		115		9,120		547		28,837		45		6,776		71		3,297		116		10,073
Private label		380		9,843		367		9,411		747		19,254		—		—		141		19,514		141		19,514
Obligations of states and political subdivisions thereof		137		29,355		131		1,682		268		31,037		6		5,577		—		—		6		5,577
Corporate bonds		142		9,888		79		12,276		221		22,164		555		21,774		288		11,712		843		33,486
Total securities available for sale	$	2,165	$	112,232	$	1,698	$	82,201	$	3,863	$	194,433	$	815	$	74,412	$	753	$	38,846	$	1,568	$	113,258

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

~~The following table presents the changes in estimated credit losses recognized by the Company for the periods presented:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2020

2019

2020

2019
Estimated credit losses as of prior year-end

$
1,697

$
1,697

$
1,697

$
1,697
Reductions for securities paid off during the period

—

—

0

0
Estimated credit losses at end of the period

$
1,697

$
1,697

$
1,697

$
1,697

The Company expects to recover its amortized cost basis on all securities in its AFS portfolio. Furthermore, the Company does not intend to sell nor does it anticipate that it will be required to sell any of its securities in an unrealized loss position as of September 30, ~~2020,~~2021, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.

~~Table of Contents~~

The following summarizes, by investment security type, the ~~basis for the conclusion that~~impact of securities in an unrealized loss position ~~were not OTTI~~for greater than 12 months at September 30, ~~2020:~~2021:

US Government-sponsored enterprises

3649 out of the total ~~611~~528 securities in the Company’s portfolios of AFS US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented ~~1.12%~~1.07% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association and Federal Home Loan Mortgage Corporation guarantee the contractual cash flows of all of the Company’s US Government-sponsored enterprises. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

US Government agency

1411 out of the total ~~166~~150 securities in the Company’s portfolios of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented ~~1.18%~~0.45% of the amortized cost of securities in unrealized loss positions. The Government National Mortgage Association guarantees the contractual cash flows of all of the Company’s US Government agency securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter. All securities are performing.

Private label

1114 of the total 1631 securities in the Company’s portfolio of AFS private label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented ~~2.88%~~0.18% of the amortized cost of securities in unrealized loss positions. Based upon the expectation that the Company will receive all of the future contractual cash flows related to the amortized cost on these securities, the Company does not consider there to be any additional other-than-temporary impairment with respect to these securities.

Obligations of states and political subdivisions thereof

112 of the total ~~177~~119 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented ~~0.08%~~0.52% of the amortized cost of securities in unrealized loss positions. The Company continually monitors the municipal bond sector of the market carefully and periodically evaluates the appropriate level of exposure to the market. At this time, the Company feels the bonds in this portfolio carry minimal risk of default and the Company is appropriately compensated for the risk. There were no material underlying credit downgrades during the quarter. All securities are performing.

Corporate bonds

134 out of the total 3427 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents ~~3.97%~~0.78% of the amortized cost of bonds in unrealized loss positions. The Company reviews the financial strength of all of these bonds and has concluded that the amortized cost remains supported by the expected future cash flows of these securities. The most recent review includes all bond issuers and their current credit ratings, financial performance and capitalization.

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NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

Upon adoption of ASC 326 or CECL, at January 1, 2021, the Company evaluates its risk characteristics of loans based on regulatory call report code with segmentation based on the underlying collateral for certain loan types. Prior to the adoption of ASC 326, under the incurred loss model, the Company evaluated its risk characteristics of loans based on purpose of the loans.

The following is a summary of total loans by regulatory call report code segmentation based on underlying collateral for certain loan types:


	September 30,		December 31,
(in thousands)	2021		2020
Commercial construction	$	152,700	$	117,882
Commercial real estate owner occupied		253,792		219,217
Commercial real estate non-owner occupied		733,353		716,776
Tax exempt		42,448		47,862
Commercial and industrial		336,989		355,684
Residential real estate		917,301		995,216
Home equity		88,002		100,096
Consumer other		9,569		10,152
Total loans		2,534,154		2,562,885
Allowance for credit losses		22,448		19,082
Net loans	$	2,511,706	$	2,543,803

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


	September 30,		December 31,
(in thousands)	2021		2020
Unamortized net loan origination costs	$	4,015	$	5,157
Unamortized net premium on purchased loans		(65)		(85)
Total unamortized net costs and premiums	$	3,950	$	5,072

The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of September 30, 2021 and December 31, 2020, accrued interest receivable for loans totaled $8.7 million and $11.4 million, respectively, and is included in the “other assets” line item on the Company’s consolidated balance sheets.

The CARES Act and subsequent legislation established the Payroll Protection Program (PPP), administered directly by the Small Business Administration (SBA). The Company has participated in both 2020 and 2021 rounds of funding. As of September 30, 2021 and December 31, 2020, the Company had 404 and 746 PPP loans outstanding, with an outstanding principal balance of $24.2 million and $53.8 million, respectively. The PPP loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible costs. PPP loans are included in the commercial and industrial portfolio segment.

Characteristics of each loan portfolio segment are as follows:

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

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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.

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

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

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

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

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

Allowance for Credit Losses

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

Upon adoption of CECL on January 1, 2021, the Company replaced the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged off. The ACL is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans and TDRs.

Table of Contents

The Company’s activity in the allowance for credit losses for the periods ended are as follows:


	Three Months Ended September 30, 2021
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	2,372	$	—	$	—	$	(286)	$	2,086
Commercial real estate owner occupied		2,552		(142)		72		237		2,719
Commercial real estate non-owner occupied		5,604		—		—		(22)		5,582
Tax exempt		91		—		—		(6)		85
Commercial and industrial		5,225		(24)		—		105		5,306
Residential real estate		6,069		(6)		19		(290)		5,792
Home equity		822		(49)		1		30		804
Consumer other		80		(65)		1		58		74
Total	$	22,815	$	(286)	$	93	$	(174)	$	22,448


	Nine Months Ended September 30, 2021
	Balance at
	Beginning of		Impact of ASC								Balance at
(in thousands)	Period		326		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	824	$	1,196	$	—	$	18	$	48	$	2,086
Commercial real estate owner occupied		1,783		708		(403)		72		559		2,719
Commercial real estate non-owner occupied		7,864		(2,008)		—		4		(278)		5,582
Tax exempt		58		40		—		—		(13)		85
Commercial and industrial		3,137		2,996		(44)		14		(797)		5,306
Residential real estate		5,010		1,732		(67)		141		(1,024)		5,792
Home equity		285		603		(108)		48		(24)		804
Consumer other		121		(39)		(119)		10		101		74
Total	$	19,082	$	5,228	$	(741)	$	307	$	(1,428)	$	22,448


	Three Months Ended September 30, 2020
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	532	$	—	$	—	$	185	$	717
Commercial real estate owner occupied		1,524		—		—		370		1,894
Commercial real estate non-owner occupied		5,926		(266)		14		783		6,457
Tax exempt		64		—		—		4		68
Commercial and industrial		3,056		(24)		14		236		3,282
Residential real estate		4,991		—		1		86		5,078
Home equity		318		—		—		(4)		314
Consumer other		98		(149)		8		140		97
Total	$	16,509	$	(439)	$	37	$	1,800	$	17,907

Table of Contents



	Nine Months Ended September 30, 2020
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	317	$	—	$	—	$	400	$	717
Commercial real estate owner occupied		2,368		—		—		(474)		1,894
Commercial real estate non-owner occupied		4,695		(1,137)		109		2,790		6,457
Tax exempt		67		—		—		1		68
Commercial and industrial		3,262		(360)		25		355		3,282
Residential real estate		4,213		(32)		12		885		5,078
Home equity		320		—		—		(6)		314
Consumer other		111		(341)		13		314		97
Total	$	15,353	$	(1,870)	$	159	$	4,265	$	17,907

~~NOTE 3. LOANS~~Unfunded Commitments

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


(in thousands)	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Begininng Balance	$	1,921	$	359
Impact of CECL adoption		—		1,616
Provision for credit losses		280		226
Ending Balance	$	2,201	$	2,201

			��
(in thousands)	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Begininng Balance	$	319	$	314
Provision for credit losses		2		7
Ending Balance	$	321	$	321

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

Credit Quality Indicators: In monitoring the credit quality of the ~~following segments:~~portfolio, management applies a credit quality indicator and uses an internal risk rating system to categorize commercial ~~real estate, commercial~~loans. These credit quality indicators range from one through nine, with a higher number correlating to increasing risk of loss. Consistent with regulatory guidelines, the Company provides for the classification of loans which are considered to be of lesser quality as special mention, substandard, doubtful, or loss (i.e. risk-rated 6, 7, 8 and industrial, residential real estate, and consumer loans. Commercial real estate loans include multi-family, commercial construction and land development, and other commercial real estate classes. Commercial and industrial loans include loans to commercial and agricultural businesses and tax exempt entities. Residential real estate loans consist of mortgages for 1-to-4 family housing. Consumer loans include home equity loans, auto and other installment loans.9, respectively).

The following are the definitions of the Company’s ~~lending activities are principally conducted in Maine, New Hampshire, and Vermont.~~credit quality indicators:

~~Total loans include business activity loans~~Pass: Loans the Company considers in the commercial portfolio segments that are not adversely rated, are contractually current as to principal and ~~acquired loans. Acquired loans~~interest, and are ~~those loans previously acquired from other institutions. The following~~otherwise in compliance with the contractual terms of the loan agreement. Management believes there is a ~~summary~~low risk of ~~total loans:~~

September 30, 2020

December 31, 2019

Business

Business

Activities

Acquired

Activities

Acquired

(in thousands)

Loans

Loans

Total

Loans

Loans

Total
Commercial real estate:












Construction and land development

$
86,927

$
2,191

$
89,118

$
31,387

$
2,903

$
34,290
Other commercial real estate

765,471

191,046

956,517

666,051

230,320

896,371
Total commercial real estate

852,398

193,237

1,045,635

697,438

233,223

930,661

Commercial and industrial:









Commercial

381,512

56,858

438,370

239,692

59,072

298,764
Agricultural

17,658

156

17,814

20,018

206

20,224
Tax exempt

41,951

24,375

66,326

66,860

37,443

104,303
Total commercial and industrial

441,121

81,389

522,510

326,570

96,721

423,291

Total commercial loans

1,293,519

274,626

1,568,145

1,024,008

329,944

1,353,952

Residential real estate:









Residential mortgages

695,766

325,440

1,021,206

740,687

411,170

1,151,857
Total residential real estate

695,766

325,440

1,021,206

740,687

411,170

1,151,857

Consumer:









Home equity

58,344

50,530

108,874

59,368

63,033

122,401
Other consumer

9,217

1,249

10,466

11,167

1,715

12,882
Total consumer

67,561

51,779

119,340

70,535

64,748

135,283

Total loans

$
2,056,846

$
651,845

$
2,708,691

$
1,835,230

$
805,862

$
2,641,092

~~The carrying amount of the acquired loans at September 30, 2020 totaled $651.8 million. A subset of~~loss related to these loans ~~was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30,~~ ~~Accounting for Certain Loans or Debt Securities Acquired in a Transfer~~. These purchased credit-impaired loans presently maintain a carrying value of $14.2 million (and total note balances of $18.1 million). These loans are evaluated for impairment through the periodic reforecasting of expected cash flows. Acquired loans considered ~~not impaired at the acquisition date had a carrying amount of $637.6 million as of September 30, 2020.~~pass-rated.

1827

Table of Contents

Special Mention: Loans the Company considers having some potential weaknesses, but are deemed to not carry levels of risk inherent in one of the subsequent categories, are designated as special mention. A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. This might include loans which may require a higher level of supervision or internal reporting because of: (i) declining industry trends; (ii) increasing reliance on secondary sources of repayment; (iii) the poor condition of or lack of control over collateral; or (iv) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or market conditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose the Company to sufficient risks to warrant classification.

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

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

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

Table of Contents

The following ~~table summarizes activity in~~tables present the ~~accretable yield for the acquired~~Company’s loans by year of origination, loan ~~portfolio that falls under the purview~~segmentation and risk indicator as of ~~ASC 310-30,~~ ~~Accounting for Certain Loans or Debt Securities Acquired in a Transfer:~~September 30, 2021:

Three Months Ended September 30,
(in thousands)

2020

2019
Balance at beginning of period

$
6,227

$
4,195
Net reclassifications from (to) nonaccretable difference

53

(126)
Accretion

(455)

(581)
Balance at end of period

$
5,825

$
3,488



(in thousands)	2021		2020		2019		2018		2017		Prior		Total
Commercial construction
Risk rating:
Pass	$	22,192	$	76,226	$	44,453	$	9,829	$	—	$	—	$	152,700
Special mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	22,192	$	76,226	$	44,453	$	9,829	$	—	$	—	$	152,700

Commercial real estate owner occupied
Risk rating:
Pass	$	9,937	$	16,003	$	35,366	$	47,026	$	20,038	$	110,663	$	239,033
Special mention		—		—		767		—		—		3,125		3,892
Substandard		—		—		—		248		248		10,030		10,526
Doubtful		—		—		—		172		—		169		341
Total	$	9,937	$	16,003	$	36,133	$	47,446	$	20,286	$	123,987	$	253,792

Commercial real estate non-owner occupied
Risk rating:
Pass	$	101,706	$	147,754	$	90,963	$	40,545	$	147,197	$	186,056	$	714,221
Special mention		—		—		—		—		—		15,612		15,612
Substandard		—		—		—		131		131		3,086		3,348
Doubtful		—		—		—		—		—		172		172
Total	$	101,706	$	147,754	$	90,963	$	40,676	$	147,328	$	204,926	$	733,353

Tax exempt
Risk rating:
Pass	$	1,511	$	604	$	975	$	14,453	$	5,387	$	19,518	$	42,448
Special mention		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—
Total	$	1,511	$	604	$	975	$	14,453	$	5,387	$	19,518	$	42,448

Commercial and industrial
Risk rating:
Pass	$	104,179	$	64,303	$	36,010	$	17,635	$	35,407	$	73,972	$	331,506
Special mention		619		222		717		596		202		1,429		3,785
Substandard		98		—		549		14		50		677		1,388
Doubtful		—		—		—		—		122		188		310
Total	$	104,896	$	64,525	$	37,276	$	18,245	$	35,781	$	76,266	$	336,989

(continued)

Nine Months Ended September 30,
(in thousands)

2020

2019
Balance at beginning of period

$
7,367

$
4,377
Net reclassifications from (to) nonaccretable difference

1,004

498
Accretion

(2,546)

(1,387)
Balance at end of period

$
5,825

$
3,488

~~The following is a summary of past due loans at September 30, 2020 and December 31, 2019:~~

~~Business Activities Loans~~

90 Days or

Past Due >


30-59 Days

60-89 Days

Greater

Total Past





90 days and
(in thousands)

Past Due

Past Due

Past Due

Due

Current

Total Loans

Accruing
September 30, 2020














Commercial real estate:














Construction and land development

$
0

$
0

$
212

$
212

$
86,715

$
86,927

$
0
Other commercial real estate

200

1,119

725

2,044

763,427

765,471

0
Total commercial real estate

200

1,119

937

2,256

850,142

852,398

0

Commercial and industrial:














Commercial

92

310

2,193

2,595

378,917

381,512

1,932
Agricultural

122

0

109

231

17,427

17,658

0
Tax exempt

0

0

0

0

41,951

41,951

0
Total commercial and industrial

214

310

2,302

2,826

438,295

441,121

1,932

Total commercial loans

414

1,429

3,239

5,082

1,288,437

1,293,519

1,932

Residential real estate:














Residential mortgages

217

112

1,369

1,698

694,068

695,766

0
Total residential real estate

217

112

1,369

1,698

694,068

695,766

0

Consumer:














Home equity

39

36

171

246

58,098

58,344

0
Other consumer

12

0

2

14

9,203

9,217

0
Total consumer

51

36

173

260

67,301

67,561

0

Total loans

$
682

$
1,577

$
4,781

$
7,040

$
2,049,806

$
2,056,846

$
1,932

1929

Table of Contents







(in thousands)	2021		2020		2019		2018		2017		Prior		Total
Residential real estate
Performing	$	143,071	$	126,171	$	95,942	$	70,062	$	69,486	$	404,395	$	909,127
Nonperforming		—		—		—		576		183		7,415		8,174
Total	$	143,071	$	126,171	$	95,942	$	70,638	$	69,669	$	411,810	$	917,301

Home equity
Performing	$	8,227	$	10,946	$	9,775	$	7,647	$	6,975	$	43,133	$	86,703
Nonperforming		—		—		—		—		—		1,299		1,299
Total	$	8,227	$	10,946	$	9,775	$	7,647	$	6,975	$	44,432	$	88,002

Consumer other
Performing	$	3,037	$	1,942	$	1,023	$	803	$	329	$	2,429	$	9,563
Nonperforming		—		—		—		—		—		6		6
Total	$	3,037	$	1,942	$	1,023	$	803	$	329	$	2,435	$	9,569

Total Loans	$	394,577	$	444,171	$	316,540	$	209,737	$	285,755	$	883,374	$	2,534,154

The following table summarizes credit risk exposure indicators by portfolio segment, under the incurred loss methodology, as of the period indicated:


	December 31, 2020
	Commercial		Commercial		Residential
	Real Estate		and Industrial		Real Estate		Consumer		Total
Grade:
Pass	$	1,053,773	$	422,016	$	—	$	—	$	1,475,789
Performing		—		—		914,749		112,190		1,026,939
Special mention		6,075		2,771		—		—		8,846
Substandard		22,267		15,180		—		—		37,447
Doubtful		2,265		1,100		—		—		3,365
Loss		1		2		—		—		3
Non-performing		—		—		9,142		1,354		10,496
Total	$	1,084,381	$	441,069	$	923,891	$	113,544	$	2,562,885

~~Acquired Loans~~Past Dues

90 Days or



Acquired



Past Due >

30-59 Days

60-89 Days

Greater

Total Past

Credit

90 days and
(in thousands)

Past Due

Past Due

Past Due

Due

Impaired

Total Loans

Accruing
September 30, 2020














Commercial real estate:














Construction and land development

$
—

$
—

$
—

$
—

$
221

$
2,191

$
—
Other commercial real estate

169

156

678

1,003

7,227

191,046

—
Total commercial real estate

169

156

678

1,003

7,448

193,237

—

Commercial and industrial:














Commercial

450

65

18

533

1,182

56,858

—
Agricultural

—

—

—

—

156

156

—
Tax exempt

—

—

—

—

—

24,375

—
Total commercial and industrial

450

65

18

533

1,338

81,389

—

Total commercial loans

619

221

696

1,536

8,786

274,626

—

Residential real estate:













Residential mortgages

291

441

2,006

2,738

4,657

325,440

215
Total residential real estate

291

441

2,006

2,738

4,657

325,440

215

Consumer:














Home equity

291

133

170

594

711

50,530

69
Other consumer

—

—

—

—

44

1,249

—
Total consumer

291

133

170

594

755

51,779

69

Total loans

$
1,201

$
795

$
2,872

$
4,868

$
14,198

$
651,845

$
284

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


	September 30, 2021
(in thousands)	30-59		60-89		90+		Total Past Due		Current		Total Loans
Commercial construction	$	—	$	—	$	—	$	—	$	152,700	$	152,700
Commercial real estate owner occupied		—		10		627		637		253,155		253,792
Commercial real estate non-owner occupied		314		—		117		431		732,922		733,353
Tax exempt		—		—		—		—		42,448		42,448
Commercial and industrial		44		35		313		392		336,597		336,989
Residential real estate		414		1,007		2,796		4,217		913,084		917,301
Home equity		344		95		62		501		87,501		88,002
Consumer other		32		2		—		34		9,535		9,569
Total	$	1,148	$	1,149	$	3,915	$	6,212	$	2,527,942	$	2,534,154

2030

Table of Contents

~~Business Activities Loans~~


	December 31, 2020
(in thousands)	30-59		60-89		90+		Total Past Due		Current		Total Loans
Commercial construction	$	74	$	—	$	1	$	75	$	117,807	$	117,882
Commercial real estate owner occupied		1,309		464		438		2,211		217,006		219,217
Commercial real estate non-owner occupied		503		674		624		1,801		714,975		716,776
Tax exempt		—		—		—		—		47,862		47,862
Commercial and industrial		161		—		193		354		355,330		355,684
Residential real estate		9,178		2,511		3,200		14,889		980,327		995,216
Home equity		1,062		614		375		2,051		98,045		100,096
Consumer other		20		—		2		22		10,130		10,152
Total	$	12,307	$	4,263	$	4,833	$	21,403	$	2,541,482	$	2,562,885

`

90 Days or

Past Due >


30-59 Days

60-89 Days

Greater

Total Past





90 days and
(in thousands)

Past Due

Past Due

Past Due

Due

Current

Total Loans

Accruing
December 31, 2019














Commercial real estate:














Construction and land development

$
205

$
53

$
—

$
258

$
31,129

$
31,387

$
—
Other commercial real estate

40

1,534

1,810

3,384

662,667

666,051

—
Total commercial real estate

245

1,587

1,810

3,642

693,796

697,438

—

Commercial and industrial:














Commercial

452

50

894

1,396

238,296

239,692

—
Agricultural

62

34

96

192

19,826

20,018

—
Tax exempt

—

—

—

—

66,860

66,860

—
Total commercial and industrial

514

84

990

1,588

324,982

326,570

—

Total commercial loans

759

1,671

2,800

5,230

1,018,778

1,024,008

—

Residential real estate:














Residential mortgages

7,293

1,243

668

9,204

731,483

740,687

—
Total residential real estate

7,293

1,243

668

9,204

731,483

740,687

—

Consumer:














Home equity

597

43

429

1,069

58,299

59,368

50
Other consumer

36

12

—

48

11,119

11,167

—
Total consumer

633

55

429

1,117

69,418

70,535
��

50

Total loans

$
8,685

$
2,969

$
3,897

$
15,551

$
1,819,679

$
1,835,230

$
50

~~Table of Contents~~

~~Acquired Loans~~

90 Days or



Acquired



Past Due >

30-59 Days

60-89 Days

Greater

Total Past

Credit

90 days and
(in thousands)

Past Due

Past Due

Past Due

Due

Impaired

Total Loans

Accruing
December 31, 2019














Commercial real estate:














Construction and land development

$
—

$
12

$
—

$
12

$
384

$
2,903

$
—
Other commercial real estate

2,029

245

231

2,505

8,289

230,320

—
Total commercial real estate

2,029

257

231

2,517

8,673

233,223

—

Commercial and industrial:














Commercial

440

335

140

915

2,723

59,072

—
Agricultural

—

—

—

—

173

206

—
Tax exempt

—

—

—

—

36

37,443

—
Total commercial and industrial

440

335

140

915

2,932

96,721

—

Total commercial loans

2,469

592

371

3,432

11,605

329,944

—

Residential real estate:














Residential mortgages

3,185

864

1,015

5,064

5,591

411,170

—
Total residential real estate

3,185

864

1,015

5,064

5,591

411,170

—

Consumer:














Home equity

208

548

217

973

1,291

63,033

217
Other consumer

2

9

—

11

66

1,715

—
Total consumer

210

557

217

984

1,357

64,748

217

Total loans

$
5,864

$
2,013

$
1,603

$
9,480

$
18,553

$
805,862

$
217

~~Table of Contents~~

Non-Accrual Loans

The following is a summary ~~information pertaining to~~of non-accrual loans ~~at September 30, 2020 and December 31, 2019:~~for the periods ended:

September 30, 2020

December 31, 2019


Business





Business




Activities

Acquired

Activities

Acquired

(in thousands)

Loans

Loans

Total

  Loans

Loans

Total
Commercial real estate:












Construction and land development

$
212

$
0

$
212

$
258

$
0

$
258
Other commercial real estate

1,818

2,684

4,502

2,888

343

3,231
Total commercial real estate

2,030

2,684

4,714

3,146

343

3,489

Commercial and industrial:












Commercial

918

416

1,334

932

626

1,558
Agricultural

486

0

486

278

0

278
Tax exempt

0

0

0

0

0

0
Total commercial and industrial

1,404

416

1,820

1,210

626

1,836

Total commercial loans

3,434

3,100

6,534

4,356

969

5,325

Residential real estate:












Residential mortgages

3,864

3,290

7,154

3,362

1,973

5,335
Total residential real estate

3,864

3,290

7,154

3,362

1,973

5,335

Consumer:












Home equity

450

255

705

615

254

869
Other consumer

15

0

15

21

0

21
Total consumer

465

255

720

636

254

890

Total loans

$
7,763

$
6,645

$
14,408

$
8,354

$
3,196

$
11,550


	September 30, 2021
			Nonaccrual With No		90+ Days Past
(in thousands)	Nonaccrual		Related Allowance		Due and Accruing
Commercial construction	$	—	$	—	$	—
Commercial real estate owner occupied		1,184		808		366
Commercial real estate non-owner occupied		770		314		—
Tax exempt		—		—		—
Commercial and industrial		775		629		149
Residential real estate		8,174		3,217		105
Home equity		1,298		316		—
Consumer other		6		—		—
Total	$	12,207	$	5,284	$	620


	December 31, 2020
			Nonaccrual With No		90+ Days Past
(in thousands)	Nonaccrual		Related Allowance		Due and Accruing
Commercial construction	$	258	$	—	$	—
Commercial real estate owner occupied		3,038		929		—
Commercial real estate non-owner occupied		383		118		—
Tax exempt		—		—		—
Commercial and industrial		1,223		1,065		—
Residential real estate		5,883		4,948		—
Home equity		1,345		1,346		267
Consumer other		58		58		—
Total	$	12,188	$	8,464	$	267

2331

Table of Contents

Collateral Dependent Loans

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

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


	September 30, 2021				December 31, 2020
(in thousands)	Real Estate		Other		Real Estate		Other
Commercial construction	$	—	$	—	$	259	$	—
Commercial real estate owner occupied		1,184		—		3,441		—
Commercial real estate non-owner occupied		770		—		383		—
Tax exempt		—		—		—		—
Commercial and industrial		436		339		625		607
Residential real estate		8,174		—		7,432		—
Home equity		1,298		—		1,493		—
Consumer other		6		—		60		—
Total	$	11,868	$	339	$	13,693	$	607

Pre Adoption of ASC 326 – Impaired Loans

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

Table of Contents

~~Loans evaluated for impairment as~~The tables reflects the activity associated with impaired loans in 2020 prior to the adoption of ~~September 30, 2020 and December 31, 2019 are, as follows:~~CECL.

~~Business Activities Loans~~

Commercial

Commercial

Residential

(in thousands)

real estate

and industrial

real estate

Consumer

Total
September 30, 2020










Balance at end of period










Individually evaluated for impairment

$
2,586

$
1,274

$
2,233

$
12

$
6,105
Collectively evaluated

849,812

439,847

693,533

67,549

2,050,741
Total

$
852,398

$
441,121

$
695,766

$
67,561

$
2,056,846

~~Acquired Loans~~

Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
September 30, 2020










Balance at end of period










Individually evaluated for impairment

$
2,358

$
322

$
832

$
—

$
3,512
Purchased credit impaired

7,448

1,338

4,657

755

14,198
Collectively evaluated

183,431

79,729

319,951

51,024

634,135
Total

$
193,237

$
81,389

$
325,440

$
51,779

$
651,845

~~Business Activities Loans~~

Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
December 31, 2019










Balance at end of period










Individually evaluated for impairment

$
3,964

$
1,353

$
2,620

$
13

$
7,950
Collectively evaluated

693,474

325,217

738,067

70,522

1,827,280
Total

$
697,438

$
326,570

$
740,687

$
70,535

$
1,835,230

~~Acquired Loans~~

Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
December 31, 2019










Balance at end of period










Individually evaluated for impairment

$
258

$
385

$
1,032

$
—

$
1,675
Purchased credit impaired

8,673

2,932

5,591

1,357

18,553
Collectively evaluated

224,292

93,404

404,547

63,391

785,634
Total

$
233,223

$
96,721

$
411,170

$
64,748

$
805,862


	December 31, 2020
	Recorded		Unpaid Principal		Related		Average Recorded		Interest
(in thousands)	Investment		Balance		Allowance		Investment		Income Recognized
With no related allowance:
Construction and land development	$	—	$	—	$	—	$	—	$	—
Other commercial real estate		2,001		2,047		—		1,610		—
Commercial		1,095		1,254		—		1,140		4
Agricultural		361		150		—		114		2
Tax exempt loans		—		—		—		—		—
Residential real estate		2,745		3,165		—		1,077		17
Home equity		—		—		—		—		—
Other consumer		—		—		—		—		—

With an allowance recorded:
Construction and land development		258		258		205		203		—
Other commercial real estate		1,963		2,108		1,038		1,973		17
Commercial		282		289		164		73		—
Agricultural		—		—		—		—		—
Tax exempt loans		—		—		—		—		—
Residential real estate		887		944		106		1,865		37
Home equity		13		13		—		12		1
Other consumer		—		—		—		—		—

Total
Commercial real estate		4,222		4,413		1,243		3,786		17
Commercial and industrial		1,738		1,693		164		1,327		6
Residential real estate		3,632		4,109		106		2,942		54
Consumer		13		13		—		12		1
Total impaired loans	$	9,605	$	10,228	$	1,513	$	8,067	$	78

2433

Table of Contents

~~The following is a summary of impaired loans at September 30, 2020 and December 31, 2019:~~

~~Business Activities Loans~~

September 30, 2020


Recorded

Unpaid Principal

Related
(in thousands)

Investment

Balance

Allowance
With no related allowance:






Construction and land development

$
0

$
0

$
0
Other commercial real estate

1,941

2,020

0
Commercial

678

773

0
Agricultural

155

158

0
Tax exempt loans

0

0

0
Residential real estate

1,555

1,649

0
Home equity

0

0

0
Other consumer

0

0

0

With an allowance recorded:






Construction and land development

210

210

158
Other commercial real estate

435

503

185
Commercial

216

216

18
Agricultural

225

361

225
Tax exempt loans

0

0

0
Residential real estate

678

725

45
Home equity

12

12

1
Other consumer

0

0

0

Total






Commercial real estate

2,586

2,733

343
Commercial and industrial

1,274

1,508

243
Residential real estate

2,233

2,374

45
Consumer

12

12

1
Total impaired loans

$
6,105

$
6,627

$
632

~~Table of Contents~~

~~Acquired Loans~~

September 30, 2020


Recorded

Unpaid Principal

Related
(in thousands)

Investment

Balance

  Allowance
With no related allowance:






Construction and land development

$
—

$
—

$
—
Other commercial real estate

1,584

1,605

—
Commercial

257

353

—
Agricultural

—

—

—
Tax exempt loans

—

—

—
Residential real estate

403

683

—
Home equity

—

—

—
Other consumer

—

—

—

With an allowance recorded:






Construction and land development

—

—

—
Other commercial real estate

774

793

297
Commercial

65

67

7
Agricultural

—

—

—
Tax exempt loans

—

—

—
Residential real estate

429

522

52
Home equity

—

—

—
Other consumer

—

—

—

Total






Commercial real estate

2,358

2,398

297
Commercial and industrial

322

420

7
Residential real estate

832

1,205

52
Consumer

—

—

—
Total impaired loans

$
3,512

$
4,023

$
356

~~Table of Contents~~

~~Business Activities Loans~~

December 31, 2019


Recorded

Unpaid Principal

Related
(in thousands)

Investment

Balance

Allowance
With no related allowance:






Construction and land development

$
—

$
—

$
—
Other commercial real estate

1,911

1,957

—
Commercial

710

773

—
Agricultural

361

361

—
Tax exempt loans

—

—

—
Residential real estate

2,067

2,227

—
Home equity

—

—

—
Other consumer

—

—

—

With an allowance recorded:






Construction and land development

258

258

205
Other commercial real estate

1,795

1,940

1,026
Commercial

282

289

164
Agricultural

—

—

—
Tax exempt loans

—

—

—
Residential real estate

553

590

57
Home equity

13

13

—
Other consumer

—

—

—

Total






Commercial real estate

3,964

4,155

1,231
Commercial and industrial

1,353

1,423

164
Residential real estate

2,620

2,817

57
Consumer

13

13

—
Total impaired loans

$
7,950

$
8,408

$
1,452

~~Table of Contents~~

~~Acquired Loans~~

December 31, 2019


Recorded

Unpaid Principal

Related
(in thousands)

Investment

Balance

Allowance
With no related allowance:






Construction and land development

$
—

$
—

$
—
Other commercial real estate

90

90

—
Commercial

385

481

—
Agricultural

—

—

—
Tax exempt

—

—

—
Residential mortgages

678

938

—
Home equity

—

—

—
Other consumer

—

—

—

With an allowance recorded:






Construction and land development

—

—

—
Other commercial real estate

168

168

12
Commercial

—

—

—
Agricultural

—

—

—
Tax exempt

—

—

—
Residential mortgages

354

376

49
Home equity

—

—

—
Other consumer

—

—

—

Total






Commercial real estate

258

258

12
Commercial and industrial

385

481

—
Residential real estate

1,032

1,314

49
Consumer

—

—

—
Total impaired loans

$
1,675

$
2,053

$
61

~~Table of Contents~~

~~The following is a summary of the average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2020 and 2019:~~

~~Business Activities Loans~~

Three Months Ended September 30, 2020

Three Months Ended September 30, 2019


Average Recorded

Interest

Average Recorded

Interest
(in thousands)

Investment

Income Recognized

Investment

Income Recognized
With no related allowance:








Construction and land development

$
—

$
—

$
—

$
—
Other commercial real estate

1,899

14

5,528

63
Commercial

692

1

747

4
Agricultural

157

—

—

—
Tax exempt loans

—

—

—

—
Residential real estate

1,547

12

2,041

16
Home equity

—

—

—

—
Other consumer

—

—

—

—

With an allowance recorded:








Construction and land development

205

—

1

—
Other commercial real estate

429

—

3,217

—
Commercial

212

1

654

—
Agricultural

—

—

—

—
Tax exempt loans

—

—

—

—
Residential real estate

665

3

551

2
Home equity

12

—

12

—
Other consumer

—

—

—

—

Total








Commercial real estate

2,533

14

8,746

52
Commercial and industrial

1,061

2

1,401

4
Residential real estate

2,212

15

2,592

18
Consumer

12

—

12

—
Total impaired loans

$
5,818

$
31

$
12,751

$
74

~~Table of Contents~~

~~Business Activities Loans~~

Nine Months Ended September 30, 2020

Nine Months Ended September 30, 2019


Average Recorded

Interest

Average Recorded

Interest
(in thousands)

Investment

Income Recognized

Investment

Income Recognized
With no related allowance:








Construction and land development

$
—

$
—

$
—

$
—
Other commercial real estate

1,427

14

5,466

56
Commercial

732

2

792

7
Agricultural

101

—

—

—
Tax exempt loans

—

—

—

—
Residential real estate

1,581

25

2,089

47
Home equity

—

—

—

—
Other consumer

—

—

—

—

With an allowance recorded:








Construction and land development

208

—

2

—
Other commercial real estate

452

—

2,972

29
Commercial

97

2

497

—
Agricultural

—

—

—

—
Tax exempt loans

—

—

—

—
Residential real estate

681

9

540

7
Home equity

12

—

13

—
Other consumer

—

—

—

—

Total








Commercial real estate

2,087

14

8,440

85
Commercial and industrial

930

4

1,289

7
Residential real estate

2,262

34

2,629

54
Consumer

12

—

13

—
Total impaired loans

$
5,291

$
52

$
12,371

$
146

~~Table of Contents~~

~~Acquired Loans~~

Three Months Ended September 30, 2020

Three Months Ended September 30, 2019

Average Recorded

Interest

Average Recorded

Interest
(in thousands)

Investment

Income Recognized

Investment

Income Recognized
With no related allowance:








Construction and land development

$
—

$
—

$
—

$
—
Other commercial real estate

1,566

—

88

—
Commercial

264

—

395

—
Agricultural

—

—

—

—
Tax exempt loans

—

—

—

—
Residential real estate

519

—

702

—
Home equity

—

—

—

—
Other consumer

—

—

—

—

With an allowance recorded:








Construction and land development

—

—

—

—
Other commercial real estate

782

3

165

—
Commercial

67

—

—

—
Agricultural

—

—

—

—
Tax exempt loans

—

—

—

—
Residential real estate

420

—

352

—
Home equity

—

—

—

—
Other consumer

—

—

—

—

Total








Commercial real estate

2,348

3

253

—
Commercial and industrial

331

—

395

—
Residential real estate

939

—

1,054

—
Consumer

—

—

—

—
Total impaired loans

$
3,618

$
3

$
1,702

$
—

~~Table of Contents~~

~~Acquired Loans~~

Nine Months Ended September 30, 2020

Nine Months Ended September 30, 2019


Average Recorded

Interest

Average Recorded

Interest
(in thousands)

Investment

Income Recognized

Investment

Income Recognized
With no related allowance:








Construction and land development

$
—

$
—

$
—

$
—
Other commercial real estate

1,097

—

89

—
Commercial

318

—

429

—
Agricultural

—

—

—

—
Tax exempt loans

—

—

—

—
Residential real estate

541

—

593

—
Home equity

—

—

—

—
Other consumer

—

—

—

—

With an allowance recorded:








Construction and land development

—

—

—

—
Other commercial real estate

639

3

123

—
Commercial

75

—

—

—
Agricultural

—

—

—

—
Tax exempt loans

—

—

—

—
Residential real estate

432

—

361

—
Home equity

—

—

—

—
Other consumer

—

—

—

—

Total








Commercial real estate

1,736

3

212

—
Commercial and industrial

393

—

429

—
Residential real estate

973

—

954

—
Consumer

—

—

—

—
Total impaired loans

$
3,102

$
3

$
1,595

$
—

~~Table of Contents~~

Troubled Debt Restructuring Loans

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

The following tables include the recorded investment and number of modifications identified during the ~~three and nine months ended September 30, 2020 and 2019, respectively.~~periods ended. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Modifications may include adjustments to interest rates, payment amounts, extensions of maturity, court ordered concessions or other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. There were 0 modifications qualifying as TDR’s for the three and nine months ended September 30, 2021.


	Three Months Ended September 30, 2020					Three Months Ended September 30, 2020
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
	Number of	Outstanding Recorded		Outstanding Recorded		Number of	Outstanding		Outstanding
(in thousands, except modifications)	Modifications	Investment		Investment
Troubled Debt Restructurings
Agricultural	1	$	86	$	86
(in thousands)						Modifications	Balance		Balance		Reserve
Commercial and industrial						1		86		86		—
Total	1	$	86	$	86	1	$	86	$	86	$	—


	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2020
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
	Number of	Outstanding Recorded		Outstanding Recorded		Number of	Outstanding		Outstanding
(in thousands, except modifications)	Modifications	Investment		Investment
Troubled Debt Restructurings
Other commercial real estate	4	$	268	$	267
Agricultural	1		141		141
Residential mortgages	2		399		342
(in thousands)						Modifications	Balance		Balance		Reserve
Commercial construction						—	$	—	$	—	$	—
Commercial real estate owner occupied						—		—		—		—
Commercial real estate non-owner occupied						1		54		247		—
Tax exempt						—		—		—		—
Commercial and industrial						4		127		248		—
Residential real estate						—		—		—		—
Home equity						1		26		24		—
Consumer other						1		9		9		—
Total	7	$	808	$	750	7	$	216	$	528	$	—

Nine Months Ended September 30, 2020

Pre-Modification

Post-Modification

Number of

Outstanding Recorded

Outstanding Recorded
(in thousands, except modifications)

Modifications

Investment

Investment
Troubled Debt Restructurings






Other commercial real estate

1

$
54

$
247
Other commercial

3

41

162
Agricultural

1

86

86
Home equity

1

26

24
Other consumer

1

9

9
Total

7

$
216

$
528

Nine Months Ended September 30, 2019

Pre-Modification

Post-Modification

Number of

Outstanding Recorded

Outstanding Recorded
(in thousands, except modifications)

Modifications

Investment

Investment
Troubled Debt Restructurings






Other commercial real estate

9

$
543

$
529
Other commercial

4

168

91
Agricultural

1

141

141
Residential mortgages

11

1,133

1,034
Total

25

$
1,985

$
1,795

~~Table of Contents~~

The following tables summarize the types of loan concessions made for the periods presented:

Three Months Ended September 30,

2020

2019

Post-Modification

Post-Modification

Outstanding

Outstanding

Number of

Recorded

Number of

Recorded
(in thousands, except modifications)

Modifications

Investment

Modifications

Investment
Troubled Debt Restructurings

Interest only payments

—

$
—

2

$
90
Forbearance

—

—

1

141
Forbearance and interest only payments

—

—

2

176
Forbearance, amortization and maturity concession

—

—

2

343
Maturity concession

1

86

—

—
Total

1

$
86

7

$
750


	Nine Months Ended September 30,						September 30, 2021			September 30, 2020
	2020			2019				Post-Modification			Post-Modification
		Post-Modification			Post-Modification		Number of	Outstanding		Number of	Outstanding
		Outstanding			outstanding
	Number of	Recorded		Number of	Recorded
(in thousands, except modifications)	Modifications	Investment		Modifications	Investment
Troubled Debt Restructurings
Interest only payments	0	$	0	2	$	90
Interest only payments and maturity concession	0		0	2		73
(in thousands)							Modifications	Balance		Modifications	Balance
Interest rate, forbearance and maturity concession	4		409	0		0	—	$	—	4	$	409
Amortization and maturity concession	0		0	4		273
Amortization, interest rate and maturity concession	0		0	1		77
Forbearance	0		0	3		253
Forbearance and interest only payments	1		24	5		331	—		—	1		24
Forbearance, amortization and maturity concession	0		0	7		640
Maturity concession	2		95	0		0	—		—	2		95
Other	0		0	1		58
Total	7	$	528	25	$	1,795	—	$	—	7	$	528

For the three ~~and nine~~ months ended September 30, ~~2020,~~2021 there were 0 loans that were restructured that had subsequently defaulted during the period. The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs.

Modifications in response to COVID-19

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. The CARES Act along with a joint agency statement issued by banking agencies, provides that short-term modifications

Table of Contents

made in response to COVID-19 do not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. See Note 1 -Basis of Presentation in December 31, 2020 10-K for more information.

The Company modified 588 commercial loans totaling $375.0 million and 564 residential loans totaling $98.5 million. As of September 30, 2020 total outstanding deferrals were $78.7 million, which primarily consist of interest only forbearance. Outstanding deferrals consisted of 110 commercial loans totaling $74.1 million and 86 residential loans totaling $4.6 million.

Foreclosure

~~As of September 30, 2020 and December 31, 2019, the Company maintained bank-owned residential real estate with a fair value of $1.9 million. Additionally, residential~~Residential mortgage loans collateralized by real estate that are in the process of foreclosure as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 totaled ~~$917~~$734 thousand and ~~$810~~$917 thousand, respectively.

Mortgage Banking

The Company had identified and designated loans with an unpaid principal balance of $7.5 million and $24.0 million as residential loans held for sale at September 30, 2021 and December 31, 2020, respectively. The interest rate exposure on loans held for sale are mitigated through forward delivery commitments with certain approved secondary market investors. Forward delivery commitments were $14.5 million, and $50.6 million, respectively. Refer to Note 8 for further discussion of the Company's forward delivery commitments.

For the three months ended September 30, 2021 and 2020, the Company sold $28.5 million and $86.2 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $682 thousand and $2.2 million, respectively. For the nine months ended September 30, 2021 and 2020, the Company sold $153.9 million and $156.0 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $3.6 million and $3.1 million, respectively.

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

3435

Table of Contents

~~Mortgage Banking~~

The Bank sells loans in the secondary market and retains the ability to service many of these loans. The Bank earns fees for the servicing provided. Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to changes in prepayments that result from shifts in interest rates.

~~Servicing rights activity during the three and nine months ended September 30, 2020 and 2019, included in other assets, was as follows:~~

At or for the Three Months Ended September 30,

At or for the Nine Months Ended September 30,
(in thousands)

2020

2019

2020

2019
Balance at beginning of year

$
2,939

$
2,941

$
3,001

$
3,086
Acquired

—

—

—

—
Additions

515

106

796

213
Amortization

(220)

(138)

(563)

(390)
Balance at end of year

$
3,234

$
2,909

$
3,234

$
2,909

~~Total residential loans included held for sale loans of $23.7 million and $6.5 million at September 30, 2020 and December 31, 2019, respectively.~~

~~Table of Contents~~

NOTE 4. ~~ALLOWANCE FOR LOAN LOSSES~~

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

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

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

~~Specific Reserve for Loans Individually Evaluated~~

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

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

~~Quantitative Reserve for Loans Collectively Evaluated~~

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

~~Table of Contents~~

~~Qualitative Reserve for Loans Collectively Evaluated~~

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

~~Loss Emergence Period for Loans Collectively Evaluated~~

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

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

Business Activities Loans

At or for the Three Months Ended September 30, 2020


Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
Balance at beginning of period

$
8,416

$
3,241

$
3,945

$
376

$
15,978
Charged-off loans

(266)

(4)

—

(146)

(416)
Recoveries on charged-off loans

12

14

—

6

32
Provision for loan losses

1,265

269

104

143

1,781
Balance at end of period

$
9,427

$
3,520

$
4,049

$
379

$
17,375
Individually evaluated for impairment

343

243

45

1

632
Collectively evaluated

9,084

3,277

4,004

378

16,743
Total

$
9,427

$
3,520

$
4,049

$
379

$
17,375

Business Activities Loans

At or for the Nine Months Ended September 30, 2020


Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
Balance at beginning of period

$
7,668

$
3,608

$
3,402

$
379

$
15,057
Charged-off loans

(1,036)

(307)

(21)

(335)

(1,699)
Recoveries on charged-off loans

90

16

—

5

111
Provision for loan losses

2,705

203

668

330

3,906
Balance at end of period

$
9,427

$
3,520

$
4,049

$
379

$
17,375
Individually evaluated for impairment

343

243

45

1

632
Collectively evaluated

9,084

3,277

4,004

378

16,743
Total

$
9,427

$
3,520

$
4,049

$
379

$
17,375

Acquired Loans

At or for the Three Months Ended September 30, 2020


Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
Balance at beginning of period

$
401

$
12

$
118

$
—

$
531
Charged-off loans

—

(20)

—

(3)

(23)
Recoveries on charged-off loans

2

—

1

2

5
Provision (release) for loan losses

(3)

20

1

1

19
Balance at end of period

$
400

$
12

$
120

$
—

$
532
Individually evaluated for impairment

297

7

52

—

356
Collectively evaluated

103

5

68

—

176
Total

$
400

$
12

$
120

$
—

$
532

~~Table of Contents~~

Acquired Loans

At or for the Nine Months Ended September 30, 2020


Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
Balance at beginning of period

$
147

$
6

$
143

$
—

$
296
Charged-off loans

(101)

(53)

(11)

(6)

(171)
Recoveries on charged-off loans

19

9

12

8

48
Provision (release) for loan losses

335

50

(24)

(2)

359
Balance at end of period

$
400

$
12

$
120

$
—

$
532
Individually evaluated for impairment

297

7

52

—

356
Collectively evaluated

103

5

68

—

176
Total

$
400

$
12

$
120

$
—

$
532

Business Activities Loans

At or for the Three Months Ended September 30, 2019


Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
Balance at beginning of period

$
7,206

$
2,748

$
3,942

$
394

$
14,290
Charged-off loans

—

—

(108)

(55)

(163)
Recoveries on charged-off loans

1

62

36

1

100
Provision (release) for loan losses

956

63

(111)

(94)

814
Balance at end of period

$
8,163

$
2,873

$
3,759

$
246

$
15,041
Individually evaluated for impairment

990

240

66

1

1,297
Collectively evaluated

7,173

2,633

3,693

245

13,744
Total

$
8,163

$
2,873

$
3,759

$
246

$
15,041

Business Activities Loans

At or for the Nine Months Ended September 30, 2019


Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
Balance at beginning of period

$
6,811

$
2,380

$
3,982

$
408

$
13,581
Charged-off loans

(57)

(13)

(110)

(129)

(309)
Recoveries on charged-off loans

131

62

55

8

256
Provision (release) for loan losses

1,278

444

(168)

(41)

1,513
Balance at end of period

$
8,163

$
2,873

$
3,759

$
246

$
15,041
Individually evaluated for impairment

990

240

66

1

1,297
Collectively evaluated

7,173

2,633

3,693

245

13,744
Total

$
8,163

$
2,873

$
3,759

$
246

$
15,041

Acquired Loans

At or for the Three Months Ended September 30, 2019


Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
Balance at beginning of period

$
159

$
22

$
101

$
—

$
282
Charged-off loans

—

—

(52)

—

(52)
Recoveries on charged-off loans

—

—

—

3

3
Provision (release) for loan losses

(2)

(15)

99

(3)

79
Balance at end of period

$
157

$
7

$
148

$
—

$
312
Individually evaluated for impairment

12

—

32

—

44
Collectively evaluated

145

7

116

—

268
Total

$
157

$
7

$
148

$
—

$
312

~~Table of Contents~~

Acquired Loans

At or for the Nine Months Ended September 30, 2019


Commercial

Commercial

Residential




(in thousands)

real estate

and industrial

real estate

Consumer

Total
Balance at beginning of period

$
173

$
35

$
77

$
—

$
285
Charged-off loans

—

(15)

(222)

(5)

(242)
Recoveries on charged-off loans

—

—

—

3

3
Provision (releases) for loan losses

(16)

(13)

293

2

266
Balance at end of period

$
157

$
7

$
148

$
—

$
312
Individually evaluated for impairment

12

—

32

—

44
Collectively evaluated

145

7

116

—

268
Total

$
157

$
7

$
148

$
—

$
312

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

~~Credit Quality Indicators/Classified Loans:~~ In monitoring the credit quality of the portfolio, management applies a credit quality indicator and uses an internal risk rating system to categorize commercial loans. These credit quality indicators range from one through nine, with a higher number correlating to increasing risk of loss. These ratings are used as inputs to the calculation of the allowance for loan losses. Consistent with regulatory guidelines, the Company provides for the classification of loans which are considered to be of lesser quality as special mention, substandard, doubtful, or loss (i.e. risk-rated 6, 7, 8 and 9, respectively).

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

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

~~Special Mention:~~ Loans the Company considers having some potential weaknesses, but are deemed to not carry levels of risk inherent in one of the subsequent categories, are designated as special mention. A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. This might include loans which may require a higher level of supervision or internal reporting because of: (i) declining industry trends; (ii) increasing reliance on secondary sources of repayment; (iii) the poor condition of or lack of control over collateral; or (iv) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or market conditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose the Company to sufficient risks to warrant classification.

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

~~Doubtful:~~ Loans the Company considers as doubtful have all of the weaknesses inherent in those loans that are classified as substandard. These loans have the added characteristic of a well-defined weakness which is inadequately protected by the current sound worth and paying capacity of borrower or of the collateral pledged, if any, and calls into question the collectability of the full balance of the loan. The possibility of loss is high but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as loss is deferred

~~Table of Contents~~

until its more exact status is determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. The entire amount of the loan might not be classified as doubtful when collection of a specific portion appears highly probable. Loans are generally not classified doubtful for an extended period of time (i.e., over a year).

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

~~The following tables present the Company’s loans by risk rating at September 30, 2020 and December 31, 2019:~~

~~Business Activities Loans~~

~~Commercial Real Estate~~

Commercial construction

and land development

Commercial real estate other

Total commercial real estate
(in thousands)

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019
Grade:













Pass

$
86,716

$
31,057

$
742,214

$
646,886

$
828,930

$
677,943
Special mention

0

0

6,722

5,483

6,722

5,483
Substandard

—

330

15,981

11,974

15,981

12,304
Doubtful

211

0

554

1,708

765

1,708
Total

$
86,927

$
31,387

$
765,471

$
666,051

$
852,398

$
697,438

~~Acquired Loans~~

~~Commercial Real Estate~~

Commercial construction

and land development

Commercial real estate other

Total commercial real estate
(in thousands)

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019
Grade:













Pass

$
1,878

$
2,412

$
180,602

$
218,491

$
182,480

$
220,903
Special mention

—

12

1,508

2,261

1,508

2,273
Substandard

313

479

7,411

9,400

7,724

9,879
Doubtful

—

—

1,525

168

1,525

168
Total

$
2,191

$
2,903

$
191,046

$
230,320

$
193,237

$
233,223

~~Business Activities Loans~~

~~Commercial and Industrial~~

Commercial

Agricultural

Tax exempt loans

Total commercial
and industrial
(in thousands)

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019
Grade:

















Pass

$
362,351

$
221,329

$
16,744

$
18,940

$
41,951

$
66,860

$
421,046

$
307,129
Special mention

4,066

2,744

200

298

0

0

4,266

3,042
Substandard

14,430

14,866

489

780

0

0

14,919

15,646
Doubtful

665

753

225

0

0

0

890

753
Total

$
381,512

$
239,692

$
17,658

$
20,018

$
41,951

$
66,860

$
441,121

$
326,570

~~Table of Contents~~

~~Acquired Loans~~

~~Commercial and Industrial~~

Commercial

Agricultural

Tax exempt loans

Total commercial
and industrial
(in thousands)

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019
Grade:

















Pass

$
54,667

$
51,184

$
21

$
58

$
24,375

$
37,407

$
79,063

$
88,649
Special mention

421

5,432

—

—

—

—

421

5,432
Substandard

1,255

2,115

135

148

—

36

1,390

2,299
Doubtful

515

341

—

—

—

—

515

341
Total

$
56,858

$
59,072

$
156

$
206

$
24,375

$
37,443

$
81,389

$
96,721

~~Business Activities Loans~~

~~Residential Real Estate and Consumer Loans~~

Residential real estate

Home equity

Other consumer

Total residential real estate and consumer
(in thousands)

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019
Performing

$
691,902

$
737,325

$
57,894

$
58,753

$
9,202

$
11,146

$
758,998

$
807,224
Nonperforming

3,864

3,362

450

615

15

21

4,329

3,998
Total

$
695,766

$
740,687

$
58,344

$
59,368

$
9,217

$
11,167

$
763,327

$
811,222

~~Acquired Loans~~

~~Residential Real Estate and Consumer Loans~~

Residential real estate

Home equity

Other consumer

Total residential real estate and consumer
(in thousands)

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019

Sep 30, 2020

Dec 31, 2019
Performing

$
320,772

$
407,811

$
50,059

$
62,504

$
1,249

$
1,707

$
372,080

$
472,022
Nonperforming

4,668

3,359

471

529

—

8

5,139

3,896
Total

$
325,440

$
411,170

$
50,530

$
63,033

$
1,249

$
1,715

$
377,219

$
475,918

~~The following table summarizes total classified and criticized loans as of September 30, 2020 and December 31, 2019:~~

September 30, 2020

December 31, 2019

Business

Business

(in thousands)

Activities Loans

Acquired Loans

Total

Activities Loans

Acquired Loans

Total
Non-accrual

$
7,763

$
6,645

$
14,408

$
8,354

$
3,196

$
11,550
Substandard accruing

29,121

9,648

38,769

26,055

13,387

39,442
Total classified

36,884

16,293

53,177

34,409

16,583

50,992
Special mention

10,988

1,929

12,917

8,525

7,705

16,230
Total Criticized

$
47,872

$
18,222

$
66,094

$
42,934

$
24,288

$
67,222

~~Table of Contents~~

~~NOTE 5.~~ BORROWED FUNDS

Borrowed funds at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 are summarized, as follows:


	September 30, 2020				December 31, 2019				September 30, 2021				December 31, 2020
			Weighted				Weighted				Weighted				Weighted
(dollars in thousands)	Carrying Value		Average Rate		Carrying Value		Average Rate		Carrying Value		Average Rate		Carrying Value		Average Rate
Short-term borrowings
Advances from the FHLB	$	41,672	1.69	%	$	303,286	1.83	%	$	75,000	0.30	%	$	65,676	1.19	%
Other borrowings		30,048	0.60			44,832	0.99			21,667	0.13			27,779	0.15
Total short-term borrowings		71,720	1.20			348,118	1.73			96,667	0.18			93,455	0.44
Long-term borrowings
Advances from the FHLB		182,609	1.73			123,278	1.93			93,600	1.57			182,607	1.73
Advances from the FRB PPPLF		131,143	0.35			—	—
Subordinated borrowings		59,920	4.48			59,920	5.53			60,083	4.34			59,961	4.34
Total long-term borrowings		373,672	1.69			183,198	2.87			153,683	2.65			242,568	2.37
Total	$	445,392	1.60	%	$	531,316	2.11	%	$	250,350	1.06	%	$	336,023	1.41	%

Short-term debt includes Federal Home Loan Bank of Boston ~~(“FHLB”)~~(FHLB) advances with a maturity of less than one year. The Company also maintains a $1.0 million secured line of credit with the FHLB that bears a daily adjustable rate calculated by the FHLB. There was 0 outstanding balance on the FHLB line of credit for the periods ended September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

The Company has the capacity to borrow funds on a secured basis utilizing the Borrower in Custody program and the Discount Window at the Federal Reserve Bank of Boston (the “FRB”). At September 30, ~~2020,~~2021, the Company’s available secured line of credit at the FRB was ~~$81.1~~$72.0 million. The Company has pledged certain loans and securities to the FRB to support this arrangement. There were 0 outstanding advances with the FRB for the periods ended September 30, ~~2020~~2021 and December 31, ~~2019.~~

~~On April 15, 2020, the FRB provided a Paycheck Protection Program Lending Facility (“PPPLF”) that the Company used to fund most of its PPP loans totaling $131.1 million as of September 30,~~ 2020.

The Company maintains, with a correspondent bank, an unused unsecured federal funds line of credit that has an aggregate overnight borrowing capacity of $50.0 million as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. There was 0 outstanding balance on the line of credit as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Long-term FHLB advances consist of advances with a maturity of more than one year. ~~Callable~~The advances ~~as of~~outstanding at September 30, ~~2020 were $2.0~~2021 include callable advances of $20.0 million asand amortizing advances of $300 thousand. The advances outstanding at December 31, ~~2019 there were 0~~2020 included $20.0 million of callable ~~advances. As of September 30, 2020~~advances and ~~December 31, 2019 there were $309 thousand and $316 thousand~~$307 million of amortizing ~~advances, respectively.~~advances. All FHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally all residential first mortgage loans and certain securities.

A summary of maturities of FHLB advances as of September 30, ~~2020~~2021 is, as follows:


	September 30, 2020
			Weighted Average				Weighted Average
(in thousands, except rates)	Carrying Value		Rate		Amount		Rate
Fixed rate advances maturing:
2020	$	1,000	1.65	%
2021		40,672	1.69		$	75,000	0.30	%
2022		75,000	1.87			15,000	1.76
2023		80,000	1.77			51,000	1.71
2024		7,300	1.16			7,300	1.16
2025 and thereafter		20,309	1.25
2025						20,000	1.21
2026 and thereafter						300	3.39
Total FHLB advances	$	224,281	1.72	%	$	168,600	1.01	%

~~Table of Contents~~

On November 26, 2019, the Company executed a Subordinated Note Purchase Agreement with an aggregate of $40.0 million of subordinated notes (the "Notes") to accredited investors. The Notes have a maturity date of December 1, 2029 and bear a fixed interest rate of 4.625% through December 1, 2024 payable semi-annually in arrears. From December 1, 2024 and thereafter the interest rate shall be reset quarterly to an interest rate per annum equal to the then current ~~three-month~~three-

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month SOFR plus 3.27%. The Company has the option beginning with the interest payment date of December 1, 2024, and on any scheduled payment date thereafter, to redeem the Notes, in whole or in part upon prior approval of the Federal Reserve. Netted with subordinated borrowings is amortized subordinated debt issuance costs of ~~$700~~$537 thousand as of September 30, 2021 and issuance costs of $659 thousand net of amortization as of December 31, 2020.

The Company also has $20.6 million in floating Junior Subordinated Deferrable Interest Debentures ("Debentures") issued by NHTB Capital Trust II ("Trust II") and NHTB Capital Trust III ("Trust III"), which are both Connecticut statutory trusts. The Debentures were issued on March 30, 2004, carry a variable interest rate of 3-month LIBOR plus 2.79%, and mature in 2034. The debt is callable by the Company at the time when any interest payment is made. Trust II and Trust III are considered variable interest entities for which the Company is not the primary beneficiary. Accordingly, Trust II and Trust III are not consolidated into the Company’s financial statements.

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NOTE 6.5. DEPOSITS

A summary of time deposits is, as follows:


(in thousands)	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Time less than $100,000	$	497,403	$	600,747	$	199,312	$	325,646
Time $100,000 through $250,000		192,243		225,505		192,497		278,940
Time $250,000 or more		123,863		106,383		77,412		93,775
Total time deposits	$	813,509	$	932,635
Total					$	469,221	$	698,361

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the scheduled maturities by year for time deposits are, as follows:


(in thousands)	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Within 1 year	$	635,798	$	555,074	$	362,774	$	574,007
Over 1 year to 2 years		111,500		287,934		56,926		61,584
Over 2 years to 3 years		29,392		51,444		31,888		41,145
Over 3 years to 4 years		27,598		31,262		9,182		12,875
Over 4 years to 5 years		9,216		6,883		6,272		8,728
Over 5 years		5		38		2,179		22
Total	$	813,509	$	932,635	$	469,221	$	698,361

Included in time deposits are brokered deposits of ~~$327.2~~$31.4 million and ~~$526.9~~$193.7 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Also included in time deposits are reciprocal deposits of ~~$127.4~~$238.5 million and ~~$64.1~~$125.0 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

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NOTE 7.6. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios are, as follows:


			Regulatory				Regulatory				Regulatory				Regulatory
	September 30,		Minimum to be		December 31,		Minimum to be		September 30,		Minimum to be		December 31,		Minimum to be
	2020		"Well-Capitalized"		2019		"Well-Capitalized"		2021		"Well-Capitalized"		2020		"Well-Capitalized"
Company (consolidated)
Total capital to risk-weighted assets	13.32	%	10.50	%	13.61	%	10.50	%
Common equity tier 1 capital to risk-weighted assets	10.29		7.00		10.57		7.00
Tier 1 capital to risk-weighted assets	11.08		8.50		11.39		8.50
Total capital to risk-weighted assets⁽¹⁾									14.12	%	10.50	%	13.57	%	10.50	%
Common equity tier 1 capital to risk-weighted assets⁽¹⁾									10.92		7.00		10.49		7.00
Tier 1 capital to risk-weighted assets⁽¹⁾									11.70		8.50		11.29		8.50
Tier 1 capital to average assets	8.14		5.00		8.13		5.00		8.54		5.00		8.12		5.00

Bank
Total capital to risk-weighted assets	13.03	%	10.50	%	12.42	%	10.50	%
Common equity tier 1 capital to risk-weighted assets	12.33		7.00		11.79		7.00
Tier 1 capital to risk-weighted assets	12.33		8.50		11.79		8.50
Total capital to risk-weighted assets⁽¹⁾									13.92	%	10.50	%	13.27	%	10.50	%
Common equity tier 1 capital to risk-weighted assets⁽¹⁾									13.02		7.00		12.53		7.00
Tier 1 capital to risk-weighted assets⁽¹⁾									13.02		8.50		12.52		8.50
Tier 1 capital to average assets	9.06		5.00		8.39		5.00		9.50		5.00		9.02		5.00

(1)

Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements.

At each date shown, the Company and the Bank met the conditions to be classified as “well-capitalized” under the relevant regulatory framework. To be categorized as "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 are subject to the Basel III rule that requires the Company and the Bank to assess their Common equity tier 1 capital to risk-weighted assets and the Company and the Bank each exceed the minimum to be "well-capitalized." Effective January 1, 2019 all banking organizations must maintain a minimum Common equity tier 1 risk-based capital ratio of 7.0%, a minimum Tier 1 risk-based capital ratio of 8.5% and a minimum Total risk-based capital ratio of 10.5%.

Accumulated other comprehensive income (loss)

Components of accumulated other comprehensive income is, as follows:


(in thousands)	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Other accumulated comprehensive income, before tax:
Accumulated other comprehensive income, before tax:
Net unrealized gain on AFS securities	$	15,264	$	7,342	$	5,741	$	13,069
Net unrealized loss on hedging derivatives		(1,461)		(718)
Net unrealized gain on hedging derivatives⁽¹⁾						(121)		(2,432)
Net unrealized loss on post-retirement plans		(1,512)		(1,512)		(1,850)		(1,850)

Income taxes related to items of accumulated other comprehensive income:
Net unrealized gain on AFS securities		(3,583)		(1,793)		(1,343)		(3,046)
Net unrealized loss on hedging derivatives		342		237
Net unrealized gain on hedging derivatives⁽¹⁾						29		567
Net unrealized loss on post-retirement plans		355		355		432		432
Accumulated other comprehensive income(1)	$	9,405	$	3,911	$	2,888	$	6,740

(1)

Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements.

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The following table presents the components of other comprehensive income (loss) for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


(in thousands)	Before Tax		Tax Effect		Net of Tax		Before Tax		Tax Effect			Net of Tax
Three Months Ended September 30, 2021
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period							$	(1,770)	$	403		$	(1,367)
Less: reclassification adjustment for gains (losses) realized in net income								1,930		(458)			1,472
Net unrealized gain on AFS securities								(3,700)		861			(2,839)

Net unrealized gain on hedging derivatives:
Net unrealized gain arising during the period								(203)		48			(155)
Less: reclassification adjustment for gains (losses) realized in net income								—		—			—
Net unrealized gain on cash flow hedging derivatives								(203)		48			(155)

Net unrealized loss on post-retirement plans:
Net unrealized loss arising during the period								—		—			—
Less: reclassification adjustment for gains (losses) realized in net income								—		—			—
Net unrealized loss on post-retirement plans								—		—			—
Other comprehensive loss							$	(3,903)	$	909		$	(2,994)

Three Months Ended September 30, 2020
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period	$	351	$	(82)	$	269	$	351	$	(82)		$	269
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—		—		—			—
Net unrealized gain on AFS securities		351		(82)		269		351		(82)			269

Net unrealized gain on cash flow hedging derivatives:
Net unrealized gain arising during the period		805		(190)		615
Net unrealized gain on derivative hedgess:
Net unrealized gain arising during the period⁽¹⁾								1,302		(308)			994
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—		—		—			—
Net unrealized gain on cash flow hedging derivatives		805		(190)		615
Net unrealized gain on cash flow derivative hedges⁽¹⁾								1,302		(308)	��		994

Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on post-retirement plans		—		—		—
Other comprehensive income	$	1,156	$	(272)	$	884

Three Months Ended September 30, 2019
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period	$	3,357	$	(784)	$	2,573
Less: reclassification adjustment for gains (losses) realized in net income		157		(37)		120
Net unrealized gain on AFS securities		3,200		(747)		2,453

Net unrealized loss on cash flow hedging derivatives:
Net unrealized loss on post-retirement plans:
Net unrealized loss arising during the period		(370)		85		(285)		—		—			—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—		—		—			—
Net unrealized loss on cash flow hedging derivatives		(370)		85		(285)

Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on post-retirement plans		—		—		—
Net unrealized loss on post-retirement plans								—		—			—
Other comprehensive income(1)	$	2,830	$	(662)	$	2,168	$	1,653	$	(390)		$	1,263

(1)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements.

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(in thousands)

Before Tax

Tax Effect

Net of Tax
Nine Months Ended September 30, 2020






Net unrealized gain on AFS securities:






Net unrealized gain arising during the period

$
9,408

$
(2,146)

$
7,262
Less: reclassification adjustment for gains (losses) realized in net income

1,486

(355)

1,131
Net unrealized gain on AFS securities

7,922

(1,791)

6,131

Net unrealized loss on derivative hedges:






Net unrealized loss arising during the period

(833)

196

(637)
Less: reclassification adjustment for gains (losses) realized in net income

—

—

—
Net unrealized loss on derivative hedges

(833)

196

(637)

Net unrealized gain on post-retirement plans:






Net unrealized gain arising during the period

—

—

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

—

—

—
Net unrealized gain on post-retirement plans

—

—

—
Other comprehensive income

$
7,089

$
(1,595)

$
5,494

Nine Months Ended September 30, 2019






Net unrealized gain on AFS securities:






Net unrealized gain arising during the period

$
21,903

$
(5,118)

$
16,785
Less: reclassification adjustment for gains realized in net income

157

(37)

120
Net unrealized gain on AFS securities

21,746

(5,081)

16,665

Net unrealized loss on cash flow hedging derivatives:






Net unrealized loss arising during the period

(2,372)

554

(1,818)
Less: reclassification adjustment for gains (losses) realized in net income

—

—

—
Net unrealized loss on cash flow hedging derivatives

(2,372)

554

(1,818)

Net unrealized gain on post-retirement plans:






Net unrealized gain arising during the period

—

—

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

—

—

—
Net unrealized gain on post-retirement plans

—

—

—
Other comprehensive income

$
19,374

$
(4,527)

$
14,847


(in thousands)	Before Tax		Tax Effect		Net of Tax
Nine Months Ended September 30, 2021
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period	$	(5,348)	$	1,234	$	(4,114)
Less: reclassification adjustment for gains (losses) realized in net income		1,980		(469)		1,511
Net unrealized loss on AFS securities		(7,328)		1,703		(5,625)

Net unrealized loss on derivative hedges:
Net unrealized loss arising during the period		2,311		(538)		1,773
Less: reclassification adjustment for (losses) gains realized in net income		—		—		—
Net unrealized loss on derivative hedges		2,311		(538)		1,773

Net unrealized loss on post-retirement plans:
Net unrealized loss arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on post-retirement plans		—		—		—
Other comprehensive loss	$	(5,017)	$	1,165	$	(3,852)

Nine Months Ended September 30, 2020
Net unrealized gain on AFS securities:
Net unrealized gain arising during the period	$	9,408	$	(2,143)	$	7,265
Less: reclassification adjustment for gains realized in net income		1,486		(352)		1,134
Net unrealized gain on AFS securities		7,922		(1,791)		6,131

Net unrealized loss on cash flow hedging derivatives:
Net unrealized loss arising during the period⁽¹⁾		(7,568)		1,776		(5,792)
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized loss on cash flow hedging derivatives⁽¹⁾		(7,568)		1,776		(5,792)

Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period		—		—		—
Less: reclassification adjustment for gains (losses) realized in net income		—		—		—
Net unrealized gain on post-retirement plans		—		—		—
Other comprehensive income⁽¹⁾	$	354	$	(15)	$	339

(1)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements.

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The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax impacts, for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


	Net unrealized		Net loss on		Net unrealized				Net unrealized		Net loss on		Net unrealized
	gain (loss)		effective cash		loss				gain		effective cash		loss
	on AFS		flow hedging		on pension				on AFS		flow hedging		on pension
(in thousands)	Securities		derivatives		plans		Total		Securities		derivatives⁽¹⁾		plans		Total⁽¹⁾
Three Months Ended September 30, 2021
Balance at beginning of period									$	7,237	$	63	$	(1,418)	$	5,882
Other comprehensive gain before reclassifications										(1,367)		(155)		0		(1,522)
Less: amounts reclassified from accumulated other comprehensive income										1,472		0		0		1,472
Total other comprehensive income										(2,839)		(155)		0		(2,994)
Balance at end of period									$	4,398	$	(92)	$	(1,418)	$	2,888

Three Months Ended September 30, 2020
Balance at beginning of period	$	11,412	$	(1,734)	$	(1,157)	$	8,521	$	11,412	$	(7,387)	$	(1,157)	$	2,868
Other comprehensive gain before reclassifications		269		615		0		884		269		994		0		1,263
Less: amounts reclassified from accumulated other comprehensive income		0		0		0		0		0		0		0		0
Total other comprehensive income		269		615		0		884		269		994		0		1,263
Balance at end of period	$	11,681	$	(1,119)	$	(1,157)	$	9,405	$	11,681	$	(6,393)	$	(1,157)	$	4,131

Three Months Ended September 30, 2019
Nine Months Ended September 30, 2021
Balance at beginning of period	$	5,547	$	(3,782)	$	(888)	$	(5,628)	$	10,023	$	(1,865)	$	(1,418)	$	6,740
Other comprehensive gain (loss) before reclassifications		2,573		(285)		0		2,288
Other comprehensive loss before reclassifications										(4,114)		1,773		0		(2,341)
Less: amounts reclassified from accumulated other comprehensive income		120		0		0		120		1,511		0		0		1,511
Total other comprehensive income (loss)		2,453		(285)		0		2,168
Total other comprehensive loss										(5,625)		1,773		0		(3,852)
Balance at end of period	$	8,000	$	(4,067)	$	(888)	$	3,045	$	4,398	$	(92)	$	(1,418)	$	2,888

Nine Months Ended September 30, 2020
Balance at beginning of period	$	5,550	$	(482)	$	(1,157)	$	3,911	$	5,550	$	(601)	$	(1,157)	$	3,792
Other comprehensive gain (loss) before reclassifications		7,262		(637)		0		6,625		7,265		(5,792)		0		1,473
Less: amounts reclassified from accumulated other comprehensive income		1,131		0		0		1,131		1,134		0		0		1,134
Total other comprehensive income (loss)		6,131		(637)		0		5,494		6,131		(5,792)		0		339
Balance at end of period	$	11,681	$	(1,119)	$	(1,157)	$	9,405	$	11,681	$	(6,393)	$	(1,157)	$	4,131

Nine Months Ended September 30, 2019
Balance at beginning of period	$	(8,665)	$	(2,249)	$	(888)	$	(11,802)
Other comprehensive gain (loss) before reclassifications		16,785		(1,818)		0		14,967
Less: amounts reclassified from accumulated other comprehensive income		120		0		0		120
Total other comprehensive income (loss)		16,665		(1,818)		0		14,847
Balance at end of period	$	8,000	$	(4,067)	$	(888)	$	3,045

(1)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements.

Table of Contents

The following tables presents the amounts reclassified out of each component of accumulated other comprehensive income for three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended September 30,				Nine Months Ended September 30,				Affected Line Item where	Three Months Ended September 30,				Nine Months Ended September 30,				Affected Line Item where
(in thousands)	2020		2019		2020		2019		Net Income is Presented	2021		2020		2021		2020		Net Income is Presented
Net realized gains on AFS securities:
Before tax⁽¹⁾	$	—	$	157	$	1,486	$	157	Non-interest income	$	1,930	$	—	$	1,980	$	1,486	Non-interest income
Tax effect		—		(37)		(355)		(37)	Tax expense		(458)		—		(469)		(352)	Tax expense
Total reclassifications for the period	$	—	$	120	$	1,131	$	120	Net of tax	$	1,472	$	—	$	1,511	$	1,134

~~(1)~~(a)

Net realized gains before tax include $1.9 million realized gains for the three months ended September 30, 2021 and $2.0 million for the nine months ended September 30, 2021 and gross realized losses of $50 thousand for both of the respective periods. There were 0 net realized gains or losses for the three months ended September 30, 2020. Net realized gains before tax include gross realized gains $1.5 million and realized losses of $22 thousand for the nine months ended September 30, ~~2020 and gross realized gains of $716 thousand and realized losses of $559 thousand for the three and nine months ended September 30, 2019.~~2020.

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NOTE 8.7. EARNINGS PER SHARE

The following table presents the calculation of earnings per share:


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
(in thousands, except per share and share data)	2020		2019		2020		2019		2021		2020		2021		2020
Net income	$	8,402	$	5,015	$	24,604	$	18,413	$	11,028	$	8,402	$	29,533	$	24,604

Average number of basic common shares outstanding		15,079,413		15,547,276		15,358,803		15,536,414		14,982,766		15,079,413		14,960,753		15,358,803
Plus: dilutive effect of stock options and awards outstanding⁽¹⁾		23,421		34,027		23,063		45,282		67,990		23,421		73,829		23,063
Average number of diluted common shares outstanding(1)		15,102,834		15,581,303		15,381,866		15,581,696		15,050,756		15,102,834		15,034,582		15,381,866

Earnings per share:
Basic	$	0.56	$	0.32	$	1.60	$	1.19	$	0.74	$	0.56	$	1.97	$	1.60
Diluted	$	0.56	$	0.32	$	1.60	$	1.18	$	0.73	$	0.56	$	1.96	$	1.60

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

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NOTE 9.8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

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

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

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

The following tables present information about derivative assets and liabilities at September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


	September 30, 2020							September 30, 2021
			Weighted							Weighted
	Notional		Average		Fair Value		Location Fair	Notional		Average		Fair Value		Location Fair
	Amount		Maturity		Asset (Liability)		Value Asset	Amount		Maturity		Asset (Liability)		Value Asset
	(in thousands)		(in years)		(in thousands)		(Liability)	(in thousands)		(in years)		(in thousands)		(Liability)
Cash flow hedges:
Interest rate swap on wholesale fundings	$	125,000		4.1	$	(6,835)	Other liabilities	$	75,000		3.3	$	(1,168)	Other liabilities
Interest rate swap on variable rate loans									50,000		4.5		(121)	Other liabilities
Total cash flow hedges		125,000		4.1		(6,835)			125,000				(1,289)

Fair value hedges:
Interest rate swap on securities		37,190		8.7		3,445	Other assets		37,190		7.8		(841)	Other liabilities
Total fair value hedges		37,190		8.7		3,445			37,190				(841)

Economic hedges:
Forward sale commitments		47,739		0.2		(87)	Other liabilities		14,533		0.1		(140)	Other liabilities
Customer Loan Swaps-MNA Counterparty		189,244		7.1		(16,965)	Other liabilities		250,852		6.4		(10,258)	Other liabilities
Customer Loan Swaps-RPA Counterparty		103,391		7.8		(11,071)	Other liabilities		119,285		7.1		(5,892)	Other liabilities
Customer Loan Swaps-Customer		292,635		7.4		28,036	Other assets		370,137		6.6		16,150	Other assets
Total economic hedges		633,009				(87)			754,807				(140)

Non-hedging derivatives:
Interest rate lock commitments		27,730		0.1		24	Other assets		12,885		0.1		47	Other assets
Total non-hedging derivatives		27,730		0.1		24			12,885				47

Total	$	822,929			$	(3,453)		$	929,882			$	(2,223)

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	December 31, 2020
			Weighted
	Notional		Average		Fair Value		Location Fair
	Amount		Maturity		Asset (Liability)		Value Asset
	(in thousands)		(in years)		(in thousands)		(Liability)
Cash flow hedges:
Interest rate swap on wholesale fundings	$	75,000		4.0	$	(2,664)	Other liabilities
Total cash flow hedges		75,000				(2,664)

Fair value hedges:
Interest rate swap on securities⁽¹⁾		37,190		8.6		(2,789)	Other liabilities
Total fair value hedges		37,190				(2,789)

Economic hedges:
Forward sale commitments		50,629		0.2		(95)	Other liabilities
Customer Loan Swaps-MNA Counterparty		235,947		6.8		(15,938)	Other liabilities
Customer Loan Swaps-RPA Counterparty		119,285		7.9		(9,957)	Other liabilities
Customer Loan Swaps-Customer		355,232		7.1		25,895	Other assets
Total economic hedges		761,093				(95)

Non-hedging derivatives:
Interest rate lock commitments		3,320		0.1		22	Other assets
Total non-hedging derivatives		3,320				22

Total	$	876,603			$	(5,526)

(1)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statements.

As of September 30, 2021 and December 31, 2020, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges:


				Cumulative Amount of Fair
	Location of Hedged Item on	Carrying Amount of Hedged		Value Hedging Adjustment in
	Balance Sheet	Assets		Carrying Amount
September 30, 2021
Interest rate swap on securities	Securities Available for Sale	$	39,200	$	2,010

December 31, 2020
Interest rate swap on securities	Securities Available for Sale	$	40,209	$	3,019

Table of Contents

Information about derivative assets and liabilities for the three and nine months ended September 30, 2021 and December 31, 2020, follows:


	Three Months Ended September 30, 2021
	Amount of			Amount of
	Gain (Loss)			Gain (Loss)
	Recognized in			Reclassified		Location of	Amount of
	Other		Location of Gain (Loss)	from Other		Gain (Loss)	Gain (Loss)
	Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized
(in thousands)	Income		Comprehensive Income	Income		Income	in Income
Cash flow hedges:
Interest rate swap on wholesale funding	$	167	Interest expense	$	—	Interest expense	$	(205)
Interest rate swap on variable rate loans		(101)	Interest income		—	Interest income		92
Total cash flow hedges		66			—			(113)

Fair value hedges:
Interest rate swap on securities		(221)	Interest income		—	Interest income		(144)
Total fair value hedges		(221)			—			(144)

Economic hedges:
Forward commitments		—	Other income		—	Other income		(96)
Total economic hedges		—			—			(96)

Non-hedging derivatives:
Interest rate lock commitments		—	Other income		—	Other income		22
Total non-hedging derivatives		—			—			22

Total	$	(155)		$	—		$	(331)

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	Nine Months Ended September 30, 2021
	Amount of			Amount of
	Gain (Loss)			Gain (Loss)
	Recognized in			Reclassified		Location of	Amount of
	Other		Location of Gain (Loss)	from Other		Gain (Loss)	Gain (Loss)
	Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized
(in thousands)	Income		Comprehensive Income	Income		Income	in Income
Cash flow hedges:
Interest rate swap on wholesale funding	$	1,148	Interest expense	$	—	Interest expense	$	(589)
Interest rate swap on variable rate loans		(93)	Interest income		—	Interest income		189
Total cash flow hedges		1,055			—			(400)

Fair value hedges:
Interest rate swap on securities		720	Interest income		—	Interest income		(421)
Total fair value hedges		720			—			(421)

Economic hedges:
Forward commitments		—	Other income		—	Other income		(45)
Total economic hedges		—			—			(45)

Non-hedging derivatives:
Interest rate lock commitments		—	Other income		—	Other income		26
Total non-hedging derivatives		—			—			26

Total	$	1,775		$	—		$	(840)

The Company expects approximately $1.0 million of losses (pre-tax) related to the Company’s cash flow hedges to be reclassified to earnings from AOCI over the next 12 months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of September 30, 2021.

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December 31, 2019

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

$
100,000

4.6

$
(1,311)

Other liabilities
Total cash flow hedges

100,000

(1,311)

Fair value hedges:

Interest rate swap on securities

37,190

9.6

593

Other liabilities
Total fair value hedges

37,190

593

Economic hedges:

Forward sale commitments

11,228

0.1

(84)

Other liabilities
Customer Loan Swaps-MNA Counterparty

135,598

7.5

(4,669)

(1)
Customer Loan Swaps-RPA Counterparty

69,505

8.8

(3,377)

(1)
Customer Loan Swaps-Customer

205,103

8.1

8,046

(1)
Total economic hedges

421,434

(84)

Non-hedging derivatives:







Interest rate lock commitments

21,748

0.1

59

Other assets
Total non-hedging derivatives

21,748

59

Total

$
580,372

$
(743)


	Three Months Ended September 30, 2020
	Amount of			Amount of
	Gain (Loss)			Gain (Loss)
	Recognized in			Reclassified		Location of	Amount of
	Other		Location of Gain (Loss)	from Other		Gain (Loss)	Gain (Loss)
	Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized
(in thousands)	Income⁽¹⁾		Comprehensive Income	Income		Income	in Income
Cash flow hedges:
Interest rate swap on wholesale funding	$	362	Interest expense	$	—	Interest expense	$	(427)
Total cash flow hedges		362			—			(427)

Fair value hedges:
Interest rate swap on securities		635	Interest income		—	Interest income		(204)
Total economic hedges		635			—			(204)

Economic hedges:
Forward commitments		—	Other income		—	Other income		40
Total economic hedges		—			—			40

Non-hedging derivatives:
Interest rate lock commitments		—	Other income		—	Other Income		(39)
Total non-hedging derivatives		—			—			(39)

Total	$	997		$	—		$	(630)

(1)

~~Customer loan derivatives are subject to MNA or~~Prior period has been revised, see Note 1 Basis of Presentation – ~~RPA~~ ~~arrangements with financial institution counterparties, thus assets and liabilities with the counterparty were previously netted for financial statement presentation.~~Revision of Previously Issued Financial Statement.

Asof ~~September 30, 2020 and~~ ~~December 31, 2019,thefollowingamountswererecorded~~on~~thebalancesheetrelated~~to~~cumulative basis adjustments for fair valuehedges:~~


				Cumulative Amount of Fair		Nine Months Ended September 30, 2020
	Location of Hedged Item on	Carrying Amount of Hedged		Value Hedging Adjustment in		Amount of			Amount of
	Balance Sheet	Assets (Liabilities)		Carrying Amount		Gain (Loss)			Gain (Loss)
September 30, 2020
						Recognized in			Reclassified		Location of	Amount of
						Other		Location of Gain (Loss)	from Other		Gain (Loss)	Gain (Loss)
						Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized
(in thousands)						Income⁽¹⁾		Comprehensive Income	Income		Income	in Income
Cash flow hedges:
Interest rate swap on wholesale funding						$	(4,247)	Interest expense	$	—	Interest expense	$	(642)
Total cash flow hedges							(4,247)			—			(642)

Fair value hedges:
Interest rate swap on securities	Securities Available for Sale	$	42,564	$	5,374		(1,545)	Interest income		—	Interest income		(145)
Total economic hedges							(1,545)			—			(145)

December 31, 2019
Fair value hedges:
Interest rate swap on securities	Securities Available for Sale	$	39,026	$	523
Economic hedges:
Forward commitments							—	Other income		—	Other income		(3)
Total economic hedges							—			—			(3)

Non-hedging derivatives:
Interest rate lock commitments							—	Other income		—	Other Income		(35)
Total non-hedging derivatives							—			—			(35)

Total						$	(5,792)		$	—		$	(825)

(1)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement.

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~~Information about derivative assets~~The effect of cash flow hedging and ~~liabilities~~fair value accounting on the consolidated statements of income for the three months ended September 30, ~~2020~~2021 and ~~December 31, 2019, follows:~~2020:


	Nine Months Ended September 30, 2020
	Amount of			Amount of
	Gain (Loss)			Gain (Loss)
	Recognized in			Reclassified		Location of	Amount of
	Other		Location of Gain (Loss)	from Other		Gain (Loss)	Gain (Loss)		Three Months Ended September 30, 2021
	Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized		Interest and Dividend Income				Interest Expense
(in thousands)	Income		Comprehensive Income	Income		Income	in Income		Loans		Securities and other		Deposits		Borrowings		Non-interest Income
Cash flow hedges:
Income and exepense line items presented in the consolidated statements of income									$	25,094	$	3,821	$	1,555	$	1,778	$	11,350

The effects of cash flow and fair value hedging:

Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding	$	(5,231)	Interest expense	$	—	Interest expense	$	(642)		—		—		—		(205)		—
Total cash flow hedges		(5,231)			—			(642)
Interest rate swap on variable rate loans										92		—		—		—		—

Fair value hedges:
Gain (loss) on fair value hedges:
Interest rate swap on securities		4,113	Interest income		—	Interest income		(145)		—		(144)		—		—		—
Total fair value hedges		4,113			—			(145)

Economic hedges:
Forward commitments		—	Other income		—	Other income		(3)
Total economic hedges		—			—			(3)
									Three Months Ended September 30, 2020
Non-hedging derivatives:
Interest rate lock commitments		—	Other income		—	Other income		(35)
Total non-hedging derivatives		—			—			(35)
									Interest and Dividend Income				Interest Expense
Total	$	(1,118)		$	—		$	(825)
(in thousands)									Loans		Securities and other		Deposits		Borrowings		Non-interest Income
Income and exepense line items presented in the consolidated statements of income									$	25,918	$	4,557	$	3,869	$	1,941	$	10,102

The effects of cash flow and fair value hedging:

Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding										—		—		(365)		(62)		—
Interest rate swap on variable rate loans										—		—		—		—		—

Gain (loss) on fair value hedges:
Interest rate swap on securities										—		(204)		—		—		—

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The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the nine months ended September 30, 2021 and 2020:


	Nine Months Ended September 30, 2021
	Interest and Dividend Income				Interest Expense
(in thousands)	Loans		Securities and other		Deposits		Borrowings		Non-interest Income
Income and exepense line items presented in the consolidated statements of income	$	72,490		11,792	$	7,109		5,415	$	31,103

The effects of cash flow and fair value hedging:

Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding		—		—		—		(589)		—
Interest rate swap on variable rate loans		189		—		—		—		—

Gain (loss) on fair value hedges:
Interest rate swap on securities		—		(421)		—		—		—

	Nine Months Ended September 30, 2020
	Interest and Dividend Income				Interest Expense
(in thousands)	Loans		Securities and other		Deposits		Borrowings		Non-interest Income
Income and exepense line items presented in the consolidated statements of income	$	80,398		15,006	$	14,437		7,149	$	28,233

The effects of cash flow and fair value hedging:

Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding		—		—		(580)		(62)		—
Interest rate swap on variable rate loans		—		—		—		—		—

Gain (loss) on fair value hedges:
Interest rate swap on securities		—		(145)		—		—		—

Cash flow hedges

Interest rate swaps on wholesale funding

As of September 30, 2021 the Company has 2 interest rate swaps on wholesale borrowings (the "SWAPS") to limit its exposure to rising interest rates over a five year term on 3-month FHLB borrowings or brokered certificates, or a combination thereof at each maturity date. The first of the 2 agreements were entered in November 2019 with a $50.0 million notional amount and pays a fixed interest rate of 1.53%. A second agreement was entered on April 2020 with a $25.0 million notional amount and pays a fixed rate of 0.59%. The financial institution counterparty pays the Company interest on the three-month LIBOR rate. The Company designated the swaps as a cash flow hedge.

Interest rate swap on variable rate loans

In March 2021, the Company entered into a contract with a counterparty to manage interest rate risk associated with its variable rate loans. The instrument is specifically designed to hedge the risk of changes in its cash flows from interest receipts attributable to changes in a contractually specified interest rate, on an amount of the Company’s variable rate loan assets equal to $50 million. The interest rate swap will effectively fix the Company’s interest rate on $50 million of 1 month USD-LIBOR-BBA (or LIBOR less two days) based loan assets at 0.806% plus the credit spread on the loans that reprices on weighted average basis. The Company designated the swap as a cash flow hedge.

Table of Contents

Years Ended December 31, 2019


Amount of



Amount of




Gain (Loss)

Gain (Loss)

Amount of

Recognized in

Reclassified

Location of

Gain (Loss)

Other

Location of Gain (Loss)

from Other

Gain (Loss)

Recognized

Comprehensive

Reclassified from Other

Comprehensive

Recognized in

Recognized
(in thousands)

Income

Comprehensive Income

Income

Income

in Income
Cash flow hedges:










Interest rate swap on wholesale funding

$
—

Acquisition, restructuring, and other expenses

$
3,156

Interest expense

$
(603)
Interest rate cap agreements

2,291

Interest expense

—

Interest expense

(2)
Total cash flow hedges

2,291

3,156

(605)

Fair value hedges:










Interest rate swap on securities

(523)

Interest income

—

Interest expense

7
Total economic hedges

(523)

—



7

Economic hedges:










Forward commitments

—

Other income

—

Other income

(84)
Total economic hedges

—

—



(84)

Non-hedging derivatives:










Interest rate lock commitments

—

Other income

—

Other Income

52
Total non-hedging derivatives

—

—



52

Total

$
1,768



$
3,156



$
(630)

~~Cash flow hedges~~

~~Interest rate swaps on wholesale funding~~

In March and November 2019 and April 2020, the Company entered into interest rate swaps on wholesale borrowings (the "SWAPS") to limit its exposure to rising interest rates over a five year term on 3-month FHLB borrowings or brokered certificates, or a combination thereof at each maturity date. Under the terms of the agreement, the Company has 2 swaps each with a $50.0 million notional amount and pays a fixed interest rate of 2.46% and 1.53% respectively and 1 swap with a $25.0 million notional amount and pays a fixed rate of 0.59%. The financial institution counterparty pays the Company interest on the three-month LIBOR rate. The Company designated the swap as a cash flow hedge.

~~Interest rate cap agreements~~

In 2014, interest rate cap agreements were purchased to limit the Company’s exposure to rising interest rates on 4 rolling, three-month borrowings indexed to three-month LIBOR. Under the terms of the agreements, the Company paid total premiums of $4.6 million for the right to receive cash flow payments if three-month LIBOR rises above the caps of 3.00%, thus effectively ensuring interest expense on the borrowings at maximum rates of 3.00% for the duration of the agreements. The interest rate cap agreements were designated as cash flow hedges; however, the caps were terminated in the fourth quarter of 2019 and the unamortized premium totaling $3.2 million was recognized in acquisition, restructuring and other expenses.

Fair value hedges

Interest rate swap on securities

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The Company utilizes interest rate swaps designated as 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

~~Table of Contents~~

converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. During 2019, the Company entered into 8 swap transactions with a notional amount of $37.2 million designated as fair value hedges. These derivatives are intended to protect against the effects of changing interest rates on the fair values of fixed rate securities. The fixed rates on the transactions have a weighted average of 1.696%.

Economic hedges

Forward sale commitments

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

Customer loan derivatives

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

The master netting arrangements provide for a single net settlement of all loan swap agreements, as well as collateral or cash funds, in the event of default on, or termination of, any one contract. Collateral is provided by cash or securities received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds. Currently, the Company has posted cash of ~~$30.5~~$17.0 million with counterparties.


	Gross Amounts Offset in the Consolidated Balance Sheet								Gross Amounts Offset in the Consolidated Balance Sheet
	Derivative				Cash Collateral				Derivative				Cash Collateral
(in thousands)	Liabilities		Derivative Assets		Pledged		Net Amount		Liabilities		Derivative Assets		Pledged		Net Amount
As of September 30, 2020
As of September 30, 2021
Customer Loan Derivatives:
MNA counterparty	$	(16,965)	$	16,965	$	30,450	$	—	$	(10,258)	$	10,258	$	17,000	$	17,000
RPA counterparty		(11,071)		11,071		—		—		(5,892)		5,892		—		—
Total	$	(28,036)	$	28,036	$	30,450	$	—	$	(16,150)	$	16,150	$	17,000	$	17,000

Gross Amounts Offset in the Consolidated Balance Sheet

Derivative

Cash Collateral

(in thousands)

Liabilities

Derivative Assets

Pledged

Net Amount
As of December 31, 2019









Customer Loan Derivatives:








MNA counterparty

$
(4,669)

$
4,669

$
10,700

$
—
RPA counterparty

(3,377)

3,377

—

—
Total

$
(8,046)

$
8,046

$
10,700

$
—


	Gross Amounts Offset in the Consolidated Balance Sheet
	Derivative				Cash Collateral
(in thousands)	Liabilities		Derivative Assets		Pledged		Net Amount
As of December 31, 2020
Customer Loan Derivatives:
MNA counterparty	$	(15,938)	$	15,938	$	23,450	$	23,450
RPA counterparty		(9,957)		9,957		—		—
Total	$	(25,895)	$	25,895	$	23,450	$	23,450

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Non-hedging derivatives

Interest rate lock commitments

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

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NOTE ~~10.~~9. FAIR VALUE MEASUREMENTS

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

Recurring Fair Value Measurements

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:


	September 30, 2020								September 30, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
(in thousands)	Inputs		Inputs		Inputs		Fair Value		Inputs		Inputs		Inputs		Fair Value
Available for sale securities:
Mortgage-backed securities:
US Government-sponsored enterprises	$	0	$	235,172	$	0	$	235,172	$	0	$	183,268	$	0	$	183,268
US Government agency		0		95,785		0		95,785		0		54,706		0		54,706
Private label		0		19,603		0		19,603		0		62,914		0		62,914
Obligations of states and political subdivisions thereof		0		154,157		0		154,157		0		160,177		0		160,177
Corporate bonds		0		99,812		0		99,812		0		84,262		0		84,262
Derivative assets		0		31,481		24		31,505		0		16,149		47		16,196
Derivative liabilities		0		(34,871)		(87)		(34,958)		0		(18,159)		(140)		(18,299)


	December 31, 2019								December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
(in thousands)	Inputs		Inputs		Inputs		Fair Value		Inputs		Inputs		Inputs		Fair Value
Available for sale securities:
Mortgage-backed securities:
US Government-sponsored enterprises	$	—	$	321,969	$	—	$	321,969	$	—	$	212,390	$	—	$	212,390
US Government agency		—		99,661		—		99,661		—		85,632		—		85,632
Private label		—		19,533		—		19,533		—		19,709		—		19,709
Obligations of states and political subdivisions thereof		—		142,006		—		142,006		—		169,004		—		169,004
Corporate bonds		—		80,061		—		80,061		—		98,311		—		98,311
Derivative assets(1)		—		6,791		59		6,850		—		28,895		22		28,917
Derivative liabilities(1)		—		(8,102)		(84)		(8,186)		—		(31,348)		(95)		(31,443)

(1)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement.

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

Derivative Assets and Liabilities

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

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

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

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

Although the Company has determined that the majority of the inputs used to value its customer loan derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, ~~2020,~~2021, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

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

Assets (Liabilities)

Interest Rate Lock

Forward
(in thousands)

Commitments

Commitments
Three Months Ended September 30, 2020





Balance at beginning of period

$
63

$
(126)
Realized (loss) gain recognized in non-interest income

(39)

39
Balance at end of period

$
24

$
(87)

Nine Months Ended September 30, 2020




Balance at beginning of period

$
59

$
(84)
Realized loss recognized in non-interest income

(35)

(3)
Balance at end of period

$
24

$
(87)

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The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three and nine months ended September 30, 2021:


	Assets (Liabilities)
	Interest Rate Lock		Forward
(in thousands)	Commitments		Commitments
Three Months Ended September 30, 2021
Balance at beginning of period	$	25	$	(45)
Realized gain recognized in non-interest income		22		(95)
Balance at end of period	$	47	$	(140)

Three Months Ended September 30, 2020
Balance at beginning of period	$	63	$	(126)
Realized gain recognized in non-interest income		(39)		39
Balance at end of period	$	24	$	(87)

Nine Months Ended September 30, 2021
Balance at beginning of period	$	22	$	(95)
Realized loss recognized in non-interest income		25		(45)
Balance at end of period	$	47	$	(140)

Nine Months Ended September 30, 2020
Balance at beginning of period	$	59	$	(84)
Realized loss recognized in non-interest income		(35)		(3)
Balance at end of period	$	24	$	(87)

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


	Fair Value		Fair Value													Significant
(in thousands,	September 30,		December 31,		Valuation	Unobservable	Unobservable
except ratios)	2020		2019		Techniques	Inputs	Input Value
										Fair Value		Fair Value				Unobservable
(in thousands, except ratios)										September 30, 2021		December 31, 2020		Valuation Techniques	Unobservable Inputs	Input Value
Assets (Liabilities)
Interest Rate Lock Commitment	$	24	$	59	Historical trend	Closing Ratio		90	%	$	47	$	22	Historical trend	Closing Ratio		85	%
					Pricing Model	Origination Costs, per loan	$	1.7						Pricing Model	Origination Costs, per loan	$	1.7

Forward Commitments		(87)		(84)	Quoted prices for similar loans in active markets.	Freddie Mac pricing system		Pair-off contract price			(140)		(95)	Quoted prices for similar loans in active markets	Freddie Mac pricing system		Pair-off contract price
Total	$	(63)	$	(25)						$	(93)	$	(73)

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Non-Recurring Fair Value Measurements

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

Fair Value

Three Months Ended

Nine Months Ended

Measurement Date as of

Sep 30, 2020

Dec 31, 2019

September 30, 2020

September 30, 2020

September 30, 2020

Level 3

Level 3

Total

Total

Level 3
(in thousands)

Inputs

Inputs

Gains (Losses)

Gains (Losses)

Inputs
Assets










Impaired loans

$
9,617

$
9,625

$
(6)

$
(8)

September 2020
Capitalized servicing rights

3,234

4,301

323

(1,067)

September 2020
Other real estate owned

1,983

2,236

(335)

(253)

September 2020
Premises held for sale

1,764

1,764

—

—

September 2019
Total

$
16,598

$
17,926

$
(18)

$
(1,328)



	September 30, 2021		December 31, 2020		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021		Fair Value Measurement Date as of September 30, 2021
	Level 3		Level 3		Total		Total		Level 3
(in thousands)	Inputs		Inputs		Gains (Losses)		Gains (Losses)		Inputs
Assets
Individually evaluated loans	$	9,247	$	8,746	$	707	$	(501)	September 2021
Capitalized servicing rights		4,867		3,605		(136)		(1,262)	September 2021
Premises held for sale		822		962		149		140	December 2020
Total	$	14,936	$	13,313	$	720	$	(1,623)

There are no0 liabilities measured at fair value on a non-recurring basis in ~~2020~~2021 and ~~2019.~~2020.

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

(in thousands,

Fair Value

Range

except ratios)

Sep 30, 2020

Valuation Techniques

Unobservable Inputs

(Weighted Average)^(a)

Assets

Impaired loans

7,071

Fair value of collateral-appraised value

Loss severity

0% to 53%

Appraised value

$0 to $1,730

Impaired loans

2,546

Discount cash flow

Discount rate

3.50% to 9.50%

(in thousands, except ratios)

Fair Value September 30, 2021

Valuation Techniques

Unobservable Inputs

Range (Weighted Average)^(a)

Assets

Individually evaluated loans

6,226

Fair value of collateral-appraised value

Loss severity

10% to 70%

Appraised value

$71 to $1,792

Individually evaluated loans

3,021

Discount cash flow

Discount rate

2.88% to 9.50%

Cash flows

$21 to $1,002

Cash flows

$6 to $939

Capitalized servicing rights

3,234

Discounted cash flow

Constant prepayment rate (CPR)

16.73%

4,867

Discounted cash flow

Constant prepayment rate (CPR)

13.66%

Discount rate

10.05%

Discount rate

9.53%

Other real estate owned

1,983

Fair value of collateral less selling costs

Appraised value

$2,000

Selling Costs

Premises held for sale^(b)

1,764

Fair value of asset less selling costs

Appraised value

$136 to $527

Premises held for sale

822

Fair value of asset less selling costs

Appraised value

$220 to $386

Selling Costs

Total

16,598

14,936

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

(c)	The carrying value of premises held for sale was $822 thousand as of September 30, 2021.



(in thousands, except ratios)	Fair Value Dec 31, 2020		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)^(a)
Assets
Individually evaluated loans	$	6,128	Fair value of collateral-appraised value	Loss severity		0% to 70%
				Appraised value		$0 to $1730

Individually evaluated loans		2,618	Discount cash flow	Discount rate		3.50% to 9.50%
				Cash flows		$19 to $953

Capitalized servicing rights		3,605	Discounted cash flow	Constant prepayment rate (CPR)		18.53%
				Discount rate		10.05%

Premises held for sale		962	Fair value of asset less selling costs	Appraised value		$220 to $386
				Selling Costs		6%
Total	$	13,313

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

~~(b)~~

~~The carrying value of premises held for sale was $1.8 million as of September 30, 2020.~~

(in thousands,

Fair Value

Range

except ratios)

Dec 31, 2019

Valuation Techniques

Unobservable Inputs

(Weighted Average)^(a)

Assets

Impaired loans

$
6,137

Fair value of collateral-appraised value

Loss severity

0% to 55.00%

Appraised value

$0 to $6,915

Impaired loans

3,488

Discount cash flow

Discount rate

2.88% to 9.50%

Cash flows

$22 to $1,002

Capitalized servicing rights

4,301

Discounted cash flow

Constant prepayment rate (CPR)

9.95%

Discount rate

10.07%

Other real estate owned

2,236

Fair value of collateral less selling costs

Appraised value

$2,695

Selling Costs

10% to 20%

Premises held for sale^(b)

1,764

Fair value of asset less selling costs

Appraised value

$136 to $527

Selling Costs

6%

Total

$
17,926

~~(a)~~

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

~~(b)~~

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

There were no Level 1 or Level 2 non-recurring fair value measurements for the periods ended September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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

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

Other real estate owned ~~(“OREO”)~~(OREO). OREO results from the foreclosure process on residential or commercial loans issued by the Company. Upon assuming the real estate, the Company records the property at the fair value of the asset less the estimated sales costs. Thereafter, OREO properties are recorded at the lower of cost or fair value less the estimated sales costs. OREO fair values are primarily determined based on Level 3 data including sales comparables and appraisals.

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

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Summary of Estimated Fair Values of Financial Instruments

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


	September 30, 2020										September 30, 2021
	Carrying		Fair								Carrying		Fair
(in thousands)	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	215,657	$	215,657	$	215,657	$	0	$	0	$	341,199	$	341,199	$	341,199	$	0	$	0
Securities available for sale		604,529		604,529		0		604,529		0		545,327		545,327		0		545,327		0
FHLB stock		13,975		13,975		0		13,975		0		10,192		10,192		0		10,192		0
Loans held for sale												7,505		7,505		0		0		7,505
Net loans		2,690,784		2,672,882		0		0		2,672,882		2,511,706		2,472,108		0		0		2,472,108
Accrued interest receivable		3,171		3,171		0		3,171		0		3,272		3,272		0		3,272		0
Cash surrender value of bank-owned life insurance policies		77,388		77,388		0		77,388		0		79,380		79,380		0		79,380		0
Derivative assets		31,505		31,505		0		31,481		24		17,019		17,019		0		16,972		47

Financial Liabilities
Non-maturity deposits	$	2,121,406	$	2,037,099	$	0	$	2,037,099	$	0	$	2,538,044	$	2,452,990	$	0	$	2,452,990	$	0
Time deposits		813,509		805,783		0		805,783		0		469,221		470,000		0		470,000		0
Securities sold under agreements to repurchase		30,048		30,048		0		30,048		0		21,667		21,667		0		21,667		0
FHLB advances		224,282		229,413		0		229,413		0		168,600		169,815		0		169,815		0
FRB PPPLF		131,236		131,141		0		131,141		0
Subordinated borrowings		59,920		59,920		0		59,920		0		60,083		63,660		0		63,660		0
Derivative liabilities		34,958		34,958		0		34,871		87		18,299		18,299		0		18,159		140

December 31, 2019

Carrying

Fair

(in thousands)

Amount

Value

Level 1

Level 2

Level 3
Financial Assets










Cash and cash equivalents

$
56,910

$
56,910

$
56,910

$
—

$
—
Securities available for sale

663,230

663,230

—

663,230

—
FHLB stock

20,679

20,679

—

20,679

—
Net loans

2,625,739

2,634,147

—

—

2,634,147
Accrued interest receivable

3,294

3,294

—

3,294

—
Cash surrender value of bank-owned life insurance policies

75,863

75,863

—

75,863

—
Derivative assets

6,850

6,850

—

6,791

59

Financial Liabilities










Non-maturity deposits

$
1,763,116

$
1,751,481

$
—

$
1,751,481

$
—
Time deposits

932,635

932,886

—

932,886

—
Short-term other borrowings

44,832

44,831

—

44,831

—
FHLB advances

426,564

425,989

—

425,989

—
Subordinated borrowings

59,920

59,920

—

59,920

—
Derivative liabilities

8,186

8,186

—

8,102

84


	December 31, 2020
	Carrying		Fair
(in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial Assets
Cash and cash equivalents	$	226,007	$	226,007	$	226,007	$	—	$	—
Securities available for sale		585,046		585,046		—		585,046		—
FHLB stock		14,036		14,036		—		14,036		—
Loans held for sale		23,988		24,163		—		—		24,163
Net loans		2,543,803		2,547,970		—		—		2,547,970
Accrued interest receivable		2,964		2,964		—		2,964		—
Cash surrender value of bank-owned life insurance policies		77,870		77,870		—		77,870		—
Derivative assets⁽¹⁾		28,895		25,895		—		25,917		22

Financial Liabilities
Non-maturity deposits	$	2,207,854	$	2,122,222	$	—	$	2,122,222	$	—
Time deposits		698,361		694,700		—		694,700		—
Short-term other borrowings		27,779		27,779		—		27,779		—
FHLB advances		248,283		252,698		—		252,698		—
Subordinated borrowings		59,961		57,091		—		57,091		—
Derivative liabilities⁽¹⁾		31,348		31,348		—		31,443		95

(1)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement.

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NOTE ~~11.~~10. REVENUE FROM CONTRACTS WITH CUSTOMER

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

Disaggregation of Revenue

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Major Products/Service Lines
Trust management fees	$	3,256	$	2,737	$	9,194	$	8,055	$	3,403	$	3,256	$	10,052	$	9,193
Financial services fees		276		276		867		781		465		276		1,283		867
Interchange fees		1,709		1,323		4,910		3,567		1,882		1,709		5,509		4,910
Customer deposit fees		937		1,112		2,836		3,046		1,363		937		3,542		2,836
Other customer service fees		240		118		691		723		270		240		691		691
Total	$	6,418	$	5,566	$	18,497	$	16,172	$	7,383	$	6,418	$	21,077	$	18,497


	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Timing of Revenue Recognition
Products and services transferred at a point in time	$	3,133	$	2,839	$	9,026	$	7,874	$	3,737	$	3,133	$	10,593	$	9,026
Products and services transferred over time		3,285		2,727		9,471		8,298		3,646		3,285		10,484		9,471
Total	$	6,418	$	5,566	$	18,497	$	16,172	$	7,383	$	6,418	$	21,077	$	18,497

Trust Management Fees

The trust management business generates revenue through a range of fiduciary services including trust and estate administration, wealth advisory, and investment management to individuals, businesses, not-for-profit organizations, and municipalities. ~~Revenue from these services~~These fees are primarily earned over time as the Company charges its customers on a monthly or quarterly basis in accordance with its investment advisory agreements. Fees are generally ~~recognized over time and is typically~~assessed based on a ~~time elapsed measure~~tiered scale of ~~service.~~the market value of assets under management at month end. Certain fees, such as bill paying fees, distribution fees, real estate sale fees, and supplemental tax service fees, are recorded as revenue at a point in time upon the completion of the service.

Financial Services Fees

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

Interchange Fees

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

Customer Deposit Fees

The Customer Deposit business offers a variety of deposit accounts with a range of interest rates, fee schedules and other terms, which are designed to meet the customer's financial needs. Additional depositor-related services provided to customers include ATM, bank-by-phone, internet banking, internet bill pay, mobile banking, and other cash management

~~Table of Contents~~

services which include remote deposit capture, ACH origination, and wire transfers. These customer deposit fees are generally recognized by the Company at a point in time upon the completion of the service.

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Other Customer Service Fees

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

Contract Balances from Contracts with Customers

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


	Balance at		Balance at
(in thousands)	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Balances from contracts with customers only:
Other Assets	$	1,311	$	1,236	$	1,277	$	1,121
Other Liabilities		2,918		3,114		2,467		2,785

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

Costs to Obtain and Fulfill a Contract

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

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NOTE ~~12.~~11. LEASES

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

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

●	Package of practical expedients:

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

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

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

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

The following table presents the consolidated statements of condition classification of the Company’s ROU assets and lease ~~liabilities as of September 30, 2020:~~liabilities:


(in thousands)		September 30, 2020		December 31, 2019		Classification	September 30, 2021		December 31, 2020
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Other assets	$	10,617	$	9,623	Other assets	$	9,488	$	10,338

Lease Liabilities
Operating lease liabilities	Other liabilities		10,881		9,651	Other liabilities		9,841		10,627

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

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


	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Weighted-average remaining lease term (in years)
Operating leases	9.04		8.96		8.57		9.26

Weighted-average discount rate
Operating leases	3.15	%	3.27	%	3.15	%	3.15	%

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


	Three Months Ended		Nine Months Ended		Three Months Ended				Nine Months Ended
(in thousands)	September 30, 2020		September 30, 2020		September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Lease Costs
Operating lease cost	$	344	$	988	$	324	$	344	$	966	$	988
Variable lease cost		59		177		43		59		179		177
Total lease cost	$	403	$	1,165	$	367	$	403	$	1,145	$	1,165

Future minimum payments for operating leases with initial or remaining terms of one year or more as of September 30, ~~2020~~2021 are, as follows:


(in thousands)	Operating Leases		Payments
Twelve Months Ended:
September 30, 2021	$	1,375
September 30, 2022		1,404	$	1,314
September 30, 2023		1,410		1,318
September 30, 2024		1,413		1,319
September 30, 2025		1,221		1,125
September 30, 2026				1,032
Thereafter		7,444		4,301
Total future minimum lease payments		14,267		10,409
Amounts representing interest		(3,386)		(568)
Present value of net future minimum lease payments	$	10,881	$	9,841

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

GENERAL

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

Bar Harbor Bankshares (the "Company") is the parent company of Bar Harbor Bank & Trust (the "Bank”), which is the only community bank headquartered in Northern New England with branches in Maine, New Hampshire and Vermont. The Bank is a ~~true~~regional community bank ~~providing exceptional commercial, retail,~~that thinks differently about banking. The Bank provides the technology offerings and capabilities of larger banks, accompanied by access to local decision makers who are acutely focused on their local markets. As the Company approaches the 135^th anniversary of its founding, they have not forgotten that helping customers achieve their goals is the key to the Bank’s success. The Company delivers banking, lending and wealth management ~~banking~~ services from ~~over~~more than 50 locations. The Company’s corporate goal is to be among the most profitable banks in New England, and its business model is centered on the following:

●

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

●

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

●

Strong commitment to risk management while balancing growth and earnings

●

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

●

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

●

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

●

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

●

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

Shown below is a profile of the Company as of September 30, ~~2020:~~2021:

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SELECTED FINANCIAL DATA

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30,						September 30,						September 30,						September 30,
	2020			2019			2020			2019			2021			2020			2021			2020
PER SHARE DATA
Net earnings, diluted	$	0.56		$	0.32		$	1.60		$	1.18		$	0.73		$	0.56		$	1.97		$	1.60
Adjusted earnings, diluted⁽¹⁾		0.61			0.47			1.66			1.35			0.73			0.61			2.04			1.66
Total book value(5)		27.09			25.37			27.09			25.37			27.92			26.74			27.92			26.74
Tangible book value⁽¹⁾		18.56			18.49			18.56			18.49
Tangible book value^{(1) (5)}														19.48			18.21			19.48			18.21
Market price at period end		20.55			24.93			20.55			24.93			28.05			20.55			28.05			20.55
Dividends		0.22			0.22			0.66			0.64			0.24			0.22			0.70			0.66

PERFORMANCE RATIOS⁽²⁾
Return on assets		0.88	%		0.55	%		0.87	%		0.68	%		1.16	%		0.88	%		1.05	%		0.87	%
Adjusted return on assets⁽¹⁾		0.96			0.80			0.91			0.77			1.16			0.96			1.09			0.91
Return on equity		8.22			5.04			8.09			6.37
Adjusted return on equity⁽¹⁾		8.98			7.36			8.41			7.25
Adjusted return on tangible equity⁽¹⁾		13.36			10.31			12.54			10.25
Pre-tax, pre-provision return on assets														1.43			1.29			1.26			1.24
Adjusted pre-tax, pre-provision return on assets ^{(1) (2)}														1.43			1.39			1.31			1.29
Return on equity⁽⁵⁾														10.38			8.25			9.54			8.10
Adjusted return on equity^{(1) (5)}														10.39			9.02			9.98			8.42
Return on tangible equity⁽⁵⁾														15.08			12.32			14.01			12.10
Adjusted return on tangible equity^{(1) (5)}														15.09			13.44			14.50			12.57
Net interest margin, fully taxable equivalent (FTE)^{(1) (3)}		2.98			2.75			3.01			2.72			3.02			2.90			2.88			2.95
Net interest margin (FTE), excluding purchased loan accretion⁽³⁾		2.92			2.65			2.93			2.63
Adjusted net interest margin^{(1) (5)}														2.75			2.89			2.73			2.94
Efficiency ratio⁽¹⁾		59.47			65.02			61.62			65.83			59.18			59.47			61.48			61.62

GROWTH (Year-to-date)⁽¹⁾
Total commercial loans		27	%		11	%		27	%		11	%
Total loans		3			5			3			5
Total deposits		12			1			12			1

FINANCIAL DATA (In millions)
Total assets	$	3,860		$	3,612		$	3,860		$	3,612		$	3,738		$	3,861		$	3,738		$	3,861
Total earning assets⁽⁴⁾		3,312			3,270			3,312			3,270			3,394			3,505			3,394			3,505
Total investments		619			703			619			703			556			619			556			619
Total loans		2,709			2,577			2,709			2,577			2,534			2,685			2,534			2,685
Allowance for loan losses		18			15			18			15			22			18			22			18
Total goodwill and intangible assets		127			107			127			107			126			127			126			127
Total deposits		2,935			2,494			2,935			2,494			3,007			2,935			3,007			2,935
Total shareholders' equity		404			394			404			394
Total shareholders' equity⁽⁵⁾														418			399			418			399
Net income		8			5			25			18			11			8			30			25
Adjusted income⁽¹⁾		9			7			26			21			11			9			31			26

ASSET QUALITY AND CONDITION RATIOS
Net charge-offs (annualized)/average loans		0.06	%		0.02	%		0.08	%		0.02	%		0.03	%		0.06	%		(0.02)	%		0.07	%
Allowance for loan losses/total loans		0.66			0.60			0.66			0.60
Allowance for credit losses/total loans														0.89			0.67			0.89			0.67
Loans/deposits		92			103			92			103			84			91			84			91
Shareholders' equity to total assets		10.48			10.92			10.48			10.92
Tangible shareholders' equity to tangible assets⁽¹⁾		7.42			8.20			7.42			8.20
Shareholders' equity to total assets⁽⁵⁾														11.19			10.34			11.19			10.34
Tangible shareholders' equity to tangible assets^{(1) (5)}														8.08			7.27			8.08			7.27

(1)	Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures section of Management's Discussion and Analysis for additional information.

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

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

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

(5)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement.

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CONSOLIDATED LOAN AND DEPOSIT ANALYSIS

The following tables present the quarterly trend in loan and deposit data and accompanying quarterly growth rates as of September 30, ~~2020~~2021 on an annualized basis:

LOAN ANALYSIS


											Annualized Growth %
											September 30, 2020														Annualized Growth %
(in thousands, except ratios)	Sep 30, 2020		Jun 30, 2020		Mar 31, 2020		Dec 31, 2019		Sep 30, 2019		Quarter To Date		Year To Date		Sep 30, 2021		Jun 30, 2021		Mar 31, 2021		Dec 31, 2020		Sep 30, 2020		Quarter To Date		Year To Date
Commercial real estate	$	1,045,635	$	982,070	$	948,178	$	930,661	$	923,773	26	%	16	%	$	1,170,372	$	1,135,857	$	1,118,669	$	1,084,381	$	1,045,635	12	%	11	%
Commercial and industrial		456,184		472,524		321,605		318,988		301,590	(14)		57			331,091		327,729		317,500		323,864		324,647	4		3
Paycheck Protection Program (PPP)																24,227		65,918		77,878		53,774		131,537	*		(74)
Total commercial loans		1,501,819		1,454,594		1,269,783		1,249,649		1,225,363	13		27			1,525,690		1,529,504		1,514,047		1,462,019		1,501,819	(1)		6
Total commercial loans, excluding PPP																1,501,463		1,463,586		1,436,169		1,408,245		1,370,282	10		9

Residential real estate		1,021,206		1,083,708		1,132,328		1,151,857		1,143,452	(23)		(15)			849,692		822,774		868,084		923,891		997,485	13		(11)
Consumer		119,340		124,197		128,120		135,283		107,375	(16)		(16)			100,933		103,589		106,835		113,544		119,340	(10)		(15)
Tax exempt and other		66,326		66,918		104,752		104,303		101,116	(4)		(49)			57,839		59,693		62,098		63,431		66,326	(12)		(12)
Total loans	$	2,708,691	$	2,729,417	$	2,634,983	$	2,641,092	$	2,577,306	(3)	%	3	%	$	2,534,154	$	2,515,560	$	2,551,064	$	2,562,885	$	2,684,970	3	%	(1)	%

DEPOSIT ANALYSIS


											Annualized Growth %
											September 30, 2020														Annualized Growth %
(in thousands, except ratios)	Sep 30, 2020		Jun 30, 2020		Mar 31, 2020		Dec 31, 2019		Sep 30, 2019		Quarter To Date		Year To Date		Sep 30, 2021		Jun 30, 2021		Mar 31, 2021		Dec 31, 2020		Sep 30, 2020		Quarter To Date		Year To Date
Demand	$	515,064	$	504,325	$	400,410	$	414,534	$	380,707	9	%	32	%	$	664,395	$	599,598	$	586,487	$	544,636	$	515,064	43	%	29	%
NOW		706,048		642,908		578,320		575,809		490,315	39		30			888,021		802,681		761,817		738,849		706,048	43		27
Savings		511,938		466,668		423,345		388,683		360,570	39		42			605,977		578,361		560,095		521,638		511,938	19		22
Money market		388,356		402,835		404,385		384,090		359,328	(14)		1			379,651		371,075		365,507		402,731		388,356	9		(8)
Total non-maturity deposits		2,121,406		2,016,736		1,806,460		1,763,116		1,590,920	21		27			2,538,044		2,351,715		2,273,906		2,207,854		2,121,406	32		20
Total time deposits		813,509		678,126		844,097		932,635		902,665	80		(17)			469,221		470,758		638,436		698,361		813,509	(1)		(44)
Total deposits	$	2,934,915	$	2,694,862	$	2,650,557	$	2,695,751	$	2,493,585	36	%	12	%	$	3,007,265	$	2,822,473	$	2,912,342	$	2,906,215	$	2,934,915	26	%	5	%

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AVERAGE BALANCES AND AVERAGE YIELDS/RATES

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


	Three Months Ended September 30,												Three Months Ended September 30,
	2020						2019						2021						2020
	Average						Average						Average						Average
(in thousands, except ratios)	Balance		Interest⁽³⁾		Yield/Rate⁽³⁾		Balance		Interest⁽³⁾		Yield/Rate⁽³⁾		Balance		Interest⁽³⁾		Yield/Rate⁽³⁾		Balance		Interest⁽³⁾		Yield/Rate⁽³⁾
Assets
Interest-bearing deposits with other banks⁽⁴⁾													$	284,429	$	110	0.15	%	$	92,066	$	21	0.09	%
Securities available for sale and FHLB stock⁽²⁾⁽³⁾														610,381		3,986	2.59			627,162		4,787	3.04
Loans:
Commercial real estate	$	1,012,194	$	9,691	3.81	%	$	900,568	$	10,750	4.74	%		1,153,813		10,269	3.53			1,012,194		9,691	3.81
Commercial and industrial		531,339		5,463	4.09			410,453		4,947	4.78			391,191		3,739	3.79			399,734		4,411	4.39
Paycheck protection program														45,835		2,690	23.28			131,605		1,052	3.18
Residential		1,060,084		9,886	3.71			1,154,552		11,293	3.88			824,686		7,574	3.64			1,060,084		9,886	3.71
Consumer		121,248		1,042	3.42			109,562		1,418	5.13			101,545		968	3.78			121,248		1,042	3.42
Total loans ⁽¹⁾		2,724,865		26,082	3.81			2,575,135		28,408	4.38			2,517,070		25,240	3.98			2,724,865		26,082	3.81
Securities and other ⁽²⁾		627,162		4,808	3.05			732,925		6,356	3.44
Total earning assets		3,352,027		30,890	3.67	%		3,308,060		34,764	4.17	%		3,411,880		29,336	3.41	%		3,444,093		30,890	3.57	%
Other assets		462,383						333,896
Total assets	$	3,814,410					$	3,641,956
Other assets⁽⁶⁾														352,208						370,335
Total assets⁽⁶⁾													$	3,764,088					$	3,814,428

Liabilities
NOW	$	677,706	$	243	0.14	%	$	487,506	$	621	0.51	%	$	860,206	$	272	0.13	%	$	677,706	$	243	0.14	%
Savings		488,508		157	0.13			359,242		193	0.21			591,440		124	0.08			488,508		157	0.13
Money market		396,351		163	0.16			338,013		1,168	1.37			381,755		115	0.12			396,351		163	0.16
Time deposits		777,424		3,307	1.69			947,949		5,161	2.16			471,934		1,044	0.88			777,424		3,307	1.69
Total interest bearing deposits		2,339,989		3,870	0.66			2,132,710		7,143	1.33			2,305,335		1,555	0.27			2,339,989		3,870	0.66
Borrowings		481,687		1,941	1.60			708,222		4,674	2.62			334,097		1,778	2.11			481,687		1,941	1.60
Total interest bearing liabilities		2,821,676		5,811	0.82	%		2,840,932		11,817	1.65	%		2,639,432		3,333	0.50	%		2,821,676		5,811	0.82	%
Non-interest bearing demand deposits		507,844						368,100						641,769						507,844
Other liabilities		78,072						37,975
Total liabilities		3,407,592						3,247,007
Other liabilities⁽⁶⁾														61,436						79,848
Total liabilities⁽⁶⁾														3,342,637						3,409,368

Total shareholders' equity		406,818						394,949
Total shareholders' equity⁽⁶⁾														421,451						405,060

Total liabilities and shareholders' equity	$	3,814,410					$	3,641,956
Total liabilities and shareholders' equity⁽⁶⁾													$	3,764,088					$	3,814,428

Net interest spread					2.85	%					2.52	%					2.91	%					2.75	%
Net interest margin					2.98						2.75
Net interest margin⁽¹⁾																	3.02						2.90
Adjusted net interest margin⁽⁵⁾																	2.75						2.89

(1)	The average balances of loans include non-accrual loans and unamortized deferred fees and costs.

(2)	The average balance for securities available for sale is based on amortized cost.

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

(4)	Income from interest-bearing deposits with other banks has been separated from securities and restated for prior periods to conform to the current period presentation.

(5)	Adjusted net interest margin excludes Paycheck Protection Program loans.

(6)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement.

Table of Contents


	Nine Months Ended September 30,
	2021						2020
	Average				Yield/		Average				Yield/
(in thousands, except ratios)	Balance		Interest⁽³⁾		Rate⁽³⁾		Balance		Interest⁽³⁾		Rate⁽³⁾
Assets
Interest-bearing deposits with other banks⁽⁴⁾	$	229,235	$	203	0.12	%	$	52,326	$	84	0.21	%
Securities available for sale and FHLB stock⁽²⁾⁽³⁾		617,373		12,424	2.69			643,978		15,798	3.28
Loans:
Commercial real estate		1,128,134		30,177	3.58			972,330		29,895	4.11
Commercial and industrial⁽³⁾		381,753		10,727	3.76			414,532		13,847	4.46
Paycheck protection program		62,562		5,058	10.81			78,782		1,921	3.26
Residential		861,629		24,145	3.75			1,103,442		31,386	3.80
Consumer		105,371		2,833	3.59			126,189		3,929	4.16
Total loans ⁽¹⁾		2,539,449		72,940	3.84			2,695,275		80,978	4.01
Total earning assets		3,386,057		85,567	3.38	%		3,391,579		96,860	3.81	%
Other assets⁽⁶⁾		357,334						371,792
Total assets⁽⁶⁾	$	3,743,391					$	3,763,371

Liabilities
NOW	$	801,292	$	760	0.13	%	$	622,702	$	1,021	0.22	%
Savings		568,726		431	0.10			451,952		587	0.17
Money market		376,775		354	0.13			393,702		1,511	0.51
Time deposits		583,529		5,565	1.28			813,442		11,320	1.86
Total interest bearing deposits		2,330,322		7,110	0.41			2,281,798		14,439	0.85
Borrowings		336,432		5,415	2.15			547,557		7,149	1.74
Total interest bearing liabilities		2,666,754		12,525	0.63	%		2,829,355		21,588	1.02	%
Non-interest bearing demand deposits		598,434						464,476
Other liabilities⁽⁶⁾		64,360						63,812
Total liabilities⁽⁶⁾		3,329,548						3,357,643

Total shareholders' equity⁽⁶⁾		413,843						405,728

Total liabilities and shareholders' equity⁽⁶⁾	$	3,743,391					$	3,763,371

Net interest spread					2.75	%					2.79	%
Net interest margin					2.88						2.95
Adjusted net interest margin⁽⁵⁾					2.73						2.94

(1)	The average balances of loans include non-accrual loans and unamortized deferred fees and costs.

(2)	The average balance for securities available for sale is based on amortized cost.

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

(4)	Income from interest-bearing deposits with other banks has been separated from securities and restated for prior periods to conform to the current period presentation.

(5)	Adjusted net interest margin excludes Paycheck Protection Program loans.

(6)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement.

Table of Contents

Nine Months Ended September 30,

2020

2019

Average

Average

(in thousands, except ratios)

Balance

Interest⁽³⁾

Yield/Rate ⁽³⁾

Balance

Interest⁽³⁾

Yield/Rate ⁽³⁾

Assets

Commercial real estate

$
972,330

$
29,895

4.11
%
$
859,613

$
30,480

4.74
%
Commercial and industrial

493,314

15,768

4.27

410,350

14,662

4.78

Residential

1,103,442

31,386

3.80

1,157,923

33,941

3.92

Consumer

126,189

3,929

4.16

111,274

4,333

5.21

Total loans ⁽¹⁾

2,695,275

80,978

4.01

2,539,160

83,416

4.39

Securities and other ⁽²⁾

643,978

15,882

3.29

761,234

19,389

3.41

Total earning assets

3,339,253

96,860

3.87
%

3,300,394

102,805

4.16
%
Other assets

424,118



335,883





Total assets

$
3,763,371



$
3,636,277





Liabilities













NOW

$
622,702

$
1,021

0.22
%
$
472,542

$
1,764

0.50
%
Savings

451,952

587

0.17

353,117

545

0.21

Money market

393,702

1,511

0.51

337,822

3,521

1.39

Time deposits

813,442

11,318

1.86

925,508

14,505

2.10

Total interest bearing deposits

2,281,798

14,437

0.85

2,088,989

20,335

1.30

Borrowings

547,557

7,149

1.74

751,016

15,232

2.71

Total interest bearing liabilities

2,829,355

21,586

1.02
%

2,840,005

35,567

1.67
%
Non-interest bearing demand deposits

464,476





377,014





Other liabilities

63,226





32,676





Total liabilities

3,357,057





3,249,695





Total shareholders' equity

406,314





386,582





Total liabilities and shareholders' equity

$
3,763,371





$
3,636,277





Net interest spread





2.86
%





2.49
%
Net interest margin





3.01





2.72

~~(1) The average balances of loans include non-accrual loans and unamortized deferred fees and costs.~~

~~(2) The average balance for securities available for sale is based on amortized cost.~~

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

~~Table of Contents~~

NON-GAAP FINANCIAL MEASURES

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

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

The Company also calculates adjusted earnings per share based on its measure of adjusted earnings. The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to acquisition activity. Analysts also rely on these measures in estimating and evaluating the Company's performance. Management also believes that the computation of non-GAAP adjusted earnings and adjusted earnings per share may facilitate the comparison of the Company to other companies in the financial services industry. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.

7170

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The following table summarizes the reconciliation of non-GAAP items for the time periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,
(in thousands)

Calculations

2020

2019

2020

2019
GAAP net income



$
8,402

$
5,015

$
24,604

$
18,413
Plus (less):










Gain on sale of securities, net



—

(157)

(1,486)

(157)
Loss on sale of premises and equipment, net



—

—

90

21
Loss on other real estate owned



335

146

366

146
Loss on debt extinguishment

—

—

1,351

—
Acquisition, restructuring and other expenses



691

3,039

952

3,319
Income tax expense⁽¹⁾



(245)

(720)

(304)

(792)
Total adjusted income⁽²⁾

(A)

$
9,183

$
7,323

$
25,573

$
20,950

GAAP net interest income

(B)

$
24,665

$
22,445

$
73,818

$
65,706
Plus: Non-interest income



10,102

7,643

28,233

21,263
Total Revenue



34,767

30,088

102,051

86,969
Less: Gain on sale of securities, net



—

(157)

(1,486)

(157)
Total adjusted revenue⁽²⁾

(C)

$
34,767

$
29,931

$
100,565

$
86,812

GAAP total non-interest expense



$
22,419

$
23,400

$
67,044

$
62,930
Less: Loss on sale of premises and equipment, net



—

—

(90)

(21)
Less: Loss on other real estate owned



(335)

(146)

(366)

(146)
Less: Loss on debt extinguishment

—

—

(1,351)

—
Less: Acquisition, restructuring and other expenses



(691)

(3,039)

(952)

(3,319)
Adjusted non-interest expense⁽²⁾

(D)

$
21,393

$
20,215

$
64,285

$
59,444

(in millions)










Total average earning assets

(E)

$
3,352

$
3,308

$
3,339

$
3,300
Total average assets

(F)

3,814

3,642

3,763

3,636
Total average shareholders' equity

(G)

407

395

406

387
Total average tangible shareholders' equity⁽²⁾⁽³⁾

(H)

279

288

279

279
Total tangible shareholders' equity, period-end⁽²⁾⁽³⁾

(I)

277

287

277

287
Total tangible assets, period-end⁽²⁾⁽³⁾

(J)

3,732

3,506

3,732

3,506

(in thousands)










Total common shares outstanding, period-end

(K)

14,929

15,549

14,929

15,549
Average diluted shares outstanding

(L)

15,103

15,581

15,382

15,582

Adjusted earnings per share, diluted

(A/L)

$
0.61

$
0.47

$
1.66

$
1.35
Tangible book value per share, period-end⁽²⁾

(I/K)

18.56

18.49

18.56

18.49
Securities adjustment, net of tax⁽¹⁾⁽⁴⁾

(M)

11,681

8,002

11,681

8,002
Tangible book value per share, excluding securities adjustment⁽²⁾⁽⁴⁾

(I+M)/K

17.78

17.98

17.78

17.98
Total tangible shareholders' equity/total tangible assets⁽²⁾

(I/J)

7.42

8.20

7.42

8.20


		Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	Calculations	2021		2020		2021		2020
Net income		$	11,028	$	8,402	$	29,533	$	24,604
Non-recurring items:
Gain on sale of securities, net			(1,930)		—		(1,980)		(1,486)
Loss (gain) on sale of premises and equipment, net			(146)		—		(137)		90
Loss on other real estate owned			—		335		(11)		366
Loss on debt extinguishment			1,768		—		1,768		1,351
Acquisition, conversion and other expenses			318		691		1,759		952
Income tax expense ⁽¹⁾			(2)		(245)		(332)		(304)
Total non-recurring items			8		781		1,067		969
Total adjusted income⁽²⁾	(A)	$	11,036	$	9,183	$	30,600	$	25,573

Net interest income	(B)	$	25,582	$	24,665	$	71,758	$	73,818
Plus: Non-interest income			11,350		10,102		31,103		28,233
Total Revenue			36,932		34,767		102,861		102,051
Gain on sale of securities, net			(1,930)		��		(1,980)		(1,486)
Total adjusted revenue⁽²⁾	(C)	$	35,002	$	34,767	$	100,881	$	100,565

Total non-interest expense		$	23,372	$	22,419	$	67,587	$	67,044
Non-recurring expenses:
(Loss) gain on sale of premises and equipment, net			146		—		137		(90)
Loss on other real estate owned			—		(335)		11		(366)
Loss on debt extinguishment			(1,768)		—		(1,768)		(1,351)
Acquisition, conversion and other expenses			(318)		(691)		(1,759)		(952)
Total non-recurring expenses			(1,940)		(1,026)		(3,379)		(2,759)
Adjusted non-interest expense⁽²⁾	(D)	$	21,432	$	21,393	$	64,208	$	64,285

Total revenue			36,932		34,767		102,861		102,051
Total non-interest expense			23,372		22,419		67,587		67,044
Pre-tax, pre-provision net revenue		$	13,560	$	12,348	$	35,274	$	35,007

Adjusted revenue⁽²⁾			35,002		34,767		100,881		100,565
Adjusted non-interest expense⁽²⁾			21,432		21,393		64,208		64,285
Adjusted pre-tax, pre-provision net revenue⁽²⁾		$	13,570	$	13,374	$	36,673	$	36,280

(in millions)
Average earning assets	(E)	$	3,412	$	3,444	$	3,386	$	3,392
Average paycheck protection program (PPP) loans	(R)		46		132		63		79
Average earning assets, excluding PPP loans	(S)		3,366		3,312		3,323		3,313
Average assets	(F)		3,764		3,814		3,743		3,763
Average shareholders' equity⁽⁸⁾	(G)		421		405		414		406
Average tangible shareholders' equity^(2)(3)(8)	(H)		295		278		287		278
Tangible shareholders' equity, period-end^(2)(3)(8)	(I)		292		272		292		272
Tangible assets, period-end^(2)(3)(8)	(J)		3,612		3,734		3,612		3,734

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		Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,					Nine Months Ended September 30,
													Calculations	2021			2020		2021			2020
(in thousands)
Common shares outstanding, period-end													(K)		14,987			14,929		14,987			14,929
Average diluted shares outstanding													(L)		15,051			15,103		15,035			15,382

Adjusted earnings per share, diluted⁽²⁾													(A/L)	$	0.73		$	0.61	$	2.04		$	1.66
Tangible book value per share, period-end⁽²⁾⁽⁸⁾													(I/K)		19.48			18.21		19.48			18.21
Securities adjustment, net of tax⁽¹⁾⁽⁴⁾													(M)		4,398			11,681		4,398			11,681
Tangible book value per share, excluding securities adjustment^(2)(4)(8)													(I+M)/K		19.19			17.42		19.19			17.42
Total tangible shareholders' equity/total tangible assets⁽²⁾⁽⁸⁾													(I/J)		8.08			7.28		8.08			7.28
	Calculations	2020			2019			2020			2019
Performance ratios⁽⁵⁾
Return on assets			0.88	%		0.55	%		0.87	%		0.68			1.16	%		0.88		1.05	%		0.87	%
Adjusted return on assets⁽²⁾	(A/F)		0.96			0.80			0.91			0.77	(A/F)		1.16			0.96		1.09			0.91
Return on equity			8.22			5.04			8.09			6.37
Adjusted return on equity⁽²⁾	(A/G)		8.98			7.36			8.41			7.25
Adjusted return on tangible equity⁽²⁾⁽⁶⁾	(A+Q)/H		13.36			10.31			12.54			10.25
Efficiency ratio⁽²⁾⁽⁷⁾	(D-O-Q)/(C+N)		59.47			65.02			61.62			65.83
Net interest margin⁽²⁾	(B+P)/E		2.98			2.75			3.01			2.72
Pre-tax, pre-provision return on assets															1.43			1.29		1.26			1.24
Adjusted pre-tax, pre-provision return on assets⁽²⁾													(U/F)		1.43			1.39		1.31			1.29
Return on equity⁽⁸⁾															10.38			8.25		9.54			8.10
Adjusted return on equity⁽²⁾⁽⁸⁾													(A/G)		10.39			9.02		9.98			8.42
Return on tangible equity⁽⁸⁾															15.08			12.32		14.01			12.10
Adjusted return on tangible equity^(1)(2)(8)													(A+Q)/H		15.09			13.44		14.50			12.57
Efficiency ratio⁽²⁾⁽⁶⁾													(D-O-Q)/(C+N)		59.18			59.47		61.48			61.62
Net interest margin													(B+P)/E		3.02			2.90		2.88			2.95
Adjusted net interest margin⁽²⁾⁽⁷⁾													(B+P-T)/S		2.75			2.89		2.73			2.94

Supplementary data (in thousands)
Taxable equivalent adjustment for efficiency ratio	(N)	$	570		$	658		$	1,935		$	2,018	(N)	$	576		$	570	$	1,757		$	1,395
Franchise taxes included in non-interest expense	(O)		121			119			360			350	(O)		143			121		396			360
Tax equivalent adjustment for net interest margin	(P)		416			503			1,457			1,532	(P)		421			416		1,284			1,041
Intangible amortization	(Q)		256			207			768			621	(Q)		233			256		707			768
Interest and fees on PPP loans													(T)		2,690			1,052		5,058			1,921

(1)	Assumes a marginal tax rate of 23.71% for 2021 and the fourth quarter of 2020 and 23.87% infor the first three quarters of 2020. ~~A marginal tax rate of 23.78% was used in 2019.~~

(2)	Non-GAAP financial measure.

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

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

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

(6)	Adjusted return on tangible equity is computed by taking adjusted earnings divided by shareholders’ equity less the tax-effected amortization of intangible assets, assuming a marginal tax rate of 23.87% in 2020 and 23.78% in 2019.

~~(7)~~

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

(7)	Adjusted net interest margin excludes Paycheck Protection Program loans.

(8)	Prior period has been revised, see Note 1 Basis of Presentation – Revision of Previously Issued Financial Statement.

7372

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FINANCIAL SUMMARY

The Company reported third quarter ~~2020~~2021 net income of $11.0 million or $0.73 per diluted share, up from $8.4 million or $0.56 per ~~share compared to $5.0 million or $0.32 per~~diluted share in the same quarter of ~~2019.~~2020. Adjusted earnings ~~(non-GAAP measure) increased 30%~~(non-GAAP) were also $11.0 million or $0.73 per diluted share in the third quarter of 2021, compared to $9.2 million, or $0.61 per share ~~in the third quarter 2020 compared to $7.3 million or $0.47 per share in the third quarter of 2019.~~

~~Financial highlights~~ for the ~~third quarter 2020 include the following, as~~same period of 2020.

THIRD QUARTER HIGHLIGHTS (ratios compared to the third quarter ~~of 2019 unless otherwise noted:~~2020)

●

~~13% annualized growth in total commercial loans~~1.16% return on assets, for both GAAP and non-GAAP measures

●

~~92%~~10% annualized commercial loan ~~to deposit ratio~~

●

~~2.98% net interest margin compared to 2.75%~~

●

~~32% increase in non-interest income~~

●

~~0.56% non-accruing loans to total loans,~~growth, excluding Paycheck Protection Program (PPP) loans

●

~~0.88% return on assets compared to 0.55%; 0.96%~~32% annualized core ~~return on assets compared to 0.80% (non-GAAP)~~deposit growth

●

~~59.5% efficiency ratio~~3.02% net interest margin (NIM) compared to ~~65.0%~~2.90%

●

15% increase in fee income, excluding mortgage banking income and security gains

●

Bar Harbor Bank & Trust named as America’s Best Bank in Maine by Newsweek Magazine

AsAdjusted earnings per share (non-GAAP) in the third quarter 2021 grew 20% over the same quarter of 2020. The adjusted return on assets in the third quarter was 1.16% compared to 0.96% in the third quarter of 2020, evidencing continued execution of strategies that balance growth with earnings. This is indicative of the strength in the Company’s core businesses and the results of strategic initiatives. The momentum seen in each area affords the Company flexibility with diverse revenue streams to support operations, even in uncertain economic environments.

While fee income and efficiency improvements contributed to increased profitability, the quarterly results also benefited from a 13 basis point expansion in the margin to 2.99% compared with 2.86% in the second quarter 2021 on a normalized basis (excluding PPP and excess cash effects). This improvement is a direct result of well executed strategies, the Company expanded all key performance metrics on a year-over-year and prior quarter basis. These strategies not only entailed expense and deleveraging initiatives, but also focused on increasingincreased core ~~deposits thus reducing overall~~deposit funding ~~costs, and expanding fee income. Adjusted return on assets increased to 0.96%~~ as the Company ~~continues to achieve positive operating leverage with minimal~~gained market share and reduced reliance on ~~accretion from PPP related fees. Customer activity within~~wholesale borrowings. As of September 30, 2021, the Company’s footprint has increased since state economies re-opened on a limited basis during the summer. Branch operations have also rebounded compared to the first half of the year. The loan to deposit ratio improved to 92% as deposits continue to grow on relatively flat, total loan growth. Given the current economic environment, the Company selectively grew commercial loans by 14% for the quarter, excluding PPP loans, and directed most mortgage production through the secondary market platform. The Company kept pace with the high demand of mortgage markets for new and refinanced loans, which resulted in four times the gains on loan sales compared to the same quarter 2019. The Company continues to adhere to risk-based credit philosophies and profitability disciplines as evidenced by third quarter results. Excess liquidity generated during the quarter was used to pay down wholesale borrowings as ~~part~~a percentage of ~~on-going initiatives to de-lever and expand net interest margin.~~funding was 9%, down from 23% in the prior year.

The Company’s ~~wealth management business continues~~commercial teams continue to ~~be a significant contributor to fee income, as well as a keystone for deepening customer~~deliver strong loan growth despite the competitive landscape within its footprint. Commercial real estate loan growth this quarter was driven by new multi-family residential and light industrial & manufacturing relationships with ~~$2.1 billion in assets under management. Recently,~~proven operators. Risk management remains at the ~~leadership~~forefront of all that the Company does. The Company saw yields bottoming out on residential loans this quarter and ~~operations~~was able to increase contractual rates at times. Given the overall interest rate risk position of the ~~wealth management businesses was combined~~balance sheet and this recent rate increase, the Company strategically directed more residential mortgage production onto ~~a common platform, which led to unified policies and best practices. The Company is now working with regulators to bring both of its wealth management companies and brokerage teams under one name~~ ~~Bar Harbor Wealth Management.~~ ~~Bringing this business together under one brand was~~ the ~~logical next step as talent, engagement and culture is aligned.~~

~~The Company’s allowance for loan losses is well established to absorb any inherent losses~~balance sheet rather than sell in the portfolio and increased during the quarter on higher commercial loan growth. Steady allowance levels coupled with an extensive stress testing process reflects the quality of the Company’s credit culture as net charge-offs and past due accounts remain low. Third quarter stress testing resulted in no significant risk-rating downgrades or changes to reserves. While the hotel industry is a large credit exposure for the Company there has been minimal degradation as those borrowers are strong, proven operators with an average loan to value ratio of less than 60% for the segment. In addition, any individual hotel exposure with a loan to value ratio greater than 65% was specifically included in the stress testing. The Company had a significant decrease in loans under COVID-related forbearance during the third quarter. As of September 30, 2020 total outstanding deferrals were $78.7 million or 3% of total loans, which primarily consist of interest only forbearance. Outstanding deferrals of residential loans totaled $4.6 million or less than ½ of a percent of the total residential portfolio. secondary market.”

The Company ~~has supported its customers~~executed another delever and security remix strategy during ~~the COVID-19 pandemic by originating approximately 1,900 PPP loans totaling $131.5 million. Net unearned fees remaining on PPP loans at the end of~~ the third quarter, prepaying $89 million of FHLB borrowings and selling $44 million of credit sensitive municipal and corporate bonds. The additional purchase of securities was ~~$3.8 million~~completed subsequent to quarter end. This transaction is expected to expand the NIM by 12 basis points and ~~accretion~~ will ~~accelerate as the loans are reimbursed~~be accretive to earnings by ~~the Small Business Administration (“SBA”). Despite the significant challenges posed by the pandemic and related market conditions, the~~$0.02 on a quarterly basis.

The Company continues to ~~maintain high levels~~build long term shareholder value while providing a favorable dividend rate relative to other community banks. The Company’s return on equity for the third quarter rose to 10.38% from 8.25% in the same quarter of ~~capital~~2020. The Company remains committed to underwriting standards as evidenced by further improvement in past-due accounts, non-accruals and ~~liquidity, diversified revenue streams, strong credit~~a near zero net-charge-off ratio.

The Company was named by Newsweek Magazine as one of "America's Best Banks." Best Bank winners were selected from over 2,500 financial institutions and assessed on more than 30 separate factors including the overall health of the bank, customer service performance and ~~an exceptional core deposit base.~~features, digital and branch presence, account and loan options, interest rate offerings, and fees.

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COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, ~~2020~~2021 AND DECEMBER 31, ~~2019~~2020

Total assets were ~~$3.9~~$3.7 billion at the end of the third quarter 2021 as well as at year-end 2020. In the third quarter the Company executed a balance sheet delever and security remix strategy, prepaying $89.0 million of Federal Home Loan Bank advances and selling $43.5 million of securities. The replenishment of those securities is expected to be fulfilled in the fourth quarter 2021. Total loans decreased $28.7 million from year-end 2020 primarily due to PPP loan forgiveness outpacing 2021 originations by $29.5 million from year-end 2020. Non-maturity deposits (core deposits) increased $330.2 million from the end of 2020 as over 800 new accounts were opened during the quarter, continuing a trend of almost 1,000 new accounts per quarter. The loan to deposit ratio was 84% at the end of the third quarter compared to ~~$3.7 billion~~88% at year-end ~~2019.~~2020. Asset quality metrics remain strong with an allowance for ~~loan~~credit losses to total loans ratio of ~~0.66% compared~~0.89% and a coverage ratio to ~~0.58%~~non-accruing loans of 184%, up from 157% as of year-end ~~2019. The loan to deposit ratio was 92% in the third quarter compared to 98% at year-end 2019. The Company's tangible~~2020. Tangible book value per share (non-GAAP) increased ~~10%,~~to $19.48 from $18.77 at year-end on ~~an annualized basis,~~strong earnings offset by the impact of the CECL adoption in the first ~~nine months~~quarter 2021.

Cash

Total cash and cash equivalents at September 30, 2021 were $341.2 million, compared to $226.0 million at December 31, 2020. Interest bearing deposits held with other banks totaled $302.1 million at quarter end and $198.4 million at year-end 2020 carrying a yield of ~~2020 from year-end 2019.~~0.15% and 0.11% respectively. The increase in cash balances reflects the growth in core deposits.

Securities

Securities totaled ~~$618.5~~$555.5 million in the third quarter ~~2020~~2021 and ~~$683.9~~$599.1 million at year-end ~~2019~~2020 representing ~~16%~~15% and ~~19%~~16% of total assets, respectively. The decrease inis primarily due to the security ~~holdings reflects~~sale of $43.5 million as a part of the ~~Company’s deleveraging strategy to reduce borrowings~~balance sheet delever and ~~allow for the natural run-off of amortizing and maturing fixed rate investments. Securities purchased in~~security remix strategy. In the first nine months of ~~2020 included $66.0~~2021 purchases totaled $123.3 million ~~of mortgage-backed securities guaranteed by US Government-sponsored enterprises, $31.2 million of tax exempt municipal bonds, $32.0 million of corporate bonds~~ and ~~$1.9 million in community investments, in addition to a net $6.7 million decrease in FHLB stock. The purchases~~ were offset by ~~$199.3~~$52.4 million of sales, $103.4 million of maturities, calls and pay-downs of amortizing ~~securities.~~securities and a $3.8 million reduction in FHLB stock. Fair value adjustments increased the security portfolio by ~~$11.7~~$7.3 million at the end of the third quarter ~~2020~~2021 and ~~$5.5~~$13.1 million at year-end ~~2019. The improvement~~2020. Unrealized gains decreased for the nine months ended September 30, 2021 due to sales and changes in ~~fair value continues to be~~ the ~~result of lower~~ long-term ~~interest rates.~~treasury yield curve. The weighted average yield onof the Company's securities portfolio was 2.82% as of September 30, ~~2020 was 3.05%~~2021 compared to ~~3.42%~~2.96% at year-end ~~2019.~~2020. At the end of the third quarter ~~2020,~~2021 securities held by the Company had an average life of ~~4.0~~5.1 years and aan effective duration of ~~2.9~~4.4 years compared to ~~5.0~~4.8 years and ~~3.6~~4.3 years at the end of ~~2019,~~2020, respectively.

Loans Held For Sale

Held for sale loans decreased to $7.5 million at September 30, 2021 from $24.0 million at December 31, 2020. The Company sold $28.5 million of residential loan originations in the third quarter 2021 compared with $86.2 million in the same quarter of 2020. Sales in the nine month period of 2021 totaled $153.9 million and $156.0 million in the comparable period of 2020. The decrease in sales reflects the Company strategically directing residential loan production to the balance sheet when rates were higher in the quarter.

Loans

Loan balances in the third quarter ~~2020~~2021 were ~~$2.7~~$2.5 billion compared to $2.6 billion at year-end ~~2019. The increase is primarily due to commercial~~2020. Commercial loans grew 9% on a year-to-date annualized basis, excluding PPP loans and included 2 new relationships totaling $21.2 million during the third quarter. Commercial real estate growth and PPP originations offset by secondary market sales and prepayments of residential mortgages. In the first nine months of 2020, commercial real estate increased $115.0 million during at an annualized rate of 16% and commercial and industrial ~~(“C&I”)~~ loans, excluding PPP, increased ~~$9.5 million or 4%~~11% and 3% on ana year-to-date annualized basis, ~~excluding~~respectively. PPP ~~loans. The increase in C&I was tempered by one customer with~~ loans ~~totaling $39.8~~totaled $24.2 million ~~that were refinanced to a lower principal~~at quarter-end, consisting of ~~$25.0 million along with an open line of credit with no current advances. Mortgage loan originations totaled $86.5~~$24.1 million from ~~new~~2021 and ~~refinancing activity given~~$145 thousand from 2020, and were $53.8 million at year-end 2020. COVID loan modifications totaled $4.7 million, down from $68.6 million at year-end, as the ~~lower interest rate environment. Most~~majority of modified loans have resumed normal payment schedules. Total residential loans decreased $74.2 million from year-end 2020, which includes $156.3 million of originations ~~were sold in~~recorded on the ~~secondary market to generate fee income.~~ balance sheet and $230.5 million of prepayments/amortization.

~~Asset Quality~~Allowance for Credit Losses

The allowance for ~~loan~~credit losses (ACL) totaled ~~$17.9~~$22.4 million at the end of the third quarter ~~2020~~2021 and ~~$15.4~~$19.0 million at year-end ~~2019.~~2020. The ~~$2.6 million~~ increase reflects a provision for loan loss of $4.3 million offset by net charge offs of $1.7 million. Excluding PPP loans the allowance for loan losses to total loans ratio for the third quarter was 0.69% from 0.58% at year-end 2019. Delinquent and non-accrual loans as a percentage of total loans decreased to 0.77% from 1.19% at the end of 2019. Commercial non-accrual loans in the first nine months increased $1.2 millionis primarily due to ~~two commercial~~the Company’s adoption of CECL as of January 1, 2021, which increased the ACL by $5.2 million and unfunded commitment reserves by $1.6 million. Since adoption the ACL has decreased due to improved economic forecasts and lower reserves on specific loans offset by changes in loan ~~relationships totaling $1.4 million, one was written down by $349 thousand and the other has subsequently settled at its carrying value.~~mix.

In March 2020, the Company elected to defer implementation of CECL as allowed under the CARES Act. As result, the Company continues to operate its incurred loss model. While the impact of COVID-19 and other market conditions remain uncertain, the Company believes the existing allowance for loan losses is sufficient to absorb inherent losses based on a disciplined credit approach, experienced losses and methodology, and current and ongoing stress testing reviews of the portfolio. The Allowance for Loan Loss calculated under the CECL method is estimated to be in a range of $23.0 million to $26.0 million as of September 30, 2020, compared to $20.0 million to $23.0 million on the effective date of January 1, 2020.

The Company performed third quarter stress testing of the commercial loan portfolio including the top 50 relationships, all criticized loans greater than $1.0 million, hospitality loans over $250 thousand with loan to values in excess of 65%, and any seasonal payment, restaurant, or term loans maturing within a year that are greater than $500 thousand. Results of the testing led to no significant risk-rating downgrades or changes to reserves or any other meaningful deterioration in the overall quality of the commercial portfolio. Any impact from the stress testing was considered in the adequacy of the allowance for loan losses as of September 30, 2020.

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~~Goodwill~~

Net charge offs totaled $434 thousand in the first nine months of 2021, or 0.02% of total average loans, compared to $1.9 million, or 0.07% of total average loans, for the same period of 2020. Non-accruing loans were $12.2 million, or 0.48% of total loans, at the end of the third quarter 2021 and were $12.2 million or 0.48% of total loans at year-end 2020. The ~~Company completed its 2020 annual goodwill impairment test using balance sheet and market data~~ratio of accruing past due loans to total loans improved to 0.12% of total loans, decreasing from 0.58% as of ~~September 30,~~December 31, 2020.

Other Assets

Total other assets were $322.4 million at the end of the third quarter 2021 compared to $331.4 million as of December 31, 2020. The ~~Company’s models suggest that~~decrease is primarily from a $9.7 million decrease in the fair value in customer loan derivatives offset by $2.9 million increase in community limited partnership investments. Additionally, derivative balances and deferred taxes have been restated for prior periods as described in Note 1 Revision of the business is greater than the book value or market capitalization based on the price at which the stock is currently trading. While the Company concluded there is no goodwill impairment, it will continue to evaluate its position as economic conditions change. Previously Issued Financial Statements.

Deposits and Borrowings

Total deposits were ~~$2.9~~$3.0 billion at the end of the third quarter ~~2020 and $2.7~~2021 compared to $2.9 billion at year-end ~~2019.~~2020. Non-maturity deposits increased ~~by 27%,~~$330.2 million over the first nine months of 2021, or 20% on an annualized basis due to growth ~~from~~in new accounts with over 2,900 new customer relationships added. Growth in core deposits during 2021 and ~~an overall decrease~~the prepayment of $89.0 million in ~~customer spending given current market conditions.~~FHLB borrowings resulted in a reduction of wholesale funding as a percentage of total funding to 9% from 18% at year-end 2020. Time deposits decreased $229.1 million to $469.2 million at quarter-end as $162.3 million of brokered deposits matured in the first nine months of 2021 and were not replaced due to excess liquidity. Retail time deposits decreased $66.9 million as customers moved funds to transactional accounts upon contractual maturity. Total borrowings decreased by $85.7 million primarily from the aforementioned delever strategy. The ~~Company's expanding branch model has helped to increase new accounts, which totaled 3,744~~average cost of deposits was 0.27% in the third quarter ~~2020~~of 2021 compared to ~~2,918~~0.61% in the fourth quarter ~~2019. Total~~2020 and borrowing costs were 2.11% compared to 1.83% for the same periods. The change in cost of funds reflects the attrition of balances on prepaid or matured borrowings ~~decreased by $85.9 million~~ and ~~brokered certificate of deposits decreased by $325.7 million as excess liquidity primarily from higher deposit balances was used to pay down wholesale borrowings.~~time deposits.

Derivative Financial Instruments and Other Liabilities

The notional balance of derivative financial instruments increased to ~~$822.9~~$929.9 million at the end of the third quarter ~~2020~~2021 from ~~$580.4~~$876.6 million at year-end ~~2019.~~2020. The increase is principally due to a ~~$175.0~~$50.0 million ~~increase in customer loan derivatives sold~~new hedge on ~~commercial~~variable rate loans ~~with matching hedges using national bank counterparties and a $36.5 million increase in forward commitments~~tied to ~~sell mortgages in the secondary market.~~one-month LIBOR. The net fair value of all derivatives was a liability of ~~$3.5~~$2.2 million at the end of the third quarter ~~2020~~2021 compared to ~~$743 thousand~~liability of $5.5 million at year-end ~~2019.~~2020. The ~~increase~~reduction in ~~the~~ net derivative ~~liability primarily~~fair values reflects the ~~valuation~~rise in long-term interest rates. Additionally, derivative balances have been restated for prior periods as described in Note 1 Revision of ~~the Company’s interest rate swaps on wholesale funding and securities based on lower market rates~~Previously Issued Financial Statements.

Other liabilities totaled $62.3 million at the end of the third quarter 2021 compared to $75.0 million as of December 31, 2020. The decrease primarily reflects the $9.7 million reduction in the fair value of customer loan derivatives and a $3.3 million decrease in cash flow and fair value hedges.

Equity

Total equity was ~~$404.4~~$418.4 million, compared with ~~$396.4~~$407.1 million at year-end ~~2019.~~2020. The increase includes a $6.1 million improvement in fair value of securities, net of tax, along with strong net income of $24.6 million offset by $10.1 million in dividends and common stock repurchases of $13.3 million. Stock repurchases totaled 297 thousand shares during the third quarter 2020 and 689 thousand shares on a year-to-date basis. An additional 92 thousand shares are available to be repurchased before the end of March in 2021. The Company'sCompany’s book value per share ~~increased to $27.09~~was $27.92 as of September 30, 2021 compared with $27.29 at December 31, 2020. Equity included net unrealized securities totaling $4.4 million at the end of the third quarter ~~2020 from $25.48~~2021 and $10.0 million at year-end ~~2019. Tangible book value per share (non-GAAP measure) increased~~2020. Equity was reduced by $5.2 million due to ~~$18.56 per share at September 30, 2020 up from $17.30 per share at year-end 2019, an increase~~the Company’s CECL adoption in the first quarter 2021. Additionally, accumulated other comprehensive income has been restated for prior periods as described in Note 1 Revision of ~~10% on an annualized basis.~~ Previously Issued Financial Statements.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, ~~2020~~2021 AND ~~2019~~2020

Summary

Net income in the third quarter ~~2020~~2021 was $11.0 million, or $0.73 per diluted share, compared to $8.4 million, or $0.56 per share, compared with $5.0 million, or $0.32 per share, in the same quarter 2019. The non-GAAP measure of adjusted earnings in the third quarter 2020 totaled $9.2 million, or $0.61 per share, compared to $7.3 million or $0.47 per share, in the same quarter of ~~2019. The improvement~~2020. Net income improved on higher fee income and fees from PPP loans in the quarter. PPP loan fees contributed $0.13 to earnings per share in the third quarter of 2021 and $0.06 in the same period of 2020. Adjusted earnings totaled $11.0 million or $0.73 per share, compared to $9.1 million, or $0.61 per share, in the same

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quarter of 2020. Non-recurring items (non-GAAP) reduced net income ~~is driven~~ by ~~expanded net interest margin~~$8 thousand and ~~higher non-interest income.~~$781 thousand in third quarters of 2021 and 2020, respectively. The Company's return on assets ratio was ~~0.88% during~~1.16% in the third quarter of ~~2020~~2021 and ~~0.55%~~0.88% in the same quarter of ~~2019. The ratio for adjusted~~2020. Adjusted return on assets ~~increased to~~(non-GAAP) was 1.16% and 0.96% ~~from 0.88% in~~for the third ~~quarter~~quarters of ~~2019 on higher net income.~~2021 and 2020, respectively evidencing continued execution of strategic initiatives that balance growth and earnings

The Company reported ~~year to date~~year-to-date 2021 net income of $29.5 million or $1.96 per diluted share, compared with $24.6 million or $1.60 per ~~share, compared with $18.4 million or $1.18 per~~diluted share in the same period of ~~2019.~~2020. Adjusted earnings increased to ~~$25.6~~$30.6 million, or ~~$1.66~~$2.04 per diluted share compared with $~~21.0~~25.6 million, or $~~1.35~~1.66 per diluted share, for the respective periods. Non-recurring items (non-GAAP) in the first nine months reduced net income by $1.1 million and $969 thousand in 2021 and 2020, respectively. The return on assets ratio year-to-date2021was1.05%comparedto0.87%intheprioryear and adjusted return on assets was 1.09% during the first nine months of 2021 and 0.91% in the same period of 2020. These changes largely reflect the same factors and trends discussed above that drove third quarter net ~~income.~~income and average assets.

Net Interest Income

Net interest income was ~~$24.7~~$25.6 million in the third quarter ~~2020~~2021 compared with ~~$22.4~~$24.7 million in the same quarter of ~~2019.~~2020. Net interest margin was 3.02% compared to 2.90% in third quarter of 2020. Acceleration of PPP loan fee amortization due to forgiveness contributed 28 basis points to NIM in the third quarter 2021 and 1 basis point in the same period of 2020. Interest-bearing cash balances, held mostly at the Federal Reserve Bank, reduced NIM by 26 basis points in the quarter and 8 basis points in the third quarter 2020. The yield on earning assets totaled 3.41% compared to 3.57% in the third quarter 2020. Excluding the impact of PPP and excess cash, the yield on earning assets totaled 3.42% and 3.67% for the same periods. The yield on loans was 3.98% in the third quarter 2021and 3.81% in the third quarter of 2020. Excluding PPP loans the yield on loans was 3.62% in the third quarter of 2021, and 3.83% in the third quarter of 2020. Costs of funds decreased to 0.50% from 0.82% in the third quarter 2020 due to increased ~~to 2.98% from 2.75%~~core deposit levels, lower deposit rates and reduced wholesale borrowings.

For the first nine months of 2021, net interest income was $71.8 million compared with $73.9 million in the same period of ~~2019 primarily due to a lower cost of funds. Costs of funds decreased to 0.82% compared to 1.65%~~2020. Net interest margin for the nine months ended was 2.88% in the third quarter ~~2019~~2021 compared to 2.95% in the third quarter of 2020. The decrease in net interest income and NIM was driven by rate compression triggered by the pandemic, combined with growth in the Company’s interest-bearing cash balances. PPP loan accretion in 2021 helped to offset interest rate compression on yields. Costs of funds for the nine months ended September 30, 2021 decreased to 0.63% from 1.02% due to increased core deposit levels, lower deposit rates and reduced wholesale borrowings.

Provision for Credit Losses

The provision for credit losses (the “provision”) for the quarter was a ~~shift~~benefit of $174 thousand, compared to an expense of $1.8 million in ~~funding sources from borrowings~~the third quarter of 2020. For the first nine months of 2021, the provision was a benefit of $1.4 million compared to ~~non-maturity deposits. Cost~~an expense of ~~deposits~~$4.3 million in the same period of 2020. The benefits experienced in the periods of 2021 are attributable to continued strong credit quality and ~~borrowings also benefited from~~improving economic forecasts.

Non-Interest Income

Non-interest income in the third quarter 2021 was $11.4 million, compared to $10.1 million in the same quarter of 2020. The increase was due to higher customer service fees, wealth management income, and a gain on securities sales. Customer service fees were $3.5 million in the third quarter compared to $2.9 million in the same period of 2020. The increase is due to over 800 new accounts that were opened during the quarter and a higher volume of customer activity and transactions. Wealth management income increased 10% over the same quarter of 2020 to $3.9 million with assets under management of $2.4 billion compared to $2.1 billion in the same period of 2020. The Company sold securities resulting in a $1.9 million gain as part of its delever and security remix strategy. Mortgage banking activities contributed $850 thousand, compared to $2.6 million in the same period of 2020. The Company took advantage of volatility in the yield curve in the third quarter and put residential mortgages on the balance sheet when rates were higher and sold loans in the secondary market when rates were low.

Non-interest income for the first nine months of 2021 was $31.1 million compared to $28.2 million in the same period in 2020. The increase reflects a 13% increase in wealth management income, 15% increase in customer service fees, 18% increase in mortgage banking income and gains on securities; all of which were driven by the same reasons as the quarterly period.

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~~Federal Reserve rate cuts in 2020 and other key indexes in response to COVID-19. Costs of interest-bearing deposits decreased to 0.66% compared to 1.33%~~Non-Interest Expense

Non-interest expense was $23.4 million in the third quarter ~~2019 and cost of borrowings improved to 1.60%~~2021 from ~~2.62%~~$22.4 million in the same quarter of ~~2019. Additionally, excess liquidity was used~~2020. Salaries and benefits expense decreased to ~~pay off $239.4~~$11.7 million compared to $11.8 million in the same quarter of ~~borrowings since~~2020, reflecting full-time equivalents of 428 compared to 457 in the third quarter of ~~2019 in connection with deleveraging strategies that further reduced interest expense. Yields from earning assets were 3.67% compared to 4.17%~~2020. Non-core expenses (non-GAAP) in the third quarter ~~2019 reflecting loan originations~~2021 totaled $1.9 million and ~~repricing~~were mostly made up of ~~variable rate products in a lower interest rate environment. Purchased loan accretion contributed 0.06%~~the $1.8 million prepayment penalty on debt extinguishment. In the same quarter of 2020 non-core expenses (non-GAAP) totaled $1.0 million and included costs to ~~net interest margin in~~consolidate the Company’s wealth management systems. The efficiency ratio for the third quarter ~~2020~~was 59.18% compared to ~~0.10%~~59.47% in the ~~third quarter 2019.~~same period of 2020. Excluding the effects of PPP ~~loans,~~ the ~~third quarter yield on total earning assets~~efficiency ratio was ~~3.72%.~~ 63.35% and 61.30% for the same respective periods.

For the first nine months of ~~the year, net interest income~~2021, non-interest expense was ~~$69.6~~$67.6 million ~~compared with $63.9~~and $67.0 million in the same ~~months~~period of ~~2019~~2020. The Company’s year-to-date efficiency ratio was 61.48% in 2021 compared to 61.62% in 2020 which reflects managements disciplined approach to expense management as revenue grows and ~~net interest margin was 3.01% from 2.72% for~~ the ~~same respective periods. The increase is primarily driven by reduced borrowing levels and higher non-maturity deposits. The average borrowing levels decreased to $481.7 million~~above noted expense initiatives. Non-recurring expenses (non-GAAP) in the first nine months of ~~2020 from $708.2~~2021 totaled $3.3 million and $2.8 million in the same period of ~~2019 and borrowing costs were 1.74% from 2.71% for the same respective periods. Costs of interest-bearing deposits also decreased in~~2020. In the first nine months of 2021 these expenses mostly consisted of workforce reduction charges and loss on debt extinguishment and in 2020 primarily consisted of a loss on debt extinguishment and costs to ~~0.85% compared to 1.30% in the same period of 2019. Yields from earning assets were 3.87% in the first nine months of 2020 compared to 4.16% in the first nine months of 2019.Theyear-to-dateeffect onnetinterestmarginfromearning assets and interest bearing liabilities~~is~~thesame~~as~~thequarterlydiscussion.~~

~~Loan Loss Provision~~

The third quarter 2020 provision for loan losses increased to $1.8 million from $893 thousand in the same quarter of 2019. While overall credit quality in the loan portfolio remains strong, the increase in the reserve is indicative of the continued commercial loan growth and higher economic adjustments reflecting elevated risk from COVID-19. As previously noted, the Company has maintained its incurred loss model for calculating the allowance for loan losses. consolidate wealth management systems.

~~Non-Interest Income~~

Non-interest income in the third quarter 2020 was $10.1 million compared to $7.6 million in the same quarter of 2019. The increase is primarily due to a $2.2 million increase in mortgage banking income associated with secondary market sales of $86.2 million compared to $20.7 million in the same period of 2019. Customer service fees increased 13% and trust and investment management fees increased 17% as the result of expanded operations into Central Maine partially offset by lower activity stemming from COVID-19.

Non-interest income for the first nine months of 2020 was $28.2 million compared to $21.3 million in the same period in 2019. The increase in non-interest income for the nine-month period is driven by the same reasons as the quarterly period, but also includes a $1.5 million gain on sales of securities recorded in connection with balance sheet remixing and deleveraging strategies.

~~Non-Interest Expense~~

Non-interest expense was $22.4 million in the third quarter 2020 compared to $23.4 million in the same quarter of 2019. The decrease is principally due to lower acquisition, conversion and other expenses, which totaled $691 thousand in 2020 compared to $3.0 million in 2019. Salary and benefit expense and occupancy costs were higher during the third quarter 2020 to support the Company’s expanded branch model and wealth management business. Total operating expenses remained controlled as demonstrated by the drop in the efficiency ratio to 59.5% compared to 65.0% for third quarter of 2019.

For the first nine months of 2020, non-interest expense increased to $67.0 million from $62.9 million in the same period of 2019. The increase in non-interest expense for the nine-month period is driven by the same reasons as the quarterly period along with a prepayment penalty on a longer term and higher cost FHLB borrowing in the second quarter 2020.

Income Tax Expense

The third quarter effective tax rate ~~increased~~decreased to ~~20.3%~~19.7% in ~~2020~~2021 compared with ~~13.5%~~20.3% in the same quarter of ~~2019,~~2020, reflecting higher pre-tax income being offset by the ~~higher level~~proportional amounts of ~~taxable income and lower level of non-tax advantaged income in 2020.~~tax-advantaged revenue.

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Liquidity and Cash Flows

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

The Bank actively manages its liquidity position through target ratios established under its Asset-Liability Management Policy. Continual monitoring of these ratios, by using historical data and through forecasts under multiple rate and stress scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity. The Bank's policy is to maintain a liquidity position of at least 4% 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.

The Company’s liquidity position remains strong. During the quarter we initiated pandemic-specific liquidity stress tests to analyze potential impacts from payment deferrals, unanticipated use of committed lines of credit, as well as the possibility of required servicer advances on sold loans. At September 30, ~~2020,~~2021, available same-day liquidity totaled approximately ~~$1.5~~$1.3 billion, including cash, borrowing capacity at FHLB and the Federal Reserve Discount Window and various lines of credit. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from the Company's amortizing securities and loan portfolios. The Company had unused borrowing capacity at the FHLB of ~~$634.0~~$467.2 million, unused borrowing capacity at the Federal Reserve of ~~$81.1~~$72.0 million and unused lines of credit totaling $51.0 million, in addition to over $200.0 million in unencumbered, liquid investment portfolio assets. ~~The Company has also utilized the Federal Reserve's Paycheck Protection Program Liquidity Facility to provide liquidity to fund PPP loans.~~

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. Company management believes the level of liquidity is sufficient to meet current and future funding requirements. However, changes in economic conditions, including consumer savings habits and availability or access to the brokered deposit market could potentially have a significant impact on the Company's liquidity position.

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Capital Resources

Please see the “Equity” section of the Comparison of Financial Condition for a discussion of shareholders’ equity together with the Note 6 Capital Ratios and Shareholders’ Equity in the consolidated financial statements. Additional information about regulatory capital is contained in the notes to the consolidated financial statements and in the Company's most recent Form 10-K.

The Company’s principal cash requirement is the payment of dividends on our common stock, as and when declared by the Company's Board of Directors. Dividends to shareholders in the aggregate amount of $10.5 million and $10.1 million for the nine months ended September 30, 2021 and 2020, respectively. All dividends declared and distributed by the Company will be in compliance with applicable state corporate law and regulatory requirements.

Off-Balance Sheet Arrangements

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

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

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

2020.

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

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements in this Form 10-Q and in the most recent Form 10-K. Please see those policies in conjunction with this discussion. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. The preparation of financial

~~Table of Contents~~

statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. While the Company bases estimates on historical experience, current information and other factors deemed to be relevant, actual results could differ from those estimates.

Management has identified the Company's most critical accounting policies as related to:

•

Allowance for ~~Loan~~Credit Losses

•

~~Acquired Loans~~

•

Income Taxes

•

Goodwill and Identifiable Intangible Assets

•

~~Determination of Other-Than-Temporary Impairment of Securities~~

•

Fair Value of Financial Instruments

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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 the most significant market risk affecting the Company. Other types of market risk do not arise in the normal course of the Company’s business activities.

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

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

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

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

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

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

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

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

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

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

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

As of September 30, ~~2020~~2021 interest rate sensitivity modeling results indicate that the Bank’s balance sheet in years 1 and 2 ~~were modestly~~was asset sensitive.

Assuming short-term and long-term interest rates decline 100 basis points from current levels (i.e., a parallel yield curve shift) and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will deteriorate over the one year horizon ~~(-0.4%~~(-2.4% versus the base case) while deteriorating further from that level over the two-year horizon ~~(-9.0%~~(-9.8% versus the base case).

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 improve ~~slightly~~ over the one and two-year horizons ~~(1.8%~~(10.6% and ~~5.1%~~21.8%, respectively).

As compared to December 31, ~~2019,~~2020, the year-one sensitivity in the down 100 basis points scenario was up slightly for the nine months ended September 30, ~~2020 (-1.0%~~2021 (-2.6% prior, versus ~~-0.4%~~-2.4% current). The year-two sensitivities in the down 100 basis points scenario ~~changed~~were mostly unchanged going from ~~-3.7%~~-9.5% to ~~-9.0%~~-9.8%. In the year-one up 200 basis points scenario, results ~~improved~~were up slightly going from ~~0.7%~~7.7% to ~~1.8%~~10.6%. Year-two, up 200 basis points was up ~~(3.3%~~(18.4% prior, versus ~~5.1%~~21.8% current).

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

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

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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 the Company’s principal executive officer and our principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Company’s management, including its principal executive officer and principal financial officer, concluded that as of September 30, ~~2020~~2021 the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. The Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its Exchange Act reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b)	Changes in internal control over financial reporting.

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There were no material changes to the risk factors discussed in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019 and Part II, Item 1A. of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,~~ 2020.In addition to the other information set forth in this report, you should carefully consider those risk factors, which could materially affect our business, financial condition and future operating results. Those risk factors are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition and operating results.

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

~~(c)~~

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

(c)

Total number of shares

Maximum number of

purchased as a part of

shares that may yet be

Total number of

Average price

publicly announced

purchased under
Period

shares purchased

paid per share

plans or programs

the plans or programs⁽¹⁾
July 1-31, 2020

108,178

$
20.38

500,501

280,499
August 1-31, 2020

77,767

20.35

578,268

202,732
September 1-30, 2020

111,074

19.83

689,342

91,658
Total

297,019

$
20.19

689,342

91,658

~~(1)~~

~~On March 12, 2020, the~~On April 20, 2021, Company's Board ~~of Directors approved a twelve-month plan to repurchase up to 5% of its outstanding common stock, representing 781,000 shares and expires on March 20, 2021.~~

~~Table~~ of ~~Contents~~

~~ITEM 6. EXHIBITS~~Directors approved a twelve-month plan to repurchase up to 5% of its outstanding common stock, representing 747,000 shares.

The following table indicates that no shares were repurchased by the Company in the third quarter of 2021:


10.1*	~~Employment Agreement, dated as of September 14, 2020, between Bar Harbor Bankshares, Bar Harbor Bank & Trust and Josephine Iannelli~~				Total number of shares	Maximum number of
					purchased as a part of	shares that may yet be
		Total number of	Average price		publicly announced	purchased under
Period		shares purchased	paid per share		plans or programs	the plans or programs
July 1-31, 2021		—	$	—	—	747,000
August 1-31, 2021		—		—	—	747,000
September 1-30, 2021		—		—	—	747,000
Total		—	$	—	—	747,000

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ITEM 6. EXHIBITS


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

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

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

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

101	The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2020~~2021 is formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Condensed Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to the Consolidated Condensed Financial Statements

104 *	Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document). ~~Indicates management contract or compensatory plan~~

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SIGNATURES

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


	BAR HARBOR BANKSHARES


Dated: November ~~5, 2020~~8, 2021	By:	/s/ Curtis C. Simard
		Curtis C. Simard
		President & Chief Executive Officer


Dated: November ~~5, 2020~~8, 2021	By:	/s/ Josephine Iannelli
		Josephine Iannelli
		Executive Vice President & Chief Financial Officer

8584


	September 30, 2020						December 31, 2019
	Business						Business
	Activities		Acquired				Activities		Acquired
(in thousands)	Loans		Loans		Total		Loans		Loans		Total
Commercial real estate:
Construction and land development	$	86,927	$	2,191	$	89,118	$	31,387	$	2,903	$	34,290
Other commercial real estate		765,471		191,046		956,517		666,051		230,320		896,371
Total commercial real estate		852,398		193,237		1,045,635		697,438		233,223		930,661

Commercial and industrial:
Commercial		381,512		56,858		438,370		239,692		59,072		298,764
Agricultural		17,658		156		17,814		20,018		206		20,224
Tax exempt		41,951		24,375		66,326		66,860		37,443		104,303
Total commercial and industrial		441,121		81,389		522,510		326,570		96,721		423,291

Total commercial loans		1,293,519		274,626		1,568,145		1,024,008		329,944		1,353,952

Residential real estate:
Residential mortgages		695,766		325,440		1,021,206		740,687		411,170		1,151,857
Total residential real estate		695,766		325,440		1,021,206		740,687		411,170		1,151,857

Consumer:
Home equity		58,344		50,530		108,874		59,368		63,033		122,401
Other consumer		9,217		1,249		10,466		11,167		1,715		12,882
Total consumer		67,561		51,779		119,340		70,535		64,748		135,283

Total loans	$	2,056,846	$	651,845	$	2,708,691	$	1,835,230	$	805,862	$	2,641,092


					90 Days or								Past Due >
	30-59 Days		60-89 Days		Greater		Total Past						90 days and
(in thousands)	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
September 30, 2020
Commercial real estate:
Construction and land development	$	0	$	0	$	212	$	212	$	86,715	$	86,927	$	0
Other commercial real estate		200		1,119		725		2,044		763,427		765,471		0
Total commercial real estate		200		1,119		937		2,256		850,142		852,398		0

Commercial and industrial:
Commercial		92		310		2,193		2,595		378,917		381,512		1,932
Agricultural		122		0		109		231		17,427		17,658		0
Tax exempt		0		0		0		0		41,951		41,951		0
Total commercial and industrial		214		310		2,302		2,826		438,295		441,121		1,932

Total commercial loans		414		1,429		3,239		5,082		1,288,437		1,293,519		1,932

Residential real estate:
Residential mortgages		217		112		1,369		1,698		694,068		695,766		0
Total residential real estate		217		112		1,369		1,698		694,068		695,766		0

Consumer:
Home equity		39		36		171		246		58,098		58,344		0
Other consumer		12		0		2		14		9,203		9,217		0
Total consumer		51		36		173		260		67,301		67,561		0

Total loans	$	682	$	1,577	$	4,781	$	7,040	$	2,049,806	$	2,056,846	$	1,932


	At or for the Three Months Ended September 30,				At or for the Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Balance at beginning of year	$	2,939	$	2,941	$	3,001	$	3,086
Acquired		—		—		—		—
Additions		515		106		796		213
Amortization		(220)		(138)		(563)		(390)
Balance at end of year	$	3,234	$	2,909	$	3,234	$	2,909


Business Activities Loans	At or for the Three Months Ended September 30, 2020
	Commercial		Commercial		Residential
(in thousands)	real estate		and industrial		real estate		Consumer		Total
Balance at beginning of period	$	8,416	$	3,241	$	3,945	$	376	$	15,978
Charged-off loans		(266)		(4)		—		(146)		(416)
Recoveries on charged-off loans		12		14		—		6		32
Provision for loan losses		1,265		269		104		143		1,781
Balance at end of period	$	9,427	$	3,520	$	4,049	$	379	$	17,375
Individually evaluated for impairment		343		243		45		1		632
Collectively evaluated		9,084		3,277		4,004		378		16,743
Total	$	9,427	$	3,520	$	4,049	$	379	$	17,375


Acquired Loans	At or for the Three Months Ended September 30, 2020
	Commercial		Commercial		Residential
(in thousands)	real estate		and industrial		real estate		Consumer		Total
Balance at beginning of period	$	401	$	12	$	118	$	—	$	531
Charged-off loans		—		(20)		—		(3)		(23)
Recoveries on charged-off loans		2		—		1		2		5
Provision (release) for loan losses		(3)		20		1		1		19
Balance at end of period	$	400	$	12	$	120	$	—	$	532
Individually evaluated for impairment		297		7		52		—		356
Collectively evaluated		103		5		68		—		176
Total	$	400	$	12	$	120	$	—	$	532


	Commercial construction
	and land development				Commercial real estate other				Total commercial real estate
(in thousands)	Sep 30, 2020		Dec 31, 2019		Sep 30, 2020		Dec 31, 2019		Sep 30, 2020		Dec 31, 2019
Grade:
Pass	$	86,716	$	31,057	$	742,214	$	646,886	$	828,930	$	677,943
Special mention		0		0		6,722		5,483		6,722		5,483
Substandard		—		330		15,981		11,974		15,981		12,304
Doubtful		211		0		554		1,708		765		1,708
Total	$	86,927	$	31,387	$	765,471	$	666,051	$	852,398	$	697,438


	Commercial				Agricultural				Tax exempt loans				Total commercial and industrial
(in thousands)	Sep 30, 2020		Dec 31, 2019		Sep 30, 2020		Dec 31, 2019		Sep 30, 2020		Dec 31, 2019		Sep 30, 2020		Dec 31, 2019
Grade:
Pass	$	362,351	$	221,329	$	16,744	$	18,940	$	41,951	$	66,860	$	421,046	$	307,129
Special mention		4,066		2,744		200		298		0		0		4,266		3,042
Substandard		14,430		14,866		489		780		0		0		14,919		15,646
Doubtful		665		753		225		0		0		0		890		753
Total	$	381,512	$	239,692	$	17,658	$	20,018	$	41,951	$	66,860	$	441,121	$	326,570


	Residential real estate				Home equity				Other consumer				Total residential real estate and consumer
(in thousands)	Sep 30, 2020		Dec 31, 2019		Sep 30, 2020		Dec 31, 2019		Sep 30, 2020		Dec 31, 2019		Sep 30, 2020		Dec 31, 2019
Performing	$	691,902	$	737,325	$	57,894	$	58,753	$	9,202	$	11,146	$	758,998	$	807,224
Nonperforming		3,864		3,362		450		615		15		21		4,329		3,998
Total	$	695,766	$	740,687	$	58,344	$	59,368	$	9,217	$	11,167	$	763,327	$	811,222


	Years Ended December 31, 2019
	Amount of			Amount of
	Gain (Loss)			Gain (Loss)			Amount of
	Recognized in			Reclassified		Location of	Gain (Loss)
	Other		Location of Gain (Loss)	from Other		Gain (Loss)	Recognized
	Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized
(in thousands)	Income		Comprehensive Income	Income		Income	in Income
Cash flow hedges:
Interest rate swap on wholesale funding	$	—	Acquisition, restructuring, and other expenses	$	3,156	Interest expense	$	(603)
Interest rate cap agreements		2,291	Interest expense		—	Interest expense		(2)
Total cash flow hedges		2,291			3,156			(605)

Fair value hedges:
Interest rate swap on securities		(523)	Interest income		—	Interest expense		7
Total economic hedges		(523)			—			7

Economic hedges:
Forward commitments		—	Other income		—	Other income		(84)
Total economic hedges		—			—			(84)

Non-hedging derivatives:
Interest rate lock commitments		—	Other income		—	Other Income		52
Total non-hedging derivatives		—			—			52

Total	$	1,768		$	3,156		$	(630)