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BHB Bar Harbor Bankshares

Filed: 4 Aug 20, 8:00pm
0000743367bhb:LoansFromBusinessActivitiesMemberus-gaap:CommercialPortfolioSegmentMemberus-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: June 30, 2020

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

Graphic

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 15,084,031 shares of common stock, par value $2.00 per share, outstanding as of July 31, 2020.

BAR HARBOR BANKSHARES AND SUBSIDIARIES

FORM 10-Q

INDEX

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (unaudited)

Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

4

Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and 2019

6

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019

7

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019

8

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

9

Notes to Unaudited Consolidated Interim Financial Statements

Note 1

Basis of Presentation

11

Note 2

Securities Available for Sale

15

Note 3

Loans

18

Note 4

Allowance for Loan Losses

36

Note 5

Borrowed Funds

42

Note 6

Deposits

44

Note 7

Capital Ratios and Shareholders' Equity

45

Note 8

Earnings per Share

49

Note 9

Derivative Financial Instruments and Hedging Activities

50

Note 10

Fair Value Measurements

56

Note 11

Revenue from Contracts with Customers

62

Note 12

Leases

64

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

66

Selected Financial Data

67

Consolidated Loan and Deposit Analysis

68

Average Balances and Average Yields/Rates

69

Non-GAAP Financial Measures

71

Reconciliation of Non-GAAP Financial Measures

72

Financial Summary

74

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

80

Item 4.

Controls and Procedures

82

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

82

Item 1A.

Risk Factors

82

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

83

Item 6.

Exhibits

84

Signatures

85

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

FORWARD-LOOKING STATEMENTS

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions are intended to identify forward-looking statements, but these terms are not the exclusive means of identifying forward-looking statements. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission, including but not limited to those discussed in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 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.

3

PART I.          FINANCIAL INFORMATION

ITEM 1.          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

    

June 30, 2020

    

December 31, 2019

Assets

 

  

 

  

Cash and cash equivalents:

Cash and due from banks

$

52,776

$

37,261

Interest-bearing deposit with the Federal Reserve Bank

 

17,897

 

19,649

Total cash and cash equivalents

 

70,673

 

56,910

Securities:

Securities available for sale, at fair value

 

641,574

 

663,230

Federal Home Loan Bank stock

 

20,265

 

20,679

Total securities

 

661,839

 

683,909

Loans:

 

  

 

  

Commercial real estate

 

982,070

 

930,661

Commercial and industrial

 

539,442

 

423,291

Residential real estate

 

1,083,708

 

1,151,857

Consumer

 

124,197

 

135,283

Total loans

 

2,729,417

 

2,641,092

Less: Allowance for loan losses

 

(16,509)

 

(15,353)

Net loans

 

2,712,908

 

2,625,739

Premises and equipment, net

 

50,464

 

51,205

Other real estate owned

 

2,318

 

2,236

Goodwill

 

119,477

 

118,649

Other intangible assets

 

8,155

 

8,641

Cash surrender value of bank-owned life insurance

 

76,896

 

75,863

Deferred tax assets, net

 

2,451

 

3,865

Other assets

 

75,084

 

42,111

Total assets

$

3,780,265

$

3,669,128

Liabilities

 

  

 

  

Deposits:

 

  

 

  

Demand

$

504,325

$

414,534

NOW

 

642,908

 

575,809

Savings

 

466,668

 

388,683

Money market

 

402,835

 

384,090

Time

 

678,126

 

932,635

Total deposits

 

2,694,862

 

2,695,751

Borrowings:

 

  

 

  

Senior

 

546,863

 

471,396

Subordinated

 

59,879

 

59,920

Total borrowings

 

606,742

 

531,316

Other liabilities

 

74,487

 

45,654

Total liabilities

 

3,376,091

 

3,272,721

(continued)

4

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

(in thousands, except share data)

    

June 30, 2020

    

December 31, 2019

Shareholders’ equity

    

    

Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares at June 30, 2020 and December 31, 2019

 

32,857

 

32,857

Additional paid-in capital

 

189,526

 

188,536

Retained earnings

 

185,163

 

175,780

Accumulated other comprehensive income

 

8,521

 

3,911

Less: 1,214,440 and 870,257 shares of treasury stock at June 30, 2020 and December 31, 2019, respectively

 

(11,893)

 

(4,677)

Total shareholders’ equity

 

404,174

 

396,407

Total liabilities and shareholders’ equity

$

3,780,265

$

3,669,128

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

5

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

Six Months Ended

June 30, 

June 30, 

(in thousands, except earnings per share data)

    

2020

    

2019

    

2020

    

2019

Interest and dividend income

Loans

$

26,493

$

27,660

$

54,480

$

54,524

Securities and other

 

4,942

 

6,125

 

10,449

 

12,488

Total interest and dividend income

 

31,435

 

33,785

 

64,929

 

67,012

Interest expense

 

  

 

  

 

  

 

  

Deposits

 

4,548

 

6,886

 

10,568

 

13,193

Borrowings

 

2,297

 

5,403

 

5,208

 

10,558

Total interest expense

 

6,845

 

12,289

 

15,776

 

23,751

Net interest income

 

24,590

 

21,496

 

49,153

 

43,261

Provision for loan losses

 

1,354

 

562

 

2,465

 

886

Net interest income after provision for loan losses

 

23,236

 

20,934

 

46,688

 

42,375

Non-interest income

 

  

 

  

 

  

 

  

Trust and investment management fee income

 

3,159

 

3,066

 

6,528

 

5,823

Customer service fees

 

2,439

 

2,618

 

5,551

 

4,783

Gain on sales of securities, net

 

1,351

 

 

1,486

 

Mortgage banking income

1,124

420

1,581

642

Bank-owned life insurance income

 

496

 

519

 

1,033

 

1,061

Customer derivative income

 

513

 

696

 

1,101

 

725

Other income

 

628

 

134

 

851

 

586

Total non-interest income

 

9,710

 

7,453

 

18,131

 

13,620

Non-interest expense

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

11,909

 

11,685

 

23,793

 

22,204

Occupancy and equipment

 

3,860

 

3,300

 

8,280

 

6,686

(Gain) loss on premises and equipment, net

 

(2)

 

21

 

90

 

21

Outside services

 

442

 

443

 

976

 

854

Professional services

 

337

 

570

 

1,009

 

1,114

Communication

 

194

 

283

 

483

 

518

Marketing

 

282

 

511

 

670

 

806

Amortization of intangible assets

 

256

 

207

 

512

 

414

Loss on debt extinguishment

1,351

1,351

Acquisition, restructuring and other expenses

 

158

 

280

 

261

 

280

Other expenses

 

3,479

 

3,606

 

7,200

 

6,633

Total non-interest expense

 

22,266

 

20,906

 

44,625

 

39,530

Income before income taxes

 

10,680

 

7,481

 

20,194

 

16,465

Income tax expense

 

2,199

 

1,364

 

3,992

 

3,067

Net income

$

8,481

$

6,117

$

16,202

$

13,398

Earnings per share:

 

  

 

  

 

  

 

  

Basic

$

0.55

$

0.39

$

1.05

$

0.86

Diluted

$

0.55

$

0.39

$

1.04

$

0.86

��

Weighted average common shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

15,424

 

15,538

 

15,500

 

15,531

Diluted

 

15,441

 

15,586

 

15,523

 

15,582

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

6

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

    

Three Months Ended

    

Six Months Ended

June 30, 

June 30, 

(in thousands)

    

2020

    

2019

    

2020

    

2019

Net income

$

8,481

$

6,117

$

16,202

$

13,398

Other comprehensive income, before tax:

 

  

 

  

 

  

 

  

Changes in unrealized gain on securities available for sale

 

2,421

 

9,646

 

7,662

 

18,546

Changes in unrealized loss on hedging derivatives

 

626

 

(1,157)

 

(1,639)

 

(2,002)

Changes in unrealized loss on pension

 

 

 

 

Income taxes related to other comprehensive income:

 

  

 

  

 

  

 

  

Changes in unrealized gain on securities available for sale

 

(569)

 

(2,255)

 

(1,709)

 

(4,334)

Changes in unrealized loss on hedging derivatives

 

(147)

 

271

 

296

 

469

Changes in unrealized loss on pension

 

 

 

 

Total other comprehensive income

 

2,331

 

6,505

 

4,610

 

12,679

Total comprehensive income

$

10,812

$

12,622

$

20,812

$

26,077

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

7

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

    

    

    

Accumulated 

    

    

Common 

Additional 

other 

stock

paid-in

Retained 

comprehensive 

Treasury

(in thousands, except per share data)

    

 amount

    

 capital

    

earnings

    

income (loss)

    

 stock

    

Total

Balance at December 31, 2018

 

$

32,857

$

187,653

$

166,526

$

(11,802)

$

(4,655)

$

370,579

 

Net income

 

 

 

7,281

 

 

 

7,281

Other comprehensive income

 

 

 

 

6,174

 

 

6,174

Cash dividends declared ($0.20 per share)

 

 

 

(3,105)

 

 

 

(3,105)

Net issuance (441 shares) to employee stock plans, including related tax effects

 

 

(173)

 

 

 

4

 

(169)

Recognition of stock based compensation

 

 

263

 

 

 

 

263

Balance at March 31, 2019

 

32,857

 

187,743

 

170,702

 

(5,628)

 

(4,651)

 

381,023

Net income

 

 

 

6,117

 

 

 

6,117

Other comprehensive income

 

 

 

 

6,505

 

 

6,505

Cash dividends declared ($0.22 per share)

 

 

 

(3,419)

 

 

 

(3,419)

Treasury stock purchased (8,010 shares)

 

 

 

 

 

(210)

 

(210)

Net issuance (20,678 shares) to employee stock plans, including related tax effects

 

 

104

 

 

 

145

 

249

Recognition of stock based compensation

 

 

297

 

 

 

 

297

Balance at June 30, 2019

$

32,857

$

188,144

$

173,400

$

877

$

(4,716)

$

390,562

Balance at December 31, 2019

$

32,857

$

188,536

$

175,780

$

3,911

$

(4,677)

$

396,407

Net income

 

 

 

7,721

 

 

 

7,721

Other comprehensive income

 

 

 

 

2,279

 

 

2,279

Cash dividends declared ($0.22 per share)

 

 

 

(3,429)

 

 

 

(3,429)

Treasury stock purchased (6,069 shares)

 

 

 

 

 

(130)

 

(130)

Net issuance (27,786 shares) to employee stock plans, including related tax effects

 

 

660

 

 

 

129

 

789

Recognition of stock based compensation

 

 

118

 

 

 

 

118

Balance at March 31, 2020

32,857

189,314

180,072

6,190

(4,678)

403,755

Net income

 

 

 

8,481

 

 

 

8,481

Other comprehensive income

 

 

 

 

2,331

 

 

2,331

Cash dividends declared ($0.22 per share)

 

 

 

(3,390)

 

 

 

(3,390)

Common stock purchased (399,622 shares)

(7,337)

(7,337)

Net issuance (30,987 shares) to employee stock plans, including related tax effects

 

 

(254)

 

 

 

122

 

(132)

Recognition of stock based compensation

 

 

466

 

 

 

 

466

Balance at June 30, 2020

$

32,857

$

189,526

$

185,163

$

8,521

$

(11,893)

$

404,174

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

8

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30, 

(in thousands)

    

2020

    

2019

Cash flows from operating activities:

 

 

  

  

Net income

 

$

16,202

$

13,398

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Provision for loan losses

 

2,465

 

886

Net amortization of securities

 

1,603

 

1,735

Change in unamortized net loan costs and premiums

 

3,449

 

(190)

Premises and equipment depreciation

 

2,380

 

1,905

Stock-based compensation expense

 

584

 

560

Accretion of purchase accounting entries, net

 

(1,742)

 

(1,017)

Amortization of other intangibles

 

512

 

414

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

 

(1,033)

 

(1,061)

Gain on sales of securities, net

 

(1,486)

 

Loss on other real estate owned

 

82

 

Loss on premises and equipment, net

 

90

 

21

Net change in other assets and liabilities

 

(5,787)

 

(3,052)

Net cash provided by operating activities

 

17,319

 

13,599

Cash flows from investing activities:

 

  

 

  

Proceeds from sales of securities available for sale

 

87,521

 

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

 

63,096

 

50,546

Purchases of securities available for sale

 

(120,405)

 

(56,831)

Net change in loans

 

(91,857)

 

(86,745)

Purchase of FHLB stock

 

(4,044)

 

(9,720)

Proceeds from sale of FHLB stock

 

4,458

 

10,159

Purchase of premises and equipment, net

 

(2,221)

 

(3,352)

Acquisitions, net of cash acquired

(340)

Increase in right of use asset from new operating lease

(578)

Net cash used in investing activities

 

(64,370)

 

(95,943)

Cash flows from financing activities:

 

  

 

  

Net decrease in deposits

 

(420)

 

(1,448)

Net change in short-term senior borrowings

(119,774)

(62,510)

Proceeds from long-term senior borrowings

273,436

114,062

Repayments of long-term senior borrowings

 

(67,188)

 

Net change in short-term other borrowings

 

(10,986)

 

Increase in lease liability from new operating lease

(625)

Exercise of stock options

657

80

Purchase of treasury and common stock

(7,467)

(210)

Cash dividends paid on common stock

 

(6,819)

 

(6,524)

Net cash provided by financing activities

 

60,814

 

43,450

Net change in cash and cash equivalents

 

13,763

 

(38,894)

Cash and cash equivalents at beginning of year

 

56,910

 

98,754

Cash and cash equivalents at end of year

$

70,673

$

59,860

(continued)

9

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Six Months Ended June 30, 

(in thousands)

    

2020

    

2019

Supplemental cash flow information:

 

  

 

  

Interest paid

$

16,275

$

22,577

Income taxes paid, net

 

3,112

 

1,685

Acquisition of non-cash assets and liabilities:

Assets acquired

1,171

Liabilities acquired

(343)

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

10

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 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 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.

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

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

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

11

Also in response to the COVID-19 pandemic, the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”), the Office of the Comptroller of the Currency (“OCC”), and the Consumer Financial Protection Bureau (“CFPB”), 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:

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.

Recent Accounting Pronouncements

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

Standard

  

  

Description

  

  

Required Date
of Adoption

  

  

Effect on financial statements

Standards Adopted in 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. Goodwill testing is normally scheduled to be completed during the fourth quarter, but was evaluated quarterly in 2020 in light of the economic impacts of COVID-19. The Company recognized no impairments to goodwill in the second 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.

12

Standard

  

  

Description

  

  

Required Date
of Adoption

  

  

Effect on financial statements

Standards Not Yet Adopted

ASU 2016-13, Measurement of Credit Losses on Financial Instruments ASU 2018‑19, Codification Improvements to ASU 2016-13

This ASU amends Topic 326, Financial Instruments- Credit Losses to replace the current incurred loss accounting model with a current expected credit loss approach ("CECL") for financial instruments measured at amortized cost and other commitments to extend credit. The amendments require entities to consider all available relevant information when estimating current expected credit losses, including details about past events, current conditions, and reasonable and supportable forecasts. The resulting allowance for credit losses is to reflect the portion of the 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

Adoption of this ASU is expected to primarily change how the Company estimates credit losses with the application of the expected credit loss model. The Company will apply the standard's provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company's CECL implementation efforts in the second quarter focused on model validation, continueing to develop new disclosures and establish 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, 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.

The ASU was originally effective for the Company beginning in the first quarter of 2020; however, the CARES Act issued in 2020 provided an option to delay the implementation of CECL until the earlier of when the national emergency associated with COVID-19 virus terminates or December 31, 2020. The Company elected to delay the adoption. Had CECL been adopted as of January 1, 2020, the Company estimates that the allowance for credit losses would have increased $5.0 to $10.0 million over the balance reported as of December 31, 2019.

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 is not expected to have a material impact on the Company's consolidated financial statements.

13

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

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") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ("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 elections need to be made.

14

NOTE 2.           SECURITIES AVAILABLE FOR SALE

The following is a summary of securities available for sale:

Gross

Gross

 Unrealized

 Unrealized

(in thousands)

    

Amortized Cost

    

 Gains

    

 Losses

    

Fair Value

June 30, 2020

 

  

 

  

 

  

 

  

Debt securities:

 

  

 

  

 

  

 

  

Mortgage-backed securities:

 

  

 

  

 

  

 

  

US Government-sponsored enterprises

$

258,169

$

9,701

$

(426)

$

267,444

US Government agency

 

94,894

 

3,845

 

(84)

 

98,655

Private label

 

20,200

 

41

 

(874)

 

19,367

Obligations of states and political subdivisions thereof

 

153,802

 

5,514

 

(29)

 

159,287

Corporate bonds

 

98,248

 

1,141

 

(2,568)

 

96,821

Total securities available for sale

$

625,313

$

20,242

$

(3,981)

$

641,574

Gross

Gross

 Unrealized

 Unrealized

(in thousands)

    

Amortized Cost

    

 Gains

    

 Losses

    

Fair Value

December 31, 2019

 

  

 

  

 

  

 

  

Debt securities:

 

  

 

  

 

  

 

  

Mortgage-backed securities:

 

  

 

  

 

  

 

  

US Government-sponsored enterprises

$

319,064

$

4,985

$

(2,080)

$

321,969

US Government agency

 

98,568

 

1,640

 

(547)

 

99,661

Private label

 

20,212

 

68

 

(747)

 

19,533

Obligations of states and political subdivisions thereof

 

139,240

 

3,034

 

(268)

 

142,006

Corporate bonds

 

78,804

 

1,478

 

(221)

 

80,061

Total securities available for sale

$

655,888

$

11,205

$

(3,863)

$

663,230

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

Available for sale

(in thousands)

    

Amortized Cost

    

Fair Value

Within 1 year

 

$

$

Over 1 year to 5 years

 

26,069

 

26,368

Over 5 years to 10 years

 

70,676

 

69,548

Over 10 years

 

155,305

 

160,192

Total bonds and obligations

 

252,050

 

256,108

Mortgage-backed securities

 

373,263

 

385,466

Total securities available for sale

$

625,313

$

641,574

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

Three Months Ended

Six Months Ended

June 30, 

June 30, 

(In thousands)

    

2020

    

2019

    

2020

    

2019

Gross gains on sales of available for sale securities

$

1,362

$

$

1,508

$

Gross losses on sales of available for sale securities

 

(11)

 

 

(22)

 

Net gains on sale of available for sale securities

$

1,351

$

$

1,486

$

15

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

Less Than Twelve Months

Over Twelve Months

Total

Gross

    

    

Gross

    

    

Gross

    

Unrealized

Fair

Unrealized

Fair

Unrealized 

Fair

(In thousands)

    

Losses

    

Value

    

Losses

    

Value

    

Losses

    

Value

June 30, 2020

 

  

 

  

 

  

 

  

 

  

 

  

Debt securities:

 

  

 

  

 

  

 

  

 

  

 

  

Mortgage-backed securities:

 

  

 

  

 

  

 

  

 

  

 

  

US Government-sponsored enterprises

$

187

$

39,157

$

239

$

4,047

$

426

$

43,204

US Government agency

 

57

 

5,177

 

27

 

1,674

 

84

 

6,851

Private label

 

3

 

112

 

871

 

19,133

 

874

 

19,245

Obligations of states and political subdivisions thereof

 

29

 

11,564

 

 

 

29

 

11,564

Corporate bonds

 

2,332

 

45,854

 

236

 

4,765

 

2,568

 

50,619

Total securities available for sale

$

2,608

$

101,864

$

1,373

$

29,619

$

3,981

$

131,483

Less Than Twelve Months

Over Twelve Months

Total

    

Gross

    

    

Gross

    

    

Gross

    

Unrealized

Fair

Unrealized

Fair

Unrealized 

Fair

(In thousands)

Losses

Value

Losses

Value

Losses

Value

December 31, 2019

 

  

 

  

 

  

 

  

 

  

 

  

Debt securities:

 

  

 

  

 

  

 

  

 

  

 

  

Mortgage-backed securities:

 

  

 

  

 

  

 

  

 

  

 

  

US Government-sponsored enterprises

$

1,074

$

43,429

$

1,006

$

49,712

$

2,080

$

93,141

US Government agency

 

432

 

19,717

 

115

 

9,120

 

547

 

28,837

Private label

 

380

 

9,843

 

367

 

9,411

 

747

 

19,254

Obligations of states and political subdivisions thereof

 

137

 

29,355

 

131

 

1,682

 

268

 

31,037

Corporate bonds

 

142

 

9,888

 

79

 

12,276

 

221

 

22,164

Total securities available for sale

$

2,165

$

112,232

$

1,698

$

82,201

$

3,863

$

194,433

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

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

Three Months Ended

Six Months Ended

June 30, 

June 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

 

 

 

 

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 June 30, 2020, prior to this recovery. The Company’s ability and intent to hold these securities until recovery is supported by the Company’s strong capital and liquidity positions as well as its historically low portfolio turnover.

16

The following summarizes, by investment security type, the basis for the conclusion that securities in an unrealized loss position were not OTTI at June 30, 2020:

US Government-sponsored enterprises

42 out of the total 618 securities in the Company’s portfolios of AFS US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 0.98% 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

12 out of the total 170 securities in the Company’s portfolios of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented 1.21% 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

11 of the total 18 securities in the Company’s portfolio of AFS private label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 4.34% 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

3 of the total 190 securities in the Company’s portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 0.25% 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

16 out of the total 33 securities in the Company’s portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents 4.89% 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.

17

NOTE 3.           LOANS

The Company’s loan portfolio is comprised of the following segments: commercial real estate, commercial and industrial, residential real estate, and consumer loans. Commercial real estate loans 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.

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

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

June 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

$

60,096

$

2,377

$

62,473

$

31,387

$

2,903

$

34,290

Other commercial real estate

 

722,949

 

196,648

 

919,597

 

666,051

 

230,320

 

896,371

Total commercial real estate

 

783,045

 

199,025

 

982,070

 

697,438

 

233,223

 

930,661

Commercial and industrial:

 

  

 

  

 

 

  

 

  

 

Commercial

 

384,390

 

69,949

 

454,339

 

239,692

 

59,072

 

298,764

Agricultural

 

18,026

 

159

 

18,185

 

20,018

 

206

 

20,224

Tax exempt

 

40,593

 

26,325

 

66,918

 

66,860

 

37,443

 

104,303

Total commercial and industrial

 

443,009

 

96,433

 

539,442

 

326,570

 

96,721

 

423,291

Total commercial loans

 

1,226,054

 

295,458

 

1,521,512

 

1,024,008

 

329,944

 

1,353,952

Residential real estate:

 

  

 

  

 

 

  

 

  

 

Residential mortgages

 

725,450

 

358,258

 

1,083,708

 

740,687

 

411,170

 

1,151,857

Total residential real estate

 

725,450

 

358,258

 

1,083,708

 

740,687

 

411,170

 

1,151,857

Consumer:

 

  

 

  

 

 

  

 

  

 

Home equity

 

59,413

 

54,686

 

114,099

 

59,368

 

63,033

 

122,401

Other consumer

 

8,685

 

1,413

 

10,098

 

11,167

 

1,715

 

12,882

Total consumer

 

68,098

 

56,099

 

124,197

 

70,535

 

64,748

 

135,283

Total loans

$

2,019,602

$

709,815

$

2,729,417

$

1,835,230

$

805,862

$

2,641,092

The carrying amount of the acquired loans at June 30, 2020 totaled $709.8 million. A subset of these loans was determined to have evidence of credit deterioration at acquisition date, which is accounted for in accordance with ASC 310-30, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. These purchased credit-impaired loans presently maintain a carrying value of $14.8 million (and total note balances of $18.7 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 $695.0 million as of June 30, 2020.

18

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

Three Months Ended June 30, 

(in thousands)

    

2020

    

2019

Balance at beginning of period

$

6,839

$

4,150

Reclassification from nonaccretable difference for loans with improved cash flows

 

370

 

402

Accretion

 

(982)

 

(357)

Balance at end of period

$

6,227

$

4,195

Six Months Ended June 30, 

(in thousands)

    

2020

    

2019

Balance at beginning of period

$

7,367

$

4,377

Reclassification from nonaccretable difference for loans with improved cash flows

 

424

 

624

Accretion

 

(1,564)

 

(806)

Balance at end of period

$

6,227

$

4,195

The following is a summary of past due loans at June 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

June 30, 2020

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Commercial real estate:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Construction and land development

$

$

$

267

$

267

$

59,829

$

60,096

$

Other commercial real estate

 

1,450

 

23

 

720

 

2,193

 

720,756

 

722,949

 

Total commercial real estate

 

1,450

 

23

 

987

 

2,460

 

780,585

 

783,045

 

Commercial and industrial:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Commercial

 

152

 

295

 

646

 

1,093

 

383,297

 

384,390

 

49

Agricultural

 

20

 

 

158

 

178

 

17,848

 

18,026

 

16

Tax exempt

 

 

 

 

 

40,593

 

40,593

 

Total commercial and industrial

 

172

 

295

 

804

 

1,271

 

441,738

 

443,009

 

65

Total commercial loans

 

1,622

 

318

 

1,791

 

3,731

 

1,222,323

 

1,226,054

 

65

Residential real estate:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgages

 

320

 

1,820

 

1,950

 

4,090

 

721,360

 

725,450

 

270

Total residential real estate

 

320

 

1,820

 

1,950

 

4,090

 

721,360

 

725,450

 

270

Consumer:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Home equity

 

40

 

153

 

384

 

577

 

58,836

 

59,413

 

Other consumer

 

5

 

 

2

 

7

 

8,678

 

8,685

 

Total consumer

 

45

 

153

 

386

 

584

 

67,514

 

68,098

 

Total loans

$

1,987

$

2,291

$

4,127

$

8,405

$

2,011,197

$

2,019,602

$

335

19

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

June 30, 2020

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Commercial real estate:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Construction and land development

$

$

$

$

$

269

$

2,377

$

Other commercial real estate

 

113

 

1,495

 

960

 

2,568

 

6,993

 

196,648

 

298

Total commercial real estate

 

113

 

1,495

 

960

 

2,568

 

7,262

 

199,025

 

298

Commercial and industrial:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Commercial

 

48

 

97

 

409

 

554

 

1,821

 

69,949

 

387

Agricultural

 

 

 

 

 

159

 

159

 

Tax exempt

 

 

 

 

 

 

26,325

 

Total commercial and industrial

 

48

 

97

 

409

 

554

 

1,980

 

96,433

 

387

Total commercial loans

 

161

 

1,592

 

1,369

 

3,122

 

9,242

 

295,458

 

685

Residential real estate:

 

  

 

  

 

  

 

  

 

  

 

  

 

Residential mortgages

 

433

 

530

 

1,033

 

1,996

 

4,715

 

358,258

 

60

Total residential real estate

 

433

 

530

 

1,033

 

1,996

 

4,715

 

358,258

 

60

Consumer:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Home equity

 

273

 

369

 

285

 

927

 

766

 

54,686

 

25

Other consumer

 

 

 

 

 

47

 

1,413

 

Total consumer

 

273

 

369

 

285

 

927

 

813

 

56,099

 

25

Total loans

$

867

$

2,491

$

2,687

$

6,045

$

14,770

$

709,815

$

770

20

Business Activities Loans

`

90 Days or

Past Due >

    

30-59 Days

    

60-89 Days

    

 Greater 

    

Total Past

    

    

    

90 days and

(in thousands)

Past Due

Past Due

Past Due

Due

Current

Total Loans

Accruing

December 31, 2019

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Commercial real estate:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Construction and land development

$

205

$

53

$

$

258

$

31,129

$

31,387

$

Other commercial real estate

 

40

 

1,534

 

1,810

 

3,384

 

662,667

 

666,051

 

Total commercial real estate

 

245

 

1,587

 

1,810

 

3,642

 

693,796

 

697,438

 

Commercial and industrial:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Commercial

 

452

 

50

 

894

 

1,396

 

238,296

 

239,692

 

Agricultural

 

62

 

34

 

96

 

192

 

19,826

 

20,018

 

Tax exempt

 

 

 

 

 

66,860

 

66,860

 

Total commercial and industrial

 

514

 

84

 

990

 

1,588

 

324,982

 

326,570

 

Total commercial loans

 

759

 

1,671

 

2,800

 

5,230

 

1,018,778

 

1,024,008

 

Residential real estate:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgages

 

7,293

 

1,243

 

668

 

9,204

 

731,483

 

740,687

 

Total residential real estate

 

7,293

 

1,243

 

668

 

9,204

 

731,483

 

740,687

 

Consumer:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Home equity

 

597

 

43

 

429

 

1,069

 

58,299

 

59,368

 

50

Other consumer

 

36

 

12

 

 

48

 

11,119

 

11,167

 

Total consumer

 

633

 

55

 

429

 

1,117

 

69,418

 

70,535

 

50

Total loans

$

8,685

$

2,969

$

3,897

$

15,551

$

1,819,679

$

1,835,230

$

50

21

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

22

Non-Accrual Loans

The following is summary information pertaining to non-accrual loans at June 30, 2020 and December 31, 2019:

June 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

$

267

$

$

267

$

258

$

$

258

Other commercial real estate

 

1,487

 

2,227

 

3,714

 

2,888

 

343

 

3,231

Total commercial real estate

 

1,754

 

2,227

 

3,981

 

3,146

 

343

 

3,489

Commercial and industrial:

 

  

 

  

 

  

 

  

 

  

 

  

Commercial

 

803

 

459

 

1,262

 

932

 

626

 

1,558

Agricultural

 

528

 

 

528

 

278

 

 

278

Tax exempt

 

 

 

 

 

 

Total commercial and industrial

 

1,331

 

459

 

1,790

 

1,210

 

626

 

1,836

Total commercial loans

 

3,085

 

2,686

 

5,771

 

4,356

 

969

 

5,325

Residential real estate:

 

  

 

  

 

  

 

  

 

  

 

  

Residential mortgages

 

4,041

 

3,153

 

7,194

 

3,362

 

1,973

 

5,335

Total residential real estate

 

4,041

 

3,153

 

7,194

 

3,362

 

1,973

 

5,335

Consumer:

 

  

 

  

 

  

 

  

 

  

 

  

Home equity

 

618

 

388

 

1,006

 

615

 

254

 

869

Other consumer

 

17

 

 

17

 

21

 

 

21

Total consumer

 

635

 

388

 

1,023

 

636

 

254

 

890

Total loans

$

7,761

$

6,227

$

13,988

$

8,354

$

3,196

$

11,550

23

Loans evaluated for impairment as of June 30, 2020 and December 31, 2019 are, as follows:

Business Activities Loans

Commercial

Commercial

Residential

(in thousands)

    

real estate

    

 and industrial

    

real estate

    

Consumer

    

Total

June 30, 2020

 

  

 

  

 

  

 

  

 

  

Balance at end of period

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment

$

2,482

$

1,049

$

2,396

$

13

$

5,940

Collectively evaluated

 

780,563

 

441,960

 

723,054

 

68,085

 

2,013,662

Total

$

783,045

$

443,009

$

725,450

$

68,098

$

2,019,602

Acquired Loans

    

Commercial

    

Commercial

    

Residential

    

    

(in thousands)

real estate

 and industrial

real estate

Consumer

Total

June 30, 2020

 

  

 

  

 

  

 

  

 

  

Balance at end of period

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment

$

2,402

$

356

$

925

$

$

3,683

Purchased credit impaired

 

7,262

 

1,980

 

4,715

 

813

 

14,770

Collectively evaluated

 

189,361

 

94,097

 

352,618

 

55,286

 

691,362

Total

$

199,025

$

96,433

$

358,258

$

56,099

$

709,815

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

24

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

Business Activities Loans

June 30, 2020

    

Recorded 

    

Unpaid Principal

    

Related 

(in thousands)

 Investment

 

Balance

 Allowance

With no related allowance:

 

  

 

  

 

  

Construction and land development

$

$

$

Other commercial real estate

 

1,344

 

1,449

 

Commercial

 

625

 

714

 

Agricultural

 

290

 

428

 

Tax exempt loans

 

 

 

Residential real estate

 

1,875

 

2,036

 

Home equity

 

 

 

Other consumer

 

 

 

With an allowance recorded:

 

  

 

  

 

  

Construction and land development

267

265

213

Other commercial real estate

871

924

474

Commercial

134

134

18

Agricultural

Tax exempt loans

Residential real estate

521

587

60

Home equity

13

13

1

Other consumer

Total

  

  

  

Commercial real estate

2,482

2,638

687

Commercial and industrial

 

1,049

 

1,276

 

18

Residential real estate

 

2,396

 

2,623

 

60

Consumer

 

13

 

13

 

1

Total impaired loans

$

5,940

$

6,550

$

766

25

Acquired Loans

June 30, 2020

    

Recorded 

    

Unpaid Principal

    

Related

(in thousands)

 Investment

 

Balance

  Allowance

With no related allowance:

 

  

 

  

 

  

Construction and land development

$

$

$

Other commercial real estate

 

1,518

 

1,525

 

Commercial

 

284

 

373

 

Agricultural

 

 

 

Tax exempt loans

 

 

 

Residential real estate

 

401

 

590

 

Home equity

 

 

 

Other consumer

 

 

 

With an allowance recorded:

 

  

 

  

 

  

Construction and land development

Other commercial real estate

884

907

365

Commercial

72

74

9

Agricultural

Tax exempt loans

Residential real estate

524

707

67

Home equity

Other consumer

Total

  

  

  

Commercial real estate

2,402

2,432

365

Commercial and industrial

 

356

 

447

 

9

Residential real estate

 

925

 

1,297

 

67

Consumer

 

 

 

Total impaired loans

$

3,683

$

4,176

$

441

26

Business Activities Loans

December 31, 2019

    

Recorded 

    

Unpaid Principal

    

Related  

(in thousands)

 

 Investment

 

Balance

 

Allowance

With no related allowance:

 

  

 

  

 

  

Construction and land development

$

$

$

Other commercial real estate

 

1,911

 

1,957

 

Commercial

 

710

 

773

 

Agricultural

 

361

 

261

 

Tax exempt loans

 

 

 

Residential real estate

 

2,067

 

2,227

 

Home equity

 

 

 

Other consumer

 

 

 

With an allowance recorded:

 

  

 

  

 

  

Construction and land development

258

258

205

Other commercial real estate

1,795

1,940

1,026

Commercial

282

289

164

Agricultural

Tax exempt loans

Residential real estate

553

590

57

Home equity

13

13

Other consumer

Total

  

  

  

Commercial real estate

3,964

4,155

1,231

Commercial and industrial

 

1,353

 

1,423

164

Residential real estate

 

2,620

 

2,817

 

57

Consumer

 

13

 

13

 

Total impaired loans

$

7,950

$

8,408

$

1,452

27

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

28

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

Business Activities Loans

Three Months Ended June 30, 2020

Three Months Ended June 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

 

1,347

 

3

 

7,499

 

20

Commercial

 

652

 

1

 

940

 

2

Agricultural

 

382

 

 

 

Tax exempt loans

 

 

 

 

Residential real estate

 

1,875

 

4

 

2,104

 

16

Home equity

 

 

 

 

Other consumer

 

 

 

 

With an allowance recorded:

 

  

 

  

 

  

 

  

Construction and land development

265

1

Other commercial real estate

871

1,396

Commercial

134

412

Agricultural

Tax exempt loans

Residential real estate

546

572

3

Home equity

13

13

Other consumer

Total

  

  

  

  

Commercial real estate

2,483

3

8,896

20

Commercial and industrial

1,168

 

1

1,352

2

Residential real estate

 

2,421

 

4

 

2,676

 

19

Consumer

 

13

 

 

13

 

Total impaired loans

$

6,085

$

8

$

12,937

$

41

29

Business Activities Loans

Six Months Ended June 30, 2020

Six Months Ended June 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

 

1,286

 

6

 

7,219

 

46

Commercial

 

657

 

2

 

931

 

4

Agricultural

 

406

 

 

 

Tax exempt loans

 

 

 

 

Residential real estate

 

1,880

 

16

 

2,113

 

31

Home equity

 

 

 

 

Other consumer

 

 

 

 

With an allowance recorded:

 

  

 

  

 

  

 

  

Construction and land development

264

3

Other commercial real estate

874

1,497

Commercial

134

417

Agricultural

Tax exempt loans

Residential real estate

547

2

534

5

Home equity

13

13

Other consumer

Total

  

  

  

  

Commercial real estate

2,424

6

8,719

46

Commercial and industrial

 

1,197

2

1,348

 

4

Residential real estate

 

2,427

 

18

2,647

 

36

Consumer

 

13

 

13

 

Total impaired loans

$

6,061

$

26

$

12,727

$

86

30

Acquired Loans

Three Months Ended June 30, 2020

Three Months Ended June 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

 

1,527

 

 

187

 

Commercial

 

295

 

 

412

 

Agricultural

 

 

 

 

Tax exempt loans

 

 

 

 

Residential real estate

 

446

 

 

426

 

Home equity

 

 

 

 

Other consumer

 

 

 

 

With an allowance recorded:

 

  

 

  

 

  

 

  

Construction and land development

Other commercial real estate

906

3

71

Commercial

75

Agricultural

Tax exempt loans

Residential real estate

596

363

Home equity

Other consumer

Total

  

  

  

  

Commercial real estate

2,433

3

258

Commercial and industrial

 

370

 

412

 

Residential real estate

 

1,042

 

789

 

Consumer

 

 

 

Total impaired loans

$

3,845

$

3

$

1,459

$

31

Acquired Loans

Six Months Ended June 30, 2020

Six Months Ended June 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

 

763

 

 

157

 

Commercial

 

345

 

 

446

 

Agricultural

 

 

 

 

Tax exempt loans

 

 

 

 

Residential real estate

 

456

 

 

431

 

Home equity

 

 

 

 

Other consumer

 

 

 

 

With an allowance recorded:

 

  

 

  

 

  

 

  

Construction and land development

Other commercial real estate

663

3

36

Commercial

80

Agricultural

Tax exempt loans

Residential real estate

601

365

Home equity

Other consumer

Total

  

  

  

  

Commercial real estate

1,426

3

193

Commercial and industrial

 

425

 

446

Residential real estate

 

1,057

 

796

 

Consumer

 

 

 

 

Total impaired loans

$

2,908

$

3

$

1,435

$

32

Troubled Debt Restructuring Loans

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

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

The following tables include the recorded investment and number of modifications identified during the three and six months ended June 30, 2020 and 2019, respectively. The table includes the recorded investment in the loans prior to a modification and also the recorded investment in the loans after the loans were restructured. Modifications may include adjustments to interest rates, payment amounts, extensions of maturity, court ordered concessions or other actions intended to minimize economic loss and avoid foreclosure or repossession of collateral. There were no modifications qualifying as TDR’s for the three months ended June 30, 2020.

Three Months Ended June 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

 

2

 

186

 

177

Commercial

 

1

 

12

 

12

Residential mortgages

 

2

 

152

 

116

Total

 

5

$

350

$

305

Six Months Ended June 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

$

252

Other commercial

 

3

 

41

 

196

Home equity

1

26

25

Other consumer

1

9

9

Total

 

6

$

130

$

482

Six Months Ended June 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

 

5

$

299

$

290

Other commercial

 

3

 

43

 

43

Residential mortgages

 

8

 

682

 

644

Total

 

16

$

1,024

$

977

33

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