10-Q - BHB - Equibles

Table of Contents

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, 2024


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

For the transition period from to

Commission File Number: 001-13349

BAR HARBOR BANKSHARES

(Exact name of registrant as specified in its charter)


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

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

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

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

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

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

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

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

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

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

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

The registrant had 15,267,106 shares of common stock, par value $2.00 per share, outstanding as of August 5, 2024.

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 June 30, 2024 and December 31, 2023			4

	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2024 and 2023			5

	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2024 and 2023			6

	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023			7

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023			8

	Condensed Notes to Unaudited Consolidated Interim Financial Statements
		Note 1	Basis of Presentation	9
		Note 2	Securities Available for Sale	11
		Note 3	Loans and Allowance for Credit Losses	15
		Note 4	Borrowed Funds	28
		Note 5	Deposits	30
		Note 6	Capital Ratios and Shareholders' Equity	31
		Note 7	Earnings per Share	35
		Note 8	Derivative Financial Instruments and Hedging Activities	36
		Note 9	Fair Value Measurements	46
		Note 10	Revenue from Contracts with Customers	53

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			55
		Selected Financial Data		62
		Consolidated Loan and Deposit Analysis		63
		Average Balances and Average Yields/Rates		64
		Reconciliation of Non-GAAP Financial Measures		66

Item 3.	Quantitative and Qualitative Disclosures about Market Risk			68

Item 4.	Controls and Procedures			70

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings			70

Item 1A.	Risk Factors			70

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			71

Item 5.	Other Information			71

Item 6.	Exhibits			72

Signatures				73

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," "us," and similar terms refer to Bar Harbor Bankshares and its subsidiaries, including the Bank, collectively. 2

Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

●	changes in general business and economic conditions on a national basis and in our markets throughout Northern New England;
●	changes in consumer behavior due to political, business, and economic conditions, including inflation and concerns about liquidity;
---	---
●	the possibility that our asset quality could decline or that we experience greater loan losses than anticipated;
---	---
●	the impact of liquidity needs on our results of operations and financial condition; (5) changes in the size and nature of our competition;
---	---
●	the effect of interest rate increases on the cost of deposits;
---	---
●	unanticipated weakness in loan demand, pricing or collectability;
---	---
●	the possibility that future credit losses are higher than currently expected due to changes in economic assumptions or adverse economic developments;
---	---
●	operational risks including, but not limited to, changes in information technology, cybersecurity incidents, fraud, natural disasters, climate change, war, terrorism, civil unrest, and future pandemics;
---	---
●	lack of strategic growth opportunities or our failure to execute on available opportunities;
---	---
●	our ability to effectively manage problem credits;
---	---
●	our ability to successfully develop new products and implement efficiency initiatives on time and with the results projected;
---	---
●	our ability to retain executive officers and key employees and their customer and community relationships;
---	---
●	regulatory, litigation, and reputational risks and the applicability of insurance coverage;
---	---
●	changes in the reliability of our vendors, internal control systems or information systems;
---	---
●	the potential impact of climate change;
---	---
●	changes in legislation or regulation and accounting principles, policies, and guidelines;
---	---
●	reductions in the market value or outflows of wealth management assets under management; and
---	---
●	changes in the assumptions used in making such forward-looking statements.
---	---

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

Table of Contents PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in thousands, except share data)	****	June 30, 2024		****	December 31, 2023
Assets
Cash and cash equivalents:
Cash and due from banks		$	39,673		$	42,221
Interest-earning deposits with other banks			62,163			52,621
Total cash and cash equivalents			101,836			94,842

Securities:
Securities available for sale			512,928			534,574
Federal Home Loan Bank stock			14,755			12,788
Total securities			527,683			547,362

Loans held for sale			3,897			2,189

Total loans			3,064,181			2,999,049
Less: Allowance for credit losses			(28,855)			(28,142)
Net loans			3,035,326			2,970,907

Premises and equipment, net			51,628			48,287
Other real estate owned			—			—
Goodwill			119,477			119,477
Other intangible assets			4,404			4,869
Cash surrender value of bank-owned life insurance			81,221			80,037
Deferred tax assets, net			24,750			22,979
Other assets			83,978			79,936
Total assets		$	4,034,200		$	3,970,885

Liabilities
Deposits:
Non-interest bearing demand		$	553,067		$	569,714
Interest-bearing demand			882,068			946,978
Savings			544,980			553,963
Money market			359,208			370,242
Time			801,143			700,260
Total deposits			3,140,466			3,141,157

Borrowings:
Senior			329,349			271,044
Subordinated			60,541			60,461
Total borrowings			389,890			331,505

Other liabilities			64,937			66,164
Total liabilities			3,595,293			3,538,826


Shareholders’ equity
Capital stock, par value 2.00; authorized 20,000,000 shares; issued 16,428,388 shares; outstanding 15,232,425 shares and 15,172,131 shares at June 30, 2024 and December 31, 2023, respectively		32,857		32,857
Additional paid-in capital		193,486		193,114
Retained earnings		283,729		272,101
Accumulated other comprehensive loss		(55,487)		(49,862)
Less: 1,195,963 and 1,256,257 shares of treasury stock, at cost, at June 30, 2024 and December 31, 2023, respectively		(15,678)		(16,151)
Total shareholders’ equity		438,907		432,059
Total liabilities and shareholders’ equity	$	4,034,200	$	3,970,885

All values are in US Dollars.

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						Six Months Ended
		June 30,						June 30,
(in thousands, except earnings per share data)	****	2024		****	2023		****	2024		****	2023
Interest and dividend income
Loans		$	40,634		$	36,917		$	80,104		$	71,477
Securities and other			6,204			5,964			12,557			11,755
Total interest and dividend income			46,838			42,881			92,661			83,232
Interest expense
Deposits			14,780			8,590			29,312			13,855
Borrowings			4,299			5,501			7,535			9,681
Total interest expense			19,079			14,091			36,847			23,536
Net interest income			27,759			28,790			55,814			59,696
Provision for credit losses			585			750			874			1,548
Net interest income after provision for credit losses			27,174			28,040			54,940			58,148

Non-interest income
Trust and investment management fee income			4,193			3,805			7,863			7,360
Customer service fees			3,737			3,774			7,447			7,451
Gain on sales of securities, net			50			—			50			34
Mortgage banking income			558			378			815			657
Bank-owned life insurance income			583			503			1,144			1,651
Customer derivative income			168			83			168			215
Other income			344			437			732			796
Total non-interest income			9,633			8,980			18,219			18,164

Non-interest expense
Salaries and employee benefits			13,860			13,223			27,108			25,994
Occupancy and equipment			4,382			4,392			8,855			8,806
Gain on sales of premises and equipment, net			(248)			(86)			(263)			(99)
Outside services			462			424			800			780
Professional services			238			355			638			781
Communication			192			175			381			337
Marketing			521			476			1,088			885
Amortization of intangible assets			233			233			466			466
Acquisition, conversion and other expenses			—			—			20			20
Provision for unfunded commitments			—			45			(185)			(130)
Other expenses			4,378			4,155			8,798			8,256
Total non-interest expense			24,018			23,392			47,706			46,096

Income before income taxes			12,789			13,628			25,453			30,216
Income tax expense			2,532			2,837			5,101			6,413
Net income		$	10,257		$	10,791		$	20,352		$	23,803

Earnings per share:
Basic		$	0.67		$	0.71		$	1.34		$	1.57
Diluted		$	0.67		$	0.71			1.33			1.57

Weighted average common shares outstanding:
Basic			15,227			15,139			15,213			15,125
Diluted			15,275			15,180			15,273			15,186

The accompanying notes are an integral part of these consolidated financial statements. 5

Table of Contents BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	****	Three Months Ended					****	Six Months Ended
		June 30,						June 30,
(in thousands)	****	2024		****	2023		****	2024		****	2023
Net income		$	10,257		$	10,791		$	20,352		$	23,803
Other comprehensive income (loss), before tax:
Changes in unrealized loss on securities available for sale			(3,507)			(6,057)			(6,104)			(51)
Changes in unrealized (loss) gain on hedging derivatives			(312)			321			(1,249)			1,088
Changes in unrealized gain on pension			—			—			22			—

Income taxes related to other comprehensive income (loss):
Changes in unrealized loss on securities available for sale			827			1,396			1,440			(10)
Changes in unrealized loss (gain) on hedging derivatives			73			(73)			294			(251)
Changes in unrealized gain on pension			—			—			(28)			—
Total other comprehensive (loss) income			(2,919)			(4,413)			(5,625)			776
Total comprehensive income		$	7,338		$	6,378		$	14,727		$	24,579

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

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

Net income			—			—			10,791			—			—			10,791
Other comprehensive income			—			—			—			(4,413)			—			(4,413)
Cash dividends declared ($0.28 per share)			—			—			(4,205)			—			—			(4,205)
Net issuance (19,707 shares) to employee stock plans, including related tax effects			—			(304)			—			—			53			(251)
Recognition of stock based compensation			—			384			—			—			—			384
Balance at June 30, 2023		$	32,857		$	192,341		$	259,470		$	(57,564)		$	(16,388)		$	410,716

Balance at December 31, 2023		$	32,857		$	193,114		$	272,101		$	(49,862)		$	(16,151)		$	432,059
Net income			—			—			10,095			—			—			10,095
Other comprehensive loss			—			—			—			(2,706)			—			(2,706)
Cash dividends declared ($0.28 per share)			—			—			(4,205)			—			—			(4,205)
Net issuance (39,746 shares) to employee stock plans, including related tax effects			—			(355)			—			—			339			(16)
Recognition of stock based compensation			—			487			—			—			—			487
Balance at March 31, 2024		$	32,857		$	193,246		$	277,991		$	(52,568)		$	(15,812)		$	435,714

Net income			—			—			10,257			—			—			10,257
Other comprehensive loss			—			—			—			(2,919)			—			(2,919)
Cash dividends declared ($0.30 per share)			—			—			(4,519)			—			—			(4,519)
Net issuance (20,548 shares) to employee stock plans, including related tax effects			—			(444)			—			—			134			(310)
Recognition of stock based compensation			—			684			—			—			—			684
Balance at June 30, 2024		$	32,857		$	193,486		$	283,729		$	(55,487)		$	(15,678)		$	438,907

The accompanying notes are an integral part of these consolidated financial statements. 7

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


		Six Months Ended June 30,
(in thousands)	****	2024		****	2023
Cash flows from operating activities:
Net income		$	20,352		$	23,803
Adjustments to reconcile net income to net cash provided by operating activities:
Net change in loans held for sale			1,708			(3,669)
Provision for credit losses			874			1,548
Net amortization of securities			894			1,202
Change in unamortized net loan costs and premiums			(540)			159
Premises and equipment depreciation			2,096			2,112
Stock-based compensation expense			1,171			683
Amortization of other intangibles			466			466
Income from cash surrender value of bank-owned life insurance policies			(1,144)			(1,651)
Gain on sales of securities, net			(50)			(34)
Amortization of right-of-use lease assets			442			597
Decrease in lease liabilities			(440)			(582)
Gain on premises and equipment, net			(263)			(99)
Net change in other assets and liabilities			(9,954)			(12,153)
Net cash provided by operating activities			15,612			12,382

Cash flows from investing activities:
Proceeds from sales, maturities, calls and prepayments of securities available for sale			36,656			22,456
Purchases of securities available for sale			(22,845)			(1,000)
Net change in loans			(64,753)			(104,995)
Purchase of Federal Home Loan Bank stock			(9,953)			(14,262)
Proceeds from sale of Federal Home Loan Bank stock			7,986			11,371
Purchase of premises and equipment, net			(5,489)			(2,194)
Proceeds from sale of premises held for sale			1,136			—
Proceeds from death benefit of bank-owned life insurance policy			—			3,904
Net cash used in investing activities			(57,262)			(84,720)

Cash flows from financing activities:
Net change in deposits			(691)			46,814
Net change in short-term borrowings			58,310			65,020
Repayments of long-term borrowings			(5)			(10)
Net change in subordinated debt			80			—
Net issuance to employee stock plans			(326)			152
Cash dividends paid on common stock			(8,724)			(8,148)
Net cash provided by financing activities			48,644			103,828

Net change in cash and cash equivalents			6,994			31,490
Cash and cash equivalents at beginning of year			94,842			92,295
Cash and cash equivalents at end of period		$	101,836		$	123,785

Supplemental cash flow information:
Interest paid		$	34,298		$	21,708
Income taxes paid, net			7,857			8,530

Table of Contents BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

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

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

The results for any interim period are not necessarily indicative of results for the full year. The consolidated financial statements should be read in conjunction with the audited financial statements and note disclosures in the Form 10-K previously filed with the Securities and Exchange Commission (the “SEC”). In management's opinion, all adjustments necessary for a fair statement are reflected in the interim periods presented.

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

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

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

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

Table of Contents Recent Accounting Pronouncements

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


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

Table of Contents NOTE 2. SECURITIES AVAILABLE FOR SALE

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


					Gross			Gross
					Unrealized			Unrealized
(in thousands)	****	Amortized Cost		****	Gains		****	Losses		****	Fair Value
June 30, 2024
Debt securities:
Obligations of US Government-sponsored enterprises		$	1,677		$	2		$	(29)		$	1,650
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises			215,288			1			(33,118)			182,171
US Government agency			98,099			58			(11,850)			86,307
Private label			46,975			22			(1,266)			45,731
Obligations of states and political subdivisions thereof			117,397			5,342			(16,337)			106,402
Corporate bonds			101,947			126			(11,406)			90,667
Total securities available for sale		$	581,383		$	5,551		$	(74,006)		$	512,928


					Gross			Gross
					Unrealized			Unrealized
(in thousands)	****	Amortized Cost		****	Gains		****	Losses		****	Fair Value
December 31, 2023
Debt securities:
Obligations of US Government-sponsored enterprises		$	2,021		$	—		$	(29)		$	1,992
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises			223,602			12			(30,332)			193,282
US Government agency			85,005			145			(10,937)			74,213
Private label			60,888			18			(1,855)			59,051
Obligations of states and political subdivisions thereof			119,857			4,515			(14,204)			110,168
Corporate bonds			105,552			19			(9,703)			95,868
Total securities available for sale		$	596,925		$	4,709		$	(67,060)		$	534,574

Credit Quality Information

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

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

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

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		Available for sale
(in thousands)	****	Amortized Cost		****	Fair Value
Within 1 year		$	1,011		$	651
Over 1 year to 5 years			52,527			46,808
Over 5 years to 10 years			42,338			43,408
Over 10 years			125,145			107,852
Total bonds and obligations			221,021			198,719
Mortgage-backed securities and collateralized mortgage obligations			360,362			314,209
Total securities available for sale		$	581,383		$	512,928

The following table presents the realized 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)	****	2024		****	2023		****	2024		****	2023		****
Gross gains on sales of available for sale securities		$	50		$	—		$	50		$	34
Gross losses on sales of available for sale securities			—			—			—			—
Net gains on sale of available for sale securities		$	50		$	—		$	50		$	34

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


		Less Than Twelve Months						Over Twelve Months						Total
		Gross		****			****	Gross		****			****	Gross		****
		Unrealized			Fair			Unrealized			Fair			Unrealized			Fair
(in thousands)	****	Losses		****	Value		****	Losses		****	Value		****	Losses		****	Value
June 30, 2024
Debt securities:
Obligations of US Government-sponsored enterprises		$	—		$	—		$	29		$	787		$	29		$	787
Mortgage-backed securities and collateralized mortgage obligations:
US Government-sponsored enterprises			16			3,530			33,102			178,525			33,118			182,055
US Government agency			259			16,520			11,591			63,968			11,850			80,488
Private label			6			1,487			1,260			39,221			1,266			40,708
Obligations of states and political subdivisions thereof			59			4,133			16,278			99,933			16,337			104,066
Corporate bonds			521			6,931			10,885			80,612			11,406			87,543
Total securities available for sale		$	861		$	32,601		$	73,145		$	463,046		$	74,006		$	495,647

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

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

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

Obligations of US Government-sponsored enterprises

7 out of the total 8 securities in our portfolio of AFS obligations of US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 3.54% of the amortized cost of securities in unrealized loss positions. The US Small Business Administration guarantees the contractual cash flows of all of our obligations of US Government-sponsored enterprises. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter.

US Government-sponsored enterprises

474 out of the total 487 securities in our portfolio of AFS US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 15.39% of the amortized cost of securities in unrealized loss positions. The Federal National Mortgage Association and Federal Home Loan Mortgage Corporation guarantee the contractual cash flows of all of our US Government-sponsored enterprises. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter.

US Government agency

145 out of the total 159 securities in our portfolio of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented 12.83% of the amortized cost of securities in unrealized loss positions. The Government National Mortgage Association guarantees the contractual cash flows of all of our US Government agency securities. The securities are investment grade rated and there were no material underlying credit downgrades during the quarter.

Table of Contents Private label

22 of the total 25 securities in our portfolio of AFS private label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 3.02% of the amortized cost of securities in unrealized loss positions. We expect to receive all of the future contractual cash flows related to the amortized cost on these securities.

Obligations of states and political subdivisions thereof

61 of the total 67 securities in our portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 14.20% of the amortized cost of securities in unrealized loss positions. We continually monitor the municipal bond sector of the market carefully and periodically evaluate the appropriate level of exposure to the market. At this time, we believe (i) the bonds in this portfolio carry minimal risk of default and (ii) we are appropriately compensated for the risk. There were no material underlying credit downgrades during the quarter.

Corporate bonds

32 out of the total 35 securities in our portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents 11.53% of the amortized cost of bonds in unrealized loss positions. We review the financial strength of all of these bonds, and we have concluded that the amortized cost remains supported by the expected future cash flows of these securities. The most recent review includes all bond issuers and their current credit ratings, financial performance and capitalization.

Table of Contents NOTE 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

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


		June 30,			December 31,
(in thousands)	****	2024		****	2023
Commercial construction		$	179,259		$	154,048
Commercial real estate owner occupied			277,385			310,015
Commercial real estate non-owner occupied			1,229,493			1,144,566
Tax exempt			38,118			43,688
Commercial and industrial			322,657			310,883
Residential real estate			918,578			940,334
Home equity			90,465			87,683
Consumer other			8,226			7,832
Total loans			3,064,181			2,999,049
Allowance for credit losses			28,855			28,142
Net loans		$	3,035,326		$	2,970,907

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


		June 30,			December 31,
(in thousands)	****	2024		****	2023
Net unamortized loan origination costs		$	2,499		$	3,039
Net unamortized fair value discount on acquired loans			(2,644)			(2,891)
Total		$	(145)		$	148

We exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of June 30, 2024 and December 31, 2023, accrued interest receivable for loans totaled $13.2 million and $11.9 million, respectively, and is included in the “other assets” line item on the consolidated balance sheets.

Characteristics of each loan portfolio segment are as follows:

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

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

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

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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 US Small Business Administration. Loans are primarily paid by the operating cash flow of the borrower.

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

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

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

Allowance for Credit Losses

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

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

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


	At or for the Three Months Ended June 30, 2024
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	3,697	$	—	$	—	$	520	$	4,217
Commercial real estate owner occupied		3,081		—		—		(461)		2,620
Commercial real estate non-owner occupied		9,155		—		—		419		9,574
Tax exempt		113		—		—		(3)		110
Commercial and industrial		3,834		(18)		16		150		3,982
Residential real estate		7,651		—		3		(138)		7,516
Home equity		752		—		1		10		763
Consumer other		72		(88)		1		88		73
Total	$	28,355	$	(106)	$	21	$	585	$	28,855


	At or for the Six Months Ended June 30, 2024
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	4,261	$	—	$	—	$	(44)	$	4,217
Commercial real estate owner occupied		2,863		(3)		—		(240)		2,620
Commercial real estate non-owner occupied		9,443		—		—		131		9,574
Tax exempt		119		—		—		(9)		110
Commercial and industrial		3,259		(83)		17		789		3,982
Residential real estate		7,352		—		8		156		7,516
Home equity		767		—		4		(8)		763
Consumer other		78		(133)		29		99		73
Total	$	28,142	$	(219)	$	58	$	874	$	28,855


	At or for the Three Months Ended June 30, 2023
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	3,034	$	—	$	—	$	343	$	3,377
Commercial real estate owner occupied		2,348		—		139		79		2,566
Commercial real estate non-owner occupied		9,344		—		—		137		9,481
Tax exempt		93		—		—		8		101
Commercial and industrial		3,615		(121)		49		70		3,613
Residential real estate		7,305		(4)		7		68		7,376
Home equity		792		(12)		2		(14)		768
Consumer other		76		(62)		7		59		80
Total	$	26,607	$	(199)	$	204	$	750	$	27,362

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	At or for the Six Months Ended June 30, 2023
	Balance at
	Beginning of								Balance at
(in thousands)	Period		Charge Offs		Recoveries		Provision		End of Period
Commercial construction	$	2,579	$	—	$	—	$	798	$	3,377
Commercial real estate owner occupied		2,189		—		139		238		2,566
Commercial real estate non-owner occupied		9,341		—		—		140		9,481
Tax exempt		93		—		—		8		101
Commercial and industrial		3,493		(122)		55		187		3,613
Residential real estate		7,274		(8)		15		95		7,376
Home equity		811		(12)		4		(35)		768
Consumer other		80		(125)		8		117		80
Total	$	25,860	$	(267)	$	221	$	1,548	$	27,362

Unfunded Commitments

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


	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2024		****	2023		2024		****	2023
Beginning Balance	$	3,639		$	3,735	$	3,825		$	3,910
Provision for credit losses		—			45		(186)			(130)
Ending Balance	$	3,639		$	3,780	$	3,639		$	3,780

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

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

The following are the definitions of our credit quality indicators:

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

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

Table of Contents where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose us to sufficient risks to warrant classification.

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

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

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

Table of Contents The following table presents our loans by year of origination, loan segmentation and risk indicator as of June 30, 2024:


	****			****			****			****			****			****			****
(in thousands)		2024			2023			2022			2021			2020			Prior			Total
Commercial construction
Risk rating:
Pass		$	3,134		$	28,460		$	120,612		$	12,931		$	3,927		$	10,195		$	179,259
Special mention			—			—			—			—			—			—			—
Substandard			—			—			—			—			—			—			—
Total		$	3,134		$	28,460		$	120,612		$	12,931		$	3,927		$	10,195		$	179,259
Current period gross write-offs			—			—			—			—			—			—			—

Commercial real estate owner occupied
Risk rating:
Pass		$	2,505		$	51,829		$	61,677		$	30,689		$	19,739		$	103,496		$	269,935
Special mention			—			147			—			—			1,310			2,339			3,796
Substandard			—			—			—			—			—			3,547			3,547
Doubtful			—			—			—			—			—			107			107
Total		$	2,505		$	51,976		$	61,677		$	30,689		$	21,049		$	109,489		$	277,385
Current period gross write-offs			—			—			—			—			—			3			3

Commercial real estate non-owner occupied
Risk rating:
Pass		$	55,812		$	41,109		$	345,156		$	235,349		$	134,787		$	314,034		$	1,126,247
Special mention			—			—			9,336			21,404			27,864			19,646			78,250
Substandard			—			7,756			—			—			—			17,240			24,996
Doubtful			—			—			—			—			—			—			—
Total		$	55,812		$	48,865		$	354,492		$	256,753		$	162,651		$	350,920		$	1,229,493
Current period gross write-offs			—			—			—			—			—			—			—

Tax exempt
Risk rating:
Pass		$	1,706		$	2,820		$	6,528		$	713		$	208		$	26,143		$	38,118
Special mention			—			—			—			—			—			—			—
Substandard			—			—			—			—			—			—			—
Total		$	1,706		$	2,820		$	6,528		$	713		$	208		$	26,143		$	38,118
Current period gross write-offs			—			—			—			—			—			—			—

Commercial and industrial
Risk rating:
Pass		$	33,902		$	67,597		$	63,974		$	16,419		$	35,986		$	78,221		$	296,099
Special mention			11			15,725			1,385			997			243			3,281			21,642
Substandard			—			148			549			199			117			3,816			4,829
Doubtful			—			—			—			—			—			87			87
Total		$	33,913		$	83,470		$	65,908		$	17,615		$	36,346		$	85,405		$	322,657
Current period gross write-offs			—			—			—			62			3			18			83


Residential real estate
Performing	$	13,797	$	78,444	$	181,085	$	159,689	$	92,599	$	389,312	$	914,926
Nonperforming		—		—		469		—		—		3,183		3,652
Total	$	13,797	$	78,444	$	181,554	$	159,689	$	92,599	$	392,495	$	918,578
Current period gross write-offs		—		—		—		—		—		—		—

Home equity
Performing	$	6,765	$	15,957	$	15,632	$	7,138	$	5,977	$	38,080	$	89,549
Nonperforming		—		54		—		55		—		807		916
Total	$	6,765	$	16,011	$	15,632	$	7,193	$	5,977	$	38,887	$	90,465
Current period gross write-offs		—		—		—		—		—		—		—

Consumer other
Performing	$	3,310	$	2,229	$	1,261	$	462	$	167	$	792	$	8,221
Nonperforming		—		—		—		3		1		1		5
Total	$	3,310	$	2,229	$	1,261	$	465	$	168	$	793	$	8,226
Current period gross write-offs		—		32		3		—		2		96		133

Total Loans	$	120,942	$	312,275	$	807,664	$	486,048	$	322,925	$	1,014,327	$	3,064,181

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


	****			****			****			****			****			****			****
(in thousands)		2023			2022			2021			2020			2019			Prior			Total
Commercial construction
Risk rating:
Pass		$	14,040		$	99,115		$	35,978		$	3,992		$	—		$	923		$	154,048
Special mention			—			—			—			—			—			—			—
Substandard			—			—			—			—			—			—			—
Total		$	14,040		$	99,115		$	35,978		$	3,992		$	—		$	923		$	154,048
Current period gross write-offs			—			—			—			—			—			—			—

Commercial real estate owner occupied
Risk rating:
Pass		$	57,603		$	61,015		$	43,228		$	20,209		$	20,462		$	91,187		$	293,704
Special mention			160			387			7,488			1,596			—			3,066			12,697
Substandard			—			—			—			—			—			3,497			3,497
Doubtful			—			—			—			—			—			117			117
Total		$	57,763		$	61,402		$	50,716		$	21,805		$	20,462		$	97,867		$	310,015
Current period gross write-offs			—			—			—			—			—			—			—

Commercial real estate non-owner occupied
Risk rating:
Pass		$	41,270		$	353,613		$	199,311		$	127,231		$	78,759		$	238,973		$	1,039,157
Special mention			7,809			—			14,134			37,249			15,246			17,108			91,546
Substandard			—			—			—			—			—			13,863			13,863
Doubtful			—			—			—			—			—			—			—
Total		$	49,079		$	353,613		$	213,445		$	164,480		$	94,005		$	269,944		$	1,144,566
Current period gross write-offs			—			—			—			—			—			—			—

Tax exempt
Risk rating:
Pass		$	6,340		$	8,468		$	787		$	208		$	590		$	27,295		$	43,688
Special mention			—			—			—			—			—			—			—
Substandard			—			—			—			—			—			—			—
Total		$	6,340		$	8,468		$	787		$	208		$	590		$	27,295		$	43,688
Current period gross write-offs			—			—			—			—			—			—			—

Commercial and industrial
Risk rating:
Pass		$	80,942		$	69,402		$	22,205		$	38,824		$	14,739		$	77,273		$	303,385
Special mention			364			1,446			—			776			28			3,588			6,202
Substandard			58			94			186			109			95			532			1,074
Doubtful			—			—			—			—			87			135			222
Total		$	81,364		$	70,942		$	22,391		$	39,709		$	14,949		$	81,528		$	310,883
Current period gross write-offs			—			—			—			—			5			659			664


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

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

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

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

Table of Contents Past Dues

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


	June 30, 2024
(in thousands)	30-59		60-89		90+		Total Past Due		Current		Total Loans
Commercial construction	$	—	$	—	$	—	$	—	$	179,259	$	179,259
Commercial real estate owner occupied		—		835		—		835		276,550		277,385
Commercial real estate non-owner occupied		206		—		89		295		1,229,198		1,229,493
Tax exempt		—		—		—		—		38,118		38,118
Commercial and industrial		172		45		1,094		1,311		321,346		322,657
Residential real estate		629		222		1,123		1,974		916,604		918,578
Home equity		542		214		75		831		89,634		90,465
Consumer other		35		39		1		75		8,151		8,226
Total	$	1,584	$	1,355	$	2,382	$	5,321	$	3,058,860	$	3,064,181


	December 31, 2023
(in thousands)	30-59		60-89		90+		Total Past Due		Current		Total Loans
Commercial construction	$	—	$	—	$	—	$	—	$	154,048	$	154,048
Commercial real estate owner occupied		—		—		—		—		310,015		310,015
Commercial real estate non-owner occupied		—		—		103		103		1,144,463		1,144,566
Tax exempt		—		—		—		—		43,688		43,688
Commercial and industrial		465		59		330		854		310,029		310,883
Residential real estate		1,520		627		1,999		4,146		936,188		940,334
Home equity		600		—		337		937		86,746		87,683
Consumer other		10		2		—		12		7,820		7,832
Total	$	2,595	$	688	$	2,769	$	6,052	$	2,992,997	$	2,999,049

Non-Accrual Loans

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


	June 30, 2024
			Nonaccrual With No		90+ Days Past
(in thousands)	Nonaccrual		Related Allowance		Due and Accruing
Commercial construction	$	—	$	—	$	—
Commercial real estate owner occupied		91		—		—
Commercial real estate non-owner occupied		311		190		—
Tax exempt		—		—		—
Commercial and industrial		1,302		99		—
Residential real estate		3,652		943		34
Home equity		916		1		—
Consumer other		5		1		—
Total	$	6,277	$	1,234	$	34

Table of Contents


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

Collateral Dependent Loans

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

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


		June 30, 2024						December 31, 2023
(in thousands)	****	Real Estate		****	Other		****	Real Estate		****	Other
Commercial construction		$	—		$	—		$	—		$	—
Commercial real estate owner occupied			91			—			104			—
Commercial real estate non-owner occupied			311			—			340			—
Tax exempt			—			—			—			—
Commercial and industrial			1,302			—			229			134
Residential real estate			3,652			—			3,908			—
Home equity			916			—			808			—
Consumer other			5			—			5			—
Total		$	6,277		$	—		$	5,394		$	134

Table of Contents

Loan Modifications to Borrowers Experiencing Financial Difficulty

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

These modifications typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions.

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


(in thousands)	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Combination Interest Rate Reduction and Term Extension		% of Total Class of Loans
Three Months Ended June 30, 2024
Commercial construction	$	—	$	—	$	—	$	—	$	—	—	%
Commercial real estate owner occupied		—		—		—		—		—	—
Commercial real estate non-owner occupied		—		—		—		—		—	—
Tax exempt		—		—		—		—		—	—
Commercial and industrial		—		—		—		—		—	—
Residential real estate		—		—		—		—		—	—
Home equity		—		—		—		—		—	—
Consumer other		—		—		—		—		—	—
Total	$	—	$	—	$	—	$	—	$	—	—	%
Six Months Ended June 30, 2024
Commercial construction	$	—	$	—	$	—	$	—	$	—	—	%
Commercial real estate owner occupied		—		—		—		—		—	—
Commercial real estate non-owner occupied		—		—		—		—		—	—
Tax exempt		—		—		—		—		—	—
Commercial and industrial		—		—		—		—		—	—
Residential real estate		—		—		32		—		—	0.00
Home equity		—		—		—		—		—	—
Consumer other		—		—		—		—		—	—
Total	$	—	$	—	$	32	$	—	$	—	—

Table of Contents


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

Table of Contents The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three and six months ended June 30, 2024 and 2023.


(in thousands)	Weighted-Average Months of Payment Delay		Weighted-Average Months of Term Extension		Weighted-Average Interest Rate Reduction
Three Months Ended June 30, 2024
Commercial construction		—		—	—	%
Commercial real estate owner occupied		—		—	—
Commercial real estate non-owner occupied		—		—	—
Tax exempt		—		—	—
Commercial and industrial		—		—	—
Residential real estate		—		—	—
Home equity		—		—	—
Consumer other		—		—	—
Total		—		—	—	%
Six Months Ended June 30, 2024
Commercial construction		—		—	—	%
Commercial real estate owner occupied		—		—	—
Commercial real estate non-owner occupied		—		—	—
Tax exempt		—		—	—
Commercial and industrial		—		—	—
Residential real estate		—		64.00	—
Home equity		—		—	—
Consumer other		—		—	—
Total		—		64.00	—	%

Table of Contents


(in thousands)	Weighted-Average Months of Payment Delay		Weighted-Average Months of Term Extension		Weighted-Average Interest Rate Reduction
Three Months Ended June 30, 2023
Commercial construction		—		—	—	%
Commercial real estate owner occupied		—		—	—
Commercial real estate non-owner occupied		—		—	—
Tax exempt		—		—	—
Commercial and industrial		—		3.82	—
Residential real estate		—		—	—
Home equity		—		—	—
Consumer other		—		—	—
Total		—		3.82	—	%
Six Months Ended June 30, 2023
Commercial construction		—		—	—	%
Commercial real estate owner occupied		—		—	—
Commercial real estate non-owner occupied		—		—	—
Tax exempt		—		—	—
Commercial and industrial		—		3.82	—
Residential real estate		—		—	—
Home equity		—		—	—
Consumer other		—		—	—
Total		—		3.82	—	%

Foreclosure

There were $36 thousand of residential mortgage loans collateralized by real estate that are in the process of foreclosure as of June 30, 2024. Residential mortgage loans collateralized by real estate that are in the process of foreclosure as of December 31, 2023 totaled $430 thousand.

Mortgage Banking

Loans held for sale at June 30, 2024 had an unpaid principal balance of $3.8 million and $2.2 million as of December 31, 2023. The interest rate exposure on loans held for sale is mitigated through forward sale commitments with certain approved secondary market investors. Forward sale commitments had a notional amount of $10.9 million at June 30, 2024, and $5.0 million at December 31, 2023.

For the three months ended June 30, 2024 and 2023, we sold $8.8 million and $5.4 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $216 thousand and $16 thousand, respectively. For the six months ended June 30, 2024 and 2023, we sold $17.2 million and $6.1 million, respectively, of residential mortgage loans on the secondary market, which resulted in a net gain on sale of loans (net of costs, including direct and indirect origination costs) of $184 thousand and $8 thousand, respectively.

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

Table of Contents NOTE 4. BORROWED FUNDS

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


		June 30, 2024					December 31, 2023				****
					Weighted					Weighted
(dollars in thousands)	****	Carrying Value		****	Average Rate		Carrying Value		****	Average Rate	****
Short-term borrowings
Advances from the FHLB		$	254,300		5.46	%	$	232,300		5.46	%
Advances from the FRB BTFP			65,000		4.76			30,000		4.90
Other borrowings			9,776		0.47			8,465		0.56
Total short-term borrowings			329,076		5.18			270,765		5.22
Long-term borrowings
Advances from the FHLB			274		2.70			279		4.39
Subordinated borrowings			60,540		6.22			60,461		6.22
Total long-term borrowings			60,814		6.21			60,740		6.21
Total		$	389,890		5.34	%	$	331,505		5.40	%

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

We have the capacity to borrow funds on a secured basis utilizing the Borrower in Custody program, and the Discount Window at the Federal Reserve Bank of Boston (the “Reserve Bank”). At June 30, 2024, our available secured line of credit at the FRB was $157.3 million versus $156.6 million at December 31, 2023. We have pledged certain loans and securities to the FRB to support this arrangement.

As of June 30, 2024, we maintained a Bank Term Funding Program (the “BTFP”) balance of $65 million at a fixed rate of 4.76% with a maturity date of January 16, 2025. During the first quarter 2024, we prepaid our existing advance of $30 million at a rate of 4.85%, and entered into a new advance for $65 million at a rate of 4.76%. The BTFP was an additional source of liquidity with favorable prepayment terms, as we may prepay at any time without penalty. As announced by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) on January 24, 2024, the BTFP has ceased making new loans effective March 11, 2024.

We maintain an unused unsecured federal funds line of credit with a correspondent bank that has an aggregate overnight borrowing capacity of $40.0 million as of June 30, 2024 and December 31, 2023. There was no outstanding balance on the line of credit as of June 30, 2024 and December 31, 2023.

Long-term FHLB advances consist of advances with a remaining maturity of more than one year. The advances outstanding at June 30, 2024 include no callable advances and amortizing advances of $274 thousand. There were no callable advances outstanding and $279 thousand of amortizing advances at December 31, 2023. All FHLB borrowings, including the line of credit, are secured by a blanket security agreement on certain qualified collateral, principally residential first mortgage loans and certain securities. There are no variable rate long-term FHLB borrowings.

A summary of maturities of FHLB advances as of June 30, 2024 is, as follows:


	****			****	Weighted Average	****
(in thousands, except rates)		Amount			Rate	****
2024		$	254,300		5.46	%
Thereafter			274		2.70
Total FHLB advances		$	254,574		5.45	%

We executed a Subordinated Note Purchase Agreement with an aggregate of $40.0 million of subordinated notes (the “Notes”) to accredited investors on November 19, 2019. The Notes have a maturity date of December 1, 2029 and bear a 28

Table of Contents fixed interest rate of 4.63% 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 Secured Overnight Financing Rate (“SOFR”) plus 3.27%. We have the option beginning with the interest payment date of December 1, 2024, and on any scheduled payment date thereafter, to redeem the Notes, in whole or in part upon prior approval of the Federal Reserve. The transaction included debt issuance costs of $79 thousand as of June 30, 2024 and $158 thousand net of amortization as of December 31, 2023, which are netted against the subordinated debt.

We also have $20.6 million in floating Junior Subordinated Deferrable Interest Debentures (“Debentures”) issued by NHTB Capital Trust II (“Trust II”) and NHTB Capital Trust III (“Trust III”), which are both Connecticut statutory trusts. The Debentures issued on March 30, 2004 carry a variable interest rate of three-month SOFR 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 we are not the primary beneficiary. Accordingly, Trust II and Trust III are not consolidated into our financial statements.

Repurchase Agreements

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


(in thousands)	June 30, 2024		December 31, 2023
Customer Repurchase Agreements
US Government-sponsored enterprises	$	9,776	$	8,465
Total	$	9,776	$	8,465

Table of Contents NOTE 5. DEPOSITS

A summary of time deposits is, as follows:


(in thousands)	June 30, 2024		December 31, 2023
Time less than $100,000	$	452,609	$	381,902
Time $100,000 through $250,000		183,367		163,933
Time $250,000 or more		165,167		154,425
Total	$	801,143	$	700,260

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


(in thousands)	June 30, 2024		December 31, 2023
Within 1 year	$	778,222	$	670,961
Over 1 year to 2 years		14,621		17,000
Over 2 years to 3 years		4,424		6,932
Over 3 years to 4 years		2,479		3,434
Over 4 years to 5 years		1,283		1,795
Over 5 years		114		138
Total	$	801,143	$	700,260

Included in time deposits are brokered deposits of $281.4 million and $219.6 million at June 30, 2024 and December 31, 2023, respectively. Also included in time deposits are reciprocal deposits of $53.7 million and $43.3 million at June 30, 2024 and December 31, 2023, respectively.

Table of Contents NOTE 6. CAPITAL RATIOS AND SHAREHOLDERS’ EQUITY

The actual and required capital ratios are, as follows:


		June 30, 2024
							Minimum Regulatory
		Actual					Capital Requirements
(in thousands, except ratios)	****	Amount		****	Ratio		Amount		****	Ratio
Company (consolidated)
Total capital to risk-weighted assets		$	463,626		14.29	%	$	259,576		8.00	%
Common equity tier 1 capital to risk-weighted assets			370,512		11.42			146,011		4.50
Tier 1 capital to risk-weighted assets			391,132		12.05			194,682		6.00
Tier 1 capital to average assets (leverage ratio)			391,132		10.01			156,223		4.00

Bank
Total capital to risk-weighted assets		$	457,619		14.12	%	$	259,238		8.00	%
Common equity tier 1 capital to risk-weighted assets			425,125		13.12			145,822		4.50
Tier 1 capital to risk-weighted assets			425,125		13.12			194,429		6.00
Tier 1 capital to average assets (leverage ratio)			425,125		10.89			156,094		4.00


		December 31, 2023
							Minimum Regulatory
		Actual					Capital Requirements
(in thousands, except ratios)	****	Amount		****	Ratio		Amount		****	Ratio
Company (consolidated)
Total capital to risk-weighted assets		$	450,160		14.24	%	$	252,888		8.00	%
Common equity tier 1 capital to risk-weighted assets			357,574		11.31			142,249		4.50
Tier 1 capital to risk-weighted assets			378,194		11.96			189,666		6.00
Tier 1 capital to average assets (leverage ratio)			378,194		9.70			156,022		4.00

Bank
Total capital to risk-weighted assets		$	441,278		13.97	%	$	252,642		8.00	%
Common equity tier 1 capital to risk-weighted assets			409,312		12.96			142,111		4.50
Tier 1 capital to risk-weighted assets			409,312		12.96			189,482		6.00
Tier 1 capital to average assets (leverage ratio)			409,312		10.50			155,908		4.00

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

Table of Contents

Accumulated other comprehensive (loss) income

Components of accumulated other comprehensive loss is, as follows:


(in thousands)	****	June 30, 2024		****	December 31, 2023
Accumulated other comprehensive loss, before tax:
Net unrealized loss on AFS securities		$	(68,455)		$	(62,351)
Net unrealized loss on hedging derivatives			(2,571)			(1,322)
Net unrealized loss on post-retirement plans			(1,517)			(1,540)

Income taxes related to items of accumulated other comprehensive loss:
Net unrealized loss on AFS securities			16,142			14,702
Net unrealized loss on hedging derivatives			606			312
Net unrealized loss on post-retirement plans			308			337
Accumulated other comprehensive loss		$	(55,487)		$	(49,862)

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


(in thousands)	****	Before Tax		****	Tax Effect		****	Net of Tax
Three Months Ended June 30, 2024
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period		$	(3,457)		$	815		$	(2,642)
Less: reclassification adjustment for gains realized in net income			50			(12)			38
Net unrealized loss on AFS securities			(3,507)			827			(2,680)

Net unrealized loss on hedging derivatives:
Net unrealized loss arising during the period			(312)			73			(239)
Less: reclassification adjustment for gains (losses) realized in net income			—			—			—
Net unrealized loss on cash flow hedging derivatives			(312)			73			(239)

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		$	(3,819)		$	900		$	(2,919)

Three Months Ended June 30, 2023
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period		$	(6,057)		$	1,396		$	(4,661)
Less: reclassification adjustment for gains (losses) realized in net income			—			—			—
Net unrealized loss on AFS securities			(6,057)			1,396			(4,661)

Net unrealized gain on hedging derivatives:
Net unrealized gain arising during the period			321			(73)			248
Less: reclassification adjustment for gains (losses) realized in net income			—			—			—
Net unrealized gain on cash flow hedging derivatives			321			(73)			248

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		$	(5,736)		$	1,323		$	(4,413)

Table of Contents



(in thousands)	****	Before Tax		****	Tax Effect		****	Net of Tax
Six Months Ended June 30, 2024
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period		$	(6,054)		$	1,428		$	(4,626)
Less: reclassification adjustment for gains realized in net income			50			(12)			38
Net unrealized loss on AFS securities			(6,104)			1,440			(4,664)

Net unrealized loss on hedging derivatives:
Net unrealized loss arising during the period			(1,249)			294			(955)
Less: reclassification adjustment for gains realized in net income			—			—			—
Net unrealized loss on hedging derivatives			(1,249)			294			(955)

Net unrealized gain on post-retirement plans:
Net unrealized gain arising during the period			22			(28)			(6)
Less: reclassification adjustment for gains realized in net income			—			—			—
Net unrealized gain on post-retirement plans			22			(28)			(6)
Other comprehensive loss		$	(7,331)		$	1,706		$	(5,625)

Six Months Ended June 30, 2023
Net unrealized loss on AFS securities:
Net unrealized loss arising during the period		$	(17)		$	(18)		$	(35)
Less: reclassification adjustment for gains realized in net income			34			(8)			26
Net unrealized loss on AFS securities			(51)			(10)			(61)

Net unrealized gain on hedging derivatives:
Net unrealized gain arising during the period			1,088			(251)			837
Less: reclassification adjustment for gains realized in net income			—			—			—
Net unrealized gain on hedging derivatives			1,088			(251)			837

Net unrealized loss on post-retirement plans:
Net unrealized loss arising during the period			—			—			—
Less: reclassification adjustment for gains (losses) realized in net income			—			—			—
Net unrealized loss on post-retirement plans			—			—			—
Other comprehensive income		$	1,037		$	(261)		$	776

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


	****
	****	Net unrealized		****	Net gain (loss) on		****	Net unrealized		****
		gain (loss)			effective cash			loss
		on AFS			flow hedging			on pension
(in thousands)		Securities			derivatives			plans			Total
Three Months Ended June 30, 2024
Balance at beginning of period		$	(49,633)		$	(1,726)		$	(1,209)		$	(52,568)
Other comprehensive loss before reclassifications			(2,642)			(239)			—			(2,881)
Less: amounts reclassified from accumulated other comprehensive income			38			—			—			38
Total other comprehensive loss			(2,680)			(239)			—			(2,919)
Balance at end of period		$	(52,313)		$	(1,965)		$	(1,209)		$	(55,487)

Three Months Ended June 30, 2023
Balance at beginning of period		$	(50,646)		$	(1,205)		$	(1,300)		$	(53,151)
Other comprehensive (loss) gain before reclassifications			(4,661)			248			—			(4,413)
Less: amounts reclassified from accumulated other comprehensive income			—			—			—			—
Total other comprehensive (loss) gain			(4,661)			248			—			(4,413)
Balance at end of period		$	(55,307)		$	(957)		$	(1,300)		$	(57,564)

Six Months Ended June 30, 2024
Balance at beginning of period		$	(47,649)		$	(1,010)		$	(1,203)		$	(49,862)
Other comprehensive loss before reclassifications			(4,626)			(955)			(6)			(5,587)
Less: amounts reclassified from accumulated other comprehensive income			38			—			—			38
Total other comprehensive loss			(4,664)			(955)			(6)			(5,625)
Balance at end of period		$	(52,313)		$	(1,965)		$	(1,209)		$	(55,487)

Six Months Ended June 30, 2023
Balance at beginning of period		$	(55,246)		$	(1,794)		$	(1,300)		$	(58,340)
Other comprehensive (loss) gain before reclassifications			(35)			837			—			802
Less: amounts reclassified from accumulated other comprehensive income			26			—			—			26
Total other comprehensive (loss) gain			(61)			837			—			776
Balance at end of period		$	(55,307)		$	(957)		$	(1,300)		$	(57,564)

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


		Three Months Ended June 30,						Six Months Ended June 30,							Affected Line Item where
(in thousands)	****	2024		****	2023		****	2024		****	2023		****	****	Net Income is Presented
Net realized gains on AFS securities:
Before tax		$	50		$	—		$	50		$	34			Non-interest income
Tax effect			(12)			—			(12)			(8)			Tax expense
Total reclassifications for the period		$	38		$	—		$	38		$	26

NOTE 7. EARNINGS PER SHARE

The following table presents the calculation of earnings per share:


		Three Months Ended						Six Months Ended
		June 30,						June 30,
(in thousands, except per share and share data)	****	2024		****	2023		****	2024		****	2023
Net income		$	10,257		$	10,791		$	20,352		$	23,803

Average number of basic common shares outstanding			15,227,457			15,139,057			15,212,897			15,124,533
Plus: dilutive effect of stock options and awards outstanding			47,964			40,882			59,782			61,249
Average number of diluted common shares outstanding^(1)^			15,275,421			15,179,939			15,272,679			15,185,782

Earnings per share:
Basic		$	0.67		$	0.71		$	1.34		$	1.57
Diluted			0.67			0.71			1.33			1.57
(1)	Average diluted shares outstanding are computed using the treasury stock method.
---	---

Table of Contents NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

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

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

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

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


		June 30, 2024
					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 funding		$	75,000			0.5		$	1,670		Other assets
Interest rate swap on variable rate loans			50,000			1.7			(3,261)		Other liabilities
Total cash flow hedges			125,000						(1,591)

Fair value hedges:
Interest rate swap on securities			37,190			5.1			4,361		Other assets
Total fair value hedges			37,190						4,361

Economic hedges:
Forward sale commitments			10,850			—			15		Other assets
Customer Loan Swaps-MNA Counterparty			177,994			4.7			(16,744)		Other liabilities
Customer Loan Swaps-RPA Counterparty			152,204			4.6			—		Other liabilities
Customer Loan Swaps-Customer			330,198			4.6			16,744		Other assets
Total economic hedges			671,246						15

Non-hedging derivatives:
Interest rate lock commitments			7,467			0.1			146		Other assets
Total non-hedging derivatives			7,467						146

Total		$	840,903					$	2,931

Table of Contents


		December 31, 2023
					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 funding		$	75,000			1.0		$	2,803		Other assets
Interest rate swap on variable rate loans			50,000			2.2			(3,459)		Other liabilities
Total cash flow hedges			125,000						(656)

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

Economic hedges:
Forward sale commitments			5,000			—			(20)		Other liabilities
Customer Loan Swaps-MNA Counterparty			184,826			5.0			(14,842)		Other liabilities
Customer Loan Swaps-RPA Counterparty			142,199			4.9			—		Other liabilities
Customer Loan Swaps-Customer			327,025			4.9			14,842		Other assets
Total economic hedges			659,050						(20)

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

Total		$	824,393					$	3,231

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


	****		****			****	Cumulative Amount of Fair
		Location of Hedged Item on		Carrying Amount of Hedged			Value Hedging Adjustment in
	****	Balance Sheet	****	Assets		****	Carrying Amount
June 30, 2024
Interest rate swap on securities		Securities available for sale		$	31,849		$	(5,341)

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

Table of Contents Information about derivative assets and liabilities for the three and six months ended June 30, 2024 and 2023, follows:


	Three Months Ended June 30, 2024
	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	$	(528)	Interest expense	$	—	Interest expense	$	828
Interest rate swap on variable rate loans		262	Interest income		—	Interest income		(585)
Total cash flow hedges		(266)			—			243

Fair value hedges:
Interest rate swap on securities		28	Interest income		—	Interest income		371
Total fair value hedges		28			—			371

Economic hedges:
Forward commitments		—	Other income		—	Mortgage banking income		31
Total economic hedges		—			—			31

Non-hedging derivatives:
Interest rate lock commitments		—	Other expense		—	Mortgage banking income		90
Total non-hedging derivatives		—			—			90

Total	$	(238)		$	—		$	735

Table of Contents


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

Fair value hedges:
Interest rate swap on securities		321	Interest income		—	Interest income		330
Total economic hedges		321			—			330

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

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

Total	$	246		$	—		$	482

Table of Contents


	Six Months Ended June 30, 2024
	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	$	(866)	Interest expense	$	—	Interest expense	$	1,655
Interest rate swap on variable rate loans		151	Interest income		—	Interest income		(1,170)
Total cash flow hedges		(715)			—			485

Fair value hedges:
Interest rate swap on securities		(240)	Interest expense		—	Interest income		741
Total fair value hedges		(240)			—			741

Economic hedges:
Forward commitments		—	Other income		—	Mortgage banking income		35
Total economic hedges		—			—			35

Non-hedging derivatives:
Interest rate lock commitments		—	Other expense		—	Mortgage banking income		83
Total non-hedging derivatives		—			—			83

Total	$	(955)		$	—		$	1,344

Table of Contents


	Six Months Ended June 30, 2023
	Amount of			Amount of
	Gain (Loss)			Gain (Loss)
	Recognized in			Reclassified		Location of	Amount of
	Other		Location of Gain (Loss)	from Other		Gain (Loss)	Gain (Loss)
	Comprehensive		Reclassified from Other	Comprehensive		Recognized in	Recognized
(in thousands)	Income		Comprehensive Income	Income		Income	in Income
Cash flow hedges:
Interest rate swap on wholesale funding	$	(222)	Interest expense	$	—	Interest expense	$	1,409
Interest rate swap on variable rate loans		130	Interest income		—	Interest income		(997)
Total cash flow hedges		(92)			—			412

Fair value hedges:
Interest rate swap on securities		929	Interest income		—	Interest income		616
Total economic hedges		929			—			616

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

Non-hedging derivatives:
Interest rate lock commitments		—	Other expense		—	Mortgage banking income		(103)
Total non-hedging derivatives		—			—			(103)

Total	$	837		$	—		$	974

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


		Three Months Ended June 30, 2024
		Interest and Dividend Income					Interest Expense
(in thousands)	****	Loans		Securities and other		****	Deposits		Borrowings		****	Non-interest Income
Income and expense line items presented in the consolidated statements of income		$	40,634	$	6,204		$	14,780	$	4,299		$	9,633

The effects of cash flow and fair value hedging:

Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding			—		—			—		828			—
Interest rate swap on variable rate loans			(585)		—			—		—			—

Gain (loss) on fair value hedges:
Interest rate swap on securities			—		371			—		—			—

		Three Months Ended June 30, 2023
		Interest and Dividend Income					Interest Expense
(in thousands)	****	Loans		Securities and other		****	Deposits		Borrowings		****	Non-interest Income
Income and expense line items presented in the consolidated statements of income		$	36,917	$	5,964		$	8,590	$	5,501		$	8,980

The effects of cash flow and fair value hedging:

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

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

Table of Contents


		Six Months Ended June 30, 2024
		Interest and Dividend Income					Interest Expense
(in thousands)	****	Loans		Securities and other		****	Deposits		Borrowings		****	Non-interest Income
Income and expense line items presented in the consolidated statements of income		$	80,104	$	12,557		$	29,312	$	7,535		$	18,219

The effects of cash flow and fair value hedging:

Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding			—		—			—		1,655			—
Interest rate swap on variable rate loans			(1,169)		—			—		—			—

Gain (loss) on fair value hedges:
Interest rate swap on securities			—		741			—		—			—

		Six Months Ended June 30, 2023
		Interest and Dividend Income					Interest Expense
(in thousands)	****	Loans		Securities and other		****	Deposits		Borrowings		****	Non-interest Income
Income and expense line items presented in the consolidated statements of income		$	71,477	$	11,755		$	13,855	$	9,681		$	18,164

The effects of cash flow and fair value hedging:

Gain (loss) on cash flow hedges:
Interest rate swap on wholesale funding			—		—			—		1,409			—
Interest rate swap on variable rate loans			(997)		—			—		—			—

Gain (loss) on fair value hedges:
Interest rate swap on securities			—		616			—		—			—

Table of Contents The effect of derivatives not designated as hedging instruments on the consolidated statements of income for the three and six months ended June 30, 2024 and 2023 is as follows:


	Location of Gain (Loss) Recognized	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	in Non-interest Income	2024			2023	2024			2023
Economic hedges:
Forward commitments	Mortgage banking income	$	31	$	49	$	35	$	49

Non-hedging derivatives:
Interest rate lock commitments	Mortgage banking income		90		(111)		83		(103)

Cash flow hedges

Interest rate swaps on wholesale funding

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

Interest rate swap on variable rate loans

We have an interest rate swap that effectively fixes our interest rate on $50 million at the daily SOFR rate plus 11 basis points of based loan assets at 0.806% plus the credit spread on the loans that reprices on weighted average basis. The instrument is specifically designed to hedge the risk of changes in its cash flows from interest receipts attributable to changes in a contractually specified interest rate, on an amount of our variable rate loan assets equal to $50 million. We designated the swap as a cash flow hedge.

Fair value hedges

Interest rate swap on securities

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

Economic hedges

Forward sale commitments

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

Customer loan derivatives

We enter into customer loan derivatives to facilitate the risk management strategies for commercial banking customers. We mitigate this risk by entering into equal and offsetting loan swap agreements with highly rated third-party financial institutions. The loan swap agreements are free standing derivatives and are recorded at fair value in our consolidated 44

Table of Contents balance sheet. We are party to MNAs with our financial institutional counterparties; however, we do not offset assets and liabilities under these arrangements for financial statement presentation purposes.

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

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


		Gross Amounts Offset in the Consolidated Balance Sheet
		Derivative						Cash Collateral
(in thousands)	****	Liabilities		****	Derivative Assets		****	Pledged		****	Net Amount
As of June 30, 2024
Customer Loan Derivatives:
MNA counterparty		$	(16,744)		$	16,744		$	—		$	—
RPA counterparty			—			—			—			—
Total		$	(16,744)		$	16,744		$	—		$	—


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

Non-hedging derivatives

Interest rate lock commitments

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

Table of Contents NOTE 9. FAIR VALUE MEASUREMENTS

Recurring Fair Value Measurements

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


		June 30, 2024
	****	Level 1		****	Level 2		****	Level 3		****	Total
(in thousands)		Inputs			Inputs			Inputs			Fair Value
Available for sale securities:
Obligations of US Government-sponsored enterprises		$	—		$	1,650		$	—		$	1,650
Mortgage-backed securities:
US Government-sponsored enterprises			—			182,171			—			182,171
US Government agency			—			86,307			—			86,307
Private label			—			45,731			—			45,731
Obligations of states and political subdivisions thereof			—			106,402			—			106,402
Corporate bonds			—			90,667			—			90,667
Loans held for sale			—			3,897			—			3,897
Derivative assets			—			22,775			161			22,936
Derivative liabilities			—			(20,005)			—			(20,005)


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

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

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

Derivative Assets and Liabilities

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

Table of Contents

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

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

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

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

Table of Contents The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis for the three and six months ended June 30, 2024 and 2023:


		Assets (Liabilities)
		Interest Rate Lock			Forward
(in thousands)	****	Commitments		****	Commitments
Three Months Ended June 30, 2024
Balance at beginning of period		$	56		$	(16)
Realized gain recognized in non-interest income			90			31
Balance at end of period		$	146		$	15

Three Months Ended June 30, 2023
Balance at beginning of period		$	8		$	—
Realized gain (loss) recognized in non-interest income			28			49
Balance at end of period		$	36		$	49

Six Months Ended June 30, 2024
Balance at beginning of period		$	63		$	(20)
Realized gain recognized in non-interest income			83			35
Balance at end of period		$	146		$	15

Six Months Ended June 30, 2023
Balance at beginning of period		$	—		$	—
Realized loss recognized in non-interest income			36			49
Balance at end of period		$	36		$	49

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


		Fair Value
(in thousands,		June 30,			Valuation		Unobservable		Unobservable
except ratios)	****	2024		****	Techniques	****	Inputs	****	Input Value		****
Assets (Liabilities)
Interest Rate Lock Commitment		$	146		Pull-through Rate Analysis		Closing Ratio			93	%
					Pricing Model		Origination Costs, per loan		$	1.7
					Discount Cash Flows		Mortgage Servicing Asset			1.0	%

Forward Commitments			15		Quoted prices for similar loans in active markets		Freddie Mac pricing system			$100 to $102.8
Total		$	161

	****	Fair Value				****		****	Significant		****
		December 31,			Valuation		Unobservable		Unobservable
(in thousands, except ratios)	****	2023			Techniques	****	Inputs	****	Input Value
Assets (Liabilities)
Interest Rate Lock Commitment		$	63		Pull-through Rate Analysis		Closing Ratio			95	%
					Pricing Model		Origination Costs, per loan		$	1.7
					Discount Cash Flows		Mortgage Servicing Asset			1.0	%

Forward Commitments			(20)		Quoted prices for similar loans in active markets		Freddie Mac pricing system			$100.9 to $103.3
Total		$	43

Table of Contents Non-Recurring Fair Value Measurements

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


											Fair Value
											Measurement Date as of
		Jun 30, 2024			Dec 31, 2023			June 30, 2024			June 30, 2024
		Level 3			Level 3			Total			Level 3
(in thousands)	****	Inputs		****	Inputs		****	Gains (Losses)		****	Inputs
Assets
Individually evaluated loans		$	2,629		$	3,500		$	(871)		June 2024
Capitalized servicing rights			6,994			6,764			230		June 2024
Premises held for sale			252			1,154			(902)		June 2024
Total		$	9,875		$	11,418		$	(1,543)

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

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


(in thousands, except ratios)	****	Fair Value June 30, 2024		****	Valuation Techniques	****	Unobservable Inputs	****	Range (Weighted Average)^(a)^		****
Assets
Individually evaluated loans		$	1,752		Fair value of collateral-appraised value		Loss severity			10% to 40%
							Appraised value			$215 to $680

Individually evaluated loans			877		Discount cash flow		Discount rate			3.25% to 4.99%
							Cash flows			$317 to $510

Capitalized servicing rights			6,994		Discounted cash flow		Constant prepayment rate			6.83%
							Discount rate			10.06%

Premises held for sale			252		Fair value of asset less selling costs		Appraised value			$265
							Selling Costs			5%
Total		$	9,875
(a)	Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individual properties.
---	---



(in thousands, except ratios)	****	Fair Value December 31, 2023		****	Valuation Techniques	****	Unobservable Inputs	****	Range (Weighted Average)^(a)^
Assets
Individually evaluated loans		$	2,437		Fair value of collateral-appraised value		Loss severity			10% to 43%
							Appraised value			$80 to $965

Individually evaluated loans			1,063		Discount cash flow		Discount rate			3.25% to 7.13%
							Cash flows			$2 to $520

Capitalized servicing rights			6,764		Discounted cash flow		Constant prepayment rate			7.20%
							Discount rate			10.06%

Premises held for sale			1,154		Fair value of asset less selling costs		Appraised value			$1,223
							Selling Costs			6%
Total		$	11,418
(a)	Where dollar amounts are disclosed, the amounts represent the lowest and highest fair value of the respective assets in the population except for adjustments for market/property conditions, which represents the range of adjustments to individual properties.
---	---

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

Table of Contents

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

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

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

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

Table of Contents Summary of Estimated Fair Values of Financial Instruments

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


		June 30, 2024
		Carrying			Fair
(in thousands)	****	Amount		****	Value		****	Level 1		****	Level 2		****	Level 3
Financial Assets
Cash and cash equivalents		$	101,836		$	101,836		$	101,836		$	—		$	—
Securities available for sale			512,928			512,928			—			512,928			—
FHLB stock			14,755			14,755			—			14,755			—
Loans held for sale			3,897			3,897			—			3,897			—
Net loans			3,035,326			2,869,157			—			—			2,869,157
Accrued interest receivable			4,958			4,958			—			4,958			—
Cash surrender value of bank-owned life insurance policies			81,221			81,221			—			81,221			—
Derivative assets			22,936			22,936			—			22,775			161

Financial Liabilities
Non-maturity deposits		$	2,339,323		$	2,184,194		$	—		$	2,184,194		$	—
Time deposits			801,143			793,797			—			793,797			—
Securities sold under agreements to repurchase			74,775			74,775			—			74,775			—
FRB advances			65,000			65,000			—			65,000			—
FHLB advances			254,574			254,393			—			254,393			—
Subordinated borrowings			60,541			68,573			—			68,573			—
Derivative liabilities			20,005			20,005			—			20,005			—


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

Financial Liabilities
Non-maturity deposits		$	2,482,012		$	2,325,307		$	—		$	2,325,307		$	—
Time deposits			658,482			651,855			—			651,855			—
Securities sold under agreements to repurchase			8,465			8,465			—			8,465			—
FRB advances			30,000			30,000			—			30,000			—
FHLB advances			232,579			232,375			—			232,375			—
Subordinated borrowings			60,422			67,635			—			67,635			—
Derivative liabilities			15,607			15,607			—			15,587			20

Table of Contents NOTE 10. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

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

Disaggregation of Revenue

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


		Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	****	2024		****	2023		****	2024		****	2023
Non-interest income within the scope of ASC 606:
Trust management fees		$	3,745		$	3,498		$	6,987		$	6,589
Financial services fees			448			307			876			771
Interchange fees			1,895			1,928			3,865			3,938
Customer deposit fees			1,587			1,590			3,089			3,019
Other customer service fees			255			256			493			494
Total non-interest income within the scope of ASC 606			7,930			7,579			15,310			14,811
Total non-interest income not within the scope of ASC 606			1,703			1,401			2,909			3,353
Total non-interest income		$	9,633		$	8,980		$	18,219		$	18,164


		Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	****	2024		****	2023		****	2024		****	2023
Timing of Revenue Recognition
Products and services transferred at a point in time		$	3,969		$	3,848		$	7,895		$	7,797
Products and services transferred over time			3,961			3,731			7,415			7,014
Total		$	7,930		$	7,579		$	15,310		$	14,811

Trust Management Fees

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

Financial Services Fees

Bar Harbor Financial Services is a branch office of Osaic Institutions, Inc. (“Osaic”), a full-service third-party broker-dealer, conducting business under the assumed business name “Bar Harbor Financial Services.” Osaic is an independent registered broker-dealer and is not affiliated with the Company or its subsidiaries. We have a revenue sharing agreement with Osaic for any financial service fee income generated. Financial services fees are recognized at a point in time upon the completion of service requirements.

Interchange Fees

We earn interchange fees from transaction fees that merchants pay whenever a customer uses a debit card to make a purchase from their store. The fees are paid to the card-issuing bank to cover handling costs, fraud, bad debt costs and the 53

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

Other Customer Service Fees

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

Contract Balances from Contracts with Customers

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


	****			****
(in thousands)		June 30, 2024			December 31, 2023
Balances from contracts with customers only:
Other Assets		$	1,274		$	1,178
Other Liabilities			1,531			1,769

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

Costs to Obtain and Fulfill a Contract

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

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

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

GENERAL

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

●

Liquidity remains strong, with cash and available for sale securities representing approximately 14.1% of our total assets at June 30, 2024. We maintain the ability to access considerable sources of contingent liquidity at the FHLB and the FRB. We consider the Company's current liquidity position to be adequate to meet both short-term and long-term liquidity needs. Refer to “Liquidity and Cash Flows” for additional information.

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

●	Asset quality remains solid, with a non-performing asset to total assets of 0.16% of our total assets as of June 30, 2024 and net charge-offs of $85 thousand, reflecting our strong credit performance in midst of a challenging environment.

NON-GAAP FINANCIAL MEASURES

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

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

QUARTERLY PERFORMANCE SUMMARY

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

●	GAAP net income was $10.3 million and $0.67 per diluted share and core (Non-GAAP) net income was $10.0 million or $0.66 per diluted share compared to GAAP and core (Non-GAAP) net income of $10.8 million or $0.71 per diluted share.

●	Return on assets was 1.04% versus 1.10% and return on equity was 9.46% compared to 10.49%. The decrease in both ratios reflect higher respective average asset and equity balances and slightly lower net income driven by increased cost of funds. See the “Financial Position” section for further discussion.

●	Net interest income was $27.8 million compared to $28.8 million and net interest margin (“NIM”) was 3.09%, versus 3.22%. The decrease was primarily driven by higher cost of funds offset in part by yield expansion on earnings assets.

●	The provision for credit losses was an expense of $585 thousand compared with $750 thousand. Our credit trends continue to remain strong. Non-performing assets remain at 16 basis points of total assets while net charge-offs to average loans remain near zero.

●

Non-interest income was $9.6 million compared to $9.0 million in the same quarter 2023. Wealth management income experienced 10% growth to $4.2 million compared to $3.8 million in the in the second quarter 2023. Assets under management grew 12% in the second quarter 2024 to $2.6 billion from $2.3 billion in the second quarter 2023 driven by higher security valuations and a 2% growth in the managed accounts.

●

Non-interest expense was $24.0 million in the second quarter 2024 compared to $23.4 million in the second quarter 2023 driven by salary and benefits, and other expenses offset by the gain on sale of our Avery Lane office and lower professional services fees. Other expenses increased to $4.4 million from $4.2 million in the second quarter 2023 primarily due to increases in charitable contributions to the community, software expenses, and debit and ATM card expenses.

●	Efficiency ratio was 62.96% compared to 60.25% reflecting lower net interest income.

Table of Contents

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

●	Total assets grew $75.2 million at the end of the second quarter 2024 compared to the first quarter 2024 primarily due to loan growth and higher cash balances partially offset by lower securities available for sale at the end of the quarter.

●	Total cash and cash equivalents were $101.8 million, compared to $76.2 million at end of the first quarter 2024. Interest-earning deposits held with other banks totaled $62.2 million compared to $45.5 million at end of the first quarter and yielded 5.65% and 5.88%, respectively.

●	Securities available for sale decreased to $512.9 million compared to $527.6 million in the first quarter 2024 driven by amortizing securities pay-downs partially offset by security purchases. The weighted average yield of the total securities portfolio for the second quarter 2024 was 4.00% compared to 4.02% at the end of the previous quarter.

●	Total loans grew $52.5 million or 7% on an annualized basis. Commercial loans grew by $68.6 million or 14% annualized compared to first quarter 2024.

●	Credit quality continues to remain stable and strong. The ratio of the ACL to total loans was 0.94% for both periods. Net charge-offs continue to be insignificant and near zero.

●	Total deposits were at $3.1 billion at the end of the second quarter 2024 and first quarter 2024. We continued to see a shift from non-maturity deposits to certificate of deposit accounts (“CDs”).

●	Senior borrowings increased $59.9 million to $329.4 million from the first quarter 2024 driven by funding loan growth and liquidity.

●	The Company's book value per share was $28.81 as of June 30, 2024 compared to $28.64 as of March 31, 2024. Unrealized losses on securities, net of taxes, reduced book value per share by $3.43 and $3.26 at the end of those respective periods. Tangible book value per share (non-GAAP) was $20.68 at the end of the second quarter 2024, compared to $20.48 at the end of the first quarter 2024.

In the first quarter of 2024, we were recognized by Forbes as one of the “World’s Best Banks” for the second consecutive year. Of the 75 US-based banks to make the list, Bar Harbor Bank & Trust is one of only three banks headquartered in Northern New England.

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

Cash and cash equivalents

Total cash and cash equivalents were $101.8 million, compared to $94.8 million at year-end 2023. Interest-earning cash held with other banks totaled $62.1 million compared to $52.6 million at year-end 2023 and yielded 5.65% and 6.42%, respectively.

Securities

Securities decreased to $512.9 million compared to $534.6 million at year-end 2023 driven by $408 thousand in net amortization, and $22.0 million of amortizing securities pay-downs offset by security purchases of $18.1 million. Fair value adjustments decreased the security portfolio by $68.5 million at quarter-end compared to $62.4 million at year-end. The year to date weighted average yield of the securities portfolio was 4.00% compared to 3.85% at year-end primarily due to a run-off of lower coupon fixed-rate securities. As of quarter-end and year-end, our securities portfolio had an average life of nine years with an effective duration of five years and all securities remain classified as available for sale to provide flexibility in asset funding and other opportunities as they arise.

Table of Contents Loans

Total loans grew 4%, on an annualized basis to $3.1 billion. Commercial loans grew by $103.7 million driven by an $82.6 million or 11% increase in commercial real estate and $21.1 million or 11% increase in commercial and industrial growth. Residential loans decreased by $35.2 million or 7% compared to the fourth quarter 2023, primarily due to continued lower demand for prevailing mortgage rates. Tax exempt loans decreased by $6.2 million or 21% driven by payoffs within the second quarter 2024.

Allowance for Credit Losses

The ACL increased to $28.9 million at the end of second quarter 2024 compared to $28.1 million at the end of the fourth quarter 2023. Our ACL continues to be driven by a combination of portfolio loan growth, nominal credit movement and general macroeconomic trends. Non-accruing loans increased during the second quarter 2024 to $6.3 million from $5.5 million in the fourth quarter 2023, but declined 6% on a year-over-year basis. Charge-offs and specific reserves on non-accruing loans remain nominal, with these non-accruing relationships supported by relatively strong collateral values.

Deposits and Borrowings

Total deposits were flat at $3.1 billion. Time deposits increased by $100.9 million primarily due to remix into higher yielding deposit categories. Weighted average yield on time deposits increased to 4.25% from 2.14% as of the fourth quarter 2023. Brokered CDs increased by $73.1 million compared to year end. Interest bearing demand deposits decreased $64.9 million at a weighted average yield of 1.39% compared to 1.33% as of the fourth quarter 2023. Non-interest bearing demand deposits decreased $16.6 million compared to the fourth quarter 2023. Senior borrowings increased $58.3 million to $329.3 million in the second quarter 2024 compared to $271.0 million at the end of the fourth quarter 2023.

Equity

Total equity was $438.9 million at June 30, 2024 compared with $432.1 million at year-end. Tangible book value per share (non-GAAP) was $20.68 at June 30, 2024 compared with $20.28 at year-end. Equity including Fair value adjustments decreased the security portfolio by $68.5 million at quarter-end compared to $62.4 million at year-end.

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

Net Income

Net income in the second quarter 2024 was $10.3 million, compared to $10.8 million. Diluted earnings per share was $0.67, compared to $0.71. Net income for the first half of 2024 was $20.4 million, or $1.33 per diluted share compared to $23.8 million, or $1.57 per diluted share, in the same period of 2023. The decrease was primarily driven by a higher cost of funds partially offset by rising asset yields in the second quarter and first half of 2024.

Interest and Dividend Income

Total interest and dividend income in the second quarter 2024 increased by $4.0 million or 9.23% to $46.8 million compared to $42.8 million in the second quarter 2023 primarily driven by the repricing of adjustable loans and originations of higher fixed rate loans within the commercial portfolio. The yield on commercial real estate loans grew to 5.61% at the end of the second quarter 2024 from 5.21% in the second quarter 2023. Commercial and industrial yield grew to 6.76% at the end of the second quarter 2024 compared to 6.42% at the end of the second quarter 2023. Increases in yields were driven by the current rate environment.

Total interest and dividend income in the first half 2024 increased by $9.4 million or 11.33% to $92.7 million compared to $83.2 million in comparative prior year primarily driven by the growth in the portfolio driven by originations of higher fixed rate loans and the repricing of the adjustable loans within the commercial portfolio. The yield on commercial real estate loans grew to 5.53% at the end of the first half 2024 from 5.14% in the first half 2023. Commercial and industrial yield grew to 6.71% at the end of the first half 2024 compared to 6.14% at the end of the first half 2023. Increases in yields were driven by the current rate environment.

Table of Contents Net Interest Income

NIM in the second quarter 2024 was 3.09% compared to 3.22% in the second quarter 2023. The yield on loans grew to 5.41% in the second quarter 2024, up from 4.99% in the same quarter 2023. Costs of interest-bearing deposits increased to 2.35% from 1.45% in the second quarter 2023. Borrowings decreased $69.5 million from the second quarter 2023 compounded with a decrease in yields on interest bearing liabilities to 4.57% in the second quarter 2024.

NIM in the first half of 2024 was 3.12% compared to 3.39% in the first half of 2023. The yield on loans grew to 5.36% in the first half 2024, up from 4.90% in the comparative period 2023. Costs of interest-bearing deposits increased to 2.30% from 1.18% in the first half 2023. Borrowings decreased $69.5 million from the second quarter 2023 compounded with a decrease in yields on interest bearing liabilities to 4.45% in the first half 2024.

The decrease in both periods was primarily driven by higher cost of funds partially offset by lower borrowing costs. Competitive pricing within the interest rate environment and a $186 million growth in interest-bearing deposit balances year-over-year showing a deposit mix shift from non-maturity deposits to CDs.

Provision for Credit Losses

The provision for credit losses in the second quarter 2024 was $585 thousand compared to $750 thousand in the second quarter 2023 as net charge-offs to total loans continue to remain nominal. Non-accruing loans to total loans declined to 0.20% at the end of second quarter 2024 compared to 0.22% in the second quarter 2023.

The provision for credit losses in the first half 2024 was $874 thousand compared to $1.5 million in the second quarter first half 2023. The increase ACL balance in the first half of 2023 was largely due to loan growth, however, the ratio of ACL to total loans increased to 0.94% in the first half of 2024 from 0.91% at the end of 2023 due to more refined economic forecasting, especially in the national unemployment figures. Net charge-offs to total loans were $161 thousand compared to $49 thousand in the first half of 2023.

Non-Interest Income

Non-interest income was $9.6 million in the second quarter 2024 compared to $9.0 million in the same quarter 2023. Wealth management income grew 10% to $4.2 million compared to $3.8 million in the in the second quarter 2023. Assets under management grew 12% in the second quarter 2024 to $2.6 billion from $2.3 billion in the second quarter 2023 driven by higher security valuations and a 2% growth in the managed accounts. Mortgage banking income increased $180 thousand compared to the second quarter 2023 driven by increased margins on our held–for-sale mortgage business.

Non-interest income remained flat $18.2 million in the first half of 2024 and 2023. Wealth management income grew $503 thousand to $7.9 million compared to $7.4 million in the in the first half 2023 driven by the same reasons as discussed in the quarterly above. BOLI income decreased $503 thousand driven by timing of one-time death benefits that occurred during the first quarter 2023. Mortgage banking income increased $157 thousand compared to the first half 2023 driven by increased volume and margins on our held–for-sale mortgage business.

Non-Interest Expense

Non-interest expense was $24.0 million in the second quarter 2024 compared to $23.4 million in the second quarter 2023 driven by salary and benefits, and other expenses partially offset by the gain on sale of our Avery Lane office and lower professional services fees. Salary and benefit expenses increased 5% or $637 thousand from the comparative quarter 2023 driven in part by stock compensation due to increases in stock price and lower loan origination fee deferrals in the second quarter 2024. Other expenses increased to $4.4 million from $4.2 million in the second quarter 2023 primarily due to increases in charitable contributions to the community, software expenses, and debit and ATM card expenses.

Non-interest expense in the first half of 2024 was $47.7 million compared to $46.1 million driven by the same reasons as discussed in the quarterly period above.

Income Tax Expense

Income tax expense was $2.5 million in the second quarter 2024 compared with $2.8 million in the prior year quarter. The effective tax rate was 19.8% the second quarter 2024 compared to 20.8% the second quarter 2023. 59

Table of Contents Income tax expense for the first half of 2024 was $5.1 million compared with $6.4 million in the prior year first half. The effective tax rate was 20.0% the first half 2024 compared to 21.2% the first half 2023.

Liquidity and Cash Flows

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

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

As of June 30, 2024, available same-day liquidity totaled approximately $1.2 billion, including cash, borrowing capacity at FHLB and the Federal Reserve Discount Window and various lines of credit. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from our amortizing securities and loan portfolios. As of June 30, 2024, we had unused borrowing capacity at the FHLB of $364.8 million, unused borrowing capacity at the Federal Reserve of $92.3 million and unused lines of credit totaling $41.0 million, in addition to $101.8 million in cash.

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

Capital Resources

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

We expect to continue our current practice of paying quarterly cash dividends with respect to our common stock subject to our Board of Directors’ discretion to modify or terminate this practice at any time and for any reason without prior notice. We believe our quarterly dividend rate per share as approved by our Board of Directors, enables us to balance our multiple objectives of managing our business and returning a portion of our earnings to our shareholders. Historically, and a practice we intend to continue, our principal cash expenditure is the payment of dividends on our common stock, if as and when declared by our Board of Directors. Dividends were paid to our shareholders in the aggregate amount of $8.7 million and $8.1 million for the six months ended June 30, 2024 and 2023, respectively. All dividends declared and distributed by us will be in compliance with applicable state corporate law and regulatory requirements.

Off-Balance Sheet Arrangements

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

Our off-balance sheet arrangements are limited to standby letters of credit whereby the Bank guarantees the obligations or performance of certain customers. These letters of credit are sometimes issued in support of third-party debt. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and such letters of credit are subject to the same origination, portfolio maintenance and management 60

Table of Contents procedures in effect to monitor other credit products. The amount of collateral obtained, if deemed necessary by the Bank upon issuance of a standby letter of credit, is based upon management's credit evaluation of the customer.

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

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements were prepared in accordance with GAAP and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1—“Summary of Significant Accounting Policies” of the Consolidated Financial Statements to our Form 10-K. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the Consolidated Financial Statements. These factors include among other things, whether the policy requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our Consolidated Financial Statements are presented in the section titled “Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” included in our Form 10-K. There have been no significant changes in our application of critical accounting policies and estimates since December 31, 2023. Refer to Note 1 – “Basis of Presentation - Recent Accounting Pronouncements” of the consolidated financial statements for discussion of accounting pronouncements issued but yet to be adopted and implemented.

Table of Contents SELECTED FINANCIAL DATA

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


		Three Months Ended						Six Months Ended
		June 30,						June 30,
	****	2024		****	2023		****	2024		****	2023		****
PER SHARE DATA
Net earnings, diluted		$	0.67		$	0.71		$	1.33		$	1.57
Adjusted earnings, diluted^(1)^			0.66			0.71			1.31			1.56
Total book value			28.81			27.12			28.81			27.11
Tangible book value per share^(1)^			20.68			18.88			20.68			18.87
Market price at period end			26.88			24.64			26.88			24.64
Dividends			0.30			0.28			0.58			0.54

PERFORMANCE RATIOS^(2)^
Return on assets			1.04	%		1.10	%		1.04	%		1.23	%
Adjusted return on assets^(1)^			1.02			1.09			1.02			1.22
Pre-tax, pre-provision return on assets			1.36			1.47			1.34			1.64
Adjusted pre-tax, pre-provision return on assets ^(1)^			1.33			1.46			1.32			1.63
Return on equity			9.46			10.49			9.39			11.71
Adjusted return on equity^(1)^			9.25			10.42			9.22			11.67
Return on tangible equity			13.44			15.28			13.35			17.10
Adjusted return on tangible equity^(1)^			13.15			15.19			13.12			17.04
Net interest margin, fully taxable equivalent^(1) (3)^			3.09			3.22			3.12			3.39
Efficiency ratio^(1)^			62.96			60.25			62.93			57.40

FINANCIAL DATA (In millions)
Total assets		$	4,034		$	4,029		$	4,034		$	4,029
Total earning assets^(4)^			3,726			3,716			3,726			3,716
Total investments			528			556			528			556
Total loans			3,064			3,007			3,064			3,007
Allowance for credit losses			29			27			29			27
Total goodwill and intangible assets			124			125			124			125
Total deposits			3,140			3,090			3,140			3,090
Total shareholders' equity			439			411			439			411
Net income			10			11			20			24
Adjusted income^(1)^			10			11			20			24

ASSET QUALITY AND CONDITION RATIOS
Net charge-offs (recoveries) (annualized)/average loans			0.01	%		—	%		0.01	%		0.01	%
Allowance for credit losses/total loans			0.94			0.91			0.94			0.91
Loans/deposits			98			97			98			97
Shareholders' equity to total assets			10.88			10.20			10.88			10.20
Tangible shareholders' equity to total tangible assets^(1)^			8.06			7.32			8.06			7.32
(1)	Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Form 10-Q for additional information.
---	---
(2)	All performance ratios are annualized and are based on average balance sheet amounts, where applicable.
---	---
(3)	Fully taxable equivalent considers the impact of tax-advantaged investment securities and loans.
---	---
(4)	Earning assets includes non-accruing loans and securities are valued at amortized cost.
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Table of Contents

CONSOLIDATED LOAN AND DEPOSIT ANALYSIS (UNAUDITED)

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

LOAN ANALYSIS


																	Annualized
																	Growth %
																	Quarter		Year
(in thousands, except ratios)	****	Jun 30, 2024		****	Mar 31, 2024		****	Dec 31, 2023		****	Sep 30, 2023		****	Jun 30, 2023		****	to Date		to Date
Commercial real estate		$	1,634,658		$	1,574,802		$	1,552,061		$	1,548,835		$	1,551,748		15	%	11	%
Commercial and industrial			421,297			412,567			400,169			391,347			388,430		8		11
Total commercial loans			2,055,955			1,987,369			1,952,230			1,940,182			1,940,178		14		11

Residential real estate			854,718			873,213			889,904			896,757			907,741		(8)		(7)
Consumer			99,776			95,838			97,001			95,160			96,947		16		6
Tax exempt and other			53,732			55,252			59,914			60,692			62,614		(11)		(21)
Total loans		$	3,064,181		$	3,011,672		$	2,999,049		$	2,992,791		$	3,007,480		7	%	4	%

DEPOSIT ANALYSIS


																	Annualized
																	Growth %
																	Quarter		Year
(in thousands, except ratios)	****	Jun 30, 2024		****	Mar 31, 2024		****	Dec 31, 2023		****	Sep 30, 2023		****	Jun 30, 2023		****	to Date		to Date
Non-interest bearing demand		$	553,067		$	544,495		$	569,714		$	618,421		$	602,667		6	%	(6)	%
Interest-bearing demand			882,068			888,591			946,978			929,481			911,488		(3)		(14)
Savings			544,980			551,493			553,963			572,271			588,769		(5)		(3)
Money market			359,208			365,289			370,242			361,839			351,762		(7)		(6)
Total non-maturity deposits			2,339,323			2,349,868			2,440,897			2,482,012			2,454,686		(2)		(8)
Time			801,143			777,208			700,260			658,482			635,559		12		29
Total deposits		$	3,140,466		$	3,127,076		$	3,141,157		$	3,140,494		$	3,090,245		2	%	—	%

Table of Contents AVERAGE BALANCES AND AVERAGE YIELDS/RATES (UNAUDITED)

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


	****	Three Months Ended June 30,
		2024								2023
		Average						Yield/	****	Average						Yield/	****
(in thousands, except ratios)	****	Balance		****	Interest^(3)^		****	Rate^(3)^	****	Balance		****	Interest^(3)^		****	Rate^(3)^	****
Assets
Interest-earning deposits with other banks		$	27,407		$	385		5.65	%	$	21,440		$	299		5.59	%
Securities available for sale and FHLB stock^(2)(3)^			606,779			6,038		4.00			636,088			5,888		3.71
Loans:
Commercial real estate			1,600,253			22,302		5.61			1,536,035			19,960		5.21
Commercial and industrial			468,052			7,867		6.76			434,384			6,958		6.42
Residential			865,412			8,879		4.13			911,788			8,537		3.76
Consumer			97,371			1,757		7.26			97,518			1,621		6.67
Total loans ^(1)^			3,031,088			40,805		5.41			2,979,725			37,076		4.99
Total earning assets			3,665,274			47,228		5.18	%		3,637,253			43,263		4.77	%
Other assets			294,475								293,449
Total assets		$	3,959,749							$	3,930,702

Liabilities
Interest-bearing demand		$	858,657		$	2,962		1.39	%	$	885,091		$	2,081		0.94	%
Savings			542,950			875		0.65			602,724			559		0.37
Money market			355,731			2,589		2.93			423,013			2,657		2.52
Time			775,932			8,354		4.33			468,188			3,293		2.82
Total interest bearing deposits			2,533,270			14,780		2.35			2,379,016			8,590		1.45
Borrowings			378,121			4,299		4.57			466,402			5,501		4.73
Total interest bearing liabilities			2,911,391			19,079		2.64	%		2,845,418			14,091		1.99	%
Non-interest bearing demand deposits			546,448								608,180
Other liabilities			65,712								64,346
Total liabilities			3,523,551								3,517,944

Total shareholders' equity			436,198								412,758

Total liabilities and shareholders' equity		$	3,959,749							$	3,930,702

Net interest spread								2.55	%							2.78	%
Net interest margin^^								3.09								3.22
(1)	The average balances of loans include non-accrual loans and unamortized deferred fees and costs.
---	---
(2)	The average balance for securities available for sale is based on amortized cost.
---	---
(3)	Fully taxable equivalent considers the impact of tax-advantaged securities and loans.
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Table of Contents


		Six Months Ended June 30,
		2024								2023
		Average			Interest			Yield/		Average			Interest			Yield/
(in millions, except ratios)	****	Balance		****	^(3)^		****	Rate^(3)^		Balance		****	^(3)^		****	Rate^(3)^
Assets
Interest-earning deposits with other banks		$	34,010		$	920		5.44	%	$	22,506			508		4.55	%
Securities available for sale and FHLB stock^(2)(3)^			590,651			12,078		4.11			623,488			11,695		3.78
Loans:
Commercial real estate			1,581,490			43,489		5.53			1,522,470			38,823		5.14
Commercial and industrial^(3)^			466,890			15,585		6.71			425,676			12,967		6.14
Residential			874,013			17,883		4.11			906,979			16,797		0.73
Consumer			96,928			3,483		7.23			98,817			3,193		6.52
Total loans ^(1)^			3,019,321			80,440		5.36			2,953,942			71,780		4.90
Total earning assets			3,643,982			93,438		5.16	%		3,599,936			83,983		4.70	%
Cash and due from banks			31,106								32,174
Allowance for credit losses			(28,363)								(26,497)
Other assets			305,508								305,677
Total assets		$	3,952,233							$	3,911,290

Liabilities
Interest-bearing demand		$	879,122		$	5,962		1.36	%	$	885,317			3,187		0.73	%
Savings			547,604			1,738		0.64			622,662			1,044		0.34
Money market			372,961			5,575		3.01			447,543			5,198		2.34
Time			758,935			16,037		4.25			416,849			4,425		2.14
Total interest bearing deposits			2,558,622			29,312		2.30			2,372,371			13,854		1.18
Borrowings			340,333			7,535		4.45			432,867			9,681		4.51
Total interest bearing liabilities			2,898,955			36,847		2.56	%		2,805,238			23,535		1.69	%
Non-interest bearing demand deposits			550,734								628,663
Other liabilities			66,582								67,437
Total liabilities			3,516,271								3,501,338

Total shareholders' equity			435,962								409,952

Total liabilities and shareholders' equity		$	3,952,233							$	3,911,290

Net interest spread								2.60	%							3.01	%
Net interest margin								3.12								3.39

(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 RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED)

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


	****	****

				Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	****	Calculations	****		2024	****		2023	****		2024	****		2023
Net income				$	10,257		$	10,791		$	20,352		$	23,803
Non-recurring items:
Gain on sale of securities, net					(50)			—			(50)			(34)
Gain on sale of premises and equipment, net					(248)			(86)			(263)			(99)
Acquisition, conversion and other expenses					—			—			20			20
Income tax expense ^(1)^					71			20			(61)			28
Total non-recurring items					(227)			(66)			(354)			(85)
Total adjusted income^(2)^		(A)		$	10,030		$	10,725		$	19,998		$	23,718

Net interest income		(B)		$	27,759		$	28,790		$	55,814		$	59,696
Plus: Non-interest income					9,633			8,980			18,219			18,164
Total Revenue					37,392			37,770			74,033			77,860
Gain on sale of securities, net					(50)			—			(50)			(34)
Total adjusted revenue^(2)^		(C)		$	37,342		$	37,770		$	73,983		$	77,826

Total non-interest expense				$	24,018		$	23,392		$	47,706		$	46,096
Non-recurring expenses:
Gain on sale of premises and equipment, net					248			86			263			99
Acquisition, conversion and other expenses					—			—			(20)			(20)
Total non-recurring expenses					248			86			243			79
Adjusted non-interest expense^(2)^		(D)		$	24,266		$	23,478		$	47,949		$	46,175

Total revenue					37,392			37,770			74,033			77,860
Total non-interest expense					24,018			23,392			47,706			46,096
Pre-tax, pre-provision net revenue				$	13,374		$	14,378		$	26,327		$	31,764

Adjusted revenue^(2)^					37,342			37,770			73,983			77,826
Adjusted non-interest expense^(2)^					24,266			23,478			47,949			46,175
Adjusted pre-tax, pre-provision net revenue^(2)^		(U)		$	13,076		$	14,292		$	26,034		$	31,651

(in millions)
Average earning assets		(E)		$	3,665		$	3,637		$	3,644		$	3,600
Average assets		(F)			3,960			3,931			3,952			3,911
Average shareholders' equity		(G)			436			413			436			410
Average tangible shareholders' equity^(2)(3)^		(H)			312			288			312			410
Tangible shareholders' equity, period-end^(2)(3)^		(I)			312			286			315			283
Tangible assets, period-end^(2)(3)^		(J)			3,910			3,904			3,910			3,904

Table of Contents


				Three Months Ended June 30,						Six Months Ended June 30,
		Calculations	****		2024	****		2023	****		2024	****		2023
(in thousands)
Common shares outstanding, period-end		(K)			15,232			15,144			15,232			15,125
Average diluted shares outstanding		(L)			15,275			15,180			15,273			15,186

Adjusted earnings per share, diluted^(2)^		(A/L)		$	0.66		$	0.71		$	1.31			1.57
Tangible book value per share, period-end^(2)^		(I/K)			20.68			18.88			20.68			18.88
Securities adjustment, net of tax^(1)(4)^		(M)			(52,313)			(55,307)			(52,313)			(55,307)
Tangible book value per share, excluding securities adjustment^(2)(4)^		(I+M)/K			24.12			22.53			24.12			22.53
Total tangible shareholders' equity/total tangible assets^(2)^		(I/J)			8.06			7.32			8.06			7.45

Performance ratios^(5)^
Return on assets					1.04	%		1.10	%		1.04	%		1.23
Core return on assets^(2)^		(A/F)			1.02			1.09			1.02			1.22
Pre-tax, pre-provision return on assets					1.36			1.47			1.34			1.64
Adjusted pre-tax, pre-provision return on assets^(2)^		(U/F)			1.33			1.63			1.32			1.63
Return on equity					9.46			10.49			9.39			11.71
Core return on equity^(2)^		(A/G)			9.25			10.42			9.22			11.67
Return on tangible equity					13.44			15.28			13.35			17.10
Adjusted return on tangible equity^(1)(2)^		(A+Q)/H			13.15			15.19			13.12			17.04
Efficiency ratio^(1)(2)(6)^		(D-O-Q)/(C+N)			62.96			60.25			62.93			57.40
Net interest margin		(B+P)/E			3.09			3.22			3.12			3.39

Supplementary data (in thousands)
Taxable equivalent adjustment for efficiency ratio		(N)		$	528		$	539		$	1,051		$	1,266
Franchise taxes included in non-interest expense		(O)			191			163			261			311
Tax equivalent adjustment for net interest margin		(P)			389			382			777			750
Intangible amortization		(Q)			233			233			466			466
(1)	Assumes a marginal tax rate of 23.82% in the second quarter of 2024 and 24.01% for the first quarter 2024 and 23.80% for 2023.
---	---
(2)	Non-GAAP financial measure.
---	---
(3)	Tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. Tangible assets is computed by taking total assets less the intangible assets at period-end.
---	---
(4)	Securities adjustment, net of tax represents the total unrealized losses and gains on available-for-sale securities recorded on our consolidated balance sheets within total common shareholders' equity.
---	---
(5)	All performance ratios are based on average balance sheet amounts, where applicable.
---	---
(6)	Efficiency ratio is computed by dividing core non-interest expense net of franchise taxes and intangible amortization divided by core revenue on a fully taxable equivalent basis.
---	---

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

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

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

Interest Rate Risk

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

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

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

Interest Rate Sensitivity Modeling:

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

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

The simulation models a parallel and pro rata shift in rates over a 12-month period. Using this approach, we are able to produce simulation results that illustrate the effect that both a gradual “rate ramp” and a “rate shock” have on earnings 68

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

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

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


Change in Interest Rates-Basis Points (Rate Ramp)	1 - 12 Months			13 - 24 Months
(in thousands, except ratios)	Change	% Change		Change	% Change
At June 30, 2024
-200		(4.6)	%		(9.9)	%
-100		(2.5)			(4.9)
+100		1.8			3.5
+200		3.6			6.8
At June 30, 2023
-200		(3.3)	%		(8.6)	%
-100		(1.7)			(3.9)
+100		0.9			2.2
+200		1.7			3.9

All values are in US Dollars.

Assuming short-term and long-term interest rates decline 200 basis points from current levels (i.e., a parallel yield curve shift) over the next twelve months and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will deteriorate over the one year horizon while deteriorating further from that level over the two-year horizon.

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

As compared to June 30, 2023, asset sensitivity has increased in both year one and year two.

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

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

Table of Contents ITEM 4. CONTROLS AND PROCEDURES

(a)	Disclosure controls and procedures.

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

(b)	Changes in internal control over financial reporting.

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

We believe there were no material changes to the risk factors discussed in Part I, Item 1A. “Risk Factors” of our

Form 10-K.

Table of Contents ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

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

ITEM 5. OTHER INFORMATION

During the quarter ended June 30, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" as such terms are defined in Item 408(a) of Regulation S-K.

Table of Contents ITEM 6. EXHIBITS






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

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

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

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

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

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

*Filed herewith

**Furnished herewith

Table of Contents SIGNATURES

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


	BAR HARBOR BANKSHARES


Dated: August 7, 2024	By:	/s/ Curtis C. Simard
		Curtis C. Simard
		President & Chief Executive Officer<br><br>(Principal Executive Officer)


Dated: August 7, 2024		/s/ Josephine Iannelli
		Josephine Iannelli
		Executive Vice President & Chief Financial Officer<br><br>(Principal Financial and Accounting Officer)

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO RULES 13a-14 AND 15d-14 OF THE SECURITIES EXCHANGE ACT

OF 1934 AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Curtis C. Simard, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Bar Harbor Bankshares (the “Registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
---	---
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
---	---
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
---	---
(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
---	---
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
(c)	Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
---	---
(d)	Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
---	---
5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
---	---
(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
---	---
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
---	---


Date: August 7, 2024		/s/ Curtis C. Simard

	Name:	Curtis C. Simard
	Title:	President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO RULES 13a-14 AND 15d-14 OF THE SECURITIES EXCHANGE ACT

OF 1934 AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Josephine Iannelli, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Bar Harbor Bankshares (the “Registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
---	---
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
---	---
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
---	---
(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
---	---
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
(c)	Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
---	---
(d)	Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
---	---
5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
---	---
(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
---	---
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
---	---


Date: August 7, 2024		/s/ Josephine Iannelli

	Name:	Josephine Iannelli
	Title:	Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Bar Harbor Bankshares (the “Registrant”) for the quarterly period ended June 30, 2024 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Curtis C. Simard, President and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.


Date: August 7, 2024		/s/ Curtis C. Simard

	Name:	Curtis C. Simard
	Title:	President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Bar Harbor Bankshares (the “Registrant”) for the quarterly period ended June 30, 2024 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I, Josephine Iannelli, Executive Vice President and Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

t
Date: August 7, 2024		/s/ Josephine Iannelli

	Name:	Josephine Iannelli
	Title:	Executive Vice President and Chief Financial Officer