UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the fiscal year ended
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol |
| Name of each exchange on which registered |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
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).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, or "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)
Large 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes
The aggregate market value of the common stock held by non-affiliates of Bar Harbor Bankshares was $
The Registrant had
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 17, 2022 are incorporated by reference into Part III, Items 10-14 of this Annual Report on Form 10-K.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
FORM 10-K
INDEX
The Company 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 "our company, "our," "us," "we" and similar terms refer to Bar Harbor Bankshares and its subsidiaries, including the Bank, collectively.
2
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not historical facts may constitute forward- looking statements within the meaning of Section 27A of the Securities Act of 1933 ("Securities Act") and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act") and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that Bar Harbor Bankshares files with the Securities and Exchange Commission ("SEC"). All risk factors set forth in Item 1A of this report should be considered in evaluating forward-looking statements, which speak only as of the dates on which they were made. The Company is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. The Company qualifies all of its forward-looking statements by these cautionary statements.
GENERAL
Bar Harbor Bankshares (the "Company") is the parent company of Bar Harbor Bank & Trust (the "Bank”), which is the only community bank headquartered in Northern New England with branches in Maine, New Hampshire and Vermont. The Bank is a regional community bank that thinks differently about banking. We provide the technology offerings and capabilities of larger banks, accompanied by access to local decision makers who are acutely focused on their local markets. As we celebrate the 135th anniversary of our founding, we remain focused on helping our customers achieve their goals as the key to the Bank’s success. We deliver banking, lending and wealth management services from more than 50 locations. The Company’s corporate goal is to be one of the top performing in New England, and its business model is centered on the following:
● | Employee and customer experience is the foundation of superior performance, which leads to significant financial benefit to shareholders |
● | Geography, heritage, and performance are key while remaining true to a community-focused culture |
● | Strong commitment to risk management while balancing growth and earnings |
● | Service and sales driven culture with a focus on core business growth |
● | Fee income is fundamental to the Company’s profitability through wealth management and treasury management services, customer derivatives, and secondary market mortgage sales |
● | Investment in processes, products, technology, training, leadership, and infrastructure |
● | Expansion of the Company’s brand and business to deepen market presence |
● | Opportunity and growth for existing employees while adding catalyst recruits across all levels of the Company |
3
Shown below is a profile and geographical footprint of the Bank as of December 31, 2021:
The Bank serves affluent and growing markets in Maine, New Hampshire and Vermont with more than 49 thousand, 47 thousand and 24 thousand customers, respectively. Within these markets, tourism, agriculture and fishing industries remain strong and continue to drive economic activity. These core markets have also maintained their strength through diversification into various service industries.
Maine
The Bank operates 22 full-service branches and two wealth management offices principally located in the regions of downeast, midcoast and central Maine, which can generally be characterized as rural areas. The Bank also has a commercial loan office in Portland, Maine. In Maine, the Bank considers its primary market areas to be Hancock, Penobscot, Washington, Kennebec, Knox and Sagadahoc counties. The economies in these counties are based primarily on tourism, healthcare, fishing and lobstering, agriculture, state government, and small local businesses and are also supported by a large contingent of retirees.
New Hampshire
The Bank operates 21 full-service branches and three wealth management offices in New Hampshire located in the regions of Lake Sunapee, Upper Valley and Merrimack Valley. There are several distinct markets within each of these regions. The towns or cities of Nashua, Manchester, and Concord are considered part of the Merrimack Valley. Nashua, New Hampshire is a regional commercial, entertainment and dining destination and with its border with Massachusetts, also enjoys a vibrant high-tech industry and a robust retail industry due in part to the state’s absence of a sales tax. The upper valley region of New Hampshire includes the towns of Lebanon and Hanover, which are home to Dartmouth-Hitchcock Medical Center and Dartmouth College, respectively. The Lake Sunapee market is a popular year-round recreation and resort area that includes both Lake Sunapee and Mount Sunapee and includes the towns of Claremont, New London, and Newport.
Vermont
The Bank operates 10 full-service branches in Vermont. The branches are primarily located in central Vermont within the counties of Rutland, Windsor and Orange. These markets are home to many attractions, including Killington Mountain, Okemo Resort, and the city of Rutland. Popular vacation destinations in this region include Woodstock, Brandon, and Ludlow.
4
SUBSIDIARY ACTIVITIES
Bar Harbor Bankshares is a legal entity separate and distinct from its first-tier bank subsidiary, Bar Harbor Bank & Trust, and its second-tier subsidiaries, Bar Harbor Trust Services, Charter Trust Company and Cottage Street Corporation. Under Charter Trust Company are third-tier subsidiaries Charter Holding Corporation and Charter New England Agency.
The Company also owns all of the common stock of two Connecticut statutory trusts. These capital trusts are unconsolidated and their only material asset is a $20.6 million trust preferred security related to the junior subordinated debentures reported in Note 7 – Borrowed Funds of the Consolidated Financial Statements.
AVAILABLE INFORMATION
The Company is required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, or SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those documents filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are also available free of charge on the Company’s website at www.barharbor.bank under the Shareholders Relations link as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.
Investors should note that the Company currently announces material information to investors and others using SEC filings, press releases and postings on the Company’s website (www.barharbor.bank), including news and announcements regarding the Company’s financial performance, key personnel, brands and business strategy. Information posted on the corporate website could be deemed material to investors. The Company encourages investors to review the information posted on these channels. Updates may be made, from time to time, to the list of channels used to communicate information that could be deemed material and any such change will be posted on www.barharbor.bank. The information on the website is not, and shall not be deemed to be, a part hereof or incorporated into this or any other filings with the SEC.
COMPETITION
Major competitors in the Company’s market areas include local independent banks, local branches of large regional and national bank affiliates, thrift institutions, savings and loan institutions, mortgage companies, and credit unions.
The Company has generally been able to compete effectively with other financial institutions by emphasizing quality customer service, making decisions at the local level, maintaining long-term customer relationships, building customer loyalty, and providing products and services designed to address the specific needs of customers. However, no assurance can be provided regarding the Company’s ongoing ability to compete effectively with other financial institutions in the future.
No part of the Company’s business is materially dependent upon one, or a few customers, or upon a particular industry segment, the loss of which would have a material adverse impact on the operations of the Company.
LENDING ACTIVITIES
General
The Bank originates loans in four basic portfolio categories, which are discussed below. These portfolios include the categories commercial real estate, commercial and industrial, residential real estate and other consumer loans. Loan interest rates and other key loan terms are affected principally by the Bank’s lending policy, asset/liability strategy, loan demand, competition, and the supply of money available for lending purposes. The Bank monitors and manages the amount of long-term fixed-rate lending and adjustable-rate loan products according to its interest rate management policy. The Bank generally originates loans for investment except for certain residential mortgages that are underwritten with the intention to be sold in the secondary mortgage market.
5
Loan Portfolio Analysis
The following table sets forth the year-end composition of the Company’s loan portfolio in dollar amounts and as a percentage of the portfolio for the years indicated. Further information about the composition of the loan portfolio is contained in Note 3 – Loans and Allowance for Credit Losses of the Consolidated Financial Statements.
2021 | 2020 | |||||||||||
(in thousands, except |
|
| % of |
| % of | |||||||
percentages) | Amount | Total | Amount | Total | ||||||||
Commercial construction |
| $ | 56,263 |
| 2 | % | $ | 117,882 |
| 5 | % | |
Commercial real estate owner occupied |
| 257,122 |
| 12 |
| 219,217 |
| 9 | ||||
Commercial real estate non-owner occupied | 887,092 | 35 | 716,776 | 28 | ||||||||
Tax exempt | 41,280 | 2 | 47,862 | 2 | ||||||||
Commercial and industrial | 307,112 | 12 | 355,684 | 14 | ||||||||
Residential real estate |
| 888,263 |
| 34 |
| 995,216 |
| 38 | ||||
Home equity | 86,657 | 3 | 100,096 | 4 | ||||||||
Consumer other |
| 8,121 |
| — |
| 10,152 |
| — | ||||
Total loans | $ | 2,531,910 |
| 100 | % | $ | 2,562,885 |
| 100 | % |
Commercial Loan Exposure and Industries
All commercial loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes, and state and county codes. The following table summarizes the major industries of the Company’s commercial loan portfolio as of December 31, 2021 and 2020:
2021 | 2020 | |||||||||||||||||
(in thousands, except percentages) |
| Loans |
| Total Exposure | % of Total Portfolio | Loans | Total Exposure | % of Total Portfolio | ||||||||||
Real Estate and Rental and Leasing | $ | 707,444 | $ | 815,070 | 46 | % | $ | 644,944 | $ | 711,606 | 45 | % | ||||||
Accommodation and Food Services |
| 281,122 | 294,971 | 18 | 276,421 | 317,989 | 19 | |||||||||||
Health Care and Social Assistance |
| 99,128 | 138,008 | 6 | 91,989 | 116,910 | 6 | |||||||||||
Retail Trade |
| 58,647 | 79,109 | 4 | 58,942 | 76,073 | 4 | |||||||||||
Finance and Insurance | 54,462 | 83,153 | 4 | 36,236 | 81,398 | 2 | ||||||||||||
Agriculture, Forestry, Fishing and Hunting | 52,957 | 61,157 | 3 | 41,271 | 65,435 | 3 | ||||||||||||
Educational Services | 52,921 | 65,524 | 3 | 61,696 | 74,503 | 4 | ||||||||||||
Manufacturing | 50,752 | 70,742 | 3 | 57,280 | 73,984 | 4 | ||||||||||||
Arts, Entertainment, and Recreation | 34,122 | 36,854 | 2 | 22,137 | 22,389 | 2 | ||||||||||||
Public Administration | 32,576 | 35,189 | 2 | 39,315 | 41,695 | 3 | ||||||||||||
Construction | 32,451 | 58,394 | 2 | 40,716 | 46,979 | 3 | ||||||||||||
Wholesale Trade | 24,179 | 38,098 | 2 | 20,727 | 36,215 | 1 | ||||||||||||
Transportation and Warehousing | 14,569 | 17,656 | 1 | 15,038 | 16,350 | 1 | ||||||||||||
All other | 53,539 | 73,417 | 4 | 50,709 | 117,716 | 3 | ||||||||||||
Total commercial loans | $ | 1,548,869 | $ | 1,867,341 | 100 | % | $ | 1,457,421 | $ | 1,799,242 | 100 | % |
6
Maturity and Sensitivity of the Loan Portfolio
The following table shows contractual maturities of selected loan categories at December 31, 2021. The contractual maturities do not reflect premiums, discounts, deferred costs, or prepayments.
Within | 1 to 5 | 5 to 15 | After | |||||||||||||||
(in thousands, except percentages) | 1 year |
| Years |
| Years | 15 Years |
| Total | % of Total | |||||||||
Commercial construction |
| $ | 47,672 | $ | 7,340 | $ | 1,215 | $ | 36 | $ | 56,263 | 2 | % | |||||
Commercial real estate owner occupied |
| 112,217 |
| 56,616 |
| 73,957 |
| 14,332 |
| 257,122 | 10 | |||||||
Commercial real estate non-owner occupied | 393,042 |
| 245,168 |
| 239,803 |
| 9,079 |
| 887,092 | 35 | ||||||||
Tax exempt | 206 |
| 9,455 |
| 24,819 |
| 6,800 |
| 41,280 | 2 | ||||||||
Commercial and industrial | 122,727 | 79,489 | 78,440 | 26,456 | 307,112 | 12 | ||||||||||||
Residential real estate | 36,070 | 85,324 | 217,919 | 548,950 | 888,263 | 35 | ||||||||||||
Home equity | 63,736 | 9,696 | 3,619 | 9,606 | 86,657 | 3 | ||||||||||||
Consumer other | 2,346 | 4,742 | 693 | 340 | 8,121 | 1 | ||||||||||||
Total loans | $ | 778,016 | $ | 497,830 | $ | 640,465 | $ | 615,599 | $ | 2,531,910 | 100 | % | ||||||
Fixed-rate | 75,926 | 305,778 | 503,129 | 615,322 | 1,500,155 | 59 | ||||||||||||
Floating or adjustable rate | 702,090 | 192,052 | 137,336 | 277 | 1,031,755 | 41 | ||||||||||||
Total loans | $ | 778,016 | $ | 497,830 | $ | 640,465 | $ | 615,599 | $ | 2,531,910 | 100 | % |
Problem Assets
The Bank prefers to work with borrowers to resolve problems rather than proceeding to foreclosure. For commercial loans, this may result in a period of forbearance or restructuring of the loan, which is normally done at current market terms and may not result in a “troubled” loan designation. For residential mortgage loans, the Bank follows the Consumer Financial Protection Bureau (“CFPB”) guidelines to attempt a restructuring that will enable owner-occupants to remain in their home. However, if these processes fail to result in a performing loan, the Bank generally will initiate foreclosure or other proceedings no later than the 120th day of a delinquency, as necessary, to minimize any potential loss. Management reports on delinquent loans and non-performing assets to the Board monthly. Loans are generally removed from accruing status when they reach 90 days delinquent, except for certain loans which are well secured and in the process of collection. Loan collections are managed by a combination of the related business units and the Bank’s managed assets group, which focuses on larger, riskier collections.
The following table presents the problem assets and accruing troubled debt restructurings ("TDRs") for the years indicated:
(in thousands, except ratios) |
| 2021 |
| 2020 |
| ||
Non-accruing loans: |
|
|
|
| |||
Commercial construction | $ | — | $ | 258 | |||
Commercial real estate owner occupied |
| 783 |
| 3,038 | |||
Commercial real estate non-owner occupied |
| 622 |
| 383 | |||
Tax exempt | — | — | |||||
Commercial and industrial |
| 677 |
| 1,223 | |||
Residential real estate | 6,835 | 5,883 | |||||
Home equity | 1,269 | 1,345 | |||||
Consumer other |
| 5 |
| 58 | |||
Total loans | 10,191 | 12,188 | |||||
Other real estate owned |
| — |
| — | |||
Total non-performing assets | $ | 10,191 | $ | 12,188 | |||
Troubled debt restructurings (accruing) | $ | — | $ | 95 | |||
Accruing loans 90+ days past due |
| 134 |
| 125 | |||
Total non-performing loans/total loans |
| 0.40 | % |
| 0.48 | % | |
Total non-performing assets/total assets |
| 0.27 |
| 0.33 |
7
Allowance for Credit Losses
The Bank’s loan portfolio is regularly reviewed by management to evaluate the adequacy of the allowance for credit losses (ACL). The allowance represents management’s estimate of inherent losses that are probable and estimable as of the date of the financial statements. 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 comprised of larger non-accruing commercial loans and TDRs. The allowance for credit losses is discussed further in Note 1 – Summary of Significant Accounting Policies of the Consolidated Financial Statements.
The following table presents an analysis of the allowance for credit losses for the years indicated:
(in thousands, except ratios) |
| 2021 |
| 2020 |
| ||
Balance at beginning of year | $ | 19,082 | $ | 15,353 | |||
Impact of CECL adoption | 5,228 | — | |||||
Charged-off loans: |
|
|
|
| |||
Commercial construction |
| — |
| — | |||
Commercial real estate owner occupied |
| (403) |
| — | |||
Commercial real estate non-owner occupied |
| — |
| (1,137) | |||
Tax exempt | — | — | |||||
Commercial and industrial | (59) | (593) | |||||
Residential real estate | (77) | (54) | |||||
Home equity | (154) | — | |||||
Consumer other |
| (205) |
| (384) | |||
Total charged-off loans |
| (898) |
| (2,168) | |||
Recoveries on charged-off loans: |
|
|
|
| |||
Commercial construction |
| 18 |
| — | |||
Commercial real estate owner occupied |
| 290 |
| — | |||
Commercial real estate non-owner occupied |
| 4 |
| 173 | |||
Tax exempt | — | — | |||||
Commercial and industrial | 77 | 30 | |||||
Residential real estate | 159 | 13 | |||||
Home equity | 51 | — | |||||
Consumer other |
| 9 |
| 56 | |||
Total recoveries on charged-off loans |
| 608 |
| 272 | |||
Net charged-off |
| (290) |
| (1,896) | |||
Provision for credit losses |
| (1,302) |
| 5,625 | |||
Balance at end of year | $ | 22,718 | $ | 19,082 | |||
Ratios: |
|
|
|
| |||
Net charge-offs/average loans |
| 0.01 | % |
| 0.07 | % | |
Recoveries/charged-off loans |
| 68 |
| 13 | |||
Allowance for credit losses/total loans |
| 0.90 |
| 0.74 | |||
Allowance for credit losses/non-accruing loans |
| 223 |
| 157 |
8
The following table presents year-end data for the approximate allocation of the allowance for credit losses by loan categories at the dates indicated. The table shows for each category the amount of the allowance allocated to that category as a percentage of the outstanding loans in that category. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of the allowance to each category is not indicative of future losses and does not restrict the use of any of the allowance to absorb losses in any category. Due to the impact of accounting standards for acquired loans, data in the accompanying tables may not be comparable between accounting periods.
2021 | 2020 |
| |||||||||
% Allocated to | % Allocated to |
| |||||||||
(in thousands, except ratios) |
| Amount |
| Total Loans |
| Amount |
| Total Loans |
| ||
Commercial construction |
| $ | 2,111 |
| 0.08 | % | $ | 824 |
| 0.03 | % |
Commercial real estate owner occupied |
| 2,751 |
| 0.11 |
| 1,783 |
| 0.07 | |||
Commercial real estate non-owner occupied | 5,650 |
| 0.23 |
| 7,864 |
| 0.31 | ||||
Tax exempt | 86 | 0.01 | 58 | — | |||||||
Commercial and industrial | 5,369 | 0.21 | 3,137 | 0.12 | |||||||
Residential real estate | 5,862 | 0.23 | 5,010 | 0.20 | |||||||
Home equity | 814 | 0.03 | 285 | 0.01 | |||||||
Consumer other | 75 | — | 121 | — | |||||||
Total | $ | 22,718 | 0.90 | % | $ | 19,082 | 0.74 | % |
INVESTMENT SECURITIES ACTIVITIES
The general objectives of the Company’s investment portfolio are to provide liquidity when loan demand is high, and to absorb excess funds when demand is low. The securities portfolio also provides a medium for certain interest rate risk measures intended to maintain an appropriate balance between interest income from loans and total interest expense. For additional information, see Item 7A of this report.
The Company only invests in high-quality investment-grade securities. Investment decisions are made in accordance with the Company’s investment and treasury policies and include consideration of risk, return, duration, and portfolio concentrations. For further discussion on investments see Note 2 – Securities Available for Sale of the Consolidated Financial Statements.
The following table presents the amortized cost and fair value of securities available for sale for the years indicated:
2021 | 2020 | |||||||||||
Amortized | Amortized | |||||||||||
(in thousands) |
| Cost |
| Fair Value |
| Cost |
| Fair Value | ||||
US Government-sponsored enterprises | $ | 237,283 | $ | 236,117 | $ | 206,834 | $ | 212,390 | ||||
US Government agency |
| 79,143 |
| 79,637 |
| 82,878 |
| 85,632 | ||||
Private label |
| 68,691 |
| 68,695 |
| 19,810 |
| 19,709 | ||||
Obligations of states and political subdivisions thereof |
| 140,585 |
| 141,776 |
| 164,766 |
| 169,004 | ||||
Corporate bonds |
| 89,994 |
| 92,051 |
| 97,689 |
| 98,311 | ||||
Total | $ | 615,696 | $ | 618,276 | $ | 571,977 | $ | 585,046 |
9
The following table presents the amortized cost and weighted average yields of securities available for sale at by maturity:
December 31, 2021 | ||||||||||||||||
Within | Over 1 Year | Over 5 Years | Over | |||||||||||||
(in thousands, except ratios) |
| 1 Year |
| to 5 Years | to 10 years | 10 Years | Total | |||||||||
US Government-sponsored enterprises | $ | 32 | $ | 2,601 | $ | 8,227 | $ | 226,423 | $ | 237,283 | ||||||
US Government agency | 3 | 306 | 1,798 | 77,036 | 79,143 | |||||||||||
Private label |
| — |
|
| — | 31,185 | 37,506 | 68,691 | ||||||||
Obligations of states and political subdivisions thereof |
| — |