BAR HARBOR BANKSHARES 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Interest rate risk is the most significant market risk affecting the Company. Other types of market risk do not arise in the normal course of our business activities. ​ The responsibility for interest rate risk management oversight is the function of the Bank’s Asset and Liability Committee (“ALCO”), chaired by the Chief Financial Officer and composed of various members of senior management. ALCO meets regularly to review balance sheet structure, formulate strategies in light of current and expected economic conditions, adjust product prices as necessary, implement policy, monitor liquidity, and review performance against guidelines established to control exposure to the various types of inherent risk. ​ Interest Rate Risk: Interest rate risk can be defined as an exposure to movement in interest rates that could have an adverse impact on the 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 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 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 Board of Directors. ​ The 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: An interest rate risk model widely recognized in the financial industry is used 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 expectations. Our net interest income sensitivity analysis reflects changes to net interest income assuming no balance sheet 47 Table of Contents 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 December 31, 2022, interest rate sensitivity modeling results indicate that the 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 years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in Interest Rates-Basis Points (Rate Ramp) ​ 1 - 12 Months ​ 13 - 24 Months (in thousands, except ratios) ​ $ Change ​ % Change ​ $ Change ​ % Change At December 31, 2022 ​ ​ ​ -200 ​ $ (6,183) ​ (4.3) % $ (19,692) ​ (12.8) % -100 ​ ​ (2,261) ​ (1.6) ​ ​ (7,954) ​ (5.2) ​ +100 ​ ​ 1,704 ​ 1.2 ​ ​ 5,583 ​ 3.6 ​ +200 ​ 3,253 ​ 2.3 ​ ​ 10,627 ​ 6.9 ​ At December 31, 2021 ​ ​ ​ ​ -100 ​ (1,939) (2.0) ​ ​ (5,945) (6.4) ​ +100 ​ ​ 4,545 ​ 4.8 ​ ​ 11,492 ​ 12.4 ​ +200 ​ 9,413 9.9 ​ 22,220 23.9 ​ ​ Assuming short-term and long-term interest rates decline 100 to 200 basis points from current levels (i.e., a parallel yield curve shift) and the Bank’s balance sheet structure and size remain at current levels, management believes net interest income will deteriorate over the one year horizon while deteriorating further from that level over the two-year horizon. ​ Assuming the Bank’s balance sheet structure and size remain at current levels and the Federal Reserve increases short-term interest rates by 100 to 200 basis points with the balance of the yield curve shifting in parallel with these increases, management believes net interest income will improve over both the one and two-year horizons. ​ As compared to December 31, 2021, sensitivity to rate movements has decreased as the bank has incrementally shifted to a less asset sensitive position. ​ 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. ​ 48 Table of Contents ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and the Board of Directors of Bar Harbor Bankshares and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Bar Harbor Bankshares and Subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 14, 2023, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. ​ Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ Allowance for Credit Losses on Loans As described in Notes 1 and 3 to the consolidated financial statements, the allowance for credit losses on loans is established through a provision for credit losses and represents an amount which, in management’s judgment, will be adequate to absorb losses on existing loans. The Company’s consolidated allowance for credit losses on loan balances was $25.9 million at December 31, 2022. The allowance for credit losses on loans is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans and troubled debt restructurings. ​ 49 Table of Contents The Company uses the discounted cash flow method to estimate expected credit losses for all loan portfolio segments measured on a pool basis wherein payment expectations are adjusted for estimated prepayment speeds, probability of default (PD), and loss given default (LGD). The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime PD. This analysis also determines how expected PD and LGD will react to forecasted levels of the loss drivers. Management utilizes various economic indicators such as changes in unemployment rates, gross domestic product (GDP), property values and other relevant factors as loss drivers and has determined that, due to historical volatility in economic data, two quarters currently represents a reasonable and supportable forecast period, followed by a six-period reversion to historical mean levels for each of the various economic indicators. The allowance evaluation also considers various qualitative factors, such as: (i) changes to lending policies, underwriting standards and/or management personnel performing such functions, (ii) delinquency and other credit quality trends, (iii) credit risk concentrations, if any, (iv) changes to the nature of the Company’s business impacting the loan portfolio, (v) and other external factors, that may include, but are not limited to, results of internal loan reviews, stress testing, examinations by bank regulatory agencies, or other events such as a natural disaster. The development of the loan loss allocation for pools of loans with similar risk characteristics requires a significant amount of judgment by management and the assumptions utilized are subject to changing economic conditions . ​ We identified the Company’s allowance for credit losses on loans as a critical audit matter, specifically the economic forecasts and qualitative factors, because they involved complex auditor judgment in the evaluation of the Company’s assumptions. Additionally, complex auditor judgment was required to examine the methodology that underpins the allowance for credit losses on pools of loans with similar risk characteristics. This includes modeling of PD, LGD, economic forecasts, and qualitative factors. ​ Our audit procedures related to this critical audit matter included the following, among others: ​ ● We obtained an understanding of the relevant controls related to the allowance for credit losses on loans and tested such controls for design and operating effectiveness, including those over model approval, validation and approval of key data inputs such as economic forecasts and qualitative factors. ​ ● We tested the completeness and accuracy of data used by management in determining inputs to the PD and LGD, by agreeing those inputs to internal or external information sources. ​ ● We evaluated management’s judgments used in the identification of peer banks for PD and LGD calculations. ​ ● We evaluated management’s forecasts of future economic indicators for reasonableness, which included unemployment, housing price index, retail sales, and national GDP growth, among others, by comparing these forecasts to external and internal information sources. ​ ● We evaluated management’s judgments and assumptions used in the development of the qualitative factors for reasonableness, and tested the reliability of the underlying data on which these factors are based, by comparing information to source documents and external information sources. ​ ​ /s/ RSM US LLP ​ We have served as the Company's auditor since 2015. ​ Boston, Massachusetts March 14, 2023 ​ ​ 50 Table of Contents BAR HARBOR BANKSHARES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ (in thousands, except share data) December 31, 2022 December 31, 2021 Assets ​ ​ Cash and cash equivalents: ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 39,933 ​ $ 33,508 Interest-earning deposits with other banks ​ 52,362 ​ 216,881 Total cash and cash equivalents ​ 92,295 ​ 250,389 ​ ​ ​ ​ ​ ​ ​ Securities: ​ ​ ​ ​ ​ ​ Securities available for sale ​ 559,516 ​ 618,276 Federal Home Loan Bank stock ​ 14,893 ​ 7,384 Total securities ​ 574,409 ​ 625,660 ​ ​ ​ ​ ​ ​ ​ Loans held for sale ​ ​ — ​ ​ 5,523 ​ ​ ​ ​ ​ ​ ​ Total loans ​ 2,902,690 ​ 2,531,910 Less: Allowance for credit losses ​ ( 25,860 ) ​ ( 22,718 ) Net loans ​ 2,876,830 ​ 2,509,192 ​ ​ ​ ​ ​ ​ ​ Premises and equipment, net ​ 47,622 ​ 49,382 Goodwill ​ 119,477 ​ 119,477 Other intangible assets ​ 5,801 ​ 6,733 Cash surrender value of bank-owned life insurance ​ 81,197 ​ 79,020 Deferred tax assets, net ​ 24,443 ​ 5,547 Other assets ​ 87,729 ​ 58,310 Total assets ​ $ 3,909,803 ​ $ 3,709,233 ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ Deposits: ​ ​ Demand ​ $ 676,350 ​ $ 664,420 NOW ​ 900,730 ​ 940,631 Savings ​ 664,514 ​ 628,670 Money market ​ 478,398 ​ 389,291 Time ​ 323,439 ​ 425,532 Total deposits ​ 3,043,431 ​ 3,048,544 ​ ​ ​ ​ ​ ​ ​ Borrowings: ​ ​ Senior ​ 333,957 ​ 118,400 Subordinated ​ 60,289 ​ 60,124 Total borrowings ​ 394,246 ​ 178,524 ​ ​ ​ ​ ​ ​ ​ Other liabilities ​ 78,676 ​ 58,018 Total liabilities ​ 3,516,353 ​ 3,285,086 ​ ​ ​ ​ ​ ​ ​ ​ 51 Table of Contents ​ ​ ​ ​ ​ ​ ​ (in thousands, except share data) December 31, 2022 December 31, 2021 Shareholders’ equity ​ ​ ​ ​ Capital stock, par value $ 2.00 ; authorized 20,000,000 shares; issued 16,428,388 shares; outstanding 15,082,688 shares and 15,001,329 shares at December 31, 2022 and December 31, 2021 respectively ​ 32,857 ​ 32,857 Additional paid-in capital ​ 191,922 ​ 190,876 Retained earnings ​ 243,815 ​ 215,592 Accumulated other comprehensive (loss) income ​ ( 58,340 ) ​ 2,303 Less: 1,345,700 and 1,427,059 shares of treasury stock, at cost, at December 31, 2022 and December 31, 2021, respectively ​ ( 16,804 ) ​ ( 17,481 ) Total shareholders’ equity ​ 393,450 ​ 424,147 Total liabilities and shareholders’ equity ​ $ 3,909,803 ​ $ 3,709,233 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 52 Table of Contents BAR HARBOR BANKSHARES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (in thousands, except earnings per share data) 2022 2021 2020 Interest and dividend income ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ $ 107,797 ​ $ 95,236 ​ $ 107,085 Securities and other ​ 18,729 ​ 15,568 ​ 19,019 Total interest and dividend income ​ 126,526 ​ 110,804 ​ 126,104 Interest expense ​ ​ ​ Deposits ​ 7,344 ​ 8,543 ​ 18,043 Borrowings ​ 5,501 ​ 6,688 ​ 8,881 Total interest expense ​ 12,845 ​ 15,231 ​ 26,924 Net interest income ​ 113,681 ​ 95,573 ​ 99,180 Provision for credit losses ​ 2,904 ​ ( 1,302 ) ​ 5,625 Net interest income after provision for credit losses ​ 110,777 ​ 96,875 ​ 93,555 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-interest income ​ ​ ​ Trust and investment management fee income ​ 14,573 ​ 15,179 ​ 13,378 Customer service fees ​ 14,791 ​ 13,212 ​ 11,327 Gain on sales of securities, net ​ 53 ​ 2,870 ​ 5,445 Mortgage banking income ​ ​ 1,580 ​ ​ 6,536 ​ ​ 6,884 Bank-owned life insurance income ​ 2,000 ​ 2,179 ​ 2,007 Customer derivative income ​ 310 ​ 1,010 ​ 2,503 Other income ​ 2,014 ​ 1,275 ​ 1,412 Total non-interest income ​ 35,321 ​ 42,261 ​ 42,956 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-interest expense ​ ​ ​ Salaries and employee benefits ​ 48,657 ​ 47,117 ​ 48,920 Occupancy and equipment ​ 17,575 ​ 16,356 ​ 16,751 Gain on sales of premises and equipment, net ​ 10 ​ 378 ​ ( 32 ) Outside services ​ 1,578 ​ 1,943 ​ 1,985 Professional services ​ 1,612 ​ 1,756 ​ 2,060 Communication ​ 880 ​ 912 ​ 892 Marketing ​ 1,561 ​ 1,541 ​ 1,385 Amortization of intangible assets ​ 932 ​ 940 ​ 1,024 Loss on debt extinguishment ​ ​ — ​ ​ 2,851 ​ ​ 1,351 Acquisition, conversion and other expenses ​ 266 ​ 1,667 ​ 5,801 Provision for unfunded commitments ​ ​ 1,758 ​ 177 ​ ​ 45 Other expenses ​ 16,424 ​ 14,870 ​ 14,678 Total non-interest expense ​ 91,253 ​ 90,508 ​ 94,860 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 54,845 ​ 48,628 ​ 41,651 Income tax expense ​ 11,288 ​ 9,329 ​ 8,407 Net income ​ $ 43,557 ​ $ 39,299 ​ $ 33,244 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share: ​ ​ ​ Basic ​ $ 2.90 ​ $ 2.63 ​ $ 2.18 Diluted ​ $ 2.88 ​ $ 2.61 ​ $ 2.18 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding: ​ ​ ​ Basic ​ 15,040 ​ 14,969 ​ 15,246 Diluted ​ 15,112 ​ 15,045 ​ 15,272 ​ The accompanying notes are an integral part of these consolidated financial statements. 53 Table of Contents BAR HARBOR BANKSHARES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (in thousands) 2022 2021 2020 Net income ​ $ 43,557 ​ $ 39,299 ​ $ 33,244 Other comprehensive (loss) income, before tax: ​ ​ ​ Changes in unrealized (loss) gain on securities available for sale ​ ( 74,412 ) ​ ( 10,489 ) ​ 5,819 Changes in unrealized (loss) gain on hedging derivatives ​ ( 3,463 ) ​ 3,562 ​ ( 1,651 ) Changes in unrealized (loss) gain on pension ​ ( 973 ) ​ 1,132 ​ ( 338 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income taxes related to other comprehensive income: ​ ​ ​ ​ Changes in unrealized loss (gain) on securities available for sale ​ 17,181 ​ 2,451 ​ ( 1,345 ) Changes in unrealized loss (gain) on hedging derivatives ​ 799 ​ ( 827 ) ​ 386 Changes in unrealized loss (gain) on pension ​ 225 ​ ( 266 ) ​ 77 Total other comprehensive (loss) income ​ ( 60,643 ) ​ ( 4,437 ) ​ 2,948 Total comprehensive (loss) income ​ $ ( 17,086 ) ​ $ 34,862 ​ $ 36,192 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 54 Table of Contents BAR HARBOR BANKSHARES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ Common ​ Additional ​ ​ ​ ​ other ​ ​ ​ ​ ​ ​ ​ ​ stock ​ paid-in ​ Retained ​ comprehensive ​ Treasury ​ ​ ​ (in thousands, except per share data) amount capital earnings income (loss) stock Total Balance at December 31, 2019 ​ $ 32,857 ​ $ 188,536 ​ $ 175,780 ​ $ 3,792 ​ $ ( 4,677 ) ​ $ 396,288 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ — ​ — ​ 33,244 ​ — ​ — ​ 33,244 Other comprehensive income ​ — ​ — ​ — ​ 2,948 ​ — ​ 2,948 Cash dividends declared ($ 0.88 per share) ​ — ​ — ​ ( 13,417 ) ​ — ​ — ​ ( 13,417 ) Treasury stock purchased ( 733,567 shares) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 14,188 ) ​ ​ ( 14,188 ) Net issuance ( 91,359 shares) to employee stock plans, including related tax effects ​ — ​ ( 22 ) ​ — ​ — ​ 642 ​ 620 Recognition of stock based compensation ​ — ​ 1,570 ​ — ​ — ​ — ​ 1,570 Balance at December 31, 2020 ​ $ 32,857 ​ $ 190,084 ​ $ 195,607 ​ $ 6,740 ​ $ ( 18,223 ) ​ $ 407,065 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ — ​ — ​ 39,299 ​ — ​ — ​ 39,299 Other comprehensive income ​ ​ — ​ — ​ — ​ ( 4,437 ) ​ — ​ ​ ( 4,437 ) Impact of ASC 326 adoption ​ ​ — ​ ​ — ​ ​ ( 5,242 ) ​ ​ — ​ ​ — ​ ​ ( 5,242 ) Cash dividends declared ($ 0.94 per share) ​ ​ — ​ — ​ ( 14,072 ) ​ — ​ — ​ ​ ( 14,072 ) Net issuance ( 85,406 shares) to employee stock plans, including related tax effects ​ — ​ ( 1,357 ) ​ — ​ — ​ 742 ​ ( 615 ) Recognition of stock based compensation ​ — ​ 2,149 ​ — ​ — ​ — ​ 2,149 Balance at December 31, 2021 ​ $ 32,857 ​ $ 190,876 ​ $ 215,592 ​ $ 2,303 ​ $ ( 17,481 ) ​ $ 424,147 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ — ​ — ​ 43,557 ​ — ​ — ​ 43,557 Other comprehensive income ​ — ​ — ​ — ​ ( 60,643 ) ​ — ​ ( 60,643 ) Cash dividends declared ($ 1.02 per share) ​ — ​ — ​ ( 15,334 ) ​ — ​ — ​ ( 15,334 ) Net issuance ( 81,359 shares) to employee stock plans, including related tax effects ​ — ​ ( 892 ) ​ — ​ — ​ 677 ​ ( 215 ) Recognition of stock based compensation ​ — ​ 1,938 ​ — ​ — ​ — ​ 1,938 Balance at December 31, 2022 ​ $ 32,857 ​ $ 191,922 ​ $ 243,815 ​ $ ( 58,340 ) ​ $ ( 16,804 ) ​ $ 393,450 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 55 Table of Contents BAR HARBOR BANKSHARES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (in thousands) 2022 2021 ​ 2020 Cash flows from operating activities: ​ ​ ​ ​ Net income $ 43,557 ​ $ 39,299 ​ $ 33,244 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Originations of loans held for sale ​ ​ ( 33,219 ) ​ ​ ( 170,758 ) ​ ​ ( 240,858 ) Proceeds from loan sales ​ ​ 38,581 ​ ​ 193,468 ​ ​ 228,626 Gain (loss) on sale of loans ​ ​ 161 ​ ​ ( 4,131 ) ​ ​ ( 5,257 ) Provision for credit losses ​ 2,904 ​ ( 1,302 ) ​ 5,625 Net amortization of securities ​ 2,869 ​ 4,471 ​ 3,367 Deferred tax (benefit) expense ​ ​ ( 707 ) ​ ​ 427 ​ ​ ( 38 ) Change in unamortized net loan costs and premiums ​ 170 ​ ( 1,354 ) ​ ( 122 ) Premises and equipment depreciation ​ 4,243 ​ 4,596 ​ 4,771 Stock-based compensation expense ​ 1,938 ​ 2,149 ​ 1,570 Accretion of purchase accounting entries, net ​ — ​ ( 2,274 ) ​ ( 749 ) Amortization of other intangibles ​ 932 ​ 940 ​ 1,025 Income from cash surrender value of bank-owned life insurance policies ​ ( 2,000 ) ​ ( 2,179 ) ​ ( 2,007 ) Gain on sales of securities, net ​ ( 53 ) ​ ( 2,870 ) ​ ( 5,445 ) Amortization (accretion) of right-of-use lease assets ​ ​ 1,196 ​ ​ 1,064 ​ ​ ( 715 ) (Decrease) increase in lease liabilities ​ ​ ( 1,142 ) ​ ​ ( 984 ) ​ ​ 976 Gain on other real estate owned ​ — ​ — ​ ( 355 ) Loss (gain) on premises and equipment, net ​ 10 ​ 378 ​ ( 32 ) Net change in other assets and liabilities ​ ( 1,839 ) ​ ( 462 ) ​ ( 2,942 ) Net cash provided by operating activities ​ 57,601 ​ 60,478 ​ 20,684 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ Proceeds from sales of securities available for sale ​ 7,130 ​ 92,723 ​ 153,200 Proceeds from maturities, calls and prepayments of securities available for sale ​ 73,740 ​ 111,552 ​ 151,829 Purchases of securities available for sale ​ ( 109,019 ) ​ ( 249,595 ) ​ ( 215,567 ) Net change in loans ​ ( 371,316 ) ​ 33,707 ​ 70,617 Recoveries of previously charged off loans ​ ​ 604 ​ ​ 608 ​ ​ 272 Purchase of FHLB stock ​ ( 11,016 ) ​ ( 2,565 ) ​ ( 4,105 ) Proceeds from sale of FHLB stock ​ 3,507 ​ 9,217 ​ 10,748 Purchase of premises and equipment, net ​ ( 2,518 ) ​ ( 1,716 ) ​ ( 6,776 ) Proceeds from premises held for sale ​ ​ — ​ ​ 288 ​ ​ 903 Net investment in community limited partnerships ​ ​ ( 1,692 ) ​ ​ ( 1,310 ) ​ ​ ( 2,750 ) Proceeds from death benefit of bank-owned life insurance policy ​ ​ — ​ ​ 1,029 ​ ​ — Acquisitions, net of cash acquired ​ ​ — ​ ​ — ​ ​ ( 340 ) Proceeds from sale of other real estate owned ​ ​ — ​ ​ — ​ ​ 2,205 Net cash (used in) provided by investing activities ​ ( 410,580 ) ​ ( 6,062 ) ​ 160,236 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ Net change in deposits ​ ( 5,113 ) ​ 142,329 ​ 210,464 Net change in short-term senior borrowings ​ ​ 242,000 ​ ​ 9,324 ​ ​ ( 248,262 ) Proceeds from long-term senior borrowings ​ ​ — ​ ​ — ​ ​ 148,199 Repayments of long-term senior borrowings ​ ​ ( 20,020 ) ​ ​ ( 159,023 ) ​ ​ ( 78,186 ) Net change in short-term other borrowings ​ ( 6,433 ) ​ ( 7,977 ) ​ ( 17,053 ) Net issuance to employee stock plans ​ ​ ( 215 ) ​ ​ ( 615 ) ​ ​ 620 Purchase of treasury and common stock ​ ​ — ​ ​ — ​ ​ ( 14,188 ) Cash dividends paid on common stock ​ ( 15,334 ) ​ ( 14,072 ) ​ ( 13,417 ) Net cash provided by (used in) financing activities ​ 194,885 ​ ( 30,034 ) ​ ( 11,823 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 56 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2022 2021 ​ 2020 Net change in cash and cash equivalents ​ ( 158,094 ) ​ 24,382 ​ 169,097 Cash and cash equivalents at beginning of year ​ 250,389 ​ 226,007 ​ 56,910 Cash and cash equivalents at end of period ​ $ 92,295 ​ $ 250,389 ​ $ 226,007 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental cash flow information: ​ ​ ​ ​ ​ Interest paid ​ $ 12,451 ​ $ 16,354 ​ $ 27,423 Income taxes paid, net ​ 10,598 ​ 8,859 ​ ​ 10,045 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition of non-cash assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets acquired ​ ​ — ​ ​ — ​ ​ 1,171 Liabilities acquired ​ ​ — ​ ​ — ​ ​ ( 343 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 57 Table of Contents BAR HARBOR BANKSHARES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation: The consolidated financial statements (the “financial statements”) of Bar Harbor Bankshares and its subsidiaries (the “Company,” or “we”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Bar Harbor Bankshares is a Maine Financial Institution Holding Company for the purposes of the laws of the State of Maine, and as such, is subject to the jurisdiction of the Superintendent of the Maine Bureau of Financial Institutions. These financial statements include the accounts of the Company, its wholly-owned subsidiary Bar Harbor Bank & Trust (the "Bank") and the Bank’s consolidated subsidiaries. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly-owned and majority-owned subsidiaries are consolidated unless U.S. GAAP requires otherwise. Consolidation: The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. The consolidated financial statements include the accounts of Bar Harbor Bankshares and its wholly-owned subsidiaries, Bar Harbor Bank & Trust, Bar Harbor Wealth Management, and Cottage Street Corporation. In 2022, Charter Trust Company and Bar Harbor Trust merged to become Bar Harbor Wealth Management. All significant inter-company balances and transactions have been eliminated in consolidation. Assets held in a fiduciary capacity are not assets of the Company, but assets of customers, and therefore, are not included in the consolidated balance sheet. Reclassifications: Whenever necessary, amounts in the prior years’ financial statements are reclassified to conform to current presentation. The reclassifications had no impact on net income in the Company’s consolidated income statement. Use of estimates: In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the allowance for credit losses, off-balance sheet credit exposures, available for sale securities, the accounting for business combinations including subsequent impairment analyses for goodwill and other intangible assets, accounting for income taxes, post-retirement benefits, and asset impairment assessments. Subsequent Events: Events and transactions subsequent to December 31, 2022 are evaluated for potential recognition or disclosure as required by GAAP. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and amounts due from banks, interest-bearing deposits with other banks, federal funds sold, and other short-term investments with maturities less than 90 days. Securities: All securities held at December 31, 2022 and 2021 were classified as available-for-sale (“AFS”). Available for sale securities primarily consist of mortgage-backed securities, obligations of state and political subdivisions thereof, and corporate bonds and are carried at estimated fair value. Changes in estimated fair value of AFS securities, net of applicable income taxes, are reported in accumulated other comprehensive income (loss) as a separate component of shareholders’ equity unless deemed to have a credit loss as discussed below. Premiums and discounts on securities are amortized and accreted over the term of the securities using the interest method. Gains and losses on the sale of securities are recognized at the trade date using the specific-identification method and are shown separately in the Consolidated Statements of Income. Allowance for Credit Loss on AFS Debt Securities: Credit quality of AFS debt securities is monitored through credit ratings from various rating agencies and substantial price changes. Credit ratings express opinions about the credit quality of a security and are utilized by us to make informed decisions. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment grade, or significant pricing changes. For securities without credit ratings, other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security. If this assessment indicates that a credit loss exists, the 58 Table of Contents present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance on AFS debt securities is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. When assessing an AFS debt security for credit loss, securities with identical CUSIPs are pooled together to assess for impairment using the average cost basis. Any impairment that has not been recorded through an allowance is recognized in other comprehensive income. A change in the allowance on AFS debt securities may be in full or a portion thereof, is recorded as expense (credit) within provision for credit losses on the consolidated statements of income. Losses are charged against the allowance when management believes an AFS debt security is uncollectible based on the above described analysis. As of December 31, 2022 and December 31, 2021, there were no allowances carried on AFS debt securities. Refer to Note 2 – Securities Available for Sale of the consolidated financial statements for further discussion. Federal Home Loan Bank Stock: Federal Home Loan Bank (“FHLB”) stock is a non-marketable equity security and therefore is reported at cost, which generally equals par value. Shares held in excess of the minimum required by the FHLB are generally redeemable at par value. Dividends from FHLB stock are reported in interest and dividend income. FHLB stock is periodically evaluated for impairment based on the capital adequacy of the FHLB and its overall financial condition. Based on the capital adequacy, liquidity position and sustained profitability of the FHLB. There was no impairment related to the carrying amount of FHLB stock as of December 31, 2022 and 2021. Loans Held for Sale: Residential loans originated with the intent to be sold in the secondary market are accounted for at fair value. Fair value is primarily determined based on quoted prices for similar loans in active markets. Residential loans held for sale are generally sold with servicing rights retained. The carrying value of loans sold is reduced by the amount allocated to the servicing right. Gains and losses on sales of residential loans (sales proceeds minus carrying value) are recorded in non-interest income. The loan portfolio is consistently evaluated in conjunction with asset/liability management practices, and certain residential mortgage loans may be sold to manage interest rate exposure and for other business purposes, including generating fee income through mortgage sale gains. Loans: Loans held for investment are reported at amortized cost. Amortized cost is the principal balance outstanding net of the unamortized balance of any deferred fees or costs and the unamortized balance of any premiums or discounts on loans purchased or acquired through mergers. ​ For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual term of the loan using the level-yield method over the estimated lives of the related loans. When a loan is paid off, the unamortized portion of deferred fees or costs are recognized in interest income. Interest income on originated loans is accrued based upon the daily principal amount outstanding except for loans on non-accrual status. ​ For acquired loans, interest income is accrued based upon the daily principal amount outstanding and is then further adjusted by the accretion of any discount or amortization of any premium associated with the loan that was recognized based on the acquisition date fair value. When a loan is paid off, the unamortized portion of any premiums or discounts on loans are recognized in interest income. Purchase Credit Deteriorated (PCD) Loans: Loans acquired in acquisitions include some loans that have experienced more than insignificant credit deterioration since origination. The initial allowance for credit losses is determined on a collective basis and allocated to the individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost. The difference between the initial amortized cost and the par value of the loan is a discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through provision expense. Non-performing loans: Residential real estate and home equity loans are generally placed on non-accrual status when reaching 90 days past due, or in process of foreclosure, or sooner if considered appropriate by management. Consumer other loans are generally placed on non-accrual when reaching 90 days or more past due, or sooner if considered appropriate by management. Secured consumer other loans are written down to net realizable value and unsecured 59 Table of Contents consumer loans are charged-off upon reaching 120 days past due. Commercial real estate loans and commercial and industrial loans that are 90 days or more past due are generally placed on non-accrual status, unless secured by sufficient cash or other assets immediately convertible to cash, and the loan is in the process of collection. Commercial real estate and commercial and industrial loans may be placed on non-accrual status prior to the 90 days delinquency date if considered appropriate by management. When a loan has been placed on non-accrual status, previously accrued and uncollected interest is reversed against interest on the loan. The interest on non-accrual loans is accounted for using the cash-basis or cost-recovery method depending on corresponding credit risk, until qualifying for return to accrual status. A loan can be returned to accrual status when collectability of principal is reasonably assured and the loan has performed for a period of time, generally six months. Acquired loans that meet the criteria for non-accrual of interest prior to an acquisition are considered non-performing acquired loans that meet the criteria for non-accrual consistent with originated loans. Loans Modified in a Troubled Debt Restructuring: Loans are considered to have been modified in a troubled debt restructuring when, due to a borrower’s financial difficulties, certain concessions are made to the borrower that would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified in a troubled debt restructuring remains on non-accrual status for a period of at least 6 months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status. Allowance for Credit Losses: The allowance for credit losses (the “allowance”) is a significant accounting estimate used in the preparation of the Company’s consolidated financial statements. The allowance is comprised of the allowance for loan losses and the allowance for off-balance sheet credit exposures, which is accounted for as a separate liability in other liabilities on the balance sheet. The level of the allowance represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged- off. The allowance is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans and TDRs. ​ The discounted cash flow (“DCF”) method is used to estimate expected credit losses for all loan portfolio segments measured on a collective (pool) basis. For each loan segment, cash flow projections are generated at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, probability of default, and loss given default. The modeling of prepayment speeds is based on historical internal data. ​ Regression analysis of historical internal and peer data is used to determine suitable loss drivers to utilize when modeling lifetime probability of default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes various economic indicators such as changes in unemployment rates, gross domestic product, property values, housing starts, and other relevant factors as loss drivers. For all DCF models, management has determined that due to historic volatility in economic data, two quarters currently represents a reasonable and supportable forecast period, followed by a six-period reversion to historical mean levels for each of the various economic indicators. ​ The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Specific instrument 60 Table of Contents effective yields are calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level Net Present Value (NPV). An allowance is established for the difference between the instrument’s NPV and amortized cost basis. ​ The allowance evaluation also considers various qualitative factors, such as: (i) changes to lending policies, underwriting standards and/or management personnel performing such functions, (ii) delinquency and other credit quality trends, (iii) credit risk concentrations, if any, (iv) changes to the nature of the Company's business impacting the loan portfolio, and (v) other external factors, that may include, but are not limited to, results of internal loan reviews, stress testing, examinations by bank regulatory agencies, or other events such as a natural disaster. ​ Arriving at an appropriate level of allowance involves a high degree of judgment. The determination of the adequacy of the allowance and provisioning for estimated losses is evaluated regularly based on review of loans, with particular emphasis on non-performing and other loans that management believes warrant special consideration. While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance. Individually Evaluated Loans : Loans that do not share risk characteristics with existing pools are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and management expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. ​ Accrued Interest . Accrued interest receivable balances are presented within other assets on the consolidated balance sheet. Accrued interest is excluded from the measurement of the allowance for credit losses, including investments and loans. Generally, accrued interest is reversed when a loan is placed on non-accrual or is written-off. Current year accrued interest is reversed through interest income while accrued interest from prior years is written-off through the ACL. Historically, we have not experienced uncollectible accrued interest receivable on investment debt securities. Allowance for off-balance sheet credit exposures : The exposure is a component of other liabilities in the consolidated balance sheet and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include unused portions of lines of credit and standby and commercial letters of credit. The process used to determine the allowance for these exposures is consistent with the process for determining the allowance for loans, as adjusted for estimated funding probabilities or loan equivalency factors. A charge (credit) to provision for credit losses on the consolidated statements of income is made to account for the change in the allowance on off-balance sheet exposures between reporting periods. Premises and Equipment: Land is carried at cost. Premises and equipment and related improvements are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the lesser of the lease term or estimated useful lives of related assets; generally five to 39 years for premises and three to eight years for furniture and equipment. Software costs are stated at cost less accumulated depreciation within other assets on the consolidated balance sheet. Amortization expense on software is calculated using the straight-line method over the estimated useful lives of the related assets. Transfers of Financial Assets: Transfers of an entire financial asset, group of entire financial assets, or a participating interest in an entire financial asset are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from total Company assets, (2) the transferee obtains the right to pledge or exchange the transferred assets, and (3) effective control is not maintained over the transferred assets. 61 Table of Contents Other Real Estate Owned: Other real estate owned consists of properties acquired through foreclosure proceedings or acceptance of a deed-in-lieu of foreclosure. These properties are recorded at fair value less estimated costs to sell the property. Initially at transfer if the recorded investment in the loan exceeds the property’s fair value at the time of acquisition, a charge-off is recorded against the allowance. If the fair value of the property initially at transfer exceeds the carrying amount of the loan, the excess is recorded either as a recovery to the allowance if a charge-off had previously been recorded, or as a gain on initial transfer in other non-interest income. Subsequent decreases in the property’s fair value and operating expenses of the property are recognized through charges to other non-interest expense. The fair value of the property acquired and ongoing valuation is based on third-party appraisals, broker price opinions, recent sales activity, or a combination thereof, subject to management judgment. Due to changing market conditions the amount ultimately realized on the other real estate owned may differ from the amounts reflected in the financial statements. Goodwill: Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is assessed annually for impairment, and more frequently if events or changes in circumstances indicate that there may be an impairment. Adverse changes in the economic environment, declining operations, unanticipated competition, loss of key personnel, or other factors could result in a decline in the implied fair value of goodwill. Subsequent reversals of goodwill impairment are prohibited. ​ Other Intangibles: Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. ​ The fair values of these assets are generally determined based on appraisals and are subsequently amortized on a straight-line basis or an accelerated basis over their estimated lives. Management assesses the recoverability of these intangible assets at least annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount exceeds fair value, an impairment charge is recorded to income. ​ Bank-Owned Life Insurance: Bank-owned life insurance (“BOLI”) represents life insurance on the lives of certain current and retired employees who had provided positive consent allowing the Bank to be the beneficiary of such policies. Increases in the cash value of the policies, as well as insurance proceeds received in excess of the cash value, are recorded in other non-interest income, and are not subject to income taxes. Capitalized Servicing Right s : Capitalized servicing rights are recognized as assets when residential loans are sold and the rights to service those loans are retained. Capitalized servicing rights are initially recorded at fair value. Fair values are established by using a discounted cash flow model to calculate the present value of estimated future net servicing income. Changes in the fair value of capitalized servicing rights are primarily due to changes in valuation inputs, assumptions, and the collection and realization of expected cash flows. However, these capitalized servicing rights are amortized in proportion to and over the period of estimated net servicing income, which includes prepayment assumptions. An impairment analysis is prepared on a quarterly basis by estimating the fair value of the capitalized servicing rights and comparing that value to the carrying amount. A valuation allowance is established when the carrying amount of these capitalized servicing rights exceeds fair value. The capitalized servicing rights are included in other assets on the consolidated balance sheet. Derivative Financial Instruments: Derivative instruments are recognized on the consolidated balance sheet at fair value. On the inception date, management designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). Management formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. Both at the hedge’s inception and on an ongoing basis, management assesses whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items. The fair value of the derivative is reflected on the Consolidated Balance Sheet in either other assets or liabilities. Changes in the fair value of derivative instruments that are highly effective and qualify as cash flow hedge are recorded in other comprehensive income (loss). Any ineffective portion is recorded in earnings. For fair value hedges that are highly effective, the gain or loss on the derivative and the loss or gain on the hedged item attributable to the hedged risk are both 62 Table of Contents recognized in earnings, with the differences (if any) representing hedge ineffectiveness. Management discontinues hedge accounting when it is determined that the derivative is no longer highly effective in offsetting changes of the hedged risk on the hedged item, or determines that the designation of the derivative as a hedging instrument is no longer appropriate. Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense based on the item being hedged. Net cash settlements on derivatives that do not quality for hedge accounting are reporting in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as cash flows of the items being hedged. Commitments to fund mortgage loans with borrowers (interest rate locks) and forward commitments for the future delivery of these mortgage loans for sale on the secondary market are classified as free standing derivatives. These derivatives are designed to hedge against inherent interest rate and pricing risk associated with selling loans. The commitments to lend generally terminate once the loan is funded, the lock period expires or the borrower decides not to contract for the loan. The forward commitments generally terminate once the loan is sold or the commitment period expires. These commitments are considered derivatives which are accounted for by recognizing their estimated fair value on the Consolidated Balance Sheet in either other assets or other liabilities. Senior and Subordinated Borrowings: Senior borrowings include retail and wholesale repurchase agreements, FHLB overnight, FHLB short-term and long-term advances, federal funds purchased, credit facilities, and line of credit advances. Subordinated borrowings consist of subordinated notes issued to investors. At times, posting of collateral is required for which it, cash, loans and/or investment securities are used. Off-Balance Sheet Financial Instruments: Off-balance sheet financial instruments consist of commitments to extend credit, and unused or unadvanced loan funds and letters of credit. These financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received. Stock Based Compensation: Equity award plans include stock options, restricted stock awards restricted stock units and performance stock units, which are described more fully in Note 13 – Stock Based Compensation Plans o f the Consolidated Financial Statements. Stock based compensation expenses are recognized for stock options and restricted awards based on the fair value of these awards as of the grant date. For restricted stock units and performance stock units the expense is recognized over the vesting periods of the grants. Treasury shares are used for issuing shares upon option exercises, restricted stock awards, restricted stock unit vesting and performance stock unit vesting. Employee Stock Purchase Plan: Compensation expense is recognized based on the difference between the market price and the discounted price of shares issued from participant enrollment over each six month enrollment period. Post-retirement Plans: Non-qualified supplemental retirement benefit payments are provided or promised to certain ex-employees and retired officers based on contractual agreements. This plan is described more fully in Note 8 – Employee Benefit Plans of the Consolidated Financial Statements. The plan agreements provide payments in installments over a period of years upon reaching a certain age, retirement or death. Benefit obligations are recognized as the net present value of payments associated with the agreements over the service periods of the participants. Compensation expense is recognized from interest costs and the impact of changes in mortality rates on the benefit obligations. Pension Plan: The pension plan is an inherited, frozen, noncontributory, qualified, defined benefit plan for certain employees who met age and service requirements. This plan is described more fully in Note 8 – Employee Benefit Plans of the Consolidated Financial Statements. In order to measure the expense associated with the Plans, various assumptions are made including the discount rate, expected return on plan assets, anticipated mortality rates, and expected future healthcare costs. The assumptions are based on historical experience as well as current facts and circumstances. As of the measurement date (December 31, 2022), plan assets are determined based on fair value, generally representing observable market prices. The projected benefit obligation is primarily determined based on the present value of projected benefit distributions at an assumed discount rate. ​ 63 Table of Contents Net periodic pension benefit costs include interest costs based on an assumed discount rate, the expected return on plan assets based on actuarially derived market-related values, and the amortization of net actuarial losses. Differences between expected and actual results in each year are included in the net actuarial gain or loss amount, which is recognized in other comprehensive income. The net actuarial gain or loss in excess of a 10 % corridor is amortized in net periodic benefit cost over the average remaining service period of active participants in the Plans. The prior service credit is amortized over the average remaining service period to full eligibility for participating employees expected to receive benefits. ​ At the end of each year the Plans’ assets and obligations are examined to determine its funded status as of the end of the fiscal year and recognizes those changes in other comprehensive income, net of tax. The plans over or under funded status is recognized in the consolidated balance sheet as an asset or liability, respectively. ​ 401(k) Plan : The employer sponsored 401(k) plan to which participants may make contributions in the form of salary deferrals also provides participants with matching contributions in accordance with the terms of the plan. Contributions due under the terms of the defined contribution plans are accrued through compensation expense as earned by employees. Income Taxes: The asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information indicates that it is more likely than not that deferred tax assets will not be realized, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Treasury Stock: Shares of the Company’s common stock that are repurchased are recorded in treasury stock at cost. On the date of subsequent re-issuance, the treasury stock account is reduced by the cost of such stock on an average cost basis. Earnings Per Share: Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in earnings, such as dilutive stock options. Revenue Recognition: Non-interest revenue is recognized in accordance with ASC 606, "Revenue from Contracts with Customers." ASC 606 requires a five step process: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) a performance obligation is satisfied. Revenue recognition under ASC 606 depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or service. See Note 15 – Revenue from Contracts with Customers of the Company’s Consolidated Financial Statements for additional information on revenue recognition. Wealth Management: Wealth management assets held in a fiduciary or agent capacity are not included in the accompanying Consolidated Balance Sheets because the ownership is held by customers. Trust and investment management fees are primarily comprised of fees earned from investment management, trust administration, tax return preparation, and financial planning. The performance obligation for revenue recognition is generally satisfied over time and the resulting in monthly fee income, based on the daily accrual of the market value of the investment accounts and the applicable fee rate. ​ Marketing Costs: Marketing costs are expensed as incurred. ​ Segment Reporting: An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and evaluate performance. Operations of the Company are solely within community banking industry and include traditional community banking services, including lending activities, acceptance of demand, savings and time 64 Table of Contents deposits, business services, investment management, trust and third-party brokerage services. These products and services have similar distribution methods, types of customers and regulatory responsibilities. Accordingly, segment information is not presented in the Consolidated Financial Statements. Recent Accounting Pronouncements The following table provides a brief description of accounting standards 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 Not Yet Adopted ​ ​ ​ ASU 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method ​ ​ The amendments in this update allow non prepayable financial assets to be included in a closed portfolio hedge using the portfolio layer method. The amendments allow multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. Additionally, the amendments specify that an entity hedging multiple amounts in a closed portfolio with a single amortizing-notional swap is executing a single-layer hedge, not hedges of multiple layers. ​ ​ January 1, 2023 ​ ​ We do not expect adoption of this ASU to have a material impact on our consolidated financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ​ ​ The amendments in this update eliminate TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an 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 ​ ​ We do not expect adoption of this ASU to have a material impact on our consolidated financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1 ​ ​ 65 Table of Contents NOTE 2. SECURITIES AVAILABLE FOR SALE The following is a summary of securities available for sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ ​ ​ ​ Unrealized ​ Unrealized ​ ​ ​ (in thousands) Amortized Cost Gains Losses Fair Value December 31, 2022 ​ ​ ​ ​ Mortgage-backed securities: ​ ​ ​ ​ US Government-sponsored enterprises ​ $ 249,838 ​ $ 14 ​ $ ( 34,825 ) ​ $ 215,027 US Government agency ​ 93,010 ​ 21 ​ ( 10,765 ) ​ 82,266 Private label ​ 64,056 ​ 34 ​ ( 3,936 ) ​ 60,154 Obligations of states and political subdivisions thereof ​ 121,939 ​ 7,149 ​ ( 21,351 ) ​ 107,737 Corporate bonds ​ 102,505 ​ 33 ​ ( 8,206 ) ​ 94,332 Total securities available for sale ​ $ 631,348 ​ $ 7,251 ​ $ ( 79,083 ) ​ $ 559,516 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ Gross ​ ​ ​ ​ ​ ​ ​ ​ Unrealized ​ Unrealized ​ ​ ​ (in thousands) Amortized Cost Gains Losses Fair Value December 31, 2021 ​ ​ ​ ​ Mortgage-backed securities: ​ ​ ​ ​ US Government-sponsored enterprises ​ $ 237,283 ​ $ 2,289 ​ $ ( 3,455 ) ​ $ 236,117 US Government agency ​ 79,143 ​ 1,016 ​ ( 522 ) ​ 79,637 Private label ​ 64,691 ​ 142 ​ ( 138 ) ​ 64,695 Obligations of states and political subdivisions thereof ​ 140,585 ​ 1,489 ​ ( 298 ) ​ 141,776 Corporate bonds ​ 93,994 ​ 2,479 ​ ( 422 ) ​ 96,051 Total securities available for sale ​ $ 615,696 ​ $ 7,415 ​ $ ( 4,835 ) ​ $ 618,276 ​ Credit Quality Information We monitor the credit quality of available for sale debt securities through credit ratings from various rating agencies and substantial price changes. Credit ratings express opinions about the credit quality of a security and are utilized us to make informed decisions. Securities are triggered for further review in the quarter if the security has significant fluctuations in ratings, drops below investment grade, or significant pricing changes. For securities without credit ratings, we utilize other financial information indicating the financial health of the underlying municipality, agency, or organization associated with the underlying security. ​ As of December 31, 2022 and 2021, 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 December 31, 2022 are presented below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown in total, as their maturities are highly variable. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for sale (in thousands) Amortized Cost Fair Value Within 1 year $ 195 ​ $ 197 Over 1 year to 5 years ​ 38,285 ​ 35,251 Over 5 years to 10 years ​ 56,507 ​ 58,721 Over 10 years ​ 129,457 ​ 107,900 Total bonds and obligations ​ 224,444 ​ 202,069 Mortgage-backed securities ​ 406,904 ​ 357,447 Total securities available for sale ​ $ 631,348 ​ $ 559,516 ​ 66 Table of Contents The following table summarizes proceeds from the sale of AFS securities and realized gains and losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from Sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ of Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Available for Sale Realized Gains Realized Losses Net 2022 ​ $ 7,130 ​ $ 151 ​ $ ( 98 ) ​ $ 53 2021 ​ ​ 92,723 ​ ​ 2,933 ​ ​ ( 63 ) ​ ​ 2,870 2020 ​ 153,200 ​ ​ 5,492 ​ ​ ( 47 ) ​ ​ 5,445 ​ 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 December 31, 2022 ​ ​ ​ ​ ​ ​ Mortgage-backed securities: ​ ​ ​ ​ ​ ​ US Government-sponsored enterprises ​ $ 7,005 ​ $ 82,483 ​ $ 27,820 ​ $ 127,745 ​ $ 34,825 ​ $ 210,228 US Government agency ​ 2,902 ​ 42,865 ​ 7,863 ​ 34,988 ​ 10,765 ​ 77,853 Private label ​ 841 ​ 15,694 ​ 3,095 ​ 44,396 ​ 3,936 ​ 60,090 Obligations of states and political subdivisions thereof ​ 7,990 ​ 48,799 ​ 13,361 ​ 55,702 ​ 21,351 ​ 104,501 Corporate bonds ​ 4,733 ​ 65,279 ​ 3,473 ​ 25,027 ​ 8,206 ​ 90,306 Total securities available for sale ​ $ 23,471 ​ $ 255,120 ​ $ 55,612 ​ $ 287,858 ​ $ 79,083 ​ $ 542,978 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than Twelve Months ​ Over Twelve Months ​ Total ​ Gross ​ ​ Gross ​ ​ Gross ​ ​ ​ ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair (in thousands) ​ Losses ​ Value ​ Losses ​ Value ​ Losses ​ Value December 31, 2021 ​ ​ ​ ​ ​ ​ Mortgage-backed securities: ​ ​ ​ ​ ​ ​ US Government-sponsored enterprises ​ $ 1,589 ​ $ 127,780 ​ $ 1,866 ​ $ 39,717 ​ $ 3,455 ​ $ 167,497 US Government agency ​ 381 ​ 32,628 ​ 141 ​ 4,548 ​ 522 ​ 37,176 Private label ​ 133 ​ 40,372 ​ 5 ​ 16 ​ 138 ​ 40,388 Obligations of states and political subdivisions thereof ​ 187 ​ 36,878 ​ 111 ​ 6,129 ​ 298 ​ 43,007 Corporate bonds ​ 94 ​ 25,358 ​ 328 ​ 11,922 ​ 422 ​ 37,280 Total securities available for sale ​ $ 2,384 ​ $ 263,016 ​ $ 2,451 ​ $ 62,332 ​ $ 4,835 ​ $ 325,348 ​ A summary of securities pledged as collateral for certain deposits and borrowing arrangements for the years ended December 31, 2022 and 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ Carrying Estimated Carrying Estimated (in thousands) ​ Value ​ Fair Value ​ Value ​ Fair Value Securities pledged for deposits ​ $ 26,807 ​ $ 23,430 ​ $ 15,326 ​ $ 17,214 Securities pledged for repurchase agreements ​ 21,001 ​ 17,964 ​ 25,693 ​ 28,431 Securities pledged for borrowings (1) ​ 40,686 ​ 33,962 ​ 45,005 ​ 47,568 Total securities pledged ​ $ 88,494 ​ $ 75,356 ​ $ 86,024 ​ $ 93,213 (1) The Bank pledged securities as collateral for certain borrowing arrangements with the Federal Home Loan Bank of Boston and Federal Reserve Bank of Boston. ​ 67 Table of Contents 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 December 31, 2022, 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 for greater than 12 months at December 31, 2022: ​ US Government-sponsored enterprises 484 out of the total 514 securities in our portfolios of AFS US Government-sponsored enterprises were in unrealized loss positions. Aggregate unrealized losses represented 14.21 % of the amortized cost of securities in unrealized loss positions. The FNMA and FHLMC 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 year. All securities are performing. US Government agencies 140 out of the total 161 securities in our portfolios of AFS US Government agency securities were in unrealized loss positions. Aggregate unrealized losses represented 12.15 % of the amortized cost of securities in unrealized loss positions. The Government National Mortgage Association (“GNMA”) guarantees the contractual cash flows of all of our US government agency securities. The securities are rated investment grade and there were no material underlying credit downgrades during the year. All securities are performing. Private-label 31 of the total 34 securities in our portfolio of AFS private-label mortgage-backed securities were in unrealized loss positions. Aggregate unrealized losses represented 6.15 % of the amortized cost of securities in unrealized loss positions. Based upon the foregoing considerations, and the expectation that our will receive all of the future contractual cash flows related to the amortized cost on these securities, we do not consider there to be any additional other-than-temporary impairment with respect to these securities. Obligations of states and political subdivisions thereof 67 of the total 77 securities in our portfolio of AFS municipal bonds and obligations were in unrealized loss positions. Aggregate unrealized losses represented 16.96 % 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 the bonds in this portfolio carry minimal risk of default and we are appropriately compensated for that risk. There were no material underlying credit downgrades during the year. All securities are performing. Corporate bonds 30 of the total 33 securities in our portfolio of AFS corporate bonds were in an unrealized loss position. The aggregate unrealized loss represents 8.59 % of the amortized cost of securities in unrealized loss positions. We review the financial strength of all of these bonds and have concluded that the amortized cost remains supported by the expected future cash flows of these securities. ​ ​ ​ 68 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 by regulatory call report code segmentation based on underlying collateral for certain loan types: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (in thousands) 2022 2021 Commercial construction ​ $ 117,577 ​ $ 56,263 Commercial real estate owner occupied ​ 244,814 ​ 257,122 Commercial real estate non-owner occupied ​ 1,146,674 ​ 887,092 Tax exempt ​ 42,879 ​ 41,280 Commercial and industrial ​ 297,112 ​ 307,112 Residential real estate ​ 954,968 ​ 888,263 Home equity ​ 90,865 ​ 86,657 Consumer other ​ 7,801 ​ 8,121 Total loans ​ 2,902,690 ​ 2,531,910 Allowance for credit losses ​ 25,860 ​ 22,718 Net loans ​ $ 2,876,830 ​ $ 2,509,192 ​ Total unamortized net costs and premiums included in loan totals were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (in thousands) 2022 2021 Net unamortized loan origination costs ​ $ 3,184 ​ $ 3,014 Net unamortized fair value discount on acquired loans ​ ( 3,506 ) ​ ( 4,758 ) Total ​ $ ( 322 ) ​ $ ( 1,744 ) ​ We exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this footnote. As of December 31, 2022 and 2021, accrued interest receivable for loans totaled $ 10.7 million and $ 6.3 million, respectively, and is included in the “other assets” line item on the Company’s consolidated balance sheets. ​ The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and subsequent legislation established the Payroll Protection Program (“PPP”) are administered directly by the Small Business Administration (“SBA”). As of December 31, 2022, we had no remaining PPP loans and as of December 31, 2021, we had 61 PPP loans outstanding, with an outstanding principal balance of $ 6.7 million. PPP loans are included in the commercial and industrial portfolio segment. ​ Characteristics of each loan portfolio segment are as follows: ​ Commercial construction - Loans in this segment primarily include raw land, land development and construction of commercial and multifamily residential properties. Collateral values are determined based upon appraisals and evaluations of the completed structure in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy guidelines that are more restrictive than 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 (REITs) and unsecured loans to developers that closely correlate to the inherent risk in commercial real estate markets are also included. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower. ​ 69 Table of Contents Tax Exempt - Loans in this segment primarily include loans to various state and municipal government entities. Loans made in these borrowers may provide us with tax-exempt income. While governed and underwritten similar to commercial loans they do have unique requirements based on established polices. Almost all state and municipal loans are considered a general obligation of the issuing entity. Given the size of many municipal borrowers, borrowings are normally not rated by major rating agencies. ​ Commercial and industrial loans - Loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment in this segment. Generally loans are secured by assets of the business such as accounts receivable, inventory, marketable securities, other liquid collateral, equipment and other business assets. Some loans in this category may be unsecured or guaranteed by government agencies such as the SBA. Loans are primarily paid by the operating cash flow of the borrower. ​ Residential real estate - All loans in this segment are collateralized by one-to-four family homes. Residential real estate loans held in the loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to various underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. ​ Home equity - All loans and lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. ​ Consumer other - Loans in this segment include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto loans, recreational equipment, overdraft protection or other consumer loans. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines, as applicable. ​ Allowance for Credit Losses The Allowance for Credit Losses (“ACL”) is comprised of the allowance for loan losses and the allowance for unfunded commitments which is accounted for as a separate liability in other liabilities on the balance sheet. The level of the ACL represents management’s estimate of expected credit losses over the expected life of the loans at the balance sheet date. ​ The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged off. The ACL is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans and TDRs. ​ ​ ​ 70 Table of Contents The activity in the allowance for credit losses for the periods ended are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or for the Year Ended December 31, 2022 ​ ​ Balance at ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning of ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at (in thousands) Period ​ Charge Offs Recoveries Provision End of Period Commercial construction ​ $ 2,111 ​ $ — ​ $ — ​ $ 468 ​ $ 2,579 Commercial real estate owner occupied ​ 2,751 ​ — ​ 120 ​ ( 682 ) ​ 2,189 Commercial real estate non-owner occupied ​ 5,650 ​ — ​ — ​ 3,691 ​ 9,341 Tax exempt ​ 86 ​ — ​ — ​ 7 ​ 93 Commercial and industrial ​ 5,369 ​ ( 8 ) ​ 341 ​ ( 2,209 ) ​ 3,493 Residential real estate ​ 5,862 ​ ( 84 ) ​ 106 ​ 1,390 ​ 7,274 Home equity ​ 814 ​ ( 7 ) ​ 25 ​ ( 21 ) ​ 811 Consumer other ​ 75 ​ ( 267 ) ​ 12 ​ 260 ​ 80 Total ​ $ 22,718 ​ $ ( 366 ) ​ $ 604 ​ $ 2,904 ​ $ 25,860 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or for the Year Ended December 31, 2021 ​ ​ Balance at ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning of ​ Impact of ASC ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at (in thousands) Period ​ 326 Charge Offs Recoveries Provision End of Period Commercial construction ​ $ 824 ​ $ 1,196 ​ $ — ​ $ 18 ​ $ 73 ​ $ 2,111 Commercial real estate owner occupied ​ 1,783 ​ 708 ​ ( 403 ) ​ 290 ​ 373 ​ 2,751 Commercial real estate non-owner occupied ​ 7,864 ​ ( 2,008 ) ​ — ​ 4 ​ ( 210 ) ​ 5,650 Tax exempt ​ 58 ​ 40 ​ — ​ — ​ ( 12 ) ​ 86 Commercial and industrial ​ 3,137 ​ 2,996 ​ ( 59 ) ​ ​ 77 ​ ( 782 ) ​ 5,369 Residential real estate ​ 5,010 ​ 1,732 ​ ( 77 ) ​ 159 ​ ( 962 ) ​ 5,862 Home equity ​ 285 ​ 603 ​ ( 154 ) ​ 51 ​ 29 ​ 814 Consumer other ​ 121 ​ ( 39 ) ​ ( 205 ) ​ 9 ​ 189 ​ 75 Total ​ $ 19,082 ​ $ 5,228 ​ $ ( 898 ) ​ $ 608 ​ $ ( 1,302 ) ​ $ 22,718 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or For the Year Ended December 30, 2020 ​ ​ Balance at ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at (in thousands) Period Charge Offs Recoveries Provision End of Period Commercial construction ​ $ 317 ​ $ — ​ $ — ​ $ 507 ​ $ 824 Commercial real estate owner occupied ​ 2,368 ​ — ​ — ​ ( 585 ) ​ 1,783 Commercial real estate non-owner occupied ​ 4,695 ​ ( 1,137 ) ​ 173 ​ 4,133 ​ 7,864 Tax exempt ​ 67 ​ — ​ — ​ ( 9 ) ​ 58 Commercial and industrial ​ 3,262 ​ ( 593 ) ​ ​ 30 ​ 438 ​ 3,137 Residential real estate ​ 4,213 ​ ( 54 ) ​ 13 ​ 838 ​ 5,010 Home equity ​ 320 ​ — ​ — ​ ( 35 ) ​ 285 Consumer other ​ 111 ​ ( 384 ) ​ 56 ​ 338 ​ 121 Total ​ $ 15,353 ​ $ ( 2,168 ) ​ $ 272 ​ $ 5,625 ​ $ 19,082 ​ ​ ​ 71 Table of Contents Unfunded Commitments ​ The allowance for credit losses on unfunded commitments is recognized as a liability (other liabilities on the consolidated balance sheet), with adjustments to the reserve recognized in other non-interest expense in the consolidated statement of operations. The activity in the allowance for credit losses on unfunded commitments for the periods ended was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or for the Years Ended December 31, (in thousands) ​ 2022 2021 ​ 2020 Beginning Balance ​ $ 2,152 ​ $ 359 ​ $ 314 Impact of ASC 326 ​ ​ — ​ ​ 1,616 ​ ​ — Provision for credit losses ​ 1,758 ​ 177 ​ 45 Ending Balance ​ $ 3,910 ​ $ 2,152 ​ $ 359 ​ ​ 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 review and approve 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 that may require a higher level of supervision or internal reporting because of: (i) declining industry trends; (ii) increasing reliance on secondary sources of repayment; (iii) the poor condition of or lack of control over collateral; or (iv) failure to obtain proper documentation or any other deviations from prudent lending practices. Economic or market conditions which may, in the future, affect the obligor may warrant special mention of the asset. Loans for which an adverse trend in the borrower's operations or an imbalanced position in the balance sheet which has not reached a point where the liquidation is jeopardized may be included in this classification. Special mention loans are not adversely classified and do not expose 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 72 Table of Contents 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 affected in the future. Losses are taken in the period in which they are determined to be uncollectible. 73 Table of Contents The following table presents our loans by year of origination, loan segmentation and risk indicator as of December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 ​ 2020 ​ 2019 ​ 2018 ​ Prior ​ Total Commercial construction ​ ​ ​ ​ ​ ​ ​ Risk rating: ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 49,722 ​ $ 38,837 ​ $ 2,865 ​ $ 1,011 ​ $ 964 ​ $ — ​ $ 93,399 Special mention ​ — ​ — ​ 24,178 ​ — ​ — ​ — ​ 24,178 Substandard ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 49,722 ​ $ 38,837 ​ $ 27,043 ​ $ 1,011 ​ $ 964 ​ $ — ​ $ 117,577 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate owner occupied ​ ​ ​ ​ ​ ​ ​ Risk rating: ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 22,371 ​ $ 11,290 ​ $ 23,014 ​ $ 31,352 ​ $ 46,398 ​ $ 103,295 ​ $ 237,720 Special mention ​ — ​ — ​ 243 ​ 666 ​ 173 ​ 1,870 ​ 2,952 Substandard ​ — ​ — ​ — ​ — ​ 77 ​ 3,924 ​ 4,001 Doubtful ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 141 ​ ​ 141 Total ​ $ 22,371 ​ $ 11,290 ​ $ 23,257 ​ $ 32,018 ​ $ 46,648 ​ $ 109,230 ​ $ 244,814 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate non-owner occupied ​ ​ ​ ​ ​ ​ ​ Risk rating: ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 370,856 ​ $ 228,414 ​ $ 145,096 ​ $ 88,111 ​ $ 35,213 ​ $ 238,395 ​ $ 1,106,085 Special mention ​ — ​ 21,390 ​ — ​ 127 ​ 911 ​ 16,612 ​ 39,040 Substandard ​ — ​ — ​ — ​ — ​ — ​ 1,404 ​ 1,404 Doubtful ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 145 ​ ​ 145 Total ​ $ 370,856 ​ $ 249,804 ​ $ 145,096 ​ $ 88,238 ​ $ 36,124 ​ $ 256,556 ​ $ 1,146,674 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax exempt ​ ​ ​ ​ ​ ​ ​ Risk rating: ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 8,686 ​ $ 1,020 ​ $ 252 ​ $ 772 ​ $ 13,231 ​ $ 18,918 ​ $ 42,879 Special mention ​ — ​ — ​ — ​ — ​ — ​ — ​ — Substandard ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 8,686 ​ $ 1,020 ​ $ 252 ​ $ 772 ​ $ 13,231 ​ $ 18,918 ​ $ 42,879 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ ​ ​ ​ ​ ​ ​ Risk rating: ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 83,151 ​ $ 26,948 ​ $ 62,835 ​ $ 27,491 ​ $ 9,511 ​ $ 81,316 ​ $ 291,252 Special mention ​ 1,450 ​ — ​ 53 ​ 803 ​ 201 ​ 619 ​ 3,126 Substandard ​ — ​ 113 ​ 111 ​ 65 ​ 299 ​ 2,106 ​ 2,694 Doubtful ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 40 ​ ​ 40 Total ​ $ 84,601 ​ $ 27,061 ​ $ 62,999 ​ $ 28,359 ​ $ 10,011 ​ $ 84,081 ​ $ 297,112 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 195,320 ​ $ 177,480 ​ $ 111,021 ​ $ 69,170 ​ $ 47,797 ​ $ 349,795 ​ $ 950,583 Nonperforming ​ — ​ 45 ​ — ​ 49 ​ 641 ​ 3,650 ​ 4,385 Total ​ $ 195,320 ​ $ 177,525 ​ $ 111,021 ​ $ 69,219 ​ $ 48,438 ​ $ 353,445 ​ $ 954,968 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 17,107 ​ $ 10,638 ​ $ 8,139 ​ $ 6,830 ​ $ 6,997 ​ $ 40,191 ​ $ 89,902 Nonperforming ​ — ​ — ​ — ​ — ​ — ​ 963 ​ 963 Total ​ $ 17,107 ​ $ 10,638 ​ $ 8,139 ​ $ 6,830 ​ $ 6,997 ​ $ 41,154 ​ $ 90,865 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer other ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 4,321 ​ $ 1,341 ​ $ 863 ​ $ 265 ​ $ 64 ​ $ 942 ​ $ 7,796 Nonperforming ​ — ​ — ​ 5 ​ — ​ — ​ — ​ 5 Total ​ $ 4,321 ​ $ 1,341 ​ $ 868 ​ $ 265 ​ $ 64 ​ $ 942 ​ $ 7,801 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Loans ​ $ 752,984 ​ $ 517,516 ​ $ 378,675 ​ $ 226,712 ​ $ 162,477 ​ $ 864,326 ​ $ 2,902,690 ​ ​ ​ ​ ​ ​ 74 Table of Contents The following table presents our loans by year of origination, loan segmentation and risk indicator as of December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ 2021 ​ 2020 ​ 2019 ​ 2018 ​ 2017 ​ Prior ​ Total Commercial construction ​ ​ ​ ​ ​ ​ ​ Risk rating: ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 22,866 ​ $ 4,787 ​ $ 19,211 ​ $ 9,399 ​ $ — ​ $ — ​ $ 56,263 Special mention ​ — ​ — ​ — ​ — ​ — ​ — ​ — Substandard ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 22,866 ​ $ 4,787 ​ $ 19,211 ​ $ 9,399 ​ $ — ​ $ — ​ $ 56,263 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate owner occupied ​ ​ ​ ​ ​ ​ ​ Risk rating: ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 12,940 ​ $ 25,240 ​ $ 34,782 ​ $ 49,136 ​ $ 19,292 ​ $ 103,144 ​ $ 244,534 Special mention ​ — ​ — ​ 760 ​ — ​ — ​ 2,659 ​ 3,419 Substandard ​ — ​ — ​ 1 ​ 853 ​ 247 ​ 7,737 ​ 8,838 Doubtful ​ ​ — ​ ​ — ​ ​ — ​ ​ 167 ​ ​ — ​ ​ 164 ​ ​ 331 Total ​ $ 12,940 ​ $ 25,240 ​ $ 35,543 ​ $ 50,156 ​ $ 19,539 ​ $ 113,704 ​ $ 257,122 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate non-owner occupied ​ ​ ​ ​ ​ ​ ​ Risk rating: ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 235,646 ​ $ 172,785 ​ $ 119,326 ​ $ 39,663 ​ $ 136,120 ​ $ 165,329 ​ $ 868,869 Special mention ​ — ​ — ​ 174 ​ — ​ — ​ 14,789 ​ 14,963 Substandard ​ — ​ — ​ — ​ — ​ — ​ 3,097 ​ 3,097 Doubtful ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 163 ​ ​ 163 Total ​ $ 235,646 ​ $ 172,785 ​ $ 119,500 ​ $ 39,663 ​ $ 136,120 ​ $ 183,378 ​ $ 887,092 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tax exempt ​ ​ ​ ​ ​ ​ ​ Risk rating: ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 1,249 ​ $ 299 ​ $ 968 ​ $ 14,408 ​ $ 5,329 ​ $ 19,027 ​ $ 41,280 Special mention ​ — ​ — ​ — ​ — ​ — ​ — ​ — Substandard ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 1,249 ​ $ 299 ​ $ 968 ​ $ 14,408 ​ $ 5,329 ​ $ 19,027 ​ $ 41,280 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ ​ ​ ​ ​ ​ ​ Risk rating: ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 77,608 ​ $ 80,569 ​ $ 33,405 ​ $ 16,457 ​ $ 33,413 ​ $ 61,594 ​ $ 303,046 Special mention ​ — ​ — ​ 584 ​ 468 ​ 172 ​ 1,396 ​ 2,620 Substandard ​ 58 ​ 3 ​ 512 ​ — ​ 48 ​ 578 ​ 1,199 Doubtful ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 92 ​ ​ 155 ​ ​ 247 Total ​ $ 77,666 ​ $ 80,572 ​ $ 34,501 ​ $ 16,925 ​ $ 33,725 ​ $ 63,723 ​ $ 307,112 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 191,466 ​ $ 120,495 ​ $ 83,044 ​ $ 62,299 ​ $ 59,642 ​ $ 364,482 ​ $ 881,428 Nonperforming ​ — ​ — ​ — ​ 286 ​ 178 ​ 6,371 ​ 6,835 Total ​ $ 191,466 ​ $ 120,495 ​ $ 83,044 ​ $ 62,585 ​ $ 59,820 ​ $ 370,853 ​ $ 888,263 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Home equity ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 12,770 ​ $ 10,461 ​ $ 9,005 ​ $ 7,855 ​ $ 6,474 ​ $ 38,823 ​ $ 85,388 Nonperforming ​ — ​ — ​ — ​ — ​ — ​ 1,269 ​ 1,269 Total ​ $ 12,770 ​ $ 10,461 ​ $ 9,005 ​ $ 7,855 ​ $ 6,474 ​ $ 40,092 ​ $ 86,657 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Consumer other ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 2,525 ​ $ 1,659 ​ $ 792 ​ $ 669 ​ $ 92 ​ $ 2,379 ​ $ 8,116 Nonperforming ​ — ​ — ​ — ​ — ​ — ​ 5 ​ 5 Total ​ $ 2,525 ​ $ 1,659 ​ $ 792 ​ $ 669 ​ $ 92 ​ $ 2,384 ​ $ 8,121 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Loans ​ $ 557,128 ​ $ 416,298 ​ $ 302,564 ​ $ 201,660 ​ $ 261,099 ​ $ 793,161 ​ $ 2,531,910 ​ ​ 75 Table of Contents ​ Past Dues ​ The following is a summary of past due loans for the periods ended: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 (in thousands) 30-59 60-89 90+ Total Past Due Current Total Loans Commercial construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 117,577 ​ $ 117,577 Commercial real estate owner occupied ​ 385 ​ — ​ — ​ 385 ​ 244,429 ​ 244,814 Commercial real estate non-owner occupied ​ 45 ​ 145 ​ 139 ​ 329 ​ 1,146,345 ​ 1,146,674 Tax exempt ​ — ​ — ​ — ​ — ​ 42,879 ​ 42,879 Commercial and industrial ​ 169 ​ — ​ 9 ​ 178 ​ 296,934 ​ 297,112 Residential real estate ​ 803 ​ 348 ​ 2,029 ​ 3,180 ​ 951,788 ​ 954,968 Home equity ​ 216 ​ 160 ​ 246 ​ 622 ​ 90,243 ​ 90,865 Consumer other ​ 41 ​ 8 ​ — ​ 49 ​ 7,752 ​ 7,801 Total ​ $ 1,659 ​ $ 661 ​ $ 2,423 ​ $ 4,743 ​ $ 2,897,947 ​ $ 2,902,690 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 (in thousands) 30-59 60-89 90+ Total Past Due Current Total Loans Commercial construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 56,263 ​ $ 56,263 Commercial real estate owner occupied ​ 1,190 ​ 7 ​ 1 ​ 1,198 ​ 255,924 ​ 257,122 Commercial real estate non-owner occupied ​ — ​ — ​ — ​ — ​ 887,092 ​ 887,092 Tax exempt ​ — ​ — ​ — ​ — ​ 41,280 ​ 41,280 Commercial and industrial ​ 31 ​ 318 ​ 185 ​ 534 ​ 306,578 ​ 307,112 Residential real estate ​ 5,010 ​ 1,238 ​ 1,416 ​ 7,664 ​ 880,599 ​ 888,263 Home equity ​ 699 ​ 149 ​ 101 ​ 949 ​ 85,708 ​ 86,657 Consumer other ​ 29 ​ — ​ 2 ​ 31 ​ 8,090 ​ 8,121 Total ​ $ 6,959 ​ $ 1,712 ​ $ 1,705 ​ $ 10,376 ​ $ 2,521,534 ​ $ 2,531,910 ​ Non-Accrual Loans ​ The following is a summary of non-accrual loans for the periods ended: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ Nonaccrual With No ​ 90+ Days Past (in thousands) Nonaccrual Related Allowance Due and Accruing Commercial construction ​ $ — ​ $ — ​ $ — Commercial real estate owner occupied ​ 439 ​ 360 ​ — Commercial real estate non-owner occupied ​ 550 ​ 411 ​ — Tax exempt ​ — ​ — ​ — Commercial and industrial ​ 207 ​ 145 ​ — Residential real estate ​ 4,385 ​ 1,361 ​ 202 Home equity ​ 963 ​ 57 ​ 14 Consumer other ​ 5 ​ — ​ — Total ​ $ 6,549 ​ $ 2,334 ​ $ 216 ​ ​ 76 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ Nonaccrual With No ​ 90+ Days Past (in thousands) Nonaccrual Related Allowance Due and Accruing Commercial construction ​ $ — ​ $ — ​ $ — Commercial real estate owner occupied ​ 783 ​ 424 ​ — Commercial real estate non-owner occupied ​ 622 ​ 459 ​ — Tax exempt ​ — ​ — ​ — Commercial and industrial ​ 677 ​ 542 ​ 30 Residential real estate ​ 6,835 ​ 2,537 ​ 41 Home equity ​ 1,269 ​ 305 ​ 63 Consumer other ​ 5 ​ — ​ — Total ​ $ 10,191 ​ $ 4,267 ​ $ 134 ​ Our policy is to reverse previously recorded interest income when a loan is placed on non-accrual, as such, the Company did not record any interest income on its non-accrual for the year ended December 31, 2022 and 2021. ​ 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 (in thousands) Real Estate Other Real Estate Other Commercial construction ​ $ — ​ $ — ​ $ — ​ $ — Commercial real estate owner occupied ​ 439 ​ — ​ 783 ​ — Commercial real estate non-owner occupied ​ 550 ​ — ​ 622 ​ — Tax exempt ​ — ​ — ​ — ​ — Commercial and industrial ​ 91 ​ 116 ​ 385 ​ 292 Residential real estate ​ 4,385 ​ — ​ 6,835 ​ — Home equity ​ 963 ​ — ​ 1,269 ​ — Consumer other ​ 5 ​ — ​ 5 ​ — Total ​ $ 6,433 ​ $ 116 ​ $ 9,899 ​ $ 292 ​ ​ ​ ​ 77 Table of Contents ​ Troubled Debt Restructuring Loans The loan portfolio also includes certain loans that have been modified in a TDR, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance, or other actions. Certain TDRs are classified as non-performing at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months . TDRs are evaluated individually for impairment and may result in a specific allowance amount allocated to an individual loan. There were no modifications qualifying as TDRs for the years ended December 31, 2022 and 2021. The following table include the recorded investment and number of modifications identified during the period ended. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2020 ​ ​ ​ ​ Pre-Modification ​ Post-Modification ​ ​ ​ ​ ​ Number of ​ Outstanding ​ Outstanding ​ ​ ​ (in thousands) Modifications Balance Balance Reserve Commercial construction ​ — ​ $ — ​ $ — ​ $ — Commercial real estate owner occupied — ​ — ​ — ​ — Commercial real estate non-owner occupied 1 ​ 54 ​ 244 ​ 24 Tax exempt — ​ — ​ — ​ — Commercial and industrial 7 ​ 315 ​ 325 ​ — Residential real estate — ​ — ​ — ​ — Home equity 1 ​ 26 ​ 24 ​ — Consumer other 1 ​ 9 ​ 8 ​ — Total 10 ​ $ 404 ​ $ 601 ​ $ 24 ​ ​ The following table summarizes the types of loan concessions made for the period presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ Post-Modification ​ ​ Number of ​ Outstanding (in thousands) ​ Modifications ​ Balance Interest only payments and maturity concession — ​ $ — Interest rate, forbearance and maturity concession 4 ​ ​ 384 Amortization and maturity concession — ​ — Amortization concession — ​ — Amortization, interest rate and maturity concession — ​ — Forbearance — ​ — Forbearance and interest only payments 1 ​ 24 Forbearance and maturity concession — ​ — Forbearance, amortization and maturity concession — ​ — Maturity concession 5 ​ 193 Other — ​ — Total 10 ​ $ 601 ​ For the year ended December 31, 2022 there were no loans that were restructured that had subsequently defaulted during the period. The evaluation of certain loans individually for specific impairment includes loans that were previously classified as TDRs or continue to be classified as TDRs. ​ Foreclosure Residential mortgage loans collateralized by real estate that are in the process of foreclosure as of December 31, 2022 and December 31, 2021 totaled $ 253 thousand and $ 574 thousand, respectively. ​ 78 Table of Contents Loan Concentrations Loan concentrations in specific industries may occasionally emerge as a result of economic conditions, changes in local demands, natural loan growth and runoff. At December 31, 2022, the largest industry concentration outside of commercial real estate was the hospitality industry which represents 12 % or $ 336.4 million of the Company’s total loan portfolio, compared with 11 % or $ 283.3 million at December 31, 2021. Loans to Related Parties In the ordinary course of business, the Bank has made loans at prevailing rates and terms to directors, officers and other related parties. In management’s opinion, such loans do not present more than the normal risk of collectability or incorporate other unfavorable features, and were made under terms that are consistent with the Bank’s lending policies. Loan to related parties at December 31, 2022 and December 31, 2021 are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ 2022 ​ 2021 Beginning balance ​ $ 3,379 ​ $ 6,131 Changes in composition (1) ​ 112 ​ ​ — New loans ​ 1,576 ​ ​ 335 Less: repayments ​ ( 304 ) ​ ​ ( 3,087 ) Ending balance ​ $ 4,763 ​ $ 3,379 (1) Adjustments to reflect changes in status of directors and officers for each year presented. Mortgage Banking ​ Loans sold For the years ended December 31, 2022 and 2021, we sold $ 38.6 million and $ 189.3 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 $ 161 thousand and $ 4.1 million, respectively. ​ Loans Held for Sale We had no loans held for sale as of December 31, 2022. Loans held for sale at December 31, 2021 had an unpaid principal balance of $ 5.4 million, respectively. The interest rate exposure on loans held for sale is mitigated through forward delivery commitments with certain approved secondary market investors. We had no forward delivery commitments as of December 31, 2022 and forward delivery commitments had a notional amount of $ 200 thousand at December 31, 2021. Refer to Note 10 for further discussion of forward delivery commitments. ​ Servicing Assets The Bank sells loans in the secondary market and retains the ability to service many of these loans. The Bank earns fees for the servicing provided. At year end 2022 and 2021, the Bank was servicing loans for participants totaling $ 616.0 million and $ 653.4 million, respectively. Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in servicing assets relate primarily to changes in prepayments that result from shifts in interest rates. Contractually-specified servicing fees were $ 1.6 million for the year ended 2022 and 2021, and are included as a component of other income within non-interest income. Servicing rights activity during 2022 and 2021, included in other assets, was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or for the Twelve Months Ended ​ ​ December 31, (in thousands) 2022 2021 Balance at beginning of year ​ $ 3,673 ​ $ 3,353 Additions ​ 421 ​ 565 Amortization ​ ( 711 ) ​ ( 245 ) Balance at end of year ​ $ 3,383 ​ $ 3,673 ​ ​ 79 Table of Contents ​ NOTE 4. PREMISES AND EQUIPMENT Premises and equipment at December 31, 2022 and December 31, 2021 are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated Useful (in thousands, except years) ​ 2022 ​ 2021 Life Land ​ $ 4,934 ​ $ 4,949 N/A Buildings and improvements ​ 56,239 ​ 55,499 5 - 39 years Furniture and equipment ​ 16,225 ​ 14,661 3 - 8 years Premises and equipment, gross ​ 77,398 ​ 75,109 Accumulated depreciation ​ ( 29,776 ) ​ ( 25,727 ) Premises and equipment, net ​ $ 47,622 ​ $ 49,382 ​ Depreciation expense for the years ended December 31, 2022, 2021 and 2020 amounted to $ 4.2 million, $ 4.6 million and $ 4.8 million, respectively. Premises held for sale for the years ended December 31, 2022 and 2021 were $ 252 thousand and are included in other assets. We measure premises held for sale at the lower of amortized cost or estimated fair value less 6 % selling costs. We did not sell any premises held for sale in 2022. We sold $ 579 thousand of premises held for sale in 2021 for a net loss of $ 291 thousand. We sold $ 802 thousand of premises held for sale in 2020 at a gain of $ 122 thousand. There were $ 157 thousand of impairment charges recognized in 2021 due to the demolition of a building and no impairment charges recognized in 2022 and 2020. ​ 80 Table of Contents NOTE 5. GOODWILL AND OTHER INTANGIBLES The activity impacting goodwill in 2022 and 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Balance at beginning of year ​ $ 119,477 ​ $ 119,477 Acquisition ​ — ​ — Balance at end of year ​ $ 119,477 ​ $ 119,477 ​ In the fourth quarter of 2022, we completed annual goodwill impairment testing using balance sheet and market data as of September 30, 2022. The analysis was performed at the consolidated Bank level, which is considered the smallest reporting unit carrying goodwill. No goodwill impairment was recognized for the years ended December 31, 2022, 2021 and 2020. ​ The components of other intangible assets in 2022 and 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ ​ Gross ​ Accumulated ​ Net Intangible (in thousands) Intangible Assets Amortization Assets Core deposit intangible (non-maturity deposits) ​ $ 9,483 ​ $ ( 4,948 ) ​ $ 4,535 Customer list and other intangibles ​ 2,118 ​ ( 852 ) ​ 1,266 Total ​ $ 11,601 ​ $ ( 5,800 ) ​ $ 5,801 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ ​ Gross ​ Accumulated ​ Net Intangible (in thousands) Intangible Assets Amortization Assets Core deposit intangible (non-maturity deposits) ​ $ 9,483 ​ $ ( 4,210 ) ​ $ 5,273 Customer list and other intangibles ​ 2,118 ​ ( 658 ) ​ 1,460 Total ​ $ 11,601 ​ $ ( 4,868 ) ​ $ 6,733 ​ Other intangible assets are amortized on a straight-line basis over their estimated lives, which range from five years to 11 years . Amortization expenses related to intangibles totaled $ 932 thousand in 2022, $ 940 thousand in 2021 and $ 1.0 million in 2020. The estimated aggregate future amortization expense for other intangible assets remaining at year end 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ Other Intangible (in thousands) Assets 2023 ​ $ 932 2024 ​ 932 2025 ​ 932 2026 ​ 932 2027 ​ 932 and thereafter ​ 1,141 Total ​ $ 5,801 ​ ​ ​ ​ 81 Table of Contents NOTE 6. DEPOSITS A summary of time deposits at December 31, 2022 and December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) December 31, 2022 December 31, 2021 Time less than $100,000 ​ $ 157,263 ​ $ 181,586 Time $100,000 through $250,000 ​ 118,655 ​ 169,645 Time $250,000 or more ​ 47,521 ​ 74,301 Total ​ $ 323,439 ​ $ 425,532 ​ At December 31, 2022 and December 31, 2021, the scheduled maturities by year for time deposits are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) December 31, 2022 ​ December 31, 2021 Within 1 year ​ $ 262,338 ​ $ 318,692 Over 1 year to 2 years ​ 37,937 ​ 71,247 Over 2 years to 3 years ​ 12,936 ​ 18,201 Over 3 years to 4 years ​ 5,410 ​ 8,498 Over 4 years to 5 years ​ 4,319 ​ 6,751 Over 5 years ​ 499 ​ 2,143 Total ​ $ 323,439 ​ $ 425,532 ​ Included in time deposits are brokered deposits of $ 15.1 million and $ 16.1 million at December 31, 2022 and December 31, 2021, respectively. Also included in time deposits are reciprocal deposits of $ 27.4 million and $ 17.3 million at December 31, 2022 and December 31, 2021, respectively. NOTE 7. BORROWED FUNDS Borrowed funds at December 31, 2022 and December 31, 2021 are summarized, as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Weighted ​ (dollars in thousands) Carrying Value Average Rate ​ Carrying Value Average Rate Short-term borrowings ​ ​ ​ ​ ​ ​ ​ Advances from the FHLB ​ $ 318,000 3.84 % ​ $ 75,000 0.30 % Other borrowings ​ 13,369 0.13 ​ ​ 19,802 0.17 ​ Total short-term borrowings ​ 331,369 2.20 ​ ​ 94,802 0.21 ​ Long-term borrowings ​ ​ ​ ​ Advances from the FHLB ​ 2,588 0.48 ​ ​ 23,598 1.08 ​ Subordinated borrowings ​ 60,289 4.95 ​ ​ 60,124 4.34 ​ Total long-term borrowings ​ 62,877 4.76 ​ ​ 83,722 3.42 ​ Total ​ $ 394,246 2.45 % ​ $ 178,524 0.91 % ​ 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 years ended December 31, 2022 and 2021. We also have capacity to borrow funds on a secured basis utilizing the Borrower in Custody program and the Discount Window at the FRB. At December 31, 2022, our available secured line of credit at the FRB was $ 90.4 million versus $ 64.7 million in 2021. We have pledged certain loans and securities to the FRB to support this arrangement. There were no borrowings with the FRB as of December 31, 2022 and December 31, 2021. 82 Table of Contents We maintain an unused unsecured federal funds line of credit with a correspondent bank that has an aggregate overnight borrowing capacity of $ 50 million as of December 31, 2022 and December 31, 2021. There was no outstanding balance on the line of credit as of December 31, 2022 and December 31, 2021. Long-term FHLB advances consist of advances with a remaining maturity of more than one year. The advances outstanding at December 31, 2022 include $ 288 thousand and $ 298 thousand in 2022 of amortizing advances. There were no callable advances in 2022 and $ 20.0 million of callable advances as of December 31, 2021. 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. A summary of maturities of FHLB advances as of December 31, 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Average (in thousands, except rates) ​ Amount ​ Rate 2023 ​ $ 318,000 3.84 % 2024 ​ 2,300 — ​ 2025 ​ — — ​ 2026 ​ — — ​ 2027 ​ — — ​ Thereafter ​ 288 4.29 ​ Total FHLB advances ​ $ 320,588 3.81 % ​ We executed a Subordinated Note Purchase Agreement with an aggregate of $ 40.0 million of subordinated notes (the “Notes”) to accredited investors on November 26, 2019. The Notes have a maturity date of December 1, 2029 and bear a fixed interest rate of 4.63 % through December 1, 2024 payable semi-annually in arrears. From December 1, 2024 and 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 $ 331 thousand and $ 496 thousand net of amortization as of December 31, 2022 and 2021 respectively, 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 were issued on March 30, 2004, carry a variable interest rate of three-month LIBOR plus 2.79 %, and mature in 2034. The debt is callable by the Company at the time when any interest payment is made. Trust II and Trust III are considered variable interest entities for which 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. ​ ​ 83 Table of Contents Our repurchase agreements accounted for as secured borrowings, as of December 31, 2022 and December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ December 31, 2022 ​ December 31, 2021 Customer Repurchase Agreements ​ ​ US Government-sponsored enterprises ​ $ 13,369 ​ $ 19,802 Total ​ $ 13,369 ​ $ 19,802 ​ ​ ​ NOTE 8. EMPLOYEE BENEFIT PLANS Pension Plans We maintain a legacy, employer-sponsored defined benefit pension plan (the “Plan”) for which participation and benefit accruals were frozen on January 13, 2017. Accordingly, no employees are permitted to commence participation in the Plan and future salary increases and years of credited service are not considered when computing an employee’s benefits under the Plan. As of December 31, 2022, all minimum Employee Retirement Income Security Act (“ERISA”) funding requirements have been met. The following tables set forth information about the plan for the year ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Change in projected benefit obligation: ​ ​ ​ ​ ​ ​ Projected benefit obligation at beginning of year ​ $ 8,601 $ 9,650 Interest cost ​ 236 ​ 233 Actuarial loss ​ ( 2,114 ) ​ ( 406 ) Benefits paid ​ ( 326 ) ​ ( 326 ) Settlements ​ ( 152 ) ​ ( 550 ) Projected benefit obligation at end of year ​ 6,245 ​ 8,601 ​ ​ ​ ​ ​ ​ ​ Change in fair value of plan assets: ​ ​ Fair value of plan assets at beginning of year ​ 12,422 ​ 12,040 Expected return on plan assets ​ ( 2,900 ) ​ 1,258 Benefits paid ​ ( 326 ) ​ ( 326 ) Settlements ​ ( 152 ) ​ ( 550 ) Fair value of plan assets at end of year ​ 9,044 ​ 12,422 ​ ​ ​ ​ ​ ​ ​ Overfunded status ​ $ ( 2,799 ) $ ( 3,821 ) ​ ​ ​ ​ ​ ​ ​ Amounts recognized in consolidated balance sheet: ​ ​ Other assets ​ $ 2,799 $ 3,821 ​ ​ 84 Table of Contents Net periodic pension cost/(benefit) is comprised of the following for the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Interest cost ​ $ 236 ​ $ 233 Expected return on plan assets ​ ( 612 ) ​ ( 712 ) Net periodic pension benefit ​ $ ( 376 ) ​ $ ( 479 ) ​ Amounts recognized in other comprehensive income for the years ended December 31, 2022 and 2021 included: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Net actuarial loss (gain) ​ $ 1,391 ​ $ ( 953 ) Net period pension benefit (credit) ​ ( 376 ) ​ ( 479 ) Total recognized in other comprehensive income ​ $ 1,015 ​ $ ( 1,432 ) ​ Change in plan assets and benefit obligations recognized in accumulated other comprehensive income as of December 31, 2022 and 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Net actuarial loss (gain) ​ $ 1,391 ​ $ ( 953 ) Prior service cost ​ 119 ​ 1,072 Total accumulated other comprehensive loss (pre-tax) ​ $ 1,510 ​ $ 119 ​ The after tax components of accumulated other comprehensive loss, which have not yet been recognized in net periodic pension cost, related to the Plan are a net loss of $ 1.2 million. We expect to make no cash contributions to the pension trust during the 2023 fiscal year. The amount expected to be amortized from accumulated other comprehensive loss into net periodic pension cost over the next fiscal year is zero . The principal actuarial assumptions used at December 31, 2022 and 2021 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 Projected benefit obligation ​ ​ Discount rate 5.23 % ​ 2.80 % Net periodic pension cost ​ ​ ​ ​ ​ ​ Discount rate 2.80 % ​ 2.46 % Long-term rate of return on plan assets 5.00 ​ 6.00 ​ ​ The discount rate that is used in the measurement of the pension obligation is determined by comparing the expected future retirement payment cash flows of the plan to the Citigroup Above Median Double-A Curve as of the measurement date. The expected long-term rate of return on Plan assets reflects expectations of future returns as applied to the plan’s target allocation of asset classes. In estimating that rate, appropriate consideration was given to historical returns earned by equities and fixed income securities. Our overall investment strategy with respect to the Plan’s assets is to maintain assets at a level that will sufficiently cover future beneficiary obligations while achieving long term growth in assets. The Plan’s targeted asset allocation is 20 % equity securities and 80 % fixed-income securities primarily consisting of long-term products. The fair values for investment securities are determined by quoted prices in active markets, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). 85 Table of Contents The fair value of the Plan’s assets by category and level within fair value hierarchy are as follows at December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 (in thousands) Total Level 1 Level 2 Equity mutual funds: ​ ​ ​ ​ Large-cap ​ $ 660 ​ $ 660 ​ $ — Mid-cap ​ 210 ​ 210 ​ — Small-cap ​ 214 ​ 214 ​ — International ​ 420 ​ 420 ​ — Fixed income funds: ​ ​ ​ Fixed-income - core plus ​ — ​ — ​ — Intermediate duration ​ — ​ — ​ — Long duration ​ ​ 6,294 ​ ​ 6,294 ​ ​ — Common stock ​ 724 ​ 724 ​ — Common/collective trusts - large-cap ​ 206 ​ — ​ 206 Cash equivalents - money market ​ 316 ​ 316 ​ — Total ​ $ 9,044 ​ $ 8,838 ​ $ 206 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 (in thousands) Total Level 1 Level 2 Equity mutual funds: ​ ​ ​ Large-cap ​ $ 952 ​ $ 952 ​ $ — Mid-cap ​ 296 ​ 296 ​ — Small-cap ​ 302 ​ 302 ​ — International ​ 573 ​ 573 ​ — Fixed income funds: ​ ​ ​ Long duration ​ ​ 9,042 ​ ​ 9,042 ​ ​ — Common stock ​ 653 ​ ​ 653 ​ — Common/collective trusts - large-cap ​ 244 ​ — ​ 244 Cash equivalents - money market ​ 360 ​ 360 ​ — Total ​ $ 12,422 ​ 12,178 ​ $ 244 ​ The Plan did not hold any assets classified as Level 3, and there were no transfers between levels during 2022 and 2021. Estimated benefit payments under our pension plan over the next 10 years at December 31, 2022 are as follows: ​ ​ ​ ​ ​ (in thousands) Payments 2023 ​ $ 347 2024 ​ 345 2025 ​ 341 2026 ​ 405 2027 ​ 407 2028-2032 ​ 2,206 Total ​ $ 4,051 ​ Non-qualified Supplemental Executive Retirement Plan We have non-qualified supplemental executive retirement agreements with certain retired officers. The agreements provide supplemental retirement benefits payable in installments over a period of years upon retirement or death. This agreement provides a stream of future payments in accordance with individually defined vesting schedules upon retirement, termination, or in the event that the participating executive leaves the Company following a change of control event. 86 Table of Contents The following table sets forth changes in benefit obligation, changes in plan assets, and the funded status of the plan as of and for the years ended December 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Change in benefit obligation: ​ ​ Projected benefit obligation at beginning of year ​ $ 2,606 ​ $ 2,969 Service cost ​ — ​ — Interest cost ​ 54 ​ 44 Actuarial (gain) loss ​ ( 307 ) ​ ( 147 ) Benefits paid ​ ( 260 ) ​ ( 260 ) Projected benefit obligation at end of year ​ $ 2,093 ​ $ 2,606 ​ ​ ​ ​ ​ ​ ​ Change in fair value of plan assets: ​ ​ Fair value of plan assets at beginning of year ​ $ — ​ $ — Expected return on plan assets ​ — ​ — Contributions by employer ​ 260 ​ 260 Benefits paid ​ ( 260 ) ​ ( 260 ) Fair value of plan assets at end of year ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ Underfunded status ​ $ 2,093 ​ $ 2,606 ​ ​ ​ ​ ​ ​ ​ Amounts recognized in consolidated balance sheet ​ ​ Other liabilities ​ $ 2,093 ​ $ 2,606 ​ Net periodic benefit cost is comprised of the following for the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Interest cost ​ $ 54 ​ $ 44 Expected return on plan assets ​ — ​ — Amortization of unrecognized actuarial loss ​ 37 ​ 43 Net periodic benefit cost ​ $ 91 ​ $ 87 ​ ​ Amounts recognized in other comprehensive income for the years ended December 31, 2022 and 2021 included: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Net actuarial (gain) loss ​ $ ( 382 ) ​ $ ( 137 ) Amortization of unrecognized actuarial loss ​ ( 37 ) ​ ( 43 ) Total recognized in other comprehensive loss ​ $ ( 419 ) ​ $ ( 180 ) ​ Change in plan assets and benefit obligations recognized in accumulated other comprehensive income in 2022 and 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Accumulated other comprehensive loss at beginning of the year (pre-tax) ​ $ 599 ​ $ 779 Actuarial (gain) loss ​ ( 382 ) ​ ( 137 ) Amortization of actuarial loss ​ ( 37 ) ​ ( 43 ) Accumulated other comprehensive loss at end of year (pre-tax) ​ $ 180 ​ $ 599 ​ The after tax components of accumulated other comprehensive loss, which have not yet been recognized in net periodic benefit cost, related to the non-qualified supplemental executive retirement agreements are a net loss of $ 139 thousand. The amount expected to be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $ 8 thousand. 87 Table of Contents The principal actuarial assumptions used at December 31, 2022 and December 31, 2021 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 Discount rate beginning of year 2.12 % 1.56 % Discount rate end of year 4.92 2.12 ​ ​ The discount rate used in the measurement of the non-qualified supplemental executive retirement plan obligation is determined by comparing the expected future retirement payment cash flows to the Citigroup Above Median Double- A Curve as of the measurement date. We expect to contribute the following amounts to fund benefit payments under the supplemental executive retirement plans: ​ ​ ​ ​ ​ (in thousands) Payments 2023 ​ $ 260 2024 ​ 260 2025 ​ 231 2026 ​ 221 2027 ​ 221 2028-2032 ​ 1,106 Total ​ $ 2,299 ​ 401(k) Plan We maintain a Section 401(k) savings plan for substantially all of its employees. Employees are eligible to participate in the 401(k) Plan on the first day of any quarter following their date of hire and attainment of age 21½ . Under the plan, we make a matching contribution of a portion of the amount contributed by each participating employee, up to a percentage of the employee’s annual salary. The plan allows for supplementary profit sharing contributions by Bar Harbor, at its discretion, for the benefit of participating employees. The total expense for this plan in 2022, 2021, and 2020 was $ 1.2 million. Other Plans As a result of the acquisition of a business combination in 2017, we assumed salary continuation agreements for supplemental retirement income with certain prior executives and senior officers along with an executive indexed supplemental retirement plan for one prior executive. The total liability for these agreements included in other liabilities was $ 6.0 million at December 31, 2022 and $ 8.0 million at December 31, 2021. Income recorded in 2022 and 2021 was $ 1.2 million and $ 312 thousand, respectively. We recorded expense in 2020 under these agreements of $ 793 thousand. We also assumed split-dollar life insurance agreements from the 2017 business combination with an accrued liability of $ 679 thousand at December 31, 2022 and $ 876 thousand at December 31, 2021. We recorded income for the split-dollar life insurance agreements of $ 197 thousand in 2022 and $ 22 thousand in 2021. We recorded expense of $ 65 thousand in 2020. 88 Table of Contents NOTE 9. INCOME TAXES The following table summarizes the current and deferred components of income tax expense (benefit) for each of the years ended December 31, 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 2020 Current: ​ ​ ​ Federal tax expense ​ $ 10,444 ​ $ 7,796 ​ $ 7,165 State tax expense ​ 1,551 ​ 1,106 ​ 1,280 Total current tax expense ​ 11,995 ​ 8,902 ​ 8,445 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deferred tax (benefit) expense ​ ( 707 ) ​ 427 ​ ( 38 ) Total income tax expense ​ $ 11,288 ​ $ 9,329 ​ $ 8,407 ​ The following table reconciles the expected federal income tax expense (computed by applying the federal statutory tax rate of 21 %) to recorded income tax expense for the years ended December 31, 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 (in thousands, except ratios) ​ Amount ​ Rate ​ Amount ​ Rate ​ Amount ​ Rate Statutory tax rate $ 11,517 21.00 % $ 10,210 21.00 % $ 8,747 21.00 % Increase (decrease) resulting from: ​ ​ ​ ​ ​ ​ State taxes, net of federal benefit ​ 1,477 2.69 ​ 1,280 2.63 ​ 1,120 2.69 Tax exempt interest ​ ( 1,003 ) ( 1.83 ) ​ ( 1,240 ) ( 2.55 ) ​ ( 1,301 ) ( 3.12 ) Federal tax credits ​ ( 241 ) ( 0.44 ) ​ ( 582 ) ( 1.20 ) ​ ( 330 ) ( 0.79 ) Officers' life insurance ​ ( 498 ) ( 0.91 ) ​ ( 466 ) ( 0.96 ) ​ ( 403 ) ( 0.97 ) Gain on disposal of low income housing tax credit investments ​ — — ​ — — ​ 147 0.35 Stock-based compensation plans ​ ( 16 ) ( 0.03 ) ​ ( 73 ) ( 0.15 ) ​ 52 0.12 Other ​ 52 0.10 ​ 200 0.42 ​ 375 0.90 Effective tax rate ​ $ 11,288 20.58 % $ 9,329 19.19 % $ 8,407 20.18 % ​ The net deferred tax asset was $ 24.4 million at December 31, 2022 and $ 5.5 million at December 31, 2021. 89 Table of Contents The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021 are summarized below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 (in thousands) ​ Assets ​ Liabilities ​ Assets ​ Liabilities Allowance for credit losses $ 5,964 $ — $ 5,214 $ — Deferred compensation ​ 3,812 ​ — ​ 3,965 ​ — Unrealized gain or loss on securities available for sale ​ 16,586 ​ — ​ — ​ 1,055 Unrealized gain or loss on derivatives ​ 539 ​ — ​ 201 ​ — Depreciation ​ — ​ 1,723 ​ — ​ 2,033 Deferred loan origination fees, net ​ 129 ​ — ​ 432 ​ — Non-accrual interest ​ 600 ​ — ​ 593 ​ — Branch acquisition costs and goodwill ​ — ​ 1,644 ​ — ​ 1,326 Core deposit intangible ​ — ​ 806 ​ — ​ 929 Acquisition fair value adjustments ​ 213 ​ — ​ 208 ​ — Prepaid expenses ​ — ​ 271 ​ — ​ 205 Mortgage servicing rights ​ — ​ 780 ​ — ​ 843 Equity compensation ​ 736 ​ — ​ 668 ​ — Prepaid pension ​ — ​ 616 ​ — ​ 739 Contract incentives ​ 766 ​ — ​ 820 ​ — Right of use asset ​ — ​ 1,863 ​ — ​ 2,129 Lease liability ​ 1,961 ​ — ​ 2,213 ​ — Other ​ 839 ​ — ​ 492 ​ — Total ​ $ 32,145 ​ $ 7,703 ​ $ 14,806 ​ $ 9,259 ​ We have determined that a valuation allowance is not required for its net deferred tax asset since it is more likely than not that this asset is realizable principally through future taxable income and future reversal of existing temporary differences. GAAP requires the measurement of unrecorded tax benefits related to uncertain tax positions. An unrecorded tax benefit is the difference between the tax benefit of a position taken, or expected to be taken, on a tax return and the benefit recorded for accounting purposes. At December 31, 2022 and 2021, we had no unrecorded tax benefits and do not expect our position to significantly change within the next 12 months. We are subject to income tax in the U.S. federal jurisdiction and also in the states of Maine, New Hampshire and Massachusetts. We are no longer subject to examination by taxing authorities for years before 2019. ​ ​ ​ ​ 90 Table of Contents NOTE 10. 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 (“MNA”) with financial institution counterparties or Risk Participation Agreements (“RPA”) with commercial bank counterparties, for which we assumes a pro rata share of the credit exposure associated with a borrower's performance related to the derivative contract with the counterparty. ​ Information about derivative assets and liabilities at December 31, 2022 and December 31, 2021, follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ Notional ​ Average ​ Fair Value ​ Location Fair ​ ​ Amount ​ Maturity ​ Asset (Liability) Value Asset ​ (in thousands) (in years) (in thousands) (Liability) Cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap on wholesale fundings ​ $ 75,000 ​ 2.0 ​ $ 4,978 ​ Other assets Interest rate swap on variable rate loans ​ ​ 50,000 ​ ​ 3.2 ​ ​ ( 4,941 ) ​ Other liabilities Total cash flow hedges ​ 125,000 ​ ​ ​ ​ 37 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap on securities ​ 37,190 ​ 6.6 ​ 4,774 ​ Other assets Total fair value hedges ​ 37,190 ​ ​ ​ ​ 4,774 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Economic hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Customer Loan Swaps-MNA Counterparty ​ ​ 191,987 ​ ​ 5.8 ​ ​ ( 20,287 ) ​ Other liabilities Customer Loan Swaps-RPA Counterparty ​ ​ 113,928 ​ ​ 6.0 ​ ​ — ​ Other liabilities Customer Loan Swaps-Customer ​ ​ 305,914 ​ ​ 5.9 ​ ​ 20,287 ​ Other assets Total economic hedges ​ 611,829 ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 774,019 ​ ​ ​ ​ $ 4,811 ​ ​ ​ 91 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ Notional ​ Average ​ Fair Value ​ Location Fair ​ ​ Amount ​ Maturity ​ Asset (Liability) Value Asset ​ (in thousands) (in years) (in thousands) (Liability) Cash flow hedges: ​ ​ ​ ​ ​ Interest rate swap on wholesale fundings ​ $ 75,000 ​ 3.0 ​ $ ( 121 ) ​ Other liabilities Interest rate swap on variable rate loans ​ ​ 50,000 ​ ​ 4.2 ​ ​ ( 756 ) ​ Other liabilities Total cash flow hedges ​ 125,000 ​ ​ ​ ​ ( 877 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap on securities ​ 37,190 ​ 7.6 ​ ( 530 ) ​ Other liabilities Total fair value hedges ​ 37,190 ​ ​ ​ ​ ( 530 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Economic hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Forward sale commitments ​ ​ 16,600 ​ 0.1 ​ 15 ​ Other assets Customer Loan Swaps-MNA Counterparty ​ ​ 260,102 ​ ​ 6.2 ​ ​ ( 9,429 ) ​ Other liabilities Customer Loan Swaps-RPA Counterparty ​ ​ 115,285 ​ ​ 6.7 ​ ​ ( 4,421 ) ​ Other liabilities Customer Loan Swaps-Customer ​ ​ 375,387 ​ ​ 6.4 ​ ​ 13,850 ​ Other assets Total economic hedges ​ 767,374 ​ ​ ​ ​ 15 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-hedging derivatives: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate lock commitments ​ 14,059 ​ 0.1 ​ 283 ​ Other assets Total non-hedging derivatives ​ 14,059 ​ ​ ​ ​ 283 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 943,623 ​ ​ ​ ​ $ ( 1,109 ) ​ ​ ​ As of December 31, 2022, and 2021, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cumulative Amount of Fair ​ ​ Location of Hedged Item on ​ Carrying Amount of Hedged ​ Value Hedging Adjustment in ​ Balance Sheet Assets Carrying Amount December 31, 2022 ​ ​ Interest rate swap on securities Securities Available for Sale ​ $ 30,045 ​ $ ( 7,145 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ Interest rate swap on securities Securities Available for Sale ​ $ 39,726 ​ $ 2,536 ​ 92 Table of Contents Information about derivative assets and liabilities for December 31, 2022 and December 31, 2021, follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ Amount of ​ Amount of ​ ​ ​ ​ Gain (Loss) ​ ​ ​ Gain (Loss) ​ ​ ​ ​ ​ ​ Recognized in ​ ​ ​ Reclassified ​ Location of ​ Amount of ​ ​ Other ​ Location of Gain (Loss) ​ from Other ​ Gain (Loss) ​ Gain (Loss) ​ ​ Comprehensive ​ Reclassified from Other ​ Comprehensive ​ Recognized in ​ Recognized (in thousands) Income (1) Comprehensive Income Income Income in Income Cash flow hedges: ​ ​ ​ Interest rate swap on wholesale funding ​ $ 3,922 ​ Interest expense ​ $ — Interest expense ​ $ 475 Interest rate swap on variable rate loans ​ ​ ( 3,218 ) ​ Interest income ​ ​ — ​ Interest income ​ ​ ( 601 ) Total cash flow hedges ​ 704 ​ ​ — ​ ( 126 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value hedges: ​ ​ ​ Interest rate swap on securities ​ — Interest income ​ — Interest income ​ 140 Total fair value hedges ​ — ​ ​ — ​ 140 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Economic hedges: ​ ​ ​ Forward commitments ​ — Other income ​ — Mortgage banking income ​ ( 15 ) Total economic hedges ​ — ​ ​ — ​ ( 15 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-hedging derivatives: ​ ​ ​ Interest rate lock commitments ​ — Other income ​ — Mortgage banking income ​ ( 283 ) Total non-hedging derivatives ​ — ​ ​ — ​ ( 283 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 704 ​ ​ ​ $ — ​ $ ( 284 ) (1) As of December 31, 2022, we do not expect any gains or losses from accumulated other comprehensive income into earnings within the next 12 months. ​ 93 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ Amount of ​ Amount of ​ ​ ​ ​ Gain (Loss) ​ ​ ​ Gain (Loss) ​ ​ ​ ​ ​ ​ Recognized in ​ ​ ​ Reclassified ​ Location of ​ Amount of ​ ​ Other ​ Location of Gain (Loss) ​ from Other ​ Gain (Loss) ​ Gain (Loss) ​ ​ Comprehensive ​ Reclassified from Other ​ Comprehensive ​ Recognized in ​ Recognized (in thousands) ​ Income ​ Comprehensive Income ​ Income ​ Income ​ in Income Cash flow hedges: ​ ​ ​ Interest rate swap on wholesale funding ​ $ 1,950 Interest expense ​ $ — Interest expense ​ $ ( 727 ) Interest rate swap on variable rate loans ​ ​ ( 582 ) ​ Interest income ​ ​ ​ ​ Interest income ​ ​ 211 Total cash flow hedges ​ ​ 1,368 ​ ​ ​ — ​ ​ ( 516 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value hedges: ​ ​ ​ ​ Interest rate swap on securities ​ 3,087 Interest income ​ — Interest income ​ ( 566 ) Total economic hedges ​ ​ 3,087 ​ ​ ​ — ​ ( 566 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Economic hedges: ​ ​ ​ ​ Forward commitments ​ — Other income ​ — Mortgage banking income ​ 110 Total economic hedges ​ ​ — ​ ​ ​ — ​ 110 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-hedging derivatives: ​ ​ ​ Interest rate lock commitments ​ — Other income ​ — Mortgage banking income ​ 261 Total non-hedging derivatives ​ ​ — ​ ​ ​ — ​ 261 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 4,455 ​ $ — ​ $ ( 711 ) ​ ​ ​ 94 Table of Contents ​ The effect of cash flow hedging and fair value accounting on the consolidated statements of income for the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ ​ Interest and Dividend Income ​ Interest Expense ​ ​ ​ (in thousands) Loans ​ Securities and other Deposits ​ Borrowings Non-interest Income Income and expense line items presented in the consolidated statements of income $ 107,797 ​ $ 18,729 ​ $ 7,344 ​ $ 5,501 ​ $ 35,321 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The effects of cash flow and fair value hedging: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain (loss) on cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap on wholesale funding ​ ​ — ​ ​ — ​ ​ — ​ ​ 475 ​ ​ — Interest rate swap on variable rate loans ​ ( 601 ) ​ ​ — ​ — ​ ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain (loss) on fair value hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap on securities ​ ​ — ​ ​ 140 ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ ​ Interest and Dividend Income ​ Interest Expense ​ ​ ​ (in thousands) Loans ​ Securities and other Deposits ​ Borrowings Non-interest Income Income and expense line items presented in the consolidated statements of income $ 95,236 ​ ​ 15,568 ​ $ 8,543 ​ ​ 6,688 ​ $ 42,261 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The effects of cash flow and fair value hedging: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain (loss) on cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap on wholesale funding ​ ​ — ​ ​ — ​ ​ ( 58 ) ​ ​ ( 669 ) ​ ​ — Interest rate swap on variable rate loans ​ 211 ​ ​ — ​ — ​ ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain (loss) on fair value hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swap on securities ​ ​ — ​ ​ ( 566 ) ​ ​ — ​ ​ — ​ ​ — ​ Cash flow hedges Interest rate swaps on wholesale funding As of December 31, 2022, we have two interest rate swaps on wholesale borrowings (the “Swaps”) to limit its exposure to rising interest rates over a five year term on 3-month FHLB borrowings or brokered certificates, or a combination thereof at each maturity date. The first of the two agreements was entered in November 2019 with a $ 50.0 million notional amount and pays a fixed interest rate of 1.53 %. A second agreement was entered 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 three-month LIBOR rate. We designated the Swaps as a cash flow hedge. ​ Interest rate swap on variable rate loans In March 2021, we entered into a contract with a counterparty to manage interest rate risk associated with its variable rate loans. The instrument is specifically designed to hedge the risk of changes in its cash flows from interest receipts attributable to changes in a contractually specified interest rate, on an amount of our variable rate loan assets equal to $ 50 million. The interest rate swap will effectively fix our interest rate on $ 50 million of one month USD-LIBOR-BBA (or LIBOR less two days) based loan assets at 0.806 % plus the credit spread on the loans that reprices on weighted average basis. We designated the swap as a cash flow hedge. 95 Table of Contents ​ Fair value hedges 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 LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. During 2019, 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 1.696 %. ​ 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 balance sheet. We are party to master netting arrangements with our financial institutional counterparties; however, we do not offset assets and liabilities under these arrangements for financial statement presentation purposes. ​ The master netting arrangements provide for a single net settlement of all loan swap agreements, as well as collateral or cash funds, in the event of default on, or termination of, any one contract. Collateral is provided by cash or securities received or posted by the counterparty with net liability positions, respectively, in accordance with contract thresholds. ​ The below table describes 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 December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ Customer Loan Derivatives: ​ ​ ​ ​ MNA counterparty ​ $ ( 20,287 ) ​ $ 20,287 ​ $ — ​ $ — RPA counterparty ​ — ​ — ​ — ​ — Total ​ $ ( 20,287 ) ​ $ 20,287 ​ $ — ​ $ — ​ 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 96 Table of Contents 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. ​ NOTE 11. OTHER COMMITMENTS, CONTINGENCIES, AND OFF-BALANCE SHEET ACTIVITIES Customer Obligations We are a party to financial instruments in the normal course of business to meet financing needs of our customers. These financial instruments include commitments to extend credit, unused or unadvanced loan funds, and letters of credit. We use the same lending policies and procedures to make such commitments as we use for other lending products. Customer’s creditworthiness is evaluated on a case-by-case basis. Commitments to originate loans, including unused or unadvanced loan funds, are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require customer payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally become payable upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and a third party. The contractual amount of these letters of credit represents the maximum potential future payments guaranteed by us. Typically these letters of credit expire if unused; therefore the total amounts do not necessarily represent future cash requirements. The following table summarizes the contractual amounts of commitments and contingent liabilities to customers as of December 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 Commitments to originate new loans ​ $ 51,371 ​ $ 115,563 Unused funds on commercial and other lines of credit ​ 265,587 ​ 98,993 Unadvanced funds on home equity lines of credit ​ ​ 122,295 ​ ​ 117,351 Unadvanced funds on construction and real estate loans ​ 247,382 ​ 168,883 Commercial and standby letters of credit ​ ​ 4,370 ​ ​ 3,061 Letters of credit securing municipal deposits ​ ​ 228,900 ​ ​ 221,804 Total ​ $ 919,905 ​ $ 725,655 ​ Legal Claims Various legal claims arise from time to time in the normal course of business. As of December 31, 2022, neither the Company nor its subsidiaries were involved in any pending legal proceedings believed by management to be material to our financial condition or results of operations. Periodically, there have been various claims and lawsuits involving the Company, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans, and other issues incident in the normal course of our business. However, neither the Company nor its subsidiaries are a party to any pending legal proceedings that it believes, either individually or in the aggregate, would have a material adverse effect on our financial condition or operations. Additionally, future, probable losses cannot be estimated as of December 31, 2022. 97 Table of Contents NOTE 12. SHAREHOLDERS’ EQUITY AND EARNINGS PER COMMON SHARE The actual and required capital ratios at December 31, 2022 and December 31, 2021 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum Regulatory ​ ​ ​ Actual ​ Capital Requirements ​ (in thousands, except ratios) Amount Ratio ​ Amount Ratio ​ Company (consolidated) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total capital to risk-weighted assets ​ $ 416,900 ​ 13.50 % ​ $ 247,041 ​ 8.00 % Common equity tier 1 capital to risk-weighted assets ​ 326,513 ​ 10.57 ​ ​ 138,960 ​ 4.50 ​ Tier 1 capital to risk-weighted assets ​ 347,133 ​ 11.24 ​ ​ 185,281 ​ 6.00 ​ Tier 1 capital to average assets (leverage ratio) ​ 347,133 ​ 9.21 ​ ​ 150,772 ​ 4.00 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Bank ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total capital to risk-weighted assets ​ $ 410,053 ​ 13.29 % ​ $ 246,812 ​ 8.00 % Common equity tier 1 capital to risk-weighted assets ​ 380,286 ​ 12.33 ​ ​ 138,832 ​ 4.50 ​ Tier 1 capital to risk-weighted assets ​ 380,286 ​ 12.33 ​ ​ 185,110 ​ 6.00 ​ Tier 1 capital to average assets (leverage ratio) ​ 380,286 ​ 10.10 ​ ​ 150,655 ​ 4.00 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum Regulatory ​ ​ ​ Actual ​ Capital Requirements ​ (in thousands, except ratios) Amount Ratio ​ Amount Ratio ​ Company (consolidated) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total capital to risk-weighted assets ​ $ 380,690 ​ 14.31 % ​ $ 212,798 ​ 8.00 % Common equity tier 1 capital to risk-weighted assets ​ 295,635 ​ 11.12 ​ ​ 119,699 ​ 4.50 ​ Tier 1 capital to risk-weighted assets ​ 316,255 ​ 11.90 ​ ​ 159,598 ​ 6.00 ​ Tier 1 capital to average assets (leverage ratio) ​ 316,255 ​ 8.66 ​ ​ 146,029 ​ 4.00 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Bank ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total capital to risk-weighted assets ​ $ 375,435 ​ 14.13 % ​ $ 220,425 ​ 8.00 % Common equity tier 1 capital to risk-weighted assets ​ 351,000 ​ 13.22 ​ ​ 123,812 ​ 4.50 ​ Tier 1 capital to risk-weighted assets ​ 351,000 ​ 13.22 ​ ​ 165,082 ​ 6.00 ​ Tier 1 capital to average assets (leverage ratio) ​ 351,000 ​ 9.62 ​ ​ 151,082 ​ 4.00 ​ ​ In order to be classified as “well-capitalized” under the relevant regulatory framework, 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 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. 98 Table of Contents Accumulated Other Comprehensive Income Components of accumulated other comprehensive income at December 31, 2022 and December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) December 31, 2022 December 31, 2021 Accumulated other comprehensive income, before tax: ​ ​ Net unrealized (loss) gain on AFS securities ​ $ ( 71,832 ) ​ $ 2,580 Net unrealized (loss) gain on hedging derivatives ​ ( 2,333 ) ​ 1,130 Net unrealized loss on post-retirement plans ​ ( 1,691 ) ​ ( 718 ) ​ ​ ​ ​ ​ ​ ​ Income taxes related to items of accumulated other comprehensive income: ​ ​ Net unrealized loss (gain) on AFS securities ​ 16,586 ​ ( 595 ) Net unrealized loss (gain) on hedging derivatives ​ 539 ​ ( 260 ) Net unrealized loss on post-retirement plans ​ 391 ​ 166 Accumulated other comprehensive (loss) income ​ $ ( 58,340 ) ​ $ 2,303 ​ The following table presents the components of other comprehensive income in 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Before Tax Tax Effect Net of Tax Year Ended December 31, 2022 ​ ​ ​ Net unrealized loss on AFS securities: ​ ​ ​ Net unrealized loss arising during the period ​ $ ( 74,359 ) ​ $ 17,169 ​ $ ( 57,190 ) Less: reclassification adjustment for gains realized in net income ​ 53 ​ ( 12 ) ​ 41 Net unrealized loss on AFS securities ​ ( 74,412 ) ​ 17,181 ​ ( 57,231 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized loss on hedging derivatives: ​ ​ ​ ​ Net unrealized loss arising during the period ​ ( 3,463 ) ​ 799 ​ ( 2,664 ) Less: reclassification adjustment for gains (losses) realized in net income ​ — ​ — ​ — Net unrealized gain on hedging derivatives ​ ( 3,463 ) ​ 799 ​ ( 2,664 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized loss on post-retirement plans: ​ ​ ​ Net unrealized loss arising during the period ​ ( 973 ) ​ 225 ​ ( 748 ) Less: reclassification adjustment for gains (losses) realized in net income ​ — ​ — ​ — Net unrealized loss on post-retirement plans ​ ( 973 ) ​ 225 ​ ( 748 ) Other comprehensive loss ​ $ ( 78,848 ) ​ $ 18,205 ​ $ ( 60,643 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ ​ ​ Net unrealized loss on AFS securities: ​ ​ ​ Net unrealized loss arising during the period ​ $ ( 7,619 ) ​ $ 1,779 ​ $ ( 5,840 ) Less: reclassification adjustment for gains realized in net income ​ 2,870 ​ ( 672 ) ​ 2,198 Net unrealized loss on AFS securities ​ ( 10,489 ) ​ 2,451 ​ ( 8,038 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized gain on hedging derivatives: ​ ​ ​ Net unrealized gain arising during the period ​ 3,562 ​ ( 827 ) ​ 2,735 Less: reclassification adjustment for gains (losses) realized in net income ​ — ​ — ​ — Net unrealized gain on cash flow hedging derivatives ​ 3,562 ​ ( 827 ) ​ 2,735 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized loss on post-retirement plans: ​ ​ ​ Net unrealized loss arising during the period ​ 1,132 ​ ( 266 ) ​ 866 Less: reclassification adjustment for gains (losses) realized in net income ​ — ​ — ​ — Net unrealized loss on post-retirement plans ​ 1,132 ​ ( 266 ) ​ 866 Other comprehensive (loss) income ​ $ ( 5,795 ) ​ $ 1,358 ​ $ ( 4,437 ) 99 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 (in thousands) Before Tax Tax Effect Net of Tax Net unrealized gain on AFS securities: ​ ​ ​ Net unrealized gain arising during the period ​ $ 11,264 ​ $ ( 2,636 ) ​ $ 8,628 Less: reclassification adjustment for gains (losses) realized in net income ​ 5,445 ​ ( 1,291 ) ​ 4,154 Net unrealized gain on AFS securities ​ 5,819 ​ ( 1,345 ) ​ 4,474 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized loss on hedging derivatives: ​ ​ ​ Net unrealized loss arising during the period ​ ( 6,503 ) ​ 1,303 ​ ( 5,200 ) Less: reclassification adjustment for gains (losses) realized in net income ​ ( 4,852 ) ​ 917 ​ ( 3,935 ) Net unrealized loss on hedging derivatives ​ ( 1,651 ) ​ 386 ​ ( 1,265 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized loss on post-retirement plans: ​ ​ ​ Net unrealized loss arising during the period ​ ( 338 ) ​ 77 ​ ( 261 ) Less: reclassification adjustment for gains (losses) realized in net income ​ — ​ — ​ — Net unrealized loss on post-retirement plans ​ ( 338 ) ​ 77 ​ ( 261 ) Other comprehensive income ​ $ 3,830 ​ $ ( 882 ) ​ $ 2,948 ​ ​ 100 Table of Contents The following table presents the changes in each component of accumulated other comprehensive income/(loss) in 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ Net unrealized Net gain (loss) on Net unrealized ​ ​ ​ ​ gain (loss) ​ effective cash ​ loss ​ ​ ​ ​ ​ on AFS ​ flow hedging ​ on pension ​ ​ ​ (in thousands) ​ Securities ​ derivatives ​ plans ​ Total Balance at beginning of period ​ $ 1,985 ​ $ 870 ​ $ ( 552 ) ​ $ 2,303 Other comprehensive loss before reclassifications ​ ( 57,190 ) ​ ( 2,664 ) ​ ( 748 ) ​ ( 60,602 ) Less: amounts reclassified from accumulated other comprehensive income ​ 41 ​ — ​ — ​ 41 Total other comprehensive loss ​ ( 57,231 ) ​ ( 2,664 ) ​ ( 748 ) ​ ( 60,643 ) Balance at end of period ​ $ ( 55,246 ) ​ $ ( 1,794 ) ​ $ ( 1,300 ) ​ $ ( 58,340 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ Net unrealized Net loss on Net unrealized ​ ​ ​ ​ (loss) gain ​ effective cash ​ loss ​ ​ ​ ​ ​ on AFS ​ flow hedging ​ on pension ​ ​ ​ (in thousands) ​ Securities ​ derivatives ​ plans ​ Total Balance at beginning of period ​ $ 10,023 ​ $ ( 1,865 ) ​ $ ( 1,418 ) ​ $ 6,740 Other comprehensive (loss) gain before reclassifications ​ ( 5,840 ) ​ 2,735 ​ 866 ​ ( 2,239 ) Less: amounts reclassified from accumulated other comprehensive income ​ 2,198 ​ — ​ — ​ 2,198 Total other comprehensive (loss) income ​ ( 8,038 ) ​ 2,735 ​ 866 ​ ( 4,437 ) Balance at end of period ​ $ 1,985 ​ $ 870 ​ $ ( 552 ) ​ $ 2,303 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ Net unrealized Net loss on Net unrealized ​ ​ ​ ​ (loss) gain ​ effective cash ​ loss ​ ​ ​ ​ ​ on AFS ​ flow hedging ​ on pension ​ ​ ​ (in thousands) ​ Securities ​ derivatives ​ plans ​ Total Balance at beginning of period ​ $ 5,549 ​ $ ( 600 ) ​ $ ( 1,157 ) ​ $ 3,792 Other comprehensive (loss) gain before reclassifications ​ 8,628 ​ ( 5,200 ) ​ ( 261 ) ​ 3,167 Less: amounts reclassified from accumulated other comprehensive income ​ 4,154 ​ ( 3,935 ) ​ — ​ 219 Total other comprehensive income (loss) ​ 4,474 ​ ( 1,265 ) ​ ( 261 ) ​ 2,948 Balance at end of period ​ $ 10,023 ​ $ ( 1,865 ) ​ $ ( 1,418 ) ​ $ 6,740 ​ ​ 101 Table of Contents The following tables presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) in 2022, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Affected Line Item where (in thousands) 2022 2021 2020 Net Income is Presented Net realized gains on AFS securities: ​ ​ ​ ​ ​ ​ ​ Before tax ​ $ 53 ​ $ 2,870 ​ $ 5,445 Non-interest income Tax effect ​ ( 12 ) ​ ( 672 ) ​ ( 1,275 ) Tax expense Total reclassifications for the period ​ $ 41 ​ $ 2,198 ​ $ 4,170 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Affected Line Item where (in thousands) 2022 2021 2020 Net Income is Presented Net realized loss on hedging derivatives: ​ ​ ​ ​ ​ ​ ​ Before tax ​ $ — ​ $ — ​ $ ( 4,852 ) Non-interest income Tax effect ​ — ​ — ​ 917 Tax expense Total reclassifications for the period ​ $ — ​ $ — ​ $ ( 3,935 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Affected Line Item where (in thousands) 2022 2021 2020 Net Income is Presented Realized loss on post-retirement plans: ​ ​ ​ ​ ​ ​ ​ Before tax ​ $ — ​ $ — ​ $ — Non-interest expense Tax effect ​ — ​ — ​ — Tax expense Total reclassifications for the period ​ $ — ​ $ — ​ $ — ​ ​ ​ Earnings per Share Earnings per share have been computed based on the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands, except per share and share data) 2022 2021 2020 Net income ​ $ 43,557 ​ $ 39,299 ​ $ 33,244 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average number of basic common shares outstanding ​ 15,040,162 ​ 14,968,973 ​ 15,245,728 Plus: dilutive effect of stock options and awards outstanding ​ 71,799 ​ 76,189 ​ 25,819 Average number of diluted common shares outstanding (1) ​ 15,111,961 ​ 15,045,162 ​ 15,271,547 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share: ​ ​ ​ Basic ​ $ 2.90 ​ $ 2.63 ​ $ 2.18 Diluted ​ $ 2.88 ​ $ 2.61 ​ $ 2.18 ​ (1) Average diluted shares outstanding are computed using the treasury stock method. ​ ​ ​ 102 Table of Contents NOTE 13. STOCK-BASED COMPENSATION PLANS We have several stock-based compensation plans that allow for grants of restricted stock, restricted shares, performance share units, performance shares and restricted stock units to our employees and non-employee directors. Our stock-based compensation plans are administered by the Compensation Committee of the Board of Directors. For the years ended December 31, 2022, 2021 and 2020, all common stock issuances in connection with stock-based compensation arrangements were issued from unissued shares. As of December 31, 2022, total shares authorized under the stock-based compensation 2019 plan for employees and directors were 500,000 shares, of which 121,351 shares were available for future grants. ​ Compensation expense recognized in connection with the stock-based compensation plans are presented in the following table for the years ended December 31, 2022, 2021, and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 2020 Stock options ​ $ — ​ $ — ​ $ 12 Restricted stock awards ​ ​ 578 ​ ​ 357 ​ ​ 275 Performance stock units ​ 181 ​ 317 ​ 225 Restricted stock units ​ 1,098 ​ 1,391 ​ 960 Total compensation expense ​ $ 1,857 ​ $ 2,065 ​ $ 1,472 ​ Tax benefits recognized from stock-based compensation plans for the years ended December 31, 2022, 2021, and 2020 are, as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2022 2021 2020 Stock options (1) ​ $ 22 ​ $ 77 ​ $ 9 Restricted stock awards ​ ​ 136 ​ ​ 84 ​ ​ 65 Performance stock units ​ 43 ​ 79 ​ 49 Restricted stock units ​ 274 ​ 344 ​ 190 Total tax benefit ​ $ 475 ​ $ 584 ​ $ 313 ​ (1) We do not receive a tax benefit on this plan until disqualifying dispositions are made. ​ ​ Stock Options A summary of stock options as of December 31, 2022 and 2021, and changes during the year then ended is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted ​ Aggregate ​ ​ Stock Options ​ Average ​ Intrinsic Value Stock Options Outstanding Exercise Price (in thousands) Outstanding at January 1, 2022 57,964 ​ $ 20.89 ​ Granted — ​ — ​ Exercised ( 10,637 ) ​ 18.29 ​ Forfeited — ​ — ​ Expired ​ — ​ ​ — ​ ​ ​ Outstanding at December 31, 2022 47,327 ​ $ 21.47 ​ $ 500 ​ ​ ​ ​ ​ ​ ​ ​ ​ Ending vested and expected to vest December 31, 2022 47,327 ​ $ 21.47 ​ $ 500 Exercisable at December 31, 2022 47,327 ​ 21.47 ​ 500 ​ ​ ​ ​ ​ ​ 103 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted ​ Aggregate ​ ​ Stock Options ​ Average ​ Intrinsic Value Stock Options Outstanding Exercise Price (in thousands) Outstanding at January 1, 2021 94,566 ​ $ 20.29 ​ Granted — ​ — ​ Exercised ( 36,441 ) ​ 19.38 ​ Forfeited — ​ — ​ Expired ​ ( 161 ) ​ ​ 13.27 ​ ​ ​ Outstanding at December 31, 2021 57,964 ​ $ 20.89 ​ $ 466 ​ ​ ​ ​ ​ ​ ​ ​ ​ Ending vested and expected to vest December 31, 2021 57,964 ​ $ 20.89 ​ $ 466 Exercisable at December 31, 2021 57,962 ​ 20.89 ​ 466 ​ All outstanding options were fully vested with no unrecognized compensation cost as of December 31, 2021. The intrinsic value of the options exercised for the years ended December 31, 2022, 2021, and 2020, was approximately $ 94 thousand, $ 331 thousand and $ 39 thousand, respectively. The weighted average remaining contractual term of outstanding options is approximately 2.4 years. ​ Restricted Stock Awards Restricted stock awards (“RSAs”) are granted to certain directors and executive officers and vest immediately. A summary of RSAs as of December 31, 2022 and 2021, and changes during the year then ended is presented below: ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ ​ ​ Restricted Stock ​ Weighted Average ​ ​ Awards ​ Grant Date Fair Restricted Stock Awards Outstanding Value Outstanding at January 1, 2022 — ​ $ — Awarded 39,267 ​ 29.21 Vested ( 14,443 ) ​ 30.46 Forfeited — ​ — Outstanding at December 31, 2022 24,824 ​ $ 28.49 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ ​ ​ Restricted Stock ​ Weighted Average ​ ​ Awards ​ Grant Date Fair Restricted Stock Awards Outstanding Value Outstanding at January 1, 2021 — ​ $ — Awarded 11,418 ​ 31.29 Vested ( 11,418 ) ​ 31.29 Forfeited — ​ — Outstanding at December 31, 2021 — ​ $ — ​ Unrecognized expense for non-vested RSAs totaled $ 138 thousand as of December 31, 2022, which is expected to be recognized over the weighted average remaining contractual maturity term of 2.3 years. ​ Performance Stock Units We have a long-term incentive plan where performance unit awards (“PSUs”) are granted to certain executive officers providing the opportunity to earn shares of common stock of the Company based on our performance compared to peers. Participants in the plan were collectively granted PSUs ranging from zero to 43,800 in 2022 and from zero to 49,625 in 2021. The PSUs granted will vest only if the performance measures are achieved over a three year performance period. Failure to achieve the performance measures will result in all or a portion of shares being forfeited. On the grant dates in 2022 and 2021, PSUs had a weighted average fair value per share of $ 28.49 and $ 23.18 , respectively. Expense is recognized over the performance period and is adjusted for changes in probability of the Company achieving profitability metrics. 104 Table of Contents The following table summarizes PSUs at target as of December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted Average ​ ​ Performance Stock ​ Grant Date Fair Performance Stock Units Units Outstanding Value Nonvested at January 1, 2022 70,465 ​ $ 23.88 Awarded 29,200 ​ 28.49 Vested and exercised — ​ — Forfeited ( 21,230 ) ​ 23.35 Nonvested at December 31, 2022 78,435 ​ $ 25.70 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted Average ​ ​ Performance Stock ​ Grant Date Fair Performance Stock Units Units Outstanding Value Nonvested at January 1, 2021 56,328 ​ $ 24.98 Awarded 33,083 ​ 23.18 Vested and exercised ( 7,694 ) ​ 26.79 Forfeited ( 11,252 ) ​ 25.33 Nonvested at December 31, 2021 70,465 ​ $ 23.88 ​ Unrecognized expense for non-vested PSUs totaled $ 745 thousand as of December 31, 2022, which is expected to be recognized over the weighted average remaining contractual maturity term of 2.0 years. PSUs do not carry an exercise price and therefore have no intrinsic value as of December 31, 2022. ​ Restricted Stock Units During 2022 and 2021, restricted stock units (“RSUs”) were granted to certain executive officers and senior vice presidents. Awards to executives vest annually over 3 years while awards to senior vice presidents cliff vest at the end of three years . The RSUs granted were valued between $ 28.49 and $ 29.34 for 2022 and between $ 22.51 and $ 28.93 for 2021 the fair value at the date of grant and are expensed over three years . The following table summarizes RSUs activity in 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted Average ​ ​ Restricted Stock ​ Grant Date Fair ​ Units Outstanding Value Outstanding at January 1, 2022 ​ 133,617 $ 23.48 Granted ​ 36,468 ​ ​ 28.51 Vested and exercised ​ ( 43,059 ) ​ ​ 22.88 Forfeited ​ ( 11,210 ) ​ ​ 23.46 Outstanding at December 31, 2022 ​ 115,816 ​ $ 25.25 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Weighted Average ​ ​ Restricted Stock ​ Grant Date Fair ​ Units Outstanding Value Outstanding at January 1, 2021 ​ 131,398 $ 23.57 Granted ​ 59,401 ​ ​ 25.51 Vested and exercised ​ ( 38,202 ) ​ ​ 27.33 Forfeited ​ ( 18,980 ) ​ ​ 22.72 Outstanding at December 31, 2021 ​ 133,617 ​ $ 23.48 ​ RSUs include cash-based restricted stock units (“CRSUs”), total CRSUs vested and exercised during 2022 and 2021 were 24,232 and 20,568 shares, respectively. Unrecognized expense for non-vested RSUs totaled $ 1.8 million as of December 31, 2022, which is expected to be recognized over the weighted average remaining contractual maturity term of 1.9 years. 105 Table of Contents ​ Employee Stock Purchase Plan We maintain an employee stock purchase plan (“ESPP”) under which employees, through payroll deductions, are able to purchase shares of Company’s common stock. The purchase price is 92 % of the lower of the market price on the first or last day of the offering period. The maximum number of shares issuable during any offering period is 200,000 shares; however, as of December 31, 2022, December 31, 2021 and December 31, 2020, there were 179,079 , 167,502 and 186,983 shares available for issuance under the ESPP, respectively. Participants may not purchase more than 400 shares during any offering period and, in any event, no more than $ 25 thousand worth of common stock in any calendar year. The ESPP has been determined to be non-compensatory in nature. As a result, we expect that expenses related to the ESPP will not be material. During the years ended December 31, 2022, 2021 and 2020, there were 20,921 , 19,481 and 13,017 shares of common stock issued under the ESPP, respectively. ​ ​ 106 Table of Contents NOTE 14. 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 December 31, 2022 and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ Level 1 Level 2 Level 3 Total (in thousands) ​ Inputs ​ Inputs ​ Inputs ​ Fair Value Available for sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage-backed securities: ​ ​ ​ ​ US Government-sponsored enterprises ​ $ — ​ $ 215,027 ​ $ — ​ $ 215,027 US Government agency ​ — ​ 82,266 ​ — ​ 82,266 Private label ​ — ​ 60,154 ​ — ​ 60,154 Obligations of states and political subdivisions thereof ​ — ​ 107,737 ​ — ​ 107,737 Corporate bonds ​ — ​ 94,332 ​ — ​ 94,332 Loans held for sale ​ ​ — ​ ​ — ​ ​ — ​ ​ — Derivative assets ​ — ​ 30,039 ​ — ​ 30,039 Derivative liabilities ​ — ​ ( 25,228 ) ​ — ​ ( 25,228 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Level 1 Level 2 Level 3 Total (in thousands) ​ Inputs ​ Inputs ​ Inputs ​ Fair Value Available for sale securities: ​ ​ ​ ​ ​ ​ ​ ​ Mortgage-backed securities: ​ ​ ​ ​ US Government-sponsored enterprises ​ $ — ​ $ 236,117 ​ $ — ​ $ 236,117 US Government agency ​ — ​ 79,637 ​ — ​ 79,637 Private label ​ — ​ 64,695 ​ — ​ 64,695 Obligations of states and political subdivisions thereof ​ — ​ 141,776 ​ — ​ 141,776 Corporate bonds ​ — ​ 96,051 ​ — ​ 96,051 Loans held for sale ​ ​ — ​ ​ 5,523 ​ ​ — ​ ​ 5,523 Derivative assets ​ — ​ 13,850 ​ 298 ​ 14,148 Derivative liabilities ​ — ​ ( 15,257 ) ​ — ​ ( 15,257 ) ​ ​ Securities Available for Sale: All securities and major categories of securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, 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 our loans held for sale are determined on an individual basis using quoted secondary market prices and are classified as Level 2 measurements. 107 Table of Contents 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. ​ 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 master netting arrangements and any applicable credit enhancements, such as collateral postings. ​ Although we have determined that the majority of the inputs used to value customer loan derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and counterparties. However, as of December 31, 2022, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we determined that the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. ​ The table below presents the changes in Level 3 assets and liabilities that were measured at fair value on a recurring basis in 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets (Liabilities) ​ ​ Interest Rate Lock ​ Forward (in thousands) Commitments Commitments Year Ended December 31, 2022 ​ ​ Balance at beginning of period ​ $ 283 ​ $ 15 Realized loss recognized in non-interest income ​ ( 283 ) ​ ( 15 ) Balance at end of period ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ ​ Balance at beginning of period ​ $ 22 ​ $ ( 95 ) Realized gain recognized in non-interest income ​ 261 ​ 110 Balance at end of period ​ $ 283 ​ $ 15 ​ ​ ​ ​ ​ ​ ​ ​ 108 Table of Contents Quantitative information about the significant unobservable inputs within Level 3 recurring assets and liabilities is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value ​ ​ ​ Significant ​ ​ December 31, ​ Valuation ​ Unobservable ​ Unobservable ​ (in thousands, except ratios) 2021 ​ Techniques Inputs Input Value ​ Assets (Liabilities) ​ ​ ​ ​ ​ ​ Interest Rate Lock Commitment $ 283 ​ Pull-through Rate Analysis Closing Ratio ​ 85 % ​ ​ ​ ​ 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 ​ $ 99.8 to $ 103.2 ​ Total ​ $ 298 ​ ​ ​ ​ ​ ​ ​ ​ ​ There were no level 3 assets and liabilities that were measured at fair value on a recurring basis in 2022 and 2021. 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 U.S. GAAP. The following is a summary of applicable non-recurring fair value measurements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ December 31, 2022 ​ Fair Value Measurement Date as of December 31, 2022 ​ ​ Level 3 ​ Level 3 ​ Total ​ Level 3 (in thousands) Inputs Inputs Gains (Losses) Inputs Assets ​ ​ ​ ​ ​ ​ ​ Individually evaluated loans ​ $ 16,477 ​ $ 17,932 ​ $ ( 1,455 ) ​ December 2022 Capitalized servicing rights ​ 6,845 ​ ​ 5,263 ​ 1,582 December 2022 Premises held for sale ​ 252 ​ ​ 226 ​ 26 December 2022 Total ​ $ 23,574 ​ $ 23,421 ​ $ 153 ​ 109 Table of Contents Quantitative information about the significant unobservable inputs within Level 3 non-recurring assets as of December 31, 2022 and December 31, 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands, except ratios) Fair Value December 31, 2022 Valuation Techniques Unobservable Inputs Range (Weighted Average) (a) Assets ​ ​ ​ ​ Individually evaluated loans ​ $ 13,587 Fair value of collateral-appraised value Loss severity ​ ​ 1 % to 40 % ​ ​ ​ ​ ​ ​ ​ Appraised value ​ ​ $ 80 to $ 3,859 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated loans ​ 2,890 Discount cash flow Discount rate ​ 3.63 % to 6.38 % ​ ​ ​ ​ ​ ​ ​ Cash flows ​ ​ $ 100 to $ 539 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capitalized servicing rights ​ 6,845 Discounted cash flow Constant prepayment rate (CPR) ​ 7.29 % ​ ​ ​ Discount rate ​ 9.54 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Premises held for sale ​ 252 Fair value of asset less selling costs Appraised value ​ ​ $ 267 ​ ​ ​ ​ Selling Costs ​ 6 % ​ Total ​ $ 23,574 ​ ​ (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 individuals properties. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands, except ratios) Fair Value December 31, 2021 Valuation Techniques Unobservable Inputs Range (Weighted Average) (a) ​ Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated loans ​ $ 12,127 ​ Fair value of collateral-appraised value ​ Loss severity ​ ​ 1 % to 25 % ​ ​ ​ ​ ​ ​ ​ ​ Appraised value ​ ​ $ 71 to $ 1,792 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated loans ​ 5,805 ​ Discount cash flow ​ Discount rate ​ 2.88 % to 9.50 % ​ ​ ​ ​ ​ ​ ​ ​ Cash flows ​ ​ $ 6 to $ 931 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capitalized servicing rights ​ 5,263 ​ Discounted cash flow ​ Constant prepayment rate (CPR) ​ 12.47 % ​ ​ ​ ​ ​ ​ ​ ​ Discount rate ​ 9.53 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Premises held for sale ​ 226 ​ Fair value of asset less selling costs ​ Appraised value ​ $ 240 ​ ​ ​ ​ ​ ​ ​ ​ Selling Costs ​ 6 % ​ Total ​ $ 23,421 ​ ​ ​ ​ ​ ​ ​ ​ (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 individuals properties. There were no Level 1 or Level 2 non-recurring fair value measurements for the periods ended December 31, 2022 and December 31, 2021. ​ 110 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 allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to make observable data comparable and to consider the impact of time, the condition of properties, interest rates, and other market factors on current values. Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore, non-recurring fair value measurement adjustments relating to real estate collateral have generally been classified as Level 3. Estimates of fair value for other collateral supporting commercial loans are generally based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3. ​ Capitalized loan servicing rights . A loan servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans exceed adequate compensation for performing the servicing. The fair value of loan servicing rights is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are only recorded when the discounted cash flows derived from the valuation model are less than the carrying value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy. ​ Other real estate owned or OREO. OREO results from the foreclosure process on residential or commercial loans issued by the Bank. 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. ​ 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. ​ 111 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Carrying ​ Fair ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amount Value Level 1 Level 2 Level 3 Financial Assets ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 92,295 ​ $ 92,295 ​ $ 92,295 ​ $ — ​ $ — Securities available for sale ​ 559,516 ​ 559,516 ​ — ​ 559,516 ​ — FHLB stock ​ 14,893 ​ 14,893 ​ — ​ 14,893 ​ — Loans held for sale ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Net loans ​ 2,902,690 ​ 2,774,863 ​ — ​ — ​ 2,774,863 Accrued interest receivable ​ 4,257 ​ 4,257 ​ — ​ 4,257 ​ — Cash surrender value of bank-owned life insurance policies ​ 81,197 ​ 81,197 ​ — ​ 81,197 ​ — Derivative assets ​ 30,039 ​ 30,039 ​ — ​ 30,039 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial Liabilities ​ ​ ​ ​ ​ Non-maturity deposits ​ $ 2,719,992 ​ $ 2,309,555 ​ $ — ​ $ 2,309,555 ​ $ — Time deposits ​ ​ 323,439 ​ ​ 315,180 ​ ​ — ​ ​ 315,180 ​ ​ — Securities sold under agreements to repurchase ​ ​ 13,369 ​ ​ 13,369 ​ ​ — ​ ​ 13,369 ​ ​ — FHLB advances ​ 320,588 ​ 320,244 ​ — ​ 320,244 ​ — Subordinated borrowings ​ 60,289 ​ 66,846 ​ — ​ 66,846 ​ — Derivative liabilities ​ 25,228 ​ 25,228 ​ — ​ 25,228 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ Carrying ​ Fair ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amount Value Level 1 Level 2 Level 3 Financial Assets ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 250,389 ​ $ 250,389 ​ $ 250,389 ​ $ — ​ $ — Securities available for sale ​ 618,276 ​ 618,276 ​ — ​ 618,276 ​ — FHLB stock ​ 7,384 ​ 7,384 ​ — ​ 7,384 ​ — Loans held for sale ​ ​ 5,523 ​ ​ 5,523 ​ ​ — ​ ​ 5,523 ​ ​ — Net loans ​ 2,509,192 ​ 2,442,741 ​ — ​ — ​ 2,442,741 Accrued interest receivable ​ 2,712 ​ 2,712 ​ — ​ 2,712 ​ — Cash surrender value of bank-owned life insurance policies ​ 79,020 ​ 79,020 ​ — ​ 79,020 ​ — Derivative assets ​ 14,148 ​ 14,148 ​ — ​ 13,850 ​ 298 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial Liabilities ​ ​ ​ ​ ​ Non-maturity deposits ​ $ 2,623,012 ​ $ 2,853,000 ​ $ — ​ $ 2,853,000 ​ $ — Time deposits ​ ​ 425,532 ​ ​ 424,000 ​ ​ — ​ ​ 424,000 ​ ​ — Securities sold under agreements to repurchase ​ ​ 19,802 ​ ​ 19,802 ​ ​ — ​ ​ 19,802 ​ ​ — FHLB advances ​ 98,598 ​ 98,439 ​ — ​ 98,439 ​ — Subordinated borrowings ​ 60,124 ​ 61,884 ​ — ​ 61,884 ​ — Derivative liabilities ​ 15,257 ​ 15,257 ​ — ​ 15,257 ​ — ​ ​ 112 Table of Contents ​ NOTE 15. REVENUE FROM CONTRACTS WITH CUSTOMERS We have accounted for the various non-interest revenue streams and related contracts under ASC 606. Disaggregation of Revenue The following tables present disaggregation of our non-interest revenue by major business line and timing of revenue recognition for the transfer of products or services: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2022 2021 Major Products/Service Lines ​ ​ Trust management fees ​ $ 13,022 ​ $ 13,495 Financial services fees ​ 1,551 ​ 1,684 Interchange fees ​ 7,736 ​ 7,368 Customer deposit fees ​ 5,935 ​ 4,905 Other customer service fees ​ 1,120 ​ 939 Total ​ $ 29,364 ​ $ 28,391 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) 2022 2021 Timing of Revenue Recognition ​ ​ Products and services transferred at a point in time ​ $ 15,552 ​ $ 14,250 Products and services transferred over time ​ 13,812 ​ 14,141 Total ​ $ 29,364 ​ $ 28,391 ​ 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 Infinex, an independent registered broker dealer offering securities and insurance products not affiliated with the Company or its subsidiaries. We have a revenue sharing agreement with Infinex for any financial service fee income generated. Financial services fees are recognized at a point in time upon the completion of service requirements. ​ Interchange Fees We earn interchange fees from transaction fees that merchants pay whenever a customer uses a debit card to make a purchase from their store. The fees are paid to the card-issuing bank to cover handling costs, fraud, bad debt costs and the risk involved in approving the payment. Interchange fees are generally recognized as revenue at a point in time upon the completion of a debit card transaction. ​ 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. 113 Table of Contents 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 is recognized over time using the right to invoice measure of progress. ​ Contract Balances with Customers The following table provides information about contract assets or receivables and contract liabilities or deferred revenues from contracts with customers: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ December 31, 2022 ​ December 31, 2021 Balances from contracts with customers only: ​ ​ Other Assets ​ $ 1,211 ​ $ 1,184 Other Liabilities ​ 2,345 ​ 2,324 ​ The timing of revenue recognition, billings and cash collections results in contract assets or receivables and contract liabilities or deferred revenue on the consolidated balance sheets. For most customer contracts, fees are 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. ​ NOTE 16. LEASES A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Most of our leases are for branches, ATM locations, and office space and have terms extending through 2040. All leases are classified as operating leases, and are recognized on the consolidated balance sheets as a right-of-use (“ROU”) asset with a corresponding lease liability. The following table presents the consolidated statements of condition classification of the ROU assets and lease liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Classification December 31, 2022 December 31, 2021 Lease Right-of-Use Assets ​ ​ ​ ​ ​ Operating lease right-of-use assets Other assets ​ $ 8,078 ​ $ 9,274 ​ ​ ​ ​ ​ ​ ​ ​ ​ Lease Liabilities ​ ​ Operating lease liabilities Other liabilities ​ 8,501 ​ 9,643 ​ The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used for the present value of the minimum lease payments. The lease agreements often include one or more options to renew at our discretion. If at lease inception, we consider the exercising of a renewal option to be reasonably certain, we will include the extended term in the calculation of the ROU asset and lease liability. 114 Table of Contents The following table presents the weighted average lease term and discount rate of the leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 December 31, 2021 Weighted-average remaining lease term (in years) ​ ​ ​ ​ Operating leases ​ 7.17 ​ ​ 8.03 ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average discount rate ​ ​ ​ ​ Operating leases ​ 3.09 % ​ 3.07 % ​ ​ The following table represents lease costs and other lease information. As we have elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as real estate taxes, common area maintenance and utilities. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended (in thousands) ​ December 31, 2022 December 31, 2021 ​ December 31, 2020 Lease Costs ​ ​ ​ ​ ​ Operating lease cost ​ $ 1,344 ​ $ 1,295 ​ $ 1,285 Variable lease cost ​ 402 ​ 229 ​ 271 Total lease cost ​ $ 1,746 ​ $ 1,524 ​ $ 1,556 ​ Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2022 are, as follows: ​ ​ ​ ​ ​ (in thousands) Payments Twelve Months Ended: ​ December 31, 2023 ​ $ 1,343 December 31, 2024 ​ 1,316 December 31, 2025 ​ 1,092 December 31, 2026 ​ 987 December 31, 2027 ​ 864 Thereafter ​ 3,210 Total future minimum lease payments ​ 8,812 Amounts representing interest ​ ( 311 ) Present value of net future minimum lease payments ​ $ 8,501 ​ ​ ​ ​ 115 Table of Contents NOTE 17. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY The condensed balance sheets of Bar Harbor Bankshares as of December 31, 2022 and 2021, and the condensed statements of income and cash flows for the years ended December 31, 2022, 2021 and 2020 are presented below: CONDENSED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) 2022 2021 Assets ​ ​ Cash ​ $ 7,350 ​ $ 2,572 Investment in subsidiaries ​ 447,937 ​ 480,534 Premises and equipment ​ 765 ​ 792 Other assets ​ 3,130 ​ 6,458 Total assets ​ $ 459,182 ​ $ 490,356 ​ ​ ​ ​ ​ ​ ​ Liabilities and Shareholders’ Equity ​ ​ Subordinated notes ​ $ 60,289 ​ $ 60,124 Accrued expenses ​ 5,443 ​ 6,085 Shareholders’ equity ​ 393,450 ​ 424,147 Total liabilities and shareholders’ equity ​ $ 459,182 ​ $ 490,356 ​ ​ CONDENSED STATEMENTS OF INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (in thousands) 2022 2021 2020 Income: ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends from subsidiaries ​ $ 20,682 ​ $ 15,557 ​ $ 8,024 Other income ​ 976 ​ 740 ​ 742 Total income ​ 21,658 ​ 16,297 ​ 8,766 Interest expense ​ 2,981 ​ 2,632 ​ 2,750 Non-interest expense ​ 5,183 ​ 5,455 ​ 4,465 Total expense ​ 8,164 ​ 8,087 ​ 7,215 Income before taxes and equity in undistributed income of subsidiaries ​ 13,493 ​ 8,210 ​ 1,552 Income tax benefit ​ ( 1,709 ) ​ ( 1,741 ) ​ ( 1,539 ) Income before equity in undistributed income of subsidiaries ​ 15,202 ​ 9,951 ​ 3,091 Equity in undistributed income of subsidiaries ​ 28,355 ​ 29,348 ​ 30,153 Net income ​ $ 43,557 ​ $ 39,299 ​ $ 33,244 ​ ​ ​ 116 Table of Contents CONDENSED STATEMENTS OF CASH FLOWS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (in thousands) 2022 2021 2020 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 43,557 ​ $ 39,299 ​ $ 33,244 Adjustments to reconcile net income to net cash provided by (used in) operating activities: ​ ​ ​ Equity in undistributed income of subsidiaries ​ ( 28,355 ) ​ ( 29,348 ) ​ ( 30,153 ) Other, net ​ 3,187 ​ ( 5,582 ) ​ 3,840 Net cash provided by operating activities ​ 18,389 ​ 4,369 ​ 6,931 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ Acquisitions, net of cash paid ​ — ​ — ​ — Purchase of securities ​ — ​ — ​ — Capital contribution to subsidiary ​ — ​ — ​ — Net cash (used in) investing activities ​ — ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ Proceeds from issuance of subordinated debt ​ — ​ — ​ — Repayment of subordinated debt ​ — ​ — ​ — Net proceeds from common stock ​ 1,723 ​ 1,534 ​ 2,192 Net proceeds from reissuance of treasury stock ​ — ​ — ​ ( 14,188 ) Common stock cash dividends paid ​ ( 15,334 ) ​ ( 14,072 ) ​ ( 13,417 ) Net cash used in financing activities ​ ( 13,611 ) ​ ( 12,538 ) ​ ( 25,413 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net change in cash and cash equivalents ​ 4,778 ​ ( 8,169 ) ​ ( 18,482 ) Cash and cash equivalents at beginning of year ​ 2,572 ​ 10,741 ​ 29,223 Cash and cash equivalents at end of year ​ $ 7,350 ​ $ 2,572 ​ $ 10,741 ​ ​ ​ ​ ​ ​ ​ ​ NOTE 18. SUBSEQUENT EVENTS There were no significant subsequent events between December 31, 2022 and through the date the financial statements are issued. ​ 117 Table of Contents