What changed in this filing

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Item 1. Business

2024-03-11 compared with 2023-03-14 · 118 added, 97 removed, 427 unchanged (33% of the section changed)

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K (the “Form 10-K” or “Annual Report”) that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

When used in this Form 10-K the words “believe,” “anticipate,” “expect,” “may,” “will,” “assume,” “should,” “predict,” “could,” “would,” “intend,” “targets,” “estimates,” “projects,” “plans,” and “potential,” and other similar words and expressions of the future, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements about our future financial and operating results and plans, objectives, and intentions.

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● changes in consumer spending, borrowing and saving habits;

● the effects of new outbreaks of COVID-19, including actions taken by governmental officials to curb the spread of the virus, and the resulting impact on general economic and financial market conditions and on the Company’s and our customers' business, results of operations, asset quality and financial condition;

● the effects of civil unrest, international hostilities or other geopolitical events, including the war in Ukraine;

● the emergence and effects related to a future pandemic, epidemic or outbreak of an infectious disease, including actions taken by governmental officials to curb the spread of such an infectious disease, and the resulting impact on general economic and financial market conditions and on the Company’s and our customers' business, results of operations, asset quality and financial condition;

● the effects of civil unrest, international hostilities or other geopolitical events, including the war in Ukraine and ongoing hostilities in the Middle East ;

● inflation, interest rate, market, and monetary fluctuations;

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● our ability to retain executive officers and key employees and their customer and community relationships ;

● our ability to adapt to technological changes;

● risks associated with litigation, including reputational and financial risks and the applicability of insurance coverage;

● our ability to implement new technology effectively;

phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches and interruptions;

● our ability to adapt to technological changes and to implement new technology effectively;

● the vulnerability of the Bank’s computer and information technology systems and networks, and the systems and networks of third parties with whom the Company or the Bank contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches and interruptions;

● changes in the reliability of our vendors, internal control systems or information systems;

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● the potential impact of climate change;

● the impact of pandemics, epidemics or any other health-related crisis;

● our ability to comply with various governmental and regulatory requirements applicable to financial institutions;

● changes in state and federal laws, rules, regulations, or policies applicable to banks or bank or financial holding companies, including regulatory or legislative developments;

● changes in state and federal laws, rules, regulations, or policies applicable to banks or bank holding companies, including regulatory or legislative developments;

● the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”);

● adverse impacts (including costs, fines, reputational harm, or other negative effects) from current or future litigation, regulatory examinations, or other legal and/or regulatory actions;

● adverse impacts (including costs, fines, reputational harm, or other negative effects) from and risks associated with current or future litigation, regulatory examinations, or other legal and/or regulatory actions;

● general competitive, economic, political, and market conditions, including economic conditions in the local markets where we operate.

Other factors not identified above, including those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Most of these factors are difficult to anticipate and are generally beyond our control.

Other factors not identified above, including those described in the Annual Report under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Most of these factors are difficult to anticipate and are generally beyond our control.

You should consider these factors in connection with considering any forward-looking statements that may be made by us.

We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law .

Bar Harbor Bankshares (the “Company,” “we,” “our” or “us” or similar terms) is the parent company of Bar Harbor Bank & Trust (the "Bank”), which is the only community bank headquartered in Northern New England with branches in Maine, New Hampshire and Vermont.

The Bank is a regional community bank that thinks differently about banking.

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Through these efforts, we continue to be a relationship-focused community bank, maintaining our credit quality and serving businesses, entrepreneurs, and individuals within our footprint.

Our corporate goal is to be one of the top performing banks in New England, and our business model is centered on the following:

Our corporate goal is to be one of the most consistently high performing community banks in New England, and our business model is centered on the following:

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

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We have 10 full-service branches in operation in Vermont.

The branches are primarily located in central Vermont within the counties of Rutland, Windsor and Orange.

These markets are home to many attractions, including Killington Mountain, Okemo Resort, and the city of Rutland.

The branches are primarily located in central Vermont within Rutland, Windsor, and Orange counties.

These markets are home to many attractions, including Killington Mountain and the city of Rutland.

Popular vacation destinations in this region include Woodstock, Brandon, and Ludlow.

SUBSIDIARY ACTIVITIES

Bar Harbor Bankshares is a legal entity separate and distinct from its first-tier bank subsidiary, Bar Harbor Bank & Trust, and its second-tier subsidiaries, Bar Harbor Wealth Management and Cottage Street Corporation.

There are two Connecticut statutory trusts for which all of the common stock is owned.

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AVAILABLE INFORMATION

Annual, quarterly, and current reports, proxy statements and other information are required to be filed with the Securities and Exchange Commission, or SEC.

Annual, quarterly, and current reports, proxy statements and other information are required to be filed with the Securities and Exchange Commission (“SEC”).

The SEC maintains a website at www.sec.gov that contains reports, proxy statements, and information statements, and other information regarding issuers that file electronically with the SEC.

The Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to those documents filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are also available free of charge on our website at www.barharbor.bank under the Shareholders Relations link as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.

Our Code of Ethics for Senior Financial Officers, Code of Conduct and Business Ethics, Securities and Insider Trading Policy and the charters of our Board of Directors’ audit committee, governance committee, and compensation and human resources committee are also available on our website (www.barharbor.bank) and in print free of charge to any shareholder who requests them.

Requests should be sent by mail to our corporate secretary at our executive office.

We intend to disclose on our website any amendments or waivers to our Code of Ethics for Senior Financial Officers or Code of Conduct and Business Ethics that are required to be disclosed pursuant to Item 5.05 of Form 8-K.

Investors should note announcements of material information to investors and others are performed using SEC filings, press releases, and postings on our website (www.barharbor.bank), including news and announcements regarding financial performance, key personnel, brands, and business strategy.

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These portfolios include the categories commercial real estate, commercial and industrial, residential real estate and other consumer loans.

Loan interest rates and other key loan terms are affected principally by our lending policy, asset/liability strategy, loan demand, competition, and the supply of money available for lending purposes.

The amount of long-term fixed-rate lending and adjustable-rate loan products is monitored according to the Bank’s interest rate management policy.

Loan interest rates and

other key loan terms are affected principally by our lending policy, asset/liability strategy, loan demand, competition, and the supply of money available for lending purposes.

The amount of long-term fixed-rate lending and adjustable-rate lending is monitored according to the Bank’s interest rate management policy.

Loans originated are held for investment except for certain residential mortgages that are underwritten with the intention to be sold in the secondary mortgage market.

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Total Exposure

% of Total Portfolio

% of Total Commerical Portfolio

Real Estate and Rental and Leasing

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Educational Services

Manufacturing

Public Administration

Finance and Insurance

Manufacturing

Arts, Entertainment, and Recreation

Public Administration

Transportation and Warehousing

Total commercial loans

Within our non-owner-occupied commercial real estate portfolio (considered “Commercial construction” and “Commercial Real Estate Non-Owner Occupied” above), the top 10 loans represent approximately 13.9% of total commercial outstanding.

The average loan size in the CRE segment is approximately $2.0 million.

Delinquencies within the segment were nominal at less than 0.01% as a percentage of the total segment as of December 31, 2023.

Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.

The weighted average loan-to-value ratio for the top 10 loans within the non-owner occupied segment was 61.54% as of December 31, 2023.

The top 10 office loans represent approximately 9% of the total commercial real estate segment exposure inclusive of unfunded commitments and 10% of the outstanding balances.

The weighted average loan-to-value for the top ten loans within the office segment is 60.37%.

Our total commercial portfolio has a pass rating of 93%, included in the commercial portfolio are office loans of $245.8 million which have a pass rating of 86%.

Maturity and Sensitivity of the Loan Portfolio

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However, if these processes fail to result in a performing loan, foreclosure or other proceedings will be initiated no later than the 120th day of a delinquency, as necessary, to minimize any potential loss.

Management reports on delinquent loans and non-performing assets to the Company’s Board of Directors monthly.

Management reports on delinquent loans and non-performing assets to the Company’s Board of Directors monthly through the Board Risk Committee.

Loans are generally removed from accruing status when they reach 90 days delinquent, except for certain loans which are well secured and in the process of collection.

Loan collections are managed by a combination of the related business units and the managed assets group, which focuses on larger, riskier collections.

Loan collections are managed by a combination of the related business units and the managed assets group.

The following table presents the problem assets for the years indicated:

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Total non-performing assets

Accruing loans 90+ days past due

Total non-performing loans/total loans

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The ACL is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist.

Loans that do not share risk characteristics are evaluated on an individual basis, generally comprised of larger non-accruing commercial loans and troubled debt restructurings (“TDRs”).

The allowance for credit losses is discussed further in Note 1 – Summary of Significant Accounting Policies of the Consolidated Financial Statements.

The following table presents an analysis of the allowance for credit losses for the years indicated:

Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans.

The ACL is discussed further in Note 1 – Summary of Significant Accounting Policies of the Consolidated Financial Statements.

The following table presents an analysis of the ACL for the years indicated:

(in thousands, except ratios)

Balance at beginning of year

Impact of CECL adoption

Charged-off loans:

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Total recoveries on charged-off loans

Net recoveries (charge-offs)

Net (charge-offs) recoveries

Provision for credit losses

Balance at end of year

Net (recoveries) charge-offs/average loans

Net charge-offs (recoveries)/average loans

Recoveries/charged-off loans

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Allowance for credit losses/non-accruing loans

The following table presents year-end data for the approximate allocation of the allowance for credit losses by loan categories at the dates indicated.

The following table presents year-end data for the approximate allocation of the ACL by loan categories at the dates indicated.

For each loan category, the table shows the amount of the allowance allocated to that category as a percentage of the outstanding loans in that category.

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(in thousands)

Debt Securities:

Obligations of US Government-sponsored enterprises

Mortgage-backed securities and collateralized mortgage obligations:

US Government-sponsored enterprises

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(in thousands, except ratios)

Debt Securities:

Obligations of US Government-sponsored enterprises

Mortgage-backed securities and collateralized mortgage obligations:

US Government-sponsored enterprises

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DERIVATIVE FINANCIAL INSTRUMENTS

Interest swap derivatives are utilized to minimize fluctuations in earnings and cash flows caused by interest rate volatility either in the form of interest rate swaps on wholesale funding and variable rate loans designated as cash flow hedges or partial interest rate hedges on securities accounted for as fair value hedges.

partial interest rate hedges on securities accounted for as fair value hedges.

For further discussion on derivatives see Note 10 – Derivative Financial Instruments and Hedging Activities of the Consolidated Financial Statements.

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Interest rate lock commitments are offered to residential loan customers, to allow them the ability to lock into a fixed interest rate prior to closing, for loans intended to sell are classified as non-hedging derivatives.

To offset this risk, an offsetting forward sale commitments may be entered into with national financial institutions to purchase the loans selected for sale under a best efforts or mandatory delivery contract accounted for as an economic hedge.

Floating-rate fundings are certain hedging transactions and certain products, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate, such as the secured interbank overnight financing rate (“SOFR”), London Interbank Offered Rate (“LIBOR”), or to an index, basket or other financial metric.

We continue to transition loans with LIBOR based interest rates to other benchmark rates due to recent national, international, and other regulatory rate reform guidance.

The transition of those variable rate loans is expected to be complete by June 30, 2023.

To offset this risk, an offsetting forward sale commitment may be entered into with national financial institutions to purchase the loans selected for sale under a best efforts or mandatory delivery contract accounted for as an economic hedge.

DEPOSIT ACTIVITIES

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Customer-related deposit fees are a significant source of fee income and principally derived from debit card interchange fees earned from transaction fees that merchants pay whenever a customer uses a debit card to make a purchase.

Customer deposit fees are also earned from a variety of deposit accounts with various fee schedules and terms, which are designed

to meet the customer’s financial needs.

Customer deposit fees are also earned from a variety of deposit accounts with various fee schedules and terms, which are designed to meet the customer’s financial needs.

Other depositor-related fee services provided to customers include ATMs, remote deposit capture, ACH origination, wire transfers, internet bill pay, and other cash management services.

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Borrowings may be utilized as an alternative source of funds which can be invested at a positive interest rate spread when additional capacity to fund loan demand is desired or when asset/liability management goals are met to diversify funding sources and enhance interest rate risk management.

Borrowings historically have included advances from the Federal Home Loan Bank of Boston ("FHLB"), securities sold under repurchase agreements, and a correspondent bank unsecured line of credit.

Advances may be obtained from the FHLB by collateralizing the advances with certain loans and investment securities.

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It also offers a line of life insurance, annuity, and retirement products, as well as financial planning services.

These products are not deposits, are not insured by the FDIC or any other government agency, are not guaranteed by the Bank or any affiliate, and may be subject to investment risk, including possible loss of principal.

The Bank is a branch office of Infinex Investments, Inc., (“Infinex”) a full-service third-party broker-dealer, conducting business under the assumed business name “Bar Harbor Financial Services.” Infinex is an independent registered broker-dealer and is not affiliated with the Company or its subsidiaries.

Infinex was formed by a group of member banks, and is one of the largest providers of third-party investment and insurance services to banks and their customers in New England.

Through Infinex, the expertise, capabilities, and experience of a well-established third-party broker-dealer is obtained in a cost effective manner.

These products are not deposits, are not insured by the Federal Deposit Insurance Corporation (“FDIC”) or any other government agency, are not guaranteed by the Bank or any affiliate, and may be subject to investment risk, including possible loss of principal.

Bar Harbor Financial Services is a branch office of Osaic Institutions, Inc., (“Osaic”) a full-service third-party broker-dealer, conducting business under the assumed business name “Bar Harbor Financial Services.” Osaic is an independent registered broker-dealer and is not affiliated with the Company or its subsidiaries.

Osaic was formed by a group of member banks, and is one of the largest providers of third-party investment and insurance services to banks and their customers in New England.

Through Osaic, the expertise, capabilities, and experience of a well-established third-party broker-dealer is obtained in a cost effective manner.

TRUST MANAGEMENT SERVICES

The Bank has one wholly-owned subsidiary that provides a comprehensive array of fiduciary services including trust and estate administration, wealth advisory services, and investment management services to individuals, businesses, not-for-profit organizations, and municipalities.

As a New Hampshire-chartered trust company, Bar Harbor Wealth Management is subject to New Hampshire laws applicable to trust companies and fiduciaries.

The Bank has one wholly-owned subsidiary, BHWM, that provides a comprehensive array of fiduciary services including trust and estate administration, wealth advisory services, and investment management services to individuals, businesses, not-for-profit organizations, and municipalities.

As a New Hampshire-chartered trust company, BHWM is subject to New Hampshire laws applicable to trust companies and fiduciaries.

Professional advisors help individuals and families structure accounts that will meet their long-term financial needs.

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Outside of trust services, they also provide 401(k) plan services, financial, estate and charitable planning, investment management, family office, municipal and tax services.

The employees include credentialed investment professionals with extensive experience.

At December 31, 2022 and 2021, trust management services had total assets under management of $2.3 billion and $2.5 billion, respectively.

employees include credentialed investment professionals with extensive experience.

At December 31, 2023 and 2022, trust management services had total assets under management (“AUM”) of $2.5 billion and $2.3 billion, respectively.

HUMAN CAPITAL

We are very fortunate to have a diverse, committed team throughout Maine, New Hampshire, and Vermont who are capable, determined and empowered to drive our company forward.

As of December 31, 2022, we had 486 full time equivalent employee positions.

As of December 31, 2023, we had 462 full time equivalent employees.

None of our colleagues are represented by unions.

All employment decisions are based on talent and potential for growth.

Our ability to attract and retain diverse, top-tier talent while sustaining and deepening the current employees’ relationship is critical to maintaining a best-in-class customer and employee experience.

Our ability to attract and retain diverse, top-tier talent while sustaining and deepening the current relationships is critical to maintaining a best-in-class customer and colleague experience.

The opportunity for personal and professional development is a critically important focus of ours and one that helps us retain top talent.

We are committed to supporting, developing, and encouraging employees to engage with their communities.

We are keenly aware of our ability to be a positive impact in the communities we serve, as such we are committed to supporting, developing, and encouraging colleague engagement with their communities.

We invest in our employees and continuously encourage them to build the skills they need to become an even more valuable team member.

Opportunities are provided for employees to take on challenging and intriguing work to advance their career goals and transition into new roles as the banking industry evolves.

Developing programs aligned with employee skills and capabilities is critical to our organization’s success and creates robust development opportunities supported by leaders at every level.

Opportunities are provided for colleagues to take on challenging and intriguing work to advance their career goals and transition into new roles as the banking industry evolves.

In addition, we provide colleagues with access to a variety of programs developed to align with the knowledge, skills and capabilities that are critical to our organization’s success both now and in the future.

Attracting, retaining, and rewarding high-performing talent is key to our success.

Our total rewards program is designed to recognize and reward top talent and keep employees engaged effectively.

Compensation programs align with our Pay for Performance philosophy and guarantees that every employee knows their contribution to the success of the organization.

We participate in several market studies, including peers in the banking industry, to ensure competitive pay, benefits, and programs are offered to validate that we are an employer of choice.

Our total rewards program is designed to recognize and reward top talent and keep colleagues engaged effectively.

A critical component of our total rewards program is compensation.

Our compensation strategy is deeply rooted in a pay for performance philosophy.

The intent of this strategy is to align colleague contributions and rewards with the success of the organization.

We participate in several market studies, including peers in the banking industry, to ensure competitive pay, benefits, and programs.

Annual merit increases align with market data and performance to ensure fair and equitable practices are adhered to.

To complement these programs, employees are also able to provide and receive recognition through our online portal, Bar Harbor Connect.

When recognized employees receive points, they can then choose to redeem them for rewards that matter most to them including gift cards, logo items, and concert tickets.

Our commitment to an employee’s health and well-being is evidenced through comprehensive benefit packages, including medical, dental, vision, life and disability offerings, and several other voluntary programs.

We also contribute to employee-owned health savings accounts and have a robust wellness program to encourage employees to stay fit physically and mentally.

The retirement savings programs include a 401(k) plan with a generous Company match that vests immediately, along with an Employee Stock Purchase Plan that allows employees to be owners of the Company at a reduced price.

The plan encourages employees to think and make decisions like shareholders while mitigating risk-taking behavior.

Providing good work-life balance choices results in our employees’ making more meaningful contributions in the workplace.

We have a Paid Time Off policy to support employees’ time management and paid volunteer time to support this.

In 2022, we continued to offer Flexible Work Arrangements (“FWA”), which includes programs as fully remote, partially remote, condensed workweeks, and flexible hours.

The flexibility of these various FWAs allows employees to manage their work-life needs while continuing to deliver stellar results in the workplace.

We value a diverse workforce to ensure different perspectives and ideas are considered and are a part of operations.

As part of the commitment to equal employment opportunities, we seek to ensure affirmative action provides equality of opportunity in all aspects of employment.

Incentive programs are a meaningful component of colleague compensation and are tied to both company and individual performance.

To complement these programs, colleagues are also able to provide and receive recognition through our online portal, Bar Harbor Connect.

When recognized colleagues receive points that they can then redeem for rewards of their choice such as gift cards, logo items, and concert tickets.

Beyond compensation, our total rewards program underscores our commitment to colleague’s health and well-being.

We offer comprehensive benefit packages, including medical, dental, vision, life, disability, and several other voluntary programs.

We also contribute to employee-owned health savings accounts and utilize our wellness program to encourage colleagues to stay fit physically and mentally.

The retirement savings programs include a 401(k) plan with a generous company match that vests immediately, along with an Employee Stock Purchase Plan (ESPP) that allows colleagues to be owners of the company at a reduced price.

ESPP provides a benefit to our colleagues while also encouraging them to think and make decisions like shareholders.

Providing work-life balance choices results in our colleagues’ making more meaningful contributions in the workplace.

We have a generous paid time off program as well as paid volunteer time to support this.

In addition, we offer Flexible Work Arrangements, which offers options such as fully remote, partially remote, condensed workweeks, and flexible hours.

The flexibility of these various arrangements allows colleagues to manage their work-life needs while continuing to deliver stellar results in the workplace.

Embracing unique perspectives and supporting inclusivity and diversity are at the core of who we are.

We strive to understand the unique opportunities and challenges that our customers and colleagues face.

Our commitment to racial and social equity is ingrained in our guiding principles and allows us to work together to foster an inclusive and equitable work environment.

Serving the needs of all of the members of our communities also remains an important part of our commitment and strategy.

For more than 135 years, the Bank has contributed to the economic health and vitality of the communities we serve, and we are proud that our employees are involved in the communities in which we live and work.

Each year, Bank employees volunteer countless hours of their time on community projects and serve on nonprofit boards.

In addition to these efforts, we have provided charitable donations to more than 450 community organizations across the Northern New England states of Maine, New Hampshire, and Vermont.

For more than 137 years, the Bank has contributed to the economic health and vitality of the communities we serve.

We are proud that our employees are involved in the communities in which we live and work.

Each year, colleagues volunteer countless hours of their time on community projects and serve on nonprofit boards.

In addition to these efforts, we have

provided charitable donations to more than 450 community organizations across the Northern New England states of Maine, New Hampshire, and Vermont.

REGULATION AND SUPERVISION

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The Federal Reserve Board requires the Company to file various reports and also may conduct an examination of the Company.

The Company is also under the jurisdiction of the Securities and Exchange Commission ("SEC") and is subject to the disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Exchange Act.

The Company is also under the jurisdiction of the SEC and is subject to the disclosure and regulatory requirements of the Securities Act and the Exchange Act.

The Company’s common stock is listed on the New York Stock Exchange American exchange (“NYSE American”) under the trading symbol “BHB,” and is subject to the rules of NYSE American for listed companies.

As a Maine-chartered financial institution, the Bank is subject to supervision, regular examination, and regulation by the Maine Bureau of Financial Institutions ("BFI") and the Federal Deposit Insurance Corporation ("FDIC") as its primary federal regulator and as its deposit insurer.

As a Maine-chartered financial institution, the Bank is subject to supervision, regular examination, and regulation by the Maine Bureau of Financial Institutions ("BFI") and the FDIC as its primary federal regulator and as its deposit insurer.

The Bank’s deposits are insured by the FDIC in accordance with applicable federal laws and regulations.

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The prior approval of the FDIC is required, and the prior approval of the BFI may be required, for the Bank to establish or relocate a branch office.

Bar Harbor Wealth Management, a New Hampshire chartered non-depository trust company and an indirect subsidiary of the Bank (“BHWM”), is subject to supervision, regular examination, and regulation by the New Hampshire Banking Department.

BHWM, a New Hampshire chartered non-depository trust company and an indirect subsidiary of the Bank, is subject to supervision, regular examination, and regulation by the New Hampshire Banking Department.

On April 30, 2022, Bar Harbor Trust Services, which was a Maine chartered non-depository trust company and a wholly-owned subsidiary of the Bank, merged with and into BHWM (formerly named Charter Trust Company).

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As of December 31, 2023, BHWM had an appropriate liquidation reserve, minimum capital in excess of statutory requirements, and all funds were held in accordance with prudent investor standards of NH RSA 564-B:9-902 and as required by NH RSA 383-C:5-502.

Any change in applicable laws or regulations could have a material adverse impact on the operations and financial performance of the Company and the Bank.

In addition, the Company and the Bank are affected by the monetary and fiscal policies of the United States Government, including the Federal Reserve Board.

In view of changing conditions in the national economy and in the financial markets, it is impossible for management to accurately predict future changes in monetary policy or the effect such changes may have on the business or financial condition of the Company and the Bank.

Certain Laws and Regulations Applicable to the Company

The BHC Act and other federal laws subject bank holding companies to particular restrictions on the types of activities in which the Company may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

Below is a summary of certain provisions of the BHC Act and

certain other laws and regulations applicable to the Company.

Below is a summary of certain provisions of the BHC Act and certain other laws and regulations applicable to the Company.

These laws or regulations may be amended or changed by Congress or through other governmental or legal processes, which could have a material effect on the results of the Company.

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(iii) providing discount brokerage services;

(iv) acting as fiduciary, investment or financial advisor;

(iv) acting as fiduciary,

investment or financial advisor;

and (v) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies.

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Section 616 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) codifies the requirement that bank holding companies serve as a source of financial strength to their subsidiary depository institutions.

Under this policy, the holding company is expected to commit resources to support its bank subsidiary, including at times when the holding company may not be in a financial position to provide it.

Under this policy, the bank holding company is expected to commit resources to support its bank subsidiary, including at times when the bank holding company may not be in a financial position to provide it.

As discussed below, the Company could be required to guarantee the capital plan of the Bank if it becomes undercapitalized for purposes of banking regulations.

Any capital loans by a bank holding company to its subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank.

The BHC Act provides that, in the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and entitled to priority of payment.

The BHC Act provides that, in the event of

a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and entitled to priority of payment.

Anti-tying Restrictions

Bank holding companies and their affiliates are prohibited from tying the provision of services, such as extensions of credit, to other services offered by a holding company or its affiliates.

Bank holding companies and their affiliates are prohibited from tying the provision of services, such as extensions of credit, to other services offered by a bank holding company or its affiliates.

Mergers & Acquisitions

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Transactions with Affiliates

The holding company and the Bank are considered “affiliates” of each other under the Federal Reserve Act, and transactions between a bank and its affiliates are subject to certain restrictions, under Sections 23A and 23B of the Federal

Reserve Act and the Federal Reserve Board’s implementing Regulation W.

Generally, Sections 23A and 23B:

(1) limit the extent to which an insured depository or its subsidiaries may engage in covered transactions (a) with an affiliate (as defined in such sections) to an amount equal to 10% of such institution’s capital and surplus, and (b) with all affiliates, in the aggregate to an amount equal to 20% of such capital and surplus;

and (2) require all transactions with an affiliate, whether or not covered transactions, to be on terms substantially the same, or at least as favorable to the institution or subsidiary, as the terms provided or that would be provided to a non-affiliate.

(i) limit the extent to which an insured depository or its subsidiaries may engage in covered transactions (a) with an affiliate (as defined in such sections) to an amount equal to 10% of such institution’s capital and surplus, and (b) with all affiliates, in the aggregate to an amount equal to 20% of such capital and surplus;

and (ii) require all transactions with an affiliate, whether or not covered transactions, to be on terms substantially the same, or at least as favorable to the institution or subsidiary, as the terms provided or that would be provided to a non-affiliate.

The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and other similar types of transactions.

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Deposit Insurance

The Bank’s deposit accounts are fully insured by the Deposit Insurance Fund ("DIF") of the FDIC up to the deposit insurance limits set forth in applicable law and regulations.

The FDIC uses a risk-based assessment system that imposes insurance premiums based upon a risk matrix that accounts for a bank’s capital level and supervisory rating (CAMELS rating).

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Further, the CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.

Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s:

(i) lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service, (ii) inability of the consumer to

protect its interests in selecting or using a consumer financial product or service, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests.

Abusive acts or practices are defined as those that (i) materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service;

or (ii) take unreasonable advantage of:

(a) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;

(b) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service;

or (c) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

Neither the Dodd-Frank Act nor the individual consumer financial protection laws prevent states from adopting stricter consumer protection standards.

22 unchanged sentences

Financial Privacy

Section V of the Gramm-Leach-Bliley Act ("GLBA") and its implementing regulations require all financial institutions, including the Company and the Bank and the Bank’s subsidiaries, to adopt privacy policies, restrict the sharing of nonpublic customer data with non-affiliated parties at the customer’s request, limit the reuse of certain consumer information received from non-affiliated financial institutions, and establish procedures and practices to protect customer data from unauthorized access.

In addition, the Fair Credit Reporting Act (“FCRA”), as amended by the Fair and Accurate

Credit Transactions Act of 2003 (the "FACT Act”), includes many provisions affecting the Company, Bank, and/or their affiliates, including provisions concerning obtaining consumer reports, furnishing information to consumer reporting agencies, maintaining a program to prevent identity theft, sharing of certain information among affiliated companies, and other provisions.

In addition, the Fair Credit Reporting Act (“FCRA”), as amended by the Fair and Accurate Credit Transactions Act of 2003 (the "FACT Act”), includes many provisions affecting the Company, Bank, and/or their affiliates, including provisions concerning obtaining consumer reports, furnishing information to consumer reporting agencies, maintaining a program to prevent identity theft, sharing of certain information among affiliated companies, and other provisions.

The FACT Act requires entities subject to FCRA to notify their customers if they report negative information about them to a credit bureau or if they are granted credit on terms less favorable than those generally available.

The CFPB and the Federal Trade Commission (“FTC”) have extensive rulemaking authority under the FACT Act, and the Company and the Bank are subject to the rules that have been promulgated under the FACT Act, including rules requiring financial institutions with covered accounts (e.g.

The CFPB and the Federal Trade Commission (“FTC”) have extensive rulemaking authority under the FACT Act, and the

Company and the Bank are subject to the rules that have been promulgated under the FACT Act, including rules requiring financial institutions with covered accounts (e.g.

consumer bank accounts and loans) to develop, implement, and administer an identity theft protection program, as well as rules regarding limitations on affiliate marketing and implementation of programs to identify, detect and mitigate certain identity theft red flags.

23 unchanged sentences

Guidance on Sound Compensation Policies

The Dodd-Frank Act requires publicly traded companies to give shareholders a non-binding vote on executive compensation at least every three years (the so-called “say-on-pay vote”) and on so-called “golden parachute” payments in connection with approvals of mergers and acquisitions.

In addition, the Dodd-Frank Act requires publicly traded

companies to give shareholders a non-binding vote, at least once every six years, on how frequently to hold the “say on pay” vote.

The Dodd-Frank Act requires publicly traded companies to give shareholders a non-binding vote on named executive officer compensation at least every three years (the so-called “say-on-pay vote”) and on so-called “golden parachute” payments in connection with approvals of mergers and acquisitions.

In addition, the Dodd-Frank Act requires publicly traded companies to give shareholders a non-binding vote, at least once every six years, on how frequently to hold the “say on pay” vote.

The Dodd-Frank Act also requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities with at least $1 billion in total consolidated assets that encourage inappropriate risks by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity.

The federal banking agencies and the SEC most recently proposed such regulations in 2016, but the regulations have not yet been finalized.

federal banking agencies and the SEC most recently proposed such regulations in 2016, but the regulations have not yet been finalized.

If the regulations are adopted in the form initially proposed, they will restrict the manner in which executive compensation is structured.

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business