BAR HARBOR BANKSACTIONS MANAGEMENT REPORT OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)


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GENERAL

The following is management's discussion and analysis of the major factors that
influenced our results of operations and financial condition as of and for the
three and nine months ended September 30, 2022 and should be read in conjunction
with our unaudited consolidated financial statements and condensed notes thereto
included elsewhere in this Form 10-Q as well as our audited consolidated
financial statements and notes thereto included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2021.  The following discussion
contains "forward-looking statements" that reflect our future plans, estimates,
beliefs and expected performance. We caution that assumptions, expectations,
projections, intentions or beliefs about future events may, and often do, vary
from actual results and the differences can be material. Please see "Cautionary
Statement Regarding Forward-Looking Statements" and "Part II, Item 1A. Risk
Factors." All amounts, dollars and percentages presented in this Form 10-Q are
rounded and therefore approximate.

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. The Bank provides the technology offerings and
capabilities of larger banks, accompanied by access to local decision makers who
are acutely focused on their local markets. Having recently celebrated the 135th
anniversary of the Bank's founding, we remain focused on helping our customers
achieve their goals as the key to the Bank's success.  With over 500 dedicated
professionals and more than 50 locations, we are committed to servicing and
building enduring relationships by providing a higher standard of banking. We
offer a variety of financial products and services designed around our customers
in order to serve their banking and financial needs. 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:

? The employee and customer experience is the foundation of superior performance,

resulting in a significant financial benefit for shareholders

? Geography, heritage and performance are essential while remaining faithful to a

community-oriented culture

? Commitment to risk management while balancing growth and profit

? Service and sales oriented culture, focused on core business growth

? Commission income is critical to our profitability through trust and cash flow

management services, client derivatives and sale of mortgages on the secondary market

? Investment in processes, products, technology, training, leadership and

Infrastructure

? Expanding our brand and business to deepen our market presence


 ? Opportunity and growth for existing employees while adding catalyst recruits
   across all levels


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Below is our profile at September 30, 2022:

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SELECTED FINANCIAL DATA

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

                                                   Three Months Ended          Nine Months Ended
                                                     September 30,              September 30,
                                                    2022         2021          2022         2021
PER SHARE DATA
Net earnings, diluted                            $     0.76     $  0.73      $    2.07    $   1.97
Adjusted earnings, diluted(1)                          0.76        0.73           2.07        2.04
Total book value                                      25.22       27.92          25.22       27.92
Tangible book value per share(1)                      16.89       19.48    
     16.89       19.48
Market price at period end                            26.52       28.05          26.52       28.05
Dividends                                              0.26        0.24           0.76        0.70

PERFORMANCE RATIOS(2)
Return on assets                                       1.20 %      1.16 %         1.11 %      1.05 %
Adjusted return on assets(1)                           1.20        1.16           1.12        1.09
Pre-tax, pre-provision return on assets                1.65        1.43           1.48        1.26
Adjusted pre-tax, pre-provision return on
assets (1)                                             1.65        1.43           1.49        1.31
Return on equity                                      11.55       10.38          10.32        9.54
Adjusted return on equity(1)                          11.54       10.39          10.38        9.98
Return on tangible equity                             17.25       15.08          15.28       14.01
Adjusted return on tangible equity(1)                 17.24       15.09          15.37       14.50
Net interest margin, fully taxable equivalent
(FTE)(1) (3)                                           3.47        3.02           3.21        2.88
Adjusted net interest margin(1)                        3.47        2.75           3.21        2.73
Efficiency ratio(1)                                   57.67       59.18    

59.66 61.48

FINANCIAL DATA (In millions)
Total assets                                     $    3,840     $ 3,738      $   3,840    $  3,738
Total earning assets(4)                               3,525       3,394          3,525       3,394
Total investments                                       566         556            566         556
Total loans                                           2,850       2,534          2,850       2,534
Allowance for credit losses                              25          22             25          22
Total goodwill and intangible assets                    126         126            126         126
Total deposits                                        3,136       3,007          3,136       3,007
Total shareholders' equity                              380         418    
       380         418
Net income                                               11          11             31          30
Adjusted income(1)                                       11          11             31          31

ASSET QUALITY AND CONDITION RATIOS
Net charge-offs (recoveries)
(annualized)/average loans                             0.01 %      0.03 %            - %    (0.02) %
Allowance for credit losses/total loans                0.88        0.89           0.88        0.89
Loans/deposits                                           91          84             91          84
Shareholders' equity to total assets                   9.89       11.19           9.89       11.19
Tangible shareholders' equity to total
tangible assets(1)                                     6.85        8.08    

6.85 8.08

Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures(1) section of the “Management’s Discussion and Analysis of

Status and Results of Operations” in this Form 10-Q for additional information

information.

(2) All performance ratios are annualized and are based on the average balance sheet

amounts, if any.

(3) The fully taxable equivalent takes into account the impact of the tax-advantaged investment

securities and loans.

(4) Performing assets include unaccrued loans and securities are valued at

    amortized cost.


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CONSOLIDATED ANALYSIS OF LOANS AND DEPOSITS

The following tables show the quarterly trend of loan and deposit data and related growth rates as of September 30, 2022 on an annualized basis:

                                 LOAN ANALYSIS

                                                                                                                               Annualized
                                                                                                                                 Growth %
                                                                                                                           Quarter       Year
(in thousands, except ratios)     Sep 30, 2022      Jun 30, 2022      Mar 31, 2022      Dec 31, 2021      Sep 30, 2021      to Date    to Date
Commercial real estate           $    1,421,962    $    1,331,860    $    1,289,968    $    1,210,580    $    1,170,372         27 %       23 %
Commercial and industrial               376,624           360,304           346,394           340,129           331,091         18         14
Paycheck Protection Program
(PPP)                                         -               170             1,126             6,669            24,227          *          *
Total commercial loans                1,798,586         1,692,334         1,637,488         1,557,378         1,525,690         25         21
Total commercial loans,
excluding PPP                         1,798,586         1,692,164         1,636,362         1,550,709         1,501,463         25         21

Residential real estate                 896,618           876,644           868,382           821,004           849,692          9         12
Consumer                                100,822           100,816            96,876            98,949           100,933          -          3
Tax exempt and other                     54,338            57,480            51,816            54,579            57,839       (22)        (1)
Total loans                      $    2,850,364    $    2,727,274    $    2,654,562    $    2,531,910    $    2,534,154         18 %       17 %

*Indicates ratios of 100% or greater.

                                DEPOSIT ANALYSIS

                                                                                                                               Annualized
                                                                                                                                 Growth %
                                                                                                                           Quarter       Year
(in thousands, except ratios)     Sep 30, 2022      Jun 30, 2022      Mar 31, 2022      Dec 31, 2021      Sep 30, 2021      to Date    to Date
Demand                           $      700,218    $      670,268    $      653,471    $      664,420    $      664,395         18 %        7 %
NOW                                     918,822           883,239           918,768           940,631           888,021         16        (3)
Savings                                 669,317           663,676           658,834           628,670           605,977          3          9
Money market                            513,075           499,456           424,750           389,291           379,651         11         42
Total non-maturity deposits           2,801,432         2,716,639         

2,655,823 2,623,012 2,538,044 12 9 Total term deposits

                     334,248           361,906           391,940           425,532           469,221       (31)       (29)
Total deposits                   $    3,135,680    $    3,078,545    $    3,047,763    $    3,048,544    $    3,007,265          7 %        4 %


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AVERAGE BALANCES AND AVERAGE RETURNS/RATES

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

                                                                Three Months Ended September 30,
                                                     2022                                               2021
                                  Average                                            Average
(in thousands, except ratios)      Balance       Interest(3)     Yield/Rate(3)        Balance       Interest(3)     Yield/Rate(3)
Assets
Interest-earning deposits
with other banks                 $    59,556    $         320             2.13 %    $   284,429    $         110             0.15 %
Securities available for sale
and FHLB stock(2)(3)                 642,475            5,058             3.12          610,381            3,986             2.59
Loans:
Commercial real estate             1,351,599           14,510             4.26        1,153,813           10,269             3.53
Commercial and industrial            421,963            4,739             4.46          391,191            3,739             3.79
Paycheck protection program               94                -                -           45,835            2,690            23.28
Residential                          882,158            7,676             3.45          824,686            7,574             3.64
Consumer                             101,175            1,161             4.55          101,545              968             3.78
Total loans (1)                    2,756,989           28,086             4.04        2,517,070           25,240             3.98
Total earning assets               3,459,020           33,464             3.84 %      3,411,880           29,336             3.41 %
Other assets                         313,289                                            352,208
Total assets                     $ 3,772,309                                        $ 3,764,088

Liabilities
NOW                              $   905,668    $         366             0.16 %    $   860,206    $         272             0.13 %
Savings                              668,255              143             0.08          591,440              124             0.08
Money market                         491,683              808             0.65          381,755              115             0.12
Time deposits                        349,787              485             0.55          471,934            1,044             0.88
Total interest bearing
deposits                           2,415,393            1,802             0.30        2,305,335            1,555             0.27
Borrowings                           202,296            1,374             2.69          334,097            1,778             2.11
Total interest bearing
liabilities                        2,617,689            3,176             0.48 %      2,639,432            3,333             0.50 %
Non-interest bearing demand
deposits                             690,134                                            641,769
Other liabilities                     71,934                                             61,436
Total liabilities                  3,379,757                                          3,342,637

Total shareholders' equity           392,552                                            421,451

Total liabilities and            $ 3,772,309                                        $ 3,764,088
shareholders' equity

Net interest spread                                                       3.36 %                                             2.91 %
Net interest margin                                                       3.47                                               3.02
Adjusted net interest
margin(4)                                                                 3.47                                               2.75

(1) Average loan balances include unaccrued and unamortized loans

fees and deferred charges.

(2) The average balance of securities available for sale is based on the

Cost.

(3) The fully taxable equivalent takes into account the impact of taxable securities

and ready.

(4) Adjusted net interest margin excludes PPP loans.

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                                                     Nine Months Ended September 30,
                                                2022                                 2021
                                 Average       Interest      Yield/     Average       Interest      Yield/
(in millions, except ratios)      Balance         (3)       Rate(3)      Balance         (3)       Rate(3)
Assets
Interest-earning deposits
with other banks                $    86,390    $     503     0.78 %    $   229,235    $     203     0.12 %
Securities available for
sale and FHLB stock(2)(3)           630,679       13,297     2.82          617,373       12,424     2.69
Loans:
Commercial real estate            1,306,664       37,765     3.86        1,128,134       30,177     3.58
Commercial and industrial(3)        408,620       11,871     3.88          381,753       10,727     3.76
Paycheck protection program           4,676          223     6.39           62,562        5,058    10.81
Residential                         865,259       22,801     3.52          861,629       24,145     3.75
Consumer                             99,673        2,943     3.95          105,371        2,833     3.59
Total loans (1)                   2,684,892       75,603     3.76        2,539,449       72,940     3.84
Total earning assets              3,401,961       89,403     3.51 %      3,386,057       85,567     3.38 %
Other assets                        323,253                                357,334
Total assets                    $ 3,725,214                            $ 3,743,391

Liabilities
NOW                             $   909,793    $     984     0.14 %    $   801,292    $     760     0.13 %
Savings                             655,727          418     0.09          568,726          431     0.10
Money market                        455,645        1,139     0.33          376,775          354     0.13
Time deposits                       376,496        1,645     0.58          583,529        5,565     1.28
Total interest bearing
deposits                          2,397,661        4,186     0.23        2,330,322        7,110     0.41
Borrowings                          187,629        3,458     2.46          336,432        5,415     2.15
Total interest bearing
liabilities                       2,585,290        7,644     0.40 %      2,666,754       12,525     0.63 %
Non-interest bearing demand
deposits                            671,490                                598,434
Other liabilities                    66,298                                 64,360
Total liabilities                 3,323,078                              3,329,548
Total shareholders' equity          402,136                               
413,843

Total liabilities and
shareholders' equity            $ 3,725,214                            $ 3,743,391

Net interest spread                                          3.12 %                                 2.75 %
Net interest margin                                          3.21                                   2.88
Adjusted net interest
margin(4)                                                    3.21                                   2.73

(1) Average loan balances include unaccrued and unamortized loans

fees and deferred charges.

(2) The average balance of securities available for sale is based on the

Cost.

(3) The fully taxable equivalent takes into account the impact of taxable securities

and ready.

(4) Adjusted net interest margin excludes PPP loans.

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NON-GAAP FINANCIAL MEASURES

This document contains certain non-GAAP financial measures in addition to
results presented in accordance with accounting principles generally accepted in
the United States of America, or GAAP. These non-GAAP measures are intended to
provide the reader with additional supplemental perspectives on operating
results, performance trends, and financial condition. Non-GAAP financial
measures are not a substitute for GAAP measures; they should be read and used in
conjunction with our GAAP financial information. A reconciliation of non-GAAP
financial measures to GAAP measures is provided below. In all cases, it should
be understood that non-GAAP measures do not depict amounts that accrue directly
to the benefit of shareholders. An item that management excludes when computing
non-GAAP adjusted earnings can be of substantial importance to our results for
any particular quarter or year. Our non-GAAP adjusted earnings information set
forth is not necessarily comparable to non-GAAP information that may be
presented by other companies. Each non-GAAP measure used by us in this report as
supplemental financial data should be considered in conjunction with our GAAP
financial information. In addition, our non-GAAP financial measures may not be
comparable to similarly titled measures of other companies because such measures
may include or exclude other specified items.

We use the non-GAAP measure of adjusted earnings in evaluating operating trends,
including components for adjusted revenue and expense. These measures exclude
amounts that we view as unrelated to normalized operations, including
gains/losses on securities, premises, equipment and other real estate owned,
acquisition costs, restructuring costs, legal settlements, and systems
conversion costs. Non-GAAP adjustments are presented net of an adjustment for
income tax expense.

We also calculate adjusted earnings per share based on our measure of adjusted
earnings. We view these amounts as important to understanding operating trends,
particularly due to the impact of accounting standards related to acquisition
activity. Analysts also rely on these measures in estimating and evaluating our
performance. We believe that the computation of non-GAAP adjusted earnings and
adjusted earnings per share may facilitate the comparison of us to other
companies in the financial services industry. We also adjust certain equity
related measures to exclude intangible assets due to the importance of these
measures to the investment community.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The following table summarizes the reconciliation of non-GAAP items for the periods presented:

                                                            Three Months Ended            Nine Months Ended
                                                              September 30,                 September 30,
(in thousands)                           Calculations      2022            2021          2022            2021
Net income                                               $  11,430      $   11,028    $   31,045      $   29,533
Non-recurring items:
Gain on sale of securities, net                               (44)         (1,930)          (53)         (1,980)
Gain on sale of premises and
equipment, net                                                   -           (146)          (65)           (137)
Gain on other real estate owned                                  -               -             -            (11)
Loss on debt extinguishment                                      -           1,768             -           1,768
Acquisition, conversion and other
expenses                                                        31             318           356           1,759
Income tax expense (1)                                           3             (2)          (55)           (332)
Total non-recurring items                                     (10)               8           183           1,067
Total adjusted income(2)                     (A)         $  11,420      $  

11,036 $31,228 $30,600

Net interest income                          (B)         $  29,910      $   25,582    $   80,727      $   71,758
Plus: Non-interest income                                    8,823          11,350        27,093          31,103
Total Revenue                                               38,733          36,932       107,820         102,861
Gain on sale of securities, net                               (44)         (1,930)          (53)         (1,980)
Total adjusted revenue(2)                    (C)         $  38,689      $  

35,002 $107,767 $100,881

Total non-interest expense                               $  23,032      $   23,372    $   66,618      $   67,587
Non-recurring expenses:
Gain on sale of premises and
equipment, net                                                   -             146            65             137
Gain on other real estate owned                                  -               -             -              11
Loss on debt extinguishment                                      -         (1,768)             -         (1,768)
Acquisition, conversion and other
expenses                                                      (31)           (318)         (356)         (1,759)
Total non-recurring expenses                                  (31)         (1,940)         (291)         (3,379)
Adjusted non-interest expense(2)             (D)         $  23,001      $  
21,432    $   66,327      $   64,208

Total revenue                                               38,733          36,932       107,820         102,861
Total non-interest expense                                  23,032          23,372        66,618          67,587
Pre-tax, pre-provision net revenue                       $  15,701      $  

13,560 $41,202 $35,274

Adjusted revenue(2)                                         38,689          35,002       107,767         100,881
Adjusted non-interest expense(2)                            23,001          21,432        66,327          64,208
Adjusted pre-tax, pre-provision net
revenue(2)                                               $  15,688      $   13,570    $   41,440      $   36,673

(in millions)
Average earning assets                       (E)         $   3,459      $    3,412    $    3,402      $    3,386
Average paycheck protection program
(PPP) loans                                  (R)                 -              46             5              63
Average earning assets, excluding PPP
loans                                        (S)             3,459           3,366         3,397           3,323
Average assets                               (F)             3,772           3,764         3,725           3,743
Average shareholders' equity                 (G)               393             421           402             414
Average tangible shareholders'
equity(2)(3)                                 (H)               267             295           276             287
Tangible shareholders' equity,
period-end(2)(3)                             (I)               254             292           254             292
Tangible assets, period-end(2)(3)            (J)             3,715         
 3,612         3,715           3,612


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                                                              Three Months Ended                  Nine Months Ended
                                                                September 30,                      September 30,
                                        Calculations       2022               2021            2022               2021
(in thousands)
Common shares outstanding, period-end        (K)             15,066              14,987         15,066              14,987
Average diluted shares outstanding           (L)             15,113        
     15,051         15,100              15,035

Adjusted earnings per share,
diluted(2)                                  (A/L)       $      0.76      $         0.73    $      2.07      $         2.04
Tangible book value per share,
period-end(2)                               (I/K)             16.89               19.48          16.89               19.48
Securities adjustment, net of
tax(1)(4)                                    (M)           (58,715)               4,398       (58,715)               4,398
Tangible book value per share,
excluding securities adjustment(2)(4)      (I+M)/K            20.79               19.19          20.79               19.19
Total tangible shareholders'
equity/total tangible assets(2)             (I/J)              6.85                8.08           6.85                8.08

Performance ratios(5)
Return on assets                                               1.20 %              1.16           1.11 %              1.05
Adjusted return on assets(2)                (A/F)              1.20                1.16           1.12                1.09
Pre-tax, pre-provision return on
assets                                                         1.65                1.43           1.48                1.26
Adjusted pre-tax, pre-provision
return on assets (2)                        (U/F)              1.65                1.43           1.49                1.31
Return on equity                                              11.55               10.38          10.32                9.54
Adjusted return on equity(2)                (A/G)             11.54               10.39          10.38                9.98
Return on tangible equity                                     17.25               15.08          15.28               14.01
Adjusted return on tangible
equity(1)(2)                               (A+Q)/H            17.24               15.09          15.37               14.50
Efficiency ratio(2)(6)                  (D-O-Q)/(C+N)         57.67               59.18          59.66               61.48
Net interest margin                        (B+P)/E             3.47                3.02           3.21                2.88
Adjusted net interest margin(2)(7)        (B+P-T)/S            3.47                2.75           3.21                2.73

Supplementary data (in thousands)
Taxable equivalent adjustment for
efficiency ratio                             (N)        $       533      $          576    $     1,500      $        1,757
Franchise taxes included in
non-interest expense                         (O)                149                 143            434                 396
Tax equivalent adjustment for net
interest margin                              (P)                379                 421          1,033               1,284
Intangible amortization                      (Q)                233                 233            699                 707
Interest and fees on PPP loans               (T)                  -               2,690            223               5,058


(1) Assuming a marginal tax rate of 23.41% for 2022 and 23.71% for 2021.

(2) Non-GAAP financial measure.

Tangible equity is calculated by taking total equity (3) less intangible fixed assets at the end of the financial year. Fixed assets are calculated

taking total assets less intangible assets at the end of the period.

Securities adjustment, net of tax, represents the total of unrealized losses and (4) gains on available-for-sale securities recognized in our Consolidated Balance Sheet

balance sheets into total common shareholders’ equity.

(5) All performance ratios are based on average balance sheet values, where

in force.

The efficiency ratio is calculated by dividing basic non-interest expense net of (6) franchise taxes and intangible amortization divided by basic revenue on a

fully taxable equivalent basis.


(7) Adjusted net interest margin excludes Paycheck Protection Program loans.


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QUARTERLY PERFORMANCE SUMMARY

Results (third quarter of 2022 compared to the same quarter of 2021)

?Net income was $11.4 millionan increase of 4% or 27% on a non-GAAP basis excluding the increase in PPP lending fees in 2021.

?Diluted earnings per share were $0.76an augmentation of $0.03 or 4%. Diluted earnings per share in the third quarter of 2021 included a $0.14 benefit from PPP loan fees.

“Return on assets went from 1.16% to 1.20% or 0.95% on a non-GAAP basis excluding PPP loan fees. Return on equity was 11.55% versus 10.38%.

 Both ratios include the benefit of higher net income and lower average balances
related to unrealized losses on securities as noted below under the Financial
Position section.

?Net interest income was $29.9 million, an increase of 17%.  Net interest margin
(NIM) was 3.47% in the third quarter of 2022, an increase of 45 basis points
from the same period in 2021. The increase is primarily due to the repricing of
variable rate assets, continued loan growth and a lower percentage of wholesale
borrowings to total debt.

?The provision for credit losses was an expense of $1.3 million primarily due to loan growth versus net income of $174,000 reflecting improved economic forecasts.

?Non-interest income was $8.8 million, down $2.5 million.   Customer service fee
income was up 9%, trust and wealth management income was down 8%, and prior year
included $1.9 million of net securities gains.

?Non-interest charges have been $23.0 million versus $23.4 million. The previous year includes a $1.8 million loss on extinguishment of debt.

“The efficiency ratio improved to 58% from 59%, or 63% on a non-GAAP basis that excludes PPP loan fees.

Financial situation (at September 30, 2022compared to June 30, 2022)

? Total assets increased $124.5 million at $3.8 billion primarily due to loan growth supported by growth in total deposits.

? Cash and cash equivalents were $82.1 millioncompared to $67.1 million. The increase is primarily a timing difference between lending activity and short-term borrowings at the end of the quarter.

?Securities were $565.8 million, or 15% of total assets, compared to $592.7
million, or 16% of total assets. Net unrealized losses were $76.6 million, or
12% of gross securities, compared with $49.7 million, or 8% of gross securities
as fixed rate securities continued to price reflecting higher interest rates.

?Total loans grew 18% on annualized basis during the quarter as commercial loans
and residential loans increased 25% and 9%, respectively.  Loan growth was
generated across all of our footprint and among many industry sectors and
business lines. We believe that the economy in Northern New England continues to
be strong despite pressures from the broader economy.

“The ratio of allowance for credit losses to total loans was 0.88%, up from 0.87%, reflecting a more cautious economic outlook.

Net charges continue to be insignificant and every credit metric improved during the quarter.

“Total deposits increased 7% on an annualized basis in the quarter due to a growing number of customer accounts and market share gains.

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?Total book value per share was $25.22 compared to $26.19. Net unrealized losses reduced the book value per share by $3.90 compared to $2.55.

Tangible book value per share excluding net unrealized security losses (non-GAAP) increased 8% on an annualized basis on net income offset by shareholder dividends.

COMPARISON OF THE FINANCIAL SITUATION AT SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

Securities

Total securities decreased to $565.8 million from $625.6 million at year-end
2021.  The $59.8 million decrease in total securities included $99.3 million of
purchases, $19.5 million in sales, an $11.7 million cost reduction to municipal
securities that are hedged, and $50.4 million of maturities, calls and pay-downs
and amortization.  Fair value adjustments reduced the security portfolio by
$76.6 million at the end of the September 30, 2022 quarter, compared to an
increase of $2.6 million at year-end 2021.  Net unrealized losses in the nine
months of 2022 resulted from the Federal Reserve increasing the federal funds
target interest rate 300 basis points in that period.  All securities remain
classified as available for sale to provide flexibility in loan funding and
management of our cost of funds.  The weighted average yield of our securities
portfolio was 3.43% at quarter-end and 2.63% at year-end.  Securities held at
quarter-end had an average life of 9.5 years and an effective duration of 5.1
years compared to 5.3 years and 4.2 years at year-end 2021, respectively.

Loans

Total loans increased by $318.5 million from year-end 2021, or 17% annualized,
to $2.9 billion at September 30, 2022.  Commercial loans increased by $241.2
million with growth from existing customers and 491 new lending relationships.
 PPP loan balances were zero at the end of the quarter, compared to $6.7 million
at year-end.  Total residential loans increased by $75.6 million from 2021, as
we placed more originations on the balance sheet instead of selling into the
secondary market.  Residential loan origination volume in 2022 is significantly
down as compared to respective periods 2021 on lower refinancing activity and
increasing market rates.

Allowance for Credit Losses

The ACL increased to $25.0 million at quarter-end as compared to $22.7 million
at year-end 2021 principally due to loan growth.  The ratio of the allowance to
loans decreased to 0.88% from 0.90% at year-end reflecting an improvement in
economic forecasts used the ACL calculation.  Non-accruing loans continue to
trend downwards on a quarterly basis to $7.8 million from $10.2 million.  The
ratio of accruing past due loans to total loans improved to 0.10% of total loans
from 0.32%. Total delinquent and non-accruing loans as percentage of total
improved to 0.37% from 0.72%.  Net recoveries on previously charged-off loans
for the first nine months of 2022 totaled $83 thousand compared to net
charge-offs of $434 thousand for the same period of 2021.

other assets

Other assets were $366.1 million compared to $318.5 million at year-end 2021.
The increase includes $18.5 million of deferred tax assets recorded in
connection with unrealized losses on securities, $6.5 million of investments
made in tax credits and community developments, a $7.9 million increase in the
fair value of customer loan swaps, and a $10.2 million increase in the fair
value of derivative instruments.

Deposits and borrowings

Total deposits increased by $87.1 million from the end of 2021 to $3.1 billion.

 In the first nine months of 2022 over 2,300 net new deposit accounts opened and
over 2,900 were opened in the same period of 2021.  The loan to deposit ratio
increased to 91% from 83% at the end of 2021 due to loan growth offset in part
by 4% annualized growth in total deposits.  Core deposits grew by $178.4
million, or 9% annualized, while time deposits decreased by $27.7 million, which
includes $36.0 million of wholesale deposits that matured.  Borrowings increased
by $70.5 million from year-end 2021 to supplement excess cash and deposit
funding.  FHLB borrowings totaled $169.8 million and $98.6 million with weighted
average rates of 2.91% and 0.49% at the end of the third quarter of 2022 and
year-end 2021, respectively. Wholesale borrowings as a percentage of total debt
decreased to 5.8% in the third quarter from 6.0% at year-end 2021.

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Other Liabilities

Other liabilities have been $75.6 million compared to $58.0 million at the end of 2021.

 The $17.6 million increase includes $7.0 million in remaining tax credit
investment commitments, a $7.9 million increase related to the fair value of
customer loan swaps, and a $4.5 million increase related to the fair value
of
derivative instruments.

Equity

Total equity at the end of the third quarter of 2022 was $380.0 million compared
to $424.1 million at year-end 2021.  The $44.1 million decrease in the first
nine months of 2022 included net income totaling $31.0 million, $11.4 million of
dividends to shareholders and $64.9 million of other comprehensive losses.

Other comprehensive income is mainly due to unrealized capital losses on securities, net of tax, totaling $60.7 million.

In June 2022, our Board of Directors authorized a stock repurchase plan for up
to 5% of outstanding shares of common stock, which represents approximately
751,000 shares.  As of September 30, 2022, no repurchases have been made, but we
will continue examine buying opportunities considering market conditions,
including interest rate volatility and potential loan and risk-weighted asset
growth.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

Net Income

The net profit for the third quarter of 2022 was $11.4 millionWhere $0.76 per diluted share, compared to $11.0 millionWhere $0.73 per diluted share, in the same quarter of 2021.

During the first nine months of 2022, net income was $31.0 million, or $2.06 per
diluted share, compared to $29.5 million, or $1.96 per diluted share, in the
same period of 2021.  Non-recurring items reduced net income by $1.1 million, or
$0.07 per diluted share, in 2021.

Net interest income

Net interest income was $29.9 million in the third quarter of 2022 compared with
$25.6 million in the third quarter of 2021.  NIM was 3.47% compared to 3.02% for
the same periods, and was 3.50%% and 2.94%, respectively, on a non-GAAP basis
when excluding the impact of PPP loan fees and interest-bearing excess cash.
 The increase in net interest income and net interest margin was due to higher
interest on earning assets due to the Federal Reserve increasing their federal
funds target rate.  The yield on earning assets totaled 3.84% compared to 3.41%
in the third quarter of 2021.  The yield on loans was 4.04% in the third quarter
of 2022, and 3.98% in the third quarter of 2021. The non-GAAP the yield on loans
was 4.04% and 3.62% for the same periods when excluding PPP loan fees.  Total
cost of deposits was 0.30% in the third quarter of 2022 compared to 0.27% in the
third quarter of 2021 reflecting a lower correlation to federal fund rate
movements.  Borrowing costs were 2.69% compared to 2.11% for the same periods
due to the repricing of rolling short-term FHLB borrowings to market rates.

For the first nine months of 2022, net interest income was $80.7 million
compared with $71.8 million in the same period of 2021.  The comparison of NIM
and earning asset yields were 3.21% and 2.88%, and 3.51% and 3.38% in 2022 and
2021, respectively.  The explanations for improvement in those ratios are
consistent with the three month comparison above.

Provision for credit losses

The allowance for credit losses for the quarter was $1.3 millioncompared to a resumption of $174,000 in the third quarter of 2021.

During the first nine months of 2022, the provision for credit losses was $2.2
million compared to a benefit of $1.4 million in the same period of 2021.  The
change in the provisions for credit losses and benefit are mostly attributable
to loan growth in 2022, and improved economic forecasts in 2021 as compared
to
2020, respectively.

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Non-Interest Income
Non-interest income in the third quarter of 2022 was $8.8 million, compared to
$11.4 million in the same quarter of 2021.  Customer service fees were $3.8
million in the third quarter of 2022, compared to $3.5 million in the same
period of 2021.  The increase reflects the net new accounts that were opened and
a higher volume of customer activity and transactions.  Wealth management income
was $3.5 million in the third quarter of 2022, down from $3.9 million in the
same quarter of 2021.  Assets under management ("AUM") declined approximately
16.1% year to date, as compared to the blended decline of the S&P 500 of 24.1%.
 The smaller decline in AUM is a direct function of effective portfolio
management and new business successes.  Mortgage banking income was $315
thousand in the third quarter of 2022, compared to $850 thousand in the same
period of 2021 reflecting higher on balance sheet activity and lower residential
loan originations.

Non-interest income for the first nine months of 2022 was $27.1 million compared
to $31.1 million in the same period in 2021.  Customer service fees increased
$1.4 million while mortgage banking income decreased $3.5 million and in 2021
included a $2.0 million net gain on security sales.  The reasons for these
changes are the same as the quarterly comparison above.

Non-interest charges

Non-interest expense was $23.0 million in the third quarter of 2022, compared to
$23.4 million in the same quarter of 2021.  The decrease is primarily the net
result of a $499 thousand increase in salary and benefit expense, a $429
thousand increase in occupancy and equipment expense, and non-recurring expenses
totaling $2.1 million in 2021.  Salary and benefit expense increased due to
annual cost of living adjustments in the second quarter 2022 along with higher
pay-for-performance incentives.  Occupancy and equipment expense increased on
higher utility costs and software amortization in 2022.  Non-recurring expenses
(non-GAAP) in 2021, included a $1.8 million loss on debt extinguishment and $318
thousand of fees related to consolidating our Wealth Management businesses.

For the first nine months of 2022, non-interest expense was $66.6 million
compared to $67.6 million in the same period of 2021.  The reasons for the
decrease in the nine month period is similar to the quarterly explanation above
with higher salary and benefits expense and occupancy costs, and lower
non-recurring expenses. Non-recurring expenses in 2022 totaled $291 thousand
consisting of mostly contract renegotiation fees.  In 2021, non-recurring
expenses were $3.4 million consisting of $1.8 million of reduction in workforce
costs and a $1.8 million loss on extinguishment of debt.  The efficiency ratio
was 59.66% in the first nine months of 2022 compared to 61.48% in same period
2021, which reflects managements disciplined approach to expense management
as
revenue continues to grow.

Liquidity and Cash Flows

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

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

During the third quarter 2022 we initiated pandemic-specific liquidity stress
tests to analyze potential impacts from payment deferrals, unanticipated use of
committed lines of credit, as well as the possibility of required servicer
advances on sold loans. At September 30, 2022, available same-day liquidity
totaled approximately $1.0 billion, including cash, borrowing capacity at FHLB
and the Federal Reserve Discount Window and various lines of credit. Additional
sources of liquidity include cash flows from operations, wholesale deposits,
cash flow from our amortizing securities and loan portfolios.  We had unused
borrowing capacity at the FHLB of $385 million, unused borrowing capacity at the
Federal

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Reserve of $84 million and unused credit lines totaling $51.0 millionmore and more $82.1 million in liquid, unencumbered investment portfolio assets.

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

Capital resources

Please see the section titled "Comparison of Financial Condition at September
30, 2022 and December 31, 2021--Equity" for a discussion of shareholders' equity
together with Note 6 "Capital Ratios and Shareholders' Equity" in the
consolidated financial statements. Additional information about regulatory
capital is contained in the notes to the consolidated financial statements and
in our most recent Annual Report on Form 10-K.

Our principal cash requirement is the payment of dividends on our common stock,
as and when declared by our Board of Directors.  Dividends to shareholders in
the aggregate amount of $11.4 million and $10.5 million for the nine months
ended September 30, 2022 and 2021, respectively.  All dividends declared and
distributed by us will be in compliance with applicable state corporate law and
regulatory requirements.

Off-balance sheet arrangements

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

Our off-balance sheet arrangements are limited to standby letters of credit
whereby the Bank guarantees the obligations or performance of certain customers.
These letters of credit are sometimes issued in support of third-party debt. The
risk involved in issuing standby letters of credit is essentially the same as
the credit risk involved in extending loan facilities to customers, and they are
subject to the same origination, portfolio maintenance and management procedures
in effect to monitor other credit products. The amount of collateral obtained,
if deemed necessary by the Bank upon issuance of a standby letter of credit, is
based upon management's credit evaluation of the customer.

Our off-balance sheet arrangements have not changed materially since we previously reported them in our Annual Report on Form 10-K for the year ended
December 31, 2021.

CRITICAL ACCOUNTING METHODS

Our Consolidated Financial Statements were prepared in accordance with GAAP and
follow general practices within the industries in which we operate. The most
significant accounting policies we follow are presented in Note 1 to our Annual
Report on Form 10-K for the fiscal year ended December 31, 2021. Application of
these principles requires us to make estimates, assumptions, and judgments that
affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Most accounting policies are not considered by management to
be critical accounting policies. Several factors are considered in determining
whether or not a policy is critical in the preparation of the Consolidated
Financial Statements. These factors include among other things, whether the
policy requires management to make difficult, subjective, and complex judgments
about matters that are inherently uncertain and because it is likely that
materially different amounts would be reported under different conditions or
using different assumptions. The accounting policies which we believe to be most
critical in preparing our Consolidated Financial Statements are presented in the
section titled "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Critical Accouting Policies and Estimates" included in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
There have been no significant changes in our application of critical accounting
policies since December 31, 2021.

Refer to "Note 1 Basis of Presentation--Recent Accounting Pronouncements" of the
consolidated financial statements for discussion of accounting pronouncements
issued but yet to be adopted and implemented.

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