Bar Harbor Bankshares — Q2 2023 Form 10-Q
Business context and period. Bar Harbor Bankshares is a Maine bank holding company operating principally through Bar Harbor Bank & Trust, serving businesses and consumers primarily across Northern New England. This unaudited report covers the quarter and six months ended June 30, 2023. Unless indicated otherwise, financial amounts below are in millions.
Financial performance and position
- Q2 earnings: Net income was $10.8 million, up from $10.5 million in Q2 2022; diluted EPS was $0.71 versus $0.70. For the first half, net income was $23.8 million versus $19.6 million and diluted EPS was $1.57 versus $1.30.
- Revenue and margins: Q2 net interest income rose 9% to $28.8 million; net interest margin was 3.22% versus 3.19%. First-half net interest income increased to $59.7 million from $50.8 million, and margin was 3.39% versus 3.07%. Q2 non-interest income was essentially flat at $9.0 million; first-half income was $18.2 million versus $18.3 million.
- Expenses and returns: Q2 non-interest expense increased to $23.4 million from $21.7 million, mainly from salaries and benefits and higher stock-compensation and post-retirement expense. Q2 efficiency ratio was 60.25% versus 59.25%; first-half ratio improved to 57.40% from 60.78%. Q2 return on assets was 1.10% and return on equity 10.49%, compared with 1.14% and 10.58% a year earlier.
- Credit costs and asset quality: Q2 provision for credit losses was $0.75 million versus $0.53 million; first-half provision was $1.55 million versus $0.91 million. The loan allowance was $27.4 million, or 0.91% of loans, at June 30. Nonaccrual loans were $6.7 million; management reported a 0.17% non-performing-asset ratio and near-zero net charge-offs. Past-due loans totaled $5.8 million.
- Balance sheet growth: Total assets were $4.03 billion at June 30, up from $3.91 billion at year-end 2022. Loans were $3.01 billion, up $104.8 million since year-end; commercial loans drove growth. Deposits were $3.09 billion, up $46.8 million since year-end, while borrowings rose to $459.3 million from $394.2 million.
- Funding and liquidity: Cash and cash equivalents were $123.8 million. Management said cash and available-for-sale securities represented approximately 17% of assets and cited about $557 million of available same-day liquidity, including cash, unused FHLB and Federal Reserve borrowing capacity, and credit lines. Loans-to-deposits were 97%, versus 89% a year earlier.
- Deposits and borrowing costs: Time deposits increased substantially to $635.6 million from $323.4 million at year-end; brokered time deposits were $202.6 million versus $15.1 million. Non-maturity deposits declined. Short-term FHLB advances totaled $384.5 million at a 5.32% weighted average rate; total borrowings carried a 3.63% weighted average rate. Q2 interest expense rose sharply to $14.1 million from $2.3 million.
- Capital and securities: Company and Bank regulatory capital ratios met “well-capitalized” criteria. The Company’s total risk-based capital ratio was 13.62% and CET1 ratio 10.67%. Available-for-sale securities were $538.2 million at fair value, with $77.8 million of gross unrealized losses; accumulated other comprehensive loss was $57.6 million. Management said it expects to recover securities’ amortized cost and does not intend or expect to need to sell securities in unrealized-loss positions before recovery.
- Cash flow: First-half operating cash flow was $12.4 million versus $18.6 million in 2022; investing cash outflow was $84.7 million versus $223.8 million; financing cash inflow was $103.8 million versus $22.0 million. Cash increased by $31.5 million during the first half.
Changes, outlook, and risks
- Higher loan yields and growth supported net interest income, but funding costs rose as deposits shifted toward time accounts and the Company relied more on wholesale borrowings. Management reported an accumulated deposit beta of 22% at quarter-end.
- Management described liquidity, capital, and asset quality as strong amid banking-sector stress, but said the continuing effects of the banking crisis and its impact on the remainder of 2023 were uncertain. The filing provides no specific earnings or balance-sheet guidance.
- Interest-rate modeling showed the balance sheet was asset-sensitive over one- and two-year horizons: a 200-basis-point increase was modeled to raise net interest income by 0.9% and 2.2%, respectively; a 100-basis-point decline was modeled to reduce it by 1.7% and 3.9%. The filing cautions these are hypothetical sensitivity estimates, not a forecast.
- Key disclosed risks include deposit repricing and retention, liquidity needs and access to brokered funding, changing interest rates and securities values, loan demand and credit losses, local economic weakness, competition, cyber and technology risks, and regulatory or legal developments. Management reported no material change to the risk factors in its 2022 Form 10-K.
- The Board authorized a 12-month repurchase plan for up to 5% of outstanding shares, approximately 756,000 shares; no shares were repurchased in Q2. The Company expects to continue quarterly dividends, subject to Board discretion. Routine litigation was disclosed; management considered a material adverse effect remote, while noting unfavorable outcomes could be material.
Most important facts for investors to verify
- Whether deposit migration, brokered-deposit growth, and wholesale borrowing costs continue to pressure net interest margin and liquidity.
- Whether commercial real estate and other loan credit indicators, nonaccrual balances, delinquencies, and required credit provisions worsen.
- How the substantial unrealized securities losses and interest-rate changes affect tangible capital, funding flexibility, and any need to sell securities.
- Whether reported loan growth produces adequate risk-adjusted returns as funding costs and operating expenses rise.
- Whether management proceeds with share repurchases and maintains dividends given capital, liquidity, and loan-growth needs.