Bar Harbor Bankshares — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with 2022. Bar Harbor Bankshares is a Maine bank holding company operating Bar Harbor Bank & Trust across Maine, New Hampshire, and Vermont.
Financial performance and condition
- Earnings: Net income was $44.9 million, up 3% from $43.6 million. Diluted EPS was $2.95 versus $2.88. Return on assets was 1.14% (1.16% in 2022) and return on equity was 10.88% (10.91%).
- Revenue and margins: Net interest income rose 4% to $117.7 million; noninterest income was $35.8 million versus $35.3 million. Net interest margin was 3.29%, down from 3.36% in the selected financial data. The MD&A also cites 3.35% for 2022, an internal-period comparison that should be checked. The efficiency ratio improved to 58.7% from 59.3%.
- Expenses and credit costs: Noninterest expense increased to $93.5 million from $91.3 million, including salaries and benefits of $52.5 million, up $3.9 million. Provision for credit losses was $2.9 million in both years. Income tax expense was $12.3 million; the effective tax rate rose to 21.5% from 20.6%.
- Loans and credit quality: Loans grew 3% to $3.00 billion; commercial loans grew 6%. Nonaccrual loans declined to $5.5 million (0.18% of loans) from $6.5 million (0.23%). The allowance for credit losses increased to $28.1 million, or 0.94% of loans, from $25.9 million, or 0.89%. The allowance table reports $626,000 of net charge-offs in 2023 versus $238,000 of net recoveries in 2022; another MD&A passage cites $590,000 for 2023.
- Funding and liquidity: Deposits rose 3% to $3.14 billion, while non-maturity deposits declined and time deposits increased to $700.3 million from $323.4 million. Brokered time deposits rose to $219.6 million from $15.1 million. Total borrowings were $331.5 million, including $60.5 million subordinated; senior borrowings were $271.0 million. Cash and cash equivalents were $94.8 million. Management reported approximately $1.2 billion of available same-day liquidity, including borrowing capacity, and stated liquidity was sufficient for anticipated needs over at least 12 months.
- Cash flow: Operating cash flow was $47.4 million, investing cash flow was negative $62.3 million, and financing cash flow was positive $17.4 million. Cash and cash equivalents increased $2.5 million for the year.
- Capital and equity: Total assets were $3.97 billion, up $61.1 million; shareholders’ equity was $432.1 million versus $393.5 million. The Bank’s total risk-based capital ratio was 13.97%, and its Tier 1 leverage ratio was 10.50%; both the Bank and parent met well-capitalized standards. Book value per share was $28.48. The company paid $1.10 per share in dividends, up from $1.02.
Material changes versus 2022
- Higher asset yields lifted interest income, but deposit and borrowing costs rose sharply: total interest expense increased to $56.5 million from $12.8 million. The average cost of interest-bearing liabilities rose to 1.99% from 0.49%.
- Loan growth slowed to 3% from 15%; commercial loan growth was 6% versus 19% in 2022. Residential loans declined 2%.
- Securities available for sale had a $62.4 million net unrealized loss at year-end 2023, compared with a $71.8 million unrealized gain reported at year-end 2022. The after-tax accumulated other comprehensive loss was $49.9 million, improving from $58.3 million.
- Deposit mix shifted toward higher-cost time deposits, including brokered deposits. Total borrowings declined from $394.2 million.
- Noninterest income included $699,000 more BOLI income, primarily from one-time death benefits. The filing also identifies higher post-retirement liability revaluation and stock compensation as contributors to increased compensation costs.
Outlook, risks, and unusual items
- The filing provides no specific earnings or growth guidance. Management said liquidity should cover anticipated cash needs for at least 12 months and that the balance sheet was asset-sensitive over the one- and two-year modeling horizons. Its simulations indicate higher rates could improve modeled net interest income and lower rates could reduce it; management cautions the scenarios are not forecasts.
- Key risks include deposit competition and repricing, reliance on brokered and wholesale funding, interest-rate and securities-value volatility, and concentrated lending in commercial real estate and other commercial credits. About 64% of loans were commercial real estate, commercial and industrial, or construction. Hospitality represented 11% of loans; office loans were $245.8 million, with an 86% pass rating.
- Management’s stressed economic scenario would increase the estimated allowance by approximately $8.0 million versus its expected scenario. This underscores the sensitivity of credit reserves to assumptions and forecasts.
- All investment securities were classified as available for sale. Management said it expected to recover amortized cost and did not intend, or anticipate being required, to sell securities in unrealized-loss positions before recovery. Rate-driven losses could nevertheless become realized if liquidity needs or strategic decisions prompt sales.
- Management reported no material cybersecurity incidents or data breaches to date and no material pending legal proceedings. The auditor issued unqualified opinions on the financial statements and internal controls; the allowance for credit losses was the critical audit matter.
- After year-end, the company entered a new three-year CFO employment agreement with annual base salary of $459,000 and specified severance provisions, including enhanced benefits in certain change-in-control circumstances.
Most important facts for investors to verify
- Reconcile the reported 2022 net interest margin (3.36% in selected data versus 3.35% in MD&A) and the 2023 net charge-off amount ($626,000 in the allowance roll-forward versus $590,000 in MD&A).
- Track deposit retention, time-deposit maturities, brokered-deposit reliance, and the cost and availability of wholesale funding.
- Assess commercial real estate exposure, especially office and hospitality credits, loan ratings, collateral values, and the assumptions behind the $28.1 million allowance.
- Monitor the securities portfolio’s unrealized losses, liquidity needs, and any sales that could realize losses; compare reported liquidity capacity with actual funding usage.
- Review future net interest margin, earnings, and dividend coverage as rates and funding costs change; the filing does not provide formal forward earnings guidance.