Bar Harbor Bankshares — Q3 2023 Form 10-Q
Reporting period: Unaudited quarter and nine months ended September 30, 2023; comparisons are generally with the corresponding 2022 periods or December 31, 2022 balance-sheet amounts. The company operates principally through Bar Harbor Bank & Trust across Northern New England.
Key financial results
| Metric | Q3 / September 30, 2023 | Comparable period / prior date |
|---|---|---|
| Net income | $11.1 million; diluted EPS $0.73 | Q3 2022: $11.4 million; $0.76 |
| Nine-month net income | $34.9 million; diluted EPS $2.30 | Nine months 2022: $31.0 million; $2.06 |
| Net interest income | Q3: $29.2 million; nine months: $88.9 million | Q3 2022: $29.9 million; nine months 2022: $80.7 million |
| Net interest margin | Q3: 3.18% | Q3 2022: 3.47% |
| Non-interest income / expense | Q3: $8.8 million / $23.0 million | Q3 2022: $8.8 million / $23.0 million |
| Profitability | Q3 ROA 1.11%; ROE 10.72%; efficiency ratio 58.59% | Q3 2022: 1.20%; 11.55%; 57.67% |
| Assets / loans / deposits | $3.984 billion / $2.993 billion / $3.140 billion | December 31, 2022: $3.910 billion / $2.903 billion / $3.043 billion |
| Cash and cash equivalents | $122.8 million | December 31, 2022: $92.3 million |
| Borrowings | $367.5 million | December 31, 2022: $394.2 million |
| Shareholders’ equity | $404.2 million | December 31, 2022: $393.5 million |
Cash flow, credit, and liquidity
- For the first nine months, operating cash flow was $31.2 million, investing cash flow was negative $58.4 million, and financing cash flow was positive $57.7 million. Cash increased $30.5 million to $122.8 million.
- Loans grew $90.1 million from year-end, mainly from commercial real estate and commercial and industrial lending. Loans were essentially flat sequentially in Q3.
- The allowance for credit losses was $28.0 million, or 0.94% of loans, versus $25.9 million and approximately 0.89% at year-end. Nine-month provision expense was $2.2 million; net charge-offs were near zero. Nonaccrual loans were $6.8 million, compared with $6.5 million at year-end.
- Deposits increased $97.1 million from year-end, while non-maturity deposits declined and time deposits rose to $658.5 million from $323.4 million. Brokered time deposits were $202.0 million versus $15.1 million at year-end. Estimated uninsured and uncollateralized deposits were 8.7% of deposits, down from 11.2%.
- Management reported $551.1 million of available same-day liquidity, including $122.8 million cash, $219.3 million unused FHLB capacity, $158.0 million Federal Reserve capacity, and $51.0 million in unused lines. Cash and available-for-sale securities represented approximately 16.2% of assets.
- Both the company and the Bank met the filing’s regulatory “well-capitalized” criteria. At September 30, consolidated total risk-based capital was 13.86%, common equity Tier 1 was 10.97%, and the leverage ratio was 9.45%.
Material changes and notable items
- Q3 net income and diluted EPS declined year over year. Higher funding costs drove the lower quarterly net interest income and margin, partly offset by higher yields on earning assets. Q3 interest-bearing liability cost rose to 1.81% from 0.30% a year earlier; the loan yield increased to 5.11% from 4.04%.
- Nine-month net income increased year over year, while non-interest income was broadly unchanged. Nine-month non-interest expense rose to $69.1 million from $66.6 million, including higher salaries and benefits.
- Management attributed higher Q3 tax expense partly to $268,000 of one-time charges related to a New Hampshire tax audit settlement and 2022 return-to-provision adjustments. Q3 provision expense was lower than in 2022.
- Available-for-sale securities were $509.5 million, down from $559.5 million at year-end. The portfolio had $95.8 million of gross unrealized losses and $9.4 million of gross unrealized gains at quarter-end; after-tax accumulated unrealized securities losses were $66.5 million, compared with $55.3 million at year-end. Management said it did not intend, or expect to be required, to sell securities in loss positions before recovery.
- Total comprehensive income was negative $2.7 million in Q3, reflecting $13.8 million of other comprehensive loss, principally securities and hedging valuation changes.
- Borrowings declined from June 30 as the company used operating cash to repay higher-cost FHLB advances. Time-deposit growth and increased brokered deposits were important funding shifts.
- Management reported no goodwill impairment following its annual test. No OREO was held at September 30. Routine litigation was disclosed; management did not expect it to have a material adverse effect, while noting outcomes cannot be assured.
Outlook, risks, and contingencies
- The filing gives no specific earnings, margin, loan-growth, or deposit-growth guidance. Management said liquidity and capital were strong and asset quality remained solid, but the continued effects of banking-sector stress and economic conditions were uncertain.
- Key risks include deposit pricing and retention, access to brokered deposits, interest-rate changes, liquidity needs, loan demand and pricing, borrower performance and credit losses, commercial real estate exposure, local economic conditions, competition, cybersecurity and vendor risks, and regulatory or litigation matters.
- Interest-rate sensitivity modeling showed an asset-sensitive position: a modeled +200-basis-point rate ramp increased net interest income by 1.8% over 1–12 months and 3.3% over 13–24 months; a −100-basis-point ramp reduced it by 1.1% and 3.0%, respectively. The filing cautions that these scenarios are not forecasts and depend on assumptions.
- The Board authorized a 12-month repurchase plan for up to 756,000 shares; no shares were repurchased in Q3. The company said future purchases would depend on market conditions and potential loan and risk-weighted asset growth. Management expects to continue quarterly dividends, subject to Board discretion; $12.4 million was paid in the first nine months.
Most important facts for investors to verify
- Reconcile the nine-month net interest margin disclosure: the selected data and average-balance tables report 3.32% for 2023 versus 3.21% for 2022, while the MD&A narrative states 3.18% versus 3.22%.
- Track deposit mix, brokered-deposit balances and maturities, deposit costs, and continued use of wholesale funding.
- Monitor unrealized securities losses, liquidity availability, and capital effects if interest rates or funding conditions change.
- Review commercial real estate credit quality, nonaccrual and past-due trends, the specific reserve on a nonaccrual commercial and industrial loan expected to be settled in Q4, and allowance adequacy.
- Assess whether the company’s modeled rate sensitivity and management’s liquidity and asset-quality assessments remain valid as economic conditions evolve.