BAR HARBOR BANKSHARES quarterly report, Q3 FY2022

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Bar Harbor Bankshares — Q3 2022 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2022. Bar Harbor Bankshares operates principally through Bar Harbor Bank & Trust, a community bank serving Maine, New Hampshire, and Vermont. Financial figures below are in U.S. dollars; unless stated otherwise, amounts are in millions.

Financial performance

  • Third-quarter earnings: Net income was $11.43 million, up 4% from $11.03 million a year earlier. Diluted EPS was $0.76 versus $0.73.
  • Nine-month earnings: Net income was $31.05 million versus $29.53 million. Diluted EPS was $2.06 versus $1.96.
  • Revenue and net interest: Q3 net interest income rose 17% to $29.91 million; total revenue (net interest income plus non-interest income) was $38.73 million versus $36.93 million. Nine-month net interest income was $80.73 million versus $71.76 million, and total revenue was $107.82 million versus $102.86 million.
  • Margins: Net interest margin was 3.47% in Q3, up from 3.02%; for nine months it was 3.21% versus 2.88%. Management attributed improvement principally to variable-rate asset repricing, loan growth, and a lower proportion of wholesale borrowings.
  • Credit costs: Q3 provision for credit losses was $1.31 million, compared with a $0.17 million provision benefit in Q3 2021. Nine-month provision was $2.22 million versus a $1.43 million benefit. The allowance for credit losses was $25.02 million, or 0.88% of loans, at quarter-end.
  • Non-interest income and expenses: Q3 non-interest income fell to $8.82 million from $11.35 million, including the prior-year benefit of $1.93 million in securities gains. Q3 non-interest expense was $23.03 million versus $23.37 million; the prior period included a $1.77 million debt-extinguishment loss. Nine-month expense was $66.62 million versus $67.59 million.
  • Profitability measures: Q3 return on assets was 1.20% versus 1.16%; return on equity was 11.55% versus 10.38%. The efficiency ratio improved to 57.67% from 59.18%. These ratios and certain adjusted measures are company-presented metrics; consult the filing’s definitions and reconciliations.

Financial position, funding, and cash flow

  • Balance sheet: Assets were $3.84 billion at September 30, up from $3.71 billion at December 31, 2021. Total loans were $2.85 billion, up $318.5 million (13%); commercial real estate non-owner-occupied loans were $1.08 billion, up from $887.1 million.
  • Deposits and borrowings: Deposits totaled $3.14 billion, up $87.1 million from year-end. Non-maturity deposits grew while time deposits declined. Borrowings increased to $249.0 million from $178.5 million; reported borrowing cost was 1.74% at quarter-end versus 0.91% at year-end. Loans equaled 91% of deposits, up from 83% at year-end.
  • Liquidity: Cash and cash equivalents were $82.1 million at quarter-end, compared with $250.4 million at year-end. Management reported approximately $1.0 billion of available same-day liquidity, including cash and borrowing capacity, and stated liquidity was sufficient for current and future needs. The filing notes that deposit behavior and access to brokered deposits could affect liquidity.
  • Cash flow, nine months: Operating activities provided $40.5 million; investing activities used $355.3 million, primarily reflecting loan growth; financing activities provided $146.4 million. Cash and cash equivalents decreased by $168.3 million over the period.
  • Capital and equity: Shareholders’ equity was $380.0 million, down from $424.1 million at year-end, mainly reflecting $64.9 million of other comprehensive losses, largely unrealized securities losses. The consolidated total capital ratio was 13.42% and the Bank’s was 13.22%; both met the filing’s well-capitalized criteria.

Material changes, outlook, and risks

  • Interest-rate-driven securities losses: The available-for-sale securities portfolio had a $76.6 million gross net unrealized loss at September 30, compared with a $2.6 million unrealized gain at year-end. Accumulated other comprehensive loss was $62.6 million. Management said it expected to recover amortized cost, did not intend to sell securities in unrealized-loss positions, and did not expect to be required to sell them before recovery.
  • Credit quality: Non-accrual loans declined to $7.8 million from $10.2 million at year-end; delinquent and non-accrual loans together were 0.37% of loans versus 0.72%. Net recoveries for the first nine months were $83,000. The company also reported a $23.0 million special-mention commercial construction exposure; monitor performance and migration in the broader commercial real estate portfolio.
  • Management commentary and rate sensitivity: Management described Northern New England’s economy as strong despite broader economic pressures. The balance sheet was modeled as asset-sensitive: a parallel +200 basis-point rate ramp was estimated to increase net interest income by 2.6% over 1–12 months and 8.5% over 13–24 months; a -100 basis-point ramp was estimated to reduce it by 2.4% and 6.9%, respectively. These are scenario estimates, not forecasts, and depend on assumptions about rates, deposits, prepayments, and customer behavior.
  • Guidance and other items: The filing provides no formal earnings or revenue guidance. The board authorized a 12-month repurchase plan for up to 5% of outstanding shares (approximately 751,000); no shares had been repurchased through September 30. Routine litigation was not expected by management to have a material adverse effect. The company reported no material changes to previously disclosed risk factors.
  • Key risks identified: Inflation and economic weakness could affect borrowers and credit losses; rising rates may increase deposit and funding costs; loan growth and liquidity needs may require additional funding. Other cited risks include competition, deposit retention, technology and cybersecurity, regulatory matters, and geopolitical and market conditions.

Important facts for investors to verify

  • How rising funding costs and deposit repricing affect net interest margin as the loan portfolio and borrowings grow.
  • The timing and potential capital or liquidity implications of the $76.6 million unrealized securities loss, including management’s ability to hold securities until recovery.
  • Commercial real estate concentration, the special-mention construction exposure, and whether loan growth is accompanied by stable credit quality and adequate reserves.
  • The sustainability of liquidity and deposit growth, given the 91% loan-to-deposit ratio and increased FHLB borrowing.
  • How reported GAAP results compare with management’s adjusted measures, including the impact of PPP loan fees and prior-year securities gains or unusual expenses.