BAR HARBOR BANKSHARES quarterly report, Q1 FY2022

Bar Harbor Bankshares — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021 unless noted. Bar Harbor Bankshares operates principally through Bar Harbor Bank & Trust, serving Maine, New Hampshire and Vermont. Amounts below are in U.S. dollars; financial statement figures are generally shown in millions.

Financial results and key metrics

Metric	Q1 2022	Comparable / change
Net interest income	$24.3 million	$23.4 million in Q1 2021
Total revenue (net interest income plus non-interest income)	$33.6 million	$33.7 million in Q1 2021
Net income; diluted EPS	$9.1 million; $0.60	$9.5 million; $0.63 in Q1 2021
Net interest margin (FTE)	2.95%	2.88% in Q1 2021
Return on assets; return on equity	1.00%; 8.89%	1.03%; 9.45% in Q1 2021
Net cash from operations	$6.2 million	$14.7 million in Q1 2021

Non-interest income was $9.3 million, down from $10.2 million. Customer service fees increased to $3.6 million from $3.0 million and trust and investment management fees rose to $3.8 million from $3.7 million. Mortgage banking income fell to $0.6 million from $2.6 million, reflecting lower refinancing activity and mortgage production.
Non-interest expense declined to $21.9 million from $22.5 million. The reported efficiency ratio was 62.40%, versus 61.95%; management also reported an efficiency ratio excluding PPP effects of 62.76%, improved from 64.40%.
Provision for credit losses was $0.4 million, compared with a $0.5 million provision recapture in Q1 2021. The allowance for credit losses was $23.2 million, or 0.87% of loans, versus $22.7 million, or 0.90%, at year-end.

Balance sheet, funding and capital

Total assets were $3.69 billion, down from $3.71 billion at year-end. Loans grew $122.7 million to $2.65 billion; management reported 21% annualized commercial loan growth. Commercial real estate loans were a major growth component.
Deposits were essentially flat at $3.05 billion. Core, non-maturity deposits grew $32.8 million, or 5% annualized, while time deposits fell $33.6 million. The loan-to-deposit ratio rose to 87% from 83% at year-end.
Cash and cash equivalents fell to $111.0 million from $250.4 million, as the company deployed excess cash to support loan growth. Investing activities used $141.8 million, principally reflecting net loan growth and securities activity; total cash declined $139.3 million during the quarter.
Total borrowings were $178.7 million, little changed from year-end. The company reported $98.6 million in FHLB advances and $60.2 million in subordinated borrowings.
Shareholders’ equity declined to $407.0 million from $424.1 million. Accumulated other comprehensive loss shifted to $21.4 million from $2.3 million of income, primarily because rising rates reduced the fair value of available-for-sale securities. The company said it expected to recover amortized cost and did not intend, or anticipate being required, to sell securities in unrealized-loss positions before recovery.
The company and the Bank remained above regulatory “well-capitalized” thresholds. Consolidated total risk-based capital was 13.90% and common equity tier 1 was 10.83% at March 31, 2022.
Management reported approximately $1.1 billion of available same-day liquidity, including cash, borrowing capacity and credit lines, plus more than $200 million in unencumbered liquid investment assets.

Material changes, outlook and risks

Net income and diluted EPS decreased year over year. Adjusted diluted EPS, a non-GAAP measure, was $0.62 versus $0.68. PPP loan accretion contributed $0.01 per share in Q1 2022 versus $0.07 a year earlier.
Management cited loan growth, a wider net interest margin, higher fee-based income and controlled expenses as positive operating trends. It described commercial loan pipelines as robust, while noting uncertainty in the economic and interest-rate environment. No specific forward earnings or growth guidance was provided.
Management’s rate-sensitivity model showed an asset-sensitive balance sheet. Under a modeled +200 basis-point rate ramp, net interest income was estimated to rise 6.6% over 1–12 months and 16.4% over 13–24 months; under a -100 basis-point ramp, it was estimated to fall 3.9% and 8.0%, respectively. The filing cautions that these are hypothetical sensitivities, not forecasts, and depend on assumptions about rates, deposits, prepayments and customer behavior.
Key exposures include interest-rate changes, loan and commercial real estate credit quality, mortgage-market conditions, deposit behavior and access to wholesale funding. The filing reported non-accrual loans of $9.2 million, down from $10.2 million at year-end; no TDR modifications occurred in the quarter. Ordinary-course litigation was not expected by management to have a material financial effect, and no material changes to previously disclosed risk factors were reported.
The filing identifies one-time severance and contract-negotiation costs among adjustments to reported earnings. Its non-GAAP reconciliation shows $325,000 of acquisition, conversion and other expenses and a $75,000 gain on premises and equipment in Q1 2022. Investors should review the reconciliation and management’s definitions when comparing adjusted results.

Most important facts for investors to verify

Whether loan growth, particularly commercial real estate growth, continues without deterioration in delinquencies, non-accruals or credit-loss assumptions.
Whether core deposit growth and the reported liquidity resources remain sufficient as lending expands and interest rates change.
How rising rates affect securities values, accumulated other comprehensive loss, tangible book value and realized earnings; the filing’s stated intent to hold securities is not a guarantee of recovery timing.
Whether mortgage banking weakness persists and whether higher fee income offsets lower mortgage revenue and other operating pressures.
The underlying assumptions behind modeled rate sensitivity and non-GAAP adjusted earnings, which are not forecasts or substitutes for GAAP results.