Bar Harbor Bankshares — Q3 2021 Form 10-Q
Business context and reporting period. Bar Harbor Bankshares is the parent of Bar Harbor Bank & Trust, a community bank serving Maine, New Hampshire and Vermont. This unaudited filing covers the quarter and nine months ended September 30, 2021; balance-sheet comparisons are against December 31, 2020. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise.
Financial performance and condition
| Metric | Q3 2021 / September 30, 2021 | Comparable period / prior date |
|---|---|---|
| Net income | $11.0 million; diluted EPS $0.73 | Q3 2020: $8.4 million; $0.56 |
| Net interest income | $25.6 million | Q3 2020: $24.7 million |
| Net interest margin | 3.02% FTE | Q3 2020: 2.90% |
| Non-interest income / expense | $11.4 million / $23.4 million | Q3 2020: $10.1 million / $22.4 million |
| Total assets | $3.74 billion | December 31, 2020: $3.72 billion |
| Total loans / deposits | $2.53 billion / $3.01 billion | December 31, 2020: $2.56 billion / $2.91 billion |
| Cash and cash equivalents | $341.2 million | December 31, 2020: $226.0 million |
| Total borrowings | $250.4 million | December 31, 2020: $336.0 million |
| Shareholders’ equity | $418.4 million | December 31, 2020: $407.1 million |
- For the first nine months, net income was $29.5 million and diluted EPS was $1.96, versus $24.6 million and $1.60 in 2020. Net interest income was $71.8 million versus $73.8 million; non-interest income was $31.1 million versus $28.2 million.
- Q3 return on assets was 1.16% and return on equity 10.38%. The reported efficiency ratio was 59.18%.
- Operating cash flow for the first nine months was $30.8 million; investing cash flow was $79.7 million and financing cash flow $4.8 million. Cash and cash equivalents increased by $115.2 million.
- Regulatory capital remained above well-capitalized thresholds: consolidated total capital ratio 14.12%, CET1 10.92%, and Tier 1 leverage 8.54%. The Bank also exceeded applicable well-capitalized minimums.
- Available same-day liquidity was approximately $1.3 billion, including cash, borrowing capacity and credit lines. The company reported unused FHLB capacity of $467.2 million, Federal Reserve capacity of $72.0 million, and $51.0 million in unused credit lines.
Material changes versus comparable periods
- Q3 net income rose about 31% year over year, supported by lower funding costs, higher customer and wealth-management fees, PPP fee income, and a $1.9 million securities-sale gain. The quarter also included a $1.8 million debt-extinguishment loss.
- Q3 interest expense fell to $3.3 million from $5.8 million as deposit costs declined and borrowings were reduced. The nine-month net interest margin was lower year over year, at 2.88% versus 2.95%, reflecting rate compression and higher interest-bearing cash balances.
- Deposits increased $101.1 million from year-end, with non-maturity deposits up $330.2 million and time deposits down $229.1 million. Borrowings declined $85.7 million, including $89.0 million of FHLB advances prepaid during Q3. Wholesale borrowings fell to 9% of funding, from 18% at year-end 2020.
- Total loans declined $28.7 million from year-end, mainly as PPP forgiveness exceeded originations. Excluding PPP, commercial loans grew 9% on a year-to-date annualized basis. Residential loans declined $74.2 million.
- Credit quality remained strong: non-accrual loans were $12.2 million, or 0.48% of loans, roughly unchanged from year-end. Accruing past-due loans improved to 0.12% of loans from 0.58%; nine-month net charge-offs were $434,000, or 0.02% of average loans.
Outlook, risks and unusual items
- Management said a Q3 balance-sheet deleveraging and securities remix included prepaying $89 million of FHLB advances and selling $43.5 million of securities. It expected subsequent securities purchases to add approximately 12 basis points to net interest margin and $0.02 to quarterly earnings per share. These are management estimates, not a formal earnings forecast.
- Management described continued commercial lending and core-deposit growth, improving credit quality and a strategic decision to retain more residential mortgage production on balance sheet. It provided no broader quantified earnings guidance.
- Interest-rate exposure is a key risk. Modeling indicated net interest income would decline 2.4% over one year and 9.8% over two years in a parallel 100-basis-point rate decline, and rise 10.6% and 21.8%, respectively, in a parallel 200-basis-point increase. The filing cautions these scenarios are hypothetical, assumption-dependent, and not forecasts.
- The company adopted CECL on January 1, 2021. Adoption increased the loan allowance by $5.2 million and the unfunded-commitment reserve by $1.6 million, reducing retained earnings by $5.2 million net of tax. Q3 and nine-month 2021 credit-loss provisions were benefits of $174,000 and $1.4 million, respectively.
- The filing revised previously issued comparative financial statements to correct derivative presentation and related equity and comprehensive-income effects. Management said the corrections did not affect net income. The filing reports no material changes to previously disclosed risk factors; routine litigation was not expected by management to have a material financial effect.
- Management reported effective disclosure controls as of September 30, 2021 and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Review the derivative-related restatement and its effects on prior-period assets, liabilities, accumulated other comprehensive income and equity.
- Confirm the expected timing and realized impact of the securities remix on margin and earnings, and distinguish the projected benefits from reported results.
- Track deposit growth, deposit mix and costs, loan growth excluding PPP, and the company’s reduced reliance on wholesale funding.
- Assess CECL assumptions, allowance coverage and any changes in economic forecasts, non-accruals, delinquency and charge-offs.
- Reconcile reported liquidity and cash figures: the balance sheet reports cash and cash equivalents of $341.199 million, while the cash-flow statement lists period-end cash of $341.249 million. The filing text does not explain this $50,000 difference.
- Compare the reported 3.02% Q3 FTE margin with management’s separate normalized-margin discussion, which cites 2.99% for Q3 versus 2.86% in Q2 after excluding PPP and excess-cash effects.