Bar Harbor Bankshares — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports unaudited fourth-quarter results. Bar Harbor Bankshares operates Bar Harbor Bank & Trust, a community bank serving Maine, New Hampshire and Vermont, with wealth-management and other fee businesses.
Financial performance and condition
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total assets, year-end | $3.726 billion | $3.669 billion |
| Total loans, year-end | $2.563 billion | $2.635 billion |
| Total deposits, year-end | $2.906 billion | $2.696 billion |
| Total borrowings, year-end | $336 million | $531 million |
| Net interest income | $99.2 million | $89.8 million |
| Net interest margin | 2.97% | 2.77% |
| Non-interest income | $43.0 million | $29.1 million |
| Provision for loan losses | $5.6 million | $2.3 million |
| Net income | $33.2 million | $22.6 million |
| Diluted EPS | $2.18 | $1.45 |
| Return on assets / equity | 0.88% / 8.17% | 0.62% / 5.82% |
| Operating cash flow | $38.2 million | $36.4 million |
Fourth-quarter 2020 net income was $8.6 million, or $0.58 per diluted share, compared with $4.2 million, or $0.27 per diluted share, in fourth-quarter 2019. Q4 non-interest expense was $27.8 million, including unusual and other charges described below.
Year-end cash and cash equivalents rose to $226 million from $57 million. The company reported approximately $1.1 billion of available same-day liquidity, including cash, borrowing capacity and credit lines, and stated existing liquidity and operating cash flows should cover anticipated needs for at least 12 months. The loan-to-deposit ratio declined to 88% from 98%. Both the company and bank remained well-capitalized; the company’s total risk-based capital ratio was 13.56% and the bank’s was 13.27%.
Credit indicators included a $19.1 million allowance for loan losses, or 0.74% of loans, versus $15.4 million and 0.58% a year earlier. Non-performing loans were 0.48% of loans; non-performing assets were 0.33% of assets. Net charge-offs were 0.07% of average loans.
Changes versus prior year
- Net income increased about 47%, supported by lower funding costs, higher net interest income and increased fee income.
- Net interest margin expanded 20 basis points. Cost of funds fell to 0.96% from 1.61%, while the yield on earning assets declined to 3.87% from 4.14%.
- Non-interest income rose chiefly on mortgage banking revenue, securities gains and growth in wealth-management and customer derivative income. The bank sold $153 million of securities, recording a $5.4 million net gain; mortgage banking income rose to $6.9 million.
- Non-interest expense increased to $94.9 million from $89.7 million, primarily reflecting salaries, benefits and occupancy costs associated with the expanded business footprint. The reported non-GAAP efficiency ratio improved to 61.71% from 64.95%.
- Deposits grew $210 million, including substantial growth in non-maturity deposits, while total borrowings fell $195 million. Commercial loans grew 17%; residential real estate loans declined as more mortgage production was sold into the secondary market.
- Shareholders’ equity increased to $411 million from $396 million. The company paid $0.88 per share in dividends and repurchased about 720,000 shares for approximately $13.9 million.
Outlook, risks and unusual items
- COVID-19 and credit: Management said the pandemic’s 2021 impact could not be reliably estimated. The company modified more than 800 loans totaling about $400 million during 2020; 69 modified loans totaling $69 million remained at year-end. Management reported generally positive credit trends and no significant downgrades from its commercial-loan stress testing, but outcomes remain sensitive to economic recovery and borrower performance.
- Concentrations: Commercial loans were about 60% of the portfolio. Real estate rental and leasing represented 42% of commercial loans, and hospitality represented 18% of commercial loans (about 11% of total loans). The company highlighted local economic, real-estate and tourism exposure.
- PPP and CECL: The bank originated about $132 million of first-round PPP loans; $54 million remained outstanding at year-end, with most remaining forgiveness expected by the end of Q2 2021. It planned to continue PPP lending in 2021. The filing says the company elected to adopt CECL effective January 1, 2021; estimated year-end allowance coverage under CECL would have been 0.95%, versus 0.74% under the incurred-loss method, subject to forecast changes.
- Unusual expenses: 2020 included a roughly $4 million loss from terminating a $50 million wholesale-funding swap and a $1.4 million debt-extinguishment loss, as well as profitability and systems-conversion costs. The non-GAAP reconciliation reports adjusted income of $34.8 million and adjusted diluted EPS of $2.28; the executive summary instead states adjusted diluted EPS of $2.26.
- Interest-rate and funding risks: The balance sheet was modeled as asset-sensitive over one- and two-year horizons; a hypothetical +200-basis-point scenario increased modeled net interest income, while a -100-basis-point scenario reduced it. These estimates depend on assumptions and are not forecasts. The company also cited LIBOR transition, deposit-mix, liquidity, cybersecurity, vendor, regulatory and acquisition risks.
- Contingencies and audit: The company reported no pending legal matter believed material and no significant subsequent event through the financial-statement issuance date. The auditor gave an unqualified opinion on the financial statements and internal controls; identified critical audit matters were the qualitative loan-loss reserve and goodwill impairment assessment.
Important facts for investors to verify
- Reconcile the filing’s adjusted diluted EPS figures: $2.26 in the executive summary versus $2.28 in the non-GAAP reconciliation.
- Confirm CECL’s effective adoption date and the resulting opening allowance and retained-earnings adjustment; the filing discusses adoption effective January 1, 2021 and provides an estimated 0.95% allowance ratio.
- Track remaining COVID-modified loans, hospitality and commercial real-estate performance, PPP forgiveness and any changes in criticized loans or credit reserves.
- Assess whether deposit growth and reduced wholesale funding persist, and how excess cash, low rates and mortgage sales affect future net interest margin and earnings.
- Review the sustainability of fee income and reported earnings excluding the $5.4 million securities gain and other unusual costs.