Bar Harbor Bankshares — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited consolidated results. Unless stated otherwise, amounts are in thousands of dollars.
Business context and financial results
Bar Harbor Bankshares is a Maine-based bank holding company. Its lending and deposit-taking business is conducted primarily in Maine, with activity concentrated in commercial and real estate lending.
| Metric | Q1 2016 | Comparable period / change |
|---|---|---|
| Interest and dividend income | $14,164 | $13,533 in Q1 2015 |
| Net interest income | $11,336 | $10,998 in Q1 2015 |
| Tax-equivalent net interest income | $11,873 | Up 3.7% year over year |
| Tax-equivalent net interest margin | 3.09% | 3.27% in Q1 2015 |
| Non-interest income | $3,328 | $2,342 in Q1 2015 |
| Non-interest expense | $7,997 | $7,333 in Q1 2015 |
| Net income | $4,406 | Up 13.5% from $3,881 |
| Diluted earnings per share | $0.72 | $0.64 in Q1 2015 |
| Return on average assets / equity | 1.10% / 11.18% | 1.06% / 10.57% in Q1 2015 |
| Efficiency ratio | 57.4% | 55.3% in Q1 2015 |
| Net cash from operating activities | $3,196 | $3,051 in Q1 2015 |
Financial position and material changes
- Total assets were $1.622 billion at March 31, up 2.7% from year-end 2015. Loans were $1.007 billion, up 1.7%; available-for-sale securities were $532.9 million, up 5.5%.
- Deposits totaled $962.6 million, up 2.1% from December 31, 2015. Borrowings were $492.3 million, up 3.7%, comprising $343.4 million of short-term borrowings, $143.9 million of long-term FHLB advances, and $5.0 million of junior subordinated debentures.
- Shareholders’ equity was $160.6 million, versus $154.2 million at year-end. The company remained well-capitalized: consolidated CET1 was 15.58%, total risk-based capital 17.16%, and leverage ratio 9.20%.
- Cash and cash equivalents ended at $7.3 million, down $2.4 million during the quarter. Investing activities used $41.2 million, principally reflecting securities purchases and loan growth; financing activities provided $35.6 million.
- Net interest income grew with average earning-asset growth of 8.7%, but margin declined 18 basis points. Higher realized securities gains and higher operating expenses were notable year-over-year changes.
Credit, outlook, risks, and unusual items
- Non-performing loans declined 10.0% from year-end to $6.3 million, or 0.63% of loans. The allowance was $9.8 million, 155.6% of non-performing loans. Net charge-offs were $90, an annualized 0.04% of average loans; the Q1 provision was $465.
- Commercial real estate loans were $393.5 million; about 30% of that portfolio was in lodging. Lodging-industry loans totaled approximately $121.6 million, up from $98.2 million at year-end. Management cited regional economic, tourism, real-estate, borrower repayment, and collateral-value risks.
- Q1 net securities gains of $1.436 million, versus $619,000 a year earlier, materially boosted non-interest income and earnings. Management attributed gains to portfolio-duration and interest-rate-risk management and lower Treasury yields. No OTTI losses were recognized in earnings during the quarter.
- Interest-rate modeling indicated moderate liability sensitivity: a parallel 200-basis-point rise was estimated to reduce net interest income 1.50% over one year and 7.89% over two years; a 100-basis-point decline was estimated to reduce it 0.44% and 8.17%, respectively. These are scenarios, not forecasts.
- Management reported 30-day and 90-day liquidity of 12.0% and 10.5%, respectively, and approximately $248 million of unused FHLB capacity, in addition to Federal Reserve borrowing capacity. It considered liquidity sufficient, while noting seasonal deposits and market access as risks.
- On May 5, 2016, after quarter-end, the company announced an all-stock agreement to acquire Lake Sunapee Bank Group, valued at approximately $143 million. The proposed combination was expected to have about $3.3 billion in assets, $2.4 billion in net loans, $2.2 billion in deposits, and 50 branches; closing was expected in Q4 2016 or Q1 2017. These are transaction expectations, not completed results.
- The company declared a Q2 2016 dividend of $0.27 per share. It repurchased 6,252 shares in Q1 for $190,000. Management identified no material legal proceedings, and stated disclosure controls were effective with no material quarterly change in internal control over financial reporting.
No specific earnings or financial-performance guidance for the remainder of 2016 is provided in the filing. Management cautioned that Q1 results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the Lake Sunapee merger receives required approvals, closes on the expected timetable, and delivers anticipated scale and efficiencies.
- Whether earnings growth can persist without relying on elevated securities gains, given margin compression and rising expenses.
- Trends in lodging and other commercial real-estate exposures, delinquency and potential-problem loans, and the adequacy of the allowance.
- Funding costs, deposit seasonality, borrowing levels, and actual performance under changing interest-rate conditions.
- That scenario estimates, liquidity measures, capital ratios, and transaction projections are interpreted with their stated assumptions and limitations.