Bar Harbor Bankshares — Q1 2023 Form 10-Q
Business context and reporting period. Bar Harbor Bankshares is a Maine-based bank holding company operating principally through Bar Harbor Bank & Trust, serving businesses and consumers across Northern New England. This unaudited filing covers the quarter ended March 31, 2023; operating results are compared with Q1 2022 and balance-sheet amounts primarily with December 31, 2022.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Net income | $13.0 million | Up 43% from $9.1 million in Q1 2022 |
| Diluted EPS | $0.86 | $0.60 in Q1 2022; basic EPS was $0.86 versus $0.61 |
| Net interest income | $30.9 million | Up 27% from $24.3 million |
| Net interest margin | 3.54% | 2.95% in Q1 2022 |
| Net interest income after credit-loss provision | $30.1 million | Provision was $0.8 million, versus $0.4 million in Q1 2022 |
| Non-interest income / expense | $9.2 million / $22.7 million | Income was broadly flat; expense increased from $21.9 million |
| Operating cash flow | $17.4 million | $6.2 million in Q1 2022 |
- Profitability and margins: Return on assets was 1.36% (1.29% excluding one-time BOLI benefits, per management); return on equity was 12.96%, versus 1.00% and 8.89%, respectively, a year earlier. The efficiency ratio improved to 54.72% from 62.40%.
- Balance sheet: Total assets were $3.93 billion, up $18.7 million from year-end. Loans were $2.94 billion, up $41.3 million, with commercial loans driving growth. Deposits were $3.05 billion, up $10.4 million; borrowings were $398.6 million, compared with $394.2 million at year-end. Cash and cash equivalents declined to $82.7 million from $92.3 million.
- Funding and liquidity: Same-day liquidity was approximately $566.4 million, including $82.7 million cash, $255.2 million unused FHLB capacity, $177.5 million available at the Federal Reserve, and $51.0 million of other lines. Cash plus available-for-sale securities represented approximately 17% of assets. Loans-to-deposits were 96%, compared with 87% a year earlier.
- Deposits and funding costs: Time deposits rose $80.8 million from year-end, including an increase of $53.1 million in brokered deposits; non-maturity deposits declined $70.4 million. Uninsured or otherwise unsecured deposits were 11% of total deposits. The average cost of interest-bearing liabilities rose to 1.39% from 0.35% in Q1 2022; management reported a 14% accumulated deposit beta since rate hikes began.
- Credit and securities: The allowance for credit losses was $26.6 million, or 0.90% of loans, versus $25.9 million, or 0.89%, at year-end. Nonperforming assets were 0.20% of assets; annualized net charge-offs were 0.01%. Available-for-sale securities were $557.0 million, with gross unrealized losses of $71.5 million; those losses improved from $79.1 million at year-end. After-tax accumulated other comprehensive loss was $53.2 million.
- Capital: The consolidated company reported a 13.65% total risk-based capital ratio and a 10.74% common equity Tier 1 ratio; the Bank reported 13.50% and 11.24%, respectively. Both met the applicable well-capitalized standards.
- Cash flows: Investing activities used $38.1 million, mainly reflecting $41.6 million of net loan growth. Financing activities provided $11.2 million, including $10.4 million net deposit growth and $4.3 million net short-term borrowing growth, partly offset by $3.9 million in dividends. Cash and cash equivalents decreased $9.6 million during the quarter.
Material changes versus the prior comparable period
- Earnings improved as loan yields and interest income rose with higher rates and loan growth. Loan yield increased to 4.82% from 3.54%; the cost of interest-bearing liabilities also rose, to 1.39% from 0.35%.
- Net interest margin expanded by 59 basis points. Management attributed the improvement to repricing of variable-rate loans, partly offset by higher funding costs and greater wholesale borrowing reliance.
- Non-interest income edged down from $9.3 million. Lower trust and mortgage banking income was partly offset by higher BOLI income and customer service fees.
- Non-interest expense rose about 4%, principally due to salaries and benefits. Net income also included approximately $622,000 of one-time BOLI death benefits, which management said contributed about $0.04 to diluted EPS.
- Compared with year-end, the securities portfolio’s unrealized loss position improved, while loan growth increased the allowance and deposits shifted toward time and brokered accounts.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings or operating guidance. Management said the effects of banking-sector turmoil and its further impact on the company during the rest of 2023 were uncertain.
- Management described liquidity, capital, and asset quality as strong or adequate, but identified possible pressures from deposit costs and outflows, uninsured and large deposits, access to brokered funding, loan demand, inflation, economic weakness, and higher interest rates.
- Interest-rate modeling indicates the balance sheet was asset-sensitive: a 200-basis-point increase was modeled to raise net interest income by 1.5% over 1–12 months and 5.8% over 13–24 months; a 100-basis-point decline was modeled to reduce it by 1.9% and 4.8%, respectively. Management cautioned that these scenarios are not forecasts and depend on assumptions about rates, deposits, prepayments, and customer behavior.
- Management expects to recover the amortized cost of securities in unrealized-loss positions and said it does not intend, or expect to be required, to sell them before recovery. The portfolio’s average life was nine years and effective duration five years.
- Past-due loans increased to $10.5 million from $4.7 million at year-end. Management attributed the increase in 30–89-day past dues largely to payment timing and said it did not indicate deteriorating credit quality. Nonaccrual loans increased to $7.8 million from $6.5 million, primarily due to one lending relationship management expected to collect in full.
- Routine litigation is pending; management assessed the likelihood of a material adverse effect as remote, while noting unfavorable outcomes could still be material. The filing reported no material changes to previously disclosed risk factors, effective disclosure controls, and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether deposit retention, brokered-deposit usage, and deposit pricing remain manageable as time deposits mature and funding costs rise.
- Whether loan growth and the large commercial real estate exposure are accompanied by stable delinquencies, nonaccruals, and credit-loss reserves.
- How the substantial unrealized securities losses, portfolio duration, and any potential funding needs interact; verify management’s ability and intent to hold securities through recovery.
- Whether reported liquidity sources remain available under stress and whether the 96% loans-to-deposits ratio changes materially.
- How much of reported earnings and EPS reflects recurring operations versus the one-time BOLI benefit, and whether margin expansion persists as asset and liability rates reprice.
- Whether actual results track the filing’s interest-rate sensitivity scenarios; these modeled outcomes are not forecasts.