Business context and reporting period
Bar Harbor Bankshares’ Form 10-K covers the fiscal year ended December 31, 2021; it is an annual filing, not a standalone fourth-quarter report. The company operates Bar Harbor Bank & Trust, a community bank serving Maine, New Hampshire and Vermont, with banking, lending, wealth-management and related services.
Financial performance and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Total assets, year-end | $3.709 billion | $3.724 billion |
| Total loans, year-end | $2.532 billion | $2.563 billion |
| Deposits, year-end | $3.049 billion | $2.906 billion |
| Total borrowings, year-end | $179 million | $336 million |
| Net interest income | $95.6 million | $99.2 million |
| Net interest margin | 2.88% | 2.97% |
| Noninterest income | $42.3 million | $43.0 million |
| Noninterest expense | $90.5 million | $94.9 million |
| Net income | $39.3 million | $33.2 million |
| Diluted earnings per share | $2.61 | $2.18 |
| Return on assets / return on equity | 1.06% / 9.50% | 0.88% / 8.29% |
- Net revenue was $137.8 million, down from $142.1 million. Higher fee income was offset by lower net interest income and reduced securities-sale gains. Net income rose about 18%, helped by a $1.3 million provision credit versus $5.6 million of provision expense in 2020 and lower expenses.
- Net interest margin declined, while the cost of interest-bearing liabilities fell to 0.59% from 0.96%. Adjusted NIM, a non-GAAP measure excluding PPP loans and excess cash, was 2.93%, versus 3.01%.
- Operating cash flow was $60.5 million; investing activities used $6.1 million and financing activities used $30.0 million. Cash and cash equivalents increased $24.4 million to $250.4 million.
- Year-end shareholders’ equity was $424.1 million, up from $407.1 million. The company and bank exceeded regulatory “well-capitalized” thresholds; the company’s total risk-based capital ratio was 14.32% and the bank’s was 14.14%.
- Available same-day liquidity was approximately $1.2 billion, including cash, borrowing capacity and liquid investments. Management stated liquidity was sufficient for anticipated needs over at least the next 12 months.
Material changes versus the prior year
- Deposits grew 5%, led by a 19% increase in non-maturity deposits; time deposits declined as brokered and retail deposits matured or shifted to transaction accounts. Wholesale funding fell to 4% of total funding from 18%.
- Borrowings fell by $157 million. The company prepaid $159 million of FHLB borrowings and incurred a $2.9 million debt-extinguishment loss, partly offset by selling securities. Management expected the repositioning to benefit NIM and earnings per share beginning in 2022.
- Total loans fell 1%, but commercial loans excluding PPP grew 10%; commercial real estate grew 12%. Residential loans declined as the company sold more mortgage originations into the secondary market. PPP loans outstanding fell to $6.7 million from $53.8 million.
- Nonperforming loans declined to $10.2 million, or 0.40% of loans, from $12.2 million, or 0.48%. Net charge-offs were $0.3 million versus $1.9 million. The allowance for credit losses rose to $22.7 million, or 0.90% of loans, in part due to CECL adoption.
- Effective January 1, 2021, CECL adoption increased the loan allowance by $5.2 million and the unfunded-commitment reserve by $1.6 million; the after-tax cumulative adjustment reduced retained earnings by $5.2 million.
Outlook, risks and unusual items
- Management described loan pipelines as robust, with momentum continuing into the first quarter of 2022. It expected approximately $3 million of expense savings from the 2021 expense review to be fully realized in 2022. These are management expectations, not formal earnings guidance.
- Management said the funding and securities repositioning was expected to be accretive beginning in 2022. Its modeled rate scenarios showed higher net interest income with rates up 200 basis points and lower net interest income with rates down 100 basis points; the filing cautions that these scenarios are not forecasts.
- Key exposures include commercial real estate, which represented a substantial share of lending; hospitality-related lending, approximately 11% of loans; local economic and property-market conditions; interest-rate and funding-cost changes; and competition. The filing also highlights COVID-19, cybersecurity, vendor, regulatory, climate and weather-related risks.
- Unrealized losses on available-for-sale securities increased as rates changed; management said it did not intend or expect to need to sell securities in unrealized-loss positions before recovery. The portfolio’s fair value was $618.3 million against $615.7 million amortized cost at year-end.
- The company revised previously issued comparative financial statements for errors involving derivative presentation and related equity and comprehensive-income effects. The auditor gave unqualified opinions on the financial statements and internal controls; the allowance for credit losses was identified as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting.
- No material pending legal proceedings or significant subsequent events were reported. A share-repurchase plan authorized up to 747,000 shares through March 31, 2022; no shares were repurchased in the fourth quarter of 2021. Cash dividends were $0.94 per share for 2021, versus $0.88 in 2020.
Important facts for investors to verify
- Whether 2022 margin and earnings benefits from the borrowing and securities repositioning materialized, and how deposit costs and asset yields evolved.
- Whether commercial real estate and hospitality credit quality remained sound, including criticized loans, delinquencies, nonperforming loans and allowance coverage.
- How deposit growth, liquidity and lower wholesale funding developed, and whether funding costs remained favorable.
- The realized expense savings, fee-income trends and mortgage-banking activity compared with management’s expectations.
- The impact of the derivative-related financial-statement revisions and CECL estimates; review the filing’s notes for restated comparatives and allowance assumptions.
- Any later disclosure on share repurchases, dividends, capital ratios and regulatory or legal matters.