Bar Harbor Bankshares — Q1 2021 Form 10-Q
Business context and reporting period: The filing covers the three months ended March 31, 2021. Bar Harbor Bankshares operates principally through Bar Harbor Bank & Trust, a community bank serving Maine, New Hampshire and Vermont. Results are unaudited; interim results are not necessarily indicative of the full year.
Key financial results
| Metric | Q1 2021 / March 31, 2021 | Comparable / prior period |
|---|---|---|
| Net income; diluted EPS | $9.48 million; $0.63 | $7.72 million; $0.50 in Q1 2020 |
| Net interest income | $23.42 million | $24.56 million in Q1 2020 |
| Provision for credit losses | $0.49 million benefit | $1.11 million expense in Q1 2020 |
| Non-interest income / expense | $10.25 million / $22.49 million | $8.42 million / $22.36 million in Q1 2020 |
| Total assets | $3.73 billion | $3.73 billion at December 31, 2020 |
| Total loans / deposits | $2.55 billion / $2.91 billion | $2.56 billion / $2.91 billion at December 31, 2020 |
| Cash and cash equivalents | $223.5 million | $226.0 million at December 31, 2020 |
| Total borrowings | $352.2 million | $336.0 million at December 31, 2020 |
| Shareholders’ equity | $405.6 million | $411.3 million at December 31, 2020 |
| Net interest margin, FTE | 2.88% | 3.06% in selected financial data for Q1 2020 |
- Net income increased approximately 23% year over year based on the reported amounts. Management also reports adjusted earnings of $10.2 million, or $0.68 per diluted share; these are non-GAAP measures.
- Non-interest income rose 21%, led by mortgage banking and wealth management. Mortgage banking income was $2.57 million versus $0.46 million a year earlier. The filing reports $69.2 million of residential mortgage sales in Q1 2021.
- The FTE yield on earning assets fell to 3.46% from 4.12% a year earlier; funding costs declined to 0.72% from 1.28%. Lower rates weighed on net interest income and margin.
- Operating cash flow was $6.2 million; investing activities used $27.8 million and financing activities provided $19.2 million. Cash and equivalents declined $2.5 million during the quarter.
- At March 31, the Company reported $1.2 billion of same-day available liquidity, including cash and available borrowing capacity. The loan-to-deposit ratio was 88%.
- Both the Company and the Bank exceeded regulatory “well-capitalized” thresholds. The Company’s total capital ratio was 13.83%; its common equity tier 1 ratio was 10.55%.
Material changes versus comparable periods
- Commercial loans excluding Paycheck Protection Program (PPP) loans grew at an 8% annualized rate from year-end; commercial real estate loans grew at 13% annualized. Total loans declined modestly, reflecting residential loan runoff and sales.
- Deposits were nearly flat from year-end, while non-maturity deposits increased $66.1 million and time deposits declined $59.9 million. Management cited 4,300 new customer accounts and reduced reliance on wholesale funding.
- Net charge-offs were near zero, and the provision was a benefit to earnings, compared with an expense in Q1 2020. Non-accrual loans were $14.1 million, or 0.55% of loans; excluding acquired PCD loans, management reported a 0.47% ratio.
- Accumulated other comprehensive income fell to $3.5 million from $11.0 million at year-end, largely reflecting lower unrealized gains on available-for-sale securities and hedge valuation changes.
Outlook, risks and unusual items
- 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 after tax. The loan allowance was $23.7 million at quarter-end; management cited a 0.94% coverage ratio excluding PPP loans.
- COVID-related loan modifications totaled $43.0 million at quarter-end, down from $68.6 million at year-end. Management said most were expected to resume normal principal and interest payments beginning in Q2. PPP loans totaled $77.9 million; forgiveness timing and related fee recognition could affect results.
- Q1 included approximately $0.9 million of workforce-reduction and early-retirement charges. Management expects the initiatives to reduce annual salary and benefit expense by more than $3.0 million beginning in Q2, and expected to complete its broader expense review by the end of Q2. These are management expectations, not guaranteed outcomes.
- The filing provides no specific earnings or revenue guidance. Interest-rate sensitivity modeling estimated that a 100-basis-point parallel rate decline could reduce net interest income 2.0% over one year and 10.0% over two years; a 200-basis-point increase could raise it 6.9% and 14.9%, respectively. The filing cautions that these scenarios are not forecasts and depend on assumptions.
- Interest-rate changes, economic conditions, credit quality, deposit behavior, competition and regulatory changes are among the identified risks. Management reported no material change to the risk factors in the 2020 Form 10-K. Routine litigation was not expected to have a material effect.
- The Board approved a new authorization on April 20, 2021 to repurchase up to 5% of outstanding shares, approximately 747,000 shares, over no more than 12 months. The quarterly dividend declared was $0.22 per share.
Important facts for investors to verify
- Reconcile the filing’s growth descriptions: reported net income of $9.48 million versus $7.72 million implies approximately 23% growth, while the financial summary describes a 26% increase. Adjusted earnings of $10.16 million versus $7.79 million imply approximately 30% growth; another passage states 36%.
- Check the comparable-period net interest margin: selected financial data gives 3.06% for Q1 2020, while the average-balance discussion gives 3.04%.
- Assess CECL allowance adequacy and credit trends, including commercial real estate exposure, non-accrual loans, COVID modifications and PPP forgiveness.
- Monitor whether anticipated expense savings materialize, whether deposits remain stable as time and brokered deposits mature, and how interest-rate movements affect margin and securities values.
- Review subsequent repurchases, dividend sustainability and the terms of the new buyback authorization.