BAR HARBOR BANKSHARES [BHB] Filings

10-Q 1 bhb-20230930x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-13349

BAR HARBOR BANKSHARES

(Exact name of registrant as specified in its charter)


Maine		01-0393663
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

PO Box 400
82 Main Street, Bar Harbor, ME		04609-0400
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (207) 288-3314

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, par value $2.00 per share		BHB		NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ◻ Accelerated Filer ⌧ Non-Accelerated Filer ◻ Smaller Reporting Company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ⌧

The registrant had 15,155,971 shares of common stock, par value $2.00 per share, outstanding as of November 1, 2023.

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

FORM 10-Q

INDEX

				Page
PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			5

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022			7

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022			8

	Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022			9

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022			10

	Condensed Notes to Unaudited Consolidated Interim Financial Statements
		Note 1	Basis of Presentation	11
		Note 2	Securities Available for Sale	13
		Note 3	Loans and Allowance for Credit Losses	17
		Note 4	Borrowed Funds	28
		Note 5	Deposits	30
		Note 6	Capital Ratios and Shareholders' Equity	31
		Note 7	Earnings per Share	35
		Note 8	Derivative Financial Instruments and Hedging Activities	36
		Note 9	Fair Value Measurements	46
		Note 10	Revenue from Contracts with Customers	53



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			55
		Selected Financial Data		62
		Consolidated Loan and Deposit Analysis		63
		Average Balances and Average Yields/Rates		64
		Reconciliation of Non-GAAP Financial Measures		66


Item 3.	Quantitative and Qualitative Disclosures about Market Risk			68

Item 4.	Controls and Procedures			70


PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings			70

Item 1A.	Risk Factors			70

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			71

Item 5.	Other Information			71

Item 6.	Exhibits			72

Signatures				73

Table of Contents

Bar Harbor Bankshares conducts business operations principally through Bar Harbor Bank & Trust, which may be referred to as the “Bank” and which is a subsidiary of Bar Harbor Bankshares. Unless the context requires otherwise, references in this report to “the Company” "our Company, "our," "us," and similar terms refer to Bar Harbor Bankshares and its subsidiaries, including the Bank, collectively.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q the words “believe,” “anticipate,” “expect,” “may,” “will,” “assume,” “should,” “predict,” “could,” “would,” “intend,” “targets,” “estimates,” “projects,” “plans,” and “potential,” and other similar words and expressions of the future, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements about the Company’s future financial and operating results and the Company’s plans, objectives, and intentions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to:

●

deterioration in the financial performance and/or condition of borrowers of the Bank, including as a result of the negative impact of inflationary pressures on our customers and their businesses resulting in significant increases in credit losses and provisions for those losses;

●

the possibility that our asset quality could decline or that we experience greater loan losses than anticipated;

●

increased levels of other real estate owned, primarily as a result of foreclosures;

●

the impact of liquidity needs on our results of operations and financial condition;

●

competition from financial institutions and other financial service providers;

●

the effect of interest rate increases on the cost of deposits;

●

unanticipated weakness in loan demand or loan pricing;

●

adverse conditions in the national or local economies including in our markets throughout Northern New England;

●

changes in consumer spending, borrowing and saving habits;

●

the effects of civil unrest, international hostilities or other geopolitical events, including the war in Ukraine and recent hostilities in the Middle East;

●

inflation, interest rate, market, and monetary fluctuations;

●

lack of strategic growth opportunities or our failure to execute on available opportunities;

●

the ability to grow and retain low-cost core deposits and retain large, uninsured deposits;

●

our ability to effectively manage problem credits;

●

our ability to successfully implement efficiency initiatives on time and with the results projected;

●

our ability to successfully develop and market new products and technology;

●

the impact of negative developments in the financial industry and United States and global capital and credit markets;

●

our ability to retain executive officers and key employees and their customer and community relationships;

●

our ability to effectively implement and to adapt to technological changes;

●

risks associated with litigation, including reputational and financial risks and the applicability of insurance coverage;

●

the vulnerability of the Bank’s computer and information technology systems and networks, and the systems and networks of third parties with whom the Company or the Bank contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches and interruptions;

●

changes in the reliability of our vendors, internal control systems or information systems;

●

ongoing competition in the labor markets and increased employee turnover;

●

the potential impact of climate change;

Table of Contents

●

the impact of pandemics, epidemics or any other health-related crises, including new outbreaks of COVID-19 and actions taken by governmental officials to curb the spread of such health-related crises, and the resulting impact on general economic and financial market conditions and on the Company’s and our customers' business, results of operations, asset quality and financial condition;

●

our ability to comply with various governmental and regulatory requirements applicable to financial institutions;

●

changes in state and federal laws, rules, regulations, or policies applicable to banks or bank or financial holding companies, including regulatory or legislative developments;

●

the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

●

adverse impacts (including costs, fines, reputational harm, financial risks and the applicability of insurance coverage or other negative effects) from current or future litigation, regulatory examinations, or other legal and/or regulatory actions; and

●

general competitive, economic, political, and market conditions, including economic conditions in the local markets where we operate.

Other factors not identified above, including those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Form 10-K”), our Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website at http://www.sec.gov, may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements, and you should consider these factors in connection with considering any forward-looking statements that may be made by us. We undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(in thousands, except share data)	September 30, 2023		December 31, 2022
Assets
Cash and cash equivalents:
Cash and due from banks	$	41,210	$	39,933
Interest-earning deposits with other banks		81,606		52,362
Total cash and cash equivalents		122,816		92,295

Securities:
Securities available for sale		509,453		559,516
Federal Home Loan Bank stock		14,834		14,893
Total securities		524,287		574,409

Loans held for sale		2,016		—

Total loans		2,992,791		2,902,690
Less: Allowance for credit losses		(28,011)		(25,860)
Net loans		2,964,780		2,876,830

Premises and equipment, net		47,790		47,622
Goodwill		119,477		119,477
Other intangible assets		5,102		5,801
Cash surrender value of bank-owned life insurance		79,469		81,197
Deferred tax assets, net		28,328		24,443
Other assets		89,876		87,729
Total assets	$	3,983,941	$	3,909,803

Liabilities
Deposits:
Demand	$	618,421	$	676,350
NOW		929,481		900,730
Savings		572,271		664,514
Money market		361,839		478,398
Time		658,482		323,439
Total deposits		3,140,494		3,043,431

Borrowings:
Senior		307,070		333,957
Subordinated		60,422		60,289
Total borrowings		367,492		394,246

Other liabilities		71,747		78,676
Total liabilities		3,579,733		3,516,353

(continued)

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED) (continued)


(in thousands, except share data)	September 30, 2023		December 31, 2022
Shareholders’ equity
Capital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 shares; outstanding 15,155,971 shares and 15,082,688 shares at September 30, 2023 and December 31, 2022 respectively		32,857		32,857
Additional paid-in capital		192,673		191,922
Retained earnings		266,365		243,815
Accumulated other comprehensive loss		(71,400)		(58,340)
Less: 1,272,417 and 1,345,700 shares of treasury stock, at cost, at September 30, 2023 and December 31, 2022, respectively		(16,287)		(16,804)
Total shareholders’ equity		404,208		393,450
Total liabilities and shareholders’ equity	$	3,983,941	$	3,909,803

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except earnings per share data)	2023		2022		2023		2022
Interest and dividend income
Loans	$	38,412	$	27,940	$	109,889	$	75,192
Securities and other		6,723		5,145		18,478		13,178
Total interest and dividend income		45,135		33,085		128,367		88,370
Interest expense
Deposits		11,415		1,801		25,270		4,185
Borrowings		4,534		1,374		14,215		3,458
Total interest expense		15,949		3,175		39,485		7,643
Net interest income		29,186		29,910		88,882		80,727
Provision for credit losses		673		1,306		2,221		2,217
Net interest income after provision for credit losses		28,513		28,604		86,661		78,510

Non-interest income
Trust and investment management fee income		3,522		3,548		10,882		11,131
Customer service fees		3,926		3,836		11,377		11,108
Gain on sales of securities, net		—		44		34		53
Mortgage banking income		415		315		1,072		1,427
Bank-owned life insurance income		515		496		2,166		1,501
Customer derivative income		43		58		258		213
Other income		394		526		1,190		1,660
Total non-interest income		8,815		8,823		26,979		27,093

Non-interest expense
Salaries and employee benefits		13,011		12,242		39,005		35,757
Occupancy and equipment		4,469		4,458		13,275		13,254
(Gain) loss on sales of premises and equipment, net		—		—		(99)		(65)
Outside services		376		393		1,156		1,143
Professional services		436		421		1,217		1,122
Communication		170		204		507		617
Marketing		326		518		1,211		1,150
Amortization of intangible assets		233		233		699		699
Acquisition, conversion and other expenses		—		31		20		356
Provision for unfunded commitments		45		(26)		(85)		345
Other expenses		3,950		4,558		12,206		12,240
Total non-interest expense		23,016		23,032		69,112		66,618

Income before income taxes		14,312		14,395		44,528		38,985
Income tax expense		3,208		2,965		9,621		7,940
Net income	$	11,104	$	11,430	$	34,907	$	31,045

Earnings per share:
Basic	$	0.73	$	0.76	$	2.31	$	2.07
Diluted	$	0.73	$	0.76		2.30		2.06

Weighted average common shares outstanding:
Basic		15,155		15,058		15,135		15,029
Diluted		15,196		15,113		15,189		15,100

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2023		2022		2023		2022
Net income	$	11,104	$	11,430	$	34,907	$	31,045
Other comprehensive loss, before tax:
Changes in unrealized loss on securities available for sale		(14,586)		(26,933)		(14,637)		(79,186)
Changes in unrealized loss on hedging derivatives		(3,395)		(1,568)		(2,307)		(5,446)

Income taxes related to other comprehensive loss:
Changes in unrealized loss on securities available for sale		3,363		6,522		3,353		18,486
Changes in unrealized loss on hedging derivatives		782		361		531		1,254
Total other comprehensive loss		(13,836)		(21,618)		(13,060)		(64,892)
Total comprehensive (loss) income	$	(2,732)	$	(10,188)	$	21,847	$	(33,847)

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

BAR HARBOR BANKSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)


							Accumulated
	Common		Additional				other
	stock		paid-in		Retained		comprehensive		Treasury
(in thousands, except per share data)	amount		capital		earnings		income (loss)		stock		Total
Balance at December 31, 2021	$	32,857	$	190,876	$	215,592	$	2,303	$	(17,481)	$	424,147

Net income		—		—		19,615		—		—		19,615
Other comprehensive loss		—		—		—		(43,274)		—		(43,274)
Cash dividends declared ($0.50 per share)		—