Bar Harbor Bankshares(BHB) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Q2 2021 and 2020, detailing financial position, performance, and cash flows, along with significant accounting policies Consolidated Balance Sheets The Consolidated Balance Sheets detail the company's financial position, showing a slight decrease in total assets and deposits, while shareholders' equity increased Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $3,639,675 | $3,725,762 | | Net Loans | $2,492,745 | $2,543,803 | | Total Securities | $635,994 | $599,082 | | Goodwill | $119,477 | $119,477 | | Total Liabilities | $3,224,103 | $3,314,421 | | Total Deposits | $2,822,473 | $2,906,215 | | Total Borrowings | $340,033 | $336,023 | | Total Shareholders' Equity | $415,572 | $411,341 | Consolidated Statements of Income The income statement shows a year-over-year increase in net income for Q2 and YTD 2021, driven by a negative provision for credit losses and strong non-interest income Key Income Statement Data (in thousands, except EPS) | Metric | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $22,754 | $24,590 | $46,176 | $49,153 | | Provision for Credit Losses | ($765) | $1,354 | ($1,254) | $2,465 | | Non-interest Income | $9,505 | $9,710 | $19,753 | $18,131 | | Non-interest Expense | $21,724 | $22,266 | $44,215 | $44,625 | | Net Income | $9,025 | $8,481 | $18,505 | $16,202 | | Diluted EPS | $0.60 | $0.55 | $1.23 | $1.04 | Consolidated Statements of Comprehensive Income This statement reconciles net income to total comprehensive income, including unrealized gains and losses, showing an increase for Q2 2021 Comprehensive Income Summary (in thousands) | Metric | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $9,025 | $8,481 | $18,505 | $16,202 | | Total Other Comprehensive Income (Loss) | $4,230 | $2,331 | ($3,322) | $4,610 | | Total Comprehensive Income | $13,255 | $10,812 | $15,183 | $20,812 | Consolidated Statements of Changes in Shareholders' Equity This statement details changes in shareholders' equity, reflecting an increase from year-end 2020 to June 30, 2021, driven by net income, dividends, and other comprehensive income - Total shareholders' equity increased to $415.6 million at June 30, 2021, from $411.3 million at December 31, 2020[15][16] - The company declared cash dividends of $0.24 per share in the second quarter of 2021, an increase from $0.22 per share in the prior year[15] Consolidated Statements of Cash Flows For the first six months of 2021, the company experienced a net decrease in cash and cash equivalents, primarily due to financing activities, partially offset by operating and investing activities Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $12,922 | $16,116 | | Net Cash from (used in) Investing Activities | $21,318 | ($63,792) | | Net Cash (used in) from Financing Activities | ($86,529) | $61,439 | | Net Change in Cash | ($52,289) | $13,763 | Notes to Unaudited Consolidated Interim Financial Statements This section provides detailed explanations of accounting policies and financial data, including the impact of CECL adoption and breakdowns of key financial instruments - Effective January 1, 2021, the Company adopted ASU 2016-13 (CECL), which replaced the incurred loss model with a lifetime expected credit loss model[23][37] - The adoption of CECL resulted in a $5.2 million increase to the allowance for credit losses on loans and a $1.6 million increase to the allowance for unfunded commitments, leading to a cumulative-effect decrease to retained earnings of $5.2 million, net of tax[52] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides a narrative analysis of the company's financial performance and condition, highlighting strong core earnings, improved credit quality, and effective expense management for Q2 2021 - Q2 2021 net income was $9.0 million ($0.60 per share), a 9% increase in EPS compared to Q2 2020[243] - Key highlights for Q2 2021 include 8% annualized commercial loan growth (excluding PPP), a 14% annualized increase in core deposits, and a 13% increase in fee income compared to Q2 2020[244] - Net interest margin (NIM) was 2.74%, impacted by excess cash balances and lower PPP fee acceleration[246][265] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to market risk, primarily interest rate risk, managed by ALCO, indicating an asset-sensitive balance sheet - The company's most significant market risk is interest rate risk, which is managed by the Asset and Liability Committee (ALCO)[284][285] Interest Rate Sensitivity Analysis (vs. Base Case) | Scenario | Impact on Net Interest Income (Year 1) | Impact on Net Interest Income (Year 2) | | :--- | :--- | :--- | | +200 bps | +8.5% | +14.4% | | -100 bps | -2.1% | -11.4% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes in internal control over financial reporting - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2021[300] - No changes in internal control over financial reporting occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control[301] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine litigation, which management believes will not materially affect the consolidated financial statements - The Company reports no material legal proceedings that would significantly impact its financial condition[302] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the 2020 Annual Report on Form 10-K were reported - No material changes to the risk factors from the 2020 Form 10-K were reported[303] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Board approved a plan to repurchase up to 747,000 shares of common stock, with no repurchases made during Q2 2021 - A stock repurchase plan for up to 747,000 shares was approved in April 2021, but no shares were repurchased during the second quarter[304] Item 5. Other Information The company executed a separation agreement with its former Executive Vice President, Chief Operating Officer & Chief Risk Officer upon his retirement - A separation agreement was executed with the retiring COO & Chief Risk Officer, which included a separation payment of $250,000 and continued vesting of existing equity awards[305] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and a former executive's separation agreement - Exhibits filed with the report include CEO/CFO certifications and the separation agreement for Richard B. Maltz[307]