Bar Harbor Bankshares(BHB) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (unaudited) This section presents the unaudited interim consolidated financial statements for Bar Harbor Bankshares as of June 30, 2022, and for the three and six-month periods then ended, including balance sheets, statements of income, comprehensive income, changes in shareholders' equity, cash flows, and detailed notes explaining key accounting policies Consolidated Balance Sheets As of June 30, 2022, total assets were $3.72 billion, a slight increase from $3.71 billion at December 31, 2021, driven by a $195.4 million increase in net loans, while shareholders' equity decreased significantly to $393.6 million from $424.1 million due to unrealized losses on available-for-sale securities Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 | December 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $3,715,757 | $3,709,233 | +$6,524 | | Net Loans | $2,703,518 | $2,509,192 | +$194,326 | | Total Deposits | $3,078,545 | $3,048,544 | +$30,001 | | Total Liabilities | $3,322,160 | $3,285,086 | +$37,074 | | Total Shareholders' Equity | $393,597 | $424,147 | -$30,550 | | Accumulated Other Comprehensive (Loss) Income | ($40,971) | $2,303 | -$43,274 | Consolidated Statements of Income For Q2 2022, net income increased to $10.5 million from $9.0 million in Q2 2021, primarily due to a 16.5% rise in net interest income, with diluted EPS reaching $0.70 Income Statement Summary (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $26,519 | $22,754 | $50,817 | $46,176 | | Provision for Credit Losses | $534 | ($765) | $911 | ($1,254) | | Non-interest Income | $8,961 | $9,505 | $18,270 | $19,753 | | Non-interest Expense | $21,700 | $21,724 | $43,586 | $44,215 | | Net Income | $10,503 | $9,025 | $19,615 | $18,505 | | Diluted EPS | $0.70 | $0.60 | $1.30 | $1.23 | Consolidated Statements of Comprehensive Income The company reported a total comprehensive loss of $9.1 million for Q2 2022 and $23.7 million for the first six months of 2022, primarily driven by significant unrealized losses on available-for-sale securities due to rising interest rates Comprehensive Income (Loss) (in thousands) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $10,503 | $9,025 | $19,615 | $18,505 | | Other Comprehensive (Loss) Income | ($19,616) | $2,819 | ($43,274) | ($858) | | Total Comprehensive (Loss) Income | ($9,113) | $11,844 | ($23,659) | $17,647 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $424.1 million at year-end 2021 to $393.6 million at June 30, 2022, primarily due to a $43.3 million other comprehensive loss that offset net income and cash dividends - Key drivers for the change in shareholders' equity in the first six months of 2022 include net income of $19.6 million, offset by other comprehensive loss of $43.3 million and cash dividends of $7.5 million[14][220] Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash provided by operating activities was $19.5 million, while net cash used in investing activities was $224.8 million, resulting in a net decrease in cash and cash equivalents of $183.3 million Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $19,546 | $12,922 | | Net Cash (Used in) from Investing Activities | ($224,777) | $21,318 | | Net Cash from (Used in) Financing Activities | $21,958 | ($86,529) | | Net Change in Cash & Cash Equivalents | ($183,273) | ($52,289) | Notes to Unaudited Consolidated Interim Financial Statements This section provides detailed explanations for the figures presented in the primary financial statements, covering securities, loan portfolio, allowance for credit losses, borrowings, deposits, capital adequacy, derivative instruments, and fair value measurements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for Q2 and H1 2022, highlighting strong net income growth driven by net interest margin expansion and robust loan growth, despite the negative impact of unrealized securities losses on equity and book value, while maintaining stable credit quality and strong liquidity - Q2 2022 net income increased 16% year-over-year to $10.5 million, driven by a 17% rise in net interest income, with the net interest margin expanding by 45 basis points to 3.19% due to a higher interest rate environment and strong loan growth[201][203] - Total loans grew at an 11% annualized rate during Q2 2022, with commercial loans growing at 13%, funded by core deposit expansion and the use of excess cash[207] - Shareholders' equity and book value were negatively impacted by unrealized losses on securities, with net unrealized losses of $49.7 million at quarter-end, reducing book value per share by $2.55[206][209] - Credit quality remains strong, with non-accruing loans decreasing to $7.9 million from $10.2 million at year-end 2021, and the allowance for credit losses to total loans ratio stable at 0.87%[208][214] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, managed by ALCO, with the balance sheet being asset-sensitive as of June 30, 2022, projecting net interest income improvement in a rising rate environment and deterioration in a falling rate environment - The company's most significant market risk is interest rate risk, which is managed by the Asset and Liability Committee (ALCO)[243][244] Net Interest Income Sensitivity Analysis (as of June 30, 2022) | Rate Change (Basis Points) | Change over 1-12 Months | Change over 13-24 Months | | :--- | :--- | :--- | | +200 | +4.1% | +12.3% | | -100 | -3.2% | -8.9% | - Compared to the prior year, the company's sensitivity to a down-rate scenario has increased, while its sensitivity to an up-rate scenario has decreased[254] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation by senior management, the company's disclosure controls and procedures were deemed effective as of June 30, 2022[259] - No changes occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[260] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company and its subsidiaries are involved in ordinary routine litigation incidental to their business, which management believes will not have a material effect on the consolidated financial statements - The company is party to routine litigation that is not expected to have a material impact on its financial condition[261] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the risk factors from the 2021 Form 10-K were reported[262] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On June 23, 2022, the Board of Directors approved a new twelve-month stock repurchase plan for up to 5% of outstanding common stock, approximately 751,000 shares, with no shares repurchased under this plan during Q2 2022 - A new stock repurchase plan for up to 751,000 shares was approved in June 2022[263] - No shares were repurchased during the second quarter of 2022[211][264] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and the financial statements formatted in iXBRL - Key exhibits filed include certifications by the CEO and CFO as required by Sarbanes-Oxley Act rules[265]