Vermont Business MagazineBar Harbor Bankshares (NYSE American:BHB) reported third quarter GAAP earnings of $8.6 million, or 56 cents per share. Core earnings totaled $8.8 million or 57 cents per share representing a 10% increase over the prior quarter. This increase reflects the strength of the company's now expanded footprint. Bar Harbor bought Lake Sunapee Bank last January. Lake Sunapee Bank has branches in central Vermont and New Hampshire.
THIRD QUARTER FINANCIAL HIGHLIGHTS(comparisons are to prior quarter unless otherwise stated):
•1.01% core return on assets (non-GAAP measure)
• 6% increase in non-interest income
•22% annualized commercial loan growth
• 11% annualized total deposit growth
• 54% efficiency ratio (non-GAAP measure)
•9.90% core return on equity (non-GAAP measure)
President and Chief Executive Officer, Curtis C. Simard stated, “It was a record quarter for us in both total revenue and earnings. These are remarkable results and demonstrate the stability in our business while now having the platform for even stronger organic growth. We drove core return on assets to 1.01% as we continue to focus on profitable growth and fee income. Our operational improvements resulted in a 54% efficiency ratio for the quarter and significant positive operating leverage. We continue to position our balance sheet to optimize performance, as is evidenced by our strong loan growth this quarter while adhering to superior
credit quality. We maintained our loan to deposit ratio flat despite funding significant production for the quarter. I am proud of the job our teams are doing and look forward to a strong finish to 2017."
“We are committed to creating shareholder value. The Company’s core return on equity ratio is the highest it’s been in five quarters as we approach the 10% threshold. We continue to earn tangible book value to preacquisition levels and believe that can expand even further by adhering to our disciplined model of balancing growth and profitability. The recently announced sale of our insurance business will also be accretive to tangible equity in the fourth quarter. This allows us to focus on investments in the core banking areas that represent the most efficient use of capital, which will ultimately benefit our shareholders and remain consistent with our brand as a true community bank.”
RESULTS OF OPERATIONS
GAAP earnings increased to $8.6 million in the third quarter from $6.6 million in the linked quarter primarily driven by higher fee income, additional cost saves and lower system conversion expenses. Core earnings (a non-GAAP measure) were $8.8 million in the third quarter compared to $8.1 million in the prior quarter. Yields on loans remained consistent with prior quarter, and include the benefit of purchased loan accretion. Third quarter security yields decreased as prepayment speeds increased, resulting in faster premium amortization. The cost of interest bearing deposits increased as a result of both interest rate hikes and an extension in maturities as we continue to actively manage the balance sheet. The Company’s overall cost of funds increased similarly as a result of extending funding maturities, in line with our overall interest rate risk management strategy.
Total non-interest income increased $7.0 million compared to $6.6 million in the prior quarter. The increase is primarily due to an expanded customer base resulting in a higher number of transactions. Mr. Simard stated, "we continue to focus on non-interest income as the key to higher profitability and are currently in the process of expanding treasury management services for our customers. We anticipate a roll-out of our enhanced product offerings by the end of this year. As we continue to expand ROA, investments in fee income businesses such as trust, secondary marketing mortgage operations, and treasury management services will be critical."
Non-interest expense decreased $2.5 million in the current quarter as salary and benefit costs improved by $0.5 million and acquisition related costs declined by $2.1 million. The efficiency ratio was 54% compared to 56% in the prior quarter and 63% in the first quarter of 2017. This positive trend reflects disciplined cost control and realized cost saves with the acquisition.
The effective tax rate was 29.3% in the third quarter as compared to 31.6% in the second quarter. The third quarter rate includes a benefit from certain return to provision adjustments related to amendments for prior year tax filings.
FINANCIAL CONDITION
Total assets remained flat at $3.5 billion at the end of the third quarter while total loans grew by $52 million or 9% on an annualized basis. The majority of the loan growth was driven by the commercial portfolio, which grew at an annualized rate of 22%. Investments decreased $7.0 million primarily due to mandatory redemptions of FHLB stock. The loan growth was funded by growth in total deposits, which increased $62.1 million or 11% annualized thereby decreasing our wholesale reliance during the quarter.
The Company's book value per share increased to $22.90 from $22.53 in the second quarter while tangible book value (a non-GAAP measure) increased to $15.84 from $15.44. Asset quality metrics remained strong during the third quarter with a ratio of non-accruing loans to total loans of 0.28% and a ratio of net chargeoffs to total loans of 0.01%.
BACKGROUND
Bar Harbor Bankshares (NYSE American: BHB) is the parent company of its wholly owned subsidiary, Bar Harbor Bank & Trust. Founded in 1887, Bar Harbor Bank & Trust is a true community bank serving the financial needs of its clients for over 125 years. Bar Harbor provides full service community banking with office locations in all three Northern New England states of Maine, New Hampshire and Vermont. For more information, visitwww.bhbt.com.
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. There are several factors that could cause actual results to differ significantly from expectations described in the forward-looking statements. For a discussion of such factors, please see the Company’s most recent reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission and available on the SEC’s website atwww.sec.gov. The Company does not undertake any obligation to update forwardlooking statements.
NON-GAAP FINANCIAL MEASURES
This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures provide supplemental perspectives on operating results, performance trends, and financial condition. They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is included beginning on page J in the accompanying financial tables. In all cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders.
The Company utilizes the non-GAAP measure of core earnings in evaluating operating trends, including components for core revenue and expense. These measures exclude items which the Company does not view as related to its normalized operations. These items include securities gains/losses, acquisition costs, restructuring costs, and systems conversion costs. Non-core adjustments are presented net of an adjustment for income tax expense. This adjustment is determined as the difference between the GAAP tax rate and the effective tax rate applicable to core income. The efficiency ratio is adjusted for non-core revenue and expense items and for tax preference items. The Company also calculates measures related to tangible equity, which adjust equity (and assets where applicable) to exclude intangible assets due to the importance of these measures to the investment community. Charges related to the acquisition of Lake Sunapee Bank Group consists primarily of severance and retention cost, systems conversion and integration costs, and professional fees. The Company’s disclosure of organic growth of loans in 2017 is also adjusted for the Lake Sunapee Bank Group acquisition.
Source:BAR HARBOR, MAINE - October 19, 2017 -- Bar Harbor Bankshares