Bar Harbor Bankshares (the “Company”) (NYSE Amex: BHB) the
parent company of Bar Harbor Bank & Trust (the “Bank”), today
announced record net income available to common shareholders of
$2.9 million for the quarter ended September 30, 2010, up $158
thousand or 5.8% on a linked-quarter basis and representing an
increase of $37 thousand, or 1.3% compared with the third quarter
of 2009. The Company’s diluted earnings per share amounted to
$0.75, up $0.04 or 5.6% on a linked-quarter basis, while
representing a decline of $0.20, or 21.1% compared with the third
quarter of 2009.
For the nine months ended September 30, 2010, the Company
reported record net income available to common shareholders of $8.0
million, up $256 thousand or 3.3% compared with the same period in
2009. Diluted earnings per share amounted to $2.09, representing a
decline of $0.54, or 20.5%, compared with the first nine months of
2009.
The declines in third quarter and year-to-date 2010 diluted
earnings per share largely reflect the Company’s previously
reported issuance of 882,021 shares of its common stock in the
fourth quarter of 2009 and the first quarter of 2010, the proceeds
from which were primarily used to repurchase all of the shares of
Preferred Stock sold to the U.S. Department of the Treasury (the
“Treasury”) in the first quarter of 2009 as part of the Capital
Purchase Program established by the Treasury under the Emergency
Economic Stabilization Act of 2008.
In making the announcement, the Company’s President and Chief
Executive Officer, Joseph M. Murphy commented, “As we enter the
last quarter of 2010, we are pleased to report record quarterly and
year-to-date earnings available to common shareholders, a strong
balance sheet and capital position, and a tangible common equity
ratio of 9.38%. We are also pleased to report continued loan
growth, despite sluggish demand and an uncertain economic outlook.
Our commercial loan portfolio is up $28 million or 8% compared with
September 30, 2009, demonstrating our ongoing financial commitment
to the local communities served by the Bank. While our
non-performing loans have declined from year-end 2009 and remain at
relatively low and manageable levels, and while our loan charge-off
experience has remained consistently low throughout the economic
recession, we believe there may be some time before this
challenging credit cycle is fully behind us and the overall level
of credit quality shows lasting improvement.”
Mr. Murphy continued, “This year’s retail deposit growth is the
strongest we have experienced in quite some time. We believe this
growth is largely attributed to new customer relationships and
reflective of this year’s vibrant tourism season in the markets
served by the Bank. We are pleased to report year-to-date retail
deposit growth of $57 million, or 10%. All categories of retail
deposits were showing meaningful increases. Comparing quarter-end
to the same date last year, our progress improves, as retail
deposits were up $77 million, or 15%.
Mr. Murphy continued his remarks by saying, “Over the past
twelve months our net interest income has been pressured by
declines in our net interest margin. Factors contributing to the
margin decline from the levels reported a year earlier included the
ongoing re-pricing of certain commercial loans and the origination
and accelerated refinancing of residential mortgage loans during a
period of historically low interest rates. The replacement of
accelerated cash flows from our mortgage-backed securities
portfolio also contributed heavily to the margin decline. In
addition, as we have previously reported, over the past fifteen
months or so, we have acted to protect future earnings from
interest rate risk by extending funding maturities. While this
strategy has pressured our net interest margin in the near-term, we
believe the Bank’s balance sheet has been positioned such that
future levels of net interest income are largely insulated from
rising interest rates.”
In concluding, Mr. Murphy added, “While our record operating
results are most gratifying, we remain cautious about the months
ahead and the realities facing the banking industry, including the
impact of the recently enacted regulatory reform legislation known
as the Dodd-Frank Wall Street Reform and Consumer Protection Act.
While emergence from the national recession continues, we
anticipate a prolonged economic recovery with pockets of continued
deterioration in the foreseeable future. Business activity across a
wide range of industries and regions has yet to show meaningful
improvement and local governments and many businesses are still
experiencing difficulty due in part to decade high unemployment
rates and diminished consumer confidence and spending. Accordingly,
we believe the continuation of our credit quality profile and the
ability of our borrowers to repay their loans will be key
determinants of our future financial performance. Our balance sheet
is supported by a total risk-based capital ratio of 15.48%, far
above regulatory guidelines for “well capitalized” banks. This
capital strength was significantly enhanced by the issuance of
additional common stock in late 2009 followed by the redemption of
all Preferred Stock sold to the Treasury in early 2009. While the
additional common equity has caused some EPS dilution as
anticipated, our strong capital base provides essential capacity
for meaningful business development and other strategic
initiatives.”
Balance Sheet
Assets: Total assets surpassed $1.1 billion at
quarter end, up $30.9 million, or 2.9%, compared with December 31,
2009.
Loans: Total loans ended the second quarter at $680.9
million, up $11.4 million, or 1.7%, compared with December 31,
2009. Loan growth was led by commercial loans, which ended the
quarter at $379.6 million, up $10.4 million or 2.8% compared with
year-end 2009.
Consumer loans, which principally consist of residential real
estate mortgage loans and home equity loans, increased $1.4 million
or 0.5% compared with year-end, 2009. This increase was principally
attributed to home equity loans, which were up $2.1 million or
3.8%.
Residential mortgage loan origination activity slowed during the
first nine months of 2010, largely reflecting current economic
conditions and uncertainties with respect to further real estate
market declines in the communities served by the Bank, and to a
lesser extent the expiration of the first time home buyers tax
credit. The Bank’s residential real estate mortgage portfolio
posted a decline of $569 thousand, or 0.3%, compared with year-end,
2009, as loans originated and closed were more than offset by cash
flows and principal pay-downs from the Bank’s $225 million
residential mortgage loan portfolio.
Credit Quality: Total non-performing loans ended the
third quarter at $8.9 million, down $245 thousand or 2.7%, compared
with December 31, 2009. At September 30, 2010, total non-performing
loans represented 1.31% of total loans, down from 1.37% at year-end
2009.
During the nine months ended September 30, 2010, the Bank
enjoyed a relatively low level of loan loss experience. Total net
loan charge-offs amounted to $774 thousand, or annualized net
charge-offs to average loans outstanding of 0.15%, compared with
$699 thousand, or annualized net charge-offs to average loans
outstanding of 0.14%, during the same period in 2009.
For the three and nine months ended September 30, 2010, the Bank
recorded provisions for loan losses of $450 thousand and $1.5
million, representing declines of $607 thousand and $1.1 million,
compared with the same periods in 2009, respectively. Despite the
year-over-year declines in the provision, the amounts recorded
during the first nine months of 2010 were higher than historical
norms, largely reflecting a continuance in the overall level of
credit deterioration, but aided by relatively low levels of net
loan charge-offs and non-performing loans, stabilizing economic
conditions, and slowing loan portfolio growth.
The Bank maintains an allowance for loan losses (the
“allowance”) which is available to absorb probable losses on loans.
The allowance is maintained at a level that, in management’s
judgment, is appropriate for the amount of risk inherent in the
current loan portfolio and adequate to provide for estimated
probable losses. At September 30, 2010, the allowance stood at $8.5
million, representing an increase of $726 thousand or 9.3% compared
with December 31, 2009. The allowance expressed as a percentage of
total loans stood at 1.25% at quarter end, up from 1.17% at
December 31, 2009. The increase in the allowance principally
reflected pockets of credit deterioration in the Bank’s loan
portfolio, including elevated levels of potential problem
loans.
Securities: Total securities ended the third quarter at
$369.4 million, up $22.4 million, or 6.5%, compared with year-end
2009. The 2010 increase in the portfolio occurred early in the
third quarter and was largely attributed to purchases of
mortgage-backed securities issued by the Government National
Mortgage Association, which bear no credit risk because they are
backed by the full faith of the U.S. Government. At September 30,
2010, securities backed by the full faith of the U.S. Government
were up $27.9 million, or 129.5%, compared with year-end 2009.
Based on prevailing market conditions, fourth quarter cash flows
from the Bank’s securities portfolio may or may not be fully
re-invested.
For the nine months ended September 30, 2010, total average
securities amounted to $343.9 million, representing a decline of
$5.3 million or 1.5%, compared with the same period in 2009.
Company management has been cautious about leveraging the portfolio
in consideration of historically low market yields and the
corresponding interest rate risk should interest rates begin to
rise. While this action inhibited the growth of the Bank’s net
interest income in the near-term, Company management believes the
long-term risks outweigh the short-term rewards.
Securities purchased during the first nine months of 2010
principally consisted of mortgage-backed securities issued and
guaranteed by U.S. Government agencies and
sponsored-enterprises.
Deposits: Historically, the banking business in the
Bank’s market area has been seasonal, with lower deposits in the
winter and spring and higher deposits in summer and autumn. The
timing and extent of seasonal swings have varied from year to year,
particularly with respect to demand deposits.
Total deposits ended the third quarter at $698.9 million, up
$57.7 million, or 9.0%, compared with year-end 2009. Total retail
deposits ended the third quarter at $606.3 million, up $57.1
million or 10.4% compared with year-end 2009. Retail deposit growth
was principally attributed to savings and money market accounts and
time deposits, which increased $22.4 million and $20.1 million, or
13.0% and 8.2%, respectively. Demand deposits were up $8.3 million
or 14.5%, while NOW accounts were up $6.3 million, or 8.5%.
Brokered deposits obtained from the national market ended the
third quarter at $92.6 million, up $601 thousand, or 0.7%, compared
with year-end 2009. Brokered deposits are generally utilized to
help support the Bank’s earning asset growth, while maintaining its
strong, on-balance-sheet liquidity position via secured borrowing
lines of credit with the Federal Home Loan Bank and the Federal
Reserve Bank.
Borrowings: Total borrowings ended the third quarter at
$292.0 million, down $19.6 million, or 6.3%, compared with year-end
2009. The decline in borrowings was principally attributed to
strong retail deposit growth.
Capital: The Company and the Bank continued to exceed
regulatory requirements for “well-capitalized” financial
institutions at quarter-end. Under the capital adequacy guidelines
administered by the Bank’s principal regulators, “well-capitalized”
institutions are those with Tier I leverage, Tier I Risk-based, and
Total Risk-based ratios of at least 5%, 6% and 10%, respectively.
At September 30, 2010, the Company’s Tier I Leverage, Tier I
Risk-based, and Total Risk-based capital ratios were 9.06%, 13.61%
and 15.48%, respectively.
At September 30, 2010, the Company’s tangible common equity
ratio stood at 9.38%, up from 8.60% at December 31, 2009.
At September 30, 2010, the Company’s tangible book value per
share of common stock amounted to $27.14, up from $24.92 at
December 31, 2009.
Shareholder Dividends: The Company paid a regular cash
dividend of $0.26 per share of common stock in the third quarter of
2010, unchanged compared with the same quarter in 2009. As
previously announced, the Company’s Board of Directors recently
declared a fourth quarter 2010 regular cash dividend of $0.265 per
share of common stock, which based on the quarter-end price of BHB
common stock represented a dividend yield of 3.83%.
Results of Operations
Net Interest Income: For the quarter ended September 30,
2010, net interest income on a tax-equivalent basis amounted to
$8.3 million, up $131 thousand on a linked-quarter basis but
representing a decline of $481 thousand or 5.5% compared with the
third quarter of 2009. The decline in net interest income was
principally attributed to a 23 basis point decline in the Bank’s
tax-equivalent net interest margin to 3.15% for the quarter, offset
in part by average earning asset growth of $15.1 million or 1.5%,
compared with the third quarter of 2009. The decline in the net
interest margin was largely attributed to earning asset yields,
which declined 23 basis points more than the cost of interest
bearing liabilities.
For the nine months ended September 30, 2010, net interest
income on a tax-equivalent basis amounted to $25.0 million, down
$1.3 million or 4.8%, compared with the same period in 2009. The
decline in net interest income was principally attributed to the
Bank’s tax-equivalent net interest margin, which declined 23 basis
points to 3.22%, offset in part by earning asset growth of $19.8
million or 1.9%. The decline in the net interest margin was largely
attributed to earning asset yields, which declined 23 basis points
more than the cost of interest bearing liabilities.
Factors contributing to the net interest margin declines during
the three and nine months ended September 30, 2010 included the
ongoing competitive re-pricing of certain commercial loans and the
origination and accelerated refinancing of residential mortgage
loans during a period of historically low interest rates. The
replacement of accelerated cash flows from the Bank’s
mortgage-backed securities portfolio also contributed heavily to
the margin declines. The Bank’s third quarter net interest margin
was also impacted by the maturity of a $20 million of derivative
instrument in the form of an interest rate floor agreement, which
had been guaranteeing a minimum of 6.00% on a Prime based portfolio
of loans. In addition, as previously reported, over the past
fifteen months the Bank has acted to protect future earnings from
interest rate risk by extending a portion of its low cost,
short-term, wholesale funding maturities. While this strategy has
pressured the net interest margin in the near-term, the Bank’s
balance sheet has been positioned such that future levels of net
interest income are largely insulated from rising interest
rates.
The Bank’s year-to-date net interest income and net interest
margin were also negatively impacted by the accelerated
mortgage-backed securities premium amortization related to the
Fannie Mae and Freddie Mac cumulative repurchases of seriously
delinquent securitized loans earlier in the year. The accelerated
premium amortization related to these cumulative repurchases
reduced year-to-date net interest income by approximately $420
thousand and the net interest margin by approximately 5 basis
points.
Non-interest Income: For the quarter ended September 30,
2010, total non-interest income amounted to $2.1 million, up $149
thousand or 7.8%, compared with the third quarter of 2009.
Total securities gains, net of other-than-temporary impairment
losses, amounted to $407 thousand in the third quarter, up $223
thousand compared with the same quarter last year. Third quarter
net securities gains were comprised of realized gains on the sale
of securities amounting to $618 thousand, offset in part by
other-than-temporary impairment losses of $211 thousand on certain
available-for-sale, private label residential mortgage-backed
securities.
Trust and other financial services fees amounted to $800
thousand in the third quarter, up $155 thousand or 24.0% compared
with the third quarter of 2009. Reflecting additional new business
and some recovery in the equity markets, at quarter-end assets
under management stood at $301.0 million, up $33.3 million or 12.4%
compared with September 30, 2009.
The foregoing increases in third quarter non-interest income
were largely offset by a $228 thousand, or 98.3%, decline in income
from mortgage banking activities. During the third quarter all
residential mortgage loan originations were held in the Bank’s loan
portfolio, whereas in the third quarter of 2009 a large portion of
residential mortgage loan originations were sold into the secondary
market with customer servicing retained.
For the nine months ended September 30, 2010, total non-interest
income amounted to $5.8 million, up $881 thousand or 18.0% compared
with the same period in 2009.
Total securities gains, net of other-than-temporary impairment
losses, amounted to $1.2 million for the nine months ended
September 30, 2010, up $668 thousand compared with the same period
in 2009. Year-to-date net securities gains were comprised of
realized gains on the sale of securities amounting to $2.0 million,
largely offset by other-than-temporary impairment losses of $751
thousand on certain available-for-sale, private label, residential
mortgage-backed securities.
Trust and other financial services fees amounted to $2.1 million
for the nine months ended September 30, 2010, up $331 thousand, or
18.3%, compared with the same period in 2009.
For the nine months ended September 30, 2010, credit and debit
card service charges and fees amounted to $844 thousand, up $130
thousand or 18.2% compared with the same period in 2009. This
increase was principally attributed to continued growth of the
Bank’s demand deposits and NOW accounts, higher levels of merchant
credit card processing volumes, and continued success with a
program that offers rewards for certain debit card
transactions.
The foregoing increases in year-to-date non-interest income were
offset in part by a $232 thousand, or 76.1%, decline in income from
mortgage banking activities. During 2010 substantially all
residential mortgage loan originations were held in the Bank’s loan
portfolio, whereas during the same period in 2009 a large portion
of residential mortgage loan originations were sold into the
secondary market with customer servicing retained.
Non-interest Expense: For the quarter ended September 30,
2010, total non-interest expense amounted to $5.5 million, up $551
thousand, or 11.1%, compared with the third quarter of 2009. The
increase in non-interest expense was attributed to a wide variety
of factors including increases in salaries and employee benefits,
loan collection expenses, professional services fees, marketing
expenses, insurance, and expenses associated with the disposal of
certain fixed assets. Third quarter non-interest expense also
included $69 thousand of expenses related to the preparation of
fiduciary tax returns for the Bank’s trust clients, whereas in 2009
these expenses were almost entirely recorded in the second
quarter.
For the nine months ended September 30, 2010, total non-interest
expense amounted to $16.1 million, up $432 thousand, or 2.8%,
compared with the same period in 2009. The increase in non-interest
expense was principally attributed to salaries and employee
benefits, which were up $531 thousand or 6.4% compared with the
same period in 2009. The increase in salaries and employee benefits
was principally attributed to increases in employee health
insurance premiums, normal increases in base salaries, as well as
changes in staffing levels and mix. The foregoing increases were
partially offset by $402 thousand of employee health insurance
credits attained during the nine months ended September 30, 2010,
based on favorable claims experience.
FDIC deposit insurance assessments amounted to $797 thousand for
the nine months ended September 30, 2010, down $97 thousand or
10.9% compared with the same period in 2009. This decline was
principally attributed to a $495 thousand special FDIC assessment
recorded in the second quarter of 2009, offset by increased deposit
insurance premiums for all FDIC insured banks as a result of the
FDIC’s plan to reestablish the Deposit Insurance Fund to levels
required by the Federal Deposit Reform Act of 2005.
Efficiency Ratio: The Company’s efficiency ratio, or
non-interest operating expenses divided by the sum of
tax-equivalent net interest income and non-interest income other
than net securities gains and other-than-temporary impairments,
measures the relationship of operating expenses to revenues. For
the three and nine months ended September 30, 2010, the Company’s
efficiency ratios amounted to 54.9% and 54.3%, respectively, which
compared favorably to peer and industry averages.
About Bar Harbor Bankshares
Bar Harbor Bankshares is the parent company of its wholly owned
subsidiary, Bar Harbor Bank & Trust. Bar Harbor Bank &
Trust, founded in 1887, provides full service community banking
with twelve branch office locations serving downeast and midcoast
Maine.
This earnings release contains certain forward-looking
statements with respect to the financial condition, results of
operations and business of Bar Harbor Bankshares (the “Company”)
for which the Company claims the protection of the safe harbor
provided by the Private Securities Litigation Reform Act of 1995,
as amended. You can identify these forward-looking statements by
the use of words like “strategy,” “anticipates” “expects,” “plans,”
“believes,” “will,” “estimates,” “intends,” “projects,” “goals,”
“targets,” and other words of similar meaning. You can also
identify them by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements include,
but are not limited to, those made in connection with estimates
with respect to the future results of operation, financial
condition, and the business of the Company which are subject to
change based on the impact of various factors that could cause
actual results to differ materially from those projected or
suggested due to certain risks and uncertainties. These risks and
uncertainties include, but are not limited to, changes in general
economic conditions, interest rates, deposit flows, loan demand,
internal controls, legislation or regulation and accounting
principles, policies or guidelines, as well as other economic,
competitive, governmental, regulatory and accounting and
technological factors affecting the Company’s operations. For more
information about these risks and uncertainties and other factors,
please see the Company’s Annual Report on Form 10-K, as updated by
the Company’s Quarterly Reports on Form 10-Q and other filings on
file with the SEC. All of these factors should be carefully
reviewed, and readers should not place undue reliance on these
forward-looking statements. The Company assumes no obligation to
update any forward-looking statements as a result of new
information or future events or developments.
Bar Harbor BanksharesSelected
Financial Information(dollars in thousands except per share
data)(unaudited)
Period End
3rd Quarter Average Balance Sheet Data
9/30/2010 12/31/2009 2010
2009 Total assets $ 1,103,329 $ 1,072,381 $
1,093,371 $ 1,065,334 Total securities 369,422 347,026 349,992
356,141 Total loans 680,875 669,492 681,646 663,039 Allowance for
loan losses 8,540 7,814 8,611 7,068 Total deposits 698,873 641,173
697,753 647,382 Total Borrowings 291,987 311,629 284,968 324,081
Shareholders' equity 106,406 113,514 105,362 87,854
Three
Months Ended Nine Months Ended Results Of
Operations 9/30/2010 9/30/2009 9/30/2010
9/30/2009
Interest and dividend income $ 12,879 $ 13,705 $ 38,438 $ 41,134
Interest expense 4,933 5,273 14,639 15,919 Net interest income
7,946 8,432 23,799 25,215 Provision for loan losses 450 1,057 1,500
2,557 Net interest income after provision for loan losses 7,496
7,375 22,299 22,658 Non-interest income 2,065 1,916 5,770
4,889 Non-interest expense 5,518 4,967 16,115 15,683 Income before
income taxes 4,043 4,324
11,954 11,864 Income taxes 1,173
1,219 3,321 3,378
Net income $ 2,870 $ 3,105 $ 8,633 $ 8,486 Preferred
stock dividends and accretion of discount ---
272 653 762 Net income available
to common shareholders $ 2,870 $ 2,833 $ 7,980
$ 7,724
Per Common Share Data Basic
earnings per share $ 0.76 $ 0.98 $ 2.12 $ 2.69 Diluted earnings per
share $ 0.75 $ 0.95 $ 2.09 $ 2.63 Average shares outstanding-Basic
3,783,036 2,883,580 3,771,903 2,875,406 Average shares
outstanding-Diluted 3,829,349 2,978,003 3,821,628 2,941,018 Cash
dividends per share $ 0.260 $ 0.260 $ 0.780 $ 0.780
Selected Financial Ratios Return on Average Assets
1.04 % 1.16 % 1.07 % 1.08 % Return on Average Equity 10.81 % 14.02
% 10.94 % 13.16 % Tax-equivalent Net Interest Margin 3.15 % 3.38 %
3.22 % 3.45 % Efficiency Ratio (1) 54.9 % 46.9 % 54.3 % 51.0 %
At or for the Nine
MonthsEnded
At or for theYear Ended
September 30, December 31, 2010
2009 2009 Asset Quality Net charge-offs
to average loans, annualized 0.15 % 0.14 % 0.13 % Allowance for
loan losses to total loans 1.25 % 1.12 % 1.17 % Allowance for loan
losses to non-performing loans 96 % 98 % 85 % Non-performing loans
to total loans 1.31 % 1.14 % 1.37 % Non-performing assets to total
assets 0.82 % 0.76 % 0.94 %
Capital Ratios
Tier 1 leverage capital ratio 9.06 % 8.32 % 10.35 % Tier 1
risk-based capital ratio 13.61 % 12.88 % 15.34 % Total risk-based
capital ratio 15.48 % 14.68 % 17.14 % Tangible equity to total
assets 9.36 % 8.60 % 10.29 % Tangible common equity (2) 9.38 % 6.90
% 8.60 %
(1) Computed by dividing non-interest expense by the sum of tax
equivalent net interest income and non-interest income other than
net securities gains and OTTI. Includes $495 special FDIC
assessment recorded in the second quarter of 2009.
(2) Computed by dividing the total common shareholders' equity,
less goodwill and other intangible assets, by total assets, less
goodwill and other intangible assets.
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