Bar Harbor Bankshares (NYSE MKT: BHB) today reported net income
of $14.9 million in 2016. Earnings were relatively consistent with
prior year-end, while 2016 earnings included charges of $2.7
million related to the Lake Sunapee Bank Group (LSBG) acquisition
previously announced and the core system conversion that is
expected to be completed in the second quarter of 2017.
Financial Highlights
- Total assets increased $175.3 million
to $1.8 billion from the prior year-end
- Total loans for the year were up $139.0
million or 14% from the prior year-end
- Fourth quarter 2016 diluted earnings
per share totaled $0.42 and were net of acquisition and system
conversion costs totaling $0.19 per share
- Net interest income, on a
tax-equivalent basis, was $12.2 million for the fourth quarter, up
6% from $11.5 million compared to the linked quarter
- Total non-interest income for 2016 is
up $3.4 million or 38% from the prior year. Excluding securities
gains, non-interest income remained flat to both the linked quarter
and prior year fourth quarter.
- Net interest margin (NIM) expanded to
2.89% compared to 2.84% in the linked quarter on a tax-equivalent
basis
- Non-performing assets to total assets
at year-end improved 8 basis points to 0.38%, down from 0.46% at
prior year-end, while total non-performing loans to total loans
improved 13 basis points to 0.58%, down from 0.71% for the same
period
President and Chief Executive Officer, Curtis C. Simard stated,
“We had a strong finish to the year driven by organic growth and
expense management while we prepared for the legal close of our
LSBG acquisition which was effective January 13, 2017, and the core
system conversion that is expected to be completed in the second
quarter in 2017. Earnings in 2016 included merger related costs
which we view as an investment that allows us to capitalize on
business expansion opportunities and grow our geographic footprint
into New Hampshire and Vermont. The acquisition bolsters our market
position across New England creating a platform to leverage revenue
synergies and expense management, further improving earnings and
profitability, and ultimately shareholder value.”
Mr. Simard continued, “Expanding our core business while
remaining steadfast in our commitment to risk management is
essential to our strategic objectives. While beginning the cultural
integration and preparing for closing, our team was able to grow
loans 14% and minimize risk, as is evidenced by the continued
improvement in credit quality throughout 2016.”
Lake Sunapee Bank Group Acquisition UpdateOn January 13,
2017, the previously announced acquisition of LSBG was completed.
BHB issued 4,168,823 common shares using a fixed exchange ratio of
0.4970 which was based on a stock price of $34.55. Total
consideration paid at closing was $182.2 million which reflected
the increase in BHB’s stock at the time of closing plus an
additional $28 thousand in cash paid for fractional shares. At
completion of the acquisition, LSBG had approximately $1.5 billion
in total assets. Final allocation of the purchase price to the fair
value of assets and liabilities acquired is expected to be reported
as part of the first quarter of 2017 earnings release and Form 10-Q
as of March 31, 2017.
Mr. Simard stated, “LSBG has a great reputation in their regions
and will retain its brand recognition while supporting the
Company’s overall corporate objectives as we expand into New
Hampshire and Vermont. Customer integration and system conversion
are expected to be complete by the end of the second quarter of
2017.”
Results of OperationsEarnings decreased in the most
recent quarter compared to the linked quarter and the fourth
quarter of the prior year primarily due to the merger-related
charges recorded for LSBG. Fourth quarter 2016 diluted earnings per
share totaled $0.42 and were net of acquisition and system
conversion costs totaling $0.19 per share.
Net interest income, on a tax-equivalent basis, was $12.2
million for the fourth quarter compared to $11.5 million in the
third quarter of 2016. Annual net interest income, on a
tax-equivalent basis, was $47.5 million in 2016 compared to $46.8
million in 2015. The NIM increased to 2.89% during the fourth
quarter from 2.84% in the third quarter of 2016. The increase
during the fourth quarter was driven by strong double digit
annualized growth in both the Commercial and Consumer loan
portfolios, as well as a 10 basis point yield expansion in the
Commercial portfolio. On an annual basis, net interest margin
decreased to 2.96% for 2016 from 3.19% during 2015 primarily as a
result of yield compression in the investment portfolio. Cost of
funds from interest bearing deposit accounts and Federal Home Loan
Bank borrowings had a modest improvement on a quarter-over-quarter
basis. On an annual basis, cost of interest bearing deposits
remained relatively flat, while the cost of borrowings increased 9
basis points.
The provision for credit losses was $979 thousand in 2016
compared to $1.8 million in 2015. Despite the significant loan
growth for the year, improvements in asset quality indicators
reduced the overall provision expense for the year.
Total non-interest income for 2016 is up $3.4 million or 38%
from the prior year. Excluding securities gains, non-interest
income remained flat to both the linked quarter and prior year
fourth quarter. Non-interest income was $2.0 million in the fourth
quarter compared to $3.4 million in the third quarter of 2016.
There were zero gains on sales of securities in the fourth quarter
compared to $1.4 million recorded in the third quarter of 2016. All
other non-interest income items were relatively consistent to the
linked quarter and prior year-end.
Fourth quarter non-interest expense increased to $10.5 million
compared to $8.8 million in the linked quarter primarily due to the
acquisition and system conversion charges. Non-interest expense for
the year was $35.9 million compared to $30.9 million in 2015.
Merger related and system conversion costs for the quarter and year
ended 2016 were $1.8 million and $2.7 million, respectively, and
are recorded in other operating expenses. In addition, salary and
benefit costs increased $295 thousand during the quarter and $1.9
million for the year as a result of strategic hires at the
executive level and senior level positions within the risk
management and information technology departments. Excluding
acquisition costs, the fourth quarter resulted in positive
operating leverage from strong asset growth and disciplined expense
management.
The effective tax rate was 14% in the fourth quarter compared to
34% during the third quarter of 2016. Lower pretax income related
to merger expenses and lower security gains reduced the effective
tax rate during the fourth quarter of 2016. On an annual basis, the
effective tax rate remained at 28% for both periods reflecting the
impact of 2016 security gains offset by merger-related
expenses.
Financial ConditionTotal assets increased to $1.8 billion
at the end of 2016 from $1.7 billion in the linked quarter and $1.6
billion at year-end 2015. Total loans were up $40.8 million at
year-end or 4% compared to the linked quarter, and $139.0 million
or 14% at the end of 2015. The increases were principally due to
organic growth in the commercial and residential real estate
portfolios. Commercial real estate loans grew 4% during the fourth
quarter to $403.6 million from $387.8 million at the end of the
third quarter, and were up 9% as compared to $371.0 million at the
end of 2015. Residential real estate loans grew 5% during the
fourth quarter to $506.6 million from $484.3 million at the end of
the third quarter, and were up 24% as compared to $408.4 million at
the end of 2015.
Asset quality continues to remain strong with total
non-performing assets to total assets of 0.38% and non-performing
loans to total loans of 0.58% as of year-end, representing
decreases over last year of 8 basis point and 13 basis points,
respectively.
Unrealized losses due to rising interest rates reduced available
for sale securities by $15.1 million during the fourth quarter. The
reduction was offset by $6.7 million in net purchases, resulting in
a net decrease of $8.4 million during the fourth quarter. For the
full year, unrealized losses of $12.1 million and sales totaling
$65.5 million were offset by purchases of $101.5 million for a
total $23.9 million increase during 2016. Securities purchased
during 2016 consisted of mortgage-backed securities issued by U.S.
Government agencies and sponsored-enterprises and, to a lesser
extent, municipal securities issued by states and political
subdivisions thereof.
Deposits grew to $1.1 billion at the end of 2016 from $1.0
billion at the end of the previous quarter, and from $942.8 million
at the end of 2015. The increases were principally due to growth in
interest bearing accounts, which were up $33.3 million during the
fourth quarter and $95.2 million for the year. Total borrowings
increased to $536.6 million from $512.5 million during the third
quarter and $474.8 million at the end of 2015. Mr. Simard stated,
“The LSBG acquisition brings additional core deposit balances at a
relatively lower cost which will help fund future growth. We will
be actively managing the larger combined balance sheet optimizing
both the loan and deposit mix.”
Tangible book value per share decreased to $24.92 at year-end
2016 compared to $26.26 as of the linked quarter, and increased
from $24.75 as of December 31, 2015. During the fourth quarter,
capital increased $2.6 million as a result of net income, which was
offset by dividends of $1.7 million. Capital for the year 2016
increased $14.9 million, which was offset by dividends of $6.6
million. Accumulated other comprehensive income decreased $9.1
million during the fourth quarter and $8.0 million for the year
primarily due to increases in unrealized losses on the available
for sale portfolio, net of tax.
While fair value adjustments continue to be finalized, the
tangible book value dilution anticipated with the LSBG acquisition
is estimated to have an earn back period of four years or less.
At December 31, 2016, the Company and the Bank continued to
exceed applicable regulatory requirements for “well-capitalized”
financial institutions. Under the capital adequacy guidelines
administered by the Bank’s principal regulators, “well-capitalized”
institutions are those with Common Equity Tier I, Tier I leverage,
Tier I Risk-based, and Total Risk-based ratios of at least 6.5%,
5%, 8% and 10%, respectively. At December 31, 2016, the Company’s
Common Equity Tier I, Tier I Leverage, Tier I Risk-based, and Total
Risk-based capital ratios were 15.01%, 8.94%, 15.01% and 16.52%,
respectively.
BackgroundBar Harbor Bankshares is the parent company of
its wholly owned subsidiary, Bar Harbor Bank & Trust. Founded
in 1887, Bar Harbor Bank & Trust provides full service
community banking with office locations serving downeast, midcoast
and central Maine. With the operations of LSBG acquired on January
13, 2017, Bar Harbor Bankshares will have additional offices
located in west-central New Hampshire and central Vermont.
Forward Looking StatementsThis 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, cyber attacks or other failures in our technology and
privacy protection measures, 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. Furthermore, there is a risk
that the Company may not identify or be successful in realizing
upon new opportunities to expand its business consistent with its
business strategy, which would limit our growth and may have a
negative impact on future results of 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.
Use of non-GAAP Financial MeasuresCertain information in
this press release contains financial information determined by
methods other than in accordance with accounting principles
generally accepted in the United States of America (“GAAP”).
Management uses these “non-GAAP” measures in its analysis of the
Company’s performance and believes these non-GAAP financial
measures provide a greater understanding of ongoing operations and
enhance comparability of results with prior periods as well as
demonstrating the effects of significant gains and charges in the
current period. The Company believes that a meaningful analysis of
its financial performance requires an understanding of the factors
underlying that performance. Management believes that investors may
use these non-GAAP financial measures to analyze financial
performance without the impact of unusual items that may obscure
trends in the Company’s underlying performance. These disclosures
should not be viewed as a substitute for operating results
determined in accordance with GAAP, nor are they necessarily
comparable to non-GAAP performance measures that may be presented
by other companies.
(1) In certain places in this press release net interest income
and the net interest margin is calculated and discussed on a fully
tax-equivalent basis. Specifically included in interest income was
tax-exempt interest income from certain investment securities and
loans. An amount equal to the tax benefit derived from this
tax-exempt income has been added back to the interest income total,
which increased net interest income accordingly. Management
believes the disclosure of tax-equivalent net interest income
information improves the clarity of financial analysis, and is
particularly useful to investors in understanding and evaluating
the changes and trends in the Company’s results of operations.
Other financial institutions commonly present net interest income
on a tax-equivalent basis. This adjustment is considered helpful in
the comparison of one financial institution’s net interest income
to that of another institution, as each will have a different
proportion of tax-exempt interest from its earning assets.
Moreover, net interest income is a component of a second financial
measure commonly used by financial institutions, net interest
margin, which is the ratio of net interest income to average
earning assets. For purposes of this measure as well, other
financial institutions generally use tax-equivalent net interest
income to provide a better basis of comparison from institution to
institution. The Company follows these practices.
(2) The Company presents its efficiency ratio using non-GAAP
information. The GAAP efficiency ratio is computed by dividing
non-interest expense by the sum of tax-equivalent net interest
income and non-interest income. The non-GAAP efficiency ratio
presented in this press release is 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, and other significant non-recurring expenses.
(3) The Company presents certain information based upon tangible
common equity instead of total shareholders’ equity in accordance
with GAAP. The difference between these two measures is the
Company’s intangible assets, specifically goodwill and core deposit
intangibles from prior acquisitions. Management, banking regulators
and many stock analysts use the tangible common equity ratio, the
tangible equity to total assets ratio and the tangible book value
per common share in conjunction with more traditional bank capital
ratios to, among other things, compare the capital adequacy of
banking organizations with significant amounts of goodwill or other
intangible assets, typically stemming from the use of the purchase
accounting method in accounting for mergers and acquisitions. The
tangible common equity ratio is computed by dividing the total
common shareholders’ equity, less goodwill and other intangible
assets, by total assets, less goodwill and other intangible assets.
The tangible equity to total assets ratio is computed by dividing
total shareholders’ equity, less goodwill and other intangible
assets, by total assets at period end. The tangible book value
ratio is computed by dividing total shareholders’ equity, less
goodwill and other intangible assets, by period end total
outstanding shares of common stock.
BAR HARBOR BANKSHARES AND SUBSIDIARIES BALANCE
SHEET DECEMBER 31, 2016, SEPTEMBER 30, 2016 AND DECEMBER 31,
2015 (in thousands)
unaudited
December 31,
September 30, December
31, 2016 2016 2015 Assets Total
cash and cash equivalents $ 8,439 $ 14,571 $
9,720 Securities available for sale, at fair value 528,856 537,287
504,969 Federal Home Loan Bank stock 25,331 23,712 21,479 Loans
1,129,064 1,088,243 990,070 Allowance for loan losses
(10,419 ) (10,103 )
(9,439 ) Loans, net of allowance for
loan losses 1,118,645 1,078,140 980,631 Premises and equipment, net
23,419 23,082 20,674 Goodwill 4,935 4,935 4,935 Bank owned life
insurance 24,450 24,288 23,747 Other assets 21,274
11,860
13,900 TOTAL ASSETS $
1,755,349 $ 1,717,875
$ 1,580,055 Liabilities
Deposits: Demand and other non-interest bearing deposits $ 98,856 $
115,376 $ 86,577 NOW accounts 175,150 167,653 160,394 Savings and
money market deposits 359,857 320,721 299,087 Time deposits
416,437 429,775
396,729 Total
deposits 1,050,300 1,033,525 942,787 Short-term borrowings 394,480
363,375 333,909 Long-term advances from Federal Home Loan Bank
137,116 144,120 135,882 Junior subordinated debentures 5,000 5,000
5,000 Other liabilities 11,713
7,519
8,325 TOTAL LIABILITIES 1,598,609
1,553,539
1,425,903 TOTAL
SHAREHOLDERS' EQUITY 156,740
164,336
154,152 TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 1,755,349 $
1,717,875 $ 1,580,055
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (in thousands, except
share data)
unaudited
Three Months Ended
Year Ended December 31,
September 30, December 31,
December 31,
December 31,
2016 2016
2015 2016 2015 Interest
and dividend income: Interest and fees on loans $ 11,026 $ 10,295 $
9,854 $ 41,653 $ 39,303 Interest on securities and federal funds
3,565 3,596 3,841 14,966 15,343 Dividend on FHLB stock 255
232 198
868 578 Total interest and
dividend income 14,846 14,123
13,893 57,487
55,224 Interest expense: Deposits 1,768 1,755
1,588 6,699 6,097 Short-term borrowings 507 453 258 1,942 983
Long-term debt 914 916
793 3,472
3,310 Total interest expense 3,189
3,124 2,639 12,113
10,390 Net interest income 11,657
10,999 11,254 45,374 44,834 Provision for loan losses 225
139 465
979 1,785
Net interest income after provision
for
loan losses 11,432 10,860
10,789 44,395
43,049 Non-interest income: Trust and other financial
services 951 975 1,001 3,829 3,888 Service charges on deposit
accounts 188 215 215 866 892 Debit card service charges and fees
461 491 449 1,782 1,694 Securities gains 9 1,354 128 4,498 1,334
Other operating income 426 337
313 1,374
1,171 Total non-interest income 2,035
3,372 2,106 12,349
8,979 Non-interest expenses:
Salaries and employee benefits 5,127 4,832 4,640 19,775 17,884
Occupancy expense 583 588 551 2,334 2,248 Furniture and equipment
expense 561 568 592 2,276 2,321 Debit card expenses 131 127 125 495
452 FDIC assessment 210 160 210 805 833 Other operating expense
3,845 2,475
2,036 10,250 7,170 Total
non-interest expenses 10,457
8,750 8,154 35,935
30,908 Income before income taxes 3,010 5,482
4,741 20,809 21,120 Income taxes 426
1,850 1,273 5,876
5,967 Net income $ 2,584
$ 3,632 $ 3,468 $ 14,933
$ 15,153 Basic earnings per share $ 0.43
$ 0.60 $ 0.58 $ 2.47
$ 2.53 Diluted earnings per share $ 0.42
$ 0.59 $ 0.57 $ 2.45
$ 2.50
Bar Harbor Bankshares
Selected Financial Information (in thousands except per
share data)
unaudited
Average Balances for Quarters Ended
December 31, September 30,
June 30, March
31, December 31,
2016 2016
2016 2016
2015 Total assets $ 1,748,201 $
1,689,535 $ 1,651,576 $ 1,617,529 $ 1,557,296
Total securities 531,443 524,775 521,373 509,311 492,933 Total
loans 1,119,065 1,058,253 1,028,748 1,011,934 970,192 Allowance for
loan losses 10,336 10,095 10,036 9,774 9,230 Total deposits
1,039,944 1,001,674 925,161 962,698 982,344 Total borrowings
537,818 514,999 557,593 488,993 413,330 Shareholders' equity
162,510
165,486 161,675
158,521
154,689
Results
of Operations by Quarter December 31, September
30, June 30, March 31, December 31,
2016 2016
2016 2016
2015 Interest and dividend income $ 14,846 $
14,123 $ 14,354 $ 14,164 $ 13,893 Interest expense 3,189 3,124
2,972 2,828 2,639 Net interest income 11,657 10,999 11,382 11,336
11,254 Provision for loan losses 225 139 150 465 465 Net interest
income after provision for loan losses 11,432 10,860 11,232 10,871
10,789 Non-interest income 2,035 3,372 3,614 3,328 2,106
Non-interest expense 10,457
8,750
8,731
7,997 8,154
Income before income taxes 3,010 5,482 6,115 6,202 4,741 Income
taxes 426
1,850 1,804
1,796
1,273 Net income $
2,584 $ 3,632
$ 4,311 $
4,406 $ 3,468
Share and Per Share Data - At or for the Quarter
Ended December 31, September 30, June 30,
March 31, December 31,
2016 2016
2016 2016
2015 Period-end shares outstanding 6,077,063 6,055,807
6,029,685 6,011,008 6,010,211 Basic average shares outstanding
6,063,686 6,042,384 6,021,316 6,009,198 6,001,960 Diluted average
shares outstanding 6,143,237 6,107,792 6,086,301 6,081,024
6,079,080 Basic earnings per share $ 0.43 $ 0.60 $ 0.72 $
0.73 $ 0.58 Diluted earnings per share $ 0.42 $ 0.59 $ 0.71 $ 0.72
$ 0.57 Book value $ 25.79 $ 27.14 $ 27.40 $ 26.72 $ 25.65
Tangible book value $ 24.92
$ 26.26 $
26.51 $ 25.82
$ 24.75
Selected
Financial Ratios - At or for the Quarter Ended December
31, September 30, June 30, March 31,
December 31, 2016
2016 2016
2016 2015 Return on
Average Assets 0.59 % 0.86 % 1.05 % 1.10 % 0.88 % Return on Average
Equity 6.33 % 8.73 % 10.72 % 11.18 % 8.89 % Net Interest Margin,
fully taxable equivalent 2.89 % 2.84 % 3.04 % 3.09 % 3.15 %
Efficiency Ratio (1) 59.9 %
61.5 %
58.8 % 57.4 %
58.7 %
Asset Quality
Ratios - At or for the Quarter Ended December 31,
September 30, June 30, March 31, December
31, 2016
2016 2016
2016 2015 Net charge-offs to
average loans 0.00 % 0.01 % 0.03 % 0.04 % 0.14 % Allowance for loan
losses to total loans 0.92 % 0.93 % 0.94 % 0.98 % 0.95 % Allowance
for loan losses to non-performing loans 160.4 % 157.8 % 178.1 %
155.6 % 134.7 % Non-performing loans to total loans 0.58 % 0.59 %
0.53 % 0.63 % 0.71 % Non-performing assets to total assets
0.38 % 0.38
% 0.34 %
0.40 % 0.46 %
Capital Ratios - At or for the Quarter Ended
December 31, September 30, June 30, March
31, December 31, 2016
2016 2016
2016 2015 Common
equity tier 1 capital 15.01 % 15.51 % 15.54 % 15.58 % 15.55 % Tier
1 leverage capital 8.94 % 9.16 % 9.21 % 9.20 % 9.37 % Tier 1
risk-based capital 15.01 % 15.51 % 15.54 % 15.58 % 15.55 % Total
risk-based capital 16.52 % 17.05 % 17.09 % 17.16 % 17.12 % Tangible
equity to total assets 8.63 % 9.26 % 9.47 % 9.57 % 9.41 % Tangible
common equity (2) 8.65 %
9.28 % 9.50
% 9.60 %
9.45 % (1) Computed by dividing non-interest
expense (excluding amortization of intangibles, franchise tax,
merger related expenses and other significant expenses or items
unrelated to normalized operations) by the sum of tax equivalent
net interest income by the sum of tax equivalent net interest
income and non-interest income other than net securities gains.
Fourth quarter and year-to- date expenses amounted to $1.8 million
and $2.7 million, respectively, all of which were associated with
Lake Sunapee Bank Group acquisition. (2) Computed by dividing the
total common shareholders’ equity, less goodwill and other
intangible assets, by total assets, less goodwill and other
intangible assets.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170208006175/en/
Bar Harbor BanksharesJosephine Iannelli, 207-288-3314EVP, Chief
Financial Officer & TreasurerorInvestor RelationsMarsha Sawyer,
207-288-3314
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