BAR HARBOR BANKSHARES The following is management's discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three months endedMarch 31, 2023 and should be read in conjunction with our unaudited consolidated financial statements and condensed notes thereto included elsewhere in this Form 10-Q as well as our audited consolidated financial statements and notes thereto included in our Form 10-K. The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please refer to "Cautionary Statement Regarding Forward-Looking Statements" and "Part II, Item 1A. Risk Factors." All amounts, dollars and percentages presented in this Form 10-Q are rounded and therefore approximate.
GENERAL
The Company is a bank holding company headquartered inMaine , providing a broad array of banking and nonbanking products and services to businesses and consumers primarily within our three-state footprint. The Company's primary sources of revenue, through the Bank, are net interest income (predominantly from loans and investment securities) and noninterest income (principally fees and other revenue from financial services provided to customers or ancillary services tied to loans and deposits).
NON-GAAP FINANCIAL MEASURES
Our accounting and reporting policies conform to GAAP and the prevailing practices in the financial services industry. However, we also evaluate our performance by reference to certain additional financial measures discussed in this Form 10-Q that we identify as being "non-GAAP financial measures." In accordance withSEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time inthe United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both. The non-GAAP financial measures that we discuss in this Form 10-Q should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Form 10-Q may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures we have discussed in this Form 10-Q when comparing such non-GAAP financial measures.
Recent Banking Crisis
In light of recent events in the banking sector, including recent bank failures, continuing interest rate hikes and recessionary concerns, we continue to position our balance sheet to mitigate the risks affecting the Company and the overall banking industry in order to serve our clients and communities.
Liquidity remains strong, with cash and available for sale securities
representing approximately 17% of total assets at
? the ability to access considerable sources of contingent liquidity at the FHLB
and the FRB. We consider the Company's current liquidity position to be
adequate to meet both short-term and long-term liquidity needs. Refer to
"Liquidity and Cash Flows" for additional information.
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Capital remains strong, with ratios of the Company and the Bank remained
? well-capitalized under regulatory guidelines at period end as further described
in Note 6 - "Capital Ratios and Shareholders' Equity" on the Consolidated
Financial Statements.
Asset quality remains solid, with a non-performing asset ratio of 0.20% of
total assets as of
? the period, reflecting our disciplined underwriting and conservative lending
philosophy which has supported the Company's strong credit performance during
prior financial crises.
We will continue our safe and sound banking practices, but the continuing impact of the crisis and further extent on the Company's operations and financial results for the remainder of 2023 is uncertain and cannot be predicted.
QUARTERLY PERFORMANCE SUMMARY
Earnings (first quarter of 2023, compared to the same period of 2022)
Net income was
? due to a benefit to net interest income as our assets repriced to higher rates
while non-interest expenses increased a modest 4%.
Diluted earnings per share was
? included
("BOLI").
Return on assets increased to 1.36%, or 1.29% excluding one-time benefits from
BOLI policies, from 1.00%. Return on equity was 12.96% compared to 8.89%.
? Both ratios include the benefit of higher net income and lower average
balances related to unrealized losses on securities as noted below under the
"Financial Position" section.
Net interest income was
("NIM") was 3.54%, an increase of 59 basis points from the same period in 2022.
The increase was driven by significant loan growth and the repricing on a
? majority of our variable rate loans to the most recent
while managing deposit costs at a relationship level. Since the Federal
Reserve started the cycle of interest rate hikes, our accumulated deposit beta
stands at 14% at quarter-end.
The provision for credit losses was an expense of
?
growth, along with using more conservative loss factors in the current year
quarter to coincide with developing economic conditions.
Non-interest income was
? income included a
was offset by lower trust and investment management fee income and mortgage
banking income due to current market conditions.
Non-interest expense was
? primarily due to higher salaries and employee benefit expenses reflecting a
full quarter impact of annual adjustments made in the second quarter of 2022.
? Efficiency ratio improved to 55% from 62% reflecting higher revenue and our
disciplined approach to expense management.
Financial Position (
? Total assets increased
Cash and cash equivalents decreased to
? principally due to self-funding loan growth with support from wholesale
borrowings.
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Securities were
million, or 16% of total assets. Net unrealized losses improved to
? million from
securities decreased from year-end. Our securities portfolio is highly liquid
and is comprised of shorter-term duration securities.
Total loans grew 6%, led by commercial loans which increased 8%. We continue
? to be selective in commercial loan growth with proven business partners and
lending limits, representing a mix of real estate loans, commercial and
industrial loans, and lines of credit.
? The ratio of the ACL to total loans was 0.90% compared with 0.89%. Net
charge-offs continue to be insignificant.
Total deposits increased
increased
? non-maturity deposit balances decreased
the seasonal downward trends we normally experience in larger business
accounts.
? Borrowings were essentially flat,
cash and use of brokered deposits were used to grow loans during the quarter.
Total book value per share was
? dividends during the first quarter 2023 increased our book value per share by
per share.
We are honored and proud to be recognized by Forbes as one of the "World's Best Banks" in the first quarter of 2023, based largely on service and trust metrics. Of the 75 U.S.-based banks to make the list,Bar Harbor Bank & Trust is one of only three banks headquartered in NorthernNew England . We believe that this recognition is a reflection of our customers' experience with us and their trust inBar Harbor Bank & Trust .
COMPARISON OF FINANCIAL CONDITION AT
Cash and cash equivalents
Total cash and cash equivalents were$82.7 million atMarch 31, 2023 , compared to$92.3 million at year-end. Interest-earning cash held with other banks totaled$44.9 million atMarch 31, 2023 compared to$52.4 million at year-end 2022 and yielded 4.28% and 4.00%, respectively.
Securities
Securities totaled$572.8 million atMarch 31, 2023 and were$574.4 million at year-end 2022. During the first quarter, security purchases totaled$1.0 million and were offset by$11.1 million of maturities, calls and pay-downs of amortizing securities. There were also$1.0 million of purchases of FHLB stock during the first quarter 2023. Fair value adjustments decreased the security portfolio by$65.8 million at quarter-end compared to a$71.8 million at year-end. The weighted average yield of the securities portfolio was 3.62% atMarch 31, 2023 compared to 3.58% at year-end. As of quarter-end and year-end, our securities portfolio had an average life of nine years with an effective duration of five years. All securities remain classified as available for sale to provide flexibility in loan funding and management of our cost of funds.
Loans
Loans increased$41.3 million to$2.9 billion at the end of the first quarter 2023. The increase was primarily driven by commercial loans that grew by$35.3 million , of which$19.5 million was with new customers primarily in the finance and real estate and leasing industries. Residential loans grew by annualized growth rate of 4% as we believe it was more profitable to put these higher yield loans on the balance sheet instead of selling them for small gains in the secondary market. Consumer loans dropped by$2.2 million due to run-off of balances associated with the repricing of home equity lines of credit to the higher interest rate environment.
Allowance for Credit Losses
The ACL was$26.6 million atMarch 31, 2023 compared to$25.9 million at year-end. The increase ACL balance is largely due to loan growth during the first quarter, however, the ratio of ACL to total loans increased to 0.90%
from
0.89%
48
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at year-end due to more refined economic forecasting, especially in the national
unemployment figures. Non-accruing loans in the quarter increased $1.3 million
from $6.5 million at the end of the fourth quarter primarily due to one lending
relationship that is expected to be collected in full. Past due accounts between
30 to 89 days as a percentage of total loans was 0.26% at March 31, 2023
compared to 0.08% at year-end. The increase is largely due to a group of
customers that typically make payments about 30 days in arrears, which become
overdue when the 31st day lands on a business day. Accordingly, we do not
believe the increase is an indication of deteriorated credit quality.
Other Assets
Total other assets decreased$11.1 million to$355.2 million from$366.3 million as of year-end. The decrease is primarily attributed to a$5.5 million decrease in the asset position of the derivative and hedging instruments. Deferred tax assets, net, decreased$1.6 million due to the improvement in unrealized losses from securities available for sale portfolio during the quarter.
Deposits and Borrowings
Total deposits increased$10.4 million to$3.1 billion at the end quarter. Demand and other non-interest bearing deposits decreased$39.6 million driven by large institutional outflows mainly due to seasonality. While our deposit base does contain some larger institutional accounts, our community banking model caters to the high volume, lower average balance accounts, which generally are less rate sensitive and less likely to run-off. Time deposits increased$81.0 million due to a shift of interest-bearing deposits to higher interest-bearing accounts, and a$53.1 million increase in brokered deposits. Savings deposits decreased$35.7 million evenly throughout the quarter. Our deposit composition at the end of quarter was 49% commercial customers and 51% consumer customers, compared with 47% and 53%, respectively at year-end. Our uninsured or otherwise unsecured deposits represents 11% of our total deposits, which ranks us on the low end in risk for the industry, and, specifically, in comparison to others within our footprint. Total borrowings increased by$4.3 million during the quarter due to support loan growth.
Derivative Financial Instruments and Other Liabilities
Other liabilities totaled$67.7 million compared to$78.7 million at year-end. The$11.1 million decrease primarily reflects a$4.7 million increase in capital commitments on limited partnership investments, a$3.9 million net decrease in customer loan swaps, and a$771.2 thousand variable rate loan hedge decrease due to lower interest rates compared to year-end.
Equity
Total equity was$408.4 million atMarch 31, 2023 compared with$393.4 million at year-end. Tangible book value per share (non-GAAP) was$18.74 atMarch 31, 2023 compared with$17.78 at year-end. Equity included net unrealized losses on securities, derivative and pension revaluations, net of tax, totaling a$53.2 million loss atMarch 31, 2023 compared to a$58.3 million loss at year-end.
Excluding unrealized net losses on securities, our tangible book value per
share was
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
Net Interest Income Net interest income was$30.1 million in the first quarter 2023 compared with$23.9 million in the prior year quarter. NIM increased to 3.54% in the first quarter 2023 compared to 2.95% in the prior year quarter. The increase was primarily driven by a yield expansion in existing variable rate loans as those repriced to current indexes, which was partially offset by a higher cost of funds. Interest-bearing cash balances reduced NIM by 3 basis points in the first quarter 2023 compared to 12 basis points in the prior year quarter. The yield on loans was 4.82% in the first quarter 2023, up from 3.54% in the prior year quarter. Costs of interest-bearing liabilities increased to 1.39% in the first quarter 2023 from 0.35% in the first quarter 2022 as our cost of interest-bearing deposits continues to drift higher subsequent to the rate hikes. We also experienced a shift in deposit composition due to time deposits as some customers with excess cash are seeking higher rates. Additionally in the first quarter 2023, we had a heavier reliance on whole-sale borrowings, which have a cost that is almost 200 basis points higher than in the prior year quarter. 49 Table of Contents Provision for Credit Losses
The provision for credit losses was$798 thousand in the first quarter 2023 compared to$687 thousand in the prior year quarter. The increase is primarily driven by loan growth and slightly higher provisioning given current market conditions. The ratio of net charge-offs to total loans was 0.01% in the first quarter 2023 compared to a net recovery of 0.01% in the prior year quarter. Net charge-offs have been at historic lows for the past five years, which we believe is due to our underwriting standard and conservative provisioning.
Non-Interest Income
Non-interest income was$9.2 million in the first quarter 2023 compared to$9.3 million in the prior year quarter. Customer service fees grew to$3.7 million in the first quarter 2023 from$3.6 million in the same quarter of 2022 on a higher number of transactional accounts. Wealth management income in the first quarter 2023 was$3.6 million , compared to$3.8 million in prior year quarter due primarily to lower assets under management stemming from a decline in market valuations. Mortgage banking income was$279 thousand in the first quarter of 2023, compared to$624 thousand in the same period of 2022 reflecting fewer sales and increased on balance sheet activity related to higher interest rates.
BOLI income included
Non-Interest Expense Non-interest expense increased to$22.7 million in the first quarter 2023 from$21.9 million in the prior year quarter principally due to higher salary and benefit expense. Salary and benefit expense increased by$624 thousand in the first quarter 2023 due to annual salary adjustments that were effective at the end of the first quarter of 2022, and higher post-retirement expense in 2023 associated with changes to discount rates.
Income Tax Expense
Income tax expense was$3.6 million in the first quarter 2023 compared with$2.2 million in the prior year quarter. The effective tax rate increased to 21.6% in the first quarter 2023 from 19.7% in the prior year quarter due to having a higher level of non-taxed advantaged income in the current year quarter.
Liquidity and Cash Flows
Liquidity is measured by our ability to meet short-term cash needs at a reasonable cost or minimal loss. We seek to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Besides serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer-initiated needs. Many factors affect our ability to meet liquidity needs, including variations in the markets served by our network of offices, mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions. The Bank actively manages its liquidity position through target ratios established under its Asset-Liability Management Policy. Continual monitoring of these ratios, by using historical data and through forecasts under multiple rate and stress scenarios, allows the Bank to employ strategies necessary to maintain adequate liquidity. The Bank's policy is to maintain a liquidity position of at least 8% of total assets. A portion of the Bank's deposit base has been historically seasonal in nature, with balances typically declining in the winter months through late spring, during which period the Bank's liquidity position tightens. As ofMarch 31, 2023 , available same-day liquidity totaled approximately$566.4 million , including cash, borrowing capacity at FHLB and theFederal Reserve Discount Window and various lines of credit. Additional sources of liquidity include cash flows from operations, wholesale deposits, cash flow from our amortizing securities and loan portfolios. We had unused borrowing capacity at the FHLB of$255.2 million , unused borrowing capacity at theFederal Reserve of$177.5 million and unused lines of credit totaling$51.0 million , in addition to$82.7 million in cash. The Bank maintains a liquidity contingency plan approved by the Bank's Board of Directors. This plan addresses the steps that would be taken in the event of a liquidity crisis, and identifies other sources of liquidity available to us. Our management believes the level of liquidity is sufficient to meet current and future funding requirements. However, changes in economic conditions, including consumer savings habits and availability or access to the brokered deposit market could potentially have a significant impact on our liquidity position. 50 Table of Contents Capital Resources Please refer to "Comparison of Financial Condition atMarch 31, 2023 andDecember 31, 2022 --Equity" for a discussion of shareholders' equity together with Note 6 "Capital Ratios and Shareholders' Equity" in the consolidated financial statements. Additional information about regulatory capital is contained in the notes to the consolidated financial statements and in our most recent Form 10-K. We expect to continue our current practice of paying quarterly cash dividends with respect to our common stock subject to our Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. We believe our quarterly dividend rate per share as approved by our Board of Directors, enables us to balance our multiple objectives of managing our business and returning a portion of our earnings to our shareholders. Historically, and a practice we intend to continue, our principal cash expenditure is the payment of dividends on our common stock, if as and when declared by our Board of Directors. Dividends to shareholders in the aggregate amount of$3.9 million and$3.6 million for the three months endedMarch 31, 2023 and 2022, respectively. All dividends declared and distributed by us will be in compliance with applicable state corporate law and regulatory requirements.
Off-Balance Sheet Arrangements
We are, from time to time, a party to certain off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that may be material to investors. Our off-balance sheet arrangements are limited to standby letters of credit whereby the Bank guarantees the obligations or performance of certain customers. These letters of credit are sometimes issued in support of third-party debt. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and such letters of credit are subject to the same origination, portfolio maintenance and management procedures in effect to monitor other credit products. The amount of collateral obtained, if deemed necessary by the Bank upon issuance of a standby letter of credit, is based upon management's credit evaluation of the customer.
Our off-balance sheet arrangements have not changed materially since previously reported in our Form 10-K.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Please refer to Note 1 - "Basis of Presentation-Recent Accounting Pronouncements" of the Consolidated Financial Statements in this Form 10-Q and Note 1-"Summary of Significant Accounting Policies" of the Consolidated Financial Statements to our Form 10-K.
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements were prepared in accordance with GAAP and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1-"Summary of Significant Accounting Policies" of the Consolidated Financial Statements to our Form 10-K. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the Consolidated Financial Statements. These factors include among other things, whether the policy requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our Consolidated Financial Statements are presented in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations--Critical Accounting Policies and Estimates" included in our Form 10-K. There have been no significant changes in our application of critical accounting policies sinceDecember 31, 2022 . Refer to Note 1 - "Basis of Presentation--Recent Accounting Pronouncements" of the consolidated financial statements for discussion of accounting pronouncements issued but yet to be adopted and implemented. 51 Table of Contents SELECTED FINANCIAL DATA
The following summary data is based in part on the unaudited consolidated
financial statements and accompanying notes and other information appearing
elsewhere in this Form 10-Q or prior
Three Months Ended
March 31,
2023 2022
PER SHARE DATA
Net earnings, diluted $ 0.86 $ 0.60 Adjusted earnings, diluted(1) 0.86
0.62
Total book value 27.00
27.11
Tangible book value per share(1) 18.74
18.72 Market price at period end 26.45 28.62 Dividends 0.26 0.24 PERFORMANCE RATIOS(2) Return on assets 1.36 % 1.00 %
Adjusted return on assets(1) 1.36
1.02
Pre-tax, pre-provision return on assets 1.81
1.28
Adjusted pre-tax, pre-provision return on assets (1) 1.81
1.31 Return on equity 12.96 8.89 Adjusted return on equity(1) 12.94 9.07 Return on tangible equity 18.97 13.01
Adjusted return on tangible equity(1) 18.94
13.27
Net interest margin, fully taxable equivalent(1) (3) 3.54
2.95
Adjusted net interest margin(1) 3.54
2.93
Efficiency ratio(1) 54.72
62.40
FINANCIAL DATA (In millions) Total assets$ 3,928 $ 3,692 Total earning assets(4) 3,628 3,367 Total investments 573 611 Total loans 2,944 2,655
Allowance for credit losses 27
23
Total goodwill and intangible assets 125
126
Total deposits 3,054
3,048
Total shareholders' equity 408
407 Net income 13 9 Adjusted income(1) 13 9 ASSET QUALITY AND CONDITION RATIOS Net charge-offs (recoveries) (annualized)/average loans 0.01 % (0.01) % Allowance for credit losses/total loans 0.90
0.87
Loans/deposits 96
87
Shareholders' equity to total assets 10.40
11.02
Tangible shareholders' equity to total tangible assets(1) 7.45
7.88
Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial (1) Measures section of the "Management's Discussion and Analysis of Financial
Condition and Results of Operations," in this Form 10-Q for additional
information.
(2) All performance ratios are annualized and are based on average balance sheet
amounts, where applicable.
(3) Fully taxable equivalent considers the impact of tax-advantaged investment
securities and loans.
(4) Earning assets includes non-accruing loans and securities are valued at
amortized cost.
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CONSOLIDATED LOAN AND DEPOSIT ANALYSIS
The following tables present the quarterly trend in loan and deposit data and
accompanying growth rates as of
LOAN ANALYSIS
Annualized
Growth %
Quarter
(in thousands, except ratios) Mar 31, 2023 Dec 31, 2022 Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 to Date
Commercial real estate $ 1,519,219 $ 1,495,452 $ 1,421,962 $ 1,331,860 $ 1,289,968 6 %
Commercial and industrial 364,315 352,735 376,624 360,304 346,394 13
Paycheck Protection Program
(PPP) - - - 170 1,126 -
Total commercial loans 1,883,534 1,848,187 1,798,586 1,692,334 1,637,488 8
Total commercial loans,
excluding PPP 1,883,534 1,848,187 1,798,586 1,692,164 1,636,362 8
Residential real estate 906,059 898,192 896,618 876,644 868,382 4
Consumer 98,616 100,855 100,822 100,816 96,876 (9)
Tax exempt and other 55,796 55,456 54,338 57,480 51,816 2
Total loans $ 2,944,005 $ 2,902,690 $ 2,850,364 $ 2,727,274 $ 2,654,562 6 %
DEPOSIT ANALYSIS
Annualized
Growth %
Quarter
(in thousands, except ratios) Mar 31, 2023 Dec 31, 2022 Sep 30, 2022 Jun 30, 2022 Mar 31, 2022 to Date
Demand $ 636,710 $ 676,350 $ 700,218 $ 670,268 $ 653,471 (23) %
NOW 908,483 900,730 918,822 883,239 918,768 3
Savings 628,798 664,514 669,317 663,676 658,834 (21)
Money market 475,577 478,398 513,075 499,456 424,750 (2)Total non-maturity deposits 2,649,568 2,719,992
2,801,432 2,716,639 2,655,823 (10) Total time deposits
404,246 323,439 334,248 361,906 391,940 100
Total deposits $ 3,053,814 $ 3,043,431 $ 3,135,680 $ 3,078,545 $ 3,047,763 1 %
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AVERAGE BALANCES AND AVERAGE YIELDS/RATES
The following tables present average balances and average yields and rates on an annualized fully taxable equivalent basis for the periods included:
Three Months Ended March 31,
2023 2022
Average Average
(in thousands, except ratios) Balance Interest(3) Yield/Rate(3) Balance Interest(3) Yield/Rate(3)
Assets
Interest-earning deposits with
other banks $ 19,819 209 4.28 140,383 56 0.16 %
Securities available for sale
and FHLB stock(2)(3) 643,523 5,807 3.66 629,811 3,963 2.55
Loans:
Commercial real estate 1,505,681 18,862 5.08 1,264,798 10,907 3.50
Commercial and industrial 413,921 6,009 5.89 393,759 3,361 3.46Paycheck protection program - -
- 2,999 196 26.49 Residential 902,348 8,260 3.71 856,252 7,490 3.55 Consumer 100,124 1,572 6.37 97,594 844 3.51 Total loans (1) 2,922,074 34,703 4.82 2,615,402 22,798 3.54 Total earning assets 3,585,416 40,719 4.61 3,385,596 26,817 3.21 % Other assets 299,516 326,422 Total assets$ 3,884,932 3,712,018 Liabilities NOW$ 883,134 1,106 0.51 930,556 314 0.14 % Savings 646,291 485 0.30 640,672 137 0.09 Money market 481,951 2,542 2.14 414,130 118 0.12 Time deposits 342,994 1,132 1.34 406,730 620 0.62 Total interest bearing deposits 2,354,370 5,265 0.91 2,392,088 1,189 0.20 Borrowings 398,837 4,180 4.25 178,958 1,010 2.29 Total interest bearing liabilities 2,753,207 9,445 1.39 2,571,046 2,199 0.35 % Non-interest bearing demand deposits 651,885 660,717 Other liabilities 72,693 64,619 Total liabilities 3,477,785 3,296,382
Total shareholders' equity 407,147
415,636
Total liabilities and $ 3,884,932 3,712,018
shareholders' equity
Net interest spread 3.22 2.86 %
Net interest margin 3.54 2.95
Adjusted net interest
margin(4) 3.54 2.93
(1) The average balances of loans include non-accrual loans and unamortized
deferred fees and costs.
(2) The average balance for securities available for sale is based on amortized
cost.
(3) Fully taxable equivalent considers the impact of tax-advantaged securities
and loans.
(4) Adjusted net interest margin excludes PPP loans.
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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following reconciliation table provides a more detailed analysis of these, and reconciliation for, each of non-GAAP financial measures:
Three Months Ended March 31,
(in thousands) Calculations 2023 2022
Net income $ 13,012 $ 9,112
Non-recurring items:
Gain on sale of securities, net (34) (9)
Gain on sale of premises and equipment, net (13) (75)
Acquisition, conversion and other expenses 20 325 Income tax expense (1) 6 (56) Total non-recurring items (21) 185 Total adjusted income(2) (A)$ 12,991 $ 9,297 Net interest income (B)$ 30,906 $ 24,298 Plus: Non-interest income 9,184 9,309 Total Revenue 40,090 33,607 Gain on sale of securities, net (34) (9) Total adjusted revenue(2) (C) $ 40,056$ 33,598 Total non-interest expense$ 22,704 $ 21,886 Non-recurring expenses:
Gain on sale of premises and equipment, net 13 75 Acquisition, conversion and other expenses (20) (325) Total non-recurring expenses (7) (250) Adjusted non-interest expense(2) (D)$ 22,697 $ 21,636 Total revenue 40,090 33,607 Total non-interest expense 22,704 21,886 Pre-tax, pre-provision net revenue $
17,386
Adjusted revenue(2) 40,056 33,598 Adjusted non-interest expense(2) 22,697 21,636 Adjusted pre-tax, pre-provision net revenue(2) (U)$ 17,359 $ 11,962 (in millions) Average earning assets (E)$ 3,585 $ 3,386
Average paycheck protection program (PPP) loans (R) - 3
Average earning assets, excluding PPP loans (S) 3,585 3,383
Average assets (F) 3,885 3,712
Average shareholders' equity (G) 407 416
Average tangible shareholders' equity(2)(3) (H) 282 290
Tangible shareholders' equity, period-end(2)(3) (I) 283 281
Tangible assets, period-end(2)(3) (J) 3,803 3,566
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Three Months Ended March 31,
Calculations 2023 2022
(in thousands)
Common shares outstanding, period-end (K) 15,124 15,013
Average diluted shares outstanding (L) 15,190 15,012
Adjusted earnings per share, diluted(2) (A/L) $ 0.86 $ 0.62
Tangible book value per share, period-end(2) (I/K) 18.74 18.72
Securities adjustment, net of tax(1)(4) (M) (50,646) (20,225)
Tangible book value per share, excluding
securities adjustment(2)(4) (I+M)/K 22.08 20.07
Total tangible shareholders' equity/total
tangible assets(2) (I/J) 7.45 7.88
Performance ratios(5)
Return on assets 1.36 % 1.00 %
Adjusted return on assets(2) (A/F) 1.36 1.02
Pre-tax, pre-provision return on assets 1.81 1.28
Adjusted pre-tax, pre-provision return on
assets(2) (U/F) 1.81 1.31
Return on equity 12.96 8.89
Adjusted return on equity(2) (A/G) 12.94 9.07
Return on tangible equity 18.97 13.01
Adjusted return on tangible equity(1)(2) (A+Q)/H 18.94 13.27
Efficiency ratio(1)(2)(6) (D-O-Q)/(C+N) 54.72 62.40
Net interest margin (B+P)/E 3.54 2.95
Adjusted net interest margin(2)(7) (B+P-T)/S 3.54 2.93
Supplementary data (in thousands)
Taxable equivalent adjustment for efficiency
ratio (N) $ 727 $ 476
Franchise taxes included in non-interest
expense (O) 148 141
Tax equivalent adjustment for net interest
margin (P) 368 320
Intangible amortization (Q) 233 233
Interest and fees on PPP loans (T) - 196
(1) Assumes a marginal tax rate of 23.80% for 2023 and 23.41% for 2022.
(2) Non-GAAP financial measure.
Tangible shareholders' equity is computed by taking total shareholders' (3) equity less the intangible assets at period-end. Tangible assets is computed
by taking total assets less the intangible assets at period-end.
Securities adjustment, net of tax represents the total unrealized losses and (4) gains on available-for-sale securities recorded on our consolidated balance
sheets within total common shareholders' equity.
(5) All performance ratios are based on average balance sheet amounts, where
applicable.
Efficiency ratio is computed by dividing core non-interest expense net of (6) franchise taxes and intangible amortization divided by core revenue on a
fully taxable equivalent basis.
(7) Adjusted net interest margin excludes PPP loans.
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