Bar Harbor Bankshares (BHB) - Q3 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2024. Bar Harbor Bankshares operates primarily through its subsidiary, Bar Harbor Bank & Trust, serving Northern New England. The company is an accelerated filer and is not a shell company. As of November 5, 2024, there were 15,267,856 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Net Income | $12.19 million | $11.10 million | $32.55 million | $34.91 million |
| Diluted EPS | $0.80 | $0.73 | $2.13 | $2.30 |
| Total Assets | $4.03 billion | $3.98 billion | $4.03 billion | $3.98 billion |
| Total Loans | $3.08 billion | $2.99 billion | $3.08 billion | $2.99 billion |
| Total Deposits | $3.26 billion | $3.14 billion | $3.26 billion | $3.14 billion |
| Net Interest Income | $28.96 million | $29.19 million | $84.77 million | $88.88 million |
| Net Interest Margin (NIM) | 3.15% | 3.18% | 3.14% | 3.32% |
| Provision for Credit Losses | $0.23 million | $0.67 million | $1.10 million | $2.22 million |
| Non-Interest Income | $9.65 million | $8.61 million | $27.50 million | $26.38 million |
| Non-Interest Expense | $24.77 million | $22.81 million | $72.10 million | $68.51 million |
| Efficiency Ratio | 62.09% | 58.37% | 62.52% | 57.59% |
| Return on Assets (ROA) | 1.20% | 1.11% | 1.09% | 1.19% |
| Return on Equity (ROE) | 10.68% | 10.72% | 9.97% | 11.38% |
Material Changes vs. Prior Period
- Earnings Growth: Q3 2024 net income increased 9.8% year-over-year, driven by a one-time tax refund adjustment related to tax-exempt loan interest, which lowered the effective tax rate to 10.4% from 22.4% in the prior year.
- Deposit Growth: Total deposits increased by $119.9 million (3.8%) compared to year-end 2023, with significant growth in time deposits ($117.1 million increase) and non-interest bearing demand deposits.
- Loan Portfolio: Total loans grew 2.8% year-over-year to $3.08 billion. Commercial real estate loans increased by $125.2 million, while residential real estate loans decreased by $53.3 million due to lower demand at prevailing mortgage rates.
- Cost of Funds: The cost of interest-bearing deposits increased to 2.45% in Q3 2024 from 1.81% in Q3 2023, contributing to a slight compression in Net Interest Margin (NIM).
- Expense Pressure: Non-interest expense rose 8.6% year-over-year, primarily due to increased salaries and benefits (driven by stock compensation and postretirement liability adjustments) and higher "other expenses" (media relations, software, and card expenses).
Guidance, Outlook, and Risks
- Asset Quality: Asset quality remains solid. Non-performing assets to total assets were 0.18% as of September 30, 2024. Non-accruing loans were $7.1 million (0.23% of total loans). Net charge-offs were minimal at $60,000 for the quarter.
- Liquidity: Liquidity is strong, with cash and available-for-sale securities representing approximately 15.3% of total assets. The company maintains significant unused borrowing capacity at the Federal Home Loan Bank ($475.1 million) and the Federal Reserve ($87.0 million).
- Capital: Both the Company and the Bank are "well-capitalized" under regulatory guidelines. The Tier 1 leverage ratio was 10.09% for the Company and 10.92% for the Bank.
- Interest Rate Sensitivity: As of September 30, 2024, the balance sheet is asset-sensitive over one- and two-year horizons. A 200 basis point increase in rates is projected to improve net interest income by 4.2% over one year.
- Risks: Key risks include changes in general economic conditions, potential declines in asset quality, the impact of interest rate increases on deposit costs, and operational risks including cybersecurity and climate change.
Investor Verification Checklist
- Tax Refund Impact: Verify the sustainability of the Q3 earnings boost, which was significantly aided by a multi-year tax refund for tax-exempt interest income.
- Deposit Mix: Monitor the shift toward higher-yielding time deposits and the associated cost of funds pressure on future NIM.
- Commercial Real Estate (CRE): Review the concentration and performance of the growing CRE portfolio ($1.68 billion), which now represents a larger portion of the loan book.
- Expense Management: Assess the trajectory of non-interest expenses, particularly salaries and benefits, which have risen sharply year-over-year.
- Share Repurchase Plan: Note that while a plan to repurchase up to 5% of outstanding shares was approved in April 2024, no shares were repurchased in the first nine months of 2024.