Bar Harbor Bankshares (BHB) - Q2 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024. Bar Harbor Bankshares operates primarily through its subsidiary, Bar Harbor Bank & Trust, serving Northern New England. The company is classified as an Accelerated Filer and is not a shell company. As of August 5, 2024, there were 15,267,106 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Net Income | $10.26 million | $10.79 million | $20.35 million | $23.80 million |
| Diluted EPS | $0.67 | $0.71 | $1.33 | $1.57 |
| Total Assets | $4.03 billion | $4.03 billion (approx) | $4.03 billion | $4.03 billion (approx) |
| Total Loans | $3.06 billion | $3.01 billion | $3.06 billion | $3.01 billion |
| Total Deposits | $3.14 billion | $3.09 billion | $3.14 billion | $3.09 billion |
| Net Interest Income | $27.76 million | $28.79 million | $55.81 million | $59.70 million |
| Net Interest Margin (NIM) | 3.09% | 3.22% | 3.12% | 3.39% |
| Provision for Credit Losses | $0.59 million | $0.75 million | $0.87 million | $1.55 million |
| Non-Interest Income | $9.63 million | $8.98 million | $18.22 million | $18.16 million |
| Non-Interest Expense | $24.02 million | $23.39 million | $47.71 million | $46.10 million |
| Efficiency Ratio | 62.96% | 60.25% | 62.93% | 57.40% |
| Return on Assets (ROA) | 1.04% | 1.10% | 1.04% | 1.23% |
| Return on Equity (ROE) | 9.46% | 10.49% | 9.39% | 11.71% |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased by approximately 5% year-over-year in Q2 and 14% year-over-year for the first half. This was primarily driven by a higher cost of funds, which compressed the Net Interest Margin (NIM) from 3.22% to 3.09% in Q2.
- Deposit Mix Shift: Total deposits remained relatively flat, but there was a significant shift from non-maturity deposits to time deposits (CDs). Time deposits increased by $100.9 million year-over-year, while interest-bearing demand deposits decreased by $64.9 million. This shift increased the cost of interest-bearing deposits to 2.35% in Q2 2024 from 1.45% in Q2 2023.
- Loan Growth: Total loans grew 4% annualized to $3.06 billion. Commercial loans grew by $103.7 million, driven by commercial real estate and commercial/industrial segments. Conversely, residential loans decreased by $35.2 million due to lower demand at prevailing mortgage rates.
- Non-Interest Income Growth: Non-interest income increased 7% in Q2, led by a 10% growth in wealth management fees ($4.2 million) as Assets Under Management (AUM) grew 12% to $2.6 billion.
- Expense Management: Non-interest expenses rose 3% year-over-year, driven by salary and benefits (including stock compensation) and other expenses (charitable contributions, software), partially offset by a gain on the sale of the Avery Lane office.
Guidance, Outlook, and Risks
- Asset Quality: Asset quality remains solid. Non-performing assets were 0.16% of total assets. Net charge-offs were minimal ($85 thousand for the quarter). The Allowance for Credit Losses (ACL) to total loans ratio is 0.94%.
- Liquidity: Liquidity is strong, with cash and available-for-sale securities representing 14.1% of total assets. The company maintains significant unused borrowing capacity at the FHLB ($364.8 million) and Federal Reserve ($92.3 million).
- Capital: The company remains "well-capitalized" under regulatory guidelines. Tangible book value per share was $20.68.
- Interest Rate Sensitivity: As of June 30, 2024, the balance sheet is asset-sensitive. Modeling indicates that a 200 basis point increase in rates would improve net interest income by 3.6% over one year, while a 200 basis point decrease would reduce it by 4.6%.
- Risks: Key risks include changes in general economic conditions, asset quality deterioration, liquidity needs, and the impact of interest rate increases on deposit costs. The company also notes operational risks including cybersecurity and climate change.
Investor Verification Checklist
- Deposit Cost Trajectory: Verify if the shift to higher-yielding time deposits continues to compress NIM in future quarters.
- Commercial Real Estate Exposure: Review the concentration and performance of the $1.63 billion commercial real estate portfolio, which grew 11% year-over-year.
- Securities Portfolio: Note the $68.5 million unrealized loss on available-for-sale securities, which reduces tangible book value but is not impacting earnings unless sold.
- Expense Run Rate: Monitor if the increase in "other expenses" (charitable contributions, software) is a one-time event or a structural increase.
- Dividend Sustainability: Confirm the payout ratio remains sustainable given the decline in net income and the company's commitment to quarterly dividends.