BAR HARBOR BANKSHARES

Previous wording

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 and six months ended June 30, 2024 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. Factors that could cause such differences are discussed in the sections titled "Cautionary Statement Regarding Forward-Looking Statements" and "Part II, Item 1A. Risk Factors" in this Form 10-Q. All amounts, dollars and percentages presented in this Form 10-Q are rounded and therefore approximate.

Current wording

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 and nine months ended September 30, 2024 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. Factors that could cause such differences are discussed in the sections titled "Cautionary Statement Regarding Forward-Looking Statements" and "Part II, Item 1A. Risk Factors" in this Form 10-Q. All amounts, dollars and percentages presented in this Form 10-Q are rounded and therefore approximate.

Previous wording

Earnings*(second quarter 2024, compared to the same period of 2023)*

Current wording

Earnings*(third quarter 2024, compared to the same period of 2023)*

Previous wording

Total cash and cash equivalents were $101.8 million, compared to $94.8 million at year-end 2023. Interest-earning cash held with other banks totaled $62.1 million compared to $52.6 million at year-end 2023 and yielded 5.65% and 6.42%, respectively.

Current wording

Total cash and cash equivalents were $81.2 million compared to $94.8 million at year-end 2023. Interest-earning cash held with other banks totaled $41.3 million for the nine months ended September 30, 2024 compared to $52.6 million at year-end 2023 and yielded 5.5% and 6.4 %, respectively.

Previous wording

Securities decreased to $512.9 million compared to $534.6 million at year-end 2023 driven by $408 thousand in net amortization, and $22.0 million of amortizing securities pay-downs offset by security purchases of $18.1 million. Fair value adjustments decreased the security portfolio by $68.5 million at quarter-end compared to $62.4 million at year-end. The year to date weighted average yield of the securities portfolio was 4.00% compared to 3.85% at year-end primarily due to a run-off of lower coupon fixed-rate securities. As of quarter-end and year-end, our securities portfolio had an average life of nine years with an effective duration of five years and all securities remain classified as available for sale to provide flexibility in asset funding and other opportunities as they arise.

Current wording

Total securities decreased to $543.5 million compared to $547.4 million at year-end 2023 driven by a $5.2 million lower FHLB stock balance due to $98.5 million in paydowns of borrowings partially offset by a $1.3 million increase in securities available for sale. Securities available for sale year to date increased by $1.3 million driven by security purchases that replaced paydowns, $7.0 million in called or matured securities which were offset by fair value adjustments. The year to date weighted average yield of the securities portfolio was 4.0% compared to 3.9% at year-end primarily due to a run-off of lower coupon fixed-rate securities as well as higher yielding purchases. As of quarter-end, our securities portfolio had an average life of eight years compared with an average life of nine years at year-end. The effective duration of the portfolio was five years for the quarter-end and year-end and all securities remain classified as available for sale to provide flexibility in asset funding and other opportunities as they arise.

Previous wording

Total loans grew 4%, on an annualized basis to $3.1 billion. Commercial loans grew by $103.7 million driven by an $82.6 million or 11% increase in commercial real estate and $21.1 million or 11% increase in commercial and industrial growth. Residential loans decreased by $35.2 million or 7% compared to the fourth quarter 2023, primarily due to continued lower demand for prevailing mortgage rates. Tax exempt loans decreased by $6.2 million or 21% driven by payoffs within the second quarter 2024.

Current wording

Total loans grew 2.8%, or $82.7 million, to $3.1 billion. Commercial loans grew 5.5%, or $107.6 million, driven by a $125.2 million, or 8.1%, increase in commercial real estate loans partially offset by a decrease in commercial and industrial loans of $17.6 million, or 4.4%. Residential loans decreased by $53.3 million or 6.0% compared to the fourth quarter 2023, primarily due to continued lower demand for prevailing mortgage rates. Tax exempt loans increased by $22.0 million or 36.7% driven by a shift within the portfolio in the third quarter 2024.

Previous wording

The ACL increased to $28.9 million at the end of second quarter 2024 compared to $28.1 million at the end of the fourth quarter 2023. Our ACL continues to be driven by a combination of portfolio loan growth, nominal credit movement and general macroeconomic trends. Non-accruing loans increased during the second quarter 2024 to $6.3 million from $5.5 million in the fourth quarter 2023, but declined 6% on a year-over-year basis. Charge-offs and specific reserves on non-accruing loans remain nominal, with these non-accruing relationships supported by relatively strong collateral values.

Current wording

The ACL increased by $881 thousand to $29.0 million at the end of third quarter 2024 compared to $28.1 million at the end of the fourth quarter 2023. Our ACL continued to be driven by a combination of portfolio loan growth, nominal credit movement and general macroeconomic trends. Non-accruing loans increased to $7.1 million from $5.5 million in the fourth quarter 2023. Charge-offs and specific reserves on non-accruing loans remained nominal, with these non-accruing relationships supported by relatively strong collateral values.

Previous wording

Total deposits were flat at $3.1 billion. Time deposits increased by $100.9 million primarily due to remix into higher yielding deposit categories. Weighted average yield on time deposits increased to 4.25% from 2.14% as of the fourth quarter 2023. Brokered CDs increased by $73.1 million compared to year end. Interest bearing demand deposits decreased $64.9 million at a weighted average yield of 1.39% compared to 1.33% as of the fourth quarter 2023. Non-interest bearing demand deposits decreased $16.6 million compared to the fourth quarter 2023. Senior borrowings increased $58.3 million to $329.3 million in the second quarter 2024 compared to $271.0 million at the end of the fourth quarter 2023.

Current wording

Total deposits increased $119.9 million to $3.3 billion compared to $3.1 billion at the end of 2023. Total average yield on time deposits for the quarter ended September 30, 2024 increased to 2.5% from 2.1% as of the fourth quarter 2023. Time deposits increased by $117.1 million primarily due to remix into higher yielding deposit categories as yields increased to 4.4% at quarter ended September 30, 2024 compared to 3.7% for the quarter ended December 31, 2024. Brokered CDs increased by $72.4 million compared to year end. Interest bearing demand deposits decreased $33.0 million at a weighted average yield of 1.5% compared to 1.3% as of the fourth quarter 2023. Non-interest bearing demand deposits increased $35.2 million compared to the fourth quarter 2023.

Previous wording

Total equity was $438.9 million at June 30, 2024 compared with $432.1 million at year-end. Tangible book value per share (non-GAAP) was $20.68 at June 30, 2024 compared with $20.28 at year-end. Equity including Fair value adjustments decreased the security portfolio by $68.5 million at quarter-end compared to $62.4 million at year-end.

Current wording

Total equity was $459.9 million at September 30, 2024 compared with $432.1 million at year-end. Tangible book value per share (non-GAAP) was $22.02 at September 30, 2024 compared with $20.28 at year-end.

Previous wording

COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND JUNE 30, 2023

Current wording

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND SEPTEMBER 30, 2023

Previous wording

Net income in the second quarter 2024 was $10.3 million, compared to $10.8 million. Diluted earnings per share was $0.67, compared to $0.71. Net income for the first half of 2024 was $20.4 million, or $1.33 per diluted share compared to $23.8 million, or $1.57 per diluted share, in the same period of 2023. The decrease was primarily driven by a higher cost of funds partially offset by rising asset yields in the second quarter and first half of 2024.

Current wording

Net income for the nine months ended September 30, 2024 was $32.5 million, or $2.14 per diluted share compared to $34.9 million, or $2.31 per diluted share, in the same period of 2023. The decrease was primarily driven by a higher cost of funds on deposits partially offset by lower borrowing costs and increased interest and dividend income from rising asset yields in the third quarter and nine months ended September 30, 2024.

Previous wording

Total interest and dividend income in the second quarter 2024 increased by $4.0 million or 9.23% to $46.8 million compared to $42.8 million in the second quarter 2023 primarily driven by the repricing of adjustable loans and originations of higher fixed rate loans within the commercial portfolio. The yield on commercial real estate loans grew to 5.61% at the end of the second quarter 2024 from 5.21% in the second quarter 2023. Commercial and industrial yield grew to 6.76% at the end of the second quarter 2024 compared to 6.42% at the end of the second quarter 2023. Increases in yields were driven by the current rate environment.

Current wording

Total interest and dividend income in the third quarter 2024 increased by $3.5 million or 7.6% to $48.6 million compared to $45.1 million in the third quarter 2023 primarily driven by the repricing of adjustable loans and originations of higher fixed rate loans within the commercial portfolio. The yield on commercial real estate loans grew to 5.7% at the end of the third quarter 2024 from 5.3% for the third quarter ended 2023. Commercial and industrial yield grew to 7.0% at the end of the third quarter 2024 from 6.6% for the quarter ended 2023. Increases in yields were driven by the current rate environment.

Previous wording

Total interest and dividend income in the first half 2024 increased by $9.4 million or 11.33% to $92.7 million compared to $83.2 million in comparative prior year primarily driven by the growth in the portfolio driven by originations of higher fixed rate loans and the repricing of the adjustable loans within the commercial portfolio. The yield on commercial real estate loans grew to 5.53% at the end of the first half 2024 from 5.14% in the first half 2023. Commercial and industrial yield grew to 6.71% at the end of the first half 2024 compared to 6.14% at the end of the first half 2023. Increases in yields were driven by the current rate environment.

Current wording

Total interest and dividend income in the nine months ended September 30, 2024 increased by $12.9 million or 10.0% to $141.2 million compared to $128.4 million in comparative prior year primarily driven by the same circumstances noted above for the quarter. The yield on commercial real estate loans grew to 5.6% for the nine months ended September 30, 2024 from 5.2% in the first nine months of 2023. Commercial and industrial yield grew to 6.8% at September 30, 2024 compared to 6.3% at September 30, 2023. Increases in yields were driven by the same circumstances above.

Previous wording

NIM in the second quarter 2024 was 3.09% compared to 3.22% in the second quarter 2023. The yield on loans grew to 5.41% in the second quarter 2024, up from 4.99% in the same quarter 2023. Costs of interest-bearing deposits increased to 2.35% from 1.45% in the second quarter 2023. Borrowings decreased $69.5 million from the second quarter 2023 compounded with a decrease in yields on interest bearing liabilities to 4.57% in the second quarter 2024.

Current wording

NIM in the third quarter 2024 and 2023 was 3.2% respectively. The yield on loans grew to 5.5% in the third quarter 2024, up from 5.1% in the same quarter 2023. Costs of interest-bearing deposits increased $4.8 million driven by yields moving to 2.5% from 1.8% in the third quarter 2023 along with an increase in deposit balances. Borrowings costs decreased $1.1 million from the third quarter 2023 compounded with a decrease in yields to 4.4% in the third quarter 2024 from 4.6% in the same quarter 2023.

Previous wording

The decrease in both periods was primarily driven by higher cost of funds partially offset by lower borrowing costs. Competitive pricing within the interest rate environment and a $186 million growth in interest-bearing deposit balances year-over-year showing a deposit mix shift from non-maturity deposits to CDs.

Current wording

The decrease in both periods was primarily driven by higher cost of funds partially offset by lower borrowing costs. Competitive pricing within the interest rate environment and a $158.9 million growth in total deposits driven in time deposits year-over-year partially offset by mix change between interest-bearing and non-interest bearing demand deposits.

Previous wording

The provision for credit losses in the second quarter 2024 was $585 thousand compared to $750 thousand in the second quarter 2023 as net charge-offs to total loans continue to remain nominal. Non-accruing loans to total loans declined to 0.20% at the end of second quarter 2024 compared to 0.22% in the second quarter 2023.

Current wording

The provision for credit losses in the third quarter 2024 was $228 thousand compared to $673 thousand in the third quarter 2023 as net charge-offs to total loans continue to remain nominal. Non-accruing loans to total loans remained flat at 0.23% at the end of the third quarter 2024 compared the third quarter 2023.

Previous wording

The provision for credit losses in the first half 2024 was $874 thousand compared to $1.5 million in the second quarter first half 2023. The increase ACL balance in the first half of 2023 was largely due to loan growth, however, the ratio of ACL to total loans increased to 0.94% in the first half of 2024 from 0.91% at the end of 2023 due to more refined economic forecasting, especially in the national unemployment figures. Net charge-offs to total loans were $161 thousand compared to $49 thousand in the first half of 2023.

Current wording

economic forecasting, especially in the national unemployment figures. Net charge-offs to total loans were $221 thousand compared to $70 thousand in the nine months ended September 30, 2023.

Previous wording

Non-interest income was $9.6 million in the second quarter 2024 compared to $9.0 million in the same quarter 2023. Wealth management income grew 10% to $4.2 million compared to $3.8 million in the in the second quarter 2023. Assets under management grew 12% in the second quarter 2024 to $2.6 billion from $2.3 billion in the second quarter 2023 driven by higher security valuations and a 2% growth in the managed accounts. Mortgage banking income increased $180 thousand compared to the second quarter 2023 driven by increased margins on our held–for-sale mortgage business.

Current wording

Non-interest income was $9.7 million in the third quarter ended 2024 compared to $8.6 million in the same quarter 2023. Wealth management income grew 17.2% to $4.1 million compared to $3.5 million in the in the third quarter 2023 driven by an increase in managed accounts and increased investment market values. Mortgage banking income increased $266 thousand compared to the third quarter 2023 driven by increased margins on our held–for-sale mortgage business.

Previous wording

Non-interest income remained flat $18.2 million in the first half of 2024 and 2023. Wealth management income grew $503 thousand to $7.9 million compared to $7.4 million in the in the first half 2023 driven by the same reasons as discussed in the quarterly above. BOLI income decreased $503 thousand driven by timing of one-time death benefits that occurred during the first quarter 2023. Mortgage banking income increased $157 thousand compared to the first half 2023 driven by increased volume and margins on our held–for-sale mortgage business.

Current wording

Non-interest income increased $1.1 million to $27.5 million in the nine months ended September 30, 2024 compared to $26.4 million for the same period in 2023. Wealth management income grew $1.1 million to $12.0 million compared to $10.9 million in the nine months ended September 30, 2023 driven by the same reasons as discussed in the quarterly above. Assets under management grew 20% in the third quarter 2024 to $2.6 billion from $2.3 billion in the third quarter 2023 driven by higher security valuations and an 8% growth in the managed accounts. BOLI income decreased $452 thousand driven by timing of one-time death benefits that occurred during the first quarter 2023. Mortgage banking income increased $424 thousand compared to the nine months ended September 30, 2023 driven by increased volume and margins on our held–for-sale mortgage business.

Previous wording

Non-interest expense was $24.0 million in the second quarter 2024 compared to $23.4 million in the second quarter 2023 driven by salary and benefits, and other expenses partially offset by the gain on sale of our Avery Lane office and lower professional services fees. Salary and benefit expenses increased 5% or $637 thousand from the comparative quarter 2023 driven in part by stock compensation due to increases in stock price and lower loan origination fee deferrals in the second quarter 2024. Other expenses increased to $4.4 million from $4.2 million in the second quarter 2023 primarily due to increases in charitable contributions to the community, software expenses, and debit and ATM card expenses.

Current wording

Non-interest expense was $24.8 million in the third quarter 2024 compared to $22.8 million in the third quarter 2023 driven by salary and benefits, and other expenses. Salary and benefit expenses increased 10.5%, or $1.4 million, from the third quarter 2023 driven in part by stock compensation due to a $7.21 per share increase in stock price and a lower discount on postretirement liabilities year over year. Other expenses increased to $4.2 million from $3.7 million in the third quarter 2023 primarily due to increases in media relations expenses, software expenses, and debit and ATM card expenses.

Previous wording

Income tax expense was $2.5 million in the second quarter 2024 compared with $2.8 million in the prior year quarter. The effective tax rate was 19.8% the second quarter 2024 compared to 20.8% the second quarter 2023.

Current wording

Income tax expense was $1.4 million in the third quarter 2024 compared with $3.2 million in the prior year quarter. The effective tax rate was 10.4% for the third quarter 2024 compared to 22.4% for the third quarter 2023. The reduction in tax expense in the current quarter is driven by a multiple year tax refund for tax exempt interest income on loans.

Previous wording

As of June 30, 2024, available same-day liquidity totaled approximately $1.2 billion, including cash, borrowing capacity at FHLB and the Federal 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. As of June 30, 2024, we had unused borrowing capacity at the FHLB of $364.8 million, unused borrowing capacity at the Federal Reserve of $92.3 million and unused lines of credit totaling $41.0 million, in addition to $101.8 million in cash.

Current wording

As of September 30, 2024, available same-day liquidity totaled approximately $1.1 billion, including cash, borrowing capacity at FHLB and the Federal 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. As of September 30, 2024, we had unused borrowing capacity at the FHLB of $475.1 million, unused borrowing capacity at the Reserve Bank of $87.0 million and unused lines of credit totaling $41.0 million, in addition to $101.8 million in cash.

Previous wording

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 were paid to our shareholders in the aggregate amount of $8.7 million and $8.1 million for the six months ended June 30, 2024 and 2023, respectively. All dividends declared and distributed by us will be in compliance with applicable state corporate law and regulatory requirements.

Current wording

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 were paid to our shareholders in the aggregate amount of $13.3 million and $12.4 million for the nine months ended September 30, 2024 and 2023, respectively. All dividends declared and distributed by us will be in compliance with applicable state corporate law and regulatory requirements.

Previous wording

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

Current wording

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.

Previous wording

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 and estimates since December 31, 2023. 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.

Current wording

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 and estimates since December 31, 2023. 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.