BAR HARBOR BANKSHARES (BHB) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BAR HARBOR BANKSHARES's 10-K for fiscal year 2024. Filing date: 2025-03-11. Report date: 2024-12-31. Accession: 0001558370-25-002653.

This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high.

Company profile: BHB · All MD&A years: index · Previous year: FY 2023 · Next year: FY 2025

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is management's analysis to assist in the understanding and evaluation of the consolidated financial condition and results of operations of the Company. It should be read in conjunction with the consolidated financial statements and footnotes and selected financial data presented elsewhere in this Annual Report. Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes. The detailed financial discussion that follows focuses on 2024 results compared to 2023. For a discussion of 2023 results compared to 2022, see the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

GENERAL

The Company is a bank holding company headquartered in Maine, 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).

ANNUAL PERFORMANCE SUMMARY

Earnings (For year ended December 31, 2024 compared to the same period of 2023)

Column 1	Column 2	Column 3
	●	Net income was $43.5 million compared to $44.9, a decrease of 3%, driven primarily due to higher net interest expense as deposits repriced to higher rates. Diluted earnings per share was $2.84, compared to $2.95 for the previous year.

Column 1	Column 2	Column 3
	●	Return on assets was 1.09% compared to 1.14%. Return on equity was 9.75% compared to 10.88%. Both ratios include higher cost of funds and relatively flat unrealized losses on securities as noted below under the “Financial Position” section.

Column 1	Column 2	Column 3
	●	Net interest income was $113.8 million, compared to $117.7 million in the previous year. Net interest margin was 3.15% compared to 3.29% for 2023. The decrease is primarily due to the repricing of deposits and continued loan growth offset by higher borrowing costs and cost of interest-bearing liabilities.

Column 1	Column 2	Column 3
	●	The provision for credit losses was an expense of $2.1 million in 2024 compared to $2.9 million in 2023.

Column 1	Column 2	Column 3
	●	Non-interest income was $36.9 million, compared to $35.1 million primarily due to $1.4 million higher Trust and investment management fee income driven by increased assets under management and improved market performance.

Column 1	Column 2	Column 3
	●	Non-interest expense was $96.0 million versus $92.7 million. Salaries and benefits expense increased $2.3 million driven by cost of living increases, higher commissions and incentive costs. Other expenses increased $1.7 million driven by increased Debit, ATM and credit card expenses, software costs and adjustments in cash surrender values on a split dollar policy.

Column 1	Column 2	Column 3
	●	Efficiency ratio was 61.83% compared to 58.47% at the end of 2023.

Table of Contents

Financial Position (For year ended December 31, 2024 compared to the same period of 2023)

Column 1	Column 2	Column 3
	●	Total assets increased $86.1 million to $4.1 billion mainly due to loan growth offset by available for sale security pay-downs.

Column 1	Column 2	Column 3
	●	Cash and cash equivalents were $72.2 million compared to $94.8 million in the previous year primarily due to loan growth and paydown of borrowings.

Column 1	Column 2	Column 3
	●	Total securities were $533.3 million, or 13% of total assets, compared to $547.4 million, or 14% of total assets. Net unrealized losses were flat at $62.3 million, compared with a gain of $62.4 million in the previous period, or 12% and 11% of gross securities for the respective periods. All securities are classified as available for sale preserving capital flexibility.

Column 1	Column 2	Column 3
	●	Total loans grew 5% annualized year over year. The increase was the net result of the strategy to grow commercial construction and commercial real estate owner-occupied segments.

Column 1	Column 2	Column 3
	●	The ratio of the allowance for credit losses to total loans was 0.91%, increasing from 0.94%, reflecting updated economic forecasting, especially in the national unemployment figures and decreases in specific reserves, offset with loan portfolio growth. Net charge-offs were 0.01% of average loans, a nominal increase compared to last year.

Column 1	Column 2	Column 3
	●	Deposit balances increased 4% annualized due to consumers’ migration to money market accounts and higher yielding time deposits.

Column 1	Column 2	Column 3
	●	Borrowings decreased to $40.9 million primarily due to excess cash available generated from operations used to pay off $20 million in subordinated debt and $30 million, net in Bank Term Funding Program borrowings with the FRB offset by a $10 million increase in FHLB advances.

Column 1	Column 2	Column 3
	●	Total book value per share was $30.00 compared to $28.48. The dividend increased to $0.30 per share an increase of 9.7% to yield an annualized dividend yield of 3.92%.

Table of Contents

SELECTED FINANCIAL DATA


	At or For the Years Ended December 31,
(in millions, except ratios and share data)	2024		2023		2022
Financial Condition Data:
Total assets	$	4,083		$	3,971	$	3,910
Total earning assets(1)		3,782			3,664		3,601
Total investments		533			547		574
Total loans		3,147			2,999		2,903
Allowance for credit losses		29			28		26
Total goodwill and intangible assets		123			124		125
Total deposits		3,268			3,141		3,043
Total borrowings		291			332		394
Total shareholders' equity		458			432		393

Operating Data:
Total interest and dividend income	$	189		$	174	$	127
Total interest expense		75			57		13
Net interest income		114			118		114
Non-interest income		37			35		35
Net revenue(2)		151			154		149
Provision for credit losses		2			3		3
Total non-interest expense		96			93		91
Income tax expense		9			12		11
Net income		44			45		44

Ratios and Other Data:
Per Common Share Data
Basic earnings	$	2.86		$	2.96	$	2.90
Diluted earnings		2.84			2.95		2.88
Total book value(5)		30.00			28.48		26.09
Dividends		1.18			1.10		1.02
Common stock price:
High		38.47			32.42		33.11
Low		23.26			19.55		24.00
Close		30.58			29.36		32.04

Weighted average common shares outstanding (in thousands):
Basic		15,240			15,142		15,040
Diluted		15,311			15,195		15,112

Table of Contents


	At or For the Years Ended December 31,
(in millions, except ratios and share data)	2024		2023		2022
Performance Ratios:(3)(4)
Return on assets	1.09	%	1.14	%	1.16	%
Return on equity	9.75		10.88		10.91
Interest rate spread	2.61		2.86		3.24
Net interest margin(5)	3.15		3.29		3.36
Dividend payout ratio	40.85		36.93		35.20

Organic Growth Ratios:
Total commercial loans	9	%	6	%	19	%
Total loans	5		3		15
Total deposits	4		3		(0)

Asset Quality and Condition Ratios:
Non-accruing loans/total loans	0.22	%	0.18	%	0.23	%
Net charge-offs (recoveries)/average loans	0.01		—		(0.01)
Allowance for credit losses/total loans	0.91		0.94		0.89
Loans/deposits	96		95		95

Capital Ratios:
Tier 1 capital to average assets - Company	10.30	%	9.70	%	9.21	%
Tier 1 capital to risk-weighted assets - Company	12.06		11.96		11.02
Tier 1 capital to average assets - Bank	10.66		10.50		10.10
Tier 1 capital to risk-weighted assets - Bank	12.50		12.96		12.67
Shareholders equity to total assets(5)	11.23		10.88		10.06

Column 1	Column 2
(1)	Earning assets includes non-accruing loans and interest-bearing deposits with other banks. Securities are valued at amortized cost.

Column 1	Column 2
(2)	Net revenue is defined as net interest income plus non-interest income.

Column 1	Column 2
(3)	All performance ratios are based on average balance sheet amounts, where applicable.

Column 1	Column 2
(4)	Fully taxable equivalent considers the impact of tax advantaged securities and loans.

Column 1	Column 2
(5)	Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures for additional information.

Table of Contents

AVERAGE BALANCES AND AVERAGE YIELDS/RATES

The following table presents average balances and average rates and yields on a fully taxable equivalent basis for the periods included:


	Year Ended December 31,
	2024		2023			2022
	Average		Interest		Yield/		Average		Interest		Yield/	Average		Interest		Yield/
(in millions, except ratios)	Balance		(3)		Rate(3)		Balance		(3)		Rate(3)	Balance		(3)		Rate(3)
Assets
Interest-earning deposits with other banks	$	36		$	2		5.54	%		$	37		2		5.33	%	$	72	$	1	1.07	%
Securities available for sale and FHLB stock(2)(3)		590			24		4.03				610		26		3.88			630		19	2.99
Loans:
Commercial real estate		1,626			91		5.59				1,537		81		5.27			1,340		55	4.13
Commercial and industrial(3)		466			32		6.75				437		28		6.39			410		17	4.25
Paycheck protection program		—			—		—				—		—		—			1		—	17.27
Residential		859			35		4.12				905		35		3.82			873		31	3.55
Consumer		100			7		7.14				97		7		6.75			100		4	4.41
Total loans (1)		3,051			165		5.40				2,976		151		5.04			2,724		107	3.98
Total earning assets		3,677			191		5.18	%			3,623		179		4.85	%		3,426		127	3.73	%
Cash and due from banks		32									34							37
Allowance for credit losses		(29)									(27)							(24)
Goodwill and other intangible assets		124									125							125
Other assets		182									179							183
Total assets	$	3,986								$	3,934						$	3,747

Liabilities
Interest-bearing demand	$	886		$	12		1.41	%		$	900		9		0.98	%	$	907	$	1	0.16	%
Savings		547			4		0.67				595		2		0.39			658		1	0.10
Money market		380			12		3.02				407		10		2.48			466		3	0.63
Time		791			34		4.30				533		17		3.19			366		2	0.61
Total interest bearing deposits		2,604			62		2.37				2,435		38		1.57			2,397		7	0.31
Borrowings		300			13		4.40				401		18		4.56			203		6	2.71
Total interest bearing liabilities		2,904			75		2.58	%			2,836		56		1.99	%		2,600		13	0.49	%
Non-interest bearing demand deposits		571									619							679
Other liabilities		65									67							69
Total liabilities		3,540									3,522							3,348

Total shareholders' equity		446									412							399

Total liabilities and shareholders' equity	$	3,986								$	3,934						$	3,747

Net interest spread							2.61	%							2.86	%					3.24	%
Net interest margin							3.15								3.29						3.36

Column 1	Column 2
(1)	The average balances of loans include non-accrual loans and unamortized deferred fees and costs.

Column 1	Column 2
(2)	The average balance for securities is based on amortized cost.

Column 1	Column 2
(3)	Fully taxable equivalent considers the impact of tax-advantaged securities and loans.

Table of Contents

RATE/VOLUME ANALYSIS

The following table presents the effects of rate and volume changes on the fully taxable equivalent net interest income. Tax exempt interest revenue is shown on a tax-equivalent basis for proper comparison. For each category of interest- earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by prior year volume), (2) changes in volume (change in volume multiplied by prior year rate), and (3) changes in volume/rate (change in rate multiplied by change in volume) have been allocated proportionately based on the absolute value of the change due to the rate and the change due to volume.


	2024 Compared with 2023		2023 Compared with 2022
	Increases (Decreases) due to		Increases (Decreases) due to
(in thousands)	Rate		Volume		Net	Rate		Volume		Net
Interest income:
Interest-earning deposits with other banks	$	78		$	(91)	$	(13)		$	1,595	$	(369)	$	1,226
Securities available for sale and FHLB stock		929			(812)		117			5,424		(575)		4,849
Loans:
Commercial real estate		5,100			4,724		9,824			17,630		8,110		25,740
Commercial and industrial		1,698			1,886		3,584			9,360		1,168		10,528
Paycheck protection program		—			—		—			—		(223)		(223)
Residential		2,605			(1,761)		844			2,376		1,142		3,518
Consumer		382			160		542			2,280		(109)		2,171
Total loans		9,785			5,009		14,794			31,646		10,088		41,734
Total interest income	$	10,792		$	4,106	$	14,898		$	38,665	$	9,144	$	47,809

Interest expense:
Deposits:
NOW	$	3,790		$	(135)	$	3,655		$	7,342	$	(12)	$	7,330
Savings		1,546			(190)		1,356			1,707		(66)		1,641
Money market		2,059			(663)		1,396			7,517		(376)		7,141
Time deposits		8,818			8,239		17,057			13,761		1,015		14,776
Total deposits		16,213			7,251		23,464			30,327		561		30,888
Borrowings		(461)			(4,625)		(5,086)			7,406		5,368		12,774
Total interest expense	$	15,752		$	2,626	$	18,378		$	37,733	$	5,929	$	43,662
Change in net interest income	$	(4,960)		$	1,480	$	(3,480)		$	932	$	3,215	$	4,147

Table of Contents

NON-GAAP FINANCIAL MEASURES

Our accounting and reporting policies conform to accounting principles generally accepted in the United States of America ("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 Annual Report that we identify as being “non-GAAP financial measures.” In accordance with SEC 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 in the 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.

These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company's GAAP financial information. Because non-GAAP financial measures presented in this Annual Report are not measurements determined in accordance with GAAP and are susceptible to varying calculations, these non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures presented by other companies. A reconciliation of non-GAAP financial measures to GAAP measures is provided herein. In all cases, it should be understood that non-GAAP measures do not depict amounts that accrue directly to the benefit of shareholders. An item which management excludes when computing non-GAAP financial measures can be of substantial importance to the Company’s results for any particular quarter or year. Each non-GAAP measure used by the Company in this Annual Report as supplemental financial data should be considered in conjunction with the Company's GAAP financial information. The Company utilizes these non-GAAP financial measures for purposes of measuring our performance against our peer group and other financial institutions and analyzing our internal performance. We also believe these non-GAAP financial measures help investors better understand the Company’s operating performance and trends and allow for better performance comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of unusual items that may obscure trends in the Company’s underlying performance.

The non-GAAP financial measures that we discuss in this Annual Report 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 Annual Report 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 Annual Report when comparing such non-GAAP financial measures. The following reconciliation table provides a more detailed analysis of these, and reconciliation for, each of non-GAAP financial measures.

Table of Contents

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

The following table summarizes the reconciliation of non-GAAP items for the time periods presented:




		Year Ended December 31,
(in thousands)	Calculations		2024		2023		2022
Net income		$	43,544	$	44,852	$	43,557
Non-recurring items:
Gain on sale of securities, net			(50)		(34)		(53)
Gain on sale of premises and equipment, net			(192)		182		10
Acquisition, conversion and other expenses			20		283		266
Income tax expense (1)			53		(104)		(51)
Total non-recurring items			(169)		327		172
Total adjusted income(2)	(A)	$	43,375	$	45,179	$	43,729

Net interest income	(B)	$	113,839	$	117,675	$	113,681
Plus: Non-interest income			36,888		35,073		34,647
Total Revenue			150,727		152,748		148,328
Gain on sale of securities, net			(50)		(34)		(53)
Total adjusted revenue(2)	(C)	$	150,677	$	152,714	$	148,275

Total non-interest expense		$	95,987	$	92,723	$	90,579
Non-recurring expenses:
Gain on sale of premises and equipment, net			192		(182)		(10)
Acquisition, conversion and other expenses			(20)		(283)		(266)
Total non-recurring expenses			172		(465)		(276)
Adjusted non-interest expense(2)	(D)	$	96,159	$	92,258	$	90,303

Total revenue			150,727		152,748		148,328
Total non-interest expense			95,987		92,723		90,579
Pre-tax, pre-provision net revenue		$	54,740	$	60,025	$	57,749

Adjusted revenue(2)			150,677		152,714		148,275
Adjusted non-interest expense(2)			96,159		92,258		90,303
Adjusted pre-tax, pre-provision net revenue(2)	(U)	$	54,518	$	60,456	$	57,972

(in millions)
Average earning assets	(E)	$	3,677	$	3,623	$	3,425
Average assets	(F)		3,986		3,934		3,747
Average shareholders' equity	(G)		446		412		399
Average tangible shareholders' equity(2)(3)	(H)		323		288		273
Tangible shareholders' equity, period-end(2)(3)	(I)		335		308		268
Tangible assets, period-end(2)(3)	(J)		3,960		3,847		3,784

Table of Contents


		Year Ended December 31,
	Calculations		2024			2023		2022
(in thousands)
Common shares outstanding, period-end	(K)		15,280			15,172		15,083
Average diluted shares outstanding	(L)		15,311			15,195		15,112

Adjusted earnings per share, diluted(2)	(A/L)	$	2.84		$	2.95		2.89
Tangible book value per share, period-end(2)	(I/K)		21.93			20.28		17.78
Total tangible shareholders' equity/total tangible assets(2)	(I/J)		8.46			8.00		7.09

Performance ratios(4)
Return on assets			1.09	%		1.14	%	1.16	%
Core return on assets(2)	(A/F)		1.09			1.15		1.17
Pre-tax, pre-provision return on assets			1.37			1.53		1.54
Adjusted pre-tax, pre-provision return on assets(2)	(U/F)		1.37			1.54		1.49
Return on equity			9.75			10.88		10.91
Core return on equity(2)	(A/G)		9.72			10.96		10.96
Return on tangible equity			13.72			15.84		16.20
Adjusted return on tangible equity(1)(2)	(A+Q)/H		13.67			15.96		16.26
Efficiency ratio(1)(2)(5)	(D-O-Q)/(C+N)		61.83			58.47		59.54
Net interest margin	(B+P)/E		3.15			3.29		3.36

Supplementary data (in thousands)
Taxable equivalent adjustment for efficiency ratio	(N)	$	2,455		$	2,392		2,020
Franchise taxes included in non-interest expense	(O)		538			638		583
Tax equivalent adjustment for net interest margin	(P)		1,905			1,550		1,398
Intangible amortization	(Q)		932			932		932
Interest and fees on PPP loans	(T)		—			—		223

Column 1	Column 2
(1)	2024 assumes a marginal tax rate of 23.73% for the fourth quarter, 23.82% for the second and third quarters and 24.01% for the first quarter.

2023 assumes a marginal tax rate of 24.01% for the fourth quarter and 23.80% for the first three quarters. 2022 assumes a marginal tax rate of 23.53% for the fourth quarter and 23.41% for the first three quarters.

Column 1	Column 2
(2)	Non-GAAP financial measure.

Column 1	Column 2
(3)	Tangible shareholders’ equity is computed by taking total shareholders’ equity less the intangible assets at period-end. Tangible assets are computed by taking total assets less the intangible assets at period-end.

Column 1	Column 2
(4)	All performance ratios are based on average balance sheet amounts, where applicable.

Column 1	Column 2
(5)	Efficiency ratio is computed by using adjusted non-interest expense net of franchise taxes and intangible amortization divided by adjusted revenue tax effected for tax-advantaged assets.

Table of Contents

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2024 AND 2023

Cash and cash equivalents

Total cash and cash equivalents at December 31, 2024 were $72.2 million, compared to $94.8 million at December 31, 2023. Interest-earning cash held with other banks totaled $37.9 million at year-end 2024 compared to $52.6 million at year-end 2023 carrying a yield of 5.54% in 2024 versus 5.33% in 2023.

Securities

Securities totaled $533.3 million at year-end 2024 and $547.4 million at year-end 2023. During 2024, security purchases totaled $53.5 million and were offset by $64.4 million of maturities, calls and pay-downs of amortizing securities. There were $21.4 million of purchases and $21.9 million in sales of FHLB stock during the year. Fair value adjustments decreased the security portfolio by $62.3 million in 2024 compared to a $62.4 million unrealized loss in 2023. Unrealized losses stabilized in 2024 due to changes in the long-term treasury yield curve. The weighted average yield of the securities portfolio was 4.03% as of December 31, 2024 compared to 3.88% at year-end 2023. At the end of 2024, our securities portfolio had an average life of 9 years with an effective duration of 5 years for both periods respectively. All securities remain classified as available for sale to provide flexibility in loan funding and management of our cost of funds.

Loans

Loans increased by $148.1 million from year-end 2023 or 5% annualized. The growth was primarily in real estate and rental and leasing, and partially in finance and insurance industries. Total commercial loans were $2.1 billion, growing 9% annualized in 2024 and 6% in 2023 which was driven mostly from new relationships primarily to commercial borrowers. Total residential loans decreased 7% annualized or $63.4 million from year-end 2023, due to lower demand for prevailing mortgage rates and the continued strategy to sell production to the secondary market. Home Equity lines increased 7% or $6.5 million from year-end 2023 due to record available home equity levels and increased demand for credit. By borrowing some of the value of a home, homeowners are able to make home improvements or consolidate, pay down or pay off higher-interest debts.

Allowance for Credit Losses

The allowance for credit losses on loans was $28.7 million at December 31, 2024 compared to $28.1 million as of December 31, 2023. The increase was primarily due to commercial real estate prices, and loan portfolio growth. Net charge offs to average loans were 0.01% in 2024 compared to 0.02% in 2023. Non-accruing loans increased $1.4 million to $7.0 million, or 0.22% of total loans at the end of 2024 from $5.5 million or 0.18% of total loans at year-end 2023 driven by increases in commercial and industrial, commercial real estate owner occupied and home equity loans. Net charge-offs decreased to $353 thousand in 2024 from $626 thousand in 2023 compared driven by the resolution of one non-accruing C&I loan.

The allowance for credit losses on available for sale investments increased to $568 thousand at December 31, 2024, driven by two corporate securities with a book value of $9.0 million, unrealized non-credit losses of $2.7 million and unrealized credit losses of $568 thousand. There was no ACL on available for sale securities at December 31, 2023.

Premises and Equipment

Premises and equipment increased $2.9 million at December 31, 2024 to $51.2 million compared to $48.3 million at December 31, 2023, driven by $10.5 million in additions of $4.6 million in building and land improvement, $3.5 million in aircraft and $2.3 million in furniture and equipment. The additional expenses were largely attributed to facilities renovations and improvements at our 135 High Street location in Ellsworth, Maine and our disposal of our Avery Lane location earlier in the year offset by $4.2 million in depreciation expense.

Other Assets

Total other assets increased $356 thousand to $307.7 million at December 31, 2024 from $307.3 million as of December 31, 2023. The increase is attributed to a $1.8 million increase in cash surrender value of bank owned life insurance and deferred tax assets, net, of $351 thousand million as of December 31, 2024 compared to 2023 offset by intangible asset amortization of $931 thousand and fair value adjustments in derivative assets attributed to a maturity and the interest rate environment.

Table of Contents

Deposits

Total deposits increased $126.5 million to $3.3 billion at the end of 2024 compared to $3.1 billion at the end of 2023. Non-maturity deposits remained relatively flat decreasing $3.5 million in 2024. 10,135 non-maturity deposit accounts were opened with consumer customers while 1,479 non-maturity deposit accounts were opened with business customers in 2024. Time deposits increased $130.0 million to $830.3 million at year-end 2024 versus $700.3 million in 2023. Our retail teams opened 8,787 new time deposit accounts in 2024. Retail time deposits increased $62.2 million as customers moved funds from non-maturity deposits into higher yielding alternatives. Our deposit composition at year-end 2024 and 2023 was 47% commercial customers and 53% consumer customers. Brokered deposits increased $36.4 million and comprised 8% of total deposits at December 31, 2024 compared to 7% of total deposits at December 31, 2023.

Borrowings

Total borrowings decreased $40.9 million to $290.6 million at December 31, 2024 compared to $331.5 million as of December 31, 2023 primarily due to excess cash available generated from operations. The Bank Term Funding Program (the “BTFP”) was an additional source of liquidity with favorable prepayment terms of which during the fourth quarter of 2024, we prepaid our outstanding BTFP advance of $30 million, net of current activity which was held at a fixed rate of 4.76%. Our Subordinated Note Purchase Agreement had a fixed interest rate of 4.63% through December 1, 2024 payable semi-annually in arrears. From December 1, 2024 and thereafter the interest rate shall be reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financing Rate (“SOFR”) plus 3.27%. Beginning with the interest payment date of December 1, 2024, and on any scheduled payment date thereafter, we had the option to redeem the Notes, in whole or in part upon prior approval of the Federal Reserve. During the fourth quarter of 2024 we obtained approval from the Federal Reserve and redeemed $20.0 million of the outstanding subordinated notes. These paydowns were partially offset by an increase in FHLB advances of $10.3 million to $243.0 million at December 31, 2024 compared to $233.0 million at December 31, 2023.

Derivative Financial Instruments and Other Liabilities

Other liabilities totaled $66.6 million at the end of 2024 compared to $66.2 million as of December 31, 2023. The $447 thousand increase was primarily driven by a $1.9 million increase in lease obligations driven by extensions and $1.3 million in higher brokered CD interest payable offset by a $1.4 million decrease in fair value of loan hedge liabilities and $1.2 million in unpaid services payable due to year over year lower renovation accruals and paydowns of outstanding commitments. The reserve for unfunded commitments declined $775 thousand at the end of 2024 to $3.1 million compared to $3.9 million at December 31, 2023, which are also recorded in other liabilities.

Equity

Total equity was $458.4 million at year-end 2024, compared with $432.1 million at year-end 2023. Book value per share was $30.00 as of December 31, 2024 compared with $28.48 at December 31, 2023. Equity included securities adjustments, net of tax, totaling a $47.7 million loss at the end of 2024 compared to a $47.6 million loss at year-end 2023.

During 2024 and 2023, the Company declared and distributed regular cash dividends on its common stock in the aggregate amounts of $17.8 million compared to $16.6 million, respectively. The Company’s 2024 dividend payout ratio amounted to 42%, compared with 37% in 2023. Total cash dividends paid in 2024 was $1.18 per share of common stock, compared with $1.10 per share of common stock in 2023.

The Company and the Bank remained well-capitalized under regulatory guidelines at period end as further described in Note 12 – Shareholders’ Equity and Earnings Per Common Share on the Consolidated Financial Statements.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Net Interest Income

Net interest income for 2024 was $113.8 million compared with $117.7 million in 2023. The net interest margin was 3.15% in 2024 compared to 3.29% in the prior year. The yield on earning assets totaled 5.18% compared at December 31, 2024 compared to 3.73% at December 31, 2023. The yield on loans was 5.40% in 2024 and 5.04% in 2023. Costs of interest-bearing liabilities increased in 2024 to 2.58% from 1.99% in 2023 due to increased deposit rates and market competition. Interest expense on borrowings decreased $5.1 million in 2024 compared to 2023 driven by a decrease in

Table of Contents

average borrowings by $101 million and at an average rate of 4.40% from 4.56%, respectively, reflecting lower interest rates and decreased average borrowings.

Provision for Credit Losses

The provision for credit losses was $2.1 million at December 31, 2024 compared to $2.9 million expense at December 31, 2023. The expense in 2024 was primarily due to more refined economic forecasting, especially in the national unemployment figures and in commercial real estate prices, and loan portfolio growth.

Non-Interest Income

Non-interest income in 2024 was $36.9 million compared to $35.1 million in 2023. Trust management fees were $15.7 million in 2024 compared to $14.3 million in 2023 due to higher market valuation of assets under management (“AUM”) throughout the year. AUM was $2.8 billion compared to $2.5 billion in 2023, the increase of $327 million primarily due to higher security valuations throughout 2024. Customer service fees decreased 2.2% to $14.8 million in 2024 from $15.2 million in 2023 due to lower transaction volumes. BOLI income decreased $395 thousand in 2024 compared to 2023 related to one-time death benefits during the first quarter of 2023.

Non-Interest Expense

Non-interest expense increased $3.3 million to $96.0 million in 2024 compared to $92.7 million in 2023. Salaries and benefits expense increased $2.3 million to $54.9 million in 2024 driven by $1.1 million in salaries and other incentive benefits, $617 thousand in commissions, and $642 thousand increase in stock compensation expense due to the revaluation of our long term incentive obligations. Other expenses increased $1.7 million driven by Debit and ATM card expenses of $354 thousand for current year replacement initiative, a decrease in cash surrender value of a split dollar insurance arrangement for $353 thousand, software expenses of $290 thousand, credit card expenses of $199 thousand, $98 thousand in higher charitable donations and $369 thousand in miscellaneous expenses.

Income Tax Expense

Income tax expense was $9.1 million for the year ended December 31, 2024 compared to $12.3 million for the year ended December 31, 2023. The effective tax rate decreased to 17.26% in 2024 from 21.5% in 2023 due to a one-time multiple year tax refund on tax exempt loan income and a state apportionment adjustment in the third quarter of 2024 in addition to lower income before taxes year over year.

LIQUIDITY AND CASH FLOWS

Liquidity is measured by the ability to meet short-term cash needs at a reasonable cost or minimal loss. Favorable sources of liabilities are sought 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 the ability to meet liquidity needs, including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions.

The liquidity position is actively managed through target ratios established under our liquidity and funding policy. Continual monitoring of these ratios, by using historical data and through forecasts under multiple rate and stress scenarios, allows the ability to employ strategies necessary to maintain adequate liquidity. The policy is to maintain a liquidity position of at least 8% of total assets. A portion of the deposit base has been historically seasonal in nature, with balances typically declining in the winter months through late spring, during which period the liquidity position tightens.

A liquidity contingency plan is 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 the Company. Management believes that 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 the liquidity position.

The existing cash and cash equivalents (including an interest-bearing deposit at the FRB Boston), securities available for sale and cash flows from operating activities will be sufficient to meet anticipated cash needs for at least the next 12 months. Future working capital needs will depend on many factors, including the rate of business and revenue growth.

Table of Contents

To the extent cash and cash equivalents, securities available for sale and cash flows from operating activities are insufficient to fund future activities, the need to raise additional funds through debt arrangements or public or private debt or equity financings may be utilized. The need to raise additional funds may be needed in the event it is determined in the future to effect one or more acquisitions of banks or businesses. If additional funding is required, we may not be able to obtain debt arrangements or to effect an equity or debt financing on terms acceptable or at all.

Capital Resources

Consistent with our long-term goal of operating a sound and profitable organization, at December 31, 2024, we continue to be a “well-capitalized” financial institution according to applicable regulatory standards. Management believes this to be vital in promoting depositor and investor confidence and providing a solid foundation for future growth.

At December 31, 2024, available same-day liquidity totaled approximately $1.0 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 the Company's amortizing securities and loan portfolios. At December 31, 2024, we had unused borrowing capacity at the FHLB of $307.7 million, unused borrowing capacity at the Federal Reserve of $105.6 million and unused lines of credit totaling $41.0 million, in addition to over $200 million in unencumbered, liquid investment portfolio assets.

Purchase Obligations

In the normal course of conducting our banking and financial services business, and in connection with providing products and services to our customers, a variety of traditional third-party contracts for support services have been entered into. Examples of such contractual agreements include, but are not limited to: services providing core banking systems, ATM and debit card processing, trust services software, accounting software and the leasing of T-1 telecommunication lines and other technology infrastructure supporting our network. These types of purchase obligations that will come due during 2024 approximates $10.2 million as of December 31, 2024 which is expected to be funded by cash flows generated from our operations.

Impact of Inflation and Changing Prices

A banking organization’s assets and liabilities are primarily monetary. Changes in the rate of inflation do not have as great an impact on the financial condition of a bank as do changes in interest rates. Moreover, interest rates do not necessarily change at the same percentage as inflation. Accordingly, changes in inflation are not expected to have a material impact on the Company.

The FOMC often applies contractionary monetary policies during times of high inflation, resulting in elevated interest rates. Elevated interest rates may lower the market value of existing balance sheet assets and often result in a significant unrealized loss position. These lower market values may negatively affect the Bank’s liquidity position as it results in a lower value of the Bank’s liquid assets.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

Please refer to the notes on Recently Adopted Accounting Principles and Future Application of Accounting Pronouncements in Note 1 – Summary of Significant Accounting Policies of the Consolidated Financial Statements.

Table of Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Note 1 – Summary of Significant Accounting Policies to our audited Consolidated Financial Statements for the year ended December 31, 2024 contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated statements of financial condition at estimated fair value or the lower of cost or estimated fair value. Policies with respect to the methodology used to determine the allowance for credit losses is a critical accounting policy and estimate because of its importance to the presentation of our financial condition and results of operations. The critical accounting policy involves a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition.

Allowance for credit losses on loans (the “allowance”)

The allowance is sensitive to a number of internal factors, such as modifications in the mix and level of loan balances outstanding, portfolio performance and assigned risk ratings. The allowance is also sensitive to external factors such as the general health of the economy, as evidenced by changes in unemployment rates, home pricing index, gross domestic product, retail sales and changes in commercial real estate values. We consider these variables and all other available information when establishing the final level of the allowance. These variables and others have the ability to result in actual loan losses that differ from the originally estimated amounts.

Changes in the factors used by management to determine the appropriateness of the allowance or the availability of new information could cause the allowance to be increased or decreased in future periods. Additionally, changes in circumstances related to individually large credits, or certain macroeconomic forecast assumptions may result in volatility.

It is difficult to estimate how potential changes in any one economic factor might affect the overall allowance because a wide variety of factors and inputs are considered in the allowance estimate. Changes in the factors and inputs may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. However, to consider the impact of a hypothetical stressed forecast, we estimated the allowance using forecast inputs that were severely unfavorable to the expected scenario for each macroeconomic variable.

Back to the BHB company profile or the MD&A index.