Bar Harbor Bankshares Announces Record 2012 Earnings and EPS - up 12.9% and 11.6% vs. 2011

  Bar Harbor Bankshares Announces Record 2012 Earnings and EPS - up 12.9% and
  11.6% vs. 2011

Business Wire

BAR HARBOR, Maine -- January 31, 2013

Bar Harbor Bankshares (the “Company”) (NYSE MKT: BHB) the parent company of
Bar Harbor Bank & Trust (the “Bank”), today announced record net income of
$12.5 million for the year ended December 31, 2012, representing an increase
of $1.4 million, or 12.9%, compared with 2011. The Company also reported
record diluted earnings per share of $3.18 for 2012, representing an increase
of $0.33, or 11.6%, compared with 2011. The Company’s return on average equity
amounted to 9.93%, compared with 9.94% in 2011. The Company’s 2012 return on
average assets amounted to 1.00%, up from 0.96% in 2011.

The Company also reported net income of $2.8 million for the quarter ended
December 31, 2012, or diluted earnings per share of $0.72, compared with $2.4
million or diluted earnings per share of $0.61 in the fourth quarter of 2011,
representing increases of $439 thousand and $0.11, or 18.4% and 18.0%,
respectively.

As previously announced, on August 10, 2012 the Bank acquired substantially
all assets and assumed certain liabilities of Border Trust Company (“Border
Trust”), a subsidiary of Border Bancshares, Inc., headquartered in Augusta,
Maine. The Bank acquired $38.5 million of deposits and $33.6 million in loans,
as well as three branch offices located in Kennebec and Sagadahoc counties.
The Bank paid a core deposit premium of 3.85%, or $1.1 million, and purchased
the loan portfolio, excluding selected non-performing loans, at a discount of
2.16%, or $749 thousand. In connection with this transaction, the Bank
recorded goodwill of $2.1 million and a core deposit intangible of $783
thousand, or 2.7% of core deposits. The Bank recorded $863 thousand in
non-recurring expenses in 2012 related to this transaction, including
professional fees, employee severance and other conversion and integration
related expenses.

In making the announcement, the Company’s President and Chief Executive
Officer, Joseph M. Murphy commented, “Our 2012 performance continued a
long-standing trend of delivering both growth and solid financial returns. We
are delighted to report record earnings and earnings per share, continued loan
growth, improving credit quality metrics and, contrary to industry
expectations, a stable net interest margin.”

Mr. Murphy continued, “During 2012 we continued building on the achievements
of prior years by expanding our banking franchise, while maintaining a strong
focus on our traditional markets. As we have reported earlier, our expansion
into Kennebec and Sagadahoc counties was a logical step in our defined
strategy to expand further south and west into communities with attractive
demographics, long-term growth potential, and where we have already
established significant commercial banking relationships. We believe our
lending capacity, product diversity, and commitment to superior customer
service will attract profitable growth opportunities in these markets. We have
already experienced some very positive early results. For example, since our
August 10^th acquisition, total core deposits at our three new branch office
locations have grown $3.7 million, or 10.6%.”

In concluding, Mr. Murphy added, “Like most banks, we are finding the current
interest rate environment exceptionally challenging, as practically all
aspects of banking are impacted by the Federal Reserve Board’s actions and
their determination to maintain interest rates at historically low levels for
an extended period of time. We are cautiously managing the types of loans we
originate and investments we make, while remaining prepared to deal with the
eventuality of higher interest rates. Although our asset quality measures have
improved and remain sound, we continue to assess our reserves in light of
continued uncertainties and weakness in the overall economy. We expect a
continuation of sluggish loan demand in the year ahead along with some
pressure on our net interest margin, given current monetary policy and
continued quantitative easing by the Federal Reserve. We believe we are
prepared for these challenges and will seek out opportunities to expand our
business and deliver the promise of successful community banking to our
customers, prospects and shareholders alike.”

Balance Sheet

Assets: Total assets ended the year at $1.30 billion, up $135.5 million, or
11.6%, compared with December 31, 2011. The increase in total assets was led
by loan growth and, to a lesser extent, an increase in the Bank’s securities
portfolio.

Loans: Total loans ended the year at $815.0 million, up $86.0 million, or
11.8%, compared with December 31, 2011. Consumer loans, which principally
consist of residential real estate mortgages, were up $55.2 million or 17.6%
compared with December 31, 2011, largely reflecting the purchase of loans from
Border Trust as well as the purchase of a New England-based portfolio of
residential mortgage loans in the first quarter. The Bank’s commercial loan
portfolio increased $26.3 million, or 6.5%, compared with December 31, 2011,
of which approximately $9.2 million was attributed to the Border Trust
transaction. Tax-exempt loans also showed meaningful growth, posting an
increase of $5.5 million, compared with year end 2011. Commercial loan growth
has been generally challenged by economic and political uncertainty, a
struggling economy and vigorous competition for quality loans. Bank management
attributes the continued growth of its commercial loan portfolio to an
effective business banking team, deep local market knowledge, sustained new
business development efforts, and a resilient local economy that has been
faring better than the nation as a whole.

Credit Quality: Total non-performing loans ended the year at $9.9 million,
representing a decline of $3.0 million or 23.6% compared with year-end 2011.
One commercial real estate development loan to a local, non-profit housing
authority in support of an affordable housing project accounted for $2.0
million or 20.6% of total non-performing loans, down from $2.8 million at
December 31, 2011. At December 31, 2012, total non-performing loans
represented 1.21% of total loans, down from 1.77% at year end 2011. Total net
loan charge-offs amounted to $1.8 million in 2012, or 0.23% of total average
loans outstanding, down from $2.7 million and 0.37% in 2011, respectively.

For the year ended December 31, 2012, the Bank recorded a provision for loan
losses (the “provision”) of $1.7 million, representing a decline of $743
thousand or 31.0% compared with 2011. The decline in the provision largely
reflected improved credit quality metrics which continued to stabilize during
2012. In addition to improved charge-off experience, delinquent loans and
potential problem loans remained stable compared December 31, 2011, while
non-performing loans declined 23.6%.

The Bank maintains an allowance for loan losses (the “allowance”) which is
available to absorb probable losses on loans. The allowance is maintained at a
level that, in management’s judgment, is appropriate for the amount of risk
inherent in the current loan portfolio and adequate to provide for estimated
probable losses. At December 31, 2012, the allowance stood at $8.1 million,
representing a decline of $124 thousand or 1.5% compared with December 31,
2011. The small decline in the allowance was principally attributed to
improved credit quality metrics, as well as the elimination of certain
loan-specific loss allowances for loans that were charged-off during the year.

Securities: Total securities ended the year at $418.0 million, up $36.2
million, or 9.5%, compared with December 31, 2011. Securities purchased during
2012 consisted of mortgage-backed securities issued by U.S. Government
agencies and sponsored-enterprises, as well as municipal securities issued by
states and political subdivisions thereof.

Deposits: Total deposits ended the year at $795.0 million, up $72.1 million,
or 10.0%, compared with December 31, 2011. The deposits acquired in connection
with the Border Trust transaction accounted for approximately $38.5 million or
53.4% of the growth in total deposits. Demand, NOW and money market accounts
combined were up $56.1 million or 15.2% compared with December 31, 2011, while
time deposits were up $16.0 million, or 4.5%.

Capital: At December 31, 2012, the Company and the Bank continued to exceed
regulatory requirements for “well-capitalized” financial institutions. Under
the capital adequacy guidelines administered by the Bank’s principal
regulators, “well-capitalized” institutions are those with Tier I leverage,
Tier I Risk-based, and Total Risk-based ratios of at least 5%, 6% and 10%,
respectively. At December 31, 2012, the Company’s Tier I Leverage, Tier I
Risk-based, and Total Risk-based capital ratios were 8.85%, 14.14% and 15.77%,
respectively.

At December 31, 2012, the Company’s tangible common equity ratio stood at
9.41%, compared with 9.87% at December 31, 2011.

Shareholder Dividends: During 2012 the Company paid regular cash dividends on
its common stock in the aggregate amount of $4.57 million, compared with $4.23
million in 2011. The Company’s 2012 dividend payout ratio amounted to 36.6%,
compared with 38.3% in 2011. The total regular cash dividends paid in 2012
amounted to $1.17 per share of common stock, compared with $1.095 per share in
2011, representing an increase of $0.075 per share, or 6.9%.

As previously announced, the Company’s Board of Directors recently declared a
first quarter 2013 regular cash dividend of $0.305 per share of common stock,
representing an increase of $0.02 or 7.0% compared with the first quarter of
2012. Based on the year-end 2012 price of BHB’s common stock of $33.65 per
share, the dividend yield amounted to 3.63%.

Results of Operations

Net Interest Income: For the year ended December 31, 2012, net interest income
on a tax-equivalent basis amounted to $38.6 million, up $2.7 million, or 7.6%,
compared with 2011. This increase was principally attributed to average
earning asset growth of $87.0 million, or 7.8%, combined with a stable net
interest margin. The tax-equivalent net interest margin amounted to 3.23% in
2012, unchanged compared with 2011. During 2012 the Bank managed to offset a
decline in its weighted average earning asset yields by lowering the weighted
average interest rate paid on total interest bearing liabilities.

For the quarter ended December 31, 2012, net interest income on a
tax-equivalent basis amounted to $10.1 million, up $243 thousand or 2.5% on a
linked-quarter basis and representing an increase of $979 thousand, or 10.8%,
compared with the fourth quarter of 2011. The Bank’s fourth quarter
tax-equivalent net-interest margin amounted to 3.23%, representing an
improvement of three basis points on a linked-quarter basis and unchanged
compared with the fourth quarter of 2011. During the fourth quarter of 2012,
the weighted average yield on the Bank’s earning assets held steady, while the
weighted average cost of its interest bearing liabilities declined four basis
points from the third quarter.

Non-interest Income: For the year ended December 31, 2012, total non-interest
income amounted to $7.7 million compared with $6.8 million in 2011,
representing an increase of $917 thousand, or 13.5%.

Trust and other financial services fees amounted to $3.3 million in 2012,
compared with $3.1 million in 2011, representing an increase of $217 thousand
or 7.1%. This increase was principally attributed to increases in the value of
assets under management and higher levels of fee income from retail brokerage
activities. Reflecting new client relationships and some stability in the
equity markets, at December 31, 2012, assets under management stood at $355.5
million, up $21.6 million or 6.5% compared with year-end 2011.

For the year ended December 31, 2012, income generated from service charges on
deposit accounts amounted to $1.2 million, compared with $1.3 million in 2011,
representing a decline of $88 thousand, or 6.9%. The decline in service
charges on deposit accounts was principally attributed to declines in deposit
account overdraft fees, reflecting reduced overdraft activity and the impact
of new regulations that limit the ability of a bank to offer overdraft
protection to customers without their specific consent and to derive fees from
overdraft protection programs in general.

For the year ended December 31, 2012, credit and debit card service charges
and fees amounted to $1.5 million compared with $1.3 million in 2011,
representing an increase of $185 thousand or 14.5%. This increase was
principally attributed to continued growth of the Bank’s retail deposit base,
higher levels of merchant credit card processing volumes, and continued
success with a program that offers rewards for certain debit card
transactions.

Total securities gains, net of other-than-temporary impairment losses,
amounted to $1.1 million in 2012, compared with $470 thousand in 2011,
representing an increase of $615 thousand, or 130.9%. Net 2012 securities
gains were comprised of realized gains on the sale of securities amounting to
$1.9 million, offset in part by other-than-temporary impairment losses of $853
thousand on certain available-for-sale, private label residential
mortgage-backed securities.

Non-interest Expense: For the year ended December 31, 2012, total non-interest
expense amounted to $25.6 million, up $2.3 million, or 10.0%, compared with
2011.

The increase in non-interest expense was largely attributed to a $1.2 million
or 9.5% increase in salaries and employee benefits, reflecting higher levels
of employee severance payments including $263 thousand incurred in connection
with the Border Trust transaction, higher levels of employee incentive
compensation, as well as normal increases in base salaries and changes in
staffing levels and mix. The year-over-year increase in salaries and employee
benefits also reflected the recording of $130 thousand in employee health
insurance credits, based on favorable claims experience, in 2011.

The increase in other 2012 non-interest expense was also attributed to a $1.0
million or 17.5% increase in other operating expenses, principally reflecting
$600 thousand in non-recurring expenses associated with the Border Trust
transaction, including fees for professional services and a wide variety of
conversion and integration related expenses. The increase in 2012 other
operating expenses was additionally attributed to a $304 thousand or 132.7%
increase in loan collection and other real estate owned expenses compared with
2011, largely reflecting higher levels of loan collection and foreclosure
activity, as well as losses on the sale or write-down of owned properties.

Efficiency Ratio: The Company’s efficiency ratio, or non-interest operating
expenses divided by the sum of tax-equivalent net interest income and
non-interest income other than net securities gains and other-than-temporary
impairments, measures the relationship of operating expenses to revenues. For
the year ended December 31, 2012, the Company’s efficiency ratio amounted to
54.6%, representing an improvement compared with the 55.0% reported for 2011.
These ratios compared favorably to peer and industry averages.

About Bar Harbor Bankshares

Bar Harbor Bankshares is the parent company of its wholly owned subsidiary,
Bar Harbor Bank & Trust. Founded in 1887, Bar Harbor Bank & Trust provides
full service community banking with fifteen branch office locations serving
downeast, midcoast and central Maine.

This earnings release contains certain forward-looking statements with respect
to the financial condition, results of operations and business of Bar Harbor
Bankshares (the “Company”) for which the Company claims the protection of the
safe harbor provided by the Private Securities Litigation Reform Act of 1995,
as amended. You can identify these forward-looking statements by the use of
words like “strategy,” “anticipates” “expects,” “plans,” “believes,” “will,”
“estimates,” “intends,” “projects,” “goals,” “targets,” and other words of
similar meaning. You can also identify them by the fact that they do not
relate strictly to historical or current facts. Forward-looking statements
include, but are not limited to, those made in connection with estimates with
respect to the future results of operation, financial condition, and the
business of the Company which are subject to change based on the impact of
various factors that could cause actual results to differ materially from
those projected or suggested due to certain risks and uncertainties. These
risks and uncertainties include, but are not limited to, changes in general
economic conditions, interest rates, deposit flows, loan demand, internal
controls, legislation or regulation and accounting principles, policies or
guidelines, as well as other economic, competitive, governmental, regulatory
and accounting and technological factors affecting the Company’s operations.
For more information about these risks and uncertainties and other factors,
please see the Company’s Annual Report on Form 10-K, as updated by the
Company’s Quarterly Reports on Form 10-Q and other filings on file with the
SEC. All of these factors should be carefully reviewed, and readers should not
place undue reliance on these forward-looking statements. The Company assumes
no obligation to update any forward-looking statements as a result of new
information or future events or developments.

Bar Harbor Bankshares
Selected Financial Information
(dollars in thousands except share and per share data)
(unaudited)


                  Period End                      4th Quarter Average
Balance Sheet          12/31/2012     12/31/2011         2012           2011
Data
                                                                      
Total assets         $ 1,302,935    $ 1,167,466        $ 1,298,932    $ 1,160,790
Total                  418,040        381,880            414,289        382,866
securities
Total loans            815,004        729,003            806,014        715,705
Allowance for          8,097          8,221              8,333          8,272
loan losses
Total deposits         795,012        722,890            805,021        754,014
Total                  371,567        320,283            355,846        284,160
Borrowings
Shareholders'          128,046        118,250            130,011        117,169
equity
                                                                      
                     Three Months Ended                Year Ended
Results Of             12/31/2012     12/31/2011         12/31/2012     12/31/2011
Operations
                                                                      
Interest and
dividend             $ 12,957       $ 12,593           $ 50,838       $ 50,907
income
Interest               3,370          3,866              13,867         16,518
expense
Net interest           9,587          8,727              36,971         34,389
income
Provision for          350            545                1,652          2,395
loan losses
Net interest
income after

provision for          9,237          8,182              35,319         31,994
loan losses
                                                                      
Non-interest           1,737          1,511              7,709          6,792
income
Non-interest          7,094        6,300            25,618       23,281     
expense
Income before          3,880          3,393              17,410         15,505
income taxes
Income taxes          1,050        1,002            4,944        4,462      
                                                                      
Net income           $ 2,830       $ 2,391           $ 12,466      $ 11,043     
                                                                      
                                                                      
Share and Per
Common Share
Data
                                                                      
Period-end
shares                 3,920,044      3,878,893          3,920,044      3,878,893
outstanding
Basic average
shares                 3,920,373      3,882,565          3,901,118      3,860,474
outstanding
Diluted
average shares         3,935,886      3,890,379          3,919,769      3,878,614
outstanding
                                                                      
Basic earnings       $ 0.72         $ 0.62             $ 3.20         $ 2.86
per share
Diluted
earnings per         $ 0.72         $ 0.61             $ 3.18         $ 2.85
share
                                                                      
Cash dividends       $ 0.300        $ 0.280            $ 1.170        $ 1.095
Book value           $ 32.66        $ 30.49            $ 32.66        $ 30.49
Tangible book        $ 31.12        $ 29.64            $ 31.12        $ 29.64
value (3)
                                                                      
Selected
Financial
Ratios
                                                                      
Return on              0.87       %   0.82       %       1.00       %   0.96       %
Average Assets
Return on              8.66       %   8.10       %       9.93       %   9.94       %
Average Equity
Tax-equivalent
Net Interest           3.23       %   3.23       %       3.23       %   3.23       %
Margin (1)
Efficiency             59.8       %   58.6       %       54.6       %   55.0       %
Ratio (2)
                                                                                   

                                                        At or for the
                                                     Year Ended
                                                        December 31,

                                                        
                                                                
                                                        2012       2011
Asset Quality
                                                                   
Net charge-offs to average loans                        0.23%      0.37%
Allowance for loan losses to total loans                0.99%      1.13%
Allowance for loan losses to non-performing loans       82.1%      63.7%
Non-performing loans to total loans                     1.21%      1.77%
Non-performing assets to total assets                   0.97%      1.45%
                                                                   
Capital Ratios
                                                                   
Tier 1 leverage capital                                 8.85%      9.32%
Tier 1 risk-based capital                               14.14%     14.29%
Total risk-based capital                                15.77%     16.06%
Tangible equity to total assets (3)                     9.36%      9.85%
Tangible common equity (3)                              9.41%      9.87%
                                                                   

Use of non-GAAP Financial Measures

Certain information in this press release contains financial information
determined by methods other than in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). Management uses
these “non-GAAP” measures in its analysis of the Company’s performance and
believes these non-GAAP financial measures provide a greater understanding of
ongoing operations and enhance comparability of results with prior periods as
well as demonstrating the effects of significant gains and charges in the
current period. The Company believes that a meaningful analysis of its
financial performance requires an understanding of the factors underlying that
performance. Management believes that investors may use these non-GAAP
financial measures to analyze financial performance without the impact of
unusual items that may obscure trends in the Company’s underlying performance.
These disclosures should not be viewed as a substitute for operating results
determined in accordance with GAAP, nor are they necessarily comparable to
non-GAAP performance measures that may be presented by other companies.

(1) In certain places in this press release net interest income and the net
interest margin is calculated and discussed on a fully tax-equivalent basis.
Specifically included in interest income was tax-exempt interest income from
certain investment securities and loans. An amount equal to the tax benefit
derived from this tax-exempt income has been added back to the interest income
total, which increased net interest income accordingly. Management believes
the disclosure of tax-equivalent net interest income information improves the
clarity of financial analysis, and is particularly useful to investors in
understanding and evaluating the changes and trends in the Company’s results
of operations. Other financial institutions commonly present net interest
income on a tax-equivalent basis. This adjustment is considered helpful in the
comparison of one financial institution’s net interest income to that of
another institution, as each will have a different proportion of tax-exempt
interest from its earning assets. Moreover, net interest income is a component
of a second financial measure commonly used by financial institutions, net
interest margin, which is the ratio of net interest income to average earning
assets. For purposes of this measure as well, other financial institutions
generally use tax-equivalent net interest income to provide a better basis of
comparison from institution to institution. The Company follows these
practices.

(2) The Company presents its efficiency ratio using non-GAAP information. The
GAAP efficiency ratio is computed by dividing non-interest expense by the sum
of tax-equivalent net interest income and non-interest income. The non-GAAP
efficiency ratio presented in this press release is computed by dividing
non-interest expense by the sum of tax-equivalent net interest income and
non-interest income other than net securities gains and OTTI, and other
significant non-recurring expenses. Fourth quarter and year-to-date
non-recurring expenses amounted to $34 and $863, all of which were associated
with the Border Trust transaction.

(3) The Company presents certain information based upon tangible common equity
instead of total shareholders’ equity in accordance with GAAP. The difference
between these two measures is the Company’s intangible assets, specifically
goodwill and core deposit intangibles from prior acquisitions. Management,
banking regulators and many stock analysts use the tangible common equity
ratio, the tangible equity to total assets ratio and the tangible book value
per common share in conjunction with more traditional bank capital ratios to,
among other things, compare the capital adequacy of banking organizations with
significant amounts of goodwill or other intangible assets, typically stemming
from the use of the purchase accounting method in accounting for mergers and
acquisitions. The tangible common equity ratio is computed by dividing the
total common shareholders' equity, less goodwill and other intangible assets,
by total assets, less goodwill and other intangible assets. The tangible
equity to total assets ratio is computed by dividing total shareholders'
equity, less goodwill and other intangible assets, by total assets at period
end. The tangible book value ratio is computed by dividing total shareholders’
equity, less goodwill and other intangible assets, by period end total
outstanding shares of common stock.

Contact:

Bar Harbor Bankshares
Gerald Shencavitz, 207-288-3314
EVP and Chief Financial Officer
 
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