Record Earnings and EPS at Bar Harbor Bankshares

  Record Earnings and EPS at Bar Harbor Bankshares

Business Wire

BAR HARBOR, Maine -- October 29, 2013

Bar Harbor Bankshares (NYSE MKT: BHB) (the “Company”) the parent company of
Bar Harbor Bank & Trust (the “Bank”), today announced record net income of
$3.5 million for the third quarter of 2013, representing an increase of $165
thousand, or 4.9%, compared with the third quarter of 2012. The Company also
reported record diluted earnings per share of $0.89 for the quarter compared
with $0.86 for the third quarter of 2012, representing an increase of $0.03,
or 3.5%. The Company’s annualized return on average shareholders’ equity
amounted to 11.73% for the quarter, up from 10.49% in the third quarter of
2012. The Company’s third quarter return on average assets amounted to 1.02%,
compared with 1.05% in the third quarter of 2012.

For the nine months ended September 30, 2013, the Company reported record net
income of $9.9 million, representing an increase of $283 thousand, or 2.9%,
compared with the same period in 2012. The Company also reported record
diluted earnings per share of $2.51, representing an increase of $0.05, or
2.0%, compared with the same period in 2012. The Company’s annualized return
on average shareholders’ equity amounted to 10.57% for the nine months ended
September 30, 2013, up from 10.37% for the same period in 2012. The Company’s
annualized return on average assets amounted to 0.99%, compared with 1.04% for
the nine months ended September 30, 2012.

“Because of the seasonality of the Bank’s market area, our third quarter
financial performance has historically been the strongest in any given year,
said Company President and Chief Executive Officer, Curtis C. Simard. “We are
pleased to report record quarterly and year-to-date earnings and earnings per
share, despite the protracted low interest rate environment and the many
challenges confronting both the general economy and the banking industry as a
whole. Our third quarter performance was highlighted by a meaningful increase
in net interest income, a stable net interest margin, continued improvements
in credit quality and higher levels of fee income.”

Mr. Simard continued, “Despite soft demand and competitive pricing pressures,
we also achieved moderate growth in our commercial and consumer loan
portfolios, which were up $18.6 million and $12.1 million, respectively, from
year end 2012. With respect to credit quality, we are pleased to report an
8.2% decline in non-performing loans on a linked-quarter basis and a decline
of 21.2% from year end 2012. At quarter end, our total non-performing loans
fell to 0.92% of total loans, down from 1.21% at year end 2012. Similarly, our
year-to-date net loan charge-offs were down 56.1% from the same period last
year, largely enabling a 28.7% decline in the provision for loan losses.”

“We believe our commitment to maintaining a stable balance between growth and
sustainable earnings is evident from our financial results and overall
performance,” Said Mr. Simard. “We are pleased to post another solid quarter
while simultaneously maintaining the soundness of our institution. By being a
positive outlier in many critical measures, we continue to deliver respectable
returns to our shareholders, including our recently announced tenth
consecutive quarterly cash dividend increase.”

Balance Sheet Highlights

Assets: Total assets ended the third quarter at $1.38 billion, up $76.3
million, or 5.9%, compared with December 31, 2012. All categories of earning
assets contributed to this growth.

Loans: Total loans ended the quarter at $845.9 million, down slightly on a
linked-quarter basis, but representing an increase of $30.9 million, or 3.8%,
compared with December 31, 2012. At quarter-end, the Bank’s commercial loan
portfolio stood at $449.5 million, representing an increase of $18.6 million,
or 4.3%, compared with year-end 2012. Consumer loans, which principally
consist of residential real estate mortgages, ended the quarter at $381.5
million, up $12.1 million or 3.3% compared with year-end 2012.

Credit Quality: Total non-performing loans ended the quarter at $7.8 million
compared with $9.9 million at December 31, 2012, representing a decline of
$2.1 million, or 21.2%. One commercial real estate development loan to a local
non-profit housing authority in support of an affordable housing project
accounted for $1.8 million, or 23.7%, of the Bank’s total non-performing loans
at quarter-end. Total non-performing loans expressed as a percentage of total
loans ended the quarter at 0.92%, down from 1.21% at year-end 2012. Similarly,
the allowance for loan losses expressed as a percentage of non-performing
loans ended the quarter at 107.8%, up from 82.1% at year-end 2012.

Total net loan charge-offs amounted to $645 thousand during the first nine
months of 2013, or annualized net charge-offs to average loans outstanding of
0.10%, down from $1.5 million and 0.25%, respectively, compared with the same
period in 2012. For the three and nine months ended September 30, 2013, the
Bank recorded provisions for loan losses of $170 thousand and $928 thousand,
representing declines of $257 thousand and $374 thousand, or 60.2% and 28.7%,
respectively. The declines in the provision for loan losses largely reflected
an overall improvement in the Bank’s credit quality metrics.

At September 30, 2013, the Bank’s allowance for loan losses stood at $8.4
million, representing an increase of $283 thousand, or 3.5%, compared with
year-end 2012.

Securities: Total securities ended the third quarter at $462.4 million,
representing an increase of $44.3 million or 10.6%, compared with December 31,
2012. The entire increase in securities occurred during the third quarter as
market yields climbed to multi-year highs. Securities purchased during the
quarter included mortgage-backed securities issued and guaranteed by U.S.
Government agencies and sponsored-enterprises, as well as municipal securities
issued by states and political subdivisions thereof.

Deposits: Historically, the banking business in the Bank’s market area has
been seasonal, with lower deposits in the winter through late spring and
higher deposits in summer and autumn. The timing and extent of these seasonal
swings have varied from year-to-year and have generally impacted the Bank’s
transactional deposit accounts.

Total deposits ended the third quarter at $884.6 million, up $88.8 million, or
11.2 %, compared with December 31, 2012. The Bank’s transactions accounts were
up $72.8 million or 17.1% from year-end 2012, while time deposits were up
$16.1 million, or 4.3%.

Capital: At September 30, 2013, the Company and the Bank continued to exceed
applicable 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 September 30, 2013, the Company’s Tier I Leverage,
Tier I Risk-based, and Total Risk-based capital ratios were 8.91%, 14.80% and
16.44%, respectively.

Shareholders’ Equity: Total shareholders’ equity ended the quarter at $123.4
million, down from $128.0 million at December 31, 2012. Likewise, the
Company’s book value per share of common stock ended the quarter at $31.34,
down from $32.66 at December 31, 2012. The decline in shareholder’s equity was
attributed to an $11.6 million decline in accumulated other comprehensive
income. This decline was principally the result of a reduction of unrealized
gains in the Bank’s investment securities portfolio, which declined from a tax
effective unrealized gain of $8.1 million at December 31, 2012 to a tax
effected unrealized loss of $3.5 million at September 30, 2013. The net
unrealized losses at September 30, 2013 were attributed to a significant
increase in interest rates during the nine months ended September 30, 2013,
which negatively impacted the fair value of the Bank’s fixed income securities
portfolio.

Shareholder Dividends: The Company paid a regular cash dividend of $0.315 per
share of common stock in the third quarter of 2013, up $0.005 from the prior
quarter and representing an increase of $0.02 or 6.8% compared with the third
quarter of 2012. The Company’s Board of Directors recently declared a regular
cash dividend of $0.32 per share of common stock for the fourth quarter of
2013, representing an increase of $0.02 or 6.7% compared with the fourth
quarter of 2012. This represented the tenth consecutive quarter where the
Company increased its quarterly cash dividend to shareholders. Based on the
quarter-end price of BHB’s common stock of $36.79, the annualized dividend
yield amounted to 3.48%.

Results of Operations

Net Interest Income: For the three months ended September 30, 2013, net
interest income on a tax-equivalent basis totaled $10.4 million, up $544
thousand or 5.5% on a linked-quarter basis and representing an increase of
$624 thousand or 6.4% compared with the third quarter of 2012. The increase in
third quarter net interest income compared with the third quarter of 2012 was
principally attributed to average earning asset growth of $106.4 million or
8.7%. The net interest margin amounted to 3.12% for the third quarter,
unchanged on a linked-quarter basis but representing a decline of eight basis
points compared with the third quarter of 2012.

For the nine months ended September 30, 2013, net interest income on a
tax-equivalent basis totaled $30.0 million, representing an increase of $1.5
million or 5.3% compared with the same period in 2012. The increase in net
interest income was principally attributed to average earning asset growth of
$100.2 million or 8.5%, offset in part by a nine basis point decline in the
net interest margin. For the nine months ended September 30, 2013, the Bank’s
net interest margin amounted to 3.13% compared with 3.22% for the same period
in 2012. The yield on earning assets declined thirty-five basis points to
4.06%, while the rate paid on interest bearing liabilities declined thirty
basis points to 1.05%.

The decline in the Bank’s earning asset yields was principally attributed to
the extended period of historically low interest rates, elevating the level of
residential mortgage loan refinancing activity while originating new mortgage
loans in a historically low interest rate environment. The decline in earning
asset yields was also attributed to the origination and competitive re-pricing
of certain commercial loans at historically low interest rates. The decline in
mortgage-backed securities yields was also attributed to historically low
interest rates, and has been exacerbated by accelerated securitized loan
refinancing activity driven by a wide variety of government stimulus programs
and quantitative easing efforts by the Federal Reserve, as well as continuing
credit defaults.

Non-interest Income: For the three months ended September 30, 2013, total
non-interest income amounted to $1.9 million, down $373 thousand or 16.2%
compared with the third quarter of 2012. The decline in non-interest income
was principally attributed to a $431 thousand or 86.9% decline in realized
securities gains net of other-than-temporary impairment losses. Trust and
other financial services fees were up $50 thousand or 5.9% compared with third
quarter of 2012, while credit and debit card service charges and fees were up
$21 thousand or 5.0%.

For the nine months ended September 30, 2013, total non-interest income
amounted to $5.7 million, down $223 thousand or 3.7% compared with the same
period in 2012. The decline in non-interest income was attributed to a decline
in realized securities gains net of other-than-temporary impairment losses,
which were down $582 thousand or 55.3% from the $1.1 million reported for the
same period in 2012.

For the nine months ended September 30, 2013, trust and other financial
services fees amounted to $2.7 million, up $189 thousand or 7.7% compared with
the first nine months of 2012. Reflecting additional new business and some
stability in the equity markets, at September 30, 2013 assets under management
stood at $380.4 million, up $24.9 million or 7.0% from year-end 2012 and
representing an increase of $22.2 million or 6.2% compared with September 30,
2012.

For the nine months ended September 30, 2013, income generated from service
charges on deposit accounts amounted to $962 thousand, representing an
increase of $75 thousand, or 8.5%, compared with the same period in 2012. The
increase in service charges on deposit accounts was largely attributed to
customer overdraft fee increases instituted in the third quarter of 2012
combined with increased customer overdraft activity.

For the nine months ended September 30, 2013, income generated from credit and
debit card service charges and fees amounted to $1.2 million, up $97 thousand
or 9.0% compared with the same period in 2012. This increase was principally
attributed to continued growth of the Bank’s retail deposit base and continued
success with a program that offers rewards for certain debit card
transactions.

Non-interest Expense: For the three and nine months ended September 30, 2013,
total non-interest expense amounted to $6.8 million and $19.7 million,
representing increases of $276 thousand and $1.2 million, or 4.2% and 6.5%,
respectively, compared with the same periods in 2012.

For the three and nine months ended September 30, 2013, total salaries and
employee benefits amounted to $4.0 million and $11.3 million, representing
increases of $355 thousand and $1.2 million, or 9.7% and 11.5%, respectively,
compared with the same periods in 2012. The increases in salaries and employee
benefits were attributed to a variety of factors including normal increases in
base salaries, higher levels of employee incentive compensation, as well as
changes in staffing levels and mix. The increases in salaries and employee
benefits also reflected the Bank’s previously reported acquisition of three
branch offices in the third quarter of 2012. Year-to-date salaries and
employee benefits also included expenses related to certain restricted stock
awards to the Company’s Board of Directors and the recently-appointed
President and CEO.

For the three and nine months ended September 30, 2013, total occupancy
expenses amounted to $482 thousand and $1.5 million, representing increases of
$74 thousand and $276 thousand, or 18.1% and 23.3%, respectively, compared
with the same periods in 2012. These increases were largely attributed to the
acquisition of three branch offices in the third quarter of 2012, two of which
are leased properties. The increases in occupancy expense were also attributed
to the Bank’s substantial reconfiguration of its Ellsworth campus including
the replacement of its Ellsworth retail banking office, which was put in
service in the third quarter of 2012.

For the three and nine months ended September 30, 2013, total other operating
expenses amounted to $1.5 million and $4.7 million, representing declines of
$209 thousand and $342 thousand, or 11.9% and 6.8%, respectively, compared
with the same periods in 2012. These declines were largely attributed to lower
levels of loan collection and other real estate owned expenses, as well as
certain non-recurring branch acquisition expenses incurred during the first
nine months of 2012.

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 three and nine months ended September 30, 2013, the Company’s efficiency
ratio amounted to 55.4% and 55.7%, respectively, which 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. Bar Harbor Bank & Trust, founded in 1887, provides
full service community banking with fifteen branch office locations serving
downeast, midcoast and central Maine.

Safe Harbor Statement: 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 per
share data)
(unaudited)
                                                                  
                 Period End                       3rd Quarter Average
Balance Sheet      9/30/2013       12/31/2012       2013            2012
Data
                                                                  
Total assets     $ 1,379,270     $ 1,302,935      $ 1,372,425     $ 1,281,846
Total              462,356         418,040          456,247         406,563
securities
Total loans        845,933         815,004          854,385         798,095
Allowance for      8,380           8,097            8,363           8,482
loan losses
Total deposits     884,597         795,765          858,919         796,629
Total              364,013         371,567          387,478         350,953
Borrowings
Shareholders'      123,403         128,046          119,529         127,788
equity
                                                                  
                 Three Months Ended               Nine Months Ended
Results Of         9/30/2013       9/30/2012        9/30/2013       9/30/2012
Operations
                                                                  
Interest and
dividend         $ 12,834        $ 12,876         $ 37,673        $ 37,881
income
Interest           2,865           3,462            8,932           10,497
expense
Net interest       9,969           9,414            28,741          27,384
income
Provision for      170             427              928             1,302
loan losses
Net interest
income after       9,799           8,987            27,813          26,082
provision for
loan losses
                                                                  
Non-interest       1,925           2,298            5,749           5,972
income
Non-interest      6,835        6,559          19,737       18,524    
expense
Income before      4,889           4,726            13,825          13,530
income taxes
Income taxes      1,356        1,358          3,906        3,894     
                                                                  
Net income       $ 3,533       $ 3,368         $ 9,919       $ 9,636     
                                                                  
                                                                  
Share and Per
Common Share
Data
                                                                  
Period-end
shares             3,937,733       3,918,894        3,937,733       3,918,894
outstanding
Basic average
shares             3,936,129       3,912,237        3,929,859       3,894,653
outstanding
Diluted
average shares     3,959,937       3,933,202        3,949,230       3,914,440
outstanding
                                                                  
Basic earnings   $ 0.90          $ 0.86           $ 2.52          $ 2.47
per share
Diluted
earnings per     $ 0.89          $ 0.86           $ 2.51          $ 2.46
share
                                                                  
Cash dividends   $ 0.315         $ 0.295          $ 0.930         $ 0.870
Book value       $ 31.34         $ 32.98          $ 31.34         $ 32.98
(period end)
Tangible book
value (period    $ 29.91         $ 31.43          $ 29.91         $ 31.43
end)
                                                                  
Selected
Financial
Ratios
                                                                  
Return on          1.02      %     1.05       %     0.99      %     1.04      %
Average Assets
Return on          11.73     %     10.49      %     10.57     %     10.37     %
Average Equity
Tax-equivalent
Net Interest       3.12      %     3.20       %     3.13      %     3.22      %
Margin
Efficiency         55.4      %     50.7       %     55.7      %     52.7      %
Ratio (1)
                                                                              

                                                              
                               At or for the Nine Months Ended   At or for the
                                                                 Year Ended
                               September 30,                     December 31,
                                            
                               2013                2012          2012
Asset Quality
                                                                 
Net charge-offs to average     0.10%               0.25%         0.23%
loans
Allowance for loan losses to   0.99%               1.00%         0.99%
total loans
Allowance for loan losses to   107.8%              74.9%         82.1%
non-performing loans
Non-performing loans to        0.92%               1.33%         1.21%
total loans
Non-performing assets to       0.70%               1.08%         0.97%
total assets
                                                                 
Capital Ratios
                                                                 
Tier 1 leverage capital        8.91%               8.83%         8.87%
Tier 1 risk-based capital      14.80%              14.03%        14.15%
Total risk-based capital       16.44%              15.67%        15.78%
Tangible equity to total       8.54%               9.51%         9.39%
assets
Tangible common equity (2)     8.57%               9.55%         9.43%
                                                                 

(1) 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.
(2) Computed by dividing the total common shareholders' equity, less goodwill
and other intangible assets, by total assets, less goodwill and other
intangible assets.

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.

(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