Bar Harbor Bankshares Reports Record Fourth Quarter Revenues

BAR HARBOR, MAINE / ACCESSWIRE / January 28, 2020 / Bar Harbor Bankshares (NYSE American: BHB) reported fourth quarter 2019 net income of $4.2 million, or $0.27 per share, compared to $5.0 million, or $0.32 per share, in the prior quarter and $7.6 million or $0.49 per share in the fourth quarter of 2018. The non-GAAP measure of core earnings in the fourth quarter 2019 increased 20% to $8.8 million, or $0.56 per share, from $7.3 million, or $0.47 per share in the prior quarter and decreased from $9.2 million, or $0.59 per share in the fourth quarter of 2018. On October 25, 2019, the Company completed the previously announced acquisition of eight branches within Central Maine and closed five branches effective December 31, 2019, as part of its strategic review. During the quarter the Company recorded non-core charges totaling $0.29 per share after-tax, primarily related to the one-time costs associated with the acquisition and balance sheet optimization initiatives that were part of the strategic review.

FOURTH QUARTER FINANCIAL HIGHLIGHTS (compared to prior quarter, unless otherwise noted):

• 98% loan to deposit ratio, improved from 103%
• 6% increase in total revenue to $31.9 million
• 20 basis point expansion in net interest margin to 2.95%
• 0.44% non-performing loans to total loans, down from 0.65%
• Called higher cost subordinated debt and replaced with upsized issuance

President and Chief Executive Officer, Curtis C. Simard stated, "We finished the year with what I can only classify as judicious and efficient execution on all fronts. This includes repositioning the Company's balance sheet, expanding our footprint within Central Maine and affirming our profitability strategies. Our strong performance and the recalibration of the balance sheet increased core return on assets to 0.96% for the quarter. In the fourth quarter, we achieved record revenues from higher interest and fee income, as well as lower cost of funds resulting from the expansion of our franchise."

Mr. Simard continued, "We completed several initiatives in the fourth quarter that reduced our cost of funds while improving interest rate risk and overall capital positions. Following the completion of the Central Maine branch acquisition, the Company used the net deposit proceeds to extinguish approximately $140 million of higher cost FHLB borrowings. Shortly thereafter, given the change in our balance sheet profile and funding needs, we terminated $90 million in interest rate caps related to rolling three-month FHLB borrowings. The losses from the caps were reclassified from other comprehensive income to earnings, with no further dilution to equity. We also completed a $40 million subordinated debt issuance which replaced $22 million of higher cost subordinated notes called earlier in the quarter. The offering was more than two times oversubscribed, driven by one of the most effective executions for 2019, and presented an opportunity to upsize the deal. It's this level of interest in our Company and belief in our long-term strategy that will allow us to continue building franchise value for our shareholders."

Mr. Simard went on to say, "Our loan origination teams continue to adhere to our disciplined underwriting practices and selectively pursue those opportunities that are accretive to our profitability metrics. This resulted in originations that kept relative pace with loan payoffs as we remixed the balance sheet and curtailed growth in lower yielding assets. In addition we exited certain non-performing loans further improving our non-performing loans to total loans to 0.44%. Implementation of all of these strategies, along with additional investment remixes that started in the third quarter resulted in net interest margin expanding 20 basis points in the fourth quarter, despite the current rate environment."

Mr. Simard concluded, "Our efforts these past few quarters have positioned us well for 2020 and will move us towards our stated goals of higher quality earnings and capital growth with continued focus on our customers and relationships which are driving current momentum."

FINANCIAL CONDITION

Total assets increased in the fourth quarter 2019 by $56.7 million to $3.7 billion primarily due to loans, goodwill and other intangible assets recorded from the branch acquisition. Securities available for sale declined $12.4 million as the Company both de-levered and remixed the investment portfolio as part of the strategic review. Loans in the fourth quarter grew by $63.8 million as acquired balances of $100.8 million were recorded and principally offset by run-off in jumbo residential loans of $14.2 million and two commercial relationships of $17.2 million that paid-off during the quarter. Mortgage growth on-balance sheet was curtailed as the secondary market platform was leveraged for fee income given the current rate environment. Non-maturity deposits increased by $172.2 million in the quarter including acquired balances, net of any year-end seasonal dips in demand deposit balances. Cash proceeds received from the acquisition were used to pay off approximately $140.0 million of higher cost FHLB borrowings during the quarter. Longer term subordinated borrowings increased by $17.0 million as existing notes at higher rates were called and opportunistically replaced with an upsized $40.0 million private placement issued in November 2019. The loan to deposit ratio improved to 98% in the fourth quarter 2019 compared to 103% in the prior quarter as a result of the branch acquisition.

Non-accruing loans in the fourth quarter 2019 decreased $5.1 million primarily due to one commercial real estate relationship that was settled with a $530 thousand recovery. The settlement also contributed to the improvement of the non-performing loans to total loans ratio to 0.44% from 0.65% in the prior quarter. The increase in 30-day past due accounts for the quarter is attributable to the payment schedules and calendar dates.

The Company's book value per share was $25.48 at year-end 2019 compared with $25.37 at the end of the third quarter 2019 and $23.87 at year-end 2018. Tangible book value per share was $17.30 compared to $18.49 at the end of the third quarter and $16.94 at year-end 2018, with the decrease during the quarter reflecting the goodwill and intangibles recorded from the branch acquisition. Excluding the impact from the acquisition, tangible book value per share increased to $18.62; an increase of 10% annualized from the third quarter 2019 and for the year.

RESULTS OF OPERATIONS

Net income in the fourth quarter 2019 was $4.2 million, or $0.27 per share, compared to $5.0 million, or $0.32 per share, in the prior quarter and $7.6 million, or $0.49 per share in the fourth quarter 2018. The non-GAAP measure of core earnings in the fourth quarter 2019 was $8.8 million or $0.56 per share, up 20% from $7.3 million or $0.47 per share in the previous quarter and down from $9.2 million or $0.59 per share in the fourth quarter 2018. Results in the fourth quarter included operations from the branch acquisition as of the October 25, 2019 effective date. Total revenue comprising of net interest income and total non-interest income increased to $31.9 million in the fourth quarter 2019 as compared to $30.1 million in the previous quarter and $29.7 million in the fourth quarter of 2018. Net interest income grew $1.7 million during the quarter primarily as a result of leveraging the low cost of deposits acquired to repay higher cost of funds. Net interest margin in the fourth quarter 2019 expanded 20 basis points due to the strategic initiatives previously discussed. Execution of these strategies improved cost of borrowings by 32 basis points on a quarter-over-quarter basis.

Non-interest income was $7.8 million compared to $7.6 million for the third quarter 2019 and $7.4 million in the fourth quarter of 2018. The increase in the quarter was driven by trust and investment management fee income and customer services fees associated from the branch acquisition.

Non-interest expense increased to $26.8 million in the fourth quarter 2019 from $23.4 million in the prior quarter and $20.1 million in the fourth quarter of 2018. The increase in the quarter is primarily a result of a $700 thousand increase in occupancy costs related to the acquired properties and other costs associated with the acquisition and strategic review. The $3.2 million loss associated with the termination of the interest rate caps was reclassified from shareholders' equity and included in acquisition, conversion and other expenses. The prior quarter included $2.2 million of branch optimization costs.

BACKGROUND

Bar Harbor Bankshares (NYSE American: BHB) is the parent company of its wholly-owned subsidiary, Bar Harbor Bank & Trust. Founded in 1887, Bar Harbor Bank & Trust is a true community bank serving the financial needs of its clients for over 130 years. Bar Harbor provides full-service community banking with office locations in all three Northern New England states of Maine, New Hampshire and Vermont. For more information, visit www.barharbor.bank.

FORWARD LOOKING STATEMENTS

Certain statements under the heading "FOURTH QUARTER FINANCIAL HIGHLIGHTS" contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this earnings release the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions are intended to identify forward-looking statements, but these terms are not the exclusive means of identifying forward-looking statements. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that the Company files with the Securities and Exchange Commission, including but not limited to those discussed in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Because of these and other uncertainties, the Company's actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, the Company's past results of operations do not necessarily indicate future results. You should not place undue reliance on any of the forward-looking statements, which speak only as of the dates on which they were made. The Company is not undertaking an obligation to update forward-looking statements, even though its situation may change in the future, except as required under federal securities law. The Company qualifies all of its forward-looking statements by these cautionary statements.

NON-GAAP FINANCIAL MEASURES

This document contains certain non-GAAP financial measures in addition to results presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). 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. A reconciliation of non-GAAP financial measures to GAAP measures is provided below. 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 core earnings can be of substantial importance to the Company's results for any particular quarter or year. The Company's non-GAAP core earnings information set forth is not necessarily comparable to non- GAAP information which may be presented by other companies. Each non-GAAP measure used by the Company in this report as supplemental financial data should be considered in conjunction with the Company's GAAP financial information.

The Company utilizes the non-GAAP measure of core earnings in evaluating operating trends, including components for core revenue and expense. These measures exclude amounts which the Company views as unrelated to its normalized operations, including gains/losses on securities, premises, equipment and other real estate owned, acquisition costs, restructuring costs, legal settlements, and systems conversion costs. Non-GAAP adjustments are presented net of an adjustment for income tax expense.

The Company also calculates core earnings per share based on its measure of core earnings. The Company views these amounts as important to understanding its operating trends, particularly due to the impact of accounting standards related to acquisition activity. Analysts also rely on these measures in estimating and evaluating the Company's performance. Management also believes that the computation of non-GAAP core earnings and core earnings per share may facilitate the comparison of the Company to other companies in the financial services industry. The Company also adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community.

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CONTACTS

Josephine Iannelli; EVP, Chief Financial Officer & Treasurer; (207) 288-3314

TABLE INDEX	CONSOLIDATED FINANCIAL SCHEDULES (UNAUDITED)
A	Selected Financial Highlights
B	Footnotes to Selected Financial Highlights
C	Balance Sheets
D	Loan and Deposit Analysis
E	Statements of Income
F	Statements of Income (Five Quarter Trend)
G	Average Yields and Costs
H	Average Balances
I	Asset Quality Analysis
J	Reconciliation of Non-GAAP Financial Measures (Five Quarter Trend) and Supplementary Data

BAR HARBOR BANKSHARES
SELECTED FINANCIAL HIGHLIGHTS - UNAUDITED
		At or for the Quarters Ended
		Dec 31, 2019				Sep 30, 2019				Jun 30, 2019				Mar 31, 2019				Dec 31, 2018
PER SHARE DATA
Net earnings, diluted		$	0.27			$	0.32			$	0.39			$	0.47			$	0.49
Core earnings, diluted (1) (2)		0.56				0.47				0.41				0.47				0.59
Total book value		25.48				25.37				25.13				24.54				23.87
Tangible book value (2)		17.30				18.49				18.23				17.63				16.94
Market price at period end		25.39				24.93				26.59				25.87				22.43
Dividends		0.22				0.22				0.22				0.20				0.20
PERFORMANCE RATIOS (3)
Return on assets		0.46		%		0.55		%		0.67		%		0.83		%		0.85		%
Core return on assets (1) (2)		0.96				0.80				0.70				0.83				1.03
Return on equity		4.21				5.04				6.33				7.83				8.31
Core return on equity (1) (2)		8.81				7.36				6.57				7.83				10.01
Core return on tangible equity (1) (2)		12.66				10.31				9.30				11.19				14.46
Net interest margin, fully taxable equivalent (FTE) (2) (4)		2.95				2.75				2.65				2.77				2.78
Net interest margin (FTE), excluding purchased loan accretion (2) (4)		2.88				2.65				2.56				2.67				2.70
Efficiency ratio (2)		62.56				65.02				68.48				63.94				59.91
ORGANIC GROWTH (Year-to-date, annualized) (2) (6)
Total commercial loans		6.0		%		10.5		%		10.1		%		(3.3		%)		1.4		%
Total loans		2.0				4.7				7.1				5.9				0.2
Total deposits		(1.8		)		0.6				(0.1		)		(2.8		)		5.6
FINANCIAL DATA (In millions)
Total assets		$	3,669			$	3,612			$	3,688			$	3,629			$	3,608
Total earning assets (5)		3,336				3,270				3,355				3,312				3,263
Total investments		684				703				784				782				761
Total loans		2,641				2,577				2,578				2,527				2,490
Allowance for loan losses		15				15				15				14				14
Total goodwill and intangible assets		127				107				107				107				108
Total deposits		2,696				2,494				2,481				2,466				2,483
Total shareholders' equity		396				394				391				381				371
Net income		4				5				6				7				8
Core earnings (1) (2)		9				7				6				7				9
ASSET QUALITY AND CONDITION RATIOS
Net charge-offs (current quarter annualized)/average loans		0.08		%		0.02		%		-		%		0.03		%		0.03		%
Allowance for loan losses/total loans		0.58				0.60				0.57				0.55				0.56
Loans/deposits		98				103				104				102				100
Shareholders' equity to total assets		10.80				10.92				10.59				10.50				10.27
Tangible shareholders' equity to tangible assets		7.60				8.20				7.92				7.77				7.51

BAR HARBOR BANKSHARES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY DATA - UNAUDITED
			At or for the Quarters Ended
(in thousands)			Dec 31, 2019				Sep 30, 2019				Jun 30, 2019				Mar 31, 2019				Dec 31, 2018
Net income			$	4,207			$	5,015			$	6,117			$	7,281			$	7,620
Plus (less):
(Gain) loss on sale of securities, net			(80		)		(157		)		-				-				924
(Gain) loss on sale of premises and equipment, net			(3		)		-				21				-				-
Loss on other real estate owned			20				146				-				-				5
Loss on debt extinguishment			1,096				-				-				-				-
Acquisition, restructuring and other expenses			4,998				3,039				280				-				1,109
Income tax expense (1)			(1,440		)		(720		)		(72		)		-				(485		)
Total core earnings (2)	(A)		$	8,798			$	7,323			$	6,346			$	7,281			$	9,173
Net interest income	(B)		$	24,104			$	22,445			$	21,496			$	21,765			$	22,264
Plus: Non-interest income			7,806				7,643				7,453				6,167				7,450
Total Revenue			31,910				30,088				28,949				27,932				29,714
Adj: (Gain) loss on sale of securities, net			(80		)		(157		)		-				-				924
Total core revenue (2)	(C)		$	31,830			$	29,931			$	28,949			$	27,932			$	30,638
Total non-interest expense			26,803				23,400				20,906				18,624				20,096
Less: Gain (loss) on sale of premises and equipment, net			3				-				(21		)		-				-
Less: Loss on other real estate owned			(20		)		(146		)		-				-				(5		)
Less: Loss on debt extinguishment			(1,096		)		-				-				-				-
Less: Acquisition, conversion and other expenses			(4,998		)		(3,039		)		(280		)		-				(1,109		)
Core non-interest expense (2)	(D)		$	20,692			$	20,215			$	20,605			$	18,624			$	18,982
(in millions)
Total average earning assets	(E)		$	3,309			$	3,308			$	3,330			$	3,265			$	3,246
Total average assets	(F)		3,655				3,642				3,646				3,561				3,546
Total average shareholders' equity	(G)		396				395				388				377				364
Total average tangible shareholders' equity (2) (3)	(H)		281				288				280				270				256
Total tangible shareholders' equity, period-end (2) (3)	(I)		269				287				283				274				263
Total tangible assets, period-end (2) (3)	(J)		3,542				3,506				3,580				3,522				3,501
(in thousands)
Total common shares outstanding, period-end	(K)		15,558				15,549				15,544				15,524				15,523
Average diluted shares outstanding	(L)		15,602				15,581				15,586				15,587				15,574
Core earnings per share, diluted (2)	(A/L)		$	0.56			$	0.47			$	0.41			$	0.47			$	0.59
Tangible book value per share, period-end (2)	(I/K)		17.30				18.49				18.23				17.63				16.94
Securities adjustment, net of tax (1) (4)	(M)		5,549				8,002				5,550				(1,842		)		(8,663		)
Tangible book value per share, excluding securities adjustment (2)	(I+M)/K		16.94				17.98				17.88				17.75				17.50
Total tangible shareholders' equity/total tangible assets (2)	(I/J)		7.60				8.20				7.92				7.77				7.51
Performance ratios (5)
GAAP return on assets			0.46		%		0.55		%		0.67		%		0.83		%		0.85		%
Core return on assets (2)	(A/F)		0.96				0.80				0.70				0.83				1.03
GAAP return on equity			4.21				5.04				6.33				7.83				8.31
Core return on equity (2)	(A/G)		8.81				7.36				6.57				7.83				10.01
Core return on tangible equity (2) (6)	(A+Q)/H		12.66				10.31				9.30				11.19				14.46
Efficiency ratio (2) (7)	(D-O-Q)/(C+N)		62.56				65.02				68.48				63.94				59.91
Net interest margin	(B+P)/E		2.95				2.75				2.65				2.77				2.78
Supplementary data (in thousands)
Taxable equivalent adjustment for efficiency ratio	(N)		$	674			$	658			$	676			$	684			$	633
Franchise taxes included in non-interest expense	(O)		119				119				111				120				39
Tax equivalent adjustment for net interest margin	(P)		516				503				514				515				488
Intangible amortization	(Q)		240				207				207				207				207

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(1) Assumes a marginal tax rate of 23.78% in the first three quarters of 2019 and 23.87% in the fourth quarter 2019. A marginal tax rate of 23.78% was used in the fourth quarter of 2018.
(2) Non-GAAP financial measure.
(3) Tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. Tangible assets is computed by taking total assets less the intangible assets at period-end.
(4) Securities adjustment, net of tax represents the total unrealized loss on available-for-sale securities recorded on the Company's consolidated balance sheets within total common shareholders' equity.
(5) All performance ratios are based on average balance sheet amounts, where applicable.
(6) Adjusted return on tangible equity is computed by dividing the total core income adjusted for the tax-effected amortization of intangible assets, assuming a marginal rate of 23.78% in the first three quarters of 2019 and 23.87% in the fourth quarter 2019 and 23.78% in the fourth quarter of 2018, by tangible equity.
(7) Efficiency ratio is computed by dividing adjusted non-interest expense by the sum of net interest income on a fully taxable equivalent basis and adjusted non-interest income.

SOURCE: Bar Harbor Bankshares

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