Bar Harbor Bankshares Reports First Quarter Earnings

Bar Harbor Bankshares (NYSE American: BHB) reported first quarter 2018 GAAP earnings of $7.8 million, or 50 cents per share, compared with $4.2 million, or 29 cents per share in the same quarter of 2017. Core earnings in the first quarter 2018 totaled $8.1 million, or 52 cents per share, up 21% from $6.2 million, or 43 cents in the first quarter of 2017.

FIRST QUARTER FINANCIAL HIGHLIGHTS (comparisons are to the first quarter 2017 unless otherwise noted):

• $29.4 million vs. $27.3 million in total revenue (non-GAAP measure)
• 8% increase in net interest income
• 11% annualized commercial and industrial loan growth
• 0.93% core return on assets (non-GAAP measure)
• 9.31% core return on equity (non-GAAP measure)

President and Chief Executive Officer, Curtis C. Simard stated, “Our teams hit the ground running and have delivered a strong start to this year. We achieved both our revenue and net income expectations for the first quarter of 2018. Total revenue increased 8% and core earnings per share is up 21% year-over-year as we expanded our market presence throughout Northern New England. This is just more proof that we continue to deliver on the commitments made over a year ago as we focus on profitable growth through the use of various revenue streams coupled with disciplined expense management. As we have communicated before, we will continue to hold firm our model of balancing growth and earnings.”

Mr. Simard went on to say, “We have much to be proud about the way our teams performed in the first quarter. While some loan closings were delayed during the first quarter, our loan pipelines remain robust. We opened over 3,200 new deposit accounts while our branch colleagues came together under new leadership, and our wealth management team continued to drive significant fee income. The first quarter also sparked a launch for many growth and strategic initiatives throughout the Company. We rolled out an expanded Treasury Management Services platform in January and we hired a new EVP of Human Resources, John Land, who will focus on the employee experience including total value compensation. We remain committed to our customers, employees and shareholders as we focus on being one of the most profitable banks in New England.”

Mr. Simard further stated, “We have built a strong retail and commercial bank franchise that understands the needs of our customers and is committed to providing solutions while preserving the culture in our communities. Our brand identity is prevalent in the markets we serve, and while the acquisition allowed for some name continuity, we’ve listened to our customers and their preference to consolidate the brand under one name. In recognition of the value proposition we represent, all of our Retail and Commercial business lines will begin operating under the Bar Harbor Bank & Trust name. The teams have expressed great enthusiasm about this milestone, which is expected to strengthen our brand and allow us to both streamline processes and deliver products more efficiently. We expect that the brand consolidation will be completed by the end of the second quarter 2018.”

Mr. Simard also stated “Similar to the brand consolidation, our teams in wealth management are working to migrate Bar Harbor Trust Services and Charter Trust onto a common operating platform. Fee income remains a focus of the Company and wealth management is a strong source of these revenue streams. The combined platform is expected to improve operational efficiencies and deepen customer relationships, allowing for further market penetration and cross-sell opportunities which are central themes to our sales objectives.”

Mr. Simard concluded, “2018 is about continuing to improve performance metrics while fine-tuning and consolidating the way we operate and conduct our business to realize our greatest potential as a true community bank.”

RESULTS OF OPERATIONS
GAAP earnings increased to $7.8 million, or 50 cents per share, in the first quarter of 2018 from $4.2 million, or 29 cents per share, in the same period of 2017, primarily as a result of the merger expenses reflected in the previous year. Core earnings were up 21% to $8.1 million, or 52 cents per share, in the first quarter of 2018 compared to $6.2 million, or 43 cents per share, in the first quarter of 2017. The increase in core earnings was driven by greater total revenue resulting from both the growth in earning assets and in yields. Interest income from earning assets increased to a record high for a quarter of $30.8 million with a yield of 3.92%. The decline in yield related to commercial and industrial loans was due to a lower tax-equivalency adjustment on tax exempt loans given the new 2018 Federal tax rate. Net interest income in 2018 increased 8% compared to 2017 despite higher funding costs. Net interest margin for the first quarter was 2.97%, which includes a 5 basis point reduction due to lower tax-equivalency adjustments. We continue to address margin compression and balance sheet rate sensitivity through variable rate loan originations and shifts in funding mix and term. This strategy results in short-term incremental costs, but secures the Company’s longer-term net interest margin goals and funding requirements. Tax savings related to the lower Federal rate in 2018 is solely reflected within income tax expense and represents an effective tax rate for the first quarter of 19.9%. The effective tax rate for the same quarter in 2017 benefited from the acquisition and conversion related costs.

Non-interest income was $6.2 million in the first quarter of 2018, as compared to $5.9 million in the same quarter of 2017. The increase is principally due to higher trust management and customer service fees, both related to a higher volume of customer transactions.

Non-interest expense decreased to $18.9 million in the first quarter 2018 compared to $20.8 million in the first quarter of 2017. The decrease is principally due to lower acquisition, conversion and other expenses, which totaled $335 thousand in 2018 compared to $3.1 million in 2017. Non-interest expenses are slightly elevated in the first quarter compared to the fourth quarter and in line with expectations given higher employer taxes and the additional increases in salary and employee benefits related to employment taxes. The efficiency ratio improved to 60% for the quarter compared to 61% in the first quarter of 2017. That improvement includes realized cost savings from the acquisition partially offset with higher salary and benefit expense due to seasonally higher employer payroll taxes and recent strategic new hires. We continue to focus on profitable growth with disciplined expense management which is evidenced in our profitability metrics for the quarter.

FINANCIAL CONDITION
Total assets declined $54.2 million during the first quarter in 2018 to $3.5 billion primarily as a result of decreases in loan balances and excess cash. Total loans decreased $21.2 million in the first quarter as certain significant loan closings were delayed into the second quarter. Excess cash was strategically used during the latter part of the first quarter to pay down higher cost borrowings. Non-accruing loans increased by $6.0 million during the quarter mostly due to the deterioration of one specific residential relationship, which is expected to be settled at the full carrying value of the obligation. Overall, asset quality metrics remain strong with an allowance for credit losses to total loans ratio of 0.51%. Total securities increased $1.3 million during the quarter, which reflects purchases of shorter duration investments offset by $10.7 million in fair value adjustments. Excluding the impact of securities fair value adjustments, strong earnings grew tangible book value per share (non-GAAP) to $16.33 compared from $16.13 at the end of 2017.

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 125 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.bhbt.com.

FORWARD LOOKING STATEMENTS
This document contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. There are several factors that could cause actual results to differ significantly from expectations described in the forward-looking statements. For a discussion of such factors, please see the Company’s most recent reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission and available on the SEC’s website at www.sec.gov. The Company does not undertake any obligation to update forward-looking statements.

NON-GAAP FINANCIAL MEASURES
This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (“GAAP”). These non-GAAP measures provide supplemental perspectives on operating results, performance trends, and financial condition. They 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 included beginning on page J in the accompanying financial tables. In all cases, it should be understood that non-GAAP per share measures do not depict amounts that accrue directly to the benefit of shareholders.

The Company utilizes the non-GAAP measure of core earnings in evaluating operating trends, including components for core revenue and expense. These measures exclude items which the Company does not view as related to its normalized operations. These items include securities gains/losses, acquisition costs, restructuring costs, and systems conversion costs. Non-core adjustments are presented net of an adjustment for income tax expense. This adjustment is determined as the difference between the GAAP tax rate and the effective tax rate applicable to core income. The efficiency ratio, which the Company believes provides important information about its operating efficiency, is adjusted for non-core revenue and expense items and for tax preference items. The Company also calculates measures related to tangible equity, which adjust equity (and assets where applicable) to exclude intangible assets due to the importance of these measures to the investment community. Further detail regarding the computation of the Company's non-GAAP measures is provided in the footnotes to the reconciliation of non-GAAP financial measures to GAAP measures included beginning on page J in the accompanying financial tables.

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(1) Core measurements are non-GAAP financial measures that are adjusted to exclude net non-operating charges primarily related to acquisitions, and gain on sale of securities. Refer to the Reconciliation of Non-GAAP Financial Measures in table J for additional information.
(2) Non-GAAP financial measure.
(3) All performance ratios are annualized and are based on average balance sheet amounts, where applicable.
(4) Fully taxable equivalent considers the impact of tax-advantaged investment securities and loans.

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(1) Total loans include non-accruing loans.
(2) Average balances for securities available-for-sale are based on amortized cost.

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(1) Assumes a marginal tax rate of 24.15% in 2018 and 37.57% in 2017.
(2) Non-GAAP financial measure.
(3) Total tangible shareholders' equity is computed by taking total shareholders' equity less the intangible assets at period-end. Total tangible assets is computed by taking total assets less the intangible assets at period-end.
(4) 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 24.15% in 2018 and 37.57% in 2017, by tangible equity.
(5) Efficiency ratio is computed by dividing total core tangible non-interest expense by the sum of total net interest income on a fully taxable equivalent basis and total core non-interest income. The Company uses this non-GAAP measure to provide important information about its operating efficiency.

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