BAR HARBOR, Maine--(BUSINESS WIRE)--

Bar Harbor Bankshares (NYSE: BHB) reported second quarter 2017 net income of $6.6 million, or 42 cents per share. Core earnings totaled $8.1 million, or 52 cents per share. Net income increased 56% over the prior quarter and core earnings increased 21% reflecting the strength of the expanded operations. Merger-related and systems conversion costs in the second quarter of 2017 totaled $0.10 per share (after-tax).

SECOND QUARTER FINANCIAL HIGHLIGHTS (comparisons are to prior quarter unless otherwise stated):

• 11% increase in net interest income
• 10% increase in fee income
• 20 bps improvement in core ROA to .94% (non-GAAP measure)
• 56.0% efficiency ratio (non-GAAP measure)
• 7.1% annualized deposit growth
• 0.22% non-performing loans to total loans

President and Chief Executive Officer, Curtis C. Simard stated, “The second quarter results are reflective of the momentum and drive we experienced across all our markets. We remain focused on executing profitability strategies while maintaining our commitment to our communities. Not only did we experience strong and disciplined improvement in all performance metrics, we successfully completed our systems conversion on time and according to plan. This has been an active quarter in every way, and I am proud of what our teams have accomplished. It is a direct reflection of our commitment and what defines our culture.”

Mr. Simard further stated “We continue to strengthen our balance sheet by delivering positive operating leverage through revenue diversification and maximizing operational efficiencies. All the while, our commitment to credit risk and asset quality remains a top priority as the second quarter ratio of non-performing loans to total loans came in at a mere 22 basis points.”

RESULTS OF OPERATIONS

GAAP earnings increased to $6.6 million in the second quarter from $4.2 million in the linked quarter driven by higher interest income and fee income, and lower merger related expenses. Core income, which is a non-GAAP measure excluding tax-effected acquisition and system related costs, was $8.1 million in the second quarter compared to $6.2 million in the prior quarter. Second quarter earnings includes a full quarter earnings from the Lake Sunapee Bank Group merger that closed on January 13, 2017. Net interest income was affected positively by a 6 basis point increase in net interest spread. The yield on earning assets also benefited from purchase loan accretion.

Total non-interest income increased $0.5 million to $6.6 million compared to $5.9 million in the prior quarter. Trust and investment management fees increased $0.5 million in the current quarter as we continue to leverage the expanded operations from the merger. Customer service fees increased $0.6 million compared to the prior quarter as a result of a higher number of ATM transactions and a full quarter impact from the acquired operations.

Non-interest expense decreased $0.8 million in the current quarter primarily due to lower merger related and system conversion costs. The efficiency ratio (a non-GAAP financial measure) was 56.0% compared to 63.0% in the prior quarter and 60.0% in the second quarter of 2016. This decrease reflects disciplined cost control and execution against anticipated cost saves with the acquisition.

The effective tax was 31.6% in the second quarter compared to 26.0% in the first quarter, reflecting higher pretax income. The first quarter also benefited from a merger related discrete tax adjustment that reduced the quarterly rate based on the revaluation of the Company’s net deferred tax assets to the New Hampshire state rate.

FINANCIAL CONDITION

Total assets measured $3.5 billion at June 30, 2017. While total loan growth was relatively flat due to a large commercial real estate loan payoff just prior to quarter end, total average balances increased for the quarter. Commercial and industrial product lines increased 46.3% from the prior quarter, which are generally variable rate in nature and are favorable in the current interest rate environment.

The Company’s book value per share increased to $22.53 from $22.17 in the first quarter while tangible book value per share, a non-GAAP financial measure, increased to $15.44 from $15.07. The loan to deposit ratio improved to 107% from 109% in the prior quarter primarily due to growth in time deposits as we continue to leverage and deepen the expanded customer base. Asset quality continues to be strong as the ratio of non-accruing loans to total loans decreased to 0.22% from 0.25% in the previous quarter and net charge-offs to total loans remains close to zero at 0.03%.

BACKGROUND

Bar Harbor Bankshares (NYSE MKT: 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, merger 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 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. Charges related to merger of Lake Sunapee Bank Group consists primarily of severance and retention cost, systems conversion and integration costs, and professional fees. The Company’s disclosure of organic growth of loans in 2017 is also adjusted for the Lake Sunapee Bank Group merger.

(1) Adjusted 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. (5) Generally accepted accounting principles require that loans acquired in a business combination be recorded at fair value, whereas loans from business activities are recorded at cost. The fair value of loans acquired in a business combination includes expected loan losses, and there is no loan loss allowance recorded for these loans at the time of acquisition. Accordingly, the ratio of the loan loss allowance to total loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods. Similarly, net loan charge-offs are normally reduced for loans acquired in a business combination since these loans are recorded net of expected loan losses. Therefore, the ratio of net loan charge-offs to average loans is reduced as a result of the existence of such loans, and this measure is not directly comparable to prior periods. Other institutions may have loans acquired in a business combination, and therefore there may be no direct comparability of these ratios between and among other institutions.

(1) The Company completed the merger with Lake Sunapee Bank Group on January 13, 2017.

(2) Adjusted for 3-for-2 stock-split March 2017.

(1) Non-GAAP financial measure.

(2) Acquired Lake Sunapee Bank loans are as of January 13, 2017.

(1) Non-GAAP financial measure.

(2) Acquired Lake Sunapee Bank deposits are as of January 13, 2017.

(1) Adjusted for 3-for-2 stock-split completed in March 2017

(1) Adjusted for 3-for-2 stock split completed in March 2017

(1) Total loans include non-accruing loans.

(2) Average balances for securities available-for-sale are based on amortized cost.

(1) 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.

(2) Ratios are annualized and based on average balance sheet amounts, where applicable. Quarterly data may not sum to year-to-date data due to rounding.

(3) Core 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 37.57% in 2017 and 35.0% in 2016, by tangible equity.

(4) Non-GAAP financial measure.

(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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