BAR HARBOR, ME / ACCESSWIRE / January 20, 2022 / Bar Harbor Bankshares (NYSE American:BHB) reported fourth quarter 2021 net income of $9.8 million or $0.65 per diluted share, up from $8.6 million or $0.58 per diluted share in the same quarter of 2020. Core earnings per share (non-GAAP) in the fourth quarter of 2021 was $0.68 compared to $0.62 per share for the same period of 2020.

FOURTH QUARTER HIGHLIGHTS (ratios compared to the fourth quarter 2020)

• 1.02% return on assets or 1.07% on a core basis (non-GAAP)
• 13% growth in core pre-tax, pre-provision net revenue, excluding Paycheck Protection Program (PPP) loans
• 13% annualized commercial loan growth, excluding PPP loans
• 13% annualized core deposit growth
• 0.27% non-performing asset ratio to total assets, compared to 0.33%

President and Chief Executive Officer, Curtis C. Simard stated, "Once again our team is proud to deliver strong results, reporting a 10% increase in core earnings per share in the fourth quarter 2021 over the prior year's quarter. Throughout 2021 we maintained an annualized core return on assets of over 1% and a core return on tangible common equity of over 13% in each quarter. This level of performance reflects the progress toward our strategic objectives to reduce funding costs, increase fee-based revenues and grow commercial loans while maintaining exceptional credit quality. We also grew tangible book value per share, which is up 2% from the prior quarter and 6% over the prior year."

"Net interest margin (NIM) on a GAAP basis was 2.79% for the fourth quarter 2021 compared with 3.02% in the same quarter of 2020. Excluding the effects of PPP fee acceleration, excess cash, and one-time items, our normalized NIM increased to 2.99% in 2021 from 2.94% in the fourth quarter of 2020, and is flat with the third quarter of 2021. At year-end 2021, we had about $200 thousand of remaining PPP deferred fees which will be amortized to the margin in 2022 as we have worked closely with our customers to receive PPP loan forgiveness. The stabilization and modest expansion in normalized NIM is due to the continued growth in low-interest bearing deposits in 2021 and several delever and security remix strategies that were executed during the past two years. Our cost of interest-bearing liabilities has steadily dropped to 41 basis points from 77 basis points in the fourth quarter 2020."

"In December 2021, we prepaid $70 million of FHLB borrowings and sold $19 million of securities to offset prepayment penalties, which were replaced with relatively short-lived securities with an average duration of approximately 4 years. The net result of the transactions is expected to add five basis points to NIM and $0.02 to core earnings per share in the first quarter 2022."

Mr. Simard continued, "Looking at yields in 2021, income from loans and securities have both been affected by acceleration of discounts and premiums due to prepayment activity. Specifically, while our yield on commercial real estate loans was 3.40% for the fourth quarter 2021 excluding one-time adjustments, was 3.50% which is consistent with the third quarter 2021. The quarterly contractual rates present a better look at repricing activity and reflect a more linear and flatter curve in the second half of 2021. As we think about 2022, we view this as a positive indicator along with our well-positioned, asset-sensitive balance sheet should the Federal Reserve Bank increase rates."

"On the funding side, core deposits increased 13% during the quarter as new accounts were established from new relationships. Wholesale funding has decreased to 4% of total funding, down from 18% at year-end 2020. Core deposit reliance continues to expand, funding our growth with a much more stabilized cost if rates do go up. At year-end 2021, $114 million of wholesale funding remains, which represent longer durations or have associated hedges."

Mr. Simard further stated, "Wealth management and customer service fees increased 18% from the fourth quarter 2020, given a 13% increase in assets under management and our significant increase in core deposits. Our Wealth Management division continues to deliver a strong performance from both a customer and shareholder perspective. We continue to focus on profitability and fee-based revenue remains a priority. The growth seen during this past year has contributed to the expansion in our key performance metrics, while further enhancing the diversity and strength of our revenue streams. Mortgage banking income in the fourth quarter 2021 benefited from our secondary market loan sales, which also accounts for the decrease in residential loans as we selectively moved production between on-balance sheet and held for sale."

"Growth in commercial real estate loans for the quarter was driven largely by existing customers. These are proven operators and long-time customers of the Bank. Similarly, the growth in commercial and industrial loans of 11%, excluding PPP, came from existing customers and represented a variety of industries. As we look forward, the pipelines remain robust and we see the momentum continuing into the first quarter."

"Credit metrics remained strong and stable in the fourth quarter. The modest increase in provision in the fourth quarter is largely due to stabilizing economic forecasts along with slight increases to qualitative adjustments on certain loan categories, offset by $144 thousand of net recoveries for the quarter. Non-performing loans continue to decline across all categories on a quarterly and year-over-year basis. In the quarter, we also saw a noteworthy reduction of criticized loans, down to 3% from 4% at the end of the third quarter 2021. All of these trends are positive and are expected to continue as we move into 2022 based on our credit disciplines."

Mr. Simard concluded, "As we enter 2022, we continue to actively manage the balance sheet, investing excess liquidity diligently without compromising our credit or interest rate risk appetites. We are excited about this new year and feel we are well positioned regardless of the resulting economic environment."

DIVIDEND DECLARED

The Board of Directors voted to declare a cash dividend of $0.24 per share to shareholders of record at the close of business on February 17, 2022, payable on March 17, 2022. This dividend equates to a 3.32% annualized yield based on the $28.93 closing price of the Company's common stock at the end of the fourth quarter of 2021.

FINANCIAL CONDITION

Total assets were $3.7 billion at the end of the fourth quarter 2021. We executed a balance sheet delever and security remix strategy where $70.0 million of Federal Home Loan Bank advances were prepaid and $19.0 million of securities were sold and then replenished.

Loans were $2.5 billion at the end of the fourth quarter. Excluding PPP loans, commercial loans increased $49.2 million primarily due to five new loans totaling $70.4 million and two new participations totaling $44.3 million. PPP loan balances totaled $6.7 million at year-end 2021 and $53.8 million at the end of 2020. Unearned deferred fees on PPP loans totaled $219 thousand at the end of the quarter and are expected to be mostly recognized in early 2022. COVID loan modifications totaled $566 thousand, down from $4.7 million at the end of the third quarter 2021. Total residential loans decreased $28.7 million from the end of the third quarter 2021, as the Company continued its strategy to sell the majority of residential loan originations in the secondary market.

The allowance for credit losses was $22.7 million for the fourth quarter, compared to $22.4 million at the end of the third quarter 2021. A steadying economic forecast and disciplined approach to credit quality resulted in an allowance to total loans coverage ratio of 0.90% compared to 0.89% at the end of the third quarter 2021. The fourth quarter 2021 charged off loans resulted in a net recovery of $144 thousand, or 0.02% of the total loan portfolio compared to a net charge off of $193 thousand, or 0.03% of total loans in the third quarter 2021. Non-accruing loans for the fourth quarter 2021 decreased to $10.2 million from $12.2 million at the end of the third quarter 2021. The ratio of accruing past due loans to total loans was 0.32% of total loans at the end of the fourth quarter 2021 from 0.12% at the end of the third quarter 2021 and 0.58% at year-end 2020. The increase in 30-day past due accounts for the quarter is attributable to the payment schedules of residential loans and timing due to the quarter ending on a 31 day month.

Total deposits were $3.0 billion at the end of the fourth quarter, an increase of $41.3 million from the third quarter 2021, due to continued core deposit growth. Core deposits grew $85.0 million, or 13% on an annualized basis, during the quarter as over 300 new customer accounts were opened. As a result the loan to deposit ratio was 83% compared to 84% at the end of the third quarter 2021. Time deposits decreased $43.7 million during the quarter primarily due to $15.0 million of brokered certificates of deposit that matured in the fourth quarter. The remaining decrease is attributable to customers continuing to move funds to transactional accounts upon contractual maturity.

The Company's book value per share was $28.27 at December 31, 2021, compared with $27.92 at the end of the third quarter 2021. Tangible book value per share (non-GAAP measure) was $19.86 at the end of the fourth quarter 2021, compared to $19.48 at the end of the third quarter 2021, an annualized growth rate of 8%. Other comprehensive income included unrealized gains on securities totaling $2.0 million in the fourth quarter 2021 compared to $4.4 million at the end of the third quarter 2021.

RESULTS OF OPERATIONS

Net income in the fourth quarter 2021 was $9.8 million, or $0.65 per share, compared to $8.6 million, or $0.58 per share, in the same quarter of 2020. Net income improved on higher fee income and lower operating expenses. PPP loan fees contributed $0.07 to earnings per share in the fourth quarter of 2021 and $0.18 in the same period of 2020. Core earnings (non-GAAP) totaled $10.2 million or $0.68 per share, compared to $9.2 million, or $0.62 per share, in the same quarter of 2020. Non-core items (non-GAAP) reduced net income by $472 thousand in the fourth quarter 2021 and $578 thousand in the same period of 2020.

Net interest margin was 2.79% compared to 3.02% in the same period of 2020. Acceleration of PPP loan fee amortization due to forgiveness contributed 10 basis points to NIM in the fourth quarter 2021 and 23 basis point in the same period of 2020. Interest-bearing cash balances, held mostly at the Federal Reserve Bank, reduced NIM by 27 basis points in the fourth quarter 2021 and 16 basis points in the fourth quarter 2020. The yield on earning assets totaled 3.10% compared to 3.65% in the fourth quarter 2020. Excluding the impact of PPP and excess cash, the yield on earning assets totaled 3.30% and 3.61% for the same periods. The yield on loans was 3.58% in the fourth quarter 2021, 3.98% in the third quarter 2021 and 4.03% in the fourth quarter of 2020. Excluding PPP loans the yield on loans was 3.45% in the fourth quarter of 2021, 3.62% in the third quarter of 2021 and 3.77% in the fourth quarter 2020. Costs of funds decreased to 0.41% from 0.77% in the fourth quarter 2020 due to lower deposit rates and reduced wholesale borrowings.

The provision for credit losses for the quarter was $126 thousand, compared to of $1.4 million in the fourth quarter of 2020. The provision in the fourth quarter 2021 is attributable to steadying economic forecasts from the third quarter 2021, which overall is down from the provision that was booked under the incurred model in the prior year, considering COVID-19 effects.

Non-interest income in the fourth quarter 2021 was $11.2 million, compared to $14.7 million in the same quarter of 2020. Customer service fees were $3.5 million in the fourth quarter compared to $2.9 million in the same period of 2020. The increase is due to over 300 new accounts that were opened during the quarter and a higher volume of customer activity and transactions. Wealth management income increased 16% over the same quarter of 2020 to $3.8 million with assets under management growing 13% to $2.54 billion compared to $2.25 billion in the same period of 2020. The Company sold securities resulting in an $890 thousand gain as part of the aforementioned remix strategy. Mortgage banking activities were $1.6 million, compared to $2.7 million in the same period of 2020. Additionally, bank-owned life insurance income increased $178 thousand due to mortality proceeds from a death claim.

Non-interest expense was $22.9 million in the fourth quarter 2021 from $27.8 million in the same quarter of 2020. Salaries and benefits expense decreased to $11.8 million compared to $13.3 million in the same quarter of 2020, reflecting full-time equivalents of 423 compared to 531, respectively and favorable discount rates on the Company's supplemental-retirement plans. The efficiency ratio benefited from controlled operating expenses in the fourth quarter and was 60.74% compared to 61.98% in the same period of 2020. Excluding the effects of PPP the efficiency ratio was 62.51% and 63.81% for the same respective periods. Non-core expenses (non-GAAP) in the fourth quarter 2021 totaled $1.5 million and consisted of a $1.1 million prepayment penalty on debt extinguishment and a $515 thousand loss on the sale of premises and equipment as the Company continues to optimize its branch footprint. In the same quarter of 2020 non-core expenses (non-GAAP) totaled $4.7 million and included costs to consolidate our wealth management systems.

The effective tax rate for the quarter was 18%, down from 21% in the fourth quarter 2020. The income tax provision in fourth 2021 includes a true-up of the statutory tax rate as more business was driven from the lower cost state of Maine. Also with the filing of the tax returns in the quarter, $76 thousand of tax reserves were released, which is considered a one-time item.

CONTACTS

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

BAR HARBOR BANKSHARES
SELECTED FINANCIAL HIGHLIGHTS - UNAUDITED

(1) Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in table I-J for additional information.
(2) All performance ratios are based on average balance sheet amounts, where applicable.
(3) Fully taxable equivalent considers the impact of tax-advantaged investment securities and loans.
(4) Core net interest margin excludes Paycheck Protection Program loans.
(5) Earning assets includes non-accruing loans and interest-bearing deposits with other banks. Securities are valued at amortized cost.
(6) The first and second quarters of 2021 and the fourth quarter of 2020 have been revised for derivatives that were incorrectly presented as assets instead of liabilities and related equity effects net of tax.

BAR HARBOR BANKSHARES
CONSOLIDATED BALANCE SHEETS - UNAUDITED

(1) The first and second quarters of 2021 and the fourth quarter of 2020 have been revised for derivatives that were incorrectly presented as assets instead of liabilities and related equity effects net of tax.

BAR HARBOR BANKSHARES
CONSOLIDATED LOAN & DEPOSIT ANALYSIS - UNAUDITED

LOAN ANALYSIS

DEPOSIT ANALYSIS

*Indicates ratios of 100% or greater.

BAR HARBOR BANKSHARES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED

BAR HARBOR BANKSHARES
CONSOLIDATED STATEMENTS OF INCOME (5 Quarter Trend) - UNAUDITED

BAR HARBOR BANKSHARES
AVERAGE YIELDS AND COSTS (Fully Taxable Equivalent - Annualized) - UNAUDITED

(1) Income from interest-bearing deposits with other banks has been separated from securities and restated for prior periods to conform to the current period presentation.
(2) Core net interest margin excludes Paycheck Protection Program loans.

BAR HARBOR BANKSHARES
AVERAGE BALANCES - UNAUDITED

(1) Total average interest-bearing deposits with other banks is net of Federal Reserve daily cash letter.
(2) Average balances for securities available-for-sale are based on amortized cost.
(3) Total average loans include non-accruing loans and loans held for sale.
(4) The first and second quarters of 2021 and the fourth quarter of 2020 have been revised for derivatives that were incorrectly presented as assets instead of liabilities and related equity effects net of tax.

BAR HARBOR BANKSHARES
ASSET QUALITY ANALYSIS - UNAUDITED

BAR HARBOR BANKSHARES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND SUPPLEMENTARY DATA - UNAUDITED