BHB - Bar Harbor Bankshares Reports Third Quarter 2023 Results; Declares Dividend

BAR HARBOR, ME / ACCESSWIRE / October 17, 2023 / Bar Harbor Bankshares (NYSE American:BHB) (the "Company") reported third quarter 2023 net income of $11.1 million or $0.73 per diluted share compared to $11.4 million or $0.76 per diluted share in the same quarter of 2022.

THIRD QUARTER 2023 HIGHLIGHTS (all comparisons to the third quarter 2022, unless otherwise noted)

• 1.11% return on assets, 10.72% return on equity
• 10% annualized increase in non-interest bearing deposits
• 4.90% yield on earning assets, compared to 3.84%
• 59% efficiency ratio, compared to 58%
• 0.17% non-performing assets ratio to total assets

Bar Harbor Bankshares' President and Chief Executive Officer, Curtis C. Simard, stated, "We delivered another solid quarter, underscoring our commitment to generating consistent, sustainable long-term performance. Net interest income was $29.2 million, up from $28.8 million in the prior quarter as excess cash was used to pay down higher funding costs. Our net interest margin remains well above our peer group as we saw minimal compression of four basis points from the prior quarter. We continue to actively manage both sides of the balance sheet identifying the right risk-adjusted rate of return on earning assets, emphasizing selective growth in high-quality loan relationships and controlling deposit costs on an individual basis. Our retail strategy has proven to be successful as we continue to gain market share within our footprint, evidenced by both the opening of more than 1,700 new customer accounts and higher balances within most categories of non-maturity deposits. Our third quarter cumulative deposit beta for the current rate cycle is 27%, well below our direct competition in our footprint and the national average for our asset size."

Mr. Simard went on to say, "We continuously monitor and quarterly stress test our commercial loan portfolio, and our credit trends remain strong as expected. Non-performing assets remain at 17 basis points of total assets while net charge-offs to average loans remain at zero. We expanded the allowance for credit losses coverage ratio in the quarter by three basis points, primarily due to an increase in specific reserves on one non-accruing commercial loan, which is expected to be settled in the fourth quarter 2023. Our fee-based revenue remains a significant portion of total income and continues to be steady given both the diversity of sources and the significant size of assets under management in our wealth management business. Total assets under management remained flat at $2.3 billion despite the greater than 3% decline for the stock and bond markets in the quarter. We continue to diligently manage non-interest expenses which also contributed to maintaining our efficiency ratio this quarter despite the economic inflationary pressures."

Mr. Simard concluded, "As a company we have an ability to execute our business strategies even amid volatile quarters in the banking sector. Our commitment to delivering consistent total shareholder returns is steadfast as we've seen throughout 2023 thus far. Given the strength of our balance sheet and our teams, we remain well poised to weather any rate environment."

DIVIDEND DECLARED

The Company's Board of Directors voted to declare a cash dividend of $0.28 per share to shareholders of record at the close of business on November 16, 2023 payable on December 15, 2023. This dividend equates to a 4.74% annualized yield based on the $23.63 closing share price of the Company's common stock on September 29, 2023, the last trading day of the third quarter 2023.

FINANCIAL CONDITION (September 30, 2023 compared to June 30, 2023)

Total assets were $4.0 billion at the end of the third and second quarters of 2023, primarily due to relatively flat loan growth and lower security balances as interest rates continued to rise during the quarter.

Total loans were $3.0 billion at the end of both the third and second quarters 2023. Commercial and industrial ("C&I") loans increased $2.9 million comprised of $22.3 million of originations and $19.4 million of payoff activity. Commercial real estate loans decreased $2.9 million during the third quarter 2023, which included new originations of $19.5 million, draw-downs of $12.2 million and payoffs totaling $34.6 million. Residential loans decreased by $11.0 million compared to the second quarter 2023, due to lower demand for prevailing mortgage rates. Consumer loans dropped by $1.9 million from the second quarter 2023 due to run-off of balances associated with the repricing of home equity lines of credit.

Securities available for sale decreased to $509.5 million at the end of third quarter 2023, from $538.2 million in the second quarter 2023 as proceeds from amortization and prepayments were used to fund loans. The book yield from securities steadily increased over the past year primarily due to a repricing of variable rates, acceleration of discounts due to prepayments, and a run-off of lower coupon fixed-rate securities. Unrealized losses on securities totaled $86.5 million at the end of the third quarter 2023 versus $71.9 million at the end of the second quarter 2023 reflecting continued increases in market rates.?

The allowance for credit losses ("ACL") was $28.0 million at the end of the third quarter 2023, compared to $27.4 million at the end of the second quarter 2023. The ratio of allowance for credit losses to total loans increased to 0.94% from 0.91% primarily due to an increase in specific reserves on one non-accrual C&I loan. While total non-accruing loans during the third quarter 2023 increased to $6.8 million from $6.7 million, we continue to see improvement in the commercial categories as we continue to work-out those loans.

Total deposits were $3.1 billion at the end of both the third and second quarters 2023, which improved the loan to deposit ratio to 95% from 97%, respectively. We opened 1,740 non-maturity accounts with new customers with an average balance of $12 thousand during the third quarter 2023. Demand and other non-interest bearing deposits, NOW and money market accounts increased $43.8 million largely driven by non-personal institutional inflows associated with seasonality during the third quarter of 2023. Savings deposits decreased $16.5 million evenly throughout the third quarter 2023 as personal accounts shifted into higher yielding certificate of deposit accounts ("CDs"). Brokered CDs decreased slightly by $778 thousand and totaled $201.9 million at the end of the third quarter 2023. Additionally, excess cash generated from operations was used to pay-down $91.9 million of Federal Home Loan Bank borrowings.

The Company's book value per share was $26.67 as of September 30, 2023, compared with $26.09 as of December 31, 2022. Unrealized losses on securities, net of taxes, reduced book value per share by $4.39 and $3.66 at the end of those respective periods. Tangible book value per share (non-GAAP measure) was $18.45 at the end of the third quarter 2023, compared to $17.78 at the end of the fourth quarter 2022.

RESULTS OF OPERATIONS (September 30, 2023 compared to September 30, 2022 quarterly comparison)

Net income in the third quarter 2023 was $11.1 million, or $0.73 per diluted share, versus $11.4 million, or $0.76 per diluted share, in the same quarter of 2022. Net interest income along with non-interest income and expense was relatively consistent in both periods. The benefit from a lower provision for loan credit losses was offset by a higher provision for income taxes due to one-time charges.

Net interest margin was 3.18% compared to 3.47% in the third quarter of 2022. The decrease was primarily driven by yield expansion on earning assets offset by a higher cost of funds. The yield on loans expanded to 5.11% in the third quarter 2023, up from 4.04% in the same quarter of 2022. Costs of interest-bearing liabilities increased to 2.19% from 0.48% in the third quarter 2022 as our costs continue to drift upwards from subsequent rate hikes. We also experienced a shift in deposit composition from non-maturity deposits to certificates of deposits, and had a heavier reliance on whole-sale borrowings in the third quarter 2023 as compared with the prior year quarter of 2022.

The provision for credit losses for the third quarter 2023 was $673 thousand, compared to $1.3 million in the same quarter of 2022. Current year quarter expense primarily reflects an increase in specific reserves on one loan, while expense in the prior year quarter was principally driven by outsized loan growth. We believe our overall credit performance continues to be strong and net charge-offs were near zero.

Non-interest income was $8.8 million in the third quarter 2023 and 2022. Customer service fees grew to $3.9 million during the third quarter 2023 from $3.8 million in the same quarter of 2022 on a higher number of transactional accounts. Wealth management income was $3.5 million in both periods as higher inflows of cash since 2022 were offset by lower security valuations in 2023.

Non-interest expense was $23.0 million in the third quarter 2023 and 2022. Salary and benefit expense was up 6% over the prior year quarter principally due to annual merit increases and lower expense deferral on decreased loan production. Other expense in the third quarter 2022 included one-time charges of $635 thousand related to the write-off of a few stale-dated reconciling items.

The effective tax rate in the third quarter 2023 was 22.4%, compared to 20.6% in the same quarter of 2022. One-time charges due to an audit settlement with the State of New Hampshire and 2022 return to provision adjustments totaled $268 thousand. Excluding one-time charges, our effective tax rate in the third quarter 2023 was consistent with the prior year quarter.

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 135 years. Bar Harbor Bank & Trust 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

All statements, other than statements of historical fact, included in this release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "believe," "anticipate," "expect," "may," "will," "assume," "should," "predict," "could," "would," "intend," "targets," "estimates," "projects," "plans," and "potential," and other similar words and expressions of the future, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements relating to Company's retail strategy, our credit trends, the timing of a settlement of a specified non-accrual commercial credit, our overall credit performance, and the Company's plans, objectives, and intentions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the Company to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to: (1) deterioration in the financial performance and/or condition of borrowers of Bar Harbor Bank & Trust (the "Bank"), including as a result of the negative impact of inflationary pressures on our customers and their businesses resulting in significant increases in credit losses and provisions for those losses; (2) the possibility that our asset quality could decline or that we experience greater loan losses than anticipated; (3) increased levels of other real estate owned, primarily as a result of foreclosures; (4) the impact of liquidity needs on our results of operations and financial condition; (5) competition from financial institutions and other financial service providers; (6) the effect of interest rate increases on the cost of deposits; (7) unanticipated weakness in loan demand or loan pricing; (8) adverse conditions in the national or local economies including in our markets throughout Northern New England; (9) changes in consumer spending, borrowing and saving habits; (10) the effects of new outbreaks of COVID-19, including actions taken by governmental officials to curb the spread of the virus, and the resulting impact on general economic and financial market conditions and on the Company's and our customers' business, results of operations, asset quality and financial condition; (11) the effects of civil unrest, international hostilities or other geopolitical events, including the war in Ukraine and recent hostilities in the Middle East; (12) inflation, interest rate, market, and monetary fluctuations; (13) lack of strategic growth opportunities or our failure to execute on available opportunities; (14) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits; (15) our ability to effectively manage problem credits; (16) our ability to successfully implement efficiency initiatives on time and with the results projected; (17) our ability to successfully develop and market new products and technology; (18) the impact of negative developments in the financial industry and United States and global capital and credit markets; (19) our ability to retain executive officers and key employees and their customer and community relationships; (20) our ability to adapt to technological changes; (21) risks associated with litigation, including reputational and financial risks and the applicability of insurance coverage; (22) our ability to implement new technology effectively; (23) the vulnerability of the Bank's computer and information technology systems and networks, and the systems and networks of third parties with whom the Company or the Bank contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss, and other security breaches and interruptions; (24) changes in the reliability of our vendors, internal control systems or information systems; (25) ongoing competition in the labor markets and increased employee turnover; (26) the potential impact of climate change; (27) the impact of pandemics, epidemics or any other health-related crisis; (28) our ability to comply with various governmental and regulatory requirements applicable to financial institutions; (29) changes in state and federal laws, rules, regulations, or policies applicable to banks or bank or financial holding companies, including regulatory or legislative developments; (30) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System; (31) adverse impacts (including costs, fines, reputational harm, or other negative effects) from current or future litigation, regulatory examinations, or other legal and/or regulatory actions; and (32) general competitive, economic, political, and market conditions, including economic conditions in the local markets where we operate. Additional factors which could affect the forward-looking statements can be found in the Company's annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K filed with the Securities and Exchange Commission (the "SEC") and available on the SEC's website at http://www.sec.gov. The Company believes the forward-looking statements contained herein are reasonable; however, many of such risks, uncertainties, and other factors are beyond the Company's ability to control or predict and undue reliance should not be placed on any forward-looking statements, which are based on current expectations and speak only as of the date that they are made. Therefore, the Company can give no assurance that its future results will be as estimated. The Company does not intend to, and disclaims any obligation to, update or revise any forward-looking statement.

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. Because non-GAAP financial measures presented in this document are not measurements determined in accordance with GAAP and are susceptible to varying calculations, these non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures presented by other companies. 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

BAR HARBOR BANKSHARES
SELECTED FINANCIAL HIGHLIGHTS - UNAUDITED

1. Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in tables 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. Earning assets includes non-accruing loans and interest-bearing deposits with other banks. Securities are valued at amortized cost.
5. Current quarter annualized.

BAR HARBOR BANKSHARES
CONSOLIDATED BALANCE SHEETS - UNAUDITED

BAR HARBOR BANKSHARES
CONSOLIDATED LOAN & DEPOSIT ANALYSIS - UNAUDITED

LOAN ANALYSIS

DEPOSIT ANALYSIS

*Indicates ratio greater than 100%

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 (Non-GAAP) - Annualized) - UNAUDITED