a solid Foundation 2013 Summary Annual Report Bar Harbor Bank & Trust is a true community bank. Founded in 1887, Bar Harbor Bank & Trust (the “Bank”) is a community bank with 15 locations from Lubec to Topsham, Maine that offers a full range of financial products and services for families, businesses, municipalities, and non-profit organizations. Bar Harbor Trust Services, a subsidiary of the Bank, and Bar Harbor Financial Services, a branch of Infinex Investments, Inc., an independent third party broker, provide retirement planning, investment management, brokerage, and insurance services to a wide variety of individual, non-profit, and municipal clients. Bar Harbor Bankshares (“BHB” or the “Company”) is the parent company of Bar Harbor Bank & Trust (“BHBT”). We recognize, appreciate, and support the unique people and culture in the places we call home. Our sincere gratitude goes to Joseph Murphy on his retirement from President and CEO of Bar Harbor Bank & Trust. Under his astute leadership of almost 12 years, the Company reached new heights and achieved great things. We are most grateful for his continued guidance as a member of the Board. Bar HarBor BanksHares 2013 AnnuAl RepoRt Year-Over-Year Financial Highlights Net Income Available to Common Shareholders ($ in thousands) Diluted Earnings per Share Return on Average Equity 3 8 1 , 3 1 $ 4 3 . 3 $ % 2 5 . 0 1 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 (Dollars in thousands) Net Income Diluted Earnings Per Share Net Interest Income Non-interest Income Non-interest Expense Total Assets Total Deposits Total Securities Total Loans Total Non-performing Loans Total Net Loan Charge-offs 2013 2012 % Change $ 13,183 $ 12,466 $ 3.34 $ 3.18 $ 39,086 $ 36,971 5.8% 5.0% 5.7% $ 7,566 $ 7,709 –1.9% $ 26,860 $ 25,618 $1,373,893 $1,302,935 $ 835,651 $ 795,765 $ 450,170 $ 418,040 $ 852,857 $ 815,004 4.8% 5.4% 5.0% 7.7% 4.6% $ 8,840 $ 9,867 $ 1,040 $ 1,776 –10.4% –41.4% 1 Dear Fellow Shareholders, Over the years, the financial services industry as a whole has undergone much change driven by fluctuations in economic cycles, shifting demographics, expanding regulations, new technologies, and simply with the passage of time. Like any stable structure, a financial institution must possess a solid foundation off which to manage change and build for the future. At Bar Harbor Bankshares, there are many components to our strong foundation that enable us to report to you our eighth consecutive year of record earnings and 11th consecu- tive quarter of raising our shareholder dividend. Other key highlights we are pleased to celebrate include: • Average earning asset growth of $99.3 million, led by average loan growth of $59.2 million or 7.6% • Stable credit quality with lower levels of non-performing assets and net loan charge-offs • A $2.2 million or 5.8% increase in net interest income • A $518 thousand or 8.7% increase in fee income • Effective containment of expenses with an efficiency ratio of 55.8% • Satisfying the regulatory guidelines for a “well capitalized” institution The drivers of this performance, as further detailed in the financial narrative beginning on page 14, were quite literally across all business lines. We achieved growth in deposits, consumer and residential lending, commercial banking, and Trust and Financial Services. Importantly, growth did not come at the expense of conducting 2 Dear Fellow Shareholders, Bar HarBor BanksHares 2013 AnnuAl RepoRt business prudently as we remained committed to credit discipline and managing the shifting regulatory landscape. We fought the seemingly incessant headwinds of compressing margins caused by aggressive com- petition chasing a stagnant economy combined with the prolonged interest rate suppression by the Federal Reserve as part of its stimulus programs. Through it all, our achievements have common foundations in peo- ple. Not a single accomplishment would have been possible without the unwavering support of our custom- ers, colleagues, communities, and shareholders. A Commitment to Preserving Culture Over the decades, the leaders and dedicated employees of BHB have held true to the core values that have become synonymous with our bank. We deeply care about the communities in which we operate and strive to genuinely support these markets by asking the right questions, listening, being transparent, and being responsive. Regardless of the economic cycle or popular trend, this approach to simply doing things right serves all of our constituents quite nicely. This year was no different. Our employees again voted us “A Best Place to Work in Maine” evidencing the health of our culture. As the only publicly Executive Management (From left to right): Gerald Shencavitz, Daniel A. Hurley, III, Cheryl L. Mullen, Curtis C. Simard, Marsha C. Sawyer, Gregory W. Dalton, Stephen M. Leackfeldt, Marcia T. Bender, Michael W. Bonsey. traded company on the list, this honor indicates a company-wide system of mutual respect, clarity of mission, and attention to the employee experience. Due to its longstanding success and the financial results that are produced, preservation of our culture is a top priority. We carefully consider the impact of even the smallest change and consistently monitor our customer feedback to make sure what we believe to be the BHB service difference does not falter. As we expanded our footprint in 2012 with the branch acquisitions in Topsham, South China, and Augusta, we insisted our new colleagues truly understand our culture and commitment to it. As a result, these markets posted material gains in deposits, loans, and fees during 2013 and are firmly part of the BHBT family. We strive everyday to deliver the promises of our brand no matter where you may be. A Commitment to Sound Decision Making and Proper Controls Our disciplined credit culture and desire to advance performance based on service, rather than compromising standards, have been documented with each of our earnings gains in recent years. Again, 2013 was no different. The much published tightening of regulatory compliance throughout the industry has required a similar commitment on our behalf. We have firmly underscored that our attention to these fundamentals will remain steadfast. We have invested in our team in these critical areas and routinely implement fresh ideas that raise our effectiveness. The pursuit of best practices and attention to risk and compliance matters in general have been significant contributors to the stability of our performance and are therefore creators of value to our shareholders. While we were not part of the practices that led to much of the current changes in regulation and premium now placed on risk 3 management, remaining a positive outlier in these efforts has been critical to sustaining our balanced model where earnings and measured growth are directly linked. A Commitment to Shareholder Value Investments that sustain culture and improve control processes are not counter to the responsibility to our shareholders, something we take very seriously. Much like expansion of geography or hiring of customer-facing employees, structural investments in risk and compliance are synergistic with shareholder value. An ability to demonstrate proper controls has afforded our ability to pursue growth. In addition, many customers and employees are also shareholders, further aligning our interests and strengthening our relationship. Our commitment to Board of Directors (From left to right): Gregg S. Hannah, Martha T. Dudman, Scott G. Toothaker, Robert C. Carter, David B. Woodside, Clyde H. Lewis, Kenneth E. Smith, Thomas A. Colwell, Lauri E. Fernald, Peter Dodge, Curtis C. Simard, Robert M. Phillips, Constance C. Shea and Joseph M. Murphy advancing the value of our brand and thus our shareholder value is fully appreciated at every stop in our organization. It is at the heart of the incredible responsibility with which we have been entrusted. Evolving a Proven Formula With a solid foundation created through the generations, BHB continues to identify and evaluate new ways to create shareholder value while remaining loyal to our core ideals; a loyalty not unlike that which we have seen from our customers, colleagues, communities, and shareholders. However, a loyalty to our culture should not be mistaken as a lack of understanding that markets continue to evolve, as do the needs and expectations of community banking customers. We are further developing our product set, reviewing the need to expand and refine delivery channels, and training our teams. We do, however, remain centered in our balanced model that has consis- tently provided solid results with our goal being to further evolve and produce additional desired returns. On behalf of the Board of Directors and the entire Bar Harbor Bankshares team, it is our privilege to thank you, our shareholders, for your continued confidence and loyalty. Curtis C. Simard President & Chief Executive Officer Peter Dodge Chairman 4 Bar HarBor BanksHares 2013 AnnuAl RepoRt An Interview with Curtis C. simard What attracted you to Bar Harbor Bank & Trust? I analyzed a fair amount of financial material, quietly comparison shopped, and simply tried to understand what drove the Bank’s steady performance. I quickly found the things that have made the Bank successful were also very appeal- ing to me: a genuine dedication to the people and culture with an unrelenting commitment to becoming stronger. Having a solid financial base combined with these increasingly rare traits creates a sense of immense potential. Can you describe the culture? The culture is rooted in a sincere interest in the success of our shareholders, our customers, our employees and the communities that we serve. It’s common to witness our team pushing one another competitively while being the first to lend a hand or encouraging word when needed. I see our customers and shareholders attend any number of our open houses to check on friends or stay for a visit after conducting business at the branch. We invest in our communities generously, but responsibly. Simply put, we understand and appreciate the people and the cultures in the places we call home. Not resting on past success, what is BHBT doing to remain strong? Every day we search for what we call our “blind spots”; opportunities for us to better manage risk, improve the customer and employee experiences, or enhance communication in general. As we bring these into view, we rally around the best way to address them and turn them into strengths. This is at the heart of evolving and becoming stronger. What are your thoughts about the future of BHBT and ways to uncover growth? We understand that a balance between growth and earnings is the clearest path to long-term sustainability and perfor- mance for our shareholders. This starts with a disciplined approach to managing risk and compliance equaled by a sense of urgency to service our customers and attract new ones. We are constantly assessing our product set, reviewing new ways to deliver convenience, and ensuring that we are fulfilling the promise of a favorable customer experience. We have a terrific brand and want more people, businesses, non-profits, and municipalities to experience it firsthand. How has the transition to BHBT been for you personally? Returning home to Maine has been a tremendous opportunity for my family and me. The warmth with which we have been welcomed into not only the BHBT family but also our surrounding communities is quite humbling and only confirms what a special part of the world this is. 5 Leadership Transition Marcia Bender, sVP/sr. operations & Bsa officer (1984)* Barbara Hepburn, Hr Project specialist (1978) former VP/Hr During 2013 Joe Murphy retired as President & CEO of Bar Harbor Bank & Trust, and Curtis Simard took the helm. How has this transition in leadership affected the culture of the Bank? Barbara: From the start of his tenure, Curtis has exhibited many of Joe’s positive qualities—an open door policy, financial insight, a friendly smile, and a willingness to travel from Lubec to Topsham to meet customers and employees, making the change seamless. How have you grown professionally during your career with BHBT? Marcia: My career began working a summer job, mailing customer statements. Over the past 30+ years I have had numerous opportunities for growth and have advanced to the position of SVP of Operations. All of the training and experience I accumulated over the years is being used today. Why do you stay at BHBT? Marcia: The Bank treats its employees very fairly and looks out for their best interests, which makes for a great working environment. The people I have met through BHBT have enriched my life. *Year started with the Company. 6 Bar HarBor BanksHares 2013 AnnuAl RepoRt Developing New Markets Marcia Mansfield, VP/Financial Consultant (2013) nichole Lee, Customer service representative I (2013) Chris Perry, VP/relationship Manager, Middle Market (2012) It’s been over a year now that the three branches acquired from Border Trust have been operating as part of BHBT. How would you describe their performance to date? Chris: Building personal connections with customers and referral sources, and being visible in the community is resulting in more business. Why did you choose to work for BHBT? Nichole: I heard so many great things about BHBT and the South China branch, how happy customers are with the service, products and overall atmosphere. BHBT knows how to treat their customers and their employees. What do you do on a daily basis to help develop this new market for BHBT? Marcia: I care about my customers and my community, by building relationships and volunteering my time and talent. I attend all local events to network and attract business. Where are you seeing success? Chris: BHBT has made gains through volunteer efforts, event sponsorships, leveraging existing customer relationships, and working with centers of influence to generate referrals. 7 Customer Service Focus Greg Jones, aVP/Branch relationship Manager (2007) ann Upham, aVP/retail & residential Lending (2002) Todd starbird, VP/relationship Manager (2004) Ivy Heal, Customer service specialist (2006) Bar Harbor Bank & Trust is over 125 years old and has well-established branches in various markets. What kind of investments do you see the Bank making in these communities to spur continued growth? Todd: In recent years several branches have undergone renovations. We continue to invest in new convenience-driven technology for our customers and training for our employees. How do you stay ahead of the competition in your market? Ann: We take time to understand our customers’ needs and present them with appropriate solutions. As a true community bank, loan officers still make decisions locally, providing faster, more efficient customer service. How are customers’ needs changing and how are we responding? Greg: Many of our customers are self-employed business owners, so our online banking services fit their busy lifestyle. What do customers like best about banking at BHBT in Rockland? 100 words Ivy: Customers appreciate our welcoming atmosphere, and being recognized when they walk in the door. They know they can count on our dependable employees and superior service. 8 Bar HarBor BanksHares 2013 AnnuAl RepoRt Product Evolution elena Martin, VP/electronic Banking (1997) russell Patton, VP/erM & Information security officer (2003) Peter swanberg, systems application officer (2004) As technology evolves, Bar Harbor Bank & Trust works hard to deliver new banking products and services to its customers. What electronic banking products were introduced in 2013 and what is on the horizon for 2014? Elena: During 2013 we enhanced many of our product offerings, including the new BHBT branded Mobile Banking app. A new website, upgraded online banking, and instant issued debit cards are on deck for 2014. How do you manage the risk inherent in electronic banking services? Russ: Our team of technology and security specialists carefully assesses new electronic products to mini- mize the ever—present risks. They identify and evaluate risks, put controls in place, and monitor systems constantly for customer safety. How do you prioritize which new products to implement next? Peter: Our Product & Service committee, with members from across the Bank, prioritizes new initiatives in response to customer feedback, bank regulations and vendor upgrades—working within budget and staff- ing limits. What do you enjoy most about the work you do at the Bank? Elena: I am always learning something new, as the world of Electronic Banking is constantly changing. 9 9 5-Year Selected Financial Data The following table sets forth selected financial data for the last five years. (in thousands, except per share data): 2013 2012 2011 2010 2009 Balance Sheet Data Total assets Total securities Total loans Allowance for loan losses Total deposits Total borrowings Total shareholders’ equity Average assets Average shareholders’ equity Results of Operations Interest and dividend income Interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Non-interest income Non-interest expense Income before income taxes Income taxes Net income Preferred stock dividends and accretion of discount Net income available to common shareholders Per Common Share Data: Basic earnings per share Diluted earnings per share Cash dividends per share Dividend payout ratio Selected Financial Ratios: Return on total average assets Return on total average equity Tax-equivalent net interest margin Capital Ratios: Tier 1 leverage capital ratio Tier 1 risk-based capital ratio Total risk-based capital ratio Asset Quality Ratios: Net charge-offs to average loans Allowance for loan losses to total loans Allowance for loan losses to non-performing loans Non-performing loans to total loans $ 1,373,893 450,170 852,857 (8,475) 835,651 409,445 121,379 1,345,353 125,340 $ 1,302,935 418,040 815,004 (8,097) 795,012 371,567 128,046 1,252,390 125,600 $ 1,167,466 381,880 729,003 (8,221) 722,890 320,283 118,250 1,151,163 111,135 $ 1,117,933 357,882 700,670 (8,500) 708,328 300,014 103,608 1,087,327 105,911 $ 1,072,381 347,026 669,492 (7,814) 641,173 311,629 113,514 1,052,496 88,846 $ 50,749 11,663 39,086 1,418 37,668 7,566 26,860 18,374 5,191 $ 50,838 13,867 36,971 1,652 35,319 7,709 25,618 17,410 4,944 $ 50,907 16,518 34,389 2,395 31,994 6,792 23,281 15,505 4,462 $ 51,141 19,432 31,709 2,327 29,382 7,458 22,046 14,794 4,132 $ 54,367 21,086 33,281 3,207 30,074 6,022 21,754 14,342 3,992 $ 13,183 $ 12,466 $ 11,043 $ 10,662 $ 10,350 — — — 653 1,034 $ 13,183 $ 12,466 $ 11,043 $ 10,009 $ 9,316 $ $ $ 3.35 3.34 1.25 37.28% 0.98% 10.52% 3.15% 9.01% 14.97% 16.62% 0.12% 0.99% 95.9% 1.04% $ $ $ 3.20 3.18 1.17 36.62% $ $ $ 2.86 2.85 1.10 38.29% $ $ $ 2.65 2.61 1.05 39.43% $ $ $ 1.00% 9.93% 3.23% 8.87% 14.15% 15.78% 0.23% 0.99% 82.1% 1.21% 0.96% 9.94% 3.23% 9.32% 14.29% 16.06% 0.37% 1.13% 63.7% 1.77% 0.98% 10.07% 3.18% 9.01% 13.57% 15.41% 0.24% 1.21% 62.1% 1.95% 3.19 3.12 1.04 32.60% 0.98% 11.65% 3.40% 10.35% 15.34% 17.14% 0.13% 1.17% 85.2% 1.37% Refer to the Bar Harbor Bankshares 2013 Annual Report on Form 10-K for a complete set of audited financial statements and accompanying notes. 10 Report of Independent Registered public Accounting Firm The Board of Directors and Shareholders of Bar Harbor Bankshares: We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Bar Harbor Bankshares and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2013 (not presented herein); and in our report dated March 13, 2014, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. Boston, Massachusetts March 13, 2014 11 Consolidated Balance Sheets (in thousands, except share and per share data) Assets Cash and cash equivalents Securities available for sale, at fair value (cost of $461,635 and $405,769, respectively) Federal Home Loan Bank stock Loans Allowance for loan losses Loans, net of allowance for loan losses Premises and equipment, net Goodwill Bank owned life insurance Other assets TOTAL ASSETS Liabilities Deposits: Demand and other non-interest bearing deposits NOW accounts Savings and money market deposits Time deposits Total deposits Short-term borrowings Long-term advances from Federal Home Loan Bank Junior subordinated debentures Other liabilities TOTAL LIABILITIES Shareholders’ equity Capital stock, par value $2.00; authorized 10,000,000 shares; issued 4,525,635 shares at December 31, 2013 and December 31, 2012 Surplus Retained earnings Accumulated other comprehensive (loss) income: Prior service cost and unamortized net actuarial losses on employee benefit plans, net of tax of ($192) and ($207), at December 31, 2013 and December 31, 2012, respectively Net unrealized (depreciation) appreciation on securities available for sale, net of tax of ($4,150) and $4,099, at December 31, 2013 and December 31, 2012, respectively Portion of OTTI attributable to non-credit gains, net of tax of $252 and $74, at December 31, 2013 and December 31, 2012, respectively Total accumulated other comprehensive (loss) income Less: cost of 586,560 and 605,591 shares of treasury stock at December 31, 2013 and December 31, 2012, respectively TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY December 31, 2013 December 31, 2012 $ 9,200 450,170 18,370 852,857 (8,475) $ 14,992 418,040 18,189 815,004 (8,097) 844,382 20,145 4,935 7,879 18,812 806,907 19,255 4,935 7,633 12,984 $1,373,893 $1,302,935 $ 72,259 135,246 232,558 395,588 835,651 312,945 91,500 5,000 7,418 $ 71,865 123,015 230,325 370,560 795,765 224,077 142,490 5,000 7,557 1,252,514 1,174,889 9,051 26,845 102,147 9,051 26,693 93,900 (373) (401) (8,055) 488 (7,940) 7,954 144 7,697 (8,724) 121,379 (9,295) 128,046 $1,373,893 $1,302,935 Refer to the Bar Harbor Bankshares 2013 Annual Report on Form 10-K for a complete set of audited financial statements and accompanying notes. 12 Consolidated Statements of Income (in thousands, except share and per share data) Interest and dividend income: Interest and fees on loans Interest on securities Dividends on FHLB stock Total interest and dividend income Interest expense: Deposits Short-term borrowings Long-term debt Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Non-interest income: Trust and other financial services Service charges on deposit accounts Credit and debit card service charges and fees Net securities gains Total other-than-temporary impairment (“OTTI”) losses Non-credit portion of OTTI losses (before taxes) (1) Net OTTI losses recognized in earnings Other operating income Total non-interest income Non-interest expense: Salaries and employee benefits Occupancy expense Furniture and equipment expense Credit and debit card expenses FDIC insurance assessments Other operating expense Total non-interest expense Income before income taxes Income taxes Net income Computation of Earnings Per Share: Weighted average number of capital stock shares outstanding Basic Effect of dilutive employee stock options Diluted Per Common Share Data: Basic Earnings Per Share Diluted Earnings Per Share Years Ended December 31, 2013 2012 2011 $37,223 13,457 69 50,749 6,616 487 4,560 11,663 39,086 1,418 37,668 3,634 1,248 1,572 676 (359) 110 (249) 685 7,566 15,227 1,968 2,005 384 696 6,580 26,860 18,374 5,191 $36,579 14,173 86 $34,854 16,006 47 50,838 50,907 7,707 436 5,724 13,867 36,971 1,652 35,319 3,278 1,196 1,462 1,938 (1,170) 317 (853) 688 7,709 14,027 1,682 1,778 367 853 6,911 25,618 17,410 4,944 8,765 260 7,493 16,518 34,389 2,395 31,994 3,061 1,284 1,277 2,689 (2,796) 577 (2,219) 700 6,792 12,814 1,514 1,660 310 1,099 5,884 23,281 15,505 4,462 $13,183 $12,466 $11,043 3,932,051 20,242 3,901,118 3,860,474 18,140 18,651 3,952,293 3,919,769 3,878,614 $ 3.35 $ 3.34 $ 3.20 $ 2.86 $ 3.18 $ 2.85 (1)Included in other comprehensive income, net of taxes Refer to the Bar Harbor Bankshares 2013 Annual Report on Form 10-K for a complete set of audited financial statements and accompanying notes. 13 Return on Average Equity 12 6 0 50000 40000 30000 20000 10000 0 2013 Financial overview 150 120 BUSINESS STRATEGY As a diversified financial services provider, Bar Harbor Bankshares pursues a strategy of achieving long-term sustainable growth, profitability, and shareholder value, without sacrificing its soundness. The Company works toward achieving these goals by focusing on increasing its loan and deposit market share in downeast, midcoast and central Maine. The Company believes one of its more unique strengths is an understanding of the financial needs of coastal communities and the businesses vital to Maine’s coastal economy, namely: tourism, hospitality, retail estab- lishments, restaurants, seasonal lodging and campgrounds, fishing, lobstering, boat building, and marine services. 30 60 90 0 8000 Average Shareholders’ Equity ($ in thousands) Net Income Available to Common Shareholders ($ in thousands) Operating under a community banking philosophy, the Company’s key strategic focus is vigorous financial steward- ship, deploying investor capital safely, yet efficiently, for the best possible returns. The Company strives to provide unmatched service to its customers, while maintaining strong asset quality and a focus toward improving operating $15,000 efficiencies. In managing its earning asset portfolios, the Company seeks to utilize funding and capital resources 12,000 within well-defined credit, investment, interest-rate and liquidity guidelines. In managing its balance sheet the 9,000 Company seeks to preserve the sensitivity of net interest income to changes in interest rates, and to enhance profit- 6,000 ability through strategies that promise sufficient reward for understood and controlled risk. The Company is deliberate 3,000 in its efforts to maintain adequate liquidity under prevailing and expected conditions, and strives to maintain a balanced and appropriate mix of loans, securities, core deposits, and borrowed funds. $13,183 3 1 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 0 6000 4000 2000 0 Non-Interest Income ($ in thousands) Net Income Available Net Income Available to Common Shareholders to Common Shareholders ($ in thousands) ($ in thousands) Return on Average Assets Diluted Earnings Diluted Earnings per Share per Share Shareholders’ Equity ($ in thousands) Tax-Equivalent Net Interest Income ($ in thousands) $4.00 $13,183 Diluted Earnings per Share Net Income Available to Common Shareholders RESULTS OF OPERATIONS ($ in thousands) For the year ended December 31, 2013, the Company $15,000 reported record net income of $13.2 million, representing an increase of $717 thousand, or 5.8%, compared with 2012. The Company also reported record diluted earnings 12,000 per share of $3.34 for 2013, representing an increase of $0.16, or 5.0%, compared with 2012. The Company’s 2013 earnings performance was driven by meaningful increases in net interest income, higher levels of fee income, and improved loan loss experience. 6,000 9,000 2.00 3.00 $3.34 1.00 3,000 The Company’s return on average shareholders’ equity amounted to 10.52% in 2013, up from 9.93% in 2012. The Company’s 2013 return on average assets amounted 0 to 0.98%, compared with 1.00% in 2012. 3 1 0 2 3 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 9 0 0 2 1 1 0 2 0 1 0 2 9 0 0 2 0 1 0 2 0 Return on Average Equity 12% 10.52% Average Shareholders’ Equity ($ in millions) $125 6 0 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 Return on Diluted Earnings Average Assets per Share Return on Average Equity Tax-Equivalent Average Net Interest Income Shareholders’ Equity ($ in thousands) ($ in millions) Non-Interest Income ($ in thousands) 0.98% $3.34 12% $50,000 $150 $8,000 $7,566 10.52% $125 $40,848 $4.00 1.00% 3.00 0.75 2.00 0.50 1.00 0.25 9 0 0 2 9 0 0 2 0 1 0 2 0 1 0 2 1 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 3 1 0 2 3 1 0 2 0 0 40,000 120 30,000 90 20,000 60 10,000 30 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 9 0 0 2 9 0 0 2 0 0 1 1 0 0 2 2 1 1 1 1 0 0 2 2 2 2 1 1 0 0 2 2 3 3 1 1 0 0 2 2 0 0 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 0 6 0 1400 1200 1000 800 600 400 200 0 $15,000 $15,000 1000 1.00% $4.00 $4.00 0.98% $13,183 $13,183 12,000 12,000 9,000 9,000 6,000 6,000 3,000 3,000 800 600 400 200 0.75 3.00 3.00 0.50 2.00 2.00 0.25 1.00 1.00 $3.34 $3.34 9 0 0 2 0 0 9 1 0 0 0 2 2 0 0 1 0 1 1 0 0 2 2 2 1 1 1 0 0 2 2 3 2 1 1 0 0 2 2 3 1 0 2 9 0 0 2 0 1 0 2 0 9 1 0 1 0 0 2 2 0 0 0 9 2 1 0 1 0 0 0 2 2 2 1 0 3 1 1 1 0 0 0 2 2 2 2 1 1 1 0 0 2 2 3 2 1 1 0 0 2 2 3 1 0 2 12% 60% 12% $150 $150 $50,000 10.52% $26,860 Return on Return on Non-Interest Expense Average Equity Average Equity ($ in thousands) Net Interest Income: Net interest income is the principal Average Average Tax-Equivalent component of the Company’s income stream and repre- Efficiency Ratio Shareholders’ Equity Shareholders’ Equity Net Interest Income sents the difference or spread between interest generated ($ in millions) ($ in millions) ($ in thousands) from earning assets and the interest expense paid on depos- its and borrowed funds. Fluctuations in market interest $30,000 55.8% 10.52% $40,848 rates, as well as volume and mix changes in earning assets 25,000 and interest bearing liabilities, can materially impact net interest income. 20,000 For the year ended December 31, 2013, net interest income 15,000 on a tax-equivalent basis amounted to $40.8 million, com- pared with $38.6 million in 2012, representing an increase 10,000 of $2.2 million, or 5.8%. The increase in net interest income was principally attributed to average earning asset growth of $99.3 million, or 8.3%, as the 2013 the tax- equivalent net interest margin declined eight basis points to 30,000 10,000 20,000 40,000 $125 5,000 1 0 1 1 3 0 0 1 2 2 0 2 0 9 1 0 2 0 0 1 2 2 0 2 9 0 1 0 1 2 0 2 120 120 2 3 1 1 0 0 2 2 2 1 1 1 0 0 2 2 2 1 1 1 0 0 2 2 0 9 1 0 0 0 2 2 1 0 1 1 0 0 2 2 3 2 1 1 0 0 2 2 3 1 0 2 3 1 0 2 3 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 0 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 3 1 0 2 90 30 60 10 20 30 40 50 90 30 60 0 0 0 0 0 6 6 0 0 $125 4,000 2,000 0 $8,000 $1,400 6,000 1,000 Non-Interest Income ($ in thousands) Assets ($ in millions) Loans ($ in millions) 1,200 $853 800 600 400 200 9 0 0 2 0 0 1 0 2 9 0 0 2 1 1 0 2 0 1 0 2 2 1 0 2 1 1 0 2 3 1 0 2 2 1 0 2 3 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 $150 120 90 60 30 0 6,000 4,000 2,000 800 600 400 200 0 $7,566 $1,374 $1,000 Net Income Available Net Income Available to Common Shareholders to Common Shareholders ($ in thousands) ($ in thousands) Diluted Earnings Diluted Earnings per Share per Share Return on Return on Return on Average Assets Non-Interest Expense Average Equity Average Equity ($ in thousands) Average Tax-Equivalent Average Efficiency Ratio Shareholders’ Equity Net Interest Income Shareholders’ Equity ($ in thousands) ($ in thousands) ($ in thousands) Non-Interest Income ($ in thousands) Assets ($ in millions) Loans ($ in millions) Return on Return on Average Assets Average Assets Non-Interest Expense ($ in thousands) Efficiency Ratio Tax-Equivalent Tax-Equivalent Net Interest Income Net Interest Income ($ in thousands) ($ in thousands) Non-Interest Income Non-Interest Income ($ in thousands) ($ in thousands) Assets ($ in millions) Loans ($ in millions) 50000 50000 8000 8000 1.00% 1.00% 0.98% 0.98% $30,000 $26,860 $50,000 $50,000 60% 55.8% $8,000 $8,000 $1,400 $7,566 $7,566 $1,374 $1,000 Return on Return on Non-Interest Expense Average Assets Average Assets ($ in thousands) Tax-Equivalent Tax-Equivalent Efficiency Ratio Net Interest Income Net Interest Income ($ in thousands) ($ in thousands) Non-Interest Income Non-Interest Income Assets ($ in thousands) ($ in thousands) ($ in millions) Loans ($ in millions) 0 0 0 9 0 0 2 0 0 0 9 1 0 0 0 2 2 1 0 1 1 0 0 2 2 2 1 1 1 0 0 2 2 3 2 1 1 0 0 2 2 3 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 0 9 0 0 2 0 1 0 2 0 9 0 0 1 1 0 2 2 0 0 9 1 0 0 0 2 2 2 1 0 2 1 0 1 1 3 0 0 1 2 2 0 2 2 1 1 1 0 0 2 2 3 2 1 1 0 0 2 2 3 1 0 2 9 0 0 0 1 0 2 0 2 0 9 1 0 1 0 0 1 2 2 0 2 1 0 1 1 2 0 0 1 2 2 0 2 2 1 1 1 3 0 0 1 2 2 0 2 9 0 0 0 2 3 2 1 1 0 0 2 2 3 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 30000 30000 60 60 1400 1400 1000 1000 Non-Interest Expense Non-Interest Expense Efficiency Ratio Efficiency Ratio ($ in thousands) ($ in thousands) Assets Assets ($ in millions) ($ in millions) Loans Loans ($ in millions) ($ in millions) $26,860 $26,860 60% 60% 55.8% 55.8% $1,400 $1,400 $1,374 $1,374 $1,000 $1,000 $853 $853 Non-Interest Expense Non-Interest Expense Efficiency Ratio Efficiency Ratio ($ in thousands) ($ in thousands) Assets Assets ($ in millions) ($ in millions) Loans Loans ($ in millions) ($ in millions) 9 0 0 2 0 0 0 9 1 0 0 0 2 2 1 0 1 1 0 0 2 2 2 1 1 1 0 0 2 2 2 3 1 1 0 0 2 2 3 1 0 2 0 9 1 0 0 0 2 2 1 0 1 1 0 0 2 2 2 1 1 1 0 0 2 2 2 3 1 1 0 0 2 2 3 1 0 2 0 9 1 0 0 0 2 2 1 0 1 1 0 0 2 2 2 1 1 1 0 0 2 2 2 3 1 1 0 0 2 2 3 1 0 2 9 0 0 2 0 0 0 9 1 0 0 0 2 2 0 1 1 1 0 0 2 2 2 1 1 1 0 0 2 2 3 2 1 1 0 0 2 2 3 1 0 2 14 0.75 0.75 0.50 0.50 0.25 0.25 $30,000 $30,000 25,000 25,000 20,000 20,000 15,000 15,000 10,000 10,000 5,000 5,000 25,000 20,000 15,000 10,000 5,000 50 50 40 40 30 30 20 20 10 10 9 0 0 2 0 0 50 40,000 40,000 30,000 30,000 20,000 20,000 10,000 10,000 40 30 20 10 0 1,200 1,200 1,000 1,000 800 800 600 600 400 400 200 200 9 0 0 2 0 0 $853 800 600 400 200 0 $40,848 $40,848 1,200 6,000 6,000 1,000 800 4,000 4,000 2,000 2,000 400 600 200 0 800 800 600 600 400 400 200 200 Net Income Available to Common Shareholders ($ in thousands) Diluted Earnings per Share Net Income Available to Common Shareholders ($ in thousands) Diluted Earnings per Share Return on Return on Average Assets Average Equity Average 15000 12000 9000 6000 3000 0 4 3 2 1 0 1.00 0.75 0.50 0.25 0.00 60 50 40 30 20 10 0 12 12 30000 6 6 15000 25000 20000 10000 5000 0 0 0 40000 40000 30000 30000 20000 20000 10000 10000 1200 1200 1000 1000 800 800 600 600 400 400 200 200 0 0 4 3 2 1 0 1.00 12 0.75 0.50 6 0.25 0.00 0 150 50000 150 60 120 40000 50 120 40 90 30000 90 30 20 10 0 60 20000 60 30 10000 30 0 0 0 6000 6000 800 4000 4000 2000 400 2000 1400 1200 1000 600 200 0 0 800 800 600 600 400 400 200 200 0 0 8000 6000 4000 2000 0 150 120 90 60 30 0 1000 800 600 400 200 0 15000 15000 4 4 12000 12000 9000 9000 6000 6000 3000 3000 0 0 0 0 15000 12000 9000 6000 3000 0 3 3 2 2 1 1 1.00 1.00 30000 25000 0.75 0.75 20000 0.50 0.50 15000 10000 0.25 0.25 5000 0.00 0.00 0 25000 25000 50 50 20000 20000 40 40 15000 15000 30 30 10000 10000 20 20 5000 5000 10 10 0 0 0 0 150 150 120 120 90 90 Net Income Available Net Income Available to Common Shareholders to Common Shareholders ($ in thousands) ($ in thousands) Diluted Earnings per Share Diluted Earnings per Share Return on Return on Average Equity Average Equity Average Average Shareholders’ Equity Shareholders’ Equity ($ in millions) ($ in millions) $15,000 $15,000 $4.00 $4.00 12% 12% $13,183 $13,183 $3.34 $3.34 10.52% 10.52% $125 $125 12,000 12,000 9,000 9,000 3.00 3.00 2.00 2.00 6 6 6,000 3,000 For the year ended December 31, 2013, income generated 6,000 from service charges on deposit accounts amounted to $1.2 million, representing an increase of $52 thousand, or 4.3%, 3,000 compared with 2012. The increase in service charges on deposits was largely attributed to customer overdraft fee increases instituted in the third quarter of 2012 combined with increased customer overdraft activity. 1.00 1.00 3 1 0 2 3 1 0 2 3 1 0 2 3 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 0 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 0 0 0 0 Return on Return on Average Assets Average Assets For the year ended December 31, 2013, credit and debit card service charges and fees amounted to $1.6 million, representing an increase of $110 thousand or 7.5%, com- pared with 2012. This increase was principally attributed to 1.00% continued growth of the Bank’s retail deposit base, higher levels of merchant credit card processing volumes, and continued success with a program that offers rewards for certain debit card transactions. 0.98% 0.98% 1.00% 0.75 0.75 0.50 0.25 0.50 0.25 Total securities gains, net of other-than-temporary impair- ment losses, amounted to $427 in 2013, representing a decline of $658 thousand, or 60.6%, compared with 2012. Net 2013 securities gains were comprised of realized gains on the sale of securities amounting to $676 thousand, off- set in part by other-than-temporary impairment losses of $249 thousand on certain available-for-sale, private label mortgage-backed securities. 3 1 0 2 3 1 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 0 0 60 60 3.15%, compared with 2012. The decline in the net inter- est margin was attributed to the prolonged period of histori- cally low interest rates. While the Bank’s cost of funding declined thirty basis points to 1.02% in 2013, this decline was more than offset by a thirty-three basis point decline in earning asset yields to 4.05%. 30 30 0 0 Average Shareholders’ Equity ($ in thousands) Average Shareholders’ Equity ($ in thousands) Non-interest Income: In addition to net interest income, non-interest income is a significant source of revenue for the Company and an important factor in its results of opera- tions. Non-interest income is principally derived from finan- cial services including trust, investment management and brokerage activities, as well as service charges on deposit accounts, credit and debit card processing fees, net securi- ties gains, and a variety of other product and service fees. 6000 8000 6000 8000 4000 4000 Return on Return on Average Equity Average Equity For the year ended December 31, 2013, total non-interest income amounted to $7.6 million compared with $7.7 mil- Average Average Shareholders’ Equity Shareholders’ Equity lion in 2012, representing a decline of $143 thousand, or ($ in millions) ($ in millions) 1.9%. The decline in non-interest income was entirely 12% attributed to a $658 thousand decline in realized securities gains net of other-than-temporary impairment losses. 10.52% 10.52% $150 $150 12% 2000 2000 $125 $125 120 120 0 0 6 6 90 90 Non-Interest Income ($ in thousands) Non-Interest Income ($ in thousands) Trust and other financial services fees amounted to $3.6 million in 2013, representing an increase of $356 thou- sand, or 10.9%, compared with 2012. This increase was principally attributed to increases in the value of assets under management and higher levels of fee income from retail brokerage activities. Reflecting new client relation- ships and strength in the equity markets, at December 31, 2013, assets under management stood at $387.6 million, representing an increase of $32.2 million or 9.1% com- pared with year-end 2012. 1000 9 0 0 1 0 0 2 2 2 3 1 1 0 0 2 2 1 2 1 1 0 0 2 2 1 2 1 1 0 0 2 2 9 0 0 1 0 0 2 2 0 1 1 1 0 0 2 2 0 1 1 1 0 0 2 2 2 3 1 1 0 0 2 2 3 1 0 2 9 0 0 2 9 0 0 2 30 60 30 60 0 0 0 0 1000 800 800 3 1 0 2 9 0 0 2 9 0 0 2 0 1 0 2 0 1 0 2 1 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 3 1 0 2 3 1 0 2 0 0 9 0 0 2 9 0 0 2 0 1 0 2 0 1 0 2 1 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 3 1 0 2 3 1 0 2 Tax-Equivalent Tax-Equivalent Net Interest Income Net Interest Income ($ in thousands) ($ in thousands) Non-Interest Income Non-Interest Income ($ in thousands) ($ in thousands) $50,000 $50,000 $8,000 $8,000 $7,566 $7,566 $40,848 $40,848 40,000 40,000 30,000 30,000 20,000 20,000 10,000 10,000 9 0 0 2 9 0 0 2 0 1 0 2 0 1 0 2 1 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 3 1 0 2 3 1 0 2 0 0 9 0 0 2 9 0 0 2 0 1 0 2 0 1 0 2 1 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 3 1 0 2 3 1 0 2 0 0 Non-Interest Expense ($ in thousands) Non-Interest Expense ($ in thousands) Efficiency Ratio Efficiency Ratio Assets Assets ($ in millions) ($ in millions) Loans Loans ($ in millions) ($ in millions) 600 600 Tax-Equivalent Tax-Equivalent Net Interest Income Net Interest Income ($ in thousands) ($ in thousands) 400 400 Non-Interest Income Non-Interest Income ($ in thousands) ($ in thousands) 15,000 15,000 $50,000 $50,000 $8,000 $8,000 40,000 40,000 200 200 0 0 $40,848 $40,848 $7,566 $7,566 10,000 10,000 5,000 5,000 9 0 0 2 0 0 9 0 0 2 0 1 0 2 0 1 0 2 1 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 3 1 0 2 3 1 0 2 $26,860 $26,860 60% 60% 55.8% 55.8% $30,000 $30,000 25,000 25,000 20,000 20,000 50 50 40 40 30 30 20 20 10 10 0 0 9 0 0 2 9 0 0 2 0 1 0 2 0 1 0 2 1 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 3 1 0 2 3 1 0 2 $1,400 $1,400 1,200 1,200 1,000 1,000 800 800 600 600 400 400 200 200 9 0 0 2 0 0 $1,374 $1,374 $1,000 $1,000 $853 $853 9 0 0 2 0 1 0 2 0 1 0 2 1 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 3 1 0 2 3 1 0 2 9 0 0 2 9 0 0 2 0 1 0 2 0 1 0 2 1 1 0 2 1 1 0 2 2 1 0 2 2 1 0 2 3 1 0 2 3 1 0 2 0 0 $150 $150 120 120 90 90 60 60 30 30 0 0 6,000 6,000 4,000 4,000 2,000 2,000 800 800 600 600 400 400 200 200 15000 15000 12000 12000 9000 9000 6000 6000 3000 3000 0 0 12 12 6 6 0 0 Net Income Available Net Income Available to Common Shareholders to Common Shareholders ($ in thousands) ($ in thousands) Diluted Earnings Diluted Earnings per Share per Share Return on Return on Average Equity Average Equity 50000 50000 40000 40000 30000 30000 Net Income Available Net Income Available 0.50 0.50 to Common Shareholders to Common Shareholders ($ in thousands) ($ in thousands) Diluted Earnings Diluted Earnings per Share per Share 20000 20000 $15,000 $15,000 0.25 0.25 $4.00 $4.00 $13,183 $13,183 10000 10000 $3.34 $3.34 12,000 12,000 0.00 0.00 3.00 3.00 0 0 4 4 3 3 2 2 1 1 0 0 1.00 1.00 0.75 0.75 50 50 40 40 20 20 10 10 0 0 0.75 0.75 0.25 0.25 $30,000 $30,000 25,000 25,000 20,000 20,000 15,000 15,000 10,000 10,000 5,000 5,000 9,000 9,000 6,000 6,000 3,000 3,000 Return on Return on Average Assets Average Assets 2.00 2.00 1.00 1.00 9 0 0 2 0 0 0 9 1 0 0 0 2 2 60 60 1 0 1 1 0 0 2 2 2 1 1 1 0 0 2 2 2 3 1 1 0 0 2 2 3 1 0 2 9 0 0 2 0 0 9 1 0 0 0 2 2 0 Return on Return on Average Assets Average Assets 30 30 1.00% 1.00% 0.98% 0.98% 30000 30000 25000 25000 20000 20000 15000 15000 10000 10000 5000 5000 0 0 15000 15000 4 4 12 12 150 150 2 2 6 6 12000 12000 9000 9000 6000 6000 3000 3000 0 0 0 0 0 0 0 0 Net Income Available Net Income Available to Common Shareholders to Common Shareholders ($ in thousands) ($ in thousands) Diluted Earnings Diluted Earnings per Share per Share Return on Return on Average Equity Average Equity Average Average Shareholders’ Equity Shareholders’ Equity ($ in thousands) ($ in thousands) 1.00 1.00 50000 50000 8000 8000 3 3 1 1 0.75 0.75 0.50 0.50 0.25 0.25 0.00 0.00 0 0 0 0 Return on Return on Average Assets Average Assets Tax-Equivalent Tax-Equivalent Net Interest Income Net Interest Income ($ in thousands) ($ in thousands) Non-Interest Income Non-Interest Income ($ in thousands) ($ in thousands) 30000 30000 60 60 1400 1400 1000 1000 120 120 90 90 60 60 30 30 6000 6000 4000 4000 2000 2000 800 800 600 600 400 400 200 200 0 0 25000 25000 50 50 20000 20000 40 40 15000 15000 30 30 10000 10000 20 20 5000 5000 10 10 0 0 0 0 40000 40000 30000 30000 20000 20000 10000 10000 1200 1200 1000 1000 800 800 600 600 400 400 200 200 0 0 1200 1200 1000 1000 800 800 600 600 400 400 200 200 0 0 2 3 1 1 0 0 2 2 3 1 0 2 1 2 1 1 0 0 2 2 0 1 1 1 0 0 2 2 1400 1400 Tax-Equivalent Tax-Equivalent Net Interest Income Net Interest Income ($ in thousands) ($ in thousands) Non-Interest Expense Non-Interest Expense Efficiency Ratio Efficiency Ratio ($ in thousands) ($ in thousands) 0.50 0.50 Assets Assets ($ in millions) ($ in millions) 30,000 30,000 Loans Loans ($ in millions) ($ in millions) 20,000 20,000 10,000 10,000 6,000 6,000 4,000 4,000 2,000 2,000 Non-interest Expense: For the year ended December 31, 2013, total non-interest expense amounted to $26.9 mil- lion, representing an increase of $1.2 million, or 4.8%, compared with 2012. 9 0 0 2 0 0 0 9 1 0 0 0 2 2 1 0 1 1 0 0 2 2 2 1 1 1 0 0 2 2 3 2 1 1 0 0 2 2 3 1 0 2 9 0 0 2 0 0 9 0 0 1 0 0 2 2 0 1 1 1 0 0 2 2 1 2 1 1 0 0 2 2 3 2 1 1 0 0 2 2 3 1 0 2 9 0 0 2 0 0 9 0 0 1 0 0 2 2 0 1 1 1 0 0 2 2 1 2 1 1 0 0 2 2 2 3 1 1 0 0 2 2 3 1 0 2 Non-Interest Expense Non-Interest Expense Efficiency Ratio Efficiency Ratio ($ in thousands) ($ in thousands) Assets Assets ($ in millions) ($ in millions) Loans Loans ($ in millions) ($ in millions) $26,860 $26,860 60% 60% 55.8% 55.8% $1,400 $1,400 $1,374 $1,374 $1,000 $1,000 50 50 40 40 30 30 20 20 10 10 9 0 0 2 0 0 1,200 1,200 1,000 1,000 800 800 600 600 400 400 200 200 9 0 0 2 0 0 800 800 600 600 400 400 200 200 $853 $853 15 Non-Interest Expense Non-Interest Expense Efficiency Ratio Efficiency Ratio ($ in thousands) ($ in thousands) Assets Assets ($ in millions) ($ in millions) Loans Loans ($ in millions) ($ in millions) 9 0 0 2 0 0 0 9 1 0 0 0 2 2 1 0 1 1 0 0 2 2 2 1 1 1 0 0 2 2 2 3 1 1 0 0 2 2 3 1 0 2 0 9 1 0 0 0 2 2 1 0 1 1 0 0 2 2 2 1 1 1 0 0 2 2 2 3 1 1 0 0 2 2 3 1 0 2 0 9 1 0 0 0 2 2 1 0 1 1 0 0 2 2 2 1 1 1 0 0 2 2 2 3 1 1 0 0 2 2 3 1 0 2 9 0 0 2 0 0 0 9 1 0 0 0 2 2 0 1 1 1 0 0 2 2 2 1 1 1 0 0 2 2 3 2 1 1 0 0 2 2 3 1 0 2 Net Income Available to Common Shareholders ($ in thousands) Diluted Earnings per Share Return on Average Equity Average Shareholders’ Equity ($ in thousands) 15000 12000 9000 6000 3000 0 30000 25000 20000 15000 10000 5000 0 4 3 2 1 0 1.00 0.75 0.50 0.25 0.00 60 50 40 30 20 10 0 12 6 0 50000 40000 30000 20000 10000 0 1400 1200 1000 800 600 400 200 0 8000 6000 4000 2000 0 150 120 90 60 30 0 1000 800 600 400 200 0 Return on Average Assets Tax-Equivalent Net Interest Income ($ in thousands) Non-Interest Income ($ in thousands) Non-Interest Expense Efficiency Ratio ($ in thousands) Assets ($ in millions) Loans ($ in millions) $15,000 12,000 9,000 6,000 3,000 0 1.00% 0.75 0.50 0.25 0 $30,000 25,000 20,000 15,000 10,000 5,000 0 16 Net Income Available to Common Shareholders ($ in thousands) Diluted Earnings per Share Return on Average Equity $4.00 12% $13,183 $3.34 10.52% Average Shareholders’ Equity ($ in millions) $125 3.00 2.00 1.00 6 $150 120 90 60 30 0 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 0 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 0 FINANCIAL CONDITION The 2013 increase in non-interest expense was almost entirely attributed to a $1.2 million or 8.6% increase in salaries and employee benefits. The increase in salaries and employee benefits was attributed to a variety of factors Return on Average Assets including normal increases in base salaries, higher levels of employee incentive compensation, as well as changes in staffing levels and mix. The increase in salaries and benefits also reflected the Bank’s acquisition of three branch offices in the third quarter of 2012. Also contributing to the increase were expenses related to certain 2013 equity awards to members of the Company’s Board of Directors. 0.98% Total occupancy expense amounted to $2.0 million in 2013, representing an increase of $286 thousand, or 17.0%, com- pared with 2012. This increase was largely attributed to the acquisition of three branch offices in the third quarter of 2012, two of which are leased properties. The increase in occupancy expense was also attributed to the Bank’s sub- stantial reconfiguration of its Ellsworth campus including the replacement of its Ellsworth retail banking office, which was put in service in the third quarter of 2012. 3 1 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 Assets: At December 31, 2013, the Company’s total assets amounted to $1.37 billion, representing an increase of $71.0 million, or 5.4%, compared with year end 2012. The increase in total assets was led by loan growth and, to a lesser extent, an increase in the investment securities $7,566 portfolio. Tax-Equivalent Net Interest Income ($ in thousands) Non-Interest Income ($ in thousands) $8,000 $50,000 $40,848 40,000 30,000 20,000 6,000 Loans: Consumer loans, which principally consisted of resi- dential real estate mortgage loans and home equity loans, comprised 44.7% of the Bank’s total loan portfolio at December 31, 2013. The Bank also serves the small busi- ness market throughout downeast, midcoast and central Maine. It offers business loans to individuals, partnerships, corpo rations, and other business entities for capital con- struction, real estate purchases, working capital, real estate development, and a broad range of other business pur- poses. At December 31, 2013, commercial business loans represented 53.4% of the Bank’s total loan portfolio. 2,000 4,000 3 1 0 2 3 1 0 2 2 1 0 2 1 1 0 2 0 1 0 2 9 0 0 2 1 1 0 2 0 1 0 2 9 0 0 2 2 1 0 2 0 0 10,000 Efficiency Ratio Non-Interest Expense Total other operating expenses amounted to $6.6 million in ($ in thousands) 2013, representing a decline of $331 thousand, or 4.8%, compared with 2012. This decline was principally attrib- 60% uted to certain non-recurring expenses related to the Bank’s acquisition of three branch offices in 2012, including fees 50 for professional services and a wide variety of conversion 40 and integration related expenses. $26,860 55.8% 9 0 0 2 Efficiency Ratio: The Company’s efficiency ratio, or non- 30 interest operating expenses divided by the sum of tax- equivalent net interest income and non-interest income 20 other than net securities gains and other-than-temporary 10 impairments, measures the relationship of operating expenses to revenues. Low efficiency ratios are typically a 0 key factor for high performing financial institutions. For the year ended December 31, 2013, the Company’s effi- ciency ratio amounted to 55.8%, compared with 54.6% in 2012. These ratios compared favorably to peer and industry averages. 3 1 0 2 3 1 0 2 1 1 0 2 2 1 0 2 0 1 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 Income Taxes: For the year ended December 31, 2013, total income taxes amounted to $5.2 million, representing an increase of $247 thousand, or 5.0%, compared with 2012. The Company’s effective tax rate amounted to 28.3% in 2013, compared with 28.4% in 2012. Fluctuations in the Company’s effective tax rate are generally attributed to increases in the level of non-taxable income in relation to taxable income. Assets ($ in millions) Loans ($ in millions) $1,374 $1,000 $853 800 600 400 200 0 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 $1,400 1,200 1,000 800 600 400 200 0 Total loans ended the year at $852.9 million, representing an increase of $37.9 million, or 4.6%, compared with December 31, 2012. At year end, the Bank’s commercial loan portfolio stood at $455.6 million, representing an increase of $24.7 million, or 5.7%, compared with year end 2012. Consumer loans ended the year at $381.2 million, representing an increase of $11.8 million or 3.2% com- pared with year end 2012. Tax-exempt loans to local municipalities increased $1.1 million during 2013, or 7.3%. Commercial loan growth has been generally challenged by economic and political uncertainty, a still-struggling econ- omy and strong competition for quality loans. Bank man- agement attributes the continued growth of its commercial loan portfolio to an effective business banking team, deep local market knowledge, sustained new business develop- ment efforts, and a resilient local economy that has been faring better than the nation as a whole. Non-Performing Non-Performing Loans to Total Loans Loans to Total Loans Credit Quality: At December 31, 2013 total non-performing loans amounted to $8.8 million, representing a decline of $1.0 million or 10.4% compared with year-end 2012. One commercial real estate development loan to a local, non- profit housing authority in support of an affordable housing project accounted for $1.8 million or 20.9% of total non- performing loans. At December 31, 2013, total non- performing loans represented 1.04% of total loans, down from 1.21% at year end 2012. Similarly, the allowance for loan losses expressed as a percentage of non-performing loans ended the year at 95.9%, up from 82.1% at year end 2012. 1.04% 1.04% Net Charge-Offs Net Charge-Offs to Average Loans to Average Loans 0.40% 0.40% 0.25 0.25 0.30 0.30 0.35 0.35 0.20 0.20 The Bank maintains an allowance for loan losses (the “allowance”) which is available to absorb probable losses on loans. The allowance is maintained at a level that, in management’s judgment, is appropriate for the amount of risk inherent in the current loan portfolio and adequate to provide for estimated probable losses. At December 31, 2013, the Bank’s allowance stood at $8.5 million, repre- senting an increase of $378 thousand or 4.7% compared with year end 2012. The allowance expressed as a percent- age of total loans ended the year at 0.99%, unchanged from year end 2012. Provision for Provision for Loan Losses Loan Losses ($ in thousands) ($ in thousands) Allowance for Allowance for Loan Losses Loan Losses ($ in thousands) ($ in thousands) $3,500 $3,500 3,000 3,000 2,500 2,500 2,000 2,000 1,500 1,500 $1,418 $1,418 $10,000 $10,000 8,000 8,000 6,000 6,000 $8,475 $8,475 Non-Performing Loans to Total Loans Non-Performing Loans to Total Loans 0.15 0.15 0.10 0.10 Net Charge-Offs 0.12% 0.12% to Average Loans Net Charge-Offs to Average Loans 1,000 1,000 Provision for Loan Losses ($ in thousands) Provision for Loan Losses ($ in thousands) Allowance for Loan Losses ($ in thousands) Allowance for Loan Losses ($ in thousands) 4,000 4,000 2,000 2,000 3500 3500 3000 3000 2500 2500 2000 2000 1500 1500 1000 1000 500 500 0 0 10000 10000 8000 8000 6000 6000 4000 4000 2000 2000 0 0 2.0% 2.0% 1.5 1.5 1.0 1.0 0.5 0.5 0 0 2.0 2.0 10000 10000 Non-Performing Non-Performing 1.5 1.5 Loans to Total Loans Loans to Total Loans Net Charge-Offs Net Charge-Offs 0.30 to Average Loans to Average Loans Provision for Provision for Loan Losses Loan Losses 2500 ($ in thousands) ($ in thousands) 8000 Allowance for Allowance for 8000 Loan Losses Loan Losses ($ in thousands) ($ in thousands) 6000 6000 3500 3000 2000 1500 1000 500 0 3500 3000 2500 2000 1500 1000 500 0 4000 4000 2000 2000 0 0 Non-Performing Non-Performing 600 600 Net Charge-Offs Net Charge-Offs Loans to Total Loans Loans to Total Loans to Average Loans to Average Loans Provision for Provision for Loan Losses Loan Losses Allowance for Allowance for Loan Losses Loan Losses ($ in thousands) ($ in thousands) ($ in thousands) ($ in thousands) 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 500 500 400 400 300 300 200 200 100 100 0 0 1.0 0.5 0.0 500 300 200 100 0 1.0 0.5 0.0 500 400 300 200 100 0 0.40 0.40 0.35 0.35 0.30 0.30 0.25 0.25 0.20 0.20 0.15 0.15 0.10 0.10 0.05 0.05 0.00 0.00 1000 1000 800 800 400 400 200 200 0 0 0.40 0.35 0.25 0.20 0.15 0.10 0.05 0.00 600 400 200 0 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 800 600 400 200 0 1000 1000 Securities Securities 400 ($ in millions) ($ in millions) Deposits Deposits 800 ($ in millions) ($ in millions) 400 400 300 300 200 200 100 100 0 0 Securities Securities Deposits Deposits ($ in millions) ($ in millions) ($ in millions) ($ in millions) 9 0 0 2 0 1 0 2 0 2.0% 0 0 1 1 0 0 2 2 9 9 0 0 0 0 2 2 1 1 1 1 0 0 2 2 2.0% 2 2 1 1 0 0 2 2 3 3 1 1 0 0 2 2 0.05 0.05 0 0 0.40% 9 9 0 0 0 0 2 2 0 0 1 1 0 0 2 2 0.35 1 1 1 1 0 0 2 2 0.40% 2 2 1 1 0 0 2 2 3 3 1 1 0 0 2 2 0.35 500 500 0 0 1.5 1.5 Securities Securities ($ in millions) ($ in millions) 1.0 1.0 1.04% 1.04% 0.30 0.25 Deposits Deposits 0.20 ($ in millions) ($ in millions) $500 $500 0.5 0.5 $450 $450 9 0 0 2 0 1 0 2 1 1 0 2 0 0 2 1 0 2 9 0 0 2 3 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 0.15 0.10 0.05 0 $1,000 $1,000 800 800 600 600 9 0 0 2 0 1 0 2 0.30 0.25 0.20 0.15 0.10 0.12% $836 $836 0.05 1 1 0 2 0 2 1 0 2 9 0 0 2 3 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 Securities ($ in millions) 2 2 1 1 0 0 2 2 3 3 1 1 0 0 2 2 400 400 200 200 $450 Securities ($ in millions) Deposits ($ in millions) The Bank’s loan loss experience improved in 2013 with Deposits total net loan charge-offs amounting to $1.0 million, repre- ($ in millions) senting a decline of $736 thousand, or 41.4%, compared with 2012. Total net loan charge-offs expressed as a per- $500 centage of average loans outstanding amounted to 0.12% in 0 0 2013, down from 0.23% in 2012. The Bank recorded a provision for loan losses of $1.4 million in 2013, represent- ing a decline of $234 thousand or 14.2% compared with 2012. The decline in the provision largely reflected stable credit quality metrics combined with improved loan loss experience. $1,000 $1,000 $450 $836 600 800 400 400 200 300 400 600 800 3 3 1 1 0 0 2 2 0 0 1 1 0 0 2 2 1 1 1 1 0 0 2 2 9 9 0 0 0 0 2 2 2 2 1 1 0 0 2 2 $500 9 9 0 0 0 0 2 2 0 0 1 1 0 0 2 2 1 1 1 1 0 0 2 2 400 300 200 100 100 1 1 0 2 0 2 1 0 2 9 0 0 2 3 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 200 9 0 0 2 0 1 0 2 0 200 1 1 0 2 0 2 1 0 2 9 0 0 2 3 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 $3,500 9 9 0 0 0 0 2 2 0 0 1 1 0 0 2 2 1 1 1 1 0 0 2 2 $3,500 2 2 1 1 0 0 2 2 3 3 1 1 0 0 2 2 3,000 3,000 2,500 2,500 $10,000 $10,000 9 9 0 0 0 0 2 2 0 0 1 1 0 0 2 2 1 1 1 1 0 0 2 2 2 2 1 1 0 0 2 2 3 3 1 1 0 0 2 2 0 0 8,000 8,000 $8,475 $8,475 3 1 0 2 500 500 2,000 1,500 1,000 6,000 2,000 1,500 1,000 6,000 4,000 $1,418 $1,418 4,000 Investment Securities: During 2013 the securities portfolio continued to serve as a key source of earning assets and liquidity for the Bank. Bank management considers securi- ties as a relatively attractive means to effectively leverage 0.12% the Bank’s strong capital position, as securities are typically assigned a significantly lower risk weighting for the purpose of calculating the Bank’s and the Company’s risk-based capital ratios. The overall objectives of the Bank’s strategy for the securities portfolio include maintaining appropriate liquidity reserves, diversifying earning assets, managing interest rate risk, leveraging the Bank’s strong capital posi- tion, generating acceptable levels of net interest income and, when appropriate, generating realized gains on the sale of securities. 2,000 2,000 3 1 0 2 3 1 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 0 0 0 0 9 0 0 2 $836 3 1 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 17 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 3000 3000 2500 2500 2000 2000 1500 1500 1000 1000 500 0 500 0 8000 8000 6000 6000 4000 4000 2000 2000 0 0 Non-Performing Non-Performing Net Charge-Offs Net Charge-Offs Loans to Total Loans Loans to Total Loans to Average Loans to Average Loans Provision for Provision for Loan Losses Loan Losses Allowance for Allowance for Loan Losses Loan Losses ($ in thousands) ($ in thousands) ($ in thousands) ($ in thousands) 500 500 1000 1000 400 400 800 800 300 300 600 600 200 200 400 400 100 100 200 200 0 0 0 0 Securities Securities Deposits Deposits ($ in millions) ($ in millions) ($ in millions) ($ in millions) 2.0 2.0 3500 3500 10000 10000 2.0% 2.0% 0.40% 0.40% $3,500 $3,500 $10,000 $10,000 Non-Performing Non-Performing Loans to Total Loans Loans to Total Loans Net Charge-Offs Net Charge-Offs to Average Loans to Average Loans Provision for Provision for Loan Losses ($ in thousands) Loan Losses ($ in thousands) Allowance for Allowance for Loan Losses ($ in thousands) Loan Losses ($ in thousands) 3,000 3,000 2,500 2,500 8,000 8,000 $8,475 $8,475 2 1 0 2 0 1 0 2 3 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 6,000 6,000 2,000 2,000 0 0 0 0 1 1 0 2 0 1 0 2 9 0 0 2 2 1 0 2 9 0 0 2 1 1 0 2 0 1 0 2 9 0 0 2 2 1 0 2 9 0 0 2 1 1 0 2 0 1 0 2 3 1 0 2 3 1 0 2 3 1 0 2 500 500 1,500 1,000 2,000 1,500 1,000 4,000 2,000 $1,418 $1,418 4,000 Capital: Consistent with its long-term strategy of operating a sound and profitable organization, at December 31, 2013, the Company and the Bank continued to exceed regulatory 0.12% requirements for “well-capitalized” financial institutions. Company management considers this to be vital in promot- ing depositor and investor confidence and providing a solid foundation for future growth. Under the capital adequacy guidelines administered by the Bank’s principal regulators, “well-capitalized” institutions are those with Tier I Leverage, Tier I Risk-based, and Total Risk-based ratios of at least 5%, 6% and 10%, respectively. At December 31, 2013, the Company’s Tier I Leverage, Tier I Risk-based, and Total Risk-based capital ratios were 9.01%, 14.97% and 16.62%, respectively. $836 Shareholder Dividends: During 2013 the Company paid regular cash dividends on its common stock in the aggre- gate amount of $4.92 million, compared with $4.57 million in 2012. The Company’s 2013 dividend payout ratio amounted to 37.3%, compared with 36.6% in 2012. The total regular cash dividends paid in 2013 amounted to $1.25 per share of common stock, compared with $1.17 per share in 2012, representing an increase of $0.08 per share, or 6.8%. 3 1 0 2 The Company’s Board of Directors declared a first quarter 2014 regular cash dividend of $0.325 per share of com- mon stock, representing an increase of $0.02 or 6.6% compared with the first quarter of 2013. This represented the eleventh consecutive quarter where the Company increased its quarterly cash dividend to shareholders. Based on the year-end 2013 price of BHB’s common stock of $39.99 per share, the dividend yield amounted to 3.25%. 1.5 1.5 0.35 0.30 0.25 0.35 0.30 0.25 1.0 0.5 9 0 0 2 0 0.20 0.20 1.04% 1.04% At December 31, 2013, total investment securities 1.0 amounted to $450.2 million, representing an increase of $32.1 million, or 7.7%, compared with year end 2012. The 0.12% securities portfolio is comprised of mortgage-backed securi- 0.5 ties issued by U.S. Government agencies, U.S. Government- sponsored enterprises, and other non-agency, private-label issuers. The securities portfolio also includes tax-exempt obligations of states and political subdivisions thereof. 0.05 0.10 0.15 0.05 0.10 0.15 3 1 0 2 3 1 0 2 3 1 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 2 1 0 2 0 1 0 2 1 1 0 2 9 0 0 2 2 1 0 2 0 1 0 2 1 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 0 0 0 Securities ($ in millions) Securities ($ in millions) Deposits ($ in millions) Deposits ($ in millions) $500 $500 $450 $450 $1,000 $1,000 400 400 800 800 $836 300 300 600 600 200 200 400 400 100 100 200 200 9 0 0 2 0 1 0 2 1 1 0 2 0 0 9 0 0 2 2 1 0 2 0 1 0 2 3 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 9 0 0 2 0 1 0 2 1 1 0 2 0 0 9 0 0 2 2 1 0 2 0 1 0 2 3 1 0 2 1 1 0 2 2 1 0 2 Deposits: During 2013, the most significant funding source for the Bank’s earning assets continued to be retail depos- its, gathered through its network of fifteen banking offices throughout downeast, midcoast and central Maine. Total deposits ended the year at $835.7 million, up $39.9 million, or 5.0%, compared with year end 2012. Demand, NOW and money market accounts combined were up $14.9 million or 3.5% compared with year end 2012, while time deposits were up $25.0 million, or 6.8%. Borrowings: Borrowed funds principally consist of advances from the Federal Home Loan Bank of Boston. The Bank utilizes borrowed funds in leveraging its strong capital posi- tion and supporting its earning asset portfolios. Borrowed funds also provide a means to help manage balance sheet interest rate risk, given the Bank’s ability to select desired amounts, terms and maturities on a daily basis. Total bor- rowings ended the year at $409.4 million, representing an increase of $37.9 million, or 10.2%, compared with December 31, 2012. The increase in borrowings was uti- lized to help support the Bank’s 2013 earning asset growth. 18 Management and Staff BAR HARBOR BANKSHARES MANAGEMENT Doak, Lori L. Operations Officer Starbird, R. Todd Relationship Manager, Mid Coast Simard, Curtis C.* President & Chief Executive Officer Eaton, Audrey H. Retail & Residential Lending Stevens, Lottie B. Compliance Shencavitz, Gerald* Executive Vice President, Chief Financial Officer & Treasurer BAR HARBOR BANK & TRUST MANAGEMENT Simard, Curtis C. President & Chief Executive Officer Shencavitz, Gerald Executive Vice President, Chief Operating Officer, Chief Financial Officer & Treasurer Bonsey, Michael W.* Executive Vice President & Chief Risk Officer Dalton, Gregory W.* Executive Vice President, Business Banking Leackfeldt, Stephen M.* Executive Vice President, Retail Banking & Operations SENIOR VICE PRESIDENTS Bender, Marcia T. Senior Operations & BSA Officer Hurley III, Daniel A. Bar Harbor Trust Services Mullen, Cheryl L. Sales & Marketing Sawyer, Marsha C. Human Resources VICE PRESIDENTS Anderson, Judi L. Credit Administration Gray, Marjorie E. Product Development & Marketing Hall, Vicki L. Relationship Manager, Mount Desert Island Holmes, Lisa A. Retail & Residential Lending, Branch Relationship Manager, Machias Lacasse, James W. Relationship Manager, Ellsworth & Blue Hill Peninsula Lavoie, Robert J. Information Systems Lord, Maureen T. Regional Branch Relationship Manager, Machias & Lubec Lynch, Carolyn R. Internal Audit Martin, Elena M. Electronic Banking McGee, Samuel S. Relationship Manager, Middle Market Megathlin, Shawn R. Corporate Compliance Michaud, J Paul Application Support & Project Management Parsons, Lisa L. Regional Market Manager, Mount Desert Island Patton, Russell A. Risk & Information Security Perry, Chris P. Relationship Manager, Middle Market Bailey, Karri A. Managed Assets & Credit Administration Planchart, Catherine M. Corporate Communication & Community Relations Veazie, Lisa F. Regional Market Manager, Ellsworth, Blue Hill, Deer Isle. Winter Harbor, & Milbridge White, Roger S. Special Projects Wright, Kim Finance Young, J. Christopher Product Management & Delivery Zeugner, Leita K. Deposit Services ASSISTANT VICE PRESIDENTS Alley, Stacie J. Managed Assets Archer, Holly J. Retail & Residential Lending Hutton, Donna B. Customer Service Center Jones, Gregory S. Branch Relationship Manager, Rockland Jordan, Krystal E. Branch Relationship Manager, Milbridge Maynard, Colleen E. Branch Relationship Manager, Southwest Harbor Mitchell-Dow, Debra S. Branch Relationship Manager, Bar Harbor Nason, Kimberly J. Staff Development & Training Newenham, Judith L. Retail Lending Support O’Connell, Sara H. Human Resources Tracy, Terry E. Retail Banking Operations Bannister, Michelle R. Staff Development & Training Blackett, Steven W. Credit Administration Cohen, David S. Controller & Assistant Treasurer Curtis, Jacqueline M. Administrative Officer Curtis, Michelle E. Regional Market Manager, Augusta, Topsham & South China *Named Executive Officers Poland, Bonnie A. Retail Lending Support Porter, Lester L. Assistant Controller Pye, Carol J. Retail & Residential Lending Robertson, Adam L. Relationship Manager, Middle Market Upham, Ann G. Retail & Residential Lending and Branch Support Warren, Jody C. Branch Relationship Manager, Ellsworth OFFICERS Allen, Faye M. Deposit Services Fuller, Judith W. Corporate Secretary Griffin, Susanne M. Credit Administration Maffucci, Deborah A. Finance Mooney, Dylan A. Finance Pagan, Joseph F. Information Systems Somes, Andrew L. Branch Relationship Manager, Winter Harbor Swanberg, Peter M. Systems Applications Troxell, Lindsey W. Retail & Residential Lending Wesseling, Xin L. Credit Administration Albee, Susan L. Customer Service Manager, Machias Bridges, Laura A. Servicing & Quality Assurance Carter, Hillary A. Retail Lending Support Colwell, Brenda B. Human Resources Condon, Brenda J. Customer Service Manager, Deer Isle Cummings, Debbie B. Regional Customer Service Manager, Northeast Harbor & Somesville Fournier-Decoste, Katheryn R. Human Resources Gray, Shelley E. Customer Service Manager, Milbridge MacLeod, Virginia L. Customer Service Manager, Southwest Harbor Parker, Andrea L. Accounts & Transaction Processing Sawyer, Chelsea M. Customer Service Manager, Ellsworth 19 Emerson, Rebecca H. Branch Relationship Manager, Deer Isle MANAGERS Springer, Douglas W. Facilities Manager BAR HARBOR FINANCIAL SERVICES** Thompson, Dianne B. Customer Service Manager, Blue Hill Mitchell, Sonya L. Managing Director & Financial Consultant BAR HARBOR TRUST SERVICES Hurley III, Daniel A. President Shencavitz, Gerald Chief Financial Officer Radel, Joshua A. Chief Investment Officer Pratt, Joseph M. Managing Director & Trust Officer VICE PRESIDENTS Bowden, Melanie J. Trust Officer Geel, Faye A. Trust Officer Horner, Lara K. Trust Operations Nicholson, Peter C. Trust Investment Officer Robinson, Sarah C. Trust Officer Wooster, Timothy J. Trust Officer OFFICER Zimmerman, Julie B. Trust Officer SUPERVISOR Curativo, Pamela L. Trust Operations Hamilton, Ronald L. Vice President & Financial Consultant Kinghorn, Dennis M. Vice President & Financial Consultant Mansfield, Marcia L. Vice President & Financial Consultant EMPLOyEES AS OF 3/7/2014 Abbott, Gwen M. Abbott, Jennifer C. Allen, Andrea L. Allen, Deena M. Andrews, Holly M. Atherton, June G. Austin, Vicki J. Barnes, Virginia H. Barton, Hannah R. Bates-Mitchell, Kristi L. Baudanza, Erin F. Beal, Charleen L. Beal, Jenna M. Beal, Karen C. Beyer, Leslie M. Blanchard, Amy H. Boudreau, Alain R. Brady, Penny S. Brown, Heather L. Bryer, Katy A. Caouette, Marian R. Capristo, Kim R. Chase, Nikki L. Colson, Theresa L. Conner, Erin S. Coombs, April E. Cormier, Sarah A. Crandall, Kevin J. Davis, Sharon J. Douglass, Joanne M. Dupuy, Mia B. Eaton, Julie M. Eldridge, Patricia L. Farnsworth, Pamela J. Fernald, Melony A. Fernandez, Rebecca R. Foskett, Amy N. Gatcomb, Dena M. Haley, Andrew J. Hall, Kelli M. Hamilton, Kirsten M. Harper, Amy L. Haskell, Lisa L. Hastings, Nancy B. Hawes, Bethany A. Hays, Mary D. Heal, Ivy M. Hepburn, Barbara F. Higgins, Cathy A. Hinckley, Melissa S. Hinkel, Nicole S. Hodgkin, Samuel C. Howie, Jeanette L. Huffman, Lynn L. Hunt, Marianne Hutchinson, Margaret L. Jackson, Cathy M. Jipson, Bruce W. Johnson, Ashley N. Kane, Maureen E. Kief, Kathryn M. Lambert, Jane E. Lamoureux, Paula M. Lawson, Jessica K. Leblanc, Bonnie S. Lee, Nichole J. Lewis, Stephanie M. Lloyd, Marlene A. Lovely, Norma K. Mackenzie, Bailey E. Magee, Gabriella M. Mahoney, Sharon I. Matthews, Ashley S. McElyea, Jeremiah S. Mercado, Mary H. Miller Jr., Timothy J. Millett, Marcia L. Mockler, Julie E. Mora, Angela R. Nason, Dawn B. Norton, Jennifer I. Norwood, Nichole D. Ohmeis, Amanda R. Ohmeis, Claire C. Orcutt, Alexandra Orr, Keith A. Parker, Jane M. Parlee, Deborah I. Patton, Ebony A. Pendleton, Candy A. Redman, Julie A. Richards, Judy A. Riitano, Zachary J. Robbins, Amanda L. Robinson, Jane M. Saunders, Jennifer M. Schaefer, Frank J. Schoppee, Rhonda L. Schwartz, Edith E. Scott-Henderson, Debra L. Sinclair, Jacklyn M. Skinner, Renee D. Smith, Samantha A. Snow, Andrea L. Stanley, Angela M. Stover, Teri A. Swett, Andrea D. Timmons, Bristol N. Tucker, Jennifer M. Tucker, Jyl E. Urquhart, Kirstie A. Vanskike, Corey M. Wallace, Allyson M. Wasson, Krystal E. Webster, Paula R. Weeks, Jeanne L. Wiberg, Katie G. Wood, Crystal N. **Bar Harbor Financial Services is a branch of Infinex Investments, Inc., an independent registered broker-dealer which is not affiliated with the Company or the Bank. 20 Board of Directors Peter Dodge Blue Hill, ME—Chairman of the Board President and Insurance Agent, Peter Dodge Agency d/b/a Merle B. Grindle Agency, John R. Crooker Agency, and The Endicott Agency Gregg S. Hannah Surry, ME Chartered Financial Analyst, Past Associate Professor of Business Management at Nichols College Thomas A. Colwell Deer Isle, ME—Vice Chairman of the Board Retired President, Colwell Bros., Inc. Robert C. Carter Machias, ME Owner of Carter Enterprises (Rental Management) and Retired Owner of Machias Motor Inn Clyde H. Lewis Sullivan, ME Retired Vice President & General Manager, Morrison Chevrolet, Inc. Joseph M. Murphy Mt. Desert, ME Retired President & Chief Executive Officer of the Company and the Bank Martha T. Dudman Northeast Harbor, ME Fundraising Consultant and Author, Former President of Dudman Communications Lauri E. Fernald Mt. Desert, ME Funeral Practitioner and an Owner in Jordan-Fernald Funeral Home Robert M. Phillips Sullivan, ME Consultant to the Wild Blueberry Industry Constance C. Shea Mt. Desert, ME Real Estate Broker and Former Owner of Lynam Real Estate Curtis C. Simard Mt. Desert, ME President & Chief Executive Officer of the Company and the Bank Kenneth E. Smith Bar Harbor, ME Owner and Innkeeper of Manor House Inn Scott G. Toothaker Ellsworth, ME Certified Public Accountant Principal & Vice President of Melanson Heath & Co. David B. Woodside Bar Harbor, ME President & General Manager of Acadia Corporation Annual Meeting The Annual Meeting of shareholders of Bar Harbor Bankshares will be held at 11:00 a.m. on Tuesday, May 20, 2014 at the Bar Harbor Club located on West Street in Bar Harbor, Maine. Financial Information Shareholders, analysts and other investors seeking financial information about Bar Harbor Bankshares should contact Gerald Shencavitz, Executive Vice President, Chief Financial Officer and Treasurer, at 207-288-3314. Internet Bar Harbor Bank & Trust information, as well as Bar Harbor Bankshares Form 10-K, is available at www.bhbt.com. Corporate Information Shareholder Assistance Questions concerning your shareholder account, including change of address forms, records or information about lost certificates or dividend checks, should be directed to our transfer agent: American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, New York 11219 800-937-5449 / www.amstock.com Stock Exchange Listing Bar Harbor Bankshares common stock is traded on the NYSE MKT, LLC (www.nyse.com), under the symbol BHB. Form 10-K Annual Report The Company refers you to its Annual Report on Form 10-K for fiscal year ended December 31, 2013 for detailed financial data, management’s discussion and analysis of financial condition and results of oper ations, disclosures about market risk, market information including stock graphs, descriptions of the business of the Company and its products and services, and a listing of its executive officers. Mailing Address If you need to contact our corporate head- quarters office, write: Bar Harbor Bankshares Post Office Box 400 82 Main Street Bar Harbor, Maine 04609-0400 207-288-3314 • 888-853-7100 Printed Financial Information We will provide, without charge, and upon written request, a copy of the Bar Harbor Bankshares Annual Report to the Securities and Exchange Commission on Form 10-K. The Bank will also provide, upon request, Annual Disclosure Statements for Bar Harbor Bank & Trust as of December 31, 2013. Please contact Marsha C. Sawyer, Bar Harbor Bankshares Clerk, at 207-288-3314 or the above address. Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com Photography by Chris Pinchbeck/www.pinchbeckphoto.com Our Locations 15 Branches 212 Employees Augusta 227 Water Street Augusta, ME 04330 Bar Harbor 82 Main Street Bar Harbor, ME 04609 Blue Hill 21 Main Street Blue Hill, ME 04614 Deer Isle 25 Church Street Deer Isle, ME 04627 Ellsworth 125 High Street Ellsworth, ME 04605 Lubec 68 Washington Street Lubec, ME 04652 Machias 41 Main Street Machias, ME 04654 Milbridge 2 Bridge Street Milbridge, ME 04658 Northeast Harbor 111 Main Street Northeast Harbor, ME 04662 Rockland 245 Camden Street Rockland, ME 04841 Somesville 1055 Main Street Mt. Desert, ME 04660 South China 368 Route 3 China, ME 04358 Southwest Harbor 314 Main Street Southwest Harbor, ME 04679 Topsham 2 Main Street Topsham, ME 04086 Winter Harbor 385 Main Street Winter Harbor, ME 04693 Business Banking, TrusT & Financial services OFFices Bangor One Cumberland Place Suite 100 Bangor, ME 04401 Ellsworth 135 High Street Ellsworth, ME 04605 Rockland 91 Camden Street Rockland, ME 04841 1-888-853-7100 • www.bhbt.com