Bar Harbor Bankshares
Annual Report 2015

Plain-text annual report

2015 S U M M A R Y A N N UA L R E P O R T B A R H A R B O R B A N K S H A R E S INVESTING, GROWING, EVOLVING Staying True to Our Culture Bar Harbor Bank & Trust Founded in 1887, Bar Harbor Bank & Trust (the “Bank”) is a true community bank with 15 locations from Lubec to Topsham, Maine, offering 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, pro- vide 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”). FIVE KEY BEHAVIORS COMMUNICATION PRACTICE communication (Positive, Respect, Active, Clear, Timely, Intentional, Considerate, Empathetic) APPRECIATION express genuine appreciation BUILD COMMUNITY treat every person in the Company as your best customer TEAMWORK support and respect others, working collaboratively for success POSITIVE ATTITUDE energize your environment—lead with a positive attitude! These Five Key Behaviors guide employees to live the Bar Harbor Bank & Trust brand promise every day as they deliver service to customers. Employees are recognized and rewarded for actively demonstrating these behaviors in their daily work. Bar Harbor Bankshares 1 2015 SUMMARY ANNUAL REPORT DEAR FELLOW SHAREHOLDERS, Growing revenue, stable credit quality, and strong capital levels are the result of a model committed to a balance between growth and earnings. Curtis C. Simard, President and Chief Executive Officer Peter Dodge, Chairman During 2015 we remained loyal to our goals of the previous few years, specifically focusing on evolving our bank while preserving the culture and customer centric approach that has driven very strong results year in and year out. In fact, the commitment and pas- sion of our team delivered our tenth consecutive year of record earnings in 2015 and enabled increases to our dividend in each quarter, raising the total to nine- teen consecutive quarters. Along similar lines, Total Shareholder Return (TSR) continues to become a hall- mark of our company, appreciably exceeding the S&P 500 and several other market and peer measures over the five-year average. This continues to confirm that we are a positive outlier when defined by demonstration of shareholder value. We are proud to highlight several notable performance metrics that drove these achieve- ments including: • Total Asset growth of 8.3% led by average earning asset growth of $97.3 million, which is 29% higher than last year’s respectable increase in earning assets. • Loan balance increases of $71.0 million, centered in commercial loan growth of $51.1 million or 11.2%. Growth continues to be concentrated in high quality, well-recognized relationships that have long track records of success with multiple product needs from the Bank. • Stable credit quality deliverables with non-performing loans to total loans at year-end of 0.71%. • Total deposit growth of $84.7 million or 9.9%. We have targeted core transaction accounts that represent low cost funding, increasing these categories by $66.1 million or 13.8%. • Effective containment of expenses with an efficiency ratio of 56.3% despite continued investment in the Company. • Comfortable maintenance of the regulatory standards of a “well capitalized” institution on all levels. We believe that positive employee and customer expe- riences naturally translate into shareholder value and therefore are our greatest passions. Behind the Numbers and Being Forward Thinking Our performance has been consistent, our culture is intact, and our Total Shareholder Return is one of the most satisfying metrics to report. While appreciating our success is much deserved by the very team that worked so diligently on its creation, we are instead focused on how to better position our future. With Bar Harbor Bankshares 2 2015 SUMMARY ANNUAL REPORT Growing revenue, stable credit quality, and strong capital levels are the result of a model committed to a balance between growth and earnings. various competitors in every market segment having rehabilitated any remaining issues, there is extreme competition for every loan and deposit. The result is tightening margin pressure at every turn. We have responded by reinforcing a strong team, embracing our model of balancing growth and earnings, and con- firming our strategic initiatives to secure our current performance—knowing that preparation for increas- ingly dynamic markets ahead is necessary. We have continued to be relentless in our pursuit of correcting blind spots and are focusing on those that we feel pose the greatest risk. Our team is engaged to address them not only to preserve our current position but also to anticipate future opportunities despite potential headwinds. In short, we are making good use of record earnings to invest for our future. Aggressive Sales Calling and Improved Attention to Small Business During 2015, we put every commercial, small business and consumer sales officer through extensive training based on outward client maintenance programs and new customer prospecting. While this on the surface may seem intuitive, our well recognized brand aware- ness could potentially cause periodic complacency. Ensuring our focus and developing sales skills are daily commitments. Having the right products goes hand in hand with team skill development. We recently completed a year-plus-long development and installa- tion of an improved delivery model for expediting small business loans. The system had to be carefully designed to ensure proper credit underwriting, but a much improved turnaround time and more consis- tent product was the needed outcome. Whether through products or training, we are providing our teams with the tools necessary to articulate the value in the exemplary service we provide everyday. Investment in Leadership In planning for our future, we undertook a careful, yet deliberate project to examine our organizational structure from many angles. Over the past 15 months, we have made adjustments to many divisions through- out the Bank to better position our ongoing evolution and forward vision, but with an unrelenting commit- ment to our culture. In short, the prevailing question remains obvious: how do we perform better while preserving the environment that has been a true differ- entiator for us? We came to the conclusion that we needed to invest in the right personnel, both existing leaders and catalyst recruits alike, while investing in technology for long-term efficiency gains and to meet growing customer expectations. This created a clear need for leaders who: • effectively coach and support those around them, • live the brand consistently, • develop more advanced process and procedures, • are viewed as leaders in their community, • and demonstrate the ability and willingness to take on additional responsibility. As a result, included in this year’s report is a section on our newly created SVP level of leadership. This is about recognizing key performers and making more resources available to better support our colleagues, our customers, and our communities while pressing to meet our growth desires. Together we can drive employee productivity while remaining committed to our risk appetite and controls measures. Investment in Risk and Credit Infrastructure We strive to maintain a moderate-to-low risk profile. As such, we have continued to invest in risk and credit infrastructure. We have attracted needed personnel Bar Harbor Bankshares 3 2015 SUMMARY ANNUAL REPORT with experience across industries to better anticipate future challenges in the lending community as we have already seen responsible lending structure and pricing come under fire. Their experience has enabled us to create a cohesive dialogue around growth poten- tial so that it can be energetic while being protective and measured. We believe risk management and responsible growth do not have to be mutually exclusive. Investment in Products and Technology We continue to embrace technology advancement in our company. We are investing in our mobile platforms and other products suites such as cash management that is required to better capture a higher portion of deposit “wallet” share from customers located beyond our immediate branch footprint and as our lending proficiency extends beyond commercial real estate lending. The latter dovetails nicely when combined with the experience of the credit governance and lending teams. This also requires having an integrated team of experienced IT professionals that can deliver expanding platforms safely while also absorbing the growth we seek. Evolving a time-tested brand is something to embrace and encourage. Always looking to advance our potential is compulsory in today’s very competitive, highly regulated banking industry. Our understanding of this signals a deeply unified team whose focus is on appre- ciating our past while relentlessly pursuing future per- formance for our shareholders in a changing world. On behalf of the Board of Directors and the entire Bar Harbor Bankshares team, it is our privilege to thank you, our fellow shareholders, for your continued confidence and loyalty. Curtis C. Simard President and Chief Executive Officer Peter Dodge Chairman Bar Harbor Bankshares 4 2015 SUMMARY ANNUAL REPORT 250 200 150 100 50 0 The graph below matches Bar Harbor Bankshares’ cumulative 5-Year total shareholder return on common stock with the cumulative total returns of the NYSE MKT Composite Index, the S&P 500 Index, and the ABA Nasdaq Community Bank Index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from 12/31/2010 to 12/31/2015. COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN* Among Bar Harbor Bankshares, the NYSE MKT Composite Index, the S&P 500 Index and ABA Nasdaq Community Bank Index $250 200 150 100 50 0 12/10 12/11 12/12 12/13 12/14 12/15 Bar Harbor Bankshares NYSE MKT Composite S&P 500 ABA Nasdaq Community Bank Index *$100 invested on12/31/10 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. Copyright © 2016 S&P, a division of McGraw-Hill Financial. All rights reserved. 12/10 12/11 12/12 12/13 12/14 12/15 Bar Harbor Bankshares NYSE MKT Composite S&P 500 ABA Nasdaq Community Bank Index 100.00 100.00 100.00 100.00 107.22 104.50 102.11 94.19 124.62 110.18 118.45 109.44 153.27 118.63 156.82 154.36 190.34 120.72 178.29 161.15 210.93 107.77 180.75 176.07 The stock price performance included in this graph is not necessarily indicative of future stock price performance. Bar Harbor Bankshares 5 2015 SUMMARY ANNUAL REPORT INVESTING IN OUR FACILITIES, OUR PEOPLE, AND OUR PROCESSES Bar Harbor Bankshares 6 2015 SUMMARY ANNUAL REPORT INVEST We are very excited to be reinvesting in our headquarters! The patience and outright enthusiasm for this project by all involved is a material statement about the bright future of our Company. 2015 was a year of evolutionary change at Bar Harbor Bank & Trust. The changes were necessary to properly support our current company and position us for future growth in a sound and organized manner. Guided by the strategic planning process started in 2013, quarterly the Senior Executive Team meets to track our performance against our goals. Some achievements made in 2015 include investments in our facilities, our people and our processes. In October 2015, we began much needed and exten- sive renovations to our home office in Bar Harbor; the branch and three floors of offices. E.L. Shea, a well- respected local company, is the general contractor employing many area tradespeople to do the con- struction work, during what is otherwise known as the “slow” season in our region. The project includes a complete renovation of the exist- ing 82 Main Street building to preserve the building as well as to improve efficiency, security, privacy, and work flow. In addition, issues of proper temperature control, ventilation, and weatherization are being addressed. Upgrades to technology infrastructure, lighting, electrical, insulation, heating and cooling, furniture, and flooring are included. The project is being staged in sections over a 16-month period, maintaining staffing and service levels with minimal interruption. This leaves parts of the building free from disruption while other areas are under construction. Phase one included renovations of the Executive and Human Resources areas, which were completed in December 2015. The second phase began in January 2016 and is expected to be completed during the second half of April. When complete, we will be able to take much pride in the new, fresh, clean and neat appearance of this place we call home. Bar Harbor Bankshares 7 2015 SUMMARY ANNUAL REPORT WE CONTINUE TO INVEST IN OUR PEOPLE, OUR MOST IMPORTANT ASSET are helping to meet our objectives in evolving to become a better bank, starting from an already strong foundation. Speaking of a strong foundation, in Bank Director maga- zine’s annual list of the highest performing public banks published in July 2015, in the $1–$5B asset size, Bar Harbor Bank & Trust was named 52nd in the entire nation, compared to our ranking last year as 98th. This makes us the highest Maine-based bank on the list and in the top four in New England! Additionally, in the May 2015 issue of American Banker magazine, Bar Harbor Bank & Trust was named one of the Top 200 Publicly Traded Community Banks & Thrifts in the country. How do we perform better while preserving our cultural environment, which is a true differentiator for us? We continue to invest in our people, our most important asset, as they embody the culture of the organization. During 2015 staffing and organizational structure changes were made to better position the Company for future growth. Keeping as our guide the best pos- sible employee and customer experience, there was a clear need for leaders who can support teams charged with successfully meeting the growing expectations of our bank. Our new team of Senior Vice Presidents can be found on page 12. Many of these leaders were promoted from within our Company while others were catalyst hires across many disciplines. Some moved to Maine “from away,” relocating their families to our local communities. These individuals are key leaders, providing resources throughout the Company to better support our growth endeavors. These organizational alignments Bar Harbor Bankshares 8 2015 SUMMARY ANNUAL REPORT G R OW Organizational alignments are helping to meet our objectives in evolving to become a better bank, starting from an already strong foundation. Bar Harbor Bankshares 9 2015 SUMMARY ANNUAL REPORT WE ARE FULLY COMMITTED TO EMBRACING TECHNOLOGY E V O LV E Our commitment to technology is imperative given the expectations of our company not only in terms of efficiency and security, but also in achieving an improved customer and employee experience. Bar Harbor Bankshares 10 2015 SUMMARY ANNUAL REPORT When it comes to evolving your bank for the future, much of the future rests in technology. And, our com- mitment to technology is imperative given the expec- tations of our company not only in terms of efficiency and security, but also in achieving an improved cus- tomer and employee experience which drive growth and performance. Our Information Technology (IT) division is now under the management of Joe Scully, SVP giving us a renewed and expanded focus on IT, reorganizing the depart- ment into four dedicated service groups. These teams are talented and well equipped to tackle the growth challenges that lie ahead. With these changes to tech- nology infrastructure, we are clearly growing the bank, advancing security protocols, and rolling out new products. During 2015 we invested in our Community Banking team, training, and delivery channels to substantially improve small business, consumer, and residential lending. This included changes in process workflow throughout the bank, improving the efficiency, con- sistency and responsiveness of small business lending (i.e. loans less than $250,000) within the branch system. It also provides clarity in decision making as we seek to grow our company, while keeping decisions local. Newly implemented lending systems are helping us achieve our strategic goal of streamlining loan origi- nation and reducing our lending decision times to a matter of minutes. This greatly improves customer and employee experience in loans originated through our branch network. Moving into 2016, we will continue to invest, grow and evolve into a better bank for our communities, our customers, our shareholders, and ourselves. Bar Harbor Bankshares 11 2015 SUMMARY ANNUAL REPORT OUR NEWEST SENIOR VICE PRESIDENTS Bar Harbor Bankshares 12 2015 SUMMARY ANNUAL REPORT From left to right: Lisa L. Parsons SVP/Regional Market Manager B. Edwin Wyatt , Jr. SVP/Director of Community Banking Joseph P. Scully SVP/Director of Technology & Project Management Samuel S. McGee SVP/Senior Relationship Manager, Middle Market Lisa F. Veazie SPV/Regional Market Manager Charles C. Thomas SVP/Chief Credit Officer R. Stephen Gurin, Jr. SVP/Team Lead, Business Banking Johanne H. Lapointe SVP/Internal Audit Sara H. O’Connell SVP/Human Resources & EEO Officer Lori L. Doak SVP/Operations David S. Cohen SVP/Controller & Assistant Treasurer Shawn R. Megathlin SVP/Corporate Compliance Karri A. Bailey SVP/Managed Assets Group Adam L. Robertson SVP/Senior Relationship Manager, Middle Market. Bar Harbor Bankshares 13 2015 SUMMARY ANNUAL REPORT Bar Harbor Bankshares SENIOR EXECUTIVE TEAM Bar Harbor Bankshares BOARD OF DIRECTORS Stephen M. Leackfeldt Executive Vice President, Retail Banking Marcia T. Bender Senior Vice President, Retail Banking and BSA Officer Richard B. Maltz Executive Vice President, Chief Risk Officer Daina H. Hill Lincolnville, ME Owner of Inn at Sunrise Point Scott G. Toothaker Ellsworth, ME Certified Public Accountant Shareholder of Melanson Heath & Co. Peter Dodge Blue Hill, ME Chairman of the Board Retired President and Insurance Agent, Peter Dodge Agency d/b/a Merle B. Grindle Agency, John R. Crooker Agency, and The Endicott Agency Lauri E. Fernald Mt. Desert, ME Certified Funeral Service Practitioner and Owner of Jordan-Fernald Funeral Home Martha T. Dudman Northeast Harbor, ME Published Author, Former President of Dudman Communications Curtis C. Simard President and Chief Executive Officer Marsha C. Sawyer Executive Vice President, Human Resources Joseph M. Pratt Senior Vice President, President Bar Harbor Trust Services Gerald Shencavitz Executive Vice President, Chief Operating Officer, Chief Financial Officer and Treasurer Gregory W. Dalton Executive Vice President, Business Banking Kenneth E. Smith Bar Harbor, ME Owner and Innkeeper of Manor House Inn Curtis C. Simard Mt. Desert, ME President and Chief Executive Officer of the Company and the Bank David B. Woodside Bar Harbor, ME Chief Executive Officer of The Acadia Corporation Matthew L. Caras Arrowsic, ME Owner in Leaders LLC Constance C. Shea Mt. Desert, ME Real Estate Broker and Former Owner in Lynam Real Estate Thomas A. Colwell Deer Isle, ME Vice Chairman of the Board Retired President, Colwell Bros., Inc. Clyde H. Lewis Sullivan, ME Retired Vice President and General Manager, Morrison Chevrolet, Inc. Bar Harbor Bankshares 14 2015 SUMMARY ANNUAL REPORT Bar Harbor Bankshares FIVE-YEAR SUMMARY OF FINANCIAL DATA The following table sets forth selected data for the last five years. As of and for the Years Ended December 31, (in thousands, except per share data) 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 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 Common equity tier 1 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 2015 2014 2013 2012 2011 $ 1,580,055 504,969 990,070 (9,439) 942,787 474,791 154,152 1,541,327 151,391 $ 1,459,320 470,525 919,024 (8,969) 858,049 447,020 146,287 1,424,209 136,672 $ 1,373,893 450,170 852,857 (8,475) 835,651 409,445 121,379 1,345,353 125,340 $ 55,224 10,390 44,834 1,785 43,049 8,979 30,908 21,120 5,967 $ 53,718 9,905 43,813 1,833 41,980 7,758 29,211 20,527 5,914 $ 50,749 11,663 39,086 1,418 37,668 7,566 26,860 18,374 5,191 $ 1,302,935 418,040 815,004 (8,097) 795,012 371,567 128,046 1,252,390 125,600 $ 50,838 13,867 36,971 1,652 35,319 7,709 25,618 17,410 4,944 $ 1,167,466 381,880 729,003 (8,221) 722,890 320,283 118,250 1,151,163 111,135 $ 50,907 16,518 34,389 2,395 31,994 6,792 23,281 15,505 4,462 $ 15,153 $ 14,613 $ 13,183 $ 12,466 $ 11,043 $ $ $ 2.53 2.50 1.010 39.86% 0.98% 10.01% 3.19% 9.37% 15.55% 17.12% 15.55% 0.14% 0.95% 134.7% 0.71% $ $ $ $ $ $ 2.470 2.450 0.905 36.69% $ $ $ 2.240 2.220 0.833 37.28% $ $ $ 2.13 2.12 0.780 36.62% 1.03% 10.69% 3.33% 9.30% 15.60% 17.24% N/A 0.15% 0.98% 73.0% 1.34% 0.98% 10.52% 3.15% 9.01% 14.97% 16.62% N/A 0.12% 0.99% 95.9% 1.04% 1.00% 9.93% 3.23% 8.87% 14.15% 15.78% N/A 0.23% 0.99% 82.1% 1.21% 1.91 1.90 0.730 38.29% 0.96% 9.94% 3.23% 9.32% 14.29% 16.06% N/A 0.37% 1.13% 63.7% 1.77% All share and per share amounts have been adjusted to reflect the effect of the 3-for-2 stock split (dividend) during May 2014. Refer to the Bar Harbor Bankshares 2015 Annual Report on Form 10-K for a complete set of audited financial statements and accompanying notes. Bar Harbor Bankshares 15 2015 SUMMARY ANNUAL REPORT Bar Harbor Bankshares CONSOLIDATED BALANCE SHEETS Years Ended December 31, 2015 and 2014 (in thousands, except per share data) Assets Cash and cash equivalents Securities available for sale, at fair value 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 20,000,000 and 10,000,000 shares; issued 6,788,407 shares at December 31, 2015 and December 31, 2014, respectively Surplus Retained earnings Accumulated other comprehensive income: Prior service cost and unamortized net actuarial losses on employee benefit plans, net of tax of ($249) and ($251), at December 31, 2015 and December 31, 2014, respectively Net unrealized appreciation on securities available for sale, net of tax of $2,828 and $3,997, at December 31, 2015 and December 31, 2014, respectively Portion of OTTI attributable to non-credit gains, net of tax of $249 and $257, at December 31, 2015 and December 31, 2014, respectively Net unrealized depreciation on derivative instruments, net of tax of $873 and $389, at December 31, 2015 and December 31, 2014, respectively Total accumulated other comprehensive income Less: cost of 778,196 and 842,082 shares of treasury stock at December 31, 2015 and December 31, 2014, respectively TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY December 31, 2015 December 31, 2014 $ 9,720 504,969 21,479 990,070 (9,439) 980,631 20,674 4,935 23,747 13,900 $ 9,800 470,525 21,354 919,024 (8,969) 910,055 20,518 4,935 8,141 13,992 $ 1,580,055 $ 1,459,320 $ 86,577 160,394 299,087 396,729 942,787 333,909 135,882 5,000 8,325 $ 78,802 153,499 247,685 378,063 858,049 313,520 128,500 5,000 7,964 1,425,903 1,313,033 13,577 21,624 122,260 13,577 20,905 113,149 (463) 5,251 462 (1,621) 3,629 (488) 7,423 478 (722) 6,691 (6,938) 154,152 (8,035) 146,287 $ 1,580,055 $ 1,459,320 Refer to the Bar Harbor Bankshares 2015 Annual Report on Form 10-K for a complete set of audited financial statements and accompanying notes. Bar Harbor Bankshares 16 2015 SUMMARY ANNUAL REPORT Bar Harbor Bankshares CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2015, 2014 and 2013 (in thousands, except 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 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 shares Effect of dilutive shares issuable Diluted shares Per Common Share Data: Basic Earnings Per Share Diluted Earnings Per Share (1) Included in other comprehensive income, net of taxes 2015 2014 2013 $ 39,303 15,343 578 $ 37,739 15,689 290 $ 37,223 13,457 69 55,224 53,718 50,749 6,097 983 3,310 10,390 44,834 1,785 43,049 3,888 892 1,694 1,334 — — — 1,171 8,979 17,884 2,248 2,321 452 833 7,170 30,908 21,120 5,967 5,894 667 3,344 9,905 43,813 1,833 41,980 3,976 971 1,584 403 — — — 824 7,758 16,836 2,143 2,166 429 699 6,938 29,211 20,527 5,914 6,616 487 4,560 11,663 39,086 1,418 37,668 3,634 1,009 1,572 676 (359) 110 (249) 924 7,566 15,227 1,968 2,005 384 696 6,580 26,860 18,374 5,191 $ 15,153 $ 14,613 $ 13,183 5,980,245 80,012 5,926,387 49,877 5,898,077 30,363 6,060,257 5,976,264 5,928,440 $ 2.53 $ 2.47 $ 2.24 $ 2.50 $ 2.45 $ 2.22 Refer to the Bar Harbor Bankshares 2015 Annual Report on Form 10-K for a complete set of audited financial statements and accompanying notes. Bar Harbor Bankshares 17 2015 SUMMARY ANNUAL REPORT 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. 12 6 8 4 10 Operating under a community banking philosophy, the Company’s key strategic focus is vigorous financial stew- ardship, 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 efficiencies. In managing its earning asset portfolios, the Company seeks to utilize funding and capital resources within well-defined credit, investment, interest-rate and liquidity guidelines. In managing its balance sheet, the Company seeks to preserve the sensitivity of net interest income to changes in interest rates, and to enhance profit- ability through strategies that promise sufficient reward for understood and controlled risk. The Company is deliberate 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. 60 0 2 25000 SUMMARY FINANCIAL RESULTS 50 40 20 30 For the year ended December 31, 2015, the Company reported its tenth consecutive year of record earnings. The Company reported net income of $15.2 million, representing an increase of $540 thousand, or 3.7%, compared with 2014. The Company also reported record diluted earnings per share of $2.50 for 2015, representing an increase of $0.05, or 2.0%, compared with 2014. The Company’s return on average shareholders’ equity amounted to 10.01% in 2015, compared with 10.69% in 2014. The Company’s 2015 return on average assets amounted to 0.98%, compared with 1.03% in 2014. 10 0 The Company’s 2015 performance featured total loan growth of $71.0 million, led by a $51.1 million, or 11.2%, increase in the Bank’s commercial loan portfolio. The Bank’s total deposits increased $84.7 million in 2015, or almost 10%, reflecting one 0.4 2.0 of its strongest deposit growth rates in recent years. Despite pressure on the net interest margin, the Bank was able to increase net interest income by $1.1 million, while increasing non-interest income by $1.2 million, or 15.7%, compared with 2014. Credit quality remained stable during 2015, highlighted by a $5.3 million, or 43.0%, decline in non-performing loans and moderately lower levels of net loan charge-off experience compared with last year. RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY 12% 10 8 6 4 2 0 1.50% 1.00 0.50 0 0.98% ’11 ’12 ’13 ’14 ’15 RESULTS OF OPERATIONS 10.01% ’11 ’12 ’13 ’14 ’15 EFFICIENCY RATIO NON-INTEREST EXPENSE ($ in thousands) 50 40 30 60% $30,908 Net Interest Income: Net interest income is the principal component of the Company’s income stream and represents the difference or spread between interest generated from $35,000 56.3% earning assets and the interest expense paid on deposits and 30,000 borrowed funds. Fluctuations in market interest rates, as well as volume and mix changes in earning assets and interest 25,000 bearing liabilities, can materially impact net interest income. 20,000 For the year ended December 31, 2015, net interest income 15,000 on a tax-equivalent basis amounted to $46.8 million, com- pared with $45.7 million in 2014, representing an increase 10,000 of $1.1 million, or 2.4%. The increase in net interest income was principally attributed to average earning asset growth of $97.3 million, or 7.1%, as the tax-equivalent net interest mar- gin declined 14 basis points to 3.19% compared with 2014. During 2015, short-term and long-term interest rates remained at historically low levels, further pressuring the Bank’s weighted average earning asset yields, which declined 16 basis points to 3.89%. This decline was partially offset by a two basis point decline in the weighted average cost of interest bearing liabilities to 0.80%. NON-PERFORMING LOANS TO TOTAL LOANS NET CHARGE-OFFS TO AVERAGE LOANS 5,000 10 20 ’13 ’14 ’13 ’15 ’14 ’11 ’11 ’15 ’12 ’12 0 0 2.0% 0.4% NET INCOME ($ in thousands) DILUTED EARNINGS PER SHARE $15,153 $3.00 $2.50 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 TAX EQUIVALENT NET INTEREST INCOME ($ in thousands) NON-INTEREST INCOME ($ in thousands) $46,792 $10,000 $8,979 1.5 1.0 0.5 0.0 35000 30000 16000 12000 8000 4000 0 50000 40000 30000 20000 10000 0 1800 1500 1200 900 600 300 0 3.0 2.5 2.0 1.5 1.0 0.5 0.0 10000 8000 6000 4000 2000 0 1200 1000 800 600 400 200 0 $16,000 12,000 8,000 4,000 0 $50,000 40,000 30,000 20,000 10,000 0 $1,800 1,500 1,200 900 600 300 0 2.50 2.00 1.50 1.00 0.50 0 8,000 6,000 4,000 2,000 0 $1,200 1,000 800 600 400 200 0 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ASSETS ($ in millions) LOANS ($ in millions) $1,580 $990 20000 15000 10000 5000 0 1.5 1.0 0.5 0.0 0.3 0.2 0.1 0.0 1.5 Bar Harbor Bankshares 18 2015 SUMMARY ANNUAL REPORT 1.0 0.71% 0.5 0 0.3 0.2 0.1 0 0.14% ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 16000 12000 8000 4000 0 50000 40000 30000 20000 10000 0 1800 1500 1200 900 600 300 0 3.0 2.5 2.0 1.5 1.0 0.5 0.0 10000 8000 6000 4000 2000 0 1200 1000 800 600 400 200 0 NET INCOME ($ in thousands) DILUTED EARNINGS PER SHARE $15,153 $3.00 $2.50 ’11 ’12 ’13 ’14 ’15 ’11 ’13 ’14 ’15 TAX EQUIVALENT 8000 NET INTEREST INCOME ($ in thousands) NON-INTEREST 1.5 INCOME ($ in thousands) $50,000 4000 $46,792 $10,000 $8,979 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ASSETS ($ in millions) 20000 $1,800 10000 LOANS ($ in millions) 4000 $1,580 $990 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 2.50 2.00 1.50 1.00 0.50 0 8,000 6,000 4,000 2,000 0 $1,200 1,000 800 600 400 200 0 3.0 2.5 2.0 1.5 1.0 3.0 0.5 ’12 2.5 0.0 2.0 1.0 0.5 0.0 10000 8000 6000 4000 2000 10000 0 8000 6000 2000 1200 0 1000 800 600 400 1200 200 1000 0 800 600 400 200 0 $16,000 12,000 8,000 4,000 0 16000 12000 8000 4000 16000 0 12000 40,000 30,000 20,000 10,000 0 1,500 1,200 900 600 300 0 50000 0 40000 30000 20000 10000 50000 0 40000 30000 1800 0 1500 1200 900 600 1800 300 1500 0 1200 900 600 300 0 NET INCOME ($ in thousands) DILUTED EARNINGS PER SHARE 1.5 $16,000 1.0 12,000 $15,153 0.5 0.0 8,000 NET INCOME ($ in thousands) 4,000 $16,000 0 12,000 $15,153 ’11 ’12 ’13 ’14 ’15 12 $3.00 10 2.50 8 6 4 2 2.00 1.50 1.00 $3.00 0.50 0 2.50 0 2.00 $2.50 DILUTED EARNINGS PER SHARE ’11 ’12 ’13 ’14 $2.50 ’15 1.50 8,000 4,000 TAX EQUIVALENT NET INTEREST INCOME ($ 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 operations. Non-interest income is principally derived from financial serv- ices including trust, investment management and brokerage $50,000 $8,979 activities, as well as service charges on deposit accounts, ’15 debit card processing fees, net securities gains, and a variety of other product and service fees. NON-INTEREST INCOME ($ in thousands) $46,792 0.50 $10,000 40,000 8,000 1.00 ’14 ’12 ’11 ’13 ’14 ’11 ’12 ’15 ’13 0 0 40 50 60 35000 30000 25000 20000 30,000 30 6,000 15000 10000 20,000 TAX EQUIVALENT NET INTEREST INCOME ($ in thousands) $46,792 ’11 ’12 ’13 ’14 ’15 5000 10,000 $50,000 0 0 40,000 30,000 20 10 0 4,000 NON-INTEREST INCOME ($ in thousands) $8,979 ’11 ’12 ’13 ’14 ’15 2,000 $10,000 0 8,000 6,000 20,000 ASSETS ($ in millions) 4,000 LOANS ($ in millions) 10,000 2.0 $1,800 0 1.5 1,500 ’11 ’12 ’13 ’14 $1,580 ’15 2,000 0.4 $1,200 0 0.3 1,000 ’11 ’12 ’13 ’14 ’15 $990 1.0 0.5 0.2 600 600 900 ASSETS ($ in millions) For the year ended December 31, 2015, total non-interest income amounted to $9.0 million, representing an increase of $1.2 million, or 15.7%, compared with 2014. The increase in non-interest income was largely attributed to a $931 thousand increase in realized securities gains compared with 2014. Other $1,800 300 operating income amounted to $1.2 million in 2015 represent- $990 ing an increase of $347 thousand, or 42.1%, compared with ’15 2015, principally reflecting income associated with the Bank’s LOANS ($ in millions) $1,580 $1,200 200 1,000 0 1,500 0 400 ’14 ’11 ’12 ’11 ’12 ’13 ’14 ’13 ’15 0.1 0.0 0.0 RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY 1.50% purchase of additional Bank Owned Life Insurance in the first quarter of this year. Income generated from debit card service charges and fees amounted to $1.7 million in 2015, represent- ing an increase of $110 thousand, or 6.9%, compared with 10.01% 2014, largely reflecting continued growth of the Bank’s retail deposit base and continued success with a program that 0.98% offers rewards for certain debit card transactions. 12% 1.00 10 8 1.5 10 12 1.0 8 6 0.5 6 0.50 Partially offsetting the foregoing increases in non-interest income was a $79 thousand, or 8.1%, decline in service charges on deposits compared with 2014, principally reflecting lower levels of fee-based customer overdraft activity. Revenue from trust and other financial services amounted to $3.9 million in 2015, representing a decline of $88 thousand, or 2.2%, compared with 2014, largely reflecting lower volumes of retail brokerage activity. ’12 10 0 ’12 ’13 ’14 ’15 ’11 ’14 ’15 ’11 ’13 12 2 4 0 0 2 1.5 0.0 4 1.0 8 NON-INTEREST EXPENSE ($ in thousands) EFFICIENCY RATIO 6 $35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 $30,908 0.5 35000 0.0 30000 25000 20000 15000 10000 35000 5000 ’13 ’14 ’15 ’11 30000 ’12 0 25000 60% 50 40 30 20 10 0 56.3% 4 2 0 60 50 40 30 20 60 10 ’11 ’12 ’13 ’14 ’15 50 0 40 30 20 5000 20000 10000 15000 2.0% NET CHARGE-OFFS TO AVERAGE LOANS NON-PERFORMING LOANS TO TOTAL LOANS Non-interest Expense: For the year ended December 31, 2015, total non-interest expense amounted to $30.9 million, representing an increase of $1.7 million, or 5.8%, compared with 2014. The increase in non-interest expense was largely attributed to a $1.0 million, or 6.2%, increase in salaries and employee benefits. The increase in salaries and employee benefits was attributed to a variety of factors including nor- mal increases in base salaries and higher levels of employee health insurance, higher levels of employee incentive and equity award compensation, as well as increases in staffing levels and strategic changes in staffing mix. 0.4% 0.2 0.3 1.0 1.5 0.3 0.4 1.5 2.0 10 0 0 1.0 0.2 0.71% 0.14% 2.0 0.5 0.1 0.5 Total other operating expenses amounted to $7.2 million in 2015, representing an increase of $232 thousand, or 3.3%, compared with 2014. This increase was attributed to a variety of expense categories, the most significant of ’15 which included fees for professional services and share- holder related expenses. Furniture and equipment expenses ’11 ’12 ’13 ’14 ’15 ’11 ’13 ’14 ’12 0 0 0.0 0.1 0.0 0.3 0.4 1.5 1,200 1,200 900 600 300 0 800 800 600 400 200 0 Bar Harbor Bankshares 19 2015 SUMMARY ANNUAL REPORT 1.0 0.5 0.0 0.2 0.1 0.0 RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY 1.50% 1.00 0.50 1.50% 0 1.00 RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 0.98% 0.98% 10.01% 10.01% NON-INTEREST EXPENSE EFFICIENCY RATIO 0.50 ($ in thousands) ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 $30,908 56.3% NON-INTEREST EXPENSE EFFICIENCY RATIO ($ in thousands) $30,908 60% 10 56.3% ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 $35,000 0 30,000 25,000 20,000 15,000 10,000 $35,000 5,000 30,000 0 25,000 20,000 15,000 NON-PERFORMING 10,000 LOANS TO TOTAL LOANS 20 NET CHARGE-OFFS TO AVERAGE LOANS ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 NON-PERFORMING LOANS TO TOTAL LOANS 0.71% NET CHARGE-OFFS TO AVERAGE LOANS 0.14% ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 0.71% 0.14% 5,000 2.0% 0 1.5 1.0 0.5 2.0% 0 1.5 1.0 0.5 0 12% 10 12% 2 10 0 8 6 4 8 6 4 2 0 50 40 30 20 50 0 40 30 60% 10 0.4% 0 0.3 0.2 0.1 0.4% 0 0.3 0.2 0.1 0 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 $16,000 16000 $15,153 $3.00 $2.50 0 ’11 0 ’12 ’13 ’14 ’15 ’11 0.0 ’12 ’13 ’14 ’15 TAX EQUIVALENT NET INTEREST INCOME ($ in thousands) NON-INTEREST INCOME ($ in thousands) $50,000 50000 $46,792 $10,000 10000 $8,979 1.5 1.0 0.5 0.0 35000 30000 25000 20000 15000 10000 5000 0 16000 12000 8000 4000 0 50000 40000 30000 20000 10000 0 1800 1500 1200 900 600 300 0 3.0 2.5 2.0 1.5 1.0 0.5 0.0 10000 8000 6000 4000 2000 0 1200 1000 800 600 400 200 0 3.0 2.5 2.0 1.5 1.0 0.5 8000 6000 4000 2000 1200 1000 800 600 400 200 2.50 2.00 1.50 1.00 0.50 0 8,000 6,000 4,000 2,000 0 $1,200 1,000 800 600 400 200 0 0 ’11 0 ’12 ’13 ’14 ’15 ’11 0 ’12 ’13 ’14 ’15 $1,580 $990 ’11 0 ’12 ’13 ’14 ’15 ’11 0 ’12 ’13 ’14 ’15 12,000 12000 8,000 8000 4,000 4000 40,000 40000 30,000 30000 20,000 20000 10,000 10000 1800 1500 1200 900 600 300 $1,800 1,500 1,200 900 600 300 0 NET INCOME ($ in thousands) DILUTED EARNINGS PER SHARE NET INCOME ($ in thousands) DILUTED EARNINGS PER SHARE RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY RETURN ON AVERAGE ASSETS RETURN ON AVERAGE EQUITY amounted to $2.3 million in 2015, up $155 thousand, or 7.2%, $16,000 compared with 2014. These increases were largely attributed $2.50 to a variety of technology upgrades and certain new tech- nology systems and applications. 12,000 $15,153 $3.00 2.50 12 10 2.00 8 6 4 1.50 1.00 Efficiency Ratio: The Company’s efficiency ratio, or non-interest operating expenses divided by the sum of tax-equivalent 8,000 net interest income and non-interest income other than net securities gains and other-than-temporary impairments, 4,000 measures the relationship of operating expenses to revenues. Low efficiency ratios are typically a key factor for high per- forming financial institutions. For the year ended December 31, 2015, the Company’s efficiency ratio amounted to 56.3%, compared with 54.7% in 2014. These ratios compared favor- ably to peer and industry averages. 0.50 ’15 ’14 ’12 ’11 ’15 ’11 ’13 ’12 ’13 ’14 0 0 2 0 $46,792 NON-INTEREST INCOME ($ in thousands) TAX EQUIVALENT NET INTEREST INCOME ($ in thousands) Income Taxes: For the year ended December 31, 2015, total income taxes amounted to $6.0 million, representing an increase of $53 thousand, or 0.9%, compared with 2014. The $50,000 Company’s effective tax rate amounted to 28.3% in 2015, $8,979 compared with 28.8% in 2014. Fluctuations in the Company’s 40,000 effective tax rate are generally attributed to changes in the relationship between non-taxable income and non-deductible 30,000 expense, and income before income taxes, during any given reporting period. 20,000 $10,000 6,000 8,000 40 60 50 30 4,000 20 2,000 FINANCIAL CONDITION 10,000 Assets: At December 31, 2015, the Company’s total assets stood at $1.58 billion, representing an increase of $120.7 mil- lion, or 8.3%, compared with year end 2014. The increase in total assets was led by loan and securities growth and, to a lesser extent, the purchase of Bank Owned Life Insurance. ’15 ’14 ’11 ’15 ’13 ’12 ’11 ’12 ’14 ’13 0 0 10 0 10 12 1.5 1.0 10 1.00 12% 0.98% Loans: Consumer loans, which principally consisted of resi- 1.50% dential real estate mortgage loans and home equity loans, 10.01% comprised 47.3% of the Bank’s total loan portfolio at December 31, 2015. The Bank also serves the small business market throughout downeast, midcoast and central Maine. It offers business loans to individuals, partnerships, corporations, and other business entities for capital construction, real estate purchases, working capital, real estate development, and a broad range of other business purposes. At December 31, 2015, commercial business loans represented 51.2% of the Bank’s total loan portfolio. ’13 0.50 0 ’12 ’14 ’15 ’13 ’15 ’11 ’11 ’12 ’14 0 0 2 4 6 8 0.0 0.5 8 2 6 4 60 35000 30000 60% $30,908 EFFICIENCY RATIO NON-INTEREST EXPENSE ($ in thousands) Total loans ended the year at $990.1 million, up $71.0 million, or 7.7%, compared with December 31, 2014. At year end, the Bank’s commercial loan portfolio stood at $506.8 million, representing an increase of $51.1 million, or 11.2%, compared with December 31, 2014. Consumer loans, which principally consist of residential real estate mortgages, ended the year at $467.9 million, up $21.3 million, or 4.8%, compared with $35,000 56.3% December 31, 2014. 30,000 Credit Quality: The overall credit quality of the Bank’s loan 25,000 portfolio remained stable during 2015, highlighted by a meaningful decline in non-performing loans. Total non- 20,000 performing loans ended the year at $7.0 million, compared 15,000 with $12.3 million at December 31, 2014, representing a decline of $5.3 million, or 43.0%. Total non-performing loans 10,000 expressed as a percentage of total loans ended the year at 5,000 0.71%, down from 1.34% at year-end 2014. Similarly, the allow- ance for loan losses expressed as a ratio to non-performing loans ended the year at 134.7%, up from 73.0% at December 31, 2014. 0 ’12 0 ’12 10 20 30 40 50 ’11 ’13 ’15 ’14 ’14 ’13 ’15 ’11 15000 25000 20000 10000 5000 0 0 10 30 40 20 50 1.50% 1.00 0.50 0 $35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 10.01% 0.98% ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 NON-INTEREST EXPENSE EFFICIENCY RATIO ($ in thousands) $30,908 56.3% ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ASSETS ($ in millions) LOANS ($ in millions) ASSETS ($ in millions) LOANS ($ in millions) NON-PERFORMING LOANS TO TOTAL LOANS NET CHARGE-OFFS TO AVERAGE LOANS NON-PERFORMING LOANS TO TOTAL LOANS NET CHARGE-OFFS TO AVERAGE LOANS 2.0 $1,800 1.5 1,500 1,200 1.0 900 600 300 0 0.5 0.0 $1,580 ’11 ’12 ’13 ’14 ’15 0.4 $1,200 0.3 1,000 800 0.2 600 0.1 400 200 0.0 0 $990 ’11 ’12 ’13 ’14 ’15 2.0% 1.5 1.0 0.5 0 2.0 1.5 1.0 0.5 0.71% ’11 0.0 ’12 ’13 ’14 ’15 0.4% 0.3 0.2 0.1 0 0.4 0.3 0.2 0.1 0.14% ’11 0.0 ’12 ’13 ’14 ’15 2.0% 1.5 1.0 0.5 0 0.71% 0.14% ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 Bar Harbor Bankshares 20 2015 SUMMARY ANNUAL REPORT 12% 10 8 6 4 2 0 60% 50 40 30 20 10 0 0.4% 0.3 0.2 0.1 0 2500 2000 1500 1000 500 0 PROVISION FOR LOAN LOSSES ($ in thousands) ALLOWANCE FOR LOAN LOSSES ($ in thousands) $10,000 $9,439 $1,785 8,000 6,000 4,000 2,000 0 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 600 500 400 300 200 100 0 10000 8000 6000 4000 2000 0 1.25 1.00 0.75 0.50 0.25 0.00 $2,500 2,000 1,500 1,000 500 0 $1.25 1.00 0.75 0.50 0.25 SHAREHOLDER DIVIDENDS $1.01 0 2500 ’11 ’12 ’13 ’14 ’15 2000 1500 1000 500 0 10000 8000 6000 4000 2000 0 1.25 1.00 0.75 0.50 0.25 0.00 Total net loan charge-offs amounted to $1.3 million in 2015, or net charge-offs to average loans outstanding of 0.14%, compared with $1.3 million, or 0.15%, in 2014. The Bank recorded a provision for loan losses of $1.8 million in 2015, representing a decline of $48 thousand, or 2.6%, compared with 2014. At December 31, 2015, the Bank’s allowance for loan losses stood at $9.4 million, representing an increase of $470 thousand, or 5.2%, compared with year end 2014. 1000 800 600 400 200 Investment Securities: During 2015 the securities portfolio continued to serve as a key source of earning assets and liquidity for the Bank. Bank management considers securities as a relatively attractive means to effectively leverage 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 capi- tal 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 position, generating acceptable levels of net interest income and, when appropri- ate, generating realized gains on the sale of securities. 0 At December 31, 2015, total investment securities amounted to $505.0 million, representing an increase of $34.4 million, or 7.3%, compared with year end 2014. The securities portfolio is comprised of mortgage-backed securities issued by U.S. Government agencies, U.S. Government-sponsored enterprises and, to a much lesser extent, other non-agency, private-label issuers. The securities portfolio also includes tax-exempt obli- gations of states and political subdivisions thereof. PROVISION FOR LOAN LOSSES ($ in thousands) ALLOWANCE FOR LOAN LOSSES ($ in thousands) $10,000 $9,439 $1,785 ’11 ’12 ’13 ’14 ’15 8,000 6,000 4,000 2,000 0 ’11 ’12 ’13 ’14 ’15 $2,500 2,000 1,500 1,000 500 0 SECURITIES ($ in millions) DEPOSITS ($ in millions) $1,000 $943 $505 800 600 400 200 0 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 $600 500 400 300 200 100 0 Deposits: During 2015, the most significant funding source for the Bank’s earning assets continued to be retail deposits, gathered through its network of fifteen banking offices throughout downeast, midcoast and central Maine. Total deposits ended the year at $942.8 million, up $84.7 million, or 9.9%, compared with December 31, 2014. Total deposit transaction accounts increased $66.1 million, or 13.8%, while time deposits were up $18.7 million, or 4.9%, compared with December 31, 2014. Borrowings: Borrowed funds principally consist of advances from the Federal Home Loan Bank of Boston. The Bank uti- lizes borrowed funds in leveraging its strong capital position 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. At December 31, 2015, total borrowings stood at $474.8 million, representing an increase of $27.8 million, or 6.2%, compared with December 31, 2014. The increase in borrowings was utilized to help support the Bank’s 2015 earning asset growth; particularly the growth in the Bank’s leveraged securities portfolio. 1000 600 500 800 400 300 600 200 Capital: Consistent with its long-term strategy of operating a sound and profitable organization, at December 31, 2015, the Company and the Bank continued to exceed regulatory 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. 100 200 400 0 0 Bar Harbor Bankshares 21 2015 SUMMARY ANNUAL REPORT SHAREHOLDER DIVIDENDS $1.01 ’11 ’12 ’13 ’14 ’15 $1.25 1.00 0.75 0.50 0.25 0 SECURITIES ($ in millions) DEPOSITS ($ in millions) $1,000 $943 $505 $600 500 400 300 200 100 0 800 600 400 200 0 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 600 500 400 300 200 100 0 1000 800 600 400 200 0 SECURITIES ($ in millions) DEPOSITS ($ in millions) $1,000 $943 $505 $600 500 400 300 200 100 0 800 600 400 200 0 2500 10000 $2,500 $10,000 $9,439 PROVISION FOR LOAN LOSSES ($ in thousands) ALLOWANCE FOR LOAN LOSSES ($ in thousands) 2000 8000 1500 Under the capital adequacy guidelines administered by the Bank’s principal regulators, “well-capitalized” institutions are those with Common Equity Tier I, Tier I Leverage, Tier I Risk- based, and Total Risk-based ratios of at least 6.5%, 5%, 8% and 10%, respectively. At December 31, 2015, the Company’s Common Equity Tier I, Tier I Leverage, Tier I Risk-based, and Total Risk-based capital ratios were 15.55%, 9.37%, 15.55% and 17.12%, respectively. 1000 6000 4000 2000 500 0 0 Three-for-Two Stock Split: On April 22, 2014, the Company’s Board of Directors declared a three-for-two split of its com- mon stock, payable as a large stock dividend, which was paid on May 19, 2014 (the “payment date”) to all stockholders of record at the close of business on May 5, 2014. As of April 22, 2014, the Company had 3,944,290 shares of common stock outstanding. After the stock split effectuated as a large stock dividend, the number of shares of Company common stock outstanding increased to 5,916,435. All previously reported share and per share data included in public filings subse- quent to the payment date has been restated to reflect the retroactive effect of this three-for-two stock split. 1.25 1.00 0.75 0.50 0.25 0.00 2,000 8,000 1,500 $1,785 Shareholder Dividends: During 2015, the Company paid regu- lar cash dividends on its common stock in the aggregate amount of $6.04 million, compared with $5.36 million in 2014. The Company’s 2015 dividend payout ratio amounted to 39.9%, compared with 36.7% in 2014. The total regular cash dividends paid in 2015 amounted to $1.01 per share of com- mon stock, compared with $0.905 per share in 2014, repre- senting an increase of 0.105 cents per share, or 11.6%. 0 6,000 4,000 1,000 2,000 500 0 ’12 ’15 ’13 ’14 ’11 ’11 The Company’s Board of Directors declared a first quarter 2016 regular cash dividend of 26.5 cents per share of com- mon stock, representing an increase of 2.0 cents, or 8.2%, compared with the first quarter of 2015. Based on the year- end 2015 price of BHB’s common stock of $34.42 per share, the dividend yield amounted to 3.08%. ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 ’11 ’12 ’13 ’14 ’15 SHAREHOLDER DIVIDENDS $1.25 1.00 0.75 0.50 0.25 0 $1.01 ’11 ’12 ’13 ’14 ’15 Bar Harbor Bankshares 22 2015 SUMMARY ANNUAL REPORT Bar Harbor Bankshares MANAGEMENT AND STAFF SENIOR EXECUTIVE TEAM Simard, Curtis C.** President & Chief Executive Officer Shencavitz, Gerald** Executive Vice President, Chief Financial Officer & Treasurer Bender, Marcia T. Senior Vice President, Retail Banking and BSA Officer Dalton, Gregory W.* Executive Vice President, Business Banking Leackfeldt, Stephen M.* Executive Vice President, Retail Banking Maltz, Richard B.* Executive Vice President, Chief Risk Officer Pratt, Joseph M. Senior Vice President, President Bar Harbor Trust Services Sawyer, Marsha C. Executive Vice President, Human Resources EMPLOYEES AS OF 3/7/16 Abbott, Jennifer C. Ahern, Mark P. Albee, Susan L. Allen, Deena M. Allen, Faye M. Allen, Holly M. Allen, Maryann G. Alley, Stacie J. Allisot, Allison L. Anderson, Judi L. Andrews, Holly M. Archer, Holly J. Austin, Vicki J. Bacha, Alexandra T. Bailey, Karri A. Bannister, Michelle R. Barton, Hannah R. Bates-Mitchell, Kristi L. Beal, Charleen L. Beal, Jenna M. Beyer, Leslie M. Billings, Leah M. Blackburn, Sarah E. Blackett, Steven W. Blake, Heidi L. Boudreau, Alain R. Bowden, Melanie J. Bowker, Rose A. Boynton, Lori C. Brackett, Heather R. Brady, Penny S. Brooks, April N. Brown, Chelsea E. Bryer, Katy A. Caouette, Marian R. Carter, Hillary A. Catanese, Sarah J. Chapman, Jason R. Charland, Jeffrey D. Cohen, David S. Colson, Theresa L. Colwell, Brenda B. Condon, Brenda J. Conner, Erin S. Cote, Leslie A. Crippen, Melinda A. Crisafulli, Paul J. Curtis, Michelle E. Darcy, Larissa V. Davis, Kristyn L. Davis, Sharon J. Doak, Lori L. Dow, Adam T. Dow, Candice M. Dunbar, Ruth K. Dupuy, Mia B. Eaton, Audrey H. Eldridge, Patricia L. Emerson, Rebecca H. Farnsworth, Pamela J. Forni, Morgan K. Foskett, Amy N. Foster, Wren M. Fournier-Decoste, Katheryn R. Frederick, Marina P. Frost II, Philip L. Fuller, Judith W. Schaub Jr., Mark Y. Schmidt, Shauna L. Scott-Henderson, Debra L. Scully, Joseph P. Shields, Scott K. Short, Zachary M. Shults, Brittaney D. Sinclair, Jacklyn M. Small, Sarah W. Somes, Andrew L. Stanley, Kristy L. Stevens, Lottie B. Stover, Teri A. Strout, Hilary E. Swanberg, Peter M. Swett, Andrea D. Terry, Mindy K. Testa, John E. Thibodeau, Mary E. Thomas, Charles C. Thompson, Dianne B. Tower, Betty B. Tracy, Terry E. Tunney, Timothy F. Urquhart, Kirstie A. Veazie, Lisa F. Wallace, Allyson M. Ward, Jennifer D. Warren, Jody C. Webster, Paula R. Weeks, Jessica R. Wesseling, Xin L. White, Stefanie M. Wiberg, Katie G. Williams II, John M. Winger, Mikhayla R. Wood, Crystal N. Wooster, Timothy J. Wray, Natalie C. Wright, Kim W. Wyatt Jr., Bruce E. Young, Peggy L. Zeugner, Leita K. Zimmerman, Julie B. Gatcomb, Becky L. Gatcomb, Dena M. Geel, Faye A. Giordano, Mark P. Granger, Lisa L. Gray, Marjorie E. Gray, Roger V. Gray, Shelley E. Griffin, Susanne M. Gurin Jr., R. Stephen Haley, Andrew J. Hall, Kelli M. Hamilton, Kirsten M. Hamilton, Ronald L. Hanscom, Betsy B. Hawes, Bethany A. Hays, Mary D. Hennigan, Robin L. Hepburn, Barbara F. Hinckley, Melissa S. Hinkel, Nicole S. Horner, Lara K. Howie, Jeanette L. Huffman, Lynn L. Hunt, Marianne Jacobs, Page E. Jameson, Melissa A. Jipson, Bruce W. Jordan, Krystal E. Kane, Maureen E. Kelliher, Keisha L. Kinghorn, Dennis M. Kneser, Andrew P. Lacasse, James W. Lambert, Jane E. Lapointe, Johanne M. Lawson, Jessica K. Leblanc, Bonnie S. Lee, Nichole J. Lewis, Stephanie M. Lindsey-Mercier, Danielle M. Look, Carissa A. Lord, Maureen T. Lovely, Norma K. Luce, Wendy J. MacLeod, Virginia L. Maffucci, Deborah A. Mahoney, Sharon I. Malloy, Julie C. Mansfield, Marcia L. Marchetti, Brandy M. Martin, Elena M. Matthews, Ashley S. Maynard, Colleen E. McConomy, Amy G. McElyea, Jeremiah S. McGee, Samuel S. McPhail, Robin J. Megathlin, Shawn R. Meo, Matthew F. Miller Jr., Timothy J. Millett, Marcia L. Mills-Stevens, Donna M. Mitchell, Sonya L. Mitchell-Dow, Debra S. Mooney, Dylan A. Mora, Angela R. Morissette, Paul E. Murphy, Lisa M. Nacey, Victoria A. Nason, Kimberly J. Newenham, Judith L. Nguyen, My T. Nicholas, Derek G. Norton, Jennifer I. Norwood, Nichole D. O’Connell, Sara H. Ohmeis, Claire C. Orcutt, Alexandra Orio, Alexsandra S. Parker, Andrea L. Parlee, Deborah I. Parsons, Lisa L. Patton, Ebony A. Pellett, Christine A. Pendleton, Candy A. Planchart, Catherine M. Poland, Bonnie A. Pye, Carol J. Radel, Joshua A. Redlevske, Shelley R. Redman, Julie A. Reynolds, Jordan M. Richards, Judy A. Riitano, Zachary J. Robbins, Amanda L. Robertson, Adam L. Robinson, Natasha A. Rumill, April J. Saunders, Jennifer M. Savage, Melissa A. Sawyer, Amanda L. Sawyer, Chelsea M. Schaefer, Frank J. *Named Executive Officers **Bar Harbor Bankshares Management and Named Executive Officers Bar Harbor Bankshares 23 2015 SUMMARY ANNUAL REPORT 15 branches 3 service offices 223 employees BUSINESS BANKING, TRUST & FINANCIAL SERVICES OFFICES Bangor One Cumberland Place Suite 100 Bangor, ME 04401 Ellsworth 135 High Street Ellsworth, ME 04605 Breakwater Marketplace 91 Camden Street Rockland, ME 04841 Bar Harbor Bankshares LOCATIONS CORPORATE OFFICE Bar Harbor 82 Main Street Bar Harbor, ME 04609 Augusta 227 Water Street Augusta, ME 04330 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 Bar Harbor Bankshares 24 2015 SUMMARY ANNUAL REPORT Bar Harbor Bankshares CORPORATE INFORMATION ANNUAL MEETING The Annual Meeting of shareholders of Bar Harbor Bankshares will be held at 11:00 a.m. on Tuesday, May 17, 2016 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. 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, 2015 for detailed financial data, manage- ment’s discussion and analysis of financial con- dition and results of oper ations, disclosures about market risk, market information includ- ing 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, 2015. 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 pages 2, 4, 12 and 13. B R A N D P R O M I S E : Bar Harbor Bank & Trust is a true community bank. We recognize, appreciate, and support the unique people and culture in the places we call home. B R A N D S TO R Y: Bar Harbor Bank & Trust understands the unique opportunities and challenges that our customers face and we’re here to face them, too. We’re known for our excep- tional support of the people, businesses and communities in the places we call home. The staff is widely known as trustworthy, resourceful and friendly—people who customers can count on to help them find solutions they need. Commitment to honest service and belief in our customers are why Bar Harbor Bank & Trust stands out as a true community bank. 1- 8 8 8 - 853 -710 0 w w w. B H B T. co m 

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