Bar Harbor Bankshares
Annual Report 2021

Plain-text annual report

Delivering ResultsWorking Together2021 Annual ReportPAGE 22021 Summary Annual ReportVermont Branches: Bethel/RoyaltonBrandonPittsfordRandolphRochester RutlandSouth RoyaltonWilliamstownWoodstockNew Hampshire Branches: AndoverBedfordBradfordClaremontConcordEnfieldGranthamHanover HillsboroughLebanonManchester MilfordNashuaNew London NewburyNewportPeterboroughSunapeeWest LebanonMaine Branches: BangorBar HarborBlue HillBrewerBrunswickDeer IsleEllsworthLubecMachias MilbridgeNewportNortheast HarborOronoPittsfieldRocklandSomesville South ChinaSouthwest HarborWatervilleWinter HarborWealth Management Locations: BangorConcordEllsworthHanoverMeredithNashuaNew LondonPeterboroughAs the only bank headquartered in Northern New England with a branch presence in Maine, New Hampshire, and Vermont, we are uniquely positioned to serve the needs of the region. Branch LocationsWealth Management LocationsOur Customers Achieve MoreWorking Together We HelpChelsea Sawyer, VP, Branch Relationship ManagerCover Image: Adam Robertson, SVP, Relationship Manager and Jason Richard, CFO, S.W. Cole Engineering Inc.Proud To Be Named One of America’s Best BanksPAGE 32021 Summary Annual ReportDelivering results through creative banking solutions and solid strategy.GOOD THINGS HAPPEN WHEN WE WORK TOGETHERDELIVERING 2021 BUSINESS RESULTS19% 17%15%9%Proud To Be Named One of America’s Best BanksYoY Growth inCore DepositsYoY Growth in Wealth Management IncomeYoY Growth in Core BankingService Charge Fee IncomeYoY Growth in Commercial Loans OriginatedMarie Pelletier, VP, Regional Relationship Manager and John Tauriello, President & CEO, Wallace Building Products CorporationPAGE 42021 Summary Annual ReportAs individuals and as a company, we have endured another year of uncertainty with continuing shifts in local, national, and international landscapes. As one crisis is averted, another seems to develop. These have varied across financial, social, medical, economic, and political landscapes. Virtually all aspects of our everyday lives have been open for debate. Perhaps this is permanent or simply the nature of cycles.While we had hoped and even anticipated that vaccines in early 2021 would provide the initial catalyst for normalcy as the year began, we are always preparing for some developing dislocation that creates uncertainty. We, therefore, decided to approach the year with a continued environment of relentless consistency, which is truly all that we can control. More specifically, we united around being the same Bank in all environments, which we have repeatedly messaged in our communications. Indeed, minor adjustments and improvements are constantly under review, but we kept our brand behaviors as the beacon our teams could follow. POSITIVITY - Be all-in. Create a rewarding and exciting place to work. COMMUNICATION - Talk straight. Share the right information clearly and quickly to build great relationships. TEAMWORK - Actively share. Build great teams to make positive things happen. INITIATIVE - Embrace change. Value innovation and fresh thinking to continually improve our customer experience and team development. PROFESSIONALISM - Show respect. Treat others with care and respect. Main-taining a professional manner promotes trust. QUALITY - Build the best. Ensure the highest quality standards are adhered to in everything we do.Using these time-tested axioms of being good colleagues, partners, community members, and quite simply good human beings has made for a relatively uncomplicated if not comforting guide given all of the daily uncertainty. In our dealings with our customers, colleagues, communities, and shareholders, we have remained steadfast in being authentic and transparent without taking undue risk while equally not allowing uncertainty to create paralysis. This approach has been applied across the entire Bank at every level in facing adversity. To help alignment and sustain culture, we unveiled Bar Harbor Connect, an internal social media website where colleagues can appreciate one another openly or ask for help. Colleagues can even assign points to one another for a job well done that can be spent at an online catalog. Simple personal appreciation is valued in our Company and helps make BHB more than a job. Staying on Strategy and Utilizing Markets to Our AdvantageKnowing how to embrace the culture as we approach our continued evolution across all of Northern New England, I am pleased to communicate that we utilized current market nuances to make further strides in improving the Bank’s balance sheet to prime us for growth. This has been about reducing reliance on wholesale funding and mortgages and focusing on franchise-building checking accounts, commercial banking relationships, and wealth management advisory. We remain in the mortgage business, meeting the needs of substantial opportunities over the past several years. However, our commercial teams have demonstrated a natural ability to grow that segment of our balance sheet consistently, appreciably, and responsibly. In further positioning for growth, we proactively helped our customers seek PPP forgiveness so that we together could shift discussions to those of expansion and life beyond the pandemic. Such proactive efforts are one way we underscore that by working together, everyone achieves more.Much like our brand behaviors, our long-term planning remains consistent. We have confirmed our strategy in Curtis C. SimardPresident & Chief Executive OfficerBar Harbor BanksharesLetter to ShareholdersGreetings Fellow Shareholders,✔✔✔PAGE 52021 Summary Annual Reportchanging times and have leveraged rate environments to accelerate our direction, backed by our firm belief in our culture and dedication to one another. We are consistent in what motivates and guides us:• Balancing growth with earnings • Commitment to risk management• Sales cultures must be relentless idea originators• Consistent cross-selling makes for entrenched customers • And of course, thinking differently while working together These previously enacted objectives continue to prove accurate as the residential mortgage euphoria is waning due to rising rates and lack of housing inventory. Our ongoing progress in creating a commercial loan machine funded by low-cost high franchise value checking accounts while relentlessly cross-selling was the correct strategy and remains so more than ever. Fee income, the earnings driver that is more immune to erratic rate movements, continues to be as important to us as our commitment to risk management. The continued growth in our Wealth and Treasury businesses are proving to be valuable cornerstones to our franchise. In the face of global adversity over the past few years, our strategy has not changed much. We suspect this too will be confirmed in future uncertainty, as we have always anticipated the unexpected. That is because we like predictable sustainability as it yields better long-run performance, lasting valuation, and defining culture. Managing Change into our 136th yearAs one challenge is resolved, we always know another is not far behind. Our approach is not based in pessimism or fear but pragmatic realism that successful companies and cultures can never rest, especially those that manage risk. As such, we always ask the following questions:• Where do we have duplication in effort?• How do we make processes more efficient?• How do we make jobs easier for colleagues and customers without sacrificing risk management? • Where are our blind spots?• How do we create continued growth opportunities for our deserving colleagues?• Ultimately, how do we continue to improve and sustain long-term shareholder returns?As we celebrate our 135th anniversary, we will always look to address questions such as these which are as pertinent today as at our founding. We are taking guidance from our past and reasonably applying the required evolution to make us a Bank for the future. We greatly value a distinctive culture that thinks differently and gains tremendous enthusiasm around the opportunity of being Northern New England’s Bank.In closing, I would like to acknowledge the retirement of Steve Theroux from our Board of Directors in May 2022. Steve was the prior President & CEO of Lake Sunapee Bank Group. Steve worked closely with BHB to bring our two banks together in our first steps of expanding across Northern New England and has been a valued counselor ever since. I have valued his viewpoints greatly, and while he is retiring from the Board, I am fortunate to consider him a friend for life.Thank you for your continued interest in and support of Bar Harbor Bankshares. Both matter to us greatly.Respectfully,“Indeed, minor adjustments and improvements are constantly under review, but we kept our brand behaviors as the beacon our teams could follow.”Curtis C. SimardPresident & Chief Executive OfficerPAGE 62021 Summary Annual ReportBar Harbor BanksharesConsolidated Balance Sheets Years Ended December 31, 2020 and 2021Years Ended(in thousands, except share data)20212020AssetsCash and due from banksInterest-earning deposits with other banks$ 33,508216,881$ 27,566198,441Total cash and cash equivalentsSecurities available for sale, at fair valueFederal Home Loan Bank stock 250,389 618,2767,384226,007 585,046 14,036Total securitiesLoans held for sale625,660 5,523 599,082 23,988Total loansLess: Allowance for credit losses 2,531,910 (22,718) 2,562,885 (19,082)Net loansPremises and equipment, net Goodwill Other intangible assets Cash surrender value of bank-owned life insuranceDeferred tax assets, net Other assets 2,509,192 49,382 119,4776,73379,0205,54758,310 2,543,803 52,458119,4777,67077,8703,04770,873Total assets$ 3,709,233 $ 3,724,275LiAbiLitiesDeposits:DemandNOWSavingsMoney MarketTime$ 664,420940,631628,670389,291425,532 $ 544,636738,849521,638402,731698,361 Total depositsBorrowing:SeniorSubordinated 3,048,544 118,40060,124 2,906,215 276,06259,961Total borrowingsOther liabilities 178,524 58,018 336,023 74,972Total liabilities 3,285,086 3,317,210shArehoLders’ equityCapital stock, par value $2.00; authorized 20,000,000 shares; issued 16,428,388 and16,428,388 shares at December 31, 2021, and December 31, 2020, respectivelyAdditional paid-in capitalRetained earningsAccumulated other comprehensive income Less: 1,427,059 and 1,512,465 shares of treasury stock at December 31, 2021, andDecember 31, 2020 respectively 32,857 190,876 215,592 2,303 (17,481) 32,857 190,084 195,607 6,740(18,223)ToTal ShareholderS’ equiTy 424,147 407,065totAL LiAbiLities And shArehoLders’ equity$ 3,709,233$ 3,724,275Refer to the Bar Harbor Bankshares 2021 Annual Report on Form 10-K for a complete set of audited financial statements and accompanying notes.PAGE 72021 Summary Annual ReportBar Harbor BanksharesConsolidated Statements of Income Years Ended December 31, 2019, 2020 and 2021Years Ended(in thousands)202120202019interest And dividend incomeLoansSecurities and other $ 95,23615,568 $ 107,085 19,019 $ 111,042 24,349Total interest and dividend incomeinterest expenseDepositsBorrowings 110,804 8,543 6,688 126,104 18,043 8,881 135,39127,034 18,547Total interest expense15,231 26,924 45,581Net interest incomeProvision for credit losses 95,573(1,302) 99,180 5,625 89,810 2,317Net interest income after provision for loan losses96,875 93,555 87,493non-interest incomeTrust and investment management fee incomeCustomer service fees Gain on sales of securities, netMortgage banking income Bank-owned life insurance incomeCustomer derivative income Other income 15,17913,2122,8706,5362,1791,0101,275 13,378 11,327 5,445 6,884 2,007 2,503 1,412 12,063 10,127 2371,626 2,053 2,028 935 Total non-interest income 42,261 42,956 29,069non-interest expenseSalaries and employee benefitsOccupancy and equipmentLoss (gain) on premises and equipment, netOutside servicesProfessional servicesCommunicationMarketingAmortization of intangible assetsLoss on debt extinguishmentAcquisition, conversion, and other expensesOther expenses47,11716,3563781,9431,7569121,5419402,8511,66715,047 48,920 16,751 (32) 1,985 2,060 892 1,385 1,024 1,351 5,801 14,723 45,000 14,214 18 1,818 2,191 821 1,872 861 1,096 8,317 13,525Total non-interest expense 90,508 94,860 89,733Income before income taxesIncome tax expense 48,628 9,329 41,651 8,407 26,829 4,209Net Income$ 39,299 $ 33,244 $ 22,620eArnings per shAreBasic DilutedWeighted AverAge common shAres outstAndingBasic Diluted$ 2.63$ 2.61 14,969 15,045 $ 2.18 $ 2.18 15,246 15,272 $ 1.46 $ 1.45 15,541 15,587PAGE 82021 Summary Annual ReportSenior Executive TeamBar Harbor BanksharesCurtis C. SimardPresident Chief Executive OfficerJosephine IannelliExecutive Vice President Chief Financial Officer and TreasurerJason EdgarPresident Bar Harbor Trust Services Charter Trust CompanyMarion ColomboExecutive Vice President Retail DeliveryJohn M. MercierExecutive Vice President Chief Lending OfficerJenny SvensonSenior Vice President Chief Human Resources OfficerJohn WilliamsSenior Vice President Chief Risk OfficerJoseph ScullySenior Vice President Chief Information Officer and Director of OperationsIn Appreciation of 35 Years of ServiceHaving dedicated much of his career to the success of our institution, Stephen R. Theroux will be retiring from the Board in 2022. Steve’s industry expertise, keen insights, and local knowledge have been invaluable for nearly four decades.We commend and appreciate Steve for his leadership and contributions to our institution and our industry. We wish him a rewarding and well-deserved retirement.PAGE 92021 Summary Annual ReportBoard of DirectorsBar Harbor BanksharesDavid B. Woodside - ChairmanBar Harbor, MEPresident and CEO of Acadia CorporationMatthew L. CarasArrowsic, ME Owner and Managing Director of Leaders LLCDaina H. BelairIva, SC Former Owner of Inn at Sunrise PointSteven H. DimickRandolph, VTFormer Director for Lake Sunapee Bank Group BoardMartha T. DudmanNortheast Harbor, MEFundraising Consultant and Author, former President of Dudman Communications CorporationBrendan O’HalloranChatham, MA and Naples, FLRetired Vice Chair & Regional Head of TD Securities, a division of TD BankLauri E. FernaldMt. Desert, MEPresident and an Owner in Jordan–Fernald Funeral HomeCurtis C. SimardMt. Desert, MEPresident and Chief Executive Officer of the Company and the BankKenneth E. SmithBar Harbor, MEFormer Owner and Innkeeper of Manor House InnScott G. ToothakerNashua, NHManaging Principal of Melanson Heath & Co.Stephen R. TherouxNew London, NHFormer President and CEO of Lake Sunapee BankDavid M. ColterHampden, MEPresident, GAC Chemical CorporationPAGE 102021 Summary Annual Report5 Year Summary of Financial DataBar Harbor Bankshares(in millions, except per share)20212020201920182017bALAnce sheet dAtATotal assets Earning assets*InvestmentsLoans Deposits Borrowings Shareholders’ equity$ 3,7093,3776262,5323,049179424 $ 3,724 3,360 599 2,563 2,906 336 407 $ 3,669 3,349 684 2,635 2,696 531 396 $ 3,6083,327 761 2,488 2,483 724 371 $ 3,5653,300 755 2,473 2,352 830 355 resuLts of operAtionsNet interest incomeNon-interest incomeNet revenue Net income$ 964213839 $ 9943 142 33 $ 9029 119 23 $ 9128 119 33 $ 9226 119 27 per common shAre dAtADiluted earningsAdjusted earnings*Dividends Total book valueTangible book value*$ 2.61 2.72 0.94 28.27 19.86$ 2.18 2.28 0.88 27.29 18.77$ 1.45 1.91 0.86 25.47 17.30 $ 2.122.25 0.79 23.87 16.94 $ 1.702.10 0.75 22.96 15.94 performAnce rAtiosReturn on assets Adjusted return on assets*Return on equity Adjusted return on equity*Interest rate spread Net interest marginEfficiency ratio* Net charge-offs/average loans1.06% 1.109.509.872.742.7561.290.010.88% 0.928.178.482.922.9761.710.070.62% 0.825.827.652.532.7764.950.030.93% 0.99 9.22 9.79 2.67 2.86 59.27 0.05 0.75% 0.93 7.41 9.15 2.99 3.08 55.44 0.04 Corporate Profile as of December 31, 2021• $3.7 billion in assets.• 53 full-service branches.• Branches located across Maine, New Hampshire, and Vermont.• A full-service bank providing commercial, retail, treasury, and wealth management services.• Wealth assets under management of $2.5 billion.Corporate Profile as of December 31, 2021TickerNYSEAM: BHBStock price$28.93 per shareMarket capitalization$434 millionPrice to earnings ratio (full year 2021)11.08XPrice to book value102.33%Price to tangible book value146.00%52 week price range$21.26 to $32.94 Annualized dividend (Q1 2022)$0.96 per shareDividend yield3.32%Shares outstanding15.0 millionAverage daily volume (full year 2021)31,500 shares*Refer to the Bar Harbor Bankshares 2021 Annual Report on Form 10-K for a complete set of audited financial statements and accompanying notes.PAGE 112021 Summary Annual ReportSummary Financial ResultsBar Harbor BanksharesExecutive Overview Bar Harbor Bankshares recorded 2021 net income of $39 million, or $2.61 per diluted share, compared to $33 million, or $2.18 per diluted share, in 2020. Adjusted income (non-GAAP measure) in 2021 was $41 million, or $2.72 per diluted share, and $35 million, or $2.28 per diluted share, for the same period of 2020. The Company’s return on assets ratios was 1.06% for 2021, up from 0.88% in the prior year. Net interest margin (NIM) was 2.88% for 2021 compared with 2.97% in 2020. Excluding the effects of PPP fee acceleration, excess cash, and one-time items, adjusted NIM was 2.93% in 2021, compared to 3.01% in 2020. At year-end 2021, the Company had approximately $200 thousand of remaining PPP deferred fees, which are expected to be amortized to the margin in 2022. The Company saw a leveling of NIM in the second quarter 2021, which was contributed growth in non-maturity deposits and maturities of wholesale funding that were not replaced. NIM continued to stabilize in the second half of 2021 due to the execution of several delever and security remix strategies. Also as a result, the Company’s cost of interest-bearing liabilities steadily dropped to 59 basis points in 2021 from 96 basis points during 2020.In 2021, the Company prepaid $159 million of FHLB borrowings and sold $63 million of securities to offset prepayment penalties, which were replaced with relatively short-lived securities with an average duration of approximately 4 years. The transactions took place in the second half of 2021, and the net result is expected to be fully accretive to NIM and earnings per share starting in 2022.Non-maturity deposits increased 19% during 2021 due to a significant amount of accounts opened as new relationships were built and relationships with existing customers were deepened. Wholesale funding has decreased to 4% of total funding, down from 18% at year-end 2020. Non-maturity deposit reliance continues to expand, funding earning asset growth with a much more stabilized cost if rates do go up. At year-end 2021, $114 million of wholesale funding remains, which represent longer durations or have associated hedges.The Company continues to focus on profitability and fee-based revenue remains a priority. The growth seen during this past year has contributed to the expansion of the Company’s key performance metrics, while further enhancing the diversity and strength of revenue streams. Wealth management and customer service fees in 2021 increased 15% over the prior year, given a 13% increase in assets under management and significant increase in non-maturity deposits. Wealth Management division continues to deliver a strong performance from both a customer and shareholder perspective. Customer service revenue benefit from the increase in non-maturity deposits along with adjustments made to product fee schedules based on peer review studies performed in late 2020. Mortgage banking income benefited from higher secondary market loan sales in 2021, which also accounts for the decrease in residential loans as production was selectively moved between on-balance sheet and held for sale throughout the year.Commercial real estate loans in 2021 grew 12% over the prior year driven by a balanced mix of new and existing customers that are proven operators and are strong relationships of the Bank. Similarly, the growth in commercial and industrial loans of 5%, excluding paycheck protection program (PPP) loans, came from new and existing customers and Earnings Per Share (EPS)Adjusted Earnings Per ShareEarnings Per ShareDollar Value$3.0$2.5$2.020172018201920202021$1.0$1.5PAGE 122021 Summary Annual Reportrepresented a variety of industries. Looking forward, the Company’s loan pipelines remain robust and it is seeing momentum continuing into the first quarter of 2022.The Company adopted CECL effective January 1, 2021, which increased the allowance for credit losses (ACL) by $5.2 million and reserve for unfunded commitments by $1.6 million. Upon adoption, the coverage ratio of ACL to total loans increased to 0.94% from 0.76% in the fourth quarter of 2020, excluding PPP loans. The provision for credit losses for 2021 was a credit of $1.3 million compared with expense of $5.6 million in 2020. Steady improvements in macroeconomic expectations, lower specific reserves, and relative flat growth in total loans contributed to the benefit in 2021.The Company continues to build long-term shareholder value while providing a favorable dividend rate relative to other community banks. The Company’s return on equity for 2021 rose to 9.50% from 8.29% in 2020. Credit metrics remained strong and stable throughout 2021. Non-performing loans continue to decline across all categories on a quarterly and year-over-year basis. There was also noteworthy reduction of criticized loans, down to 3% from 4% at year-end 2020. Moving into 2022, all of these trends are positive and are expected to continue based on the Company’s credit disciplines.In early 2021, the Company performed an intensive review of non-interest expense, leveraging a strategic third-party partner. The goal of the review was to identify normalized expense run-rates that are optimal for the Company’s current size and footprint, and establish sustainable run-rates that allow for revenue growth in the future. Results of the study reduced salary and benefit expense by $2.3 million in 2021 and $3.0 million is expected to be fully realized in 2022. The Company was named by Newsweek Magazine as one of “America’s Best Banks.” Best Bank winners were selected from over 2,500 financial institutions and assessed on more than 30 separate factors including the overall health of the bank, customer service performance and features, digital and branch presence, account and loan options, interest rate offerings, and fees.FINANCIAL CONDITIONSecuritiesSecurities totaled $626 million at the end of 2021 and $599 million at year-end 2020, representing 17% and 16% of total assets, respectively. During 2021, security purchases totaled $250 million and were offset by $93 million of sales; $112 million of maturities, calls and pay-downs of amortizing securities; and a $7 million reduction in FHLB stock. The majority of the sales were made in connection with the Company’s balance sheet delever and security remix strategies in the third and fourth quarters of 2021. Fair value adjustments decreased the security portfolio by $10 million in 2021 compared to an increased $5.8 million during 2020. Unrealized gains decreased in 2021 due to sales and changes in the long-term treasury yield curve. The weighted average yield of the Company’s securities portfolio was 2.63% as of December 31, 2021 compared to 3.20% at year-end 2020. At the end of 2021, securities held by the Company had an average life of 5.3 years with an effective duration of 4.21 years, compared to 4.8 years and 4.3 years at the end of 2020 respectively.LoansIn 2021, total loans decreased by $31 million from year-end 2020. The decrease was the net result of the Company’s strategy to grow its commercial portfolios and sell the majority of its residential loan originations in the secondary market. Commercial loans grew 10% in 2021 when excluding PPP loans, which was driven mostly from new relationships in commercial real estate products. Commercial real estate and commercial and industrial loans, excluding PPP, increased 12% and 5% in 2021, respectively. PPP loans totaled $6.7 million at quarter-end, consisting of $6.6 million from 2021 and $104 thousand from 2020, and were $53.8 million at year-end 2020. COVID loan modifications were zero, down from $68.6 million at year-end, Return on Assets (ROA)Adjusted Return on AssetsReturn on AssetsPercentage0.6%1.2%1.0%0.8%20172018201920202021PAGE 132021 Summary Annual Reportas the majority of modified loans have resumed normal payment schedules. Total residential loans decreased $103 million from year-end 2020, which includes $173 million of originations recorded on the balance sheet and $275 million of prepayments/amortization.Allowance for Credit LossesThe ACL was $22.7 million at the end of 2021, compared to $19.0 million at year-end 2020. The increase is primarily due to the Company’s adoption of CECL as of January 1, 2021, which increased the ACL by $5.2 million and for unfunded commitment reserves by $1.6 million. Unfunded commitment reserves are recorded in other liabilities. Since adoption, the ACL has decreased due to improved economic forecasts and lower reserves on specific loans offset by changes in loan mix. Deposits and BorrowingsTotal deposits were $3.0 billion at the end of 2021, compared to $2.9 billion at year-end 2020. Non-maturity deposits increased $415 million in 2021, or 19% due to growth in new accounts with over 4,884 new customer relationships added. Growth in non-maturity deposits in 2021 and the prepayment of $159 million in FHLB borrowings resulted in a reduction of wholesale funding as a percentage of total funding to 4% from 18% at year-end 2020. Time deposits decreased $273 million to $426 million at year-end 2021 as $178 million of brokered deposits matured in 2021 and were not replaced due to excess liquidity. Retail time deposits decreased $63.1 million as customers moved funds to transactional accounts upon contractual maturity. Total borrowings decreased by $157 million, primarily from the aforementioned delever strategy.Derivative Financial Instruments and Other Liabilities The Company utilizes derivative instruments to minimize fluctuations in earnings and cash flows caused by interest rate volatility. The notional balance of derivative financial instruments increased to $944 million at year end 2021 from $877 million in the prior year. The increase is principally due to a $50.0 million new hedge on variable rate loans tied to one-month LIBOR. The net fair value of all derivatives was a liability of $1.1 million at the end of 2021, compared to $5.5 million at year-end 2020. The reduction in net derivative fair values reflects the rise in long-term interest rates.EquityTotal equity was $424 million, compared with $407 million at year-end 2020. The Company’s book value per share was $28.27 as of December 31, 2021, compared with $27.29 at December 31, 2020. Equity included net unrealized gains on securities, derivative and pension revaluations, net of tax, and totaling $2.3 million at the end of 2021, compared to $6.7 million at year-end 2020. Equity was reduced by $5.2 million due to the Company’s CECL adoption in the first quarter 2021. The Company evaluates changes in tangible book value, a non-GAAP financial measure that is a commonly used valuation metric in the investment community, which parallels some regulatory capital measures. Tangible book value per share increased to $19.86 per share at year-end 2021, up from $18.77 per share at year-end 2020. During 2021 and 2020, the Company declared and distributed regular cash dividends on its common stock in the aggregate amounts of $14 million and $13 million, respectively. The Company’s 2021 dividend payout ratio amounted to 36%, compared with 40% in 2020. Total cash dividends paid in 2021 was $0.94 per common share of stock, compared with $0.88 in 2020.On April 20, 2021, the Company’s Board of Directors authorized a share repurchase plan (the “Plan”). Under the terms of the Plan, the Company is authorized to repurchase up to 5% of its outstanding common stock, representing approximately 747,000 shares. The Plan is authorized for twelve months expiring on March 31, 2022, and authorized based on the strength of the Company’s balance sheet and capital position and the Company’s belief in the intrinsic value of the Company’s common stock. Given the current market for bank stock prices, the Company believes this program is another tool to enhance long-term shareholder value. Loan CompositionAs of December 31, 2021 ($ in billions)Commercial Real Estate (48%)Residential Real Estate (32%)Commercial and Industrial (16%)Other (4%)$0.1$0.4$1.2$0.8PAGE 142021 Summary Annual ReportThe Company and the Bank remained well-capitalized under regulatory guidelines at period end as further described in Note 12 - Shareholders’ Equity and Earnings Per Common Share to the Consolidated Financial Statements on Form 10-K.RESULTS OF OPERATIONSNet Interest Income Net interest income for 2021 was $96 million, compared with $99 million in 2020. The net interest margin was 2.88% in 2021 compared to 2.97% in the prior year. The 2021 adjusted net interest margin (non-GAAP measure), which excludes PPP loans and excess cash, was 2.93%, compared to 3.01% for 2020. Acceleration of PPP loan fee amortization due to forgiveness contributed 14 basis points to NIM in 2021 and 4 basis points in the same period of 2020. Interest-bearing cash balances, held mostly at the Federal Reserve Bank, reduced NIM by 19 basis points in the year and 8 basis points in 2020. The yield on earning assets totaled 3.33%, compared to 3.87% in 2020. Excluding the impact of PPP and excess cash, the yield on earning assets totaled 3.42% and 3.97% for the same periods. The decrease was primarily due to lower yields on loans which the Company feels are near-bottom at year-end 2021. The yield on loans was 3.78% in 2021 and 4.16% in 2020. Excluding PPP loans the yield on loans was 3.62% in 2021, and 4.15% in 2020. Costs of interest-bearing liabilities decreased to 0.59% from 0.96% in 2020 due to increased core deposit levels, lower deposit rates, and reduced wholesale borrowings.Provision for Credit LossesThe provision in 2021 was a recapture of $1.3 million, compared to and expense of $5.6 million in 2020. The benefit in 2021 is primarily due to the recapture of the day 1 CECL allowance that was established January 1, 2021, given steady improvements in most macroeconomic drivers to the ACL. The provision also benefited from lower net charge-offs of $209 thousand in 2021 compared to $1.9 million in 2020. Overall credit quality remains strong, and credit quality metrics improved with decreases in non-accruing and past due loans.Non-Interest IncomeNon-interest income in 2021 was $42 million, compared to $43 million in 2020. The net changereflects an increase in fee income from operations offset by decreased gains on sales of securities. Non-interest income excluding gains on Book and Tangible Value per ShareBook ValueTangible ValueDollar Value$30$25$2020172018201920202021$15sales of securities increased 5% over the prior year. Trust management fees were $15 million, compared to $13 million in 2020, driven by higher assets under management of $2.5 billion, compared to $2.3 billion in 2020. Customer service fees increased 17% to $13 million in 2021, with 3,374 net new core deposit accounts opened during the year. The Company sold securities resulting in gains of $2.9 million during 2021 as part of its delever and security remix strategies. Mortgage banking activities contributed $6.5 million in 2021 and $6.9 million in 2020. The Company took advantage of volatility in the yield curve in 2021 and put residential mortgages on the balance sheet when rates were higher and sold loans in the secondary market when rates were low.Non-Interest Expense Non-interest expense was $91 million in 2021, compared to $95 million in 2020. The decrease is principally due to lower salary and benefit costs as well as decreased non-recurring expenses. Salaries and benefits expense decreased to $47 million, compared to $49 million in 2020. The decrease is primarily due to the reduction from the aforementioned expense study in early 2021, offset by higher employee incentive accruals. The decrease also reflects full-time equivalents of 489, compared to 531 in 2020. Non-recurring expenses in 2021 totaled $4.9 million and were mostly made up of the $2.9 million prepayment penalty on debt extinguishment. In 2020, non-recurring expenses totaled $7.5 million and included a loss on debt extinguishment and costs to consolidate wealth management systems. The efficiency ratio for 2021 was 61.29% compared to 61.71% in 2020.PAGE 152021 Summary Annual ReportCorporate InformationBar Harbor BanksharesAnnual MeetingThe Annual Meeting of shareholders of Bar Harbor Bankshares will be held at 9:00 a.m. on Tuesday, May 17, 2022, at the Bar Harbor Club located on West Street in Bar Harbor, Maine.Financial InformationShareholders, analysts, and other investors seeking financial information aboutBar Harbor Bankshares should contact:Josephine IannelliExecutive Vice President, CFO, Treasurer207-667-0660InternetBar Harbor Bank & Trust information, as well as Bar Harbor Bankshares Form 10-K, is available at www.barharbor.bank.Shareholder AssistanceQuestions 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:Broadridge Corporate Issuer Solutions, Inc.P.O. Box 1342Brentwood, NY 11717877-456-4860www.shareholder.broadridge.comStock Exchange ListingBar Harbor Bankshares common stock is traded on the NYSE American(www.nyse.com), under the symbol BHB.Form 10-K Annual ReportThe Company refers you to its Annual Report on Form 10-K for year ended 2021 for detailed financial data, management’s discussion and analysis of financial condition and results of operations, disclosures aboutmarket risk, market information including stock graphs, descriptions of the business of the Company and its products and services.Mailing AddressIf you need to contact our corporate headquarters office, write:Bar Harbor BanksharesPost Office Box 40082 Main StreetBar Harbor, Maine 04609-0400207-669-6784 888-853-7100Printed Financial InformationWe 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, 2021.Please contact Investor Relations via U.S. mail at the address above or through email at investorrelations@barharbor.bank.PAGE 162021 Summary Annual ReportPersonal Banking · Business Banking · Wealth ManagementOver 50 locations in Maine, New Hampshire & VermontBar Harbor Bankshares • 82 Main Street, Bar Harbor, Maine 04609888-853-7100 • www.barharbor.bank

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