Bar Harbor Bankshares (the �Company�) (AMEX:BHB) the parent company
of Bar Harbor Bank & Trust (the �Bank�), today announced net
income of $1.4 million for the quarter ended March 31, 2007 or
fully diluted earnings per share of $0.44, compared with $1.6
million or fully diluted earnings per share of $0.50 for the first
quarter of 2006, representing declines of $188 thousand and $0.06,
or 12%. The decline in first quarter earnings was principally
attributed to the Company�s planned restructuring of a portion of
its balance sheet, substantially offset by the settlement of its
limited postretirement benefit program. In April 2007, the
Company�s Board of Directors approved the restructuring of a
portion of the Company�s balance sheet through the planned sale of
$43 million of its aggregate $226 million available for sale
investment securities portfolio, the proceeds from which will
initially be used to pay down short-term borrowings. Since the
Company no longer had the intent to hold these securities until a
recovery of their amortized cost, which may be at maturity, it
recorded an adjustment to fair value of these securities resulting
in a pre-tax securities loss of $1.2 million included in first
quarter 2007 earnings. The Company�s overall objectives are to
improve future period earnings, lower the interest rate risk
profile of the Company�s balance sheet, and provide a means to more
effectively respond to the current and future yield curve
environments. In the first quarter of 2007, the Company settled its
limited postretirement benefit program, which funded medical
coverage and life insurance benefits to a closed group of active
and retired employees who met minimum age and service requirements.
The Company voluntarily paid out $700 thousand to plan
participants, representing 64% of the total benefit obligation.
This payment fully settled all Company obligations related to this
program. In connection with the settlement of the postretirement
program, the Company recorded a first quarter reduction in
non-interest expense of $832 thousand, representing the remaining
accrued benefit obligation and the actuarial gain related to the
program. Excluding the foregoing items, other first quarter 2007
earnings highlights included relatively small declines in net
interest income and non-interest income, which were essentially
offset by declines in non-interest expense. In making the
announcement, President and Chief Executive Officer, Joseph M.
Murphy commented, �In the first quarter of 2007, the
flat-to-inverted yield curve continued to adversely impact net
interest income levels throughout the banking industry, and we were
no exception. Given the current state of the economy and the
recently revised generally held consensus by economists, we no
longer expect the Federal Reserve will be lowering short-term
interest rates this year, and perhaps much longer. Considering the
potential adverse impact this will have on industry-wide earnings
as well as our own, we believe the restructuring of a portion of
the Company�s balance sheet is appropriate at this time. Among
other considerations, the restructuring is expected to be accretive
to future earnings, given that the 4.22% weighted average yield on
the securities being sold is far less than the 5.31% cost of the
short-term borrowings that will be paid off with the proceeds from
the sale.� �The Company�s earnings fundamentals continued to be
sound in the first quarter�, continued Mr. Murphy. �Excluding the
impact of the balance sheet restructuring and the settlement of the
limited postretirement benefit program, first quarter earnings
would have reflected an increase of 2% compared with the first
quarter of 2006. While we have recently experienced a moderate
slowdown in lending activity and unusually aggressive pricing
competition, the quality of the loan portfolio remained strong
during the quarter.� In concluding, Mr. Murphy added, �Managing and
containing our operating expenses continues to be a top priority,
and we are pleased to report lower first quarter operating expenses
compared with the same quarter last year.� Financial Condition
Loans: Total loans ended the first quarter at $553 million,
representing a decline of $2 million or less than 1% compared with
December 31, 2006 and an increase of $24 million or 4% compared
with March 31, 2006. The small decline in the loan portfolio
compared with December 31, 2006 principally reflected anticipated
paydowns on certain seasonal borrowings, combined with softening
loan demand and intensifying competition in the markets served by
the Bank. The increase in the loan portfolio compared with March
31, 2006 was driven by business lending activity, which accounted
for $16 million or 70% of the total year-over-year loan growth.
Credit Quality: The Bank�s non-performing loans remained at low
levels at quarter-end, representing $422 thousand or 0.08% of total
loans, compared with $628 thousand and $896 thousand, or 0.11% and
0.17% of total loans at December 31 and March 31, 2006,
respectively. The Bank�s loan loss experience continued at low
levels during the first quarter, with net charge-offs amounting to
$26 thousand, or annualized net charge-offs to average loans
outstanding of 0.02%, compared with $202 thousand or annualized net
charge-offs to average loans outstanding of 0.16% during the first
quarter of 2006. In the first quarter of 2007 the Bank did not
record a provision for loan losses, compared with $28 thousand in
the first quarter of 2006. Investment Securities: Total investment
securities ended the first quarter at $226 million, representing
increases of $13 million and $25 million, or 6% and 13%, compared
with December 31 and March 31, 2006, respectively. Market yields
showed meaningful improvement early in the first quarter, with the
benchmark 10-year U.S. Treasury note climbing to a five-month high,
presenting opportunities for increasing the Bank�s earning assets
and generating higher levels of net interest income. Deposits:
Total deposits ended the first quarter at $507 million,
representing increases of $11 million and $32 million, or 2% and 7%
compared with December 31 and March 31, 2006, respectively. Deposit
growth was largely attributed to certificates of deposit obtained
in the national market, which were principally used to fund the
Bank�s earning asset growth and replace the seasonal deposit
outflows experienced in the first quarter of 2007. At March 31,
2007, retail deposits totaled $387 million, representing declines
of $27 million and $5 million, or 6% and 1%, compared with December
31 and March 31, 2006, respectively. Historically, the banking
business in the Bank�s market area has been seasonal, with lower
deposits in winter and spring, and higher deposits in summer and
autumn. During the first quarter of 2007, the Bank�s net deposit
outflows were moderately higher than historical norms. Borrowings:
Total borrowings amounted to $252 million at March 31, 2007,
representing a decline of $8 million or 3% and an increase of $9
million or 4% compared with December 31, and March 31 2006,
respectively. Borrowing levels are managed in concert with other
sources of wholesale funding and in the context of the Bank�s
overall liquidity position. Shareholders� Equity: Total
shareholders� equity ended the quarter at $61.8 million,
representing increases of $735 thousand and $6 million, or $1% and
10%, compared with December 31 and March 31, 2006, respectively.
The Company continued to exceed regulatory requirements for
well-capitalized institutions, ending the first quarter of 2007
with a Tier I Capital Ratio of 7.17%. Results of Operations Net
Interest Income: For the quarter ended March 31, 2007, net interest
income on a tax equivalent basis amounted to $5.4 million,
representing a decline of $243 thousand, or 4%, compared with the
same quarter in 2006. The decline in net interest income was
principally attributed to a 40 basis point decline in the net
interest margin, which in the first quarter of 2007 amounted to
2.77%. As is widely the situation throughout the banking industry,
the decline in the net interest margin was largely attributed to
the seventeen consecutive increases in short-term interest rates by
the Federal Reserve Bank from June 2004 to June 2006 and a
flat-to-inverted yield curve over the past fifteen months, the
impact of which has caused the Bank�s funding costs to increase at
a faster pace than the yield on its earning asset portfolios.
Non-interest Income: For the quarter ended March 31 2007, total
non-interest income amounted to $378 thousand, representing a
decline of $1.2 million, or 76%, compared with the same quarter in
2006. The decline in non-interest income was principally attributed
to a $1.2 million securities loss in connection with the Company�s
planned restructuring of a portion of its balance sheet. Included
in first quarter 2007 net securities losses were gains on the sale
of securities amounting to $241, representing a decline of $69
thousand, or 22%, compared with the same quarter last year. For the
quarter ended March 31, 2007, fees from financial services, service
charges on deposits and credit and debit card fees posted increases
of 7%, 8% and 16%, respectively, compared with the same quarter in
2006. First quarter other operating income amounted to $68
thousand, representing a decline of $96 thousand, or 59%, compared
with the same quarter in 2006. The decline in other operating
income was attributed to a $150 thousand gain on the sale of a
parcel of Bank owned real estate recorded during the first quarter
of 2006. Non-interest Expense: For the quarter ended March 31,
2007, total non-interest expense amounted to $3.8 million,
representing a decline of $1.1 million, or 22%, compared with the
same quarter in 2006. The decline in non-interest expense was
principally attributed to the settlement of the Company�s limited
post retirement program, the financial impact of which reduced
first quarter non-interest expense by $832 thousand. The decline in
first quarter non-interest expense was also attributed to lower
salaries and employee benefits expense and other miscellaneous
operating expenses, which posted declines of $99 thousand and $189
thousand, or 4% and 13%, compared with the first quarter of 2006,
respectively. Bar Harbor Bankshares is the parent company of its
wholly owned subsidiary, Bar Harbor Bank & Trust. Bar Harbor
Bank & Trust, founded in 1887, provides full service community
banking with twelve branch office locations serving Down East and
Mid Coast Maine. This earnings release may contain certain
forward-looking statements with respect to the financial condition,
results of operations and business of Bar Harbor Bankshares (the
�Company�) for which the Company claims the protection of the safe
harbor provided by the Private Securities Litigation Reform Act of
1995. You can identify these forward-looking statements by the use
of words like �strategy,� �expects,� �plans,� �believes,� �will,�
�estimates,� �intends,� �projects,� �goals,� �targets,� and other
words of similar meaning. You can also identify them by the fact
that they do not relate strictly to historical or current facts.
Forward-looking statements include, but are not limited to, those
made in connection with estimates with respect to the future
results of operation, financial condition, and the business of the
Company which are subject to change based on the impact of various
factors that could cause actual results to differ materially from
those projected or suggested due to certain risks and
uncertainties. These risks and uncertainties include, but are not
limited to, changes in general economic conditions, interest rates,
deposit flows, loan demand, internal controls, legislation or
regulation and accounting principles, policies or guidelines, as
well as other economic, competitive, governmental, regulatory and
accounting and technological factors affecting the Company�s
operations. The Company assumes no obligation to update any
forward-looking statements as a result of new information or future
events or development. Bar Harbor Bankshares Selected Financial
Information (dollars in thousands except per share data)
(unaudited) � Period End 1st Quarter Average Balance Sheet Data
03/31/2007� 03/31/2006� 2007� 2006� � Total assets $ 826,500� $
781,538� $828,033� $756,418� Total investment securities 226,312�
201,129� 226,538� 191,844� Total loans 552,643� 529,119� 554,027�
520,868� Allowance for loan losses 4,499� 4,473� 4,556� 4,654�
Total deposits 506,832� 474,752� 499,574� 454,504� Borrowings
252,352� 243,703� 261,568� 238,640� Shareholders' equity 61,789�
56,163� 61,832� 57,124� � Three Months Ended Results Of Operations
03/31/2007� 03/31/2006� � Interest and dividend income $ 12,360� $
10,694� Interest expense 7,078� 5,207� Net interest income 5,282�
5,487� Provision for loan losses ---� 28� Net interest income after
provision for loan losses 5,282� 5,459� � Non-interest income
1,298� 1,294� Net securities (losses) gains (920) 310� Non-interest
expense 3,797� 4,885� � Income before income taxes 1,863� 2,178�
Income taxes 488� 615� � Net income $ 1,375� $ 1,563� � Earnings
per share: Basic $ 0.45� $ 0.51� Diluted $ 0.44� $ 0.50� �
Dividends per share $ 0.235� $ 0.220� � Return on Average Equity
9.02% 11.10% Return on Average Assets 0.67% 0.84% � As of March 31:
2007� 2006� Tier 1 Leverage Capital Ratio 7.17% 7.33% Book value
per share $ 20.29� $ 18.44� Tangible book value per share $ 19.19�
$ 17.32� Shares outstanding 3,044,670� 3,044,984�
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