Earnings Per Share up 17.5% at Bar Harbor Bankshares

Bar Harbor Bankshares (the “Company”) (NYSE Amex: BHB) the parent company of Bar Harbor Bank & Trust (the “Bank”), today announced financial results for the three months ended March 31, 2011. Net income available to common shareholders amounted to $2.9 million, representing an increase of $471 thousand, or 19.6%, compared with the first quarter of 2010. The Company’s diluted earnings per share amounted to $0.74 for the quarter compared with $0.63 in the first quarter of 2010, representing an increase of $0.11, or 17.5%.

The Company’s annualized return on average shareholders’ equity amounted to 11.14% for the quarter, compared with 11.24% in the first quarter of 2010.

A large contributing factor underlying the first quarter increases in net income available to common shareholders and diluted earnings per share was the Company’s repurchase of all shares of its Preferred Stock from the U.S. Department of the Treasury (the “Treasury”) in the first quarter of 2010. The Preferred Stock was sold to the Treasury in the first quarter of 2009 as part of the Emergency Economic Stabilization Act of 2008. As a result of the repurchase, in the first quarter of 2010 the Company accelerated the accretion of $496 thousand in preferred stock discount, reducing net income available to common shareholders and diluted earnings per share by $496 and $0.13, respectively. Total preferred stock dividends and accretion of discount amounted to $653 in the first quarter of 2010, compared with none in the current quarter.

In making the announcement, the Company’s President and Chief Executive Officer, Joseph M. Murphy commented, “Considering the continued slow emergence from the national economic recession, characterized by diminished consumer confidence, spotty loan demand, still-high unemployment and depressed real estate markets, we are pleased to announce solid earnings results for the first quarter while maintaining relatively strong asset quality.”

Mr. Murphy continued his remarks by saying “During the first quarter we enjoyed a meaningful expansion of our net interest margin and significant earning asset growth, which in turn increased our linked-quarterly net interest income run rate by over $400 thousand, or 5%. In addition, credit quality remained relatively stable during the quarter, highlighted by de minimis loan charge-off experience.”

In concluding, Mr. Murphy added, “Given the uncertainties associated with a more meaningful economic recovery, we believe any community bank’s future success will be underpinned by a strongly capitalized balance sheet. In this regard, we believe that we are well positioned for any uncertainties or opportunities that may lie ahead, given our strong regulatory capital ratios and tangible common equity position.”

Balance Sheet

Assets: Total assets ended the first quarter at $1.16 billion, up $44.6 million, or 4.0%, compared with December 31, 2010. Asset growth was driven by increases in the Bank’s consumer and commercial loan portfolios, combined with an increase in investment securities.

Loans: Total loans ended the quarter at $727.7 million, up $27.0 million, or 3.9%, compared with December 31, 2010. Loan growth was principally attributed to the Bank’s end-of-quarter purchase of a Maine-based, seasoned portfolio of prime consumer loans amounting to $23.5 million. The Bank’s commercial loan portfolio continued its growth trend during the quarter, posting an increase of $3.2 million or 0.8%, and surpassing $400 million at quarter end.

Credit Quality: Total non-performing loans ended the quarter at $13.6 million, down from $13.7 million at December 31, 2010. One commercial real estate development loan to a local, non-profit housing authority in support of an affordable housing project accounted for $5.2 million of total non-performing loans, unchanged compared with year-end 2010. At March 31, 2011, this loan represented 38.5% of the Bank’s total non-performing loans.

The Bank enjoyed very low loan loss experience during the first quarter, with recoveries on previously charged off loans exceeding total loans charged off by $93, or 0.05% of average loans outstanding. Total loans charged off during the quarter amounted to $30 thousand.

For the three months ended March 31, 2011, the Bank recorded a provision for loan losses of $500 thousand, down $327 thousand on a linked-quarter basis and unchanged compared with the first quarter of 2010. The Bank maintains an allowance for loan losses (the “allowance”) which is available to absorb probable losses on loans. The allowance is maintained at a level that, in management’s judgment, is appropriate for the amount of risk inherent in the current loan portfolio and adequate to provide for estimated probable losses. At March 31, 2011, the allowance stood at $9.1 million, up $593 thousand or 7.0% compared with December 31, 2010. The allowance expressed as a percentage of total loans stood at 1.25% at quarter-end, up from 1.21% at December 31, 2010. The increase in the allowance was largely reflective of significant loan growth during the quarter and, to a lesser extent, continued elevated levels of non-performing and potential problem loans.

Securities: Total securities ended the first quarter at $379.6 million, up $21.7 million, or 6.1%, compared with December 31, 2010. Securities purchased during the quarter consisted of mortgage-backed securities issued and guaranteed by U.S. Government agencies and sponsored-enterprises.

Deposits: Historically, the banking business in the Bank’s market area has been seasonal, with lower deposits in the winter and spring and higher deposits in summer and autumn. The timing and extent of seasonal swings have varied from year to year, particularly with respect to demand deposits and NOW accounts.

Total deposits ended the first quarter at $704.5 million, down $3.8 million, or 0.5%, compared with December 31, 2010. Demand deposits and NOW accounts experienced a combined seasonal decline of $13.6 million, or 9.5%. This decline was largely offset by a $2.5 million or 1.2% increase in savings and money market accounts, and a $7.4 million or 2.1% increase in time deposits.

Borrowings: Total borrowings ended the first quarter at $347.5 million, up $47.5 million, or 15.8%, compared December 31, 2010. The increase in borrowings was principally used to fund first quarter earning asset growth and, to a lesser extent, fund seasonal deposit outflows.

Capital: At March 31, 2011, the Company and the Bank continued to exceed regulatory requirements for “well-capitalized” financial institutions. Under the capital adequacy guidelines administered by the Bank’s principal regulators, “well-capitalized” institutions are those with Tier I leverage, Tier I Risk-based, and Total Risk-based ratios of at least 5%, 6% and 10%, respectively. At March 31, 2011, the Company’s Tier I Leverage, Tier I Risk-based, and Total Risk-based capital ratios were 9.03%, 13.39% and 15.25%, respectively.