Bar Harbor Bankshares : Second Quarter 2020 Earnings Presentation

Second Quarter 2020 Earnings Presentation

July 28, 2020

Company Overview (NYSE American: BHB)

Financial Highlights

Market Data1

	Stock Price	$20.75
	Market Cap (MM's)	$316
	Price / LTM Core EPS	9.93x
	Price / Tangible Book Value (Non GAAP)	114%
	Dividend Yield	4.24%
	Balance Sheet (MM)
	Total Assets	$3,780
	Cash and Securities	$733
	Net Loans3	$2,713
	Total Deposits	$2,695
	Total Equity	$404
	YTD Performance Ratios and Profitability
	Core Return on Average Assets	0.87%
	Core Return on Average Equity	8.12%
	Net Interest Margin	3.02%
	Efficiency Ratio	62.74%
	Core Net Income (000's)	$16,390
	Capital Ratios2
	Tang. Common Equity / Tang. Assets	7.57%
	Tier 1 Leverage Ratio	8.25%
	Common Equity Tier 1 Risk‐ Based Capital Ratio	10.61%
	Tier 1 Risk‐ Based Capital Ratio	11.42%
	Total Risk‐Based Capital Ratio	13.61%

Asset and Income Generation

Total Assets (MM's)

$3,780

$3,688	$3,669	$3,677
	$3,612

2019Q2	2019Q3	2019Q4	2020Q1	2020Q23
	Core Net Income (000's)
		$8,798	$7,790	$8,600
	$7,323
$6,346

2019Q2

2019Q3

2019Q4

2020Q1

2020Q2

All financial data as of June 30, 2020 except 1Market Data, which is as of July 22, 2020 and 2Capital ratios which are as of March 31, 2020 3Assets and loans include a net $127.0 MM in Paycheck Protection Program (PPP) loans

2

Second Quarter 2020 ‐ Highlights

• 18% annualized commercial loan growth for Q2 2020, CRE at 14% and C&I at 30%, excluding PPP (Paycheck Protection Program)
• 32% annualized growth in non‐maturity deposits for Q2 2020, excluding balances related to PPP loans
• 11% QTD annualized growth in tangible book value per share
• 3.00% NIM in Q2 2020 vs 2.66% in Q2 2019
• 0.96% cost of funds in Q2 2020 vs 1.71% in Q2 2019 and 1.28% for Q1 2020
• 12% Y‐O‐Y growth in non‐interest income on higher mortgage banking income, excluding any security gains on sale
• Net charge‐offs continue to be near historic lows; past due accounts down to 0.32% from 0.75% Q4 2019
• Strong liquidity position through multiple channels
• Capital ratios quickly building since branch acquisition in Q4 2019

Note: Assets and loans include a net $127.0 MM in Paycheck Protection Program (PPP) loans

Note: See appendix for GAAP reconciliation

3

Strategic Objectives

We strive to be one of the most profitable banks in New England; to provide exceptional service to the

people, businesses and communities we serve; and create a corporate culture that develops and

rewards existing employees and attracts outside talent.

To be one of the most profitable banks headquartered in New England

Focus on the core bank: core commercial banking business, core funding, core earnings

Increase sources of fee income via Trust, Treasury Management and Mortgage Banking

Continued commitment to an exceptional risk management culture

Strategically fill‐in and expand our New England footprint

Maintain a strong capital base that supports growth opportunities

4

Management Team

	Executive	Background
	Curtis C. Simard	• Joined as President and CEO of Bar Harbor Bankshares and Bar Harbor Bank & Trust in June 2013
	President and CEO	• Served as Managing Director of Corporate Banking for TD Bank and various management positions at Citizens
		Financial Group
	Josephine Iannelli	•Joined Bar Harbor Bankshares and Bar Harbor Bank & Trust in October 2016 as Executive Vice President, Chief
	Financial Officer and Treasurer
	EVP, Chief Financial Officer and Treasurer	•Served as Senior Executive VP, Chief Financial Officer and Treasurer of Berkshire Hills Bancorp in Pittsfield,
		Massachusetts and various management positions at PNC Financial Services Group
	Richard B. Maltz	•Serves as Bar Harbor Bankshares Executive Vice President, Chief Risk Officer since September 2014, and Chief
	Operating Officer since September 2016
	EVP, Chief Operating Officer	•Served as Executive Vice President and Chief Risk Officer of Bangor Savings Bank
		•Serves as Executive Vice President and Chief Lending Officer since 2018 and joined Bar Harbor Bank & Trust in
	John Mercier	2017
	EVP, Chief Lending Officer	•Veteran in retail, small business, regional banking, middle market, and large national corporate markets with
		over 30 years of experience
	Marion Colombo	•Executive Vice President, Director of Retail Delivery of Bar Harbor Bank & Trust since 2018
	EVP, Director of Retail Delivery	•25 years in retail banking, most recently serving as Market President‐Retail at TD Bank
	Jennifer Svenson	•Serves as SVP, Chief Human Resources Officer
	SVP, Human Resources	•Most recently served as VP, US Human Resources of Ironshore, Boston MA
	Jason P. Edgar	•Serves as President of Bar Harbor Trust Services and Charter Trust Company
	President Bar Harbor Trust Services &	•Most recently served as SVP, Director of Wealth Management of Berkshire Bank, Boston MA
	Charter Trust Company

5

Company History

Acquisition of

Further Expansion

Continue to

Lake Sunapee

John Mercier

into Southern NH

opportunistically

Bank group -

hired to run

position

Balance Sheet

Ba r Harbor Trust

Acquired Border

expansion into NH

commercial

Executed on branch

Rick Maltz hired

and VT markets

Marion Colombo

Established in Bar

Trust Company

banking in NH and

hired as EVP,

optimization study,

Harbor, Maine

as Chief Operating

VT

Director of Retail

balance sheet

Officer

Delivery

strategies, and issued

sub‐debt1

1887

1984

2012

2013

2014

2016

2017

2018

2019

2020

Announced

sale of

Branch acquisition ‐

insurance

strengthening presence

Established Bar

Josephine Iannelli

business

in Central ME

Harbor

hired as Chief

Bankshares as a

Curtis Simard

Financial Officer

holding company

hired as President

Upgraded

Expansion of treasury

Consolidated and

core operating

management services and

& CEO

updated core

systems

customer derivatives

operating platform for

platform

both Trust Companies

1 Part of the Balance Sheet Optimization Strategies executed in 2019 was the refinancing of existing Bar Harbor Bank & Trust debt. Bar Harbor Bank & Trust issued subordinated sub debt to replace these borrowings. Bar Harbor Bank & Trust issued their subordinated debt at a 4.625% coupon, the lowest rate to date for similarly rated issuers and debt structures

(source: Piper‐Sandler & Company).. The deal was oversubscribed which resulted in a larger issuance than the replacement debt at a net comparable cost.

6

Markets we Serve: Deposit Market Share

Maine

	Rank	Financial Institution Name	Total	Total Deposits	Market
	Branches	(000's)	Share
1	Toronto‐Dominion Bank	42	$3,867,684	10.1%
2	Camden National Corporation	58	$3,581,756	9.4%
3	Bangor Bancorp, MHC	59	$3,488,716	9.1%
4	KeyCorp	42	$2,833,196	7.4%
5	Bank of America Corporation	12	$1,916,030	5.0%
	6	Bar Harbor Bankshares	22	$1,740,670	4.6%
		Total Market	644	$38,202,867	100%

New Hampshire

	Rank	Financial Institution Name	Total	Total Deposits	Market
	Branches	(000's)	Share
1	Toronto‐Dominion Bank	58	$7,643,433	18.2%
2	Citizens Financial Group, Inc.	54	$7,497,873	17.8%
3	Bank of America Corporation	21	$4,739,798	11.3%
4	Service Credit Union	36	$3,021,021	7.2%
5	New Hampshire Mutual Bancorp	27	$1,837,624	4.4%
	13	Bar Harbor Bankshares	20	$737,255	1.8%
		Total Market	508	$42,022,082	100%

Vermont

	Rank	Financial Institution Name	Total	Total Deposits	Market
	Branches	(000's)	Share
1	People's United Financial, Inc.	38	$3,867,684	18.6%
2	Toronto‐Dominion Bank	24	$3,581,756	15.0%
3	Community Bank System, Inc.	31	$3,488,716	6.7%
4	New England Federal Credit Union	7	$2,833,196	6.4%
5	KeyCorp	11	$1,916,030	5.0%
	19	Bar Harbor Bankshares	11	$258,806	1.5%
		Total Market	303	$17,475,574	100%

Source: SNL / S&P Market Intelligence

7

Profitability Metrics

	Core ROAA				Core ROAE
	0.96%				8.81%	8.52%
	0.91%	7.36%		7.71%
0.80%	0.86%
		6.57%

0.70%

2019Q2 2019Q3 2019Q4 2020Q1 2020Q22019Q2 2019Q3 2019Q4 2020Q1 2020Q2

Net Interest Margin			Efficiency Ratio
3.06%	68.48%
3.00%
2.95%
	65.02%	64.82%

	2.75%	62.56%
2.65%		60.67%

2019Q2

2019Q3

2019Q4

2020Q1

2020Q2

2019Q2

2019Q3

2019Q4

2020Q1

2020Q2

8

Strengthening of the Balance Sheet

Liquidity

• Increased balance sheet liquidity reflecting significant wholesale borrowing capacity (FHLB and Brokered CD Market) as well as restructured investment portfolio
• Continue to maintain and test external lines of credit with FHLB, Federal Reserve Bank, and other correspondent banks

Capital

• Well capitalized, reflecting the refinancing and upsizing of subordinated debt in Q4 2019
• Judicious capital and balance sheet management as evidenced by the strategic shift in residential mortgage lending
• Consistent and strong earnings as well as conservative interest rate risk exposures

Interest Rate Risk (IRR) Positioning & Management

• Interest rate risk metrics are largely neutral to expected near‐term exposures
• Active liability expense management (deposit betas) relative to market benchmarks

9

Focus on Non‐Interest Income Growth

• Optimized existing sources and executed against new initiatives to create other sources
• • Substantial growth and diversification of non‐interest income YTD compared to Q2 2019 YTD
• Wealth Management and Financial Services
• • Bar Harbor Financial Services
  • Two wholly owned subsidiaries, Charter Trust and Bar Harbor Trust services offering trust management services
  • • $2.04B AUM
  • Total Revenue of $6.53 MM in 2020 H1 vs. $5.82 MM 2019 H1
• Expansion of Mortgage Banking platform and secondary market sales channels. Mortgage Banking income for 2020 H1 totaled $1.58 MM vs. $642 thousand for 2019 H1.
• Cash Management and Treasury Services
• Customer Derivative Offerings

23.9%

$13.6 MM

4%

5%

8%

5%

35%

43%

27.6%			Total Non‐Interest Income as a
		percentage of Total Core Revenue
	20,000.0	20,000.0
$18.1 MM Total Non‐Interest Income
			Other Income
4%			18,000.0	18,000.0
		Customer Derivative Fees
6%
		($1.1 MM H1 2020 vs $725k 2019 H1)
6%			16,000.0	16,000.0
		BOLI Income
8%
		Gain on Sale of Securities1
		14,000.0	14,000.0
9%			Mortgage Banking Income
		($1.6 MM H1 2020 vs $642k 2019 H1)
			12,000.0	12,000.0
31%	10,000.0	10,000.0
		Customer Service
			Fee Income
	8,000.0	8,000.0
	6,000.0	6,000.0
			Trust & Investment Management Fee
		4,000.0	4,000.0
36%			Income
		($6.5 MM H1 2020 vs $5.8 MM 2019 H1)
		2,000.0	2,000.0
	0.0	0.0

2019 H1

2020 H1

1Gain on Sale of Securities was part of a larger balance sheet strategy that allowed the Bank to take advantage of opportunities in capital markets

10

Deposit Portfolio Overview

Deposits in Millions ($)

$2,481	$2,494	$2,696	$2,651	$2,695	Total Deposits
14%	15%	15%			2,500.0
		Money Market
12%					2,500.0
14%	14%
14%	14%	16%	17%	Savings2,000.0	2,000.0
14%	15%	15%	15%	19%	Demand1,500.0	1,500.0
19%	20%	21%	22%				1,000.0
		24%	1,000.0
					NOW
40%	36%	35%	32%	25%	500.0	500.0
Time Deposits
						0.0	0.0
2019Q2	2019Q3	2019Q4	2020Q1	2020Q2

• Total deposits of $2.70 billion as of June 30, 2020 representing Year‐over‐Year deposit growth of 8.6%; 32% annualized growth in total non‐maturity deposits, excluding balances related to PPP loans
• Continued focus on growing NOW, Demand and other non‐Time Deposits which improved our Cost of Interest‐Bearing Deposits for Q2 2020 to 0.81%, down from 1.32% from Q2 2019
• Loans / Deposits of 101%

11

Loan Portfolio Overview

• Total loans of $2.73 billion as of June 30, 2020 representing a 5.86% Y‐o‐Y increase, with C&I increasing by 51.4% Y‐o‐Y
• • Excluding PPP loans, total loans increased 0.9% Y‐o‐Y with C&I loans increasing 10.7%
• Yield on loans of 3.94% for the quarter ended June 30, 2020, and 4.04% excluding PPP loans

Tax exempt and other 4.1% / $104.7	Tax exempt and other 2.5% / $66.9
Consumer	Consumer
4.4% / $112.3	4.6% / $124.2

CRE 34.2% /	CRE 36.0% /
$881.5
$982.1
Residential
Residential
45.3% / $1167.8
39.7% /
	$1083.7
C&I 12.1% /	C&I 17.3% /
$312.0
2019 Q2	$472.5
2020 Q2

12

PPP, COVID Modified Loans & Loan Provisions

Paycheck Protection Program Loans (PPP)

• 1900 originations with a total principal balance of $131.5 MM and unearned fees of $5.3 MM
• Average loan size of $70K, 1,722 loans =< $150K totaling $51.2 MM (39%) and 4 loans >= $2.0 MM totaling $10.2 MM (8%)
• $600K of fee accretion included in the Q2 2020, accelerated accretion expected in the second half of 2020 into 2021
• $66 MM estimated PPP funds remain in BHB deposit accounts as of Q2 2020

COVID Modified Loans

• 786 total modified loans with a principal amount of approximately $400 MM within Q2 2020
• Modifications were mostly temporary principal deferrals with normal interest accruals
• Total accrued interest as of Q2 2020 was $2.4 MM
• 20% of the total principal balance resumed a normal payment schedule prior to quarter end

Allowance for Loan Losses ($ Millions)

$9		2020 Q2
	Allowance for
$8	Estate	Loan Losses by
	Portfolio Segment
$7	Real
$6	Commercial
$5

$4	Residential R/E Mortgages		Comm Const/Land Dev
$3	C&I	Home Equity Loans		Consumer Loans
$2	Agricultural	Tax Exempt
$1
$‐

13

Focused on Credit Quality

Total balance of all delinquent loans

• During Q2 2020, in response to COVID‐19, Management performed a

stress test of the commercial portfolio analyzing potentially

of delinquent loans by category1

$25.0 MM

1.7%

0.8%

0.7%

$14.5 MM

1.3%

0.4%

25,000.0

20,000.0

15,000.0

10,000.0

vulnerable NAICS codes, in addition to the normal migration analysis.

The following segments of the commercial loan portfolio were

identified for stress testing:

‒ Hospitality loans with current Loan‐to‐Value (LTV) in excess of

65%

‒ All loans in the Bank's top 50 relationships

‒ All loans $1 MM or greater with risk ratings of special mention

or higher

• ALLL / Loan coverage ratio improved to 0.63% (excluding PPP loans)

Percentage balance

0.5%

1.2%

5,000.0

0.6%

0.0

2019Q4 2020Q2

• Management applied economic and individual loan factors to the allowance
• Largest industry concentration outside of real estate is Hospitality
• • $287 MM in exposure2 as of Q2 2020, roughly 17.0% of commercial loans

					‒ Current weighted average Loan‐to‐Value is below 60.0%
		Residential R/E Mortgages		C&I
		Commerical Real Estate		Home Equity Loans

1Remaining loan categories include commercial construction / land development, Agricultural and Consumer, for a total of 0.50% as of Q2 2020, down from 0.81% of balances in
those categories during Q4 2019	14
2Exposure includes available credit & derivative exposure

Asset Quality

			NCOs / Avg. Loans										NPAs / Assets1
								0.50%															1.20%
								0.40%
																						1.00%
								0.30%					0.53%									0.80%
					0.18%					0.50%						0.43%		0.60%
							0.20%			0.38%	0.33%
														0.40%
				0.08%				0.10%
																					0.20%
		0.03%	0.02%			0.02%
								0.00%															0.00%
		2019Q2	2019Q3	2019Q4	2020Q1	2020Q2				2019Q2		2019Q3			2019Q4		2020Q1		2020Q2
			Reserves / Loans2										NPLs / Loans3
								1.20%															1.20%
								1.00%															1.00%
		0.57%	0.60%	0.58%	0.58%	0.60%		0.80%			0.62%	0.65%									0.80%
			0.60%										0.51%		0.60%
														0.44%	0.38%
								0.40%													0.40%
								0.20%															0.20%
								0.00%															0.00%
											2019Q2		2019Q3			2019Q4		2020Q1		2020Q2
		2019Q2	2019Q3	2019Q4	2020Q1	2020Q2

1NPAs/Assets excluding PPP loans is 0.45% for Q2 2020, 2Reserves / Loans excluding PPP loans is 0.63% for Q2 2020, 3NPLs/Loans excluding PPP loans is 0.54% for Q2 2020

15

Well Capitalized Institution

14%

12%

10%

8%

6%

4%

2%

0%

Tier 1 Leverage Ratio		Common Equity Tier 1		Tier 1		Risk Based Capital		TCE / TA

11.6%	12.4%	13.9%		11.6%	12.5%	14.0%		10.6%	11.4%	13.6%		10.6%	11.4%	13.6%
8.6%			7.9%	8.7%		8.2%	8.1%			7.6%	8.3%			7.8%

2019Q2

2019Q3

2019Q4

2020Q1

Source: Company filings, calculated at holding company level.

16

Investment Considerations

• Focused on building franchise value
• Deep and talented management team
• Team, platform and strategy in place to generate efficient growth
• Profitable and efficient business model
• Clear vision to grow core loan/deposit business
• Development and expansion of non‐interest income revenue
• Proven ability to grow organically and via acquisitions
• Disciplined credit quality and a conservative risk management culture
• Consistent dividend payments to shareholders with an attractive yield

17

Legal Disclaimer

Forward Looking Statements

This presentation contains "forward‐looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward‐looking statements can be identified by words such as "believes," "anticipates," "expects," "intends," "targeted," "continue," "remain," "will," "should," "may," "plans," "estimates," and similar references to future periods; however, such words are not the exclusive means of identifying such statements. Examples of forward‐looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, and other financial items; (ii) statements of plans, objectives, and expectations of the Company or its management or Board of Directors; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Forward‐looking statements are based on the Company's current expectations and assumptions regarding its business, the economy, and other future conditions. Because forward‐looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. The Company's actual results may differ materially from those contemplated by the forward‐looking statements, which are neither statements of historical fact nor guarantees or assurances of future performance. For more information about factors, such as the ongoing COVID ‐19 pandemic and the governmental and other responses thereto, that could cause actual results to differ from those discussed in the forward‐looking statements please refer to the information disclosed under "Forward‐Looking Statements", "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in the Company's public filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10‐K and Quarterly Reports on Form 10‐Q. Any forward‐looking statement made by the Company in this presentation speaks only as of the date on which it is made. Factors or events that could cause the Company's actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward‐looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law.

Non‐GAAP Financial Measures

This presentation contains both financial measures based on accounting principles generally accepted in the United States ("GAAP") and non‐GAAP based financial measures, which are used where management believes them to be helpful in understanding the Company's results of operations or financial position. Reconciliations of these non‐GAAP financial measures, to the most comparable GAAP measures are included in this presentation under "Non‐GAAP to GAAP Reconciliations" and in the Company's earnings release available in the Investor Relations portion of the Company's website at www.barharbor.bank. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non‐GAAP performance measures that may be presented by other companies.

18

Appendix

Historical Financial Performance

	Dollar values in thousands, except per share		For the Year Ended,				For the Quarter Ended,
	amounts or otherwise noted	2016Y	2017Y	2018Y	2019Y	2019Q2	2019Q3	2019Q4	2020Q1	2020Q2
	Balance Sheet
	Total Assets	$1,755	$3,565	$3,608	$3,669	$3,688	$3,612	$3,669	$3,677	$3,780
	Net Loans	1,119	2,473	2,476	2,626	2,564	2,562	2,626	2,620	2,713
	Total Deposits	1,050	2,352	2,483	2,696	2,481	2,494	2,696	2,651	2,695
	Capital
	Total Equity1	$157	$355	$371	$396	$391	$394	$396	$404	$404
	Tang. Common Equity / Tang. Assets1	8.65%	7.12%	7.51%	7.60%	7.92%	8.20%	7.60%	7.77%	N/A
	Tier 1 Leverage Ratio1	8.94%	8.10%	8.53%	8.13%	8.57%	8.65%	8.13%	8.25%	N/A
	Total Risk‐Based Capital Ratio1	16.52%	13.73%	14.23%	13.61%	13.93%	14.01%	13.61%	13.61%	N/A
	Earnings & Profitability
	Net Income	$14.9	$26.0	$32.9	$22.6	$6.1	$5.0	$4.2	$7.7	$8.5
	Core ROAA	0.83%	0.93%	0.99%	0.82%	0.70%	0.80%	0.96%	0.86%	0.91%
	Core ROAE	8.57%	9.15%	9.79%	7.65%	6.57%	7.36%	8.81%	7.71%	8.52%
	Net Interest Margin	2.96%	3.10%	2.87%	2.78%	2.65%	2.75%	2.95%	3.06%	3.00%
	Efficiency Ratio	58.90%	55.44%	59.27%	64.95%	86.48%	65.02%	62.56%	64.82%	60.67%
	Asset Quality
	NPLs / Loans	0.58%	0.58%	0.73%	0.44%	0.62%	0.65%	0.44%	0.38%	0.51%
	NPAs / Assets	0.38%	0.41%	0.57%	0.38%	0.50%	0.53%	0.38%	0.33%	0.43%
	Reserves / Loans	0.92%	0.50%	0.56%	0.58%	0.57%	0.60%	0.58%	0.58%	0.60%
	NCOs / Average Loans	0.00%	0.04%	0.05%	0.08%	0.03%	0.02%	0.08%	0.18%	0.02%
	Yield and Cost
	Yield on Earning Assets	3.72%	3.86%	4.00%	4.16%	4.13%	4.17%	4.15%	4.14%	3.81%
	Cost of Interest Bearing Deposits	0.75%	0.60%	0.98%	1.27%	1.32%	1.33%	1.19%	1.08%	0.81%
	Cost of Total Interest Bearing Liabilities	0.86%	0.87%	1.31%	1.61%	1.71%	1.65%	1.42%	1.28%	0.96%
	Market Information (7/23/2020)
	Current Stock Price	$20.75		Price / BV	78%
	52 Week High	$26.59		Price / TBV	114%
	52 Week Low	$13.77		Price / LTM EPS	9.93x
	Market Capitalization	$315.7		Dividend Yield	4.24%

Source: Company filings

20

Non‐GAAP to GAAP Reconciliations

	Dollar values in thousands, except per share			2019Q2		2019Q3		2019Q4		2020Q1		2020Q2		YTD 2020
	amounts or otherwise noted
	GAAP net income			6,117		5,015		4,207		7,721		8,481
											16,202
	Plus (less):
	Gain sale of securities, net			‐		(157)		(80)		(135)		(1,351)					(1,486)
	(Gain) loss on sale of fixed assets, net			21		‐		(3)		92		(2)					90
	Loss on other real estate owned			‐		146		20		31		‐			31
	Loss on debt extinguishment			‐		‐		1,096		‐		1,351					1,351
	Acquisition, restructuring and other expenses			280		3,039		4,998		103		158					261
	Income tax expense1			(72)		(720)		(1,440)		(22)		(37)					(59)
	Total core earnings2	(A)	$	6,346	$	7,323	$	8,798	$	7,790	$	8,600				$	16,390
	Net‐interest income	(B)		$21,496		$22,445		$24,104		$24,563		$24,590					$49,153
	Plus: Non‐interest income			7,453		7,643		7,806		8,421		9,710					18,131
	Total Revenue			28,949		30,088		31,910		32,984		34,300					67,284
	Plus: Gain on sale of securities, net			‐		(157)		(80)		(135)		(1,351)					(1,486)
	Total core revenue2	(C)		$28,949		$29,931		$31,830		$32,849		$32,949					$65,798
	Total non‐interest expense			20,906		23,400		26,803		22,359		22,266					44,625
	Less: Gain (loss) on sale of premises and equipment, net		(21)		‐		3		(92)		2					(90)
	Less: Loss on other real estate owned			‐		(146)		(20)		(31)		‐			(31)
	Less: Loss on debt extinguishment			‐		‐		(1,096)		‐		(1,351)					(1,351)
	Less: Acquisition, restructuring and other expenses			(280)		(3,039)		(4,998)		(103)		(158)					(261)
	Core non‐interest expense2	(D)		$20,605		$20,215		$20,689		$22,133		$20,759					$42,892

1Assumes a marginal tax rate of 23.78% in 2019. A marginal tax rate of 23.87% was used in the first and second quarter of 2020.
2	Non‐GAAP financial measure.	21
3	Efficiency ratio is computed by dividing core non‐interest expense net of franchise taxes and intangible amortization divided by core revenue on a fully taxable equivalent basis.

Non‐GAAP to GAAP Reconciliations (continued)

	Dollar values in thousands, except per share		2019Q2	2019Q3	2019Q4	2020Q1	2020Q2	YTD 2020
	amounts or otherwise noted
	Averages
	Total average earning assets	(E)	$3,330	$3,308	$3,309	$3,303	$3,367	$3,339
	Total average assets	(F)	3,646	3,642	3,655	3,662	3,807	3,786
	Total average shareholders equity	(G)	388	395	396	406	406	406
	Performance ratios
	GAAP return on assets		0.67%	0.55%	0.46%	0.85%	0.90%	0.86%
	GAAP return on equity		6.33%	5.04%	4.21%	7.64%	8.40%	8.02%
	Core return on equity2	(A/G)	6.57%	7.36%	8.81%	7.71%	8.52%	8.12%
	Efficiency ratio2,3	(D‐O‐Q)/(C+N)	68.48%	64.99%	62.79%	64.82%	60.67%	62.74%
	Net interest margin	(B+P)/E	2.65%	2.75%	2.95%	3.06%	3.00%	3.02%
	Supplementary Data
	Taxable equivalent adjustment for efficiency ratio	(N)	$676	$658	$674	$719	$646	$1,365
	Franchise taxes included in non‐interest expense	(O)	111	119	119	119	120	239
	Tax equivalent adjustment for net interest margin	(P)	514	503	516	551	490	1,041
	Intangible amortization	(Q)	207	207	240	256	256	512

1Assumes a marginal tax rate of 23.78% in 2019. A marginal tax rate of 23.87% was used in the first and second quarter of 2020.
2	Non‐GAAP financial measure.	22
3	Efficiency ratio is computed by dividing core non‐interest expense net of franchise taxes and intangible amortization divided by core revenue on a fully taxable equivalent basis.

Interest Rate Risk Analysis

On a quarterly basis, the company measures and reports NII and EVE at risk to isolate the change in income and value related solely to interest‐earning assets and interest‐bearing liabilities. The analysis below shows the impact of instantaneous parallel shifts in the market yield curve for a period of one year while EVE shows a liquidation calculation over the same shifts in the curve.

NII Impact

EVE Impact

8.0%				8.0
6.0%				7.0
			6.0
4.0%
			5.0
2.0%				4.0
0.0%				3.0
			2.0
‐2.0%
			1.0
‐4.0%				‐
‐6.0%				(1.0)
			(2.0)
‐8.0%
			(3.0)
‐10.0%				(4.0)
‐100BP	+100BP	+200BP	+300BP	+400BP

% Change NII		$ Change NII

15.0%				30.0
10.0%				20.0
5.0%				10.0
			‐
0.0%
			(10.0)
‐5.0%
			(20.0)
‐10.0%				(30.0)
‐15.0%				(40.0)
			(50.0)
‐20.0%
			(60.0)
‐25.0%
			(70.0)
‐30.0%				(80.0)
‐100BP	+100BP	+200BP	+300BP	+400BP
	% Change EVE	$ Change EVE

	Interest Rate Risk to Earnings (NII)			Interest Rate Risk to Capital (EVE)
Change in	June 30, 2020		Change in	June 30, 2020
		$ Change
Interest Rates	$ Change NII	% Change	Interest Rates	EVE	% Change
(basis points)	(millions)	NII	(basis points)	(millions)	EVE
+400BP	6.7	6.7%	+400BP	(29.9)	‐10.0%
+300BP	5.7	5.7%	+300BP	(6.0)	‐2.0%
+200BP	4.2	4.2%	+200BP	17.4	5.8%
+100BP	2.4	2.4%	+100BP	24.5	8.2%
‐100BP	(0.8)	‐0.8%	‐100BP	(69.1)	‐23.1%

NII and EVE Impact is based on June 30, 2020 available data.

23