14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended March 31,June 30, 2000 Commission
File No. 841105-D
BAR HARBOR BANKSHARES
Maine 01-
0393663
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization
Identification No.)
P. O. Box 400
82 Main Street, Bar Harbor, ME
04609-0400
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:
(207) 288-3314
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for
the past 90 days.
YES: XX NO:
Indicate the number of shares outstanding of each of
the issuer's classes of common stock as of March 31,June 30,
2000:
Common Stock: 3,387,4143,354,814
TABLE OF CONTENTS
Financial Information Page
Item 1. Independent Accountants' 2
Report 3-43
Item 2. Financial Statements
Consolidated Statements of Condition 5
December 31, 1999 and March 31,June 30, 2000
Consolidated Statements of Earnings 5
Three months ended March 31,and Six Months, June 30,
1999 and 2000
Consolidated Statements of Changes in 6
Stockholders' Equity
ThreeSix months ended March 31,June 30, 1999 and 2000
Consolidated Statement of Cash Flows 7-8
Three7
Six months ended March 31,June 30, 1999 and 2000
Item 3. Notes to Consolidated 9
Financial 8-9
Statements
Item 4. Rate Volume Analysis 10
Item 5. Management's Discussion and 11-15
Analysis of Financial
Condition and Results of
Operations
11-13
Signature Page 1416
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Bar Harbor Bankshares
We have reviewed the accompanying interim consolidated
financial information of Bar Harbor Bankshares and
Subsidiaries as of March 31,June 30, 2000, and for the three
month periodthree-
and six-month periods then ended. These financial
statements are the responsibility of the Company's
management.
We conducted our review in accordance with the standards
established by the American Institute of Certified
Public Accountants. A review of interim financial
information consists principally of applying analytical
procedures to financial data and making inquiries of
persons responsible for financial and accounting
matters. It is substantially less in scope than an
audit in accordance with generally accepted auditing
standards, the objective of which is to express an
opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
financial statements for them to be in conformity with
generally accepted accounting principles.
/s/ BERRY, DUNN, McNEIL & PARKER, LLC
Portland, Maine
MayAugust 11, 2000
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTSOF FINANCIAL CONDITION
MARCH 31,JUNE 30, 2000 and DECEMBER 31, 1999
(in thousands, except number of shares and per share
data)
March 31, DecemberJune Decembe
30, r 31,
2000 1999
(Unaudited)(Unaudi
ted)
ASSETS
Cash and Due from Banks $10,611$13,739 $12,852
Securities Available for 37,01338,659 31,690
Sale
Securities Held to
Maturity (Market Value
128,933$120,636 at 6/30/00; 124,812 128,831
$125,098 at 3/31/00;
$125,416 at 12/31/99)
Other Securities 6,7058,068 6,118
Loans, net of allowance
for possible loan
losses of 261,065$4,144 at 272,846 256,896
$4,176 in 20006/30/00; and $4,293
in 1999)as of 12/31/99)
Premises and Equipment 10,66211,461 8,440
Other Assets 12,91213,581 11,982
Total Assets $467,901
$456,809$483,17 $456,80
0 9
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES
Deposits
Demand Deposits $38,194$39,695 $41,904
Now Accounts 42,39340,725 45,107
Savings Deposits 75,40972,394 78,511
Time Deposits 114,572119,144 116,186
Total Deposits 270,568271,958 281,708
Securities sold under
Repurchase 6,342 8,807
Agreements 15,749 8,807
Advances from Federal Home 127,819150,600 113,035
Loan Bank
Other Liabilities 4,5345,129 4,114
Total Liabilities 418,670434,029 407,664
STOCKHOLDERS' EQUITY
Capital Stock, par value
$2
Authorized 10,000,000 shares issued 3,643,614 7,287 7,287
shares
Issued 3,643,614 shares
Surplus 4,002 4,002
Retained Earnings 41,25141,563 40,611
Net unrealized
depreciation on securities (885) (1,015)
available for sale, net of
tax
(995) (1,015)
Less: Cost of Treasury Stock
256,200288,800 shares in 2000 and
222,100 shares (2,826) (1,740)
in 1999 (2,314) (1,740)
TOTAL STOCKHOLDERS' EQUITY 49,23149,141 49,145
TOTAL LIIABILITIESLIABILITIES AND $467,901
$456,809$483,17 $456,80
STOCKHOLDERS' EQUITY 0 9
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except number of shares and per share
data)
(UNAUDITED)
THREE MONTHS ENDED
3/31/Three months ended Six months
ended
6/30/00 3/31/6/30/99 6/30/00 6/30/
99
Interest and
Dividend Income:
Interest & Fees $6,082 $5,340 $11,782 $10,4
on Loans $5,700 $5,14182
Interest and
Dividends on
Investment 2,686 2,235 5,337 4,282
Securities:
Taxable
Interest Income
2,651 2,046
Non-taxable 40 81 100 164
Interest 60 83 Income
Dividends 118129 113 247 226
Federal Funds 4 5 19 28
Sold 15 23
Total Interest & 8,941 7,774 17,485 15,18
Dividend 8,544 7,406
Income 2
Interest on 2,157 2,024 4,297 4,073
Deposits 2,140 2,048
Interest on 2,299 1,301 4,200 2,451
Borrowings
1,901 1,150
Total Interest 4,456 3,325 8,497 6,524
Expense
4,041 3,198
Net Interest 4,485 4,449 8,988 8,658
Income
4,503 4,208Provision for 163 269 326 537
Loan Losses
Net Interest 8,121
Income after 4,322 4,180 8,662
Provision for
Loan Losses
163 269
Net Interest Income after
Provision for Loan Losses 4,340 3,939
Other Income 1,349 1,1861,459 1,226 2,808 2,412
Other Expenses: 3,042
Salaries & 2,226 1,502 4,183
Employee 1,957 1,540 Benefits
Other 1,811 1,6262,111 1,598 3,922 3,224
Earnings Before 1,444 2,306 3,365 4,267
Income Taxes
1,921 1,959
Income Tax 635 644487 779 1,122 1,423
Net Earnings $1,286 $1,315$ 957 $1,527 $2,243 $2,84
4
PER COMMON SHARE
DATA $0.28 $0.44 $0.66 $0.83
Net earnings
$0.38 $0.38
Weighted 3,389,398 3,443,61 3,389,3 3,443
average number of 4 98 ,614
common 3,404,490
3,443,614
Shares
outstanding
Dividends Per Share $0.19 $0.17 $0.38 $0.34
Share
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
FOR THE THREE MONTHS ENDED MARCH 31,JUNE 30, 2000 and 1999
(in thousands, except number of shares and per share
data)
(UNAUDITED)
NET
UNREALIZED
DEPRECIATION T O
T AUNREALIZ
ED
(DEPRECI TOTAL
CAPITA RETAINE ATION) TREASURY STOCKHOLD
L CAPITAL RETAINEDSUIRPL D APPRECIA STOCK ERS'
STOCK US EARNING TION ON SECURITIES TREASURY
STOCKHOLDERS'
STOCK SURPLUS EARNINGS AVAILABLE
STOCK EQUITY
S SECURITI
ES
AVAILABL
E FOR
SALE
Balance, December 31, $7,287 $4,002 $36,862$36,861 $50 ($1,340) $46,861$46,860
1998
Net Earnings 1,315
$1,3152,844 $2,844
Net unrealized
depreciation on
Securities
available for sale, net(301) ($301)
Net of tax benefit
of $20
(61)
($61)$155
Total comprehensive 1,315 (61)
1,2542,844 (301) 2,543
income
Cash dividends
declared ($0.170.34 per (585)(1,171) ($585)1,171)
share)
Balance, March 31,June 30, 1999 $7,287 $4,002 $37,592$38,534 ($11)251) ($1,340) $47,530
1999$48,232
Balance, December 31, $7,287 $4,002 $40,611 ($1,015)($1,740) $49,145
1999
Net Earnings 1,286
$1,2862,243 $2,243
Net unrealized
appreciation on
Securities $20
$20130 $130
available for sale,
Net of tax of $10$67
Total comprehensive 1,286 20
1,3062,243 130 0 2,373
income
Cash dividends
declared ($0.19 per (646)(1,291) ($646)1,291)
share)
Purchase of Treasury
Stock - 34,100(1,086) ($1,086)
66,700 shares
($574)
($574)
Balance, March 31,June 30, 2000 $7,287 $4,002 $41,251$41,563 ($995)885) ($2,314) $49,231
20002,826) $49,141
The accompanying notes are an integral part of these
consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
COLSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
MARCH 31, MARCH 31,JUNE 30, JUNE 30,
2000 1999
Cash Flows from Operating
Activities: $2,243 2,844
Net Income $1,286 $1,315
Adjustments to reconcile
net earnings to net
cash provided by operating 616 491
activities:
Depreciation 253 245
Provision for Loss 326 537
Losses
163 269
Provision for LossesGain on Other Real (7) 0
Estate Owned 0 1
New Loans Originated (451) (7,120)
for Sale (97) (4,227)
Proceeds from Sale of 452 8,092
Mortgages Held for Sale
Gain (Loss) on sale 97 4,961
Gain on Sale of 51 (60)
Mortgages Originated for sale (56) (64)Sale
Net Amortization of 46 132
Bond Premium 29 55
(Gain)
Loss on sale of 111 25
premises and equipment 7
(0)
Net Change in Other (1,658) (2,972)
Assets (876) (2,280)
Net Change in Other 1,015 (295)
Liabilities 422
235
Net Cash Provided by 2,744 1,674
Operating Activities 1,228
510
Cash Flows from Investing
Activities:
Purchases of Securities (5,313) (26,066)
Held to Maturity (4,347)
(11,523)
Proceeds from Maturity and
Principal Paydowns 9,272 2,750
of Securities held to
maturity
4,206 1,250
Proceeds from Call of 0 15,788
Securities Held to Maturity
0 7,101
Purchases of Securities (6,807) (15,215)
Available for Sale (5,308)
(7,980)
Proceeds from Maturity and
Principal paydowns
of available for sale 26 1,471Paydowns 49 1,493
of available for sale
Proceeds from sale and
calls of securities 0 3,500
available for sale 0 3,500
Net decrease (increase) in 1,950 28
other securities (587) 28
Net Loans Made to (16,367) (22,601)
Customers (4,336) (7,094)
Capital Expenditures (2,537) (41)(3,811) (160)
Proceeds from Sale of 39 80
Other Real Estate Owned
Proceeds from Sale of 59 6
Premises and Equipment 47 0
Net Cash Used in Investing (24,841) (40,457)
Activities (12,836)
(13,288)
Cash Flows from Financing
ActivitiesActivities: (12,708) 8,420
Net Change in Savings, NOW
and Demand Deposits
(9,526) (6,769)
Net Change in Time 2,958 (4,396)
Deposits (1,614) (1,417)
Net Change in securities
sold under (2,465) (1,165)
Repurchase Agreements 6,942 (1,666)
Purchase of Advances from 86,000 60,000
FHLB 40,000 25,000
Repayment of Advances from (71,500) (22,000)
FHLB (35,000) (3,500)
Net Change in Short Term 23,064 (162)
Other Borrowed Funds 9,785 (2,955)
Proceeds from Sale of (1,086) 0
Capital Stock (574)
0
Payment of Dividends (646)
(585)(1,291) (1,171)
Net Cash Provided by 22,972 39,526
Financing Activities
9,367 8,108
Net Increase (Decrease) in Cash (2,241)
(4,670)
and Cash 887 743
Equivalents
Cash and Cash Equivalents at 12,852 11,511
Beginning of Year 12,852 11,511
Cash and Cash Equivalents at $13,739 $12,254
End of Quarter $10,611 $6,841
Supplemental Disclosures of
Cash Flow Information:
Cash Paid during the Year $8,582 $3,186
for:
Interest $4,073 $3,186
Non-Cash Transactions:
Transfers from Loans to $92 $49
Other Real Estate Owned $4 $49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of interim financial statements.statement
adjustments.
The accompanying unaudited statements reflect all
adjustments (all of which are normal and recurring in
nature), which are, in the opinion of management,
necessary to present a fair statement of the results
for the interim periods presented. The financial
statements should be read in conjunction with the
Consolidated Financial Statements and related Notes
included in the Bank's 1999 Annual Report.
Statement of Financial Accounting Standards (SAS)(SFAS)
No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 137 isand
SFAS No. 138, ("Accounting for Certain Derivative
Instruments and Certain Hedging Activities,") are
effective for years beginning after June 15, 2000.
This
statement setsThese statements set accounting and reporting standards
for derivative instruments and hedging activities. It
requires thatThey
require an entity recognize all derivativederivatives as either
assets or liabilities in the balance sheet and measure
those instruments at fair value. The Bank doesThese statements are
expected to have no impact on the Company, as it has
not holdengaged in any derivative instruments. Should the Bank
enter into derivative transactions, SFAS No. 133 will
be followed.transactions.
2. Line of Business Reporting
The Company manages and operates two major lines of
business: Community Banking and Financial Services.
Community Banking includes lending and depositdeposit-
gathering activities and related services to businesses
and consumers. Financial Services consists of
broker/deal operations, trust services, and portfolio
management. The business lines are identified by the
entities through which the product or service is
delivered.
The reported line of business results reflect the
underlying core operating performance within the
business units. Other is comprised of intercompany
eliminations. Information is not presented for prior
periods as the Financial Services segment was not
formed until January 2000 and it is impractical to
restate corresponding information for the prior
year.periods. Substantially all of the Company's assets are
part of the community banking line of business.
Selected segment information is included in the
following table.
ThreeSix Months Ended Community Financial
Consolidated
March 31,Financia Other Consolid
June 30, 2000 Banking l ated
Services Other Totals
Net Interest Income $4,501 $2$8,979 $ 9 $ 0 $4,503$ 8,988
Income
Provision for 326 0 0 326
loan losses
Net interest
income after 8,653 9 0 8,662
provision
Other income 3,186 1,582 (1,960) 2,808
Other expense 6,305 1,865 65 8,105
Earnings (loss)
before income 5,534 (274) (1,895) 3,365
taxes
Income taxes 1,840 (93) (625) 1,122
Net earnings $3,694 $ (181) $ (1,270) $ 2,243
(loss)
Three Months Community Financial Other Consoli
Ended June Banking Services dated
30,2000 Totals
Net Interest $ 4,478 $ 7 $ 0 $ 4,485
Income
Provision for
loan losses 163 0 0 163
Net interest
income after provision for loan losses 4,338 24,315 7 0 4,3404,322
provision
Other income 2,513 796 (1,960)
1,349673 786 1,459
Other expense 2,915 886 (33)
3,768
Earnings(loss)3,390 979 (32) 4,337
Earnings (loss)
before income tax 3,396 (88)
(1,927) 1,9211,598 (186) 32 1,444
taxes
Income tax (benefit) 1,302 (30)
(637) 635taxes 538 (63) 12 487
Net earnings (loss) $2,634$1,060 $ (58) $(1,290)
$1,286(123) $ 20 $ 957
(loss)
RATE VOLUME ANALYSIS
The following table represents a summary of the changes
in interest earned and interest paid as a result of
changes in rates and changes in volumes.
For each category of earning assets and interest
bearing liabilities, information is provided with
respect to changes attributable to change in rate
(change in rate multiplied by old volume) and change in
volume (change in volume multiplied by old rate). The
change in interest due to both volume and rate has been
allocated to volume and rate changes in proportion to
the relationships of the absolute collar amounts of the
change in each.
YEAR-TO-DATE FIGURES AS OF MARCH 31,JUNE 30, 2000
COMPARED TO MARCH 31,JUNE 30, 1999
(in thousands, except number of shares and per share
data)
INCREASES (DECREASES) DUE TO:
VOLUME RATE NET
Loans $648 ($90) $558$1,238 $62 $1,300
Taxable Securities 524 86 610961 115 1,076
Tax Exempt Securities (26) 4
(22)(64) 0 (64)
Federal Funds Sold and (20) 11(21) 12 (9)
Money Market Funds
TOTAL EARNING ASSETS $1,126 $11 $1,1372,114 189 2,303
Deposits 128 (37) 91172 52 224
Borrowings 635 117 7521,386 363 1,749
Total Interest Bearing Liabilities $763 $ 80 $843
NET CHANGE IN INTEREST $363 ($69)
$294
YEAR-TO-DATE FIGURES AS OF MARCH 31, 1999
COMPARED TO MARCH 31, 1998
(in thousands, except number of shares and per share
data)
INCREASES (DECREASES) DUE TO:
VOLUM RATE NET
E
Loans $364 ($282) $82
Taxable Securities 556 (126) 430
Tax Exempt Securities (31) (10) (41)
Federal Funds Sold and 10 (2) 8
Money Market Funds
TOTAL EARNING ASSETS $899 ($420) $479
Deposits 80 (174) (94)
Borrowings 501 (41) 460
Total Interest Bearing $581 ($215) $3661,558 415 1,973
Liabilities
NET CHANGE IN INTEREST $318$556 ($205) $113226) $330
MANAGEMENT'S DISCUSSION AND
ANALYSIS
The following is the review of the results of
operationsBar Harbor
Bankshares (the Company) and its subsidiaries for the
threesix months ended MarchJune 30, 2000.
REVIEW OF FINANCIAL CONDITION AT JUNE 30, 2000 AND
DECEMBER 31, 1999
Total assets for the Company of $483 million at
June 30, 2000 as compared to Marchhas grown by $26 million since December
31, 1999. Earnings of $1,286,000$2,243,000 were achieved for the
first threesix months of 2000, and are $29,000$601,000 below the
earnings for the same period in 1999. Two projects,
the formation of BTI Financial Group and its three
subsidiary companies and the conversion of the banking
software for the Bank,Bar Harbor Banking and Trust Company (the
Bank), were the primary focus of Bar Harbor Bankshares (the
Company)the Company over the
past twelve months. The impact of these projects on
the Company's earnings is discussed below.
BTI Financial Group (BTI), a wholly-ownedwholly owned
financial services subsidiary of Bar Harbor Bankshares,
was formed in the fall of 1999. BTI Financial Group's
subsidiaries, Dirigo Investments, Inc.,
a NASD registered broker- dealer, was acquired in
January of 2000. The transaction was accounted for by
the purchase method of accounting. The purchase price
was not material to the consolidated financial
statements. Additionally, Bar Harbor
Trust Services and Block Capital Management a registered investment
advisor, were formed outstarted
operating in January of Bar Harbor Banking and
Trust Company's Trust Department. These three
companies serve as wholly-owned operating subsidiaries
of BTI Financial Group.2000. As a result of the
formation of BTI, Financial Group, the Company has implemented segment
reporting as required by Statement of Accounting
Standard (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The formation
of these three companies will position BTI Financial Group to more
fully participate in various segments of the financial
services industry with the potential for significant
growth. During the first quarterlatter part of 2000, a business development and
marketing person has been added to the BTI team,
enhancing BTI's visibility throughout the market areas.
During the second quarterJune of 2000, a
branch office of Dirigo Investments, Inc. will openwas
established in the Bangor area including an office
manager and a broker, expanding the potential market
area.
The statementtotal asset growth of financial condition has grown by
2%$26 million from
December 31, 1999 to March 31, 2000. LoanJune 30, 2000 has come primarily
from loan growth of $4$16 million, investment growth of
$6,000$5 million and premise growth of $2.2 million, with an offsetting
reductionincreases in the Company's cash of $2.2 million made up
the changes. Premises and equipment growth during the
first quarter of 2000 included the purchase of the
future headquarters of BTI Financial Group in
Ellsworth, Maine. Renovations approximating $850,000
are budgeted during 2000 for completion of this projectpremises owned by the
fall of 2000. The bank experiences a small
seasonal swingCompany totaling $3 million. Loan growth has come from
approximately $8 million in its deposit base and between December
31, 1999 and March 31, 2000 deposits declined by $11
million. Increased advancesconsumer real estate loans,
$1.1 million from the Federal Home Loan
Bank and wholesale repurchase agreements funded the
growth incommercial real estate loans and investments, as well as the decline
in deposits.$3.8
million from other commercial loans. The balance
between consumer and commercial loans remains similar
to the last several years' relationship with consumer
loans approximating 56% of the portfolio.
While local competition remains strong, Bar Harbor
Banking and Trust Company's strength liesThe Bank's reserve for possible loan losses as of
June 30, 2000 is 1.5% of total loans compared to 1.64%
at December 31, 1999. The reduction in the relationships built withreserve
ratio is attributed to management's analysis of the
loss exposure inherent in the loan portfolio.
Management reviews the allocation to the reserve on a
quarterly basis and funds the reserve as deemed
necessary. This review includes a provision for
specific accounts and impaired loans, provisions due to
historic loan loss experience by loan type and reserves
reflecting industry and credit concentrations, current
local and national economic conditions, and
underwriting standards. During the first six months of
2000, net charge offs totaled $475,000 compared to
$80,000 during the first six months of 1999. The
increase in the six months comparison is due to
relatively large charge offs taken late in 1999 and
early in 2000. At this time, management is not
anticipating any major charge offs for the remainder of
2000. The amounts represented below are the total
dollars past due as of June 30, 2000 and December 31,
1999.
Non-accruing 2,906 2,016
$6,166 $2,725
Gross Loans $276,990 $261,188
Percentage of Gross 2.23% 1.04%
Loans
Premises and equipment growth included the
purchase of the future headquarters of BTI in
Ellsworth, Maine and properties adjacent to the
Ellsworth branch office of the Bank and in front of the
future headquarters of BTI. New projections for the
renovations of the BTI headquarters indicate costs
approximating $2,000,000. Completion of this project
is expected by the summer of 2001.
The bank experiences a seasonal swing in its
customersdeposit base and between December 31, 1999 and June 30,
2000 deposits declined by $9.8 million or 3.5%.
Increased advances from the Federal Home Loan Bank
funded the growth in loans and investments, as well as
the decline in deposits.
RESULTS OF OPERATIONS FOR THE PERIODS ENDING JUNE 30,
2000 AND 1999
Rates, volumes and the ability
to offer prompt service in response to their needs.
Unrealized lossesmix of earning assets and
interest bearing liabilities affect interest income.
Comparing the first six months of 2000 with the same
period for 1999, net interest income increased by
$330,000. While there has been considerable growth in
the Availableearning assets of the Bank, competition for Sale
portfolio as represented onloans
requires narrowing margins, and the Bank'sincreased income
from investments yields less than loan income. Funding
costs have increased more rapidly than the asset
yields. While the Bank has added fixed rate and,
traditionally, longer term assets to its statement of
financial condition, decreasedit has funded those assets with
shorter-term (one year or less) liabilities.
Interest earned on loans for the first six months
of 2000 when compared to the first six months of 1999
increased by $20,000 overmore than $1.2 million due to increases in
volumes and by $62,000 due to increases in interest
rates charged on portions of the past
three months, endingloan portfolio. Since
December 31, 1999, the loan portfolio yield has
increased by 8 basis points. Interest on loans for the
quarter ended June 30, 2000 was $742,000 or 13.9% more
than for the quarter ended June 30, 1999 and is
attributable to increased volumes in the loan
portfolio.
Interest derived from growth in the investment
portfolio was $876,000 more during the six months ended
June 30, 2000 as compared to June 30, 1999 while
increases in interest rates created an additional
$127,000 in income. The entire portfolio earned 6.72%
as of June 30, 2000, which is 21 basis points higher
than a year ago and 12 basis points higher than the
overall yield at $995,000.December 31, 1999. Interest on
investments for the quarter ended June 30, 2000 was
$425,000 more than for the quarter ended June 30, 1999
and is attributable primarily to increased volumes in
the investment portfolio.
Interest expense for the six months ended June 30,
2000 increased by approximately $2.0 million compared
to the same period in 1999. Interest expense increased
by $1.6 million based on increased volume and by
$415,000 based on interest rates. The overall cost of
interest bearing liabilities went up 38 basis points
between June 30, 2000 and June 30, 1999. The cost of
these liabilities has increased by 23 basis points
since December 31, 1999 and has enhanced the margin
squeeze. The overall cost of interest bearing
liabilities for the quarter ended June 30, 2000 was
$1.1 million more than for the quarter ended June 30,
1999 and represents the cost of the increased volumes
in advances through the Federal Home Loan Bank as well
as increases in the rates charges on those advances.
NON-INTEREST INCOME
Non-interest income for the six months ended June
30, 2000 totaled $2.8 million and was $396,000 more
than the first six months in 1999. BTI Financial
Group's gross income of $1.6 million surpassed the
Trust Department's income for the six months ended June
30, 1999 by $246,000. Additionally, service charges on
the bank's deposit accounts exceeded the first six
months of last year by $190,000, and represents
increased charges implemented in the third quarter of
1999. When comparing non-interest income for the
quarter ending June 30, 2000, BTI's revenue is $159,000
greater than the income generated by the Bank's posture traditionallyTrust
Department for the same period in 1999. Also, for the
same comparison periods, service charges on deposit
accounts have contributed $116,000 more for the
quarter ended June 30, 2000.
NON-INTEREST EXPENSE
Non-interest expenses for the six months ended
June 30, 2000 totaled $8.1 million and exceeded the
first six months of 1999's non-interest expenses by
$1.8 million. Salaries and benefits make up $1.1
million of the increase over 1999. The formation of
BTI Financial Group, and the subsequent purchase of
Dirigo Investments, Inc., contribute to the increase in
salary and benefits as positions have been added as the
three subsidiary companies have been formed. BTI's
salaries and benefits totaling $781,000 exceed the
Bank's Trust Department salaries and benefits for the
six months ended June 30, 1999 by $347,600. The Bank
has added a senior credit administrator and has
recruited a seasoned and knowledgeable collector to
build up the credit administration efforts for the
Bank. These additions have increased salary and
benefit costs for the Bank.
Additionally, the focus on the banking software
conversion to Information Technology, Inc. (ITI) took
priority in human resources' commitment, including
additional temporary staffing and overtime. The ITI
conversion was successfully completed in April 2000,
although commitments of time for clean up and
completion of maintenance issues continued into the
second quarter of 2000.
Increases in salary and benefit costs for the
quarter ended June 30, 2000 exceeded the costs for the
same period in 1999 by $724,000. As mentioned
earlier, the start up of a Bangor location for BTI
subsidiary, Dirigo Investments, Inc., transpired during
the second quarter of 2000, increasing salary and
benefit costs. In total, BTI's salary costs have been
approximately $200,000 more for the quarter ended June
30, 2000 when compared to the Bank's Trust Department
salary costs for the quarter ended June 30, 1999.
Additional staffing in the credit administration area
and completion of training and clean up from the
banking software conversion increased salary expenses
for the quarter ended June 30, 2000.
Other expenses, exclusive of salaries and benefits
are $698,000 more in the six months ended June 30, 2000
as compared to the same period for 1999. Start up
costs incurred during the first quarter of 2000 for BTI
Financial Group represent a portion of this increase.
BTI's expenses for the first six months of 2000,
exclusive of salary and benefit costs and including the
start up costs and including $36,500 in amortization,
total $1 million. This amount exceeds the Bank's Trust
Department expenses for the first six months of 1999 by
$588,000. Other expenses for the quarter ended June
30, 2000 were $513,000 more than for the comparable
period in 1999. Of that variance, BTI expenses were
$293,700 more than those for the Bank's Trust
Department for the quarters ended June 30, 2000 and
1999.
Sale of equipment used for item capture in
conjunction with the previous banking solution was
completed during the second quarter of 2000. This
combined with the replacement of personal computers
created losses to the Bank of approximately $95,000,
most of which was booked during the second quarter of
2000.
The Company has not incurred any additional costs
or any losses due to the Year 2000 rollover. All
internal and third party provided software has been
performing satisfactorily since January 1, 2000. The
Company continues to purchase
securities with the intent to hold them to maturity.
Management has no specific plans to sell these
securities, and accordingly does not presently expect
significant losses will be realized.
The Bank does not holdmonitor all systems for any
securities (such as
structured debt tied to multiple indices, interest only
or principal only securities) that may experience
considerable change in their market values by a greater
degree than traditional debt instruments.potential Year 2000 issues.
Liquidity is measured by the Bank's ability to
meet cash needs at a reasonable cost or minimum loss to
the Bank. Liquidity management involves the ability to
meet cash flow requirements of its customers, which may
come from depositors withdrawing funds or borrowers
requiring funds to meet credit needs. Without adequate
liquidity management, the Bank would not be able to
meet the needs of the individuals and communities it
serves. The Bank utilizes a Basic Surplus/Deficit
model to measure its liquidity over a 30-day and a 9090-
day time horizon. The relationship between liquid
assets and short-term liabilities that are vulnerable
to non-replacement within a 30-day period are examined.
The Bank's policy is to maintain its liquidity position
at a minimum of 5% of total assets. The Bank has
maintained liquidity in its balance sheet in excess of
10% for the past twelve months. Liquidity as measured
by the Basic Surplus/Deficit model was 11.5%17.8% as of March 31,June
30, 2000 for the 30-day horizon and 10.1%20.1% for the 90-day90-
day horizon.
Rates, volumes and the mix of earning assets and
interest bearing liabilities affect interest income.
For the first three months of 2000, net interest income
increased by $295,000, while the increase between 1999
and 1998 was $113,000. The increase was a factor of
the growth in the statement of financial condition,
although competition for loans requires narrowing
margins, and the increased income from investments
yields less than loan income. Funding costs have
increased more rapidly than the asset yields. While
the Bank has added fixed rate and, traditionally,
longer term assets to its statement of financial
condition, it has funded those assets with shorter term
liabilities.
Interest earned on loans increased by more than
$648,000 due to increases in loan volumes but was
reduced by $90,000 due to decreases in interest rates
charged on portions of the loan portfolio. Overall,
the loan portfolio yield dropped by 21 basis points,
although national interest rates were increasing. This
is a factor of adding fixed rate mortgages to the
portfolio and timing on the repricing of variable
loans. The drop in yield during the past twelve months
compares with a drop of 64 basis points between 1998
and 1999.
Interest on investments increased due to $30
million increase in volumes. This increase in volume
brought in an additional $478,000 in interest earned,
plus changes in interest rates increased interest
earned by $101,000. The entire portfolio earned 6.56%
as of March 31, 2000, which is 13 basis points higher
than it was a year ago. The investment yields for 1999
were 40 basis points lower than 1998.
Interest bearing liabilities increased by
approximately $62 million during the past twelve months
and interest expense for the three months ended March
31, 2000 increased by $843,000 compared to the same
period in 1999. Interest expense increased by $763,000
based on increased volume and by $80,000 based on
interest rates. The overall cost of interest bearing
liabilities went up 31 basis points between the
quarters ended March 31, 2000 and March 31, 1999, and
combined with the drop in the yields on the assets has
enhanced the margin squeeze. As a comparison, 1999's
overall interest bearing liability costs were 13 basis
points lower than for the comparable period in 1998.
The Bank's position with regard to interest rate
sensitivity consists of the matching of its assets and
liabilities for repricing within a year. The exposure
is to rising rates out beyond a year as the Bank has
almost $36$39 million invested in callable securities with
final maturities of ten years or less funded by short-
term liabilities. The exposure lies with the
possibility that these securities would not be called.
The gap analysis in today's interest rate environment
shows the Bank with approximately $48$112 million more
liabilities than assets that would be repriceable
within twelve months. Assuming rates were to drop by
200 basis points and utilizing a steepening yield curve
shift in rates, simulations based on a static balance
sheet indicate that the Bank's net interest income
could rise by approximately $780,000$812,000 during the first
year of the drop, while increasing its income in the
second year by $1,557,000.$1.5 million. If rates were to rise by
200 basis points, interest income would remain flatcould decrease by
$57,000 in the first year, butand decrease by $146,000
during the second year would
decrease by $91,000.
The Bank's reserve for possible loan losses as of
March 31, 2000 is 1.57% of total loans compared to
1.64% at December 31, 1999. The reduction in the
reserve ratio is attributed to improvement in both loan
quality and actual loan loss experience. Management
reviews the allocation to the reserve on a quarterly
basis and funds the reserve as deemed necessary. This
review includes a provision for specific accounts and
impaired loans, provisions due to historic loan loss
experience by loan type and reserves reflecting
industry and credit concentrations, current local and
national economic conditions, and underwriting
standards. First quarter 2000 net charge offs totaled
$280,000 compared to $85,000 during the first quarter
of 1999. First quarter charge offs as of March 31,
2000 included one large charge off. With loan
delinquencies of 90 days past due or more at less than
1% of total loans and building the credit
administration team within the Bank, net charge offs
are expected to approximate $600,000 by year-end. The
amounts represented below are the total dollars past
due for the first three months of each year listed.
Category 2000 1999 1998
90-days past due
and still accruing $ 339 $1,579 $1,103
Non-Accruing 2,081 1,664 3,439
$2,420 $3,243 $4,542
Gross Loans $265,241 $236,307 $216,114
Percentage of gross loans 0.91% 1.37%
2.10%
Non-interest income for the quarter ended March
31, 2000 totaled $1.3 million and was $163,000 more
than the first quarter in 1999. BTI Financial Group's
gross income of $770,400 surpassed the Trust
Department's income for the quarter ended March 31,
1999 by $87,000. Additionally, service charges on the
bank's deposit accounts exceeded last year's first
quarter income by $81,800, and represents increased
charges implemented in the third quarter of 1999. In
1999, other income was $60,000 ahead of 1998's first
quarter income. No single major category in other
income experienced substantial growth from 1998 to
1999.
Non-interest expenses for the first quarter
totaled $3.8 million and exceeded first quarter 1999's
non-interest expenses by $600,000. Salaries and
benefits make up $417,000 of the increase over 1999.
The formation of BTI Financial Group, and the
subsequent purchase of Dirigo Investments, Inc.,
contribute to the increase in salary and benefits as
positions have been added as the three subsidiary
companies have been formed.
Additionally, the focus on the banking software
conversion to Information Technology, Inc. (ITI) took
priority in human resources' commitment, including
additional temporary staffing and overtime. The ITI
conversion was successfully completed in April 2000,
and while commitments of time for clean up and
completion of maintenance issues will continue, the
majority of the additional time for conversion and
training is now behind the Bank. Direct non-recurring
conversion expenses for training, consultants and sale
of equipment were projected in excess of $300,000, but
are expected to finalize much lower than that amount.
Sale of equipment used for item capture in conjunction
with the previous banking solution, transpired early in
the second quarter with minimal loss to the Bank.
Additional costs will be recognized in the second
quarter of 2000.
Other expenses, exclusive of salaries and benefits
are approximately $132,000 more in the first quarter of
2000 as compared to 1999. Start up costs incurred
during the first quarter of 2000 for BTI Financial
Group, totaling approximately $70,000, represent a
portion of this increase. Additionally, the accrual
for a possible loss from a VISA merchant totaling
$53,000 is included in other expenses for the quarter
ended March 31, 2000.
The Company has not incurred any additional costs
or any losses due to the Year 2000 rollover. All
internal and third party provided software has been
performing satisfactorily since January 1, 2000. The
Company continues to monitor all systems for any
potential Year 2000 issues.year.
The Company's capital to asset ratio is 10.5%10.2% at
June 30, 2000, and the Bank far exceeds the required risk
based capital ratio of 8% with its Tier 1 ratio of
14.3%12.7% and total capital ratio of 15.6%13.9% or additional
capital of $23$18.6 million. These ratios compare to
MarchDecember 31, 1999 when the capital to average asset
ratio was 11.8%10.8%, Tier 1 and total capital ratios
compared to risk weighted assets were 19.0%17.8% and 20.4%19.1%
respectively.
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
BAR HARBOR
BANKSHARES
/s/ Dean S. Read
Date: May 15,August 11, 2000 Dean S. Read
Chief Executive
Officer
/s/ Virginia M.
Vendrell
Date: May 15, 2000 Virginia M. Vendrell
Treasurer and
Chief Financial
Officer