1416
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 JuneSeptember 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 JuneSeptember
30, 2000:
Common Stock: 3,354,814
3,339,614
TABLE OF CONTENTS
Financial InformationPART I FINANCIAL INFORMATION Page No.
Item 1. Independent Accountants' Report 3
Item 2. Financial Statements
Consolidated Statements of
Financial Condition 5at 4
September 30, 2000 and
December 31, 1999
and June 30, 2000
Consolidated Statements of
EarningsIncome for the Three and
Nine Months ended 5
Three monthsSeptember 30, 2000 and
Six Months, JuneSeptember 30, 1999 and 2000
Consolidated Statements of
Changes in 6
Stockholders' Equity Sixfor the
Nine months ended June6
September 30, 2000 and
September 30, 1999
and 2000
Consolidated StatementStatements of
Cash Flows 7
SixFlow for the
Nine months ended June7
September 30, 19992000 and
2000September 30, 1999
Item 3. Notes to Consolidated Financial Statements 8-9
Statements
Item 4. Rate Volume Analysis 10
Item 5. Management's Discussion and
11-15
Analysis of Financial 11-15
Condition and Results of
Operations
PART II FINANCIAL INFORMATION Page No.
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of 16
Proceeds
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote 16
of Security Holders
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 1617
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 JuneSeptember 30, 2000, and for the
three- and six-monthnine-month periods then ended. These
financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with 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
August 11,November 9, 2000
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTSOFSTATEMENTS OF FINANCIAL CONDITION
JUNESEPTEMBER 30, 2000 and DECEMBER 31, 1999
(in(dollars in thousands, except number of shares and per share data)
June DecembeSeptemb December
er 30, r 31, 1999
2000 1999
(Unaudi
ted)
ASSETS
Cash and Due from Banks $13,739$10,984 $12,852
Securities Available for 38,659Sale 39,402 31,690
Sale
Securities Held to Maturity (Market Value
$120,636 at 6/30/00; 124,812118,226 128,831
$125,416 at 12/31/99)
Other Securities 8,068 6,118
Loans, net of allowance for
possible loan
losses of $4,144$4,000 at 272,8469/30/00; 272,526 256,896
6/30/00;
and $4,293
as of 12/31/99)
Premises and Equipment 11,46111,509 8,440
Other Assets 13,58112,580 11,982
Total Assets $483,17 $456,80
0 9TOTAL ASSETS $473,29 $456,809
5
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES
Deposits
Demand Deposits $39,695$51,164 $41,904
Now Accounts 40,72545,668 45,107
Savings Deposits 72,39479,452 78,511
Time Deposits 119,144114,733 116,186
Total Deposits 271,958291,017 281,708
Securities sold under
Repurchase 6,3429,377 8,807
Agreements
Advances from Federal Home 150,600Loan 118,377 113,035
Loan
Bank
Other Liabilities 5,1294,798 4,114
Total Liabilities 434,029TOTAL LIABILITIES 423,569 407,664
STOCKHOLDERS' EQUITY
Capital Stock, par value $2
Authorized 10,000,000 7,287 7,287
shares
Issued 3,643,614 shares 7,287 7,287
Surplus 4,002 4,002
Retained Earnings 41,56342,073 40,611
Net unrealizedUnrealized depreciation on
securities (885) (1,015)
available for sale, net of tax (579) (1,015)
of ($298) and
($523) in 2000 and 1999
respectively
Less: Cost of Treasury Stock
288,800304,000 shares in 2000 and
222,100 shares (2,826)(3,057) (1,740)
in 1999
TOTAL STOCKHOLDERS' EQUITY 49,14149,726 49,145
TOTAL LIABILITIES AND $483,17 $456,80$473,29 $456,809
STOCKHOLDERS' EQUITY 0 95
The accompanying notes are an integral part of these
consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(inINCOME
(dollars in thousands, except number of shares and per share data)
(UNAUDITED)
Three months ended SixNine months
ended 6/30/00 6/30/99 6/30/00 6/30/
99
Interest and
Dividend Income:ended
September 30 September 30
2000 1999 2000 1999
Interest &and Dividend
Income:
Interest and Fees $6,082 $5,340 $11,782 $10,4 on Loans 826,086 5,631 17,86 16,1
8 14
Interest and Dividends on
Investment 2,686 2,235 5,337 4,282
Securities:
Taxable Interest Income 2,629 2,445 7,966 6,72
6
Non-taxable 40 81 100 16445 78 145 242
Interest Income
Dividends 129 113 247 226185 116 432 341
Federal Funds 4 5 19 2817 18 36 46
Sold
Total Interest & 8,941 7,774 17,485 15,18
Dividend 8,962 8,288 26,447 23,4
Income 269
Interest on 2,157 2,024 4,297 4,073
Deposits 2,329 2,077 6,626 6,15
0
Interest on 2,299 1,301 4,200 2,451
Borrowings 2,220 1,438 6,420 3,88
8
Total Interest 4,456 3,325 8,497 6,524
Expense 4,549 3,515 13,046 10,0
38
Net Interest 4,485 4,449 8,988 8,658
Income Provision for 163 269 326 537
Loan Losses
Net Interest 8,121
Income after 4,322 4,180 8,6624,413 4,773 13,401 13,4
31
Provision for Loan Losses 163 119 489 656
Net Interest Income after
Provision for Loan
Losses 4,250 4,654 12,912 12,7
75
Other Income 1,459 1,226 2,808 2,4122,119 1,804 4,927 4,21
6
Other Expenses:
3,042
Salaries & 2,226 1,502 4,183
Employee 2,049 1,786 6,232 4,82
Benefits 7
Other 2,111 1,598 3,922 3,2242,577 2,069 6,499 5,29
3
Earnings Before 1,444 2,306 3,365 4,267
Income 1,743 2,603 5,108 6,87
Taxes 1
Income Tax 487 779 1,122 1,423598 865 1,720 2,28
8
Net Earnings $ 957 $1,527 $2,243 $2,84
4
PER COMMON SHARE
DATA $0.28 $0.44 $0.66 $0.83$1,145 $1,73 $3,388 $4,5
8 83
Net earnings per share $0.34 $0.50 $1.00 $1.3
Weighted 3,389,398 3,443,61 3,389,3 3,443
average 3
number of 4 98 ,614 common
Shares outstanding 3,346, 3,443 3,375,
614 ,614 264 3,44
3,61
4
Dividends Per Share $0.19 $0.17 $0.38 $0.34
Share$0.19 $0.57 $0.5
3
The accompanying notes are an integral part of these
consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
FOR THE THREENINE MONTHS ENDED JUNESEPTEMBER 30, 2000 and 1999
(in(dollars in thousands, except number of shares and per share data)
(UNAUDITED)
NET
UNREALIZ
ED
(DEPRECI TOTAL
CAPITA RETAINE ATION)UNREALIZED NET
RETAINED (DEPRECIATI TREASURY STOCKHOLD
L SUIRPL D APPRECIASTOCKHOLDERS
CAPITAL SURPLUS EARNINGS ON) STOCK ERS''
STOCK US EARNING TIONAPPRECIATIO EQUITY
N ON
EQUITY
S SECURITI
ES
AVAILABL
ESECURITIES
AVAILABLE
FOR SALE
Balance, December 31, $7,287 $4,002 $36,861$36,862 $50 ($1,340) $46,860$46,861
31, 1998
Net Earnings 2,844 $2,8444,583 4,583
Net unrealized
depreciation on
Securities
available for (647) ($647)
sale, (301) ($301) Net of tax
benefit of $155$333
Total 4,583 (647) 3,936
comprehensive 2,844 (301) 2,543
income
Cash dividends
declaredDividends
Declared ($0.34.53 (1,825) (1,825)
per (1,171) ($1,171) share)
Balance, JuneSeptember $7,287 $4,002 $39,620 ($597) ($1,340) $48,972
30, 1999
$7,287 $4,002 $38,534 ($251) ($1,340) $48,232
Balance, December 31, $7,287 $4,002 $40,611 ($1,015)($1,740) $49,145
31, 1999
Net Earnings 2,243 $2,2433,388 3,388
Net unrealized
appreciation on
Securities
130 $130
available for 436 436
sale,
Netnet of tax of
$67$225
Total
comprehensive
2,243 130 0 2,373income
Comprehensive
income
Cash dividends
declaredDividends 3,388 436 0 $3,824
Declared ($0.190.57 (1,926)
per (1,291) ($1,291) share)
Purchase of (1,926) (1,317) (1,317)
Treasury Stock
- (1,086) ($1,086)
66,70081,900 shares
Balance, JuneSeptember $7,287 $4,002 $42,073 $(579) ($3,057) $49,726
30, 2000 $7,287 $4,002 $41,563 ($885) ($2,826) $49,141
The accompanying notes are an integral part of these
consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
COLSOLIDATED STATEMENT OF CASH FLOWS
(inFLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(dollars in thousands)
(UNAUDITED)
JUNE 30, JUNE 30,
2000 1999
Cash Flows from Operating Activities:
$2,243 2,844
Net Income $3,388 $4,58
3
Adjustments to reconcile net
earnings to net
cash provided by operating 616 491985 733
activities:
Depreciation
Provision for Loss 326 537Loan Losses 489 656
Gain on Other Real Estate (7) 0
Estate(1)
Owned
New Loans Originated (451) (7,120)
for Sale (912) (7,79
6)
Proceeds from Sale of 452 8,092913 9,042
Mortgages Held for Sale
Gain (Loss) on sale of 51 (60)(85)
Mortgages Originated for Sale
Net Amortization of 46 132
Bond 82 154
Premium
Loss on saleSale of 111 25
premisesPremises and equipment94 62
Equipment
Net Change in Other (1,658) (2,972)
Assets (815) (2,02
5)
Net Change in Other 1,015 (295)684 96
Liabilities
Net Cash Provided by 2,744 1,674
Operating 4,952 5,419
Activities
Cash Flows from Investing Activities:
Purchases of Securities (5,313) (26,066)
Held to (5,313 (42,5
Maturity ) 18)
Proceeds from Maturity and Principal
Paydowns 9,272 2,75015,858 3,250
of Securities held to maturity
Proceeds from Call of Securities 0 15,788
Securities21,61
Held to Maturity 9
Purchases of Securities (6,807) (15,215)
Available (8,147 (19,9
for Sale ) 65)
Proceeds from Maturity and Principal
Paydowns 49 1,49374 1,517
of available for sale
Proceeds from sale and calls of
securities 01,000 3,500
available for sale
Net decrease (increase) in 1,950 28
other (1,950 25
securities )
Net Loans Made to (16,367) (22,601)
Customers (16,21 (31,8
1) 36)
Capital Expenditures (3,811) (160)(4,224 (932)
)
Proceeds from Sale of 39 80
Other Real 39 81
Estate Owned
Proceeds from Sale of 59 6
Premises and 76 7
Equipment
Net Cash Used in Investing (24,841) (40,457)(18,79 (65,2
Activities 8) 52)
Cash Flows from Financing Activities: (12,708) 8,420
Net Change in Savings, NOW and 10,762 30,21
Demand Deposits 6
Net Change in Time 2,958 (4,396)
Deposits (1,453 (4,08
) 1)
Net Change in securities sold under
(2,465) (1,165)
Repurchase Agreements 570 1,529
Purchase of Advances from 86,000 60,000
FHLB 115,00 66,00
0 0
Repayment of Advances from (71,500) (22,000)
FHLB (125,7 (35,0
22) 00)
Net Change in Short Term 23,064 (162)
Other 16,064 6,128
Borrowed Funds
Proceeds from SalePurchase of (1,086)Treasury Stock (1,317 0
Capital Stock)
Payment of Dividends (1,291) (1,171)(1,926 (1,82
) 4)
Net Cash Provided by 22,972 39,526
Financing 11,978 62,96
Activities 8
Net Increase (Decrease) in Cash and (1,868 3,135
Cash 887 743
Equivalents )
Cash and Cash Equivalents at Beginning 12,852 11,511
Beginning11,51
of Year 1
Cash and Cash Equivalents at $13,739 $12,254
End of $10,98 $14,6
Quarter 4 46
Supplemental Disclosures of Cash Flow
Information: $13,16 $10,0
Cash Paid during the Year $8,582 $3,186
for:for Interest Non-Cash Transactions:6 64
Transfers from Loans to $92 $49
Other Real $92 $82
Estate Owned
Income tax paid $1,500 $2,10
1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SummaryBasis of interim financial statement
adjustments.Presentation.
The accompanying unaudited consolidated financial
statements reflecthave been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all adjustments (all of which are normalthe information and
recurring in
nature), which are, infootnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary to presentfor a
fair statementpresentation have been included. All significant
intercompany transactions and balances are eliminated
in consolidation. The income reported for the 2000
period is not necessarily indicative of the results
that may be expected for the interim periods presented. Theyear ending December 31,
2000. For further information, refer to the
consolidated financial statements should be read in conjunction with the
Consolidated Financial Statements and related Notesfootnotes thereto
included in the Bank's 1999 Annual Report.Company's annual report on Form 10-K
for the year ended December 31, 1999.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to
significant change in the near term relate to the
determination of the allowance for loan losses and the
valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for
loan losses and the carrying value of real estate
owned, management obtains independent appraisals for
significant properties.
The allowance for possible loan losses is maintained at
a level adequate to absorb probable losses. Management
determines the adequacy of the allowance based upon
reviews of individual credits, recent loss experience,
current economic conditions, the risk characteristics
of the various categories of loans and other pertinent
factors. Credits deemed uncollectible are charged to
the allowance. Provisions for credit losses and
recoveries on loans previously charged off are added to
the allowance.
2. Effect of Recent Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and SFAS No.
138, ("Accounting"Accounting for Certain Derivative Instruments and
Certain Hedging Activities,") are effective for years
beginning after June 15, 2000. These statements set
accounting and reporting standards for derivative
instruments and hedging activities. They require an
entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those
instruments at fair value. These statements are
expected to have no impact on the Company, as it has
not engaged in any derivative transactions.
2.3. Line of Business Reporting
The Company manages and operates two major lines of
business: Community Banking and Financial Services.
Community Banking includes lending and deposit-
gathering activities and related services to businesses
and consumers. Financial Services consists of
broker/deal operations, trust services, and investment
portfolio management. The business lines are identified
by the entities through which the product or service is
delivered.
The reported linelines 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
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.
SixNine Months Ended Community Financia OtherCommun Financ Consolid
JuneSeptember 30, 2000 Banking lity ial Other ated
ServicesBankin Servic Totals
g es
Net Interest $8,979 $ 9 $ 0 $ 8,988
Income $13,38 $14 $0 $13,401
7
Provision for 326loan 489 0 0 326
loan489
losses
Net interest income
after 8,653 912,898 14 0 8,66212,912
provision
Other income 3,186 1,582 (1,960) 2,8084,523 2,364 (1,960 4,927
)
Other expense 6,305 1,865 65 8,10510,036 2,793 (98) 12,731
Earnings (loss)
before 7,385 (415) (1,862 5,108
income 5,534 (274) (1,895) 3,365
taxes )
Income taxes 1,840 (93) (625) 1,1222,472 (138) (614) 1,720
(benefit)
Net earnings $3,694 $ (181) $ (1,270) $ 2,243
(loss) $4,913 ($277) ($1,24 $3,388
8)
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 4,315 7 0 4,322
provision
Other income 673 786 1,459
Other expense 3,390 979 (32) 4,337
Earnings (loss)
before income 1,598 (186) 32 1,444
taxes
Income taxes 538 (63) 12 487
Net earnings $1,060 $ (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 JUNE 30, 2000
COMPARED TO JUNE 30, 1999
(in thousands, except number of shares and per share
data)
INCREASES (DECREASES) DUE TO:
VOLUME RATE NET
Loans $1,238 $62 $1,300$1,720 $34 1,754
Taxable Securities 961 115 1,0761,053 278 1,331
Tax Exempt Securities (64) 0 (64)(101) 4 (97)
Federal Funds Sold and (21) 12 (9)
Money (16) 6 (10)
Market Funds
TOTAL EARNING ASSETS 2,114 189 2,3032,656 322 2,978
Deposits 172 52 224205 271 476
Borrowings 1,386 363 1,7491,833 699 2,532
Total Interest Bearing 1,558 415 1,9732,038 970 3,008
Liabilities
NET
CHANGE IN NET INTEREST $556INCOME $618 ($226) $330648 ($30)
)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed in this Report on Form 10-Q
are forward-looking statements that are subject to
risks and uncertainties that could cause actual results
to differ materially from those projected. Such risks
and uncertainties include, but are not limited to,
those described in Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Changes to such risks and uncertainties, which could
impact future financial performance, include, among
other things, (1) competitive pressures in the banking
industry; (2) changes in the interest rate environment;
(3) general economic conditions, either nationally or
regionally; (4) changes in the regulatory environment;
(5) changes in business conditions and inflation; and
(6) changes in security markets. Therefore, the
information set forth therein should be carefully
considered when evaluating the business prospects of
the Company.
The following is the review of Bar Harbor Bankshares
(the Company) and its subsidiaries, Bar Harbor Banking
and Trust Company and BTI Financial Group, for the sixnine
months ended JuneSeptember 30, 2000.
REVIEW OF FINANCIAL CONDITION AT JUNESEPTEMBER 30, 2000 AND
DECEMBER 31, 1999
Total assets for the Company of $483$473 million at
JuneSeptember 30, 2000 has grownincreased by $26$17 million since
December 31, 1999. Earnings of $2,243,000$3,388,000 were
achieved for the first sixnine months of 2000, andbut are
$601,000$1,195,000 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 Bar Harbor
Banking and Trust Company (the Bank), and the non-bank
subsidiaries, were the primary focus of the Company
over the past twelve months.months and contributed to the
decrease in net income between periods. The impact of
these projects on the Company's earnings is discussed
below.
BTI Financial Group (BTI), a wholly owned financial
services subsidiary of Bar Harbor Bankshares, was
formed in the fall of 1999. BTI Financial Group's
subsidiaries, Dirigo Investments, Inc., Bar Harbor
Trust Services and Block Capital Management started
operatingbegan
operations in January of 2000. As a result of the
formation of BTI, 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 to more
fully participate in various segments of the financial
services industry with the potential for significant
growth. During the latter part of June of 2000, a
branch office of Dirigo Investments, Inc. was
established in the Bangor, Maine, area including an
office manager and a broker, expanding the potential
market area.
The total asset growth of $26$17 million from December 31,
1999 to JuneSeptember 30, 2000 has come primarilyalmost totally from
loan growth of $16 million, investment growth of
$5 million andmillion. Investments have remained
stable while increases in premises owned by the Company
totalingwere $3 million, while cash and due from banks
decreased $2 million. Loan growth has come principally
from approximately $8$9 million in consumer real estate loans, $1.1$2
million from commercial real estate loans and $3.8$4
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.
The Bank's reserve for possible loan losses as of
JuneSeptember 30, 2000 is 1.5%1.47% of total loans compared to
1.64% at December 31, 1999. The reduction in the
reserve ratio is attributed to management's continuing
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 sixnine months
of 2000, net charge offs totaled $475,000$782,000 compared to
$80,000$207,000 during the first sixnine 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 JuneSeptember 30, 2000 and December 31, 1999.
September December
Category 30, 2000 31, 1999
90-days past due
and $3,465 $ 709
still accruing
Non-accruing 2,9063,647 2,016
$6,166$7,112 $2,725
Gross Loans $276,990$276,526 $261,188
Percentage of Gross 2.23%2.57% 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 projectionsProjections for the
renovationsrenovation of the BTI
headquarters indicate costs
approximating $2,000,000.approximate $2.5 million. Completion of
this project is expected byin the summerspring of 2001.
The bank experiences a seasonal swingdecline in its deposit
base through late fall and betweenthe winter months. Between
December 31, 1999 and JuneSeptember 30, 2000 deposits
declinedincreased by $9.8$9.3 million or 3.5%3.3%. Increased advances
of $5.3 million from the Federal Home Loan Bank
fundedincreased primarily to fund the growth in loans and investments, as well as
the decline in deposits.loans.
RESULTS OF OPERATIONS FOR THE PERIODS ENDING
JUNESEPTEMBER 30, 2000 AND 1999
Rates, volumes and the mix of earning assets and
interest bearing liabilities affect interest income.
Comparing the first sixnine months of 2000 with the same
period for 1999, net interest income increasedwas essentially
flat, decreasing by $330,000.$30,000. While there has been considerable growth in
theaverage earning
assets of the Bank have increased 11% during the two
periods, increased competition reflected in loan
pricing, reduced opportunity for loans
requires narrowing margins,attractive yields in
high quality investments, and the increased income
from investments yields less than loan income. Fundingrapidly rising funding
costs, have increased more rapidly than the asset
yields. Whilenarrowed average net interest margins. In
some instances, the Bank has added fixed rate and,
traditionally, longer term assets to its statementStatement of
financial condition,Financial Condition, but it has funded those assets
with shorter-term (one year or less) liabilities.
Interest earned on loans for the first sixnine months of
2000 when compared to the first sixnine months of 1999
increased by more than $1.2$1.7 million due to increases in
volumes andbut by $62,000only $34,000 due to overall increases in
interest rates charged on portions of the loan portfolio. Since
December 31, 1999, the loan portfolio yield has
increased by 8 basis points. Interest on loans for the
quarter ended JuneSeptember 30, 2000 was $742,000$455,000 or 13.9%8%
more than for the quarter ended JuneSeptember 30, 1999 and
is attributable to increased volumes in the loan
portfolio.
Interest derived from growth in the investment
portfolio was $876,000$936,000 more during the sixnine months
ended JuneSeptember 30, 2000 as compared to JuneSeptember 30,
1999 while increases in interest rates created an
additional $127,000$288,000 in income. The entire portfolio
earned 6.72%6.76% as of JuneSeptember 30, 2000, which is 2125
basis points higher than a year ago and 1216 basis points
higher than the overall yield at December 31, 1999.
Interest on investments for the quarter ended JuneSeptember
30, 2000 was $425,000$219,000 more than for the quarter ended
JuneSeptember 30, 1999 and is attributable primarily to
increased volumes in the investment portfolio.
Interest expense for the sixnine months ended JuneSeptember
30, 2000 increased by approximately $2.0$3.0 million
compared to the same period in 1999. Interest expense
increased by $1.6$2 million based on increased volume and
by $415,000$1.0 million based on interest rates. The overall
cost of interest bearing liabilities went up 38increased 53 basis
points between Junethe nine month periods ending September
30, 2000 and JuneSeptember 30, 1999. The cost of these
liabilities has increased by 2350 basis points since December 31, 1999
and has enhancedcontributed to the margin
squeeze.decrease in the interest
margin. The overall cost of interest bearing
liabilities for the quarter ended JuneSeptember 30, 2000
was $1.1$1.0 million more than for the quarter ended
JuneSeptember 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 chargescharged on
those advances.
NON-INTEREST INCOME
Non-interest income for the sixnine months ended JuneSeptember
30, 2000 totaled $2.8$4.9 million and was $396,000$711,000 more
than the first sixnine months in 1999. BTI Financial
Group's gross income of $1.6$2.4 million surpassed the
Trust Department's income for the sixnine months ended
JuneSeptember 30, 1999 by $246,000.$370,000. Additionally, service
charges on the bank's deposit accounts exceeded the
first sixnine months of last year by $190,000,$366,000, and
represents increased chargesfees implemented in the third
quarter of 1999. When comparing non-interest income
for the quarter ending JuneSeptember 30, 2000, BTI's
revenue is $159,000$222,000 greater than the income generated
by the Bank's Trust Department for the same period in
1999. Also, for the same comparison periods, service
charges on deposit accounts in the Bank have
contributed $116,000$188,000 more for the quarter ended
JuneSeptember 30, 2000.
NON-INTEREST EXPENSE
Non-interest expenses for the sixnine months ended
JuneSeptember 30, 2000 totaled $8.1$12.7 million and exceeded
the first sixnine months of 1999's non-interest expenses
by $1.8$2.6 million. Salaries and benefits make up $1.1$1.4
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$1,175,000 exceed the
Bank's Trust Department salaries and benefits for the
sixnine months ended JuneSeptember 30, 1999 by $347,600. The$565,000. In
addition, the Bank has added a senior credit
administrator and has
recruited a seasoned and knowledgeablean experienced collector to build upenhance
the credit administration efforts forfunction of 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 inrequired additional
human resources' commitment,resources, including
additional temporary staffing and
extensive overtime. The ITI conversion was
successfullysubstantially completed in April 2000, although
commitments of time for clean upsupplemental applications and completion of maintenance
issues continued intocontinue through the secondthird quarter of 2000.
Increases in salary and benefit costs for the quarter
ended JuneSeptember 30, 2000 exceeded the costs for the
same period in 1999 by $724,000.$263,000. As mentioned
earlier, the start up of a Bangor location for BTI
subsidiary, Dirigo Investments, Inc., transpiredcommenced 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
JuneSeptember 30, 2000 when compared to the Bank's Trust
Department salary costs for the quarter ended JuneSeptember
30, 1999. Additional staffing in the credit
administration area, financial administration, and completion of training and clean up from the
banking software conversion increased salary expenses
for the quarter ended JuneSeptember 30, 2000.
Other non-compensation expenses exclusive of salaries and benefits
are $698,000$1,206,000 more in
the sixnine months ended JuneSeptember 30, 2000 as compared to
the same period forin 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 sixnine months of 2000, exclusive
of salary and benefit costs andbut including the start up
costs and including $36,500$54,700 in amortization, total $1$1.5 million.
This amount exceeds the Bank's Trust Department
expenses for the first sixnine months of 1999 by $588,000.$878,000.
Other expenses for the quarter ended JuneSeptember 30, 2000
were $513,000$484,000 more than for the comparable period in
1999. Of that variance,The increase in BTI expenses were
$293,700 more than thoseaccounted for about
one-third of this total while the Bank's Trust
Department for the quarters ended June 30, 2000 and
1999.
Sale of equipment used for item captureremainder is in
conjunctionvarious other accounts. The Company is proceeding with
the previous banking solution was
completed during the second quarter of 2000. This
combined with the replacement of personal computers
created lossesmeasures to the Bank of approximately $95,000,
most of which was booked during the second quarter of
2000.reduce its cost structure.
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.
LIQUIDITY AND INTEREST RISK MANAGEMENT
Liquidity is measured by the Bank's ability to meet
short-term 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 utilizesuses a Basic
Surplus/Deficit model to measure its liquidity over a
30-day and a 90-
day90-day time horizon. The relationship
between liquid assets and short-term liabilities that
are vulnerable to non-replacement within a 30-day
period areis 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 17.8%14.0% as of JuneSeptember 30,
2000 for the 30-day horizon and 20.1%13.5% for the 90-
day90-day
horizon.
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 $39approximately $38 million invested in callable
securities with final maturities of ten years or less
funded by short-
termshort-term liabilities. TheBecause of
financial advantages to the issuer in a rising rate
environment, the exposure lies with the possibility
that these securities wouldwill not be called. The gap
analysis in today'sthe current interest rate environment shows
the Bank with approximately $112$90 million more
liabilities than assets that would be repriceablerepriced 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 $812,000$518,000 during the first
year of the drop, while increasing its income in the
second year by $1.5 million.$765,000. If rates were to rise by 200
basis points, net interest income could decrease by
$57,000$683,000 in the first year, and decrease by $146,000$1.7
million during the second year.
CAPITAL
The Company's capital to asset ratio is 10.2%10.5% at
JuneSeptember 30, 2000, and the Bank exceeds the required
risk based capital ratio of 8% with its Tier 1 ratio of
12.7%15.3% and total capital ratio of 13.9% or additional
capital of $18.6 million.16.6%. These ratios
compare to December 31, 1999 when the capital to average asset
ratio was 10.8%, Tier 1 and total capital ratios
compared to risk weighted assetscapital
ratios were 17.8% and 19.1% respectively.
>
PART II OTHER
INFORMATION
Item 1 Legal None
Proceedings
Item 2 Changes in None
Securities and Use of
Proceeds
Item 3 Defaults Upon None
Senior Securities
Item 4 Submission of None
Matters to a Vote of
Security Holders
Item 5 Other None
Information
Item 6 Exhibits and See Exh. 27 - Financial
Reports on Form 8-K Data Schedule*
*Filed in electronic format only
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//S/ Dean S. Read
Date: August 11,November 10, 2000 Dean S. Read
Chief Executive
Officer
/s/ Edward B.
Grimball
Edward B. Grimball
Date: November 10, 2000 Chief Financial
Officer