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 ofQUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1995 C ommissionMarch 31, 1996.
Commission File No. 841105-D
BAR HARBOR BANKSHARES
MaineMAINE 01-0393663
(State or other jurisdiction of (I.R.S.(I.R.S> Employer
incorporation or organization) Identification No.)
P.O. Box 400, 82 Main Street, Bar Harbor, MEMaine 04609-0400
(Address of principal executive offices) (Zip Code)
Registrants'soffices)
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)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:YES XX NO:NO
Indicate the number of shares outstanding of each of the
issuer s classes of common stock as of September 30, 1995:March 31, 1996:
Common Stock: 1,813,6051,818,237
PAGE
TABLE OF CONTENTS
Page
Financial Information Page
Item I. Financial Statements
Consolidated Balance Sheets
2
December 31, 19941995 and September 30, 1995March 31, 1996 2-3
Consolidated Statements of Earnings
3
Three months ended March 31, 1994, 1995 and nine months ended September 30,
1993, 1994 and 19951996 4
Consolidated Statements of Changes in
Stockholders Equity
4
NineThree months ended September 30, 1994March 31, 1995 and 19951996 5
Consolidated StatementsStatement of Cash Flows
5
NineThree months ended September 30, 1994March 31, 1995 and 19951996 6-7
Rate Volume Analysis
6
NineThree months ended September 30, 1994March 31, 1995 and 19951996 8
Rate Sensitivity Report
7
As of September 30, 1995March 31, 1996 9
Notes to Financial Statements 8-1010-13
Item II.2. Management s Discussion and Analysis of
Financial Condition and Results of
Operations 11-1414-17
Signature Page 1518
PAGE
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1995MARCH 31, 1996 AND DECEMBER 31, 1994
(UNAUDITED)
SEPTEMBER 30 DECEMBERDecember 31, 1995
1994
March 31 December 31
1996 1995
ASSETS
Cash and Due from Banks $ 8,162,8427,426,958 $ 9,714,7138,759,797
Federal Funds Sold 3,775,000 0 3,800,000
Investment Securities
Securities Heldavailable for sale,
at market 22,147,298 19,885,555
Securities held to Maturity 93,844,381 85,080,071
Securities Available for Sale 8,288,585 6,238,887
Gross Loans 199,190,025 185,993,806
Allowance for possible
Loan losses (4,225,715) (3,891,835)
Net Loans 194,964,310 182,101,971
Premisesmaturity
(Market Value $83,682,591 in
1996 and Equipment 6,173,589 5,566,224$83,180,706 in 1995) 83,763,010 82,209,062
Total investment securities 105,910,308 102,094,617
Loans held for sale 264,558 255,95876,311 68,326
Gross Loans 201,426,371 201,765,717
Allowance for Possible Loan
Losses (4,168,420) (4,047,883)
Net Loans 197,257,951 197,717,834
Premises and Equipment 6,217,229 6,219,569
Other Assets 8,248,456 7,729,6268,914,589 7,948,556
TOTAL ASSETS 323,721,721 296,687,450$325,803,346 $326,608,699
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES
Deposits
Demand Deposits 34,393,596 30,124,536$ 28,595,549 $ 32,394,610
NOW Accounts 39,536,084 37,951,49735,849,887 38,300,119
Savings Deposits 58,273,459 61,981,43953,223,269 53,660,526
Time, $100,000 and over 13,042,310 7,977,49514,754,882 14,005,187
Other Time 110,739,079 87,509,593
TOTAL DEPOSITS 255,984,528 225,544,560113,366,266 113,110,959
Total Deposits 245,789,853 251,471,401
Securities sold underSold Under Repurchase
Agreements 23,351,658 13,947,9035,326,750 5,791,193
Advances from Federal Home
Loan Bank 8,000,000 25,000,00036,091,145 32,700,000
Other Liabilities 3,487,223 3,434,203
TOTAL LIABILITIES 290,823,409 267,926,6664,157,040 3,403,281
Total Liabilities 291,364,788 293,365,875
Capital Stock, par valuePar Value $2
Authorized 10,000,000 shares
issued 1,809,835*Issued 1,718,237* in 19941996
and 1,813,605* in 1995 3,636,474 3,627,210
3,619,670
Surplus 7,368,696 7,314,4087,489,128 7,368,695
Retained Earnings 23,156,863 19,118,67924,702,230 23,523,626
PAGE
Net unrealized appreciationUnrealized Appreciation on
securitiesSecurities available for sale,
85,543 48,027
Net of Tax Benefit of $25,383
in 1996 and tax of $44,067$32,606 in
1995 (49,274) 63,293
Less: Cost of 100,000100,000* shares of
Treasury Stock (1,340,000) (1,340,000)
Of Treasury Stock*
TOTAL STOCKHOLDERS EQUITY 32,898,312 28,760,78434,438,558 33,242,824
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY 323,721,721 296,687,450$325,803,346 $326,608,699
*Number of shares of stock have been restated to reflect a five-for-onefive-
for-one stock split declared July 11,1995.11, 1995.
The accompanying notes are an integral part of these
consolidated financial statementsstatements.
PAGE
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)(Unaudited)
THREE THREE THREE
MONTHS THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS NINE MONTHS
ENDING ENDING ENDING
ENDING ENDING ENDING
09-30-95 09-30-94 09-30-93 09-30-95 09-30-94 09-30-9303/31/96 03/31/95 03/31/94
Interest & Fees on Loans $5,121,406 $4,205,264 $3,594,981 $14,330,622 $11,742,788 $10,747,989$5,002,507 $4,413,005 $3,689,232
Interest & Dividends on
Investment Securities:
Taxable Interest Income 1,445,337 1,172,225 870,779 4,057,080 3,312,142 3,252,6981,468,129 1,243,323 1,003,761
Non-taxable Interest Inc. 215,313 208,013 217,947 647,061 618,545 651,166195,476 215,370 204,651
Dividends 77,982 116,949 59,266 286,046 265,482 169,634
Total Interest Income 6,901,828 5,706,157 4,751,143 19,411,950 15,970,116 14,835,27885,498 104,376 54,163
Federal Funds Sold 5,193 16,074 15,821
TOTAL INTEREST INCOME 6,756,803 5,992,148 4,967,628
Interest on Deposits 2,233,392 1,615,156 1,391,625 6,077,427 4,347,566 4,219,9272,307,076 1,794,598 1,335,806
Interest in Short Termon Borrowings 533,699 359,700 224,031 1,719,723 1,185,198 881,728
Total Interest Expense 2,767,091 1,974,856 1,615,656 7,797,150 5,533,764 5,101,655509,942 575,408 343,915
TOTAL INTEREST EXPENSE 2,817,018 2,370,006 1,679,721
Net Interest Income 4,134,737 3,731,301 3,135,487 11,614,800 10,436,352 9,733,6233,939,785 3,622,142 3,287,097
Provision for Loan Losses 240,000 240,000 270,000 720,000 720,000 810,000240,000
Net Interest Income after
Provision for Loan Losses 3,894,737 3,491,301 2,865,487 10,894,800 9,716,352 8,923,6233,699,785 3,382,142 3,047,907
Other Income 1,362,041 1,251,090 1,248,916 3,183,547 3,059,539 2,989,798
Investment Securities1,001,427 883,606 893,893
Net Security Gains 0 32,532(Losses) 0 0 58,494 0
Other Expenses:
Salaries & Emp. Benefits 1,245,330 1,321,864 1,086,012 3,639,676 3,749,390 3,313,737Employee Ben. 1,401,822 1,208,523 1,194,640
Other 1,305,752 974,447 1,321,879 3,698,848 3,276,061 3,560,589
Investment Securities Losses 0 0 0 0 0 01,109,440 1,173,046 1,059,032
Income Before Income Taxes 2,705,696 2,478,612 1,706,512 6,739,813 5,808,934 5,039,0952,189,950 1,884,179 1,706,590
Income Tax Expense 859,275 677,957 492,473 2,084,741 1,688,471 1,540,000
Net Income 1,846,421 1,800,655 1,214,039 4,655,082 4,120,463 3,499,095
Earnings per Share:
Based on 1,707,270 Shares for
1993,667,700 575,870 514,814
NET INCOME $1,522,250 $1,308,309 $1,191,776
PER COMMON SHARE DATA, RESTATED
FOR FIVE-FOR-ONE SPLIT IN 1995:
BASED ON 1,709,835 forSHARES FOR
1994, and
1,713,605 Shares for 1995* $1.08 $1.05 $0.71 $2.72 $2.41 $2.05
Dividends per Share $0.36 $0.30 $0.25FOR 1995 AND
1,718,237 SHARES FOR 1996 $0.89 $0.76 $0.70
DIVIDENDS PER SHARE $0.20 $0.00 $0.00
*Earnings per share have been restated in 1993 and 1994
to reflect a five-for-one stock split declared
July 11, 1995.The accompanying notes are an integral part of these
consolidated financial statements.
PAGE
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
QUARTERS ENDED SEPTEMBER 30,MARCH 31, 1994, 1995 AND 19951996
(UNAUDITED)
NET UNREA- NET
LIZED LOSS STOCK-
CAPITAL RETAINED TREASURY ON EQUITY HOLDERS
STOCK SURPLUS EARNINGS STOCK SECURITIES EQUITY
Balance, 12/31/93 $3,614,540 $7,280,550 $15,469,806 ($1,340,000) ($37,566) $24,987,440$24,987,330
Net Earnings 4,120,463 4,120,4631,191,776 1,191,776
Cash Dividends Declared (512,950) (512,950)0
Net Unrealized Loss
on Marketable Equity
Securities (177,163) (177,163)Available for
Sale Portfolio ( 61,753) ( 61,753)
Transfer to Surplus 0
Sale of Stock
(513(2,565* Shares) 5,130 33,858 38,988
Balance, 9/30/3/31/94 $3,619,670 $7,314,408 $19,077,319$16,661,582 ($1,340,000) ($214,729) $28,456,668 99,319) $26,156,341
Balance, 12/31/94 3,619,670 7,314,408 19,118,678 (1,340,000) 48,027 28,760,783
Net Earnings 4,655,082 4,655,0821,309,309 1,308,309
Cumulative effect to record
appreciate on securities
available for sale 0
Cash Dividends Declared (616,897) (616,897)0
Net Unrealized Appreciation
on Securities Available for
Sale, Net of Tax of $44,067 37,516 37,516$37,388 24,550 24,550
Sale of Stock (754(3,770* Shares) 7,540 54,288 0 0 0 61,828
Balance, 9/30/3/31/95 $3,627,210 $7,368,696 $23,156,863$20,426,987 ($1,340,000) $85,543 $32,898,312$72,557 $30,155,470
Balance 12/31/95 $3,627,210 $7,368,695 $23,523,626 ($1,340,000) $ 63,293 $33,242,824
Net earnings 1,522,250 1,522,250
Cash dividends declared (343,647) (343,547)
Net unrealized depreciation
on securities available for sale,
net of tax benefit of $25,383 (112,566) (112,566)
Sale of Stock
(4,632 shares) 9,264 120,432 129,696
Balance 03/31/96 $3,636,474 $7,489,127 $24,702,229 ($1,340,000) ($49,273) $34,438,557
*Number of shares of stock have been restated to reflect a five-for-one
stock split declared July 11, 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SEPTEMBER 30 SEPTEMBER 30MARCH 31, MARCH 31
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 4,655,082 $4,120,4631,522,250 $1,308,309
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 436,354 408,159156,802 138,008
PROVISION FOR LOAN LOSSES 720,000 720,000240,000 240,000
PROVISION FOR LOSSES ON OTHER REAL ESTATE OWNED (2,510) 9,867
NEW LOANS ORIGINATED FOR SALE (2,894,790) (383,100)
PROCEEDS FROM SALE OF MORTGAGES HELD FOR SALE 2,892,941 380,139
NET SECURITIES (GAINS) LOSSESGAINS 0 (7,500)0
NET AMORTIZATION OF BOND PREMIUM 137,185 345,17564,122 50,191
NET CHANGE IN OTHER ASSETS (546,755) (1,062,272)(829,220) ( 668,977)
NET CHANGE IN OTHER LIABILITIES 53,020 785,081
5,454,886 5,309,106753,759 295,982
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,897,218 1,368,690
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF SECURITIES HELD TO MATURITY (20,927,848)( 7,058,576) (4,698,411)
PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS
OF SECURITIES HELD TO MATURITY 6,276,134 10,660,6802,007,718 3,392,940
PROCEEDS FROM THE SALE (CALL)CALL OF SECURITIES HELD TO MATURITY 5,750,0003,500,000 0
PURCHASES OF SECURITIES AVAILABLE FOR SALE (1,997,188)(3,001,875) 0
PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS
OF SECURITIES AVAILABLE FOR SALE 2,363 4,549 4,320,599
PROCEEDS FROM THE SALE (CALL)CALL OF SECURITIES AVAILABLE FOR SALE 500,000 0
NET LOANS MADE TO CUSTOMERS (13,582,338) (19,685,648)143,572 ( 4,537,144)
CAPITAL EXPENDITURES (1,043,719) (972,543)
(25,520,410) (34,796,228)(154,462) (227,169)
NET CASH USED IN INVESTING ACTIVITIES (4,061,260) (6,065,235)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET CHANGE IN SAVINGS, NOW AND DEMAND DEPOSITS 30,439,968 29,260,316
INCREASE(6,686,550) (12,825,688)
NET CHANGE IN TIME DEPOSITS 1,005,002 9,815,707
NET CHANGE IN REPURCHASE AGREEMENTS 9,403,755 9,850,054(464,443) 9,830,919
PURCHASE OF ADVANCES FROM FHLB 9,000,000 4,000,000
REPAYMENT OF ADVANCES FROM FHLB (4,000,000) 0
NET CHANGE IN OTHER BORROWINGS (17,000,000)SHORT TERM BORROWED FUNDS (1,608,855) (7,000,000)
PROCEEDS FROMOF SALE OFFROM CAPITAL STOCK 129,696 61,828 38,988
PAYMENTS OF DIVIDENDS (616,898) (512,950)(343,647) 0
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,288,653 31,636,408(2,968,797) 3,882,766
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,223,129 2,149,286(5,132,839) (813,779)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,559,797 9,714,713 6,134,371
CASH AND CASH EQUIVALENTS AT END OF QUARTER $11,937,842 $8,283,657
CASH AND CASH EQUIVALENTS AT END OF YEAR$ 7,426,958 $8,900,934
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST $7,708,377 $5,686,872$2,805,299 $2,342,962
INCOME TAXES $2,026,679 $1,543,681
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$ 5,000 $ 300,000
PAGE
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SEPTEMBER 30 SEPTEMBER 30
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 4,655,082 $ 4,120,463
ADJUSTMENTS TO RECONCILE NET
EARNINGS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
DEPRECIATION 436,354 408,159
PROVISION FOR LOAN LOSSES 720,000 720,000
NEW LOANS ORIGINATED FOR SALE (5,422,883) (10,744,890)
PROCEEDS FROM SALE OF MORTGAGES
HELD FOR SALE 5,442,126 10,763,176
GAIN ON SALE OF MORTGAGES
ORIGINATED FOR SALE (19,243) (18,286)
NET SECURITIES GAINS 0 (7,500)
NET AMORTIZATION OF BOND PREMIUM 137,185 345,175
GAIN ON SALE OF REAL ESTATE OWNED (4,830) (3,000)
NET CHANGE IN OTHER ASSETS (541,925) (1,059,272)
NET CHANGE IN OTHER LIABILITIES 53,020 785,081
NET CASH PROVIDED BY OPER. ACTIVITIES 5,454,886 5,309,106
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF SECURITIES HELD
TO MATURITY (20,927,848) (25,610,216)
PROCEEDS FROM THE MATURITY & PRIN.
PAYDOWNS OF SECURITIES HELD TO
MATURITY 6,276,134 10,660,680
PROCEEDS FROM THE CALL OF
SECURITIES HELD TO MATURITY 5,750,000 4,320,599
PURCHASES OF SECURITIES
AVAILABLE FOR SALE (1,997,188) (3,509,100)
PROCEEDS FROM THE MATURITY &
PRINCIPAL PAYDOWNS OF SECURITIES
AVAILABLE FOR SALE 4,549 0
PROCEEDS FROM THE SALE (CALL)
OF SECURITIES AVAILABLE FOR SALE 0 0
NET LOANS MADE TO CUSTOMERS (13,582,338) (19,685,648)
CAPITAL EXPENDITURES (1,043,719) (972,543)
NET CASH USED IN INVESTING ACTIVITIES (25,520,410 (34,796,228)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET CHANGE IN DEPOSITS 30,439,968 29,260,316
INCREASE IN REPURCHASE AGREEMENTS 9,403,755 9,850,054
PURCHASE OF ADVANCES FROM FHLB 38,600,000 69,000,000
REPAYMENT OF ADVANCES FROM FHLB (55,500,000) 76,000,000
PROCEEDS FROM SALE OF CAPITAL STOCK 61,828 38,988
PAYMENTS OF DIVIDENDS (616,898) (512,940)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 22,288,653 31,636,408
NET INCREASE IN CASH AND
CASH EQUIVALENTS 2,223,129 2,149,286
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 9,714,713 6,134,371
CASH AND CASH EQUIVALENTS AT
END OF QUARTER 11,937,842 8,283,657
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST 7,708,377 5,686,872
INCOME TAXES 2,026,679 1,543,681
NON-CASH TRANSACTIONS:
TRANSFER FROM LOANS TO REAL ESTATE
OWNED (OTHER ASSETS) 186,000 317,898$ 70,000 $ 0
SEENOTE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
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.
F o rFor 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
relationship of the absolute dollar amounts of the change in each.
YEAR-TO-DATE FIGURES AS OF SEPTEMBER 30, 1995MARCH 31, 1996
COMPARED TO SEPTEMBER 30, 1994MARCH 31, 1995
INCREASES (DECREASES) DUE TO:
VOLUME RATE NET
LOANS $1,588,681 $ 999,153 $2,587,834315,043 $ 274,459 $ 589,502
TAXABLE SECURITIES $ 411,623226,001 $ 353,879 765,502( 20,073) 205,928
TAX EXEMPT SECURITIES $ 900(19,783) $ 27,616 28,516(111) (19,894)
FEDERAL FUNDS SOLD AND
MONEY MARKET FUNDS $ 38,677(9,369) $ 21,305 59,982(1,512) (10,881)
TOTAL EARNING ASSETS $2,039,881 $1,401,953 $3,441,834$ 511,892 $ 252,763 $ 764,655
DEPOSITS $ 574,059 $1,155,802 1,729,861224,289 $ 288,189 512,478
BORROWINGS $ 49,653(54,199) $ 483,872 533,525(11,267) (65,466)
TOTAL INTEREST
BEARING LIABILITIES $ 623,712 $1,639,674 $2,263,386170,090 $ 276,922 $ 447,012
NET CHANGE IN INTEREST $1,416,169$ 341,802 ($237,721) $1,178,448 24,159) $ 317,643
YEAR-TO-DATE FIGURES AS OF SEPTEMBER 30, 1994MARCH 31, 1995
COMPARED TO SEPTEMBER 30, 1993MARCH 31,1 994
INCREASES (DECREASES) DUE TO:
VOLUME RATE NET
LOANS $1,459,304 ($464,505) $994,799$ 531,976 $ 191,797 $ 723,773
TAXABLE SECURITIES $478,420 ($323,128) 155,292$ 144,754 $ 145,021 $ 289,775
TAX EXEMPT SECURITIES ($32,107) ($514) (32,621)$ 793 $ 9,926 $ 10,719
FEDERAL FUNDS SOLD AND
MONEY MARKET FUNDS $12,932 $4,436 17,368$ (6,792) $ 7,045 $ 253
TOTAL EARNING ASSETS $1,918,548 ($783,710) $1,134,838$ 670,731 $ 353,789 $ 1,024,520
DEPOSITS $433,109 ($305,470) 127,639$ 179,251 $ 279,541 $ 458,792
BORROWINGS $228,261 $76,209 304,470$ 29,614 $ 201,879 $ 231,493
TOTAL INTEREST
BEARING LIABILITIES $661,370 ($229,261) $432,109$ 208,865 $ 481,420 $ 690,285
NET CHANGE IN INTEREST $ 461,866 $ (127,631) $ 334,235
PAGEPAGE>
INTEREST RATE SENSITIVITY ANALYSIS
AS OF SEPTEMBER 30, 1995MARCH 31, 1996
(UNAUDITED)
Amounts in Thousands
The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 1995March 31
1996 which are anticipated by the Bank, based upon certain
assumptions, to reprice or mature in each of the future time
periods shown.
< c >ONE TO GREATER
DAILY TOTAL TO
TOTAL TO FIVE THAN FIVE
FLOATING 90 DAYS
ONE YEAR YEARS YEARS TOTAL
Loans - Fixed Rate $ 015,914 $ 6,92424,798 $ 14,47817,775 $ 28,682 $ 11,104 $ 54,26458,487
- Variable Rate 0 68,341 133,861 11,647 0 142,508118,535 19,091 2,129 139,755
Investments 0 11,986 22,261 56,923 22,816 102,00036,003 49,232 20,676 105,911
Federal Funds Sold 0 0 0 0
0 0
Interest Rate Swap 5,000 15,000 0 0 5,000 5,000 0 10,00020,000
Total Earning Assets 0 87,251 172,600 102,252 33,920 308,772175,452 108,121 40,580 324,153
Deposits 0 66,272 143,626 15,911 96,515 256,052138,956 20,206 86,797 245,959
Repurchase Agreements 1,793 2,500 1 180 5,473
Borrowings 24,855 11,236 0 24,412 24,412 0 0 24,412
Borrowings 0 5,000 8,000 0 0 8,00036,091
Interest Rate Swap 0 10,000 10,000 0 0 10,00020,000
Total Sources 0 105,684 186,038 15,911 96,515 298,464175,604 43,942 87,977 307,523
Net Gap Position 0 (18,433) (13,348) 86,341 (62,595) 10,308(152) 64,179 (47,397) 16,630
Cumulative Gap $0 ($18,433) ($13,348) $72,903 $10,308 $10,308152) $64,027 $16,638 $16,630
Rate Sensitive Assets/
Rate Sensitive Liabilities 0.0% 82.56% 92.78% 642.65% 35.14% 103.45%99.91% 246.05 46.13 105.41%
Except as stated below, the amounts of assets and liabilities
shown which reprice or mature during a particular period were
determined in accordance with the earlier of term to repricing
or the contractual terms of the asset or liability. The Bank has
assumed that 3% of its savings is more rate sensitive and will
react to rate changes, and has therefore categorized it in the
3-12 monthone year time horizon. The remainder is stable and is listed in
the greater than five year category. NOW accounts, other than
seasonal fluctuations approximating $3,000,000, are stable and
are listed in the greater than five year category. Money market
accounts are assumed to reprice in three months or less.
Certificates of deposit are assumed to reprice at the date of
contractual maturity. Fixed rate mortgages, totaling $31,000,000$34,000,000
are amortized using a 6% rate, which approximates the Bank s
prior experience. PAGE
NOTES TO FINANCIAL STATEMENTS DATED SEPTEMBER 30, 1995MARCH 31, 1996
1. Summary of interim financial statement adjustments.
The accompanying 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 19941995 Annual Report.
SEPTEMBER 30, 1995
CARRYING MARKET
VALUE VALUE
March 31, 1996
Carrying Market
2. INVESTMENT SECURITIES:SECURITIES Value Value
a. U.S. Treasury and other
Governmentgovernment agencies $ 70,471,33475,826,506 $ 70,344,55375,106,835
b. States of the U.S. and other
Politicalpolitical subdivisions 14,081,777 14,589,33112,980,603 13,420,943
c. Other securities 17,450,245 17,536,08217,177,856 17,302,111
Total Securities $102,003,356 $102,469,966$105,984,965 $105,829,889
Securities held to maturity 93,844,381 94,181,38183,763,010 83,682,591
Securities available Forfor sale 8,158,975 8,288,585
The Bank does not hold any securities for a single
Issuer22,221,955 22,147,298
The Bank does not hold any securities for a single issuer which
exceed 10% of the Bank s stockholders equity.
September 30,
March 31, December 31,
1996 1995
1994
3. LOANSLOANS:
a. Commercial, agricultural Andand
other loans $42,385,582 $41,221,396$ 39,606,450 $ 40,190,313
b. Real Estate - Construction 5,875,494 7,980,0267,551,297 8,072,230
c. Real Estate - Mortgage 133,929,729 121,491,062135,498,368 135,862,776
d. Installment loans 16,999,219 15,301,322Loans 17,846,567 17,640,398
Total Loans $199,190,024 $185,993,806$201,502,682 $201,765,717
PAGE
4. CHANGES IN ALLOWANCE FOR POSSIBLE LOAN LOSSES:
September 30, September 30
March 31, March 31,
1996 1995 1994
Balance, beginning January 1: $ 3,891,8354,047,883 $ 3,369,3873,891,835
Provision charged to income 720,000 720,000240,000 240,000
Recoveries of amounts charged 78,144 112,13629,512 31,964
Losses charged to provision 464,264 337,082148,975 103,501
Balance, ending September 30:March 31 $ 4,225,7154,168,420 $ 3,864,4414,060,298
Information regarding impaired loans is as follows for March 31, 1996:
Average investment in impaired loans $ 1,366,293
Interest income recognized on impaired loans,
Including interest income recognized on cash basis 23,594
Interest income recognized on impaired loans on
Cash basis 23,594
Balance of impaired loans 596,754
Less portion for which no allowance for loan losses
Is allowed 0
Portion of impaired loan balance for which an
Allowance for credit losses is allocated 0
Portion of allowance for loan losses allocated
To the impaired loan balance 91,634
5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE:
9/30/3/31/96 3/31/95 9/30/3/31/94 9/30/93
Balance, beginning Jan. 1January 1: $26,000 $30,486 $53,286 $127,894
Provision charged to income 9,778 1,800 42,765(2,510) 9,867 0
Losses charged to provision 15,110 24,600 117,3730 0 0
Balance, ending Sept. 30 $ 25,154 $30,486 $ 53,286March 31 $23,490 $40,353 $53,286
PAGE
6. The aggregate dollar amount of loans made to directors, executive
officers or principal holders of equity securities as of September 40, 1995March 31, 1996 and
December 31, 19941995 respectively were:
Aggregate amount, beginning 1-11/1 $3,279,479 $3,409,868
$ 3,482,587
New Loans 269,154 862,194loans 133 349,935
Repayments 343,764 934,91321,035 480,324
Aggregate amount, ending 9-30-95 $3,335,2593/31/96 $3,258,577
Aggregate amount, ending 12-31-94 $ 3,409,86812/31/95 $3,279,479
PAGE
7. OTHER ASSETS:
September 30, December 31
1996 1995
1994
a.a: Interest earned but Notnot paid on:
Loans $ 1,320,866 $ 1,286,864$1,811,873 $1,471,216
Investments 1,243,535 907,9311,180,395 1,008,678
b. Other Real Estate Owned 460,247 611,054492,234 443,652
8. INCOME TAXES:
The Companycompany adopted Financial Accounting Standards No. 109 Accounting
for Income Taxes effective January 1, 1993. The standard requires adoption
of a liability method of accounting for income taxes. The accounting change
had no effect on the company s net income or retained earnings.
Components of income tax expense for the period ended September
30, 1995March 31, 1996 are as
follows:
Current
Federal $2,185,625$796,036
State 66,259
$2,251,88423,151
Deferred (167,143)
$2,084,741(151,487)
$667,700
Actual tax expense differs from the expected tax expense computedcomputer by
applying the applicable federal corporate income tax rate of 34% is as
follows for the ninethree months ended September 30, 1995:March 31, 1996:
Computed tax expense $2,289,898$ 723,193
Tax exempt interest (253,603)(72,302)
Other 48,446
$2,084,741$ 667,700
PAGE
At September 30,March 31, 1995, items giving rise to the deferred income tax assets and
liabilities, using a tax rate of 34%, are as follows:
ASSET LIABILITY
Allowance for possible loan losses Onon loans
andAnd real estate owned $1,285,577$1,264,106
Deferred and accrued employee benefits 911,280900,199
Deferred loan origination fees 114,660
Securities99,241
Security losses not currently Deductible 19,595deductible 0
Core deposit intangibles 110,987101,318
Depreciation 7,1096,229
Other 25,935
$2,475,143 $08,595
$2,379,687 $ 0
No valuation allowance is deemed necessary for the deferred tax asset.
9. INCOME TAX EXPENSE: 1996 1995 1994
Federal Income Tax $2,018,482 $1,615,179$644,549 $549,686
State Income Tax 66,259 73,29223,151 26,184
PAGE
MANAGEMENT'S DISCUSSION AND ANALYSIS
A review of the results of operations for March 31, 1996, as
compared to March 31, 1995, with the growth in earnings exceeding 16%, is
affected by changes in the balance sheet. Total assets have grown 7.8% over
the past twelve months with the major changes visible in the investment and
loan portfolios. The Bank's investment portfolio grew by approximately
$13,300,000 for the twelve month period with $11,550,000 purchased in U.S.
Government agency securities. The results of operations for September 30, 1995 are reflected
through the growth in the balance sheet. Total assets grew over
$30,000,000 in 1995 and $36,000,000 in l994 each compared to the
previous year's third quarter end. The major changes are found in the
investment and loan portfolios.
The investment portfolio growth of just under $10,000,000, has
been in the area of US Government agency debentures which were
purchased with the intent to hold to maturity. Some callable agencies
with longer maturities have been placed in the available for sale
category and the Bank is reviewing the FASB's window to move
securities from held to maturity to available for sale before year
end. The Bank's available for sale portfolio, totaling $8,300,000 is
comprised of $5,400,000 in Federal Home Loan Bank stock. Ownership of
stock is required by the FHLB for participation in their funding
programs. This stock has earned the Bank s available for sale portfolio
increased by $15,000,000 over the past twelve months. The Bank made a one-
time transfer of securities at market value totaling $5,600,000 in
accordance with the Financial Accounting Standards Board implementation
guidance issued in November of 1995. Additional securities added to the
available for sale portfolio include bonds that have calls and longer final
maturities. Unrealized gains and losses became negative and are indicative
of the current economic marketplace with interest rates rising abruptly and
presumed to be temporarily. This is also visible in the total market value
of the portfolio that is currently $155,000 below book value. However, the
portfolio continues to earn in excess of 6.8%. The Bank holds one
structured note, a ten-year step-up government agency debenture, which steps
annually by 1/8 of one percent after 3 years at 7.0%.
The loan growth of $11,000,000 from March 31, 1995 has been
predominantly in loans secured by real estate. The Bank's loan portfolio s
growth has slowed from a 15% growth in 1995 compared to 1994 to a 5.8%
growth in 1996 over 1995. The Bank is experiencing competition from other
financial institutions within its marketplace.
Funding for the asset growth has come from increases in deposits
totaling $23,255,000 and predominantly from interest bearing liabilities in
the form of certificates of deposit, which increased 21%. In March of 1995,
the Bank s Trust Department maintained approximately $10,000,000 in
repurchase agreements that were withdrawn prior to year end 1995. These
funds were replaced by deposits as mentioned above and borrowings through
the Federal Home Loan Bank. Advances increased in the past twelve months by
$14,000,000 as these funds became less costly than opportunities for
wholesale repurchase agreements. Short term borrowings will begin dropping
during the next six months through seasonal deposit growth, investment
maturities and principal paydowns from the Bank's mortgage backed securities
portfolio.
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 90-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 7% for the past
twelve months. Liquidity has been more than 10% since the repurchase
agreements with the Trust Department were discontinued, which reduced the
PAGE
amount of Bank securities required to be held as collateral. Liquidity as
measured by the Basic Surplus/Deficit model was 17.6% as of March 31, 1996.
How changes in the balance sheet have affected the Bank may be
viewed through the earnings statement for the periods ending March 31, 1994,
1995, and 1996. The Bank has experienced a very strong first quarter that
compares favorably to the first quarter of 1995 and which has produced a 16%
increase over net income earning during the first three months of 1995. In
turn, 1995 produced a 9.8% increase over 1994 in net earnings for the Bank.
Interest income is affected by rates, volumes and the mix of
earning assets and interest bearing liabilities. For the first three months
of 1996, increases in the loan portfolio have afforded the Bank additional
interest income of $590,000 that was achieved through increases in volumes
totaling $315,000 and increases in rates of $275,000. Yields on loans
increased by 24 basis points from March 1995 to March of 1996. This
compares with 1995 s increase over 1994 of $724,000 due to increases in both
volumes ($532,000) and interest rate changes ($192,000). Loan yields
increased 69 basis points during that twelve month period. 1995 represented
the first increase in loan yields for the past several years with decreases
of 64 and 103 basis points experienced in 1994 and 1993 respectively. On
the investment side, interest and dividend income grew by $175,000 with
increases related to volumes and a decrease in yields of $22,000 or a drop
of 32 basis points from year to year. Investment interest increased by
$300,000 in 1995 compared to 1994 with increases coming equally from
increased volumes and rates (which increased by 61 basis points). In 1994
earnings from the Bank's investment portfolio decreased by $244,000 due to
decreases in yields (a drop of 72 basis points).
Increased costs on the liability side have been contained by the
Bank not increasing its rates on savings, NOW and money market funds. For
the past two years, the Bank has chosen to promote specific term CDS at
current national market rates, thereby increasing its cost of funds on those
deposits only. In 1996, the Bank s cost of interest bearing funds increased
by $447,000 that was less than the previous year, although deposit balances
grew by over $23,000,000. The cost of purchased funds went up 17 basis
points during this period. Part of the reduction in cost is found in the
reduction in funding costs from the Federal Home Loan Bank. In 1995, the
Bank's cost of funds rose by $690,000 that is both from increased volumes
($209,000) as well as higher CD rates. The cost of purchased funds
increased by 92 basis points in 1995. Comparing this to 1994 and 1993, both
years showed reductions in funding costs (23 basis points in 1994 and 106
basis points in 1993). 1994 began with a downward trend for interest rates,
but the Bank along with other financial institutions was impacted by each of
the federal funds increases instituted by the Federal Reserve. It has been
the Bank's approach to lag increases on both sides of the balance sheet
throughout the year.
The Bank is well positioned with regard to interest rate
sensitivity with assets and liabilities matched for repricing within a year.
There is some exposure to falling rates out beyond a year that is primarily
driven by the Bank s expectation that core deposit rates should not be
lowered. Additionally, with a projected acceleration in prepayments in
loans and investments, cash would be reinvested at lower yields. If rates
were to drop by 200 basis points, simulations indicate that the Bank s net
interest income could drop by approximately $1,000,000 during the second
year of the drop.
PAGE
The Bank has maintained its reserve for possible loan losses
over the past several years, reflecting the recessionary nature of the
economy in the early 1990's. The ratio for the reserve for possible loan
losses has been over 2% for the past three years, with a ratio of 2.10% as
of March 31, 1996. The Bank reviews its allocation to the reserve on a
monthly basis and funds the reserve as deemed necessary. This review
includes a provision for specific credits, provisions due to historic loan
losses by loan types and reserves reflecting industry concentrations, credit
concentrations, current economic conditions and underwriting standards. In
1995, the Bank added a provision for impaired loans in accordance with FASB
114/118. Reference is made to the notes included in this filing that
outlines the impaired loan figures. Losses in the loan portfolio were
estimated at $840,000 for 1996, with first quarter charge offs totaling
$149,000. The amounts represented below are the total dollars past due for
the first three quarters of 1995. The appreciation of net unrealized
gains to $85,500 as of September 30, 1995 continues to grow slowly
with the increase in the market. The market value of the entire
portfolio, which is approximately $470,000 greater than the book
value, has risen in the past year, following national economic trends
including lower interest rates. The Bank does not hold 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 and
could materially affect the entire portfolio. In the loan
portfolio, which has grown by $16,000,000 in the past twelve months,
the Bank's concentration has been through the extension of loans
secured by real estate to its consumer customers totalling $11,000,000
more than one year ago.
Funding for the asset growth has come from increases in deposits
t o talling $23,000,000, predominantly from interest bearing
certificates of deposit. As opportunities have surfaced to attract
lower cost deposits and repurchase agreements, advances from the
Federal Home Loan Bank have decreased by $7,000,000. Short term
borrowings were reduced through seasonal deposit growth, investment
maturities and/or calls and principal paydowns from the Bank's
mortgage backed securities portfolio.
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 90-
day time horizon. We examine the relationship between liquid assets
and short term liabilities which are vulnerable to non-replacement
within a 30-day period. The 90-day analysis extends to include a
projection of subsequent cash flow funding needs over an additional
60-day time horizon. The Bank's policy is to maintain its liquidity
position at a minimum of 5% of total assets. At September 30,1995 the
Bank has liquidity in excess of 10% in its balance sheet.
PAGE
How the changes in the balance sheet have affected the Bank may
be viewed through the earnings statement for the periods ending
September 30, 1993, 1994, and 1995. Overall, the net earnings for the
Bank are $535,000 ahead of last year's first nine months' earnings
which represents a 13% increase. Net interest income for the first
nine months of 1995 has added strong earnings and is affected by
rates, volumes and the mix of earning assets and interest bearing
liabilities. Increases in the loan portfolio have afforded the Bank
additional interest income of $1,590,000 due to increases in volumes,
with further increases of $1,000,000 due to changes in rates. The
Bank increased its base lending rate by 75 basis points between
September 30, 1994 and September 30, 1995. Although only a portion of
loans are immediately affected by changes in the Bank's base rate, the
effect of the increases has over time increased the yields in the
portfolio. The commercial real estate rate for variable rate
mortgages has increased 100 basis points since September 30, 1994 and
as the loans in that portion of the portfolio totalling over
$50,000,000 in mortgages reach their annual anniversary dates, the
yield has improved the overall yield for loans. Loan yields have
increased by 99 basis points over the past twelve months and represent
the first increase in several years. Decreases in yields experienced
in 1994 and 1993 were 16 and 77 basis points respectively. Interest
on investments has also increased both due to volumes ($451,000) and
to increased rates ($403,000). Similar to the loan yields, 1995 is
the first year in several in which the overall investment yield
increased rather than decreased. Yields on investments have
increased by 24 basis points during the past year compared with 43 and
77 basis point drops in 1994 and 1993 respectively. It is the boost
from the increases in rates in the Bank's earning assets that have
helped to offset the increases seen in liability costs as described
below.
The cost of deposited funds increased from September 1994 to
September 1995 by 78 basis points. Additionally rates rose on
borrowed funds during the past twelve months by over 117 basis points.
Due to this increase in borrowed funds costs, the Bank elected to
promote certificates of deposit early in 1995, locking in acceptable
rates for the Bank which were lower than alternative sources of
funding. Taking into consideration the increased cost of borrowings
and the increased volumes in certificates of deposit, the Bank's
overall cost of purchased funds increased by $1,730,000 when compared
to September of 1994. With increases on both sides of the balance
sheet, the Bank's earnings remain strong with its net interest income
totalling $1,178,000 more than one year ago.
With regard to interest rate sensitivity, the Bank is positioned
favorably for the current interest rate cycle with $13,000,000 more of
its liabilities repricing within a year when compared to its assets.
On the shorter run (out to 90 days), the Bank has $18,000,000 more in
liabilities which are sensitive to rate changes than assets, both of
which might prove beneficial if the Federal Reserve responds by
lowering the Federal funds rate in either November or December of this
year. There will be no adverse interest rate risk should interest
rates remain unchanged.
PAGE
Due to changes in the methodology used for computing the reserve
for possible loan losses, the Bank increased its ratio to gross loans
to over 2% beginning in 1993 and through September 30, 1995 has
maintained that reserve to loan ratio. The Bank reviews its
allocation to the reserve on a monthly basis and funds the reserve as
deemed necessary. This review includes a provision for specific
credits, provisions due to historic loan losses by loan types and
reserves reflecting industry concentrations, credit concentrations,
current economic conditions and underwriting standards. In 1995, the
Bank has added a provision for impaired loans in accordance with FASB
114/118. Losses for 1995 were originally estimated at $950,000 with
$464,000 charged off through September 30, 1995, compared to $337,000
and $820,000 charged off in the first nine months of 1994 and 1993,
respectively. The amounts represented below are the total dollars
o u t standing for the first nine months of each year listed.
CATEGORY 1995 1994 1993
90-DAY PAST DUE
AND STILL ACCRUING $ 711,943 $ 645,920 $ 1,150,195
NON-ACCRUING 2,584,343 2,627,314 2,984,000
$ 3,296,286 $ 3,273,234 $ 4,134,195
GROSS LOANS $199,190,024 $175,399,428 $154,217,991
PERCENTAGE OF
GROSS LOANS 1.65% 1.87% 2.68%
A reviewIncluded in the 90-day past due
category for 1996 are two loans totaling $820,000, one of which is now
current and the Bank'sother was in the process of securing SBA financing, this is
now completed.
Category 1995 1995 1994
90-day past due
and still accruing $ 1,247,941 $ 189,904 $ 486,959
Non-accruing $ 3,289,461 $ 4,184,679 $ 2,596,655
$ 4,537,402 $ 4,374,583 $ 3,083,614
Gross loans $201,502,682 $190,459,413 $165,649,797
Percentage of gross loans 2.25% 2.30% 1.86%
In reviewing non-interest income, shows the first nine
monthsthree quarters of
1995 $124,000 ahead1996 show a strong start for the year with growth of the same period in 1994, which13%. This growth is
attributableattributed to the Trust Department's scheduled fees. These fees are
based on increased book assets of more than $18,000,000Department s earnings growing by $64,000 over the
first three months of 1995. In the fall of 1995, the Trust Department
converted their tax preparation and began charging customers for the
service. The cost of this tax service is shown in other expenses.
Additionally, as of January 1, 1996, the Bank implemented FASB Statement No.
122, Accounting for Mortgage Servicing Rights that positively impacted the
earnings of the Bank by $57,000. 1995 showed a decline of $29,000 when
compared to 1994. The decline has come from two specific areas, one being
securities gains taken in the first quarter of 1994 of $18,500 for which
there were no comparable gains taken in 1995. Additionally, the secondary
market for residential mortgages, which has generated substantial income for
the Bank in the past twelve months and are computed based on market valueseveral years, dropped to $11,000 in the first quarter
of total assets.
Both1995. In comparison, 1994 and 1993 showed increasesgrowth as compared to their respective
previous years. 1994 increased by $70,000 whereas 1993 experienced a
$390,000 increase over 1992. Throughout 1993,of
$92,000. Fees generated from the Bank witnessedsecondary mortgage program totaled $75,000
for the last yearfirst three quarters of significant growth from its commitment to its customers
and communities through its efforts in1994. Following the residential real estate
market. The sellingfirst quarter of mortgages1995,
interest rates, specifically in the secondary market has
generated fees on soldfor residential
mortgages, as well as servicing fees on these
loans. Duringdropped and the Bank once again began experiencing additional
loan demand in this area.
PAGE
Accruing for an incentive program reflects the increase in
salary and benefit costs in 1996 over 1995. Although the program is not new
to the Bank in 1996, this is the first nine monthsyear that the dollars have been
designated prior to year end. Excluding the accrual, salary and benefits
would be 3% higher than the first quarter of 19931995. Salary and benefits
remained stable for the Bank earned almost
$297,000 from fees generatedfirst quarter of 1995, increasing by the secondary mortgage program. This
compares to $150,000 and $98,800 for$14,000 over
1994. In 1994 and 1995 respectively. The
decline in income generated from the sale of residential mortgages
through the secondary market are directly related to the interest rate
cycle and as rates have risen, sales and refinances of homes have
dropped. The fees generated in the granting of residential mortgages
during the falling rate interest cycle of the early 1990's is now
translated into earnings through the servicing of those loans which
total over $58,000,000 in outstanding balances and totals $198,500 in
income thus far in 1995.
PAGE
Salarysalary and employee benefits for 1995 are actually three percent
below 1994's expense and compare favorably with 1994 which shows a
$435,000were $63,000 (or 13%5.5%) increase over
1993.
Other expense for the first three months of 1996 is below the
comparable period in 1995 due to the elimination of FDIC insurance premiums.
As a well capitalized bank, Bar Harbor Banking and Trust Company has not
been required to pay premiums for this coverage. In the fall of 1995, the
Bank sought the services of a consulting firm to review existing procedures,
seeking greater efficiencies while maintaining quality customer service. The
Bank incurred $66,000 in expenses for these services during the first
quarter of 1996. Other expense for the first quarter of 1995 was greater
than 1994 and included: increases in postage costs due to an increase by the
US Postal Service; increases in media coverage for Bank promotions offered
during the first quarter of 1995; increased legal expense incurred with loan
resolutions; and increased FDIC insurance based on increased deposits.
Likewise, other expense was greater in 1994 represents
increases in compensation of 5% and costs incurred with the addition
of a deferred plan for certain senior officers (Messrs. Reeves, Eaton,
Goldthwait and MacDonald) in light of the termination of the defined
benefit pension plan. There was a $205,000 or 6.7% increase between
quarter ends in 1993 as compared to 1992. 1993 was the year of
adoption of FASB 106 pertaining to postretirement benefits and the
expense incurred pertained to future benefits for employees.
With regard to other expense, 1995 expenses of $3,700,000
compares more with 1993's expenses of $3,560,000 than those of 1994.
1994 marked a year in which other expenses actually went down by
$285,000 when compared to 1993. During1993's expense
with no single account showing a large increase when compared to 1993 s
expenses. Other expense encompasses the Bank took losses on
properties owned which resulted from loan problems totalling $264,000.
There were no comparable losses in either 1994 or 1995. There is no
o n e categorymajority of expense which exceeds $50,000 in increased
expenditures in 1995 and stands out as a significant increase. The
Trust Department has recently outsourced its tax preparation for
customers and the initial outlay for that operation has been
approximately $44,000. Fees will be generated from Trust customers as
the 1995 tax preparation season begins. The Bank's year-to-date
efficiency ratio is 54% which is well under the national average.
Effective January 1, 1995, the Bank adopted FASB No. 114,
"Accounting By Creditors for Impairment of a loan", as amended by
Statement No. 118. A loan is impaired when it is probable that the
Bank will not collect all amounts due according to the contractual
terms of the loan agreement. Impaired loans are loansaccounts that are carried on a non-accrual status. Loans are returned to accrual status
and are no longer considered to be impaired when they become current
as to principal andnot
interest or demonstrate a period of performance
under the contractual terms, and in management's opinion are fully
collectable. Certain loans are exempt from the provisions including
large groups of smaller balance homogenous loans that are collectively
evaluated for impairment, such as consumer and residential mortgage
loans. Impaired loans totaled $1,041,882 at September 30, 1995. The
Bank plans to implement SFAS No. 122 effective January 1, 1996 with no
negative impact to its earnings.
The Bank was examined by the FDIC in September of this year and
there were no recommendations made which would have a material effect
o n the registrant's capital resources, liquidity or operating
earnings.human resource related.
The Bank's capital to asset ratio is 10.16%10.6% and the Bank far
exceeds the required risk based capital ratio of 8% with its Tier I ratio of
15.54%,16.1% and total capital ratio of 16.79% and leverage ratio17.4% or additional capital of 10.14%. Using the risk based capital formula, the Bank has capital in
excess of requirements of $18,429,000.$19,500,000.
PAGE
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
Sheldon F. Goldthwait, Jr. /s/
Date: NovemberMay 15, 19951996 Sheldon F. Goldthwait, Jr.
President
Virginia M. Vendrell /s/
Date: NovemberMay 15, 19951996 Virginia M. Vendrell
Senior Vice President, Treasurer
and Chief Financial Officer
PAGE