UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to SectionQUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) of the Securities Exchange
Act ofOR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1996 C ommissionMarch 31, 1997.
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, 1996:March 31, 1997:
Common Stock: 1,818,2371,820,583
PAGE
TABLE OF CONTENTS
Page
Financial Information Page
Item I. Financial Statements
Consolidated Balance Sheets
2
December 31, 19951996 and September 30, 1996March 31, 1997 3-4
Consolidated Statements of Earnings
3
Three months ended March 31, 1995, 1996 and nine months ended September 30,
1994, 1995 and 19961997 5
Consolidated Statements of Changes in
Stockholders Equity
4
NineThree months ended September 30, 1995March 31, 1996 and 19961997 6
Consolidated StatementsStatement of Cash Flows
5
NineThree months ended September 30, 1995March 31, 1996 and 19961997 7-8
Rate Volume Analysis
6
NineThree months ended September 30, 1995March 31, 1996 and 19961997 9
Rate Sensitivity Report
7
As of September 30, 1996March 31, 1997 10
Notes to Financial Statements 8-1011-15
Item II.2. Management s Discussion and Analysis of
Financial Condition and Results of
Operations 11-1416-19
Signature Page 1520
PAGE
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1996MARCH 31, 1997 AND DECEMBER 31, 1995
(UNAUDITED)
SEPTEMBER 30 DECEMBERDecember 31, 1996
1995
March 31 December 31,
1997 1996
ASSETS
Cash and Due from Banks $10,697,921 $ 8,759,7979,857,083 $ 11,298,408
Federal Funds Sold 0 3,800,0002,000,000
Investment Securities
Securities Availableavailable for Sale,
At market 24,357,033 19,885,555sale 19,541,404 19,384,433
Securities Heldheld to Maturitymaturity
(Market Value $83,312,478value $82,220,584,
in 1997; $83,067,746 in 1996) 82,900,482 82,716,836
Other Securities 5,448,569 5,623,639
Loans held for sale 441,675 336,540
Loans, net of allowance for possible
loan losses of $4,366,173 in 1997
And $4,292,995 in 1996 and $83,180,706 in 1995) 83,771,708 82,209,062
Total Investment Securities 108,128,141 102,094,617
Loans Held for Sale 163,151 68,326
Gross Loans 211,360,948 201,765,717
Allowance for possible
Loan losses (4,287,650) (4,047,883)
Net Loans 207,073,298 197,717,834210,320,843 207,667,053
Premises and Equipment 7,547,748 6,219,5697,621,612 7,498,046
Other Assets 8,423,844 7,948,5569,050,858 8,617,790
TOTAL ASSETS 342,034,103 326,608,699$345,182,526 $345,142,745
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES
Deposits
Demand Deposits 40,093,949 32,394,610$ 33,418,916 $ 35,918,779
NOW Accounts 39,541,940 38,300,11937,597,430 40,529,509
Savings Deposits 55,907,356 53,660,52650,833,577 53,085,062
Time, $100,000 and over 14,311,191 14,005,18715,748,031 14,611,616
Other Time 107,127,970 113,110,959
TOTAL DEPOSITS 256,982,406 251,471,401106,776,570 107,530,192
Total Deposits 244,374,524 251,675,158
Securities sold underSold Under Repurchase
Agreements 6,862,376 5,791,1935,393,334 8,246,079
Advances from Federal Home
Loan Bank 36,589,485 32,700,00052,550,129 43,908,263
Other Liabilities 4,442,483 3,403,281
TOTAL LIABILITIES 304,876,750 293,365,8753,956,342 3,426,320
Total Liabilities 306,274,329 307,255,820
Commitments and Contingent Liabilities
Capital Stock, par valuePar Value $2
Authorized 10,000,000 shares
issuedIssued 1,820,583 in 1997
and 1,818,237 in 1996 and 1,813,605 in 19953,641,166 3,636,474
3,627,210
Surplus 7,574,170 7,489,127 7,368,695
Retained Earnings 27,527,907 23,523,62629,297,581 28,204,829
PAGE
Net unrealized appreciation
(Depreciation)Unrealized Appreciation on
securitiesSecurities available for sale,
netNet of tax,
BenefitTax Expense (Benefit) of
$80,712 ($136,371)in 19961997 and tax of
$32,606$53,321 in 1995 (156,155) 63,2931996 (264,720) (103,505)
Less: Cost of 100,000 shares Ofof
Treasury Stock (1,340,000) (1,340,000)
TOTAL STOCKHOLDERS EQUITY 37,157,353 33,242,82438,908,197 37,886,925
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY 342,034,103 326,608,699$345,182,526 $345,142,745
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
09-30-96 09-30-95 09-30-94 09-30-96 09-30-95 09-30-9403/31/97 03/31/96 03/31/95
Interest & Fees on Loans $5,150-807 $5,121,406 $4,205,264 $25,147,611 $14,330,622 $11,742,788$5,026,419 $5,002,507 $4,413,005
Interest & Dividends on
Investment Securities:
Taxable Interest Income 1,581,668 1,445,337 1,172,225 4,498,022 4,057,080 3,312,1421,595,692 1,468,129 1,243,323
Non-taxable Interest Inc. 191,830 215,313 208,013 581,432 647,061 618,545179,565 195,476 215,370
Dividends 88,910 77,982 116,949 260,781 286,046 265,48296,008 85,498 104,376
Federal Funds Sold 5,933 41,790 3,706 22,916 91,141 31,159
Total Interest Income 7,019,148 6,901,828 5,706,157 20,510,762 19,411,950 15,970,1169,183 5,193 16,074
TOTAL INTEREST INCOME 6,906,867 6,756,803 5,992,148
Interest on Deposits 2,161,816 2,233,392 1,615,156 6,718,418 6,077,427 4,347,5662,138,874 2,307,076 1,794,598
Interest in Short Termon Borrowings 624,714 533,699 359,700 1,754,156 1,719,723 1,185,198
Total Interest Expense 2,786,530 2,767,091 1,974,856 8,472,571 7,797,150 5,533,764726,079 509,942 575,408
TOTAL INTEREST EXPENSE 2,864,953 2,817,018 2,370,006
Net Interest Income 4,232,618 4,134,737 3,731,301 12,038,191 11,614,800 10,436,3524,041,914 3,939,785 3,622,142
Provision for Loan Losses 120,000180,000 240,000 240,000 600,000 720,000 720,000
Net Interest Income after
Provision for Loan Losses 4,112,618 3,894,737 3,491,301 11,438,191 10,894,800 9,716,3523,861,914 3,699,785 3,382,142
Other Income 1,684,273 1,362,041 1,251,090 3,741,703 3,183,547 3,059,539
Investment Securities1,026,839 1,001,427 883,606
Net Security Gains (Losses) (55,852) 0 0 32,532 16,934 0
58,494
Other Expenses:
Salaries & Emp. Benefits 1,467,981 1,245,330 1,321,864 4,265,530 3,639,676 3,749,390Employee Ben. 1,459,506 1,401,822 1,208,523
Other 1,512,297 1,305,752 974,447 3,759,334 3,698,848 3,276,061
Investment Securities Losses 0 0 0 0 0 01,054,927 1,109,440 1,173,046
Income Before Income Taxes 2,816,613 2,705,696 2,478,612 7,171,964 6,739,813 5,808,9342,318,468 2,189,950 1,884,179
Income Tax Expense 726,837 859,275 677,957 2,050,829 2,084,741 1,688,471
Net Income 2,089,776 1,846,421 1,800,655 5,121,135 4,655,082 4,120,463
Earnings per Share:
Based on 1,709,835 Shares for
1994,743,953 667,700 575,870
NET INCOME $1,574,515 $1,522,250 $1,308,309
PER COMMON SHARE DATA, RESTATED
FOR FIVE-FOR-ONE SPLIT IN 1995:
BASED ON 1,713,605 forSHARES FOR
1995, and
1,718,237 Shares for 1996* $1.22 $1.08 $1.05 $2.98 $2.72 $2.41
Dividends per Share $0.25FOR 1996 AND
1,720,583 SHARES FOR 1997 $0.92 $0.89 $0.76
DIVIDENDS PER SHARE $0.28 $0.20 $0.00 $0.00 $0.65 $0.36 $0.30
*Earnings per share have been restated in 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, 1995, 1996 AND 19961997
(UNAUDITED)
NET UNREA- NET
LIZED LOSS STOCK-
CAPITAL RETAINED TREASURY ON EQUITYAVAILABLE TREASURY HOLDERS
STOCK SURPLUS EARNINGS FOR SALE STOCK SECURITIES EQUITY
Balance, 12/31/94 $3,619,670 $7,314,408 $19,118,678 ($1,340,000) 48,027 $28,760,7833,619,670 7,314,408 19,118,678 $48,027 (1,340,000) 28,760,783
Net Earnings 4,655,082 4,655,0821,308,309 1,308,309
Cumulative effect to record
appreciate on securities
available for sale 0
Cash Dividends Declared (616,897) (616,897)0
Net Unrealized appreciationAppreciation
on Securities Available for
Sale, Net of Tax of $37,388 24,550 24,550
Sale of Stock (3,770* Shares) 7,540 54,288 0 0 0 61,828
Balance, 3/31/95 $3,627,210 $7,368,696 $20,426,987 $ 72,557 ($1,340,000) $72,557
$30,155,470
Balance 12/31/95 $3,627,210 $7,368,695 $23,523,626 $ 63,293 ($1,340,000) 33,242,824
Net earnings 1,574,515 1,574,515
Cash dividends declared (343,647) (343,547)
Net unrealized depreciation
on securities available for sale,
net of tax of $44,067 37,516 37,516
Sale of Stock (3,770 Shares) 7,540 54,288 61,828
Balance, 9/30/95 $3,627,210 $7,368,696 $23,156,863 ($1,340,000) $85,543 $32,898,312
Balance, 12/31/95 3,627,210 7,368,695 23,523,626 (1,340,000) 63,293 33,242,824
Net Earnings 5,121,135 5,121,135
Cash Dividends Declared (1,116,854) (1,116,854)
Net Unrealized Depreciation
on Securities Available for
Sale, Net of Tax benefit of $80,712 37,516 37,516$25,383 (112,566) (112,566)
Sale of Stock
(4,632 Shares)shares) 9,264 120,432 0 0 0 129,696
Balance 9/30/03/31/96 $3,636,474 $7,489,127 $27,527,907$24,754,494 ($ 49,273) ($1,340,000) $34,490,822
Balance 12/31/96 $3,636,474 $7,489,127 $28,204,829 ($156,155) $37,157,353 103,505) ($1,340,000) $37,886,925
Net earnings 1,574,515 1,574,515
Cash dividends declared (481,763) (481,763)
Net unrealized depreciation
on securities available for sale,
net of tax benefit of $189,692 (161,215) (161,215)
Sale of Stock
(2,346 shares) 4,692 85,043 89,735
Balance 03/31/97 $3,641,166 $7,574,170 $29,297,581 ($ 264,720) ($1,340,000) $38,908,197
*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)
MARCH 31, MARCH 31
1997 1996
SEPTEMBER 30, SEPTEMBER 30
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $1,574,515 $ 5,121,135 $ 4,655,0821,522,250
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 566,161 436,354222,578 156,802
PROVISION FOR LOAN LOSSES 600,000 720,000180,000 240,000
PROVISION FOR LOSSES ON OTHER REAL ESTATE OWNED (4,664) 9,7780 (2,510)
NEW LOANS ORIGINATED FOR SALE (7,108,320) (5,422,883)(925,290) (2,894,790)
PROCEEDS FROM SALE OF MORTGAGES HELD FOR SALE 7,028,603 5,442,126861,267 2,892,941
GAIN ON SALE OF MORTGAGES ORIGINATED FOR SALE (15,108) (19,243)(27,569) (6,136)
NET SECURITIES GAINS (16,934)LOSSES (GAINS) 55,852 0
NET AMORTIZATION OF BOND PREMIUM 224,207 137,18522,985 64,122
(GAIN) LOSS ON SALE OF PREMISES AND EQUIPMENT 0 0
NET CHANGE IN OTHER ASSETS (287,745) (556,533)(337,212) (829,220)
NET CHANGE IN OTHER LIABILITIES 1,039,202 53,020530,022 753,759
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,146,537 5,454,8862,113,056 1,897,218
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF SECURITIES HELD TO MATURITY (13,636,697) (20,927,848)(5,053,484) ( 7,058,576)
PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS
OF SECURITIES HELD TO MATURITY 6,481,601 6,276,1344,846,744 2,007,718
PROCEEDS FROM CALLSALE OF SECURITIES HELD TO MATURITY 5,420,608 5,750,000119,218 3,500,000
PURCHASES OF SECURITIES AVAILABLE FOR SALE (5,503,125) (1,997,188)(500,000) (3,001,875)
PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS
OF SECURITIES AVAILABLE FOR SALE 148,128 4,54938,853 2,363
PROCEEDS FROM CALL OF SECURITIES AVAILABLE FOR SALE 60,021 500,000 0
NET LOANS MADE TO CUSTOMERS (10,009,102) (13,582,338)(2,860,140) 143,572
CAPITAL EXPENDITURES (1,894,340) (1,043,719)(346,144) (154,462)
PROCEEDS FROM SALE OF FIXED ASSETS 0 0
NET CASH USED IN INVESTING ACTIVITIES (18,492,928) (25,520,410)(3,694,932) (4,061,260)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET CHANGE IN SAVINGS, NOW AND DEMAND DEPOSITS 11,187,990 2,224,501(7,683,427) (6,686,550)
NET CHANGE IN TIME DEPOSITS (5,676,985) 28,215,467382,793 1,005,002
NET CHANGE IN REPURCHASE AGREEMENTS 1,071,183 9,403,755
PURCHASE OF ADVANCES(2,852,745) (464,443)
PROCEEDS FROM FHLB 33,000,000 19,000,000FEDERAL HOME LOAN BANK 3,000,000 9,000,000
REPAYMENT OF ADVANCES FROM FHLB (13,000,000) (20,000,000)FEDERAL HOME LOAN BANK (5,000,000) (4,000,000)
NET CHANGE IN OTHER SHORT TERM OTHER BORROWED FUNDS (16,110,515) (16,000,000)10,641,866 (1,608,855)
PROCEEDS FROMOF SALE OFFROM CAPITAL STOCK 89,735 129,696
61,828
PAYMENTPAYMENTS OF DIVIDENDS (1,116,854) (616,898)(481,763) (343,647)
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,484,515 22,288,653(1,903,541) (2,968,797)
NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS (1,861,876) 2,223,129(3,441,325) (5,132,839)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,298,408 12,559,797 9,714,713
CASH AND CASH EQUIVALENTS AT END OF QUARTER 10,6977921 11,937,842$9,857,083 $ 7,426,958
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FORFOR:
INTEREST 8,533,008 7,708,377$2,840,619 $2,805,299
INCOME TAXES 1,450,000 2,026,679279,000 $ 5,000
NON-CASH TRANSACTIONS:
TRANSFER FROM LOANS TO REAL ESTATE OWNED (OTHER A 193,000 186,000ASSETS) 0 $ 70,000
TRANSFER OF SECURITIES FROM HELD TO MATURITY
TO AVAILABLE FOR SALE 0 0
See accompanying notes to Consolidated Financial StatementsSEE 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.
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
relationship of the absolute dollar amounts of the change in each.
YEAR-TO-DATE FIGURES AS OF SEPTEMBER 30,MARCH 31, 1997
COMPARED TO MARCH 31, 1996
INCREASES (DECREASES) DUE TO:
VOLUME RATE NET
LOANS $ 281,354 $ (257,442) $ 23,912
TAXABLE SECURITIES $ 74,573 $ 63,500 138,073
TAX EXEMPT SECURITIES $ (13,112) $ (2,799) (15,911)
FEDERAL FUNDS SOLD AND
MONEY MARKET FUNDS $ 3,944 $ 46 3,990
TOTAL EARNING ASSETS $ 346,758 $ (196,694) $ 150,064
DEPOSITS $ ( 65,655) $ (102,547) (168,202)
BORROWINGS $ 212,160 $ 3,977 216,137
TOTAL INTEREST
BEARING LIABILITIES $ 146,504 $ (98,569) $ 47,935
NET CHANGE IN INTEREST $ 200,254 ($ 98,125) $ 102,129
YEAR-TO-DATE FIGURES AS OF MARCH 31, 1996
COMPARED TO SEPTEMBER 30,MARCH 31, 1995
INCREASES (DECREASES) DUE TO:
VOLUME RATE NET
LOANS $ 853,768 ($36,779) $816,989
TAXABLE SECURITIES 545,049 (129,372) 415,677
TAX EXEMPT SECURITIES (57,057) (8,572) (65,629)
FEDERAL FUNDS SOLD AND
MONEY MARKET FUNDS (58,848) (9,377) (68,225)
TOTAL EARNING ASSETS $1,282,912 (184,100) $1,098,812
DEPOSITS $357,112 283,876 640,988
BORROWINGS $116,955 (82,522) 34,433
TOTAL INTEREST
BEARING LIABILITIES $474,067 $201,354 $675,421
NET CHANGE IN INTEREST $808,845 ($385,454) $423,391
YEAR-TO-DATE FIGURES AS OF SEPTEMBER 30, 1995
COMPARED TO SEPTEMBER 30, 1994
INCREASES (DECREASES) DUE TO:
VOLUME RATE NET
LOANS $1,588,681315,043 $ 999,153 $2,587,834274,459 $ 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
PAGE
INTEREST RATE SENSITIVITY ANALYSIS
AS OF SEPTEMBER 30, 1996MARCH 31, 1997
(UNAUDITED)
Amounts in Thousands
The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at September 30, 1996March 31
1997 which are anticipated by the Bank, based upon certain
assumptions, to reprice or mature in each of the future time
periods shown.
ONE TO GREATER
TOTAL TO FIVE THAN FIVE
ONE YEAR YEARS YEARS TOTAL
Loans - Fixed Rate $ 10,06413,094 $ 30,34634,085 $ 22,88517,868 $ 63,295
Loans65,047
- Variable Rate 120,941 22,110 2,036 145,087117,652 26,616 2,071 146,339
Investments 42,025 41,622 24,479 108,12636,490 37,474 34,328 108,292
Federal Funds Sold 0 0 0 0
Interest Rate Swap/FloorSwap 0 15,000 0 15,000
Total Earning Assets $173,030 $109,078 $ 49,400 $331,508167,236 113,175 54,267 334,678
Deposits $139,010 $ 18,867 $ 99,026 $256,903141,486 14,521 88,367 244,374
Repurchase Agreements 6,7895,465 0 1,135 7,924725 6,190
Borrowings 25,681 10,90840,122 12,428 0 36,58952,550
Interest Rate Swap/FloorSwap 5,000 10,000 0 15,000
Total Sources $176,480 $ 39,775 $100,161 $316,416192,073 36,949 89,092 318,114
Net Gap Position ($3,450) $ 69,303 ($50,761) $ 15,092(24.837) 76,226 (34,825) 16,564
Cumulative Gap ($3,450) $ 65,853 $15,092 $ 15,092(24,837) $51,389 $16,564 $16,564
Rate Sensitive Assets/
Rate Sensitive Liabilities 87.07% 306.30% 60.91% 105.21%
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 4 3/4% 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 $4,000,000, 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 $40,000,000$44,000,000
are amortized using the weighted average maturity of 143147 months,
with an additional prepayment rate of 9%11%, which approximates
the Bank s prior experience. PAGE
NOTES TO FINANCIAL STATEMENTS DATED SEPTEMBER 30, 1996MARCH 31, 1997
1. Summary of interim financial 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 19951996 Annual Report.
March 31, 1997
Carrying Market
Value Value
SEPTEMBER 30, 1996
CARRYING MARKET
VALUE VALUE
2. INVESTMENT SECURITIES:SECURITIES
a. U.S. Treasury and other
Governmentgovernment agencies $ 79,180,49119,392,495 $ 78,065,73518,994,154
b. Marketable equity securities 550,000 547,250
Total Securities Available for Sale $ 19,942,495 $ 19,541,404
HELD TO MATURITY
a. U.S. Treasury and other
political subdivisions 62,001,708 61,072,423
b. States of the U.S. and other
Politicalpolitical subdivisions 12,771,113 13,142,75411,857,531 12,138,167
c. Other securities 16,412,392 16,461,022Corporate bonds 9,041,242
9,009,995
Total Securities $108,363,996 $107,669,511
Securities heldHeld to maturity 83,771,108 83,312,478
Securities available
For sale 24,592,888 24,357,033Maturity $82,900,481 $82,220,585
OTHER SECURITIES 5,448,569 $5,448,569
TOTAL SECURITIES $108,291,545 $107,210,558
The Bank does not hold any securities for a single Issuerissuer which
exceed 10% of the Bank s stockholders equity.
March 31, December 31,
1997 1996
September 30, December 31,
1996 1995
3. LOANSLOANS:
a. Commercial, agricultural Andand
other loans $43,914,307 $40,190,313$ 42,210,770 $ 39,451,440
b. Real Estate - Construction 8,750,023 8,072,2307,414,073 8,905,823
c. Real Estate - Mortgage 141,926,931 135,862,776148,062,406 146,361,313
d. Installment loans 16,769,687 17,640,398Loans 16,999,767 17,241,472
Total Loans $211,360,948 $201,765,717$214,687,016 $211,960,048
PAGE
4. CHANGES IN ALLOWANCE FOR POSSIBLE LOAN LOSSES:
March 31, March 31,
1997 1996
September 30, September 30
1996 1995
Balance, beginning January 1: $4,292,995 $ 4,047,883 $ 3,891,835
Provision charged to income 600,000 720,000180,000 240,000
Recoveries of amounts charged 100,840 78,14426,350 29,512
Losses charged to provision 461,073 464,264133,172 148,975
Balance, ending September 30:March 31 $4,366,173 $ 4,287,650 $ 4,225,7154,168,420
PAGE
Information regarding impaired loans is as follows for September 30, 1996:March 31, 1997:
Average investment in impaired loans $ 1,375,6831,913,664
Interest income recognized on impaired loans,
including interest income recognized on cash basis 107,73018,884
Interest income recognized on impaired loans on
cash basis 107,73018,884
Balance of impaired loans` 1,604,919loans 1,631,523
Less portion for which no allowance for loan losses
is allowed 0
Portion of impaired loan balance for which Anan
allowance for credit losses is allocated 1,604,9191,631,523
Portion of allowance for loan losses allocated
to the impaired loan balance 124,598118,824
5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE:
3/31/97 3/31/96 3/31/95
9/30/96 9/30/95 9/30/94
Balance, beginning Jan. 1January 1: $22,589 $26,000 $30,486 $ 53,286
Provision charged to income (4,664) 9,778 1,8000 (2,510) 9,867
Losses charged to provision 21,336 15,110 24,6000 0 0
Balance, ending Sept. 30 $ 0 $25,154 $ 30,486March 31 $22,589 $23,490 $40,353
6. The aggregate dollar amount of loans made to directors, executive
officers or principal holders of equity securities as of September 30,
1996March 31, 1997 and
December 31, 19951996 respectively were:
Aggregate amount, beginning 1-11/1 $3,806,555 $3,279,479
$ 3,409,868
New Loans 294,012 349,935loans 228,674 912,044
Repayments 63,576 480,32483,992 384,968
Aggregate amount, ending 9-30-96 $3,509,9153/31/97 $3,951,237
Aggregate amount, ending 12-31-95 $ 3,279,47912/31/96 $3,806,555
PAGE
7. OTHER ASSETS:
September 30,
March 31, December 31,
1997 1996
1995
a.
a: Interest earned but Notnot paid on:
Loans $ 1,513,648 $ 1,471,216$1,726,089 $1,471,216
Investments 1,253,2101,168,578 1,008,678
b. Other Real Estate Owned 275,744 443,652269,954 270,430
PAGE
8. INCOME TAXES:
The Company 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,
1996March 31, 1997
are as follows:
Current
Federal $2,215,053$680,789
State 68,036
$2,283,08926,017
Deferred (232,260)
$2,050,82937,147
$743,953
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, 1996:March 31, 1997
Computed tax expense $2,240,987$ 785,552
Tax exempt interest (240,264)(64,476)
Other 50,106
$2,050,829$ 22,877
$ 743,953
PAGE
At September 30, 1996,March 31, 1997, items giving rise to the deferred income tax assets and
liabilities, using a tax rate of 34%, are as follows:
ASSET LIABILITY
ASSET LIABILITY
Allowance for possible loan losses Onon loans
andAnd real estate owned $1,295,759$1,330,138
Deferred and accrued employee benefits 916,960936,499
Deferred loan origination fees 78,123
Securities60,051
Security losses not currently Deductibledeductible 0
Core deposit intangibles 92,43984,221
Depreciation 51,2440 78,850
Other 25,935
$2,460,460 $08,595
$2,419,504 $ 78,850
No valuation allowance is deemed necessary for the deferred tax asset.
9. INCOME TAX EXPENSE: 1997 1996 1995
Federal Income Tax $1,982,793 $2,018,482$717,936 $644,549
State Income Tax 68,036 66,25926,017 23,151
PAGE
MANAGEMENT S DISCUSSION AND ANALYSIS
The following is the review of the results of operations for
September 30,March 31, 1997, as compared to March 31, 1996, are reflected
through the growthshowing earnings with a 3%
increase, and changes in the balance sheet.sheet of $19,000,000 or approximately 6%
over last year. Total assets grewloans have grown by more than
$18,000,000 in 1996 and $30,000,000 in 1995 each compared toalmost $13,000,000 over the previous year s third quarter end. The major changes are foundpast
twelve months, with the investment portfolio remaining constant over the past
year. Purchases in the investment and loan portfolios.
TheBank s investment portfolio growthtotaled in excess of
just under $6,000,000 has
predominantly been in$15,000,000; however, maturities and principal paydowns from the areaBank s
mortgage backed securities portfolios were comparable for the same period.
Purchases were made of US Government agency debentures. The
most recent purchases totaling $2,500,000, have been callable securitiessponsored debentures or mortgage backed
pools. Unrealized gains and losses showed a negative balance for the second
year in a row and continue to be indicative of the current economic
marketplace with two or three years of call protectioninterest rates rising abruptly and final maturities of 10
years. These, like other longer term government sponsored securities
have been placedpresumed to be temporary.
This is also visible in the available for sale portion of the portfolio. In
addition, when comparing September 30, 1996 to September 30, 1995, the
Bank s available for sale portfolio has changed by the 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. The Bank s available for sale portfolio also includes
$5,400,000 in Federal Home Loan Bank stock. Ownership of stock is
required by the FHLB for participation in their funding programs.
Thetotal market value of the held to maturity portion ofportfolio that is
currently $1,080,000 below book value. However, the portfolio is $460,000 less than the book value, with the AFS portfolio market
value at $226,000 less than the book value. The potential for loss, if
the entire investment portfolioearning in
excess of the Bank were sold as of September
30, 1996, would be a loss of less than one-half of one percent of the
book value of the portfolio. The appreciation of net unrealized gains to
$85,500 as of September 30, 1995 was gradual in line with the increase
in the market. The market value of the entire portfolio, which was
approximately $470,000 greater than the book value, had risen in 1995,
following national economic trends including lower interest rates.7%. 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. It does holdholds one structured note, a 10-year step-upstep up
government agency debenture, which steps annually by 1/8 of 1% after 3another
two years during which time it is earningat 7%.
The taxable portionloan growth of the
Bank s securities have been earning 7.10 for the first nine months ofalmost $13,000,000 from March 31, 1996, a reduction of only 7 basis points since September 30, 1995.
In the loan portfolio, which has grown by $12,000,000 (6.2%) in
the past twelve months, the Bank s concentration has
been through the
extension ofpredominantly in loans secured by real estateestate. This 6% growth is
comparable to its consumer customers
totaling $8,000,000 more than one year ago. This comparesthe growth between 1995 and 1996, which was also attributable
to 1995's
growth of $16,000,000 (8.8%) in loan growth, with $11,000,000 beingloans secured by real estate and granted to the Bank s consumer customers.estate. The Bank continues to experience strong
competition from other financial institutions within its marketplace. Its
strength lies in its market area.
During 1996, the fundingrelationships built with our customers and the ability
to offer prompt service in response to their needs.
Funding for the asset growth has come predominantly from
borrowings primarily through the Federal Home Loan Bank. Total advances
increased by $28,000,000 and include $12,000,000increases in longer term
borrowings as funding for certain specific commercial credits. The Bank
had found it cheaper to solicit deposits in 1995 as competitive deposit
rates were below other options of funding sources. The Bank increased
i t s deposit by $23,000,000, predominantly in interest bearing
certificates of deposit promotions. Likewise, as opportunities surfaced
to attract lower cost deposits and repurchase agreements, advances from the Federal Home Loan Bank decreasedtotaling $16,500,000 as
those funds became less costly than traditional deposit products. A year ago
the bank had increased its deposits by $23,255,000 more than in March of
1995, through CD campaigns that brought in funds for periods of one to two
years. Those campaigns offered national market rates and affected only that
specific portion of total deposits, thereby not increasing existing deposit
costs. As those funds began to mature in mid-1996, which is visible with the
reduction in time deposits between March 1996 and 1997 of $6,600,000, the
Bank elected to switch to the Federal Home Loan Bank as its source of
replacement for some of those funds.
Similarly, between March 1995 and 1996, the Bank increased its
advances from the Federal Home Loan Bank by $7,000,000. During both
years, short$14,000,000 as these funds became
less costly than opportunities for wholesale repurchase agreements. Short
term borrowings were reducedwill begin dropping during the next six months 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 itits serves. The Bank
PAGE
utilizes a Basic Surplus/Deficit model to measure its liquidity over a 30-day
and a 90-day time horizon. We
e x a mine theThe relationship between liquid assets and short
term liabilities whichthat 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.period are examined. The Bank s policy is to maintain its liquidity position
at a minimum of 5% of total assets. For the past twelve months, theThe Bank has maintained liquidity in its
balance sheet in excess of 9.9%.14% for the past twelve months. Liquidity as
measured by the Basic Surplus/Deficit model was 15%17.2% as of March 31, 1996
for the 30-day horizon and 10.8%18.8% for the 90-day horizon as of September 30, 1996.horizon.
How the changes in the balance sheet have affected the Bank may be
viewed through the earnings statement for the periods ending September
30, 1994,March 31, 1995,
1996 and 1997. With growth of 6% in the Bank s balance sheet, earnings grew
by $52,000. In comparison, the Bank experienced a very strong first quarter
in 1996 in comparison to the first quarter of 1995 and 1996. Overall, thewhich produced a 16%
increase over net income earnings for the Bank are
$466,000 ahead of last year s first nine months earnings which
represents a 10% increase. Net interest income forduring the first ninethree months of 1996 has added strong earnings and1995.
Interest income is affected by rates, volumes and the mix of
earning assets and interest bearing liabilities. InterestFor the first three months
of 1996, net interest income earned from loans increased in 1996 by $850,000 due to volumes of
loans with a small reduction in earnings of $37,000 due to changes in
rates. Overall yields from the$100,000 and may be broken down as
follows. The loan portfolio remained within 5 basis
points of 1995's yields. In 1995, increases in the loan portfolio
affordedyielded the Bank additional interest income of
$1,590,000 due to$280,000 through increases in volumes, with further increases of $1,000,000but experienced offsetting decreasing
in interest income totaling $257,000 due to changesdecreases in rates. The Bankrates, leaving the
growth in loan interest income virtually flat over the past twelve months.
Yields on loans decreased by 21 basis points from March 1996 to March of
1997, following a year in which they had increased its base lending ratefrom 1995 to 1996 by 7524
basis pointspoints. Looking at the comparison in dollars of interest earned from
1995 to 1996, loan interest income was increased by $590,000, achieved
through increases in volume totaling $315,000 and increases in rates of
$275,000.
Although the investment portfolio did not grow between September 30, 1994the years
ended March 31, 1996 and September 30, 1995. Although
only a portion of loans1997, the portfolio changed as securities matured or
were called. Total investment income grew by $126,000, with increases in both
rates and volumes on those securities which are immediately affectedtaxable ($142,000) and
decreasing in both rates and volumes on tax exempt securities owned by changes in the
Bank s base rate,($16,000). The yield on the effect of the increase has over time increased the
yields in the portfolio. The commercial real estate rate for variable
rate mortgages increased as well in 1995 and by 100entire securities portfolio went up just
slightly (6 basis points since
September 30, 1994. As the loans in that portion of the portfolio,
totaling over $50,000,000 in mortgages, reached their annual anniversary
dates, the yield improved the overall yield for loans. Loan yields
increased by 99 basis points between September 30, 1995 and 1994 and
represented the first increase in several years.
Similar to the loan portfolio forpoints) during this period. At March 31, 1996, the investment
interest increasedand dividend income grew by virtue$175,000, with increases related to
volumes and a decrease in yields of purchases (totaling $429,000); however, as rates
remained flat and with larger coupons maturing the portfolio experienced
decreases due to rate changes totaling $147,000. Overall the yield on
investments has dropped the same as the loan yield, 5$22,000 or a drop of 32 basis points from
year to year.
For 1995, interestIncreased costs on investments increased both due to
volumes ($451,000) and to increased rates ($403,000). Similar to the loan yields, 1995 was the first year in several in which the overall
investment yield increased rather than decreased. Yields on investments
increasedliability side have been contained by 24 basis points during 1995 compared with 43 basis point
drops in 1994.
With the
Bank well matched innot increasing its rates on savings, NOW and money market funds for the
repricing of its balance sheet,past several years. At March 31, 1997, the funding costs followed a similar pattern as is described above for
loans and investments. In 1996, theBank s cost of deposits rose based on
volumes ($357,000) and rates ($284,000) while the cost of borrowed funds
increasedhad
decreased by $168,000, $65,000 due to reductions in volumes $117,000) but decreased by $82,500 because of rate changes. Reference is madecertificates
of deposit and $102,000 due to the earlier discussion that the Bank
elected to fund its asset growth through borrowings instead of deposits.reductions in rates. The cost of depositsborrowings
increased by 21 basis points whereas the$216,000, which is comprised of $212,000 due to increased
volumes (of $16,500,000 as mentioned earlier) and only $4,000 increase
attributed to rate increases. The cost of borrowings decreasedpurchased funds over the past
twelve months has increased by 268.5 basis points. The overall net interest income
forAs stated previously, during
1995 and 1996, is $423,000 more than for the first nine monthsBank promoted certificates of 1995.
Lookingdeposit at 1995, however, the cost of depositedcurrent national
market rates and attracted funds, increased
from September 1994 to 1995 by 78 basis points. Additionally rates rose
on borrowed funds during the same period by over 117 basis points. These
two factorswhich only increased the cost of funds on
those particular CDS. The Bank s cost of interest bearing liabilitiesfunds increased by
$2,263,000 in 1995. Due toPAGE
$447,000 that was less than the increase in borrowedprevious year, although deposit balances grew
by over $23,000,000. The cost of purchased funds costs, thewent up 17 basis points
during this period.
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. With increases on both sides of the balance sheet,
the net effect on the Bank s earnings remained strongis positioned well with its net
interest income totaling $1,178,000 more in 1995 than in 1994.
With regard to interest rate
sensitivity the Bank is positioned
favorablywith assets and liabilities matched for the current interest rate cycle with $3,500,000 more of
its liabilities repricing within a year.
There is some exposure to falling rates out beyond a year when compared to its assets.
Based on simulations, if interest rates were to risethat is primarily
driven by 200 basis points
and if the Bank were to maintain the balance sheet as it today, the Banks expectation that core deposit rates should not be
lowered. Additionally, with a projected acceleration in prepayments in loans
and investments, cash would experience virtually no change in its net interest income ($88,000
increase) in the next two years.be reinvested at lower yields. If rates were to
drop by 200 basis points, simulations indicate that the Bank would only see a reduction in itss net interest
income could drop by approximately $60,000 during the second year of $193,000. Neither change in rates (up or down) would indicate
interest rate risk concerns for the
Bank.
Due to changesdrop, while increasing its income in the methodology used for computingfirst year by $220,000. This may be
seen in the Interest Rate Sensitivity Analysis enclosed showing that during
the first year the Bank has almost $25,000,000 fewer assets repricing than
liabilities. If rates were to rise by 200 basis points, the Bank could
experience a drop in interest income in the first year by $115,000, but pick
up additional interest earnings in the second year by $90,000.
The Bank has maintained its reserve for possible loan losses and due toover
the past several years, reflecting the recessionary nature of the economy in
the early 1990's,1990s. The ratio for the Bank increased its ratio to gross loans
toreserve for possible loan losses has been
over 2% and has maintained that reserve to loanfor the past three years, with a ratio through
September 30, 1996.of 2.03% as of March 31, 1997.
The Bank reviews its allocation to the reserve on a monthly basis and funds
the reserve as deemed necessary. TheThis review includes a provision for
specific credits, provisions due to historic l o a n l ossesloan losses by loan types and
reservedreserves reflecting industry concentrations, credit concentrations, current
economic conditions and
underwriting under writing standards. In 1995, the Bank added a
provision for impaired loans in accordance with FASB 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 loans 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 and 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 $1,604,919 and $1,041,882 at
September 30, 1996 and 1995, respectively.114/118. Reference is
made to the notes included within this filing that outlineoutlines the impaired loan
figures. Losses in the loan portfolio wereare estimated at $840,000$500,000 for 1996,1997,
with charged off loansfirst quarter 1997 charge offs totaling $461,000 for$133,000 compared to $149,000
during the first nine monthsquarter of this year. Losses for 1995 were originally estimated at $950,000 with
$464,000 charged off through September 30, 1995, compared to $337,000
charged off in the first nine months of 1995.1996. The amounts represented below are the total
dollars outstandingpast due for the first ninethree months of each year listed. Included in
the 90-day past due category for 1996 are two loans totaling $820,000, one of
which became current in the second quarter of 1996 and the other secured SBA
financing.
Category 1997 1996 1995
Category 1996 1995 1994
90-day past due and
still accruing $ 830,5321,302,437 $ 711,9431,247,941 $ 645,920189,904
Non-accruing 3,557,518 2,584,343 2,627,3143,207,492 3,289,461 4,184,679
Total 4,509,929 4,537,402 4,374,583
Gross loans 211,360,948 199,190,024 175,399,428$214,687,016 $201,502,682 $190,459,413
Percentage of gross loans 2.08% 1.65% 1.87%
A review of the Bank s non-interest income shows the first nine
months of 1996 ahead of the same period for 1995 by $558,000. $2300,000
of that pertains to the Trust Department s charge to its customers of
scheduled fees. These fees are based on increased book assets of almost
$25,000,000 and are based on the market value of total assets per
account. In addition, as of January 1, 1996, the Bank implemented FASB
Statement No. 122, Accounting for Mortgage Servicing Rights that has
positively impacted the Bank s earnings by $126,000 year to date. A non-
recurring entry of $278,000 in the form of an insurance payoff from a
policy written on certain key persons in the Bank. Robert Avery,
director and former president of the Bank, passed away in August of 1995
resulting in this one-time tax deductible payment. In 1995, non-interest
earnings were $124,000 ahead of the same period in 1994, which was
attributable to the Trust Department s scheduled fees based on increased
book assets of more than $18,000,000. In 1994, the Bank experienced a
modest increase in non-interest income of $70,000 more than the previous
year.
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 year that the dollars have been
allocated prior to year end. Excluding the accrual, salary and benefits
would be 1.6% higher than the first nine months of 1995. Salary and
employee benefits for 1995 are actually three percent below 1994's
expense and compare favorably with 1994 which shows a $435,000 (or 13%)
increase over 1993. The increase in 1994 represents merit 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.
Other expense for the first nine months of 1996 is above the
comparable period in 1996 by $60,000 or 1.6%. A portion of that
containment of costs is attributable to the temporary relief from FDIC
insurance premiums. As a well-capitalized bank, Bar Harbor Banking and
trust Company has not been required to pay premiums this year. As of
September 30, 1995, the bank had incurred $240,000 in FDIC premiums. In
the fourth quarter 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 approximately
$120,000 in expenses for these services during the first nine months of
1996 as the project was being completed. Additionally, the Bank is
involved in numerous project, including item and document imaging, the
conversion of its banking software to a client server model created by
its current software vendor, the building of an operations center to
house the loan, deposit, credit card and item processing operations of
the Bank. Startup and non-recurring costs for these projects are
included in the other expenses through September 30, 1996.
W i th regard to other expense for 1995, expenses totaling
$3,700,000 compared 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. During 1993, the Bank took losses on
properties owned which resulted from loan problems totaling $264,000.
There were no comparable losses in either 1994 or 1995. There was no one
category of expense which exceeded $50,000 in increased expenditures in
1995. The Trust Department had recently outsourced its tax preparation
f o r customers and the initial outlay for that operation was
approximately $44,000. Fees are now being generated from Trust customers
and are reflected in the income earned by the Trust Department as
discussed earlier. The Bank s year-to-date efficiency ratio is 55%
remains consistent with the 1995 ratio and is well under the national
average.
Subsequent to September 30, 1996, the Bank was examined by the
Bureau of Banking for the Sate of Maine with a safety and soundness
audit and there were no recommendations made which would have a material
effect on the registrant s capital resources, liquidity or operating
earnings. The Bank s capital to asset ratio is 10.86% and the Bank far
exceeds the required risk based capitol ratio of 8% with its Tier I
ratio of 17.0%, total capital ratio of 18.25% and leverage ratio of
10.63%. Using the risk based capital formula, the Bank has capital in
excess of requirements of $21,757,000.
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: November 12, 1996 Sheldon F. Goldthwait, Jr.
President
Virginia M. Vendrell /s/
Date: November 12, 1996 Virginia M. Vendrell
S e n ior Vice President,
Treasurer
and Chief Accounting Officer2.10% 2.25% 2.30%
PAGE
In reviewing non-interest income and non-interest expense for the
period between March 31, 1996 and 1997, there are no categories showing
significant changes with dollars not exceeding $60,000 or more than 4% for
any major category. The following is a discussion of the changes between 1995
and 1996. The first three months of 1996 show a strong start for the year
with growth of 13%. This growth is attributed to the Trust Department 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.
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 year 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 1995.
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.
The Bank s capital to asset ratio is 11.6% and the Bank far
exceeds the required risk based capital ratio of 8% with its Tier 1 ratio of
18.3% and total capital ratio of 19.5% or additional capital of $21,800,000.
These ratios compare favorably to March 31, 1996 when the capital to average
asset ratio was 10.6%, Tier 1 and total capital ratios compared to risk
weighted assets were 16.1% and 17.4% respectively.
SFAS No. 125 and 127 relate to the accounting for transfers and
servicing of financial assets and extinguishment of certain liabilities and
were adopted effective January 1, 1997. The adoption of these standards has
had no material effect on the financial statements.
SFAS No. 128 relates to the computation for earnings per share.
The effect of adopting SFAS 128 has not been determined as of March 31, 1997.
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: May 15, 1997 Sheldon F. Goldthwait, Jr.
President
Virginia M. Vendrell /s/
Date: May 15, 1997 Virginia M. Vendrell
Senior Vice President, Treasurer
and Chief Financial Officer
PAGE