UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 1312 OR 15(d)15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31,June 30, 1997.
Commission File No. 841105-D
BAR HARBOR BANKSHARES
MAINE 01-039366301-
0393663
(State or other jurisdiction of (I.R.S>(I.R.S.
Employer
incorporation or organization)
Identificationidentification No.)
Bar Harbor, Maine 04609-040004609-
0400
(Address of principal executive (Zip(ZIP
Code)
offices)
Registrant sRegistrant's telephone number, including area code:
(207) 288-3314
Indicate by check mark whether the Registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to
file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES XX NO
Indicate the number of shares outstanding of each
of the issuer sissuer's classes of common stock as of March 31,June
30, 1997:
Common Stock: 1,820,583
PAGE
TABLE OF CONTENTS
Page
Financial Information
Item I.1. Financial Statements
Consolidated Balance Sheets 3
December 31, 1996, and March 31,June 30, 1997 3-4
Consolidated Statements of Earnings
Three months and six months ended March 31, 1995,June 4
30, 1996
and 1997 5
Consolidated Statements of Changes in
StockholdersStockholders' Equity Threethree months and 5
six
months ended March 31,June 30, 1996 and 1997 6
Consolidated Statement of Cash Flows
ThreeSix months ended March 31,June 30, 1996 and 1997 7-86-7
Rate Volume Analysis
ThreeSix months ended March 31,June 30, 1996 and 1997 98
Rate Sensitivity Report
As of March 31,June 30, 1997 109
Notes to Financial Statements 11-1510-12
Item 2. Management s2 Management's Discussion and Analysis
of 13-17
Financial Condition and
Results of
Operations
16-19
Signature Page 2018
PAGE
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31,JUNE 30, 1997 AND DecemberDECEMBER 31, 1996
March 31June 30 December 31
1997 1996
ASSETS
Cash and Due from Banks $ 9,857,083 $ 11,298,408$10,967,452 $11,298,408
Federal Funds Sold 0 2,000,000
Investment Securities
Securities available for sale, 19,541,404at 20,449,694 19,384,433
market
Securities held to maturity
(Market value $82,220,584,Value $77,053,468 in 1997; $83,067,74676,824,499 82,716,836
1997 and $85,503,679 in
1996) 82,900,482 82,716,8361996
Other Securities 5,448,5695,902,269 5,623,639
Loans held for sale 441,6750 336,540
Loans, netNet of allowanceAllowance for
possible loan losses of $4,366,173217,086,864 207,667,053
$4,434,409 in 1997 And $4,292,995and
$4,249,128 in 1996 210,320,843 207,667,053
Premises and Equipment 7,621,6127,787,540 7,498,046
Other Assets 9,050,8589,116,344 8,617,790
TOTAL ASSETS $345,182,526 $345,142,745$348,134,66 $345,142,74
2 5
LIABILITIES AND STOCKHOLDERSSTOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand Deposits $ 33,418,916 $ 35,918,779$36,291,238 $35,918,779
NOW Accounts 37,597,43039,196,729 40,529,509
Savings Deposits 50,833,57750,681,982 53,085,062
Time, $100,000 and over 15,748,03113,437,596 14,611,616
Other Time 106,776,570107,623,891 107,530,192
Total Deposits 244,374,524247,231,436 251,675,158
Securities Sold Under Repurchase 2,046,970 8,246,079
Agreements 5,393,334 8,246,079
Advances from Federal Home Loan 55,039,377 43,908,263
Bank 52,550,129 43,908,263
Other Liabilities 3,956,3423,879,749 3,426,320
Total Liabilities 306,274,329308,197,532 307,255,820
Commitments and Contingent LiabilitiesCOMMITMENTS AND CONTINGENT
LIABILITIES
Capital Stock, Par Value $2
Authorized 10,000,000 shares
Issued 1,820,583 in 1997
and 1,818,237 in 1996 3,641,166 3,636,474
Surplus 7,574,170 7,489,127
Retained Earnings 29,297,58130,195,837 28,204,829
PAGE
Net Unrealized Appreciation
on
Securities available for
sale, Net (134,043) (103,505)
of Tax Expense (Benefit)Benefit of ($136,371)$69,110 in
1997 and tax of
$53,321
in 1996
(264,720) (103,505)
Less: Cost of 100,000100,0006 shares of (1,340,000) (1,340,000)
Treasury Stock
(1,340,000) (1,340,000)
TOTAL STOCKHOLDERSSTOCKHOLDERS' EQUITY 38,908,19739,937,130 37,886,925
TOTAL LIABILITIES AND STOCKHOLDERSSTOCKHOLDERS'S $348,134,66 $345,142,74
EQUITY $345,182,526 $345,142,7452 5
The accompanying notes are an integral part of
these consolidated financial statements.
PAGE
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
THREE THREE THREESIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDING ENDING ENDING 03/31/ENDING
06/30/97 03/31/06/30/96 03/31/9506/30/97 06/30/96
Interest & Fees on Loans $5,026,419 $5,002,507 $4,413,005$5,176,33 $4,994,29 $10,202, $9,996,8
2 7 751 04
Interest & Dividends on
Investment Securities:
Taxable Interest 1,614,552 1,448,225 3,210,24 2,916,35
Income 1,595,692 1,468,129 1,243,3234 4
Non-taxable 167,004 194,126 346,569 389,602
Interest Inc.
179,565 195,476 215,370
Dividends 96,008 85,498 104,37699,069 86,373 195,077 171,871
Federal Funds Sold 9,183 5,193 16,0744,943 11,790 14,126 16,983
TOTAL INTEREST INCOME 6,906,867 6,756,803 5,992,148$7,061,90 6,734,811 13,968,7 13,491,6
0 67 14
Interest on Deposits 2,138,874 2,307,076 1,794,5982,142,907 2,249,523 4,281,78 4,556,59
1 9
Interest onin Short Term 844,163 619,500 1,570,24 1,129,44
Borrowings 726,079 509,942 575,4082 2
TOTAL INTEREST EXPENSE 2,864,953 2,817,018 2,370,0062,987,070 2,869,023 5,852,02 5,686,04
3 1
Net Interest Income 4,041,914 3,939,785 3,622,1424,074,830 3,865,788 8,116,74 7,805,57
4 3
Provision for Loan Losses 180,000 240,000 240,000360,000 480,000
Net Interest Income after
Provision for Loan 3,894,830 3,625,788 7,756,74 7,325,57
Losses 3,861,914 3,699,785 3,382,1424 3
Other Income 1,026,839 1,001,427 883,606
Net1,111,764 1,056,003 2,138,60 2,057,43
3 0
Investment Security Gains (Losses) (55,852)16,934 0 016,934
Other Expenses:
Salaries & Employee Ben. 1,459,506 1,401,822 1,208,5231,429,951 1,395,727 2,889,45 2,797,54
Benefits 7 9
Other 1,054,927 1,109,440 1,173,0461,498,982 1,137,597 2,553,90 2,247,03
7 7
Investment 0 0 55,854 0
Securities Losses
Income Before Income 2,077,661 2,165,401 4,396,12 4,355,35
Taxes 2,318,468 2,189,950 1,884,1799 1
Income Tax Expense 743,953 667,700 575,870663,231 656,292 1,407,18 1,323,99
4 2
NET INCOME $1,574,515 $1,522,250 $1,308,309$1,414,43 $1,509,10 $2,988,9 $3,031,3
0 9 45 59
PER COMMON SHARE DATA,
RESTATED
FOR FIVE-FOR-ONE SPLIT IN 1995:
BASED ON 1,713,6051,718,237 SHARES FOR
1995, 1,718,237
FOR 1996, AND 1,720,583 SHARES$0.82 $0.88 $1.74 $1.76
FOR 1997 $0.92 $0.89 $0.76
DIVIDENDS PER SHARE $0.28$0.30 $0.20 $0.00$0.58 $0.40
The accompanying notes are an integral part of
these consolidated financial statements.
PAGE
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERSSTOCKHOLDERS' EQUITY
QUARTERS ENDED MARCH 31, 1995,JUNE 30, 1996, AND 1997
(UNAUDITED)
NET UNREA- NET
LIZED LOSS STOCK-
CAPITAL RETAINED ON AVAILABLE TREASURY HOLDERS
STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY
NET NET
UNREA- STOCK-
CAPITAL RETAINED LIZED TREASURY HOLDERS
STOCK SURPLUS EARNINGS LOSS STOCK '
ON EQUITY
EQUITY
SECURIT
IES
Balance, 12/31/94 3,619,670 7,314,408 19,118,678 $48,027 (1,340,000) 28,760,78395 $3,627,2 $7,368,6 $23,523, $63,293 $(1,340, $33,242
10 95 626 000) ,824
Net Earnings 1,308,309 1,308,309
Cumulative effect to record
appreciate on securities
available for sale 03,031,35 3,031,3
9 59
Cash Dividends Declared 0(687,295 (687,29
) 5)
Net Unrealized Appreciationunrealized
depreciation on
Securities (236,54 (236,54
Available for Sale, 9) 9)
Net of Tax of
$37,388 24,550 24,550$89,253
Sale of Stock (3,770* Shares) 7,540 54,288 0 0 0 61,828(4,632 9,264 120,432 129,696
shares)
Balance, 3/31/95 $3,627,210 $7,368,696 $20,426,987 $ 72,55706/30/96 $3,636,4 $7,489,1 $25,867, ($1,340,000) $72,557
$30,155,470173,2 ($1,340, $35,480
74 27 690 56) 000) ,035
Balance 12/31/95 $3,627,210 $7,368,695 $23,523,626 $ 63,29396 $3,636,4 $7,489,1 $28,204, ($1,340,000) 33,242,824103,5 ($1,340, $37,886
74 27 829 05) 000) ,926
Net earnings 1,574,515 1,574,515Earnings 2,988,94 $2,988,
5 945
Cash dividends declared (343,647) (343,547)(997,938 ($997,9
) 38)
Net unrealized
depreciation on
securities (30,538 ($30,53
available for sale, ) 8)
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 $24,754,494 ($ 49,273) ($1,340,000) $34,490,822
Balance 12/31/96 $3,636,474 $7,489,127 $28,204,829 ($ 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)$15,751
Sale of Stock (2,346 shares) 4,692 85,043 89,735$89,735
shares)
Balance 03/31/06/30/97 $3,641,166 $7,574,170 $29,297,581$3,641,1 $7,574,1 $30,195, ($ 264,720)134,0 ($1,340,000) $38,908,1971,340, $39,937
66 70 836 43) 000) ,130
*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
JUNE 30, JUNE 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $1,574,515 $ 1,522,250
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 222,578 156,802
PROVISION FOR LOAN LOSSES 180,000 240,000
PROVISION FOR LOSSES ON OTHER REAL ESTATE OWNEDNet Income $2,988,9 $3,031,35
45 9
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation 442,793 329,704
Provision for Loan Losses 360,000 480,000
Provision for Losses on Other Real 0 (2,510)
NEW LOANS ORIGINATED FOR SALE (925,290) (2,894,790)
PROCEEDS FROM SALE OF MORTGAGES HELD FOR SALE 861,267 2,892,941
GAIN ON SALE OF MORTGAGES ORIGINATED FOR SALE (27,569) (6,136)
NET SECURITIES LOSSES (GAINS)Estate Owned
New Loans Originated for Sale (1,738,4 (5,687,09
90) 0)
Proceeds from Sale of Mortgages 2,153,54 5,597,589
Held for Sale 9
Gain on Sale of Mortgages (50,412) (11,929)
Originated for Sale
Net Securities Gains 55,852 0
NET AMORTIZATION OF BOND PREMIUM 22,985 64,122
(GAIN) LOSS ON SALE OF PREMISES AND EQUIPMENT(16,934)
Net Amortization of Bond Premium 53,826 195,777
(Gain) Loss on Sale of Premises 0 0
NET CHANGE IN OTHER ASSETS (337,212) (829,220)
NET CHANGE IN OTHER LIABILITIES 530,022 753,759
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,113,056 1,897,218and Equipment
Net Change in Other Assets (459,495 (862,617)
)
Net Change in Other Liabilities 453,429 59,735
Net Cash Provided by Operating Activities 4,259,99 3,113,083
7
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF SECURITIES HELD TO MATURITY (5,053,484) ( 7,058,576)
PROCEEDS FROM THE MATURITYPurchases of Securities Held to Maturity (7,675,4 (13,636,6
21) 97)
Proceeds from the Maturity & PRINCIPAL PAYDOWNS
OF SECURITIES HELD TO MATURITY 4,846,744 2,007,718
PROCEEDS FROM SALE OF SECURITIES HELD TO MATURITY 119,218 3,500,000
PURCHASES OF SECURITIES AVAILABLE FOR SALE (500,000) (3,001,875)
PROCEEDS FROM THE MATURITYPrincipal
Paydowns 9,263,93 4,137,496
of Securities Held to Maturity 8
Proceeds from Call of Securities Held to 4,250,00 5,420,608
Maturity 0
Purchases of Securities Available for Sale (1,250,0 (3,001,87
00) 5)
Proceeds from the Maturity & PRINCIPAL PAYDOWNS
OF SECURITIES AVAILABLE FOR SALE 38,853 2,363
PROCEEDS FROM CALL OF SECURITIES AVAILABLE FOR SALEPrincipal
Paydowns 78,385 110,710
of Securities Available for Sale
Proceeds from Call of Securities Available 60,021 500,000
NET LOANS MADE TO CUSTOMERS (2,860,140) 143,572
CAPITAL EXPENDITURES (346,144) (154,462)
PROCEEDS FROM SALE OF FIXED ASSETSfor Sale
Purchases of Other Securities (453,700 0
)
Proceeds from Sales of Other Securities 119,218 0
Net Loans Made to Customers (9,831,1 (7,054,43
87) 7)
Capital Expenditures (732,287 (1,092,82
) 0)
Proceeds from Sale of Fixed Assets 0 0
NET CASH USED IN INVESTING ACTIVITIES (3,694,932) (4,061,260)Net Cash Used in Investing Activities (6,171,0 (14,617,0
33) 15)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET CHANGE IN SAVINGS,Net Change in Savings, NOW AND DEMAND DEPOSITS (7,683,427) (6,686,550)
NET CHANGE IN TIME DEPOSITS 382,793 1,005,002
NET CHANGE IN REPURCHASE AGREEMENTS (2,852,745) (464,443)
PROCEEDS FROM FEDERAL HOME LOAN BANK 3,000,000 9,000,000
REPAYMENT OF ADVANCES FROM FEDERAL HOME LOAN BANK (5,000,000) (4,000,000)
NET CHANGE IN SHORT TERM OTHER BORROWED FUNDS 10,641,866 (1,608,855)
PROCEEDS OF SALE FROM CAPITAL STOCKand Demand (3,363,4 (4,185,46
Deposits 01) 7)
Net Change in Time Deposits (1,080,3 1,940,668
21)
Net Change in Repurchase Agreements (6,199,1 (1,320,49
09) 9)
Purchase of Advances from FHLB 13,500,0 15,000,00
00 0
Repayment of Advances from FHLB (15,000, (4,000,00
000) 0)
Net Change in Other Short Term Borrowed 12,631,1 1,217,151
Funds 14
Proceeds of Sale from Capital Stocks 89,735 129,696
PAYMENTS OF DIVIDENDS (481,763) (343,647)
Payments of Dividends (997,938 (687,295)
)
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,903,541) (2,968,797)(419,920 8,094,254
)
NET INCREASE (DECREASE)IN CASH AND CASH (2,330,9 (3,409,67
EQUIVALENTS (3,441,325) (5,132,839)56) 7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,298,408 12,559,79713,298,4 12,559,79
08 7
CASH AND CASH EQUIVALENTS AT END OF QUARTER $9,857,083$10,967, $
7,426,958452 9,150,120
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST $2,840,619 $2,805,299
INCOME TAXES 279,000 $ 5,000Cash Paid During the Year for:
Interest $5,853,7 $5,715,65
80 3
Income Taxes, Net of Refunds $1,041,0 $1,362,00
00 0
NON-CASH TRANSACTIONS:
TRANSFER FROM LOANS TO REAL ESTATE OWNED (OTHER ASSETS)Transfer from loans to Real Estate Owned $0 $
(Other Assets) 155,000
Transfer of Securities from Held to Maturity to 0 $ 70,000
TRANSFER OF SECURITIES FROM HELD TO MATURITY
TO AVAILABLE FOR SALE 0
0Available for Sale
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGEThe accompanying notes an integral part of these
Consolidated Financial Statements
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 MARCH 31,JUNE 30, 1997
COMPARED TO MARCH 31,JUNE 30, 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 $ 200,254Loans $580,385 ($ 98,125) $ 102,129374,438 $205,947
)
Taxable Securities 130,824 186,272 317,096
Tax Exempt Securities (44,814) 1,781 (43,033)
Federal Funds Sold and
Money Market Funds (3,319) 462 (2,857)
Total Earning Assets $663,076 ($185,923 $477,153
)
Deposits ($44,857) ($229,961 ($274,818
) )
Borrowings $385,631 $55,169 $440,800
Total Interest
Bearing Liabilities $340,774 ($174,792 $165,982
)
Net change in interest $322,302 ($11,131) $311,171
YEAR-TO-DATE FIGURES AS OF MARCH 31,JUNE 30, 1996
COMPARED TO MARCH 31,JUNE 30, 1995
INCREASES (DECREASES) DUE TO:
VOLUME RATE NET
LOANS $ 315,043 $ 274,459 $ 589,502
TAXABLE SECURITIES $ 226,001 $ ( 20,073) 205,928
TAX EXEMPT SECURITIES $ (19,783) $ (111) (19,894)
FEDERAL FUNDS SOLD AND
MONEY MARKET FUNDS $ (9,369) $ (1,512) (10,881)
TOTAL EARNING ASSETS $ 511,892 $ 252,763 $ 764,655
DEPOSITS $ 224,289 $ 288,189 512,478
BORROWINGS $ (54,199) $ (11,267) (65,466)
TOTAL INTEREST
BEARING LIABILITIES $ 170,090 $ 276,922 $ 447,012
NET CHANGE IN INTEREST $ 341,802Loans $570,888 $216,700 $787,588
Taxable Securities 400,827 (132,409) 268,418
Tax Exempt Securities (38,901) (3,245) (42,146)
Federal Funds Sold and
Money Market Funds (25,939) (6,429) (32,368)
Total Earning Assets $906,874 $74,618 $981,492
Deposits $310,464 $402,100 $712,564
Borrowings 4,886 (61,468) (56,582)
Total Interest
Bearing Liabilities $315,350 $340,632 $655,982
Net change in interest $591,525 ($ 24,159) $ 317,643266,015 $325,510
)
INTEREST RATE SENSITIVITY ANALYSIS
AS OF MARCH 31,JUNE 30, 1997
(UNAUDITED)
Amounts in Thousands
The following table sets forth the amounts of
interest-earning assets and interest-bearing
liabilities outstanding at March 31June 30, 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 $ 13,094 $ 34,085 $ 17,868 $ 65,047$13,739 $33,366 $17,125 $64,230
- Variable 118,521 34,608 2,252 155,381
Rate
117,652 26,616 2,071 146,339
Investments 36,490 37,474 34,328 108,29239,926 36,204 27,249 103,379
Federal Funds Sold 0 0 0 0
Interest Rate Swap 0 15,0005,000 10,000 0 15,000
Total Earning Assets 167,236 113,175 54,267 334,678$177,186 $114,178 $46,626 $337,99
0
Deposits 141,486 14,521 88,367 244,374$136,412 $11,936 $99,784 $248,13
2
Repurchase Agreements 5,4652,046 0 725 6,190796 2,842
Borrowings 40,122 12,42848,010 9,229 0 52,55057,239
Interest Rate Swap 5,000 10,000 0 15,000
Total Sources 192,073 36,949 89,092 318,114$191,468 $31,165 $100,580 $323,21
3
Net Gap Position (24.837) 76,226 (34,825) 16,564($14,282) $83,013 ($53,954) $14,777
Cumulative Gap (24,837) $51,389 $16,564 $16,564($14,282) $68,731 $14,777 $14,777
Rate Sensitive
Assets/
Rate Sensitive 92.54% 366.37% 46.36% 104.57%
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 one 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,$2,500,000, 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 $44,000,000 areand amortized
using the weighted average maturity of 147 months,
with an additional prepaymenta 11% rate, of 11%, which approximates the Bank sBank's
prior experience. PAGE
NOTES TO FINANCIAL STATEMENTS DATED MARCH 31,JUNE 30, 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 1996Bank's 1995 Annual
Report.
March 31, 1997
Carrying Market
Value Value
2. INVESTMENT SECURITIES June 30,
1997 Market
Carrying Value
Value
a. U. S. Treasury and other
government agencies $20,102,84 $19,891,44
7 5
b. Marketable equity 550,000 558,250
securities
Total Securities Available for $20,652,84 $20,449,69
Sale 7 5
HELD TO MATURITY:
a. U.S. Treasury and other
government agencies $ 19,392,495 $ 18,994,154
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$57,524,71 $57,474,52
7 7
b. States of the U.S. and
other 10,540,444 10,818,972
political subdivisions 11,857,531 12,138,167
c. Corporate bonds 9,041,242
9,009,9958,759,338 8,759,968
Total Securities Held to $76,824,49 $77,053,46
Maturity $82,900,481 $82,220,5859 7
OTHER SECURITIES 5,448,569 $5,448,569$5,902,269 $5,902,269
TOTAL SECURITIES $108,291,545 $107,210,558$103,379,6 $103,405,4
15 31
The Bank does not hold any securities for a single
issuer which exceed 10% of the Bank s stockholdersBank's stockholders'
equity.
March 31, December 31,
1997 1996
June 30, December
3. LOANS: 1997 31,
1997
a. Commercial, agricultural and
other loans $ 42,210,770 $ 39,451,440$44,786,794 $39,451,440
b. Real Estate - Construction 7,414,0736,743,127 8,905,823
c. Real Estate - Mortgage 148,062,406152,760,232 146,361,313
d. Installment Loans 16,999,76717,231,020 17,241,472
Total Loans $214,687,016 $211,960,048$221,521,173 $211,960,04
8
PAGE
4. CHANGES IN ALLOWANCE FOR POSSIBLE LOAN
LOSSES:
March 31, March 31,
1997 1996
June 30, June 30,
1997 1996
Balance, beginning January 1: $4,292,995 $ 4,047,883$4,047,883
Provision charged to income 180,000 240,000360,000 480,000
Recoveries of amounts charged 26,350 29,51251,376 69,767
Losses charged to provision 133,172 148,975270,062 348,522
Balance, ending March 31 $4,366,173 $ 4,168,420June 30 $4,434,309 $4,249,128
Information regarding impaired loans is as follows
for March 31,June 30, 1997:
Average investment in impaired $1,720,858
loans $ 1,913,664
Interest income recognized on
impaired
loans, including interest 48,596
income
recognized on cash basis
18,884
Interest income recognized on
impaired 48,596
loans on cash basis
18,884
Balance of impaired loans 1,631,5231,810,192
Less portion for which no
allowance for $0
loan losses is allowed 0
Portion of impaired loan balance
for
which an allowance for $1,810,192
credit losses
is allocated 1,631,523
Portion of allowance for loan
losses 74,796
allocated to the impaired
loan balance 118,824
5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE:
3/31/97 3/31/96 3/31/95
6/30/97 6/30/96 6/30/95
Balance, beginning January 1: $22,589 $26,000 $30,486
Provision charged to income 0 (2,510) 9,86720,398
Losses charged to provision 5,124 0 0 019,231
Balance, ending March 31 $22,589June 30 $17,465 $23,490 $40,353$31,653
6. The aggregate dollar amount of loans made to
directors, executive officersofficer or principal holders
of equity securities as of March 31,June 30, 1997, and
December 31, 1996, respectively were:
Aggregate amount, beginning 1/1 $3,806,555 $3,279,479$3,806,55 $3,279,47
5 9
New loans 228,674Loans 1,173,100 912,044
Repayments 83,992139,269 384,968
Aggregate amount, ending 6/30/97 $4,840,38
6
Aggregate amount, ending 3/31/97 $3,951,237
Aggregate amount, ending 12/31/96 $3,806,555$3,806,55
5
PAGE
7. OTHER ASSETS:
March 31, December 31,
1997 1996
a:June 30, December
1997 31, 1996
a. Interest earned but not paid
on:
Loans $1,726,089 $1,471,216$2,237,520 $1,426,296
Investments 1,168,578 1,008,6781,081,539 1,237,564
b. Other Real Estate Owned 269,95464,463 270,430
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 not effect
on the company's net income or retained earnings.
Components of income tax expense for the period
ended March 31,June 30, 1997, are as follows:
Current
Federal $680,789
State 26,017
Deferred 37,147
$743,953
Current
Federal
$1,541,080
State
46,029
Deferred
(179,925)
$1,407,184
Actual tax expense differs from the expected tax
expense computer by applying the applicable federal
corporate income tax rate of 34% is as follows for
the three months ended March 31, 1997
Computed tax expense $ 785,552
Tax exempt interest (64,476)
Other $ 22,877
$ 743,953
PAGE
June 30, 1997:
Computed tax expense
$1,498,081
Tax exempt interest
(125,214)
Other
34,317
$1,407,184
At March 31,June 30, 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 losses on
loans And$1,353,30
and real estate owned $1,330,1384
Deferred and accrued employee 945,867
benefits 936,499
Deferred loan origination fees 60,05165,401
Security losses not currently
deductible 0
Core deposit intangibles 84,22180,443
Depreciation 0 78,85053,920
Other 8,595
$2,419,504 $ 78,85017,031
$2,462,04 $53,920
6
No valuation allowance is deemed necessary for the
deferred tax asset.
9. INCOME TAX EXPENSE:
1997 1996
Federal Income Tax $717,936 $644,549$1,361,155 $1,281,694
State Income Tax 26,017 23,15146,029 42,298
PAGE
MANAGEMENT SMANAGEMENT'S DISCUSSION AND ANALYSIS
The following is the review of the results of the
operations of Bar Harbor Banking & Trust Company
for March 31,June 30, 1997, as compared to March 31,June 30, 1996,
showingshows earnings one percent under the earnings for
the first six months of 1996 and will be discussed
below. Total assets have remained stable with a 3%
increase, and changes in the balance sheet of $19,000,000growth or approximately 6%
over last year. Total loans have grown by almost $13,000,000$10,500,000 over the past twelve months
with growth in the loan portfolio and with the
investment portfolio remaining constant over the past
year. Purchases in the Bank s investment portfolio totaled in excess of
$15,000,000; however, maturities and principal paydowns from the Bank s
mortgage backed securities portfolios were comparable forat the same period.
Purchases were made of US Government sponsored debentures or mortgage backed
pools.level as
1996. Unrealized gains and losses showed a negative balance for the second
yeardecreased in a row and continue to be1997, which
is indicative of the current national economic
marketplace with interest rates rising abruptly and presumed to be temporary.rate structure. This is also visible inholds true as well
for the total market value of the held to maturity
portfolio that is currently $1,080,000 below$229,000 above book
value. However,The taxable portion of the portfolio is earning in
excess of 7%has
increased its yield from 7.09% to 7.23%. The Bank
holds one structured note, a 10-year step upstep-up
government agency debenture, which steps annually
by 1/8 of 1% after another
two2 years at 7%. This debenture
matures in November of 2005 and is callable in
November of this year.
The loan growth of almost $13,000,000 from March 31,$12,800,000 since June 30,
1996, has been predominantly in loans secured by
real estate. This 6%The Bank's loan portfolio's growth
is
comparable tohas slowed down over the past several years with
percentage of growth in the double digits in the
early 1990's. However, the growth betweenfor 1997 over
1996 of $12,800,000 surpasses the growth from 1995
andto 1996, which was also attributable
towhen loans securedgrew by real estate.$9,800,000. The Bank
continues to experience strong competition from
other financial institutions within its
marketplace. Its
strength liesAs of mid-July, Union Trust Company
will be opening a branch in Bar Harbor which could
add to the relationships built with our customerscompetition in that community, although
Union Trust is already a competitor within the
larger communities served by Bar Harbor Banking and
the ability
to offer prompt service in response to their needs.Trust Company.
Funding for the asset growth has come predominantly from
increases in advances fromtotaling $10,100,000.
Deposits decreased overall by $2,000,000 over the
past twelve months. In 1995, the Bank had a
certificate of deposit promotion for terms of one
or two years. This promotion was offered at
nationally competitive interest rates, which, at
the time, were lower than other funding
opportunities. The Bank secured funds outside its
market area through this campaign. As these began
maturing in 1996 and this year, the Bank's options
for funding were significantly lower through the
Federal Home Loan Bank, totaling $16,500,000 as
those funds became less costly than traditional deposit products. A year agoso elected not to promote
to retain 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 $14,000,000 as these funds became
less costly than opportunities for wholesale repurchase agreements. Short term borrowings will
begin dropping during the next sixthree months through
seasonal deposit growth, investment maturities and
principal paydowns from the Bank sBank's mortgage backed
securities portfolio.
Liquidity is measured by the Bank sBank'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 itsit serves.
The Bank
PAGE
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 sBank'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 14% for the past
twelve months. Liquidity as measured by the Basic
Surplus/Deficit model was 17.2%16.95% as of March 31, 1996June 30,
1997 for the 30-day horizon and 18.8%19.7% for the 90-day90-
day horizon.
How changes in the balance sheet have affected
the Bank may be viewed through the earnings
statement for the periods ending March 31, 1995,June 30, 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 toThe Bank's net income for the first quarter of 1995 and which produced a 16%
increase over net income earnings during the first threesix
months of 1995.1997 are one percent ($42,000) below the
earnings at June 30, 1996 and is discussed below.
Income before taxes for June 30, 1997 was $41,000
higher than June 30, 1996.
Interest income is affected by rates, volumes
and the mix of earning assets and interest bearing
liabilities. For the first threesix months of 1996, net interest income increased by $100,000 and may be broken down as
follows. The1997,
increases in the loan portfolio yieldedhave afforded the
Bank additional interest income of $280,000$206,000 that
was achieved through increases in volumes but experienced offsetting decreasing
in interest income totaling
$257,000 due to$580,000 and decreases in rates leaving the
growth in loan interest income virtually flat over the past twelve months.totaling $374,000.
Yields on loans decreased by 2140 basis points from
MarchJune 1996 to March of
1997, following a year in which they had increased fromJune 1997. In comparison, 1996's
increase over 1995 to 1996 by 24was $788,000. Loan yields
decreased 38 basis points. 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.
Althoughpoints during that twelve month
period.
On the investment portfolio did not grow between the years
ended March 31, 1996 and 1997, 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 taxable ($142,000) and
decreasing in both rates and volumes on tax exempt securities owned by the
Bank ($16,000). The yield on the entire securities portfolio went up just
slightly (6 basis points) during this period. At March 31, 1996, investmentside, interest and dividend
income as of June 30, 1997 grew by $175,000,$271,000, with
increasesthe increase related to volumes totaling $83,000
and a decreaseincrease from yields of $188,000 and an
actual increase in 16 basis points in yields of $22,000 or a drop of 32 basis pointson the
entire investment portfolio from year to year.
Investment interest increased by $194,000 in 1996
compared to 1995 with increases in volumes and
decreases in yields, (a decrease of 19 basis
points).
Increased costs on the liability side have
been contained by the Bank by not increasing its
rates on savings, NOW and money market funds forfunds. For
the past several years. At March 31, 1997,years, the Bank s cost of deposits had
decreased by $168,000, $65,000 duehas chosen to
reductions in volumes of certificates
of deposit and $102,000 duepromote specific term CDs at close to reductions in rates. The cost of borrowings
increased by $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 purchased funds over the past
twelve months has increased by 8.5 basis points. As stated previously, during
1995 and 1996, the Bank promoted certificates of deposit at current
national market rates, and attracted funds, which only increased thethereby increasing its cost
of funds on those particular CDS.deposits only. Interest bearing
liability costs increased by $166,000 based on
increases in liabilities of $5,700,000. The
Bank sincrease in the cost of funds came from increased
costs incurred due to volume increases totaling
$341,000 with an offset in liability costs due to
rates creating a reduction of $175,000. The total
cost of purchased funds increased by 6 basis points
over the past twelve months. In 1996, the Bank's
cost of interest bearing funds increased by
PAGE
$447,000 that$656,000 and was less than the previous year, although deposit balances grew
by over $23,000,000.evenly split between rate and
volume increases. The cost of purchased funds went
up 17only 7 basis points during this period.between June of 1995 and
June of 1996. 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 well 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 $60,000 during the second year of the
drop, while increasing its income in the first 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$14,000,000 more liabilities than assets
repricing than
liabilities.within the next twelve months. If rates
were to rise by 200 basis points, simulations
indicate that the Bank could
experience a drop inBank's net interest income incould
increase by approximately $323,000 and $465,00
during the first and second years of the rise.
Even closer to the current interest rate
environment, should rates fall by 200 basis points,
the Bank's net interest income would drop by
approximately $100,000 the first year by $115,000, but pick
up additional interest earnings inand $287,000
the second year by $90,000.
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 1990s.year.
The ratio for the reserve for possible loan
losses has been over 2% for the past threeseveral years,
and continues with a ratio of 2.03%2% as of March 31,June 30,
1997. 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 under writingunderwriting
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 arewere estimated at
$500,000 for 1997, with first quarter 1997 charge offscharged off loans totaling
$133,000 compared to $149,000
during$270,000 for the first quarter of 1996.six months. This compares
with charged off loans for year to date June 30,
1996 totaling $349,000. The amounts represented
below are the total dollars past due for the first
threesix months of each year listed. Included in loans
that are 90 days or more past due and still
accruing are approximately $900,000 in outstanding
loans for which the customers have commitments from
other banks to pay the Bank out for the loans.
Category 1997
1996
90-day past due
category for 1996 are twoand still accruing $1,990,399
$ 350,183
Non-accruing $3,503,052
$3,399,214
$5,493,451
$3,749,397
Gross loans totaling $820,000, one$221,521,173
$208,481,646
Percentage of
which became current in the second quarter of 1996 and the other secured SBA
financing.
Category 1997 1996 1995
90-day past due and
still accruing $ 1,302,437 $ 1,247,941 $ 189,904
Non-accruing 3,207,492 3,289,461 4,184,679
Total 4,509,929 4,537,402 4,374,583
Gross loans $214,687,016 $201,502,682 $190,459,413
Percentage of gross loans 2.10% 2.25% 2.30%
PAGE
gross loans 2.48%
1.63%
In reviewing non-interest income and non-interest expense for 1997, the
period between March 31, 1996 and 1997, there are no categories showing
significant changes with dollars not exceeding $60,000 orBank has earned $81,000 more than 4% for
any major category. The following is a discussionas of June 30,
1996, with the increase attributable to the Trust
Department's earnings before expenses which have
exceeded last year's income by $210,000. Service
charges on deposit accounts are $30,000 less than
last year and are reflective of the changes between 1995Bank's
conservative posture toward charging fees in light
of a computer software conversion that experienced
some instability in its customer data base during
the first months of its inception. Additionally,
fees generated from the origination and 1996. Thesale of
mortgages are less than a year ago. In the spring
of 1997, the Bank ran a promotion for mortgages
choosing to keep them in its own portfolio instead
of selling them in the secondary market, thus
reducing its income from origination and sold loan
fees.
During the first threesix months of 1996, show a strong start for the year
with growth ofnon-
interest income grew by 13%. increase over 1995.
This growth iswas attributed to the Trust
Department sDepartment's earnings before expenses growing by
$64,000 over$140,000 more than the first threesix 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"Accounting for Mortgage
Servicing RightsRights" that positively impacted the
earnings of the Bank by $57,000.$106,000.
Salaries and benefits for 1997 exceeded 1996
by 4.7% and is indicative of merit increases
granted as of January 1, 1997, increases in the
cost of benefits for employees, and additional time
worked and additional staff required in connection
with the conversion of the Bank's software, which
took place in late November of 1996. Accruing for
anthe Bank's incentive program reflects the increase
in salary and benefit costs in 1996 over 1995.
Although the program iswas not new to the Bank in
1996, this isthat was the first year that the dollars have been designatedwere
allocated prior to year end. Excluding the
accrual, salary and benefits would be 3%one tenth of
1% higher than the first quartersix months of 1995.
Other expense, the category on the earnings
statement that encompasses the majority of accounts
that are not interest or human resource related, is
$307,000 or 13% higher than twelve months prior and
is attributable to enhancements started in 1996.
In 1996, the Bank implemented new software and
hardware for its banking applications, including
document and check imaging and servers to run these
applications. With the installation of new banking
software, individual personal computers were
upgraded and the central processing unit was
upgraded. The Bank was also building an Operations
Center, centrally located to its 10 branch
locations, which would house the Bank's computer
networking systems as well as check clearing and
operational functions. At the same time, the Bank
elected to upgrade its communications systems,
including more robust lines between the Operations
Center and the branches. Each of these
installations has increased not only the bank's
assets, but also its depreciation expense, which is
$152,000 more than a year ago. The upgrade in the
communication lines, which has increased the speed
of transmitting information to all locations, has
increased the Bank's telephone charges by $50,000
more than last year.
With the conversions, the Bank has utilized
its external audit firm for guidance in areas of
control and procedures, increasing the expense paid
to them by $77,000 above last year's expenses.
Finally, the cost of processing merchant credit
card deposits has increased by $63,000 more than a
year ago. Overall, the Bank's efficiency ratio
remains below national averages at 56%, which has
not increased since June 30, 1996.
Other expense for the first threesix months of 1996
iswas below the comparable period in 1995 by $146,000
and due to the elimination oftemporary relief from FDIC insurance
premiums. As a well-capitalized bank, Bar Harbor
Banking and Trust Company haswas not been required to pay
premiums for this coverage.in 1996. 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$120,000 in expenses for these
services during the first quartersix months of 1996.
The Bank sBank's capital to asset ratio is 11.6%11.5% and
the Bank far exceeds the required risk based
capital ratio of 8% with its Tier 1I ratio of 18.3%18.5%
and total capital ratio of 19.5%19.7% 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.$25,300,000.
SFAS No. 125 and 127No.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,June 30, 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
Date: August 7, 1997 /s/ Sheldon F.
Goldthwait, Jr.
/s/Chief Executive
Officer
Date: May 15,August 7, 1997 Sheldon F. Goldthwait, Jr.
President/s/ Virginia M.
Vendrell /s/
Date: May 15, 1997 Virginia M. Vendrell
Senior Vice President,
Treasurer and
Chief Financial
Officer
PAGE