UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OFQuarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended JuneSeptember 30, 1997.1997 Commission
File No. 841105-D
BAR HARBOR BANKSHARES
MAINE 01-
0393663Maine 01-0393663
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
identificationorganization
Identification No.)
P. O. Box 400
82 Main Street, Bar Harbor, MaineME 04609-
0400
(Address of principal executive (ZIPoffices) (Zip
Code)
offices)
Registrant's telephone number, including area code: (207) 288-3314288-
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. YESYES: XX
NONO:
Indicate the number off shares outstanding of each of the issuer's
classes of common stock as of JuneSeptember 30, 1997:
Common Stock: 1,820,583
TABLE OF CONTENTS
Page
Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
December 31, 1996, and June 30, 1997
Consolidated Statements of Earnings
Three months and six months ended June 4
30, 1996
and 1997
Consolidated Statements of Changes in
Stockholders' Equity three months and 5
six
months ended June 30, 1996 and 1997
Consolidated Statement of Cash Flows
Six months ended June 30, 1996 and 1997 6-7
Rate Volume Analysis
Six months ended June 30, 1996 and 1997 8
Rate Sensitivity Report
As of June 30, 1997 9
Notes to Financial Statements 10-12
Item 2 Management's Discussion and Analysis
of 13-17
Financial Condition and
Results of
Operations
Signature Page 18
Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets 3-4
December 31, 1996 and September 30, 1997
Consolidated Statements of Earnings 5
Three months and nine months ended September 30,
1996
and 1997
Consolidated Statements of Changes in Stockholders' 6
Equity
Nine months ended September 30, 1996 and 1997
Consolidated Statement of Cash Flows 7-8
Nine months ended September 30, 1996 and 1997
Rate Volume Analysis 9
Nine months ended September 30, 1996 and 1997
Rate Sensitivity Report 10
As of September 30, 1997
Notes to Financial Statements 11-14
Item II. Management's Discussion and Analysis of 15-20
Financial
Condition and Results of Operations
Signature Page 21
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
JUNESEPTEMBER 30, 1997 AND DECEMBER 31, 1996
SEPTEMBER 30 DECEMBER
1997 31, 1996
June 30 December 31
1997 1996
ASSETS
Cash and Due from Banks $10,967,452$11,848,684 $11,298,408
Federal Funds Sold 0 2,000,000
Investment Securities available19,594,802 19,384,433
Securities Available for sale,Sale,
at 20,449,694 19,384,433 market
Securities heldHeld to maturityMaturity
(Market Value $77,053,46884,259,797 82,716,836
$84,937,139 in 76,824,499 82,716,836 1997 and
$85,503,679 in 19961996)
Other Securities 5,902,2695,992,156 5,623,639
Loans heldHeld for sale 0Sale 154,600 336,540
Loans, Netnet of Allowanceallowance for
possible loan losses 215,646,132 207,667,053
of 217,086,864 207,667,053
$4,434,409$4,470,196 in 1997 and
$4,249,128 in 1996
Premises and Equipment 7,787,5407,755,035 7,498,046
Other Assets 9,116,3448,493,200 8,617,790
TOTAL ASSETS $348,134,66Total Assets $353,744,406 $345,142,74
2
5
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand Deposits $36,291,238$42,184,730 $35,918,779
NOW Accounts 39,196,72941,893,275 40,529,509
Savings Deposits 50,681,98254,306,807 53,085,062
Time, $100,000 and over 13,437,59614,716,135 14,611,616
Other Time 107,623,891109,696,865 107,530,192
Total Deposits 247,231,436262,797,812 251,675,158
Securities Sold Undersold under Repurchase 2,046,9706,150,441 8,246,079
Agreements
Advances from Federal Home Loan 55,039,37739,351,495 43,908,263
Bank
Other Liabilities 3,879,7494,225,978 3,426,320
Total Liabilities 308,197,532312,525,726 307,255,820
COMMITMENTS AND CONTINGENT
LIABILITIESCommitments and Contingent Liabilities
Capital Stock, Par Valuepar 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 30,195,83731,368,973 28,204,829
Net Unrealized Appreciationunrealized appreciation on
Securitiessecurities available (25,629) (103,505)
for sale, Net (134,043) (103,505)net of Tax Benefit of $69,110 in
1997 and $53,321
in 1996tax benefit
Less: Cost of 100,0006100,000 shares of (1,340,000) (1,340,000)
Treasury Stock
TOTAL STOCKHOLDERS' EQUITY 39,937,13041,218,680 37,886,925
TOTAL LIABILITIESLIIABILITIES AND STOCKHOLDERS'S $348,134,66STOCKHOLDERS' $353,744,406 $345,142,74
EQUITY 2 5
The accompanying notes are an integral part of these
consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)(UNAUDITED)
THREE THREE SIX SIXNINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDING ENDING ENDING ENDING
06/09/30/97 06/09/30/96 06/09/30/97 06/09/30/96
Interest & Fees on $5,506,167 $5,150,807 $15,708,9 $1,147,611
Loans $5,176,33 $4,994,29 $10,202, $9,996,8
2 7 751 0418
Interest &and
Dividends on
Investment 1,577,767 1,581,668 4,788,011 4,498,022
Securities:
Taxable Interest
1,614,552 1,448,225 3,210,24 2,916,35
Income
4 4
Non-taxable 167,004 194,126 346,569 389,602159,852 191,830 506,421 581,432
Interest Inc.Income
Dividends 99,069 86,373 195,077 171,871104,711 88,910 299,788 260,781
Federal Funds 23,381 5,933 37,507 22,916
Sold
4,943 11,790 14,126 16,983
TOTAL INTEREST INCOME $7,061,90 6,734,811 13,968,7 13,491,6
0 67 14Total Interest 7,371,878 7,019,148 21,340,64 20,510,762
Income 5
Interest on 2,254,863 2,161,816 6,536,644 6,718,415
Deposits 2,142,907 2,249,523 4,281,78 4,556,59
1 9
Interest in Short 697,316 624,714 2,267,558 1,754,156
Term 844,163 619,500 1,570,24 1,129,44
Borrowings
2 2
TOTAL INTEREST EXPENSE 2,987,070 2,869,023 5,852,02 5,686,04
3 1Total Interest 2,952,179 2,786,530 8,804,202 8,472,571
Expense
Net Interest Income 4,074,830 3,865,788 8,116,74 7,805,57
44,419,699 4,232,618 12,536,44 12,038,191
3
Provision for Loan Losses 180,000 240,000 360,000 480,000120,000 540,000 600,000
Losses
Net Interest Income
after 4,239,699 4,112,618 11,996,44 11,438,191
Provision for 3
Loan 3,894,830 3,625,788 7,756,74 7,325,57
Losses 4 3
Other Income 1,111,764 1,056,003 2,138,60 2,057,43
31,44,644 1,684,273 3,581,247 3,741,703
Investment 140,751 0 Investment Security140,751 16,934
Securities Gains
16,934 0 16,934
Other Expenses::
Salaries & 1,534,273 1,467,981 4,423,730 4,265,530
Employee 1,429,951 1,395,727 2,889,45 2,797,54
Benefits
7 9
Other 1,498,982 1,137,597 2,553,90 2,247,03
7 71,788,000 1,512,297 4,341,907 3,759,334
Investment 22,250 0 0 55,85478,104 0
Securities Losses
Income Before 2,478,571 2,816,613 6,874,700 7,171,964
Income 2,077,661 2,165,401 4,396,12 4,355,35
Taxes 9 1
Income Tax Expense 663,231 656,292 1,407,18 1,323,99
4 2
NET INCOME $1,414,43 $1,509,10 $2,988,9 $3,031,3
0 9 45 59
PER COMMON SHARE DATA,
BASED ON789,261 726,837 2,196,445 2,050,829
Net Income 1,689,310 2,089,776 4,678,255 5,121,135
Earnings per Share:
Based on
1,718,237 SHARES
FORfor 1996
ANDand 1,720,583 $0.82$0.98 $1.22 $2.72 $2.98
shares for
1997
Dividends Per Share $0.30 $0.25 $0.88 $1.74 $1.76
FOR 1997
DIVIDENDS PER SHARE $0.30 $0.20 $0.58 $0.40$0.65
The accompanying notes are an integral part of
these consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
QUARTERS ENDED JUNESEPTEMBER 30, 1996 AND 1997
NET
UNREALIZ
ED NET
CAPITAL RETAINED TREASURY LOSS ON STOCKHOLDER
STOCK SUIRPLU EARNINGS STOCK EQUITY S'
S SECURITI EQUITY
ES
NET NET
UNREA- STOCK-
CAPITAL RETAINED LIZED TREASURY HOLDERS
STOCK SURPLUS EARNINGS LOSS STOCK '
ON EQUITY
EQUITY
SECURIT
IES
Balance, 12/31/95 $3,627,2 $7,368,6$3,627, $7,368, $23,523, ($1,340, $63,293 $(1,340, $33,242
10 95$33,242,824
210 695 626 000)
,824
Net Earnings 3,031,35 3,031,3
9 595,121,13 5,121,135
5
Cash Dividends (1,116,8 (1,116,854)
Declared (687,295 (687,29
) 5)54)
Net unrealized
depreciationUnrealized
Depreciation on
Securities (236,54 (236,54
Available for Sale 9) 9)(219,448 (219,448)
Net of Tax )
benefit of
$89,253$80,712
Sale of Stock (4,632 9,264 120,432 0 0 0 129,696
(4,632 shares)
Balance, 06/9/30/96 $3,636,4 $7,489,1 $25,867, ($173,2 ($1,340, $35,4803,636,4 7,489,1 27,527,9 (1,340,0 (156,155 37,157,353
74 27 690 56) 000) ,03507 00) )
Balance, 12/31/96 $3,636,4 $7,489,1 $28,204, ($103,5 ($1,340, $37,8863,636,4 7,489,1 28,204,8 (1,340,0 (103,505 37,886,926
74 27 829 05) 000) ,92629 00) )
Net Earnings 2,988,94 $2,988,4,678,25
5
945
Cash dividends declared (997,938 ($997,9
) 38)Dividends (1,514,1 4,678,255
Declared 12)
Net unrealized
depreciationUnrealized
Depreciation on
securities (30,538 ($30,53
availableSecurities
Available for sale, ) 8)
net77,876 77,876
Sale,
Net of taxTax
benefit of
$15,751$47,334
Sale of Stock (2,346 4,692 85,043 $89,7350 0 0 89,735
(2,346 shares)
Balance, 06/9/30/97 $3,641,1 $7,574,1 $30,195, ($134,0$3,641, $7,574, $31,368, ($1,340, $39,937
66 70 836 43)($25,629 $41,218,680
166 170 972 000) ,130
)
The accompanying notes are an integral part of these consolidated financial
statements.
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATEDCOLSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SEPTEMBER SEPTEMBER
30, 1997 30, 1996
JUNE 30, JUNE 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:Cash Flows from Operating Activities:
Net Income $2,988,9 $3,031,35
45 9$4,678,255 $5,121,135
Adjustments to reconcile net earnings to
net cash provided by
operating activities: 693,083 566,161
Depreciation 442,793 329,704
Provision for LoanLoss Losses 360,000 480,000540,000 600,000
Provision for Losses on Other Real 0 (2,510)(4,664)
Estate Owned
New Loans Originated for Sale (1,738,4 (5,687,09
90) 0)(3,369,340) (7,108,320)
Proceeds from Sale of Mortgages 2,153,54 5,597,589
Held 3,651,076 7,028,603
for Sale 9
Gain on Sale of Mortgages (50,412) (11,929)
Originated (13,537) (15,108)
for Sale
Net Securities Gains 55,852(62,648) (16,934)
Net Amortization of Bond Premium 53,826 195,77789,855 224,207
(Gain) Loss on Salesale of Premisespremises and 1,953 0
0
and Equipmentequipment
Net Change in Other Assets (459,495 (862,617)
)40,076 (287,745)
Net Change in Other Liabilities 453,429 59,735799,658 1,039,202
Net Cash Provided by Operating Activities 4,259,99 3,113,083
7
CASH FLOWS FROM INVESTING ACTIVITIES:7,048,431 7,146,537
Cash Flows from Investing Activities:
Purchases of Securities Held to Maturity (7,675,4 (13,636,6
21) 97)(19,843,240) (13,636,697
)
Proceeds from the Maturity &and Principal
Paydowns 9,263,93 4,137,496
of Securities 12,460,509 6,591,798
Held to Maturity 8
Proceeds from Call of Securities Held to 4,250,005,750,000 5,420,608
Maturity 0
Purchases of Securities Available for Sale (1,250,0 (3,001,87
00) 5)(1,250,000) (5,503,125)
Proceeds from the Maturity &and Principal
Paydowns 78,385 110,710
of Securities 118,741 0
Available for Sale
Proceeds from CallSale of Securities Available 60,0211,060,021 500,000
for Sale
PurchasesPurchase of Other Securities (453,700 0
)(453,700)
Proceeds from Salessales of Other Securities 119,218 0147,831 37,930
Net Loans Made to Customers (9,831,1 (7,054,43
87) 7)(8,611,570) (10,009,102
)
Capital Expenditures (732,287 (1,092,82
) 0)(938,619) (1,894,340)
Proceeds from Sale of Fixed Assets 016,000 0
Net Cash Used in Investing Activities (6,171,0 (14,617,0
33) 15)
CASH FLOWS FROM FINANCING ACTIVITIES:(11,544,027) (18,492,928
)
Cash Flows from Financing Activities:
Net Change in Savings, NOW and Demand (3,363,4 (4,185,468,851,462 11,187,990
Deposits 01) 7)
Net Change in Time Deposits (1,080,3 1,940,668
21)2,271,192 (5,676,985)
Net Change in Repurchase Agreements (6,199,1 (1,320,49
09) 9)(2,095,638) 1,071,183
Purchase of Advances from FHLB 13,500,0 15,000,00
00 024,000,000 33,000,000
Repayment of Advances from FHLB (15,000, (4,000,00
000) 0)(25,000,000) (13,000,000
)
Net Change in Other Short Term Borrowed 12,631,1 1,217,151(3,556,768) (16,110,515
Funds 14)
Proceeds from Sale of Sale from Capital StocksStock 89,735 129,696
PaymentsPayment of Dividends (997,938 (687,295)
)
NET CASH PROVIDED BY FINANCING ACTIVITIES (419,920 8,094,254
)
NET INCREASE (DECREASE) IN CASH AND CASH (2,330,9 (3,409,67
EQUIVALENTS 56) 7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,298,4 12,559,79
08 7
CASH AND CASH EQUIVALENTS AT END OF QUARTER $10,967, $
452 9,150,120
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:(1,514,111) (1,116,854)
Net Cash Provided by Financing Activities 3,045,872 9,484,515
Net Increase In Cash and Cash Equivalents (1,449,724) (1,861,876)
Cash and Cash Equivalents at Beginning of 13,298,408 12,559,797
Year
Cash and Cash Equivalents at End of Quarter $11,848,684 10,697,921
Supplemental Disclosures of Cash Flow
Information:
Cash Paid Duringduring the Year for: $8,797,662 8,533,008
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$1,678,000 1,450,000
Non-Cash Transactions:;
Transfers from loansLoans to Real Estate Owned $0 $193,000
(Other Assets) 155,000
Transfer of Securities from Held to $0 $0
Maturity to 0 0
Available for Sale
Available for Sale
The accompanying notes are an integral part of these consolidated
financial statements
The 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-bearinginterest 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
relationshiprelationships of the absolute dollarcollar amounts of the change in
each.
YEAR-TO-DATE FIGURES AS OF JUNESEPTEMBER 30, 1997
COMPARED TO JUNESEPTEMBER 30, 1996
INCREASES (DECREASES) DUE TO:
VOLUME RATE NET
VOLUME RATE NET
Loans $580,385$846,105 ($374,438 $205,947284,798 $561,307
)
Taxable Securities 130,824 186,272 317,096154,135 174,861 328,996
Tax Exempt Securities (44,814) 1,781 (43,033)(85,893) 10,882 (75,011)
Federal Funds Sold and Money 13,501 1,090 14,591
Market Funds
(3,319) 462 (2,857)
Total Earning Assets $663,076 ($185,923 $477,153
)TOTAL EARNING ASSETS 927,848 (97,965) 829,883
Deposits ($44,857) ($229,961 ($274,818
) )(4,746) (177,025) (181,771)
Borrowings $385,631 $55,169 $440,800416,398 97,004 513,402
Total Interest Bearing 411,651 (80,020) 331,631
Liabilities
$340,774NET CHANGE IN INTEREST $516,197 ($174,792 $165,982
)
Net change in interest $322,302 ($11,131) $311,17117,945) $498,252
YEAR-TO-DATE FIGURES AS OF JUNESEPTEMBER 30, 1996
COMPARED TO JUNESEPTEMBER 30, 1995
INCREASES (DECREASES) DUE TO:
VOLUME RATE NET
VOLUME RATE NET
Loans $570,888 $216,700 $787,588$853,768 ($36,779) $816,989
Taxable Securities 400,827 (132,409) 268,418545,049 (129,372) 415,677
Tax Exempt Securities (38,901) (3,245) (42,146)(57,057) (8,572) (65,629)
Federal Funds Sold and Money (58,848) (9,377) (68,225)
Market Funds
(25,939) (6,429) (32,368)
Total Earning Assets $906,874 $74,618 $981,492TOTAL EARNING ASSETS $1,282,912 ($184,100 $1,098,812
)
Deposits $310,464 $402,100 $712,564357,112 283,876 640,988
Borrowings 4,886 (61,468) (56,582)116,955 (82,522) 34,433
Total Interest Bearing 474,067 201,354 675,421
Liabilities
$315,350 $340,632 $655,982
Net change in interest $591,525NET CHANGE IN INTEREST $808,845 ($266,015 $325,510385,454 $423,391
)
INTEREST RATE SENSITIVITY ANALYSIS
AS OF JUNESEPTEMBER 30, 1997
(UNAUDITED)
Amounts in Thousands
The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at JuneSeptember
30, 1997, which are anticipated by the Bank, based upon certain
assumptions, to reprice or mature in each of the future time
periods shown.
TOTAL TO ONE TO FIVE GREATER THAN
ONE YEAR YEARS FIVE YEARS TOTAL
ONE TO GREATER
TOTAL TO FIVE THAN FIVE
ONE YEAR YEARS YEARS TOTAL
Loans - Fixed Rate $13,739 $33,366 $17,125 $64,230$22,348 $32,197 $16,855 $71,400
Loans - Variable 118,521 34,608 2,252 155,381
Rate 103,715 38,973 2,058 144,746
Investments 39,926 36,204 27,249 103,37947,394 32,465 30,004 109,863
Federal Funds Sold 0 0 0 0
Interest Rate Rate/Swap 5,000 10,000 0 15,000
Floor
Total Earning Assets $177,186 $114,178 $46,626 $337,99
0$178,457 $113,635 $48,917 $341,009
Deposits $136,412 $11,936 $99,784 $248,13
2$147,446 $10,975 $104,376 $262,797
Repurchase Agreements 2,0466,150 0 796 2,842281 6,431
Borrowings 48,010 9,22929,324 10,028 0 57,23939,352
Interest Rate Swap 5,000 10,000 0 15,000
Swap/Floor
Total Sources $191,468 $31,165 $100,580 $323,21
3$187,920 $31,003 $104,657 $323,580
Net Gap Position ($14,282) $83,0139,463) $82,632 ($53,954) $14,77755,740) $17,429
Cumulative Gap ($14,282) $68,731 $14,777 $14,777(9,462) $73,169 $17,429 $17,429
Rate Sensitive
Assets/
Asset/Rate Sensitive 92.54% 366.37% 46.36% 104.57%94.96% 366.53% 46.74% 105.93%
Liabilities
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%1/2% of its savings is more rate sensitive and will
react to rate changes, and has therefore categorized it in the one year3-
12 month time horizon. The remainder is stable and is listed in
the greater than five year category. NOW accounts, other than
seasonal fluctuations approximating $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 and$42,000,000 are amortized using a 11%the weighted average maturity of
147 months, with an additional prepayment rate of 9%, which
approximates the Bank's prior experience.
NOTES TO FINANCIAL STATEMENTS DATED JUNESEPTEMBER 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 19951996 Annual Report.
September 30, 1997
INVESTMENT SECURITIES CARRYING CARRYING
AVAILABLE FOR SALE VALUE VALUE
2. INVESTMENT SECURITIES June 30,
1997 Market
Carrying Value
Value
a.a: U. S. Treasury and other government $19,062,412 $19,029,402
agencies
$20,102,84 $19,891,44
7 5
b.b: Marketable equity securities 550,000 558,250
securities565,400
Total Securities Available for $20,652,84 $20,449,69For Sale 7 5$19,612,412 $19,594,802
HELD TO MATURITY:
a. U.S.a: U. S. Treasury and other government $65,965,950 $66,365,062
agencies
$57,524,71 $57,474,52
7 7
b.b: States of the U.S. and other 10,540,444 10,818,972
political 10,034,504 10,300,681
subdivisions
c.c: Corporate bonds 8,759,338 8,759,9688,259,343 8,271,396
Total Securities Held to $76,824,49 $77,053,46
Maturity 9 7$84,259,797 $84,937,139
OTHER SECURITIES $5,902,269 $5,902,269$5,992,156 $5,992,156
TOTAL SECURITIES $103,379,6 $103,405,4
15 31$109,864,365 $110,524,097
The Bank does not hold any securities for a single issuer which
exceed 10% of the Bank's stockholders' equity.
September 30, December 31,
1997 1996
3. LOANS
June 30, December
3. LOANS: 1997 31,
1997
a.a: Commercial, agricultural and other $40,472,832 $39,451,440
loans
$44,786,794 $39,451,440
b.b: Real Estate - Construction 6,743,1277,002,109 8,905,823
c.c: Real Estate - Mortgage 152,760,232156,393,879 146,361,313
d.d: Installment Loans 17,231,02016,247,508 17,241,472
Total Loans $221,521,173 $211,960,04
8$220,116,328 $211,960,048
4. CHANGES IN ALLOWANCE FOR POSSIBLE LOAN September 30, September 30,
LOSSES: 1997 1996
June 30, June 30,
1997 1996
Balance, beginning January 1:1 $4,292,995 $4,047,883
Provision charged to income 360,000 480,000540,000 600,000
Recoveries of amounts charged 51,376 69,76792,491 100,840
Losses charged to provision 270,062 348,522455,290 461,073
Balance, ending JuneSeptember 30 $4,434,309 $4,249,128$4,470,196 $4,287,650
Information regarding impaired loans is as follows for JuneSeptember
30, 1997:
Average investment in impaired $1,720,858
loans $1,837,397
Interest income recognized on impaired loans including
interest 48,596
income 107,260
recognized on cash basis
Interest income recognized on impaired 48,596
loans on cash basis 107,260
Balance of impaired loans 1,810,1922,070,475
Less portion for which no allowance for $0
loan losses is 0
allowed
Portion of impaired loan balance for which an allowance for $1,810,1922,070,475
credit losses is allocated
Portion of allowance for loan losses 74,796
allocated to the 122,502
impaired loan balance
5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE:
9/30/97 9/30/96 9/30/95
6/30/97 6/30/96 6/30/95
Balance, beginning January 1:1 $22,589 $26,000 $30,486
Provision charged to income 0 (2,510) 20,398(4,664) 9,778
Losses charged to provision 5,124 0 19,23121,336 15,110
Balance, ending JuneSeptember 30 $17,465 $23,490 $31,653$0 $25,154
6. The aggregate dollar amount of loans made to directors,
executive officerofficers or principal holders of equity securities as
of JuneSeptember 30, 1997 and December 31, 1996 respectively, were:
Aggregate amount, beginning 1/1 $3,806,55 $3,279,47
5 9$3,806,555 $3,279,479
New Loans 1,173,100loans 1,600,011 912,044
Repayments 139,2691,267,063 384,968
Aggregate amount, ending 6/9/30/97 $4,840,38
6$4,139,503
Aggregate amount, ending 3/12/31/97 $3,806,55
596 $3,806,555
7. OTHER ASSETS:
7. OTHER ASSETS September December
30, 1997 31, 1996
June 30, December
1997 31, 1996
a.a: Interest earned but not paid on:
Loans $2,237,520$1,499,649 $1,426,296
Investments 1,081,5391,105,491 1,237,564
b.b: Other Real Estate Owned 64,463 270,430
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 June58,950 270,430
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 no effect on the
company's net income or retained earnings.
Components of income tax expense for the period ended September
30, 1997 are as follows:
Current
Federal
$1,541,080
State
46,029
Deferred
(179,925)
$1,407,184
Current
Federal $2,342,974
State 70,277
Deferred (216,806)
$2,196,445
Actual tax expense differs from the expected tax expense
computercomputed by applying the applicable federal corporate income tax
rate of 34% is as follows for the threesix months ended JuneSeptember 30,
1997:
Computed tax expense
$1,498,081
Tax exempt interest
(125,214)
Other
34,317
$1,407,184
Computed tax expense $2,330,796
Tax exempt interest (186,532)
Other 52,181
$2,196,445
At JuneSeptember 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 $1,353,30
and real $1,363,764
estate owned 4
Deferred and accrued employee 945,867
benefits 955,440
Deferred loan origination fees 65,401
Security67,839
Securities losses not currently deductible 0
Core deposit intangibles 80,44376,665
Depreciation 0 53,92044,637
Other 17,031
$2,462,04 $53,920
625,935
$2,489,643 $44,637
No valuation allowance is deemed necessary for the deferred tax
asset.
9. INCOME TAX EXPENSE:
9. INCOME TAX EXPENSE 1997 1996
1997 1996
Federal Income Tax $1,361,155 $1,281,694$2,126,168 $1,982,793
State Income Tax 46,029 42,29870,277 68,036
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following review of results of the
operations of Bar Harbor Banking & Trust Company
for JuneSeptember 30, 1997 asare
reflected through changes in the balance sheet. Total assets
grew by $11,700,000 in 1997 and $18,000,000 in 1996, each
compared to June 30, 1996,
shows earnings one percent under the earnings forprevious year's third quarter end. The major
changes are found in the first six monthsloan portfolio with small growth
visible through the investment portfolio.
The investment portfolio net growth of 1996 and will be discussed
below. Total assets have remained stable with 3%
growth or $10,500,000 over$1,700,000 has been
in the area of US Government agency debentures. Purchases in the
past twelve months with growthhave totaled $27,000,000, of which
$10,500,000 have been in callable agencies and the majority of
the remaining purchases have been in government sponsored
mortgage backed pools. The bank has had $6,750,000 called in
the loanpast twelve months, $ 11,000,000 in principal paydowns from
mortgage backed securities, $2,500,000 in maturing tax-exempt
securities and $2,500,000 in other security paydowns. As a
comparison, from September 30, 1996 to September 30, 1995, the
Bank's available for sale portfolio andchanged by the one-time
transfer of securities at market value totaling $5,600,000 in
accordance with the investmentFinancial Accounting Standards Board
implementation guidance issued in November of 1995. The Bank's
other securities portfolio remaining atincludes $5,853,000 in Federal Home
Loan Bank (FHLB) stock. Ownership of stock is required by the
same level as
1996. Unrealized losses decreasedFHLB for participation in 1997, which
is indicative of the current national economic
interest rate structure. This holds true as well
for thetheir funding programs.
The market value of the held to maturity portfolio that is currently $229,000 above book
value. The taxable portion of the
portfolio has
increased its yield from 7.09% to 7.23%.is $677,000 more than the book value, with the
AFS portfolio market value at $17,600 less than the book
value. At September 30, 1996, the market value of the
entire investment portfolio was $695,000 below book value
and represented a potential loss of less than one-half of
one percent of the book value of the portfolio, had the
entire portfolio been sold at that date.
The Bank holdsdoes 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 hold one
structured note, a 10-year step-up government agency debenture
which stepsthat matures in November of 2005. The structure is to step up
annually by 1/8 of 1% after 2three years at(November 1998). It is
currently earning 7%. This debenture
matures in November of 2005 and is callable inbeing called as of November of this
year.
The taxable portions of the Bank's securities have been
earning 7.23% for the first nine months of 1997, an
increase of 13 basis points since September 30, 1996.
In the loan growth of $12,800,000 since June 30,
1996,portfolio, which has grown by almost
$8,800,000 (4%) in the past twelve months, the Bank's
concentration has been predominantly inthrough the extension of loans
secured by real estate. The Bank's loan portfolio's growth
has slowed down over the past several years with
percentage of growthestate to its customers totaling
$14,000,000 more than one year ago. Reductions in the double digitsloan
portfolio were found in the early 1990's. However,commercial loan portfolio
($3,400,000) and the construction portfolio ($1,700,000).
This compares to 1996's growth for 1997 over
1996 of $12,800,000 surpasses$12,000,000 (6.2%) in
loan growth, with $8,000,000 of the loan growth from 1995being
secured by real estate and granted to 1996, when loans grew by $9,800,000.the Bank's consumer
customers. The Bank continues to experience strong
competition from other financial institutions withinin its marketplace. Asmarket
area.
From September 30, 1996 to September 30, 1997, a mixture of
mid-July, Union Trust Company
will be opening a branchincreased deposits and funding from the Federal Home Loan Bank
funded the bank's assets. Total deposits increased by
$5,800,000 with equal growth in Bar Harbor which could
add to the competition in that community, although
Union Trust is already a competitor within the
larger communities served by Bar Harbor Bankingdemand deposit accounts, NOW
accounts and Trust Company.
Fundingcertificates of deposit. Also, for the asset growth has come from
increases insame
period, advances totaling $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 so elected not to promote
to retainincreased by
almost $2,800,000. In 1996, the funds. Short termfunding for the asset growth
had come from borrowings will
begin dropping duringprimarily through the next three monthsFederal Home Loan
Bank. Total advances increased by $28,000,000 and include
$12,000,000 in longer-term borrowings as funding for certain
specific commercial credits. During both years, short-term
borrowings were reduced through seasonal deposit growth,
investment maturities and/or calls and principal paydowns from
the Bank's mortgage backed securities portfolio.
Liquidity is measured by the Bank's ability to meet cash
needs at a reasonable cost or minimum loss to the Bank.
Liquidity management involves the ability to meet cash flow
requirements of its customers, which may come from depositors
withdrawing funds or borrowers requiring funds to meet credit
needs. Without adequate liquidity management, the Bank would
not be able to meet the needs of the individuals and communities
it serves. The Bank utilizes a Basic Surplus/Deficit model to
measure its liquidity over a 30-day and a 90-day time horizon.
TheWe examine the relationship between liquid assets and short termshort-term
liabilities that are vulnerable to non-replacement within a 30-day
period are examined.30-
day period. The 90-day analysis extends to include a projection
of subsequent cash flow funding needs over an additional 60-day
time horizon. The Bank's policy is to maintain its liquidity
position at a minimum of 5% of total assets. TheFor the past
twelve months, 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 16.95% as of June 30,
199716.7% for the 30-day horizon and 19.7%15.7%
for the 90-
day horizon.90-day horizon as of September 30, 1997.
How the changes in the balance sheet have affected the Bank
may be viewed through net interest income in the earnings
statement for the periods ending JuneSeptember 30, 1996 and 1997.
The Bank's netNet interest income, for the first six
months of 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. Forliabilities, is ahead of
September 1996's net interest income by almost $500,000.
Interest income earned from loans increased in 1997 by $846,000
due to volumes of loans with an offsetting reduction in earnings
of $285,000 due to changes in rates. This is indicative of the
first six months of 1997,
increasescompetitive market in Downeast Maine. Overall yields from the
loan portfolio have afforded the
Bank additionaldecreased by 39 basis points of 1996's yields.
Net interest income for the first nine months of $206,000 that
was achieved through1996 added
earnings of $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 loan portfolio remained within 5 basis
points of 1995's yields.
The investment portfolio, with net growth in assets of only
$1,700,000, has shown increases in volumes totaling
$580,000 and decreases in rates totaling $374,000.
Yields on loans decreased by 40 basis points from
June 1996 to June 1997. In comparison, 1996's
increase over 1995 was $788,000. Loan yields
decreased 38 basis points during that twelve month
period.
On the investment side, interest and dividend
income as of June 30, 1997 grew by $271,000, with
the increase relateddue both
to volumes totaling $83,000($82,000) and a increase from yields of $188,000 and an
actual increase in 16 basis points in yieldsrates ($187,000). The overall
yield on the entire investment portfolio has actually
increased by 5 basis points during the past twelve months.
Looking at 1996, the investment interest increased by
virtue 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, similar to the loan portfolio. Overall
the yield on investments dropped the same as the loan
yield, 5 basis points from year to year.
InvestmentWith the Bank well matched in the repricing of its balance
sheet, the funding costs followed a similar pattern as is
described above for loans and investments. The cost of interest
bearing liabilities increased by $194,0004% in 19961997 as compared to 19951996,
with increases in volumes and
decreases in yields, (a decrease of 19 basis
points).
Increased coststhe interest paid on the liability side have
been contained by the Bank by not increasing its
rates on savings, NOW and money market funds. For
the past several years, the Bank has chosen to
promote specific term CDs at close to current
national market rates, thereby increasing its cost
of funds on those deposits only. Interest bearing
liability costs increased by $166,000 based on
increases in liabilities of $5,700,000. The
increase in the cost of funds came from increased
costs incurred due to volume increases totaling
$341,000 with an offset in liability costsdecreasing primarily due to
rates creating a reduction of $175,000.($177,000). The total cost of purchased fundsborrowings increased
predominantly due to volumes ($416,000), but also by rates
($97,000). The overall cost of funding the bank's assets has
increased by 619 basis points over the past twelve months. In
1996, the Bank's
cost of interest bearingdeposits rose based on volumes ($357,000) and
rates $284,000) while the cost of borrowed funds increased due
to volumes ($117,000) but decreased by $656,000 and was evenly split between$82,500 because of rate
and
volume increases.changes. Reference is made to the earlier discussion that the
Bank elected to fund its asset growth through borrowings instead
of deposits for 1996. The cost of purchased funds went
up only 7deposits increased by 21
basis points whereas the cost of borrowings decreased by 26
basis points between June ofSeptember 30, 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 withWith regard to interest rate sensitivity, the Bank is
somewhat liability sensitive with assets and$9,500,000 more of its
liabilities matched for repricing within a year with $14,000,000 more liabilities than assets
repricing within the next twelve months. Ifwhen compared to its assets.
Based on simulations, if interest rates were to rise by 200
basis points simulations
indicate thatand if the Bank'sBank were to maintain the balance sheet
as it stands today, the Bank would reduce its net interest
income could
increase by approximately $323,000 and $465,00$350,000 during the first and second years of the rise.
Even closernext two years. If rates were to
the current interest rate
environment, should rates falldrop by 200 basis points the Bank'sBank would experience an increase
in its net interest income would drop by
approximately $100,000of $676,000.
Due to changes in the first year and $287,000
the second year.
The ratiomethodology used for computing the
reserve for possible loan losses has beenand due to the recessionary
nature of the economy in the early 1990's, the Bank increased
its ratio to gross loans to over 2% for the past several years,
and continues with ahas maintained that
reserve to loan ratio of 2% as of Junethrough September 30, 1997. The Bank
reviews its allocation to the reserve on a monthly basis and
funds the reserve as deemed necessary. ThisThe review includes a
provision for specific credits, provisions due to historic loan
losses by loan types and reserves reflecting industry
concentrations, credit concentrations, current economic
conditions and underwriting standards.
In 1995, the Bank added a provision for impaired loans in
accordance with FASB 114/114, "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
$2,070,475 and $1,604,919 at September 30, 1997 and 1996,
respectively. Reference is made to the notes included inwith
this filing that outlinesoutline the impaired loan figures.
Losses in the loan portfolio were estimated at $500,000 for
fiscal year 1997, with charged off loans totaling $270,000$455,000
for the first six months. This comparesnine months of this year. Losses for 1996
were originally estimated at $840,000 with $461,000 charged
off loans for year to date Junethrough September 30, 1996 totaling $349,000.1996. The amounts represented
below are the total dollars past dueoutstanding for the first sixnine
months of each year listed.
IncludedThe bank retains a conservative posture with regard to non-
accruing loans, placing loans onto non-accrual status once
they become past due 90 days or more. This is shown
through the figures below, with the bank retaining only
$428,000 in loans that are still accruing and 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
and still accruing $1,990,399
$ 350,183
Non-accruing $3,503,052
$3,399,214
$5,493,451
$3,749,397
Gross loans $221,521,173
$208,481,646
Percentagedue. This represents two-tenths of one
percent of gross loans 2.48%
1.63%
In reviewing non-interest income for 1997, the
Bank has earned $81,000 more than as 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 Bank'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 sale 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 six months of 1996, non-
interest income grew by 13% increase over 1995.
This growth was attributed to the Trust
Department's earnings before expenses growing by
$140,000 more than the first six months of 1995.
In the fall of 1995, the Trust Department converted
their tax preparation and began charging customersoutstanding 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 $106,000.
Salaries and benefitsbank.
Category 1997 1996 1995
90-day past due and
still accruing $427,618 $830,532 $711,943
Non-accruing $4,599,245 $3,557,518 $2,584,343
$5,026,863 $4,388,050 $3,296,286
Gross Loans $220,116,328 $211,360,9 $199,190,0
48 24
Percentage of gross 2.28% 2.08% 1.65%
loans
Non-interest income for the first nine months of 1997 is
below the comparable period in 1996 by $160,000. The Trust
Department has produced $320,000 more income in this period,
based on fees structured on market values of total assets per
customer account and an increase in book assets of more than
$8,000,000. However, in September of 1996, the bank received a
non-recurring income entry of $278,000 representing 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 1996 resulting in this one-time, tax
deductible payment. The 1996 non-recurring income entry is
creating the variance between the two years.
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. $200,000 of that pertains to the Trust Department's
charge to its customers of scheduled fees, based on increased
book assets of almost $25,000,000. 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.
Salaries and benefits are 3.7% more than as of September
30, 1996 and include merit increases and accruals for the bank's
incentive plan. Depreciation expense is $100,000 more than a
year ago and includes the addition of the Operations Center,
opened in January of 1997 and the depreciation of technology
that has been purchased over the past twelve months. New
personal computers, networking servers, communication lines,
document and check imaging equipment are some of the investments
made into technology during this period.
The bank has experienced a number of non-recurring charges
including expenses to complete the installation of and
subsequent training in enhancements in technology begun in
1996. Additionally, the bank paid $123,000 to the Internal
Revenue Service for taxes incurred on a loss taken in 1994
from the sale of a bond fund. This fund was taxed as
ordinary income in the 1994 return, but was challenged by
the IRS in a subsequent audit of that year's return. The
bank appealed the decision by the examiner. Ultimately the
appeal was denied. The bank has refiled the tax return for
1994, as well as 1992 and 1993, based on the determination
by the IRS audit of the classification of the loss on the
bond fund. If the amended returns are accepted, a
potential refund totaling $84,000 would be due the bank.
Audit costs are $80,000 higher than in September of 1996
and include the outsourcing of a large portion of the
bank's internal audit function. Furthermore, with the
conversion of the banking software very close to year-end
last year, the bank sought additional help early in 1997
(reconciling accounts and reviewing controls) from the
bank's accounting firm, Berry, Dunn, McNeil and Parker.
These added costs are non-recurring expenses for the bank.
Accruing for an incentive program reflects the increase in
salary and benefit costs in 1996 over 1995. Although the
program was not new to the Bank in 1996, it was the first
year that the dollars have been allocated prior to year-
end. Excluding the accrual, salary and benefits would have
been 1.6% higher than the first nine months of 1995.
Other expense for the first nine months of 1996 is above
the comparable period in 1995 by $60,000 or 1.6%. A portion of
that containment of costs was 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 in either 1996 or 1997. 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 began numerous projects
as mentioned above. Startup and non-recurring costs for these
projects were included in other expenses through September 30,
1996.
The Bank's year-to-date efficiency ratio is 56% remains
consistent with the 1996 ratio and is well under the
national average.
The Bank's capital to asset ratio is 11.65% and the Bank
far exceeds the required risk based capital ratio of 8% with its
Tier I ratio of 19.0%, total capital ratio of 20.39% and
leverage ratio of 11.9%. Using the risk based capital formula,
the Bank has capital in excess of requirements of $6,500,000.
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
Date: November 14, 1997 Sheldon F. Goldthwait, Jr.
Chief Executive Officer
Date: November 14, 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
the Bank's incentive program reflects the increase
in salary and benefit costs in 1996 over 1995.
Although the program was not new to the Bank in
1996, that was the first year that the dollars were
allocated prior to year end. Excluding the
accrual, salary and benefits would be one tenth of
1% higher than the first six 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 six months of 1996
was below the comparable period in 1995 by $146,000
and due to the temporary relief from FDIC insurance
premiums. As a well-capitalized bank, Bar Harbor
Banking and Trust Company was not required to pay
premiums 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 $120,000 in expenses for these
services during the first six months of 1996.
The Bank's capital to asset ratio is 11.5% and
the Bank far exceeds the required risk based
capital ratio of 8% with its Tier I ratio of 18.5%
and total capital ratio of 19.7% or additional
capital of $25,300,000.
SFAS No. 125 and No.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 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.
Chief Executive
Officer
Date: August 7, 1997 /s/ Virginia M. Vendrell
Treasurer and
Chief Financial Officer