UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the quarter ended March 31, 2001 Commission File No.
841105-D
BAR HARBOR BANKSHARES
Maine 01-0393663
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
PO Box 400
82 Main Street, Bar Harbor, ME 04609-0400
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code: (207) 288-
3314
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES: XX NO:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of March 31, 2001:
Common Stock: 3,276,114
TABLE OF CONTENTS
PART 1
FINANCIAL INFORMATION
Page
No.
Item 1.
FINANCIAL STATEMENTS
Independent Accountants' Report
2
Financial Statements
4-7
Consolidated Balance Sheets at March 31,
2001
and December 31, 2000
4
Consolidated Statements of Income for the
Three
Months ended March 31, 2001, and
March 31, 2000
5
Consolidated Statements of Changes in
Shareholders'
Equity for the Three Months ended
March 31, 2001
and March 31, 2000
6
Consolidated Statements of Cash Flow for
the Three
Months ended March 31, 2001, and March
31, 2000
7
Notes to Financial Statements
8-9
Item 2.
Management's Discussion and Analysis of
Financial
Condition and Results of Operations
11-14
Item 3.
Quantitative and Qualitative Disclosure
About Market Risk
14
PART II
OTHER INFORMATION
Page
No.
Item 1.
Legal Proceedings
15
Item 2.
Changes in Securities and Use of Proceeds
15
Item 3.
Defaults Upon Senior Securities
15
Item 4.
Submission of Matters to a Vote of
Security Holders
15
Item 5
Other Information
15
Item 6
Exhibits and Reports on Form 8-K
15
Signature
Page
16
2
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Bar Harbor Bankshares
We have reviewed the accompanying interim consolidated financial
information of Bar Harbor Bankshares and Subsidiaries as of March
31, 2001, and for the three-month periods ended March 31, 2001
and 2000. These financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the
objective of which is to express an opinion regarding the
financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying financial
statements for them to be in conformity with generally accepted
accounting principles.
/s/ BERRY, DUNN, McNEIL & PARKER
Portland, Maine
May 11, 2001
3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(dollars in thousands, except per share data)
March 31
2001
(Unaudited)
December 31
2000
Assets
Cash and due from banks
$ 10,415
$ 10,580
Federal funds sold
18,000
0
Securities:
Available for sale, at market
136,389
37,844
Held to maturity (market value
$2,448 and $116,245 at
March 31, 2001 and December
31, 2000, respectively)
2,450
116,306
Other Securities
8,105
8,068
Total Securities
146,944
162,218
Loans
272,728
271,381
Allowance for possible loan losses
(4,194)
(4,236)
Loans, net of allowance
268,534
267,145
Premises and equipment
12,834
11,996
Other assets
13,158
14,286
TOTAL ASSETS
$469,885
$466,225
Liabilities
Deposits
Demand deposits
$ 37,786
$ 42, 527
NOW Accounts
41,503
41,039
Savings deposits
69,625
73,776
Time Deposits
121,149
120,734
Total Deposits
270,063
278,076
Securities sold under
repurchase agreements
13,774
12,166
Borrowings from Federal Home
Loan Bank
128,500
119,152
Other liabilities
5,984
6,324
TOTAL LIABILITIES
$418,321
$415,718
Shareholders' equity
Capital stock, par value $2.00;
authorized
10,000,000 shares; issued
3,643,614 shares
7,287
7,287
Surplus
4,002
4,002
Retained Earnings
43,313
42,854
Accumulated other comprehensive
income
Unrealized appreciation
(depreciation) on securities
available for sale, net of
taxes of $500 and ($39) at
March 31, 2001 and December
31, 2000, respectively
971
(76)
Less: cost of 367,500 shares and
337,500 shares
of treasury stock at March 31,
2001, and at
December 31, 2000
respectively.
(4,009)
(3,560)
TOTAL SHAREHOLDERS' EQUITY
51,564
50,507
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
$469,885
$466,225
See accountant's review report. The accompanying notes are an
integral part of these consolidated
financial statements.
4
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(dollars in thousands, except per share data)
(UNAUDITED)
2001
2000
Interest and dividend income:
Interest and fees on loans
$ 5,917
$ 5,700
Interest and dividends on
securities and federal funds
2,755
2,844
Total interest and dividend income
8,672
8,544
Interest expense
4,477
4,041
Net interest income
4,195
4,503
Provision for possible loan loses
200
163
Net interest income after provision
for possible loan losses
3,995
4,340
Noninterest income:
Trust and other financial services.
965
796
Service charges on deposit accounts
558
247
Other service charges, commissions,
and fees
224
164
Other operating income
101
142
Total noninterest income
1,848
1,349
Noninterest expenses:
Salaries and employee benefits
2,094
1,957
Occupancy expense
263
171
Furniture and equipment expense
403
325
Other operating expense
1,435
1,315
Total noninterest expenses
4,195
3,768
Income before income taxes
1,648
1,921
Income taxes
558
635
NET INCOME
$1,090
1,286
NET INCOME PER SHARE
$0.33
$0.38
Weighted average number of capital
stock
shares outstanding
3,300,447
3,346,614
Dividends per share
$0.19
$0.19
See accountant's review report. The accompanying notes are an
integral part of these
consolidated financial statements.
5
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(dollars in thousands, except per share data)
(UNAUDITED)
`
CAPITAL
STOCK
SURPLUS
RETAINED
EARNINGS
NET UNREALIZED
APPRECIATION
(DEPRECIATION)
ON SECURITIES
AVAILABLE FOR
SALE
TREASURY
STOCK
TOTAL
SHAREHOLDERS'
EQUITY
Balance,
December 31,
1999
$7,287
$4,002
$40,611
($1,015)
($1,740)
$49,145
Net Income
1,286
1,286
Change in
unrealized
apprecia-
tion on
securities
available
for sale,
net of tax of
$10
20
20
Total
comprehensive
income
1,286
20
0
1,306
Cash
dividends
declared
($0.19
per share)
(646)
(646)
Purchase of
treasury
stock of
34,100
shares
(574)
(574)
Balance,
March 31,
2000
$7,287
$4,002
$41,251
($995)
($2,314)
$49,231
Balance,
December 31,
2000
$7,287
$4,002
$42,854
($76)
($3,560)
$50,507
Net Income
1,090
1,090
Cumulative
effect to
record
unrealized
appreciation
on
securities
held to
maturity
transferred
to securities
available
for sale, net
of tax
of $14
(28)
(28)
Change in
unrealized
apprecia-
tion on
securities
available for
sale, net
of tax of
$535
1,075
1,075
Total
comprehensive
income
1,090
1,047
2,137
Cash
dividends
declared
($0.19 per
share)
(631)
(631)
Purchase of
treasury
stock of
30,100
shares
($449)
(449)
Balance,
March 31,
2001
$7,287
$4,002
$43,313
$971
($4,009)
$51,564
See accountant's review report. The accompanying notes are an
integral part of these consolidated financial statements.
6
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001
2000
Cash flows from operating activities:
Net earnings
$1,090
$1,286
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation
280
253
Provision for loan losses
200
163
Net amortization of bond premium
4
29
Loss on sale of premises and
equipment
- -
7
Net change in other assets
589
(932)
Net change in other liabilities
(340)
422
Net cash provided by operating
activities
1,098
1,228
Cash flows from investing activities:
Net change in Federal Funds Sold
(18,000)
- -
Purchases of Securities Held to
Maturity
- -
(4,347)
Proceeds from maturity and principal
paydowns
of securities held to maturity
- -
4,206
Purchases of Securities Available for
Sale
- -
(5,308)
Proceeds from call of securities
available for sale
14,109
- -
Net increase in other securities
(37)
(587)
Net loans made to customers
(1,589)
(4,336)
Capital expenditures
(1,118)
(2,537)
Proceeds from sale of fixed assets
- -
47
Net cash used in investing activities
(3,851)
(12,836)
Cash flows from financing activities:
Net change in deposits
(8,013
(11,140)
Net change in securities sold under
repurchase agreements
1,608
6,942
Proceeds from Federal Home Loan Bank
advances
20,000
40,000
Repayment of advances from Federal
Home Loan Bank
(26,804)
(35,000)
Net change in short term other
borrowed funds
16.152
9,785
Purchase of treasury stock
(449
(574)
Payments of dividends
(631)
(646)
Net cash provided by financing
activities
1,863
9,367
Net decrease in cash and cash
equivalents
(165)
(2,241)
Cash and cash equivalents at beginning
of year
10,580
12,852
Cash and cash equivalents at end of
quarter
$10,415
$10,611
Non-cash transactions
Transfer from loans to other real
estate owned
- -
4
Transfer of securities from held to
maturity to available for sale
113,864
- -
See accountant's review report. The accompanying notes are an
integral part of these consolidated
financial statements.
7
BAR HARBOR BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles and with the instructions to Form 10-Q, and therefore,
they do not include all of the information and footnotes required
by generally accepted accounting principles for complete
presentation of financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. All significant intercompany transactions and balances
are eliminated in consolidation. The income reported for the
2001 period is not necessarily indicative of the results that may
be expected for the year ending December 31, 2001. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 2000.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change in the near term relate to the determination
of the allowance for loan losses and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for
loan losses and the carrying value of real estate owned,
management obtains independent appraisals for significant
properties.
The allowance for possible loan losses is maintained at a level
adequate to absorb probable losses. Management determines the
adequacy of the allowance based upon reviews of individual
credits, recent loss experience, current economic conditions, the
risk characteristics of the various categories of loans and other
pertinent factors. Credits deemed uncollectable are charged to
the allowance. Provisions for credit losses and recoveries on
loans previously charged off are added to the allowance.
2. Effect of Recent Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
as amended by SFAS No. 137 and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities",
are effective for years beginning after June 15, 2000. These
statements set accounting and reporting standards for derivative
instruments and hedging activities. They require an entity
recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. These
statements have had no impact on the Company, as it has not
engaged in any derivative transactions.
SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", is
effective for transfers occurring after March 31, 2001. SFAS No.
140 replaces SFAS No. 125. This statement is expected to have no
material impact to the Company's consolidated financial condition
and results of operations.
8
3. Line of Business Reporting
The Company manages and operates two major lines of business:
Community Banking and Financial Services. Community Banking,
through the wholly owned subsidiary Bar Harbor Banking and Trust
Company, includes lending and deposit-gathering activities and
related services to businesses and consumers. Financial Services
through BTI Financial Corporation and its three operating
subsidiaries includes Dirigo Investments, Inc., a NASD registered
broker-dealer; Block Capital Management, an SEC registered
investment advisor; and Bar Harbor Trust Services, a Maine
chartered trust company. The business lines are identified by
the entities through which the product or service is delivered.
The reported lines of business results reflect the underlying
core operating performance within the business units. Other is
comprised of intercompany eliminations and parent company only
items. Selected segment information is included in the
following table.
THREE MONTHS ENDED MARCH 31
(UNAUDITED)
Community
Banking
Financial
Services
Other
Consolidated
Totals
2001
2000
2001
2000
2001
2000
2001
2000
Net
Interest
Income
$4,189
$4,501
$6
$2
0
$0
$4,195
$4,503
Provision
for loan
losses
200
163
0
0
0
0
200
163
Net
interest
income
after
provision
for
loan
losses
3,989
4,338
6
2
0
0
3,995
$4,340
Non-
interest
income
908
2,513
965
796
(25)
(1,960)
1,848
$1,349
Non-
interest
expense
3,071
2,915
1,117
886
7
(33)
4,195
3,768
Income
(loss)
before
income
tax
1,826
3,936
(146)
(88)
(32)
(1,927)
1,648
1,921
Income
tax
(benefit)
618
1,302
(49)
(30)
(11)
(637)
558
635
Net
income
(loss)
$1,208
$2,634
($97)
($58)
($21)
($1,290)
$1,090
$1,286
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Certain matters discussed in this Report on Form 10-Q are
forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties
include, but are not limited to, those described in Management's
Discussion and Analysis of Financial Condition and Results of
Operations. Changes to such risks and uncertainties, which could
impact future financial performance, include, among other things,
(1) competitive pressures in the banking industry; (2) changes in
the interest rate environment; (3) general economic conditions,
either nationally or regionally; (4) changes in the regulatory
environment; (5) changes in business conditions and inflation;
and (6) changes in security markets. Therefore, the information
set forth therein should be carefully considered when evaluating
the business prospects of the Company.
The following is the review of Bar Harbor Bankshares (the
Company) and its subsidiaries, Bar Harbor Banking and Trust
Company and BTI Financial Group, for the three months ended March
31, 2001.
SUMMARY
Total assets for the Company of $470 million at March 31, 2001,
has increased slightly by $3.6 million from December 31, 2000.
Earnings were $1,090,000 for the first three months of 2001, but
are $194,000 below the earnings for the same period in 2000. Two
projects, the formation of BTI Financial Group and its three
subsidiary companies and the conversion of the banking software
for Bar Harbor Banking and Trust Company (the Bank) and the non-
bank subsidiaries, were primary focuses of the Company over the
past twelve months and contributed to the decrease in net income
between periods. The impact of these projects on the Company's
earnings is discussed below.
BTI Financial Group (BTI), a wholly owned financial services
subsidiary of Bar Harbor Bankshares, was formed in the fall of
1999. BTI Financial Group's subsidiaries, Dirigo Investments,
Inc., Bar Harbor Trust Services and Block Capital Management
began operations in January of 2000. As a result of the
formation of BTI, the Company has implemented segment reporting
as required by Statement of Accounting Standard (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." The formation of these three companies will
position BTI to more fully participate in various segments of the
financial services industry with the potential for significant
growth. In mid-2000, a branch office of Dirigo Investments, Inc.
was established in the Bangor, Maine, area including an office
manager and a broker, expanding the potential market area. This
office was further expanded with additional brokers in late 2000.
At the end of the first quarter 2001, BTI moved into its newly
renovated centralized facilities in Ellsworth, Maine.
REVIEW OF FINANCIAL CONDITION AT MARCH 31, 2001 AND
DECEMBER 31, 2000
Asset growth of $3.6 million from December 31, 2000 to March 31,
2001, includes modest loan growth of $1.4 million. At quarter
end, consumer loans represented 58% of the portfolio, which was
consistent with 59% at year-end. The ratio of commercial loans
tends to increase in the second and third quarters that are more
seasonally active for commercial lending. Investments decreased
$15.3 from December 31,
10
2000, million due to maturities, called issues, and paydowns of
mortgage backed securities. Lower interest rates have
contributed to an acceleration of called securities and
refinancing and payoffs of securitized mortgages. Federal funds
sold have increased $18 million between periods as a short-term
investment for excess funding.
The Bank's reserve for possible loan losses as of March 31, 2001,
is 1.54% of total loans compared to 1.56% at December 31, 2000.
Management reviews the allocation to the reserve on a quarterly
basis and funds the reserve as deemed necessary. This review
includes a provision for specific accounts and impaired loans,
provisions due to historic loan loss experience by loan type and
reserves reflecting industry and credit concentrations, currently
local and national economic conditions, and underwriting
standards. During the first three months of 2001, net charge
offs totaled $242,000 compared to $280,000 during the first three
months of 2000. The amounts represented below are the total
dollars past due as of March 31, 2001, and December 31, 2000.
Category
March 31,
2001
December 31,
2000
90-days past due and still
accruing
$1,010
$1,206
Non-accruing
6,758
6,907
$7,768
$8,113
Gross Loans
$272,728
$271,381
Percentage of Gross Loans
2.85%
2.99%
Effective January 1, 2001, a substantial portion of the
securities portfolio was reclassified from held to maturity to
available for sale, as allowed by SFAS No. 133, as amended. This
reclassification will permit more active management of the
investment portfolio.
Premises and equipment growth includes the purchase and
renovation costs of the headquarters of BTI in Ellsworth, Maine,
as well as properties adjacent to the Ellsworth branch office of
the Bank and in front of BTI. At March 31, 2001, the building
was substantially complete and occupancy by the BTI subsidiaries
had begun.
The Bank experiences a seasonal decline in its deposit base
through late fall and the winter months. Between December 31,
2000 and March 31, 2001, deposits decreased by $8.0 million or
2.9%, which is consistent with the decrease during the previous
year. Deposits generally increase during the second and third
quarters when economic activity in the Company's market area is
more seasonally active.
NET INTEREST INCOME
Rates, volumes and the mix of earning assets and interest bearing
liabilities and the level of non-interest bearing deposits affect
net interest income. Comparing the first three months of 2001
with the same period for 2000, net interest income decreased by
$308,000. While average earning assets of the Bank increased
slightly, by $2.2 million between the two periods, a declining
interest rate environment, increased competition reflected in
loan pricing, reduced opportunity for attractive yields in high
quality investments, and some residual of rapidly rising funding
costs in 2000, have narrowed average net interest margins. In
some instances, in the first half of 2000, the Bank added fixed
rate, longer-term assets to its
11
Balance Sheet, but it has funded those assets with shorter-term
(one year or less) liabilities. As funding rates increased, the
net interest income spread on these investments decreased because
of the increasingly higher funding costs. While this compression
has abated somewhat during the first quarter of 2001, average
funding costs from the Federal Home Loan Bank were 67 basis
points more in the first quarter of 2001 than in the first
quarter 2000, which in large measure accounted for the decrease
in net interest income between quarters.
Interest earned on loans for the first three months of 2001 when
compared to the first three months of 2000, increased by more
than $217,000 primarily due to increases in average volumes of
$10 million but by only $34,000 due to overall increases in
interest rates charged on the loan portfolio. Since March 31,
2000, the loan portfolio yield has increased by 9 basis points.
Because of declining interest rates in the first quarter of 2001
and the repricing attributes of the mix of loans, the overall
yield on the loan portfolio at the end of the first quarter has
decreased approximately 15 basis points from the fourth quarter
of 2000.
Interest income from the securities portfolio was $135,000 less
in the first quarter of 2001 than the same quarter in 2000
principally because of a $12.5 million reduction in the overall
portfolio between quarters. This decrease was caused by
maturities, pay downs on mortgage backed securities, and the
exercise by issuers of callable features because of the declining
interest rate environment. The overall yield of the portfolio
was 6.92% in 2001, an increase of 18 basis points over a yield of
6.74% in the first quarter 2000.
Interest expense for the three months ended March 31, 2001,
increased by $436,000 compared to the same period in 2000. Most
of this increase was attributed to rate increases, particularly
related to certificates of deposit, contracted during the higher
interest rate environment in 2000. Average deposit rates in the
first quarter 2001 were 3.47% compared to an average rate of
3.07% same quarter last year. Borrowings from the Federal Home
Loan Bank, which in large measure were used to fund the leverage
in the securities portfolio, increased 67 basis points to a 6.25%
average cost in the first quarter of 2001 compared to the
previous year's quarter. As these funding sources reprice,
primarily through maturities, the Company should realize lower
funding costs in the near future.
RATE VOLUME ANALYSIS
The following table represents a summary of the changes in
interest earned and interest paid as a result of changes in rates
and changes in volumes.
For each category of earning assets and interest bearing
liabilities, information is provided with respect to changes
attributable to change in rate (change in rate multiplied by old
volume) and change in volume (change in volume multiplied by old
rate). The change in interest due to both volume and rate has
been allocated to volume and rate changes in proportion to the
relationships of the absolute dollar amounts of the change in
each.
12
YEAR-TO-DATE FIGURES AS OF MARCH 31, 2001
COMPARED TO MARCH 31, 2000
(dollars in thousands, except per share data)
INCREASES (DECREASES) DUE TO
VOLUME
RATE
NET
Loans
180
$37
$217
Taxable securities
(211)
76
(135)
Tax exempt securities
(17)
(6)
(23)
Federal Funds Sold and Money Market
Funds
66
3
69
TOTAL EARNING ASSETS
$18
$110
$128
Deposits
(79)
235
156
Borrowings
41
239
280
Total interest bearing liabilities
($38)
$474
$436
NET CHANGE IN INTEREST
$56
($364)
($308)
NON-INTEREST INCOME
Non-interest income for the three months ended March 31, 2001,
totaled $1,848,000 and was $499,000 more than the first three
months in 2000. This 39% increase is due principally to fee
enhancements implemented by the Bank in late 2000, improved
management of customer charges, and a 21% increase in BTI
revenues from its three financial services subsidiaries.
NON-INTEREST EXPENSE
Non-interest expenses for the three months ended March 31, 2001,
totaled $4,195,000, an increase of $427,000 from the first three
months of 2000. Over the past several months, the Company has
made additions to staff in critical customer related and
operational areas, has implemented technological improvements
throughout the Company, and has expanded the BTI network,
particularly in the Bangor market. In the category of salaries
and related benefits, in 2000 the Company added a senior credit
administrator and a related staff for analysis and collections
that has enhanced significantly the credit function of the Bank.
The Company is proceeding with measures to reduce its cost
structure.
Throughout the second quarter of 2000, the banking software
conversion to Information Technology, Inc. (ITI) was completed.
At that time, the Company began expense recognition of
capitalized costs related to this system. This increase in
technology expenses is included in the first quarter of 2001, but
had not been incurred in the first quarter of 2000.
The Company did not incur any additional costs or any losses due
to the Year 2000 rollover. All internal and third party provided
software has been performing satisfactorily since January 1,
2000.
13
CAPITAL
At March 31, 2001, the Company's capital to asset ratio is 11.0%,
while the Bank has a leverage ratio of 9.4%, a risk-weighted Tier
1 ratio of 15.0% and a Total Capital ratio of 16.2%, all in the
well capitalized
categories. These ratios compare to December 31, 2000, when the
capital to asset ratio was 10.5% for the Company, and the Bank
had a leverage ratio, risk-based Tier 1 ratio, and Total Capital
ratio of 9.4%, 15.1%, and 16.4% respectively. Regulatory
minimums for these risk based measures are 4% for leverage, 4%
for Tier 1, and 8% for total capital.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
Liquidity is measured by the Bank's ability to meet short-term
cash needs at a reasonable cost or minimum loss to the Bank.
Liquidity management involves the ability to meet cash flow
requirements of its customers, which may come from depositors
withdrawing funds or borrowers requiring funds to meet credit
needs. Without adequate liquidity management, the Bank would not
be able to meet the needs of the individuals and communities it
serves. The Bank uses a Basic Surplus/Deficit model to measure
its liquidity over a 30-day and 90-day time horizon. The
relationship between liquid assets and short-term liabilities
that are vulnerable to non-replacement within a 30-day period is
examined. The Bank's policy is to maintain its liquidity
position at a minimum of 5% of total assets. Liquidity as
measured by the Basic Surplus/Deficit model was 11.5% as of March
31, 2001, for the 30-day horizon and 10.6% for the 90-day
horizon.
The Bank's position with regard to interest rate sensitivity
consists of the matching of its assets and liabilities for
repricing within a year. The exposure is to rising rates out
beyond a year as the Bank has approximately $22 million invested
in callable securities with final maturities of ten years or less
funded by short-term liabilities. Because of financial
advantages to the issuer in a rising rate environment, an
exposure lies with the possibility that these securities will not
be called. The gap analysis in the current interest rate
environment shows the Bank with approximately $28 million more
liabilities than assets that would be repriced within twelve
months. Assuming rates were to drop by 200 basis points and
utilizing a steepening yield curve shift in rates, simulations
based on a static balance sheet indicate that the Bank's net
interest income could rise by approximately $16,000 during the
first year of the drop, while decreasing its income in the second
year by $1 million. If rates were to rise by 200 basis points,
net interest income could decrease by $47,000 in the first year,
and increase by $314,000 during the second year.
14
PART II OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 2 Changes in Securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
None
15
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BAR HARBOR BANKSHARES
/S/ Dean S. Read
Date: May 11, 2001 Dean S. Read
Chief Executive Officer
/S/ Edward B. Grimball
Date: May 11, 2001 Edward B.
Grimball
Chief Financial Officer
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: May 11, 2001 Dean S. Read
Chief Executive Officer
Date: May 11, 2001 Edward B.
Grimball
Chief Financial Officer
16