UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarter ended September 30, 1995 C ommission File No.
841105-D
BAR HARBOR BANKSHARES
Maine 01-0393663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 400, 82 Main Street, Bar Harbor, ME 04609-0400
(Address of principal executive offices) (Zip Code)
Registrants'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 September 30, 1995:
Common Stock: 1,813,605
PAGE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Information Page
Item I. Financial Statements
Consolidated Balance Sheets 2
December 31, 1994 and September 30, 1995
Consolidated Statements of Earnings 3
Three months and nine months ended September 30,
1993, 1994 and 1995
Consolidated Statements of Changes in Stockholders Equity 4
Nine months ended September 30, 1994 and 1995
Consolidated Statements of Cash Flows 5
Nine months ended September 30, 1994 and 1995
Rate Volume Analysis 6
Nine months ended September 30, 1994 and 1995
Rate Sensitivity Report 7
As of September 30, 1995
Notes to Financial Statements 8-10
Item II. Management s Discussion and Analysis of Financial
Condition and Results of Operations 11-14
Signature Page 15
</TABLE>
PAGE
<PAGE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
<S> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 8,162,842 $ 9,714,713
Federal Funds Sold 3,775,000 0
Investment Securities
Securities Held to Maturity 93,844,381 85,080,071
Securities Available for Sale 8,288,585 6,238,887
Gross Loans 199,190,025 185,993,806
Allowance for possible
Loan losses (4,225,715) (3,891,835)
Net Loans 194,964,310 182,101,971
Premises and Equipment 6,173,589 5,566,224
Loans held for sale 264,558 255,958
Other Assets 8,248,456 7,729,626
TOTAL ASSETS 323,721,721 296,687,450
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES
Deposits
Demand Deposits 34,393,596 30,124,536
NOW Accounts 39,536,084 37,951,497
Savings Deposits 58,273,459 61,981,439
Time, $100,000 and over 13,042,310 7,977,495
Other Time 110,739,079 87,509,593
TOTAL DEPOSITS 255,984,528 225,544,560
Securities sold under
Repurchase Agreements 23,351,658 13,947,903
Advances from Federal Home
Loan Bank 8,000,000 25,000,000
Other Liabilities 3,487,223 3,434,203
TOTAL LIABILITIES 290,823,409 267,926,666
Capital Stock, par value $2
Authorized 10,000,000 shares
issued 1,809,835* in 1994
and 1,813,605* in 1995 3,627,210 3,619,670
Surplus 7,368,696 7,314,408
Retained Earnings 23,156,863 19,118,679
Net unrealized appreciation on
securities available for sale 85,543 48,027
Net of tax of $44,067
Less: Cost of 100,000 shares (1,340,000) (1,340,000)
Of Treasury Stock*
TOTAL STOCKHOLDERS EQUITY 32,898,312 28,760,784
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY 323,721,721 296,687,450
</TABLE>
*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
<PAGE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <c >
<C>
THREE MONTHS THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS NINE MONTHS
ENDING ENDING ENDING ENDING ENDING ENDING
09-30-95 09-30-94 09-30-93 09-30-95 09-30-94 09-30-93
Interest & Fees on Loans $5,121,406 $4,205,264 $3,594,981 $14,330,622 $11,742,788 $10,747,989
Interest & Dividends on
Investment Securities:
Taxable Interest
Income 1,445,337 1,172,225 870,779 4,057,080 3,312,142 3,252,698
Non-taxable Interest Inc. 215,313 208,013 217,947 647,061 618,545 651,166
Dividends 77,982 116,949 59,266 286,046 265,482 169,634
Total Interest Income 6,901,828 5,706,157 4,751,143 19,411,950 15,970,116 14,835,278
Interest on Deposits 2,233,392 1,615,156 1,391,625 6,077,427 4,347,566 4,219,927
Interest in Short Term
Borrowings 533,699 359,700 224,031 1,719,723 1,185,198 881,728
Total Interest Expense 2,767,091 1,974,856 1,615,656 7,797,150 5,533,764 5,101,655
Net Interest Income 4,134,737 3,731,301 3,135,487 11,614,800 10,436,352 9,733,623
Provision for Loan Losses 240,000 240,000 270,000 720,000 720,000 810,000
Net Interest Income after
Provision for Loan
Losses 3,894,737 3,491,301 2,865,487 10,894,800 9,716,352 8,923,623
Other Income 1,362,041 1,251,090 1,248,916 3,183,547 3,059,539 2,989,798
Investment Securities Gains 0 32,532 0 0 58,494 0
Other Expenses:
Salaries & Emp. Benefits 1,245,330 1,321,864 1,086,012 3,639,676 3,749,390 3,313,737
Other 1,305,752 974,447 1,321,879 3,698,848 3,276,061 3,560,589
Investment Securities Losses 0 0 0 0 0 0
Income Before Income Taxes 2,705,696 2,478,612 1,706,512 6,739,813 5,808,934 5,039,095
Income Tax Expense 859,275 677,957 492,473 2,084,741 1,688,471 1,540,000
Net Income 1,846,421 1,800,655 1,214,039 4,655,082 4,120,463 3,499,095
Earnings per Share:
Based on 1,707,270 Shares for
1993, 1,709,835 for 1994 and
<S> <C> <C> <C> <C> <C> <C>
1,713,605 Shares for 1995* $1.08 $1.05 $0.71 $2.72 $2.41 $2.05
Dividends per Share $0.36 $0.30 $0.25
</TABLE>
*Earnings per share have been restated in 1993 and 1994
to reflect a five-for-one stock split declared
July 11, 1995.
PAGE
<PAGE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
QUARTERS ENDED SEPTEMBER 30, 1994 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NET UNREA- NET
LIZED LOSS STOCK-
CAPITAL RETAINED TREASURY ON EQUITY HOLDERS
STOCK SURPLUS EARNINGS STOCK SECURITIES EQUITY
Balance, 12/31/93 $3,614,540 $7,280,550 $15,469,806 ($1,340,000) ($37,566) $24,987,440
Net Earnings 4,120,463 4,120,463
Cash Dividends Declared (512,950) (512,950)
Net Unrealized Loss
on Marketable Equity
Securities (177,163) (177,163)
Sale of Stock (513 Shares) 5,130 33,858 38,988
Balance, 9/30/94 $3,619,670 $7,314,408 $19,077,319 ($1,340,000) ($214,729) $28,456,668
Balance, 12/31/94 3,619,670 7,314,408 19,118,678 (1,340,000) 48,027 28,760,783
Net Earnings 4,655,082 4,655,082
Cash Dividends Declared (616,897) (616,897)
Net Unrealized Appreciation
on Securities Available for
Sale, Net of Tax of $44,067 37,516 37,516
Sale of Stock (754 Shares) 7,540 54,288 0 0 0 61,828
Balance, 9/30/95 $3,627,210 $7,368,696 $23,156,863 ($1,340,000) $85,543 $32,898,312
</TABLE>
PAGE
<PAGE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30 SEPTEMBER 30
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 4,655,082 $4,120,463
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 436,354 408,159
PROVISION FOR LOAN LOSSES 720,000 720,000
PROCEEDS FROM SALE OF MORTGAGES HELD FOR SALE
NET SECURITIES (GAINS) LOSSES 0 (7,500)
NET AMORTIZATION OF BOND PREMIUM 137,185 345,175
NET CHANGE IN OTHER ASSETS (546,755) (1,062,272)
NET CHANGE IN OTHER LIABILITIES 53,020 785,081
5,454,886 5,309,106
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF SECURITIES HELD TO MATURITY (20,927,848)
PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS
OF SECURITIES HELD TO MATURITY 6,276,134 10,660,680
PROCEEDS FROM THE SALE (CALL)
OF SECURITIES HELD TO MATURITY 5,750,000
PURCHASES OF SECURITIES AVAILABLE FOR SALE (1,997,188)
PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS
OF SECURITIES AVAILABLE FOR SALE 4,549 4,320,599
PROCEEDS FROM THE SALE (CALL)
OF SECURITIES AVAILABLE FOR SALE 0
NET LOANS MADE TO CUSTOMERS (13,582,338) (19,685,648)
CAPITAL EXPENDITURES (1,043,719) (972,543)
(25,520,410) (34,796,228)
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
NET CHANGE IN DEPOSITS 30,439,968 29,260,316
INCREASE IN REPURCHASE AGREEMENTS 9,403,755 9,850,054
NET CHANGE IN OTHER BORROWINGS (17,000,000) (7,000,000)
PROCEEDS FROM SALE OF CAPITAL STOCK 61,828 38,988
PAYMENTS OF DIVIDENDS (616,898) (512,950)
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,288,653 31,636,408
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,223,129 2,149,286
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,714,713 6,134,371
CASH AND CASH EQUIVALENTS AT END OF QUARTER $11,937,842 $8,283,657
CASH AND CASH EQUIVALENTS AT END OF YEAR
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST $7,708,377 $5,686,872
INCOME TAXES $2,026,679 $1,543,681
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
PAGE
<PAGE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SEPTEMBER 30 SEPTEMBER 30
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 4,655,082 $ 4,120,463
ADJUSTMENTS TO RECONCILE NET
EARNINGS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
DEPRECIATION 436,354 408,159
PROVISION FOR LOAN LOSSES 720,000 720,000
NEW LOANS ORIGINATED FOR SALE (5,422,883) (10,744,890)
PROCEEDS FROM SALE OF MORTGAGES
HELD FOR SALE 5,442,126 10,763,176
GAIN ON SALE OF MORTGAGES
ORIGINATED FOR SALE (19,243) (18,286)
NET SECURITIES GAINS 0 (7,500)
NET AMORTIZATION OF BOND PREMIUM 137,185 345,175
GAIN ON SALE OF REAL ESTATE OWNED (4,830) (3,000)
NET CHANGE IN OTHER ASSETS (541,925) (1,059,272)
NET CHANGE IN OTHER LIABILITIES 53,020 785,081
NET CASH PROVIDED BY OPER. ACTIVITIES 5,454,886 5,309,106
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF SECURITIES HELD
TO MATURITY (20,927,848) (25,610,216)
PROCEEDS FROM THE MATURITY & PRIN.
PAYDOWNS OF SECURITIES HELD TO
MATURITY 6,276,134 10,660,680
PROCEEDS FROM THE CALL OF
SECURITIES HELD TO MATURITY 5,750,000 4,320,599
PURCHASES OF SECURITIES
AVAILABLE FOR SALE (1,997,188) (3,509,100)
PROCEEDS FROM THE MATURITY &
PRINCIPAL PAYDOWNS OF SECURITIES
AVAILABLE FOR SALE 4,549 0
PROCEEDS FROM THE SALE (CALL)
OF SECURITIES AVAILABLE FOR SALE 0 0
NET LOANS MADE TO CUSTOMERS (13,582,338) (19,685,648)
CAPITAL EXPENDITURES (1,043,719) (972,543)
NET CASH USED IN INVESTING ACTIVITIES (25,520,410 (34,796,228)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET CHANGE IN DEPOSITS 30,439,968 29,260,316
INCREASE IN REPURCHASE AGREEMENTS 9,403,755 9,850,054
PURCHASE OF ADVANCES FROM FHLB 38,600,000 69,000,000
REPAYMENT OF ADVANCES FROM FHLB (55,500,000) 76,000,000
PROCEEDS FROM SALE OF CAPITAL STOCK 61,828 38,988
PAYMENTS OF DIVIDENDS (616,898) (512,940)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 22,288,653 31,636,408
NET INCREASE IN CASH AND
CASH EQUIVALENTS 2,223,129 2,149,286
CASH AND CASH EQUIVALENTS AT<PAGE>
BEGINNING OF YEAR 9,714,713 6,134,371
CASH AND CASH EQUIVALENTS AT
END OF QUARTER 11,937,842 8,283,657
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST 7,708,377 5,686,872
INCOME TAXES 2,026,679 1,543,681
NON-CASH TRANSACTIONS:
TRANSFER FROM LOANS TO REAL
ESTATE OWNED (OTHER ASSETS) 186,000 317,898
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
<PAGE>
RATE VOLUME ANALYSIS
The following table represents a summary of the changes in
interest earned and interest paid as a result of changes in rates
and changes in volumes.
F o r each category of earning assets and interest-bearing
liabilities, information is provided with respect to changes
attributable to change in rate (change in rate multiplied by old
volume) and change in volume (change in volume multiplied by old
rate). The change in interest due to both volume and rate has been
allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in each.
YEAR-TO-DATE FIGURES AS OF SEPTEMBER 30, 1995
COMPARED TO SEPTEMBER 30, 1994
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VOLUME RATE NET
LOANS $1,588,681 $ 999,153 $2,587,834
TAXABLE SECURITIES $ 411,623 $ 353,879 765,502
TAX EXEMPT SECURITIES $ 900 $ 27,616 28,516
FEDERAL FUNDS SOLD AND
MONEY MARKET FUNDS $ 38,677 $ 21,305 59,982
TOTAL EARNING ASSETS $2,039,881 $1,401,953 $3,441,834
DEPOSITS $ 574,059 $1,155,802 1,729,861
BORROWINGS $ 49,653 $ 483,872 533,525
TOTAL INTEREST
BEARING LIABILITIES $ 623,712 $1,639,674 $2,263,386
NET CHANGE IN INTEREST $1,416,169 ($237,721) $1,178,448
</TABLE>
YEAR-TO-DATE FIGURES AS OF SEPTEMBER 30, 1994
COMPARED TO SEPTEMBER 30, 1993
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VOLUME RATE NET
LOANS $1,459,304 ($464,505) $994,799
TAXABLE SECURITIES $478,420 ($323,128) 155,292
TAX EXEMPT SECURITIES ($32,107) ($514) (32,621)
FEDERAL FUNDS SOLD AND
MONEY MARKET FUNDS $12,932 $4,436 17,368
TOTAL EARNING ASSETS $1,918,548 ($783,710) $1,134,838
DEPOSITS $433,109 ($305,470) 127,639
BORROWINGS $228,261 $76,209 304,470
TOTAL INTEREST
BEARING LIABILITIES $661,370 ($229,261) $432,109
</TABLE>
PAGE
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
AS OF SEPTEMBER 30, 1995
(UNAUDITED)
Amounts in Thousands
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at September 30, 1995
which are anticipated by the Bank, based upon certain assumptions, to
reprice or mature in each of the future time periods shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> < c >
ONE TO GREATER
DAILY TOTAL TO TOTAL TO FIVE THAN FIVE
FLOATING 90 DAYS ONE YEAR YEARS YEARS TOTAL
Loans - Fixed Rate $ 0 $ 6,924 $ 14,478 $ 28,682 $ 11,104 $ 54,264
- Variable Rate 0 68,341 133,861 11,647 0 142,508
Investments 0 11,986 22,261 56,923 22,816 102,000
Federal Funds Sold 0 0 0 0 0 0
Interest Rate Swap 0 0 5,000 5,000 0 10,000
Total Earning Assets 0 87,251 172,600 102,252 33,920 308,772
Deposits 0 66,272 143,626 15,911 96,515 256,052
Repurchase Agreements 0 24,412 24,412 0 0 24,412
Borrowings 0 5,000 8,000 0 0 8,000
Interest Rate Swap 0 10,000 10,000 0 0 10,000
Total Sources 0 105,684 186,038 15,911 96,515 298,464
Net Gap Position 0 (18,433) (13,348) 86,341 (62,595) 10,308
Cumulative Gap $0 ($18,433) ($13,348) $72,903 $10,308 $10,308
Rate Sensitive Assets/
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Liabilities 0.0% 82.56% 92.78% 642.65% 35.14% 103.45%
</TABLE>
Except as stated below, the amounts of assets and liabilities shown
which reprice or mature during a particular period were determined in
accordance with the earlier of term to repricing or the contractual
terms of the asset or liability. The Bank has assumed that 3% of its
savings is more rate sensitive and will react to rate changes, and has
therefore categorized it in the 3-12 month time horizon. The remainder
is stable and is listed in the greater than five year category. NOW
accounts, other than seasonal fluctuations approximating $3,000,000,
are stable and are listed in the greater than five year category.
Money market accounts are assumed to reprice in three months or less.
Certificates of deposit are assumed to reprice at the date of
contractual maturity. Fixed rate mortgages, totaling $31,000,000 are
amortized using a 6% rate, which approximates the Bank s prior
experience.
PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS DATED SEPTEMBER 30, 1995
1. Summary of interim financial statement adjustments. The
accompanying statements reflect all adjustments (all of
which are normal and recurring in nature) which are, in the
opinion of management, necessary to present a fair statement
of the results for the interim periods presented. The
financial statements should be read in conjunction with the
Consolidated Financial Statements and related Notes included
in the Bank s 1994 Annual Report.
<TABLE>
<CAPTION>
<S> <C> <C>
SEPTEMBER 30, 1995
CARRYING MARKET
VALUE VALUE
2. INVESTMENT SECURITIES:
a. U.S. Treasury and other
Government agencies $ 70,471,334 $ 70,344,553
b. States of the U.S. and other
Political subdivisions 14,081,777 14,589,331
c. Other securities 17,450,245 17,536,082
Total Securities $102,003,356 $102,469,966
Securities held to
maturity 93,844,381 94,181,381
Securities available
For sale 8,158,975 8,288,585
The Bank does not hold any securities for a single
Issuer which exceed 10% of the Bank s stockholders
equity.
September 30, December 31,
1995 1994
3. LOANS
a. Commercial, agricultural
And other loans $42,385,582 $41,221,396
b. Real Estate - Construction 5,875,494 7,980,026
c. Real Estate - Mortgage 133,929,729 121,491,062
d. Installment loans 16,999,219 15,301,322
Total Loans $199,190,024 $185,993,806
4. CHANGES IN ALLOWANCE FOR POSSIBLE LOAN LOSSES:
September 30, September 30
1995 1994
Balance, beginning January 1: $ 3,891,835 $ 3,369,387
Provision charged to income 720,000 720,000
Recoveries of amounts charged 78,144 112,136
Losses charged to provision 464,264 337,082
Balance, ending September 30: $ 4,225,715 $ 3,864,441
</TABLE>
5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
9/30/95 9/30/94 9/30/93
Balance, beginning Jan. 1 $30,486 $53,286 $127,894
Provision charged to income 9,778 1,800 42,765
Losses charged to provision 15,110 24,600 117,373
Balance, ending Sept. 30 $ 25,154 $30,486 $ 53,286
</TABLE>
PAGE
<PAGE>
6. The aggregate dollar amount of loans made to directors, executive
officers or principal holders of equity securities as of
September 40, 1995 and December 31, 1994 respectively were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Aggregate amount, beginning 1-1 $3,409,868 $ 3,482,587
New Loans 269,154 862,194
Repayments 343,764 934,913
Aggregate amount, ending 9-30-95 $3,335,259
Aggregate amount, ending 12-31-94 $ 3,409,868
7. OTHER ASSETS:
September 30, December 31
1995 1994
a. Interest earned but
Not paid on:
Loans $ 1,320,866 $ 1,286,864
Investments 1,243,535 907,931
b. Other Real Estate Owned 460,247 611,054
</TABLE>
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, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Current
Federal $2,185,625
State 66,259
$2,251,884
Deferred (167,143)
$2,084,741
</TABLE>
Actual tax expense differs from the expected tax expense computed
by applying the applicable federal corporate income tax rate of
34% is as follows for the nine months ended September 30, 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
Computed tax expense $2,289,898
Tax exempt interest (253,603)
Other 48,446
$2,084,741
</TABLE>
PAGE
<PAGE>
At September 30, 1995, items giving rise to the deferred income
tax assets and liabilities, using a tax rate of 34%, are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASSET LIABILITY
Allowance for possible loan losses
On loans and real estate owned $1,285,577
Deferred and accrued
employee benefits 911,280
Deferred loan origination fees 114,660
Securities losses not currently
Deductible 19,595
Core deposit intangibles 110,987
Depreciation 7,109
Other 25,935
$2,475,143 $0
</TABLE>
No valuation allowance is deemed necessary for the deferred tax
asset.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
9. INCOME TAX EXPENSE: 1995 1994
Federal Income Tax $2,018,482 $1,615,179
State Income Tax 66,259 73,292
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The results of operations for September 30, 1995 are reflected
through the growth in the balance sheet. Total assets grew over
$30,000,000 in 1995 and $36,000,000 in l994 each compared to the
previous year's third quarter end. The major changes are found in the
investment and loan portfolios.
The investment portfolio growth of just under $10,000,000, has
been in the area of US Government agency debentures which were
purchased with the intent to hold to maturity. Some callable agencies
with longer maturities have been placed in the available for sale
category and the Bank is reviewing the FASB's window to move
securities from held to maturity to available for sale before year
end. The Bank's available for sale portfolio, totaling $8,300,000 is
comprised of $5,400,000 in Federal Home Loan Bank stock. Ownership of
stock is required by the FHLB for participation in their funding
programs. This stock has earned the Bank in excess of 7.0% for the
first three quarters of 1995. The appreciation of net unrealized
gains to $85,500 as of September 30, 1995 continues to grow slowly
with the increase in the market. The market value of the entire
portfolio, which is approximately $470,000 greater than the book
value, has risen in the past year, following national economic trends
including lower interest rates. The Bank does not hold any securities
(such as structured debt tied to multiple indices, interest only or
principal only securities) that may experience considerable change in
their market values by a greater degree than traditional debt and
could materially affect the entire portfolio. In the loan
portfolio, which has grown by $16,000,000 in the past twelve months,
the Bank's concentration has been through the extension of loans
secured by real estate to its consumer customers totalling $11,000,000
more than one year ago.
Funding for the asset growth has come from increases in deposits
t o talling $23,000,000, predominantly from interest bearing
certificates of deposit. As opportunities have surfaced to attract
lower cost deposits and repurchase agreements, advances from the
Federal Home Loan Bank have decreased by $7,000,000. Short term
borrowings were reduced through seasonal deposit growth, investment
maturities and/or calls and principal paydowns from the Bank's
mortgage backed securities portfolio.
Liquidity is measured by the Bank's ability to meet cash needs at
a reasonable cost or minimum loss to the Bank. Liquidity management
involves the ability to meet cash flow requirements of its customers,
which may come from depositors withdrawing funds or borrowers
requiring funds to meet credit needs. Without adequate liquidity
management, the Bank would not be able to meet the needs of the
individuals and communities it serves. The Bank utilizes a Basic
Surplus/Deficit model to measure its liquidity over a 30-day and a 90-
day time horizon. We examine the relationship between liquid assets
and short term liabilities which are vulnerable to non-replacement
within a 30-day period. The 90-day analysis extends to include a
projection of subsequent cash flow funding needs over an additional
60-day time horizon. The Bank's policy is to maintain its liquidity
position at a minimum of 5% of total assets. At September 30,1995 the
Bank has liquidity in excess of 10% in its balance sheet.
PAGE
<PAGE>
How the changes in the balance sheet have affected the Bank may
be viewed through the earnings statement for the periods ending
September 30, 1993, 1994, and 1995. Overall, the net earnings for the
Bank are $535,000 ahead of last year's first nine months' earnings
which represents a 13% increase. Net interest income for the first
nine months of 1995 has added strong earnings and is affected by
rates, volumes and the mix of earning assets and interest bearing
liabilities. Increases in the loan portfolio have afforded the Bank
additional interest income of $1,590,000 due to increases in volumes,
with further increases of $1,000,000 due to changes in rates. The
Bank increased its base lending rate by 75 basis points between
September 30, 1994 and September 30, 1995. Although only a portion of
loans are immediately affected by changes in the Bank's base rate, the
effect of the increases has over time increased the yields in the
portfolio. The commercial real estate rate for variable rate
mortgages has increased 100 basis points since September 30, 1994 and
as the loans in that portion of the portfolio totalling over
$50,000,000 in mortgages reach their annual anniversary dates, the
yield has improved the overall yield for loans. Loan yields have
increased by 99 basis points over the past twelve months and represent
the first increase in several years. Decreases in yields experienced
in 1994 and 1993 were 16 and 77 basis points respectively. Interest
on investments has also increased both due to volumes ($451,000) and
to increased rates ($403,000). Similar to the loan yields, 1995 is
the first year in several in which the overall investment yield
increased rather than decreased. Yields on investments have
increased by 24 basis points during the past year compared with 43 and
77 basis point drops in 1994 and 1993 respectively. It is the boost
from the increases in rates in the Bank's earning assets that have
helped to offset the increases seen in liability costs as described
below.
The cost of deposited funds increased from September 1994 to
September 1995 by 78 basis points. Additionally rates rose on
borrowed funds during the past twelve months by over 117 basis points.
Due to this increase in borrowed funds costs, the Bank elected to
promote certificates of deposit early in 1995, locking in acceptable
rates for the Bank which were lower than alternative sources of
funding. Taking into consideration the increased cost of borrowings
and the increased volumes in certificates of deposit, the Bank's
overall cost of purchased funds increased by $1,730,000 when compared
to September of 1994. With increases on both sides of the balance
sheet, the Bank's earnings remain strong with its net interest income
totalling $1,178,000 more than one year ago.
With regard to interest rate sensitivity, the Bank is positioned
favorably for the current interest rate cycle with $13,000,000 more of
its liabilities repricing within a year when compared to its assets.
On the shorter run (out to 90 days), the Bank has $18,000,000 more in
liabilities which are sensitive to rate changes than assets, both of
which might prove beneficial if the Federal Reserve responds by
lowering the Federal funds rate in either November or December of this
year. There will be no adverse interest rate risk should interest
rates remain unchanged.
PAGE
<PAGE>
Due to changes in the methodology used for computing the reserve
for possible loan losses, the Bank increased its ratio to gross loans
to over 2% beginning in 1993 and through September 30, 1995 has
maintained that reserve to loan ratio. The Bank reviews its
allocation to the reserve on a monthly basis and funds the reserve as
deemed necessary. This review includes a provision for specific
credits, provisions due to historic loan losses by loan types and
reserves reflecting industry concentrations, credit concentrations,
current economic conditions and underwriting standards. In 1995, the
Bank has added a provision for impaired loans in accordance with FASB
114/118. Losses for 1995 were originally estimated at $950,000 with
$464,000 charged off through September 30, 1995, compared to $337,000
and $820,000 charged off in the first nine months of 1994 and 1993,
respectively. The amounts represented below are the total dollars
o u t standing for the first nine months of each year listed.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CATEGORY 1995 1994 1993
<S>
90-DAY PAST DUE
<C> <C> <C>
AND STILL ACCRUING $ 711,943 $ 645,920 $ 1,150,195
NON-ACCRUING 2,584,343 2,627,314 2,984,000
$ 3,296,286 $ 3,273,234 $ 4,134,195
GROSS LOANS $199,190,024 $175,399,428 $154,217,991
PERCENTAGE OF
GROSS LOANS 1.65% 1.87% 2.68%
</TABLE>
A review of the Bank's non-interest income shows the first nine
months of 1995 $124,000 ahead of the same period in 1994, which is
attributable to the Trust Department's scheduled fees. These fees are
based on increased book assets of more than $18,000,000 over the past
twelve months and are computed based on market value of total assets.
Both 1994 and 1993 showed increases as compared to their respective
previous years. 1994 increased by $70,000 whereas 1993 experienced a
$390,000 increase over 1992. Throughout 1993, the Bank witnessed the
last year of significant growth from its commitment to its customers
and communities through its efforts in the residential real estate
market. The selling of mortgages in the secondary market has
generated fees on sold mortgages as well as servicing fees on these
loans. During the first nine months of 1993 the Bank earned almost
$297,000 from fees generated by the secondary mortgage program. This
compares to $150,000 and $98,800 for 1994 and 1995 respectively. The
decline in income generated from the sale of residential mortgages
through the secondary market are directly related to the interest rate
cycle and as rates have risen, sales and refinances of homes have
dropped. The fees generated in the granting of residential mortgages
during the falling rate interest cycle of the early 1990's is now
translated into earnings through the servicing of those loans which
total over $58,000,000 in outstanding balances and totals $198,500 in
income thus far in 1995.
PAGE
<PAGE>
Salary and employee benefits for 1995 are actually three percent
below 1994's expense and compare favorably with 1994 which shows a
$435,000 (or 13%) increase over 1993. The increase in 1994 represents
increases in compensation of 5% and costs incurred with the addition
of a deferred plan for certain senior officers (Messrs. Reeves, Eaton,
Goldthwait and MacDonald) in light of the termination of the defined
benefit pension plan. There was a $205,000 or 6.7% increase between
quarter ends in 1993 as compared to 1992. 1993 was the year of
adoption of FASB 106 pertaining to postretirement benefits and the
expense incurred pertained to future benefits for employees.
With regard to other expense, 1995 expenses of $3,700,000
compares more with 1993's expenses of $3,560,000 than those of 1994.
1994 marked a year in which other expenses actually went down by
$285,000 when compared to 1993. During 1993, the Bank took losses on
properties owned which resulted from loan problems totalling $264,000.
There were no comparable losses in either 1994 or 1995. There is no
o n e category of expense which exceeds $50,000 in increased
expenditures in 1995 and stands out as a significant increase. The
Trust Department has recently outsourced its tax preparation for
customers and the initial outlay for that operation has been
approximately $44,000. Fees will be generated from Trust customers as
the 1995 tax preparation season begins. The Bank's year-to-date
efficiency ratio is 54% which is well under the national average.
Effective January 1, 1995, the Bank adopted FASB No. 114,
"Accounting By Creditors for Impairment of a loan", as amended by
Statement No. 118. A loan is impaired when it is probable that the
Bank will not collect all amounts due according to the contractual
terms of the loan agreement. Impaired loans are loans that are
carried on a non-accrual status. Loans are returned to accrual status
and are no longer considered to be impaired when they become current
as to principal and interest or demonstrate a period of performance
under the contractual terms, and in management's opinion are fully
collectable. Certain loans are exempt from the provisions including
large groups of smaller balance homogenous loans that are collectively
evaluated for impairment, such as consumer and residential mortgage
loans. Impaired loans totaled $1,041,882 at September 30, 1995. The
Bank plans to implement SFAS No. 122 effective January 1, 1996 with no
negative impact to its earnings.
The Bank was examined by the FDIC in September of this year and
there were no recommendations made which would have a material effect
o n the registrant's capital resources, liquidity or operating
earnings. The Bank's capital to asset ratio is 10.16% and the Bank
far exceeds the required risk based capital ratio of 8% with its Tier
I ratio of 15.54%, total capital ratio of 16.79% and leverage ratio of
10.14%. Using the risk based capital formula, the Bank has capital in
excess of requirements of $18,429,000.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BAR HARBOR BANKSHARES
Sheldon F. Goldthwait, Jr. /s/
Date: November 15, 1995 Sheldon F. Goldthwait, Jr.
President
Virginia M. Vendrell /s/
Date: November 15, 1995 Virginia M. Vendrell
Senior Vice President, Treasurer
and Chief Financial Officer
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,162,842
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,775,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,288,585
<INVESTMENTS-CARRYING> 93,844,381
<INVESTMENTS-MARKET> 94,181,381
<LOANS> 199,190,025
<ALLOWANCE> (4,225,715)
<TOTAL-ASSETS> 323,721,721
<DEPOSITS> 255,984,528
<SHORT-TERM> 31,351,658
<LIABILITIES-OTHER> 3,487,223
<LONG-TERM> 0
<COMMON> 3,627,210
0
0
<OTHER-SE> 29,271,102
<TOTAL-LIABILITIES-AND-EQUITY> 323,721,721
<INTEREST-LOAN> 14,330,622
<INTEREST-INVEST> 4,990,187
<INTEREST-OTHER> 91,141
<INTEREST-TOTAL> 19,411,950
<INTEREST-DEPOSIT> 6,077,427
<INTEREST-EXPENSE> 7,797,150
<INTEREST-INCOME-NET> 11,614,800
<LOAN-LOSSES> 720,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,338,524
<INCOME-PRETAX> 6,739,823
<INCOME-PRE-EXTRAORDINARY> 6,739,823
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,655,082
<EPS-PRIMARY> 2.72
<EPS-DILUTED> 2.72
<YIELD-ACTUAL> 9.05
<LOANS-NON> 2,584,343
<LOANS-PAST> 711,943
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 337,000
<ALLOWANCE-OPEN> 3,891,835
<CHARGE-OFFS> 464,264
<RECOVERIES> 78,144
<ALLOWANCE-CLOSE> 4,225,715
<ALLOWANCE-DOMESTIC> 4,225,715
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,661,000
</TABLE>
