UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FOR 10-K
Annual Report pursuant to Section 13 or 15(D) of the
Securities Exchange Act of 1934 (fee required).
For the fiscal year ended December 31, 1995. Commission File
No. 0-13666
BAR HARBOR BANKSHARES
State or Other jurisdiction of incorporation or organization:
Maine
IRS Employer Identification Number: 01-0393663
Address: P O Box 400, 82 Main Street, Bar Harbor, ME Zip
Code: 04609
Registrant s telephone number, including area code: 207 288-
3314
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common stock, par value $2.00 per share
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this
chapter) is not contained herein, and will not be contained,
to the best of registrant s knowledge, in definite proxy or
information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of January 31, 1996 is:
Common stock, $2.00 par - $47,980,940
The number of shares outstanding of each of the registrant s
classes of common stock, as of January 31, 1996 is:
Common stock, 1,818,237
Documents incorporated by Reference:
(1) Portions of the Annual Report to Stockholders for the year
ended December 31, 1995 are incorporated by reference into
Part II, Items 7 and 8 and Part IV, Item 14 of the Form 10-K.
<PAGE>
<PAGE>
INDEX
[CAPTION]
<TABLE>
<S> <C> <C>
# ITEM PAGE
1. Business 3 - 5
2. Properties 6 - 7
3. Pending Legal Proceedings 7
4 Submission of Matters to a Vote
of Security Holders 7
5 Market for Registrant s Common Equity
and Related Stockholders Matters 7
6 Selected Financial Data 8 - 29
7 Management s Discussion and Analysis 30
8 Consolidated Financial Statements and
Supplementary Data 30
9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 30
10 Directors and Executive Officers 30-32
11 Executive Compensation 33-35
12 Security Ownership of Certain Beneficial
Owners and Management 36-37
13 Certain Relationships and Related
Transactions 38
14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 39-40
<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS
Bar Harbor Bankshares, ( the Company ), was incorporated
January 19, 1984. As of December 31, 1995, the Company s
securities consisted of one class of common stock ( the Common
Stock ), par value of $2.00 per share, of which there are
1,713,605 shares outstanding held of record by approximately
974 stockholders.
The accompanying consolidated financial statements include the
accounts of the company and its wholly-owned subsidiary, Bar
Harbor Banking and Trust Company ( the Bank ). All significant
intercompany balances and transactions have been eliminated in
the accompanying financial statements.
The Bank conducts substantially the same business operations
as a typical full service, independent, community commercial
bank. It has ten offices in coastal Maine, including its
principal office located at 82 Main Street, Bar Harbor,
Hancock County and adjacent Washington County. The Hancock
County offices are located at Main Street, Northeast Harbor;
Main Street, Southwest Harbor; Main Street, Blue Hill; Route
#15, Deer Isle; corner of High and Washington Streets,
Ellsworth; and Main Street, Winter Harbor. The Washington
County offices are located at the corner of Route 1 and 1A,
Milbridge; Main Street, Machias; and Washington Street, Lubec.
The Mt. Desert Block Company ( the Block Company ), a wholly
owned subsidiary of the Bank, owns and manages the real estate
upon which all of the Bank s offices are located. The Block
Company also owns a parcel of real estate which is not related
to the Bank s operations and which is leased for commercial
purposes in Lubec; the building next to the Bar Harbor office
which is not currently leased for retail purposes; and land
adjacent to the Blue Hill bank property.
The Bank is a retail bank serving primarily individual
customers, small retail establishments, seasonal lodging,
campgrounds and restaurants. As a coastal bank it serves the
lobstering, fishing and aquaculture industries. It also serves
Maine s wild blueberry industry through its Washington County
offices. The Bank has not made any material changes in its
mode of conducting business during the past five years.
The Bank operates in a highly competitive market. Competition
among banks in Maine has increased in recent years as a result
of aggressive acquisition programs by statewide holding
companies and by completely open interstate banking. This bank
continues to be one of the largest independent commercial
banks in the State of Maine.
<PAGE>
<PAGE>
In the Bank s immediate service area there are two other
independent commercial banks, one Savings and Loan
Association, three savings bank branch offices and three
commercial banks which are offices owned by holding companies
based outside the state.
The Bank has a broad deposit base and loss of any one
depositor or closely aligned group of depositors would not
have a materially adverse effect on its business.
Approximately 87% of the Bank s deposits are in interest
bearing accounts. The Bank has paid, and anticipates that it
will continue to pay, current competitive rates on
certificates of deposit, IRAs, NOW and money market accounts
and does not anticipate loss of these deposits.
The Bank provides the normal banking services offered by a
commercial bank including checking accounts, NOW accounts, all
forms of savings and time deposit accounts, individual
retirement accounts and KEOGH plans, safe deposit boxes,
collections, travelers checks, night depository services,
direct deposit payroll services, credit cards, personal money
orders, bank-by-mail and club accounts and drive-up facilities
at all offices. The Bank also has arrangements with other
institutions for the provision of certain services which it
does not provide directly, such as computerized payroll
services. In addition, the Bank operates a large Trust
Department, including an office opened in 1991 in Bangor. The
Trust Department handles book assets for clients totaling
$214,000,000 and offers professionally managed investment
accounts.
The Bank has Automated Teller Machines (ATMs) located in each
of its ten branch locations. These ATMS access major networks
for use of the Bank s cards throughout the United States
including the Plus and NYCE systems as well as the major
credit card networks.
In addition to the foregoing, the Bank offers lending services
including consumer credit in the form of installment loans,
stand-by credit, VISA credit card accounts and student loans;
residential mortgage loans; home equity loans; and business
loans to individuals, partnerships and corporations for
capital construction, the purchase of real estate and working
capital. Business loans are provided primarily to
organizations and individuals in the tourist, health care,
blueberry, shipbuilding and fishing and aquaculture industries
as well as to the usual small businesses associated with small
coastal communities. Certain larger loans which would exceed
the Bank s lending limits are written on a participation basis
with correspondent banks, with the Bank retaining only such
portions of those loans as are within its lending limits. The
Bank also provides trust and estate planning services to its
customers. The principal market areas for all of the Bank s
<PAGE>
<PAGE>
services consist of Hancock and Washington Counties. The
Bank s policy for lending limits is up to 20% of capital and
surplus to any borrower provided that the loans are secured
and approved by the Executive Loan Committee, which includes
members of the Bank s Board of Directors.
As a state chartered bank, the Bank has the Bureau of Banking
of the State of Maine and the Federal Deposit Insurance
Corporation as bank regulatory agencies responsible for its
supervision. In addition, the Company is supervised by the
Federal Reserve Bank.
The Bank is not engaged in any material research activities
relating to the development of new services or the improvement
of existing services except in the normal course of business
activities. As of December 31, 1995 the Bank employed 154
persons in a full or part time basis. The President, Executive
Vice President, Senior Vice President and Vice Presidents in
charge of Human Resources and Trust Department are employed by
the Bank as well as serve as officers of the Company. They are
not compensated by the Company for their services. There are
no employees of the Company.
Since the Bank is located in a summer resort area, a portion
of the Bank s business is seasonal in nature. In addition,
employment in the sardine and blueberry industries of
Washington County is seasonal. As a result of these factors,
the Bank has had an annual deposit swing which has been
declining in the last several years from swings of more than
20% in the late 1980s, to under 5% for both 1994 and 1995. The
drop may be attributable to increasing interest rates and to
safety and soundness issues as customers choose to have their
funds insured by maintaining their deposits in the banking
system. Deposits generally peak in late September with the low
point in February. This deposit swing is predictable and does
not have a materially adverse effect of the Bank. Should the
Bank need additional funds for liquidity needs, it may utilize
short term borrowing lines set up through the Federal Home
Loan Bank of Boston, seek repurchase agreements through a
primary securities dealer or draw on its seasonal line at the
Federal Reserve Bank of Boston. Additionally, sufficient
stability in the Bank s deposit base is maintained in part as
a result of the year round employment of approximately 700
people by the Jackson Laboratory, which is the single largest
employer on Mt. Desert Island.
On July 11, 1995, the Board of Directors declared a five-for-
one stock split to all shareholders of record as of that date
and which took effect on August 7, 1995. All share and per
data share included in this Form 10-K have been restated to
reflect the stock split.
<PAGE>
<PAGE>
ITEM 2. PROPERTIES
The ten parcels of real estate utilized by the Bank for its
operations are
owned by the Mt. Desert Block Company ( the Block Company ), a
wholly
owned subsidiary of the Bank, and are leased to the Bank.
These properties
are described below:
1. The principal office of the Bank is located at 82 Main
Street, Bar
Harbor, Maine and includes a building housing banking
facilities and
administrative offices and an adjacent 35 car parking lot. The
building
was renovated and expanded in 1987 and 1988. A portion of the
expanded
building was completed in 1990 offering space for operational
personnel.
2. An office is located at Main Street, Northeast Harbor,
Maine. This
property consists of a building constructed in 1974 which is
adequate for
the Bank s current needs at that location.
3. An office is located on Maine Street, Southwest
Harbor, Maine.
This property consists of a building constructed in 1975 which
was added
to and renovated in 1989 to better meet the needs at that
location.
4. An office is located at Church Street, Deer Isle, Maine.
This property
consists of a building constructed in 1974 which was added to
and
renovated in 1994 to better meet the needs at that location.
5. An office is located on Main Street, Blue Hill, Maine.
This property
consists of a building constructed in 1960 which was renovated
in 1989 to
better meet the needs at that location.
6. An office is located at Main Street, Milbridge, Maine.
This property
consists of a building constructed in 1974 to which a
vestibule was added
in 1994 to house an ATM which helps to better meet the needs
at that
location.
7. An office is located at Washington Street, Lubec, Maine.
This branch
consists of a building constructed in 1990 and is adequate for
the Bank s
needs at that location.
8. An office is located at High Street, Ellsworth, Maine.
This branch
consists of a building constructed in 1982 which is adequate
for the
Bank s current needs at that location.
9. An office is located at Main Street, Winter Harbor, Maine.
This branch
consists of a building constructed in 1995 and is adequate for
the Bank s
needs at that location.
10. An office is located on Main Street, Machias, Maine. This
branch was
purchased from Key Bank of Maine in May, 1990, and was
renovated in 1995
to better meet the Bank s needs at that location.
In addition to the foregoing properties, the Block Company
owns the
building adjacent to the Bar Harbor office. This building is
presently
leased to a retail organization.
<PAGE>
<PAGE>
The Block Company owns real estate located on Washington
Street in Lubec,
Maine which is adjacent to the Lubec branch office of the Bank
and which
is leased to a commercial venture.
A parcel of land adjacent to the Blue Hill branch was
purchased in 1981.
Aggregate annual rentals paid by the Bank during its last
fiscal year for
its operating properties did not exceed 5% of its operating
expenses.
ITEM 3. PENDING LEGAL PROCEEDINGS
During the 1995 bank examination of the Trust Department, the
bank
examiner criticized the Bank s use of a newly established
in-house account
as an investment vehicle for pension plans for which the Bank
acted in a
fiduciary capacity. In the bank examiner s opinion, such
investments
amounted to prohibited transactions under ERISA and the Tax
Code, making
the Bank potentially liable for a penalty amounting to 5% of
the amount
involved,(which is estimated at approximately $190,000). The
Bank s
attorneys are currently in the process of preparing a request
to the
Department of Labor for an exemption from the prohibited
transaction rules
which, if granted, would relieve the Bank from the penalty
liability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT S COMMON EQUITY AND RELATED
STOCKHOLDER
MATTERS
Bar Harbor Bankshares stock is not listed on any national
exchange and
there is no established trading market for the stock. Since
the Company is
not aware of the price of all trades, the price is established
by
determining what a willing buyer will pay a willing seller.
The stock
prices shown below are based upon quotes received from Paine
Webber, and
represent a range of the high and low bids for each quarter of
1994 and
1995:
</TABLE>
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd
Quarter 4th Quarter
High Low High Low
High Low High Low
<S> <C> <C> <C>
<C>
1995 17.00 to 16.40 20.00 to 17.00
25.50 to 20.00 28.00 to 25.50
1994 15.20 to 15.20 16.00 to 15.20
16.00 to 16.00 16.40 to 16.00
</TABLE>
<PAGE>
<PAGE>
ITEM 6.
AVERAGE BALANCE SHEETS
[CAPTION]
1995
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
AVERAGE
YIELD/
BALANCE INTEREST
RATE
ASSETS
Loans $195,178,495 $
19,298,629 9.89%
Taxable Investment Securities 84,364,335
5,877,065 6.97%
Non-Taxable Investment Securities 14,138,613
852,051 6.03%
Fed. Funds Sold & Money Market
Funds 2,097,962
124,242 5.92%
Total Interest-Earning Assets $295,779,405 $
26,151,987 8.84%
Non-Interest Earning Assets:
Total Cash and Due from 7,727,672
Less: Allowance for Losses (4,142,571)
Bank Premises and Equipment 5,720,449
Other Assets 6,027,318
TOTAL ASSETS $311,112,273
LIABILITIES AND STOCKHOLDERS EQUITY
Interest Bearing Demand Deposits $ 37,109,957 $
606,437 1.63%
Savings Deposits 57,521,058
1,408,916 2.45%
Time Deposits 115,118,182
6,412,766 5.57%
Repurchase Agreements and
Short Term Borrowings 38,440,663
2,175,597 5.66%
Long Term Borrowings 580,132
20,677 3.56%
TOTAL INTEREST BEARING LIABILITIES $248,769,992 $
10,624,393 4.27%
Non-Interest Bearing Liabilities:
Non-Interest Bearing Demand
Deposits 30,083,671
Other Liabilities 1,272,847
Stockholders Equity 30,985,763
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $311,112,273
NET EARNING ASSETS $ 47,009,413
NET INTEREST INCOME/NET INTEREST
SPREAD $
15,527,594 4.57%
NET INTEREST MARGIN
5.25%
<PAGE>
<PAGE>
<CAPTION>
1994
<S> <C> <C>
<C>
<CAPTION>
AVERAGE
YIELD/
BALANCE INTEREST
RATE
ASSETS
Loans $174,550,402 $
16,006,536 9.17%
Taxable Investment Securities 75,333,849
4,911,599 6.52%
Non-Taxable Investment Securities 14,296,651
828,998 5.80%
Fed. Funds Sold & Money Market
Funds 1,192,601
48,457 4.06%
Total Interest-Earning Assets $265,373,503 $
21,795,590 8.21%
Non-Interest Earning Assets:
Total Cash and Due from 7,664,386
Less: Allowance for Losses (3,720,244)
Bank Premises and Equipment 5,684,033
Other Assets 6,166,864
TOTAL ASSETS $281,168,542
LIABILITIES AND STOCKHOLDERS EQUITY
Interest Bearing Demand Deposits $ 38,591,994 $
633,346 1.64%
Savings Deposits 63,106,980
1,621,651 2.57%
Time Deposits 84,786,001
3,812,734 4.50%
Repurchase Agreements and
Short Term Borrowings 37,686,124
1,608,404 4.27%
Long Term Borrowings 0
0 0%
TOTAL INTEREST BEARING LIABILITIES $224,171,099 $
7,676,135 3.42%
Non-Interest Bearing Liabilities:
Non-Interest Bearing Demand
Deposits 28,559,472
Other Liabilities 1,033,450
Stockholders Equity 27,404,521
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $281,168,542
NET EARNING ASSETS $ 41,202,404
NET INTEREST INCOME/NET INTEREST
SPREAD $
14,119,455 4.79%
NET INTEREST MARGIN
5.32%
<PAGE>
<PAGE>
<CAPTION>
1993
<S> <C> <C>
<C>
<CAPTION>
AVERAGE
YIELD/
BALANCE INTEREST
RATE
ASSETS
Loans $153,232,173 $
14,549,586 9.50%
Taxable Investment Securities 64,908,500
4,424,174 6.82%
Non-Taxable Investment Securities 14,954,753
861,642 5.76%
Fed. Funds Sold & Money Market
Funds 582,259
19,987 3.43%
Total Interest-Earning Assets $233,677,685 $
19,855,389 8.50%
Non-Interest Earning Assets:
Total Cash and Due from 6,997,907
Less: Allowance for Losses (3,414,115)
Bank Premises and Equipment 5,700,044
Other Assets 6,811,710
TOTAL ASSETS $249,773,231
LIABILITIES AND STOCKHOLDERS EQUITY
Interest Bearing Demand Deposits $ 36,113,190 $
766,110 2.12%
Savings Deposits 61,670,967
1,835,801 2.98%
Time Deposits 69,621,757
3,042,237 4.37%
Repurchase Agreements and
Short Term Borrowings 16,557,493
556,938 3.36%
Long Term Borrowings 13,846,575
574,564 4.15%
TOTAL INTEREST BEARING LIABILITIES $197,809,982 $
6,775,650 3.43%
Non-Interest Bearing Liabilities:
Non-Interest Bearing Demand
Deposits 25,567,081
Other Liabilities 611,679
Stockholders Equity 25,784,489
TOTAL LIABILITIES &
STOCKHOLDERS EQUITY $249,773,231
NET EARNING ASSETS $ 35,867,703
NET INTEREST INCOME/NET INTEREST
SPREAD $
13,079,739 5.07%
NET INTEREST MARGIN
5.60%
</TABLE>
<PAGE>
<PAGE>
NOTES TO AVERAGE BALANCE SHEET
1. Tax-exempt income is calculated at coupon rate, no
adjusted on a tax
equivalent basis.
2. At December 31, 1995, loans on non-accrual status totaled
$3,359,857.
These loans are included in the loan category on the preceding
Average
Balance Sheet. If interest had been accrued on such loans,
interest income
on loans would have been $416,342 higher in 1995.
3. Interest on loans includes loan fees pursuant to FASB91
in the
following amounts:
<TABLE>
<CAPTION>
<C> <C> <C>
1995 1994 1993
$103,788 $176,032 $209,309
</TABLE>
4. The Bank s net interest margin remains above the national
average,
but has remained at higher than average levels for a
number of years.
The Bank is a community bank which focuses its efforts on
customer
relationships and good service while remaining
competitive in the
demand for loans both in the commercial and consumer
sectors. The
spread and margin for the Bank have been decreasing
gradually over
the past three years, as competition for the same
customers within
the Bank s market area continues to grow. The average
rate on earning
assets increased by 63 basis points in 1995 when compared
to 1994;
however, the average rate on interest bearing liabilities
increased
by 85 basis points. The Bank continues to seek quality
loans,
broadening its customer base as the spread tightens. The
effect of
rates and volumes is exemplified further in the Rate
Volume Analysis
found on page 12 of this report.
<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.
For each category of earning assets and interest-bearing
liabilities,
information is provided with respect to changes attributable
to change in
rate (change in rate multiplied by old volume) and change in
volume
(change in volume multiplied by old rate). The change in
interest due to
both volume and rate has been allocated to volume and rate
changes in
proportion to the relationship of the absolute dollar amounts
of the
change in each.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
COMPARED TO DECEMBER 31, 1994
INCREASES (DECREASES) DUE TO:
VOLUME RATE
NET
<S> <C> <C> <C>
Loans $1,980,684 $1,311,410
$3,292,093
Taxable Investment Securities 604,581 360,885
965,466
Non-Taxable Investment
Securities (9,243) 32,296
23,053
Federal Funds Sold and
Money Market Funds 47,287 28,498
75,785
TOTAL INTEREST EARNING ASSETS $2,623,309 $1,733,088
$4,356,397
Deposits $ 728,282 $1,632,106
$2,360,388
Repurchase Agreements and
Short Term Borrowings 41,548 525,645
567,193
Long Term Borrowings 20,677 0
20,677
TOTAL INTEREST BEARING
LIABILITIES $ 790,507 $2,157,751
$2,948,258
NET CHANGE IN INTEREST $1,832,802 ($424,663)
$1,408,139
<CAPTION>
YEAR ENDED DECEMBER 31,
1994
COMPARED TO DECEMBER 31,
1993
INCREASE (DECREASE) DUE TO:
<S> <C> <C>
<C>
VOLUME RATE
NET
Loans $1,968,588 $ (511,638)
$1,456,950
Taxable Investment Securities 700,128 (212,704)
487,424
Non-Taxable Investment
Securities (38,130) 5,486
(32,644)
Federal Funds Sold and
Money Market Funds 18,090 10,381
28,471
TOTAL INTEREST EARNING ASSETS $2,648,676 ($708,475)
$1,940,201
<PAGE>
Deposits $ 647,825 ($224,243)
$ 423,582
Repurchase Agreements and
Short Term Borrowings 895,563 155,903
1,051,466
Long Term Borrowings (574,564) 0
(574,564)
TOTAL INTEREST BEARING
LIABILITIES $ 968,824 $ (68,340)
$ 900,484
NET CHANGE IN INTEREST $1,679,852 ($640,135)
$1,039,717
</TABLE>
<PAGE>
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
AS OF DECEMBER 31, 1995
Amounts in Thousands
The following table sets forth the amounts of interest-earning
assets and
interest-bearing liabilities outstanding at December 31, 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>
ONE TO GREATER
ONE TO
GREATER
TOTAL TO FIVE
THAN FIVE
ONE YEAR YEARS
YEARS TOTAL
<S> <C> <C>
<C> <C>
Loans
Fixed Rate $ 16,258 $ 24,312
$ 18,187 $ 58,757
Variable Rate 117,550 23,207
2,252 143,009
Investments 31,667 52,066
18,362 102,095
Federal Funds Sold 3,800 0
0 3,800
Interest Rate Swap 5,000 5,000
0 10,000
TOTAL EARNING ASSETS $ 174,275 $104,585
$ 38,801 $317,661
Deposits $138,452 $ 17,283
$ 95,736 $251,471
Repurchase Agreements 5,791 0
0 5,791
Borrowings 16,011 16,689
0 32,700
Interest Rate Swap 10,000 0
0 10,000
TOTAL SOURCES $170,254 $ 33,972
$ 95,736 $299,962
Net Gap Position $ 4,021 $ 70,613
$(56,935) $ 17,699
Cumulative Gap 4,021 74,634
17,699 17,699
Rate Sensitive Assets/
Rate Sensitive Liabilities 102.36% 307.86%
40.53% 105.90%
</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 one-year time horizon. The remainder is
stable and
is listed in the greater than five year category. NOW
accounts, other than
seasonal fluctuations approximating $4,000,000, 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 $35,000,000 are amortized using a 6% rate, which
approximates the
Bank s prior experience.
<PAGE>
<PAGE>
SUMMARY OF INVESTMENT PORTFOLIO
The information presented below is to facilitate the analysis
and
comparison of sources of income and exposure to risks.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
U.S. Treasury Securities $ 1,000,470 $ 3,007,997
$ 5,016,933
Obligations of Other U.S.
Government Agencies 13,278,651 13,322,895
6,312,146
Mortgage Backed Securities:
U.S. Government Agencies 42,764,250 46,739,125
38,501,320
Other 8,210,646 4,086,750 2,752,525
Obligations of State and
Political Subdivision 13,240,946 14,401,790
14,408,384
Other Bonds 3,714,099 3,521,514 5,047,385
SECURITIES HELD TO MATURITY $ 82,209,062 $ 85,080,071
$72,038,693
Obligations of Other U.S.
Government Agencies 8,029,922
Mortgage Backed Securities--
U.S. Government Agencies 5,578,826
Other Bonds 500,000
Marketable Equity Securities 5,446,301 5,933,801
6,484,697
Other Investments 330,506 305,086
214,266
SECURITIES AVAILABLE FOR SALE $ 19,885,555 $ 6,238,887
$6,698,963
</TABLE>
<PAGE>
<PAGE>
MATURITY SCHEDULE FOR INVESTMENTS HELD TO MATURITY
AT DECEMBER, 1995
<TABLE>
<CAPTION>
Greater than Greater than Greater
One Year One
Year to Five Years to than
or Less Five
Years Ten Years Ten Years
<S> <C> <C> <C>
<C> <C>
U.S. Treasury Securities $1,000,470 $
0 $ 0 $ 0
Average Yield 8.00
Obligations of other U.S.
Government Agencies 3,500,000
5,779,530 3,999,121 0
Average Yield 7.02
6.96 7.16
Mortgage-backed Securities:
U.S. Government Agencies 0
8,221,329 4,506,265 30,036,656
Average Yield
7.59 7.11 7.18
Mortgage-Backed Securities:
Other 0
0 2,721,210 5,489,436
Average Yield
5.29 7.33
Obligations of State and
Political Subdivisions 750,637
9,564,305 982,004 1,944,000
Average Yield 6.69
6.06 6.97 7.15
Other Bonds 1,199,081
2,515,018 0 0
Average Yield 8.06
6.96
TOTAL $ 6,450,188
$26,080,182 $12,208,600 $37,470,092
</TABLE>
MATURITY SCHEDULE FOR INVESTMENTS
AVAILABLE FOR SALE AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C> <C>
Greater than Greater than Greater
One Year One
Year to Five Years to than
or Less Five
Years Ten Years Ten Years
Obligations of Other U. S.
Government Agencies $ 0 $
0 $ 7,996,732 $ 0
Average Yield
6.99
Mortgage Backed Securities --
U.S.Government Agencies 0
0 0 $ 5,631,356
Average Yield
7.42
Other Bonds 500,000
0 0 0
Average Yield 6.00
$ 500,000
0 $ 7,996,732 $5,631,356
</TABLE>
The maturity schedule for securities available for sale
excludes
marketable equity securities totaling $5,421,086 and other
investments of
$240,483. <PAGE>
<PAGE>
Yield on tax exempt bonds were not computed on a tax
equivalent basis
The bank does not hold any securities for a single issuer
where the
aggregate book value of the securities exceed 10% of the Bank
s
stockholders equity.
The maturities for the mortgage-backed securities are shown at
the stated
maturity. If the Bank presented mortgage-backed securities by
average
expected life, the breakdown would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C> <C>
Greater than Greater than Greater
One Year One
Year to Five Years to than
or Less Five
Years Ten Years Ten Years
<S> <C> <C> <C>
<C> <C>
Mortgage-backed Securities Held
To Maturity $ 0
$38,973,809 $12,001,087 $ 0
Mortgage-backed Securities Available
For Sale 3,759,192
1,872,164 0 0
</TABLE>
In 1987, the Bank purchased adjustable rate preferred (ARPS)
securities
totaling $1,319,000. As the economy entered into its
recessionary cycle in
the late 1980s, these ARPS, which were issued by other banks,
were
impacted by concerns of investors in the banking industry. The
Bank
elected to recognize a permanent write down on the ARPS
totaling $387,000
beginning in 1990.
The ARPS portfolio began increasing in market value during
1991 as banks
showed stronger earnings. Since this upward market trend
continued in
1992, the Bank elected to sell its holdings of ARPS and by
year end had a
remaining balance of $463,000 in ARPS with minimum loss to the
Bank. The
remaining ARPS were sold in early 1993.
Changes in the market value of the investment portfolio follow
national
interest rate fluctuations. As national interest rates
dropped, the value
of the portfolio has increased. The Bank does not hold any IOs
or POs, nor
does it hold any securities whose market value could change to
a greater
degree than traditional debt. The Bank does hold one 10-year
government
agency backed step up which has a fixed rate of interest for
the first
three years and which then increases incrementally each year
until
maturity. This debenture is callable one year from issuance
date.
<PAGE>
<PAGE>
SUMMARY OF LOAN
PORTFOLIO
<TABLE>
<CAPTION>
<S> <C>
<C> <C>
1995
1994 1993
Real estate Loans:
Construction & Development $ 8,072,230
$ 4,594,803 $ 4,606,935
Mortgage 135,068,891
124,620,343 107,948,202
Loans to finance agricultural
production and other loans
to farmers 10,377,194
9,369,651 8,217,183
Commercial and industrial loans 29,806,328
31,791,148 27,533,900
Loans to individuals for
household, family and other
personal expenditures 17,640,397
15,301,322 14,621,364
All other loans 6,790
21,635 269,371
Real Estate Under Foreclosure 793,887
294,904 328,703
TOTAL LOANS $201,765,717
$185,993,806 $163,525,658
Less: Allowance for
possible loan loss 4,047,883
3,891,835 3,369,387
NET LOANS $197,717,834
$182,101,971 $160,156,271
<CAPTION>
1992
1991
Real estate Loans:
Construction & Development $ 5,642,294
$ 7,991,596
Mortgage 94,906,632
85,984,259
Loans to finance agricultural
production and other loans
to farmers 7,174,262
6,361,583
Commercial and industrial loans 25,621,342
24,630,818
Loans to individuals for
household, family and other
personal expenditures 12,248,539
12,467,348
All other loans 182,397
187,489
Real Estate Under Foreclosure 434,384
373,577
TOTAL LOANS $146,209,850
$137,996,670
Less: Allowance for
possible loan loss 3,205,868
2,120,728
NET LOANS $143,003,982
$135,875,942
</TABLE>
<PAGE>
<PAGE>
PAST DUE LOANS
(Amounts in
Thousands)
The figures below represent loans past due 30 days or more
(% is percentage of loans outstanding for a specific
category of loans).
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C> <C> <C>
1995 %
1994 % 1993 %
Construction & Development 214 2.7
77 1.7 0 0.0
Real Estate 3,009 2.2
1,713 1.4 2,177 2.0
Commercial, Industrial
and other 517 1.3
559 1.4 615 1.7
Loans to individuals 434 2.5
324 2.1 238 1.6
Loans past due 90 days or
more and still accruing* 849 .4
892 .5 513 .3
Non-Accruing Loans 3,360 1.7
3,139 1.7 2,645 1.6
<CAPTION>
<S> <C> <C>
<C> <C> <C> <C>
1992 %
1991 %
Construction & Development 377 6.7
953 11.9
Real Estate 4,889 5.2
6,147 7.1
Commercial, Industrial
and other 1,524 5.9
1,559 5.0
Loans to individuals 296 2.4
507 4.1
Loans past due 90 days or
more and still accruing* 593 .4
1,306 .9
Non-Accruing Loans 3,683 2.5
3,177 2.3
<FN>
<F1> *The percentage for loans past due 90 days or more and
still
accruing and non-accruing loans relate to total loans
outstanding.
Each loan in these categories is also included in its past due
loan category.
</TABLE>
Loans which were non-performing as of December 31, 1994 and
for
which the real estate was acquired by the Bank in 1995 totaled
$181,000.
<PAGE>
<PAGE>
MATURITY SCHEDULE - LOAN
PORTFOLIO
As of December 31,
1995
<TABLE>
<CAPTION>
After one
One Year
Year through After five
or Less
five years years
<S> <C>
<C> <C>
Commercial, Financial
and Agricultural $21,775,978
$ 8,256,809 $10,150,735
Real estate Construction
and Land Development $ 8,072,230
</TABLE>
The Bank makes construction loans on the basis of: a)
permanent financing
from another financial institution, or b)approval at the time
of
origination for permanent financing by our own Bank. In
addition, a number
of large commercial real estate loans are written and priced
on the basis
of fixed rates with a three to five year balloon payment. It
is generally
the intent of the Bank to renegotiate the rate and term of the
loan at the
balloon maturity. Lines of credit are renewed annually. There
are consumer
construction loans that will either be sold to the secondary
market upon
completion of construction or rolled into permanent portfolio
residential
mortgage loans on the Bank s books.
The total amount of commercial, financial and agricultural,
construction,
and land development loans with adjustable interest rates and
maturities
of greater than one year is $10,676,789 and with fixed
interest rates and
maturities of greater than one year is $7,730,755.
RISK ELEMENTS
<TABLE>
<CAPTION>
<S>
<C> <C>
<C> <C> <C>
1995 1994
1993 1992 1991
Loans accounted for on a non-
accrual basis $3,359,857
$3,139,465 $2,644,678 $3,683,185 $3,176,949
Accruing loans contractually past
due 90-days or more $ 849,127 $
891,986 $ 512,784 $ 593,237 $1,306,150
</TABLE>
It is the policy of management to review past due loans on a
monthly
basis. Those loans 90 days or more past due which are not well
secured or
in the process of collection are designated as non-accruing.
This includes
government guaranteed loans unless the guaranteed portion has
been sold.
If interest had been accruing on such loans, interest income
on loans
would have been $416,342 higher in 1995. Interest collected on
these loans
totaled $184,983 in 1995 and was included in net income.
Non-accrual
loans represent 1.7% of average loans for 1995 and 1994.
Management is not aware of any potential problems loans which
are not
included in the above table. <PAGE>
<PAGE>
The Bank makes single-family residential loans, commercial
real estate
loans, commercial loans, and a variety of consumer loans. The
Bank s
lending activities are conducted in north coastal Maine.
Because of the
Bank s proximity to Acadia National Park, a large part of the
economic
activity in the area is generated from the hospitality
business associated
with tourism. At December 31, 1995, approximately $25,500,000
of loans
were mde to companies in the hospitality industry. Of this
total
indebtedness, 1.8% were 30 days or more delinquent as of
December 31,
1995. Loans to real estate investors and developers totaled
$14,100,000 in
1995. In the fishing industry, loans decreased from
$10,000,000 in 1994 to
$7,500,000 in 1995. This decrease was attributable to the
paydown of
several aquaculture loans and a lesser need at year end for
Bank support
for the lobster pounding industry.
From the standpoint of large loans to single borrowers, loans
of $700,000
or more to one borrower decreased as a percentage of capital
from 95% in
1994 to 90% in 1995. As most loans granted by the Bank are
collateralized
by real estate, the ability of the Bank s borrowers to repay
is dependent
on the level of economic activity and the level of real estate
values in
the Bank s market area. Because of the increasing health of
the tourist
industry and other industries in its market area, the Bank has
benefited
from the economic well-being of its customers.
<PAGE>
SUMMARY OF LOAN LOSSES
Delinquencies are reviewed on a monthly and quarterly basis by
senior
management as well as the Board of Directors. Information
reviewed is used
in determining if and when loans represent potential losses to
the Bank. A
determination of a potential loss could result in a charge to
the
provision for loan losses, with an increase to the reserve for
possible
loans so that risks in the portfolio can be identified on a
timely basis
and an appropriate reserve can be maintained.
Historically, the amount allocated for the allowance for
possible loan
losses has been based on management s evaluation of the loan
portfolio.
Considerations used in this evaluation included past and
anticipated loan
loss experience, the character and size of the loan portfolio,
the value
of collateral, general economic conditions, and maintenance of
the
allowance at a level adequate to absorb anticipated losses.
With net
charge offs remaining under one-half of one percent of average
loans
outstanding for 1990, the above method and review was
adequate.
Since 1991, the Bank has utilized the methodology for the
review of the
allowance for loan losses to be in accordance with the
approach suggested
by bank regulators through FDIC Fil-34-91, dated June 28,
1992. The
reserve includes specific reserves based on the review of
specific
credits, pool reserves based on historical charge offs by loan
types and
supplementary reserves reflecting concerns and loan
concentrations by
industry, by customer and by general economic conditions. The
allocation
has changed based on concentration of loans in the fishing and
tourist
related industries.
<PAGE>
<PAGE>
In 1992, the Bank continued to concentrate on resolving loan
problems,
focusing on the reduction of non-earning assets and resolution
of troubled
debt situations. With continued softness in the economy, the
Bank
aggressively charged off problem loans, and, at the same time
provided
more reserves for possible loan losses in the future. Building
on the
prior year s program of measuring adequacy, the Bank continued
to build
reserves to ensure that future earnings were not hurt by
unforseen
problems in the loan area.
The Bank experienced its greatest percentage of charge offs
when compared
to average loans outstanding in 1991 when the ratio was .74%.
This ratio
reached a low point in 1994 with charge offs representing only
.25% of
average loans. The percentage of charge offs to average loans
in 1995
totals .41%. During the past five years, the majority of
charge offs have
been commercial loans secured by real estate. In 1992,
increases in charge
offs were attributable to an account where faulty
documentation resulted
in loss of collateral. The Bank real estate charge offs in
1994 represent
charge down of loan balances on troubled loans based on
updated fair value
appraisals, or highest third party bids at auction.
In 1994 there were two writedowns of REO charged directly to
earnings. A
property in Northeast Harbor was sold at a loss of $74,000
after paying
all expenses, and property on Main Street in Ellsworth was
written down by
$100,000 to more closely reflect a liquidation. In 1994, the
same property
<PAGE>
<PAGE>
in Ellsworth was written down by additional $23,500. This
property was
sold in 1995 for $120,000. Additionally in 1994, three
residential
properties owned by the Bank were written down by a total of
$58,000 to
more closely reflect their market values.
Approximately 28% of the chargeoffs in 1995 represented loans
secured by
real estate, and 39% represented commercial credits. The
increase in
commercial loan chargeoffs in 1995 included a chargedown of a
large
commercial loan. Recoveries offset losses totaling $97,000,
$141,000 and
$264,900 for the years ended 1995, 1994 and 1993,
respectively.
Softness in the economy in the early 1990s, reduction of
collateral value,
and, in some cases, poor management by the owners of the
business have
caused the major losses in the commercial area.
Based on past experience and management s assessment of the
present loan
portfolio, it is expected that loan charge offs for 1996 will
not exceed
$840,000.
<TABLE>
<S> <C>
Commercial $ 75,000
Real estate mortgages 640,000
Installments to individuals 125,000
</TABLE>
A breakdown of the allowance for possible loan losses is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
1995
1994
Percent of
Percent of
Loans in
each loans in each
Category
to Category to
Amount Total
Loans Amount Total Loans
Real Estate Mortgages $ 915,168 71.34%
$ 1,665,363 69.63%
Installments to individuals 503,777 8.74%
404,942 8.23%
Commercial, financial
And agricultural 277,775 19.92%
1,220,253 22.13%
Other 965,391 0.00%
80,337 0.01%
Unallocated 1,385,772 0.00%
520,940 0.00%
TOTAL $ 4,047,883 100.00%
$ 3,891,835 100.00%
</TABLE>
<PAGE>
<PAGE>
SUMMARY OF LOAN LOSS
EXPERIENCE
(In thousands)
% = Percentage of Loans Outstanding for a Specific Category
of Loans
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES 1995 % 1994 %
1993 % 1992 % 1990 %
Balance at beginning of period $3,892 $3,369
$3,206 $2,121 $1,303
Charge offs:
Commercial, Financial,
Agricultural, Others 377 .94 122 .30
386 1.07 302 .92 597 1.38
Real Estate Mortgages 256 .18 267 .21
505 .45 633 .63 237 .28
Installments to individuals 268 1.52 189 1.23
290 1.98 188 1.53 266 2.63
Total Charge Offs 901 578
1,181 1,123 1,090
Recoveries:
Commercial, Financial,
Agricultural, Others 20 .05 47 .11
101 .28 55 .17 35 .08
Real Estate Mortgages 20 .01 54 .04
118 .10 49 .05 6 .01
Installments to individuals 57 .32 40 .26
45 .31 39 .32 37 .37
Total Recoveries 97 141
264 143 78
Net Charge Offs 804 437
917 980 1,012
Provision Charge to Operations 960 960
1,080 2,065 1,830
Balance at End of Period $4,048 $3,892
$3,369 $3,206 $2,121
Average loans outstanding
during period $195,178 $174,550
$153,232 $146,257 $137,608
Net Charge Offs to Average
Loans Outstanding during
Period .41 .25
.60 .67 .74
</TABLE>
<PAGE>
<PAGE>
SUMMARY OF DEPOSIT PORTFOLIO
<TABLE>
<CAPTION> 1995 1994
1993
<S> <C> <C>
<C>
Demand Deposit Accounts $ 32,394,610 $ 30,124,536 $
27,845,786
NOW Accounts 38,300,119 37,951,497
38,135,964
Money Market Deposit Accounts 21,400,643 27,733,548
32,128,978
Savings 32,259,883 34,247,891
33,443,983
Time Deposits Less than
$100,000 113,110,959 87,509,593
66,203,969
Certificates of Deposit
$100,000 or more 14,005,187 7,977,495
5,764,437
TOTAL DEPOSITS $251,471,401 $225,544,560
$203,523,117
</TABLE>
MATURITY SCHEDULE FOR TIME DEPOSITS
$100,000 OR MORE
<TABLE>
<CAPTION>
<C> <C> <C> <C>
Over Three Over Six
Three Months Months Through Months Through
Over
or Less Six Months Twelve Months
Twelve Months
$ 2,156,492 $ 3,336,507 $ 5,927,611 $
2,584,577
</TABLE>
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION> 1995 1994
1993
<S> <C> <C>
<C>
Return on Average Assets 1.89 1.75
1.00
Return on Average Equity 18.97 17.93
9.72
Dividend Payout Ratio 25.07 25.75
42.24
Average Equity Capital to
Average Assets Ratio 9.96 9.75
10.32
</TABLE>
<PAGE>
<PAGE>
As of January 1, 1996, there were approximately 974 holders of
record of
Bar Harbor Bankshares common stock.
Dividends have been paid semi-annually during 1994 and 1995,
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
June December
1995 $ 0.36 $ 0.50
1994 $ 0.30 $ 0.44
</TABLE>
In 1996 the Company will pay dividends on a quarterly basis.
<PAGE>
<PAGE>
SHORT TERM BORROWINGS
<TABLE>
<CAPTION>
<S> <C> <C>
<C> <C> <C>
Average Weighted
Weighted
Maximum Amount Average
Balance Average
Outstanding Outstanding Interest
at end Interest
During During Rate During
of Period Rate
Period Period Period
1995
FHLB Advances $26,700,000 5.85%
$29,000,000 $17,058,082 5.84%
Wholesale Repurchase Agreements $ 0 0.00%
$18,250,000 $ 4,337,852 6.16%
1994
FHLB Advances $25,000,000 5.54%
$50,000,000 $28,904,110 4.28%
Wholesale Repurchase Agreements $ 0 0.00%
$11,000,000 $ 4,809,890 4.22%
1993
FHLB Advances $16,000,000 3.83%
$19,000,000 $ 9,025,479 3.43%
Wholesale Repurchase Agreements $ 2,000,000 3.45%
$13,120,000 $ 5,032,493 3.37%
</TABLE>
The terms for short-term FHLB advances taken in 1995 ranged
from 5 days to
200 days and averaged 49 days. The terms for wholesale
repurchase
agreements taken in 1995 ranged from 4 days to 90 days and
averaged 24
days.
The terms for short-term FHLB advances taken in 1994 ranged
from 14 days
to 257 days and averaged 82 days. The terms for wholesale
repurchase
agreements taken in 1994 ranged from four days to 90 days and
averaged 25
days.
The terms for short-term FHLB advances taken in 1993 ranged
from 17 days
to 260 days and averaged 82 days. The terms for wholesale
repurchase
agreements taken in 1993 ranged from 6 days to 140 days and
averaged 31
days.
<PAGE>
<PAGE>
The following data represents selected year end financial
information for
the past five years. All information is unaudited.
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
<C>
BALANCE SHEET TOTALS 1995 1994 1993 1992
1991
Total Assets $326,609 $296,687 $257,347 $247,149
$216,275
Net Loans 197,718 182,102 160,156 143,004
135,876
Total Deposits 251,471 225,545 203,523 195,723
181,484
Total Equity 33,243 28,761 24,987 23,558
21,985
Average Assets 311,112 281,169 249,773 231,114
209,189
Average Equity 30,986 27,405 25,784 23,563
21,049
STATEMENT OF EARNINGS TOTALS
Interest Income $ 26,152 $ 21,795 $ 19,855 $ 20,283
$ 20,193
Interest Expense 10,624 7,676 6,775 7,997
10,092
Net Interest Income 15,528 14,119 13,080 12,286
10,101
Provision for Loan
Losses 960 960 1,080 2,065
1,830
Net Interest Income
After provision for
Loan Losses 14,568 13,159 12,000 10,221
8,271
Non-interest income
(Includes net security
gains {losses]) 4,398 4,012 4,153 3,576
3,029
Non-interest expense 10,471 10,161 10,957 9,169
7,787
Applicable income
Taxes 2,616 2,096 1,632 1,254
735
Net income before Cumulative Effect of
Accounting Change 5,879 4,914 3,564 3,374
2,778
Cumulative Effect of
Accounting Change 0 0 (1,058) 0
0
Net Income $ 5,879 $ 4,914 $ 2,506 $ 3,374
$ 2,778
PER SHARE DATA:
(Restated for five-for-one stock split in 1995)
Income Before Cumulative Effect of
Accounting Change $ 3.43 $ 2.87 $ 2.09 $ 1.87
$ 1.54
Cumulative Effect of Change in
Accounting for Postretirement
Benefits, Net of Income
Tax Benefit $ 0.00 $ 0.00 ($ 0.62) $ 0.00
$ 0.00
Net Income $ 3.43 $ 2.87 $ 1.47 $ 1.87
$ 1.54
Dividends $ 0.86 $ 0.74 $ 0.62 $ 0.42
$ 0.37
Weighted average number of
Common shares outstanding,
In thousands 1,713 1,710 1,707 1,806
1,804
Return on total average
Assets/Net Income 1.89% 1.75% 1.00% 1.46%
1.33%
</TABLE>
<PAGE>
<PAGE>
SUPPLEMENTARY FINANCIAL DATA BY QUARTERS
(In thousands except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
1995 1st Quarter 2nd Quarter 3rd Quarter
4th Quarter
Interest Income $ 5,992 $ 6,518 $ 6,902
$ 6,740
Interest Expense 2,370 2,660 2,767
2,827
Net Interest Income 3,622 3,858 4,135
3,913
Provision for Losses 240 240 240
240
Security Gains
(Losses) 0 0 0
0
Income Before Income Taxes
And Cumulative effect of
Accounting Change 1,884 2,150 2,706
1,755
Income Taxes 576 650 859
531
Net Income 1,308 1,500 1,846
1,225
Earnings Per Share $ 0.76 $ 0.88 $ 1.08
$ 0.71
1994
Interest Income $ 4,968 $ 5,296 $ 5,706
$ 5,825
Interest Expense 1,680 1,879 1,975
2,142
Net Interest Income 3,228 3,417 3,731
3,683
Provision for Losses 240 240 240
240
Security Gains
(Losses) 15 8 0
(388)
Income Before Income
Taxes 1,703 1,624 2,479
1,204
Income Taxes 515 496 678
407
Net Income 1,188 1,128 1,801
797
Earnings per share $ 0.70 $0.66 $ 1.05
$ 0.47
</TABLE>
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
The information contained in the section captioned Management
s
Discussion and Analysis of Financial Condition and Results of
Operations
in the Company s Annual Report is incorporated herein by
reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The financial statements required are contained on pages 10
through 25 of
the Company s Annual Report for the year ended December 31,
1995 and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following statements pertain to all individuals listed
below:
1. There are no arrangements or understandings between any
director or
officer listed below and any other person pursuant to which
such director
or officer was selected as an officer or director.
2. There is no family relationship among any of the directors
and
officers listed below.
3. None of the directors and officers listed below have been
involved in
any bankruptcy, criminal, or other proceeding set forth or
described in
sub-section (f) of Item 401 of Regulation S-K as promulgated
by the
Securities and Exchange Commission.
4. Each of the directors listed below has been elected to a
three year
term, except where the mandatory retirement age of 75 years
precluded an
election of a shorter term, with one third of the Board of
Directors, as
nearly as may be, standing for election each year. Each
director of the
Company also serves as a director of the Bank, and references
below to the
year in which an individual was first elected refer to the
year in which
s/he was first elected a director of the Bank.
[1] Robert H. Avery. Director, Age 67. Mr. Avery is retired.
He first was
elected as a Director on November 2, 1965. He was elected as
President and
Chief Executive Officer of the Bank in 1971 and retired as of
June 30,
1986. He currently serves as Director and Treasurer of the Bar
Harbor
Water Company.
<PAGE>
<PAGE>
[2] Frederick F. Brown, Director, Age 69. Mr. Brown s
principal occupation
during the past five years has been as proprietor and owner of
F. T. Brown
Company, which owns and operates a hardware store in Northeast
Harbor and
as one-third owner of Island Plumbing & Heating in Northeast
Harbor. He
also serves as President of Northeast Harbor Water Company.
Mr. Brown
first was elected as a director on October 2, 1979.
[3] Thomas A. Colwell, Director. Age 51. Mr. Colwell s
principal
occupation during the past five years has been as owner of
Colwell
Brothers, Inc. He also serves as a member of the Board of
Directors of the
Maine Lobster Pound Association. Mr. Colwell was first elected
as a
director on October 1, 1991.
[4] Bernard K. Cough, Director, Age 68. Mr. Cough s principal
occupation
during the past five years has been owner/operator of several
motels,
including the Atlantic Oakes Motel, Atlantic Eyrie Lodge,
Inc., Brookside
Motel, Bay View, Inc., and Ocean Gate, Inc. Mr. Cough is also
Treasurer of
Cough Bros., Inc. And President of Downeast Inns, Inc. Mr.
Cough was first
elected as a director on October 1, 1985.
[5] Peter Dodge, Director, Age 52. Mr. Dodge is President of
the Peter
Dodge Agency (a Maine corporation) d/b/a the Merle B. Grindle
Insurance
Agency in Blue Hill, Maine. He is also Director and Treasurer
of Coastal
Holdings, Inc., Trustee of George Stevens Academy, and
Director, Bagaduce
Music Lending Library. He was first elected as a director on
October 6,
1987.
[6] Lawrence L. Dorr, Director, Age 74. Mr Dorr is retired.
Prior to his
retirement, Mr. Dorr was the principal stockholder and
administrator of
Oceanview Nursing Home, Inc. Of Lubec. Mr. Dorr first was
elected as a
director on October 2, 1973.
[7] Dwight L. Eaton, Senior Vice President and Trust Officer,
Age 60. Mr.
Eaton s principal occupation during the past five years has
been as Senior
Vice President and Trust Officer of Bar Harbor Banking and
Trust Company.
He serves as Chairman and Director of the Acadia Corporation.
Mr. Eaton
first was elected as a Director on October 4, 1988.
[8] Ruth S. Foster, Director, Age 66. Mrs. Foster s principal
occupation
is the President and principal stockholder of Ruth Foster s, a
children s
clothing store in Ellsworth, Maine. Mrs. Foster first was
elected as a
director on October 7, 1986.
[9] Robert L. Gilfillan, Chairman of the Board of Directors,
Age 68. Mr.
Gilfillan s principal occupation during the past five years
has been as
the owner and President of the West End Drug Company in Bar
Harbor. Mr.
Gilfillan first was elected as a director on November 5, 1957.
[10] Sheldon F. Goldthwait, Jr., President and Chief Executive
Officer,
Age 57. He was appointed President and Chief Executive Officer
of Bar
Harbor Banking and Trust Company January 1, 1995. Prior to
that he served
as Executive Vice President of Bar Harbor Banking and Trust
Company. He
serves as Treasurer and Director of the Acadia Corporation.
Mr. Goldthwait
first was elected as a director on October 4, 1988. <PAGE>
<PAGE>
[11] James C. MacLeod, Director, Age 71. Mr. MacLeod is
retired. Mr.
MacLeod served as Vice President of the Bank until his
retirement in
December of 1987. He was appointed as a Vice president of the
Bank in 1972
and was first elected as a director of the Bank on November 7,
1961.
[12] John P. McCurdy, Director, Age 64. Prior to his
retirement in 1991.
Mr. McCurdy s principal occupation was the owner and operator
of McCurdy
Fish Company of Lubec, a processor of smoked herring. Mr.
McCurdy first
was elected as a director on October 2, 1979.
[13] Jarvis W. Newman, Director, Age 60. Mr. Newman is the
owner of Newman
Marine, a boat brokerage in Southwest Harbor. Mr. Newman first
was elected
as a Director on October 5, 1971.
[14] Robert M. Phillips, Director, Age 54. Mr. Phillips is
Vice President
and Chief Operating Officer of Jasper Wyman and Son (blueberry
processors), Milbridge, Maine. He was first elected as a
director on
October 5, 1993.
[15] John P. Reeves. Director, Age 61. Mr. Reeves is retired.
He was
elected as President and Chief Executive Officer of Bar Harbor
Banking and
Trust Company in 1986 and retired in 1994. He first was
elected as a
director on October 6, 1970.
[16] Abner L. Sargent, Director, Age 71. Mr. Sargent is former
owner and
designated broker of High Street Real Estate and Vice
President and
Treasurer of Sargent s Mobile Homes, Inc., of Ellsworth. He
first was
elected as a director on October 6, 1981.
[17] Lynda Z. Tyson, Director, Age 40. Mrs. Tyson is Chief
Operating
Officer and Marketing Director of Tyson & Partners, Inc., a
marketing
communications consulting firm in Bar Harbor. Mrs. Tyson was
first elected
as a director on October 5, 1993.
<PAGE>
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Officers of the Company do not, as such, receive compensation.
The
following table sets forth cash compensation received during
the Bank s
last fiscal year by the executive officers for whom such
compensation
exceeded $100,000.
<TABLE>
<CAPTION> SUMMARY COMPENSATION TABLE
<S> <C> <C> <C>
<C>
ANNUAL COMPENSATION
Other
Name and
Annual
Principal Salary
Incentive Compensation
Position Year ($)
($) ($)
John P. Reeves 1993 $ 127,500
$ 14,385 $ 0
Retired President and 1994 135,000
17,629 0
Chief Executive Officer 1995 ---
4,922 ---
Sheldon F. Goldthwait, Jr. 1993 $ 88,000
$ 9,923 N/a
Pesident and 1994 $ 92,000
$ 12,084 $ 0
Chief Executive Officer 1995 $ 130,000
$ 23,108 0
Dwight L. Eaton 1993 $ 88,000
$ 9,923 N/a
Senior Vice President 1994 $ 92,000
$ 12,084 $ 0
and Trust officer 1995 $ 94,000
$ 17,637 0
LONG TERM COMPENSATION
AWARDS
PAYOUT
Restricted
Stock
LTIP
Awards
Options/ Payouts
Year ($)
SARs (#) ($)
John P. Reeves 1993 $ 0
0 $ 0
1994 0
0 0
1995 0
0 0
Sheldon F. Goldthwait, Jr. 1993 0
0 0
1994 $ 0
0 $ 0
1995 0
0 0
Dwight L. Eaton 1993 0
0 0
1994 $ 0
0 $ 0
1995 0
0 0
ALL OTHER COMPENSATION ($)
John P. Reeves 1993 $ 3,152
1994 $ 4,984
1995 $ 0
Sheldon F. Goldthwait, Jr. 1993 $ 2,226
1994 $ 2,384
1995 $ 3,522
Dwight L. Eaton 1993 $ 2,793
1994 $ 2,937
1995 $ 3,439
</TABLE>
<PAGE>
The Bank has an incentive plan in which all employees who
were on the
payroll as of January 1st of a calendar year and who worked
through
December 31st are eligible. The computation is based on
earnings per share
growing by 10% each year with 1992 being the base year. Once
the 10%
growth is attained, a pool is created in which all eligible
employees
receive the same percentage of their salary in the form of an
incentive
payment.
COMPENSATION OF DIRECTORS
Each of the directors of the Company is a director of the Bank
and as such
receives a fee of $250.00 for each meeting attended. The fee
paid for the
Annual Meeting is $500.00 per member of the Board of
Directors. Meetings
of the Board of Directors of the Bank are held monthly. No
directors fees
are paid to the directors of the Company as such. Those
directors of the
Bank who are also officers do not receive directors fees.
EMPLOYEE BENEFIT PLANS
Effective August 31, 1993, the Board of Directors ratified the
termination
of the Company s noncontributory defined benefit pension plan,
which
covered all eligible employees.
At December 31, 1994, the plan s projected benefit obligation
was
essentially equivalent to the plan s net assets available for
benefits of
approximately $2,150,000, and such assets were invested in
U.S. Government
obligations and cash equivalents. The settlement of the vested
benefit
obligation by the purchase of nonparticipating annuity
contracts for, or
the lump sum payments to, each covered employee was completed
in 1994,
upon receipt of certain regulatory approvals. The Company
recognized no
curtailment gain or loss in 1993 as a result of the plan
termination and
no gain or loss was recognized when the plan s benefit
obligation was
settled in 1994.
Prior to the plan termination, pension benefits were based on
years of
service, and the Company s policy was to fund, at a minimum,
the amount
required under the Employee Retirement Income Security Act of
1974. Net
pension income of $51,000 in 1993 has been included in
operating results.
The weighted average discount rate and increase in salary
levels used in
determining the projected benefit obligation were 8% in 1993.
The expected
long-term rate of return on assets was 9%.
The Bank offers a 401(k) plan to all employees who have
completed one year
of service and who have attained the age of 21. Employees may
elect to
defer from 1% to 15% of their salaries subject to a maximum
amount
determined by a formula annually, which amount was $9,240 in
1994 and
1995. In 1995, the bank matched employee contributions to the
401(k) plan
to the extend of 25% of the first 6% of salary for a total of
contribution
by the bank of $46,637. The bank match for 1994 and 1993 was
$42,590 and
$37,195, respectively. On December 31, 1995, the Company
contributed to
each participating employee an additional 3% of the employee s
salary,
which represented a non-contributory plan replacing the Bank s
contribution to the former defined benefit plan. The total
contribution
made for the non-contributory plan was $122,486. This
non-contributory
<PAGE>
plan was established in 1994 with a contribution made by the
Bank
totalling $113,432. Any future contributions by the bank will
be
determined annually by the vote of the Board of Directors.
In 1995 and 1994, the Bank provided a restricted stock
purchase plan
through which each employee having one year of service may
purchase up to
100 shares of Bar Harbor Bankshares stock at the current fair
market price
as of a date determined by the Board of Directors. These
shares may be
purchased through a direct purchase or through the employees
401(k)
accounts.
At December 31, 1995, employees exercised their right to
purchase 4,632
shares at $28.00 per share, with the actual purchase
transpiring in
January of 1996. At December 31, 1994, employees exercised
their right to
purchase 3,770 shares at $16.40 per share, with the actual
purchase
transpiring in January of 1995.
The Bank provides certain of its officers with individual
memberships in
local civic organizations and clubs. The aggregate value of
these benefits
with respect to any individual officer did not exceed $5,000
during the
Bank s last fiscal year.
The Bank has entered into agreements with Messrs: Avery,
Reeves,
Goldthwait, and Eaton whereby those individuals or their
beneficiaries
will receive upon death or retirement an annual supplemental
pension
benefit over a period of 10 years in the amount of $15,000 (in
the case of
Messrs. Avery and Reeves) and in the amount of $10,000 (in the
case of
Messrs. Goldthwait and Eaton). This plan is unfunded and
benefits will be
paid out of Bank earnings. As of January 1, 1987, Mr. Avery
began drawing
his annual installment of $15,000 pursuant to this deferred
compensation
arrangement. Mr. Reeves began drawing his annual installment
of $5,300.04
(reduced for early retirement) as of January 1, 1995.
In 1993, the Company established a non-qualified supplemental
retirement
plan for Messrs. Reeves, Eaton, Goldthwait and MacDonald. The
agreements
provide supplemental retirement benefits payable in
installments over
twenty years upon retirement or death. The Company recognizes
the costs
associated with the agreements over the service lives of the
participating
officers. The cost relative to the supplemental plan was
$98,273,
$368,898, and $181,415 for 1995, 1994, and 1993 respectively.
The
agreements with Messrs. Reeves, Eaton, Goldthwait and
MacDonald are in the
amounts of $49,020, $22,600, $37,400 and $7,700 respectively.
Mr Reeves
began drawing his annual installment of $49,020 as of January
1, 1995.
Officers of the Bank are entitled to participate in certain
group
insurance benefits. In accordance with Bank policy, all such
benefits are
available generally to employees of the Bank.
<PAGE>
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of December 31, 1995, to the knowledge of the Company,
there are not
any beneficial owners of more than five percent of the Company
s common
stock.
The following table lists, as of December 31, 1995, the number
of shares
of Common Stock and the percentage of the Common Stock
represented
thereby, beneficially owned by each director and nominee for
director, and
by all principal officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
<S> <C>
<C>
Amount of
Director or Beneficial
Percent of
Nominee Ownership
Class
Robert H. Avery 29,160
1.70
Frederick F. Brown 11,590
*
Thomas A. Colwell 2,475
*
Bernard K. Cough 82,550
4.82
Peter Dodge 1,930
*
Lawrence L. Dorr 8,250
*
Dwight L. Eaton 3,788
*
Ruth S. Foster 1,500
*
Robert L. Gilfillan 39,640
2.31
Sheldon F. Goldthwait, Jr. 10,039
*
James C. MacLeod 20,300
1.18
John P. McCurdy 3,300
*
Jarvis W. Newman 15,050
*
Robert M. Phillips 550
*
John P. Reeves 12,352
*
Abner L. Sargent 3,500
*
Lynda Z. Tyson 600
*
Total Ownership of all directors and
executive officers of Company as a
group (20 persons) 251,306
14.67
<FN>
<F1> * Less than one percent
</TABLE>
For purposes of this table, beneficial ownership has been
determined in
accordance with the provisions of Rule 13-d-3 promulgated
under the
Securities Exchange Act of 1934 as amended. Direct beneficial
ownership
includes shares held outright or jointly with others. Indirect
beneficial
ownership includes shares held in the same name of a director
s spouse or
minor children or in trust for the benefit of a director or
member of his
or her family. Indirect beneficial ownership does not include,
in the case
of each director, one seventeenth (2,864 shares) of the 48,680
shares
(2.84%) of the Common Stock held by two trusts which shares,
for purposes
of voting, are allocated equally among the directors of the
bank under the
terms of the respective trust instruments. No director has any
other
<PAGE>
beneficial interest in such shares. Ownership figures for
directors and
nominees include directors qualifying shares owned by each
person named.
Management is not aware of any arrangement which could, at a
subsequent
date, result in a change in control of the company.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank retains the firm of Tyson & Partners, Inc. to assist
with its
marketing program. Lynda Z. Tyson, who was elected to the
Board of the
Company and the Bank on October 4, 1993, serves as that firm s
Chief
Operating Officer as well as Director of Marketing. Management
believes
that the fees charged by Tyson & Partners, Inc. are at least
as favorable
as any which could have been obtained from persons not
affiliated with the
Bank.
The Bank has had, and expects to have in the future, banking
transactions
in the ordinary course of its business with directors,
officers, principal
stockholders and their associates upon substantially the same
terms,
including interest rates and collateral on the loans, as those
prevailing
at the same time for comparable transactions with others. Such
loans have
not and will not involve more than normal risk of
collectibility or
present other unfavorable features.
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) The following financial statements are incorporated by
reference
from Item 8 hereof: [Annual Report to Stockholders included
herein as
Exhibit 13].
<TABLE>
<CAPTION>
<S>
<C>
PAGE
Independent Auditor s Report
9
Consolidated Statements of Financial Condition
December 31, 1995 and 1994
10
Consolidated Statements of Earnings for the years ended
December 31, 1995, 1994 and 1993
11
Consolidated Statements of changes in the Stockholders
Equity for the years ended
December 31, 1995, 1994 and 1993
12
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
13
Notes to Consolidated Financial Statements
14 - 25
(a) (2) Financial Data Schedule
See Item 14(d)
(a) (3) Listing of Exhibits -- see Item 14 (c)
(b) Report on Form 8-K not applicable
(c) Exhibits -- EXHIBIT INDEX
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
EXHIBIT INDEX - 14(c)
NUMBER
1. Underwriting Agreements Not Applicable
2. Plan of Acquisition, reorganization Incorporated by
reference
agreement, liquidation or succession to Form S-14
dated
March 14, 1984
3. Articles of Incorporation and Bylaws Incorporated by
reference
To Form S-14
dated
March 14, 1984
4. Instruments defining the rights of Not Applicable
security holders
5. Opinion re: legality Not Applicable
6. Opinion re: discount on capital shares Not Applicable
7. Opinion re: liquidation preference Not Applicable
8. Opinion re: tax matters Not Applicable
9. Voting Trust Agreements Not Applicable
10. Material Contracts Incorporated by
reference
to Form 10-K
dated
December 31,
1986
<PAGE>
<PAGE>
11. Statement re: computation of per Not Applicable
share earnings
12. Statement of computation of ratios Not Applicable
13. Annual report to security holders Enclosed
herewith
14. Material foreign patents Not Applicable
15. Letter re: unaudited interim Not Applicable
financial information
16. Letter re: change in certifying Not Applicable
accountant
17. Letter re: director resignations Not Applicable
18. Letter re: change in accounting Not Applicable
principles
19. Report furnished to security holders Not Applicable
20. Other documents or statements to Not Applicable
security holders
21. Subsidiaries of the registrant Incorporated by
reference
to Form 10-K
dated
December 31,
1986
22. Published report regarding matters Not Applicable
submitted to vote of security holders
23. Consents of experts and counsel Not Applicable
24. Power of Attorney Not Applicable
25. Statement of eligibility of Trustee Not Applicable
26. Invitation for competitive bids Not Applicable
27. Information from reports furnished to
State insurance regulatory authorities Not Applicable
(d) Financial Data Schedule Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
/S/ Sheldon F.
Goldthwait, Jr.
Sheldon F.
Goldthwait, Jr.
President and Chief
Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this
report has been signed below by the persons on behalf of the
Registrant
and in the capacities and on the dates indicated.
/S/ Sheldon F. Goldthwait, Jr. /S/ Virginia M.
Vendrell
Sheldon F. Goldthwait, Jr. Virginia M. Vendrell
President and Director Chief Financial
Officer
Chief Executive Officer Chief Accounting
Officer
/S/ John P. Reeves /S/ Robert L.
Gilfillan
John P. Reeves, Director Robert L. Gilfillan,
Chairman of
the Board
/S/ Frederick F. Brown /S/ Jarvis W. Newman
Frederick F. Brown, Director Jarvis W. Newman,
Director
/S/ Robert M. Phillips /S/ Peter Dodge
Robert M. Phillips, Director Peter Dodge, Director
/S/ Thomas A. Colwell /S/ Bernard K. Cough
Thomas A. Colwell, Director Bernard K. Cough,
Director
/S/ Lawrence L. Dorr /S/ Ruth S. Foster
Lawrence L. Dorr Ruth S. Foster
/S/ Lynda Z. Tyson /S/ Dwight L. Eaton
Lynda Z. Tyson, Director Dwight L. Eaton,
Director
/S/ John P. McCurdy /S/ Abner L. Sargent
John P. McCurdy, Director Abner L. Sargent,
Director
DATE: March 12, 1996
</TABLE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
INSERT WITH PHOTOGRAPH OF
SHELDON F. GOLDTHWAIT, JR.
Dear Shareholder:
The charts, words and figures on the following pages will show
you what a great year we had. Our earnings, return on assets,
earnings per share and our adjusted stock price hit all time
highs. Although John Reeves retired at the end of 1994 his
legacy of momentum and a strong management team and staff is
evident in the 1995 results for Bar Harbor Bankshares. We are
very proud of the results. We hope that you will read and enjoy
the feature stories that accompany the financial news. They
focus on some of the qualities ever present in our relationships
with our customers.
It has been a very busy year building relationships with new
customers. This has been the basis for our growth in earning
assets. We handled new loans and deposits and investments with
the same number of employees, a tribute to our dedication to
efficiency, the careful use of technology and the superior work
ethic of our employees.
As an indication of our commitment to the people and communities
of our service area we built a new full service, handicap
accessible branch in Winter Harbor and refurbished our Machias
office. These improvements have been very well received by our
customers in these areas.
In October, nationally known bank consultant John M. Floyd &
Associates, Inc. started an extensive review of all of our
operations. The main goal is to improve customer service by a
reallocation of duties for those employees dealing directly with
customers. The Floyd representatives are very good in helping us
recognize that in doing things because we have always done it
that way is not always valid. They have assisted us in
implementing a multitude of better ways to serve our customers
and do our jobs.
In addition, we are in the process of planning an operations
center to relieve space constraints in Bar Harbor and to
centralize our item processing and storage. This new facility
will have an improved branch wide telephone system replacing ten
outdated systems, as well as an updated computer. The new
technologies and the location of the center will result in
greater efficiencies for the Bank and its customers. It is
expected that this center will be in the Ellsworth area and will
be completed in the latter part of 1996.
In October, Lewis H. Payne was promoted to Executive Vice
PAGE
<PAGE>
President and Virginia M. Vendrell was named Senior Vice
President in addition to her other titles of Treasurer and Chief
Financial Officer. These changes recognize the contributions
these two individuals are making to the continued success of the
Bank.
All of our officers and staff have performed admirably during
this year of change, not only with a new president but in
charting a new course and reengineering the way we do business.
I thank everyone for their support and commitment. We all
understand that in order for us to continue to serve our
customers and shareholders that we must not lose sight of our
most basic goal -- Beyond Best Service .
Very truly yours,
Sheldon F. Goldthwait, Jr.
President and
Chief Executive Officer
PAGE
<PAGE>
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management s Discussion and Analysis
The following discussion and analysis of Bar Harbor Bankshares
financial condition and operations should be read in conjunction
with the Consolidated Financial Statements (beginning on page
10) and notes to the Consolidated Financial Statements
(beginning on page 14).
Business
Bar Harbor Bankshares wholly-owned subsidiary, Bar Harbor
Banking and Trust Company (the Bank), is an independent
community bank with ten offices serving Downeast Maine. The Bank
is a full-service financial institution providing deposit, loan
and trust services to individuals, businesses, and
organizations. Bar Harbor Banking and Trust Company has built
its reputation on building strong and lasting relationships
with its customers involving the full range of financial
services required to meet their individual needs. The Bank is
known for conducting business professionally, efficiently and
with a high degree of person-to-person service.
As a community bank, Bar Harbor Banking and Trust Company cares
about improving the quality of life for the people of Downeast
Maine. The Bank supports local economies by lending locally. The
Banks s charitable giving program supports local civic and
community organizations involved in education, health and
safety, arts and culture, economic development and environmental
protection. As individuals, many of the Bank s officers and
employees volunteer their time and contribute privately to a
broad range of programs and activities in their local
communities.
Bar Harbor Banking and Trust Company offers its customers a wide
variety of accounts and services, convenient locations,
competitive lending and deposit interest rates, and a high
degree of accessibility during and after regular banking hours.
In 1995, the Bank remodeled its Machias office and constructed a
new office building in Winter Harbor, including the installation
of an ATM. Now, all ten offices--Bar Harbor, Blue Hill, Deer
Isle, Ellsworth, Lubec, Machias, Milbridge, Northeast Harbor,
Southwest Harbor and Winter Harbor--provide the convenience of
24-hour automated teller machines. Also, in 1995, the Bank
improved its automated teller services by introducing its
Coastal Wave Check Card. The new Coastal Wave Check Card offers
customers a convenient way to get cash, make routine banking
transactions, and pay for purchases at the store without having
to carry cash or checks.
Following are some of the deposit and loan services the Bank
offers. Additional services, modifications of services and
linked services are available which allow the Bank a high degree
of flexibility in meeting customer needs.
PAGE
<PAGE>
INSERT
Photo of pier and rock pilings with the following legend:
BUILDING ON THE BASICS
All things begin small and spare, from towns to businesses to
personal relationships. The things that last, though, begin on
rock solid foundations.
108 years ago Bar Harbor Banking and Trust Company began with a
strong set of principles, business ethics, a propensity for hard
work, and a focus on person to person service. Over the years,
we ve built strong and enduring relationships with the people,
businesses and communities we serve from Deer Isle to Lubec.
The foundations for these relationships, too, are rock solid:
trust, respect, understanding, caring, commitment, integrity,
ingenuity, loyalty, and a dash of humor.
After another financially rewarding year, we remind ourselves
and our shareholders in this report of the basics that have made
our bank strong and enduring. It is a good reminder, because
these are the basics on which we will build a solid future.
END OF INSERT
DEPOSIT SERVICES INCLUDE:
Checking Accounts
Savings Accounts
Gold Wave Checking (a special package for customers 50 years of
age and older)
Certificates of Deposit (CDS)
Individual Retirement Accounts (IRAs)
Money Market Accounts
7-day Investor Accounts
Debit Cards
LOAN SERVICES INCLUDE:
Residential mortgages
Installment Loans
Lines of Credit
Student Loans
Home Equity Loans
VISA Credit Cards
Commercial Business Loans
The Bank s Trust Department is one of the largest among
independent banks in Maine. Like the Bank, it prides itself on
the quality and longevity of its client relationships, many of
which go back four or more generations. In addition to
traditional trust and estate planning services, the Trust
Department offers sophisticated, goal-oriented, professionally-
managed investment services designed to meet the specific
financial objectives of its clients.
TRUST SERVICES INCLUDE:
Custody Accounts
Professionally Managed Investment Accounts (PMIAs)
Socially Responsible Investing Program
Personal Trusts
Individual Retirement Plans PAGE
<PAGE>
Estate Planning for Individuals and Businesses
Employee Benefit Plans
Quarterly Informational Seminars
As a whole, the Bank has been successful by adhering to a
single, simple business philosophy; By serving its customers
well, the Bank will be well served.
RESULT OF OPERATIONS
Loans: The Bank s primary source of income is interest generated
from loans to its customers. Loan demand weakened in 1995 as
compared to 1994 resulting in a more competitive marketplace and
a fall in interest rates in the economy. Loans increased
$15,800,000 or 8.5%, following a 13.7% increase in 1994. While
market rates of interest declined, the yields on loans increased
72 basis points on average as annual repricing of variable rate
loans from relatively low rates from early 1994 continued upward
throughout the year. The increase in earnings in 1995 compared
to 1994, which was a result of interest rate changes, was
$1,300,000 with growth of $1,980,000 due to increased volumes.
In 1994, interest income on loans increased by $1,970,000
because of increased loans but decreased by $512,000 due to
reductions of interest rates. The loan portfolio represents 66%
of the Bank s earning assets, and 62% of total assets which is
consistent with last year.
Commercial loans represent 51% of total loans and have remained
at that level throughout the past three years. Consumer loan
growth has occurred predominantly in mortgages which increased
to 33% of total loans in 1995 and which represents almost
$65,800,000 in residential mortgage loans. These loan balances
compare to $53,800,000 in residential mortgage loans in 1994 and
$44,000,000 in 1993.
In the commercial portfolio, the greatest industry
concentrations are in the hospitality industry, in real estate
investment and development, and in the fishing industry. This is
a reflection of the Bank s market, the close proximity to Acadia
National Park, and the importance of the fishing industry to the
eastern Maine economy. In the hospitality industry, total loans
have increased from $20,300,000 in 1993 to $24,800,000 in 1994
to $25,500,000 in 1995. The Bank s underwriting process uses
conservative loan to value rations and state and federal
government guarantee programs where appropriate. In real estate
investment and development, total loans have increased from
$11,400,000 in 1993 to $14,300,000 in 1994 and remained at that
level in 1995. In the fishing industry, loans increased from
$8,800,000 in 1993 to $10,000,000 in 1994, and decreased to
$7,500,000 in 1995. The decrease between 1994 and 1995 is
attributable to the paydown of a number of aquaculture loans and
a lower need at year end for Bank support for the lobster
pounding industry. While the groundfishing industry is
experiencing severe problems due to overfishing and attendant
increase in regulation to restore the groundfish populations,
the Bank s portfolio is well diversified within the fishing
industry including fishermen, processors and wholesalers.
PAGE
<PAGE>
Credit concentration, the amount of loans to a single borrower,
has fluctuated over the past three years. On a quarterly basis,
borrowers with aggregate loans over $700,000 are reviewed
because of the size of the relationships. In 1993 these loans
represented 66% of capital; in 1994, 95% of capital and in 1995,
90% of capital. The increase in credit concentrations is a
result of not only extending additional funds to existing
customers, but also bringing in new customers. Of the new larger
credits, over 35% are secured by cash, marketable securities or
government guarantees.
INSERT
Graph entitled EARNING ASSET GROWTH
With LOANS in 1994 at $185,994 and LOANS in 1995 at $201,766;
INVESTMENTS in 1994 at $91,319 and INVESTMENTS in 1995 at
$102,095
END OF GRAPH
PAGE
<PAGE>
In addition to loans carried on the Bank s books, the Bank
originates, services and sells loans in the secondary market. In
1993 loans serviced totaled $53,000,000, in 1994, $59,400,000
and in 1995, $60,300,000. The servicing and sale of these loans
gives the Bank the opportunity to provide a service to its
customers and earnings for the Bank.
Reserves for possible loan losses were increased this year as a
result of increased loan volume. For the past three years the
Bank s reserve for possible loan losses has exceeded 2% of total
loans. On a quarterly basis, the loan portfolio is reviewed to
be sure that there are adequate reserves. In accordance with
FDIC file 34-91, dated 6/18/92, there are reserves set aside for
specific loans, a pool of reserves based on historical charge
offs by loan types and supplementary reserves for economic
conditions, credit concentrations, industry concentrations and
loan policy changes. Management also evaluates loan impairment
quarterly according to FASB 114/118. The provision for loan
losses totaled $960,000 in 1995 and 1994, and $1,080,000 in
1993.
INSERT
BELIEF.
When the Bar Harbor Brewing Company needed financing to expand
their business, they came to commercial lending officer, Stan
MacDonald. Stan believed their microbrewery concept would
succeed and extended a line of credit. In December, 1995, the
company s Cadillac Mountain Stout received the distinguished
Platinum Medal in the World Beer Championship. Stan doesn t take
credit for this success, but he s pleased that a small, Downeast
company he believed in is now running with the best of them.
END OF INSERT
Loans over 90 days past due as a percentage of total loans
increased from 1.87% in 1993 to 2.12% in 1994 and declined to
1.68% in 1995. The increase in 1994 was a result of two large
loans that were resolved favorably in 1995.
On a monthly basis, all loans that become 90 days or more past
due at month end are reviewed for placement on non-accrual. If
the loan is not well secured, and payments are unlikely to be
made to restore the loan to current status in a short time, the
loan is placed on non-accrual status. For each of the past three
years, non-accrual loans have represented 1.7% of the total loan
portfolio. At the end of 1993, non-accrual loans totaled
$2,645,000 with loans past due over 90 days and still accruing a
total of $513,000. At the end of 1994, non-accrual loans were
$3,139,000 with $892,000 past due over 90 days and still
accruing. At the end of 1995, non-accrual loans were $3,360,000
with $849,000 past due over 90 days and still accruing. If
interest had been accruing on non-accrual loans, interest income
on loans would have been $416,000 higher in 1995. Interest
collected on these loans totaled $185,000 in 1995.
On a quarterly basis, all loans that may be over 90 days past
due are reviewed for possible charge off. Collection efforts
PAGE
<PAGE>
continue whether or not the loan is charged off, but if there is
a reasonable doubt about the collectibility of the loan, it is
charged off to ensure that the Bank s assets are not overstated.
If a troubled loan is not well secured, a partial charge-off may
be taken. Gross chargeoffs in 1995 totaling $901,000 were .4% of
total loans, as compared to $579,000 or .3% in 1994 and
$1,181,000 or .7% in 1993. Approximately 28% of the chargeoffs
in 1995 represented loans secured by real estate, and 39%
represented commercial credits. The increase in commercial loan
chargeoffs in 1995 included a charge-down of a large commercial
loan. Recoveries offset losses totaling $97,000, $141,000 and
$265,000 for the years ended 1995, 1994 and 1993, respectively.
When a real estate loan goes to foreclosure and the Bank buys
the property, the property is transferred from the loan
portfolio to the Other Real Estate Owned (OREO) portfolio at its
fair value less estimated selling cost. If the loan balance is
higher than the fair value of the property, the difference is
charged to the allowance for loan losses before the transfer
takes place. Along with using conservative valuations of OREO
properties, reserves are established to allow for sale and
maintenance expenses that can be reasonably forecast.
At the end of 1993, the OREO balance was $869,800 with a reserve
of $53,300, at the end of 1994, $641,500 with a reserve of
$30,500, and at the end of 1995, $469,700 with a reserve of
$26,000.
Investments: The investment portfolio continues to add
liquidity, diversification, and earnings to the Bank s financial
picture. The investment portfolio represents 31% of the Bank s
total assets and 34% of the Bank s earning assets and has
remained at these levels for several years.
As mentioned in the previous section, the Bank s loan portfolio
grew by $15,800,000 in 1995. Loans were partially funded by
principal payments from investments totaling $5,600,000 from the
Bank s mortgage-backed securities. Principal paydowns are
generated from consumers nationwide making their monthly
mortgage payments, as well as refinancing existing mortgages.
Principal paydowns affect the yield on the investment portfolio,
which has dropped an average of 22 basis points during the last
twelve months. With interest rates remaining stable for most of
1995, this drop is less than the average 33 basis point decline
between 1993 and 1994. This interest rate scenario and the
reduction in prepayments made by customers are indicative of the
slowdown in refinancing of mortgages to lower interest rate
instruments.
INSERT
Graph entitled NET INTEREST INCOME (In Thousands)
Net Interest Income is shown in 1993 at 12,000; 1994 at 13,159
and in 1995 at $14,568.
End of INSERT
PAGE
<PAGE>
There were $5,600,000 in principal paydowns from mortgage-backed
securities. The investment portfolio grew by $10,800,000 when
compared to year end 1994 with growth in bonds guaranteed by U.
S. Government agencies and other mortgage backed securities.
Many of the bonds purchased in 1995 represent callable U. S.
Government agencies with longer final maturities which were
placed in the Bank s available for sale portfolio. Interest and
dividends earned on the Bank s investments showed an increase of
$1,064,000 of which $643,000 is attributable to additional
securities purchased in 1995. In comparison, the investment
portfolio s earnings for 1994 increased over 1993 by $480,000
based on increased volume of $12,600,000.
The Bank is currently a party to two interest rate swap
agreements whereby the Bank received fixed rates of interest and
pays variable rates of interest on notional amounts of
$5,000,000 each. This exchange is not a funding transaction, but
a stream of interest payments. In 1995, the net effect of these
interest rate swap agreements was to reduce the Bank s earnings
by $60,700. In 1994 when a third interest rate swap was still in
effect, the net earnings of these interest rate swap agreements
was to add $150,100 to the Bank s income. Additionally, the Bank
has purchased an interest rate floor, where the Bank will
receive interest if the specified index falls below the floor
rate, on a notional amount of $10,000,000. No income has been
recognized to date on this contract. The interest rate risk
factor in the swaps and floor is considered in the overall
interest management strategy of the Bank.
Although the Bank s interest rates on deposits remained stable
throughout 1995, deposits increased by $26,000,000 and the cost
of those deposits, which were primarily certificates of deposit,
increased by $2,400,000. The cost of borrowings increased in
1995 by $588,000, with short term rates rising to meet longer
term rates and flattening the yield curve. In 1994, as interest
rates rose, the Bank s earnings were also affected by the rise
in cost of liabilities. The Bank s interest-bearing liabilities
increased in 1994 by approximately $23,000,000 with interest
paid on these liabilities increasing by $900,000.
Other Operating Income
Two events which took place in 1994 explain the difference in
other operating income when comparing 1994 to 1995. Excluding
those events, which are described below, the operating income
for 1995 grew by $230,000 more than 1994 and is attributable to
income before expenses earned by the Trust Department in 1995
(see below).
In 1994, the Bank chose to sell its holdings in a government
agency bond fund resulting in a principal loss of $388,450. The
fund had initially been purchased in the late 1980's with
additional monies invested in 1993. As interest rates began to
rise, the fund began to shorten its maturities, thus reducing
the yield. Management believed it prudent to sell the
securities, absorb the losses, and reinvest the proceeds in
short term higher earning securities and protect its remaining
PAGE
<PAGE>
principal by selling the entire holding. No security gains or
losses were incurred in 1993. Excluding the loss taken on the
bond fund in 1994, which was held in the Bank s available for
sale portfolio, the Bank experienced a modest increase of
$248,000 in non-interest income when comparing 1994 to 1993. Of
this increase, $232,000 was realized from the sale of rental
property in Bar Harbor which had been fully depreciated for many
years.
The closing and selling of 425 mortgages in 1993 and servicing
more than 700 loans sold to the secondary market added $600,000
to the Bank s earnings. With fewer secondary market loans
originated in 1994 and 1995, the comparable income generated was
$411,000 and $394,000 respectively. Although fewer loans are
being originated, the Bank services and received income from 840
loans which have been sold.
TRUST
The Bank s Trust Department s total revenues before expenses
grew to $1,931,000 compared to $1,675,000 recorded in 1994. A
portion of this increase is attributable to more than
$32,000,000 in new business acquired in 1995.
OTHER OPERATING EXPENSES
In 1995, the Bank began developing several major projects,
involving facilities and technology. In order to best engineer
these changes, the Bank sought the services of a consulting firm
to review existing procedures, seeking greater efficiencies
while maintaining quality customer service. Funds spent on this
project in 1995 totaled $187,000. Additionally in 1995, the
Trust Department elected to increase its offerings by adding a
tax preparation service for its customers. The cost of this
service was offset in the Trust Department s earnings for 1995.
Salaries and benefits for 1995, including incentive payments,
were actually $27,000 lower than 1994. In 1994, salaries and
benefits were 8% higher than in 1993. The year ended 1994 also
included incentives made to employees who had been with the Bank
for more than one year, and included the implementation of a
supplemental retirement plan for certain members of management.
The Bank s decision in 1993 to fully amortize the remaining
portion of goodwill incurred with the acquisition of two
branches from Key Bank in 1990 had the effect of increasing
other operating expenses by $1, 182,762. This decision was
prompted by the realization that growth in these branches was
going to be slower than originally anticipated, and by the
Bank s desire to state overall bank value in the balance sheet
more clearly. Future benefit will be derived from ongoing
operations and growth of these branches.
PAGE
<PAGE>
NET EARNINGS
Net earnings for the Bank of $5,878,647 were very strong. This
represents an increase of almost 20% over the Bank s earnings
for 1994 which reached $4,914,151 or an 8% increase over 1993's
earnings before management s decision regarding two non-
operating issues as discussed below. The increase in 1995 is
attributable primarily to the successful management of interest
rates and increased volumes in the Bank s balance sheet.
Additionally, the continuous efforts of the Bank s Trust
Department added to the Bank s performance. The Bank s earnings
translate into a return on average equity of 18.97%, compared to
17.93% in 1994, an earnings per share increase from $2.87 to
$3.43 and a return on average assets of 1.89% for 1995 compared
to 1.75% for 1994.
In 1993, the Bank earned $4,527,948 before electing to fully
amortize the goodwill intangible asset incurred with the 1990
purchase of two branches. Additionally in 1993, the Financial
Accounting Standards Board (FASB) issued Statement no 106,
entitled Employer s Accounting for Postretirement Benefits
Other than Pensions . The Bank chose to recognize the liability
for health care and life insurance benefits accrued immediately
as a one-time charge. These accounting entries reduced 1993's
net earnings by $2,022,256 to $2,505,692. Comparing 1994's
earnings to 1993's earnings before these reductions, the Bank
had gained 8.5% in net earnings over 1993 and stockholders
equity had grown $1,700,000 or 6.7%.
INSERT
Graph entitled NET INCOME (In Thousands)
Graph shows 1993 Net Income of $4,528, 1994 Net Income of $4,914
and 1995 Net Income of $5,879.
End of Graph INSERT
LIQUIDITY
A primary function of asset/liability management includes
assuring adequate liquidity that reflects the ability of the
Bank to meet the cash flow requirements of its customers without
significant loss to the Bank.
Liquidity comes from five sources in the balance sheet
The Bank s Investment Portfolio
Deposits
Borrowings
Loan Repayments
Profits
Liquidity is needed to fund increased loan demand and to cover
the seasonal outflow of deposits during the winter months. The
Bank s investment portfolio not only provides liquidity, but
also diversification in managed assets. The Bank maintains
adequate liquidity without having to sell portions of its
investment portfolio by pledging portions of its portfolio as
collateral for borrowings. The December 31, 1995 investment
summary indicates a net unrealized gain of $972,000 on the
Bank s held to maturity portfolio. The Bank s portfolio which is
PAGE
<PAGE>
available for sale has an unrealized gain of $96,000 as of
December 31, 1995. The portion of the Bank s portfolio which is
taxable has an average yield of 7.12%, which is above comparable
yields for securities with similar terms. At year end the Bank s
large mortgage backed security portfolio had a net unrealized
gain of $179,000. This is a dramatic increase in market value
when compared to year-end 1994, when the mortgage backed
securities were priced below cost by more than $3,250,000 and is
due to interest rates having fluctuated and dropped during the
year. Although premiums were paid on portions of the mortgage
backed securities, many of those pools were seasoned at the time
of purchase and have not prepaid as fast as expected. The
mortgage backed securities portfolio has an average life of 3.9
years, an average duration of 2.0 years and is yielding an
average of 6.19%, again more favorable than comparable
securities with similar average lives in the current market.
Deposits represent the Bank s primary source of funds. In 1995,
total deposits increased by $26,000,000 or 11.5% over 1994.
Changes in the Bank s market and the local economy in general
were reflected in the liability mix and growth during 1995. As
interest rates flattened this year, depositors sought higher
yields through the purchase of certificates of deposit. Four
separate campaigns for certificates of deposits were promoted
during 1995, three of which were offered for terms of less than
one year. The shorter offerings were indicative of the Bank s
posture that long term interest rates were continuing, although
slowly, downward. Time deposits of $100,000 or more totaling
$14,000,000 in 1995 remain a small portion of the Bank s deposit
base. Bar Harbor Banking and Trust Company does not purchase
brokered deposits.
Traditionally, the Bank has relied on such sources as cash on
hand, loan repayments, investment maturities and principal
paydowns on mortgage backed securities to fund liquidity needs.
Over the past five years, the Bank has expanded its sources to
include advances available through the Federal Home Loan Bank of
Boston, as well as repurchase agreements secured through several
wholesale firms. Through the above options, additional funds
available to the Bank at December 31, 1995 totaled $55,000,000;
however, the Bank does not intend to borrow funds to its maximum
availability. These funds have been used, in accordance with
asset/liability objectives of the Bank, to purchase investment
securities and to fund deposit outflow.
INSERT
TRUST
Geddes W. Simpson, Jr., Vice President and Trust Officer, tells
of one of his elderly customers who is blind, has no family, and
relies on Geddes to pay her bills, taxes, file medical claims,
and do the annual financial review required by the Home in which
she lives. Trust is the basis for their relationship. It is
reaffirmed every time Geddes hears his customer s grateful
Thank you for taking care of me -- a phrase he has heard
regularly for the past 15 years.
END OF INSERT PAGE
<PAGE>
The Bank s primary approach to measuring liquidity is utilizing
a Basic Surplus/Deficit model. It is used to calculate liquidity
over a 30-day and a 90-day time horizon, by examining 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
horizon. The Bank s minimum policy level of liquidity under this
model is 5% of total assets for both time horizons. At December
31, 1994, the 30-day and 90-day ratios were 8.5% and 6.1%
respectively. As of December 31, 1995 the ratios are 17.6% and
14.5% respectively. The increase in liquid funds from year end
1994 to year end 1995 respond to the reduction of approximately
$18,000,000 of repurchase agreements held by the Trust
Department with the Bank, thereby reducing the amount of Bank
securities required to be held as collateral. These funds were
replaced by deposits and borrowings through the Federal Home
Loan Bank of Boston.
Asset/liability management has the role of maintaining a balance
between interest-sensitive earning assets and interest-bearing
liabilities. Effective management of interest rate risk can
protect the Bank against adverse changes in interest rates and
can enhance the Bank s interest margins and earnings through
periods of changing interest rates. In times of rising interest
rates, Bar Harbor Banking and Trust Company will maximize
earnings if more loans and/or investments are subject to rate
changes than interest bearing liabilities. As interest rates
rise, the Bank monitors its rate sensitivity seeking to ensure
that both assets and liabilities respond to changes in interest
rates to minimize the effect of those changes on net interest
income. As of December 31, 1995, Bar Harbor Banking and Trust
Company had $174,000,000 in assets and $171,000,000 in
liabilities that were repricable within one year. Management
continues to watch economic trends with respect to interest
rates. With interest rates remaining flat in 1995 and with the
expectations of lowering slightly in 1996, the Bank is well
situated with assets and liabilities repricing concurrently.
Loan repayments and maturing investments are set forth in the
statements of Cash Flows. Profits, the final source of
liquidity, also are detailed on the preceding pages.
CAPITAL RESOURCES
Regulatory standards for bank capital adequacy require that
capital be at least 8% of risk adjusted assets. Bar Harbor
Banking and Trust Company s total capital ratio of 17% far
exceeds the guidelines. In dollars, this means that the Bank has
the ability to pay dividends subject to the minimum capital
requirement.
Bar Harbor Banking and Trust Company had a very profitable year
in 1995. Stockholders equity at December 31, 1995 increased by
$4,480,000.
Dividends of $1,473,700 were declared on the Company s common
stock and represented a 16% increase over 1994, represented a
PAGE
<PAGE>
25.1% dividend payout ratio and contributed to a total return to
shareholders of 73%. This total return was, in part, due to a
five-for-one stock split which was declared by the Board of
Directors of the Company on July 11, 1995 and took effect on
August 7, 1995.
A strong capital position, which is vital to the continued
profitability of the Bank, also promotes customer confidence and
provides a solid foundation for future growth. Continued growth
in stockholders equity has been achieved through reinvested
earnings.
There are no known trends, events or uncertainties nor any
recommendations by any regulatory authority that are reasonably
likely to have a material effect on the Company s liquidity,
capital resources or operating results.
INSERT
HUMOR
A newspaperman and long time customer of our bank once published
an article expressing his distaste for the crowd control ropes
in his local Bar Harbor Banking and Trust Company office. Some
time later, our branch manager found a unique way to patch up
the relationship. The office staff lugged the ropes to the
newspaperman s home and placed them in his front yard on the eve
on his annual New Year s Eve party. Needless to say, when he
greeted his guests from behind the ropes, he had a smile on his
face.
END OF INSERT
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1995, the Bank adopted FASB Statement 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 collectible. 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 $1,665,000 at
December 31, 1995.
The Bank plans to implement FASB Statement No. 122 Accounting
for Mortgage Servicing Rights effective January 1, 1996 and
estimates that adoption of the standard will not have a material
negative impact on the Bank s net income or retained earnings.
PAGE
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related notes,
presented elsewhere herein, have been prepared in accordance
with generally accepted accounting principles. These principles
require the measurement of financial position and operating
results in terms of historical dollars without considering
changes in the relative purchasing power of money over time due
to inflation.
Unlike many industrial companies, substantially all of the
assets and virtually all of the liabilities of Bar Harbor
Banking and Trust Company are monetary in nature. As a result,
interest rates have a more significant impact on Bar Harbor
Banking and Trust Company s performance than the general level
of inflation. Over short periods of time, interest rates may not
necessarily move in the same direction or in the same magnitude
as inflation.
MARKET FOR COMMON STOCK
Bar Harbor Bankshares is not listed on any national exchange.
High and low bids for each quarter of 1995 and 1994 are listed
below (per quotes from Paine, Webber, Inc.). These prices have
been restated to reflect the five-for-one stock split declared
in July of 1995.
<TABLE>
<CAPTION>
<S> <C> <C>
QUARTER 1995 1994
1st 17.00 to 16.40 15.20 to 15.20
2nd 20.00 to 17.00 16.00 to 15.20
3rd 25.50 to 20.00 16.00 to 16.00
4th 28.00 to 25.50 16.40 to 16.00
</TABLE>
As of January 1, 1996, there were 974 holders of record of Bar
Harbor Bankshares common stock.
Semiannual dividends paid by the Company in 1995 and 1994 are
set forth below:
[CAPTION]
<TABLE>
<S> <C> <C>
1995 1994
June $0.36 $0.30
December $0.50 $0.44
</TABLE>
PAGE
<PAGE>
Independent Auditors Report
The Board of Directors and Stockholders
Bar Harbor Bankshares
We have audited the accompanying consolidated statements of
financial condition of Bar Harbor Bankshares and Subsidiary as
of December 31, 1995 and 1994, and the related consolidated
statements of earnings, changes in stockholders equity, and
cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the
responsibility of the Company s management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Bar Harbor Bankshares and Subsidiary as of
December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Notes 1 and 2 to the financial statements, the
Company changed its method of accounting for investments during
the year ended December 31, 1994. As discussed in Notes 9 and 12
to the financial statements, the Company changed its methods of
accounting for income taxes and post-retirement benefits other
than pensions during the year ended December 31, 1993.
/s/ Berry, Dunn, McNeil & Parker
Portland, Maine
January 17, 1996
PAGE
<PAGE>
Bar Harbor Bankshares and Subsidiary
<TABLE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1995 AND 1994
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Cash and Due from Banks $ 8,759,797 $ 9,714,713
Federal Funds Sold 3,800,000 0
Investment Securities
Securities Available for Sale,
at Market 19,885,555 6,238,887
Securtities held to Maturity
(Market value $83,180,706 in
1995 and $81,560,278 in 1994) 82,209,062 85,080,071
Total Investment Securities 102,094,617 91,318,958
Loans Held for Sale 68,326 255,958
Loans 201,765,717 185,993,806
Allowance for Possible Loan Losses (4,047,883)
(3,891,835)
Net Loans 197,717,834 182,101,971
Premises and Equipment 6,219,569 5,566,224
Other Assets 7,948,556 7,729,626
Total Assets $326,608,699 $296,687,450
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES
Deposits
Demand Deposits $ 32,394,610 $ 30,124,536
NOW Accounts 38,300,119 37,951,497
Savings Deposits 53,660,526 61,981,439
Time, $100,000 and Over 14,005,187 7,977,495
Other Time 113,110,959 87,509,593
Total Deposits 251,471,401 225,544,560
Securities Sold Under
Repurchase Agreements 5,791,193 13,947,903
Advances from Federal Home Loan Bank 32,700,000 25,000,000
Other Liabilities 3,403,281 3,434,203
Total Liabilities 293,365,875 267,926,666
Commitments and Contingent Liabilities (Note 14)
STOCKHOLDERS EQUITY
Capital Stock, Par Value $2,
Authorized 10,000,000 Shares;
Issued 1,813,605 in 1995 and
1,809,835 in 1994 3,627,210 3,619,670
Surplus 7,368,695 7,314,408
Retained Earnings 23,523,626 19,118,679
Net Unrealized Appreciation on
Securities Available for Sale;
Net of Tax of $32,606 in 1995
and $24,742 in 1994 63,293 48,027<PAGE>
Less: Cost of 100,000 Shares
of Treasury Stock (1,340,000)
(1,340,000)
Total Stockholders Equity 33,242,824 28,760,784
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $326,608,699 $296,687,450
<FN>
<F1> The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
PAGE
<PAGE>
Bar Harbor Bankshares and Subsidiary
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
<S> <C> <C> <C>
Interest and Dividend Income
Interest and Fees on Loans $19,298,629 $16,006,536 $14,549,586
Interest on Money Market Funds and Fed Funds Sold 124,242 48,457 19,987
U.S. Treasury Securities 158,824 306,668 443,204
Obligations of Other U.S. Government Agencies 4,112,431 3,496,230 3,255,224
Obligations of States and Political Subdivisions 852,051 828,998 861,642
Other Bonds 1,227,894 721,364 498,523
Equity Securities 377,916 387,337 227,223
Total Interest and Dividends 26,151,987 21,795,590 19,855,389
Interest Expense
Deposits 8,428,119 6,067,731 5,644,149
Short-term Borrowings 2,175,597 1,608,404 863,368
Long-term Borrowings 20,677 0 268,134
Total Interest Expense 10,624,393 7,676,135 6,775,651
Net Interest Income 15,527,594 14,119,455 13,079,738
Provision for Loan Losses 960,000 960,000 1,080,000
Net Interest Income After Provision for Loan Losses 14,567,594 13,159,455 11,999,738
Other Operating Income
Trust Department Income 1,931,500 1,675,043 1,598,591
Service Charges on Deposit Accounts 788,778 776,468 723,947
Other Service Charges, Commissions and Fees 1,628,729 1,640,019 1,754,269
Other Operating Income 49,301 286,529 76,048
Net Securities Losses 0 (365,769) 0
4,398,308 4,012,290 4,152,855
Other Operating Expenses
Salaries and Employee Benefits 5,333,183 5,360,227 4,964,247
Occupancy Expense 621,627 585,068 517,486
Furniture and Equipment Expense 737,057 709,619 673,391
Other Operating Expense 3,779,408 3,506,680 4,801,777
10,471,275 10,161,594 10,956,901
Earnings Before Income Taxes and Cumulative Effect of
Change in Accounting 8,494,627 7,010,151 5,195,692
Income Taxes 2,615,980 2,096,000 1,631,800
Earnings Before Cum. Effect of Change in Accounting 5,878,647 4,914,151 3,563,892
Cumulative Effect of Change in Accounting for Postretirement
Benefits, Net of Income Tax Benefit 0 0 (1,058,200)
Net Earnings $ 5,878,647 $ 4,914,151 $ 2,505,692
Per Common Share Data,
Restated for Five-for-One Stock Split in 1995
<S> <C> <C> <C>
Earnings Before Cumulative Effect of Change in Accounting $3.43 $2.87 $2.09<PAGE>
Cumulative Effect of Change in Accounting for Postretirement
Benefits, Net of Income Tax Benefit $0.00 $0.00 ($0.62)
Net Earnings $3.43 $2.87 $1.47
Cash Dividends Declared $0.86 $0.74 $0.62
<S> <C> <C> <C>
Weighted Average Number of Common Shares Outstanding 1,713,449 1,709,695 1,707,175
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE
<PAGE>
Bar Harbor Bankshares and Subsidiary
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Years Ended December 31, 1995, 1994 and 1993
<S> <C> <C> <C> <C> <C> <C>
Net
Unrealized
Appreciation
On Securities Net
Capital Retained Treasury Available Stockholders
Stock Surplus Earnings Stock for Sale Equity
Balance, December 31, 1992 $3,611,640 $7,264,020 $14,022,621 $(1,340,000) $0 $23,558,281
Net Earnings 1993 2,505,692 2,505,692
Cash Dividends Declared (1,058,507) (1,058,507)
Increase in Net Unrealized Loss on
Marketable Equity Securities (37,566) (37,566)
Sale of Stock
(1,450 shares) 2,900 16,530 19,430
Balance, December, 31, 1993 $3,614,540 $7,280,550 $15,469,806 $(1,340,000) $ (37,566) $24,987,330
Net Earnings 1994 4,914,151 4,914,151
Cumulative Effect to Record
Appreciation on Securities
Available for Sale 0 0
Cash Dividends Declared (1,265,278) (1,265,278)
Net Unrealized Appreciation on
Securities Available for Sale,
Net of Tax of $24,742 85,593 85,593
Sale of Stock (2,565 shares) 5,130 33,858 38,988
Balance December 31, 1994 $3,619,670 $7,314,408 $19,118,679 $(1,340,000) $ 48,027 $28,760,784
Net Earnings 1995 5,878,647 5,878,647
Cash Dividends Declared (1,473,700) (1,473,700)
Net Unrealized Appreciate on
Securities Available for Sale,
Net of Tax of $7,864 15,266 15,266
Sale of Stock (3,770 shares) 7,540 54,287 0 0 0 61,827
Balance December 31, 1995 $3,627,210 $7,368,695 $23,523,626 $(1,340,000) $ 63,293 $33,242,824
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE
<PAGE>
Bar Harbor Bankshares and Subsidiary
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
<S> <C> <C> <C>
1995 1994 1993
Cash Flows from Operating Activities:
Net Income $ 5,878,647 $ 4,914,151 $ 2,505,692
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation 588,147 543,366 538,420
Revaluation of Intangible Asset 0 0 1,182,762
Provision for Loan Losses 960,000 960,000 1,080,000
Provision for Losses on Other Real Estate Owned 19,056 1,800 42,765
New Loans Originated for Sale (7,827,560) (12,700,930) (33,859,407)
Proceeds from Sale of Mortgages Held for Sale 8,038,770 12,744,005 33,970,810
Gain on Sale of Mortgages Originated for Sale (23,578) (43,075) (111,403)
Net Securities Losses 0 365,769 0
Net Amortization of Bond Premium 196,043 406,605 425,064
(Gain) Loss on Sale of Premises and Equipment 86,530 (229,508) 2,687
Cumulative Effect of Change in Accounting for Postretirement
Benefits other than Pensions, Net of Tax Benefit 0 0 1,058,200
Net Change in Other Assets (70,199) 462,664 (595,930)
Net Change in Other Liabilities (25,575) 1,010,626 (101,956)
Net Cash Provided by Operating Activities 7,820,281 8,435,473 6,137,704
Cash Flows from Investing Activities:
Purchases of Securities Held to Maturity (27,026,440) (31,384,542) (16,917,951)
Proceeds from Maturity and Principal Paydowns of
Securities held to Maturity 10,319,569 13,602,117 21,549,649
Proceeds from Call of Securities Held to Maturity 13,750,000 4,320,599 500,000
Purchases of Securities Available for Sale (8,053,880) (3,509,100) (3,889,300)
Proceeds from Maturity and Principal Paydowns of
Securities Available for Sale 62,180 72,337 0
Proceeds from Sale of Securities Available for Sale 0 3,596,827 969,980
Purchase of Life Insurance Policy 0 (1,875,000) 0
Purchase of Interest Rate Floor (72,000) 0
Net Loans Made to Customers (16,756,863) (22,702,049) (17,831,461)
Capital Expenditures (1,345,140) (479,871) (457,258)
Proceeds from Sale of Fixed Assets 17,118 245,289 3,417
Net Cash used in Investing Activities (29,033,456) (38,185,393) (16,072,924)
Cash Flows from Financing Activities:
Net Change in Savings, NOW and Demand Deposits (5,702,217) (1,497,239) 5,180,496
Net Changes in Time Deposits 31,629,058 23,518,682 2,619,226
Net Change in Repurchase Agreements (8,156,710) 9,535,109 (556,558)
Proceeds from Federal Home Loan Bank 27,400,000 24,000,000 4,000,000
Repayment of Advances from Federal Home Loan Bank (24,000,000) (32,000,000) (7,000,000)
Net Changes in Short Term Other Borrowed Funds 4,300,000 11,000,000 3,000,000
Proceeds from sale of Capital Stock 61,828 38,988 19,430
Payments of Dividends (1,473,700) (1,265,278) (1,058,507)
Net Cash Provided by Financing Activities 24,058,259 33,330,262 6,204,087<PAGE>
Net Increase (Decrease) in Cash and Cash Equivalents 2,845,084 3,580,342 (3,731,133)
Cash and Cash Equivalents at Beginning of Year 9,714,713 6,134,371 9,865,504
Cash and Cash Equivalents at End of Year $12,559,797 $ 9,714,713 $ 6,134,371
Supplemental Disclosures of Cash Flow Information:
Cash Paid During Year for:
Interest $10,529,084 $ 8,283,462 $ 7,248,565
Income Taxes, Net of Refunds $ 2,596,679 $ 1,908,954 $ 2,346,431
Non-Cash Transactions:
Transfer from Loans to Real Estate Owned (other Assets) $ 187,832 $ 434,381 $ 664,716
Transfer of Securities from Held to Maturity to
Available for Sale $5,578,826 N/a N/a
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE
<PAGE>
Bar Harbor Bankshares and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
Business
Bar Harbor Banking and Trust Company provides a full range of
banking services to individual and corporate customers
throughout north coastal Maine. These banking services are
available in each of its ten branch locations. The Bank is
subject to the regulations of certain federal agencies and
undergoes periodic examination by those regulatory authorities.
Basis of Financial Statement Presentation
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
as of the date of the balance sheet and revenues and expenses
for the period. Actual results could differ significantly from
those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for loss losses and the valuation
of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of
the allowances for loan losses and real estate owned, management
obtains independent appraisals for significant properties. A
substantial portion of the Bank s loans are secured by real
estate in north coastal Maine. In addition, all of the real
estate acquired through foreclosure is located in those same
markets. Accordingly, the ultimate collectibility of a
substantial portion of the Bank s loan portfolio and the
recovery of the carrying amount on real estate acquired through
foreclosure are susceptible to changes in market conditions in
north coastal Maine.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Bar Harbor Bankshares and its wholly-owned
subsidiary, Bar Harbor Banking and Trust Company. Bar Harbor
Baking and Trust Company has a wholly-owned subsidiary. Mt.
Desert Block Company, which leases premises to the Bank. All
significant intercompany balances and transactions have been
eliminated in the accompanying consolidated financial
statements.
Investment Securities
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 115. The Company s
investment in securities are classified in two categories and
accounted for as follows:
Securities Available for Sale: Securities available for sale
PAGE
<PAGE>
consist of certain securities to be held for indefinite periods
of time which are reported at fair value with unrealized gains
and losses reported as a separate component of stockholders
equity, net of tax effect. Gains and losses on the sale of
securities available for sale are determined using the specific-
identification method and are shown separately in the statement
of earnings.
Securities to be Held to Maturity: Debt securities for which the
Bank has the positive intent and ability to hold to maturity are
reported at cost, adjusted for amortization of premiums and
accretion of discounts which are recognized in interest income
using the interest method over the period of maturity.
It is management s policy to acquire securities for long-term
investment purposes, rather than to acquire such securities for
purposes of trading. For this reason, the Bank has not
classified any of its securities as trading.
INSERT
COMMITMENT
A sure sign of commitment to a relationship is the willingness
to go the extra mile. Mikey Bannister, Ellsworth Manager, is a
case in point. A customer gave her name to a man who wanted to
build a summer house in the area. Mikey visited him where he was
staying to discuss construction financing and fill out a
mortgage application. The customer expressed amazement that she
would make a house call to do business with him--particularly
since she was on vacation at the time! Not a bad way to begin a
relationship.
END OF INSERT
PAGE
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision
for loan losses charged to operations. Loan losses are charged
against the allowance when management believes that the
collectibility of the loan principal is unlikely. Recoveries on
loans previously charged off are credited to the allowance.
The allowance is an amount that management believes will be
adequate to absorb possible loan losses based on evaluation of
their collectibility and prior loss experience. The evaluation
takes into consideration such factors as changes in the nature
and volume of the portfolio, overall portfolio quality, specific
problem loans, and current anticipated economic conditions that
may affect the borrower s ability to pay.
Management believes that the allowance for loan losses is
adequate. While management uses available information to
recognize losses on loans, changing economic conditions and the
economic prospects of the borrowers may necessitate future
additions to the allowance. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Bank s allowance for loan losses. Such
agencies may require the Bank to recognize additions to the
allowance based on their judgements about information available
to them at the time of their examination.
Effective January 1, 1995, the Bank adopted FASB Statement 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 generally those which are included in non-
accrual loans, although not all non-accrual loans are impaired.
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 collectible. 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.
PREMISES AND EQUIPMENT
Premises and equipment and related improvements are stated at
cost less accumulated depreciation. Depreciation is computed by
the straight-line and accelerated methods over the estimated
useful lives of the related assets. Repairs and maintenance
charges are expensed as incurred.
LOANS HELD FOR SALE
Loans held for sale are individual consumer residential loans
which qualify for sale in the secondary market to Freddie Mac.
These loans are closed and immediately sold without recourse to
Freddie Mac, with the Bank retaining loan servicing on said
loans. The Bank does not pool mortgages for sale. Because loans
are sold immediately, the cost is considered to approximate
market value. PAGE
<PAGE>
The Bank plans to implement FASB Statement No. 122, Accounting
for Mortgage Servicing Rights effective January 1, 1996 and
estimates that adoption of the standard will not have a material
negative impact on the Bank s net income or retained earnings.
INSERT
CARING
A Perry woman visited our Lubec office looking for a mortgage to
buy a mobile home. She had been turned down by several other
banks who were not interested in her explanation of a poor
credit rating. Betty Case, Lubec Branch Manager, took the time
to listen. A horror story of bureaucratic mistakes and
misapplied payments unfolded. We provided the mortgage, the
woman bought her mobile home, and thanked us for caring with a
large bouquet of flowers. Today, she has three accounts with us
and has referred other customers from her area to us.
END OF INSERT
PAGE
<PAGE>
OTHER REAL ESTATE (ORE)
Real estate acquired in satisfaction of a loan is reported in
other assets. Properties acquired by foreclosure or deed in lieu
of foreclosure are transferred to ORE and recorded at the lower
of cost or fair market value less estimated costs to sell based
on appraised value at the date actually or constructively
received. Loan losses arising from the acquisition of such
property are charged against the allowance for loan losses. ORE
is stated at the lower of cost or market. An allowance for
losses on ORE is maintained for subsequent valuation adjustments
on a specific property basis.
INTANGIBLE ASSETS
The reassessment of the carrying amount of goodwill, incurred
with the acquisition of two branches from Key Bank in May of
1990, resulted in the Bank s decision to fully amortize the
goodwill premium in 1993. The Bank has been monitoring the value
of the premium paid and the original anticipated 15-year life of
the goodwill since acquisition. The Bank determined, based on
the branches performance since acquisition, that the goodwill
associated with the acquisition had no future value.
Previously goodwill and the core deposit intangible were
amortized over a 15-year life. This change had the effect of
increasing other operating expense by $1,183,000 and reducing
net income by approximately $964,000 ($0.56 per share) in 1993.
INSERT
RESPECT.
Dan Rodgers is a high school senior from Corea with his heart
set on being a fisherman. He s pulled traps from a skiff since
the age of 10 and is now the proud owner of a new Jason 25
lobster boat which Bar Harbor Banking and Trust Company helped
him finance. Although only 18, we respected Dan s experience,
his ability to turn a dollar, and his fierce determination to
pursue his chosen career. We ll nurture this new relationship,
and hope to earn Dan s respect in return.
END OF INSERT
INCOME TAXES
Income taxes are provided on a consolidated basis in accordance
with the comprehensive income tax allocation method, which
recognizes the tax effects of all income and expense
transactions in each year s consolidated statements of earnings
regardless of the year the transactions are reported for tax
purposes.
ACCRUAL OF INTEREST INCOME AND EXPENSE
Interest on loans and investment securities is accrued and
credited to income based on the principal amount of loans and
investment securities outstanding. Interest expense on
liabilities is derived by applying applicable interest rates to
principal amounts outstanding. The recording of interest income
on problem loan accounts is discontinued when collectibility
PAGE
<PAGE>
within a reasonable period of time becomes doubtful. Interest
income on impaired loans is reported on a cash basis when
received.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank uses off-balance sheet financial instrument as part of
it s asset/liability management activities. The Bank does not
intend to sell any of these instruments.
Interest rate exchange agreements (swaps) are accounted for
using the accrual method. Net interest income (expense)
resulting from the differential between exchanging floating and
fixed-rate interest payments is recorded on a current basis.
Interest rate floors are contracts in which a floor is
established at a specified rate and period of time. The premium
paid for the contract is amortized over its life. Any cash
payments received are recorded as an adjustment to net interest
income.
LOAN FEES AND COSTS
Loan origination fees and certain direct loan origination costs
are deferred and recognized in interest income as an adjustment
to the loan yield over the life of the related loans. The Bank
amortizes these amounts using a method that approximates the
effective yield. The unamortized net deferred fees and costs are
included on the balance sheet with the related loan balances.
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Bank considers
cash on hand, amounts due from banks, and federal funds
purchased and sold for one-day periods as cash and cash
equivalents.
EARNINGS PER SHARE
Earnings per share is calculated by dividing net income by the
number of weighted average shares outstanding for the year.
There are no common stock equivalents.
PAGE
<PAGE>
FAIR VALUE DISCLOSURES
The following methods and assumptions were used by the bank is
estimating its fair market value disclosures for financial
instruments:
Cash and Cash Equivalents: The carrying amounts reported in the
balance sheet for cash and cash equivalents approximate their
fair values.
Investment Securities (including mortgage-backed securities):
Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.
Loans Receivable: Fair values are estimated for portfolios of
loans with similar financial characteristics. Loans are
segregated by type such as commercial, commercial real estate,
residential mortgage, credit card, and other consumer. Each loan
category is also segmented into fixed and variable rate interest
terms and by performing and non-performing categories.
Fair value of all performing loans is calculated by discounting
scheduled cash flows through the estimated maturity using
estimated discount market rates. These rates are based on
independent market indices adjusted for administrative costs and
credit risk. Estimated maturity is based on the weighted average
of the portfolio. Real estate and installment maturities are
adjusted for estimates of prepayment rates, with high interest,
longer term loans prepaying at a more rapid rate.
Fair value for non-performing loans is determined on an
individual basis, taking into account management s plans
regarding potential time to resolution and subsequent sale of
collateral and the borrower s plan for the continuance of
principal and interest payments along with the potential of the
borrower to rebuild equity in the loan collateral.
Off-Balance Sheet Instruments: The Bank s off-balance sheet
instruments include interest rate swaps, floors and loan
commitments. Fair values for interest rate swaps and floors are
based on quoted market prices. Fair values for loan commitments
have not been presented as the future revenue derived from such
financial instruments is not significant.
Deposits: The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on
demand. The fair value of fixed maturity certificates of deposit
is estimated using the rates currently offered in the Bank s
market for deposits of similar remaining maturities.
Borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short term
borrowings are estimated using discounted cash flow and analyses
based on the Bank s current incremental borrowing rates for
similar types of borrowing arrangements.
The fair values of the Bank s long-term borrowings (other than
deposits) are estimated using discounted cash flow analyses,
based on quoted market prices.
Accrued interest: The carrying amounts of accrued interest
approximate their fair values.
PAGE
<PAGE>
INSERT
INTEGRITY.
Jenene Schneider, Branch Manager of our Milbridge Office, was
processing a mortgage for four of her customers. One couple was
selling, one way buying. The sellers were going to use a portion
of the proceeds to renovate a new house, but didn t need it
immediately. Rather than simply hand them a check, Jenene
suggested they invest in a short term CD and earn interest until
they needed the money. Result: a relationship strengthened by
one banker s integrity.
END OF INSERT
PAGE
<PAGE>
2. INVESTMENT SECURITIES
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS)115, which requires that available
for sale securities be recorded at fair value. At January 1,
1994 there was no cumulative effect from the change in
accounting principle because certain securities had been
recorded at lower of cost or market as of December 31, 1993.
Unrealized appreciation of available for sale investments in
1994 and 1995 resulted in adjustments of $85,593 and $15,266
respectively, net of income taxes, to stockholders equity. On
December 31, 1995, the Bank made a one-time transfer of
securities at market value totaling $5,578,826 in accordance
with the Financial Accounting Standards Board implementation
guidance issued in November of 1995. These securities are
government sponsored mortgage backed securities which have put
options. In order for the Bank to exercise its right to put
these securities, they were transferred to the available for
sale portion of the investment portfolio. This transfer resulted
in an unrealized loss of $52,530.
The amortized cost of investment securities and their
approximate market values at December 31, 1995 and 1994 follows:
1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
HELD TO MATURITY:
U.S. Treasury Obligations $ 1,000,470 $ 20,155 $ 0 $ 1,020,625
Obligations of other U.S.
Gov t Agencies 13,278,651 124,108 0 13,402,759
Mortgage Backed Securities--
U.S. Gov t Agencies 42,764,250 501,793 253,174 43,012,869
Mortgage Backed Securities--
Other 8,210,646 43,805 60,941 8,193,510
Obligations of States of the
U.S. and Political Subdivisions
Thereof 13,240,946 535,379 4,850 13,771,475
Other Bonds 3,714,099 65,369 0 3,779,468
TOTAL SECURITIES HELD FOR
INVESTMENT $82,209,062 $1,290,609 $318,965 $83,180,706
AVAILABLE FOR SALE:
Obligations of other U. S. Gov t
Agencies $ 7,996,732 $ 36,030 $ 2,840 $ 8,029,922
Mortgage Backed Securities--U.S.
Gov t Agencies 5,631,356 0 52,530 5,578,826
Other Bonds 500,000 0 0 500,000
Marketable Equity Securities 5,421,086 25,215 0 5,446,301
Other Investments 240,483 90,023 0 330,506
TOTAL SECURITIES AVAILABLE FOR SALE $19,789,657 $ 151,268 $ 55,370 $19,885,555<PAGE>
1994
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
HELD TO MATURITY:
U.S. Treasury Obligations $ 3,007,997 $ 17,628 $ 0 $ 3,025,625
Obligations of other U.S.
Gov t Agencies 13,322,895 6,614 397,106 12,932,403
Mortgage Backed Securities--
U.S. Gov t Agencies 46,739,125 24,227 2,941,186 43,822,166
Mortgage Backed Securities--
Other 4,086,750 0 336,101 3,750,649
Obligations of States of the
U.S. and Political Subdivisions
Thereof 14,401,790 307,361 96,191 14,612,960
Other Bonds 3,521,514 240 105,279 3,416,475
TOTAL SECURITIES HELD FOR
INVESTMENT $85,080,071 $ 356,070 $3,875,863 $81,560,278
AVAILABLE FOR SALE:
Marketable Equity Securities $ 5,921,086 $ 25,215 $ 12,500 $ 5,933,801
Other Investments 245,032 60,054 0 305,086
Total Securities Available For Sale $ 6,166,118 $ 85,269 $ 12,500 $ 6,238,887
</TABLE>
At December 31, 1995, the amortized cost and estimated market value of
securities held to maturity and those securities available for sale with a
contractual maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
SECURITIES HELD TO MATURITY
<TABLE>
<CAPTION>
<S> <C> <C>
Estimated
Amortized Cost Market Value
Due in one year or less $ 3,950,188 $ 4,004,323
Due after one year through five years 20,358,853 20,921,108
Due after five years through ten years 4,981,125 5,104,896
Due after ten years 1,944,000 1,944,000
31,234,166 31,974,327
Mortgage Backed Securities 50,974,896 51,206,379
$82,209,062 $83,180,706
</TABLE>
PAGE
<PAGE>
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
<S> <C> <C>
Estimated
Amortized Cost Market Value
Due in one year or less $ 500,000 $ 500,000
Due after one year through five years 0 0
Due after five years through ten years 7,996,732 8,029,922
Due after ten years 0 0
$ 8,496,732 $ 8,529,922
Mortgage-Backed Securities 5,631,356 5,578,826
$ 14,128,088 $ 14,108,748
</TABLE>
Proceeds from the sale and maturities of investments, gross realized gains
and gross realized losses were as follows:
Sale of Called Securities Held to Maturity
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Proceeds Gains Losses
1995 $13,750,000 --- ---
1994 $ 4,313,099 $ 7,500 ---
1993 $ 937,500 --- ---
<CAPTION>
Sale of Securities Available for Sale
<S> <C> <C> <C>
Proceeds Gains Losses
1995 --- --- ---
1994 $ 3,596,827 --- $ 388,450
</TABLE>
U.S. Government securities having a carrying value of approximately
$14,200,000 at December 31, 1995 and $22,000,000 at December 31, 1994 are
pledged to secure certain deposits and for other purposes as required by
law. Market values for these securities at December 31, 1995 and 1994 were
$14,300,000 and $21,000,000 respectively.
INSERT
FLEXIBILITY.
Flexibility is a key ingredient in being a good customer service
representative. Becky Beatrice of our Deer Isle office has been one of our
best for 22 years. One day a long time customer with whom she d built a
relationship called. The customer was convinced that someone had stolen her
pocketbook, and she asked Becky to alert the Sheriff s Department for her.
After a thorough investigation, the stolen pocketbook was discovered
hanging under the customer s overcoat behind her front door. Another mystery
solved, another grateful customer.
END OF INSERT
PAGE
<PAGE>
3. LOANS
The following table shows the composition of the Bank s loan portfolio as of
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Commercial Loans:
Real Estate -- Variable Rate $ 51,418,512 $ 51,062,865
Real Estate -- Fixed Rate 6,799,363 5,858,869
Other -- Variable 31,189,164 30,210,005
Other 13,292,822 13,165,210
102,699,861 100,296,949
Tax Exempt:
Variable Rate 848,796 991,986
Fixed Rate 2,568,115 3,151,945
3,416,911 4,143,931
Consumer:
Real Estate -- Variable Rate 38,210,273 32,331,791
Real Estate -- Fixed Rate 27,569,246 21,498,405
Home Equity 13,003,486 12,902,114
Installment 11,080,331 10,262,016
Other 5,501,279 4,829,866
95,364,615 81,824,192
Real Estate Under Foreclosure 793,887 148,838
Deferred Origination Fees, Net (509,557) (420,104)
$201,765,717 $185,993,806
</TABLE>
At December 31, 1995 and 1994 loans on non-accrual status totaled $3,360,000
and $3,139,000, respectively. Interest income not recognized on non-accruing
loans was $416,342, $367,553 and $391,452 in 1995, 1994 and 1993,
respectively. In addition to loans on non-accrual status at December 31,
1995 and 1994, the Bank had loans past due greater than 90 days totaling
$849,127, and $891,986, respectively. The Bank continues to accrue interest
on these loans because it believes collection of the interest due is
reasonably assured.
PAGE
<PAGE>
The Bank makes single-family and multi-family residential loans, commercial
real estate loans, commercial loans, and a variety of consumer loans. The
Bank s lending activities are conducted in north coastal Maine. Because of
the Bank s proximity to Acadia National Park, a large part of the economic
activity in the area is generated from the hospitality business associated
with tourism. At December 31, 1995, approximately $25,500,000 of loans were
made to companies in the hospitality industry. Loans to real estate
investors and developers totaled $14,100,000 in 1995. The other
concentrations by type of borrower essentially remained constant. The loan
portfolio at December 31, 1995 and 1994 consisted of 62% and 64%
respectively, of variable rate loans.
From the standpoint of large loans to single borrowers, loans of $700,000 or
more to one borrower decreased as a percentage of capital from 95% in 1994
to 90% in 1995. As most loans granted by the Bank are collateralized by real
estate, the ability of the Bank s borrowers to repay is dependent on the
level of economic activity and the level of real estate values in the Bank s
market areas.
ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for each of the three years ended
December 31 were as follows:
<TABLE>
<CAPTION>
<S><C <C> <C> <C>
1995 1994 1993
Balance, Beginning of Year $3,891,835 $3,369,387 $3,205,868
Provision for Loan Losses 960,000 960,000 1,080,000
Balance Before Loan Losses 4,851,835 4,329,387 4,285,868
Loans Charged Off 900,845 578,776 1,181,380
Less Recoveries on Loans
Previously Charged Off 96,893 141,224 264,899
Net Loans Charged Off 803,952 487,552 916,481
Balance, End of Year $4,047,883 $3,891,835 $3,369,387
</TABLE>
Information regarding impaired loans is as follows for December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
1995
Average investments in impaired loans $1,629,596
Interest Income recognized on impaired loans including
interest income recognized on cash basis $ 76,260
Interest income recognized on impaired loans on
cash basis $ 76,260
Balance of impaired loans $1,664,678
Less portion for which no allowance for
loan losses is allowed $ 0
Portion of impaired loan balance for which an
allowance for credit losses is allocated $1,664,678
Portion of allowance for loan losses allocated to
the impaired loan balance $ 156,576
</TABLE>
PAGE
<PAGE>
5. LOANS TO RELATED PARTIES
In the ordinary course of business, the Bank has granted loans to certain
officers and directors and the companies with which they are associated. All
such loans and commitments to lend were made under terms that are consistent
with the Bank s normal lending policies.
Loans to related parties at December 31, 1995 and 1994 which in aggregate
exceed $60,000 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Beginning Balance $ 3,409,868 $ 3,482,587
New Loans 349,935 862,194
Less: Repayments 480,324 934,913
ENDING BALANCE $ 3,279,479 $ 3,409,868
</TABLE>
INSERT
HELPING.
How easy would it have been for Dick Burgess to say, I m sorry, you ll have
to wait till Monday? Here s what happened. One of Dick s commercial
customers in the Machias area was trying to make a purchase by check on a
Sunday, and the store owner was hesitant to accept the check. The customer
called Dick at home; Dick spoke with the store owner and assured him that
the check would be fine Not a big deal? It was to Dick s customer.
END OF INSERT
6. PREMISES AND EQUIPMENT
The detail of bank premises and equipment is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Land $ 519,136 $ 519,136
Buildings and Improvements 6,655,925 6,097,184
Furniture and Equipment 2,365,744 2,060,176
9,540,805 8,676,496
Less:
Accumulated Depreciation 3,321,236 3,110,272
$ 6,219,569 $ 5,566,224
</TABLE>
7. OTHER REAL ESTATE
The following table summarizes the composition of other real estate
owned, which is included in the other assets:
PAGE
<PAGE>
<TABLE>
<CAPTION>
December 31,
<S> <C> <C>
1995 1994
Real Estate Properties and
Other Assets
Acquired in Settlement of Loans $ 469,652 $ 641,540
Less: Allowance for Losses 26,000 30,486
$ 443,652 $ 611,054
</TABLE>
Changes in the allowance for other real estate for each of the three
years ended December 31 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
Balance, beginning of year $ 30,486 $ 53,286 $ 127,894
Provision charged to income 19,056 1,800 42,765
Losses charged to provision 23,542 24,600 117,373
BALANCE END OF YEAR $ 26,000 $ 30,486 $ 53,286
</TABLE>
8. BORROWINGS FROM THE FEDERAL HOME LOAN BANK (FHLB)
A summary of borrowings from the FHLB is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Total Range of
Principal Interest Rates Maturity
December 31, 1995
$26,700,000 5.70% to 5.92% 1996
6,000,000 5.59% to 5.78% 1997
$32,700,000
December 31, 1994
$25,000,000 4.77% to 6.01% 1995
</TABLE>
In addition to the above outstanding borrowings, other FHLB funds available
to the Bank at December 31, 1995 totaled approximately $40,000,000. Pursuant
to collateral agreements with the FHLB, advances are collateralized by all
stock in the FHLB and qualifying first mortgage loans.
PAGE
<PAGE>
9. INCOME TAXES
The current and deferred components of income tax expense were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
Current
Federal $ 2,474,000 $ 2,327,200 $ 1,846,200
State 85,400 74,000 63,300
2,559,400 2,401,200 1,909,500
Deferred 56,580 (305,200) (277,700)
$ 2,615,980 $ 2,096,000 $ 1,631,800
</TABLE>
The actual tax expense differs from the expected tax expense computed by
applying the applicable U.S. Federal corporate income tax rate to earnings
before income taxes as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
Computed Tax Expense $ 2,888,200 $ 2,383,500 $ 1,766,500
Increase (Reduction) in Income
Taxes resulting from:
Tax-Exempt Interest (329,300) (330,900) (354,000)
Revaluation of Good Will 0 0 195,300
State Taxes, Net of Federal
Benefit 56,400 48,800 42,000
Other 680 (5,400) (18,000)
$ 2,615,980 $ 2,096,000 $ 1,631,800
</TABLE>
PAGE
<PAGE>
In 1993, the Company adopted SFAS 109, Accounting for Income Taxes . The
cumulative effect of the new accounting principle was not material. The tax
effect of temporary differences that give rise to the deferred income tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1995 1994
Asset Liability Asset Liability
Allowance for possible losses on loans
And other real estate owned $1,237,700 $1,218,400
Deferred loan origination fees 102,700 142,800
Deferred compensation 256,400 241,300
Core deposit intangible asset 105,800 126,700
Postretirement benefit obligation 636,000 632,800
Unrealized appreciation on securities
Available for sale $ 32,600 $ 24,700
Depreciation 106,300 101,700
Other 87,300 58,800 72,400
$2,425,900 $197,700 $2,434,400 $ 126,400
</TABLE>
As of December 31, 1995 and 1994, the deferred income tax asset amounted to
$2,228,200 and $2,308,000, respectively, and is included in other assets on
the balance sheet. The federal tax expense from the unrealized appreciation
on securities available for sale resulted in an increase of $24,700 and
$32,600 to the deferred tax liability in 1994 and 1995 respectively. The
federal tax benefit from the cumulative effect of the change in accounting
for post-retirement benefits other than pensions resulted in an increase of
$553,500 to the deferred tax asset in 1993. No valuation allowance for
deferred tax assets was required at December 31, 1995.
10. STOCKHOLDERS EQUITY
On July 11, 1995, The Board of Directors declared a five-for-one stock split
to all shareholders of record as of that date and which took effect on
August 7, 1995. All share and per share data included in this annual report
have been restated to reflect the stock split.
Bar Harbor Bankshares subsidiary, Bar Harbor Banking and Trust Company, has
the ability to pay dividends to the parent subject to the minimum regulatory
capital requirements. At December 31, 1995 the amount available for
dividends was approximately $19,000,000.
The Bank is required to maintain minimum amounts of capital to total risk-
weighted assets, as defined by banking regulators. At December 31, 1995,
the Bank is required to have minimum Tier I and Total Capital ratios of 4%
and 8% respectively.
PAGE
<PAGE>
The following table shows the Bank s risk-based capital ratios at December
31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Risk-Based Capital
Capital Components:
Tier I Capital:
Common Stockholders Equity $ 33,338,723
Tier II Capital:
Allowance for Loan Losses
(limited to 1.25% of Risk-Based Assets) 2,642,312
Total Capital $ 35,981,035
Risk-Based Assets $211,384,925
Capital Ratios:
Tier I Capital 15.77%
Tier II Capital 1.25%
Total Capital 17.02%
</TABLE>
INSERT
INGENUITY.
Retailer, Deborah Lucy, wanted to open a retail shop in Southwest Harbor, Mi
Casa es Su Casa and the McSean Candy Store, for the 1995 summer season. She
needed financing, and time was of the essence. We explored the lending
options and after considerable head-scratching recommended a low cost,
reduced paperwork loan under the Small Business Administration LowDoc
program. A new relationship was begun, thanks to the can-do attitude and
ingenuity of our Southwest Harbor Branch Manager, Jack Gibbons.
END OF INSERT
11. EMPLOYEE BENEFIT PLANS
Effective August 31, 1993, the Board of Directors ratified the termination
of the Company s noncontributory defined benefit pension plan, which covered
all eligible employees. At December 31, 1993, the plan s projected benefit
obligation was essentially equivalent to the plan s net assets available for
benefits of approximately $2,140,000 and such assets were invested in U.S.
Government obligations and cash equivalents. The settlement of the vested
benefit obligation by the purchase of nonparticipating annuity contracts
for, or the lump sum payments to, each covered employee was completed in
1994 upon receipt of certain regulatory approvals. The Company recognized no
curtailment gain or loss in 1993 as a result of the plan termination and no
gain or loss was recognized when the plan s benefit obligation was settled
in 1994.
In 1993, the Company established a non-qualified supplemental retirement
plan for certain officers. The agreement provides supplemental retirement
benefits payable in installments over twenty years upon retirement or death.
The Company recognized the costs associated with the agreements over the
service lives of the participating officers. For 1995, 1994 and 1993, the
expense of the supplemental plan was $98,273, $368,898 and $181,416,
respectively.<PAGE>
401(k) PLAN
The Bank has a contributory 401(k) plan available to full-time employees.
Employees may contribute between 1% and 15% of their compensation, to which
the Bank will match 25% of the first 6% contributed. For the years ended
December 31, 1995, 1994 and 1993, the Bank contributed $46,637, 42,590, and
$37,195, respectively. In 1994, the Bank established a non-contributory plan
in place of the Bank s contribution to the former defined benefit plan. The
Board of Directors voted to credit each eligible participant s 401(k)
account with 3% of 1995 and 1994 salary. The total contribution made for the
non-contributory plan was $122,486 and $113,432 for the years ended December
31, 1995 and 1994 respectively.
RESTRICTED STOCK PURCHASE PLAN
In 1995 and 1994, the Bank provided a restricted stock purchase plan through
which each employee may purchase up to 100 shares of Bar Harbor Bankshares
stock at the current fair market price as of a date determined by the Board
of Directors. These shares may be purchased through direct purchase or
through the employee s 401(k) accounts.
At December 31, 1995, employees exercised their right topurchase 4,632
shares at $28.00 per share, with the actual purchase transpiring in January
of 1996.
At December 31, 1995, employees exercised their right to purchase 3,770
shares at $16.40 per share, with the actual purchase transpiring in January
of 1995.
12. POST RETIREMENT BENEFITS
On January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106 Employers Accounting of
Postretirement Benefits Other Than Pensions. This statement requires
accrual of the cost of providing postretirement benefits, including medical
and life insurance coverage during the active service period of the
employee.
The Company elected in 1993 to immediately recognize the accumulated
postretirement benefit obligation of $1,628,000. The account change resulted
in a one-time charge to the earnings of $1,058,200, net of taxes of
$569,800, or $0.62 per share. The adoption of SFAS No. 106 resulted in a
pretax charge to 1993 earnings of $166,200 ($0.10 per share) to reflect the
annual expense for postretirement benefits on an accrual basis.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
Service Costs of Benefits Earned $ 17,326 $ 38,200 $ 38,200
Interest Cost on accumulated Post-
Retirement Benefit Obligation 99,693 128,000 128,000
Amortization (48,198) 0 0
Net Periodic Postretirement
Benefit Cost $68,821 $166,200 $166,200
</TABLE>
It is the Company s policy to fund the cost of postretirement health care
and life insurance plans as claims and premiums are paid.
PAGE
<PAGE>
The accrued postretirement benefit cost recognized in the Company s balance
sheet at December 31, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Retirees $ 595,000 $ 603,000
Fully Eligible Active Plan Participants 511,000 473,000
Other Active Participants 231,000 198,000
Accumulated Postretirement Benefit
Obligations (APBO) 1,337,000 1,274,000
Unamortized gains 531,000 579,000
Accrued Postretirement Benefit Cost $ 1,868,000 $ 1,853,000
</TABLE>
The accumulated postretirement benefit obligation was determined using an
8.0% weighted average discount rate and an assumed compensation increase of
6.0%. The health care cost trend rates were assumed to be 12% in 1995,
gradually declining to 6% after 10 years and remaining at that level
thereafter. An increase in the health care trend of 1% would increase the
APBO by approximately $100,000 and the net period cost by $10,000.
13. OTHER OPERATING EXPENSE
Other operating expense includes the following items greater than 1% of
revenues:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
Merchant Credit Card Expenses $551,835 $ 541,874 $497,306
Financial Services $315,020 $110,241 $105,988
</TABLE>
14. FINANCIAL INSTRUMENTS
The Bank is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to originate or purchase loans and
standby letters of credit, interest rate swap agreements and an interest
rate floor. Involved in these instruments, to varying degrees, are elements
of credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheet. The contract or notional amounts of those
instruments reflect the extent of the involvement the Bank has in particular
classes of financial instruments.
Commitments to originate loans are agreements to lend to a customer provided
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer s creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of<PAGE>
credit, is based on management s credit evaluation of the borrower.
The Bank s exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit, and financial guarantees written is represented
by the contractual notional amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for its balance sheet instruments. For interest rate floors and swap
transactions, the contract or notional amounts do not represent exposure to
credit loss. The Bank controls the credit risk of its interest rate swap
agreements through credit approvals, limits, and monitoring procedures. The
structure of the Bank has entered into is a fixed versus floating interest
rate swap. The Bank receives interest payments at a fixed rate and makes
payments at a variable rate.
The notional or contract amount for financial instruments with off-balance
sheet risk are:
<TABLE>
<CAPTION>
<S><C <C> <C>
1995 1994
Commitments to Originate Loans $ 18,651,233 $ 18,444,115
Unused Lines and Standby Letters of Credit 23,819,468 17,664,988
Unadvanced Portions of Construction Loans 3,633,545 2,932,554
Interest Rate Swaps 10,000,000 15,000,000
Interest Rate Floor 10,000,000 10,000,000
</TABLE>
INSERT
LOYALTY.
Members of the Bucklin family of Northeast Harbor have been customers of
ours for generations. The relationship began with Horace Bucklin s personal
account. Later we became the bank for the family construction business. We
are now working with Hoddy s grandson, Chuck, who owns and runs C. E.
Bucklin & Sons, Inc. Ours is a strong and enduring relationship held
together by time, friendship and loyalty toward each other.
END OF INSERT
The estimated fair values of the Bank s financial instruments were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1995 December 31, 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
FINANCIAL ASSETS:
Cash and Cash equivalents $ 12,559,797 $ 12,559,797 $ 9,714,713 $ 9,714,713
Securities held to maturity 82,209,062 83,180,706 85,080,071 81,560,278
Securities available for sale 19,885,555 19,885,555 6,238,887 6,238,887
Loans receivable 197,717,834 207,840,000 182,101,971 190,024,000
FINANCIAL LIABILITIES:
Deposits 251,471,401 251,962,679 225,544,560 225,635,000
Borrowings 32,700,000 32,720,324 25,000,000 24,878,000
/TABLE> <PAGE
<PAGE>
OFF-BALANCE SHEET INSTRUMENTS:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1995
Notional Contract Maturity Market
Principal Date Date Value
SWAPS $ 5,000,000 May 4, 1993 May 4, 1998 $ (16,392)
5,000,000 May 2, 1994 May 5, 1996 2,504
$10,000,000 $ (13,888)
FLOOR $10,000,000 Sept. 3, 1994 June 3, 1999 $ 124,417
December 31, 1994
SWAPS $ 5,000,000 May 5, 1992 Feb. 5, 1995 ---
5,000,000 May 4, 1993 May 4, 1998 $(414,874)
5,000,000 May 2, 1994 May 5, 1996 (112,884)
$15,000,000 $ (527,758)
FLOOR $10,000,000 Sept.3, 1994 June 3, 1999 $ 8,765
</TABLE>
15. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of Bar Harbor Bankshares as of December
31`, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 are presented below:
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31, 1995 and 1994
<S> <C> <C>
1995 1994
Cash $ 575,255 $ 427,127
Investment in Subsidiary 32,667,569 28,333,657
Total Assets $33,242,824 $28,760,784
Stockholders Equity $33,242,824 $28,760,784
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
Years Ended December 31, 1995, 1994 and 1993
<S> <C> <C> <C>
1995 1994 1993
Dividend Income from Subsidiary $1,560,000 $1,389,000 $1,227,000
Equity in Undistributed Earnings
Of Subsidiary 4,318,647 3,525,151 1,278,692
$5,878,647 $4,914,151 $2,505,692
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994, and 1993
<S> <C> <C> <C>
1995 1994 1993
Cash Flows from Operating Activities:
Net Income $ 5,878,647 $ 4,914,151 $ 2,505,692
Adjustments to Reconcile Net
Earnings to Net Cash Provided
by Operating Activities:
Equity in Undistributed Earnings
Of Subsidiary (4,318,647) (3,525,151) (1,278,692)
Net Cash Provided by Operating
Activities 1,560,000 1,389,000 1,227,000
Cash Flows from Financing
Activities:
Proceeds from Sale of Stock 61,828 38,988 19,430
Dividends Paid (1,473,700) (1,265,278) (1,058,507)
Net Cash Used in Financing
Activities (1,411,872) (1,226,290) (1,039,077)
Net Increase (Decrease) in Cash 148,128 162,710 187,923
Cash, Beginning of Year 427,127 264,417 76,494
Cash, End of Year $ 575,255 $ 427,127 $ 264,417
INSERT
PHOTOGRAPH depicting granite foundation with pier on top.
PAGE
<PAGE>
EMPLOYEES
Gale L. Abbott, Paul G. Ahern, Julie B. Archer, Lynn L. Archer, Beverly A.
Arsenault, June G. Atherton, Cheryl L. Bagley, Debra L. Baker, Michelle R.
Bannister, Wilbur L. Beam, Karen R. Bean, Rebecca J. Beatrice, Marcia T.
Bender, Lorraine M. Benn, Terry D. Bickford, Edwin A. Bonenfant, Charlene M.
Bucklin, Richard A. Burgess, Eleanor B. Butters, Betty L. Case, Karen M.
Chase, Stacey L. Clement, Brenda E. Colwell, Paula S. Colwell, Gregory J.
Corra, Catherine R. Cropley, Timothy J. Cropley, Sylvia B. Cunningham,
Patricia J. Curtis, Gregory W. Dalton, Laura H. Danielson, Charlene G.
Davis, Donna L. Day, Ann DeLill, Margaret A. DeLuca, Richard S. Douglas,
Cheryl L. Dow, Marilyn H. Dow, Kathleen S. Driscoll, Hollie A. Dunbar,
Dwight L. Eaton, Gary N. Eaton, Elizabeth J. Elkins, Rhonda L. Farnsworth,
Robin K. Foskett, Heidi G. Frost, Judith W. Fuller, Faye A. Geel, Mischelle
E. Gehan, John F. Gibbons, Jr., Anne C. Gibson, Sheldon F. Goldthwait, Jr.,
John B. Gooch, Keith N. Goodrich, Gwendolyn L. Grant, Beth A. Graves,
Marjorie E. Gray, Sharon A. Grindle, Annette J. Guertin, Carla A. Hall,
Kelton I. Hallett, Tracy L. Hallett, Marie E. Hardie, Christine L. Harding,
Barbara W. Harmon, Karen H. Hartt, Marlene S. Haskell, Elizabeth J. Haynes,
Robin L. Hennigan, Barbara F. Hepburn, Kathryn W. Heyner, Jeromette M.
Hicks, Margaret K. Hill, Brenda M. Hitchcock, Katherine R. Hollis, Patricia
A. Howard, E. Ray Huntley, Jane L. Iverson, Kelly M. Jordan, Maureen E.
Kane, Michelle Anne Kelley, Paula M. Lamoureux, Kenneth N. Larrabee, Sandra
J. Lawson, Melanie J. Lehr, Andrea G. Leonard, M. Joseph Marshall, Ann C.
McCafferty, Diane M. McFeat, Tristan J. McKinney, Mary Anne Merchant, Gloria
J. Merrill, Alison E. Miner, Debra S. Mitchell, Jennifer G. Mott, Donna C.
Murley, Bonnie J. Murphy, Dawn B. Nason, Judith L. Newenham, Mary E. Newman,
Brenda H. Norwood, Jane M. Parker, Lisa L. Parsons, Lewis H. Payne, Lori A.
Peakall-Cote, Wendyl J. Pedrone, Carol J. Pelletier, Bonita E. Poitras,
Bonnie A. Poland, Jane A. Ramsdell, Mary C. Ratner, Taffy W. Richardson,
Wanda S. Ring, Debra R. Sanner, Marsha C. Sawyer, Rhonda L. Sawyer, Laura A.
Schaefer, Jenene J. Schneider, Geddes W. Simpson, Jr., Marcia L. Slater,
Lisa L. Smith, Michael E. Smith, Andrea L. Snow, Stephen H. Sprague, Ellen
F. Stanley, Lottie B. Stevens, Wendy S. Stiles, Linda B. Stratton, Brenda G.
Strout, Karen M. Tainter, Rebecca K. Thompson, Charlene H. Tibbetts, Terry
E. Tracy, Wilma H. Turner, Mary Ann Upton, Frances E. Vane, Virginia M.
Vendrell, Nancy J. Warner, Dianne L. Watson, Thomas H. Watson, Cheri R.
Wentworth, Doris E. Williams, Tuesdi J. Woodworth, Felice D. Worcester,
Carolyn A. Wright, Edward P. Wynn, Loretta M. Ziobro
BAR HARBOR BANKSHARES
Chairman of the Board Robert L. Gilfillan
President Sheldon F. Goldthwait, Jr.
Executive Vice President Lewis H. Payne
Vice President Dwight L. Eaton
Treasurer Virginia M. Vendrell
Clerk Marsha C. Sawyer
PAGE
<PAGE>
BAR HARBOR BANKING AND TRUST COMPANY
MANAGEMENT
President and Chief Executive Officer Sheldon F. Goldthwait, Jr. *
Executive Vice President Lewis H. Payne *
Senior Vice President, Treasurer and
Chief Financial Officer Virginia M. Vendrell *
Vice Presidents:
Gregory W. Dalton
Marlene S. Haskell *
Margaret K. Hill *
H. Stanley MacDonald
Marsha C. Sawyer *
Michael E. Smith
Stephen H. Sprague
Felice D. Worcester *
Assistant Vice President Andrea G. Leonard
Loan Officer Carla A. Hall
Auditor Kathleen S. Driscoll
TRUST DEPARTMENT
Senior vice President and Trust Officer Dwight L. Eaton *
Vice President and Trust Investment Officer Paul G. Ahern
Vice President and Trust Investment Officer Edwin A. Bonenfant
Vice President and Trust Officer Richard S. Douglas
Vice President and Trust Marketing Officer Anne C. Gibson
Vice President and Trust Officer Geddes W. Simpson, Jr.
Trust Officer Faye A. Geel
Trust Operations Officer Charlene H. Tibbetts
Employee Benefits Administrator Brenda G. Strout
* Executive Officers
PAGE
<PAGE>
BRANCH MANAGEMENT
BAR HARBOR
Karen M. Chase Operations Manager
Timothy J. Cropley Technology Operations Manager
Tuesdi J. Woodworth Accounting Manager
BLUE HILL
Patricia J. Curtis Assistant Vice President
Sharon A. Grindle Assistant Manager
DEER ISLE
Linda B. Stratton Banking Officer
ELLSWORTH
E. Ray Huntley Regional Vice president
Michelle R. Bannister Banking Officer
LUBEC
Betty L. Case Manager
MACHIAS
Richard A. Burgess Vice President
Jane A. Ramsdell Manager
MILBRIDGE
Jenene J. Schneider Banking Officer
Paula S. Colwell Assistant Manager
NORTHEAST HARBOR
Charlene M. Bucklin Manager
SOUTHWEST HARBOR
John F. Gibbons, Jr. Manager
Dianne L. Watson Assistant Manager
WINTER HARBOR
Judith L. Newenham Manager
INSERT
PHOTOGRAPH OF EXECUTIVE OFFICERS
Caption reads: Executive Officers: (l. To r.) Marsha C. Sawyer, Marlene S.
Haskell, Sheldon F. Goldthwait, Jr., Virginia M. Vendrell, Dwight L. Eaton,
Felice D. Worcester, Lewis H. Payne, Margaret K. Hill
PAGE
<PAGE>
INSERT
PHOTOGRAPH OF BOARD OF DIRECTORS
Caption reads: (Back row, l. To r.) Sheldon F. Goldthwait, Jr., John P.
McCurdy, Jarvis W. Newman, Abner L. Sargent, Peter Dodge, Thomas A. Colwell,
Robert H. Avery, Robert M. Phillips, Dwight L. Eaton and John P. Reeves.
(Front row, l. To r.) Robert L. Gilfillan, Ruth S. Foster, Frederick F.
Brown, Lawrence L. Dorr, Lynda Z. Tyson, James C. MacLeod and Bernard K.
Cough
BAR HARBOR BANKING AND TRUST COMPANY
BOARD OF DIRECTORS
Robert L. Gilfillan --Chairman of the Board Bar Harbor
Robert H. Avery Bar Harbor
Frederick F. Brown Northeast Harbor
Thomas A. Colwell Deer Isle
Bernard K. Cough Bar Harbor
Peter Dodge Blue Hill
Lawrence L. Dorr Machias
Dwight L. Eaton Bar Harbor
Ruth S. Foster Ellsworth
Sheldon F. Goldthwait, Jr. Bar Harbor
James C. MacLeod Bar Harbor
John P. McCurdy Lubec
Jarvis W. Newman Southwest Harbor
Robert M. Phillips Milbridge
John P. Reeves Bar Harbor
Abner L. Sargent Ellsworth
Lynda Z. Tyson Bar Harbor
PAGE
<PAGE>
MISSION STATEMENT
Bar Harbor Banking and Trust Company is an independent, publicly owned,
community Bank pledged to providing innovative, quality financial services
to the people and businesses of eastern Maine.
We take pride in our commitment to deliver our services person-to-person, in
a professional and efficient manner while producing the maximum benefit for
our customers, employees and shareholders.
We are dedicated to providing a quality environment in which employees are
challenged to uphold our pledge to excellence.
We demonstrate our responsibility as a good corporate citizen through our
support of the communities and people we serve.
ANNUAL MEETING
Bar Harbor Bankshares
Tuesday, October 1, 1996, 11:00 a.m.
The Bank will provide, without charge, upon written request, a copy of Bar
Harbor Bankshares Annual Report to the Securities and Exchange Commission,
Form 10-K. The Bank will also provide, upon request, Annual Disclosure
Statements for The Bar Harbor Banking and Trust Company as of December 31,
1995.
Please contact:
Marsha C. Sawyer, Clerk
Bar Harbor Bankshares
P O Box 400
Bar Harbor, ME 04609-0400
PAGE
<PAGE>
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