UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996.
Commission File No. 841105-D
BAR HARBOR BANKSHARES
MAINE 01-0393663
(State or other jurisdiction of (I.R.S> Employer
incorporation or organization) Identification No.)
Bar Harbor, Maine 04609-0400
(Address of principal executive (Zip Code)
offices)
Registrant s telephone number, including area code:
(207) 288-3314
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES XX NO
Indicate the number of shares outstanding of each of the
issuer s classes of common stock as of March 31, 1996:
Common Stock: 1,818,237
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TABLE OF CONTENTS
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Financial Information
Item I. Financial Statements
Consolidated Balance Sheets
December 31, 1995 and March 31, 1996 2-3
Consolidated Statements of Earnings
Three months ended March 31, 1994, 1995 and 1996 4
Consolidated Statements of Changes in
Stockholders Equity
Three months ended March 31, 1995 and 1996 5
Consolidated Statement of Cash Flows
Three months ended March 31, 1995 and 1996 6-7
Rate Volume Analysis
Three months ended March 31, 1995 and 1996 8
Rate Sensitivity Report
As of March 31, 1996 9
Notes to Financial Statements 10-13
Item 2. Management s Discussion and Analysis of
Financial Condition and Results of
Operations 14-17
Signature Page 18
</TABLE>
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BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1996 AND December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
March 31 December 31
1996 1995
ASSETS
Cash and Due from Banks $ 7,426,958 $ 8,759,797
Federal Funds Sold 0 3,800,000
Investment Securities
Securities available for sale,
at market 22,147,298 19,885,555
Securities held to maturity
(Market Value $83,682,591 in
1996 and $83,180,706 in 1995) 83,763,010 82,209,062
Total investment securities 105,910,308 102,094,617
Loans held for sale 76,311 68,326
Gross Loans 201,426,371 201,765,717
Allowance for Possible Loan
Losses (4,168,420) (4,047,883)
Net Loans 197,257,951 197,717,834
Premises and Equipment 6,217,229 6,219,569
Other Assets 8,914,589 7,948,556
TOTAL ASSETS $325,803,346 $326,608,699
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES
Deposits
Demand Deposits $ 28,595,549 $ 32,394,610
NOW Accounts 35,849,887 38,300,119
Savings Deposits 53,223,269 53,660,526
Time, $100,000 and over 14,754,882 14,005,187
Other Time 113,366,266 113,110,959
Total Deposits 245,789,853 251,471,401
Securities Sold Under Repurchase
Agreements 5,326,750 5,791,193
Advances from Federal Home
Loan Bank 36,091,145 32,700,000
Other Liabilities 4,157,040 3,403,281
Total Liabilities 291,364,788 293,365,875
Capital Stock, Par Value $2
Authorized 10,000,000 shares
Issued 1,718,237* in 1996
and 1,813,605* in 1995 3,636,474 3,627,210
Surplus 7,489,128 7,368,695
Retained Earnings 24,702,230 23,523,626
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Net Unrealized Appreciation on
Securities available for sale,
Net of Tax Benefit of $25,383
in 1996 and tax of $32,606 in
1995 (49,274) 63,293
Less: Cost of 100,000* shares of
Treasury Stock (1,340,000) (1,340,000)
TOTAL STOCKHOLDERS EQUITY 34,438,558 33,242,824
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY $325,803,346 $326,608,699
</TABLE>
*Number of shares of stock have been restated to reflect a five-
for-one stock split declared July 11, 1995.
The accompanying notes are an integral part of these
consolidated financial statements.
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BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
THREE THREE THREE
MONTHS MONTHS MONTHS
ENDING ENDING ENDING
03/31/96 03/31/95 03/31/94
Interest & Fees on Loans $5,002,507 $4,413,005 $3,689,232
Interest & Dividends on
Investment Securities:
Taxable Interest Income 1,468,129 1,243,323 1,003,761
Non-taxable Interest Inc. 195,476 215,370 204,651
Dividends 85,498 104,376 54,163
Federal Funds Sold 5,193 16,074 15,821
TOTAL INTEREST INCOME 6,756,803 5,992,148 4,967,628
Interest on Deposits 2,307,076 1,794,598 1,335,806
Interest on Borrowings 509,942 575,408 343,915
TOTAL INTEREST EXPENSE 2,817,018 2,370,006 1,679,721
Net Interest Income 3,939,785 3,622,142 3,287,097
Provision for Loan Losses 240,000 240,000 240,000
Net Interest Income after
Provision for Loan Losses 3,699,785 3,382,142 3,047,907
Other Income 1,001,427 883,606 893,893
Net Security Gains (Losses) 0 0 0
Other Expenses:
Salaries & Employee Ben. 1,401,822 1,208,523 1,194,640
Other 1,109,440 1,173,046 1,059,032
Income Before Income Taxes 2,189,950 1,884,179 1,706,590
Income Tax Expense 667,700 575,870 514,814
NET INCOME $1,522,250 $1,308,309 $1,191,776
PER COMMON SHARE DATA, RESTATED
FOR FIVE-FOR-ONE SPLIT IN 1995:
BASED ON 1,709,835 SHARES FOR
1994, 1,713,605 FOR 1995 AND
1,718,237 SHARES FOR 1996 $0.89 $0.76 $0.70
DIVIDENDS PER SHARE $0.20 $0.00 $0.00
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
QUARTERS ENDED MARCH 31, 1994, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NET UNREA- NET
LIZED LOSS STOCK-
CAPITAL RETAINED TREASURY ON EQUITY HOLDERS
STOCK SURPLUS EARNINGS STOCK SECURITIES EQUITY
Balance, 12/31/93 $3,614,540 $7,280,550 $15,469,806 ($1,340,000) ($37,566) $24,987,330
Net Earnings 1,191,776 1,191,776
Cash Dividends Declared 0
Net Unrealized Loss
on Available for
Sale Portfolio ( 61,753) ( 61,753)
Transfer to Surplus 0
Sale of Stock
(2,565* Shares) 5,130 33,858 38,988
Balance, 3/31/94 $3,619,670 $7,314,408 $16,661,582 ($1,340,000) ($ 99,319) $26,156,341
Balance, 12/31/94 3,619,670 7,314,408 19,118,678 (1,340,000) 48,027 28,760,783
Net Earnings 1,309,309 1,308,309
Cumulative effect to record
appreciate on securities
available for sale 0
Cash Dividends Declared 0
Net Unrealized Appreciation
on Securities Available for
Sale, Net of Tax of $37,388 24,550 24,550
Sale of Stock (3,770* Shares) 7,540 54,288 0 0 0 61,828
Balance, 3/31/95 $3,627,210 $7,368,696 $20,426,987 ($1,340,000) $72,557 $30,155,470
Balance 12/31/95 $3,627,210 $7,368,695 $23,523,626 ($1,340,000) $ 63,293 $33,242,824
Net earnings 1,522,250 1,522,250
Cash dividends declared (343,647) (343,547)
Net unrealized depreciation
on securities available for sale,
net of tax benefit of $25,383 (112,566) (112,566)
Sale of Stock
(4,632 shares) 9,264 120,432 129,696
Balance 03/31/96 $3,636,474 $7,489,127 $24,702,229 ($1,340,000) ($49,273) $34,438,557
</TABLE>
*Number of shares of stock have been restated to reflect a five-for-one
stock split declared July 11, 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
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BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
MARCH 31, MARCH 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 1,522,250 $1,308,309
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 156,802 138,008
PROVISION FOR LOAN LOSSES 240,000 240,000
PROVISION FOR LOSSES ON OTHER REAL ESTATE OWNED (2,510) 9,867
NEW LOANS ORIGINATED FOR SALE (2,894,790) (383,100)
PROCEEDS FROM SALE OF MORTGAGES HELD FOR SALE 2,892,941 380,139
NET SECURITIES GAINS 0 0
NET AMORTIZATION OF BOND PREMIUM 64,122 50,191
NET CHANGE IN OTHER ASSETS (829,220) ( 668,977)
NET CHANGE IN OTHER LIABILITIES 753,759 295,982
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,897,218 1,368,690
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF SECURITIES HELD TO MATURITY ( 7,058,576) (4,698,411)
PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS
OF SECURITIES HELD TO MATURITY 2,007,718 3,392,940
PROCEEDS FROM CALL OF SECURITIES HELD TO MATURITY 3,500,000 0
PURCHASES OF SECURITIES AVAILABLE FOR SALE (3,001,875) 0
PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS
OF SECURITIES AVAILABLE FOR SALE 2,363 4,549
PROCEEDS FROM CALL OF SECURITIES AVAILABLE FOR SALE 500,000 0
NET LOANS MADE TO CUSTOMERS 143,572 ( 4,537,144)
CAPITAL EXPENDITURES (154,462) (227,169)
NET CASH USED IN INVESTING ACTIVITIES (4,061,260) (6,065,235)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET CHANGE IN SAVINGS, NOW AND DEMAND DEPOSITS (6,686,550) (12,825,688)
NET CHANGE IN TIME DEPOSITS 1,005,002 9,815,707
NET CHANGE IN REPURCHASE AGREEMENTS (464,443) 9,830,919
PURCHASE OF ADVANCES FROM FHLB 9,000,000 4,000,000
REPAYMENT OF ADVANCES FROM FHLB (4,000,000) 0
NET CHANGE IN OTHER SHORT TERM BORROWED FUNDS (1,608,855) (7,000,000)
PROCEEDS OF SALE FROM CAPITAL STOCK 129,696 61,828
PAYMENTS OF DIVIDENDS (343,647) 0
NET CASH PROVIDED BY FINANCING ACTIVITIES (2,968,797) 3,882,766
NET INCREASE IN CASH AND CASH EQUIVALENTS (5,132,839) (813,779)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,559,797 9,714,713
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 7,426,958 $8,900,934
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST $2,805,299 $2,342,962
INCOME TAXES $ 5,000 $ 300,000
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NON-CASH TRANSACTIONS:
TRANSFER FROM LOANS TO REAL ESTATE
OWNED (OTHER ASSETS) $ 70,000 $ 0
</TABLE>
NOTE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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RATE VOLUME ANALYSIS
The following table represents a summary of the changes in interest
earned and interest paid as a result of changes in rates and changes in
volumes.
For each category of earning assets and interest-bearing liabilities,
information is provided with respect to changes attributable to change in
rate (change in rate multiplied by old volume) and change in volume (change
in volume multiplied by old rate). The change in interest due to both volume
and rate has been allocated to volume and rate changes in proportion to the
relationship of the absolute dollar amounts of the change in each.
YEAR-TO-DATE FIGURES AS OF MARCH 31, 1996
COMPARED TO MARCH 31, 1995
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VOLUME RATE NET
LOANS $ 315,043 $ 274,459 $ 589,502
TAXABLE SECURITIES $ 226,001 $ ( 20,073) 205,928
TAX EXEMPT SECURITIES $ (19,783) $ (111) (19,894)
FEDERAL FUNDS SOLD AND
MONEY MARKET FUNDS $ (9,369) $ (1,512) (10,881)
TOTAL EARNING ASSETS $ 511,892 $ 252,763 $ 764,655
DEPOSITS $ 224,289 $ 288,189 512,478
BORROWINGS $ (54,199) $ (11,267) (65,466)
TOTAL INTEREST
BEARING LIABILITIES $ 170,090 $ 276,922 $ 447,012
NET CHANGE IN INTEREST $ 341,802 ($ 24,159) $ 317,643
</TABLE>
YEAR-TO-DATE FIGURES AS OF MARCH 31, 1995
COMPARED TO MARCH 31,1 994
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VOLUME RATE NET
LOANS $ 531,976 $ 191,797 $ 723,773
TAXABLE SECURITIES $ 144,754 $ 145,021 $ 289,775
TAX EXEMPT SECURITIES $ 793 $ 9,926 $ 10,719
FEDERAL FUNDS SOLD AND
MONEY MARKET FUNDS $ (6,792) $ 7,045 $ 253
TOTAL EARNING ASSETS $ 670,731 $ 353,789 $ 1,024,520
DEPOSITS $ 179,251 $ 279,541 $ 458,792
BORROWINGS $ 29,614 $ 201,879 $ 231,493
TOTAL INTEREST
BEARING LIABILITIES $ 208,865 $ 481,420 $ 690,285
NET CHANGE IN INTEREST $ 461,866 $ (127,631) $ 334,235
</TABLE>
PAGE><PAGE>
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INTEREST RATE SENSITIVITY ANALYSIS
AS OF MARCH 31, 1996
(UNAUDITED)
Amounts in Thousands
The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at March 31
1996 which are anticipated by the Bank, based upon certain
assumptions, to reprice or mature in each of the future time
periods shown.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
ONE TO GREATER
TOTAL TO FIVE THAN FIVE
ONE YEAR YEARS YEARS TOTAL
Loans - Fixed Rate $ 15,914 $ 24,798 $ 17,775 $ 58,487
- Variable Rate 118,535 19,091 2,129 139,755
Investments 36,003 49,232 20,676 105,911
Federal Funds Sold 0 0 0 0
Interest Rate Swap 5,000 15,000 0 20,000
Total Earning Assets 175,452 108,121 40,580 324,153
Deposits 138,956 20,206 86,797 245,959
Repurchase Agreements 1,793 2,500 1 180 5,473
Borrowings 24,855 11,236 0 36,091
Interest Rate Swap 10,000 10,000 0 20,000
Total Sources 175,604 43,942 87,977 307,523
Net Gap Position (152) 64,179 (47,397) 16,630
Cumulative Gap ($152) $64,027 $16,638 $16,630
Rate Sensitive Assets/
<S> <C> <C> <C> <C>
Rate Sensitive Liabilities 99.91% 246.05 46.13 105.41%
</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 $3,000,000, are stable and
are listed in the greater than five year category. Money market
accounts are assumed to reprice in three months or less.
Certificates of deposit are assumed to reprice at the date of
contractual maturity. Fixed rate mortgages, totaling $34,000,000
are amortized using a 6% rate, which approximates the Bank s
prior experience. PAGE
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NOTES TO FINANCIAL STATEMENTS DATED MARCH 31, 1996
1. Summary of interim financial statement adjustments.
The accompanying statements reflect all adjustments (all of
which are normal and recurring in nature) which are, in the opinion of
management, necessary to present a fair statement of the results for the
interim periods presented. The financial statements should be read in
conjunction with the Consolidated Financial Statements and related Notes
included in the Bank s 1995 Annual Report.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
March 31, 1996
Carrying Market
2. INVESTMENT SECURITIES Value Value
a. U.S. Treasury and other
government agencies $ 75,826,506 $ 75,106,835
b. States of the U.S. and other
political subdivisions 12,980,603 13,420,943
c. Other securities 17,177,856 17,302,111
Total Securities $105,984,965 $105,829,889
Securities held to maturity 83,763,010 83,682,591
Securities available for sale 22,221,955 22,147,298
</TABLE>
The Bank does not hold any securities for a single issuer which
exceed 10% of the Bank s stockholders equity.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
March 31, December 31,
1996 1995
3. LOANS:
a. Commercial, agricultural and
other loans $ 39,606,450 $ 40,190,313
b. Real Estate - Construction 7,551,297 8,072,230
c. Real Estate - Mortgage 135,498,368 135,862,776
d. Installment Loans 17,846,567 17,640,398
Total Loans $201,502,682 $201,765,717
</TABLE>
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4. CHANGES IN ALLOWANCE FOR POSSIBLE LOAN LOSSES:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, March 31,
1996 1995
Balance, beginning January 1: $ 4,047,883 $ 3,891,835
Provision charged to income 240,000 240,000
Recoveries of amounts charged 29,512 31,964
Losses charged to provision 148,975 103,501
Balance, ending March 31 $ 4,168,420 $ 4,060,298
</TABLE>
Information regarding impaired loans is as follows for March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Average investment in impaired loans $ 1,366,293
Interest income recognized on impaired loans,
Including interest income recognized on cash basis 23,594
Interest income recognized on impaired loans on
Cash basis 23,594
Balance of impaired loans 596,754
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 0
Portion of allowance for loan losses allocated
To the impaired loan balance 91,634
</TABLE>
5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
3/31/96 3/31/95 3/31/94
Balance, beginning January 1: $26,000 $30,486 $53,286
Provision charged to income (2,510) 9,867 0
Losses charged to provision 0 0 0
Balance, ending March 31 $23,490 $40,353 $53,286
</TABLE>
6. The aggregate dollar amount of loans made to directors, executive
officers or principal holders of equity securities as of March 31, 1996 and
December 31, 1995 respectively were:
<TABLE>
<CAPTION>
<S> <C> <C>
Aggregate amount, beginning 1/1 $3,279,479 $3,409,868
New loans 133 349,935
Repayments 21,035 480,324
Aggregate amount, ending 3/31/96 $3,258,577
Aggregate amount, ending 12/31/95 $3,279,479
</TABLE>
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7. OTHER ASSETS:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995
a: Interest earned but not paid on:
Loans $1,811,873 $1,471,216
Investments 1,180,395 1,008,678
b. Other Real Estate Owned 492,234 443,652
</TABLE>
8. INCOME TAXES:
The company adopted Financial Accounting Standards No. 109 Accounting
for Income Taxes effective January 1, 1993. The standard requires adoption
of a liability method of accounting for income taxes. The accounting change
had no effect on the company s net income or retained earnings.
Components of income tax expense for the period ended March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Current
Federal $796,036
State 23,151
Deferred (151,487)
$667,700
</TABLE>
Actual tax expense differs from the expected tax expense computer by
applying the applicable federal corporate income tax rate of 34% is as
follows for the three months ended March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Computed tax expense $ 723,193
Tax exempt interest (72,302)
Other $ 667,700
</TABLE>
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At March 31, 1995, items giving rise to the deferred income tax assets and
liabilities, using a tax rate of 34%, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Allowance for possible losses on loans
And real estate owned $1,264,106
Deferred and accrued employee benefits 900,199
Deferred loan origination fees 99,241
Security losses not currently deductible 0
Core deposit intangibles 101,318
Depreciation 6,229
Other 8,595
$2,379,687 $ 0
</TABLE>
No valuation allowance is deemed necessary for the deferred tax asset.
<TABLE>
<CAPTION>
<S> <C> <C>
9. INCOME TAX EXPENSE: 1996 1995
Federal Income Tax $644,549 $549,686
State Income Tax 23,151 26,184
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
A review of the results of operations for March 31, 1996, as
compared to March 31, 1995, with the growth in earnings exceeding 16%, is
affected by changes in the balance sheet. Total assets have grown 7.8% over
the past twelve months with the major changes visible in the investment and
loan portfolios. The Bank's investment portfolio grew by approximately
$13,300,000 for the twelve month period with $11,550,000 purchased in U.S.
Government agency securities. The Bank s available for sale portfolio
increased by $15,000,000 over the past twelve months. The Bank made a one-
time transfer of securities at market value totaling $5,600,000 in
accordance with the Financial Accounting Standards Board implementation
guidance issued in November of 1995. Additional securities added to the
available for sale portfolio include bonds that have calls and longer final
maturities. Unrealized gains and losses became negative and are indicative
of the current economic marketplace with interest rates rising abruptly and
presumed to be temporarily. This is also visible in the total market value
of the portfolio that is currently $155,000 below book value. However, the
portfolio continues to earn in excess of 6.8%. The Bank holds one
structured note, a ten-year step-up government agency debenture, which steps
annually by 1/8 of one percent after 3 years at 7.0%.
The loan growth of $11,000,000 from March 31, 1995 has been
predominantly in loans secured by real estate. The Bank's loan portfolio s
growth has slowed from a 15% growth in 1995 compared to 1994 to a 5.8%
growth in 1996 over 1995. The Bank is experiencing competition from other
financial institutions within its marketplace.
Funding for the asset growth has come from increases in deposits
totaling $23,255,000 and predominantly from interest bearing liabilities in
the form of certificates of deposit, which increased 21%. In March of 1995,
the Bank s Trust Department maintained approximately $10,000,000 in
repurchase agreements that were withdrawn prior to year end 1995. These
funds were replaced by deposits as mentioned above and borrowings through
the Federal Home Loan Bank. Advances increased in the past twelve months by
$14,000,000 as these funds became less costly than opportunities for
wholesale repurchase agreements. Short term borrowings will begin dropping
during the next six months through seasonal deposit growth, investment
maturities and principal paydowns from the Bank's mortgage backed securities
portfolio.
Liquidity is measured by the Bank's ability to meet cash needs
at a reasonable cost or minimum loss to the Bank. Liquidity management
involves the ability to meet cash flow requirements of its customers, which
may come from depositors withdrawing funds or borrowers requiring funds to
meet credit needs. Without adequate liquidity management, the Bank would
not be able to meet the needs of the individuals and communities it serves.
The Bank utilizes a Basic Surplus/Deficit model to measure its liquidity
over a 30-day and a 90-day time horizon. The relationship between liquid
assets and short term liabilities that are vulnerable to non-replacement
within a 30-day period are examined. The Bank's policy is to maintain its
liquidity position at a minimum of 5% of total assets. The Bank has
maintained liquidity in its balance sheet in excess of 7% for the past
twelve months. Liquidity has been more than 10% since the repurchase
agreements with the Trust Department were discontinued, which reduced the
PAGE
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amount of Bank securities required to be held as collateral. Liquidity as
measured by the Basic Surplus/Deficit model was 17.6% as of March 31, 1996.
How changes in the balance sheet have affected the Bank may be
viewed through the earnings statement for the periods ending March 31, 1994,
1995, and 1996. The Bank has experienced a very strong first quarter that
compares favorably to the first quarter of 1995 and which has produced a 16%
increase over net income earning during the first three months of 1995. In
turn, 1995 produced a 9.8% increase over 1994 in net earnings for the Bank.
Interest income is affected by rates, volumes and the mix of
earning assets and interest bearing liabilities. For the first three months
of 1996, increases in the loan portfolio have afforded the Bank additional
interest income of $590,000 that was achieved through increases in volumes
totaling $315,000 and increases in rates of $275,000. Yields on loans
increased by 24 basis points from March 1995 to March of 1996. This
compares with 1995 s increase over 1994 of $724,000 due to increases in both
volumes ($532,000) and interest rate changes ($192,000). Loan yields
increased 69 basis points during that twelve month period. 1995 represented
the first increase in loan yields for the past several years with decreases
of 64 and 103 basis points experienced in 1994 and 1993 respectively. On
the investment side, interest and dividend income grew by $175,000 with
increases related to volumes and a decrease in yields of $22,000 or a drop
of 32 basis points from year to year. Investment interest increased by
$300,000 in 1995 compared to 1994 with increases coming equally from
increased volumes and rates (which increased by 61 basis points). In 1994
earnings from the Bank's investment portfolio decreased by $244,000 due to
decreases in yields (a drop of 72 basis points).
Increased costs on the liability side have been contained by the
Bank not increasing its rates on savings, NOW and money market funds. For
the past two years, the Bank has chosen to promote specific term CDS at
current national market rates, thereby increasing its cost of funds on those
deposits only. In 1996, the Bank s cost of interest bearing funds increased
by $447,000 that was less than the previous year, although deposit balances
grew by over $23,000,000. The cost of purchased funds went up 17 basis
points during this period. Part of the reduction in cost is found in the
reduction in funding costs from the Federal Home Loan Bank. In 1995, the
Bank's cost of funds rose by $690,000 that is both from increased volumes
($209,000) as well as higher CD rates. The cost of purchased funds
increased by 92 basis points in 1995. Comparing this to 1994 and 1993, both
years showed reductions in funding costs (23 basis points in 1994 and 106
basis points in 1993). 1994 began with a downward trend for interest rates,
but the Bank along with other financial institutions was impacted by each of
the federal funds increases instituted by the Federal Reserve. It has been
the Bank's approach to lag increases on both sides of the balance sheet
throughout the year.
The Bank is well positioned with regard to interest rate
sensitivity with assets and liabilities matched for repricing within a year.
There is some exposure to falling rates out beyond a year that is primarily
driven by the Bank s expectation that core deposit rates should not be
lowered. Additionally, with a projected acceleration in prepayments in
loans and investments, cash would be reinvested at lower yields. If rates
were to drop by 200 basis points, simulations indicate that the Bank s net
interest income could drop by approximately $1,000,000 during the second
year of the drop.
PAGE
<PAGE>
The Bank has maintained its reserve for possible loan losses
over the past several years, reflecting the recessionary nature of the
economy in the early 1990's. The ratio for the reserve for possible loan
losses has been over 2% for the past three years, with a ratio of 2.10% as
of March 31, 1996. The Bank reviews its allocation to the reserve on a
monthly basis and funds the reserve as deemed necessary. This review
includes a provision for specific credits, provisions due to historic loan
losses by loan types and reserves reflecting industry concentrations, credit
concentrations, current economic conditions and underwriting standards. In
1995, the Bank added a provision for impaired loans in accordance with FASB
114/118. Reference is made to the notes included in this filing that
outlines the impaired loan figures. Losses in the loan portfolio were
estimated at $840,000 for 1996, with first quarter charge offs totaling
$149,000. The amounts represented below are the total dollars past due for
the first three months of each year listed. Included in the 90-day past due
category for 1996 are two loans totaling $820,000, one of which is now
current and the other was in the process of securing SBA financing, this is
now completed.
Category 1995 1995 1994
90-day past due
and still accruing $ 1,247,941 $ 189,904 $ 486,959
Non-accruing $ 3,289,461 $ 4,184,679 $ 2,596,655
$ 4,537,402 $ 4,374,583 $ 3,083,614
Gross loans $201,502,682 $190,459,413 $165,649,797
Percentage of gross loans 2.25% 2.30% 1.86%
In reviewing non-interest income, the first three quarters of
1996 show a strong start for the year with growth of 13%. This growth is
attributed to the Trust Department s earnings growing by $64,000 over the
first three months of 1995. In the fall of 1995, the Trust Department
converted their tax preparation and began charging customers for the
service. The cost of this tax service is shown in other expenses.
Additionally, as of January 1, 1996, the Bank implemented FASB Statement No.
122, Accounting for Mortgage Servicing Rights that positively impacted the
earnings of the Bank by $57,000. 1995 showed a decline of $29,000 when
compared to 1994. The decline has come from two specific areas, one being
securities gains taken in the first quarter of 1994 of $18,500 for which
there were no comparable gains taken in 1995. Additionally, the secondary
market for residential mortgages, which has generated substantial income for
the Bank in the past several years, dropped to $11,000 in the first quarter
of 1995. In comparison, 1994 showed growth as compared to 1993 of
$92,000. Fees generated from the secondary mortgage program totaled $75,000
for the first three quarters of 1994. Following the first quarter of 1995,
interest rates, specifically in the secondary market for residential
mortgages, dropped and the Bank once again began experiencing additional
loan demand in this area.
PAGE
<PAGE>
Accruing for an incentive program reflects the increase in
salary and benefit costs in 1996 over 1995. Although the program is not new
to the Bank in 1996, this is the first year that the dollars have been
designated prior to year end. Excluding the accrual, salary and benefits
would be 3% higher than the first quarter of 1995. Salary and benefits
remained stable for the first quarter of 1995, increasing by $14,000 over
1994. In 1994 salary and employee benefits were $63,000 (or 5.5%) over
1993.
Other expense for the first three months of 1996 is below the
comparable period in 1995 due to the elimination of FDIC insurance premiums.
As a well capitalized bank, Bar Harbor Banking and Trust Company has not
been required to pay premiums for this coverage. In the fall of 1995, the
Bank sought the services of a consulting firm to review existing procedures,
seeking greater efficiencies while maintaining quality customer service. The
Bank incurred $66,000 in expenses for these services during the first
quarter of 1996. Other expense for the first quarter of 1995 was greater
than 1994 and included: increases in postage costs due to an increase by the
US Postal Service; increases in media coverage for Bank promotions offered
during the first quarter of 1995; increased legal expense incurred with loan
resolutions; and increased FDIC insurance based on increased deposits.
Likewise, other expense was greater in 1994 when compared to 1993's expense
with no single account showing a large increase when compared to 1993 s
expenses. Other expense encompasses the majority of accounts that are not
interest or human resource related.
The Bank's capital to asset ratio is 10.6% and the Bank far
exceeds the required risk based capital ratio of 8% with its Tier I ratio of
16.1% and total capital ratio of 17.4% or additional capital of $19,500,000.
PAGE
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAR HARBOR BANKSHARES
Sheldon F. Goldthwait, Jr. /s/
Date: May 15, 1996 Sheldon F. Goldthwait, Jr.
President
Virginia M. Vendrell /s/
Date: May 15, 1996 Virginia M. Vendrell
Senior Vice President, Treasurer
and Chief Financial Officer
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000743367
<NAME> BAR HARBOR BANKSHARES
<MULTIPLIER> 1
<CURRENCY> NO
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1.
<CASH> 7,426,958
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,147,298
<INVESTMENTS-CARRYING> 83,763,010
<INVESTMENTS-MARKET> 83,682,591
<LOANS> 201,426,371
<ALLOWANCE> (4,168,420)
<TOTAL-ASSETS> 325,803,346
<DEPOSITS> 245,789,853
<SHORT-TERM> 29,417,815
<LIABILITIES-OTHER> 4,157,040
<LONG-TERM> 0
0
0
<COMMON> 3,636,474
<OTHER-SE> 30,802,084
<TOTAL-LIABILITIES-AND-EQUITY> 325,803,346
<INTEREST-LOAN> 5,002,507
<INTEREST-INVEST> 1,749,103
<INTEREST-OTHER> 5,193
<INTEREST-TOTAL> 6,756,803
<INTEREST-DEPOSIT> 2,307,076
<INTEREST-EXPENSE> 2,187,018
<INTEREST-INCOME-NET> 3,939,785
<LOAN-LOSSES> 240,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,511,262
<INCOME-PRETAX> 2,189,950
<INCOME-PRE-EXTRAORDINARY> 2,189,950
<EXTRAORDINARY> 0
<CHANGES> 00
<NET-INCOME> 1,522,250
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
<YIELD-ACTUAL> 8.86
<LOANS-NON> 3,289,461
<LOANS-PAST> 1,247,941
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 367,000
<ALLOWANCE-OPEN> 4,047,883
<CHARGE-OFFS> 148,975
<RECOVERIES> 29,512
<ALLOWANCE-CLOSE> 4,168,420
<ALLOWANCE-DOMESTIC> 4,168,420
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,267,000
</TABLE>
