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 June 30, 1997.
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 June
30, 1997:
Common Stock: 1,820,583
TABLE OF CONTENTS
<TABLE>
<CAPTION> Page
<S> <C>
Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
December 31, 1996, and June 30, 1997
Consolidated Statements of Earnings
Three months and six months ended June 4
30, 1996
and 1997
Consolidated Statements of Changes in
Stockholders' Equity three months and 5
six
months ended June 30, 1996 and 1997
Consolidated Statement of Cash Flows
Six months ended June 30, 1996 and 1997 6-7
Rate Volume Analysis
Six months ended June 30, 1996 and 1997 8
Rate Sensitivity Report
As of June 30, 1997 9
Notes to Financial Statements 10-12
Item 2 Management's Discussion and Analysis
of 13-17
Financial Condition and
Results of
Operations
Signature Page 18
</TABLE>
<PAGE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
June 30 December 31
1997 1996
ASSETS
Cash and Due from Banks $10,967,452 $11,298,408
Federal Funds Sold 0 2,000,000
Securities available for sale, at 20,449,694 19,384,433
market
Securities held to maturity
(Market Value $77,053,468 in 76,824,499 82,716,836
1997 and $85,503,679 in
1996
Other Securities 5,902,269 5,623,639
Loans held for sale 0 336,540
Loans, Net of Allowance for
possible loan losses of 217,086,864 207,667,053
$4,434,409 in 1997 and
$4,249,128 in 1996
Premises and Equipment 7,787,540 7,498,046
Other Assets 9,116,344 8,617,790
TOTAL ASSETS $348,134,66 $345,142,74
2 5
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand Deposits $36,291,238 $35,918,779
NOW Accounts 39,196,729 40,529,509
Savings Deposits 50,681,982 53,085,062
Time, $100,000 and over 13,437,596 14,611,616
Other Time 107,623,891 107,530,192
Total Deposits 247,231,436 251,675,158
Securities Sold Under Repurchase 2,046,970 8,246,079
Agreements
Advances from Federal Home Loan 55,039,377 43,908,263
Bank
Other Liabilities 3,879,749 3,426,320
Total Liabilities 308,197,532 307,255,820
COMMITMENTS AND CONTINGENT
LIABILITIES
Capital Stock, Par Value $2
Authorized 10,000,000 shares
Issued 1,820,583 in 1997
and 1,818,237 in 1996 3,641,166 3,636,474
Surplus 7,574,170 7,489,127
Retained Earnings 30,195,837 28,204,829
Net Unrealized Appreciation
on
Securities available for
sale, Net (134,043) (103,505)
of Tax Benefit of $69,110 in
1997 and $53,321
in 1996
Less: Cost of 100,0006 shares of (1,340,000) (1,340,000)
Treasury Stock
TOTAL STOCKHOLDERS' EQUITY 39,937,130 37,886,925
TOTAL LIABILITIES AND STOCKHOLDERS'S $348,134,66 $345,142,74
EQUITY 2 5
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDING ENDING ENDING ENDING
06/30/97 06/30/96 06/30/97 06/30/96
Interest & Fees on Loans $5,176,33 $4,994,29 $10,202, $9,996,8
2 7 751 04
Interest & Dividends on
Investment Securities:
Taxable Interest 1,614,552 1,448,225 3,210,24 2,916,35
Income 4 4
Non-taxable 167,004 194,126 346,569 389,602
Interest Inc.
Dividends 99,069 86,373 195,077 171,871
Federal Funds Sold 4,943 11,790 14,126 16,983
TOTAL INTEREST INCOME $7,061,90 6,734,811 13,968,7 13,491,6
0 67 14
Interest on Deposits 2,142,907 2,249,523 4,281,78 4,556,59
1 9
Interest in Short Term 844,163 619,500 1,570,24 1,129,44
Borrowings 2 2
TOTAL INTEREST EXPENSE 2,987,070 2,869,023 5,852,02 5,686,04
3 1
Net Interest Income 4,074,830 3,865,788 8,116,74 7,805,57
4 3
Provision for Loan Losses 180,000 240,000 360,000 480,000
Net Interest Income after
Provision for Loan 3,894,830 3,625,788 7,756,74 7,325,57
Losses 4 3
Other Income 1,111,764 1,056,003 2,138,60 2,057,43
3 0
Investment Security Gains 16,934 0 16,934
Other Expenses:
Salaries & Employee 1,429,951 1,395,727 2,889,45 2,797,54
Benefits 7 9
Other 1,498,982 1,137,597 2,553,90 2,247,03
7 7
Investment 0 0 55,854 0
Securities Losses
Income Before Income 2,077,661 2,165,401 4,396,12 4,355,35
Taxes 9 1
Income Tax Expense 663,231 656,292 1,407,18 1,323,99
4 2
NET INCOME $1,414,43 $1,509,10 $2,988,9 $3,031,3
0 9 45 59
PER COMMON SHARE DATA,
BASED ON 1,718,237 SHARES
FOR 1996, AND 1,720,583 $0.82 $0.88 $1.74 $1.76
FOR 1997
DIVIDENDS PER SHARE $0.30 $0.20 $0.58 $0.40
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
QUARTERS ENDED JUNE 30, 1996, AND 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NET NET
UNREA- STOCK-
CAPITAL RETAINED LIZED TREASURY HOLDERS
STOCK SURPLUS EARNINGS LOSS STOCK '
ON EQUITY
EQUITY
SECURIT
IES
Balance, 12/31/95 $3,627,2 $7,368,6 $23,523, $63,293 $(1,340, $33,242
10 95 626 000) ,824
Net Earnings 3,031,35 3,031,3
9 59
Cash Dividends Declared (687,295 (687,29
) 5)
Net unrealized
depreciation on
Securities (236,54 (236,54
Available for Sale, 9) 9)
Net of Tax of
$89,253
Sale of Stock (4,632 9,264 120,432 129,696
shares)
Balance, 06/30/96 $3,636,4 $7,489,1 $25,867, ($173,2 ($1,340, $35,480
74 27 690 56) 000) ,035
Balance 12/31/96 $3,636,4 $7,489,1 $28,204, ($103,5 ($1,340, $37,886
74 27 829 05) 000) ,926
Net Earnings 2,988,94 $2,988,
5 945
Cash dividends declared (997,938 ($997,9
) 38)
Net unrealized
depreciation on
securities (30,538 ($30,53
available for sale, ) 8)
net of tax benefit
of $15,751
Sale of Stock (2,346 4,692 85,043 $89,735
shares)
Balance 06/30/97 $3,641,1 $7,574,1 $30,195, ($134,0 ($1,340, $39,937
66 70 836 43) 000) ,130
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, JUNE 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $2,988,9 $3,031,35
45 9
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation 442,793 329,704
Provision for Loan Losses 360,000 480,000
Provision for Losses on Other Real 0 (2,510)
Estate Owned
New Loans Originated for Sale (1,738,4 (5,687,09
90) 0)
Proceeds from Sale of Mortgages 2,153,54 5,597,589
Held for Sale 9
Gain on Sale of Mortgages (50,412) (11,929)
Originated for Sale
Net Securities Gains 55,852 (16,934)
Net Amortization of Bond Premium 53,826 195,777
(Gain) Loss on Sale of Premises 0 0
and Equipment
Net Change in Other Assets (459,495 (862,617)
)
Net Change in Other Liabilities 453,429 59,735
Net Cash Provided by Operating Activities 4,259,99 3,113,083
7
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Securities Held to Maturity (7,675,4 (13,636,6
21) 97)
Proceeds from the Maturity & Principal
Paydowns 9,263,93 4,137,496
of Securities Held to Maturity 8
Proceeds from Call of Securities Held to 4,250,00 5,420,608
Maturity 0
Purchases of Securities Available for Sale (1,250,0 (3,001,87
00) 5)
Proceeds from the Maturity & Principal
Paydowns 78,385 110,710
of Securities Available for Sale
Proceeds from Call of Securities Available 60,021 500,000
for Sale
Purchases of Other Securities (453,700 0
)
Proceeds from Sales of Other Securities 119,218 0
Net Loans Made to Customers (9,831,1 (7,054,43
87) 7)
Capital Expenditures (732,287 (1,092,82
) 0)
Proceeds from Sale of Fixed Assets 0 0
Net Cash Used in Investing Activities (6,171,0 (14,617,0
33) 15)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Savings, NOW and Demand (3,363,4 (4,185,46
Deposits 01) 7)
Net Change in Time Deposits (1,080,3 1,940,668
21)
Net Change in Repurchase Agreements (6,199,1 (1,320,49
09) 9)
Purchase of Advances from FHLB 13,500,0 15,000,00
00 0
Repayment of Advances from FHLB (15,000, (4,000,00
000) 0)
Net Change in Other Short Term Borrowed 12,631,1 1,217,151
Funds 14
Proceeds of Sale from Capital Stocks 89,735 129,696
Payments of Dividends (997,938 (687,295)
)
NET CASH PROVIDED BY FINANCING ACTIVITIES (419,920 8,094,254
)
NET INCREASE (DECREASE) IN CASH AND CASH (2,330,9 (3,409,67
EQUIVALENTS 56) 7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,298,4 12,559,79
08 7
CASH AND CASH EQUIVALENTS AT END OF QUARTER $10,967, $
452 9,150,120
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash Paid During the Year for:
Interest $5,853,7 $5,715,65
80 3
Income Taxes, Net of Refunds $1,041,0 $1,362,00
00 0
NON-CASH TRANSACTIONS:
Transfer from loans to Real Estate Owned $0 $
(Other Assets) 155,000
Transfer of Securities from Held to Maturity to 0 0
Available for Sale
</TABLE>
The accompanying notes an integral part of these
Consolidated Financial Statements
<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.
YEAR-TO-DATE FIGURES AS OF JUNE 30, 1997
COMPARED TO JUNE 30, 1996
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VOLUME RATE NET
Loans $580,385 ($374,438 $205,947
)
Taxable Securities 130,824 186,272 317,096
Tax Exempt Securities (44,814) 1,781 (43,033)
Federal Funds Sold and
Money Market Funds (3,319) 462 (2,857)
Total Earning Assets $663,076 ($185,923 $477,153
)
Deposits ($44,857) ($229,961 ($274,818
) )
Borrowings $385,631 $55,169 $440,800
Total Interest
Bearing Liabilities $340,774 ($174,792 $165,982
)
Net change in interest $322,302 ($11,131) $311,171
</TABLE>
YEAR-TO-DATE FIGURES AS OF JUNE 30, 1996
COMPARED TO JUNE 30, 1995
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VOLUME RATE NET
Loans $570,888 $216,700 $787,588
Taxable Securities 400,827 (132,409) 268,418
Tax Exempt Securities (38,901) (3,245) (42,146)
Federal Funds Sold and
Money Market Funds (25,939) (6,429) (32,368)
Total Earning Assets $906,874 $74,618 $981,492
Deposits $310,464 $402,100 $712,564
Borrowings 4,886 (61,468) (56,582)
Total Interest
Bearing Liabilities $315,350 $340,632 $655,982
Net change in interest $591,525 ($266,015 $325,510
)
</TABLE>
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
AS OF JUNE 30, 1997
(UNAUDITED)
Amounts in Thousands
The following table sets forth the amounts of
interest-earning assets and interest-bearing
liabilities outstanding at June 30, 1997, which are
anticipated by the Bank, based upon certain
assumptions, to reprice 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 $13,739 $33,366 $17,125 $64,230
- Variable 118,521 34,608 2,252 155,381
Rate
Investments 39,926 36,204 27,249 103,379
Federal Funds Sold 0 0 0 0
Interest Rate Swap 5,000 10,000 0 15,000
Total Earning Assets $177,186 $114,178 $46,626 $337,99
0
Deposits $136,412 $11,936 $99,784 $248,13
2
Repurchase Agreements 2,046 0 796 2,842
Borrowings 48,010 9,229 0 57,239
Interest Rate Swap 5,000 10,000 0 15,000
Total Sources $191,468 $31,165 $100,580 $323,21
3
Net Gap Position ($14,282) $83,013 ($53,954) $14,777
Cumulative Gap ($14,282) $68,731 $14,777 $14,777
Rate Sensitive
Assets/
Rate Sensitive 92.54% 366.37% 46.36% 104.57%
Liabilities
</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 4 3/4% 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
$2,500,000, are stable and are listed in the
greater than five year category. Money market
accounts are assumed to reprice in three months or
less. Certificates of deposit are assumed to
reprice at the date of contractual maturity. Fixed
rate mortgages, totaling $44,000,000 and amortized
using a 11% rate, which approximates the Bank's
prior experience.
<PAGE>
NOTES TO FINANCIAL STATEMENTS DATED JUNE 30, 1997
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>
2. INVESTMENT SECURITIES June 30,
1997 Market
Carrying Value
Value
a. U. S. Treasury and other
government agencies $20,102,84 $19,891,44
7 5
b. Marketable equity 550,000 558,250
securities
Total Securities Available for $20,652,84 $20,449,69
Sale 7 5
HELD TO MATURITY:
a. U.S. Treasury and other
government agencies $57,524,71 $57,474,52
7 7
b. States of the U.S. and
other 10,540,444 10,818,972
political subdivisions
c. Corporate bonds 8,759,338 8,759,968
Total Securities Held to $76,824,49 $77,053,46
Maturity 9 7
OTHER SECURITIES $5,902,269 $5,902,269
TOTAL SECURITIES $103,379,6 $103,405,4
15 31
</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>
June 30, December
3. LOANS: 1997 31,
1997
a. Commercial, agricultural and
other loans $44,786,794 $39,451,440
b. Real Estate - Construction 6,743,127 8,905,823
c. Real Estate - Mortgage 152,760,232 146,361,313
d. Installment Loans 17,231,020 17,241,472
Total Loans $221,521,173 $211,960,04
8
</TABLE>
4. CHANGES IN ALLOWANCE FOR POSSIBLE LOAN
LOSSES:
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, June 30,
1997 1996
Balance, beginning January 1: $4,292,995 $4,047,883
Provision charged to income 360,000 480,000
Recoveries of amounts charged 51,376 69,767
Losses charged to provision 270,062 348,522
Balance, ending June 30 $4,434,309 $4,249,128
</TABLE>
Information regarding impaired loans is as follows
for June 30, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
Average investment in impaired $1,720,858
loans
Interest income recognized on
impaired
loans, including interest 48,596
income
recognized on cash basis
Interest income recognized on
impaired 48,596
loans on cash basis
Balance of impaired loans 1,810,192
Less portion for which no
allowance for $0
loan losses is allowed
Portion of impaired loan balance
for
which an allowance for $1,810,192
credit losses
is allocated
Portion of allowance for loan
losses 74,796
allocated to the impaired
loan balance
</TABLE>
5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
6/30/97 6/30/96 6/30/95
Balance, beginning January 1: $22,589 $26,000 $30,486
Provision charged to income 0 (2,510) 20,398
Losses charged to provision 5,124 0 19,231
Balance, ending June 30 $17,465 $23,490 $31,653
</TABLE>
6. The aggregate dollar amount of loans made to
directors, executive officer or principal holders
of equity securities as of June 30, 1997, and
December 31, 1996, respectively were:
<TABLE>
<CAPTION>
<S> <C> <C>
Aggregate amount, beginning 1/1 $3,806,55 $3,279,47
5 9
New Loans 1,173,100 912,044
Repayments 139,269 384,968
Aggregate amount, ending 6/30/97 $4,840,38
6
Aggregate amount, ending 3/31/97 $3,806,55
5
</TABLE>
7. OTHER ASSETS:
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December
1997 31, 1996
a. Interest earned but not paid
on:
Loans $2,237,520 $1,426,296
Investments 1,081,539 1,237,564
b. Other Real Estate Owned 64,463 270,430
</TABLE>
<PAGE>
8. INCOME TAXES:
The company adopted Financial Accounting
Standards No. 109 "Accounting for Income Taxes"
effective January 1, 1993. The standard requires
adoption of a liability method of accounting for
income taxes. The accounting change had not effect
on the company's net income or retained earnings.
Components of income tax expense for the period
ended June 30, 1997, are as follows:
Current
Federal
$1,541,080
State
46,029
Deferred
(179,925)
$1,407,184
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 June 30, 1997:
Computed tax expense
$1,498,081
Tax exempt interest
(125,214)
Other
34,317
$1,407,184
At June 30, 1997, 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>
ASSET LIABILITY
Allowance for possible losses on
loans $1,353,30
and real estate owned 4
Deferred and accrued employee 945,867
benefits
Deferred loan origination fees 65,401
Security losses not currently
deductible 0
Core deposit intangibles 80,443
Depreciation 0 53,920
Other 17,031
$2,462,04 $53,920
6
</TABLE>
No valuation allowance is deemed necessary for the
deferred tax asset.
9. INCOME TAX EXPENSE:
<TABLE>
<S> <C> <C>
1997 1996
Federal Income Tax $1,361,155 $1,281,694
State Income Tax 46,029 42,298
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following review of results of the
operations of Bar Harbor Banking & Trust Company
for June 30, 1997, as compared to June 30, 1996,
shows earnings one percent under the earnings for
the first six months of 1996 and will be discussed
below. Total assets have remained stable with 3%
growth or $10,500,000 over the past twelve months
with growth in the loan portfolio and with the
investment portfolio remaining at the same level as
1996. Unrealized losses decreased in 1997, which
is indicative of the current national economic
interest rate structure. This holds true as well
for the market value of the held to maturity
portfolio that is currently $229,000 above book
value. The taxable portion of the portfolio has
increased its yield from 7.09% to 7.23%. The Bank
holds one structured note, a 10-year step-up
government agency debenture, which steps annually
by 1/8 of 1% after 2 years at 7%. This debenture
matures in November of 2005 and is callable in
November of this year.
The loan growth of $12,800,000 since June 30,
1996, has been predominantly in loans secured by
real estate. The Bank's loan portfolio's growth
has slowed down over the past several years with
percentage of growth in the double digits in the
early 1990's. However, the growth for 1997 over
1996 of $12,800,000 surpasses the growth from 1995
to 1996, when loans grew by $9,800,000. The Bank
continues to experience strong competition from
other financial institutions within its
marketplace. As of mid-July, Union Trust Company
will be opening a branch in Bar Harbor which could
add to the competition in that community, although
Union Trust is already a competitor within the
larger communities served by Bar Harbor Banking and
Trust Company.
Funding for the asset growth has come from
increases in advances totaling $10,100,000.
Deposits decreased overall by $2,000,000 over the
past twelve months. In 1995, the Bank had a
certificate of deposit promotion for terms of one
or two years. This promotion was offered at
nationally competitive interest rates, which, at
the time, were lower than other funding
opportunities. The Bank secured funds outside its
market area through this campaign. As these began
maturing in 1996 and this year, the Bank's options
for funding were significantly lower through the
Federal Home Loan Bank, so elected not to promote
to retain the funds. Short term borrowings will
begin dropping during the next three 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 14% for the past
twelve months. Liquidity as measured by the Basic
Surplus/Deficit model was 16.95% as of June 30,
1997 for the 30-day horizon and 19.7% for the 90-
day horizon.
How changes in the balance sheet have affected
the Bank may be viewed through the earnings
statement for the periods ending June 30, 1996 and
1997. The Bank's net income for the first six
months of 1997 are one percent ($42,000) below the
earnings at June 30, 1996 and is discussed below.
Income before taxes for June 30, 1997 was $41,000
higher than June 30, 1996.
Interest income is affected by rates, volumes
and the mix of earning assets and interest bearing
liabilities. For the first six months of 1997,
increases in the loan portfolio have afforded the
Bank additional interest income of $206,000 that
was achieved through increases in volumes totaling
$580,000 and decreases in rates totaling $374,000.
Yields on loans decreased by 40 basis points from
June 1996 to June 1997. In comparison, 1996's
increase over 1995 was $788,000. Loan yields
decreased 38 basis points during that twelve month
period.
On the investment side, interest and dividend
income as of June 30, 1997 grew by $271,000, with
the increase related to volumes totaling $83,000
and a increase from yields of $188,000 and an
actual increase in 16 basis points in yields on the
entire investment portfolio from year to year.
Investment interest increased by $194,000 in 1996
compared to 1995 with increases in volumes and
decreases in yields, (a decrease of 19 basis
points).
Increased costs on the liability side have
been contained by the Bank by not increasing its
rates on savings, NOW and money market funds. For
the past several years, the Bank has chosen to
promote specific term CDs at close to current
national market rates, thereby increasing its cost
of funds on those deposits only. Interest bearing
liability costs increased by $166,000 based on
increases in liabilities of $5,700,000. The
increase in the cost of funds came from increased
costs incurred due to volume increases totaling
$341,000 with an offset in liability costs due to
rates creating a reduction of $175,000. The total
cost of purchased funds increased by 6 basis points
over the past twelve months. In 1996, the Bank's
cost of interest bearing funds increased by
$656,000 and was evenly split between rate and
volume increases. The cost of purchased funds went
up only 7 basis points between June of 1995 and
June of 1996. It has been the Bank's approach to
lag increases on both sides of the balance sheet
throughout the year.
The Bank is well positioned with regard to
interest rate sensitivity with assets and
liabilities matched for repricing within a year,
with $14,000,000 more liabilities than assets
repricing within the next twelve months. If rates
were to rise by 200 basis points, simulations
indicate that the Bank's net interest income could
increase by approximately $323,000 and $465,00
during the first and second years of the rise.
Even closer to the current interest rate
environment, should rates fall by 200 basis points,
the Bank's net interest income would drop by
approximately $100,000 the first year and $287,000
the second year.
The ratio for the reserve for possible loan
losses has been over 2% for the past several years,
and continues with a ratio of 2% as of June 30,
1997. 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
$500,000 for 1997, with charged off loans totaling
$270,000 for the first six months. This compares
with charged off loans for year to date June 30,
1996 totaling $349,000. The amounts represented
below are the total dollars past due for the first
six months of each year listed. Included in loans
that are 90 days or more past due and still
accruing are approximately $900,000 in outstanding
loans for which the customers have commitments from
other banks to pay the Bank out for the loans.
Category 1997
1996
90-day past due
and still accruing $1,990,399
$ 350,183
Non-accruing $3,503,052
$3,399,214
$5,493,451
$3,749,397
Gross loans $221,521,173
$208,481,646
Percentage of
gross loans 2.48%
1.63%
In reviewing non-interest income for 1997, the
Bank has earned $81,000 more than as of June 30,
1996, with the increase attributable to the Trust
Department's earnings before expenses which have
exceeded last year's income by $210,000. Service
charges on deposit accounts are $30,000 less than
last year and are reflective of the Bank's
conservative posture toward charging fees in light
of a computer software conversion that experienced
some instability in its customer data base during
the first months of its inception. Additionally,
fees generated from the origination and sale of
mortgages are less than a year ago. In the spring
of 1997, the Bank ran a promotion for mortgages
choosing to keep them in its own portfolio instead
of selling them in the secondary market, thus
reducing its income from origination and sold loan
fees.
During the first six months of 1996, non-
interest income grew by 13% increase over 1995.
This growth was attributed to the Trust
Department's earnings before expenses growing by
$140,000 more than the first six months of 1995.
In the fall of 1995, the Trust Department converted
their tax preparation and began charging 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 $106,000.
Salaries and benefits for 1997 exceeded 1996
by 4.7% and is indicative of merit increases
granted as of January 1, 1997, increases in the
cost of benefits for employees, and additional time
worked and additional staff required in connection
with the conversion of the Bank's software, which
took place in late November of 1996. Accruing for
the Bank's incentive program reflects the increase
in salary and benefit costs in 1996 over 1995.
Although the program was not new to the Bank in
1996, that was the first year that the dollars were
allocated prior to year end. Excluding the
accrual, salary and benefits would be one tenth of
1% higher than the first six months of 1995.
Other expense, the category on the earnings
statement that encompasses the majority of accounts
that are not interest or human resource related, is
$307,000 or 13% higher than twelve months prior and
is attributable to enhancements started in 1996.
In 1996, the Bank implemented new software and
hardware for its banking applications, including
document and check imaging and servers to run these
applications. With the installation of new banking
software, individual personal computers were
upgraded and the central processing unit was
upgraded. The Bank was also building an Operations
Center, centrally located to its 10 branch
locations, which would house the Bank's computer
networking systems as well as check clearing and
operational functions. At the same time, the Bank
elected to upgrade its communications systems,
including more robust lines between the Operations
Center and the branches. Each of these
installations has increased not only the bank's
assets, but also its depreciation expense, which is
$152,000 more than a year ago. The upgrade in the
communication lines, which has increased the speed
of transmitting information to all locations, has
increased the Bank's telephone charges by $50,000
more than last year.
With the conversions, the Bank has utilized
its external audit firm for guidance in areas of
control and procedures, increasing the expense paid
to them by $77,000 above last year's expenses.
Finally, the cost of processing merchant credit
card deposits has increased by $63,000 more than a
year ago. Overall, the Bank's efficiency ratio
remains below national averages at 56%, which has
not increased since June 30, 1996.
Other expense for the first six months of 1996
was below the comparable period in 1995 by $146,000
and due to the temporary relief from FDIC insurance
premiums. As a well-capitalized bank, Bar Harbor
Banking and Trust Company was not required to pay
premiums in 1996. In the fall of 1995, the Bank
sought the services of a consulting firm to review
existing procedures, seeking greater efficiencies
while maintaining quality customer service. The
Bank incurred $120,000 in expenses for these
services during the first six months of 1996.
The Bank's capital to asset ratio is 11.5% and
the Bank far exceeds the required risk based
capital ratio of 8% with its Tier I ratio of 18.5%
and total capital ratio of 19.7% or additional
capital of $25,300,000.
SFAS No. 125 and No.127 relate to the
accounting for transfers and servicing of financial
assets and extinguishment of certain liabilities
and were adopted effective January 1, 1997. The
adoption of these standards has had no material
effect on the financial statements.
SFAS No. 128 relates to the computation for
earnings per share. The effect of adopting SFAS
128 has not been determined as of June 30, 1997.
<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
Date: August 7, 1997 /s/ Sheldon F.
Goldthwait, Jr.
Chief Executive
Officer
Date: August 7, 1997 /s/ Virginia M.
Vendrell
Treasurer and
Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Statement of Financial Condition, Consolidated Statement of
earnings, Notes to Financial Statements, and Management's Discussion and
Analysis and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000743367
<NAME> BAR HARBOR BANKSHARES
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 10,967,452
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,449,694
<INVESTMENTS-CARRYING> 76,824,499
<INVESTMENTS-MARKET> 77,053,468
<LOANS> 221,521,173
<ALLOWANCE> (4,434,309)
<TOTAL-ASSETS> 348,134,662
<DEPOSITS> 247,231,436
<SHORT-TERM> 57,086,347
<LIABILITIES-OTHER> 3,879,749
<LONG-TERM> 0
0
0
<COMMON> 3,641,166
<OTHER-SE> 36,295,964
<TOTAL-LIABILITIES-AND-EQUITY> 348,134,662
<INTEREST-LOAN> 10,202,751
<INTEREST-INVEST> 3,751,890
<INTEREST-OTHER> 14,126
<INTEREST-TOTAL> 13,968,767
<INTEREST-DEPOSIT> 4,281,781
<INTEREST-EXPENSE> 5,852,023
<INTEREST-INCOME-NET> 8,116,744
<LOAN-LOSSES> 360,000
<SECURITIES-GAINS> (55,854)
<EXPENSE-OTHER> 5,443,364
<INCOME-PRETAX> 4,396,129
<INCOME-PRE-EXTRAORDINARY> 4,396,129
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,988,945
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.74
<YIELD-ACTUAL> 8.52
<LOANS-NON> 3,503,052
<LOANS-PAST> 1,990,399
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 860,000
<ALLOWANCE-OPEN> 4,292,995
<CHARGE-OFFS> 270,063
<RECOVERIES> 51,376
<ALLOWANCE-CLOSE> 4,434,309
<ALLOWANCE-DOMESTIC> 4,434,309
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,190,000
</TABLE>
