UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 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 March 31, 1997:
Common Stock: 1,820,583
PAGE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION> Page
<S> <C>
Financial Information
Item I. Financial Statements
Consolidated Balance Sheets
December 31, 1996 and March 31, 1997 3-4
Consolidated Statements of Earnings
Three months ended March 31, 1995, 1996 and 1997 5
Consolidated Statements of Changes in
Stockholders Equity
Three months ended March 31, 1996 and 1997 6
Consolidated Statement of Cash Flows
Three months ended March 31, 1996 and 1997 7-8
Rate Volume Analysis
Three months ended March 31, 1996 and 1997 9
Rate Sensitivity Report
As of March 31, 1997 10
Notes to Financial Statements 11-15
Item 2. Management s Discussion and Analysis of
Financial Condition and Results of
Operations 16-19
Signature Page 20
</TABLE>
PAGE
<PAGE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1997 AND December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
March 31 December 31,
1997 1996
ASSETS
Cash and Due from Banks $ 9,857,083 $ 11,298,408
Federal Funds Sold 0 2,000,000
Investment Securities
Securities available for sale 19,541,404 19,384,433
Securities held to maturity
(Market value $82,220,584,
in 1997; $83,067,746 in 1996) 82,900,482 82,716,836
Other Securities 5,448,569 5,623,639
Loans held for sale 441,675 336,540
Loans, net of allowance for possible
loan losses of $4,366,173 in 1997
And $4,292,995 in 1996 210,320,843 207,667,053
Premises and Equipment 7,621,612 7,498,046
Other Assets 9,050,858 8,617,790
TOTAL ASSETS $345,182,526 $345,142,745
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES
Deposits
Demand Deposits $ 33,418,916 $ 35,918,779
NOW Accounts 37,597,430 40,529,509
Savings Deposits 50,833,577 53,085,062
Time, $100,000 and over 15,748,031 14,611,616
Other Time 106,776,570 107,530,192
Total Deposits 244,374,524 251,675,158
Securities Sold Under Repurchase
Agreements 5,393,334 8,246,079
Advances from Federal Home
Loan Bank 52,550,129 43,908,263
Other Liabilities 3,956,342 3,426,320
Total Liabilities 306,274,329 307,255,820
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 29,297,581 28,204,829
PAGE
<PAGE>
Net Unrealized Appreciation on
Securities available for sale,
Net of Tax Expense (Benefit) of
($136,371)in 1997 and tax of
$53,321 in 1996 (264,720) (103,505)
Less: Cost of 100,000 shares of
Treasury Stock (1,340,000) (1,340,000)
TOTAL STOCKHOLDERS EQUITY 38,908,197 37,886,925
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY $345,182,526 $345,142,745
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
PAGE
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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
03/31/97 03/31/96 03/31/95
Interest & Fees on Loans $5,026,419 $5,002,507 $4,413,005
Interest & Dividends on
Investment Securities:
Taxable Interest Income 1,595,692 1,468,129 1,243,323
Non-taxable Interest Inc. 179,565 195,476 215,370
Dividends 96,008 85,498 104,376
Federal Funds Sold 9,183 5,193 16,074
TOTAL INTEREST INCOME 6,906,867 6,756,803 5,992,148
Interest on Deposits 2,138,874 2,307,076 1,794,598
Interest on Borrowings 726,079 509,942 575,408
TOTAL INTEREST EXPENSE 2,864,953 2,817,018 2,370,006
Net Interest Income 4,041,914 3,939,785 3,622,142
Provision for Loan Losses 180,000 240,000 240,000
Net Interest Income after
Provision for Loan Losses 3,861,914 3,699,785 3,382,142
Other Income 1,026,839 1,001,427 883,606
Net Security Gains (Losses) (55,852) 0 0
Other Expenses:
Salaries & Employee Ben. 1,459,506 1,401,822 1,208,523
Other 1,054,927 1,109,440 1,173,046
Income Before Income Taxes 2,318,468 2,189,950 1,884,179
Income Tax Expense 743,953 667,700 575,870
NET INCOME $1,574,515 $1,522,250 $1,308,309
PER COMMON SHARE DATA, RESTATED
FOR FIVE-FOR-ONE SPLIT IN 1995:
BASED ON 1,713,605 SHARES FOR
1995, 1,718,237 FOR 1996 AND
1,720,583 SHARES FOR 1997 $0.92 $0.89 $0.76
DIVIDENDS PER SHARE $0.28 $0.20 $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, 1995, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NET UNREA- NET
LIZED LOSS STOCK-
CAPITAL RETAINED ON AVAILABLE TREASURY HOLDERS
STOCK SURPLUS EARNINGS FOR SALE STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance, 12/31/94 3,619,670 7,314,408 19,118,678 $48,027 (1,340,000) 28,760,783
Net Earnings 1,308,309 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 $ 72,557 ($1,340,000) $72,557
$30,155,470
Balance 12/31/95 $3,627,210 $7,368,695 $23,523,626 $ 63,293 ($1,340,000) 33,242,824
Net earnings 1,574,515 1,574,515
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 $24,754,494 ($ 49,273) ($1,340,000) $34,490,822
Balance 12/31/96 $3,636,474 $7,489,127 $28,204,829 ($ 103,505) ($1,340,000) $37,886,925
Net earnings 1,574,515 1,574,515
Cash dividends declared (481,763) (481,763)
Net unrealized depreciation
on securities available for sale,
net of tax benefit of $189,692 (161,215) (161,215)
Sale of Stock
(2,346 shares) 4,692 85,043 89,735
Balance 03/31/97 $3,641,166 $7,574,170 $29,297,581 ($ 264,720) ($1,340,000) $38,908,197
</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>
MARCH 31, MARCH 31
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $1,574,515 $ 1,522,250
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 222,578 156,802
PROVISION FOR LOAN LOSSES 180,000 240,000
PROVISION FOR LOSSES ON OTHER REAL ESTATE OWNED 0 (2,510)
NEW LOANS ORIGINATED FOR SALE (925,290) (2,894,790)
PROCEEDS FROM SALE OF MORTGAGES HELD FOR SALE 861,267 2,892,941
GAIN ON SALE OF MORTGAGES ORIGINATED FOR SALE (27,569) (6,136)
NET SECURITIES LOSSES (GAINS) 55,852 0
NET AMORTIZATION OF BOND PREMIUM 22,985 64,122
(GAIN) LOSS ON SALE OF PREMISES AND EQUIPMENT 0 0
NET CHANGE IN OTHER ASSETS (337,212) (829,220)
NET CHANGE IN OTHER LIABILITIES 530,022 753,759
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,113,056 1,897,218
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF SECURITIES HELD TO MATURITY (5,053,484) ( 7,058,576)
PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS
OF SECURITIES HELD TO MATURITY 4,846,744 2,007,718
PROCEEDS FROM SALE OF SECURITIES HELD TO MATURITY 119,218 3,500,000
PURCHASES OF SECURITIES AVAILABLE FOR SALE (500,000) (3,001,875)
PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS
OF SECURITIES AVAILABLE FOR SALE 38,853 2,363
PROCEEDS FROM CALL OF SECURITIES AVAILABLE FOR SALE 60,021 500,000
NET LOANS MADE TO CUSTOMERS (2,860,140) 143,572
CAPITAL EXPENDITURES (346,144) (154,462)
PROCEEDS FROM SALE OF FIXED ASSETS 0 0
NET CASH USED IN INVESTING ACTIVITIES (3,694,932) (4,061,260)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET CHANGE IN SAVINGS, NOW AND DEMAND DEPOSITS (7,683,427) (6,686,550)
NET CHANGE IN TIME DEPOSITS 382,793 1,005,002
NET CHANGE IN REPURCHASE AGREEMENTS (2,852,745) (464,443)
PROCEEDS FROM FEDERAL HOME LOAN BANK 3,000,000 9,000,000
REPAYMENT OF ADVANCES FROM FEDERAL HOME LOAN BANK (5,000,000) (4,000,000)
NET CHANGE IN SHORT TERM OTHER BORROWED FUNDS 10,641,866 (1,608,855)
PROCEEDS OF SALE FROM CAPITAL STOCK 89,735 129,696
PAYMENTS OF DIVIDENDS (481,763) (343,647)
<PAGE>
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,903,541) (2,968,797)
NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS (3,441,325) (5,132,839)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,298,408 12,559,797
CASH AND CASH EQUIVALENTS AT END OF QUARTER $9,857,083 $ 7,426,958
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST $2,840,619 $2,805,299
INCOME TAXES 279,000 $ 5,000
NON-CASH TRANSACTIONS:
TRANSFER FROM LOANS TO REAL ESTATE OWNED (OTHER ASSETS) 0 $ 70,000
TRANSFER OF SECURITIES FROM HELD TO MATURITY
TO AVAILABLE FOR SALE 0 0
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
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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, 1997
COMPARED TO MARCH 31, 1996
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
VOLUME RATE NET
LOANS $ 281,354 $ (257,442) $ 23,912
TAXABLE SECURITIES $ 74,573 $ 63,500 138,073
TAX EXEMPT SECURITIES $ (13,112) $ (2,799) (15,911)
FEDERAL FUNDS SOLD AND
MONEY MARKET FUNDS $ 3,944 $ 46 3,990
TOTAL EARNING ASSETS $ 346,758 $ (196,694) $ 150,064
DEPOSITS $ ( 65,655) $ (102,547) (168,202)
BORROWINGS $ 212,160 $ 3,977 216,137
TOTAL INTEREST
BEARING LIABILITIES $ 146,504 $ (98,569) $ 47,935
NET CHANGE IN INTEREST $ 200,254 ($ 98,125) $ 102,129
</TABLE>
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>
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
AS OF MARCH 31, 1997
(UNAUDITED)
Amounts in Thousands
The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at March 31
1997 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
TOTAL TO FIVE THAN FIVE
ONE YEAR YEARS YEARS TOTAL
<S> <C> <C> <C> <C>
Loans - Fixed Rate $ 13,094 $ 34,085 $ 17,868 $ 65,047
- Variable Rate 117,652 26,616 2,071 146,339
Investments 36,490 37,474 34,328 108,292
Federal Funds Sold 0 0 0 0
Interest Rate Swap 0 15,000 0 15,000
Total Earning Assets 167,236 113,175 54,267 334,678
Deposits 141,486 14,521 88,367 244,374
Repurchase Agreements 5,465 0 725 6,190
Borrowings 40,122 12,428 0 52,550
Interest Rate Swap 5,000 10,000 0 15,000
Total Sources 192,073 36,949 89,092 318,114
Net Gap Position (24.837) 76,226 (34,825) 16,564
Cumulative Gap (24,837) $51,389 $16,564 $16,564
Rate Sensitive Assets/
<S> <C> <C> <C> <C>
Rate Sensitive Liabilities 87.07% 306.30% 60.91% 105.21%
</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 $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 $44,000,000
are amortized using the weighted average maturity of 147 months,
with an additional prepayment rate of 11%, which approximates
the Bank s prior experience. PAGE
<PAGE>
NOTES TO FINANCIAL STATEMENTS DATED MARCH 31, 1997
1. Summary of interim financial statement adjustments.
The accompanying unaudited 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 1996 Annual Report.
<TABLE>
<CAPTION>
March 31, 1997
Carrying Market
Value Value
<S> <C> <C> <C>
2. INVESTMENT SECURITIES
a. U.S. Treasury and other
government agencies $ 19,392,495 $ 18,994,154
b. Marketable equity securities 550,000 547,250
Total Securities Available for Sale $ 19,942,495 $ 19,541,404
HELD TO MATURITY
a. U.S. Treasury and other
political subdivisions 62,001,708 61,072,423
b. States of the U.S. and other
political subdivisions 11,857,531 12,138,167
c. Corporate bonds 9,041,242
9,009,995
Total Securities Held to Maturity $82,900,481 $82,220,585
OTHER SECURITIES 5,448,569 $5,448,569
TOTAL SECURITIES $108,291,545 $107,210,558
</TABLE>
The Bank does not hold any securities for a single issuer which
exceed 10% of the Bank s stockholders equity.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C> <C>
3. LOANS:
a. Commercial, agricultural and
other loans $ 42,210,770 $ 39,451,440
b. Real Estate - Construction 7,414,073 8,905,823
c. Real Estate - Mortgage 148,062,406 146,361,313
d. Installment Loans 16,999,767 17,241,472
Total Loans $214,687,016 $211,960,048
</TABLE>
PAGE
<PAGE>
4. CHANGES IN ALLOWANCE FOR POSSIBLE LOAN LOSSES:
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
<S> <C> <C>
Balance, beginning January 1: $4,292,995 $ 4,047,883
Provision charged to income 180,000 240,000
Recoveries of amounts charged 26,350 29,512
Losses charged to provision 133,172 148,975
Balance, ending March 31 $4,366,173 $ 4,168,420
</TABLE>
Information regarding impaired loans is as follows for March 31, 1997:
<TABLE>
<S> <C>
Average investment in impaired loans $ 1,913,664
Interest income recognized on impaired loans,
including interest income recognized on cash basis 18,884
Interest income recognized on impaired loans on
cash basis 18,884
Balance of impaired loans 1,631,523
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 1,631,523
Portion of allowance for loan losses allocated
to the impaired loan balance 118,824
</TABLE>
5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE:
<TABLE>
<CAPTION>
3/31/97 3/31/96 3/31/95
<S> <C> <C> <C>
Balance, beginning January 1: $22,589 $26,000 $30,486
Provision charged to income 0 (2,510) 9,867
Losses charged to provision 0 0 0
Balance, ending March 31 $22,589 $23,490 $40,353
</TABLE>
6. The aggregate dollar amount of loans made to directors, executive
officers or principal holders of equity securities as of March 31, 1997 and
December 31, 1996 respectively were:
<TABLE>
<S> <C> <C>
Aggregate amount, beginning 1/1 $3,806,555 $3,279,479
New loans 228,674 912,044
Repayments 83,992 384,968
Aggregate amount, ending 3/31/97 $3,951,237
Aggregate amount, ending 12/31/96 $3,806,555
</TABLE>
PAGE
<PAGE>
<PAGE>
7. OTHER ASSETS:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C> <C>
a: Interest earned but not paid on:
Loans $1,726,089 $1,471,216
Investments 1,168,578 1,008,678
b. Other Real Estate Owned 269,954 270,430
</TABLE>
8. INCOME TAXES:
Components of income tax expense for the period ended March 31, 1997
are as follows:
<TABLE>
<S> <C> <C>
Current
Federal $680,789
State 26,017
Deferred 37,147
$743,953
</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, 1997
<TABLE>
<S> <C>
Computed tax expense $ 785,552
Tax exempt interest (64,476)
Other $ 22,877
$ 743,953
</TABLE>
PAGE
<PAGE>
At March 31, 1997, items giving rise to the deferred income tax assets and
liabilities, using a tax rate of 34%, are as follows:
<TABLE>
<CAPTION>
ASSET LIABILITY
<S> <C> <C>
Allowance for possible losses on loans
And real estate owned $1,330,138
Deferred and accrued employee benefits 936,499
Deferred loan origination fees 60,051
Security losses not currently deductible 0
Core deposit intangibles 84,221
Depreciation 0 78,850
Other 8,595
$2,419,504 $ 78,850
</TABLE>
No valuation allowance is deemed necessary for the deferred tax asset.
<TABLE>
<CAPTION>
<S> <C> <C>
9. INCOME TAX EXPENSE: 1997 1996
Federal Income Tax $717,936 $644,549
State Income Tax 26,017 23,151
</TABLE>
PAGE
<PAGE>
MANAGEMENT S DISCUSSION AND ANALYSIS
The following is the review of the results of operations for
March 31, 1997, as compared to March 31, 1996, showing earnings with a 3%
increase, and changes in the balance sheet of $19,000,000 or approximately 6%
over last year. Total loans have grown by almost $13,000,000 over the past
twelve months, with the investment portfolio remaining constant over the past
year. Purchases in the Bank s investment portfolio totaled in excess of
$15,000,000; however, maturities and principal paydowns from the Bank s
mortgage backed securities portfolios were comparable for the same period.
Purchases were made of US Government sponsored debentures or mortgage backed
pools. Unrealized gains and losses showed a negative balance for the second
year in a row and continue to be indicative of the current economic
marketplace with interest rates rising abruptly and presumed to be temporary.
This is also visible in the total market value of the portfolio that is
currently $1,080,000 below book value. However, the portfolio is earning in
excess of 7%. The Bank holds one structured note, a 10-year step up
government agency debenture, which steps annually by 1/8 of 1% after another
two years at 7%.
The loan growth of almost $13,000,000 from March 31, 1996, has
been predominantly in loans secured by real estate. This 6% growth is
comparable to the growth between 1995 and 1996, which was also attributable
to loans secured by real estate. The Bank continues to experience strong
competition from other financial institutions within its marketplace. Its
strength lies in the relationships built with our customers and the ability
to offer prompt service in response to their needs.
Funding for the asset growth has come predominantly from
increases in advances from the Federal Home Loan Bank totaling $16,500,000 as
those funds became less costly than traditional deposit products. A year ago
the bank had increased its deposits by $23,255,000 more than in March of
1995, through CD campaigns that brought in funds for periods of one to two
years. Those campaigns offered national market rates and affected only that
specific portion of total deposits, thereby not increasing existing deposit
costs. As those funds began to mature in mid-1996, which is visible with the
reduction in time deposits between March 1996 and 1997 of $6,600,000, the
Bank elected to switch to the Federal Home Loan Bank as its source of
replacement for some of those funds.
Similarly, between March 1995 and 1996, the Bank increased its
advances from the Federal Home Loan Bank 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 its serves. The Bank
PAGE
<PAGE>
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 17.2% as of March 31, 1996
for the 30-day horizon and 18.8% 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 March 31, 1995,
1996 and 1997. With growth of 6% in the Bank s balance sheet, earnings grew
by $52,000. In comparison, the Bank experienced a very strong first quarter
in 1996 in comparison to the first quarter of 1995 and which produced a 16%
increase over net income earnings during the first three months of 1995.
Interest income is affected by rates, volumes and the mix of
earning assets and interest bearing liabilities. For the first three months
of 1996, net interest income increased by $100,000 and may be broken down as
follows. The loan portfolio yielded the Bank additional interest income of
$280,000 through increases in volumes, but experienced offsetting decreasing
in interest income totaling $257,000 due to decreases in rates, leaving the
growth in loan interest income virtually flat over the past twelve months.
Yields on loans decreased by 21 basis points from March 1996 to March of
1997, following a year in which they had increased from 1995 to 1996 by 24
basis points. Looking at the comparison in dollars of interest earned from
1995 to 1996, loan interest income was increased by $590,000, achieved
through increases in volume totaling $315,000 and increases in rates of
$275,000.
Although the investment portfolio did not grow between the years
ended March 31, 1996 and 1997, the portfolio changed as securities matured or
were called. Total investment income grew by $126,000, with increases in both
rates and volumes on those securities which are taxable ($142,000) and
decreasing in both rates and volumes on tax exempt securities owned by the
Bank ($16,000). The yield on the entire securities portfolio went up just
slightly (6 basis points) during this period. At March 31, 1996, investment
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.
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 several years. At March 31, 1997, the Bank s cost of deposits had
decreased by $168,000, $65,000 due to reductions in volumes of certificates
of deposit and $102,000 due to reductions in rates. The cost of borrowings
increased by $216,000, which is comprised of $212,000 due to increased
volumes (of $16,500,000 as mentioned earlier) and only $4,000 increase
attributed to rate increases. The cost of purchased funds over the past
twelve months has increased by 8.5 basis points. As stated previously, during
1995 and 1996, the Bank promoted certificates of deposit at current national
market rates and attracted funds, which only increased the cost of funds on
those particular CDS. The Bank s cost of interest bearing funds increased by
PAGE
<PAGE>
$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.
The Bank is positioned well 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 $60,000 during the second year of the
drop, while increasing its income in the first year by $220,000. This may be
seen in the Interest Rate Sensitivity Analysis enclosed showing that during
the first year the Bank has almost $25,000,000 fewer assets repricing than
liabilities. If rates were to rise by 200 basis points, the Bank could
experience a drop in interest income in the first year by $115,000, but pick
up additional interest earnings in the second year by $90,000.
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 1990s. The ratio for the reserve for possible loan losses has been
over 2% for the past three years, with a ratio of 2.03% as of March 31, 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 under writing 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 are estimated at $500,000 for 1997,
with first quarter 1997 charge offs totaling $133,000 compared to $149,000
during the first quarter of 1996. 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 became current in the second quarter of 1996 and the other secured SBA
financing.
<TABLE>
<CAPTION>
Category 1997 1996 1995
<S> <C> <C> <C>
90-day past due and
still accruing $ 1,302,437 $ 1,247,941 $ 189,904
Non-accruing 3,207,492 3,289,461 4,184,679
Total 4,509,929 4,537,402 4,374,583
Gross loans $214,687,016 $201,502,682 $190,459,413
Percentage of gross loans 2.10% 2.25% 2.30%
</TABLE>
PAGE
<PAGE>
In reviewing non-interest income and non-interest expense for the
period between March 31, 1996 and 1997, there are no categories showing
significant changes with dollars not exceeding $60,000 or more than 4% for
any major category. The following is a discussion of the changes between 1995
and 1996. The first three months 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.
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.
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.
The Bank s capital to asset ratio is 11.6% and the Bank far
exceeds the required risk based capital ratio of 8% with its Tier 1 ratio of
18.3% and total capital ratio of 19.5% or additional capital of $21,800,000.
These ratios compare favorably to March 31, 1996 when the capital to average
asset ratio was 10.6%, Tier 1 and total capital ratios compared to risk
weighted assets were 16.1% and 17.4% respectively.
SFAS No. 125 and 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 March 31, 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
Sheldon F. Goldthwait, Jr. /s/
Date: May 15, 1997 Sheldon F. Goldthwait, Jr.
President
Virginia M. Vendrell /s/
Date: May 15, 1997 Virginia M. Vendrell
Senior Vice President, Treasurer
and Chief Financial Officer
PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000743367
<NAME> BAR HARBOR BANKSHARES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,857,083
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,541,404
<INVESTMENTS-CARRYING> 82,900,482
<INVESTMENTS-MARKET> 82,220,584
<LOANS> 214,687,016
<ALLOWANCE> (4,366,173)
<TOTAL-ASSETS> 345,182,526
<DEPOSITS> 244,374,524
<SHORT-TERM> 43,943,463
<LIABILITIES-OTHER> 3,956,342
<LONG-TERM> 14,000,000
0
0
<COMMON> 3,641,166
<OTHER-SE> 35,267,031
<TOTAL-LIABILITIES-AND-EQUITY> 345,182,526
<INTEREST-LOAN> 5,026,419
<INTEREST-INVEST> 1,871,265
<INTEREST-OTHER> 9,183
<INTEREST-TOTAL> 6,906,867
<INTEREST-DEPOSIT> 2,138,874
<INTEREST-EXPENSE> 2,864,953
<INTEREST-INCOME-NET> 4,041,914
<LOAN-LOSSES> 180,000
<SECURITIES-GAINS> (55,852)
<EXPENSE-OTHER> 2,514,433
<INCOME-PRETAX> 2,318,468
<INCOME-PRE-EXTRAORDINARY> 2,318,468
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,574,515
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
<YIELD-ACTUAL> 8.78
<LOANS-NON> 3,289,461
<LOANS-PAST> 1,247,941
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 367,000
<ALLOWANCE-OPEN> 4,292,995
<CHARGE-OFFS> 133,172
<RECOVERIES> 26,350
<ALLOWANCE-CLOSE> 4,366,173
<ALLOWANCE-DOMESTIC> 4,366,173
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 683,000
</TABLE>
