7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (fee required)
For the fiscal year ended December 31, 1997.
Commission File No. 0-13666
BAR HARBOR BANKSHARES
State or other jurisdiction of incorporation or
organization: Maine
IRS Employer Identification Number: 01-0393663
Address: P O Box 400, 82 Main Street, Bar Harbor, ME
Zip Code:04609-0400 Registrant's telephone number, including
area code: (207) 288-3314
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock. Par Value $2.00 per
share
Indicate by check mark whether the registrant (1)
has filed all reports required to
be filed by Section 13 or 15(D) of
the Securities Exchange Act of 1934
during the preceding 12 months (or for
such shorter period that the registrant
was required to file such reports), and
(2) has been subject to such filing
requirements for the past 90
days: Yes XX
Indicate by check mark if disclosure of
delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of
this chapter) is not contained herein,
and will not be contained, to the
best of registrant's knowledge, in
definite proxy or information
statements incorporated by reference in
Part III of this Form 10-K or any
amendment to this form 10-K.
The aggregate market value of the voting
stock held by non-affiliates of the
registrant, as of January 31, 1998 is:
Common stock, $2.00 par value
$91,255,771
The number of shares outstanding of each
of the registrant's classes of common
stock, as of January 31, 1998 is:
Common stock
1,721,807
Documents incorporated by Reference:
(1) portions of the Annual Report to
Stockholders for the year ended
December 31, 1997 are incorporated by
reference into Part II, Items 6
through 8 and Part IV, Item 14 of the
Form 10-K. INDEX
<TABLE>
<S> <C>
<C>
<CAPTION>
ITEM NUMBER PAGE
1. Business 3-5
2. Properties 5-6
3. Legal Proceedings 6
4. Submission of Matters to a Vote
of 6
Security Holders
5. Market for Registrant's Common
Equity and
Related Stockholders Matters 6
6. Selected Financial Data 7
7. Management's Discussion and
Analysis of
Financial Condition and Results of 7-18
Operation
7a. Quantitative and Qualitative
Disclosures
about Market Risk 19-20
8. Consolidated Financial Statements
and
Supplementary Data 21
9. Changes in and Disagreements with
Accountants on Accounting and
Financial 21
Disclosure
10. Directors and Executive Officers of
the 22-23
Registrant
11. Executive Compensation 24-25
12. Security Ownership of Certain
Beneficial
Owners and Management 26-27
13. Certain Relationships and Related 27
Transactions
14. Exhibits, Financial Statement
Schedules 28-29
and Reports on Form 8-K
</TABLE>
PART I
ITEM 1. BUSINESS
Bar Harbor Bankshares, ("the Company"), was
incorporated January 19, 1984. As of
December 31,
1997, the Company's securities consisted
of one class of common stock ("the
Common Stock"), par value of $2.00 per
share, of which there are 1,721,807
shares outstanding held of record by
approximately 1,075 stockholders.
The accompanying consolidated financial
statements include the accounts of the
company and its whollyowned subsidiary,
Bar Harbor Banking and Trust Company
("the Bank"). All inter-company balances
and transactions have been eliminated in
the accompanying financial statements.
The Bank conducts substantially the same
business operations as a typical full
service, independent, community bank. It
has ten offices in coastal Maine,
including its principal office located
at 82 Main Street, Bar Harbor, Hancock
County, and adjacent Washington County.
The Hancock County offices are located
at Maine Street, Northeast Harbor; Main
Street, Southwest Harbor; Main Street,
Blue Hill; route #15, Deer isle; corner
of High and Washington Streets,
Ellsworth; and Main Street, Winter
Harbor. The Washington County offices
are located at the corner of Routes 1
and 1A, Milbridge; Main Street, Machias;
and Washington Street, Lubec. In January
of 1997, the Bank moved its operations,
check clearing,
technology and mail staff to a newly
constructed Operations Center located on
Avery Lane in Ellsworth, Maine. In
addition, the Bank's Trust Department
has an office at One Cumberland Place,
Bangor, Maine.
The Bank is a retail bank serving
primarily individual customers, small
retail establishments, seasonal lodging,
campgrounds and restaurants. As a
coastal bank it serves the lobstering,
fishing and aquaculture industries. It
also serves Maine's wild blueberry
industry through its Washington County
offices. The Bank has not made any
material changes in its mode of
conducting business during the past five
years.
The Bank operates in a high competitive
market. Competition among banks in Maine
has increased in recent years as a
result of aggressive acquisition
programs by statewide holding companies
and by completely open interstate
banking. The bank continues to be one of
the largest independent commercial banks
in the State of Maine.
In the Bank's immediate service area
there are two other independent
commercial banks, one Savings and Loan
Association, three savings bank branch
offices and three commercial banks which
are offices owned by holding companies
based outside the state.
The Bank has a broad deposit base and
loss of any one depositor or closely
aligned group of depositors would not
have a materially adverse effect on its
business. Approximately 85% of the
Bank's deposits are in interest bearing
accounts. The Bank has paid, and
anticipates that it will continue to
pay, current competitive rates on
certificates of deposit, IRAs, NOW and
money market accounts and does not
anticipate loss of these deposits.
The Bank provides the normal banking
services offered by a commercial bank
including checking accounts, NOW
accounts, all forms of savings and time
deposit accounts, individual retirement
accounts, safe deposit boxes,
collections, travelers checks, night
depository services, direct deposit
payroll services, credit cards, personal
money orders, bank-by-mail and club
accounts and drive-up facilities at all
offices. The Bank also has arrangements
with other institutions for the
provision of certain services which it
does not provide directly, such as
computerized payroll services. In
addition, the Bank operates a large
Trust Department, including an office in
Bangor, Maine. The Trust Department
handles book assets for clients totaling
$261.7 million and offers professionally
managed investment accounts.
The Bank has Automated Teller Machines
(ATMs) located in each of its ten branch
locations. These ATMs access major
networks for use of the Bank's cards
throughout the United States including
the Plus and NYCE systems as well as the
major credit card networks.
In addition, to the foregoing, the Bank
offers
lending services including consumer
credit in the form of installment loans,
stand-by credit, VISA credit card
accounts and student loans; residential
mortgage loans; home equity loans' and
business loans to individuals,
partnerships and corporations for
capital construction, the purchase of
real estate and working capital.
Business loans are provided primarily to
organizations and individuals in the
tourist, health care, blueberry,
shipbuilding and fishing and aquaculture
industries as well as to the usual small
businesses associated with small coastal
communities. Certain larger loans which
would exceed the Bank's lending limits
are written on a participation basis
with correspondent banks, with the Bank
retaining only such portions of those
loans as are within its lending limits.
The Bank also provides trust and estate
planning services to its customers. The
principal market areas for all of the
Bank's services consists of Hancock and
Washington Counties. The Bank's policy
for lending limits is up 20% of capital
surplus to any borrower provided that
the loans are secured and approved by
the Executive Loan Committee, which
includes members of the Bank's Board of
Directors.
As a state chartered bank, the Bank has
the Bureau of Banking of the State of
Maine and the Federal Deposit Insurance
Corporation as bank regulatory agencies
responsible for its supervision. In
addition, as a bank holding company,
the Company is supervised by the Federal
Reserve Bank.
The Bank is not engaged in any material
research activities relating to the
development of new services or the
improvement of existing services except
in the normal course of business
activities. As of December 31, 1997, the
Bank employed 171 persons in a full or
part-time basis. The President,
Executive Vice President, Senior Vice
Presidents and Vice President in charge
of Human Resources are employed by the
Bank as well as serve as officers of the
Company. They are not compensated by the
Company for their services. There are no
employees of the Company.
Since the Bank is located in a summer
resort area, a portion of the Bank's
business is seasonal in nature. In
addition, employment in the sardine and
blueberry industries of Washington
County is seasonal. As a result of these
factors, the Bank has had an annual
deposit swing which has been declining
in the last several years from swings of
more than 20% in the late 1980s, to
under 10% for both 1996 and 1997. The
reduction in outflow may be attributable
to increasing interest rates and to
safety and soundness issues as customers
choose to have their funds insured by
maintaining their deposits in the
banking system. Deposits generally peak
in late September with the low point in
late spring. This deposit swing is
predictable and does not have a
materially adverse effect on the Bank.
Should the Bank need additional funds
for liquidity, it may utilize short term
borrowing lines set up through the
Federal Home Loan Bank of Boston, seek
repurchase agreements through a primary
securities dealer or draw on its
seasonal line at the Federal
Reserve Bank of Boston.
On July 11, 1995, the Board of Directors
declared a five-for-one stock split to
all shareholders of record as of that
date and which took effect on August 7,
1995. All share and per data share
included in the Form 10-K have been
restated to reflect the stock split.
ITEM 2. PROPERTIES
The eleven parcels of real estate owned
and utilized by the Bank for its
operations are described below:
1. The principal office of the Bank is
located at 82 Main Street, Bar Harbor,
Maine and includes a building housing
banking facilities and administrative
offices and an adjacent 35 car parking
lot. The building was renovated and
expanded in 1987 and 1988. A portion of
the expanded building was completed in
1990 offering space for operational
personnel.
2. An office is located at Main Street,
Northeast Harbor, Maine. This property
consists of a building constructed in
1974 which is adequate for the Bank's
current needs at that location and is
presently undergoing interior
renovations to better meet the Bank's
needs at that location.
3. An office is located on Main Street,
Southwest Harbor, Maine. This property
consists of a building constructed in
1975 which was added to and renovated in
1989 to better meet the needs at that
location.
4. An office is located at Church
Street, Deer Isle, Maine. This property
consists of a building constructed in
1974 which was added to and renovated in
1994 to better meet the needs at that
location.
5. An office is located on Main Street,
Blue Hill, Maine. This property consists
of a building constructed in 1960 which
was renovated in 1989 to better meet the
needs at that location.
6. An office is located at Main Street,
Milbridge, Maine. This property consists
of a building constructed in 1974 to
which a vestibule was added in 1994 to
house an ATM which helps to better meet
the needs at that location.
7. An office is located at Washington
Street, Lubec, Maine. This branch
consists of a building constructed in
1990 and is adequate for the Bank's
needs at that location.
8. An office is located at High Street,
Ellsworth, Maine. This branch consists
of a building constructed in 1982 which
is adequate for the Bank's current needs
at that location.
9. An office is located at Main Street,
Winter Harbor. This branch consists of a
building constructed in 1995 and is
adequate for the Bank's needs at that
location.
10. An office is located on Main
Street, Machias, Maine. This branch was
purchased from Key Bank of Maine in May,
1990, and was renovated in 1995 to
better meet the Bank's needs at that
location.
11. An Operations Center is located on
Avery Lane, Ellsworth, Maine and was
occupied by the Bank's operations, check
clearing, technology, training and mail
departments in January of 1997.
A parcel of land adjacent to the Blue
Hill branch was purchased in 1981.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
High and low bids for each quarter of
1997 and 1996 are listed below (per
quotes from The Bangor Daily News
through September 23, 1997), the date of
listing on the American Stock Exchange.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<capti
on>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High High High High
Low Low Low Low
1997 38.75 to 42.75 to 48.375 to 62.00 to
35.00 36.375 39.75 49.125
1996 37.50 to 44.00 to 42.00 to 39.50 to
26.125 37.00 38.00 36.25
</TABLE>
As of January 1, 1998, there were 1,075 registered
holders of record of Bar Harbor Bankshares common
stock.
Dividends paid by the Company in 1997 and 1996:
<TABLE>
<S> <C> <C> <C> <C>
<capti
on>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1997 $0.28 $0.30 $0.30 $0.32
1996 $0.20 $0.20 $0.25 $0.53
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Selected financial information for the past
five
years is contained on Pae 3 of the
Company's Annual Report to
Shareholders for the year ended
December 31, 1997 and is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in the
section captioned "Management's
Discussion and Analysis of Financial
Condition and Results of Operations"
in the Company's Annual Report is
incorporated herein by reference.
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST
EARNINGS (Amounts in Thousands)
1997
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
AVERAGE
YIELD/ BALANCE
INTEREST RATE
ASSETS
Loans $217,295
$21,028 9.68%
Taxable Investment Securities 96,195
6,792 7.06%
Non-Taxable Investment 10,653
651 6.11%
Securities
Fed. Funds Sold & Money Market 900
47 5.23%
Funds
Total Interest-Earning Assets $325,043
$28,518 8.77%
Non-Interest Earning Assets:
Total Cash and Due from 9,797
Less: Allowance for Losses (4,465)
Bank Premises and Equipment 7,738
Other Assets 6,442
TOTAL ASSETS $344,555
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Demand $39,536
$668 1.69%
Deposits
Savings Deposits 52,455
1,334 2.54%
Time Deposits 122,491
6,791 5.54%
Repurchase Agreements and Short
Term Borrowings 40,769
2,238 5.49%
Long Term Borrowings 11,486
679 5.91%
TOTAL INTEREST BEARING $266,733
$11,710 4.39%
LIABILITIES
Non-Interest Bearing
Liabilities:
Non-Interest Bearing Demand 36,545
Deposits
Other Liabilities 1,805
Stockholders' Equity 39,472
TOTAL LIABILITIES AND
STOCKHOLDERS' $344,555
EQUITY
NET EARNING ASSETS $58,309
NET INTEREST INCOME/NET
$16,808 4.38%
INTEREST SPREAD
NET INTEREST MARGIN 5.17%
</TABLE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST
EARNINGS
(Amounts in Thousands)
1996
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
AVERAGE
YIELD/ BALANCE
INTEREST RATE
ASSETS
Loans $207,188
$20,303 9.80%
Taxable Investment Securities 93,607
6,422 6.86%
Non-Taxable Investment 12,940
767 5.93%
Securities
Fed. Funds Sold & Money Market 557
30 5.47%
Funds
Total Interest-Earning Assets $314,292
$27,522 8.76%
Non-Interest Earning Assets:
Total Cash and Due from 8,878
Less: Allowance for Losses (4,262)
Bank Premises and Equipment 6,880
Other Assets 6,183
TOTAL ASSETS $331,971
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Demand $ 38,036 $
618 1.62%
Deposits
Savings Deposits 54,503
1,371 2.52%
Time Deposits 124,427
6,899 5.54%
Repurchase Agreements and Short
Term Borrowings 37,519
2,030 5.41%
Long Term Borrowings 6,768
363 5.37%
TOTAL INTEREST BEARING $261,253
$11,281 4.27%
LIABILITIES
Non-Interest Bearing
Liabilities:
Non-Interest Bearing Demand 33,408
Deposits
Other Liabilities 1,735
Stockholders' Equity 35,575
TOTAL LIABILITIES AND
STOCKHOLDERS' $331,971
EQUITY
NET EARNING ASSETS $ 53,039
NET INTEREST INCOME/NET $
16,241 4.44%
INTEREST SPREAD
NET INTEREST MARGIN 5.17%
</TABLE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST
EARNINGS (Amounts in Thousands)
1995
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
AVERAGE
YIELD/ BALANCE
INTEREST RATE
ASSETS
Loans $195,179
$19,299 9.89%
Taxable Investment Securities 84,364
5,877 6.97%
Non-Taxable Investment 14,139
852 6.03%
Securities
Fed. Funds Sold & Money Market 2,098
124 5.92%
Funds
Total Interest-Earning Assets $295,780
$26,152 8.84%
Non-Interest Earning Assets:
Total Cash and Due from 7,728
Less: Allowance for Losses (4,143)
Bank Premises and Equipment 5,720
Other Assets 6,027
TOTAL ASSETS $311,112
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Demand $ 37,110 $
606 1.63%
Deposits
Savings Deposits 57,521
1,409 2.45%
Time Deposits 115,118
6,413 5.57%
Repurchase Agreements and Short
Term Borrowings 38,441
2,175 5.66%
Long Term Borrowings 580
21 3.56%
TOTAL INTEREST BEARING $248,770
$10,624 4.27%
LIABILITIES
Non-Interest Bearing
Liabilities:
Non-Interest Bearing Demand 30,083
Deposits
Other Liabilities 1,273
Stockholders' Equity 30,986
TOTAL LIABILITIES AND
STOCKHOLDERS' $311,112
EQUITY
NET EARNING ASSETS $ 47,009
NET INTEREST INCOME/NET $
15,528 4.57%
INTEREST SPREAD
NET INTEREST MARGIN 5.25%
</TABLE>
NOTES TO AVERAGE BALANCE SHEET
1. Tax-exempt income is calculated at coupon rate,
not adjusted on a tax equivalent basis.
2. At December 31, 1997, loans on non-accrual
status totaled $3,236,000. These loans
are included in the loan category on the
preceding Average Balance Sheet. If
interest had been accrued on such loans,
interest income on loans would have been
$362,600 higher in 1997.
3. The Bank's net interest margin
remains above the national average, and
has remained at higher than average
levels for a number of years. The Bank
is a community bank which focuses its
efforts on customer relationships and
good service while remaining competitive
in the demand for loans, both in the
commercial and consumer sectors. The
spread and margin for the Bank have been
decreasing gradually over the past three
years, as competition for the same
customers within the Bank's market area
continues to grow. In 1997, the average
rate on the bank's earning assets
remained flat when compared to 1996 and
the cost of interest bearing liabilities
increased by 12 basis points. This
compares with the average rate on
earning assets decreasing by 8 basis
points in 1996 when compared to 1995,
and the average rate on interest bearing
liabilities
remaining flat. Although the net
interest spread dropped from 1996 to
1997, (6 basis points), the drop was not
as significant as the drop between 1995
and 1996, (13 basis points). The average
net interest margin has remained at
5.17% for both 1997 and 1996. On
average, non-interest bearing
liabilities increased in 1997 over 1996
by $3.1 million. The Bank continues to
seek quality loans, broadening its
customer base as the spread tightens.
The effect of rates and volumes is
exemplified further in the Rate Volume
Analysis found on page 9 of this report.
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
relationships of the absolute dollar
amounts of the change in each.
YEAR-ENDEDECEMBER 31, 1997
COMPARED TO DECEMBER 31, 1996
INCREASES (DECREASES) DUE TO:
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
VOLUME RATE
NET Loans $981
($256) $725
Taxable Investment Securities 180
183 363
Non-taxable Investment Securities (139)
23 (116)
Federal Funds Sold and Money 20
4 24
Market Funds
TOTAL EARNING ASSETS $1,042
($46) $996
Deposits $23
($118) ($95)
Repurchase Agreements and Short
Term 110
98 208
Borrowings
Long Term Borrowings 276
40 316
TOTAL INTEREST BEARING $409 $
20 $429
LIABILITIES
NET CHANGE IN INTEREST $633 ($
66) $567
</TABLE>
YEAR-ENDED DECEMBER 31 1996
COMPARED TO DECEMBER 31, 1995 INCREASES (DECREASES)
DUE TO: <TABLE>
<S> <C> <C>
<C>
<CAPTION>
VOLUME RATE
NET Loans $1,178
$(174) $1,004
Taxable Investment Securities 654
(110) 544
Non-Taxable Investment Securities (71)
(14) (85)
Federal Funds Sold and Money (85)
(9) (94)
Market Funds
TOTAL EARNING ASSETS $1,676
$(307) $1,369
Deposits 373
86 459
Repurchase Agreements and Short
Term (55)
(90) (145)
Borrowings
Long Term Borrowings 344
(2) 342
TOTAL INTEREST BEARING $ 662
(6) $ 656
LIABILITIES
NET CHANGE IN INTEREST $1,014
($301) $713
</TABLE>
SUMMARY OF INVESTMENT PORTFOLIO
The information presented below is to facilitate
the
analysis and comparison
of sources of income and exposure to risks.
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
1997 1996 1995
U. S. Treasury Securities and
Obligations of Other U. S.
Government $13,250 $11,750
$14,279
Agencies
Mortgage Backed Securities:
U. S. Government 57,913 49,255
42,764
Agencies
Other 5,082 6,812 8,211
Obligations of State and
Political 8,105 12,392
13,241
Subdivisions
Other Bonds 1,001 2,508 3,714
SECURITIES HELD TO MATURITY $85,351 $82,717
$82,209
Obligations of Other U. S.
Government 8,803 13,337 8,145
Agencies
Mortgage Backed Securities:
U. S. Government 5,233 5,430 5,579
Agencies
Other Bonds 0 0 500
Marketable Equity Securities 572 617 0
SECURITIES AVAILABLE FOR SALE $14,608 $19,384
$14,224
</TABLE>
MATURITY SCHEDULE FOR INVESTMENTS HELD TO MATURITY
At December, 1997
<TABLE>
<S> <C> <C>
<C> <C>
<CAPTION>
Greate
Greate
r than r
than Greate One One Five r than
Year or year
Years Ten
Less to
to Ten Years
Five
Years
Years
Obligations of Other U. S.
Government Agencies $ $
$ $
2,500 4,500
6,250 0 Average Yield 7.05%
7.05% 6.92%
Mortgage-backed Securities:
U. S. Government Agencies 0 7,043
7,597 43,273
Average Yield 7.27%
7.07% 7.36%
Mortgage-backed Securities:
Other 0 0
1,238 3,844
Average Yield
5.27% 7.44%
Obligations of State and
Political Subdivisions 2,237 4,168
0 1,700
Average Yield 6.50% 6.48%
7.23%
Other Bonds 1,001 0
0 0
Average Yield 7.62%
TOTAL $ $
$ $
5,738 15,711
15,085 48,817
</TABLE>
MATURITY SCHEDULE FOR INVESTMENTS
AVAILABLE FOR SALE AT DECEMBER 31,
1997 (at fair value)
<TABLE>
<S> <C> <C>
<C> <C>
<CAPTION>
Greater
One
than
One Year to Five
Greater
Year Five Years
than Ten
or Years to Ten
Years
Less Years
Obligations of Other
U. S. Government $ $
$ $ 1,993
Agencies 999 1,505
4,306
Average Yield 6.9% 6.84% 7.44%
7.18%
Mortgage-Backed
Securities: 0
0 5,233
U. S. Government
Agencies
Average Yield
7.49%
Other Bonds 0
0 0
Average Yield
TOTAL $ $
$ $ 7,226
999 1,505
4,306
</TABLE>
Mortgage backed securities are included based
upon
the final maturity date of the security.
The maturity schedule for securities available
for
sale excludes marketable equity
securities totaling $572,000.
Yield on tax exempt bonds were not
computed on a tax equivalent basis.
The bank does not hold any securities
for a single issuer, other than U. S.
Government agencies and corporations,
where the aggregate book value of the
securities exceed 10% of the Bank's
stockholders' equity.
The maturities for the mortgage-
backed securities are shown at the
stated maturity. If the Bank
presented mortgage-backed securities
by average expected life, the
breakdown would be:
<TABLE>
<S> <C> <C>
<C> <C>
<CAPTION>
Greater
Greater
One than One than
Greater
Year or Year to Five
than Ten
Less Five Years
Years
Years to
Ten
Years
Mortgage-backed
Securities Held to 2,497 36,876
23,622 0
Maturity
Mortgage-backed
Securities Available 1,235 3,998
0 0
For Sale at Fair Value
</TABLE>
Changes in the market value of the investment
portfolio follow national interest rate
fluctuations. As national interest rates
remained level for 1997, the value of
the portfolio also remained level with
the total unrealized gain approximately
$933,000 at December 31, 1997 over book
value. The Bank does not hold any
interest only or principal only bonds,
nor does it hold any securities whose
market value could change to a greater
degree than traditional debt.
SUMMARY OF LOAN PORTFOLIO
<TABLE>
<S> <C> <C> <C>
<C> <C>
<CAPTION>
1997 1996 1995
1994 1993 Real estate loans:
Construction & $ $ $ $ $
Development 7,925 8,906 8,072
4,595 4,607
Mortgage 158,59
2 146,041 135,069
124,62 107,94
0 8 Loans to
finance
agricultural 9,993
9,370
production and other 10,092 10,377 8,217
loans to farmers
Commercial and 23,696
31,791
industrial loans 29,040 29,807 27,534
Loans to individuals
for household,
family and other 16,668 17,242 17,640
15,301 14,621
personal
expenditures
All other loans 209 319 7
22 269
Real Estate Under 56 320 794
295 329
Foreclosure
TOTAL LOANS $217,1 $211,96 $201,76
$185,9 $163,5
39 0 6
94 25
Less: Allowance
for possible loan loss 4,743 4,293 4,048
3,892 3,369
NET LOANS $212,3 $207,66 $197,71
$182,1 $160,1
96 7 7
02 56
</TABLE>
PAST DUE LOANS
The figures below represent loans past due 30 days
or more (% is percentage of
loans outstanding for a specific category of loans).
<TABLE>
<S> <C> <c <C> <c <C> <c <C>
<c <C> <c
<CAPTION> > > >
> >
1997 % 1996 % 1995 % 1994 % 1993 %
Construction &
129 1. 247 2. 214 2. 77 1. 0 0.
Development 6 8 7 7 0
Real Estate 3,68 2. 4,10 2. 3,009 2. 1,71 1. 2,17 2.
2 3 0 8 2 3 4 7 0
Commercial,
Industrial and 1,04 3. 1,47 3. 517 1. 559 1. 615 1.
Other 1 1 9 8 3 4 7
Loans to 450 2. 462 2. 434 2. 324 2. 238 1.
individuals 7 7 5 1 6
Loans past due
90 days or 774 0. 733 0. 849 0. 892 0. 513 0.
more and 4 4 4 5 3
still accruing*
Non-Accruing 3,23 1. 3,54 1. 3,360 1. 3,13 1. 2,64 1.
Loans 6 5 1 7 7 9 7 5 6
</TABLE>
*The percentage for loans past due 90 days
or more
and still accruing and non-accruing
loans relate to total loans
outstanding. Each loan in these
categories is also included in its past
due loan category.
There were no loans which were non-
performing as of December 31, 1996 and
for which the real estate was acquired
by the Bank in 1997.
MATURITY SCHEDULE - LOAN
PORTFOLIO
As of December 31, 1997
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
After
One Year One
Year After
or Less
through Five
Five Years
Years
Commercial, Financial and
Agricultural $ 14,214 $
9,291 $ 10,184
Real estate Construction
and Land $ 5,897 $
2,028
Development
</TABLE>
The Bank makes construction loans on the basis
of:
a) permanent financing from another
financial institution, or b) approval at
the time of origination for permanent
financing by our own Bank. In addition,
a number of large commercial real estate
loans are written and priced on the
basis of fixed rates with a three to
five year balloon payment. It is
generally the intent of the Bank to re-
negotiate the rate and term of the loan
at the balloon maturity. Lines of credit
are renewed annually. There are consumer
construction loans that will either be
sold to the secondary market upon
completion of construction or rolled
into permanent portfolio residential
mortgage loans on the Bank's books.
The total amount of commercial,
financial and agricultural,
construction, and land development loans
with adjustable interest rates and
maturities of greater than one year is
$12.5 million and with fixed interest
rates and maturities of greater than one
year is $9 million.
RISK ELEMENTS
<TABLE>
<S> <C> <C> <C>
<C> <C>
<CAPTION>
1997 1996 1995
1994 1993
Loans accounted for on
a non- $3,236 $3,541 $3,360
$3,139 $2,64
accrual basis
5
Accruing loans
contractually past due $ $ $
$ $
90-days or more 774 733 849
892 513
</TABLE>
It is the policy of management to review past due
loans on a monthly basis. Those loans 90-
days or
more past due which are not well secured
or in the process of collection are
designated as nonaccruing. This includes
government guaranteed loans unless the
guaranteed portion has been sold. If
interest had been accruing on such loans,
interest income on loans would have been
$362,600 higher in 1997. Interest
collected on these loans totaled $146,500
in 1997 and was included in net income.
Nonaccrual loans and those loans 90-days
past due and still accruing represent
1.85% of average loans for 1997 and 2.06%
for 1996.
Management is not aware of any potential
problem loans which are not included in
the above table. The Bank makes single-
family residential loans, commercial real
estate loans, commercial loans, and
a variety of consumer loans. The Bank's
lending activities are conducted in
north coastal Maine. Because of the
Bank's proximity to Acadia National
Park, a large part of the economic
activity in the area is generated from
the hospitality business associated with
tourism.
Loans to the hospitality industry
(hotels and restaurants) represent the
highest loan concentration by industry
at 68% of capital, $28.7 million up from
$27.8 million in 1996. Of this total
indebtedness, 9% were 30-days or more
delinquent as
of December 31, 1997. Other substantial
loan concentrations include fishing,
$11.0 million, commercial and real
estate development, $13.9 million, and
miscellaneous retail, $10.7 million.
Credit concentrations over $700,000
decreased substantially from $35 million
to $28 million due to payoffs or
paydowns by major borrowers. Eighty
percent of the credits totaling $700,000
or more are secured by real estate and
have loan to value ratios of no more
than 70%.
As most loans granted by the Bank are
collateralized by real estate, the
ability of the Bank's borrowers to repay
is dependent on the level of economic
activity and the level of real estate
values in the Bank's market area.
Because of the increasing health of the
tourist industry and other industries in
its market area, the Bank has benefited
from the economic well-being of its
customers.
SUMMARY OF LOAN LOSSES
Delinquencies are reviewed on a monthly
and quarterly basis by senior management
as well as the Board of Directors.
Information reviewed is used in
determining if and when loans represent
potential losses to the Bank. A
determination of a potential loss could
result in a charge to the provision for
loan losses, with an increase to the
reserve for possible loans so that risks
in the portfolio can be identified on a
timely basis and an appropriate reserve
can be maintained.
The Bank utilizes the methodology for
the review of the allowance for loan
losses to be in accordance with the
approach suggested by bank regulators
through the Interagency Policy Statement
on Allowance for Loan and Lease Losses
dated December, 1993. The reserve
includes specific reserves based on the
review of specific credits, a pool of
reserves based on historical charge-offs
by loan types and supplementary reserves
reflecting concerns and loan
concentrations by industry, by customer
and by general economic conditions. The
allocation has changed based on
concentration of loans in the fishing
and tourist related industries. Building
on the program of measuring adequacy,
the Bank has continued to build reserves
to ensure that future earnings are not
hurt by unforeseen problems in the loan
area.
Charged off loans have decreased over
the past five years, both in dollars
(from $1,181,000 in 1993 to $585,000 in
1997) and as a percentage of the average
loan portfolio with the exception in
1995. The percentage of net charged off
loans to average loans in 1997
represents the lowest percentage (.08%)
in the five years presented. In 1997,
there was a recovery of a single loan of
$300,000 that was charged off in a
previous year; but, absent that
recovery, net chargeoffs would have been
.22% of total loans. For the years ended
1993 through 1995, the majority of
charge offs were commercial loans
secured by real estate or real estate
mortgages. However, in 1996 and 1997,
the majority of charge offs were loans
to individuals and included many
small loans and credit card debt. The
Bank real estate charge offs in 1993
represent charge downs of loan balances
on troubled loans based on updated fair
value appraisals, or highest third party
bids at auction.
In 1993, there were two writedowns of
REO charged directly to earnings. A
property in Northeast Harbor was sold at
a loss of $74,000 after paying all
expenses, and property on Main Street in
Ellsworth was written down by $100,000
to more closely reflect a liquidation.
In 1994, the same property in Ellsworth
was written down by additional $23,500.
This property was sold in 1995 for
$120,000. Additionally in 1994, three
residential properties owned by the Bank
were written down by a total of $58,000
to more closely reflect their market
values.
Approximately 28% of the chargeoffs in
1995 represented loans secured by real
estate, and 39% represented commercial
credits. The increase in commercial loan
chargeoffs in 1995 included a chargedown
of a large commercial loan. Recoveries
offset losses totaling $97,000,
$141,000, and $264,900 for the years
ended 1995, 1994 and 1993, respectively.
In 1996, charged off loans to
individuals represented over half of the
total charge offs for that year and
resulted from losses on installment
loans and credit cards. This pattern
continued in 1997 with installment loans
and other consumer loans representing
78% of the total charge offs.
Softness in the economy in the early
1990s, reduction of collateral value,
and, in some cases, poor management by
the owners of the business have caused
the major losses in the commercial area
in the early 1990s.
Based on past experience and
management's assessment of the present
loan portfolio, it is expected that loan
charge offs for 1998 will not exceed
$500,000.
<TABLE>
<S> <C>
Commercial $
67,500
Real Estate mortgages $
200,000
Installments and other loans to $
232,500
individuals
</TABLE>
A breakdown of the allowance for possible loan losses is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
1997 1996 1995 1994
Percen Perce Perce Perce
t of nt of nt of nt of
Amou Loans Amou Loans Amou Loans
Amoun Loans
nt in nt in nt in
t in
each each each each
Catego Categ Categ Categ
ry to ory ory ory
Total to to to
Loans Total Total Total
Loans Loans
Loans
Real Estate $ 76.71 $1,0 73.26 $ 71.34
$ 69.63
Mortgages 146 % 54 % 915 %
1,666 %
Installments
and other 2,939 7.68% 1,45 8.13% 1,46 8.74%
485 8.23% loans to 7 9
individuals
Commercial,
financial 481 15.51 629 18.46 278 19.92
1,220 22.13
and % % % %
Agricultural
Other 0 .10% 0 .15% 0 0.00%
0 .01%
Unallocated 1,177 .00% 1,15 0.00% 1,38 0.00%
521 .00% 3
6
TOTAL $4,74 100.0 $4,2 100.0 $4,0 100.0
$ 100.0 3 0% 93 0% 48
0% 3,892 0%
</TABLE>
SUMMARY OF LOAN LOSS
EXPERIENCE
<TABLE>
<S> <C> <C> <C> <C>
<C>
<CAPTION>
ALLOWANCE FOR LOAN 1997 1996 1995 1994
1993
LOSSES
Balance at beginning $4,293 $4,048 $3,892
$3,369 $3,206 of period
Charge offs:
Commercial,
Financial, 102 195 377
122 386
Agricultural,
Others
Real Estate 27 131 256
267 505
Mortgages
Installments
and other 456 385 268
189 290
loans to
Individuals
Total Charge Offs 585 711 901
578 1,181
Recoveries:
Commercial,
Financial, 169 73 20
47 101
Agricultural,
Others
Real Estate 154 94 20
54 118
Mortgages
Installments
and other 92 69 57
40 45
loans to
Individuals
Total Recoveries 415 236 97
141 264
Net Charge Offs 170 475 804
437 917
Provision Charge to 620 720 960
960 1,080
Operations
Balance at End of $4,743 $4,293 $4,048
$3,892 $3,369
Period
Average loans
outstanding during $217,29 $207,18 $195,17
$174,55 $153,23
period 5 8 9
0 2
Net Charge Offs to
Average Loans .08 .23 .41
.25 .60
Outstanding during
Period
</TABLE>
SUMMARY OF DEPOSIT
PORTFOLIO
<TABLE>
<S> <C> <C> <C> <C>
<C> <C>
<CAPTION>
1997 1996
1995
Averag Averag Averag Averag
Averag Averag e e e e
Rate e e Rate
Balanc Rate Balanc
Balanc
e e
e
Demand Deposits $36,54 $
$
4 33,408
30,084
NOW Accounts 39,532 1.69% 38,036 1.62%
37,110 1.63%
Savings Accounts 52,455 2.54% 54,503 2.52%
57,521 2.45%
Time Deposits 122,49 5.54% 124,42 5.54%
115,11 5.57%
1 7
8
Total Deposits $251,0 $250,3
$239,8
22 74
33
</TABLE>
MATURITY SCHEDULE FOR TIME DEPOSITS AT DECEMBER 31,
1997,$100,000 OR MORE <TABLE>
<S> <C> <C> <C>
<CAPTION>
Over Six
Over Three Months Through
Three Months Months Through Twelve Months Over Twelve
or Less Six Months
Months
$ 9,173 $ 1,586 $ 2,456
$ 738
</TABLE>
RETURN ON EQUITY AND ASSETS
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
1997 1996
1995
Return on Average Assets 1.86
2.021.89
Return on Average Equity 16.27
18.86 18.97
Dividend Payout Ratio 32.15
30.22 25.07
Average Equity Capital to
Average 11.46
10.729.96
Assets Ratio
</TABLE>
As of January 1, 1998, there were approximately 1,075 holders of
record
of Bar Harbor Bankshares common stock.
Dividends have been paid by the company during 1997 and 1996, as
follows:<TABLE>
<S> <C> <C> <C> <C>
<CAPTION>
March June September December
1997 $0.28 $0.30 $0.30 $0.32
1996 $0.20 $0.20 $0.25
$0.53
</TABLE>
SHORT TERM
BORROWINGS
(In Thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
<CAPTION>
Maximum
Average Weighte Balance
Weighte Outstan Amount d
at end d ding at
Outstan Average
of Average Month ding Interes
Period Interes End
During t Rate
t Rate Year During
Year 1997
FHLB Advances $24,000 5.69% $45,125
$34,207 5.67%
1996
FHLB Advances $43,908 5.62% $41,000
$30,811 5.68&
Wholesale Repurchase 0 0.00% $10,000
$ 5.47% Agreements
583
1995
FHLB Advances $26,700 5.85% $29,000
$17,058 5.84%
Wholesale Repurchase 0 0.00% $18,250
$ 6.16% Agreements
4,338
</TABLE>
The terms for short-term FHLB advances taken in 1997
ranges from 7 days to 365 days and
averaged 62 days.
The terms for short-term FHLB advances
taken in 1996 range from 2 days to 340
days and averaged 49 days. The terms for
wholesale repurchase agreements taken in
1996 ranged from 7 days to 14 days and
averaged 8 days.
The terms for short-term FHLB advances
taken in 1995 ranged from 5 days to 200
days and averaged 49 days. The terms for
wholesale repurchase agreements taken in
1995 ranged from 4 days to 90 days and
averaged 25 days.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss in a
financial instrument arising from
adverse changes in market rates/prices
such as interest rates, foreign currency
exchange rates, commodity prices, and
equity prices. The Company's primary
market risk exposure is interest rate
risk. The ongoing monitoring and
management of this risk is an important
component of the Company's
asset/liability management process which
is governed by policies established by
its Board of Directors that are reviewed
and approved annually. The Board of
Directors delegates responsibility for
carrying out the asset/liability
management policies to the
Asset/Liability Committee (ALCO). In
this capacity, ALCO develops guidelines
and strategies impacting the Company's
asset/liability management related
activities based upon estimated market
risk sensitivity, policy limits and
overall market interest rate
levels/trends.
Interest Rate Risk
Interest rate risk represents the
sensitivity of earnings to changes in
market interest rates. As interest rates
change, the interest income and expense
streams associated with the Company's
financial instruments also change
thereby impacting
net interest income (NII), the primary
component of the Company's earnings.
ALCO utilizes the results of a detailed
and dynamic simulation model to quantify
the estimated exposure of NII to
sustained interest rate changes. While
ALCO routinely monitors simulated NII
sensitivity over a rolling two-year
horizon, it also utilizes additional
tools to monitor potential longer-term
interest rate risk.
The simulation model captures the impact
of changing interest rates on the
interest income received and interest
expense paid on all assets and
liabilities reflected on the Company's
balance sheet as well as for off balance
sheet derivative financial instruments.
This sensitivity analysis is compared to
ALCO policy limits which specify a
maximum tolerance level for NII exposure
over a one year horizon, assuming no
balance sheet growth, given both a 200
basis point (bp) upward and downward
shift in interest rates. A parallel and
pro rata shift in rates over a 12 month
period is assumed. The following
reflects the Company's NII sensitivity
analysis as of December 31, 1997.
RATE
CHANGE <TABLE>
<S> <C>
<C>
<CAPTION>
-200 basis
+200 basis
points
points
Year I
Net interest income change $ 190
$ (34)
($)
Net interest income change 1.16%
(.21%)
(%)
Year II
Net interest income change $ (84)
$ (249)
($)
Net interest income change ( .51%)
(1.52%)
(%)
</TABLE>
The preceding sensitivity analysis does not
represent a Company forecast and should
not be relied upon as being indicative
of expected operating results. These
hypothetical estimates are based upon
numerous assumptions including: the
nature and timing of interest rate
levels, including yield curve shape,
prepayments on loans and securities,
deposit decay rates, pricing decisions
on loans and deposits,
reinvestment/replacement of asset and
liability cashflows, and others. While
assumptions are developed based upon
current economic and local market
conditions, the Company cannot make any
assurances as to the predictive nature
of these assumptions including how
customer preferences or competitor
influences might change.
Also, as market conditions vary from
those assumed in the sensitivity
analysis, actual results will also
differ due to: prepayment/refinancing
levels likely deviating from those
assumed, the varying impact of interest
rate change caps or floors on
adjustable rate assets, the potential
effect of changing debt service levels
on customers with adjustable rate loans,
depositor early withdrawals and product
preference changes, and other
internal/external variables.
Furthermore, the sensitivity analysis
does not reflect actions that ALCO might
take in responding to or anticipating
changes in interest rates.
When appropriate, ALCO may utilize off
balance sheet instruments such as
interest rate floors, caps and swaps to
hedge its interest rate risk position. A
Board of Directors approved hedging
policy statement governs use of these
instruments. As of December 31, 1997 the
following derivative financial
instruments were outstanding:
<TABLE>
<S> <C> <C> <C>
<C>
<CAPTION>
Notional Contract
Maturity Fair
Principal Date Date
Value
December 31,
1997
Interest rate $ 5,000 May 4, May 4,
($13)
swap 1993 1998
Interest rate $10,000 June 3, June
3, $ 3
floor 1994 1999
</TABLE>
The estimated effects of these derivative
financial instruments on the Company's
earnings are included
in the sensitivity analysis presented
above.
The derivative contracts presented in
the above table are designed as hedges
in that they are utilized to modify the
interest rate characteristics of
selected assets and liabilities. The
interest rate floor was purchased to
hedge the interest income on variable
rate loans and securities against the
adverse effects of falling interest
rates. The interest rate swap, whereby
the Company receives a fixed rate and
pays a variable rate, is utilized to
convert variable rate assets to fixed
rate equivalents. ALCO monitors the
effectiveness of its derivative hedges
relative to its expectation that a high
correlation be maintained between the
hedging instrument and the related
hedged assets/liabilities. All
outstanding positions are estimated to
remain highly effective.
Interest rate floors and swaps are
accounted for using the accrual method
with an income statement adjustment to
interest income or interest expense
depending on whether the hedged items re
assets or liabilities. The unamortized
premiums associated with the floor is
presented on the balance sheet along
with other prepaid assets. Interest
receivable under the floor contract and
interest receivable/payable associated
with the swap contract are reflected on
the balance sheet along with other
interest receivable and payable amounts.
Unrealized gains or losses associated
with these positions are not recognized
in the financial statements.
While it is not the Company's practice
to unwind derivative hedges prior to
their maturity, any
recognized gains/losses would be
deferred on the balance sheet and
amoritzed to interest income or expense,
as required, over the remaining period
of the original hedge. To the extent
that a hedge were to be deemed
ineffective due to a lack of correlation
with the hedged items or if the hedged
items were to be settled/terminated
prior to maturity of the hedging
instrument, then unrecognized
gains/losses associated with the hedging
instrument would be recognized in the
income statement with subsequent
accruals and gains/losses also included
in the income statement in the period
they occur.
ITEM 8. CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and Report of
Independent Accountant required are
contained in the Financial Section on
pages 1 through 21 of the Company's
Annual Report for the year ended
December 31, 1997 and are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT
The following statements pertain to all
individuals listed below:
1. There are no arrangements or
understandings between any director or
officer listed below and any other
person pursuant to which such director
or officer was selected as an officer or
director.
2. There is no family relationship
among any of the directors and officers
listed below.
3. None of the directors and officers
listed below have been involved in any
bankruptcy, criminal, or other
proceeding set forth or described in sub
section (f) of Item 401 of Regulation S-
K as promulgated by the Securities and
Exchange Commission.
4. Each of the directors listed below
has been elected to a three year term,
except where the mandatory retirement
age of 75 years necessitated an election
of a shorter term, with one third of the
Board of Directors, as nearly as may be,
standing for election each year. Each
director of the Company also serves as a
director of the Bank, and references
below to the year in which an individual
was first elected refer to the year in
which s/he was first elected a director
of the Bank. All officers of the
Company are elected annually.
[1] Frederick F. Brown, Director, Age
71. Mr. Brown's principal occupation
during the past five years has been as
proprietor and owner of F. T.
Brown Company, which owns and operates a
hardware store in Northeast Harbor and
as one-third owner of Island Plumbing &
Heating in Northeast Harbor. He also
serves as President of Northeast Harbor
Water Company. Mr. Brown first was
elected as a director on October 2,
1979.
[2] Robert C. Carter, Director, Age 54.
Mr. Carter's principal occupation is
owner and operator of the Machias Motor
Inn and owner and operator of Carter's
Gun Shop, both located in Machias,
Maine. Mr. Carter was first elected as a
director on October 1, 1996.
[3] Thomas A. Colwell, Director, Age 53.
Mr. Colwell's principal occupation
during the past five years has been as
owner of Colwell Brothers, Inc. He also
serves as a member of the Board of
Directors of the Maine Lobster Pound
Association and is a director of the
Island Medical Center. Mr. Colwell was
first elected as a director on October
1, 1991.
[4] Bernard K. Cough, Director, Age 70.
Mr. Cough's principal occupation during
the past five years has been
owner/operator of several motels,
including the Atlantic Oakes Motel,
Atlantic Eyrie Lodge, Inc., Brookside
Motel, Bay View, Inc., and Ocean Gate,
Inc. Mr. Cough is also Treasurer of
Cough Bros., Inc. and President of
Downeast Inns, Inc. Mr. Cough was first
elected as a director on October 1,
1985.
[5] Peter Dodge, Director, Age 54. Mr.
Dodge is President of the Peter Dodge
Agency (a Maine corporation) d/b/a the
Merle B. Grindle Insurance Agency in
Blue Hill, Maine. He is a Trustee of
George Stevens Academy, and Director,
Bagaduce Music Lending Library. He was
first elected as a director on October
6, 1987.
[6] Dwight L. Eaton, Senior Vice
President and Trust Officer, Age 62. Mr.
Eaton's principal occupation during the
past five years has been as Senior Vice
President and Trust Officer of the Bank.
He serves as Vice President of the
Company and was first appointed for that
position in 1987. He serves as Chairman
and Director of the Acadia Corporation.
Mr. Eaton first was elected as a
Director on October 4, 1988.
[7] Ruth S. Foster, Director, Age 68.
Mrs. Foster's principal occupation is
the President and principal stockholder
of Ruth Foster's, a children's clothing
store in Ellsworth, Maine. Mrs. Foster
first was elected as a director on
October 7, 1986.
[8] Cooper F. Friend, Director, Age 43.
Mr. Friend's principal occupation is
owner and President of Friend & Friend,
Inc.; and one-third owner of UStore It
in Ellsworth, Maine. He also serves as
President of Recreational Motorsports
Association of Maine, Chairman of the
Board of Directors of the James Russell
Wiggins Down East Family YMCA. Mr.
Friend first was elected as a director
on October 1, 1997.
[9] Robert L. Gilfillan, Chairman of the
Board of
Directors, Age 70. Mr. Gilfillan's
principal occupation during the past
five years has been as the owner and
President of the West End Drug Company
in Bar Harbor. Mr. Gilfillan first was
elected as a director on November 5,
1957.
[10] Sheldon F. Goldthwait, Jr.,
President and Chief Executive Officer,
Age 59. Mr. Goldthwait was appointed
President and Chief Executive Officer of
Bar Harbor Banking and Trust Company
January 1, 1995. Prior to that he served
as Executive Vice President of Bar
Harbor Banking and Trust Company. He
serves as Treasurer and Director of the
Acadia Corporation. Mr. Goldthwait first
was elected as a director on October 4,
1988.
[11] H. Lee Judd, Director, Age 52. Mr.
Judd's principal occupation during the
past five years has been as President of
Hinckley Insurance Group and President
of Hinckley Real Estate, located in
Southwest Harbor, Maine. He also serves
as Vice President and Treasurer of the
Causeway Club and Chairman of the Board
of Friends of Acadia. Mr. Judd first was
elected as a director on October 1,
1997.
[12] James C. MacLeod, Director, Age 73.
Mr. MacLeod is retired. Mr. MacLeod
served as Vice President of the Bank
until his retirement in December of
1987. He was appointed as a Vice
President of the Bank in 1972 and was
first elected as a director of the Bank
on November 7, 1961.
[13] John P. McCurdy, Director, Age 66.
Prior to his retirement in 1991, Mr.
McCurdy's principal occupation was the
owner and operator of McCurdy Fish
Company of Lubec, a processor of smoked
herring. Mr. McCurdy first was elected
as a director on October 2, 1979.
[14] Jarvis W. Newman, Director, Age 62.
Mr. Newman is the owner of Newman Marine
Brokerage, a boat brokerage in Southwest
Harbor and half owner of the Newman and
Gray Boatyard. Mr. Newman first was
elected as a Director on October 5,
1971.
[15] Lewis H. Payne, Executive Officer,
Age 47. Mr. Payne is the Executive Vice
President of the Company and of the
Bank. He was first elected as Executive
Vice President of the Company in 1995.
[16] Robert M. Phillips, Director, Age
56. Mr. Phillips is an officer of
International Foods Network, an exporter
of a variety of food products, located
in Sullivan, Maine. He was first elected
as a director on October 5, 1993.
[17] John P. Reeves. Director, Age 63.
Mr. Reeves is retired. He was elected as
President and Chief Executive Officer of
Bar Harbor Banking and Trust Company in
1986 and retired in 1994. He first was
elected as a director on October 6,
1970.
[18] Abner L. Sargent, Director. Mr.
Sargent died on December 10, 1997 at the
age of 72. Mr. Sargent was former owner
and designated broker of High Street
Real Estate and Vice President and
Treasurer of
Sargent's Mobile Homes, Inc., of
Ellsworth. He first was elected as a
director on October 6, 1981.
[19] Marsha C. Sawyer, Executive
Officer, Age 45. Mrs. Sawyer is Vice
President of the Bank and serves as
Clerk of the Company. She first was
elected Clerk of the Company in 1986.
[20] Lynda Z. Tyson, Director, Age 42.
Mrs. Tyson is Chief Operating Officer
and Marketing Director of Tyson &
Partners, Inc., a marketing
communications consulting firm in Bar
Harbor. Mrs. Tyson was first elected as
a director on October 5, 1993.
[21] Virginia M. Vendrell, Executive
Officer, Age 48. Ms. Vendrell is Senior
Vice President, Treasurer, and Chief
Financial Officer of the Bank and
Treasurer of the Company. She was first
elected Treasurer of the Company in
1990.
ITEM 11. EXECUTIVE COMPENSATION
Officers of the Company do not, as such,
receive compensation. The following
table sets forth cash compensation
received during the Bank's last fiscal
year by the executive officers for whom
such compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C>
<C>
<CAPTION>
ANNUAL COMPENSATION
Other Annual Year
Salary Incenti
Compensation
($) ve ($)
($)
Sheldon F. Goldthwait, 1995 130,00 23,108 0
Jr. 0
President and 1996 135,99 27,428 0
0
Chief Executive Officer 1997 155,00 19,737 0
0
Dwight L. Eaton 1995 17,637 0
94,000
Senior Vice President and 1996 19,460 0
95,992
Trust Officer 1997 12,984 0
98,000
Lewis H. Payne 1995 N/A N/A 0
Executive Vice President 1996 88,594 17,634 0
1997 93,500
12,237 0
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
<CAPTION>
LONG TERM COMPENSATION
AWARDS PAYOUT
Restric LTIP
ted
Optional Payout
Year Stock SARs
(#) s
Awards ($)
($)
Sheldon F. Goldthwait, 1995 0 0 0
Jr.
1996 0 0 0
1997 0 0 0
Dwight L. Eaton 1995 0 0 0
1996 0 0 0
1997 0 0 0
Lewis H. Payne 1995 0 0 0
1996 0 0 0
1997 0 0 0
ALL OTHER COMPENSATION
($)
Sheldon F. Goldthwait, 1995 3,522
Jr.
1996 24,035
1997 30,027
Dwight L. Eaton 1995 3,439
1996 36,175
1997 41,654
Lewis H. Payne 1995 N/A
1996 1,752
1997 1,848
</TABLE>
The Bank has an incentive plan in which all
employees who were on the payroll as of
January 1st of a calendar year and who
worked through December 31st are
eligible. The computation is based on
earnings per share growing by 10% each
year with 1992 being the base year. Once
the 10% growth is attained, a pool is
created in which all eligible employees
receive the same percentage of their
salary in the form of an incentive
payment.
OMPENSATION COMMITTEE
The Bank Board has appointed a six-
member Compensation Committee comprised
of Directors Reeves, Dodge, Gilfillan,
McCurdy, and Phillips and Mr. Goldthwait
who is a Director and also a member of
management. The Compensation Committee
meets several times each year and makes
compensation recommendations for the
ensuing year to the Board of Directors.
The recommendations of the Committee are
then considered and voted upon by the
Full Board. During 1997, Mr. Goldthwait
was a member of the Compensation
Committee and also a director. He
abstained from participating in
discussion, recommendations, or voting
regarding his own compensation. Mr.
Reeves, who chairs the Compensation
Committee, is a former President of the
Company and the Bank.
COMPENSATION OF DIRECTORS
Each of the directors of the Company is
a director of the Bank and as such
receives a fee of $250 for each
committee meeting attended and a $300.00
fee for attending the monthly Full Board
Meeting. The fee paid for the Annual
Meeting is $500.00 per member of the
Board of Directors. Meetings of the
Board of Directors of the Bank are held
monthly. No directors' fees are paid to
the directors of the Company as such.
Those directors of the Bank who are also
officers do not receive directors' fees.
The
Chairman of the Board receives an annual
retainer of $3,000 in addition to
meeting fees.
EMPLOYEE BENEFIT PLANS
The Company has two non-qualified
supplemental retirement plans for
certain officers. The agreements provide
supplemental retirement benefits payable
in installments over a period of years
upon retirement or death. The Company
recognizes the cost associated with the
agreements over the service lives of the
participating officers. For 1997, 1996,
and 1995, the expense of these
supplemental plans was $127,600,
$118,000, and $110,000, respectively.
401(k) Plan
The Bank has a contributory 401(k) plan
available to full-time employees.
Employees may contribute between 1% and
15% of their compensation, to which the
Bank will match 25% of the first 6%
contributed. For the years ended
December 31, 1997, 1996, and 1995, the
Bank contributed $49,500, $52,000, and
$46,600, respectively. The Bank has a
noncontributory plan in lieu of a
defined benefit plan. In 1997, 1996 and
1995, the Board of Directors voted to
credit each eligible participant's
401(k) account with 3% of salary. The
total contributions made for the non-
contributory plan was $122,800, $128,000
and $122,500 for the years ended
December 31, 1997,1996, and 1995,
respectively.
Restricted Stock Purchase Plan
In 1997, 1996, and 1995, the Bank
provided a restricted stock purchase
plan through which each employee may
purchase up to 100 shares of Bar Harbor
Bankshares stock at the current fair
market price as of a date determined by
the Board of Directors. These shares may
be purchased through direct purchase or
through the employee's 401(k) accounts.
At December 31, 1997, employees
exercised their right to purchase 1,224
shares at $60.00 per share, with the
actual purchase transpiring in January
of 1998.
At December 31, 1996, employees
exercised their right to purchase 2,346
shares at $38.25 per share, with the
actual purchase transpiring in January
of 1997.
The Bank has entered into agreements
with Messrs. Reeves, Goldthwait, and
Eaton whereby those individuals, or
their beneficiaries, will receive upon
death or retirement, an annual
supplemental pension benefit over a
period of 10 years in the amount of
$15,000 per annum (in the case of Mr.
Reeves), and in the amount of $10,000
per annum (in the case of Messrs.
Goldthwait and Eaton). This plan is
unfunded and benefits will be paid out
of Bank earnings. Because Mr. Reeves
chose early retirement, he began drawing
his annual installment of $5,300
pursuant to this deferred compensation
arrangement as of January 1, 1995.
In 1993, the Company established a non-
qualified supplemental retirement plan
for Messrs. Reeves,
Eaton, Goldthwait, and MacDonald. The
agreements provide supplemental
retirement benefits payable in
installments over twenty years upon
retirement or death. The Company
recognizes the costs associated with the
agreements over the service lives of the
participating officers. The cost
relative to the supplemental plan was
$115,700, $106,500, and $98,300 for
1997, 1996, and 1995 respectively. The
agreements with Messrs. Reeves, Eaton,
Goldthwait, and MacDonald are in the
amounts of $49,020,$22,600, $37,400 and
$7,700 respectively. Mr. Reeves began
drawing his annual installment of
$49,020 as of January 1, 1995.
Officers of the Bank are entitled to
participate in certain group insurance
benefits. In accordance with Bank
policy, all such benefits are available
generally to employees of the Bank.
PERFORMANCE GRAPH
The following graph illustrates the
estimated yearly percentage change in
the Company's cumulative total
shareholder return on its common stock
for each of the last five years. For
purposes of comparison, the graph also
illustrates comparable shareholder
return of NASDAQ banks as a group as
measured by the NASDAQ Banks Stock Index
and of Union Bankshares, which is, in
the opinion of management, the only
other bank holding company with respect
to which a meaningful comparison of
total shareholder return can be made.
The graph assumes a $100 investment on
December 31, 1991 in the common stock of
each of the Company, Union Bankshares
and the NASDAQ banks as a group and
measures the amount by which the market
value of each, assuming reinvestment of
dividends, has increased as of December
31 of each calendar year since the base
measurement point of December 31, 1991.
The following graph is based upon a good
faith determination of approximate
market value for each year indicated
based on information obtained from Union
Bankshares, in the case of its common
stock, and from anecdotal information
available to the Company as to the value
at which its common stock has traded in
isolated transactions from time to time.
Therefore, although the graph represents
a good faith estimate of shareholder
return as reflected by market value, the
valuations utilized are, of necessity,
estimates and may not accurately reflect
the actual value at which common stock
has traded in particular transactions as
of any of the dates indicated
.
PERFORMANCE GRAPH
The following information is presented
in a line graph in the
printed proxy:
<TABLE>
<S> <C> <C> <C> <C>
<C> <C>
1991 1992 1993 1994
1995 1996
Bar Harbor
Banking and $100. $106. $125.5 $141.
$244. $344.8
Trust Company 00 31 1 53
73 8
Union Trust $100. $102. $134.9 $142.
$205. $271.2
Company 00 50 5 79
85 4
NASDAQ Banks $100. $145. $165.9 $165.
$246. $325.2
00 55 9 38
32 5
</TABLE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
As of December 31, 1997, to the knowledge of
the Company, Bernard K. Cough was the only
beneficial
owner of more than five percent of the
Company's common stock. Mr. Cough's
address is 5 Norman Road, Bar Harbor,
Maine.
The following table lists, as of
December 31, 1997, the number of shares
of Common Stock and the percentage of
the Common Stock represented thereby,
beneficially owned by each director and
nominee for director, and by all
principal officers and directors of the
Company as a group.
<TABLE>
<S>
<C> <C>
<CAPTION>
Amount
of
Percent of Director, Executive Officer or Benefic Class
Nominee ial
Ownersh
ip
Frederick F. Brown
12,570 *
Robert C. Carter
1,050 *
Thomas A. Colwell
2,700 *
Bernard K. Cough
86,970 5.05%
Peter Dodge
2,430 *
Dwight L. Eaton
3,282 *
Ruth S. Foster
1,675 *
Cooper F. Friend
1,600 *
Robert L. Gilfillan
39,965 2.32%
Sheldon F. Goldthwait, Jr.
15,176 *
H. Lee Judd
3,750 *
James C. MacLeod
20,300 1.18%
John P. McCurdy
3,300 *
Jarvis W. Newman
15,050 *
Robert M. Phillips
650 *
John P. Reeves
12,662 *
Abner L. Sargent
3,500 *
Lynda Tyson
700 *
Total ownership of all Directors and
Executive Officers of Company as a
232,998 13.53%
group (21 persons).
* Less than one percent
</TABLE>
>
For purposes of this table, beneficial
ownership has been determined in accordance
with the provisions of Rule 13-d-3
promulgated under the Securities
Exchange Act of 1934 as amended. Direct
beneficial ownership includes shares
held outright or jointly with others.
Indirect beneficial ownership includes
shares held in the same name of a
director's spouse or minor children or
in trust for the benefit of a director
or member of his or her family. Indirect
beneficial ownership does not include,
in the case of each director, 48,680
shares (2.83%) of the Common Stock held
by two trusts which shares, for purposes
of voting, are allocated equally among
the directors of the bank under the
terms of the respective trust
instruments. No director has any other
beneficial interest in such shares.
Ownership figures for directors and
nominees include directors' qualifying
shares owned by each person named.
Management is not aware of any
arrangement which could, at a subsequent
date, result in a change in control of
the company.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
The Bank retains the firm of Tyson &
Partners, Inc. to assist with its
marketing program. Lynda Z. Tyson, who
was elected to the Board of the Company
and the Bank on October 4, 1993, serves
as that firm's Chief Operating Officer
as well as Director of Marketing.
Management believes that the fees
charged by Tyson & Partners, Inc. are at
least as favorable as any which could
have been obtained from persons not
affiliated with the Bank.
The Bank has had, and expects to have in
the future, banking transactions in the
ordinary course of its business with
directors, officers, principal
stockholders and their associates upon
substantially the same terms, including
interest rates and collateral on the
loans, as those prevailing at the same
time for comparable transactions with
others. Such loans have not and will not
involve more than normal risk of
collectability or present other
unfavorable features.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) The following financial
statements are incorporated by
reference from Item 8 hereof: [Annual
Report to Stockholders
included herein as Exhibit 13],
Financial Section.
PAGE
Independent Auditor's Report 6
Consolidated Statements of Financial
Condition December 31, 1997 and 1996 7
Consolidated Statements of Earnings for
the years ended
December 31, 1997, 1996, and 1995
8
Consolidated Statements of changes in
the Stockholders'
Equity for the years ended
December 31, 1997, 1996, and 1995
9 Consolidated Statements of Cash Flows
for the years ended
December 31, 1997, 1996, and 1995
10 Notes to Consolidated Financial
Statements 11 - 21
(a) (2) Financial Statement
Schedules
See Item 14(d) Form 10-K
(a) (3) Listing of Exhibits -- see
Item 14 (c)
(b) Report on Form 8-K not
applicable
(c) Exhibits -- EXHIBIT INDEX
EXHIBIT
NUMBER
1. Underwriting Agreements
Not Applicable
2. Plan of Acquisition, reorganization
Incorporated by reference
agreement,
liquidation or succession to
Form S-14
dated
March 14, 1984 3. Articles of
Incorporation and Bylaws Incorporated by
reference
To
Form S-14 dated
March 14, 1984 4. Instruments defining
the rights of Not Applicable
security holders
5. Opinion re: legality
Not Applicable
6. Opinion re: discount on capital
shares Not Applicable
7. Opinion re: liquidation preference
Not Applicable
8. Opinion re: tax matters
Not Applicable
9. Voting Trust Agreements
Not Applicable
10. Material Contracts
Incorporated
by reference
to
Form 10-K dated
December 31, 1986
11. Statement re: computation of per
Not Applicable share earnings
12. Statement of computation of ratios
Not Applicable
13. Annual report to security holders
Enclosed herewith
14. Material foreign patents
Not Applicable
15. Letter re: unaudited interim
Not Applicable
financial information
16. Letter re: change in certifying
Not Applicable
accountant
17. Letter re: director resignations
Not Applicable 18. Letter re: change in
accounting Not Applicable
principles
19. Previously unfiled documents
Not Applicable
20. Report furnished to security holders
Not Applicable
21. Other documents or statements to
Not Applicable security holders
22. Subsidiaries of the registrant
Incorporated
by reference
to
Form 10-K dated
December 31, 1987
23. Published report regarding matters
Not Applicable
submitted to vote of security
holders
24. Consents of experts and counsel
Not Applicable
25. Power of Attorney
Not Applicable
26. Statement of eligibility of Trustee
Not Applicable
27. Invitation for competitive bids
Not Applicable
28. Additional Exhibits
Not Applicable
(d) Financial Statement Schedules
Not Applicable
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly
caused this report to be signed on its
behalf by the undersigned, thereunto
duly authorized.
BAR HARBOR
BANKSHARES
(Registrant)
/S/ Sheldon F.
Goldthwait, Jr.
Sheldon F.
Goldthwait,
Jr. President
and Chief
Executive
Officer
Pursuant to the requirements of the
Securities Exchange Act of 1934, this
report has been signed below by the
persons on behalf of the Registrant and
in the capacities and on the dates
indicated.
/S/ Sheldon F. Goldthwait, Jr. /S/
Virginia M. Vendrell
Sheldon F. Goldthwait, Jr. Virginia
M. Vendrell President and Director
Chief Financial Officer
Chief Executive Officer Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000743367
<NAME> BAR HARBOR BANKSHARES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,537
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,608
<INVESTMENTS-CARRYING> 85,351
<INVESTMENTS-MARKET> 86,248
<LOANS> 217,139
<ALLOWANCE> (4,743)
<TOTAL-ASSETS> 342,726
<DEPOSITS> 251,903
<SHORT-TERM> 28,472
<LIABILITIES-OTHER> 4,727
<LONG-TERM> 0
0
0
<COMMON> 3,641
<OTHER-SE> 38,820
<TOTAL-LIABILITIES-AND-EQUITY> 342,726
<INTEREST-LOAN> 21,028
<INTEREST-INVEST> 7,443
<INTEREST-OTHER> 47
<INTEREST-TOTAL> 28,518
<INTEREST-DEPOSIT> 8,793
<INTEREST-EXPENSE> 11,710
<INTEREST-INCOME-NET> 16,808
<LOAN-LOSSES> 620
<SECURITIES-GAINS> 96
<EXPENSE-OTHER> 11,802
<INCOME-PRETAX> 9,388
<INCOME-PRE-EXTRAORDINARY> 9,388
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,422
<EPS-PRIMARY> $3.73
<EPS-DILUTED> $3.73
<YIELD-ACTUAL> 9.0
<LOANS-NON> 3,236
<LOANS-PAST> 774
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,293
<CHARGE-OFFS> 585
<RECOVERIES> 415
<ALLOWANCE-CLOSE> 4,743
<ALLOWANCE-DOMESTIC> 4,743
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,177
</TABLE>
Bar Harbor
Bankshares
LOGO Bar
Harbor
Bankshares
1997 Annual Report
In touch with the communities we serve.
Visual of lobsterman's arms reaching
into crate of live lobsters
Mission Statement
Bar Harbor Banking and Trust Company is
an independent, publicly owned,
community bank pledged to providing
innovative, quality financial services
to the people and businesses of eastern
Maine.
We take pride in our commitment to
deliver our services person-to-person,
in a professional and efficient manner
while producing the maximum benefit for
our customers, employees and
shareholders.
We are dedicated to providing a quality
environment in which employees are
challenged to uphold our pledge to
excellence.
We demonstrate our responsibility as a
good corporate citizen through our
support of the communities and people we
serve.
Contents
Inside front cover Mission
statement
Pages 2, 3 Five year
summaries of financial performance
Pages 4, 5 1997 year in
review Pages 6 - 9 In
touch with the communities we serve
Pages 10 - 12 Directors,
officers, employees
Page 12 Shareholder
information Inside back cover
Abner Sargent dedication
Financial Section
Pages 1 - 5 Management's
discussion and analysis
Page 6 Independent
auditors' report Pages 7 - 10
Consolidated statements of financial
condition
Pages 11 - 21 Notes to
consolidated statements
Photography: Jill Goldthwait, Ken
Woisard
Design & Printing: Downeast Graphics &
Printing, Inc.
SUMMARY OF FINANCIAL PERFORMANCE
The following information is presented
in nine (9) Bar Graphs:
Net loans (In millions of dollars)
scale 0 to 240 <TABLE>
<S> <C> <C> <C>
<C>
1993 1994 1995
1996 1997
$160 $182 $198
$208 $212 </TABLE>
Total deposits (In millions of
dollars) scale 0 260
<TABLE>
<S> <C> <C> <C> <C>
1993 1994 1995 1996
1997
$204 $226 $251 $252 $252
</TABLE>
Average assets (In millions of
dollars) scale 0350
<TABLE>
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
$250 $281 $311 $332 $345
</TABLE>
Average equity (In millions of dollars)
scale 0 -50
<TABLE>
<S> <C> <C> <C> <C>
1993 1994 1995 1996
1997
26 27 31 36 39
</TABLE>
Net interest income (In millions of
dollars) scale 0 - 20
<TABLE>
<S> <C> <C>
<C> <C>
1993 1994 1995
1996 1997
12 13 15
15.5 16
</TABLE>
Dividends per share (In dollars)
scale 0.00 to $1.50
<TABLE>
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
.62 .74 .86 1.18 1.20
</TABLE>
Dividend payout ratio (Percent)
scale: 0 to 50% <TABLE>
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
42.24% 25.75% 25.07% 30.22% 32.15%
</TABLE>
Total return (Percent) scale: 0 to 80
<TABLE>
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
17.39% 12.76% 72.93% 37.02% 52.97%
</TABLE>
Average equity/average assets
(Percent) scale: 0
to 15
<TABLE>
<S> <C> <C> <C> <C>
1993 1994 1995 1996
1997
10.32% 9.75% 9.96% 10.72% 11.42%
</TABLE>
Five-Year Selected Financial Data
(In thousands, except per share data)
The following data represents selected
year-end financial information for the
past five years. All information is
unaudited.
(In thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
<C>
<CAPTION>
BALANCE SHEET TOTALS 1997 1996 1995
1994 1993
Total Assets 342,72 $345,1 $326,6
$296,6 $257,3
6 43 09
87 47
Net Loans 212,39 207,66 197,71
182,10 160,15
6 7 8
2 6
Total Deposits 251,90 251,67 251,47
225,54 203,52
3 6 1
5 3
Total Equity 42,462 37,887 33,243
28,761 24,987
Average Assets 344,55 331,97 311,11
281,16 249,77
4 1 2
9 3
Average Equity 39,472 35,575 30,986
27,405 25,784
STATEMENT OF EARNINGS
TOTALS
Interest and Dividend 28,518 $27,52 $26,15
$21,79 $19,85
Income 2 2
5 5
Interest Expense 11,710 11,281 10,624
7,676 6,775
Net Interest Income 16,808 16,241 15,528
14,119 13,080
Provision for Loan 620 720 960
960 1,080
Losses
Net Interest Income
After Provision for 16,188 15,521 14,568
13,159 12,000
Loan Losses
Non-Interest Income
including net 5,001 5,000 4,398
4,012 4,153
security gains
(losses)
Non-interest expense 11,801 10,913 10,471
10,161 10,957
Applicable Income Taxes 2,966 2,899 2,616
2,096 1,632
Net Income before
Cumulative Effect of 6,422 6,709 5,879
4,914 3,564
Accounting Change
Cumulative Effect of -- -- --
- -- (1,058
Accounting Change )
Net Earnings 6,422 $ $
$ $
6,709 5,879
4,914 2,506
PER SHARE DATA:
(Restated for five-for-one stock split
in 1995)
Earnings Before
Cumulative Effect of $3.73 $3.90 $3.43
$2.87 $2.09
Accounting Change
Cumulative Effect of
Change in
Accounting for -- -- --
- -- ($0.62
Postretirement )
Benefits, net of
income tax benefit
Net Earnings $3.73 $ 3.90 $ 3.43 $
2.87 $ 1.47
Dividends 1.20 $ 1.18 $ 0.86 $
0.74 $ 0.62
Weighted average number
of Common 1,720, 1,718, 1,713,
1,709, 1,707, shares outstanding 052
116 449 695 175
Dividend Payout Ratio 32.15% 30.22% 25.07%
25.75% 42.24% Total Return 53.97%
37.02% 72.93% 12.76% 17.39% Return on Total
Average 1.86% 2.02% 1.89% 1.75% 1.00%
Assets
Return on total average 16.27% 18.86% 18.97%
17.93% 9.72% equity
Average equity/average 11.46% 10.72% 9.96%
9.75% 10.32% assets
</TABLE>
Header: Bar Harbor Bankshares and Subsidiary
Photograph: captioned Sheldon F.
Goldthwait, Jr.
Dear Shareholder:
It is a pleasure to present our Annual
Report for 1997. Each year we emphasize
some aspect of the Bank. In previous
years we have focused on technology, our
employees and our community involvement.
This is the year of the Directors. It
has been our conscious commitment, as a
locally owned independent community
bank, to make certain that our various
geographic service areas have
representation on our Board. This
ensures that, as banking becomes more
complicated and impersonal, we do not
lose touch with our communities and
their people. We hope that you find the
sketches of our Directors informative
and interesting. These accomplished and
respected men and women are your elected
representatives. They will welcome your
comments and suggestions and be your
advocates with management.
At our Annual Meeting in October, 1997,
you elected two new Directors, Cooper F.
Friend of Ellsworth and H. Lee Judd of
Southwest Harbor. They not only
represent their communities but bring
fresh, new perspectives to the Board.
The financial results for 1997 were
almost as good as the previous year, but
we experienced a slight drop in earnings
from $3.90 per share to $3.73 per share.
Considering the significant non-
recurring income item from 1996 reported
under Other Operating Income in the
Financial Section, we were about even.
While we are pleased with the financial
results, 1997 was a year of transition
and adjustment, and not without the
frustration and stress that often
accompany change.
We completed a successful move to our
new Operations Center and some of us
spent some time getting accustomed to
working long distance with our
operations people. A significant
portion of everyone's time in 1997 was
devoted to restoring customer confidence
and service following a November 1996
upgrade of our basic operating software
that did not go well. As a result we
are actively
searching for a software replacement and
will be utilizing outside professional
assistance to guide us in this very
important process.
On September 23, 1997, our stock was
listed on the American Stock Exchange
(AMEX) and trades under the symbol BHB.
We feel that this is an important move
for our stockholders as it will ensure a
more orderly market and provide greater
liquidity. By engaging a specialist,
there is a guaranteed market for our
stock, buying or selling. Post listing
activity reflects considerable interest
in our stock and it has performed well.
In marketing our Bank, we believe that
providing products to meet our
customers' needs and maintaining a high
level of customer service differentiates
us from our competition. In 1997, we
successfully introduced two services in
support of this belief: Customer Service
Direct and the Professionally Managed
Investment Account (PMIA).
Customer Service Direct provides
customers personal telephone access to
their account information, as well as
assistance in completing banking
transactions, through our staff of
Customer Service Specialists. In 1998,
we will introduce TeleDirect which
provides customers automated telephone
access to their account information and
allows them to complete routine
transactions. These two services
enhance the convenience of banking with
Bar Harbor Banking and Trust, and offer
our customers the option of conducting
their business through either our
personnel or our technology.
The Professionally Managed Investment
Account, introduced by our Trust
Department in the fourth quarter of
1997, provides seasoned and new
investors the opportunity to develop and
implement their longterm investment
strategies. The professional advice and
management expertise provided by our
Trust Officers is of particular value to
our PMIA clients. The response to this
new product has exceeded our
expectations.
As part of our ongoing program to
upgrade the Bank's physical facilities,
our Northeast Harbor Office was
completely renovated during 1997. The
Bar Harbor Office is scheduled for a new
entrance and a refurbished main banking
lobby during 1998.
We note with sadness the passing of our
long time Director, Abner Sargent of
Ellsworth. Abner took great pride in
his association with the Bank and
continued to attend meetings even as his
health failed. His knowledge of the
Ellsworth area and its people will be
missed.
Our focus for 1998 and beyond will be on
restoring and maintaining a high level
of service to our customers as evidenced
by timely and accurate delivery of
innovative services by a motivated and
well trained staff resulting in superior
financial performance.
I do thank our customers and staff for
their support
and patience during a transitional year.
The extra time and energy invested in
1997 I am convinced will make us a
stronger Bank and a stronger Bank family
in the years to come.
Very truly yours,
Sheldon F. Goldthwait, Jr.
President and
Chief Executive Officer
Photograph captioned: Opening day: Bar
Harbor Bankshares listed on AMEX.
Photograph shows Sheldon F. Goldthwait,
Jr., Virginia M. Vendrell and AMEX
officials at ceremonies on September 27,
1997.
In Touch With The Communities We Serve.
As an independent community bank, a
distinguishing feature of Bar Harbor
Banking and Trust Company is our
closeness to the people, businesses and
communities we serve. One of the ways
Bar Harbor Banking and Trust Company
stays in touch with our customers is
through our Directors who provide first
hand knowledge to the Bank about the
economic needs of their towns and
villages. In addition to keeping in
touch with customers, our Directors are
themselves visible and accessible
members of their communities. As such,
they can serve as a voice for customers
with the Bank at the highest level. The
local knowledge, communication, and
caring our Directors contribute enhance
the Bank's ability to serve through the
right mix of products and services, and
more timely and appropriate responses to
our customers needs. Following are
brief sketches of our Directors and how
they stay in touch with the communities
we serve.
Frederick F. Brown, Northeast Harbor
The F. T. Brown Company is a hardware
store and a Northeast Harbor
institution. It is a place where folks
gather, share stories, and find out
what's going on around town. For 30
years, "Buddy" Brown has not only run
the store, but was Town Clerk and saw a
steady stream of "customers." Buddy has
also been president of the Northeast
Harbor Chamber of Commerce, the
Neighborhood House, a center for
community activities and events, the
Northeast Harbor Water Company, and a
member of the town Warrant Committee.
Today, he keeps in touch through his
involvement in American Legion, the
Lions Club, and the Chamber of Commerce.
Photograph: Buddy Brown at F.T. Brown
Company
Robert C. Carter, Machias
Bob is a native of the Machias area and
has lived there for 50 years. His
wife's family ran the landmark local
restaurant, Helen's, and Bob is a former
game warden, and is currently
owner/operator of the Machias Motor Inn
and gun shop. Bob keeps in touch with
the Machias community through the
Chamber
of Commerce, Machias Valley Baptist
Church, the Rotary Club, Warden's Relief
Association, and committees to improve
the University of Maine at Machias such
as the committees for a new library and
a new Lifelong Learning Center at the
University, both of which are accessible
to and benefit all Washington County
residents.
Photograph: Bob Carter with decorative
landmark at Machias River
Thomas A. Colwell, Deer Isle
On Tom's native island, Deer Isle, the
resident population is small, doesn't
change much, and relationships go back a
long way. One would be hard pressed to
find someone Tom Colwell doesn't know
and vice versa. For him, and for Bar
Harbor Banking and Trust Company, his
family lobster pounds provide a direct
line of communication to the lobster
fishing industry, an important market
for the Bank and the Deer Isle
community. Tom stays in touch with this
market as a Director of the Maine
Lobster Pound Association, and stays in
touch with his community as a Director
of the Island Medical Center. Tom is
also past Chairman of the School Board
and the Island Recreational Board.
Photograph: Tom Colwell at his lobster
pound
Bernard K. Cough, Bar Harbor
"Sonny" Cough is best known in his
native Bar Harbor as a hotelier. But
his influence extends well beyond the
businesses he owns and operates. Sonny
was a member of MDI YMCA Fund Raising
Committee and currently serves on the
Endowment Committee, he is a past
director and present member of the Maine
Publicity Bureau, past director and
present member of the Bar Harbor Chamber
of Commerce, past director and present
member of the Maine Innkeepers
Association, and a former member of the
Acadia National Park Advisory
Commission. Sonny was one of a handful
of Bar Harbor residents who helped
establish the College of the Atlantic in
Bar Harbor, he was active on the
Bluenose Committee to maintain ferry
service between Nova Scotia and Bar
Harbor, past member of Bar Harbor Town
Council, the Warrant Committee and a
long time member of the Planning Board.
Photograph: Sonny Cough at Atlantic
Oakes overlooking ferry terminal
Peter Dodge, Blue Hill
Peter's insurance business and his
volunteer work put him in touch with
just about every constituency in the
Blue Hill community. For 20 years he
has served on the Board of Trustees of
George Stevens Academy, serving as Board
President for six and a half years. For
more than 20 years he has served on
various Board Committees of the Blue
Hill Memorial Hospital. He is a Trustee
of the Bagaduce Music Lending Library, a
principal in the establishment of Parker
Ridge Retirement Community, served on
the Town Budget Committee, and is
involved in special
fund-raisers for members of the
community in need. One of Peter's most
unusual activities is his role as a
musician with Flash in the Pans, a
community steel band that plays benefit
concerts for charitable organizations.
Photograph: Peter Dodge at George
Stevens Academy
Dwight L. Eaton, Bar Harbor
Dwight's community involvement is as
wide as the territory the Bank serves
and as long as your arm. For 22 years he
served on the Board of Trustees of Mount
Desert Island Hospital, chairing the
Board for two of those years. He is in
touch with the cultural community as a
member of the Board and Treasurer of the
Bagaduce Music Lending Library in Blue
Hill. He is involved in Anah Temple in
Bangor and the MDI Rotary Club of which
he is a past president. He is Vice
Chairman of the Bar Harbor Public
Housing Authority, and President and
Treasurer of MDI Housing for the
Elderly, Inc. He has served as
Treasurer of the Public Health Nursing
Association, the MDI Biological
Laboratory, and Buck's Harbor Yacht
Club, and has also served on the Bar
Harbor Warrant Committee.
Photograph: Dwight Eaton at MDI
Hospital
Ruth S. Foster, Ellsworth
Ruth's involvement in her community
began when, as a teenager, she helped
raise money to build Ellsworth's Maine
Coast Memorial Hospital. Over the
years, she has participated in many
local fund raising activities for
charitable institutions. She served on
the hospital's Board of Trustees, was
President of the Board of the Black
House, and is a board member of the
Bagaduce Music Lending Library in Blue
Hill. While a Director of the Stanwood
Bird Museum, she donated a tract of land
adjacent to the museum which became the
Foster Trail. Among her many
contributions to her community was a
three-year term as the first Mayor of
the City of Ellsworth. Subsequently,
Ruth served 14 years in the Maine
legislature, ten years in the House and
four in the Senate, and was named
Outstanding Legislator of the Year by
the Maine Bar Association. Today, Ruth
maintains one-on-one contact with folks
in the Ellsworth area through her
children's store, Ruth Foster's.
Photograph: Ruth Foster at the Black
House
Cooper F. Friend, Ellsworth
Cooper has solid connections in the
Ellsworth business community through his
recreational motorsports dealership and
partnership in a selfstorage company.
He is also President of the nonprofit
Recreational Motorsports Association of
Maine. His involvement in the Ellsworth
community today centers around the James
Russell Wiggins YMCA. Cooper is Chairman
of the Board of this organization that
reaches out to individuals and families
in the City of Ellsworth and other
nearby towns. Cooper is also a member
of the Anah Temple Shrine, the
Ellsworth Lions Club and he is a past
Director and Chairman of the Ellsworth
Area Chamber of Commerce.
Photograph: Cooper Friend at the
Russell Wiggins YMCA
Robert L. Gilfillan, Bar Harbor
Since 1917, the Gilfillan family-owned
West End Drug has been a gathering place
and source of comfort for Bar Harbor
residents. Aside from his professional
connections with the Maine
Pharmaceutical Association, American
Association of Counsulting Pharmacists
and the National Association of Retail
Druggists, Bob Gilfillan has many
connections with his community. For
over 25 years he was a member of the Bar
Harbor Police Reserves, he served many
years on the town Warrant Committee and
Planning Board, and was a Director of
the MDI YMCA. Today, Bob pursues a
number of Masonic affiliations in the
area and is very active in conducting
classes in navigation and boating safety
with the U.S. Coast Guard Auxiliary of
which he's been a member for over 30
years. Like his drugstore, Bob is a
real "fixture" in the town of Bar
Harbor.
Photograph: Bob Gilfillan at West End
Drug
Sheldon F. Goldthwait, Jr., Bar Harbor
As was his bank president father before
him, Sheldon is very much a part of the
Mt. Desert Island community. He is one
of Bar Harbor's volunteer firemen, a
member and past president of the MDI
Rotary Club, current President of the
Board of Directors of the Jesup Memorial
Library, Treasurer of the Bar Harbor
Village Improvement Association, and a
Director of Friends of Acadia, the local
park support group. Sheldon has also
served as a Director of the MDI YMCA,
the Center for Human Genetics, as
Treasurer of Ellsworth's Black House, as
past president of the Abbe Museum, and
on the Bar Harbor Warrant Committee.
Sheldon extends his influence beyond the
area as a Director and past president of
the Maine Bankers Association and as a
member of the American Bankers
Association's (ABA) Government Relations
Council.
Photograph: Sheldon Goldthwait at the
Jesup Memorial Library
H. Lee Judd, Southwest Harbor
Ask Lee what he does to stay in touch
with his community and he'll say "a few
things where I believe I can make a
difference." In the past he served on
the MDI High School Board for seven
years and on the Bar Harbor Warrant
Committee. Today his efforts, outside
of his job as president of the Hinckley
Insurance Group, include Friends of
Acadia and the Causeway Club in
Southwest Harbor. As Chairman of
Friends of Acadia, a group dedicated to
the preservation and protection of
Acadia National Park, he is in constant
touch with the park, business, municipal
and residential communities of Mount
Desert Island on a wide variety of
issues.
Photograph: Lee Judd at Acadia National
Park
James C. MacLeod, Bar Harbor
It would be difficult to find a person
on MDI whose life Jim hasn't touched. A
kindly man with a great interest in and
love of people, Jim began his working
career in the corner grocery store. For
many years he served in the state
legislature while owning and operating
the original Bluenose Inn, one of Bar
Harbor's premier motels. Today, Jim is
involved in the MDI Lions Club and the
American Legion, and is active in
Hancock County and state politics. Jim
is an avid golfer and a supporter of the
Kebo Valley Junior Golf program.
Photograph: Jim MacLeod at the Kebo
Valley Club
John P. McCurdy, Lubec
On community involvement, John McCurdy
comments, with typical Downeast
understatement, that with a 7day a week
job at the McCurdy Fish Company, he'd
been too busy all his life to join any
service clubs or community
organizations. Quietly, he'll tell you
how many people had found jobs in his
company, how many he'd helped find
financing when they needed money, and
how many folks he'd come in contact with
from Machias to Calais through his
father's auto dealerships. In touch?
In Lubec the McCurdy name is a household
word.
Photograph: John McCurdy at home in
Lubec
Jarvis W. Newman, Southwest Harbor
Jarvis is best known locally for his
ties to the boatbuilding industry. He
founded Jarvis Newman, Inc., where he
created and built a line of power boats
as well as a fiber glass reconstruction
of the Friendship Sloop. He is also an
owner of Newman and Gray on Cranberry
Isle. Jarvis has also kept in touch
with his community. He is a member of
the MDI Lions Club, a member of the
Southwest Harbor Comprehensive Planning
Committee, Vice President and a Director
of the Causeway Club, and a Director of
Friends of the Causeway. In the past,
Jarvis served as President of the
Southwest Harbor Chamber of Commerce,
Vice Commodore of the Southwest Harbor
Fleet, was an MDI High School Band
Booster, served on the Southwest Harbor
Warrant Committee, the vestry of his
church, and was a member of the Maine
Boatbuilders Association.
Photograph: Jarvis Newman at Newman
Marine Brokerage
Robert M. Phillips, Sullivan
Bob's connections with Milbridge and
Sullivan are primary through business.
His career in Maine began in
blueberries. He was President of the
Wild Blueberry Association of North
America and Chairman of the Maine
Blueberry Commission. He was a member
of the Agricultural Advisory Committee
to the University of Maine and advisor
to the university's Food Science
Department. Today, Bob is in the
lobster export business but still finds
time for community volunteer efforts
such as helping the
Garden Club beautify Sullivan Town Park.
Bob is also a past trustee of Maine
Coast Memorial Hospital in Ellsworth.
Photograph: Bob Phillips overlooking
the harbor at Sorrento
John P. Reeves, Bar Harbor
As past president of Bar Harbor Banking
and Trust Company, John has been
involved in a variety of community
volunteer activities, such as Bar Harbor
Town Council and the Fire Department.
Today, his time and considerable energy
is devoted to helping the youth of Mount
Desert Island as well as its business,
scientific and educational communities.
John is Treasurer of the Board of
Trustees of the MDI YMCA, recently
chaired a successful drive to raise
money for a new YMCA building, and
currently chairs the Y's Endowment
Committee. He is a Member of the
Corporation of the Jackson Laboratory in
Bar Harbor and long-time fund-raiser for
the Laboratory's MDI Chapter. He is
also a Trustee of College of the
Atlantic, Chairman of COA's Investment
and Audit Committees, and a member of
the Finance Committee.
Photograph: John Reeves at the new MDI
YMCA
Lynda Z. Tyson, Bar Harbor
As a self-employed marketing
communications consultant and past
executive director of the Bar Harbor
Chamber of Commerce, Lynda is in touch
with a large segment of the region's
business community. Her seven years on
the MDI Hospital Board of Trustees,
three years as chairman, also
established strong ties with the local
and state health care industry.
Currently, Lynda is a Director of the
Maine Sea Coast Missionary Society which
supplies spiritual and practical help
for people in isolated communities along
Maine's coast and islands. Lynda
continues to volunteer her time to
conduct seminars and hands-on workshops
for small and start-up businesses in
conjunction with organizations such as
SCORE.
Photograph: Lynda Tyson at the Maine
Sea Coast Missionary Society
Bar Harbor Bankshares
1997 Annual Report
FINANCIAL SECTION
Ghosted visual of lobsterboat at wharf
TABLE OF CONTENTS
Pages 1 - 5 Management's
Discussion and Analysis
Page 6 Independent
Auditors' Report Pages 7 - 10
Consolidated Financial Statements
Pages 11 - 21 Notes to
Consolidated Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of
Bar Harbor Bankshares' financial
condition and operations should be read
in conjunction with the Consolidated
Financial Statements (beginning on page
7) and Notes to the Consolidated
Financial Statements (beginning on page
11).
BUSINESS
Bar Harbor Bankshares' wholly-owned
subsidiary, Bar Harbor Banking and Trust
Company (the Bank), is an independent
community bank serving eastern Maine with
ten full-service commercial banking
offices and an eleventh office dedicated
to trust services. The Bank has built a
reputation for establishing strong and
lasting "relationships" with its
individual, business and institutional
customers, and delivering an
extraordinary level of personal and
personalized service.
Bar Harbor Banking and Trust Company
offers its customers a complete range of
accounts and services, convenient
locations, and competitive lending and
deposit interest rates. In addition, the
Bank's policy is to offer customers a
high degree of access to the Bank and
their accounts both during and after
regular banking hours through a variety
of person-toperson and automated
services.
The Bank's Trust Department is one of the
largest among independent banks in the
state of Maine. In addition to
traditional trust and estate planning
services, the Trust Department offers
sophisticated, goal-oriented
professionally-managed investment
services designed to meet the specific
financial objectives of its clients. It
also prides itself on the quality and
longevity of its client relationships.
As a community bank, one of Bar Harbor
Banking and Trust Company's goals is to
enhance the quality of life for the
people of eastern Maine. The Bank does
this by lending locally, through its
Directors who represent the towns and
villages in our service
area, and by maintaining a strong
charitable giving and employee volunteer
service program that supports local
civic and community organizations.
RESULTS OF OPERATIONS
Loans
The Bank's primary source of income is
interest generated from loans to its
customers. The competition for loans
from bank and non-bank institutions
entering the eastern Maine marketplace
has increased over the past three years.
During the same period, loan volume has
remained constant.
This has slowed loan growth for Bar
Harbor Banking and Trust Company.
In 1997, the Bank's loan portfolio
grew $5.1
million, or 2% over 1996. This compares
to loan growth in 1996 of $10.2 million,
a 5% increase over 1995. Loan growth in
1997 was due principally to growth in
residential mortgages. As a percentage
of total loans, consumer loans represent
54% and commercial loans 46%. This minor
swing in 1997 from the Bank's traditional
50-50 split was due to a $12 million
increase in consumer loans and a $5
million decrease in commercial loans
compared to 1996. The reduction in
commercial loans came at the end of 1997
as municipal loans were paid off and
commercial lines of credit were paid
down.
Indices for interest rates rose in 1997
with the prime rate increasing 1/4%. The
local marketplace, however, experienced a
decrease in rates due to increased
competition among both traditional and
nontraditional providers of credit.
Market rates of interest remained flat
throughout the year. The yields on loans
dropped 12 basis points from 1996's
yields when comparing average balance
sheets for both years. The increase in
interest income on loans in 1997 compared
to 1996 was $725,000. Interest income
grew by $980,000 due to increased loan
volumes over 1996 and decreased by
$255,000 due to interest rate changes.
This compares with an increase in loan
interest income in 1996 of $1 million
over 1995. Of this increase, $1.2
million was due to increased loan volume
and $174,000 was a reduction due to
interest rate changes.
Loans to the hospitality industry (hotels
and restaurants) represent the highest
loan concentration by industry at 68% of
capital, $28.7 million up from $27.8
million in 1996. Other substantial loan
concentrations include fishing, $11.0
million, commercial and real estate
development, $13.9 million, and
miscellaneous retail, $10.7 million.
Credit concentrations over $700,000
decreased substantially from $35 million
to $28 million due to payoffs or paydowns
by major borrowers. Eighty percent of
the credits totaling $700,000 or more are
secured by real estate and have loan to
value ratios of no more than 70%.
The Bank's underwriting process uses
conservative loan to value ratios and
state and federal government guarantee
programs where appropriate.
In addition to loans to consumers and
commercial customers, the Bank originates
and sells (or participates in) loans to
other lenders and investors. The sale of
loans allows the Bank to relend funds in
its service area, while the servicing
provides income. In 1997, loans serviced
totaled $64.7 million compared to $67
million in 1996.
Allowances for possible loan losses in
1997 increased 10% to 2.2% of total
loans. For the past three years, the
Bank's allowance for possible loan losses
has exceeded 2% of total loans. This
percentage is higher than most national
and local peer banks and indicates a
conservative approach to loan portfolio
management.
The loan portfolio is reviewed on a
quarterly basis to be sure there are
adequate reserves. Reserves are set
aside for specific loans, a pool of
reserves based on historical charge offs
by loan types, and supplementary reserves
for economic conditions, credit
concentrations, industry concentrations,
and loan policy changes. Management also
evaluates loan impairment quarterly
according to Financial Accounting
Standards Board (FASB) Statement No.
114/118.
The 1997 provision for loan losses was
$620,000. After gross charge offs of
$585,000 and recoveries of $415,000,
reserves were increased to $4.7 million,
representing 2.2% of total loans or 25
times 1997's net charge offs. There was
a recovery of a single loan of $300,000
that was charged off in a previous year,
but, absent that, net charge offs would
have been 0.2% when compared to total
loans as opposed to the actual net charge
offs of less than 0.1%.
In 1997, the two loan categories showing
the highest percentage losses were the
consumer installment loan portfolio at
$280,200 or 2.5% and consumer credit
cards at $78,300 or 3.6%. The credit
card loss is below the national average
of 6.0% which reflects high consumer debt
and an increase in bankruptcies. Losses
in the real estate loan portfolio were
minimal. In 1996, net charge offs of
$475,000 represented .2% of total loans.
Approximately 33% of the charge offs
resulted from losses in the installment
loan portfolio, predominantly in credits
cards.
All loans 90 days or more past due at
month end that are not well secured and
in the process of collection are placed
on non-accrual status.
Loans over 90 days past due, including
loans on a non-accrual basis, declined in
1997 to 1.8% as a percentage of total
loans compared to 2.0% in 1996. Non-
accrual loans totaled $3.2 million at the
end of 1997, with loans past due over 90
days and still
accruing totaling $774,000. At the end
of 1996, nonaccrual loans totaled $3.5
million with loans past due over 90 days
and still accruing totaling $733,000.
Quarterly, all loans over 90 days past
due are reviewed for possible charge off.
Collection
efforts continue whether or not the loan
is charged off, but if there is a
reasonable doubt about whether the loan
is collectible, it is charged off.
When a real estate loan goes to
foreclosure and the Bank buys the
property, the property is transferred
from the loan portfolio to the Other Real
Estate Owned (OREO) portfolio at its fair
value. If the loan balance is higher
than the fair value of the property, the
difference is charged to the allowance
for loan losses before the transfer takes
place. Along with using conservative
valuations of OREO properties, reserves
are established to allow for selling
expenses that can be reasonably forecast.
At the end of 1997, the OREO balance of
$76,400 with a reserve of $17,500 was the
lowest in recent history. It represented
four properties that are actively for
sale. At the end of 1996, the OREO
balance was $293,000 with a reserve of
$22,600.
Investments
The investment portfolio continues to add
liquidity, diversification, and earnings
to the Bank's financial picture. The
investment portfolio represents 31% of
the Bank's total assets and 33% of the
Bank's earning assets and has remained at
these levels for several years.
In 1997, the Bank's balance sheet
decreased by $2.4 million from 1996.
With loans growing by $5.1 million,
deposits remaining flat at $251 million
and a reduction in other liabilities
(securities sold under repurchase
agreements and advances from the Federal
Home Loan Bank [FHLB]) of $8.5 million,
the investment portfolio decreased by
$1.8 million or 1.6%. Loan growth and
the reduction in borrowings from the FHLB
were partially funded by principal
payments from the Bank's mortgage-backed
securities totaling $11.3 million.
Principal payments are generated from
consumers nationwide making their monthly
mortgage payments and refinancing
mortgages. Principal payments affect the
yield on the investment portfolio.
During 1997, the yield of the entire
portfolio increased by 22 basis points.
Those securities with taxable interest
income earned an average yield of 7.1%
and 6.9% for years ending December 31,
1997 and 1996, respectively.
Although the net investment portfolio
decreased by $1.8 million from year end
1996, purchases in 1997 totaled $33.1
million, 99% of which are guaranteed by
the U.S. Government. Of these, $4
million were purchased with call dates in
the 3-6 month range as an alternative to
selling Federal Funds. An additional
$10.2 million have call dates during 1998
and another $3.3 million are callable
between 1999 and 2002. The average yield
on the callable debentures as of year end
1997 was 7.0%. In addition, $15 million
of U.S. Government sponsored mortgage-
backed pools were purchased in 1997.
Purchases in 1996 totaled $24.4 million,
96% of which were guaranteed by the U.S.
Government. Of these purchases, $8.5
million represented debentures with call
dates between six months and three years
and an average yield of 7.4%. $3.5
million of these agency debentures had
ten year final maturities and were placed
in the Bank's available for sale
portfolio. In general, callable
securities purchased with maturity dates
of 10 years or longer are placed in the
available for sale portfolio.
In 1997, interest and dividends earned on
the Bank's investments showed an increase
of $271,000 of which $62,000 is
attributable to additional securities
purchased in 1997 and an increase in
earnings of $209,000 due to yields. As
the Bank's tax exempt
portion of the investment portfolio
decreases, it is being replaced by
taxable securities, which accounts for a
portion of the increase in yields. In
1996, interest and dividends earned on
the Bank's investments showed an increase
of $366,000 over 1995, of which $498,000
was attributable to additional securities
purchased in 1996 with a reduction in
earnings of $132,000 because of declines
in interest rates.
At the end of 1997, the Bank held one
interest rate swap agreement whereby the
Bank receives a fixed rate of interest
and pays a variable rate of interest on
the notional amount of $5 million. This
agreement matures in May of 1998. This
exchange is not a funding transaction,
but a stream of interest payments. The
net effect on earnings of the interest
rate swap agreement for 1997 was a
reduction in income of $30,100. A second
interest rate swap matured in May of
1996. The net effect on earnings of the
interest rate swap agreements for 1996
was a reduction in income of $21,150. In
1995, the net effect on earnings was a
reduction in income of $60,700.
Additionally, the Bank has a 5-year
interest rate floor, purchased in 1994,
that pays interest on a notional amount
of $10 million if the specified index
falls below the floor rate. No income
has been recognized to date on this
contract. The interest rate risk factor
in the swap and floor is considered in
the overall interest management strategy
of the Bank.
During 1997 and 1996, interest rates
remained stable throughout the year. In
1997, the cost of the Bank's interest
bearing liabilities increased by $429,000
(3.8%) over 1996, based on average growth
in interest bearing liabilities of $5.5
million. At year end 1997, deposits were
level with 1996. Total borrowings
comprised of securities sold under
repurchase agreements plus advances from
the FHLB are $8.5 million less than at
year end 1996.
In 1996, the cost of borrowings increased
by $197,000 based on average growth in
borrowings of $5 million. The Bank's
interest rates on deposits remained
stable throughout 1996 with average
deposits growing by more than $10.5
million and the cost of those deposits,
which were primarily certificates of
deposit, increased by $460,000.
Other Operating Income
The Bank's other operating income for
1997 was comparable with 1996. Trust
Department income before expenses
increased by $314,000 (14.2%) over 1996.
This increase was offset by reductions in
service charges on deposit accounts. Due
to the conversion of banking software,
various service charges were waived for
customer relations reasons. This included
fees for checks written against
insufficient funds which were $87,000
less in 1997 than in 1996. While 1997
other operating income was $202,000 below
the previous year, 1996 other operating
income was inflated by the $278,000
insurance payout described below. That
considered, 1997 other operating income
was on a par with 1996.
Other operating income for 1996 was
$600,000 over the 1995 total, and was
attributed to three specific events: the
Trust Department reported gross income
before expenses totaling $280,000 more
than in 1995. Additionally, FASB
Statement No. 122, "Accounting for
Mortgage Servicing Rights" was
implemented effective January 1, 1996 and
increased income by $153,000. Finally,
an insurance payment totaling $278,000
was received after the death of past
president and director, Robert H. Avery.
Trust
The Bank's Trust Department's total
revenues before expenses grew to $2.5
million, compared to $2.2 million in 1996
and $1.9 million in 1995. Market value
for the assets held in the Trust
Department as of December 31, 1997 was
$357 million compared to $322 million in
1996 and included $13.5 million in new
business. The Trust Department continues
to use a consistent process for selecting
investment opportunities designed to meet
the financial objectives of its clients.
Other Operating Expenses
In 1997, other operating expenses grew by
8.1% over 1996. Salaries and benefits
were higher by $316,000 (5.6%)
representing merit increases as well as
additional training and staffing
necessitated by the banking software
conversion that took place in November of
1996. Additionally, 1997 furniture and
equipment expense was $243,000 higher
than in 1996 due primarily to the
increase in depreciation of technology,
plant and equipment acquired by the Bank
in the past 12-18 months. This includes
upgraded individual personal computers,
networking servers, and software and
hardware enabling the Bank to image
checks, other transaction documents,
correspondence and legal documents. It
also includes the depreciation of the
Operations Center in Ellsworth and more
powerful voice and data communication
equipment, linking the branches to the
central server at the Operations Center.
Telephone line charges increased by
$86,000 (46%) over 1996, and is reflected
under other operating expenses below.
Other operating expenses increased
$317,000 (8.5%) over 1996. This increase
was comprised of noncapital expenses
incurred to complete the installation of
technological improvements begun in 1996.
In 1997, the Bank began outsourcing a
large portion of its internal audit
function resulting in an increase of
$58,000 over 1996. The Bank expects to
incur additional technology consulting
costs in 1998 as it reviews banking
software solutions.
In looking at previous years, other
operating expenses for 1996 were $443,000
higher than for 1995. Furniture and
equipment expense increased in 1996 due
to the depreciation of equipment
purchased in mid-1996. Salaries and
benefits were 6.7% higher in 1996 and
include merit increases, additional
overtime resulting from the
implementation of new software
technology, and incentive payments made
to employees.
In 1995, the Bank began developing
several major projects involving
facilities and technology. In order to
engineer these changes most effectively,
the Bank sought the services of a
consulting firm to review existing
procedures, seeking greater efficiencies
while maintaining quality customer
service. Funds spent on this project in
1995 totaled $187,000.
In 1997, FDIC insured banks, through the
Deposit Insurance Funds Act, were charged
by the Financing Corporation (FICO) with
helping to service interest on its FICO
bonds. The Bank's portion of this charge
for 1997 was $30,000. In mid-year 1995,
the FDIC temporarily discontinued the
charge for insurance premiums for well
capitalized banks, reducing the cost for
insurance to $260,000 in that year. As
of December 31, 1996 and 1997, the
premium had not been reinstated.
Net Earnings
Net earnings for the Bank of $6.4 million
were on a
par with 1996's earnings, excluding the
$278,000 nontaxable insurance payment
received in 1996.
Earnings for 1995 were $5.9 million.
The efficiency ratio, one of the more
frequently quoted measures for a bank,
compares the relationship between non-
interest expense to net interest income
plus non-interest income. The lower the
percentage, the better the bank is
monitoring its expenses. As of year end
1997, the Bank had an efficiency ratio
of 56%, which is lower than the industry
standard.
The Bank's earnings translate into a
return on average equity of 16.3%,
compared to 18.9% in 1996. Earnings per
share in 1997 were $3.73 compared to
$3.90 in 1996 and $3.43 in 1995. Return
on average assets in 1997 was 1.9%
compared to 2.0% for 1996 and 1.9% for
1995.
LIQUIDITY
A primary function of asset/liability
management includes assuring adequate
liquidity that reflects the ability of
the Bank to meet the cash flow
requirements of its customers without
significant loss to the Bank. Liquidity
comes from five sources in the balance
sheet: the Bank's investment portfolio,
deposits, borrowings, loan repayments,
and profits.
Liquidity is needed to fund increased
loan demand and to cover the seasonal
outflow of deposits during the winter
months. The Bank's investment portfolio
not only provides liquidity, but also
diversification in managed assets. The
Bank maintains adequate liquidity
without having to sell portions of its
investment portfolio by pledging
portions of its portfolio as collateral
for borrowings.
The December 31, 1997 investment summary
indicated a net unrealized gain of
$897,000 on the Bank's held to maturity
portfolio. On December 31, 1996, this
portfolio showed a net unrealized gain
of $351,000. On December 31, 1997, the
Bank's available for sale portfolio
showed a gain of $36,000. This
portfolio had an unrealized loss of
$157,000 as of December 31, 1996. The
portion of the Bank's portfolio which is
taxable had an average yield of 7.1% in
1997 compared to 6.9% in 1996. At year-
end 1997, the Bank's large mortgage-
backed security portfolio had a net
unrealized gain of $587,000. This
compares to an unrealized loss on the
mortgagebacked securities portfolio in
1996 of $152,000. Although premiums were
paid on portions of the mortgage-backed
securities purchased in earlier years,
many of those pools were seasoned at the
time of purchase and have not prepaid as
quickly as expected. The mortgage-
backed securities portfolio has an
average life of 4.4 years, an average
duration of 2.2 years and is yielding
and average of 6.7%, which is more
favorable than comparable securities
with similar average lives in the
current market.
Deposits represent the Bank's primary
source of funds. For the second year in
a row, total deposits have remained
steady, although there are shifts within
the specific categories. Strong
competition from both financial and non-
financial institutions and the strength
of the national economy and stock
markets are providing alternatives to
traditional bank deposits. The Bank has
evidenced stability in its core deposit
accounts over the past several years.
Bar Harbor Banking and Trust Company
does not purchase brokered deposits.
Changes in the Bank's market and the
local economy in general were reflected
in the liability mix during 1997. With
loan growth slowing and a reduction in
the balance sheet, investment maturities
and principal payments on mortgage-
backed securities have served as sources
of liquidity along with cash on hand and
loan repayments. Over the past five
years, the Bank has expanded its sources
to include advances available through
the Federal Home Loan Bank of Boston, as
well as repurchase agreements secured
through several wholesale firms and a
seasonal borrowing line with the Federal
Reserve Bank of Boston. Through the
above options, additional funds
available to the Bank at December 31,
1997 totaled $88 million; however, the
Bank does not intend to borrow funds to
its maximum availability. These funds
have been used, in accordance with
asset/liability management objectives of
the Bank, to purchase investment
securities and to fund deposit outflow.
The Bank's primary approach to measuring
liquidity is utilizing a Basic
Surplus/Deficit model. It is used to
calculate liquidity over a 30-day and a
90day time horizon, by examining the
relationship between marketable assets
after deducting pledged assets, and
short-term liabilities that are
vulnerable to non-replacement within a
30-day
period. The 90-day analysis extends to
include a projection of subsequent cash
flow funding needs over an additional 60-
day horizon. The Bank's minimum policy
level of liquidity under this model is
5% of total assets for both time
horizons. As of December 31, 1997, the
30-day and 90-day ratios are 17.2% and
17.7%, respectively. At December 31,
1996, the ratios were 19.9% and 18.7%,
respectively. Management believes the
Bank has adequate liquidity available to
respond both to expected and unexpected
liquidity needs based on the Basic
Surplus/Deficit model.
Asset/liability management has the role
of maintaining a balance between
interest-sensitive earning assets and
interest-bearing liabilities. Effective
management of interest rate risk can
protect the Bank against adverse changes
in interest rates and can enhance the
Bank's interest margins and earnings
through periods of changing interest
rates. In times of rising interest
rates, Bar Harbor Banking and Trust
Company will maximize earnings if more
loans and/or investments are subject to
rate changes than interest bearing
liabilities. As interest rates rise,
the Bank monitors its rate sensitivity
seeking to ensure that both assets and
liabilities respond to changes in
interest rates to minimize the effect of
those changes on net interest income.
As of December 31, 1997, Bar Harbor
Banking and Trust Company had $166
million in assets and $174 million in
liabilities that could be repriced
within one year. This is comparable to
1996's repriceable figures.
Management continues to watch economic
trends with respect to interest rates.
The Bank is well balanced with assets
and liabilities repricing concurrently.
Based on simulations, if interest rates
were to rise by 200 basis points and if
the Bank were to maintain the balance
sheet as it stands today, the Bank would
reduce its net interest income by
$34,000 during the next twelve months
and $79,000 in the second year. If
rates were to drop by 200 basis points,
the Bank would experience an increase in
its net interest income of $190,000 in
the first twelve months and $86,000
during the second year.
Loan repayments and maturing investments
are set forth in the Statements of Cash
Flows. Profits, the final source of
liquidity, also are detailed on the
preceding pages.
CAPITAL RESOURCES
Regulatory standards for bank capital
adequacy require that capital be at
least 8% of risk-adjusted assets. Bar
Harbor Banking and Trust Company's total
risk-based capital ratio of 21.5% far
exceeds the guidelines. This means that
the Bank is not restricted from paying
dividends.
Stockholders' equity increased by $4.6
million as of December 31, 1997 and
1996.
Dividends of $2.1 million declared on
the Company's common stock, represented
a 32% dividend payout ratio and
contributed to a total return to
shareholders of 54%. This total return
was, in part, due to the Bank's listing
on the American Stock Exchange on
September 23, 1997. Bar Harbor
Bankshares' stock was priced at $36.50
at year end 1996 and closed at $55.00 on
December 31, 1997.
A strong capital position, which is
vital to the continued profitability of
the Bank, also promotes customer
confidence and provides a solid
foundation for future growth. Continued
growth in stockholders' equity has been
achieved through reinvested earnings.
There are no known trends, events or
uncertainties nor any recommendations by
any regulatory authority that are
reasonably likely to have a material
effect on the Company's liquidity,
capital resource or operating results.
IMPACT OF RECENTLY ISSUED ACCOUNTING
STANDARDS
In 1997, the Bank adopted Statements of
Accounting Standards (SFAS) No. 125,
"Accounting for Transfers and Servicing
of Financial Assets and Extinguishment
of Liabilities," and No. 127, "Deferral
of the Effective Date of Certain
Provisions of SFAS No 125". The
adoption of these standards did not have
a material effect on the financial
statements.
In 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No.
128 "Earnings per Share", SFAS No. 129
"Disclosure of Information about Capital
Structure", SFAS No. 130 "Reporting
Comprehensive Income", and SFAS No. 131
"Disclosures about Segments of an
Enterprise and Related Information".
These statements deal with disclosure
and presentation requirements used in
the financial statements. They do not
change the measurement or recognition
methods.
SFAS No. 128 requires retroactive
presentation of diluted earnings per
share, in addition to basic earnings per
share already presented. However, as
the Company has no potential common
stock, the Company has no diluted
earnings per share. Financial statement
disclosures also comply with SFAS No.
129 which summarizes but does not change
the Company's requirements to disclose
information about capital structure.
SFAS No. 130 and No. 131 are effective
for periods beginning after December 15,
1997. Management has not determined
additional reporting requirements under
these statements.
YEAR 2000 RISK ASSESSMENT AND ACTION
PLAN
It is anticipated that many computer
applications will not operate as
intended past the year 1999 without
modifications. This is due to the
practice of using only two digits
instead of four digits to
identify a year in the date field, for
example: "97" instead of "1997". On
January 1, 2000, it is possible that
some systems with time sensitive
software programs will recognize the
year as "00" and incorrectly interpret
it as "1900".
The Federal Reserve Board has identified
six risk categories of particular
concern to financial institutions. Of
these six, emphasis is given to the
areas of operational risk, legal risk,
and reputation risk. The Company has
adopted a plan to minimize the Year 2000
risk. The plan includes the formation
of a Year 2000 Committee which will be
charged with implementing a five phase
plan of awareness, assessment,
renovation, validation and
implementation for all systems and
equipment used in the day to day
operations of the Bank. The timeline
for the Committee calls for completion
of the awareness, assessment and
renovation phases by December 31, 1998;
testing and validation should be well
underway by that time as well. However,
the Bank is considering a major
conversion of banking software, which
could have an impact on the Company's
Year 2000 testing and implementation
plan. Management feels that the Bank is
adequately addressing the Year 2000
issue, thereby minimizing any associated
risks to its customers. The Company has
not determined the financial impact of
the Year 2000 project.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements
and related notes, presented on
subsequent pages of this report, have
been prepared in accordance with
generally accepted accounting
principles. These principles require
the measurement of financial position
and operating results in terms of
historical dollars without considering
changes in the relative purchasing power
of money over time due to inflation.
Unlike many industrial companies,
substantially all of the assets and
virtually all of the liabilities of Bar
Harbor Banking and Trust Company are
monetary in nature. As a result,
interest rates have a more significant
impact on Bar Harbor Banking and Trust
Company's performance than the general
level of inflation. Over short periods
of time, interest rates may not
necessarily move in the same direction
or in the same magnitude as inflation.
MARKET FOR COMMON STOCK
High and low bids for each quarter of
1997 and 1996 are listed below (per
quotes from The Bangor Daily News
through September 23, 1997), the date of
listing on the American Stock Exchange.
<TABLE>
<S> <C> <C> <C>
<C>
<caption
>
1st Quarter 2nd Quarter 3rd Quarter
4th Quarter High High
High High
Low Low Low
Low
1997 38.75 to 42.75 to 48.375 to
62.00 to
35.00 36.375 39.75
49.125 1996 37.50 to 44.00 to
42.00 to 39.50 to
26.125 37.00 38.00
36.25
</TABLE>
As of January 1, 1998, there were 1,075
registered holders of record of Bar Harbor
Bankshares common stock.
Dividends paid by the Company in 1997 and
1996:
<TABLE>
<S> <C> <C> <C>
<C>
<caption
>
1st Quarter 2nd Quarter 3rd Quarter
4th Quarter
1997 $0.28 $0.30 $0.30
$0.32
1996 $0.20 $0.20 $0.25
$0.53
</TABLE>
INDEPENDENT AUDITORS' REPORT
BDM&P LOGO
BERRY, DUNN, McNEIL & PARKER
CERTIFIED PUBLIC ACCOUNTANTS
MANAGEMENT CONSULTANTS
________________________________________
____________ ________
100 Middle Street / P.O. Box 1100,
Portland, Maine 04104-1100 / (207 775-
2387 / FAX (207) 774-2375
The Board of Directors
Bar Harbor Bankshares
We have audited the accompanying
consolidated statements of financial
condition of Bar Harbor Bankshares and
Subsidiary as of December 31, 1997 and
1996, and the related consolidated
statements of earnings, changes in
stockholders' equity, and cash flows for
each of the three years in the period
ended December 31, 1997. These
financial statements are the
responsibility of the Company's
management. Our responsibility is to
express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance
with generally accepted auditing
standards. Those standards require that
we plan and perform the audits to obtain
reasonable assurance about whether the
financial statements are free of
material misstatement. An audit
includes examining, on a test basis,
evidence supporting the amounts and
disclosures in the financial statements.
An audit also includes assessing the
accounting principles used and
significant estimates made by
management, as well as evaluating the
overall financial statement
presentation. We believe that our
audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements
referred to above present fairly, in all
material respects, the consolidated
financial position of Bar Harbor
Bankshares and Subsidiary as of December
31, 1997 and 1996, and the consolidated
results of their operations and their
consolidated cash flows for each of the
three years in the period ended December
31, 1997, in conformity with generally
accepted accounting principles.
(signature: Berry, Dunn, McNeil &
Parker)
Portland, Maine
February 20, 1998
Offices in: Bangor, Maine, Portland,
Maine, Lebanon, New Hampshire,
Manchester, New Hampshire
Bar Harbor Bankshares and
Subsidiary CONSOLIDATED STATEMENTS
OF FINANCIAL CONDITION
December 31, 1997 and
1996
(In thousands, except number of share and per share
data)
<TABLE>
<S> <C>
<C>
<CAPTION>
1997 1996
Assets
Cash and due from banks $ 7,537
$ 11,298
Federal funds sold 0 2,000
Securities available for sale 14,608 19,384
Securities held to maturity (market
value $86,248 in 1997; 85,351 82,717
$83,068 in 1996) 6,012 5,624
Other securities 365 337
Loans held for sale
Loans, net of allowance for possible 212,396
207,667 loan loses of $4,743in
7,658 7,498
1997 and $4,293 in 1996 8,799
Premises and equipment 8,618
Other assets
Total assets $342,726
$345,143
Liabilities and stockholders' equity
Liabilities
Deposits
Demand deposits $ 36,837
$ 35,919
Now accounts 39,536 40,530
Savings deposits 53,378 53,085
Time deposits 122,152
122,142
Total deposits 251,903
251,676
Securities sold under repurchase 4,474 8,246
agreements 39,160 43,908
Advances from Federal Home Loan Bank 4,727 3,426
Other Liabilities
Total liabilities 300,264
307,256
Commitments and contingent
liabilities (Note 17)
Stockholders' equity
Capital stock, par value $2; authorized
10,000,000 shares; 3,642 3,637
Issued 1,820,583 in 1997 and 7,574 7,489
1,818,237 in 1996 32,562 28,205
Surplus
Retained Earnings 24 (104)
Net unrealized appreciation on (1,340)
(1,340) securities available for sale,
net of tax
Less: Cost of 100,000 shares of
Treasury Stock
Total stockholder's equity 42,462 37,887
Total liabilities and stockholders' $342,726
$345,143 equity
</TABLE>
The accompanying notes are an integral
part of these consolidated financial
statements.
Bar Harbor Bankshares and
Subsidiary CONSOLIDATED
STATEMENTS OF EARNINGS
Years ended December 31, 1997, 1996 and
1995
(In thousands, except number of share and
per share data)
<TABLE>
<S> <C>
<C> <C>
<CAPTION>
1997
1996 1995
Interest and dividend income:
Interest and fees on loans $21,028
$20,303 $19,299 Interest and dividends on:
Taxable securities 6,415
6,099 5,623
Non-taxable securities 651
767 852
Equity securities 424 378
353
Total interest and dividends 28,518
27,522 26,152
Interest expense:
Deposits 8,793
8,888 8,428
Borrowings 2,917
2,393 2,196
Total interest expense 11,710
11,281 10,624
Net interest income 16,808
16,241 15,528
Provision for loan losses 620
720 960
Net interest income after 16,188
15,521 14,568
provision for loan losses
Other operating income:
Trust department income 2,525
2,211 1,932
Service charges on deposit 690
797 789
accounts 1,634
1,624 1,628
Other service charges, 152
368 49
commissions and fees
Other operating income
5,001
5,000 4,398
Other operating expenses:
Salaries and employee 6,005
5,689 5,333
benefits 608
596 622
Occupancy expense 1,155
911 737
Furniture and equipment 4,033
3,717 3,779
expense
Other operating expense
11,801
10,913 10,471
Earnings before income taxes 9,388
9,608 8,495
Income taxes 2,966
2,899 2,616
Net earnings $ 6,422 $
6,709 $ 5,879
Per common share data:
Net earnings $3.73
$3.90 $3.43
Weighted average number of 1,720,052
1,718,11 1,713,44 common shares 6 9
outstanding
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Bar Harbor Bankshares and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS'
EQUITY
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
Net
Unrealiz
ed
Apprecia
tion Net
Capita Retain (depreci
Treasur Stock
l Surplu ed ation)
y holders
Stock s Earnin on
Stock '
gs securiti Equity
es
availabl
e
for sale
Balance December $3,620 $7,314 $19,11 $48
($1,340 $28,761
31, 1994 9
)
Net earnings 1995 5,879 5,879
Cash dividends 0
declared ($.86
per share) (1,474 (1,474)
Net unrealized )
appreciation on
securities
available for
sale, 15 15
net tax of $8
Sale of stock 8 54 ____
_______ _____62
(3,770 ______
shares)
Balance December $3,628 $7,368 $23,52 $63
($1,340 $33,243
31, 1995 4
)
Net earnings 1996 6,709 6,709
Cash dividends
declared ($1.18 (2,028 (2,028)
per share) )
Net unrealized
depreciation on (167) (167)
securities 9 _____
______
available for 121 ______ 130
sale,
net of tax
benefit
of $86
Sale of stock
(4,632
shares)
Balance December 3,637 7,489 28,205 (104)
(1,340) 37,887
31, 1996
Net earnings 1997 6,422 6,422
Cash dividends
declared ($1.20 (2,065 (2,065)
per share) )
Net unrealized
appreciation on 128 128
securities ___
_______ _____90
available for sale 5 85 ______
net of tax _
benefit
of $66
Sale of stock (2,346 shares)
Balance December $3,642 $7,574 $32,56 $
($1,340 $42,462
31, 1997 2 24
)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Bar Harbor Bankshares and Subsidiary
CONSOLIDATED STATEMENTS OF CASH
FLOWS Years ended December 31, 1997,
1996 and 1995
(In thousands, except number of shares and
per share data)
<TABLE>
<S> <C>
<C> <C>
<CAPTION>
1997
1996 1995
Cash flows from operating
activities: $ 6,422
$ $
Net earnings
6,709 5,879
Adjustments to reconcile
net earnings to net
cash provided by 888
786 588
operating activities: 620
720 960
Depreciation
Provision for loan 0
7 19
losses (5,465)
(8,266) (7,828)
Provision for losses
on other real estate 5,450
8,250 8,039
owned
New loans originated (40)
(169) (24)
for sale 137
269 196
Proceeds from sale 5
31 87
of mortgages held for (416)
(553) (401)
sale 1,300
23 (26)
Gain on sale of
mortgages originated for
sale
Net amortization of
bond premium
Loss on sale of
premises and equipment
Net change in other
assets
Net change in other
liabilities
Net cash provided by 8,901
7,807 7,489
operating activities
Cash flows from investing
activities:
Net decrease 2,000
1,800 (3,800)
(increase) in federal funds
sold
Purchases of (31,402)
(18,320) (27,026)
securities held to maturity
Proceeds from
maturity and principal 18,881
12,793 10,320 paydowns of
securities held to maturity
Proceeds from call of
securities held to 9,750
4,750 13,750
maturity
Purchases of (1,253)
(6,113) (8,054)
securities available for sale
Proceeds from
maturity and principal 160
183 62
paydowns of
securities available for sale
Proceeds from sale
and calls of securities 6,060
500 0
available for sale
Net decrease (388)
55 0
(increase) in other
securities
Net loans made to (5,349)
(11,121) (16,757)
customers
Capital expenditures (1,069)
(2,493) (1,345)
Proceeds from sale of
other real estate 199
331 331
owned
Proceeds from sale of 16
397 17
fixed assets
Net cash used in (2,395)
(17,238) (32,502)
investing activities
Cash flows from financing
activities:
Net change in savings,
NOW and demand 218
5,178 (5,702)
deposits
Net changes in time 10
(4,974) 31,629
deposits
Net change in
securities sold under (3,772)
2,455 (8,157)
repurchase
agreements
Proceeds from Federal 38,500
53,000 27,400
Home Loan Bank
Repayment of advances
from Federal (35,000)
(28,900) (24,000) Home Loan Bank
Net change in short
term other borrowed (8,248)
(12,892) 4,300
funds
Proceeds from sale of 90
130 62
capital stock
Payments of dividends (2,065)
(2,028) (1,474)
Net cash provided
(used) by financing (10,267)
11,969 24,058 activities
Net increase (decrease) in
cash and cash (3,761)
2,538 (955)
equivalents
Cash and cash equivalents at 11,298
8,760 9,715
beginning of year
Cash and cash equivalents at $ 7,537 $
11,298 $ 8,760
end of year
Supplemental disclosures of
cash flow information:
Cash paid during the
year for: $ 11,683 $
11,322 $
Interest
10,529
Income taxes, net $ 2,596
$ $ of refunds
3,347 2,597
Non-cash transactions
Transfer from loans
to real estate owned $
$ $
(other assets) 0
215 188
Transfer of
securities from held to $
$ $
maturity 0
0 5,579
to available for
sale
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
Bar Harbor Bankshares and Subsidiary
NOTES TO CONSOLIDATED STATEMENTS
December 31, 1997, 1996, and 1995
(Tables presented in thousands)
1. Summary of significant accounting
policies
Business
Bar Harbor Bankshares, through its
wholly-owned subsidiary, Bar Harbor
Banking and Trust Company, provides a
full range of banking services to
individual and corporate customers
throughout eastern Maine. These banking
services are available in each of its
ten branch locations. The Bank is
subject to the regulations of certain
federal and state agencies and undergoes
periodic examination by those regulatory
authorities.
Basis of financial statement
presentation
The financial statements have been
prepared in conformity with generally
accepted accounting principles. In
preparing the financial statements,
management is required to make estimates
and assumptions that affect the reported
amounts of assets and liabilities and
disclosure of contingent assets and
liabilities as of the date of the
balance sheet and revenues and expenses
for the period. Actual results could
differ significantly from those
estimates. Material estimates that are
particularly susceptible to significant
change in the near term relate to the
determination of the allowance for loan
losses and the valuation of real estate
acquired in connection with foreclosures
or in satisfaction of loans. In
connection with the determination of the
allowances for loan losses and real
estate owned, management obtains
independent appraisals for significant
properties. A substantial portion of
the Bank's loans are secured by real
estate in eastern Maine. In addition,
all of the real estate acquired through
foreclosure is located in those same
markets. Accordingly, the ultimate
ability to collect on a substantial
portion of the Bank's loan portfolio and
the recovery of the carrying amount on
real estate owned are susceptible to
changes in market conditions in eastern
Maine.
Certain amounts in prior years have been
restated to conform with the current
year presentation.
Principles of consolidation
The accompanying consolidated financial
statements include the accounts of Bar
Harbor Bankshares and its wholly-owned
subsidiary, Bar Harbor Banking and Trust
Company. All intercompany balances and
transactions have been eliminated in the
accompanying consolidated financial
statements.
Cash and due from banks
The Bank is required to comply with
various laws and regulations of the
Federal Reserve Bank which require that
the Bank maintain certain amounts of
cash on deposit and is restricted from
investing those amounts. In the normal
course of business, the Bank has funds
on deposit at other financial
institutions in amounts in excess of the
$100,000 that is insured by the FDIC.
Securities available for sale
Securities available for sale consist of
certain securities to be held for
indefinite periods of time which are
reported at fair value with unrealized
gains and losses reported as a separate
component of stockholders' equity, net
of tax effect. Gains and losses on the
sale of securities available for sale
are determined using the specific-
identification method and are shown
separately in the statement of earnings.
Premiums and discounts are recognized in
interest income using the interest
method over the period to maturity.
Securities to be held to maturity
Debt securities for which the Bank has
the positive intent and ability to hold
to maturity are reported at cost,
adjusted for amortization of premiums
and accretion of discounts which are
recognized in interest income using the
interest method over the period to
maturity.
It is management's policy to acquire
securities for long-term investment
purposes, rather than to acquire such
securities for purposes of trading.
For this reason, the Bank has not
classified any of its securities as
trading.
Other securities
Other securities include Federal Home
Loan Bank stock and other non-marketable
securities carried at cost.
Loans held for sale
Loans held for sale are individual
residential mortgage loans which qualify
for sale in the secondary market to the
Federal Home Loan Mortgage Corporation
(Freddie Mac). These loans are closed
and immediately sold without recourse to
Freddie Mac, with the Bank retaining
loan servicing on said loans. The Bank
does not pool mortgages for sale.
Because loans are sold immediately, the
cost is considered to approximate market
value.
Loans
Interest on loans is accrued and
credited to income based on the
principal amount of loans outstanding.
The recording of interest income on
problem loan accounts is discontinued
when collectibility within a reasonable
period of time becomes doubtful.
Interest income on impaired loans is
reported on a cash basis when received.
Loan origination fees and certain direct
loan origination costs are deferred and
recognized in interest income as an
adjustment to the loan yield over the
life of the related loans. The Bank
amortizes these amounts using a method
that approximates the effective yield.
The unamortized net deferred fees and
costs are included on the balance sheet
with the related loan balances.
The allowance for loan losses is
established through a provision for loan
losses charged to operations. Loan
losses are charged against the allowance
when management believes that the
collectibility of the loan principal is
unlikely. Recoveries on loans previously
charged off are credited to the
allowance.
The allowance is an amount that
management believes will be adequate to
absorb possible loan losses based on
evaluation of their collectibility and
prior loss experience. The evaluation
takes into consideration such factors as
changes in the nature and volume of the
portfolio, overall portfolio quality,
specific problem loans, and current and
anticipated economic conditions that may
affect the borrower's ability to pay.
While management uses available
information to recognize losses on
loans, changing economic conditions and
the economic prospects of the borrowers
may necessitate future additions to the
allowance. In addition, various
regulatory agencies, as an integral part
of their examination process,
periodically review the Bank's allowance
for loan losses. Such agencies may
require the Bank to recognize additions
to the allowance based on their
judgments about information available to
them at the time of their examination.
Impaired loans, including restructured
loans, are measured at the present value
of expected future cash flows discounted
at the loan's effective interest rate,
at the loan's observable market price,
or the fair value of the collateral if
the loan is collateral dependent.
Management takes into consideration
impaired loans in addition to the above
mentioned factors in determining the
appropriate level of allowance for loan
losses.
Premises and Equipment
Premises and equipment and related
improvements are stated at cost less
accumulated depreciation. Depreciation
is computed by the straight-line and
accelerated methods over the estimated
useful lives of the related assets.
Repairs and maintenance charges are
expensed as incurred.
Other real estate owned (OREO)
Real estate acquired in satisfaction of
a loan is reported in other assets.
Properties acquired by foreclosure or
deed in lieu of foreclosure are
transferred to OREO and recorded at the
lower of cost or fair market value less
estimated costs to sell based on
appraised value at the date actually or
constructively received. Loan losses
arising from the acquisition of such
property are charged against the
allowance for loan losses. OREO is
stated at the lower of cost or market.
An allowance for losses on OREO is
maintained for subsequent valuation
adjustments on a specific property
basis.
Income taxes
Deferred tax assets and liabilities are
reflected at currently enacted income
tax rates applicable to the period in
which the deferred tax assets or
liabilities are expected to be realized
or settled. As changes in the tax laws
or rates are enacted, deferred tax
assets and liabilities are adjusted
through the provision for income taxes.
Financial instruments with off-balance
sheet risk
In the ordinary course of business the
Bank has entered into off-balance sheet
financial instruments consisting of
commitments to extend credit,
commitments under credit-card
arrangements, commercial letters of
credit, and standby letters of credit.
Such financial instruments are recorded
in the financial statements when they
are funded or related fees are incurred
or received.
Interest rate exchange agreements
(swaps) are accounted for using the
accrual method. Net interest income
(expense) resulting from the
differential between exchanging floating
and fixedrate interest payments is
recorded on a current basis.
Interest rate floors are contracts in
which a floor is established at a
specified rate and period of time. The
premium paid for the contract is
amortized over its life. Any cash
payments received are recorded as an
adjustment to net interest income.
Statements of cash flows
For purposes of the statements of cash
flows, the Bank considers cash on hand
and amounts due from banks as cash and
cash equivalents.
Basic earnings per share
Basic earnings per share is calculated
by dividing net earnings by the number
of weighted average shares outstanding
for the year. There are no diluted
earnings per share as there is no
potential common stock.
Fair value disclosures
The following methods and assumptions
were used by the Bank in estimating its
fair market value disclosures for
financial instruments:
Cash and cash equivalents: The
carrying amounts reported in the balance
sheet for cash and cash equivalents
approximate their fair values.
Securities available for sale,
securities held to maturity and other
securities: Fair values for investment
securities are based on quoted market
prices, where available. If quoted
market prices are not available, fair
values are based on quoted market prices
of comparable instruments.
Loans receivable: Fair values are
estimated for portfolios of loans with
similar financial characteristics.
Loans are segregated by type such as
commercial, commercial real estate,
residential
mortgage, credit card, and other
consumer. Each loan category is also
segmented into fixed and variable rate
interest terms and by performing and non-
performing categories.
Fair value of all performing loans is
calculated by discounting scheduled cash
flows through the estimated maturity
using estimated discount market rates.
These rates are based on independent
market indices adjusted for
administrative costs and credit risk.
Estimated maturity is based on the
weighted average of the portfolio. Real
estate and installment maturities are
adjusted for estimates of prepayment
rates, with high interest, longer term
loans prepaying at a more rapid rate.
Fair value for non-performing loans is
determined on an individual basis,
taking into account management's plans
regarding potential time to resolution
and subsequent sale of collateral and
the borrower's plan for the continuance
of principal and interest payments along
with the potential of the borrower to
rebuild equity in the loan collateral.
Deposits: The fair value of demand
deposits, NOW accounts and savings
accounts is the amount payable on
demand. The fair value of fixed
maturity certificates of deposit is
estimated using the rates currently
offered in the Bank's market for
deposits of similar remaining
maturities.
Borrowings: The carrying amounts of
federal funds purchased, borrowings
under repurchase agreements, and other
short-term borrowings maturing within 90
days approximate their fair values.
Fair values of other short-term
borrowings are estimated using
discounted cash flow analyses based on
the Bank's current incremental borrowing
rates for similar types of borrowing
arrangements.
The fair values of the Bank's long-term
borrowings (other than deposits) are
estimated using discounted cash flow
analyses, based on quoted market rates.
Accrued interest: The carrying amounts
of accrued interest approximate their
fair values.
Off-balance sheet instruments: The
Bank's offbalance sheet instruments
include interest rate swaps, floors and
loan commitments. Fair values for
interest rate swaps and floors are based
on quoted market prices. Fair values
for loan commitments have not been
presented as the future revenue derived
from such financial instruments is not
significant.
Effect of recent accounting
pronouncements
During 1997, the Company adopted SFAS
No. 125 and No. 127 which relate to the
accounting for transfers and servicing
of financial assets and Extinguishment
of certain liabilities. The adoption of
these standards did not have a material
effect on the financial statements.
The Financial Accounting Standards Board
issued the following statements of
financial accounting
standards (SFAS) during 1997:
SFAS No. 128 Earnings per Share
SFAS No. 129 Disclosure of
Information about
Capital Structure
SFAS No. 130 Reporting
Comprehensive Income
SFAS No. 131 Disclosures about
Segments of an
Enterprise and
Related Information.
These four statements do not change the
measurement or recognition methods used
in the financial statements but rather
deal with disclosure and presentation
requirements.
At December 31, 1997, the Company
adopted SFAS No. 128 which specifies the
computation and disclosure requirements
for earnings per share for entities with
publicly held common stock or potential
common stock. The Company has no
potential common stock and therefore no
diluted earnings per share.
At December 31, 1997, the Company
adopted SFAS No. 129. This statement
has no effect on the Company's financial
statements as the capital disclosures
meet the requirements of SFAS No. 129.
SFAS No. 130 and 131 are effective for
periods beginning after December 15,
1997. Management has not determined
additional reporting requirements, if
any, under these statements.
2. Investment securities
The amortized cost of investment
securities and their approximate fair
values at December 31, 1997 and 1996
follows:
<TABLE>
<S> <C> <C> <C> <C>
<CAPTION>
1997
GROSS
GROSS ESTIMATE AMORTIZ
UNREALIZ UNREALI
D
ED ED
ZED MARKET
COST GAINS
LOSSES VALUE
Available for sale:
Obligations of U.S. Gov't $ $ $ $
agencies 8,751 69
17 8,803
Mortgage-backed securities- 5,271 0
38 5,233
U.S. Gov't agencies
Marketable equity securities 550 22 0 572
Total securities available $ $ $ $
for sale 14,572 91
55 14,608
Held to maturity:
Obligations of U.S. Gov't $ $ $ $
agencies 13,250 33 3 13,280
Mortgage-backed securities- 57,913 725
105 58,533
U.S. Gov't agencies 5,082 26
21 5,087
Mortgage-backed securities-
other 8,105 240 0 8,345
Obligations of States of the
U.S. and Political 1,001 2 0 1,003
Subdivisions thereof $ $ $ $
Other Bonds 85,351 1,026
129 86,248
Total securities held to
maturity
1996
GROSS
GROSS ESTIMATE
AMORTIZ UNREALIZ
UNREALI D
ED ED
ZED MARKET
COST GAINS
LOSSES VALUE
Available for sale:
Obligations of U.S. Gov't $13,501 $ 25
$189 $13,337
agencies 5,430 5,430
Mortgage-backed securities- 0 0
U.S. Gov't agencies 610 7 0
Marketable equity securities 617
Total securities available $19,541 $ 32
$189
for sale $19,384
Held to maturity:
Obligations of U.S. Gov't $11,750 $ 131 $
16 $11,865
agencies 49,255 386
529 49,112
Mortgage-backed securities- 6,812 37
46 6,803
U.S. Gov't agencies
Mortgage-backed securities- 12,392 373 0 12,765
other 15
Obligations of States of the 2,508 $ 942 0 2,523
U.S. and Political $82,717
$591 $83,068
Subdivisions thereof
Other Bonds
Total securities held to
maturity
</TABLE>
At December 31, 1997, the amortized cost and
estimated fair value of securities held
to maturity and securities available
for sale (other than marketable equity
securities) are shown below. Actual
maturities will differ from contractual
maturities because borrowers may have
the right to call or prepay obligations
with or without call or prepayment
penalties.
Securities available for sale
<TABLE>
<S> <c.
<C>
<CAPTION>
ESTIMATED AMORTIZED
MARKET
COST VALUE
Due in one year or less $ 1,000 $ 999
Due after one year through five 1,500 1,505
years 4,251 4,306
Due after five years through ten 2,000 1,993
years __5,271 5,233
Due after ten years $14,022 $14,036
Mortgage-backed securities
Securities held to maturity
ESTIMATED AMORTIZED
MARKET
COST VALUE
Due in one year or less $ 5,738 $ 5,776
Due after one year through five 8,668 8,885
years 6,250 6,267
Due after five years through ten 1,700
1,700
years 62,995
63,620
Due after ten years. $85,351
$86,248
Mortgage-backed securities
</TABLE>
There were no sales of securities available for
sale
or held to maturity in 1997 or 1996.
U.S. Government securities having a carrying
value
of approximately $19.3 million at
December 31, 1997, and $17.3 million at
December 31, 1996 are pledged to secure
certain deposits and for other purposes
as required by law. Market values for
these securities at December 31, 1997
and 1996 were $19.4 million and $17.3
million, respectively.
3. Loans
The following table shows the
composition of the Bank's loan portfolio
as of December 31, 1997, and 1996:
<TABLE>
<S> <C> <C>
<CAPTION>
1997
1996
Commercial loans:
Real estate-variable $
50,471 $ 49,377 rate
9,801 9,607
Real estate-fixed rate
24,430 33,915
Other-variable rate 11,644
Other
14,872 104,543
99,574
Tax exempt:
Variable rate
610 712
Fixed rate
1,190 2,117
1,800 2,829
Consumer:
Real estate-variable
56,333 43,881
rate
32,350 31,591
Real estate-fixed rate
11,545 12,620
Home equity
11,177 11,335
Installment 5,432
Other
5,128 104,859
116,533
Real estate under
56 320
foreclosure
(824) (590)
Deferred origination
fees, net
(4,743) (4,293)
Allowance for loan
$212,396 $207,668 losses
</TABLE>
At December 31, 1997 and 1996, loans on
non-accrual status totaled $3.2 million
and $3.5 million, respectively.
Interest income not recognized on non
accruing loans was $363,000, $314,000,
and $416,000, in 1997, 1996, and 1995,
respectively. In addition to loans on
non-accrual status at December 31, 1997
and 1996, the Bank had loans past due
greater than
90 days totaling $774,000 and $733,000,
respectively. The Bank continues to
accrue interest
on these loans because it believes
collection of the interest due is
reasonably assured.
The Bank makes single-family and multi-
family residential loans, commercial
real estate loans, commercial loans, and
a variety of consumer loans. The Bank's
lending activities are conducted in
eastern Maine. Because of the Bank's
proximity to Acadia National Park, a
large part of the economic activity in
the area is generated from the
hospitality business associated with
tourism. At December 31, 1997,
approximately $29 million of loans were
made to companies in the hospitality
industry. Loans for commercial and real
estate development totaled $14 million
and loans to those in the fishing
industry totaled $11 million. The loan
portfolio at December 31, 1997 and 1996
consisted of 70% and 68%, respectively,
of variable rate loans.
From the standpoint of large loans to
single borrowers, loans of $700,000 or
more to one borrower decreased as a
percentage of stockholders' equity to
66% in 1997 from 94% in 1996. Of these
larger loans, 80% are secured by real
estate.
4. Allowance for loan losses
Changes in the allowance for loan losses
for each of the three years ended
December 31 were as follows: <TABLE>
<S> <C> <C>
<C>
<CAPTION>
1997 1996
1995 Balance, beginning of year $4,293
$4,048 $3,892 Provision for loan losses 620
720 960
Loans charged off 585 711
901
Less recoveries on loans 415 236
97
previously charged off 170 475
804
Net loans charged off $4,743 $4,293
$4,048 Balance, end of year
</TABLE>
Information regarding impaired loans is as follows
for December 31, 1997, 1996, and 1995:
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
1997
1996 1995 Average investment in impaired loans
$2,045 $1,882 $1,630 Interest income recognized
on
impaired loans $
$ $
Including interest income 165
108 76
recognized on cash basis $2,670
$2,196 $1,665
Balance of impaired loans
Less portion for which no allowance $
$ $
for loan losses 0
0 0
is allowed
Portion of impaired loan balance for $2,670
$2,196 $1,665 which an allowance
For credit losses is allocated $
$ $
Portion of allowance for loan losses 104
128 157
allocated to
the impaired loan balance
</TABLE>
5. Loans to related parties
In the ordinary course of business, the
Bank has granted loans to certain
officers and directors and the
companies with which they are
associated. All such loans and
commitments to lend were made under
terms that are consistent with the
Bank's normal lending policies.
Loans to related parties at December
31, 1997 and 1996 which in aggregate
exceed $60,000 were as follows:
<TABLE>
<S> <C> <C>
<CAPTION>
1997
1996 Beginning balance $3,807
$3,279
New loans 1,693
913
Less: repayments
385
Ending balance 1,548
$3,807
$3,952
</TABLE>
6. Mortgage servicing
Mortgage servicing rights of $131,000
are capitalized and recorded at their
estimated fair value of $113,000 at
December 31, 1997. Amortization of
mortgage servicing rights was $36,600 in
1997. Mortgage servicing rights are
amortized over the estimated weighted
average life
of the loans. Mortgage servicing rights
at December 31, 1996 were insignificant.
Projected changes in mortgage servicing
values are based on an analysis of
market implied prepayment rates and
reflect the expected change in value
based on current market conditions.
7. Premises and equipment
The detail of premises and equipment is
as follows: <TABLE>
<S> <C> <C>
<CAPTION>
1997 1996
Land $ $
Buildings and improvements 561 561
Furniture and equipment 6,737
6,896
Less: accumulated 3,509
3,507
depreciation 10,807
10,964
3,149
3,466
$ 7,658
$ 7,498 </TABLE>
8. Other real estate owned
The following table summarizes the
composition of other real estate owned,
which is included in other assets:
<TABLE>
<S> <C>
<C>
<CAPTION>
December 31
1997 1996
Real estate properties and other
assets
$76 $293
acquired In settlement of loans
$17 $ 23
Less: allowance for losses
$59 $270
</TABLE>
Changes in the allowance for other real estate
owned
for each of the three years ended December 31
were
as follows:
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
1997
1996 1995 Balance, beginning January 1
$23 $26 $30
Provision charged to income 0
7 19
Losses charged to provision 6
10 23
Balance, ending December 31 $17
$23 $26
</TABLE>
9. Deposits
The aggregate amount of short-term jumbo
certificates of deposit, each with a
minimum denomination of $100,000, was
$13.8 million and $14.6 million in 1997
and 1996, respectively.
A Certificate of Deposit of $1 million
is collateralized by an FHLB debenture
of equal amount. The aggregate amount of
transaction account deposits of $431,000
have been classified as loan balances as
of December 31, 1997.
At December 31, 1997, the scheduled
maturities of time deposits are as
follows:
<TABLE>
<S> <C>
<CAPTION>
1998
$102,626
1999
7,608
2000
1,853
2001
480
2002 and thereafter
273
Individual Retirement Accounts
(IRAs),
9,312
Without scheduled maturities $122,152
</TABLE>
10. Repurchase agreements
Federal funds purchased and securities
sold under agreements to repurchase
generally mature within one to four days
from the transaction date.
Information concerning securities sold
under agreements to repurchase for 1997
and 1996 is summarized as follows:
<TABLE>
<S> <C> <C>
<CAPTION>
1997 1
996 Average daily balance during the $
5,244 $ 7,693 year
4.61% 3.93%
Average interest rate during the $
8,025 $ 15,948 year
Maximum month-end balance during the
year
$16,560 $14,295
Securities underlying the agreements
$16,724 $14,351 at year end
were under the Bank's control
and were as follows:
Carrying value
Estimated fair value
</TABLE>
11. Advances from the Federal Home Loan Bank
(FHLB)
A summary of advances from the FHLB is
as follows:
<TABLE>
<S> <C> <C>
<CAPTION>
Total Range of
Principal Interest Rates
Maturity
December 31, 1997
$25,500 5.26% to 7.05% 1998
5,000 5.75% to 6.05% 1999
5,660 5.48% to 6.10% 2001
3,000 5.71% 2002
$39,160
December 31, 1996
$30,500 5.38% to 5.90% 1997
2,000 5.26% 1998
5,000 5.75% to 6.05% 1999
6,408 5.48% to 6.10% 2001
$43,908
</TABLE>
All FHLB advances are fixed rate
instruments. The Bank has one
amortizing advance, payable in monthly
installments of $76,000, maturing in
February, 2001. The remaining advances
are payable at maturity.
In addition to the above outstanding
advances, other FHLB funds available to
the Bank at December 31, 1997, totaled
approximately $73 million. Pursuant to
collateral agreements with the FHLB,
advances are collateralized by all stock
in the FHLB. Qualifying first mortgage
loans totaling $85 million are available
as collateral for FHLB advances.
12. Income taxes
The current and deferred components of
income tax expense are as follows:
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
1997 1996
1995
Current
Federal $3,062 $2,877
$2,474
State 95 95
85
3,157 2,972
2,559
Deferred (191) (73)
57
$2,966 $2,899
$2,616
</TABLE>
The actual tax expense differs from the expected
tax
expense computed by applying the applicable U.S.
Federal corporate income tax rate to earnings
before income taxes as follows:
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
1997 1996
1995
Computed tax expense $3,192 $3,267 $2,888
Increase (reduction) in
income tax resulting from:
Officers' life (36) (88) (34)
insurance
Tax exempt interest (240) (290) (329)
State taxes, net of
federal 63 62 56
benefit
Other (13) (52) 35
$2,966 $2,899 $2,616
</TABLE>
The tax effect of temporary differences that give
rise to deferred income tax assets and liabilities
are as follows:
<TABLE>
<C> <C> <C>
<C>
<S>
<CAPTION>
1997 1996
Asset Liabilit
Asset Liabili
y ty
Allowance for possible
losses
on loans and other real $1,356
$1,14
estate owned 0
Capital loss carry forward 79
124
Deferred loan origination 169
89
fees
Deferred compensation 349
303
Core deposit intangible 73
88
asset
Non-accrual interest 80
120
Postretirement benefit
obligation 665
651
Unrealized appreciation
(depreciation) on
securities $ 12
53
available for sale
Depreciation 242 $ 168
Other 25 40
22 46
$2,796 $ 294 $2,59
$
2
1
4
0
</TABLE>
As of December 31, 1997 and 1996, the net deferred
income tax asset amounted to $2.5
million and $2.4 million, respectively,
and is included in other assets on the
balance sheet. No valuation allowance
for deferred taxes was required at
December 31, 1997 or 1996.
13. Stockholders' equity
On July 11, 1995, the Board of Directors
declared a five-for-one stock split to
all shareholders of record as of that
date and which took effect on August 7,
1995. All share and per share data
included in this annual report have been
restated to reflect the stock split.
Bar Harbor Bankshares' subsidiary, Bar
Harbor Banking and Trust Company, has
the ability to pay
dividends to the parent subject to the
minimum regulatory capital requirements.
At December 31, 1997, the amount
available for dividends was
approximately $28.4 million.
The Bank is subject to various
regulatory capital requirements
administered by the federal banking
agencies. Failure to meet minimum
capital requirements can initiate
certain mandatory, and possibly
additional discretionary actions by
regulators that, if undertaken, could
have a direct material effect on the
Bank's financial statements. Under
capital adequacy guidelines and the
regulatory framework for prompt
corrective action, the Bank must meet
specific capital guidelines that involve
quantitative measures of the Bank's
assets, liabilities, and certain off-
balance sheet items as calculated under
regulatory accounting practices. The
Bank's capital amounts and
classification are also subject to
qualitative judgments by the regulators
about components, risk weightings, and
other factors.
Quantitative measures established by
regulation to ensure capital adequacy
require the Bank to maintain minimum
amounts and ratios (set forth in the
table below) of total and Tier I capital
to risk-weighted assets and average
assets. Management believes, as of
December 31, 1997, that the Bank exceeds
all capital adequacy requirements to
which it is subject.
As of December 31, 1997, the most recent
notification from the federal regulators
categorized the Bank as well capitalized
under the regulatory framework for
prompt corrective action. To be
categorized as well capitalized the Bank
must maintain minimum total risk-based,
Tier I riskbased, and Tier I leverage
ratios as set forth in the following
table. There are no conditions or
events since that notification that
management believes have changed the
Bank's category.
The Bank's actual capital amounts and ratios are
also presented in the following table.
<TABLE>
<S> <C> <C> <C> <C> <C>
<C>
<CAPTION>
T
o
b
e
w
e
l
l
c
a
p
i
t
a
l
i
z
e
d
For capital
under prompt
adequacy
corrective
purposes
action
provisions Actual
Amount Ratio
Ratio
Amount Ratio
Amount
As of December
31, 1997
Total Capital
(To Risk-
Weighted $45,117 21.5% $16,76 8.0%
$20,95 10.0%
Assets) 4
5
Tier I Capital
(To Risk-
Weighted $42,498 20.3% $ 4.0%
$12,57 6.0%
Assets) 8,382 3
Tier I Capital
(To Average $42,498 12.3 $13,78 4.0%
$17,22 5.0%
Assets) 2
8
As of December
31, 1996
Total Capital
(To Risk-
Weighted $40,653 19.1% $17,03 8.0%
$21,29 10.0% Assets)
9 9
Tier I Capital
(To Risk-
Weighted $37,990 17.8% $ 4.0%
$12,77 6.0% Assets)
8,520 9
Tier I Capital
(To Average $37,990 11.4% $13,27 4.0%
$16,59 5.0%
Assets) 9
9 </TABLE>
At December 31, 1997 and 1996, the Company and its
subsidiary, Bar Harbor Banking and Trust
Company, were in compliance with all
applicable regulatory capital
requirements and had capital ratios in
excess of federal regulatory risk-based
and leverage requirements.
14. Employee benefit plans
The Company has two non-qualified
supplemental retirement plans for
certain officers. The agreements
provide supplemental retirement benefits
payable in installments over a period of
years upon retirement or death. The
Company recognizes the costs associated
with the agreements over the service
lives of the participating officers.
For 1997, 1996 and 1995, the expense of
these supplemental plans was $127,600,
$118,000, and $110,000, respectively.
401(k) Plan
The Bank has a contributory 401(k) plan
available to full-time employees.
Employees may contribute between 1% and
15% of their compensation, to which the
Bank will match 25% of the first 6%
contributed. For the years ended
December 31, 1997, 1996, and 1995, the
Bank contributed $49,500, $52,000, and
$46,600, respectively. The Bank has a
noncontributory plan in lieu of a
defined benefit plan. In 1997, 1996 and
1995, the Board of Directors voted to
credit each eligible participant's
401(k) account with 3% of salary. The
total contribution made for the non-
contributory plan was $122,800,
$128,000, and $122,500 for the years
ended December 31, 1997, 1996 and 1995,
respectively.
Restricted Stock Purchase Plan
In 1997, 1996, and 1995, the Bank
provided a restricted stock purchase
plan through which each employee may
purchase up to 100 shares of Bar Harbor
Bankshares stock at the current fair
market price as of a date determined by
the Board of Directors. These shares may
be purchased through direct purchase or
through the employees' 401(k) accounts.
At December 31, 1997, employees
exercised their right to purchase 1,224
shares at $60.00 per share, with the
actual purchase to transpire in January
of 1998. At December 31, 1996,
employees exercised their right to
purchase 2,346 shares at $38.25 per
share, with the actual purchase
transpiring in January of 1997.
15. Postretirement benefits
The Company sponsors a postretirement
benefit plan, which provides medical and
life insurance coverage to all eligible
employees. The cost of providing these
benefits is accrued during the active
service period of the employee. Net
periodic postretirement benefit cost
includes the following components:
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
1997
1996 1995 Service costs of benefits earned
$ 15 $ 18 $ 17 Interest cost on
accumulated post-
retirement benefit obligation 101
101 100
Unamortized gain (47)
(51) (48)
Accrued postretirement benefit cost $69 $
68 $69
</TABLE>
It is the Company's policy to fund the cost of
postretirement health care and life
insurance plans as claims and premiums
are paid.
The accrued postretirement benefit cost
recognized in the Company's balance
sheet at December 31, 1997 and 1996 was
as follows:
<TABLE>
<S> <C>
<C>
<CAPTION>
1997
1996 Retirees $ 663
$ 698
Fully eligible active plan 490
416
participants 224
244
Other active participants
Accumulated postretirement benefit 1,377
1,358
obligation (APBO) 522
529
Amortization $1,899
$1,887
Net periodic postretirement benefit
cost
</TABLE>
The accumulated postretirement benefit obligation
was determined using an 8.0% weighted average
discount rate and no assumed
compensation increase. The health care
cost trend rates were assumed to be 12%
in 1997, gradually declining to 6%
after 12 years and remaining at that
level thereafter. An increase in the
health care trend of 1% would increase
the APBO by approximately $73,000 and
the net periodic cost by $9,000.
16. Other operating expense
Other operating expense includes the
following item greater than 1% of
revenues:
<TABLE>
<S> <C> <C> <C>
1997
1996 1995
Merchant Credit card $624
$535 $552
expenses
</TABLE>
17. Financial instruments
The Bank is party to financial
instruments with offbalance sheet risk
in the normal course of business to meet
the financing needs of its customers and
to reduce its own exposure to
fluctuations in interest rates. These
financial instruments include
commitments to originate loans and
standby letters of credit, an interest
rate swap agreement and an interest rate
floor. Involved in these instruments,
to varying degrees, are elements of
credit and interest rate risk in excess
of the amount recognized in the
consolidated balance sheet. The
contract or notional amounts of those
instruments reflect the extent of the
involvement the Bank has in particular
classes of financial instruments.
Commitments to originate loans are
agreements to lend to a customer
provided there is no violation of any
condition established in the contract.
Commitments generally have fixed
expiration dates or other termination
clauses and may require payment of a
fee. Since many of the commitments are
expected to expire without being drawn
upon, the total commitment amounts do
not necessarily represent future cash
requirements. The Bank evaluates each
customer's creditworthiness on a case-by-
case basis. The amount of collateral
obtained, if deemed necessary by the
Bank upon extension of credit, is based
on management's credit evaluation of the
borrower.
The Bank's exposure to credit loss in
the event of nonperformance by the other
party to the financial instrument for
commitments to extend credit and standby
letters of credit is represented by the
contractual notional amount of those
instruments. The Bank uses the same
credit policies in making commitments
and conditional obligations as it does
for its balance sheet instruments. For
interest rate floor and swap
transactions, the contract or notional
amounts do not represent exposure to
credit loss. The Bank controls the
credit risk of its interest rate swap
agreements through credit approvals,
limits, and monitoring procedures. The
structure the Bank had entered into is a
fixed versus floating interest rate
swap. The Bank receives interest
payments at a fixed rate and makes
payments at a variable rate.
The notional or contract amount for
financial instruments with off-balance
sheet risk are:
<TABLE>
<S> <C>
<C>
<CAPTION>
1997
1996 Commitments to originate loans
$12,909 $14,425 Unused lines and stand by
letters of 29,089 27,228 credit
5,887 5,275
Unadvanced portions of construction 5,000
5,000 loans 10,000
10,000
Interest rate swaps
Interest rate floor
</TABLE>
The estimated fair values of the Bank's
financial instruments are as follows:
<TABLE>
<S> <C> <C> <C>
<C>
<CAPTION>
December 31,
December 31, 1996
1997
Carryin Fair
Carrying Fair
g Value Value
Financial Assets:
Cash and cash $ $ $
13,298 $
equivalents 7,537 7,537
19,384 13,298
Securities available 14,608 14,608
82,717 19,384
for sale 85,351 86,248
5,624 83,068
Securities held to 6,012 6,012
207,667 5,624
maturity 212,396 219,51
2,664 216,303
Other securities 2,478 1 2,664
Loans receivable 2,478
Interest receivable
Financial liabilities:
Deposits 251,903 252,01
251,675 251,696
8
Securities sold under
repurchase 4,474 4,474
8,246 8,246
agreements
Advances from Federal
Home 39,160 39,018
43,908 43,678
Loan Bank
</TABLE>
Off-balance sheet instruments:
<TABLE>
<S> <C> <C> <C> <C>
<CAPTION>
Notional Contract
Maturity Market
Principa Date
Date Value
l
December 31,
1997 $ 5,000 May 4, 1993 May
4, ($13)
Interest rate $10,000 June 3,
1998 $ 3
swap 1994 June
3,
Interest rate $ 5,000
1999 ($ 40)
floor $10,000 May 4, 1993 $24
December 31, June 3, May
4,
1996 1994
1998
Interest rate
June 3,
swap
1999
Interest rate
floor
</TABLE>
18. Quarterly Summarized Financial Data
(Unaudited) <TABLE>
<S> <C> <C> <C> <C>
<c.
<CAPTION>
1997
Quarter 1 2 3 4
Year
Interest and dividend $6,907 $7,062 $7,372
$7,177 $28,518
income
Interest expense 2,865 2,987 2,952
2,906 11,710
Net interest income 4,042 4,075 4,420
4,271 16,808
Provision for losses 180 180 180
80 620
Other non-interest 971 1,112 1,562
1,356 5,001
income
Other non-interest 2,514 2,929 3,322
3,036 11,801
expense
Income before income 2,319 2,078 2,480
2,511 9,388
taxes
Income taxes 744 663 789
770 2,966
Net earnings $1,575 $1,415 $1,691
$1,741 $6,422
Earnings per share,
in dollars $0.92 $0.82 $0.98
$1.01 $3.73
1996
Quarter 1 2 3 4 Year
Interest and dividend $6,757 $6,735 $7,019
$7,011 $27,522 income
Interest expense 2,817 2,869 2,787
2,808 11,281
Net interest income 3,940 3,866 4,232
4,203 16,241
Provision for losses 240 240 120
120 720
Other non-interest 1,001 1,073 1,684
1,242 5,000
income
Other non-interest 2,511 2,533 2,980
2,889 10,913
expense
Income before income 2,190 2,166 2,816
2,436 9,608
taxes
Income taxes 668 656 727
848 2,899
Net earnings $1,522 $1,510 $2,089
$1,588 $6,709
Earnings per share,
in dollars $0.89 $0.88 $1.22
$0.92 $3.90
</TABLE>
19. Parent Only Condensed Financial Statements
The condensed financial statements of Bar Harbor
Bankshares, as of December 31, 1997 and
116, and for each of the three years in the
period ended December 31, 1997, are
presented below:
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<S> <C> <C>
<CAPTION>
1997
1996
Cash $ 281
$ 707
Investment in subsidiary 42,181 37,180
Total assets $42,462
$37,887
Stockholders' equity $42,462
$37,887
</TABLE>
STATEMENTS OF EARNINGS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
1997 1996
1995
Dividend income from subsidiary $1,549 $2,029 $1,560
Equity in undistributed
earnings 4,873 4,680 4,319
of subsidiary
$6,422 $6,709 $5,879
</TABLE>
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<S> <C> <C>
<C>
<CAPTION>
1997
1996 1995 Cash flows from operating activities:
Net earnings $6,422
$6,709 $5,879
Adjustment to reconcile net earnings
to net cash provided by operating
activities:
Equity in undistributed earnings of
subsidiary (4,873) (4,679) (4,319
)
Net cash provided by operating 1,549
2,030 1,560
activities
Cash flows from financing activities:
Proceeds from sale of stock 90
130 62
Dividends paid (2,065) (2,028) (1,474
)
Net cash used in financing (1,975)
(1,898) (1,412 activities )
Net increase (decrease) in cash (426)
132 148
Cash, beginning of year 707
575 427
Cash, end of year $ 281 $
707 $
575 </TABLE>
Photograph of the Board of Directors
Bar Harbor Bankshares and Bar Harbor Banking and
Trust Company
Board of Directors
Robert L. Gilfillan
Chairman
of the
Board Bar
Harbor
Frederick
F. Brown
Northeast
Harbor
Robert C.
Carter
Machias
Thomas A.
Colwell
Deer Isle
Bernard
K. Cough
Bar
Harb
or
Pete
r
Dodg
e
Blue
Hill
Dwig
ht
L.
Eato
n
Bar
Harb
or
Ruth
S.
Fost
er
Ells
wort
h
Coop
er
F.
Frie
nd
Ells
wort
h
Sheldo
n F.
Goldth
wait,
Jr.
Bar
Harbor
H. Lee
Judd
Southw
est
Harbor
James
C.
MacLeo
d Bar
Harbor
John
P.
McCurd
y
Lubec
Jarvis
W.
Newman
Southw
est
Harbor
Robert
M.
Philli
ps
Sulliv
an
John
P.
Reeves
Bar
Harb
or
Abne
r L.
Sarg
ent
Ells
wort
h
Lynd
a Z.
Tyso
n
Bar
Harb
or
Bar Harbor
Bankshares
Chairman of the
Board
Robert L. Gilfillan
President
Sheldon F.
Goldthwait, Jr.
Executive Vice
President
Lewis H. Payne
Vice President
Dwight L. Eaton
Treasurer
Virginia M. Vendrell
Clerk
Marsha C. Sawyer
Bar Harbor Banking and
Trust Company (Photograph
of Executive Officers)
Management
President and Chief
Executive Officer
Sheldon F.
Goldthwait, Jr.*
Executive Vice President
Lewis H. Payne*
Senior Vice Presidents
Dwight L. Eaton*, Trust
Marlene S. Haskell*, Marketing and
Branch
Administration
Virginia M. Vendrell*, Chief
Financial Officer and Treasurer
Vice Presidents
Paul G. Ahern, Trust Investments
Edwin A. Bonenfant, Trust
Investments Richard A. Burgess,
Commercial Loans Gregory W.
Dalton, Commercial Loans
Richard S. Douglas, Trust
Anne C. Gibson, Trust
Margaret K. Hill*, Risk and
Bank Facilities E. Ray Huntley,
Commercial Loans
Andrea G. Leonard, Consumer
Loans
H. Stanley MacDonald,
Commercial Loans Sarah C.
Robinson, Trust
Marsha C. Sawyer*, Human
Resources Geddes W.
Simpson, Jr., Trust
Michael E. Smith, Commercial
Loans
Stephen H. Sprague, Consumer
Loans
Assistant Vice Presidents
Michelle R. Bannister,
Ellsworth Branch Patricia
J. Curtis, Blue Hill Branch
Trust Officer
Faye A. Geel
Trust Operations Officer
Charlene H. Tibbetts
Banking Officers
John F. Gibbons, Jr., Southwest
Harbor Branch Jenene J.
Schneider, Milbridge Branch
Linda B. Stratton, Deer
Isle Branch
Assistant Treasurer
Tuesdi J. Woodworth
Assistant Trust Officers
Melanie J.
Bowden
Brenda G.
Strout
Consumer Loan
Officer
Thomas
E.
Estes,
Sr.
* Executive
Officers
Branch
Management
Blue Hill
Patricia J.
Curtis
Assistant
Vice
President
Sharon A.
Grindle
Assistant
Manager
Deer Isle
Linda B.
Stratton
Banking
Officer
Ellsworth
E. Ray
Huntley
Regional
Vice
President
Michelle R.
Bannister
Assistant
Vice
President
Lubec
Angela J.
Davis
Manager
Machias
Richard A.
Burgess
Vice
Presiden
t
Jane A.
Chute
Manager
Milbridg
e
Jenene
J.
Schneide
r
Banking
Officer
Paula S.
Colwell
Assistan
t
Manager
Northeas
t Harbor
Charlene
M.
Bucklin
Manager
Southwes
t Harbor
John F.
Gibbons,
Jr.
Banking
Officer
Dianne
L.
Watson
Assistan
t
Manager
Winter
Harbor
Judith
L.
Newenham
Manager
Employee
s
Gale L.
Abbott
Paul G.
Ahern
Julie A.
Archer
Beverly
A.
Arsenault
June G.
Atherton
Cheryl L.
Bagley
Debra L.
Baker
Stephanie
A. Baker
Michelle
R.
Bannister
Wilbur L.
Beam
Karen R.
Bean
Marcia
T.
Bender
Lorraine
M. Benn
Terry D.
Bickford
Anita L.
Black
Corinna
F. Blair
Edwin A.
Bonenfan
t
Melanie
J.
Bowden
Laura A.
Bridges
Charlene
M.
Bucklin
Richard
A.
Burgess
Eleanor
B.
Butters
Lisa L.
Carlson
Elena M.
Chapman
Jane A.
Chute
Brenda
E.
Colwell
Paula S.
Colwell
Sylvia
B.
Cunningh
am
Patricia
J.
Curtis
Gregory
W.
Dalton
Laura H.
Danielso
n Paula
M.
Davenpor
t Angela
J. Davis
Rachael
M. Davis
Donna L.
Day
Tara
J. Day
Ann
DeLill
Richar
d S.
Dougla
s
Marily
n H.
Dow
Dwight
L.
Eaton
Julie M. Eaton
Pamela J.
Eaton Corrie
A. Eroh Thomas
E. Estes, Sr.
Pamela J.
Farnsworth
Ernest F.
Fernald Andrea
P. Foster
Judith W.
Fuller Faye A.
Geel
Jeffery R.
Geagan
Mischelle E.
Gehan John F.
Gibbons, Jr.
Anne C. Gibson
Sheldon F.
Goldthwait,
Jr. John B.
Gooch
Keith N.
Goodrich
Marjorie
E. Gray
Sharon
A.
Grindle
Annette
J.
Guertin
Carla A.
Hall
Kelton
I.
Hallett
Tracy L.
Hallett
Marie E.
Hardie
Christin
e L.
Harding
Barbara
W.
Harmon
Karen H.
Hartt
Marlene
S.
Haskell
Wendy S.
Havey
Barbara
F.
Hepburn
Kathryn
W.
Heyner
Gail C.
Higgins
Margaret
K. Hill
Brenda
M.
Hitchcoc
k
Katherin
e R.
Hollis
E. Ray
Huntley
Jane L.
Iverson
Valorie
D.
Jandreau
Sandra
K. Jones
Maureen
E. Kane
Johanna
E.
Keeney
Paula M.
Lamoureu
x Laurie-
An
Lanpher
Kenneth
N.
Larrabee
Sandra
J.
Lawson
Andrea
G.
Leonard
Marlene
A. Lloyd
Lynn L.
Lyons
H.
Stanley
MacDonal
d Diane
M.
MacFeat
Jennifer
D.
Madore
Heather
M.
Mallia
M. Joseph
Marshall
Mikala D.
Martin
Ann C.
McCaffert
y Willie
M.
McCauley
Tristan
J.
McKenney
Mary Anne
Merchant
Gloria J.
Merrill
Maryjane
Miltner
Sherry A.
Mitchell
Debra S.
Mitchell-
Dow Tanya
E. Moon
Kevin L.
Mote
Jennifer
G. Mott
Amanda
L.
Moshier
Deborah
J. Moyer
Donna C.
Murley
Dawn B.
Nason
Judith
L.
Newenham
Mary E.
Newman
Alexandr
a Orcutt
Jane M.
Parker
Susan E.
Parsley
Lisa L.
Parsons
Lewis H.
Payne
Lori A.
Peakall-
Cote
Wendyl
J.
Pedrone
Carol J.
Pelletie
r Leah
R. Perry
Bonita
E.
Poitras
Bonnie
A.
Poland
David
B.
Preble
Michele
Prior
Mary C.
Ratner
Terri
Jo
Retzlof
f
Daniel
P.
Rhodes
Janet
M. Rice
Taffy
W.
Richard
son
Wanda
S. Ring
Sarah C.
Robinson
Debra R.
Sanner
Marsha C.
Sawyer
Rhonda L.
Sawyer
Frank J.
Schaefer
Jessica W.
Schaefer
Jenene J.
Schneider
Catherine
P. Scovill
Clark F.
Scoville
Geddes W.
Simpson,
Jr. Marcia
L. Slater
Lisa
L.
Smith
Michae
l E.
Smith
Andrea
L.
Snow
Stephe
n H.
Spragu
e
Ellen
F.
Stanle
y
Letiti
a S.
Stanle
y
Lottie
B.
Steven
s
Wendy
S.
Stiles
Linda
B.
Stratt
on
Brenda
G.
Strout
Karen
M.
Tainte
r
Jennif
er A.
Thurst
on
Charle
ne H.
Tibbet
ts
Terry
E.
Tracy
Marsha
K.
Truocc
olo
Virgin
ia M.
Vendre
ll
Nancy
J.
Warner
Dianne
L.
Watson
Cheri
R.
Wentwo
rth
Doris
E.
Willia
ms
Tuesdi
J.
Woodwo
rth
Caroly
n A.
Wright
Edward
P.
Wynn,
Sr. J.
Christ
opher
Young
Katy
A.
Young
Lisa
Marie
Young
Renee
C.
Zanke
Julie
B.
Zimmer
man
Lolly
M.
Ziobro
ANNUAL
MEETIN
G
Bar Harbor Bankshares
Tuesday, October 6, 1998, 11:00 A.M.
The Bank will provide, without charge,
upon written request, a copy of Bar
Harbor Bankshares' Annual Report to the
Securities and Exchange Commission,
Form 10-K. The Bank will also
provide, upon request, Annual
Disclosure Statements for the Bar
Harbor Banking and Trust Company as of
December 31, 1997.
Please contact:
Marsha C. Sawyer, Clerk
Bar Harbor Bankshares
PO Box 400
Bar Harbor, Maine
04609-0400 Photograph
of Abner Lewis
Sargent
Abner Lewis Sargent
1924 - 1997
This annual report is dedicated to Abner
L. Sargent with admiration and
appreciation for 16 years of outstanding
service as a member of the Board of
Directors of Bar Harbor Banking and
Trust Company.
Abner was born in Sullivan, November 3,
1924 and died December 10, 1997. He was
an Army veteran of World War II, serving
in England and France. After military
service, Abner embarked on a successful
career in business, retiring in 1995 as
co-owner of Sargent Manufactured Homes
in Ellsworth. He was a former member
and past president of the Ellsworth
Rotary Club. A 50 year member of both
the Masonic Lodge of Ellsworth and the
Anah Temple Shrine, and a member of the
VFW Post and American Legion both of
Ellsworth.
We wish to recognize Abner for his wise
counsel to the Bank's management and for
his valuable insights into the people,
towns and businesses in the Ellsworth
area. We will miss Abner for his
practicality, strong value system, and
above all as a friend.
(Back Cover)
Bar Harbor Bankshares
P.O. Box 400
Bar Harbor, Maine
04609-0400
(Visual of clapboard sided house with
lobster buoys visible through window)
