UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended March 31, 1999
Commission File No. 841105-D
BAR HARBOR BANKSHARES
Maine 01-
0393663
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization
Identification No.)
P. O. Box 400
82 Main Street, Bar Harbor, ME
04609-0400
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:
(207) 288-3314
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period
that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES: XX NO:
Indicate the number of shares outstanding of each of
the issuer's classes of common stock as of March 31,
1998:
Common Stock: 3,643,614
TABLE OF CONTENTS
Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets 3
December 31, 1998 and March 31, 1999
Consolidated Statements of Earnings 4
Three months ended March 31, 1998 and 1999
Consolidated Statements of Changes in 5
Stockholders' Equity
Three months ended March 31, 1998 and 1999
Consolidated Statement of Cash Flows 6-7
Three months ended March 31, 1998 and 1999
Rate Volume Analysis 8
Three months ended March 31, 1998 and 1999
Notes to Financial Statements 9-12
Item II. Management's Discussion and Analysis 13-
of Financial 15
Condition and Results of
Operations
Signature Page 16
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1999 and DECEMBER 31, 1998
(in thousands, except number of shares and per share
data)
(Unaudited)
<TABLE>
<CAPTION>
March Decembe
31, r 31,
1999 1999
<S> <C> <C>
ASSETS
Cash and Due from Banks $6,841 $11,511
Securities Available for Sale 20,765 17,844
Securities Held to Maturity
(Market Value 116,275 113,162
$116,306 at 3/31/99;
$114,177 at 12/31/98)
Other Securities 6,105 6,133
Loans Held for Sale 381 1,018
Loans, net of allowance for
possible loan 231,668 224,980
losses of $4,638 in 1999 and
$4,455 in 1998)
Premises and Equipment 7,747 7,951
Other Assets 11,862 9,448
Total Assets $401,64 $392,04
4 7
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES
Deposits
Demand Deposits $35,015 $42,323
Now Accounts 40,907 43,319
Savings Deposits 70,570 67,619
Time Deposits 111,770 113,187
Total Deposits 258,262 266,448
Securities sold under
Repurchase 6,426 8,092
Agreements
Advances from Federal Home Loan 84,665 66,120
Bank
Other Liabilities 4,761 4,526
Total Liabilities 354,114 345,186
Commitments and Contingent
Liabilities
Capital Stock, par value $2
Authorized 10,000,000 shares 7,287 7,287
Issued 3,643,614 in 1999 and
1998
Surplus 4,002 4,002
Retained Earnings 37,592 36,862
Net unrealized appreciation on
securities (11) 50
available for sale, net of tax
Less: Cost of 200,000 shares of
Treasury Stock (1,340) (1,340)
TOTAL STOCKHOLDERS' EQUITY 47,530 46,861
TOTAL LIIABILITIES AND $401,64 $392,04
STOCKHOLDERS' EQUITY 4 7
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
(in thousands, except number of shares and per share
data)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDING ENDING
3/31/99 3/31/98
<S> <C> <C>
Interest & Fees on Loans $5,141 $5,059
Interest and Dividends on
Investment Securities:
Taxable Interest Income 2,046 1,629
Non-taxable Interest 83 124
Income
Dividends 113 100
Federal Funds Sold 23 15
Total Interest Income 7,406 6,927
Interest on Deposits 2,048 2,142
Interest on Borrowings 1,150 690
Total Interest Expense 3,198 2,832
Net Interest Income 4,208 4,095
Provision for Loan Losses 269 84
Net Interest Income after
Provision for Loan Losses 3,939 4,011
Other Income 1,186 1,126
Investment Securities Gains 0 57
(Losses)
Other Expenses:
Salaries & Employee 1,540 1,491
Benefits
Other 1,626 1,307
Income Before Income Taxes 1,959 2,396
Income Tax Expense 644 772
Net Income 1,315 1,624
PER COMMON SHAE DATA, BASED
ON $0.38 $0.47
3,443,614 shares for 1999
and 1998
Dividends Per Share $0.17 $0.16
</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
QUARTERS ENDED MARCH 31, 1998 AND 1999
(in thousands, except number of shares and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
NET
UNREALIZE
D
DEPRECIAT NET
CAPIT RETAIN ION ON TREASU STOCKHOLD
AL SUIRP ED SECURITIE RY ERS'
STOCK LUS EARNIN S STOCK EQUITY
GS AVAILABLE
FOR SALE
<S> <C> <C> <C> <C> <C> <C>
Balance, 12/31/97 3,636 7,489 $28,20 ($104) ($1,34 $37,887
5 0)
Net Earnings 1,575 $1,575
Net unrealized
depreciation on
Securities (161) ($161)
available for sale
Net of tax
benefit of $6
Total 1,575 (161) 1,413
comprehensive
income
Cash dividends
declared ($0.16 (482) ($482)
per share)
Sale of Stock 5 85 $90
Balance, 3/31/98 $3,64 $7,57 $29,29 ($265) ($1,34 $38,908
1 4 8 0)
Balance, 12/31/98 $7,28 $4,00 $36,86 $50 ($1,34 $46,861
7 2 2 0)
Net Earnings 1,315 $1,315
Net unrealized
depreciation on
Securities
available for (61) ($61)
sale,
Net of tax
benefit of $20
Total 1,315 (61) 1,254
comprehensive
income
Cash dividends
declared ($0.17 (585) ($585)
per share)
Balance, 3/31/99 $7,28 $4,00 $37,59 ($11) ($1,34 $47,530
7 2 2 0)
</TABLE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
COLSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31, MARCH
1999 31,
1998
<S> <C> <C>
Cash Flows from Operating
Activities: $1,315 $1,624
Net Income
Adjustments to reconcile net
earnings to net
cash provided by operating 245 225
activities:
Depreciation
Provision for Loss Losses 268 84
Provision for Losses on Other
Real Estate 2 0
Owned
New Loans Originated for Sale (4,227) (4,423)
Proceeds from Sale of
Mortgages Held 4,961 4,210
For Sale
Gain on Sale of Mortgages
Originated (64) (31)
For Sale
Net Amortization of Bond 55 49
Premium
(Gain) Loss on sale of (0)
premises and 0
equipment
Net Change in Other Assets (2,280) (337)
Net Change in Other 235 322
Liabilities
Net Cash Provided by Operating 510 1,723
Activities
Cash Flows from Investing
Activities:
Net decrease (increase) in
Federal Funds Sold
Purchases of Securities Held to (11,523) (17,121
Maturity )
Proceeds from Maturity and
Principal Paydowns 1,250 4,830
of Securities held to maturity
Proceeds from Call of Securities 7,101 7,500
Held to Maturity
Purchases of Securities (7,980) (4,000)
Available for Sale
Proceeds from Maturity and
Principal Paydowns 1,471 209
of available for sale
Proceeds from sale and calls of
securities 3,500 1,000
available for sale
Net decrease (increase) in other 28 (38)
securities
Net Loans Made to Customers (7,094) 915
Capital Expenditures (41) (148)
Proceeds from sale of other real
estate owned
Proceeds from Sale of Fixed 0 0
Assets
Net Cash Used in Investing (13,288) (6,853)
Activities
Cash Flows from Financing
Activities: (6,769) (3,547)
Net Change in Savings, NOW and
Demand Deposits
Net Change in Time Deposits (1,417) (3,263)
Net Change in securities sold
under (1,666) (137)
Repurchase Agreements
Purchase of Advances from FHLB 25,000 18,500
Repayment of Advances from FHLB (3,500) (9,500)
Net Change in Short Term Other (2,955) 4,806
Borrowed Funds
Proceeds from Sale of Capital 0 73
Stock
Payment of Dividends (585) (551)
Net Cash Provided by Financing 8,108 6,381
Activities
Net Increase (Decrease) in Cash and (4,670) 1,251
Cash Equivalents
Cash and Cash Equivalents at 11,511 7,537
Beginning of Year
Cash and Cash Equivalents at End of $6,841 $8,788
Quarter
Supplemental Disclosures of Cash
Flow Information:
Cash Paid during the Year for:
Interest $3,186 $2,877
Income Taxes, Net of Refunds $0 $50
Non-Cash Transactions:;
Transfers from Loans to Real
Estate Owned $49 $0
(Other Assets)
Transfer of Securities from
Held to Maturity $0 $0
to Available for Sale
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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 collar
amounts of the change in each.
YEAR-TO-DATE FIGURES AS OF MARCH 31, 1999
COMPARED TO MARCH 31, 1998
(in thousands, except number of shares and per share
data)
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
VOLUME RATE NET
<S> <C> <C> <C>
Loans $364 ($282) $82
Taxable Securities 556 (126) 430
Tax Exempt Securities (31) (10) (41)
Federal Funds Sold and 10 (2) 8
Money Market Funds
TOTAL EARNING ASSETS $899 ($420) $479
Deposits 80 (174) (93)
Borrowings 501 (41) 459
Total Interest Bearing $581 ($215) $366
Liabilities
NET CHANGE IN INTEREST $318 ($205) $113
</TABLE>
YEAR-TO-DATE FIGURES AS OF MARCH 31, 1998
COMPARED TO MARCH 31, 1997
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
VOLUME RATE NET
<S> <C> <C> <C>
Loans $104 ($71) $33
Taxable Securities 93 (56) 37
Tax Exempt Securities (70) 15 (55)
Federal Funds Sold
and Money Market 5 1 6
Funds
TOTAL EARNING ASSETS $132 ($111) $21
Deposits 15 (12) 3
Borrowings (58) 22 (36)
Total Interest ($43) $10 ($33)
Bearing Liabilities
NET CHANGE IN $175 ($121) $54
INTEREST
</TABLE>
NOTES TO FINANCIAL STATEMENTS DATED MARCH 31, 1999
1. Summary of interim financial statement
adjustments.
The accompanying unaudited statements reflect all
adjustments (all of which are normal and recurring in
nature) which are, in the opinion of management,
necessary to present a fair statement of the results
for the interim periods presented. The financial
statements should be read in conjunction with the
Consolidated Financial Statements and related Notes
included in the Bank's 1998 Annual Report.
During 1998, the Company adopted Statements of
Accounting Standards (SFAS) 130, 131, and 132. The
adoption of SFAS 130, Reporting of Comprehensive
Income, Required that certain items be reported under
a new category of income "Other Comprehensive Income".
Unrealized gains and losses on securities available
for sale is the only item included in Other
Comprehensive Income. SFAS 131 and 132 relate to
disclosures about segments and employee benefits,
respectively. The Company, through the branch network
of the Bank, provides a broad range of financial
services to individuals and companies in eastern
Maine. Operations are managed and financial
performance is evaluated on a corporate-wide basis.
Accordingly, all of the Company's banking operations
are considered to be aggregated in one reportable
operating segment. The financial statements for 1998
and 1999 include the required additional disclosures
for SFAS No. 130 and 132. In addition, the Financial
Accounting Standards Board issued SFAS No. 133, 134,
"Accounting for Mortgage-Backed Securities Retained
after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise", which are
effective for fiscal years beginning after June 15,
1999 and the first fiscal quarter beginning July 1,
1999 respectively. Management has not determined the
impact of SFAS No. 133 or SFAS No. 134 on the
financial statements.
<TABLE>
<CAPTION>
March 31, 1999
2. INVESTMENT SECURITIES CARRYING FAIR
AVAILABLE FOR SALE VALUE VALUE
<S> <C> <C>
a: U. S. Treasury and other 19,481 $19,433
government agencies
b: Marketable equity 1,300 1,332
securities
Total Securities Available $20,781 $20,765
For Sale
HELD TO MATURITY:
a: U. S. Treasury and other
government agencies $97,678 $97,661
b: States of the U.S. and
other political subdivisions 5,640 5,741
c: Corporate bonds 12,958 12,904
Total Securities Held to $116,276 $116,306
Maturity
OTHER SECURITIES $6,105 $6,105
TOTAL SECURITIES $143,162 $143,176
</TABLE>
The Bank does not hold any securities for a single
issuer which exceed 10% of the Bank's stockholders'
equity.
<TABLE>
<CAPTION>
March 31, December
1999 31,1998
3. LOANS
<S> <C> <C>
a: Commercial, agricultural $33,567 $33,224
and other loans
b: Real Estate - Construction 13,374 11,366
c: Real Estate - Mortgage 173,555 168,307
d: Installment Loans 15,810 16,538
Total Loans $236,306 $229,435
</TABLE>
<TABLE>
<CAPTION>
4. CHANGES IN ALLOWANCE FOR March March
POSSIBLE LOAN LOSSES: 31, 31,
1999 1998
<S> <C> <C>
Balance, beginning January 1 $4,455 $4,743
Provision charged to income 268 84
Recoveries of amounts 89 33
charged
Losses charged to provision 174 110
Balance, ending March 31 $4,638 $4,750
Information regarding March Decembe
impaired loans: 31, r 31,
1999 1998
Average investment in $775 $1,576
impaired loans
Interest income recognized
on impaired loans including
interest income $4 $35
recognized on cash basis
Balance of impaired loans $775 $1,073
Portion of impaired loan
balance for which an $775 $1,073
allowance for credit losses
is allocated
Portion of allowance for
loan losses allocated to the $31 $42
impaired loan balance
</TABLE>
<TABLE>
<CAPTION>
5. CHANGES IN ALLOWANCE FOR OTHER
REAL ESTATE:
3/31/9 3/31/ 3/31/
9 98 97
<S> <C> <C> <C>
Balance, beginning January $16 $17 $23
1
Provision charged to 0 0 0
income
Losses charged to 0 0 0
provision
Balance, ending March 31 $16 $17 $23
</TABLE>
6. The aggregate dollar amount of loans made to
directors, executive officers or principal holders of
equity securities as of March 31, 1999 and December
31, 1998 respectively were:
<TABLE>
<S> <C> <C>
Aggregate amount, beginning 1/1 $7,243 $3,952
New loans 345 5,393
Repayments 377 2,102
Aggregate amount, ending $7,211
3/31/99
Aggregate amount, ending $7,243
12/31/98
</TABLE>
<TABLE>
<CAPTION>
7. OTHER ASSETS March December
31, 1999 31,1998
<S> <C> <C>
a: Interest earned but not
paid on:
Loans $1,924 $1,924
Investments 1,251 1,264
b: Other Real Estate Owned 175 98
</TABLE>
8. INCOME TAXES:
Components of income tax expense for the period
ended March 31, 1999 are as follows:
<TABLE>
<S> <C>
Current
Federal $1,179
State 23
Deferred (558)
$644
</TABLE>
Actual tax expense differs from the expected tax
expense computed by applying the applicable federal
corporate income tax rate of 34% is as follows for the
three months March 31, 1999
<TABLE>
<S> <C>
Computed tax expense $660
Tax exempt interest (32)
Other 16
$644
</TABLE>
At March 31, 1999, items giving rise to the
deferred income tax assets and liabilities, using a
tax rate of 34%, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
ASSET LIABILITY
Allowance for possible losses on
loans and real estate owned $1,416
Deferred and accrued employee 1,001
benefits
Deferred mortgage servicing $131
rights
Deferred loan origination fees 327
Securities losses not currently 23
deductible
Core deposit intangibles 46
Depreciation 0 59
Other 9
$2,822 $190
</TABLE>
No valuation allowance is deemed necessary for the
deferred tax asset.
<TABLE>
<CAPTION>
9. INCOME TAX EXPENSE March March 31,
31, 1998
1999
<S> <C> <C>
Federal Income Tax $622 $747
State Income Tax 22 25
</TABLE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS
The following is the review of the results of
operations for March 31, 1999, as compared to March
31, 1998. The bank has focused on growth in its
balance sheet through both loans and investments,
funding the growth with deposits and borrowings.
While the first quarter earnings for 1999 are down
$309,000 compared to first quarter 1998, the bank is
involved in several major projects that are described
below. The expectation is that these projects will
enhance customer service, efficiencies and
profitability.
Overall, the bank's balance sheet grew by 14%,
compared to a 6% growth between 1998 and 1997. Total
loans grew $20 million or 9.6% when compared to 1998's
outstanding loans. This validates the growth concept
mentioned earlier compared to outstanding loans
remaining flat between the periods ending March 31,
1998 and March 31, 1997. The balance between consumer
and commercial loans remains similar to last year's
relationship with consumer loans approximating 55% of
the portfolio. While local competition remains
strong, Bar Harbor Banking and Trust Company's
strength lies in the relationships built with its
customers and the ability to offer prompt service in
response to their needs.
The investment portfolio grew by approximately
$30 million or 26% over the past year. Purchases in
the Bank's investment portfolio totaled in excess of
$87 million; however, maturities and principal
paydowns from the Bank's mortgage backed securities
portfolios were $58.3 million for the same period.
Purchases totaling $69 million were made of US
government-sponsored debentures or mortgage backed
pools. Of the debentures purchased, $17.5 million are
callable securities and some have supported the bank's
earnings in lieu of selling fed funds. These
purchases in part replaced $23.8 million of called
government-sponsored securities and $25.6 million in
principal reductions in mortgage backed pools.
Unrealized losses did not deteriorate over the past
twelve months, ending the quarter at $11,000. This is
also visible in the total market value of the
portfolio that is virtually flat with the book value.
Liquidity is measured by the Bank's ability to
meet cash needs at a reasonable cost or minimum loss
to the Bank. Liquidity management involves the
ability to meet cash flow requirements of its
customers, which may come from depositors withdrawing
funds or borrowers requiring funds to meet credit
needs. Without adequate liquidity management, the
Bank would not be able to meet the needs of the
individuals and communities it serves. The Bank
utilizes a Basic Surplus/Deficit model to measure its
liquidity over a 30-day and a 90-day time horizon.
The relationship between liquid assets and short-term
liabilities that are vulnerable to non-replacement
within a 30-day period are examined. The Bank's
policy is to maintain its liquidity position at a
minimum of 5% of total assets. The Bank has
maintained liquidity in its balance sheet in excess of
18% for the past twelve months. Liquidity as measured
by the Basic Surplus/Deficit model was 22.1% as of
March 31, 1999 for the 30-day horizon and 20.1% for
the 90-day horizon.
How changes in the balance sheet have affected
the Bank may be viewed through the earnings statement
for the periods ending March 31, 1998 and 1999. As
mentioned above, growth in earning assets was strong,
but competition and shrinking margins affected the
earnings. Additionally, the provision for possible
loan losses and non-interest expenses were
considerably higher in the first quarter of 1999 than
1998.
Rates, volumes and the mix of earning assets and
interest bearing liabilities affect interest income.
For the first three months of 1999, net interest
income increased by $113,000, which is twice the
increase between 1998 and 1997. The increase was a
factor of the growth in the balance sheet with
competition for loans requiring narrowing margins,
increased investments, with yields earning less than
loans, and funding costs not decreasing as quickly as
the asset yields. Interest earned on loans increased
by more than $360,000 but was reduced by $280,000 due
to decreases in interest rates charged on portions of
the loan portfolio. Overall, the loan portfolio yield
dropped by 64 basis points. This compares with a drop
of 23 basis points between 1997 and 1998.
Interest on investments increased due to $30
million increase in volumes. The $535,000 increase in
interest earned on investments was offset by $138,000
decrease in interest rates. The entire portfolio is
earning 6.43% and 40 basis points less than it was a
year ago. The investment yields for 1998 were 8 basis
points lower than 1997. Interest bearing liabilities
increased by approximately $13 million or 5%, but the
cost of those liabilities actually decreased by more
than 4%. Interest expense increased by $580,000 based
on increased volume and decreased by $215,000 based on
interest rates. The bank introduced a money market
account that competes favorably with non-bank funds
available. This product, the Investor's Choice, has
been well received and has retained as well as added
new deposits for the bank. Reductions in interest
bearing costs have come from the decline in interest
rates for certificates of deposit, which have dropped
approximately 40 basis points from year to year. The
overall cost of interest bearing liabilities went down
by 13 basis point between March 31, 1999 and March 31,
1998, again less than the reduction in interest yields
from the earning assets. As a comparison, 1998's
overall interest bearing liability costs were 17 basis
points lower than for the comparable period in 1997.
The Bank's position with regard to interest rate
sensitivity consists of the matching of its assets and
liabilities for repricing within a year. There is
some exposure to rising rates out beyond a year as the
Bank has almost $20.4 million invested in callable
securities with final maturities of ten years or less.
The exposure lies with the possibility that these
securities would not be called. The gap analysis in
today's interest rate environment shows the Bank with
approximately $42 million more liabilities than assets
that would be repricable within twelve months. If
rates were to drop by 200 basis points, simulations
based on a static balance sheet indicate that the
Bank's net interest income could rise by approximately
$48,000 during the first year of the drop, while
increasing its income in the second year by $158,000.
If rates were to rise by 200 basis points, the Bank
could experience a drop in interest income in the
first year by $103,000, and drop additional interest
earnings in the second year by $197,000. At March 31,
1998, the potential reduction for net interest income
in the second year was approaching $400,000.
The Bank has maintained its reserve for possible
loan losses at approximately 2% of total loans
outstanding for a number of years, with a ratio of
1.96% at March 31, 1999 and 2.2% as of March 31, 1998.
This ratio represents a conservative approach to
possible losses, especially in light of the
delinquency ratio summarized below. The Bank reviews
its allocation to the reserve on a monthly basis and
funds the reserve as deemed necessary. This review
includes a provision for specific credits, provisions
due to historic loan losses by loan types and reserves
reflecting industry concentrations, credit
concentrations, current economic conditions and
underwriting standards. In 1995, the Bank added a
provision for impaired loans in accordance with FASB
114/118. Reference is made to the notes included in
this filing that outlines the impaired loan figures.
Losses in the loan portfolio are estimated at $750,000
for 1999, with first quarter 1999 net charge offs
totaling $85,000 compared to $77,000 during the first
quarter of 1998. The amounts represented below are
the total dollars past due for the first three months
of each year listed.
<TABLE>
<CAPTION>
Category 1999 1998 1997
<S> <C> <C> <C>
90-day past due and $1,579 $1,103 $1,302
still accruing
Non-accruing 1,664 3,439 3,207
$3,243 $4,542 $4,510
Gross loans $236,3 $216,1 $214,68
07 14 7
Percentage of gross 1.37% 2.10% 2.10%
loans
</TABLE>
With earnings as of March 31, 1999 $309,000 less
than March 31, 1998, the following is a review of non-
interest income and non-interest expense. As stated
earlier, the Bank has maintained a reserve for
possible loan losses of approximately 2% when compared
to total loans for a number of years. During 1998,
the provision for possible loan losses was reduced,
based on the recovery of a large loan charged off in a
previous year. The bank continued to maintain a 2%
ratio between the reserve for possible losses and the
total loan portfolio. Beginning in 1999, the
provision has returned to previous years' allocation
and is currently $185,000 more than last year in order
to retain the high ratio between the reserve and the
loan portfolio. As of March 31, 1998, the provision
for possible loan losses was $96,000 less than for the
comparable period in 1997. Other income is $60,000
ahead of last year's first quarter income. No single
major category in other income can be singled out for
substantial growth from year to year. Other income
for 1998 exceeded 1997 by $100,000 and included Trust
Department earnings that were $52,000 more in 1998
when compared to 1997.
Other non-interest expenses for the first quarter
of 1999 are $320,000 more than for the same period in
1998. The major increases are found in the card
processing operations for the bank's merchant and
customer card processing. In the spring of 1998, the
bank began the search for a new software banking
solution. Consultant fees, in connection with this
search and subsequently in connection with conversion
assistance, were not material during the first quarter
of 1998. The bank is committed to a successful
conversion and as part of that commitment has engaged
the services of a third party who has had extensive
experience in conversions with the chosen vendor. The
bank will continue to experience consultant charges
throughout 1999, as it plans to convert in early 2000.
Other non-recurring charges make up the difference
between non-interest expense for the two years,
including reconciling entries for loan origination
fees in 1998 and losses incurred from the check
clearing operation of the bank.
In looking at March 31, 1998 as compared to 1997,
other non-interest expense was $252,000 more in 1998.
The introduction of the bank's call center,
interactive voice response system and several loan
promotions created media opportunities for the bank.
The Bank's capital to asset ratio is 11.8% and
the Bank far exceeds the required risk based capital
ratio of 8% with its Tier 1 ratio of 19% and total
capital ratio of 20.4% or additional capital of $30.6
million. These ratios compare to March 31, 1998 when
the capital to average asset ratio was 12.4%, Tier 1
and total capital ratios compared to risk weighted
assets were 20.3% and 21.5% respectively.
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAR HARBOR
BANKSHARES
Date: May 14, 1999 Sheldon F.
Goldthwait, Jr.
Chief Executive
Officer
Date: May 14, 1999 Virginia M.
Vendrell
Treasurer and
Chief Financial
Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> BAR HARBOR BANKSHARES
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