16
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 September 30, 2000
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 September
30, 2000:
Common Stock: 3,339,614
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page No.
<S> <C>
Item 1. Independent Accountants' Report 3
Item 2. Financial Statements
Consolidated Statements of
Financial Condition at 4
September 30, 2000 and
December 31, 1999
Consolidated Statements of
Income for the Three and
Nine Months ended 5
September 30, 2000 and
September 30, 1999
Consolidated Statements of
Stockholders' Equity for the
Nine months ended 6
September 30, 2000 and
September 30, 1999
Consolidated Statements of
Cash Flow for the
Nine months ended 7
September 30, 2000 and
September 30, 1999
Item 3. Notes to Financial Statements 8-9
Item 4. Rate Volume Analysis 10
Item 5. Management's Discussion and
Analysis of Financial 11-15
Condition and Results of
Operations
PART II FINANCIAL INFORMATION Page No.
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of 16
Proceeds
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote 16
of Security Holders
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
</TABLE>
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Bar Harbor Bankshares
We have reviewed the accompanying interim consolidated
financial information of Bar Harbor Bankshares and
Subsidiaries as of September 30, 2000, and for the
three- and nine-month periods then ended. These
financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified
Public Accountants. A review of interim financial
information consists principally of applying analytical
procedures to financial data and making inquiries of
persons responsible for financial and accounting
matters. It is substantially less in scope than an
audit in accordance with generally accepted auditing
standards, the objective of which is to express an
opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
financial statements for them to be in conformity with
generally accepted accounting principles.
/s/ BERRY, DUNN, McNEIL & PARKER
Portland, Maine
November 9, 2000
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2000 and DECEMBER 31, 1999
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Septemb December
er 30, 31, 1999
2000
(Unaudi
ted)
<S> <C> <C>
ASSETS
Cash and Due from Banks $10,984 $12,852
Securities Available for Sale 39,402 31,690
Securities Held to Maturity 118,226 128,831
Other Securities 8,068 6,118
Loans, net of allowance for
possible loan
losses of $4,000 at 9/30/00; 272,526 256,896
and $4,293
as of 12/31/99)
Premises and Equipment 11,509 8,440
Other Assets 12,580 11,982
TOTAL ASSETS $473,29 $456,809
5
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES
Deposits
Demand Deposits $51,164 $41,904
Now Accounts 45,668 45,107
Savings Deposits 79,452 78,511
Time Deposits 114,733 116,186
Total Deposits 291,017 281,708
Securities sold under
Repurchase 9,377 8,807
Agreements
Advances from Federal Home Loan 118,377 113,035
Bank
Other Liabilities 4,798 4,114
TOTAL LIABILITIES 423,569 407,664
STOCKHOLDERS' EQUITY
Capital Stock, par value $2
Authorized 10,000,000 shares
Issued 3,643,614 shares 7,287 7,287
Surplus 4,002 4,002
Retained Earnings 42,073 40,611
Unrealized depreciation on
securities
available for sale, net of tax (579) (1,015)
of ($298) and
($523) in 2000 and 1999
respectively
Less: Cost of Treasury Stock
304,000 shares in 2000 and
222,100 shares (3,057) (1,740)
in 1999
TOTAL STOCKHOLDERS' EQUITY 49,726 49,145
TOTAL LIABILITIES AND $473,29 $456,809
STOCKHOLDERS' EQUITY 5
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30 September 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest and Dividend
Income:
Interest and Fees on Loans 6,086 5,631 17,86 16,1
8 14
Interest and Dividends on
Taxable Interest Income 2,629 2,445 7,966 6,72
6
Non-taxable 45 78 145 242
Interest Income
Dividends 185 116 432 341
Federal Funds 17 18 36 46
Sold
Total Interest & Dividend 8,962 8,288 26,447 23,4
Income 69
Interest on Deposits 2,329 2,077 6,626 6,15
0
Interest on Borrowings 2,220 1,438 6,420 3,88
8
Total Interest Expense 4,549 3,515 13,046 10,0
38
Net Interest Income 4,413 4,773 13,401 13,4
31
Provision for Loan Losses 163 119 489 656
Net Interest Income after
Provision for Loan
Losses 4,250 4,654 12,912 12,7
75
Other Income 2,119 1,804 4,927 4,21
6
Other Expenses:
Salaries & Employee 2,049 1,786 6,232 4,82
Benefits 7
Other 2,577 2,069 6,499 5,29
3
Earnings Before Income 1,743 2,603 5,108 6,87
Taxes 1
Income Tax 598 865 1,720 2,28
8
Net Earnings $1,145 $1,73 $3,388 $4,5
8 83
Net earnings per share $0.34 $0.50 $1.00 $1.3
Weighted average 3
number of common
Shares outstanding 3,346, 3,443 3,375,
614 ,614 264 3,44
3,61
4
Dividends Per Share $0.19 $0.19 $0.57 $0.5
3
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 and 1999
(dollars in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
NET
UNREALIZED NET
RETAINED (DEPRECIATI TREASURY STOCKHOLDERS
CAPITAL SURPLUS EARNINGS ON) STOCK '
STOCK APPRECIATIO EQUITY
N ON
SECURITIES
AVAILABLE
FOR SALE
<S> <C> <C> <C> <C> <C> <C>
Balance, December $7,287 $4,002 $36,862 $50 ($1,340) $46,861
31, 1998
Net Earnings 4,583 4,583
Net unrealized
depreciation on
Securities
available for (647) ($647)
sale, Net of tax
benefit of $333
Total 4,583 (647) 3,936
comprehensive
income
Cash Dividends
Declared ($.53 (1,825) (1,825)
per share)
Balance, September $7,287 $4,002 $39,620 ($597) ($1,340) $48,972
30, 1999
Balance, December $7,287 $4,002 $40,611 ($1,015) ($1,740) $49,145
31, 1999
Net Earnings 3,388 3,388
Net unrealized
appreciation on
Securities
available for 436 436
sale,
net of tax of
$225
Total
comprehensive
income
Comprehensive
income
Cash Dividends 3,388 436 0 $3,824
Declared ($0.57 (1,926)
per share)
Purchase of (1,926) (1,317) (1,317)
Treasury Stock
81,900 shares
Balance, September $7,287 $4,002 $42,073 $(579) ($3,057) $49,726
30, 2000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
COLSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $3,388 $4,58
3
Adjustments to reconcile net
earnings to net
cash provided by operating 985 733
activities:
Depreciation
Provision for Loan Losses 489 656
Gain on Other Real Estate (7) (1)
Owned
New Loans Originated for Sale (912) (7,79
6)
Proceeds from Sale of 913 9,042
Mortgages Held for Sale
Gain (Loss) on sale of 51 (85)
Mortgages Originated for Sale
Net Amortization of Bond 82 154
Premium
Loss on Sale of Premises and 94 62
Equipment
Net Change in Other Assets (815) (2,02
5)
Net Change in Other 684 96
Liabilities
Net Cash Provided by Operating 4,952 5,419
Activities
Cash Flows from Investing Activities:
Purchases of Securities Held to (5,313 (42,5
Maturity ) 18)
Proceeds from Maturity and Principal
Paydowns 15,858 3,250
of Securities held to maturity
Proceeds from Call of Securities 0 21,61
Held to Maturity 9
Purchases of Securities Available (8,147 (19,9
for Sale ) 65)
Proceeds from Maturity and Principal
Paydowns 74 1,517
of available for sale
Proceeds from sale and calls of
securities 1,000 3,500
available for sale
Net decrease (increase) in other (1,950 25
securities )
Net Loans Made to Customers (16,21 (31,8
1) 36)
Capital Expenditures (4,224 (932)
)
Proceeds from Sale of Other Real 39 81
Estate Owned
Proceeds from Sale of Premises and 76 7
Equipment
Net Cash Used in Investing (18,79 (65,2
Activities 8) 52)
Cash Flows from Financing Activities:
Net Change in Savings, NOW and 10,762 30,21
Demand Deposits 6
Net Change in Time Deposits (1,453 (4,08
) 1)
Net Change in securities sold under
Repurchase Agreements 570 1,529
Purchase of Advances from FHLB 115,00 66,00
0 0
Repayment of Advances from FHLB (125,7 (35,0
22) 00)
Net Change in Short Term Other 16,064 6,128
Borrowed Funds
Purchase of Treasury Stock (1,317 0
)
Payment of Dividends (1,926 (1,82
) 4)
Net Cash Provided by Financing 11,978 62,96
Activities 8
Net Increase (Decrease) in Cash and (1,868 3,135
Cash Equivalents )
Cash and Cash Equivalents at Beginning 12,852 11,51
of Year 1
Cash and Cash Equivalents at End of $10,98 $14,6
Quarter 4 46
Supplemental Disclosures of Cash Flow
Information: $13,16 $10,0
Cash Paid for Interest 6 64
Transfers from Loans to Other Real $92 $82
Estate Owned
Income tax paid $1,500 $2,10
1
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation.
The accompanying unaudited consolidated financial
statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a
fair presentation have been included. All significant
intercompany transactions and balances are eliminated
in consolidation. The income reported for the 2000
period is not necessarily indicative of the results
that may be expected for the year ending December 31,
2000. For further information, refer to the
consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K
for the year ended December 31, 1999.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ 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 allowance for
loan losses and the carrying value of real estate
owned, management obtains independent appraisals for
significant properties.
The allowance for possible loan losses is maintained at
a level adequate to absorb probable losses. Management
determines the adequacy of the allowance based upon
reviews of individual credits, recent loss experience,
current economic conditions, the risk characteristics
of the various categories of loans and other pertinent
factors. Credits deemed uncollectible are charged to
the allowance. Provisions for credit losses and
recoveries on loans previously charged off are added to
the allowance.
2. Effect of Recent Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and SFAS No.
138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," are effective for years
beginning after June 15, 2000. These statements set
accounting and reporting standards for derivative
instruments and hedging activities. They require an
entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those
instruments at fair value. These statements are
expected to have no impact on the Company, as it has
not engaged in any derivative transactions.
3. Line of Business Reporting
The Company manages and operates two major lines of
business: Community Banking and Financial Services.
Community Banking includes lending and deposit-
gathering activities and related services to businesses
and consumers. Financial Services consists of
broker/deal operations, trust services, and investment
portfolio management. The business lines are identified
by the entities through which the product or service is
delivered.
The reported lines of business results reflect the
underlying core operating performance within the
business units. Other is comprised of intercompany
eliminations. Information is not presented for prior
periods as the Financial Services segment was not
formed until January 2000 and it is impractical to
restate corresponding information for the prior
periods. Substantially all of the Company's assets are
part of the community banking line of business.
Selected segment information is included in the
following table.
<TABLE>
<CAPTION>
Nine Months Ended Commun Financ Consolid
September 30, 2000 ity ial Other ated
Bankin Servic Totals
g es
<S> <C> <C> <C> <C>
Net Interest Income $13,38 $14 $0 $13,401
7
Provision for loan 489 0 0 489
losses
Net interest income
after 12,898 14 0 12,912
provision
Other income 4,523 2,364 (1,960 4,927
)
Other expense 10,036 2,793 (98) 12,731
Earnings (loss)
before 7,385 (415) (1,862 5,108
income taxes )
Income taxes 2,472 (138) (614) 1,720
(benefit)
Net earnings (loss) $4,913 ($277) ($1,24 $3,388
8)
</TABLE>
<TABLE
[CAPTION]
Three Months Ended Commun Financ Consolid
September 30, 2000 ity ial Other ated
Bankin Servic Totals
g es
[S] [C] [C] [C] [C]
Net Interest Income $4,408 $5 $0 $4,413
Provision for loan 163 0 0 163
losses
Net interest income
after 4,245 5 0 4,250
provision
Other income 1,337 782 0 2,119
Other expense 3,731 928 (33) 4,626
Earnings (loss)
before 1,851 (141) 33 1,743
income taxes
Income taxes 632 (45) 11 598
(benefit)
Net earnings (loss) $1,219 ($96) $22 $1,145
[/TABLE]
RATE VOLUME ANALYSIS
The following table represents a summary of the changes
in interest earned and interest paid as a result of
changes in rates and changes in volumes.
For each category of earning assets and interest
bearing liabilities, information is provided with
respect to changes attributable to change in rate
(change in rate multiplied by old volume) and change in
volume (change in volume multiplied by old rate). The
change in interest due to both volume and rate has been
allocated to volume and rate changes in proportion to
the relationship of the dollar amount of the change in
each.
YEAR-TO-DATE FIGURES AS OF SEPTEMBER 30, 2000
COMPARED TO SEPTEMBER 30, 1999
(dollars in thousands)
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
VOLUME RATE NET
<S> <C> <C> <C>
Loans $1,720 $34 1,754
Taxable Securities 1,053 278 1,331
Tax Exempt Securities (101) 4 (97)
Federal Funds Sold and Money (16) 6 (10)
Market Funds
TOTAL EARNING ASSETS 2,656 322 2,978
Deposits 205 271 476
Borrowings 1,833 699 2,532
Total Interest Bearing 2,038 970 3,008
Liabilities
CHANGE IN NET INTEREST INCOME $618 ($648 ($30)
)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed in this Report on Form 10-Q
are forward-looking statements that are subject to
risks and uncertainties that could cause actual results
to differ materially from those projected. Such risks
and uncertainties include, but are not limited to,
those described in Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Changes to such risks and uncertainties, which could
impact future financial performance, include, among
other things, (1) competitive pressures in the banking
industry; (2) changes in the interest rate environment;
(3) general economic conditions, either nationally or
regionally; (4) changes in the regulatory environment;
(5) changes in business conditions and inflation; and
(6) changes in security markets. Therefore, the
information set forth therein should be carefully
considered when evaluating the business prospects of
the Company.
The following is the review of Bar Harbor Bankshares
(the Company) and its subsidiaries, Bar Harbor Banking
and Trust Company and BTI Financial Group, for the nine
months ended September 30, 2000.
REVIEW OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND
DECEMBER 31, 1999
Total assets for the Company of $473 million at
September 30, 2000 has increased by $17 million since
December 31, 1999. Earnings of $3,388,000 were
achieved for the first nine months of 2000, but are
$1,195,000 below the earnings for the same period in
1999. Two projects, the formation of BTI Financial
Group and its three subsidiary companies and the
conversion of the banking software for Bar Harbor
Banking and Trust Company (the Bank) and the non-bank
subsidiaries, were the primary focus of the Company
over the past twelve months and contributed to the
decrease in net income between periods. The impact of
these projects on the Company's earnings is discussed
below.
BTI Financial Group (BTI), a wholly owned financial
services subsidiary of Bar Harbor Bankshares, was
formed in the fall of 1999. BTI Financial Group's
subsidiaries, Dirigo Investments, Inc., Bar Harbor
Trust Services and Block Capital Management began
operations in January of 2000. As a result of the
formation of BTI, the Company has implemented segment
reporting as required by Statement of Accounting
Standard (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The formation
of these three companies will position BTI to more
fully participate in various segments of the financial
services industry with the potential for significant
growth. During the latter part of June of 2000, a
branch office of Dirigo Investments, Inc. was
established in the Bangor, Maine, area including an
office manager and a broker, expanding the potential
market area.
The total asset growth of $17 million from December 31,
1999 to September 30, 2000 has come almost totally from
loan growth of $16 million. Investments have remained
stable while increases in premises owned by the Company
were $3 million, while cash and due from banks
decreased $2 million. Loan growth has come principally
from $9 million in consumer real estate loans, $2
million from commercial real estate loans and $4
million from other commercial loans. The balance
between consumer and commercial loans remains similar
to the last several years' relationship with consumer
loans approximating 56% of the portfolio.
The Bank's reserve for possible loan losses as of
September 30, 2000 is 1.47% of total loans compared to
1.64% at December 31, 1999. The reduction in the
reserve ratio is attributed to management's continuing
analysis of the loss exposure inherent in the loan
portfolio. Management reviews the allocation to the
reserve on a quarterly basis and funds the reserve as
deemed necessary. This review includes a provision for
specific accounts and impaired loans, provisions due to
historic loan loss experience by loan type and reserves
reflecting industry and credit concentrations, current
local and national economic conditions, and
underwriting standards. During the first nine months
of 2000, net charge offs totaled $782,000 compared to
$207,000 during the first nine months of 1999. The
amounts represented below are the total dollars past
due as of September 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
September December
Category 30, 2000 31, 1999
<S> <C> <C>
90-days past due
and $3,465 $ 709
still accruing
Non-accruing 3,647 2,016
$7,112 $2,725
Gross Loans $276,526 $261,188
Percentage of Gross 2.57% 1.04%
Loans
</TABLE>
Premises and equipment growth included the purchase of
the future headquarters of BTI in Ellsworth, Maine and
properties adjacent to the Ellsworth branch office of
the Bank and in front of the future headquarters of
BTI. Projections for renovation of the BTI
headquarters approximate $2.5 million. Completion of
this project is expected in the spring of 2001.
The bank experiences a seasonal decline in its deposit
base through late fall and the winter months. Between
December 31, 1999 and September 30, 2000 deposits
increased by $9.3 million or 3.3%. Increased advances
of $5.3 million from the Federal Home Loan Bank
increased primarily to fund the growth in loans.
RESULTS OF OPERATIONS FOR THE PERIODS ENDING
SEPTEMBER 30, 2000 AND 1999
Rates, volumes and the mix of earning assets and
interest bearing liabilities affect interest income.
Comparing the first nine months of 2000 with the same
period for 1999, net interest income was essentially
flat, decreasing by $30,000. While average earning
assets of the Bank have increased 11% during the two
periods, increased competition reflected in loan
pricing, reduced opportunity for attractive yields in
high quality investments, and rapidly rising funding
costs, have narrowed average net interest margins. In
some instances, the Bank has added fixed rate and,
traditionally, longer term assets to its Statement of
Financial Condition, but it has funded those assets
with shorter-term (one year or less) liabilities.
Interest earned on loans for the first nine months of
2000 when compared to the first nine months of 1999
increased by more than $1.7 million due to increases in
volumes but by only $34,000 due to overall increases in
interest rates charged on the loan portfolio. Since
December 31, 1999, the loan portfolio yield has
increased by 8 basis points. Interest on loans for the
quarter ended September 30, 2000 was $455,000 or 8%
more than for the quarter ended September 30, 1999 and
is attributable to increased volumes in the loan
portfolio.
Interest derived from growth in the investment
portfolio was $936,000 more during the nine months
ended September 30, 2000 as compared to September 30,
1999 while increases in interest rates created an
additional $288,000 in income. The entire portfolio
earned 6.76% as of September 30, 2000, which is 25
basis points higher than a year ago and 16 basis points
higher than the overall yield at December 31, 1999.
Interest on investments for the quarter ended September
30, 2000 was $219,000 more than for the quarter ended
September 30, 1999 and is attributable primarily to
increased volumes in the investment portfolio.
Interest expense for the nine months ended September
30, 2000 increased by approximately $3.0 million
compared to the same period in 1999. Interest expense
increased by $2 million based on increased volume and
by $1.0 million based on interest rates. The overall
cost of interest bearing liabilities increased 53 basis
points between the nine month periods ending September
30, 2000 and September 30, 1999. The cost of these
liabilities has increased by 50 basis points since 1999
and has contributed to the decrease in the interest
margin. The overall cost of interest bearing
liabilities for the quarter ended September 30, 2000
was $1.0 million more than for the quarter ended
September 30, 1999 and represents the cost of the
increased volumes in advances through the Federal Home
Loan Bank as well as increases in the rates charged on
those advances.
NON-INTEREST INCOME
Non-interest income for the nine months ended September
30, 2000 totaled $4.9 million and was $711,000 more
than the first nine months in 1999. BTI Financial
Group's gross income of $2.4 million surpassed the
Trust Department's income for the nine months ended
September 30, 1999 by $370,000. Additionally, service
charges on the bank's deposit accounts exceeded the
first nine months of last year by $366,000, and
represents increased fees implemented in the third
quarter of 1999. When comparing non-interest income
for the quarter ending September 30, 2000, BTI's
revenue is $222,000 greater than the income generated
by the Bank's Trust Department for the same period in
1999. Also, for the same comparison periods, service
charges on deposit accounts in the Bank have
contributed $188,000 more for the quarter ended
September 30, 2000.
NON-INTEREST EXPENSE
Non-interest expenses for the nine months ended
September 30, 2000 totaled $12.7 million and exceeded
the first nine months of 1999's non-interest expenses
by $2.6 million. Salaries and benefits make up $1.4
million of the increase over 1999. The formation of
BTI Financial Group, and the subsequent purchase of
Dirigo Investments, Inc., contribute to the increase in
salary and benefits as positions have been added as the
three subsidiary companies have been formed. BTI's
salaries and benefits totaling $1,175,000 exceed the
Bank's Trust Department salaries and benefits for the
nine months ended September 30, 1999 by $565,000. In
addition, the Bank has added a senior credit
administrator and an experienced collector to enhance
the credit administration function of the Bank.
Additionally, the banking software conversion to
Information Technology, Inc. (ITI) required additional
human resources, including temporary staffing and
extensive overtime. The ITI conversion was
substantially completed in April 2000, although
supplemental applications and completion of maintenance
issues continue through the third quarter of 2000.
Increases in salary and benefit costs for the quarter
ended September 30, 2000 exceeded the costs for the
same period in 1999 by $263,000. As mentioned
earlier, the start up of a Bangor location for BTI
subsidiary, Dirigo Investments, Inc., commenced during
the second quarter of 2000, increasing salary and
benefit costs. In total, BTI's salary costs have been
approximately $200,000 more for the quarter ended
September 30, 2000 when compared to the Bank's Trust
Department salary costs for the quarter ended September
30, 1999. Additional staffing in the credit
administration area, financial administration, and
banking software conversion increased salary expenses
for the quarter ended September 30, 2000.
Other non-compensation expenses are $1,206,000 more in
the nine months ended September 30, 2000 as compared to
the same period in 1999. Start up costs incurred
during the first quarter of 2000 for BTI Financial
Group represent a portion of this increase. BTI's
expenses for the first nine months of 2000, exclusive
of salary and benefit costs but including the start up
costs and $54,700 in amortization, total $1.5 million.
This amount exceeds the Bank's Trust Department
expenses for the first nine months of 1999 by $878,000.
Other expenses for the quarter ended September 30, 2000
were $484,000 more than for the comparable period in
1999. The increase in BTI expenses accounted for about
one-third of this total while the remainder is in
various other accounts. The Company is proceeding with
measures to reduce its cost structure.
The Company has not incurred any additional costs or
any losses due to the Year 2000 rollover. All internal
and third party provided software has been performing
satisfactorily since January 1, 2000. The Company
continues to monitor all systems for any potential Year
2000 issues.
LIQUIDITY AND INTEREST RISK MANAGEMENT
Liquidity is measured by the Bank's ability to meet
short-term 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 uses 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 is examined. The Bank's policy is to maintain
its liquidity position at a minimum of 5% of total
assets. Liquidity as measured by the Basic
Surplus/Deficit model was 14.0% as of September 30,
2000 for the 30-day horizon and 13.5% for the 90-day
horizon.
The Bank's position with regard to interest rate
sensitivity consists of the matching of its assets and
liabilities for repricing within a year. The exposure
is to rising rates out beyond a year as the Bank has
approximately $38 million invested in callable
securities with final maturities of ten years or less
funded by short-term liabilities. Because of
financial advantages to the issuer in a rising rate
environment, the exposure lies with the possibility
that these securities will not be called. The gap
analysis in the current interest rate environment shows
the Bank with approximately $90 million more
liabilities than assets that would be repriced within
twelve months. Assuming rates were to drop by 200
basis points and utilizing a steepening yield curve
shift in rates, simulations based on a static balance
sheet indicate that the Bank's net interest income
could rise by approximately $518,000 during the first
year of the drop, while increasing its income in the
second year by $765,000. If rates were to rise by 200
basis points, net interest income could decrease by
$683,000 in the first year, and decrease by $1.7
million during the second year.
CAPITAL
The Company's capital to asset ratio is 10.5% at
September 30, 2000, and the Bank exceeds the required
risk based capital ratio of 8% with its Tier 1 ratio of
15.3% and total capital ratio of 16.6%. These ratios
compare to December 31, 1999 when the capital to asset
ratio was 10.8%, Tier 1 and total risk weighted capital
ratios were 17.8% and 19.1% respectively.
<TABLE>>
<CAPTION>
PART II OTHER
INFORMATION
<S> <C>
Item 1 Legal None
Proceedings
Item 2 Changes in None
Securities and Use of
Proceeds
Item 3 Defaults Upon None
Senior Securities
Item 4 Submission of None
Matters to a Vote of
Security Holders
Item 5 Other None
Information
Item 6 Exhibits and See Exh. 27 - Financial
Reports on Form 8-K Data Schedule*
</TABLE>
*Filed in electronic format only
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
/S/ Dean S. Read
Date: November 10, 2000 Dean S. Read
Chief Executive
Officer
/s/ Edward B.
Grimball
Edward B. Grimball
Date: November 10, 2000 Chief Financial
Officer
