33
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, 1999.
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.
Based on the closing price of the common stock of the
registrant, the aggregate market value of the voting
stock held by non-affiliates of the registrant, as of
March 1, 2000 is:
Common stock, $2.00 par value
$56,067,231
The number of shares outstanding of each of the
registrant's classes of common stock, as of March 1,
2000 is:
Common stock
3,398,014
Documents incorporated by Reference:
(1) Portions of the Annual Report to Stockholders for
the year ended December 31, 1999 are incorporated by
reference into Part II, Items 6 through 8 and Part IV,
Item 14 of the Form 10-K.
INDEX
<TABLE>
<CAPTION>
ITEM NUMBER PAGE
<S> <C> <C>
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 Stockholder Matters 7
6. Selected Financial Data 7
7. Management's Discussion and Analysis of
Financial Condition and Results of 7-19
Operation
7a. Quantitative and Qualitative Disclosures 20
about Market Risk
8. Consolidated Financial Statements and 21
Supplementary Data
9. Changes in and Disagreements with
Accountants on Accounting and Financial 21
Disclosure
10. Directors and Executive Officers of the 22-
Registrant 24
11. Executive Compensation 25-
27
12. Security Ownership of Certain Beneficial
Owners and Management 28
13. Certain Relationships and Related 29
Transactions
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 30-
31
</TABL
E>
PART I
ITEM 1. BUSINESS
Bar Harbor Bankshares, ("the Company"), was
incorporated January 19, 1984. As of December 31, 1999,
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 3,421,514 shares
outstanding held of record by approximately 1,074
stockholders.
The Bank conducts operations typical of a full service,
independent, community bank. It has ten offices in
coastal Maine, including its principal office located
at 82 Main Street, Bar Harbor, as well as offices in
Hancock County, adjacent Washington County and a trust
department office in Penobscot County. The Hancock
County offices are located at Main 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. The Bank
performs its operations, check clearing, technology and
mail services in its 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 highly competitive market.
Competition among banks in Maine has increased in
recent years and includes competition from branch
offices of statewide and interstate bank holding
companies located in the Bank's market area. The Bank
continues to be one of the larger 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 bank branch 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, automated
teller services, credit cards, personal money orders,
bank-by-mail and club accounts and drive-up facilities
at all offices. During 1999, the Bank introduced
TeleDirect, an interactive voice response system
through which customers can get product information,
check balances and activity on their accounts as well
as perform transfers between their own accounts. 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.
Market value for the assets held in the Trust
Department as of December 31, 1999 was $379 million
compared to $385 million in 1998 and included $17.3
million in new business.
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, overdraft protection (stand-by
credit), VISA credit card accounts, student loans,
residential mortgage loans and home equity loans. It
offers 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 area for all of the Bank's services
consists of Hancock and Washington Counties. The Bank's
policy for lending limits is up to 20% of its equity to
any borrower provided that the loans are secured and
approved by the Directors Loan Committee. This
committee is chaired by a member of the Bank's Board of
Directors, Bernard K. Cough, and includes members of
the Bank's management as well as Board of Directors.
As a state chartered bank, the Bank is supervised and
regulated by the Bureau of Banking of the State of
Maine and the Federal Deposit Insurance Corporation. In
addition, as a bank holding company, the Company is
supervised and regulated by the Federal Reserve Bank.
See also Footnote 13 in the notes to the financial
statements of the Annual Report to Stockholders.
In January of 2000, Bar Harbor Bankshares Chairman,
John P. Reeves, announced that Dean S. Read will be
joining the Company as Executive Vice President and
Chief Operating Officer of Bar Harbor Bankshares and
its wholly-owned subsidiary Bar Harbor Banking and
Trust Company. Mr. Read will be responsible for
management of all internal corporate functions as well
as stockholder relations and activities. Mr. Read will
succeed Sheldon F. Goldthwait, Jr. as President and
Chief Executive Officer upon Mr. Goldthwait's
retirement in 2000. Mr. Read brings 30 years of
commercial banking experience to the Company. He most
recently served as Senior Vice President and Senior
Relationship Manager with Key Bank National Association
in Augusta, Maine.
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. In order to
better serve its customers, it is the Bank's intent to
convert its major banking software systems in the
second quarter of 2000. This conversion will include
lending, deposit, general ledger, teller and item image
applications. As of December 31, 1999, the Bank
employed 182 persons in a full or part-time basis. The
President, Executive Vice President, Senior Vice
President of the Trust Department, Senior Vice
President and Treasurer, and Senior Vice President in
charge of Human Resources are employed by the Bank as
well as serving as officers of the Company. The Company
does not compensate them for their services. There are
no employees of the Company.
On October 4, 1999, the Company formed a wholly owned
subsidiary as the first step in a plan to expand and
reorganize the provision of financial services. On
January 10, 2000, the new subsidiary, BTI Financial
Group, acquired Dirigo Investments, Inc., a NASD
Registered broker dealer firm in Ellsworth, Maine.
Dirigo Investments, Inc. will continue to operate as a
full-service discount brokerage firm. In addition, BTI
Financial group has formed two other wholly owned
operating subsidiaries: Block Capital Management, which
it intends to register with the Securities and Exchange
Commission as an investment advisor, and Bar Harbor
Trust Services, to which the Bank intends to transfer
its trust assets after obtaining requisite regulatory
and court approvals.
The purchase of Dirigo Investments, Inc. will be
accounted for under the purchase method of accounting.
In addition to facilitating the purchase of Dirigo
Investments, Inc., the Bank will contribute capital to
Bar Harbor Bankshares, which, in turn, will make a
capital contribution to BTI Financial Group to
initially capitalize Bar Harbor Trust Services and
Block Capital Management. The Bank also will
contribute sufficient capital to Bar Harbor Bankshares
to provide funds needed to compensate the Bank for the
transfer of its Trust Department assets to Bar Harbor
Trust Services. Lastly, the Company has purchased real
estate in the Ellsworth area, which will house the
operations of BTI Financial Group and its subsidiaries.
The total transfer of capital for these purposes is
expected to be in excess of $7 million.
The addition of these three subsidiaries will position
BTI Financial Group to more fully participate in a
dynamic segment of the financial services industry.
Dirigo Investments, Inc., Block Capital Management and
Bar Harbor Trust Services will provide a broader range
of integrated financial services to Dirigo clients.
Dirigo will provide local brokerage services to Block
Capital Management and Bar Harbor Trust Services
clients. Each of these entities will face significant
competition for these services from local banks, which
may now or in the future offer a similar range of
services, as well as from a number of brokerage firms
and investment advisors with offices in the Bank's
market area. In addition, most of these services are
widely available to the Bank's customers by telephone
and over the Internet through firms located outside of
the Bank's market area.
The foregoing discussion, as well as certain other
statements contained in this Form 10-K, or incorporated
herein by reference, contain statements which may be
considered to be forward-looking within the meaning of
the Private Securities Litigation and Reform Act of
1995. Forward looking statements relate to future
operations, strategies, financial results or other
developments and are based on estimates and assumptions
that are subject to significant business, economic and
competitive uncertainties, many of which are beyond the
Company's control or are subject to change. The
expected benefits of the acquisition of Dirigo
Investments, Inc. and the operations of Block Capital
Management and Bar Harbor Trust Services are subject to
a number of future uncertainties including the ability
of Bar Harbor Bankshares to successfully integrate the
proposed new entities with its existing operations and
customer base, future competition from financial
institutions and others which may be in the future
offer competing services, future changes in state and
federal laws and regulations governing financial
services and securities, and the ability of existing
personnel to successfully manage the proposed financial
services group. The Company disclaims any obligation
to publicly update or revise any forward-looking
statement contained in the foregoing discussion, or
elsewhere in this Form 10-K.
The Company and its subsidiaries employ a total of 182
employees.
On December 8, 1998, the Board of Directors of the
Company declared a 100% stock dividend to owners of
record as of December 28, 1998, payable on January 25,
1999. All share and per share data information included
in the Form 10-K have been restated to reflect the 100%
stock dividend.
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 customer parking lot. The
building was renovated in 1998.
2. An office is located at Main Street, Northeast
Harbor, Maine. This property consists of a building
constructed in 1974 and underwent interior renovations
in 1998 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 houses the Bank's operations,
check clearing, technology, training and mail
departments. The building was constructed in 1996,
with occupancy by the Bank taking place in January of
1997.
A parcel of land adjacent to the Blue Hill branch was
purchased in 1981 but has not been developed.
In addition to the above Bank offices, in 2000, the
Company acquired land and a building on High Street in
Ellsworth, Maine located immediately behind the Bank's
Ellsworth branch which will house the operations of BTI
Financial Group and its subsidiaries.
The Bank has Automated Teller Machines (ATMs) located
in each of its ten branch locations.
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 1999 and 1998 are
listed below per quotes from The Wall Street Journal.
The Company's common stock is traded on the American
Stock Exchange (AMEX) under the symbol BHB. Per share
data information has been adjusted to reflect the 100%
stock dividend described above.
</TABLE>
<TABLE>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High High High High
Low Low Low Low
<S> <C> <C> <C> <C>
1999 23.50 to 22.25 to 22.00 to 21.375 to
20.125 18.00 18.00 17.625
1998 29.00 to 29.50 to 25.25 to 25.00 to
25.125 24.875 19.25 17.00
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Selected financial information for the past five years
is contained on Page 3 of the Company's Annual Report
to Shareholders for the year ended December 31, 1999
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)
1999
<TABLE>
<CAPTION>
AVERAGE YIELD/
BALANCE INTERE RATE
ST
<S> <C> <C> <C>
ASSETS
Loans $248,708 $21,77 8.76%
7
Taxable Investment 149,698 9,798 6.55%
Securities
Non-Taxable Investment 5,332 316 5.92%
Securities
Fed. Funds Sold & Money 1,128 61 5.38%
Market Funds
Total Interest-Earning $404,866 $31,95 7.89%
Assets 2
Non-Interest Earning Assets:
Total Cash and Due from 11,450
Banks
Allowance for Possible Loan (4,781)
Losses
Bank Premises and Equipment 7,960
Other Assets 9,060
TOTAL ASSETS $428,555
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing Demand $44,115 $ 480 1.29%
Deposits
Savings Deposits 77,021 2,338 3.04%
Time Deposits 110,854 5,471 4.93%
Repurchase Agreements and 74,640 3,930 5.26%
Short Term Borrowings
Long Term Borrowings 28,662 1,583 5.52%
TOTAL INTEREST BEARING $335,292 $13,80 4.12%
LIABILITIES 2
Non-Interest Bearing
Liabilities:
Non-Interest Bearing Demand 43,103
Deposits
Other Liabilities 2,029
Stockholders' Equity 48,131
TOTAL LIABILITIES AND
STOCKHOLDERS' $428,555
EQUITY
NET EARNING ASSETS $69,574
NET INTEREST INCOME/NET $18,15 3.77%
INTEREST SPREAD 0
NET INTEREST MARGIN 4.48%
NET EARNINGS FOR YEAR END $6,225
DIVIDENDS PAID IN CURRENT $2,476
YEAR
RETURN ON EQUITY AND ASSETS
RETURN ON AVERAGE ASSETS 1.45%
RETURN ON AVERAGE EQUITY 12.93%
DIVIDEND PAYOUT RATIO 39.78%
EQUITY CAPITAL TO ASSETS 11.23%
RATIO
</TABLE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST
EARNINGS
(Amounts in Thousands)
1998
<TABLE>
<CAPTION>
AVERAGE YIELD/
INTERE RATE
BALANCE ST
ASSETS
<S> <C> <C> <C>
Loans $224,40 $21,29 9.49%
6 0
Taxable Investment Securities 111,111 7,450 6.71%
Non-Taxable Investment 6,650 424 6.37%
Securities
Fed. Funds Sold & Money 955 47 4.92%
Market Funds
Total Interest-Earning Assets $343,12 $29,21 8.51%
2 1
Non-Interest Earning Assets:
Total Cash and Due from Banks 10,856
Allowance for Possible Loan (4,721)
Losses
Bank Premises and Equipment 7,823
Other Assets 6,577
TOTAL ASSETS $363,65
7
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Demand $41,872 $622 1.48%
Deposits
Savings Deposits 57,791 1,650 2.86%
Time Deposits 116,262 6,267 5.39%
Repurchase Agreements and 39,644 2,133 5.38%
Short Term Borrowings
Long Term Borrowings 22,849 1,301 5.69%
TOTAL INTEREST BEARING $278,41 $11,97 4.30%
LIABILITIES 8 3
Non-Interest Bearing
Liabilities:
Non-Interest Bearing Demand 38,890
Deposits
Other Liabilities 2,177
Stockholders' Equity 44,172
TOTAL LIABILITIES AND
STOCKHOLDERS' $363,65
EQUITY 7
NET EARNING ASSETS $64,704
NET INTEREST INCOME/NET $17,23 4.21%
INTEREST SPREAD 8
NET INTEREST MARGIN 5.02%
NET EARNINGS FOR YEAR END $6,607
DIVIDENDS PAID IN CURRENT $2,307
YEAR
RETURN ON EQUITY AND ASSETS
RETURN ON AVERAGE ASSETS 1.82%
RETURN ON AVERAGE EQUITY 14.96%
DIVIDEND PAYOUT RATIO 34.92%
EQUITY CAPITAL TO ASSETS 12.14%
RATIO
</TABLE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST
EARNINGS
(Amounts in Thousands)
1997
<TABLE>
<CAPTION>
AVERAG YIELD/
E INTERE RATE
ST
BALANC
E
ASSETS
<S> <C> <C> <C>
Loans $217,2 $21,02 9.68%
95 8
Taxable Investment 96,195 6,792 7.06%
Securities
Non-Taxable Investment 10,653 651 6.11%
Securities
Fed. Funds Sold & Money 900 47 5.23%
Market Funds
Total Interest-Earning $325,0 $28,51 8.77%
Assets 43 8
Non-Interest Earning
Assets:
Total Cash and Due from 9,797
Banks
Allowance for Possible Loan (4,465
Losses )
Bank Premises and Equipment 7,737
Other Assets 6,442
TOTAL ASSETS $344,5
54
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing Demand $39,53 $668 1.69%
Deposits 2
Savings Deposits 52,455 1,334 2.54%
Time Deposits 122,49 6,791 5.54%
1
Repurchase Agreements and 40,769 2,238 5.49%
Short Term Borrowings
Long Term Borrowings 11,486 679 5.91%
TOTAL INTEREST BEARING $266,7 $11,71 4.39%
LIABILITIES 33 0
Non-Interest Bearing
Liabilities:
Non-Interest Bearing Demand 36,545
Deposits
Other Liabilities 1,804
Stockholders' Equity 39,472
TOTAL LIABILITIES AND
STOCKHOLDERS' $344,5
EQUITY 54
NET EARNING ASSETS $58,31
0
NET INTEREST INCOME/NET $16,80 4.38%
INTEREST SPREAD 8
NET INTEREST MARGIN 5.17%
NET EARNINGS FOR YEAR END $6,422
DIVIDENDS PAID IN CURRENT 2,065
YEAR
RETURN ON EQUITY AND ASSETS
RETURN ON AVERAGE ASSETS 1.86%
RETURN ON AVERAGE EQUITY 16.27%
DIVIDEND PAYOUT RATIO 32.15%
EQUITY CAPITAL TO ASSETS 11.46%
RATIO
</TABLE>
NOTES TO AVERAGE BALANCE SHEET
1. Tax-exempt income is calculated at coupon rate,
not adjusted on a tax equivalent basis.
1. At December 31, 1999, loans on non-accrual status
totaled $2,016,000. 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 $107,900 higher in
1999.
2. Based on information reported by the Uniform Bank
Performance Report, the Bank's net interest margin for
1999 is consistent with the national average for peer
banks. In previous years, the net interest margin had
remained at higher than the national average levels.
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 over the past
three years, as competition for the same customers
within the Bank's market area continues to grow. The
average yield on the Bank's earning assets dropped to
7.89% from 8.51% as of December 31, 1999. This had an
impact on the net interest margin for the Bank, which
dropped on average by 62 basis points when comparing
1999 to 1998. In comparison, the average rate on the
bank's earning assets dropped 26 basis points in 1998
as compared to 1997, and the margin dropped 15 basis
points. 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 as found below
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-ENDED DECEMBER 31, 1999
COMPARED TO DECEMBER 31, 1998
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
VOLUME RATE NET
<S> <C> <C> <C>
Loans $2,201 ($1,71 $487
4)
Taxable Investment Securities 2,530 (164) 2,366
Non-taxable Investment (80) (28) (108)
Securities
Federal Funds Sold and Money 11 (15) (4)
Market Funds
TOTAL EARNING ASSETS $4,662 ($1,92 $2,74
1) 1
Deposits $650 ($900) ($250
)
Repurchase Agreements and 1,845 (48) 1,797
Short Term Borrowings
Long Term Borrowings 322 (40) 282
TOTAL INTEREST BEARING $2,817 ($988) $1,82
LIABILITIES 9
NET CHANGE IN INTEREST $1,845 ($933) $912
</TABLE>
YEAR-ENDED DECEMBER 31, 1998
COMPARED TO DECEMBER 31, 1997
INCREASES (DECREASES) DUE TO:
<TABLE>
<CAPTION>
VOLUME RATE NET
<S> <C> <C> <C>
Loans $680 ($418) $262
Taxable Investment Securities 1,005 (357) 648
Non-taxable Investment (254) 27 (227)
Securities
Federal Funds Sold and Money 4 6 10
Market Funds
TOTAL EARNING ASSETS $1,435 ($742) $693
Deposits $131 ($385) ($254
)
Repurchase Agreements and (61) (44) (105)
Short Term
Borrowings
Long Term Borrowings 648 (26) 622
TOTAL INTEREST BEARING $718 ($455) $263
LIABILITIES
NET CHANGE IN INTEREST $717 ($287) $430
</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>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
U. S. Treasury Securities
and
Obligations of Other U.
S. Government $ $5,690 $13,250
Agencies 2,424
Mortgage Backed
Securities: 94,592 88,101 57,913
U. S. Government
Agencies
Other 14,636 6,668 5,082
Obligations of State and
Political 4,422 5,634 8,105
Subdivisions
Other Bonds 12,757 7,069 1,001
SECURITIES HELD TO $128,83 $113,16 $85,351
MATURITY 1 2
Obligations of Other U.
S. Government 28,155 12,332 8,803
Agencies
Mortgage Backed
Securities:
U. S. Government 2,334 4,936 5,233
Agencies
Marketable Equity 1,201 576 572
Securities
SECURITIES AVAILABLE FOR $ $17,844 $14,608
SALE 31,690
</TABLE>
MATURITY SCHEDULE FOR INVESTMENTS HELD TO MATURITY
At December, 1999
<TABLE>
<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
<S> <C> <C> <C> <C>
Obligations of Other U. S.
Government Agencies $ 0 $2,424 $ 0 $
0
Average Yield 6.79%
Mortgage-backed Securities:
U. S. Government Agencies 70 2,343 21,254 70,925
Average Yield 8.69% 6.34% 6.51% 6.82%
Mortgage-backed Securities:
Other 0 285 3,821 10,530
Average Yield 5.25% 6.69% 6.74%
Obligations of State and
Political Subdivisions 1,925 1,567 420 510
Average Yield 6.77% 5.67% 6.20% 6.20%
Other Bonds $ 0 12,254 503 $
0
Average Yield 6.41% 8.24%
TOTAL $ $ $ $
1,995 18,873 25,998 81,965
</TABLE>
MATURITY SCHEDULE FOR INVESTMENTS
AVAILABLE FOR SALE AT DECEMBER 31, 1999
(at fair value)
<TABLE>
<CAPTION>
Greater
One One than Greater
Year Year to Five than Ten
or Five Years Years
Less Years to Ten
Years
<S> <C> <C> <C> <C>
Obligations of Other
U. S. Government $ $ $ 0
Agencies 5,092 23,063
Average Yield % 6.49% 6.69%
Mortgage-Backed
Securities: 0 0 0 2,334
U. S. Government
Agencies
Average Yield 7.81%
TOTAL $ $ $ $ 2,334
0 5,092 23,063
</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
$1,200,500
Yields 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>
<CAPTION>
Greater Greater
One than One than Greater
Year or Year to Five than Ten
Less Five Years Years
Years to Ten
Years
<S> <C> <C> <C> <C>
Mortgage-backed
Securities Held to 4,092 33,035 43,443 28,658
Maturity
Mortgage-backed
Securities Available 2,334 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 rose 75 basis points during 1999, the
value of the portfolio decreased with the total
unrealized loss (before tax benefit) approximating
$(4,951,858) at December 31, 1999 over book value. The
Bank does not hold any interest only or principal only
bonds, nor does it hold any debt securities whose
market value could change to a greater degree than
traditional debt.
SUMMARY OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Real estate loans:
Construction & $ $ $ $ $
Development 15,674 11,366 7,925 8,906 8,072
Mortgage 195,64 168,258 158,592
5 146,04 135,06
1 8
Loans to finance
agricultural 10,814 10,308 9,993
Production and other 10,092 10,377
loans to farmers
Commercial and 22,561 22,778 23,696
industrial loans 29,040 29,807
Loans to individuals
for household,
Family and other 15,693 16,538 16,668 17,242 17,640
personal
expenditures
All other loans 282 138 209 319 7
Real Estate Under 520 49 56 320 794
Foreclosure
TOTAL LOANS $261,1 $229,43 $217,13 $211,9 $201,7
89 5 9 60 65
Less: Allowance
for possible loan 4,293 4,455 4,743 4,293 4,048
Loss
NET LOANS $256,8 $224,98 $212,39 $207,6 $197,7
96 0 6 67 17
</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>
<CAPTION>
1999 % 1998 % 1997 % 1996 % 1995 %
<S> <C> <C <C> <C <C> <C <C> <C <C> <C
> > > > >
Construction &
373 2. 246 2. 129 1. 247 2. 214 2.
Development 4 2 6 8 7
Real Estate 6,75 3. 5,75 3. 3,682 2. 4,10 2. 3,00 2.
7 4 0 4 3 0 8 9 2
Commercial,
Industrial and 1,40 4. 1,30 3. 1,041 3. 1,47 3. 517 1.
Other 5 2 9 9 1 9 8 3
Loans to 476 3. 567 3. 450 2. 462 2. 434 2.
individuals 0 4 7 7 5
Loans past due
90 days or 710 0. 1,71 0. 774 0. 733 0. 849 0.
more and 3 0 8 4 4 4
still accruing*
Non-Accruing 2,01 0. 1,74 0. 3,236 1. 3,54 1. 3,36 1.
Loans 6 8 4 8 5 1 7 0 7
</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.
Loans that were non-performing as of December 31, 1998
and for which the real estate was acquired by the Bank
in 1999 totaled $64,400.
MATURITY SCHEDULE - LOAN PORTFOLIO
As of December 31, 1999
<TABLE>
<CAPTION>
After
One Year One After
or Less Year Five
through Years
Five
Years
<S> <C> <C> <C>
Commercial, Financial
and $ 12,635 $ $
Agricultural 9,065 11,675
Real estate
Construction and Land $ 11,243 $ 1,100 $
Development 3,331
</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 the Bank itself. 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 the permanent
portfolio of residential mortgage loans.
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 $13.6 million and with fixed
interest rates and maturities of greater than one year
is $10.6 million.
RISK ELEMENTS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Loans accounted
for on a non- $2,0 $1,7 $3,23 $3,54 $3,36
accrual 16 44 6 1 0
basis
Accruing loans
contractually $ $1,7 $ $ $
past 710 10 774 733 849
Due 90-days
or more
</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 non-accruing. 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 $107,900 higher in 1999. Interest collected
on these loans totaled $73,900 in 1999 and was included
in net income. Non-accrual loans and those loans 90-
days past due and still accruing represent 1.10% of
average loans for 1999 and 1.51% for 1998.
Management is not aware of any potential problem loans
that 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 65% of capital, $32.5 million up from
$30.5 million in 1998. Other substantial loan
concentrations include fishing, which dropped from $8.9
million in 1998 to $6.9 million in 1999, and commercial
and real estate development, decreasing slightly from
$12.7 million to $11.7 million.
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
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.
With the exception of 1995, net loans charged off for
the past five years have been below three tenths of one
percent. The percentage of net charged off loans to
average loans in 1997 represented 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 charge offs would have been .22% of total
loans. In 1995, the majority of charge offs were
commercial loans secured by real estate or real estate
mortgages. For the past five years, the majority of
loans charged off have been loans to individuals and
included many small loans and credit card debt.
However, the increase in commercial loan charge offs in
1995 included the charge down of a large commercial
loan. Another large commercial loan charge off
increased the commercial charge offs for 1999.
Approximately 28% of the loans charged off in 1995
represented loans secured by real estate, and 39%
represented commercial credits, with recoveries
totaling $97,000. 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 and 1998 with installment loans and
other consumer loans representing 78% and 57%,
respectively, of the total charge offs. In 1999, net
losses in the commercial and agricultural portfolios
totaled $394,000 or 62% of the net charged off loans.
Based on past experience and management's assessment of
the present loan portfolio, it is expected that net
loan charge offs for 2000 will not exceed $660,000.
A breakdown of the allowance for possible loan losses
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Percen Perce Percen
t of nt of t of
Loans Loans Loans
in in in
Amou each Amou each Amount each
nt Catego nt Categ Catego
ry to ory ry to
Total to Total
Loans Total Loans
Loans
<S> <C> <C> <C> <C> <C> <C>
Real Estate $ 81.10% $1,2 78.31 $ 76.71%
Mortgages 627 40 % 146
Installments
and other 1,10 6.01% 323 7.21% 2,939 7.68%
loans to 9
individuals
Commercial,
financial 1,87 12.78% 1,01 14.42 481 15.51%
and 8 0 %
Agricultural
Other 183 .11% 180 .06% 0 .10%
Unallocated 496 .00% 1,70 .00% 1,177 .00%
2
TOTAL $4,2 100.00 4,45 100.0 $4,743 100.00
93 % 5 0% %
</TABLE>
<TABLE>
<CAPTION>
1996 1995
Perce Percen
nt of t of
Loans Loans
in in
each each
Amou Categ Amou Catego
nt ory nt ry to
to Total
Total Loans
Loans
<S> <C> <C> <C> <C>
Real Estate $1,0 73.26 $ 71.34%
Mortgages 54 % 915
Installments
and other 1,45 8.13% 1,46 8.74%
loans to 7 9
individuals
Commercial,
financial 629 18.46 278 19.92%
and %
Agricultural
Other 0 .15% 0 0.00%
Unallocated 1,15 0.00% 1,38 0.00%
3 6
TOTAL $4,2 100.0 $4,0 100.00
93 0% 48 %
</TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN 1999 1998 1997 1996 1995
LOSSES
<S> <C> <C> <C> <C> <C>
Balance at beginning $ $4,743 $4,293 $4,048 $3,892
of period 4,455
Charge offs:
Commercial,
Financial, 445 217 102 195 377
Agricultural,
Others
Real Estate 58 113 27 131 256
Mortgages
Installments
and other loans 385 458 456 385 268
to Individuals
Total Charge Offs 888 788 585 711 901
Recoveries:
Commercial,
Financial, 51 40 169 73 20
Agricultural,
Others
Real Estate 60 21 154 94 20
Mortgages
Installments
and other loans 141 103 92 69 57
to Individuals
Total Recoveries 252 164 415 236 97
Net Charge Offs 636 624 170 475 804
Provision Charged to 474 336 620 720 960
Operations
Balance at End of $4,29 $4,455 $4,743 $4,293 $4,048
Period 3
Average loans
outstanding during $248, $224,4 $217,2 $207,1 $195,1
period 708 06 95 88 79
Net Charge Offs to
Average Loans .26 .28 .08 .23 .41
Outstanding
during Period
</TABLE>
SUMMARY OF DEPOSIT PORTFOLIO
<TABLE>
<CAPTION>
1999 1998 1997
Averag Averag Averag Averag Averag Averag
e e Rate e e Rate e e Rate
Balanc Balanc Balanc
e e e
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits $43,10 $38,89 $36,54
3 0 5
NOW Accounts 44,115 1.07% 41,872 1.48% 39,532 1.69%
Savings Accounts 77,021 3.04% 57,791 2.86% 52,455 2.54%
Time Deposits 110,85 4.93% 116,26 5.39% 122,49 5.54%
4 2 1
Total Deposits $275,0 $254,8 $251,0
93 15 23
</TABLE>
MATURITY SCHEDULE FOR TIME DEPOSITS $100,000 OR MORE
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Over Six
Over Three Months Through
Three Months Months Through Twelve Months Over Twelve
or Less Six Months Months
<S> <C> <C> <C>
$ 7,558 $ 2,190 $ 6,289 $ 898
</TABLE>
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Return on Average 1.45% 1.82% 1.86%
Assets
Return on Average 12.93 14.96% 16.27%
Equity %
Dividend Payout Ratio 39.78 34.92% 32.15%
%
Average Equity Capital
to Average Assets 11.23 12.14% 11.46%
Ratio %
</TABLE>
SHORT TERM BORROWINGS
<TABLE>
<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
<S> <C> <C> <C> <C> <C>
1999
FHLB Advances $74,000 5.76% $74,000 $60,396 5.31%
Repurchase $ 8,807 4.50% $11,209 $ 8,264 4.48%
Agreements
1998
FHLB Advances $26,000 5.26% $29,000 $22,849 5.69%
Repurchase $8,092 4.63% $10,192 $6,686 4.74%
Agreements
1997 $24,000 5.69% $45,125 $34,207 5.67%
FHLB Advances
Repurchase $4,474 5.12% $8,025 $5,244 4.61%
Agreements
</TABLE>
Repurchase agreements generally mature within one to
four days from the transaction date.
The terms for short-term FHLB advances taken in 1999
ranges from 7 days to 365 days and averaged 84 days.
The terms for short-term FHLB advances taken in 1998
ranges from 7 days to 273 days and averaged 80 days.
The terms for short-term FHLB advances taken in 1997
range from 7 days to 365 days and averaged 62 days.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse
changes in the fair value of financial instruments due
to changes in interest rates. The Bank's market risk
is composed primarily of interest rate risk. The
Bank's Asset/Liability Committee (ALCO) is responsible
for reviewing the interest rate sensitivity position
of the Company and establishing policies to monitor
and limit exposure to interest rate risk. All
guidelines and policies established by ALCO have been
approved by the Board of Directors.
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, 1999, Bar Harbor Banking and Trust
Company was somewhat liability sensitive with $166
million in assets and $249 million in liabilities that
could be repriced within one year. This increases the
exposure of interest rate risk to the bank on these
funds in a rising rate environment. The repricing
structure for 1998 was more evenly matched, with $170
million in assets and $184 million in liabilities that
could be repriced within one year.
Management continues to watch economic trends with
respect to interest rates. The Bank utilizes a
simulation model to quantify the estimated exposure to
interest rates. The model captures the impact of
changing interest rates for the Bank's interest
earning assets and interest paying liabilities. The
model assumes a static balance sheet and utilizes a
non-parallel yield curve shift in rates to recognize
the impact of interest rate changes. As mentioned
above, the Bank is liability sensitive in the one-year
horizon. 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 $620,000
during the next twelve months. If rates were to drop
by 200 basis points, the Bank would experience an
increase in its net interest income of $867,000 during
the next twelve months.
The following reflects the Bank's net interest income
sensitivity analysis as of December 31, 1999 and 1998.
RATE CHANGE - 1999
<TABLE>
<CAPTION>
-200 basis +200 basis
points points
<S> <C> <C>
Year I
Net interest income $ 834 $ (1,022)
change ($)
Net interest income 4.64% (5.69%)
change (%)
Year II
Net interest income $ 1,307 $ (2,132)
change ($)
Net interest income 8.18% (10.95%)
change (%)
</TABLE>
RATE CHANGE - 1998
<TABLE>
<CAPTION>
-200 basis +200 basis
points points
<S> <C> <C>
Year I
Net interest income $ 182 $ (161)
change ($)
Net interest income 1.11% (.98%)
change (%)
Year II
Net interest income $ (181) $ (340)
change ($)
Net interest income ( 1.14%) (2.14%)
change (%)
</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,
1999 there were no off balance sheet instruments in
place.
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 22 of the Company's Annual
Report for the year ended December 31, 1999 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 73. 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. Mr. Brown first was
elected as a director on October 2, 1979.
[2] Robert C. Carter, Director, Age 56. 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 55. Mr. Colwell's
principal occupation during the past five years has
been as owner of Colwell Brothers, Inc, a lobster
pound and shipping company. 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 72. 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., Bay
View, Inc., and Ocean Gate, Inc. Mr. Cough is also
Treasurer of Cough Bros., Inc. Mr. Cough was first
elected as a director on October 1, 1985.
[5] Peter Dodge, Director, Age 56. 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, Executive Officer, Senior Vice
President and Trust Officer, Age 64. 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 70. Mrs. Foster's
principal occupation during the past five years has
been as 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 46. Mr. Friend's
principal occupation during the past five years has
been as owner and President of Friend & Friend, Inc.,
a recreational vehicle dealership; and one-third owner
of U-Store It, a storage rental facility, both located
in Ellsworth, Maine. He also serves as President of
Recreational Motorsports Association of Maine, and is
a member 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, Director, Age 72. 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 61. 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] Marlene S. Haskell, Executive Officer, Senior
Vice President of the Bank, Age 47. Ms Haskell joined
the Bank in 1990 as Vice President in charge of
Marketing. She was promoted to Senior Vice President
in August, 1997. Ms. Haskell's responsibilities
include Branch Administration and Marketing.
[12] H. Lee Judd, Director, Age 54. 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 President
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.
[13] John P. McCurdy, Director, Age 68. Prior to his
retirement in 1991, Mr. McCurdy's principal occupation
was as 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 64. 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] Robert M. Phillips, Director, Age 58. Mr.
Phillips is a consultant in the food industry and 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.
[16] John P. Reeves. Chairman of the Board of
Directors, Age 65. 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.
[17] Marsha C. Sawyer, Executive Officer, Age 47. Mrs.
Sawyer is Senior Vice President of the Bank and serves
as Clerk of the Company. She first was elected Clerk
of the Company in 1986.
[18] Gerald Shencavitz, Executive Officer, Senior Vice
President of the Bank, Age 47. Mr. Shencavitz joined
the Bank in April of 1998 and is responsible for
Operations and Information Systems of the Bank.
[19] Lynda Z. Tyson, Director, Age 44. Mrs. Tyson
works as a marketing and communications consultant and
is a freelance writer and editor. Mrs. Tyson was first
elected as a director on October 5, 1993.
[20] Virginia M. Vendrell, Executive Officer, Age 50.
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.
The Company inadvertently failed to file Form 5 for
the years ended December 31, 1998 and 1999.
Information is being gathered from all directors and
senior officers to complete these forms for each
covered person, and the Company expects to file all
such forms on or before April 30, 2000. No Form 4's
were required to be filed during this period. The
following is a listing of each reporting person who
failed to file a Form 5 for the stated periods and the
number of transactions with respect to which no Form 5
was filed:
<TABLE>
<CAPTION>
Name of # of Year
Participant Transacti
ons
<S> <C> <C>
Bernard K. Cough 3 1998
Dwight L. Eaton 1 1999
H. Lee Judd 1 1998
Robert M. 1 1998
Phillips
</TABLE>
In addition, Sheldon F. Goldthwait, Jr., John P.
Reeves, Dwight L. Eaton, Virginia M. Vendrell, Marsha
C. Sawyer and Marlene S. Haskell maintain Bar Harbor
Bankshares stock with the Bank's 401-K plan. Small
intermittent purchases and sales were made during 1998
and 1999 at market prices.
ITEM 11. EXECUTIVE COMPENSATION
Officers of the Company do not, as such, receive
compensation, and are compensated as employees of the
Bank. The following table sets forth cash compensation
received during the Bank's last fiscal year by the
executive officers for which such compensation
exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
Other Annual
Year Salary Incenti Compensation
($) ve ($) ($)
<S> <C> <C> <C> <C>
Sheldon F. Goldthwait, 1997 155,00 19,737 0
Jr. 0
President and 1998 158,00 22,202 0
0
Chief Executive Officer 1999 160,38 6,039 0
0
Dwight L. Eaton 1997 98,000 12,984 0
Senior Vice President and 1998 100,95 14,115 0
0
Trust Officer 1999 102,47 9,546 0
0
Lewis H. Payne 1997 93,500 12,237 0
Executive Vice President 1998 99,300 13,683 0
1999 106,51 3,795 0
2
Virginia M. Vendrell 1997 N/A N/A 0
Senior Vice President and 1998 90,000 12,626 0
Chief Financial Officer 1999 N/A N/A 0
</TABLE>
LONG TERM COMPENSATION
<TABLE>
<CAPTION>
AWARDS PAYOUT
Restric LTIP
ted Optional Payout
Year Stock SARs (#) s
Awards ($)
($)
<S> <C> <C> <C> <C>
Sheldon F. Goldthwait, 1997 0 0 0
Jr.
1998 0 0 0
1999 0 0 0
Dwight L. Eaton 1997 0 0 0
1998 0 0 0
1999 0 0 0
Lewis H. Payne 1997 0 0 0
1998 0 0 0
1999 0 0 0
Virginia M. Vendrell 1997 0 0 0
1998 0 0 0
1999 0 0 0
</TABLE>
ALL OTHER COMPENSATION
($)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Sheldon F. Goldthwait, 1997 30,027
Jr.
1998 52,906
1999 52,905
Dwight L. Eaton 1997 41,654
1998 48,104
1999 50,857
Lewis H. Payne 1997 1,848
1998 1,561
1999 616
Virginia M. Vendrell 1997 N/A
1998 138
1999 N/A
</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 Bank utilizes the Performance
Compensation Plan for Stakeholders developed by Mike
Higgins & Associates, Inc. The plan encompasses the
Bank creating incentive models based on multiple goal
achievements and weighted to provide reward to share a
portion of the improved contribution. The goals must
include profit, growth, productivity and quality.
COMPENSATION COMMITTEE
The Bank Board has appointed a six-member
Compensation Committee comprised of Directors Brown,
Dodge, Phillips, Reeves, Eaton and Goldthwait. Mr.
Eaton and Mr. Goldthwait are Directors and also
members 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
1999, Mr. Goldthwait and Mr. Eaton were members of the
Compensation Committee and also directors. Each
abstained from participating in discussion,
recommendations, or voting regarding his own
compensation.
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 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. Messrs. Goldthwait and Eaton will begin
drawing their annual installment during the year 2000.
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. In 1999, the Company modified
the plan for Mr. Goldthwait, which resulted in a one-
time expense of $639,700. The cost relative to the
supplemental plan was $866,200, $138,600, and $127,600
for 1999, 1998 and 1997 respectively. The agreements
with Messrs. Reeves, Eaton, Goldthwait, and MacDonald
are in the amounts of $49,020, $22,600, $87,176 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. Total shareholder return is computed
by taking the difference between the ending price of
the common stock at the end of the previous year and
the current year, plus any dividends paid divided by
the ending price of the common stock at the end of the
previous year. For purposes of comparison, the graph
also illustrates comparable shareholder return of
American Stock Exchange (AMEX) banks as a group as
measured by the AMEX Market Index and the peer group
index as defined by AMEX. The graph assumes a $100
investment on December 31, 1994 in the common stock of
each of the Company, the AMEX peer group banks and the
AMEX Market Index 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, 1994.
The following graph is based upon a good faith
determination of approximate market value for each
year indicated based on information obtained from the
American Stock Exchange, 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.
The following information is presented in a line graph
in the printed Form 10-K:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Bar Harbor
Banking
and Trust 100.0 195. 367. 411. 365.3 284.
Company 0 00 18 39 1 10
Peer Group
Index 100.0 132. 151. 247. 250.1 214.
0 35 54 13 1 50
AMEX Broad
Market 100.0 128. 136. 163. 161.4 201.
Index 0 90 01 66 4 27
</TABLE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
As of December 31, 1999, 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, 1999,
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>
<CAPTION>
Amount
of Percent
Director, Executive Officer Benefic of Class
or Nominee ial
Ownersh
ip
<S> <C> <C>
Frederick F. Brown 25,140 *
Robert C. Carter 2,100 *
Thomas A. Colwell 5,400 *
Bernard K. Cough 172,220 5.03%
Peter Dodge 4,860 *
Dwight L. Eaton 10,762 *
Ruth S. Foster 3,350 *
Cooper F. Friend 3,400 *
Robert L. Gilfillan 79,930 2.34%
Sheldon F. Goldthwait, Jr. 30,671 *
H. Lee Judd 6,900 *
John P. McCurdy 6,600 *
Jarvis W. Newman 30,100 *
Robert M. Phillips 1,300 *
John P. Reeves 25,678 *
Lynda Tyson 1,800 *
Total ownership of all
Directors and Executive 416,544 12.17%
Officers of Company as a
group (20 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, 97,360
shares (2.85%) 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 that 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 that
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. These transactions
are on 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, Financial Section, included
herein as Exhibit 13].
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditor's Report 7
Consolidated Statements of Financial Condition
December 31, 1999 and 1998 8
Consolidated Statements of Earnings for the years
ended
December 31, 1999, 1998, and 1997 9
Consolidated Statements of Changes in Stockholders'
Equity for the years ended
December 31, 1999, 1998, and 1997 10
Consolidated Statements of Cash Flows for the years
ended
December 31, 1999, 1998, and 1997 11
Notes to Consolidated Financial Statements 12 - 22
(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
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S> <C>
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
10. Material Contracts Incorporated by
reference
to Form 10-K
dated
December 31,
1986
13. Annual report to security holders Enclosed
herewith
21. Subsidiaries of the registrant Incorporated by
reference
to Form 10-K
dated
December 31,
1987
27. Financial Data Schedule Enclosed
herewith
</TABLE>
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
/s/Robert L. Gilfillan /s/ Frederick F.
Brown
Robert L. Gilfillan, Director Frederick F. Brown,
Director
/s/ Thomas A.
Colwell
Thomas A. Colwell,
Director
/s/ Bernard K. Cough /s/ Peter Dodge
Bernard K. Cough, Director Peter Dodge,
Director
/s/ Dwight L. Eaton /s/ Ruth S. Foster
Dwight L. Eaton, Director Ruth S. Foster,
Director
/s/ Cooper F. Friend /s/ H. Lee Judd
Cooper F. Friend, Director H. Lee Judd,
Director
/s/ Robert M. Phillips /s/ John P. McCurdy
James C. MacLeod, Director John P. McCurdy,
Director
/s/ Lynda Z. Tyson
Lynda Z. Tyson
(Front Cover)
Customer Driven
(LOGO)
Bar Harbor Bankshares
1999 Annual Report
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 1999 year in review
Pages 6 - 9 Customer driven innovation
Pages 10 - 12 Directors, officers, employees
Page 12 Shareholder information
Illustration: Saltbox Studio
Photography: Ken Woisard
Design & Printing: Downeast Graphics & Printing, Inc.
Financial Section
Pages 1 - 6 Management's discussion and
analysis
Page 7 Independent auditors' report
Pages 8 - 11 Consolidated statements of
financial condition
Pages 12 - 22 Notes to consolidated statements
Photography: Ken Woisard, Bar Harbor Banking and Trust
Company archives,
Bar Harbor Historical Society
Design & Printing: Downeast Graphics & Printing, Inc._
Summary of Financial Performance
(Bar charts)
Net loans (In millions of dollars)
scale 0 to 300
95 = 198, 96 = 208, 97 = 212, 98 = 225, 99 = 257
Total deposits (In millions of dollars)
scale 0 - 300
95 = 251, 96 = 252, 97 = 252, 98 = 266, 99 = 282
Average assets (In millions of dollars)
scale 0 - 500
95 = 311, 96 = 332, 97 = 345, 98 = 364, 99 = 429
Average equity (In millions of dollars)
scale 0 - 50
95 = 31, 96 = 36, 97 = 39, 98 = 44, 99 = 48
Net interest income (In millions of dollars)
scale 0 - 20
95 = 15, 96 = 15.5, 97 = 16, 98 = 17, 99 = 18
Dividends per share (In dollars)
scale $0.00 to $0.80
95 = .43, 96 = .59, 97 = .60, 98 = .67, 99 = .72
Dividend payout ratio (Percent)
scale: 0 to 40%
95 = 25.07. 96 = 30.22, 97 = 32.15, 98 = 34.92, 99 =
39.78
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.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance sheet
totals
Total assets $456,80 $392,04 $342,72 $345,14 $326,60
9 7 6 3 9
Net loans 256,896 224,980 212,396 207,667 197,718
Total deposits 281,708 266,448 251,903 251,676 251,471
Total equity 49,145 46,861 42,462 37,887 33,243
Average assets 428,555 363,657 344,554 331,971 311,112
Average equity 48,131 44,172 39,472 35,575 30,986
Statement of
earnings totals
Interest and
dividend income $31,952 $29,211 $28,518 $27,522 $26,152
Interest expense 13,802 11,973 11,710 11,281 10,624
Net interest income 18,150 17,238 16,808 16,241 15,528
Provision for loan 474 336 620 720 960
losses
Net interest income
after provision for 17,676 16,902 16,188 15,521 14,568
loan losses
Non-interest income
(including net
security gains 5,854 5,688 5,001 5,000 4,389
(losses))
Non-interest 14,298 12,865 11,801 10,913 10,471
expense
Applicable income 3,007 3,118 2,966 2,899 2,616
taxes
Net earnings 6,225 6,607 6,422 6,709 5,879
Per share data
(restated for two-
for-one stock
divided declared in
1998)
Net earnings $1.81 $1.92 $1.87 $1.95 $1.72
Dividends $0.72 $0.67 $0.60 $0.59 $0.43
Weighted average
number of common
shares outstanding 3,441,0 3,443,3 3,440,1 3,436,2 3,426,8
80 87 04 32 98
Dividend payout 39.78% 34.92% 32.15% 30.22% 25.07%
ratio
Return on total
average assets 1.45% 1.82% 1.86% 2.02% 1.89%
Return on total
average equity 12.93% 14.96% 16.27% 18.86% 18.97%
Average
equity/average 11.23% 12.15% 11.46% 10.72% 9.96%
assets
Efficiency ratio 60.76% 56.95% 55.69% 53.18% 55.21%
</TABLE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
Dear Shareholder:
Bar Harbor Bankshares has had an exciting 1999, and the
year 2000 will continue to be equally if not more
exciting as we prepare to meet the twenty-first century
head on. We are committed to outstanding and efficient
customer service brought to you person-to-person by a
friendly staff supported by state of the art
technology. We are continually searching for new
financial services to help you manage your finances,
and you will learn about some of the services already
on the drawing board as you read this report.
Many of you know that Sheldon Goldthwait will be
retiring this year to pursue a variety of activities
and personal interests other than banking. Being more
flexible is how I like to look at it. We want to thank
Sheldon for his 29 years of service, steering the Bank
through some very busy times, and increasing Bank
assets from $297 million to almost $457 million during
his tenure as CEO. We shall miss Sheldon's attention
to detail and his thoughtful approach to keeping the
Bank moving forward. We certainly wish him much
happiness and ask that he continue to favor us with his
advice and counsel in the years to come.
Jim MacLeod reached the magic retirement age for
Directors, and retired from the Board in October 1999,
after 37 years of loyal service. You can't keep a good
man down, and Jim is already back working part time for
the Bank in his role of enhancing customer relations.
Thank you Jim for all you've done and are continuing to
do for us.
Bob Gilfillan continues to serve on the Board, but
did step down as Chairman. I can tell you that his
shoes are big ones to fill! Bob has served on the
Board since 1956, and still finds the energy to play an
important role.
I would like to thank all of our dedicated
employees who have worked so diligently and well this
past year, and to welcome Dean Read who will become our
next President when Sheldon retires. Dean is already
hard at work, and we are confident that he will be a
great addition to our team.
And finally, thank you to all our shareholders for
your encouragement and support. Please contact me or
any member of our staff to voice your concerns or
wishes for new or enhanced financial services. As the
theme of this report states, many of the changes and
improvements we've made over the past year represent
our responses to the needs customers and shareholders
have expressed. We have not lost sight of one of our
fundamental principles: that by serving our customers
well, so will this institution and its shareholders be
served.
Sincerely,
/s/ John P. Reeves
John P. Reeves
Chairman of the Board (Photo
Caption) John P. Reeves
January 24, 2000_
BAR HARBOR BANKSHARES AND SUBSIDIARY
Dear Shareholder:
For Bar Harbor Banking and Trust Company, 1999 was a
year of significant growth in loans, deposits and
investments. It was also a year of shrinking interest
margins and increased competition. We had to run
faster just to keep up. The financial numbers in this
report indicate that the final earnings results are
slightly below the previous year's. However, numbers
do not tell the whole story. During 1999 we devoted
significant effort and some dollars to our successful
Y2K effort. And, we have been focused on our April
2000 conversion to new core banking software.
Our 1999 growth and mix of assets and liabilities
gives us an excellent base for increased net interest
income for 2000 and beyond. The challenge for all
financial institutions continues to be finding sources
of funding and maintaining deposit and loan bases. We
must also introduce new efficiencies and reduce our
operating costs.
Our service area benefitted from a robust national
economy. People took vacations, brought money and
spent it here. They also sent money into the state to
buy products from our fields, waters, woods and
factories. We are experiencing a boom in building,
buying and renovation of second and retirement homes.
Jobs were generally available and many openings went
unfilled. We hope that growth and posterity continue
in a controlled fashion.
In our 1994 Annual Report, John Reeves announced
his retirement and introduced me as his successor. It
is now my privilege and pleasure to introduce my
successor, Dean S. Read, who comes to us from Key Bank.
Dean has a long and distinguished career as a lender.
He is already on board and will be taking over the
reins some time before July 1, 2000.
I have sincerely enjoyed my tenure as President.
We have many accomplishments to reflect on but banking
and the world are changing. New talents, products,
ideas and strategies are needed to protect and enhance
shareholder and customer value. I am confident that
the management teams at Bar Harbor Banking and Trust
Company and at Bar Harbor Bankshares' new brokerage,
trust and investment services subsidiary, BTI Financial
Group and its member companies, Dirigo Investments,
Inc., Bar Harbor Trust Services and Block Capital
Management, are up to the challenge.
Very truly yours,
/s/Sheldon F. Goldthwait, Jr.
Sheldon F. Goldthwait, Jr.
President and Chief Executive Officer
January 24, 2000
(Photo Caption) Sheldon F. Goldthwait, Jr._
(Cover of Financial Section)
(Logo)
Bar Harbor Bankshares 1999 Annual Report
FINANCIAL SECTION
(inside cover)
TABLE OF CONTENTS
Pages 1 - 6 Management's discussion and
analysis
Page 7 Independent auditors' report
Pages 8 - 11 Consolidated financial statements
Pages 12-22 Notes to consolidated financial
statements_
CUSTOMER DRIVEN
What drives our customers drives us.
There is an axiom for service businesses that goes: If
you take care of your customers, your business will
take care of itself. For 112 years, Bar Harbor Banking
and Trust Company has gone about our business by
building relationships with our customers, person by
person and person to person. It takes a genuine caring
about people and real enjoyment in helping them reach
goals and realize dreams.
So, when our customers speak, we listen. We gain
understanding. We consider. We advise. We develop
products and services that people, businesses and
organizations right here in eastern Maine want and
need. We create solutions that work for them. In
short, what drives our customers drives us. Here are
some of the ways we responded to customer needs during
1999.
Trust customers spoke and we listened.
Due in part to regulatory changes, increased
competition, and more options for the investor, the
Bank's Trust Department began hearing from concerned
customers: You need to operate better in a money
management sense outside the confines of conventional
banking. You need to make use of the latest technology
and tools available for investment analysis and advice.
You need to be competitive not just in eastern Maine,
but on a global scale. In addition, customers
perceived bank trust departments in general as
administrators of money, not managers of it.
Our response to this changing and more demanding market
was fourfold: one, to expand our money management
expertise; two, to reorganize our trust and investment
services capability into three units each focused on a
particular service -- brokerage services, fiduciary
services, and portfolio management; three, to raise the
standards by which our people do business; and four, to
acquire the technology needed to compete on a national
level.
New expertise, new organization.
In 1999, Bar Harbor Bankshares agreed to acquire,
subject to regulatory approval, Dirigo Investments,
Inc., a NASD Registered Broker Dealer firm based in
Ellsworth, Maine. This addition to a restructured
Trust Department represents a local, high quality
alternative to non-bank brokerage services for our
customers.
Under the restructuring plan, Bar Harbor Bankshares
formed a new financial services holding company known
as BTI Financial Group. Dirigo Investments, Inc. will
become a subsidiary of BTI Financial Group and will
continue to operate as a full-service discount
brokerage firm under the umbrella of the holding
company.
BTI Financial Group would also own and operate a Maine
chartered, non-depository trust company to be known as
Bar Harbor Trust Services, and a newly formed SEC-
registered portfolio management unit, to be known as
Block Capital Management. This subsidiary's mission
will be to provide competitive, consistent, sustainable
investment performance for high net worth individuals
and institutions. BTI Financial Group will be
headquartered in new facilities in Ellsworth, and
maintain existing offices in Bar Harbor and Bangor.
(Continued after Financial Section)
New standards of performance.
Bar Harbor Bankshares is enhancing the qualifications
and expertise of both management and staff by training
and promoting from within, bringing in new faces where
necessary, and reassigning responsibilities based on
merit. This effort toward "beyond best" ability and
performance is corporation-wide. At BTI Financial
Group it has resulted in the following new assignments.
Dwight L. Eaton will serve as Chairman of the Board of
Directors of BTI Financial Group. Mr. Eaton began his
career with Bar Harbor Banking and Trust Company in
1965. Under his management and direction, the Trust
Department grew from $9 million in assets under
management in 1965 to $379 million in 1999.
Paul G. Ahern will serve as President and Chief
Executive Officer of BTI Financial Group. Mr. Ahern
joined Bar Harbor Banking and Trust Company in 1993.
Prior to this, he was Portfolio Manager at F.L. Putnam-
Winslow, an investment advisory firm in Bangor. Mr.
Ahern holds an MBA from the University of Maine with
emphasis in Finance. His professional experience and
academic training is focused on investment analysis and
management services.
Bonnie R. McFee, President of Dirigo Investments, Inc.,
will continue to serve in that capacity as well as Vice
Chair of BTI Financial Group. Ms. McFee brings to Bar
Harbor Bankshares fourteen years of investment
experience. She was one of the founding partners of
Dirigo Investments, Inc., has seven years of portfolio
management experience with an SEC-registered investment
advisor, and is a Certified Financial Planner.
Frank P. Jansen joined Bar Harbor Banking and Trust
Company in October of 1999. He will serve as President
of Bar Harbor Trust Services. Mr. Jansen began his
career as a trust officer with Florida National Bank in
1977. During the eighties he served in the positions
of Vice President and manager of trust operations at
Key Bank in Albany, New York and later at Manufacturers
& Trades Trust Company in Buffalo, New York. Before
joining Bar Harbor Banking and Trust Company, Mr.
Jansen was Vice President/Senior Relationship Manager
at Fleet Bank of Maine in Bangor. His expertise
includes account administration, business development,
operations management, and product development.
Anne C. Gibson, Vice President Trust Officer at Bar
Harbor Banking and Trust Company, will serve as
President of Block Capital Management. Ms. Gibson came
to the Bank in 1988 and has served trust and investment
clients in the Greater Bangor Area and Bar Harbor for
the past sixteen years. Prior to joining the Bank, she
had worked for Fleet/Norstar as Employee Benefit Trust
Officer. She holds a BA from the University of Maine
and an MBA from McGill University. She has
successfully completed the Financial Planning Certified
Financial Planner Professional Education Program, the
series 65 Uniform Investment Adviser exam and the
series 7 General Securities Representative exam.
Brett Miller, who joined the Bank's Trust Department in
August, 1999, as Vice President and Investment Officer,
previously served as a Vice President and Portfolio
Manager with Key Private Bank. Mr. Miller will be the
Chief Investment Officer for Block Capital Management.
Three promotions from within during 1999 deserve
recognition. Melanie Bowden, who has been with the
Bank for fourteen years, was promoted to Trust Officer.
Her duties include daily administration of client
portfolios and business development. Mischelle Gehan
of the Bank's Bangor Trust Office and Stephanie
Chesley, who operates the money desk in Bar Harbor,
were both promoted to the position of Assistant Trust
Officer and will serve in client tax preparation and
investments, respectively.
New technology and tools.
In addition to well-qualified and motivated people
working on their behalf, investors look for performance
and stability in a money management firm. Performance
is determined in part by technology, which provides the
research, and investment tools a money manager needs.
As a manager of more than $379,000,000 in assets, the
Bank employs the latest technology and tools we need to
give our clients the investment services they need.
And as a 112-year old institution, we offer our clients
the security that continuity of operations, philosophy,
and personnel afford.
The past year of acquisition, reorganization and
enhancement of the Bank's trust and investment services
is not only a meaningful response to the needs of our
marketplace, but will result in higher levels of
service, better performance in meeting client needs,
whether aggressive or conservative, and more ways to
accommodate our customers -- from focused brokerage
services, to focused fiduciary services, to focused
portfolio management.
Shareholders of Bar Harbor Bankshares also stand to
benefit from a restructured and revitalized trust and
investment services capability. There is a greater
potential for enhanced return on equity which would
result from: a renewed growth of assets under
management, additional non-interest income from
brokerage services, and the synergy of BTI's subsidiary
companies working together to expose non-bank customers
to our investment services.
For those who welcome change, let us say welcome to new
and revitalized trust and investment services. For
those who take no comfort in change, let us say that
your Bank is what it has always been, yet with several
new money management capabilities that many banking
customers have told us they want. Today, we have the
expertise, the people, and the technology to deliver
the services expected of a national money management
firm with the attention and high level of personal
service expected of an independent community bank.
We believe that the acquisition and reorganization
we've undertaken is unique in Maine. While other bank
holding companies have acquired brokerage firms as
appendages and attempted to make vastly different
business cultures work together, we've assimilated our
brokerage capability as a physically and
philosophically integrated part of a holding company
managed by a common board of directors.
Individual and commercial customers spoke and we
listened.
The reorganization and revitalization of the Bank's
Trust Department was by no means our only response to
customer needs in 1999. In consumer banking, one of
the most prevalent themes we heard from customers was
the desire to earn more interest on deposits and pay
less interest on loans. Our response was the Preferred
Choice Account, introduced during the summer of 1999.
Preferred Choice allows customers with aggregate
deposit balances of $10,000 or more to save money on
installment loan interest and other services such as
travelers checks, money orders, notary service,
personalized checks, and bank-by-mail. Preferred
Choice also allows customers to make more money on NOW
accounts and Certificates of Deposit. The higher the
customer's balance, the higher the interest rate.
For our customers 50 years of age and over, we offer a
specialized package of services called Gold Wave
Checking. It includes many of the money-making and
money-saving features that the Preferred Choice Account
does, and offers additional non-bank services our
senior customers want such as discounts on medical
prescriptions and common carrier accidental death or
bodily injury insurance.
Our Investors Choice Money Market Account was another
response to the deposit customer's desire to earn
higher interest with immediate access to funds.
Introduced in June of 1998, this now popular account
offers money market interest rates on both individual
and business deposits, and enables customers to access
funds by check, by mail, in person, by ATM, or through
our automated telephone banking service, TeleDirect
(sm).
In consumer lending, many lower income families in our
marketplace couldn't afford the down payment or the
interest rates on conventional mortgages and did not
qualify for Maine State Housing Authority programs. To
help customers whose annual income is $40,000 or less
buy a primary residence, we created The Downeast
Mortgage, an "affordable housing" service. It offers
affordable terms, greater flexibility in fitting
payments to the customer's budget, a more flexible
payment schedule, and other customer conveniences.
Many of our small business customers are either
seasonal or start-up businesses that require working
capital. To meet their short-term operational needs,
our lending officers created a business loan with a pre-
established credit line, called Tide Line of Credit.
This tailor-made loan product, secured by real estate
or business assets, lets customers know how much
funding they have available to them, helps them
establish credit and negotiate discounts from suppliers
to lower the cost of goods purchased for resale.
One of the functions of a community bank, such as Bar
Harbor Banking and Trust Company, is to support the
people, businesses and organizations of the communities
it serves... all of them. This requires personal
knowledge and understanding of individuals, families,
and local institutions -- where they've been, where
they're going, and what their unique needs or special
situations might be. This closeness with the people we
serve puts our Bank in a unique position to help: to
help the young family next door get a foothold in life,
the fledgling business down the street get off the
ground, or our parents and grandparents to retire with
dignity. Customer driven? As an independent community
bank, we might venture a step further and say "neighbor
driven."
_
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis reviews the
consolidated financial condition of Bar Harbor
Bankshares as of December 31, 1999 and 1998, the
consolidated results of operations for the years ended
December 31, 1999, 1998 and 1997 and, where
appropriate, factors that may affect future financial
performance. This discussion 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).
FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for forward-looking
statements. Certain information contained in this
discussion, or in any other written oral statements
made by the Company, are or may be considered to be
forward-looking. Forward-looking statements relate to
future operations, strategies, financial results or
other developments, and contain words or phrases such
as "may," "expects," "should" or similar expressions.
Forward-looking statements are based upon estimates and
assumptions that are subject to significant business,
economic and competitive uncertainties, many of which
are beyond the Company's control or are subject to
change.
Inherent in the Company's business are certain risks
and uncertainties. Therefore, the Company cautions the
reader that its actual results could differ materially
from those expected to occur depending on factors such
as general economic conditions including changes in
interest rates and the performance of financial
markets, competition, industry consolidation, credit
risks, regulations and taxes, changes in domestic and
foreign laws, and other factors. Other factors that
could cause or contribute to such differences include,
but are not limited to, variances in the actual versus
projected growth in assets, return on assets, loan
losses, rates charged on loans and earned on investment
securities, rates paid on deposits, competitive
effects, expenses, fee and other non-interest income
earned, as well as other factors. The Company disclaims
any obligation to publicly update or revise any forward-
looking statements, whether as a result of new
information, future developments, or otherwise.
GENERAL
While not taking effect until January of 2000, Bar
Harbor Bankshares Chairman, John P. Reeves, has
announced that Dean S. Read will be joining the Company
as Executive Vice President and Chief Operating Officer
of Bar Harbor Bankshares and its wholly owned
subsidiary Bar Harbor Banking and Trust Company. Mr.
Read will be responsible for management of all internal
corporate functions as well as stockholder relations
and activities. Mr. Read will succeed Sheldon F.
Goldthwait, Jr. as President and Chief Executive
Officer upon Mr. Goldthwait's retirement in 2000. Mr.
Read brings 30 years of commercial banking experience
to the Company. He most recently served as Senior Vice
President and Senior Relationship Manager with Key Bank
National Association in Augusta, Maine.
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.
Bar Harbor Banking and Trust Company is committed to
delivering its services in a personal, professional,
and efficient manner. The Bank offers a complete range
of accounts and services and competitive lending and
deposit interest rates. Additionally, the Bank ensures
that customers' accounts are readily accessible through
person-to-person service during regular banking hours
and through automated services during non-banking
hours.
The Bank's Trust Department is one of the largest among
independent banks in Maine. The Trust Department
offers traditional trust and estate planning services
as well as sophisticated, professionally managed
investment services designed to meet the specific
financial objectives of its clients.
One of Bar Harbor Banking and Trust Company's goals, as
a community bank, is to enhance the quality of life for
the people of eastern Maine. The Bank does this by
lending locally, in the towns and communities in its
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 earned
from loans to its customers. Competition for loans
from bank and non-bank institutions in our eastern
Maine service area has increased over the past three
years, causing loan interest rates to decrease. In 1999
the total loan portfolio increased $31.9 million, or
14.2% to $256.9 million. In 1998, the loan portfolio
grew by $12 million or 5.6%.
In 1999, consumer loans, including residential
mortgages, comprise 55% of the Bank's loan portfolio.
Commercial loans comprise the other 45%. Those
percentages are consistent with the previous year. The
primary factor for the increase in the loan portfolio
is the growth in consumer residential mortgages, which
increased $19.7 million or 17.7%, after increasing $11
million or 13.6% in 1998.
During 1998, the Federal Reserve dropped the federal
funds rate of interest by 75 basis points and by year-
end 1998 the prime-lending rate of interest was 7.75%.
During 1999, the reverse occurred with the Federal
Reserve incrementally increasing rates a total of 75
basis points bringing the prime rate back up to 8.50%
by year-end. Rates have continued to increase as the
year 2000 begins. The majority of the Bank's consumer
residential mortgages reprice during a three to five
year period. The majority of the Bank's commercial
loans reprice between a one and five year period.
Therefore, prime interest rate changes do not affect
the repricing of the majority of the Bank's loans
immediately. As a result, changes in the Bank's short-
term cost of funds can have an effect on the Bank's
loan portfolio yields.
The Bank's loan portfolio yield was 8.63% for 1999,
down 64 basis points from the 1998 average of 9.27%.
This decrease was the result of increased competition,
as well as the above-mentioned fact that the loan
portfolio does not reprice on a timely basis with the
Bank's short-term cost of funds. Loan interest income
increased $488,000 during 1999. Loan volume caused an
increase of $2.2 million, while interest rate and
spread compression decreased interest income by $1.7
million.
In 1998, the yields on loans dropped 27 basis points.
The increase in interest income on loans in 1998
compared to 1997 was $262,000. Interest income grew by
$680,000 due to increased loan volumes over 1997 and
decreased by $418,000 due to interest rate changes.
Loan concentrations represent the relationship between
specified industries to the bank's capital. Loans to
the hospitality industry (hotels and restaurants)
represent the highest loan concentration by industry at
66% of capital. Total dollars loaned to the
hospitality industry as of December 31, 1999 totaled
$32.5 million up from $30.5 million in 1998. Other
substantial loan concentrations include fishing, which
dropped from $8.9 million in 1998 to $6.9 million in
1999, and commercial and real estate development
decreasing slightly from $12.7 million to $11.7
million.
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 make more funds
available to its customers in its service area, while
the servicing provides income. In 1999, loans serviced
totaled $55.9 million compared to $58.5 million in
1998.
The Bank's allowance for possible loan losses was 1.64%
of total loans in 1999. This compares to the Bank's
peer group average allowance ratio of 1.5% as published
through the Uniform Bank Performance Report.
Each quarter, management performs a detailed analysis
of its loan portfolio to ensure there are adequate
reserves. Reserves are set aside for specific loans
including impaired loans, a pool of reserves based on
historical charge offs by loan types, and supplementary
reserves to reflect current economic conditions, credit
concentrations, industry concentrations, and loan
policy changes.
The amount allocated in 1999 to the provision for
possible loan losses was $474,000. Loans charged off
in 1999 totaled $888,000 while recoveries totaled
$252,000. Net charged off loans for 1999 were $636,000
and represented 0.25% of total loans, which was a
slight improvement when compared to 1998's total loans
charged off representing .28% of the total loan
portfolio.
The 1998 provision for loan losses was $336,000, which
was lower than previous years because of a single
recovery late in 1997. The recovery was in excess of
$300,000, which had been charged off in an earlier
year. Loans charged off in 1998 totaled $788,000 while
recoveries totaled $164,000. Net charged off loans for
1998 totaled $624,000.
In 1999, $394,000 or 62% of the net charge offs
resulted from losses in the commercial and agricultural
portfolios. Net losses of $242,000 or 38% occurred in
the consumer installment loan portfolio, credit cards
and overdraft protection. In 1998, approximately 57%
of the net charge offs resulted from losses in consumer
installment loans, credit cards and overdraft
protection. Net losses in the commercial and
agricultural loan portfolios totaled $177,000 or 28% of
the net charged off loans for 1998. Net losses from
loans secured by real estate totaled $92,000 or 15%.
The higher proportion of commercial loan charge offs
for 1999 can be attributed to a single charge off
totaling $329,000 that was realized in the fourth
quarter.
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, declined for a third year
in a row from 1.5% to 1.0% as a percentage of total
loans. The overall level for delinquent loans is lower
than the bank has experienced in many years.
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. 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 at the time of the transfer. Along with using
conservative valuations of OREO properties, reserves
are established to allow for selling expenses that can
be reasonably estimated.
At the end of 1999, the OREO portfolio consisted of two
properties at a total aggregate book value of $64,400,
with a reserve for expenses and carrying costs of
$14,500. At the end of 1998, the OREO balance was
$144,100 with a reserve of $15,700.
Investments
The investment portfolio adds liquidity,
diversification, and earnings to the Bank's financial
picture. The investment portfolio has grown to 36% of
the Bank's total assets and 39% of the Bank's earning
assets. Overall, the investment portfolio has grown by
$29.5 million or 21% when compared to 1998. Similarly,
in 1998 the Bank's investment portfolio grew by $31
million or 29% as compared to 1997.
During 1999, the yield of the entire investment
portfolio decreased on average by 25 basis points.
Those securities with taxable interest income earned an
average yield of 6.75% and 7.0% for years ended
December 31, 1999 and 1998, respectively. During 1998,
the yield of the entire portfolio decreased on average
by 16 basis points when compared to 1997.
In 1999, interest and dividends earned on the Bank's
investments grew by $2.3 million of which $2.5 million
was attributable to additional securities purchased in
1999 with an offsetting reduction in income of $207,000
due to reductions in yields.
In 1998, interest and dividends earned on the Bank's
investments increased by $431,000 over 1997, of which
$755,000 was attributable to additional securities
purchased in 1998 with a reduction in earnings of
$324,000 because of declines in interest rates.
At December 31, 1999, the Bank's portfolio of
investments held to maturity (HTM) indicates a net
unrealized loss of $3.4 million. The available for
sale (AFS) portfolio shows a net unrealized loss of
$1.5 million. The HTM portion of the investment
portfolio in 1998 showed a net unrealized gain of $1
million and the AFS portion had a $76,000 net
unrealized gain. In 1999, the mortgage-backed
securities portfolio has an average life of 7.8 years,
a modified duration of 5.28 years and is yielding an
average of 6.7%.
Interest Bearing Liabilities
With investments growing by $29.5 million and loans
growing by $32 million, funding came from various
sources. Sources of funding included increased
deposits of $15 million, advances from the Federal Home
Loan Bank (FHLB) of $47 million, maturities and called
securities of $8 million and principal payments from
the Bank's mortgage-backed securities approximating $27
million. Principal payments are generated from
consumers nationwide making their monthly mortgage
payments and refinancing mortgages.
During 1999, the cost of the Bank's interest bearing
liabilities increased by $1.8 million when compared to
1998. With $62.6 million growth in interest bearing
liabilities, the cost of those funds increased by $2.8
million, which was offset by reductions in rates
totaling $1 million. The Bank reduced its interest
rates on core deposits in the last quarter of 1998 to
reflect national changes in interest rates, attributing
to much of the savings in 1999.
In 1998, the cost of borrowings increased by $516,000
due to increased borrowings of $30 million. The cost
of borrowings dropped 7 basis points on average from
1997 to 1998. While total deposits equaled $14.5
million more on December 31, 1998 than on December
31,1997, on average they grew by $3.8 million. The
overall cost of deposits decreased by $254,000. The
cost of deposits increased by $131,000 based on
increased deposits, but was offset by $385,000 due to
the rate changes described above.
Other Operating Income
Other operating income for 1999 was $167,000 more than
1998. Included in other service charges, commissions
and fees are fees generated from the Bank's various
electronic card programs, VISA, merchant programs, ATM
and check card fees. Collectively, other service
charges, commissions and fees earned $327,000 more
before expenses than in the previous year. Discussion
on the expenses incurred with these programs may be
found in the Other Operating Expense section below.
Mortgage service rights are $58,000 less than in 1998
because the bank elected to hold more fixed rate
mortgages originated in 1999. Additionally, security
gains of $148,000 representing closure on portions of
the Bank's investment in a regional venture capital
fund were taken in 1998 with no comparable gains taken
in 1999.
The Bank's other operating income for 1998 was $687,000
or 13.7% more than 1997. Income derived from Trust
services is included in other operating income and was
$202,000 or 8% more in 1998 when compared to 1997.
Fees generated from the Bank's various electronic card
programs earned $160,000 more before expenses than in
the previous year.
Trust
The Bank's Trust Department's total revenues before
expenses for 1999 were consistent with 1998's and
totaled $2.7 million, compared to $2.5 million in
1997. Market value for the assets held in the Trust
Department as of December 31, 1999 was $379 million
compared to $385 million in 1998 and included $17.3
million in new business.
Other Operating Expenses
Other operating expenses for 1999 were $1.4 million or
11% more than 1998. The major categories shown on the
earnings statement from which the major variances
occurred were salaries and benefits and other operating
expenses. Salaries and employee benefits are $803,000
more than 1998. Included in 1999's expense are merit
increases, increased overtime due to the Year 2000
initiative and the preparation for an upcoming
conversion of banking software, increased staffing
levels by 5.6% and the increased cost of benefit
packages overall. Additionally, early in 1999, the
Board of Directors modified one of the non-qualified
supplemental retirement plans for the benefit of a key
employee approaching retirement, resulting in a one-
time expense of $639,700. The Board of Directors also
approved the restructuring of the Bank's retiree health
benefit plan, which reduced its future liability by
approximately $300,000. This restructuring will also
reduce the future annual expense for postretirement
benefits. The Board of Directors approved to credit
some of those savings to the employees' 401K plan by
increasing its contribution from 3% to 4% effective
January 1, 2000.
Other operating expense included $349,000 for start up
expenses in connection with the conversion of the
banking software solution for the commercial side of
the Bank and costs incurred with the formation of BTI
Financial Group. The costs associated with the Bank's
electronic card programs, as identified above, were
$269,000 more in 1999 when compared to 1998, with the
primary increase in the Bank's merchant processing
program.
For 1998, other operating expenses grew by 9% as
compared to 1997 with the majority of the increase
coming from the general category of other expenses.
Included in other expenses for 1998 were project costs
of $246,000, which included consulting fees in
connection with the selection process for a new banking
software system for the commercial side of the bank,
approximately $14,000 in expenses for the Year 2000
initiative and costs incurred for a September 1998
Trust Department software conversion. Operating
expenses for handling the Bank's electronic card
programs exceeded 1997's expenses by $298,000.
Additionally, in 1998 there was a charge for $340,000,
representing fraud losses sustained in the Bank's Visa
credit card processing operation.
Net Earnings
The Bank's net earnings as of December 31, 1999 were
$6.2 million and compare to 1998 and 1997 earnings of
$6.6 million and $6.4 million respectively.
The Bank's earnings translate into a return on average
equity of 12.3%, compared to 15.0% in 1998 and 16.3% in
1997. Earnings per average weighted share in 1999 were
$1.81 compared to $1.92 in 1998 and $1.87 in 1997.
Return on average assets in 1999 was 1.5% compared to
1.8% for 1998 and 1.9% for 1997.
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.
Deposits represent the Bank's primary source of funds.
For three years, total deposits have demonstrated
steady growth, although there have been 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.
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, which has expanded
its collateral vehicles. Additionally, repurchase
agreements secured through several wholesale firms,
borrowing through the Federal Reserve Bank of Boston
and the purchase of brokered deposits are available.
Additional funds available from the Federal Home Loan
Bank to the Bank at December 31, 1999 totaled $64
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 90-day 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, 1999, the 30-day and 90-
day ratios are 20.8% and 18.2%, respectively. At
December 31, 1998, the ratios were 20.5% and 16.4%,
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.
MARKET RISK
Market risk is the risk of loss arising from adverse
changes in the fair value of financial instruments due
to changes in interest rates. The Bank's market risk is
composed primarily of interest rate risk. The Bank's
Asset/Liability Committee (ALCO) is responsible for
reviewing the interest rate sensitivity position of the
Company and establishing policies to monitor and limit
exposure to interest rate risk. All guidelines and
policies established by ALCO have been approved by the
Board of Directors.
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, 1999, Bar Harbor Banking and Trust
Company was somewhat liability sensitive with $166
million in assets and $249 million in liabilities that
could be repriced within one year. This increases the
exposure of interest rate risk to the bank on these
funds in a rising rate environment. The repricing
structure for 1998 was more evenly matched, with $170
million in assets and $184 million in liabilities that
could be repriced within one year.
Management continues to watch economic trends with
respect to interest rates. The Bank utilizes a
simulation model to quantify the estimated exposure to
interest rates. The model captures the impact of
changing interest rates for the Bank's interest earning
assets and interest paying liabilities. The model
assumes a static balance sheet and utilizes a non-
parallel yield curve shift in rates to recognize the
impact of interest rate changes. As mentioned above,
the Bank is liability sensitive in the one-year
horizon. 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 $620,000 during
the next twelve months. If rates were to drop by 200
basis points, the Bank would experience an increase in
its net interest income of $867,000 during the next
twelve months.
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 18.4% far exceeds the guidelines.
This means that the Bank is not restricted from paying
dividends.
Stockholders' equity increased by $2.2 million as of
December 31, 1999 and $4.4 million in 1998. The
unrealized losses net of taxes from the Bank's
available for sale portion of the investment portfolio
and the repurchase of the Company's stock contributed
to the decreased growth in equity. Dividends of $2.5
million declared on the Company's common stock
represented a 39.8% dividend payout ratio.
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.
On January 10, 2000, Bar Harbor Bankshares acquired
Dirigo Investments, Inc., a NASD Registered Broker
Dealer firm in Ellsworth, Maine. Dirigo Investments,
Inc. will continue to operate as a full-service
discount brokerage firm, and is one of three companies
in Bar Harbor Bankshares' newly formed financial
services subsidiary, BTI Financial Group. The purchase
price for Dirigo Investments, Inc. will be accounted
for under the purchase method of accounting.
In addition to facilitating the purchase of Dirigo
Investments, Inc., the Bank will contribute capital to
Bar Harbor Bankshares to initially capitalize Bar
Harbor Trust Services and Block Capital Management, the
other two subsidiaries of BTI Financial Group. The
capital to Bar Harbor Bankshares will also provide
funds to compensate the Bank for the transfer of the
Trust Department. Lastly, the purchase of real estate
in the Ellsworth area will include a future home for
BTI Financial Group. All of these transactions (or
investments) will transpire in early 2000 and will
result in a transfer of capital from the Bank in excess
of $7 million.
In November of 1999, the Board of Directors of the
Company approved a stock repurchase plan. The plan
allows for the repurchase of up to 10% of the Company's
outstanding shares of stock or approximately 344,000 at
the time of the announcement of the plan. As of
December 31, 1999, the Company had repurchased 22,100
shares of stock for a total price of $400,000.
On December 8, 1998, the Board of Directors of the
Company declared a 100% stock dividend effected as a
stock split to owners of record as of December 28,
1998, payable on January 25, 1999. Per share data
information has been adjusted to reflect the 100% stock
dividend.
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
During 1999, the Financial Accounting Standards Board
(FASB) issued Statement of Accounting Standards (SFAS)
No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise", SFAS
No. 135, "Rescission of FASB Statement No. 75 and
Technical Corrections", SFAS No. 136, "Transfers of
Assets to a Not-for-Profit Organization or Charitable
Trust that Raises or Holds Contributions for Others"
and SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133".
SFAS Nos. 134, 135 and 136 have no effect on the
financial condition and results of operation of the
Company.
SFAS No. 133, which established accounting and
reporting standards for derivative instruments and for
hedging activity, was amended by SFAS No. 137. SFAS
No. 137 defers the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Bank
does not hold any derivative instruments. Should the
Bank enter into derivative transactions, SFAS No. 137
will be followed when effective.
YEAR 2000
Several years ago, a Year 2000 committee was created to
manage Year 2000 compliance issues. The committee
developed a global plan to address the Company's
exposure to potential problems arising from the
rollover. The plan included testing and certifying
internal systems, while monitoring the review of third
party vendor compliance since all software used by the
Bank is provided by third party vendors. All of the
above mentioned processes performed satisfactorily
through the testing process and have been performing
satisfactorily since the rollover into the Year 2000.
While liquidity plans were in place to meet customer
requests, the Bank was not called upon to put into
place any plans outside of normal servicing of
customers. The Bank has not experienced any increase
in loan requests or deposit outflows from its
customers. Employees took a vital role in educating
their customers and the public prior to year end.
Employees at all levels were involved with the
training, testing, awareness and action plans
implemented during the entire Year 2000 initiative.
Since not all Year 2000 problems were expected to
surface in January 2000, the Company maintains its
Contingency Plan in place should any unforeseen issues
arise.
The original estimate for expenditures for the Year
2000 initiative $100,000. The direct cost for the Year
2000 initiative was $56,500 and $14,000 during 1999 and
1998 respectively.
MARKET FOR COMMON STOCK
High and low bids for each quarter of 1999 and 1998 are
listed below. Per share data information has been
adjusted to reflect the 100% stock dividend described
above.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd 4th Quarter
Quarter
<S> <C> <C> <C> <C>
1999 23.50 to 22.25 to 22.00 to 21.375 to
20.125 18.00 18.00 17.625
1998 29.00 to 29.50 to 25.25 to 25.00 to
25.125 24.875 19.25 17.00
</TABLE>
As of January 1, 2000, there were 1,074 registered
holders of record of Bar Harbor Bankshares common
stock.
Dividends paid by the Company in 1999 and 1998:
<TABLE>
<CAPTION>
1ST Quarter 2nd Quarter 3rd 4th Quarter
Quarter
<S> <C> <C> <C> <C>
1999 $0.17 $0.17 $0.19 $0.19
1998 $0.16 $0.17 $0.17 $0.17
</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, 1999 and
1998, 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, 1999. 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, 1999 and
1998, and the consolidated results of their operations
and their consolidated cash flows for each of the three
years in the period ended December 31, 1999, in
conformity with generally accepted accounting
principles.
(signature: Berry, Dunn, McNeil & Parker)
Portland, Maine
February 25, 2000
Offices in: Bangor, Maine, Portland, Maine, Lebanon,
New Hampshire, Manchester, New Hampshire
_
BAR HARBOR
BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
DECEMBER 31, 1999 AND 1998
(in thousands, except number of
shares)
<TABLE>
<CAPTION>
Assets 1999 1998
<S <C> <C> <C>
>
Cash and due from banks $12,85 $11,5
2 11
Securities available for 31,690 17,84
sale 4
Securities held to
maturity (market
value $125,416 in 1999 128,83 113,1
and $114,177 in 1998) 1 62
Other securities 6,118 6,133
Loans held for sale 0 1,018
Loans, net of allowance
for possible
loan losses of $4,293 in
1999
and $4,455 in 1998 256,89 224,9
6 80
Premises and equipment 8,440 7,951
Other assets 11,982 9,448
Total assets $456,8 $392,
09 047
Liabilities and stockholders'
equity
Liabilities
Deposits
Demand deposits $41,90 $42,3
4 23
NOW accounts 45,107 43,31
9
Savings deposits 78,511 67,61
9
Time deposits 116,18 113,1
6 87
Total deposits 281,70 266,4
8 48
Securities sold under 8,807 8,092
repurchase agreements
Advances from Federal Home 113,03 66,12
Loan Bank 5 0
Other liabilities 4,114 4,526
Total liabilities 407,66 345,1
4 86
Commitments and contingent
liabilities (Notes 13 and 17)
Stockholders' equity
Capital stock, par value $2;
authorized
10,000,000 shares;
issued 3,643,614
In 1999 and 1998 7,287 7,287
Surplus 4,002 4,002
Retained earnings 40,611 36,86
2
Net unrealized appreciation
(depreciation) on securities
available for sale, net (1,015 50
of tax )
Less: Cost of Treasury
stock, 222,100 shares
in 1999 and 200,000 (1,740 (1,34
shares in 1998 ) 0)
Total stockholders' equity 49,145 46,86
1
Total liabilities and $456,8 $392,
stockholders' equity 09 047
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBEER 31, 1999, 1998 AND 1997
(in thousands, except number of shares and per share
data)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ $21,290 $21,028
21,777
Interest and dividends on:
Taxable securities 9,399 7,074 6,415
Non-taxable securities 316 424 651
Equity Securities 460 423 424
Total interest and dividends 31,952 29,211 28,518
Interest expense:
Deposits 8,289 8,539 8,793
Short-term Borrowings 830 549 887
Long-term Borrowings 4,683 2,885 2,030
Total interest expense 13,802 11,973 11,710
Net interest income 18,150 17,238 16,808
Provision for loan losses 474 336 620
Net interest income after
provision for loan losses 17,676 16,902 16,188
Other operating income:
Trust department income 2,707 2,727 2,525
Service charges on deposit 814 722 690
accounts
Other service charges, 2,193 1,867 1,634
commissions and fees
Other operating income 132 225 149
Net securities gains 8 148 3
5,854 5,688 5,001
Other operating expense:
Salaries and employee 6,834 6,031 6,005
benefits
Occupancy expense 683 650 608
Furniture and equipment 1,301 1,214 1,155
expense
Other operating expense 5,480 4,970 4,033
14,298 12,865 11,801
Earnings before Income Taxes 9,232 9,725 9,388
Income Taxes 3,007 3,118 2,966
Net Earnings $ 6,225 $6,607 $6,422
Per common share data
Net Earnings $ 1.81 $1.92 $1.87
Weighted average number of
common shares outstanding 3,441,0 3,443,3 3,440,1
80 87 04
</TABLE>
BAR HARBOR BANKSHARES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(in thousands, except number of shares and per share
data)
<TABLE>
<CAPTION>
NET
UNREALIZE
D TOTAL
CAPIT RETAINE APPRECIAT TREASU STOCKHOLD
AL SURPL D ION RY ERS'
STOCK US EARNING (DEPRECIA STOCK EQUITY
S TION) ON
SECURITIE
S
AVAILABLE
FOR
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, $7,27 $3,84 $28,205 ($ 104) ($1,34 $37,887
1996 9 7 0)
Net Earnings, 1997 6,422 6,422
Net unrealized
depreciation on
securities available 128 167
for sale, net of tax
of $66
Total comprehensive
income 6,422 128 6,550
Cash dividends
declared ($0.60 per (2,065) (2,065)
share)
Sale of stock 5 120 85 90
Balance December 31, 7,284 3,932 32,562 24 (1,340 42,462
1997 )
Net Earnings, 1998 6,60742 6,607
2
Net unrealized
appreciation on
securities available 26 26
for sale, net of tax
of $14
Total comprehensive 6,607 26 6,633
income
Cash dividends
declared ($0.67 per (2,307) (2,307)
share)
Sale of stock 3 70 0 73
Balance December 31, 7,287 4,002 36,862 50 (1,340 46,861
1998 )
Net earnings, 1999 6,225 6,225
Net unrealized
appreciation on
securities available (1,065) (1,065)
for sale, net of tax
benefit of $549
Total comprehensive 6,225 (1,065) 5,160
income
Cash dividends
declared ($0.72 per (2,476) (2,476)
share)
Purchase of Treasury (400) (400)
stock
Balance December 31, $7,28 $4,00 $40,611 ($1,015) ($1,74 $49,145
1999 7 2 0)
</TABLE>
BAR HARBOR BANKSHARES AND
SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Years ended December 31, 1999, 1998
and 1997
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $6,225 $6,607 $6,422
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 980 938 888
Deferred income taxes (180) 248 (191)
Provision for loan losses 474 336 620
Loss on sale of other real estate 15 0 0
owned
New loans originated for sale (7,932) (17,684) *5,465)
Proceeds from sale of mortgages held 8,970 17,068 5,450
for sale
Gain on sale of mortgages originated (143) (218) (40)
for sale
Net securities gains (8) (148) (3)
Net amortization of bond premium 179 249 137
Loss on sale of premises and equipment 70 1 5
Net change in other assets (1,731) (691) (234)
Net change in other liabilities (412) (200) 1,300
Net cash provided by operating 6,507 6,525 8,901
activities
Cash flows from investing activities:
Net decrease in federal funds sold 0 0 2,000
Purchases of securities held to (45,592) (72,428) (31,402
maturity )
Proceeds from maturity and principal
paydowns of securities held to 26,475 28,024 18,881
maturity
Proceeds from call of securities held 3,250 16,346 9,750
to maturity
Purchases of securities available for (20,465) (16,245) (1,253)
sale
Proceeds from maturity and principal
paydowns of available for sale 1,525 302 160
Proceeds from call of securities 3,500 12,750 6,060
available for sale
Net decrease (increase) in other 23 22 (388)
securities
Net loans made to customers (32,472) (13,485) (5,349)
Capital expenditures (1,546) (1,231) (1,069)
Proceeds from sale of other real 115 505 199
estate owned
Proceeds from sale of fixed assets 7 0 16
Net cash used in investing activities (65,180) (45,440) (2,395)
Cash flows from financing activities:
Net change in savings, NOW and demand 12,261 23,510 218
deposits
Net change in time deposits 2,999 (8,965) 10
Net change in securities sold under
repurchase agreements 715 3,618 (3,772)
Advances from Federal Home Loan Bank 103,000 50,0000 48,500
Repayment of advances from Federal (56,000) (30,500) (35,000
Home Loan Bank )
Net change in short term other (85) 7,460 (8,248)
borrowed funds
Proceeds from sale of capital stock 0 73 90
Purchase of Treasury Stock (400) 0 0
Payments of dividends (2,476) (2,307) (2,065)
Net cash provided (used) by financing 60,014 42,889 (10,267
activities )
Net increase (decrease) in cash and 1,341 3,974 (3,761)
cash equivalents
Cash and cash equivalents at beginning 11,511 7,537 11,298
of year
Cash and cash equivalents at end of $12,852 $11,511 $7,537
year
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $13,807 $11,992 $11,683
Income taxes, net of refunds 3,133 $3,180 $2,596
Non-cash transactions
Transfer from loans to real estate
owned (other 82 $564 $0
</TABLE>
NOTES TO CONSOLIDATED STATEMENTS
Bar Harbor Bankshares and Subsidiary
December 31, 1999, 1998, and 1997
(Tables presented in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Bar Harbor Bankshares, ("the Company") through its
wholly owned subsidiary, Bar Harbor Banking and Trust
Company, ("the Bank") 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.
Substantial portions 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 inter-company balances and transactions
have been eliminated in the accompanying consolidated
financial statements.
Segments
The Company, through the branch network of the Bank,
provides a broad range of financial services to
individuals and companies in eastern Maine. These
services include demand, savings and time deposits;
lending; credit card servicing; ATM processing and
trust services. Operations are managed and financial
performance is evaluated on a corporate-wide basis.
Accordingly, all of the Company's banking operations
are considered by management to be aggregated in one
reportable operating segment.
Comprehensive income
Under Statements of Accounting Standards (SFAS) 130,
comprehensive income is now reported for all periods.
Comprehensive income includes both net income and other
comprehensive income. Other comprehensive income
includes the change in unrealized gains and losses on
securities available for sale and is disclosed in the
consolidated statements of changes in stockholders'
equity.
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.
The Bank has not experienced any losses in such
accounts and the Bank believes it is not exposed to any
significant risk with respect to these accounts.
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 that 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 that 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 accrual of interest income is discontinued when, in
the opinion of management, there is an indication that
the borrower may be unable to meet payments as they
become due and the loan is not well secured. 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.
Mortgage Servicing Rights
Mortgage servicing assets are recognized as separate
assets when rights are acquired through purchase or
through sale of financial assets. Capitalized
servicing rights are reported in other assets and are
amortized into non-interest income in proportion to,
and over the period of, the estimated future net
servicing income of the underlying financial assets.
Servicing assets are evaluated for impairment based
upon the fair value of the rights as compared to
amortized cost. Impairment is determined by
stratifying rights by predominant characteristics, such
as interest rates and terms. Fair value is determined
using prices for similar assets with similar
characteristics, when available, or based upon
discounted cash flows using market-based assumptions.
Impairment is recognized through a valuation allowance
for an individual stratum, to the extent that fair
value is less than the capitalized amount for the
stratum.
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 fixed-rate 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 Bank in estimating its fair market value
disclosures for financial instruments used the
following methods and assumptions:
Cash and cash equivalents: The carrying amounts
reported in the statement of condition 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 off-balance
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.
Subsequent event
Subsequent to December 31, 1999, the Company formed a
new wholly-owned subsidiary, BTI Financial Group (BTI).
The Bank's Trust Department was transferred to BTI as a
wholly-owned subsidiary of BTI and will be known as Bar
Harbor Trust Services. Additionally, a SEC registered
investment advisor, Block Capital Management was
created as a wholly-owned subsidiary of BTI. Bar
Harbor Bankshares also acquired 100% of the outstanding
stock of Dirigo Investments, Inc., a NASD registered
broker-dealer, which became a wholly-owned subsidiary
of BTI. The purchase of Dirigo Investments, Inc. was
accounted for under the purchase method of accounting.
Effect of recent accounting pronouncements
During 1999, the Financial Accounting Standards Board
(FASB)issued Statement of Accounting Standards
(SFAS)No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise, SFAS No. 135, "Rescission of FASB Statement
No. 75 and Technical Corrections", SFAS No. 136,
"Transfers of Assets to a Not-for-Profit Organization
or Charitable Trust that Raises or Holds Contributions
for Others and SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133".
SFAS Nos. 134, 135 and 136 have no effect on the
financial condition and results of operation of the
Company.
SFAS No. 133, which established accounting and
reporting standards for derivative instruments and for
hedging activity, was amended by SFAS No. 137. SFAS
No. 137 defers the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Bank
does not hold any derivative instruments. Should the
Bank enter into derivative transactions, SFAS No. 137
will be followed when effective.
6.
INVESTMENT SECURITIES
The amortized cost of investment securities and their
approximate fair values at December 31, 1999 and 1998
follows:
<TABLE>
<CAPTION>
1999
Gross Gross Estim
ated
Amort Unreal Unreal Fair
ized ized ized
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for
Sale:
Obligations of
U.S. Gov't $29,5 $0 $1,438 $28,1
Agencies 93 55
Mortgage-backed
Securities-U.S.
Gov't Agencies 2,334 0 0
2,334
Marketable Equity
Securities 1,300 6 105
1,201
Total Securities
Available for $33,2 $6 $1,543 $31,6
Sale 27 90
Held to Maturity:
Obligations of
U.S.
Gov't Agencies $2,42 $0 $108 $2,31
4 6
Mortgage-backed
Securities-U.S.
Gov't Agencies 94,59 104 2,738
2 91,95
8
Mortgage Backed
Securities-Other 14,63 34 343
6 14,32
7
Obligations of
states of the
U.S. and
political
subdivisions 4,422 37 57
thereof 4,402
Other Bonds 12,75 2 346
7 12,41
3
Total securities
held to maturity $128, $177 $3,592 $125,
831 416
1998
Gross Gross Estim
ated
Amort Unreal Unreal Fair
ized ized ized
Cost Gains Losses Value
Available for
Sale:
Obligations of
U.S. Gov't $12,2 $84 $1 $12,3
Agencies 49 32
Mortgage-backed
Securities-U.S.
Gov't Agencies 4,969 0 33
4,936
Marketable Equity
Securities 550 26 0
576
Total Securities
Available for $17,7 $110 $34 $17,8
Sale 68 44
Held to Maturity:
Obligations of
U.S.
Gov't Agencies $5,69 $47 $0 $5,73
0 7
Mortgage-backed
Securities-U.S.
Gov't Agencies 88,10 941 145
1 88,89
7
Mortgage Backed
Securities-Other 6,668 45 27
6,686
Obligations of
states of the
U.S. and
political
subdivisions 5,634 159 17
thereof 5,776
Other Bonds 7,069 49 37
7,081
Total securities
held to maturity $113, $1,241 $226 $114,
162 177
</TABLE>
At December 31, 1999, 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.
3. LOANS
The following table shows the
composition of the
Bank's loan portfolio as of December
31, 1999 and 1998:
<TABLE>
<CAPTION>
Commercial loans: 1999 1998
<S> <C> <C>
Real estate - variable $62,742 $57,619
rate
Real estate - fixed rate 8,719 4,073
Other - variable rate 27,642 24,292
Other 13,849 14,825
112,952 100,809
Tax exempt:
Variable rate 42 463
Fixed rate 1,967 1,586
2,009 2,049
Consumer:
Real estate - variable 63,829 60,265
rate
Real estate - fixed rate 53,539 37,770
Home equity 13,579 13,244
Installment 10,420 10,726
Other 5,406 5,419
146,773 127,424
Real estate under 520 49
foreclosure
Deferred origination fees, (1,065) (896)
net
Allowance for loan losses (4,293) (4,455)
$256,89 $224,98
6 0
</TABLE>
At December 31, 1999 and 1998, loans on non-
accrual status
totaled $2.0 million and $1.7 million,
respectively. Interest
income not recognized on non-accruing loans
was $108,000
$107,000 and $363,000, in 1999, 1998 and
1997, respectively.
In addition to loans on non-accrual status
at December 31,
1999 and 1998, the Bank had loans past due
greater than 90
days totaling $710,000 and $1.7 million,
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, 1999,
approximately $32.5 million
of loans were made to companies in the
hospitality industry. Loans
for commercial and real estate development
totaled $11.7 million.
The loan portfolio at December 31, 1999 and
1998 consisted of
65% and 68%, respectively, of variable rate
loans.
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>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance, $4,45 $4,74 $4,29
beginning 5 3 3
of year
Provision 474 336 620
for loan
losses
Loans 888 788 585
charged off
Less: recoveries on loans 252 164 415
previously charged off
Net loans 636 624 170
charged off
Balance, end $4,29 $4,45 $4,74
of year 3 5 3
</TAB
LE>
Information regarding impaired loans is as follows for
each of the three years ended December 31:
<TABL
E>
<CAPT
ION>
1999 1998 1997
<S> <C> <C> <C>
Average investment $ $ $
in impaired loans 872 1,576 2,045
Interest income recognized on
impaired loans including
interest income $ $ $
recognized on cash basis 60 35 165
Balance of $ $ $
impaired 1,281 1,073 2,670
loans
Portion of impaired loan balance
for which an allowance
for credit $ $ $
losses is allocated 1,281 1,073 2,670
Portion of allowance for loan losses
allocated to the impaired
$ $ $
loan 162 42 104
balan
ce
</TAB
LE>
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, 1999 and 1998,
which in aggregate exceed $60,000, were as follows:
</TABLE>
<TABLE>
<CAPTION>
1999
1998
<S> <C> <C>
Beginning balance $ $
7,243 3,95
2
New loans 1,535 5,39
3
Less: 2,566 2,10
repayments 2
Ending balance $ $
6,212 7,24
3
6.MORTGAGE SERVICING
Mortgage servicing rights of $472,300 are capitalized
and recorded at their estimated fair value of $259,800
at December 31, 1999. Mortgage servicing rights of
$264,000 had an estimated fair value of $221,000 at
December 31, 1998.
Mortgage servicing rights are amortized over the
estimated weighted average life of the loans.
Amortization of mortgage servicing rights was $83,600
and $48,300 in 1998 and 1998, respectively.
The Bank services residential mortgage loan sold under
non-recourse agreements totaling $55.9 million and
$58.5 million in 1999 and 1998, respectively.
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>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land $ $
561 561
Buildings and
improvements 7,456 7,378
Furniture and
equipment 4,916 3,841
12,933 11,780
Less: accumulated
depreciation 4,493 3,829
$ $
8,440 7,951
</TABLE>
6.OTHER REAL ESTATE OWNED
The following table summarizes the composition of other
real estate owned, which is included in other assets:
<TABLE>
<CAPTION>
December
31
1999 1998
<S> <C> <C>
Real estate properties and other
assets
acquired in settlement of loans $64 $114
Less: allowance
for losses 15 16
$49 $98
</TABLE>
Changes in the allowance for other real estate owned
for each of the three years ended December 31, were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
< <C> <C> <C>
s
>
Balance, $16 $17 $23
beginning
January 1
Provision 0 0 0
charged to
income
Losses charged
to provision 1 1 6
Balance, ending $15 $16 $17
December 31
</TABLE>
9. DEPOSITS
The aggregate amount of short-term jumbo
certificates of deposit, each
with a minimum denomination of $100,000,
was $16.9 million and
$13.6 million in 1999 and
1998, respectively.
A certificate of deposit of $986,000 is
collateralized by a
Federal National Mortgage Association
debenture for
$1 million. Overdrafts in
the amount of $573,800
have been classified as loans at December
31, 1999.
At December 31, 1999, the scheduled
maturities of time
Deposits are as
follows:
6.DEPOSITS
The aggregate amount of short term jumbo certificates
of deposit, each with a minimum denomination of
$100,000, was $16.9 million and $13.6 million in 1999
and 1998, respectively.
A certificate of deposit of $986,000 is collateralized
by a Federal National Mortgage Association debenture
for $1 million. Overdrafts in the amount of $573,800
have been classified as loans at December 31, 1999.
At December 31, 1999, the scheduled maturities of Time
Deposits are as follows:
<TABLE>
<S> <C>
2000 $
95,913
2001 8,864
2002 1,625
2003 1,747
2004 and thereafter 567
Individual Retirement
Accounts (IRAs),
without 7,470
scheduled maturities
$
116,186
</TABLE>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Average daily $ $
balance during the 8,264 6,686
year
Average interest 4.48% 4.74%
rate during the year
Maximum month-end
balance
during the year $ $
11,209 10,192
Securities
underlying the
agreements
at year end were
under the
Bank's control
and were as follows:
$ $
Carrying value 25,511 23,036
$ $
Estimated fair value 24,714 23,359
</TABLE>
6.ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)
A summary of advances from the FHLB is as follows:
<TABLE>
<S> <C> <C>
Total Range of Maturi
ty
Princip Interest
al Rates
December
31, 1999
$76,000 4.79% to 2000
6.39%
5,035 5.48% to 2001
6.10%
7,000 5.45% to 2003
5.84%
5,000 5.49% 2005
4,000 5.22% to 2006
5.27%
4,000 5.68% 20
08
4.85% to 2009
12,000 5.35%
$113,03
5
December
31, 1998
$28,250 4.95% to 1999
6.05%
5,870 5.48% to 2001
6.10%
3,000 5.71% 2002
9,000 5.37% to 2003
5.84%
5,000 5.49% 2005
15,000 4.99% to
5.68%
$66,120
</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 their call dates or final maturity.
The Bank has $31 million in callable
advances with maturity dates
ranging from 2003 to 2009.
In addition to the above outstanding
advances, other FHLB funds
available to the Bank at December 31,
1999, totaled approximately
$64.4 million. Pursuant to collateral
agreements with the FHLB,
advances are collateralized by all stock
in the FHLB. Qualifying
first mortgage loans, loans guaranteed by
the U.S. Government,
multi-family loans, U. S. Government
debentures, U. S. Government
mortgage-backed securities, and non-
Government mortgage-backed
Securities collateralized by 1-4 family
loans totaling $108.1 million
are available as collateral for FHLB
advances.
6.INCOME TAXES
The current and deferred components of income tax
expense are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
<C>
$ 3,086 $ 2,771 $
Federa 3,062
l
101 99 95
State
3,187 2,870
3,157
Deferr (180) 248
ed (191)
$ 3,007 $ 3,118 $
2,966
</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>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Computed tax expense $ $ $
3,139 3,307 3,192
Increase (reduction) in
income
taxes resulting from:
Officers' life
insurance (53) (38) (36)
Tax exempt interest
(146) (177) (240)
State taxes, net of
federal benefit 66 65 63
Other
1 (39) (13)
$ $ $
3,007 3,118 2,966
</TABLE>
The tax effect of temporary differences that give rise
to deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C> <C> <C>
Asset Liabil Asset Liab
ity ilit
y
Allowance for
possible losses on
loans and other $ $
real estate owned 1,239 1,277
Capital loss carry
forward 31 39
Deferred loan $ $
origination fees 29 30
Deferred
compensation 696 399
Core deposit
intangible asset 49 60
Non-accrual interest
14 29
Postretirement
benefit obligation 559 656
Unrealized
(appreciation)
depreciation on
securities
available for sale 523 26
Depreciation
274 280
Other
83 89 25 76
$ $ $ $
3,194 392 2,485 412
</TABLE>
As of December 31, 1999 and 1998, the net deferred
income tax asset amounted to $2.8 million and $2.1
million, respectively, and is included in other assets
on the balance sheet. No valuation allowance for
deferred taxes was required at December 31, 1999 or
1998.
13.
STOCKHOLDERS'
EQUITY
On December 28, 1998, the Board of Directors declared a
two-for-one stock dividend effected as a stock split to
all stockholders of record as of that date, which was
payable on January 25, 1999. All share and per share
data included in this annual report have been restated
to reflect the stock dividend. Bar Harbor Banksahres'
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, 1999, the amount available for dividends
was approximately $31 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 frameworks 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 judgment
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 rations (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, 1999, that the Bank exceeds all capital
adequacy reguirements to which it is subject.
As of December 31, 1999, 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 risk-based, and tier I leverage ratios as
set forth in the following table. There are no
conditions or events since that notification that the
management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also
presented in the following table:
<TABLE>
<CAPTION>
For For Capital To be
The Adequacy well
Bank Purposes capitaliz
ed under
Prompt
Correctiv
e Action
Provision
s
As of December Actua Ra Grea Grea Grea
31, 1999 l ti Great ter ter ter
Amoun o er than than than
t than or or or
or equa equa equa
Equal l to l to l to
to Rati Amou Rati
Amoun o nt o
t
<S> <C> <c <C> <C> <C> <C>
>
Total Capital
(To Risk- $51,6 18 $22,4 8.0% $28, 10.0
Weighted Assets) 59 .4 73 091 %
%
Tier I Capital
(To Risk- $48,1 17 $11,2 4.0% $16, 6.0%
Weighted Assets) 48 .1 36 855
%
Tier I Capital
(To Average $48,1 11 $17,1 4.0% $21, 5.0%
Assets) 48 .2 42 428
%
As of December
31, 1998
Total Capital
(To Risk- $50,0 19 $21,0 8.0% $26, 10.0
Weighted Assets) 75 .0 55 319 %
%
Tier I Capital
(To Risk- $46,7 17 $10,5 4.0% $15, 6.0%
Weighted Assets) 85 .8 28 791
%
Tier I Capital
(To Average $46,7 12 $14,5 4.0% $18, 5.0%
Assets) 85 .9 46 183
%
</TABLE>
Consolidated capital ratios of the Company would
approximate those of the Bank. At December 31, 1999 and
1998, the Company and its subsidiary, Bar Harbor
Banking and Trust Company, were in compliance with all
applicable regulatory requirements and had capital
ratios in excess of federal regulatory risk-based and
leverage requirements.
In November of 1999, the Board of Directors authorized
the repurchase of up to 10% of the Company's
outstanding shares of stock or approximately 344,000
shares. The purchase will take place through either the
open market or in privately negotiated transactions and
at market prices. As of December 31, 1999, a total of
22,100 shares were purchased for an average per share
price of $18.10.
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. In 1999, the Company modified
one of the non-qualified supplemental retirement plans
for the benefit of a key employee approaching
retirement, resulting in a one-time expense of
$639,700. For 1999, 1998 and 1997, the expense of these
supplemental plans was $866,200, $138,600 and $127,600
respectively.
410(k) PLAN
The Bank has a 401(k) plan available to full-time
employees. For the years ended December 31, 1999, 1998
and 1997, the Bank contributed $187,800, $178,700 and
$172,300 respectively.
RESTRICTED STOCK PURCHASE PLAN
In 1997, the Bank provided a restricted stock purchase
plan through which each employee could purchase shares
of Bar Harbor Bankshares stock at the current fair
market price as of a date determined by the Board of
Directors. These shares could be purchased through
direct purchase or through the employees' 410(k)
accounts.
In September of 1997, the Company was listed on the
American Stock Exchange, making Bar Harbor Bankshares
stock readily available for transactions. Therefore,
the restricted stock purchase plan was terminated
effective December 31, 1997. At December 31,1 997,
employees exercised their right and purchased common
stock totaling $73,000, with the actual purchase
transpiring in January of 1998.
FOOTNOTE 15
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>
<CAPTION>
1999 1998 1997
<S>
<C> <C> <C>
Service costs of $ $ $
benefits earned 19 15 15
Interest cost on
accumulated
postretirement
benefit obligation 103 108 101
Amortization
(38) (45) (47)
Net periodic
postretirement
benefit cost $ $ $
84 78 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.
<TABLE>
<CAPTION>
Change in benefit 1999 1998 1997
obligations:
<S> <C> <C> <C>
Benefit obligation at $ $ $
beginning of year 1,921 1,899 1,297
Service costs of
benefits earned 19 15 15
Interest cost on
accumulated
postretirement
benefit obligation 103 108 101
Amortization
(121) 49 21
Benefits paid
(54) (56) (57)
Effect of curtailment 0 0
(313)
Benefit obligation at $ $ $
end of year 1,555 2,015 1,377
Accrued benefit cost
included in
other liabilities $ $ $
1,639 1,921 1,899
</TABLE>
During 1999, the Board of Directors approved the
restructuring of the Bank's retiree health benefit
plan, which reduced its future liability by $313,000.
The accumulated postretirement benefit obligation
(APBO) was determined using a 7% weighted average
discount rate. The health care cost trend rates were
assumed to be 12% in 2000, 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 $81,500 and the net
periodic cost by $14,800. A decrease in the health care
trend of 1% would decrease the APBO by approximately
$71,500 and the net periodic cost by $12,900.
BAR HARBOR BANKING AND TRUST COMPANY
MANAGEMENT
President and Chief Executive Officer
Sheldon F. Goldthwait, Jr.*
Executive Vice President
and Chief Operating Officer
Dean S. Read*
Senior Vice Presidents
Dwight L. Eaton*
Trust
Marlene S. Haskell*
Marketing and
Branch Administration
Marsha C. Sawyer*
Human Resources
Gerald Shencavitz*
Operations
and Information Systems
Virginia M. Vendrell*
Chief Financial Officer and
Treasurer
Vice Presidents
Paul G. Ahern
Trust Investments
Penny L. Carter
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
Frank P. Jansen
Trust
Andrea G. Leonard
Consumer Loans
H. Stanley MacDonald
Commercial Loans
Brett S. Miller
Investment Officer
Sarah C. Robinson
Trust
Michael E. Smith
Operations
Stephen H. Sprague
Consumer Loans
Lottie B. Stevens
Branch Administration
and Compliance
Assistant Vice Presidents
Jane A. Chute
Machias Branch
Patricia J. Curtis
Blue Hill Branch
Thomas E. Estes, Sr.
Consumer Loans
John F. Gibbons, Jr.
Commercial Loans
John F. Lewicki, Jr.
Information Systems
Linda B. Stratton
Deer Isle Branch
Banking Officer
Jenene J. Schneider
Milbridge Branch
Branch Operations Manager
Marcia T. Bender
Information Systems Manager
Kenneth N. Larrabee
Assistant Treasurer
Tuesdi J. Woodworth
Trust Officers
Melanie J. Bowden
Faye A. Geel
Assistant Trust Officers
Stephanie L. Chesley
Mischelle E. Gehan
Trust Operations Officer
Charlene H. Tibbetts
* Executive Officers
BRANCH MANAGEMENT
Bar Harbor
Carol J. Pye
Branch Supervisor
Blue Hill
Patricia J. Curtis
Assistant Vice President
Sharon A. Grindle
Assistant Branch Manager
Deer Isle
Linda B. Stratton
Assistant Vice President
Ellsworth
E. Ray Huntley
Regional Vice President
Kathleen R. Kief
Branch Manager
Lubec
Lori A. Peakall-Cote
Branch Manager
Maureen T. Lord
Assistant Branch Manager
Machias
Jane A. Chute
Assistant Vice President
Gail S. Higgins
Assistant Branch Manager
Milbridge
Jenene J. Schneider
Banking Officer
Paula S. Colwell
Assistant Branch Manager
Northeast Harbor
Charlene M. Bucklin
Branch Manager
Southwest Harbor
Kevin D. Smart
Branch Manager
Dianne L. Watson
Assistant Branch Manager
Winter Harbor
Judith L. Newenham
Branch Manager
BAR HARBOR BANKSHARES
AND BAR HARBOR BANKING AND TRUST COMPANY
BOARD OF DIRECTORS
John P. Reeves
Chairman of the Board
Bar Harbor
Frederick F. Brown
Northeast Harbor
Robert C. Carter
Machias
Thomas A. Colwell
Deer Isle
Bernard K. Cough
Bar Harbor
Peter Dodge
Blue Hill
Dwight L. Eaton
Bar Harbor
Ruth S. Foster
Ellsworth
Cooper F. Friend
Ellsworth
Robert L. Gilfillan
Bar Harbor
Sheldon F. Goldthwait, Jr.
Bar Harbor
H. Lee Judd
Southwest Harbor
John P. McCurdy
Lubec
Jarvis W. Newman
Southwest Harbor
Robert M. Phillips
Sullivan
Lynda Z. Tyson
Salisbury Cove
BAR HARBOR BANKSHARES
John P. Reeves
Chairman of the Board
Sheldon F. Goldthwait, Jr.
President
Dean S. Read
Executive Vice President
Dwight L. Eaton
Vice President
Virginia M. Vendrell
Treasurer
Marsha C. Sawyer
Clerk
BOARD OF DIRECTORS: (Standing from left to right)
Thomas A. Colwell, Peter Dodge, Sheldon F. Goldthwait,
Jr., Jarvis W. Newman, John P. McCurdy, Robert L.
Gilfillan, Dwight L. Eaton, Cooper F. Friend (Seated
from left to right) H. Lee Judd, Ruth S. Foster,
Bernard K. Cough, John P. Reeves, Robert M. Phillips,
Lynda Z. Tyson, Robert C. Carter, Frederick F. Brown.
EXECUTIVE OFFICERS: (Standing from left to right)
Marlene S. Haskell, Dwight L. Eaton (Seated from left
to right) Gerald Shencavitz, Marsha C. Sawyer, Sheldon
F. Goldthwait, Jr., Dean S. Read, Virginia M.
Vendrell._
BHB&T EMPLOYEES
Gale L. Abbott
Shannon L. Ackley
Paul G. Ahern
Deena M. Allen
Faye M. Allen
Stacie J. Alley
June G. Atherton
Rebecca J. Atwater
Cheryl L. Bagley
Debra L. Baker
Stephanie A. Baker
Marcia T. Bender
Lorraine M. Benn
Terry D. Bickford
Corinna F. Blair
Melanie J. Bowden
Christina J. Bracy
Laura A. Bridges
Charlene M. Bucklin
Jennifer L. Butler
Lisa L. Carlson
Penny L. Carter
Janice F. Cassidy
Elena M. Chapman
Patricia M. Chapman
Stephanie L. Chesley
Jane A. Chute
Robyne J. Clark
McKenzie G. Clough
Brenda B. Colwell
Paula S. Colwell
Diana M. Cook
Arthur G. Corliss, Jr.
Gale S. Coughlin
Barbara A. Crosthwaite
Sylvia B. Cunningham
Patricia J. Curtis
Gregory W. Dalton
Laura H. Danielson
Rachael M. Davis
Donna L. Day
Ann DeLill
Richard S. Douglas
Dawn L. Dyer
Dwight L. Eaton
Julie M. Eaton
Thomas E. Estes, Sr.
Pamela J. Farnsworth
Ernest F. Fernald
Judith W. Fuller
Faye A. Geel
Mischelle E. Gehan
John F. Gibbons, Jr.
Anne C. Gibson
Sheldon F. Goldthwait, Jr.
Keith N. Goodrich
Rene, H. Graves
Marjorie E. Gray
Sharon A. Grindle
Annette J. Guertin
Carla A. Hall
Kelton I. Hallett
Marie E. Hardie
Christine L. Harding
Marlene S. Haskell
Nancy B. Hastings
Jill N. Havey
Barbara F. Hepburn
Gail C. Higgins
Margaret K. Hill
Brenda M. Hitchcock
Margrethe Y. Hooper
Lara K. Horner
E. Ray Huntley
Mistie L. Hutchins
Lorraine R. Ignatz
Penny S. Ingalls
Jane L. Iverson
Valorie D. Jandreau
Frank P. Jansen
Maureen E. Kane
Ellwood W. Kelley
Karen M. Kelley
Kathleen R. Kief
Kenneth N. Larrabee
Robert J. Lavoie
Karen R. Lenfestey
Andrea G. Leonard
John F. Lewicki, Jr.
Marlene A. Lloyd
Kerry L. Lord
Maureen T. Lord
Carolyn R. Lynch
Lynn L. Lyons
Nadine S. Lyons
H. Stanley MacDonald
Diane M. MacFeat
M. Joseph Marshall
Willie M. McCauley
Gloria J. Merrill
Paula M. Michaud
Brett S. Miller
Gwen M. Milliken
Mary Jane Miltner
Sherry A. Mitchell
Debra S. Mitchell-Dow
Kelvin L. Mote
Dawn B. Nason
Judith L. Newenham
Mary E. Newman
Marcella R. Nichols
Alexandra Orcutt
Jane M. Parker
Lisa L. Parsons
Lori A. Peakall-Cote
Bettina L. Perkins
Leah R. Perry
Jamie L. Phillips
Rachel I. Phippen
Tanya E. Piper
Bonnie A. Poland
Michele A. Prior
Carol J. Pye
Michelle P. Rafferty
Dean S. Read
Julie A. Redman
Ada F. Richardson
Wanda S. Ring
Nancy W. Robbins
Sarah C. Robinson
Amanda L. Salsbury
Debra A. Sanner
Jenny M. Saunders
Marsha C. Sawyer
Rhonda L. Sawyer
Frank J. Schaefer
Jessica W. Schaefer
Jenene J. Schneider
Catherine P. Scovill
Clark F. Scoville
Gerald Shencavitz
Bridgette M. Shorey
Jamie L. Sincyr
Kevin D. Smart
Colleen H. Smith
Michael E. Smith
Michelle M. Smith
Andrea L. Snow
Stephen H. Sprague
Ellen F. Stanley
Letitia S. Stanley
Lottie B. Stevens
Linda B. Stratton
Belinda A. Swett
Amanda L. Temple
Lynn M. Thibeau
Charlene H. Tibbetts
Ellen M. Tracy
Terry E. Tracy
Brenda D. Tripp
Sonja L. Vance
Virginia M. Vendrell
John A. Vreeland
Allyson M. Wallace
Jeffrey M. Warner
Nancy J. Warner
Dianne L. Watson
Cheri R. Wentworth
Doris E. Williams
Tammy L. Williams
Tuesdi J. Woodworth
Carolyn A. Wright
Edward P. Wynn, Sr.
J. Christopher Young
Katy A. Young
Lisa Marie Young
April R. Yulan
Renee C. Zanke
Julie B. Zimmerman
ANNUAL MEETING
Bar Harbor Bankshares
Tuesday, October 3, 2000, 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, 1999.
Please contact:
Marsha C. Sawyer, Clerk
Bar Harbor Bankshares
PO Box 400
Bar Harbor, Maine 04609-0400_
_(Back Cover)
(LOGO)
Bar Harbor Bankshares
P.O. Box 400
Bar Harbor, Maine 04609-0400
www.bhbt.com
_
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