-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TJgjTEUWifLZuPmfr3DQNQ2hRb+RZR2vZUwNc7tvJQyeR829ul8c5oqsnxsHOhOH JFGoPX5lifS08Jq2Sau+RQ== 0000743367-98-000007.txt : 19980817 0000743367-98-000007.hdr.sgml : 19980817 ACCESSION NUMBER: 0000743367-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAR HARBOR BANKSHARES CENTRAL INDEX KEY: 0000743367 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 010393663 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13349 FILM NUMBER: 98690453 BUSINESS ADDRESS: STREET 1: 82 MAIN ST STREET 2: P O BOX 400 CITY: BAR HARBOR STATE: ME ZIP: 04609-0400 BUSINESS PHONE: 2072883314 MAIL ADDRESS: STREET 1: 82 MAIN ST STREET 2: P O BOX 400 CITY: BAR HARBOR STATE: ME ZIP: 04609-0400 10-Q 1 10Q FORM 20 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended June 30, 1998 Commission File No. 841105-D BAR HARBOR BANKSHARES Maine 01-0393663 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) P. O. Box 400 82 Main Street, Bar Harbor, ME 046090400 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (207) 288-3314 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: XX NO: Indicate the number f shares outstanding of each of the issuer's classes of common stock as of September 30, 1997: Common Stock: 1,821,807 TABLE OF CONTENTS
Financial Information Page Item 1. Financial Statements Consolidated Balance Sheets 3 December 31, 1997 and June 30, 1998 Consolidated Statements of Earnings 4 Three months and six months ended June 30, 1997 and 1998 Consolidated Statements of Changes in 5 Stockholders' Equity Six months ended June 30, 1997 and 1998 Consolidated Statement of Cash Flows 6 Six months ended June 30, 1997 and 1998 Rate Volume Analysis 7 Six months ended June 30, 1997 and 1998 Notes to Financial Statements 8-11 Item II. Management's Discussion and Analysis of 12-15 Financial Condition and Results of Operations Signature Page 16
BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL CONDITION JUNE 30, 1998 AND DECEMBER 31, 1997
JUNE 30, DECEMBER 1998 31, 1997 ASSETS Cash and Due from Banks $11,544 $7,537 Federal Funds Sold 0 0 Securities Available for Sale, 19,360 14,608 at market Securities Held to Maturity (Market Value 88,841 85,351 $89,623 at 6/30/98 and $86,248 at 12/31/97) Other Securities 6,050 6,012 Loans Held for Sale 600 365 Loans, net of allowance for possible loan losses 224,521 212,396 of $4,704 in 1998 and $4,743 in 1997 Premises and Equipment 7,748 7,658 Other Assets 9,449 8,799 Total Assets $368,113 $342,726 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits Demand Deposits $37,342 $36,838 NOW Accounts 39,678 39,536 Savings Deposits 53,359 53,378 Time Deposits 114,809 122,152 Total Deposits 245,188 251,903 Securities sold under Repurchase 4,316 4,474 Agreements Advances from Federal Home Loan 69,770 39,160 Bank Other Liabilities 4,266 4,727 Total Liabilities 323,540 300,264 Commitments and Contingent Liabilities Capital Stock, par value $2 Authorized 10,000,000 shares Issued 1,821,807 in 1998and 1,820,583 in 1997 3,644 3,641 Surplus 7,645 7,574 Retained Earnings 34,605 32,562 Net unrealized appreciation on securities available 19 24 for sale, net of tax benefit Less: Cost of 100,000 shares of (1,340) (1,340) Treasury Stock TOTAL STOCKHOLDERS' EQUITY 44,573 42,461 TOTAL LIIABILITIES AND STOCKHOLDERS' $368,113 $342,726 EQUITY
The accompanying notes are an integral part of these consolidated financial statements. BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
THREE THREE SIX- SIX MONTHS MONTHS MONTHS MONTHS ENDING ENDING ENDING ENDING 06/30/98 06/30/97 06/30/ 9 06/ 30/ 97 8 Interest & Fees on $5,276 $5,176 $10,335 $10,202 Loans Interest and Dividends on Investment 1,686 1,615 3,315 3,210 Securities: Taxable Interest Income Non-taxable 116 167 240 347 Interest Income Dividends 101 99 201 195 Federal Funds 15 5 30 14 Sold Total Interest 7,194 7,062 14,121 13,968 Income Interest on 2,071 2,143 4,213 4,282 Deposits Interest in Short Term 912 844 1,602 1,570 Borrowings Total Interest 2,983 2,987 5,815 5,852 Expense Net Interest Income 4,211 4,075 8,306 8,116 Provision for Loan 84 180 168 360 Losses Net Interest Income after 4,127 3,895 8,138 7,756 Provision for Loan Losses Other Income 1,263 1,112 2,389 2,139 Investment 63 0 Securities Gains Other Expenses:: Salaries & 1,432 1,430 2,924 2,889 Employee Benefits Other 1,681 1,499 2,986 2,554 Investment 0 0 0 56 Securities Losses Income Before 2,277 2,078 4,680 4,396 Income Taxes Income Tax Expense 729 663 1,501 1,407 Net Income $1,548 $1,415 $3,179 $2,989 Earnings per Share: Based on 1,721,807 shares for 1998 and $0.90 $ .82 $1.85 $1.74 1,720,583 shares for 1997, Dividends Per Share $0.34 $0.30 $0.66 $0.58
BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY QUARTERS ENDED JUNE 30, 1997 AND 1998 (in thousands, except number of shares and per share data)
ACCUMULATED OTHER NET CAPITAL RETAINED COMPREHENSI TREASURY STOCKHOLDERS STOCK SUIRPLUS EARNINGS VE INCOME STOCK ' EQUITY Balance, 12/31/96 $3,636 $7,489 $28,205 ($103) ($1,340) $37,887 Net Earnings 2,989 2,989 Other comprehensive income, net of tax: (31) (31) Unrealized gains/losses on securities Other comprehensive income Comprehensive 2,958 income Cash Dividends Declared ($.58 (998) (998) per share Sale of Stock 5 85 0 0 0 90 (2,346 shares) Balance,6/30/97 $3,641 $7,574 $30,196 ($134) ($1,340) $39,937 Balance, 12/31/97 $3,642 $7,574 $32,562 $24 ($1,340) $42,461 Net Earnings 3,179 3,179 Other comprehensive income, net of tax: (5) (5) Unrealized gains/losses on securities Other comprehensive income Comprehensive 3,174 income Cash Dividends Declared ($.66 (1,135) (1,135) per share) Sale of Stock 2 71 0 73 (1,224 shares) Balance, 6/30/98 $3,644 $7,645 $34,605 $19 ($1,340) $44,573
The accompanying notes are an integral part of these consolidated financial statements. BAR HARBOR BANKSHARES AND SUBSIDIARY COLSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
JUNE JUNE 30, 30, 1998 1997 Cash Flows from Operating Activities: Net Income 3,179 $2,989 Adjustments to reconcile net earnings to net cash provided by operating activities: 454 443 Depreciation Provision for Loss Losses 168 360 Provision for Losses on Other Real 0 0 Estate Owned New Loans Originated for Sale (9,053 (1,738) ) Proceeds from Sale of Mortgages 8,920 2,153 Held for Sale Gain on Sale of Mortgages (76) (50) Originated for Sale Net Amortization of Bond Premium 111 54 (Gain) Loss on sale of premises and 2 0 equipment Net Change in Other Assets (589) (404) Net Change in Other Liabilities (461) 453 Net Cash Provided by Operating 2,656 4,260 Activities Cash Flows from Investing Activities: Net decrease (increase) in Federal Funds Sold Purchases of securities held to (24,77 (7,675) maturity 0) Proceeds from Maturity and Principal Paydowns of Securities 11,025 9,264 Held to Maturity Proceeds from Call of Securities Held 10,145 4,250 to Maturity Purchases of Securities Available for (6,000 (1,250) Sale ) Proceeds from Maturity and Principal Paydowns of Securities 239 78 Available for Sale Proceeds from Sale of Securities 1,000 60 Available for Sale Purchase of Other Securities (38) (454) Proceeds from sales of Other 119 Securities Net Loans Made to Customers (12,37 (9,831) 8) Capital Expenditures (545) (732) Proceeds from sale of Other Real 0 0 estate Owned Proceeds from Sale of Fixed Assets 0 0 Net Cash Used in Investing Activities (21,32 (6,171) 2) Cash Flows from Financing Activities: Net Change in Savings, NOW and Demand 627 (3,363) Deposits Net Change in Time Deposits (7,343 (1,080) ) Net Change in securities sold under (158) (6,199) Repurchase Agreements Proceeds from Federal Home Loan Bank 36,500 13,500 Repayment of Advances from FHLB (17,50 (15,000 0) ) Net Change in Short Term Other 12,631 Borrowed Funds 11,610 Proceeds from Sale of Capital Stock 74 90 Payment of Dividends (1,136 (998) ) Net Cash Provided by Financing 22,674 (420) Activities Net Increase (Decrease) in Cash and Cash 4,007 (2,331) Equivalents Cash and Cash Equivalents at Beginning of 7,537 13,298 Year Cash and Cash Equivalents at End of $11,54 $10,967 Quarter 4 Supplemental Disclosures of Cash Flow Information: Cash Paid during the Year for: $5,860 $5,854 Interest Income Taxes, Net of Refunds $1,675 $1,041 Non-Cash Transactions:; Transfers from Loans to Real Estate $143 $0 Owned (Other Assets) Transfer of Securities from Held to $0 $0 Maturity to Available for Sale
A v a i l a b l e f o r S a l e The accompanying notes are an integral part of these consolidated financial statements RATE VOLUME ANALYSIS The following table represents a summary of the changes in interest earned and interest paid as a result of changes in rates and changes in volumes. For each category of earning assets and interest bearing liabilities, information is provided with respect to changes attributable to change in rate (change in rate multiplied by old volume) and change in volume (change in volume multiplied by old rate). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationships of the absolute collar amounts of the change in each. YEAR-TO-DATE FIGURES AS OF JUNE 30, 1998 COMPARED TO JUNE 30, 1997 INCREASES (DECREASES) DUE TO:
VOLUME RATE NET Loans $674 ($542) $132 Taxable Securities 257 (146) 111 Tax Exempt Securities (131) 25 (106) Federal Funds Sold and Money 13 3 15 Market Funds TOTAL EARNING ASSETS $813 ($660) $153 Deposits $38 ($107) ($69) Borrowings 25 6 32 Total Interest Bearing 64 (101) (37) Liabilities NET CHANGE IN INTEREST $749 ($559) $190
YEAR-TO-DATE FIGURES AS OF JUNE 30, 1997 COMPARED TO JUNE 30, 1996 INCREASES (DECREASES) DUE TO:
VOLUME RATE NET Loans $580 ($374) $206 Taxable Securities 131 186 317 Tax Exempt Securities (45) 2 (43) Federal Funds Sold and Money (3) 0 (3) Market Funds TOTAL EARNING ASSETS $663 ($186) $477 Deposits ($45) ($230) ($275 ) Borrowings 386 55 441 Total Interest Bearing 341 175 166 Liabilities NET CHANGE IN INTEREST $322 ($11) $311 NOTES TO FINANCIAL STATEMENTS DATED JUNE 30, 1998 1. Summary of interim financial statement adjustments. The accompanying unaudited statements reflect all adjustments (all of which are normal and recurring in nature) which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. The financial statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Bank's 1997 Annual Report. Effect of recent accounting pronouncements: During 1997, the Company adopted SFAS No. 125 and No. 127 which relate to the accounting for transfers and servicing of financial assets and extinguishment of certain liabilities. The adoption of these standards did not have a material effect of the financial statements. The Financial Accounting Standards Board (FSAB) issued the following statements of financial accounting standards (SFAS) during 1997: SFAS No. 128 Earnings per share SFAS No. 129 Disclosure of information about capital structure SFAS No. 130 Reporting comprehensive income SFAS No. 131 Disclosure about Segments of an enterprise and related information These four statements do not change the measurement or recognition methods used in the financial statements but rather deal with disclosure and presentation requirements. At December 31, 1997, the Company adopted SFAS No. 128 which specifies the computation and disclosure requirements for earnings per share for entities with publicly held common stock. The Company has no potential common stock and therefore no diluted earnings per share. At December 31, 1997, the Company adopted SFAS No. 129. This statement has no effect on the Company's financial statements as the capital disclosures meet the requirements of SFAS No. 129. At March 31, 1998, the Company adopted SFAS No. 130. Comprehensive income may be reviewed in the Statement of Changes in Stockholders' Equity. At March 31, 1998, the Company adopted SFAS No. 131. This statement has no effect on the Company's financial statements. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Post Retirement Benefits" effective for financial statements for the fiscal year beginning after December 15, 1997. SFAS No. 132, which supersedes the benefit disclosure requirements in FASB Statements No's 87, 88 and 106, requires entities to standardize the disclosure requirements for pension and other post retirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair value of plan assets that will facilitate financial analysis. The Company expects no material impact from adopting SFAS No. 143.
JUNE 30, 1998 2. INVESTMENT SECURITIES CARRYIN MARKET AVAILABLE FOR SALE G VALUE VALUE a: U. S. Treasury and other $18,782 $18,782 government agencies b: Marketable equity securities 550 578 Total Securities Available For $19,332 $19,360 Sale HELD TO MATURITY: a: U. S. Treasury and other $75,429 $76,047 government agencies b: States of the U.S. and other 6,549 6,722 political subdivisions c: Corporate bonds 6,863 6,854 Total Securities Held to Maturity $88,841 $89,623 OTHER SECURITIES $6,050 $6,050 TOTAL SECURITIES $114,22 $115,033 3
The Bank does not hold any securities for a single issuer which exceed 10% of the Bank's stockholders' equity.
JUNE DECEMBER 30, 31, 1997 1998 3. LOANS a: Commercial, agricultural and other $39,268 $33,897 loans b: Real Estate - Construction 8,631 7,925 c: Real Estate - Mortgage 164,352 158,649 d: Installment Loans 16,974 16,668 Total Loans $229,22 $217,139 6
4. CHANGES IN ALLOWANCE FOR POSSIBLE JUNE JUNE 30, LOAN LOSSES: 30, 1997 1998 Balance, beginning January 1 $4,743 4,293 Provision charged to income 168 360 Recoveries of amounts charged 85 51 Losses charged to provision 292 270 Balance, ending June 30 $4,704 $4,434
Information regarding impaired loans is as follows for JUNE 30, 1998
Ju n e J u n e 3 0 , 3 0 , 1998 1997 Average investment in impaired loans $1,789 $1,721 Interest income recognized on impaired loans including interest 122 49 income recognized on cash basis Balance of impaired loans 1,692 1,810 Less portion for which no allowance for 0 0 loan losses is allocated Portion of impaired loan balance for which an allowance for 1,692 1,810 credit losses is allocated Portion of allowance for loan losses allocated to the impaired 110 75 loan balance
5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE: 6/30/98 6/30/9 6/30/96 7 Balance, beginning January 1 $17 $22 $26 Provision charged to income 0 0 (3) Losses charged to provision 0 5 0 Balance, ending June 30 $17 $17 $23
6. The aggregate dollar amount of loans made to directors, executive officers or principal holders of equity securities as of June 30, 1998 and December 31, 1997 respectively, were: Aggregate amount, beginning 1/1 $3,952 $3,807 New loans 4,706 1,693 Repayments 328 1,548 Aggregate amount, ending 6/30/98 $8,330 Aggregate amount, ending 12/31/97 $3,952
7. OTHER ASSETS JUNE 30, DECEMBER 1998 31, 1997 a: Interest earned but not paid on: $2,184 $1,437 Loans Investments 1,071 1,041 b: Other Real Estate Owned 202 59
8. INCOME TAXES: Components of income tax expense for the period ended June 30, 1998 are as follows: Current Federal $1,662 State 48 Deferred (209) $1,501
Actual tax expense differs from the expected tax expense computed by applying the applicable federal corporate income tax rate of 34% is as follows for the six months ended June 30, 1998. Computed tax expense $1,55 6 Tax exempt (90) interest Other 35 $1,50 1
At June 30, 1998, items giving rise to the deferred income tax assets and liabilities, using a tax rate of 34%, are as follows:
ASSET LIABILIT Y Allowance for possible losses on loans and real estate owned $1,436 0 Deferred and accrued employee 975 0 benefits Deferred mortgage servicing rights 0 77 Deferred loan origination fees 319 0 Securities losses not currently 38 0 deductible Core deposit intangibles 53 0 Depreciation 0 52 Other 17 0 $2,840 $129
No valuation allowance is deemed necessary for the deferred tax asset.
9. INCOME TAX EXPENSE June 30, June 30, 1998 1997 Federal Income Tax $1,453 1,361 State Income Tax 48 46
MANAGEMENT'S DISCUSSION AND ANALYSIS The following review of results of the operations of Bar Harbor Banking and Trust Company for June 30, 1998, as compared to June 30, 1997, shows growth in earnings of $190,000 or six percent ahead of earnings for the first six months of 1997 and will be discussed below. Total assets have a 5.7% increase or approximately $20 million greater than the past twelve months with growth in both the loan portfolio and the investment portfolio. The loan growth of $7.8 million since June 30, 1997 has been predominantly in loans secured by real estate. The Bank's portfolio of loans secured by real estate grew by $11.6 million, with an offsetting reduction in the commercial loan portfolio of $5.5 million. The overall growth in loans compares to a $12.8 million growth between the periods of June 30, 1996 to June 30, 1997, where again the growth was predominantly in the real estate portfolio. The investment portfolio grew by $12 million over the past twelve months and includes the purchase of $54.5 million in securities, with $50.7 million in government agency debentures. Principal payments, maturities and called securities for the past twelve months total $43 million. Unrealized gains totaling $810,000 were shown in the portfolio as of June 30, 1998 compared to unrealized losses of $134,000 as of June 30, 1997. These gains are indicative of the current national economic interest rate structure. The gains in the market value of the held to maturity portfolio are $783,000 above book value as of June 30, 1998. Funding for the asset growth has come from increases in advances from the Federal Home Loan Bank totaling $14.7 million. Deposits decreased overall by $2 million over the past twelve months. This compares with funding in 1997, in which advances increased by $10 million and deposits decreased by $2 million. The drop in deposits for both years has been in time deposits, mostly certificates of deposit. Expectations by customers of yields in certificates of deposit exceed alternative sources of funding. Short term borrowings will drop during the next three months through seasonal deposit growth and investment maturities as well as principal paydowns from the Bank's mortgage backed securities portfolio. Liquidity is measured by the Bank's ability to meet cash needs at a reasonable cost or minimum loss to the Bank. Liquidity management involves the ability to meet cash flow requirements of its customers, which may come from depositors withdrawing funds or borrowers requiring funds to meet credit needs. Without adequate liquidity management, the Bank would not be able to meet the needs of the individuals and communities it serves. The Bank utilizes a Basic Surplus/Deficit model to measure its liquidity over a 30-day and a 90-day time horizon. The relationship between liquid assets and the short- term liabilities that are vulnerable to non- replacement within a 30-day period are examined. The Bank's policy is to maintain its liquidity position at a minimum of 5% of total assets. The Bank has maintained liquidity in its balance sheet in excess of 15% for the past twelve months. Liquidity as measured by the Basic Surplus/Deficit model was 19.29% as of June 30, 1998 for the 30-day horizon and 22.9% for the 90- day horizon. How changes in the balance sheet have affected the Bank may be viewed through the earnings statement for the periods ending June 30, 1997 and 1998. The Bank's net earnings for the first six months of 1998 are $190,000 ahead of earnings for the same period in 1997. The comparison will be discussed below. The Bank's net income for the first six months of 1997 was one percent ($42,000) below the income at June 30, 1996. Rates, volumes and the mix of earning assets and interest bearing liabilities affect interest income. Increases in loan volume of $7.8 million afforded increased interest income of approximately $675,000; however, decreases in rate reduced interest income by over $540,000, thereby showing an overall increase for loan interest of $132,000. For the first six months of 1997, increases in the loan portfolio afforded the Bank additional interest income of $206,000 that was achieved through increases in volumes totaling $580,000 and decreases in rates totaling $374,000. Yields on loans decreased by 40 basis points from June 1996 to June 1997. On the investment side, interest and dividend income as of June 30, 1998 grew by only $20,000 when compared to June 30, 1997. Increases were made based on volumes ($257,000) with offsetting decreases in rates ($146,000) for the taxable portion of the investment portfolio. Much of the overall decrease came from the maturity of non- taxable securities that are not being replaced with similar securities in the portfolio. Yields in the overall portfolio decreased by 10 basis points from year to year. The taxable portion of the portfolio decreased in yield by 20 basis points from 7.23% to 7.03%. Interest on investments in 1997 grew by $271,000, with the increase related to volumes totaling $83,000 and an increase from yields of $188,000 and an actual increase in 16 basis points in yields on the entire investment portfolio between June of 1996 and June of 1997. With increased interest bearing liabilities of approximately $15 million, the bank has contained costs by maintaining rates at existing levels and utilizing the Federal Home Loan Bank for advances. Costs have increased by $64,000 based on volume and decreased by more than $100,000 based on rate decreases. The total cost of purchased funds decreased by seven basis points over the past twelve months. This translates to an overall reduction in interest expense of $38,000. In 1997, interest bearing liability costs increased by $166,000 based on increases in liabilities of $5.7 million. The increase in the cost of funds came from increased costs incurred due to volume increases totaling $341,000 with an offset in liability costs due to rates creating a reduction of $175,000. The total cost of purchased funds increased by 6 basis points between June 30, 1997 and June 30, 1996. The Bank is well positioned with regard to interest rate sensitivity with assets and liabilities matched for repricing within a year, with $10,000,000 more assets than liabilities repricing within the next twelve months. If rates were to rise by 200 basis points, simulations indicate that the Bank's net interest income could decrease by approximately $124,000 and $172,000 during the first and second years of the rise. Should rates fall by 200 basis points, the Bank's net interest income would increase by approximately $166,000 the first year and drop by $233,000 the second year. The ratio for the reserve for possible loan losses has been over 2% for a number of years, and continues with a ratio of 2.06% as of June 30, 1998. While maintaining the 2% ratio between the reserve for possible losses and total loans outstanding, the Bank has been able to reduce the amount of funds allocated to the reserve based on the slowing growth of the loan portfolio overall. The Bank continues to review its allocation to the reserve on a monthly basis and funds the reserve as deemed necessary. This review includes a provision for specific credits, provisions due to historic loan losses by loan types and reserves reflecting industry concentrations, credit concentrations, current economic conditions and underwriting standards. Losses in the loan portfolio were estimated at $500,000 for both 1998 and 1997. As of June 30, 1998, the Bank had charged off $292,000 in loans compared to $270,000 for the same period in 1997. The amounts represented below are shown in thousands and represent the total dollars past due for the first six months of each year listed. Included in loans that were 90 days or more past due and still accruing in 1997 were approximately $900,000 in outstanding loans for which the customers had commitments from other banks to pay the Bank out for the loans.
Category 1998 1997 90-day past due and $1,528 $1,990 still accruing Non-accruing 2,682 $3,503 $4,210 $5,493 Gross Loans $229,226 $221,521 Percentage of gross 1.83% 2.48% loans
In reviewing non-interest income for 1998, the Bank has earned $250,000 or approximately 12% more than twelve months ago, with the increase attributable to the Trust Department's earnings before expenses, which have exceeded last year's income by $158,000. Additionally, the accounting for mortgage servicing rights was approximately $70,000 higher as of June 30, 1998 when compared to June 30, 1997. During the first six months of 1997, non-interest income grew by $81,000 over 1996. This growth was attributed to the Trust Department's earnings before expenses growing by $210,000 more than the first six months of 1996. Additionally, as of January 1, 1996, when the Bank implemented FASB Statement No. 122, "Accounting for Mortgage Servicing Rights", the allocation positively impacted the earnings of the Bank by $106,000. As of June 30, 1997, that allocation was approximately $30,000 less than in 1996 and additionally, fees generated from the origination and sale of mortgages were less than the previous year. In the spring of 1997, the Bank ran a promotion for mortgages choosing to keep them in its own portfolio instead of selling them in the secondary market, thus reducing its income from origination and sold loan fees. Other expenses, the category on the earnings statement that encompasses the majority of accounts that are not interest or human resource related, are 17% higher in 1998 than in 1997. Included in the expenses for 1998 are increased maintenance contracts and depreciation expenses incurred as the Bank has continued to strengthen its technology capabilities. Additionally, the Bank has been more active in the media in 1998, through the introduction of a new money market product and numerous loan promotions. The Bank has hired a consultant to assist in the selection process for a new banking software vendor. The Trust Department has also incurred expenses in anticipation of its conversion of software in September of this year. Lastly, the amortization of mortgage servicing rights has impacted the Bank's earnings by approximately $30,000. Comparing 1997 to 1996, salaries and benefits exceeded 1996 by 4.7% and included merit increases granted as of January 1, 1997, increases in the cost of benefits for employees, and additional time worked and additional staff required in connection with the conversion of the Bank's software which took place in late November of 1996. Other expense for June 30, 1997 was $307,000 for 13% higher than twelve months prior and was attributable to enhancements started in 1996. During 1996, the Bank implemented new software and hardware for its banking applications, including document and check imaging and servers to run these applications. With the installation of new banking software, individual personal computers were upgraded. Each of these installations increased not only the bank's assets, but also its depreciation expense, which was $152,000 more in 1997 than in 1996. The upgrade in the communication lines, which increased the speed of transmitting information to all locations, increased the Bank's telephone charges by $50,000 more in 1997. The Bank's Year 2000 global assessment and action plan has been approved by its Board of Directors. Individual project plans for mission critical systems are in progress with testing and proxy testing plans included. Solicitations of vendors have been mailed and responses have been received from over 30%. Follow up with other mission critical vendors continues. Testing of parts of the bank's hardware and software has begun. The assessment of customers' preparedness and the resulting impact on the Bank should be substantially completed by September 30, 1998. Letters have been sent to all major borrowers and lenders are following up with their customers. The Bank has redesigned its loan application that incorporates a question regarding the preparedness of the borrower for the millennium. Over 5,200 business customers have received a brochure entitled "Is your business Prepared for Year 2000". Employee and customer awareness continues with flyers sent to all consumer customers. The Bank will be participating in a Bank Business Customer Seminar being developed by the Maine Bankers Association. This program will run between mid-September and mid-November. The costs incurred so far have primarily been for supplies and customer awareness information. Since the Bank has stayed very current in its technology, it does not anticipate any major expenditures directly related to the Year 2000 issues. The budget has not been finalized to date. The Bank's banking software vendor is presently working on a proxy test with a target completion date of mid-November. The Bank will be installing an upgrade in August this year. All users will move from this upgrade to Release 10 of the banking software in the first quarter of 1999. The Bank will not incur any material costs to install either of these upgrades. Looking at some of the standard bank ratios, the Bank's efficiency ratio remains below national averages at just under 57%, which has remained comparable for the past three years. The Bank's capital to asset ratio of 12.1% has increased from 11.5% over the past twelve months. The Bank far exceeds the required risk based capital ratio of 8% with its Tier I ratio of 19.95%, total capital ratio of 21.20% and leverage ratio of 12.14%. These ratios represent capital of $29 million in excess of the requirement for a well capitalized bank. SFAS No. 125 and No. 127 relate to the accounting for transfers and servicing of financial assets and extinguishment of certain liabilities and were adopted effective January 1, 1997. The adoption of these standards has had no material effect on the financial statements. SFAS No. 128 relates to the computation for earnings per share. The adoption of SFAS No. 128 has had no material effect on the financial statements. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BAR HARBOR BANKSHARES /s/ Sheldon F. Goldthwait, Jr. Date: August 14, 1998 Sheldon F. Goldthwait, Jr. Chief Executive Officer /s/ Virginia M. Vendrell Date: August 14, 1998 Virginia M. Vendrell Treasurer and Chief Financial Officer EX-27 2
9 0000743367 BAR HARBOR BANKSHARES 1000 6-MOS DEC-31-1998 JAN-1-1998 JUN-30-1998 11,544 0 0 0 19,360 88,841 89,623 229,225 (4,704) 368,113 245,188 74,086 4,266 0 0 0 3,644 40,929 368,113 10,335 3,756 30 14,121 4,213 5,815 8,306 168 63 5,911 4,680 1,501 0 0 3,179 1.85 1.85 8.50 2,682 1,582 0 736 4,743 292 85 4,704 4,704 0 1,185
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