-----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, F+57N27qHhoD5mXvtJ6XUBwVm9AlXP7NO3GyXi34a9pP0zw/l3CFEYozva1KZc6G JgCfVM85E5IaBx+Sw9rGlg== 0000743367-96-000004.txt : 19960518 0000743367-96-000004.hdr.sgml : 19960518 ACCESSION NUMBER: 0000743367-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 000-13666 FILM NUMBER: 96568129 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 ALL FORMS UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1996. 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.) Bar Harbor, Maine 04609-0400 (Address of principal executive (Zip Code) offices) Registrant s telephone number, including area code: (207) 288-3314 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES XX NO Indicate the number of shares outstanding of each of the issuer s classes of common stock as of March 31, 1996: Common Stock: 1,818,237 PAGE TABLE OF CONTENTS
Page Financial Information Item I. Financial Statements Consolidated Balance Sheets December 31, 1995 and March 31, 1996 2-3 Consolidated Statements of Earnings Three months ended March 31, 1994, 1995 and 1996 4 Consolidated Statements of Changes in Stockholders Equity Three months ended March 31, 1995 and 1996 5 Consolidated Statement of Cash Flows Three months ended March 31, 1995 and 1996 6-7 Rate Volume Analysis Three months ended March 31, 1995 and 1996 8 Rate Sensitivity Report As of March 31, 1996 9 Notes to Financial Statements 10-13 Item 2. Management s Discussion and Analysis of Financial Condition and Results of Operations 14-17 Signature Page 18
PAGE BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL CONDITION MARCH 31, 1996 AND December 31, 1995
March 31 December 31 1996 1995 ASSETS Cash and Due from Banks $ 7,426,958 $ 8,759,797 Federal Funds Sold 0 3,800,000 Investment Securities Securities available for sale, at market 22,147,298 19,885,555 Securities held to maturity (Market Value $83,682,591 in 1996 and $83,180,706 in 1995) 83,763,010 82,209,062 Total investment securities 105,910,308 102,094,617 Loans held for sale 76,311 68,326 Gross Loans 201,426,371 201,765,717 Allowance for Possible Loan Losses (4,168,420) (4,047,883) Net Loans 197,257,951 197,717,834 Premises and Equipment 6,217,229 6,219,569 Other Assets 8,914,589 7,948,556 TOTAL ASSETS $325,803,346 $326,608,699 LIABILITIES AND STOCKHOLDERS EQUITY LIABILITIES Deposits Demand Deposits $ 28,595,549 $ 32,394,610 NOW Accounts 35,849,887 38,300,119 Savings Deposits 53,223,269 53,660,526 Time, $100,000 and over 14,754,882 14,005,187 Other Time 113,366,266 113,110,959 Total Deposits 245,789,853 251,471,401 Securities Sold Under Repurchase Agreements 5,326,750 5,791,193 Advances from Federal Home Loan Bank 36,091,145 32,700,000 Other Liabilities 4,157,040 3,403,281 Total Liabilities 291,364,788 293,365,875 Capital Stock, Par Value $2 Authorized 10,000,000 shares Issued 1,718,237* in 1996 and 1,813,605* in 1995 3,636,474 3,627,210 Surplus 7,489,128 7,368,695 Retained Earnings 24,702,230 23,523,626 PAGE Net Unrealized Appreciation on Securities available for sale, Net of Tax Benefit of $25,383 in 1996 and tax of $32,606 in 1995 (49,274) 63,293 Less: Cost of 100,000* shares of Treasury Stock (1,340,000) (1,340,000) TOTAL STOCKHOLDERS EQUITY 34,438,558 33,242,824 TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $325,803,346 $326,608,699
*Number of shares of stock have been restated to reflect a five- for-one stock split declared July 11, 1995. The accompanying notes are an integral part of these consolidated financial statements. PAGE BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)
THREE THREE THREE MONTHS MONTHS MONTHS ENDING ENDING ENDING 03/31/96 03/31/95 03/31/94 Interest & Fees on Loans $5,002,507 $4,413,005 $3,689,232 Interest & Dividends on Investment Securities: Taxable Interest Income 1,468,129 1,243,323 1,003,761 Non-taxable Interest Inc. 195,476 215,370 204,651 Dividends 85,498 104,376 54,163 Federal Funds Sold 5,193 16,074 15,821 TOTAL INTEREST INCOME 6,756,803 5,992,148 4,967,628 Interest on Deposits 2,307,076 1,794,598 1,335,806 Interest on Borrowings 509,942 575,408 343,915 TOTAL INTEREST EXPENSE 2,817,018 2,370,006 1,679,721 Net Interest Income 3,939,785 3,622,142 3,287,097 Provision for Loan Losses 240,000 240,000 240,000 Net Interest Income after Provision for Loan Losses 3,699,785 3,382,142 3,047,907 Other Income 1,001,427 883,606 893,893 Net Security Gains (Losses) 0 0 0 Other Expenses: Salaries & Employee Ben. 1,401,822 1,208,523 1,194,640 Other 1,109,440 1,173,046 1,059,032 Income Before Income Taxes 2,189,950 1,884,179 1,706,590 Income Tax Expense 667,700 575,870 514,814 NET INCOME $1,522,250 $1,308,309 $1,191,776 PER COMMON SHARE DATA, RESTATED FOR FIVE-FOR-ONE SPLIT IN 1995: BASED ON 1,709,835 SHARES FOR 1994, 1,713,605 FOR 1995 AND 1,718,237 SHARES FOR 1996 $0.89 $0.76 $0.70 DIVIDENDS PER SHARE $0.20 $0.00 $0.00
The accompanying notes are an integral part of these consolidated financial statements. PAGE BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY QUARTERS ENDED MARCH 31, 1994, 1995 AND 1996 (UNAUDITED)
NET UNREA- NET LIZED LOSS STOCK- CAPITAL RETAINED TREASURY ON EQUITY HOLDERS STOCK SURPLUS EARNINGS STOCK SECURITIES EQUITY Balance, 12/31/93 $3,614,540 $7,280,550 $15,469,806 ($1,340,000) ($37,566) $24,987,330 Net Earnings 1,191,776 1,191,776 Cash Dividends Declared 0 Net Unrealized Loss on Available for Sale Portfolio ( 61,753) ( 61,753) Transfer to Surplus 0 Sale of Stock (2,565* Shares) 5,130 33,858 38,988 Balance, 3/31/94 $3,619,670 $7,314,408 $16,661,582 ($1,340,000) ($ 99,319) $26,156,341 Balance, 12/31/94 3,619,670 7,314,408 19,118,678 (1,340,000) 48,027 28,760,783 Net Earnings 1,309,309 1,308,309 Cumulative effect to record appreciate on securities available for sale 0 Cash Dividends Declared 0 Net Unrealized Appreciation on Securities Available for Sale, Net of Tax of $37,388 24,550 24,550 Sale of Stock (3,770* Shares) 7,540 54,288 0 0 0 61,828 Balance, 3/31/95 $3,627,210 $7,368,696 $20,426,987 ($1,340,000) $72,557 $30,155,470 Balance 12/31/95 $3,627,210 $7,368,695 $23,523,626 ($1,340,000) $ 63,293 $33,242,824 Net earnings 1,522,250 1,522,250 Cash dividends declared (343,647) (343,547) Net unrealized depreciation on securities available for sale, net of tax benefit of $25,383 (112,566) (112,566) Sale of Stock (4,632 shares) 9,264 120,432 129,696 Balance 03/31/96 $3,636,474 $7,489,127 $24,702,229 ($1,340,000) ($49,273) $34,438,557
*Number of shares of stock have been restated to reflect a five-for-one stock split declared July 11, 1995. The accompanying notes are an integral part of these consolidated financial statements. PAGE BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
MARCH 31, MARCH 31 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: NET INCOME $ 1,522,250 $1,308,309 ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: DEPRECIATION 156,802 138,008 PROVISION FOR LOAN LOSSES 240,000 240,000 PROVISION FOR LOSSES ON OTHER REAL ESTATE OWNED (2,510) 9,867 NEW LOANS ORIGINATED FOR SALE (2,894,790) (383,100) PROCEEDS FROM SALE OF MORTGAGES HELD FOR SALE 2,892,941 380,139 NET SECURITIES GAINS 0 0 NET AMORTIZATION OF BOND PREMIUM 64,122 50,191 NET CHANGE IN OTHER ASSETS (829,220) ( 668,977) NET CHANGE IN OTHER LIABILITIES 753,759 295,982 NET CASH PROVIDED BY OPERATING ACTIVITIES 1,897,218 1,368,690 CASH FLOWS FROM INVESTING ACTIVITIES: PURCHASES OF SECURITIES HELD TO MATURITY ( 7,058,576) (4,698,411) PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS OF SECURITIES HELD TO MATURITY 2,007,718 3,392,940 PROCEEDS FROM CALL OF SECURITIES HELD TO MATURITY 3,500,000 0 PURCHASES OF SECURITIES AVAILABLE FOR SALE (3,001,875) 0 PROCEEDS FROM THE MATURITY & PRINCIPAL PAYDOWNS OF SECURITIES AVAILABLE FOR SALE 2,363 4,549 PROCEEDS FROM CALL OF SECURITIES AVAILABLE FOR SALE 500,000 0 NET LOANS MADE TO CUSTOMERS 143,572 ( 4,537,144) CAPITAL EXPENDITURES (154,462) (227,169) NET CASH USED IN INVESTING ACTIVITIES (4,061,260) (6,065,235) CASH FLOWS FROM FINANCING ACTIVITIES: NET CHANGE IN SAVINGS, NOW AND DEMAND DEPOSITS (6,686,550) (12,825,688) NET CHANGE IN TIME DEPOSITS 1,005,002 9,815,707 NET CHANGE IN REPURCHASE AGREEMENTS (464,443) 9,830,919 PURCHASE OF ADVANCES FROM FHLB 9,000,000 4,000,000 REPAYMENT OF ADVANCES FROM FHLB (4,000,000) 0 NET CHANGE IN OTHER SHORT TERM BORROWED FUNDS (1,608,855) (7,000,000) PROCEEDS OF SALE FROM CAPITAL STOCK 129,696 61,828 PAYMENTS OF DIVIDENDS (343,647) 0 NET CASH PROVIDED BY FINANCING ACTIVITIES (2,968,797) 3,882,766 NET INCREASE IN CASH AND CASH EQUIVALENTS (5,132,839) (813,779) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,559,797 9,714,713 CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 7,426,958 $8,900,934 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: CASH PAID DURING THE YEAR FOR: INTEREST $2,805,299 $2,342,962 INCOME TAXES $ 5,000 $ 300,000 PAGE NON-CASH TRANSACTIONS: TRANSFER FROM LOANS TO REAL ESTATE OWNED (OTHER ASSETS) $ 70,000 $ 0
NOTE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAGE RATE VOLUME ANALYSIS The following table represents a summary of the changes in interest earned and interest paid as a result of changes in rates and changes in volumes. For each category of earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to change in rate (change in rate multiplied by old volume) and change in volume (change in volume multiplied by old rate). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. YEAR-TO-DATE FIGURES AS OF MARCH 31, 1996 COMPARED TO MARCH 31, 1995 INCREASES (DECREASES) DUE TO:
VOLUME RATE NET LOANS $ 315,043 $ 274,459 $ 589,502 TAXABLE SECURITIES $ 226,001 $ ( 20,073) 205,928 TAX EXEMPT SECURITIES $ (19,783) $ (111) (19,894) FEDERAL FUNDS SOLD AND MONEY MARKET FUNDS $ (9,369) $ (1,512) (10,881) TOTAL EARNING ASSETS $ 511,892 $ 252,763 $ 764,655 DEPOSITS $ 224,289 $ 288,189 512,478 BORROWINGS $ (54,199) $ (11,267) (65,466) TOTAL INTEREST BEARING LIABILITIES $ 170,090 $ 276,922 $ 447,012 NET CHANGE IN INTEREST $ 341,802 ($ 24,159) $ 317,643
YEAR-TO-DATE FIGURES AS OF MARCH 31, 1995 COMPARED TO MARCH 31,1 994 INCREASES (DECREASES) DUE TO:
VOLUME RATE NET LOANS $ 531,976 $ 191,797 $ 723,773 TAXABLE SECURITIES $ 144,754 $ 145,021 $ 289,775 TAX EXEMPT SECURITIES $ 793 $ 9,926 $ 10,719 FEDERAL FUNDS SOLD AND MONEY MARKET FUNDS $ (6,792) $ 7,045 $ 253 TOTAL EARNING ASSETS $ 670,731 $ 353,789 $ 1,024,520 DEPOSITS $ 179,251 $ 279,541 $ 458,792 BORROWINGS $ 29,614 $ 201,879 $ 231,493 TOTAL INTEREST BEARING LIABILITIES $ 208,865 $ 481,420 $ 690,285 NET CHANGE IN INTEREST $ 461,866 $ (127,631) $ 334,235
PAGE> INTEREST RATE SENSITIVITY ANALYSIS AS OF MARCH 31, 1996 (UNAUDITED) Amounts in Thousands The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at March 31 1996 which are anticipated by the Bank, based upon certain assumptions, to reprice or mature in each of the future time periods shown.
ONE TO GREATER TOTAL TO FIVE THAN FIVE ONE YEAR YEARS YEARS TOTAL Loans - Fixed Rate $ 15,914 $ 24,798 $ 17,775 $ 58,487 - Variable Rate 118,535 19,091 2,129 139,755 Investments 36,003 49,232 20,676 105,911 Federal Funds Sold 0 0 0 0 Interest Rate Swap 5,000 15,000 0 20,000 Total Earning Assets 175,452 108,121 40,580 324,153 Deposits 138,956 20,206 86,797 245,959 Repurchase Agreements 1,793 2,500 1 180 5,473 Borrowings 24,855 11,236 0 36,091 Interest Rate Swap 10,000 10,000 0 20,000 Total Sources 175,604 43,942 87,977 307,523 Net Gap Position (152) 64,179 (47,397) 16,630 Cumulative Gap ($152) $64,027 $16,638 $16,630 Rate Sensitive Assets/ Rate Sensitive Liabilities 99.91% 246.05 46.13 105.41%
Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual terms of the asset or liability. The Bank has assumed that 3% of its savings is more rate sensitive and will react to rate changes, and has therefore categorized it in the one year time horizon. The remainder is stable and is listed in the greater than five year category. NOW accounts, other than seasonal fluctuations approximating $3,000,000, are stable and are listed in the greater than five year category. Money market accounts are assumed to reprice in three months or less. Certificates of deposit are assumed to reprice at the date of contractual maturity. Fixed rate mortgages, totaling $34,000,000 are amortized using a 6% rate, which approximates the Bank s prior experience. PAGE NOTES TO FINANCIAL STATEMENTS DATED MARCH 31, 1996 1. Summary of interim financial statement adjustments. The accompanying 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 1995 Annual Report.
March 31, 1996 Carrying Market 2. INVESTMENT SECURITIES Value Value a. U.S. Treasury and other government agencies $ 75,826,506 $ 75,106,835 b. States of the U.S. and other political subdivisions 12,980,603 13,420,943 c. Other securities 17,177,856 17,302,111 Total Securities $105,984,965 $105,829,889 Securities held to maturity 83,763,010 83,682,591 Securities available for sale 22,221,955 22,147,298
The Bank does not hold any securities for a single issuer which exceed 10% of the Bank s stockholders equity.
March 31, December 31, 1996 1995 3. LOANS: a. Commercial, agricultural and other loans $ 39,606,450 $ 40,190,313 b. Real Estate - Construction 7,551,297 8,072,230 c. Real Estate - Mortgage 135,498,368 135,862,776 d. Installment Loans 17,846,567 17,640,398 Total Loans $201,502,682 $201,765,717
PAGE 4. CHANGES IN ALLOWANCE FOR POSSIBLE LOAN LOSSES:
March 31, March 31, 1996 1995 Balance, beginning January 1: $ 4,047,883 $ 3,891,835 Provision charged to income 240,000 240,000 Recoveries of amounts charged 29,512 31,964 Losses charged to provision 148,975 103,501 Balance, ending March 31 $ 4,168,420 $ 4,060,298
Information regarding impaired loans is as follows for March 31, 1996:
Average investment in impaired loans $ 1,366,293 Interest income recognized on impaired loans, Including interest income recognized on cash basis 23,594 Interest income recognized on impaired loans on Cash basis 23,594 Balance of impaired loans 596,754 Less portion for which no allowance for loan losses Is allowed 0 Portion of impaired loan balance for which an Allowance for credit losses is allocated 0 Portion of allowance for loan losses allocated To the impaired loan balance 91,634
5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE:
3/31/96 3/31/95 3/31/94 Balance, beginning January 1: $26,000 $30,486 $53,286 Provision charged to income (2,510) 9,867 0 Losses charged to provision 0 0 0 Balance, ending March 31 $23,490 $40,353 $53,286
6. The aggregate dollar amount of loans made to directors, executive officers or principal holders of equity securities as of March 31, 1996 and December 31, 1995 respectively were:
Aggregate amount, beginning 1/1 $3,279,479 $3,409,868 New loans 133 349,935 Repayments 21,035 480,324 Aggregate amount, ending 3/31/96 $3,258,577 Aggregate amount, ending 12/31/95 $3,279,479
PAGE 7. OTHER ASSETS:
1996 1995 a: Interest earned but not paid on: Loans $1,811,873 $1,471,216 Investments 1,180,395 1,008,678 b. Other Real Estate Owned 492,234 443,652
8. INCOME TAXES: The company adopted Financial Accounting Standards No. 109 Accounting for Income Taxes effective January 1, 1993. The standard requires adoption of a liability method of accounting for income taxes. The accounting change had no effect on the company s net income or retained earnings. Components of income tax expense for the period ended March 31, 1996 are as follows:
Current Federal $796,036 State 23,151 Deferred (151,487) $667,700
Actual tax expense differs from the expected tax expense computer by applying the applicable federal corporate income tax rate of 34% is as follows for the three months ended March 31, 1996:
Computed tax expense $ 723,193 Tax exempt interest (72,302) Other $ 667,700
PAGE At March 31, 1995, items giving rise to the deferred income tax assets and liabilities, using a tax rate of 34%, are as follows:
Allowance for possible losses on loans And real estate owned $1,264,106 Deferred and accrued employee benefits 900,199 Deferred loan origination fees 99,241 Security losses not currently deductible 0 Core deposit intangibles 101,318 Depreciation 6,229 Other 8,595 $2,379,687 $ 0
No valuation allowance is deemed necessary for the deferred tax asset.
9. INCOME TAX EXPENSE: 1996 1995 Federal Income Tax $644,549 $549,686 State Income Tax 23,151 26,184
PAGE MANAGEMENT'S DISCUSSION AND ANALYSIS A review of the results of operations for March 31, 1996, as compared to March 31, 1995, with the growth in earnings exceeding 16%, is affected by changes in the balance sheet. Total assets have grown 7.8% over the past twelve months with the major changes visible in the investment and loan portfolios. The Bank's investment portfolio grew by approximately $13,300,000 for the twelve month period with $11,550,000 purchased in U.S. Government agency securities. The Bank s available for sale portfolio increased by $15,000,000 over the past twelve months. The Bank made a one- time transfer of securities at market value totaling $5,600,000 in accordance with the Financial Accounting Standards Board implementation guidance issued in November of 1995. Additional securities added to the available for sale portfolio include bonds that have calls and longer final maturities. Unrealized gains and losses became negative and are indicative of the current economic marketplace with interest rates rising abruptly and presumed to be temporarily. This is also visible in the total market value of the portfolio that is currently $155,000 below book value. However, the portfolio continues to earn in excess of 6.8%. The Bank holds one structured note, a ten-year step-up government agency debenture, which steps annually by 1/8 of one percent after 3 years at 7.0%. The loan growth of $11,000,000 from March 31, 1995 has been predominantly in loans secured by real estate. The Bank's loan portfolio s growth has slowed from a 15% growth in 1995 compared to 1994 to a 5.8% growth in 1996 over 1995. The Bank is experiencing competition from other financial institutions within its marketplace. Funding for the asset growth has come from increases in deposits totaling $23,255,000 and predominantly from interest bearing liabilities in the form of certificates of deposit, which increased 21%. In March of 1995, the Bank s Trust Department maintained approximately $10,000,000 in repurchase agreements that were withdrawn prior to year end 1995. These funds were replaced by deposits as mentioned above and borrowings through the Federal Home Loan Bank. Advances increased in the past twelve months by $14,000,000 as these funds became less costly than opportunities for wholesale repurchase agreements. Short term borrowings will begin dropping during the next six months through seasonal deposit growth, investment maturities and 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 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 7% for the past twelve months. Liquidity has been more than 10% since the repurchase agreements with the Trust Department were discontinued, which reduced the PAGE amount of Bank securities required to be held as collateral. Liquidity as measured by the Basic Surplus/Deficit model was 17.6% as of March 31, 1996. How changes in the balance sheet have affected the Bank may be viewed through the earnings statement for the periods ending March 31, 1994, 1995, and 1996. The Bank has experienced a very strong first quarter that compares favorably to the first quarter of 1995 and which has produced a 16% increase over net income earning during the first three months of 1995. In turn, 1995 produced a 9.8% increase over 1994 in net earnings for the Bank. Interest income is affected by rates, volumes and the mix of earning assets and interest bearing liabilities. For the first three months of 1996, increases in the loan portfolio have afforded the Bank additional interest income of $590,000 that was achieved through increases in volumes totaling $315,000 and increases in rates of $275,000. Yields on loans increased by 24 basis points from March 1995 to March of 1996. This compares with 1995 s increase over 1994 of $724,000 due to increases in both volumes ($532,000) and interest rate changes ($192,000). Loan yields increased 69 basis points during that twelve month period. 1995 represented the first increase in loan yields for the past several years with decreases of 64 and 103 basis points experienced in 1994 and 1993 respectively. On the investment side, interest and dividend income grew by $175,000 with increases related to volumes and a decrease in yields of $22,000 or a drop of 32 basis points from year to year. Investment interest increased by $300,000 in 1995 compared to 1994 with increases coming equally from increased volumes and rates (which increased by 61 basis points). In 1994 earnings from the Bank's investment portfolio decreased by $244,000 due to decreases in yields (a drop of 72 basis points). Increased costs on the liability side have been contained by the Bank not increasing its rates on savings, NOW and money market funds. For the past two years, the Bank has chosen to promote specific term CDS at current national market rates, thereby increasing its cost of funds on those deposits only. In 1996, the Bank s cost of interest bearing funds increased by $447,000 that was less than the previous year, although deposit balances grew by over $23,000,000. The cost of purchased funds went up 17 basis points during this period. Part of the reduction in cost is found in the reduction in funding costs from the Federal Home Loan Bank. In 1995, the Bank's cost of funds rose by $690,000 that is both from increased volumes ($209,000) as well as higher CD rates. The cost of purchased funds increased by 92 basis points in 1995. Comparing this to 1994 and 1993, both years showed reductions in funding costs (23 basis points in 1994 and 106 basis points in 1993). 1994 began with a downward trend for interest rates, but the Bank along with other financial institutions was impacted by each of the federal funds increases instituted by the Federal Reserve. It has been the Bank's approach to lag increases on both sides of the balance sheet throughout the year. The Bank is well positioned with regard to interest rate sensitivity with assets and liabilities matched for repricing within a year. There is some exposure to falling rates out beyond a year that is primarily driven by the Bank s expectation that core deposit rates should not be lowered. Additionally, with a projected acceleration in prepayments in loans and investments, cash would be reinvested at lower yields. If rates were to drop by 200 basis points, simulations indicate that the Bank s net interest income could drop by approximately $1,000,000 during the second year of the drop. PAGE The Bank has maintained its reserve for possible loan losses over the past several years, reflecting the recessionary nature of the economy in the early 1990's. The ratio for the reserve for possible loan losses has been over 2% for the past three years, with a ratio of 2.10% as of March 31, 1996. The Bank reviews its allocation to the reserve on a monthly basis and funds the reserve as deemed necessary. This review includes a provision for specific credits, provisions due to historic loan losses by loan types and reserves reflecting industry concentrations, credit concentrations, current economic conditions and underwriting standards. In 1995, the Bank added a provision for impaired loans in accordance with FASB 114/118. Reference is made to the notes included in this filing that outlines the impaired loan figures. Losses in the loan portfolio were estimated at $840,000 for 1996, with first quarter charge offs totaling $149,000. The amounts represented below are the total dollars past due for the first three months of each year listed. Included in the 90-day past due category for 1996 are two loans totaling $820,000, one of which is now current and the other was in the process of securing SBA financing, this is now completed. Category 1995 1995 1994 90-day past due and still accruing $ 1,247,941 $ 189,904 $ 486,959 Non-accruing $ 3,289,461 $ 4,184,679 $ 2,596,655 $ 4,537,402 $ 4,374,583 $ 3,083,614 Gross loans $201,502,682 $190,459,413 $165,649,797 Percentage of gross loans 2.25% 2.30% 1.86% In reviewing non-interest income, the first three quarters of 1996 show a strong start for the year with growth of 13%. This growth is attributed to the Trust Department s earnings growing by $64,000 over the first three months of 1995. In the fall of 1995, the Trust Department converted their tax preparation and began charging customers for the service. The cost of this tax service is shown in other expenses. Additionally, as of January 1, 1996, the Bank implemented FASB Statement No. 122, Accounting for Mortgage Servicing Rights that positively impacted the earnings of the Bank by $57,000. 1995 showed a decline of $29,000 when compared to 1994. The decline has come from two specific areas, one being securities gains taken in the first quarter of 1994 of $18,500 for which there were no comparable gains taken in 1995. Additionally, the secondary market for residential mortgages, which has generated substantial income for the Bank in the past several years, dropped to $11,000 in the first quarter of 1995. In comparison, 1994 showed growth as compared to 1993 of $92,000. Fees generated from the secondary mortgage program totaled $75,000 for the first three quarters of 1994. Following the first quarter of 1995, interest rates, specifically in the secondary market for residential mortgages, dropped and the Bank once again began experiencing additional loan demand in this area. PAGE Accruing for an incentive program reflects the increase in salary and benefit costs in 1996 over 1995. Although the program is not new to the Bank in 1996, this is the first year that the dollars have been designated prior to year end. Excluding the accrual, salary and benefits would be 3% higher than the first quarter of 1995. Salary and benefits remained stable for the first quarter of 1995, increasing by $14,000 over 1994. In 1994 salary and employee benefits were $63,000 (or 5.5%) over 1993. Other expense for the first three months of 1996 is below the comparable period in 1995 due to the elimination of FDIC insurance premiums. As a well capitalized bank, Bar Harbor Banking and Trust Company has not been required to pay premiums for this coverage. In the fall of 1995, the Bank sought the services of a consulting firm to review existing procedures, seeking greater efficiencies while maintaining quality customer service. The Bank incurred $66,000 in expenses for these services during the first quarter of 1996. Other expense for the first quarter of 1995 was greater than 1994 and included: increases in postage costs due to an increase by the US Postal Service; increases in media coverage for Bank promotions offered during the first quarter of 1995; increased legal expense incurred with loan resolutions; and increased FDIC insurance based on increased deposits. Likewise, other expense was greater in 1994 when compared to 1993's expense with no single account showing a large increase when compared to 1993 s expenses. Other expense encompasses the majority of accounts that are not interest or human resource related. The Bank's capital to asset ratio is 10.6% and the Bank far exceeds the required risk based capital ratio of 8% with its Tier I ratio of 16.1% and total capital ratio of 17.4% or additional capital of $19,500,000. PAGE 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 Sheldon F. Goldthwait, Jr. /s/ Date: May 15, 1996 Sheldon F. Goldthwait, Jr. President Virginia M. Vendrell /s/ Date: May 15, 1996 Virginia M. Vendrell Senior Vice President, Treasurer and Chief Financial Officer PAGE EX-27 2
9 0000743367 BAR HARBOR BANKSHARES 1 NO 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1. 7,426,958 0 0 0 22,147,298 83,763,010 83,682,591 201,426,371 (4,168,420) 325,803,346 245,789,853 29,417,815 4,157,040 0 0 0 3,636,474 30,802,084 325,803,346 5,002,507 1,749,103 5,193 6,756,803 2,307,076 2,187,018 3,939,785 240,000 0 2,511,262 2,189,950 2,189,950 0 00 1,522,250 0.89 0.89 8.86 3,289,461 1,247,941 0 367,000 4,047,883 148,975 29,512 4,168,420 4,168,420 0 1,267,000
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