-----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, Wo+eEOQX01RqpRUvamAyf3ZoiyclXcNdMeFPq1L/mL/5VXAYYPJSvZTq85JJ2c2u EKM5lZkfbEq+7TUpPjRxSA== 0000743367-99-000012.txt : 19990816 0000743367-99-000012.hdr.sgml : 19990816 ACCESSION NUMBER: 0000743367-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99686937 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 17 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, 1999 Commission File No. 841105-D BAR HARBOR BANKSHARES Maine 01- 0393663 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) P. O. Box 400 82 Main Street, Bar Harbor, ME 04609-0400 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (207) 288-3314 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: XX NO: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of June 30, 1999: Common Stock: 3,643,614 TABLE OF CONTENTS
Financial Information Page Item 1. Financial Statements Consolidated Balance Sheets 3 June 30, 1999 and December 31, 1998 Consolidated Statements of Earnings 4 Three months and six months ended June 30, 1998 and 1999 Consolidated Statements of Changes in 5 Stockholders' Equity Six months ended June 30, 1998 and 1999 Consolidated Statement of Cash Flows 6 Six months ended June 30, 1998 and 1999 Rate Volume Analysis 7 Six months ended June 30, 1998 and 1999 Notes to Financial Statements 8-10 Item II. Management's Discussion and Analysis 11-15 of Financial Condition and Results of Operations Signature Page 16
BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL CONDITION JUNE 30, 1999 AND DECEMBER 31, 1998
JUNE DECEMBE 30, R 31, 1999 1998 ASSETS Cash and Due from Banks $ 9,054 $11,511 Federal Funds Sold 3,200 0 Securities Available for Sale, 27,618 17,844 at market Securities Held to Maturity (Market Value 120,549 113,162 $118,433 at 6/30/99 and $114,177 at 12/31/98) Other Securities 6,105 6,133 Loans Held for Sale 236 1,018 Loans, net of allowance for possible loan losses 246,881 224,980 of $4,912 in 1999 and $4,455 in 1998 Premises and Equipment 7,589 7,951 Other Assets 12,588 9,448 Total Assets $433,82 $392,04 0 7 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits Demand Deposits $44,031 $42,323 NOW Accounts 42,181 43,319 Savings Deposits 75,469 67,619 Time Deposits 108,791 113,187 Total Deposits 270,472 266,448 Securities sold under Repurchase 6,927 8,092 Agreements Advances from Federal Home Loan 103,958 66,120 Bank Other Liabilities 4,231 4,526 Total Liabilities 385,588 345,186 Commitments and Contingent Liabilities Capital Stock, par value $2 Authorized 10,000,000 shares Issued 3,643,614 in 1998 and 7,287 7,287 1999 Surplus 4,002 4,002 Retained Earnings 38,534 36,862 Net unrealized appreciation on securities available (251) 50 for sale, net of tax benefit Less: Cost of 200,000 shares of (1,340) (1,340) Treasury Stock TOTAL STOCKHOLDERS' EQUITY 48,232 39,574 TOTAL LIIABILITIES AND STOCKHOLDERS' $433,82 $392,04 EQUITY 0 7
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-MONTHS SIX-MONTH MONTHS MONTHS ENDING ENDING ENDING ENDING 6/30/99 6/30/98 6/30/99 06/30/98 Interest & Fees on $5,340 $5,277 $10,482 $10,335 Loans Interest and Dividends on Investment 2,235 1,686 4,282 3,315 Securities: Taxable Interest Income Non-taxable 81 116 164 240 Interest Income Dividends 113 101 226 201 Federal Funds 5 15 28 30 Sold Total Interest 7,774 7,195 15,182 14,121 Income Interest on 2,024 2,071 4,073 4,212 Deposits Interest in Short Term 1,301 912 2,451 1,602 Borrowings Total Interest 3,325 2,983 6,524 5,815 Expense Net Interest Income 4,449 4,212 8,658 8,307 Provision for Loan 269 84 537 168 Losses Net Interest Income after 4,180 4,128 8,121 8,139 Provision for Loan Losses Other Income 1,226 1,263 2,412 2,389 Investment 0 6 0 63 Securities Gains Other Expenses:: Salaries & 1,502 1,432 3,042 2,924 Employee Benefits Other 1,598 1,681 3,224 2,987 Investment 0 0 0 0 Securities Losses Income Before 2,306 2,284 4,267 4,680 Income Taxes Income Tax Expense 779 729 1,423 1,501 Net Income $1,527 $1,555 $2,844 $3,179 Earnings per Share: Based on 3,443,614 shares for 1998 and $0.44 $0.45 $0.83 $0.92 1999, Dividends Per Share 0.17 $0.17 0.34 $0.33
BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY QUARTERS ENDED JUNE 30, 1998 AND 1999 (in thousands, except number of shares and per share data)
ACCUMU NET LATED STO CAPITAL RETAINE OTHER TREASURY CKH STOCK SURPLUS D COMPRE STOCK OLD EARNING NSIVE ERS S INCOME ' EQU ITY Balance, 12/31/97 $7,284 $3,932 $32,5 $24 ($1,34 $42,462 62 0) Net Earnings 3,179 3,179 Other comprehensive income, net of tax: Unrealized (5) (5) gains/losses on Securities Other comprehensive income Comprehensive income 3,174 Cash Dividends Declared ($.33 (1,13 (1,135) per share) 5) Sale of Stock 2 70 73 Balance, 6/30/98 $7,286 $4,002 $34,6 $19 ($1,34 $44,573 06 0) Balance, 12/31/98 $7,287 $4,002 $36,8 $50 ($1,34 $46,860 61 0) Net Earnings 2,844 2,844 Other comprehensive income, net of tax: Unrealized (301) (301) gains/losses on Securities Other comprehensive Income Comprehensive income 2,543 Cash Dividends Declared ($.34 per share) (1,17 (1,171) 1) Balance, 6/30/99 $7,287 $4,002 $38,5 $(251 ($1,34 $48,232 34 ) 0)
The accompanying notes are an integral part of these Consolidated financial statements. BAR HARBOR BANKSHARES AND SUBSIDIARY COLSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
June 30, 1999 JUNE 30, 1998 Cash Flows from Operating Activities: Net Income $2,844 3,179 Adjustments to reconcile net earnings to net cash provided by 491 454 Operating activities: Depreciation Provision for Loss Losses 537 168 Provision for Losses on Other 0 0 Real Estate Owned New Loans Originated for Sale (7,120) (9,053) Proceeds from Sale of Mortgages 8,092 8,920 Held for Sale Gain on Sale of Mortgages (58) (76) Originated for Sale Net Amortization of Bond 132 111 Premium (Gain) Loss on sale of premises 25 2 and equipment Net Change in Other Assets (2,974) (589) Net Change in Other (295) (461) Liabilities Net Cash Provided by Operating 1,674 2,655 Activities Cash Flows from Investing Activities: Net decrease (increase) in Federal Funds Sold Purchases of securities held to (26,066) (24,770) maturity Proceeds from Maturity and Principal Paydowns of Securities 2,750 11,025 Held to Maturity Proceeds from Call of Securities 15,788 10,145 Held to Maturity Purchases of Securities Available (15,215) (6,000) for Sale Proceeds from Maturity and Principal Paydowns of Securities 1,493 239 Available for Sale Proceeds from Sale and Calls of 3,500 1,000 Securities Available for Sale Net Decrease (Increase) in Other 28 (38) Securities Net Loans Made to Customers (22,660) (12,378) Capital Expenditures (160) (545) Proceeds from sale of Other Real 80 0 estate Owned Proceeds from Sale of Fixed Assets 6 0 Net Cash Used in Investing (40,456) (21,322) Activities Cash Flows from Financing Activities: Net Change in Savings, NOW and 8,420 627 Demand Deposits Net Change in Time Deposits (4,396) (7,343) Net Change in securities sold (1,165) (158) under Repurchase Agreements Proceeds from Federal Home Loan 60,000 36,500 Bank Repayment of Advances from FHLB (22,000) (17,500) Net Change in Short Term Other (162) 11,610 Borrowed Funds Proceeds from Sale of Capital 0 74 Stock Payment of Dividends (1,171) (1,136) Net Cash Provided by Financing 39,526 22,674 Activities Net Increase (Decrease) in Cash and 743 4,007 Cash Equivalents Cash and Cash Equivalents at 11,511 7,537 Beginning of Year Cash and Cash Equivalents at End of $12,254 $11,544 Quarter Supplemental Disclosures of Cash Flow Information: Cash Paid during the Year for: $3,186 $5,860 Interest Income Taxes, Net of Refunds 0 $1,675 Non-Cash Transactions:; Transfers from Loans to Real $49 $143 Estate Owned (Other Assets) Transfer of Securities from Held to Maturity to $0 $0 Available for Sale
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, 1999 COMPARED TO JUNE 30, 1998 INCREASES (DECREASES) DUE TO:
VOLUME RATE NET Loans $402 ($25 $147 5) Taxable Securities 1,155 (164 991 ) Tax Exempt Securities (57) (20) (77) Federal Funds Sold and Money 1 (2) (1) Market Funds TOTAL EARNING ASSETS 1,501 (441 1,060 ) Deposits 257 (397 ( ) 140) Borrowings 942 (93) 849 Total Interest Bearing 1,199 (490 709 Liabilities ) NET CHANGE IN INTEREST $302 $49 $351
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 16 Market Funds TOTAL EARNING ASSETS $813 ($660 $153 ) Deposits $38 ($107 ($69) ) Borrowings 25 6 31 Total Interest Bearing 63 (101) (38) Liabilities NET CHANGE IN INTEREST $750 ($559 ($191) )
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 1998 Annual Report. During 1998, the Company adopted Statements of Accounting Standards (SFAS) 130, 131, and 132. The adoption of SFAS 130, Reporting of Comprehensive Income, required that certain items be reported under a new category of income "Other Comprehensive Income". Unrealized gains and losses on securities available for sale is the only item included in Other Comprehensive Income. SFAS 131 and 132 relate to disclosures about segments and employee benefits, respectively. The Company, through the branch network of the Bank, provides a broad range of financial services to individuals and companies in eastern Maine. Operations are managed and financial performance is evaluated on a corporate-wide basis. Accordingly, all of the Company's banking operations are considered to be aggregated in one reportable operating segment. The financial statements for 1998 and 1999 include the required additional disclosures for SFAS No. 130 and 132. Accounting for Derivative Instruments and Hedging Activities and 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. 133 will be effective for fiscal years beginning after June 15, 2000 and SFAS No. 134 is effective the first fiscal quarter beginning July 1, 1999. Management does not expect the adoption of these standards to have a material effect on the financial statements.
JUNE 30, 1999 2. INVESTMENT SECURITIES CARRYIN MARKET AVAILABLE FOR SALE G VALUE VALUE a: U. S. Treasury and other $26,699 $26,34 government agencies 5 b: Marketable equity securities 1,300 1,273 Total Securities Available For $27,999 $27,61 Sale 8 HELD TO MATURITY: a: U. S. Treasury and other $96,119 $94,30 government agencies 4 b: States of the U.S. and other 5,245 5,292 political subdivisions c: Corporate bonds 19,185 18,837 Total Securities Held to $120,54 $118,4 Maturity 9 33 OTHER SECURITIES $6,105 $6,105 TOTAL SECURITIES $154,65 $152,1 3 56
The Bank does not hold any securities for a single issuer which exceed 10% of the Bank's stockholders' equity.
JUNE DECEMBE 30, R 31, 1999 1998 3. LOANS a: Commercial, agricultural and $38,588 $33,224 other loans b: Real Estate - Construction 15,276 11,366 c: Real Estate - Mortgage 181,490 168,307 d: Installment Loans 16,439 16,538 Total Loans $251,79 $229,43 3 5
4. CHANGES IN ALLOWANCE FOR JUNE JUNE POSSIBLE LOAN LOSSES: 30, 30, 1999 1998 Balance, beginning January 1 $4,455 4,743 Provision charged to income 537 168 Recoveries of amounts charged 173 85 Losses charged to provision 253 292 Balance, ending June 30 $4,912 $4,70 4
Information regarding impaired loans:
June June 30, 30, 1999 1998 Average investment in impaired loans $ $1,576 776 Interest income recognized on impaired loans including interest 18 35 income recognized on cash basis Balance of impaired loans 777 1,073 Portion of impaired loan balance for which an allowance for credit losses 777 1,073 is allocated Portion of allowance for loan losses allocated to the impaired loan 55 42 balance 5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE:
6/30/99 6/30/ 6/30/9 98 7 Balance, beginning $16 $17 $22 January 1 Provision charged to 0 0 0 income Losses charged to 1 0 5 provision Balance, ending June 30 $15 $17 $17
6. The aggregate dollar amount of loans made to directors, executive officers or principal holders of equity securities as of June 30, 1999 and December 31, 1998 respectively, were: Aggregate amount, beginning $7,243 $3,952 1/1 New loans 1,062 5,393 Repayments 747 2,102 Aggregate amount, ending $7,558 6/30/99 Aggregate amount, ending $7,243 12/31/98
7. OTHER ASSETS JUNE 30, DECEMBER 1999 31, 1998 a: Interest earned but not paid on: $2,413 $1,494 Loans Investments 1,442 1,264 b: Other Real Estate Owned 97 98
8. INCOME TAXES: Components of income tax expense for the period ended June 30, 1999 are as follows:
Current Federal $2,069 State 48 Deferred (694) $1,423
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, 1999. Computed tax $1,451 expense Tax exempt (63) interest Other 35 $1,423
At June 30, 1999, 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 $1,509 0 Deferred and accrued employee 1,018 0 benefits Deferred mortgage servicing 0 133 rights Deferred loan origination fees 329 0 Securities losses not currently 25 0 deductible Core deposit intangibles 43 0 Depreciation 0 41 Other 17 0 $2,941 $174
No valuation allowance is deemed necessary for the deferred tax asset.
9. INCOME TAX EXPENSE June 30, June 30, 1999 1998 Federal Income Tax $1,374 1,453 State Income Tax 49 48
MANAGEMENT'S DISCUSSION AND ANALYSIS The following is a review of results of the operations of Bar Harbor Banking & Trust Company for June 30, 1999 as compared to June 30, 1998. The bank has focused on growth in its balance sheet through both loans and investments, funding the growth with deposits and borrowings. While the six-month earnings for 1999 are down 10% or $335,000 compared to first six months of 1998, the bank is involved in several major projects that are described below. The expectation is that these projects will enhance customer service, efficiencies and profitability. Overall, the bank's balance sheet has grown by $65 million or 18%, compared to a 5.7% growth of $20 million between 1999 and 1998. Total loans have grown by $22.8 million or 10% when compared to 1998's outstanding loans. This validates the growth concept mentioned above compared to loan growth in 1998 over 1997 of $7.8 million. Loan growth for 1999 has come from consumer mortgages (approximately $18 million or 18% growth from year to year). Commercial loans increased by $4 million or 4% over last year. The balance between consumer and commercial loans remains similar to the past two years' mix with consumer loans approximating 55% of the portfolio. The loan growth from June 30, 1997 to June 30, 1998, totaling $7.8 million, was 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. While local competition remains strong, Bar Harbor Banking and Trust Company's strength lies in the relationships built with its customers and the ability to offer prompt service in response to their needs. The investment portfolio has grown by $40 million or 35% over the past year. Purchases in the Bank's investment portfolio totaled $99 million. Included in the purchases were $51.3 million in mortgage-backed pools sponsored by the US Government. Government agency debentures totaling $26.2 were also purchased over the past twelve months. Of these debentures purchased, $24.7 million are callable securities and some have supported the bank's earnings in lieu of selling fed funds. These purchases in part replaced $24.2 million of called government-sponsored securities, $25.6 million in principal reductions in mortgage backed pools and $8.7 million in maturing securities. Unrealized losses in the available for sale portfolio as represented on the Bank's Statement of Condition increased over the past twelve months, ending the quarter at $251,000 and is indicative of the current national interest rate structure, including Federal Reserve increases in rates. This unrealized loss is also visible in the total market value of the portfolio in comparison with the book value. The Bank's posture traditionally has been to purchase securities with the intent to hold to maturity and potential sales in the portfolio are not imminent. In comparison, the investment portfolio grew by $12 million between June 30, 1997 and June 30, 1998 and included the purchase of $54.5 million in securities, of which $50.7 million were government agency debentures. Principal payments, maturities and called securities for the same period totaled $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 were indicative of the national economic interest rate structure for that time. The gains in the market value of the held to maturity portfolio were $783,000 above book value as of June 30, 1998. Funding for the asset growth has come from strong growth in the Bank's deposits totaling $25 million. In early 1997, the Bank introduced the Investor's Choice account, an account that competes favorably with national money market accounts with respect to interest rate offerings. This product has been quite successful for the Bank in new deposit growth as well as deposit retention. In addition to the deposit growth, funding for the growth in the balance sheet has come from increases in advances from the Federal Home Loan Bank totaling $34 million. Short-term borrowings traditionally drop during the third quarter through seasonal deposit growth, investment maturities and principal paydowns from the Bank's mortgage backed securities portfolio. Funding for the asset growth between 1997 and 1998 came from increases in advances from the Federal Home Loan Bank totaling $14.7 million. Deposits decreased overall by $2 million during that same period. The drop in deposits was in time deposits, mostly certificates of deposit. 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 16% for the past twelve months. Liquidity as measured by the Basic Surplus/Deficit model was 22.8% as of June 30, 1999 for the 30-day horizon and 25.2% 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, 1998 and 1999. The Bank's net earnings for the first six months of 1999 are $335,000 below earnings for the same period in 1998. As mentioned above, growth in earning assets was strong, but competition and shrinking margins affected the earnings. Additionally, the provision for possible loan losses and non-interest expenses were considerably higher in the half of 1999 than 1998. The comparison will be discussed below. The Bank's net income for the first six months of 1998 was $190,000 ahead of the six- month earnings as of June 30, 1997. Rates, volumes and the mix of earning assets and interest bearing liabilities directly affect interest income. For the first six months of 1999, net interest income increased by more than $350,000, which is $160,000 more than the increase between 1998 and 1997. The increase was the result of the growth in the balance sheet in both loans and investments. However, the competition for loans equates to narrowing margins, while increased investments, although producing strong yields in comparison to peer bank interest yields, still yield considerably less than loans. Additionally, funding costs are not decreasing as quickly as asset yields. Funding costs dropped several years ago, affording greater spreads at the time. Between June 30, 1998 and June 30, 1999, interest bearing liability costs decreased by only 22 basis points. As mentioned above, total loans increased by $22 million between June 30, 1998 and June 30, 1999. Interest earned on loans increased by more than $400,000 but was reduced by $255,000 due to decreases in interest rates charged on portions of the loan portfolio. Overall, the loan portfolio yield dropped by 56 basis points. This compares with a drop of 64 basis points between 1997 and 1998. In comparison, increases in loan volume of $7.8 million in 1998 compared to 1997 afforded increased interest income of approximately $675,000; however, decreases in rate reduced interest income by over $540,000, thereby netting an overall increase for loan interest of $132,000. Interest on investments increased based on $40 million increase in volumes. The $1.1 million increase in interest earned on investments was offset by $186,000 decrease in interest rates. The entire portfolio is currently earning 6.51% and 47 basis points less than it was a year ago. Year to date, the taxable portion of the portfolio decreased in yield on average by 32 basis points to 6.79%. The investment yields for 1998 were 10 basis points lower than 1997. As of June 30, 1998, on the investment side, interest and dividend income grew by only $20,000 when compared to June 30, 1997. Increases were made based on volumes ($139,000) with offsetting decreases in rates ($118,000) for the total investment portfolio. Yields in the overall portfolio decreased by 10 basis points from 1997 to 1998. Interest bearing liabilities increased by approximately $55 million or 19.6%, and the cost of those liabilities increased by more than 12% or more than $700,000. Interest expense from deposits increased by $257,000 based on increased volume and decreased by almost $400,000 based on interest rates. Reductions in interest bearing costs have come from the decline in interest rates for time deposits, including certificates of deposit and Individual Retirement Accounts, which have dropped approximately 59 basis points from year to year. While the interest expense created from other borrowings has increased $940,00 based on increased volumes of $34 million, the average rate has dropped by 34 basis points. As a comparison, overall interest bearing liability costs as of June 30, 1998 were almost flat in comparison to June 30, 1997's rates. The Bank's position with regard to interest rate sensitivity consists of the matching of its assets and liabilities for repricing within a year. There is some exposure to rising rates out beyond a year as the Bank has almost $26.2 million invested in callable securities with final maturities of ten years or less. The exposure lies with the possibility that these securities would not be called. With $20.6 million more liabilities than assets 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 $577,000 and $1,519,000 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 $456,000 the first year and by $547,000 the second year The ratio for the reserve for possible loan losses has been approximately 2% for a number of years, and continues with a ratio of 1.95% at June 30, 1999 and 2.06% as of June 30, 1998. This ratio represents a conservative approach to possible losses. The bank's delinquency ratio has continued to drop over the years and is at a record low. 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. Additionally, the allocation contains a provision for impaired loans in accordance with FASB 114/118. Reference is made to the notes included in this filing that outlines the impaired loan figures. Losses in the loan portfolio are estimated at $750,000 for 1999, with year to date net charge offs totaling $80,000 compared to $207,000 during the first six months of 1998. The amounts represented below are shown in thousands and represent the total dollars past due for the first six months of each year listed.
Category 1999 1998 90-day past due and still $ 1,206 $1,528 accruing Non-accruing 1,814 2,682 $3,020 $4,210 Gross loans $251,793 $229,226 Percentage of gross loans 1.20% 1.83%
Non-interest income for 1999 is virtually flat (1% increase) with the first six months of 1998. Although fee income generated from the bank's various cardholder programs (VISA, ATM, debit cards) has increased from year to year, the FASB entry for mortgage servicing rights income was $60,000 less in 1999 when compared to 1998. In comparison, non-interest income for 1998 was $250,000 or approximately 12% more than for the same period in 1997, 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. Salaries and employee benefits are $118,000 (4%) higher as of June 30, 1999 when compared to the same period for 1998. This includes merit increases, increased premiums for employee insurance plans, and an increase of 13 people in the full time equivalent work force. Other expenses, the category on the earnings statement that encompasses the majority of accounts that are not interest or human resource related, are $237,000 (8%) higher in 1999 than in 1998. This increase is much smaller than the 17% increased incurred between June 30, 1997 and June 30, 1998, which is described below. As of June 30, 1999, expenses incurred by the bank's card programs (including VISA cardholders, merchant processing, ATM, debit cards) are $107,000 more than for the comparable period in 1998. Additionally, the bank has signed a contract to convert its banking software to Information Technology, Inc. (ITI). The conversion is scheduled for second quarter 2000 and, in preparation, the bank has begun to upgrade some of its personal computers, writing off $25,000 in depreciation from its existing PCs. These PCs give all Bar Harbor Banking and Trust tellers faster PCs needed for the conversion, but also allow for more efficient service to their customers during the busy summer season. Additional PCs will be replaced before the conversion transpires next spring. Bank employees will be traveling to Nebraska, the home office for ITI, early this fall for initial training in mapping of bank products. Expenses incurred with this conversion also include the hiring of a third party to assist with the conversion, including project management and individual employee training. As mentioned above, other expenses for June 30, 1998 were 17% higher than in 1997. Included in the expenses for 1998 were increased maintenance contracts and depreciation expenses incurred as the Bank strengthened its technology capabilities. Additionally, the Bank was more active in the media in 1998, through the introduction of the Investor's Choice deposit account and numerous loan promotions. The Bank hired a consultant to assist in the selection process for a new banking software vendor. The Trust Department also incurred expenses during its conversion of accounting software to InfoVisa in September of 1998. Lastly, the amortization of mortgage servicing rights impacted the Bank's earnings by approximately $30,000. As a financial summary, the following ratios indicate the bank's status. The Bank's year to date efficiency ratio is 60%. The Bank's year to date capital to asset ratio is 11.1%. The Bank far exceeds the required risk based capital ratio of 8% with its Tier I ratio of 18.33%, total capital ratio of 19.58% and leverage ratio of 12.18%. These ratios represent capital of $30 million in excess of the requirement for a well-capitalized bank. As an update for Year 2000, the Assessment Phase is complete and the Renovation Phase is substantially complete. The bank has identified and contacted third party vendors (operating partners, plastic card networks, public utilities, etc.) that are critical to its operations and success. The bank has not independently verified the Year 2000 readiness statements of these third party vendors. Based on the assessment of system readiness, the bank has repaired or replaced systems as required. The Validation Phase is substantially complete with all mission critical systems tested either internally or by proxy with the exception of the bank's item processing application. All equipment for the item processing application has been upgraded and deemed Year 2000 compliant. Testing of the interface between the item processing application and the banking software will be completed before August 31, 1999. As the bank monitors on-going systems, it has also developed a contingency plan in case of unanticipated failures in any of the bank's systems. The plan has identified seven core business processes that would be critical for continued service to its customers. Business resumption plans for each of these processes are being refined and specific procedures are being developed to ensure the bank prepares for and operates through any possible Year 2000 related interruptions. The bank's contingency plan has been approved by its Board of Directors and will be validated before August 31, 1999. The bank has joined with four other local banks to create an Interbank Working Group for the Year 2000. This group is assessing liquidity, security and customer awareness issues. The CEOs of the five banks have sent letters to all major employers and clubs in our two-county area offering a bank panel consisting of representatives of each of the five banks to speak at their organization. A number of these sessions have already occurred and will continue into the late fall. The five CEOs have also met with local media representatives to reiterate the message that banks have done their Year 2000 compliance work and that funds maintained within banks are safe, sound and insured. The costs incurred thus far in 1999 for the Year 2000 initiative total $48,500 and are not expected to exceed $100,000 by year end. The financial statements for 1998 and 1999 include the required additional disclosures for SFAS No. 130 and 132. In addition, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and 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. 133 will be effective for fiscal years beginning after June 15, 2000 and SFAS No. 134 is effective the first fiscal quarter beginning July 1, 1999. Management does not expect the adoption of these standards to have a 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 12, 1999 Sheldon F. Goldthwait, Jr. Chief Executive Officer /s/ Virginia M. Vendrell Date: August 12, 1999 Virginia M. Vendrell Treasurer and Chief Financial Officer EX-27 2
9 0000743367 BAR HARBOR BANKSHARES 3-MOS DEC-31-1999 JUN-30-1999 9,054 0 3,200 0 27,618 120,549 118,433 251,793 (4,912) 433,820 270,472 51,426 4,231 59,459 0 0 7,287 40,945 433,820 10,482 4,671 28 15,181 4,073 6,523 8,658 537 0 6,266 4,267 4,267 0 0 2,844 .83 .83 8.12 1,814 1,206 0 0 4,455 253 173 4,912 4,912 0 1,211
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