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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 2049
FORM 10-K
Annual Report pursuant to Section 15(d) of the Securities and Exchange
Act of 1934 (fee required) for the fiscal year ended December 31, 2000.
Commission File No. O-13666
BAR HARBOR BANKSHARES
State of other jurisdiction of incorporation or organization:
Maine
IRS Employer Identification Number:
01-0393663
Address: PO Box 400, 82 Main Street, Bar
Harbor, ME Zip Code: 04609-0400
Registrant's telephone number, including area code:
(207) 288-3314
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock. Par Value $2.00
per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(D) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes XX
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definite proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this form 10-K.
Based on the closing price of the common stock of the registrant, the aggregate
market value of the voting stock held by non-affiliates of the registrant,
as of March 1, 2001 is:
Common Stock, $2.00 par value
$49,591,710
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 1, 2001 is:
Common Stock
3,306,114
Documents incorporated by Reference:
Proxy Statement for 2001 annual meeting pursuant to Regulation 14A of the
General Rules and Regulations of the Commission and filed with the Commission
on March 28, 2001.
INDEX
Item
Subject
Pages
1.
Business
3-5
2.
Properties
6
3.
Legal Proceedings
7
4.
Submission of Matters to a Vote of Security Holders
7
5.
Market for Registrant's Common Equity and Related
Shareholder Matters
7
6.
Selected Financial Data
8
7.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
8-23
7a.
Quantitative and Qualitative Disclosures about Market
Risk
23-24
8.
Consolidated Financial Statements and Supplementary
Data
26-46
9.
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
46
10.
Directors and Executive Officers of the Registrants
47
11.
Executive Compensation
47
12.
Security Ownership of Certain Beneficial Owners
and Management
47
13.
Certain Relationships and Related Transactions
47
14.
Exhibits, Financial Statement Schedules and Reports
on Form 8-K
47-58
PART I
ITEM 1. BUSINESS
ORGANIZATION
Bar Harbor Bankshares ("the Company") was incorporated January 19, 1984. As
of March 1, 2000, the Company's securities consisted of one class of
common stock ("the Common Stock"), par value of $2.00 per share, of which
there are 3,306,114 shares outstanding held of record by approximately 1,029
shareholders. The Company has two primary, wholly-owned operating
subsidiaries: Bar Harbor Banking and Trust Company ("the Bank"), a full
service, independent, community bank; and BTI Financial Group ("BTI"), a
financial services holding company that offers clients brokerage, trust, and
investment management services.
BANK
The Bank has ten offices in coastal Maine, including its principal office
located at 82 Main Street, Bar Harbor, as well as offices in Hancock County
and adjacent Washington County, which represent the Bank's principal market
areas. The Hancock County offices, in addition to the one in Bar Harbor are
located in Northeast Harbor, Southwest Harbor, Blue Hill, Deer Isle, Ellsworth,
and Winter Harbor. The Washington
County offices are located in Milbridge, Machias, and Lubec. The Bank
performs its operations, check clearing, technology, and mail services in its
Operations Center located on Avery Lane in Ellsworth, Maine.
The Bank is a retail bank serving individual and corporate customers, retail
establishments, seasonal lodging, campgrounds and restaurants. As a coastal
bank, it serves the lobstering, fishing, and aquaculture industries. It also
serves Maine's wild blueberry industry through its Washington County offices.
It operates in a competitive market that includes other community banks,
savings institutions, and credit unions, and branch offices of statewide and
interstate bank holding companies located in the Bank's market area. The Bank
continues to be one of the larger independent commercial banks in the State of
Maine.
The Bank has a broad deposit base and loss of any one depositor or closely
aligned group of depositors would not have a materially adverse effect on its
business. Approximately 85% of the Bank's deposits are in interest bearing
accounts. The Bank has paid, and anticipates that it will continue to pay,
competitive interest rates on certificates of deposit, IRAs, NOW and money
market accounts and does not anticipate any material loss of these deposits.
The Bank provides the normal banking services offered by a commercial bank,
including checking accounts, NOW accounts, all forms of savings and time
deposit accounts, individual retirement accounts, safe deposit boxes,
collections, travelers checks, night depository services, internet banking
services, direct deposit payroll services, automated teller services, credit
cards, personal money orders, bank-by-mail and club accounts, drive-up
facilities at all offices, and TeleDirect, an interactive voice response
system through which customers can get product information, check balances
and activity on their accounts as well as perform transfers between their
own accounts. In February 2001, the Bank began offering internet
banking services through its dedicated website of www.bhbt.com. The Bank also
has arrangements
with other institutions for the provision of certain services, which it does
not provide directly, such as computerized payroll services. Automated Teller
Machines (ATMs) are located in each of the ten branch locations in addition
to two machines in non-Bank locations. These ATMs access major networks for
use of the Bank's cards throughout the United States, including the Plus and
NYCE systems as well as the major credit card networks.
The Bank offers a comprehensive array of lending services, including consumer
credit in the form of installment loans, overdraft protection (stand-by
credit), VISA credit card accounts, student loans, residential mortgage loans,
and home equity loans. It offers business loans to individuals, partnerships,
and corporations, and other business entities for capital construction,
the purchase of real estate, working capital, and a broad range of other
business purposes. Business loans are provided primarily to organizations and
individuals in the tourist and hospitality, health care, blueberry,
shipbuilding and fishing, and aquaculture industries as well as to other small
to mid-size businesses associated with small coastal communities. Certain
larger loans which exceed the Bank's lending limits are written on a
participation basis with correspondent banks, with the Bank retaining only
such portions of those loans that are within its lending limits. The Bank's
policy for lending limits is up to 20% of its equity to any borrower provided
that the loans are secured and approved by the Directors' Loan Committee.
This committee is chaired by a member of the Bank's Board of Directors,
Bernard K. Cough, and includes members of the Bank's management and Board of
Directors.
As a state chartered financial institution, the Bank is supervised and
regulated by the Bureau of Banking of the State of Maine and the Federal
Deposit Insurance Corporation. In addition, as a bank holding company, the
Company is supervised and regulated by the Federal Reserve Bank. See also
Footnote 13 in the notes to the financial statements of the Annual Report to
Shareholders.
BTI
BTI Financial Group is a wholly-owned subsidiary of the Company. It was
incorporated on August 16, 1999, as the holding company for three operating
subsidiaries: Bar Harbor Trust Services ("Trust"), a newly formed Maine
corporation that performs the trust functions formerly performed by the Trust
Department of the Bank; Block Capital Management ("Block"), an SEC registered
investment advisor; and Dirigo Investments, Inc. ("Dirigo"), an SEC registered
broker-dealer.
Trust operates as a Maine chartered, non-depository trust company offering
revocable, irrevocable, charitable remainder and testamentary trust management,
and estate planning and management services such
as probate, estate settlement, and tax return preparation. Trust currently has
1,700 accounts.
Block, a newly formed investment advisor, provides discretionary and non-
discretionary investment advisory services for corporate and individual
investment portfolios, personal trusts, individual and corporate retirement
funds, and endowments for not-for-profit organizations. At December 31, 2000,
Block had $345 million under management, primarily for clients of Trust.
Dirigo was purchased by BTI in January 2000 and serves the brokerage needs
principally of individuals from first-time purchasers to sophisticated
investors. Dirigo provides a full service client relationship while value
pricing its service to compete with discount and on-line brokerage service.
It also offers a line of life insurance and annuity products. A third party
processor provides Dirigo's support and clearing services.
BTI's central offices are located in the recently renovated, 22,000-square-
foot office facility located at 135 High Street, Ellsworth, Maine. Dirigo,
Trust, and Block maintain their principal offices at the Ellsworth facility
and maintain additional offices at One Cumberland Place, Bangor, Maine. Trust
also maintains offices in the headquarters building of the Bank in Bar Harbor,
Maine.
The subsidiaries of BTI, while in a dynamic segment of the financial services
industry, each separately face significant competition for their services from
local banks and nonbanks, which may now or in the future offer a similar range
of services, as well as from a number of brokerage firms and investment
advisors with offices in the Bank's market area. In addition, most of these
services are widely available to the Bank's customers by telephone and over
the Internet through firms located outside the Bank's market area.
MANAGEMENT AND EMPLOYEES
In April 2000, Dean S. Read was appointed President and Chief Executive Officer
of the Company. He succeeds Sheldon F. Goldthwait, Jr., who served in that
capacity for six years. Mr. Read, who has 30 years of banking experience,
most recently served as Senior Vice President and Senior Relationship Manager
with Key Bank N.A. in Augusta, Maine. Other senior operating positions in the
Company include presidents of BTI and each of its subsidiaries and senior Bank
officers in charge of lending, retail banking, human resources, finance,
operations and technology, and credit administration in the Bank. Functional
officers in charge of finance and human resources also serve as officers of
the Company. At year end, the Company had 180 employees.
COMPUTER SOFTWARE CONVERSION
During the second quarter of 2000, the Bank converted virtually all of its
major software programs to a new vendor's systems. These conversions included
those applications associated with lending activities, deposits, general
ledger and financial controls, accounts payable, teller, and item image
applications. Further refinement of this successful conversion is a continuing
process.
STOCK DIVIDEND
On December 8, 1998, the Board of Directors of the Company declared a 100%
stock dividend to owners of record as of December 28, 1998, payable on January
25, 1999. All share and per share data information included in the Form 10-K
have been restated to reflect the 100% stock dividend.
OTHER MATTERS
The foregoing discussion, as well as certain other statements contained in
this Form 10-K, or incorporated herein by reference, contain statements which
may be considered to be forward-looking within the meaning of the Private
Securities Litigation and Reform Act of 1995. Forward-looking statements
relate to future operations, strategies, financial results or other
developments and are based on estimates and assumptions that are subject to
significant business, economic, and competitive uncertainties, many of which
are beyond the Company's control or are subject to change. The expected
benefits of the acquisition of Dirigo Investments, Inc., and the operations of
Block Capital Management and Bar Harbor Trust Services are subject to a number
of future uncertainties including the ability of Bar Harbor Bankshares to
successfully integrate the proposed new entities with its existing operations
and customer base, future competition from financial institutions and others
which may, in the future, be offering competing services, future changes in
state and federal laws and regulations governing financial services and
securities, and the ability of existing personnel to successfully manage the
financial services group. The Company disclaims any obligation to publicly
update or revise any forward-looking statement contained in the foregoing
discussion, or elsewhere in this Form 10-K.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The information set forth under this item is incorporated by cross reference to
the Company financial statements set forth in Item 8 of this report.
ITEM 2. PROPERTIES
The twelve parcels of real estate owned and utilized by the Company for its
operations are described below:
1. The principal office of the Bank is located at 82 Main Street, Bar Harbor,
Maine, and includes a building housing banking facilities and administrative
offices and an adjacent 35-car customer parking lot. The building was
renovated in 1998.
2. An office is located on Main Street, Northeast Harbor, Maine. This
property consists of a building constructed in 1974 that underwent interior
renovations in 1998 to better meet the Bank's needs at that location.
3. An office is located on Main Street, Southwest Harbor, Maine. This
property consists of a building constructed in 1975 that was added to and
renovated in 1989 to better meet the needs at that location.
4. An office is located on Church Street, Deer Isle, Maine. This property
consists of a building constructed in 1974 that was added to and renovated in
1994 to better meet the needs at that location.
5. An office is located on Main Street, Blue Hill, Maine. This property
consists of a building constructed in 1960 that was renovated in 1989 to
better meet the needs at that location.
6. An office is located on Main Street, Milbridge, Maine. This property
consists of a building constructed in 1974 to which a vestibule was added in
1994 to house an ATM that helps to better meet the needs at that location.
7. An office is located on Washington Street, Lubec, Maine. This property
consists of a building constructed in 1990 and is adequate for the Bank's needs
at that location.
8. An office is located on High Street, Ellsworth, Maine. This property
consists of a building constructed in 1982 and is adequate for the Bank's needs
at that location.
9. An office is located on Main Street, Winter Harbor, Maine. This property
consists of a building constructed in 1995 and is adequate for the Bank's needs
at that location.
10. An office is located on Main Street, Machias, Maine. This property
consists of a building that was purchased from Key Bank of Maine in May 1990
that was renovated in 1995 to better meet the Bank's needs at that location.
11. An Operations Center is located on Avery Lane, Ellsworth, Maine, that
houses the Bank's operations, check clearing, technology, training, and mail
departments. The building was constructed in 1996, with occupancy by the Bank
taking place in January of 1997.
12. BTI owns and occupies a recently renovated 22,000-square-foot office
building at 135 High Street, Ellsworth, Maine. Trust, Block, and Dirigo
occupy portions of this facility.
A parcel of land adjacent to the Blue Hill branch was purchased in 1981 but
has not been developed. The Company also leases office space for Dirigo and
Trust at One Cumberland Place in Bangor, Maine. Other real estates include
two out parcels, one improved, contiguous to the BTI Ellsworth location.
The Bank has Automated Teller Machines (ATMs) located in each of its ten
branches.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this report, there are no material legal proceedings to
which the Company or its subsidiaries, its Directors or Officers are a party
or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
High and low trades for each quarter of 2000 and 1999 are listed below per
records from the American Stock Exchange, where the Company's common stock is
traded under the symbol BHB. Per share data information has been adjusted to
reflect the 100% stock dividend described previously in Part I, Item 1 of this
report.
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
High Low
High Low
High Low
High Low
2000
$18.75 to $13.25
$16.13 to $13.38
$15.75 to $14.44
$15.50 to $14.06
1999
$23.50 to $20.125
$22.25 to $18.00
$22.00 to $18.00
$21.375 to $17.625
As of March 1, 2001, there were 1,029 registered holders of record of Bar
Harbor Bankshares common stock.
Dividends paid by the Company in 2000 and 1999:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2000
$0.19
$0.19
$0.19
$0.19
1999
$0.17
$0.17
$0.19
$0.19
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five years
(Dollars in thousands, except per share data):
2000
1999
1998
1997
1996
Balance Sheet totals
Total assets
$466,225
$456,809
$392,047
$342,726
$345,143
Total loans
271,381
261,189
229,435
217,139
211,960
Total deposits
278,076
281,708
266,448
251,903
251,676
Total equity
50,507
49,145
46,861
42,462
37,887
Average assets
471,572
428,555
363,657
344,554
331,971
Average equity
49,550
48,131
44,172
39,472
35,575
Statement of income totals
Interest and dividend income
$ 35,333
$ 31,952
$ 29,211
$ 28,518
$ 27,522
Interest expense
17,616
13,802
11,973
11,710
11,281
Net interest income
17,717
18,150
17,238
16,808
16,241
Provision for loan losses
952
474
336
620
720
Net interest income after
provision for loan losses
16,765
17,676
16,902
16,188
15,521
Noninterest income
(including net security
gains (losses))
7,066
5,854
5,688
5,001
5,000
Noninterest expense
16,615
14,298
12,865
11,801
10,913
Applicable income taxes
2,419
3,007
3,118
2,966
2,899
Net income
$ 4,797
$ 6,225
$ 6,607
$ 6,422
$ 6,709
Earnings Per share
$1.43
$1.81
$1.92
$1.87
$1.95
Return on total average
assets
1.02%
1.45%
1.82%
1.86%
2.02%
Return on total average
equity
9.68%
12.93%
14.96%
16.27%
18.86%
Average equity/average
assets
10.51%
11.23%
12.14%
11.46%
10.72%
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this discussion is to focus on significant changes in the
financial condition and results of operations of the Company and its
subsidiaries during the past three years. The discussion and analysis is
intended to supplement and highlight information contained in the accompanying
consolidated financial statements and the selected financial data presented
elsewhere in this report.
This report may contain forward-looking statements which are subject to
numerous assumptions, risks, and uncertainties. Statements pertaining to
future periods are subject to uncertainty because of the possibility of changes
in underlying factors and assumptions. Actual results could differ
materially from those contained in or implied by such forward-looking
statements for a variety of factors including: sharp and/or rapid changes in
interest rates; significant changes in the economic scenario from the current
anticipated scenario which could materially change anticipated credit quality
trends and the ability to generate loans; significant delay in or inability to
execute strategic initiatives designed to grow revenues and/or control
expenses; and significant changes in accounting, tax, or regulatory practices
or requirements.
SUMMARY
Net income for Bar Harbor Bankshares for the year 2000 was $4.8 million, which
represents $1.43 per share of common stock, compared with $6.2 million, or
$1.81 per share in 1999.
This past year was an eventful one that included several value building
initiatives that represent investments in the future but caused reductions in
net income in 2000. BTI Financial Group became operative in January 2000
through the spin-off of the trust and investment management business of Bar
Harbor Banking and Trust Company and the purchase of Dirigo Investments, Inc.
While there were various start-up expenses associated with this wholly owned
subsidiary, BTI's fee income, including Dirigo, increased 21% over trust
income recognized by the Company in 1999.
During the second quarter of 2000, the Bank completed a company-wide computer
software conversion to a new comprehensive, integrated system. While the
conversion caused some operational disruption and additional expense, this
enhanced system should generate identifiable operating benefits in the future.
A further decrease in 2000 earnings resulted from the leveraging strategy of
the investment portfolio in 1999 and early 2000. This growth of the portfolio
was funded by short-term borrowings which caused a compression of the net
interest income generated from these investments in the rising rate
environment throughout much of 2000.
The Bank's provision for possible loan losses rose by $478,000 to $952,000 in
2000. This increase was necessary to provide an adequate reserve for possible
loan losses.
During 2000, the Company experienced a 9% increase in average loans from $249
million in 1999 to $271 million in 2000 and the investment portfolio average
balance increased from $155 million in 1999 to $169 million in 2000. Funding
this growth were a modest $4.4 million increase in average deposits and a $32
million increase in average borrowing from the Federal Home Loan Bank.
LOANS
The 9% increase in average loans between 1999 and 2000 was in all loan
categories with the exception of a modest decrease in construction and
development and agricultural lending. Mortgages showed the greatest increase
during 2000 with an $8 million increase from 1999. In 2000, consumer loans,
including residential mortgages, comprised approximately 59% of the loan
portfolio, a slight increase from 55% last year. This increase is bolstered
by the increased activity in consumer mortgages.
The yield on the loan portfolio in 2000 increased 7 basis points in 2000 from
1999, in large measure due to a 100 basis point increase in the national prime
rate during 2000. About 55% of the Bank's loan portfolio is subject to
repricing within a twelve-month period although factors such as competition,
changes in loan mix, collateral strength and other variables do not allow a
direct relationship with changes in Federal Reserve Bank influenced rates.
The increase in portfolio yield to 8.83% along with the $32 million increase
in the average portfolio generated a $2.16 million increase in interest income
from the loan portfolio in 2000 over 1999. This interest income increase was
$1.98 million due to volume and $.18 million due in increase in rate.
Loan concentrations continue to reflect the Company's business region.
Approximately 11.4% or $31 million of the portfolio is represented by loans to
the hospitality industry. This is consistent with previous years. Other
concentrations in lesser amounts include manufacturing, fishing, retail and
wholesale trade, and real estate development and construction.
The Bank's underwriting process uses conservative loan to value ratios and
state and federal government guarantee programs where appropriate. In addition
to loans to consumers and commercial customers, the Bank originates and sells
(or participates in) loans to other lenders and investors. The sale of loans
allows the Bank to make more funds available to its customers in its service
area, while the servicing provides income. In 2000, loans serviced totaled
$52.8 million compared to $55.9 million in 1999.
The allowance for loan losses is an amount that management believes will be
adequate to absorb possible loan losses based on evaluation of their
collectibility and prior loss experience. The evaluation takes into
consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, specific problem loans, and current and
anticipated economic conditions that may affect the borrower's ability to pay.
While management uses available information to recognize losses on loans,
changing economic conditions and the economic prospects of the borrowers may
necessitate future additions or reductions to the allowance. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance based on their judgements about
information available to them at the time of their examination.
The Bank's allowance for possible loan losses was 1.56% of total loans at the
end of 2000. This compares to the Bank's peer group average allowance ratio
of 1.33% as published through the Uniform Bank Performance Report.
Each quarter, management prepares and the Board of Directors approves a
detailed analysis of the loan portfolio to ensure there are adequate reserves
for potential losses. Reserves are established for specific loans including
impaired loans, a pool of reserves based on historical charge offs by loan
types, and supplementary reserves to reflect current economic conditions,
credit concentrations, industry concentrations, and loan policy changes. The
specific credit allocation includes a detailed review of the credit in
accordance with SFAS No. 114 and 118 and an allocation is made based on this
analysis.
The amount expended in 2000 for the provision for possible loan losses was
$952,000. Loans charged off in 2000 totaled $1.22 million while recoveries
totaled $214,000. Net charged off loans for 2000 were $1.0 million, or .37%
of total loans at December 31, 2000, which was an increase from 1999's net
loans charged off representing 0.25% of the total loan portfolio at December
31, 1999.
The 1999 provision for loan losses was $474,000 while loans charged off in
1999 totaled $888,000 with recoveries of $252,000. Net charged off loans for
1999 totaled $636,000.
In 2000, $729,000 or 73% of the net charge offs resulted from losses in the
installment and other loans to individuals' portfolios. Net losses in the
commercial and agricultural loan portfolios totaled $115,000, or 11% net
charge offs for 2000, while net charge offs in real estate mortgages were
$161,000, or 16% of the total net charge offs. About 50% of the $214,000 of
recoveries came from one credit that was partially recovered this year.
If any portion of the outstanding principal of a loan is considered
uncollectable, the portion of the loan not collateralized is charged off.
Depending upon the circumstances, loans may or may not be pursued for
collection after being charged off.
When a real estate loan goes to foreclosure and the Bank buys the property,
the property is transferred from the loan portfolio to the Other Real Estate
Owned (OREO) portfolio at its fair value. If the loan balance is higher than
the fair value of the property, the difference is charged to the allowance for
loan losses at the time of the transfer. Along with using conservative
valuations of OREO properties, reserves are established to allow for selling
expenses that can be reasonably estimated.
At the end of 2000, the OREO portfolio consisted of four properties at a total
aggregate net book value of $107,000 compared with an OREO balance of $50,000
at the end of 1999.
SUMMARY OF LOAN PORTFOLIO AT DECEMBER 31
2000
1999
1998
1997
1996
Real estate loans
Construction and development
$ 12,297
$ 15,674
$ 11,366
$ 7,925
$ 8,906
Mortgage
203,920
195,645
168,258
158,592
146,041
Loans to finance agricultural
production and other loans to
farmers
6,674
10,814
10,308
9,993
10,092
Commercial and industrial loans
28,624
22,561
22,778
23,696
29,040
Loans to individuals for household,
family and other personal
expenditures
15,841
15,693
16,538
16,668
17,242
All other loans
3,978
282
138
209
319
Real estate under foreclosure
47
520
49
56
320
TOTAL LOANS
$271,381
$261,189
$229,435
$217,139
$211,960
Less: Allowance for possible
loan losses
4,236
4,293
4,555
4,743
4,293
NET LOANS
$267,145
$256,896
$224,980
$212,396
$207,667
NON-ACCRUAL LOANS AND ACCRUING LOANS PAST DUE 90 DAYS OR MORE
AT DECEMBER 31
2000
1999
1998
1997
1996
Loans accounted for on a
non-accrual basis
$6,907
$2,016
$1,744
$3,236
$3,541
Accruing loans contractually
past due 90 days or more
$1,206
$ 706
$1,710
$ 774
$ 733
Past due loans are reviewed on a monthly basis. Those loans 90 days or more
past due which are not well secured or in the process of collection are
designated as non-accruing. This includes government guaranteed loans unless
the guaranteed portion has been sold. Non-accrual loans and those loans 90
days past due and still accruing represent 2.99% of average loans for 2000 and
1.10% for 1999. The increase in nonaccrual loans is primarily attributed to
deterioration in one large credit for which management feels the Company is
adequately reserved.
SUMMARY OF LOAN LOSS EXPERIENCE
2000
1999
1998
1997
1996
Balance at beginning of period
4,293
$4,455
4,743
4,293
4,048
Charge offs:
Commercial, financial,
agricultural, others
253
445
217
102
195
Real estate mortgages
170
58
113
27
131
Installments and other loans
to individuals
800
385
458
456
385
Total charge offs
1,223
888
788
585
711
Recoveries:
Commercial, financial,
agricultural, others
136
51
40
169
73
Real estate mortgages
7
60
21
154
94
Installments and other loans
to individuals
71
141
103
92
69
Total recoveries
214
252
164
415
236
Net charge offs
1,009
636
624
170
475
Provision charged to operations
952
474
336
620
720
Balance at end of period
$ 4,236
$ 4,293
$ 4,455
$ 4,743
$ 4,293
Average loans outstanding during
period
$271,000
$248,708
$224,406
$217,295
$207,188
Increased charge offs in 2000 over those taken in 1999 are attributed to
larger than normal loses on two commercial installment loan relationships.
ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
(at December 31)
2000
1999
1998
Amount
Percent of
Loans in
Each
Category to
Total loans
Amount
Percent of
Loans in
Each
Category
to
Total
loans
Amount
Percent
of
Loans in
Each
Category
to
Total
loans
Real estate mortgages
$2,060
79.61%
$ 627
81.10%
$1,240
78.31%
Installments and other
loans
to individuals
560
5.91%
1,109
6.01%
323
7.21%
Commercial, financial,
and
agricultural
1,563
13.00%
1,878
12.78%
1,010
14.42%
Other
0
1.48%
183
.11%
180
.06%
Unallocated
53
- --
496
.00%
1,702
.00%
TOTAL
4,236
100.00%
4,293
100.00%
4,455
100.00%
Investments
The investment portfolio consists primarily of United States Government agency
securities, obligations of state and political subdivisions, corporate bonds,
and mortgage backed securities. The objectives of the Bank's investment
strategy for this portfolio is to maintain an appropriate level of liquidity,
diversify earning assets, control interest rate risk, and generate acceptable
levels of interest income.
The Bank's investment securities are classified in one of two categories:
available for sale and held to maturity. Investment securities classified as
available for sale are required to be reported at their fair value with
unrealized gains and losses, net of taxes, excluded from earnings but shown
separately as a component of accumulated other comprehensive income.
Securities classified in this category comprise 23% of the portfolio at
December 31, 2000. Held to maturity securities, which comprise 77% of the
portfolio, are reported at amortized cost.
On January 1, 2001, the Bank, as allowed under Statement of Financial
Accounting Standards No. 133 and 137 repositioned a significant part of the
investment portfolio from held to maturity to available for sale.
At December 31, 2000, the investment portfolio was $162.2 million, $4.4
million less than the balance at 1999 year end. The overall yield of the
portfolio in 2000 was 6.73% compared to 6.52% in 1999. This 21 basis point
increase is attributable primarily to the purchase of securities in 1999 and
early 2000 during a period of rising interest rates. In the latter part of
2000, the Bank curtailed new purchases of securities, instead diverting
maturities, paydowns, and interest to operating purposes and the paydown of
non-deposit borrowings.
At December 31, 2000, and 1999, the held to maturity category of investments
had net unrealized losses of $61,000 and $3.4 million respectively, while
the available for sale classification of securities had net unrealized losses
of $114,000 and $1.5 million respectively.
INVESTMENTS HELD TO MATURITY AT DECEMBER 31
(at book value)
2000
1999
1998
Obligations to U. S.
Government Agencies
$ 2,407
$ 2,424
$
5,690
Obligations of State and
Political Subdivisions
2,442
4,422
5,634
Other
111,457
121,985
101,838
TOTAL
$116,306
$128,831
$113,162
INVESTMENTS AVAILABLE FOR SALE AT DECEMBER 31
(at fair value)
2000
1999
1998
Obligations to U. S.
Government Agencies
$34,379
$28,155
$12,249
Obligations of State and
Political Subdivisions
- -
- -
- -
Other
3,465
3,495
5,595
TOTAL
$37,844
$31,650
$17,844
MATURITY SCHEDULE FOR INVESTMENTS HELD TO MATURITY
At December 31, 2000
One Year or
Less
Greater
Than one
Year to
Five years
Greater than Five
Years to
Ten Years
Greate
r
Than
Ten
Years
Obligations to U.S.
Government agencies:
$ 0
$ 0
$ 0
$ 0
Average Yield
- -
- -
- -
- -
Mortgage backed
Securities:
U.S. Government
agencies
201
1,849
16,885
65,462
Average Yield
6.78%
6.32%
6.48%
6.88%
Mortgage backed
Securities:
Other
0
153
3,711
10,104
Average Yield
- -
5.15%
6.68%
6.68%
Obligations of State and
Political
Subdivisions
721
876
360
485
Average Yield
7.19%
4.22%
7.6%
7.6%
Other Bonds
1,906
12,602
991
0
Average Yield
6.08%
6.48%
8.47%
- -
TOTAL
$2,828
$15,480
$21,947
$76,05
1
MATURITY SCHEDULE FOR INVESTMENTS
AVAILABLE FOR SALE AT DECEMBER 31, 2000
(at fair value)
One Year or
Less
One Year to
Five Years
Greater than
Five Years to
Ten Years
Greater than
Ten Years
Obligations of U. S.
Government agencies
$ 0
$13,859
$20,519
0
Average yield
- -
6.72%
6.80%
- -
Mortgage backed securities:
U. S. Government agencies
0
0
0
$2,244
Average yield
- -
- -
- -
7.81%
TOTAL
$
0
$13,859
$20,519
$2,244
Mortgage backed securities are included based upon the final maturity date of
the security. In 2000, the mortgage-backed securities portfolio has an
average life of 7.06 years, a modified duration of 4.90 years and is yielding
an average of 6.77%.
Yields on tax-exempt bonds were not computed on a tax equivalent basis.
The Bank does not hold any securities for a single issuer, other than U. S.
Government agencies, where the aggregate book value of the securities exceed
10% of the Bank's shareholders' equity.
DEPOSITS AND BORROWED FUNDS
The principal source of funding the balance sheet is customer deposits, which
declined modestly between December 31, 2000, and 1999. Average balances of
deposits including non-interest bearing, NOW, savings, and time deposits
increased $5.5 million between years. Average earnings assets which include
loans, investment securities, and short term investments increased $35.5
million, while December 31, 2000 balances increased a more modest $4.8
million. To fund this average increase in earning assets during 2000, the
Bank relied on increased borrowings from the Federal Home Loan Bank (FHLB).
Average borrowings from the FHLB during 2000 were $32.8 million greater than
the average borrowings in 1999. At December 31, 2000 FHLB outstandings were
$6.1 million greater than December 31, 1999. The Bank is focused on reducing
FHLB indebtedness, and funding loan growth through deposit growth and cash
flow from maturing investment securities.
During 2000, the cost of the Bank's interest bearing deposits increased
$719,000 over 1999. The average rate paid for these deposits increased to
3.81% from 3.57% in 1999. This increase in rate is attributable to a 100
basis point increase in the federal funds rate during 2000 and a modest shift
in the deposit mix to more costly CD products.
The cost of FHLB and overnight borrowings increased $3.1 million due to this
100 basis point increase in the federal funds rate in 2000 and a $35.4 million
increase in average outstanding balances between years.
SUMMARY OF DEPOSIT PORTFOLIO
2000
1999
1998
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Demand deposits
$ 44,180
$ 43,103
$ 38,890
NOW accounts
44,260
1.07%
44,115
1.07%
41,872
1.48%
Savings accounts
76,189
3.16%
77,021
3.04%
57,791
2.86%
Time deposits
115,984
5.17%
110,854
4.93%
116,262
5.39%
Total deposits
$280,613
$275,093
$254,815
MATURITY SCHEDULE FOR TIME DEPOSITS $100,000 OR MORE AT DECEMBER 31, 2000
Three Months or Less
Over Three Months
Through Six Months
Over Six Months Through
Twelve Months
Over Twelve Months
$7,546
$6,567
$5,181
$1,123
CAPITAL RESOURCES
The Company continued to maintain a strong capital portfolio, which is vital
in that it promotes depositor and investor confidence and provides a solid
foundation for future growth. In 2000, shareholders' equity increased $1.36
million after paying $2.55 million of dividends to shareholders, purchasing
$1.82 million of treasury stock, and recouping $939,000 value through market
appreciation of the securities available for sale portfolio. The Company at
December 31, 2000, demonstrated this capital strength with Tier 1 Capital of
16.8%, total capital of 18.0%, and a leverage ratio of 10.6%, compared to
regulatory minimum requirements of 4%, 8%, and 4%, respectively.
On January 10, 2000, Bar Harbor Bankshares acquired Dirigo Investments, Inc.,
a NASD Registered Broker-Dealer firm in Ellsworth, Maine. Dirigo Investments,
Inc., operates as a full-service discount brokerage firm, and is one of three
companies in Bar Harbor Bankshares' financial services subsidiary, BTI
Financial Group.
In November of 1999, the Board of Directors of the Company approved a stock
repurchase plan. The plan allows for the repurchase of up to 10% of the
Company's outstanding shares of stock or approximately 344,000 at the time of
the announcement of the plan. As of December 31, 2000, the Company had
repurchased 137,500 shares of stock under this plan for a total price of $2.22
million.
On December 8, 1998, the Board of Directors of the Company declared a 100%
stock dividend effected as a stock split to owners of record as of December
28, 1998, payable on January 25, 1999. Per share data information has been
adjusted to reflect the 100% stock dividend.
There are no known trends, events or uncertainties nor any recommendations by
any regulatory authority that are reasonably likely to have a material effect
on the Company's liquidity, capital resource, or operating results.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the principal component of the Company's income stream
and represents the difference or spread between interest and fee income
generated from earning assets and the interest expense paid on deposits and
borrowed funds. Fluctuations in interest rates as well as volume and mix
changes in earning assets and interest bearing liabilities can materially
impact net interest income.
Net interest income in 2000 decreased $433,000, or 2.3%, from 1999 although
average earning assets increased $35.4 million. The yield on earning assets
in 2000 increased from 7.89% to 8.02%, which, with the increase in volume,
increased interest income $3.38 million, or 10.6%, in 2000 from 1999.
Offsetting this was the increased cost of interest bearing deposits of
$719,000, or 14 basis points, over 1999 and the increased cost of FHLB and
overnight borrowings of $3.1 million in 2000 over 1999. This is attributed to
an 87 basis point increase in average rate paid on FHLB borrowings which was
directly influenced by a 100 basis point increase in the federal funds
targeted rate, and a $32.8 million increase in average borrowings from 1999.
This $32.8 million increase in average borrowings almost mirrors the $35.4
million increase in average earnings assets.
A principal reason for the increased borrowings was to fund increases in the
loan portfolio which had an average increase of $22.3 million during 2000 from
1999 and to leverage the average investment portfolio balance which increased
$13.6 million between years. Since deposits increased only modestly to fund
this increase in earning assets, the strategy was to increase FHLB borrowings
which was a more expensive source of funding than deposits. This compression
of net interest income was also evident in the net interest margin which is
the ratio of net interest income divided by earning assets. This ratio
declined from 4.48% in 1999 to 4.02% in 2000.
The following schedules provide detail of changes in interest income, interest
expense, and net interest income due to changes in volume and rate.
Nonaccrual loans are included in total average loans.
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
(Amounts in Thousands)
2000
Average
Balance
Interest
Yield/
Rate
ASSETS
Loans
$271,000
$ 23,939
8.83%
Taxable investment securities
165,529
11,168
6.74%
Non-taxable investment securities
3,082
186
6.03%
Fed. funds sold and money market funds
694
40
Total interest-earning assets
440,305
35,333
8.02%
Non-interest earning assets:
Total cash and due from banks
13,598
Allowance for possible loan losses
(4,222)
Bank premises and equipment
10,302
Other assets
11,589
TOTAL ASSETS
$471,572
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing demand deposits
$ 44,260
$ 439
.99%
Savings deposits
76,189
2,331
3.06%
Time deposits
115,984
6,238
5.38%
Repurchase agreements and short term
borrowings
114,663
6,995
6.10%
Long term borrowings
24,040
1,613
6.71%
TOTAL INTEREST BEARING LIABILITIES
$375,136
$17,616
4.70%
Non-interest bearing liabilities:
Non-interest bearing demand deposits
44,180
Other liabilities
2,706
Shareholders' equity
49,550
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
471,572
NET EARNING ASSETS
65,169
NET INTEREST INCOME/NET INTEREST SPREAD
17,717
3.32%
NET INTEREST MARGIN
4.02%
NET INCOME
$ 4,797
DIVIDENDS PAID IN CURRENT YEAR
$ 2,554
RETURN ON AVERAGE ASSETS
1.02%
RETURN ON AVERAGE EQUITY
9.68%
DIVIDEND PAYOUT RATIO
53.00%
EQUITY CAPITAL TO ASSETS RATIO
10.51%
Reported on tax-equivalent basis calculated using a rate of 34%
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
(Amounts in Thousands)
1999
Average
Balance
Interest
Yield/
Rate
ASSETS
Loans
$248,708
$21,777
8.76%
Taxable investment securities
149,698
9,798
6.55%
Non-taxable investment securities
5,332
316
5.92%
Fed. funds sold and money market funds
1,128
61
5.38%
Total interest-earnings assets
$404,866
$31,952
7.89%
Non-interest earning assets:
Total cash and due from banks
11,450
Allowance for possible loan losses
(4,781)
Bank premises and equipment
7,960
Other assets
9,060
TOTAL ASSETS
$428,555
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing demand deposits
$ 44,115
$ 480
1.29%
Savings deposits
77,021
2,338
3.04%
Time deposits
110,854
5,471
4.93%
Repurchase agreements and short term
borrowings
74,640
3,930
5.26%
Long term borrowings
28,662
1,583
5.52%
TOTAL INTEREST BEARING LIABILITIES
$335,292
$ 13,802
4.12%
Non-interest bearing liabilities:
Non-interest bearing demand deposits
43,103
Other liabilities
2,029
Shareholders' equity
48,131
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$428,555
NET EARNING ASSETS
$ 69,574
NET INTEREST INCOME/NET INTEREST SPREAD
$18,150
3.77%
NET INTEREST MARGIN
4.48%
NET INCOME
$ 6,225
DIVIDENDS PAID IN CURRENT YEAR
$ 2,476
RETURN ON EQUITY AND ASSETS
RETURN ON AVERAGE ASSETS
1.45%
RETURN ON AVERAGE EQUITY
12.93%
DIVIDEND PAYOUT RATIO
39.78%
EQUITY CAPITAL TO ASSETS RATIO
11.23%
Reported on tax-equivalent basis calculated using a rate of 34%
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
(Amounts in Thousands)
1998
Average
Balance
Interest
Yield/
Rate
ASSETS
Loans
$224,406
$21,290
9.49%
Taxable investment securities
111,111
7,450
6.71%
Non-taxable investment securities
6,650
424
6.37%
Fed. funds sold and money market funds
955
47
4.92%
Total interest-earning assets
$343,122
$29,211
8.51%
Non-interest earning assets:
Total cash and due from banks
10,856
Allowance for possible loan losses
(4,721)
Bank premises and equipment
7,823
Other assets
6,577
$363,657
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing demand deposits
$ 41,872
$ 622
1.48%
Savings deposits
57,791
1,650
2.86%
Time deposits
116,262
6,267
5.39%
Repurchase agreements and short term borrowings
39,644
2,133
5.38%
Long Term Borrowings
22,849
1,301
5.69%
TOTAL INTEREST BEARING LIABILITIES
$278,418
$11,973
4.30%
Non-interest bearing liabilities:
Non-interest bearing demand deposits
38,890
Other liabilities
2,177
Shareholders' equity
44,172
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$363,657
NET EARNING ASSETS
$ 64,704
NET INTEREST INCOME/NET INTEREST SPREAD
$ 17,238
4.21%
NET INTEREST MARGIN
5.02%
NET INCOME
$ 6,607
DIVIDENDS PAID IN CURRENT YEAR
$ 2,307
RETURN ON EQUITY AND ASSETS
RETURN ON AVERAGE ASSETS
1.82%
RETURN ON AVERAGE EQUITY
14.96%
DIVIDEND PAYOUT RATIO
34.92%
EQUITY CAPITAL TO ASSETS RATIO
12.14%
Reported on tax-equivalent basis calculated using a rate of 34%
RATE VOLUME ANALYSIS
The following table represents a summary of the changes in interest earned and
interest paid as a result of changes in rates and changes in volumes.
For each category of earning assets and interest bearing liabilities,
information is provided with respect to changes attributable to change in rate
(change in rate multiplied by old volume) and change in volume (change in
volume multiplied by old rate). The change in interest due to both volume and
rate has been allocated to volume and rate changes in proportion to the
relationships of the absolute dollar amounts of the change in each.
YEAR-ENDED DECEMBER 31, 2000
COMPARED TO DECEMBER 31, 1999
INCREASES (DECREASES) DUE TO:
Volume
Rate
Net
Loans
$1,985
$ 177
$2,162
Taxable investment securities
1,075
295
1,370
Non-taxable investment securities
(140)
10
(130)
Federal funds sold and money market funds
(25)
4
(21)
TOTAL EARNING ASSETS
$2,895
$ 486
$3,381
Deposits
$ 160
$ 559
$ 719
Repurchase agreements and short term borrowings
2,360
705
3,065
Long term borrowings
(279)
309
30
TOTAL INTEREST BEARING LIABILITIES
2,241
1,573
3,814
NET CHANGE IN INTEREST
$ 654
($1,087)
($ 433)
YEAR-ENDED DECEMBER 31, 1999
COMPARED TO DECEMBER 31, 1998
INCREASES (DECREASES) DUE TO:
Volume
Rate
Net
Loans
$2,201
($1,714)
$ 487
Taxable investment securities
2,530
(164)
2,366
Non-taxable investment securities
(80)
(28)
(108)
Federal funds sold and money market funds
11
(15)
(4)
TOTAL EARNING ASSETS
$4,662
($1,921)
$2,741
Deposits
$ 650
($ 900)
($ 250)
Repurchase agreements and short term borrowings
1,845
(48)
1,797
Long term borrowings
322
(40)
282
TOTAL INTEREST BEARING LIABILITIES
2,817
( 988)
1,829
NET CHANGE IN INTEREST
$1,845
($ 933)
$ 912
Non-Interest Income
Non-interest income in 2000 increased $1.21 million, or 20.7%, primarily
because of the purchase of Dirigo Investments, Inc., which contributed $603,000
of revenue and an increase of service charges on deposits of $550,000. This
latter increase was due to fee enhancements that were implemented during the
fourth quarter of 2000 and the improved management of customer charges
throughout the year.
Non-interest income for 1999 was $167,000 more than 1998. Included in other
service charges, commissions and fees are fees generated from the Bank's
various electronic card programs, VISA, merchant programs, ATM, and check card
fees. Collectively, other service charges, commissions, and fees earned
$327,000 more before expenses than in the previous year. Security gains of
$148,000 representing closure on portions of the Bank's investment in a
regional venture capital fund were taken in 1998 with only minor gains taken
in 1999.
Non-interest Expense
Non-interest expense increased $2.32 million, or 16.2% in 2000 from 1999
principally due to additional expenses associated with Dirigo and the formation
of BTI and its subsequent expansion into Bangor, Maine, a computer software
conversion of the core operating system and its principal applications,
additions of key staff throughout the Company to take advantage of future
opportunities, additions to credit administration that are expected to reduce
future collection costs and charge-offs, and performance training throughout
the Company.
Much of this increase in expense is reflected in salaries and benefits which
increased 28% in 2000 over 1999 after excluding from 1999 comparison a
one-time expense of $640,000 related to the non-qualified supplemental
retirement plan of a former officer. The addition of Dirigo Investments,
Inc., added $368,000 of salary related expenses in 2000 that were not incurred
in 1999. Other increases in 2000 include overtime pay associated with the
computer conversion, salaries related to the forming of a more comprehensive
credit administration function, additional BTI staff, particularly in the areas
of investment management and customer service, and key executive management
positions that included some transitional overlap.
Occupancy increased because of expanded office space for BTI and its
subsidiaries, and higher utility costs because of escalating utility prices.
Furniture and equipment expense increased $379,000, primarily due to higher
technology costs related to the enhanced operating software that was acquired
in 2000. Other operating expenses included increases in consulting fees
related to the software conversion and other operational improvements, office
supplies related to new computer forms, and the operations of BTI, losses on
the disposal of fixed assets, particularly obsolete computer equipment.
Non-interest expenses for 1999 were $1.4 million or 11% more than 1998. The
major increases were salaries and benefits which included the $640,000
mentioned previously and other operating expenses which included $349,000 for
start up expenses in connection with the conversion of the banking software
solution and costs incurred with the formation of BTI Financial Group.
Liquidity
Liquidity is measured by the Bank's ability to meet short-term cash needs at a
reasonable cost or minimum loss to the Bank. Liquidity management involves
the ability to meet cash flow requirements of its customers, which may come
from depositors withdrawing funds or borrowers requiring funds to meet credit
needs. Without adequate liquidity management, the Bank would not be able to
meet the needs of the individuals and communities it serves. The Bank uses a
Basic Surplus/Deficit model to measure its liquidity over a 30-day and a
90-day time horizon. The relationship between liquid assets and short-term
liabilities that are vulnerable to non-replacement within a 30-day period is
examined. The Bank's policy is to maintain its liquidity position at a minimum
of 5% of total assets. Liquidity as measured by the Basic Surplus/Deficit
model was 12.4% as of December 31, 2000, for the 30-day horizon and 11.0% for
the 90-day horizon.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in the fair value
of financial instruments due to changes in interest rates. The Bank's market
risk is composed primarily of interest risk, which may cause an unfavorable
impact on net interest income. Through the Bank's Asset/Liability Committee
(ALCO), management reviews the interest rate sensitivity position of the Bank
and establishes policies to monitor and limit exposure to interest rate risk.
All guidelines and policies established by ALCO have been approved by the Board
of Directors.
Asset/liability management maintains a balance between interest-sensitive
earning assets and interest-bearing liabilities and manages the Bank's
exposure against adverse fluctuations in interest rates. As of December 31,
2000, Bar Harbor Banking and Trust Company was liability sensitive with $183
million in assets and $255 million in liabilities that could be repriced
within one year. This increases the exposure of interest rate risk to the bank
on these funds in a rising rate environment but could be beneficial in a
declining rate environment.
Management continues to watch economic trends with respect to interest rates.
The Bank uses a simulation model to quantify the estimated exposure to
interest rates. The model calculates the impact of changing interest rates
for the Bank's interest earning assets and interest paying liabilities. The
model assumes a static balance sheet and utilizes a non-parallel yield curve
shift in rates to recognize the impact of interest rate changes. Based on
simulations, if interest rates were to rise by 200 basis points and if the
Bank were to maintain the balance sheet as it stands today, the Bank would
reduce its net interest income by $275,000 during the next twelve months. If
rates were to drop by 200 basis points, the Bank would experience a modest
decrease in its net interest income of $62,000 during the next twelve months.
The following reflects the Bank's net interest income sensitivity analysis as
of December 31, 2000, and 1999:
RATE CHANGE - 2000
- -200 basis points
+200 basis points
Year 1
Net interest income change ($)
($ 62)
($275)
Net interest income change (%)
(.36%)
(1.61%)
Year 2
Net interest income change ($)
$18
($125)
Net interest income change (%)
.11%
(.73%)
RATE CHANGE - 1999
- -200 basis points
+200 basis points
Year 1
Net interest income change ($)
$834
($1,022)
Net interest income change (%)
4.64%
(5.69%)
Year 2
Net interest income change ($)
$1,307
($2,132)
Net interest income change (%)
8.18%
(10.95%)
The preceding sensitivity analysis does not represent a Bank forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including:
the nature and timing of interest rate levels and yield curve shape,
prepayments on loans and securities, deposit rates, pricing decisions on loans
and deposits, reinvestment/replacement of asset and liability cashflows, and
others. While assumptions are developed based upon current economic and local
market conditions, the Company cannot make any assurances as to the predictive
nature of these assumptions including how customer preferences or competitor
influences might change.
As market conditions vary from those assumed in the sensitivity analysis,
actual results may also differ due to: prepayment/refinancing levels deviating
from those assumed, the impact of interest rate change caps or floors on
adjustable rate assets, the potential effect of changing debt service levels
on customers with adjustable rate loans, depositor early withdrawals, and
product preference changes, and other such variables. The sensitivity
analysis does not reflect actions that ALCO might take in responding to or
anticipating changes in interest rates.
When appropriate, ALCO may use off-balance sheet instruments such as interest
rate floors, caps and swaps to hedge its interest rate risk position. A Board
of Directors approved hedging policy statement governs use of these
instruments.
As of December 31, 2000, there were no off-balance sheet instruments in
place.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bar Harbor Bankshares
We have audited the accompanying consolidated balance sheets of Bar Harbor
Bankshares and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bar Harbor
Bankshares and Subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with generally accepted accounting principles.
/s/ BERRY, DUNN, McNEIL & PARKER
Portland, Maine
March 2, 2001
CONSOLIDATED BALANCE SHEETS
BAR HARBOR BANKSHARES AND SUBSIDIARIES
DECEMBER 31, 2000, AND 1999
(Dollars in thousands)
2000
1999
Assets
Cash and due from banks
$ 10,580
$ 12,852
Securities:
Available for sale, at market
37,844
31,690
Held to maturity (market value $116,245 and
$125,416 at December 31, 2000 and 1999
repectively)
116,306
128,831
Other securities
8,068
6,118
TOTAL SECURITIES
162,218
166,639
Loans
271,381
261,189
Allowance for possible loan losses
(4,236)
(4,293)
Loans, net of allowance
267,145
256,896
Premises and equipment
11,996
8,440
Other assets
14,286
11,982
TOTAL ASSETS
$466,225
$456,809
Liabilities
Deposits
Demand deposits
$ 42,527
$ 41,904
Savings deposits
73,776
78,511
NOW accounts
41,039
45,107
Time deposits
120,734
116,186
TOTAL DEPOSITS
278,076
281,708
Securities sold under repurchase agreements
12,166
8,807
Borrowings from Federal Home Loan Bank
119,152
113,035
Other liabilities
6,324
4,114
TOTAL LIABILITIES
$415,718
$407,664
Commitments and contingent liabilities (Notes 13
and 16)
Shareholders' equity
Capital stock, par value $2.00; authorized
10,000,000 shares; issued 3,643,614 shares
in 2000 and 1999 respectively
7,287
7,287
Surplus
4,002
4,002
Retained earnings
42,854
40,611
Net unrealized accumulated other comprehensive
losses
(76)
(1,015)
Less: cost of 337,500 shares and 222,100
shares
of treasury stock at December 31, 2000 and
1999
(3,560)
(1,740)
TOTAL SHAREHOLDERS' EQUITY
50,507
49,145
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$466,225
$456,809
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME
BAR HARBOR BANKSHARES AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(Dollars in thousands, except per share data)
2000
1999
1998
Interest and dividend income:
Interest and fees on loans
$23,939
$ 21,777
$21,290
Interest and dividends on securities
11,394
10,175
7,921
Total interest and dividend income
35,333
31,952
29,211
Interest expense:
Deposits
9,008
8,289
8,539
Short-term borrowings
550
830
549
Long-term borrowings
8,058
4,683
2,885
Total interest expense
17,616
13,802
11,973
Net interest income
17,717
18,150
17,238
Provision for possible loan losses
952
474
336
Net interest income after provision for possible
loan losses
16,765
17,676
16,902
Noninterest income:
Trust and other financial services
3,200
2,707
2,726
Service charges on deposit accounts
1,364
814
722
Other service charges, commissions and fees
1,035
812
767
Credit card service charges and fees
1,426
1,381
1,100
Other operating income
41
132
225
Net securities gains
0
8
148
7,066
5,854
5,688
Noninterest expenses:
Salaries and employee benefits
7,937
6,834
6,031
Occupancy expense
865
683
650
Furniture and equipment expense
1,680
1,301
1,214
Credit card expenses
1,162
1,247
986
Other operating expense
4,971
4,233
3,984
16,615
14,298
12,865
Income before income taxes
7,216
9,232
9,725
Income taxes
2,419
3,007
3,118
Net income
$ 4,797
$ 6,225
$ 6,607
Per capital share data:
Net income
$ 1.43
$ 1.81
$1.92
Weighted average number of common shares
outstanding
3,360,770
3,441,08
0
3,443,387
The accompanying notes are an integral part of these consolidated financial
statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in thousands, except number of shares and per share data)
Capital
Stock
Surplus
Retained
Earnings
Net
Unrealized
Appreciation
(Depreciation
)
on Securities
Available for
Sale
Treasury
Stock
Total
Shareholder
s'
Equity
Balance December 31, 1997
7,284
3,932
32,562
24
(1,340)
42,462
Net income 1998
- -
- -
6,607
- -
- -
6,607
Net unrealized appreciation on
securities
available for sale, net of
tax of $14
- -
- -
- -
26
- -
26
Total comprehensive income
- -
- -
6,607
26
- -
6,633
Cash dividends declared ($0.67
per share)
- -
- -
(2,307)
(2,307)
Sale of stock
3
70
- -
-
- -
73
Balance December 31, 1998
7,287
4,002
36,862
50
(1,340)
46,861
Net income 1999
- -
- -
6,225
- -
- -
6,225
Net unrealized depreciation on
securities available for sale,
net of tax benefit of $549
- -
- -
- -
_(1,065)
- -
(1,065)
Total comprehensive income
6,225
(1,065)
5,160
Cash dividends declared ($0.72
per share)
(2,476)
(2,476)
Purchase of treasury stock
(22,100
shares)
- -
- -
- -
-
(400)
(400)
Balance December 31, 1999
7,287
4,002
40,611
(1,015)
(1,740)
49,145
Net income 2000
- -
- -
4,797
- -
- -
4,797
Net unrealized appreciation on
securities
available for sale, net of tax
of $ 484
- -
- -
- -
939
- -
939
Total comprehensive income
- -
- -
4,797
939
- -
5,736
Cash dividends declared ($0.76
per share)
(2,554)
(2,554)
Purchase of treasury stock
(115,400
shares)
- -
- -
- -
-
(1,820)
(1,820)
Balance, December 31, 2000
$7,287
$4,002
$42,854
$(76)
$(3,560)
$50,507
The accompanying notes are an integral part of these consolidated financial
statements.
BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars in thousands)
2000
1999
1998
Cash flows from operating activities:
Net income
$
4,797
$
6,225
$
6,607
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation
1,202
980
938
Deferred income taxes
26
(180)
248
Provision for loan losses
952
474
336
(Gain) loss on sale of other real estate owned
(12)
15
19
Net change in loans held for sale
0
1,018
(653)
Net securities gains
0
(8)
(148)
Net amortization of bond premium
89
179
249
Loss on sale of premises and equipment
95
70
1
Net change in other assets
(2,757)
(1,854)
(872)
Net change in other liabilities
2,210
(412)
(200)
Net cash provided by operating activities
6,602
6,507
6,525
Cash flows from investing activities:
Purchases of securities held to maturity
(5,213)
(45,592)
(72,428)
Proceeds from maturity and principal paydowns of
securities held to maturity
17,626
26,475
28,024
Proceeds from call of securities held to maturity
0
3,250
16,346
Purchases of securities available for sale
(6,808)
(20,465)
(16,245)
Proceeds from maturity and principal paydowns of
securities available for sale
99
1,525
302
Proceeds from call of securities available for
sale
2,000
3,500
12,750
Net decrease (increase) in other securities
(1,949)
23
22
Net loans made to customers
(11,290)
(32,472)
(13,485)
Capital expenditures
(4,953)
(1,546)
(1,231)
Proceeds from sale of other real estate owned
44
115
505
Proceeds from sale of fixed assets
100
7
0
Net cash used in investing activities
(10,344)
(65,180)
(45,440)
Cash flows from financing activities:
Net increase (decrease) in deposits
(3,632)
15,260
14,545
Net change in securities sold under repurchase
agreements
3,359
715
3,618
Proceeds from Federal Home Loan Bank advances
104,500
103,000
50,000
Repayment of Federal Home Loan Bank advances
(62,383)
(56,000)
(30,500)
Net change in short term borrowed funds
(36,000)
(85)
7,460
Proceeds from sale of capital stock
0
0
73
Purchase of treasury stock
(1,820)
(400)
0
Payments of dividends
(2,554)
(2,476)
(2,307)
Net cash provided by financing activities
1,470
60,014
42,889
Net increase (decrease) in cash and cash equivalents
(2,272)
1,341
3,974
Cash and cash equivalents at beginning of year
12,852
11,511
7,537
Cash and cash equivalents at end of year
$
10,580
$
12,852
$
11,511
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest
$
17,606
$
13,807
$
11,992
Income taxes, net of refunds
$
2,200
$
3,133
$
3,180
Non-cash transactions
Transfer from loans to other real estate owned
$
89
$
82
$
564
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Bar Harbor Bankshares, ("the Company") through its wholly-owned subsidiaries,
Bar Harbor Banking and Trust Company ("the Bank"), and BTI Financial Group
("BTI"), provides a full range of banking, trust, financial management, and
investment services to individual and corporate customers throughout eastern
Maine. These banking services are available in each of its ten branch
locations while BTI subsidiaries are in three locations. The Bank and BTI are
subject to the regulations of certain federal and state agencies and undergo
periodic examinations by those regulatory authorities.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for financial
information and with the instructions to Form 10-K of the Securities Exchange
Act of 1934.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans.
In connection with the determination of the allowance for loan losses and the
carrying value of real estate owned, management obtains independent appraisals
for significant properties.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Bar
Harbor Bankshares and its wholly owned subsidiaries, Bar Harbor Banking and
Trust Company and BTI Financial Group. All significant intercompany balances
and transactions have been eliminated in the accompanying consolidated
financial statements.
Comprehensive Income
Comprehensive income includes both net income and other comprehensive income.
Other comprehensive income includes the change in unrealized gains and losses
on securities available for sale and is disclosed in the consolidated
statements of changes in shareholders' equity.
Cash and Due from Banks
The Bank is required to comply with various laws and regulations of the
Federal Reserve Bank, which require that the Bank maintain certain amounts of
cash on deposit and is restricted from investing those amounts. In the normal
course of business, the Bank has funds on deposit at other financial
institutions in amounts in excess of the $100,000 that is insured by the FDIC.
Securities Available for Sale
Securities available for sale consist of certain securities to be held for
indefinite periods of time, which are reported at fair value with unrealized
gains and losses reported as a separate component of shareholders' equity, net
of tax effect. Gains and losses on the sale of securities available for sale
are determined using the specific-identification method and are shown
separately in the statement of income. Premiums and discounts are recognized
in interest income using the interest method over the period to maturity.
Securities to be Held to Maturity
Debt securities for which the Bank has the positive intent and ability to hold
to maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts that are recognized in interest income using the
interest method over the period to maturity.
Other Securities
Other securities include Federal Home Loan Bank stock and other non-marketable
securities carried at cost.
Loans Held for Sale
Loans held for sale are individual residential mortgage loans that qualify for
sale in the secondary market to the Federal Home Loan Mortgage Corporation
(Freddie Mac). These loans are closed and immediately sold without recourse
to Freddie Mac, with the Bank retaining loan servicing on said loans. The
Bank does not pool mortgages for sale. Because loans are sold immediately,
the cost approximates market value.
Loans
Loan origination fees and certain direct loan origination costs are deferred
and recognized in interest income as an adjustment to the loan yield over the
life of the related loans.
Interest on loans is accrued and credited to income based on the principal
amount of loans outstanding. The accrual of interest income is discontinued
when, in the opinion of management, full collection of principal, interest,
and fees is in question. Interest income on impaired loans is reported on a
cash basis when received.
A loan is considered impaired when it is probable that the Bank will not
collect all amounts due according to the contractual terms of the loan
agreement. The carrying values of impaired loans, primarily those on a
nonaccruing status, are periodically adjusted to reflect cash payments,
revised estimates of future cash flows, and increases in the present value of
expected cash flows due to the passage of time. Cash payments representing
interest income are reported as such. Other cash payments are reported as
reductions in carrying value, while increases or decreases due to changes in
estimates of future payments and due to the passage of time are reported as
provision for
loan losses.
The allowance for possible loan losses is maintained at a level adequate to
absorb probable losses. Management determines the adequacy of the allowance
based upon reviews of individual credits, recent loss experience, current
economic conditions, the risk characteristics of the various categories of
loans and other pertinent factors. Credits deemed uncollectible are charged
to the allowance. Provisions for credit losses and recoveries on loans
previously charged off are added to the allowance.
Mortgage Servicing Rights
Mortgage servicing assets are recognized as separate assets when rights are
acquired through purchase or through sale of financial assets. Capitalized
servicing rights are reported in other assets and are amortized into
non-interest income in proportion to, and over the period of, the estimated
future net servicing income of the underlying financial assets. Servicing
assets are evaluated for impairment based upon the fair value of the rights as
compared to unamortized cost. Fair value is determined using prices for
similar assets with similar characteristics, when available, or based upon
discounted cash flows using market-based assumptions. Impairment is
recognized through a valuation allowance to the extent that fair value is less
than the capitalized value of the rights.
Premises and Equipment
Premises and equipment and related improvements are stated at cost less
accumulated depreciation. Depreciation is computed by the straight-line and
accelerated methods over the estimated useful lives of the related assets.
Other Real Estate Owned (OREO)
Real estate acquired in satisfaction of a loan is reported in other assets.
Properties acquired by foreclosure or deed in lieu of foreclosure are
transferred to OREO and recorded at the lower of cost or fair market value
less estimated costs to sell based on appraised value at the date actually or
constructively received. Loan losses arising from the acquisition of such
property are charged against the allowance for loan losses. Subsequent
reductions in market value below the carrying costs are changed to other
operating expenses.
Income Taxes
Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Principal temporary differences occur with respect to pension and
other postretirement benefits, depreciation and the provision for loan losses.
Financial Instruments with Off-balance Sheet Risk
In the ordinary course of business the Bank has entered into off-balance sheet
financial instruments consisting of commitments to extend credit, commitments
under credit-card arrangements, commercial letters of credit, and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or received.
Statements of Cash Flows
For purposes of the statements of cash flows, the Bank considers cash on hand
and amounts due from banks as cash and cash equivalents.
Basic Earnings Per Share
Basic earnings per share is calculated by dividing net earnings by the number
of weighted average shares outstanding for the year. There are no diluted
earnings per share as there is no potential capital stock.
Fair Value Disclosures
The Company in estimating its fair market value disclosures for financial
instruments used the following methods and assumptions:
Cash and cash equivalents: The carrying amounts reported in the balance sheets
for cash and cash equivalents approximate their fair values.
Securities available for sale, securities held to maturity and other
securities: Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Loans receivable: For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
The fair value of other loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposits: The fair value of demand deposits, NOW accounts and savings accounts
is the amount payable on demand. The fair value of fixed maturity certificates
of deposit is estimated using the rates currently offered in the Bank's market
for deposits of similar remaining maturities.
Borrowings: The carrying amounts of federal funds purchased, borrowings under
repurchase agreements, and other short-term borrowings maturing within 90 days
approximate their fair values.
The fair values of the Bank's long-term borrowings (other than deposits) are
estimated using discounted cash flow analyses, based on quoted market rates.
Accrued interest: The carrying amounts of accrued interest approximate their
fair values.
Off-balance sheet instruments: The Bank's off-balance sheet instruments may
include interest rate swaps, floors and loan commitments. Fair values for
interest rate swaps and floors are based on quoted market prices. Fair values
for loan commitments have not been presented, as the value is not material to
the Company's statements due to the short-term nature of the underlying
commitments.
Impact of Recently Issued Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," are effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. These statements set
accounting and reporting standards for derivative instruments and
hedging activities. They require an entity to recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. These statements are expected to have no
impact on the Company as it has not engaged in any derivative
transactions.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" is effective for transfers occurring after
March 31, 2001. SFAS No. 140 replaces SFAS No. 125. This statement is
expected to have no material impact to the Company's consolidated financial
condition and results of operations.
2. INVESTMENT SECURITIES
The amortized cost of investment securities and their approximate fair values
at December 31, 2000 and 1999 follows:
2000
Amortize
d
Cost
Gross
Unrealized
Gains
Gross
Unrealize
d
Losses
Estimate
d
Fair
Value
Available for Sale:
Obligations of U.S. Government
agencies
$ 34,424
$131
$176
$34,379
Mortgage-backed securities -
U.S. Government agencies
2,235
8
0
2,243
Marketable equity securities
1,300
0
78
1,222
Total securities available for sale
$ 37,959
$139
$254
$37,844
Held to Maturity:
Obligations of U. S. Government
agencies
$
2,407
$ 0
$ 13
$
2,394
Mortgage-backed securities - U.S.
Government agencies
81,990
460
533
81,917
Mortgage-backed securities - other
13,968
103
145
13,926
Obligations of states of the U.S. and
political subdivisions thereof
2,442
11
30
2,423
Other bonds
15,499
152
66
15,585
Total securities held to maturity
$116,306
$726
$787
$116,245
1999
Amortize
d
Cost
Gross
Unrealized
Gains
Gross
Unrealize
d Losses
Estimate
d
Fair
Value
Available for Sale:
Obligations of U.S. Government
agencies
$ 29,593
$ 0
$ 1,438
$ 28,155
Mortgage-backed securities - U.S.
Government agencies
2,334
0
0
2,334
Marketable equity securities
1,300
6
105
1,201
Total securities available for sale
$ 33,227
$ 6
$1,543
$31,690
Held to maturity:
Obligations of U. S. Government
agencies
$ 2,424
$ 0
$ 108
$2,316
Mortgage-backed securities - U.S.
Government agencies
94,592
104
2,738
91,958
Mortgage-backed securities - other
14,636
34
343
14,327
Obligations of states of the U.S. and
political subdivisions thereof
4,422
37
57
4,402
Other bonds
12,757
2
346
12,413
Total securities held to maturity
$128,831
$177
$3,592
$125,416
At December 31, 2000, the amortized cost and estimated fair value of
securities held to maturity and securities available for sale (other than
marketable equity securities) are shown below. Actual maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Securities Available for Sale
Amortized
Cost
Estimated
Fair Value
Due in one year or less
$ 0
$ 0
Due after one year through five
years
13,843
13,859
Due after five years through ten
years
20,581
20,519
Due after ten years
0
0
Mortgage-backed securities
2,235
2,244
$36,659
$36,622
Securities Held to Maturity
Amortized
Cost
Estimated
Fair Value
Due in one year or less
$ 2,627
$ 2,629
Due after one year through five
years
16,388
16,408
Due after five years through ten
years
848
880
Due after ten years
485
485
Mortgage-backed securities
95,958
95,843
$116,306
$116,245
There were no sales of securities available for sale or held to maturity in
2000, 1999 or 1998. U.S. Government securities having a carrying value
of approximately $29.0 million at December 31, 2000, and $27.9 million at
December 31, 1999 are pledged to secure certain deposits and for other purposes
as required by law. Market values for these securities at December 31, 2000
and 1999 were $28.8 million and $26.9 million, respectively.
3. LOANS
The following table shows the composition of the Bank's loan portfolio as of
December 31, 2000 and 1999:
2000
1999
Commercial loans:
Real estate - variable rate
$65,349
$62,742
Real estate - fixed rate
6,367
8,719
Other - variable rate
24,008
27,642
Other
13,264
13,849
108,988
112,952
Tax Exempt:
Variable rate
249
42
Fixed rate
3,376
1,967
3,625
2,009
Consumer:
Real estate - variable rate
69,075
63,829
Real estate - fixed rate
58,986
53,539
Home equity
15,407
13,579
Installment
7,906
10,420
Other
8,280
5,406
159,654
146,773
Real estate under foreclosure
0
520
Deferred origination fees, net
(886)
(1,065
Allowance for loan losses
(4,236)
(4,293)
$267,145
$256,896
At December 31, 2000 and 1999, loans on non-accrual status totaled $6.9
million and $2.0 million, respectively. In addition to loans on non-accrual
status at December 31, 2000 and 1999, the Bank had loans past due greater
than 90 days totaling $860,000 and $710,000, respectively. The Bank continues
to accrue interest on these loans because it believes collection of the
interest due is reasonably assured.
The Bank makes single family and multi-family residential loans, commercial
real estate loans, commercial loans, and a variety of consumer loans. The
Bank's lending activities are conducted in eastern Maine. Because of the
Bank's proximity to Acadia National Park, a large part of the economic
activity in the area is generated from the hospitality business associated
with tourism. At December 31, 2000, approximately $30.3 million of loans
were made to companies in the hospitality industry. Loans for commercial and
real estate development totaled $7.9 million. The loan portfolio at December
31, 2000 and 1999 consisted of 65% variable rate loans.
4. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for each of the three years ended
December 31 were as follows:
2000
1999
1998
Balance, beginning of year
$4,293
$4,455
$4,743
Provision for loan losses
952
474
336
Loans charged off
1,223
888
788
Less: recoveries on loans previously charged off
214
252
164
Net loans charged off
1,009
636
624
Balance, end of year
$4,236
$4,293
$4,455
Information pertaining to impaired loans at December 31 is as follows:
2000
1999
1998
Investment in impaired loans
$6,907
$2,016
$1,744
Portion of impaired loan balance for which
an allowance for credit losses is allocated
$6,907
$2,016
$1,744
Portion of allowance for loan losses allocated
to the impaired loan balance
$2,200
$ 642
$ 540
Interest not recorded on impaired loans at year
end
$ 220
$ 46
$ 20
5. LOANS TO RELATED PARTIES
In the ordinary course of business, the Bank has granted loans to certain
officers and directors and the companies with which they are associated. All
such loans and commitments to lend were made under terms that are consistent
with the Bank's normal lending policies.
Loans to related parties at December 31, which in aggregate exceed $60,000,
were as follows:
2000
1999
Beginning balance
$6,212
$7,243
New loans
1,541
1,535
Less: repayments
4,388
2,566
Ending balance
$3,365
$6,212
6. MORTGAGE SERVICING
Residential real estate mortgages are originated by the Bank for both
portfolio and for sale into the secondary market. Certain loans are sold to
institutional investors such as Freddie Mac. Under loan sale and servicing
agreements with the investor, the Bank generally continues to service the
residential real estate mortgages. The Bank pays the investor an agreed-upon
rate on the loan which, including a guarantee fee paid to Freddie Mac, is
less than the interest rate the Bank receives from the borrower. The
difference is retained by the Bank as a fee for servicing the residential real
estate mortgages. As required by SFAS No. 125, the Bank capitalizes mortgage
servicing rights at their fair value upon sale of the related loans.
Capitalized servicing rights at December 31, 2000 and 1999 were $161,600 and
259,800 respectively. Amortization expense totaled $90,600 and $83,600 for
2000 and 1999, respectively. There was no amortization expense during 1998,
the year that SFAS No. 125 was implemented.
Mortgage loans serviced for others are not included in the accompanying
Consolidated Balance Sheets. The unpaid principal balance of mortgage loans
serviced for others was $52.8 and $55.9 million at December 31, 2000 and 1999,
respectively.
7. PREMISES AND EQUIPMENT
The detail of premises and equipment is as follows:
2000
1999
Land
$ 655
$ 561
Buildings and improvements
11,481
7,456
Furniture and equipment
6,697
4,916
Less: accumulated depreciation
(6,837)
(4,493)
$11,996
$8,440
8. LINE OF BUSINESS REPORTING
The Company manages and operates two major lines of business: Community
Banking and Financial Services. Community Banking includes lending and
deposit-gathering activities and related services to businesses and
consumers. Financial Services, which was formed in January 2000, consists of
broker-dealer operations, trust services, and investment portfolio
management. The business lines are identified by the entities through which
the product or service is delivered.
The reported lines of business results reflect the underlying core operating
performance within the business units. Other is comprised of intercompany
eliminations. Information is not presented for prior years as the Financial
Services segment did not become operative until January 2000 and it is
impractical to restate corresponding information for the prior years.
Substantially all of the Company's assets are part of the Community Banking
line of business. Selected segment information is included in the following
table.
Year Ended December 31, 2000
Community
Banking
Financial
Services
Other
Consolidated
Totals
Net interest income
$17,688
$ 26
$
3
$17,717
Provision for loan losses
952
0
0
952
Net interest income after provision
16,736
26
3
16,765
Noninterest income
5,768
3,243
(1,945)
7,066
Noninterest expense
12,652
3,857
106
16,615
Income (loss) before income taxes
9,852
(588)
(2,048)
7,216
Income taxes (benefit)
3,294
(199)
(676)
2,419
Net income (loss)
$ 6,558
$ (389)
$ (1,372)
$ 4,797
9. DEPOSITS
The aggregate amount of short term jumbo certificates of deposit, each with a
minimum denomination of $100,000, was $20.3 million and $16.9 million in 2000
and 1999, respectively.
At December 31, 2000, the scheduled maturities of time deposits are as follows:
Year
Amount
2001
$104,478
2002
6,443
2003
2,114
2004
23
2005 and thereafter
1,145
Individual Retirement Accounts
(IRAs), without scheduled
maturities
6,531
$120,734
10. REPURCHASE AGREEMENTS
Securities sold under agreements to repurchase generally mature within one to
four days from the transaction date.
Information concerning securities sold under agreements to repurchase for 2000
and 1999 is summarized as follows:
2000
1999
1998
Average daily balance during the year
$11,479
$ 8,264
$6,686
Average interest rate during the year
4.74%
4.48%
4.74%
Maximum month-end balance during the year
$16,788
$11,209
$10,192
Amount outstanding at end of year
$12,166
$8,807
$8,092
Securities underlying the agreements at year end were under the Bank's control
and were as follows:
2000
1999
1998
Carrying value
$28,970
$25,511
$23,036
Estimated fair value
$28,828
$24,714
$23,359
11. ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)
A summary of advances from the FHLB is as follows:
Total
Principal
Range of
Interest Rates
December 31, 2000
Maturity
$74,152
5.48% to 7.26%
2001
$14,000
6.04% to 6.76%
2002
$ 3,000
5.84%
2003
$28,000
4.80% to 5.99%
2005 - 2010
December 31, 1999
$76,000
4.79% to 6.39%
2000
$ 5,035
5.48% to 6.10%
2001
$ 7,000
5.45% to 5.84%
2003
$25,000
4.85% to 5.68%
2005 - 2009
All FHLB advances are fixed-rate instruments. The Bank has one amortizing
advance, maturing in January 2001. The remaining advances are payable at
their call dates or final maturity.
The Bank has $28 million in callable advances with maturity dates ranging from
2005 to 2010.
In addition to the above outstanding advances, other FHLB funds available to
the Bank at December 31, 2000, totaled approximately $48.5 million. Pursuant
to collateral agreements with the FHLB, advances are collateralized by all
stock in the FHLB. Qualifying first mortgage loans, loans guaranteed by the
U. S. Government, multi-family loans, U. S. Government debentures, U. S.
Government mortgage-backed securities, and non-Government mortgage-backed
securities collateralized by 1-4 family loans totaling $119.4 million are
available as collateral for FHLB advances.
12. INCOME TAXES
The current and deferred components of income tax expense are as follows:
2000
1999
1998
Current
Federal
$2,307
$3,086
$2,771
State
86
101
99
2,393
3,187
2,870
Deferred
26
(180)
248
$2,419
$3,007
$3,118
The actual tax expense differs from the expected tax expense computed by
applying the applicable U. S. Federal corporate income tax rate to earnings
before income taxes as follows:
2000
1999
1998
Computed tax expense
$2,453
$3,139
$3,307
Increase (reduction) in income
taxes resulting from:
Officers' life insurance
(69)
(53)
(38)
Tax exempt interest
(95)
(146)
(177)
State taxes, net of
federal benefits
56
66
65
Other
74
1
(39)
$2,419
$3,007
$ 3,118
The tax effect of temporary differences that give rise to deferred income tax
assets and liabilities are as follows:
2000
Asset
2000
Liability
1999
Asset
1999
Liability
Allowance for possible losses on
loans and other real estate owned
$1,281
$1,239
Deferred compensation
682
696
Postretirement benefit obligation
547
559
Unrealized depreciation
on securities available for sale
39
523
Depreciation
$ 274
$ 274
Other
131
114
177
118
$2,680
$388
$3,194
$392
As of December 31, 2000 and 1999, the net deferred income tax asset amounted
to $2.3 million and $2.8 million, respectively, and is included in other
assets on the balance sheet. No valuation allowance for deferred taxes was
required at December 31, 2000 or 1999.
13. SHAREHOLDERS' EQUITY
On December 28, 1998, the Board of Directors declared a two-for-one stock
dividend effected as a stock split to all shareholders of record as of that
date, which was payable on January 25, 1999. All share and per share data
included in this annual report have been restated to reflect the stock
dividend.
Bar Harbor Bankshares' subsidiary, Bar Harbor Banking and Trust Company, has
the ability to pay dividends to the parent subject to the minimum regulatory
capital requirements. At December 31, 2000, the amount available for dividends
was approximately $29.6 million.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory frameworks for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgment by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets and average
assets. Management believes, as of December 31, 2000, that the Bank exceeds
all capital adequacy requirements to which it is subject. As of December 31,
2000, the most recent notification from the federal regulators, categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the following table. There are no conditions or events
since that notification that the management believes have changed the Bank's
category.
The Bank's actual capital amounts and ratios are also presented in the
following table:
For the
Bank
For
Capital
Adequacy
Purpose
To be well
Capitalize
d under
Prompt
corrective
action
provisions
Actual
Amount
Ratio
Actual
Amount
Ratio
Actual
Amount
Ratio
As of December 31, 2000
Total Capital
(To Risk-Weighted Assets)
Consolidated
$53,235
18.0%
$23,617
8.0%
NA
Bank
$43,398
16.4%
$23,170
8.0%
$28,964
10.0%
Tier 1 Capital
(To Risk-Weighted Assets)
Consolidated
$49,538
16.8%
$11,808
4.0%
NA
Bank
$43,778
15.1%
$11,585
4.0%
$17,378
6.0%
Tier 1 Capital
(To Average Assets)
Consolidated
$49,538
10.6%
$18,744
4.0%
NA
Bank
$43,778
9.4%
$18,550
4.0%
$23,187
5.0%
As of December 31, 1999
Total Capital
(To Risk-Weighted Assets)
Consolidated and Bank
51,659
18.4
$22,473
8.0%
$28,091
10.0%
Tier 1 Capital
(To Risk-Weighted Assets)
Consolidated and Bank
$48,148
17.1%
$11,236
4.0%
$16,855
6.0%
Tier 1 Capital
(To Average Assets)
Consolidated and Bank
$48,148
11.2%
$17,142
4.0%
$21,428
5.0%
At December 31, 2000 and 1999, the Company and its banking subsidiary, Bar
Harbor Banking and Trust Company, were in compliance with all applicable
regulatory requirements and had capital ratios in excess of federal regulatory
risk-based and leverage requirements.
In November of 1999, the Board of Directors authorized the repurchase of up to
10% of the Company's outstanding shares of stock or approximately 344,000
shares. The purchase can take place through either the open market or in
privately negotiated transactions and at market prices. As of December 31,
2000, a total of 137,500 shares were purchased for an average per share price
of $16.16.
14. EMPLOYEE BENEFIT PLANS
The Company has two non-qualified supplemental retirement plans for certain
officers. The agreements provide supplemental retirement benefits payable in
installments over a period of years upon retirement or death. The Company
recognizes the costs associated with the agreements over the service lives of
the participating officers. In 1999, the Company modified one of the non-
qualified supplemental retirement plans for the benefit of a key employee
approaching retirement, resulting in a one-time expense of $639,700. For 2000,
1999, and 1998, the expense of these supplemental plans was $111,909,
$866,200, and $138,600, respectively.
401(k) PLAN
The Company has a 401(k) plan available to full-time employees. For the years
ended December 31, 2000, 1999, and 1998, the Bank contributed $240,809,
$186,200, and $178,700, respectively.
15. POSTRETIREMENT BENEFITS
The Company sponsors a postretirement benefit plan, which provides medical and
life insurance coverage to all eligible employees. The cost of providing these
benefits is accrued during the active service period of the employee. Net
periodic postretirement benefit cost includes the following components:
2000
1999
1998
Service costs of benefits earned
$ 0
$ 19
$15
Interest cost on accumulated
postretirement benefit obligation
77
103
108
Amortization
(41)
(38)
(45)
Net periodic postretirement
benefit cost
$36
$ 84
$78
It is the Company's policy to fund the cost of postretirement health care and
life insurance plans as claims and premiums are paid.
Change in benefit obligations:
2000
1999
1998
Benefit obligation at beginning of
year
$1,127
$1,493
$1,377
Service costs of benefits earned
0
19
15
Interest cost on accumulated
postretirement benefit obligation
77
103
108
Amortization
94
(121)
49
Benefits paid
(64)
(54)
(56)
Effect of curtailment
0
(313)
0
Benefit obligation at end of year
$1,234
$1,127
$1,493
Accrued benefit cost included in
other liabilities
$1,610
$1,639
$1,921
During 1999, the Board of Directors approved the restructuring of the
Company's retiree health benefit plan, which reduced its future liability by
$313,000.
The accumulated postretirement benefit obligation (APBO) was determined using
a 7% weighted average discount rate. The health care cost trend rates were
assumed to be 12% in 2001, gradually declining to 6% after 12 years and
remaining at that level thereafter. An increase in the health care trend of 1%
would increase the APBO by approximately $91,000 and the net periodic
postretirement benefit cost by $18,400. A decrease in the health care trend
of 1% would decrease the APBO by approximately $79,900 and the net periodic
cost by $10,900.
16. FINANCIAL INSTRUMENTS
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financial needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to originate loans and standby letters of
credit.
Commitments to originate loans are agreements to lend to a customer provided
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case by case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based
on management's credit evaluation of the borrower.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for its balance sheet
instruments.
The notional or contract amount for financial instruments with off-balance
sheet risk are:
2000
1999
Commitments to originate loans
$4,500
$4,480
Unused lines and standby letters of credit
$28,752
$49,248
Unadvanced portions of construction loans
$6,485
$12,071
The estimated fair values of the Bank's financial instruments were as follows:
December
31, 2000
December
31, 1999
Carrying
Fair
Value
Carrying
Fair
Value
Financial Assets:
Cash and cash
equivalents
$ 10,580
$ 10,580
$12,852
$12,852
Securities available
for sale
37,844
37,844
31,690
31,690
Securities held to
maturity
116,306
116,245
128,831
125,416
Other securities
8,068
8,068
6,118
6,118
Loans held for sale
0
0
0
0
Loans receivable
267,145
270,623
256,896
256,363
Interest receivable
3,585
3,585
3,201
3,201
Financial liabilities:
Deposits
278,076
277,819
281,708
282,171
Securities sold under
repurchase
agreements
12,166
12,166
8,807
8,807
Borrowings
119,152
119,152
113,035
109,461
Interest payable
326
326
316
316
17. QUARTERLY SUMMARIZED FINANCIAL DATA (UNAUDITED)
2000
1999
1
2
3
4
Year
1
2
3
4
Year
Interest and
dividend
income
$ 8,546
$
8,830
$
8,849
$ 9,108
$ 35,333
$ 7,406
$ 7,774
$
8,288
$
8,484
$31,952
Interest expense
4,041
4,456
4,549
4,570
17,616
3,198
3,325
3,515
3,764
13,802
Net interest
income
4,505
4,374
4,300
4,538
17,717
4,208
4,449
4,773
4,720
18,150
Provision for
loan losses
163
163
163
463
952
269
269
119
(183)
474
Noninterest
income
1,362
1,596
2,192
1,916
7,066
1,186
1,226
1,804
1,638
5,854
Noninterest
expense
3,789
4,464
4,580
3,782
16,615
3,165
3,100
3,855
4,178
14,298
Income before
income taxes
1,915
1,343
1,749
2,209
7,216
1,960
2,306
2,603
2,363
9,232
Income taxes
631
441
605
742
2,419
644
779
865
719
3,007
Net income
1,284
902
1,144
1,467
4,797
1,316
1,527
1,738
1,644
6,225
Earnings per
share
$0.38
$0.27
$0.34
$0.44
$1.43
$0.38
$0.44
$0.50
$0.49
$1.81
18. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of Bar Harbor Bankshares as of December 31,
2000 and 1999, and for each of the three years in the period ended December
31, 2000, are presented below:
Balance Sheets
December 31
2000
1999
Cash
$647
$1,785
Investment in subsidiaries
49,026
47,260
Premises
758
0
Other assets
76
100
Total assets
$ 50,507
$ 49,145
Shareholders' Equity
$50,507
$49,145
Statements of Income
Years Ended December 31
2000
1999
1998
Dividend income from
subsidiaries
$11,055
$4,406
$2,308
Equity in undistributed
earnings of subsidiaries
(6,108)
1,819
4,299
Bankshares expenses
(150)
0
0
Net income
$4,797
$6,225
$6,607
Amount in parentheses represents the excess of dividends over net income of
subsidiaries.
STATEMENTS OF CASH FLOWS
Years Ended December 31
2000
1999
1998
Cash flow from operating activities:
Net income
$4,797
$6,225
$6,607
Adjustments to reconcile net income
to cash provided by operating
activities:
Increase in other assets
(76)
(100)
0
Equity in undistributed earnings of
subsidiaries
6,108
(1,819)
(4,299)
Net cash used by operating activities
10,829
4,306
2,308
Cash flows from investing activities:
Additional investment in
subsidiaries
(6,835)
0
0
Capital expenditures
(758)
0
0
Net cash used in investing activities
(7,593)
0
0
Cash flows from financing activities:
Proceeds from sale of stock
0
0
73
Purchase of treasury stock
(1,820)
(400)
0
Dividends paid
(2,554)
(2,476)
(2,307)
Net cash used in financing activities
(4,374)
(2,876)
(2,234)
Net increase (decrease) in cash
(1,138)
1,430
74
Cash and cash equivalents, beginning of
year
1,785
355
281
Cash and cash equivalents, end of year
$ 647
$ 1,785
$ 355
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference from the
sections entitled "Management of the Company" and "Executive Officers" in the
2001 Proxy Statement for the Annual Meeting of Shareholders, which is filed
with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference from the
section entitled "Compensation of Directors and Executive Officers" in the
2001 Proxy Statement for the Annual Meeting of Shareholders, which is filed
with the Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference from the
section entitled "Voting Securities and Principal Holders thereof" in the 2001
Proxy Statement for the Annual Meeting of Shareholders, which is with the
Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference from the
section entitled "Transactions with Directors, Officers, and Principal
Shareholders" in the 2001 Proxy Statement for the Annual Meeting of
Shareholders, which is filed with the Securities and Exchange Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
EXHIBIT
NUMBER
2
Plan of Acquisition, Reorganization
Agreement, Liquidation, or Succession
Incorporated by reference to Form S-
14 dated March 14, 1984
3
Articles of Incorporation and Bylaws
Incorporated by reference to Form S-
14 dated March 14, 1984
10
Material Contracts
Incorporated by reference to Form 10-
K dated December 31, 1986
10.1
Employment Agreement with Paul G. Ahern
Enclosed herewith
13
Annual Report to Shareholders
Enclosed herewith
21
Subsidiaries of the registrant
Incorporated by reference to Form 10-
K dated December 31, 1987
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
March 28, 2001 BAR HARBOR
BANKSHARES
(Registrant)
/s/ Dean S. Read
Dean S. Read
President and Chief
Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Name
Name
/s/ Dean S. Read
/s/ Edward B. Grimball
Dean S. Read
Edward B. Grimball
President and Director
Chief Financial Officer
Chief Executive Officer
Chief Accounting Officer
March 28, 2001
March 28, 2001
/s/ Paul G. Ahern
/s/ Thomas A. Colwell
Paul G. Ahern, Director
Thomas A. Colwell, Director
March 28, 2001
March 28, 2001
/s/Warren C. Cook
/s/ Bernard K. Cough
Warren C. Cook, Director
Bernard K. Cough, Director
March 29, 2001
March 28, 2001
/s/ Dwight L. Eaton
/s/ H. Lee Judd
Dwight L. Eaton, Director
H. Lee Judd, Director
March 28, 2001
March 28, 2001
/s/ Lynda Z. Tyson
Lynda Z. Tyson, Director
March 28, 2001
ITEM 14. EXHIBIT 10. MATERIAL CONTRACT
EMPLOYMENT AGREEMENT WITH PAUL G. AHERN
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 3rd day
of February, 2000, by and between BTI FINANCIAL GROUP, a Maine Financial
Institution Holding Company with a principal place of business located at Bar
Harbor, Maine, (hereinafter the "Company") and Paul G. Ahern, a resident of
the State of Maine, (hereinafter the "Employee"). Corporation shall refer to
Bar Harbor Bankshares or successor corporate Holding Company.
In consideration of the mutual promises, covenants and agreements made
herein the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be legally bound hereby, agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee
hereby accepts employment by Company, on the terms and conditions specified
herein.
2. TERM Employee's employment hereunder shall be for a term of
four (_4_) years commencing on the date hereof and ending February 3, 2004
unless sooner terminated as provided herein ("Term"). Employer agrees to
notify Employee not less than one hundred eighty days (180) prior to February
3, 2004 if it does not intend to extend Employee's employment. In the
absence of a notice of intent not to extend this Agreement, the Agreement
shall be deemed extended, subject to Agreement by the Company and Employee
upon the duration of the extension and upon the base salary to apply during
the extended term. All other provisions of this Agreement shall remain in
effect. In the event that the parties are unable to agree upon the duration
of an extended term or upon the base salary to be applicable during that term,
this Agreement shall terminate at the conclusion of the Term."
3. RESPONSIBILITIES and OTHER ACTIVITIES. During the Employment
Term, Employee shall be employed in an executive capacity in connection with
the management of the Company, and shall undertake the general
responsibilities and duties related to such position. During the Term,
Employee shall faithfully perform the duties of his or her office or position
as described herein, devote substantially all of his or her business time and
energies to the business and affairs of the Company and shall use his or her
best efforts, skills and abilities to promote the Company's interests.
Employee may not engage in any business activities or render any services of a
business, commercial, or professional nature (whether or not for compensation)
that would affect adversely Employee's performance of his or her
responsibilities and duties hereunder or conflict with the business of the
Company for the benefit of any person or entity, unless Employee receives the
prior written consent of the Company.
4. COMPENSATION. The Company shall pay Employee a base salary of
not less than One hundred and fifteen thousand Dollars ($115,000.00) per annum
payable in installments not less frequently than monthly during the Term and
in accordance with Company's standard payroll practices. Employee shall be
entitled to incentive compensation under any variable incentive compensation
program which the Company may have in place from time to time. Employee shall
be entitled to participate in such incentive compensation plans on the same
basis and at the same level as other similarly situated employees of the
Employer and its subsidiaries. Such compensation incentive programs may be
amended from time to time at Company's sole discretion; provided, however,
that no such amendment shall reduce the overall incentive nature of such
program.
5. BENEFITS.
(a) Employee shall be eligible to participate in such medical, dental,
disability, retirement, life insurance, and other employee benefits on the same
basis as may be provided to other similarly situated employees of the Employer
and its subsidiaries. Such benefits may be created, changed or terminated
from time to time in the Company's sole discretion. In addition, Employee
shall be entitled to reasonable paid vacations during the Term consistent with
the Company's vacation policy for other executive employees of the Company and
its subsidiaries.
(b) During the Term, the Company shall reimburse Employee, or cause
Employee to be reimbursed, for all reasonable, ordinary and necessary expenses
incurred by Employee in the performance of his or her duties hereunder in
accordance with the Company's practices generally applicable to executive
employees of the Company and its subsidiaries.
6. TERMINATION OF EMPLOYMENT.
(a) Termination Due to Death. In the event of the death of Employee during
the Term, the estate or other legal representatives of Employee shall be
entitled to any amount of earned but unpaid base salary accrued through the bi-
weekly pay period in which death occurs, such payment to be paid promptly
following death. The estate or other legal representatives of Employee also
shall be entitled to receive incentive compensation payments, if any, that
Employee would have earned if his or her employment had continued through the
then current fiscal year of the Company, which amount shall be reduced to
account for the percentage of the fiscal year not worked by the Employee
because of such death. Any rights and benefits that Employee, or Employee's
estate or other legal representatives, may have under employee benefit plans
and programs of the Company upon Employee's death during the Term, if any,
shall be determined in accordance with the terms and provisions of such plans
and programs.
(b) Termination Due to Disability.
(i) Employee's employment hereunder shall terminate due to
disability in the event that Employee is totally or partially
disabled for a period of 90 consecutive days during the Term.
During such 90-day period Employee shall continue to be paid his or
her compensation based upon the accrued hours within the short term
sick leave program provided in accordance with the Company's
practices through the standard group Long Term Disability program
offered to Bar Harbor Bankshares subsidiary employees and
executives. For purposes of this Agreement, "Disability" shall be
defined and be paid in accordance with the terms of the long term
disability policy then available to all employees and executives.
Thereafter, this agreement and the obligations of the parties
herein shall terminate, except for the benefits provided for in the
long-term disability insurance policy in effect at the time of the
disability.
(ii) Upon the termination of Employee's employment due to
disability pursuant to Section 6(b)(i) hereof, Employee shall be
entitled to continued compensation and benefits in accordance with
the normal policies and practices, if any, in effect as of the date
of such termination for key management employees of the Company;
provided, that Employee also shall be entitled to receive incentive
payments, if any, Employee would have earned if his or her
employment had continued through the then current fiscal year of
the Company, which amount shall be reduced to account for the
percentage of the fiscal year not worked by the Employee because of
such disability. Any continued rights and benefits Employee, or
Employee's legal representatives, may have under employee benefit
plans and programs of the Company upon Employee's termination due
to disability, if any, shall be determined in accordance with the
terms and provisions of such plans and programs.
(c) Termination for Cause.
(i) The Company may elect, at any time, to terminate the Employment
Term and immediately remove Employee from his or her employment for
"cause", except that if the Company terminates Employee under
subsections (F) or (G) of this Section 6(c)(i), it must effect the
termination by giving Employee 30 days prior written notice
thereof. For purposes of this Section, "Cause" shall include,
without limitation, the following:
(A) any admission of, or a plea of guilty or no contest to, any
charge of embezzlement, theft or fraudulent act or any
crime which would reasonably be expected to be materially
detrimental to the business, operations, reputation or
financial condition of the company or
(B) willful misconduct of Employee in connection with the
performance of any of his or her duties, including, without
limitation, misappropriation of funds or property of the
Company or any of its subsidiaries and/or affiliates or
securing or attempting to secure personally any profit in
connection with any transaction entered into on behalf of
the Company or any of its subsidiaries and/or affiliates;
(C) conduct by Employee that would result in material
injury to the reputation of the Company or its affiliates
if Employee were retained in his or her position with the
Company such as, but not limited to substance abuse,
sexual harassment behaviors or violent or abusive
behaviors exhibited in the workplace.
(D) the entry of any legal order which has the effect of
precluding Employee from performing his or her duties
hereunder for more than 30 consecutive days;
(E) active disloyalty, such as aiding a competitor;
(F) continued, deliberate neglect by Employee of any of his
or her duties hereunder
(G) any other breach by or default of Employee of the terms
of or this Employment Agreement.
(H) loss of any license or permit required for Employee to
perform his or her duties hereunder;
(I) the inability to be bondable
(ii) In the event of termination for cause pursuant
to Section 6(c) (i) hereof, Employee shall be
entitled to receive any earned but unpaid base
salary through the Termination Date. The rights and
benefits Employee may have under employee benefit
plans and programs of the Company existing as of the
date of such termination, if any, shall be
determined in accordance with the terms of such
plans and programs. Except as provided in this
Section 6(c)(ii) and otherwise by applicable law,
upon termination pursuant to Section 6(c)(i) hereof,
all obligations of the Company to Employee hereunder
shall cease immediately.
(iii) to the extent that the Employer terminates
for cause, and any breach may be cured by Paul G.
Ahern, he or she should be provided a 30 day period
within which he may cure any default.
(d) Termination Without Cause.
(i) The Company may elect, at any time, to terminate the Employment
Term and remove Employee from his or her employment for any reason
by giving Employee 30 days prior written notice of termination,
subject to payment by the Company of the base salary described in
Section 6(d)(ii) below.
(ii) In the event of termination pursuant to Section 6(d)(i)
hereof, Employee shall be entitled to receive any earned but unpaid
base salary and incentive payments through the balance of the
contract but in no case less than one year's base compensation.
The rights and benefits Employee may have under employee benefit
plans and programs of the Company in existence as of the effective
date of such termination, if any, shall be determined in accordance
with the terms of such plans and programs. Except as provided by
applicable law, upon termination pursuant to this Section 6(d), all
obligations of the Company to Employee hereunder shall cease
immediately.
(iii) Paul G. Ahern responsibilities and duties should not be
substantially changed or diminished without Employee's prior
consent . In the event that the Employer should substantially
change or diminish job responsibilities without consent and Paul
G. Ahern thereafter provides Notice of Termination, the event would
be considered under the provisions of a termination by the Employer
without cause in (ii) above..
.
(e) Voluntary Termination. Employee may voluntarily terminate his or her
employment of his or her own volition by giving to the Company 90 days prior
written notice of termination. In such event, Employee shall be entitled only
to an amount of earned but unpaid base salary accrued up to the Termination
Date. The rights and benefits Employee may have under employee benefit plans
and programs of the Company in existence as of the effective date of
such termination, if any, shall be determined in accordance with the terms of
such plans and programs. Notwithstanding any provisions to the contrary, (i)
if Employee ceases carrying out his or her duties hereunder of Employee's own
volition prior to the expiration of the aforesaid 90 day period, Employee
shall forfeit any further accrual of base salary after the date Employee so
ceases carrying out his or her duties and responsibilities hereunder, and (ii)
if prior to the aforesaid written notice from Employee to the Company,
the Company has delivered to Employee written notice that it intends to
terminate Employee for cause pursuant to Section 6(c) hereof, then such notice
from Employee as described in this Section 6(e) shall thereupon be rendered
null and void. Except as provided by applicable law, upon termination pursuant
to this Section 6(e), all obligations cease immediately.
(f) Any termination by Employer for Cause under 6c shall be communicated by
"Notice of termination" to the Employee. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (I) indicates the
specific termination provision in the Agreement relied upon' and (ii) to the
extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employee's employment under
the provision so indicated.. The Company reserves the right to require that
the Employee not work the period following delivery of the Notice of
Termination provided that the Company shall not thereby be relieved of any
payment obligations which it otherwise would have under Section 6 ( c ) of
this Agreement.
(g) Termination Date. "Termination Date" means (i) if Employee's employment
is terminated by Company for cause under Section 6(c) or without cause under
Section 6(d), or voluntarily by employee under Section 6(e), the date of
receipt of the Notice of Termination or any later date specified therein, as
the case may be; and (ii) if Employee's employment is terminated by reason of
death or disability, the Termination Date shall be the date of death of
Employee or the disability effective date, as the case may be.
(h) All severance payments due under this contract will be forfeited upon
break of the non compete agreement or any post-termination covenants.
7. CONFIDENTIAL INFORMATION.
(a) Non-Disclosure. Except as specifically authorized by the Company in
writing, from the date hereof and continuing forever, the Employee agrees not
to (i) disclose any Confidential Information to any individual or entity, or
otherwise permit any person or entity to obtain or disclose any Confidential
Information, or (ii) use any Confidential Information for Employee's own
financial gain, whether individually or on behalf of another individual or
entity (whether or not such other individual or entity is any way employed by
or affiliated with the Company). While not in any way limiting the generality
of the foregoing, the prohibitions contained herein shall extend to any and
all speeches and articles, and other similar forms of information
dissemination, engaged or participated in by Employee, whether individually or
on behalf of, or in concert with, another individual or entity (whether or not
such other individual or entity is in any way employed by or affiliated with
the Company). Employee, however, may disclose Confidential Information if and
only to the extent required by a valid order or subpoena issued by a court or
administrative agency of competent jurisdiction, provided that in such event
Employee promptly notifies the Company or any subsidiary or affiliate of the
Company to which the Confidential Information relates, to afford the Company
or its subsidiary or affiliate the opportunity to protect its interests in
such Confidential Information. Nothing contained in this Section 7(a) shall
be construed as prohibiting Employee from disclosing Confidential Information
that is or has become known to the public generally or is otherwise in the
public domain other than as a result of improper disclosure.
(b) Confidential Information. For purposes hereof, the term
"Confidential Information" means any and all information and compilations of
information, in whatever form or medium (including any copies thereof),
relating to any part of the business of the Company or the business of any
subsidiary or affiliate of the Company, provided to Employee (including any
member of employee's immediate family) or to which Employee or any affiliate
of Employee had access to or that Employee or they obtained or compiled or had
obtained or compiled on his or her or their behalf, which information or
compilations of information are not a matter of public record or generally
known to the public, including, without limitation, (i) financial information
regarding the Company or any subsidiary or affiliate of the Company; (ii)
personnel data, including compensation arrangements relating to Employee or
any other employee of the Company or any subsidiary or affiliate of the
Company; (iii) internal plans, practices, and procedures of the Company or any
subsidiary or affiliate of the Company; (iv) the names, portfolio information,
investment strategies, requirements or any similar information of any
customers, clients or prospects of the Company or any subsidiary or affiliate
of the Company; (v) business methods and marketing strategies of the Company
or any subsidiary or affiliate of the Company; (vi) any other information
expressly deemed confidential by the officers or directors or the Company; and
(vii) the terms and conditions of this Employment Agreement and any, documents
or instruments executed in connection therewith.
(c) Employee acknowledges that in any office or position occupied by
Employee, Employee may have access to and become familiar with or obtain
Confidential Information, and that a violation of Section 7(a) of this
Employment Agreement by Employee may cause irreparable harm to the Company.
Accordingly, Employee grants the Company the right to seek injunctive relief
for any such violation, in addition to any other legal remedies that may be
available to the Company.
(d) Employee shall not, without the prior written consent of the
Company, use or disclose, or negligently permit any unauthorized person who is
not an employee of the Company to use, disclose, or gain access to, any
Confidential Information.
(e) Upon termination of employment, Employee hereby agrees to deliver
promptly to the Company and its affiliates and subsidiaries all memoranda,
notes, records, manuals or other documents, including all copies of such
materials, containing Confidential Information, whether made or compiled by
Employee or furnished to her from any source by virtue of Employee's
relationship with the Company or its subsidiaries or affiliates.
(f) Employee will, with reasonable notice during or after the Term,
furnish such information as may be in Employee's possession and cooperate with
the Company or its affiliates or subsidiaries as may reasonably be requested
in connection with any claims or legal actions in which the Company is or may
become a party. The Company will reimburse Employee for any reasonable out-of-
pocket expenses Employee incurs in order to satisfy his or her obligations
under this clause (f).
8. NON-COMPETION OBLIGATIONS. In consideration of the covenants of the
Company contained herein, the Employee agrees as follows:
(a) Employee hereby covenants and agrees with the Company that,
during the "Noncompete Period" (as hereinafter defined) and
within a fifty (50) mile radius from any then-existing place
of business of BTI Financial Group, Bar Harbor Banking and
Trust Company, or any other entity affiliated with Bar Harbor
Bankshares or its successors. Employee shall not directly
or indirectly (a) acquire, lease, manage, consult for, serve
as agent, employee, independent contractor or subcontractor
for, finance, invest in**, own any part of or exercise
management control over any business which provides any
services competitive with the services provided by the Company
or its subsidiaries or affiliates during the term of
Employee's employment; or (b) solicit or suggest for
employment on his or her own account or for the account of
others or employ any person who during the term of Employee's
employment became an employee of the Company or any of its
subsidiaries or affiliates unless such person has not been
employed by the Company or its subsidiaries or affiliates for
at least twelve (12) months prior to the date of such
solicitation, suggestion or employment; or (c) with respect to
any client, customer or business associate with whom the
Company or its subsidiaries or affiliates contracts in
connection with its business, either solicit the same in a
manner which could adversely affect the Company or its
subsidiaries or affiliates or make statements to the same
which disparage the Company or its subsidiaries or affiliates
or their operations in any way. The "Noncompete Period" shall
commence on the date hereof and terminate one (1) year after
the cessation of Employee's employment under this Agreement
with Employer and its affiliates.
**The ownership by the Principal of not more than five percent
(5%) of the shares of stock of the corporation having a class
of equity securities actively traded on a national securities
exchange or on NASDAQ shall not be deemed, in and of itself,
to violate the prohibitions of this provision.
(b) Notwithstanding the foregoing, in the event that an extension
of this Agreement is not offered to Employee, or is offered to
Employee on terms which are substantially changed or
diminished, then the prohibitions set forth in Section 8(a)
shall no longer remain enforceable. For purposes of this
Section 8(b), the failure of Employer to offer an increase in
base salary proportionate to increases provided during the
term to similarly situated employees of Employer and its
subsidiaries shall be deemed to constitute a substantial
change.
(c) The Employee acknowledges that his or her breach or threatened
or attempted breach of any provision of sections 7 and 8 of
this Agreement would cause irreparable harm to the Company not
compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a
temporary and permanent injunction and a decree for specific
performance of the terms of Sections 7 and 8 without being
required to prove damages or furnish any bond or other
security. Nothing herein contained shall be construed as
prohibiting the Company from pursuing any other remedy
available to it for such breach or threatened or attempted
breach.
(d) All parties hereto acknowledge the necessity of protection
against the competition of the Employee and that the nature
and scope of such protection has been carefully considered by
the parties. The period and area covered are expressly
acknowledged and agreed to be fair, reasonable and necessary.
To the extent that any covenant contained in section 7 or 8 is
held to be invalid, illegal or unenforceable because of the
duration of such covenant, the geographic area covered thereby
or otherwise, the parties agree that the court making such
determination shall have the power to reform such covenant to
include as much of its nature and scope as will render it
enforceable and, in its reduced form, said covenant shall be
valid, legal and enforceable.
9. CHANGE OF CONTROL If, during the Term, the Company shall terminate
Employee's employment other than for Cause (or other than by reason of the
Employee's Death or Disability), or Employee shall terminate his employment
under the Voluntary Termination provision, and, in the event that such
termination occurs within ninety (90) days following a "change of control" as
defined in Exhibit A, the Company shall pay to Employee, within thirty (30)
days following the Termination Date, an additional amount equal to the amount
remaining under the term of this contract but in no case in an amount less
than one year's base salary (at the annual rate in effect immediately prior to
the Termination Date).
10. ASSIGNMENTS, SUCCESSORS, AND ASSIGNS. The rights and obligations of
Employee hereunder are not assignable or delegable and any prohibited
assignment or delegation will be null and void. The Company may assign and
delegate this Agreement. The provisions hereof shall inure to the benefit of
and be binding upon the permitted successors and assigns of the parties hereto.
11. GOVERNING LAW. This Agreement shall be interpreted under, subject to and
governed by the substantive laws of the State of Maine, without giving effect
to provisions thereof regarding conflict of laws.
12. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original
but all of which will together constitute one and the same
instrument.
13. INVALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect any other provision hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provision was omitted. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid and enforceable.
14. EXCLUSIVENESS. This Agreement constitutes the entire understanding and
agreement between the parties with respect to the employment by the Company of
Employee and supersedes any and all other agreements, oral or written, between
the parties.
15. MODIFICATION WAIVER. This Agreement may not be modified or amended
except in writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived unless waived in writing by the
party charged with waiver. A waiver shall operate only as to the specific
term or condition waived and will not constitute a waiver of any other term or
condition of this Agreement or as to any subsequent occurrence of the term or
condition.
16. ARBITRATION. Except as otherwise expressly provided hereunder, any
dispute, controversy or claim arising under this Agreement shall be
settled by arbitration to be conducted under the rules of the American
Arbitration Association. Arbitration shall be initiated by the
serving of a written notice of intent to arbitrate (an "Arbitration
Notice") by one party upon the other. Arbitration proceedings shall
be conducted.
(a) a single arbitrator to be agreed upon by the parties' provided that,
if the parties are unable to agree upon a single arbitrator, the two so
named shall name a third arbitrator. The arbitration proceedings shall be
heard by all three arbitrators and the decision of a majority of the panel
so selected shall be final and binding on the parties. Judgment upon the
arbitration award may be entered in any court of competent jurisdiction.
Any Arbitration Notice must be served within one (1) year from the date on
which the claim arose, and failure to bring such claim within such one
year period shall constitute a waiver of such claim and an absolute bar to
further proceedings with respect to it. All arbitration proceedings shall
be conducted in Bangor, Maine unless the parties otherwise agree in
writing. Notwithstanding the foregoing, nothing in this agreement shall
be deemed to preclude either party from seeking temporary or permanent
injunctive relief from a court of competent jurisdiction with respect to
any breach of this Agreement.
17. NOTICES. All notices, requests, demands, waivers, and other
communications required or permitted to be given under this Agreement will be
in writing and will be deemed to have been duly given: (a) if delivered
personally or sent by facsimile or electronic mail, on the date received, (b)
if delivered by overnight courier, on the day after mailing, and (c) if
mailed, five days after mailing with postage prepaid. Any such notice will be
sent as follows:
To Employee:
Paul G. Ahern
At currrent home address of record
To the Company:
BTI Financial Group c/o
Bar Harbor Bankshares Fax Number: (207) 288-3314
Attn: Dean S. Read
82 Main Street
P.O. Box 218
Bar Harbor, ME 04609 E-Mail: dsread@bhbt.com
with a copies to:
Daniel G. McKay. Fax Number: (207) 942-3040
Eaton, Peabody, Bradford & Veague, P.A.
Fleet Center
P.O. Box 1210
Bangor, ME 04402-1210 E-Mail: dmckay@eatonpeadboy.com
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY
BTI FINANCIAL GROUP
By________________________________
Dwight L. Eaton, Its President
EMPLOYEE
_____________________________
Paul G. Ahern
Exhibit A
For purposes of this Agreement, a Change in Control" shall be deemed to have
occurred if:
1) Any "Person" (as such term is used in Section 13(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), as amended), becomes the
"beneficial owner" (as determined pursuant to Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Bar Harbor Bankshares (the
"Corporation") representing thirty (30) percent or more of the combined
voting power of the Corporation's then outstanding securities. or
2) During any period of two (2) consecutive years (not including any period
prior to the execution of this Agreement), individuals who at the beginning
of such period constitute the members of the Corporation's Board of
Directors (" the Board") and any new director, whose election to the Board
or nomination for election to the Board by the Corporation's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease
for any reason to constitute a majority of the Board. or
3) The Corporation shall merge with or consolidate into any other corporation,
other than a merger or consolidation which would result in the holders of
the voting securities of the Corporation outstanding immediately prior
thereto holding immediately thereafter securities representing more than
seventy-five (75) percent of the combined voting power of the voting
securities of the Corporation or such surviving entity outstanding
immediately after such merger or consolidation, or
4) The stockholders of the corporation approve a plan of complete liquidation
of the Corporation or an agreement for the sale or disposition by the
Corporation of all or substantially all of the Corporation's assets, or
5) The Corporation sells or otherwise disposes of more than fifty (50)
percent of the outstanding common stock or substantially all of the assets of
BTI Financial Group.
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