UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 FOR 10-K Annual Report pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934 (fee required). For the fiscal year ended December 31, 1996. Commission File No. 0-13666 BAR HARBOR BANKSHARES State or Other jurisdiction of incorporation or organization: Maine IRS Employer Identification Number: 01-0393663 Address: P O Box 400, 82 Main Street, Bar Harbor, ME Zip Code: 04609 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. The aggregate market value of the voting stock held by non-affiliates of the registrant as of January 31, 1997 is: Common stock, $2.00 par - $66,242,446 The number of shares outstanding of each of the registrant s classes of common stock, as of January 31, 1997 is: Common stock, 1,820,583 Documents incorporated by Reference: (1) Portions of the Annual Report to Stockholders for the year ended December 31, 1996 are incorporated by reference into Part II, Items 7 and 8 and Part IV, Item 14 of the Form 10-K. PAGE
INDEX [CAPTION] <TABLE> <S> <C> <C> # ITEM PAGE 1. Business 3 - 5 2. Properties 6 - 7 3. Pending Legal Proceedings 7 4 Submission of Matters to a Vote of Security Holders 7 5 Market for Registrant s Common Equity and Related Stockholders Matters 7 6 Selected Financial Data 8 - 28 7 Management s Discussion and Analysis 29 8 Consolidated Financial Statements and Supplementary Data 29 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 29 10 Directors and Executive Officers 29-31 11 Executive Compensation 32-35 12 Security Ownership of Certain Beneficial Owners and Management 36-37 13 Certain Relationships and Related Transactions 37 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 38-39 PAGE
PART I ITEM 1. BUSINESS Bar Harbor Bankshares, ( the Company ), was incorporated January 19, 1984. As of December 31, 1996, 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 1,718,237 shares outstanding held of record by approximately 1040 stockholders. The accompanying consolidated financial statements include the accounts of the company and its wholly-owned subsidiary, Bar Harbor Banking and Trust Company ( the Bank ). All intercompany balances and transactions have been eliminated in the accompanying financial statements. The Bank conducts substantially the same business operations as a typical full service, independent, community commercial bank. It has ten offices in coastal Maine, including its principal office located at 82 Main Street, Bar Harbor, Hancock County and adjacent Washington County. The Hancock County offices are located at Main Street, Northeast Harbor; Main Street, Southwest Harbor; Main Street, Blue Hill; Route #15, Deer Isle; corner of High and Washington Streets, Ellsworth; and Main Street, Winter Harbor. The Washington County offices are located at the corner of Route 1 and 1A, Milbridge; Main Street, Machias; and Washington Street, Lubec. In January of 1997, the Bank moved its operations, check clearing, technology and mail staff to a newly constructed Operations Center located on Avery Lane in Ellsworth, Maine. The Mt. Desert Block Company ( the Block Company ), a wholly owned subsidiary of the Bank, owns and manages the real estate upon which all of the Bank s offices are located. The Block Company also owns a parcel of real estate which is not related to the Bank s operations and which is leased for commercial purposes in Lubec; and land adjacent to the Blue Hill bank property. In early 1997, the Block Company will be dissolved with the transfer of real estate made to the Bank. The Bank is a retail bank serving primarily individual customers, small retail establishments, seasonal lodging, campgrounds and restaurants. As a coastal bank it serves the lobstering, fishing and aquaculture industries. It also serves Maine s wild blueberry industry through its Washington County offices. The Bank has not made any material changes in its mode of conducting business during the past five years. The Bank operates in a highly competitive market. Competition among banks in Maine has increased in recent years as a result of aggressive acquisition programs by statewide holding companies and by completely open interstate banking. The bank continues to be one of the largest independent commercial banks in the State of Maine. PAGE
In the Bank s immediate service area there are two other independent commercial banks, one Savings and Loan Association, three savings bank branch offices and three commercial banks which are offices owned by holding companies based outside the state. The Bank has a broad deposit base and loss of any one depositor or closely aligned group of depositors would not have a materially adverse effect on its business. Approximately 86% of the Bank s deposits are in interest bearing accounts. The Bank has paid, and anticipates that it will continue to pay, current competitive rates on certificates of deposit, IRAs, NOW and money market accounts and does not anticipate loss of these deposits. The Bank provides the normal banking services offered by a commercial bank including checking accounts, NOW accounts, all forms of savings and time deposit accounts, individual retirement accounts and KEOGH plans, safe deposit boxes, collections, travelers checks, night depository services, direct deposit payroll services, credit cards, personal money orders, bank- by-mail and club accounts and drive-up facilities at all offices. The Bank also has arrangements with other institutions for the provision of certain services which it does not provide directly, such as computerized payroll services. In addition, the Bank operates a large Trust Department, including an office in Bangor, Maine. The Trust Department handles book assets for clients totaling $258,700,000 and offers professionally managed investment accounts. The Bank has Automated Teller Machines (ATMs) located in each of its ten branch locations. These ATMS access major networks for use of the Bank s cards throughout the United States including the Plus and NYCE systems as well as the major credit card networks. In addition to the foregoing, the Bank offers lending services including consumer credit in the form of installment loans, stand-by credit, VISA credit card accounts and student loans; residential mortgage loans; home equity loans; and business loans to individuals, partnerships and corporations for capital construction, the purchase of real estate and working capital. Business loans are provided primarily to organizations and individuals in the tourist, health care, blueberry, shipbuilding and fishing and aquaculture industries as well as to the usual small businesses associated with small coastal communities. Certain larger loans which would exceed the Bank s lending limits are written on a participation basis with correspondent banks, with the Bank retaining only such portions of those loans as are within its lending limits. The Bank also provides trust and estate planning services to its customers. The principal market areas for all of the Bank s PAGE
services consist of Hancock and Washington Counties. The Bank s policy for lending limits is up to 20% of capital and surplus to any borrower provided that the loans are secured and approved by the Executive Loan Committee, which includes members of the Bank s Board of Directors. As a state chartered bank, the Bank has the Bureau of Banking of the State of Maine and the Federal Deposit Insurance Corporation as bank regulatory agencies responsible for its supervision. In addition, the Company is supervised by the Federal Reserve Bank. The Bank is not engaged in any material research activities relating to the development of new services or the improvement of existing services except in the normal course of business activities. As of December 31, 1996 the Bank employed 157 persons in a full or part time basis. The President, Executive Vice President, Senior Vice Presidents and Vice President in charge of Human Resources are employed by the Bank as well as serve as officers of the Company. They are not compensated by the Company for their services. There are no employees of the Company. Since the Bank is located in a summer resort area, a portion of the Bank s business is seasonal in nature. In addition, employment in the sardine and blueberry industries of Washington County is seasonal. As a result of these factors, the Bank has had an annual deposit swing which has been declining in the last several years from swings of more than 20% in the late 1980s, to under 6% for both 1995 and 1996. The reduction in outflow may be attributable to increasing interest rates and to safety and soundness issues as customers choose to have their funds insured by maintaining their deposits in the banking system. Deposits generally peak in late September with the low point in February. This deposit swing is predictable and does not have a materially adverse effect on the Bank. Should the Bank need additional funds for liquidity needs, it may utilize short term borrowing lines set up through the Federal Home Loan Bank of Boston, seek repurchase agreements through a primary securities dealer or draw on its seasonal line at the Federal Reserve Bank of Boston. On July 11, 1995, the Board of Directors declared a five-for-one stock split to all shareholders of record as of that date and which took effect on August 7, 1995. All share and per data share included in this Form 10-K have been restated to reflect the stock split. PAGE
ITEM 2. PROPERTIES The eleven parcels of real estate utilized by the Bank for its operations are owned by the Mt. Desert Block Company ( the Block Company ), a wholly owned subsidiary of the Bank, and are leased to the Bank. These properties 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 parking lot. The building was renovated and expanded in 1987 and 1988. A portion of the expanded building was completed in 1990 offering space for operational personnel. 2. An office is located at Main Street, Northeast Harbor, Maine. This property consists of a building constructed in 1974 which is adequate for the Bank s current needs at that location. 3. An office is located on Main Street, Southwest Harbor, Maine. This property consists of a building constructed in 1975 which was added to and renovated in 1989 to better meet the needs at that location. 4. An office is located at Church Street, Deer Isle, Maine. This property consists of a building constructed in 1974 which was added to and renovated in 1994 to better meet the needs at that location. 5. An office is located on Main Street, Blue Hill, Maine. This property consists of a building constructed in 1960 which was renovated in 1989 to better meet the needs at that location. 6. An office is located at Main Street, Milbridge, Maine. This property consists of a building constructed in 1974 to which a vestibule was added in 1994 to house an ATM which helps to better meet the needs at that location. 7. An office is located at Washington Street, Lubec, Maine. This branch consists of a building constructed in 1990 and is adequate for the Bank s needs at that location. 8. An office is located at High Street, Ellsworth, Maine. This branch consists of a building constructed in 1982 which is adequate for the Bank s current needs at that location. 9. An office is located at Main Street, Winter Harbor, Maine. This branch consists of a building constructed in 1995 and is adequate for the Bank s needs at that location. 10. An office is located on Main Street, Machias, Maine. This branch was purchased from Key Bank of Maine in May, 1990, and was renovated in 1995 to better meet the Bank s needs at that location. 11. An Operations Center is located on Avery Lane, Ellsworth, Maine and was occupied by the Bank s operations, check clearing, technology, training and mail departments in January of 1997. PAGE
The Block Company owns real estate located on Washington Street in Lubec, Maine which is adjacent to the Lubec branch office of the Bank and is presently unoccupied and available for sale. A parcel of land adjacent to the Blue Hill branch was purchased in 1981. Aggregate annual rentals paid by the Bank during its last fiscal year for its operating properties did not exceed 5% of its operating expenses. ITEM 3. PENDING LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Bar Harbor Bankshares stock is not listed on any national exchange and there is no established trading market for the stock. Since the Company is not aware of the price of all trades, the price is established by determining what a willing buyer will pay a willing seller. The stock prices shown below are based upon quotes received from The Bangor Daily News, and represent a range of the high and low bids for each quarter of 1995 and 1996: </TABLE> <TABLE> <CAPTION> 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low <S> <C> <C> <C> <C> 1996 37.50 to 26.125 44.00 to 37.00 42.00 to 38.00 39.50 to 36.25 1995 17.00 to 16.40 20.00 to 17.00 25.50 to 20.00 28.00 to 25.50 </TABLE> PAGE
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST EARNINGS [CAPTION] 1996 <TABLE> <CAPTION> AVERAGE YIELD/ BALANCE INTEREST RATE <S> <C> <C> <C> ASSETS Loans $207,188,449 $ 20,303,252 9.80% Taxable Investment Securities 93,606,754 6,421,615 6.86% Non-Taxable Investment Securities 12,940,087 767,161 5.93% Fed. Funds Sold & Money Market Funds 556,555 30,447 5.47% Total Interest-Earning Assets $314,291,845 $ 27,522,475 8.76% Non-Interest Earning Assets: Total Cash and Due from 8,877,912 Less: Allowance for Losses (4,261,505) Bank Premises and Equipment 6,880,463 Other Assets 6,182,539 TOTAL ASSETS $331,971,254 LIABILITIES AND STOCKHOLDERS EQUITY Interest Bearing Demand Deposits $ 38,036,466 $ 618,043 1.62% Savings Deposits 54,503,408 1,370,782 2.52% Time Deposits 124,426,589 6,898,950 5.54% Repurchase Agreements and Short Term Borrowings 37,519,384 2,030,030 5.41% Long Term Borrowings 6,767,760 363,198 5.37% TOTAL INTEREST BEARING LIABILITIES $261,253,607 $ 11,281,003 4.27% Non-Interest Bearing Liabilities: Non-Interest Bearing Demand Deposits 33,407,813 Other Liabilities 1,735,263 Stockholders Equity 35,574,571 TOTAL LIABILITIES & STOCKHOLDERS EQUITY $331,971,254 NET EARNING ASSETS $ 53,038,238 NET INTEREST INCOME/NET INTEREST SPREAD $ 16,241,472 4.44% NET INTEREST MARGIN 5.17% PAGE
<CAPTION> 1995 AVERAGE YIELD/ BALANCE INTEREST RATE <S> <C> <C> <C> ASSETS Loans $195,178,495 $ 19,298,629 9.89% Taxable Investment Securities 84,364,335 5,877,065 6.97% Non-Taxable Investment Securities 14,138,613 852,051 6.03% Fed. Funds Sold & Money Market Funds 2,097,962 124,242 5.92% Total Interest-Earning Assets $295,779,405 $ 26,151,987 8.84% Non-Interest Earning Assets: Total Cash and Due from 7,727,672 Less: Allowance for Losses (4,142,571) Bank Premises and Equipment 5,720,449 Other Assets 6,027,318 TOTAL ASSETS $311,112,273 LIABILITIES AND STOCKHOLDERS EQUITY Interest Bearing Demand Deposits $ 37,109,957 $ 606,437 1.63% Savings Deposits 57,521,058 1,408,916 2.45% Time Deposits 115,118,182 6,412,766 5.57% Repurchase Agreements and Short Term Borrowings 38,440,663 2,175,597 5.66% Long Term Borrowings 580,132 20,677 3.56% TOTAL INTEREST BEARING LIABILITIES $248,769,992 $ 10,624,393 4.27% Non-Interest Bearing Liabilities: Non-Interest Bearing Demand Deposits 30,083,671 Other Liabilities 1,272,847 Stockholders Equity 30,985,763 TOTAL LIABILITIES & STOCKHOLDERS EQUITY $311,112,273 NET EARNING ASSETS $ 47,009,413 NET INTEREST INCOME/NET INTEREST SPREAD $ 15,527,594 4.57% NET INTEREST MARGIN 5.25% PAGE
<CAPTION> 1994 AVERAGE YIELD/ BALANCE INTEREST RATE <S> <C> <C> <C> ASSETS Loans $174,550,402 $ 16,006,536 9.17% Taxable Investment Securities 75,333,849 4,911,599 6.52% Non-Taxable Investment Securities 14,296,651 828,998 5.80% Fed. Funds Sold & Money Market Funds 1,192,601 48,457 4.06% Total Interest-Earning Assets $265,373,503 $ 21,795,590 8.21% Non-Interest Earning Assets: Total Cash and Due from 7,664,386 Less: Allowance for Losses (3,720,244) Bank Premises and Equipment 5,684,033 Other Assets 6,166,864 TOTAL ASSETS $281,168,542 LIABILITIES AND STOCKHOLDERS EQUITY Interest Bearing Demand Deposits $ 38,591,994 $ 633,346 1.64% Savings Deposits 63,106,980 1,621,651 2.57% Time Deposits 84,786,001 3,812,734 4.50% Repurchase Agreements and Short Term Borrowings 37,686,124 1,608,404 4.27% Long Term Borrowings 0 0 0% TOTAL INTEREST BEARING LIABILITIES $224,171,099 $ 7,676,135 3.42% Non-Interest Bearing Liabilities: Non-Interest Bearing Demand Deposits 28,559,472 Other Liabilities 1,033,450 Stockholders Equity 27,404,521 TOTAL LIABILITIES & STOCKHOLDERS EQUITY $281,168,542 NET EARNING ASSETS $ 41,202,404 NET INTEREST INCOME/NET INTEREST SPREAD $ 14,119,455 4.79% NET INTEREST MARGIN 5.32% <CAPTION> </TABLE> PAGE
NOTES TO AVERAGE BALANCE SHEET 1. Tax-exempt income is calculated at coupon rate, not adjusted on a tax equivalent basis. 2. At December 31, 1996, loans on non-accrual status totaled $3,541,000. These loans are included in the loan category on the preceding Average Balance Sheet. If interest had been accrued on such loans, interest income on loans would have been $314,000 higher in 1996. 3. Interest on loans includes loan fees pursuant to FASB91 in the following amounts: <TABLE> <CAPTION> <C> <C> <C> 1996 1995 1994 $66,353 $103,788 $176,032 </TABLE> 4. The Bank s net interest margin remains above the national average, but has remained at higher than average levels for a number of years. The Bank is a community bank which focuses its efforts on customer relationships and good service while remaining competitive in the demand for loans both in the commercial and consumer sectors. The spread and margin for the Bank have been decreasing gradually over the past three years, as competition for the same customers within the Bank s market area continues to grow. The average rate on the bank s earning assets decreased in 1996 by 35 basis points and the cost of interest bearing liabilities decreased by 17 basis points. This compares with the average rate on earning assets increasing by 63 basis points in 1995 when compared to 1994; and the average rate on interest bearing liabilities increasing by 85 basis points. Although the net interest spread dropped from 1995 to 1996, the drop was not as significant as the drop between 1994 and 1995. The Bank continues to seek quality loans, broadening its customer base as the spread tightens. The effect of rates and volumes is exemplified further in the Rate Volume Analysis found on page 12 of this report. PAGE
RATE VOLUME ANALYSIS The following table represents a summary of the changes in interest earned and interest paid as a result of changes in rates and changes in volumes. For each category of earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to change in rate (change in rate multiplied by old volume) and change in volume (change in volume multiplied by old rate). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. <TABLE> <CAPTION> YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995 INCREASES (DECREASES) DUE TO: VOLUME RATE NET <S> <C> <C> <C> Loans $1,178,248 $ (173,625) $1,004,623 Taxable Investment Securities 654,084 (109,534) 544,550 Non-Taxable Investment Securities (71,244) (13,646) (84,890) Federal Funds Sold and Money Market Funds (84,979) (8,816) (93,795) TOTAL INTEREST EARNING ASSETS $1,676,109 $ (305,622) $1,370,488 Deposits $ 373,494 $ 86,161 $ 459,655 Repurchase Agreements and Short Term Borrowings (55,225) (90,342) (145,567) Long Term Borrowings 344,202 (1,681) 342,521 TOTAL INTEREST BEARING LIABILITIES $ 662,471 $ (5,862) $ 656,609 NET CHANGE IN INTEREST $1,013,638 $ (299,759) $ 713,879 <CAPTION> </TABLE> PAGE
<TABLE> <CAPTION> YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994 INCREASES (DECREASES) DUE TO: VOLUME RATE NET <S> <C> <C> <C> Loans $1,980,684 $1,311,410 $3,292,093 Taxable Investment Securities 604,581 360,885 965,466 Non-Taxable Investment Securities (9,243) 32,296 23,053 Federal Funds Sold and Money Market Funds 47,287 28,498 75,785 TOTAL INTEREST EARNING ASSETS $2,623,309 $1,733,088 $4,356,397 Deposits $ 728,282 $1,632,106 $2,360,388 Repurchase Agreements and Short Term Borrowings 41,548 525,645 567,193 Long Term Borrowings 20,677 0 20,677 TOTAL INTEREST BEARING LIABILITIES $ 790,507 $2,157,751 $2,948,258 NET CHANGE IN INTEREST $1,832,802 ($424,663) $1,408,139 <CAPTION> </TABLE> PAGE
INTEREST RATE SENSITIVITY ANALYSIS AS OF DECEMBER 31, 1996 (Unaudited) Amounts in Thousands The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 1996 which are anticipated by the Bank, based upon certain assumptions, to reprice or mature in each of the future time periods shown. <TABLE> <CAPTION> ONE TO GREATER TOTAL TO FIVE THAN FIVE ONE YEAR YEARS YEARS TOTAL <S> <C> <C> <C> <C> Loans Fixed Rate $ 17,650 $ 18,435 $ 32,123 $ 68,208 Variable Rate 106,506 37,246 0 143,752 Investments 45,541 37,396 24,788 107,725 Federal Funds Sold 2,000 0 0 2,000 Interest Rate Swap 0 15,000 0 15,000 TOTAL EARNING ASSETS $171,697 $108,077 $ 56,911 $336,685 Deposits $130,790 $ 19,277 $101,608 $251,675 Repurchase Agreements 8,246 0 0 8,246 Borrowings 31,187 12,721 0 43,908 Interest Rate Swap 5,000 5,000 5,000 15,000 TOTAL SOURCES $175,223 $ 36,998 $106,608 $318,829 Net Gap Position $ (3,526) $ 71,079 $(49,697) $ 17,856 Cumulative Gap (3,526) 67,553 17,856 17,856 Rate Sensitive Assets/ Rate Sensitive Liabilities 97.99% 292.12% 53.38% 105.60% </TABLE> Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual terms of the asset or liability. The Bank has assumed that 4 1/2% of its savings is more rate sensitive and will react to rate changes, and has therefore categorized it in the one-year time horizon. The remainder is stable and is listed in the greater than five year category. NOW accounts, other than seasonal fluctuations approximating $4,000,000, are stable and are listed in the greater than five year category. Money market accounts are assumed to reprice in three months or less. Certificates of deposit are assumed to reprice at the date of contractual maturity. Fixed rate mortgages, totaling $42,000,000 are amortized using the weighted average maturity of 145 months, with an additional prepayment rate of 10%,which approximates the Bank s prior experience.
SUMMARY OF INVESTMENT PORTFOLIO
The information presented below is to facilitate the analysis and comparison of sources of income and exposure to risks. <TABLE> <CAPTION> 1996 1995 1994 <S> <C> <C> <C> U.S. Treasury Securities $ 0 $ 1,000,470 $ 3,007,997 Obligations of Other U.S. Government Agencies 11,749,820 13,278,651 13,322,895 Mortgage Backed Securities: U.S. Government Agencies 49,255,463 42,764,250 46,739,125 Other 6,811,600 8,210,646 4,086,750 Obligations of State and Political Subdivision 12,391,860 13,240,946 14,401,790 Other Bonds 2,508,093 3,714,099 3,521,514 SECURITIES HELD TO MATURITY $82,716,836 $82,209,062 $85,080,071 Obligations of Other U.S. Government Agencies $13,337,031 8,145,160 0 Mortgage Backed Securities-- U.S. Government Agencies 5,430,506 5,578,826 0 Other Bonds 0 500,000 487,500 Marketable Equity Securities 616,896 0 0 SECURITIES AVAILABLE FOR SALE $19,384,433 $ 14,223,986 $ 487,500 </TABLE> PAGE
MATURITY SCHEDULE FOR INVESTMENTS HELD TO MATURITY AT DECEMBER, 1996 <TABLE> <CAPTION> Greater than Greater than Greater One Year One Year to Five Years to than or Less Five Years Ten Years Ten Years <S> <C> <C> <C> <C> <C> U.S. Treasury Securities $ 0 $ 0 $ 0 $ 0 Average Yield Obligations of other U.S. Government Agencies 2,000,000 5,750,000 3,999,820 0 Average Yield 6.00 7.30 7.16 Mortgage-backed Securities: U.S. Government Agencies 0 9,284,892 4,678,079 35,292,492 Average Yield 7.37 7.81 7.25 Mortgage-Backed Securities: Other 0 0 1,858,973 4,952,627 Average Yield 5.29 7.35 Obligations of State and Political Subdivisions 4,144,784 6,422,076 0 1,825,000 Average Yield 5.57 6.47 6.88 Other Bonds 1,498,970 1,009,123 0 0 Average Yield 6.59 7.56 TOTAL $7,643,754 $22,466,091 $10,536,872 $42,070,119 </TABLE> MATURITY SCHEDULE FOR INVESTMENTS AVAILABLE FOR SALE AT DECEMBER 31, 1996 <TABLE> <CAPTION> Greater than Greater Five Years to than Ten Years Ten Years <S> <C> <C> <C> Obligations of Other U. S. Government Agencies $ 11,500,733 $ 2,000,000 Average Yield 7.18 7.18 Mortgage Backed Securities -- U.S. Government Agencies $ 0 $ 5,430,506 Average Yield 7.49 Other Bonds 0 0 Average Yield $ 11,500,733 $ 7,430,506 </TABLE> Mortgage-backed securities are included based upon the final maturity date of the security. PAGE
he maturity schedule for securities available for sale excludes marketable equity securities totaling $616,896. Yield on tax exempt bonds were not computed on a tax equivalent basis The bank does not hold any securities for a single issuer where the aggregate book value of the securities exceed 10% of the Bank s stockholders equity. The maturities for the mortgage-backed securities are shown at the stated maturity. If the Bank presented mortgage-backed securities by average expected life, the breakdown would be: <TABLE> <CAPTION> Greater than Greater than Greater One Year One Year to Five Years to than or Less Five Years Ten Years Ten Years <S> <C> <C> <C> <C> <C> Mortgage-backed Securities Held To Maturity $ 2,707,209 $33,183,344 $20,176,510 $ 0 Mortgage-backed Securities Available For Sale 3,633,172 1,797,334 0 0 </TABLE> Changes in the market value of the investment portfolio follow national interest rate fluctuations. As national interest rates remained level for 1996, the value of the portfolio also remained level with the total unrealized gain approximately $300,000 over book value. The Bank does not hold any interest only or principal only bonds, nor does it hold any securities whose market value could change to a greater degree than traditional debt. The Bank does hold one 10-year step up debenture that is backed by the U. S. government. The step up has a fixed rate of interest for the first three years and which then increases incrementally each year until maturity. This debenture is callable at its semi-annual coupon date. PAGE
SUMMARY OF LOAN PORTFOLIO <TABLE> <CAPTION> <S> <C> <C> <C> 1996 1995 1994 Real estate Loans: Construction & Development $ 8,905,823 $ 8,072,230 $ 4,594,803 Mortgage 146,041,165 135,068,891 124,620,343 Loans to finance agricultural production and other loans to farmers 10,092,214 10,377,194 9,369,651 Commercial and industrial loans 29,040,315 29,806,328 31,791,148 Loans to individuals for household, family and other personal expenditures 17,241,472 17,640,397 15,301,322 All other loans 318,911 6,790 21,635 Real Estate Under Foreclosure 320,147 793,887 294,904 TOTAL LOANS $211,960,047 $201,765,717 $185,993,806 Less: Allowance for possible loan loss (4,292,995) 4,047,883 3,891,835 NET LOANS $207,667,052 $197,717,834 $182,101,971 <CAPTION> 1993 1992 Real estate Loans: Construction & Development $ 4,606,935 $ 5,642,294 Mortgage 107,9338,202 94,906,632 Loans to finance agricultural production and other loans to farmers 8,217,183 7,174,262 Commercial and industrial loans 27,533,900 25,621,342 Loans to individuals for household, family and other personal expenditures 14,621,364 12,248,539 All other loans 269,371 182,397 Real Estate Under Foreclosure 328,703 434,384 TOTAL LOANS $163,525,658 $146,209,850 Less: Allowance for possible loan loss 3,369,387 3,205,868 NET LOANS $160,156,271 $143,003,982 </TABLE> PAGE
PAST DUE LOANS (Amounts in Thousands) The figures below represent loans past due 30 days or more (% is percentage of loans outstanding for a specific category of loans). <TABLE> <CAPTION> 1996 % 1995 % 1994 % <S> <C> <C> <C> <C> <C> <C> Construction & Development 247 2.8 214 2.7 77 1.7 Real Estate 4,100 2.8 3,009 2.2 1,713 1.4 Commercial, Industrial and other 1,479 3.8 517 1.3 559 1.4 Loans to individuals 462 2.7 434 2.5 324 2.1 Loans past due 90 days or more and still accruing* 733 0.4 849 .4 892 .5 Non-Accruing Loans 3,541 1.7 3,360 1.7 3,139 1.7 <CAPTION> <S> <C> <C> <C> <C> 1993 % 1992 % Construction & Development 0 0.0 377 6.7 Real Estate 2,177 2.0 4,889 5.2 Commercial, Industrial and other 615 1.7 1,524 5.9 Loans to individuals 238 1.6 296 2.4 Loans past due 90 days or more and still accruing* 513 .3 593 .4 Non-Accruing Loans 2,645 1.6 3,683 2.5 <FN> <F1> *The percentage for loans past due 90 days or more and still accruing and non-accruing loans relate to total loans outstanding. Each loan in these categories is also included in its past due loan category. </TABLE> Loans which were non-performing as of December 31, 1995 and for which the real estate was acquired by the Bank in 1996 totaled $215,000. PAGE
MATURITY SCHEDULE - LOAN PORTFOLIO As of December 31, 1996 <TABLE> <CAPTION> After one One Year Year through After five or Less five years years <S> <C> <C> <C> Commercial, Financial and Agricultural $21,097,055 $ 9,004,059 $ 9,031,415 Real estate Construction and Land Development $ 7,561,028 $ 1,344,795 </TABLE> The Bank makes construction loans on the basis of: a) permanent financing from another financial institution, or b)approval at the time of origination for permanent financing by our own Bank. In addition, a number of large commercial real estate loans are written and priced on the basis of fixed rates with a three to five year balloon payment. It is generally the intent of the Bank to renegotiate the rate and term of the loan at the balloon maturity. Lines of credit are renewed annually. There are consumer construction loans that will either be sold to the secondary market upon completion of construction or rolled into permanent portfolio residential mortgage loans on the Bank s books. The total amount of commercial, financial and agricultural, construction, and land development loans with adjustable interest rates and maturities of greater than one year is $9,882,139 and with fixed interest rates and maturities of greater than one year is $9,498,130. RISK ELEMENTS <TABLE> <CAPTION> 1996 1995 1994 1993 1992 <S> <C> <C> <C> <C> <C> Loans accounted for on a non- accrual basis $3,541,296 $3,359,857 $3,139,465 $2,644,678 $3,683,185 Accruing loans contractually past due 90-days or more $ 732,791 $ 849,127 $ 891,986 $ 512,784 $ 593,237 </TABLE> It is the policy of management to review past due loans on a monthly basis. Those loans 90 days or more past due which are not well secured or in the process of collection are designated as non-accruing. This includes government guaranteed loans unless the guaranteed portion has been sold. If interest had been accruing on such loans, interest income on loans would have been $313,584 higher in 1996. Interest collected on these loans totaled $307,645 in 1996 and was included in net income. Non-accrual loans represent 1.7% of average loans for 1996 and 1995. Management is not aware of any potential problems loans which are not included in the above table. PAGE
The Bank makes single-family residential loans, commercial real estate loans, commercial loans, and a variety of consumer loans. The Bank s lending activities are conducted in north coastal Maine. Because of the Bank s proximity to Acadia National Park, a large part of the economic activity in the area is generated from the hospitality business associated with tourism. At December 31, 1996, approximately $27,800,000 of loans were made to companies in the hospitality industry. Of this total indebtedness, 2.8% were 30 days or more delinquent as of December 31, 1996. Loans to real estate investors and developers totaled $14,300,000 in 1996. In the fishing industry in 1996, loans returned to the $10,000,000 found previously in From the standpoint of large loans to single borrowers, loans of $700,000 or more to one borrower remained constant at 95% as a percentage of stockholders equity for years ended December 31, 1996 and 1995. As most loans granted by the Bank are collateralized by real estate, the ability of the Bank s borrowers to repay is dependent on the level of economic activity and the level of real estate values in the Bank s market area. Because of the increasing health of the tourist industry and other industries in its market area, the Bank has benefited from the economic well-being of its customers. SUMMARY OF LOAN LOSSES Delinquencies are reviewed on a monthly and quarterly basis by senior management as well as the Board of Directors. Information reviewed is used in determining if and when loans represent potential losses to the Bank. A determination of a potential loss could result in a charge to the provision for loan losses, with an increase to the reserve for possible loans so that risks in the portfolio can be identified on a timely basis and an appropriate reserve can be maintained. Since 1991, the Bank has utilized the methodology for the review of the allowance for loan losses to be in accordance with the approach suggested by bank regulators through the Interagency Policy Statement on Allowance for Loan and Lease Losses dated December, 1993. The reserve includes specific reserves based on the review of specific credits, a pool of reserves based on historical charge offs by loan types and supplementary reserves reflecting concerns and loan concentrations by industry, by customer and by general economic conditions. The allocation has changed based on concentration of loans in the fishing and tourist related industries. In 1992, the Bank continued to concentrate on resolving loan problems, focusing on the reduction of non-earning assets and resolution of troubled debt situations. With continued softness in the economy, the Bank aggressively charged off problem loans, and, at the same time provided more reserves for possible loan losses in the future. Building on the prior year s program of measuring adequacy, the Bank continued to build reserves to ensure that future earnings were not hurt by unforseen problems in the loan area. Charged off loans have decreased over the past five years both in dollars (from $1,123,000 in 1992 to $711,000 in 1996) and as a percentage of the average loan portfolio with the exception in 1995. The percentage of charge off to average loans in 1996 represents the lowest percentage (.23%) in the five years presented. For the years ended 1992 through 1995, the majority of PAGE
charge offs have been commercial loans secured by real estate. However, in 1996, the majority of charge offs were loans to individuals and included many small loans and credit card debt. In 1992, increases in charge offs were attributable to an account where faulty documentation resulted in loss of collateral. The Bank real estate charge offs in 1993 represent charge down of loan balances on troubled loans based on updated fair value appraisals, or highest third party bids at auction. In 1993 there were two writedowns of REO charged directly to earnings. A property in Northeast Harbor was sold at a loss of $74,000 after paying all expenses, and property on Main Street in Ellsworth was written down by $100,000 to more closely reflect a liquidation. In 1994, the same property in Ellsworth was written down by additional $23,500. This property was sold in 1995 for $120,000. Additionally in 1994, three residential properties owned by the Bank were written down by a total of $58,000 to more closely reflect their market values. Approximately 28% of the chargeoffs in 1995 represented loans secured by real estate, and 39% represented commercial credits. The increase in commercial loan chargeoffs in 1995 included a chargedown of a large commercial loan. Recoveries offset losses totaling $97,000, $141,000 and $264,900 for the years ended 1995, 1994 and 1993, respectively. Softness in the economy in the early 1990's, reduction of collateral value, and, in some cases, poor management by the owners of the business have caused the major losses in the commercial area in the early 1990's. Based on past experience and management s assessment of the present loan portfolio, it is expected that loan charge offs for 1997 will not exceed $500,000. <TABLE> <S> <C> Commercial $ 44,000 Real estate mortgages 382,000 Installments to individuals 74,000 </TABLE> A breakdown of the allowance for possible loan losses is as follows: <TABLE> <CAPTION> 1996 1995 1994 Percent of Percent of Percent of Loans in each loans in each loans in each Category to Category to Category to Amount Total Loans Amount Total Loans Amount Total Loans <S> <C> <C> <C> <C> <C> <C> Real Estate Mortgages $1,053,500 73.26% $ 915,168 71.34% $ 1,665,363 69.63% Installments to individuals 470,100 8.13% 503,777 8.74% 404,942 8.23% Commercial, financial And agricultural 629,000 18.46% 277,775 19.92% 1,220,253 22.13% Other 987,250 .15% 965,391 0.00% 80,337 .01% Unallocated 1,153,145 0.00% 1,385,772 0.00% 520,940 .00% TOTAL $4,292,995 100.00% $ 4,047,883 100.00% $ 3,891,835 100.00% </TABLE> PAGE
SUMMARY OF LOAN LOSS EXPERIENCE (In thousands) % = Percentage of Loans Outstanding for a Specific Category of Loans <TABLE> <CAPTION> ALLOWANCE FOR LOAN LOSSES 1996 1995 1994 1993 1992 <S> <C> <C> <C> <C> <C> Balance at beginning of period $4,048 $3,892 $3,369 $3,206 $2,121 Charge offs: Commercial, Financial, Agricultural, Others 195 377 122 386 302 Real Estate Mortgages 131 256 267 505 633 Installments to individuals 385 268 189 290 188 Total Charge Offs 711 901 578 1,181 1,123 Recoveries: Commercial, Financial, Agricultural, Others 73 20 47 101 55 Real Estate Mortgages 94 20 54 118 49 Installments to individuals 69 57 40 45 39 Total Recoveries 236 97 141 264 143 Net Charge Offs 475 804 437 917 980 Provision Charge to Operations 720 960 960 1,080 2,065 Balance at End of Period $4,293 $ 4,048 $3,892 $3,369 $3,206 Average loans outstanding during period $ 207,188 $195,178 $174,550 $153,232 $146,257 Net Charge Offs to Average Loans Outstanding during Period .23 .41 .25 .60 .67 </TABLE> PAGE
SUMMARY OF DEPOSIT PORTFOLIO (In thousands) <TABLE> <CAPTION> 1996 1995 1994 Average Average Average Average Average Average Balance Rate Balance Rate Balance Rate <S> <C> <C> <C> <C> <C> <C> Demand Deposits 33,408 30,084 28,559 NOW Accounts 38,036 1.62% 37,110 1.63% 38,592 1.64% Savings Accounts 54,503 2.52% 57,521 2.45% 63,107 2.57% Time Deposits 124,427 5.54% 115,118 5.57% 84,786 4.50% Total Deposits 250,374 239,833 215,044 </TABLE> MATURITY SCHEDULE FOR TIME DEPOSITS $100,000 OR MORE <TABLE> <CAPTION> Over Three Over Six Three Months Months Through Months Through Over or Less Six Months Twelve Months Twelve Months <C> <C> <C> <C> $ 5,579,061 $ 3,837,764 $ 3,462,260 $ 1,965,303 </TABLE> RETURN ON EQUITY AND ASSETS <TABLE> <CAPTION> 1996 1995 1994 <S> <C> <C> <C> Return on Average Assets 2.02 1.89 1.75 Return on Average Equity 18.86 18.97 17.93 Dividend Payout Ratio 30.22 25.07 25.75 Average Equity Capital to Average Assets Ratio 10.71 9.96 9.75 </TABLE> PAGE
As of January 1, 1997, there were approximately 1040 holders of record of Bar Harbor Bankshares common stock. Dividends have been paid by the company during 1996 and 1995, as follows: <TABLE> <CAPTION> March June September December <S> <C> <C> <C> <C> 1996 $ 0.20 $ 0.20 $ 0.25 $ 0.53 1995 N/A $ 0.36 N/A $ 0.50 </TABLE> PAGE
SHORT TERM BORROWINGS (In thousands) <TABLE> <CAPTION> Average Weighted Weighted Maximum Amount Average Balance Average Outstanding Outstanding Interest at end Interest During During Rate During of Period Rate Period Period Period <S> <C> <C> <C> <C> <C> 1996 FHLB Advances $ 43,908 5.62% $ 41,000 $ 30,811 5.68% Wholesale Repurchase Agreements $ 0 .00 % $ 10,000 $ 583 5.47% 1995 FHLB Advances $ 26,700 5.85% $ 29,000 $ 17,058 5.84% Wholesale Repurchase Agreements $ 0 0.00% $ 18,250 $ 4,338 6.16% 1994 FHLB Advances $ 25,000 5.54% $ 50,000 $ 28,904 4.28% Wholesale Repurchase Agreements $ 0 0.00% $ 11,000 $ 4,810 4.22% </TABLE> The terms for short-term FHLB advances taken in 1996 ranged from 2 days to 340 days and averaged 49 days. The terms for wholesale repurchase agreements taken in 1996 ranged from 7 days to 14 days and averaged 8 days. The terms for short-term FHLB advances taken in 1995 ranged from 5 days to 200 days and averaged 49 days. The terms for wholesale repurchase agreements taken in 1995 ranged from 4 days to 90 days and averaged 24 days. The terms for short-term FHLB advances taken in 1994 ranged from 14 days to 257 days and averaged 82 days. The terms for wholesale repurchase agreements taken in 1994 ranged from four days to 90 days and averaged 25 days. PAGE
ITEM 6. SELECTED FINANCIAL DATA The following data represents selected year end financial information for the past five years. All information is unaudited. (In thousands, except per share data) <TABLE> <CAPTION> BALANCE SHEET TOTALS 1996 1995 1994 1993 1992 <S> <C> <C> <C> <C> <C> Total Assets $345,143 $326,609 $296,687 $257,347 $247,149 Net Loans 207,667 197,718 182,102 160,156 143,004 Total Deposits 251,675 251,471 225,545 203,523 195,723 Total Equity 37,887 33,243 28,761 24,987 23,558 Average Assets 331,971 311,112 281,169 249,773 231,114 Average Equity 35,575 30,986 27,405 25,784 23,563 STATEMENT OF EARNINGS TOTALS Interest Income $ 27,522 $ 26,152 $ 21,795 $ 19,855 $ 20,283 Interest Expense 11,281 10,624 7,676 6,775 7,997 Net Interest Income 16,241 15,528 14,119 13,080 12,286 Provision for Loan Losses 720 960 960 1,080 2,065 Net Interest Income After provision for Loan Losses 15,521 14,568 13,159 12,000 10,221 Non-interest income (Includes net security gains {losses]) 5,000 4,398 4,012 4,153 3,576 Non-interest expense 10,914 10,471 10,161 10,957 9,169 Applicable income Taxes 2,899 2,616 2,096 1,632 1,254 Net income before Cumulative Effect of Accounting Change 6,709 5,879 4,914 3,564 3,374 Cumulative Effect of Accounting Change 0 0 0 (1,058) Net Income $ 6,709 $ 5,879 $ 4,914 $ 2,506 $ 3,374 PER SHARE DATA: (Restated for five-for-one stock split in 1995) Income Before Cumulative Effect of Accounting Change $3.90 $ 3.43 $ 2.87 $ 2.09 $ 1.87 Cumulative Effect of Change in Accounting for Postretirement Benefits, Net of Income Tax Benefit $ 0.00 $ 0.00 $ 0.00 ($ 0.62) $ 0.00 Net Income $ 3.90 $ 3.43 $ 2.87 $ 1.47 $ 1.87 Dividends $ 1.18 $ 0.86 $ 0.74 $ 0.62 $ 0.42 Weighted average number of Common shares outstanding, In thousands 1,718 1,713 1,710 1,707 1,806 Return on total average Assets/Net Income 2.02% 1.89% 1.75% 1.00% 1.46% </TABLE>
SUPPLEMENTARY FINANCIAL DATA BY QUARTERS (In thousands except per share data) <TABLE> <CAPTION> 1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter <S> <C> <C> <C> <C> Interest Income $ 6,757 $ 6,735 $ 7,019 $ 7,012 Interest Expense 2,307 2,250 2,162 2,169 Net Interest Income 3,940 3,866 4,233 4,203 Provision for Losses 240 240 120 120 Security Gains (Losses) 0 17 0 0 Income Before Income Taxes 2,190 2,165 2,817 2,436 Income Taxes 668 656 727 849 Net Income 1,522 1,509 2,090 1,588 Earnings Per Share $ 0.89 $ 0.88 $ 1.22 $ 0.92 1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Interest Income $ 5,992 $ 6,518 $ 6,902 $ 6,740 Interest Expense 2,370 2,660 2,767 2,827 Net Interest Income 3,622 3,858 4,135 3,913 Provision for Losses 240 240 240 240 Security Gains (Losses) 0 0 0 0 Income Before Income Taxes 1,884 2,150 2,706 1,755 Income Taxes 576 650 859 531 Net Income 1,308 1,500 1,846 1,225 Earnings Per Share $ 0.76 $ 0.88 $ 1.08 $ 0.71 </TABLE> PAGE
ITEM 7. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in the section captioned Management s Discussion and Analysis of Financial Condition and Results of Operations in the Company s Annual Report is incorporated herein by reference. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required are contained on pages 12 through 30 of the Company s Annual Report for the year ended December 31, 1996 and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The following statements pertain to all individuals listed below: 1. There are no arrangements or understandings between any director or officer listed below and any other person pursuant to which such director or officer was selected as an officer or director. 2. There is no family relationship among any of the directors and officers listed below. 3. None of the directors and officers listed below have been involved in any bankruptcy, criminal, or other proceeding set forth or described in sub- section (f) of Item 401 of Regulation S-K as promulgated by the Securities and Exchange Commission. 4. Each of the directors listed below has been elected to a three year term, except where the mandatory retirement age of 75 years precluded an election of a shorter term, with one third of the Board of Directors, as nearly as may be, standing for election each year. Each director of the Company also serves as a director of the Bank, and references below to the year in which an individual was first elected refer to the year in which s/he was first elected a director of the Bank. [1] Frederick F. Brown, Director, Age 70. Mr. Brown s principal occupation during the past five years has been as proprietor and owner of F. T. Brown Company, which owns and operates a hardware store in Northeast Harbor and as one-third owner of Island Plumbing & Heating in Northeast Harbor. He also serves as President of Northeast Harbor Water Company. Mr. Brown first was elected as a director on October 2, 1979. PAGE
[2] Robert C. Carter, Director. Mr. Carter s principal occupation is owner and operator of the Machias Motor Inn, Machias, Maine. Mr. Carter was first elected as a director on October 1, 1996. [3] Thomas A. Colwell, Director. Age 52. Mr. Colwell s principal occupation during the past five years has been as owner of Colwell Brothers, Inc. He also serves as a member of the Board of Directors of the Maine Lobster Pound Association. Mr. Colwell was first elected as a director on October 1, 1991. [4] Bernard K. Cough, Director, Age 69. Mr. Cough s principal occupation during the past five years has been owner/operator of several motels, including the Atlantic Oakes Motel, Atlantic Eyrie Lodge, Inc., Brookside Motel, Bay View, Inc., and Ocean Gate, Inc. Mr. Cough is also Treasurer of Cough Bros., Inc. and President of Downeast Inns, Inc. Mr. Cough was first elected as a director on October 1, 1985. [5] Peter Dodge, Director, Age 53. Mr. Dodge is President of the Peter Dodge Agency (a Maine corporation) d/b/a the Merle B. Grindle Insurance Agency in Blue Hill, Maine. He is also Director and Treasurer of Coastal Holdings, Inc., Trustee of George Stevens Academy, and Director, Bagaduce Music Lending Library. He was first elected as a director on October 6, 1987. [6] Dwight L. Eaton, Senior Vice President and Trust Officer, Age 61. Mr. Eaton s principal occupation during the past five years has been as Senior Vice President and Trust Officer of Bar Harbor Banking and Trust Company. He serves as Chairman and Director of the Acadia Corporation. Mr. Eaton first was elected as a Director on October 4, 1988. [7] Ruth S. Foster, Director, Age 67. Mrs. Foster s principal occupation is the President and principal stockholder of Ruth Foster s, a children s clothing store in Ellsworth, Maine. Mrs. Foster first was elected as a director on October 7, 1986. [8] Robert L. Gilfillan, Chairman of the Board of Directors, Age 69. Mr. Gilfillan s principal occupation during the past five years has been as the owner and President of the West End Drug Company in Bar Harbor. Mr. Gilfillan first was elected as a director on November 5, 1957. [9] Sheldon F. Goldthwait, Jr., President and Chief Executive Officer, Age 58. He was appointed President and Chief Executive Officer of Bar Harbor Banking and Trust Company January 1, 1995. Prior to that he served as Executive Vice President of Bar Harbor Banking and Trust Company. He serves as Treasurer and Director of the Acadia Corporation. Mr. Goldthwait first was elected as a director on October 4, 1988. [10] James C. MacLeod, Director, Age 72. Mr. MacLeod is retired. Mr. MacLeod served as Vice President of the Bank until his retirement in December of 1987. He was appointed as a Vice president of the Bank in 1972 and was first elected as a director of the Bank on November 7, 1961. PAGE
[11] John P. McCurdy, Director, Age 65. Prior to his retirement in 1991. Mr. McCurdy s principal occupation was the owner and operator of McCurdy Fish Company of Lubec, a processor of smoked herring. Mr. McCurdy first was elected as a director on October 2, 1979. [12] Jarvis W. Newman, Director, Age 61. Mr. Newman is the owner of Newman Marine, a boat brokerage in Southwest Harbor. Mr. Newman first was elected as a Director on October 5, 1971. [13] Robert M. Phillips, Director, Age 55. Mr. Phillips is an officer of International Foods Network, an exporter of a variety of food products, located in Sullivan, Maine. He was first elected as a director on October 5, 1993. [14] John P. Reeves. Director, Age 62. Mr. Reeves is retired. He was elected as President and Chief Executive Officer of Bar Harbor Banking and Trust Company in 1986 and retired in 1994. He first was elected as a director on October 6, 1970. [15] Abner L. Sargent, Director, Age 72. Mr. Sargent is former owner and designated broker of High Street Real Estate and Vice President and Treasurer of Sargent s Mobile Homes, Inc., of Ellsworth. He first was elected as a director on October 6, 1981. [16] Lynda Z. Tyson, Director, Age 41. Mrs. Tyson is Chief Operating Officer and Marketing Director of Tyson & Partners, Inc., a marketing communications consulting firm in Bar Harbor. Mrs. Tyson was first elected as a director on October 5, 1993. PAGE
ITEM 11. EXECUTIVE COMPENSATION Officers of the Company do not, as such, receive compensation. The following table sets forth cash compensation received during the Bank s last fiscal year by the executive officers for whom such compensation exceeded $100,000. <TABLE> <CAPTION> SUMMARY COMPENSATION TABLE <S> <C> <C> <C> <C> ANNUAL COMPENSATION Other Name and Annual Principal Salary Incentive Compensation Position Year ($) ($) ($) John P. Reeves 1994 $ 135,000 $ 17,629 $ 0 Retired President and 1995 0 4,922 Chief Executive Officer 1996 --- --- --- Sheldon F. Goldthwait, Jr. 1994 $ 92,000 $ 12,084 $ 0 President and 1995 $ 130,000 $ 23,108 $ 0 Chief Executive Officer 1996 $ 135,990 $ 27,428 0 Dwight L. Eaton 1994 $ 92,000 $ 12,084 $ 0 Senior Vice President 1995 $ 94,000 $ 17,637 $ 0 and Trust officer 1996 $ 95,992 $ 19,460 0 Lewis H. Payne 1994 $ N/A $ N/A $ 0 Executive Vice President 1995 $ N/A $ N/a $ 0 1996 $ 88,594 $ 17,634 0 Virginia M. Vendrell 1994 $ N/A $ N/A $ 0 Senior Vice President 1995 $ N/A $ N/A $ 0 and Chief Financial Officer 1996 $ 83,609 $ 16,631 0 LONG TERM COMPENSATION AWARDS PAYOUT Restricted Stock LTIP Awards Options/ Payouts Year ($) SARs (#) ($) John P. Reeves 1994 $ 0 0 $ 0 1995 0 0 0 1996 0 0 0 Sheldon F. Goldthwait, Jr. 1994 0 0 0 1995 $ 0 0 $ 0 1996 0 0 0 Dwight L. Eaton 1994 0 0 0 1995 $ 0 0 $ 0 1996 0 0 0 Lewis H. Payne 1994 0 0 0 1995 $ 0 0 $ 0 1996 0 0 0 Virginia M. Vendrell 1994 0 0 0 1995 $ 0 0 $ 0 1996 0 0 0 PAGE
ALL OTHER COMPENSATION ($) John P. Reeves 1994 $ 4,984 1995 $ 0 1996 $ 0 Sheldon F. Goldthwait, Jr. 1994 $ 2,384 1995 $ 3,522 1996 $24,035 Dwight L. Eaton 1994 $ 2,937 1995 $ 3,439 1996 $36,175 Lewis H. Payne 1994 N/A 1995 N/A 1996 1,752 Virginia M. Vendrell 1994 N/A 1995 N/A 1996 570 </TABLE> The Bank has an incentive plan in which all employees who were on the payroll as of January 1st of a calendar year and who worked through December 31st are eligible. The computation is based on earnings per share growing by 10% each year with 1992 being the base year. Once the 10% growth is attained, a pool is created in which all eligible employees receive the same percentage of their salary in the form of an incentive payment. COMPENSATION OF DIRECTORS Each of the directors of the Company is a director of the Bank and as such receives a fee of $250.00 for each committee meeting attended and $300.00 fee for attending the monthly Full Board Meeting. The fee paid for the Annual Meeting is $500.00 per member of the Board of Directors. Meetings of the Board of Directors of the Bank are held monthly. No directors fees are paid to the directors of the Company as such. Those directors of the Bank who are also officers do not receive directors fees. EMPLOYEE BENEFIT PLANS Effective August 31, 1993, the Board of Directors ratified the termination of the Company s noncontributory defined benefit pension plan, which covered all eligible employees. At December 31, 1994, the plan s projected benefit obligation was essentially equivalent to the plan s net assets available for benefits of approximately $2,150,000, and such assets were invested in U.S. Government obligations and cash equivalents. The settlement of the vested benefit obligation by the purchase of nonparticipating annuity contracts for, or the lump sum payments to, each covered employee was completed in 1994, upon receipt of certain regulatory approvals. The Company recognized no curtailment gain or loss in 1993 as a result of the plan termination and no gain or loss was recognized when the plan s benefit obligation was settled in 1994. PAGE
Prior to the plan termination, pension benefits were based on years of service, and the Company s policy was to fund, at a minimum, the amount required under the Employee Retirement Income Security Act of 1974. Net pension income of $51,000 in 1993 has been included in operating results. The weighted average discount rate and increase in salary levels used in determining the projected benefit obligation were 8% in 1993. The expected long-term rate of return on assets was 9%. The Bank offers a 401(k) plan to all employees who have completed one year of service and who have attained the age of 21. Employees may elect to defer from 1% to 15% of their salaries subject to a maximum amount determined by a formula annually, which amount was $9,500 in 1996 and $9,240 in 1995 and 1994. In 1996, the Bank matched employee contributions to the 401(k) plan to the extent of 25% of the first 6% of salary for a total contribution by the Bank of $51,979. The Bank match for 1995 and 1994 was $46,637 and $42,590, respectively. During 1996, the Bank contributed to each participating employee an additional 3% of the employee s salary. The total contribution made for the non-contributory plan was $128,014, $122,386, and $113,432 for years ended December 31, 1996, 1995 and 1994, respectively. This ono- contributory plan was established in 1994 and any future contributions by the Bank will be determined annually by the vote of the Board of Directors. In 1996, 1995, and 1994, the Bank provided a restricted stock purchase plan through which each employee having one year of service may purchase up to 100 shares of Bar Harbor Bankshares stock at the current fair market price as of a date determined by the Board of Directors. These shares may be purchased through a direct purchase or through the employees 401(k) accounts. At December 31, 1996, employees exercised their right to purchase 2,346 shares at $38.25 per share, with the actual purchase transpiring in January of 1996. At December 31, 1995, employees exercised their right to purchase 4,632 shares at $28.00 per share, with the actual purchase transpiring in January of 1996. The Bank provides certain of its officers with individual memberships in local civic organizations and clubs. The aggregate value of these benefits with respect to any individual officer did not exceed $5,000 during the Bank s last fiscal year. The Bank has entered into agreements with Messrs. Avery, Reeves, Goldthwait, and Eaton whereby those individuals or their beneficiaries will receive upon death or retirement an annual supplemental pension benefit over a period of 10 years in the amount of $15,000 (in the case of Messrs. Avery and Reeves) and in the amount of $10,000 (in the case of Messrs. Goldthwait and Eaton). This plan is unfunded and benefits will be paid out of Bank earnings. Mr. Avery received his final installment prior to his death in 1996. Mr. Reeves began drawing his annual installment of $5,300.04 (reduced for early retirement) as of January 1, 1995. PAGE
In 1993, the Company established a non-qualified supplemental retirement plan for Messrs. Reeves, Eaton, Goldthwait and MacDonald. The agreements provide supplemental retirement benefits payable in installments over twenty years upon retirement or death. The Company recognizes the costs associated with the agreements over the service lives of the participating officers. The cost relative to the supplemental plan was $106,497, $98,273, and $368,898, for 1996, 1995, and 1994, respectively. The agreements with Messrs. Reeves, Eaton, Goldthwait and MacDonald are in the amounts of $49,020, $22,600, $37,400 and $7,700 respectively. Mr Reeves began drawing his annual installment of $49,020 as of January 1, 1995. Officers of the Bank are entitled to participate in certain group insurance benefits. In accordance with Bank policy, all such benefits are available generally to employees of the Bank. PAGE
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1996, to the knowledge of the Company, Bernard K. Cough was the only beneficial owner of more than five percent of the Company s common stock. Mr. Cough s address is 117 Eden Street, Bar Harbor, Maine. The following table lists, as of December 31, 1996, the number of shares of Common Stock and the percentage of the Common Stock represented thereby, beneficially owned by each director and nominee for director, and by all principal officers and directors of the Company as a group. <TABLE> <CAPTION> <S> <C> <C> Director, Principal Amount of Officer or Beneficial Percent of Nominee Ownership Class Frederick F. Brown 12,570 * Robert C. Carter 550 * Thomas A. Colwell 2,700 * Bernard K. Cough 86,510 5.03 Peter Dodge 2,430 * Dwight L. Eaton 3,881 * Ruth S. Foster 1,675 * Robert L. Gilfillan 39,965 2.33 Sheldon F. Goldthwait, Jr. 11,160 * James C. MacLeod 20,300 1.18 John P. McCurdy 3,300 * Jarvis W. Newman 15,050 * Lewis H. Payne 2,559 * Robert M. Phillips 550 * John P. Reeves 12,645 * Abner L. Sargent 3,500 * Marsha C. Sawyer 1,050 * Lynda Z. Tyson 600 * Virginia M. Vendrell 1,520 * Total Ownership of all directors and principal officers of Company as a group (20 persons) 222,515 12.95 <FN> <F1> * Less than one percent </TABLE> For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13-d-3 promulgated under the Securities Exchange Act of 1934 as amended. Direct beneficial ownership includes shares held outright or jointly with others. Indirect beneficial ownership includes shares held in the same name of a director s spouse or minor children or in trust for the benefit of a director or member of his or her family. Indirect beneficial ownership does not include, in the case of each director, one sixteenth (3,043 shares) of the 48,680 shares (2.83%) of PAGE
the Common Stock held by two trusts which shares, for purposes of voting, are allocated equally among the directors of the bank under the terms of the respective trust instruments. No director has any other beneficial interest in such shares. Ownership figures for directors and nominees include directors qualifying shares owned by each person named. Management is not aware of any arrangement which could, at a subsequent date, result in a change in control of the company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Bank retains the firm of Tyson & Partners, Inc. to assist with its marketing program. Lynda Z. Tyson, who was elected to the Board of the Company and the Bank on October 4, 1993, serves as that firm s Chief Operating Officer as well as Director of Marketing. Management believes that the fees charged by Tyson & Partners, Inc. are at least as favorable as any which could have been obtained from persons not affiliated with the Bank. The Bank has had, and expects to have in the future, banking transactions in the ordinary course of its business with directors, officers, principal stockholders and their associates upon substantially the same terms, including interest rates and collateral on the loans, as those prevailing at the same time for comparable transactions with others. Such loans have not and will not involve more than normal risk of collectibility or present other unfavorable features. PAGE
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The following financial statements are incorporated by reference from Item 8 hereof: [Annual Report to Stockholders included herein as Exhibit 13]. <TABLE> <CAPTION> <S> <C> PAGE Independent Auditor s Report 9 Consolidated Statements of Financial Condition December 31, 1996 and 1995 10 Consolidated Statements of Earnings for the years ended December 31, 1996, 1995 and 1994 11 Consolidated Statements of changes in the Stockholders Equity for the years ended December 31, 1996, 1995 and 1994 12 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 13 Notes to Consolidated Financial Statements 14 - 25 (a) (2) Financial Data Schedule See Item 14(d) (a) (3) Listing of Exhibits -- see Item 14 (b) Report on Form 8-K not applicable Exhibits -- EXHIBIT INDEX </TABLE> <TABLE> <CAPTION> <S> <C> <C> EXHIBIT INDEX - 14 NUMBER 2. Plan of Acquisition, reorganization Incorporated by reference agreement, liquidation or succession to Form S-14 dated March 14, 1984 3. Articles of Incorporation and Bylaws Incorporated by reference To Form S-14 dated March 14, 1984 4. Instruments defining the rights of Not Applicable security holders, including indentures 9. Voting Trust Agreements Not Applicable 10. Material Contracts Incorporated by reference to Form 10-K dated December 31, 1986 11. Statement re: computation of per Not Applicable share earnings 12. Statement of computation of ratios Not Applicable 13. Annual report to security holders Enclosed herewith 16. Letter re: change in certifying Not Applicable accountant PAGE
18. Letter re: change in accounting Not Applicable principles 21. Subsidiaries of the registrant Incorporated by reference to Form 10-K dated December 31, 1986 22. Published report regarding matters Not Applicable submitted to vote of security holders 23. Consents of experts and counsel Not Applicable 24. Power of Attorney Not Applicable 27. Financial Data Schedule Enclosed Herewith 28. Information from reports furnished to State insurance regulatory authorities Not Applicable
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BAR HARBOR BANKSHARES (Registrant) /S/ Sheldon F. Goldthwait, Jr. Sheldon F. Goldthwait, Jr. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the Registrant and in the capacities and on the dates indicated. /S/ Sheldon F. Goldthwait, Jr. /S/ Virginia M. Vendrell Sheldon F. Goldthwait, Jr. Virginia M. Vendrell President and Director Chief Financial Officer Chief Executive Officer Chief Accounting Officer March 31, 1997
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