UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended March 31, 1999 Commission File No. 841105-D BAR HARBOR BANKSHARES Maine 01- 0393663 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) P. O. Box 400 82 Main Street, Bar Harbor, ME 04609-0400 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (207) 288-3314 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: XX NO: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of March 31, 1998: Common Stock: 3,643,614 TABLE OF CONTENTS Financial Information Page Item 1. Financial Statements Consolidated Balance Sheets 3 December 31, 1998 and March 31, 1999 Consolidated Statements of Earnings 4 Three months ended March 31, 1998 and 1999 Consolidated Statements of Changes in 5 Stockholders' Equity Three months ended March 31, 1998 and 1999 Consolidated Statement of Cash Flows 6-7 Three months ended March 31, 1998 and 1999 Rate Volume Analysis 8 Three months ended March 31, 1998 and 1999 Notes to Financial Statements 9-12 Item II. Management's Discussion and Analysis 13- of Financial 15 Condition and Results of Operations Signature Page 16 BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL CONDITION MARCH 31, 1999 and DECEMBER 31, 1998 (in thousands, except number of shares and per share data) (Unaudited) <TABLE> <CAPTION> March Decembe 31, r 31, 1999 1999 <S> <C> <C> ASSETS Cash and Due from Banks $6,841 $11,511 Securities Available for Sale 20,765 17,844 Securities Held to Maturity (Market Value 116,275 113,162 $116,306 at 3/31/99; $114,177 at 12/31/98) Other Securities 6,105 6,133 Loans Held for Sale 381 1,018 Loans, net of allowance for possible loan 231,668 224,980 losses of $4,638 in 1999 and $4,455 in 1998) Premises and Equipment 7,747 7,951 Other Assets 11,862 9,448 Total Assets $401,64 $392,04 4 7 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits Demand Deposits $35,015 $42,323 Now Accounts 40,907 43,319 Savings Deposits 70,570 67,619 Time Deposits 111,770 113,187 Total Deposits 258,262 266,448 Securities sold under Repurchase 6,426 8,092 Agreements Advances from Federal Home Loan 84,665 66,120 Bank Other Liabilities 4,761 4,526 Total Liabilities 354,114 345,186 Commitments and Contingent Liabilities Capital Stock, par value $2 Authorized 10,000,000 shares 7,287 7,287 Issued 3,643,614 in 1999 and 1998 Surplus 4,002 4,002 Retained Earnings 37,592 36,862 Net unrealized appreciation on securities (11) 50 available for sale, net of tax Less: Cost of 200,000 shares of Treasury Stock (1,340) (1,340) TOTAL STOCKHOLDERS' EQUITY 47,530 46,861 TOTAL LIIABILITIES AND $401,64 $392,04 STOCKHOLDERS' EQUITY 4 7 </TABLE> The accompanying notes are an integral part of these consolidated financial statements. BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENT OF EARNINGS (in thousands, except number of shares and per share data) (UNAUDITED) <TABLE> <CAPTION> THREE THREE MONTHS MONTHS ENDING ENDING 3/31/99 3/31/98 <S> <C> <C> Interest & Fees on Loans $5,141 $5,059 Interest and Dividends on Investment Securities: Taxable Interest Income 2,046 1,629 Non-taxable Interest 83 124 Income Dividends 113 100 Federal Funds Sold 23 15 Total Interest Income 7,406 6,927 Interest on Deposits 2,048 2,142 Interest on Borrowings 1,150 690 Total Interest Expense 3,198 2,832 Net Interest Income 4,208 4,095 Provision for Loan Losses 269 84 Net Interest Income after Provision for Loan Losses 3,939 4,011 Other Income 1,186 1,126 Investment Securities Gains 0 57 (Losses) Other Expenses: Salaries & Employee 1,540 1,491 Benefits Other 1,626 1,307 Income Before Income Taxes 1,959 2,396 Income Tax Expense 644 772 Net Income 1,315 1,624 PER COMMON SHAE DATA, BASED ON $0.38 $0.47 3,443,614 shares for 1999 and 1998 Dividends Per Share $0.17 $0.16 </TABLE> The accompanying notes are an integral part of these consolidated financial statements. BAR HARBOR BANKSHARES AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY QUARTERS ENDED MARCH 31, 1998 AND 1999 (in thousands, except number of shares and per share data) (UNAUDITED) <TABLE> <CAPTION> NET UNREALIZE D DEPRECIAT NET CAPIT RETAIN ION ON TREASU STOCKHOLD AL SUIRP ED SECURITIE RY ERS' STOCK LUS EARNIN S STOCK EQUITY GS AVAILABLE FOR SALE <S> <C> <C> <C> <C> <C> <C> Balance, 12/31/97 3,636 7,489 $28,20 ($104) ($1,34 $37,887 5 0) Net Earnings 1,575 $1,575 Net unrealized depreciation on Securities (161) ($161) available for sale Net of tax benefit of $6 Total 1,575 (161) 1,413 comprehensive income Cash dividends declared ($0.16 (482) ($482) per share) Sale of Stock 5 85 $90 Balance, 3/31/98 $3,64 $7,57 $29,29 ($265) ($1,34 $38,908 1 4 8 0) Balance, 12/31/98 $7,28 $4,00 $36,86 $50 ($1,34 $46,861 7 2 2 0) Net Earnings 1,315 $1,315 Net unrealized depreciation on Securities available for (61) ($61) sale, Net of tax benefit of $20 Total 1,315 (61) 1,254 comprehensive income Cash dividends declared ($0.17 (585) ($585) per share) Balance, 3/31/99 $7,28 $4,00 $37,59 ($11) ($1,34 $47,530 7 2 2 0) </TABLE> BAR HARBOR BANKSHARES AND SUBSIDIARY COLSOLIDATED STATEMENT OF CASH FLOWS (in thousands) <TABLE> <CAPTION> MARCH 31, MARCH 1999 31, 1998 <S> <C> <C> Cash Flows from Operating Activities: $1,315 $1,624 Net Income Adjustments to reconcile net earnings to net cash provided by operating 245 225 activities: Depreciation Provision for Loss Losses 268 84 Provision for Losses on Other Real Estate 2 0 Owned New Loans Originated for Sale (4,227) (4,423) Proceeds from Sale of Mortgages Held 4,961 4,210 For Sale Gain on Sale of Mortgages Originated (64) (31) For Sale Net Amortization of Bond 55 49 Premium (Gain) Loss on sale of (0) premises and 0 equipment Net Change in Other Assets (2,280) (337) Net Change in Other 235 322 Liabilities Net Cash Provided by Operating 510 1,723 Activities Cash Flows from Investing Activities: Net decrease (increase) in Federal Funds Sold Purchases of Securities Held to (11,523) (17,121 Maturity ) Proceeds from Maturity and Principal Paydowns 1,250 4,830 of Securities held to maturity Proceeds from Call of Securities 7,101 7,500 Held to Maturity Purchases of Securities (7,980) (4,000) Available for Sale Proceeds from Maturity and Principal Paydowns 1,471 209 of available for sale Proceeds from sale and calls of securities 3,500 1,000 available for sale Net decrease (increase) in other 28 (38) securities Net Loans Made to Customers (7,094) 915 Capital Expenditures (41) (148) Proceeds from sale of other real estate owned Proceeds from Sale of Fixed 0 0 Assets Net Cash Used in Investing (13,288) (6,853) Activities Cash Flows from Financing Activities: (6,769) (3,547) Net Change in Savings, NOW and Demand Deposits Net Change in Time Deposits (1,417) (3,263) Net Change in securities sold under (1,666) (137) Repurchase Agreements Purchase of Advances from FHLB 25,000 18,500 Repayment of Advances from FHLB (3,500) (9,500) Net Change in Short Term Other (2,955) 4,806 Borrowed Funds Proceeds from Sale of Capital 0 73 Stock Payment of Dividends (585) (551) Net Cash Provided by Financing 8,108 6,381 Activities Net Increase (Decrease) in Cash and (4,670) 1,251 Cash Equivalents Cash and Cash Equivalents at 11,511 7,537 Beginning of Year Cash and Cash Equivalents at End of $6,841 $8,788 Quarter Supplemental Disclosures of Cash Flow Information: Cash Paid during the Year for: Interest $3,186 $2,877 Income Taxes, Net of Refunds $0 $50 Non-Cash Transactions:; Transfers from Loans to Real Estate Owned $49 $0 (Other Assets) Transfer of Securities from Held to Maturity $0 $0 to Available for Sale </TABLE> The accompanying notes are an integral part of these consolidated financial statements RATE VOLUME ANALYSIS The following table represents a summary of the changes in interest earned and interest paid as a result of changes in rates and changes in volumes. For each category of earning assets and interest bearing liabilities, information is provided with respect to changes attributable to change in rate (change in rate multiplied by old volume) and change in volume (change in volume multiplied by old rate). The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationships of the absolute collar amounts of the change in each. YEAR-TO-DATE FIGURES AS OF MARCH 31, 1999 COMPARED TO MARCH 31, 1998 (in thousands, except number of shares and per share data) INCREASES (DECREASES) DUE TO: <TABLE> <CAPTION> VOLUME RATE NET <S> <C> <C> <C> Loans $364 ($282) $82 Taxable Securities 556 (126) 430 Tax Exempt Securities (31) (10) (41) Federal Funds Sold and 10 (2) 8 Money Market Funds TOTAL EARNING ASSETS $899 ($420) $479 Deposits 80 (174) (93) Borrowings 501 (41) 459 Total Interest Bearing $581 ($215) $366 Liabilities NET CHANGE IN INTEREST $318 ($205) $113 </TABLE> YEAR-TO-DATE FIGURES AS OF MARCH 31, 1998 COMPARED TO MARCH 31, 1997 INCREASES (DECREASES) DUE TO: <TABLE> <CAPTION> VOLUME RATE NET <S> <C> <C> <C> Loans $104 ($71) $33 Taxable Securities 93 (56) 37 Tax Exempt Securities (70) 15 (55) Federal Funds Sold and Money Market 5 1 6 Funds TOTAL EARNING ASSETS $132 ($111) $21 Deposits 15 (12) 3 Borrowings (58) 22 (36) Total Interest ($43) $10 ($33) Bearing Liabilities NET CHANGE IN $175 ($121) $54 INTEREST </TABLE> NOTES TO FINANCIAL STATEMENTS DATED MARCH 31, 1999 1. Summary of interim financial statement adjustments. The accompanying unaudited statements reflect all adjustments (all of which are normal and recurring in nature) which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. The financial statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Bank's 1998 Annual Report. During 1998, the Company adopted Statements of Accounting Standards (SFAS) 130, 131, and 132. The adoption of SFAS 130, Reporting of Comprehensive Income, Required that certain items be reported under a new category of income "Other Comprehensive Income". Unrealized gains and losses on securities available for sale is the only item included in Other Comprehensive Income. SFAS 131 and 132 relate to disclosures about segments and employee benefits, respectively. The Company, through the branch network of the Bank, provides a broad range of financial services to individuals and companies in eastern Maine. Operations are managed and financial performance is evaluated on a corporate-wide basis. Accordingly, all of the Company's banking operations are considered to be aggregated in one reportable operating segment. The financial statements for 1998 and 1999 include the required additional disclosures for SFAS No. 130 and 132. In addition, the Financial Accounting Standards Board issued SFAS No. 133, 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise", which are effective for fiscal years beginning after June 15, 1999 and the first fiscal quarter beginning July 1, 1999 respectively. Management has not determined the impact of SFAS No. 133 or SFAS No. 134 on the financial statements. <TABLE> <CAPTION> March 31, 1999 2. INVESTMENT SECURITIES CARRYING FAIR AVAILABLE FOR SALE VALUE VALUE <S> <C> <C> a: U. S. Treasury and other 19,481 $19,433 government agencies b: Marketable equity 1,300 1,332 securities Total Securities Available $20,781 $20,765 For Sale HELD TO MATURITY: a: U. S. Treasury and other government agencies $97,678 $97,661 b: States of the U.S. and other political subdivisions 5,640 5,741 c: Corporate bonds 12,958 12,904 Total Securities Held to $116,276 $116,306 Maturity OTHER SECURITIES $6,105 $6,105 TOTAL SECURITIES $143,162 $143,176 </TABLE> The Bank does not hold any securities for a single issuer which exceed 10% of the Bank's stockholders' equity. <TABLE> <CAPTION> March 31, December 1999 31,1998 3. LOANS <S> <C> <C> a: Commercial, agricultural $33,567 $33,224 and other loans b: Real Estate - Construction 13,374 11,366 c: Real Estate - Mortgage 173,555 168,307 d: Installment Loans 15,810 16,538 Total Loans $236,306 $229,435 </TABLE> <TABLE> <CAPTION> 4. CHANGES IN ALLOWANCE FOR March March POSSIBLE LOAN LOSSES: 31, 31, 1999 1998 <S> <C> <C> Balance, beginning January 1 $4,455 $4,743 Provision charged to income 268 84 Recoveries of amounts 89 33 charged Losses charged to provision 174 110 Balance, ending March 31 $4,638 $4,750 Information regarding March Decembe impaired loans: 31, r 31, 1999 1998 Average investment in $775 $1,576 impaired loans Interest income recognized on impaired loans including interest income $4 $35 recognized on cash basis Balance of impaired loans $775 $1,073 Portion of impaired loan balance for which an $775 $1,073 allowance for credit losses is allocated Portion of allowance for loan losses allocated to the $31 $42 impaired loan balance </TABLE> <TABLE> <CAPTION> 5. CHANGES IN ALLOWANCE FOR OTHER REAL ESTATE: 3/31/9 3/31/ 3/31/ 9 98 97 <S> <C> <C> <C> Balance, beginning January $16 $17 $23 1 Provision charged to 0 0 0 income Losses charged to 0 0 0 provision Balance, ending March 31 $16 $17 $23 </TABLE> 6. The aggregate dollar amount of loans made to directors, executive officers or principal holders of equity securities as of March 31, 1999 and December 31, 1998 respectively were: <TABLE> <S> <C> <C> Aggregate amount, beginning 1/1 $7,243 $3,952 New loans 345 5,393 Repayments 377 2,102 Aggregate amount, ending $7,211 3/31/99 Aggregate amount, ending $7,243 12/31/98 </TABLE> <TABLE> <CAPTION> 7. OTHER ASSETS March December 31, 1999 31,1998 <S> <C> <C> a: Interest earned but not paid on: Loans $1,924 $1,924 Investments 1,251 1,264 b: Other Real Estate Owned 175 98 </TABLE> 8. INCOME TAXES: Components of income tax expense for the period ended March 31, 1999 are as follows: <TABLE> <S> <C> Current Federal $1,179 State 23 Deferred (558) $644 </TABLE> Actual tax expense differs from the expected tax expense computed by applying the applicable federal corporate income tax rate of 34% is as follows for the three months March 31, 1999 <TABLE> <S> <C> Computed tax expense $660 Tax exempt interest (32) Other 16 $644 </TABLE> At March 31, 1999, items giving rise to the deferred income tax assets and liabilities, using a tax rate of 34%, are as follows: <TABLE> <CAPTION> <S> <C> <C> ASSET LIABILITY Allowance for possible losses on loans and real estate owned $1,416 Deferred and accrued employee 1,001 benefits Deferred mortgage servicing $131 rights Deferred loan origination fees 327 Securities losses not currently 23 deductible Core deposit intangibles 46 Depreciation 0 59 Other 9 $2,822 $190 </TABLE> No valuation allowance is deemed necessary for the deferred tax asset. <TABLE> <CAPTION> 9. INCOME TAX EXPENSE March March 31, 31, 1998 1999 <S> <C> <C> Federal Income Tax $622 $747 State Income Tax 22 25 </TABLE> MANAGEMENT'S DISCUSSION AND ANALYSIS The following is the review of the results of operations for March 31, 1999, as compared to March 31, 1998. The bank has focused on growth in its balance sheet through both loans and investments, funding the growth with deposits and borrowings. While the first quarter earnings for 1999 are down $309,000 compared to first quarter 1998, the bank is involved in several major projects that are described below. The expectation is that these projects will enhance customer service, efficiencies and profitability. Overall, the bank's balance sheet grew by 14%, compared to a 6% growth between 1998 and 1997. Total loans grew $20 million or 9.6% when compared to 1998's outstanding loans. This validates the growth concept mentioned earlier compared to outstanding loans remaining flat between the periods ending March 31, 1998 and March 31, 1997. The balance between consumer and commercial loans remains similar to last year's relationship with consumer loans approximating 55% of the portfolio. While local competition remains strong, Bar Harbor Banking and Trust Company's strength lies in the relationships built with its customers and the ability to offer prompt service in response to their needs. The investment portfolio grew by approximately $30 million or 26% over the past year. Purchases in the Bank's investment portfolio totaled in excess of $87 million; however, maturities and principal paydowns from the Bank's mortgage backed securities portfolios were $58.3 million for the same period. Purchases totaling $69 million were made of US government-sponsored debentures or mortgage backed pools. Of the debentures purchased, $17.5 million are callable securities and some have supported the bank's earnings in lieu of selling fed funds. These purchases in part replaced $23.8 million of called government-sponsored securities and $25.6 million in principal reductions in mortgage backed pools. Unrealized losses did not deteriorate over the past twelve months, ending the quarter at $11,000. This is also visible in the total market value of the portfolio that is virtually flat with the book value. Liquidity is measured by the Bank's ability to meet cash needs at a reasonable cost or minimum loss to the Bank. Liquidity management involves the ability to meet cash flow requirements of its customers, which may come from depositors withdrawing funds or borrowers requiring funds to meet credit needs. Without adequate liquidity management, the Bank would not be able to meet the needs of the individuals and communities it serves. The Bank utilizes a Basic Surplus/Deficit model to measure its liquidity over a 30-day and a 90-day time horizon. The relationship between liquid assets and short-term liabilities that are vulnerable to non-replacement within a 30-day period are examined. The Bank's policy is to maintain its liquidity position at a minimum of 5% of total assets. The Bank has maintained liquidity in its balance sheet in excess of 18% for the past twelve months. Liquidity as measured by the Basic Surplus/Deficit model was 22.1% as of March 31, 1999 for the 30-day horizon and 20.1% for the 90-day horizon. How changes in the balance sheet have affected the Bank may be viewed through the earnings statement for the periods ending March 31, 1998 and 1999. As mentioned above, growth in earning assets was strong, but competition and shrinking margins affected the earnings. Additionally, the provision for possible loan losses and non-interest expenses were considerably higher in the first quarter of 1999 than 1998. Rates, volumes and the mix of earning assets and interest bearing liabilities affect interest income. For the first three months of 1999, net interest income increased by $113,000, which is twice the increase between 1998 and 1997. The increase was a factor of the growth in the balance sheet with competition for loans requiring narrowing margins, increased investments, with yields earning less than loans, and funding costs not decreasing as quickly as the asset yields. Interest earned on loans increased by more than $360,000 but was reduced by $280,000 due to decreases in interest rates charged on portions of the loan portfolio. Overall, the loan portfolio yield dropped by 64 basis points. This compares with a drop of 23 basis points between 1997 and 1998. Interest on investments increased due to $30 million increase in volumes. The $535,000 increase in interest earned on investments was offset by $138,000 decrease in interest rates. The entire portfolio is earning 6.43% and 40 basis points less than it was a year ago. The investment yields for 1998 were 8 basis points lower than 1997. Interest bearing liabilities increased by approximately $13 million or 5%, but the cost of those liabilities actually decreased by more than 4%. Interest expense increased by $580,000 based on increased volume and decreased by $215,000 based on interest rates. The bank introduced a money market account that competes favorably with non-bank funds available. This product, the Investor's Choice, has been well received and has retained as well as added new deposits for the bank. Reductions in interest bearing costs have come from the decline in interest rates for certificates of deposit, which have dropped approximately 40 basis points from year to year. The overall cost of interest bearing liabilities went down by 13 basis point between March 31, 1999 and March 31, 1998, again less than the reduction in interest yields from the earning assets. As a comparison, 1998's overall interest bearing liability costs were 17 basis points lower than for the comparable period in 1997. The Bank's position with regard to interest rate sensitivity consists of the matching of its assets and liabilities for repricing within a year. There is some exposure to rising rates out beyond a year as the Bank has almost $20.4 million invested in callable securities with final maturities of ten years or less. The exposure lies with the possibility that these securities would not be called. The gap analysis in today's interest rate environment shows the Bank with approximately $42 million more liabilities than assets that would be repricable within twelve months. If rates were to drop by 200 basis points, simulations based on a static balance sheet indicate that the Bank's net interest income could rise by approximately $48,000 during the first year of the drop, while increasing its income in the second year by $158,000. If rates were to rise by 200 basis points, the Bank could experience a drop in interest income in the first year by $103,000, and drop additional interest earnings in the second year by $197,000. At March 31, 1998, the potential reduction for net interest income in the second year was approaching $400,000. The Bank has maintained its reserve for possible loan losses at approximately 2% of total loans outstanding for a number of years, with a ratio of 1.96% at March 31, 1999 and 2.2% as of March 31, 1998. This ratio represents a conservative approach to possible losses, especially in light of the delinquency ratio summarized below. The Bank reviews its allocation to the reserve on a monthly basis and funds the reserve as deemed necessary. This review includes a provision for specific credits, provisions due to historic loan losses by loan types and reserves reflecting industry concentrations, credit concentrations, current economic conditions and underwriting standards. In 1995, the Bank added a provision for impaired loans in accordance with FASB 114/118. Reference is made to the notes included in this filing that outlines the impaired loan figures. Losses in the loan portfolio are estimated at $750,000 for 1999, with first quarter 1999 net charge offs totaling $85,000 compared to $77,000 during the first quarter of 1998. The amounts represented below are the total dollars past due for the first three months of each year listed. <TABLE> <CAPTION> Category 1999 1998 1997 <S> <C> <C> <C> 90-day past due and $1,579 $1,103 $1,302 still accruing Non-accruing 1,664 3,439 3,207 $3,243 $4,542 $4,510 Gross loans $236,3 $216,1 $214,68 07 14 7 Percentage of gross 1.37% 2.10% 2.10% loans </TABLE> With earnings as of March 31, 1999 $309,000 less than March 31, 1998, the following is a review of non- interest income and non-interest expense. As stated earlier, the Bank has maintained a reserve for possible loan losses of approximately 2% when compared to total loans for a number of years. During 1998, the provision for possible loan losses was reduced, based on the recovery of a large loan charged off in a previous year. The bank continued to maintain a 2% ratio between the reserve for possible losses and the total loan portfolio. Beginning in 1999, the provision has returned to previous years' allocation and is currently $185,000 more than last year in order to retain the high ratio between the reserve and the loan portfolio. As of March 31, 1998, the provision for possible loan losses was $96,000 less than for the comparable period in 1997. Other income is $60,000 ahead of last year's first quarter income. No single major category in other income can be singled out for substantial growth from year to year. Other income for 1998 exceeded 1997 by $100,000 and included Trust Department earnings that were $52,000 more in 1998 when compared to 1997. Other non-interest expenses for the first quarter of 1999 are $320,000 more than for the same period in 1998. The major increases are found in the card processing operations for the bank's merchant and customer card processing. In the spring of 1998, the bank began the search for a new software banking solution. Consultant fees, in connection with this search and subsequently in connection with conversion assistance, were not material during the first quarter of 1998. The bank is committed to a successful conversion and as part of that commitment has engaged the services of a third party who has had extensive experience in conversions with the chosen vendor. The bank will continue to experience consultant charges throughout 1999, as it plans to convert in early 2000. Other non-recurring charges make up the difference between non-interest expense for the two years, including reconciling entries for loan origination fees in 1998 and losses incurred from the check clearing operation of the bank. In looking at March 31, 1998 as compared to 1997, other non-interest expense was $252,000 more in 1998. The introduction of the bank's call center, interactive voice response system and several loan promotions created media opportunities for the bank. The Bank's capital to asset ratio is 11.8% and the Bank far exceeds the required risk based capital ratio of 8% with its Tier 1 ratio of 19% and total capital ratio of 20.4% or additional capital of $30.6 million. These ratios compare to March 31, 1998 when the capital to average asset ratio was 12.4%, Tier 1 and total capital ratios compared to risk weighted assets were 20.3% and 21.5% respectively. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BAR HARBOR BANKSHARES Date: May 14, 1999 Sheldon F. Goldthwait, Jr. Chief Executive Officer Date: May 14, 1999 Virginia M. Vendrell Treasurer and Chief Financial Officer