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 September 30, 1998
Commission File No. 0-28190
CAMDEN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
MAINE 01-04132282
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
2 ELM STREET, CAMDEN, ME 04843
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 236-8821
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 periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Outstanding at September 30, 1998: Common stock (no par value) 2,248,060
shares.
</PAGE>
<PAGE>
CAMDEN NATIONAL CORPORATION
Form 10-Q for the quarter ended September 30, 1998
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PART I.
ITEM 1. FINANCIAL INFORMATION
PAGE
Consolidated Statements of Income
Nine Months Ended September 30, 1998 and 1997 3
Consolidated Statements of Income
Three Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Comprehensive Income
Nine Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Comprehensive Income
Three Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Conditions
September 30, 1998 and 1997 and December 31, 1997 6
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1998 and 1997 7
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1998 and 1997 8-9
Analysis of Change in Net Interest Margin
Nine Months Ended September 30, 1998 and 1997 9
Average Daily Balance Sheets
Nine Months Ended September 30, 1998 and 1997 10
Analysis of Volume and Rate Changes on Net Interest Income
& Expenses September 30, 1998 over September 30, 1997 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-17
PART II.
ITEM 4. Submission Matters to a Vote of Security holders 18
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBITS 20
</PAGE>
<PAGE>
PART I.
ITEM I. FINANCIAL INFORMATION
<TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statement of Income
(unaudited)
(In Thousands, except number Nine Months Ended September 30,
of shares and per share data) 1998 1997
<S> <C> <C>
Interest Income
Interest and fees on loans $27,279 $23,556
Interest on U.S. Government and agency obligations 7,182 8,905
Interest on state and political subdivisions 83 209
Interest on interest rate swap agreements 33 344
Interest on federal funds sold and other investments 775 603
------- -------
Total interest income 35,352 33,617
Interest Expense
Interest on deposits 12,417 9,967
Interest on other borrowings 3,043 5,560
Interest on interest rate swap agreements 32 347
------- -------
Total interest expense 15,492 15,874
------- -------
Net interest income 19,860 17,743
Provision for Loans Losses 992 957
------- -------
Net interest income after provision for loan losses 18,868 16,786
Other Income
Service charges on deposit accounts 1,240 1,120
Other service charges and fees 1,586 1,398
Other 945 887
------- -------
Total other income 3,771 3,405
Operating Expenses
Salaries and employee benefits 6,244 5,303
Premises and fixed assets 1,504 1,606
Other 4,601 3,131
------- -------
Total operating expenses 12,349 10,040
------- -------
Income before income taxes 10,290 10,151
Income Taxes 3,301 3,417
------- -------
Net Income $ 6,989 $ 6,734
======= =======
Per Share Data
Basic Earnings per share (Net income divided $3.09 $2.96
by weighted average shares outstanding)
Diluted Earnings per share $3.03 $2.91
Cash dividends per share $1.23 $0.99
Weighted average number of shares outstanding 2,261,040 2,275,326
</TABLE>
<PAGE>
<TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Income
(unaudited)
(In Thousands, except number Three Months Ended September 30,
of shares and per share data) 1998 1997
<S> <C> <C>
Interest Income
Interest and fees on loans $ 9,437 $ 8,207
Interest on U.S. Government and agency obligations 2,241 3,022
Interest on state and political subdivisions 25 49
Interest on interest rate swap agreements 0 65
Interest on federal funds sold and other investments 286 223
------- -------
Total interest income 11,989 11,566
Interest Expense
Interest on deposits 4,439 3,418
Interest on other borrowings 658 1,976
Interest on interest rate swap agreements 0 73
------ ------
Total interest expense 5,097 5,467
------ ------
Net interest income 6,892 6,099
Provision for Loans Losses 344 385
------ ------
Net interest income after provision for loan losses 6,548 5,714
Other Income
Service charges on deposit accounts 457 380
Other service charges and fees 760 720
Other 342 271
------ ------
Total other income 1,559 1,371
Operating Expenses
Salaries and employee benefits 2,208 1,857
Premises and fixed assets 472 549
Other 1,748 1,197
------ ------
Total operating expenses 4,428 3,603
Less minority interest in net income (loss) 0 1
------ ------
Income before income taxes 3,679 3,481
Income Taxes 1,165 1,166
------ ------
Net Income $ 2,514 $ 2,315
======= =======
Per Share Data
Basic Earnings per share $1.12 $1.02
(Net income divided by weighted
average shares outstanding)
Diluted Earnings per share $1.09 $1.00
Cash dividends per share $0.42 $0.34
Weighted average number of shares outstanding 2,249,185 2,267,336
</TABLE>
<PAGE>
<TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
(In Thousands)
Nine Months Ended
September 30
1998 1997
<S> <C> <C>
Net income $ 6,989 $ 6,734
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities 11 (26)
------- -------
Comprehensive income $ 7,000 $ 6,708
======= =======
</TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
<TABLE>
(In Thousands)
Three Months Ended
September 30
1998 1997
<S> <C> <C>
Net income $ 2,514 $ 2,315
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities 18 1
------- ------
Comprehensive income $ 2,532 $ 2,316
======= ======
</TABLE>
<PAGE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Condition
(unaudited)
<TABLE>
(In Thousands, except number September 30, December 31,
of shares and per share data 1998 1997
<S> <C> <C>
Assets
Cash and due from banks $ 18,040 $ 13,451
Federal funds sold 6,007 1,100
Securities available for sale 17,440 4,312
Securities held to maturity 102,908 160,894
Other securities 14,085 14,084
Residential mortgages held for sale 16,125 7,094
Loans, less allowance for loan losses
of $6,306 and $5,640 at September 30, 1998
and December 31, 1997 389,957 350,415
Bank premises and equipment 9,120 8,786
Other real estate owned 883 1,373
Interest receivable 3,524 3,924
Other assets 18,742 8,459
-------- --------
Total assets $596,831 $573,892
======== ========
Liabilities
Deposits:
Demand $ 65,713 $ 51,422
NOW 53,514 42,796
Money market 46,962 23,452
Savings 72,942 66,723
Certificates of deposit 243,039 189,016
-------- --------
Total deposit 482,170 373,409
Borrowings from Federal Home Loan Bank 20,157 98,514
Other borrowed funds 20,647 33,964
Accrued interest and other liabilities 8,284 5,364
Minority interest in subsidiary 90 85
-------- --------
Total liabilities 531,348 511,336
-------- --------
Stockholders' Equity
Common stock, no par value; authorized
5,000,000, issued 2,376,080 shares 2,436 2,436
Surplus 1,410 1,410
Retained earnings 67,130 62,925
Net unrealized appreciation on securities
available for sale, net of income tax 16 5
-------- --------
70,992 66,776
Less cost of 128,020 and 105,870 shares
of treasury stock on September 30, 1998
and December 31, 1997 5,509 4,220
-------- --------
Total stockholders' equity 65,483 62,556
-------- --------
Total liabilities and stockholders' equity $596,831 $573,892
======== ========
</TABLE>
<PAGE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
(In Thousands) Nine Months Ended September 30,
1998 1997
<S> <C> <C>
Operating Activities
Net Income $ 6,989 $ 6,734
Adjustment to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 992 957
Depreciation and amortization 519 534
(Increase) Decrease in interest receivable 400 491
Increase in other assets (10,191) (4,262)
Increase in other liabilities 2,920 1,463
Cash receipts from sale of residential loans 1,737 1,537
Origination of mortgage loans held for sale (10,768) (3,891)
Loss on disposal of assets 0 0
Other, net 0 (1)
------- -------
Net cash provided by operating activities (7,402) 3,562
------- -------
Investing Activities
Proceeds from maturities of
securities held to maturity 58,185 40,300
Proceeds from maturities of
securities available for sale 2,864 8,000
Purchase of securities held to maturity 0 (63,620)
Purchase of securities available for sale (16,013) 0
Purchase of Federal Home Loan Bank Stock (1) (5,887)
Increase in loans (40,534) (33,574)
Net decrease in other real estate 490 55
Purchase of premises and equipment (1,102) (725)
Proceeds from sale of premises and equipment 0 0
Decrease (increase)in minority position (5) (3)
Net purchase of federal funds (4,907) 2,075
------- -------
Net cash used by investing activities (1,023) (53,379)
------- -------
Financing Activities
Net increase (decrease) in demand deposits,
NOW accounts, and savings accounts 54,738 12,498
Net increase in certificates of deposit 54,023 7,606
Net (decrease)increase in short-term borrowings (91,674) 34,704
Purchase of treasury stock (1,289) (1,336)
Sale of treasury stock 0 0
Cash Dividends (2,784) (2,257)
------- -------
Net cash provided by financing activities 13,014 51,215
------- -------
Increase in cash and equivalents 4,589 1,398
Cash and cash equivalents at beginning of year 13,451 17,233
------- -------
Cash and cash equivalents at end of period $18,040 $18,631
======= =======
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures required by generally accepted accounting principles for complete
presentation of financial statements. In the opinion of management, the
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated
balance sheets of Camden National Corporation, as of September 30, 1998,
and December 31, 1997, the consolidated statements of income for the three and
nine months ended September 30, 1998 and September 30, 1997, the consolidated
statements of comprehensive income for the three and nine months ended
September 30, 1998 and September 30, 1997 and the consolidated statements of
cash flows for the nine months ended September 30, 1998, and September 30,
1997. All significant intercompany transactions and balances are eliminated
in consolidation. The income reported for 1998 period is not necessarily
indicative of the results that may be expected for the full year.
NOTE 2 - Earnings Per Share
Earnings Per Share. Basic earnings per share date is computed based on the
weighted average number of common shares outstanding during each year.
Potential common stock is considered in the calculation of weighted average
shares outstanding for diluted earnings per share.
The following table sets forth the computation of basic and diluted earnings
per share:
Nine Months Ended September 30,
1998 1997
Net income, as reported 6,989 6,734
Weighted average shares 2,261,040 2,275,326
Effect of dilutive securities:
Employee stock options 47,709 42,359
Dilutive potential common shares
Adjusted weighted average shares
and assumed conversion 2,308,749 2,317,685
Basic earnings per share $3.09 $2.96
Diluted earnings per share 3.03 2.91
NOTE 3 - Excess of Cost Over Fair Value of Assets Acquired
The excess of cost over fair value of net assets acquired in branch
acquisitions is amortized to expense using the straight line method over ten
years. In March, 1998 the Bank acquired the Bucksport, Vinalhaven, Waldoboro,
and Damariscotta, Maine branches of KeyBank of Maine. The acquisition was
accounted for under the purchase method of accounting for business combinations.
The following is a summary of the transaction:
Loans Acquired 7,298
Fixed Assets 365
Premium on Deposits 4,760
Other Assets 651
Deposits Assumed 52,421
Other Liabilities 75
Net Cash Received 39,422
ANALYSIS OF CHANGE IN NET INTEREST MARGIN
Nine Months Ending Nine Months Ending
September 30, 1998 September 30, 1997
------------------- -------------------
Dollars in thousands Amount Average Amount Average
of Yield/ of Yield/
interest Rate interest Rate
-------- ------- -------- -------
Interest-earning assets:
Securities - taxable $ 7,882 7.21% $ 9,507 6.75%
Securities - nontaxable 125 6.95% 256 6.75%
Federal funds sold 76 5.44% 41 5.02%
Loans 27,440 9.60% 23,715* 9.56%
------- ------ ------- ------
Total earning assets 35,523 8.92% 33,519 8.52%
Interest-bearing liabilities:
NOW accounts 422 1.17% 405 1.32%
Savings accounts 1,661 3.25% 1,588 3.35%
Money Market accounts 1,117 3.76% 576 3.18%
Certificates of deposit 9,078 5.57% 7,361 5.41%
Short-term borrowings 3,046 5.30% 5,560 5.52%
Broker Certificates of deposit 135 5.77% 37 6.36%
------- ------ ------- ------
Total interest-bearing
liabilities 15,459 4.55% 15,527 4.65%
<PAGE>
Net interest income
(fully-taxable equivalent) 20,064 17,992
Less: fully-taxable
equivalent adjustment (204) (249)
------- -------
$19,860 $17,743
======= =======
Net Interest Rate Spread
(fully-taxable equivalent) 4.36% 3.87%
Net Interest Margin
(fully-taxable equivalent) 5.04% 4.57%
*Includes net swap income figures (in thousands) - September 1998 $1 and
September 1997 ($3).
Notes: Nonaccrual loans are included in total loans. Tax exempt
interest was calculated using a rate of 34% for fully-taxable
equivalent.
<TABLE>
AVERAGE DAILY BALANCE SHEETS
Dollars in thousands
Nine Months Ended September 30,
1998 1997
---- ----
<S> <C> <C>
Interest-earning assets:
Securities - taxable $145,702 $187,762
Securities - nontaxable 2,399 5,061
Federal funds sold 1,862 1,088
Loans 381,252 330,597
-------- --------
Total earning assets 531,215 524,508
Cash and due from banks 16,646 13,313
Other assets 37,281 22,659
Less allowance for loan losses (5,997) (4,723)
-------- --------
Total assets $579,145 $555,757
======== ========
Interest-bearing liabilities:
NOW accounts $ 48,071 $ 40,952
Savings accounts 68,123 63,269
Money market accounts 39,637 24,147
Certificates of deposits 217,268 181,371
Short-term borrowings 76,655 134,263
Broker certificates 3,121 776
-------- --------
Total interest-bearing liabilities 452,875 444,778
Demand deposits 56,516 46,350
Other liabilities 5,734 5,249
Shareholders' equity 64,020 59,380
-------- --------
Total liabilities and
stockholders' equity $579,145 $555,757
======== ========
</TABLE>
<PAGE>
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSES
<TABLE>
September 1998 Over September 1997
----------------------------------
Change Change
Due to Due to Total
In thousands Volume Rate Change
------- ------- -------
<S> <C> <C> <C>
Interest-earning assets:
Securities--taxable (2,130) 505 (1,625)
Securities--nontaxable (135) 4 (131)
Federal funds sold 29 6 35
Loans 3,634 91 3,725
------- ------- -------
Total interest income 1,398 606 2,004
Interest-bearing liabilities:
NOW accounts 70 (53) 17
Savings accounts 122 (49) 73
Money market accounts 369 172 541
Certificates of deposit 1,457 260 1,717
Short-term borrowings (2,386) (128) (2,514)
Broker certificates 112 (14) 98
------- ------- -------
Total interest expense (256) 188 (68)
Net interest income 1,654 418 2,072
(fully taxable equivalent) ======= ======= =======
</TABLE>
ITEM II. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
FINANCIAL CONDITION
During the first nine months of 1998, consolidated assets increased by $22.9
million to $596.8 million. This increase was the result of an increase in the
loan portfolio of $49.2 million or 13.6%. This increase was in part the
result of acquired loan assets from the purchase of four branches by one of
the Company's bank subsidiaries, Camden National Bank. This purchase
accounted for $7.2 million of the growth in the loan portfolio. The increase
in loans was somewhat offset by a reduction in the investment portfolio.
During the first half of 1998, the funds resulting from the cash flows and
maturities in the investment portfolio were used to fund loan growth and to
pay down borrowings. The Company did not want to aggressively purchase
securities during a time of relatively low interest rates. However, during
the latter part of the third quarter the reduction in interest rates,
resulting in the price of some investment securities to be more attractive.
Therefore, the Company started replacing some of the maturies occuring in the
investment portfolio.
The liquidity needs of the Company's financial institution subsidiaries
require the availability of cash to meet the withdrawal demands of depositors
and the credit commitments to borrowers. Deposits still represent the
Company's primary source of funds. Since December 31, 1997, deposits have
increased by $108.8 million or 29.1%. The major reason for this increase was
the deposits acquired when the Company's subsidiary, Camden National Bank,
purchased four branches from KeyBank during the first quarter of 1998. Total
deposits obtained through the purchase of the four branches were $52.4
million. When the new branches were acquired, excess deposits were utilized
by paying back borrowed funds to the Federal Home Loan Bank. Both of the
Company's banking subsidiaries continue to experience extreme competition by
competitors for deposits. Therefore, other funding sources continue to be
pursued and utilized. Borrowings provide liquidity in the form of federal
funds purchased, securities sold under agreements to repurchase, treasury tax
and loan accounts, and borrowings from the Federal Home Loan Bank. Total
borrowings have decreased by $91.7 million or 62.2% since December 31, 1997.
The major reason for this decrease was the deposits acquired with the four new
branches. The Company does however, views borrowed funds as a reasonably
priced alternative funding source that should be utilized. Borrowings have
continued to be a viable source of funding.
In determining the adequacy of the loan loss allowance, management relies
primarily on its review of the loan portfolio both to ascertain if there are
any probable losses to be written off, and to assess the loan portfolio in the
aggregate. Nonperforming loans are examined on an individual basis to
determine estimated probable loss. In addition, management considers current
and projected loan mix and loan volumes, historical net loan loss experience
for each loan category, and current and anticipated economic conditions
affecting each loan category. No assurance can be given, however, that
adverse economic conditions or other circumstances will not result in
increased losses in the portfolio. The Company continues to monitor and
modify its allowance for loan losses as conditions dictate. During the first
nine months of 1998, $992,000 was added to the reserve for loan losses,
resulting in an allowance of $6.3 million, or 1.53%, of total loans
outstanding. This addition to the allowance was made as a result of loan
growth and not a reduction in loan quality. Management believes that this
allowance is appropriate given the current economic conditions in the
Company's service area and the overall condition of the loan portfolio.
Under Federal Reserve Board (FRB) guidelines, bank holding companies such as
the Company are required to maintain capital based on "risk-adjusted" assets.
These guidelines apply to the Company on a consolidated basis. Under the
current guidelines, banking organizations must maintain a risk-based capital
ratio of eight percent, of which at least four percent must be in the form of
core capital. The Company's risk based capital ratios for Tier 1 and Tier 2
ratios at September 30, 1998, of 15.19% and 16.44% respectively, exceed
regulatory guidelines. The Company's ratios at December 31, 1997 were 18.2%
and 19.5%.
The principal cash requirement of the Company is the payment of dividends on
common stock when declared. The Company is primarily dependent upon the
payment of cash dividends by Camden National Bank to service its commitments.
During the first nine months of 1998 Camden National Bank paid dividends to
the Company in the amount of $4.1 million. The Company paid dividends to
shareholders in the amount of $2.8 million. The remaining amount of $1.3
million was used for treasury stock transactions by the Company.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1998 was $6,989,000, an
increase of $255,000 or 3.8% above 1997's first nine month's net income of
$6,734,000. The major contributing factor was the increase in loans, which
resulted in an increase in net interest income. Third quarter earnings of
$2,514,000 were up from third quarter 1997 earnings of $2,315,000.
NET INTEREST INCOME
Net interest income, on a fully taxable equivalent basis, for the nine months
ended September 30, 1998 was $20.0 million, a 11.5% or $2.0 million increase
over the net interest income for the first nine months of 1997 of $18.0
million. Interest income on loans increased by $3.7 million. This increase
was primarily due the increase in loan volume, with a slight accompanying
increase in yields from 9.56% during the first nine months of 1997 to 9.60%
during the first nine months of 1998. The Company experienced a decrease in
interest income on investments during the first nine months of 1998 compared
to the same period in 1997 due to decline in volume, which was offset slightly
by an increase in yield. The Company's net interest expense on deposits and
borrowings decreased slightly during the first nine months of 1998 compared to
the same period in 1997. This decrease was the result of borrowed funds being
replaced by lower costing deposits.
The Analysis of Change in Net Interest Margin, the Average Daily Balance
Sheets, and the Analysis of Volume and Rate Changes on Net Interest Income
and Expenses are provided on pages 8-9 of this report to enable the reader to
understand the components of the Company's interest income and expenses. The
first table provides an analysis of changes in net interest margin on
earnings assets; interest income earned and interest expense paid and average
rates earned and paid; and the net interest margin on earning assets for the
nine months ended September 30, 1998 and 1997. The second of these tables
presents average assets liabilities and stockholders' equity for the six
months ended September 30, 1998 and 1997. The third table presents an
analysis of volume and rate change on net interest income and expense from
Septebmer 30, 1997 to September 30, 1998.
The Company utilizes off-balance sheet instruments such as interest rate swap
agreements that have an effect on net interest income. The net results were
an increase in net interest income of $1,000 in the first nine months of 1998
compared to a decrease of $3,000 in the first nine months of 1997.
NONINTEREST INCOME
There was a $366,000 or 10.7% increase in total noninterest income in the
first nine months of 1998 compared to the first nine months of 1997.
Service charges on deposit accounts increased $120,000 or 10.7% for the first
nine months of 1998 compared to 1997. This increase was the result of
increased deposits balances and an increase in overdraft fees. Other service
charges and fees increased by $188,000 or 13.4% in the first nine months of
1998 compared to 1997. The largest contributing factor to this increase was
the fee income generated by merchant assessments. Other income increased by
$58,000 in the first nine months of 1998 compared to 1997.
NONINTEREST EXPENSE
There was a $2,309,000 or 23.0% increase in total noninterest expenses in the
first nine months of 1998 compared to the first nine months of 1997.
Salaries and employee benefits cost increased by $941,000 or 17.7% in the
first nine months of 1998 compared to 1997. This increase was the result of
normal annual increases, additions to staff (including the staff at the
branches acquired in March of 1998) and higher pension benefit costs.
Other operating expenses increased by $1,368,000 or 28.9%. The major
contributing factors for this increase were credit card expenses, data
processing, marketing, supply costs, and amortization of deposit premium.
With the addition of four new branches to the Camden National Bank subsidiary
higher than normal expenses were incurred in the areas of data processing,
marketing and supplies. In addition, the amortization of deposit premium of
$257,831 was recorded in 1998, which was the result of the new branches
acquired in March 1998.
YEAR 2000
The Year 2000 issue refers to the fact that many computers were originally
programmed using two digits rather than four digits when referring to the
applicable year. When the year 2000 occurs, these systems will read the year
as 1900 rather than 2000. Unless software and hardware systems are corrected
to be Year 2000 compliant, computers could generate miscalculations and create
operational problems. Year 2000 compliant means having computer systems that
accurately process date/time data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the twentieth and twenty-
first centuries, and leap year calculations (correctly recognizes the date
02/29/2000). Furthermore, Year 2000 compliant information technology, when
used in combination with other information technology, shall accurately
process date/time data if the other information technology properly exchanges
date/time data with it.
To assist in identifying any and all exposures that the Company may have and
to help make all the appropriate changes necessary to allow for a smooth
transition into the new millennium the Company engaged an outside consulting
firm (Vitex Inc.). The Company's Executive Operations and Technology
Committee manages the Year 2000 project with the assistance of Vitex Inc. The
Committee developed a Year 2000 Plan to address the Company's exposure to
potential problems arising from the Year 2000. The plan is based on the
Federal Financial Institution Examination Council (FFIEC) Guidelines. The
Committee keeps senior management and the board of directors apprised of the
status of the Year 2000 project monthly.
The Company has completed the awareness and assessment phases of the plan. To
heighten awareness training sessions were held to educate employees, customers
and business relationships of the issues associated with the Year 2000. As
part of the assessment phase the Company reviewed its inventory of all
software and hardware and service providers, with the help of Vitex Inc.
The priority of each system was determined by identifying each as either low,
medium, high or mission critical. In addition, as part of the assessment phase
the Company examined its business customers with which it have significant
exposure. These customers were contacted to determine if they have
adequately addressed their exposures to the Year 2000 problem.
Implementation of the certification phase (contingency planning) will be
completed by June 1999. The Company's Remediation Contingency Plan mitigates
the risks associated with the failure to successfully complete renovation,
validation, and implementation of mission critical systems. The Company has
initiated a monitoring program to track the progress of each vendor or service
provider whose product or company is currently not in compliance. Each
mission critical service provider or product that is not already deemed
compliant, will have a "trigger" date associated with it. If, by that date,
the vendor or provider has not delivered a compliant product or service, the
Company will examine and solicit an alternate solution for that particular
service or product.
In the renovation phase most fixes and upgrades have been made to non-
compliant systems. The Company has only minor renovations to correct problems
and these pertain mostly to medium and low priority items. As part of the
validation phase the Company has tested the Core system and other mission
critical and high priority systems will be tested by December 31, 1998. An
essential component of preparing for the Year 2000 problem and beyond is
developing options for the board of directors and senior management if any or
all of the Company's systems fail or cannot be made Year 2000 ready.
Therefore, the Company is developing Year 2000 contingency plans for all of
its mission critical products and services. These plans are designed to
mitigate the risks associated with (1) the failure to successfully complete
renovation, validation, or implementation of our Year 2000 readiness plan
(Remediation Plan); or (2) the failure to any of our systems at critical dates
(Business Resumption Plan). Our Contingency Plan includes the development of
a Crisis Management Team to handle any unforeseen problems. Although the
Company does not expect there to be any problems, it will outline procedures
to handle any if there is a mission critical system failure. A general
contingency plan will be developed for non-mission critical systems.
The Company's Year 2000 business resumption contingency plans will detail the
pre-determined actions that will be executed in the event of failure of any
mission critical service and product as defined in the Year 2000 inventory
list. The intent of these plans is to describe how the Company will resume
normal business operations if remediated systems do not perform as planned and
required before or after the turn of the century. The basic priorities for
restoring service will be based on the essential application processing
required to provide the Company's financial services to its customers. The
Company is conducting business impact analysis for each mission critical area
to identify potential disruption and the effect such disruption could have on
business operations should a service provider or software vendor be unable to
operate in Year 2000 compliant environment. The Company is analyzing
strategies and identifying resources that will be required to restore systems
and or business operations. As part of the emergency plan for each individual
mission critical item, the Company will include a recovery program that
identifies participants, processes, and equipment that might be needed for the
Company to function at an adequate level. The program will ensure that all
participants are aware of their roles, adequately trained, and able to do
whatever is necessary to restore operations.
The estimated cost to address all of the Year 2000 issues is between $300,000
- - - $500,000. On the high side this includes $250,000 to upgrade software and
hardware systems, $100,000 for testing of systems, $50,000 for consulting
fees, $100,000 for existing personnel costs to effectively implement the Year
2000 Plan.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related Notes thereto presented
elsewhere herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars without considering changes
in the relative purchasing power of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets and
virtually all of the liabilities of the Company are monetary in nature. As a
result, interest rates have a more significant impact on the Company's
performance than the general level of inflation. Over short periods of time,
interest rates may not necessarily move in the same direction or in the same
magnitude as inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 125 and No. 127 relate to the accounting for transfers and servicing
of financial assets and extinguishment of certain liabilities and are
effective for years beginning January 1, 1997. The adoption of these
standards did not have a material effect on the financial statements.
The Financial Accounting Standards Board issued the following statements of
accounting standards (SFAS) during 1997:
SFAS No. 128 Earnings Per Share
SFAS No. 129 Disclosure of Information about Capital Structure
SFAS No. 130 Reporting Comprehensive Income
SFAS No. 131 Disclosures about Segments of an Enterprise and Related
Information
SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activites
These four statements do not change the measurement or recognition methods
used in the financial statement but rather deal with disclosure and
presentation requirements.
The financial statements for 1998 and all prior periods include the additional
disclosure requirements relating to diluted earnings per share which are
required under SFAS No. 128. Financial statement disclosures also comply with
SFAS No. 129, which summarized but does not change the Company's requirements
to disclosure information about capital structure.
SFAS No. 130 and No. 131 are effective for periods beginning after December
15, 1997. The adoption of these standards did not have a material effect on
the financial statements.
In February 1998, the financial Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 132, "Employers' Disclosures about Pensions
and Other Post Retirement Benefits: effective for financial statements for the
fiscal year beginning after December 15, 1997. SFAS No. 132, which supersedes
the benefit disclosure requirements in FASB Statements No's 87, 77 and 106,
requires entities to standardize the disclosure requirements for pension and
other post retirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair value of plan
assets that will facilitate financial analysis. The Company expects no
material impact from adopting SFAS No. 132.
OTHER MATTERS
SHARE REPURCHASE PLAN. Camden National Corporation (CNC) will seek to
repurchase up to $6,000,000 worth of its outstanding shares during the
succeeding twelve months following the adoption of this plan. The Board of
Directors approved funding of this plan on October 13, 1998. The repurchase
will be effected as follows:
1. All of CNC's bids and repurchases of its stock during a
given day shall be effected through a single broker or
dealer, except that CNC may repurchase shares from others
provided that the same have not been solicited by or on
behalf of CNC. For this purpose, CNC shall utilize the
services of any registered broker or dealer.
2. All of CNC's repurchases of its stock shall be at a price
which is not higher than the lowest current independent
offer quotation determined on the basis of reasonable
inquiry. Management shall exercise its best judgement
whether to purchase stock at the then lowest current
independent offer quotation;
3. Daily volume of CNC repurchases must be in an amount that
(a) when added to the amounts of all of CNC's other repurchases
through a broker or dealer on that day, except "block purchases,"
(i.e., 2,000 or more shares repurchased from a single seller) does
not exceed one "round lot" (i.e., 100 shares) or (b) when added to
the amounts of all of CNC's other repurchases through a broker or
dealer during that day and the preceding five business days, except
"block purchases" does not exceed one twentieth of one percent
(1/20 of 1%) of the outstanding shares of CNC stock, exclusive of
shares known to be owned beneficially by affiliates, (i.e.,
approximately 1,000 shares);
4. If at any time while this plan is in effect trading in CNC's
shares of stock are reported through a consolidated system,
compliance for rule 10b-18 of the Exchange Act Rules shall
be complied with;
5. A press release was issued describing this plan.
The Camden National Bank expressed, to the Comptroller of the Currency, in a
letter dated September 3, 1998, its desire to change its capital structure by
reducing its common stock or surplus in an amount not to exceed $6,000,000 to
accommodate the above described "Share Repurchase Plan." This will reduce
the Company's excess capital position and should improve shareholder return
on equity.
In a letter dated September 25, 1998 from the Comptroller of the Currency's
office approval was granted with the understanding that the reduction in
capital will be accomplished through a reduction in Camden National Bank's
surplus account and a corresponding distribution to Camden National
Corporation, the bank's sole shareholder.
EXPANSION. The Company's subsidiary, Camden National Bank, entered
into a definitive agreement to purchase four KeyBank branches in the Mid-
Coast Maine area during the third quarter of 1997. These branches are located
in the communities of Waldoboro, Damariscotta, Vinalhaven and Bucksport. The
Company considered the acquisition of these branches a logical move in
expanding its current service area. The acquisition of these branches was
completed March 16, 1998.
The Company's subsidiary, United Bank, entered into an agreement to
purchase three branch offices from Fleet Bank of Maine. The three offices,
are located in the communities of Dover-Foxcroft, Greenville and Milo. The
Company considered the acquisition of these branches a logical extension of
the markets we serve in Penobscot and Somerset Counties. This branch
acquisition is scheduled to close on October 2, 1998. In addition, United
Bank plans to open a branch location in the community of Winterport on October
2, 1998.
Item 4. Submission Matters to a vote of Security holders.
(a) The annual meeting of shareholders was held on May 5, 1998.
(c) Matters voted upon at the meeting. 1) To elect as director the
nominees -- Peter T. Allen, Robert J. Gagnon, John S. McCormick, Jr.,
and Richard N. Simoneau. Total votes cast: 1,802,854, with 1,801,834
FOR, and 1,020 WITHHELD. 2) To ratify the selection of Berry, Dunn,
McNeil & Parker as the Company's independent public accountants for
1998. Total votes cast: 1,802,854, with 1,801,924 FOR, 100 AGAINST,
and 830 ABSTAIN. 3) In their discretion, the proxy holders are
authorized to vote upon such other business as may be properly presented
at the meeting or matters incidental to the conduct of the meeting.
Total votes cast: 1,802,854, with 1,783,635 FOR, 7,270 AGAINST, and
11,949 ABSTAIN.
Item 6. Exhibits and Reports on Form 8-K.
(a). Exhibits
(3.i.) The Articles of Incorporation of Camden National Corporation,
are incorporated herein by reference.
(3.ii.) The Bylaws of Camden National Corporation, as amended to date,
Exhibit 3.ii. to the Company's Registration Statement on Form S-4
filed with the Commission on September 25, 1995, file number
33-97340, are incorporated herein by reference.
(10.1) Lease Agreement for the facility occupied by the Thomaston Branch
of Camden National Bank, filed with Form 10-K, December 31, 1995,
and is incorporated herein by reference.
(10.2) Lease Agreement for the facility occupied by the Camden Square
Branch of Camden National Bank, filed with Form 10-K, December
31, 1995, and is incorporated herein by reference.
(10.3) Lease Agreement for the facility occupied by the Audit Department
and one other tenant, filed with Form 10-K, December 31, 1995,
and is incorporated herein by reference.
(10.4) Lease Agreement for the facility occupied by the Hampden Branch
of United Bank, filed with Form 10-K, December 31, 1995, and is
incorporated herein by reference.
(10.5) Camden National Corporation 1993 Stock Option Plan, filed with
Form 10-K, December 31, 1995, and is incorporated herein by
reference.
(10.6) UnitedCorp Stock Option Plan, filed with Form 10-K, December 31,
1995, and is incorporated herein by reference.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None filed.
SIGNATURES
Pursuant to the requirements of the Securities Acto of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CAMDEN NATIONAL CORPORATION
(Registrant)
Keith C. Patten (signature) 11/16/98
- - ------------------------------------- --------
Keith C. Patten Date
President and Chief Executive Officer
Susan M. Westfall (signature) 11/16/98
- - ------------------------------------- --------
Susan M. Westfall Date
Treasurer and Chief Financial Officer
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