UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
Commission File No. 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 June 30, 1999: Common stock (no par value) 6,558,530
shares.
</PAGE>
CAMDEN NATIONAL CORPORATION
Form 10-Q for the quarter ended June 30, 1999
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PART I.
ITEM 1. FINANCIAL INFORMATION PAGE
- --------------------------------------------------------------------------
Consolidated Statements of Income
Six Months Ended June 30, 1999 and 1998 ............................. 3
Consolidated Statements of Income
Three Months Ended June 30, 1999 and 1998 ........................... 4
Consolidated Statements of Comprehensive Income
Six Months Ended June 30 1999 and 1998 .............................. 5
Consolidated Statements of Comprehensive Income
Three Months Ended June 30 1999 and 1998 ............................ 5
Consolidated Statements of Condition
June 30, 1999 and December 31, 1998 ................................. 6
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998 ............................. 7
Notes to Consolidated Financial Statements
Six Months Ended June 30, 1999 and 1998 ........................... 8-9
Analysis of Change in Net Interest Margin
Six Months Ended June 30, 1999 and 1998 ............................. 9
Average Daily Balance Sheets
Six Months Ended June 30, 1999 and 1998 ............................ 10
Analysis of Volume and Rate Changes on Net Interest Income
& Expenses June 30, 1999 over June 30, 1998 ........................ 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>
PART I.
ITEM I. FINANCIAL INFORMATION
<TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Income
(unaudited)
(In Thousands, except number Six Months Ended June 30,
of shares and per share data) 1999 1998
<S> <C> <C>
Interest Income
Interest and fees on loans $20,101 $17,842
Interest on U.S. Government and agency obligations 5,574 4,941
Interest on state and political subdivisions 201 58
Interest on interest rate swap agreements 0 33
Interest on federal funds sold and other investments 843 489
------- -------
Total interest income 26,719 23,363
Interest Expense
Interest on deposits 8,962 7,978
Interest on other borrowings 2,686 2,385
Interest on interest rate swap agreements 0 32
------- -------
Total interest expense 11,648 10,395
------- -------
Net interest income 15,071 12,968
Provision for Loan Losses 940 648
------- -------
Net interest income after provision for loan losses 14,131 12,320
Other Income
Service charges on deposit accounts 1,123 783
Other service charges and fees 1,014 733
Other 925 696
------- -------
Total other income 3,062 2,212
Operating Expenses
Salaries and employee benefits 4,877 4,036
Premises and fixed assets 1,335 1,265
Other 3,263 2,619
------- -------
Total operating expenses 9,475 7,920
Less minority interest net income 13 1
------- -------
Income before income taxes 7,705 6,611
Income Taxes 2,476 2,136
------- -------
Net Income $ 5,229 $ 4,475
======= =======
Per Share Data
Basic Earnings per share (Net income $0.79 $0.66
divided by weighted average shares outstanding)
Diluted Earnings per share $0.79 $0.65
Cash dividends per share $0.30 $0.27
Weighted average number of shares outstanding 6,624,978 6,801,198
</TABLE>
</PAGE>
<TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Income
(unaudited)
(In Thousands, except number Three Months Ended June 30,
of shares and per share data) 1999 1998
<S> <C> <C>
Interest Income
Interest and fees on loans $10,214 $ 9,162
Interest on U.S. Government and agency obligations 2,849 2,365
Interest on state and political subdivisions 100 27
Interest on interest rate swap agreements 0 0
Interest on federal funds sold and other investments 446 248
------- -------
Total interest income 13,609 11,802
Interest Expense
Interest on deposits 4,484 4,299
Interest on other borrowings 1,507 846
Interest on interest rate swap agreements 0 0
------- -------
Total interest expense 5,991 5,145
------- -------
Net interest income 7,618 6,657
Provision for Loan Losses 505 324
------- -------
Net interest income after provision for loan losses 7,113 6,333
Other Income
Service charges on deposit accounts 587 423
Other service charges and fees 583 377
Other 432 403
------- -------
Total other income 1,602 1,203
Operating Expenses
Salaries and employee benefits 2,502 2,096
Premises and fixed assets 778 800
Other 1,532 1,348
------- -------
Total operating expenses 4,812 4,244
Less minority interest in net income 9 1
------- -------
Income before income taxes 3,894 3,291
Income Taxes 1,269 1,050
------- -------
Net Income $ 2,625 $ 2,241
======= =======
Per Share Data
Basic Earnings per share $0.40 $0.33
(Net income divided by weighted
average shares outstanding)
Diluted Earnings per share $0.38 $0.32
Cash dividends per share $0.15 $0.14
Weighted average number of shares outstanding 6,595,990 6,791,868
</TABLE>
</PAGE>
<TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
(In Thousands)
Six Months Ended June 30,
1999 1998
<S> <C> <C>
Net income $ 5,229 $ 4,775
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities (2,077) (7)
------- -------
Comprehensive income $ 3,152 $ 4,768
======= =======
</TABLE>
<TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
(In Thousands)
Three Months Ended June 30,
1999 1998
<S> <C> <C>
Net income $ 2,265 $ 2,241
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities (2,051) (15)
------- -------
Comprehensive income $ 214 $ 2,226
======= =======
</TABLE>
</PAGE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Condition
(unaudited)
<TABLE>
(In Thousands, except number
of shares and per share data) June 30, December 31,
1999 1998
<S> <C> <C>
Assets
Cash and due from banks $ 16,207 $ 14,938
Federal funds sold 1,243 0
Securities available for sale 121,339 84,159
Securities held to maturity 69,474 88,570
Other securities 14,085 14,084
Residential mortgages held for sale 0 24,637
Loans, less allowance for loan losses of $7,062
and $6,512 at June 30, 1999 and December 31, 1998 459,990 407,798
Bank premises and equipment 9,321 9,530
Other real estate owned 776 905
Interest receivable 4,478 3,820
Other assets 20,820 19,510
-------- --------
Total assets $717,733 $667,951
======== ========
Liabilities
Deposits:
Demand $ 63,176 $ 64,303
NOW 28,456 27,955
Money market 85,428 87,532
Savings 83,383 80,908
Certificates of deposit 254,033 247,875
-------- --------
Total deposits 514,476 508,573
Borrowings from Federal Home Loan Bank 101,969 60,265
Other borrowed funds 32,207 29,893
Accrued interest and other liabilities 6,763 5,028
Minority interest in subsidiary 103 90
-------- --------
Total liabilities 655,518 603,849
-------- --------
Stockholders' Equity
Common stock, no par value; authorized
10,000,000, issued 7,128,240 shares 2,436 2,436
Surplus 1,142 1,142
Retained earnings 71,039 68,785
Net unrealized depreciation on securities
available for sale, net of income tax (2,206) (129)
-------- --------
72,411 72,234
Less cost of 569,710 and 471,930 shares
of treasury stock on June 30, 1999
and December 31, 1998 10,196 8,132
-------- --------
Total stockholders' equity 62,215 64,102
-------- --------
Total liabilities and stockholders' equity $717,733 $667,951
======== ========
</TABLE>
</PAGE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
(In Thousands) Six Months Ended June 30,
1999 1998
<S> <C> <C>
Operating Activities
Net Income $ 5,229 $ 4,475
Adjustment to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 940 648
Depreciation and amortization 248 411
Increase in interest receivable (658) (18)
Increase in other assets (1,217) (10,095)
Increase in other liabilities 2,805 2,290
Cash receipts from sale of residential loans 1,987 169
Origination of mortgage loans held for sale 0 (9,875)
------- -------
Net cash provided (used) by operating activities 9,334 (11,995)
------- -------
Investing Activities
Proceeds from maturities of
securities held to maturity 19,296 36,161
Proceeds from maturities of
securities available for sale 13,971 2,350
Purchase of securities available for sale (54,343) (6,993)
Purchase of Federal Home Loan Bank Stock (1) (1)
Increase in loans (30,482) (17,655)
Net decrease in other real estate 129 256
Purchase of premises and equipment (287) (838)
Decrease (increase)in minority position 13 2
Net purchase of federal funds (1,243) 350
------- -------
Net cash provided (used) by investing activities (52,947) 13,632
------- -------
Financing Activities
Net increase (decrease) in demand deposits,
NOW accounts, and savings accounts (255) 30,385
Net increase in certificates of deposit 6,158 43,229
Net increase (decrease) in short-term borrowings 44,018 (67,900)
Purchase of treasury stock (2,064) (1,206)
Exercise and repurchase of stock options (975) 0
Cash Dividends (2,000) (1,839)
------- -------
Net cash provided by financing activities 44,882 2,669
------- -------
Increase in cash and equivalents 1,269 4,306
Cash and cash equivalents at beginning of year 14,938 13,451
------- -------
Cash and cash equivalents at end of period $16,207 $17,757
======= =======
</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
statements of condition of Camden National Corporation, as of June 30, 1999,
and December 31, 1998, the consolidated statements of income for the three and
six months ended June 30, 1999 and June 30, 1998, the consolidated statements
of comprehensive income for the three and six months ended June 30, 1999 and
June 30, 1998 and the consolidated statements of cash flows for the six months
ended June 30, 1999, and June 30, 1998. All significant intercompany
transactions and balances are eliminated in consolidation. The income reported
for the period ended June 30,1999 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 data 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:
Six Months Ended June 30,
1999 1998
Net income, as reported 5,229 4,475
Weighted average shares 6,624,978 6,801,198
Effect of dilutive securities:
Employee stock options 33,269 51,285
Dilutive potential common shares
Adjusted weighted average shares
and assumed conversion 6,658,247 6,852,483
Basic earnings per share $0.79 $0.66
Diluted earnings per share 0.79 0.65
NOTE 3 - Excess of Cost Over Fair Value of Assets Acquired
During 1998 the Company's two bank subsidiaries acquired seven branch
locations. The core deposit intangible acquired in these branch acquisitions
is amortized to expense using the straight-line method over ten years. The
acquisition was accounted for under the purchase method of accounting for
business combinations.
The following is a summary of the transaction:
Loans acquired $18,541
Fixed assets 546
Core deposit intangibles 7,466
Other assets 1,202
Deposits assumed 87,332
Other Liabilities 112
Net Cash received 59,689
ANALYSIS OF CHANGE IN NET INTEREST MARGIN
Six Months Ending Six Months Ending
June 30, 1999 June 30, 1998
------------------- -------------------
Dollars in thousands Amount Average Amount Average
of Yield/ of Yield/
interest Rate interest Rate
-------- ------- -------- -------
Interest-earning assets:
Securities - taxable $ 6,361 7.03% $ 5,399 6.81%
Securities - nontaxable 305 6.49% 88 6.98%
Federal funds sold 56 6.17% 31 5.80%
Loans 20,312* 8.92% 17,948* 9.63%
------- ------ ------- ------
Total earning assets 27,034 8.35% 23,466 8.77%
Interest-bearing liabilities:
NOW accounts 311 1.03% 280 1.21%
Savings accounts 1,167 2.82% 1,108 3.32%
Money Market accounts 929 3.53% 686 3.73%
Certificates of deposit 6,381 5.20% 5,853 5.54%
Short-term borrowings 2,690 4.80% 2,388 5.36%
Broker Certificates of deposit 170 5.66% 48 5.81%
------- ------ ------- ------
Total interest-bearing
liabilities 11,648 4.16% 10,363 4.59%
Net interest income
(fully-taxable equivalent) 15,386 13,103
Less: fully-taxable
equivalent adjustment (315) (135)
------- -------
$15,071 $12,968
======= =======
Net Interest Rate Spread
(fully-taxable equivalent) 4.19% 4.18%
Net Interest Margin
(fully-taxable equivalent) 4.75% 4.90%
*Includes net swap income figures (in thousands) - June 1999 $0 and
June 1998 $1.
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
Six Months Ended June 30,
1999 1998
---- ----
<S> <C> <C>
Interest-earning assets:
Securities - taxable $181,033 $158,612
Securities - nontaxable 9,401 2,520
Federal funds sold 1,814 1,069
Loans 455,112 372,936
-------- --------
Total earning assets 647,360 535,137
Cash and due from banks 15,467 15,512
Other assets 35,050 28,750
Less allowance for loan losses (6,798) (5,899)
-------- --------
Total assets $691,079 $573,500
======== ========
Interest-bearing liabilities:
NOW accounts $ 60,528 $ 46,273
Savings accounts 82,790 66,826
Money market accounts 52,561 36,788
Certificates of deposits 245,375 211,162
Short-term borrowings 112,093 89,031
Broker certificates 6,006 1,653
-------- --------
Total interest-bearing liabilities 559,353 451,733
Demand deposits 62,221 52,288
Other liabilities 6,347 6,207
Shareholders' equity 63,158 63,272
-------- --------
Total liabilities and
stockholders' equity $691,079 $573,500
======== ========
</TABLE>
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSES
<TABLE>
June 1999 Over June 1998
----------------------------------
Change Change
Due to Due to Total
In thousands Volume Rate Change
------- ------- -------
<S> <C> <C> <C>
Interest-earning assets:
Securities--taxable $ 763 $ 199 $ 962
Securities--nontaxable 240 (24) 216
Federal funds sold 22 2 24
Loans 3,957 (1,591) 2,366
------- ------- -------
Total interest income 4,982 (1,414) 3,568
Interest-bearing liabilities:
NOW accounts 86 (54) 32
Savings accounts 265 (206) 59
Money market accounts 294 (51) 243
Certificates of deposit 948 (420) 528
Short-term borrowings 618 (317) 301
Broker certificates 126 (4) 122
------- ------- -------
Total interest expense 2,337 (1,052) 1,285
------- ------- -------
Net interest income $2,645 $ (362) $2,283
(fully taxable equivalent) ======= ======= =======
</TABLE>
ITEM II. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
FINANCIAL CONDITION
During the first six months of 1999, consolidated assets increased by $49.8
million to $717.8 million. This increase was the result of an increase in the
loan portfolio, including residential mortgages held for sale, of $28.1 million
or 6.4% and an increase in the investment portfolio of $18.1 million or 10.5%.
The increase in loans can be attributed to strong loan demand during the first
half of 1999. With a relatively low interest rate environment it has been the
Company's asset/liability strategy to hold fixed rate mortgages in its
portfolio for the past 18 months. The yields on these assets have been higher
than yields available in the investment portfolio. Therefore, the loan
balances in our residential mortgages held for sale at December 31, 1998 were
transferred into the fixed-rate residential portfolio. This transfer reflects
the Company's intent to hold these loans on its balance sheet. Additions were
also made to the investment portfolio during the second quarter of 1999, taking
advantage of a steeper yield curve.
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, 1998, deposits have increased by
$5.9 million or 1.2%. 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 increased by $44.0 million
or 48.8% since December 31,1998. The majority of the borrowings were from the
Federal Home Loan Bank of Boston. FHLB advances remain the largest
nondeposit-related interest-bearing funding source for the Company. These
borrowings are secured by qualified residential real estate loans, certain
investment securities and certain other assets available to be pledged. The
Company views borrowed funds as a reasonably priced alternative funding source
that should be utilized.
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 six months of 1999,
$940,000 was added to the reserve for loan losses, resulting in an allowance of
$7.1 million, or 1.51%, 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 June 30, 1999, of 11.2% and 12.4% respectively, exceed regulatory
guidelines. The Company's ratios at December 31, 1998 were 12.8% and 14.0%.
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 six months of 1999 Camden National Bank paid dividends to the
Company in the amount of $5.6 million. The Company paid dividends to
shareholders in the amount of $2.0 million. The remaining amount of $3.6
million was used for treasury stock and stock option transactions by the
Company.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 1999 was $5.229 million, an
increase of $754,000 or 16.8% above 1998's first six month's net income of
$4.475 million. The major contributing factor was the increase in loans and
investments, which resulted in an increase in net interest income.
NET INTEREST INCOME
Net interest income, on a fully taxable equivalent basis, for the six months
ended June 30, 1999 was $15.4 million, a 17.4% or $2.3 million increase over
the net interest income for the first six months of 1998 of $13.1 million.
Interest income on loans increased by $2.4 million. This increase was due to
the increase in loan volume, despite a decrease in yields from 9.63% during the
first six months of 1998 to 8.92% during the first six months of 1999. The
Company also experienced an increase in interest income on investments during
the first six months of 1999 compared to the same period in 1998 due to both
increased volume and yield. The Company's net interest expense on deposits and
borrowings increased during the first six months of 1999 compared to the same
period in 1998. This increase was the result of increased volumes in all
categories.
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 9-11 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 six
months ended June 30, 1999 and 1998. The second of these tables presents
average assets liabilities and stockholders' equity for the six months ended
June 30, 1999 and 1998. The third table presents an analysis of volume and
rate change on net interest income and expense from June 30, 1998 to June 30,
1999.
The Company utilizes off-balance sheet instruments such as interest rate swap
agreements that have an effect on net interest income. There was no effect on
net interest income in the first six months of 1999 compare to a slight
increase of $1,000 in the first six months of 1998.
NONINTEREST INCOME
There was a $850,000 or 38.4% increase in total noninterest income in the first
six months of 1999 compared to the first six months of 1998. Service charges
on deposit accounts increased $340,000 or 43.4% for the first six months of
1999 compared to 1998. This increase was the result of increased deposit
balances. The increase in deposit balances was affected by the acquisition of
seven branches by the Company in 1998. Four branches were acquired in March
1998 and three in October 1998. Other service charges and fees increased by
$281,000 or 38.3% in the first six months of 1999 compared to 1998. The
largest contributing factor to this increase was the fee income generated by
merchant assessments. Other income increased by $229,000 in the first six
months of 1999 compared to 1998. The major reason for this increase in other
income was a $150,000 gain on the sale of securities.
NONINTEREST EXPENSE
There was a $1.555 million or 19.6% increase in total noninterest expenses in
the first six months of 1999 compared to the first six months of 1998.
Salaries and employee benefits cost increased by $841,000 or 20.8% in the first
six months of 1999 compared to 1998. This increase was the result of normal
annual increases, additions to staff (including the staff at the seven branches
acquired in 1998) and higher pension benefit costs. Other operating expenses
increased by $644,000 or 24.6%. The major contributing factor for this
increase the costs related to the seven branch locations acquired in 1998. The
Company experienced increases in premises and fixed assets, credit card
expenses, data processing, and amortization of deposit premium and various
other general operating expenses. The amortization of deposit premium of
$387,000 was recorded in 1999, which was the result of the new branches
acquired in 1998.
YEAR 2000
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998.
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 and time data from, into, and between the twentieth and
twenty-first centuries. Furthermore, Year 2000 compliant information
technology, when used in combination with other information technology, will
accurately process date and time data if the other information technology
properly exchanges date and 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 Vitex Inc. to assist in
development of a Year 2000 Plan. 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 Company has been working since June 1997 to identify, test, and if
necessary, upgrade key systems such as checking, savings, general ledger, wire
transfer, consumer and commercial loans, and other core computer systems.
These are the Company's "mission critical" systems. Currently, 100% of the
company's "mission critical" systems are ready for the Year 2000. In addition,
all other systems were tested in our own environment. Independent validation
of the testing results of "mission critical" systems has been completed. The
Company also operates in a highly interconnected local and wide area network
environment. The Company's entire network has been renovated to Year 2000
ready versions of both hardware and software. In addition, a thorough
inventory of the company's facilities, elevators and security systems for
potential Year 2000 issues was completed in September 1998.
All software used by the company is provided by outside vendors, which are
selected based on the quality of their products and their proven ability to
deliver to the Company and its customers. The Company is actively monitoring
its approximate 50 software and hardware suppliers for Year 2000 compliance.
The progress of these vendors is tracked as they deliver Year 2000 compliant
upgrades to their applications.
The Company strives to strengthen customer awareness of the Year 2000 issue in
various forms. An internal awareness training program is ongoing with
employees. This will enable our staff to effectively answer customers'
concerns. Inserts have been mailed with monthly statements to customers of the
Company's bank subsidiaries to assure them of the Company's readiness to serve
them in the new millennium. The Company has sponsored several seminars for the
community on the Year 2000 issues. The Company has requested compliance
statements from over 150 companies upon which the Company relies. Some
examples of these companies are utility providers, insurance companies,
investment firms, other banks, and human resource service providers. If
providers fail to demonstrate adequate Year 2000 compliance progress, the
Company has set deadlines for implementation of contingency plans.
An essential component of preparing for the Year 2000 problem and beyond is
developing a contingency plan if any or all of the Company's systems fail or
cannot be made Year 2000 ready. The Company developed Year 2000 contingency
plans for all of its mission critical products and services. These plans were
designed to mitigate the risks associated with (1) the failure to successfully
complete renovation, validation, or implementation of our Year 2000 readiness
plan; or (2) the failure to any of our systems at critical dates. The
Company's Contingency Plan includes a Crisis Management Team to handle any
unforeseen problems. Although the Company does not expect there to be any
problems, it has outlined procedures to handle any if there is a mission
critical system failure. A general contingency plan was developed for
non-mission critical systems. The intent of these plans is to describe how the
Company will resume normal business operations if 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 has conducted business impact analyses 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 a Year 2000 compliant environment. The Company
analyzed strategies and identified 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 has included a recovery program
that identifies participants, processes, and equipment that might be needed for
the Company to function at an adequate level. The program ensure that all
participants are aware of their roles, adequately trained, and able to do
whatever is necessary to restore operations.
The Company will monitor cash levels during 1999 in order to determine usage
trends. The Company has a plan to increase its currency and coin levels
starting in the fall of 1999 in anticipation of higher liquidity levels
required to meet cash needs during the transition to the year 2000. In
addition, the Company has confirmed its available lines of credit with
correspondent banks, the Federal Home Loan Bank, and the Federal Reserve Bank
to insure available liquidity in meeting unanticipated cash demands.
The estimated cost to address all of the Year 2000 issues approximates
$450,000. This includes $200,000 to upgrade software and hardware systems,
$100,000 for testing of systems, $100,000 for consulting fees, and $50,000 for
existing personnel costs to effectively implement the Year 2000 Plan.
The information provided above regarding the Company's Year 2000 compliance
includes forward-looking statements based on management's best estimates of
future events. Such forward-looking statements involve risks and uncertainties
including the availability of resources, the ability to identify and correct
potential Year 2000 sensitive problems that could have a serious impact on the
operations and the ability of third party suppliers to bring their systems into
Year 2000 compliance. There can be no assurance that any of the factors or
statements regarding the Company's Year 2000 preparedness will not change and
that any change will not affect the accuracy of the Company's forward looking
statements.
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
During 1998, the Company adopted SFAS No. 130, No. 131 and No. 132. The
adoption of SFAS No. 130 "Reporting 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 No. 131 and No. 132
relate to disclosures about segments and employee benefits, respectively. The
financial statements, where applicable, include the required additional
disclosures for SFAS No. 130, No. 131 and No. 132.
SFAS No. 133, "Accounting For Derivative Instruments and Hedging activities,"
and SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained After the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," are effective for fiscal years beginning after June 15, 1999, and
the first fiscal quarter beginning July 1, 1999. SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
SFAS 133" defers the effective date of SFAS No. 133 to fiscal years beginning
after June 15, 2000 and the first quarter beginning July 1, 2000. Management
has not determined the impact of SFAS No. 134 and No. 137 on the financial
statements.
SFAS No. 135 and No. 136 do not apply to the Corporation.
OTHER MATTERS
SHARE REPURCHASE PLAN. The Company 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 the Company's bids and repurchases of its stock during a
given day shall be effected through a single broker or dealer,
except that the Company may repurchase shares from others
provided that the same have not been solicited by or on behalf
of the Company. For this purpose, the Company shall utilize the
services of any registered broker or dealer.
2. All of the Company'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 Company repurchases must be in an amount that
(a) when added to the amounts of all of the Company'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 the Company'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
Company 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 the Company'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. The Company will not affect any repurchases of its stock during any
period in which doing so would violate its insider trader policy or
otherwise would not be in accordance with the law.
6. The share repurchase plan will be used for stock options.
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."
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.
MERGER. On July 27, 1999, Camden National Corporation, a Maine corporation
(the "Company"), Camden Acquisition Subsidiary, Inc., a Delaware corporation
and wholly-owned subsidiary of the Company, KSB Bancorp Inc., a Delaware
corporation ("KSB") and Kingfield Savings Bank, a Maine-chartered savings bank
and wholly owned subsidiary of KSB entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provides for a series of
related transactions pursuant to which KSB will be merged with and into the
company (the "Merger"), with the Company being the surviving corporation. The
Boards of Directors of the company and KSB approved the Merger Agreement, and
all of the transactions contemplated thereby, at their respective meetings held
on July 27, 1999. The consummation of the Merger is subject to certain
customary conditions, including, without limitation, the approval of the
stockholders of each of the Company and KSB and certain regulatory approvals.
PART II
Item 4. Submission Matters to a vote of Security holders.
(a) The annual meeting of shareholders was held on May 4, 1999.
(c) Matters voted upon at the meeting. 1)To elect as director nominees --
Royce M. Cross and John W. Holmes to serve a three year term to expire at the
annual meeting in 2002. Total votes cast: 5,092,810, with 5,080,412 for, and
12,398 withheld. 2) To ratify the selection of Berry, Dunn, McNeil & Parker as
the Company's independent public accountants for 1999. Total votes cast:
5,093,109, with 5,085,706 for, 1,950 against, and 5,453 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 Hampden Branch
of United Bank, filed with Form 10-K, December 31, 1995, and is
incorporated herein by reference.
(10.4) Camden National Corporation 1993 Stock Option Plan, filed with
Form 10-K, December 31, 1995, and is incorporated herein by
reference.
(10.5) UnitedCorp Stock Option Plan, filed with Form 10-K, December 31,
1995, and is incorporated herein by reference.
(10.6) Lease Agreement for the facility occupied by the Damariscotta
Branch of Camden National Bank, between Keybank National
Association (Lessor) and Camden National Bank (Lessee).
(10.7) Lease Agreement for the facility occupied by the Milo Branch of
United Bank, between Bangor Savings Bank (Lessor) and United Bank
(Lessee).
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Act 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)
Robert W. Daigle (signature) 08/13/99
- ------------------------------------- --------
Robert W. Daigle Date
President and Chief Executive Officer
Susan M. Westfall (signature) 08/13/99
- ------------------------------------- --------
Susan M. Westfall Date
Treasurer and Chief Financial Officer
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