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, 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 September 30, 1999: Common stock (no par value) 6,557,650
shares.
</PAGE>
<PAGE>
CAMDEN NATIONAL CORPORATION
Form 10-Q for the quarter ended September 30, 1999
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PART I.
ITEM 1. FINANCIAL INFORMATION
PAGE
Consolidated Statements of Income
Nine Months Ended September 30, 1999 and 1998 3
Consolidated Statements of Income
Three Months Ended September 30, 1999 and 1998 4
Consolidated Statements of Comprehensive Income
Nine Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Comprehensive Income
Three Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Condition
September 30, 1999 and December 31, 1998 6
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 7
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 1999 and 1998 8-9
Analysis of Change in Net Interest Margin
Nine Months Ended September 30, 1999 and 1998 9
Average Daily Balance Sheets
Nine Months Ended September 30, 1999 and 1998 10
Analysis of Volume and Rate Changes on Net Interest Income
& Expenses September 30, 1999 over September 30, 1998 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11-17
PART II.
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBITS 19
</PAGE>
<PAGE>
PART I.
ITEM I. FINANCIAL INFORMATION
<TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Income
(unaudited)
(In Thousands, except number Nine Months Ended September 30,
of shares and per share data) 1999 1998
<S> <C> <C>
Interest Income
Interest and fees on loans $30,598 $27,279
Interest on U.S. Government and agency obligations 8,431 7,182
Interest on state and political subdivisions 301 83
Interest on interest rate swap agreements 0 33
Interest on federal funds sold and other investments 1,380 775
------- -------
Total interest income 40,710 35,352
Interest Expense
Interest on deposits 13,592 12,417
Interest on other borrowings 4,154 3,043
Interest on interest rate swap agreements 0 32
------- -------
Total interest expense 17,746 15,492
------- -------
Net interest income 22,964 19,860
Provision for Loan Losses 1,465 992
------- -------
Net interest income after provision for loan losses 21,499 18,868
Other Income
Service charges on deposit accounts 1,677 1,240
Other service charges and fees 1,920 1,586
Other 1,360 945
------- -------
Total other income 4,957 3,771
Operating Expenses
Salaries and employee benefits 7,368 6,244
Premises and fixed assets 1,993 1,504
Other 5,402 4,596
------- -------
Total operating expenses 14,763 12,344
Less minority interest net income 20 5
------- -------
Income before income taxes 11,673 10,290
Income Taxes 3,764 3,301
------- -------
Net Income $ 7,909 $ 6,989
======= =======
Per Share Data
Basic Earnings per share (Net income divided $1.20 $1.03
by weighted average shares outstanding)
Diluted Earnings per share $1.19 $1.01
Cash dividends per share $0.45 $0.41
Weighted average number of shares outstanding 6,602,323 6,783,120
</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) 1999 1998
<S> <C> <C>
Interest Income
Interest and fees on loans $10,497 $ 9,437
Interest on U.S. Government and agency obligations 2,857 2,241
Interest on state and political subdivisions 100 25
Interest on interest rate swap agreements 0 0
Interest on federal funds sold and other investments 537 286
------- -------
Total interest income 13,991 11,989
Interest Expense
Interest on deposits 4,630 4,439
Interest on other borrowings 1,468 658
Interest on interest rate swap agreements 0 0
------- -------
Total interest expense 6,098 5,097
------- -------
Net interest income 7,893 6,892
Provision for Loan Losses 525 344
------- -------
Net interest income after provision for loan losses 7,368 6,548
Other Income
Service charges on deposit accounts 554 457
Other service charges and fees 906 760
Other 435 342
------- -------
Total other income 1,895 1,559
Operating Expenses
Salaries and employee benefits 2,491 2,208
Premises and fixed assets 658 472
Other 2,139 1,744
------- -------
Total operating expenses 5,288 4,424
Less minority interest in net income 7 4
------- -------
Income before income taxes 3,968 3,679
Income Taxes 1,288 1,165
------- -------
Net Income $ 2,680 $ 2,514
======= =======
Per Share Data
Basic Earnings per share (Net income divided $0.41 $0.37
by weighted average shares outstanding)
Diluted Earnings per share $0.40 $0.36
Cash dividends per share $0.15 $0.14
Weighted average number of shares outstanding 6,557,750 6,747,555
</TABLE>
<PAGE>
<TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
(In Thousands) Nine Months Ended September 30,
1999 1998
<S> <C> <C>
Net income $ 7,909 $ 6,989
Other comprehensive income,
net of tax:
Change in unrealized
gains on securities (3,351) 11
------- -------
Comprehensive income $ 4,558 $ 7,000
======= =======
</TABLE>
<TABLE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
(In Thousands) Three Months Ended September 30,
1999 1998
<S> <C> <C>
Net income
Other comprehensive income, $ 2,680 $ 2,514
net of tax:
Change in unrealized
gains on securities (1,274) 18
------- -------
Comprehensive income $ 1,406 $ 2,532
======= =======
</TABLE>
<PAGE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Condition
(unaudited)
<TABLE>
(In Thousands, except number
of shares and per share data) September 30, December 31,
1999 1998
<S> <C> <C>
Assets
Cash and due from banks $ 17,563 $ 14,938
Securities available for sale 120,087 84,159
Securities held to maturity 65,501 88,570
Other securities 14,085 14,084
Residential mortgages held for sale 1,013 24,637
Loans, less allowance for loan losses
of $7,360 and $6,512 at September 30,
1999 and December 31, 1998 470,615 407,798
Bank premises and equipment 9,443 9,530
Other real estate owned 752 905
Interest receivable 4,710 3,820
Other assets 22,279 19,510
-------- --------
Total assets $726,048 $667,951
======== ========
Liabilities
Deposits:
Demand $ 70,894 $ 64,303
NOW 28,201 27,955
Money market 95,863 87,532
Savings 88,515 80,908
Certificates of deposit 251,229 247,875
-------- --------
Total deposits 534,702 508,573
Borrowings from Federal Home Loan Bank 86,275 60,265
Other borrowed funds 33,083 29,893
Accrued interest and other liabilities 9,257 5,028
Minority interest in subsidiary 115 90
-------- --------
Total liabilities 663,432 603,849
-------- --------
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 72,725 68,785
Net unrealized depreciation on securities
available for sale, net of income tax (3,480) (129)
-------- --------
72,823 72,234
Less cost of 570,590 and 384,060
shares of treasury stock on September 30,
1999 and December 31, 1998 10,207 8,132
-------- --------
Total stockholders' equity 62,616 64,102
-------- --------
Total liabilities and stockholders' equity $726,048 $667,951
======== ========
</TABLE>
<PAGE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
(In Thousands)
Nine Months Ended September 30,
1999 1998
<S> <C> <C>
Operating Activities
Net Income $ 7,909 $ 6,989
Adjustment to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 1,465 992
Depreciation and amortization 854 519
(Increase) decrease in interest receivable (890) 400
Increase in other assets (2,625) (10,191)
Increase in other liabilities 5,955 2,920
Cash receipts from sale of residential loans 3,300 1,737
Origination of mortgage loans held for sale 0 (10,768)
------- -------
Net cash provided (used) by operating activities 15,968 (7,402)
------- -------
Investing Activities
Proceeds from maturities of
securities held to maturity 23,328 58,185
Proceeds from maturities of
securities available for sale 15,754 2,864
Purchase of securities available for sale (56,842) (16,013)
Purchase of Federal Home Loan Bank Stock (1) (1)
Increase in loans (43,958) (40,534)
Net decrease in other real estate 153 490
Purchase of premises and equipment (1,088) (1,102)
Decrease (increase)in minority position 25 (5)
Net purchase of federal funds 0 (4,907)
------- -------
Net cash used by investing activities (62,629) (1,023)
------- -------
Financing Activities
Net increase in demand deposits, NOW
accounts, and savings accounts 22,775 54,738
Net increase in certificates of deposit 3,354 54,023
Net increase (decrease) in short-term borrowings 29,200 (91,674)
Purchase of treasury stock (2,075) (1,289)
Exercise and repurchase of stock options (975) 0
Cash Dividends (2,993) (2,784)
------- -------
Net cash provided by financing activities 49,286 13,014
------- -------
Increase in cash and equivalents 2,625 4,589
Cash and cash equivalents at beginning of year 14,938 13,451
------- -------
Cash and cash equivalents at end of period $17,563 $18,040
======= =======
</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 September 30,
1999, and December 31, 1998, the consolidated statements of income for the
three and nine months ended September 30, 1999 and September 30, 1998, the
consolidated statements of comprehensive income for the three and nine months
ended September 30, 1999 and September 30, 1998 and the consolidated statements
of cash flows for the nine months ended September 30, 1999, and September 30,
1998. All significant intercompany transactions and balances are eliminated in
consolidation. The income reported for the period ended September 30,1999 is
not necessarily indicative of the results that may be expected for the full
year.
NOTE 2 - 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:
Nine Months Ended September 30,
1999 1998
Net income, as reported 7,909 6,989
Weighted average shares 6,602,323 6,783,120
Effect of dilutive securities:
Employee stock options 33,269 143,127
Dilutive potential common shares
Adjusted weighted average shares
and assumed conversion 6,635,592 6,926,247
Basic earnings per share $1.20 $1.03
Diluted earnings per share 1.19 1.01
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
Nine Months Ending Nine Months Ending
September 30, 1999 September 30, 1998
------------------- -------------------
Dollars in thousands Amount Average Amount Average
of Yield/ of Yield/
interest Rate interest Rate
-------- ------- -------- -------
Interest-earning assets:
Securities - taxable $ 9,729 7.00% $ 7,882 7.21%
Securities - nontaxable 456 6.56% 125 6.95%
Federal funds sold 83 5.50% 76 5.44%
Loans 30,905* 8.97% 27,441* 9.60%
-------- ------- -------- -------
Total earning assets 41,173 8.37% 35,524 8.92%
Interest-bearing liabilities:
NOW accounts 483 1.04% 422 1.17%
Savings accounts 1,848 2.93% 1,661 3.25%
Money Market accounts 1,440 3.59% 1,117 3.76%
Certificates of deposit 9,564 5.16% 9,082 5.57%
Short-term borrowings 4,154 4.84% 3,043 5.30%
Broker Certificates of deposit 257 5.71% 135 5.77%
-------- ------- -------- -------
Total interest-bearing
liabilities 17,746 4.17% 15,460 4.55%
Net interest income
(fully-taxable equivalent) 23,427 20,064
Less: fully-taxable
equivalent adjustment (463) (204)
-------- --------
$22,964 $19,860
======== ========
Net Interest Rate Spread
(fully-taxable equivalent) 4.20% 4.36%
Net Interest Margin
(fully-taxable equivalent) 4.76% 5.04%
*Includes net swap income figures (in thousands) - September 1999 $0 and
September 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
Nine Months Ended September 30,
1999 1998
---- ----
<S> <C> <C>
Interest-earning assets:
Securities - taxable $185,375 $145,702
Securities - nontaxable 9,274 2,399
Federal funds sold 2,006 1,862
Loans 459,191 381,252
-------- --------
Total earning assets 655,846 531,215
Cash and due from banks 16,429 16,646
Other assets 35,051 37,281
Less allowance for loan losses (6,958) (5,997)
-------- --------
Total assets $700,368 $579,145
======== ========
Interest-bearing liabilities:
NOW accounts $ 61,949 $ 48,071
Savings accounts 84,006 68,123
Money market accounts 53,533 39,637
Certificates of deposits 246,887 217,268
Short-term borrowings 114,382 76,655
Broker certificates 6,009 3,121
-------- --------
Total interest-bearing liabilities 566,766 452,875
Demand deposits 65,085 56,516
Other liabilities 5,158 5,734
Shareholders' equity 63,359 64,020
-------- --------
Total liabilities and
stockholders' equity $700,368 $579,145
======== ========
</TABLE>
<PAGE>
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND
EXPENSES
<TABLE>
September 1999 Over September 1998
----------------------------------
Change Change
Due to Due to Total
In thousands Volume Rate Change
------- ------- -------
<S> <C> <C> <C>
Interest-earning assets:
Securities--taxable $ 2,145 $ (298) $ 1,847
Securities--nontaxable 358 (27) 331
Federal funds sold 6 1 7
Loans 5,612 (2,148) 3,464
------- ------- -------
Total interest income 8,121 (2,472) 5,649
Interest-bearing liabilities:
NOW accounts 122 (61) 61
Savings accounts 387 (200) 187
Money market accounts 392 (69) 323
Certificates of deposit 1,237 (755) 482
Short-term borrowings 1,500 (389) 1,111
Broker certificates 125 (3) 122
------- ------- -------
Total interest expense 3,763 (1,477) 2,286
------- ------- -------
Net interest income $ 4,358 $ (995) $ 3,363
(fully taxable equivalent) ======= ======= =======
</TABLE>
ITEM II. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS
OF
OPERATION
FINANCIAL CONDITION
During the first nine months of 1999, consolidated assets increased by $58.1
million, or 8.7% to $726.0 million. This increase was the result of an
increase in the loan portfolio, including residential mortgages held for sale,
of $40.0 million or 9.1% and an increase in the investment portfolio of $12.9
million or 6.9%. The increase in loans can be attributed to strong loan demand
during the first nine months of 1999. With a relatively low interest rate
environment it has been the Company's asset/liability strategy for the past 18
months to hold fixed rate mortgages in its portfolio. 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
and third quarters of 1999, taking advantage of a steeper yield curve than in
prior periods.
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
$26.1 million or 5.1%. Both of the Company's banking subsidiaries continue to
experience substantial 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 $29.2 million
or 32.4% since December 31, 1998. Federal Home Loan Bank of Boston 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 nine months of 1999,
$1,465,000 was added to the reserve for loan losses based upon the expansion of
the loan portfolio, resulting in an allowance of $7.4 million, or 1.54%, of
total loans outstanding. 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, 1999, of 11.7% and 13.0% 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 nine months of 1999 Camden National Bank paid dividends to the
Company in the amount of $6.8 million. The Company paid dividends to
shareholders in the amount of $3.0 million. The remaining amount of $3.8
million was used for treasury stock, stock option and acquisition related
transactions by the Company.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1999 was $7.9 million, an
increase of $920,000 or 13.2% from 1998's first nine month's net income of
$7.0 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 nine months
ended September 30, 1999 was $23.4 million, a 16.8% or $3.4 million increase
over the net interest income for the first nine months of 1998 of $20.1
million. Interest income on loans increased by $3.5 million, or 12.6%. This
increase was due to the increase in loan volume, despite a decrease in yields
from 9.60% during the first nine months of 1998 to 8.97% during the first nine
months of 1999. The Company also experienced an increase in interest income on
investments during the first nine months of 1999 compared to the same period in
1998 due to increased volume. The Company's net interest expense on deposits
and borrowings increased during the first nine 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 nine
months ended September 30, 1999 and 1998. The second of these tables presents
average assets liabilities and stockholders' equity for the nine months ended
September 30, 1999 and 1998. The third table presents an analysis of volume
and rate change on net interest income and expense from September 30, 1998 to
September 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 nine months of 1999 compared to a slight
increase of $1,000 in the first nine months of 1998.
NONINTEREST INCOME
There was a $1.2 million or 31.5% increase in total noninterest income in the
first nine months of 1999 compared to the first nine months of 1998. Service
charges on deposit accounts increased $437,000 or 35.2% for the first nine
months of 1999 compared to 1998. This increase was the result of increased
deposit balances. The increase in deposit balances resulted primarily from 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 $334,000 or 21.1% in the first nine 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 $415,000, or 43.9%
in the first nine 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 $2.4 million or 19.6% increase in total noninterest expenses in
the first nine months of 1999 compared to the first nine months of 1998.
Salaries and employee benefits cost increased by $1.1 million or 18.0% in the
first nine 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 $806,000 or 17.5%. The major contributing factor for
this increase was 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
$580,000 was recorded in 1999, which was the result of the new branches
acquired in 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 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 the Company's 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 a high level of service to the Company and its customers. The Company
is actively monitoring its approximately 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 the Company's 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 is $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.
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. 134, "Accounting for Mortgage-Backed Securities Retained After the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," is effective for fiscal years beginning after June 15, 1999, and
the first fiscal quarter beginning July 1, 1999. SFAS No. 133, "Accounting For
Derivative Instruments and Hedging Activities," has been amended by SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of SFAS 133". SFAS 137 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 Company.
OTHER MATTERS
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.
The stockholder meetings for such vote are scheduled for November 16, 1999.
The Company can not assure that the merger will be consummated.
FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information contained in this report,
including the information incorporated by reference in this report, are or may
be considered as forward-looking. Forward-looking statements relate to the
future operations, strategies, financial results or other developments, and
contain words or phrases such as "may," "expects," "should" or similar
expressions. Forward-looking statements are based upon estimates and
assumptions that are subject to significant business, economic and competitive
uncertainties, many of which are beyond the Company's control or are subject to
change.
Inherent in the Company's business are certain risks and uncertainties.
Therefore, the Company cautions the reader that revenues and income could
differ materially from those expected to occur depending on factors such as
general economic conditions including changes in interest rates and the
performance of financial markets, changes in domestic and foreign laws,
regulations and taxes, competition, industry consolidation, credit risks and
other factors. Other factors that could cause or contribute to such
differences include, but are not limited to, variances in the actual versus
projected growth in assets, return on assets, loan losses, expenses, rates
charged on loans and earned on investment securities, rates paid on deposits,
competitive effects, fee and other noninterest income earned, as well as other
factors. The Company's disclaims any obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
developments, or otherwise.
Item 6. Exhibits and Reports on Form 8-K.
(a). Exhibits
(2.1) Agreement and Plan of Merger, dated as of July 27, 1999, by
and among Camden National Corporation, Camden Acquisition
Subsidiary, Inc., KSB Bancorp, Inc. and Kingfield Savings Bank.
(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) Stock Option Agreement, dated as of July 27, 1999 between Camden
National Corporation and KSB Bancorp, Inc.
(27) Financial Data Schedule.
(99.1) Press Release, dated July 27, 1999.
(b) Reports on Form 8-K.
Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 9, 1999, relating to the merger.
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) 11/15/99
- ------------------------------------- --------
Robert W. Daigle Date
President and Chief Executive Officer
Susan M. Westfall (signature) 11/15/99
- ------------------------------------- --------
Susan M. Westfall Date
Treasurer and Chief Financial Officer
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