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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 0-28190
CAMDEN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
MAINE 01-0413282
(State or other jurisdiction of (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
Securities registered pursuant to Section 12(g) of the Act
Common Stock, without par value
(Title of class)
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 [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 27, 2000 is: Common stock - $94,730,153
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 27, 2000 is: Common stock - 8,167,358
Listed hereunder are documents incorporated by reference and the Part of the
form 10-K into which the document is incorporated:
(1) Portions of the Annual Report to Stockholders for the year ended December
31, 1999 are incorporated by reference into Part II, Items 5, 6, 7 and 8.
(2) The definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders to be filed with the commission prior to April 29, 2000 pursuant to
Regulation 14A of the General Rules and Regulations of The Commission is
incorporated into Part III of the Form 10-K.
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INDEX
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<CAPTION>
Item # Description Page
- ----------- ---------------------------------------------------------------------- ----
<S> <C> <C>
1 Business 3
2 Properties 7
3 Pending Legal Proceeding 8
4 Submission of Matters to a Vote of Security Holders 8
5 Market for Registrant's Common Equity and Related Stockholders Matters 8
6 Selected Financial Data 8
7 Management's Discussion and Analysis of Financial Condition
and Results of Operation 9
7A Quantitative and Qualitative Disclosures about Market Risks 13
8 Financial Statements and Supplementary Data 14
9 Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 14
10 Directors and Executive Officers of the Registrant 14
11 Executive Compensation 14
12 Security Ownership of Certain Beneficial Owners and Management 14
13 Certain Relationships and Related Transactions 14
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15
</TABLE>
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PART I
ITEM 1. BUSINESS
Camden National Corporation, (the "Company") is a multi-bank financial
services holding company headquartered in Camden, Maine. The Company was
founded on January 2, 1985 as a result of a corporate reorganization, in which
the shareholders of Camden National Bank, which was founded in 1875, exchanged
their stock for shares of the Company, and Camden National Bank became a wholly-
owned subsidiary of the Company. As of December 29, 1995 the Company acquired
100% of the outstanding stock of United Bank and 51% of the outstanding stock of
Trust Company of Maine, Inc. by merging with their then parent company,
UNITEDCORP, Bangor, Maine. On December 20, 1999, the Company completed the
acquisition of KSB Bancorp, Inc. ("KSB"), a bank holding company with one
principal subsidiary, Kingfield Bank. The acquisition of KSB was accounted for
under the pooling-of-interests method and, as such, financial information
included in this Report presents the combined financial condition and results of
operations of both companies as if they had operated as a combined entity for
all periods presented. As of December 31, 1999, the Company's securities
consisted of one class of common stock, no par value, of which there were
8,167,358 shares outstanding held of record by approximately 1,130 shareholders.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Camden National Bank and
UnitedKingfield Bank, and its majority-owned subsidiary, Trust Company of Maine,
Inc. UnitedKingfield Bank is the successor by merger, effective February 4,
2000 of United Bank and Kingfield Bank. All inter-company accounts and
transactions have been eliminated in consolidation.
The Company's wholly-owned bank subsidiaries operate as separate commercial
banks with branches serving mid-coast, central and western Maine. The banks are
full-service financial institutions that focus primarily on attracting deposits
from the general public through their branches and using such deposits to
originate residential mortgage loans, commercial business loans, commercial real
estate loans, and a variety of consumer loans.
Camden National Bank is a national banking organization organized under the
laws of the United States. Camden National Bank is subject to regulation,
supervision and regular examination by the Office of the Comptroller of the
Currency. Camden National Bank is based in Camden, Maine, and offers services
in the communities of Camden, Union, Rockland, Thomaston, Belfast, Bucksport,
Vinalhaven, Damariscotta, and Waldoboro. Customers also have access to services
offered by Camden National Bank through the internet at www.camdennational.com.
UnitedKingfield Bank is a banking organization chartered under the laws of the
State of Maine. UnitedKingfield is subject to regulation, supervision and
regular examination by the FDIC and the Maine Superintendent. UnitedKingfield
Bank is based in Bangor, Maine, and is the successor by merger, effective
February 4, 2000, of United Bank and Kingfield Bank. UnitedKingfield Bank
offers services in the communities of Bangor, Bingham, Corinth, Dover-Foxcroft,
Farmington, Greenville, Hampden, Hermon, Jackman, Kingfield, Lewiston, Madison,
Milo, Phillips, Rangeley, Stratton, Strong and Winterport Maine. Customers also
have access to services offered by UnitedKingfield bank through the internet at
www.unitedkingfield.com.
The Company's majority-owned trust company subsidiary, Trust Company of Maine,
Inc., offers a broad range of trust and trust investment services, in addition
to retirement and pension plan management services. The financial services
provided by the Trust Company of Maine, Inc., complement the services provided
by the Company's bank subsidiaries by offering customers investment management
services.
The Company competes principally in mid-coast Maine through its largest
subsidiary, Camden National Bank. Camden National Bank considers its primary
market areas to be in two counties, Knox and Waldo. These two counties have a
combined population of approximately 76,000 people. The economy of these
counties is based primarily on tourism, and is also supported by a substantial
population of retirees. Major competitors in these markets include local
branches of large regional bank affiliates, as well as local independent banks,
thrift institutions and credit unions. Other competitors for deposits and loans
within Camden National Bank's market include insurance companies, money market
funds, consumer finance companies and financing affiliates of consumer durable
goods manufacturers.
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The Company, through UnitedKingfield Bank, also competes in both the central
and western Maine areas. Most of UnitedKingfield's offices are located in
communities that can generally be characterized as rural areas, with the
exception of Bangor and Lewiston. The greater Bangor area has a population of
approximately 100,000 people. Major competitors in these markets include local
branches of large regional bank affiliates, as well as local independent banks,
thrift institutions and credit unions. Other competitors for deposits and loans
within UnitedKingfield Bank's market include insurance companies, money market
funds, consumer finance companies and financing affiliates of consumer durable
goods manufacturers.
The Company is committed to the philosophy of serving the financial needs of
customers in local communities. The Company, through Camden National Bank and
UnitedKingfield Bank has branches that are located in small towns within the
Company's geographic market areas. The Company believes that the local needs,
and its comprehensive retail and small business products, together with rapid
decision-making at the branch level, enable its banks to compete effectively.
No single person or group of persons provides a material portion of the
Company's deposits, the loss of any one or more of which would have a materially
adverse effect on the business of the Company, nor is a material portion of the
Company's loans concentrated within a single industry or group of related
industries.
The Company had consolidated asset growth of 10.7% or $89.1 million during
1999. The primary contributing factor to this growth was the increase in
lending activity at the Company's bank subsidiaries. As the business continued
to grow during this past year, each subsidiary focused on customer service.
Supporting this concept, is the Company's performance-based compensation
program. This program is designed to create an environment where employees take
a more personal interest in the performance of the Company and are rewarded for
balancing profit with growth and quality with productivity.
The Company employs approximately 278 people on a full-time equivalent basis.
Management believes that employee relations are good, and there are no known
disputes between management and employees. Certain eligible employees who are
at least 21 years of age and who have worked for the Company for at least one
year are eligible for participation in the Company's Retirement Savings 401(k)
Plan and Defined Benefit Retirement Plan. Certain eligible employees of the
Company also receive group insurance benefits. Certain Executive Officers of
the Company may also participate in the 1993 Stock Option Plan and the
Supplemental Executive Retirement Plan.
The Company, as successor to KSB, maintains a Bank Recognition and Retention
Plan ("BRRP") as a method of providing certain officers and other employees of
the Company with a proprietary interest in the Company. The Company contributed
funds to the recognition plan to enable them to acquire, in aggregate, 56,045
shares of common stock. Participants are vested at a rate of 20% per year
commencing one year from the date of the award.
As a registered bank holding company under the Bank Holding Company Act of
1956 (the "BHC Act"), the Company is subject to the regulations and supervision
of the Federal Reserve Bank (FRB). The BHC Act requires the Company to file
reports with the FRB and provide additional information requested by the FRB.
The Company must receive the approval of the FRB before it may acquire all or
substantially all of the assets of any bank, or ownership or control of the
voting shares of any bank if, after giving effect to such acquisition of shares,
the Company would own or control more than 5 percent of the voting shares of
such bank.
The Company and its subsidiaries, including any it may acquire or organize in
the future, will be deemed to be affiliates of Camden National Bank and
UnitedKingfield Bank under the Federal Reserve Act. That Act establishes
certain restrictions that limit bank transactions with affiliates. The Company
will also be subject to restrictions on the underwriting and the public sale and
distribution of securities. It is prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property, or furnishing of services.
On November 12, 1999. President Clinton signed into law legislation that
allows bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities. Under the Gramm-Leach-Bliley Act ("GLB Act"), a bank holding
company that elects to become a financial holding company may engage in any
activity that the Federal Reserve Board, in consultation with the Secretary of
the Treasury, determines by regulation or order is (1) financial in nature, (2)
incidental to any such financial activity, or (3) complementary to any such
financial activity and does not pose a
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substantial risk to the safety or soundness of depository institutions or the
financial system generally. The GLB Act makes significant changes in U.S.
Banking law, principally by repealing the restrictive provisions of the 1933
Glass-Steagall Act. The GLB Act specifies certain activities that are deemed to
be financial in nature, including lending, exchanging, transferring, investing
for others, or safeguarding money or securities; underwriting and selling
insurance; providing financial, investment, or economic advisory services;
underwriting, dealing in or making a market in, securities; and any activity
currently permitted for bank holding companies by the Federal Reserve Board
under section 4(c)(8) of the Banking Holding Company Act. The GLB Act does not
authorize banks or their affiliates to engage in commercial activities that are
not financial in nature. A bank holding company may elect to be treated a s a
financial holding company only if all depository institution subsidiaries or the
holding company are well capitalized, well managed and have at least a
satisfactory rating under the Community Reinvestment Act.
National banks are also authorized by the GLB Act to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of the
Treasury, in consultation with the Federal Reserve Board, determines is
financial in nature or incidental to any such financial activity, except (1)
insurance underwriting, (2) real estate development or real estate investment
activities (unless otherwise permitted by law), (3) insurance company portfolio
investments and (4) merchant banking. The authority of a national bank to
invest in a financial subsidiary is subject to a number of conditions,
including, among other things, requirements that the bank must be well managed
and well capitalized (after deducting from the bank's capital outstanding
investments in financial subsidiaries). The GLB Act provides that state banks
may invest in financial subsidiaries (assuming they have the requisite
investment authority under applicable state law) subject to the same conditions
that apply to national bank investments in financial subsidiaries.
The GLB Act also contains a number of other provisions that will affect the
Company's operations and the operations of all financial institutions. One of
the new provisions relates to the financial privacy of consumers, authorizing
federal banking regulators to adopt rules that will limit the ability of banks
and other financial entities to disclose non-public information about consumers
to non-affiliated entities. These limitations are expected to require more
disclosure to consumers, and in some circumstances, to require consent by the
consumer before information is allowed to be provided to a third party.
At this time, the Company is unable to predict the impact the GLB Act may have
upon its or its subsidiaries financial condition or results of operations.
Federal Reserve Regulation "Y" (12 C.F.R. Part 225) sets forth those
activities which are regarded as closely related to banking or managing or
controlling banks and, thus, are permissible activities that may be engaged in
by bank holding companies, subject to approval in individual cases by the FRB.
Litigation has challenged the validity of certain activities authorized by the
FRB for the bank holding companies, and the FRB has various regulations and
applications in this regard still under consideration.
Under Maine law, dividends and other distributions by the Company with respect
to its stock are subject to declaration by the Board of Directors at its
discretion out of net assets. Dividends cannot be declared and paid when such
payment would make the Company insolvent or unable to pay its debts as they come
due.
FRB policy prohibits a bank holding company from declaring or paying a cash
dividend which would impose undue pressure on the capital of subsidiary banks or
would be funded only through borrowings or other arrangements that might
adversely affect the holding company's financial position. The policy further
declares that a bank holding company should not continue its existing rate of
cash dividends on its common stock unless its net income is sufficient to fully
fund each dividend and its prospective rate of earnings retention appears
consistent with its capital needs, asset quality and overall financial
condition. Other FRB policies forbid the payment by bank subsidiaries to their
parent companies of management fees that are unreasonable in amount or exceed a
fair market value of the services rendered (or, if no market exists, actual
costs plus a reasonable profit).
In addition, the FRB has authority to prohibit banks that it regulates from
engaging in practices, which in the opinion of the FRB are unsafe or unsound.
Such practices may include the payment of dividends under some
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circumstances. Moreover, the payment of dividends may be inconsistent with
capital adequacy guidelines. The Company may be subject, under State and/or
Federal law, to assessment to restore the capital of the Bank should it become
impaired.
The Company is subject to the minimum capital requirements of the FRB. As a
result of these requirements, the growth in assets of the Company is limited by
the amount of its capital accounts as defined by the FRB. Capital requirements
may have an effect on profitability and the payment of distributions by the
Company. If the Company is unable to increase its assets without violating the
minimum capital requirements, or is forced to reduce assets, its ability to
generate earnings would be reduced.
The FRB has adopted guidelines utilizing a risk-based capital structure.
These guidelines apply to the Company on a consolidated basis.
The risk-based guidelines require the Company to maintain a level of capital
based primarily on the risk of its assets and off-balance sheet items. Assets
and off-balance sheet items are placed in one of four risk categories. Assets
in the first category, such as cash, have no risk and, therefore, carry a zero
percent risk-weight and require no capital support. Capital support is required
for assets in the remaining three risk categories--those categories having a
risk-weight of 20 percent, 50 percent and 100 percent, respectively.
A banking organization's risk-based capital ratio is calculated by dividing
its qualifying total capital base by its risk-weighted assets. Qualifying
capital is divided into two tiers. Core capital (Tier 1) consists of common
shareholders' equity capital, noncumulative perpetual preferred stock and
minority interests in equity capital accounts of consolidated subsidiaries, less
goodwill and other intangible assets. Supplementary capital (Tier 2) consists
of, among other items, allowance for possible loan and lease losses, cumulative
and limited-life preferred stock, mandatory convertible securities and
subordinated debt. Tier 2 capital will qualify as a part of the Bank's total
capital up to a maximum of 100 percent of the Bank's Tier 1 capital. Amounts in
excess of these limits may be issued but are not included in the calculation of
the risk-based capital ratio.
Under current guidelines, banking organizations must maintain a risk-based
capital ratio of 8 percent, of which at least 4 percent must be in the form of
core capital. The Company is and expects to remain in compliance with these
guidelines.
The purposes of the risk-based capital guidelines are twofold--to make capital
requirements more sensitive to differences in risk profiled among banking
organizations, and to aid in making the definition of bank capital uniform
internationally. To achieve these purposes, the guidelines recognize the
riskiness of assets by lowering capital requirements for some assets that
clearly have less risk than others, and they recognize that there are risks
inherent in off-balance sheet activities. The guidelines require that banking
organizations hold capital to support such activities. In addition, the
guidelines establish a definition of capital and minimum risk-based capital
standards which are consistent on an international basis and that place a
greater emphasis on equity capital.
The FRB has also adopted a minimum leverage ratio which is intended to
supplement the risk-based capital requirements and to insure that all financial
institutions continue to maintain a minimum level of capital. As with the risk-
based capital guidelines, the leverage capital guidelines apply to the Company
on a consolidated basis.
The leverage-based capital requirement stipulates that banking organizations
maintain a minimum level of Tier 1 capital to total assets. The most highly
rated banks in terms of safe and sound operation that are not experiencing or
anticipating significant growth are required to have Tier 1 capital equal to at
least 3 percent of total assets. All other banks are expected to maintain a
minimum leverage capital ratio (i.e., Tier 1 capital divided by total assets) in
excess of the 3 percent minimum level. The FDIC regulations require a financial
institution to maintain a minimum ratio of 4 percent to 5 percent, depending on
the condition of the institution.
The Company's leverage ratio is and its management expects it to remain in
excess of regulatory requirements.
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Camden National Bank is a national bank organized under the laws of the United
States. Camden National Bank is a member of the Federal Reserve System and its
deposits are insured by the FDIC. Camden National Bank is subject to
regulation, supervision and regular examination by the Office of the Comptroller
of the Currency (the "OCC"). The ability of Camden National Bank to pay
dividends is subject to the banking laws of the United States and to the powers
of the OCC and the FDIC. Under federal banking law, dividends can only be paid
out of the retained earnings of Camden National Bank's current and two preceding
fiscal years, or with the prior approval of the OCC. Under federal banking
regulation, a bank is prohibited from declaring a dividend or from making any
other capital distribution if the payment or distribution would cause the bank
to fail to meet minimum capital requirements.
UnitedKingfield Bank is a banking organization chartered under the laws of the
State of Maine. UnitedKingfield Bank is subject to regulation, supervision and
regular examination by the Federal Deposit Insurance Corporation (the "FDIC")
and the Maine State Bureau of Banking. Under Maine law, dividends are subject
to declaration by the Board of Directors at its discretion. Dividends cannot be
declared and paid when such payment would make the bank insolvent or unable to
pay its debts as they come due.
The principal sources of funds essential to the business of banks and bank
holding companies are deposits, shareholders' equity, and borrowed funds. The
availability of these various sources of funds and other potential sources, such
as preferred stock or commercial paper, and the extent to which they are
utilized, depends on many factors, the most important of which are the FRB's
monetary policies and the relative costs of different types of funds. An
important function of the FRB is to regulate the national supply of bank credit
in order to combat recession and curb inflationary pressure. Among the
instruments of monetary policy used by the FRB to implement these objectives are
open market operations in United States Government securities, changes in the
discount rate on bank borrowings, and changes in reserve requirement against
bank deposits. The monetary policies of the FRB have had a significant effect
on the operating results of commercial banks in the past and are expected to
continue to do so in the future. In view of the recent changes in regulations
affecting commercial banks and other actions and proposed actions by the federal
government and its monetary and fiscal authorities, including proposed changes
in the structure of banking in the United States, no prediction can be made as
to future changes in interest rates, credit availability, deposit levels, the
overall performance of banks generally or of the Company.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was
enacted by Congress in September of 1994. Under the Act, beginning on September
29, 1995, bank holding companies may acquire banks in any state, notwithstanding
contrary state law, and all banks commonly owned by a bank holding company may
act as agents for one another. An agent bank may receive deposits, renew time
deposits, accept payments, and close and service loans for its principal bank,
but will not be considered a branch of that principal bank.
A bank may also merge with a bank in another state or operate either office as
a branch, notwithstanding pre-existing contrary state law. This interstate
merger provision automatically became effective in all states on June 1, 1997,
unless 1) the law became effective in a given state at any earlier date selected
by legislation in that state; or 2) the law did not become effective at all in a
given state because of legislation enacted before June 1, 1997 allowing that
state to opt out of coverage by the interstate merger provision. Upon
consummation of an interstate merger, the resulting bank may acquire or
establish branches on the same basis that any participant in the merger could
have if the merger had not taken place.
Banks may also merge with branches of banks in other states without merging
with the banks themselves, or may establish de novo branches in other states, if
the laws of the other states expressly permit such mergers or such interstate de
novo branching.
ITEM 2. PROPERTIES
The Company operates in thirty facilities. The headquarters of the Company
and the headquarters and main office of Camden National Bank is located at Two
Elm Street, Camden, Maine, and is owned by Camden National Bank. The building
has 15,500 square feet of space on three levels. Camden National Bank also owns
seven of its branches and the facility in which the operations departments of
the Company are located.
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None of the owned facilities is subject to a mortgage. Camden National Bank also
leases three branches under long-term leases, expiring in May of 2010, January
of 2020 and December of 2077.
The main office of UnitedKingfield Bank is at 145 Exchange Street, Bangor,
Maine, and is owned by UnitedKingfield Bank. The building has 25,600 square
feet of space on two levels. UnitedKingfield Bank occupies 16,975 square feet
of space on both floors. The Trust Company of Maine, Inc., a non-depository
trust company and a subsidiary of the Company, leases 2,100 square feet of
office space on the second floor of the facility and its wholly owned
subsidiary, Fiduciary Services, Inc., leases 2,042 square feet on the first
floor of the facility. Other occupants of the facility include the law firm of
Russell, Lingley & Silver, P.A., which leases 2,533 square feet on the second
floor, and L&H Investors, a property management firm, and Cullen Williams, CPA,
who have a joint lease on 1,920 square feet on the second floor.
UnitedKingfield Bank also owns fourteen of its other facilities, none of which
is subject to a mortgage. UnitedKingfield Bank also leases four branches,
expiring in May of 2000, May of 2001, September of 2002 and February of 2003.
ITEM 3. PENDING LEGAL PROCEEDINGS
The Company is a party to litigation and claims arising in the normal course
of business. On December 9, 1999, Joseph R. Gamache, filed a lawsuit naming
Kingfield Bank and one of its employees as defendants. The plaintiff is seeking
$1,860,000 in damages, as well as punitive damages, which he alleges resulted
from the denial of a loan. The case is currently in the discovery stage. The
Company believes the lawsuit has no merit and plans to vigorously defend it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A special meeting of shareholders was held on November 16, 1999.
(c) Matters voted upon a the meeting. 1) To consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of July 27, 1999.
Total votes cast: 4,695,045, with 4,159,396 for, 379,799 against, and 155,850
abstained. 2) To elect as director nominees - Winfield F. Robinson to serve a
three year term to expire at the annual meeting in 2002 and Theodore C. Johanson
to serve a two year term to expire at the annual meeting in 2001. Total votes
cast: 5,379,876, with 5,109,039 for and 270,837 withheld.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The information required is contained on page 19 of the Company's Annual
Report to Shareholders for the year ended December 31, 1999 and is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected year-end financial information for the past five years is contained
on page 21 of the Company's Annual Report to Shareholders for the year ended
December 31, 1999 and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in the section captioned "Management's Discussion
and Analysis of Financial
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Condition and Results of Operations" on pages 9 through 19 of the Company's
Annual Report to Shareholders for the year ended December 31, 1999 should be
read in conjunction with the following text and tables, and is incorporated
herein by reference.
The following table set forth the Company's investment securities at book
carrying amount as of December 31, 1999, 1998, and 1997.
Dollars in thousands 1999 1998 1997
-------- -------- --------
SECURITIES AVAILABLE FOR SALE:
- -----------------------------------
U.S. Treasury and agency $ 65,046 $ 7,095 $ 4,312
Mortgage-backed securities 13,104 81,820 9,261
State and political subdivisions 7,520 8,143 0
Other debt securities 46,938 2,025 0
Equity securities 31,389 21,769 15,622
-------- -------- --------
163,997 120,852 29,195
-------- -------- --------
SECURITIES HELD TO MATURITY:
- -----------------------------------
U.S. Treasury and agency 5,949 6,093 48,566
Mortgage-backed securities 60,963 89,428 123,544
State and political subdivisions 1,152 1,338 2,955
Other debt securities 129 982 0
-------- -------- --------
68,193 97,841 175,065
-------- -------- --------
$232,190 $218,693 $204,260
======== ======== ========
To enhance the Company's ability to manage liquidity, the investment portfolio
is divided into two parts: investments available for sale and investments held
to maturity. The ability to use securities as collateral for Federal Home Loan
Bank loans enables the Company to hold a portion of the portfolio to maturity.
The following table summarizes the investment portfolios maturities and yields
at December 31, 1999.
AVAILABLE FOR SALE HELD TO MATURITY
- ----------------------------------- --------------------- -------------------
BOOK YIELD TO AMORTIZED YIELD TO
Dollars in thousands VALUE MATURITY COST MATURITY
--------- ---------- -------- ---------
U.S. TREASURY AND AGENCY:
Due in 1 year or less $ 1,298 5.82% $ 0 0.00%
Due in 1 to 5 years 26,229 5.80% 2,318 7.11%
Due in 5 to 10 years 27,759 6.74% 2,248 7.77%
Due after 10 years 9,670 6.80% 1,383 7.05%
-------- ---- ------- ----
65,046 6.35% 5,949 7.45%
-------- ---- ------- ----
MORTGAGE-BACKED SECURITIES:
Due in 1 year or less 0 0.00% 0 0.00%
Due in 1 to 5 years 0 0.00% 3,249 6.95%
Due in 5 to 10 years 4,793 6.23% 6,239 8.03%
Due after 10 years 8,311 6.65% 51,475 7.76%
-------- ---- ------- ----
13,104 6.50% 60,963 7.74%
-------- ---- ------- ----
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STATE AND POLITICAL SUBDIVISIONS:
Due in 1 year or less 0 0.00% 0 0.00%
Due in 1 to 5 years 0 0.00% 1,052 6.58%
Due in 5 to 10 years 5,975 5.74% 100 9.09%
Due after 10 years 1,545 5.96% 0 0.00%
-------- ---- ------- ----
7,520 5.79% 1,152 6.80%
-------- ---- ------- ----
OTHER DEBT SECURITIES:
Due in 1 year or less 0 0.00% 0 0.00%
Due in 1 to 5 years 1,000 7.50% 129 7.72%
Due in 5 to 10 years 0 0.00% 0 0.00%
Due after 10 years 45,938 6.50% 0 0.00%
-------- ---- ------- ----
46,938 6.52% 129 7.72%
-------- ---- ------- ----
OTHER EQUITY SECURITIES:
Due in 1 year or less 0 0.00% 0 0.00%
Due in 1 to 5 years 4,925 6.85% 0 0.00%
Due in 5 to 10 years 2,857 6.63% 0 0.00%
Due after 10 years 23,607 6.74% 0 0.00%
-------- ---- ------- ----
31,389 6.75% 0 0.00%
-------- ---- ------- ----
Total securities $163,997 6.46% $68,193 7.69%
======== ==== ======= ====
Total loans increased by $65.7 million, or 11.5%, in 1999. The following
table provides a summary of the loan portfolio for the past five years.
Management does not foresee any significant changes occurring in the loan mix
during the coming year.
Dollars in thousands
AS OF DECEMBER 31, 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Commercial $316,411 $269,747 $226,981 $185,735 $163,704
Residential real estate 226,548 202,952 193,327 188,109 169,947
Consumer 83,832 78,496 50,433 30,519 31,304
Municipal 8,307 17,199 10,727 6,080 5,214
Other 336 1,311 1,880 893 1,689
-------- -------- -------- -------- --------
$635,434 $569,705 $483,348 $411,336 $371,858
======== ======== ======== ======== ========
Loan demand also affects the Company's liquidity position. However, of the
loans maturing over one year, approximately 52% are variable rate loans. The
following table presents the maturities of loans at December 31, 1999.
Page 10
<PAGE>
Dollars in thousands THROUGH MORE THAN
1 YEAR 5 YEARS 5 YEARS TOTAL
Maturity Distribution:
- ---------------------------
Fixed Rate:
Commercial $ 23,597 $ 46,875 $ 22,769 $ 93,241
Residential real estate 4,089 5,233 134,792 144,114
Consumer 5,666 15,255 16,140 37,061
Variable Rate:
Commercial 32,103 34,570 156,497 223,170
Residential real estate 4 1,063 81,367 82,434
Consumer 6,701 11,764 28,642 47,107
Municipal 3,110 3,166 2,031 8,307
-------- -------- -------- --------
$ 75,270 $117,926 $442,238 $635,434
======== ======== ======== ========
Management considers both the adequacy of the collateral and the other
resources of the borrower in determining the steps to be taken to collect non-
accrual and charged-off loans. Alternatives considered are foreclosure,
collecting on guarantees, restructuring the loan, or collection lawsuits.
The following table sets forth the amount of the Company's non-performing
assets as of the dates indicated:
<TABLE>
<CAPTION>
Dollars in thousands
AS OF DECEMBER 31, 1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NONPERFORMING LOANS:
- -----------------------------------
Non-accrual loans $ 6,136 $ 4,079 $ 3,305 $ 3,569 $ 4,276
Accruing loans past due 90 days
or more 195 613 1,004 599 353
Restructured loans (in compliance
with modified terms) 0 0 0 0 0
------- ------- ------- ------- -------
Total nonperforming loans 6,331 4,692 4,309 4,168 4,629
------- ------- ------- ------- -------
Other real estate owned 1,405 1,052 1,532 1,381 1,127
------- ------- ------- ------- -------
Total nonperforming assets $ 7,736 $ 5,744 $ 5,841 $ 5,549 $ 5,756
======= ======= ======= ======= =======
RATIOS:
- -----------------------------------
Nonperforming loans to
total loans 1.00% 0.82% 0.89% 1.01% 1.24%
Allowance for loan losses
to nonperforming loans 148.32% 172.50% 162.03% 128.72% 106.87%
Nonperforming assets to
total assets 0.83% 0.68% 0.80% 0.86% 0.95%
Allowance for loan losses
to nonperforming assets 121.38% 140.90% 119.53% 96.68% 85.95%
</TABLE>
Page 11
<PAGE>
The maturity dates of certificates of deposit, including broker certificates
of deposit, in denominations of $100,000 or more are set forth in the following
table. These deposits are generally considered to be more rate sensitive than
other deposits and, therefore, more likely to be withdrawn to obtain higher
yields elsewhere if available.
Dollars in thousands
DECEMBER 31, 1999
-------
Time remaining until maturity:
Less than 3 months $17,242
3 months through 6 months 15,416
6 months through 12 months 14,603
Over 12 months 10,826
-------
$58,087
=======
The dividend payout ratio was 40.90%, 33.74%, 29.31%, 24.70%, and 17.58% for
1999, 1998, 1997, 1996 and 1995 respectively. The average equity to average
assets ratio was 8.71%, 10.05%, 10.07%, 10.96%, and 9.91% for 1999, 1998, 1997,
1996 and 1995 respectively.
The borrowings utilized by the Company have primarily been advances from the
FHLB of Boston. In addition, the Company utilizes fed funds, treasury, tax and
loan deposits, and repurchase agreements secured by the United States Government
or Agency securities. The major portion of all borrowings matures or reprices
within the next six months. The following table sets forth certain information
regarding borrowed funds for the years ended December 31, 1999, 1998, and 1997.
Dollars in thousands
AT OR FOR THE YEAR ENDED
DECEMBER 31, 1999 1998 1997
-------- -------- --------
Average balance outstanding $146,627 $ 93,204 $155,688
Maximum amount outstanding at
any month-end during the year 173,924 163,013 192,836
Balance outstanding at end of year 173,924 113,682 160,697
Weighted average interest rate
during the year 4.90% 5.23% 5.59%
Weighted average interest rate
at end of year 5.07% 4.82% 5.57%
Interest rate sensitivity or "Gap" management involves the maintenance of an
appropriate balance between interest sensitive assets and interest sensitive
liabilities. This reduces interest rate risk exposure while also providing
liquidity to satisfy the cash flow requirements of operations and customers'
fluctuating demands for funds, either in terms of loan requests or deposit
withdrawals. Major fluctuations in net interest income and net
Page 12
<PAGE>
earnings could occur due to imbalances between the amounts of interest-earning
assets and interest-bearing liabilities, as well as different repricing
characteristics. Gap management seeks to protect earnings by maintaining an
appropriate balance between interest-earning assets and interest-bearing
liabilities in order to minimize fluctuations in the net interest margin and net
earnings in periods of volatile interest rates.
The following table sets forth the amount of interest-earning assets and
interest-bearing liabilities outstanding, at December 31, 1999 which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown.
<TABLE>
<CAPTION>
Dollars in thousands THROUGH MORE THAN
1 YEAR 5 YEARS 5 YEARS TOTAL
----------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Interest-earning assets:
Fixed rate loans $ 36,462 $ 70,529 $175,732 $282,723
Variable rate loans 352,711 0 0 352,711
Investment securities
Available for sale 1,298 32,154 130,545 163,997
Held to maturity 0 6,748 61,445 68,193
--------- -------- -------- --------
Total interest-earning assets 390,471 109,431 367,722 867,624
--------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Savings accounts 20,000 0 92,335 112,335
NOW accounts 0 0 89,740 89,740
Money market accounts 71,237 0 0 71,237
Certificate accounts 248,605 64,944 474 314,023
Borrowings 166,924 2,000 5,000 173,924
--------- -------- -------- --------
Total interest-bearing liabilities 506,766 66,944 187,549 761,259
--------- -------- -------- --------
Interest sensitivity gap per period $(116,295) $ 42,487 $180,173
========= ======== ========
Cumulative interest sensitivity gap $(116,295) $(73,808) $106,365
========= ======== ========
Cumulative interest sensitivity gap
as a percentage of total assets (13%) 5% 19%
Cumulative interest-earning assets as a
percentage of interest-sensitive liabilities 77% 87% 114%
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The information required is included in the Company's 1999 Annual Report to
Shareholders on pages 18-19 and is incorporated herein by reference.
Page 13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and report of independent accountant,
included in the Company's 1999 Annual Report to Shareholders, are incorporated
herein by reference. Page references are to pages of the Company's 1999 Annual
Report to Shareholders.
PAGE
-----
Consolidated Statements of Financial Condition
December 31, 1999 and 1998 22
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997 23
Consolidated Statements of Changes in the Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997 24
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 25
Notes to Consolidated Financial Statements 26-46
Report of Independent Public Accountant 47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the past two years the Company has not made changes in and has not had
disagreements with its independent accountant.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company responds to this item by incorporating herein by reference the
material responsive to such item in the Company's definitive Proxy Statement for
the 2000 Annual Meeting of Shareholders to be filed with the Commission prior to
April 29, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The Company responds to this item by incorporating herein by reference to the
material responsive to such item in the Company's definitive Proxy Statement for
the 2000 Annual Meeting of Shareholders to be filed with the Commission prior to
April 29, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company responds to this item by incorporating herein by reference to the
material responsive to such item in the Company's definitive Proxy Statement for
the 2000 Annual Meeting of Shareholders to be filed with the Commission prior to
April 29, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company responds to this item by incorporating herein by reference to the
material responsive to such item in the Company's definitive Proxy Statement for
the 2000 Annual Meeting of Shareholders to be filed with the Commission prior to
April 29, 2000
Page 14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements:
A list of the consolidated financial statements of the Company and report of
independent public accountant incorporated herein is included in Item 8 of this
Report.
2. Financial Statement Schedules:
Schedules have been omitted because they are not applicable or are not
required under the instructions contained in Regulation S-X or because the
information required to be set forth therein is included in the consolidated
financial statements or notes thereto.
3. Exhibits filed herewith:
(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, dated as of July 27, 1999
(incorporated herein by reference to Exhibit 2.1 to Form 8-K of Camden
filed August 9, 1999).
(3.i) The Articles of Incorporation of Camden National Corporation, as
amended to date, Exhibit 3.i to the Company's Registration statement Form
S-4 filed with the Commission on September 25, 1995, file number 33-
97340, 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, between Knox Hotel Associates(Lessor) and Camden
National Bank (Lessee) filed with Form 10-K, December 31, 1995, is
incorporated herein by reference.
(10.2) Lease Agreement for the facility occupied by the Camden Square Branch of
Camden National Bank, between Milliken, Tomlinson Company (Lessor) and
Camden National Bank (Lessee) filed with Form 10-K, December 31, 1995, is
incorporated herein by reference.
Page 15
<PAGE>
(10.3) Lease Agreement for the facility occupied by the Hampden Branch of
UnitedKingfield Bank, Parway Realty Development Corporation (Lessor) and
UnitedKingfield Bank (Lessee) filed with Form 10-K, December 31, 1995,
is incorporated herein by reference.
(10.4) Camden National Corporation 1993 Stock Option Plan, filed with Form 10-
K, December 31, 1995, is incorporated herein by reference.
(10.5) UNITEDCORP Stock Option Plan, filed with Form 10-K, December 31, 1995,
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), filed with Form 10-K, December 31, 1998,
is incorporated herein by reference.
(10.7) Lease Agreement for the facility occupied by the Milo Branch of
UnitedKingfield Bank, between Cabrel Company (Lessor) and
UnitedKingfield Bank (Lessee), filed with Form 10-K, December 31, 1998,
is incorporated herein by reference.
(10.8) Lease Agreement for the facility occupied by the Dover-Foxcroft Branch
of UnitedKingfield Bank, between Bangor Savings Bank (Lessor) and
UnitedKingfield Bank (Lessee), filed with Form 10-K, December 31, 1998,
is incorporated herein by reference
(10.9) Employment Agreement with Chief Executive Officer, filed with form 10-
Q/A, June 30, 1999, is incorporated herein by reference.
(10.10) KSB Bancorp, Inc. 1993 Incentive Stock Option Plan, filed with Form S-
8, January 21, 2000, is incorporated herein by reference.
(10.11) Amendment No. 1 to KSB Bancorp, Inc. 1993 Stock Option Plan, filed with
Form S-8, January 21, 2000, is incorporated herein by reference.
(10.12) KSB Bancorp, Inc. 1998 Long-Term Incentive Stock Benefit Plan
(Incorporated by reference to Appendix A of the Proxy Statement of KSB
Bancorp, Inc. relating to its May 13, 1998 annual meeting of
stockholders).
(10.13) Camden National Corporation's Supplemental Executive Retirement Plan
Summary.
(13) Camden National Corporation's 1999 Annual Report to Shareholders.*
(21) Subsidiaries of the Company
(23.1) Consent of Berry, Dunn, McNeil & Parker, LLC relating to the financial
statements of Camden.
(27) Financial Data Schedule
Deemed filed only with respect to those portions thereof incorporated herein by
reference
(b) Reports on Form 8-K. None filed.
Page 16
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAMDEN NATIONAL CORPORATION (REGISTRANT)
/s/ Robert W. Daigle 3/28/00
- ------------------------------ ----------------------------
Robert W. Daigle Date
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the persons on behalf of the Registrant and in
the capacities and on the dates indicated.
/s/ Robert W. Daigle 3/28/00 /s/ Susan M. Westfall 3/28/00
- -------------------------------- ------------------------------
Robert W. Daigle Date Susan M. Westfall Date
President, Director Treasurer and
and Chief Executive Officer Chief Financial Officer
/s/ Rendle A. Jones 3/28/00 /s/ John S. McCormick, Jr. 3/28/00
- -------------------------------- ------------------------------------
Rendle A. Jones Date John S. McCormick, Jr Date
Chairman and Director Director
/s/ Robert J. Gagnon 3/28/00 /s/ Richard N. Simoneau 3/28/00
- -------------------------------- ------------------------------------
Robert J. Gagnon Date Richard N. Simoneau Date
Director Director
/s/ Ann W. Bresnahan 3/28/00 /s/ Arthur E. Strout 3/28/00
- -------------------------------- ------------------------------------
Ann W. Bresnahan Date Arthur E. Strout Date
Director Director
/s/ John W. Holmes 3/28/00 /s/ Theodore C. Johanson 3/28/00
- -------------------------------- ------------------------------------
John W. Holmes Date Theodore C. Johanson Date
Director Director
/s/ Winfield F. Robinson 3/28/00 /s/ Ward I. Graffam 3/28/00
- -------------------------------- ------------------------------------
Winfield F. Robinson Date Ward I. Graffam Date
Director Director
/s/ Robert J. Campbell 3/28/00
- --------------------------------
Robert J. Campbell Date
Director
Page 17
<PAGE>
EXHIBIT# 10.13 CAMDEN NATIONAL CORPORATION'S SUPPLEMENTAL RETIREMENT PLAN
- -------------------------------------------------------------------------
SUMMARY
- -------
CAMDEN NATIONAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP)
The Supplemental Executive Retirement Plan is a salary continuation plan that
enables Camden National Corporation to provide additional retirement benefits to
key executives with only a minimal impact on the bank's earnings. These
supplemental retirement benefits can be used as a way to reward and retain the
key executives who are responsible for the company's success, as well as to
attract the high caliber executives the company will need in the future as it
grows.
The salary continuation plan is designed to provide an annual retirement benefit
that will grow on a tax deferred basis and, when added to the retirement
benefits that will be provided by the Company's Defined Benefit Plan and Social
Security, will provide these key executives with benefit levels comparable to
other employees when measured as a percentage of salary at the time of
retirement.
This plan provides key executive with annual retirement benefits for the
remainder of their life after retirement at age 65. The executives are vested
in the benefit pursuant to the vesting schedule in the benefit agreement. The
Company's obligations under the plan are unfunded; however, the Company has
purchased life insurance policies on the insurable executives to offset the
annual expenses associated with the plan and will, given reasonable actuarial
assumptions, offset all of the plan's costs during the life of the executive and
provide a complete recovery of all plan costs at the executive's death.
This Supplemental Executive Retirement Plan is a non-qualified employee benefit
plan. It is non-qualified because it does not qualify for an income tax
deduction until the benefit payments are actually paid to the employee at
retirement. Because of this, it does not have to comply with the regulations
concerning plan design, reporting, funding, vesting and participation that are
required with tax-qualified plans.
<PAGE>
EXHIBIT 13
[CNC LOGO]
[PHOTOS]
CAMDEN
NATIONAL
CORPORATION
1 9 9 9
A N N U A L R E P O R T
<PAGE>
- --------------------------------------------------------------------------------
A Legacy of Success
Community-based businesses are an integral part of our society. They provide us
with all the necessities for living, and allow us to fulfill our desires to
enjoy a more comfortable lifestyle.
Camden National Corporation salutes the many individuals and businesses that
have given us the opportunity to work side-by-side with them from generation to
generation, and we are pleased to share four of their success stories in our
1999 Annual Report.
We are proud to be part of their legacy of success, and we look forward to
playing an important role in their future and the futures of our shareholders,
employees, customers and communities.
Table of Contents
2 President's Letter
4 Community Business Profiles
8 Dedication
9-19 Management's Discussion and Analysis of Financial Condition
and Results of Operations
20 Summary of Financial Performance-graphs
21 Selected Five-Year Financial Data
22 Consolidated Statements of Condition
23 Consolidated Statements of Income
24 Consolidated Statements of Changes in Shareholders' Equity
25 Consolidated Statements of Cash Flows
26-46 Notes to Consolidated Financial Statements for December 31,
1999, 1998, and 1997
47 Auditor's Letter
48 Boards of Directors and Bank Administrators
50 Announcement of Annual Meeting
[PHOTOS]
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1 9 9 9 C N C A N N U A L R E P O R T
1
<PAGE>
- --------------------------------------------------------------------------------
[PHOTO]
Dear Shareholders:
While developing my thoughts for this letter, it occurred to me that 1999 saw a
multitude of events unfold at Camden National Corporation that would belie the
phrase, "business as usual." New leadership, new corporate vision, new business
partners and new products and services...perhaps the more apt description would
be, "a year of transition."
Indeed, it was a year laden with changes, many of which were exciting and filled
with great expectation while others were tinged with uncertainty. None evoked
more anxiety than the much-ballyhooed arrival of the year 2000. The mere mention
of Y2K conjured up all sorts of disaster scenarios that ultimately proved
unwarranted. Meanwhile, our introduction of a fully-interactive internet banking
capability caused a few eyebrows to be raised over privacy and security. Yet,
1,600 customers and nearly 80,000 hits per month later, all is well and
convenience banking has once again been re-defined.
Perhaps the most immediately evident transition, especially for long-time
shareholders, resides in the authorship of this letter. As announced in his
final annual report to you last year, Keith Patten ceremoniously stepped down as
your president and chief executive officer in May to pursue a life-long dream of
fishing every great river in the world. If his wife, Priscilla, has anything to
say about it, there will be other fulfilling activities occupying both of them
in their retirement years. We are greatly indebted to Keith for his vision and
the steady, guiding hand he provided during his twenty-two year career with our
company (please see dedication on page eight). His legacy will serve us well as
we venture forth to face the challenges awaiting us in the new millennium.
Along with Keith's announcement came the beginning of a comprehensive strategic
planning process designed to plot a course for our company's future success and
the new generation of community banking that will ensure this desired outcome.
The result of a grueling three-day exercise, which included directors and senior
managers, was the formulation of a strategic vision that calls for maintaining
our independence while facilitating growth designed to enhance long-term
shareholder value. Underlying this vision is a master strategy that focuses on a
combination of internal and external growth initiatives.
Internal growth presupposes the leveraging of existing assets and resources
within our company to gain a larger share of our current customer-base's
financial complex. In addition, this growth depends upon more effectively
cultivating prospective
================================================================================
1 9 9 9 C N C A N N U A L R E P O R T
2
<PAGE>
- --------------------------------------------------------------------------------
relationships within our defined markets through the development of innovative
products and services and a more highly-focused calling effort. Early evidence
of our strategic success manifested itself through "above peer" growth in
average loans outstanding and deposit balances of 16.1% and 13.8%, respectively,
compared to 1998.
External growth, including geographic expansion and line-of-business
diversification, represents some of the greatest opportunities for our company.
On July 27, 1999, we chose to pursue a conventional expansion pathway when we
entered into a definitive agreement to acquire KSB Bancorp, Inc. ("KSB"), the
parent company for Kingfield Bank in Kingfield, Maine. The union of Kingfield
Bank with our existing affiliate, United Bank in Bangor, during the first
quarter of 2000, created a new community bank - UnitedKingfield - Bank with
approximately $325 million in assets serving 25,000 customers in nine counties
through 18 branch locations. We believe the similarity in customer demographics,
contiguous geography and strength of our new management team, led by President
and CEO John Witherspoon, provides us with an excellent opportunity to
capitalize on certain inherent economies of scale. Furthermore, we see
significant market penetration potential within the UnitedKingfield Bank
franchise, particularly in and around the larger Bangor and Lewiston population
centers.
Reference to our acquisition of KSB provides an appropriate segue to our
discussion of this past year's financial performance. Following three
consecutive years of record-breaking results, 1999 net income per fully diluted
share declined 7.97% to $1.27 from $1.38 in 1998. This was largely a function of
$1,790,000 in net-after-tax expenses related to the acquisition of KSB, coupled
with write-downs in other real estate owned (OREO) of $506,000 and additions to
the provision for loan losses of $1,445,000 at United Bank. The performance of
the company's flagship bank, Camden National Bank, evidenced continued solid
growth in 1999 with average loans outstanding and average deposit balances
increasing 17% and 11%, respectively, compared to 1998. Camden National Bank's
return on average assets in 1999 was 1.67% compared to 1.68% in the previous
year, while return on average equity rose to 19.70% compared to 15.36% in 1998.
As you will note in the succeeding pages of this annual report, we have elected
to continue with the theme of Providing Financial Solutions for Generations,
focusing this year on the business sector the lifeblood of our communities, and
our company. We believe this theme speaks appropriately to the heritage of
Camden National Corporation, which is proudly celebrating its 125th year of
service to the citizens, businesses and communities encompassed within its
expanding geography. The companies we have chosen to profile are both first and
multi-generation, and represent the vast cross-section of businesses who are
served by the management and staff of Camden National Corporation today.
In closing, I would like to offer a special thanks to our staff for their
dedication, to our directors for their guidance and to you, our shareholders,
for your support. The vagaries of the economic markets have not been kind to our
industry-sector over the last year. Nevertheless, we will continue to work hard
to improve the fundamentals of your company relative to those of other members
of the financial services sector by pursuing our vision of balancing profit with
growth and quality with productivity.
Sincerely,
/s/ Robert W. Daigle
Robert W. Daigle
President & CEO
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1 9 9 9 C N C A N N U A L R E P O R T
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<PAGE>
A Legacy of Success
- --------------------------------------------------------------------------------
The O'Hara Corporation
[PHOTO]
The fishing industry has seen quite a few changes since Francis J.
O'Hara, founder of what eventually became the O'Hara Corporation,
entered the business at the turn of the century. Back then, most
commercial fishermen worked in sailing drifters and steam trawlers.
Francis came over to America from a fishing village in Ireland. In
1900, he moved to the Boston area and began building his business on
the bounty of the Atlantic Ocean. In the early fifties, he was
succeeded by his son, Frank O'Hara, Sr., who brought the family
business to Portland and then Rockland, Maine. Frank, Sr. began
acquiring waterfront property in Rockland and expanded the operation
to include ice making for his boats. Frank, Sr. also established a
relationship with Jack Williams, Senior Vice President of Community
Banking at Camden National Bank, who provided support to Frank when he
needed it most.
"The people of Camden National Bank have
always been there for my family."
[PHOTO]
Today, Frank O'Hara, Jr. works closely with his father on the O'Hara
Corporation - now a diverse enterprise involved in a variety of
ventures. There are three factory trawlers fishing the seas off
Alaska, the Journey's End Marina in Rockland where the family fishing
operation used to be, and an ice manufacturing company supplying ice
to boats and people throughout New England. Camden National Bank is
proud to have been and continue to be the bank of choice for the
O'Hara's for Frank, his father, and for the next generation, too.
"The people of Camden National Bank have always been there
for my family. From generation to generation, they've always
been able to meet all our financial needs."
- Frank O'Hara, Jr., Rockland
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1 9 9 9 C N C A N N U A L R E P O R T
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<PAGE>
A Legacy of Success
- --------------------------------------------------------------------------------
Jordan Lumber
[PHOTO]
There are over 17 million acres of forestland in the great state of
Maine. In the late 1950's, Everett Jordan brought his family to
Kingfield and purchased a small sawmill. With lumber and labor
plentiful, Jordan Lumber quickly became a major economic force in the
region. The building materials for many of the homes and businesses
that were built in the area at that time took shape at Jordan Lumber.
"It's more than a banking relationship. It's family."
The business flourished and soon Jordan Lumber Company became a major
force in the local economy.
A few years later, Everett's son, Richard, joined the business,
followed soon by brothers Les and Jonathan. Upon Everett's retirement,
the three sons purchased the business. Jordan Lumber Co., Inc. has
continued to grow and prosper and the people of Kingfield Bank (now
UnitedKingfield Bank) are proud to have played a key part in their
success.
"Jordan Lumber is proud of the 'family' relationship we
enjoy with UnitedKingfield Bank and also with our 'family'
of employees."
- Richard Jordan, Kingfield
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1 9 9 9 C N C A N N U A L R E P O R T
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<PAGE>
A Legacy of Success
- --------------------------------------------------------------------------------
Gold Star Cleaners
[PHOTO]
Before Maine ever carried the moniker "Vacationland" on its license
plates, Bangor was home to thousands of mill workers, laborers and
lumbermen who harvested our abundant natural resources. Considering
the state of their clothes after a long day's work, it was a natural
place to start a dry cleaning business.
"I know that we are both in business for the long haul."
Founded in 1905 by Edward Pooler, Gold Star Cleaners began its dry
cleaning operation in Brewer. It was hard work for Edward and he soon
enlisted the help of his son Hank. Upon Hank's untimely death, his
sons Jim and Eddie took over.
[PHOTO]
As washing machines and dryers became more prevalent in private homes,
the brothers began looking for new ways to build their business.
Eventually, they left that job to the next generation - Eric.
Today, Eric Pooler runs the family business, which now has six
locations throughout central Maine, including five coin laundry
locations. Gold Star Cleaners' original location on Wilson Street in
Brewer, "the cleaners next to the railroad tracks," continues to
feature dry cleaning. As a Charter Member of the Generations Gold
Business Partner program at United Bank (now UnitedKingfield Bank),
the Bank helps drive business to Gold Star Cleaners while giving
Eric's customers a valuable discount. From washing cycles to business
cycles, UnitedKingfield Bank has the answers.
"My relationship with UnitedKingfield Bank is mutually
beneficial. I know that we are both in business for the long
haul."
- Eric Pooler, Bangor
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1 9 9 9 C N C A N N U A L R E P O R T
6
<PAGE>
A Legacy of Success
- --------------------------------------------------------------------------------
R.P. Imports
[PHOTO]
Transforming a hobby into a full-time business has been a labor of
love for Ed and Judi Mansing. While traveling around the world on
business, Ed and Judi often sampled local wines and brought them back
home to Maine for friends and family to enjoy. As their passion grew
stronger, they began to look for ways to enter the wine importing
business professionally.
"Banking with UnitedKingfield Bank couldn't be easier."
[PHOTO]
Eventually, they took the plunge and founded R.P. Imports. When it
came time to name the business they chose the initials of Ed's
grandfather, Renzo Paracchi, a true connoisseur of the vine. From
humble beginnings, R.P. Imports grew to become a major importer and
distributor of quality wines, supplying northern New England with
wines from California, France, Italy, Spain, Germany, Australia and
Argentina.
Today, R.P. Imports operates out of a waterfront office in Portland.
Through the convenience of on-line banking from UnitedKingfield Bank,
they have been able to continue enjoying the kind of personal service
and cutting-edge technology that originally brought them to Kingfield
Bank. Now that calls for a toast.
"Banking with UnitedKingfield Bank couldn't be easier. When
we're in the area we stop in, but it's just as easy to pick
up the phone or access our accounts on the web and we can do
that at any time!"
- Ed Mansing, Portland
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<PAGE>
Dedication
- --------------------------------------------------------------------------------
[PHOTO]
In appreciation for his outstanding contribution to Camden National Corporation,
we acknowledge the retirement of and dedicate this annual report to:
Keith C. Patten
Mr. Patten served as President, Chief Executive Officer and Director of
Camden National Bank from 1978 through 1996 and was elected Chairman of the
Board of Camden National Bank in 1996. He also served as President, Chief
Executive Officer and Director of the Company from 1984 through his retirement
in 1999. Mr. Patten also served as a Director of United Bank from 1996-1999.
From the directors and employees of the Company,
thank you Keith, and best wishes!
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis reviews the consolidated financial
condition of the Company at December 31, 1999 and 1998, the consolidated results
of operations for the past three years and, where appropriate, factors that may
affect future financial performance. This discussion should be read in
conjunction with the Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Selected Consolidated Financial Data.
Forward Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information contained in this
discussion, or in any other written or oral statements made by the Company, is
or may be considered to be forward-looking. Forward-looking statements relate to
future operations, strategies, financial results or other developments, and
typically 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 its actual results 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
non-interest income earned, as well as other factors. The Company disclaims any
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future developments, or otherwise.
GENERAL
Overview of Company.
Camden National Corporation ("the Company") is a multi-bank holding company
headquartered in Camden, Maine, offering a broad range of financial services in
its geographical marketplace. The Company has two wholly owned bank
subsidiaries. Camden National Bank is a national banking organization, based in
Camden, Maine. UnitedKingfield Bank, a state chartered bank based in Bangor,
Maine, is the successor by merger, effective February 4, 2000, of United Bank
and Kingfield Savings Bank. The Company also has a 51% interest in Trust Company
of Maine, Inc., a non-bank subsidiary, based in Bangor, Maine.
Business.
The Company's wholly-owned bank subsidiaries are independent banks with
branches serving mid-coast, central and western Maine. The banks are
full-service financial institutions that focus primarily on attracting deposits
from the general public through their branches and using such deposits to
originate residential mortgage loans, business loans, commercial real estate
loans and a variety of consumer loans in their respective service areas. In
addition, the Company also invests in mortgage-backed securities and securities
issued by the United States government and agencies thereof. The Company's
majority-owned trust subsidiary, Trust Company of Maine, Inc., offers a broad
range of trust and trust investment services, in addition to retirement and
pension plan management services.
The Company's goal is to balance profit with growth and quality with
productivity. Therefore, emphasis is placed on increasing loan and deposit
market shares in the communities its bank subsidiaries serve by offering a wide
range of quality financial products and services coupled with local
decision-making. In addition, the Company closely manages yields on
interest-earning assets and rates on interest-bearing liabilities and strives to
increase non-interest income while controlling the growth of non-interest
expense. It is also part of the business strategy of the Company to supplement
internal growth with acquisitions of other banks, branches of other banks and
non-bank financial service companies when such purchases are perceived to offer
enhanced long-term shareholder value.
Acquisition.
On December 20, 1999, the Company completed the acquisition of KSB Bancorp
("KSB"), a bank holding company with one principal subsidiary, Kingfield Bank.
Approximately 1,481,800 shares of common stock were issued in connection with
this transaction. KSB was subsequently merged into the Company. At December 31,
1999, Kingfield Bank had total assets of $191.1 million and total shareholders'
equity of $14.0 million. The acquisition of KSB was accounted for under the
pooling-of-interests method and, accordingly, financial information for all
periods presented prior to the date of acquisition, including the financial
information discussed below, has been restated to
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
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present the combined financial condition and results of operations as if the
acquisition had been in effect for all such periods.
REVIEW OF FINANCIAL STATEMENTS
The discussion and analysis which follows focuses on the factors affecting
the Company's financial results of operations during 1999, 1998 and 1997 and
financial condition at December 31, 1999 and 1998. The Consolidated Financial
Statements and Related Notes beginning on page 22 of this report should be read
in conjunction with this review.
RESULTS OF OPERATIONS
Overview.
The Company reported net income of $10.2 million in 1999, $11.5 million in
1998 and $10.7 million in 1997. Basic earnings per diluted share were $1.27 in
1999, $1.38 in 1998 and $1.27 in 1997. Return on average assets was 1.15% in
1999 compared to 1.52% in both 1998 and 1997. Return on average equity was
13.16% in 1999 compared to 15.09% and 15.11% in 1998 and 1997, respectively.
Excluding acquisition-related expenses, the Company earned $1.49 per diluted
share in 1999 compared to $1.38 per diluted share during 1998. Return on average
equity, excluding acquisition-related expenses, was 15.47% in 1999 compared to
15.09% and 15.11% in 1998 and 1997, respectively. Strong loan growth during 1999
contributed to substantial increases in net interest income, which on a fully
taxable equivalent basis totaled $40.6 million in 1999 compared to $35.7 million
and $31.4 million in 1998 and 1997, respectively. The Company's results of
operations are also affected by the provision for loan losses, resulting from
the Company's assessment of the adequacy of the allowance for loan losses, and
other non-interest income and expenses. Each of these principal components of
the Company's operating results is discussed on the following pages.
Net Interest Income.
Net interest income, when expressed as a percentage of average assets, is
referred to as net interest margin. The following tables on pages 11 and 12,
which present changes in interest income and interest expense by major asset and
liability category for 1999, 1998 and 1997, illustrate the impact of average
volume growth and rate changes. The income from tax-exempt assets has been
adjusted to a tax equivalent basis, thereby allowing a uniform comparison to be
made between asset yields.
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<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
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ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1999 December 31, 1998 December 31, 1997
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest-earning assets:
Securities--taxable $216,666 $ 15,084 6.96% $175,357 $ 12,129 6.92% $213,612 $ 14,379 6.73%
Securities--nontaxable (1) 9,152 606 6.62% 3,126 209 6.69% 4,566 311 6.81%
Federal funds sold 1,784 69 3.87% 4,373 195 4.46% 1,039 57 5.49%
Loans (1) (2) 605,271 55,251 9.13% 521,559 49,811 9.55% 445,599 43,219 9.70%
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total interest-earning
assets 832,873 71,010 8.53% 704,415 62,344 8.85% 664,816 57,966 8.72%
-------- -------- ---- -------- -------- ---- -------- -------- ----
Cash and due from banks 24,122 19,720 16,070
Other assets 43,750 38,389 28,416
Less allowance for
loan losses 8,895 7,581 5,997
-------- -------- --------
Total assets $891,850 $754,943 $703,305
-------- -------- --------
Liabilities and Shareholders' Equity
- ------------------------------------
Interest-bearing liabilities:
NOW accounts $ 85,861 $ 1,129 1.31% $ 61,340 $ 1,003 1.64% $ 54,830 $ 780 1.42%
Savings accounts 109,078 3,050 2.80% 94,014 2,873 3.06% 85,836 2,757 3.21%
Money market accounts 64,562 2,347 3.64% 60,452 1,908 3.16% 29,838 989 3.31%
Certificates of deposit 312,019 16,317 5.23% 286,234 15,810 5.52% 241,530 13,313 5.51%
Brokered certificates
of deposit 6,010 344 5.72% 3,847 221 5.74% 356 23 6.46%
Short-term borrowings 146,627 7,182 4.90% 93,204 4,873 5.23% 155,688 8,69 5.59%
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total interest-bearing
liabilities 724,157 30,369 4.19% 599,091 26,688 4.45% 568,078 26,560 4.68%
-------- -------- ---- -------- -------- ---- -------- -------- ----
Demand deposits 79,764 71,862 57,582
Other liabilities 10,229 8,090 6,844
Shareholders' equity 77,700 75,900 70,801
-------- -------- --------
Total liabilities and
shareholders' equity $891,850 $754,943 $703,305
======== ======== ========
Net interest income 40,641 35,656 31,406
(fully-taxable equivalent)
Less: fully-taxable
equivalent adjustment (592) (342) (332)
-------- -------- --------
$ 40,049 $ 35,314 $ 31,074
======== ======== ========
Net interest rate spread
(fully-taxable equivalent) 4.34% 4.40% 4.04%
==== ==== ====
Net interest margin
(fully-taxable equivalent) 4.88% 5.06% 4.72%
==== ==== ====
</TABLE>
(1) Reported on tax-equivalent basis calculated using a rate of 34%.
(2) Non-accrual loans are included in total average loans.
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1999 vs 1998 Year Ended December 31, 1998 vs 1997
(Dollars in thousands) Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Securities--taxable $ 2,858 $ 97 $ 2,955 $ (2,575) $ 325 $ (2,250)
Securities--nontaxable 403 (6) 397 (98) (4) (102)
Federal funds sold (115) (11) (126) 183 (45) 138
Loans 7,996 (2,556) 5,440 7,369 (777) 6,592
-------- -------- -------- -------- -------- --------
Total interest income 11,142 (2,476) 8,666 4,879 (501) 4,378
-------- -------- -------- -------- -------- --------
Interest-bearing Liabilities:
NOW accounts 402 (276) 126 92 131 223
Savings accounts 460 (283) 177 263 (147) 116
Money market accounts 130 309 439 1,013 (94) 919
Certificates of deposit 1,423 (916) 507 2,463 34 2,497
Broker certificates 124 (1) 123 226 (28) 198
Short-term borrowings 2,794 (485) 2,309 (3,492) (333) (3,825)
-------- -------- -------- -------- -------- --------
Total interest expense 5,333 (1,652) 3,681 565 (437) 128
-------- -------- -------- -------- -------- --------
Net interest income
(fully taxable equivalent) $ 5,809 $ (824) $ 4,985 $ 4,314 $ (64) $ 4,250
======== ======== ======== ======== ======== ========
</TABLE>
The Company's net interest income, on a fully taxable equivalent basis, was
$40.6 million, $35.7 million and $31.4 million in 1999, 1998 and 1997,
respectively. Changes in net interest income are the result of interest rate
movements, changes in the amounts and mix of interest-earning assets and
interest-bearing liabilities, and changes in the level of non-interest-earning
assets and non-interest-bearing liabilities.
Net interest income increased by $5.0 million or 14.0%, on a fully taxable
equivalent basis, in 1999 compared to 1998. This increase was due to the
increase in loan and investment volumes, partially offset by a decrease in
yields on average loans outstanding. During 1998, net interest income increased
by $4.3 million or 13.5%, on a fully taxable equivalent basis, compared to 1997.
This increase was due to the increase in average loan volumes partially offset
by a slight decrease in loan yields. Net interest income, expressed as a
percentage of average interest-earning assets, was 4.88% in 1999, 5.06% in 1998
and 4.72% in 1997.
The average amount of loans outstanding increased by $83.7 million or 16.1%
in 1999 over 1998 and by $76.0 million or 17.0% in 1998 over 1997. Interest
income on loans increased by $5.4 million in 1999 compared to 1998 and by $6.6
million in 1998 compared to 1997. The weighted average yield on loans was 9.1%
in 1999, compared to 9.6% in 1998 and 9.7% in 1997.
The average balances of non-accrual loans can also affect the average yield
earned on all outstanding loans. However, the average balances of non-accrual
loans for 1999, 1998 and 1997 were minimal and, therefore, had an insignificant
effect on average loan yield.
Interest and Dividends.
Interest and dividends on investment securities increased by $3.2 million,
on a fully taxable equivalent basis, in 1999 compared to 1998. The primary
reason was increased volume and yields. In 1998, interest and dividends on
investment securities decreased by $2.2 million, on a fully taxable equivalent
basis, compared to 1997. This was the result of relatively lower yields being
available for reinvesting the proceeds of maturing investments. The average
balance of investments outstanding totaled $225.8 million in 1999, compared to
$178.5 million in 1998 and $218.2 million in 1997. The weighted-average
tax-adjusted yield on investment securities was 6.92% in 1999, compared to 6.86%
in 1998 and 6.73% in 1997.
Average deposits increased by $71.6 million or 14.2% in 1999 over 1998 and
by $93.5 million or 22.7% in 1998 over 1997. Interest expense on deposits and
borrowings increased by $3.7 million in 1999 compared to 1998. This increase was
the result of increased balances in all categories. Interest expense on deposits
and borrowings increased by $128,000 in 1998 compared to 1997. This minimal
increase was primarily attributable to the addition of $103.5 million in
deposits in connection with branch acquisitions, which resulted in a reduction
of the Company's cost of funds. The weighted-average rate on interest-bearing
liabilities was 4.19% in 1999, compared to 4.45% in 1998 and 4.68% in 1997.
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
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Additionally, the Company periodically uses interest rate swaps, floors and
caps, which are common derivative financial instruments, to hedge interest rate
risk associated with anticipated purchases and sales of investments and loans,
as well as deposit practices (see Note 18 "Financial Instruments" of Notes to
Consolidated Financial Statements on page 40 for further information on
derivative financial instruments).
The off-balance sheet instruments have an effect on net interest income.
The net result of the Company's interest rate swap agreements was an offset to
gains in net interest income of $37,000 in 1999, 46,000 in 1998 and $34,000 in
1997. Entering into interest rate swap agreements involves not only the risk of
dealing with counterparties and their ability to meet the terms of the
contracts, but also interest rate risk associated with unmatched positions.
Notional principal amounts are used to express the volume of these transactions,
but the amounts potentially subject to credit risk are much smaller. During
1999, 1998 and 1997, the Company was a party to several agreements requiring it
to make variable market-indexed interest payments in exchange for receiving
fixed-rate interest payments (interest rate swaps). The Company utilized
interest rate swaps to protect a portion of its net interest income stream
against the effects of falling rates on prime-based floating rate loans.
Non-interest Income.
Non-interest income was $6.6 million, $5.8 million and $4.9 million for the
years ended December 31, 1999, 1998 and 1997, respectively. There was an
increase of $801,000 or 13.8% in total non-interest income during 1999 compared
to 1998. Service charges on deposit accounts increased by $77,000 or 4.7% over
1998. Other service charges and fees increased by $315,000 or 26.9% over the
same period. The largest contributing factor to this increase was the full year
of service charges and fee income generated by the nine branches added in March
and October of 1998. Other income increased by $91,000 or 8.5%.
Total non-interest income increased by $890,000 or 18.0% in 1998 compared
to 1997. Service charges on deposit accounts increased by $187,000 or 13.0% over
1997. Other service charges and fees increased by $217,000 or 22.7% over the
same period. The largest contributing factor was the service charges and fee
income generated by the addition of nine new branches in March and October of
1998. Other income increased by $185,000 or 20.9%.
Non-interest Expenses.
Non-interest expenses were $27.6 million, $22.2 million and $17.9 million
for the years ended December 31, 1999, 1998 and 1997, respectively. There was an
increase of $5.4 million or 24.2% in total non-interest expenses during 1999.
The largest increase of $2.0 million was attributed to KSB acquisition-related
costs. Salaries and employee benefits increased by $1.4 million or 12.5% from
$11.0 million in 1998. The major contributing factor to this increase was the
full year of expense associated with the additional staff resulting from the
branch acquisitions during March and October of 1998. In 1998 salaries and
employee benefits increased by $2.0 million or 21.5% from $9.2 million in 1997.
This increase is primarily due to the addition of the nine branch locations in
March and October of 1998, normal annual increases and higher pension benefit
costs. In addition, a new performance compensation program was introduced to all
employees during 1997 that resulted in additional compensation paid.
Other operating expenses increased by $1.7 million or 22.2% in 1999 over
1998. The major factors contributing to this increase were credit card expenses,
data processing, marketing, supply costs, other real estate owned ("OREO")
expenses and amortization of core deposit intangibles. With the addition of nine
new branches higher than normal expenses were incurred in the areas of data
processing, marketing and supplies. In addition, the amortization of core
deposit intangibles totaled $1,011,124 in 1999 and $664,770 in 1998 for the
branches acquired in March and October of 1998. Other operating expenses
increased by $2.0 million or 36.0% to $7.6 million in 1998 compared to $5.6
million in 1997, primarily due to expenses related to the acquisition of the
nine new locations.
FINANCIAL CONDITION
Overview.
The year 1999 was highlighted by the acquisition of KSB Bancorp, Inc. on
December 20, 1999. Its principal subsidiary, Kingfield Bank, has branch
locations in Bingham, Farmington, Kingfield, Lewiston, Madison, Phillips,
Rangeley, Stratton and Strong. These branch locations represent a logical
expansion of the Company's service area. On March 13, 1998, Camden National Bank
purchased four branches, assuming $52.4 million in deposits and $7.3 million in
loans from KeyBank. These branches are located in the communities of Bucksport,
Damariscotta, Vinalhaven and Waldoboro. On October 2,1998, United Bank purchased
three branches, assuming $34.9 million in deposits and $11.2 million in loans
from Fleet Bank. These branches are located in the communities of Milo,
Dover-Foxcroft and Greenville. United Bank also established a de novo branch
during 1998 in the community of Winterport. On March 13, 1998, Kingfield Bank
purchased a branch in Madison, Maine, assuming $16.7 million in deposits from
KeyBank.
Total assets at December 31, 1999 were $928.4 million, an increase of $89.1
million or 10.7% from December 31, 1998. The change in assets consisted
primarily of a $64.4 million increase in net loans, an increase in investment
securities of $13.5 million, an increase of $6.5 million in cash and due from
banks and federal funds sold, and an increase in other assets of $4.9 million.
The asset growth was supported by an increase of $26.2 million in deposits,
$60.2 million in borrowings, and $2.8 million in other liabilities.
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Investment Securities.
Total investment securities increased by $13.5 million or 6.2% to $232.2
million at December 31, 1999. The Company has investment securities in both the
available-for-sale and held- to-maturity categories. During 1999, the Company
increased the available-for-sale portion of the investment portfolio. The change
in the investment portfolio reflects the Company's desire for greater
flexibility to achieve asset and liability objectives, while managing liquidity
and funding needs pursuant to the policies developed by the Asset/Liability
Committee ("ALCO"). The available-for-sale category increased during 1999 by
$43.1 million. Although these securities are available for sale, the Company has
the ability to hold the debt securities in this portfolio until maturity. A
portion of the Company's investment portfolio is also classified as held to
maturity, meaning that the Company has both the intent and ability to hold the
securities until maturity. The ability to use these securities as collateral for
Federal Home Loan Bank loans enhances the Company's ability to hold the
securities to maturity consistent with liquidity objectives. At December 31,
1999, the Company had $5.9 million of unrealized losses on securities available
for sale, net of the tax benefits compared to $4,000 of unrealized gains at
December 31, 1998. This decrease was attributed to an increase in market rates.
Unrealized gains and losses do not impact income or regulatory capital, but are
recorded as adjustments to shareholders' equity net of related deferred income
taxes. In 1998, with increased loan demand and relatively lower yields on the
available investment alternatives, additions to the investment portfolio were
minimal. Most new investments made during 1998 replaced investments that matured
during the same time frame.
Loans.
During 1999, the loan portfolio experienced growth in every major loan
category. Loans, including loans held for sale, totaled $635.4 million at
December 31, 1999, an 11.5% increase from total loans of $569.7 million at
December 31, 1998. This resulted from a continuation of the loan growth
experienced by the Company for the past several years.
Residential real estate mortgage loans increased by $49.7 million or 29.1%
in 1999. During 1998, residential real estate mortgage loans decreased $.4
million or .2% from $171.3 million to $170.9 million. Residential real estate
loans consist of loans secured by one-to-four family residences. The Company
generally retains adjustable-rate mortgages in its portfolio but will, from time
to time, retain fixed-rate mortgages. With a relatively low interest rate
environment, it has been the Company's asset/liability strategy for the previous
18-24 months to hold fixed-rate mortgages in its portfolio. The yields on these
assets have been higher than yields available in the investment portfolio.
Consequently, loan balances in the residential mortgage held-for-sale category
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. The Company also originates fixed-rate residential loans for sale to
investors in the secondary market. However, during 1999 and 1998 the volumes
were minimal. Loans in the Company's residential real estate mortgage portfolio
are secured by properties located in Maine.
Commercial loans increased by $46.7 million or 17.3% during 1999. In 1998
commercial loans increased from $227.4 million to $269.7 million, an increase of
$42.3 million or 18.6%. Commercial loans consist of loans secured by various
corporate assets, as well as loans to provide working capital in the form of
lines of credit, which may be secured or unsecured. The commercial category also
includes commercial real estate loans secured by income producing commercial
real estate. In addition, the Company makes loans for the acquisition,
development and construction of commercial real estate. The Company focuses on
lending to financially sound small- and medium-sized business customers within
its geographic marketplace.
Consumer loans increased by $5.3 million or 6.8% in 1999. In 1998 consumer
loans increased from $64.2 million to $78.5 million, an increase of $14.3
million or 22.3%. Consumer loans are originated by the Company's bank
subsidiaries for a wide variety of purposes to meet customers' needs. Consumer
loans include credit card, overdraft protection, automobile, boat, recreation
vehicle, mobile home, home equity, and secured and unsecured personal loans.
It is the Company's policy to discontinue the accrual of interest on loans
when, in the opinion of management, there is an indication that the borrower may
be unable to meet payments as they become due. Upon such discontinuance, all
accrued but unpaid interest is reversed. Non-performing loans, defined as
non-accrual loans plus accruing loans 90 days or more past due, totaled $6.3
million or 1.0% of total loans at December 31, 1999, compared to $4.7 million or
.82% of total loans at December 31, 1998.
Delinquent real estate loans are reclassified as OREO when the Company
takes title to the property, either through foreclosure or upon receipt of a
deed in lieu of foreclosure. In such situations, the secured loan is
reclassified in the Statement of Condition as OREO at the lesser of the fair
value of the underlying collateral less estimated selling costs, or the recorded
amount of the loan. The balance of OREO was $1.4 million and $1.1 million as of
December 31, 1999 and 1998, respectively. As a percentage of total loans, OREO
represented .22% and .18% as of December 31, 1999 and 1998, respectively. Losses
arising from the acquisition of such properties are charged against the
allowance for loan losses ("ALL"). Operating expenses and any subsequent
provisions to reduce the carrying value are charged to non-interest expense.
Gains and losses upon disposition are reflected in earnings as other
non-interest income when realized.
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Allowance for Loan Losses / Provision for Loan Losses.
In determining the adequacy of the allowance for loan losses, management
relies primarily on its review of the loan portfolio both to ascertain whether
there are specific loan losses to be reserved, and to assess the collectibility
of the loan portfolio in the aggregate. Non-performing loans are examined on an
individual basis to determine an estimated probable loss on these loans. 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 ALL as conditions dictate. For more detail, please see
Note 6 to the Consolidated Financial Statements.
During 1999, the Company provided $3.7 million to the allowance for
possible loan losses, compared to $2.1 million and $2.2 million in 1998 and
1997, respectively. During 1999, the allowance was increased because of loan
growth and the need for replenishment as a result of charge-offs, primarily at
United Bank. Determining an appropriate level of ALL involves a high degree of
judgment. Management believes that the allowance at December 31, 1999 of $9.4
million or 1.48% of total loans outstanding was appropriate given the current
economic conditions in the Company's service area and the overall condition of
the loan portfolio. As a percentage of total loans outstanding, the ALL was
1.42% in 1998.
The following table sets forth information concerning the activity in the
Company's allowance for loan losses during the periods indicated.
FIVE YEAR ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Allowance at the beginning of period $ 8,092 $ 6,982 $ 5,365 $ 4,947 $ 4,364
Provision for loan losses 3,670 2,056 2,207 1,228 1,214
Charge-offs:
Commercial loans 1,520 417 671 539 451
Residential real estate loans 715 415 160 210 258
Consumer loans 425 444 400 308 245
-------- -------- -------- -------- --------
Total loans charge-off 2,660 1,276 1,231 1,057 954
Recoveries:
Commercial loans 64 158 473 82 206
Residential real estate loans 54 35 36 27 4
Consumer loans 170 137 132 138 113
-------- -------- -------- -------- --------
Total loan recoveries 288 330 641 247 323
Net charge-offs 2,372 946 590 810 631
-------- -------- -------- -------- --------
Allowance at the end of the period $ 9,390 $ 8,092 $ 6,982 $ 5,365 $ 4,947
======== ======== ======== ======== ========
Average loans outstanding $605,271 $521,559 $445,599 $392,128 $363,394
======== ======== ======== ======== ========
Ratio of net charge-offs to
average loans outstanding 0.39% 0.18% 0.13% 0.21% 0.17%
Ratio of provision for loan losses to
average loans outstanding 0.61% 0.39% 0.50% 0.31% 0.33%
Ratio of allowance for loan losses to
total loans at end of period 1.48% 1.42% 1.44% 1.30% 1.33%
Ratio of allowance for loan losses to
net charge-offs 395.87% 855.39% 1183.39% 662.35% 783.99%
Ratio of allowance for loan losses to
nonperforming loans at end of period 148.32% 172.50% 162.03% 128.72% 106.87%
</TABLE>
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- --------------------------------------------------------------------------------
The allowance for loan losses is available to offset credit losses in
connection with any loan, but is internally allocated to various loan categories
as part of the Company's process of evaluating its adequacy. The following table
sets forth information concerning the allocation of the Company's allowance for
loan losses by loan categories as the dates indicated.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES--FIVE YEAR SCHEDULE
<TABLE>
<CAPTION>
(Dollars in thousands) AS OF DECEMBER 31,
1999 1998 1997 1996 1995
Percent of Percent of Percent of Percent of Percent of
loans in loans in loans in loans in loans in
each each each each each
Balance at End of Period category to category to category to category to category to
Applicable to: total total total total total
Amount loans Amount loans Amount loans Amount loans Amount loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans $5,286 52% $4,288 51% $4,672 49% $3,529 47% $2,950 47%
Residential real estate loans 2,772 35% 2,166 35% 875 37% 758 42% 497 41%
Consumer loans 475 13% 729 14% 657 14% 529 11% 503 13%
Unfunded commitments 329 0% 324 0% 366 0% 252 0% 211 0%
Unallocated 528 N/A 585 N/A 412 N/A 297 N/A 786 N/A
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
$9,390 100% $8,092 100% $6,982 100% $5,365 100% $4,947 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
LIQUIDITY
Liquidity is defined as the ability to meet current and future financial
obligations of a short-term nature. The primary objective of liquidity
management is to maintain a balance between sources and uses of funds to meet
the cash flow needs of the Company in the most economical and expedient manner.
The liquidity needs of the Company's bank subsidiaries require the availability
of cash to meet the withdrawal demands of depositors and credit commitments to
borrowers. Due to the potential for unexpected fluctuations in both deposits and
loans, active management of the Company's liquidity is necessary. The Company
seeks to maintain various sources of funding and prudent levels of liquid assets
in order to satisfy its varied liquidity demands. In order to respond to the
various circumstances, the Company has both on- and off-balance sheet funding
resources in place.
Each of the Company's banking subsidiaries monitors its liquidity in
accordance with guidelines established by the Company and applicable regulatory
requirements. As of December 31, 1999 and 1998, the Company's level of liquidity
exceeded its target levels. Management believes that the Company's banking
subsidiaries currently have adequate liquidity available to respond to liquidity
demands. Sources of funds utilized by the Company's banking subsidiaries consist
of deposits, borrowings from the Federal Home Loan Bank of Boston ("FHLB") and
other sources, cash flows from operations, prepayments and maturities of
outstanding loans, investments and mortgage-backed securities, and the sales of
mortgage loans.
Deposits continue to represent the Company's primary source of funds. In
1999, total deposits increased by $26.2 million or 4.1% over 1998, ending the
year at $667.7 million. The Company aggressively marketed its deposit products
and experienced growth in all deposit categories in 1999. Comparing year-end
balances at 1999 to 1998, transaction accounts (demand deposits and NOW)
increased by $7.5 million, money market accounts by $8.9 million, savings
accounts by $6.4 million and certificates of deposit by $3.3 million. In 1998
total deposits increased by $157.4 million or 32.5% over 1997, partially due to
the acquisition of $104.0 million in deposits in connection with branch
purchases by its subsidiary banks.
Borrowings supplement deposits as a source of liquidity. In addition to
borrowings from the FHLB, the Company's bank subsidiaries purchase federal
funds, sell securities under agreements to repurchase and utilize treasury tax
and loan accounts. Total borrowings were $173.9 million at December 31, 1999,
compared to $113.7 million at December 31, 1998, an increase of $60.2 million or
53.0%. The increase was necessary to support both loan and investment growth.
The majority of the borrowings were from the FHLB, whose advances remained the
largest non-deposit-related, interest-bearing funding source for the Company in
both 1999 and 1998. 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 an alternative funding source
that should be utilized when appropriate.
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
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CAPITAL RESOURCES
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
8.0%, of which at least 4.0% must be in the form of core capital. The risk-based
ratios of the Company and its bank subsidiaries exceeded regulatory guidelines
at December 31, 1999 and December 31, 1998. The Company's Tier 1 capital to
risk-weighted assets was 11.7% and 12.3% at December 31, 1999 and 1998,
respectively. For other capital ratios, please see Note 19 to the Consolidated
Financial Statements. In addition to risk-based capital requirements, the FRB
requires bank holding companies to maintain a minimum leverage capital ratio of
core capital to total assets of 4.0%. Total assets for this purpose do not
include goodwill and any other intangible assets and investments that the FRB
determines should be deducted. The Company's leverage capital ratios at December
31, 1999 and 1998 were 8.7% and 9.5%, respectively.
As part of the Company's goal to operate a safe, sound and profitable
financial organization, the Company is committed to maintaining a strong capital
base. Shareholders' equity totaled $77.6 million and $77.8 million or 8.4% and
9.3% of total assets at December 31, 1999 and 1998, respectively. The $.2
million or .2% decrease in shareholders' equity in 1999 was primarily
attributable to net income of $10.2 million, less (1) treasury stock activity of
$.3 million, (2) $4.2 million in cash dividends and (3) $5.9 million in
unrealized losses on securities available for sale, net of tax benefit.
The principal cash requirement of the Company is to pay dividends on common
stock when declared. Dividends paid on the Company's common stock in 1999
represented an 8.3% increase over 1998. The Company is primarily dependent upon
the payment of cash dividends by its subsidiary banks to service its
commitments. The Company, as the sole shareholder of its subsidiary banks, is
entitled to dividends when and as declared by each bank's Board of Directors
from legally available funds. Camden National Bank declared dividends in the
aggregate amount of $8,051,000 and $12,534,000 in 1999 and 1998, respectively.
In 1999 the dividends declared by Camden National Bank included $3,977,000
payable to shareholders, $2,074,000 to repurchase stock, $500,000 for holding
company acquisition costs, and $1,500,000 of expense related to the cancellation
of stock options. United Bank declared no dividends in 1999 and 1998. Kingfield
Bank declared $205,000 and $113,000 in dividends during 1999 and 1998,
respectively. As of December 31, 1999, and subject to the limitations and
restrictions under applicable law, Camden National Bank, United Bank and
Kingfield Bank had $6.2 million available for dividends to the Company, although
there is no assurance that dividends will be paid at any time in any amount.
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.
Year 2000 Risk Assessment Results.
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. There was concern that when the Year 2000 occurred, systems
would read the year as 1900 rather than 2000. Unless software and hardware
systems were corrected to be Year 2000 compliant, computers would generate
miscalculations and create operational problems.
To assist in identifying any and all exposures that the Company could 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 managed 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 was based on the
Federal Financial Institution Examination Council ("FFIEC") Guidelines.
Throughout 1999 and 1998 the Company strived to strengthen customer
awareness of the Year 2000 issue in various forms. An internal awareness
training program was ongoing with employees, enabling the Company's staff to
effectively answer customers' concerns. The Company requested compliance
statements from over 150 suppliers or vendors upon which the Company relies.
Some examples of these companies are utility providers, insurance companies,
investment firms, other banks, and human resource service providers.
An essential component of preparing for the Year 2000 problem and beyond
was developing a Contingency Plan if any or all of the Company's systems failed
or could not be made Year 2000-ready. The Company developed Year 2000
contingency plans for all of its mission critical products and services.
Additionally, the Company increased its currency and coin levels starting in the
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- --------------------------------------------------------------------------------
fall of 1999 in the event higher liquidity levels were required to meet cash
needs during the transition to the Year 2000. The Company also confirmed its
available lines of credit with correspondent banks, the FHLB and the Federal
Reserve Bank to ensure available liquidity to meet unusual cash demands.
The estimated expense to address Year 2000 issues was $450,000. This
included approximately $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. During
1999 and 1998, the Company recognized expenses related to Year 2000 in the
amounts of $250,000 and $200,000, respectively. There was no material change in
total costs related to Year 2000 issues from original estimates.
As of March 6, 2000, the Company had not experienced any Year 2000-related
problems that have had a material impact on its operations. The Company
continues to monitor major loan customers for any Year 2000-related problems.
MARKET RISK
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates/prices such as interest rates, foreign currency
exchange rates, commodity prices and equity prices. The Company's primary market
risk exposure is interest rate risk. The ongoing monitoring and management of
this risk is an important component of the Company's asset/liability management
process which is governed by policies established by the bank subsidiaries'
Boards of Directors that are reviewed and approved annually. Each bank's Board
of Directors delegates responsibility for carrying out the asset/liability
management policies to that bank's Asset/Liability Committee ("ALCO"). In this
capacity ALCO develops guidelines and strategies impacting the Company's
asset/liability management-related activities based upon estimated market risk
sensitivity, policy limits and overall market interest rate levels/trends.
Interest Rate Risk.
Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. As interest rates change, the interest income and expense
streams associated with the Company's financial instruments also change, thereby
impacting net interest income ("NII"), the primary component of the Company's
earnings. ALCO utilizes the results of a detailed and dynamic simulation model
to quantify the estimated exposure of NII to sustained interest rate changes.
While ALCO routinely monitors simulated NII sensitivity over a rolling two-year
horizon, it also utilizes additional tools to monitor potential longer-term
interest rate risk.
The simulation model captures the impact of changing interest rates on the
interest income received and interest expense paid on all interest-earning
assets and liabilities reflected on the Company's balance sheet as well as for
off-balance sheet derivative financial instruments. None of the assets used in
the simulation were held for trading purposes. This sensitivity analysis is
compared to ALCO policy limits which specify a maximum tolerance level for NII
exposure over a one-year horizon, assuming no balance sheet growth, given both a
200 basis point (bp) upward and downward shift in interest rates. A parallel and
pro rata shift in rates over a 12-month period is assumed. The following
reflects the Company's NII sensitivity analysis as measured periodically over
the past year.
Estimated
Rate Change Changes in NII
High Low Average
+200bp (3.25%) 0.87% (1.25%)
-200bp (4.50%) (0.80%) (1.87%)
The preceding sensitivity analysis does not represent a Company forecast
and should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including,
among others, the nature and timing of interest rate levels, yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, and reinvestment/replacement of asset and liability
cashflows. The assumptions differed in each of the four periods included in the
sensitivity analysis above. While assumptions are developed based upon current
economic and local market conditions, the Company cannot make any assurances as
to the predictive nature of these assumptions, including how customer
preferences or competitor influences might change.
When appropriate, the Company may utilize off-balance sheet instruments
such as interest rate floors, caps and swaps to hedge its interest rate risk
position. Board of Directors' approved hedging policy statements govern the use
of these instruments by the bank subsidiaries. As of December 31, 1999, the
Company had a notional principal of $10 million in an interest rate swap
agreement. The estimated effects of these derivative financial instruments on
the Company's earnings are included in the sensitivity analysis presented above.
ALCO monitors the effectiveness of its derivative hedges relative to its
expectation that a high correlation be maintained between the hedging instrument
and the related hedged assets/liabilities. All outstanding positions are
estimated to remain effective.
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- --------------------------------------------------------------------------------
While it is not the Company's practice to unwind derivative hedges prior to
their maturity, any recognized gains/losses would be deferred in the Statement
of Condition and amortized to interest income or expense, as required, over the
remaining period of the original hedge. To the extent that a hedge were to be
deemed ineffective due to a lack of correlation with the hedged items or if the
hedged items were to be settled/terminated prior to maturity of the hedging
instrument, then unrecognized gains/losses associated with the hedging
instrument would be recognized in the income statement with subsequent accruals
and gains/losses also included in the consolidated income statement in the
period they occur.
Recent Accounting Pronouncements.
During 1999, the Financial Accounting Standards Board issued SFAS No. 134,
"Accounting for Mortgage-Backed Securities Retained After the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise;" SFAS No. 135,
"Rescission of FASB Statement No. 75 and Technical Corrections;" SFAS No. 136,
"Transfers of Assets to a Not-For-Profit Organization or Charitable Trust that
Raises or Holds Contributions for Others;" and SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
SFAS No. 133."
SFAS Nos. 134, 135 and 136 have no effect on the financial condition and
results of operations of the Company.
SFAS No. 133, which established accounting reporting standards for
derivative instruments and for hedging activity, was amended by SFAS No. 137.
SFAS No. 137 defers the effective date of SFAS No. 133 to all fiscal quarters of
all fiscal years beginning after June 15, 2000. Management has not determined
the impact, if any, of SFAS No. 133 on the Consolidated Financial Statements.
Common Stock Information.
The Common Stock of Camden National Corporation (ticker symbol CAC) began
trading on the American Stock Exchange ("AMEX") October 7, 1997. Prior to that
date, the stock was not traded on any exchange. The Company elected to
repurchase stock for its treasury during 1998 and 1999. In November 1998, the
shareholders approved an increase in the number of authorized shares of common
stock from 5,000,000 to 10,000,000 shares. The Board of Directors subsequently
approved a three-for-one split of the Company's common stock to shareholders of
record on November 19, 1998, with a distribution date of December 4, 1998. On
December 20, 1999, the Company completed the acquisition of KSB. Approximately
1,481,800 additional shares of Common Stock were issued in connection with this
transaction.
The Company has paid quarterly dividends since its inception in 1985. The
market price (as quoted by AMEX) and cash dividends paid, per share of the
Company's common stock, by calendar quarter for the past two years were as
follows:
1999
Fourth Third Second First
Quarter Quarter Quarter Quarter
High $21.06 $23.94 $22.75 $20.06
Low 16.38 16.88 17.50 17.63
Close 16.75 23.94 20.88 17.94
Dividend Paid .13 .13 .13 .13
1998
Fourth Third Second First
Quarter Quarter Quarter Quarter
High $27.67 $20.00 $19.83 $20.00
Low 16.33 17.08 18.92 18.33
Close 20.50 17.46 19.75 19.33
Dividend Paid .12 .12 .12 .11
Information concerning restrictions on the ability of the Company's
affiliates to transfer funds to the Company in the form of cash dividends is set
forth in the Capital Resources section on page 17.
As of December 31, 1999, there were 8,167,358 shares of Camden National
Corporation common stock outstanding held by approximately 1,130 shareholders of
record.
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<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SUMMARY OF FINANCIAL PERFORMANCE
[6 CHARTS]
NET INCOME ASSETS DEPOSITS
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
1995 8.226 1995 605.9 1995 474.6
1996 9.359 1996 644.4 1996 463.5
1997 10.697 1997 726.6 1997 485.1
1998 11.451 1998 839.3 1998 641.6
1999 10.229 1999 928.4 1999 667.7
LOANS EARNINGS PER SHARE BOOK VALUE PER SHARE
(IN MILLIONS) (IN DOLLARS) (IN DOLLARS)
1995 371.9 1995 0.99 1995 7.37
1996 411.3 1996 1.13 1996 8.15
1997 483.3 1997 1.31 1997 9.01
1998 569.7 1998 1.40 1998 9.61
1999 635.4 1999 1.27 1999 9.51
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- --------------------------------------------------------------------------------
SELECTED FIVE-YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands, except per share data) December 31,
Financial Condition Data 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Assets $928,350 $839,280 $726,644 $644,435 $605,918
Loans 635,434 569,705 483,348 411,336 371,858
Allowance for Loan Losses 9,390 8,092 6,982 5,365 4,947
Investments 232,190 218,693 204,260 190,669 190,132
Deposits 667,720 641,553 485,132 463,522 474,582
Borrowings 173,924 113,682 160,697 106,946 62,932
Shareholders' Equity 77,623 77,789 74,111 67,614 62,178
<CAPTION>
Year Ended December 31,
Operations Data 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Interest Income $ 70,563 $ 62,338 $ 58,363 $ 51,719 $ 48,616
Interest Expense 30,504 27,007 27,270 24,270 23,878
-------- -------- -------- -------- --------
Net Interest Income 40,059 35,331 31,093 27,449 24,738
Provision for Loan Losses 3,670 2,056 2,207 1,228 1,214
-------- -------- -------- -------- --------
Net Interest Income after
Provision for Loan Losses 36,389 33,275 28,886 26,221 23,524
Non-interest Income 6,627 5,826 4,936 4,550 4,666
Non-interest Expense 27,604 22,220 17,916 16,799 16,285
-------- -------- -------- -------- --------
Income before Provision
for Income Tax 15,412 16,881 15,906 13,972 11,905
Income Tax Expense 5,183 5,430 5,209 4,613 3,679
-------- -------- -------- -------- --------
Net Income $ 10,229 $ 11,451 $ 10,697 $ 9,359 $ 8,226
======== ======== ======== ======== ========
<CAPTION>
At or For the Year Ended December 31,
Other Data 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Basic Earnings Per Share (1) $ 1.27 $ 1.40 $ 1.31 $ 1.13 $ .99
Diluted Earnings Per Share (1) 1.27 1.38 1.27 1.10 .96
Dividends Per Share (1) 0.52 0.47 0.38 0.28 .18
Book Value Per Share 9.51 9.61 9.01 8.15 7.37
Return on Average Assets 1.15% 1.52% 1.52% 1.50% 1.40%
Return on Average Equity 13.16 15.09 15.11 13.70 14.07
Allowance for Loan Losses
to Total Loans 1.48 1.42 1.44 1.30 1.33
Non-Performing Loans to Total Loans 1.00 0.82 0.89 1.01 1.24
Stock Dividend Payout Ratio 40.90 33.74 29.31 24.70 17.58
</TABLE>
(1) The number of shares and per share amounts have been restated to reflect the
acquisition of KSB in December 1999.
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- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(In thousands, except number of shares and per share data) December 31,
1999 1998
<S> <C> <C>
Assets
Cash and due from banks $ 24,230 $ 18,175
Federal funds sold 415 --
Securities available for sale, at market 163,997 120,852
Securities held to maturity (market value $68,049 and
$101,203 at December 31, 1999 and 1998, respectively) 68,193 97,841
Residential mortgages held for sale 6,906 32,865
Loans, less allowance for loan losses of $9,390 and
$8,092 at December 31, 1999 and 1998, respectively 619,138 528,748
Bank premises and equipment 12,093 12,093
Other real estate owned 1,405 1,052
Interest receivable 5,041 4,672
Core deposit intangible 7,645 8,630
Other assets 19,287 14,352
--------- ---------
Total assets $ 928,350 $ 839,280
========= =========
Liabilities
Deposits:
Demand $ 80,385 $ 76,688
NOW 89,740 85,901
Money market 71,237 62,288
Savings 112,335 105,924
Certificates of deposit 314,023 310,752
--------- ---------
Total deposits 667,720 641,553
Borrowings from Federal Home Loan Bank 128,866 82,912
Other borrowed funds 45,058 30,770
Accrued interest and other liabilities 8,968 6,166
Minority interest in subsidiary 115 90
--------- ---------
Total liabilities 850,727 761,491
--------- ---------
Commitments (Notes 12, 14, 18 and 19)
Shareholders' Equity
Common stock, no par value; authorized 10,000,000 shares,
issued 8,167,358 shares in 1999 and 8,095,918 shares in 1998 2,450 2,449
Surplus 5,990 5,984
Retained earnings 83,583 77,581
Net unrealized gains (losses) on securities
available for sale, net of income tax (5,782) 82
--------- ---------
86,241 86,096
Less remaining obligation under:
Employee stock ownership plan -- 68
Bank recognition and retention plan 20 30
Less cost of 442,540 and 480,977 shares of
treasury stock at December 31, 1999 and 1998, respectively 8.598 8,209
--------- ---------
Total shareholders' equity 77,623 77,789
--------- ---------
Total liabilities and shareholders' equity $ 928,350 $ 839,280
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
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- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands, except number of shares and per share data) Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $ 54,838 $ 49,512 $ 42,978
Interest on U.S. government and agency obligations 14,041 11,156 13,462
Interest on state and political subdivisions 400 138 245
Interest on interest rate swap agreements 172 365 744
Interest on federal funds sold and other investments 1,112 1,167 934
---------- ---------- ----------
Total interest income 70,563 62,338 58,363
---------- ---------- ----------
Interest Expense
Interest on deposits 23,187 21,815 17,862
Interest on other borrowings 7,182 4,873 8,698
Interest on interest rate swap agreements 135 319 710
---------- ---------- ----------
Total interest expense 30,504 27,007 27,270
---------- ---------- ----------
Net interest income 40,059 35,331 31,093
Provision for Loan Losses 3,670 2,056 2,207
---------- ---------- ----------
Net interest income after provision for loan losses 36,389 33,275 28,886
---------- ---------- ----------
Other Income
Service charges on deposit accounts 1,706 1,629 1,442
Other service charges and fees 1,488 1,173 956
Merchant assessments 1,494 1,307 1,119
Trust fees 776 645 532
Other income 1,163 1,072 887
---------- ---------- ----------
Total other income 6,627 5,826 4,936
---------- ---------- ----------
43,016 39,101 33,822
---------- ---------- ----------
Operating Expenses
Salaries and employee benefits 12,578 11,178 9,198
Net occupancy 1,579 1,327 1,137
Furniture, equipment and data processing 2,167 2,159 2,024
Acquisition related expenses 2,046 -- --
Other 9,234 7,556 5,557
---------- ---------- ----------
Total operating expenses 27,604 22,220 17,916
---------- ---------- ----------
Income before income taxes 15,412 16,881 15,906
Income Taxes 5,183 5,430 5,209
---------- ---------- ----------
Net Income $ 10,229 $ 11,451 $ 10,697
========== ========== ==========
Per Share Data
Basic earnings per share $ 1.27 $ 1.40 $ 1.31
Diluted earnings per share 1.27 1.38 1.27
Weighted average number of shares outstanding 8,033,757 8,156,968 8,169,924
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Gains (Losses) Employee Bank
on Securities Stock Recognition Total
(In thousands, except number of Common Retained Available Ownershipand Retention Treasury Shareholders'
shares and per share data) Stock Surplus Earnings for Sale Plan Plan Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance At January 1, 1997 $ 2,440 $ 5,551 $ 62,577 $ (6) $ (169) $ (79) $ (2,699) $ 67,615
-------- -------- -------- -------- -------- -------- -------- --------
Net income for 1997 -- -- 10,697 -- -- -- -- 10,697
Change in unrealized gains
(losses) on securities
available for sale,
net of deferred taxes of $43 -- -- -- 84 -- -- -- 84
-------- -------- -------- -------- -------- -------- -------- --------
Total comprehensive income -- -- 10,697 84 -- -- -- 10,781
Purchase of treasury stock
(115,042 shares) -- -- -- -- -- -- (1,461) (1,461)
Sale of treasury stock
(15,156 shares) -- 184 -- -- -- -- (184) --
Retirement of treasury stock
(4,584 shares) -- (12) (27) -- -- -- 39 --
Reissuance of treasury stock
(989 shares) -- -- (6) -- -- -- 8 2
Payment of obligation under
employee stock ownership plan -- 176 -- -- 52 -- -- 228
Bank recognition and
retention plan -- -- -- -- -- 29 -- 29
20,244 shares issued under
stock option plans -- 54 -- -- -- -- -- 54
Effect of July 10, 1997
stock split effected
in the form of a 200% dividend 9 -- (9) -- -- -- -- --
Cash dividends declared
($.38 per share) -- -- (3,136) -- -- -- -- (3,136)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1997 $ 2,449 $ 5,953 $ 70,096 $ 78 $ (117) $ (50) $ (4,297) $ 74,112
-------- -------- -------- -------- -------- -------- -------- --------
Net income for 1998 -- -- 11,451 -- -- -- -- 11,451
Change in unrealized gains
(losses) on securities
available for sale,
net of deferred taxes of $2 -- -- -- 4 -- -- -- 4
-------- -------- -------- -------- -------- -------- -------- --------
Total comprehensive income -- -- 11,451 4 -- -- -- 11,455
Purchase of treasury stock
(159,339 shares) -- -- -- -- -- -- (3,139) (3,139)
Exercise and cancellation of
stock options (93,000 shares),
net of tax benefit of $604 -- (267) -- -- -- -- (854) (1,121)
Retirement of treasury stock
(5,019 shares) -- (13) (66) -- -- -- 81 --
Payment of obligation under
employee stock ownership plan -- 230 -- -- 49 -- -- 279
Bank recognition and
retention plan -- -- -- -- -- 20 -- 20
30,535 shares issued under
stock option plans -- 81 -- -- -- -- -- 81
Filing fees related to
stock split -- -- (35) -- -- -- -- (35)
Cash dividends declared
($.47 per share) -- -- (3,863) -- -- -- -- (3,863)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1998 $ 2,449 $ 5,984 $ 77,581 $ 82 $ (68) $ (30) $ (8,209) $ 77,789
-------- -------- -------- -------- -------- -------- -------- --------
Net income for 1999 -- -- 10,229 -- -- -- -- 10,229
Change in unrealized gains
(losses) on securities
available for sale,
net of tax benefit of
$3 million -- -- -- (5,864) -- -- -- (5,864)
-------- -------- -------- -------- -------- -------- -------- --------
Total comprehensive income -- -- 10,229 (5,864) -- -- -- 4,365
Purchase of treasury stock
(102,740 shares) -- -- -- -- -- -- (2,337) (2,337)
Sale of treasury stock
(125,000 shares) -- -- -- -- -- -- 2,249 2,249
Exercise and cancellation of
stock options (93,000 shares),
net of tax benefit of $525 -- (338) -- -- -- -- (637) (975)
Retirement of treasury stock
(31,983 shares) -- (270) (66) -- -- -- 336 --
Payment of obligation under
employee stock ownership plan -- 388 21 -- 68 -- -- 477
Bank recognition and
retention plan -- -- -- -- -- 10 -- 10
71,440 shares issued under
stock option plans 1 226 -- -- -- -- -- 227
Cash dividends declared
($.52 per share) -- -- (4,182) -- -- -- -- (4,182)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 1999 $ 2,450 $ 5,990 $ 83,583 $ (5,782) $ -- $ (20) $ (8,598) $ 77,623
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net Income $ 10,229 $ 11,451 $ 10,697
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Provision for loan losses 3,670 2,056 2,207
Depreciation and amortization 1,089 1,626 1,457
Decrease in obligation under ESOP and BRRP 487 301 257
(Decrease) increase in interest receivable (551) 77 (67)
Increase in other assets (3,755) (2,787) (2,134)
Increase (decrease) in other liabilities 6,004 (489) 327
Sale of residential mortgage loans held for sale 4,610 7,334 6,551
Origination of mortgage loans held for sale (3,288) (35,387) (13,706)
Loss on disposal of assets -- 3 6
-------- -------- --------
Net cash provided (used) by operating activities 18,495 (15,818) 5,595
-------- -------- --------
Investing Activities
Proceeds from sales and maturities of securities held to maturity 29,909 77,429 50,258
Proceeds from sales and maturities of securities available for sale 20,251 6,117 13,656
Purchase of securities to be held to maturity -- -- (63,620)
Purchase of securities available for sale (72,072) (88,734) (7,018)
Purchase of Federal Home Loan Bank Stock (331) (104) (6,785)
Net increase in loans (60,424) (49,410) (65,600)
Net (increase) decrease in other real estate owned (353) 943 8
Purchase of premises and equipment (1,421) (1,689) (1,351)
Increase in minority position 25 5 40
Net (increase) decrease in federal funds sold (415) 1,103 971
Net cash provided by acquisitions -- 74,321 --
-------- -------- --------
Net cash (used) provided by investing activities (93,831) 19,981 (79,441)
-------- -------- --------
Financing Activities
Net increase in demand deposits,
NOW accounts, money markets and savings accounts 22,896 35,505 9,647
Net increase in certificates of deposit 3,271 17,433 11,963
Net increase (decrease) in borrowings 60,242 (47,536) 53,751
Purchase of treasury stock (2,337) (3,139) (1,461)
Sale of treasury stock 2,249 -- --
Proceeds from stock issuance under option plan 227 81 54
Exercise and cancellation of stock options (975) (1,121) --
Filing fees related to stock split -- (35) --
Cash dividends paid (4,182) (3,863) (3,136)
-------- -------- --------
Net cash provided (used) by financing activities 81,391 (2,675) 70,818
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 6,055 1,491 (3,028)
Cash and cash equivalents at beginning of year 18,175 16,684 19,712
-------- -------- --------
Cash and cash equivalents at end of year $ 24,230 $ 18,175 $ 16,684
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 30,270 $ 26,369 $ 26,622
Income tax 6,057 6,310 5,925
Non-Cash transactions:
Transfer from loans to real estate owned 1,418 1,196 1,310
Securitization of mortgage loans -- 9,014 --
Sale of treasury stock from exercised stock options -- -- 184
Transfer from loans held for sale to loan portfolio 24,637 -- --
</TABLE>
See Note 3 of the notes to the consolidated financial statements for branch
acquisition disclosure.
The accompanying notes are an integral part of these
consolidated financial statements.
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<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(Amounts in tables expressed in thousands
except number of shares and per share data)
NATURE OF OPERATIONS.
Camden National Corporation ("the Company") is a multi-bank holding company
headquartered in Camden, Maine, offering a broad range of financial
services in its geographical marketplace. The Company has two wholly owned
bank subsidiaries. Camden National Bank is a national banking organization,
based in Camden, Maine. UnitedKingfield Bank, a state chartered bank based
in Bangor, Maine, is the successor by merger, effective February 4, 2000,
of United Bank and Kingfield Savings Bank. The Company also has a 51%
interest in Trust Company of Maine, Inc., a non-bank subsidiary, based in
Bangor, Maine.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies conform to generally accepted
accounting principles and to general practice within the banking industry. The
following is a summary of the significant accounting and reporting policies.
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Camden National Corporation, its wholly-owned
subsidiaries, Camden National Bank, United Bank and Kingfield Bank, and its
majority-owned subsidiary, Trust Company of Maine, Inc. All intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements. The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for loan losses and the
carrying value of real estate owned, management obtains independent appraisals
for significant properties.
Cash. The Company is required to comply with various laws and regulations
of the Federal Reserve which require that the Company maintain certain amounts
of cash on deposit and restrict the Company from investing those amounts. The
Company maintains those balances at the Federal Reserve Bank of Boston. In the
normal course of business, the Company has funds on deposit at other financial
institutions in amounts in excess of the $100,000 insured by the Federal Deposit
Insurance Corporation. For the statement of cash flows, cash equivalents consist
of cash and due from banks.
Investment Securities. The Company has classified its investment securities
into investments available for sale and investments to be held to maturity.
Securities Available for Sale. Debt and other securities that are to be
held for indefinite periods of time are stated at market value. Changes in net
unrealized gains or losses are recorded as an adjustment to shareholders' equity
until realized.
Market values of securities are determined by prices obtained from
independent market sources. Realized gains and losses on securities sold are
computed on the identified cost basis on the trade date.
Securities Held to Maturity. Bonds, notes and debentures for which the
Company has the positive intent and ability to hold to maturity are reported at
cost, adjusted for amortization of premiums and accretion of discounts which are
recognized in interest income using the interest method over the period to
maturity.
Residential Mortgages Held for Sale. Residential mortgages held for sale
are primarily one-to-four family real estate loans which are valued at the lower
of cost or market on an individual basis, as determined by outstanding
commitments from investors or current investor yield requirements. Gains and
losses from sales of residential mortgages held for sale are recognized upon
settlement with investors and recorded in non-interest income. These activities,
together with underwriting residential mortgage loans, comprise the Company's
mortgage banking business.
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- --------------------------------------------------------------------------------
Loan Servicing. Statement of Financial Accounting Standards ("SFAS") 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," was adopted January 1, 1997. The cost of mortgage servicing
rights is amortized in proportion to, and over the period of, estimated net
servicing revenues. Impairment of mortgage servicing rights is assessed based on
the fair value of those rights. Fair values are estimated using discounted cash
flows based on a current market interest rate. For purposes of measuring
impairment, the rights are stratified based on the following predominant risk
characteristics of the underlying loans: interest rate, fixed versus variable
rate, and period of origination. The amount of impairment recognized is the
amount by which the capitalized mortgage servicing rights for a stratum exceed
their fair value.
Loans. Interest on loans is accrued and credited to income based on the
principal amount outstanding. The accrual of interest on loans is discontinued
when, in the opinion of management, there is an indication that the borrower may
be unable to meet payments as they become due. Upon such discontinuance, all
unpaid accrued interest is reversed.
Fees received and direct costs incurred for the origination of loans are
deferred and recognized as an adjustment of loan yield.
The allowance for loan losses is maintained at a level deemed adequate to
absorb future charge-offs of loans deemed uncollectible. Management determines
the adequacy of the allowance based upon reviews of individual credits, recent
loss experience, current economic conditions, known and inherent risk
characteristics of the various categories of loans, adverse situations that may
affect the borrower's ability to repay, estimated value of underlying
collateral, and other pertinent factors. The allowance is increased by
provisions charged to operating expense and by recoveries on loans previously
charged off. Credits deemed uncollectible are charged against the allowance.
Loans considered to be impaired are reduced to the present value of
expected future cash flows or to the fair value of collateral, by allocating a
portion of the allowance for loan losses to such loans. If these allocations
cause the allowance for loan losses to require an increase, such increase is
reported as provision for loan losses.
The carrying values of impaired loans are periodically adjusted to reflect
cash payments, revised estimates of future cash flows, and increases in the
present value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as provision for loan losses.
Other Real Estate Owned. Other real estate owned represents real estate
acquired through foreclosure and is recorded at the lower of cost or fair market
value, determined by an independent appraisal, with any difference at the time
of acquisition treated as a loan loss. Subsequent reductions in fair market
value below cost are charged directly to other operating expenses.
Premises and Equipment. Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives of the
related assets.
Intangible Assets. The value of core deposits premium is being amortized
over periods ranging from ten to fifteen years using the straight-line method.
Other intangible assets, including goodwill andrecapitalization costs, are being
amortized over twenty to twenty-five years using the straight-line method.
Amortization of software is recognized using the straight-line method over the
estimated useful life of the various software items.
Other Borrowed Funds and Securities Sold Under Repurchase Agreements. Other
borrowed funds consist of commercial and consumer repurchase agreements and
treasury tax and loan deposits. Securities sold under agreements to repurchase
generally mature within thirty days. Treasury tax and loan deposits generally do
not have fixed maturity dates.
Employee Pension and Postretirement Benefits. The Company has a defined
benefit noncontributory pension plan covering substantially all employees.
Actuarially determined pension costs are charged to current operations. The
funding policy is to pay at least the minimum amounts required by the Employee
Retirement Income Security Act of 1974. In addition, the Company has a
supplemental pension plan covering several executive officers. This plan was
designed to keep the percentage level of pension benefits consistent for all
employees.
The Company also provides for the benefit of its employees a voluntary
savings plan which qualifies under 401(k) of the Internal Revenue Code.
Employees can contribute up to the maximum amount allowed by law. The Company
matches a percentage of employee contributions. The Company's postretirement
plans also provide medical and life insurance to certain eligible retired
employees.
Advertising. Advertising costs are expensed as incurred.
Income Taxes. Deferred tax assets and liabilities are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Principal timing differences occur with
respect to pension and other postretirement benefits, depreciation and provision
for loan losses.
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
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, and is determined using the treasury
stock method.
Financial Instruments with Off-Balance Sheet Risk. The Company uses off-
balance sheet financial instruments as part of its asset/liability management
activities. The Company does not intend to sell any of these instruments.
Interest Rate Exchange Agreements (swaps) are accounted for using the
accrual method. Net interest income (expense) resulting from the differential
between exchanging floating and fixed-rate interest payments is recorded on a
current basis.
Interest rate caps and floors are contracts pursuant to which a ceiling or
floor is established at a specified rate and for a specified period of time. The
premium paid for the contract is amortized over its life. Any cash payments
received are recorded as an adjustment to net interest income.
In the ordinary course of business the Company has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit, and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they are funded.
Fair Value Disclosures. The following methods and assumptions were used by
the Company in estimating its fair value disclosures for financial instruments:
Cash and due from banks and federal funds sold: The carrying amounts of
cash and due from banks and federal funds sold approximate their fair value.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. The carrying amounts of other securities approximates their fair
value.
Residential mortgages held for sale: Fair values are based on quoted
market prices from the Federal Home Loan Mortgage Corporation (Freddie Mac).
Loans receivable: For variable rate loans that reprice frequently and have
no significant change in credit risk, fair values are based on carrying values.
The fair value of other loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Interest receivable and payable: The carrying amount of interest receivable
and payable approximates fair value.
Deposits: The fair value of demand and NOW deposits, savings accounts, and
certain money market deposits is the amount payable on demand. The fair value of
fixed-maturity certificates of deposit is estimated using the rates currently
offered in the Company's market for deposits of similar remaining maturities.
Borrowings: The carrying amounts of short-term borrowings from the Federal
Home Loan Bank, securities under repurchase agreements and other short-term
borrowings, approximates fair value. The fair value of long-term borrowings is
based on the discounted cash flows using current rates for advances of similar
remaining maturities.
Off-balance sheet instruments: Fair values for interest rate swaps and
floor and cap contracts are based on quoted market prices. The fair value of
commitments to extend credit has not been presented because the future revenue
derived from such commitments is not significant.
Effect of Recently Issued Financial Standards. During 1999, the Financial
Accounting Standards Board issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained After the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise;" SFAS No. 135, "Rescission of FASB Statement No.
75 and Technical Corrections;" SFAS No. 136, "Transfers of Assets to a Not-For-
Profit Organization or Charitable Trust that Raises or Holds Contributions for
Others;" and SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS No. 133."
SFAS Nos. 134, 135 and 136 have no effect on the financial condition and
results of operations of the Company.
SFAS No. 133, which established accounting reporting standards for
derivative instruments and for hedging activity, was amended by SFAS No. 137.
SFAS No. 137 defers the effective date of SFAS No. 133 to all fiscal quarters of
all fiscal years beginning after June 15, 2000. Management has not determined
the impact, if any, of SFAS No. 133 on the consolidated financial statements.
Reclassification. Certain items from the prior year were restated to
conform with the current year presentation.
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<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
2. MERGER
On December 20, 1999, KSB Bancorp, Inc. ("KSB") was merged into the Company. The
merger was accounted for under the pooling-of-interests method. At December 31,
1999, KSB had total assets of $191,084,000 and total shareholders' equity of
$13,971,000. The Company exchanged approximately 1,481,800 shares of its common
stock for approximately 1,304,401 shares of KSB. Under the pooling-of-interests
method, the recorded amounts of assets and liabilities of the Company and KSB
have been carried forward at their previously recorded amounts. All prior period
financial statements presented have been restated as if the merger took place at
the beginning of such periods.
The following table sets forth the results of operations for the years ended
December 31:
1999 1998 1997
Net income
KSB Bancorp, Inc. $ 1,236 $ 1,806 $ 1,549
Camden National Corporation 8,993 9,645 9,148
------- ------- -------
Combined $10,229 $11,451 $10,697
Basic earnings per share
KSB Bancorp, Inc. $ 1.01 $ 1.47 $ 1.30
Camden National Corporation 1.35 1.43 1.34
Combined 1.27 1.40 1.31
Diluted earnings per share
KSB Bancorp, Inc. $ 1.01 $ 1.41 $ 1.23
Camden National Corporation 1.35 1.41 1.31
Combined 1.27 1.38 1.27
Dividends per share
KSB Bancorp, Inc. $ .16 $ .11 $ .07
Camden National Corporation .60 .55 .45
Combined .52 .47 .38
3. BRANCH ACQUISITIONS
During 1998, the Company's three bank subsidiaries acquired eight branch
locations. The excess of cost over fair value of net assets acquired in these
branch acquisitions is amortized to expense using the straight-line method over
ten years. The acquisitions were accounted for under the purchase method of
accounting for business combinations.
The following is a summary of the transactions:
Loans acquired $ 19,340
Premises and equipment 714
Premium on deposits 8,553
Other assets 1,210
Deposits assumed 104,005
Other liabilities 133
Net cash received 74,321
Amortization expense of core deposit intangibles expense totaled $1,011,000,
$665,000 and $103,000 in 1999, 1998 and 1997, respectively.
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
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4. INVESTMENT SECURITIES
The following tables summarize the amortized costs and market values of
securities available for sale and held to maturity, as of the dates indicated:
<TABLE>
<CAPTION>
December 31, 1999
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale
U.S. treasury securities and obligations of
U.S. government corporations and agencies $ 67,466 $ 15 $(2,435) $ 65,046
Obligations of states and political subdivisions 8,210 -- (690) 7,520
Mortgage-backed securities 13,737 -- (633) 13,104
Other debt securities 50,320 -- (3,382) 46,938
-------- ------ ------- --------
Total debt securities 139,733 15 (7,140) 132,608
-------- ------ ------- --------
Federal Home Loan Bank of Boston stock 16,019 -- -- 16,019
Federal Reserve Bank stock 39 -- -- 39
Other equity securities 16,966 32 (1,667) 15,331
-------- ------ ------- --------
Total equity securities 33,024 32 (1,667) 31,389
-------- ------ ------- --------
Total securities available for sale $172,757 $ 47 $(8,807) $163,997
-------- ------ ------- --------
Held to maturity
U.S. treasury securities and obligations of
U.S. government corporations and agencies $ 5,949 $ 60 $ (35) $ 5,974
Obligations of states and political subdivisions 1,152 11 (2) 1,161
Other debt securities 129 -- (3) 126
Mortgage-backed securities 60,963 414 (589) 60,788
-------- ------ ------- --------
Total securities held to maturity $ 68,193 $ 485 $ (629) $ 68,049
======== ====== ======= ========
<CAPTION>
December 31, 1998
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale
U.S. treasury securities and obligations of
U.S. government corporations and agencies $ 7,047 $ 48 $ -- $ 7,095
Obligations of states and political subdivisions 8,214 1 (72) 8,143
Mortgage-backed securities 81,769 363 (312) 81,820
Other debt securities 2,000 30 (5) 2,025
-------- ------ ------- --------
Total debt securities 99,030 442 (389) 99,083
-------- ------ ------- --------
Federal Home Loan Bank of Boston stock 15,686 -- -- 15,686
Federal Reserve Bank stock 39 -- -- 39
Other equity securities 5,972 72 -- 6,044
-------- ------ ------- --------
Total equity securities 21,697 72 -- 21,769
-------- ------ ------- --------
Total securities available for sale $120,727 $ 514 $ (389) $120,852
======== ====== ======= ========
Held to maturity
U.S. treasury securities and obligations of
U.S. government corporations and agencies $ 6,093 $ 81 $ (30) $ 6,144
Obligations of states and political subdivisions 1,338 42 -- 1,380
Mortgage-backed securities 89,428 3,265 (26) 92,667
Other debt securities 982 30 -- 1,012
-------- ------ ------- --------
Total securities held to maturity $ 97,841 $3,418 $ (56) $101,203
======== ====== ======= ========
</TABLE>
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The amortized cost and fair values of debt securities by contractual maturity at
December 31, 1999 are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
Available for sale
Due in one year or less $ 1,341 $ 1,298
Due after one year through five years 30,220 27,229
Due after five through ten years 34,104 33,734
Due after ten years 74,068 70,347
-------- --------
$139,733 $132,608
======== ========
Amortized Fair
Cost Value
Held to maturity
Due in one year or less $ -- $ --
Due after one year through five years 6,746 6,708
Due after five years through ten years 8,066 8,217
Due after ten years 53,381 53,124
-------- --------
$ 68,193 $ 68,049
======== ========
For purposes of the maturity table, mortgage-backed securities, which are not
due at a single maturity date, have been allocated to the due-after-ten-years
category.
Proceeds from the sale of investments classified as held to maturity during 1999
were $5,023,000, which resulted in a gross realized gain of $26,000. The
investments were sold within three months of the maturity date. In 1999,
proceeds from the sale of investments classified as available for sale were
$10,637,000, which resulted in a gross realized gain of $125,000. There were no
sales in the available-for-sale or held-to-maturity portfolios during 1998 or
1997.
At December 31, 1999, securities with a book value of $85.5 million and a fair
value of $83.3 million were pledged to secure public deposits, securities sold
under agreement to repurchase and other purposes as required or permitted by
law.
5. LOANS
The composition of the Company's loan portfolio at December 31 was as follows:
1999 1998
Commercial loans $316,411 $269,747
Residential real estate loans 220,534 170,875
Consumer loans 83,832 78,496
Municipal loans 8,307 17,199
Other loans 336 1,311
-------- --------
Total loans 629,420 537,628
Less deferred loan fees net of cost 892 788
Less allowance for loan losses 9,390 8,092
-------- --------
$619,138 $528,748
======== ========
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5. Loans continued
The Company's lending activities are conducted in mid-coast, central and western
Maine. The Company makes single family and multi-family residential loans,
commercial real estate loans, business and a variety of consumer loans. In
addition, the Company makes loans for the construction of residential homes,
multi-family properties and commercial real estate properties. The ability and
willingness of borrowers to honor their repayment commitments is generally
dependent on the level of overall economic activity within the geographic area
and the general economy.
As of December 31, 1999 and 1998, nonaccrual loans were $6,136,000 and
$4,079,000, respectively. Interest foregone was approximately $408,000, $248,000
and $264,000 for 1999, 1998 and 1997, respectively.
6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Beginning Balance $ 8,092 $ 6,982 $ 5,365
Provision for loan losses 3,670 2,056 2,207
Recoveries 288 330 641
Loans charged off (2,660) (1,276) (1,231)
------- ------- -------
Net charge offs (2,372) (946) (590)
------- ------- -------
Ending Balance $ 9,390 $ 8,092 $ 6,982
======= ======= =======
Information regarding impaired loans is as follows:
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Average investment in impaired loans $ 5,455 $ 4,499 $ 3,310
Interest income recognized on impaired loans, all on cash basis 452 525 268
Balance of impaired loans 6,136 5,009 2,788
Less portion for which no allowance for loan losses is allocated -- 2,745 1,545
Portion of impaired loan balance for which
an allowance for credit losses is allocated 6,136 2,264 1,243
Portion of allowance for loan losses
allocated to the impaired loan balance 1,179 487 234
</TABLE>
7. MORTGAGE SERVICING
Residential real estate mortgages are originated by the Company for both
portfolio and for sale into the secondary market. The sale of loans are to
institutional investors such as the Federal Home Loan Mortgage Corporation
("Freddie Mac"). Under loan sale and servicing agreements with the investor, the
Company generally continues to service the residential real estate mortgages.
The Company pays the investor an agreed-upon rate on the loan, which, including
a guaranteed fee paid to Freddie Mac, is less than the interest rate the Company
receives from the borrower. The difference is retained by the Company as a fee
for servicing the residential real estate mortgages. As required by SFAS No.
125, the Company capitalizes mortgage servicing rights at their fair value upon
sale of the related loans. Capitalized servicing rights totaled $171,000,
$115,000 and $38,000 during 1999, 1998 and 1997, respectively.
Mortgage loans serviced for others are not included in the accompanying
Consolidated Statements of Condition. The unpaid principal balances of mortgage
loans serviced for others was $105,263,000, $112,052,000 and $116,728,000 at
December 31, 1999, 1998 and 1997, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were $216,000 and $404,000 at
December 31, 1999 and 1998, respectively.
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- --------------------------------------------------------------------------------
8. BANK PREMISES AND EQUIPMENT
Details of premises and equipment, at cost, at December 31 were as follows:
1999 1998
Land and buildings $11,505 $11,295
Furniture, fixtures and equipment 11,671 10,688
Leasehold improvements 604 593
Construction in process 223 38
------- -------
24,003 22,614
Less: Accumulated depreciation and amortization 11,910 10,521
------- -------
$12,093 $12,093
======= =======
Depreciation expense was $1.6 million, $1.5 million and $1.5 million for 1999,
1998 and 1997, respectively.
9. OTHER REAL ESTATE OWNED
The transactions in other real estate owned for the years ended December 31 were
as follows:
1999 1998
Beginning balance $1,052 $1,532
Additions 1,418 1,196
Properties sold 491 1,599
Writedowns 574 77
------ ------
Ending balance $1,405 $1,052
====== ======
10. DEPOSITS
The aggregate amount of certificates of deposit, each with a minimum
denomination of $100,000, was approximately $52,224,000and $57,251,00 at
December 31, 1999 and 1998, respectively. Certificates of deposit included
brokered deposits in the amount of $6,014,000 and $6,003,000 at December 31,
1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of certificates of deposit are as
follows:
2000 $248,605
2001 45,747
2002 10,501
2003 4,579
2004 4,117
Thereafter 474
--------
$314,023
========
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11. BORROWINGS
A summary of the borrowings from the Federal Home Loan Bank ("FHLB") of Boston
is as follows:
December 31, 1999
Principal Amounts Interest Rates Maturity Date
$ 83,866 4.06%-6.05% 2000
2,000 6.08% 2003
1,000 4.80% 2004
5,000 5.09% 2008
37,000 4.83%-5.35% 2009
---------
$ 128,866
=========
December 31, 1998
Principal Amounts Interest Rates Maturity Date
$ 52,460 4.95%-6.58% 1999
5,452 6.02%-6.05% 2000
25,000 4.99%-5.09% 2008
---------
$ 82,912
=========
Short- and long-term borrowings from the FHLB consist of both fixed and
adjustable rate borrowings and are collateralized by stock in the FHLB and a
blanket lien on qualified collateral consisting primarily of loans with first
mortgages secured by one-to-four family properties, certain unencumbered
investment securities and other qualified assets. The FHLB at its discretion can
call $38 million of the Company's long-term borrowings. The Company, through its
banking subsidiaries, has an available line of credit with FHLB of $14.3 million
at December 31, 1999 and 1998. The Company had $1.3 million and $10.1 million
outstanding at December 31, 1999 and 1998, respectively.
The Company utilizes other borrowings in the form of federal funds purchased;
treasury, tax and loan deposits; and repurchase agreements secured by U.S.
government or agency securities. Balances outstanding at December 31 are shown
in the table below:
1999 1998
Federal funds purchased $ 1,300 $ --
Treasury, tax and loan deposits 1,523 44
Securities sold under repurchase agreements 42,235 30,726
------- -------
Total other borrowed funds $45,058 $30,770
======= =======
Weighted-average rate at the end of period 4.10% 4.04%
12. EMPLOYEE BENEFIT PLANS
Retirement Plan
The Company has a trusteed defined benefit noncontributory pension plan covering
substantially all eligible employees over 21 years of age with one year of
employment. The benefits are based on years of service and salary earned during
an employee's last five years of employment. The assets of the plans are
primarily invested in listed stocks.
The Company also provides a supplemental pension plan for certain executive
employees to restore pension benefits which have been reduced by income tax
regulations. These plans are unfunded and nonqualified.
The Company's postretirement plans provide medical and life insurance to certain
eligible retired employees. It is the Company's policy to fund the cost of
postretirement health care and life insurance plans as premiums are paid;
therefore, there are no plan assets.
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Information pertaining to the plans is as follows:
<TABLE>
<CAPTION>
Pension Post Retirement
Benefits Benefits
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of the year $ 4,024 $ 3,470 $ 3,016 $ 399 $ 356 $ 315
Service cost 428 350 318 25 21 19
Interest cost 288 258 224 28 26 23
Actuarial gain (loss) -- -- (29) 50 15 12
Benefits paid (54) (54) (59) (21) (19) (13)
------- ------- ------- ----- ----- -----
Benefit obligation at end of year 4,686 4,024 3,470 481 399 356
------- ------- ------- ----- ----- -----
Change in plan assets
Fair value of plan assets at beginning of year 3,419 2,947 2,469 -- -- --
Actual return on plan assets 232 169 197 -- -- --
Employer contribution 352 357 340 -- -- --
Benefits paid (54) (54) (59) -- -- --
------- ------- ------- ----- ----- -----
Fair value of plan assets at end of year 3,949 3,419 2,947 -- -- --
------- ------- ------- ----- ----- -----
Funded status (737) (605) (523) (481) (399) (356)
Unrecognized net actuarial loss 121 5 5 77 27 12
Unrecognized net prior service cost (99) (107) (115) (110) (126) (142)
Transition obligation (66) (73) (80) -- -- --
------- ------- ------- ----- ----- -----
Accrued benefit cost $ (781) $ (780) $ (713) $(514) $(498) $(486)
======= ======= ======= ===== ===== =====
Weighted-average assumptions
as of December 31
Discount rate 7.0% 7.5% 7.5% 7.0% 7.5% 7.5%
Expected return on plan assets 9.0% 7.5% 7.5% -- -- --
Rate of compensation increase 5.0% 6.0% 6.0% 6.0% 6.0% 6.0%
<CAPTION>
Pension Post Retirement
Benefits Benefits
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 428 $ 350 $ 318 $ 25 $ 21 $ 19
Interest cost 288 258 224 28 26 23
Expected return on plan assets (327) (235) (188) -- -- --
Amortization of prior service cost (16) (16) (14) (16) (16) (16)
------- ------- ------- ----- ----- -----
Net periodic benefit cost $ 373 $ 357 $ 340 $ 37 $ 31 $ 26
======= ======= ======= ===== ===== =====
</TABLE>
For measurement purposes, a 6.7% annual rate of increase in the per capita cost
to cover health care benefits was assumed for 2000. The rate was assumed to
decrease gradually to a 6.0% annual growth rate after seven years, and remain at
6.0% annual growth rate thereafter. A 1.0% increase or decrease in the assumed
health care cost trends rate would not have a material impact on the accumulated
postretirement benefit obligation due to a built-in cap on annual benefits.
The Company also sponsors an unfunded, non-qualified supplemental retirement
plan for certain officers. The agreement provides supplemental retirement
payments payable in installments over 15 years upon retirement or death.
Effective September 1, 1999, active participants will be paid a life annuity
upon retirement or death.
The expense of this supplemental plan was $309,000, $217,000 and $246,000 in
1999, 1998 and 1997, respectively. The accrued liability of this plan at
December 31, 1999, 1998 and 1997 was $1,198,000, $955,000 and $749,000,
respectively.
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12. EMPLOYEE BENEFIT PLANS CONTINUED
Employee Stock Ownership Plan
During 1999, 1998 and 1997, the Company, as successor to KSB, had an Employee
Stock Ownership Plan ("ESOP"). As of the merger date (December 20, 1999), all
liabilities related to this plan have been paid. Total ESOP expense was
$368,765, $279,770 and $277,920 in 1999, 1998 and 1997, respectively.
Bank Recognition and Retention Plan
The Company, as successor to KSB, maintains a Bank Recognition and Retention
Plan ("BRRP") as a method of providing certain officers and other employees of
the Company with a proprietary interest in the Company. The Company contributed
funds to the recognition plan to enable them to acquire, in aggregate, 56,045
shares of common stock. The Company recognizes expense related to the plan based
on the vesting schedule. Participants are vested at a rate of 20% per year
commencing one year from the date of the award. Total expense related to the
plan was $9,726, $21,194 and $28,644 for 1999, 1998 and 1997, respectively.
A summary of shares outstanding under of the Bank Recognition and Retention Plan
is presented below:
1999 1998 1997
Outstanding at beginning of year 56,045 44,488 46,729
Granted during the year - 11,557 -
Forfeited during the year - - 2,241
------ ------ ------
Outstanding at end of year 56,045 56,045 44,488
====== ====== ======
13. SEGMENT REPORTING
The Company through its subsidiaries (Camden National Bank, United Bank,
Kingfield Bank and Trust Company of Maine, Inc.), provides a broad range of
financial services to individuals and companies in mid-coast, central and
western Maine. These services include lending, demand, savings and time
deposits, cash management and trust services. While the Company's senior
management team monitors operations of each subsidiary, these subsidiaries are
primarily organized to operate in the banking industry. Substantially all
revenues and services are derived from banking products and services in Maine.
Accordingly, the Company's subsidiaries are considered by management to be
aggregated in one reportable operating segment.
14. SHAREHOLDERS' EQUITY
Dividends paid by subsidiaries are the primary source of funds available to the
Company for payment of dividends to its shareholders. The Company's subsidiary
banks are subject to certain requirements imposed by state and federal banking
laws and regulations. These requirements, among other things, establish minimum
levels of capital and restrict the amount of dividends that may be distributed
by the subsidiary banks to the Company.
The Company has fixed stock option plans accounted for under Accounting
Principles Board Opinion 25 and related interpretations. The plans allow the
Company to grant options to employees and directors for up to 676,140 shares of
common stock. Under two plans, options are vested 20% per year from the date of
grant and expire ten years from the date of grant. Under the remaining plans,
the options are immediately vested when granted, and expire ten years from the
date the option is granted. The exercise price of all options equals the market
price of the Company's stock on the date of grant. Accordingly, no compensation
cost has been recognized for the plans. Had compensation cost for the plans been
determined based on the fair value of the options at the grant dates consistent
with the method of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share for 1999, 1998 and 1997 would have been reduced to the pro forma
amounts indicated on the next page.
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- --------------------------------------------------------------------------------
Earnings Per Share
Net Income Basic Diluted
1999
As reported $10,229 $1.27 $1.27
Pro forma 9,985 1.24 1.24
1998
As reported $11,451 $1.40 $1.38
Pro forma 10,256 1.26 1.23
1997
As reported $10,697 $1.31 $1.27
Pro forma 10,485 1.28 1.25
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for all grants in 1997 dividend yield of 5.63%, expected
volatility of 1.35%, risk-free interest rate of 5.75%, and expected lives of 10
years; in 1998 dividend yield of 3.0%, expected volatility of 1.35%, risk-free
interest rate of 4.75%, and expected lives of 10 years; in 1999 dividend yield
of 3.3%, expected volatility of 1.35%, risk-free interest rate of 4.75%, and
expected lives of 10 years.
A summary of the status of the Company's fixed stock option plans as of December
31, 1999, 1998 and 1997, and changes during the years ending on those dates is
presented below.
1999
Number of Weighted-average
Shares Exercise Price
Outstanding at beginning of year 337,366 $ 9.62
Granted during the year 18,180 16.28
Exercised during the year 164,440 4.91
Reload options granted 8,736 10.26
------- -------
Outstanding at end of year 199,842 $ 14.13
======= =======
Exercisable at end of year 184,393 $ 13.95
======= =======
Weighted-average fair value of
options granted during the year $ 13.42
1998
Number of Weighted-average
Shares Exercise Price
Outstanding at beginning of year 371,018 $ 6.47
Granted during the year 88,272 16.55
Exercised during the year 123,535 5.21
Reload options granted 5,019 16.23
Forfeited during the year 3,408 16.29
------- -------
Outstanding at end of year 337,366 $ 9.62
======= =======
Exercisable at end of year 270,228 $ 8.33
======= =======
Weighted-average fair value of
options granted during the year $ 13.54
1997
Number of Weighted-average
Shares Exercise Price
Outstanding at beginning of year 412,391 $ 6.19
Granted during the year 13,632 6.75
Exercised during the year 49,007 4.60
Forfeited during the year 5,998 2.67
------- -------
Outstanding at end of year 371,018 $ 6.47
======= =======
Exercisable at end of year 344,358 $ 6.61
======= =======
Weighted-average fair value of
options granted during the year $ 15.55
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- --------------------------------------------------------------------------------
14. Shareholders' Equity continued
The following table summarizes information related to stock options outstanding
at December 31, 1999.
Number Remaining Weighted-Average
Outstanding Contractual Life Exercise Price
13,755 3.0 $12.44
76,500 6.0 12.33
9,542 7.0 6.75
81,865 8.0 16.48
18,180 9.0 16.28
------- --- ------
199,842 6.9 $14.13
======= === ======
15. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
1999 1998 1997
Net income, as reported $ 10,229 $ 11,451 $ 10,697
Weighted-average shares 8,033,757 8,156,968 8,169,924
Effect of dilutive employee
stock options 33,877 153,658 233,607
Adjusted weighted-average shares and
assumed conversion 8,067,634 8,310,626 8,403,531
Basic earnings per share $ 1.2 $ 1.40 $ 1.31
Diluted earnings per share $ 1.27 $ 1.38 $ 1.27
Options to purchase 24,500 and 74,882 shares of common stock at an average
exercise price of $18.56 and $16.10 per share were outstanding at December 31,
1999 and 1998, respectively, but were not included in the computation of diluted
earnings per share because the options exercise price was greater than the
average market price of the common stock.
16. INCOME TAXES
The current and deferred components of income tax expense were as follows:
1999 1998 1997
Current:
Federal $5,095 $5,889 $5,937
State 188 183 209
------ ------ ------
5,283 6,072 6,146
------ ------ ------
Deferred:
Federal (100) (642) (937)
------ ------ ------
$5,183 $5,430 $5,209
====== ====== ======
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The actual expense differs from the expected tax expense computed by applying
the applicable U.S. Federal corporate income tax rate to earnings before income
taxes, as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Computed tax expense $ 5,394 $ 5,881 $ 5,409
Increase (reduction) in income taxes resulting from:
Tax exempt income (349) (184) (238)
State taxes, net of federal benefit 122 119 139
Income from life Insurance (92) (80) (41)
Acquisition costs 452 -- --
Low income housing credits (77) (304) (130)
Other (267) (2) 70
------- ------- -------
$ 5,183 $ 5,430 $ 5,209
======= ======= =======
</TABLE>
Items which give rise to deferred income tax assets and liabilities and the tax
effect of each are as follows:
<TABLE>
<CAPTION>
1999 1998
Asset Liability Asset Liability
<S> <C> <C> <C> <C>
Allowance for possible losses on loans $2,930 $-- $2,554 $--
Allowance for investment losses 86 -- 90 --
Capitalized costs -- 34 -- 69
Pension and other benefits 855 -- 777 --
Depreciation -- 134 -- 162
Deferred loan origination fees -- 207 -- 86
Deferred compensation and benefits 268 -- 89 --
Unrealized gains (losses) of investments available for sale 2,978 -- --
159
Unrealized appreciation (depreciation) on loans held for sale- 447 118 --
Valuation of other real estate owned 148 -- 29 --
Interest receivable 122 -- 122 --
Deposit premium 38 -- 60 --
Mortgage servicing rights 26 -- 24 --
Other 126 -- 200 --
------ ---- ------ ----
$7,577 $822 $4,063 $476
====== ==== ====== ====
</TABLE>
The related income taxes have been calculated using a rate of 35%. No valuation
allowance is deemed necessary for the deferred tax asset, which is included in
other assets.
Retained earnings include $222,000 representing an allocation for income tax bad
debt deductions prior to 1988, referred to as the base year reserve. No income
taxes have been provided for the base year reserve, though it continues to be
subject to provisions of present law that require recapture in the case of
certain excess distributions to shareholders.
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17. RELATED PARTIES
In the ordinary course of business, the Company has made loans to certain
officers and directors and the companies with which they are associated. All
such loans were made under terms that are consistent with the Company's normal
lending policies. Changes in the composition of the board of directors or the
group comprising executive officers result in additions to or deductions from
loans outstanding to directors, executive officers, or principal shareholders.
Loans to related parties which in aggregate exceed $60,000 were as follows:
1999 1998
Balance, January 1, $15,933 $14,604
Loans made/advanced and additions 9,866 6,167
Repayments and reductions 9,621 4,838
------- -------
Balance, December 31 $16,178 $15,933
======= =======
In addition to the loans noted above, the Company had deposits outstanding at
December 31, 1999 and 1998 to the same individuals of $6.0 and $5.4 million,
respectively.
18. FINANCIAL INSTRUMENTS
In the normal course of business, the Company is a party to financial
instruments with off-balance sheet risk, which are not reflected in the
accompanying consolidated statements of condition. The Company's significant
off-balance sheet risks are lending commitments, letters of credit, interest
rate floors, caps, and interest rate swap agreements. Those instruments involve
varying degrees of credit and interest rate risk in excess of the amount
recognized in the statements of condition.
The Company follows the same credit policies in making commitments to extend
credit and conditional obligations as it does for on-balance sheet instruments,
including requiring similar collateral or other security to support financial
instruments with credit risk. The Company's exposure to credit loss in the event
of nonperformance by the customer is represented by the contractual amount of
those instruments. Since many of the commitments are expected to expire without
being drawn upon, the total amount does not necessarily represent future cash
requirements.
The Company uses off-balance sheet derivative instruments to hedge against large
fluctuations in interest rates. The Company uses interest rate swaps and floor
instruments to hedge against potentially lower yields on the variable prime rate
loan category in a declining rate environment. If rates were to decline,
resulting in reduced income on the adjustable rate loans, there would be an
increased income flow from the interest rate swap and floor instruments. The
Company also uses cap instruments to hedge against increases in short-term
borrowing rates. If rates were to rise, resulting in an increased interest cost,
there would be an increased income flow from the cap instruments.
All off-balance sheet positions are reviewed as part of the asset/liability
management process at least quarterly. The instruments are factored into the
Company's overall interest rate risk position. The Company regularly reviews the
credit quality of the counterparties from which the instruments have been
purchased. As of December 31, 1999, the Company had a $10 million (notional
principal amount) interest rate swap that matures in 2004.
At December 31, 1999 and 1998, the contractual or notional amounts of
off-balance sheet financial instruments were as follows:
1999 1998
Commitments to extend credit $119,586 $121,903
Letters of credit 1,303 2,059
Swaps 10,000 5,000
Floors - 20,000
Caps - 10,000
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The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks and federal funds sold $ 24,645 $ 24,645 $ 18,175 $ 18,175
Securities available for sale 163,997 163,997 120,852 120,852
Securities held to maturity 68,193 68,049 97,841 101,203
Loans held for sale 6,906 6,906 32,865 33,207
Loans receivable 619,138 616,935 528,748 526,017
Interest receivable 5,041 5,041 4,672 4,672
Financial liabilities:
Deposits $667,720 $665,231 $641,553 $642,281
Borrowings from Federal Home Loan Bank 128,866 126,010 82,912 81,842
Other borrowed funds 45,058 45,058 30,770 30,770
Interest payable 3,162 3,162 3,239 3,239
</TABLE>
The estimated fair values of the Company's off-balance sheet instruments were as
follows:
<TABLE>
<CAPTION>
December 31, 1999
Fair Value
Notional Contract Maturity Including
Principal Date Date Accruals
<S> <C> <C> <C> <C>
Interest Rate Swaps $10,000 23-Dec-99 23-Dec-04 $ -
======= ====
<CAPTION>
December 31, 1998
Fair Value
Notional Contract Maturity Including
Principal Date Date Accruals
<S> <C> <C> <C> <C>
Interest Rate Swaps $ 5,000 21-Jun-96 21-Jun-99 $ 34
------- ----
Interest Rate Floors $10,000 03-Jun-94 03-Jun-99 $ 8
10,000 13-Sep-94 13-Sep-99 11
------- ----
$20,000 $ 19
======= ====
Interest Rate Caps $10,000 21-Jul-97 21-Jul-99 $ -
======= ====
</TABLE>
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19. REGULATORY MATTERS
The Company, and its bank subsidiaries, are subject to various regulatory
capital requirements administered by the Federal Reserve Board, the Comptroller
of the Currency, and the Federal Deposit Insurance Corporation. Failure to meet
minimum capital requirements can result in certain mandatory and possible
additional discretionary actions by regulators that, if undertaken, could have
direct material affect on the Company's financial statements.
These capital requirements represent quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting principles. The Company's capital classification is also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier I capital to average assets (as defined). Management believes that,
as of December 31, 1999, the Company meets all capital requirements to which it
is subject.
As of December 31, 1999, all bank subsidiaries were categorized by their
supervisory regulatory agencies as well capitalized. To be categorized as well
capitalized, the banks must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table. There are no conditions or
events that management believes have changed the banks' respective capital
categories.
The Company's actual capital amounts and ratios are also presented in the
following tables.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(less than (less than (less than (less than
or equal) or equal) or equal) or equal)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total Capital (To Risk-Weighted Assets):
Consolidated $83,841 13.0% $51,725 8.0% N/A
Camden National Bank 52,998 12.6% 33,568 8.0% $41,960 10.0%
United Bank 10,605 10.9% 7,821 8.0% 9,776 10.0%
Kingfield Bank 15,370 11.9% 10,336 8.0% 12,920 10.0%
Tier I Capital (To Risk-Weighted Assets):
Consolidated $77,623 11.7% $25,863 4.0% N/A
Camden National Bank 47,473 11.4% 16,784 4.0% $25,176 6.0%
United Bank 10,711 9.6% 3,911 4.0% 5,866 6.0%
Kingfield Bank 14,571 10.7% 5,168 4.0% 7,752 6.0%
Tier I Capital (To Average Assets):
Consolidated $77,623 8.7% $35,674 4.0% N/A
Camden National Bank 47,473 8.3% 22,974 4.0% $28,717 5.0%
United Bank 10,711 8.0% 5,339 4.0% 6,673 5.0%
Kingfield Bank 14,571 8.0% 7,249 4.0% 9,061 5.0%
</TABLE>
================================================================================
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<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(less than (less than (less than (less than
or equal) or equal) or equal) or equal)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998
Total Capital (To Risk-Weighted Assets):
Consolidated $75,912 13.6% $44,606 8.0% N/A
Camden National Bank 50,111 14.2% 28,292 8.0% $35,365 10.0%
United Bank 9,773 10.7% 7,310 8.0% 9,138 10.0%
Kingfield Bank 13,183 11.7% 8,971 8.0% 11,215 10.0%
Tier I Capital (To Risk-Weighted Assets):
Consolidated $68,942 12.3% $22,303 4.0% N/A
Camden National Bank 45,690 12.9% 14,146 4.0% $21,219 6.0%
United Bank 8,631 9.5% 3,655 4.0% 5,483 6.0%
Kingfield Bank 11,779 10.5% 4,486 4.0% 6,729 6.0%
Tier I Capital (To Average Assets):
Consolidated $68,942 9.5% $30,198 4.0% N/A
Camden National Bank 45,690 9.1% 19,982 4.0% $24,978 5.0%
United Bank 8,631 9.0% 3,842 4.0% 4,803 5.0%
Kingfield Bank 11,779 7.1% 6,616 4.0% 8,269 5.0%
</TABLE>
20. BANK HOLDING COMPANY
Following are the condensed statements of condition, income statements, and
statements of cash flow for Camden National Corporation, a multi-bank and
financial services holding company.
STATEMENTS OF CONDITION
December 31,
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Assets
Cash $ 81 $ 2,648
Premises and equipment 1,533 1,486
Investment in subsidiaries:
Banking subsidiaries 72,755 74,940
Other subsidiaries 120 94
Amounts receivable from subsidiaries 2,367 1,940
Goodwill 46 51
Other assets 2,633 341
------- -------
Total assets $79,535 $81,500
======= =======
Liabilities and Shareholders' Equity
Amounts due to subsidiaries $ 1,300 $ 3,350
Accrued and other expenses 612 361
Shareholders' equity 77,623 77,789
------- -------
Total liabilities and shareholders' equity $79,535 $81,500
======= =======
</TABLE>
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<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
20. Bank Holding Company continued
STATEMENTS OF INCOME
For Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating Income
Dividend income from subsidiaries $ 8,256 $ 8,682 $ 4,473
Fees from subsidiaries 3,579 3,323 2,786
Other income 10 14 17
------- ------- -------
Total operating income 11,845 12,019 7,276
------- ------- -------
Operating Expenses
Salaries and employee benefits 2,158 2,030 1,625
Net occupancy 155 170 156
Furniture, equipment and data processing 709 653 612
Other operating expenses 1,353 905 651
Acquisition related expenses 1,019 -- --
------- ------- -------
Total operating expenses 5,394 3,758 3,044
------- ------- -------
Income before equity in undistributed earnings of subsidiaries 6,451 8,261
4,232
Equity in undistributed earnings of subsidiaries 3,705 3,166 6,421
------- ------- -------
Net income before tax 10,156 11,427 10,653
Income tax benefit 73 24 44
------- ------- -------
Net Income $10,229 $11,451 $10,697
======= ======= =======
</TABLE>
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<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
For Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net income $ 10,229 $ 11,451 $ 10,697
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Equity in undistributed earning of subsidiaries (3,705) (3,166) (6,421)
Depreciation and amortization 300 361 197
Decrease in obligation under ESOP and BRRP 487 301 257
Amortization of goodwill 5 4 3
(Increase) decrease in amount receivable from subsidiaries (427) (1,869) 175
Increase in other assets (2,292) (103) (169)
(Decrease) increase in payables (1,799) 4,003 151
Other -- (265) 11
-------- -------- --------
Net cash provided by operating activities 2,798 10,717 4,901
-------- -------- --------
Investing Activities
Investment in Trust Company of Maine, Inc. -- -- (51)
Purchase of premises and equipment (347) (172) (149)
-------- -------- --------
Net cash used by investing activities (347) (172) (200)
-------- -------- --------
Financing Activities
Proceeds from sale of treasury stock 2,249 -- --
Exercise and cancellation stock options (975) (1,121) --
Purchase of treasury stock (2,337) (3,139) (1,461)
Dividends paid (4,182) (3,863) (3,136)
Proceeds from stock issuance under option plan 227 81 54
Filing fee related to stock split -- (35) --
-------- -------- --------
Net cash used by financing activities (5,018) (8,077) (4,543)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (2,567) 2,468 158
Cash and cash equivalents at beginning of year 2,648 180 22
-------- -------- --------
Cash and cash equivalents at end of year $ 81 $ 2,648 $ 180
======== ======== ========
</TABLE>
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<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
Mar 31 June 30 Sept 30 Dec 31
<S> <C> <C> <C> <C>
1999
Interest income $16,812 $17,400 $17,870 $18,481
Interest expense 7,246 7,601 7,736 7,921
Net interest income 9,566 9,799 10,134 10,560
Provision for loan losses 585 655 775 1,655
Income before income taxes 4,506 4,625 4,549 1,732
Applicable income taxes 1,445 1,513 1,445 780
Net income 3,061 3,112 3,104 952
Per common share:
Basic 0.38 0.39 0.38 0.12
Diluted 0.38 0.39 0.38 0.12
<CAPTION>
THREE MONTHS ENDED
Mar 31 June 30 Sept 30 Dec 31
<S> <C> <C> <C> <C>
1998
Interest income $ 14,832 $ 15,121 $ 15,430 $ 16,955
Interest expense 6,795 6,683 6,677 6,852
Net interest income 8,037 8,438 8,753 10,103
Provision for loan losses 444 444 464 704
Income before income taxes 3,971 3,959 4,464 4,487
Applicable income taxes 1,318 1,284 1,441 1,387
Net income 2,653 2,675 3,023 3,100
Per common share:
Basic 0.32 0.33 0.37 0.38
Diluted 0.32 0.32 0.36 0.38
</TABLE>
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<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Auditor's Letter
(BDM&P Letterhead)
BERRY, DUNN, McNEIL & PARKER, LLC
CERTIFIED PUBLIC ACCOUNTANTS
MANAGEMENT CONSULTANTS
------------------------------------------------------------
100 Middle Street/P.O. Box 1100, Portland, Maine 04104-1100/
(207)775-2387/FAX (207)774-2375
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders and Board of Directors
Camden National Corporation
We have audited the accompanying consolidated statements of condition of Camden
National Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Camden National
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ Berry, Dunn, McNeil & Parker
Portland, Maine
January 28, 2000
Offices in:
Bangor, Maine Portland, Maine Lebanon, New Hampshire Manchester, New Hampshire
================================================================================
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<PAGE>
BOARDS OF DIRECTORS AND BANK ADMINISTRATIONS
- --------------------------------------------------------------------------------
Directors of Camden National Corporation
- --------------------------------------------------------------------------------
Rendle A. Jones
Chairman, Camden National Corporation
Attorney & Partner, Harmon, Jones, Sanford & Elliott, LLP
Peter T. Allen
Private Investor
Ann W. Bresnahan
Civic Leader
Robert J. Campbell
Partner, Beck, Mack & Oliver Investments
Robert W. Daigle
President & CEO,
Camden National Corporation & Camden National Bank
Robert J. Gagnon
Store Manager, Rockland Shop 'n Save
Ward I. Graffam
Co-owner, Wayfarer Marine Corporation
John W. Holmes
President, Consumers Fuel Co.
Theodore C. Johanson
President, Falcon Shoe Co.
John S. McCormick, Jr.
Engineer & Developer,
Consolidated Real Estate and Engineering
Winfield F. Robinson
President, Timber Resource Group, LLC
Richard N. Simoneau, C.P.A.
Tax Partner, Simoneau & Norton, P.A.
Arthur E. Strout
Attorney & Partner, Strout & Payson, P.A.
Administration of Camden National Corporation
- --------------------------------------------------------------------------------
Robert W. Daigle
President & CEO
Laurel J. Bouchard
Vice President, Corporate Sales & Marketing Officer
Joanne T. Campbell
Vice President & Residential Real Estate Administration Officer
Steven D. Dailey
Vice President & Information Systems Officer
James C. Ebbert
Assistant to the President
June B. Parent
Vice President & Human Resources Manager
Jeffrey D. Smith
Vice President & Chief Operations Officer
Susan M. Westfall
Vice President, Clerk, Treasurer & Chief
Financial Officer
Brenda B. Munroe
Assistant Vice President & Electronic Banking Manager
Kimberly J. Nason
Assistant Vice President & Residential Real Estate
Loan Officer
Kathryn M. Ryder
Assistant Vice President, Financial Officer & Accounting Manager
Lee Ann Szelog
Assistant Vice President & Marketing Manager
Robert E. Cleveland, Jr.
Senior Network Administrator
Ellen L. Ellis
Manager, Loan Servicing Department
Ann E. Filley
Manager, Training Department
Jennifer F. Mazurek
Manager, Deposit Services Department
Timothy J. Pratt
Manager, Items Processing Department
Timothy J. Thompson
Quality Service Manager
Directors of Camden National Bank
- --------------------------------------------------------------------------------
Rendle A. Jones
Chairman, Camden National Bank
Attorney & Partner, Harmon, Jones, Sanford & Elliott, LLP
Peter T. Allen
Private Investor
Ann W. Bresnahan
Civic Leader
Robert W. Daigle
President & CEO,
Camden National Corporation & Camden National Bank
David C. Flanagan
President, Viking Lumber, Inc.
Robert J. Gagnon
Store Manager, Rockland Shop 'n Save
John W. Holmes
President, Consumers Fuel Co.
John S. McCormick, Jr.
Engineer & Developer,
Consolidated Real Estate and Engineering
Richard N. Simoneau, C.P.A.
Tax Partner, Simoneau & Norton, P.A.
Arthur E. Strout
Attorney & Partner, Strout & Payson, P.A.
Rosemary B. Weymouth
President, Megunticook Management Co.
Associate Directors of Camden National Bank
- --------------------------------------------------------------------------------
C.R. deRochemont
Realtor, C.R. deRochemont Realtor
Kenneth C. Dickey
Retired Vice Chairman,
Camden National Corporation
Haskell & Corthell Real Estate
Frederick G. "Ted" Hanley
Retired Executive Vice President,
Camden National Bank
Lawrence N. Hopkins
Retired President, Camden National Bank
David H. Montgomery
Retired Chairman, Camden National Corporation
Past Chairman, Allen Agency
Keith C. Patten
Retired Chairman, Camden National Bank
Retired President & CEO, Camden National Corporation
Administration of Camden National Bank
- --------------------------------------------------------------------------------
Michael A. McAvoy
Senior Vice President & Senior Loan Officer
John P. "Jack" Williams
Senior Vice President & Community Banking
Division Officer
Paul C. Doody
Vice President & Community Banking Officer
Barbara B. Hanson
Vice President & Community Banking Officer
Richard E. Littlefield
Vice President & Commercial Loan Officer
Stephen C. Staples
Vice President & Community Banking Officer
Stephen C. Wallace
Vice President & Retail Sales Manager
================================================================================
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<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Vera E. Rand
Commercial Loan Officer
Christopher A. Frohock
Special Assets Officer
Stephen J. Matteo
Credit Administrator
Branch Administration of Camden National Bank
- --------------------------------------------------------------------------------
Tamara J. Bryant
Vice President, Regional Manager & Manager,
Main Office
Robert P. Wheeler
Vice President, Regional Manager & Manager, Vinalhaven Office
Brenda J. Condon
Assistant Vice President & Manager,
Bucksport Office
Judith L. Brogden
Manager, Thomaston Office
Susan L. O'Brien
Manager, Union Office
Jane G. Pierce
Manager, Belfast Office
Walter C. Reynolds
Manager, Damariscotta Office
Todd L. Savage
Manager, Camden Square Office
R. Todd Starbird
Manager, Rockland Office
Claire E. Smith
Interim Manager, Waldoboro Office
Directors of UnitedKingfield Bank
- --------------------------------------------------------------------------------
Winfield F. Robinson
Chairman, UnitedKingfield Bank
President, Timber Resource Group, LLC
Robert W. Daigle
President & CEO,
Camden National Corporation & Camden National Bank
William Dubord
Attorney & Senior Partner,
Marden, Dubord, Bernier & Stevens
Edward R. Dysart
President, Dysart Transportation Services, Inc.
William T. Gardner
President, William T. Gardner & Sons, Inc.
Theodore C. Johanson
President, Falcon Shoe Co.
Rendle A. Jones
Attorney & Partner,
Harmon, Jones, Sanford & Elliott, LLP
C. Charles Lumbert
President, Moose River Lumber Co., Inc.
Roger G. Spear
Chief Financial Officer, University of Maine
at Farmington
John C. Witherspoon
President & CEO, UnitedKingfield Bank
Administration of UnitedKingfield Bank
- --------------------------------------------------------------------------------
John C. Witherspoon
President & CEO
Susan D. Keiler
Vice President & Operations Officer
James M. Kimball
Vice President & Senior Commercial Lender
Charles D. Osgood
Vice President & Senior Loan Officer
Cindy Spencer
Vice President, Credit Administration
Robert D. Stone
Vice President, Sales & Marketing Officer
Gerard R. Belanger
Regional Vice President
Gordon A. Flint
Regional Vice President
Directors of Trust Company of Maine
- --------------------------------------------------------------------------------
Andrew P. Averill
Chairman, President & CEO,
Trust Company of Maine, Inc.
Randall A. Bishop
Chief Financial Officer, William T. Gardner & Sons, Inc.
Robert W. Daigle
President & CEO,
Camden National Corporation & Camden National Bank
Shirley B. Kile
Executive Vice President & Treasurer,
Trust Company of Maine, Inc.
R. Paul Pasquine
Executive Vice President,
Trust Company of Maine, Inc.
Richard N. Simoneau, C.P.A.
Tax Partner, Simoneau & Norton, P.A.
Administration of Trust Company of Maine, Inc.
- --------------------------------------------------------------------------------
Andrew P. Averill
Chairman, President & CEO
Shirley B. Kile
Executive Vice President & Treasurer
R. Paul Pasquine
Executive Vice President, COO & Sr. Trust Officer
Lynn M. Bowden
Vice President & Trust Officer
Susan L. Kenney
Assistant Vice President & Trust Officer
Robert M. Parker, Jr.
Assistant Vice President & Trust Officer
Credits
Benjamin Magro, Photography
Peggy Mason Graphics, Typesetting
tracey/edwards, Design
================================================================================
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<PAGE>
- --------------------------------------------------------------------------------
Annual Meeting
Camden National Corporation
Tuesday, May 2, 2000, 3:30 p.m.
The Camden Opera House
The Company will provide, without charge, upon written request, a copy of Camden
National Corporation's 1999 Annual Report on Securities and Exchange Commission
Form 10K.
Please contact:
Susan M. Westfall, Chief Financial Officer
Camden National Corporation
P.O. Box 310
Camden, Maine 04843
(207) 236-9131, ext. 2165
[email protected]
[CNC LOGO]
Camden National Corporation
Member FDIC
================================================================================
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<PAGE>
[CNC LOGO]
<PAGE>
EXHIBIT #21 SUBSIDIARIES OF THE COMPANY
- ---------------------------------------
Camden National Bank
UnitedKingfield Bank
Trust Company of Maine, Inc.
<PAGE>
EXHIBIT #23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
- -------------------------------------------------------
Consent of Independent Public Accountants
As the independent public accountants of Camden National Corporation, we hereby
consent to the incorporation of our report included in this Form 10-K, into the
Company's previously filed Registration File Number 333-95157.
Berry, Dunn, McNeil & Parker, LLP
Portland, Maine
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 24,230
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 415
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 163,997
<INVESTMENTS-CARRYING> 68,193
<INVESTMENTS-MARKET> 68,049
<LOANS> 635,434
<ALLOWANCE> 9,390
<TOTAL-ASSETS> 928,350
<DEPOSITS> 667,720
<SHORT-TERM> 128,924
<LIABILITIES-OTHER> 9,083
<LONG-TERM> 0
0
0
<COMMON> 2,450
<OTHER-SE> 75,173
<TOTAL-LIABILITIES-AND-EQUITY> 928,350
<INTEREST-LOAN> 54,838
<INTEREST-INVEST> 15,553
<INTEREST-OTHER> 172
<INTEREST-TOTAL> 70,563
<INTEREST-DEPOSIT> 23,187
<INTEREST-EXPENSE> 30,504
<INTEREST-INCOME-NET> 40,059
<LOAN-LOSSES> 3,670
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 27,604
<INCOME-PRETAX> 15,412
<INCOME-PRE-EXTRAORDINARY> 15,412
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,229
<EPS-BASIC> $1.27
<EPS-DILUTED> $1.27
<YIELD-ACTUAL> 8.53
<LOANS-NON> 6,136
<LOANS-PAST> 195
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,331
<ALLOWANCE-OPEN> 8,092
<CHARGE-OFFS> 2,660
<RECOVERIES> 288
<ALLOWANCE-CLOSE> 9,390
<ALLOWANCE-DOMESTIC> 8,862
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 528
</TABLE>
