<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
Commission File No. 0-28190
CAMDEN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
MAINE 01-04132282
(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
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Outstanding at September 30, 2000: Common stock (no par value) 8,609,898
shares.
<PAGE>
CAMDEN NATIONAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PART I. PAGE
ITEM 1. FINANCIAL INFORMATION
Independent Accountants' Report 3
Consolidated Statements of Income
Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Income
Three Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Comprehensive Income
Nine Months Ended September 30, 2000 and 1999 6
Consolidated Statements of Comprehensive Income
Three Months Ended September 30, 2000 and 1999 6
Consolidated Statements of Condition September 30, 2000
and December 31, 1999 7
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 8
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2000 and 1999 9
Analysis of Changes in Net Interest Margin
Nine Months Ended September 30, 2000 and 1999 10
Average Balance Sheets Nine Months Ended September 30, 2000 and 1999 11
Analysis of Volume and Rate Changes on Net Interest Income
& Expenses September 30, 2000 over September 30, 1999 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 15-17
PART II.
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBITS 19-20
Page 2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
The Shareholders and Board of Directors
Camden National Corporation
We have reviewed the accompanying interim consolidated financial information of
Camden National Corporation and Subsidiaries as of September 30, 2000, and for
the three-month and nine-month periods then ended. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is to express an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
Berry, Dunn, McNeil & Parker
Portland, Maine
November 7, 2000
Page 3
<PAGE>
PART I.
ITEM I. FINANCIAL INFORMATION
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
(In thousands, except number NINE MONTHS ENDED SEPTEMBER 30,
of shares and per share data) 2000 1999
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 45,400 $ 39,770
Interest on U.S. Government and agency obligations 10,169 9,810
Interest on state and political subdivision obligations 295 301
Interest on interest rate swap agreements 765 155
Interest on federal funds sold and other investments 1,998 1,460
------------ ------------
TOTAL INTEREST INCOME 58,627 51,496
INTEREST EXPENSE
Interest on deposits 19,235 17,229
Interest on other borrowings 9,212 5,232
Interest on interest rate swap agreements 720 150
------------ ------------
TOTAL INTEREST EXPENSE 29,167 22,611
------------ ------------
NET INTEREST INCOME 29,460 28,885
PROVISION FOR LOAN LOSSES 1,897 2,015
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 27,563 26,870
OTHER INCOME
Service charges on deposit accounts 2,171 2,109
Other service charges and fees 2,595 2,220
Other income 1,818 1,496
------------ ------------
TOTAL OTHER INCOME 6,584 5,825
OPERATING EXPENSES
Salaries and employee benefits 8,706 9,510
Premises and fixed assets 2,825 2,863
Other 7,254 6,622
------------ ------------
TOTAL OPERATING EXPENSES 18,785 18,995
------------ ------------
LESS MINORITY INTEREST NET INCOME 47 20
INCOME BEFORE INCOME TAXES 15,315 13,680
------------ ------------
INCOME TAXES 4,774 4,403
------------ ------------
Net Income $ 10,541 $ 9,277
============ ============
PER SHARE DATA
Basic earnings per share (Net income divided
by weighted average shares outstanding) $ 1.29 $ 1.15
Diluted earnings per share 1.29 1.15
Cash dividends per share 0.47 0.39
Weighted average number of shares outstanding 8,166,831 8,027,471
</TABLE>
Page 4
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
(In thousands, except number THREE MONTHS ENDED SEPTEMBER 30,
of shares and per share data) 2000 1999
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 15,832 $ 13,702
Interest on U.S. Government and agency obligations 3,349 3,288
Interest on state and political subdivision obligations 98 100
Interest on interest rate swap agreements 432 0
Interest on federal funds sold and other investments 675 564
----------- ----------
Total interest income 20,386 17,654
INTEREST EXPENSE
Interest on deposits 7,115 5,864
Interest on other borrowings 3,061 1,872
Interest on interest rate swap agreements 401 0
----------- ----------
TOTAL INTEREST EXPENSE 10,577 7,736
----------- ----------
NET INTEREST INCOME 9,809 9,918
PROVISION FOR LOAN LOSSES 609 775
----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,200 9,143
OTHER INCOME
Service charges on deposit accounts 705 716
Other service charges and fees 1,157 1,005
Other income 584 489
----------- ----------
TOTAL OTHER INCOME 2,446 2,210
OPERATING EXPENSES
Salaries and employee benefits 2,466 3,230
Premises and fixed assets 912 945
Other 2,342 2,622
----------- ----------
TOTAL OPERATING EXPENSES 5,720 6,797
----------- ----------
LESS MINORITY INTEREST NET INCOME 24 7
INCOME BEFORE INCOME TAXES 5,902 4,549
----------- ----------
INCOME TAXES 1,878 1,445
----------- ----------
Net Income $ 4,024 $ 3,104
=========== ==========
PER SHARE DATA
Basic earnings per share (Net income divided
by weighted average shares outstanding) $ 0.49 $ 0.38
Diluted earnings per share 0.49 0.38
Cash dividends per share 0.16 0.13
Weighted average number of shares outstanding 8,165,788 8,018,590
</TABLE>
Page 5
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
(In thousands) NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
<S> <C> <C>
Net income $10,541 $ 9,277
Other comprehensive income, net of tax:
Change in unrealized appreciation (depreciation)
on securities available for sale (net of taxes of $893 and
$(1,929) for 2000 and 1999, respectively) 1,734 (3,745)
------- -------
Comprehensive income $12,275 $ 5,532
======= =======
</TABLE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
(In thousands) THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
<S> <C> <C>
Net income $ 4,024 $ 3,104
Other comprehensive income, net of tax:
Change in unrealized appreciation (depreciation)
on securities available for sale (net of taxes of $561 and
$(700) for 2000 and 1999, respectively) 1,089 (1,358)
------- -------
Comprehensive income $ 5,113 $ 1,746
======= =======
</TABLE>
Page 6
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(In thousands, except number of shares and per share data)
SEPTEMBER 30, DECEMBER 31,
2000 1999
(unaudited) (audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 32,683 $ 24,230
Federal funds sold - 415
Securities available for sale 156,227 147,939
Securities held to maturity (market value $60,605
and $68,049 at September 30, 2000 and
December 31, 1999, respectively) 60,280 68,193
Other securities 16,232 16,058
Residential mortgages held for sale 11,557 6,906
Loans, less allowance for loan losses of $10,716
and $9,390 at September 30, 2000 and
December 31, 1999, respectively 676,486 619,138
Bank premises and equipment 15,025 12,093
Other real estate owned 580 1,405
Interest receivable 6,704 5,041
Other assets 35,578 26,932
---------- --------
Total assets $1,011,352 $928,350
========== ========
LIABILITIES
Deposits:
Demand $ 90,640 $ 80,385
NOW 92,876 89,740
Money market 103,961 71,237
Savings 83,566 112,335
Certificates of deposit 345,579 308,009
Broker Certificates of deposit 26,931 6,014
---------- --------
TOTAL DEPOSITS 743,553 667,720
Borrowings from Federal Home Loan Bank 133,947 128,866
Other borrowed funds 39,577 45,058
Accrued interest and other liabilities 8,229 8,968
Minority interest in subsidiary 165 115
---------- --------
Total liabilities 925,471 850,727
---------- --------
SHAREHOLDERS' EQUITY
Common stock, no par value; authorized
10,000,000 shares, issued 8,609,898 shares 2,450 2,450
Surplus 5,909 5,990
Retained earnings 90,259 83,563
Net unrealized depreciation on securities
available for sale, net of income tax (4,048) (5,782)
Less cost of 453,195 and 442,540 shares of
treasury stock on September 30, 2000 and
December 31, 1999, respectively 8,689 8,598
---------- --------
Total shareholders' equity 85,881 77,623
---------- --------
Total liabilities and shareholders' equity $1,011,352 $928,350
========== ========
</TABLE>
Page 7
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(In thousands) NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 10,541 $ 9,277
Adjustment to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,897 2,015
Depreciation and amortization 892 1,405
Increase in interest receivable (1,280) (968)
Decrease (increase) in other assets 1,536 (2,592)
(Decrease) increase in other liabilities (1,827) 5,894
Cash receipts from sale of residential loans 1,228 4,915
Origination of mortgage loans held for sale (5,879) (2,813)
Decrease in obligation under ESOP and BRRP 0 168
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,108 17,301
INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity 8,008 26,286
Proceeds from maturities of securities available for sale 6,035 18,692
Purchase of securities available for sale (11,956) (60,352)
Purchase of Federal Home Loan Bank Stock (174) (1)
Net increase in loans (59,245) (61,896)
Net decrease in other real estate owned 825 420
Purchase of premises and equipment (4,030) (1,310)
Purchase of life insurance policy (10,000) 0
Net sale of federal funds 415 0
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (70,122) (78,161)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW
accounts, and savings accounts 17,346 30,121
Net increase in certificates of deposit 58,487 5,870
Net (decrease) increase in short-term borrowings (400) 38,717
Increase in minority position 50 25
Purchase of treasury stock (180) (2,247)
Exercise and repurchase of stock options 0 (975)
Proceeds from other stock issuance 9 142
Cash dividends (3,845) (3,177)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 71,467 68,476
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,453 7,616
Cash and cash equivalents at beginning of year 24,230 18,175
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32,683 $ 25,791
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-Cash transactions:
Transfer from loans to real estate owned 222 148
Transfer from loans held for sale to loan portfolio 6,629 8,230
</TABLE>
Page 8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures required by generally accepted accounting principles for complete
presentation of financial statements. In the opinion of management, the
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated
statements of condition of Camden National Corporation, as of September 30,
2000, and December 31, 1999, the consolidated statements of income for the nine
and three months ended September 30, 2000 and September 30, 1999, the
consolidated statements of comprehensive income for the nine and three months
ended September 30, 2000 and September 30, 1999 and the consolidated statements
of cash flows for the nine months ended September 30, 2000, and September 30,
1999. All significant intercompany transactions and balances are eliminated in
consolidation. The income reported for the period ended September 30, 2000 is
not necessarily indicative of the results that may be expected for the full
year. The information in this report should be read in conjunction with the
consolidated financial statements and accompanying notes included in the
December 31, 1999 Annual Report to Shareholders.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per share data is computed based on the weighted average number
of common shares outstanding during each year. Potential common stock is
considered in the calculation of weighted average shares outstanding for diluted
earnings per share.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
(Dollars in thousands) 2000 1999
<S> <C> <C>
Net income, as reported $ 10,541 $ 9,277
Weighted average shares 8,166,831 8,027,471
Effect of dilutive employee stock options 21,825 44,054
Adjusted weighted average shares
and assumed conversion 8,188,656 8,071,525
Basic earnings per share $ 1.29 $ 1.15
Diluted earnings per share 1.29 1.15
THREE MONTHS ENDED SEPTEMBER 30,
(Dollars in thousands) 2000 1999
Net income, as reported $ 4,024 $ 3,104
Weighted average shares 8,165,788 8,018,590
Effect of dilutive employee stock options 21,825 44,054
Adjusted weighted average shares
and assumed conversion 8,187,613 8,062,644
Basic earnings per share $ 0.49 $ 0.38
Diluted earnings per share 0.49 0.38
</TABLE>
Page 9
<PAGE>
NOTE 3 - RECENT DEVELOPMENTS
On February 4, 2000, the Company completed the merger of two of its bank
subsidiaries, United Bank, a state chartered bank based in Bangor, Maine and
Kingfield Savings Bank, a state chartered bank based in Kingfield, Maine. The
successor is UnitedKingfield Bank, a state chartered bank based in Bangor,
Maine.
On October 16, 2000, the Company terminated its defined benefit plan. The
Company recognized income of $645,000 on the termination pursuant to SFAS No.
88.
ANALYSIS OF CHANGES IN NET INTEREST MARGIN
<TABLE>
<CAPTION>
September 30, 2000 SEPTEMBER 30, 1999
-------------------- --------------------
AMOUNT AVERAGE AMOUNT AVERAGE
of Yield/ of Yield/
Dollars in thousands INTEREST COST INTEREST COST
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Interest-earning assets:
Securities - taxable $ 12,120 7.15% $ 11,160 6.93%
Securities - nontaxable 443 6.82% 456 6.49%
Federal funds sold 50 5.93% 111 6.21%
Loans 45,712* 9.11% 40,095* 8.91%
-------- ---- -------- ----
TOTAL EARNING ASSETS 58,325 8.59% 51,822 8.36%
INTEREST-BEARING LIABILITIES:
NOW accounts 676 1.04% 822 1.29%
Savings accounts 1,546 2.39% 2,322 2.75%
Money market accounts 3,031 4.38% 1,668 3.51%
Certificates of deposit 13,555 5.57% 12,160 5.23%
Short-term borrowings 9,212 5.85% 5,232 4.84%
Broker certificates of deposit 427 6.98% 257 5.66%
-------- ---- -------- ----
TOTAL INTEREST-BEARING LIABILITIES 28,447 4.70% 22,461 4.17%
NET INTEREST INCOME
(FULLY-TAXABLE EQUIVALENT) 29,878 29,361
LESS: FULLY-TAXABLE EQUIVALENT ADJUSTMENT (418) (476)
-------- --------
$ 29,460 $ 28,885
======== ========
Net Interest Rate Spread
(FULLY-TAXABLE EQUIVALENT) 3.89% 4.19%
NET INTEREST MARGIN 4.40% 4.75%
(FULLY-TAXABLE EQUIVALENT)
</TABLE>
*Includes net swap income figures - 2000: $45,000 and 1999: $5,000.
Notes: Nonaccrual loans are included in total loans. Tax exempt interest was
calculated using a rate of 34% for fully-taxable equivalent.
Page 10
<PAGE>
AVERAGE BALANCE SHEETS
Dollars in thousands
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
INTEREST-EARNING ASSETS:
Securities - taxable $226,111 $214,182
Securities - nontaxable 8,662 9,274
Federal funds sold 1,124 2,671
Loans 668,969 598,603
-------- --------
TOTAL INTEREST-EARNING ASSETS 904,866 824,730
Cash and due from banks 27,124 19,344
Other assets 58,396 42,059
Less allowance for loan losses 10,401 8,696
-------- --------
TOTAL ASSETS $979,985 $877,437
======== ========
INTEREST-BEARING LIABILITIES:
NOW accounts $ 86,368 $ 84,419
Savings accounts 86,385 108,872
Money market accounts 92,288 62,331
Certificates of deposits 324,438 312,004
Short-term borrowings 209,823 142,830
Broker certificates 8,157 6,009
-------- --------
TOTAL INTEREST-BEARING LIABILITIES 807,459 716,465
Demand deposits 83,406 77,085
Other liabilities 7,368 6,377
Shareholders' equity 81,752 77,510
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $979,985 $877,437
======== ========
Page 11
<PAGE>
ANALYSIS OF VOLUME AND RATE CHANGES ON
NET INTEREST INCOME AND EXPENSES
September 30, 2000 Over September 30, 1999
------------------------------------------
Change Change
Due to Due to Total
Dollars in thousands Volume Rate Change
-------- -------- -------
INTEREST-EARNING ASSETS:
Securities--taxable $ 622 $ 338 $ 960
Securities--nontaxable (30) 17 (13)
Federal funds sold (64) 3 (61)
Loans 4,713 904 5,617
------ ------- ------
TOTAL INTEREST INCOME 5,241 1,262 6,503
INTEREST-BEARING LIABILITIES:
NOW accounts 19 (165) (146)
Savings accounts (480) (296) (776)
Money market accounts 802 561 1,363
Certificates of deposit 485 910 1,395
Short-term borrowings 2,454 1,526 3,980
Broker certificates 122 48 170
------ ------- ------
TOTAL INTEREST EXPENSE 3,402 2,584 5,986
NET INTEREST INCOME (FULLY TAXABLE EQUIVALENT) $1,839 $(1,322) $ 517
====== ======= ======
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information contained in this report,
including the information incorporated by reference in this report, are or may
be considered to be forward-looking. Forward-looking statements relate to the
future operations, strategies, financial results or other developments, and
contain words or phrases such as "may," "expects," "should" or similar
expressions. Forward-looking statements are based upon estimates and
assumptions that are subject to significant business, economic and competitive
uncertainties, many of which are beyond the Company's control or are subject to
change.
Inherent in the Company's business are certain risks and uncertainties.
Therefore, the Company cautions the reader that actual revenues and income
results could differ materially from those results expected to occur depending
on factors such as general economic conditions including changes in interest
rates and the performance of financial markets, changes in domestic and foreign
laws, regulations and taxes, competition, industry consolidation, credit risks
and other factors. Other factors that could cause or contribute to such
differences include, but are not limited to, variances in the actual versus
projected growth in assets, return on assets, loan losses, expenses, rates
charged on loans and earned on investment securities, rates paid on deposits,
competitive effects, fee and other noninterest income earned, as well as other
factors. The Company disclaims any obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
developments, or otherwise.
Page 12
<PAGE>
FINANCIAL CONDITION
During the first nine months of 2000, consolidated assets increased by $83.0
million, or 8.9% to $1.0 billion. This increase was largely the result of an
increase in the loan portfolio, including residential mortgages held for sale,
of $63.3 million or 10.0%. The increase in loans can be attributed to strong
loan demand during the first nine months of 2000.
The liquidity needs of the Company's financial institution subsidiaries require
the availability of cash to meet the withdrawal demands of depositors and the
credit commitments to borrowers. Deposits represent the Company's primary
source of funds. Since December 31, 1999, deposits have increased by $75.8
million. Making up this increase were increases of $37.6 million in
certificates of deposit, $32.7 million in money market accounts, $20.9 million
in broker deposits, $13.4 million in transaction accounts, offset by a decline
of $28.8 million in savings accounts. Both of the Company's banking
subsidiaries continue to experience substantial competition for deposits.
Therefore, other funding sources continue to be pursued and utilized, including
broker deposits. Borrowings provide liquidity in the form of federal funds
purchased, securities sold under agreements to repurchase, treasury, tax and
loan accounts, and borrowings from the Federal Home Loan Bank. Total borrowings
have decreased by $0.4 million or 0.2% since December 31, 1999. Federal Home
Loan Bank of Boston advances remain the largest nondeposit-related interest-
bearing funding source for the Company. These borrowings are secured by
qualified residential real estate loans, certain investment securities and
certain other assets available to be pledged. The Company views borrowed funds
as a reasonably priced alternative funding source that should be utilized.
In determining the adequacy of the loan loss allowance, management relies
primarily on its review of the loan portfolio both to ascertain if there are any
probable losses to be written off, and to assess the loan portfolio in the
aggregate. Nonperforming loans are examined on an individual basis to determine
estimated probable loss. In addition, management considers current and
projected loan mix and loan volumes, historical net loan loss experience for
each loan category, and current and anticipated economic conditions affecting
each loan category. No assurance can be given, however, that adverse economic
conditions or other circumstances will not result in increased losses in the
portfolio. The Company continues to monitor and modify its allowance for loan
losses as conditions dictate. During the first nine months of 2000, $1,897,000
was added to the reserve for loan losses based upon the expansion of the loan
portfolio, resulting in an allowance of $10.7 million, or 1.53%, of total loans
outstanding. Management believes that this allowance is appropriate given the
current economic conditions in the Company's service area and the overall
condition of the loan portfolio.
Under Federal Reserve Board (FRB) guidelines, bank holding companies such as the
Company are required to maintain capital based on "risk-adjusted" assets. These
guidelines apply to the Company on a consolidated basis. Under the current
guidelines, banking organizations must maintain a risk-based capital ratio of
eight percent, of which at least four percent must be in the form of core
capital. The Company's Tier 1 and total risk based capital ratios at September
30, 2000, of 11.1% and 12.3%, respectively, exceed regulatory guidelines. The
Company's Tier1 and total risk based capital ratios at December 31, 1999 were
11.7% and 13.0%, respectively.
The principal cash requirement of the Company is the payment of dividends on
common stock when declared. The Company is primarily dependent upon the payment
of cash dividends by 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 Corporation declared dividends in the
aggregate amount of $3.8 million and $3.2 million in the first nine months of
2000 and 1999, respectively. During the first nine months of 2000, the
dividends declared by Camden National Bank included $2.0 million for dividend
payments to shareholders of Camden National Corporation and $1.4 million related
to contributions of capital by Camden National Bank to equalize the capital
ratios of the two subsidiary banks for the year 2000. UnitedKingfield Bank
declared $0.5 million and $113,000 for dividend payments to shareholders of
Camden National Corporation during the first nine months of 2000 and the first
nine months of 1999, respectively.
Page 13
<PAGE>
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 2000 was $10.5 million, an
increase of $1,264,000 or 13.6% from 1999's first nine month's net income of
$9.3 million. For the three months ended September 30, 2000, net income was
$4.0 million an increase of $920,000 or 29.6% from September 1999's three month
ended net income of $3.1 million. A contributing factor was net income of
$437,000, classified in salaries and employee benefits, resulting from the
changeover of the Company's defined-benefit retirement plan to a defined-
contribution plan. Excluding this non-recurring net income, third quarter
earnings would have amounted to $3.6 million.
NET INTEREST INCOME
Net interest income, on a fully taxable equivalent basis, for the nine months
ended September 30, 2000 was $29.9 million, a 1.8% or $0.5 million increase over
the net interest income for the first nine months of 1999 of $29.4 million. Net
interest income, on a fully taxable equivalent basis, for the three months ended
September 30, 2000 and September 30, 1999 was $10.0 million in each period.
Interest income on loans increased by $5.6 million, or 14.0% and $2.2 million,
or 16.2% during the nine and three month periods compared to the same periods of
1999, respectively. This increase was due to the increase in loan volume as
well as the increase in yields, from 8.91% during the first nine months of 1999
to 9.11% during the first nine months of 2000. The Company also experienced an
increase in interest income on investments during the first nine months of 2000
compared to the same period in 1999 due to increased volume as well as an
increase in yields. The Company's net interest expense on deposits and
borrowings increased during the first nine months of 2000 compared to the same
period in 1999. The majority of this increase was the result of increased
volumes as well as increased rates on short-term borrowings. The Company also
saw an increase in the cost of short-term borrowings, from 4.84% during the
first nine months of 1999 to 5.87% during the first nine months of 2000.
The Analysis of Change in Net Interest Margin, the Average Daily Balance Sheets,
and the Analysis of Volume and Rate Changes on Net Interest Income and Expenses
are provided on pages 10-12 of this report to enable the reader to understand
the components of the Company's interest income and expenses. The first table
provides an analysis of changes in net interest margin on earnings assets;
interest income earned and interest expense paid and average rates earned and
paid; and net interest margin on earning assets for the nine months ended
September 30, 2000 and 1999. The second of these tables presents average
assets, liabilities and stockholders' equity for the nine months ended September
30, 2000 and 1999. The third table presents an analysis of volume and rate
change on net interest income and expense from September 30, 1999 to September
30, 2000.
The Company utilizes off-balance sheet instruments such as interest rate swap
agreements that have an effect on net interest income. There was an increase in
net interest income of $45,000 during the first nine months of 2000 compared to
an increase of $5,000 in the first nine months of 1999. During the three month
periods ended September 30, 2000 the increase to net interest income was
$31,000. There was no impact to net interest income during the three month
period ended September 30, 1999.
NONINTEREST INCOME
Total noninterest income increased by $759,000 or 13.0% in the first nine months
of 2000 compared to the first nine months of 1999. Service charges on deposit
accounts increased $62,000 or 2.9% for the first nine months of 2000 compared to
1999. Other service charges and fees increased by $375,000 or 16.9% in the
first nine months of 2000 compared to 1999. The largest contributing factors to
this increase was $201,000 of fee income generated by merchant assessments and
$94,000 in commissions earned from the outsourcing of official check processing.
Other income increased by $322,000 or 21.5% in the first nine months of 2000
compared to 1999. The major reason for this increase in other income was the
increase of $396,000 generated by the additional $10 million in bank owned life
insurance. This increase was somewhat offset by a decrease in gain on sale of
securities of $151,000.
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Total noninterest income increased by $236,000 or 10.7% in the three months
ended September 30, 2000 compared to the three months ended September 30, 1999.
Service charges on deposit accounts decreased $11,000 or 1.5% for the third
quarter of 2000 compared to 1999. Other service charges and fees increased by
$152,000 or 15.1% in the third quarter of 2000 compared to 1999. The largest
contributing factor to this increase was the fee income generated from the
commissions earned from the outsourcing of official check processing. Other
income increased by $95,000 or 19.4% in the third quarter of 2000 compared to
1999. The major reason for this increase in other income was the increase in
income generated by the additional $10 million in bank owned life insurance.
NONINTEREST EXPENSE
Total noninterest expense decreased by $210,000 or 1.1% in the first nine months
of 2000 compared to the first nine months of 1999. Salaries and employee
benefits cost decreased by $804,000 or 8.5% in the first nine months of 2000
compared to 1999. The largest share of this decrease, approximately $645,000,
is related to the termination of the Company's defined benefit retirement plan.
The remainder of the decrease was the result of reductions in staff due to the
merger of United Bank and Kingfield Savings Bank. Other operating expenses
increased by $632,000 or 9.5%. A contributing factor for this increase was the
expense incurred to merge United Bank and Kingfield Savings Bank into one new
bank during the first quarter. The Company also experienced increases in credit
card, data processing, and various other general operating expenses during the
first nine months of 2000.
Total noninterest expense decreased by $1,077,000 or 15.8% in the three months
ended September 30, 2000 compared to the three months ended September 30, 1999.
Salaries and employee benefits cost decreased by $764,000 or 23.6% in the third
quarter of 2000 compared to 1999. As mentioned above, the majority of this
decrease is a result of the termination of the Company's defined benefit
retirement plan. Another factor contributing to the decrease is the result of
reductions in staff due to the merger of United Bank and Kingfield Savings Bank.
Other operating expenses decreased by $280,000 or 10.7% in the third quarter of
2000 compared to 1999. During the third quarter of 1999 the Company recognized
$417,000 in non-recurring acquisition related expenses. The Company experienced
increases in credit card, data processing, and various other general operating
expenses during the third quarter of 2000.
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.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE
ABOUT MARKET RISK
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
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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 during the third
quarter of 2000.
Estimated
Rate Change Changes in NII
+200bp (5.42%)
-200bp 4.04%
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 cash
flows. 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.
The Board of Directors' approved hedging policy statements govern the use of
these instruments by the bank subsidiaries. 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. As of September 30, 2000, the Company had a notional principal of $35
million in interest rate swap agreements, $10 million in floor contracts and $20
million in cap contracts. 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 in environment. If rates were to decline,
resulting in reduced income on the adjustable rate loans, there would be an
increase income flow from the interest rate swap and floor instruments. The
Company has $10 million of the interest rate swaps that mature in 2004 for this
purpose. In addition, the Company has $25 million of callable interest rate
swaps that mature in 2010. These swaps are tied to $25 million of callable
broker deposits, resulting in a variable rate funding source. The floor
contract has a strike rate of 6% and matures in 2005. The cap contract has a
strike rate of 7.5% and matures in 2002.
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 2000, the financial Accounting Standards Board issued the following:
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an amendment of SFAS No. 133"
SFAS No. 139, "Recession of FASB Statement No. 53 and amendments to FASB
Statements No. 63, 89 and 121"
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities - a replacement of FASB Statement No.
125."
The Company expects to adopt SFAS No. 139 and 140 when required and management
believes adoption will not have a material effect on the financial condition and
results of operation of the Company.
SFAS No. 137 and SFAS No. 138 amended SFAS N0. 133, which established accounting
reporting standards for derivative instruments and for hedging activity. SFAS
No. 137 defers the elective 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(3.i.) The Articles of Incorporation of Camden National Corporation, are
incorporated herein by reference.
(3.ii.) The Bylaws of Camden National Corporation, as amended to date,
Exhibit 3.ii. to the Company's Registration Statement on Form S-4 filed
with the Commission on September 25, 1995, file number 33-97340, are
incorporated herein by reference.
(23.1) Consent of Berry, Dunn, McNeil & Parker relating to the
financial statements of Camden National Corporation.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CAMDEN NATIONAL CORPORATION
(Registrant)
/s/ Robert W. Daigle 11-13-00
-------------------------- ---------------------------
Robert W. Daigle Date
President and Chief Executive Officer
/s/ Susan M. Westfall 11-13-00
-------------------------- ----------------------------
Susan M. Westfall Date
Treasurer and Chief Financial Officer
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