<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 March 31, 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 March 31, 2000: Common stock (no par value) 8,167,358
shares.
<PAGE>
CAMDEN NATIONAL CORPORATION
Form 10-Q for the quarter ended March 31, 2000
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I.
ITEM 1. FINANCIAL INFORMATION
Independent Accountants' Report 2
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 3
Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Condition
March 31, 2000 and December 31, 1999 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements
Three Months Ended March 31, 2000 and 1999 7
Analysis of Changes in Net Interest Margin
Three Months Ended March 31, 2000 and 1999 8
Average Balance Sheets
Three Months Ended March 31, 2000 and 1999 9
Analysis of Volume and Rate Changes on Net Interest Income
& Expenses March 31, 2000 over March 31, 1999 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-14
PART II.
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBITS 17-18
</TABLE>
<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 as of March 31, 2000, and for the three-month period
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, LLC
Portland, Maine
May 8, 2000
Page 2
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PART I.
ITEM I. FINANCIAL INFORMATION
Camden National Corporation and Subsidiaries
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
(In thousands, except number Three Months Ended March 31,
of shares and per share data) 2000 1999
<S> <C> <C>
Interest Income
Interest and fees on loans $ 14,381 $ 12,798
Interest on U.S. Government and agency obligations 3,384 2,721
Interest on state and political subdivisions 98 101
Interest on interest rate swap agreements 176 79
Interest on federal funds sold and other investments 655 915
---------- -----------
Total interest income 18,694 16,614
Interest Expense
Interest on deposits 5,949 5,670
Interest on other borrowings 2,694 1,504
Interest on interest rate swap agreements 152 72
---------- -----------
Total interest expense 8,795 7,246
---------- -----------
Net interest income 9,899 9,368
Provision for Loan Losses 644 585
---------- -----------
Net interest income after provision for loan losses 9,255 8,783
Service charges on deposit accounts 708 665
Other service charges and fees 650 535
Other income 614 537
---------- -----------
Total other income 1,972 1,737
Operating Expenses
Salaries and employee benefits 3,124 3,071
Premises and fixed assets 1,025 855
Other 2,425 2,084
---------- -----------
Total operating expenses 6,574 6,010
---------- -----------
Less minority interest net income 21 4
Income before income taxes 4,632 4,506
---------- -----------
Income Taxes 1,438 1,445
---------- -----------
Net Income $ 3,194 $ 3,061
========== ===========
Per Share Data
Basic Earnings per share (Net income divided
by weighted average shares outstanding) $ 0.39 $ 0.38
Diluted Earnings per share 0.39 0.38
Cash dividends per share 0.15 0.13
Weighted average number of shares outstanding 8,167,358 8,061,920
</TABLE>
Page 3
<PAGE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
<TABLE>
<CAPTION>
(In thousands) Three Months Ended March 31,
2000 1999
<S> <C> <C>
Net income $ 3,194 $ 3,061
Other comprehensive income, net of tax:
Change in unrealized gains on securities
available for sale (41) (79)
---------- ----------
Comprehensive income $ 3,153 $ 2,982
========== ==========
</TABLE>
Page 4
<PAGE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Condition
(unaudited)
(In thousands, except number of shares and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
Assets
<S> <C> <C>
Cash and due from banks $ 32,569 $ 24,230
Federal funds sold 0 415
Securities available for sale 153,373 147,939
Securities held to maturity 65,835 68,193
Other securities 16,232 16,058
Residential mortgages held for sale 2,756 6,906
Loans, less allowance for loan losses of $10,059
and $9,390 at March 31, 2000 and December 31, 1999 646,222 619,138
Bank premises and equipment 11,078 12,093
Other real estate owned 951 1,405
Interest receivable 6,054 5,041
Other assets 37,968 26,932
--------- ---------
Total assets $ 973,038 $ 928,350
========= =========
Liabilities
Deposits:
Demand $ 78,425 $ 80,385
NOW 49,259 89,740
Money market 135,131 71,237
Savings 83,385 112,335
Certificates of deposit 321,714 314,023
--------- ---------
Total deposits 667,914 667,720
Borrowings from Federal Home Loan Bank 174,802 128,866
Other borrowed funds 40,529 45,058
Accrued interest and other liabilities 10,114 8,968
Minority interest in subsidiary 137 115
--------- ---------
Total liabilities 893,496 850,727
Shareholders' Equity
Common stock, no par value; authorized
10,000,000 shares, issued 8,167,358 shares 2,450 2,450
Surplus 5,979 5,990
Retained earnings 85,528 83,563
Net unrealized depreciation on securities
available for sale, net of income tax (5,823) (5,782)
Less cost of 442,540 shares of treasury stock on
March 31, 2000 and December 31, 1999 8,592 8,598
--------- ---------
Total shareholders' equity 79,542 77,623
--------- ---------
Total liabilities and shareholders' equity $ 973,038 $ 928,350
========= =========
</TABLE>
Page 5
<PAGE>
Camden National Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
(In thousands) Three Months Ended March 31,
2000 1999
Operating Activities
<S> <C> <C>
Net Income $ 3,194 $ 3,061
Adjustment to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 644 585
Depreciation and amortization 396 237
Increase in interest receivable (810) (795)
Decrease (increase) in other assets 686 (1,066)
Increase in other liabilities 960 2,336
Cash receipts from sale of residential loans 134 1,588
Origination of mortgage loans held for sale (2,613) (8,519)
Decrease in obligation under ESOP and BRRP 0 60
--------- ---------
Net cash provided (used) by operating activities 2,591 (2,513)
Investing Activities
Proceeds from maturities of securities held to maturity 2,386 9,230
Proceeds from maturities of securities available for sale 1,406 13,664
Purchase of securities available for sale (6,925) (24,096)
Purchase of Federal Home Loan Bank Stock (175) (1)
Increase in loans (21,099) (13,069)
Net decrease in other real estate owned 454 159
Purchase of premises and equipment (1,104) (127)
Purchase of life insurance policy (10,000) 0
Net sale (purchase) of federal funds 415 (1,525)
--------- ---------
Net cash used by investing activities (34,642) (15,765)
Financing Activities
Net decrease in demand deposits, NOW
accounts, and savings accounts (7,497) (10,944)
Net increase in certificates of deposit 7,691 7,467
Net increase in short-term borrowings 41,407 21,950
Increase in minority position 22 4
Purchase of treasury stock 0 (385)
Exercise and repurchase of stock options (5) 0
Proceeds from other stock issuance 0 4
Cash Dividends (1,228) (1,091)
--------- ---------
Net cash provided by financing activities 40,390 17,005
Net increase (decrease) in cash and equivalents 8,339 (1,273)
Cash and cash equivalents at beginning of year 24,230 18,175
--------- ---------
Cash and cash equivalents at end of period $ 32,569 $ 16,902
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest 9,020 6,759
Non-Cash transactions:
Transfer from loans to real estate owned 47 73
Transfer from loans held for sale to loan portfolio 6,629 0
</TABLE>
Page 6
<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 March 31, 2000,
and December 31, 1999, the consolidated statements of income for the three
months ended March 31, 2000 and March 31, 1999, the consolidated statements of
comprehensive income for the three months ended March 31, 2000 and March 31,
1999 and the consolidated statements of cash flows for the three months ended
March 31, 2000, and March 31, 1999. All significant intercompany transactions
and balances are eliminated in consolidation. The income reported for the period
ended March 31, 2000 is not necessarily indicative of the results that may be
expected for the full year.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per share data is computed based on the weighted average number
of common shares outstanding during each year. Potential common stock is
considered in the calculation of weighted average shares outstanding for diluted
earnings per share.
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended March 31,
(Dollars in thousands) 2000 1999
Net income, as reported $ 3,194 $ 3,061
Weighted average shares 8,167,358 8,061,920
Effect of dilutive employee stock options 23,958 138,621
Adjusted weighted average shares
and assumed conversion 8,191,316 8,200,541
Basic earnings per share $ 0.39 $ 0.38
Diluted earnings per share 0.39 0.38
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.
Page 7
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST MARGIN
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
Amount Average Amount Average
of Yield/ of Yield/
Dollars in thousands interest Rate interest Rate
---------- --------- ---------- -------
<S> <C> <C> <C> <C>
Interest-earning assets:
Securities - taxable $ 4,018 7.15% $ 3,629 7.02%
Securities - nontaxable 148 6.92% 153 6.46%
Federal funds sold 22 4.94% 24 4.62%
Loans 14,462 9.01% 12,894 8.92%
-------- --------- -------- ------
Total earning assets 18,650 8.51% 16,700 8.38%
Interest-bearing liabilities:
NOW accounts 278 1.27% 264 1.29%
Savings accounts 623 2.60% 728 2.73%
Money Market accounts 845 4.05% 536 3.48%
Certificates of deposit 4,117 5.28% 4,057 5.25%
Short-term borrowings 2,694 5.47% 1,504 4.82%
Broker Certificates of deposit 86 5.72% 85 5.66%
---------- --------- ---------- ------
Total interest-bearing liabilities 8,643 4.43% 7,174 4.15%
Net interest income
(fully-taxable equivalent) 10,007 9,526
Less: fully-taxable equivalent adjustment (108) (158)
---------- ----------
$ 9,899 $ 9,368
========== ==========
Net Interest Rate Spread
(fully-taxable equivalent) 4.08% 4.23%
Net Interest Margin 4.56% 4.78%
(fully-taxable equivalent)
</TABLE>
*Includes net swap income figures - March 2000 $24,000 and March 1999 $7,000.
Notes: Nonaccrual loans are included in total loans. Tax exempt interest was
calculated using a rate of 34% for fully-taxable equivalent.
Page 8
<PAGE>
AVERAGE BALANCE SHEETS
Dollars in thousands
Three Months Ended March 31,
2000 1999
Interest-earning assets:
Securities - taxable $ 224,801 $ 206,873
Securities - nontaxable 8,588 9,467
Federal funds sold 1,780 2,076
Loans 642,677 578,478
--------- ---------
Total earning assets 877,846 796,894
Cash and due from banks 25,470 18,071
Other assets 57,616 42,537
Less allowance for loan losses 9,898 8,317
--------- ---------
Total assets $ 951,034 $ 849,185
========= =========
Interest-bearing liabilities:
NOW accounts $ 87,314 $ 82,023
Savings accounts 95,859 106,840
Money market accounts 83,436 61,615
Certificates of deposits 311,489 309,050
Short-term borrowings 198,654 124,859
Broker certificates 6,014 6,003
--------- ---------
Total interest-bearing liabilities 782,766 690,390
Demand deposits 80,939 73,404
Other liabilities 8,746 6,818
Shareholders' equity 78,583 78,573
--------- ---------
Total liabilities and shareholders' equity $ 951,034 $ 849,185
========= =========
Page 9
<PAGE>
ANALYSIS OF VOLUME AND RATE CHANGES ON
NET INTEREST INCOME AND EXPENSES
March 2000 Over March 1999
--------------------------
Change Change
Due to Due to Total
Dollars in thousands Volume Rate Change
------ ------ ------
Interest-earning assets:
Securities--taxable $ 315 $ 74 $ 389
Securities--nontaxable (15) 10 (5)
Federal funds sold (3) 1 (2)
Loans 1,432 136 1,568
------ ------ ------
Total interest income 1,729 221 1,950
Interest-bearing liabilities:
NOW accounts 18 (4) 14
Savings accounts (75) (30) (105)
Money market accounts 190 119 309
Certificates of deposit 31 29 60
Short-term borrowings 890 300 1,190
Broker certificates 0 1 1
------ ------ ------
Total interest expense 1,054 415 1,469
Net interest income (fully taxable equivalent) $ 675 $ (194) $ 481
====== ====== ======
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 as forward-looking. Forward-looking statements relate to the
future operations, strategies, financial results or other developments, and
contain words or phrases such as "may," "expects," "should" or similar
expressions. Forward-looking statements are based upon estimates and assumptions
that are subject to significant business, economic and competitive
uncertainties, many of which are beyond Camden's control or are subject to
change.
Inherent in Camden's business are certain risks and uncertainties. Therefore,
Camden cautions the reader that revenues and income could differ materially from
those expected to occur depending on factors such as general economic conditions
including changes in interest rates and the performance of financial markets,
changes in domestic and foreign laws, regulations and taxes, competition,
industry consolidation, credit risks and other factors. Other factors that could
cause or contribute to such differences include, but are not limited to,
variances in the actual versus projected growth in assets, return on assets,
loan losses, expenses, rates charged on loans and earned on investment
securities, rates paid on deposits, competitive effects, fee and other
noninterest income earned, as well as other factors. Camden disclaims any
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future developments, or otherwise.
Page 10
<PAGE>
FINANCIAL CONDITION
During the first three months of 2000, consolidated assets increased by $44.7
million, or 4.8% to $973.0 million. This increase was the result of an increase
in the loan portfolio, including residential mortgages held for sale, of $23.6
million or 3.7% and an increase in the investment portfolio of $3.3 million or
1.4%. The increase in loans can be attributed to strong loan demand during the
first three months of 2000. Additions were made to the investment portfolio
during the first quarter of 2000, taking advantage of a steeper yield curve than
in prior periods.
The liquidity needs of the Company's financial institution subsidiaries require
the availability of cash to meet the withdrawal demands of depositors and the
credit commitments to borrowers. Deposits still represent the Company's primary
source of funds. Since December 31, 1999, deposits have remained relatively
level, increasing by $0.2 million. During the first quarter of 2000, the
Company's deposits experienced the normal seasonal decline in transaction
accounts (DDA's and NOW's). Both of the Company's banking subsidiaries continue
to experience substantial competition for deposits. Therefore, other funding
sources continue to be pursued and utilized. Borrowings provide liquidity in the
form of federal funds purchased, securities sold under agreements to repurchase,
treasury, tax and loan accounts, and borrowings from the Federal Home Loan Bank.
Total borrowings have increased by $41.4 million or 23.8% 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 three months of 2000, $644,000 was added to
the reserve for loan losses based upon the expansion of the loan portfolio,
resulting in an allowance of $10.1 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 March 31,
2000, of 10.8% and 12.0%, 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 Bank declared dividends in the aggregate amount
of $2.6 million and $1.4 million in the first quarter of 2000 and 1999,
respectively. During the first quarter of 2000, the dividends declared by Camden
National Bank included $1.2 million related to payments to shareholders of
Camden National Corporation and $1.4 million related to contributions of capital
by Camden National Bank to equalize the capital of the two subsidiary banks for
the year 2000. UnitedKingfield Bank declared no dividends during the first
quarter of 2000 and $92,000 payable to shareholders during the first quarter of
1999.
Page 11
<PAGE>
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2000 was $3.2 million, an
increase of $133,000 or 4.3% from 1999's first three month's net income of $3.1
million. The major contributing factor was the increase in loans, which resulted
in an increase in net interest income.
NET INTEREST INCOME
Net interest income, on a fully taxable equivalent basis, for the three months
ended March 31, 2000 was $10.0 million, a 5.0% or $0.5 million increase over the
net interest income for the first three months of 1999 of $9.5 million. Interest
income on loans increased by $1.6 million, or 12.3%. This increase was due to
the increase in loan volume as well as the increase in yields, from 8.92% during
the first three months of 1999 to 9.01% during the first three months of 2000.
The Company also experienced an increase in interest income on investments
during the first three months of 2000 compared to the same period in 1999 due to
increased volume. The Company's net interest expense on deposits and borrowings
increased during the first three months of 2000 compared to the same period in
1999. This increase was the result of increased volumes in the majority of the
categories.
The Analysis of Change in Net Interest Margin, the Average Daily Balance Sheets,
and the Analysis of Volume and Rate Changes on Net Interest Income and Expenses
are provided on pages 8-10 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 three months ended March
31, 2000 and 1999. The second of these tables presents average assets,
liabilities and stockholders' equity for the three months ended March 31, 2000
and 1999. The third table presents an analysis of volume and rate change on net
interest income and expense from March 31, 1999 to March 31, 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 $24,000 during the first three months of 2000 compared to
an increase of $7,000 in the first three months of 1999.
NONINTEREST INCOME
Total noninterest income increased by $235,000 or 13.5% in the first three
months of 2000 compared to the first three months of 1999. Service charges on
deposit accounts increased $43,000 or 6.5% for the first three months of 2000
compared to 1999. Other service charges and fees increased by $115,000 or 21.5%
in the first three months of 2000 compared to 1999. The largest contributing
factor to this increase was the fee income generated by merchant assessments.
Other income increased by $77,000, or 14.3% in the first three months of 2000
compared to 1999. The major reason for this increase in other income was an
increase in trust fees.
NONINTEREST EXPENSE
Total noninterest expenses increased by $564,000 or 9.4% in the first three
months of 2000 compared to the first three months of 1999. Salaries and employee
benefits cost increased by $53,000 or 1.7% in the first three months of 2000
compared to 1999. This increase was the result of normal annual increases,
additions to staff and higher pension benefit costs. Other operating expenses
increased by $341,000 or 16.7%. The major contributing factor for this increase
was the costs related to the merging of United Bank and Kingfield Savings
Page 12
<PAGE>
Bank into one new bank. The Company experienced increases in premises and fixed
assets, credit card expenses, data processing, and amortization of deposit
premium and various other general operating expenses. The amortization of
deposit premium of $82,000 was recorded in 2000, which was the result of
branches acquired in 1998.
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.
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 during
the first quarter 2000.
Estimated
Rate Change Changes in NII
High Low Average
+200bp (3.61%) (3.69%) (3.45%)
-200bp 1.96% 2.02% 4.32%
Page 13
<PAGE>
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.
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 of 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 No. 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.
Page 14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a). Exhibits
(2.1) Agreement and Plan of Merger, dated as of July 27, 1999, by and
among Camden National Corporation, Camden Acquisition Subsidiary, Inc.,
KSB Bancorp, Inc. and Kingfield Savings Bank, are incorporated herein by
reference.
(3.i.) The Articles of Incorporation of Camden National Corporation, are
incorporated herein by reference.
(3.ii.) The Bylaws of Camden National Corporation, as amended to date,
Exhibit 3.ii. to the Company's Registration Statement on Form S-4 filed
with the Commission on September 25, 1995, file number 33-97340, are
incorporated herein by reference.
(10.1) Stock Option Agreement, dated as of July 27, 1999 between Camden
National Corporation and KSB Bancorp, Inc., are incorporated herein by
reference.
(23.1) Consent of Berry, Dunn, McNeil & Parker, LLC relating to the
financial statements of Camden.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
Current Report on Form 8-K filed with the Securities and Exchange Commission
on January 3, 2000, as amended by a Form 8-KA filed on January 7, 2000, relating
to the merger.
Page 15
<PAGE>
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 5-12-00
_____________________________________ _____________________________
Robert W. Daigle Date
President and Chief Executive Officer
/s/ Susan M. Westfall 5-12-00
_____________________________________ _____________________________
Susan M. Westfall Date
Treasurer and Chief Financial Officer
Page 16
<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-Q, into the
Company's previously filed Registration File Number 333-95157.
Berry, Dunn, McNeil & Parker, LLC
Portland, Maine
May 12, 2000
Page 17
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<PAGE>
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<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
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