<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 June 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 [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Outstanding at June 30, 2000: Common stock (no par value) 8,167,358 shares.
<PAGE>
CAMDEN NATIONAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I.
ITEM 1. FINANCIAL INFORMATION
Independent Accountants' Report 3
Consolidated Statements of Income
Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Income
Three Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Comprehensive Income
Six Months Ended June 30, 2000 and 1999 6
Consolidated Statements of Comprehensive Income
Three Months Ended June 30, 2000 and 1999 6
Consolidated Statements of Condition June 30, 2000 and December 31, 1999 7
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 8
Notes to Consolidated Financial Statements
Six Months Ended June 30, 2000 and 1999 9
Analysis of Changes in Net Interest Margin
Six Months Ended June 30, 2000 and 1999 10
Average Balance Sheets Six Months Ended June 30, 2000 and 1999 11
Analysis of Volume and Rate Changes on Net Interest Income
& Expenses June 30, 2000 over June 30, 1999 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-17
PART II.
ITEM 4. Submission Matters to a Vote of Security Holders. 17
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBITS 19-20
</TABLE>
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 June 30, 2000, and for the
three-month and six-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, LLC
Portland, Maine
August 11, 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 SIX MONTHS ENDED JUNE 30,
of shares and per share data) 2000 1999
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 29,568 $ 26,068
Interest on U.S. Government and agency obligations 6,820 6,522
Interest on state and political subdivisions 197 201
Interest on interest rate swap agreements 333 155
Interest on federal funds sold and other investments 1,323 896
---------- ----------
TOTAL INTEREST INCOME 38,241 33,842
INTEREST EXPENSE
Interest on deposits 12,120 11,365
Interest on other borrowings 6,151 3,360
Interest on interest rate swap agreements 319 150
---------- ----------
TOTAL INTEREST EXPENSE 18,590 14,875
---------- ----------
NET INTEREST INCOME 19,651 18,967
PROVISION FOR LOAN LOSSES 1,288 1,240
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 18,363 17,727
OTHER INCOME
Service charges on deposit accounts 1,466 1,393
Other service charges and fees 1,438 1,215
Other income 1,234 1,007
---------- ----------
TOTAL OTHER INCOME 4,138 3,615
OPERATING EXPENSES
Salaries and employee benefits 6,240 6,280
Premises and fixed assets 1,913 1,918
Other 4,912 4,000
---------- ----------
TOTAL OPERATING EXPENSES 13,065 12,198
---------- ----------
LESS MINORITY INTEREST NET INCOME 23 13
INCOME BEFORE INCOME TAXES 9,413 9,131
---------- ----------
INCOME TAXES 2,896 2,958
---------- ----------
Net Income $ 6,517 $ 6,173
========== ==========
PER SHARE DATA
Basic earnings per share (Net income divided
by weighted average shares outstanding) $0.80 $0.77
Diluted earnings per share 0.80 0.77
Cash dividends per share 0.31 0.26
Weighted average number of shares outstanding 8,167,358 8,031,986
</TABLE>
Page 4
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
(In thousands, except number THREE MONTHS ENDED JUNE 30,
of shares and per share data) 2000 1999
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $15,187 $13,270
Interest on U.S. Government and agency obligations 3,436 3,358
Interest on state and political subdivisions 99 100
Interest on interest rate swap agreements 157 76
Interest on federal funds sold and other investments 668 424
------- -------
TOTAL INTEREST INCOME 19,547 17,228
INTEREST EXPENSE
Interest on deposits 6,171 5,695
Interest on other borrowings 3,457 1,856
Interest on interest rate swap agreements 167 78
------- -------
TOTAL INTEREST EXPENSE 9,795 7,629
------- -------
NET INTEREST INCOME 9,752 9,599
PROVISION FOR LOAN LOSSES 644 655
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,108 8,944
OTHER INCOME
Service charges on deposit accounts 758 728
Other service charges and fees 788 680
Other income 620 470
------- -------
TOTAL OTHER INCOME 2,166 1,878
OPERATING EXPENSES
Salaries and employee benefits 3,116 3,209
Premises and fixed assets 888 1,063
Other 2,487 1,916
------- -------
TOTAL OPERATING EXPENSES 6,491 6,188
------- -------
LESS MINORITY INTEREST NET INCOME 2 9
INCOME BEFORE INCOME TAXES 4,781 4,625
------- -------
INCOME TAXES 1,458 1,513
------- -------
Net Income $ 3,323 $ 3,112
======= =======
PER SHARE DATA
Basic earnings per share (Net income divided
by weighted average shares outstanding) $0.41 $0.39
Diluted earnings per share 0.41 0.39
Cash dividends per share 0.16 0.13
Weighted average number of shares outstanding 8,167,358 8,002,378
</TABLE>
Page 5
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
(In thousands) SIX MONTHS ENDED JUNE 30,
2000 1999
<S> <C> <C>
Net income $6,517 $ 6,173
Other comprehensive income, net of tax:
Change in unrealized appreciation (depreciation)
on securities available for sale (net of taxes of $332
and $(1,230) at June 30, 2000 and 1999, respectively) 645 (2,387)
------ -------
Comprehensive income $7,162 $ 3,786
====== =======
</TABLE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
(In thousands) THREE MONTHS ENDED JUNE 30,
2000 1999
<S> <C> <C>
Net income $3,323 $ 3,112
Other comprehensive income, net of tax:
Change in unrealized appreciation (depreciation)
on securities available for sale (net of taxes of $353
and $(1,189) at June 30, 2000 and 1999, respectively) 686 (2,308)
------ -------
Comprehensive income $4,009 $ 804
====== =======
</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)
JUNE 30, DECEMBER 31,
2000 1999
(unaudited) (audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 27,039 $ 24,230
Federal funds sold 1,585 415
Securities available for sale 168,416 147,939
Securities held to maturity (market value $52,123
and $68,049 at June 30, 2000 and December 31, 1999) 52,031 68,193
Other securities 16,232 16,058
Residential mortgages held for sale 6,921 6,906
Loans, less allowance for loan losses of $10,609
and $9,390 at June 30, 2000 and
December 31, 1999, respectively 672,220 619,138
Bank premises and equipment 13,953 12,093
Other real estate owned 780 1,405
Interest receivable 6,141 5,041
Other assets 36,425 26,932
---------- --------
TOTAL ASSETS $1,001,743 $928,350
========== ========
LIABILITIES
Deposits:
Demand $ 81,970 $ 80,385
NOW 83,553 89,740
Money market 96,802 71,237
Savings 79,738 112,335
Certificates of deposit 334,721 314,023
---------- --------
TOTAL DEPOSITS 676,784 667,720
Borrowings from Federal Home Loan Bank 195,338 128,866
Other borrowed funds 39,286 45,058
Accrued interest and other liabilities 7,951 8,968
Minority interest in subsidiary 139 115
---------- --------
TOTAL LIABILITIES 919,498 850,727
---------- --------
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 87,545 83,563
Net unrealized depreciation on securities
available for sale, net of income tax (5,137) (5,782)
Less cost of 442,540 shares of treasury stock on
June 30, 2000 and December 31, 1999 8,592 8,598
---------- --------
TOTAL SHAREHOLDERS' EQUITY 82,245 77,623
---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,001,743 $928,350
========== ========
</TABLE>
Page 7
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
(In thousands) SIX MONTHS ENDED JUNE 30,
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 6,517 $ 6,173
Adjustment to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 1,288 1,240
Depreciation and amortization 660 621
Increase in interest receivable (4,261) (726)
Decrease (increase) in other assets 624 (1,227)
Increase in other liabilities 1,906 2,818
Cash receipts from sale of residential loans 690 2,267
Origination of mortgage loans held for sale (705) (482)
Decrease in obligation under ESOP and BRRP 0 112
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,719 10,796
INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity 5,209 21,410
Proceeds from maturities of securities available for sale 3,310 16,125
Purchase of securities available for sale (11,956) (54,343)
Purchase of Federal Home Loan Bank Stock (175) (1)
Net increase in loans (54,370) (43,365)
Net decrease in other real estate owned 625 300
Purchase of premises and equipment (2,629) (450)
Purchase of life insurance policy (10,000) 0
Net purchase of federal funds (1,170) (1,243)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (71,156) (61,567)
FINANCING ACTIVITIES
Net decrease in demand deposits, NOW
accounts, and savings accounts (11,634) (3,261)
Net increase in certificates of deposit 20,698 8,672
Net increase in short-term borrowings 60,700 52,132
Increase in minority position 24 13
Purchase of treasury stock 0 (2,236)
Exercise and repurchase of stock options (5) (975)
Proceeds from other stock issuance 0 4
Cash dividends (2,537) (2,089)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 67,246 52,260
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,809 1,489
Cash and cash equivalents at beginning of year 24,230 18,175
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,039 $ 19,664
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-Cash transactions:
Transfer from loans to real estate owned 155 73
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 June 30, 2000, and
December 31, 1999, the consolidated statements of income for the six and three
months ended June 30, 2000 and June 30, 1999, the consolidated statements of
comprehensive income for the six and three months ended June 30, 2000 and June
30, 1999 and the consolidated statements of cash flows for the six months ended
June 30, 2000, and June 30, 1999. All significant intercompany transactions and
balances are eliminated in consolidation. The income reported for the period
ended June 30, 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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
(Dollars in thousands) 2000 1999
<S> <C> <C>
Net income, as reported $ 6,517 $ 6,173
Weighted average shares 8,167,358 8,031,986
Effect of dilutive employee stock options 12,573 83,696
Adjusted weighted average shares
and assumed conversion 8,179,931 8,115,682
Basic earnings per share $ 0.80 $ 0.77
Diluted earnings per share 0.80 0.77
<CAPTION>
THREE MONTHS ENDED JUNE 30,
(Dollars in thousands) 2000 1999
<S> <C> <C>
Net income, as reported $ 3,323 $ 3,112
Weighted average shares 8,167,358 8,002,378
Effect of dilutive employee stock options 12,573 83,696
Adjusted weighted average shares
and assumed conversion 8,179,931 8,086,074
Basic earnings per share $ 0.41 $ 0.39
Diluted earnings per share 0.41 0.39
</TABLE>
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 9
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST MARGIN
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 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 $ 8,125 7.16% $ 7,316 6.93%
Securities - nontaxable 299 6.95% 305 6.49%
Federal funds sold 31 6.09% 76 6.21%
Loans 29,710* 9.04% 26,319* 8.91%
------- ---- ------- ----
TOTAL EARNING ASSETS 38,165 8.54% 34,016 8.36%
INTEREST-BEARING LIABILITIES:
NOW accounts 474 1.10% 533 1.29%
Savings accounts 1,128 2.55% 1,480 2.75%
Money market accounts 1,855 4.22% 1,073 3.51%
Certificates of deposit 8,183 5.17% 8,105 5.23%
Short-term borrowings 6,489 6.01% 3,364 4.84%
Broker certificates of deposit 142 5.73% 170 5.66%
------- ---- ------- ----
TOTAL INTEREST-BEARING LIABILITIES 18,271 4.57% 14,725 4.17%
NET INTEREST INCOME
(FULLY-TAXABLE EQUIVALENT) 19,894 19,291
LESS: FULLY-TAXABLE EQUIVALENT ADJUSTMENT (243) (324)
------- -------
$19,651 $18,967
======= =======
NET INTEREST RATE SPREAD
(FULLY-TAXABLE EQUIVALENT) 3.97% 4.19%
NET INTEREST MARGIN 4.45% 4.74%
(FULLY-TAXABLE EQUIVALENT)
</TABLE>
*Includes net swap income figures - 2000 $14,000 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
<TABLE>
<CAPTION>
Dollars in thousands SIX MONTHS ENDED JUNE 30,
2000 1999
<S> <C> <C>
INTEREST-EARNING ASSETS:
Securities - taxable $226,840 $211,008
Securities - nontaxable 8,610 9,401
Federal funds sold 1,017 2,447
Loans 657,514 591,029
-------- --------
TOTAL INTEREST-EARNING ASSETS 893,981 813,885
Cash and due from banks 26,190 18,174
Other assets 59,862 42,096
Less allowance for loan losses 10,212 8,490
-------- --------
TOTAL ASSETS $969,821 $865,665
======== ========
INTEREST-BEARING LIABILITIES:
NOW accounts $ 86,029 $ 82,772
Savings accounts 88,395 107,537
Money market accounts 87,974 61,080
Certificates of deposits 316,558 310,203
Short-term borrowings 216,026 138,963
Broker certificates 4,957 6,006
-------- --------
TOTAL INTEREST-BEARING LIABILITIES 799,939 706,561
Demand deposits 80,633 73,490
Other liabilities 9,315 8,524
Shareholders' equity 79,934 77,090
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $969,821 $865,665
======== ========
</TABLE>
Page 11
<PAGE>
ANALYSIS OF VOLUME AND RATE CHANGES ON
NET INTEREST INCOME AND EXPENSES
<TABLE>
<CAPTION>
June 30, 2000 Over June 30, 1999
--------------------------------
Change Change
Due to Due to Total
Dollars in thousands Volume Rate Change
-------- ------- -------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Securities--taxable $ 549 $ 260 $ 809
Securities--nontaxable (26) 20 (6)
Federal funds sold (44) (1) (45)
Loans 2,961 430 3,391
------ ------ ------
TOTAL INTEREST INCOME 3,440 709 4,149
INTEREST-BEARING LIABILITIES:
NOW accounts 21 (80) (59)
Savings accounts (263) (89) (352)
Money market accounts 472 310 782
Certificates of deposit 166 (88) 78
Short-term borrowings 1,866 1,259 3,125
Broker certificates (59) 31 (28)
------ ------ ------
TOTAL INTEREST EXPENSE 2,203 1,343 3,546
NET INTEREST INCOME (FULLY TAXABLE EQUIVALENT) $1,237 $ (634) $ 603
====== ====== ======
</TABLE>
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 revenues and income could differ
materially from those expected to occur depending on factors such as general
economic conditions including changes in interest rates and the performance of
financial markets, changes in domestic and foreign laws, regulations and taxes,
competition, industry consolidation, credit risks and other factors. Other
factors that could cause or contribute to such differences include, but are not
limited to, variances in the actual versus projected growth in assets, return on
assets, loan losses, expenses, rates charged on loans and earned on investment
securities, rates paid on deposits, competitive effects, fee and other
noninterest income earned, as well as other factors. The Company 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 six months of 2000, consolidated assets increased by $73.4
million, or 7.9% to $1.0 billion. This increase was the result of an increase in
the loan portfolio, including residential mortgages held for sale, of $54.3
million or 8.5% and an increase in the investment portfolio of $4.5 million or
1.9%. The increase in loans can be attributed to strong loan demand during the
first six months of 2000. Additions were made to the investment portfolio
during the first few months 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 represent the Company's primary
source of funds. Since December 31, 1999, deposits have increased by $9.1
million. 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 $60.7 million or 34.9% 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 six months of 2000, $1,288,000
was added to the reserve for loan losses based upon the expansion of the loan
portfolio, resulting in an allowance of $10.6 million, or 1.54%, of total loans
outstanding. Management believes that this allowance is appropriate given the
current economic conditions in the Company's service area and the overall
condition of the loan portfolio.
Under Federal Reserve Board (FRB) guidelines, bank holding companies such as the
Company are required to maintain capital based on "risk-adjusted" assets. These
guidelines apply to the Company on a consolidated basis. Under the current
guidelines, banking organizations must maintain a risk-based capital ratio of
eight percent, of which at least four percent must be in the form of core
capital. The Company's Tier 1 and total risk based capital ratios at June 30,
2000, of 10.6% and 11.9%, 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 $2.5 million and $5.6 million in the first six months of
2000 and 1999, respectively. During the first six months of 2000, the dividends
declared by Camden National Bank included $1.1 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 six months of 2000 and $92,000 payable to
shareholders during the first six months of 1999.
Page 13
<PAGE>
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 2000 was $6.5 million, an increase
of $344,000 or 5.6% from 1999's first six month's net income of $6.2 million.
For the three months ended June 30, 2000, net income was $3.3 million an
increase of $211,000 or 6.8%, compared to $3.1 million for the same period in
1999. 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 six months
ended June 30, 2000 was $19.9 million, a 3.1% or $0.6 million increase over the
net interest income for the first six months of 1999 of $19.3 million. Net
interest income, on a fully taxable equivalent basis, for the three months ended
June 30, 2000 was $9.9 million, a 1.2% or $122,000 increase over the net
interest income, on a fully taxable equivalent basis, for the three months ended
June 30, 1999. Interest income on loans increased by $3.4 million, or 12.9% and
$1.8 million, or 13.6% during the six 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 six
months of 1999 to 9.04% during the first six months of 2000. The Company also
experienced an increase in interest income on investments during the first six
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 six months of 2000 compared to the
same period in 1999. This majority of this increase was the result of increased
volumes in the majority of the categories. The Company also saw an increase in
the cost of short-term borrowings, from 4.84% during the first six months of
1999 to 6.01% during the first six 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 six months ended June
30, 2000 and 1999. The second of these tables presents average assets,
liabilities and stockholders' equity for the six months ended June 30, 2000 and
1999. The third table presents an analysis of volume and rate change on net
interest income and expense from June 30, 1999 to June 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 $14,000 during the first six months of 2000 compared to
an increase of $5,000 in the first six months of 1999. During the three month
periods ended June 30, 2000 and 1999, the decrease to net interest income was
$10,000 and $2,000 respectively.
NONINTEREST INCOME
Total noninterest income increased by $523,000 or 14.5% in the first six months
of 2000 compared to the first six months of 1999. Service charges on deposit
accounts increased $73,000 or 5.2% for the first six months of 2000 compared to
1999. Other service charges and fees increased by $223,000 or 18.4% in the
first six 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 $227,000 or 22.5% in the first six months of 2000 compared to 1999.
The major reason for this increase in other income was an increase in trust
fees.
Total noninterest income increased by $288,000 or 15.3% in the three months
ended June 30, 2000 compared to the three months ended June 30, 1999. Service
charges on deposit accounts increased $30,000 or 4.1% for the second quarter of
2000 compared to 1999. Other service charges and fees increased by $108,000 or
15.9% in the second quarter of 2000 compared to 1999. The largest contributing
factor to this increase was the fee income generated by merchant assessments.
Other income increased by $150,000 or 31.9% in the second quarter of 2000
compared to 1999. The major reason for this increase in other income was an
increase in trust fees.
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NONINTEREST EXPENSE
Total noninterest expense increased by $867,000 or 7.1% in the first six months
of 2000 compared to the first six months of 1999. Salaries and employee
benefits cost decreased by $40,000 or 0.6% in the first six months of 2000
compared to 1999. This decrease was the result of reductions in staff due to
the merger of United Bank and Kingfield Savings Bank. Other operating expenses
increased by $912,000 or 22.8%. 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.
Total noninterest expense increased by $303,000 or 4.9% in the three months
ended June 30, 2000 compared to the three months ended June 30, 1999. Salaries
and employee benefits cost decreased by $93,000 or 2.9% in the second quarter of
2000 compared to 1999. This decrease was the result of reductions in staff due
to the merger of United Bank and Kingfield Savings Bank. Other operating
expenses increased by $571,000 or 29.8%. The Company experienced increases in
credit card, data processing, and various other general operating expenses.
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
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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 second quarter of 2000.
Estimated
Rate Change Changes in NII
+200bp (6.01%)
-200bp 4.63%
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.
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 June 30, 2000, the Company had a notional principal of $10
million in an interest rate swap agreement and $10 million in floor 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 interest rate swap matures in
2004. The floor contract has a strike rate of 6% and matures in 2005.
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.
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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.
ITEM 4. SUBMISSION MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The annual meeting of shareholders was held on May 2, 2000.
(c) Matters voted upon at the meeting. 1) To elect as director nominees - Ann
W. Bresnahan, Robert W. Daigle, Rendle A. Jones, and Arthur E. Strout to
serve a three year term to expire at the annual meeting in 2003. Total
votes cast: 6,837,318, with 6,795,119 for, and 42,199 withheld. 2) To
ratify the selection of Berry, Dunn, McNeil & Parker as the Company's
independent public accountants for 2000. Total votes cast: 6,837,318,
with 6,814,247 for, 19,186 against, and 3,885 abstain.
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.
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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 August 14, 2000
------------------------------------- -------------------------
Robert W. Daigle Date
President and Chief Executive Officer
/s/ Susan M. Westfall August 14, 2000
------------------------------------- -------------------------
Susan M. Westfall Date
Treasurer and Chief Financial Officer
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