Mergers and Acquisitions

Acadia Trust, N.A. — November 30, 2016

On November 30, 2016, the Company completed its merger of Acadia Trust, N.A., the Company's wholly-owned subsidiary, into the Bank, also the Company's wholly-owned subsidiary, and created a new wealth management and trust department of the Bank, Camden National Wealth Management. The merger did not qualify as a business combination and did not have any effect on the Company's consolidated financial condition.

Acquisition of SBM Financial, Inc. — October 16, 2015

On October 16, 2015, the Company completed its acquisition of 100% of SBM's common stock, through the completion of a two-step merger of Camden National Corporation, SBM and Atlantic Acquisitions, LLC, a wholly-owned subsidiary of Camden National Corporation (the "Merger"). The Merger qualified as a tax-free reorganization for federal income tax purposes and, pursuant to the terms and merger agreement, dated as of March 29, 2015, by and among Camden National Corporation, SBM and Atlantic Acquisitions, LLC ("Merger Agreement"), each share of SBM's common stock outstanding at the effective time of the acquisition was converted into the right to receive, at the election of the stockholder and subject to the allocation and proration procedures described in the Merger Agreement, either: (1) $206.00 in cash, without interest or (2) 8.132 shares of common stock of the Company; provided that 80% of the SBM shares outstanding immediately prior to the effective time of the acquisition were converted into the right to receive common stock of the Company and the remaining SBM shares were converted into the right to receive cash. The total consideration paid by the Company was $136.7 million, consisting of (i) $26.1 million in cash; (ii) 4,124,643 shares of Camden common stock valued at $108.6 million, based on the October 16, 2015 closing price of the Company's common stock of $26.32 per share; and (iii) the fair value of 139,032 non-qualified stock options issued under the 2012 Plan of $2.0 million. Pursuant to the Merger Agreement, all unexercised non-qualified stock options held by SBM option holders immediately vested upon completion of the acquisition and were to roll into the Company's non-qualified stock options using the 8.132 share conversion ratio (rounded down to the nearest whole share). The non-qualified stock options issued under the Company's 2012 Plan maintained the same terms and conditions as previously held under SBM's equity plan. The fair value of the non-qualified stock options approximated the intrinsic value of the non-qualified stock options at acquisition date.

The Merger complemented the Company's existing footprint within Maine, while expanding its presence in the higher growth Southern Maine market and into Massachusetts. In addition to providing incremental market share and increasing its presence within Southern Maine, the acquisition improved the Company's interest rate risk exposure in a rising rate environment through a larger mix of variable rate loans as percentage of total loans and additional core deposits (non-interest checking, interest checking, savings and money market accounts).

The Company accounted for the Merger using the acquisition method. The acquisition method requires the acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date (with limited exceptions), and does not provide for acquisition expenses to be capitalized as part of the transaction.

The Company incurred acquisition-related costs for the periods indicated as detailed below:



	For The Year Ended December 31,
	2017		2016		2015
Salaries and employee benefits⁽¹⁾	$	—	$	8	$	3,240
Furniture, equipment and data processing	—		279		1,531
Net occupancy	—		439		1,237
Consulting and professional fees⁽²⁾	—		80		2,453
Other expenses⁽³⁾	—		60		1,954
Total merger and acquisition costs	$	—	$	866	$	10,415


(1)	Includes the costs associated with pre-existing change-in-control agreements in place at the time of the Merger and employee termination costs, including severance.


(2)	Includes the cost of a negotiated non-compete arrangement entered into in connection with the Merger of $400,000 in 2015.


(3)	Other expenses include marketing and insurance costs, certain contract termination costs, various printing and mailing costs associated with various customer communications, and travel-related costs associated with the integration of the two companies in 2015.

Also in connection with the Merger, the Company incurred certain equity issuance costs totaling $612,000 related to the registration of additional shares of the Company's common stock. These costs have been accounted for as a reduction to shareholders' equity and have been presented as such within the Company's consolidated statements of changes in shareholders' equity for the year ended December 31, 2015.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition:



	As Acquired		Fair Value Adjustments (Previously Reported)			Measurement-Period Adjustments		As Recorded at Acquisition
Consideration Paid:
Cash								$	26,125
Company common stock (4,124,643 shares at $26.32 per share)								108,561
Non-qualified stock options								1,990
Total consideration paid								136,676
Recognized identifiable assets acquired and liabilities assumed, at fair value:
Loans and loans held for sale	$	639,390	$	(11,497	)	$	137	628,030
Cash and due from banks	86,042		—			—		86,042
Investments	39,716		26			—		39,742
Deferred tax assets	26,293		(1,177		)	666		25,782
Premises and equipment	16,851		7,093			—		23,944
OREO	2,530		(1,801		)	—		729
Core deposit intangible assets	—		6,608			—		6,608
Other assets	5,421		(170		)	157		5,408
Deposits and borrowings	719,640		1,546			—		721,186
Other liabilities	8,512		(198		)	—		8,314
Total identified assets acquired and liabilities assumed, at fair value	$	88,091	$	(2,266	)	$	960	86,785
Goodwill								$	49,891

The Company completed its purchase accounting for the Merger by June 30, 2016. In connection with completion of its accounting for the acquisition, the Company made certain measurement-period adjustments that decreased goodwill reported at December 31, 2015 by $960,000. The measurement-period adjustments did not have a material effect on current year's net income nor will it have a material effect on future years' net income. The Company accounted for the measurement period adjustment prospectively in 2016 in accordance with ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. Upon completion of purchase accounting, the Company recorded $49.9 million of goodwill in connection with the Merger, which was allocated to the Company's banking reporting unit. The goodwill generated represents the synergies expected from combining operations of the two organizations, including, but not limited to, systems conversion, consolidation of bank locations and operation centers, and reduced headcount across operation teams. The goodwill generated from the transaction is not deductible for tax purposes.

Fair value adjustments to assets acquired and liabilities assumed are generally amortized using an effective yield, straight-line basis, or other reasonable method consistent with the expected benefit over periods consistent with the estimated useful life or contractual term of the related assets and liabilities.