-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B3/NGz7x6NLtoIqeZZZr20q2GyWVC4nciOodh39+598nomMv1X0H8UJ9JTyF5apj JkbegqvyUCD8g4vCsP78+A== 0000927016-00-001891.txt : 20000516 0000927016-00-001891.hdr.sgml : 20000516 ACCESSION NUMBER: 0000927016-00-001891 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMDEN NATIONAL CORP CENTRAL INDEX KEY: 0000750686 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 010413282 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13227 FILM NUMBER: 635223 BUSINESS ADDRESS: STREET 1: TWO ELM ST CITY: CAMDEN STATE: ME ZIP: 04843 BUSINESS PHONE: 2072368821 MAIL ADDRESS: STREET 1: 2 ELM ST CITY: CAMDEN STATE: ME ZIP: 04843 10-Q 1 FORM 10-Q 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. CAMDEN NATIONAL CORPORATION Form 10-Q for the quarter ended March 31, 2000 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE 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
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 PART I. ITEM I. FINANCIAL INFORMATION Camden National Corporation and Subsidiaries Consolidated Statements of Income (unaudited)
(In thousands, except number Three Months Ended March 31, of shares and per share data) 2000 1999 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
Page 3 Camden National Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (unaudited)
(In thousands) Three Months Ended March 31, 2000 1999 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 ========== ==========
Page 4 Camden National Corporation and Subsidiaries Consolidated Statements of Condition (unaudited) (In thousands, except number of shares and per share data)
March 31, December 31, 2000 1999 Assets 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 ========= =========
Page 5 Camden National Corporation and Subsidiaries Consolidated Statements of Cash Flows (unaudited)
(In thousands) Three Months Ended March 31, 2000 1999 Operating Activities 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
Page 6 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 ANALYSIS OF CHANGES IN NET INTEREST MARGIN
March 31, 2000 March 31, 1999 -------------- -------------- Amount Average Amount Average of Yield/ of Yield/ Dollars in thousands interest Rate interest Rate ---------- --------- ---------- ------- 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)
*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 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 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 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 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 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 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 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 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 EX-23.1 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 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 EX-27 3 FINANCIAL DATA SCHEDULE
9 3-MOS 3-MOS DEC-31-2000 DEC-31-1999 MAR-31-2000 MAR-31-1999 32,569 24,230 0 0 0 415 0 0 169,605 163,997 65,835 68,193 65,471 68,049 659,037 635,434 10,059 9,390 973,038 928,350 667,914 667,720 215,331 173,924 10,251 9,083 0 0 0 0 0 0 2,450 2,450 77,092 75,173 973,038 928,350 14,381 54,838 4,137 15,553 176 172 18,694 70,563 5,949 23,187 8,795 30,504 9,899 40,059 644 3,670 0 0 6,574 27,604 4,632 15,412 4,632 15,412 0 0 0 0 3,194 10,229 0.39 1.27 0.39 1.27 8.51 8.53 5,016 6,136 797 195 0 0 5,813 6,331 9,390 8,092 237 2,660 262 288 10,059 9,390 9,345 8,862 0 0 714 528
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