-----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, B6vllfCLyuJXnRxEeQe1v1EpUOLT8qjV+Rl1EyRpEz49SuY7skd7f0BCL908xO1M pVrG4S5YZCsatrWD5+6aKw== 0000927016-01-502339.txt : 20010813 0000927016-01-502339.hdr.sgml : 20010813 ACCESSION NUMBER: 0000927016-01-502339 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010810 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: 1934 Act SEC FILE NUMBER: 001-13227 FILM NUMBER: 1705035 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 d10q.txt 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 June 30, 2001 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 July 31, 2001: Common stock (no par value) 8,145,341 shares. 1 CAMDEN NATIONAL CORPORATION FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT PART I. FINANCIAL INFORMATION PAGE ITEM 1. FINANCIAL STATEMENTS Independent Accountants' Report 3 Consolidated Statements of Income Six Months Ended June 30, 2001 and 2000 4 Consolidated Statements of Income Three Months Ended June 30, 2001 and 2000 5 Consolidated Statements of Comprehensive Income Six Months Ended June 30, 2001 and 2000 6 Consolidated Statements of Comprehensive Income Three Months Ended June 30, 2001 and 2000 6 Consolidated Statements of Condition June 30, 2001 and December 31, 2000 7 Consolidated Statements of Cash Flows Six Months Ended June 30, 2001 and 2000 8 Notes to Consolidated Financial Statements Six Months Ended June 30, 2001 and 2000 9-11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 18-20 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 20 ITEM 2. CHANGES IN SECURITIES 20 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20 ITEM 4. SUBMISSION MATTERS TO VOTE OF SECURITY HOLDERS 20 ITEM 5. OTHER INFORMATION 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21 SIGNATURES 22 2 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, 2001, and for the six-month and three-month periods ended June 30, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our reviews 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 U.S. 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 reviews, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with U.S. generally accepted accounting principles. Berry, Dunn, McNeil & Parker Portland, Maine July 31, 2001 3 PART I. ITEM 1. FINANCIAL STATEMENTS CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(In thousands, except number SIX MONTHS ENDED JUNE 30, of shares and per share data) 2001 2000 INTEREST INCOME Interest and fees on loans $ 32,290 $ 29,568 Interest on securities 7,268 7,679 Interest on interest rate swap agreements 1,138 333 Other interest income 607 661 ---------- ---------- Total interest income 41,303 38,241 INTEREST EXPENSE Interest on deposits 14,003 12,120 Interest on other borrowings 5,076 6,151 Interest on interest rate swap agreements 827 319 ---------- ---------- TOTAL INTEREST EXPENSE 19,906 18,590 ---------- ---------- NET INTEREST INCOME 21,397 19,651 PROVISION FOR LOAN LOSSES 1,428 1,288 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 19,969 18,363 OTHER INCOME Service charges on deposit accounts 1,768 1,466 Income from fiduciary activities 502 462 Merchant program 767 622 Net gains on derivative instruments 932 0 Life insurance earnings 378 377 Other income 1,309 1,211 ---------- ---------- TOTAL OTHER INCOME 5,656 4,138 OPERATING EXPENSES Salaries and employee benefits 6,712 6,240 Premises and fixed assets 2,128 1,913 Merchant program 835 693 Amortization of core deposit intangible 493 493 Other 4,089 3,726 ---------- ---------- TOTAL OPERATING EXPENSES 14,257 13,065 ---------- ---------- LESS MINORITY INTEREST NET (LOSS) INCOME (6) 23 INCOME BEFORE INCOME TAXES 11,374 9,413 ---------- ---------- INCOME TAXES 3,751 2,896 ---------- ---------- Net Income $ 7,623 $ 6,517 ========== ========== PER SHARE DATA Basic earnings per share $0.94 $0.80 Diluted earnings per share 0.93 0.80 Cash dividends per share 0.32 0.31 Weighted average number of shares outstanding 8,145,341 8,167,358
See Independent Accountants' Report. The accompanying notes are an integral part of these Consolidated Financial Statements. 4 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(In thousands, except number THREE MONTHS ENDED JUNE 30, of shares and per share data) 2001 2000 INTEREST INCOME Interest and fees on loans $ 16,460 $ 15,187 Interest on securities 3,292 3,866 Interest on interest rate swap agreements 496 157 Other interest income 304 337 ---------- ---------- Total interest income 20,552 19,547 INTEREST EXPENSE Interest on deposits 6,580 6,171 Interest on other borrowings 2,537 3,457 Interest on interest rate swap agreements 306 167 ---------- ---------- TOTAL INTEREST EXPENSE 9,423 9,795 ---------- ---------- NET INTEREST INCOME 11,129 9,752 PROVISION FOR LOAN LOSSES 714 644 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,415 9,108 OTHER INCOME Service charges on deposit accounts 925 758 Income from fiduciary activities 246 227 Merchant program 452 398 Net gains on derivative instruments 589 0 Life insurance earnings 189 188 Other income 506 595 ---------- ---------- TOTAL OTHER INCOME 2,907 2,166 OPERATING EXPENSES Salaries and employee benefits 3,460 3,116 Premises and fixed assets 1,078 888 Merchant program 528 470 Amortization of core deposit intangible 247 247 Other 2,033 1,770 ---------- ---------- TOTAL OPERATING EXPENSES 7,346 6,491 ---------- ---------- LESS MINORITY INTEREST NET (LOSS) INCOME (16) 2 INCOME BEFORE INCOME TAXES 5,992 4,781 ---------- ---------- INCOME TAXES 1,989 1,458 ---------- ---------- Net Income $ 4,003 $ 3,323 ========== ========== PER SHARE DATA Basic earnings per share $0.50 $0.41 Diluted earnings per share 0.49 0.41 Cash dividends per share 0.16 0.16 Weighted average number of shares outstanding 8,145,341 8,167,358
See Independent Accountants' Report. The accompanying notes are an integral part of these Consolidated Financial Statements 5 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(In thousands) SIX MONTHS ENDED JUNE 30, 2001 2000 Net income $ 7,623 $6,517 Other comprehensive income, net of tax: Cumulative effect to record unrealized appreciation on securities held to maturity transferred to securities available for sale (net of taxes of $1,021) 1,982 0 Change in unrealized appreciation on securities available for sale (net of taxes of $800 and $332 for 2001 and 2000, respectively) 1,552 645 Cumulative effect of implementation of SFAS No. 133 (net of taxes of $158 for 2001) 308 0 Change in effective cash flow hedge component of unrealized depreciation on derivative instruments marked to market (net of taxes of $(158) for 2001) (308) 0 ------- ------ Comprehensive income $11,157 $7,162 ======= ======
See Independent Accountants' Report. The accompanying notes are an integral part of these Consolidated Financial Statements. CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(In thousands) THREE MONTHS ENDED JUNE 30, 2001 2000 Net income $4,003 $3,323 Other comprehensive income, net of tax: Change in unrealized appreciation (depreciation) on securities available for sale (net of taxes of $(103) and $353 for 2001 and 2000, respectively) (200) 686 Change in effective cash flow hedge component of unrealized depreciation on derivative instruments marked to market (net of taxes of $(189) for 2001) (369) 0 ------ ------ Comprehensive income $3,434 $4,009 ====== ======
See Independent Accountants' Report. The accompanying notes are an integral part of these Consolidated Financial Statements. 6 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except number JUNE 30, DECEMBER 31, of shares and per share data) 2001 2000 (unaudited) (audited) ASSETS Cash and due from banks $ 25,540 $ 29,337 Securities available for sale, at market 214,549 159,315 Securities held to maturity 0 57,695 Other securities 16,232 16,232 Residential mortgages held for sale 2,513 12,838 Loans, less allowance for loan losses of $12,230 and $10,609 at June 30, 2001 and 2000, respectively 734,572 677,701 Premises and equipment 16,858 16,023 Other real estate owned 309 380 Interest receivable 7,055 6,959 Core deposit intangible 6,167 6,660 Other assets 26,414 27,743 ---------- ---------- Total assets $1,050,209 $1,010,883 ========== ========== LIABILITIES Deposits: Demand $ 80,434 $ 83,631 NOW 93,903 87,270 Money market 121,102 121,292 Savings 81,161 81,730 Certificates of deposit 346,837 370,437 ---------- ---------- Total deposits 723,437 744,360 Borrowings from Federal Home Loan Bank 180,360 132,348 Other borrowed funds 38,921 36,092 Accrued interest and other liabilities 7,919 6,984 Minority interest in subsidiary 164 176 ---------- ---------- Total liabilities 950,801 919,960 ---------- ---------- SHAREHOLDERS' EQUITY Common stock, no par value; authorized 10,000,000 shares, issued 8,609,898 shares 2,450 2,450 Surplus 5,832 5,909 Retained earnings 97,284 92,278 Accumulated other comprehensive income: Net unrealized appreciation (depreciation) on securities available for sale, net of income tax 2,722 (812) ---------- ---------- 108,288 99,825 Less cost of 464,557, and 442,540 shares of treasury stock on June 30, 2001 and 2000, respectively 8,880 8,902 ---------- ---------- Total shareholders' equity 99,408 90,923 ---------- ---------- Total liabilities and shareholders' equity $1,050,209 $1,010,883 ========== ==========
See Independent Accountants' Report. The accompanying notes are an integral part of these Consolidated Financial Statements. 7 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands) SIX MONTHS ENDED JUNE 30, 2001 2000 OPERATING ACTIVITIES Net Income $ 7,623 $ 6,517 Adjustment to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,428 1,288 Depreciation and amortization 809 660 Increase in interest receivable (772) (4,261) Decrease in other assets 292 624 Increase in other liabilities 1,193 1,906 Decrease (increase) in residential mortgage loans held for sale 10,325 (15) (Decrease) increase in minority position (12) 24 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 20,886 6,743 INVESTING ACTIVITIES Proceeds from sale and maturities of securities held to maturity 0 5,209 Proceeds from sale and maturities of securities available for sale 11,038 3,310 Purchase of securities available for sale (3,201) (11,956) Purchase of Federal Home Loan Bank Stock 0 (175) Net increase in loans (58,299) (54,370) Net decrease in other real estate owned 71 625 Purchase of premises and equipment (1,543) (2,629) Purchase of life insurance policy 0 (10,000) Net sale of federal funds 0 (1,170) -------- -------- Net cash used by investing activities (51,934) (71,156) FINANCING ACTIVITIES Net (decrease) increase in deposits (20,923) 9,064 Net increase in short-term borrowings 50,841 60,700 Exercise and repurchase of stock options (54) (5) Cash dividends (2,613) (2,537) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 27,251 67,222 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,797) 2,809 Cash and cash equivalents at beginning of year 29,337 24,230 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,540 $ 27,039 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Non-Cash transactions: Transfer of securities from held to maturity to available for sale 57,695 0 Transfer from loans to real estate owned 54 73 Transfer from loans held for sale to loan portfolio 0 8,230
See Independent Accountants' Report. The accompanying notes are an integral part of these Consolidated Financial Statements. 8 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, 2001, and December 31, 2000, the consolidated statements of income for the six and three months ended June 30, 2001 and June 30, 2000, the consolidated statements of comprehensive income for the six and three months ended June 30, 2001 and June 30, 2000 and the consolidated statements of cash flows for the six months ended June 30, 2001 and June 30, 2000. All significant intercompany transactions and balances are eliminated in consolidation. The income reported for the six-month period ended June 30, 2001 is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the December 31, 2000 Annual Report to Shareholders. NOTE 2 - EARNINGS PER SHARE Basic earnings per share data is computed based on the weighted average number of common shares outstanding during each year. Potential common stock is considered in the calculation of weighted average shares outstanding for diluted earnings per share. The following tables set forth the computation of basic and diluted earnings per share:
(Dollars in thousands, except number SIX MONTHS ENDED JUNE 30, of shares and per share data) 2001 2000 Net income, as reported $ 7,623 $ 6,517 Weighted average shares 8,145,341 8,167,358 Effect of dilutive employee stock options 19,333 12,573 ---------- ---------- Adjusted weighted average shares and assumed conversion 8,164,674 8,179,931 ========== ========== Basic earnings per share $ 0.94 $ 0.80 Diluted earnings per share 0.93 0.80 THREE MONTHS ENDED JUNE 30, 2001 2000 Net income, as reported $ 4,003 $ 3,323 Weighted average shares 8,145,341 8,167,358 Effect of dilutive employee stock options 19,333 12,573 ---------- ---------- Adjusted weighted average shares and assumed conversion 8,164,674 8,179,931 ========== ========== Basic earnings per share $ 0.50 $ 0.41 Diluted earnings per share 0.49 0.41
9 NOTE 3 - DERIVATIVE FINANCIAL INSTRUMENTS On January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." As part of its interest rate risk management, the Company has interest rate swap agreements with a notional amount of $25 million at June 30, 2001. These swap agreements are used to hedge a portfolio of brokered certificates of deposit. Most of the swaps are designated as a fair value hedge since they are used to convert the cost of the certificates of deposit from a fixed to a variable rate. Since the hedge relationship is estimated to be 100 percent effective (gain or loss on the swap agreements will completely offset the gain or loss on the brokered certificates of deposit) there was no impact on the statement of income nor on the statement of comprehensive income. The application of SFAS No. 133 results in a grossing up of the statement of condition to reflect the swap and the brokered certificates of deposit at fair value. At June 30, 2001 the fair value (or replacement cost) of these swap agreements was approximately $18.2 thousand. This was a reduction of $65.4 thousand compared to fair value reported at March 31, 2001. The Company also has interest rate protection agreements (caps) with a notional amount of $90 million at June 30, 2001. These caps are used to limit the Company's exposure to rising interest rates on its borrowings. Under these agreements the Company paid up-front premiums of $239.0 thousand for the right to receive cash flow payments if rates exceed the predetermined cap rate, thus capping its interest rate cost for the duration of the agreement. In accordance with SFAS No. 133, management designates these caps as cash-flow hedges. For a qualifying cash flow hedge, an interest rate cap is carried on the statement of condition at fair value with the time and option volatility value changes, for the ineffective portion will be reflected in the statement of income. Any intrinsic value, for the effective portion, will be recorded in other comprehensive income, net of applicable taxes, and recognized in future statements of income as an offset to related future borrowing costs. As of June 30, 2001, the Company recognized a loss of $149.5 thousand that in the statement of income, for the ineffective portion. On January 1, 2001, upon implementation of SFAS No. 133, net gains and losses related to the effective cash flow hedge component of derivative instruments were reported as a cumulative effect adjustment to other comprehensive income. Upon implementation of SFAS No. 133, the Company transferred all of its investment securities classified as held to maturity to available for sale. The impact of this reclassification was an increase to other comprehensive income of $2.0 million, net of applicable taxes. On April 11, 2001 the Company sold an interest rate floor agreement and an interest rate swap both with notional amounts of $10 million. The purpose of the interest rate floor entered into by the Company on May 12, 2000 was to protect net interest income from falling interest rates by "flooring" certain asset yields for a contracted period of time, thus "insuring" a minimum earnings level. The purpose of the interest rate swap agreement entered into by the Company on December 23, 1999 was to exchange a variable rate asset for a fixed rate asset, thus projecting certain asset yields from falling interest rates. With a substantial decline in the interest rate environment, it was determined that it would be economically advantageous to sell now rather then wait for the potential cash flows over the life of the instruments. In addition, subsequent to the Company having purchased these instruments, other strategies have been implemented to protect the balance sheet in a declining rate environment. The impact of this sale was an increase to net income of $614.8 thousand, net of applicable taxes. 10 NOTE 4 - RECENT DEVELOPMENTS ACQUISITIONS - -------------- On May 7, 2001 the Company announced the signing of a definitive agreement to acquire 100% of the outstanding common stock of Acadia Trust, N.A. ("Acadia") and Gouws Capital Management, Inc. ("Gouws Capital"). Headquartered in Portland, Maine, Acadia is a nationally chartered trust company offering traditional trust services to high net worth individuals and institutions. Acadia's assets under management are approximately $400 million. Gouws Capital, headquartered in Portland, Maine, offers investment advisory services to high net worth individuals and institutions, many of whom are also clients of Acadia, has approximately $400 million of assets under management. Gouws Capital was founded in 1984, followed by Acadia in 1991. On July 19, 2001, the Company completed its acquisition of Acadia and Gouws Capital. STOCK REPURCHASE - ---------------- The Board of Directors of the Company voted on June 25, 2001 to authorize the Company to purchase up to 409,500 shares or approximately 5% of its outstanding common stock. The authority may be exercised from time to time and in such amounts as market conditions warrant. Any purchases are intended to make appropriate adjustments to the Company's capital structure, including meeting share requirements related to employee benefit plans and for general corporate purposes. ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATION FORWARD LOOKING INFORMATION The discussions set forth below and in the documents we incorporate by reference herein contain certain statements that may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. The Company may make written or oral forward-looking statements in other documents we file with the SEC, in our annual reports to stockholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," estimate," "assume," "will," "should," and other expressions which predict or indicate future events or trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements. Some of the factors that might cause these differences include the following: changes in general, national or regional economic conditions; changes in loan default and charge-off rates; reductions in deposit levels necessitating increased borrowing to fund loans and investments; changes in interest rates; changes in laws and regulations; changes in the size and nature of the Company's competition; and changes in the assumptions used in making such forward-looking statements. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences, including, among others, the factors listed under "Certain Factors Affecting Future Operating Results," beginning on page 16 of our Annual Report on Form 10- K for the year ended December 31, 2000. Readers should carefully review the factors described under "Certain Factors Affecting Future Operating Results" and should not place undue reliance on our forward-looking statements. 11 These forward-looking statements were based on information, plans and estimates at the date of this report, and we do not promise to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. RESULTS OF OPERATIONS The Company reported consolidated net income of $7.6 million or $0.93 per diluted share, for the first six months of 2001. This is an increase of $1.1 million or 17.0% compared to net income of $6.5 million or $0.80 per diluted share for the comparable period of 2000. When adjusted for gains on the sales of derivative contracts and costs associated with acquisitions, net operating income for the six months ending June 30, 2001 was $7.2 million or $0.88 per diluted share. Compared to the first six months of 2000, operating income per diluted share increased 10.0%. Return on average equity ("ROE") and return on average assets ("ROA") for the first half of the year was 16.16% and 1.50%, respectively. ROE and ROA were 16.44% and 1.36%, respectively, for the same period in 2000. For the second quarter of 2001, the Company reported consolidated net income of $4.0 million or $0.49 per diluted share, an increase of 19.5% over earnings per diluted share of $0.41 reported for the second quarter of 2000. When adjusted for gains on the sales of derivative contracts and costs associated with acquisitions, net operating income for the second quarter ending June 30, 2001 was $3.7 million or $0.45 per diluted share. This is an increase in operating earnings per diluted share of 9.8% when compared the second quarter of 2000. NET INTEREST INCOME The Company's net interest income, on a fully taxable equivalent basis, for the six months ended June 30, 2001 was $21.6 million, an 8.8% or $1.7 million increase over the net interest income for the first six months of 2000 of $19.9 million. Interest income on loans increased by $3.0 million, or 10.2% during the six-month period of 2001 compared to the same period of 2000. This increase was due to the increases in loan volumes. The Company experienced a slight decrease in interest income on investments during the first six months of 2001 compared to the same period in 2000 due to a decrease in yields. The Company's interest expense on deposits and borrowings increased during the first six months of 2001 compared to the same period in 2000. This increase in interest expense was the result of increased volumes offset somewhat due to decreased pricing. Net interest income, expressed as a percentage of average interest- earnings assets for the first half of 2001 and 2000, was 4.55% and 4.49%, respectively. The following tables, which present changes in interest income and interest expense by major asset and liability category for six months ended June 30, 2001 and 2000, illustrate the impact of average volume growth and rate changes. The income from tax-exempt assets has been adjusted to a tax-equivalent basis, thereby allowing a uniform comparison to be made between asset yields. Changes in net interest income are the result of interest rate movements, changes in the amounts and mix of interest-earning assets and interest-bearing liabilities, and changes in the level of non-interest-earning assets and non-interest-bearing liabilities. The Company utilizes derivative financial instruments such as interest rate swap agreements that have an effect on net interest income. There was an increase in net interest income of $311.0 thousand during the first six months of 2001 compared to an increase of $14.0 thousand in the first six months of 2000. The average amount of non-accrual loans can also affect the average yield on all outstanding loans. However, the average amount of non-accrual loans for the periods reflected were minimal and, therefore, had an insignificant effect on average loan yield. 12 ANALYSIS OF CHANGES IN NET INTEREST MARGIN
SIX MONTHS ENDED SIX MONTHS ENDED June 30, 2001 JUNE 30, 2000 ----------------------- ---------------------- Dollars in thousands AMOUNT OF AVERAGE AMOUNT OF AVERAGE INTEREST YIELD/COST INTEREST YIELD/COST --------- ---------- --------- ---------- Interest-earning assets: Securities - taxable $ 7,676 6.87% $ 8,125 7.22% Securities - nontaxable 298 6.69% 299 7.00% Federal funds sold 3 4.69% 31 6.15% Loans 32,745* 9.12% 29,710* 9.11% -------- ---- -------- ---- TOTAL EARNING ASSETS 40,722 8.56% 38,165 8.61% SOURCES OF FUNDS: Demand deposits 0 0.00% 0 0.00% NOW accounts 409 0.92% 474 1.11% Savings accounts 946 2.33% 1,128 2.57% Money market accounts 2,523 4.11% 1,855 4.25% Certificates of deposit 9,114 5.57% 8,183 5.21% Short-term borrowings 5,076 5.21% 6,489 6.06% Broker certificates of deposit 1,012 7.68% 142 5.78% -------- ---- -------- ---- TOTAL SOURCES OF FUNDS 19,080 4.16% 18,271 4.19% NET INTEREST INCOME (FULLY-TAXABLE EQUIVALENT) 21,642 19,894 LESS: FULLY-TAXABLE EQUIVALENT ADJUSTMENT (245) (243) -------- -------- $ 21,397 $ 19,651 ======== ======== NET INTEREST RATE SPREAD (FULLY-TAXABLE EQUIVALENT) 4.40% 4.42% NET INTEREST MARGIN (FULLY-TAXABLE EQUIVALENT) 4.55% 4.49%
*Includes net swap income figures - 2001: $311,000 and 2000: $14,000. Notes: Nonaccrual loans are included in total loans. Tax exempt interest was calculated using a rate of 34% for fully-taxable equivalent. The calcuation of the Net Interest Rate Spread and Net Interest Margin ratios were changed this period to include demand deposits. In addition, the average balances starting this period are based on a daily verses monthly average. These changes resulted in an increase of the June 2000 ratios previously reported. 13 AVERAGE BALANCE SHEETS Dollars in thousands SIX MONTHS ENDED JUNE 30, 2001 2000 INTEREST-EARNING ASSETS: Securities - taxable $ 225,217 $226,840 Securities - nontaxable 8,980 8,610 Federal funds sold 129 1,017 Loans 723,965 657,514 ---------- -------- TOTAL INTEREST-EARNING ASSETS 958,291 893,981 Cash and due from banks 23,879 26,190 Other assets 56,790 59,862 Less allowance for loan losses 11,510 10,212 ---------- -------- TOTAL ASSETS $1,027,450 $969,821 ========== ======== SOURCES OF FUNDS: Demand deposits $ 76,370 $ 80,633 NOW accounts 89,394 86,029 Savings accounts 81,993 88,395 Money market accounts 123,649 87,974 Certificates of deposits 330,123 316,558 Short-term borrowings 196,328 216,026 Broker certificates of deposit 26,562 4,957 ---------- -------- TOTAL SOURCES OF FUNDS 924,419 880,572 Other liabilities 7,904 9,315 Shareholders' equity 95,127 79,934 ---------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,027,450 $969,821 ========== ======== 14 ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSES June 30, 2001 Over June 30, 2000 Change Change Dollar in thousands Due to Due to Total Volume Rate Change -------- ------- -------- INTEREST-EARNING ASSETS: Securities - taxable $ (58) $(391) $ (449) Securities - nontaxable 13 (14) (1) Federal funds sold (27) (1) (28) Loans 3,002 33 3,035 ------ ----- ------- TOTAL INTEREST INCOME 2,930 (373) 2,557 SOURCES OF FUNDS: NOW accounts 19 (84) (65) Savings accounts (82) (100) (182) Money market accounts 752 (84) 668 Certificates of deposit 351 580 931 Short-term borrowings (592) (821) (1,413) Broker certificates of deposit 619 251 870 ------ ----- ------- TOTAL INTEREST EXPENSE 1,067 (258) 809 NET INTEREST INCOME (FULLY TAXABLE EQUIVALENT) $1,863 $(115) $ 1,748 ====== ===== ======= NONINTEREST INCOME Total non-interest income increased by $1.5 million or 36.7% in the six months ended June 30, 2001 compared to the six months ended June 30, 2000. Excluding the gain of $932.0 thousand realized from the sale of derivative instruments, non-interest income increased $586.0 thousand or 14.2% over the comparable period of 2000. Service charges on deposit accounts increased $302.0 thousand or 20.6% for the first half of 2001 compared to 2000. This increase was primarily attributable to a restructuring of deposit accounts and a change in the service charge fee structure. In addition, during May 2001 the Company introduced a new overdraft privilege service to its consumer customers which resulted in increased fee income. Merchant program increased $145.0 thousand or 23.3% during the first half of the year due to a combination of restructured pricing and increased volumes. Trust fees increased by $40.0 thousand or 8.7% in the first six months of 2001 compared to 2000. The primary reason for the $98.0 thousand or 8.1% increase in other income was an increase of $83.5 thousand or 51.6% compared to June 2000 in mortgage servicing fees associated with sales of residential real estate loans during the first half of 2001. Total non-interest income increased by $741.0 thousand or 34.2% during the second quarter of 2001 compared to the second quarter of 2000. Excluding the gain of $589.0 thousand recognized from the sale of derivative instruments, non- interest income increased $152.0 thousand or 7.0% over the comparable period of 2000. Service charges on deposit accounts increased $167.0 thousand or 22.0% for the second quarter of 2001 compared to 2000. This increase was primarily attributable to a restructuring of deposit accounts and a change in the service charge fee structure and the new overdraft privilege service. Merchant program increased $54.0 thousand or 13.6% during the second quarter due to a combination of restructured pricing and increased volumes. Trust fees increased by $19.0 thousand or 8.4% in the second quarter of 2001 compared to 2000. The primary reason for the $89.0 thousand decrease in other income was a one-time vendor- signing bonus of $60.0 thousand that was recognized during the second quarter of 2000. 15 NONINTEREST EXPENSE Total non-interest expense increased by $1.2 million or 9.1% in the first half of the year ended June 30, 2001 compared to the same period ended June 30, 2000. Salaries and employee benefits cost increased by $472.0 thousand or 7.6% during the first six months of 2001 compared to 2000. This increase was the result of normal annual increases, higher benefit costs and increased employee performance bonus accruals. Expenses related to premises and fixed assets increased $215.0 thousand or 11.2% during the first half of 2001 compared to 2000 due to the renovation and expansion of several of the Company's facilities. Expenses associated with the processing of merchant transactions increased $142.0 thousand or 20.5% during the first half of 2001 compared to 2000. Other operating expenses increased by $363.0 thousand or 9.7%, in the first six months of 2001 compared to the first six months of 2000. The largest contributing factor was the expenses related to the acquisitions of Acadia Trust and Gouws Management of $188.0 thousand. Other contributing factors were increases in fees paid directors, courier costs, debit card processing costs, and closing costs and solicitation costs associated with a recent home equity loan promotion. Total non-interest expense increased by $855.0 thousand or 13.2% in the quarter ended June 30, 2001 compared to the same quarter ended June 30, 2000. Salaries and employee benefits cost increased by $344.0 thousand or 11.0% during the second quarter of 2001 compared to 2000. This increase was the result of normal annual increases, higher benefit costs and increased employee performance bonus accruals. Expenses related to premises and fixed assets increased $190.0 thousand or 21.4% during the second quarter of 2001 compared to 2000 due to the renovation and expansion of several of the Company's facilities. Expenses associated with the processing of merchant transactions increased $58.0 thousand or 12.3% during the second quarter of 2001 compared to 2000. Other operating expenses increased by $263.0 thousand or 14.9%, in the second quarter of 2001 compared to the second quarter of 2000. The largest contributing factor was the expenses related to the acquisitions of Acadia Trust and Gouws Management of $188.0 thousand. Other contributing factors were increases in fees paid directors, courier costs, debit card processing costs, and closing costs and solicitation costs associated with a recent home equity loan promotion. FINANCIAL CONDITION During the first six months of 2001, average assets increased by $57.6 million, or 5.9% to $1.0 billion. This increase was the result of an increase in the loan portfolio (including residential mortgages held for sale) of $66.5 million or 10.1% to $724.0 million of average loans outstanding during the first half of 2001 compared to $657.5 million of average loans outstanding during the first half of 2000. There were increases in several loan categories. The largest increase was in the average commercial loans, which increased by $61.3 million or 18.7% during the first half of 2001 compared to 2000 primarily due to loan volumes generated in the Company's loan production office established during the second half of 2000. Average consumer loans increased by $1.7 million or 1.9%, and average residential real estate loans increased by $4.1 million or 1.8% during the first half of 2001 compared to the first half of 2000. Average municipal loans decreased $630.0 thousand or 5.1% during the first half of 2001. The Company's securities portfolio averaged $234.2 million during the first half of 2001, as compared to $235.5 million during the first half of 2000 reflecting a decrease of $1.3 million or .6%. The liquidity needs of the Company's bank subsidiaries require the availability of cash to meet the withdrawal demands of depositors and credit commitments to borrowers. Due to the potential for unexpected fluctuations in both deposits and loans, active management of the Company's liquidity is necessary. The Company seeks to maintain various sources of funding and prudent levels of liquid assets in order to satisfy its varied liquidity demand. In order to respond to the various circumstances, the Company has both on- and off-balance sheet funding resources in place. Deposits continue to represent the Company's primary source of funds. Average deposits of $728.1 million during the first six months of 2001 increased $63.6 million or 9.6% from $664.5 million in the first six months of 2000. As a supplement to deposits, the Company utilizes various external sources of funds to maintain liquidity. In addition to borrowings from the Federal Home Loan Bank of Boston ("FHLBB"), the Company's bank subsidiaries purchase federal funds, sell securities under agreements to repurchase and utilize treasury tax and loan accounts. Average borrowings for the first six months of 2001 were $196.3 million, a decrease of $19.7 million or 16 9.1% from $216.0 million the first six months of 2000. The majority of the borrowings were from the FHLBB, whose advances remained the largest non-deposit- related, interest-bearing funding source for the Company. Qualified residential real estate loans, certain investment securities and certain other assets available to be pledged secure these borrowings. The Company views borrowed funds as an alternative funding source that should be utilized when appropriate. In determining the adequacy of the allowance for loan losses ("ALL"), management relies primarily on its review of the loan portfolio both to ascertain whether there are specific loan losses to be reserved, and to assess the collectibility of the loan portfolio in the aggregate. Non-performing loans are examined on an individual basis to determine the estimated probable loss on these loans. In addition, each quarter management conducts a formal analysis of the ALL, which considers the current loan mix and loan volumes, historical net loan loss experience for each loan category, and current 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 ALL as conditions dictate. During the first half of 2001, the Company provided $1.4 million to the allowance for loan losses compared to $1.3 million in the first half of 2000. Total non-performing assets were .84% of total loans outstanding at June 30, 2001, compared to 1.03% of loans outstanding June 30, 2000. Determining an appropriate level of ALL involves a high degree of judgment. Management believes that the ALL at June 30, 2001 of $12.2 million, or 1.63%, of total loans outstanding was appropriate given the current economic conditions in the Company's service area and the overall condition of the loan portfolio. As a percentage of total loans outstanding, the ALL was 1.54% at June 30, 2000. 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 8%, of which at least 4% must be in the form of core capital. The Company's Tier 1 and total risk based capital ratios at June 30, 2001, of 12.1% and 13.3%, respectively, exceed regulatory guidelines. The Company's Tier 1 and total risk based capital ratios at December 31, 2000 were 11.8% and 13.1%, 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 subsidiary's Board of Directors from legally available funds. Camden National Corporation declared dividends in the aggregate amount of $2.6 million and $2.5 million in the first six months of 2001 and 2000, respectively. During the first six months of 2001, the dividends declared by Camden National Bank included $1.6 million for dividend payments to shareholders of Camden National Corporation. During the first six months of 2000, the dividends declared by Camden National Bank included $1.2 million for dividend payments to shareholders of Camden National Corporation and $1.4 million related to contributions of capital by Camden National Bank to equalize the capital ratios of the two subsidiary banks for the year 2000. United- Kingfield Bank declared $1.0 million for dividend payments to shareholders of Camden National Corporation during the first six months of 2001. During the first six months of 2000, UnitedKingfield declared no dividends. IMPACT OF INFLATION AND CHANGING PRICES The Consolidated Financial Statements and the Notes to Consolidated Financial Statements 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. RECENT DEVELOPMENTS The Company was a defendant in a civil action in the [Cumberland] County Superior Court (the "Court"), which action was commenced in September 1999 resulting from a denial of credit by the former Kingfield Savings Bank. The plaintiff, Joseph A. Gamache, has asserted causes of action against the Company for interference with advantageous relationship, fraud, negligent misrepresentation, intentional infliction of emotional distress, breach of fiduciary duty, negligence, vicarious liability and punitive damages. Mr. Gamache sought total damages (compensatory and punitive) of approximately $6 million. On August 7, 2001, the Company and Mr. Gamache agreed to settle the litigation. Pursuant to the settlement agreement Mr. Gamache agreed to terminate the litigation and to release the Company from any further liability with respect to this matter. The Company will incur expenses of $1,025,000, or approximately $666,000 after tax, in connection with payments to Mr. Gamache under the settlement agreement. 17 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK MARKET RISK Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. The Company's primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company's asset/liability management process which is governed by policies established by the bank subsidiaries' Boards of Directors that are reviewed and approved annually. Each bank subsidiary's Board of Directors delegates responsibility for carrying out the asset/liability management policies to that bank subsidiary'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 2-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 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 1-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 2001. Estimated Rate Change Changes in NII +200bp (1.91%) -200bp 0.63% 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 cash flows. 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. The most significant factors affecting the changes in market risk exposures during the first half of 2001 were the 1) decrease in interest rates market- wide, 2) changes in the yield curve for U.S. government securities, 3) increase in the principal amount of fixed-rate loans extended by the subsidiary banks, and 4) increases in fixed term borrowings. With the extension of fixed-rate borrowings the Company was less liability sensitive during the first half of 2001 compared to the second half of 2000. The changes made to the Company's loan portfolio and derivative financial instruments since December 31, 2000 have reduced the Company's exposure to a rising rate environment. Although the Company is still positively positioned in a downward rate environment, these 18 changes have resulted in an increased level of net interest risk in the event rates continue to decline. The Company considers net interest rate risk in both rising and declining rate scenarios in establishing its ALCO policy limits. When appropriate, the Company may utilize derivative financial 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 derivative financial instrument 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, 2001, the Company had a notional principal of $25 million in interest rate swap agreements and $90 million in cap contracts. The Company's $25 million of callable interest rate swaps mature in 2010. The two cap contracts ($20 million and $70 million) have strike rates of 7.5% and 7.0%, respectively, and both mature in 2002. These instruments are more fully described in Note 3 - Derivative Financial Instruments on page 10. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including derivative instruments that are embedded in other contracts, and for hedging activities. SFAS No. 133 requires the fair value recognition of all derivatives, unless specifically exempted, in the statement of financial position (as assets or liabilities). In accordance with SFAS No. 133, changes in the fair value of derivative instruments are accounted for as current income or other comprehensive income, depending on their designation and hedge effectiveness. SFAS No. 133 generally provides for the matching of the timing of gain or loss recognition on the hedging instruments with the recognition of either the changes in the fair value of the hedged asset or liability, or the earnings effect of the hedged forecasted transaction. The Company adopted SFAS No. 133 effective January 1, 2001. The business purpose of the interest rate caps entered into by the Company was to reduce the exposure of interest expense to rising interest rates by "capping" certain liability costs for a contracted period of time, thus "insuring" a maximum cost level. The risks entered into in this transaction are: 1) the risk of default from the counterparty from whom the Company purchased the cap; 2) poor correlation between the rate being capped and the liability cost of the Company; and, 3) the fee being paid for the protection (i.e. if rates don't rise the protection will never have any value). Over the term of the cap, the Company will always write-off the total premium paid for protection. RECENT ACCOUNTING PRONOUNCEMENTS The Company implemented SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 137, and SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities," on January 1, 2001. These statements set accounting and reporting standards for derivative instruments and hedging activities. They require an entity to recognize all derivatives as either assets or liabilities in the statement of condition and measure those instruments at fair value. Upon implementation of SFAS No. 133, the Company transferred all of its investment securities classified as held to maturity to available for sale, the impact of this reclassification was an increase to other comprehensive income of $2.0 million, net of applicable taxes. SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" is effective for transfers occurring after June 30, 2001. SFAS No. 140 replaces SFAS No. 125. This statement is expected to have no material impact on the Company's consolidated financial condition and results of operation. During 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141, "Business Combinations, and Statement No. 142, "Goodwill and Other Intangible Assets." 19 SFAS No.141 improves the transparency of the accounting and reporting for business combinations by requiring that all business combinations be accounted for under a single method-the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS No. 141 requires that the purchase method be used for business combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of the Statement, which will be January 1, 2002. The Company has not determined the impact of adopting SFAS No. 142. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As previously reported, the Company is a party to litigation and claims arising in the normal course of business. The Company was a defendant in a civil action in the [Cumberland] County Superior Court (the "Court"), which action was commenced in September 1999 resulting from a denial of credit by the former Kingfield Savings Bank. The plaintiff, Joseph A. Gamache, has asserted causes of action against the Company for interference with advantageous relationship, fraud, negligent misrepresentation, intentional infliction of emotional distress, breach of fiduciary duty, negligence, vicarious liability and punitive damages. Mr. Gamache sought total damages (compensatory and punitive) of approximately $6 million. On August 7, 2001, the Company and Mr. Gamache agreed to settle the litigation. Pursuant to the to the settlement agreement Mr. Gamache agreed to terminate the litigation and to release the Company from any further liability with respect to this matter. The Company will incur expenses of $1,025,000, or approximately $666,000 after tax, in connection with payments to Mr. Gamache under the settlement agreement. There are no other material legal matters to which the Company is a party or to which any of its property is subject; however, the Company is a party to ordinary routine litigation incidental to its business. ITEM 2. CHANGES IN SECURITIES NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES NONE ITEM 4. SUBMISSION MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The annual meeting of shareholders was held on May 1, 2001. (b) Robert J. Gagnon, Theodore C. Johanson, John S. McCormick, Jr. and Richard N. Simoneau were elected as directors at the annual meeting. Rendle A. Jones, Ann W. Bresnahan, Robert J. Campbell, Robert W. Daigle, Ward I. Graffam, John W. Holmes, Winfield F. Robinson, and Arthur E. Strout continued in office as directors after the meeting. (c) Matters voted upon at the meeting. 1) To elect as director nominees - Robert J. Gagnon, Theodore C. Johanson, John S. McCormick, Jr. and Richard N. Simoneau to serve a three year term to expire at the annual meeting in 2004. Total votes cast: 6,550,811, with 6,532,787 for, and 18,024 withheld. 2) To ratify the selection of Berry, Dunn, McNeil & Parker as the Company's independent public accountants for 2001. Total votes cast: 6,550,811, with 6,527,722 for, 21,118 against, and 1,971 abstain. 20 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits (3.1) The Articles of Incorporation of Camden National Corporation, as amended to date. (3.2) The Bylaws of Camden National Corporation, as amended to date, Exhibit 3.ii. to the Company's Registration Statement on Form S-4 filed with the Commission on September 25, 1995, file number 33-97340, are incorporated herein by reference. (23.1) Consent of Berry, Dunn, McNeil & Parker relating to the financial statements of Camden. (b) Reports on Form 8-K. None. 21 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 10, 2001 _______________________ __________________ Robert W. Daigle August 10, 2001 President and Chief Executive Officer /s/ Gregory A. Dufour August 10, 2001 ________________________ _________________ Gregory A. Dufour August 10, 2001 Senior Vice President - Finance 22 EX-3.1 3 dex31.txt ARTICLES OF INCORPORATION Exhibit 3.1 STATE OF MAINE ARTICLES OF INCORPORATION OF CAMDEN NATIONAL CORPORATION Pursuant to 13A MRSA (S)403, the undersigned, acting as incorporator(s) of a corporation, adopt(s) the following Articles of Incorporation: FIRST: The name of the corporation is Camden National Corporation and it is located in Maine, at 2 Elm Street, Camden, Maine 04843. SECOND: The name of its Clerk, who must be a Maine resident, and the address of its registered office shall be: Robert Worthing, 2 Elm Street, Camden, Maine 04843. THIRD: ("X" one box only) [X] a. The number of directors constituting the initial board of directors of the corporation is 13 (See (S)703, 1.A.) b. If the initial directors have been selected, the names and addresses of the persons who are to serve as directors until the first annual meeting of the shareholders or until their successors are elected and shall qualify are: Name Address - ---- ------- David H. Montgomery c/o Allen Agency Main Street, Camden, ME 04843 Kenneth C. Dickey c/o Haskell & Corthell 10 Main Street, Camden, ME 04843 William S. Brawn c/o French & Brawn 1 Elm Street, Camden, ME 04843 C.R. deRochemont 106 Pleasant Street Rockland, ME 04841 E. Maynard Graffam, Jr. c/o Penobscot Bay Ice Co., Inc. Rockport, ME 04856 Frederick G. Hanley Camden National Bank 2 Elm Street, Camden, ME 04843 Gilbert Harmon, Esq. Harmon, Jones & Sanford 20 Mechanic Street, Camden, ME 04843 1 Robert Heald Union Wood Products Union, ME 04862 Lawrence N. Hopkins 66 Washington Street Camden, ME 04843 John S. McCormick, Jr. Box 162 Camden, ME 04843 Keith C. Patten Camden National Bank 2 Elm Street, Camden, ME 04843 Richard N. Simoneau 8 North Main Street Rockland, ME 04841 Arthur E. Strout, Esq. 10 Masonic Street Rockland, ME 04841 [ ] There shall be no directors initially; the shares of the corporation will not be sold to more than twenty (20) persons; the business of the corporation will be managed by the shareholders (See (S)703, 1.B.) FOURTH: ("X" one box only) The board of directors is [X] is not [ ] authorized to increase or decrease the number of directors. If the board is so authorized, the minimum number, if any shall be seven (7) directors, (See (S)703, 1.A.) and the maximum number, if any shall be sixteen (16) directors. FIFTH: ("X" one box only) [X] There shall be only one class of shares, viz, common. Par value of each share (if none, so state): none. ---- Number of shares authorized: 150,000. ------- [ ] There shall be two or more classes of shares. The information required by (S)403 concerning each such class is set out in n/a Exhibit attached hereto and made a part hereof. - --- SUMMARY The aggregate par value of all authorized shares (of all classes) having a par value is none. ---- 2 The total number of authorized shares (of all classes) without par value is 150,000 shares. ------- SIXTH: ("X" one box only) Meeting of the shareholders may [X] may not [ ] be held outside the State of Maine. SEVENTH: ("X" if applicable) There are no preemptive rights. [X] EIGHTH: Other provisions of these articles, if any, including provisions for the regulation of the internal affairs of the corporation, are set out in Exhibit n/a attached hereto and made a part hereof. - -------------------------------------------------------------------------------- DATED: March 20, 1984 INCORPORATORS RESIDENCE ADDRESSES Box 189 /s/ Rendle A. Jones Camden, Maine 04843 _______________________________________ Articles are to be executed as follows: If a corporation is an incorporator ((S)402), the name of the corporation should be typed and signed on its behalf by an officer of the corporation. The address of the principal place of business of the incorporator corporation should be given. The articles of incorporation must be accompanied by a certificate of an appropriate officer of the corporation certifying that the person executing the articles on behalf of the corporation was duly authorized to do so. 3 STATE OF MAINE ARTICLES OF AMENDMENT (Amendment by Incorporator) Pursuant to 13-A MRSA (S)803, the under- signed corporation adopts these Articles of Amendment. FIRST: The organizational meeting of the Board of Directors required by (S)407 has not yet occurred. SECOND: The amendments set out in Exhibit A attached were adopted by the sole Incorporator, by unanimous written consent on July 18, 1984. THIRD: The number of shares that the Corporation has authority to issue hereafter is as follows: Class Series (if any) No. of shares Par value (if any) ----- --------------- ------------- ------------------ common none 600,000 none The aggregate par value of all such shares (of all classes and series) having par value is none. ---- The total number of all such shares (of all classes and series) without par value is 600,000 shares. ------- FOURTH: The address of the registered office in Maine 2 Elm Street, Camden, --------------------- Maine 04843. ----------- CAMDEN NATIONAL CORPORATION By: /s/ Robert E. Worthing, Clerk Dated: August 30, 1984 4 EXHIBIT A 1. The number of authorized shares of common stock with no par value shall be increased from 150,000 shares to 600,000 shares. 2. The Directors of the Corporation shall be divided into three classes and one-third of the Directors, or as near as one-third as possible, shall be assigned to each class. The initial Board of Directors shall consist of thirteen persons and Class A and Class B shall each consist of four Directors while Class C shall consist of five Directors. At the first annual meeting of Shareholders, Directors of all three classes shall be elected with the term of office of the Class A Directors expiring at the first annual meeting of Shareholders after their election that of the Class B Directors expiring at the second annual meeting after their election and that of the Class C Directors expiring at the third annual meeting after their election. Thereafter, as the term of office of the Class of Directors expires, the Directors of that Class shall be elected for a three-year term. 3. When any vacancy occurs in the Board of Directors, including those created by an increase in the number of Directors, the remaining members of the Board may appoint a Director to fill such vacancy at any regular or special meeting of the Board. 4. Cumulative voting shall not be employed in voting for Directors or for any other purpose. 5. Bylaws may be amended, altered, or appealed at any regular meeting of the Board of Directors or Shareholders by a two-thirds vote of the Shareholders after notice of such intended action as required by law. 6. The Board of Directors, when evaluating any offer of another party to (a) make a tender or exchange offer for the equity securities of the corporation or any subsidiary, (b) merge or consolidate the corporation or any subsidiary with another corporation, or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the corporation, or any subsidiary, shall, in connection with the exercise of its judgement in determining what is in the best interests of the corporation and its stockholders, give due consideration to all relevant factors, including by way of illustration, but not of limitation, any of the following: 6.1 Whether the offer is acceptable based on historical operating results, the financial condition of the corporation and its subsidiaries, and its future prospects; 6.2 Whether a more favorable offer could be obtained for the securities or assets of the corporation or its subsidiary in the foreseeable future; 6.3 The social, economic or other material impact which an acquisition of the equity securities of the corporation or substantially all of its assets would have upon the employees and customers of the corporation and its subsidiaries and the communities which they serve; 6.4 The reputation and business practices of the offeror and its management and affiliates as they would affect the employees and customers of the corporation and its subsidiaries and the future value of the corporation stock; 6.5 The value of the securities, if any, which the offeror is offering in exchanges for the corporation's or its subsidiaries' securities or assets based on an analysis of the worth of the corporation or of its subsidiaries as 5 compared to the offeror corporation or other entity whose securities are being offered; and 6.6 Any anti-trust or other legal or regulatory issues that are raised by the offer. 7. If the Board of Directors determines that an offer of the type identified in paragraph 6 should be rejected, it may take any lawful action to accomplish its purpose including, but not limited to any of the following: 7.1 Advising shareholders not to accept the offer. 7.2 Litigation against the offeror. 7.3 Filing complaints with any governmental and regulatory authorities. 7.4 Acquiring the corporation's securities. 7.5 Selling or otherwise issuing authorized but unissued securities of treasury stock or granting options with respect thereto. 7.6 Acquiring a company to create an anti-trust or other regulatory problem for the offeror. 7.7 Obtaining a more favorable offer from anther individual or entity. 8. The provisions of paragraph 6 and 7 and this paragraph 8 may be amended only by the affirmative vote of two-thirds of the outstanding shares of common stock of the corporation and by the affirmative vote of two-thirds of the outstanding shares of preferred stock of the corporation, if any. 6 STATE OF MAINE NOTIFICATION BY CLERK OF CHANGE IN NAME OR REGISTERED OFFICE Pursuant to 13-A MRSA (S)304(6), the under- signed clerk gives notice of change of clerk's name and/or registered office of each corpora- tion listed in item FIFTH: FIRST: Name of clerk appearing on the record in Secretary of State's office Robert Worthing. --------------- SECOND: New name of clerk, if name has changed Robert E. Worthing. ------------------ THIRD: Address of former registered officer 2 Elm Street, Camden, ME 04843. ------------------------------ FOURTH: Address of new registered office 2 Elm Street, P.O. Box 310, Camden, ME -------------------------------------- 04843. ----- FIFTH: Notice of the above has been sent to the following corporations, whose clerk's name and/or office has been changed, by the undersigned as clerk of each Camden National Corporation. Dated: April 24, 1987 /s/ Robert E. Worthing, Clerk 7 STATE OF MAINE STATEMENT OF INTENTION TO DO BUSINESS UNDER AN ASSUMED NAME Pursuant to 13-A MRSA (S)307, the undersigned, a corporation (incorporated under the laws of the State of Maine), gives notice of its intention to do business in this State under an assumed name. FIRST: The name of the corporation is Camden National Corporation. --------------------------- SECOND: The address of the registered office of the corporation in the State of Maine is PO Box 310, 2 Elm Street, Camden, Maine 04843. ---------------------------------------------- THIRD: The corporation intends to transact business under the assumed name of Camden Appraisal Company. ------------------------ COMPLETE THE FOLLOWING IF APPLICABLE FOURTH: If such assumed name is to be used at few than all of the corporation's places of business in this State, the location(s) where it will be used is (are): Date: July 9, 1992 By: /s/ Robert E. Worthing, Clerk 8 STATE OF MAINE ARTICLES OF AMENDMENT (Amendment by Shareholders Voting as One Class) Pursuant to 13-A MRSA (S)(S)805 and 807, the undersigned corporation adopts these Articles of Amendment FIRST: All outstanding shares were entitled to vote on the following amendment as ONE class. --- SECOND: The amendment set out in Exhibit A attached was adopted by the shareholders at a meeting legally called and held on July 27, 1993. THIRD: Shares outstanding and entitled to vote and shares voted for and against said amendment were: Number of Shares Outstanding NUMBER NUMBER and Entitled to Vote Voted For Voted Against - ------------------------------ --------- ------------- 72,574 59,510 30 FOURTH: If such amendment provides for exchange, reclassification or cancellation of issued shares, the manner in which this shall be effected is contained in Exhibit B attached if it is not set forth in the amendment itself. FIFTH: (Complete if Exhibits do not give this information.) If the amendment changes the number or par values of authorized shares, the number of shares the corporation has authority to issue thereafter is as follows: Class Series (If Any) Number of Shares Par Value (if any) ----- --------------- ---------------- ------------------ Common n/a 2,500,000 no par value The aggregate par value of all such shares (of all classes and series) having par value is $ -0-. ----- The total number of all such shares (of all classes and series) without par value is 2,500,000 shares. --------- SIXTH: Address of the registered office in Maine 2 Elm Street, P.O. Box 310, --------------------------- Camden, Maine, 04843. -------------------- 9 MUST BE COMPLETED FOR VOTE OF CAMDEN NATIONAL CORPORATION SHAREHOLDERS I certify that I have custody of the minutes By: /s/ Robert E. Worthing, Clerk showing the above action by the shareholders. /s/ Robert E. Worthing, Clerk
Dated: September 27, 1993 10 STATE OF MAINE ARTICLES OF AMENDMENT (Amendment by Shareholders Voting as One Class) Pursuant to 13-A MRSA (S)(S) 805 and 807, the undersigned Corporation adopts these Articles of Amendment: FIRST: All outstanding shares were entitled to vote on the following amendment as one class. SECOND: The amendment set out in Exhibit A attached was adopted by the shareholders at a meeting legally called and held on, May 7, 1996. THIRD: Shares outstanding and entitled to vote and shares voted for and against said amendment were: Number of Shares Outstanding Number Number And Entitled to Vote Voted For Voted Against -------------------------------- --------- ------------- 2,340,924 1,578,344 158,477 FOURTH: If such amendment provides for exchange, reclassification or cancellation of issued shares, the manner in which this shall be effected is contained in Exhibit B attached if it is not set forth in the amendment itself. FIFTH: (Complete if Exhibits do not give this information.) If the amendment changes the number or par values of authorized shares, the number of shares the corporation has authority to issue thereafter, is as follows: Class Series (if any) Number of Shares Par Value (if any) -------------- --------------- ---------------- ------------------ Common n/a 5,000,000 no par value The aggregate par value of all such shares (of all classes and series) having par value is $0. -- The total number of all such shares (of all classes and series without par value is 5,000,000 shares. --------- SIXTH: Address of the registered office in Maine 2 Elm Street, P.O. Box 310, --------------------------- Camden, Maine 04843. ------------------- 11
MUST BE COMPLETED FOR VOTE OF CAMDEN NATIONAL CORPORATION SHAREHOLDERS I certify that I have custody of the minutes By: /s/ Robert E. Worthing, Clerk showing the above action by the shareholders. /s/ Robert E. Worthing
Dated: May 17, 1996 12 DOMESTIC BUSINESS CORPORATION STATE OF MAINE CHANGE OF CLERK ONLY or CHANGE OF CLERK AND REGISTERED OFFICE CAMDEN NATIONAL CORPORATION Pursuant to 13-A MRSA (S)304, the undersigned corporation executes and delivers for filing the following change(s): FIRST: The name and registered office of the clerk appearing on the record in the Secretary of State's office Robert E. Worthing, 2 Elm Street, P.O. Box 310, Camden, ME 04843. SECOND: The name and registered office of the successor (new) clerk, who must be a Maine resident: Susan M. Westfall 2 Elm Street, Camden, ME 04843 (physical address) P.O. Box 310, Camden, ME 04843 (mailing address) THIRD: Upon a change in clerk this must be completed: [X] Such change was authorized by the board of directors and the power to make such change is not reserved to the shareholders by the articles or the bylaws. [ ] Such change was authorized by the shareholders. DATED: November 24, 1998 By: /s/ Susan M. Westfall, Clerk MUST BE COMPLETED FOR VOTE OF SHAREHOLDERS I certify that I have custody of the minutes showing the above action by the shareholders. ______________________________________________ (signature of clerk, secretary or asst. secretary) 13 THE FOLLOWING SHALL BE COMPLETED BY THE CLERK UNLESS THIS DOCUMENT IS ------ ACCOMPANIED BY FORM MBCA-18A ((S)304.2-a.) The undersigned hereby accepts the appointment as clerk for the above named domestic business corporation. Clerk Dated: November 24, 1998 /s/ Susan M. Westfall 14 DOMESTIC BUSINESS CORPORATION STATE OF MAINE ARTICLES OF AMENDMENT (Shareholders Voting as One Class) CAMDEN NATIONAL CORPORATION Pursuant to 13-A MRSA (S)(S)805 and 807, the undersigned corporation adopts these Articles of Amendment: FIRST: All outstanding shares were entitled to vote on the following amendment as one class. SECOND: The amendment set out in Exhibit A attached was adopted by the shareholders on November 9, 1998 [X] at a meeting legally called and held OR [ ] by unanimous written consent THIRD: Shares outstanding and entitled to vote and shares voted for and against said amendment were: Number of Shares Outstanding Number Number And Entitled to Vote Voted For Voted Against ---------------------------- --------- ------------- 2,248,060 1,932,002 8,093 FOURTH: If such amendment provides for exchange, reclassification or cancellation of issued shares, the manner in which this shall be effected is contained in Exhibit B attached if it is not set forth in the amendment itself. FIFTH: If the amendment changes the number or par values of authorized shares, the number of shares the corporation has authority to issue thereafter, is as follows: Class Series (If Any) Number of Shares Par Value (If Any) - ----- --------------- ---------------- ------------------ Common n/a 10,000,000 No par value The aggregate par value of all such shares (of all classes and series) having par value is $ 0. 15 The total number of all such shares (of all classes and series) without par value is 10,000,000 shares. ---------- SIXTH: The address of the registered office of the corporation in the State of Maine is 2 Elm Street, P.O. Box 310, Camden, Maine 04843. ----------------------------------------------- DATED: November 24, 1998 By: /s/ Susan M. Westfall MUST BE COMPLETED FOR VOTE OF SHAREHOLDERS I certify that I have custody of the minutes showing the above action by the shareholders. /s/ Susan M. Westfall 16 I, Susan M. Westfall, Clerk of CAMDEN NATIONAL CORPORATION, (the ----------------- --------------------------- "Company"), a corporation organized and existing under the laws of the State of Maine, do hereby certify that on November 9, 1998, the following amendment to ---------------- the Articles of Incorporation was approved by the shareholders of the Company. Exhibit A - 1. The number of authorized shares of common stock With no par value shall be increased from 5,000,000 to 10,000,000. /s/ Susan M. Westfall, Clerk November 24, 1998 17 EX-23.1 4 dex231.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT #23.1 ------------- 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 Portland, Maine July 31, 2001 1 -----END PRIVACY-ENHANCED MESSAGE-----