-----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, VZk6COrGSIpeZ9vNskTivC0wpRUso+LwFBtDE4KqyKk6S7jrSRHGjQrHLYncnYKC 2Su8SdnBUX+5b3Uy9qgNig== 0000927016-02-001744.txt : 20020415 0000927016-02-001744.hdr.sgml : 20020415 ACCESSION NUMBER: 0000927016-02-001744 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-13227 FILM NUMBER: 02593003 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-K405 1 d10k405.txt FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 Commission File No. 0-28190 CAMDEN NATIONAL CORPORATION (Exact name of registrant as specified in its charter) MAINE 01-0413282 (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 Securities registered pursuant to Section 12(g) of the Act Common Stock, without par value (Title of class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 26, 2002 is: Common stock - $164,333,228. Shares of the Registrant's common stock held by each executive officer and director and by each person who beneficially owns 5% or more of the Registrant's outstanding common stock have been excluded, in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares outstanding of each of the registrant's classes of common stock, as of March 26, 2002 is: Common stock - 8,057,781. Listed hereunder are documents incorporated by reference and the relevant Part of the Form 10-K into which the document is incorporated by reference: (1) Certain information required in response to into Items 5, 6, 7, 7A and 8 of Part II of this Form 10-K are incorporated by reference from Camden National Corporation's Annual Report to Shareholders for the year ended December 31, 2001. (2) Certain information required in response to into Items 10, 11, 12 and 13 of Part III of this Form 10-K are incorporated by reference from Camden National Corporation's Definitive Proxy Statement for the 2002 Annual Meeting of Shareholders to be filed with the Commission prior to April 30, 2002 pursuant to Regulation 14A of the General Rules and Regulations of the Commission. Index
Item Description Page - ---- ----------- ---- 1 Business 3 2 Properties 11 3 Pending Legal Proceeding 11 4 Submission of Matters to a Vote of Security Holders 11 5 Market for Registrant's Common Equity and Related Stockholders Matters 11 6 Selected Financial Data 11 7 Management's Discussion and Analysis of Financial Condition and Results of Operation 12 7A Quantitative and Qualitative Disclosures about Market Risks 19 8 Financial Statements and Supplementary Data 19 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 19 10 Directors and Executive Officers of the Registrant 19 11 Executive Compensation 20 12 Security Ownership of Certain Beneficial Owners and Management 20 13 Certain Relationships and Related Transactions 20 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 20 Signatures 22 Exhibit Index 23 Exhibits 24
Page 2 PART I 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. 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. 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. Item 1. Business Overview. Camden National Corporation (the "Company") is a publicly held, - -------- multi-bank, financial institution holding company incorporated under the laws of the State of Maine and headquartered in Camden, Maine. The Company makes its products services available directly and indirectly through its subsidiaries, Camden National Bank ("CNB"), UnitedKingfield Bank ("UnitedKingfield"), Acadia Trust, N.A. ("Acadia"), and Trust Company of Maine, Inc. ("TCOM"). The Consolidated Financial Statements of the Company accompanying this Form 10-K include the accounts of the Company, CNB, UnitedKingfield, Acadia and TCOM. All inter-company accounts and transactions have been eliminated in consolidation. Descriptions of the Company and the Company's Subsidiaries. A brief description of each of the Company, CNB, UnitedKingfield, Acadia and TCOM follows. The Company. The Company was founded in January 1984 following a corporate reorganization in which the shareholders of CNB exchanged their shares of CNB stock for shares of stock of the Company. As a result of this share exchange, the Company became CNB's sole parent. In December 1995, the Company merged with UnitedCorp, a bank holding company headquartered in Bangor, Maine, and, as a result thereof, acquired (a) 100% of the outstanding stock of United Bank, a Maine-chartered stock banking institution with its principal office in Bangor, Maine, and (b) 51% of the outstanding stock of TCOM. On December 20, 1999, the Company completed its acquisition of KSB Bancorp, Inc. ("KSB"), a publicly-held, bank holding company organized under the laws of the State of Delaware and having its principal office in the State of Maine, with one principal subsidiary, Kingfield Savings Bank ("Kingfield Bank"), a Maine-chartered stock savings bank with its principal office in Kingfield, Maine. The Company's acquisition of KSB was accounted for under the pooling-of-interests method and, as such, financial information included in this report presents the combined financial condition and results of operations of both companies as if they had operated as a combined entity for all periods presented. Page 3 On July 19, 2001, the Company completed its acquisition of Acadia and Gouws Capital Management, Inc. ("Gouws Capital"). Acadia is a federally regulated, non-depository trust company headquartered in Portland, Maine. Gouws Capital, an investment advisory firm was merged into Acadia on December 31, 2001. On October 24, 2001, the Company acquired the remaining minority interest in TCOM. As of December 31, 2001, the Company's securities consisted of one class of common stock, no par value, of which there were 8,057,781 shares outstanding held of record by approximately 1,004 shareholders. The Company is a bank holding company ("BHC") registered under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is subject to supervision, regulation and examination by the Board of Governors of the Federal Reserve System (the "FRB"). The Company is also considered a Maine financial institution holding company for purposes of the laws of the State of Maine, and as such, is also subject to the jurisdiction of the Superintendent of the Maine Bureau of Financial Institutions (the "Superintendent"). Camden National Bank. CNB, a direct, wholly owned subsidiary of the Company, is a national banking association chartered under the laws of the United States and having its principal office in Camden, Maine. Originally founded in 1875, CNB became a direct, wholly owned subsidiary of the Company as a result of a January 1984 corporate reorganization in which the shareholders of CNB exchanged their shares of stock in CNB for shares of stock in the Company. CNB offers its products and services primarily in the communities of Belfast, Bucksport, Camden, Damariscotta, Portland, Rockland, Thomaston, Union, Vinalhaven and Waldoboro, and focuses primarily on attracting deposits from the general public through its branches and using such deposits to originate residential mortgage loans, commercial business loans, commercial real estate loans, and a variety of consumer loans. CNB customers may also access these products and services using other mediums, including CNB's Internet web site located at www.camdennational.com. ---------------------- CNB is a member bank of the Federal Reserve System and is subject to supervision, regulation and examination by the Comptroller of the Currency (the "OCC"). Its deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount permitted by law. UnitedKingfield Bank. UnitedKingfield, a direct, wholly owned subsidiary of the Company, is a financial institution chartered under the laws of the State of Maine and having its principal office in Bangor, Maine. UnitedKingfield is the successor by merger, effective February 4, 2000, of United Bank and Kingfield Bank, and is subject to regulation, supervision and examination by the FDIC and the Superintendent. Its deposits are insured by the FDIC up to the maximum amount permitted by law. UnitedKingfield offers its products and services primarily in the communities of Bangor, Bingham, Corinth, Dover-Foxcroft, Farmington, Greenville, Hampden, Hermon, Jackman, Kingfield, Lewiston, Madison, Milo, Phillips, Rangeley, Stratton and Strong, Maine, and focuses primarily on attracting deposits from the general public through its branches and using such deposits to originate residential mortgage loans, commercial business loans, commercial real estate loans, and a variety of consumer loans. UnitedKingfield customers may also access these products and services using other media, including UnitedKingfield's Internet web site located at www.unitedkingfield.com. ----------------------- Trust Company of Maine, Inc. TCOM, a direct, wholly owned subsidiary of the Company, is a corporation with trust powers chartered under the laws of the State of Maine and having its principal office in Bangor, Maine. The Company acquired majority ownership of TCOM in December 1995 through the Company's merger with UnitedCorp, the then parent of TCOM. On October 24, 2001, the Company acquired the remaining minority interest in TCOM. Page 4 TCOM provides a broad range of trust, trust- related and investment services, in addition to retirement and pension plan management services, to both individual and institutional clients. The financial services provided by TCOM complement the services provided by the Company's subsidiary banks by offering customers investment management services. TCOM is subject to supervision, regulation and examination by the Superintendent and also is subject to supervision, examination and reporting requirements under the BHC Act and the regulations of the FRB. Acadia Trust, N.A. Acadia, a direct, wholly owned subsidiary of the Company, is a national banking association chartered under the laws of the United States with a limited purpose trust charter and having its principal office in Portland, Maine. Acadia provides a broad range of trust, investment and wealth management services, to both individual and institutional clients. The financial services provided by Acadia complement the services provided by the Company's subsidiary banks by offering customers investment management services. Acadia is a member bank of the Federal Reserve System and is subject to supervision, regulation and examination by the OCC. Competition. The Company competes principally in mid-coast Maine through CNB, - ----------- its largest subsidiary bank. CNB considers its primary market areas to be in Knox County and Waldo County, each in the State of Maine. The combined population of these two counties is approximately 76,000 people, and their economies are based primarily on tourism but also are supported by a substantial population of retirees. Major competitors in these market areas include local branches of large regional bank affiliates, as well as local independent banks, thrift institutions and credit unions. Other competitors for deposits and loans within CNB's primary market areas include insurance companies, money market funds, consumer finance companies and financing affiliates of consumer durable goods manufacturers. The Company, through UnitedKingfield, also competes in both the central and western Maine areas. Most of UnitedKingfield's offices are located in communities that can generally be characterized as rural areas, with the exception of Bangor and Lewiston. The Bangor and Lewiston areas have populations of approximately 100,000 and 39,000 people, respectively. All UnitedKingfield offices are located in the State of Maine. Major competitors in these market areas include local branches of large regional bank affiliates, as well as local independent banks, thrift institutions and credit unions. Other competitors for deposits and loans within UnitedKingfield's market area include insurance companies, money market funds, consumer finance companies and financing affiliates of consumer durable goods manufacturers. The Company and its banking subsidiaries generally have been able to compete effectively with other financial institutions by emphasizing customer service, including local decision-making, by establishing long-term customer relationships and building customer loyalty and by providing products and services designed to address the specific needs of customers. No assurance can be given, however, that the Company and its banking subsidiaries will continue to be able to compete effectively with other financial institutions in the future. The Company, through its non-bank subsidiaries, Acadia and TCOM, compete for trust, trust- related, investment management, retirement and pension plan management services with local banks and non-banks, which may now, or in the future, offer a similar range of services, as well as with a number of brokerage firms and investment advisors with offices in the Company's market area. In addition, most of these services are widely available to the Company's customers by telephone and over the Internet through firms located outside the Company's market area. The Company's Philosophy. The Company is committed to the philosophy of serving - ------------------------ the financial needs of customers in local communities. The Company, through CNB and UnitedKingfield, has branches that are located in small towns within the Company's geographic market areas. The Company believes that the local needs and its comprehensive retail and small business products, together with rapid decision-making at the branch level, enable its Page 5 subsidiary banks to compete effectively. No single person or group of persons provides a material portion of the Company's deposits, the loss of any one or more of which would have a materially adverse effect on the business of the Company, and no material portion of the Company's loans are concentrated within a single industry or group of related industries. The Company's Growth. The Company had consolidated asset growth of 7.8%, or - -------------------- $78.5 million, during 2001. The primary factor contributing to this growth was the increase in lending activity at the Company's subsidiary banks. As the business continued to grow during this past year, each of the Company's subsidiary banks focused on customer service. The Company's performance-based compensation program also supported this growth by creating an environment where employees have a more personal interest in the performance of the Company and are rewarded for balancing profit with growth and quality with productivity. The Company's Employees. The Company employs approximately 321 people on a - ----------------------- full-time equivalent basis. The Company's management believes that employee relations are good, and there are no known disputes between management and employees. The Company's Employee Incentives. All Company employees are eligible for - --------------------------------- participation in the Company's Retirement Savings 401(k) Plan and Profit Sharing Plan, and certain Executive Officers of the Company may also participate in the Company's 1993 Stock Option Plan and its Supplemental Executive Retirement Plan. In addition, the Company, as successor to KSB, maintains a Bank Recognition and Retention Plan ("BRRP") as a method of providing certain officers and other employees of the Company with a proprietary interest in the Company. During 1994, the Company contributed funds to the BRRP to enable certain officers and employees to acquire, in the aggregate, 56,045 shares of common stock of the Company. Participants are vested at a rate of 20% per year commencing one year from the date of the award. All previous awards made under the BRRP will be vested in 2003. The Company does not intend to make any additional awards under the BRRP. Supervision and Regulation. The business in which the Company and its - -------------------------- subsidiaries are engaged is subject to extensive supervision, regulation and examination by various federal and state bank regulatory agencies, including the FRB, the OCC, the FDIC and the Superintendent, as well as other governmental agencies in the states in which the Company and its subsidiaries operate. The supervision, regulation and examination to which the Company and its subsidiaries are subject are intended primarily to protect depositors or are aimed at carrying out broad public policy goals, and not necessarily for the protection of shareholders. Some of the more significant statutory and regulatory provisions applicable to banks and BHCs to which the Company and its subsidiaries are subject are described more fully below, together with certain statutory and regulatory matters concerning the Company and its subsidiaries. The description of these statutory and regulatory provisions does not purport to be complete and is qualified in its entirety by reference to the particular statutory or regulatory provision. Any change in applicable law or regulation may have a material effect on the Company's business and operations, as well as those of its subsidiaries. The Company's shareholders generally are not subject to these statutory and regulatory provisions. BHCs - Activities and Other Limitations. As a registered BHC and a Maine financial institution holding company, the Company is subject to regulation under the BHC Act and Maine law and to examination and supervision by the FRB and the Superintendent, and is required file reports with, and provide additional information requested by, the FRB and the Superintendent. The FRB has the authority to issue orders to BHCs to cease and desist from unsound banking practices and violations of conditions imposed by, or violations of agreements with, the FRB. The FRB is also empowered to assess civil money penalties against companies or individuals that violate the BHC Act or orders or regulations thereunder, to order termination of non-banking activities of non-banking subsidiaries of BHCs, and to order termination of ownership and control of a non-banking subsidiary by a BHC. Page 6 Various other laws and regulations, including Sections 23A and 23B of the Federal Reserve Act, as amended (the "FRA"), generally limit borrowings, extensions of credit and certain other transactions between the Company and its non-bank subsidiaries and its affiliate insured depository institutions. Section 23A of the FRA also generally requires that an insured depository institution's loans to non-bank affiliates be secured in appropriate amounts, and Section 23B of the FRA generally requires that transactions between an insured depository institution and its non-bank affiliates be on arm's length terms. These laws and regulations also limit BHCs and their subsidiaries from engaging in certain tying arrangements in connection with any extension of credit, sale or lease of property, or furnishing of services. The BHC Act prohibits a BHC from acquiring substantially all the assets of a bank or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, or increasing such ownership or control of any bank, or merging or consolidating with any BHC without prior FRB approval. Unless a BHC becomes a financial holding company ("FHC") under the Gramm-Leach-Bliley Act ("GLBA"), as discussed below, the BHC Act also prohibits a BHC from acquiring a direct or indirect interest in or control of more than 5% of the voting shares of any company which is not a bank or BHC and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiary banks, except that it may engage in and may own shares of companies engaged in certain activities the FRB determined to be so closely related to banking or managing and controlling banks as to be a proper incident thereto. In addition, Maine law imposes certain approval and notice requirements with respect to acquisitions of banks and other entities by a Maine financial institution holding company. The GLBA established a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHC Act framework to permit BHCs that qualify and elect to be treated as FHCs to engage in a range of financial activities broader than would be permissible for traditional BHCs that have not elected to be treated as FHCs, such as the Company. "Financial activities" is broadly defined to include not only banking, insurance, and securities activities, but also merchant banking and additional activities that the FRB, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. In order to elect to become an FHC, a BHC must meet certain tests and file an election form with the FRB. To qualify, all of a BHC's subsidiary banks must be well-capitalized and well-managed, as measured by regulatory guidelines. In addition, to engage in the new activities, each of the BHC's banks must have been rated `satisfactory' or better in its most recent federal Community Reinvestment Act evaluation. A BHC that elects to be treated as an FHC may face significant consequences if its banks fail to maintain the required capital and management ratings, including entering into an agreement with the FRB which imposes limitations on its operations and may even require divestitures. Such possible ramifications may limit the ability of a bank subsidiary to significantly expand or acquire less than well-capitalized and well-managed institutions. The Company has not elected to become an FHC. Further, the GLBA permits national banks and state banks, to the extent permitted under state law to engage in certain new activities which are permissible for subsidiaries of an FHC. Further, the GLBA expressly preserves the ability of national banks and state banks to retain all existing subsidiaries. In order to form a financial subsidiary, a national bank or state bank must be well-capitalized, and such banks would be subject to certain capital deduction, risk management and affiliate transaction rules. Also, the FDIC's final rules governing the establishment of financial subsidiaries adopt the position that activities that a national bank could only engage in through a financial subsidiary only may be conducted in a financial subsidiary by a state nonmember bank. However, activities that a national bank could not engage in through a financial subsidiary, such as real estate development or investment, continue to be governed by the FDIC's standard activities rules. Moreover, to mirror the FRB's actions with respect to state member banks, the final rules provide that a state bank subsidiary that engages only in activities that the bank could engage in directly (regardless of the nature of the activities) will not be deemed to be a financial subsidiary. Page 7 Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 generally authorizes BHCs to acquire banks located in any state, possibly subject to certain state-imposed age and deposit concentration limits, and also generally authorizes interstate mergers and to a lesser extent, interstate branching. Declaration of Dividends. According to its Policy Statement on Cash Dividends Not Fully Covered by Earnings (the "FRB Dividend Policy"), the FRB considers adequate capital to be critical to the health of individual banking organizations and to the safety and stability of the banking system. Of course, one of the major components of the capital adequacy of a bank or a BHC is the strength of its earnings and the extent to which its earnings are retained and added to capital or paid to shareholders in the form of cash dividends. Accordingly, the FRB Dividend Policy suggests that banks and BHCs generally should not maintain their existing rate of cash dividends on common stock unless the organization's net income available to common shareholders over the past year has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears consistent with the organization's capital needs, asset quality and overall financial condition. The FRB Dividend Policy reiterates the FRB's belief that a BHC should not maintain a level of cash dividends to its shareholders that places undue pressure on the capital of bank subsidiaries, or that can be funded only through additional borrowings or other arrangements that may undermine the BHC's ability to serve as a source of strength. Under Maine law, a corporation's board of directors may declare, and the corporation may pay, dividends on its outstanding shares in cash or other property, generally only out of the corporation's unreserved and unrestricted earned surplus, or out of the unreserved and unrestricted net earnings of the current fiscal year and the next preceding fiscal year taken as a single period, except under certain circumstances, including when the corporation is insolvent or when the payment of the dividend would render the corporation insolvent or when the declaration would be contrary to the corporation's charter. These same limitations generally apply to investor-owned, Maine financial institutions. Dividend payments by national banks, such as CNB, also are subject to certain restrictions. For instance, national banks generally may not declare a dividend in excess of the bank's undivided profits and, absent OCC approval, if the total amount of dividends declared by the national bank in any calendar year exceeds the total of the national bank's retained net income of that year to date combined with its retained net income for the preceding two years. National banks also are prohibited from declaring or paying any dividend it, after making the dividend, the national bank would be considered "undercapitalized" (defined by reference to other OCC regulations). Federal bank regulatory agencies also have authority to prohibit banking institutions from paying dividends if those agencies determine that, based on the financial condition of the bank, such payment would constitute an unsafe or unsound practice. Capital Requirements. FRB Guidelines. The FRB has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a BHC and in analyzing applications to it under the BHC Act. The FRB's capital adequacy guidelines apply on a consolidated basis to BHCs with consolidated assets of $150 million or more; thus, these guidelines apply to the Company on a consolidated basis. The FRB's capital adequacy guidelines generally require BHCs to maintain total capital equal to 8% of total risk-adjusted assets and off-balance sheet items, with at least one-half of that amount consisting of Tier 1 or core capital and the remaining amount consisting of Tier 2 or supplementary capital. Tier 1 capital for BHCs generally consists of the sum of common stockholders' equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stocks which may be included as Tier 1 capital), less goodwill and other non-qualifying intangible assets. Tier 2 capital generally consists of hybrid capital instruments; perpetual preferred stock, which is not eligible to be included as Tier 1 capital; term subordinated debt and intermediate-term preferred stock; and, subject to limitations, general allowances for loan losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics. Page 8 In addition to the risk-based capital requirements, the FRB requires BHCs to maintain a minimum leverage capital ratio of Tier 1 capital (defined by reference to the risk-based capital guidelines) to total assets of 3.0%. Total assets for this purpose do not include goodwill and any other intangible assets and investments that the FRB determines should be deducted from Tier 1 capital. The FRB has announced that the 3.0% leverage ratio requirement is the minimum for the strong BHCs without any supervisory, financial or operational weaknesses or deficiencies or those, which are not experiencing or anticipating significant growth. All other BHCs are required to maintain a minimum leverage ratio of at least 4.0%. BHCs with supervisory, financial, operational, or managerial weaknesses, as well as BHCs that are anticipating or experiencing significant growth, are expected to maintain capital ratios well above the minimum levels. The Company's risk-based capital ratio and leverage ratio currently are, and its management expects these ratios to remain, in excess of regulatory requirements. OCC and FDIC Guidelines. The OCC and the FDIC each have promulgated regulations and adopted a statement of policy regarding the capital adequacy of, respectively, national banks and state-chartered banks that are not members of the Federal Reserve System. These requirements are substantially similar to those adopted by the FRB. Moreover, the federal banking agencies have promulgated substantially similar regulations to implement the system of prompt corrective action established by Section 38 of the Federal Deposit Insurance Act, as amended (the "FDIA"). Under the prompt correction action regulations, a bank generally shall be deemed to be: . "well capitalized" if it has a total risk-based capital ratio of 10.0% or greater, has a Tier 1 risk-based capital ratio of 6.0% or greater, has a leverage ratio of 5.0% or greater and is not subject to any written agreement, order, capital directive or prompt corrective action directive; . "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 4.0% or greater, has a leverage ratio of 4.0% or greater (3.0% under certain circumstances) and does not meet the definition of "well capitalized;" . "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less than 4.0% or a leverage ratio that is less than 4.0% (3.0% under certain circumstances); . "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a leverage ratio that is less than 3.0%; and . "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. An institution generally must file a written capital restoration plan which meets specified requirements with an appropriate federal banking agency within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. An institution, which is required to submit a capital restoration plan, must concurrently submit a performance guaranty by each company that controls the institution. A critically undercapitalized institution generally is to be placed in conservatorship or receivership within 90 days unless the federal banking agency determines to take such other action (with the concurrence of the FDIC) that would better protect the deposit insurance fund. Immediately upon becoming undercapitalized, the institution becomes subject to the provisions of Section 38 of the FDIA, including for example, (i) restricting payment of capital distributions and management fees, (ii) requiring that the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital, (iii) requiring submission of a capital restoration plan, (iv) restricting the growth of the institution's assets and (v) requiring prior approval of certain expansion proposals. At December 31, 2001, each of the Company's subsidiary banks was deemed to be a well capitalized institution for the above purposes. The federal bank regulatory agencies may raise capital requirements applicable to banking organizations beyond current levels. The Company is unable to predict whether higher capital requirements will be imposed and, if so, at what levels and on what schedules. Therefore, the Company cannot predict what effect Page 9 such higher requirements may have on it. As is discussed above, each of the Company's subsidiary banks would be required to remain a well-capitalized institution at all times if the Company elected to be treated as an FHC. Information concerning the Company and its subsidiaries with respect to capital requirements is incorporated by reference from the section entitled "Capital Resources" and from Note 21, "Regulatory Matters," of the Notes to Consolidated Financial Statements, each in the Company's Annual Report for the fiscal year ended December 31, 2001. U.S. bank regulatory authorities and international bank supervisory organizations, principally the Basel Committee on Banking Supervision, currently are considering changes to the risk-based capital adequacy framework which ultimately could affect the appropriate capital guidelines. Activities and Investments of Insured State-Chartered Banks. FDIC insured, state-chartered banks, such as UnitedKingfield, are also subject to similar restrictions on their business and activities. Section 24 of the FDIA generally limits the activities as principal and equity investments of FDIC-insured, state-chartered banks to those that are permissible to national banks. In 1999, the FDIC substantially revised its regulations implementing Section 24 of the FDIA to ease the ability of state-chartered banks to engage in certain activities not permissible for national banks, and to expedite FDIC review of bank applications and notices to engage in such activities. Activities and Investments of National Banking Associations. National banking associations must comply with the National Bank Act and the regulations promulgated thereunder by the OCC which limit the activities of national banking associations to those that are deemed to be part of or incidental to the "business of banking." Activities that are part of or incidental to the business of banking include taking deposits, borrowing and lending money and discounting or negotiating paper. Subsidiaries of national banking associations generally may only engage in activities permissible for the parent national bank. Other Regulatory Requirements Customer Information Security. The OCC, the FDIC and other bank regulatory agencies have published final guidelines establishing standards for safeguarding nonpublic personal information about customers that implement provisions of the GLBA (the "Guidelines"). Among other things, the Guidelines require each financial institution, under the supervision and ongoing oversight of its Board of Directors or an appropriate committee thereof, to develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, to protect against any anticipated threats or hazards to the security or integrity of such information, and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. Privacy. The OCC, the FDIC and other regulatory agencies have published final privacy rules pursuant to provisions of the GLBA ("Privacy Rules"). The Privacy Rules, which govern the treatment of nonpublic personal information about consumers by financial institutions, require a financial institution to provide notice to customers (and other consumers in some circumstances) about its privacy policies and practices, describe the conditions under which a financial institution may disclose nonpublic personal information to nonaffiliated third parties, and provide a method for consumers to prevent a financial institution from disclosing that information to most nonaffiliated third parties by "opting-out" of that disclosure, subject to certain exceptions. USA Patriot Act. The USA Patriot Act of 2001 (the "Patriot Act"), designed to deny terrorists and others the ability to obtain anonymous access to the United States financial system, has significant implications for depository institutions, broker-dealers and other businesses involved in the transfer of money. The Patriot Act requires financial institutions to implement additional policies and procedures with respect to money laundering, suspicious activities, currency transaction reporting and due diligence on customers. Implementation of the Patriot Act's requirements will occur in stages, as rules regarding its provisions are finalized by government agencies. Deposit Insurance. The FDIA does not require the FDIC to charge all banks deposit insurance premiums when the ratio of deposit insurance reserves to insured deposits is maintained above specified levels. However, as a result of general economic conditions and recent bank failures, it is possible that the ratio of deposit insurance reserves to Page 10 insured deposits could fall below the minimum ratio that FDIA requires, which would result in the FDIC setting deposit insurance assessment rates sufficient to increase deposit insurance reserves to the required ratio. A resumption of assessments of deposit insurance premiums charged to well capitalized institutions, such the Company's subsidiary banks, could have an effect on the Company's net earnings. The Company cannot predict whether the FDIC will be required increase deposit insurance assessments above their current levels. Item 2. Properties The Company operates in 29 facilities. The headquarters of the Company and the headquarters and main office of CNB is located at Two Elm Street, Camden, Maine, and CNB owns these premises. The building has 15,500 square feet of space on three levels. CNB also owns seven of its branches and the facility in which the operations departments of the Company are located. None of these owned facilities is subject to a mortgage. CNB also leases four branches under long-term leases, which expire in, respectively, August 2006, May 2010, January 2020, and December 2077. The main office of UnitedKingfield is located at 145 Exchange Street, Bangor, Maine, and is owned by UnitedKingfield. The building has 25,600 square feet of space on two levels. UnitedKingfield occupies 16,975 square feet of space on both floors. TCOM leases 2,100 square feet of office space on the second floor and 2,042 square feet on the first floor of this building. The law firm of Russell, Lingley & Silver, P.A., also leases 2,533 square feet on the second floor. UnitedKingfield also owns 15 of its other facilities, none of which is subject to a mortgage. UnitedKingfield also leases 2 branches and a parcel of land, which expire in, respectively, September 2002, February 2003 and August 2009. Acadia leases its facility at 511 Congress Street, Portland, Maine under a long-term lease, which expires in October 2005. Acadia leases 18,966 square feet on the 8/th/ and 9/th/ floors, occupying 11,767 square feet of this office space. Acadia leases to the Law Office of David Hunt, Actuarial Designs & Solutions, and Hopkinson & Abbondanza, 3,660 square feet, 2392 square feet, and 1,147 square feet, respectively, of office space on the 8/th/ floor. Item 3. Pending Legal Proceedings There are no 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 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholders Matters The information appearing under the caption "Common Stock Information" on page 21 of the Company's Annual Report to Shareholders for the year ended December 31, 2001 is incorporated herein by reference. Item 6. Selected Financial Data Selected year-end financial information for the past five years appearing under the caption "Selected Five-Year Financial Data" on page 23 of the Company's Annual Report to Shareholders for the year ended December 31, 2001 is incorporated herein by reference. Page 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This Annual Report, including the information incorporated herein by reference, contains certain statements that may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. 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. The Company's actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, the factors discussed on page 16 below, changes in volume of loan originations, fluctuations in prevailing interest rates, increases in costs to borrowers of loans held, increases in costs of funds, and changes in assumptions used in making such forward-looking statements. Readers should carefully review the factors described on page 16 below and should not place undue reliance on our forward looking statements. The Company assumes no obligations to update any forward-looking statements. The information appearing under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 10 through 21 of the Company's Annual Report to Shareholders for the year ended December 31, 2001 is incorporated herein by reference and should be read in conjunction with the following text and tables. The following tables set forth the Company's investment securities at book carrying amount as of December 31, 2001, 2000 and 1999.
2001 2000 1999 ---- ---- ---- Dollars in thousands Securities available for sale: - ----------------------------- U.S. Treasury and agency $ 61,098 $ 58,708 $ 65,046 Mortgage-backed securities 139,459 30,117 13,104 State and political subdivisions 8,780 7,928 7,520 Other debt securities 41,963 44,467 46,938 Equity securities 11,566 18,095 15,331 -------- --------- --------- 262,866 159,315 147,939 -------- --------- --------- Securities held to maturity: - --------------------------- U.S. Treasury and agency 944 300 5,949 Mortgage-backed securities - 55,658 60,963 State and political subdivisions - 1,142 1,152 Other debt securities - 595 129 -------- --------- --------- 944 57,695 68,193 -------- --------- --------- $263,810 $217,010 $216,132 ======== ======== =========
To enhance the Company's ability to manage liquidity, the investment portfolio is divided into two parts: investments available for sale and investments held to maturity. The ability to use securities as collateral for Federal Home Loan Bank of Boston ("FHLBB") loans enables the Company to hold a portion of the portfolio to maturity. The table on the following pages summarizes the investment portfolios maturities and yields at December 31, 2001. Page 12
Available for sale Held to maturity ------------------ ---------------- Book Yield to Amortized Yield to Dollars in thousands Value Maturity Cost Maturity ----- -------- ---- -------- U.S. Treasury and Agency: Due in 1 year or less $ 8,280 5.625% $ 944 1.612% Due in 1 to 5 years 41,973 6.475% 0 0.000% Due in 5 to 10 years 10,845 6.562% 0 0.000% Due after 10 years - 0.000% 0 0.000% --------- -------- -------- -------- 61,098 6.376% 944 1.612% --------- -------- -------- -------- Mortgage-backed securities: Due in 1 year or less 83 8.435% - 0.000% Due in 1 to 5 years 17,656 6.647% - 0.000% Due in 5 to 10 years 13,115 6.508% - 0.000% Due after 10 years 108,605 6.810% - 0.000% --------- -------- -------- -------- 139,459 6.762% - 0.000% --------- -------- -------- -------- State and political subdivisions: Due in 1 year or less 372 6.315% - 0.000% Due in 1 to 5 years 2,967 4.261% - 0.000% Due in 5 to 10 years 4,840 4.188% - 0.000% Due after 10 years 601 5.000% - 0.000% --------- -------- -------- -------- 8,780 4.358% - 0.000% --------- -------- -------- -------- Other debt securities: Due in 1 year or less - 0.000% - 0.000% Due in 1 to 5 years 377 7.788% - 0.000% Due in 5 to 10 years - 0.000% - 0.000% Due after 10 years 41,586 6.574% - 0.000% --------- -------- -------- -------- 41,963 6.585% - 0.000% --------- -------- -------- -------- Other equity securities: Due in 1 year or less - 0.000% 0 0.000% Due in 1 to 5 years 2,043 6.959% 0 0.000% Due in 5 to 10 years - 0.000% 0 0.000% Due after 10 years 9,523 7.389% 0 0.000% --------- -------- -------- -------- 11,566 7.313% 0 0.000% --------- -------- -------- -------- Total securities $ 262,866 6.588% $ 944 1.612% ========= ======== ======== ========
Total loans increased by $22.7 million, or 3.2%, in 2001. The following table provides a summary of the loan portfolio for the past five years. Management does not foresee any significant changes occurring in the loan mix during the coming year. Page 13
Dollars in thousands As of December 31, 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Commercial $423,893 $364,169 $316,411 $269,747 $226,981 Residential real estate 204,043 235,554 226,548 202,952 193,327 Consumer 86,375 90,231 83,832 78,496 50,433 Municipal 9,234 10,924 8,307 17,199 10,727 Other 497 462 336 1,311 1,880 -------- -------- -------- -------- -------- $724,042 $701,340 $635,434 $569,705 $483,348 ======== ======== ======== ======== ========
Loan demand also affects the Company's liquidity position. However, of the loans maturing over 1 year, approximately 62% are variable rate loans. The following table presents the maturities of loans at December 31, 2000:
Dollars in thousands Through More Than 1 Year 5 Years 5 Years Total Maturity Distribution: - --------------------- Fixed Rate: Commercial $ 13,503 $ 50,247 $ 16,872 $ 80,622 Residential real estate 2,833 5,123 141,079 149,035 Consumer 3,767 13,361 17,852 34,980 Variable Rate: Commercial 41,198 48,606 253,467 343,271 Residential real estate 3 468 54,537 55,008 Consumer 6,740 10,666 34,486 51,892 Municipal 2,891 4,418 1,925 9,234 -------- -------- -------- -------- $ 70,935 $132,889 $520,218 $724,042 ======== ======== ======== ========
Management considers both the adequacy of the collateral and the other resources of the borrower in determining the steps to be taken to collect non-accrual and charged-off loans. Alternatives considered are foreclosure, collecting on guarantees, restructuring the loan, or collection lawsuits. The following table sets forth the amount of the Company's non-performing assets as of the dates indicated:
Dollars in thousands As of December 31, 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Nonperforming loans: - ------------------- Non-accrual loans 7,302 4,644 6,135 $ 4,078 $ 3,305 Accruing loans past due 90 days or more 768 1,844 196 613 1,004 -------- -------- -------- -------- -------- Total nonperforming loans 8,070 6,488 6,331 4,691 4,309 -------- -------- -------- -------- -------- Other real estate owned 195 380 1,405 1,052 1,532 -------- -------- -------- -------- -------- Total nonperforming assets $ 8,265 $ 6,868 $ 7,736 $ 5,743 $ 5,841 ======== ======== ======== ======== ========
Page 14 Ratios: - ------- Nonperforming loans to total loans 1.14% 0.98% 1.00% 0.82% 0.89% Allowance for loan losses to nonperforming loans 167.46% 166.48% 148.32% 172.50% 162.03% Nonperforming assets to total assets 0.73% 0.68% 0.83% 0.68% 0.80% Allowance for loan losses to nonperforming assets 169.24% 157.27% 121.38% 140.90% 119.53%
The maturity dates of certificates of deposit, including broker certificates of deposit, in denominations of $100,000 or more are set forth in the following table. These deposits are generally considered to be more rate sensitive than other deposits and, therefore, more likely to be withdrawn to obtain higher yields elsewhere if available. Dollars in thousands December 31, 2001 ---- Time remaining until maturity: Less than 3 months $ 24,437 3 months through 6 months 9,179 6 months through 12 months 15,920 Over 12 months 60,111 --------- $ 109,647 ========= The dividend payout ratio was 33.90%, 37.17%, 40.90%, 33.74%, and 29.31% for 2001, 2000, 1999, 1998 and 1997, respectively. The average equity to average assets ratio was 9.44%, 8.55%, 8.71%, 10.05% and 10.07% for 2001, 2000, 1999, 1998 and 1997, respectively. The borrowings utilized by the Company have primarily been advances from the FHLBB. In addition, the Company uses Federal Funds, treasury, tax and loan deposits, and repurchase agreements secured by the United States government or agency securities. Approximately 15% of all borrowings mature or reprice within the next 3 months. The following table sets forth certain information regarding borrowed funds for the years ended December 31, 2001, 2000, and 1999:
At or for the year ended December 31, Dollars in thousands 2001 2000 1999 ---- ---- ---- Average balance outstanding $199,615 $198,597 $146,627 Maximum amount outstanding at any month-end during the year 228,414 209,652 173,924 Balance outstanding at end of year 210,843 168,440 173,924 Weighted average interest rate during the year 4.95% 5.87% 4.90% Weighted average interest rate at end of year 5.04% 6.18% 5.07%
Interest rate sensitivity or "gap" management involves the maintenance of an appropriate balance between interest sensitive assets and interest sensitive liabilities. This reduces interest rate risk exposure while also providing liquidity to satisfy the cash flow requirements of operations and customers' fluctuating demands for funds, either in terms of loan requests or deposit withdrawals. Major fluctuations in net interest income and net earnings could occur due to imbalances between the amounts of interest-earning assets and interest-bearing liabilities, as well as different repricing characteristics. Gap management seeks to protect earnings by maintaining an appropriate balance between interest-earning assets and interest-bearing liabilities in order to minimize fluctuations in the net interest margin and net earnings in periods of volatile interest rates. Page 15 The following table sets forth the amount of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2001, which are anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown:
Through More Than Dollars in thousands *1 Year 5 Years 5 Years Total --------- --------- --------- --------- Interest-earning assets: Fixed rate loans $ 22,994 $ 73,149 $ 177,728 $ 273,871 Variable rate loans 450,171 - - 450,171 Investment securities Available for sale 8,735 65,016 189,115 262,866 Held to maturity 944 - - 944 --------- --------- --------- --------- Total interest-earning assets 482,844 138,165 366,843 987,852 --------- --------- --------- --------- Interest-bearing liabilities: Savings accounts 20,000 - 68,226 88,226 NOW accounts - - 95,664 95,664 Money market accounts 134,333 - - 134,333 Certificate accounts 218,511 126,242 4,430 349,183 Borrowings 24,578 88,254 56,000 168,832 --------- --------- --------- --------- Total interest-bearing liabilities 397,422 214,496 224,320 836,238 --------- --------- --------- --------- Interest sensitivity gap per period $ 85,422 $ (76,331) $ 142,523 ========= ========= ========= Cumulative interest sensitivity gap $ 85,422 $ 9,091 $ 151,614 ========= ========= ========= Cumulative interest sensitivity gap as a percentage of total assets 8% 1% 14% Cumulative interest-earning assets as a percentage of interest-sensitive liabilities 121% 101% 118%
* Less than CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS Interest Rate Volatility May Reduce Our Profitability. The profitability of our banking subsidiaries depends to a large extent upon their net interest income, which is the difference between their interest income on interest-earning assets, such as loans and investments, and their interest expense in interest bearing liabilities, such as deposits and borrowed funds. Our net interest income can be affected significantly by changes in market interest rates. In particular, changes in relative interest rates may reduce our net interest income as the difference between interest income and interest expense decreases. As a result, we have adopted asset and liability management policies to minimize the potential adverse effects of changes in interest rates on net interest income, primarily by altering the mix and maturity of loans, investments and funding sources. However, we cannot assure you that a decrease in interest rates will not negatively impact our results from operations or financial position. Since market interest rates may change by differing magnitudes and at different times, significant changes in interest rates over an extended period of time could reduce overall net interest income. An increase in interest rates could also have a negative impact on our results of operations by reducing the ability of borrowers to repay their current loan obligations, which could not only result in increased loan defaults, foreclosures and write-offs, but also necessitate further increases to our allowance for loan losses. Page 16 Our Allowance for Loan Losses May Not Be Adequate to Cover Actual Loan Losses. We make various assumptions and judgments about the collectibility of our loan portfolio and provide an allowance for potential losses based on a number of factors. If our assumptions are wrong, our allowance for loan losses may not be sufficient to cover the losses we actually experience, which would have an adverse effect on our operating results, and may also cause us to increase the allowance in the future. Further, our net income would decrease if we had to add additional amounts to our allowance for loan losses. Our Loans Are Concentrated in Certain Areas of Maine and Adverse Conditions in those Markets Could Adversely Affect Our Operations. We are exposed to real estate and economic factors in the central, southern, western and midcoast areas of Maine because virtually all of our loan portfolio is concentrated among borrowers in these markets. Further, because a substantial portion of our loan portfolio is secured by real estate in this area, the value of the associated collateral is also subject to regional real estate market conditions. Adverse economic, political or business developments or natural hazards may affect these areas and the ability of property owners in these areas to make payments of principal and interest on the underlying mortgages. If these regions experience adverse economic, political or business conditions, we would likely experience higher rates of loss and delinquency on our mortgage loans than if our loans were more geographically diverse. If we do not maintain our historical growth rate, the market price of our common stock could be adversely affected. The Company's return on shareholders equity and other measures of profitability, which affect the market price of our common stock, depend in part on the Company's continued growth and expansion. Our growth strategy has two principal components - internal and external growth. Our ability to generate internal growth is affected by the competitive factors described below as well as by the primarily rural characteristics and related demographic features of the markets we serve. Our ability to continue to identify and invest in suitable acquisition candidates on acceptable terms is crucial to our external growth. In pursuing acquisition opportunities, we may be in competition with other companies having similar growth strategies. As a result, we may not be able to identify or acquire promising acquisition candidates on acceptable terms. Competition for these acquisitions could result in increased acquisition prices and a diminished pool of acquisition opportunities. An inability to find suitable acquisition candidates at reasonable prices could slow our growth rate and have a negative affect on the market price of our common stock. We Experience Strong Competition within Our Markets Which May Impact Our Profitability. Competition in the banking and financial services industry is strong. In our market areas, we compete for loans and deposits with local independent banks, thrift institutions, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally as well as nationally. Many of these competitors have substantially greater resources and lending limits than those of our banking subsidiaries and may offer services that our banking subsidiaries do not or cannot provide. Our long-term success depends on the ability of our banking subsidiaries to compete successfully with other financial institutions in their service areas. Because we maintain a smaller staff and have fewer financial and other resources than larger institutions with which we compete, we may be limited in our ability to attract customers. If we are unable to attract and retain banking customers, we may be unable to continue our loan growth and our results of operations and financial condition may otherwise be negatively impacted. Page 17 Our Cost of Funds for Banking Operations May Increase as a Result of General Economic Conditions, Interest Rates and Competitive Pressures. Our banking subsidiaries have traditionally obtained funds principally through deposits and through borrowings. As a general matter, deposits are a cheaper source of funds than borrowings, because interest rates paid for deposits are typically less than interest rates charged for borrowings. If as a result of general economic conditions, market interest rates, competitive pressures or otherwise, the value of deposits at our banking subsidiaries decreases relative to our overall banking operations, we may have to rely more heavily on borrowings as a source of funds in the future. Our Banking Business is Highly Regulated. Bank holding companies, national banking associations and state-chartered banks operate in a highly regulated environment and are subject to supervision, regulation and examination by various federal and state bank regulatory agencies, as well as other governmental agencies in the states in which they operate. Federal and state laws and regulations govern numerous matters including changes in the ownership or control of banks and BHCs, maintenance of adequate capital and the financial condition of a financial institution, permissible types, amounts and terms of extensions of credit and investments, permissible non-banking activities, the level of reserves against deposits and restrictions on dividend payments. The OCC, the FDIC and the Superintendent possess cease and desist powers to prevent or remedy unsafe or unsound practices or violations of law by banks subject to their regulation, and the FRB possesses similar powers with respect to BHCs. These and other restrictions limit the manner in which the Company and its subsidiaries may conduct business and obtain financing. Furthermore, our business is affected not only by general economic conditions, but also by the economic, fiscal and monetary policies of the United States and its agencies and regulatory authorities, particularly the FRB. The economic and fiscal policies of various governmental entities and the monetary policies of the FRB may affect the interest rates CNB and UnitedKingfield must offer to attract deposits and the interest rates they must charge on loans, as well as the manner in which they offer deposits and make loans. These economic, fiscal and monetary policies have had, and are expected to continue to have, significant effects on the operating results of depository institutions generally including CNB and UnitedKingfield. We Could Be Held Responsible for Environmental Liabilities of Properties We Acquire Through Foreclosure. If we are forced to foreclose on a defaulted mortgage loan to recover our investment we may be subject to environmental liabilities related to the underlying real property. Hazardous substances or wastes, contaminants, pollutants or sources thereof may be discovered on properties during our ownership or after a sale to a third party. The amount of environmental liability could exceed the value of the real property. There can be no assurance that we would not be fully liable for the entire cost of any removal and clean-up on an acquired property, that the cost of removal and clean-up would not exceed the value of the property or that we could recoup any of the costs from any third party. To the Extent that We Acquire Other Companies in the Future, Our Business May Be Negatively Impacted by Certain Risks Inherent with such Acquisitions Although we do not have an aggressive acquisition strategy, we have acquired, and in the future will continue to consider the acquisition of, other banking companies. To the extent that we acquire other companies in the future, our business may be negatively impacted by certain risks inherent with such acquisitions. These risks include the following: . the risk that the acquired business will not perform in accordance with management's expectations; Page 18 . the risk that difficulties will arise in connection with the integration of the operations of the acquired business with the operations of our businesses; . the risk that management will divert its attention from other aspects of our business; . the risk that we may lose key employees of the acquired business; and . the risks associated with entering into geographic and product markets in which we have limited or no direct prior experience. Item 7A. Quantitative and Qualitative Disclosures about Market Risks The information required by this item is included on pages 19 through 21 of the Company's Annual Report to Shareholders for the year ended December 31, 2001, and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The following financial statements and report of independent accountant are included in the Company's Annual Report to Shareholders for the year ended December 31, 2001 and are incorporated herein by reference. Page references are to pages of the Company's Annual Report to Shareholders for the year ended December 31, 2001.
PAGE ---- Consolidated Statements of Condition December 31, 2001 and 2000 24 Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999 25 Consolidated Statements of Changes in the Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999 26 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 27 Notes to Consolidated Financial Statements 28-47 Report of Independent Public Accountant 48
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure During the past two years, the Company has not made changes in, and has not had disagreements with its independent accountant on, accounting and financial disclosures. PART III Item 10. Directors and Executive Officers of the Registrant The information required by this item is incorporated by reference from the material responsive to such item in the Company's definitive proxy statement relating to the 2002 Annual Meeting of Shareholders to filed with the Securities and Exchange Commission (the "Commission") prior to April 30, 2002. Page 19 Item 11. Executive Compensation The information required by this item is incorporated by reference from the material responsive to such item in the Company's definitive proxy statement relating to the 2002 Annual Meeting of Shareholders to filed with the Commission prior to April 30, 2002. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated by reference from the material responsive to such item in the Company's definitive proxy statement relating to the 2002 Annual Meeting of Shareholders to filed with the Commission prior to April 30, 2002. Item 13. Certain Relationships and Related Transactions The information required by this item is incorporated by reference from the material responsive to such item in the Company's definitive proxy statement relating to the 2002 Annual Meeting of Shareholders to filed with the Commission prior to April 30, 2002. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Index to Financial Statements: A list of the consolidated financial statements of the Company and report of the Company's independent public accountant incorporated herein is included in Item 8 of this Report. 2. Financial Statement Schedules: Schedules have been omitted because they are not applicable or are not required under the instructions contained in Regulation S-X or because the information required to be set forth therein is included in the consolidated financial statements or notes thereto. 3. Exhibits: (2.1) Agreement and Plan of Merger, dated as of July 27, 1999, by and among the Company, Camden Acquisition Subsidiary, Inc., KSB, and Kingfield Bank (incorporated by reference to Exhibit 2.1 to the Company's Form 8-K filed with the Commission on August 9, 1999). (3.1) The Company's Articles of Incorporation, as amended to date (incorporated by reference to Exhibit 3.i to the Company's Form 10-Q filed with the Commission on August 10, 2001). (3.2) The Company's Bylaws, as amended to date (incorporated herein by reference to Exhibit 3.ii to the Company's Form 10-Q filed with the Commission on November 14, 2001). (10.1) CNB's 1993 Stock Option Plan (incorporated herein by reference to Exhibit 99.1 to the Company's Form S-8 filed with the Commission on August 29, 2001 (Commission No. 333-68598)). (10.2) Amendment No. 1 to the 1993 Stock Option Plan (incorporated by reference to Exhibit 99.2 to the Company's Form S-8 filed with the Commission on August 29, 2001 (Commission No. 333-68598)). (10.3) Employment Agreement, dated as of May 4, 1999, by and between the Company and its Chief Executive Page 20 Officer (incorporated herein by reference to Exhibit 10.8 to the Company's Form 10-Q/A for the quarter ended June 30, 1999 filed with the Commission on November 15, 1999). (10.4) KSB's 1993 Incentive Stock Option Plan (incorporated herein by reference to Exhibit 99.1 to the Company's Form S-8 filed with the Commission on January 21, 2000 (Commission No. 333-95157)). (10.5) Amendment No. 1 to the KSB's 1993 Stock Option Plan (incorporated herein by reference to Exhibit 99.2 to the Company's Form S-8 filed with the Commission on January 21, 2000 (Commission No. 333-95157)). (10.6) KSB's 1998 Long-Term Incentive Stock Benefit Plan (incorporated herein by reference to Appendix A to KSB's Definitive Proxy Statement filed with the Commission on April 15, 1998). (10.7) Summary of the Company's Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1999 filed with the Commission on March 30, 2000). (10.8) Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.9 to the Company's Form 10-K for the year ended December 31, 2000 filed with the Commission on March 30, 2001). (10.9)* Lease agreement for Acadia in Portland, ME. (10.10)* Lease Agreement for CNB branch in Portland, Maine. (13)* The Company's 2001 Annual Report to Shareholders. (21)* Subsidiaries of the Company. (23)* Consent of Berry, Dunn, McNeil & Parker relating to the Company's financial statements. _______________________ * Filed herewith Deemed filed only with respect to those portions thereof incorporated herein by reference: (b) Reports on Form 8-K: None. Page 21 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange 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 /s/ Robert W. Daigle March 26, 2002 - -------------------------------------------------------- ------------------ Robert W. Daigle Date President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Robert W. Daigle March 26, 2002 /s/ Gregory A. Dufour March 26, 2002 - ---------------------------------------------------------- --------------------------------------------------- Robert W. Daigle Date Gregory A. Dufour Date President, Director Senior Vice President-Finance and Chief Executive Officer /s/ Rendle A. Jones March 26, 2002 /s/ Johann Gouws March 26, 2002 - ---------------------------------------------------------- --------------------------------------------------- Rendle A. Jones Date Johann Gouws Date Chairman and Director Director /s/ Robert J. Gagnon March 26, 2002 /s/ Richard N. Simoneau March 26, 2002 - ---------------------------------------------------------- --------------------------------------------------- Robert J. Gagnon Date Richard N. Simoneau Date Director Director /s/ Ann W. Bresnahan March 26, 2002 /s/ Arthur E. Strout March 26, 2002 - ---------------------------------------------------------- --------------------------------------------------- Ann W. Bresnahan Date Arthur E. Strout Date Director Director /s/ John W. Holmes March 26, 2002 /s/ Theodore C. Johanson March 26, 2002 - ---------------------------------------------------------- --------------------------------------------------- John W. Holmes Date Theodore C. Johanson Date Director Director /s/ Winfield F. Robinson March 26, 2002 /s/ Ward I. Graffam March 26, 2002 - ---------------------------------------------------------- --------------------------------------------------- Winfield F. Robinson Date Ward I. Graffam Date Director Director /s/ Robert J. Campbell March 26, 2002 - ---------------------------------------------------------- Robert J. Campbell Date Director
Page 22 EXHIBIT INDEX ------------- (2.1) Agreement and Plan of Merger, dated as of July 27, 1999, by and among the Company, Camden Acquisition Subsidiary, Inc., KSB, and Kingfield Bank (incorporated by reference to Exhibit 2.1 to the Company's Form 8-K filed with the Commission on August 9, 1999). (3.1) The Company's Articles of Incorporation, as amended to date (incorporated by reference to Exhibit 3.i to the Company's Form 10-Q filed with the Commission on August 10, 2001). (3.2) The Company's Bylaws, as amended to date (incorporated herein by reference to Exhibit 3.ii to the Company's Form 10-Q filed with the Commission on November 14, 2001). (10.1) CNB's 1993 Stock Option Plan (incorporated herein by reference to Exhibit 99.1 to the Company's Form S-8 filed with the Commission on August 29, 2001 (Commission No. 333-68598)). (10.2) Amendment No. 1 to the 1993 Stock Option Plan (incorporated by reference to Exhibit 99.2 to the Company's Form S-8 filed with the Commission on August 29, 2001 (Commission No. 333-68598)). (10.3) Employment Agreement, dated as of May 4, 1999, by and between the Company and its Chief Executive Officer (incorporated herein by reference to Exhibit 10.8 to the Company's Form 10-Q/A for the quarter ended June 30, 1999 filed with the Commission on November 15, 1999). (10.4) KSB's 1993 Incentive Stock Option Plan (incorporated herein by reference to Exhibit 99.1 to the Company's Form S-8 filed with the Commission on January 21, 2000 (Commission No. 333-95157)). (10.5) Amendment No. 1 to the KSB's 1993 Stock Option Plan (incorporated herein by reference to Exhibit 99.2 to the Company's Form S-8 filed with the Commission on January 21, 2000 (Commission No. 333-95157)). (10.6) KSB's 1998 Long-Term Incentive Stock Benefit Plan (incorporated herein by reference to Appendix A to KSB's Definitive Proxy Statement filed with the Commission on April 15, 1998). (10.7) Summary of the Company's Supplemental Executive Retirement Plan (incorporated herein by reference to Exhibit 10.13 to the Company's Form 10-K for the year ended December 31, 1999 filed with the Commission on March 30, 2000). (10.8) Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.9 to the Company's Form 10-K for the year ended December 31, 2000 filed with the Commission on March 30, 2001). (10.9)* Lease agreement for Acadia in Portland, ME. (10.10)* Lease Agreement for CNB branch in Portland, Maine. (13)* The Company's 2001 Annual Report to Shareholders. (21)* Subsidiaries of the Company. (23)* Consent of Berry, Dunn, McNeil & Parker relating to the Company's financial statements. Page 23 EX-10.9 3 dex109.txt LEASE AGREEMENT FOR ACADIA IN PORTLAND, ME Exhibit 10.9 Lease Agreement for Acadia in Portland, Maine - -------------------------------------------------------------------------------- 511 CONGRESS STREET LEASE BASIC LEASE INFORMATION AND DEFINITIONS Lease Date: August 21, 1995 Tenant: Acadia Trust, N.A. and Gouws Capital Management, Inc. Tenant's Address: Two Monument Square, Portland, ME 04101 Contact: Frank E. Kemna, Jr./Phone: 774-3333 Landlord: October Corporation, a Maine corporation Landlord's Address: One Canal Plaza, P.O. Box 426 Portland, Maine 04112-0426 Contact: Boulos Property Management/Phone:871-1290 Leased Premises: All of the 9th floor and a portion of the 8th floor in the office building known and numbered as 511 Congress Street, Portland, Maine (the "Building". The term the "Building" includes any parking areas, landscaping, sidewalks and other facilities used in connection with the operation of the Building.) The Leased Premises are outlined on the plan attached to the Lease as Exhibit A. The Leased Premises shall be deemed to contain 18,966 square feet of rentable area. ("Rentable area" is a term of general usage in the industry, and includes an allocated portion of the common areas of the Building, as well as the usable area of the Leased Premises). The Building shall be deemed to contain 128,400 square feet of rentable area. Included within the Leased Premises is the right to use the common entrances, hallways, restrooms, elevators, walkways and stairways in the Building in common with the Landlord and others who are entitled to use the same. Lease Term: 123 months, (plus the partial month, if any, immediately following the Commencement Date) commencing August 1, 1995 (the "Commencement Date") and ending at 5:00 PM on the last ----------------- day of the 123rd full month subject to adjustment and earlier termination as provided in the Lease. Rent shall commence on the fourth (4th) month following Commencement Date, as established. Base Rent: Base Rent at a rate per square foot of rentable area ("RSF") per --- year, payable in monthly installments, and subject to escalations (if any), as follows: Annual Monthly Months Rental Rate Installment ------ ----------- ----------- l-3 $ 0 per RSF $ 0* 4-15 $ 3.50 per RSF $ 5,531.75 16-27 $12.75 per RSF $20,151.38 28-39 $12.75 per RSF $20,151.38 40-51 $14.00 per RSF $22,127.00 52-63 $14.00 per RSF $22,127.00 64-75 $15.00 per RSF $23,707.56 76-87 $15.00 per RSF $23,707.56 88-99 $15.00 per RSF $23,707.56 100-111 $17.50 per RSF $27,658.75 112-123 $17.50 per RSF $27,658.75 Electric Reimbursement: $1,580.00 Monthly to commence September 1, 1995.* Said amount to increase periodically by the increase in rates established by Central Maine Power Company. Base Year for For real estate taxes and assessments: July 1, 1995 June 30, Common Area 1996. Maintenance For all other expenses: Calendar year 1995. Expenses: Provided, however, that if the Landlord shall, at its expense, upgrade the Building energy management system and convert the heating system to natural gas on or before December 31, 1996, the operating cost base will be recomputed based on the resulting lower energy usage in the first calendar year of operation at 1995 utility rates. Security Deposit: None Rent: Base Rent, Electric Reimbursement, Excess Common Area Maintenance Expenses and all other sums that Tenant may owe to Landlord under the Lease. Permitted Use: Business offices to provide trust, investment and related services. -2- Tenant's 14.77%, which is the percentage obtained by dividing (i) the Proportionate 18,966 square feet of rentable area in the Leased Premises Share: (which includes a portion of the common areas) by (ii) the total 128,400 square feet of rentable area in the Building. Option to Expand: Tenant shall have the right of first offer for the remaining space on the 8th floor. Space to be leased on an "as is" basis with Landlord having no obligation to expend Tenant improvement monies. If Tenant exercises such right, base rent for any additional space shall be an amount which is consistent with prevailing market rates in effect at the time for comparable unimproved space in Portland, Maine as determined by a licensed real estate appraiser doing business in the Greater Portland area, selected by Landlord and reasonably acceptable to Tenant, paid for by both parties. The term "unimproved space" shall be construed to mean space that is available for lease without a tenant improvement allowance; taking into consideration the age and wear of existing improvements. Tenant's prorata share of the building and associated costs will be appropriately increased. Managing Agent: Boulos Property Management, Two City Center, Portland, Maine 04101 THE FOREGOING BASIC LEASE INFORMATION IS INCORPORATED INTO AND MADE A PART OF THE LEASE, BUT DOES NOT CONSTITUTE THE ENTIRE LEASE. TENANT ACKNOWLEDGES THAT IT HAS READ ALL OF THE PROVISIONS CONTAINED IN THE ENTIRE LEASE AND ALL EXHIBITS WHICH ARE A PART THEREOF AND AGREES THAT THIS LEASE, INCLUDING THE BASIC LEASE INFORMATION AND ALL EXHIBITS, REFLECTS THE ENTIRE UNDERSTANDING AND REASONABLE EXPECTATIONS OF LANDLORD AND TENANT REGARDING THE PREMISES. TENANT ALSO ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO REVIEW THIS LEASE PRIOR TO EXECUTION WITH LEGAL COUNSEL AND SUCH OTHER ADVISORS AS TENANT DEEMS APPROPRIATE. IN THE EVENT ANY CONFLICT EXISTS -3- BETWEEN ANY BASIC LEASE INFORMATION AND THE LEASE, THEN THE LEASE SHALL CONTROL. OCTOBER CORPORATION ACADIA TRUST, N.A. LANDLORD TENANT By: /s/ Owen W. Wells By: __________________________________ -------------------------------- Name: Owen W. Wells Name: ____________________________ Title: Clerk Title: ___________________________ GOUWS CAPITAL MANAGEMENT, INC. TENANT By: __________________________________ Name: ____________________________ Title: ___________________________ LEASE by OCTOBER CORPORATION to ACADIA TRUST, N.A. and GOUWS CAPITAL MANAGEMENT, INC. LEASE AGREEMENT, made this 21 day of August, 1995, by and between October Corporation, a Maine corporation with a place of business at Portland, Maine (hereinafter referred to as "Landlord"), and Acadia Trust, N.A., a national association, and Gouws Capital Management, Inc., a Maine corporation, both with a place of business at Portland, Maine, (hereinafter collectively referred to as "Tenant"). W I T N E S S E T H : 1. Leased Premises. Landlord leases to Tenant, in consideration of the Rent --------------- to be paid by Tenant and subject to the terms and conditions set forth herein, the Leased Premises. 2. Commencement and Term. --------------------- (a) The term of this Lease shall commence on the Commencement Date and shall be the Lease Term, unless earlier terminated by mutual agreement of the parties or as otherwise provided in this Lease. X (b) (Applicable only if checked) Beginning on or about the Commencement - Date, certain improvements to the Leased Premises shall be undertaken by Tenant in accordance with the terms of Exhibit B attached hereto and made a part hereof. 3. Rent. Tenant covenants and agrees to pay to Landlord at Landlord's ---- address, during the Lease Term, the Base Rent and the Electric Reimbursement, without holdback or set-off in advance on the first day of each month during the Lease Term. Other Rent shall be paid in accordance with the terms of this Lease. If any payment of Rent is received by Landlord more than five (5) days after the date when such payment is due, a late charge of five percent (5%) of the past due payment shall be assessed, due and payable upon demand. 4. Security Deposit. Intentionally Omitted. ---------------- 5. Option to Lease Additional Space. Provided that Tenant is not in default -------------------------------- of any covenant, agreement or obligation contained in this Lease, Tenant shall have the right of first offer for all of the remaining space on the 8th floor when it becomes available (hereinafter "Additional Space"). This option is given upon the following terms and conditions: (a) The Additional Space to be leased shall be on an "as is" basis with Landlord having no obligation to expend Tenant improvement monies. (b) If Tenant exercises such right, base rent for the Additional Space shall be as set forth in the paragraph entitled "Option to Expand" as set ---------------- forth in the Basic Lease Information and Definitions summary. In addition to the base rent for the Additional Space, Tenant shal1 also pay to Landlord as additional rent the Electric Reimbursement and Tenant's prorata share of all Common Area Maintenance Expenses. (c) Landlord shall give Tenant written notice if the Additional Space becomes available together with the Base Rent as determined by a licensed real estate appraiser hired by Landlord reasonably acceptable to Tenant and paid for equally by Landlord and Tenant. Tenant shall then have fifteen (15) days to notify Landlord, in writing, of its decision to lease the Additional Space. Tenant's failure to exercise this Option shall terminate this Option for all times and it shall not again become available to Tenant unless otherwise agreed to in writing by the parties hereto. 6. Common Area Maintenance Expenses. -------------------------------- (a) In addition to the Base Rent, Tenant shall also pay to Landlord as additional Rent hereunder Tenant's share of the amount of any increase in any calendar year in the total of all Common Area Maintenance Expenses incurred by Landlord in connection with the Building, over and above the Common Area Maintenance Expenses incurred by Landlord during the Base Year. Tenant's share of such increase shall be Tenant's Proportionate Share. Prior to the start of each calendar year or as soon thereafter as possible, Landlord shall furnish the Tenant with a statement showing an estimate of all of said Common Area Maintenance Expenses to be paid by Landlord for that year and the amount by which such estimate exceeds the Base Year expenses. Tenant shall pay to Landlord the said estimated excess amount according to the Tenant's Proportionate Share, in equal monthly installments, on the first day of each and every month throughout each such calendar year. Within a reasonable period of time following the end of each calendar year during the Lease Term, Landlord shall submit to Tenant a statement showing actual Common Area Maintenance Expenses incurred by Landlord during the preceding year. In the event that actual Common Area Maintenance Expenses exceed the estimated Common Area Maintenance Expenses for such year, Tenant shall pay to Landlord, as additional Rent hereunder, Tenant's share (as determined above) of such excess, such amount to be paid within twenty (20) days after the date of receipt of the statement of actual Common Area Maintenance Expenses. If the actual Common Area Maintenance Expenses are less than the estimated Common Area Maintenance Expenses for such year and Tenant is not in default under the terms of this Lease, an amount equal to Tenant's share of such difference shall be applied against the installment of Base Rent next falling due. Tenant shall have ninety (90) days following receipt of said statement to contest the validity of, or verify the accuracy of said statements. Thereafter, the statements shall be conclusively deemed correct. No rights to contest or to verify shall be available to Tenant if Tenant is or has been in default of any of its monetary obligations hereunder. If the Landlord shall, at its expense, upgrade the building's energy management system and convert the heating system to natural gas on or before December 31, 1996, the operating cost base will be redetermined based on the resulting lower energy usage in the first calendar year of operation at 1995 utility rates. (b) "Common Area Maintenance Expenses'* shall mean all expenses and disbursements of every kind which Landlord pays or incurs in connection with the ownership, operation, maintenance, repair, replacement and security of the Building, including but not limited to, the following: (i) All salaries, wages, fringe benefits, payroll taxes and worker's compensation insurance premiums related thereto of and for Landlord's or its Property Manager's employees engaged in the operation, repair, replacement, maintenance or security of the Building; (ii) All costs, including monies paid to utility companies, the City of Portland and any other entities, of furnishing electricity to the common areas of the Building and all costs of furnishing heat, air conditioning, hot water, water and sewer services and facilities to all areas of the Building, including the common areas and the leased areas, and all costs of furnishing such services and facilities; (iii) All costs of any insurance carried by Landlord related to the Building or its operation; (iv) All costs, including material and equipment costs, for common area cleaning and janitorial services and for window cleaning. Tenant shall be responsible for obtaining and paying for the cost of janitorial services provided to the Leased Premises; (V) All costs of maintaining the Building, including the operation and repair of the elevator, heating, air-conditioning and hot water equipment and any other common Building equipment and all other repairs and replacements necessary to keep the Building in the same condition as at the execution of this Lease; (vi) All costs of snow removal, ice treatment, and ground maintenance (including landscaping); (vii) All costs of the management of the Building; (viii) All tools, equipment, supplies and materials used in the operation, maintenance, repair, replacement and security of the Building; (ix) All costs of service and supply contracts relating to services and supplies referred to in subparagraphs (i) through (viii) hereinabove and relating in any way to the operation, maintenance and management of the Building by Landlord; (x) All taxes, betterments and assessments assessed and levied against the real estate of the Landlord (which term shall include personal property to the extent that elevators, heating and air-conditioning equipment, or similar building appurtenances for the use and benefit of all of the occupants of the Building are classified as personal property for tax purposes and to the extent that any personal property, such as computers and other business equipment is used by the Landlord or its Property Manager in the operation of the Building) ("Real Estate Taxes") constituting the Building as defined in this Lease. In the event Landlord is required to pay to any taxing authority any amount as sales tax, gross receipt tax, or any tax of like nature specifically measured as a percentage of, or fraction of, or other factors based upon the rent payable hereunder (whether in lieu of, or in addition to real estate taxes) then such amounts shall be treated as Real Estate Taxes hereunder. Further, if the system of real estate taxation shall be altered or varied and any new tax shall be levied or imposed on the Building, and/or Landlord in substitution for real estate taxes presently levied or imposed, then any such new tax or levy shall be included within the term "Real Estate Taxes" and the provisions of this Paragraph shall apply. (xi) With respect to the replacement of capital items, which are expected to reduce the operating costs of the Building, the Tenant's Proportionate Share shall be based upon the amortized costs of such items over a useful life (not to exceed fifteen years) which shall be reasonably determined by Landlord. (c) The foregoing notwithstanding, Common Area Maintenance Expenses shall not include marketing costs incurred in leasing space in the Building (including, without limitation, leasing commissions), debt service on the Building, the cost of repair of any damage that is the responsibility of any other tenant of the Building, or build-out work preformed by Landlord for any tenant of the Building; any expenses relating to the Fleet parking lot; electrical service to any area other than to the common areas; and the cost of upgrading the Building's energy management system and converting the heating system for the Building to natural gas, if such cost results in a redetermination of the operating cost base pursuant to Section 6(a) above. (d) Notwithstanding any of the provisions in this Lease to the contrary, for purposes of determining the Common Area Maintenance Expenses for the Base Year (calendar year 1995), Landlord shall reasonably and equitably adjust the operating expenses for such calendar year such that the operating expenses shall be computed for such year as though the Building had been fully occupied during the full calendar year 1995. If Landlord reasonably determines that it is not practicable to make such adjustment in operating expenses, Landlord shall instead use calendar year 1996 as the Base Year for Common Area Maintenance Expenses by providing Tenant with written notice of such election. 7. Holdover. If Tenant continues to occupy the Leased Premises at the -------- completion of the Lease Term, such continued occupancy shall be deemed a tenancy-at-will under the terms and conditions stated herein and shall be subject to a Base Rent equal to one and one-half times the Base Rent applicable at the end of the Lease Term until Tenant shall vacate the Leased Premises. Nothing contained in this Paragraph shall be deemed to constitute consent by Landlord to such occupancy or holdover by Tenant. 8. Hazard Insurance. It is acknowledged and understood by the parties ---------------- hereto that such insurance for fire and extended coverage as Landlord elects to purchase with respect to the Building and the Leased Premises shall be for the sole benefit of Landlord, and that such insurance shall not cover Tenant's personal property, trade fixtures, leasehold improvements, and other appurtenances, and that in the event of damage to or loss of any such items, Landlord shall have no obligation to repair or replace same. Landlord and Tenant agree that to the extent Tenant has an insurable interest in the Leased Premises, Tenant may obtain and maintain, at Tenant's own expense and for Tenant's own benefit, a policy of insurance insuring said interest. 9. Utilities. During the Lease Term, Landlord covenants and agrees to --------- pay all costs for electricity to the Leased Premises, subject to Tenant's payment of the Electric Reimbursement. Tenant covenants and agrees to pay the cost of all other utility service provided to or for the Leased Premises, including but not limited to telephone and other communications services, and all costs for cleaning and janitorial services on the Leased Premises, which services shall be Tenant's sole responsibility. 10. Repair and Maintenance. Tenant agrees that from and after the date that ---------------------- possession of the Leased Premises is delivered to Tenant, and until the end of the Lease Term, it will keep neat and clean and maintain in good order, condition and repair, and in compliance with all federal, state and local statutes, ordinances, rules and regulations currently in effect or hereinafter enacted, all portions of the Leased Premises and any and all alterations or improvements made by Tenant pursuant to Paragraph 11 below. Landlord shall be responsible for all structural repairs, including roof and mechanical system repairs, deemed necessary by Landlord for a first-class office building, except such repairs as are made necessary by the activities beyond reasonable use and wear on the Leased Premises of Tenant, Tenant's employees, agents, customers and invitees, which shall be Tenant's sole responsibility and expense. The maintenance and repair of all equipment in the Leased Premises, including all heating, air conditioning, plumbing, electrical and mechanical fixtures and equipment, reasonable use and wear and damage by fire or casualty only excepted, shall be the responsibility of the Tenant, except as such expenses are properly chargeable to capital account. Tenant acknowledges that, as it is in possession of the Leased Premises, it retains primary responsibility for notifying Landlord or Landlord's Property Manager in a timely manner of plumbing, mechanical, electrical or other problems in the Leased Premises of which it is aware or should have been reasonably aware, and that Tenant's failure to provide such timely notification could result in substantial damages to the Leased Premises. 11. Alterations, Renovations and Improvements. (a) Tenant shall have the ----------------------------------------- right to make, upon prior written consent of Landlord, which consent shall not be unreasonably withheld, such alterations, renovations and improvements to the Leased Premises as are necessary or desirable for Tenant's use of the Leased Premises as authorized herein, provided however, that Tenant shall perform such alterations, renovations and improvements in a good, workmanlike and reasonable manner, and in accordance with all applicable laws and provided further that Tenant shall indemnify and hold Landlord harmless from and against all claims, demands, costs and mechanic's liens which may arise as a direct or indirect result of or in connection with such alterations, renovations and improvements, and Tenant shall assume all cost, liability and responsibility for such alterations, renovations and improvements. Any and all alterations, renovations and improvements which may be made or installed by either Landlord or Tenant upon the Leased Premises and which in any manner are attached to the floors, walls or ceilings (including, without limitation, any linoleum or other floor coverings of similar character which may be cemented or otherwise adhesively affixed to the floor) shall, at Landlord's option, remain upon the Leased Premises, and at the expiration or termination of this Lease shall be surrendered with the Leased Premises as a part thereof without disturbance, molestation or injury. However, the usual trade fixtures and furniture which may be installed in the Leased Premises prior to or during the term hereof at the cost of Tenant may be removed by Tenant from the Leased Premises upon the expiration or termination of this Lease, subject to the provisions of Paragraph 14 below. (b) Floor Load. Tenant agrees not to place a load upon the Leased ---------- Premises exceeding the load established by Landlord and not to remove any heavy items into, about, or out of the Leased Premises except in such manner and at such times as Landlord shall authorize. 12. Signs. ----- (a) Tenant shall not place any signs or displays on the exterior of or in the Leased Premises or the Building or any windows therein which signs or displays are visible from outside of the Building, without Landlord's express prior written consent, which may be withheld for any reason. Landlord hereby agrees to permit Tenant to erect and maintain two (2) signs, one to be located on the brick facing above the 9th floor on the Congress Street side and the other on the side facing I-295. Neither sign may be illuminated. Both signs may be in letters large enough to be generally visable for some distance but smaller than those in the primary building signage to be located at the top of the Building. (b) Landlord shall provide appropriate designations of Tenant's location in the Building, in the lobby and in other convenient and reasonable locations in the Building. 13. Americans With Disabilities Act Compliance. ------------------------------------------ Notwithstanding anything set forth herein to the contrary, Tenant shall be responsible for the execution of and cost for any alteration to, or removal of architectural barriers from, the Leased Premises which is necessary to comply with the Americans with Disabilities Act of 1990 (42 U.S.C. (S) (S) 12101-12117 and 12181-12213 as may be amended from time to time) (the "Act") and any comparable state or local law or regulation, and Landlord shall be responsible for the execution of and cost for any alteration to or removal of architectural barriers from the common areas of the Building which is necessary to comply with the Act or any such state or local law or regulation. 14. Trade Fixtures. All trade fixtures and furniture erected on and/or -------------- attached to the Leased Premises by Tenant other than those items referred to in Paragraph 11 above, may be removed by Tenant at the termination of this Lease, provided (a) Tenant shall not then be in default in the performance of any of its obligations under this Lease, (b) such removal shall not -7- permanently or substantially damage any portion of the Leased Premises as they existed prior to the commencement of the Lease Term, and any minor damage created by such removal shall be repaired by Tenant at Tenant's expense prior to the expiration of the Lease Term, and (c) such removal shall be made before the expiration of the Lease Term. 15. Sublettinq and Assignment. (a) Tenant shall not be entitled to ------------------------- assign this Lease or to sublet the Leased Premises or any portion thereof, without the prior written consent of Landlord, which consent shall not be unreasonably withheld. In the event that Landlord does give its consent to any such assignment or subletting, it is agreed that any excess of the rent or other charges payable to Tenant pursuant to such assignment or subletting over the amount of Rent owed by Tenant pursuant to this Lease and reasonable costs associated with the subletting, if any, shall be payable by Tenant to Landlord immediately upon receipt by Tenant. Notwithstanding any provision contained in this Paragraph, Tenant shall remain primarily liable for all Lease obligations. Any corporate reorganization, except as provided in Paragraph 25 hereof, or merger of Tenant into another organization or merger of one Tenant into the other, or any transfer of Tenant or Tenant's assets to an affiliate, or similar act or change in ownership or structure of Tenant shall not constitute an assignment or sublease within the meaning of this Paragraph. (b) Notwithstanding any other provision of this Lease to the contrary, Landlord acknowledges that Tenant may wish to allow Tenant's affiliates to use portions of the Premises. Landlord agrees, so long as all of such affiliates are controlled by, and more than 50% owned by, some combination of one or more of the following individuals, to wit: Johann H. Gouws, Frank E. Kemna, Jr., Richard E. Curran, Jr., Cass Gilbert, Gregg A. Marston, John L. Simpson and Paul J. White, and any other key employee whose name is submitted to and approved by Landlord, that an agreement between Tenant and any such entities for the use of all or any portion of the Premises will not be considered an assignment or sublease for purposes of this Lease, and shall be expressly permitted hereunder. 16. Indemnification and Liability Insurance. --------------------------------------- (a) Tenant agrees to indemnify, protect and hold Landlord harmless from and against all liabilities, injuries, claims, losses, or damages to persons, including but not limited to other tenants in the Building, or property occurring or arising on or about the Leased Premises, during the Lease Term, which liabilities, losses or damages arise as a result of Tenant's use, misuse or occupation of the Leased Premises or any part thereof, except to the extent that said liabilities, losses or damages are the result of gross negligence or willful -8- misconduct of Landlord, Landlord's agents, contractors, or employees. (b) Tenant agrees to maintain in full force during the term hereof a policy of public liability and property damage insurance under which Landlord and Tenant are named as insureds, in a minimum amount of One Million Dollars ($1,000,000.00) for injury or death to any one person or damage to property, and Two Million Dollars ($2,000,000.00) for injury to or death of more than one person in a single accident or occurrence, together with a contractual liability endorsement covering Tenant's obligations under subparagraph (a) above. Such policy shall contain a provision requiring that written notice be given to Landlord not less than ten (10) days prior to cancellation, expiration or alteration of the policy. Tenant agrees to deliver certificates of such insurance to Landlord at the beginning of the term hereof and thereafter not less than thirty (30) days prior to the expiration of any such policy. 17. Use and Business Operation. Tenant agrees to use and occupy the -------------------------- Leased Premises for the Permitted Use, and for no other object or purpose without the written consent of Landlord, and further agrees not to use the Leased Premises for any purpose deemed extra hazardous or not covered by insurance in force, without the prior written consent of Landlord. Further, Tenant agrees that it shall at all times observe the Building Rules and Regulations attached hereto as Exhibit C. 18. Permits and Licenses. Tenant agrees to maintain in full force and -------------------- effect, during the Lease Term and, if applicable, any Renewal Term, at Tenant's cost and expense, any and all federal, state and local permits, licenses and registrations necessary for the use of the Leased Premises by Tenant pursuant to Paragraph 17 hereof. 19. Right to Enter. Tenant agrees to permit Landlord or its duly -------------- authorized agents to enter on the Leased Premises during Tenant's normal business hours, without any prior notice, to examine the condition of said Leased Premises and to show the same to prospective tenants or purchasers, provided such access to the Leased Premises shall not unnecessarily interfere with Tenant's use of the Leased Premises or the conduct of Tenant's business activities thereon. In the event that Landlord wishes to enter the Leased Premises at any time other than Tenant's normal business hours, Landlord shall give Tenant such prior notice as is reasonable under the circumstances except that in case of an emergency, Landlord shall be relieved of said prior notice obligation but will give notice within a reasonable time thereafter. 20. Attorneys Fees. In the event Tenant defaults in any manner pursuant -------------- to the terms of this Lease, including but not -9- limited to the institution of bankruptcy proceedings by or against Tenant such as would constitute a default pursuant to Paragraph 25 of this Lease, Tenant agrees to pay all reasonable costs, attorneys fees and expenses that shall be made and incurred by Landlord in enforcing the terms of this Lease. 21. Total or Partial Destruction. ---------------------------- (a) If the Leased Premises shall be so damaged by fire or other casualty as to render the Leased Premises untenantable, and if such damage shall be so great that an architect selected by Landlord and approved by Tenant shall certify in writing to Landlord and Tenant that the Leased Premises, with the exercise of due diligence, but without the payment of overtime or other premiums, cannot be made tenantable within ninety (90) days from the date insurance proceeds are made available to Landlord, then this Lease may be terminated by Landlord or Tenant giving written notice to the other party of such termination within thirty (30) days after receipt of the architect's certification, such certification to be made as soon as reasonably practical following such damage; provided, however, that Tenant shall have no right to terminate the Lease if Landlord commits to complete such repairs within ninety (90) days after the award of insurance proceeds, notwithstanding the architect's certification. Within thirty (30) days after receipt of such notice of termination, Tenant shall surrender to Landlord the Leased Premises and all interest therein under this Lease. Tenant shall pay the Rent and any additional rent, duly apportioned as of the date of such termination of this Lease, and Landlord and Tenant shall be free and discharged from all obligations arising hereunder after the date of such termination. If, however, the damage shall be such that Landlord's architect shall certify that the Leased Premises can be made tenantable within such ninety (90) day period or if neither Landlord nor Tenant elect to terminate this Lease as set forth above, then, except as hereinafter provided, Landlord shall repair the damage within ninety (90) days after the award of the insurance proceeds except that Landlord shall not be required to repair, replace or restore any items installed by Tenant at Tenant's expense and provided further that Landlord shall not be obligated to expend for any repairs or reconstruction pursuant to this section a amount in excess of insurance proceeds received, after deducting therefrom Landlord's reasonable expenses in obtaining such proceeds. Until such repair is substantially completed, the Rent shall be abated in proportion to the part of the Leased Premises that is unusable by Tenant in the reasonable conduct of its business or profession. (b) If the Leased Premises shall be damaged by fire or other casualty but not so as to render them untenantable, Landlord shall cause the damage to be promptly repaired and there shall be no abatement of the Rent or the additional rent; provided, however, that Landlord shall not be obligated to expend -10- for any repairs or reconstruction pursuant to this section an amount in excess of insurance proceeds received, after deducting therefrom Landlord's reasonable expenses in obtaining such proceeds. (c) Landlord agrees to keep the Building insured in an amount equal to the greater of (i) 80% of full replacement value thereof above foundation walls or (ii) the amount necessary to avoid any co-insurance provisions. (d) Landlord's obligation to repair, restore or reconstruct the Leased Premises pursuant to the provisions of this Paragraph shall be limited to the Building shell and any improvements originally constructed in or on the Leased Premises by Landlord or contained therein prior to the commencement of the Lease Term, including roof and mechanical systems. Tenant, at Tenant's expense, shall perform all repairs or restoration not required to be done by Landlord and shall promptly re-enter the Leased Premises and commence doing business in accordance with the provisions of this Lease. Landlord shall not be liable for delays occasioned by adjustment of losses with insurance carriers or by any other cause so long as Landlord shall proceed in good faith. Landlord shall not be liable to Tenant for any loss, direct or indirect, in business revenues sustained by Tenant as a result of said repair, restoration or reconstruction or delays in completing said repairs, restoration or reconstruction. (e) Notwithstanding anything set forth herein to the contrary, Tenant shall be responsible for all repairs and replacements of damage and/or destruction of the Leased Premises necessitated by burglary or attempted burglary, or any other illegal or forcible entry into the Leased Premises which damage and/or destruction is the direct and immediate result of an actual or attempted illegal or forcible entry into the Leased Premises. (f) Tenant covenants that it will make good faith attempts to contact Landlord by telephone and by letter sent by regular mail within the time period specified herein to give notice to Landlord of any accident or damage, other than normal wear and tear, whether such damage is caused by insured or uninsured casualty, occurring in, on or about the Leased Premises within twenty-four (24) hours after Tenant has or should have had knowledge of the occurrence of such accident or damage. If Tenant fails to give notice as provided herein, and as a result thereof, Landlord's insurance company fails to pay all or any portion of any loss that would otherwise have been payable but for Tenant's failure to provide such notice, then in such event, Landlord shall be relieved of its obligations under this paragraph to the extent that the insurance proceeds recovered by Landlord are less than what would have been recovered had Tenant -11- given notice as provided herein, unless Landlord had or should have had knowledge of the occurrence of such accident or damage. 22. Eminent Domain. -------------- (a) If the Leased Premises shall be taken in whole by condemnation or right of eminent domain, either party, upon written notice to the other, shall be entitled to terminate this Lease provided that such notice is given not later than thirty (30) days after Tenant has been deprived of possession. Should only a part of the Leased Premises be so taken or condemned, Landlord shall have the option after such taking or condemnation and the determination of Landlord's award therein, to expend a portion or all of the net amount which may be awarded to Landlord in such condemnation proceedings as may be necessary to restore the Leased Premises to an architectural unit as nearly like their condition prior to the commencement of the Lease Term as shall be practicable, or to terminate this Lease, effective thirty (30) days after notice of said termination to Tenant. Should the net amount so awarded to Landlord be insufficient to cover the cost of restoring the Leased Premises, Landlord may supply the amount of such insufficiency and restore the Leased Premises as above provided with all reasonable diligence, or terminate this Lease. Landlord shall notify Tenant of Landlord's election with respect to restoration in the event of an insufficient award not later than ninety (90) days after the final determination of the amount of the award. (b) In the event of any award for any taking of the Leased Premises in condemnation proceedings or by right of eminent domain, Landlord shall be entitled to receive and retain the amounts awarded for the Leased Premises and for Landlord's business loss, and Tenant shall be entitled to receive and retain any amounts which may be specifically awarded to it in any such condemnation proceedings because of its business loss or the taking of its trade fixtures, furniture, or other property. (c) In the event of any such taking of the Leased Premises, the rent, or a fair and just proportion thereof according to the nature and extent of the damage sustained, shall be suspended or abated. 23. Limitation of Landlord's Liability. Tenant agrees to look solely to ---------------------------------- Landlord's interest in the Building or Landlord's insurance coverage thereon for recovery of any judgment from Landlord. 24. Waiver of Subrogation. Insofar as and to the extent that such --------------------- agreement may be effective without invalidating or making it impossible to secure insurance coverage obtainable from responsible insurance companies doing business in the State of Maine, Landlord and Tenant agree that with respect to any loss -12- covered by insurance then carried by them, respectively, the one carrying such insurance and suffering that loss releases the other of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies shall have no right of subrogation against one another on account of such agreement even though extra premiums may result therefrom. If an extra premium is payable by Tenant as a result of these provisions, Landlord shall not reimburse Tenant for any such extra premium. 25. Landlord's Remedies. ------------------- (a) It is covenanted and agreed that (i) if Tenant shall neglect or fail to perform or observe, or fail or neglect diligently to attempt to so perform or observe, any of the covenants, terms, provisions or conditions contained in this Lease and on Tenant's part to be performed or observed within thirty (30) days or such additional time as is reasonably required to correct any such default after notice of default (except for payment of Rent or other charges payable by Tenant, in which case said period of notice shall be five (5) days and except that Landlord shall be relieved of its notice obligations with respect to the rent under this Paragraph if it gives any such notice twice in any calendar year); (ii) if the estate hereby created shall be taken on execution or by other process of law, or if a petition in U.S. Bankruptcy Court shall be filed by Tenant, or if any assignment shall be made of the property of Tenant for the benefit of creditors; (iii) if a receiver, guardian, conservator, trustee in involuntary bankruptcy or other similar officer shall be appointed by a court of competent jurisdiction to take charge of all or any substantial part of Tenant's property and such appointment is not dismissed within sixty (60) days; or (iv) if an involuntary petition shall be filed for the reorganization of Tenant under any provisions of the Federal Bankruptcy Code now or hereafter enacted, and such proceeding is not dismissed within sixty (60) days after it is begun, or if Tenant shall file a petition for such reorganization under any provisions of the Federal Bankruptcy Code now or hereafter enacted and such proceeding is not dismissed within sixty (60) days; then, and in an of said cases (notwithstanding any license of any former breach of covenant or waiver of the benefit hereof or consent in a former instance), Landlord lawfully may, immediately or at any time, in accordance with Maine law, enter into and upon the Leased Premises or any part thereof in the name of the whole -13- and repossess the same as of its former estate, and expel Tenant and those claiming through or under it and remove it or their effects without being deemed guilty of any manner of trespass, and without prejudice to any remedies which might otherwise be used for collection of damages for breach of covenant, and upon entry as aforesaid, this Lease shall terminate. (b) Tenant covenants that in case of such termination under subparagraph (a) Tenant shall pay to Landlord for the remainder of the Lease Term (or Renewal Term, if applicable) on the last day of each calendar month the difference, if any, between the Rent which would have been due for such month had there been no such termination and the sum of the amount being received by Landlord as rental from the then occupants of the Leased Premises, if any. Landlord shall make reasonable efforts to secure a rental equal to the prevailing local rate for the Leased Premises. In addition, Tenant agrees to pay to Landlord as damages for any above-described breach, all costs of reletting the Leased Premises, including but not limited to commissions, attorneys fees, court costs and renovations to the Leased Premises to suit the new tenant. (c) If Tenant shall default in the performance or observance of any covenant, agreement, or condition in this Lease contained on its part to be performed or observed, other than an obligation to pay money, and shall not cure any such default as provided herein, Landlord may, at its option, without waiving any claim for damages for breach of this Lease, at any time after the expiration of any applicable cure period, cure such default. Any amount paid or any liability incurred by Landlord in so doing shall be deemed paid or incurred for the account of Tenant, and Tenant agrees to immediately reimburse Landlord therefor, as additional Rent, or save Landlord harmless therefrom. (d) Landlord shall in no event be in default in the performance of any of its obligations hereunder unless and until Landlord shall have failed to perform, or failed diligently to attempt to perform, such obligations within thirty (30) days or such additional time as is reasonably required to correct any such default after notice by Tenant to Landlord properly specifying wherein Landlord has failed to perform any such obligation. 26. Notices. All notices required to be given pursuant to this Lease, ------- to be effective, shall be in writing and shall be delivered by hand or by certified mail, postage prepaid, return receipt requested, to the following addresses: (i) To Tenant at: 511 Congress Street Portland, ME 04101 -14- with a copy to: Dennis C. Keeler, Esquire Pierce, Atwood, Scribner, Allen, Smith & Lancaster One Monument Square Portland, ME 04101-1110 (ii) To Landlord at: October Corporation One Canal Plaza, P.O. Box 426 Portland, Maine 04112 with a copy to: Boulos Property Management Two City Center Portland, ME 04101 Any notice given pursuant to this Paragraph shall be deemed to have been given upon the second day following the date of mailing in accordance with the requirements of this Paragraph. Either party may, by such manner of notice, substitute persons or addresses for notice other than those listed above. 27. Estoppel Certificate. (a) Landlord or Tenant shall at any time upon -------------------- ten (10) days prior written notice from the other execute, acknowledge and deliver to the requesting party or to a party designated by the requesting party, within five (5) days following receipt of said notice, an estoppel certificate which shall contain (i) a certification that this Lease is unmodified and in full force and effect or, if modified, a statement of the nature of any such modification and a certification that this Lease, as so modified, is in full force and effect, (ii) the date to which the Rent and other charges payable by Tenant are paid in advance, if any, and (iii) an acknowledgment that there are not, to Landlord's or Tenant's knowledge, as the case may be, any uncured events of default on the part of Landlord or Tenant hereunder, or a specification of such events of default if any are claimed by Landlord or Tenant. Landlord's or Tenant's failure to deliver such certificate within the time frame set forth above shall, at the other party's option, be conclusive proof that this Lease is in full force and effect without modification except as may be represented by Landlord or Tenant, that there are no uncured defaults in Landlord's or Tenant's performance of Landlord's or Tenant's obligations, as the case may be, under this Lease, and that not more than one month's Rent and other charges payable hereunder has been paid in advance. (b) If Landlord desires to finance, refinance, or sell the Building, or any part thereof, Acadia Trust, N.A. hereby agrees to deliver to any lender or purchaser designated by Landlord such financial statements of Acadia Trust, N.A. as may be reasonably required by such lender or purchaser. Such statements shall include the past three (3) years financial statements of Acadia Trust, N.A. All such financial statements -15- shall be received by Landlord and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 28. Hazardous Waste. Tenant covenants and agrees that it will permit no --------------- hazardous or toxic waste, substance, material or matter, as those terms may be defined from time to time by applicable state, local or federal law to be brought, used, maintained or stored upon the Leased Premises, in violation of law. Tenant hereby covenants and agrees to protect, exonerate, defend, indemnify and save Landlord harmless from and against any and all loss, damage, cost, expense or liability, including reasonable attorneys fees, court costs and clean-up costs, and including but not limited to, such loss, damage, cost, expense or liability based on personal injury, death, loss or damage to property suffered or incurred by any person, corporation or other legal entity, which may arise out of the removal or clean-up of any such waste, substance, material or matter placed upon or within the Leased Premises by Tenant, whether or not in violation of law, or as the result of a breach by Tenant of Tenant's obligations under this Paragraph. 29. Subordination. This Lease, at Landlord's option, shall be subordinate ------------- to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the Building and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof on the condition that Tenant's right to quiet possession of the Leased Premises and its rights under this Lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the Rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee, or ground lessor shall elect to have this Lease made prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior to or subsequent to the date of said mortgage, deed of trust, or ground lease or the date of recording thereof. Tenant agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be. Tenant's failure to execute such documents within ten (10) days after written demand shall constitute a material default by Tenant hereunder. 30. Miscellaneous Provisions. ------------------------ (a) Invalidity of Particular Provisions. If any term or provision of ----------------------------------- this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or -16- unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. (b) Governing Law. This Lease shall be governed exclusively by the ------------- provisions hereof and by the laws in effect in the State of Maine as those laws may be amended from time to time. (c) Paragraph Headings. The Paragraph headings throughout this ------------------ instrument are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify, or aid in the interpretation, construction, or meaning of the provisions of this Lease. (d) Interpretation. Whenever in this Lease provision is made for the -------------- doing of any act by any party, it is understood and agreed that said act shall be done by such party at its own cost and expense, unless a contrary intent is expressed. (e) Entire Agreement; Binding Effect. All negotiations, considerations, -------------------------------- representations, and understandings between Landlord and Tenant are incorporated herein and may be modified or altered only by agreement in writing between Landlord and Tenant, and no act or omission of any employee or agent of Landlord shall alter, change, or modify any of the provisions hereof. All rights, obligations and liabilities contained herein given to, or imposed upon, Landlord and Tenant shall extend to and bind the several respective administrators, trustees, receivers, legal representatives, successors, heirs and permitted assigns of Landlord and Tenant, and if there shall be more than one tenant, they shall all be bound jointly and severally by the terms, covenants and agreements herein. (f) Compliance with Laws. Tenant agrees to abide by and comply with all -------------------- federal, state and local statutes, ordinances, rules and regulations applicable to Tenant's use of the Leased Premises. (g) Basic Lease Information. The Basic Lease Information and ---------------------- efinitions form accompanying this Lease is incorporated into and made a part of this Lease. (h) Joint and Several Liability. The liabilities of Tenant under this --------------------------- Lease are joint and several. 31. Force Majeure. In any case where Landlord is required to perform any ------------- act pursuant to this Lease, the time for the performance thereof shall be extended by a period of time equal -17- to the period of any delay caused by or resulting from an act of God; war; civil commotion; fire or other casualty; labor difficulties; shortages of energy, labor, materials, or equipment; government regulations; or delays caused by Tenant to Landlord, whether such period be designated by a fixed date, a fixed time, or as a reasonable date or time. 32. Landlord's Additional Rights. In addition to all other rights that the ---------------------------- Landlord has under this Lease and applicable law, and not by way of limitation, Landlord shall have the following rights: (a) Without unreasonably interfering with Tenant's business, to decorate and to make inspections, repairs, alterations, additions, changes or improvements, whether structural or otherwise, in and about the Building, or any part thereof. To enter upon the Leased Premises for such purposes and, during the continuance of any such work, to temporarily close doors, entryways, common and public areas, and corridors in the Building; to interrupt or temporarily suspend Building services and facilities; and to change the arrangement and location of entrances or passageways, doors and doorways, corridors, elevators, stairs, restrooms or other public or common areas of the Building (provided, however, that any such changes to the Leased Premises shall not render it inaccessible); (b) To take such reasonable measures as Landlord deems advisable for the security of the Building and its occupants, including without limitation searching all persons entering or leaving the Building; evacuating the Building for cause, suspected cause, or for drill purposes; temporarily denying access to the Building; and closing the Building after normal business hours and on Saturdays, Sundays, and holidays, subject, however to Tenant's right to enter when the Building is closed after normal business hours under such reasonable regulation as Landlord may prescribe from time to time which may include by way of example, but not of limitation, that persons entering or leaving the Building, whether or not during normal business hours, identify themselves to a security officer by registration or otherwise and that such persons establish their right to enter or leave the Building; and (c) To change the name by which the Building is designated. 33. Relocation. Intentionally Omitted. ---------- 34. Parking. Landlord agrees to take all reasonable action to obtain two (2) ------- parking spaces for Tenant's clients in the parking lot maintained by Fleet behind the Building. In the event Landlord or a related entity acquires surface parking to serve 511 Congress Street, or constructs additional parking -18- garages or additions to garages near 511 Congress Street, Landlord agrees to endeavor, in good faith, to make parking for Tenant's staff available in such lot or garage. 35. Satellite Antenna Dish. Tenant shall have the option, at its sole cost ---------------------- and expense, to install and operate a satellite antenna dish and cables thereto on the roof of the Building. Landlord reserves the right to prior approval of the location of its placement on the roof. Tenant is solely responsible for the operation, maintenance and repair of the satellite dish and Tenant will repair, at its own cost, any damage to the roof or Building resulting from said installation or operation. If practical, Tenant agrees to install its satellite antenna dish in a manner that does not require penetration of the roof of the Building. 36. Waiver of Jury Trial. Landlord and Tenant waive the right to a trial by -------------------- jury in any action or proceeding based upon, or related to, the subject matter of this Lease. This waiver is knowingly, intentionally, and voluntarily made by Tenant and Tenant acknowledges that neither Landlord nor any person acting on behalf of Landlord has made any representations of fact to induce this waiver of trial by jury or in any way to modify or nullify its effect. Tenant further acknowledges that it has been represented (or has had the opportunity to be represented) in the signing of this Lease and in the making of this waiver by independent legal counsel, selected of its own free will, and that it has had the opportunity to discuss this waiver with counsel. Tenant further acknowledges that it has read and understands the meaning and ramifications of this waiver provision and as evidence of this fact signs its initials. ________________________________________ Initials of Tenant or Tenant's Authorized Representative IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease Agreement as an instrument under seal as of the day and year first above-written. WITNESS: OCTOBER CORPORATION "LANDLORD" ______________________________________ By: /s/ Owen W. Wells ------------------------------- Owen W. Wells ------------------------------- (printed name) Its: Clerk ------------------------------- -19- ACADIA TRUST, N.A. "TENANT" ___________________________________ By: _____________________________ _____________________________ (printed name) Its:_________________________ GOUWS CAPITAL MANAGEMENT, INC. "TENANT" ___________________________________ By: _____________________________ _____________________________ (printed name) Its:_________________________ -20- EXHIBIT A [FLOOR PLAN OF FLEET PLAZA CONGRESS STREET PORTLAND, MAINE EIGHT FLOOR] EXHIBIT A [FLOOR PLAN OF FLEET PLAZA CONGRESS STREET PORTLAND, MAINE] EXHIBIT "B" TENANT BUILD OUT ---------------- 1. Except as set forth in this Exhibit, Tenant accepts the Leased Premises in their "as is" condition on the date of this Lease. 2. Prior to commencement of construction, Tenant shall provide to Landlord for Landlord's approval final working drawings, prepared by an architect that has been approved by Landlord (which approval shall not unreasonably be withheld), of all improvements that Tenant proposes to install in the Premises; such working drawings shall include the partition layout, ceiling plan, electrical outlets and switches, telephone outlets, drawings for any modifications to the mechanical and plumbing systems of the Building, and detailed plans and specifications for the construction of the improvements called for under this Exhibit in accordance with all applicable government laws, codes, rules and regulations. Further, if any of Tenant's proposed construction work will affect the Building's HVAC, electrical, mechanical, or plumbing systems, then the working drawings pertaining thereto shall be prepared by the Building's engineer of record, if any, whom Tenant shall at its cost engage for such purpose. Landlord's approval of such working drawings shall not be unreasonably withheld, provided that (a) they comply with all applicable governmental laws, codes, rules, and regulations, and (b) such working drawings are sufficiently detailed to allow construction of the improvements in a good and workmanlike manner. As used herein, "Working Drawings" shall mean the final working drawings approved by Landlord, as amended from time to time by any approved changes thereto, and "Work" shall mean all improvements to be constructed in accordance with and as indicated on the Working Drawings. Approval by Landlord of the Working Drawings shall not be a representation or warranty of Landlord that such drawings are adequate for any use, purpose, or condition, or that such drawings comply with any applicable law or code, but shall merely be the consent of Landlord to the performance of the Work. Tenant shall, at Landlord's request, sign the Working Drawings to evidence its review and approval thereof. All changes in the Work must receive the prior written approval of Landlord, and in the event of any such approved change Tenant shall, upon completion of the Work, furnish Landlord with an accurate, reproducible "as-built" plan of the improvements as constructed, which plan shall be incorporated into this Lease by this reference for all purposes. 3. The Work shall be performed only by reputable contractors and subcontractors approved in writing by Landlord, which approval shall not be unreasonably withheld. All contractors and subcontractors shall be required to procure and maintain insurance against such risks, in such amounts, and with such companies as Landlord may reasonably require. Certificates of such insurance, with paid receipts therefor, and copies of such bonds must be received by Landlord before the Work is commenced. The Work shall be performed in a good and workmanlike manner that is free of defects and is in strict conformity with the Working Drawings, and shall be performed in such a manner and at such times as to maintain harmonious labor relations and not to interfere with or delay Landlord's other contractors, the operation of the Building, and the occupancy thereof by other Tenants. All contractors and subcontractors shall contact Landlord and schedule time periods during which they may use Building facilities in connection with the Work. 4. Regardless of whether the Leased Premises are ready for occupancy and the Work is substantially completed by November 1, 1995, Tenant's obligation to pay rent under the Lease shall commence November 1, 1995. 5. Except for the installation, by Landlord, in the Leased Premises of (i) a full sprinkler system and (ii) a two-way communications system, as required by law, to all areas of refuge constructed by Tenant, which installation shall be performed by Landlord at its sole expense, Tenant shall bear the entire cost of performing the Work (including, without limitation, design of the Work and preparation of the Working Drawings, costs of construction labor and materials, electrical usage during construction, additional janitorial services, general Tenant signage, related taxes and insurance costs, all of which costs are herein collectively called the "Total Construction Costs") in excess of the ------------------------ Construction Allowance, if any. 6. Landlord shall provide to Tenant a construction allowance (the "Construction Allowance") for up to, but not more than, $400,000 for hard cost ---------------------- improvements to the Leased Premises upon presentation of invoice and up to $30,000 for costs of architectural services. -2- EXHIBIT "C" BUILDING RULES AND REGULATIONS The following rules and regulations shall apply to the Leased Premises and the Building: 1. Sidewalks, doorways, vestibules, halls, stairways, and other similar areas shall not be obstructed by tenants or used by any tenant for purposes other than ingress and egress to and from their respective leased premises and for going from one to another part of the Building. 2. Plumbing, fixtures and appliances shall be used only for the purposes for which designed, and no sweepings, rubbish, rags or other unsuitable material shall be thrown or deposited therein. Damage resulting to any such fixtures or appliances from misuse by a tenant or its agents, employees or invitees, shall be paid by such tenant. 3. No signs, advertisements or notices shall be painted or affixed on or to any windows or doors or other part of the Building without prior written consent of Landlord. No nails, hooks or screws shall be driven or inserted in any part of the Building except by Building maintenance personnel. No curtains or other window treatments shall be placed between the glass and the building standard window treatments. 4. Landlord shall provide and maintain a directory for all tenants in the main lobby of the Building. Landlord shall provide and install, at tenant's cost, all letters and numerals on the door or doors to the tenants' premises. All such letters and numerals shall be in building standard graphics and no other graphics shall be used or permitted in connection with the tenant's premises unless approved in writing by Landlord. 5. Landlord shall provide all door locks in each tenant's leased premises, at the cost of such tenant, and no tenant shall place any additional door locks or replace or rekey any locks in its leased premises without Landlord's prior written consent. Landlord shall furnish to each tenant a reasonable number of keys to such tenant's leased premises, at such tenant's cost, and no tenant shall make a duplicate thereof. 6. Movement in or out of the building of furniture or office equipment, or dispatch or receipt by tenants of any bulky material, merchandise or materials which require use of elevators or stairways, or movement through the Building entrances or lobby shall be conducted under Landlord's supervision at such times and in such a manner as Landlord may reasonably require. Each tenant assumes all risks of and shall be liable for all damage to articles moved and injury to persons engaged or not engaged in such movement, including equipment, property and personnel of Landlord if damaged or injured as a result of acts in connection with carrying out this service for such tenant. 7. Landlord may prescribe weight limitations and determine the locations for safes and other heavy equipment or items, which shall in all cases be placed in the Building so as to distribute weight in a manner acceptable to Landlord which may include the use of such supporting devices as Landlord may require. All damages to the Building caused by the installation or removal of any property of a tenant, or done by a tenant's property while in the Building, shall be repaired at the expense of such tenant. 8. Corridor doors, when not in use, shall be kept closed. Nothing shall be swept or thrown into the corridors, halls, elevator shafts or stairways. No birds or animals shall be brought into or kept in, on or about any tenant's leased premises. No portion of any tenant's leased premises shall at any time be used or occupied as sleeping or lodging quarters. 9. Tenant shall cooperate with Landlord's employees in keeping its leased premises neat and clean. Tenants shall not employ any person for the purpose of such cleaning other than the Building's cleaning and maintenance personnel. 10. To ensure orderly operation of the Building, no ice, mineral or other water, towels, newspapers, etc. shall be delivered to any leased premises except by persons approved by Landlord. 11. Tenant shall not make or permit its officers, employees, agents, invitees and visitors to make, any improper, objectionable or unpleasant noises or odors in the Building or otherwise create any nuisance, annoy, disturb or interfere in any way with, other tenants or persons having business with them. 12. No machine of any kind (other than normal office equipment) shall be operated by any tenant in its leased premises without Landlord's prior written consent, nor shall any tenant use or keep in the Building any flammable or explosive fluid or substance. 13. Landlord will not be responsible for lost or stolen personal property, money or jewelry from tenant's leased premises or public or common areas, regardless of whether such loss occurs when the area is locked against entry or not. 14. No vending or dispensing machines of any kind may be maintained in any leased premises without the prior written permission of Landlord, nor shall tenant operate a kitchen, -2- cafeteria or other eating establishment, except for occasional catered business receptions, nor perform any cooking or food preparations on the leased premises; provided that tenant may operate a coffee bar on the leased premises which may include a microwave oven. 15. All mail chutes located in the Building shall be available for use by Landlord and all tenants of the Building according to the rules of the United States Postal Service. 16. For purposes of the Building, normal business hours will be from 8:00 a.m. to 6:00 p.m., Monday through Friday, and 9:00 a.m. through 1:00 p.m. on Saturday. Heating or air conditioning service at hours other than normal business hours must be requested in writing as provided in the Lease, and shall be paid for by the Tenant. 17. Tenant shall provide at least one (1) Class ABC type fire extinguisher, for each 3,000 square feet of space, and one (1) per floor otherwise. 18. Landlord shall have the right to make such further rules and regulations for the Building as it deems necessary and agrees to use its good faith efforts to enforce these rules against all tenants of the Building. -3- MEMORANDUM OF LEASE ------------------- Notice is hereby given of the following Lease: LANDLORD: October Corporation, a Maine corporation with a mailing address c/o Boulos Property Management, One City Center, Portland, ME 04101 TENANT: Acadia Trust, N.A., a national association, and Gouws Capital Management, Inc., a Maine corporation, with a place of business at 511 Congress Street, Portland, Maine 04101. DATE OF EXECUTION: August 21, 1995 LEASED PREMISES: All of the 9th floor and a portion of the 8th floor in the office building known and numbered as 511 Congress Street, Portland, Maine and outlined on Exhibit A attached hereto. TERM OF LEASE: 123 months, commencing August 1, 1995. RIGHT OF FIRST REFUSAL: Tenant shall have the right of first offer for the remaining space on the 8th floor. RIGHT TO RENEW OR EXTEND: None OPTION TO PURCHASE: None The parties hereto further expressly acknowledge that this Memorandum of Lease is being executed pursuant to the provisions of the Lease, and is not intended to vary the terms or conditions of the Lease. Executed as a sealed instrument as of this 21st day of August, 1995. WITNESS: OCTOBER CORPORATION LANDLORD _____________________________________ By: /s/ Owen W. Wells -------------------------------- Owen W. Wells Its: Clerk ---------------------------- ACADIA TRUST, N.A. TENANT _____________________________________ By: _______________________________ Printed Name: _____________________ Its: ______________________________ GOUWS CAPITAL MANAGEMENT, INC. _____________________________________ By: _______________________________ Printed Name: _____________________ Its: ______________________________ STATE OF MAINE COUNTY OF CUMBERLAND, SS August 21, 1995 Then personally appeared the above-named Owen W. Wells and acknowledged the foregoing instrument to be his free act and deed in his said capacity and the free act of deed of said Landlord. Before me, /s/ Bruce E. Leddy ----------------------------------- Attorney-at-Law Printed Name: Bruce Leddy ---------------------- STATE OF MAINE COUNTY OF CUMBERLAND, SS August ___, 1995 Then personally appeared the above-named ___________________________, as ______________________________ of Acadia Trust, N.A., and acknowledged the foregoing instrument to be his free act and deed in his said capacity and the free act of deed of said Tenant. Before me, ______________________________ Notary Public/Attorney-at-Law Printed Name:_________________ -2- STATE OF MAINE COUNTY OF CUMBERLAND, SS August _____________, 1995 Then personally appeared the above-named ___________________________, as ______________________________ of Gouws Capital Management, Inc., and acknowledged the foregoing instrument to be his free act and deed in his said capacity and the free act of deed of said Tenant. Before me, ______________________________ Notary Public-Attorney-at-Law Printed Name:_________________ -3- EX-10.10 4 dex1010.txt LEASE AGREEMENT FOR CNB BRANCH IN PORTLAND, MAINE Exhibit 10.10 Lease Agreement for CNB branch in Portland, Maine --------------------------------------------------------------- LEASE AGREEMENT CERTAIN TERMS AND DEFINITIONS Tenant: Camden National Bank Landlord: Milk Street Associates, LLC Lease: This Lease Agreement between Tenant and Landlord dated as of July 24, 2001. Building: 5 Milk Street and its walkways, parking lots, or landscaped areas. Premises: East corner entry level, described on Exhibit A hereto. Term: Five (5) years beginning on August 15, 2001 (the "Commencement Date"). Base Rent: Twenty-Seven Thousand Four Hundred Ninety-Six & 50/100 Dollars ($27,496.50) per year, payable in equal monthly installments of Two Thousand Two Hundred Ninety-One & 38/100 Dollars ($2,291.38), to be increased annually as provided herein. Security Deposit: None Required Proportionate Share: 9.49%. Monthly Charges: The Base Rent payable on the first of each month during the Term. Rents: All payments by Tenant called for in the Lease, including Monthly Charges and Tenant's Proportionate Share of increases in Real Estate Taxes over Base Year Real Estate Taxes. RENTS; SECURITY DEPOSIT; SURRENDER ON TERMINATION 1.1 Lease of Premises; Rent. Landlord hereby rents and Tenant hereby leases ----------------------- from Landlord the Premises for the Term and on the other terms and conditions provided in this Lease. Tenant covenants and agrees to pay Monthly Charges to Landlord in monthly installments, in advance without demand, notice, or setoff on the first day of each month during the Term. 1.2 Annual Adjustments to Monthly Charges. Beginning on the first anniversary ------------------------------------- of the Commencement Date and on each succeeding anniversary thereafter, the Monthly Charges then in effect shall be increased by the annual percentage increase of the Boston CPI-W (or its successor index) between the two most recent months of May preceding each such adjustment. 1 1.3 Increases in Real Estate Taxes. Landlord shall pay to the municipality all ------------------------------ Real Estate Taxes with respect to the Building and the Premises during the Term. `Real Estate Taxes' means the total of all taxes, general and special, ordinary and extraordinary, foreseen or unforeseen, including water and sewer taxes, assessments for public improvements and public services, that are assessed, levied or imposed with respect to the Building, including personal property to the extent that all elevators, air conditioning equipment, or similar building appurtenances for the use and benefit of the occupants of the building are classified as real estate for tax purposes. Tenant covenants and agrees to pay or cause to be paid to Landlord, as additional Rents, Tenant's Proportionate Share of the increase in Real Estate Taxes over Base Year Real Estate Taxes, notwithstanding the reason for or the cause, nature or character of such increases, with payment made by the later of (i) 15 days before such taxes are due and payable or (ii) within 15 days after Landlord shall have delivered to Tenant a statement setting forth Tenant's Proportionate Share of the increase in Real Estate Taxes for any particular tax period or portion thereof. `Base Year Real Estate Taxes' means $18,251.49 per one-half of a tax year. 1.4 Accounting for Rents Received; Late Payment Charge. All payments received -------------------------------------------------- from Tenant shall be applied to the oldest outstanding charges first. Landlord may charge as a late payment charge three percent (3%) of any payment herein required to be paid by Tenant which is more than five (5) days late. 1.5 Intentionally Deleted. --------------------- 1.6 Surrender on Lease Termination. On expiration of the Term or sooner ------------------------------ termination of the Lease, Tenant shall surrender the Premises to Landlord, broomclean, free of subtenancies, and in good condition and repair, reasonable wear and tear only excepted. 1.7 Intentionally Deleted. TENANT'S RIGHTS AND OBLIGATIONS So long as Tenant pays the Rents reserved by this Lease and performs and observes all the covenants and provisions hereof, Tenant shall quietly enjoy the Premises without hindrance by or from Landlord. Tenant understands that Landlord will be making improvements, alterations and repairs to the Building and portions thereof from time to time. 2.1 Use. Tenant shall use the Premises only for a branch bank for Camden --- National Bank. Tenant acknowledges its awareness that another tenant in the Building is a direct competitor of Acadia Trust/Gouws Capital Management (affiliates of Tenant hereinafter referred to as "Acadia"). Tenant acknowledges that neither Tenant's exterior signage nor any window signage at the Building may include reference to Acadia. Tenant may provide marketing materials related to Acadia to customers of Camden National Bank and its affiliates at the Premises and may conduct incidental Acadia business with such customers at the Premises as a convenience to such customers, but Tenant may not hold out the Premises to the public as an Acadia office. 2 2.2 Compliance with laws. Tenant shall comply with any law, ordinance and -------------------- regulation, federal, state, county or municipal, now or hereafter in force, applicable to the Building or Premises relating to use or occupancy thereof. Tenant shall secure all necessary licenses and permits for the conduct of Tenant's business at its own expense. 2.3 Payment of personal property taxes. Tenant shall pay all personal property ---------------------------------- taxes, including inventory taxes, levied or assessed relating to the personal property and trade fixtures on the Premises belonging to Tenant or persons, firms or corporations other than Landlord. 2.4 No waste. Throughout the Term, Tenant shall keep the Premises, and the -------- appliances, improvements and fixtures therein, including but not limited to all glass, lighting fixtures and lamping, in good order and repair and in clean, safe, and sanitary conditions, reasonable wear and tear only excepted, subject to damage by fire, taking and insured casualty. All injury or damage to the Building or the Premises caused by Tenant or its agents, employees and invitees shall be repaired or replaced with materials of the same quality. 2.5 No Assignment or Subletting. Tenant shall not sublet, pledge, encumber or --------------------------- assign this Lease without the prior written consent of Landlord on each occasion, which consent shall not be unreasonably withheld or delayed; any sublet, pledge, encumbrance or assignment without Landlord's consent shall be null and void. For a period of thirty days following receipt by Landlord of a request for the written consent to a subletting or assignment, Landlord shall have the right, exercisable by sending written notice to Tenant, to sublet or assign the same area to another at the lesser of the Base Rent stated in this Lease or the rate proposed in Tenant's sublet; upon Landlord's exercise of such right, Tenant shall be relieved of further liability arising under the Lease after the commencement date of the substitute tenant's term. In the event Landlord waives its right or lets thirty days pass, Tenant may sublet or assign such space upon the prior written consent of Landlord. Landlord's consent shall be deemed reasonably withheld if, without limitation, (i) the proposed assignment, sublease or other transfer would be for the conduct of a business which is not in keeping with the quality standards for tenants of the Building, or (ii) Tenant's proposed assignee, sublessee or other transferee is not, in Landlord's reasonable judgment, financially creditworthy, or (iii) Tenant is in default under this Lease, or (iv) Tenant's proposed assignee, sublessee or other transferee has failed or refused to agree to perform and observe all the terms, provisions, conditions and covenants of this Lease, or (v) Tenant's proposed assignee, sublessee or other transferee would burden the common areas and facilities to a greater extent than does Tenant or would require more or additional services, or ( vi) use by the proposed assignee, sublessee or other transferee would require structural changes to the Building or the Premises, or (vii) Tenant's proposed assignee, sublessee or other transferee is a governmental agency. 2.6 Restrictions. Tenant covenants and agrees as follows, not to: ------------ (i) Injure or deface the Premises or Building. 3 (ii) Place a load upon any floor of the Premises in excess of 50 pounds live load per square foot or in violation of what is allowed by law. (iii) Move heavy equipment, freight or heavy fixtures in or out of the Building except at such times and in such manner as Landlord shall designate after written request from Tenant. (iv) Serve food or drink to the public, permit loud or live music to be played in or about the Premises, or permit loud noises, offensive odors, or excessive vibrations that unreasonably interfere with the quiet and peaceful use and possession of the Building by other tenants, without the written consent of Landlord, which consent may be withheld for any reason. Tenant shall place and maintain business machines and mechanical equipment in such settings as will most effectively reduce noise and vibration. (v) Permit any person or firm not directly affiliated with Tenant to maintain a business location or a mailing address in, on or about the Premises. (vi) Permit the use of the Premises for any purpose other than set forth herein or put them to a use that may invalidate or increase the premiums for any insurance on the Building, its contents or other tenants, or which may require any alterations to the Building. Without waiving Tenant's obligation herein, if as the result of Tenant's conduct of its business Landlord or another tenant of the Building suffers an increase in the cost of such insurance premiums, Tenant shall immediately pay to the party suffering such increase the amount of such increase; but in no event shall such payment abrogate or waive Tenant's obligations under this subsection. (vii) Permit any pets on or about the Premises without the prior written consent of Landlord, which consent may be withheld for any reason. (viii) Receive, handle, use, store, treat, ship or dispose on, at, under or about the Premises or release therefrom any Hazardous Substance and shall defend and save Landlord harmless from any and all losses, claims, liabilities, judgments, damages (including exemplary or punitive), penalties, expenditures, costs and legal or other expenses which Landlord may suffer or incur as a direct or indirect result of Tenant's breach of this covenant. "Hazardous Substance" for purposes of the Lease shall mean any material, the generation, storage, handling or disposal of which is regulated by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq. or by the Maine Uncontrolled Hazardous Substance Sites Act, 38 M.R.S.A. Section 1361 et seq., as either may be amended or extended from time to time. LANDLORD'S RIGHTS AND OBLIGATIONS 3.1 Finishes. Landlord shall finish the Premises in accordance with the -------- provisions set forth under "Tenant Improvements" in Exhibit B attached hereto and made a part hereof. Tenant acknowledges that Tenant has inspected the Building and Premises, found them to be in satisfactory condition and repair and agrees to accept the Premises in "as-is" condition, except for the obligations which Landlord has agreed to undertake as set forth in Exhibit B. If the Premises are not substantially complete at the commencement of the Term through no fault of Tenant, Rents shall be abated until Landlord has substantially completed its work as set forth in Exhibit B. 4 3.2 Services. So long as Tenant is not in default under any of the provisions -------- of this Lease, Landlord shall furnish the following services: MSA Heat and air conditioning to maintain the Premises at comfortable temperatures, except as otherwise required by law, executive order, rule or other regulation, during the regular business hours of the business day. Cold water in Premises bathroom for ordinary lavatory and toilet facilities (hot water to be provided by hot water heater at the Premises wired to Tenant's CMP meter). Cleaning and maintenance services for the exterior area of the Building and the common areas equal in scope, quality, and frequency to that provided in office and retail buildings in the City of Portland. Snow removal from sidewalks, parking lots, loading areas and access areas between parking lots and the Premises. Maintenance and repair of the roof, exterior walls, land areas, structure, heating, air conditioning and plumbing systems, primary electrical system (excluding electrical outlets and other electrical equipment installed by Tenant) and common areas and common facilities of the Building as necessary to maintain them in good order and condition; provided, however, that any such maintenance or repairs made necessary by the fault or neglect of Tenant or the employees, agents and invitees of Tenant shall be at the expense of Tenant, and any such maintenance or repairs of any equipment installed by or at the direction of Tenant or its employees or agents shall be at the expense of Tenant. Landlord shall not be liable to anyone for incidental or consequential damages for failure or interruption of the services described in the Lease due to accident, making repairs, alterations or improvements, labor difficulties, inability to obtain fuel, electricity, service or supplies from sources from which they are usually obtained for the Building, or any cause beyond the reasonable control of Landlord. No such failure or interruption shall be construed as an eviction of Tenant, nor work an abatement of any of the Rents, nor relieve Tenant from Tenant's obligations under this Lease. 3.3 Rights. Landlord reserves the right to: ------ (i) install and maintain a sign or signs on the exterior of the Building. All Tenant signage will be subject to the reasonable approval of Landlord; (also see Section 2.1). (ii) name the Building and to change the name or street address of the Building after reasonable notice to Tenant. (iii) restrict and control in a reasonable manner all sources from which Tenant may obtain maintenance services for the Premises and any service in or to the Building and its tenants. (iv) if Tenant has already vacated the Premises, decorate, remodel, repair, alter or otherwise prepare the Premises for reoccupancy during the last ninety (90) days of the Term, without affecting Tenant's obligation to pay Rents. (v) Landlord shall not retain keys to the Premises; Tenant agrees to pay immediately the cost to repair damage caused by forced entry to the Premises by Landlord or its agents in the event that Landlord reasonably believes an emergency condition exists at the Premises and Landlord is unable to gain access to the Premises through Tenant within 5 what Landlord deems a reasonable period at the time of the real or perceived emergency. Tenant shall not modify any locks to the Premises, other than rekeying, without the prior consent of Landlord. (vi) enter the Premises at reasonable times (1) to examine, inspect and maintain the Building, install equipment and make improvements, (2) in so doing, to temporarily suspend operation of entrances, corridors, elevators and other facilities, but in such a manner as to cause the least inconvenience practicable, and (3) to show the Premises to prospective purchasers and mortgagees, and to show the Premises to prospective tenants during the three months preceding the expiration of this Lease. Landlord may enter upon the Premises and exercise any and all of Landlord's rights without being deemed guilty of an eviction or disturbance of Tenant's use or possession and without being liable in any manner to Tenant. (vii) promulgate from time to time and enforce reasonable rules and regulations for the use and the occupancy of the Building by the tenants, and Tenant agrees to comply with such rules and regulations. ALTERATIONS; EQUIPMENT; PERSONAL PROPERTY 4.1 Alterations. Tenant shall not make any alterations or additions, including ----------- but not limited to wall coverings, floor coverings and special light installations, or permit the making of any holes in any part of the Building, or paint or place any signs, curtains, shades, awnings, aerials or flagpoles or the like which are visible from outside of the Premises, without on each occasion obtaining prior written consent of Landlord. Tenant shall procure all necessary permits before undertaking any improvements, do all of such work in a good and workmanlike manner, employing material of good quality, comply with all governmental requirements, and promptly pay when due the entire cost of any work performed on its behalf. Tenant shall not permit any mechanics' or other liens to be placed on the Premises. Tenant covenants and agrees to indemnify and hold harmless Landlord for any and all charges, expenses, claims and liens of any nature (including payment of reasonable attorney's fees to enforce this provision) and any and all liability arising out of or in connection with any improvements, changes, or additions made by or on behalf of Tenant, or any lien arising thereby. Any alteration, addition or improvement made by Tenant and any fixtures installed as a part thereof, except movable trade fixtures, shall at Landlord's option become the property of Landlord upon the expiration or other sooner termination of this Lease; provided, however, that Landlord shall have the right to require Tenant to remove such fixtures at Tenant's expense. Landlord is aware of Tenant's interest in installing a night deposit box at the Premises and agrees to work with Tenant to try to find a suitable installation for such night deposit, consistent with the design, construction, use, appearance and historic nature of the building. 4.2 Equipment and Movable Trade Fixtures. Tenant may install equipment and ------------------------------------ movable trade fixtures necessary to carry on its business on the Premises. All such equipment and movable trade fixtures shall remain the personal property of Tenant, and shall be removed by Tenant at any time before the end of the Term, and Tenant shall promptly repair at its own expense any damage to the Premises by reason of such removal. Landlord may require reasonable security from 6 Tenant before commencement of any such removal. Unless Tenant and Landlord have otherwise previously agreed, any personal property of Tenant left in the Premises after the Lease term shall be deemed abandoned, and Landlord may have such personal property removed and disposed of in Tenant's name and at Tenant's expense. INSURANCE; INDEMNIFICATION; CASUALTY; DAMAGE 5.1 Insurance. Throughout the Term, Tenant shall maintain for the mutual --------- benefit of Landlord and Tenant comprehensive general liability insurance (with broadened liability endorsement) with a combined limit of not less than $1,000,000 and shall keep the contents of the Premises insured against loss or damage by fire and any of the casualties included in All Risk insurance coverage in an amount not less than the full insurable value thereof. All insurance policies shall be placed with recognized insurers qualified to do business in the State of Maine, shall name Tenant, Landlord and Landlord's managing agent, if any, as insureds as their respective interests may appear, shall contain such language as appropriate to avoid the effect of the co-insurance provisions of such policies, and shall contain an agreement by the insurers that such policies shall not be cancelled without at least ten (10) days prior written notice to Landlord. Landlord shall be provided with copies of all policies. 5.2 Release. Landlord and Tenant each hereby release each other from liability ------- for damage to property of the other to the extent of insurance required to be maintained hereunder occurring at the Premises or the Building, or in any manner growing out of or connected with Tenant's or Landlord's use and occupation of the Premises and Building, or the condition thereof, whether or not caused by the negligence or other fault of Landlord or Tenant or of their respective agents, employees, subtenants, licensees, or assignees. 5.3 Indemnification. Tenant covenants and agrees forever to save and hold --------------- Landlord and its managing agent harmless from and against all claims for damage to or loss of property, and all claims for injuries to or death of persons, in or about the Premises caused by the negligence, or willful act or omission of Tenant, or its agents, employees, invitees or guests, and/or resulting from Tenant's failure to observe or comply with any of Tenant's obligations undertaken in this Lease; including without limitation all costs of defending against such claims and in enforcing this indemnity provision, including reasonable attorneys' fees for such purposes. The minimum insurance limits above shall not be deemed to limit or restrict in any way Tenant's liability ensuing under or out of this Lease. 5.4 Casualty. If the Premises or the Building or any part of either shall be -------- damaged by fire or other casualty, rendering either untenantable in whole or in part, then this Lease shall terminate at the election of Landlord. If Landlord shall elect not to terminate this Lease then Landlord shall cause the Premises or the Building to be put in proper condition for use and occupation and during such period the Rents shall be reduced in proportion to the extent the Premises are rendered untenantable; provided, however, that Landlord's obligation to put the Premises or the Building in proper condition for use and occupation shall be limited to the amount of net proceeds from any insurance policy or policies. 7 Notwithstanding the above, if Landlord shall not have returned the Premises to substantially the same condition as prior to the casualty within 120 days of the casualty, then Tenant shall have the right to terminate the Lease on 7 days advance notice to Landlord, unless the Premises shall be returned to substantially the same condition as prior to the casualty within such 7 day period. 5.5 Condemnation. If the Premises or the Building or any part of either shall ------------ be taken by the exercise of the right of eminent domain then this Lease shall terminate at the election of Landlord. If Landlord shall elect not to terminate this Lease and a substantial portion of the Premises is taken, Tenant may elect to terminate this Lease upon thirty (30) days written notice to Landlord. If neither party terminates, Landlord shall put the Premises or Building in proper condition for use and occupation and during such period the Rents shall be reduced in proportion to the extent the Premises are rendered untenantable; provided, however that Landlord's obligation to put the Premises or Building in proper condition for use and occupation shall be limited to the amount of net proceeds from the receipts of the condemnation. Landlord hereby reserves and Tenant hereby assigns to Landlord, all rights to recovery for damages to the Premises or the Building and the leasehold interest hereby created, and to compensation accrued or hereafter to accrue by reason of any taking or condemnation. Nothing contained herein shall be deemed or construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for relocation expenses, provided that such action shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority. If Landlord shall not have returned the Premises to substantially the same condition as prior to the condemnation within 120 days of the effective date of the condemnation, then Tenant shall have the right to terminate the Lease on 7 days advance notice to Landlord, unless the Premises shall be returned to substantially the same condition as prior to the effective date of the condemnation within such 7 day period. 5.6 Liability For Damage to Personal Property and Person. All personal ---------------------------------------------------- property of Tenant, its employees, agents and invitees in the Premises or Building shall be and remain at their sole risk. Landlord shall not be liable for any damage to or loss of such personal property arising from any willful or negligent act or omission of any person, or from any cause other than any damage or loss resulting directly from the negligence of Landlord. Landlord shall not be liable for any interruption or loss to Tenant's business, and shall not be liable for any personal injury to Tenant, its employees, agents, or invitees, arising from the use, occupancy and condition of the Premises or Building other than from the willful or negligent act of Landlord. Notwithstanding the foregoing, Landlord shall not be liable to Tenant for any loss or damage to personal property, or injury to person, whether or not the result of Landlord's negligence, to the extent that Tenant is compensated therefor by Tenant's insurance. DEFAULT AND REMEDIES 6.1 Tenant's Default. It shall be an event of default if: ---------------- 8 (i) Tenant shall fail to pay any installment of any Rents within five (5) calendar days after written demand, provided that no such demand shall be required if at least two such demands have been given within one calendar year of the due date of the most recent unpaid installment of Rents, (ii) Tenant shall default in the faithful observance or performance of any other covenant to be performed or observed by Tenant under this Lease for ten (10) or more calendar days after Landlord shall give to Tenant notice of such default and a demand to cure the same, (iii) the Premises shall be abandoned or vacated by Tenant, or the estate hereby created shall be taken by process of law, or (iv) there shall be filed by or against Tenant a petition under any Chapter or Chapters of the Bankruptcy Code of the United States or any other insolvency proceeding relating to the debts of Tenant shall be brought by or against Tenant, or Tenant shall make an assignment for the benefit of creditors, or shall be insolvent or unable to pay its debts as they mature or a receiver shall be appointed for Tenant or any substantial part of its property. 6.2 Remedies. Upon Tenant's default, Landlord may: -------- (1) terminate the Lease by written notice to Tenant; (2) re-enter and repossess any or all of the Premises; (3) declare the entire balance of the Rents for the remainder of the Term to be due and payable immediately, and collect such balance in any lawful manner (accelerated payments hereunder shall constitute payment of Rents in advance and not a penalty or forfeiture or liquidated damages); (4) relet all or a portion of the Premises for all or a portion of the Term either in Landlord's own name or as agent for Tenant and collect and receive the rents therefor; (5) collect Rents directly from any subtenant or assignee; or (6) pursue any combination of such remedies and/or any other right or remedy available to Landlord on account of such event of default under this Lease or at law or in equity. In the event of reletting, Tenant shall have no right to any surplus which may be derived by Landlord from any such reletting. Tenant hereby grants Landlord the right, after Tenant's default, to relet on such terms and conditions as are acceptable to Landlord in its sole and absolute discretion (including offering concessions or incentives such as free rent or tenant fit-up), and Tenant acknowledges that its obligation under the Lease shall not be diminished by any concessions or incentives in the form of free rent or otherwise either offered or refused to be offered by Landlord. Anything in this Lease or applicable law to the contrary notwithstanding, upon Tenant's default Landlord shall not have any duty or obligation to relet any or all of the Premises in lieu of other vacant space in Landlord's inventory, or any liability to Tenant or any other person for any failure to Lease the Premises or to collect any rent or other sum due from any such reletting. Landlord acknowledges its obligation to mitigate damages in its reletting activities. In the event that Rents have not been accelerated pursuant to (3) immediately above, upon reletting Tenant shall pay to Landlord (i) the installments of Rents accruing during the remaining Term, had this Lease not been terminated, less any monies received by Landlord with respect to such remainder from such reletting of any or all of the Premises, (ii) the cost to Landlord of any such reletting 9 (including, without limitation, any attorneys' fees, leasing or brokerage commissions, repair or improvement expenses and any other expenses in connection with such reletting), and (iii) any other sums for which the Tenant is liable under the Lease. Nothing herein contained shall limit or prejudice Landlord's right to prove for and obtain as damages, by reason of such termination, an amount equal to the maximum allowed by law. On the occurrence of an event of default, Tenant shall, immediately on its receipt of a written demand therefor from Landlord, reimburse Landlord for (a) all expenses (including, without limitation, any and all repossession costs, management expenses, operating expenses, legal expenses and attorneys' fees) incurred by Landlord (i) in curing or seeking to cure any event of default and/or (ii) in exercising or seeking to exercise any of the Landlord's rights and remedies under the provisions of this Lease or in law or equity on account of any event of default, and/or (iii) otherwise arising out of any event of default, plus (b) interest on all such expenses at New York base rate plus 3%, all of which expenses and interest shall be additional Rents and shall be payable by the Tenant immediately on demand therefor by the Landlord. Tenant hereby expressly waives, so far as permitted by law, the service of any notice of intention to re-enter provided for in any statute, and except as is herein otherwise provided, Tenant, for itself and all persons claiming through or under Tenant (including any leasehold mortgagee or other creditors), also waives any and all right of redemption or re-entry or repossession in case Tenant is dispossessed by a judgment or warrant of any court or judge or in case of re-entry or repossession by Landlord or in case of any expiration or termination of this Lease. The terms "enter," "re-enter," "entry," or "re-entry" as used in this Lease are not restricted to their technical legal meanings. 6.3 Landlord's Right to Cure. If Tenant defaults in making any payment or in ------------------------ doing any act required by this Lease, Landlord may, but shall not be required to make such payment or do such act, and the amount of the expense thereof, with interest thereon at the annual rate of fifteen percent (15%) from the date paid by Landlord, shall be payable with the next monthly installment of Rents. Landlord's payment in such case shall not be deemed to cure the default. MORTGAGE LENDER ISSUES 7.1 Subordination; Attornment. Landlord may at any time assign, encumber, ------------------------- pledge or hypothecate this Lease, which shall be subject and subordinate at all times to the lien of existing mortgages and of mortgages which hereafter may be made a lien on the Building or the Premises, provided that the holder of such mortgage enters into an agreement with Tenant by the terms of which such holder agrees not to disturb Tenant in its possession of the Premises so long as Tenant continues to perform its obligations hereunder and, in the event of acquisition of title by said holder through foreclosure proceedings or otherwise, to accept Tenant as Tenant of the Premises under the terms and conditions of this Lease. Although no instrument or act on the part of Tenant shall be necessary to effectuate such subordination, Tenant will, nevertheless, promptly execute and deliver such further instruments subordinating this Lease and Tenant's interests herein to the lien of any such mortgages as may be desired by the mortgagee (consistent with such mortgage holders non- 10 disturbance obligation to Tenant). If required by the mortgagee, Tenant shall agree not to prepay rent more than ten (10) days in advance, to provide said mortgagee with notice of and reasonable opportunity to cure any defaults by Landlord, and not to amend, modify or cancel this Lease without mortgagee's written consent, and Tenant agrees to recognize such holder or any other person acquiring title to the Premises as having the rights of Landlord and to attorn to said holder or other person if requested. 7.2 Estoppel Certificates. Tenant and Landlord agree, at any time and from time --------------------- to time, upon at least five (5) days prior written notice, to execute, acknowledge and deliver to Landlord or its mortgagee or to Tenant, as the case may be, a statement in writing (i) certifying that this Lease has been unmodified since its execution and is in full force and effect (or if there have been modifications, that this Lease is in full force and effect, as modified, and stating the modifications), (ii) stating the dates, if any, to which the Rents hereunder have been paid by Tenant, (iii) stating whether or not, to the knowledge of Tenant or Landlord, there are then existing any defaults under this Lease (and, if so, specifying the same), and (iv) stating the address to which notices to Tenant or Landlord should be sent. Any such statement delivered pursuant hereto may be relied upon by Tenant, Landlord or any prospective purchaser or mortgagee of the Building or any part thereof or estate therein. 7.3 Assignment of Rents. With reference to any assignment by Landlord of ------------------- Landlord's interest in this Lease, or the Rents payable hereunder, conditional in nature or otherwise, which assignment is made to the holder of a mortgage of the Premises, Tenant agrees: (i) that the execution thereof by Landlord, and the acceptance thereof by such holder, shall never be deemed an assumption by such holder of any of the obligations of Landlord hereunder, unless such holder shall, by written notice sent to Tenant, specifically otherwise elect; and (ii) that, except as aforesaid, such holder shall be treated as having assumed Landlord's obligations hereunder only upon foreclosure of such holder's mortgage or the taking of possession of the Premises. LIMITATION ON LIABILITY 8.1 Notwithstanding any other provisions of this Lease, Tenant agrees to look solely to Landlord's interest in the Building and any applicable insurance coverage of Landlord for recovery of any judgment from Landlord; it being agreed that Landlord is not personally liable for, and its other assets are not subject to, any such judgment. The provision contained in the foregoing sentence shall not limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or its successors, or any other action not involving the personal liability of Landlord. MISCELLANEOUS PROVISIONS 9.1 Joint Liability. If Tenant is more than one person or party, Tenant's --------------- obligations shall be joint and several. Unless repugnant to the context, "Landlord" and "Tenant" mean the person or persons, natural or corporate, named above as Landlord and Tenant respectively, and their respective heirs, executors, administrators, successors and assigns. 11 9.2 Non-Liability of Landlord's Agent. Tenant agrees that Landlord's property --------------------------------- manager (currently Fore River Management Company) is serving solely as Landlord's agent and shall not in any event be liable to Tenant for the fulfillment or non-fulfillment of any of the terms or conditions of this Lease or for any actions or proceedings that may be taken by Landlord against Tenant or by Tenant against Landlord. 9.3 Memorandum of Lease. Landlord and Tenant agree that this Lease shall not be ------------------- recordable. If Tenant desires, Landlord and Tenant shall enter into a Memorandum of Lease in recordable form, setting forth such terms as are necessary under the laws of Maine providing for the recording of memoranda of leases. 9.4 Holdover. (a) Any holdover by Tenant beyond the end of the Term provided -------- for elsewhere in the Lease shall be automatically deemed to be a renewal election made by Tenant and accepted by Landlord for a renewal term (and not a tenancy at will) of one month, unless Landlord shall have previously notified Tenant that the Lease shall terminate at the end of the Term otherwise specified under the Lease, in which case the Lease shall so terminate. During any renewal pursuant to this section, Rents shall be increased on the Commencement Date anniversary by the most recently reported year to year changes in the Boston CPI-W as provided in the Lease, and other terms and conditions of the Lease shall apply. Upon the commencement of any one month renewal term pursuant to this subsection, Landlord and Tenant shall be deemed to have agreed to additional consecutive one month renewal terms until either party shall terminate the Lease on a minimum of 30 and a maximum of 60 days advance notice given at any time to the other party, (which termination date need not be at the end of a one month renewal term). (b) Unauthorized Holdover. In the event that Tenant (or any subtenant or --------------------- other person occupying all or part of the Premises) fails to quit the Premises immediately upon the effective date of termination of the Lease, Tenant hereby covenants to save and hold Landlord harmless against all direct or consequential damages, costs or losses suffered by Landlord arising out of such failure to quit, including without limitation, all costs associated with Landlord's regaining of possession of the Premises, all costs, liability or loss of rents arising out of Landlord's inability or delay in commencing renovations or delivering the Premises to a new tenant, and Landlord's reasonable attorney's fees arising out of such failure to quit or in enforcing this indemnity provision. 9.5 Invalidity. If any provision of this Lease or its application to any person ---------- or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. 9.6 No Waivers. No acceptance by Landlord of a lesser sum than of the Rents ---------- then due shall be deemed to be other than on account of the earliest installment of such Rents due, nor shall any endorsement or statement on any check or any letters accompanying any check or payment as Rents be deemed an accord and satisfaction, and Landlord may accept such 12 check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy provided in this Lease. No failure to act by either party shall be deemed to be a waiver by said party of any of its rights hereunder, and no waiver or consent by either party shall be deemed a waiver of such provision or of a subsequent breach or consent to the same or any other provision. Any and all rights and remedies which either party may have at law or in equity upon any breach shall be distinct, cumulative and shall not be deemed inconsistent with each other; and no one of them, whether exercised by a party or not, shall be deemed to be in exclusion of any other; and any two or more or all of such rights and remedies may be exercised at the same time. 9.7 Entire Agreement. No oral statement or prior written matter shall have ---------------- any force or effect. Tenant agrees that it is not relying on any representations or agreements other than those contained in this Lease. This Lease shall not be modified or cancelled except by writing subscribed by all parties. Landlord and Tenant agree that the provisions of Rider(s) 1 & 2 attached hereto are incorporated herein and form a part hereof. 9.8 Governing Law; Waiver of Jury Trial. This Lease and the performance ----------------------------------- thereof shall be governed, interpreted, construed and regulated by the laws of the State of Maine. Landlord and Tenant have mutually agreed that they have waived trial by jury in any proceeding brought by either party against the other arising out of this Lease. 9.9 Headings. Headings and sub-headings are for convenience only, and shall -------- not be considered a part of this Lease. 9.10 Notices. All notices and other communications authorized or required ------- hereunder shall be in writing and shall be given by mailing the same by overnight mail, by facsimile transmission, by hand delivery, by certified mail or registered mail, return receipt requested, postage prepaid, or by facsimile transmission, with a copy by certified or registered mail, return receipt requested. Any such notice or communication shall be effective, in the case of overnight mail, one business day after said notice is deposited with the overnight carrier, in the case of facsimile transmission, upon completion of transmission, in the case of hand delivery, upon acceptance at the office of Landlord or Tenant, in the case of mailing, three calendar days after said notice is deposited in the United States mail as aforesaid. If intended for Landlord, the same shall be mailed to Landlord at: Milk Street Associates, LLC 5 Milk Street P.O. Box 7525 Portland, Maine 04112 Fax # (207) 772-9078 or at such other address as Landlord may hereafter designate by notice to Tenant. If intended for Tenant, the same shall be mailed to Tenant at: 13 Camden National Bank 2 Elm Street PO Box 310 Camden, ME 04843 Attn: Danny Swindler Fax # (207) 236-____ or at such other address or addresses as Tenant may hereafter designate by notice to Landlord. IN WITNESS WHEREOF, the said Landlord has executed this Lease in its name and sealed with its seal by Fore River Company, its Manager Member hereunto duly authorized by __________, its __________ the said Tenant has executed this Lease in its name and sealed with its seal all on the day and year first above written. SIGNED, SEALED and DELIVERED In the Presence of: MILK STREET ASSOCIATES, LLC Fore River Company, its Manager Member _____________________________________ By:____________________________________ Its: Camden National Bank _____________________________________ By:____________________________________ Its: 14 Rider 1 to the Lease dated July 24, 2001 between Milk Street Associates, LLC, as Landlord, and Camden National Bank, as Tenant (the "Lease"). Renewal - ------- In consideration of the covenants of the Tenant herein contained, Landlord hereby grants to Tenant (but not to any assignee or sublessee of Tenant) the irrevocable right and option to renew and extend the Lease and term for two renewal terms of 24 months, said renewal terms to commence upon the expiration of the initial term of the Lease, but said right and option shall be exercisable only if Tenant is not in default on the Lease at the time of exercise. Tenant may exercise the right and option to renew only by notice to Landlord in writing delivered to Landlord at least 90 days before the commencement date of said renewal terms. The Base Rent reserved for the said renewal terms shall be the Base Rent in effect for the last month of the original term of the Lease, adjusted during the renewal terms as provided in the Lease, treating the commencement date of the renewal period as an anniversary of the Commencement Date for such purposes. In addition, Tenant shall pay Tenant's Proportionate Share of increases in Real Estate Taxes over Base Year Real Estate Taxes. Rents shall be payable in consecutive monthly installments in advance, on the first day of each and every month of the renewal terms. Said renewal terms shall be subject to the same terms and conditions as the initial term. Terms not defined in this rider shall have the meaning set forth in the Lease. Witness: Milk Street Associates, LLC Landlord __________________________________ By __________________________________ Its: Camden National Bank Tenant __________________________________ By __________________________________ Its: Rider 2 to the Lease dated July 24, 2001 between Milk Street Associates, LLC, as Landlord, and Camden National Bank, as Tenant (the "Lease"). Right of First Offer - -------------------- Upon the first availability for lease of the adjacent ground floor premises at the corner of Milk and Silver Streets during the Term of Tenant's Lease (including any renewal thereof), Landlord shall notify Tenant (but not any sublessee or assignee of Tenant) that the space is available, the Base Rent at which it will be offered for lease, and the term of the lease, including any options. Tenant will have a period of two weeks after notice from us to accept or reject the proposed lease; in the event Tenant accepts, a lease substantially in the form of the lease originally signed, with the rate and term specified in Landlord's notice to Tenant must be signed within that two week period. If Tenant rejects an offer to lease the space or fails to sign a lease within such period, Tenant will have no further rights of offer with respect to that space, except as provided below. If at the time of Tenant's rejection, Tenant notifies Landlord that Tenant would enter into the offered lease but for the Base Rent proposed by Landlord, and Tenant specifies a Base Rent at which Tenant would lease the space, Landlord will be further obligated to re-offer the space to Tenant before offering the space to another prospective tenant at or below the rate specified by Tenant. Upon such subsequent offer, Tenant would have an additional week to accept this subsequent offer and sign a lease or reject it. Tenant's right of first offer will be subordinate to the right of the existing tenant to extend the term of its lease. Landlord will have no obligation to make an offer to Tenant in the event Tenant is in default at the time the offer would otherwise be required to be made. Witness: Milk Street Associates, LLC Landlord __________________________________ By __________________________________ Its: Camden National Bank Tenant __________________________________ By __________________________________ Its: EX-13 5 dex13.txt 2001 ANNUAL REPORT Exhibit #13 The Company's 2001 Annual Report to Shareholders ------------------------------------------------------------ [PHOTO] [LOGO]CNC Camden National Corporation Annual Report 2001 [PHOTO] Maine trees are the foundation of many finely handcrafted wood products. Since 1875, we have provided a foundation for high-quality financial services in Maine. Maine Trees... have endured over the ages, ever changing and growing. Maples, pines, cedars and birches are firmly rooted in the earth and reach upward with their branches. From these trees, dedicated artisans craft a multitude of fine-quality wood products that serve our everyday needs and even fulfill our dreams. Like these trees, Camden National Corporation serves as the foundation for a myriad of high-quality financial products that are delivered by dedicated employees in all our subsidiaries. Since 1875, we have been reaching out to meet the ever-changing financial needs of our clients and to help make their dreams a reality. Camden National proudly stands tall among financial service providers. [PHOTO] [PHOTO] [PHOTO] Table of Contents Shareholders' Letter .......................................2-3 Subsidiary Reports .........................................4-9 Management's Discussion and Analysis of Financial Condition and Results of Operations ............................... 10-21 Summary of Financial Performance.............................22 Selected Five-Year Financial Data ...........................23 Consolidated Statements ................................. 24-27 Notes to Consolidated Statements .........................28-47 Auditor's Letter ............................................48 Boards of Directors and Bank Administrations .....................................49-51 Announcement of Annual Meeting ..............................52 1 [PHOTO] Rendle A. Jones (right), Chairman of the Board of Directors, and Robert W. Daigle, President & CEO of Camden National Corporation, work closely to ensure our continuing financial success. Craftsmen have a passion for creating works of art. We have a passion for serving clients' financial needs. Dear Shareholders The true skill of a craftsman is to take raw material, readily available to anyone, and through his or her own sense of quality and passion for excellence, create a unique product that will withstand the test of time. Camden National Corporation and its subsidiaries approach clients and customers with that same unique sense of quality and passion for excellence in crafting a set of financial services that will benefit them and their families for generations. Our acquisitions, the introduction of a new line of business, our expansion into a relatively new market, and the recruitment of top-caliber personnel in 2001 reflect a continuation of our 126-year tradition of crafting and delivering the best possible financial solutions for our customers and clients. Diversification of the Company's revenues through the expansion of our investment management products and expertise had been targeted as an area of strategic importance for some time. However, the right selection of partners to provide those services within our banking franchises was determined to be one of the most critical factors to realizing success. We were pleased that, after careful review, Acadia Trust, N.A. and Gouws Capital Management, Inc., both controlled by Johann Gouws, joined Camden National Corporation in July 2001. We further augmented our personal investment management services by forming Acadia Financial Consultants, a division of Camden National Bank, and hiring Marcia Mansfield as its President in October 2001. Marcia had previously served 2 over 500 clients through her own brokerage and investment advisory enterprise based in mid-coast Maine. The final piece of our revenue diversification strategy in 2001 was to gain 100 percent ownership of Trust Company of Maine, Inc. through our acquisition of its remaining minority interests. In fulfillment of yet another strategic planning objective, we added deposit-gathering capabilities to complement our commercial lending activities in the Portland market. This was the culmination of a series of steps designed to take advantage of changes in the southern Maine banking landscape that provided an opportunity for Camden National's brand of community banking. This began in 1999 when we traveled from Camden to Portland to work with some existing customers who themselves were expanding into that market. A loan production office followed in 2000, staffed with first one and then two lenders. On October 9, 2001, we opened our newly expanded Portland Office in the heart of the "Old Port" area. We designed this office to specifically meet the financial needs of our Portland customers, based on their direct input about what matters most in a financial partnership. Our growth in this new market has exceeded our expectations, and customers seem pleasantly surprised with the breadth of our banking services and the personalized manner in which they are delivered. Several other important strategic initiatives were undertaken during 2001 to support our financial and organizational growth objectives. Management implemented a number of capital and funding strategies triggered by historically low interest rates. A balance sheet restructuring program, which began in the third quarter, was implemented to provide flexibility in managing the Company's assets and liabilities. A share repurchase program was announced to give investors liquidity in a tax-efficient manner and to take advantage of opportunities in our stock price valuation. A state-ofthe- art telecommunications system was installed to efficiently deliver enhanced voice and data communications throughout the Company. Finally, we created a corporate risk management function that analyzes and monitors credit risks for our banking subsidiaries and ensures proactive and uniform management of those risks. The Board of Directors of the Company changed its composition during the year as John S. McCormick, Jr. retired from the Board after 26 years of service. We wish to thank Jack for his nurturing guidance during a period of considerable growth for our Company. The Board also welcomed Johann Gouws as its newest member following the acquisition of Acadia Trust, N.A. and Gouws Capital Management, Inc. Johann's extensive background in the investment arena will serve as a valuable resource to the Board. Through all these events and in the midst of a challenging economic environment, your Company reported strong financial results for the year. Diluted earnings per share grew 11.83% from 2000 to $1.89 in 2001, resulting in a full-year average return on assets of 1.47%. The stock price of the Company also increased over 31% from the end of December 2000 to the end of December 2001. We encourage all shareholders to carefully review the financial statements and associated footnotes, as well as the management discussion and analysis that are included as part of this annual report. As we look back at the economic, business and social changes that swirled about us during the past year, we are proud of the efforts put forth by the employees of your Company to meet each challenge as craftsmen in their own right. We are optimistic that the strategies we've implemented in 2001 will serve as the foundation to provide the flexibility necessary to take advantage of new challenges and opportunities that await us in 2002 and beyond. Sincerely, /s/ Rendle A. Jones ------------------- Rendle A. Jones Chairman of the Board of Directors /s/ Robert W. Daigle -------------------- Robert W. Daigle President & Chief Executive Officer 3 [PHOTO] A sculptor meticulously details a wing to create a lifelike bird carving from a piece of basswood. With patience and skill, wood sculptors create realistic bird carvings. With understanding and expertise, we help customers make their dreams a reality. 4 Camden National Bank In keeping with our promise to do whatever it takes to support our strategic mission and commitments to our shareholders, customers, community and employees, I am pleased to report on several initiatives that contributed to Camden National Bank's success during 2001. Commitment to Shareholders: To maximize our contribution to long-term shareholder value. To fulfill this most important commitment, we embarked on several exciting initiatives designed to enhance our geographic and functional diversification. By expanding the capabilities of our Portland office to gather deposits, we created a new, low-cost funding resource that has exceeded our expectations. The formation of Acadia Financial Consultants, our new full-service brokerage and insurance division, will add further diversification to the Bank's revenue stream. This puts Camden National Bank another step closer to providing its customers with the convenience of one-stop shopping for their financial services. Commitment to Customers: To deliver high-quality financial solutions, which create value for each targeted customer segment. In January, we repositioned our entire deposit product line, providing thousands of relationship customers with a better value proposition for services such as checking accounts, loans, certificates of deposit and online banking. Combined with enrolling over 160 of our employees in the Preferred Way of Selling program, we equipped the sales force with the tools, resources and techniques to better help customers with their financial needs. Commitment to Community: To contribute, through community reinvestment and employee volunteerism, to the social and economic well-being of the communities we serve. I am especially proud to report that Joanne T. Campbell, Senior Vice President in the Residential Real Estate Loan Department, was the recipient of the prestigious Volunteer Banker of the Year Award presented annually by the Maine Bankers Association, in recognition of her outstanding community service in the area of affordable-housing. Her dedication and commitment have served as an inspiration to all of our employees, who combined provide over 850 hours per month of community service in the Bank's four-county trade area. Commitment to Employees: To foster an environment that attracts, rewards and retains exceptional employees who, through performance and loyalty, demonstrate a commitment to the success of our Company. Based on the belief that "the organization with the best people wins," Camden National Bank took several steps in 2001 to ensure our ability to attract and retain the best possible work force. From the feedback we received in the 2000 corporate culture survey, we learned that employees want more recognition for outstanding performance. As a result, we restructured our employee incentive program and added the Top Performer Program, which is designed to reward those who clearly demonstrate superior performance. In addition, new employees attend a day-long orientation program that includes a welcome video highlighting our core values and rich history. These programs resulted in an overall improvement in productivity, increased focus on service quality and overall efficiency improvements, as well as helping us retain our best performing employees. In summary, our fundamental mission and commitments focus on strategies that put the needs of our shareholders, customers, community and employees first. Through a dedicated and motivated team, supported by state-of-the-art technology, innovative products and premier service quality, we are creating a truly unique and sustainable competitive advantage that will help ensure a successful future for Camden National Bank. Sincerely, /s/ Robert W. Daigle -------------------- Robert W. Daigle, President & CEO 5 [PHOTO] A wreath maker handpicks and wires boughs of balsam fir before adding the final decorative touches. Artisans select the best balsam branches to create fragrant, seasonal wreaths. We select the best people and products to enhance our customers' experience. 6 UnitedKingfield Bank In 2001 UnitedKingfield Bank continued to build its value within Camden National Corporation by strategically positioning itself to take advantage of the unique opportunities in its marketplace. Our long-range plan focuses the Bank's resources on the diverse financial needs of our consumer and business customers, while maintaining our commitment to our communities. We believe that we have great opportunities to grow in markets currently underserved by our competitors, and that many of our prospects would benefit from a relationship with a true "one-to-one financial partner." One exciting opportunity involves focusing resources on growing our share of the business banking markets in Androscoggin and Penobscot counties. Since we know that the quality of a banking relationship depends on the quality of the banker, we have named a market manager in each county with the authority and expertise to serve the needs of our customers and the communities. The market managers are responsible not only for business development, but also to serve as advocates for the business owners and for the communities in which they live and work. Creating solutions to meet the diverse financial needs of our customers was a priority in 2001. With the establishment of Acadia Financial Consultants, a division of UnitedKingfield Bank, we now provide full-service brokerage and insurance services to retail customers and business owners who desire to work with a representative who will take the time to understand their needs and financial objectives. In addition, our affiliation with Acadia Trust, N.A. gives our customers access to trust, wealth management and investment services. These services complement our traditional banking products, providing clients with convenient access to a wide range of solutions to meet the financial challenges which individuals and businesses constantly face. Another strategic initiative undertaken in 2001 was a review of the Bank's allocation of resources. In order to focus on the opportunities for growth, we concluded that our branch delivery system must become more efficient. As a result of our study, we closed two offices and restructured the hours at some of our smaller, less active branches. With expanded online banking and bill payment services, these changes allow us to serve customers in smaller communities in a more cost-effective manner. UnitedKingfield Bank is uniquely positioned for success in 2002 and beyond. We have an opportunity to grow our market share in Androscoggin and Penobscot counties, the second and third largest markets in Maine. We have realized greater cost and operating efficiencies through our corporate affiliation, resulting in not only products and services clearly different and better than those of the competition, but also in exceptional customer service, technology and support. With these resources, an aggressive strategic plan and a dedicated and experienced team, UnitedKingfield Bank will continue to make significant financial contributions to Camden National Corporation's success in building long-term shareholder value. Sincerely, /s/ John C. Witherspoon ----------------------- John C. Witherspoon, President & CEO 7 [PHOTO] Boat builders exhibit their mastery of engineering and art with the mahogany and cedar double-planked hull of this sloop. Woodworkers build solid, finely crafted boats that ensure smooth sailing. We build enduring client relationships that foster future financial success. 8 Acadia Trust, N.A. Trust Company of Maine, Inc. Acadia Trust, N.A. ("Acadia") and Gouws Capital Management, Inc. ("Gouws Capital") became the newest affiliates of Camden National Corporation in July of last year. Acadia is a federally regulated, non-depository trust company; Gouws Capital, an investment advisory firm, was merged into Acadia at the end of 2001. Our mission is to build enduring relationships with clients by helping them accumulate, manage and conserve wealth. In conjunction with Trust Company of Maine, Inc., Acadia offers a comprehensive set of trust, investment, wealth management and retirement plan services to individuals, families, businesses, endowments and foundations. Our strategic alliance with Camden National Corporation gives each subsidiary bank the ability to offer their clients access to a full range of financial services from any branch location. Like our parent company, we believe that client satisfaction is, by far, our most important business objective. Every decision we make is measured by its impact on our ability to service our clients. We work closely with each client to understand and define objectives and explore various strategies, before pursuing the plan to achieve those objectives. Indeed, we judge our very success by the degree of client satisfaction. As we continue to refine our product and service offerings, our thought process parallels that of the highly skilled boat builders found along the coast of Maine. No seafarer dares venture far offshore in a vessel of unproven design or haphazard construction. Maine's leading boat builders combine sophisticated hull construction techniques and innovative technology with meticulous, handcrafted joinery and clarity of line that satisfy the observer's aesthetic sense. The builder seeks to please the owner, but avoids design and construction elements that jeopardize the integrity of the vessel. In many ways, we conduct our trust and investment business with a similar mindset. The strategy fits the mission, which is to meet the financial objectives of the client. Long-term goals cannot be achieved without a plan which, as with the design of a vessel, requires tradeoffs among conflicting considerations. Portfolio construction is based on what is realistic and doable, and technology is used to enhance the result. On the surface, the plan is well crafted and its execution is elegant, while behind the scenes we fulfill our responsibility by steering around the risks that would endanger the achievement of the client's stated objectives. Looking forward to 2002, we envision that the synergies created in our alliance with Camden National Corporation, along with our enhanced ability to meet the financial needs of our mutual clients, bode well for our continued success. Sincerely, /s/ Johann H. Gouws -------------------- Johann H. Gouws, Chairman, President & CEO 9 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis reviews the consolidated financial condition of Camden National Corporation (the "Company") at December 31, 2001 and 2000, the consolidated results of operations for the past 3 years and, where appropriate, factors that may affect future financial performance. This discussion should be read in conjunction with the Consolidated Financial Statements, Notes to Consolidated Financial Statements and Selected Consolidated Financial Data. Forward-Looking Information The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information contained in this discussion, or in any other written or oral statements made by the Company, is or may be considered to be forwardlooking.Forward-looking statements relate to future operations, strategies, financial results or other developments, and typically contain words or phrases such as "may," "believe," "expects," "should" or similar expressions. Forward-looking statements are based upon estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Company's control or are subject to change. Inherent in the Company's business are certain risks and uncertainties. Therefore, the Company cautions the reader that its actual results could differ materially from those expected to occur depending on factors such as economic conditions in local markets as well 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 non-interest income earned, as well as other factors. The Company disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise. GENERAL Overview Camden National Corporation (the "Company"), as a multi-bank holding company, provides financial services to its customers through four principal subsidiaries. Camden National Bank and UnitedKingfield Bank provide traditional commercial and consumer banking services through 28 branch locations in central, southern, mid-coast and western Maine and also by online access. Acadia Trust, N.A. and Trust Company of Maine, Inc. provide trust and investment management services to the Company's clients, who are primarily located in the State of Maine, and to the clients of the Company's two banking affiliates. Additionally, the Company invests in securities issued by the United States government and its agencies, as well as mortgage backed securities and high grade corporate securities to supplement and diversify its revenue base. The Company has implemented a strategy to provide a diversified set of financial products to its customers located within its geographic boundaries and to opportunistically expand those boundaries. As part of this strategy, and to diversify its sources of revenues, the Company acquired Acadia Trust, N.A. ("Acadia") and Gouws Capital Management Inc. ("Gouws Capital") on July 19, 2001. These companies, which were merged on December 31, 2001, provide trust and investment services, as well as investment management expertise. Also, in furtherance of its strategy to diversify its revenue, the Company acquired the remaining minority interests in Trust Company of Maine, Inc. on October 24, 2001. The Company had previously acquired its majority interest in Trust Company of Maine, Inc. through its acquisition of UnitedCorp, a one-bank holding company with two principal subsidiaries, United Bank and Trust Company of Maine, Inc., on December 31, 1995. The Acadia Trust, N.A., Gouws Capital Management Inc. and Trust Company of Maine Inc. acquisitions were accounted for under the purchase method of accounting as prescribed by SFAS No. 141, "Business Combinations." As part of its geographic diversification strategy, on October 8, 2001, the Company's Camden National Bank subsidiary converted its Portland, Maine loan production office to a full service banking branch. This allowed the Company to expand its deposit gathering activities to the Portland, Maine market. 10 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] REVIEW OF FINANCIAL STATEMENTS The discussion and analysis which follows focuses on the factors affecting the Company's consolidated results of operations during 2001, 2000 and 1999 and financial condition at December 31, 2001 and 2000. The Consolidated Financial Statements and Notes to Consolidated Financial Statements beginning on page 24 of this report should be read in conjunction with this review. RESULTS OF OPERATIONS Summary Financial Overview The Company reported net income of $15.4 million, or $1.89 per diluted share, for 2001 compared to $13.9 million and $1.69 per diluted share in 2000. Return on average assets was 1.47% in 2001 compared to 1.40% in 2000 and return on average shareholders' equity was 15.55% in 2001 compared to 16.43% in 2000. This performance primarily reflected loan growth from its Portland, Maine location, expansion of fee based revenues from its banking subsidiaries, revenues from its acquired investment management subsidiaries, and control of its operating expenses. Total revenues for 2001 were $57.3 million compared to $48.4 million in 2000, an increase of 18.3%, primarily reflecting improved non-interest income and revenues from increased lending activities. Revenues of Acadia Trust, N.A. contributed $676,000, while revenues from the sale of loans, securities and the securitization of a portion of the Company's residential mortgage portfolio contributed $1.3 million. Excluding these factors, revenues increased $6.9 million or 14.2% from the prior year. Non-interest expenses for the Company during 2001 were $31.0 million compared to $25.4 million in 2000, an increase of 22.1%. Expenses from the companies acquired during the year and associated acquisition costs incurred by the Company totaled $1.7 million during 2001 while the Company's UnitedKingfield Bank subsidiary recorded costs of $1.0 million in connection with the settlement of a lawsuit. Additionally, during 2000, the Company terminated its defined-benefit noncontributory pension plan which resulted in a one-time expense reduction of $645,000. Excluding these factors, non-interest expenses increased $2.3 million, or 8.7%. The Company's consolidated provision for loan losses was $3.7 million during 2001 compared to $2.9 million in 2000 which resulted in the Company increasing its ratio of allowance for loan losses ("ALL") to total loans from 1.54% in 2000 to 1.87% in 2001. The reserve was increased in response to management's view of probable economic deterioration in its central, eastern and western Maine geographic markets which could negatively affect some of the Company's lending relationships in those geographic areas. Reflective of this view, non-performing assets, defined as non-accrual loans, accruing loans 90 days or more past due, and other real estate owned, increased from $6.9 million in 2000 to $8.3 million in 2001, resulting in the ratio of non-performing assets to total loans increasing from 0.93% in 2000 to 1.11% in 2001. The Company recorded a 7.8% growth in total assets during 2001 to $1.1 billion at December 31, 2001. Loan growth of $22.7 million during 2001 was primarily a result of the Company's continued expansion in the Portland, Maine market as well as moderate growth throughout its geographic franchise. Net Interest Income Net interest income, which reflects revenues from interest earning assets less associated funding expenses, was $44.7 million in 2001 compared to $40.0 million in 2000, an increase of 11.8%. The following tables on pages 12 and 13, present changes in interest income and interest expense by major asset and liability category for 2001, 2000 and 1999, and 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. 11 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES Analysis of Change in Net Interest Margin on Earning Assets
(Dollars in thousands) DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999 - ---------------------------------------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate ---------- -------- ------ -------- ------- ------ -------- -------- ------ Assets - ------ Interest-earning assets: Securities--taxable $ 234,835 $15,666 6.67% $224,698 $16,079 7.16% $216,666 $15,084 6.96% Securities--nontaxable (1) 9,161 589 6.43% 8,993 595 6.62% 9,152 606 6.62% Federal funds sold 3,399 83 2.44% 2,215 109 4.92% 1,784 69 3.87% Loans (1) (2) 732,460 63,065 8.61% 675,316 61,899 9.17% 605,271 54,157 8.95% ---------- ------- ---- -------- ------- ---- -------- ------- ---- Total interest-earning assets 979,855 79,403 8.10% 911,222 78,682 8.64% 832,873 69,916 8.39% ---------- ------- ---- -------- ------- ---- -------- ------- ---- Cash and due from banks 24,742 27,544 24,122 Other assets 57,874 58,817 43,750 Less allowance for loan losses 12,200 10,541 8,895 ---------- -------- -------- Total assets $1,050,271 $987,042 $891,850 ========== ======== ======== Liabilities & Shareholders' Equity - ---------------------------------- Interest-bearing liabilities: NOW accounts $ 92,111 $ 733 0.80% $ 86,783 $ 889 1.02% $ 85,861 $ 1,129 1.31% Savings accounts 84,201 1,646 1.95% 85,427 2,168 2.54% 109,078 3,050 2.80% Money market accounts 128,106 4,333 3.38% 98,559 4,467 4.53% 64,562 2,347 3.64% Certificates of deposit 321,503 16,047 4.98% 329,664 18,595 5.64% 312,019 16,317 5.23% Broker certificates of deposit 34,659 2,136 6.16% 12,876 947 7.35% 6,010 344 5.72% Borrowings 199,615 9,846 4.95% 198,597 11,650 5.87% 146,627 7,182 4.90% ---------- ------- ---- -------- ------- ---- -------- ------- ---- Total interest-bearing liabilities 860,195 34,741 4.04% 811,906 38,716 4.77% 724,157 30,369 4.19% ---------- ------- ---- -------- ------- ---- -------- ------- ---- Demand deposits 82,572 84,357 79,764 Other liabilities 8,327 6,409 10,229 Shareholders' equity 99,177 84,370 77,700 ---------- -------- -------- Total liabilities and shareholders' equity $1,050,271 $987,042 $891,850 ========== ======== ======== Net interest income 44,662 39,966 39,547 (fully-taxable equivalent) Less: fully-taxable equivalent adjustment (481) (561) (592) ------- ------- ------- $44,181 $39,405 $38,955 ======= ======= ======= Net interest rate spread (fully-taxable equivalent) 4.06% 3.87% 4.20% ==== ==== ==== Net interest margin (fully-taxable equivalent) 4.56% 4.39% 4.75% ==== ==== ====
(1) Reported on tax-equivalent basis calculated using a rate of 35%. (2) Non-accrual loans are included in total average loans. 12 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] Analysis of Volume and Rate Changes on Net Interest Income
DECEMBER 31, 2001 VS 2000 DECEMBER 31, 2000 VS 1999 (Dollars in thousands) INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO - --------------------------------------------------------------------------------------------- Volume Rate Total Volume Rate Total Interest-earning assets: Securities--taxable $ 725 $(1,138) $ (413) $ 559 $ 436 $ 995 Securities--nontaxable 11 (17) (6) (11) -- (11) Federal funds sold 58 (84) (26) 17 23 40 Loans 5,238 (4,073) 1,165 6,264 1,478 7,742 ------- ------- ------- ------- ------- ------- Total interest income 6,032 (5,312) 720 6,829 1,937 8,766 ------- ------- ------- ------- ------- ------- Interest-bearing liabilities: NOW accounts 55 (211) (156) 12 (252) (240) Savings accounts (31) (491) (522) (662) (220) (882) Money market accounts 1,339 (1,473) (134) 1,237 883 2,120 Certificates of deposit (460) (2,124) (2,584) 923 1,355 2,278 Broker certificates of deposit 1,602 (413) 1,189 393 210 603 Borrowings 60 (1,828) (1,768) 2,547 1,921 4,468 ------- ------- ------- ------- ------- ------- Total interest expense 2,565 (6,540) (3,975) 4,450 3,897 8,347 ------- ------- ------- ------- ------- ------- Net interest income (fully-taxable equivalent) $ 3,467 $ 1,228 $ 4,695 $ 2,379 $(1,960) $ 419 ======= ======= ======= ======= ======= =======
The Company reported increased net interest income of $44.7 million during 2001 compared to $40.0 million in 2000 due to changes in the yields, volumes and compositions of its interest-earning assets and interest-bearing liabilities. During 2001, the Company benefited from the declining interest rate environment which affected income received on interest-earning assets and expenses on interest-bearing liabilities. Interest income on variable rate earning assets declined as a result of the declining interest rate environment and contributed to the decline of $5.3 million in interest income attributed to the "rate" component in the Analysis of Volume and Rate Changes on Net Interest Income table above. This decrease was offset by an increase in interest earning assets from 2000 to 2001, which contributed to the increase of $6.0 million related to the "volume" component in the table above. The Company also benefited from the declining interest rate environment as its interest expenses on variable rate borrowings and deposit accounts were reduced during 2001. This contributed to a reduction in interest expenses due to "rate" of $6.5 million which was partially offset by increased "volume" of funding required to support the growth in earning assets of $2.6 million. Investments in U.S. government securities, U.S. government agency securities and highly rated corporate bonds are used by the Company to diversify its revenues as well as provide interest rate risk and credit risk diversification. The Company periodically uses interest rate swaps, floors and caps, which are common derivative financial instruments, to hedge interest rate risk associated with its loan and investment portfolios as well as its deposit and borrowing strategies. Footnote 20, "Financial Instruments" of the Notes to Consolidated Financial Statements, on page 42, and the "Market Risk" section, on page 19, should be reviewed for further discussion of the Company's derivative and market risk strategies. During 2001, the Company's taxable investment portfolio interest income declined $413,000 primarily due to the declining interest rate environment, while the Company's non-taxable investment portfolio interest income declined $6,000, both partially offset by increased volumes in the portfolios. During 2001 and 2000, the Company was a party to several interest rate swap agreements that were part of the Company's strategy to protect a portion of its interest income revenue stream against a changing interest rate environment. These instruments contributed $422,000 to interest income in 2001 and $108,000 in 2000. Interest rate swap agreements involve risks associated with counterparties to the agreements and their abilities to meet the contractual terms of the agreements as well as risks associated with a changing interest rate environment. Notional principal amounts are used to reflect the volume of these transactions, but credit risks associated with these agreements are limited to the 13 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES forecasted payment stream expected from counterparties. The Company's counterparties to these agreements had an investment grade rating by Moody's and Standard and Poor's rating agencies. These instruments involve only the exchange of fixed- and variable-rate interest payments based upon a notional principal amount and maturity date. At December 31, 2001, the Company's notional value of derivative financial instruments was $90.0 million, compared to $135.0 million on December 31, 2000. Footnote 20 on page 42 should be reviewed for further discussion of derivative instruments. Non-interest Income Non-interest income was $13.1 million and $8.9 million for the years ended December 31, 2001 and 2000, respectively. During 2001, the increase of $4.2 million, or 46.9%, in total non-interest income compared to 2000 reflects the effects of various balance sheet management activities which included the securitization of $57.0 million of the Company's residential mortgages (i.e. the sale of residential mortgages purchased back by the Company as mortgage-backed securities) and sales of various investments which resulted in $1.2 million of non-interest income. Additionally, due to the declining interest rate environment, the Company recognized $932,000 of non-interest income from the sale of interest rate derivatives. Service charges on deposit accounts increased by $662,000, or 23.0%, over 2000 as a result of a product redesign initiative focused on customer relationships and the introduction of a fee based overdraft privilege service for its customers. Other service charges and fees increased by $626,000, or 35.5%, over the same period primarily due to mortgage servicing fees associated with the sale of residential real estate loans. Merchant program fees increased $284,000, or 15.8%, over 2000 due to a combination of restructured pricing and increased volumes, while trust fees increased $1.2 million, or 95.4%, during the same period. The major contributing factor for this increase in trust fees was the acquisition of Acadia and Gouws Capital on July 19, 2001. Non-interest Expenses Non-interest expenses increased to $31.0 million for the year ended December 31, 2001 from $25.4 million in 2000, or 22.1%. Salaries and employee benefits increased by $2.7 million, or 23.5%, during this same period reflecting, in part, increased salaries and employee benefits associated with the Acadia and Gouws Capital acquisitions of $854,900. Also included in 2000 results was a one-time expense reduction of $645,000 associated with the Company terminating its defined-benefit noncontributory pension plan. Occupancy expenses increased $409,000, or 24.5%, due to the renovation and expansion of several of the Company's branch facilities and expansion of its operations center. Expenses associated with the processing of merchant transactions increased $217,000, or 12.2%, during 2001 compared to 2000 reflecting increased volumes. Other expenses increased by $2.3 million, or 32.2%, in 2001 compared to 2000 due to expenses related to the Company's new subsidiaries, courier costs, debit card processing costs, and closing and solicitation costs associated with a home equity loan promotion. Comparison of 2000 to 1999 The Company reported net income of $13.9 million, or $1.69, per diluted share in 2000 compared to $10.2 million, or $1.27, per diluted share in 1999. Return on average assets was 1.40% in 2000 compared to 1.15% in 1999, while return on average shareholders' equity was 16.43% in 2000 compared to 13.16% in 1999. During 1999, the Company acquired Kingfield Savings Bank which was accounted for under the pooling-of-interests method and accordingly, the Consolidated Financial Statements of the Company have been restated to reflect the acquisition as though it occurred at the beginning of each period presented. On February 4, 2000, Kingfield Savings Bank, and the Company's United Bank subsidiary were merged to create UnitedKingfield Bank. Net interest income on a fully-taxable equivalent basis was $40.0 million in 2000 compared to $39.5 million in 1999, reflecting increased yields on earning assets and growth in the Company's loan and investment portfolios. The increase of $419,000 was primarily due to an increase in earning asset volumes and yields, partially offset by higher funding costs. The Company reported $2.9 million of provision for loan losses in 2000 compared to $3.7 million in 1999. The allowance for loan losses increased from 1.48% of total loans at the end of 1999 to 1.54% at the end of 2000. Non-interest income increased $1.2 million from $7.7 million in 1999 to $8.9 million in 2000. The primary factors contributing to this increase were increased trust fees of $505,000 and merchant program fees of $308,000. Non-interest expenses were $25.4 million in 2000, compared to $27.6 million in 1999. The primary factors contributing to the decrease in non-interest expenses during the period were the Company's termination of its defined-benefit noncontributory pension program which resulted in a one-time expense reduction of $645,000 in 2000, and cost savings which were recognized as part of the merger of United Bank and Kingfield Savings Bank in 2000. 14 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] FINANCIAL CONDITION Overview Total assets at December 31, 2001 were $1.1 billion, an increase of $78.5 million, or 7.8%, from December 31, 2000. The change in assets consisted primarily of a $46.8 million increase in investment securities, an increase in net loans of $20.0 million, an increase of $9.5 million in cash and due from banks, an increase in premises and equipment of $1.4 million, and an increase in other assets of $0.8 million. The asset growth was supported by an increase of $42.4 million in total borrowings, a $19.2 million increase in deposits, a $2.7 million increase in other liabilities, and an increase of $14.1 million in total shareholders' equity. Investment Securities Total investment securities increased $46.8 million, or 21.6%, to $263.8 million at December 31, 2001. The Company has investment securities in both the available-for-sale and held-to-maturity categories. The largest portion is in the available-for-sale category of the investment portfolio reflecting the Company's desire for flexibility in managing liquidity and funding needs pursuant to the policies developed by the Asset/Liability Committee ("ALCO"). The available-for-sale category increased during 2001 by $103.5 million. Upon implementation of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," the Company transferred $68.2 million of its investment securities classified as held to maturity to available for sale. In addition, the Company implemented a balance sheet restructuring program that included the conversion of over $57.0 million of fixed-rate residential mortgages into mortgage-backed securities, which are classified as securities available for sale and the sale of several long-term corporate bonds previously classified as securities available for sale. The restructuring program was undertaken to take advantage of the declining interest rate environment and management's desire to provide flexibility and liquidity in the Company's balance sheet. Although these securities are available for sale, the Company has the ability to hold the debt securities in this portfolio until maturity. The ability to use these securities as collateral for Federal Home Loan Bank of Boston ("FHLBB") loans enhances the Company's ability to hold the securities to maturity consistent with liquidity objectives. At December 31, 2001, the Company had $4.5 million of unrealized gains on securities available for sale, net of the deferred tax expense, compared to $0.8 million of unrealized losses, net of deferred tax benefits at December 31, 2000. The increase in unrealized appreciation was attributed to a decrease in market rates. Unrealized gains and losses do not impact income or regulatory capital, but are recorded as adjustments to shareholders' equity net of related deferred income taxes. Unrealized gains and losses, net of related deferred income taxes are a component of the Company's other comprehensive income contained in the Consolidated Statement of Changes in Shareholder's Equity. Loans Loans, including loans held for sale, totaled $724.0 million at December 31, 2001, a 3.2% increase from total loans of $701.3 million at December 31, 2000. This reflects the continuation of strong loan growth experienced in the commercial loan portfolio less the $57.0 million of fixed-rate residential mortgage loans converted to securities available for sale by the Company during 2001. Residential real estate mortgage loans decreased by $18.8 million, or 8.4%, in 2001. During 2001 the Company securitized $57.0 million of fixed-rate residential mortgage loans into mortgage-backed securities, which are classified as securities available for sale. Residential real estate mortgage loans increased by $3.1 million, or 1.4%, in 2000. During 2000, the Company originated $11.8 million of fixed-rate residential loans that were sold to investors in the secondary market. Residential real estate loans consist of loans secured by one-to-four family residences. The Company generally retains adjustable-rate mortgages in its portfolio and will, from time to time, retain fixed-rate mortgages. With a relatively low interest rate environment, it was the Company's asset/liability strategy during 2001 to sell the majority of its fixed-rate residential mortgages in its loan portfolio. Commercial loans increased by $59.7 million, or 16.4%, during 2001. In 2000, commercial loans increased by $47.8 million, or 15.1%. Commercial loans consist of loans secured by various corporate assets, as well as loans to provide working capital in the form of lines of credit, which may be secured or unsecured. The commercial category also includes commercial real estate loans secured by income producing commercial real estate. In addition, the Company makes loans for the acquisition, development and construction of commercial real estate. The Company focuses on lending to small- and medium-sized business customers within its geographic market. Consumer loans decreased by $3.9 million, or 4.3%, in 2001 as a result of consumers taking advantage of a low interest rate environment and consolidating their consumer debt into residential mortgages. In 2000, consumer loans increased by $6.4 million, or 7.6%. Consumer loans are originated by the Company for a wide variety of purposes to meet customers' needs. Consumer loans include credit card, overdraft protection, automobile, boat, recreation vehicles, mobile homes, home equity, and secured and unsecured personal loans. 15 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES It is the Company's policy to discontinue the accrual of interest on loans when, in the opinion of management, there is an indication that the borrower may be unable to meet payments as they become due. Upon such discontinuance, interest income is reduced for all accrued but unpaid interest on such loans. Non-performing loans, defined as non-accrual loans plus accruing loans 90 days or more past due, totaled $8.1 million, or 1.1%, of total loans at December 31, 2001 compared to $6.5 million, or 0.9%, of total loans at December 31, 2000. Allowance for Loan Losses / Provision for Loan Losses In determining the allowance for loan losses ("ALL"), management relies primarily on its review of the loan portfolio both to ascertain whether there are specific loans to be reserved against, 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 (see Note 6, "Allowance for Loan Losses," of the Notes to Consolidated Financial Statements, on page 34, for further information). During 2001, the Company recognized $3.7 million of expense to the allowance for loan losses compared to $2.9 million and $3.7 million in 2000 and 1999, respectively. Net charge-offs to average loans outstanding were 0.13% in 2001 compared to 0.24% in 2000. During 2001, economic conditions indicated potential weakening in the loan portfolio. Several large credits were downgraded resulting in the necessity to increase the provision to the ALL. Determining an appropriate level of ALL involves a high degree of judgment. Management believes that the ALL at December 31, 2001 of $13.5 million, or 1.87%, 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% in 2000. The table on the next page sets forth information concerning the activity in the Company's ALL during the periods indicated. 16 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] Five-Year Activity in the Allowance for Loan Losses
(Dollars in thousands) YEARS ENDED DECEMBER 31, - ---------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 Allowance at the beginning of period $ 10,801 $ 9,390 $ 8,092 $ 6,982 $ 5,365 Provision for loan losses 3,681 2,930 3,670 2,056 2,207 Charge-offs: Commercial loans 536 1,296 1,520 417 671 Residential real estate loans 552 432 715 415 160 Consumer loans 461 417 425 444 400 -------- -------- -------- -------- -------- Total loan charge-offs 1,549 2,145 2,660 1,276 1,231 Recoveries: Commercial loans 324 421 64 158 473 Residential real estate loans 64 29 54 35 36 Consumer loans 193 176 170 137 132 -------- -------- -------- -------- -------- Total loan recoveries 581 626 288 330 641 Net charge-offs 968 1,519 2,372 946 590 Allowance at the end of the period $ 13,514 $ 10,801 $ 9,390 $ 8,092 $ 6,982 ======== ======== ======== ======== ======== Average loans outstanding $732,460 $675,316 $605,271 $521,559 $445,599 ======== ======== ======== ======== ======== Ratio of net charge-offs to average loans outstanding 0.13% 0.22% 0.39% 0.18% 0.13% Ratio of provision for loan losses to average loans outstanding 0.50% 0.43% 0.61% 0.39% 0.50% Ratio of allowance for loan losses to total loans at end of period 1.87% 1.54% 1.48% 1.42% 1.44% Ratio of allowance for loan losses to net charge-offs 1396.07% 711.06% 395.87% 855.39% 1183.39% Ratio of allowance for loan losses to non-performing loans at end of period 167.46% 166.48% 148.32% 172.50% 162.03%
The allowance for loan losses is available to offset credit losses in connection with any loan, but is internally allocated to various loan categories as part of the Company's process for evaluating its adequacy. The following table sets forth information concerning the allocation of the Company's ALL by loan categories at the dates indicated. Allocation of the Allowance for Loan Losses--Five-Year Schedule
(Dollars in thousands) AS OF DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 1998 1997 Percent of Percent of Percent of Percent of Percent of loans in loans in loans in loans in loans in Balance at End each each each each each of Period category to category to category to category to category to Applicable to: Amount total loans Amount total loans Amount total loans Amount total loans Amount total loans Commercial loans $11,079 60% $ 5,972 55% $5,286 52% $4,288 51% $4,672 49% Residential real estate loans 1,068 28% 2,329 32% 2,772 35% 2,166 35% 875 37% Consumer loans 1,084 12% 1,218 13% 475 13% 729 14% 657 14% Unallocated 283 N/A 1,282 N/A 857 N/A 909 N/A 778 N/A ------- --- ------- --- ------ --- ------ --- ------ --- $13,514 100% $10,801 100% $9,390 100% $8,092 100% $6,982 100% ======= === ======= === ====== === ====== === ====== ===
17 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES LIQUIDITY Liquidity is defined as the ability to meet current and future financial obligations of a short-term nature. The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet the cash flow needs of the Company in the most economical and expedient manner. The liquidity needs of the Company 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 maintains various sources of funding and levels of liquid assets in excess of regulatory guidelines in order to satisfy its varied liquidity demands. The Company monitors its liquidity in accordance with its internal guidelines and all applicable regulatory requirements. As of December 31, 2001 and 2000, the Company's level of liquidity exceeded its target levels. Management believes that the Company currently has appropriate liquidity available to respond to liquidity demands. Sources of funds utilized by the Company consist of deposits, borrowings from the FHLBB and other sources, cash flows from operations, prepayments and maturities of outstanding loans, investments and mortgage-backed securities, and the sales of mortgage loans. Deposits continue to represent the Company's primary source of funds. In 2001, total deposits increased by $19.2 million, or 2.6%, over 2000, ending the year at $763.6 million. The Company experienced growth in all deposit categories in 2001 except certificates of deposit. Comparing year-end balances 2001 to 2000, transaction accounts (demand deposits and NOW) increased by $20.9 million, money market accounts by $13.0 million, and savings accounts by $6.5 million. Certificates of deposit decreased by $21.3 million, in part, as a result of depositors converting to more liquid deposit instruments during a period of low interest rates. In 2000, total deposits increased by $76.6 million, or 11.5%, over 1999, ending the year at $744.4 million. Borrowings supplement deposits as a source of liquidity. In addition to borrowings from the FHLBB, the Company purchases federal funds, sells securities under agreements to repurchase and utilizes treasury tax and loan accounts. Total borrowings were $210.8 million at December 31, 2001 compared to $168.4 million at December 31, 2000, an increase of $42.4 million, or 25.2%. The majority of the borrowings were from the FHLBB, whose advances remained the largest non-deposit-related, interest-bearing funding source for the Company in both 2001 and 2000. Qualified residential real estate loans, certain investment securities and certain other assets available to be pledged secure these borrowings. CAPITAL RESOURCES 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 8.0%, of which at least 4.0% must be in the form of core capital. The risk-based ratios of the Company and its subsidiaries exceeded regulatory guidelines at December 31, 2001 and December 31, 2000. The Company's Tier 1 capital to risk-weighted assets was 12.9% and 11.8% at December 31, 2001 and 2000, respectively (see Note 21, "Regulatory Matters," of the Notes to Consolidated Financial Statements, on page 44, for other capital ratios). In addition to risk-based capital requirements, the FRB requires bank holding companies to maintain a minimum leverage capital ratio of core capital to total assets of 4.0%. Total assets for this purpose do not include goodwill and any other intangible assets and investments that the FRB determines should be deducted. The Company's leverage ratio at December 31, 2001 and 2000 was 8.7% and 8.6%, respectively. As part of the Company's goal to operate a safe, sound and profitable financial organization, the Company is committed to maintaining a strong capital base. Shareholders' equity totaled $105.1 million and $90.9 million, or 9.6% and 9.0%, of total assets at December 31, 2001 and 2000, respectively. The $14.1 million, or 15.6%, increase in shareholders' equity in 2001 was primarily attributable to net income of $15.4 million, less the costs associated with open market repurchases of approximately $1.4 million of the Company's common stock in compliance with the Company's previously announced stock repurchase policy and $5.2 million in cash dividends to the Company's shareholders, plus $5.3 million in unrealized gains on securities available for sale, net of deferred tax expense. The principal cash requirement of the Company is the payment of dividends on the Company's common stock as and when declared by the Board of Directors. Dividends paid per share during the year ended December 31, 2001 increased by 3.2% over the corresponding period in 2000. The Company is primarily dependent upon the payment of cash dividends by its subsidiaries to service its commitments. The Company, as the sole shareholder of its subsidiaries, is entitled to dividends when and as declared by each subsidiary's Board of Directors from legally available funds. Camden National Bank declared dividends in the aggregate amount of $11.5 million and $5.9 million in 2001 and 2000, respectively. UnitedKingfield Bank declared dividends in the aggregate amount of $3.3 million and $1.9 million in 2001 18 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] and 2000, respectively. As of December 31, 2001, and subject to the limitations and restrictions under applicable law, Camden National Bank and UnitedKingfield Bank had a total of $7.9 million available for dividends to the Company, although there is no assurance that dividends will be paid at any time in any amount (see Note 15, "Shareholders' Equity," of the Notes to Consolidated Financial Statements, on page 38, for additional information). Impact of Inflation and Changing Prices The Consolidated Financial Statements and the Notes to Consolidated Financial Statements presented elsewhere herein have been prepared in accordance with accounting principles generally accepted in the United States 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 subsidiaries' Boards of Directors that are reviewed and approved annually. Each subsidiary's Board of Directors delegates responsibility for carrying out the asset/liability management policies to Company's management 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 interest expenses 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 interestbearing 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 periodically over the past 2 years. 2001 - ---------------------------------------- Estimated Rate Change Changes in NII - ---------------------------------------- High Low Average +200bp (4.31%) 0.95% (1.80%) - -200bp 2.14% (0.24%) 0.79% 2001 - ---------------------------------------- Estimated Rate Change Changes in NII - ---------------------------------------- High Low Average +200bp (6.01%) (3.61%) (4.89%) - -200bp 4.63% 1.96% 3.49% 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 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. 19 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES The most significant factors affecting the changes in market risk exposure during 2001 compared to 2000 were the decrease in interest rates market-wide, changes in the yield curve for U.S. government securities, the increase in the aggregate principal amount in fixed-rate loans extended by the subsidiary banks, and the increase of fixedrate FHLBB borrowings. With increases on the balance sheet in fixed-rate loans and borrowings, the Company reduced its opportunity to lower funding costs in a declining rate environment. Due to the current low level of market rates the Company decreased its exposure in a rising rate environment, while increasing its market risk in both a flat or declining interest rate environment. The increased risk in the flat or declining interest rate environment is well within the Company's 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 subsidiaries. As of December 31, 2001, the Company had a notional principal of $90 million in interest rate cap agreements. In a purchased interest rate cap agreement, cash interest payments are received only if current interest rates rise above predetermined interest rates. These agreements were purchased to protect the Company's exposure to fixed rate instruments in a rising rate environment. The estimated effects of these derivative financial instruments on the Company's earnings are included in the sensitivity analysis presented above. ALCO monitors derivative activities relative to its expectation and the Company's hedging policy. Recent Accounting Pronouncements During 2001 several accounting pronouncements were promulgated by the Financial Accounting Standards Board ("FASB") which affected the operations of the Company. The following summarizes the specific pronouncements that affected the Company, while the FASB may have issued additional pronouncements which did not have a material impact on the Company. On January 1, 2001, 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." 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. Comprehensive income does not impact net income or regulatory capital, but is recorded as adjustments to shareholders' equity. 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. The Company adhered to the requirements of SFAS No. 140 upon the effective date for various transfers of financial assets after June 30, 2001. This pronouncement also includes standards for the accounting of various off-balance sheet financial vehicles, commonly referred to bankruptcy remote Special Purpose Vehicles ("SPV"). The Company has not sponsored SPVs or other similar off-balance sheet funding vehicles. During 2001, the FASB issued Statement No. 141, "Business Combinations," and Statement No. 142, "Goodwill and Other Intangible Assets." 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. In recording its acquisitions of Acadia, Gouws Capital and the minority interests of Trust Company of Maine, Inc., the Company implemented this pronouncement. 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 goodwill resulting from the Company's acquisitions of Acadia, Gouws Capital and Trust Company of Maine, Inc. was accounted for under SFAS No. 142. (See Note 2 to the Consolidated Financial Statements, on page 31, for more information.) SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," were promulgated during the year. SFAS Nos. 143 and 144 provide guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets and obligations associated with the retirement of tangible long-lived assets. Management does not expect these statements to have a material effect on the Company's consolidated financial condition and results of operations. 20 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] Related Party Transactions The Company, in the normal course of business, has made loans to certain officers and directors of the Company and its subsidiaries under such terms that are consistent with the Company's lending policies. In addition to extending loans to certain officers and directors of the Company and its subsidiaries at terms consistent with the Company's lending policies, federal banking regulations also require training, audit and examination of the Company's adherence to this policy by representatives of the Company's federal, national and state regulators. As described more fully in footnote 18 on page 41, the Company has not entered into significant non-lending related party transactions. Common Stock Information The Company has paid quarterly dividends since its inception in 1985. The market price (as quoted by AMEX) and cash dividends paid, per share of the Company's common stock, by calendar quarter for the past 2 years were as follows: 2001 - ----------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter High $18.80 $18.99 $17.10 $17.15 Low 16.15 15.40 12.70 12.82 Close 18.70 16.58 16.00 13.55 Dividend paid 0.16 0.16 0.16 0.16 2000 - ----------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter High $15.50 $15.75 $15.88 $16.88 Low 12.63 12.50 12.00 10.13 Close 14.25 15.75 13.50 11.88 Dividend paid 0.16 0.16 0.16 0.15 Information concerning restrictions on the ability of the Company's subsidiaries to transfer funds to the Company in the form of cash dividends is described in the Capital Resources section on page 18. As of December 31, 2001, there were 8,057,781 shares of the Company's common stock outstanding, held of record by approximately 1,004 shareholders. 21 Summary of Financial Performance NET INCOME (IN MILLIONS) [CHART] 1997 10.698 1998 11.451 1999 10.229 2000 13.859 2001 15.418 ASSETS (IN MILLIONS) [CHART] 1997 726.6 1998 839.3 1999 928.4 2000 1,010.9 2001 1,089.4 DEPOSITS (IN MILLIONS) [CHART] 1997 485.1 1998 641.6 1999 667.7 2000 744.4 2001 763.6 LOANS (IN MILLIONS) [CHART] 1997 483.3 1998 569.7 1999 635.4 2000 701.3 2001 724.0 EARNINGS PER SHARE (IN DOLLARS) [CHART] 1997 1.31 1998 1.40 1999 1.27 2000 1.70 2001 1.90 BOOK VALUE PER SHARE (IN DOLLARS) [CHART] 1997 9.01 1998 9.61 1999 9.51 2000 11.17 2001 13.04 22 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] Selected Five-Year Financial Data
(In thousands, except number of shares and per share data) DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------- FINANCIAL CONDITION DATA 2001 2000 1999 1998 1997 Assets $1,089,355 $1,010,883 $928,350 $839,280 $726,644 Loans 724,042 701,340 635,434 569,705 483,348 Allowance for Loan Losses 13,514 10,801 9,390 8,092 6,982 Investments 263,810 217,010 216,132 202,967 188,638 Deposits 763,568 744,360 667,720 641,553 485,132 Borrowings 210,843 168,440 173,924 113,682 160,697 Shareholders' Equity 105,068 90,923 77,623 77,789 74,112
YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------- OPERATIONS DATA 2001 2000 1999 1998 1997 Interest Income $ 79,870 $ 79,555 $ 69,496 $ 61,591 $ 58,363 Interest Expense 35,689 40,042 30,504 27,007 27,270 ---------- ---------- --------- -------- -------- Net Interest Income 44,181 39,513 38,992 34,584 31,093 Provision for Loan Losses 3,681 2,930 3,670 2,056 2,207 ---------- ---------- -------- -------- -------- Net Interest Income after Provision for Loan Losses 40,500 36,583 35,322 32,528 28,886 Non-interest Income 13,094 8,915 7,694 6,573 4,936 Non-interest Expense 31,014 25,396 27,604 22,220 17,916 ---------- ---------- -------- -------- -------- Income before Provision for Income Tax 22,580 20,102 15,412 16,881 15,906 Income Tax Expense 7,162 6,243 5,183 5,430 5,209 ---------- ---------- -------- -------- -------- Net Income $ 15,418 $ 13,859 $ 10,229 $ 11,451 $ 10,697 ========== ========== ======== ======== ========
AT OR FOR THE YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------------------- OTHER DATA 2001 2000 1999 1998 1997 Basic Earnings Per Share $ 1.90 $ 1.70 $ 1.27 $ 1.40 $ 1.31 Diluted Earnings Per Share 1.89 1.69 1.27 1.38 1.27 Dividends Per Share 0.64 0.63 0.52 0.47 0.38 Book Value Per Share 13.04 11.17 9.51 9.61 9.01 Return on Average Assets 1.47% 1.40% 1.15% 1.52% 1.52% Return on Average Equity 15.55% 16.43% 13.16% 15.09% 15.11% Allowance for Loan Losses to Total Loans 1.87% 1.54% 1.48% 1.42% 1.44% Non-Performing Loans to Total Loans 1.14% 0.98% 1.00% 0.82% 0.89% Stock Dividend Payout Ratio 33.90% 37.17% 40.90% 33.74% 29.31%
23 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] Consolidated Statements of Condition
(In thousands, except number of shares and per share data) DECEMBER 31, - -------------------------------------------------------------------------------------------------------- 2001 2000 Assets Cash and due from banks $ 38,861 $ 29,337 Securities available for sale, at market value 262,866 159,315 Securities held to maturity (market value $944 and $60,698 at December 31, 2001 and 2000, respectively) 944 57,695 Residential mortgages held for sale -- 12,838 Loans, less allowance for loan losses of $13,514 and $10,801 at December 31, 2001 and 2000, respectively 710,528 677,701 Premises and equipment 17,437 16,023 Other real estate owned 195 380 Interest receivable 5,054 6,959 Core deposit intangible 5,708 6,660 Other assets 47,762 43,975 ---------- ----------- Total assets $1,089,355 $ 1,010,883 ========== =========== Liabilities Deposits: Demand $ 96,162 $ 83,631 NOW 95,664 87,270 Money market 134,333 121,292 Savings 88,226 81,730 Certificates of deposit 349,183 370,437 ---------- ----------- Total deposits 763,568 744,360 Borrowings from Federal Home Loan Bank 168,832 132,348 Other borrowed funds 42,011 36,092 Accrued interest and other liabilities 9,876 6,984 Minority interest in subsidiary -- 176 ---------- ----------- Total liabilities 984,287 919,960 ---------- ----------- Commitments (Notes 4, 13, 15, 19, 20 and 21) Shareholders' Equity Common stock, no par value; authorized 10,000,000 shares, issued 8,609,898 shares in 2001 and 2000 2,450 2,450 Surplus 5,795 5,909 Retained earnings 102,630 92,292 Accumulated other comprehensive income (loss) Net unrealized gains (losses) on securities available for sale, net of tax 4,514 (812) ---------- ----------- 115,389 99,839 Less remaining obligation under: Bank recognition and retention plan 9 14 Less cost of 552,117 and 464,557 shares of treasury stock on December 31, 2001 and 2000, respectively 10,312 8,902 ---------- ----------- Total shareholders' equity 105,068 90,923 ---------- ----------- Total liabilities and shareholders' equity $1,089,355 $ 1,010,883 ========== ===========
The accompanying Notes are an integral part of these Consolidated Financial Statements. 24 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] Consolidated Statements of Income
(In thousands, except number of shares and per share data) Year Ended December 31, - ------------------------------------------------------------------------------------------------- 2001 2000 1999 Interest Income Interest and fees on loans $ 62,362 $ 61,540 $ 53,771 Interest on U.S. government and agency obligations 14,659 14,753 14,041 Interest on state and political subdivision obligations 388 393 400 Interest on interest rate swap agreements 1,370 1,434 172 Interest on federal funds sold and other investments 1,091 1,435 1,112 ---------- ---------- ---------- Total interest income 79,870 79,555 69,496 ---------- ---------- ---------- Interest Expense Interest on deposits 24,895 27,066 23,187 Interest on other borrowings 9,846 11,650 7,182 Interest on interest rate swap agreements 948 1,326 135 ---------- ---------- ---------- Total interest expense 35,689 40,042 30,504 ---------- ---------- ---------- Net interest income 44,181 39,513 38,992 Provision for Loan Losses 3,681 2,930 3,670 ---------- ---------- ---------- Net interest income after provision for loan losses 40,500 36,583 35,322 ---------- ---------- ---------- Other Income Service charges on deposit accounts 3,542 2,880 2,773 Other service charges and fees 2,390 1,764 1,488 Merchant assessments 2,086 1,802 1,494 Trust fees 2,503 1,281 776 Gain on sale of derivatives 932 -- -- Gain on sale of securities 336 -- 151 Other income 1,305 1,188 1,012 ---------- ---------- ---------- Total other income 13,094 8,915 7,694 ---------- ---------- ---------- 53,594 45,498 43,016 ---------- ---------- ---------- Operating Expenses Salaries and employee benefits 14,279 11,558 12,578 Net occupancy 2,075 1,666 1,579 Furniture, equipment and data processing 2,125 2,097 2,167 Merchant program 1,995 1,778 1,488 Amortization of core deposit intangible 952 986 1,011 Acquisition related 353 232 2,046 Other 9,235 7,079 6,735 ---------- ---------- ---------- Total operating expenses 31,014 25,396 27,604 ---------- ---------- ---------- Income before income taxes 22,580 20,102 15,412 Income Taxes 7,162 6,243 5,183 ---------- ---------- ---------- Net Income $ 15,418 $ 13,859 $ 10,229 ========== ========== ========== Per Share Data Basic earnings per share $ 1.90 $ 1.70 $ 1.27 Diluted earnings per share 1.89 1.69 1.27 Weighted average number of shares outstanding 8,123,928 8,164,188 8,033,757
The accompanying Notes are an integral part of these Consolidated Financial Statements 25 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders' Equity
Net Unrealized Gains (Losses) Employee on Securities Stock (In thousands, except number Common Retained Available Ownership of shares and per share data) Stock Surplus Earnings for Sale Plan - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 $ 2,449 $ 5,984 $ 77,581 $ 82 $ (68) --------- ------- --------- --------- ----- Net income for 1999 -- -- 10,229 -- -- Change in unrealized gains (losses) on securities available for sale, net of tax benefit of $3 million -- -- -- (5,864) -- --------- ------- --------- --------- ----- Total comprehensive income -- -- 10,229 (5,864) -- Purchase of treasury stock (102,740 shares) -- -- -- -- -- Sale of treasury stock (125,000 shares) -- -- -- -- -- Exercise and repurchase of stock options (93,000 shares), net of tax benefit of $525 -- (338) -- -- -- Retirement of treasury stock (31,983 shares) -- (270) (66) -- -- Payment of obligation under employee stock ownership plan -- 388 21 -- 68 Bank recognition and retention plan -- -- -- -- -- 71,440 shares issued under stock option plans 1 226 -- -- -- Cash dividends declared ($0.52 / share) -- -- (4,182) -- -- --------- ------- --------- --------- ----- Balance at December 31, 1999 $ 2,450 $ 5,990 $ 83,583 $ (5,782) $ -- --------- ------- --------- --------- ----- Net income for 2000 -- -- 13,859 -- -- Change in unrealized gains on securities available for sale, net of deferred taxes of $2.6 million -- -- -- 4,970 -- --------- ------- --------- --------- ----- Total comprehensive income -- -- 13,859 4,970 -- Purchase of treasury stock (24,950 shares) -- -- -- -- -- Exercise and repurchase of stock options (8,680 shares), net of tax benefit of $6 -- (62) -- -- -- Exercise of stock options (2,933 shares), net of tax benefit of $11 -- (19) -- -- -- Bank recognition and retention plan -- -- -- -- -- Cash dividends declared ($0.63 / share) -- -- (5,150) -- -- --------- ------- --------- --------- ----- Balance at December 31 2000 $ 2,450 $ 5,909 $ 92,292 $ (812) $ -- --------- ------- --------- --------- ----- Net income for 2001 -- -- 15,418 -- -- 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 -- Change in unrealized gains on securities available for sale, net of deferred taxes of $1.7 million -- -- -- 3,344 -- --------- ------- --------- --------- ----- Total comprehensive income -- -- 15,418 5,326 -- Purchase of treasury stock (87,560 shares) -- -- -- -- -- Exercise and repurchase of stock options (19,926 shares), net of tax benefit of $41 -- (114) -- -- -- Bank recognition and retention plan -- -- -- -- -- Acquisition of minority interest -- -- 146 -- -- Cash dividends declared ($0.64 / share) -- -- (5,226) -- -- --------- ------- --------- --------- ----- Balance at December 31, 2001 $ 2,450 $ 5,795 $ 102,630 $ 4,514 $ -- ========= ======= ========= ========= ===== Bank Recognition Total (In thousands, except number and Retention Treasury Shareholders' of shares and per share data) Plan Stock Equity - --------------------------------------------------------------------------------------------------- Balance at December 31, 1998 $ (30) $ (8,209) $ 77,789 -------- -------- --------- Net income for 1999 -- -- 10,229 Change in unrealized gains (losses) on securities available for sale, net of tax benefit of $3 million -- -- (5,864) -------- -------- --------- Total comprehensive income -- -- 4,365 Purchase of treasury stock (102,740 shares) -- (2,337) (2,337) Sale of treasury stock (125,000 shares) -- 2,249 2,249 Exercise and repurchase of stock options (93,000 shares), net of tax benefit of $525 -- (637) (975) Retirement of treasury stock (31,983 shares) -- 336 -- Payment of obligation under employee stock ownership plan -- -- 477 Bank recognition and retention plan 10 -- 10 71,440 shares issued under stock option plans -- -- 227 Cash dividends declared ($0.52 / share) -- -- (4,182) -------- -------- --------- Balance at December 31, 1999 $ (20) $ (8,598) $ 77,623 -------- -------- --------- Net income for 2000 -- -- 13,859 Change in unrealized gains on securities available for sale, net of deferred taxes of $2.6 million -- -- 4,970 -------- -------- --------- Total comprehensive income -- -- 18,829 Purchase of treasury stock (24,950 shares) -- (394) (394) Exercise and repurchase of stock options (8,680 shares), net of tax benefit of $6 -- 40 (22) Exercise of stock options (2,933 shares), net of tax benefit of $11 -- 50 31 Bank recognition and retention plan 6 -- 6 Cash dividends declared ($0.63 / share) -- -- (5,150) -------- -------- --------- Balance at December 31 2000 $ (14) $ (8,902) $ 90,923 -------- -------- --------- Net income for 2001 -- -- 15,418 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 Change in unrealized gains on securities available for sale, net of deferred taxes of $1.7 million -- -- 3,344 -------- -------- --------- Total comprehensive income -- -- 20,744 Purchase of treasury stock (87,560 shares) -- (1,444) (1,444) Exercise and repurchase of stock options (19,926 shares), net of tax benefit of $41 -- 34 (80) Bank recognition and retention plan 5 -- 5 Acquisition of minority interest -- -- 146 Cash dividends declared ($0.64 / share) -- -- (5,226) -------- -------- --------- Balance at December 31, 2001 $ (9) $(10,312) $ 105,068 ====t=== ======== =========
The accompanying Notes are an integral part of these Consolidated Financial Statements. 26 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] Consolidated Statements of Cash Flows
(In thousands) YEAR ENDED DECEMBER 31, - ------------------------------------------------------------------------------------------------------------- 2001 2000 1999 Operating Activities Net Income $ 15,418 $ 13,859 $ 10,229 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 3,681 2,930 3,670 Depreciation and amortization 2,545 1,371 1,089 Decrease in obligation under ESOP and BRRP 5 6 487 Decrease (increase) in interest receivable 1,905 (1,117) (551) (Increase) decrease in other assets (1,659) 2,744 (3,755) Increase (decrease) in other liabilities 2,474 (5,343) 6,004 Decrease (increase) in residential mortgage loans held for sale 12,838 (5,932) 1,322 (Decrease) increase in minority position (176) 61 25 Gain on sale of securities (336) -- (151) ----------- ----------- ----------- Net cash provided by operating activities 36,695 8,579 18,369 ----------- ----------- ----------- Investing Activities Proceeds from sales and maturities of securities held to maturity -- 10,587 29,909 Proceeds from sales and maturities of securities available for sale 39,805 8,509 20,402 Purchase of securities held to maturity (944) -- -- Purchase of securities available for sale (77,217) (12,456) (72,072) Purchase of Federal Home Loan Bank Stock -- (174) (331) Net increase in loans (36,508) (61,493) (69,424) Net decrease (increase) in other real estate owned 185 1,025 (353) Purchase of premises and equipment (3,503) (5,506) (1,421) Net decrease (increase) in federal funds sold -- 415 (415) Purchase of bank-owned life insurance -- (10,000) -- Cash paid in connection with acquisitions (4,563) -- -- Cash received through acquisitions 567 -- -- ----------- ----------- ----------- Net cash used by investing activities (82,178) (69,093) (93,705) ----------- ----------- ----------- Financing Activities Net increase in deposits 19,208 76,640 26,167 Proceeds from Federal Home Loan Bank borrowings 3,698,976 5,299,675 2,611,375 Repayments on Federal Home Loan Bank borrowings (3,662,492) (5,296,193) (2,565,421) Net increase (decrease) in other borrowed funds 5,919 (8,966) 14,288 Purchase of treasury stock (1,444) (394) (2,337) Sale of treasury stock -- -- 2,249 Proceeds from stock issuance under option plan -- 31 227 Exercise and repurchase of stock options (80) (22) (975) Acquisition of minority interest 146 -- -- Cash dividends paid (5,226) (5,150) (4,182) ----------- ----------- ----------- Net cash provided by financing activities 55,007 65,621 81,391 ----------- ----------- ----------- Net increase in cash and cash equivalents 9,524 5,107 6,055 Cash and cash equivalents at beginning of year 29,337 24,230 18,175 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 38,861 $ 29,337 $ 24,230 =========== =========== =========== Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ 36,594 $ 39,516 $ 30,270 Income tax 7,878 6,320 6,057 Non-Cash transactions: Transfer from loans to other real estate owned 371 302 1,418 Securitization of mortgage loans 57,000 -- -- Transfer from securities held to maturity to available for sale 57,695 -- -- Transfer from loans held for sale to loan portfolio -- -- 24,637
See Note 2, "Acquisitions," of the Notes to Consolidated Financial Statements, on page 31, for acquisition disclosure. The accompanying Notes are an integral part of these Consolidated Financial Statements. 27 [GRAPHIC]CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2001, 2000 and 1999 (Amounts in tables expressed in thousands, except number of shares and per share data) NATURE OF OPERATIONS. Camden National Corporation (the "Company"), as a multi-bank holding company, provides financial services to its customers through four principal subsidiaries. Camden National Bank and UnitedKingfield Bank provide traditional commercial and consumer financial services through 28 branch locations in central, southern, mid-coast and western Maine and by online access. Acadia Trust, N.A. and Trust Company of Maine, Inc. provide trust and investment management services to their clients, who are primarily located in the State of Maine, and to the clients of the Company's two banking subsidiaries. 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies conform to accounting principles generally accepted in the United States and to general practice within the banking industry. The following is a summary of the significant accounting and reporting policies. Principles of Consolidation. The accompanying Consolidated Financial Statements include the accounts of the Company, its wholly owned bank subsidiaries, Camden National Bank and UnitedKingfield Bank, and its wholly owned non-bank subsidiaries, Acadia Trust, N.A. and Trust Company of Maine, Inc. All intercompany accounts and transactions have been eliminated in consolidation. Assets held by the non-bank subsidiaries in a fiduciary capacity are not assets of the Company and, therefore, are not included in the Consolidated Statement of Condition. Use of Estimates in the Preparation of Financial Statements. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the carrying value of real estate owned, management obtains independent appraisals for significant properties. Cash. The Company is required to comply with various laws and regulations of the Federal Reserve Bank ("FRB") which require the Company to maintain certain amounts of cash on deposit and restrict the Company from investing those amounts. The Company maintains those balances at the FRB of Boston. In the normal course of business, the Company has funds on deposit at other financial institutions in amounts in excess of the $100,000 insured by the Federal Deposit Insurance Corporation ("FDIC"). For the statement of cash flows, cash equivalents consist of cash and due from banks. Investment Securities. The Company has classified its investment securities into investments available for sale and investments to be held to maturity. Securities Available for Sale. Debt and other securities that are to be held for indefinite periods of time are stated at market value. Changes in net unrealized gains or losses are recorded as an adjustment to shareholders' equity until realized. Market values of securities are determined by prices obtained from independent market sources. Realized gains and losses on securities sold are computed on the identified cost basis on the trade date. Securities Held to Maturity. Bonds and notes for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are recognized in interest income using the interest method over the period to maturity. Residential Mortgages Held for Sale. Residential mortgages held for sale are primarily one-to-four family real estate loans which are valued at the lower of cost or market on an individual basis, as determined by quoted market prices from the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Gains and losses from sales of residential mortgages held for sale are recognized upon settlement with investors and recorded in other income. These activities, together with underwriting residential mortgage loans, comprise the Company's mortgage banking business. 28 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES[GRAPHIC] Loan Servicing. The cost of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on a current market interest rate. For purposes of measuring impairment, the rights are stratified based on the following predominant risk characteristics of the underlying loans: interest rate, fixed versus variable rate, and period of origination. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights for a stratum exceed their fair value. Loans. Interest on loans is accrued and credited to income based on the principal amount outstanding. The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to meet payments as they become due. Upon such discontinuance, interest income is reduced for all accrued but unpaid interest. Fees received and direct costs incurred for the origination of loans are deferred and recognized as an adjustment of loan yield. The allowance for loan losses is maintained at a level adequate to absorb future charge-offs of loans deemed uncollectible. Management determines the adequacy of the allowance based upon reviews of individual credits, recent loss experience, current economic conditions, known and inherent risk characteristics of the various categories of loans, adverse situations that may affect the borrower's ability to repay, estimated value of underlying collateral, and other pertinent factors. The allowance is increased by provisions charged to operating expense and by recoveries on loans previously charged off. Credits deemed uncollectible are charged against the allowance. Loans considered to be impaired are reduced to the present value of expected future cash flows or to the fair value of collateral, by allocating a portion of the allowance for loan losses to such loans. If these allocations cause the allowance for loan losses to require an increase, such increase is reported as provision for loan losses. The carrying values of impaired loans are periodically adjusted to reflect cash payments, revised estimates of future cash flows, and increases in the present value of expected cash flows due to the passage of time. Cash payments representing interest income are reported as such. Other cash payments are reported as reductions in carrying value, while increases or decreases due to changes in estimates of future payments and due to the passage of time are reported as provision for loan losses. Other Real Estate Owned. Other real estate owned represents real estate acquired through foreclosure or upon receipt of a deed in lieu of foreclosure and is recorded at the lower of the recorded amount of the loan or market value of the underlying collateral, less estimated selling costs, determined by an independent appraisal, with any difference at the time of acquisition treated as a loan loss. Subsequent reductions in market value below the carrying cost are charged directly to other operating expenses. Premises and Equipment. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the related assets. Intangible Assets. The value of core deposits premium with respect to $104.0 million in deposits acquired by the Company in connection with the acquisition, in 1998, of 8 branch locations is being amortized over periods ranging from 10 to 15 years using the straight-line method. Accumulated amortization of core deposit intangibles was $3,921,000 and $2,969,000 at December 31, 2001 and 2000, respectively. Amortization of software is recognized using the straight-line method over the estimated useful lives of the various software items, which primarily is 3 years. On an ongoing basis, management reviews the valuation and amortization of intangible assets to determine possible impairment. Other Borrowed Funds. Other borrowed funds consist of commercial and consumer repurchase agreements and treasury tax and loan deposits. Securities sold under agreements to repurchase generally mature within 30 days and are reflected at the amount of cash received in connection with the transaction. The Company may be required to provide additional collateral based on the fair value of the underlying securities. Treasury tax and loan deposits generally do not have fixed maturity dates. Income Taxes. The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax implications attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Principal temporary differences occur with respect to pension and other postretirement benefits, depreciation and the provision for loan losses. 29 [GRAPHIC]CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES Earnings Per Share. Basic earnings per share data is computed based on the weighted average number of the Company's common shares outstanding during each year. Potential common stock is considered in the calculation of weighted-average shares outstanding for diluted earnings per share, and is determined using the treasury stock method. Financial Instruments with Off-Balance Sheet Risk. In the ordinary course of business, the Company has entered into credit related financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded. Derivative Financial Instruments Designated as Hedges. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which sets accounting and reporting standards for derivative instruments and hedging activities. The Statement, as amended by SFAS No. 138, requires the Company to recognize all derivatives in the Consolidated Statement of Condition at fair value. The Company adopted the Statement effective January 1, 2001 and transferred all of its investment securities classified as held to maturity to the available-for-sale classification. The impact of this reclassification was an increase to other comprehensive income of $2.0 million, net of applicable taxes, which was reported as a cumulative effect adjustment to other comprehensive income. Under the provisions of SFAS No. 133, the Company recognizes all derivatives in the Consolidated Statement of Condition at fair value. On the date the derivative contract is entered into, the Company designates the derivative as either a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow hedge"), a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge") or a "held for trading" ("trading instrument") instrument. The Company formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows or fair values of hedged items. Changes in fair value of a derivative that is highly effective and that qualifies as a cash flow hedge are recorded in other comprehensive income and are reclassified into earnings when the forecasted transaction or related cash flows affect earnings. Changes in fair value of a derivative that qualifies as a fair value hedge, and the change in fair value of the hedged item are both recorded in earnings and offset each other when the transaction is highly effective. Those derivatives that are classified as trading activities are recorded at fair value with changes in fair value recorded in earnings. The Company discontinues hedge accounting when it determines that the derivative is no longer highly effective in offsetting changes in the cash flows of the hedged item, that it is unlikely that the forecasted transaction will occur, or that the designation of the derivative as a hedging instrument is no longer appropriate. Fair Value Disclosures. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and due from banks: The carrying amounts of cash and due from banks approximates its fair value. Securities held to maturity and securities available for sale: Fair values of securities held to maturity and securities available for sale are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying amounts of other securities approximate their fair value. Residential mortgages held for sale: Fair values are based on quoted market prices from Freddie Mac. Loans receivable: For variable rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. The fair value of other loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Interest receivable and payable: The carrying amounts of interest receivable and payable approximate their fair value. Life insurance policies: The carrying amounts of life insurance policies approximate their fair value. Deposits: The fair value of demand and NOW deposits, savings accounts, and certain money market deposits is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered in the Company's market for deposits of similar remaining maturities. Borrowings: The carrying amounts of short-term borrowings from the Federal Home Loan Bank of Boston ("FHLBB"), securities under repurchase agreements and other short-term borrowings approximate fair value. The fair value of long-term borrowings is based on the discounted cash flows using current rates for advances of similar remaining maturities. 30 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES[GRAPHIC] Derivative financial instruments: Fair values for interest rate swaps, floor and cap contracts are based on quoted market prices. Credit related financial instruments: In the course of originating loans and extending credit and standby letters of credit, the Company charges fees in exchange for its lending commitment. While these commitment fees have value, the Company does not believe their value is material to its financial statements due to the short-term nature of the underlying commitments. Effect of Recently Issued Financial Standards. During 2001, the FASB issued SFAS No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 141 requires that the purchase method be used to account 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 on January 1, 2002. SFAS Nos. 143 and 144 provide guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets and obligations associated with the retirement of tangible long-lived assets. Management does not expect these statements to have any material effect on the Company's consolidated financial condition and results of operations. Reclassification. Certain items from the prior year were restated to conform with the current year presentation. 2.ACQUISITIONS On July 19, 2001, the Company acquired 100% of the outstanding common stock of Acadia Trust, N.A. ("Acadia") and Gouws Capital Management, Inc. ("Gouws Capital"). Acadia, headquartered in Portland, Maine and founded in 1991, is a nationally chartered trust company offering traditional trust services and was custodian and trustee, at the date of acquisition, for approximately $300 million in assets. Gouws Capital, founded in 1984 and also headquartered in Portland, Maine, offers investment advisory services to high net worth individuals and institutions. Gouws Capital had approximately $342 million of assets under management at the date of acquisition, of which approximately $300 million was held at Acadia. The purchase of Acadia and Gouws Capital was accounted for as a "purchase" under SFAS No. 141, "Business Combinations." The Company has recognized goodwill equal to the sum of the cost of the acquisition and the difference between the fair value of the assets acquired less the liabilities assumed as follows: Cost ofacquisition $ 4,563 Fair value of assets acquired (2,479) Liabilities assumed 1,076 ------- Goodwill related to acquisition $ 3,160 ======= On October 24, 2001, the Company acquired the remaining 49% of Trust Company of Maine, Inc. ("TCOM"). The Company acquired the majority ownership (51%) of TCOM in December 1995 through the Company's merger with UnitedCorp, then the parent of TCOM. TCOM is a trust company chartered under the laws of the State of Maine and has its principal office in Bangor, Maine. TCOM provides a broad range of trust, trust-related and investment services, in addition to retirement and pension plan management services, to both individual and institutional clients. This transaction resulted in the recognition of $1.1 million in goodwill. Goodwill recorded as part of the acquisitions has not been amortized and will be measured for impairment as required by SFAS No. 142. In addition, under the purchase method of accounting, the results of operations of the acquired subsidiaries are included in the results of operations only from their respective dates of acquisition. 31 [GRAPHIC]CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES 3. INVESTMENT SECURITIES The following tables summarize the amortized costs and market values of securities available for sale and held to maturity, as of the dates indicated:
DECEMBER 31, 2001 - ------------------------------------------------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE Available for sale U.S. Treasury securities and obligations of U.S.government corporations and agencies $ 58,204 $2,894 $ -- $ 61,098 Obligations of states and political subdivisions 8,923 21 (164) 8,780 Mortgage-backed securities 136,094 3,391 (26) 139,459 Other debt securities 41,295 826 (158) 41,963 -------- ------ ----- -------- Total debt securities 244,516 7,132 (348) 251,300 -------- ------ ----- -------- Equity securities 11,509 133 (76) 11,566 -------- ------ ----- -------- Total securities available for sale $256,025 $7,265 $(424) $262,866 ======== ====== ===== ======== Held to maturity U.S. Treasury securities and obligations of U.S.government corporations and agencies $ 944 $ -- $ -- $ 944 -------- ------ ----- -------- Total securities held to maturity $ 944 $ -- $ -- $ 944 ======== ====== ===== ========
DECEMBER 31, 2000 - ------------------------------------------------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE Available for sale U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 57,919 $1,088 $ (299) $ 58,708 Obligations of states and political subdivisions 8,208 -- (280) 7,928 Mortgage-backed securities 30,174 179 (236) 30,117 Other debt securities 45,780 -- (1,313) 44,467 -------- ------ ------- -------- Total debt securities 142,081 1,267 (2,128) 141,220 -------- ------ ------- -------- Equity securities 18,464 150 (519) 18,095 -------- ------ ------- -------- Total securities available for sale $160,545 $1,417 $(2,647) $159,315 ======== ====== ======= ======== Held to maturity U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 300 $ -- $ (25) $ 275 Obligations of states and political subdivisions 1,142 12 -- 1,154 Other debt securities 595 14 (11) 598 Mortgage-backed securities 55,658 3,038 (25) 58,671 -------- ------ ------- -------- Total securities held to maturity $ 57,695 $3,064 $ (61) $ 60,698 ======== ====== ======= ========
32 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES[GRAPHIC] The amortized cost and fair values of debt securities by contractual maturity at December 31, 2001 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. AMORTIZED FAIR COST VALUE - -------------------------------------------------------------------------------- Available for sale Due in one year or less $ 8,545 $ 8,812 Due after one year through five years 60,115 62,972 Due after five years through ten years 28,171 28,800 Due after ten years 147,685 150,716 -------- -------- $244,516 $251,300 ======== ======== AMORTIZED FAIR COST VALUE - -------------------------------------------------------------------------------- Held to maturity Due in one year or less $944 $944 ---- ---- $944 $944 ==== ==== For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated to the due-after-ten-years category. Proceeds from the sale of investments classified as available for sale during 2001 were $7,356,490, which resulted in gross realized gains of $336,423. There were no sales in the held-to-maturity portfolio during 2001. There were no sales in either the available-forsale or held-to-maturity portfolios during 2000. Proceeds from the sale of investments classified as held to maturity during 1999 were $5,023,000, which resulted in a gross realized gain of $26,000. The investments were sold within 3 months of the maturity date. In 1999, proceeds from the sale of investments classified as available for sale were $10,637,000, which resulted in a gross realized gain of $125,000. At December 31, 2001 and 2000, securities with an amortized cost of $78,113,000 and $78,539,000 and a fair value of $80,934,000 and $79,504,000, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and other purposes required or permitted by law. 4.DERIVATIVE FINANCIAL INSTRUMENTS The Company has interest rate protection agreements (caps) with notional amounts of $90.0 million at December 31, 2001. These caps are used to limit the Company's exposure to a rising rate environment. Under these agreements the Company paid up front premiums of $239,000 for the right to receive cash flow payments in excess of the predetermined cap rate; thus, effectively 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 will be carried on the Consolidated Statement of Condition at fair value with the time and option volatility value changes reflected in the current Consolidated Statement of Income. Any intrinsic value will be recorded in other comprehensive income and recognized in future Consolidated Statements of Income as an offset to related future interest costs. As of December 31, 2001 the caps have no fair value and therefore there was no effect on the Consolidated Statement of Income or other comprehensive income. As part of its interest rate risk management, the Company used interest rate swap agreements to hedge a portfolio of brokered certificates of deposit. These swaps were designated as a fair value hedge since they were used to convert the cost of the certificates of deposit from a fixed to a variable rate. These swaps were called during the third quarter and subsequently the Company exercised the call option on the brokered certificates of deposit offsetting the swaps. Since the hedge relationship was 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 Consolidated Statement of Income or on the Consolidated Statement of Changes in Shareholders' Equity. On April 11, 2001 the Company sold an interest rate floor agreement and an interest rate swap agreement. The purpose of the interest rate floor was to protect net interest income from falling interest rates by "flooring" certain asset yields for a contracted period of time, and thus provide a minimum earnings level from these assets. The purpose of the interest rate swap agreement was to exchange a 33 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES variable rate asset for a fixed rate asset, thus protecting 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 both the interest rate floor agreement and the interest rate swap agreement rather than wait for the potential cash flows over the life of these instruments. In addition, subsequent to the Company having purchased these instruments, other strategies were implemented to protect the balance sheet in a declining interest rate environment including the use of short-term funding and the extension of fixed rate assets. The impact of the sale of the interest rate floor and interest rate swap agreements was an increase to net income of $614,800, net of applicable taxes. 5. LOANS The composition of the Company's loan portfolio at December 31 was as follows: 2001 2000 - ------------------------------------------------------------------------------- Commercial loans $423,893 $364,169 Residential real estate loans 204,819 223,625 Consumer loans 86,375 90,231 Municipal loans 9,234 10,924 Other loans 497 462 -------- -------- Total loans 724,818 689,411 Less deferred loan fees net of costs 776 909 Less allowance for loan losses 13,514 10,801 -------- -------- $710,528 $677,701 ======== ======== The Company's lending activities are conducted in mid-coast, southern, central and western Maine. The Company makes single family and multi-family residential loans, commercial real estate loans, business loans and a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and commercial real estate properties. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the geographic area and the general economy. As of December 31, 2001 and 2000, nonaccrual loans were $7,022,000 and $4,644,000, respectively. Interest foregone was approximately $505,000, $528,000 and $408,000 for 2001, 2000 and 1999, respectively. 6. ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses were as follows: DECEMBER 31, - ------------------------------------------------------------------------------- 2001 2000 1999 Beginning balance $ 10,801 $ 9,390 $ 8,092 Provision for loan losses 3,681 2,930 3,670 Recoveries 581 626 288 Loans charged off (1,549) (2,145) (2,660) -------- -------- -------- Net charge offs (968) (1,519) (2,372) -------- -------- -------- Ending balance $ 13,514 $ 10,801 $ 9,390 ======== ======== ======== Information regarding impaired loans is as follows: DECEMBER 31, - ------------------------------------------------------------------------------- 2001 2000 1999 Average investment in impaired loans $ 6,030 $ 5,871 $ 5,455 Interest income recognized on impaired loans, all on cash basis 330 241 452 Balance of impaired loans 7,022 4,644 6,136 Portion of impaired loan balance for which an allowance for credit losses is allocated 7,022 4,644 6,136 Portion of allowance for loan losses allocated to the impaired loan balance 1,862 860 1,179 34 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] 7. SECURITIZATION OF MORTGAGE LOANS During September 2001, the Company implemented a balance sheet restructuring program that included the securitization, with Freddie Mac, of $57.0 million of fixed rate residential mortgages. This transaction resulted in the Company's loan balances decreasing, as those assets shifted to investment securities. The Company will receive annual servicing fees as compensation for servicing the outstanding balances. The Company has no retained interests in the securitized residential mortgage loans. In addition, $677,300 of mortgage servicing rights associated with this transaction were recognized in income during 2001. The Company did not securitize any loans during 2000 or 1999. 8. MORTGAGE SERVICING Residential real estate mortgages are originated by the Company both for portfolio and for sale into the secondary market. The sale of loans is to institutional investors such as Freddie Mac. Under loan sale and servicing agreements with the investor, the Company generally continues to service the residential real estate mortgages. The Company pays the investor an agreed-upon rate on the loan, which, including a guarantee fee paid to Freddie Mac, is less than the interest rate the Company receives from the borrower. The difference is retained by the Company as a fee for servicing the residential real estate mortgages. As required by SFAS No. 140, the Company capitalizes mortgage servicing rights at their fair value upon sale of the related loans. Capitalized servicing rights totaled $829,000, $107,000 and $171,000 during 2001, 2000 and 1999, respectively. Amortization expense totaled $217,000, $32,000 and $22,000 for 2001, 2000 and 1999, respectively. Mortgage loans serviced for others are not included in the accompanying Consolidated Statements of Condition of the Company. The unpaid principal balance of mortgage loans serviced for others was $147,232,000, $111,002,000 and $105,263,000 at December 31, 2001, 2000 and 1999, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits, were $341,000 and $267,000 at December 31, 2001 and 2000, respectively. 9. PREMISES AND EQUIPMENT Details of premises and equipment, at cost, at December 31 were as follows: 2001 2000 - ------------------------------------------------------------------------------- Land and buildings $ 15,857 $ 12,265 Furniture, fixtures and equipment 15,151 12,813 Leasehold improvements 1,222 1,186 Construction in process -- 2,524 -------- -------- 32,230 28,788 Less: Accumulated depreciation and amortization 14,793 12,765 -------- -------- $ 17,437 $ 16,023 ======== ======== Depreciation expense was $1,911,000, $1,529,000 and $1,553,000 for 2001, 2000 and 1999, respectively. 10. OTHER REAL ESTATE OWNED The transactions in other real estate owned for the years ended December 31 were as follows: 2001 2000 1999 - ------------------------------------------------------------------------------- Beginning balance $ 380 $ 1,405 $ 1,052 Additions 371 302 1,418 Properties sold 554 1,180 491 Writedowns 2 147 574 -------- -------- -------- Ending balance $ 195 $ 380 $ 1,405 ======== ======== ======== 35 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES 11. DEPOSITS The aggregate amount of certificates of deposit with a minimum denomination of $100,000 was approximately $63,451,000 and $74,329,000 at December 31, 2001 and 2000, respectively. Certificates of deposit included brokered deposits in the amount of $46,196,000 and $26,931,000 at December 31, 2001 and 2000, respectively. At December 31, 2001, the scheduled maturities for all certificates of deposit were as follows: 2002 $218,511 2003 53,161 2004 50,315 2005 16,700 2006 6,066 Thereafter 4,430 -------- $349,183 ======== 12. BORROWINGS A summary of the borrowings, including the outstanding balance of lines of credit, from the FHLBB is as follows: DECEMBER 31, 2001 - -------------------------------------------------------------------------------- Principal Amounts Interest Rates Maturity Date $ 24,578 4.82% - 5.19% 2002 45,000 4.24% - 6.12% 2003 12,000 3.27% - 5.19% 2004 31,254 3.97% - 5.55% 2006 12,000 4.88% - 4.97% 2009 10,000 4.95% 2010 34,000 4.07% - 5.02% 2011 -------- $168,832 ======== DECEMBER 31, 2000 - -------------------------------------------------------------------------------- Principal Amounts Interest Rates Maturity Date $ 78,348 6.52% - 6.67% 2001 32,000 6.08% - 6.12% 2003 12,000 4.88% - 4.97% 2009 10,000 4.95% 2010 -------- $132,348 ======== Short- and long-term borrowings from the FHLBB consist of both fixed and adjustable rate borrowings and are collateralized by all stock in the FHLBB and a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one-to-four family properties, certain unencumbered investment securities and other qualified assets. The carrying value of loans pledged as collateral was $194,659,000 and $228,511,000 at December 31, 2001 and 2000, respectively. The FHLBB at its discretion can call $86,000,000 of the Company's long-term borrowings. The Company, through its bank subsidiaries, has an available line of credit with FHLBB of $12,980,000 at December 31, 2001 and 2000. The Company had no outstanding balance on its line of credit with the FHLBB at December 31, 2001 or December 31, 2000. 36 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] The Company utilizes other borrowings in the form of treasury, tax and loan deposits and repurchase agreements secured by U.S. government or agency securities. Balances outstanding at December 31 are shown in the table below: 2001 2000 - ------------------------------------------------------------------------------- Treasury, tax and loan deposits $ 1,058 $ 1,031 Securities sold under repurchase agreements 40,953 35,061 -------- -------- Total other borrowed funds $ 42,011 $ 36,092 ======== ======== Weighted-average rate at the end of period 3.68% 4.24% 13. EMPLOYEE BENEFIT PLANS Pension and Other Postretirement Plans The Company's postretirement plans provide medical and life insurance to certain eligible retired employees. It is the Company's policy to fund the cost of postretirement health care and life insurance plans as premiums are paid; therefore, there are no plan assets. On October 17, 2000, the Company terminated the defined-benefit noncontributory pension plan, which covered substantially all eligible employees over 21 years of age with 1 year of employment. Total plan assets of $5,168,000 were distributed to eligible employees during the first half of 2001. During 2000, the Company recognized $437,000 of net income due to the overaccrual of the benefit obligation at the date of plan termination. Information regarding the postretirement benefit plan is as follows: 2001 2000 1999 - ------------------------------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of the year $ 724 $ 481 $ 399 Service cost 43 38 25 Interest cost 50 32 28 Actuarial (gain) loss (22) 200 50 Benefits paid (30) (27) (21) -------- -------- -------- Benefit obligation at end of year 765 724 481 -------- -------- -------- Funded status (765) (724) (481) Unrecognized net actuarial loss 237 273 77 Unrecognized net prior service cost (78) (94) (110) -------- -------- -------- Accrued benefit cost $ (606) $ (545) $ (514) ======== ======== ======== Weighted-average discount rate assumption 7.0% 7.0% 7.0% 2001 2000 1999 - ------------------------------------------------------------------------------- Components of net periodic benefit cost Service cost $ 43 $ 38 $ 25 Interest cost 50 32 28 Amortization of prior service cost (16) (16) (16) Recognized net actuarial loss 14 3 -- -------- -------- -------- Net periodic benefit cost $ 91 $ 57 $ 37 ======== ======== ======== For measurement purposes, a 6.3% annual rate of increase in the per capita cost to cover health care benefits was assumed for 2002. The rate was assumed to decrease gradually to a 6.0% annual growth rate after 5 years, and remain at a 6.0% annual growth rate thereafter. A 1.0% increase or decrease in the assumed health care cost trends rate would not have a material impact on the accumulated postretirement benefit obligation due to a built-in cap on annual benefits. The Company also sponsors an unfunded, non-qualified supplemental retirement plan for certain officers. The agreement provides participants will be paid a life annuity upon retirement or death. Prior to September 1, 1999 the plan provided supplemental retirement payments over 15 years upon retirement or death. 37 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES The expense of this supplemental plan was $399,000, $347,000 and $309,000 in 2001, 2000 and 1999, respectively. The accrued liability of this plan at December 31, 2001 and 2000 was $1,562,000 and $1,318,000, respectively. 401(k) / Profit Sharing Plan The Company has a 401(k) plan whereby substantially all employees participate in the plan. Employees may contribute up to 15% of their compensation subject to certain limits based on federal tax laws. The Company makes matching contributions and may make additional contributions subject to the discretion of the Board of Directors. For the years ended December 31, 2001, 2000 and 1999, aggregate expenses under the plan amounted to $527,000, $214,000 and $171,000, respectively. Employee Stock Ownership Plan During 1999, the Company, as successor to KSB Bancorp, Inc. ("KSB"), had an Employee Stock Ownership Plan ("ESOP"). As of the merger date (December 20, 1999), all liabilities related to this plan were paid. Total ESOP expense was $368,765 in 1999. Bank Recognition and Retention Plan The Company, as successor to KSB, maintains a Bank Recognition and Retention Plan ("BRRP") as a method of providing certain officers and other employees of the Company with a proprietary interest in the Company. During 1994, the Company contributed funds to the BRRP to enable such Company officers and employees to acquire, in the aggregate, 56,045 shares of common stock of the Company. The Company recognizes expense related to the BRRP based on the vesting schedule. Participants are vested at a rate of 20% per year commencing 1 year from the date of the award. Total expense related to the BRRP was $5,712 for 2001 and 2000, and $9,726 for 1999. 14.SEGMENT REPORTING The Company, through its bank and non-bank subsidiaries, provides a broad range of financial services to individuals and companies in the State of Maine. These services include lending, demand deposits, savings and time deposits, cash management and trust services. While the Company's senior management team monitors operations of each subsidiary, these subsidiaries primarily operate in the banking industry. Substantially all revenues and services are derived from banking products and services in Maine. Accordingly, the Company's subsidiaries are considered by management to be aggregated in 1 reportable operating segment. 15.SHAREHOLDERS' EQUITY The primary source of funds available to the Company for payment of dividends to its shareholders are dividends paid to the Company by its subsidiaries. The Company's subsidiary banks are subject to certain requirements imposed by state and federal banking laws and regulations. These requirements, among other things, establish minimum levels of capital and restrict the amount of dividends that may be distributed by the subsidiary banks to the Company. The Company has 3 stock option plans accounted for under Accounting Principles Board Opinion 25 ("APB 25") and related interpretations, as permitted under SFAS No. 123, "Accounting for Stock-Based Compensation." The 1993 stock option plan, which is the plan currently available for future grants, allows the Company to grant options to employees for up to 19,732 additional shares of Company common stock. Under all 3 plans, the options are immediately vested when granted, and expire 10 years from the date the option was granted. The exercise price of all options equals the market price of the Company's stock on the date of grant. Therefore, in accordance with APB 25, no compensation cost has been recognized for the plans. Had compensation cost for the plans been determined based on the fair value of the options at the grant dates consistent with the method of SFAS No. 123, the Company's net income and earnings per share for 2001 and 1999 would have been reduced to the pro forma amounts indicated below. The Company's net income and earnings per share for 2000 are equal to pro forma amounts since there were no options granted during the year ended December 31, 2000. 38 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] EARNINGS PER SHARE NET INCOME BASIC DILUTED - -------------------------------------------------------------------------------- 2001 As reported $15,418 $1.90 $1.89 Pro forma 15,348 1.89 1.88 2000 As reported $13,859 $1.70 $1.69 Pro forma 13,859 1.70 1.69 1999 As reported $10,229 $1.27 $1.27 Pro forma 9,985 1.24 1.24 The fair value of each option granted is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for all grants; in 2001 dividend yield of 2.6%, expected volatility of 1.35%, risk-free interest rate of 4.93%, and expected lives of 10 years; in 1999 dividend yield of 3.3%, expected volatility of 1.35%, risk-free interest rate of 4.75%, and expected lives of 10 years. A summary of the status of the Company's stock option plans as of December 31, 2001, 2000 and 1999, and changes during the years ended on those dates is presented below.
2001 - ---------------------------------------------------------------------------------------------------- Number of Weighted-average Shares Exercise Price Outstanding at beginning of year 183,729 $14.29 Granted during the year 5,000 16.00 Exercised during the year 19,926 11.13 Forfeited during the year 21,640 16.56 ------- ------ Outstanding at end of year 147,163 $14.44 ======= ====== Exercisable at end of year 147,163 $14.44 ======= ====== Weighted-average fair value of options granted during the year $14.06
2000 - ---------------------------------------------------------------------------------------------------- Number of Weighted-average Shares Exercise Price Outstanding at beginning of year 199,842 $14.13 Exercised during the year 11,613 11.55 Forfeited during the year 4,500 14.47 ------- ------ Outstanding at end of year 183,729 $14.29 ======= ====== Exercisable at end of year 183,729 $14.29 ======= ======
39 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
1999 - ---------------------------------------------------------------------------------------------------- Number of Weighted-average Shares Exercise Price Outstanding at beginning of year 337,366 $ 9.62 Granted during the year 18,180 16.28 Exercised during the year 164,440 4.91 Reload options granted during the year 8,736 10.26 ------- ------ Outstanding at end of year 199,842 $14.13 ======= ====== Exercisable at end of year 184,393 $13.95 ======= ====== Weighted-average fair value of options granted during the year $13.42
The following table summarizes information related to options outstanding at December 31, 2001: Number Remaining Weighted-average Outstanding Contractual Life Exercise Price 10,246 1.0 $12.80 67,500 4.0 12.33 59,917 6.0 16.67 4,500 7.0 18.38 5,000 10.0 16.00 ------- ---- ------ 147,163 4.9 $14.44 ======= ==== ====== 16.EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
2001 2000 1999 - --------------------------------------------------------------------------------------------------- Net income, as reported $ 15,418 $ 13,859 $ 10,229 Weighted-average shares 8,123,928 8,164,188 8,033,757 Effect of dilutive employee stock options 33,558 14,617 33,877 Adjusted weighted-average shares and assumed conversion 8,157,486 8,178,805 8,067,634 Basic earnings per share $ 1.90 $ 1.70 $ 1.27 Diluted earnings per share $ 1.89 $ 1.69 $ 1.27
Options to purchase 10,500 and 93,908 shares of common stock at an average exercise price of $18.75 and $16.54 per share were outstanding at December 31, 2001 and 2000, respectively, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common stock. 17.INCOME TAXES The current and deferred components of income tax expense were as follows: 2001 2000 1999 - -------------------------------------------------------------------------- Current: Federal $5,759 $4,836 $5,095 State 241 219 188 ------ ------ ------ 6,000 5,055 5,283 Deferred: Federal 1,162 1,188 (100) ------ ------ ------ $7,162 $6,243 $5,183 ====== ====== ====== 40 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] The actual expense differs from the expected tax expense computed by applying the applicable U.S. federal corporate income tax rate to earnings before income taxes, as follows:
2001 2000 1999 - ---------------------------------------------------------------------------------- Computed tax expense $7,903 $7,036 $5,394 Increase (reduction) in income taxes resulting from: Tax exempt income (342) (471) (349) State taxes, net of federal benefit 157 142 122 Income from life insurance (305) (264) (92) Acquisition costs 89 27 452 Low income housing credits (303) (303) (221) Other (37) 76 (123) ------ ------ ------ $7,162 $6,243 $5,183 ====== ====== ======
Items which give rise to deferred income tax assets and liabilities and the tax effect of each are as follows:
2001 2000 - ----------------------------------------------------------------------------------------------------- Asset Liability Asset Liability Allowance for possible losses on loans $4,643 $ -- $3,697 $ -- Allowance for investment losses 86 -- 86 -- Capitalized costs 175 -- 231 -- Pension and other benefits 760 -- 652 -- Depreciation 153 -- -- 183 Deferred loan origination fees -- 354 -- 226 Deferred compensation and benefits 336 -- 312 -- Unrealized (gains) losses on investments available for sale -- 2,325 418 -- Unrealized appreciation on loans held for sale 40 -- 167 -- Valuation of other real estate owned -- -- 20 -- Interest receivable 229 -- 185 -- Deposit premium 326 -- 80 -- Mortgage servicing rights -- 296 -- 82 Other 113 -- 26 -- ------ ------ ------ ---- $6,861 $2,975 $5,874 $491 ====== ====== ====== ====
The related income taxes have been calculated using a rate of 35%. No valuation allowance is deemed necessary for the deferred tax asset, which is included in other assets. Retained earnings include $222,000 representing an allocation for income tax bad debt deductions prior to 1988, referred to as the base year reserve. No income taxes have been provided for the base year reserve, though it continues to be subject to provisions of present law that require recapture in the case of certain excess distributions to shareholders. 18.RELATED PARTIES In the ordinary course of business, the Company has made loans to certain officers and directors and the companies with which they are associated. All such loans were made under terms that are consistent with the Company's normal lending policies. Changes in the composition of the board of directors or the group comprising executive officers result in additions to or deductions from loans outstanding to directors, executive officers, or principal shareholders. Loans to related parties which in aggregate exceed $60,000 were as follows: 2001 2000 - -------------------------------------------------------------------- Balance, January 1, $14,298 $16,178 Loans made/advanced and additions 5,328 4,545 Repayments and reductions 5,089 6,425 ------- ------- Balance, December 31 $14,537 $14,298 ======= ======= 41 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES In addition to the loans noted on the previous page, the Company had deposits at December 31, 2001 and 2000 from the same individuals of $4,936,000 and $4,763,000, respectively. 19. LEGAL CONTINGENCIES Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company's Consolidated Financial Statements. 20. FINANCIAL INSTRUMENTS Credit Related Financial Instruments In the normal course of business, the Company is a party to credit related financial instruments with off-balance sheet risk, which are not reflected in the accompanying Consolidated Statements of Condition. These financial instruments include lending commitments and letters of credit. Those instruments involve varying degrees of credit risk in excess of the amount recognized in the Consolidated Statements of Condition. The Company follows the same credit policies in making commitments to extend credit and conditional obligations as it does for on-balance sheet instruments, including requiring similar collateral or other security to support financial instruments with credit risk. The Company's exposure to credit loss in the event of nonperformance by the customer is represented by the contractual amount of those instruments. Since many of the commitments are expected to expire without being drawn upon, the total amount does not necessarily represent future cash requirements. The Company has not incurred any losses on its commitments in 2001, 2000 or 1999. Derivative Financial Instruments The Company uses derivative instruments as hedges against large fluctuations in interest rates. The Company uses interest rate swap and floor instruments to hedge against potentially lower yields on the variable prime rate loan category in a declining rate environment. If rates were to decline, resulting in reduced income on the adjustable rate loans, there would be an increased income flow from the interest rate swap and floor instruments. The Company also uses cap instruments to hedge against increases in short-term borrowing rates. If rates were to rise, resulting in an increased interest cost, there would be an increased income flow from the cap instruments. At least quarterly, all financial instruments are reviewed as part of the asset/liability management process. The financial instruments are factored into the Company's overall interest rate risk position. The Company regularly reviews the credit quality of the counterparty from which the instruments have been purchased. As of December 31, 2001, the Company had $90 million (notional principal amount) in cap contracts ($20 million and $70 million) with strike rates of 7.50% and 7.00%, respectively, and both mature in 2002. During 2001, the Company had $25 million (notional principal amount) in callable interest rate swaps that were called. The Company also sold $10 million (notional principal amount) in interest rate swaps and $10 million (notional principal amount) in floor contracts during 2001. At December 31, 2001 and 2000, the contractual or notional amounts of credit related and derivative financial instruments were as follows: 2001 2000 - ------------------------------------------------------------------------------ Contractual Commitments to extend credit $124,261 $99,108 Letters of credit 1,506 1,865 Notional Swaps -- 35,000 Floors -- 10,000 Caps 90,000 90,000 42 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] The estimated fair values of the Company's financial instruments reported in the Consolidated Statements of Condition were as follows:
DECEMBER 31, 2001 DECEMBER 31, 2000 - ------------------------------------------------------------------------------------ Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash and due from banks $ 38,861 $ 38,861 $ 29,337 $ 29,337 Securities available for sale 262,866 262,866 159,315 159,315 Securities held to maturity 944 944 57,695 60,698 Residential mortgages held for sale -- -- 12,838 12,838 Loans receivable 710,528 703,750 677,701 674,814 Interest receivable 5,054 5,054 6,959 6,959 Life insurance policies 17,713 17,713 16,842 16,842 Financial liabilities: Deposits $763,568 $763,298 $744,360 $745,291 Borrowings from Federal Home Loan Bank 168,832 163,834 132,348 131,680 Other borrowed funds 42,011 42,011 36,092 36,092 Interest payable 3,058 3,058 3,963 3,963
The estimated fair values of the Company's derivative financial instruments were as follows: DECEMBER 31, 2001 - -------------------------------------------------------------------------------- Fair Value Notional Contract Maturity Including Principal Date Date Accruals Interest Rate Caps $ 20,000 26-Jul-00 26-Jul-02 $ -- 70,000 23-Oct-00 23-Oct-02 -- ------ ----- $ 90,000 $ -- ======== ===== DECEMBER 31, 2000 - -------------------------------------------------------------------------------- Fair Value Notional Contract Maturity Including Principal Date Date Accruals Interest Rate Swaps $ 10,000 23-Dec-99 23-Dec-04 $316 20,000 11-Aug-00 11-Aug-10 39 5,000 23-Aug-00 23-Feb-06 13 -------- ---- $ 35,000 $368 ======== ==== Interest Rate Floors $ 10,000 10-May-00 12-May-05 $258 ======== ==== Interest Rate Caps $ 20,000 26-Jul-00 26-Jul-02 $ 12 70,000 23-Oct-00 23-Oct-02 31 -------- ---- $ 90,000 $ 43 ======== ==== 43 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES 21. REGULATORY MATTERS The Company and its bank subsidiaries are subject to various regulatory capital requirements administered by the FRB, the Comptroller of the Currency and the FDIC. Failure to meet minimum capital requirements can result in mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's Consolidated Financial Statements. These capital requirements represent quantitative measures of the Company's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's capital classification is also subject to qualitative judgments by its regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that, as of December 31, 2001, the Company and its bank subsidiaries meet all capital requirements to which they are subject. As of December 31, 2001, both bank subsidiaries were categorized by their supervisory regulatory agencies as well capitalized. To be categorized as well capitalized, each bank subsidiary of the Company must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events that management believes have changed the banks' respective capital categories. The ability of the Company to pay cash dividends depends on the receipt of dividends from its subsidiaries. The Company, as the sole shareholder of its subsidiaries, is entitled to dividends from legally available funds when and as declared by each subsidiary's Board of Directors. The Company's actual capital amounts and ratios are also presented in the table.
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount>= Ratio>= Amount>= Ratio>= - --------------------------------------------------------------------------------------------------------------- As of December 31, 2001 Total Capital (To Risk-Weighted Assets): Consolidated $100,533 14.2% $56,650 8.0% N/A Camden National Bank 58,979 12.4% 37,996 8.0% $47,495 10.0% UnitedKingfield Bank 26,722 11.6% 18,444 8.0% 23,055 10.0% Tier 1 Capital (To Risk-Weighted Assets): Consolidated $ 91,624 12.9% $28,325 4.0% N/A Camden National Bank 53,010 11.2% 18,998 4.0% $28,497 6.0% UnitedKingfield Bank 23,814 10.3% 9,222 4.0% 13,833 6.0% Tier 1 Capital (To Average Assets): Consolidated $ 91,624 8.7% $42,011 4.0% N/A Camden National Bank 53,010 7.7% 27,733 4.0% $34,666 5.0% UnitedKingfield Bank 23,814 6.8% 14,014 4.0% 17,517 5.0%
44 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] As of December 31, 2000 Total Capital (To Risk-Weighted Assets): Consolidated $94,077 13.1% $57,618 8.0% N/A Camden National Bank 59,373 12.3% 38,735 8.0% $48,419 10.0% UnitedKingfield Bank 27,685 11.7% 18,883 8.0% 23,603 10.0% Tier 1 Capital (To Risk-Weighted Assets): Consolidated $85,074 11.8% $28,809 4.0% N/A Camden National Bank 53,320 11.0% 19,368 4.0% $29,051 6.0% UnitedKingfield Bank 24,734 10.5% 9,441 4.0% 14,162 6.0% Tier 1 Capital (To Average Assets): Consolidated $85,074 8.6% $39,482 4.0% N/A Camden National Bank 53,320 8.3% 25,722 4.0% $32,152 5.0% UnitedKingfield Bank 24,734 7.3% 13,548 4.0% 16,935 5.0%
22. HOLDING COMPANY Following are the condensed Statements of Condition, Income and Cash Flows for the Company. Statements of Condition December 31, - --------------------------------------------------------------------------------
2001 2000 Assets Cash $ 2,411 $ 216 Premises and equipment 6,034 4,731 Investment in subsidiaries: Bank subsidiaries 90,266 83,903 Other subsidiaries 4,659 184 Amounts receivable from subsidiaries 292 -- Goodwill -- 41 Other assets 2,965 2,762 -------- ------- Total assets $106,627 $91,837 ======== ======= Liabilities & Shareholders' Equity Amounts due to subsidiaries $ -- $ 663 Accrued and other expenses 1,559 251 Shareholders' equity 105,068 90,923 -------- ------- Total liabilities and shareholders' equity $106,627 $91,837 ======== =======
45 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
Statements of Income For Years Ended December 31, - -------------------------------------------------------------------------------------------- 2001 2000 1999 Operating Income Dividend income from subsidiaries $14,787 $ 7,756 $ 8,256 Fees from subsidiaries 7,999 6,300 3,579 Other income 12 70 10 ------- ------- ------- Total operating income 22,798 14,126 11,845 ------- ------- ------- Operating Expenses Salaries and employee benefits 4,537 3,698 2,158 Net occupancy 387 218 155 Furniture, equipment and data processing 893 886 709 Other operating expenses 2,275 1,558 1,353 Acquisition related expenses 271 129 1,019 ------- ------- ------- Total operating expenses 8,363 6,489 5,394 ------- ------- ------- Income before equity in undistributed earnings of subsidiaries 14,435 7,637 6,451 Equity in undistributed earnings of subsidiaries 961 6,240 3,705 ------- ------- ------- Income before income taxes 15,396 13,877 10,156 Income tax benefit (expense) 22 (18) 73 ------- ------- ------- Net Income $15,418 $13,859 $10,229 ======= ======= =======
Statements of Cash Flows For Years Ended December 31, - ---------------------------------------------------------------------------------------------- 2001 2000 1999 Operating Activities Net income $15,418 $13,859 $10,229 Adjustments to reconcile net income earnings to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (961) (6,240) (3,705) Depreciation and amortization 404 299 300 Decrease in obligation under ESOP and BRRP 5 6 487 Amortization of goodwill 41 5 5 (Increase) decrease in amount receivable from subsidiaries (292) 2,367 (427) Increase in other assets (203) (131) (2,292) Increase (decrease) in payables 645 (998) (1,799) ------- ------- ------- Net cash provided by operating activities 15,057 9,167 2,798 ------- ------- ------- Investing Activities Purchase of premises and equipment (1,707) (3,497) (347) Investment in Acadia Trust, N.A (4,551) -- -- ------- ------- ------- Net cash used by investing activities (6,258) (3,497) (347) ------- ------- ------- Financing Activities Proceeds from sale of treasury stock -- -- 2,249 Exercise and repurchase of stock options (80) (22) (975) Acquisition of minority interest 146 -- -- Purchase of treasury stock (1,444) (394) (2,337) Dividends paid (5,226) (5,150) (4,182) Proceeds from stock issuance under stock option plan -- 31 227 ------- ------- ------- Net cash used by financing activities (6,604) (5,535) (5,018) ------- ------- ------- Net increase (decrease) in cash 2,195 135 (2,567) Cash at beginning of year 216 81 2,648 ------- ------- ------- Cash at end of year $ 2,411 $ 216 $ 81 ======= ======= =======
46 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] 23. QUARTERLY RESULTS OF OPERATIONS (Unaudited) The following is a summary of the quarterly results of operations for the years ended December 31, 2001 and 2000:
THREE MONTHS ENDED - -------------------------------------------------------------------------------- Mar 31 June 30 Sept 30 Dec 31 2001 Interest income $20,751 $20,552 $19,989 $18,578 Interest expense 10,483 9,423 8,469 7,314 Net interest income 10,268 11,129 11,520 11,264 Provision for loan losses 714 714 789 1,464 Income before income taxes 5,382 5,992 6,460 4,746 Applicable income taxes 1,762 1,989 1,980 1,431 Net income 3,620 4,003 4,480 3,315 Per common share: Basic 0.44 0.50 0.55 0.41 Diluted 0.44 0.49 0.55 0.41
THREE MONTHS ENDED - -------------------------------------------------------------------------------- Mar 31 June 30 Sept 30 Dec 31 2000 Interest income $18,694 $19,547 $20,386 $20,928 Interest expense 8,795 9,795 10,577 10,875 Net interest income 9,899 9,752 9,809 10,053 Provision for loan losses 644 644 609 1,033 Income before income taxes 4,632 4,781 5,902 4,787 Applicable income taxes 1,438 1,458 1,878 1,469 Net income 3,194 3,323 4,024 3,318 Per common share: Basic 0.39 0.41 0.49 0.41 Diluted 0.39 0.41 0.49 0.40
47 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES Auditor's Letter - -------------------------------------------------------------------------------- BERRY DUNN MCNELL & PARKER -------------- [LOGO] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Shareholders and Board of Directors Camden National Corporation We have audited the accompanying consolidated statements of condition of Camden National Corporation and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and signigicant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Camden National Corporation and Subsidaries as of December 31, 2001 and 2000, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2001, in conformity with U.S. generally accepted accounting principles. /s/ - ------------------------- Portland, Maine January 22, 2002 - -------------------------------------------------------------------------------- 48 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] Boards of Directors and Bank Administrations Camden National Corporation DIRECTORS Rendle A. Jones Chairman, Camden National Corporation Attorney & Partner, Harmon, Jones, Sanford & Elliot, LLP Ann W. Bresnahan Civic Leader Robert J. Campbell Partner, Beck, Mack & Oliver Investments Robert W. Daigle President & CEO, Camden National Corporation & Camden National Bank Robert J. Gagnon Civic Leader Johann H. Gouws Chairman, President & CEO, Acadia Trust, N.A. Ward I. Graffam Graffam & Associates John W. Holmes President, Consumers Fuel Company Theodore C. Johanson Managing Director, Harbor Wharf, LLC Winfield R. Robinson President, Timber Resource Group, LLC Richard N. Simoneau, CPA Tax Partner, Simoneau, Norton, Masters & Alex, P.A. Arthur E. Strout Attorney & Partner, Strout & Payson, P.A. ADMINISTRATION Robert W. Daigle President & CEO, Camden National Corporation & Camden National Bank Laurel J. Bouchard Senior Vice President, Corporate Administration Joanne T. Campbell Senior Vice President, Residential Real Estate Gregory A. Dufour Senior Vice President, Finance Jeffrey D. Smith Senior Vice President, Operations & Technology John A. Gobel Vice President, Information Technology Kimberly J. Nason Vice President, Residential Real Estate June B. Parent Vice President & Human Resource Manager Susan M. Westfall Vice President, Clerk, Treasurer & Controller Scott R. Westhrin Vice President, Loan Servicing Eric Y. Boucher, CPA Assistant Vice President & Accounting Manager Jennifer F. Mazurek Assistant Vice President, Deposit Services & Electronic Banking Timothy J. Pratt Assistant Vice President, Items Processing Kathryn M. Ryder Assistant Vice President, Asset & Liability Manager Lee Ann Szelog Assistant Vice President & Marketing Manager Robert E. Cleveland, Jr. Senior Network Administrator Ann E. Filley Training Manager Lorraine M. Ivers Quality Service Manager Jane G. Pierce Residential Real Estate Underwriter Danny L. Swindler, II Facilities & Purchasing Manager Vanessa H. Tilton Internet Banking Manager Karen W. Vaughan Call Center Manager Camden National Bank DIRECTORS Rendle A. Jones Chairman, Camden National Bank Attorney & Partner, Harmon, Jones, Sanford & Elliot, LLP Ann W. Bresnahan Civic Leader Robert W. Daigle President & CEO, Camden National Corporation & Camden National Bank David C. Flanagan President, Viking Lumber, Inc. Robert J. Gagnon Civic Leader John W. Holmes President, Consumers Fuel Co. Richard N. Simoneau, CPA Tax Partner, Simoneau, Norton, Masters & Alex, P.A. Arthur E. Strout Attorney & Partner, Strout & Payson, P.A. Rosemary B. Weymouth President, Megunticook Management Co. ASSOCIATE DIRECTORS Peter T. Allen Private Investor C.R. deRochemont Realtor, C.R. deRochemont Realtor Kenneth C. Dickey Retired Vice Chairman, Camden National Corporation Haskell & Corthell Real Estate Frederick G. "Ted" Hanley Retired Executive Vice President, Camden National Bank John S. McCormick, Jr. Engineer & Developer, Consolidated Real Estate and Engineering David H. Montgomery Retired Chairman, Camden National Corporation Past Chairman, Allen Agency Keith C. Patten Retired Chairman, Camden National Bank Retired President & CEO, Camden National Corporation continued 49 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES Boards of Directors and Bank Administrations Camden National Bank ADMINISTRATION Robert W. Daigle President & CEO, Camden National Corporation & Camden National Bank Michael A. McAvoy Senior Vice President, Senior Risk Management Officer John P. "Jack" Williams Senior Vice President, Senior Loan Officer Jayne Crosby-Giles Vice President, Commercial Services Group Barbara B. Hanson Vice President, Commercial Services Group Michael F. Jones Vice President, Commercial Services Group Richard E. Littlefield Vice President, Commercial Services Group Stephen J. Matteo Vice President, Credit Administration Vera E. Rand Vice President, Commercial Services Group Stephen C. Staples Vice President, Commercial Services Group Stephen C. Wallace Vice President, Retail Group Todd L. Savage Assistant Vice President, Commercial Services Group Barry J. King Credit Analyst John P. Quesnel Special Assets Officer BRANCH ADMINISTRATION Tamara J. Bryant Vice President & Manager, Main Office & Camden Square Office R. Todd Starbird Assistant Vice President & Manager, Rockland Office Judith L. Brogden Manager, Thomaston Office Laverne M. Hatch Manager, Belfast Office & Bucksport Office Emily B. Lane Manager, Vinalhaven Office Richard H. Newell, Jr. Manager, Damariscotta Office Susan L. O'Brien Manager, Union Office William H. Pusey, III Manager, Portland Office Walter C. Reynolds Manager, Waldoboro Office UnitedKingfield Bank DIRECTORS Winfield F. Robinson Chairman, UnitedKingfield Bank President, Timber Resource Group, LLC Robert W. Daigle President & CEO, Camden National Corporation & Camden National Bank William Dubord Attorney & Senior Partner, Marden, Dubord, Bernier & Stevens William T. Gardner President, William T. Gardner & Sons, Inc. Dr. Joyce B. Hedlund President, Eastern Maine Technical College Theodore C. Johanson Managing Director, Harbor Wharf, LLC Rendle A. Jones Attorney & Partner, Harmon, Jones, Sanford & Elliott, LLP C. Charles Lumbert President, Moose River Co., Inc. Roger G. Spear Chief Financial Officer, University of Maine at Farmington John C. Witherspoon President & CEO, UnitedKingfield Bank ADMINISTRATION John C. Witherspoon President & CEO Timothy P. Nightingale Vice President, Senior Loan Officer & Market Manager, Penobscot & Piscataquis Counties Gordon A. Flint Vice President & Market Manager, Franklin & Somerset Counties Robert D. Stone Vice President & Market Manager, Androscoggin County Valarie A. Coolong Commercial Loan Officer, Greater Bangor John B. Ellrich Commercial Loan Officer, Farmington George C. Dilts Commercial Loan Officer, Greater Bangor Cynthia C. Wheeler Commercial Loan Officer, Greater Bangor Susan H. Froehlich Retail Underwriting Manager Brenda L. Gerow Human Resources Manager & Sales Manager Joseph T. McOscar Credit Administrator BRANCH ADMINISTRATION Michael A. Durgin Regional Sales Manager, Bangor Linda D. Gilbert Regional Sales Manager, Dover-Foxcroft Cynthia J. Gilmore Regional Sales Manager, Kingfield Stephen D. Gray Regional Sales Manager, Farmington Joseph G. Poulin Regional Sales Manager, Madison Raymond B. Teixeira Regional Sales Manager, Lewiston Catherine L. Moore Branch Administrator Kathy Pelletier Employee Benefits Officer 50 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC] Acadia Trust, N.A. Directors Johann H. Gouws Chairman, President & CEO, Acadia Trust, N.A. Ward I. Graffam Graffam & Associates John M. Albin, CPA Retired Senior Partner, Albin, Randall and Bennett Robert J. Campbell Partner, Beck, Mack & Oliver Investments Robert G. Fuller, Jr., Esq. Private Trustee Officers Johann H. Gouws Chairman, President & CEO Frank E. Kemna, Jr., Senior Vice President & Senior Trust Officer John L. Simpson Senior Vice President & Chief Investment Officer Diane M. Aston Vice President, Trust Operations Lawrence A. Blaisdell Vice President & Portfolio Manager Patricia N. O'Donnell Vice President, Marketing & Development Jan F. Macleod Vice President & Director of Research Joan M. Smith Vice President, Chief Financial Officer & Chief Operating Officer Barbara Brown Trust Tax Officer Trust Company of Maine, Inc. DIRECTORS Andrew P. Averill Retired Chairman, Trust Company of Maine, Inc. Randall A. Bishop Chief Financial Officer, William T. Gardner & Sons, Inc. Robert W. Daigle President & CEO, Camden National Corporation & Camden National Bank Johann H. Gouws Chairman, President & CEO, Acadia Trust, N.A. Richard N. Simoneau, CPA Tax Partner, Simoneau, Norton, Masters & Alex, P.A. John C. Witherspoon President & CEO, UnitedKingfield Bank ADMINISTRATION Johann H. Gouws Chairman, President & CEO R. Paul Pasquine Executive Vice President & Senior Trust Officer Shirley B. Kile Executive Vice President, Employee Benefits Division Lynn M. Bowden Vice President, New Business Development Susan L. Kenney Assistant Vice President & Trust Officer Robert M. Parker, Jr. Assistant Vice President & Trust Officer Pamela M. Webster Senior Employee Benefits Officer Jana D. Hanscom Employee Benefits Officer Kathy Pelletier Employee Benefits Officer Acadia Financial Consultants Marcia Mansfield President Lisa Masters Account Executive, Camden National Bank Robert McKay Account Executive, UnitedKingfield Bank Dorothy M. Peters, Executive Assistant 51 [GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES Annual Meeting of Camden National Corporation Tuesday, April 30, 2002, 3:00 p.m. The Camden Opera House The Company will provide, upon written request and without charge, a copy of Camden National Corporation's 2001 Annual Report on Securities and Exchange Commission Form 10K. Please contact: Gregory A. Dufour, Senior Vice President of Finance Camden National Corporation P.O. Box 310 Camden, Maine 04843 207-236-9131, ext. 2106 gdufour@camdennational.com Credits: Design & Layout Peggy Mason, ABC-webdesign & graphics, inc. Copy Writing Joanne Miller Photography Front and back covers ~ Thomas Mark Szelog(C)2002 Inside front cover ~ Sara Gray(C)2002 Table of Contents Birds ~ Joe Devenney(C)2002 Wreath ~ Thomas Mark Szelog(C)2002 Ship's wheel ~ Benjamin Mendlowitz(C)2002 Page 2 Birch trees ~ Michele Stapleton(C)2002 Portrait ~ Benjamin Magro(C)2002 Page 4 Flying geese ~ Thomas Mark Szelog(C)2002 Bird sculptor ~ Joe Devenney(C)2002 Page 6 Pine trees ~ Michele Stapleton(C)2002 Wreath maker ~ Thomas Mark Szelog(C)2002 Page 8 Boat sailing ~ Benjamin Mendlowitz(C)2002 Boat hull ~ Benjamin Mendlowitz(C)2002 Financial pages Various tree images ~ Michele Stapleton(C)2002 and Sara Gray(C)2002 Inside back cover ~ Thomas Mark Szelog(C)2002 Printing Spectrum Printing & Graphics Inc. 52 [RINGS OF TREE GRAPHIC APPEARS IN BACKGROUND] The rings of a tree... are the evidence of its growth and maturity. Camden National Corporation's record of financial performance... is the evidence of its consistency and strength. Constantly growing and changing, we remain dedicated to our roots, carefully crafting and delivering the best financial products and services in Maine. [GRAPHIC OF TREES APPEARS HERE] EX-21 6 dex21.txt SUBSIDIARIES OF THE COMPANY Exhibit #21 Subsidiaries of the Company --------------------------------------- Camden National Bank, a national banking organization organized under the laws of the United States of America. UnitedKingfield Bank, a financial institution organized under the laws of the State of Maine. Trust Company of Maine, Inc., a corporation with trust powers chartered under the laws of the State of Maine. Acadia Trust, N.A., a national banking organization organized under the laws of the United States of America with a limited purpose trust charter. EX-23 7 dex23.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit #23 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-K, into the Company's previously filed Registration Statements File Number 333-95157 and 333-68598. Berry, Dunn, McNeil & Parker Portland, Maine March 27, 2002 -----END PRIVACY-ENHANCED MESSAGE-----