-----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, SxrlzFk/D217kYOWbHJwU3guw/wjn8o61ecBno1n1F38em86lBM12AxE/yv6JNrX 3/Vt3YjvkCc9fwxw2OMd+A== 0000927016-00-001087.txt : 20000331 0000927016-00-001087.hdr.sgml : 20000331 ACCESSION NUMBER: 0000927016-00-001087 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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-K SEC ACT: SEC FILE NUMBER: 001-13227 FILM NUMBER: 587696 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-K 1 FORM 10-K 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, 1999 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 [ ] No [X] 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. ( ) The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 27, 2000 is: Common stock - $94,730,153 The number of shares outstanding of each of the registrant's classes of common stock, as of March 27, 2000 is: Common stock - 8,167,358 Listed hereunder are documents incorporated by reference and the Part of the form 10-K into which the document is incorporated: (1) Portions of the Annual Report to Stockholders for the year ended December 31, 1999 are incorporated by reference into Part II, Items 5, 6, 7 and 8. (2) The definitive Proxy Statement for the 2000 Annual Meeting of Shareholders to be filed with the commission prior to April 29, 2000 pursuant to Regulation 14A of the General Rules and Regulations of The Commission is incorporated into Part III of the Form 10-K. INDEX
Item # Description Page - ----------- ---------------------------------------------------------------------- ---- 1 Business 3 2 Properties 7 3 Pending Legal Proceeding 8 4 Submission of Matters to a Vote of Security Holders 8 5 Market for Registrant's Common Equity and Related Stockholders Matters 8 6 Selected Financial Data 8 7 Management's Discussion and Analysis of Financial Condition and Results of Operation 9 7A Quantitative and Qualitative Disclosures about Market Risks 13 8 Financial Statements and Supplementary Data 14 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 14 10 Directors and Executive Officers of the Registrant 14 11 Executive Compensation 14 12 Security Ownership of Certain Beneficial Owners and Management 14 13 Certain Relationships and Related Transactions 14 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15
PART I ITEM 1. BUSINESS Camden National Corporation, (the "Company") is a multi-bank financial services holding company headquartered in Camden, Maine. The Company was founded on January 2, 1985 as a result of a corporate reorganization, in which the shareholders of Camden National Bank, which was founded in 1875, exchanged their stock for shares of the Company, and Camden National Bank became a wholly- owned subsidiary of the Company. As of December 29, 1995 the Company acquired 100% of the outstanding stock of United Bank and 51% of the outstanding stock of Trust Company of Maine, Inc. by merging with their then parent company, UNITEDCORP, Bangor, Maine. On December 20, 1999, the Company completed the acquisition of KSB Bancorp, Inc. ("KSB"), a bank holding company with one principal subsidiary, Kingfield Bank. The 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. As of December 31, 1999, the Company's securities consisted of one class of common stock, no par value, of which there were 8,167,358 shares outstanding held of record by approximately 1,130 shareholders. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Camden National Bank and UnitedKingfield Bank, and its majority-owned subsidiary, Trust Company of Maine, Inc. UnitedKingfield Bank is the successor by merger, effective February 4, 2000 of United Bank and Kingfield Bank. All inter-company accounts and transactions have been eliminated in consolidation. The Company's wholly-owned bank subsidiaries operate as separate commercial banks with branches serving mid-coast, central and western Maine. The banks are full-service financial institutions that focus primarily on attracting deposits from the general public through their branches and using such deposits to originate residential mortgage loans, commercial business loans, commercial real estate loans, and a variety of consumer loans. Camden National Bank is a national banking organization organized under the laws of the United States. Camden National Bank is subject to regulation, supervision and regular examination by the Office of the Comptroller of the Currency. Camden National Bank is based in Camden, Maine, and offers services in the communities of Camden, Union, Rockland, Thomaston, Belfast, Bucksport, Vinalhaven, Damariscotta, and Waldoboro. Customers also have access to services offered by Camden National Bank through the internet at www.camdennational.com. UnitedKingfield Bank is a banking organization chartered under the laws of the State of Maine. UnitedKingfield is subject to regulation, supervision and regular examination by the FDIC and the Maine Superintendent. UnitedKingfield Bank is based in Bangor, Maine, and is the successor by merger, effective February 4, 2000, of United Bank and Kingfield Bank. UnitedKingfield Bank offers services in the communities of Bangor, Bingham, Corinth, Dover-Foxcroft, Farmington, Greenville, Hampden, Hermon, Jackman, Kingfield, Lewiston, Madison, Milo, Phillips, Rangeley, Stratton, Strong and Winterport Maine. Customers also have access to services offered by UnitedKingfield bank through the internet at www.unitedkingfield.com. The Company's majority-owned trust company subsidiary, Trust Company of Maine, Inc., offers a broad range of trust and trust investment services, in addition to retirement and pension plan management services. The financial services provided by the Trust Company of Maine, Inc., complement the services provided by the Company's bank subsidiaries by offering customers investment management services. The Company competes principally in mid-coast Maine through its largest subsidiary, Camden National Bank. Camden National Bank considers its primary market areas to be in two counties, Knox and Waldo. These two counties have a combined population of approximately 76,000 people. The economy of these counties is based primarily on tourism, and is also supported by a substantial population of retirees. Major competitors in these markets 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 Camden National Bank's market include insurance companies, money market funds, consumer finance companies and financing affiliates of consumer durable goods manufacturers. Page 3 The Company, through UnitedKingfield Bank, 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 greater Bangor area has a population of approximately 100,000 people. Major competitors in these markets 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 Bank's market include insurance companies, money market funds, consumer finance companies and financing affiliates of consumer durable goods manufacturers. The Company is committed to the philosophy of serving the financial needs of customers in local communities. The Company, through Camden National Bank and UnitedKingfield Bank 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 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, nor is a material portion of the Company's loans concentrated within a single industry or group of related industries. The Company had consolidated asset growth of 10.7% or $89.1 million during 1999. The primary contributing factor to this growth was the increase in lending activity at the Company's bank subsidiaries. As the business continued to grow during this past year, each subsidiary focused on customer service. Supporting this concept, is the Company's performance-based compensation program. This program is designed to create an environment where employees take a more personal interest in the performance of the Company and are rewarded for balancing profit with growth and quality with productivity. The Company employs approximately 278 people on a full-time equivalent basis. Management believes that employee relations are good, and there are no known disputes between management and employees. Certain eligible employees who are at least 21 years of age and who have worked for the Company for at least one year are eligible for participation in the Company's Retirement Savings 401(k) Plan and Defined Benefit Retirement Plan. Certain eligible employees of the Company also receive group insurance benefits. Certain Executive Officers of the Company may also participate in the 1993 Stock Option Plan and the Supplemental Executive Retirement 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. The Company contributed funds to the recognition plan to enable them to acquire, in aggregate, 56,045 shares of common stock. Participants are vested at a rate of 20% per year commencing one year from the date of the award. As a registered bank holding company under the Bank Holding Company Act of 1956 (the "BHC Act"), the Company is subject to the regulations and supervision of the Federal Reserve Bank (FRB). The BHC Act requires the Company to file reports with the FRB and provide additional information requested by the FRB. The Company must receive the approval of the FRB before it may acquire all or substantially all of the assets of any bank, or ownership or control of the voting shares of any bank if, after giving effect to such acquisition of shares, the Company would own or control more than 5 percent of the voting shares of such bank. The Company and its subsidiaries, including any it may acquire or organize in the future, will be deemed to be affiliates of Camden National Bank and UnitedKingfield Bank under the Federal Reserve Act. That Act establishes certain restrictions that limit bank transactions with affiliates. The Company will also be subject to restrictions on the underwriting and the public sale and distribution of securities. It is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property, or furnishing of services. On November 12, 1999. President Clinton signed into law legislation that allows bank holding companies to engage in a wider range of nonbanking activities, including greater authority to engage in securities and insurance activities. Under the Gramm-Leach-Bliley Act ("GLB Act"), a bank holding company that elects to become a financial holding company may engage in any activity that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines by regulation or order is (1) financial in nature, (2) incidental to any such financial activity, or (3) complementary to any such financial activity and does not pose a Page 4 substantial risk to the safety or soundness of depository institutions or the financial system generally. The GLB Act makes significant changes in U.S. Banking law, principally by repealing the restrictive provisions of the 1933 Glass-Steagall Act. The GLB Act specifies certain activities that are deemed to be financial in nature, including lending, exchanging, transferring, investing for others, or safeguarding money or securities; underwriting and selling insurance; providing financial, investment, or economic advisory services; underwriting, dealing in or making a market in, securities; and any activity currently permitted for bank holding companies by the Federal Reserve Board under section 4(c)(8) of the Banking Holding Company Act. The GLB Act does not authorize banks or their affiliates to engage in commercial activities that are not financial in nature. A bank holding company may elect to be treated a s a financial holding company only if all depository institution subsidiaries or the holding company are well capitalized, well managed and have at least a satisfactory rating under the Community Reinvestment Act. National banks are also authorized by the GLB Act to engage, through "financial subsidiaries," in any activity that is permissible for a financial holding company (as described above) and any activity that the Secretary of the Treasury, in consultation with the Federal Reserve Board, determines is financial in nature or incidental to any such financial activity, except (1) insurance underwriting, (2) real estate development or real estate investment activities (unless otherwise permitted by law), (3) insurance company portfolio investments and (4) merchant banking. The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well managed and well capitalized (after deducting from the bank's capital outstanding investments in financial subsidiaries). The GLB Act provides that state banks may invest in financial subsidiaries (assuming they have the requisite investment authority under applicable state law) subject to the same conditions that apply to national bank investments in financial subsidiaries. The GLB Act also contains a number of other provisions that will affect the Company's operations and the operations of all financial institutions. One of the new provisions relates to the financial privacy of consumers, authorizing federal banking regulators to adopt rules that will limit the ability of banks and other financial entities to disclose non-public information about consumers to non-affiliated entities. These limitations are expected to require more disclosure to consumers, and in some circumstances, to require consent by the consumer before information is allowed to be provided to a third party. At this time, the Company is unable to predict the impact the GLB Act may have upon its or its subsidiaries financial condition or results of operations. Federal Reserve Regulation "Y" (12 C.F.R. Part 225) sets forth those activities which are regarded as closely related to banking or managing or controlling banks and, thus, are permissible activities that may be engaged in by bank holding companies, subject to approval in individual cases by the FRB. Litigation has challenged the validity of certain activities authorized by the FRB for the bank holding companies, and the FRB has various regulations and applications in this regard still under consideration. Under Maine law, dividends and other distributions by the Company with respect to its stock are subject to declaration by the Board of Directors at its discretion out of net assets. Dividends cannot be declared and paid when such payment would make the Company insolvent or unable to pay its debts as they come due. FRB policy prohibits a bank holding company from declaring or paying a cash dividend which would impose undue pressure on the capital of subsidiary banks or would be funded only through borrowings or other arrangements that might adversely affect the holding company's financial position. The policy further declares that a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. Other FRB policies forbid the payment by bank subsidiaries to their parent companies of management fees that are unreasonable in amount or exceed a fair market value of the services rendered (or, if no market exists, actual costs plus a reasonable profit). In addition, the FRB has authority to prohibit banks that it regulates from engaging in practices, which in the opinion of the FRB are unsafe or unsound. Such practices may include the payment of dividends under some Page 5 circumstances. Moreover, the payment of dividends may be inconsistent with capital adequacy guidelines. The Company may be subject, under State and/or Federal law, to assessment to restore the capital of the Bank should it become impaired. The Company is subject to the minimum capital requirements of the FRB. As a result of these requirements, the growth in assets of the Company is limited by the amount of its capital accounts as defined by the FRB. Capital requirements may have an effect on profitability and the payment of distributions by the Company. If the Company is unable to increase its assets without violating the minimum capital requirements, or is forced to reduce assets, its ability to generate earnings would be reduced. The FRB has adopted guidelines utilizing a risk-based capital structure. These guidelines apply to the Company on a consolidated basis. The risk-based guidelines require the Company to maintain a level of capital based primarily on the risk of its assets and off-balance sheet items. Assets and off-balance sheet items are placed in one of four risk categories. Assets in the first category, such as cash, have no risk and, therefore, carry a zero percent risk-weight and require no capital support. Capital support is required for assets in the remaining three risk categories--those categories having a risk-weight of 20 percent, 50 percent and 100 percent, respectively. A banking organization's risk-based capital ratio is calculated by dividing its qualifying total capital base by its risk-weighted assets. Qualifying capital is divided into two tiers. Core capital (Tier 1) consists of common shareholders' equity capital, noncumulative perpetual preferred stock and minority interests in equity capital accounts of consolidated subsidiaries, less goodwill and other intangible assets. Supplementary capital (Tier 2) consists of, among other items, allowance for possible loan and lease losses, cumulative and limited-life preferred stock, mandatory convertible securities and subordinated debt. Tier 2 capital will qualify as a part of the Bank's total capital up to a maximum of 100 percent of the Bank's Tier 1 capital. Amounts in excess of these limits may be issued but are not included in the calculation of the risk-based capital ratio. Under current guidelines, banking organizations must maintain a risk-based capital ratio of 8 percent, of which at least 4 percent must be in the form of core capital. The Company is and expects to remain in compliance with these guidelines. The purposes of the risk-based capital guidelines are twofold--to make capital requirements more sensitive to differences in risk profiled among banking organizations, and to aid in making the definition of bank capital uniform internationally. To achieve these purposes, the guidelines recognize the riskiness of assets by lowering capital requirements for some assets that clearly have less risk than others, and they recognize that there are risks inherent in off-balance sheet activities. The guidelines require that banking organizations hold capital to support such activities. In addition, the guidelines establish a definition of capital and minimum risk-based capital standards which are consistent on an international basis and that place a greater emphasis on equity capital. The FRB has also adopted a minimum leverage ratio which is intended to supplement the risk-based capital requirements and to insure that all financial institutions continue to maintain a minimum level of capital. As with the risk- based capital guidelines, the leverage capital guidelines apply to the Company on a consolidated basis. The leverage-based capital requirement stipulates that banking organizations maintain a minimum level of Tier 1 capital to total assets. The most highly rated banks in terms of safe and sound operation that are not experiencing or anticipating significant growth are required to have Tier 1 capital equal to at least 3 percent of total assets. All other banks are expected to maintain a minimum leverage capital ratio (i.e., Tier 1 capital divided by total assets) in excess of the 3 percent minimum level. The FDIC regulations require a financial institution to maintain a minimum ratio of 4 percent to 5 percent, depending on the condition of the institution. The Company's leverage ratio is and its management expects it to remain in excess of regulatory requirements. Page 6 Camden National Bank is a national bank organized under the laws of the United States. Camden National Bank is a member of the Federal Reserve System and its deposits are insured by the FDIC. Camden National Bank is subject to regulation, supervision and regular examination by the Office of the Comptroller of the Currency (the "OCC"). The ability of Camden National Bank to pay dividends is subject to the banking laws of the United States and to the powers of the OCC and the FDIC. Under federal banking law, dividends can only be paid out of the retained earnings of Camden National Bank's current and two preceding fiscal years, or with the prior approval of the OCC. Under federal banking regulation, a bank is prohibited from declaring a dividend or from making any other capital distribution if the payment or distribution would cause the bank to fail to meet minimum capital requirements. UnitedKingfield Bank is a banking organization chartered under the laws of the State of Maine. UnitedKingfield Bank is subject to regulation, supervision and regular examination by the Federal Deposit Insurance Corporation (the "FDIC") and the Maine State Bureau of Banking. Under Maine law, dividends are subject to declaration by the Board of Directors at its discretion. Dividends cannot be declared and paid when such payment would make the bank insolvent or unable to pay its debts as they come due. The principal sources of funds essential to the business of banks and bank holding companies are deposits, shareholders' equity, and borrowed funds. The availability of these various sources of funds and other potential sources, such as preferred stock or commercial paper, and the extent to which they are utilized, depends on many factors, the most important of which are the FRB's monetary policies and the relative costs of different types of funds. An important function of the FRB is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressure. Among the instruments of monetary policy used by the FRB to implement these objectives are open market operations in United States Government securities, changes in the discount rate on bank borrowings, and changes in reserve requirement against bank deposits. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. In view of the recent changes in regulations affecting commercial banks and other actions and proposed actions by the federal government and its monetary and fiscal authorities, including proposed changes in the structure of banking in the United States, no prediction can be made as to future changes in interest rates, credit availability, deposit levels, the overall performance of banks generally or of the Company. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was enacted by Congress in September of 1994. Under the Act, beginning on September 29, 1995, bank holding companies may acquire banks in any state, notwithstanding contrary state law, and all banks commonly owned by a bank holding company may act as agents for one another. An agent bank may receive deposits, renew time deposits, accept payments, and close and service loans for its principal bank, but will not be considered a branch of that principal bank. A bank may also merge with a bank in another state or operate either office as a branch, notwithstanding pre-existing contrary state law. This interstate merger provision automatically became effective in all states on June 1, 1997, unless 1) the law became effective in a given state at any earlier date selected by legislation in that state; or 2) the law did not become effective at all in a given state because of legislation enacted before June 1, 1997 allowing that state to opt out of coverage by the interstate merger provision. Upon consummation of an interstate merger, the resulting bank may acquire or establish branches on the same basis that any participant in the merger could have if the merger had not taken place. Banks may also merge with branches of banks in other states without merging with the banks themselves, or may establish de novo branches in other states, if the laws of the other states expressly permit such mergers or such interstate de novo branching. ITEM 2. PROPERTIES The Company operates in thirty facilities. The headquarters of the Company and the headquarters and main office of Camden National Bank is located at Two Elm Street, Camden, Maine, and is owned by Camden National Bank. The building has 15,500 square feet of space on three levels. Camden National Bank also owns seven of its branches and the facility in which the operations departments of the Company are located. Page 7 None of the owned facilities is subject to a mortgage. Camden National Bank also leases three branches under long-term leases, expiring in May of 2010, January of 2020 and December of 2077. The main office of UnitedKingfield Bank is at 145 Exchange Street, Bangor, Maine, and is owned by UnitedKingfield Bank. The building has 25,600 square feet of space on two levels. UnitedKingfield Bank occupies 16,975 square feet of space on both floors. The Trust Company of Maine, Inc., a non-depository trust company and a subsidiary of the Company, leases 2,100 square feet of office space on the second floor of the facility and its wholly owned subsidiary, Fiduciary Services, Inc., leases 2,042 square feet on the first floor of the facility. Other occupants of the facility include the law firm of Russell, Lingley & Silver, P.A., which leases 2,533 square feet on the second floor, and L&H Investors, a property management firm, and Cullen Williams, CPA, who have a joint lease on 1,920 square feet on the second floor. UnitedKingfield Bank also owns fourteen of its other facilities, none of which is subject to a mortgage. UnitedKingfield Bank also leases four branches, expiring in May of 2000, May of 2001, September of 2002 and February of 2003. ITEM 3. PENDING LEGAL PROCEEDINGS The Company is a party to litigation and claims arising in the normal course of business. On December 9, 1999, Joseph R. Gamache, filed a lawsuit naming Kingfield Bank and one of its employees as defendants. The plaintiff is seeking $1,860,000 in damages, as well as punitive damages, which he alleges resulted from the denial of a loan. The case is currently in the discovery stage. The Company believes the lawsuit has no merit and plans to vigorously defend it. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) A special meeting of shareholders was held on November 16, 1999. (c) Matters voted upon a the meeting. 1) To consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of July 27, 1999. Total votes cast: 4,695,045, with 4,159,396 for, 379,799 against, and 155,850 abstained. 2) To elect as director nominees - Winfield F. Robinson to serve a three year term to expire at the annual meeting in 2002 and Theodore C. Johanson to serve a two year term to expire at the annual meeting in 2001. Total votes cast: 5,379,876, with 5,109,039 for and 270,837 withheld. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The information required is contained on page 19 of the Company's Annual Report to Shareholders for the year ended December 31, 1999 and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected year-end financial information for the past five years is contained on page 21 of the Company's Annual Report to Shareholders for the year ended December 31, 1999 and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained in the section captioned "Management's Discussion and Analysis of Financial Page 8 Condition and Results of Operations" on pages 9 through 19 of the Company's Annual Report to Shareholders for the year ended December 31, 1999 should be read in conjunction with the following text and tables, and is incorporated herein by reference. The following table set forth the Company's investment securities at book carrying amount as of December 31, 1999, 1998, and 1997. Dollars in thousands 1999 1998 1997 -------- -------- -------- SECURITIES AVAILABLE FOR SALE: - ----------------------------------- U.S. Treasury and agency $ 65,046 $ 7,095 $ 4,312 Mortgage-backed securities 13,104 81,820 9,261 State and political subdivisions 7,520 8,143 0 Other debt securities 46,938 2,025 0 Equity securities 31,389 21,769 15,622 -------- -------- -------- 163,997 120,852 29,195 -------- -------- -------- SECURITIES HELD TO MATURITY: - ----------------------------------- U.S. Treasury and agency 5,949 6,093 48,566 Mortgage-backed securities 60,963 89,428 123,544 State and political subdivisions 1,152 1,338 2,955 Other debt securities 129 982 0 -------- -------- -------- 68,193 97,841 175,065 -------- -------- -------- $232,190 $218,693 $204,260 ======== ======== ======== 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 loans enables the Company to hold a portion of the portfolio to maturity. The following table summarizes the investment portfolios maturities and yields at December 31, 1999. 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 $ 1,298 5.82% $ 0 0.00% Due in 1 to 5 years 26,229 5.80% 2,318 7.11% Due in 5 to 10 years 27,759 6.74% 2,248 7.77% Due after 10 years 9,670 6.80% 1,383 7.05% -------- ---- ------- ---- 65,046 6.35% 5,949 7.45% -------- ---- ------- ---- MORTGAGE-BACKED SECURITIES: Due in 1 year or less 0 0.00% 0 0.00% Due in 1 to 5 years 0 0.00% 3,249 6.95% Due in 5 to 10 years 4,793 6.23% 6,239 8.03% Due after 10 years 8,311 6.65% 51,475 7.76% -------- ---- ------- ---- 13,104 6.50% 60,963 7.74% -------- ---- ------- ---- Page 9 STATE AND POLITICAL SUBDIVISIONS: Due in 1 year or less 0 0.00% 0 0.00% Due in 1 to 5 years 0 0.00% 1,052 6.58% Due in 5 to 10 years 5,975 5.74% 100 9.09% Due after 10 years 1,545 5.96% 0 0.00% -------- ---- ------- ---- 7,520 5.79% 1,152 6.80% -------- ---- ------- ---- OTHER DEBT SECURITIES: Due in 1 year or less 0 0.00% 0 0.00% Due in 1 to 5 years 1,000 7.50% 129 7.72% Due in 5 to 10 years 0 0.00% 0 0.00% Due after 10 years 45,938 6.50% 0 0.00% -------- ---- ------- ---- 46,938 6.52% 129 7.72% -------- ---- ------- ---- OTHER EQUITY SECURITIES: Due in 1 year or less 0 0.00% 0 0.00% Due in 1 to 5 years 4,925 6.85% 0 0.00% Due in 5 to 10 years 2,857 6.63% 0 0.00% Due after 10 years 23,607 6.74% 0 0.00% -------- ---- ------- ---- 31,389 6.75% 0 0.00% -------- ---- ------- ---- Total securities $163,997 6.46% $68,193 7.69% ======== ==== ======= ==== Total loans increased by $65.7 million, or 11.5%, in 1999. 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. Dollars in thousands AS OF DECEMBER 31, 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Commercial $316,411 $269,747 $226,981 $185,735 $163,704 Residential real estate 226,548 202,952 193,327 188,109 169,947 Consumer 83,832 78,496 50,433 30,519 31,304 Municipal 8,307 17,199 10,727 6,080 5,214 Other 336 1,311 1,880 893 1,689 -------- -------- -------- -------- -------- $635,434 $569,705 $483,348 $411,336 $371,858 ======== ======== ======== ======== ======== Loan demand also affects the Company's liquidity position. However, of the loans maturing over one year, approximately 52% are variable rate loans. The following table presents the maturities of loans at December 31, 1999. Page 10 Dollars in thousands THROUGH MORE THAN 1 YEAR 5 YEARS 5 YEARS TOTAL Maturity Distribution: - --------------------------- Fixed Rate: Commercial $ 23,597 $ 46,875 $ 22,769 $ 93,241 Residential real estate 4,089 5,233 134,792 144,114 Consumer 5,666 15,255 16,140 37,061 Variable Rate: Commercial 32,103 34,570 156,497 223,170 Residential real estate 4 1,063 81,367 82,434 Consumer 6,701 11,764 28,642 47,107 Municipal 3,110 3,166 2,031 8,307 -------- -------- -------- -------- $ 75,270 $117,926 $442,238 $635,434 ======== ======== ======== ======== 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, 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- NONPERFORMING LOANS: - ----------------------------------- Non-accrual loans $ 6,136 $ 4,079 $ 3,305 $ 3,569 $ 4,276 Accruing loans past due 90 days or more 195 613 1,004 599 353 Restructured loans (in compliance with modified terms) 0 0 0 0 0 ------- ------- ------- ------- ------- Total nonperforming loans 6,331 4,692 4,309 4,168 4,629 ------- ------- ------- ------- ------- Other real estate owned 1,405 1,052 1,532 1,381 1,127 ------- ------- ------- ------- ------- Total nonperforming assets $ 7,736 $ 5,744 $ 5,841 $ 5,549 $ 5,756 ======= ======= ======= ======= ======= RATIOS: - ----------------------------------- Nonperforming loans to total loans 1.00% 0.82% 0.89% 1.01% 1.24% Allowance for loan losses to nonperforming loans 148.32% 172.50% 162.03% 128.72% 106.87% Nonperforming assets to total assets 0.83% 0.68% 0.80% 0.86% 0.95% Allowance for loan losses to nonperforming assets 121.38% 140.90% 119.53% 96.68% 85.95%
Page 11 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, 1999 ------- Time remaining until maturity: Less than 3 months $17,242 3 months through 6 months 15,416 6 months through 12 months 14,603 Over 12 months 10,826 ------- $58,087 ======= The dividend payout ratio was 40.90%, 33.74%, 29.31%, 24.70%, and 17.58% for 1999, 1998, 1997, 1996 and 1995 respectively. The average equity to average assets ratio was 8.71%, 10.05%, 10.07%, 10.96%, and 9.91% for 1999, 1998, 1997, 1996 and 1995 respectively. The borrowings utilized by the Company have primarily been advances from the FHLB of Boston. In addition, the Company utilizes fed funds, treasury, tax and loan deposits, and repurchase agreements secured by the United States Government or Agency securities. The major portion of all borrowings matures or reprices within the next six months. The following table sets forth certain information regarding borrowed funds for the years ended December 31, 1999, 1998, and 1997. Dollars in thousands AT OR FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997 -------- -------- -------- Average balance outstanding $146,627 $ 93,204 $155,688 Maximum amount outstanding at any month-end during the year 173,924 163,013 192,836 Balance outstanding at end of year 173,924 113,682 160,697 Weighted average interest rate during the year 4.90% 5.23% 5.59% Weighted average interest rate at end of year 5.07% 4.82% 5.57% 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 Page 12 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. The following table sets forth the amount of interest-earning assets and interest-bearing liabilities outstanding, at December 31, 1999 which are anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown.
Dollars in thousands THROUGH MORE THAN 1 YEAR 5 YEARS 5 YEARS TOTAL ----------- ---------- ---------- -------- Interest-earning assets: Fixed rate loans $ 36,462 $ 70,529 $175,732 $282,723 Variable rate loans 352,711 0 0 352,711 Investment securities Available for sale 1,298 32,154 130,545 163,997 Held to maturity 0 6,748 61,445 68,193 --------- -------- -------- -------- Total interest-earning assets 390,471 109,431 367,722 867,624 --------- -------- -------- -------- INTEREST-BEARING LIABILITIES: Savings accounts 20,000 0 92,335 112,335 NOW accounts 0 0 89,740 89,740 Money market accounts 71,237 0 0 71,237 Certificate accounts 248,605 64,944 474 314,023 Borrowings 166,924 2,000 5,000 173,924 --------- -------- -------- -------- Total interest-bearing liabilities 506,766 66,944 187,549 761,259 --------- -------- -------- -------- Interest sensitivity gap per period $(116,295) $ 42,487 $180,173 ========= ======== ======== Cumulative interest sensitivity gap $(116,295) $(73,808) $106,365 ========= ======== ======== Cumulative interest sensitivity gap as a percentage of total assets (13%) 5% 19% Cumulative interest-earning assets as a percentage of interest-sensitive liabilities 77% 87% 114%
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. The information required is included in the Company's 1999 Annual Report to Shareholders on pages 18-19 and is incorporated herein by reference. Page 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and report of independent accountant, included in the Company's 1999 Annual Report to Shareholders, are incorporated herein by reference. Page references are to pages of the Company's 1999 Annual Report to Shareholders. PAGE ----- Consolidated Statements of Financial Condition December 31, 1999 and 1998 22 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 23 Consolidated Statements of Changes in the Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997 24 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 25 Notes to Consolidated Financial Statements 26-46 Report of Independent Public Accountant 47 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. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company responds to this item by incorporating herein by reference the material responsive to such item in the Company's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders to be filed with the Commission prior to April 29, 2000. ITEM 11. EXECUTIVE COMPENSATION The Company responds to this item by incorporating herein by reference to the material responsive to such item in the Company's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders to be filed with the Commission prior to April 29, 2000. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company responds to this item by incorporating herein by reference to the material responsive to such item in the Company's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders to be filed with the Commission prior to April 29, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company responds to this item by incorporating herein by reference to the material responsive to such item in the Company's definitive Proxy Statement for the 2000 Annual Meeting of Shareholders to be filed with the Commission prior to April 29, 2000 Page 14 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 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 filed herewith: (2.1) Agreement and Plan of Merger, dated as of July 27, 1999, by and among Camden National Corporation, Camden Acquisition Subsidiary, Inc., KSB Bancorp, Inc., and Kingfield Savings Bank, dated as of July 27, 1999 (incorporated herein by reference to Exhibit 2.1 to Form 8-K of Camden filed August 9, 1999). (3.i) The Articles of Incorporation of Camden National Corporation, as amended to date, Exhibit 3.i to the Company's Registration statement Form S-4 filed with the Commission on September 25, 1995, file number 33- 97340, are incorporated herein by reference. (3.ii) The Bylaws of Camden National Corporation, as amended to date, Exhibit 3.ii to the Company's Registration Statement on Form S-4 filed with the Commission on September 25, 1995, file number 33-97340, are incorporated herein by reference. (10.1) Lease Agreement for the facility occupied by the Thomaston Branch of Camden National Bank, between Knox Hotel Associates(Lessor) and Camden National Bank (Lessee) filed with Form 10-K, December 31, 1995, is incorporated herein by reference. (10.2) Lease Agreement for the facility occupied by the Camden Square Branch of Camden National Bank, between Milliken, Tomlinson Company (Lessor) and Camden National Bank (Lessee) filed with Form 10-K, December 31, 1995, is incorporated herein by reference. Page 15 (10.3) Lease Agreement for the facility occupied by the Hampden Branch of UnitedKingfield Bank, Parway Realty Development Corporation (Lessor) and UnitedKingfield Bank (Lessee) filed with Form 10-K, December 31, 1995, is incorporated herein by reference. (10.4) Camden National Corporation 1993 Stock Option Plan, filed with Form 10- K, December 31, 1995, is incorporated herein by reference. (10.5) UNITEDCORP Stock Option Plan, filed with Form 10-K, December 31, 1995, is incorporated herein by reference. (10.6) Lease Agreement for the facility occupied by the Damariscotta Branch of Camden National Bank, between Keybank National Association (Lessor) and Camden National Bank (Lessee), filed with Form 10-K, December 31, 1998, is incorporated herein by reference. (10.7) Lease Agreement for the facility occupied by the Milo Branch of UnitedKingfield Bank, between Cabrel Company (Lessor) and UnitedKingfield Bank (Lessee), filed with Form 10-K, December 31, 1998, is incorporated herein by reference. (10.8) Lease Agreement for the facility occupied by the Dover-Foxcroft Branch of UnitedKingfield Bank, between Bangor Savings Bank (Lessor) and UnitedKingfield Bank (Lessee), filed with Form 10-K, December 31, 1998, is incorporated herein by reference (10.9) Employment Agreement with Chief Executive Officer, filed with form 10- Q/A, June 30, 1999, is incorporated herein by reference. (10.10) KSB Bancorp, Inc. 1993 Incentive Stock Option Plan, filed with Form S- 8, January 21, 2000, is incorporated herein by reference. (10.11) Amendment No. 1 to KSB Bancorp, Inc. 1993 Stock Option Plan, filed with Form S-8, January 21, 2000, is incorporated herein by reference. (10.12) KSB Bancorp, Inc. 1998 Long-Term Incentive Stock Benefit Plan (Incorporated by reference to Appendix A of the Proxy Statement of KSB Bancorp, Inc. relating to its May 13, 1998 annual meeting of stockholders). (10.13) Camden National Corporation's Supplemental Executive Retirement Plan Summary. (13) Camden National Corporation's 1999 Annual Report to Shareholders.* (21) Subsidiaries of the Company (23.1) Consent of Berry, Dunn, McNeil & Parker, LLC relating to the financial statements of Camden. (27) Financial Data Schedule Deemed filed only with respect to those portions thereof incorporated herein by reference (b) Reports on Form 8-K. None filed. Page 16 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 (REGISTRANT) /s/ Robert W. Daigle 3/28/00 - ------------------------------ ---------------------------- 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 3/28/00 /s/ Susan M. Westfall 3/28/00 - -------------------------------- ------------------------------ Robert W. Daigle Date Susan M. Westfall Date President, Director Treasurer and and Chief Executive Officer Chief Financial Officer /s/ Rendle A. Jones 3/28/00 /s/ John S. McCormick, Jr. 3/28/00 - -------------------------------- ------------------------------------ Rendle A. Jones Date John S. McCormick, Jr Date Chairman and Director Director /s/ Robert J. Gagnon 3/28/00 /s/ Richard N. Simoneau 3/28/00 - -------------------------------- ------------------------------------ Robert J. Gagnon Date Richard N. Simoneau Date Director Director /s/ Ann W. Bresnahan 3/28/00 /s/ Arthur E. Strout 3/28/00 - -------------------------------- ------------------------------------ Ann W. Bresnahan Date Arthur E. Strout Date Director Director /s/ John W. Holmes 3/28/00 /s/ Theodore C. Johanson 3/28/00 - -------------------------------- ------------------------------------ John W. Holmes Date Theodore C. Johanson Date Director Director /s/ Winfield F. Robinson 3/28/00 /s/ Ward I. Graffam 3/28/00 - -------------------------------- ------------------------------------ Winfield F. Robinson Date Ward I. Graffam Date Director Director /s/ Robert J. Campbell 3/28/00 - -------------------------------- Robert J. Campbell Date Director Page 17 EX-10.13 2 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EXHIBIT# 10.13 CAMDEN NATIONAL CORPORATION'S SUPPLEMENTAL RETIREMENT PLAN - ------------------------------------------------------------------------- SUMMARY - ------- CAMDEN NATIONAL CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) The Supplemental Executive Retirement Plan is a salary continuation plan that enables Camden National Corporation to provide additional retirement benefits to key executives with only a minimal impact on the bank's earnings. These supplemental retirement benefits can be used as a way to reward and retain the key executives who are responsible for the company's success, as well as to attract the high caliber executives the company will need in the future as it grows. The salary continuation plan is designed to provide an annual retirement benefit that will grow on a tax deferred basis and, when added to the retirement benefits that will be provided by the Company's Defined Benefit Plan and Social Security, will provide these key executives with benefit levels comparable to other employees when measured as a percentage of salary at the time of retirement. This plan provides key executive with annual retirement benefits for the remainder of their life after retirement at age 65. The executives are vested in the benefit pursuant to the vesting schedule in the benefit agreement. The Company's obligations under the plan are unfunded; however, the Company has purchased life insurance policies on the insurable executives to offset the annual expenses associated with the plan and will, given reasonable actuarial assumptions, offset all of the plan's costs during the life of the executive and provide a complete recovery of all plan costs at the executive's death. This Supplemental Executive Retirement Plan is a non-qualified employee benefit plan. It is non-qualified because it does not qualify for an income tax deduction until the benefit payments are actually paid to the employee at retirement. Because of this, it does not have to comply with the regulations concerning plan design, reporting, funding, vesting and participation that are required with tax-qualified plans. EX-13 3 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 [CNC LOGO] [PHOTOS] CAMDEN NATIONAL CORPORATION 1 9 9 9 A N N U A L R E P O R T - -------------------------------------------------------------------------------- A Legacy of Success Community-based businesses are an integral part of our society. They provide us with all the necessities for living, and allow us to fulfill our desires to enjoy a more comfortable lifestyle. Camden National Corporation salutes the many individuals and businesses that have given us the opportunity to work side-by-side with them from generation to generation, and we are pleased to share four of their success stories in our 1999 Annual Report. We are proud to be part of their legacy of success, and we look forward to playing an important role in their future and the futures of our shareholders, employees, customers and communities. Table of Contents 2 President's Letter 4 Community Business Profiles 8 Dedication 9-19 Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Summary of Financial Performance-graphs 21 Selected Five-Year Financial Data 22 Consolidated Statements of Condition 23 Consolidated Statements of Income 24 Consolidated Statements of Changes in Shareholders' Equity 25 Consolidated Statements of Cash Flows 26-46 Notes to Consolidated Financial Statements for December 31, 1999, 1998, and 1997 47 Auditor's Letter 48 Boards of Directors and Bank Administrators 50 Announcement of Annual Meeting [PHOTOS] ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 1 - -------------------------------------------------------------------------------- [PHOTO] Dear Shareholders: While developing my thoughts for this letter, it occurred to me that 1999 saw a multitude of events unfold at Camden National Corporation that would belie the phrase, "business as usual." New leadership, new corporate vision, new business partners and new products and services...perhaps the more apt description would be, "a year of transition." Indeed, it was a year laden with changes, many of which were exciting and filled with great expectation while others were tinged with uncertainty. None evoked more anxiety than the much-ballyhooed arrival of the year 2000. The mere mention of Y2K conjured up all sorts of disaster scenarios that ultimately proved unwarranted. Meanwhile, our introduction of a fully-interactive internet banking capability caused a few eyebrows to be raised over privacy and security. Yet, 1,600 customers and nearly 80,000 hits per month later, all is well and convenience banking has once again been re-defined. Perhaps the most immediately evident transition, especially for long-time shareholders, resides in the authorship of this letter. As announced in his final annual report to you last year, Keith Patten ceremoniously stepped down as your president and chief executive officer in May to pursue a life-long dream of fishing every great river in the world. If his wife, Priscilla, has anything to say about it, there will be other fulfilling activities occupying both of them in their retirement years. We are greatly indebted to Keith for his vision and the steady, guiding hand he provided during his twenty-two year career with our company (please see dedication on page eight). His legacy will serve us well as we venture forth to face the challenges awaiting us in the new millennium. Along with Keith's announcement came the beginning of a comprehensive strategic planning process designed to plot a course for our company's future success and the new generation of community banking that will ensure this desired outcome. The result of a grueling three-day exercise, which included directors and senior managers, was the formulation of a strategic vision that calls for maintaining our independence while facilitating growth designed to enhance long-term shareholder value. Underlying this vision is a master strategy that focuses on a combination of internal and external growth initiatives. Internal growth presupposes the leveraging of existing assets and resources within our company to gain a larger share of our current customer-base's financial complex. In addition, this growth depends upon more effectively cultivating prospective ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 2 - -------------------------------------------------------------------------------- relationships within our defined markets through the development of innovative products and services and a more highly-focused calling effort. Early evidence of our strategic success manifested itself through "above peer" growth in average loans outstanding and deposit balances of 16.1% and 13.8%, respectively, compared to 1998. External growth, including geographic expansion and line-of-business diversification, represents some of the greatest opportunities for our company. On July 27, 1999, we chose to pursue a conventional expansion pathway when we entered into a definitive agreement to acquire KSB Bancorp, Inc. ("KSB"), the parent company for Kingfield Bank in Kingfield, Maine. The union of Kingfield Bank with our existing affiliate, United Bank in Bangor, during the first quarter of 2000, created a new community bank - UnitedKingfield - Bank with approximately $325 million in assets serving 25,000 customers in nine counties through 18 branch locations. We believe the similarity in customer demographics, contiguous geography and strength of our new management team, led by President and CEO John Witherspoon, provides us with an excellent opportunity to capitalize on certain inherent economies of scale. Furthermore, we see significant market penetration potential within the UnitedKingfield Bank franchise, particularly in and around the larger Bangor and Lewiston population centers. Reference to our acquisition of KSB provides an appropriate segue to our discussion of this past year's financial performance. Following three consecutive years of record-breaking results, 1999 net income per fully diluted share declined 7.97% to $1.27 from $1.38 in 1998. This was largely a function of $1,790,000 in net-after-tax expenses related to the acquisition of KSB, coupled with write-downs in other real estate owned (OREO) of $506,000 and additions to the provision for loan losses of $1,445,000 at United Bank. The performance of the company's flagship bank, Camden National Bank, evidenced continued solid growth in 1999 with average loans outstanding and average deposit balances increasing 17% and 11%, respectively, compared to 1998. Camden National Bank's return on average assets in 1999 was 1.67% compared to 1.68% in the previous year, while return on average equity rose to 19.70% compared to 15.36% in 1998. As you will note in the succeeding pages of this annual report, we have elected to continue with the theme of Providing Financial Solutions for Generations, focusing this year on the business sector the lifeblood of our communities, and our company. We believe this theme speaks appropriately to the heritage of Camden National Corporation, which is proudly celebrating its 125th year of service to the citizens, businesses and communities encompassed within its expanding geography. The companies we have chosen to profile are both first and multi-generation, and represent the vast cross-section of businesses who are served by the management and staff of Camden National Corporation today. In closing, I would like to offer a special thanks to our staff for their dedication, to our directors for their guidance and to you, our shareholders, for your support. The vagaries of the economic markets have not been kind to our industry-sector over the last year. Nevertheless, we will continue to work hard to improve the fundamentals of your company relative to those of other members of the financial services sector by pursuing our vision of balancing profit with growth and quality with productivity. Sincerely, /s/ Robert W. Daigle Robert W. Daigle President & CEO ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 3 A Legacy of Success - -------------------------------------------------------------------------------- The O'Hara Corporation [PHOTO] The fishing industry has seen quite a few changes since Francis J. O'Hara, founder of what eventually became the O'Hara Corporation, entered the business at the turn of the century. Back then, most commercial fishermen worked in sailing drifters and steam trawlers. Francis came over to America from a fishing village in Ireland. In 1900, he moved to the Boston area and began building his business on the bounty of the Atlantic Ocean. In the early fifties, he was succeeded by his son, Frank O'Hara, Sr., who brought the family business to Portland and then Rockland, Maine. Frank, Sr. began acquiring waterfront property in Rockland and expanded the operation to include ice making for his boats. Frank, Sr. also established a relationship with Jack Williams, Senior Vice President of Community Banking at Camden National Bank, who provided support to Frank when he needed it most. "The people of Camden National Bank have always been there for my family." [PHOTO] Today, Frank O'Hara, Jr. works closely with his father on the O'Hara Corporation - now a diverse enterprise involved in a variety of ventures. There are three factory trawlers fishing the seas off Alaska, the Journey's End Marina in Rockland where the family fishing operation used to be, and an ice manufacturing company supplying ice to boats and people throughout New England. Camden National Bank is proud to have been and continue to be the bank of choice for the O'Hara's for Frank, his father, and for the next generation, too. "The people of Camden National Bank have always been there for my family. From generation to generation, they've always been able to meet all our financial needs." - Frank O'Hara, Jr., Rockland ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 4 A Legacy of Success - -------------------------------------------------------------------------------- Jordan Lumber [PHOTO] There are over 17 million acres of forestland in the great state of Maine. In the late 1950's, Everett Jordan brought his family to Kingfield and purchased a small sawmill. With lumber and labor plentiful, Jordan Lumber quickly became a major economic force in the region. The building materials for many of the homes and businesses that were built in the area at that time took shape at Jordan Lumber. "It's more than a banking relationship. It's family." The business flourished and soon Jordan Lumber Company became a major force in the local economy. A few years later, Everett's son, Richard, joined the business, followed soon by brothers Les and Jonathan. Upon Everett's retirement, the three sons purchased the business. Jordan Lumber Co., Inc. has continued to grow and prosper and the people of Kingfield Bank (now UnitedKingfield Bank) are proud to have played a key part in their success. "Jordan Lumber is proud of the 'family' relationship we enjoy with UnitedKingfield Bank and also with our 'family' of employees." - Richard Jordan, Kingfield ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 5 A Legacy of Success - -------------------------------------------------------------------------------- Gold Star Cleaners [PHOTO] Before Maine ever carried the moniker "Vacationland" on its license plates, Bangor was home to thousands of mill workers, laborers and lumbermen who harvested our abundant natural resources. Considering the state of their clothes after a long day's work, it was a natural place to start a dry cleaning business. "I know that we are both in business for the long haul." Founded in 1905 by Edward Pooler, Gold Star Cleaners began its dry cleaning operation in Brewer. It was hard work for Edward and he soon enlisted the help of his son Hank. Upon Hank's untimely death, his sons Jim and Eddie took over. [PHOTO] As washing machines and dryers became more prevalent in private homes, the brothers began looking for new ways to build their business. Eventually, they left that job to the next generation - Eric. Today, Eric Pooler runs the family business, which now has six locations throughout central Maine, including five coin laundry locations. Gold Star Cleaners' original location on Wilson Street in Brewer, "the cleaners next to the railroad tracks," continues to feature dry cleaning. As a Charter Member of the Generations Gold Business Partner program at United Bank (now UnitedKingfield Bank), the Bank helps drive business to Gold Star Cleaners while giving Eric's customers a valuable discount. From washing cycles to business cycles, UnitedKingfield Bank has the answers. "My relationship with UnitedKingfield Bank is mutually beneficial. I know that we are both in business for the long haul." - Eric Pooler, Bangor ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 6 A Legacy of Success - -------------------------------------------------------------------------------- R.P. Imports [PHOTO] Transforming a hobby into a full-time business has been a labor of love for Ed and Judi Mansing. While traveling around the world on business, Ed and Judi often sampled local wines and brought them back home to Maine for friends and family to enjoy. As their passion grew stronger, they began to look for ways to enter the wine importing business professionally. "Banking with UnitedKingfield Bank couldn't be easier." [PHOTO] Eventually, they took the plunge and founded R.P. Imports. When it came time to name the business they chose the initials of Ed's grandfather, Renzo Paracchi, a true connoisseur of the vine. From humble beginnings, R.P. Imports grew to become a major importer and distributor of quality wines, supplying northern New England with wines from California, France, Italy, Spain, Germany, Australia and Argentina. Today, R.P. Imports operates out of a waterfront office in Portland. Through the convenience of on-line banking from UnitedKingfield Bank, they have been able to continue enjoying the kind of personal service and cutting-edge technology that originally brought them to Kingfield Bank. Now that calls for a toast. "Banking with UnitedKingfield Bank couldn't be easier. When we're in the area we stop in, but it's just as easy to pick up the phone or access our accounts on the web and we can do that at any time!" - Ed Mansing, Portland ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 7 Dedication - -------------------------------------------------------------------------------- [PHOTO] In appreciation for his outstanding contribution to Camden National Corporation, we acknowledge the retirement of and dedicate this annual report to: Keith C. Patten Mr. Patten served as President, Chief Executive Officer and Director of Camden National Bank from 1978 through 1996 and was elected Chairman of the Board of Camden National Bank in 1996. He also served as President, Chief Executive Officer and Director of the Company from 1984 through his retirement in 1999. Mr. Patten also served as a Director of United Bank from 1996-1999. From the directors and employees of the Company, thank you Keith, and best wishes! ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 8 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 the Company at December 31, 1999 and 1998, the consolidated results of operations for the past three 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 forward-looking. Forward-looking statements relate to future operations, strategies, financial results or other developments, and typically contain words or phrases such as "may," "expects," "should" or similar expressions. Forward-looking statements are based upon estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Company's control or are subject to change. Inherent in the Company's business are certain risks and uncertainties. Therefore, the Company cautions the reader that its actual results could differ materially from those expected to occur depending on factors such as general economic conditions including changes in interest rates and the performance of financial markets, changes in domestic and foreign laws, regulations and taxes, competition, industry consolidation, credit risks and other factors. Other factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on investment securities, rates paid on deposits, competitive effects, fee and other 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 of Company. Camden National Corporation ("the Company") is a multi-bank holding company headquartered in Camden, Maine, offering a broad range of financial services in its geographical marketplace. The Company has two wholly owned bank subsidiaries. Camden National Bank is a national banking organization, based in Camden, Maine. UnitedKingfield Bank, a state chartered bank based in Bangor, Maine, is the successor by merger, effective February 4, 2000, of United Bank and Kingfield Savings Bank. The Company also has a 51% interest in Trust Company of Maine, Inc., a non-bank subsidiary, based in Bangor, Maine. Business. The Company's wholly-owned bank subsidiaries are independent banks with branches serving mid-coast, central and western Maine. The banks are full-service financial institutions that focus primarily on attracting deposits from the general public through their branches and using such deposits to originate residential mortgage loans, business loans, commercial real estate loans and a variety of consumer loans in their respective service areas. In addition, the Company also invests in mortgage-backed securities and securities issued by the United States government and agencies thereof. The Company's majority-owned trust subsidiary, Trust Company of Maine, Inc., offers a broad range of trust and trust investment services, in addition to retirement and pension plan management services. The Company's goal is to balance profit with growth and quality with productivity. Therefore, emphasis is placed on increasing loan and deposit market shares in the communities its bank subsidiaries serve by offering a wide range of quality financial products and services coupled with local decision-making. In addition, the Company closely manages yields on interest-earning assets and rates on interest-bearing liabilities and strives to increase non-interest income while controlling the growth of non-interest expense. It is also part of the business strategy of the Company to supplement internal growth with acquisitions of other banks, branches of other banks and non-bank financial service companies when such purchases are perceived to offer enhanced long-term shareholder value. Acquisition. On December 20, 1999, the Company completed the acquisition of KSB Bancorp ("KSB"), a bank holding company with one principal subsidiary, Kingfield Bank. Approximately 1,481,800 shares of common stock were issued in connection with this transaction. KSB was subsequently merged into the Company. At December 31, 1999, Kingfield Bank had total assets of $191.1 million and total shareholders' equity of $14.0 million. The acquisition of KSB was accounted for under the pooling-of-interests method and, accordingly, financial information for all periods presented prior to the date of acquisition, including the financial information discussed below, has been restated to ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 9 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- present the combined financial condition and results of operations as if the acquisition had been in effect for all such periods. REVIEW OF FINANCIAL STATEMENTS The discussion and analysis which follows focuses on the factors affecting the Company's financial results of operations during 1999, 1998 and 1997 and financial condition at December 31, 1999 and 1998. The Consolidated Financial Statements and Related Notes beginning on page 22 of this report should be read in conjunction with this review. RESULTS OF OPERATIONS Overview. The Company reported net income of $10.2 million in 1999, $11.5 million in 1998 and $10.7 million in 1997. Basic earnings per diluted share were $1.27 in 1999, $1.38 in 1998 and $1.27 in 1997. Return on average assets was 1.15% in 1999 compared to 1.52% in both 1998 and 1997. Return on average equity was 13.16% in 1999 compared to 15.09% and 15.11% in 1998 and 1997, respectively. Excluding acquisition-related expenses, the Company earned $1.49 per diluted share in 1999 compared to $1.38 per diluted share during 1998. Return on average equity, excluding acquisition-related expenses, was 15.47% in 1999 compared to 15.09% and 15.11% in 1998 and 1997, respectively. Strong loan growth during 1999 contributed to substantial increases in net interest income, which on a fully taxable equivalent basis totaled $40.6 million in 1999 compared to $35.7 million and $31.4 million in 1998 and 1997, respectively. The Company's results of operations are also affected by the provision for loan losses, resulting from the Company's assessment of the adequacy of the allowance for loan losses, and other non-interest income and expenses. Each of these principal components of the Company's operating results is discussed on the following pages. Net Interest Income. Net interest income, when expressed as a percentage of average assets, is referred to as net interest margin. The following tables on pages 11 and 12, which present changes in interest income and interest expense by major asset and liability category for 1999, 1998 and 1997, 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. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 10 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS
(Dollars in thousands) December 31, 1999 December 31, 1998 December 31, 1997 Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets - ------ Interest-earning assets: Securities--taxable $216,666 $ 15,084 6.96% $175,357 $ 12,129 6.92% $213,612 $ 14,379 6.73% Securities--nontaxable (1) 9,152 606 6.62% 3,126 209 6.69% 4,566 311 6.81% Federal funds sold 1,784 69 3.87% 4,373 195 4.46% 1,039 57 5.49% Loans (1) (2) 605,271 55,251 9.13% 521,559 49,811 9.55% 445,599 43,219 9.70% -------- -------- ---- -------- -------- ---- -------- -------- ---- Total interest-earning assets 832,873 71,010 8.53% 704,415 62,344 8.85% 664,816 57,966 8.72% -------- -------- ---- -------- -------- ---- -------- -------- ---- Cash and due from banks 24,122 19,720 16,070 Other assets 43,750 38,389 28,416 Less allowance for loan losses 8,895 7,581 5,997 -------- -------- -------- Total assets $891,850 $754,943 $703,305 -------- -------- -------- Liabilities and Shareholders' Equity - ------------------------------------ Interest-bearing liabilities: NOW accounts $ 85,861 $ 1,129 1.31% $ 61,340 $ 1,003 1.64% $ 54,830 $ 780 1.42% Savings accounts 109,078 3,050 2.80% 94,014 2,873 3.06% 85,836 2,757 3.21% Money market accounts 64,562 2,347 3.64% 60,452 1,908 3.16% 29,838 989 3.31% Certificates of deposit 312,019 16,317 5.23% 286,234 15,810 5.52% 241,530 13,313 5.51% Brokered certificates of deposit 6,010 344 5.72% 3,847 221 5.74% 356 23 6.46% Short-term borrowings 146,627 7,182 4.90% 93,204 4,873 5.23% 155,688 8,69 5.59% -------- -------- ---- -------- -------- ---- -------- -------- ---- Total interest-bearing liabilities 724,157 30,369 4.19% 599,091 26,688 4.45% 568,078 26,560 4.68% -------- -------- ---- -------- -------- ---- -------- -------- ---- Demand deposits 79,764 71,862 57,582 Other liabilities 10,229 8,090 6,844 Shareholders' equity 77,700 75,900 70,801 -------- -------- -------- Total liabilities and shareholders' equity $891,850 $754,943 $703,305 ======== ======== ======== Net interest income 40,641 35,656 31,406 (fully-taxable equivalent) Less: fully-taxable equivalent adjustment (592) (342) (332) -------- -------- -------- $ 40,049 $ 35,314 $ 31,074 ======== ======== ======== Net interest rate spread (fully-taxable equivalent) 4.34% 4.40% 4.04% ==== ==== ==== Net interest margin (fully-taxable equivalent) 4.88% 5.06% 4.72% ==== ==== ====
(1) Reported on tax-equivalent basis calculated using a rate of 34%. (2) Non-accrual loans are included in total average loans. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 11 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME
Year Ended December 31, 1999 vs 1998 Year Ended December 31, 1998 vs 1997 (Dollars in thousands) Increase (Decrease) Due to Increase (Decrease) Due to Volume Rate Total Volume Rate Total Interest-earning Assets: Securities--taxable $ 2,858 $ 97 $ 2,955 $ (2,575) $ 325 $ (2,250) Securities--nontaxable 403 (6) 397 (98) (4) (102) Federal funds sold (115) (11) (126) 183 (45) 138 Loans 7,996 (2,556) 5,440 7,369 (777) 6,592 -------- -------- -------- -------- -------- -------- Total interest income 11,142 (2,476) 8,666 4,879 (501) 4,378 -------- -------- -------- -------- -------- -------- Interest-bearing Liabilities: NOW accounts 402 (276) 126 92 131 223 Savings accounts 460 (283) 177 263 (147) 116 Money market accounts 130 309 439 1,013 (94) 919 Certificates of deposit 1,423 (916) 507 2,463 34 2,497 Broker certificates 124 (1) 123 226 (28) 198 Short-term borrowings 2,794 (485) 2,309 (3,492) (333) (3,825) -------- -------- -------- -------- -------- -------- Total interest expense 5,333 (1,652) 3,681 565 (437) 128 -------- -------- -------- -------- -------- -------- Net interest income (fully taxable equivalent) $ 5,809 $ (824) $ 4,985 $ 4,314 $ (64) $ 4,250 ======== ======== ======== ======== ======== ========
The Company's net interest income, on a fully taxable equivalent basis, was $40.6 million, $35.7 million and $31.4 million in 1999, 1998 and 1997, respectively. Changes in net interest income are the result of interest rate movements, changes in the amounts and mix of interest-earning assets and interest-bearing liabilities, and changes in the level of non-interest-earning assets and non-interest-bearing liabilities. Net interest income increased by $5.0 million or 14.0%, on a fully taxable equivalent basis, in 1999 compared to 1998. This increase was due to the increase in loan and investment volumes, partially offset by a decrease in yields on average loans outstanding. During 1998, net interest income increased by $4.3 million or 13.5%, on a fully taxable equivalent basis, compared to 1997. This increase was due to the increase in average loan volumes partially offset by a slight decrease in loan yields. Net interest income, expressed as a percentage of average interest-earning assets, was 4.88% in 1999, 5.06% in 1998 and 4.72% in 1997. The average amount of loans outstanding increased by $83.7 million or 16.1% in 1999 over 1998 and by $76.0 million or 17.0% in 1998 over 1997. Interest income on loans increased by $5.4 million in 1999 compared to 1998 and by $6.6 million in 1998 compared to 1997. The weighted average yield on loans was 9.1% in 1999, compared to 9.6% in 1998 and 9.7% in 1997. The average balances of non-accrual loans can also affect the average yield earned on all outstanding loans. However, the average balances of non-accrual loans for 1999, 1998 and 1997 were minimal and, therefore, had an insignificant effect on average loan yield. Interest and Dividends. Interest and dividends on investment securities increased by $3.2 million, on a fully taxable equivalent basis, in 1999 compared to 1998. The primary reason was increased volume and yields. In 1998, interest and dividends on investment securities decreased by $2.2 million, on a fully taxable equivalent basis, compared to 1997. This was the result of relatively lower yields being available for reinvesting the proceeds of maturing investments. The average balance of investments outstanding totaled $225.8 million in 1999, compared to $178.5 million in 1998 and $218.2 million in 1997. The weighted-average tax-adjusted yield on investment securities was 6.92% in 1999, compared to 6.86% in 1998 and 6.73% in 1997. Average deposits increased by $71.6 million or 14.2% in 1999 over 1998 and by $93.5 million or 22.7% in 1998 over 1997. Interest expense on deposits and borrowings increased by $3.7 million in 1999 compared to 1998. This increase was the result of increased balances in all categories. Interest expense on deposits and borrowings increased by $128,000 in 1998 compared to 1997. This minimal increase was primarily attributable to the addition of $103.5 million in deposits in connection with branch acquisitions, which resulted in a reduction of the Company's cost of funds. The weighted-average rate on interest-bearing liabilities was 4.19% in 1999, compared to 4.45% in 1998 and 4.68% in 1997. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 12 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Additionally, the Company periodically uses interest rate swaps, floors and caps, which are common derivative financial instruments, to hedge interest rate risk associated with anticipated purchases and sales of investments and loans, as well as deposit practices (see Note 18 "Financial Instruments" of Notes to Consolidated Financial Statements on page 40 for further information on derivative financial instruments). The off-balance sheet instruments have an effect on net interest income. The net result of the Company's interest rate swap agreements was an offset to gains in net interest income of $37,000 in 1999, 46,000 in 1998 and $34,000 in 1997. Entering into interest rate swap agreements involves not only the risk of dealing with counterparties and their ability to meet the terms of the contracts, but also interest rate risk associated with unmatched positions. Notional principal amounts are used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. During 1999, 1998 and 1997, the Company was a party to several agreements requiring it to make variable market-indexed interest payments in exchange for receiving fixed-rate interest payments (interest rate swaps). The Company utilized interest rate swaps to protect a portion of its net interest income stream against the effects of falling rates on prime-based floating rate loans. Non-interest Income. Non-interest income was $6.6 million, $5.8 million and $4.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. There was an increase of $801,000 or 13.8% in total non-interest income during 1999 compared to 1998. Service charges on deposit accounts increased by $77,000 or 4.7% over 1998. Other service charges and fees increased by $315,000 or 26.9% over the same period. The largest contributing factor to this increase was the full year of service charges and fee income generated by the nine branches added in March and October of 1998. Other income increased by $91,000 or 8.5%. Total non-interest income increased by $890,000 or 18.0% in 1998 compared to 1997. Service charges on deposit accounts increased by $187,000 or 13.0% over 1997. Other service charges and fees increased by $217,000 or 22.7% over the same period. The largest contributing factor was the service charges and fee income generated by the addition of nine new branches in March and October of 1998. Other income increased by $185,000 or 20.9%. Non-interest Expenses. Non-interest expenses were $27.6 million, $22.2 million and $17.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. There was an increase of $5.4 million or 24.2% in total non-interest expenses during 1999. The largest increase of $2.0 million was attributed to KSB acquisition-related costs. Salaries and employee benefits increased by $1.4 million or 12.5% from $11.0 million in 1998. The major contributing factor to this increase was the full year of expense associated with the additional staff resulting from the branch acquisitions during March and October of 1998. In 1998 salaries and employee benefits increased by $2.0 million or 21.5% from $9.2 million in 1997. This increase is primarily due to the addition of the nine branch locations in March and October of 1998, normal annual increases and higher pension benefit costs. In addition, a new performance compensation program was introduced to all employees during 1997 that resulted in additional compensation paid. Other operating expenses increased by $1.7 million or 22.2% in 1999 over 1998. The major factors contributing to this increase were credit card expenses, data processing, marketing, supply costs, other real estate owned ("OREO") expenses and amortization of core deposit intangibles. With the addition of nine new branches higher than normal expenses were incurred in the areas of data processing, marketing and supplies. In addition, the amortization of core deposit intangibles totaled $1,011,124 in 1999 and $664,770 in 1998 for the branches acquired in March and October of 1998. Other operating expenses increased by $2.0 million or 36.0% to $7.6 million in 1998 compared to $5.6 million in 1997, primarily due to expenses related to the acquisition of the nine new locations. FINANCIAL CONDITION Overview. The year 1999 was highlighted by the acquisition of KSB Bancorp, Inc. on December 20, 1999. Its principal subsidiary, Kingfield Bank, has branch locations in Bingham, Farmington, Kingfield, Lewiston, Madison, Phillips, Rangeley, Stratton and Strong. These branch locations represent a logical expansion of the Company's service area. On March 13, 1998, Camden National Bank purchased four branches, assuming $52.4 million in deposits and $7.3 million in loans from KeyBank. These branches are located in the communities of Bucksport, Damariscotta, Vinalhaven and Waldoboro. On October 2,1998, United Bank purchased three branches, assuming $34.9 million in deposits and $11.2 million in loans from Fleet Bank. These branches are located in the communities of Milo, Dover-Foxcroft and Greenville. United Bank also established a de novo branch during 1998 in the community of Winterport. On March 13, 1998, Kingfield Bank purchased a branch in Madison, Maine, assuming $16.7 million in deposits from KeyBank. Total assets at December 31, 1999 were $928.4 million, an increase of $89.1 million or 10.7% from December 31, 1998. The change in assets consisted primarily of a $64.4 million increase in net loans, an increase in investment securities of $13.5 million, an increase of $6.5 million in cash and due from banks and federal funds sold, and an increase in other assets of $4.9 million. The asset growth was supported by an increase of $26.2 million in deposits, $60.2 million in borrowings, and $2.8 million in other liabilities. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 13 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Investment Securities. Total investment securities increased by $13.5 million or 6.2% to $232.2 million at December 31, 1999. The Company has investment securities in both the available-for-sale and held- to-maturity categories. During 1999, the Company increased the available-for-sale portion of the investment portfolio. The change in the investment portfolio reflects the Company's desire for greater flexibility to achieve asset and liability objectives, while managing liquidity and funding needs pursuant to the policies developed by the Asset/Liability Committee ("ALCO"). The available-for-sale category increased during 1999 by $43.1 million. Although these securities are available for sale, the Company has the ability to hold the debt securities in this portfolio until maturity. A portion of the Company's investment portfolio is also classified as held to maturity, meaning that the Company has both the intent and ability to hold the securities until maturity. The ability to use these securities as collateral for Federal Home Loan Bank loans enhances the Company's ability to hold the securities to maturity consistent with liquidity objectives. At December 31, 1999, the Company had $5.9 million of unrealized losses on securities available for sale, net of the tax benefits compared to $4,000 of unrealized gains at December 31, 1998. This decrease was attributed to an increase 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. In 1998, with increased loan demand and relatively lower yields on the available investment alternatives, additions to the investment portfolio were minimal. Most new investments made during 1998 replaced investments that matured during the same time frame. Loans. During 1999, the loan portfolio experienced growth in every major loan category. Loans, including loans held for sale, totaled $635.4 million at December 31, 1999, an 11.5% increase from total loans of $569.7 million at December 31, 1998. This resulted from a continuation of the loan growth experienced by the Company for the past several years. Residential real estate mortgage loans increased by $49.7 million or 29.1% in 1999. During 1998, residential real estate mortgage loans decreased $.4 million or .2% from $171.3 million to $170.9 million. Residential real estate loans consist of loans secured by one-to-four family residences. The Company generally retains adjustable-rate mortgages in its portfolio but will, from time to time, retain fixed-rate mortgages. With a relatively low interest rate environment, it has been the Company's asset/liability strategy for the previous 18-24 months to hold fixed-rate mortgages in its portfolio. The yields on these assets have been higher than yields available in the investment portfolio. Consequently, loan balances in the residential mortgage held-for-sale category at December 31, 1998 were transferred into the fixed-rate residential portfolio. This transfer reflects the Company's intent to hold these loans on its balance sheet. The Company also originates fixed-rate residential loans for sale to investors in the secondary market. However, during 1999 and 1998 the volumes were minimal. Loans in the Company's residential real estate mortgage portfolio are secured by properties located in Maine. Commercial loans increased by $46.7 million or 17.3% during 1999. In 1998 commercial loans increased from $227.4 million to $269.7 million, an increase of $42.3 million or 18.6%. 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 financially sound small- and medium-sized business customers within its geographic marketplace. Consumer loans increased by $5.3 million or 6.8% in 1999. In 1998 consumer loans increased from $64.2 million to $78.5 million, an increase of $14.3 million or 22.3%. Consumer loans are originated by the Company's bank subsidiaries for a wide variety of purposes to meet customers' needs. Consumer loans include credit card, overdraft protection, automobile, boat, recreation vehicle, mobile home, home equity, and secured and unsecured personal loans. 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, all accrued but unpaid interest is reversed. Non-performing loans, defined as non-accrual loans plus accruing loans 90 days or more past due, totaled $6.3 million or 1.0% of total loans at December 31, 1999, compared to $4.7 million or .82% of total loans at December 31, 1998. Delinquent real estate loans are reclassified as OREO when the Company takes title to the property, either through foreclosure or upon receipt of a deed in lieu of foreclosure. In such situations, the secured loan is reclassified in the Statement of Condition as OREO at the lesser of the fair value of the underlying collateral less estimated selling costs, or the recorded amount of the loan. The balance of OREO was $1.4 million and $1.1 million as of December 31, 1999 and 1998, respectively. As a percentage of total loans, OREO represented .22% and .18% as of December 31, 1999 and 1998, respectively. Losses arising from the acquisition of such properties are charged against the allowance for loan losses ("ALL"). Operating expenses and any subsequent provisions to reduce the carrying value are charged to non-interest expense. Gains and losses upon disposition are reflected in earnings as other non-interest income when realized. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 14 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Allowance for Loan Losses / Provision for Loan Losses. In determining the adequacy of the allowance for loan losses, management relies primarily on its review of the loan portfolio both to ascertain whether there are specific loan losses to be reserved, and to assess the collectibility of the loan portfolio in the aggregate. Non-performing loans are examined on an individual basis to determine an estimated probable loss on these loans. In addition, management considers current and projected loan mix and loan volumes, historical net loan loss experience for each loan category, and current and anticipated economic conditions affecting each loan category. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio. The Company continues to monitor and modify its ALL as conditions dictate. For more detail, please see Note 6 to the Consolidated Financial Statements. During 1999, the Company provided $3.7 million to the allowance for possible loan losses, compared to $2.1 million and $2.2 million in 1998 and 1997, respectively. During 1999, the allowance was increased because of loan growth and the need for replenishment as a result of charge-offs, primarily at United Bank. Determining an appropriate level of ALL involves a high degree of judgment. Management believes that the allowance at December 31, 1999 of $9.4 million or 1.48% 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 1.42% in 1998. The following table sets forth information concerning the activity in the Company's allowance for loan losses during the periods indicated. FIVE YEAR ACTIVITY IN THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands) Years Ended December 31, 1999 1998 1997 1996 1995 Allowance at the beginning of period $ 8,092 $ 6,982 $ 5,365 $ 4,947 $ 4,364 Provision for loan losses 3,670 2,056 2,207 1,228 1,214 Charge-offs: Commercial loans 1,520 417 671 539 451 Residential real estate loans 715 415 160 210 258 Consumer loans 425 444 400 308 245 -------- -------- -------- -------- -------- Total loans charge-off 2,660 1,276 1,231 1,057 954 Recoveries: Commercial loans 64 158 473 82 206 Residential real estate loans 54 35 36 27 4 Consumer loans 170 137 132 138 113 -------- -------- -------- -------- -------- Total loan recoveries 288 330 641 247 323 Net charge-offs 2,372 946 590 810 631 -------- -------- -------- -------- -------- Allowance at the end of the period $ 9,390 $ 8,092 $ 6,982 $ 5,365 $ 4,947 ======== ======== ======== ======== ======== Average loans outstanding $605,271 $521,559 $445,599 $392,128 $363,394 ======== ======== ======== ======== ======== Ratio of net charge-offs to average loans outstanding 0.39% 0.18% 0.13% 0.21% 0.17% Ratio of provision for loan losses to average loans outstanding 0.61% 0.39% 0.50% 0.31% 0.33% Ratio of allowance for loan losses to total loans at end of period 1.48% 1.42% 1.44% 1.30% 1.33% Ratio of allowance for loan losses to net charge-offs 395.87% 855.39% 1183.39% 662.35% 783.99% Ratio of allowance for loan losses to nonperforming loans at end of period 148.32% 172.50% 162.03% 128.72% 106.87%
================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 15 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 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 of evaluating its adequacy. The following table sets forth information concerning the allocation of the Company's allowance for loan losses by loan categories as the dates indicated. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES--FIVE YEAR SCHEDULE
(Dollars in thousands) AS OF DECEMBER 31, 1999 1998 1997 1996 1995 Percent of Percent of Percent of Percent of Percent of loans in loans in loans in loans in loans in each each each each each Balance at End of Period category to category to category to category to category to Applicable to: total total total total total Amount loans Amount loans Amount loans Amount loans Amount loans Commercial loans $5,286 52% $4,288 51% $4,672 49% $3,529 47% $2,950 47% Residential real estate loans 2,772 35% 2,166 35% 875 37% 758 42% 497 41% Consumer loans 475 13% 729 14% 657 14% 529 11% 503 13% Unfunded commitments 329 0% 324 0% 366 0% 252 0% 211 0% Unallocated 528 N/A 585 N/A 412 N/A 297 N/A 786 N/A ------ ---- ------ ---- ------ ---- ------ ---- ------ ---- $9,390 100% $8,092 100% $6,982 100% $5,365 100% $4,947 100% ====== ==== ====== ==== ====== ==== ====== ==== ====== ====
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's bank subsidiaries require the availability of cash to meet the withdrawal demands of depositors and credit commitments to borrowers. Due to the potential for unexpected fluctuations in both deposits and loans, active management of the Company's liquidity is necessary. The Company seeks to maintain various sources of funding and prudent levels of liquid assets in order to satisfy its varied liquidity demands. In order to respond to the various circumstances, the Company has both on- and off-balance sheet funding resources in place. Each of the Company's banking subsidiaries monitors its liquidity in accordance with guidelines established by the Company and applicable regulatory requirements. As of December 31, 1999 and 1998, the Company's level of liquidity exceeded its target levels. Management believes that the Company's banking subsidiaries currently have adequate liquidity available to respond to liquidity demands. Sources of funds utilized by the Company's banking subsidiaries consist of deposits, borrowings from the Federal Home Loan Bank of Boston ("FHLB") 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 1999, total deposits increased by $26.2 million or 4.1% over 1998, ending the year at $667.7 million. The Company aggressively marketed its deposit products and experienced growth in all deposit categories in 1999. Comparing year-end balances at 1999 to 1998, transaction accounts (demand deposits and NOW) increased by $7.5 million, money market accounts by $8.9 million, savings accounts by $6.4 million and certificates of deposit by $3.3 million. In 1998 total deposits increased by $157.4 million or 32.5% over 1997, partially due to the acquisition of $104.0 million in deposits in connection with branch purchases by its subsidiary banks. Borrowings supplement deposits as a source of liquidity. In addition to borrowings from the FHLB, the Company's bank subsidiaries purchase federal funds, sell securities under agreements to repurchase and utilize treasury tax and loan accounts. Total borrowings were $173.9 million at December 31, 1999, compared to $113.7 million at December 31, 1998, an increase of $60.2 million or 53.0%. The increase was necessary to support both loan and investment growth. The majority of the borrowings were from the FHLB, whose advances remained the largest non-deposit-related, interest-bearing funding source for the Company in both 1999 and 1998. These borrowings are secured by qualified residential real estate loans, certain investment securities and certain other assets available to be pledged. The Company views borrowed funds as an alternative funding source that should be utilized when appropriate. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 16 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 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 bank subsidiaries exceeded regulatory guidelines at December 31, 1999 and December 31, 1998. The Company's Tier 1 capital to risk-weighted assets was 11.7% and 12.3% at December 31, 1999 and 1998, respectively. For other capital ratios, please see Note 19 to the Consolidated Financial Statements. 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 capital ratios at December 31, 1999 and 1998 were 8.7% and 9.5%, 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 $77.6 million and $77.8 million or 8.4% and 9.3% of total assets at December 31, 1999 and 1998, respectively. The $.2 million or .2% decrease in shareholders' equity in 1999 was primarily attributable to net income of $10.2 million, less (1) treasury stock activity of $.3 million, (2) $4.2 million in cash dividends and (3) $5.9 million in unrealized losses on securities available for sale, net of tax benefit. The principal cash requirement of the Company is to pay dividends on common stock when declared. Dividends paid on the Company's common stock in 1999 represented an 8.3% increase over 1998. The Company is primarily dependent upon the payment of cash dividends by its subsidiary banks to service its commitments. The Company, as the sole shareholder of its subsidiary banks, is entitled to dividends when and as declared by each bank's Board of Directors from legally available funds. Camden National Bank declared dividends in the aggregate amount of $8,051,000 and $12,534,000 in 1999 and 1998, respectively. In 1999 the dividends declared by Camden National Bank included $3,977,000 payable to shareholders, $2,074,000 to repurchase stock, $500,000 for holding company acquisition costs, and $1,500,000 of expense related to the cancellation of stock options. United Bank declared no dividends in 1999 and 1998. Kingfield Bank declared $205,000 and $113,000 in dividends during 1999 and 1998, respectively. As of December 31, 1999, and subject to the limitations and restrictions under applicable law, Camden National Bank, United Bank and Kingfield Bank had $6.2 million available for dividends to the Company, although there is no assurance that dividends will be paid at any time in any amount. Impact of Inflation and Changing Prices. The Consolidated Financial Statements and related Notes thereto presented elsewhere herein have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Unlike many industrial companies, substantially all of the assets and virtually all of the liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Company's performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as inflation. Year 2000 Risk Assessment Results. The Year 2000 issue refers to the fact that many computers were originally programmed using two digits rather than four digits when referring to the applicable year. There was concern that when the Year 2000 occurred, systems would read the year as 1900 rather than 2000. Unless software and hardware systems were corrected to be Year 2000 compliant, computers would generate miscalculations and create operational problems. To assist in identifying any and all exposures that the Company could have, and to help make all the appropriate changes necessary to allow for a smooth transition into the new millennium, the Company engaged Vitex Inc. to assist in development of a Year 2000 Plan. The Company's Executive Operations and Technology Committee managed the Year 2000 project with the assistance of Vitex Inc. The Committee developed a Year 2000 Plan to address the Company's exposure to potential problems arising from the Year 2000. The plan was based on the Federal Financial Institution Examination Council ("FFIEC") Guidelines. Throughout 1999 and 1998 the Company strived to strengthen customer awareness of the Year 2000 issue in various forms. An internal awareness training program was ongoing with employees, enabling the Company's staff to effectively answer customers' concerns. The Company requested compliance statements from over 150 suppliers or vendors upon which the Company relies. Some examples of these companies are utility providers, insurance companies, investment firms, other banks, and human resource service providers. An essential component of preparing for the Year 2000 problem and beyond was developing a Contingency Plan if any or all of the Company's systems failed or could not be made Year 2000-ready. The Company developed Year 2000 contingency plans for all of its mission critical products and services. Additionally, the Company increased its currency and coin levels starting in the ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 17 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- fall of 1999 in the event higher liquidity levels were required to meet cash needs during the transition to the Year 2000. The Company also confirmed its available lines of credit with correspondent banks, the FHLB and the Federal Reserve Bank to ensure available liquidity to meet unusual cash demands. The estimated expense to address Year 2000 issues was $450,000. This included approximately $200,000 to upgrade software and hardware systems, $100,000 for testing of systems, $100,000 for consulting fees, and $50,000 for existing personnel costs to effectively implement the Year 2000 Plan. During 1999 and 1998, the Company recognized expenses related to Year 2000 in the amounts of $250,000 and $200,000, respectively. There was no material change in total costs related to Year 2000 issues from original estimates. As of March 6, 2000, the Company had not experienced any Year 2000-related problems that have had a material impact on its operations. The Company continues to monitor major loan customers for any Year 2000-related problems. MARKET RISK Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency exchange rates, commodity prices and equity prices. The Company's primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company's asset/liability management process which is governed by policies established by the bank subsidiaries' Boards of Directors that are reviewed and approved annually. Each bank's Board of Directors delegates responsibility for carrying out the asset/liability management policies to that bank's Asset/Liability Committee ("ALCO"). In this capacity ALCO develops guidelines and strategies impacting the Company's asset/liability management-related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels/trends. Interest Rate Risk. Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company's financial instruments also change, thereby impacting net interest income ("NII"), the primary component of the Company's earnings. ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes. While ALCO routinely monitors simulated NII sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and liabilities reflected on the Company's balance sheet as well as for off-balance sheet derivative financial instruments. None of the assets used in the simulation were held for trading purposes. This sensitivity analysis is compared to ALCO policy limits which specify a maximum tolerance level for NII exposure over a one-year horizon, assuming no balance sheet growth, given both a 200 basis point (bp) upward and downward shift in interest rates. A parallel and pro rata shift in rates over a 12-month period is assumed. The following reflects the Company's NII sensitivity analysis as measured periodically over the past year. Estimated Rate Change Changes in NII High Low Average +200bp (3.25%) 0.87% (1.25%) -200bp (4.50%) (0.80%) (1.87%) The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment/replacement of asset and liability cashflows. The assumptions differed in each of the four periods included in the sensitivity analysis above. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change. When appropriate, the Company may utilize off-balance sheet instruments such as interest rate floors, caps and swaps to hedge its interest rate risk position. Board of Directors' approved hedging policy statements govern the use of these instruments by the bank subsidiaries. As of December 31, 1999, the Company had a notional principal of $10 million in an interest rate swap agreement. The estimated effects of these derivative financial instruments on the Company's earnings are included in the sensitivity analysis presented above. ALCO monitors the effectiveness of its derivative hedges relative to its expectation that a high correlation be maintained between the hedging instrument and the related hedged assets/liabilities. All outstanding positions are estimated to remain effective. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 18 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- While it is not the Company's practice to unwind derivative hedges prior to their maturity, any recognized gains/losses would be deferred in the Statement of Condition and amortized to interest income or expense, as required, over the remaining period of the original hedge. To the extent that a hedge were to be deemed ineffective due to a lack of correlation with the hedged items or if the hedged items were to be settled/terminated prior to maturity of the hedging instrument, then unrecognized gains/losses associated with the hedging instrument would be recognized in the income statement with subsequent accruals and gains/losses also included in the consolidated income statement in the period they occur. Recent Accounting Pronouncements. During 1999, the Financial Accounting Standards Board issued SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise;" SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical Corrections;" SFAS No. 136, "Transfers of Assets to a Not-For-Profit Organization or Charitable Trust that Raises or Holds Contributions for Others;" and SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No. 133." SFAS Nos. 134, 135 and 136 have no effect on the financial condition and results of operations of the Company. SFAS No. 133, which established accounting reporting standards for derivative instruments and for hedging activity, was amended by SFAS No. 137. SFAS No. 137 defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. Management has not determined the impact, if any, of SFAS No. 133 on the Consolidated Financial Statements. Common Stock Information. The Common Stock of Camden National Corporation (ticker symbol CAC) began trading on the American Stock Exchange ("AMEX") October 7, 1997. Prior to that date, the stock was not traded on any exchange. The Company elected to repurchase stock for its treasury during 1998 and 1999. In November 1998, the shareholders approved an increase in the number of authorized shares of common stock from 5,000,000 to 10,000,000 shares. The Board of Directors subsequently approved a three-for-one split of the Company's common stock to shareholders of record on November 19, 1998, with a distribution date of December 4, 1998. On December 20, 1999, the Company completed the acquisition of KSB. Approximately 1,481,800 additional shares of Common Stock were issued in connection with this transaction. 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 two years were as follows: 1999 Fourth Third Second First Quarter Quarter Quarter Quarter High $21.06 $23.94 $22.75 $20.06 Low 16.38 16.88 17.50 17.63 Close 16.75 23.94 20.88 17.94 Dividend Paid .13 .13 .13 .13 1998 Fourth Third Second First Quarter Quarter Quarter Quarter High $27.67 $20.00 $19.83 $20.00 Low 16.33 17.08 18.92 18.33 Close 20.50 17.46 19.75 19.33 Dividend Paid .12 .12 .12 .11 Information concerning restrictions on the ability of the Company's affiliates to transfer funds to the Company in the form of cash dividends is set forth in the Capital Resources section on page 17. As of December 31, 1999, there were 8,167,358 shares of Camden National Corporation common stock outstanding held by approximately 1,130 shareholders of record. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 19 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- SUMMARY OF FINANCIAL PERFORMANCE [6 CHARTS] NET INCOME ASSETS DEPOSITS (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) 1995 8.226 1995 605.9 1995 474.6 1996 9.359 1996 644.4 1996 463.5 1997 10.697 1997 726.6 1997 485.1 1998 11.451 1998 839.3 1998 641.6 1999 10.229 1999 928.4 1999 667.7 LOANS EARNINGS PER SHARE BOOK VALUE PER SHARE (IN MILLIONS) (IN DOLLARS) (IN DOLLARS) 1995 371.9 1995 0.99 1995 7.37 1996 411.3 1996 1.13 1996 8.15 1997 483.3 1997 1.31 1997 9.01 1998 569.7 1998 1.40 1998 9.61 1999 635.4 1999 1.27 1999 9.51 ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 20 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- SELECTED FIVE-YEAR FINANCIAL DATA
(In thousands, except per share data) December 31, Financial Condition Data 1999 1998 1997 1996 1995 Assets $928,350 $839,280 $726,644 $644,435 $605,918 Loans 635,434 569,705 483,348 411,336 371,858 Allowance for Loan Losses 9,390 8,092 6,982 5,365 4,947 Investments 232,190 218,693 204,260 190,669 190,132 Deposits 667,720 641,553 485,132 463,522 474,582 Borrowings 173,924 113,682 160,697 106,946 62,932 Shareholders' Equity 77,623 77,789 74,111 67,614 62,178 Year Ended December 31, Operations Data 1999 1998 1997 1996 1995 Interest Income $ 70,563 $ 62,338 $ 58,363 $ 51,719 $ 48,616 Interest Expense 30,504 27,007 27,270 24,270 23,878 -------- -------- -------- -------- -------- Net Interest Income 40,059 35,331 31,093 27,449 24,738 Provision for Loan Losses 3,670 2,056 2,207 1,228 1,214 -------- -------- -------- -------- -------- Net Interest Income after Provision for Loan Losses 36,389 33,275 28,886 26,221 23,524 Non-interest Income 6,627 5,826 4,936 4,550 4,666 Non-interest Expense 27,604 22,220 17,916 16,799 16,285 -------- -------- -------- -------- -------- Income before Provision for Income Tax 15,412 16,881 15,906 13,972 11,905 Income Tax Expense 5,183 5,430 5,209 4,613 3,679 -------- -------- -------- -------- -------- Net Income $ 10,229 $ 11,451 $ 10,697 $ 9,359 $ 8,226 ======== ======== ======== ======== ======== At or For the Year Ended December 31, Other Data 1999 1998 1997 1996 1995 Basic Earnings Per Share (1) $ 1.27 $ 1.40 $ 1.31 $ 1.13 $ .99 Diluted Earnings Per Share (1) 1.27 1.38 1.27 1.10 .96 Dividends Per Share (1) 0.52 0.47 0.38 0.28 .18 Book Value Per Share 9.51 9.61 9.01 8.15 7.37 Return on Average Assets 1.15% 1.52% 1.52% 1.50% 1.40% Return on Average Equity 13.16 15.09 15.11 13.70 14.07 Allowance for Loan Losses to Total Loans 1.48 1.42 1.44 1.30 1.33 Non-Performing Loans to Total Loans 1.00 0.82 0.89 1.01 1.24 Stock Dividend Payout Ratio 40.90 33.74 29.31 24.70 17.58
(1) The number of shares and per share amounts have been restated to reflect the acquisition of KSB in December 1999. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 21 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except number of shares and per share data) December 31, 1999 1998 Assets Cash and due from banks $ 24,230 $ 18,175 Federal funds sold 415 -- Securities available for sale, at market 163,997 120,852 Securities held to maturity (market value $68,049 and $101,203 at December 31, 1999 and 1998, respectively) 68,193 97,841 Residential mortgages held for sale 6,906 32,865 Loans, less allowance for loan losses of $9,390 and $8,092 at December 31, 1999 and 1998, respectively 619,138 528,748 Bank premises and equipment 12,093 12,093 Other real estate owned 1,405 1,052 Interest receivable 5,041 4,672 Core deposit intangible 7,645 8,630 Other assets 19,287 14,352 --------- --------- Total assets $ 928,350 $ 839,280 ========= ========= Liabilities Deposits: Demand $ 80,385 $ 76,688 NOW 89,740 85,901 Money market 71,237 62,288 Savings 112,335 105,924 Certificates of deposit 314,023 310,752 --------- --------- Total deposits 667,720 641,553 Borrowings from Federal Home Loan Bank 128,866 82,912 Other borrowed funds 45,058 30,770 Accrued interest and other liabilities 8,968 6,166 Minority interest in subsidiary 115 90 --------- --------- Total liabilities 850,727 761,491 --------- --------- Commitments (Notes 12, 14, 18 and 19) Shareholders' Equity Common stock, no par value; authorized 10,000,000 shares, issued 8,167,358 shares in 1999 and 8,095,918 shares in 1998 2,450 2,449 Surplus 5,990 5,984 Retained earnings 83,583 77,581 Net unrealized gains (losses) on securities available for sale, net of income tax (5,782) 82 --------- --------- 86,241 86,096 Less remaining obligation under: Employee stock ownership plan -- 68 Bank recognition and retention plan 20 30 Less cost of 442,540 and 480,977 shares of treasury stock at December 31, 1999 and 1998, respectively 8.598 8,209 --------- --------- Total shareholders' equity 77,623 77,789 --------- --------- Total liabilities and shareholders' equity $ 928,350 $ 839,280 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 22 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except number of shares and per share data) Year Ended December 31, 1999 1998 1997 Interest Income Interest and fees on loans $ 54,838 $ 49,512 $ 42,978 Interest on U.S. government and agency obligations 14,041 11,156 13,462 Interest on state and political subdivisions 400 138 245 Interest on interest rate swap agreements 172 365 744 Interest on federal funds sold and other investments 1,112 1,167 934 ---------- ---------- ---------- Total interest income 70,563 62,338 58,363 ---------- ---------- ---------- Interest Expense Interest on deposits 23,187 21,815 17,862 Interest on other borrowings 7,182 4,873 8,698 Interest on interest rate swap agreements 135 319 710 ---------- ---------- ---------- Total interest expense 30,504 27,007 27,270 ---------- ---------- ---------- Net interest income 40,059 35,331 31,093 Provision for Loan Losses 3,670 2,056 2,207 ---------- ---------- ---------- Net interest income after provision for loan losses 36,389 33,275 28,886 ---------- ---------- ---------- Other Income Service charges on deposit accounts 1,706 1,629 1,442 Other service charges and fees 1,488 1,173 956 Merchant assessments 1,494 1,307 1,119 Trust fees 776 645 532 Other income 1,163 1,072 887 ---------- ---------- ---------- Total other income 6,627 5,826 4,936 ---------- ---------- ---------- 43,016 39,101 33,822 ---------- ---------- ---------- Operating Expenses Salaries and employee benefits 12,578 11,178 9,198 Net occupancy 1,579 1,327 1,137 Furniture, equipment and data processing 2,167 2,159 2,024 Acquisition related expenses 2,046 -- -- Other 9,234 7,556 5,557 ---------- ---------- ---------- Total operating expenses 27,604 22,220 17,916 ---------- ---------- ---------- Income before income taxes 15,412 16,881 15,906 Income Taxes 5,183 5,430 5,209 ---------- ---------- ---------- Net Income $ 10,229 $ 11,451 $ 10,697 ========== ========== ========== Per Share Data Basic earnings per share $ 1.27 $ 1.40 $ 1.31 Diluted earnings per share 1.27 1.38 1.27 Weighted average number of shares outstanding 8,033,757 8,156,968 8,169,924
The accompanying notes are an integral part of these consolidated financial statements. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 23 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Net Unrealized Gains (Losses) Employee Bank on Securities Stock Recognition Total (In thousands, except number of Common Retained Available Ownershipand Retention Treasury Shareholders' shares and per share data) Stock Surplus Earnings for Sale Plan Plan Stock Equity Balance At January 1, 1997 $ 2,440 $ 5,551 $ 62,577 $ (6) $ (169) $ (79) $ (2,699) $ 67,615 -------- -------- -------- -------- -------- -------- -------- -------- Net income for 1997 -- -- 10,697 -- -- -- -- 10,697 Change in unrealized gains (losses) on securities available for sale, net of deferred taxes of $43 -- -- -- 84 -- -- -- 84 -------- -------- -------- -------- -------- -------- -------- -------- Total comprehensive income -- -- 10,697 84 -- -- -- 10,781 Purchase of treasury stock (115,042 shares) -- -- -- -- -- -- (1,461) (1,461) Sale of treasury stock (15,156 shares) -- 184 -- -- -- -- (184) -- Retirement of treasury stock (4,584 shares) -- (12) (27) -- -- -- 39 -- Reissuance of treasury stock (989 shares) -- -- (6) -- -- -- 8 2 Payment of obligation under employee stock ownership plan -- 176 -- -- 52 -- -- 228 Bank recognition and retention plan -- -- -- -- -- 29 -- 29 20,244 shares issued under stock option plans -- 54 -- -- -- -- -- 54 Effect of July 10, 1997 stock split effected in the form of a 200% dividend 9 -- (9) -- -- -- -- -- Cash dividends declared ($.38 per share) -- -- (3,136) -- -- -- -- (3,136) -------- -------- -------- -------- -------- -------- -------- -------- Balance at December 31, 1997 $ 2,449 $ 5,953 $ 70,096 $ 78 $ (117) $ (50) $ (4,297) $ 74,112 -------- -------- -------- -------- -------- -------- -------- -------- Net income for 1998 -- -- 11,451 -- -- -- -- 11,451 Change in unrealized gains (losses) on securities available for sale, net of deferred taxes of $2 -- -- -- 4 -- -- -- 4 -------- -------- -------- -------- -------- -------- -------- -------- Total comprehensive income -- -- 11,451 4 -- -- -- 11,455 Purchase of treasury stock (159,339 shares) -- -- -- -- -- -- (3,139) (3,139) Exercise and cancellation of stock options (93,000 shares), net of tax benefit of $604 -- (267) -- -- -- -- (854) (1,121) Retirement of treasury stock (5,019 shares) -- (13) (66) -- -- -- 81 -- Payment of obligation under employee stock ownership plan -- 230 -- -- 49 -- -- 279 Bank recognition and retention plan -- -- -- -- -- 20 -- 20 30,535 shares issued under stock option plans -- 81 -- -- -- -- -- 81 Filing fees related to stock split -- -- (35) -- -- -- -- (35) Cash dividends declared ($.47 per share) -- -- (3,863) -- -- -- -- (3,863) -------- -------- -------- -------- -------- -------- -------- -------- Balance at December 31, 1998 $ 2,449 $ 5,984 $ 77,581 $ 82 $ (68) $ (30) $ (8,209) $ 77,789 -------- -------- -------- -------- -------- -------- -------- -------- Net income for 1999 -- -- 10,229 -- -- -- -- 10,229 Change in unrealized gains (losses) on securities available for sale, net of tax benefit of $3 million -- -- -- (5,864) -- -- -- (5,864) -------- -------- -------- -------- -------- -------- -------- -------- Total comprehensive income -- -- 10,229 (5,864) -- -- -- 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 cancellation of stock options (93,000 shares), net of tax benefit of $525 -- (338) -- -- -- -- (637) (975) Retirement of treasury stock (31,983 shares) -- (270) (66) -- -- -- 336 -- Payment of obligation under employee stock ownership plan -- 388 21 -- 68 -- -- 477 Bank recognition and retention plan -- -- -- -- -- 10 -- 10 71,440 shares issued under stock option plans 1 226 -- -- -- -- -- 227 Cash dividends declared ($.52 per share) -- -- (4,182) -- -- -- -- (4,182) -------- -------- -------- -------- -------- -------- -------- -------- Balance at December 31, 1999 $ 2,450 $ 5,990 $ 83,583 $ (5,782) $ -- $ (20) $ (8,598) $ 77,623 ======== ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 24 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Year Ended December 31, 1999 1998 1997 Operating Activities Net Income $ 10,229 $ 11,451 $ 10,697 Adjustments to reconcile net income to net cash provided (used) by operating activities: Provision for loan losses 3,670 2,056 2,207 Depreciation and amortization 1,089 1,626 1,457 Decrease in obligation under ESOP and BRRP 487 301 257 (Decrease) increase in interest receivable (551) 77 (67) Increase in other assets (3,755) (2,787) (2,134) Increase (decrease) in other liabilities 6,004 (489) 327 Sale of residential mortgage loans held for sale 4,610 7,334 6,551 Origination of mortgage loans held for sale (3,288) (35,387) (13,706) Loss on disposal of assets -- 3 6 -------- -------- -------- Net cash provided (used) by operating activities 18,495 (15,818) 5,595 -------- -------- -------- Investing Activities Proceeds from sales and maturities of securities held to maturity 29,909 77,429 50,258 Proceeds from sales and maturities of securities available for sale 20,251 6,117 13,656 Purchase of securities to be held to maturity -- -- (63,620) Purchase of securities available for sale (72,072) (88,734) (7,018) Purchase of Federal Home Loan Bank Stock (331) (104) (6,785) Net increase in loans (60,424) (49,410) (65,600) Net (increase) decrease in other real estate owned (353) 943 8 Purchase of premises and equipment (1,421) (1,689) (1,351) Increase in minority position 25 5 40 Net (increase) decrease in federal funds sold (415) 1,103 971 Net cash provided by acquisitions -- 74,321 -- -------- -------- -------- Net cash (used) provided by investing activities (93,831) 19,981 (79,441) -------- -------- -------- Financing Activities Net increase in demand deposits, NOW accounts, money markets and savings accounts 22,896 35,505 9,647 Net increase in certificates of deposit 3,271 17,433 11,963 Net increase (decrease) in borrowings 60,242 (47,536) 53,751 Purchase of treasury stock (2,337) (3,139) (1,461) Sale of treasury stock 2,249 -- -- Proceeds from stock issuance under option plan 227 81 54 Exercise and cancellation of stock options (975) (1,121) -- Filing fees related to stock split -- (35) -- Cash dividends paid (4,182) (3,863) (3,136) -------- -------- -------- Net cash provided (used) by financing activities 81,391 (2,675) 70,818 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 6,055 1,491 (3,028) Cash and cash equivalents at beginning of year 18,175 16,684 19,712 -------- -------- -------- Cash and cash equivalents at end of year $ 24,230 $ 18,175 $ 16,684 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 30,270 $ 26,369 $ 26,622 Income tax 6,057 6,310 5,925 Non-Cash transactions: Transfer from loans to real estate owned 1,418 1,196 1,310 Securitization of mortgage loans -- 9,014 -- Sale of treasury stock from exercised stock options -- -- 184 Transfer from loans held for sale to loan portfolio 24,637 -- --
See Note 3 of the notes to the consolidated financial statements for branch acquisition disclosure. The accompanying notes are an integral part of these consolidated financial statements. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 25 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 (Amounts in tables expressed in thousands except number of shares and per share data) NATURE OF OPERATIONS. Camden National Corporation ("the Company") is a multi-bank holding company headquartered in Camden, Maine, offering a broad range of financial services in its geographical marketplace. The Company has two wholly owned bank subsidiaries. Camden National Bank is a national banking organization, based in Camden, Maine. UnitedKingfield Bank, a state chartered bank based in Bangor, Maine, is the successor by merger, effective February 4, 2000, of United Bank and Kingfield Savings Bank. The Company also has a 51% interest in Trust Company of Maine, Inc., a non-bank subsidiary, based in Bangor, Maine. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies conform to generally accepted accounting principles 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 Camden National Corporation, its wholly-owned subsidiaries, Camden National Bank, United Bank and Kingfield Bank, and its majority-owned subsidiary, Trust Company of Maine, Inc. All intercompany accounts and transactions have been eliminated in consolidation. 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 which require that the Company maintain certain amounts of cash on deposit and restrict the Company from investing those amounts. The Company maintains those balances at the Federal Reserve Bank 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. 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, notes and debentures 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 which 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 outstanding commitments from investors or current investor yield requirements. Gains and losses from sales of residential mortgages held for sale are recognized upon settlement with investors and recorded in non-interest income. These activities, together with underwriting residential mortgage loans, comprise the Company's mortgage banking business. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 26 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Loan Servicing. Statement of Financial Accounting Standards ("SFAS") 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," was adopted January 1, 1997. 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, all unpaid accrued interest is reversed. 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 deemed 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 and is recorded at the lower of cost or fair market value, determined by an independent appraisal, with any difference at the time of acquisition treated as a loan loss. Subsequent reductions in fair market value below 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 is being amortized over periods ranging from ten to fifteen years using the straight-line method. Other intangible assets, including goodwill andrecapitalization costs, are being amortized over twenty to twenty-five years using the straight-line method. Amortization of software is recognized using the straight-line method over the estimated useful life of the various software items. Other Borrowed Funds and Securities Sold Under Repurchase Agreements. 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 thirty days. Treasury tax and loan deposits generally do not have fixed maturity dates. Employee Pension and Postretirement Benefits. The Company has a defined benefit noncontributory pension plan covering substantially all employees. Actuarially determined pension costs are charged to current operations. The funding policy is to pay at least the minimum amounts required by the Employee Retirement Income Security Act of 1974. In addition, the Company has a supplemental pension plan covering several executive officers. This plan was designed to keep the percentage level of pension benefits consistent for all employees. The Company also provides for the benefit of its employees a voluntary savings plan which qualifies under 401(k) of the Internal Revenue Code. Employees can contribute up to the maximum amount allowed by law. The Company matches a percentage of employee contributions. The Company's postretirement plans also provide medical and life insurance to certain eligible retired employees. Advertising. Advertising costs are expensed as incurred. Income Taxes. Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Principal timing differences occur with respect to pension and other postretirement benefits, depreciation and provision for loan losses. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 27 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Earnings Per Share. Basic earnings per share data is computed based on the weighted average number of common shares outstanding during each year. Potential common stock is considered in the calculation of weighted average shares outstanding for diluted earnings per share, and is determined using the treasury stock method. Financial Instruments with Off-Balance Sheet Risk. The Company uses off- balance sheet financial instruments as part of its asset/liability management activities. The Company does not intend to sell any of these instruments. Interest Rate Exchange Agreements (swaps) are accounted for using the accrual method. Net interest income (expense) resulting from the differential between exchanging floating and fixed-rate interest payments is recorded on a current basis. Interest rate caps and floors are contracts pursuant to which a ceiling or floor is established at a specified rate and for a specified period of time. The premium paid for the contract is amortized over its life. Any cash payments received are recorded as an adjustment to net interest income. In the ordinary course of business the Company has entered into off-balance sheet 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. 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 and federal funds sold: The carrying amounts of cash and due from banks and federal funds sold approximate their fair value. Investment securities: Fair values for investment securities 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 approximates their fair value. Residential mortgages held for sale: Fair values are based on quoted market prices from the Federal Home Loan Mortgage Corporation (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 amount of interest receivable and payable approximates 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, securities under repurchase agreements and other short-term borrowings, approximates 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. Off-balance sheet instruments: Fair values for interest rate swaps and floor and cap contracts are based on quoted market prices. The fair value of commitments to extend credit has not been presented because the future revenue derived from such commitments is not significant. Effect of Recently Issued Financial Standards. During 1999, the Financial Accounting Standards Board issued SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise;" SFAS No. 135, "Rescission of FASB Statement No. 75 and Technical Corrections;" SFAS No. 136, "Transfers of Assets to a Not-For- Profit Organization or Charitable Trust that Raises or Holds Contributions for Others;" and SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No. 133." SFAS Nos. 134, 135 and 136 have no effect on the financial condition and results of operations of the Company. SFAS No. 133, which established accounting reporting standards for derivative instruments and for hedging activity, was amended by SFAS No. 137. SFAS No. 137 defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. Management has not determined the impact, if any, of SFAS No. 133 on the consolidated financial statements. Reclassification. Certain items from the prior year were restated to conform with the current year presentation. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 28 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 2. MERGER On December 20, 1999, KSB Bancorp, Inc. ("KSB") was merged into the Company. The merger was accounted for under the pooling-of-interests method. At December 31, 1999, KSB had total assets of $191,084,000 and total shareholders' equity of $13,971,000. The Company exchanged approximately 1,481,800 shares of its common stock for approximately 1,304,401 shares of KSB. Under the pooling-of-interests method, the recorded amounts of assets and liabilities of the Company and KSB have been carried forward at their previously recorded amounts. All prior period financial statements presented have been restated as if the merger took place at the beginning of such periods. The following table sets forth the results of operations for the years ended December 31: 1999 1998 1997 Net income KSB Bancorp, Inc. $ 1,236 $ 1,806 $ 1,549 Camden National Corporation 8,993 9,645 9,148 ------- ------- ------- Combined $10,229 $11,451 $10,697 Basic earnings per share KSB Bancorp, Inc. $ 1.01 $ 1.47 $ 1.30 Camden National Corporation 1.35 1.43 1.34 Combined 1.27 1.40 1.31 Diluted earnings per share KSB Bancorp, Inc. $ 1.01 $ 1.41 $ 1.23 Camden National Corporation 1.35 1.41 1.31 Combined 1.27 1.38 1.27 Dividends per share KSB Bancorp, Inc. $ .16 $ .11 $ .07 Camden National Corporation .60 .55 .45 Combined .52 .47 .38 3. BRANCH ACQUISITIONS During 1998, the Company's three bank subsidiaries acquired eight branch locations. The excess of cost over fair value of net assets acquired in these branch acquisitions is amortized to expense using the straight-line method over ten years. The acquisitions were accounted for under the purchase method of accounting for business combinations. The following is a summary of the transactions: Loans acquired $ 19,340 Premises and equipment 714 Premium on deposits 8,553 Other assets 1,210 Deposits assumed 104,005 Other liabilities 133 Net cash received 74,321 Amortization expense of core deposit intangibles expense totaled $1,011,000, $665,000 and $103,000 in 1999, 1998 and 1997, respectively. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 29 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 4. 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, 1999 Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale U.S. treasury securities and obligations of U.S. government corporations and agencies $ 67,466 $ 15 $(2,435) $ 65,046 Obligations of states and political subdivisions 8,210 -- (690) 7,520 Mortgage-backed securities 13,737 -- (633) 13,104 Other debt securities 50,320 -- (3,382) 46,938 -------- ------ ------- -------- Total debt securities 139,733 15 (7,140) 132,608 -------- ------ ------- -------- Federal Home Loan Bank of Boston stock 16,019 -- -- 16,019 Federal Reserve Bank stock 39 -- -- 39 Other equity securities 16,966 32 (1,667) 15,331 -------- ------ ------- -------- Total equity securities 33,024 32 (1,667) 31,389 -------- ------ ------- -------- Total securities available for sale $172,757 $ 47 $(8,807) $163,997 -------- ------ ------- -------- Held to maturity U.S. treasury securities and obligations of U.S. government corporations and agencies $ 5,949 $ 60 $ (35) $ 5,974 Obligations of states and political subdivisions 1,152 11 (2) 1,161 Other debt securities 129 -- (3) 126 Mortgage-backed securities 60,963 414 (589) 60,788 -------- ------ ------- -------- Total securities held to maturity $ 68,193 $ 485 $ (629) $ 68,049 ======== ====== ======= ======== December 31, 1998 Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available for sale U.S. treasury securities and obligations of U.S. government corporations and agencies $ 7,047 $ 48 $ -- $ 7,095 Obligations of states and political subdivisions 8,214 1 (72) 8,143 Mortgage-backed securities 81,769 363 (312) 81,820 Other debt securities 2,000 30 (5) 2,025 -------- ------ ------- -------- Total debt securities 99,030 442 (389) 99,083 -------- ------ ------- -------- Federal Home Loan Bank of Boston stock 15,686 -- -- 15,686 Federal Reserve Bank stock 39 -- -- 39 Other equity securities 5,972 72 -- 6,044 -------- ------ ------- -------- Total equity securities 21,697 72 -- 21,769 -------- ------ ------- -------- Total securities available for sale $120,727 $ 514 $ (389) $120,852 ======== ====== ======= ======== Held to maturity U.S. treasury securities and obligations of U.S. government corporations and agencies $ 6,093 $ 81 $ (30) $ 6,144 Obligations of states and political subdivisions 1,338 42 -- 1,380 Mortgage-backed securities 89,428 3,265 (26) 92,667 Other debt securities 982 30 -- 1,012 -------- ------ ------- -------- Total securities held to maturity $ 97,841 $3,418 $ (56) $101,203 ======== ====== ======= ========
================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 30 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- The amortized cost and fair values of debt securities by contractual maturity at December 31, 1999 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 $ 1,341 $ 1,298 Due after one year through five years 30,220 27,229 Due after five through ten years 34,104 33,734 Due after ten years 74,068 70,347 -------- -------- $139,733 $132,608 ======== ======== Amortized Fair Cost Value Held to maturity Due in one year or less $ -- $ -- Due after one year through five years 6,746 6,708 Due after five years through ten years 8,066 8,217 Due after ten years 53,381 53,124 -------- -------- $ 68,193 $ 68,049 ======== ======== 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 held to maturity during 1999 were $5,023,000, which resulted in a gross realized gain of $26,000. The investments were sold within three 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. There were no sales in the available-for-sale or held-to-maturity portfolios during 1998 or 1997. At December 31, 1999, securities with a book value of $85.5 million and a fair value of $83.3 million were pledged to secure public deposits, securities sold under agreement to repurchase and other purposes as required or permitted by law. 5. LOANS The composition of the Company's loan portfolio at December 31 was as follows: 1999 1998 Commercial loans $316,411 $269,747 Residential real estate loans 220,534 170,875 Consumer loans 83,832 78,496 Municipal loans 8,307 17,199 Other loans 336 1,311 -------- -------- Total loans 629,420 537,628 Less deferred loan fees net of cost 892 788 Less allowance for loan losses 9,390 8,092 -------- -------- $619,138 $528,748 ======== ======== ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 31 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 5. Loans continued The Company's lending activities are conducted in mid-coast, central and western Maine. The Company makes single family and multi-family residential loans, commercial real estate loans, business 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, 1999 and 1998, nonaccrual loans were $6,136,000 and $4,079,000, respectively. Interest foregone was approximately $408,000, $248,000 and $264,000 for 1999, 1998 and 1997, respectively. 6. ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses were as follows:
December 31, 1999 1998 1997 Beginning Balance $ 8,092 $ 6,982 $ 5,365 Provision for loan losses 3,670 2,056 2,207 Recoveries 288 330 641 Loans charged off (2,660) (1,276) (1,231) ------- ------- ------- Net charge offs (2,372) (946) (590) ------- ------- ------- Ending Balance $ 9,390 $ 8,092 $ 6,982 ======= ======= ======= Information regarding impaired loans is as follows: December 31, 1999 1998 1997 Average investment in impaired loans $ 5,455 $ 4,499 $ 3,310 Interest income recognized on impaired loans, all on cash basis 452 525 268 Balance of impaired loans 6,136 5,009 2,788 Less portion for which no allowance for loan losses is allocated -- 2,745 1,545 Portion of impaired loan balance for which an allowance for credit losses is allocated 6,136 2,264 1,243 Portion of allowance for loan losses allocated to the impaired loan balance 1,179 487 234
7. MORTGAGE SERVICING Residential real estate mortgages are originated by the Company for both portfolio and for sale into the secondary market. The sale of loans are to institutional investors such as the Federal Home Loan Mortgage Corporation ("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 guaranteed 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. 125, the Company capitalizes mortgage servicing rights at their fair value upon sale of the related loans. Capitalized servicing rights totaled $171,000, $115,000 and $38,000 during 1999, 1998 and 1997, respectively. Mortgage loans serviced for others are not included in the accompanying Consolidated Statements of Condition. The unpaid principal balances of mortgage loans serviced for others was $105,263,000, $112,052,000 and $116,728,000 at December 31, 1999, 1998 and 1997, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits, were $216,000 and $404,000 at December 31, 1999 and 1998, respectively. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 32 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 8. BANK PREMISES AND EQUIPMENT Details of premises and equipment, at cost, at December 31 were as follows: 1999 1998 Land and buildings $11,505 $11,295 Furniture, fixtures and equipment 11,671 10,688 Leasehold improvements 604 593 Construction in process 223 38 ------- ------- 24,003 22,614 Less: Accumulated depreciation and amortization 11,910 10,521 ------- ------- $12,093 $12,093 ======= ======= Depreciation expense was $1.6 million, $1.5 million and $1.5 million for 1999, 1998 and 1997, respectively. 9. OTHER REAL ESTATE OWNED The transactions in other real estate owned for the years ended December 31 were as follows: 1999 1998 Beginning balance $1,052 $1,532 Additions 1,418 1,196 Properties sold 491 1,599 Writedowns 574 77 ------ ------ Ending balance $1,405 $1,052 ====== ====== 10. DEPOSITS The aggregate amount of certificates of deposit, each with a minimum denomination of $100,000, was approximately $52,224,000and $57,251,00 at December 31, 1999 and 1998, respectively. Certificates of deposit included brokered deposits in the amount of $6,014,000 and $6,003,000 at December 31, 1999 and 1998, respectively. At December 31, 1999, the scheduled maturities of certificates of deposit are as follows: 2000 $248,605 2001 45,747 2002 10,501 2003 4,579 2004 4,117 Thereafter 474 -------- $314,023 ======== ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 33 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 11. BORROWINGS A summary of the borrowings from the Federal Home Loan Bank ("FHLB") of Boston is as follows: December 31, 1999 Principal Amounts Interest Rates Maturity Date $ 83,866 4.06%-6.05% 2000 2,000 6.08% 2003 1,000 4.80% 2004 5,000 5.09% 2008 37,000 4.83%-5.35% 2009 --------- $ 128,866 ========= December 31, 1998 Principal Amounts Interest Rates Maturity Date $ 52,460 4.95%-6.58% 1999 5,452 6.02%-6.05% 2000 25,000 4.99%-5.09% 2008 --------- $ 82,912 ========= Short- and long-term borrowings from the FHLB consist of both fixed and adjustable rate borrowings and are collateralized by stock in the FHLB 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 FHLB at its discretion can call $38 million of the Company's long-term borrowings. The Company, through its banking subsidiaries, has an available line of credit with FHLB of $14.3 million at December 31, 1999 and 1998. The Company had $1.3 million and $10.1 million outstanding at December 31, 1999 and 1998, respectively. The Company utilizes other borrowings in the form of federal funds purchased; 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: 1999 1998 Federal funds purchased $ 1,300 $ -- Treasury, tax and loan deposits 1,523 44 Securities sold under repurchase agreements 42,235 30,726 ------- ------- Total other borrowed funds $45,058 $30,770 ======= ======= Weighted-average rate at the end of period 4.10% 4.04% 12. EMPLOYEE BENEFIT PLANS Retirement Plan The Company has a trusteed defined benefit noncontributory pension plan covering substantially all eligible employees over 21 years of age with one year of employment. The benefits are based on years of service and salary earned during an employee's last five years of employment. The assets of the plans are primarily invested in listed stocks. The Company also provides a supplemental pension plan for certain executive employees to restore pension benefits which have been reduced by income tax regulations. These plans are unfunded and nonqualified. 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. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 34 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Information pertaining to the plans is as follows:
Pension Post Retirement Benefits Benefits 1999 1998 1997 1999 1998 1997 Change in benefit obligation Benefit obligation at beginning of the year $ 4,024 $ 3,470 $ 3,016 $ 399 $ 356 $ 315 Service cost 428 350 318 25 21 19 Interest cost 288 258 224 28 26 23 Actuarial gain (loss) -- -- (29) 50 15 12 Benefits paid (54) (54) (59) (21) (19) (13) ------- ------- ------- ----- ----- ----- Benefit obligation at end of year 4,686 4,024 3,470 481 399 356 ------- ------- ------- ----- ----- ----- Change in plan assets Fair value of plan assets at beginning of year 3,419 2,947 2,469 -- -- -- Actual return on plan assets 232 169 197 -- -- -- Employer contribution 352 357 340 -- -- -- Benefits paid (54) (54) (59) -- -- -- ------- ------- ------- ----- ----- ----- Fair value of plan assets at end of year 3,949 3,419 2,947 -- -- -- ------- ------- ------- ----- ----- ----- Funded status (737) (605) (523) (481) (399) (356) Unrecognized net actuarial loss 121 5 5 77 27 12 Unrecognized net prior service cost (99) (107) (115) (110) (126) (142) Transition obligation (66) (73) (80) -- -- -- ------- ------- ------- ----- ----- ----- Accrued benefit cost $ (781) $ (780) $ (713) $(514) $(498) $(486) ======= ======= ======= ===== ===== ===== Weighted-average assumptions as of December 31 Discount rate 7.0% 7.5% 7.5% 7.0% 7.5% 7.5% Expected return on plan assets 9.0% 7.5% 7.5% -- -- -- Rate of compensation increase 5.0% 6.0% 6.0% 6.0% 6.0% 6.0% Pension Post Retirement Benefits Benefits 1999 1998 1997 1999 1998 1997 Components of net periodic benefit cost Service cost $ 428 $ 350 $ 318 $ 25 $ 21 $ 19 Interest cost 288 258 224 28 26 23 Expected return on plan assets (327) (235) (188) -- -- -- Amortization of prior service cost (16) (16) (14) (16) (16) (16) ------- ------- ------- ----- ----- ----- Net periodic benefit cost $ 373 $ 357 $ 340 $ 37 $ 31 $ 26 ======= ======= ======= ===== ===== =====
For measurement purposes, a 6.7% annual rate of increase in the per capita cost to cover health care benefits was assumed for 2000. The rate was assumed to decrease gradually to a 6.0% annual growth rate after seven years, and remain at 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 supplemental retirement payments payable in installments over 15 years upon retirement or death. Effective September 1, 1999, active participants will be paid a life annuity upon retirement or death. The expense of this supplemental plan was $309,000, $217,000 and $246,000 in 1999, 1998 and 1997, respectively. The accrued liability of this plan at December 31, 1999, 1998 and 1997 was $1,198,000, $955,000 and $749,000, respectively. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 35 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 12. EMPLOYEE BENEFIT PLANS CONTINUED Employee Stock Ownership Plan During 1999, 1998 and 1997, the Company, as successor to KSB, had an Employee Stock Ownership Plan ("ESOP"). As of the merger date (December 20, 1999), all liabilities related to this plan have been paid. Total ESOP expense was $368,765, $279,770 and $277,920 in 1999, 1998 and 1997, respectively. 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. The Company contributed funds to the recognition plan to enable them to acquire, in aggregate, 56,045 shares of common stock. The Company recognizes expense related to the plan based on the vesting schedule. Participants are vested at a rate of 20% per year commencing one year from the date of the award. Total expense related to the plan was $9,726, $21,194 and $28,644 for 1999, 1998 and 1997, respectively. A summary of shares outstanding under of the Bank Recognition and Retention Plan is presented below: 1999 1998 1997 Outstanding at beginning of year 56,045 44,488 46,729 Granted during the year - 11,557 - Forfeited during the year - - 2,241 ------ ------ ------ Outstanding at end of year 56,045 56,045 44,488 ====== ====== ====== 13. SEGMENT REPORTING The Company through its subsidiaries (Camden National Bank, United Bank, Kingfield Bank and Trust Company of Maine, Inc.), provides a broad range of financial services to individuals and companies in mid-coast, central and western Maine. These services include lending, demand, savings and time deposits, cash management and trust services. While the Company's senior management team monitors operations of each subsidiary, these subsidiaries are primarily organized to 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 one reportable operating segment. 14. SHAREHOLDERS' EQUITY Dividends paid by subsidiaries are the primary source of funds available to the Company for payment of dividends to its shareholders. 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 fixed stock option plans accounted for under Accounting Principles Board Opinion 25 and related interpretations. The plans allow the Company to grant options to employees and directors for up to 676,140 shares of common stock. Under two plans, options are vested 20% per year from the date of grant and expire ten years from the date of grant. Under the remaining plans, the options are immediately vested when granted, and expire ten years from the date the option is granted. The exercise price of all options equals the market price of the Company's stock on the date of grant. Accordingly, 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 Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share for 1999, 1998 and 1997 would have been reduced to the pro forma amounts indicated on the next page. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 36 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Earnings Per Share Net Income Basic Diluted 1999 As reported $10,229 $1.27 $1.27 Pro forma 9,985 1.24 1.24 1998 As reported $11,451 $1.40 $1.38 Pro forma 10,256 1.26 1.23 1997 As reported $10,697 $1.31 $1.27 Pro forma 10,485 1.28 1.25 The fair value of each option grant 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 1997 dividend yield of 5.63%, expected volatility of 1.35%, risk-free interest rate of 5.75%, and expected lives of 10 years; in 1998 dividend yield of 3.0%, expected volatility of 1.35%, risk-free interest rate of 4.75%, 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 fixed stock option plans as of December 31, 1999, 1998 and 1997, and changes during the years ending on those dates is presented below. 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 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 1998 Number of Weighted-average Shares Exercise Price Outstanding at beginning of year 371,018 $ 6.47 Granted during the year 88,272 16.55 Exercised during the year 123,535 5.21 Reload options granted 5,019 16.23 Forfeited during the year 3,408 16.29 ------- ------- Outstanding at end of year 337,366 $ 9.62 ======= ======= Exercisable at end of year 270,228 $ 8.33 ======= ======= Weighted-average fair value of options granted during the year $ 13.54 1997 Number of Weighted-average Shares Exercise Price Outstanding at beginning of year 412,391 $ 6.19 Granted during the year 13,632 6.75 Exercised during the year 49,007 4.60 Forfeited during the year 5,998 2.67 ------- ------- Outstanding at end of year 371,018 $ 6.47 ======= ======= Exercisable at end of year 344,358 $ 6.61 ======= ======= Weighted-average fair value of options granted during the year $ 15.55 ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 37 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 14. Shareholders' Equity continued The following table summarizes information related to stock options outstanding at December 31, 1999. Number Remaining Weighted-Average Outstanding Contractual Life Exercise Price 13,755 3.0 $12.44 76,500 6.0 12.33 9,542 7.0 6.75 81,865 8.0 16.48 18,180 9.0 16.28 ------- --- ------ 199,842 6.9 $14.13 ======= === ====== 15. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: 1999 1998 1997 Net income, as reported $ 10,229 $ 11,451 $ 10,697 Weighted-average shares 8,033,757 8,156,968 8,169,924 Effect of dilutive employee stock options 33,877 153,658 233,607 Adjusted weighted-average shares and assumed conversion 8,067,634 8,310,626 8,403,531 Basic earnings per share $ 1.2 $ 1.40 $ 1.31 Diluted earnings per share $ 1.27 $ 1.38 $ 1.27 Options to purchase 24,500 and 74,882 shares of common stock at an average exercise price of $18.56 and $16.10 per share were outstanding at December 31, 1999 and 1998, 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. 16. INCOME TAXES The current and deferred components of income tax expense were as follows: 1999 1998 1997 Current: Federal $5,095 $5,889 $5,937 State 188 183 209 ------ ------ ------ 5,283 6,072 6,146 ------ ------ ------ Deferred: Federal (100) (642) (937) ------ ------ ------ $5,183 $5,430 $5,209 ====== ====== ====== ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 38 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 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:
1999 1998 1997 Computed tax expense $ 5,394 $ 5,881 $ 5,409 Increase (reduction) in income taxes resulting from: Tax exempt income (349) (184) (238) State taxes, net of federal benefit 122 119 139 Income from life Insurance (92) (80) (41) Acquisition costs 452 -- -- Low income housing credits (77) (304) (130) Other (267) (2) 70 ------- ------- ------- $ 5,183 $ 5,430 $ 5,209 ======= ======= =======
Items which give rise to deferred income tax assets and liabilities and the tax effect of each are as follows:
1999 1998 Asset Liability Asset Liability Allowance for possible losses on loans $2,930 $-- $2,554 $-- Allowance for investment losses 86 -- 90 -- Capitalized costs -- 34 -- 69 Pension and other benefits 855 -- 777 -- Depreciation -- 134 -- 162 Deferred loan origination fees -- 207 -- 86 Deferred compensation and benefits 268 -- 89 -- Unrealized gains (losses) of investments available for sale 2,978 -- -- 159 Unrealized appreciation (depreciation) on loans held for sale- 447 118 -- Valuation of other real estate owned 148 -- 29 -- Interest receivable 122 -- 122 -- Deposit premium 38 -- 60 -- Mortgage servicing rights 26 -- 24 -- Other 126 -- 200 -- ------ ---- ------ ---- $7,577 $822 $4,063 $476 ====== ==== ====== ====
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. ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 39 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 17. 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: 1999 1998 Balance, January 1, $15,933 $14,604 Loans made/advanced and additions 9,866 6,167 Repayments and reductions 9,621 4,838 ------- ------- Balance, December 31 $16,178 $15,933 ======= ======= In addition to the loans noted above, the Company had deposits outstanding at December 31, 1999 and 1998 to the same individuals of $6.0 and $5.4 million, respectively. 18. FINANCIAL INSTRUMENTS In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk, which are not reflected in the accompanying consolidated statements of condition. The Company's significant off-balance sheet risks are lending commitments, letters of credit, interest rate floors, caps, and interest rate swap agreements. Those instruments involve varying degrees of credit and interest rate risk in excess of the amount recognized in the 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 uses off-balance sheet derivative instruments to hedge against large fluctuations in interest rates. The Company uses interest rate swaps and floor instruments to hedge against potentially lower yields on the variable prime rate loan category in a declining rate 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. All off-balance sheet positions are reviewed as part of the asset/liability management process at least quarterly. The instruments are factored into the Company's overall interest rate risk position. The Company regularly reviews the credit quality of the counterparties from which the instruments have been purchased. As of December 31, 1999, the Company had a $10 million (notional principal amount) interest rate swap that matures in 2004. At December 31, 1999 and 1998, the contractual or notional amounts of off-balance sheet financial instruments were as follows: 1999 1998 Commitments to extend credit $119,586 $121,903 Letters of credit 1,303 2,059 Swaps 10,000 5,000 Floors - 20,000 Caps - 10,000 ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 40 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- The estimated fair values of the Company's financial instruments were as follows:
December 31, 1999 December 31, 1998 Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash and due from banks and federal funds sold $ 24,645 $ 24,645 $ 18,175 $ 18,175 Securities available for sale 163,997 163,997 120,852 120,852 Securities held to maturity 68,193 68,049 97,841 101,203 Loans held for sale 6,906 6,906 32,865 33,207 Loans receivable 619,138 616,935 528,748 526,017 Interest receivable 5,041 5,041 4,672 4,672 Financial liabilities: Deposits $667,720 $665,231 $641,553 $642,281 Borrowings from Federal Home Loan Bank 128,866 126,010 82,912 81,842 Other borrowed funds 45,058 45,058 30,770 30,770 Interest payable 3,162 3,162 3,239 3,239
The estimated fair values of the Company's off-balance sheet instruments were as follows:
December 31, 1999 Fair Value Notional Contract Maturity Including Principal Date Date Accruals Interest Rate Swaps $10,000 23-Dec-99 23-Dec-04 $ - ======= ==== December 31, 1998 Fair Value Notional Contract Maturity Including Principal Date Date Accruals Interest Rate Swaps $ 5,000 21-Jun-96 21-Jun-99 $ 34 ------- ---- Interest Rate Floors $10,000 03-Jun-94 03-Jun-99 $ 8 10,000 13-Sep-94 13-Sep-99 11 ------- ---- $20,000 $ 19 ======= ==== Interest Rate Caps $10,000 21-Jul-97 21-Jul-99 $ - ======= ====
================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 41 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 19. REGULATORY MATTERS The Company, and its bank subsidiaries, are subject to various regulatory capital requirements administered by the Federal Reserve Board, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. Failure to meet minimum capital requirements can result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have direct material affect on the Company's 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 principles. The Company's capital classification is also subject to qualitative judgments by the 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 I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined). Management believes that, as of December 31, 1999, the Company meets all capital requirements to which it is subject. As of December 31, 1999, all bank subsidiaries were categorized by their supervisory regulatory agencies as well capitalized. To be categorized as well capitalized, the banks must maintain minimum total risk-based, Tier I risk-based and Tier I 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 Company's actual capital amounts and ratios are also presented in the following tables.
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio (less than (less than (less than (less than or equal) or equal) or equal) or equal) As of December 31, 1999 Total Capital (To Risk-Weighted Assets): Consolidated $83,841 13.0% $51,725 8.0% N/A Camden National Bank 52,998 12.6% 33,568 8.0% $41,960 10.0% United Bank 10,605 10.9% 7,821 8.0% 9,776 10.0% Kingfield Bank 15,370 11.9% 10,336 8.0% 12,920 10.0% Tier I Capital (To Risk-Weighted Assets): Consolidated $77,623 11.7% $25,863 4.0% N/A Camden National Bank 47,473 11.4% 16,784 4.0% $25,176 6.0% United Bank 10,711 9.6% 3,911 4.0% 5,866 6.0% Kingfield Bank 14,571 10.7% 5,168 4.0% 7,752 6.0% Tier I Capital (To Average Assets): Consolidated $77,623 8.7% $35,674 4.0% N/A Camden National Bank 47,473 8.3% 22,974 4.0% $28,717 5.0% United Bank 10,711 8.0% 5,339 4.0% 6,673 5.0% Kingfield Bank 14,571 8.0% 7,249 4.0% 9,061 5.0%
================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 42 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - --------------------------------------------------------------------------------
To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio (less than (less than (less than (less than or equal) or equal) or equal) or equal) As of December 31, 1998 Total Capital (To Risk-Weighted Assets): Consolidated $75,912 13.6% $44,606 8.0% N/A Camden National Bank 50,111 14.2% 28,292 8.0% $35,365 10.0% United Bank 9,773 10.7% 7,310 8.0% 9,138 10.0% Kingfield Bank 13,183 11.7% 8,971 8.0% 11,215 10.0% Tier I Capital (To Risk-Weighted Assets): Consolidated $68,942 12.3% $22,303 4.0% N/A Camden National Bank 45,690 12.9% 14,146 4.0% $21,219 6.0% United Bank 8,631 9.5% 3,655 4.0% 5,483 6.0% Kingfield Bank 11,779 10.5% 4,486 4.0% 6,729 6.0% Tier I Capital (To Average Assets): Consolidated $68,942 9.5% $30,198 4.0% N/A Camden National Bank 45,690 9.1% 19,982 4.0% $24,978 5.0% United Bank 8,631 9.0% 3,842 4.0% 4,803 5.0% Kingfield Bank 11,779 7.1% 6,616 4.0% 8,269 5.0%
20. BANK HOLDING COMPANY Following are the condensed statements of condition, income statements, and statements of cash flow for Camden National Corporation, a multi-bank and financial services holding company. STATEMENTS OF CONDITION December 31,
1999 1998 Assets Cash $ 81 $ 2,648 Premises and equipment 1,533 1,486 Investment in subsidiaries: Banking subsidiaries 72,755 74,940 Other subsidiaries 120 94 Amounts receivable from subsidiaries 2,367 1,940 Goodwill 46 51 Other assets 2,633 341 ------- ------- Total assets $79,535 $81,500 ======= ======= Liabilities and Shareholders' Equity Amounts due to subsidiaries $ 1,300 $ 3,350 Accrued and other expenses 612 361 Shareholders' equity 77,623 77,789 ------- ------- Total liabilities and shareholders' equity $79,535 $81,500 ======= =======
================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 43 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 20. Bank Holding Company continued STATEMENTS OF INCOME For Years Ended December 31,
1999 1998 1997 Operating Income Dividend income from subsidiaries $ 8,256 $ 8,682 $ 4,473 Fees from subsidiaries 3,579 3,323 2,786 Other income 10 14 17 ------- ------- ------- Total operating income 11,845 12,019 7,276 ------- ------- ------- Operating Expenses Salaries and employee benefits 2,158 2,030 1,625 Net occupancy 155 170 156 Furniture, equipment and data processing 709 653 612 Other operating expenses 1,353 905 651 Acquisition related expenses 1,019 -- -- ------- ------- ------- Total operating expenses 5,394 3,758 3,044 ------- ------- ------- Income before equity in undistributed earnings of subsidiaries 6,451 8,261 4,232 Equity in undistributed earnings of subsidiaries 3,705 3,166 6,421 ------- ------- ------- Net income before tax 10,156 11,427 10,653 Income tax benefit 73 24 44 ------- ------- ------- Net Income $10,229 $11,451 $10,697 ======= ======= =======
================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 44 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS For Years Ended December 31,
1999 1998 1997 Operating Activities Net income $ 10,229 $ 11,451 $ 10,697 Adjustments to reconcile net income to net cash provided (used) by operating activities: Equity in undistributed earning of subsidiaries (3,705) (3,166) (6,421) Depreciation and amortization 300 361 197 Decrease in obligation under ESOP and BRRP 487 301 257 Amortization of goodwill 5 4 3 (Increase) decrease in amount receivable from subsidiaries (427) (1,869) 175 Increase in other assets (2,292) (103) (169) (Decrease) increase in payables (1,799) 4,003 151 Other -- (265) 11 -------- -------- -------- Net cash provided by operating activities 2,798 10,717 4,901 -------- -------- -------- Investing Activities Investment in Trust Company of Maine, Inc. -- -- (51) Purchase of premises and equipment (347) (172) (149) -------- -------- -------- Net cash used by investing activities (347) (172) (200) -------- -------- -------- Financing Activities Proceeds from sale of treasury stock 2,249 -- -- Exercise and cancellation stock options (975) (1,121) -- Purchase of treasury stock (2,337) (3,139) (1,461) Dividends paid (4,182) (3,863) (3,136) Proceeds from stock issuance under option plan 227 81 54 Filing fee related to stock split -- (35) -- -------- -------- -------- Net cash used by financing activities (5,018) (8,077) (4,543) -------- -------- -------- Net (decrease) increase in cash and cash equivalents (2,567) 2,468 158 Cash and cash equivalents at beginning of year 2,648 180 22 -------- -------- -------- Cash and cash equivalents at end of year $ 81 $ 2,648 $ 180 ======== ======== ========
================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 45 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- 21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1999 and 1998:
THREE MONTHS ENDED Mar 31 June 30 Sept 30 Dec 31 1999 Interest income $16,812 $17,400 $17,870 $18,481 Interest expense 7,246 7,601 7,736 7,921 Net interest income 9,566 9,799 10,134 10,560 Provision for loan losses 585 655 775 1,655 Income before income taxes 4,506 4,625 4,549 1,732 Applicable income taxes 1,445 1,513 1,445 780 Net income 3,061 3,112 3,104 952 Per common share: Basic 0.38 0.39 0.38 0.12 Diluted 0.38 0.39 0.38 0.12 THREE MONTHS ENDED Mar 31 June 30 Sept 30 Dec 31 1998 Interest income $ 14,832 $ 15,121 $ 15,430 $ 16,955 Interest expense 6,795 6,683 6,677 6,852 Net interest income 8,037 8,438 8,753 10,103 Provision for loan losses 444 444 464 704 Income before income taxes 3,971 3,959 4,464 4,487 Applicable income taxes 1,318 1,284 1,441 1,387 Net income 2,653 2,675 3,023 3,100 Per common share: Basic 0.32 0.33 0.37 0.38 Diluted 0.32 0.32 0.36 0.38
================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 46 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Auditor's Letter (BDM&P Letterhead) BERRY, DUNN, McNEIL & PARKER, LLC CERTIFIED PUBLIC ACCOUNTANTS MANAGEMENT CONSULTANTS ------------------------------------------------------------ 100 Middle Street/P.O. Box 1100, Portland, Maine 04104-1100/ (207)775-2387/FAX (207)774-2375 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, 1999 and 1998, 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, 1999. 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 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 significant 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 Subsidiaries as of December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ Berry, Dunn, McNeil & Parker Portland, Maine January 28, 2000 Offices in: Bangor, Maine Portland, Maine Lebanon, New Hampshire Manchester, New Hampshire ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 47 BOARDS OF DIRECTORS AND BANK ADMINISTRATIONS - -------------------------------------------------------------------------------- Directors of Camden National Corporation - -------------------------------------------------------------------------------- Rendle A. Jones Chairman, Camden National Corporation Attorney & Partner, Harmon, Jones, Sanford & Elliott, LLP Peter T. Allen Private Investor 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 Store Manager, Rockland Shop 'n Save Ward I. Graffam Co-owner, Wayfarer Marine Corporation John W. Holmes President, Consumers Fuel Co. Theodore C. Johanson President, Falcon Shoe Co. John S. McCormick, Jr. Engineer & Developer, Consolidated Real Estate and Engineering Winfield F. Robinson President, Timber Resource Group, LLC Richard N. Simoneau, C.P.A. Tax Partner, Simoneau & Norton, P.A. Arthur E. Strout Attorney & Partner, Strout & Payson, P.A. Administration of Camden National Corporation - -------------------------------------------------------------------------------- Robert W. Daigle President & CEO Laurel J. Bouchard Vice President, Corporate Sales & Marketing Officer Joanne T. Campbell Vice President & Residential Real Estate Administration Officer Steven D. Dailey Vice President & Information Systems Officer James C. Ebbert Assistant to the President June B. Parent Vice President & Human Resources Manager Jeffrey D. Smith Vice President & Chief Operations Officer Susan M. Westfall Vice President, Clerk, Treasurer & Chief Financial Officer Brenda B. Munroe Assistant Vice President & Electronic Banking Manager Kimberly J. Nason Assistant Vice President & Residential Real Estate Loan Officer Kathryn M. Ryder Assistant Vice President, Financial Officer & Accounting Manager Lee Ann Szelog Assistant Vice President & Marketing Manager Robert E. Cleveland, Jr. Senior Network Administrator Ellen L. Ellis Manager, Loan Servicing Department Ann E. Filley Manager, Training Department Jennifer F. Mazurek Manager, Deposit Services Department Timothy J. Pratt Manager, Items Processing Department Timothy J. Thompson Quality Service Manager Directors of Camden National Bank - -------------------------------------------------------------------------------- Rendle A. Jones Chairman, Camden National Bank Attorney & Partner, Harmon, Jones, Sanford & Elliott, LLP Peter T. Allen Private Investor 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 Store Manager, Rockland Shop 'n Save John W. Holmes President, Consumers Fuel Co. John S. McCormick, Jr. Engineer & Developer, Consolidated Real Estate and Engineering Richard N. Simoneau, C.P.A. Tax Partner, Simoneau & Norton, P.A. Arthur E. Strout Attorney & Partner, Strout & Payson, P.A. Rosemary B. Weymouth President, Megunticook Management Co. Associate Directors of Camden National Bank - -------------------------------------------------------------------------------- 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 Lawrence N. Hopkins Retired President, Camden National Bank 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 Administration of Camden National Bank - -------------------------------------------------------------------------------- Michael A. McAvoy Senior Vice President & Senior Loan Officer John P. "Jack" Williams Senior Vice President & Community Banking Division Officer Paul C. Doody Vice President & Community Banking Officer Barbara B. Hanson Vice President & Community Banking Officer Richard E. Littlefield Vice President & Commercial Loan Officer Stephen C. Staples Vice President & Community Banking Officer Stephen C. Wallace Vice President & Retail Sales Manager ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 48 CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Vera E. Rand Commercial Loan Officer Christopher A. Frohock Special Assets Officer Stephen J. Matteo Credit Administrator Branch Administration of Camden National Bank - -------------------------------------------------------------------------------- Tamara J. Bryant Vice President, Regional Manager & Manager, Main Office Robert P. Wheeler Vice President, Regional Manager & Manager, Vinalhaven Office Brenda J. Condon Assistant Vice President & Manager, Bucksport Office Judith L. Brogden Manager, Thomaston Office Susan L. O'Brien Manager, Union Office Jane G. Pierce Manager, Belfast Office Walter C. Reynolds Manager, Damariscotta Office Todd L. Savage Manager, Camden Square Office R. Todd Starbird Manager, Rockland Office Claire E. Smith Interim Manager, Waldoboro Office Directors of UnitedKingfield Bank - -------------------------------------------------------------------------------- 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 Edward R. Dysart President, Dysart Transportation Services, Inc. William T. Gardner President, William T. Gardner & Sons, Inc. Theodore C. Johanson President, Falcon Shoe Co. Rendle A. Jones Attorney & Partner, Harmon, Jones, Sanford & Elliott, LLP C. Charles Lumbert President, Moose River Lumber Co., Inc. Roger G. Spear Chief Financial Officer, University of Maine at Farmington John C. Witherspoon President & CEO, UnitedKingfield Bank Administration of UnitedKingfield Bank - -------------------------------------------------------------------------------- John C. Witherspoon President & CEO Susan D. Keiler Vice President & Operations Officer James M. Kimball Vice President & Senior Commercial Lender Charles D. Osgood Vice President & Senior Loan Officer Cindy Spencer Vice President, Credit Administration Robert D. Stone Vice President, Sales & Marketing Officer Gerard R. Belanger Regional Vice President Gordon A. Flint Regional Vice President Directors of Trust Company of Maine - -------------------------------------------------------------------------------- Andrew P. Averill Chairman, President & CEO, 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 Shirley B. Kile Executive Vice President & Treasurer, Trust Company of Maine, Inc. R. Paul Pasquine Executive Vice President, Trust Company of Maine, Inc. Richard N. Simoneau, C.P.A. Tax Partner, Simoneau & Norton, P.A. Administration of Trust Company of Maine, Inc. - -------------------------------------------------------------------------------- Andrew P. Averill Chairman, President & CEO Shirley B. Kile Executive Vice President & Treasurer R. Paul Pasquine Executive Vice President, COO & Sr. Trust Officer Lynn M. Bowden Vice President & Trust Officer Susan L. Kenney Assistant Vice President & Trust Officer Robert M. Parker, Jr. Assistant Vice President & Trust Officer Credits Benjamin Magro, Photography Peggy Mason Graphics, Typesetting tracey/edwards, Design ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 49 - -------------------------------------------------------------------------------- Annual Meeting Camden National Corporation Tuesday, May 2, 2000, 3:30 p.m. The Camden Opera House The Company will provide, without charge, upon written request, a copy of Camden National Corporation's 1999 Annual Report on Securities and Exchange Commission Form 10K. Please contact: Susan M. Westfall, Chief Financial Officer Camden National Corporation P.O. Box 310 Camden, Maine 04843 (207) 236-9131, ext. 2165 swestfall@camdennational.com [CNC LOGO] Camden National Corporation Member FDIC ================================================================================ 1 9 9 9 C N C A N N U A L R E P O R T 50 [CNC LOGO] EX-21 4 SUBSIDIARIES OF THE COMPANY EXHIBIT #21 SUBSIDIARIES OF THE COMPANY - --------------------------------------- Camden National Bank UnitedKingfield Bank Trust Company of Maine, Inc. EX-23.1 5 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT #23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS - ------------------------------------------------------- Consent of Independent Public Accountants As the independent public accountants of Camden National Corporation, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration File Number 333-95157. Berry, Dunn, McNeil & Parker, LLP Portland, Maine March 29, 2000 EX-27.1 6 FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1999 DEC-31-1999 24,230 0 415 0 163,997 68,193 68,049 635,434 9,390 928,350 667,720 128,924 9,083 0 0 0 2,450 75,173 928,350 54,838 15,553 172 70,563 23,187 30,504 40,059 3,670 0 27,604 15,412 15,412 0 0 10,229 $1.27 $1.27 8.53 6,136 195 0 6,331 8,092 2,660 288 9,390 8,862 0 528
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