Item 1. Business
Camden National Corporation, ("the Company") is a multi-bank and 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. As of December 31, 1997, the Company's securities consisted of one class of common stock, no par value, of which there were 2,270,210 shares outstanding held of record by approximately 825 shareholders.
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries,Camden National Bank and United Bank, and its majority-owned subsidiary, Trust Company of Maine, Inc. Trust Company of Maine, Inc's amounts include its wholly-owned subsidiary -- Fiduciary Services, Inc. All intercompany accounts and transactions have been eliminated in consolidation.
The Company's wholly-owned bank subsidiaries are independent commercial banks with branches serving both mid-coast and central 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 based in Camden, Maine, and offers services in the communities of Camden, Union, Rockland, Thomaston and Belfast. Camden National Bank is the largest independent commercial bank in Maine. United Bank is a banking organization chartered under the laws of the State of Maine based in Bangor, Maine, and offers services in the communities of Bangor, Corinth, Hampden, Hermon and Jackman, Maine.
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 the two counties in which it has banking facilities, Knox and Waldo counties. These two counties have a combined population of approximately 76,000 people. The economy of the 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 with-
in Camden National Bank's market include insurance companies, money market funds, consumer finance companies and financing affiliates of consumer durable goods manufacturers.
The Company, through United Bank, also competes in the central Maine area. United Bank has approximately a 5% share of the market in its service area and competes principally on the basis of service. 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 United 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 United 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 12.5% or $63.8 million during 1997. The primary contributing factor to this growth was the increase in lending activity at both bank subsidiaries. As the business continued to grow during this past year, each subsidiary focused on customer service. Supporting this concept, the Company implemented a new 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. In addition, the Company's subsidiary, Camden National Bank, entered into an agreement during October 1997 to purchase four branches in four new markets - Bucksport, Damariscotta, Vinalhaven and Waldoboro. The closing date was March 16, 1998. This acquisition creates a growth opportunity for Camden National Bank, in addition, to allowing the bank to better service its many customers already in these markets.
The Company employs approximately 171 people on a full-time equivalent basis. Management believes that employee relations are good, and there are no known disputes between management and employees. 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.
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 United Bank under the Federal Reserve Act. That Act establishes certain restrictions which 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.
The Company will be prohibited from engaging in, or acquiring direct or indirect ownership or control of more than 5 percent of the voting shares of any company engaged in non-banking activities, unless the FRB by order or regulation has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
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 which 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 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 new 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 that 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.
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.
United Bank is a banking organization chartered under the laws of the State of Maine. United 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, stockholders' 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 predication 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 and operate either office as a branch, notwithstanding pre-existing contrary state law. This interstate merger provision becomes automatically effective in all states on June 1, 1997, unless 1) the law becomes effective in a given state at any earlier date selected by legislation in that state; or 2) the law does not become effective at all in a given state because by legislation enacted before June 1, 1997 that state opts 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.
Item 2. Properties
The Company operates in thirteen facilities. The Main Office of the Company and Camden National Bank is 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 three of its branches and the facility in which the operations departments of the Company are located. None of the owned facilities is subject to a mortgage. Camden National Bank also
leases two branches under long-term leases,which expire in January of 2020 and December of 2077.
The Main Office of United Bank is at 145 Exchange Street, Bangor, Maine, and is owned by United Bank. The building has 25,600 square feet of space on two levels. United 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., 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. United Bank also owns three of its other facilities, none of which is subject to a mortgage. United Bank also leases one branch under a five-year lease, which expires in September of 2002.
Item 3.
Item 3. Pending Legal Proceedings
The Company is not involved in any material pending legal proceedings, other than ordinary, routine litigation incidental to the business of the Company and its subsidiaries.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
There were no items submitted to a vote of security holders of the company during the fourth quarter of 1997.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters
The information required is contained on page 13 of the Company's Annual Report to Shareholders for the year ended December 31, 1997 and is incorporated herein by reference.
Item 6.
Item 6. Selected Financial Data
Selected year-end financial information for the past five years is contained on page 15 of the Company's Annual Report to Shareholders for the year ended December 31, 1997 and is incorporated herein by reference.
Item 7.
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 Condition and Results of Operations" on pages 8
through 13 of the Company's Annual Report to Shareholders for the year ended December 31, 1997 should be read in conjunction with the following text and tables, and is incorporated herein by reference.
The Analysis of Change in Net Interest Margin on Earnings Assets, Average Daily Balance Sheets, and the Analysis of Volume and Rate Changes on Net Interest Income and Expenses are provided to enable the reader to understand the components and past trends of the Company's interest income and expenses. The first of these tables provides an analysis of changes in net interest margin; reflecting interest income earned and interest expense paid and average rates earned and paid. Nonaccrual loans are included in total average loans. Interest income on loans includes fee on loans of $975 in 1997, $968 in 1996, and $823 in 1995. In addition, net interest income of $(11) in 1997, $111 in 1996 and $(2) in 1995, from interest rate swaps was also included in loan interest income.
The following tables present the changes in interest income and the changes in interest expense attributable to the change in interest rates and the change in volume for the periods indicated. Tax-exempt income has been calculated on a tax-equivalent basis, 34% being the tax rate used.
The following table set forth the Company's investment securities at book carrying amount as of December 31, 1997, 1996, and 1995.
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 the largest portion of the portfolio to maturity. The following table summarizes the investment portfolio maturities and yields at December 31, 1997.
Total loans increased by $51.9 million, or 16.7%, in 1997. 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.
Loan demand also affects the Company's liquidity position. However, of the loans maturing over one year, approximately 65% are variable rate loans. The following table presents the maturities of loans at December 31, 1997.
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 that are 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:
It is the Company's policy to discontinue 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.
Interest foregone on non-accrual loans was approximately $147,000, $178,000, $207,000, $98,000 and $117,000 for 1997, 1996, 1995, 1994 and 1993, respectively. Interest income recognized on non-accrual loans during 1997 was $64,000.
Management believes that the level of the allowance for loan losses at December 31, 1997 of $5.6 million, or 1.55% 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. When determining the amount of provision for loan losses annually management relies on its review of the loan portfolio both to ascertain whether there are probable losses to be written off, projected loan mix and loan volumes, historical net loan loss experience, and to assess the loan portfolio in the aggregate.
The following table summarizes the activity in the allowance for loan losses for the years ended December 31, 1997, 1996, 1995, 1994 and 1993.
The following table summarizes the allocation of the allowance for loan losses among the Company's loan categories for the years ended December 31, 1997, 1996, 1995, 1994 and 1993.
The maturity of certificates of deposit in denominations of $100,000 or more is 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.
The dividend payout ratio was 33.34%, 27.59%, 18.67%, 12.78%, and 9.51% for 1997, 1996, 1995, 1994 and 1993 respectively. The average equity to average assets ratio was 10.86%, 11.32%, 10.92%, 10.24%, and 9.39% for 1997, 1996, 1995, 1994 and 1993 respectively.
The borrowings utilized by the Company primarily have 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, 1997, 1996, and 1995.
Interest rate sensitivity or "Gap" management involves the maintenance of an appropriate balance between interest sensitive assets and interest sensitive liabilities to reduce interest rate risk exposure while also providing liquidity to satisfy the cash flow requirements of operations and to meet customers' fluctuating demands for funds, either in terms of loan requests or deposit withdrawals. Major fluctuations in net interest income and net earnings could occur due to imbalances between the amounts of interest-earning assets and interest-bearing liabilities, as well as different repricing characteristics. Gap management seeks to protect earnings by maintaining an appropriate balance between interest-earning assets and interest-bearing liabilities in order to minimize fluctuations in the net interest margin and net earnings in periods of volatile interest rates.
The following table set forth the amount of interest-earning assets and interest-bearing liabilities outstanding, at December 31, 1997 which are anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
Included in the Company's 1997 Annual Report to Shareholders on pages 12-13 and is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data
The following financial statements and report of independent accountant, included in the Company's 1997 Annual Report to Shareholders, are incorporated herein by reference. Page references are to pages of the Company's 1997 Annual Report to Shareholders.
PAGE
Report of Independent Public Accountant 39 Consolidated Statements of Financial Condition December 31, 1997 and 1996 16 Consolidated Statements of Earnings for the years ended December 31, 1997, 1996 and 1995 17 Consolidated Statements of Changes in the Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 18 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 19 Notes to Consolidated Financial Statements 20-37
Item 9.
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.
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 1998 Annual Meeting of Shareholders to be filed with the Commission prior to April 30, 1998.
Item 11.
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 1998 Annual Meeting of Shareholders to be filed with the Commission prior to April 30, 1998.
Item 12.
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 1998 Annual Meeting of Shareholders to be filed with the Commission prior to April 30, 1998.
Item 13.
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 1998 Annual Meeting of Shareholders to be filed with the Commission prior to April 30, 1998.
PART IV
Item 14.
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:
(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.i) 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, and 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, and is incorporated herein by reference.
(10.3) Lease Agreement for the facility occupied by the Hampden Branch of United Bank, Parway Realty Development Corporation (Lessor) and United Bank (Lessee) filed with Form 10-K, December 31, 1995, and is incorporated herein by reference.
(10.4) Camden National Corporation 1993 Stock Option Plan, filed with Form 10-K, December 31, 1995, and is incorporated herein by reference.
(10.5) UNITEDCORP Stock Option Plan, filed with Form 10-K, December 31, 1995, and is incorporated herein by reference.
(13) Camden National Corporation's 1997 Annual Report to Shareholders.*
(21) Subsidiaries of the Company
(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.
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)
- --------------------------------------------------------- Keith C. Patten 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.
Keith C. Patten (signature) 3/30/98 Susan M. Westfall (signature) 3/30/98 - --------------------------------------- ------------------------------------- Keith C. Patten Date Susan M. Westfall Date President and Director Treasurer and Chief Executive Officer Chief Financial Officer
David H. Montgomery (signature) 3/30/98 Rendle A. Jones (signature) 3/30/98 - --------------------------------------- ------------------------------------- David H. Montgomery Date Rendle A. Jones Date Chairman and Director
John S McCormick, Jr.(signature)3/30/98 Royce M. Cross (signature) 3/30/98 - --------------------------------------- ------------------------------------- John S. McCormick, Jr., Director Date Royce M. Cross, Director Date
Peter T. Allen (signature) 3/30/98 Richard N. Simoneau(signature)3/30/98 - --------------------------------------- ------------------------------------- Peter T. Allen, Director Date Richard N. Simoneau, Director Date
Ann W. Bresnahan (signature) 3/30/98 Arthur E. Strout (signature) 3/30/98 - --------------------------------------- -------------------------------------- Ann W. Bresnahan, Director Date Arthur E. Strout, Director Date
Robert J. Gagnon (signature) 3/30/98 Robert W. Daigle (signature) 3/30/98 - --------------------------------------- -------------------------------------- Robert J. Gagnon, Director Date Robert W. Daigle, Director Date
John W. Holmes (signature) 3/30/98 - --------------------------------------- John W. Holmes, Director Date
Exhibit #21 Subsidiaries of the Company
Camden National Bank
United Bank
Trust Company of Maine, Inc.
[COVER OF THE ANNUAL REPORT]
A History of Community Banking Since 1875
Photograph of Downtown Camden in the Fall. Camden National Bank in the center of the photograph.
Corporate Logo Camden National Corporation 1997 Annual Report
[First Page of the Annual Report]
When Camden National first opened its doors in 1875, Maine was a very different place.
Photograph. Photograph taken around 1923 of the interior of the Main Office and an employee.
Caption under photo - Camden National is rich in history and tradition, as seen in this interior view of the Maine Office, circa 1923.
[Page 1 - Annual Report]
Although the world has experienced considerable change over the past 122 years, Camden National has stayed true to its original mission and remains a vital community resource.
Photograph. Photograph taken in 1997 of the interior of the Main Office in Camden.
Caption under photo - Camden National's rich history of community service continues today, enhanced by the complete array of financial services offered at all locations including its corporate headquarters in Camden (shown here in 1997).
[Page 2 & 3 - President's Letter]
Dear Shareholders,
Camden National Corporation's (the "Company") 1997 financial performance reflects many new records. Net income rose by 12.7% to $9.1 million, earnings per share increased by $.54 to $4.02, assets grew by 12.5% to $573.9 million and loans increased by 16.7% or $51.9 million. Deposits, which had experienced a modest decline in 1996, increased by $20.1 million to $373.4 million this past year, which was a new high. Both banks were major contributors to the profit improvement and asset growth.
The Trust Company of Maine, Inc. (TCOM), a majority-owned subsidiary which was established April 1994, continued its growth, adding $53.8 million in assets under management and is approaching the $200 million mark. This subsidiary operated at a near break- even level while still adding value to your Company, as its services make it possible for our bank subsidiaries to offer a more complete financial package to their customers.
I am pleased with our first year's results under our "Stakeholders" program, which is a performance-based employee incentive compensation program designed to maximize shareholder value and help ensure the long-term viability of the Company. Both bank presidents are committed to this program which balances profit with growth and quality with productivity. The "Stakeholders" program is creating an environment where all of the employees take a more personal interest in the performance of their respective banks and are thinking and working as owners.
By the time you receive this report, Camden National Corporation's subsidiary, Camden National Bank, is expected to have completed its acquisition of the four KeyBank branches-Bucksport, Damariscotta, Vinalhaven and Waldoboro. The purchase of these branches is expected to add over $50 million in deposits and approximately $7 million in loans. This acquisition not only creates an excellent growth opportunity for Camden National, but also allows the bank to better serve its many customers already in these prospective markets.
Your Company and its subsidiaries continue to search-out growth opportunities, but only where the directors and management feel confident that the growth will add strength and value to your stock. Growth just for the sake of growth is never a consideration.
Your Company continues to undergo transition with changes in directors, management structure and markets served. Kenneth C. Dickey, Vice Chairman of both the Camden National Bank and Camden National Corporation Boards of Directors reached the mandatory retirement age at the end of 1997. Ken served the bank and the Company very well since 1970. His knowledge of the Company and its history was a real asset in planning for our future.
It is with considerable sadness that we note E. Maynard "Sandy" Graffam's passing on May 29, 1997. Sandy was an active member of the Camden National Bank and Camden National Corporation Boards. This Annual Report is being dedicated to his memory.
Both Ken and Sandy were able, contributing members on the boards they served, and they will be difficult to replace. We will find the best qualified individuals to fill these vacancies, with consideration given to candidates from the areas served by our newly acquired branches. This approach is in line with our philosophy that promotes board representation from within markets served by the Company.
With the retirement of Robert E. Worthing, Vice President, Cashier and Investment Officer of the Camden National Bank and Vice President and Clerk of the holding company, your directors promoted Susan M. Westfall to assume those duties. In addition, Susan, as CFO, will retain responsibility for the accounting function, providing oversight and supervision.
The Camden National Corporation was listed on the American Stock Exchange (AMEX-CAC) at $42.00 per share on October 7, 1997. The stock has appreciated significantly since its initial listing. It is our hope and expectation that you are pleased with the listing, as your stock now reflects a true market price. The AMEX listing has also improved the liquidity of your stock and has made it much easier for you to follow the value of your investment. As with any investment, past performance regarding Camden National Corporation's stock price is not an indication of future results.
Prior to our listing on the AMEX, your Company had repurchased 76,440 shares of stock under its stock buy-back program with an initial goal of 117,400 shares. With the free market expediting sales and with the increase in the market price of the stock, this activity has ceased. Your directors continue to believe that a repurchase program benefits shareholders; therefore, other methods of stock repurchase are being explored and you will be advised accordingly.
In closing, I am pleased to say that despite the many challenges inherent in our industry, your Company continues to operate as a high performing multi-bank holding company, exceeding the results achieved by its peer group. This success could not have happened without the cooperative spirit and guidance of the directors, management and staff of the Company and its subsidiaries. We all thank you, our shareholders, for your support and for the opportunity to provide for you an attractive return on your investment.
Sincerely,
Keith C. Patten (signature)
Keith C. Patten President & Chief Executive Officer Camden National Corporation
Photograph on page 2. Photograph of Keith C. Patten, President & CEO of CNC shaking hands with Robert W. Daigle, President of CNB at the American Stock Exchange.
Caption to right of photo - Keith Patten and Bob Daigle are all smiles as Camden National Corporation made its debut on the American Stock Exchange, October 7, 1997, under the listing CAC.
Photograph on page 3. Photograph of Keith C. Patten, President & CEO of CNC smiling and working at a desk.
[Page 4 - Camden National Bank President's Letter]
Photograph. Headshot of Robert W. Daigle, President of Camden National Bank with the CNB Main Office in the back- ground.
Comment to right of photo - Throughout the years, Camden National Bank has helped individuals and families realize their dreams. Dear Shareholders,
As I reflect on the events and developments of this past year, I see considerable familiarity interspersed with a good deal of originality-combined, they give us much to be pleased with and optimistic about.
Earnings of $8,192,495 were up 8.9% compared to the previous year, with a return on assets of 1.69% and return on equity of 15.40%, both well above our Bank's national peer group average. Contributing significantly to this success were quality loan growth and a healthy increase in core deposits, each the result of a heightened business development effort.
Training and professional development took on added emphasis in 1997 as we endeavored to build on the quality of our staff and their effectiveness in serving the customer. In addition to technical skills development, specialized training such as "needs- based selling" was incorporated into our curriculum.
For convenience and benefit to our customers, a number of technology and product innovations materialized in 1997, highlighted by the installation of the E-Z Teller System at our branch offices and the debut of several new deposit initiatives, including Penny"s Piggy Bank Savings Club, designed to foster frugality among our next generation of customers.
One of the more exciting events this past year was the announcement of our successful bid to acquire KeyBank branches in four new markets-Bucksport, Damariscotta, Vinalhaven and Waldoboro. Scheduled to close in March 1998, the acquisition represents a natural geographic expansion opportunity that will allow for the managed growth of our banking franchise.
Finally, it is important to note that the success of our Company in 1997 would not have been possible without the support and commitment of our employees. Their endorsement of our new performance-based incentive program has sharpened each "stakeholder's" awareness of what epitomizes a high performing organization and fosters a spirit of teamwork that bodes well for our respective futures.
On behalf of the Directors, management and staff of Camden National Bank, thank you for your ongoing support and encouragement.
Sincerely,
Robert W. Daigle (signature)
Robert W. Daigle President & Chief Executive Officer Camden National Bank
Photograph to the right of President's letter. Photo of Petrea Allen, Mortgage Loan Consultant and Dr. Christine Garrison looking at a home.
Caption under photo - Petrea Allen (right), Mortgage Loan Consultant helped Dr. Christine Garrison make her dream home in Rockport become a reality in 1997.
[Page 5 - United Bank President's Letter] Comment on top of page. United Bank carries on the tradition of of providing local expertise and decision making to area businesses.
Photograph at top right corner. Headshot of Bruce D. Bartlett President & CEO of United Bank with United Bank in the background
Dear Shareholders:
With much pride in the performance of United Bank's staff during the past year, I am pleased to report continuing progress toward our objective of becoming a high performance subsidiary of Camden National Corporation. The 1997 return on average assets of 1.31% and return on average equity of 16.49% each reflect significant improvement over prior years. With a net interest margin at the high end of our peer group, continuing reduction in operating costs has enabled significant improvement in the efficiency and competitive posture of United Bank, providing a solid foundation for an even greater contribution to the operating results of Camden National Corporation in the year ahead.
The addition of Paul R. Flynn to our management team in April 1997 has provided needed management depth and has brought us new expertise in the branch administration and marketing areas. Paul has already made great strides through enhancement of marketing efficiency of our branch system. Also, Nathan R. Williams, an accomplished commercial lender, joined United Bank in May 1997 as Assistant Vice President and Commercial Loan Officer. Nate began immediately to develop new account relationships and has taken on the responsibility for the restructuring of our credit function as well.
Early in 1997 we initiated the "Stakeholders" incentive compensation program. Under this new effort, all staff members are recognized as "Stakeholders" in the success of our Company. This formalizes what had always been the case, that employees have a vested interest in the success of their organization and should participate in the opportunities and rewards offered by the growth and earnings of the Company. This program has enhanced the effectiveness of communication among our staff regarding goal setting, meeting and even exceeding our growth and earnings objectives. The "Stakeholders" program has been tremendously successful during 1997, as evidenced by the progress of the Company, and it forms the basis for renewed confidence in our ability to achieve our objectives in 1998 and beyond.
Sincerely,
Bruce D. Bartlett (signature)
Bruce D. Bartlett President & Chief Executive Officer United Bank
Photograph to left of President's letter. Photograph of Jim Kimball, Vice President & Senior Loan Officer and Charlie Wolverton, business owner.
Caption under photo - Jim Kimball (right), Vice President & Senior Loan Officer of United Bank, confers with Charlie Wolverton, owner of Quality Tire & Service Center, Inc. Brewer.
[Page 6 - Trust Company of Maine, Inc. Chairman's Letter]
Photograph top left of page. Photo of Andrew P. Averill, Chairman & CEO, Trust Company of Maine sitting at desk smiling.
Comment at top of page - Trust Company of Maine augments our array of financial services with trust and investment opportunities
Dear Shareholders,
The efforts of our staff to integrate the Trust Company into the overall operation of Camden National Corporation, combined with the support of the management and staff of its banking subsidiaries, produced positive results in 1997 and, more importantly, positions us to achieve quality future growth.
The highlights of our year included: completion of the transfer of the Camden National Trust relationships to the Trust Company, the Trust Company's growth in assets under management to nearly $200 million, and our hosting, with Camden National Bank, a successful seminar featuring Jay A. Schlott, founder of our investment advisor Weston Asset Management, as the guest speaker. The seminar was very well received and plans are being made to make this an annual event.
In addition Fiduciary Services, our employee benefit plan administration subsidiary, continued its investment in technology which resulted in more timely reporting to our clients. Employee benefit customer services will be further enhanced in 1998 with the installation of a Voice Response Unit that will provide 401(k) plan participants access to their individual accounts at any time.
Lastly, I would like to point out that our accomplishments in 1997 would not have been possible without our staff, whose dedication, knowledge and experience made the year a success.
Sincerely,
Andrew P. Averill (signature)
Andrew P. Averill Chairman & Chief Executive Officer Trust Company of Maine, Inc.
Photograph at right of Chairman's letter. Lynn Bowden, Vice President & Trust Officer, advises new client Betty Kaynor.
Caption under photo - Trust Company of Maine's Lynn Bowden, Vice President & Trust Officer, advises her new client, Elizabeth "Betty" Kaynor about her investment portfolio.
Photograph in bottom right corner. Jana Hanscom with Fiduciary Services, Inc. consults with Duncan Brown the President of Cedar Works, Inc.
Caption under photo - To understand every aspect of her client's business, Jana Hanscom, Retirement Plan Administrator for Fiduciary Services, Inc. consults with Duncan Brown, President of Cedar Works, Inc.
[Page 7 - Photographs]
Today, Camden National's commitment to the community extends beyond the business day. Our employees are involved with local organizations...donating time and financial resources to make their communities a better place to live and work.
Photograph 1. Photograph of 3 employees wrapping and sorting Christmas presents for the Community Spirit of Christmas project.
Caption under photo - Heidi Vanorse, Tim Pratt, and Jane Pierce (left to right) sort gifts that they and their follow employees contributed to Camden National Bank's annual Community Spirit of Christmas project, which benefitted 65 local families.
Photograph 2. Photograph of Brent Folster, Vice President & Branch Manager of United Bank's Bangor Office with Directors and children from the Ronald McDonald House in Bangor.
Caption under photo - Serving as Vice President of the Board of the Ronald McDonald House in Bangor, Brent Folster (right), Vice President & Branch Manager of United Bank's Bangor Office, joins Pat Beckwith (left), Executive Director of the House, and residents Chuck and Vicki Matthews, with children Brent and Shannon from Machias.
Photograph 3. Photograph of 4 Trust Company of Maine employees volunteering at a shelter after a food drive.
Caption under photo - After conducting a successful food drive, Trust Company of Maine employees, (left to right) Jennifer Neale, Kathy Pelletier, Paul Pasquine, and Leander Macvane, volunteer at the Bangor Area Shelter.
[Pages 8 - 13 Management's Discussion]
Management's Discussion and Analysis of Financial Condition and Results of Operations
In addition to the historical information contained herein, this Annual Report contains certain forward-looking statements. The reader of this Annual Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company s actual results could differ materially from those suggested by such forward-looking statements. 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 securities investments, rates paid on deposits, competition effects, fee and other noninterest income earned, as well as other factors. This entire Annual Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Company s business.
GENERAL
Overview of Company.
Camden National Corporation (the Company ) is a multi-bank and financial services holding company headquartered in Camden, Maine. The Company s bank subsidiaries, both of which are wholly owned, are Camden National Bank, a national banking organization, based in Camden, Maine, and United Bank, a banking organization chartered under the laws of the State of Maine, based in Bangor, Maine. The Company also has one non-bank subsidiary, Trust Company of Maine, Inc., which provides trust and retirement management services throughout central and mid-coast Maine.
1995 Merger of UnitedCorp.
On December 31, 1995, UnitedCorp, a one-bank holding company with two principal subsidiaries, United Bank and Trust Company of Maine, Inc., was merged into Camden National Corporation. The merger was accounted for under the pooling-of-interests method and, accordingly, the 1995 consolidated financial statements of the Company have been restated to reflect the acquisition as though it occurred at the beginning of the year.
Business.
The Company s wholly-owned bank subsidiaries are independent commercial banks with branches serving both mid-coast and central 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 Corporation takes pride in supporting the communities it serves by having local community banks that not only offer their customers a wide variety of deposit accounts and services as well as competitive rates, but also make lending decisions locally. 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 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 Trust Company of Maine, Inc. complement the services provided by the Company s bank subsidiaries by offering customers investment 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 share in the communities its bank subsidiaries serve by offering quality financial products and services. In addition, the Company closely manages yields on earning assets and rates on interest-bearing liabilities and looks for ways to increase noninterest income and control growth of noninterest expenses. It is also part of the business strategy of the Company to supplement internal growth with acquisitions of other banks or banking offices in communities similar to the communities its bank subsidiaries currently serve. During 1997 the Company s subsidiary, Camden National Bank, entered into a definitive agreement with KeyBank to purchase four branches in mid-coast Maine. These branches are located in the communities of Bucksport, Damariscotta, Vinalhaven and Waldoboro. The Company considers the acquisition of these branches a logical move in expanding its current service area. The acquisition is expected to be completed during the first quarter of 1998.
REVIEW OF FINANCIAL STATEMENTS
The discussion and analysis which follows focuses on the factors affecting the Company s financial condition at December 31, 1997 and 1996, and financial results of operations during 1997, 1996, and 1995. The Consolidated Financial Statements and related Notes beginning on page 16 of this report should be read in conjunction with this review.
FINANCIAL CONDITION
Overview.
At December 31, 1997, the Company had consolidated assets of $573.9 million, an increase of $63.8 million or 12.5%, from December 31, 1996. The change in assets consisted primarily of a $51.9 million increase in loans, an increase of $15.9 million in investment securities and a decrease in cash and due from banks of $3.8 million. The asset growth was supported by a change in liabilities and shareholders equity consisting of a $20.1 million increase in deposits, a $38.7 million increase in total borrowings and a $4.7 million increase in total shareholders equity.
Investment Securities.
With increased loan demand during 1996 and 1997, additions to the investment portfolio have been minimal. In addition, the Company did not want to aggressively purchase new securities during a time of relatively low interest rates. Most new investments purchases replaced investments that matured during 1997. Total investment securities increased by $15.9 million or 9.7% to $179 million at December 31, 1997. The major portion of the Company s investment portfolio is 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. The Company does, however, classify a small portion of the investment portfolio as available for sale. The largest increase during 1997 was in the held to maturity category, which increased by $17.7 million or 12.3%. In the first quarter of 1997, to better position the balance sheet for a potential downward interest rate shift, the Company purchased longer-term investments funded by shorter-term borrowings primarily through the Federal Home Loan Bank of Boston (FHLB). Additional FHLB stock was purchased to support the Company s increased borrowing activity. This increase is reflected in the other securities category, which increased by $4.6 million. The available for sale portion of the securities decreased by $8.3 million due to maturities. During 1996 the majority of purchases in the investment portfolio were classified as held to maturity. This resulted in an increase in the securities held to maturity of $8.0 million or 6.0% during 1996. The available for sale portion of the portfolio decreased by $7.2 million or 36.2% in the same year due to maturities. Other securities increased by $1.1 million in 1996 due to the purchase of FHLB stock.
Loans.
During 1997, the loan portfolio experienced growth in every category. Loans and loans held for sale in the portfolio totalled $363.1 million at December 31, 1997, a 16.7% increase from total loans of $311.2 million at December 31, 1996. This growth results in a continuation of the loan growth experienced by the Company for the past several years. Residential real estate mortgage loans increased by $1.9 million or 2.0% in 1997. 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. The Company also originates fixed rate residential loans for sale to investors in the secondary market. All of the mortgage loans in the Company s loan portfolio are secured by properties located in Maine. Commercial loans increased by $30.5 million or 20.3% during 1997. Commercial business 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. Thecommercial category also includes commercial real estate loans secured by income producing commercial real estate, service industry real estate, and retail trade real estate. In addition, the Company makes loans for the acquisition, development and construction of commercial real estate. The Company focuses on lending to sound small and medium sized business customers within its geographic marketplace. Consumer loans increased by $9.1 million or 24.5% in 1997. Consumer loans are provided for a wide variety of purposes to meet our customers needs. Consumer loans are originated directly by the Company and include credit card, overdraft protection, automobile, boat, recreation vehicles, mobile homes, home equity, and secured and unsecured personal loans. Non-performing loans, defined as non-accrual loans plus accruing loans 90 days or more past due, totaled $3.6 million or .63% of total loans at December 31, 1997, compared to $2.2 million or .73% of total loans at December 31, 1996. It is the Company s policy to discontinue 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. Delinquent real estate loans are not reclassified as Other Real Estate Owned (OREO) until 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 on the balance sheet 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 $1.3 million, as of December 31, 1997 and 1996, respectively. As a percentage of total loans OREO represented .39% and .42% as of December 31, 1997 and 1996, respectively. Losses arising from the acquisition of such properties are charged against the Allowance for Loan Losses (ALLL). Operating expenses and any subsequent provisions to reduce the carrying value are charged to operations. Gains and losses upon disposition are reflected in earnings as other noninterest income when realized.
Allowance for Loan Losses / Provision for Loan Losses.
In determining the adequacy of the ALLL, management relies primarily on its review of the loan portfolio both to ascertain whether there are probable losses to be charged off, and to assess the loan portfolio in the aggregate. Non-performing loans are examined on an individual basis to determine estimated probable loss. In addition, management considers current and projected loan mix and loan volumes, historical net loan loss experience for each loan category, and current and anticipated economic conditions affecting each loan category. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio. The Company continues to monitor and modify its ALLL as conditions dictate. SFAS No. 114, Accounting by Creditors for Impairment of a Loan, was adopted January 1, 1995. This statement applies to all troubled debt restructurings involving a modification of terms. The adoption of this standard had an immaterial impact on the Company s net income and retained earnings during 1997 and 1996. During 1997 the Company provided $1.7 million for possible loan losses, compared to $838,000 and $899,000 in 1996 and 1995, respectively. During 1997, the increase in the provision was due to the increase in loan volume and was not due to a deterioration of loan quality. Determining an appropriate level of ALLL involves a high degree of judgment. Management believes that the allowance at December 31, 1997 of $5.6 million or 1.55% 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. The ALLL as a percentage of total loans outstanding was 1.44% and 1.43%, in 1996 and 1995, respectively.
LIQUIDITY
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 the credit commitments to borrowers. Due to the potential for unexpected fluctuations in both these areas deposits and loans active management of the Company s liquidity is critical. 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 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, 1997 and 1996, the Company s level of liquidity exceeded its target level. Management believes that the Company s banking subsidiaries currently have adequate liquidity available to respond to both expected and unexpected liquidity demands. Sources of funds utilized by the Company s banking subsidiaries consist of deposits, borrowings from the FHLB of Boston and other sources, cash flows from operations, prepayments and maturities of outstanding loans, investments and mortgage-backed securities, and the sale of mortgage loans. Deposits still represent the Company s primary source of funds. In 1997 total deposits increased by $20.1 million or 5.7% over 1996. This increase in deposits was the result of aggressive marketing of the Company s deposit products. For the same period, transaction accounts (DDA and NOW) increased by $4.8 million or 5.3%, savings accounts increased by $3.1 million or 4.9%, and certificates of deposit increased by $12.9 million or 7.3%. In 1996 total deposits decreased by $16.6 million or 4.5% from 1995. This decrease was primarily in the certificates of deposit accounts, which included broker certificates that decreased by $7.8 million or 85.9%. During 1995, management decided to add approximately $10 million in broker certificates to the deposit base, due to a slowing of deposit growth. Broker certificates totaled $9.1 million at December 31, 1995. However, during 1996 the Company replaced maturing broker certificates with other sources of funding that were more reasonably priced. Other certificates of deposit categories also decreased by $7.1 million or 3.9% during 1996. The Company s remaining deposit categories remained relatively level during 1996. Borrowings provide liquidity in the form of federal funds purchased, securities sold under agreements to repurchase, treasury tax and loan accounts, and borrowings from the FHLB. Total borrowings were $132.4 million at December 31, 1997, compared to $93.8 million at December 31, 1996, an increase of $38.6 million or 41.1%. The increase was necessary to meet funding needs not met by deposits because loans increased by more than deposits did during 1997. The majority of the increase was in borrowings from the Federal Home Loan Bank of Boston. FHLB advances remain the largest nondeposit-related interest-bearing funding source for the Company in 1997. 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.
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 Company s, and its bank subsidiaries , ratios at December 31, 1997 and December 31, 1996 exceeded regulatory guidelines. For actual ratios 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 ratios at December 31, 1997 and 1996 were 10.9% and 11.3%, respectively. As part of the Company s goal to operate a safe, sound, and profitable financial organization, the Company strives to maintain a strong capital base. The Company s shareholders equity totaled $62.6 million and $57.8 million or 10.9% and 11.3% of total assets at December 31, 1997 and 1996, respectively. The $4.7 million or 8.2% increase in shareholders equity was primarily attributable to net income of $9.1 million, less net share repurchases of $1.3 million and $3.1 million in cash dividends. The principal cash requirement of the Company is dividends on common stock when declared. Dividends paid on the Company s common stock in 1997 represented a 36.2% increase over 1996. The Company is primarily dependent upon the payment of cash dividends by Camden National Bank to service its commitments. The Company, as the sole shareholder of Camden National Bank and United Bank, is entitled to the dividend when and as declared by each Bank s Board of Directors, out of funds legally available; therefore, the Company s ability to pay dividends is subject to the powers of the State of Maine and Federal regulators. Camden National Bank declared dividends in the aggregate amount of $4,356,000 and $3,951,000 in 1997 and 1996, respectively. United Bank declared no dividends in 1996 and 1997. As of December 31, 1997, and subject to the limitations and restrictions under applicable law, Camden National Bank and United Bank had funds available for dividends to the Company sufficient to meet its cash requirements, although there is no assurance that dividends will be paid at any time in any amount.
RESULTS OF OPERATIONS
Overview.
The Company reported net income of $9.1 million in 1997, $8.1 million in 1996 and $7.4 million in 1995. Basic earnings per share were $4.02 in 1997, $3.48 in 1996 and $3.16 in 1995. Return on average assets was 1.65% in 1997 compared with 1.65% in 1996, and 1.59% in 1995. Return on average equity was 15.20% in 1997 compared to 14.56% and 14.53% in 1996 and 1995, respectively. The Company experienced an increase in earnings for 1997 of $1.0 million or 12.7%. The improved results were attributable to increases in net interest income. The operating results of the Company depend greatly on its net interest income, which is the difference between interest and dividend income on loans and securities, and interest expense on deposits and borrowings. The Company s results of operations also are affected by the provision for loan losses, resulting from the Company s assessment of the adequacy of the allowance for loans losses, and other noninterest income and expenses. Each of these principal components of the Company s operating results is discussed below.
Net Interest Income.
The Company s primary source of operating income is net interest income. Net interest income, on a fully-taxable equivalent basis was $25.1 million, $22.2 million, and $20.3 million in 1997, 1996 and 1995, respectively. Changes in net interest income are the results of interest rate movements, changes in the amounts and the mix of earning assets and interest-bearing liabilities, and changes in the level of non-earning assets and non-interest-bearing liabilities. Net interest income increased by $2.9 million or 13.2%, on a fully-taxable equivalent basis in 1997 compared to 1996. This increase was due to the increase in loan and investment volumes combined with a slight decrease in loan yields. During 1996 net interest income increased by $1.9 million or 9.4% on a fully-taxable equivalent basis compared to 1995. This increase was primarily due to the increase in loan volume. During 1995 net interest income decreased by $343,000 or 1.7%, on a fully-taxable equivalent basis compared to 1994. This decrease in net interest income was attributable to the fact that the Company s cost of funds (interest on deposits and borrowings), increased faster than the yield on earning assets (loans and securities), because of the Company s decision to pay higher interest rates on deposits during 1995 to meet funding needs. Net interest income, expressed as a percentage of average earning assets, was 4.77% in 1997, 4.79% in 1996, and 4.63% in 1995. The average amount of loans outstanding increased by $37.4 million or 12.5% in 1997 over 1996 and by $18.0 million or 6.4% in 1996 over 1995 which has contributed to the increase in interest income. Interest income on loans increased by $3.4 million in 1997 compared to 1996 and by $2.0 million in 1996 compared to 1995. The weighted average yield on loans increased from 9.88% in 1995 to 9.96% in 1996 and then decreased to 9.84% in 1997. The average amount of non-accrual loans can also affect the average yield earned on all outstanding loans. The average amount of non-accrual loans for 1997, 1996 and 1995 were minimal, and therefore, had an insignificant effect on average loan yield. Interest and dividends on investment securities increased by $2.5 million, on a fully-taxable equivalent basis, in 1997 compared with 1996. This was the result of increases in both volume of securities and rates earned. In 1996, interest and dividends on investment securities increased by $377,000, on a fully-taxable equivalent basis, compared with 1995. The primary reason for the increase was the increased volume. The average balance of investments outstanding increased from $157.8 million in 1995 to $164.7 million in 1996 and then to $191.0 million in 1997. The weighted average yield on investment securities, however, decreased from 6.38% in 1995 to 6.34% in 1996 and then increased to 6.67% in 1997. During 1997 the Company recovered $107,312 of principal and interest on several municipal investments that had previously defaulted and for which a permanent decline had been recognized. The Company also recovered $54,000 and $417,000 of principal and interest on those same investments for 1996 and 1995, respectively. Interest expense on deposits and borrowings increased by $2.8 million or 15.8% in 1997 compared with 1996. This increase was primarily attributable to the increased volume of borrowed funds. Interest expense on deposits and borrowings increased by $494,000 or 2.8% in 1996 compared with 1995. The increase was due to increases in both borrowings and certificates of deposit, and to the increased interest rates paid on these borrowings and certificates of deposit. During 1995 interest rates in general experienced increases that contributed to the increase of $4.7 million or 37.2% in interest expense over 1994. Again, deposit growth was in higher yielding certificates of deposit. This type of growth results in a narrowing of the net interest margin that must be offset by increased yields on earning assets or by a reduction of overhead expenses. The weighted average rate on interest bearing deposits and borrowings decreased from 4.71% in 1995 to 4.62% in 1996 and then increased to 4.67% in 1997. The Company utilizes off-balance sheet instruments such as interest rate swap agreements that have an effect on net interest income. The net result was an offset to gains in net interest income of $11,000 in 1997, an increase of $111,000 in 1996, and an offset to gains in net interest income of $2,000 in 1995. 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 the 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 1997, 1996 and 1995, the Company was a party in several agreements to assume variable market-indexed interest payments in exchange for fixed-rate interest payments (interest-rate swaps). The notional principal amount of interest-rate swaps outstanding was $5 million at December 31, 1997 and $20 million at December 31, 1996 and 1995. During 1997 two swap agreements with notional principal amounts totaling $15 million matured resulting in only one swap with a notional principal of $5 million remaining. The variable rate being paid by the Company on the remaining swap was higher than the rate being paid to the Company, therefore, resulting in a decrease of income. The variable rates being paid by the Company on the swaps decreased during 1996 resulting in an increase in the spread between what the Company was paying (variable rate) and receiving (fixed rate) on these agreements. During 1995 an increase in the variable rates being paid by the Company on the swaps resulted in a narrowing of spread between what the Company was paying and receiving.
Noninterest Income.
Noninterest income was $3.7 million, $3.4 million and $3.5 million for the years ended December 31, 1997, 1996 and 1995, respectively. There was an increase of $339,000 or 9.9% in total noninterest income during 1997. Service charges on deposit accounts increased $36,000 or 4.2% over 1996. Other service charges and fees increased by $222,000 or 15.9% over the same period. The largest contributing factor to this increase was the fee income generated by merchant bankcard assessments. Other income also increased over 1996 by $81,000 or 7.0%. The major contributing factor for this increase was trust fees. Total noninterest income decreased by $133,000 in 1996 compared to 1995. Service charges on deposit accounts declined by $43,000 or 4.7% in 1996 compared to 1995. However, other service charges and fees increased $104,000 or 8.1% in 1996 compared to 1995. The largest contributing factor was credit card assessment fees that increased by $76,000 over 1995. Other income decreased by $194,000. The major contributing factor to this decline was an unusually large investment recovery of $417,000 in 1995 compared to only $54,000 in 1996. However, within the other income category during 1996, trust fees increased $146,000.
Noninterest Expenses.
Noninterest expense was $13.3 million, $12.3 million and $11.7 million for the years ended December 31, 1997, 1996 and 1995, respectively. There was an increase of $956,000 or 7.7% in total noninterest expense during 1997. The largest increase was in salaries and employee benefits which increased $689,000 or 10.9% from $6.3 million in 1996. This increase was the result of normal annual increases, additions to staff and higher pension benefit costs. In addition, a new performance compensation program was introduced to all employees during 1997 which resulted in additional compensation paid over 1996. Salary and employee benefits expense increased by $796,000 or 14.4% in 1996 over 1995. This reflects added staff and normal increases in salary and benefit costs. During 1996 a number of positions were added due to the merger with UnitedCorp. In addition, United Bank employees were added to the defined benefit pension plan. In 1997 and 1996 other operating expenses remained relatively level, with no unusual increases or decreases in any category. During 1995 other operating expenses increased $755,000 or 16.3%. These increased costs were related in part to higher consulting fees, depreciation of equipment, and expenses on or writedowns of OREO properties.
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 and Action Plan
It is anticipated that many computer applications will not operate as intended past the year 1999 without modifications. This potential problem results from the practice of storing data in two-digit format (97) instead of four-digit format (1997). On January 1, 2000, it is possible that some systems with time sensitive software programs will recognize the year as 00 and may incorrectly interpret the year as 1900 . The Company has adopted a plan of action to minimize the risk of the year 2000 event. The plan includes the formation of a Technology Steering Committee to assess, monitor and review vendor compliance and certification and to clearly identify all systems and equipment utilized in the day-to-day operations of the Company. Management believes that the Company is adequately addressing the year 2000 issue and that preparation, coordination and testing is being conducted throughout the organization, thereby minimizing any associated risks to its customers. Management currently believes that the costs related to addressing all year 2000 issues will not have a material impact on future results of operation.
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 the banks 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 1.16% .37% .43% -200bp 2.97% (.12%) .51%
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: the nature and timing of interest rate levels, including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cashflows, and others. 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 ALCO 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 use of these instruments by our bank subsidiaries. As of December 31, 1997 the Company had a notional principal of $5 million in swaps and $20 million in floor contracts outstanding. 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 highly effective. Interest rate floors, caps and swaps are accounted for using the accrual method with an income statement adjustment to interest income or interest expense depending on whether the hedged items are assets or liabilities. The unamortized premiums associated with purchased options contracts (i.e. caps and floors) are presented on the balance sheet along with other prepaid assets. Interest receivable under the cap and floor contracts and interest receivable and payable amounts associated with swap contracts are reflected on the balance sheet along with other interest receivable and payable amounts. Unrealized gains or losses associated with these positions are not recognized in the financial statements. While it is not the Company s practice to unwind derivative hedges prior to their maturity, any recognized gains/losses would be deferred on the balance sheet 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 income statement in the period they occur.
Recent Accounting Pronouncements.
SFAS No. 125 and No. 127 relate to the accounting for transfers and servicing of financial assets and extinguishment of certain liabilities and are effective for years beginning January 1, 1997. The adoption of these standards did not have a material effect on the financial statements. The Financial Accounting Standards Board issued the following statements of accounting standards (SFAS) during 1997: SFAS No. 128 Earnings Per Share SFAS No. 129 Disclosure of Information about Capital Structure SFAS No. 130 Reporting Comprehensive Income SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information
These four statements do not change the measurement or recognition methods used in the financial statements but rather deal with disclosure and presentation requirements. The financial statements for 1997 and all prior periods include the additional disclosure requirements relating to diluted earnings per share which are required under SFAS 128. Financial statement disclosures also comply with SFAS 129, which summarized but does not change the Company s requirements to disclose information about capital structure. SFAS No. 130 and No. 131 are effective for periods beginning after December 15, 1997. Management has not determined the impact of these two pronouncements on the 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 as the Company had maintained an informal market in its stock. The Company elected to repurchase stock for its treasury during 1996 and again 1997 until the October listing on AMEX. Shortly after the listing of the Company s stock on AMEX the price of per share increased to a high of $60.75 per share. Since that date stock has traded in the range of $55.00 to $60.00 per share. In 1995 and 1996, the Company stock traded in the range of $35.00 to $40.00 per share. The Company has paid quarterly dividends since its inception in 1985. The following table summarizes dividends declared for 1996 and 1997: 1996 1997 Increase First Quarter $ 422,025 $ 734,602 $312,577 Second Quarter 585,235 750,462 165,227 Third Quarter 608,640 771,835 163,195 Fourth Quarter 623,000 793,436 170,436 --------- ---------- -------- Total $2,238,900 $3,050,335 $811,435 ========== ========== ========
As of December 31, 1997, there were 2,270,210 shares of Camden National Corporation Stock outstanding, held of record by approximately 825 shareholders.
Camden National Corporation and Subsidiaries
Summary of Financial Performance
[This page contains six bar graphs showing 5 years of the information detailed below:]
Net income Assets (in millions) (in millions)
'97 XXXXXXXXXXXXXXXXXXXXX 9.148 '97 XXXXXXXXXXXXXXXXXXX 573.9 '96 XXXXXXXXXXXXXXXXX 8.115 '96 XXXXXXXXXXXXXXXXX 510.1 '95 XXXXXXXXXXXXXXX 7.403 '95 XXXXXXXXXXXXXXX 480.6 '94 XXXXXXXXXXXXXXXXXX 8.258 '94 XXXXXXXXXXXX 455.6 '93 XXXXXXXXXXXXXX 7.135 '93 XXXXXXXXXX 414.0
Deposits Loans (in millions) (in millions)
'97 XXXXXXXXXXXXXXXXXX 373.4 '97 XXXXXXXXXXXXXXXXXXX 363.1 '96 XXXXXXXXXXXXXXXX 353.2 '96 XXXXXXXXXXXXXXXX 311.2 '95 XXXXXXXXXXXXXXXXX 370.0 '95 XXXXXXXXXXXXXX 283.0 '94 XXXXXXXXXXXXX 340.2 '94 XXXXXXXXXXXX 263.6 '93 XXXXXXXXXXXXXX 343.6 '93 XXXXXXXXX 228.9
Earnings per share Book Value per share (in dollars) (in dollars)
'97 XXXXXXXXXXXXXXXXXXXX 4.02 '97 XXXXXXXXXXXXXXXXXXXXX 27.56 '96 XXXXXXXXXXXXXXXXX 3.48 '96 XXXXXXXXXXXXXXXXXXX 25.16 '95 XXXXXXXXXXXXXXX 3.16 '95 XXXXXXXXXXXXXXXXX 22.88 '94 XXXXXXXXXXXXXXXXXX 3.52 '94 XXXXXXXXXXXXXX 20.57 '93 XXXXXXXXXXXXX 3.05 '93 XXXXXXXXXXX 17.41
Camden National Corporation and Subsidiaries Selected Five-Year Financial Data
(In Thousands, except per share data) December 31, - -------------------------------------------------------------------------- Financial Condition Data 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------- Assets $573,892 $510,078 $480,685 $455,615 $414,044 Loans 363,149 311,246 285,102 265,476 228,909 Allowance for Loan Losses 5,640 4,472 4,080 3,751 4,050 Investments 179,290 163,379 161,332 158,434 160,253 Deposits 373,409 353,240 369,880 340,244 343,643 Borrowings 132,478 93,760 51,980 62,444 26,396 Shareholders' Equity 62,556 57,822 53,680 48,258 40,724
December 31, - -------------------------------------------------------------------------- Operations Data 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------- Interest Income $ 46,051 $ 41,015 $ 38,661 $ 33,958 $ 31,529 Interest Expense 21,229 19,105 18,853 13,766 13,185 -------- -------- -------- -------- -------- Net Interest Income 24,822 21,910 19,808 20,192 18,344 Provision for Loan Losses 1,677 838 899 216 683 Net Interest Income after -------- -------- -------- -------- -------- Provision for Loan Losses 23,145 21,072 18,909 19,976 17,661 Non-interest Income 3,750 3,411 3,544 3,057 2,499 Non-interest Expense 13,294 12,338 11,707 10,581 9,596 Income before Provision -------- -------- -------- -------- -------- for Income Tax 13,601 12,145 10,746 12,452 10,564 Income Tax Expense 4,453 4,030 3,343 3,964 3,429 Accounting Change for Postretirement Benefits - - - 230 - -------- -------- -------- -------- -------- Net Income $ 9,148 $ 8,115 $ 7,403 $ 8,258 $ 7,135 ======== ======== ======== ======== ========
At or For the Year Ended December 31, - --------------------------------------------------------------------------- Other Data 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------- Return on Average Assets 1.65% 1.65% 1.59% 1.90% 1.79% Return on Average Equity 15.20% 14.56% 14.53% 18.56% 19.02% Net Income Per Share $ 4.02 $ 3.48 $ 3.16 $ 3.52 $ 3.05 Dividends Per Share $ 1.34 $ .96 $ .59 $ .45 $ .29 Book Value Per Share $27.56 $25.16 $22.88 $20.57 $17.41 Allowance for Loan Losses to Total Loans 1.55% 1.44% 1.43% 1.42% 1.77% Non-Performing Loans to Total Loans .63% .73% 1.05% 1.08% 0.87%
Camden National Corporation and Subsidiaries Consolidated Statements of Condition
- --------------------------------------------------------------------------- (In Thousands, except number of December 31, shares and per share data) 1997 1996 - --------------------------------------------------------------------------- Assets Cash and due from banks $ 13,451 $ 17,233 Federal funds sold 1,100 2,075 Securities available for sale, at market 4,312 12,647 Securities held to maturity (market value $164,286 and $143,220 at December 31,1997, and 1996, respectively 160,894 143,216 Other securities 14,084 7,516 Residential mortgages held for sale 7,094 2,544 Loans, less allowance for loan losses of $5,640 and $4,472 at December 31, 1997, and 1996, respectively 350,415 304,230 Bank premises and equipment 8,786 8,944 Other real estate owned 1,373 1,264 Interest receivable 3,924 3,920 Other assets 8,459 6,489 -------- -------- Total assets $573,892 $510,078 Liabilities ======== ======== Deposits: Demand $ 51,422 $ 47,749 NOW 42,796 41,715 Money market 23,452 24,076 Savings 66,723 63,597 Certificates of deposit 189,016 176,103 -------- -------- Total deposits 373,409 353,240 Borrowings from Federal Home Loan Bank 98,514 67,051 Other borrowed funds 33,964 26,709 Accrued interest and other liabilities 5,364 5,211 Minority interest in subsidiary 85 45 -------- -------- Total liabilities 511,336 452,256 Commitments (Note 13 & 17) -------- -------- Stockholders' Equity Common stock, no par value; authorized 5,000,000 shares, issued 2,376,080 shares 2,436 2,436 Surplus 1,410 1,226 Retained earnings 62,925 56,827 Net unrealized appreciation on securities available for sale, net of income tax 5 32 -------- -------- 66,776 60,521 Less cost of 105,870 and 77,448 shares of treasury stock on December 31, 1997 and 1996 4,220 2,699
-------- -------- Total stockholders' equity 62,556 57,822 -------- -------- Total liabilities and stockholders' equity $573,892 $510,078 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Camden National Corporation and Subsidiaries Consolidated Statements of Income
- ----------------------------------------------------------------------------- (In Thousands, except number Year Ended December 31, of shares and per share data) 1997 1996 1995 - ----------------------------------------------------------------------------- Interest Income Interest and fees on loans $32,845 $29,483 $27,439 Interest on US Government and agency obligations 11,710 9,321 8,810 Interest on state and political subdivisions 245 338 478 Interest on interest rate swap agreements 410 1,251 1,380 Interest on federal funds sold and other investments 841 622 554 ------- ------- ------- Total interest income 46,051 41,015 38,661 ------- ------- ------- Interest Expense Interest on deposits 13,484 13,982 13,743 Interest on other borrowings 7,324 3,983 3,728 Interest on interest rate swap agreements 421 1,140 1,382 ------- ------- ------- Total interest expense 21,229 19,105 18,853 ------- ------- ------- Net interest income 24,822 21,910 19,808
Provision for Loan Losses 1,677 838 899 Net interest income after provision ------- ------- ------- for loan losses 23,145 21,072 18,909 ------- ------- ------- Other Income Service charges on deposit accounts 901 865 908 Other service charges and fees 1,614 1,392 1,288 Merchant assessments 1,113 871 795 Other income 122 283 553 ------- ------- ------- Total other income 3,750 3,411 3,544 ------- ------- ------- 26,895 24,483 22,453 Operating Expenses ------- ------- ------- Salaries and employee benefits 6,992 6,303 5,507 Net occupancy 856 736 815 Furniture, equipment and data processing 1,294 1,254 1,215 Other 4,152 4,045 4,170 ------- ------ ------- Total operating expenses 13,294 12,338 11,707 Income before income taxes and cumulative ------- ------- ------- effect of accounting change 13,601 12,145 10,746 Income Taxes 4,453 4,030 3,343 ------- ------- ------- Net Income $9,148 $ 8,115 $ 7,403 ======= ======= ======= Per Share Data Basic earnings per share $ 4.02 $ 3.48 $ 3.16 Diluted earnings per share 3.93 3.43 3.10 Weighted average number of shares outstanding 2,273,584 2,329,989 2,345,774
The accompanying notes are an integral part of these consolidated financial statements.
Camden National Corporation and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1997, 1996 and 1995 - ----------------------------------------------------------------------------- (In Thousands, except number of shares and per share data) - ----------------------------------------------------------------------------- Net Unrealized Appreciation on Total Securities Stock- Common Retained Available Treasury holders' Stock Surplus Earnings For Sale Stock Equity Balance at January 1, 1995 $2,436 $1,208 $44,922 $137 $ (445) $48,258 Net income for 1995 - - 7,403 - - 7,403 Change in unrealized gains (losses) on securities available for sale, net of tax benefit of $16 - - - (33) - (33) Purchase of treasury stock (25,200 shares) - - - - (937) (937) Sale of treasury stock (20,629 shares) - 25 - - 338 363 Retirement of treasury stock (322 shares) - (7) - - 7 - Cash dividends ($.59/share) - - (1,374) - - (1,374) ------ ------ ------- ----- ------ ------- Balance at December 31, 1995 $2,436 $1,226 $50,951 $ 104 $(1,037) $53,680
Net income for 1996 - - 8,115 - - 8,115 Change in unrealized gains (losses) on securities available for sale, net of tax benefit of $37 - - - (72) - (72) Purchase of treasury stock (47,261 shares) - - - - (1,712) (1,712) Sale of treasury stock (1,334 shares) - - - - 50 50 Cash dividends ($.96/share) - - (2,239) - - (2,239) ------ ------ ------- ----- ------ ------- Balance at December 31, 1996 $2,436 $1,226 $56,827 $ 32 $(2,699) $57,822
Net income for 1997 - - 9,148 - - 9,148 Change in unrealized gains (losses) on securities available for sale, net of tax benefit of $14 - - - (27) - (27) Purchase of treasury stock (33,474 shares) - - - - (1,337) (1,337) Sale of treasury stock (5,052 shares) - 184 - - (184) - Cash dividends ($1.34/share) - - (3,050) - - (3,050) ------ ------ ------- ----- ------ ------- Balance at December 31, 1997 $2,436 $1,410 $62,925 $ 5 $(4,220) $62,556 ====== ====== ======= ===== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. Camden National Corporation and Subsidiaries Consolidated Statements of Cash Flows
Year Ended December 31, - ------------------------------------------------------------------------------ (In Thousands) 1997 1996 1995 - ------------------------------------------------------------------------------ Operating Activities Net Income $ 9,148 $ 8,115 $ 7,403 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,677 838 899 Depreciation and amortization 708 1,016 801 Decrease (increase) in interest receivable (4) 332 101 Increase in other assets (1,844) (55) (1,596) Increase in other liabilities 167 193 508 Sale of residential mortgage loans held for sale 2,531 1,505 6,784 Origination of mortgage loans held for sale (7,081) (1,966) (6,976) Loss on disposal of assets - 82 - Other, net - 5 (29) -------- -------- -------- Net cash provided by operating activities 5,302 10,065 7,895 Investing Activities -------- -------- -------- Proceeds from sale and maturities of securities held to maturity 46,062 32,252 29,639 Proceeds from sale and maturities of securities available for sale 8,300 9,400 473 Purchase of securities to be held to maturity (63,620) (40,332) (28,104) Purchase of securities available for sale - (2,301) (2,308) Purchased of Federal Home Loan Bank Stock (6,568) (1,157) (2,181) Increase in loans (47,862) (26,129) (20,246) Net (increase) decrease in other real estate (109) (178) 520 Purchase of premises and equipment (802) (1,572) (1,988) Proceeds from sale of premises and equipment - 9 - Decrease (increase) in minority position 40 (44) (28) Net sale (purchase) of federal funds 975 (375) (1,700) -------- -------- -------- Net cash used by investing activities (63,584) (30,427) (25,923) Financing Activities -------- -------- -------- Net increase (decrease) in demand deposits, NOW accounts, money markets and savings account 7,256 (1,658) (9,851) Net (decrease)increase in certificates of deposit 12,913 (14,982) 39,487 Net increase (decrease) in short-term borrowings 38,718 41,780 (10,454) Reduction in long-term debt - - (9) Purchase of treasury stock (1,337) (1,712) (937) Sale of treasury stock - 50 363 Cash dividends (3,050) (2,239) (1,374) -------- -------- -------- Net cash provided by financing activities 54,500 21,239 17,225 ------- ------- ------- (Decrease) increase in cash and equivalents (3,782) 877 (803) Cash and cash equivalents at beginning of year 17,233 16,356 17,159 -------- -------- -------- Cash and cash equivalents at end of year $ 13,451 $ 17,233 $ 16,356 ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for: Interest paid $ 20,919 $ 19,270 $ 17,615 Income tax paid 4,907 3,599 3,369 Non-Cash transactions: Transfer from loans to real estate owned 1,035 1,333 974 Transfer of securities from held to maturity to available for sale - - 11,175 Sale of Treasury stock from exercised stock options 184 - -
The accompanying notes are an integral part of these consolidated financial statements.
[Pages 20 - 37 Notes to Financial Statements]
Notes to Consolidated Financial Statements December 31, 1997, 1996 and 1995
NATURE OF OPERATIONS.
Camden National Corporation (the Company ) is a multi-bank and financial services holding company. The Company s bank subsidiaries, both of which are wholly owned, are Camden National Bank, a national banking organization, based in Camden, Maine, and United Bank, a banking organization chartered under the laws of the State of Maine, based in Bangor, Maine. The Company also has one non-bank subsidiary, Trust Company of Maine, Inc., which provides trust and retirement management services throughout the central and mid-coast Maine area.
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 and United Bank, and its majority-owned subsidiary, Trust Company of Maine, Inc. Trust Company of Maine, Inc. s financial statements include its wholly-owned subsidiary,Fiduciary Services, 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 requires that the Company maintain certain amounts of cash on deposit and is restricted 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 FDIC. For the statement of cash flows, cash equivalents include interest bearing deposits in 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 stockholders 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 to be 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 noninterest income. These activities, together with underwriting residential mortgage loans, comprise the Company s mortgage banking business.
Loan Servicing. SFAS 125, "Accounting for transfers and servicing of financial assets and extinguishments of liabilities," was adopted at January 1, 1997. The impact of adopting SFAS 125 was immaterial to the financial statements. 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. The amortized cost approximates fair value at December 31, 1997.
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 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.
SFAS No. 114 Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118, was adopted January 1, 1995. This statement applies to all troubled debt restructurings involving a modification of terms. The adoption of this standard had no impact on net income and retained earnings. Under this standard, 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 a period of fifteen years using the straight-line method. Other intangible assets including goodwill and recapitalization 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 softwares.
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 that generally do not have fixed maturity dates. Securities sold under agreements to repurchase generally mature within thirty days.
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 a voluntary savings plan for the benefit of its employees 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.
Income Taxes. Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Principal timing differences include pension and other postretirement benefits, depreciation, and provision for loan losses.
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.
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 in 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 cash equivalents, including cash and due from banks and federal funds sold: The carrying amounts of cash and equivalents approximates their fair value.
Investment securities and securities available for sale: 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.
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: The carrying amount of interest receivable approximates fair value.
Off-balance sheet instruments: Fair values for interest rate swaps and floor and cap contracts are based on quoted market prices. Fair value of commitments to extend credit has not been presented as the future revenue derived from such commitments is not significant.
Deposits: The fair value of demand 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.
Short-term borrowings: The carrying amounts of borrowings from the Federal Home Loan Bank, under repurchase agreements and other short-term borrowings, approximates fair value.
Effect of New Financial Accounting Standards. During 1997, the Company adopted SFAS No. 125 and No. 127, which relate to the accounting for transfer and servicing of financial assets and extinguishment of certain liabilities. The adoption of these standards did not have a material effect of the financial statements. The Financial Accounting Standards Board issued the following statements of accounting standards (SFAS) during 1997: SFAS No. 128 Earnings per Share SFAS No. 129 Disclosure of Information about Capital Structure SFAS No. 130 Reporting Comprehensive Income SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information These four statements do not change the measurement or recognition methods used in the financial statements but rather deal with disclosure and presentation requirements. The financial statements for 1997 and all prior periods include the additional disclosure requirements relating to diluted earnings per share which are required under SFAS No. 128. Financial statement disclosures also comply with SFAS No. 129, which summarized but does not change the Company s requirements to disclose information about capital structure. SFAS No. 130 and No. 131 are effective for periods beginning after December 15, 1997. Management has not determined the impact of these two pronouncements on the financial statements.
Reclassification. Certain items from the prior year were restated to conform with current year presentation.
2. MERGER
On December 31, 1995, UnitedCorp was merged into the Company. The merger was accounted for under the pooling-of-interests method. At December 31, 1995, UnitedCorp had total assets of $61,440,000 and total shareholders equity of $4,918,900. The Company exchanged approximately 162,000 shares of its common stock for approximately 190,000 shares of UnitedCorp. Under the pooling-of-interest method, the recorded amounts of assets and liabilities of the Company and UnitedCorp 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 year ended December 31, 1995.
Net Income UnitedCorp $ 540 Camden National Corporation 6,863 ------
Combined $7,403 ====== Earnings per share UnitedCorp $2.83 Camden National Corporation 3.14 Combined 3.16
Dividends per share UnitedCorp $ .18 Camden National Corporation .61 Combined .59
3. INVESTMENT SECURITIES
The following tables summarize the amortized costs and market values of securities available for sale and held to maturity: December 31, 1997 - ------------------------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ------------------------------------------------------------------- Available for sale U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 4,304 $ 15 $ (7) $ 4,312 ======== ====== ======== =======
Held to maturity U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 48,566 $ 131 $(346) $ 48,351 Obligations of states and political subdivisions 2,955 30 (1) 2,984 Mortgage-backed securities 109,373 3,624 (46) 112,951 -------- ------ ------ -------- Total held to maturity $160,894 $3,785 $(393) $164,286 ======== ====== ====== ========
December 31, 1996 - ------------------------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ------------------------------------------------------------------- Available for sale U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 12,597 $ 56 $ (37) $ 12,616 Obligations of states and political subdivisions _ 31 _ 31 -------- ------- -------- --------- Total available for sale $ 12,597 $ 87 $ (37) $ 12,647 ========= ======= ======== =========
Held to maturity U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 58,433 $ 181 $ (862) $ 57,752 Obligations of states and political subdivisions 5,524 44 (12) 5,556 Mortgage-backed securities 79,259 1,301 (648) 79,912 --------- ------- --------- -------- Total held to maturity $143,216 $1,526 $(1,522) $143,220 ========= ====== ======== ========
The amortized cost and fair values of debt securities by contractual maturity at December 31, 1997, 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 $ 2,302 $ 2,304 Due after one year through five years 2,002 2,008 ---------- --------- $ 4,304 $ 4,312 ========== ==========
Amortized Fair Cost Value - ------------------------------------------------------------------- Held to maturity Due in one year or less $ 32,657 $ 32,343 Due after one year through five years 26,862 27,004 Due after five years through ten years 8,374 8,543 Due after ten years 93,001 96,396 --------- --------- $160,894 $164,286 ========= =========
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.
There were no sales in available for sale or held to maturity portfolios during 1997 and 1996. At December 31, 1997, securities with a book value of $36.5 million and a fair value of $37.2 million were pledged to secure public deposits and securities sold under agreements to repurchase and other purposes required or permitted by law. Other securities include Federal Home Loan Bank and Federal Reserve Bank stock owned by the Company as part of their relationship with these institutions.
4. LOANS
The composition of the Company s loan portfolio at December 31 was as follows: 1997 1996 - ------------------------------------------------------------------ Commercial loans $180,327 $149,838 Residential real estate loans 118,603 116,682 Consumer loans 46,178 37,091 Municipal loans 10,324 5,578 Other loans 1,226 130 -------- -------- Total loans 356,658 309,319 Less deferred loan fees net of cost 603 617 Less allowance for loan losses 5,640 4,472 -------- -------- $350,415 $304,230 ======== ========
The Company s lending activities are conducted in mid-coast and central Maine. The Company grants single family and multi-family residential loans, commercial real estate loans, business and a variety of consumer loans. In addition, the Company grants 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, 1997 and 1996, nonaccrual loans were $1,215,000 and $1,674,000, respectively. Interest foregone was approximately $147,000, $178,000 and $207,000 for 1997, 1996 and 1995, respectively.
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows: December 31, - ------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------- Beginning Balance $ 4,472 $ 4,080 $ 3,751 Provision for loan losses 1,677 838 899 Recoveries 583 210 289 Loans charged off (1,092) (656) (859) ------- ------- ------- Net charge offs (509) (446) (570) ------- ------- ------- Ending Balance $ 5,640 $ 4,472 $ 4,080 ======= ======= =======
Information regarding impaired loans is as follows: December 31, - ------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------- Average investment in impaired loans $1,520 $1,864 $1,505 Interest income recognized on impaired loans, all on cash basis 64 220 36 Balance of impaired loans 1,215 1,674 1,785 Less portion for which no allowance for loan losses is allocated _ _ _ Portion of impaired loan balance for which an allowance for credit losses is allocated 1,215 1,674 1,785 Portion of allowance for loan losses allocated to the impaired loan balance 223 340 267
6. 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 guarantee fee paid to Freddie Mac, is less than the interest rate the Company receives from the borrower. The difference is retained by the Company as a fee for servicing the residential real estate mortgages. As required by SFAS No. 125, the Company capitalizes mortgage servicing rights at their fair value upon sale of the related loans. The Company s activity in the secondary market was minimal during 1997. Therefore, capitalized servicing rights were not material.
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 $41,617,228, $45,913,503 and $52,006,411 at December 31, 1997, 1996 and 1995, respectively.
Custodial escrow balances maintained in connection with the foregoing loan servicing, and included in demand deposits, were $86,680 and $98,541 at December 31, 1997 and 1996, respectively.
7. BANK PREMISES AND EQUIPMENT
Details of premises and equipment, at cost, at December 31 were as follows: 1997 1996 - ------------------------------------------------------------------- Land and buildings $ 8,193 $ 7,485 Furniture, fixtures and equipment 7,112 6,524 Leasehold improvements 401 401 Construction in process 30 531 ------- ------ 15,736 14,941 Less: Accumulated depreciation and amortization 6,950 5,997 ------- ------ $ 8,786 $ 8,944 ======= =======
Depreciation expense was $1.1 million, $1.0 million and $.9 million for 1997, 1996 and 1995, respectively.
8. OTHER REAL ESTATE OWNED
The transactions in other real estate owned for the years ended December 31 were as follows: 1997 1996 - ------------------------------------------------------------------ Beginning balance $1,264 $1,086 Additions 1,035 1,333 Properties sold 850 912 Writedowns 76 243 ------ ------ Ending balance $1,373 $1,264 ====== ======
9. DEPOSITS
The aggregate amount of certificates of deposit, each with a minimum denomination of $100,000, was approximately $32,094,000 and $24,514,000 in 1997 and 1996, respectively. Certificates of deposit included brokered deposits in the amount of $131,000 and $1,282,000 at December 31, 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities of certificates of deposit are as follows:
1998 $148,324 1999 27,868 2000 7,174 2001 2,739 2002 2,587 Thereafter 324 -------- $189,016 ========
10. BORROWINGS FROM FEDERAL HOME LOAN BANK
A summary of the borrowings from the Federal Home Loan Bank (FHLB) of Boston is as follows:
December 31, 1997 - ------------------------------------------------------------------- Principal Amounts Interest Rates Maturity Date - ------------------------------------------------------------------- $98,236 5.59% - 7.05% 1998 278 6.58% 1999 -------- $98,514 ========
December 31, 1996 - ------------------------------------------------------------------- Principal Amounts Interest Rates Maturity Date - ------------------------------------------------------------------- $66,620 5.38% - 7.32% 1997 431 6.58% 1999 ------- $67,051 ========
Short and long-term borrowings from the FHLB consist of both fixed and adjustable rate borrowings and are collateralized by all stock in the FHLB and qualifying first mortgage loans up to the amount of the advance outstanding. The Company, through its banking subsidiaries, has an available line of credit with FHLB of $10.2 million and $9.2 million at December 31, 1997 and 1996, respectively. The Company had $8.4 million and $.9 million outstanding at December 31, 1997 and 1996, respectively.
11. EMPLOYEE RETIREMENT PLANS
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.
Net periodic pension cost for these plans includes the following components:
1997 1996 1995 - ------------------------------------------------------------------- Service Cost Qualified plan $ 318 $ 280 $ 136 Supplemental plan 86 72 37 Interest cost Qualified plan 224 194 169 Supplemental plan 93 64 56 Return on plan assets (188) (153) (152) Net amortization and deferral Qualified plan (14) (9) (13) Supplemental plan 52 39 31 ------ ------ ------ Net periodic pension cost $ 571 $ 487 $ 264 ====== ====== ======
The funded status of the plan and amounts recognized in the balance sheets at December 31 are as follows:
QUALIFIED PLAN 1997 1996 - ------------------------------------------------------------------- Actuarial present value of projected benefit obligation: Vested $ 2,100 $ 1,759 Nonvested 100 93 -------- -------- Accumulated benefits obligation 2,200 1,852 Effect of future compensation 1,300 1,164 -------- -------- Projected benefit obligation 3,500 3,016 Plan assets at fair value (2,750) (2,272) -------- -------- Unfunded excess of projected obligation over plan assets 750 744 Unrecognized transition asset 115 123 Unrecognized net loss (232) (322) Unrecognized net transition obligation 80 88 -------- -------- Pension liability included in accrued other liabilities $ 713 $ 633 ======== ======== The following assumptions were used: Discount rate 7.5% 7.5% Increase in compensation 6.0% 6.0%
The expected long-term rate of return on assets was 7.5% for 1997, 1996 and 1995.
SUPPLEMENTAL PLAN 1997 1996 - ------------------------------------------------------------------- Actuarial present value of projected benefit obligation: Vested $ 919 $ 502 Nonvested 40 52 -------- -------- Accumulated benefits obligation 959 654 Effect of future compensation 468 38 -------- -------- Projected benefit obligation 1,427 992 Plan assets at fair value - - -------- -------- Unfunded excess of projected obligation over plan assets 1,427 992 Unrecognized transition obligation (251) (182) Unrecognized net loss (429) (281) -------- -------- Pension liability included in accrued other liabilities $ 747 $ 529 ======== ======== The following assumptions were used: Discount rate 7.5% 7.5% Increase in compensation 6.0% 6.0%
12. POSTRETIREMENT BENEFITS
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.
Net periodic postretirement benefit cost includes the following components: 1997 1996 - ------------------------------------------------------------------ Service cost of benefits earned $ 19 $ 20 Interest cost on accumulated postretirement benefit obligation 23 22 Amortization of prior service cost (16) (16) ----- ----- Net periodic postretirement benefit cost $ 26 $ 26 ===== =====
The amounts recognized in the Company s balance sheets at December 31, are: 1997 1996 - ------------------------------------------------------------------ Accumulated Postretirement Benefit Obligation Retirees $ 97 $ 74 Fully eligible active plan participants 48 88 Other active plan participants 211 153 ---- ---- 356 315 Unrecognized transition asset 142 158 Unrecognized loss (12) - ---- ---- Accrued post-retirement benefit cost included in other liabilities $486 $473 ==== ====
Benefit costs were generally estimated assuming retiree health care cost would initially increase at a 7.5% annual rate, decrease gradually to a 6% annual growth rate after 8 years, and remain at a 6% annual growth rate thereafter. The discount rate used at December 31, 1997 and 1996, to estimate the accumulated postretirement benefit obligation was 7.5%. A 1% increase in the assumed health care cost trend rate would not have a material impact on the accumulated postretirement benefit obligation due to a built-in cap on annual benefits.
13. BRANCH ACQUISITIONS
Camden National Corporation s subsidiary, Camden National Bank, has entered into a definitive agreement to purchase four branches in mid-coast Maine. The expected deposit premium to be paid will approximate $5 million.
14. STOCKHOLDERS 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 a fixed stock option plan accounted for under APB Opinion 25 and related interpretations. The plan allows the Company to grant options to employees for up to 140,000 shares of common stock. The options are immediately vested when granted, and expire ten years from the date the option is granted. The exercise price of each option equals the market price of the Company s stock on the date of grant. Accordingly, no compensation cost has been recognized for the plan. Had compensation cost for the plan 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 1996 net income and earnings per share would have been reduced to the pro forma amounts indicated on the next page. In 1997, no options were granted, thus pro forma amounts are the same as reported.
Earnings per Share Net Income Basic Diluted - ------------------------------------------------------------------- As reported $9,148 $4.02 $3.93 Pro forma 9,148 4.02 3.93
As reported $8,115 $3.48 $3.43 Pro forma 7,949 3.41 3.36
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 1996: dividend yield of 2.6%, expected volatility of 5%, risk-free interest rate of 6.5%, and expected lives of 10 years.
A summary of the status of the company s fixed stock option plan as of December 31, 1997 and 1996, and changes during the years ending on those dates is presented below.
1997 1996 - -------------------------------------------------------------------------- Number Weighted Average Number Weighted Average Of Shares Exercise Price Of Shares Exercise Price - -------------------------------------------------------------------------- Outstanding at beginning of year 95,758 $22.96 68,508 $17.38 Granted during the year - - 27,250 37.00 Exercised during the year 9,258 18.21 0 - ------ ----- ------- ------ Outstanding and exercisable at end of year 86,500 23.47 95,758 22.96 ====== ===== ======= ===== Weighted-average fair value of options granted during the year N/A $9.25
The following information applies to options outstanding at December 31, 1997.
Number outstanding 86,500 Range of exercise prices $17.50 - $37.00 Weighted-average exercise price $23.47 Weighted-average remaining contractual life 6.92 years
15. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share: 1997 1996 1995 - ---------------------------------------------------------------------- Net income, as reported $9,148 $8,115 $7,403 Weighted-average shares 2,273,584 2,329,989 2,345,774 Effect of dilutive securities: Employee stock options 51,642 37,900 38,531 Dilutive potential common shares Adjusted weighted-average shares and assumed conversion 2,325,226 2,329,989 2,384,305 Basic earnings per share $ 4.02 $ 3.48 $ 3.16 Diluted earnings per share $ 3.93 $ 3.43 $ 3.10
16. INCOME TAXES
The current and deferred components of income tax expense were as follows: 1997 1996 1995 - ---------------------------------------------------------------------- Current: Federal $4,948 $4,024 $3,336 State 181 121 112 ------ ------ ----- 5,129 4,145 3,448 Deferred: Federal (676) (115) (105) ------- ------ ------ $4,453 $4,030 $3,343 ====== ====== ======
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:
1997 1996 1995 - ---------------------------------------------------------------------- Computed tax expense $4,625 $4,151 $3,654 Increase (reduction) in income taxes resulting from: Tax exempt Income (222) (209) (234) State taxes, net of federal benefit 120 79 74 Compensation expense from stock options exercised (20) - (134) Other (50) 9 (17) ------ ------ ------ $4,453 $4,030 $3,343 ====== ====== ======
Items which give rise to deferred income tax assets and liabilities and the tax effect of each are as follows:
1997 1996 - ---------------------------------------------------------------------------- Asset Liability Asset Liability - ---------------------------------------------------------------------------- Allowance for possible losses on loans $1,682 $ - $1,206 $ - Allowance for investment losses 90 - 110 - Capitalized costs - 72 - 14 Pension and other benefits 671 - 463 - Depreciation - 141 - 143 Deferred loan origination fees 6 - 9 - Deferred compensation and benefits 83 - 140 - Unrealized appreciation of investments available for sale - 3 - 17 Unrealized appreciation in loans held for sale 22 - - 5 Valuation of other real estate owned 41 - 48 - Interest receivable 37 - 40 - Other 136 - 61 - ------ ------ ------ ----- $2,768 $ 216 $2,077 $ 179 ====== ====== ====== =====
The related income taxes have been calculated using a rate of 34%. No valuation allowance is deemed necessary for the deferred tax asset, which is included in other assets.
17. RELATED PARTIES
In the ordinary course of business, the Company has granted 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: 1997 1996 - --------------------------------------------------------------- Balance, January 1, $ 7,710 $ 9,058 Loans made/advanced and additions 9,505 7,188 Repayments and reductions 2,961 8,536 -------- ------- Balance, December 31 $ 14,254 $ 7,710 ======== =======
In addition to the loans noted above, the Company had deposits at December 31, 1997 to the same individuals of $6.3 million outstanding.
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 balance sheets. 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 statement 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 as hedges 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, 1997, the Company had $5 million (notional principal amount) in interest-rate swaps, and $20 million in floor contracts. The Company s interest-rate swap matures in 1998. The two floor contracts ($10 million each) have a strike rate of 5%, and both mature in 1999.
1997 1996 - ------------------------------------------------------------------- Commitments to extend credit $80,043 $63,138 Letters of credit 1,911 924 Swaps 5,000 20,000 Floors 20,000 20,000 Caps 0 15,000
The estimated fair values of the Company s financial instruments were as follows:
December 31, 1997 December 31, 1996 - ------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value - ------------------------------------------------------------------- Financial assets: Cash and cash equivalents, including cash and due from banks and federal funds sold $ 14,551 $ 14,551 $ 19,308 $ 19,308 Securities available for sale 4,312 4,312 12,647 12,647 Securities held to maturity 160,894 164,286 143,216 143,220 Other investments 14,084 14,084 7,516 7,516 Loans held for sale 7,094 7,094 2,544 2,544 Loans receivable 350,415 347,681 304,230 302,000 Interest receivable 3,924 3,924 3,920 3,920 Financial liabilities: Deposits 373,409 373,898 353,240 353,826 Borrowings from Federal Home Loan Bank 98,514 98,502 67,051 67,074 Other borrowed funds 33,964 33,964 26,709 26,709
The estimated fair values of the Bank's off-balance sheet instruments were as follows:
December 31, 1997 - ---------------------------------------------------------------------- Market Value Notional Contract Maturity Including Principal Date Date Accruals - ---------------------------------------------------------------------- Interest Rate Swaps $ 5,000 09-Feb-94 09-Feb-98 $ (57) -------- ----- $ 5,000 $ (57) ======== =====
Interest Rate Floors $ 10,000 03-Jun-94 03-Jun-99 $ 8 10,000 13-Sep-94 13-Sep-99 10 ------- ------ $ 20,000 $ 18 ======= ======
December 31, 1996 - ---------------------------------------------------------------------- Market Value Notional Contract Maturity Including Principal Date Date Accruals - ---------------------------------------------------------------------- Interest Rate Swaps $10,000 24-Jan-92 24-Jan-97 $ (49) 5,000 09-Feb-94 09-Feb-98 (34) 5,000 04-May-94 04-May-97 (18) -------- ----- $20,000 $(101) ======== =====
Interest Rate Floors $10,000 03-Jun-94 03-Jun-99 $ 28 10,000 13-Sep-94 13-Sep-99 23 ------- ----- $20,000 $ 51 ======= =====
Interest Rate Caps $10,000 30-May-95 30-May-97 $ 0 5,000 06-Jun-95 06-Jun-97 0 ------- ----- $15,000 $ 0 ======= =====
19. REGULATORY MATTERS
The Company, and its bank subsidiaries, are subject to various regulatory capital requirements administered by the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulations that, if undertaken, could have direct material affect on the Bank 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 (set forth in the table below) 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, 1997, the Company meets all capital requirements to which it is subject.
As of December 31, 1997, both bank subsidiaries were categorized by their 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 category.
The Company's actual capital amounts and ratios are also presented in the table. To Be Well Capitalized For Capital Under Prompt Corrective Actual Adequacy Purposes Action Provisions - --------------------------------------------------------------------------- Amount Ratio Amount> Ratio> Amount> Ratio> - --------------------------------------------------------------------------- As of December 31, 1997 Total Capital (To Risk Weighted Assets): Consolidated $66,606 19.5% $27,354 8.0% N/A Camden National Bank 57,799 20.2% 22,841 8.0% $28,551 10.0% United Bank 6,820 12.1% 4,517 8.0% 5,646 10.0%
Tier I Capital (To Risk Weighted Assets): Consolidated $62,332 18.2% $13,677 4.0% N/A Camden National Bank 54,230 19.0% 11,420 4.0% $17,130 6.0% United Bank 6,114 10.8% 2,258 4.0% 3,388 6.0%
Tier I Capital (To Average Assets): Consolidated $62,332 10.6% $23,483 4.0% N/A Camden National Bank 54,230 11.2% 19,401 4.0% $24,251 5.0% United Bank 6,114 8.3% 2,953 4.0% 3,691 5.0%
As of December 31, 1996 Total Capital (To Risk Weighted Assets): Consolidated $61,320 20.4% $23,996 8.0% N/A Camden National Bank 55,277 22.0% 20,126 8.0% $25,157 10.0% United Bank 5,723 11.8% 3,874 8.0% 4,843 10.0%
Tier I Capital (To Risk Weighted Assets): Consolidated $57,571 19.2% $11,998 4.0% N/A Camden National Bank 52,156 20.7% 10,063 4.0% $15,094 6.0% United Bank 5,123 10.6% 1,937 4.0% 2,906 6.0%
Tier I Capital (To Average Assets):
Consolidated $57,571 11.7% $19,707 4.0% N/A Camden National Bank 52,156 12.1% 17,184 4.0% $21,480 5.0% United Bank 5,123 8.2% 2,511 4.0% 3,139 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 1997 1996 - ------------------------------------------------------------------ Assets Cash $ 170 $ 12 Fixed assets 1,675 0 Investment in subsidiaries: Banking subsidiaries 60,569 57,519 Other subsidiaries 89 102 Amounts receivable from subsidiaries 46 130 Goodwill 56 59 Other assets 169 0 ------- ------- Total assets $62,774 $57,822 ======= ======= Liabilities & Stockholders Equity Amounts due to subsidiaries $ 40 $ 0 Accrued expenses 178 0 Stockholders equity 62,556 57,822 ------- ------- Total liabilities and stockholders equity $62,774 $57,822 ======== =======
Statements of Income For Years Ended December 31 1997 1996 1995 Operating Income Dividend income from subsidiaries $4,387 $3,951 $1,928 Fees from subsidiaries 2,956 77 - ------ ------ ------ Total operating income 7,343 4,028 1,928 ------ ------ ------
Operating Expenses Salaries and employee benefits 1,625 - - Net occupancy156++ Furniture, equipment,and data processing 612 - - Other operating expenses 607 77 195 ------ ----- ----- Total operating expenses 3,000 77 195 ------ ----- ----- Income before equity in undistributed earnings of subsidiaries 4,343 3,951 1,733
Equity in undistributed earnings of subsidiaries 4,761 4,164 5,483 ------ ----- ----- Net income before tax 9,104 8,115 7,216 Income tax benefit 44 - 187 ------ ----- ----- Net Income $9,148 $8,115 $7,403 ====== ====== ======
Statements of Cash Flows For Years Ended December 31
1997 1996 1995 - ----------------------------------------------------------------- Operating Activities Net income $ 9,148 $ 8,115 $ 7,403 Adjustments to reconcile net earnings to net cash provided by operating activities: Undistributed net income from subsidiaries (4,761) (4,164) (5,483) Depreciation and amortization 197 0 0 Amortization of goodwill 3 4 5 Decrease in amount receivable from subsidiaries 84 (77) 26 Increase in other assets (169) 0 0 (Decrease) increase in payables 232 (25) 22 Other 11 0 0 ------ ------ ----- Net cash provided by operating activities 4,745 3,853 1,973 ------ ----- ----- Investing Activities Investment in Trust Company of Maine, Inc. (51) 0 0
Purchase of premises and equipment (149) 0 0 ----- ----- ----- Net cash used in investing activities (200) 0 0 Financing Activities Proceeds from sale of treasury stock 0 50 363 Purchase of treasury stock (1,337) (1,712) (937) Dividends paid (3,050) (2,239) (1,396) ------ ------ ------ Net cash used in financing activities (4,387) (3,901) (1,970) ------ ------ ------ Net (decrease) increase in cash and cash equivalents 158 (48) 3 Cash and cash equivalents at beginning of year 12 60 57 ---- ----- ----- Cash and cash equivalents at end of year $ 170 $ 12 $ 60 ====== ======= =====
21. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 1997 and 1996:
THREE MONTHS ENDED - ------------------------------------------------------------------- Mar 31 June 30 Sept 30 Dec 31 - ------------------------------------------------------------------- Interest income $10,722 $11,329 $11,566 $12,434 Interest expense 4,934 5,473 5,467 5,355 Net interest income 5,788 5,856 6,099 7,079 Provision for loan losses 287 285 385 720 Income before income taxes 3,145 3,525 3,481 3,450 Applicable income taxes 1,056 1,195 1,166 1,036 Net income 2,089 2,330 2,315 2,414 Per common share: Primary .91 1.03 1.02 1.06 Fully diluted .90 1.01 1.00 1.02
THREE MONTHS ENDED - ------------------------------------------------------------------- Mar 31 June 30 Sept 30 Dec 31 - ------------------------------------------------------------------- Interest income $9,721 $9,909 $10,391 $10,994 Interest expense 4,709 4,758 4,948 4,690 Net interest income 5,012 5,151 5,443 6,304 Provision for loan losses 217 107 251 263 Income before income taxes 2,627 3,133 3,209 3,176 Applicable income taxes 869 1,036 1,069 1,056 Net income 1,758 2,097 2,140 2,120 Per common share: Primary .75 .90 .91 .92 Fully diluted .75 .89 .88 .91
[Bottom of page 37 - Independent Auditor's Report]
Auditor's Logo on letterhead Auditor's name & address - -------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders and Board of Directors Camden National Corporation
We have audited the accompanying consolidated statements of financial condition of Camden National Corporation and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
Berry, Dunn, McNeil & Parker (signature)
Portland, Maine January 29, 1998
[Pages 38 - 39 List of Board of Directors & Bank Administration]
Board of Directors and Bank Administrations
Photograph of E. Maynard "Sandy" Graffam Director who passed away during 1997
This annual report is dedicated to the memory of E.Maynard "Sandy" Graffam. Director 1979-1997 Camden National Corporation and Camden National Bank.
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Directors of Camden National Corporation and Camden National Bank
David H. Montgomery Chairman, Camden National Corporation Past Chairman, Allen Agency
Kenneth C. Dickey Vice Chairman, Camden National Corporation Haskell & Corthell Real Estate
Keith C. Patten President & CEO Camden National Corporation Chairman, Camden National Bank
Peter T. Allen President, Cutting-Allen, Inc.
Bruce D. Bartlett President & CEO, United Bank Director of Camden National Corporation
Ann W. Bresnahan Civic Leader
Robert W. Daigle President & CEO, Camden National Bank
Robert J. Gagnon Store Manager, Rockland Shop 'n Save
John W. Holmes President, Consumers Fuel Co.
Rendle A. Jones Attorney & Partner - Harmon, Jones & Sanford
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.
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Associate Directors of Camden National Bank
C.R. deRochemont Realtor, C.R. deRochemont Realtor
Frederick G. "Ted" Hanley Retired Executive Vice President Camden National Bank
Gilbert Harmon Retired Attorney & Partner Harmon, Jones & Sanford
Lawrence N. Hopkins Retired President, Camden National Bank
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Administration of Camden National Corporation
Keith C. Patten President & CEO
Susan M. Westfall Vice President, Clerk, Treasurer & Chief Financial Officer
Jeffrey D. Smith Vice President, Chief Operations Officer
Steven D. Dailey Vice President, Data Processing Officer
June B. Parent Assistant Vice President, Personnel Manager
Anna J. Jones Auditor
Kathryn M. Ryder Financial Officer Manager, Accounting Department
Brenda B. Munroe Manager, Electronic Banking Department
Karen Shanahan Manager, Loan Servicing Department
David B. Mitchell Information Systems Officer
Timothy J. Pratt Manager, Items Processing Department
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Administration of Camden National Bank
Keith C. Patten Chairman
Robert W. Daigle President & CEO
John P. "Jack" Williams Senior Vice President & Commercial Loan & Business Development Officer
Michael A. McAvoy Vice President & Senior Loan Officer
Susan M. Westfall Vice President, Cashier & Investment and Trust Officer
Charles A. Wootton Vice President , Branch Administration Officer & Commercial Loan Officer
Joanne T. Campbell Vice President & Residential Real Estate Administration Officer
Stephen C. Staples Vice President & Commercial Loan Officer
Barbara B. Hanson Assistant Vice President & Commercial Loan Officer
Richard E. Littlefield Assistant Vice President & Commercial Loan Officer
Craig Dahlberg Commercial Loan Officer
Kimberly J. Nason Mortgage Loan Underwriter
Christopher A. Frohock Commercial Loan Officer
Lee Ann Szelog Marketing Manager
John E. Davis Manager, Collections Department
Anne W. Gibbons Compliance/CRA Officer
Marie M. Charest Training Officer
Diane D. Townsend Credit Officer
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Branch Administration of Camden National Bank
Peggy C. Chapman Manager, Rockland Office
Dolores C. Hyssong Manager, Camden Square Office
Susan L. O'Brien Manager, Union Office
Vera E. Rand Manager, Belfast Office
Todd L. Savage Manager, Main Office, Camden
R. Todd Starbird Branch Management, Thomaston Office
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Directors of United Bank
Royce M. Cross Chairman, United Bank President, Woodrow W. Cross Agency
Bruce D. Bartlett President & CEO, United Bank
Kermit P. Allen Treasurer, G.M. Allen & Son, Inc.
Edward R. Dysart President, Dysart Transportation, Inc.
William T. Gardner President, William T. Gardner & Sons, Inc.
Rendle A. Jones, Esq. Attorney and Partner - Harmon, Jones & Sanford
C. Charles Lumbert President, Moose River Lumber Co., Inc.
LaJune S. Means Private Investor, Director Emeritus
William T. Meucci President, Meucci Enterprises, Inc.
David H. Montgomery Chairman, Camden National Corporation Past Chairman, Allen Agency
Keith C. Patten President & CEO, Camden National Corporation Chairman, Camden National Bank
Carroll R. Pickard President, Pleasant Hill Diversities
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Bank Administration of United Bank
Bruce D. Bartlett President, Treasurer & CEO
James M. Kimball Vice President & Senior Loan Officer
Paul R. Flynn Vice President & Branch Administrator
Mark E. Russell Vice President & Mortgage Loan Manager
Lori L. Martin Assistant Vice President & Administrative Officer
Nathan R. Williams Assistant Vice President & Commercial Loan Officer
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Branch Administration of United Bank
Brent A. Folster Vice President Manager, Bangor Office
Darcel S. Bryant Manager, Hermon Office
Linda J. Colbath Manger, East Corinth Office
Laura J. Hollis Manager, Hampden Office
Marilyn J. Chalker Manager, Jackman Office
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Directors of Trust Company of Maine, Inc.
Andrew P. Averill Chairman & CEO Trust Company of Maine, Inc.
R. Paul Pasquine President, Trust Company of Maine, Inc.
Bruce D. Bartlett President & CEO, United Bank
Randall A. Bishop Chief Financial Officer William T. Gardner & Sons, Inc.
Robert W. Daigle President & CEO, Camden National Bank
Shirley B. Kile President, Fiduciary Services, Inc. Treasurer, Trust Company of Maine, Inc.
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Officers Trust Company of Maine, Inc.
Andrew P. Averill Chairman & CEO
R. Paul Pasquine President, COO & Senior Trust Officer
Lynn M. Bowden Vice President & Trust Officer
Susan L. Kenney Assistant Vice President & Trust Officer
Robert M. Parker Assistant Vice President & Trust Officer
Shirley B. Kile Treasurer
Announcement for Annual Meeting in bottom right corner of page 39.
Annual Meeting, Camden National Corporation Tuesday, May 5, 1998 3:30 p.m.
The Company will provide, without charge, upon written request, a copy of Camden National Corporation's Annual Report to the Securities and Exchange Commission, Form 10K for the 1997 fiscal year. Please contact: Susan M. Westfall, Camden National Corporation, P.O. Box 310, Camden, ME 04843 (207) 236-8821
Diamond shape with phrase "On Your Corner. In Your Corner." "Your Community Bank Member Independent Bankers Association of America.
Corporate logo Camden National Corporation Member FDIC
[Page 40 - Photographs]
Camden National Bank, United Bank and the Trust Company of Maine offer a full array of financial services from money market accounts and IRAs, to home mortgages and trust management. We also stand ready to help businesses grow with commercial banking services designed to fit their needs.
Photograph 1. Same photo as on page 4 with Petrea Allen and Dr. Christine Garrison looking at a home.
Photograph 2. Photo similar to photo on page 6, where Lynn Bowden advises her new client Betty Kaynor.
Photograph 3. Photo similar to photo on page 5, where Jim Kimball confers with Charlie Wolverton.
[Page 41 - Photographs]
Camden National has grown and changed through the years, but we have remained committed to the same goals that guided us back in 1875...to meet the needs of local families and businesses with the highest level of service. Our subsidiaries, Camden National Bank, United Bank and the Trust Company of Maine, operate independently and understand the needs of the communities we serve.
Photograph 1. Photograph of Heidi Vanorse, Tim Pratt and Jane Pierce with presents during the Community Spirit of Christmas project.
Photograph 2. Photograph of Brent Folster and members of the Ronald McDonald house standing on the porch on a winter day.
Photograph 3. Photograph similar to photo on page 7 of the Trust Company of Maine, Inc. employees volunteering at the Bangor Area Shelter.