Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended September 30, 2009
OR
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Commission
File No. 0-28190
CAMDEN
NATIONAL CORPORATION
(Exact
name of registrant as specified in its charter)
MAINE
|
01-0413282
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
|
|
2
ELM STREET, CAMDEN, ME
|
04843
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (207) 236-8821
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).
Yes ¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
(Do not check if a
smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No
x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practical date:
Outstanding
at October 30, 2009: Common stock (no par value) 7,644,829
shares.
CAMDEN
NATIONAL CORPORATION
FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009
TABLE
OF CONTENTS OF INFORMATION REQUIRED IN REPORT
|
|
PAGE
|
|
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
3
|
|
|
|
|
Consolidated
Statements of Condition
September
30, 2009 and December 31, 2008
|
4
|
|
|
|
|
Consolidated
Statements of Income
Three
and Nine Months Ended September 30, 2009 and 2008
|
5
|
|
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity
Nine
Months Ended September 30, 2009 and 2008
|
6
|
|
|
|
|
Consolidated
Statements of Cash Flows
Nine
Months Ended September 30, 2009 and 2008
|
7
|
|
|
|
|
Notes
to Consolidated Financial Statements
Nine
Months Ended September 30, 2009 and 2008
|
8-20
|
|
|
|
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
21-32
|
|
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
33-34
|
|
|
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
35
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
36
|
|
|
|
ITEM
1A.
|
RISK
FACTORS
|
36
|
|
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
36
|
|
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
36
|
|
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
36
|
|
|
|
ITEM
5.
|
OTHER
INFORMATION
|
36
|
|
|
|
ITEM
6.
|
EXHIBITS
|
37
|
|
|
|
SIGNATURES
|
38
|
|
|
|
EXHIBIT
INDEX
|
39
|
|
|
|
EXHIBITS
|
40-44
|
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Shareholders and Board of Directors
Camden
National Corporation
We have
reviewed the accompanying interim consolidated financial information of Camden
National Corporation and Subsidiaries as of September 30, 2009, and for the
nine-month and three-month periods ended September 30, 2009 and 2008. These
financial statements are the responsibility of the Company's
management.
We
conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is to express an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on
our reviews, we are not aware of any material modifications that should be made
to the accompanying financial statements for them to be in conformity with
accounting principles generally accepted in the United States of
America.
/s/ Berry, Dunn, McNeil &
Parker
|
Berry,
Dunn, McNeil & Parker
|
Bangor,
Maine
October
30, 2009
CAMDEN
NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CONDITION
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
(In Thousands, Except Number of Shares and per Share Data)
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
30,081
|
|
|
$
|
35,195
|
|
Securities
|
|
|
|
|
|
|
|
|
Securities
available for sale, at fair value
|
|
|
525,966
|
|
|
|
606,031
|
|
Securities
held to maturity, at amortized cost (fair value $41,751 and $41,954 at
September 30, 2009 and December 31, 2008, respectively)
|
|
|
39,366
|
|
|
|
42,040
|
|
Federal
Home Loan and Federal Reserve Bank stock, at cost
|
|
|
21,965
|
|
|
|
21,969
|
|
Total
securities
|
|
|
587,297
|
|
|
|
670,040
|
|
Trading
account assets
|
|
|
1,667
|
|
|
|
1,304
|
|
Loans
held for sale
|
|
|
1,298
|
|
|
|
—
|
|
Loans
|
|
|
1,519,681
|
|
|
|
1,500,908
|
|
Less
allowance for loan losses
|
|
|
(19,435
|
)
|
|
|
(17,691
|
)
|
Net
loans
|
|
|
1,500,246
|
|
|
|
1,483,217
|
|
Goodwill
|
|
|
41,780
|
|
|
|
41,857
|
|
Bank-owned
life insurance
|
|
|
41,310
|
|
|
|
40,459
|
|
Premises
and equipment, net
|
|
|
25,234
|
|
|
|
25,872
|
|
Interest
receivable
|
|
|
7,649
|
|
|
|
8,325
|
|
Core
deposit intangible
|
|
|
4,142
|
|
|
|
4,518
|
|
Other
real estate owned
|
|
|
5,465
|
|
|
|
4,024
|
|
Other
assets
|
|
|
26,577
|
|
|
|
26,685
|
|
Total
assets
|
|
$
|
2,272,746
|
|
|
$
|
2,341,496
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
201,451
|
|
|
$
|
180,407
|
|
Interest
checking, savings and money market
|
|
|
699,230
|
|
|
|
632,664
|
|
Retail
certificates of deposit
|
|
|
567,210
|
|
|
|
593,013
|
|
Brokered
deposits
|
|
|
45,443
|
|
|
|
83,433
|
|
Total
deposits
|
|
|
1,513,334
|
|
|
|
1,489,517
|
|
Federal
Home Loan Bank advances
|
|
|
210,495
|
|
|
|
258,925
|
|
Other
borrowed funds
|
|
|
290,427
|
|
|
|
359,470
|
|
Junior
subordinated debentures
|
|
|
43,487
|
|
|
|
43,410
|
|
Accrued
interest and other liabilities
|
|
|
28,232
|
|
|
|
23,774
|
|
Total
liabilities
|
|
|
2,085,975
|
|
|
|
2,175,096
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Common
stock, no par value; authorized 20,000,000 shares, issued and outstanding
7,644,829 and 7,638,713 shares on September 30, 2009 and December 31,
2008, respectively
|
|
|
3,150
|
|
|
|
2,851
|
|
Surplus
|
|
|
46,139
|
|
|
|
46,133
|
|
Retained
earnings
|
|
|
130,320
|
|
|
|
118,564
|
|
Accumulated
other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Net
unrealized gains (losses) on securities available for sale, net of
tax
|
|
|
8,163
|
|
|
|
(89
|
)
|
Net
unrealized gains on derivative instruments, net of tax
|
|
|
11
|
|
|
|
—
|
|
Net
unrecognized losses on postretirement plans, net of tax
|
|
|
(1,012
|
)
|
|
|
(1,059
|
)
|
Total
accumulated other comprehensive income (loss)
|
|
|
7,162
|
|
|
|
(1,148
|
)
|
Total
shareholders’ equity
|
|
|
186,771
|
|
|
|
166,400
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,272,746
|
|
|
$
|
2,341,496
|
|
See
Report of Independent Registered Public Accounting Firm.
The
accompanying notes are an integral part of these consolidated financial
statements.
CAMDEN
NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(unaudited)
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In Thousands, Except Number of Shares and per Share Data)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
21,121
|
|
|
$
|
24,080
|
|
|
$
|
64,012
|
|
|
$
|
73,803
|
|
Interest
on U.S. government and sponsored enterprise obligations
|
|
|
6,229
|
|
|
|
6,412
|
|
|
|
20,229
|
|
|
|
18,921
|
|
Interest
on state and political subdivision obligations
|
|
|
602
|
|
|
|
674
|
|
|
|
1,876
|
|
|
|
2,026
|
|
Interest
on federal funds sold and other investments
|
|
|
28
|
|
|
|
318
|
|
|
|
99
|
|
|
|
1,726
|
|
Total
interest income
|
|
|
27,980
|
|
|
|
31,484
|
|
|
|
86,216
|
|
|
|
96,476
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
5,413
|
|
|
|
7,752
|
|
|
|
17,743
|
|
|
|
24,253
|
|
Interest
on borrowings
|
|
|
3,630
|
|
|
|
5,466
|
|
|
|
11,267
|
|
|
|
17,500
|
|
Interest
on junior subordinated debentures
|
|
|
712
|
|
|
|
752
|
|
|
|
2,136
|
|
|
|
2,195
|
|
Total
interest expense
|
|
|
9,755
|
|
|
|
13,970
|
|
|
|
31,146
|
|
|
|
43,948
|
|
Net
interest income
|
|
|
18,225
|
|
|
|
17,514
|
|
|
|
55,070
|
|
|
|
52,528
|
|
Provision
for Loan Losses
|
|
|
2,000
|
|
|
|
1,170
|
|
|
|
6,514
|
|
|
|
2,120
|
|
Net
interest income after provision for loan losses
|
|
|
16,225
|
|
|
|
16,344
|
|
|
|
48,556
|
|
|
|
50,408
|
|
Non-Interest
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
1,361
|
|
|
|
1,377
|
|
|
|
3,943
|
|
|
|
4,069
|
|
Other
service charges and fees
|
|
|
778
|
|
|
|
724
|
|
|
|
2,202
|
|
|
|
2,059
|
|
Income
from fiduciary services
|
|
|
1,471
|
|
|
|
1,653
|
|
|
|
4,332
|
|
|
|
5,031
|
|
Brokerage
and insurance commissions
|
|
|
378
|
|
|
|
345
|
|
|
|
1,021
|
|
|
|
1,068
|
|
Mortgage
banking income (loss), net
|
|
|
351
|
|
|
|
(1
|
)
|
|
|
1,222
|
|
|
|
(216
|
)
|
Bank-owned
life insurance
|
|
|
368
|
|
|
|
305
|
|
|
|
1,108
|
|
|
|
883
|
|
Net
gain (loss) on sale of securities
|
|
|
1
|
|
|
|
(804
|
)
|
|
|
1
|
|
|
|
(624
|
)
|
Other
income
|
|
|
441
|
|
|
|
98
|
|
|
|
918
|
|
|
|
529
|
|
Total
non-interest income before security impairment write-down
|
|
|
5,149
|
|
|
|
3,697
|
|
|
|
14,747
|
|
|
|
12,799
|
|
Loss
on security impairment write-down
|
|
|
—
|
|
|
|
(13,950
|
)
|
|
|
—
|
|
|
|
(13,950
|
)
|
Total
non-interest income (loss)
|
|
|
5,149
|
|
|
|
(10,253
|
)
|
|
|
14,747
|
|
|
|
(1,151
|
)
|
Non-Interest
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
6,071
|
|
|
|
6,079
|
|
|
|
18,195
|
|
|
|
19,130
|
|
Net
occupancy
|
|
|
862
|
|
|
|
927
|
|
|
|
2,954
|
|
|
|
3,008
|
|
Furniture,
equipment and data processing
|
|
|
1,123
|
|
|
|
1,038
|
|
|
|
3,233
|
|
|
|
3,467
|
|
Consulting
and service fees
|
|
|
698
|
|
|
|
786
|
|
|
|
2,140
|
|
|
|
2,229
|
|
Other
real estate owned and collection costs
|
|
|
779
|
|
|
|
119
|
|
|
|
1,941
|
|
|
|
518
|
|
Regulatory
assessments
|
|
|
693
|
|
|
|
417
|
|
|
|
3,304
|
|
|
|
676
|
|
Amortization
of core deposit intangible
|
|
|
125
|
|
|
|
193
|
|
|
|
376
|
|
|
|
697
|
|
Other
expenses
|
|
|
1,801
|
|
|
|
2,100
|
|
|
|
5,716
|
|
|
|
6,108
|
|
Total
non-interest expenses
|
|
|
12,152
|
|
|
|
11,659
|
|
|
|
37,859
|
|
|
|
35,833
|
|
Income
(loss) before income taxes
|
|
|
9,222
|
|
|
|
(5,568
|
)
|
|
|
25,444
|
|
|
|
13,424
|
|
Income
Taxes
|
|
|
2,894
|
|
|
|
2,452
|
|
|
|
7,898
|
|
|
|
8,143
|
|
Net
Income (Loss)
|
|
$
|
6,328
|
|
|
$
|
(8,020
|
)
|
|
$
|
17,546
|
|
|
$
|
5,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share – common stock
|
|
$
|
0.83
|
|
|
$
|
(1.05
|
)
|
|
$
|
2.30
|
|
|
$
|
0.69
|
|
Basic
earnings (loss) per share – unvested share-based payment
awards
|
|
|
0.83
|
|
|
|
(1.05
|
)
|
|
|
2.30
|
|
|
|
0.69
|
|
Diluted
earnings (loss) per share – common stock
|
|
|
0.83
|
|
|
|
(1.05
|
)
|
|
|
2.29
|
|
|
|
0.69
|
|
Diluted
earnings (loss) per share– unvested share-based payment
awards
|
|
|
0.83
|
|
|
|
(1.05
|
)
|
|
|
2.29
|
|
|
|
0.69
|
|
Weighted
average number of common shares outstanding
|
|
|
7,644,829
|
|
|
|
7,659,811
|
|
|
|
7,641,705
|
|
|
|
7,682,737
|
|
See
Report of Independent Registered Public Accounting Firm.
The
accompanying notes are an integral part of these consolidated financial
statements.
CAMDEN
NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
(In Thousands, Except Number of
Shares and per Share Data)
|
|
Common
Stock
|
|
|
Surplus
|
|
|
Retained
Earnings
|
|
|
Net
Unrealized
Gains
(Losses) on
Securities
Available
for Sale
|
|
|
Net
Unrealized
Gains on
Derivative
Instruments
|
|
|
Net
Unrecognized
Losses on
Postretirement
Plans
|
|
|
Total
Shareholders’
Equity
|
|
Balance
at December 31, 2007
|
|
$
|
2,522
|
|
|
$
|
2,629
|
|
|
$
|
114,289
|
|
|
$
|
1,516
|
|
|
$
|
—
|
|
|
$
|
(753
|
)
|
|
$
|
120,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
5,281
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,281
|
|
Change
in net unrealized gains on securities available for sale, net of taxes of
$1,969
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,656
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,656
|
)
|
Change
in net unrecognized losses on post-retirement plans, net of taxes of
($216)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
402
|
|
|
|
402
|
|
Total
comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
5,281
|
|
|
|
(3,656
|
)
|
|
|
—
|
|
|
|
402
|
|
|
|
2,027
|
|
Shares
issued during acquisition of Union Bankshares Company (1,222,497
shares)
|
|
|
—
|
|
|
|
43,523
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,523
|
|
Equity
compensation expense
|
|
|
—
|
|
|
|
182
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
182
|
|
Exercise
of stock options and issuance of restricted stock (total 9,733
shares)
|
|
|
292
|
|
|
|
(146
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
146
|
|
Common
stock repurchase (109,362 shares)
|
|
|
—
|
|
|
|
(134
|
)
|
|
|
(3,383
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,517
|
)
|
Cash
dividends declared ($0.50/share)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,853
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,853
|
)
|
Balance
at September 30, 2008
|
|
$
|
$
2,814
|
|
|
$
|
46,054
|
|
|
$
|
112,334
|
|
|
$
|
(2,140
|
)
|
|
$
|
—
|
|
|
$
|
(351
|
)
|
|
$
|
158,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$
|
2,851
|
|
|
$
|
46,133
|
|
|
$
|
118,564
|
|
|
$
|
(89
|
)
|
|
$
|
—
|
|
|
$
|
(1,059
|
)
|
|
$
|
166,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
17,546
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,546
|
|
Change
in unrealized losses on securities available for sale, net of taxes of
($4,443)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,252
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,252
|
|
Change
in unrealized gains on derivative instruments at fair value, net of taxes
of ($6)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
—
|
|
|
|
11
|
|
Change
in net unrecognized losses on postretirement plans, net of taxes of
($25)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
|
|
47
|
|
Total
comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
17,546
|
|
|
|
8,252
|
|
|
|
11
|
|
|
|
47
|
|
|
|
25,856
|
|
Equity
compensation expense
|
|
|
—
|
|
|
|
295
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
295
|
|
Exercise
of stock options and issuance of restricted stock (total 6,116
shares)
|
|
|
299
|
|
|
|
(289
|
)
|
|
|
(55
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(45
|
)
|
Cash
dividends declared ($0.75/share)
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,735
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2009
|
|
$
|
3,150
|
|
|
$
|
46,139
|
|
|
$
|
130,320
|
|
|
$
|
8,163
|
|
|
$
|
11
|
|
|
$
|
(1,012
|
)
|
|
$
|
186,771
|
|
See Report of Independent Registered
Public Accounting Firm.
The
accompanying notes are an integral part of these consolidated financial
statements.
CAMDEN
NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Nine Months Ended September 30,
|
|
(In Thousands)
|
|
2009
|
|
|
2008
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
income
|
|
$ |
17,546 |
|
|
$ |
5,281 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
6,514 |
|
|
|
2,120 |
|
Depreciation
and amortization
|
|
|
2,028 |
|
|
|
1,643 |
|
Equity
compensation expense
|
|
|
295 |
|
|
|
182 |
|
Decrease
in interest receivable
|
|
|
676 |
|
|
|
405 |
|
Amortization
of core deposit intangible
|
|
|
376 |
|
|
|
697 |
|
Net
increase in trading assets
|
|
|
(363
|
) |
|
|
— |
|
Net
investment securities (gains) losses
|
|
|
(1
|
) |
|
|
624 |
|
Write-down
of other-than-temporarily impaired security
|
|
|
— |
|
|
|
13,950 |
|
Increase
in other real estate owned valuation allowance
|
|
|
1,011 |
|
|
|
— |
|
Originations
of mortgage loans held for sale
|
|
|
(72,529
|
) |
|
|
— |
|
Proceeds
from the sale of mortgage loans
|
|
|
71,231 |
|
|
|
— |
|
Gain
on sale of mortgage loans
|
|
|
(102
|
) |
|
|
— |
|
Liquidation
of defined benefit pension plan
|
|
|
(735
|
) |
|
|
— |
|
Increase
in other assets
|
|
|
(4,350
|
) |
|
|
(1,579
|
) |
Increase
(decrease) in other liabilities
|
|
|
898 |
|
|
|
(3,703
|
) |
Net
cash provided by operating activities
|
|
|
22,495 |
|
|
|
19,620 |
|
Investing
Activities
|
|
|
|
|
|
|
|
|
Acquisition
of Union Bankshares Company
|
|
|
— |
|
|
|
(29,299
|
) |
Proceeds
from sales and maturities of securities held to maturity
|
|
|
2,606 |
|
|
|
90 |
|
Proceeds
from sales and maturities of securities available for sale
|
|
|
138,200 |
|
|
|
183,807 |
|
Purchase
of securities held to maturity
|
|
|
— |
|
|
|
(39
|
) |
Purchase
of securities available for sale
|
|
|
(45,616
|
) |
|
|
(211,485
|
) |
Purchase
of bank-owned life insurance
|
|
|
— |
|
|
|
(7,450
|
) |
Premium
received on deposit sale
|
|
|
— |
|
|
|
1,400 |
|
Net
increase in loans
|
|
|
(22,468
|
) |
|
|
(8,592
|
) |
Proceeds
from the sale of other real estate owned
|
|
|
448 |
|
|
|
420 |
|
Purchase
of premises and equipment
|
|
|
(1,152
|
) |
|
|
(882
|
) |
Net
cash provided (used) by investing activities
|
|
|
72,018 |
|
|
|
(72,030
|
) |
Financing
Activities
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
23,794 |
|
|
|
75,525 |
|
Proceeds
from Federal Home Loan Bank long-term advances
|
|
|
8,163 |
|
|
|
199,278 |
|
Repayments
on Federal Home Loan Bank long-term advances
|
|
|
(56,593
|
) |
|
|
(218,336
|
) |
Net
change in short-term Federal Home Loan Bank borrowings
|
|
|
(116,375
|
) |
|
|
(23,965
|
) |
Net
increase in other borrowed funds and junior subordinated
debentures
|
|
|
47,164 |
|
|
|
38,008 |
|
Common
stock repurchase
|
|
|
— |
|
|
|
(3,517
|
) |
Exercise
of stock options
|
|
|
(45
|
) |
|
|
146 |
|
Cash
dividends paid on common stock
|
|
|
(5,735
|
) |
|
|
(5,405
|
) |
Net
cash (used) provided by financing activities
|
|
|
(99,627
|
) |
|
|
61,734 |
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(5,114
|
) |
|
|
9,324 |
|
Cash
and cash equivalents at beginning of year
|
|
|
35,195 |
|
|
|
28,790 |
|
Cash
and cash equivalents at end of period
|
|
$ |
30,081 |
|
|
$ |
38,114 |
|
Supplemental
information
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
31,837 |
|
|
$ |
44,322 |
|
Income
taxes paid
|
|
|
5,200 |
|
|
|
8,419 |
|
Common
stock issued in acquisition
|
|
|
— |
|
|
|
43,523 |
|
Transfer
from loans to loans held for sale
|
|
|
1,298 |
|
|
|
— |
|
Transfer
from loans to other real estate owned
|
|
|
2,900 |
|
|
|
2,599 |
|
See
Report of Independent Registered Public Accounting Firm.
The
accompanying notes are an integral part of these consolidated financial
statements.
CAMDEN
NATIONAL CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in Tables Expressed in Thousands, Except Number of Shares and per Share
Data)
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures required by accounting principles generally accepted in the United
States of America for complete presentation of financial statements. In the
opinion of management, the consolidated financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the consolidated statements of condition of Camden National Corporation
(the “Company”) as of September 30, 2009 and December 31, 2008, the consolidated
statements of income for the three and nine months ended September 30, 2009 and
2008, the consolidated statements of changes in shareholders' equity for the
nine months ended September 30, 2009 and 2008, and the consolidated statements
of cash flows for the nine months ended September 30, 2009 and 2008. All
significant intercompany transactions and balances are eliminated in
consolidation. Certain items from the prior year were reclassified to conform to
the current year presentation. The income reported for the three-month and
nine-month periods ended September 30, 2009 is not necessarily indicative of the
results that may be expected for the full year. The information in this report
should be read in conjunction with the consolidated financial statements and
accompanying notes included in the December 31, 2008 Annual Report on Form
10-K.
NOTE
2 – EARNINGS PER SHARE
Basic
earnings per share (“EPS”) is calculated by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Unvested restricted shares and stock options outstanding are not
included in common shares outstanding. Diluted EPS reflects the potential that
could occur if contracts to issue common stock (such as stock options) were
exercised or converted into common shares that would then share in the earnings
of the Company. Diluted EPS is computed by dividing net income by the weighted
average number of common shares outstanding for the period, plus an incremental
number of common-equivalent shares computed using the treasury stock method.
Unvested share-based payment awards that contain non-forfeitable rights to
dividends or dividend equivalents are participating securities and, therefore,
are included in computing earnings per share pursuant to the two-class method.
The two-class method determines earnings per share for each class of common
stock and participating securities according to dividends or dividend
equivalents and their respective participation rights in undistributed earnings.
The Company’s restricted share grants and management stock purchase grants
receive non-forfeitable dividends at the same rate as common stock. The
following table sets forth the computation of basic and diluted earnings per
share under the two-class method:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
income (loss), as reported
|
|
$
|
6,328
|
|
|
$
|
(8,020
|
)
|
|
$
|
17,546
|
|
|
$
|
5,281
|
|
Weighted-average
common shares outstanding – basic
|
|
|
7,644,829
|
|
|
|
7,659,811
|
|
|
|
7,641,705
|
|
|
|
7,682,737
|
|
Dilutive
effect of stock-based compensation
|
|
|
9,346
|
|
|
|
—
|
|
|
|
4,119
|
|
|
|
1,066
|
|
Weighted-average
common and potential common shares – diluted
|
|
|
7,654,175
|
|
|
|
7,659,811
|
|
|
|
7,645,824
|
|
|
|
7,683,803
|
|
Basic
earnings (loss) per share – common stock
|
|
$
|
0.83
|
|
|
$
|
(1.05
|
)
|
|
$
|
2.30
|
|
|
$
|
0.69
|
|
Basic
earnings (loss) per share – unvested share-based payment
awards
|
|
|
0.83
|
|
|
|
(1.05
|
)
|
|
|
2.30
|
|
|
|
0.69
|
|
Diluted
earnings (loss) per share – common stock
|
|
|
0.83
|
|
|
|
(1.05
|
)
|
|
|
2.29
|
|
|
|
0.69
|
|
Diluted
earnings (loss) per share– unvested share-based payment
awards
|
|
|
0.83
|
|
|
|
(1.05
|
)
|
|
|
2.29
|
|
|
|
0.69
|
|
At
September 30, 2009 and 2008, options to purchase 64,750 and 60,750 shares,
respectively, of common stock were not considered in the computation of
potential common shares for purposes of diluted EPS, since the exercise prices
of the options were greater than the average market price of the common stock
for the respective periods.
NOTE
3 – SECURITIES
The
following tables summarize the amortized costs and fair values of securities
available for sale and held to maturity, as of the dates indicated:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
September
30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. government sponsored enterprises
|
|
$
|
4,503
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
4,512
|
|
Obligations
of states and political subdivisions
|
|
|
21,525
|
|
|
|
637
|
|
|
|
—
|
|
|
|
22,162
|
|
Mortgage-backed
securities issued or guaranteed by U.S. government sponsored
enterprises
|
|
|
437,654
|
|
|
|
18,606
|
|
|
|
(56
|
)
|
|
|
456,204
|
|
Private
issue collateralized mortgage obligations
|
|
|
44,726
|
|
|
|
25
|
|
|
|
(5,985
|
)
|
|
|
38,766
|
|
Total
debt securities
|
|
|
508,408
|
|
|
|
19,277
|
|
|
|
(6,041
|
)
|
|
|
521,644
|
|
Equity
securities
|
|
|
5,000
|
|
|
|
—
|
|
|
|
(678
|
)
|
|
|
4,322
|
|
Total
securities available for sale
|
|
$
|
513,408
|
|
|
$
|
19,277
|
|
|
$
|
(6,719
|
)
|
|
$
|
525,966
|
|
Held
to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of states and political subdivisions
|
|
$
|
39,366
|
|
|
$
|
2,385
|
|
|
$
|
—
|
|
|
$
|
41,751
|
|
Total
securities held to maturity
|
|
$
|
39,366
|
|
|
$
|
2,385
|
|
|
$
|
—
|
|
|
$
|
41,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. government sponsored enterprises
|
|
$
|
4,539
|
|
|
$
|
64
|
|
|
$
|
—
|
|
|
$
|
4,603
|
|
Obligations
of states and political subdivisions
|
|
|
25,457
|
|
|
|
105
|
|
|
|
(215
|
)
|
|
|
25,347
|
|
Mortgage-backed
securities issued or guaranteed by U.S. government sponsored
enterprises
|
|
|
514,049
|
|
|
|
11,339
|
|
|
|
(52
|
)
|
|
|
525,336
|
|
Private
issue collateralized mortgage obligations
|
|
|
57,123
|
|
|
|
1
|
|
|
|
(10,347
|
)
|
|
|
46,777
|
|
Total
debt securities
|
|
|
601,168
|
|
|
|
11,509
|
|
|
|
(10,614
|
)
|
|
|
602,063
|
|
Equity
securities
|
|
|
5,000
|
|
|
|
—
|
|
|
|
(1,032
|
)
|
|
|
3,968
|
|
Total
securities available for sale
|
|
$
|
606,168
|
|
|
$
|
11,509
|
|
|
$
|
(11,646
|
)
|
|
$
|
606,031
|
|
Held
to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of states and political subdivisions
|
|
$
|
42,040
|
|
|
$
|
213
|
|
|
$
|
(299
|
)
|
|
$
|
41,954
|
|
Total
securities held to maturity
|
|
$
|
42,040
|
|
|
$
|
213
|
|
|
$
|
(299
|
)
|
|
$
|
41,954
|
|
For the
first nine months of 2009, there were three sales totaling $530,000 in the
available for sale and one sale for $224,000 in the held to maturity portfolios.
The sale in the held to maturity portfolio was due to a drop in credit
rating. Unrealized gains on securities available for sale arising
during the first three quarters of 2009 and included in other comprehensive
income amounted to $12.6 million, net of deferred taxes of $4.4
million.
At
September 30, 2009, securities with an amortized cost of $396.5 million and a
fair value of $412.1 million were pledged to secure Federal Home Loan Bank
(“FHLBB”) advances, public deposits, securities sold under agreements to
repurchase and other purposes required or permitted by law.
The
amortized cost and fair values of debt securities by contractual maturity at
September 30, 2009 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
Cost
|
|
Fair
Value
|
|
Available
for sale
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$
|
8,438
|
|
$
|
8,496
|
|
Due
after one year through five years
|
|
|
36,147
|
|
|
37,434
|
|
Due
after five years through ten years
|
|
|
59,777
|
|
|
61,693
|
|
Due
after ten years
|
|
|
404,046
|
|
|
414,021
|
|
|
|
$
|
508,408
|
|
$
|
521,644
|
|
Held
to maturity
|
|
|
|
|
|
|
|
Due
after one year through five years
|
|
$
|
1,456
|
|
$
|
1,471
|
|
Due
after five years through ten years
|
|
|
23,830
|
|
|
25,414
|
|
Due
after ten years
|
|
|
14,080
|
|
|
14,866
|
|
|
|
$
|
39,366
|
|
$
|
41,751
|
|
Management
reviews the investment portfolio on a periodic basis to determine the cause,
magnitude and duration of declines in the fair value of each security. Thorough
evaluations of the causes of the unrealized losses are performed to determine
whether the impairment is temporary or other than temporary in nature.
Considerations such as the ability of the securities to meet cash flow
requirements, levels of credit enhancements, risk of curtailment, recoverability
of invested amount over a reasonable period of time and the length of time the
security is in a loss position, for example, are applied in determining other
than temporary impairment.
The
following table shows the gross unrealized losses and fair values of investment
securities at September 30, 2009 and December 31, 2008, by length of time that
individual securities in each category have been in a continuous loss
position.
|
|
Less
Than 12 Months
|
|
|
12
Months or More
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
September
30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities
|
|
$
|
10,793
|
|
|
$
|
(55
|
)
|
|
$
|
59
|
|
|
$
|
(1
|
)
|
|
$
|
10,852
|
|
|
$
|
(56
|
)
|
Private
issue collateralized mortgage obligations
|
|
|
507
|
|
|
|
(94
|
)
|
|
|
32,628
|
|
|
|
(5,891
|
)
|
|
|
33,135
|
|
|
|
(5,985
|
)
|
Equity
securities
|
|
|
4,322
|
|
|
|
(678
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4,322
|
|
|
|
(678
|
)
|
Total
|
|
$
|
15,622
|
|
|
$
|
(827
|
)
|
|
$
|
32,687
|
|
|
$
|
(5,892
|
)
|
|
$
|
48,309
|
|
|
$
|
(6,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of states and political subdivisions
|
|
$
|
32,393
|
|
|
$
|
(477
|
)
|
|
$
|
770
|
|
|
$
|
(37
|
)
|
|
$
|
33,163
|
|
|
$
|
(514
|
)
|
Mortgage-backed
securities
|
|
|
18,440
|
|
|
|
(38
|
)
|
|
|
4,407
|
|
|
|
(14
|
)
|
|
|
22,847
|
|
|
|
(52
|
)
|
Private
issue collateralized mortgage obligations
|
|
|
37,106
|
|
|
|
(6,193
|
)
|
|
|
9,652
|
|
|
|
(4,154
|
)
|
|
|
46,758
|
|
|
|
(10,347
|
)
|
Equity
securities
|
|
|
3,968
|
|
|
|
(1,032
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,968
|
|
|
|
(1,032
|
)
|
Total
|
|
$
|
91,907
|
|
|
$
|
(7,740
|
)
|
|
$
|
14,829
|
|
|
$
|
(4,205
|
)
|
|
$
|
106,736
|
|
|
$
|
(11,945
|
)
|
At
September 30, 2009, $48.3 million of the Company’s investment securities had
unrealized losses that are considered temporary. The majority of the unrealized
loss was related to the private issue collateralized mortgage obligations
(“CMOs”), which are all rated as Triple-A except for $10.6 million that have
been downgraded to non-investment grade. The Company’s share of these downgraded
CMOs is in the senior tranches. Management believes the unrealized loss for the
CMOs is the result of current market illiquidity and the underestimation of
value in the market. Including the CMOs, there were 20 securities with a fair
value of $32.7 million in the portfolio which had unrealized losses for twelve
months or longer. Management currently has the intent and ability to retain
these investment securities with unrealized losses until the decline in value
has been recovered.
At
September 30, 2009, the Company held Duff & Phelps Select Income Fund
Auction Preferred Stock with an amortized cost of $5.0 million which has failed
at auction. The security is rated Triple-A by Moody’s and Standard and Poor’s.
Management believes the failed auctions are a temporary liquidity event related
to this asset class of securities. The Company is currently collecting all
amounts due according to contractual terms and has the ability and intent to
hold the securities until they clear auction, are called, or mature; therefore,
the securities are not considered other than temporarily impaired.
NOTE
4 – LOANS AND ALLOWANCE FOR LOAN LOSSES
The
composition of the Company’s loan portfolio, including residential loans held
for sale, at September 30, 2009 and December 31, 2008 was as
follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Residential
real estate loans
|
|
$
|
627,662
|
|
|
$
|
620,956
|
|
Commercial
real estate loans
|
|
|
428,059
|
|
|
|
400,312
|
|
Commercial
loans
|
|
|
195,818
|
|
|
|
213,683
|
|
Consumer
loans
|
|
|
269,919
|
|
|
|
265,865
|
|
Deferred
loan fees net of costs
|
|
|
(479
|
)
|
|
|
92
|
|
Total
loans
|
|
$
|
1,520,979
|
|
|
$
|
1,500,908
|
|
Non-accrual
loans at September 30, 2009 were $16.6 million, or 1.09% of total loans,
compared to $12.5 million, or 0.83% of total loans, at December 31, 2008.
Non-accrual loans at September 30, 2009 were comprised of $4.2 million in
commercial loans, $5.3 million in commercial real estate loans, $5.8 million in
residential real estate loans, and $1.3 million in consumer loans. Non-accrual
loans at December 31, 2008 consisted of $5.0 million in commercial real estate
loans, $4.0 million in residential real estate loans, $2.4 million in commercial
loans, and $1.1 million in consumer loans.
During
the nine months ended September 30, 2009, the Company sold $71.2 million of
residential mortgage loans to the secondary market, which resulted in a gain on
the sale of $102,400 and an increase in mortgage servicing income of $796,000
due to the recognition of the related mortgage servicing asset.
The
allowance for loan losses (“ALL”) is management’s best estimate of inherent risk
of loss in the loan portfolio as of the statement of condition date. Management
makes various assumptions and judgments about the collectability of the loan
portfolio and provides an allowance for potential losses based on a number of
factors. If the assumptions are wrong, the ALL may not be sufficient to cover
losses and may cause an increase in the allowance in the future. Among the
factors that could affect the Company’s ability to collect loans and require an
increase to the allowance in the future are: general real estate and economic
conditions; regional credit concentration; industry concentration, for example
in the hospitality, tourism and recreation industries; and a requirement by the
Federal and state regulators to increase the provision for loan losses or
recognize additional charge-offs.
The
following is a summary of activity in the allowance for loan
losses:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
Balance
at beginning of period
|
|
$
|
18,654
|
|
|
$
|
17,266
|
|
|
$
|
17,691
|
|
|
$
|
13,653
|
|
Acquired
from Union Trust
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,369
|
|
Loan
charge-offs
|
|
|
(1,356
|
)
|
|
|
(1,478
|
)
|
|
|
(5,354
|
)
|
|
|
(3,549
|
)
|
Recoveries
on loans previously charged off
|
|
|
137
|
|
|
|
254
|
|
|
|
584
|
|
|
|
619
|
|
Net
charge-offs
|
|
|
(1,219
|
)
|
|
|
(1,224
|
)
|
|
|
(4,770
|
)
|
|
|
(2,930
|
)
|
Provision
for loan losses
|
|
|
2,000
|
|
|
|
1,170
|
|
|
|
6,514
|
|
|
|
2,120
|
|
Balance
at end of period
|
|
$
|
19,435
|
|
|
$
|
17,212
|
|
|
$
|
19,435
|
|
|
$
|
17,212
|
|
NOTE
5 – GOODWILL, CORE DEPOSIT AND TRUST RELATIONSHIP INTANGIBLES
During
the first quarter of 2008, the Company acquired $37.8 million of goodwill, $5.0
million of core deposit intangible and $753,000 of trust relationship intangible
related to the acquisition of Union Bankshares Company (“Union Bankshares”).
During the quarter ended March 31, 2009, the Company completed its final
adjustments to the goodwill related to the Union Bankshares
acquisition. The changes in goodwill, core deposit intangible and
trust relationship intangible for the nine months ended September 30, 2009 are
shown in the table below:
|
|
Goodwill
|
|
|
|
Banking
|
|
|
Financial
Services
|
|
|
Total
|
|
Balance
at December 31, 2008
|
|
$
|
34,797
|
|
|
$
|
7,060
|
|
|
$
|
41,857
|
|
2009
activity
|
|
|
(77
|
)
|
|
|
—
|
|
|
|
(77
|
)
|
Balance
at September 30, 2009
|
|
$
|
34,720
|
|
|
$
|
7,060
|
|
|
$
|
41,780
|
|
|
|
Core Deposit Intangible
|
|
|
|
Total
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Balance
at December 31, 2008
|
|
$
|
14,444
|
|
|
$
|
(9,926
|
)
|
|
$
|
4,518
|
|
2009
activity
|
|
|
—
|
|
|
|
(376
|
)
|
|
|
(376
|
)
|
Balance
at September 30, 2009
|
|
$
|
14,444
|
|
|
$
|
(10,302
|
)
|
|
$
|
4,142
|
|
|
|
Trust Relationship Intangible
|
|
|
|
Total
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Balance
at December 31, 2008
|
|
$
|
753
|
|
|
$
|
(75
|
)
|
|
$
|
678
|
|
2009
activity
|
|
|
—
|
|
|
|
(57
|
)
|
|
|
(57
|
)
|
Balance
at September 30, 2009
|
|
$
|
753
|
|
|
$
|
(132
|
)
|
|
$
|
621
|
|
During
the fourth quarter of 2008, the Company completed its annual impairment
evaluation of goodwill and did not identify any impairment.
The
following table reflects the expected amortization schedule for intangible
assets at September 30, 2009:
|
|
Trust Relationship
|
|
|
Core Deposit
|
|
|
|
Intangible
|
|
|
Intangible
|
|
2009
|
|
$
|
18
|
|
|
$
|
126
|
|
2010
|
|
|
75
|
|
|
|
502
|
|
2011
|
|
|
75
|
|
|
|
502
|
|
2012
|
|
|
75
|
|
|
|
502
|
|
2013
|
|
|
75
|
|
|
|
502
|
|
Thereafter
|
|
|
303
|
|
|
|
2,008
|
|
Total
unamortized intangible
|
|
$
|
621
|
|
|
$
|
4,142
|
|
NOTE
6 – OTHER REAL ESTATE OWNED
Other
real estate owned (“OREO”) properties acquired through foreclosure or
deed-in-lieu of foreclosure are recorded at the fair value of the real estate,
less costs to sell. Any write-down of the recorded investment in the
related loan is charged to the allowance for loan losses upon transfer to
OREO. Subsequent write-downs required for declines in value are
recorded through a valuation allowance and a provision for losses charged to
other non-interest expense.
Activity
in other real estate owned was as follows:
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Balance
at beginning of year
|
|
$
|
4,024
|
|
|
$
|
400
|
|
Acquired
from Union Trust
|
|
|
—
|
|
|
|
120
|
|
Additions
|
|
|
2,900
|
|
|
|
2,599
|
|
Increase
in OREO valuation allowance
|
|
|
(1,011
|
)
|
|
|
—
|
|
Properties
sold
|
|
|
(448
|
)
|
|
|
(420
|
)
|
Balance
at end of period
|
|
$
|
5,465
|
|
|
$
|
2,699
|
|
NOTE
7 – MORTGAGE SERVICING
Residential
real estate mortgages are originated by the Company both for portfolio and for
sale into the secondary market. The Company may sell its loans to institutional
investors such as Freddie Mac. Under loan sale and servicing agreements with the
investor, the Company generally continues to service the residential real estate
mortgages. The Company pays the investor an agreed-upon rate on the loan, which
is less than the interest rate the Company receives from the borrower. The
Company retains the difference as a fee for servicing the residential real
estate mortgages. The Company capitalizes mortgage servicing rights at their
fair value upon sale of the related loans, amortizes the asset over the
estimated life of the serviced loan, and periodically assesses the asset for
impairment. The balance of capitalized mortgage servicing rights, net of a
valuation allowance, included in other assets at September 30, 2009 and 2008 and
December 31, 2008 was $852,000, $712,000, and $139,000, respectively. At these
dates, the fair market value of the mortgage servicing rights approximated
$932,600, $733,000, and $174,000, respectively. In evaluating the reasonableness
of the carrying values of mortgage servicing rights, the Company obtains third
party valuations based on loan level data including note rate, type and term of
the underlying loans. The model utilizes a variety of assumptions, the most
significant of which are loan prepayment assumptions and the discount rate used
to discount future cash flows. Prepayment assumptions, which are impacted by
loan rates and terms, are calculated using a three-month moving average of
weekly prepayment data published by the Public Securities Association and
modeled against the serviced loan portfolio by the third party valuation
specialist. The discount rate is the quarterly average 10-year US Treasury rate
plus 5.1%. Other assumptions include delinquency rates, foreclosure rates,
servicing cost inflation, and annual unit loan cost. All assumptions are
adjusted periodically to reflect current circumstances. Amortization of the
mortgage servicing rights, as well as write-offs of capitalized rights due to
prepayments of the related mortgage loans, are recorded as a charge against
mortgage servicing fee income.
Mortgage
loans serviced for others are not included in the accompanying Consolidated
Statements of Condition of the Company and amounted to $221.3 million and $194.7
million at September 30, 2009 and 2008, respectively.
The
following summarizes mortgage servicing rights capitalized and amortized, along
with the activity in the related valuation allowance:
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Mortgage
Servicing Rights:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
|
139
|
|
|
$
|
142
|
|
Acquired
from Union Bankshares
|
|
|
—
|
|
|
|
1,199
|
|
Capitalized
mortgage servicing rights
|
|
|
796
|
|
|
|
—
|
|
Amortization
charged against mortgage banking income
|
|
|
(515
|
)
|
|
|
(618
|
)
|
Valuation
adjustment
|
|
|
432
|
|
|
|
(11
|
)
|
Balance
at end of period
|
|
$
|
852
|
|
|
$
|
712
|
|
Valuation
Allowance:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
|
(469
|
)
|
|
$
|
(1
|
)
|
Increase
in impairment reserve
|
|
|
—
|
|
|
|
(11
|
)
|
Reduction
of impairment reserve
|
|
|
432
|
|
|
|
—
|
|
Balance
at end of period
|
|
$
|
(37
|
)
|
|
$
|
(12
|
)
|
NOTE
8 – EMPLOYEE BENEFIT PLANS
Pension
Plan
The
Company, through its acquisition of Union Bankshares, had a qualified
noncontributory defined benefit pension plan covering substantially all
permanent full-time employees of the former Union Bankshares. Effective May 15,
2005, benefits accrued under this defined benefit plan were frozen based on
participants’ then current service and pay levels. During the fourth quarter of
2008 and the first quarter of 2009, the plan was liquidated. On
January 12, 2009, the Company paid out the remaining $735,000 liability related
to this plan.
Supplemental
Executive Retirement Plan
The
Company maintains an unfunded, non-qualified supplemental executive retirement
plan for certain officers. The components of net period benefit cost
for the periods ended September 30, 2009 and 2008 were as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
period benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
51
|
|
|
$
|
46
|
|
|
$
|
153
|
|
|
$
|
238
|
|
Interest
cost
|
|
|
104
|
|
|
|
65
|
|
|
|
312
|
|
|
|
195
|
|
Recognized
net actuarial loss
|
|
|
19
|
|
|
|
—
|
|
|
|
57
|
|
|
|
—
|
|
Recognized
prior service cost
|
|
|
4
|
|
|
|
5
|
|
|
|
13
|
|
|
|
15
|
|
Net
period benefit cost
|
|
$
|
178
|
|
|
$
|
116
|
|
|
$
|
535
|
|
|
$
|
448
|
|
Other
Postretirement Benefit Plan
The
Company provides medical and life insurance to certain eligible retired
employees. The components of net period benefit cost for the periods
ended September 30, 2009 and 2008 were as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
period benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
48
|
|
|
$
|
48
|
|
Interest
cost
|
|
|
34
|
|
|
|
34
|
|
|
|
102
|
|
|
|
102
|
|
Recognized
net actuarial loss
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
Net
period benefit cost
|
|
$
|
50
|
|
|
$
|
50
|
|
|
$
|
151
|
|
|
$
|
150
|
|
NOTE
9 – SHAREHOLDERS’ EQUITY
Dividends
The
primary source of funds available to the Company for payment of dividends to its
shareholders is dividends paid to the Company by its subsidiaries. The Company’s
subsidiaries are subject to certain requirements imposed by 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 subsidiaries to the Company. Under regulations prescribed by the Office
of the Comptroller of the Currency (the “OCC”), without prior OCC approval a
bank subsidiary may not declare dividends in any year in excess of the bank’s
(i) net income for the current year, (ii) plus its retained net income for the
prior two years. Due to the large dividends paid in the fourth quarter of 2007
to fund the Union Bankshares acquisition, the Bank sought and obtained OCC
approval to pay dividends in the first three quarters of 2009 in excess of its
current and retained net income for the period from January 1, 2007 through
December 31, 2008. The Company expects this OCC approval to remain in place
until the Bank’s retained net income meets the required regulatory levels and
approval is no longer necessary. The Company paid $1.9 million and $1.9 million
in dividends to shareholders for the three month periods ended September 30,
2009 and 2008, respectively. For the nine months ended September 30,
2009 and 2008 dividends paid to shareholders totaled $5.7 million and $5.4
million, respectively.
Common
Stock Repurchase
In June
2008, the Company’s Board of Directors approved the 2008 Common Stock Repurchase
Program. Under the program, the Company was authorized to repurchase up to
750,000 shares of its outstanding common stock for a one-year period. Under the
2008 Plan, the Company repurchased 50,000 shares of common stock at an average
price of $32.00 during the second half of 2008 and made no repurchases in the
first half of 2009. The authority, which expired on July 1, 2009, was
not renewed for the coming year.
NOTE
10 – SHARE-BASED COMPENSATION PLANS
The 2003
Stock Option and Incentive Plan (the “Plan”) provides for the grant of incentive
stock options, non-qualified stock options, stock appreciation rights,
restricted stock, deferred stock, unrestricted stock, performance share and
dividend equivalent rights.
Compensation
expense recognized in connection with the share-based arrangements is presented
in the following table:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Stock
options
|
|
$
|
43
|
|
|
$
|
24
|
|
|
$
|
147
|
|
|
$
|
66
|
|
Restricted
stock awards
|
|
|
8
|
|
|
|
38
|
|
|
|
131
|
|
|
|
101
|
|
Management
stock purchase plan
|
|
|
5
|
|
|
|
2
|
|
|
|
17
|
|
|
|
15
|
|
Total
share-based compensation expense
|
|
$
|
56
|
|
|
$
|
64
|
|
|
$
|
295
|
|
|
$
|
182
|
|
At
September 30, 2009, there was $515,000 of total unrecognized compensation cost
related to non-vested share-based compensation arrangements (including stock
option and non-vested share awards) granted under the Plan.
Option
activity for the nine months ended September 30, 2009 is as
follows:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
($000)
|
|
Options
outstanding at December 31, 2008
|
|
|
91,600
|
|
|
$
|
36.73
|
|
|
|
|
|
|
|
Granted
|
|
|
53,500
|
|
|
|
24.91
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(11,300
|
)
|
|
|
35.56
|
|
|
|
|
|
|
|
Options
outstanding at September 30, 2009
|
|
|
133,800
|
|
|
$
|
32.10
|
|
|
|
7.5
|
|
|
$
|
507
|
|
Options
exercisable at September 30, 2009
|
|
|
49,400
|
|
|
$
|
35.76
|
|
|
|
5.8
|
|
|
$
|
59
|
|
During
the first nine months of 2009, the Company awarded 2,000 shares of restricted
stock with vesting occurring over a three-year period. Under the
Management Stock Purchase Plan, 3,339 shares were granted in lieu of management
employees’ annual incentive bonus during the first nine months of
2009.
NOTE
11 – FAIR VALUE
Effective
June 15, 2009, the Company adopted the provisions of Financial Accounting
Standards Board (FASB) Staff Position FAS 107-1, Interim Disclosures about Fair
Value of Financial Instruments, now included in the FASB Accounting Standards
CodificationTM
(ASC or Codification) as part of FASB ASC 825-10-65, which requires disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial
statements. In accordance with FASB ASC 825-10-65, the Company has
included the fair value of financial instruments at September 30,
2009.
The
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, now
included in the Codification as part of FASB ASC 820-10, framework defines fair
value as the exchange price that would be received for an asset or paid to
transfer a liability in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants at the
measurement date. Accordingly, FASB ASC 820-10 requires an “exit price” approach
to value and establishes a fair value hierarchy which prioritizes the inputs
used to measure fair value, requiring entities to maximize the use of market or
observable inputs (as more reliable measures) and minimize the use of
unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs generally require significant
management judgment. The Company, in estimating its fair value disclosures, uses
the following methods and assumptions:
Cash and Due from Banks:
The carrying amounts of cash and due from banks approximate their
fair value.
Securities Available for Sale and
Trading Account Assets: The fair value of securities available for sale
and trading account assets is reported utilizing prices provided by an
independent pricing service based on recent trading activity and other
observable information including, but not limited to, dealer quotes, market
spreads, cash flows, market interest rate curves, market consensus prepayment
speeds, credit information, and the bond’s terms and conditions. The fair value
of equity securities was calculated using a discounted cash flow analysis using
observable information including, but not limited to, cash flows, risk-adjusted
discount rates and market spreads.
Securities Held to Maturity:
Fair values of securities held to maturity 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.
Federal Home Loan and Federal
Reserve Bank Stock: The carrying amount approximates fair
value.
Loans: 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. Loan impairment is deemed to exist when
full repayment of principal and interest according to the contractual terms of
the loan is no longer probable. Impaired loans are reported based on one of
three measures: the present value of expected future cash flows discounted at
the loan’s effective interest rate; the loan’s observable market price; or the
fair value of the collateral if the loan is collateral dependent. If the fair
value measure is less than an impaired loan’s recorded investment, an impairment
loss is recognized as part of the ALL. Accordingly, certain impaired loans may
be subject to measurement at fair value on a non-recurring basis. Management has
estimated the fair values of these assets using Level 2 inputs, such as the fair
value of collateral based on independent third-party appraisals for
collateral-dependent loans.
Loans Held for Sale: The fair
value of loans held for sale is based on secondary mortgage market
prices.
Derivatives: Derivatives are
reported at fair value utilizing Level 2 inputs obtained from third parties to
value interest rate caps and swaps.
OREO: OREO property is
recorded individually at net realizable value on the date of acquisition. Upon
acquisition of a property, a current appraisal or broker’s opinion must
substantiate market value for the property. At the acquisition date, if the net
realizable value of the property is less than the book value of the loan, a
charge to the ALL is recorded. If, after the initial acquisition, the value of
the property becomes permanently impaired as determined by an appraisal or an
evaluation in accordance with the Company’s appraisal policy, the Company
records the decline by charging the impairment against current
earnings.
Mortgage Servicing
Rights: Mortgage servicing rights are evaluated regularly for
impairment based upon the fair value of the servicing rights as compared to
their amortized cost. The fair value of mortgage servicing rights is based on a
valuation model that calculates the present value of estimated net servicing
income. The Company obtains a third-party valuation based upon loan level data
including note rate, type and term of the underlying loans. The model utilizes a
variety of observable inputs for its assumptions, the most significant of which
are loan prepayment assumptions and the discount rate used to discount future
cash flows. Other assumptions include delinquency rates, servicing cost
inflation, and annual unit loan cost.
Interest Receivable and
Payable: The carrying amounts approximate their fair
value.
Deposits: The
fair value of deposits, with no stated maturity, is equal to the carrying
amount. The fair value of certificates of deposit is estimated using a
discounted cash flow calculation that applies interest rates and remaining
maturities for currently offered certificates of deposit.
Borrowings: The
carrying amounts of short-term borrowings from the FHLBB, securities sold under
repurchase agreements, note payable and other short-term borrowings approximate
fair value. The fair value of long-term borrowings and commercial repurchase
agreements is based on the discounted cash flows using current rates for
advances of similar remaining maturities.
Junior Subordinated
Debentures: The fair value is estimated using a discounted
cash flow calculation that applies current rates for debentures of similar
maturity.
The
following table summarizes assets and liabilities measured at fair value on a
recurring basis:
September 30, 2009
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
$
|
—
|
|
$
|
525,966
|
|
$
|
—
|
|
$
|
525,966
|
|
Trading
account assets
|
|
|
1,667
|
|
|
—
|
|
|
—
|
|
|
1,667
|
|
Derivative
instruments
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
17
|
|
December 31, 2008
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
$
|
—
|
|
$
|
606,031
|
|
$
|
—
|
|
$
|
606,031
|
|
Trading
account assets
|
|
|
1,304
|
|
|
—
|
|
|
—
|
|
|
1,304
|
|
Derivative
instruments (The fair value was less than $1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
The
following table summarizes assets and liabilities measured at fair value on a
nonrecurring basis:
September 30, 2009
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
—
|
|
$
|
15,286
|
|
$
|
—
|
|
$
|
15,286
|
|
Other
real estate owned
|
|
|
—
|
|
|
—
|
|
|
5,465
|
|
|
5,465
|
|
Mortgage
servicing rights
|
|
|
—
|
|
|
933
|
|
|
—
|
|
|
933
|
|
December 31, 2008
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
—
|
|
$
|
11,158
|
|
$
|
—
|
|
$
|
11,158
|
|
Other
real estate owned
|
|
|
—
|
|
|
—
|
|
|
4,024
|
|
|
4,024
|
|
Mortgage
servicing rights
|
|
|
—
|
|
|
174
|
|
|
—
|
|
|
174
|
|
The
following is a summary of carrying amount and estimated fair value of the
Company’s financial instruments:
|
|
September 30, 2009
|
|
December 31, 2008
|
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
30,081
|
|
$
|
30,081
|
|
$
|
35,195
|
|
$
|
35,195
|
|
Securities
available for sale
|
|
|
525,966
|
|
|
525,966
|
|
|
606,031
|
|
|
606,031
|
|
Securities
held to maturity
|
|
|
39,366
|
|
|
41,751
|
|
|
42,040
|
|
|
41,954
|
|
Federal
Home Loan and Federal Reserve Bank stock
|
|
|
21,965
|
|
|
21,965
|
|
|
21,969
|
|
|
21,969
|
|
Trading
account assets
|
|
|
1,667
|
|
|
1,667
|
|
|
1,304
|
|
|
1,304
|
|
Loans
held for sale
|
|
|
1,298
|
|
|
1,308
|
|
|
—
|
|
|
—
|
|
Loans
receivable, net of allowance
|
|
|
1,500,246
|
|
|
1,489,908
|
|
|
1,483,217
|
|
|
1,472,454
|
|
Interest
receivable
|
|
|
7,649
|
|
|
7,649
|
|
|
8,325
|
|
|
8,325
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,513,334
|
|
|
1,520,421
|
|
|
1,489,517
|
|
|
1,486,620
|
|
Advances
from Federal Home Loan Bank
|
|
|
210,495
|
|
|
215,366
|
|
|
258,925
|
|
|
261,243
|
|
Commercial
repurchase agreements
|
|
|
126,494
|
|
|
133,247
|
|
|
126,577
|
|
|
131,197
|
|
Other
borrowed funds
|
|
|
163,933
|
|
|
163,933
|
|
|
232,893
|
|
|
232,893
|
|
Junior
subordinated debentures
|
|
|
43,487
|
|
|
51,769
|
|
|
43,410
|
|
|
48,376
|
|
Interest
payable
|
|
|
2,931
|
|
|
2,931
|
|
|
3,621
|
|
|
3,621
|
|
NOTE
12 – COMMITMENTS AND CONTINGENCIES
Legal
Contingencies
Various
legal claims arise from time to time in the normal course of business, which in
the opinion of management, are not expected to have a material effect on the
Company’s consolidated financial statements.
Financial
Instruments
In the
normal course of business, the Company is a party to both on-balance sheet and
off-balance sheet financial instruments involving, to varying degrees, elements
of credit risk and interest rate risk in addition to the amounts recognized in
the Consolidated Statements of Condition. For further information, refer to the
Contractual Obligations and Commitments section within Item 2, Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Lending-Related
Instruments
The
contractual amounts of the Company’s lending-related financial instruments do
not necessarily represent future cash requirements since certain of these
instruments may expire without being funded and others may not be fully drawn
upon. These instruments are subject to the Company’s credit approval process,
including an evaluation of the customer’s creditworthiness and related
collateral requirements. Commitments generally have fixed expiration dates or
other termination clauses.
Derivative
Financial Instruments
The
Company uses derivative financial instruments for risk management purposes and
not for trading or speculative purposes. The Company controls the credit risk of
these instruments through collateral, credit approvals and monitoring
procedures.
The
Company has an interest rate cap agreement with a cap rate of 5.50%, a notional
amount of $20.0 million, and an expiration date of March 15, 2010. The fair
value of the cap agreement at September 30, 2009 was less than $1,000 and was
recorded in other assets. The Company considers this instrument to be an
economic hedge; thus, changes in fair value are recorded in the Statement of
Income.
The
Company has a notional amount of $20.0 million in forward interest rate swap
agreements on its junior subordinated debentures. As the interest on these
debentures converts from fixed interest rate to variable rate on June 30, 2011,
the Company swapped a portion of the variable cost for a fixed
cost. One $10.0 million notional amount forward interest rate swaps
is for ten years with a fixed cost of 5.09% maturing on June 20, 2021, and a
second $10.0 million notional amount forward interest rate swap is for 18 years
with a fixed cost of 5.84% maturing on June 30, 2029. The fair value of the swap
agreements at September 30, 2009 was $16,900 and, as this instrument qualifies
as a highly effective cash flow hedge, the change in fair value was recorded in
other comprehensive income, net of tax, and other liabilities.
As part
of originating residential mortgage and commercial loans, the Company may enter
into rate lock agreements with customers and may issue commitment letters to
customers, which are considered interest rate lock or forward commitments. At
September 30, 2009 and December 31, 2008, based upon the pipeline of mortgage
loans with rate lock commitments and commercial loans with commitment letters,
and the fair value of those commitments, the Company determined the impact was
not material.
NOTE
13 – RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the
FASB issued SFAS No. 166 (not incorporated into the Codification yet),
Accounting for Transfers of
Financial Assets — an amendment of FASB Statement No. 140, to
improve the reporting for the transfer of financial assets resulting from 1)
practices that have developed since the issuance of SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, that
are not consistent with the original intent and key requirements of that
Statement and 2) concerns of financial statement users that many of the
financial assets (and related obligations) that have been derecognized should
continue to be reported in the financial statements of transferors. This
Statement must be applied as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009, for interim
periods within that first annual reporting period and for interim and annual
reporting periods thereafter. Earlier application is prohibited. The Company
will review the requirements of SFAS No. 166 and comply with its
requirements. The Company does not expect that the adoption of this Statement
will have a material impact on the Company’s consolidated financial
statements.
In
June 2009, the FASB issued SFAS No. 167 (not incorporated into the
Codification yet), Amendments
to FASB Interpretation No. 46(R), to amend certain requirements of
FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest
Entities, to improve financial reporting by enterprises involved with
variable interest entities and to provide more relevant and reliable information
to users of financial statements. The Statement is effective as of the beginning
of each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. The Company will review the requirements of SFAS
No. 167 and comply with its requirements. The Company does not expect that
the adoption of this Statement will have a material impact on the Company’s
consolidated financial statements.
In June 2009, the
FASB issued SFAS No. 168, The FASB Accounting Standards
CodificationTM and the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement No. 162.
This change initiated by this Statement is now included in the
Codification as FASB ASC 105-10. Under the Statement, the Codification
became the source of authoritative U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied by nongovernmental entities.
Rules and interpretive releases of the Securities and Exchange Commission
(SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of this Statement,
the Codification superseded all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative. This Statement is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. In the FASB’s view, the issuance of this
Statement and the Codification will not change GAAP, except for those nonpublic
nongovernmental entities that must now apply the American Institute of Certified
Public Accountants Technical Inquiry Service Section 5100, “Revenue
Recognition,” paragraphs 38–76, now part of FASB ASC Topic 985. Management
adopted FASB ASC 105-10 in the third quarter of 2009 and there was no material
impact on the financial statements of the Company.
In
August, 2009, the FASB issued Accounting Standards Update (ASU) 2009-05, “Fair Value Measurements and
Disclosures (Topic 820) – Measuring Liabilities at Fair Value,” which
updates FASB ASC 820-10. The update provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the following techniques:
1. A
valuation technique that uses a.) the quoted price of an identical liability
when traded as an asset, or b.) quoted prices for similar liabilities or similar
liabilities when traded as assets.
2.
Another valuation technique that is consistent with the principles of FASB ASC
820, examples include an income approach, such as a present value technique, or
a market approach, such as a technique that is based on the amount at
measurement date that the reporting entity would pay to transfer the identical
liability or would receive to enter into the identical liability.
This
standard is effective for financial statements issued for interim and annual
periods beginning after August 2009. The Company will adopt ASU
2009-05 effective for the quarter ending December 31, 2009. The
Company does not expect that the adoption will have a material impact on the
Company’s consolidated financial statements.
NOTE
14 – SUBSEQUENT EVENTS
On
October 16, 2009, the Company’s security group discovered that an employee of
Camden National Bank, a subsidiary of the Company, engaged in a series of
improper and unauthorized transactions. The Company is in discussions with
its insurance carrier and aggressively taking steps to recover the funds,
including cooperating with law enforcement authorities. To date,
transactions involving approximately $850,000 have been identified, but the
investigation is still in its preliminary stages. Management does not believe
that a material loss is probable and the amount of loss, if any, is not
reasonably estimable at this time.
Subsequent
events have been evaluated through October 30, 2009, the date financial
statements are filed with the SEC. Through that date, except for the matter
previously discussed, there were no additional events requiring
disclosure.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND
RESULTS OF OPERATIONS
FORWARD-LOOKING
STATEMENTS
The
discussions set forth below and in the documents we incorporate by reference
herein contain certain statements that may be considered forward-looking
statements under the Private Securities Litigation Reform Act of 1995. The
Company may make written or oral forward-looking statements in other documents
we file with the Securities Exchange Commission, in our annual reports to
shareholders, in press releases and other written materials and in oral
statements made by our officers, directors or employees. You can identify
forward-looking statements by the use of the words “believe,” “expect,”
“anticipate,” “intend,” “estimate,” “assume,” “will,” “should” and other
expressions which predict or indicate future events or trends and which do not
relate to historical matters. You should not rely on forward-looking statements,
because they involve known and unknown risks, uncertainties and other factors,
some of which are beyond the control of the Company. These risks, uncertainties
and other factors may cause the actual results, performance or achievements of
the Company to be materially different from the anticipated future results,
performance or achievements expressed or implied by the forward-looking
statements.
Some
of the factors that might cause these differences include, but are not limited
to, the following:
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•
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continuing
adverse general, national, regional or local economic conditions that
could impact the performance of the Company’s investment portfolio,
quality of credits or the overall demand for
services;
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•
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changes
in loan default and charge-off rates could affect the allowance for loan
losses;
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declines
in the equity and financial markets which could result in impairment of
goodwill;
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•
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reductions
in deposit levels could necessitate increased and/or higher cost borrowing
to fund loans and
investments;
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•
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declines
in mortgage loan refinancing, equity loan and line of credit activity
which could reduce net interest and non-interest
income;
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changes
in the domestic interest rate environment and inflation, as substantially
all of the assets and virtually all of the liabilities are monetary in
nature;
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changes
in the carrying value of investment securities and other
assets;
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further
actions by the U.S. government and Treasury Department, similar to the
Federal Home Loan Mortgage Corporation conservatorship, which could have a
negative impact on the Company’s investment portfolio and
earnings;
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•
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misalignment
of the Company’s interest-bearing assets and
liabilities;
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increases
in loan repayment rates affecting interest income and the value of
mortgage servicing rights;
and
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changing
business, banking, or regulatory conditions or policies, or new
legislation affecting the financial services industry, that could lead to
changes in the competitive balance among financial institutions,
restrictions on bank activities, changes in costs (including deposit
insurance premiums), increased regulatory scrutiny, declines in consumer
confidence in depository institutions, or changes in the secondary market
for bank loan and other
products;
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•
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changes
in accounting rules, Federal and State laws, Internal Revenue Service
regulations, and other regulations and policies governing financial
holding companies and their subsidiaries which may impact our ability to
take appropriate action to protect our financial interests in certain loan
situations.
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You
should carefully review all of these factors, and be aware that there may be
other factors that could cause differences, including the risk factors listed in
Item 1A. Risk Factors within our Annual Report on Form 10-K for the year ended
December 31, 2008. Readers should carefully review the risk factors
described therein and should not place undue reliance on our forward-looking
statements.
These
forward-looking statements were based on information, plans and estimates at the
date of this report, and we do not promise to update any forward-looking
statements to reflect changes in underlying assumptions or factors, new
information, future events or other changes.
CRITICAL
ACCOUNTING POLICIES
In
preparing the Consolidated Financial Statements, management is required to make
significant estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Actual results could differ from our
current estimates, as a result of changing conditions and future events. Several
estimates are particularly critical and are susceptible to significant near-term
change, including the allowance for loan losses (“ALL”), accounting for
acquisitions and review of goodwill and other identifiable intangible assets for
impairment, valuation of other real estate owned, other than temporary
impairment of investments, accounting for postretirement plans and income taxes.
Our significant accounting policies and critical estimates are summarized in
Note 1 of our Annual Report on Form 10-K for the year ended December 31,
2008.
Allowance for Loan
Losses. In preparing the Consolidated Financial Statements, the ALL
requires the most significant amount of management estimates and assumptions.
The ALL, which is established through a charge to the provision for loan losses,
is based on our evaluation of the level of the allowance required in relation to
the estimated loss exposure in the loan portfolio. We regularly evaluate the ALL
for adequacy by taking into consideration, among other factors, local industry
trends, management’s ongoing review of individual loans, trends in levels of
watched or criticized assets, an evaluation of results of examinations by
regulatory authorities and other third parties, analyses of historical trends in
charge-offs and delinquencies, the character and size of the loan portfolio,
business and economic conditions and our estimation of probable
losses.
In
determining the appropriate level of ALL, we use a methodology to systematically
measure the amount of estimated loan loss exposure inherent in the loan
portfolio. The methodology includes four elements: (1) identification of loss
allocations for certain specific loans, (2) loss allocation factors for certain
loan types based on credit grade and loss experience, (3) general loss
allocations for other environmental factors, and (4) unallocated allowance. The
specific component relates to loans that are classified as doubtful, substandard
or special mention. For such loans that are also classified as impaired, an
allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value
of that loan. The methodology is in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”). We use a risk
rating system to determine the credit quality of our loans and apply the related
loss allocation factors. In assessing the risk rating of a particular loan, we
consider, among other factors, the obligor’s debt capacity, financial condition
and flexibility, the level of the obligor’s earnings, the amount and sources of
repayment, the performance with respect to loan terms, the adequacy of
collateral, the level and nature of contingencies, management strength, and the
industry in which the obligor operates. These factors are based on an evaluation
of historical information, as well as subjective assessment and interpretation
of current conditions. Emphasizing one factor over another, or considering
additional factors that may be relevant in determining the risk rating of a
particular loan but which are not currently an explicit part of our methodology,
could impact the risk rating assigned to that loan. We periodically reassess and
revise the loss allocation factors used in the assignment of loss exposure to
appropriately reflect our analysis of loss experience. Portfolios of more
homogenous populations of loans including residential mortgages and consumer
loans are analyzed as groups taking into account delinquency rates and other
economic conditions which may affect the ability of borrowers to meet debt
service requirements, including interest rates and energy costs. We also
consider the results of regulatory examinations, historical loss ranges,
portfolio composition, and other changes in the portfolio. An additional
allocation is determined based on a judgmental process whereby management
considers qualitative and quantitative assessments of other environmental
factors. For example, a significant portion of our loan portfolio is
concentrated among borrowers in southern Maine and a substantial portion of the
portfolio is collateralized by real estate in this area. Another portion of the
commercial and commercial real estate loans are to borrowers in the hospitality,
tourism and recreation industries. Finally, an unallocated portion of the total
allowance is maintained to allow for shifts in portfolio
composition.
Since the
methodology is based upon historical experience and trends as well as
management’s judgment, factors may arise that result in different estimations.
Significant factors that could give rise to changes in these estimates may
include, but are not limited to, changes in economic conditions in our market
area, concentration of risk, declines in local property values, and results of
regulatory examinations. While management’s evaluation of the ALL as of
September 30, 2009 determined the allowance to be appropriate, under adversely
different conditions or assumptions, we may need to increase the allowance. The
Corporate Risk Management group reviews the ALL with the Camden National Bank
Board of Directors on a monthly basis. A more in-depth review of the ALL,
including the methodology for calculating and allocating the ALL, is reviewed
with the Company’s Board of Directors, as well as the Camden National Bank Board
of Directors, on a quarterly basis.
Accounting for Acquisitions and
Review of Goodwill and Identifiable Intangible Assets for
Impairment. We are required to record assets acquired and
liabilities assumed at their fair value, which is an estimate determined by the
use of internal or other valuation techniques. These valuation estimates result
in goodwill and other intangible assets and are subject to ongoing periodic
impairment tests and are evaluated using various fair value techniques.
Impairment evaluations are required to be performed annually and may be required
more frequently if certain conditions indicating potential impairment exist. If
we were to determine that our goodwill was impaired, the recognition of an
impairment charge could have an adverse impact on our results of operations in
the period that the impairment occurred or on our financial position. Goodwill
is evaluated for impairment using several standard valuation techniques
including discounted cash flow analyses, as well as an estimation of the impact
of business conditions. The use of different estimates or assumptions could
produce different estimates of carrying value.
Valuation of Other Real Estate Owned
(“OREO”). Periodically, we acquire property in connection with
foreclosures or in satisfaction of debt previously contracted. The valuation of
this property is accounted for individually based on its net realizable value on
the date of acquisition. At the acquisition date, if the net realizable value of
the property is less than the book value of the loan, a charge or reduction in
the ALL is recorded. If the value of the property becomes permanently impaired,
as determined by an appraisal or an evaluation in accordance with our appraisal
policy, we will record the decline by charging against current earnings. Upon
acquisition of a property, a current appraisal or broker’s opinion must
substantiate market value for the property.
Other Than Temporary Impairment of
Investments. We record an investment impairment charge at the point
we believe an investment has experienced a decline in value that is other than
temporary. In determining whether an other than temporary impairment has
occurred, we review information about the underlying investment that is publicly
available, analysts’ reports, applicable industry data and other pertinent
information, and assess our ability to hold the security for the foreseeable
future. The investment is written down to its current market value at the time
the impairment is deemed to have occurred. Future adverse changes in market
conditions, continued poor operating results of underlying investments or other
factors could result in further losses that may not be reflected in an
investment’s current carrying value, possibly requiring an additional impairment
charge in the future.
Accounting for Postretirement
Plans. We use a December 31 measurement date to determine the
expenses for our postretirement plans and related financial disclosure
information. Postretirement plan expense is sensitive to changes in eligible
employees (and their related demographics) and to changes in the discount rate
and other expected rates, such as medical cost trend rates. As with the
computations of plan expense, cash contribution requirements are also sensitive
to such changes.
Income Taxes. We account
for income taxes by deferring income taxes based on estimated future tax effects
of differences between the tax and book basis of assets and liabilities
considering the provisions of enacted tax laws. These differences result in
deferred tax assets and liabilities, which are included in the Consolidated
Statement of Condition. We must also assess the likelihood that any deferred tax
assets will be recovered from future taxable income and establish a valuation
allowance for those assets determined not likely to be recoverable. Judgment is
required in determining the amount and timing of recognition of the resulting
deferred tax assets and liabilities, including projections of future taxable
income. Although we have determined a valuation allowance is not required for
all deferred tax assets, there is no guarantee that these assets will be
recognizable. Although not currently under review, income tax returns for the
years ended December 31, 2005 through 2008 are open to audit by federal and
Maine authorities. If we, as a result of an audit, were assessed interest and
penalties, the amounts would be recorded through other non-interest
expense.
RESULTS
OF OPERATIONS
Executive
Overview
For
the nine months ended September 30, 2009:
Net
income of $17.5 million for the nine-month period ended September 30, 2009
increased $12.3 million, compared to the nine-month period ended September 30,
2008. Net income per diluted share increased to $2.29, compared to
$0.69 per diluted share earned during the first nine months of 2008. The
following were major factors contributing to the results of the first nine
months of 2009 compared to the same period of 2008:
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•
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Net
interest income on a fully-taxable equivalent basis for the first nine
months of 2009 increased 4.6% to $56.4 million due to lower funding costs
and an improvement in the net interest margin.
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•
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The
provision for loan losses of $6.5 million increased $4.4 million in the
first nine months of 2009 compared to the same period of 2008 as a result
of an increase in net charge-offs and non-performing
assets.
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•
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For
the nine months ended September 30, 2009, net charge-offs totaled $4.8
million, or an annualized rate of 0.42% of average loans, compared to $2.9
million, or 0.26%, for the same period of 2008. Non-performing assets as a
percentage of total assets amounted to 1.04% and 0.69% at September 30,
2009 and 2008, respectively.
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•
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Non-interest
income before net investment securities gains/losses and securities
impairment write-down for the first nine months of 2009 was $14.7 million,
a 9.9% increase over the first nine months of 2008. The increase was
driven by an increase in mortgage banking income, including
mortgage-servicing income and gains on the sale of loans, in part offset
by a decline in income from fiduciary services at Acadia Trust, N.A.
(“Acadia Trust”).
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•
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We
recorded net losses on our investment securities portfolio totaling $14.6
million in the first nine months of 2008 primarily due to a $14.0 million
write-down of other-than-temporarily-impaired securities (“OTTI
write-down”) during the third quarter of 2008. In accordance
with Revenue Procedure 2008-64, the OTTI write-down was treated as an
ordinary loss, and the Company was able to record a tax benefit of $4.9
million in the fourth quarter of 2008.
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•
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Non-interest
expense for the first nine months of 2009 was $37.9 million, an increase
of $2.0 million, or 5.7%, over the first nine months of the prior year,
which was primarily due to an increase in Federal Deposit Insurance
Corporation (FDIC) insurance assessment rates as well as a special
assessment of $1.1 million levied in the second quarter of
2009. There were also increases in foreclosed properties and
collection costs, in part offset by a 4.9% decline in salary and benefit
costs and a decrease in the amortization of the core deposit
intangible.
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For
the three months ended September 30, 2009:
Net
income for the three-month period ended September 30, 2009 increased $14.4
million, compared to the three-month period ended September 30,
2008. Net income per diluted share for the third quarter 2009
increased to $0.83, compared to a loss of $1.05 per diluted share earned in
2008. The following were major factors contributing to the results of the third
quarter of 2009 compared to the same period of 2008:
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Net
interest income on a fully-taxable equivalent basis for the third quarter
of 2009 increased 3.9% to $18.6 million due to lower funding costs and an
improvement in the net interest margin.
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•
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The
provision for loan losses of $2.0 million increased $830,000 in the third
quarter of 2009 compared to the same period of 2008 as a result of an
increase in net charge-offs and non-performing
assets.
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•
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Non-interest
income before net investment securities gains/losses and securities
impairment write-down for the third quarter of 2009 was $5.1 million, a
14.4% increase over the third quarter of 2008. The increase was driven by
an increase in mortgage banking income, including mortgage-servicing
income and gains on the sale of loans, in part offset by a decline in
income from fiduciary services at the Company’s subsidiary Acadia
Trust.
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Net
losses on our investment securities portfolio for the third quarter 2008
totaling $14.8 million were recorded primarily due to a $14.0 million
write-down of other-than-temporarily-impaired securities. In
accordance with Revenue Procedure 2008-64, the OTTI write-down was treated
as an ordinary loss, and the Company was able to record a tax benefit of
$4.9 million in the fourth quarter of
2008.
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•
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Non-interest
expense for the third quarter of 2009 was $12.2 million, an increase of
$493,000, or 4.2%, over the third quarter of the prior year, which was
primarily due to an increase in foreclosed properties and collection
costs.
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Financial condition at September 30,
2009 compared to December 31, 2008:
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Total
loans at September 30, 2009 were $1.5 billion (including loans held for
sale), an increase of $20.1 million (including loans held for sale)
compared to December 31, 2008. The increase in loan balances was primarily
in the commercial and residential real estate
portfolios.
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Investment
securities declined $82.7 million at September 30, 2009 compared to
December 31, 2008 due to security
prepayments.
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•
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Total
liabilities at September 30, 2009 of $2.1 billion decreased $89.1 million,
or 4.1%, as borrowings decreased $117.4 million, primarily in Federal Home
Loan Bank of Boston (“FHLBB”) borrowings, due to the decline in earning
asset balances.
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Shareholders’
equity increased 12.2% due to current year earnings and other
comprehensive income, in part offset by dividends
declared.
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Net
Interest Income
Net
interest income is our largest source of revenue and accounts for approximately
80% of total revenues. Net interest income reflects revenues generated through
income from earning assets plus loan fees, less interest paid on
interest-bearing deposits and borrowings. Net interest income is affected by
changes in interest rates, by loan and deposit pricing strategies and
competitive conditions, the volume and mix of interest-earning assets and
interest-bearing liabilities, and the level of non-performing
assets.
Net
interest income was $56.4 million on a fully-taxable equivalent basis for the
nine months ended September 30, 2009, compared to $53.9 million for the first
nine months of 2008, an increase of $2.5 million or 4.6%. The increase in net
interest income is largely due to an improvement of 19 basis points in the net
interest margin, to 3.55%, for the first nine months of 2009. The increase in
the net interest margin resulted from a decrease in the cost of funds, offset in
part by a decrease in income on earning assets, both of which were caused by the
decline in interest rates. Average interest-earning assets decreased by $12.8
million for the nine months ended September 30, 2009 compared the same period in
2008, primarily due to decreases in most loan categories, partially offset by
increases in investment securities and consumer loans. The yield on earning
assets for the first nine months of 2009 decreased 61 basis points, reflecting a
decline in the interest rate environment impacting both the investment and loan
yields. Average interest-bearing liabilities decreased $8.5 million for the nine
months ended September 30, 2009 compared to the same period in 2008, primarily
due to declines in wholesale funding, in part offset by an increase in retail
deposits driven by increases in certificate of deposit accounts. Total cost of
funds decreased 88 basis points due to the decline in short-term interest
rates.
Net
interest income, on a fully taxable equivalent basis, for the three months ended
September 30, 2009 was $18.6 million, a 3.9%, or $696,000, increase compared to
$17.9 million in net interest income for the same period in 2008. The
increase was primarily due to lower funding costs as the Company was able to
improve pricing on deposits and borrowings and minimize the decline of interest
rates on loans that resulted in an improved net interest margin.
The
following table presents, for the periods noted, average balance sheets,
interest income, interest expense, and the corresponding average yields earned
and rates paid, as well as net interest income, net interest rate spread and net
interest margin.
Average
Balance, Interest and Yield/Rate Analysis
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Nine
Months Ended
September
30, 2009
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Nine
Months Ended
September
30, 2008
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(Dollars in Thousands)
|
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Average
Balance
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|
|
Interest
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Yield/
Rate
|
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Average
Balance
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|
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Interest
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Yield/
Rate
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ASSETS
|
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Interest-earning
assets:
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|
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Securities – taxable
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$
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555,525
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$
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20,344
|
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4.88
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%
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$
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544,416
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|
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$
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20,665
|
|
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5.05
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%
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Securities – nontaxable
(1)
|
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64,956
|
|
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|
2,842
|
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5.83
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%
|
|
|
70,621
|
|
|
|
3,067
|
|
|
|
5.80
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%
|
Trading
account assets
|
|
|
1,413
|
|
|
|
16
|
|
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|
1.51
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%
|
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|
1,561
|
|
|
|
35
|
|
|
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2.99
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%
|
Federal
funds sold
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—
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—
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—
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%
|
|
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451
|
|
|
|
10
|
|
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2.96
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%
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Loans
(1)
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
|
621,407
|
|
|
|
27,089
|
|
|
|
5.81
|
%
|
|
|
627,896
|
|
|
|
28,367
|
|
|
|
6.03
|
%
|
Commercial
real estate
|
|
|
408,622
|
|
|
|
18,803
|
|
|
|
6.15
|
%
|
|
|
416,533
|
|
|
|
22,159
|
|
|
|
7.11
|
%
|
Commercial
|
|
|
183,258
|
|
|
|
7,700
|
|
|
|
5.62
|
%
|
|
|
210,016
|
|
|
|
11,161
|
|
|
|
7.10
|
%
|
Municipal
|
|
|
23,756
|
|
|
|
880
|
|
|
|
4.95
|
%
|
|
|
22,422
|
|
|
|
889
|
|
|
|
5.30
|
%
|
Consumer
|
|
|
265,523
|
|
|
|
9,826
|
|
|
|
4.95
|
%
|
|
|
243,345
|
|
|
|
11,505
|
|
|
|
6.32
|
%
|
Total
loans
|
|
|
1,502,566
|
|
|
|
64,298
|
|
|
|
5.71
|
%
|
|
|
1,520,212
|
|
|
|
74,081
|
|
|
|
6.50
|
%
|
Total
interest-earning assets
|
|
|
2,124,460
|
|
|
|
87,500
|
|
|
|
5.50
|
%
|
|
|
2,137,261
|
|
|
|
97,858
|
|
|
|
6.11
|
%
|
Cash
and due from banks
|
|
|
28,056
|
|
|
|
|
|
|
|
|
|
|
|
37,534
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
155,118
|
|
|
|
|
|
|
|
|
|
|
|
143,541
|
|
|
|
|
|
|
|
|
|
Less:
allowance for loan losses
|
|
|
(18,388
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,343
|
)
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,289,246
|
|
|
|
|
|
|
|
|
|
|
$
|
2,300,993
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking accounts
|
|
$
|
199,795
|
|
|
|
692
|
|
|
|
0.46
|
%
|
|
$
|
185,142
|
|
|
|
1,226
|
|
|
|
0.88
|
%
|
Savings
accounts
|
|
|
138,039
|
|
|
|
368
|
|
|
|
0.36
|
%
|
|
|
133,566
|
|
|
|
618
|
|
|
|
0.62
|
%
|
Money
market accounts
|
|
|
305,860
|
|
|
|
2,474
|
|
|
|
1.08
|
%
|
|
|
348,652
|
|
|
|
6,126
|
|
|
|
2.35
|
%
|
Certificates
of deposit
|
|
|
584,747
|
|
|
|
12,726
|
|
|
|
2.91
|
%
|
|
|
512,686
|
|
|
|
14,103
|
|
|
|
3.67
|
%
|
Total
retail deposits
|
|
|
1,228,441
|
|
|
|
16,260
|
|
|
|
1.77
|
%
|
|
|
1,180,046
|
|
|
|
22,073
|
|
|
|
2.50
|
%
|
Broker
deposits
|
|
|
80,973
|
|
|
|
1,483
|
|
|
|
2.45
|
%
|
|
|
67,453
|
|
|
|
2,239
|
|
|
|
4.43
|
%
|
Junior
subordinated debentures
|
|
|
43,449
|
|
|
|
2,136
|
|
|
|
6.57
|
%
|
|
|
43,342
|
|
|
|
2,195
|
|
|
|
6.76
|
%
|
Borrowings
|
|
|
559,202
|
|
|
|
11,267
|
|
|
|
2.69
|
%
|
|
|
629,744
|
|
|
|
17,500
|
|
|
|
3.71
|
%
|
Total
wholesale funding
|
|
|
683,624
|
|
|
|
14,886
|
|
|
|
2.91
|
%
|
|
|
740,539
|
|
|
|
21,934
|
|
|
|
3.96
|
%
|
Total
interest-bearing liabilities
|
|
|
1,912,065
|
|
|
|
31,146
|
|
|
|
2.18
|
%
|
|
|
1,920,585
|
|
|
|
44,007
|
|
|
|
3.06
|
%
|
Demand
deposits
|
|
|
180,702
|
|
|
|
|
|
|
|
|
|
|
|
185,595
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
22,452
|
|
|
|
|
|
|
|
|
|
|
|
25,180
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
174,027
|
|
|
|
|
|
|
|
|
|
|
|
169,633
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,289,246
|
|
|
|
|
|
|
|
|
|
|
$
|
2,300,993
|
|
|
|
|
|
|
|
|
|
Net
interest income (fully-taxable equivalent)
|
|
|
|
|
|
|
56,354
|
|
|
|
|
|
|
|
|
|
|
|
53,851
|
|
|
|
|
|
Less:
fully-taxable equivalent adjustment
|
|
|
|
|
|
|
(1,284
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,323
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
55,070
|
|
|
|
|
|
|
|
|
|
|
$
|
52,528
|
|
|
|
|
|
Net
interest rate spread (fully-taxable equivalent)
|
|
|
|
|
|
|
|
|
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
3.05
|
%
|
Net
interest margin (fully-taxable equivalent)
|
|
|
|
|
|
|
|
|
|
|
3.55
|
%
|
|
|
|
|
|
|
|
|
|
|
3.36
|
%
|
|
(1)
|
Reported
on tax-equivalent basis calculated using a rate of 35%.
|
|
(2)
|
Loans
held for sale and non-accrual loans are included in total average
loans.
|
Provision
and Allowance for Loan Losses
The ALL
is our best estimate of inherent risk of loss in the loan portfolio as of the
balance sheet date. The ALL was $19.4 million, or 1.28% of total loans, at
September 30, 2009, compared to $17.7 million, or 1.18% of total loans, at
December 31, 2008. For the nine months ended September 30, 2009, our provision
for loan losses charged to earnings amounted to $6.5 million, compared to $2.1
million for the same period in 2008. The increase in the provision was based on
management’s assessment of various factors affecting the loan portfolio,
including, among others, our ongoing evaluation of credit quality, with
particular emphasis on the commercial and commercial real estate portfolio, and
general economic conditions. For the first nine months of 2009, net charge-offs
totaled $4.8 million, or an annualized rate of 0.42% of average loans, compared
to $2.9 million, or 0.26%, for the same period of 2008. Year-to-date charge-off
activity for 2009 is centered in commercial and commercial real estate loans.
See additional ALL discussion under the caption “Asset Quality.”
For the
third quarter of 2009, our provision for loan losses charged to earnings
amounted to $2.0 million, compared to $1.2 million for the same period in
2008. The loan loss reserve analysis called for an increase in loan
loss provision due to increased non-accrual loan levels resulting from a general
weakening of the economy. Net charge-offs were $1.2 million for the
three months ended September 30, 2009 and $1.2 million for the three months
ended September 30, 2008.
Non-Interest
Income
Non-interest
income totaled $14.7 million for the nine months ended September 30, 2009,
compared to a loss of $1.2 million for the same period of 2008 primarily due to
the OTTI write-down of $14.0 million and net losses on sales of securities of
$624,000. There were increases in mortgage banking income of $1.4 million due to
the loan sales in the first nine months of 2009 and $225,000 in earnings on
bank-owned life insurance due to policy purchases in 2008. Income from fiduciary
services at Acadia Trust decreased $699,000, or 13.9%, resulting from market
value declines in assets under administration.
For the
third quarter of 2009 non-interest income increased $15.4 million compared to
the third quarter of 2008, primarily due to $14.8 million in net investment
securities losses recorded in 2008 as a result of the $14.0 million OTTI
write-down and net losses on sales of preferred equity securities. There were
also increases in mortgage banking income of $352,000 and earnings on bank-owned
life insurance of $63,000 due to policy purchases in 2008 recorded in 2009
compared to the same period in 2008. Income from fiduciary services
at Acadia Trust decreased $182,000, or 11.0%, for the three month period as a
result of value declines in assets under administration.
Non-Interest
Expenses
Non-interest
expense increased $2.0 million, or 5.7%, for the nine months ended September 30,
2009 compared to the same period of 2008. The increase was primarily due to a
$2.6 million increase in the FDIC insurance assessment rates which included a
special assessment of $1.1 million levied in the second quarter of 2009 and the
full utilization, in 2008, of assessment credits. There was also a
$1.4 million increase in foreclosed properties and collection costs related to
the $1.0 million provision to increase the valuation allowance on other real
estate owned. The increases were partially offset by a $935,000, or 4.9%,
decline in salary and benefit costs as the first half of 2008 included higher
staffing levels to facilitate the Union Bankshares merger. Also, the
amortization of the core deposit intangible decreased $321,000 as the 1998
branch purchases were fully amortized in 2008.
For the
third quarter of 2009, non-interest expense increased $493,000, or 4.2% compared
to the third quarter of 2008, primarily due to the $660,000 increase in
foreclosed properties and collection costs and the $276,000 increase in
regulatory assessments related to an increase in the FDIC deposit insurance
assessment rate.
FINANCIAL
CONDITION
Overview
Total
assets at September 30, 2009 were $2.3 billion, a decrease of $68.8 million, or
2.9%, from December 31, 2008. The change in assets consisted primarily of an
$82.7 million decrease in investments and a $5.1 million decrease in cash and
due from banks, partially offset by an $18.8 million increase in loans. Total
liabilities decreased $89.1 million as borrowings decreased $117.4 million
partially offset by an increase in total deposits (including brokered deposits)
of $23.8 million. Total shareholders’ equity increased $20.4 million, which was
a result of current year earnings and other comprehensive income, partially
offset by dividends declared to shareholders.
During
the first nine months of 2009, average assets of $2.3 billion decreased $11.7
million, compared to the same period in 2008. This decrease was
primarily the result of a decline in average loans of $17.6 million and cash and
due from banks of $9.5 million, partially offset by a $5.4 million increase in
the investment securities portfolio and a $10.0 million increase in bank-owned
life insurance. Average liabilities decreased $16.1 million for the nine months
ended September 30, 2009 compared to the same period of 2008, primarily due to a
decrease in average borrowings of $70.4 million, partially offset by a $57.0
million increase in average deposits (including brokered deposits).
Assets
Investments. At September 30,
2009, investment security balances of $587.3 million decreased $82.7 million
from December 31, 2008 primarily due to normal pay-downs, partially offset by
purchases of mortgage-backed securities issued or guaranteed by U.S. government
sponsored enterprises. Our portfolio is primarily comprised of obligations of
U.S. government sponsored enterprises and mortgage-backed securities issued or
guaranteed by U.S. government sponsored enterprises. The
approximately 20% remaining portfolio is invested as follows:
|
·
|
$61.5
million of obligations of states and political subdivisions with 98% rated
investment grade by at least one of the three rating agencies (Moody’s,
Standard & Poor’s and Fitch);
|
|
·
|
$28.2
million of private issue collateralized mortgage obligations rated
Triple-A by at least one of the three rating agencies, while $10.6 million
currently carry ratings below investment
grade;
|
|
·
|
$21.0
million of FHLBB stock which has suspended quarterly dividend
payments. Given the extended time frame the FHLBB has to redeem the
stock, and the Company’s ability and intent to hold the stock until
redeemed, management believes that the stock is not impaired;
and
|
|
·
|
$4.3
million of Duff & Phelps Select Income Fund Auction Preferred Stock
which has failed at auction. We believe the failed auctions are a
temporary liquidity event related to this asset class of securities. The
security is rated Triple-A by Moody’s and Standard and Poor’s. We are
currently collecting all amounts due according to contractual terms and
have the ability and intent to hold the securities until they clear
auction, are called, or mature; therefore, the securities are not
considered other than temporarily
impaired.
|
Loans. At September 30, 2009,
loans of $1.5 billion (including loans held for sale) increased $20.1 million
from December 31, 2008 primarily due to an increase in residential real estate,
commercial real estate, and consumer loans of $6.7 million, $27.7 million and
$4.1 million, respectively. These increases were partially offset by a decline
in the commercial portfolio of $17.9 million as a result of normal pay-downs and
decreased demand. Residential real estate loan activity during the
first nine months of 2009 has been strong due to low mortgage rates; as a
result, $71.2 million in residential real estate production was sold
year-to-date.
Asset
Quality
Non-Performing
Assets. Non-performing assets include non-accrual loans,
accruing loans 90 days or more past due, renegotiated loans and property
acquired through foreclosure or repossession. The following table sets forth the
amount of our non-performing assets as of the dates indicated:
|
|
September
30,
|
|
|
December
31,
|
|
(Dollars
in Thousands)
|
|
2009
|
|
|
2008
|
|
Non-accrual
loans
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
5,779
|
|
|
$
|
4,048
|
|
Commercial
real estate
|
|
|
5,322
|
|
|
|
4,957
|
|
Commercial
|
|
|
4,226
|
|
|
|
2,384
|
|
Consumer
|
|
|
1,271
|
|
|
|
1,112
|
|
Total
non-accrual loans
|
|
|
16,598
|
|
|
|
12,501
|
|
Accruing
loans past due 90 days
|
|
|
684
|
|
|
|
206
|
|
Renegotiated
loans not included above
|
|
|
917
|
|
|
|
—
|
|
Total
non-performing loans
|
|
|
18,199
|
|
|
|
12,707
|
|
Other
real estate owned
|
|
|
5,465
|
|
|
|
4,024
|
|
Total
non-performing assets
|
|
$
|
23,664
|
|
|
$
|
16,731
|
|
Non-performing
loans to total loans
|
|
|
1.14
|
%
|
|
|
0.85
|
%
|
Allowance
for loan losses to non-performing loans
|
|
|
112.45
|
%
|
|
|
139.22
|
%
|
Non-performing
assets to total assets
|
|
|
1.04
|
%
|
|
|
0.71
|
%
|
Allowance
for loan losses to non-performing assets
|
|
|
82.13
|
%
|
|
|
105.73
|
%
|
Non-performing
loans have increased $5.5 million since December 31, 2008 due to the
deterioration in economic conditions, resulting from a continued decrease in
retail sales in our market area, rising unemployment, and an overall decline in
real estate values. The portfolio of loans listed as non-performing are
diversified by region, collateral, and loan size. Our largest single exposure is
secured by a high-end residential property in the process of foreclosure. Until
the economy improves, we expect that non-performing loans will remain at
elevated levels.
The OREO
balance at September 30, 2009 consisted of thirteen properties, including three
residential properties, eight commercial/mixed use properties, and two parcels
of raw land. During the first nine months of 2009, the Company recorded an OREO
valuation allowance primarily related to two properties that were included in
OREO at December 31, 2008. The first property is a parcel of raw land that the
Company relied upon the appraised value and an offer to purchase the land at the
time of acquisition. The sale of the property did not occur and due to the
continued deterioration in the real estate market, the value of the property was
reassessed during the first quarter of 2009, which resulted in a $666,000
increase in the valuation allowance. The second property is a
commercial property that was reassessed during the third quarter of 2009 and a
new appraisal resulted in a $340,000 increase in the valuation allowance. The
OREO balance is higher than we have historically experienced, and in light of
the current economic environment and limited bid activity at the point of
auction, we anticipate the level of OREO to continue to be at a higher than
normal level.
Potential Problem
Loans. Potential problem loans consist of classified accruing
commercial and commercial real estate loans that were between 30 and 89 days
past due. Such loans are characterized by weaknesses in the financial condition
of borrowers or collateral deficiencies. Based on historical experience, the
credit quality of some of these loans may improve due to changes in collateral
values or the financial condition of the borrowers, while the credit quality of
other loans may deteriorate, resulting in some amount of loss. These loans are
not included in the analysis of non-accrual loans above. At September 30, 2009,
potential problem loans amounted to approximately $3.2 million, or 0.21% of
total loans, compared to $4.1 million, or 0.27% of total loans at December 31,
2008. The reduction was attributed in part to the migration of a portion of
potential problem loans at December 31, 2008 to non-accrual status during the
first nine months of 2009.
Past Due Loans. Past due
loans consist of accruing loans that were between 30 and 89 days past due. The
following table sets forth information concerning the past due loans at the date
indicated.
|
|
September
30,
|
|
December
31,
|
|
(Dollars
in Thousands)
|
|
2009
|
|
|
2008
|
|
Loans
30-89 days past due:
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
$
|
2,397
|
|
|
$
|
2,880
|
|
Commercial
real estate
|
|
|
1,852
|
|
|
|
2,314
|
|
Commercial
loans
|
|
|
2,760
|
|
|
|
3,601
|
|
Consumer
loans
|
|
|
531
|
|
|
|
829
|
|
Total
loans 30-89 days past due
|
|
$
|
7,540
|
|
|
$
|
9,624
|
|
|
|
|
|
|
|
|
|
|
Loans
30-89 days past due to total loans
|
|
|
0.50
|
%
|
|
|
0.64
|
%
|
Allowance for Loan
Losses. We use a methodology to systematically measure the amount of
estimated loan loss exposure inherent in the loan portfolio for purposes of
establishing a sufficient ALL. Through the first nine months of 2009, there were
no significant changes to the allowance assessment methodology. The ALL is
management’s best estimate of the probable loan losses as of the balance sheet
date. The allowance is increased by provisions charged to earnings and by
recoveries of amounts previously charged off, and is reduced by charge-offs on
loans.
The
following table sets forth information concerning the activity in our ALL during
the periods indicated.
|
|
Nine
Months Ended September 30,
|
|
(Dollars
in Thousands)
|
|
2009
|
|
|
2008
|
|
Allowance
at the beginning of the period
|
|
$
|
17,691
|
|
|
$
|
13,653
|
|
Acquired
from Union Trust
|
|
|
—
|
|
|
|
4,369
|
|
Provision
for loan losses
|
|
|
6,514
|
|
|
|
2,120
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
|
752
|
|
|
|
137
|
|
Commercial
real estate
|
|
|
1,843
|
|
|
|
1,529
|
|
Commercial
loans
|
|
|
1,865
|
|
|
|
1,221
|
|
Consumer
loans
|
|
|
894
|
|
|
|
662
|
|
Total
loan charge-offs
|
|
|
5,354
|
|
|
|
3,549
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
|
9
|
|
|
|
1
|
|
Commercial
real estate loans
|
|
|
41
|
|
|
|
55
|
|
Commercial
loans
|
|
|
276
|
|
|
|
319
|
|
Consumer
loans
|
|
|
258
|
|
|
|
244
|
|
Total
loan recoveries
|
|
|
584
|
|
|
|
619
|
|
Net
charge-offs
|
|
|
(4,770
|
)
|
|
|
(2,930
|
)
|
Allowance
at the end of the period
|
|
$
|
19,435
|
|
|
$
|
17,212
|
|
Average
loans outstanding
|
|
$
|
1,502,566
|
|
|
$
|
1,520,212
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs (annualized) to average loans outstanding
|
|
|
0.42
|
%
|
|
|
0.26
|
%
|
Provision
for loan losses (annualized) to average loans outstanding
|
|
|
0.58
|
%
|
|
|
0.19
|
%
|
Allowance
for loan losses to total loans
|
|
|
1.28
|
%
|
|
|
1.13
|
%
|
Allowance
for loan losses to net charge-offs (annualized)
|
|
|
305.60
|
%
|
|
|
440.55
|
%
|
Allowance
for loan losses to non-performing loans
|
|
|
112.45
|
%
|
|
|
130.85
|
%
|
Allowance
for loan losses to non-performing assets
|
|
|
82.13
|
%
|
|
|
108.57
|
%
|
During
the first nine months of 2009, the Company provided $6.5 million of expense to
the ALL compared to $2.1 million for the same period of 2008. The determination
of an appropriate level of ALL, and subsequent provision for loan losses, which
affects earnings, is based on our analysis of various economic factors and
review of the loan portfolio, which may change due to numerous factors including
loan growth, payoffs of lower quality loans, recoveries on previously
charged-off loans, improvement in the financial condition of the borrowers, risk
rating downgrades/upgrades and charge-offs. We utilize a comprehensive approach
toward determining the ALL, which includes an expanded risk rating system to
assist us in identifying the risks being undertaken, as well as migration within
the overall loan portfolio. The increase in the provision for loan losses was
primarily a result of an increase in net charge-offs mainly associated with
commercial real estate and commercial loans. Non-performing assets as a
percentage of total assets amounted to 1.04% at September 30, 2009, compared to
0.69% and 0.71% at September 30, 2008 and December 31, 2008, respectively,
primarily resulting from an increase in non-accrual loans. Our local economy has
continued to experience a decline in retail sales, rising unemployment, and an
overall decline in real estate values. We believe the ALL of $19.4
million, or 1.28% of total loans outstanding and 112.5% of total non-performing
loans at September 30, 2009, was appropriate given the current economic
conditions in our service area and the condition of the loan portfolio, although
if conditions continue to deteriorate, more provision may be
needed. The ALL was 1.13% of total loans outstanding and 130.9% of
total non-performing loans at September 30, 2008, and 1.18% of total loans
outstanding and 139.2% of total non-performing loans at December 31,
2008.
Liabilities
and Shareholders’ Equity
Total
liabilities have decreased $89.1 million, or 4.1%, since December 31, 2008, to
$2.1 billion at September 30, 2009. Borrowings declined $117.5
million which was comprised primarily of a decrease of $48.4 million in advances
from the FHLBB and a decrease in other borrowings of $69.0 million resulting
from a decrease of $116.4 million in overnight funding at the FHLBB and an
increase of $46.5 million in retail repurchase agreements. Total deposits
including brokered deposits increased $23.8 million primarily due to increases
in demand deposits of $21.0 million and interest checking, savings and money
markets balances of $66.6 million, partially offset by declines in retail
certificates of deposit and brokered deposits of $25.8 million and $38.0
million, respectively.
Total
shareholders' equity at September 30, 2009 increased $20.4 million, or 12.2%,
over the balance at December 31, 2008, as a result of current year net income of
$17.5 million partially offset by $5.7 million in dividends declared to
shareholders, and a $8.2 million increase in other comprehensive income
primarily due to an increase in the unrealized gain position of the available
for sale investment portfolio.
LIQUIDITY
Liquidity
needs require the availability of cash to meet the withdrawal demands of
depositors and credit commitments to borrowers. Liquidity is defined as our
ability to maintain availability of funds to meet customer needs, as well as to
support our asset base. The primary objective of liquidity management is to
maintain a balance between sources and uses of funds to meet our cash flow needs
in the most economical and expedient manner. Due to the potential for unexpected
fluctuations in both deposits and loans, active management of liquidity is
necessary. We maintain various sources of funding and levels of liquid assets in
excess of regulatory guidelines in order to satisfy their varied liquidity
demands. We monitor liquidity in accordance with internal guidelines and all
applicable regulatory requirements. As of September 30, 2009 and 2008, our level
of liquidity exceeded target levels. We believe that we currently have
appropriate liquidity available to respond to liquidity demands. Sources of
funds that we utilized consist of deposits, borrowings from the FHLBB and other
sources, cash flows from operations, prepayments and maturities of outstanding
loans, investments and mortgage-backed securities and the sales of mortgage
loans.
Deposits
continue to represent our primary source of funds. For the first nine months of
2009, average deposits (including brokered deposits) of $1.5 billion increased
$57.0 million compared to the same period of 2008. Comparing average deposits
for the first nine months of 2009 to the same period of 2008, declines were
experienced in average money market account balances of $42.8 million and demand
deposits of $4.9 million, while average interest checking, savings, and retail
certificates of deposit increased $14.7 million, $4.5 million and $72.1 million,
respectively. Average brokered deposits increased $13.5 million.
Included in the money market deposit category are deposits from Acadia Trust,
representing client funds. The balance in the Acadia Trust client money market
account, which was $105.0 million on September 30, 2009, could increase or
decrease depending upon changes in the portfolios of the clients of Acadia
Trust. The shift from money market accounts to retail certificates of deposit
was the result of changes in market rates, while the decline in checking
accounts reflects an increase in seasonal outflows due to the current economic
environment.
Borrowings
are used to supplement deposits as a source of liquidity. In addition to
borrowings from the FHLBB, we purchase federal funds, sell securities under
agreements to repurchase and utilize treasury tax and loan accounts. Average
borrowings and long-term debt for the first nine months of 2009 was $602.7
million, a decrease of $70.4 million from the first nine months of 2008. We
secure borrowings from the FHLBB, whose advances remain the largest
non-deposit-related funding source, with qualified residential real estate
loans, certain investment securities and certain other assets available to be
pledged. The carrying value of loans pledged as collateral at the FHLBB was
$705.3 million and $727.9 million at September 30, 2009 and 2008, respectively.
The carrying value of securities
pledged as collateral at the FHLBB was $40.7 million and $142.1 million at
September 30, 2009 and 2008, respectively. Through our bank subsidiary, we have
an available line of credit with the FHLBB of $9.9 million at September 30, 2009
and 2008. We had no outstanding balance on the line of credit with the FHLBB at
September 30, 2009. The Company also has a $10.0 million line of credit through
a correspondent bank available to us through December 28, 2009. We
had no outstanding balance on this line of credit at September 30, 2009.
We
believe the investment portfolio and residential loan portfolio provide a
significant amount of contingent liquidity that could be accessed in a
reasonable time period through sales of those portfolios. We also believe that
we have additional untapped access to the brokered deposit market, commercial
reverse repurchase transaction market and the Federal Reserve Bank (“FRB”)
discount window. These sources are considered as liquidity alternatives in our
contingent liquidity plan. We believe that the level of liquidity is sufficient
to meet current and future funding requirements. However, changes in economic
conditions, including consumer saving habits and availability or access to the
national brokered deposit and commercial repurchase markets, could significantly
impact our liquidity position.
CAPITAL
RESOURCES
Under FRB
guidelines, we are required to maintain capital based on risk-adjusted assets.
These capital requirements represent quantitative measures of our assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. Our capital classification is also subject to qualitative
judgments by our regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require us to maintain minimum amounts and ratios of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets (as defined), and of
Tier 1 capital to average assets (as defined). These guidelines apply to us 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 (as defined). Our risk-based ratios, and those of our
bank subsidiary, exceeded regulatory guidelines at September 30, 2009 and 2008.
Our Tier 1 capital to risk weighted assets was 11.89% and 11.01% at September
30, 2009 and 2008, respectively. The Company’s total capital to
risk weighted assets was 13.15% and 12.18% at September 30, 2009 and 2008,
respectively. 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. Our leverage ratio was 7.87% and 7.11% at September 30, 2009
and 2008, respectively.
Although
the junior subordinated debentures are recorded as a liability on our Statement
of Condition, we are permitted, in accordance with regulatory guidelines, to
include, subject to certain limits, the trust preferred securities in our
calculation of risk-based capital. At September 30, 2009, $43.0 million of the
trust preferred securities was included in Tier 1 and total risk-based
capital.
As part
of our goal to operate a safe, sound and profitable financial organization, we
are committed to maintaining a strong capital base. Shareholders’ equity totaled
$186.8 million and $158.7 million at September 30, 2009 and 2008, respectively,
which amounted to 8.2% of total assets at September 30, 2009 and 6.9% of total
assets at September 30, 2008.
Our
principal cash requirement is the payment of dividends on our common stock, as
and when declared by the Board of Directors. We paid dividends to shareholders
in the aggregate amount of $5.7 million and $5.4 million for the nine months
ended September 30, 2009 and 2008, respectively. Our Board of Directors approves
cash dividends on a quarterly basis after careful analysis and consideration of
various factors, including the following: a) capital position relative to total
assets, b) risk-based assets, c) total classified assets, d) economic
conditions, e) growth rates for total assets and total liabilities, f) earnings
performance and projections and g) strategic initiatives and related capital
requirements. All dividends declared and distributed by the Company will be in
compliance with applicable state corporate law and regulatory
requirements.
We are
primarily dependent upon the payment of cash dividends by our subsidiaries to
service our commitments. We, as the sole shareholder of our subsidiaries, are
entitled to dividends, when and as declared by each subsidiary’s Board of
Directors from legally available funds. Camden National Bank (“CNB”) declared
dividends in the aggregate amount of $9.0 million for the first nine months of
2009 and $6.0 million for the first nine months of 2008. Under regulations
prescribed by the Office of the Comptroller of the Currency (“OCC”), without
prior OCC approval our bank subsidiary may not declare dividends in any year in
excess of the each bank’s (i) net income for the current year, (ii) plus its
retained net income for the prior two years. Due to the large dividends paid in
the fourth quarter of 2007 to fund the Union Bankshares acquisition and a loss
in the third quarter of 2008 related to the investment securities losses, CNB
sought and obtained OCC approval to pay dividends in excess of its current and
retained net income for the required period. We expect this OCC approval to
remain in place until CNB’s net income meets the required levels and approval is
no longer necessary. However, if we are required to use dividends from CNB to
service unforeseen commitments in the future we may be required to reduce the
dividends paid to our shareholders going forward.
In June
2008, the Board of Directors voted to authorize us to purchase up to 750,000
shares of outstanding common stock for a period of one year that expired on July
1, 2009, and was not renewed for the coming year. We repurchased 50,000 shares
of common stock at an average price of $32.00 under the plan, all of which were
purchased during 2008.
CONTRACTUAL
OBLIGATIONS AND COMMITMENTS
In the
normal course of business, we are a party to credit related financial
instruments with off-balance sheet risk, which are not reflected in the
Consolidated Statements of Condition. These financial instruments include
lending commitments and letters of credit. Those instruments involve varying
degrees of credit risk in excess of the amount recognized in the Consolidated
Statements of Condition. We follow the same credit policies in making
commitments to extend credit and conditional obligations as we do for on-balance
sheet instruments, including requiring similar collateral or other security to
support financial instruments with credit risk. Our 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. At September 30, 2009, we had the following levels of
commitments to extend credit.
|
|
Total Amount
Committed
|
|
Commitment Expires in:
|
|
(Dollars in Thousand)
|
|
|
|
<1 Year
|
|
|
1 – 3 Years
|
|
|
4 – 5 Years
|
|
|
>5 Years
|
|
Letters
of Credit
|
|
$
|
1,157
|
|
|
$
|
1,157
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial
Commitment Letters
|
|
|
15,946
|
|
|
|
15,946
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential
Loan Origination
|
|
|
13,114
|
|
|
|
13,114
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home
Equity Line of Credit Commitments
|
|
|
149,850
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
149,844
|
|
Other
Commitments to Extend Credit
|
|
|
124,593
|
|
|
|
74,582
|
|
|
|
6,223
|
|
|
|
18,858
|
|
|
|
24,930
|
|
Total
|
|
$
|
304,660
|
|
|
$
|
104,799
|
|
|
$
|
6,229
|
|
|
$
|
18,858
|
|
|
$
|
174,774
|
|
We are a
party to several off-balance sheet contractual obligations through lease
agreements on a number of branch facilities. We have an obligation and
commitment to make future payments under these contracts. At September 30, 2009,
we had the following levels of contractual obligations.
|
|
Total Amount
of Obligations
|
|
Payments Due per Period
|
(Dollars in Thousands)
|
|
|
|
<1 Year
|
|
|
1 – 3 Years
|
|
|
4 – 5 Years
|
|
|
>5 Years
|
|
Operating
Leases
|
|
$
|
5,460
|
|
|
$
|
764
|
|
|
$
|
1,337
|
|
|
$
|
749
|
|
|
$
|
2,610
|
|
Capital
Leases
|
|
|
1,220
|
|
|
|
40
|
|
|
|
91
|
|
|
|
97
|
|
|
|
992
|
|
FHLBB
Borrowings – Overnight
|
|
|
43,960
|
|
|
|
43,960
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
FHLBB
Borrowings – Advances
|
|
|
210,495
|
|
|
|
60,761
|
|
|
|
77,161
|
|
|
|
31,188
|
|
|
|
41,385
|
|
Commercial
Repurchase Agreements
|
|
|
126,494
|
|
|
|
20,111
|
|
|
|
55,184
|
|
|
|
46,090
|
|
|
|
5,109
|
|
Other
Borrowed Funds
|
|
|
119,021
|
|
|
|
119,021
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Junior
Subordinated Debentures
|
|
|
43,487
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,487
|
|
Note
Payable
|
|
|
952
|
|
|
|
264
|
|
|
|
513
|
|
|
|
145
|
|
|
|
30
|
|
Other
Contractual Obligations
|
|
|
736
|
|
|
|
379
|
|
|
|
357
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
551,825
|
|
|
$
|
245,300
|
|
|
$
|
134,643
|
|
|
$
|
78,269
|
|
|
$
|
93,613
|
|
Borrowings
from the FHLBB consist of short- and long-term fixed and variable rate
borrowings and are collateralized by all stock in the FHLBB and a blanket lien
on qualified collateral consisting primarily of loans with first mortgages
secured by one-to-four family properties, certain pledged investment securities
and other qualified assets. Other borrowed funds include treasury, tax and loan
deposits and securities sold under repurchase agreements. We have an obligation
and commitment to repay all borrowings and debentures. These commitments,
borrowings, junior subordinated debentures and the related payments are made
during the normal course of business.
We may
use derivative instruments as partial hedges against large fluctuations in
interest rates. We may also use fixed-rate interest rate swap and floor
instruments to partially 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.
We may also use variable-rate interest rate swap and cap instruments to
partially 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 interest rate swap and cap instruments. These financial
instruments are factored into our overall interest rate risk position. We
regularly review the credit quality of the counterparty from which the
instruments have been purchased. At September 30, 2009, the Company had an
interest rate cap agreement with a notional amount of $20.0 million which
expires on March 15, 2010, and two forward interest rate swaps, each with a
notional amount of $10.0 million, related to the junior subordinated debentures,
expiring on June 30, 2021 and June 30, 2029.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT
MARKET RISK
MARKET
RISK
Market
risk is the risk of loss in a financial instrument arising from adverse changes
in market rates/prices, such as interest rates, foreign currency exchange rates,
commodity prices and equity prices. Our primary market risk exposure is interest
rate risk. The ongoing monitoring and management of this risk is an important
component of our asset/liability management process, which is governed by
policies established by the CNB Board of Directors, and are reviewed and
approved annually. The Board of Directors’ Asset/Liability Committee (“Board
ALCO”) delegates responsibility for carrying out the asset/liability management
policies to the Management Asset/Liability Committee (“Management ALCO”). In
this capacity, Management ALCO develops guidelines and strategies impacting our
asset/liability management-related activities based upon estimated market risk
sensitivity, policy limits and overall market interest rate levels/trends. The
Management ALCO and Board ALCO jointly meet on a quarterly basis to review
strategies, policies, economic conditions and various activities as part of the
management of these risks.
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 our financial instruments also change, thereby impacting net
interest income (“NII”), the primary component of our earnings. Board and
Management ALCO utilize the results of a detailed and dynamic simulation model
to quantify the estimated exposure of NII to sustained interest rate changes.
While Board and Management ALCO routinely monitor simulated NII sensitivity over
a rolling 2-year horizon, they also utilize 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
interest-bearing liabilities reflected on our Statement of Condition, as well as
for derivative financial instruments, if any. None of the assets used in the
simulation were held for trading purposes. This sensitivity analysis is compared
to ALCO policy limits, which specify a maximum tolerance level for NII exposure
over a 1-year horizon, assuming no balance sheet growth, given a 200 basis point
(“bp”) upward and 200 bp downward shift in interest rates. Although our policy
specifies a downward shift of 200 bp, this could result in negative rates as
many benchmark rates are currently below 2.00%. A parallel and pro rata shift in
rates over a 12-month period is assumed. Using this approach, we are able to
produce reports that illustrate the effect that both a gradual change of rates
(year-1) and a “rate shock” (year-2 and beyond) has on margin
expectations. In the down 100 bp scenario, Fed Funds and Treasury
yields are floored at .01% while Prime is floored at 3.00%. All other
market rates are floored at 0.25%. During the third quarter of 2009,
our NII sensitivity analysis reflected the following changes to NII assuming no
balance sheet growth and a parallel shift in interest rates over a 1-year
horizon.
Rate Change
|
|
Estimated Change in NII
|
|
+200
bp
|
|
|
(0.1
|
)%
|
-100
bp
|
|
|
(1.0
|
)% |
The
preceding sensitivity analysis does not represent a forecast and should not be
relied upon as being indicative of expected operating results. These
hypothetical estimates are based upon numerous assumptions including, among
others, the nature and timing of interest rate levels, yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits and reinvestment/replacement of asset and liability cash
flows. While assumptions are developed based upon current economic and local
market conditions, we cannot make any assurances as to the predictive nature of
these assumptions, including how customer preferences or competitor influences
might change.
The most significant
factors affecting the changes in market risk exposure during the first nine
months of 2009 were the decrease in the investment balances, lower cost of
retail deposits, and an increase in lower cost overnight borrowings that
resulted in an overall reduction in the cost of funds that outpaced the drop in
the yield on average assets. If rates remain at or near current
levels and the balance sheet mix remains similar, net interest income is
projected to remain more or less unchanged over the first two years of the
simulation period. Beyond the second year, net interest income is
projected to trend slightly downwards as funding cost reductions slow and the
asset base continues to adjust lower. In a falling interest rate environment,
net interest income is expected to trend in line with the base case scenarios
before developing a downward trend thereafter. Beyond the first
year, opportunities to reduce funding costs become even more difficult while
accelerated prepayments continue to drive asset yields lower; resulting in
tighter spreads and a decrease in expected net interest income. In
the initial stages of a rising rate environment, net interest income is
projected to trend in line with the base scenarios over the first
year. Thereafter, funding costs stabilize and the asset base
continues to be reprice or replaced at higher levels, causing an upward trend to
extend throughout the remaining simulation period. If the yield curve were
to flatten as rate rise, pressure on net interest income would be
greater. The risk in the various rate scenarios is within our policy
limits.
Periodically,
if deemed appropriate, we use interest rate swaps, floors and caps, which are
common derivative financial instruments, to hedge interest rate risk position.
The Board of Directors has approved hedging policy statements governing the use
of these instruments. As of September 30, 2009, we had a notional principal
amount of $20.0 million in an interest rate cap agreement and a notional
principal amount of $20.0 million in interest rate swap agreements related to
the junior subordinated debentures. Board and Management ALCO monitor derivative
activities relative to its expectation and our hedging
policies.
ITEM
4. CONTROLS AND PROCEDURES
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), the Company’s management conducted an evaluation with the
participation of the Company’s Chief Executive Officer and Chief Financial
Officer (Principal Financial & Accounting Officer), regarding the
effectiveness of the Company’s disclosure controls and procedures, as of the end
of the last fiscal quarter covered by this report. In designing and
evaluating the Company’s disclosure controls and procedures, the Company and its
management recognize that any controls and procedures, no matter how well
designed and operated, can provide only a reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating and implementing possible controls and
procedures. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer (Principal Financial & Accounting Officer)
concluded that they believe the Company’s disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms.
There was
no change in the internal control over financial reporting that occurred during
the period covered by this Quarterly Report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Subsequent
to the end of the fiscal quarter, on October 16, 2009, the Company’s security
group discovered that an employee of Camden National Bank, a
subsidiary of the Company, engaged in a series of improper and unauthorized
transactions. The Company, in conjunction with its independent
registered public accountants, launched an investigation into this matter,
including a review of the Company's disclosure controls and procedures and
internal controls over financial reporting. To date, transactions
involving approximately $850,000 have been identified, but the
investigation is still in its preliminary stages. Management does not believe
that a material loss is probable and the amount of loss, if any, is not
reasonably estimable at this time. As part of the
investigation, the Company intends to continue to review and document the
disclosure controls and procedures, including the internal controls over
financial reporting, and to make such changes to the disclosure controls and
procedures as may be necessary to enhance their effectiveness.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
No
material litigation.
ITEM
1A. RISK FACTORS
There has
been no material changes in the Risk Factors described in Item 1A. of the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
(a)
None
(b)
None
(c) In
June 2008, the Board of Directors of the Company voted to authorize the Company
to purchase up to 750,000 shares of its authorized and issued common stock. The
authority, which expired on July 1, 2009, was not renewed for the coming
year.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM
5. OTHER INFORMATION
None
ITEM
6. EXHIBITS
(a) Exhibits
(3.i.1)
The Articles of Incorporation of Camden National Corporation (incorporated by
reference to Exhibit 3.1 to the Company’s Form 10-Q filed with the Securities
and Exchange Commission on August 10, 2001)
(3.i.2)
Articles of Amendment to the Articles of Incorporation of Camden National
Corporation, as amended to date (incorporated by reference to Exhibit 3.3 to the
Company’s Form 10-Q filed with the Securities and Exchange Commission on May 9,
2003)
(3.i.3)
Articles of Amendment to the Articles of Incorporation of Camden National
Corporation, as amended to date (incorporated by reference to Exhibit 3.i.3 to
the Company’s Form 10-Q filed with the Securities and Exchange Commission on May
4, 2007)
(3.ii)
The Bylaws of Camden National Corporation, as amended to date (incorporated by
reference to Exhibit 99.1 to the Company’s Form 8-K filed with the Securities
and Exchange Commission on March 10, 2008)
(11.1)
Statement re computation of per share earnings (Data provided in Note 2 to the
consolidated financial statements in this report)
(23.1)
Consent of Berry, Dunn, McNeil & Parker relating to the financial statements
of Camden National Corporation*
(31.1)
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934*
(31.2)
Certification of Chief Financial Officer, Principal Financial & Accounting
Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934*
(32.1)
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
(32.2)
Certification of Chief Financial Officer, Principal Financial & Accounting
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002*
* Filed
herewith
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
CAMDEN
NATIONAL CORPORATION
|
(Registrant)
|
|
/s/
Gregory A. Dufour
|
|
October
30, 2009
|
Gregory
A. Dufour
|
|
Date
|
President
and Chief Executive Officer
|
|
|
|
|
|
/s/
Deborah A. Jordan
|
|
October 30, 2009
|
Deborah
A. Jordan
|
|
Date
|
Chief
Financial Officer and Principal
|
|
|
Financial
& Accounting Officer
|
|
|
Exhibit
Index
(3.i.1)
|
The
Articles of Incorporation of Camden National Corporation (incorporated by
reference to Exhibit 3.1 to the Company’s Form 10-Q filed with the
Securities and Exchange Commission on August 10,
2001)
|
(3.i.2)
|
Articles
of Amendment to the Articles of Incorporation of Camden National
Corporation, as amended to date (incorporated by reference to Exhibit 3.3
to the Company’s Form 10-Q filed with the Securities and Exchange
Commission on May 9, 2003)
|
(3.i.3)
|
Articles
of Amendment to the Articles of Incorporation of Camden National
Corporation, as amended to date (incorporated by reference to Exhibit
3.i.3 to the Company’s Form 10-Q filed with the Securities and Exchange
Commission on May 4, 2007)
|
(3.ii)
|
The
Bylaws of Camden National Corporation, as amended to date (incorporated by
reference to Exhibit 3.ii to the Company’s Form 10-Q filed with the
Securities and Exchange Commission on May 4,
2007)
|
(11.1)
|
Statement
re computation of per share earnings (Data is provided in Note 2 to the
consolidated financial statements in this
report)
|
(23.1)
|
Consent
of Berry, Dunn, McNeil & Parker relating to the financial statements
of Camden National Corporation
|
(31.1)
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934
|
(31.2)
|
Certification
of Chief Financial Officer, Principal Financial & Accounting Officer
pursuant to Rule 13a-14(a) of the Securities Exchange Act of
1934
|
(32.1)
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
(32.2)
|
Certification
Chief Financial Officer, Principal Financial & Accounting Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|