Unassociated Document
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 March 31, 2010
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 May 7,
2010: Common stock (no par value) 7,656,653 shares.
CAMDEN
NATIONAL CORPORATION
FORM
10-Q FOR THE QUARTER ENDED MARCH 31, 2010
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
March
31, 2010 and December 31, 2009
|
4
|
|
|
|
|
Consolidated
Statements of Income
Three
Months Ended March 31, 2010 and 2009
|
5
|
|
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity
Three
Months Ended March 31, 2010 and 2009
|
6
|
|
|
|
|
Consolidated
Statements of Cash Flows
Three
Months Ended March 31, 2010 and 2009
|
7
|
|
|
|
|
Notes
to Consolidated Financial Statements
Three
Months Ended March 31, 2010 and 2009
|
8-18
|
|
|
|
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
19-31
|
|
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
32-33
|
|
|
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
34
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
35
|
|
|
|
ITEM
1A.
|
RISK
FACTORS
|
35
|
|
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
35
|
|
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
35
|
|
|
|
ITEM
4.
|
[RESERVED]
|
35
|
|
|
|
ITEM
5.
|
OTHER
INFORMATION
|
35
|
|
|
|
ITEM
6.
|
EXHIBITS
|
36
|
|
|
|
SIGNATURES
|
37
|
|
|
|
EXHIBIT
INDEX
|
38
|
|
|
|
EXHIBITS
|
39-42
|
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 March 31, 2010, and for the
three-month periods ended March 31, 2010 and 2009. 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
May 7,
2010
CAMDEN
NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CONDITION
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
(In Thousands, Except Number of Shares)
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
29,899
|
|
|
$
|
29,772
|
|
Securities
|
|
|
|
|
|
|
|
|
Securities
available for sale, at fair value
|
|
|
460,702
|
|
|
|
479,708
|
|
Securities
held to maturity, at amortized cost (fair value $39,462 and $39,639 at
March 31, 2010 and December 31, 2009, respectively)
|
|
|
37,900
|
|
|
|
37,914
|
|
Federal
Home Loan Bank and Federal Reserve Bank stock, at cost
|
|
|
21,965
|
|
|
|
21,965
|
|
Total
securities
|
|
|
520,567
|
|
|
|
539,587
|
|
Trading
account assets
|
|
|
1,794
|
|
|
|
1,725
|
|
Loans
|
|
|
1,530,067
|
|
|
|
1,526,758
|
|
Less
allowance for loan losses
|
|
|
(21,379
|
)
|
|
|
(20,246
|
)
|
Net
loans
|
|
|
1,508,688
|
|
|
|
1,506,512
|
|
Goodwill
and other intangible assets
|
|
|
46,254
|
|
|
|
46,398
|
|
Bank-owned
life insurance
|
|
|
42,049
|
|
|
|
41,677
|
|
Premises
and equipment, net
|
|
|
26,563
|
|
|
|
26,054
|
|
Deferred
tax asset
|
|
|
10,268
|
|
|
|
10,317
|
|
Prepaid
FDIC assessment
|
|
|
7,635
|
|
|
|
8,197
|
|
Interest
receivable
|
|
|
7,500
|
|
|
|
7,236
|
|
Other
real estate owned
|
|
|
5,201
|
|
|
|
5,479
|
|
Other
assets
|
|
|
12,138
|
|
|
|
12,429
|
|
Total
assets
|
|
$
|
2,218,556
|
|
|
$
|
2,235,383
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
184,449
|
|
|
$
|
193,549
|
|
Interest
checking, savings and money market
|
|
|
691,186
|
|
|
|
675,681
|
|
Retail
certificates of deposit
|
|
|
538,832
|
|
|
|
545,789
|
|
Brokered
deposits
|
|
|
86,563
|
|
|
|
80,788
|
|
Total
deposits
|
|
|
1,501,030
|
|
|
|
1,495,807
|
|
Federal
Home Loan Bank advances
|
|
|
179,607
|
|
|
|
209,710
|
|
Other
borrowed funds
|
|
|
275,978
|
|
|
|
274,125
|
|
Junior
subordinated debentures
|
|
|
43,538
|
|
|
|
43,512
|
|
Accrued
interest and other liabilities
|
|
|
23,246
|
|
|
|
21,668
|
|
Total
liabilities
|
|
|
2,023,399
|
|
|
|
2,044,822
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Common
stock, no par value; authorized 20,000,000 shares, issued and outstanding
7,654,303 and 7,644,837 shares on March 31, 2010 and December 31, 2009,
respectively
|
|
|
50,180
|
|
|
|
50,062
|
|
Retained
earnings
|
|
|
136,987
|
|
|
|
133,634
|
|
Accumulated
other comprehensive income
|
|
|
|
|
|
|
|
|
Net
unrealized gains on securities available for sale, net of
tax
|
|
|
8,403
|
|
|
|
7,083
|
|
Net
unrealized gains on derivative instruments, at fair value, net of
tax
|
|
|
536
|
|
|
|
739
|
|
Net
unrecognized losses on postretirement plans, net of tax
|
|
|
(949
|
)
|
|
|
(957
|
)
|
Total
accumulated other comprehensive income
|
|
|
7,990
|
|
|
|
6,865
|
|
Total
shareholders’ equity
|
|
|
195,157
|
|
|
|
190,561
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,218,556
|
|
|
$
|
2,235,383
|
|
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 March 31,
|
|
(In Thousands, Except Number of Shares and per Share Data)
|
|
2010
|
|
|
2009
|
|
Interest
Income
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
20,447
|
|
|
$
|
21,621
|
|
Interest
on U.S. government and sponsored enterprise obligations
|
|
|
5,163
|
|
|
|
7,235
|
|
Interest
on state and political subdivision obligations
|
|
|
539
|
|
|
|
645
|
|
Interest
on federal funds sold and other investments
|
|
|
25
|
|
|
|
49
|
|
Total
interest income
|
|
|
26,174
|
|
|
|
29,550
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
4,121
|
|
|
|
6,402
|
|
Interest
on borrowings
|
|
|
3,294
|
|
|
|
3,934
|
|
Interest
on junior subordinated debentures
|
|
|
694
|
|
|
|
713
|
|
Total
interest expense
|
|
|
8,109
|
|
|
|
11,049
|
|
Net
interest income
|
|
|
18,065
|
|
|
|
18,501
|
|
Provision
for credit losses
|
|
|
1,996
|
|
|
|
1,730
|
|
Net
interest income after provision for credit losses
|
|
|
16,069
|
|
|
|
16,771
|
|
Non-Interest
Income
|
|
|
|
|
|
|
|
|
Income
from fiduciary services
|
|
|
1,567
|
|
|
|
1,354
|
|
Service
charges on deposit accounts
|
|
|
1,280
|
|
|
|
1,233
|
|
Other
service charges and fees
|
|
|
690
|
|
|
|
613
|
|
Bank-owned
life insurance
|
|
|
371
|
|
|
|
395
|
|
Brokerage
and insurance commissions
|
|
|
294
|
|
|
|
358
|
|
Mortgage
banking income
|
|
|
89
|
|
|
|
455
|
|
Other-than-temporary
impairment of securities
|
|
|
(48
|
)
|
|
|
—
|
|
Other
income
|
|
|
329
|
|
|
|
146
|
|
Total
non-interest income
|
|
|
4,572
|
|
|
|
4,554
|
|
Non-Interest
Expenses
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
6,225
|
|
|
|
5,678
|
|
Furniture,
equipment and data processing
|
|
|
1,068
|
|
|
|
963
|
|
Regulatory
assessments
|
|
|
715
|
|
|
|
872
|
|
Net
occupancy
|
|
|
1,034
|
|
|
|
1,118
|
|
Consulting
and professional fees
|
|
|
808
|
|
|
|
572
|
|
Other
real estate owned and collection costs
|
|
|
974
|
|
|
|
880
|
|
Amortization
of intangible assets
|
|
|
144
|
|
|
|
144
|
|
Other
expenses
|
|
|
1,954
|
|
|
|
2,064
|
|
Total
non-interest expenses
|
|
|
12,922
|
|
|
|
12,291
|
|
Income
before income taxes
|
|
|
7,719
|
|
|
|
9,034
|
|
Income
Taxes
|
|
|
2,406
|
|
|
|
2,820
|
|
Net
Income
|
|
$
|
5,313
|
|
|
$
|
6,214
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.69
|
|
|
$
|
0.81
|
|
Diluted
earnings per share
|
|
$
|
0.69
|
|
|
$
|
0.81
|
|
Weighted
average number of common shares outstanding
|
|
|
7,652,089
|
|
|
|
7,639,169
|
|
Diluted
weighted average number of common shares outstanding
|
|
|
7,659,640
|
|
|
|
7,642,705
|
|
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
|
|
|
Retained
Earnings
|
|
|
Net
Unrealized
Gains
(Losses) on
Securities
Available
for Sale
|
|
|
Net
Unrealized
Gains
(Losses) on
Derivative
Instruments
|
|
|
Net
Unrecognized
Losses on
Postretirement
Plans
|
|
|
Total
Shareholders’
Equity
|
|
Balance
at December 31, 2008
|
|
$
|
48,984
|
|
|
$
|
118,564
|
|
|
$
|
(89
|
)
|
|
$
|
—
|
|
|
$
|
(1,059
|
)
|
|
$
|
166,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
6,214
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,214
|
|
Change
in unrealized losses on securities available for sale, net of taxes of
($713)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,325
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,325
|
|
Change
in unrealized losses on derivative instruments at fair value, net of taxes
of $89
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(165
|
)
|
|
|
—
|
|
|
|
(165
|
)
|
Change
in net unrecognized losses on post-retirement plans, net of taxes of
($8)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
16
|
|
Total
comprehensive income
|
|
|
—
|
|
|
|
6,214
|
|
|
|
1,325
|
|
|
|
(165
|
)
|
|
|
16
|
|
|
|
7,390
|
|
Stock-based
compensation expense
|
|
|
122
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
122
|
|
Cash
dividends declared ($0.25/share)
|
|
|
—
|
|
|
|
(1,916
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,916
|
)
|
Balance
at March 31, 2009
|
|
$
|
49,106
|
|
|
$
|
122,862
|
|
|
$
|
1,236
|
|
|
$
|
(165
|
)
|
|
$
|
(1,043
|
)
|
|
$
|
171,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
$
|
50,062
|
|
|
$
|
133,634
|
|
|
$
|
7,083
|
|
|
$
|
739
|
|
|
$
|
(957
|
)
|
|
$
|
190,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
5,313
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,313
|
|
Change
in unrealized gains on securities available for sale, net of taxes of
($711)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,320
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,320
|
|
Change
in unrealized gains on derivative instruments at fair value, net of taxes
of $109
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(203
|
)
|
|
|
—
|
|
|
|
(203
|
)
|
Change
in net unrecognized losses on postretirement plans, net of taxes of
($4)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
8
|
|
Total
comprehensive income
|
|
|
—
|
|
|
|
5,313
|
|
|
|
1,320
|
|
|
|
(203
|
)
|
|
|
8
|
|
|
|
6,438
|
|
Stock-based
compensation expense
|
|
|
118
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
118
|
|
Common
stock repurchased (1,385 shares)
|
|
|
—
|
|
|
|
(44
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(44
|
)
|
Cash
dividends declared ($0.25/share)
|
|
|
—
|
|
|
|
(1,916
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,916
|
)
|
Balance
at March 31, 2010
|
|
$
|
50,180
|
|
|
$
|
136,987
|
|
|
$
|
8,403
|
|
|
$
|
536
|
|
|
$
|
(949
|
)
|
|
$
|
195,157
|
|
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)
|
|
Three Months Ended March 31,
|
|
(In Thousands)
|
|
2010
|
|
|
2009
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
income
|
|
$
|
5,313
|
|
|
$
|
6,214
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Provision
for credit losses
|
|
|
1,996
|
|
|
|
1,730
|
|
Depreciation
and amortization
|
|
|
707
|
|
|
|
667
|
|
Stock-based
compensation expense
|
|
|
118
|
|
|
|
122
|
|
Increase
in interest receivable
|
|
|
(264
|
)
|
|
|
(60
|
)
|
Amortization
of intangible assets
|
|
|
144
|
|
|
|
144
|
|
Net
increase in trading assets
|
|
|
(69
|
)
|
|
|
—
|
|
Other-than-temporary
impairment of securities
|
|
|
48
|
|
|
|
—
|
|
Increase
in other real estate owned valuation allowance
|
|
|
370
|
|
|
|
666
|
|
Originations
of mortgage loans held for sale
|
|
|
—
|
|
|
|
(29,119
|
)
|
Proceeds
from the sale of mortgage loans
|
|
|
—
|
|
|
|
20,155
|
|
Gain
on sale of mortgage loans
|
|
|
—
|
|
|
|
(112
|
)
|
Liquidation
of defined benefit pension plan
|
|
|
—
|
|
|
|
(735
|
)
|
Decrease
in prepaid FDIC assessment
|
|
|
562
|
|
|
|
—
|
|
Decrease
in other assets
|
|
|
654
|
|
|
|
1,649
|
|
Increase
in other liabilities
|
|
|
1,652
|
|
|
|
388
|
|
Net
cash provided by operating activities
|
|
|
11,231
|
|
|
|
1,709
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
Proceeds
from maturities of securities held to maturity
|
|
|
—
|
|
|
|
500
|
|
Proceeds
from sales and maturities of securities available for sale
|
|
|
40,784
|
|
|
|
47,830
|
|
Purchase
of securities available for sale
|
|
|
(19,887
|
)
|
|
|
(30,469
|
)
|
Net
(increase) decrease in loans
|
|
|
(3,961
|
)
|
|
|
30,074
|
|
Proceeds
from the sale of other real estate owned
|
|
|
212
|
|
|
|
175
|
|
Purchase
of premises and equipment
|
|
|
(3,148
|
)
|
|
|
(194
|
)
|
Net
cash provided by investing activities
|
|
|
14,000
|
|
|
|
47,916
|
|
Financing
Activities
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in deposits
|
|
|
5,219
|
|
|
|
(8,336
|
)
|
Proceeds
from Federal Home Loan Bank long-term advances
|
|
|
11,200
|
|
|
|
—
|
|
Repayments
on Federal Home Loan Bank long-term advances
|
|
|
(41,302
|
)
|
|
|
(42,445
|
)
|
Net
change in short-term Federal Home Loan Bank borrowings
|
|
|
4,385
|
|
|
|
(31,185
|
)
|
Net
(decrease) increase in other borrowed funds
|
|
|
(2,646
|
)
|
|
|
27,823
|
|
Common
stock repurchase
|
|
|
(44
|
)
|
|
|
—
|
|
Cash
dividends paid on common stock
|
|
|
(1,916
|
)
|
|
|
(1,912
|
)
|
Net
cash used by financing activities
|
|
|
(25,104
|
)
|
|
|
(56,055
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
127
|
|
|
|
(6,430
|
)
|
Cash
and cash equivalents at beginning of year
|
|
|
29,772
|
|
|
|
35,195
|
|
Cash
and cash equivalents at end of period
|
|
$
|
29,899
|
|
|
$
|
28,765
|
|
Supplemental
information
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
8,260
|
|
|
$
|
11,341
|
|
Income
taxes paid
|
|
|
1,000
|
|
|
|
—
|
|
Transfer
from loans to other real estate owned
|
|
|
304
|
|
|
|
—
|
|
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 (“GAAP”) 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 March 31, 2010 and December 31, 2009, the consolidated
statements of income for the three months ended March 31, 2010 and 2009, the
consolidated statements of changes in shareholders' equity for the three months
ended March 31, 2010 and 2009, and the consolidated statements of cash flows for
the three months ended March 31, 2010 and 2009. 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 period ended March 31, 2010 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, 2009 Annual Report on Form 10-K.
NOTE
2 – EARNINGS PER SHARE
Basic
earnings per common share (“EPS”) excludes dilution and is computed by dividing
net income applicable to common stock by the weighted average number of common
shares outstanding for the year. Diluted EPS reflects the potential dilution
that could occur if certain securities or other contracts to issue common stock
(such as stock options) were exercised or converted into additional common
shares that would then share in the earnings of the Company. Diluted EPS is
computed by dividing net income applicable to common stock by the weighted
average number of common shares outstanding for the year, plus an incremental
number of common-equivalent shares computed using the treasury stock method. The
following table sets forth the computation of basic and diluted earnings per
share under the two-class method, as unvested share-based payment awards include
the nonforfeitable right to receive dividends and therefore are considered
participating securities:
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Net
income, as reported
|
|
$
|
5,313
|
|
|
$
|
6,214
|
|
Weighted-average
common shares outstanding – basic
|
|
|
7,652,089
|
|
|
|
7,639,169
|
|
Dilutive
effect of stock-based compensation
|
|
|
7,551
|
|
|
|
3,536
|
|
Weighted-average
common and potential common shares – diluted
|
|
|
7,659,640
|
|
|
|
7,642,705
|
|
Basic
earnings per share – common stock
|
|
$
|
0.69
|
|
|
$
|
0.81
|
|
Basic
earnings per share – unvested share-based payment awards
|
|
|
0.69
|
|
|
|
0.81
|
|
Diluted
earnings per share – common stock
|
|
|
0.69
|
|
|
|
0.81
|
|
Diluted
earnings per share – unvested share-based payment awards
|
|
|
0.69
|
|
|
|
0.81
|
|
At March
31, 2010 and 2009, options to purchase 98,877 and 134,800 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 estimated fair values of
securities available for sale and held to maturity, as of the dates
indicated:
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
March
31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government sponsored enterprises
|
|
$
|
10,000
|
|
|
$
|
—
|
|
|
$
|
(40
|
)
|
|
$
|
9,960
|
|
Obligations
of states and political subdivisions
|
|
|
16,875
|
|
|
|
411
|
|
|
|
—
|
|
|
|
17,286
|
|
Mortgage-backed
securities issued or guaranteed by U.S. government sponsored
enterprises
|
|
|
383,209
|
|
|
|
17,757
|
|
|
|
—
|
|
|
|
400,966
|
|
Private
issue collateralized mortgage obligations
|
|
|
32,748
|
|
|
|
10
|
|
|
|
(4,689
|
)
|
|
|
28,069
|
|
Total
debt securities
|
|
|
442,832
|
|
|
|
18,178
|
|
|
|
(4,729
|
)
|
|
|
456,281
|
|
Equity
securities
|
|
|
5,000
|
|
|
|
—
|
|
|
|
(579
|
)
|
|
|
4,421
|
|
Total
securities available for sale
|
|
$
|
447,832
|
|
|
$
|
18,178
|
|
|
$
|
(5,308
|
)
|
|
$
|
460,702
|
|
Held
to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of states and political subdivisions
|
|
$
|
37,900
|
|
|
$
|
1,562
|
|
|
$
|
—
|
|
|
$
|
39,462
|
|
Total
securities held to maturity
|
|
$
|
37,900
|
|
|
$
|
1,562
|
|
|
$
|
—
|
|
|
$
|
39,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of states and political subdivisions
|
|
$
|
17,587
|
|
|
$
|
473
|
|
|
$
|
—
|
|
|
$
|
18,060
|
|
Mortgage-backed
securities issued or guaranteed by U.S. government sponsored
enterprises
|
|
|
412,113
|
|
|
|
16,608
|
|
|
|
(365
|
)
|
|
|
428,356
|
|
Private
issue collateralized mortgage obligations
|
|
|
34,121
|
|
|
|
12
|
|
|
|
(5,261
|
)
|
|
|
28,872
|
|
Total
debt securities
|
|
|
463,821
|
|
|
|
17,093
|
|
|
|
(5,626
|
)
|
|
|
475,288
|
|
Equity
securities
|
|
|
5,000
|
|
|
|
—
|
|
|
|
(580
|
)
|
|
|
4,420
|
|
Total
securities available for sale
|
|
$
|
468,821
|
|
|
$
|
17,093
|
|
|
$
|
(6,206
|
)
|
|
$
|
479,708
|
|
Held
to maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of states and political subdivisions
|
|
$
|
37,914
|
|
|
$
|
1,725
|
|
|
$
|
—
|
|
|
$
|
39,639
|
|
Total
securities held to maturity
|
|
$
|
37,914
|
|
|
$
|
1,725
|
|
|
$
|
—
|
|
|
$
|
39,639
|
|
Unrealized
gains on securities available for sale arising during the first quarter of 2010
and included in other comprehensive income amounted to $1.3 million, net of
deferred taxes of $711,000.
At March
31, 2010, securities with an amortized cost of $346.2 million and an estimated
fair value of $363.5 million were pledged to secure Federal Home Loan Bank
(“FHLB”) advances, public deposits, securities sold under agreements to
repurchase and other purposes required or permitted by law.
The
amortized cost and estimated fair values of debt securities by contractual
maturity at March 31, 2010 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
|
|
$ |
2,934 |
|
|
$ |
2,961 |
|
Due
after one year through five years
|
|
|
37,057 |
|
|
|
38,094 |
|
Due
after five years through ten years
|
|
|
59,186 |
|
|
|
61,384 |
|
Due
after ten years
|
|
|
343,655 |
|
|
|
353,842 |
|
|
|
$ |
442,832 |
|
|
$ |
456,281 |
|
Held
to maturity
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$ |
297 |
|
|
$ |
301 |
|
Due
after one year through five years
|
|
|
3,669 |
|
|
|
3,809 |
|
Due
after five years through ten years
|
|
|
32,043 |
|
|
|
33,387 |
|
Due
after ten years
|
|
|
1,891 |
|
|
|
1,965 |
|
|
|
$ |
37,900 |
|
|
$ |
39,462 |
|
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 (“OTTI”). Once a decline in value is determined to be
other-than-temporary, the value of the security is reduced and a corresponding
charge to earnings is recognized.
The
following table shows the unrealized gross losses and estimated fair values of
investment securities at March 31, 2010 and December 31 2009, 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
|
|
March
31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government sponsored enterprises
|
|
$
|
9,960
|
|
|
$
|
(40
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,960
|
|
|
$
|
(40
|
)
|
Private
issue collateralized mortgage obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
27,256
|
|
|
|
(4,689
|
)
|
|
|
27,256
|
|
|
|
(4,689
|
)
|
Equity
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
4,421
|
|
|
|
(579
|
)
|
|
|
4,421
|
|
|
|
(579
|
)
|
Total
|
|
$
|
9,960
|
|
|
$
|
(40
|
)
|
|
$
|
31,677
|
|
|
$
|
(5,268
|
)
|
|
$
|
41,637
|
|
|
$
|
(5,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities
|
|
$
|
25,003
|
|
|
$
|
(364
|
)
|
|
$
|
57
|
|
|
$
|
(1
|
)
|
|
$
|
25,060
|
|
|
$
|
(365
|
)
|
Private
issue collateralized mortgage obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
27,910
|
|
|
|
(5,261
|
)
|
|
|
27,910
|
|
|
|
(5,261
|
)
|
Equity
securities
|
|
|
—
|
|
|
|
—
|
|
|
|
4,420
|
|
|
|
(580
|
)
|
|
|
4,420
|
|
|
|
(580
|
)
|
Total
|
|
$
|
25,003
|
|
|
$
|
(364
|
)
|
|
$
|
32,387
|
|
|
$
|
(5,842
|
)
|
|
$
|
57,390
|
|
|
$
|
(6,206
|
)
|
At March
31, 2010, $41.6 million of the Company’s investment securities had unrealized
losses that are primarily considered temporary. A large portion of the
unrealized loss was related to the private issue collateralized mortgage
obligations (“CMOs”), which includes $9.0 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 22 securities with a fair value of $31.7
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. Stress tests are performed regularly on the higher risk bonds in the
portfolio using current statistical data to determine expected cash flows and
forecast potential losses. The results of the stress tests at March 31, 2010,
reflect no current credit loss in the base case, but did reflect potential
future losses. Based on this analysis the Company recorded a $48,000 OTTI
write-down on two private issue CMOs during the first quarter of
2010.
At March
31, 2010, the Company held Duff & Phelps Select Income Fund Auction
Preferred Stock with an amortized cost of $5.0 million which failed at auction
during 2008. 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.
The
composition of the Company’s loan portfolio, including residential loans held
for sale, at March 31, 2010 and December 31, 2009 was as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Residential
real estate loans
|
|
$
|
625,994
|
|
|
$
|
627,979
|
|
Commercial
real estate loans
|
|
|
437,294
|
|
|
|
434,783
|
|
Commercial
loans
|
|
|
192,087
|
|
|
|
191,214
|
|
Consumer
loans
|
|
|
275,025
|
|
|
|
273,106
|
|
Deferred
loan fees net of costs
|
|
|
(333
|
)
|
|
|
(324
|
)
|
Total
loans
|
|
$
|
1,530,067
|
|
|
$
|
1,526,758
|
|
The
Company’s lending activities are primarily conducted in Maine. The Company makes
single family and multi-family residential loans, commercial real estate loans,
business loans, municipal loans and a variety of consumer loans. In addition,
the Company makes loans for the construction of residential homes, multi-family
properties and commercial real estate properties. For the year ended December
31, 2009, the Company sold $72.5 million of fixed-rate residential mortgage
loans on the secondary market, which resulted in a net gain on the sale of loans
of $86,000. The Company did not sell mortgage loans during the first quarter of
2010. The ability and willingness of borrowers to honor their repayment
commitments is generally dependent on the level of overall economic activity
within the geographic area and the general economy.
Non-accrual
loans at March 31, 2010 were $18.0 million, or 1.18% of total loans, compared to
$17.9 million, or 1.18% of total loans, at December 31, 2009. Non-accrual loans
at March 31, 2010 were comprised of $6.2 million in commercial real estate
loans, $6.2 million in residential real estate loans, $4.3 million in commercial
loans, and $1.2 million in consumer loans. Non-accrual loans at December 31,
2009 consisted of $6.5 million in commercial real estate loans, $6.2 million in
residential real estate loans, $4.1 million in commercial loans, and $1.2
million in consumer loans.
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
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 March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Balance
at beginning of period
|
|
$
|
20,246
|
|
|
$
|
17,691
|
|
Loans
charged off
|
|
|
(1,253
|
)
|
|
|
(1,827
|
)
|
Recoveries
on loans previously charged off
|
|
|
386
|
|
|
|
97
|
|
Net
charge-offs
|
|
|
(867
|
)
|
|
|
(1,730
|
)
|
Provision
for loan losses
|
|
|
2,000
|
|
|
|
1,730
|
|
Balance
at end of period
|
|
$
|
21,379
|
|
|
$
|
17,691
|
|
NOTE
5 – GOODWILL, CORE DEPOSIT AND TRUST RELATIONSHIP INTANGIBLES
In 2008,
the Company acquired $37.9 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”). The changes in
goodwill, core deposit intangible and trust relationship intangible for the
three months ended March 31, 2010 are shown in the table below:
|
|
Goodwill
|
|
|
|
Banking
|
|
|
Financial
Services
|
|
|
Total
|
|
Balance
at December 31, 2009
|
|
$
|
34,720
|
|
|
$
|
7,060
|
|
|
$
|
41,780
|
|
2010
activity
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance
at March 31, 2010
|
|
$
|
34,720
|
|
|
$
|
7,060
|
|
|
$
|
41,780
|
|
|
|
Core Deposit Intangible
|
|
|
|
Total
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Balance
at December 31, 2009
|
|
$ |
14,444 |
|
|
$ |
(10,428 |
) |
|
$ |
4,016 |
|
2010
amortization
|
|
|
— |
|
|
|
(126 |
) |
|
|
(126 |
) |
Balance
at March 31, 2010
|
|
$ |
14,444 |
|
|
$ |
(10,554 |
) |
|
$ |
3,890 |
|
|
|
Trust Relationship Intangible
|
|
|
|
Total
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Balance
at December 31, 2009
|
|
$
|
753
|
|
|
$
|
(151
|
)
|
|
$
|
602
|
|
2010
amortization
|
|
|
—
|
|
|
|
(18
|
)
|
|
|
(18
|
)
|
Balance
at March 31, 2010
|
|
$
|
753
|
|
|
$
|
(169
|
)
|
|
$
|
584
|
|
During
the fourth quarter of 2009, 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 March 31, 2010:
|
|
Trust
Relationship
|
|
|
Core Deposit
|
|
|
|
Intangible
|
|
|
Intangible
|
|
2010
|
|
$
|
57
|
|
|
$
|
376
|
|
2011
|
|
|
75
|
|
|
|
502
|
|
2012
|
|
|
75
|
|
|
|
502
|
|
2013
|
|
|
75
|
|
|
|
502
|
|
2014
|
|
|
75
|
|
|
|
502
|
|
Thereafter
|
|
|
227
|
|
|
|
1,506
|
|
Total
unamortized intangible
|
|
$
|
584
|
|
|
$
|
3,890
|
|
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:
|
|
Three Months Ended
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Balance
at beginning of year
|
|
$
|
5,479
|
|
|
$
|
4,024
|
|
Additions
|
|
|
304
|
|
|
|
—
|
|
Increase
in OREO valuation allowance
|
|
|
(370
|
)
|
|
|
(666
|
)
|
Properties
sold
|
|
|
(212
|
)
|
|
|
(175
|
)
|
Balance
at end of period
|
|
$
|
5,201
|
|
|
$
|
3,183
|
|
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 March 31, 2010 and 2009 were as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Net
period benefit cost
|
|
|
|
|
|
|
Service
cost
|
|
$
|
45
|
|
|
$
|
51
|
|
Interest
cost
|
|
|
107
|
|
|
|
104
|
|
Recognized
net actuarial loss
|
|
|
8
|
|
|
|
19
|
|
Recognized
prior service cost
|
|
|
5
|
|
|
|
5
|
|
Net
period benefit cost
|
|
$
|
165
|
|
|
$
|
179
|
|
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 March 31, 2010 and 2009 were as follows:
|
|
Three Months Ended
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Net
period benefit cost
|
|
|
|
|
|
|
Service
cost
|
|
$
|
17
|
|
|
$
|
16
|
|
Interest
cost
|
|
|
36
|
|
|
|
34
|
|
Recognized
net actuarial loss
|
|
|
0
|
|
|
|
1
|
|
Net
period benefit cost
|
|
$
|
53
|
|
|
$
|
51
|
|
On March
11, 2010 the Company granted 7,500 restricted stock awards to certain executive
officers of the Company and/or Bank, from the 2003 Stock Option and Incentive
Plan. The holders of these awards participate fully in the rewards of stock
ownership of the Company, including voting and dividend rights. The restricted
stock awards have been determined to have a fair value of $32.49, based on the
market price of the Company’s common stock on the date of grant. The restricted
stock awards vest over a three year period.
On March
15, 2010 the Company awarded options to purchase 30,750 shares of common stock
from the Stock Option and Incentive Plan to certain officers of the Company
and/or the Bank. The expected volatility, expected life, expected dividend
yield, and expected risk free interest rate for this grant used to determine the
fair value of the shares as determined on March 15, 2010 were 50%, 5 years,
3.08%, and 2.36%, respectively. The options have been determined to have a fair
value of $11.74 per share. The options vest over a five year period and have a
contractual life of ten years from date of grant.
Under the
Management Stock Purchase Plan, 1,677 shares were granted in lieu of management
employees’ annual incentive bonus during the first three months of
2010. During the first quarter of 2010, the Company granted 1,565
Deferred Stock Awards under the Defined Contribution Retirement
Plan.
NOTE
9 – FAIR VALUE
GAAP
permits an entity to choose to measure eligible financial instruments and other
items at fair value. The Company has not made any fair value elections as of
March 31, 2010.
Pursuant
to GAAP, fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. A three-level hierarchy exists in GAAP for
fair value measurements based upon the inputs to the valuation of an asset or
liability.
Level 1:
Valuation is based on quoted prices in active markets for identical
assets and liabilities.
Level 2:
Valuation is determined from quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar
instruments in markets that are not active or by model-based techniques in which
all significant inputs are observable in the market.
Level 3:
Valuation is derived from model-based and other techniques in which
at least one significant input is unobservable and which may be based on the
Company’s own estimates about the assumptions that market participants would use
to value the asset or liability.
When
available, the Company attempts to use quoted market prices in active markets to
determine fair value and classifies such items as Level 1 or Level 2. If quoted
market prices in active markets are not available, fair value is often
determined using model-based techniques incorporating various assumptions
including interest rates, prepayment speeds and credit losses. Assets and
liabilities valued using model-based techniques are classified as either Level 2
or Level 3, depending on the lowest level classification of an input that is
considered significant to the overall valuation. The following is a description
of the valuation methodologies used for the Company’s assets and liabilities
that are measured on a recurring basis at estimated fair value.
The
following table summarizes assets and liabilities measured at estimated fair
value on a recurring basis.
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
Measurements at
March 31,
2010
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. government sponsored enterprises
|
|
$ |
— |
|
|
$ |
9,960 |
|
|
$ |
— |
|
|
$ |
9,960 |
|
Obligations
of states and political subdivisions
|
|
|
— |
|
|
|
17,286 |
|
|
|
— |
|
|
|
17,286 |
|
Mortgage-backed
securities issued or guaranteed by US government sponsored
enterprises
|
|
|
— |
|
|
|
400,966 |
|
|
|
— |
|
|
|
400,966 |
|
Private
issue collateralized mortgage obligations
|
|
|
— |
|
|
|
28,069 |
|
|
|
— |
|
|
|
28,069 |
|
Equity
securities
|
|
|
— |
|
|
|
4,421 |
|
|
|
— |
|
|
|
4,421 |
|
Trading
account assets
|
|
|
1,794 |
|
|
|
— |
|
|
|
— |
|
|
|
1,794 |
|
Derivatives
instruments
|
|
|
— |
|
|
|
825 |
|
|
|
— |
|
|
|
825 |
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
Measurements at
December 31,
2009
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of states and political subdivisions
|
|
$ |
— |
|
|
$ |
18,060 |
|
|
$ |
— |
|
|
$ |
18,060 |
|
Mortgage-backed
securities issued or guaranteed by US government sponsored
enterprises
|
|
|
— |
|
|
|
428,356 |
|
|
|
— |
|
|
|
428,356 |
|
Private
issue collateralized mortgage obligations
|
|
|
— |
|
|
|
28,872 |
|
|
|
— |
|
|
|
28,872 |
|
Equity
securities
|
|
|
— |
|
|
|
4,420 |
|
|
|
— |
|
|
|
4,420 |
|
Trading
account assets
|
|
|
1,725 |
|
|
|
— |
|
|
|
— |
|
|
|
1,725 |
|
Derivatives
instruments
|
|
|
— |
|
|
|
1,136 |
|
|
|
— |
|
|
|
1,136 |
|
The
following table summarizes assets and liabilities measured at fair value on a
non-recurring basis:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
Measurements at
March 31,
2010
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
—
|
|
|
$
|
1,385
|
|
|
$
|
—
|
|
|
$
|
1,385
|
|
Other
real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
5,201
|
|
|
|
5,201
|
|
Mortgage
servicing rights
|
|
|
—
|
|
|
|
945
|
|
|
|
—
|
|
|
|
945
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Fair Value
Measurements at
December 31,
2009
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$
|
—
|
|
|
$
|
16,135
|
|
|
$
|
—
|
|
|
$
|
16,135
|
|
Other
real estate owned
|
|
|
—
|
|
|
|
—
|
|
|
|
5,479
|
|
|
|
5,479
|
|
Mortgage
servicing rights
|
|
|
—
|
|
|
|
965
|
|
|
|
—
|
|
|
|
965
|
|
The
following table reconciles the beginning and ending balances of other real
estate owned measured at fair value on a nonrecurring basis using significant
unobservable (Level 3) inputs:
|
|
Three Months Ended
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Balance
at beginning of year
|
|
$
|
5,479
|
|
|
$
|
4,024
|
|
Additions
|
|
|
304
|
|
|
|
—
|
|
Increase
in OREO valuation allowance
|
|
|
(370
|
)
|
|
|
(666
|
)
|
Properties
sold
|
|
|
(212
|
)
|
|
|
(175
|
)
|
Balance
at end of period
|
|
$
|
5,201
|
|
|
$
|
3,183
|
|
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. Upon acquisition of a property,
a current appraisal or a broker’s opinion is used to substantiate fair value for
the property. After foreclosure, management periodically obtains updated
valuations of the OREO assets and, if additional impairments are deemed
necessary, the subsequent write-downs for declines in value are recorded through
a valuation allowance and a provision for losses charged to other non-interest
expense.
The
carrying amounts and estimated fair value for financial instrument assets and
liabilities are presented in the following table:
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
29,899
|
|
|
$
|
29,899
|
|
|
$
|
29,772
|
|
|
$
|
29,772
|
|
Securities
available for sale
|
|
|
460,702
|
|
|
|
460,702
|
|
|
|
479,708
|
|
|
|
479,708
|
|
Securities
held to maturity
|
|
|
37,900
|
|
|
|
39,462
|
|
|
|
37,914
|
|
|
|
39,639
|
|
Trading
account assets
|
|
|
1,794
|
|
|
|
1,794
|
|
|
|
1,725
|
|
|
|
1,725
|
|
Derivatives
instruments
|
|
|
825
|
|
|
|
825
|
|
|
|
1,136
|
|
|
|
1,136
|
|
Federal
Home Loan and Federal Reserve Bank stock
|
|
|
21,965
|
|
|
|
21,965
|
|
|
|
21,965
|
|
|
|
21,965
|
|
Loans
receivable, net of allowance
|
|
|
1,508,688
|
|
|
|
1,530,518
|
|
|
|
1,506,512
|
|
|
|
1,526,148
|
|
Mortgage
servicing rights
|
|
|
756
|
|
|
|
945
|
|
|
|
810
|
|
|
|
965
|
|
Interest
receivable
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
7,236
|
|
|
|
7,236
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,501,030
|
|
|
|
1,506,858
|
|
|
|
1,495,807
|
|
|
|
1,502,020
|
|
Federal
Home Loan Bank advances
|
|
|
179,607
|
|
|
|
185,852
|
|
|
|
209,710
|
|
|
|
216,373
|
|
Commercial
repurchase agreements
|
|
|
116,438
|
|
|
|
125,005
|
|
|
|
126,466
|
|
|
|
135,189
|
|
Other
borrowed funds
|
|
|
159,540
|
|
|
|
159,540
|
|
|
|
147,659
|
|
|
|
147,659
|
|
Junior
subordinated debentures
|
|
|
43,538
|
|
|
|
50,776
|
|
|
|
43,512
|
|
|
|
51,075
|
|
Interest
payable
|
|
|
2,442
|
|
|
|
2,442
|
|
|
|
2,593
|
|
|
|
2,593
|
|
The
following assumptions, methods and calculations were used in determining the
estimated fair value of financial instruments.
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.
Derivatives: Derivatives
are reported at fair value utilizing Level 2 inputs obtained from third parties
to value interest rate caps and swaps.
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 FHLB, securities sold under
repurchase agreements, the notes 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.
NOTE
10 – 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.
A summary
of the contractual and notional amounts of the Company’s financial instruments
follows:
|
|
March 31,
|
|
December 31,
|
|
|
2010
|
|
2009
|
Lending-Related
Instruments:
|
|
|
|
|
|
|
|
|
Loan
origination commitments and unadvanced lines of credit:
|
|
|
|
|
|
|
|
|
Home
equity
|
|
$
|
156,808
|
|
|
$
|
153,245
|
|
Commercial
and commercial real estate
|
|
|
116,256
|
|
|
|
120,515
|
|
Residential
|
|
|
16,539
|
|
|
|
9,009
|
|
Letters
of credit
|
|
|
3,248
|
|
|
|
3,089
|
|
Derivative
Financial Instruments:
|
|
|
|
|
|
|
|
|
Interest
rate cap
|
|
|
—
|
|
|
|
20,000
|
|
Forward
interest rate swap
|
|
|
20,000
|
|
|
|
20,000
|
|
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 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. On March
18, 2009, the Company purchased a 10-year forward interest rate swap with a
notional amount of $10.0 million, with a fixed cost of 5.09% and a maturity date
of June 20, 2021. On July 8, 2009, the Company purchased an 18-year forward
interest rate swap with a notional amount of $10.0 million, a fixed cost of
5.84% and a maturity of June 30, 2029. The fair value of the swap agreements at
March 31, 2010 was $825,000 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.
Through
the acquisition of Union Trust, the Company acquired an interest rate cap
agreement with a cap rate of 5.50% and notional amount of $20.0 million, which
expired on March 15, 2010.
Forward
Commitments to Sell Residential Mortgage Loans
The
Company enters into forward commitments to sell residential mortgages in order
to reduce the market risk associated with originating loans for sale in the
secondary market. There were no commitments outstanding to sell mortgages at
March 31, 2010 and December 31, 2009.
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
March 31, 2010 and December 31, 2009, based upon the pipeline of mortgage loans
with rate lock commitments and of commercial loans with commitment letters, and
the change in fair value of those commitments due to changes in market interest
rates, the Company determined the balance sheet impact was not
material.
NOTE
11 – RECENT ACCOUNTING PRONOUNCEMENTS
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued
guidance (incorporated in the FASB Accounting Standards Codification (“ASC”) via
Accounting Standards Update (“ASU”) 2009-16, Transfers and Servicing: Accounting
for Transfers of Financial Assets, in December 2009) which provides
amended guidance relating to transfers of financial assets that eliminates the
concept of a qualifying special-purpose entity. This guidance 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. This guidance must be applied to transfers occurring on or after its
effective date. On and after the effective date, the concept of a qualifying
special-purpose entity is no longer relevant for accounting purposes. Therefore,
formerly qualifying special-purpose entities should be evaluated for
consolidation by reporting entities on and after the effective date in
accordance with the applicable consolidation guidance. The new guidance also
changed the requirements which must be satisfied in order for an entity to treat
a loan participation as a sale. The disclosure provisions were also
amended and apply to transfers that occurred both before and after the effective
date of this guidance. The adoption of this update did not have a significant
impact on the Company’s consolidated financial statements.
In
June 2009, the FASB issued guidance (incorporated in the FASB ASC via ASU
2009-17, Consolidations:
Improvements to Financial Reporting by Enterprises Involved with Variable
Interest Entities, in December 2009) which provides amended guidance for
consolidation of a variable interest entity by replacing the quantitative-based
risks and rewards calculation for determining which enterprise, if any, has a
controlling financial interest in a variable interest entity. The amended
guidance uses an approach that focuses on identifying which enterprise has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the
obligation to absorb losses of the entity or (2) the right to receive
benefits from the entity. Additional disclosures about an enterprise’s
involvement in variable interest entities are also required. This guidance 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. The adoption of this update did not have a significant impact on the
Company’s consolidated financial statements.
In
January 2010, the FASB issued ASU 2010-6, Fair Value Measurements and
Disclosures: Improving Disclosures about Fair Value Measurements, to
amend the disclosure requirements related to recurring and nonrecurring fair
value measurements. The guidance requires new disclosures regarding
transfers of assets and liabilities between Level 1 (quoted prices in active
market for identical assets or liabilities) and Level 2 (significant other
observable inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the guidance
requires a rollforward of activities, separately reporting purchases, sales,
issuance, and settlements, for assets and liabilities measured using significant
unobservable inputs (Level 3 fair value measurements). The guidance is
effective for annual reporting periods that begin after December 15, 2009,
and for interim periods within those annual reporting periods except for the
changes to the disclosure of rollforward activities for any Level 3 fair value
measurements, which are effective for annual reporting periods that begin after
December 15, 2009, and for interim periods within those annual reporting
periods. Other than requiring additional disclosures, adoption of
this new guidance did not have a material impact on the Company’s consolidated
financial statements.
In
February 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to
Certain Recognition and Disclosure Requirements, related to events that
occur after the statement of condition date but before financial statements are
issued. This guidance amends existing standards to address potential conflicts
with Securities and Exchange Commission (“SEC”) guidance and refines the scope
of the reissuance disclosure requirements to include revised financial
statements only. Under this guidance, SEC filers are no longer required to
disclose the date through which subsequent events have been evaluated. The
adoption of this update did not have a material effect on the Company’s
consolidated financial statements.
NOTE 12 – SUBSEQUENT
EVENTS
The
Company has evaluated events and transactions subsequent to March 31, 2010 for
potential recognition or disclosure as required by GAAP.
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. We 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 our
control. These risks, uncertainties and other factors may cause the actual
results, performance or achievements of Camden National Corporation 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:
|
•
|
general,
national, regional or local economic conditions which are less favorable
than anticipated, including continued global recession, impacting the
performance of our investment portfolio, quality of credits or the overall
demand for services;
|
|
•
|
changes
in loan default and charge-off rates could affect the allowance for credit
losses;
|
|
•
|
declines
in the equity and financial markets which could result in impairment of
goodwill;
|
|
•
|
reductions
in deposit levels could necessitate increased and/or higher cost borrowing
to fund loans and
investments;
|
|
•
|
declines
in mortgage loan refinancing, equity loan and line of credit activity
which could reduce net interest and non-interest
income;
|
|
•
|
changes
in the domestic interest rate environment and inflation, as substantially
all of our assets and virtually all of the liabilities are monetary in
nature;
|
|
•
|
changes
in the carrying value of investment securities and other
assets;
|
|
•
|
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;
|
|
•
|
misalignment
of our interest-bearing assets and
liabilities;
|
|
•
|
increases
in loan repayment rates affecting interest income and the value of
mortgage servicing rights;
|
|
•
|
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;
and
|
|
•
|
changes
in accounting rules, Federal and State laws, IRS 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.
|
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, 2009. 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 credit losses, 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,
2009.
Allowance for Credit Losses.
The allowance for credit losses consists of two components: 1) the
allowance for loan losses (“ALL”) which is present as a contra to total gross
loans in the asset section of the statement of condition, and 2) the reserve for
unfunded commitments included in other liabilities on the statement of
condition. 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 credit 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 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) the unallocated portion of the
allowance. The specific loan 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.
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 and account
for uncertainty in the economic environment.
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 March
31, 2010 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 comprehensive review of 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.
The
adequacy of the reserve for unfunded commitments is determined similarly to the
allowance for loan losses, with the exception that management must also estimate
the likelihood of these commitments being funded and becoming loans. This is
done by evaluating the historical utilization of each type of unfunded
commitment and estimating the likelihood that the historical utilization rates
could change in the future.
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. Goodwill
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 fair value on the date
of acquisition. At the acquisition date, if the fair value of the property less
the costs to sell such 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, we use a current
appraisal or broker’s opinion to substantiate fair 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 securities 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 trends rates. As with the
computations on 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
realized. Although not currently under review, income tax returns for the years
ended December 31, 2006 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 three months ended March 31, 2010:
Net
income of $5.3 million for the three-month period ended March 31, 2010 decreased
$901,000, compared to the three-month period ended March 31,
2009. Net income per diluted share decreased to $0.69, compared to
$0.81 per diluted share earned during the first three months of 2009. The
following were major factors contributing to the results of the first three
months of 2010 compared to the same period of 2009:
|
•
|
Net interest income on a
fully-taxable equivalent basis for the first three months of 2010
decreased 2.7% to $18.4 million due to average earning assets declining
$90.3 million.
|
|
•
|
The provision for loan losses of
$2.0 million increased $266,000 in the first three months of 2010 compared
to the same period of 2009 primarily due to the level of non-performing
assets.
|
|
•
|
For the three months ended March
31, 2010, net charge-offs totaled $867,000, or an annualized rate of 0.23%
of average loans, compared to $1.7 million, or 0.46%, for the same period
of 2009. Non-performing assets as a percentage of total assets amounted to
1.09% and 0.89% at March 31, 2010 and 2009,
respectively.
|
|
•
|
Non-interest income for the first
three months of 2010 was $4.6 million, a 0.4% increase over the first
three months of 2009.
|
|
•
|
Non-interest
expense for the first three months of 2010 was $12.9 million, an increase
of $631,000, or 5.1%, over the first three months of the prior year due to
an increase in salaries and employee benefits and an increase in
consulting and professional fees.
|
Financial
condition at March 31, 2010 compared to December 31, 2009:
|
•
|
Total loans at March 31, 2010
were $1.5 billion, an increase of $3.3 million compared to December 31,
2009. The increase in loan balances was primarily in the commercial real
estate and consumer
portfolios.
|
|
•
|
Investment securities declined
$19.0 million at March 31, 2010 compared to December 31, 2009 due to
security prepayments.
|
|
•
|
Deposits
at March 31, 2010 were $1.5 billion, an increase of $5.2 million compared
to December 31, 2009. The increase in deposit balances was
primarily in the core deposits categories of interest checking, savings
and money markets.
|
|
•
|
Total
liabilities at March 31, 2010 of $2.0 billion decreased $21.4 million
compared to December 31, 2009, or 1.0%, as borrowings decreased $28.2
million, primarily in Federal Home Loan Bank of Boston (“FHLBB”)
borrowings, which offsets the decline in investment
securities.
|
|
•
|
Shareholders’ equity increased
2.4% due to current year earnings and other comprehensive income, in part
offset by dividends
declared.
|
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 $18.4 million on a fully-taxable equivalent basis for the
three months ended March 31, 2010, compared to $18.9 million for the first three
months of 2009, a decrease of $518,000 or 2.7%. The decrease in net interest
income is primarily due to a decrease of $130.8 million in average investment
securities for the three months ended March 31, 2010 compared to the same period
in 2009, partially offset by an improvement of 7 basis points in the net
interest margin, to 3.58%. Total average interest-earning assets
decreased $90.3 million for the three months ended March 31, 2010 compared to
the same period in 2009, due to the decrease in investments, partially offset by
increases in average loans of $40.0 million. The yield on earning
assets for the first three months of 2010 decreased 42 basis points compared to
the same period in 2009, reflecting the impact of the low investment rate
environment on both investment and loan yields as these earning assets were
booked or repriced. Average interest-bearing liabilities decreased
$124.2 million for the three months ended March 31, 2010 compared to the same
period in 2009, primarily due to declines in wholesale funding, in part offset
by an increase in retail deposits driven by increases in interest checking,
savings and money market accounts and demand deposits. Total cost of funds
decreased 49 basis points due to the decline in short-term interest
rates.
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
|
|
Three Months Ended
March 31, 2010
|
|
|
Three Months Ended
March 31, 2009
|
|
(Dollars in Thousands)
|
|
Average
Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
|
|
|
Yield/
Rate
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities – taxable
|
|
$
|
466,901
|
|
|
$
|
5,184
|
|
|
|
4.44
|
%
|
|
$
|
586,207
|
|
|
$
|
7,279
|
|
|
|
4.96
|
%
|
Securities – nontaxable
(1)
|
|
|
55,703
|
|
|
|
829
|
|
|
|
5.95
|
%
|
|
|
67,156
|
|
|
|
993
|
|
|
|
5.91
|
%
|
Trading
account assets
|
|
|
1,723
|
|
|
|
4
|
|
|
|
1.01
|
%
|
|
|
1,255
|
|
|
|
5
|
|
|
|
1.55
|
%
|
Loans
(1)
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
|
626,941
|
|
|
|
8,457
|
|
|
|
5.40
|
%
|
|
|
616,602
|
|
|
|
9,269
|
|
|
|
6.01
|
%
|
Commercial
real estate
|
|
|
436,821
|
|
|
|
6,193
|
|
|
|
5.67
|
%
|
|
|
398,901
|
|
|
|
6,266
|
|
|
|
6.28
|
%
|
Commercial
|
|
|
178,164
|
|
|
|
2,431
|
|
|
|
5.46
|
%
|
|
|
187,438
|
|
|
|
2,592
|
|
|
|
5.53
|
%
|
Municipal
|
|
|
13,911
|
|
|
|
197
|
|
|
|
5.74
|
%
|
|
|
21,587
|
|
|
|
271
|
|
|
|
5.09
|
%
|
Consumer
|
|
|
273,612
|
|
|
|
3,238
|
|
|
|
4.80
|
%
|
|
|
264,887
|
|
|
|
3,316
|
|
|
|
5.08
|
%
|
Total
loans
|
|
|
1,529,449
|
|
|
|
20,516
|
|
|
|
5.38
|
%
|
|
|
1,489,415
|
|
|
|
21,714
|
|
|
|
5.85
|
%
|
Total
interest-earning assets
|
|
|
2,053,776
|
|
|
|
26,533
|
|
|
|
5.18
|
%
|
|
|
2,144,033
|
|
|
|
29,991
|
|
|
|
5.60
|
%
|
Cash
and due from banks
|
|
|
29,032
|
|
|
|
|
|
|
|
|
|
|
|
27,765
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
164,663
|
|
|
|
|
|
|
|
|
|
|
|
153,243
|
|
|
|
|
|
|
|
|
|
Less:
allowance for loan losses
|
|
|
(21,005
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,963
|
)
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,226,466
|
|
|
|
|
|
|
|
|
|
|
$
|
2,307,078
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
checking accounts
|
|
$
|
229,037
|
|
|
|
238
|
|
|
|
0.42
|
%
|
|
$
|
196,319
|
|
|
|
253
|
|
|
|
0.52
|
%
|
Savings
accounts
|
|
|
150,859
|
|
|
|
123
|
|
|
|
0.33
|
%
|
|
|
133,173
|
|
|
|
118
|
|
|
|
0.36
|
%
|
Money
market accounts
|
|
|
289,131
|
|
|
|
578
|
|
|
|
0.81
|
%
|
|
|
281,043
|
|
|
|
869
|
|
|
|
1.25
|
%
|
Certificates
of deposit
|
|
|
544,244
|
|
|
|
2,795
|
|
|
|
2.08
|
%
|
|
|
590,448
|
|
|
|
4,624
|
|
|
|
3.18
|
%
|
Total
retail deposits
|
|
|
1,213,271
|
|
|
|
3,734
|
|
|
|
1.25
|
%
|
|
|
1,200,983
|
|
|
|
5,864
|
|
|
|
1.98
|
%
|
Broker
deposits
|
|
|
85,605
|
|
|
|
387
|
|
|
|
1.82
|
%
|
|
|
83,247
|
|
|
|
537
|
|
|
|
2.58
|
%
|
Junior
subordinated debentures
|
|
|
43,530
|
|
|
|
694
|
|
|
|
6.47
|
%
|
|
|
43,423
|
|
|
|
713
|
|
|
|
6.66
|
%
|
Borrowings
|
|
|
478,787
|
|
|
|
3,294
|
|
|
|
2.79
|
%
|
|
|
617,749
|
|
|
|
3,935
|
|
|
|
2.58
|
%
|
Total
wholesale funding
|
|
|
607,922
|
|
|
|
4,375
|
|
|
|
2.92
|
%
|
|
|
744,419
|
|
|
|
5,185
|
|
|
|
2.82
|
%
|
Total
interest-bearing liabilities
|
|
|
1,821,193
|
|
|
|
8,109
|
|
|
|
1.81
|
%
|
|
|
1,945,402
|
|
|
|
11,049
|
|
|
|
2.30
|
%
|
Demand
deposits
|
|
|
189,077
|
|
|
|
|
|
|
|
|
|
|
|
173,601
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
22,811
|
|
|
|
|
|
|
|
|
|
|
|
20,193
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
193,385
|
|
|
|
|
|
|
|
|
|
|
|
167,882
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,226,466
|
|
|
|
|
|
|
|
|
|
|
$
|
2,307,078
|
|
|
|
|
|
|
|
|
|
Net
interest income (fully-taxable equivalent)
|
|
|
|
|
|
|
18,424
|
|
|
|
|
|
|
|
|
|
|
|
18,942
|
|
|
|
|
|
Less:
fully-taxable equivalent adjustment
|
|
|
|
|
|
|
(359
|
)
|
|
|
|
|
|
|
|
|
|
|
(441
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
18,065
|
|
|
|
|
|
|
|
|
|
|
$
|
18,501
|
|
|
|
|
|
Net
interest rate spread (fully-taxable equivalent)
|
|
|
|
|
|
|
|
|
|
|
3.37
|
%
|
|
|
|
|
|
|
|
|
|
|
3.30
|
%
|
Net
interest margin (fully-taxable equivalent)
|
|
|
|
|
|
|
|
|
|
|
3.58
|
%
|
|
|
|
|
|
|
|
|
|
|
3.51
|
%
|
|
(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 $21.4 million, or 1.40% of total loans, at March
31, 2010, compared to $20.2 million, or 1.33% of total loans, at December 31,
2009. For the three months ended March 31, 2010, our provision for credit losses
charged to earnings amounted to $2.0 million, compared to $1.7 million for the
same period in 2009. The increase in the provision was based on management’s
assessment of various factors affecting the loan portfolio, including, among
others, growth in the loan portfolio, levels of nonperforming assets, loan
losses, and our evaluation of credit quality and general economic
conditions. For the first three months of 2010, the annualized ratio
of net loan charge-offs to average loans was 0.23% compared to 0.46% for the
same period in 2009. See additional ALL discussion under the caption
“Asset Quality.”
Non-Interest
Income
|
|
Three
Months Ended
March
31,
|
|
|
2010
|
|
2009
|
Income
from fiduciary services
|
|
$
|
1,567
|
|
|
$
|
1,354
|
|
Service
charges on deposit accounts
|
|
|
1,280
|
|
|
|
1,233
|
|
Other
service charges and fees
|
|
|
690
|
|
|
|
613
|
|
Bank-owned
life insurance
|
|
|
371
|
|
|
|
395
|
|
Brokerage
and insurance commissions
|
|
|
294
|
|
|
|
358
|
|
Mortgage
banking income
|
|
|
89
|
|
|
|
455
|
|
Net
securities losses
|
|
|
(48
|
)
|
|
|
—
|
|
Other
income
|
|
|
329
|
|
|
|
146
|
|
Total
non-interest income
|
|
$
|
4,572
|
|
|
$
|
4,554
|
|
Non-interest
income for the three month periods ended March 31, 2010 and March 31, 2009,
respectively, totaled $4.6 million. The significant changes
include:
|
•
|
Increase in income from fiduciary
services of $213,000, or 15.7%, resulting from market value increases in
assets under administration,
|
|
•
|
Increase in other service charges
and fees of $77,000, or 12.6%, resulting from increased debit card income
associated with transaction
volume,
|
|
•
|
Decrease in mortgage banking
income of $366,000, or 80.4%, primarily due to mortgage servicing rights
related to $20.2 million in residential loan sales during the first
quarter of 2009, and,
|
|
•
|
Increase
in other income of $183,000, or 125.3%, resulting primarily from a
$128,000 increase in the market value of management and director deferred
compensation and $29,000 in gains on the sale of OREO
properties.
|
Non-Interest
Expenses
|
|
Three Months Ended
March 31,
|
|
|
2010
|
|
2009
|
Salaries
and employee benefits
|
|
$
|
6,225
|
|
|
$
|
5,678
|
|
Furniture,
equipment and data processing
|
|
|
1,068
|
|
|
|
963
|
|
Regulatory
assessments
|
|
|
715
|
|
|
|
872
|
|
Net
occupancy
|
|
|
1,034
|
|
|
|
1,118
|
|
Consulting
and professional fees
|
|
|
808
|
|
|
|
572
|
|
OREO
and collection costs
|
|
|
974
|
|
|
|
880
|
|
Other
expenses
|
|
|
2,098
|
|
|
|
2,208
|
|
Total
non-interest expenses
|
|
$
|
12,922
|
|
|
$
|
12,291
|
|
Non-interest
expense increased $631,000, or 5.1%, for the three months ended March 31, 2010
compared to the same period in 2009. The significant changes
include:
|
•
|
Increase in salaries and employee
benefits of $547,000, or 9.6%, primarily due to a $199,000 increase in
health care cost, a $129,000 increase related to increased staffing and
salaries, and a reduction in deferred salary costs of $162,000 related to
high mortgage production volume in
2009,
|
|
•
|
Decrease in regulatory
assessments of $157,000, or 18.0%, due to an adjustment in the Federal
Deposit Insurance Corporation insurance assessment accrual during the
first quarter of 2009,
|
|
•
|
Increase in consulting and
professional fees of $236,000, or 41.3%, were primarily related to
increased legal costs related to securities registration and other
matters, and
|
|
•
|
Increase in costs associated with
foreclosure and collection costs and expenses on other real estate owned
of $94,000, or 10.7%, which includes an OREO write-down of $370,000 due to
declining real estate
values.
|
The
efficiency ratio (non-interest expense divided by net interest income on a tax
equivalent basis plus non-interest income excluding net investment securities
gains/losses) was 56.08% for the period ended March 31, 2010, compared to 52.31%
for March 31, 2009.
FINANCIAL
CONDITION
Overview
Total
assets at March 31, 2010 were $2.2 billion, a decrease of $16.8 million, or
0.8%, from December 31, 2009. The change in assets consisted primarily of a
$19.0 million decrease in investments, partially offset by a $2.2 million
increase in net loans. Total liabilities decreased $21.4 million as borrowings
decreased $28.2 million partially offset by an increase in total deposits
(including brokered deposits) of $5.2 million. Total shareholders’ equity
increased $4.6 million, which was a result of current year earnings and other
comprehensive income, partially offset by dividends declared to
shareholders.
During
the first three months of 2010, average assets of $2.2 billion decreased $80.6
million, compared to the same period in 2009. This decrease was
primarily the result of a decline in average investments of $130.8 million,
partially offset by a $40.0 million increase in the loan portfolio and an $8.0
million increase in prepaid FDIC assessment. Average liabilities decreased
$106.1 million for the three months ended March 31, 2010 compared to the same
period of 2009, primarily due to a decrease in average borrowings of $138.9
million, partially offset by a $30.1 million increase in average deposits
(including brokered deposits).
Assets
Investment Securities.
Investments in securities of U.S. government sponsored enterprises, states and
political subdivisions, mortgage-backed securities, Federal Home Loan Bank
(“FHLB”) and FRB stock, investment grade corporate bonds and equities are used
to diversify our revenues, to provide interest rate and credit risk
diversification and to provide for liquidity and funding needs. As a result of
balance sheet deleveraging, total investment security balances at March 31, 2010
of $520.6 million decreased $19.0 million, or 3.5%, from December 31, 2009. We
have investment securities in both the available-for-sale and held-to-maturity
categories.
Unrealized
gains or losses from investments categorized as “held to maturity” are only
recorded when, and if, the security is sold or is considered
other-than-temporarily impaired. Unrealized gains or losses on securities
classified as “available for sale” are recorded as adjustments to shareholders’
equity, net of related deferred income taxes and are a component of other
comprehensive income in the Consolidated Statement of Changes in Shareholders’
Equity. At March 31, 2010, we had $8.4 million of unrealized gains on securities
available for sale, net of deferred taxes, compared to $7.1 million of
unrealized gains, net of deferred taxes, at December 31, 2009. The change is
primarily attributed to an increase in market interest rates.
At March
31, 2010, $9.0 million of our private issue collateralized mortgage obligations
(“CMOs”) 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. Stress tests are performed
regularly on the higher risk bonds in the portfolio using current statistical
data to determine expected cash flows and forecast potential
losses. The results of the stress tests at March 31, 2010, reflect no
current credit loss in the base case, but did reflect potential future
losses. Based on this analysis the Company recorded a $48,000 OTTI
write-down on two private issue CMOs during the first quarter of
2010.
At March
31, 2010, 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.
Federal Home Loan Bank Stock.
We are required to maintain a level of investment in FHLBB stock based on
the level of our FHLB advances. As of March 31, 2010, our investment in FHLB
stock totaled $21.0 million. No market exists for shares of the FHLB. FHLB stock
may be redeemed at par value five years following termination of FHLB
membership, subject to limitations which may be imposed by the FHLB or its
regulator, the Federal Housing Finance Board, to maintain capital adequacy of
the FHLB. While we currently have no intention to terminate our FHLB membership,
the ability to redeem our investment in FHLB stock would be subject to the
conditions imposed by the FHLB.
In early
2009, the FHLB advised its members that it is focusing on preserving capital in
response to ongoing market volatility. Accordingly, payments of
quarterly dividends were suspended and payment of quarterly dividends in 2010 is
unlikely. Further, the FHLB has placed a moratorium on excess stock repurchases
from its members. We will continue to monitor our investment in FHLB
stock.
Loans. At March 31, 2010,
loans of $1.5 billion (including loans held for sale) increased $3.3 million
from December 31, 2009 primarily due to an increase in commercial real estate,
commercial, and consumer loans of $2.5 million, $873,000 and $1.9 million,
respectively. These increases were partially offset by a decline in the
residential real estate portfolio of $2.0 million as a result of normal
pay-downs and decreased demand.
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:
|
|
March 31,
|
|
|
December 31,
|
|
(Dollars in Thousands)
|
|
2010
|
|
|
2009
|
|
Non-accrual
loans
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
6,234
|
|
|
$
|
6,161
|
|
Commercial
real estate
|
|
|
6,223
|
|
|
|
6,476
|
|
Commercial
|
|
|
4,320
|
|
|
|
4,145
|
|
Consumer
|
|
|
1,227
|
|
|
|
1,158
|
|
Total
non-accrual loans
|
|
|
18,004
|
|
|
|
17,940
|
|
Accruing
loans past due 90 days
|
|
|
211
|
|
|
|
1,135
|
|
Renegotiated
loans not included above
|
|
|
677
|
|
|
|
581
|
|
Total
non-performing loans
|
|
|
18,892
|
|
|
|
19,656
|
|
Other
real estate owned
|
|
|
5,201
|
|
|
|
5,479
|
|
Total
non-performing assets
|
|
$
|
24,093
|
|
|
$
|
25,135
|
|
Non-performing
loans to total loans
|
|
|
1.23
|
%
|
|
|
1.29
|
%
|
Allowance
for credit losses to non-performing loans
|
|
|
113.41
|
%
|
|
|
103.26
|
%
|
Non-performing
assets to total assets
|
|
|
1.09
|
%
|
|
|
1.13
|
%
|
Allowance
for credit losses to non-performing assets
|
|
|
88.93
|
%
|
|
|
80.75
|
%
|
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 March 31, 2010,
potential problem loans amounted to approximately $3.5 million, or 0.23% of
total loans, compared to $1.7 million, or 0.11% of total loans at December 31,
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.
|
|
March 31,
|
|
December 31,
|
|
(Dollars in Thousands)
|
|
2010
|
|
|
2009
|
|
Loans
30-89 days past due:
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
$
|
74
|
|
|
$
|
1,847
|
|
Commercial
real estate
|
|
|
1,862
|
|
|
|
2,196
|
|
Commercial
loans
|
|
|
3,530
|
|
|
|
639
|
|
Consumer
loans
|
|
|
716
|
|
|
|
563
|
|
Total
loans 30-89 days past due
|
|
$
|
6,182
|
|
|
$
|
5,245
|
|
|
|
|
|
|
|
|
|
|
Loans
30-89 days past due to total loans
|
|
|
0.40
|
%
|
|
|
0.34
|
%
|
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 three months of 2010, 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.
|
|
Three Months Ended March 31,
|
|
(Dollars in Thousands)
|
|
2010
|
|
|
2009
|
|
Allowance
at the beginning of the period
|
|
$
|
20,246
|
|
|
$
|
17,691
|
|
Provision
for loan losses
|
|
|
2,000
|
|
|
|
1,730
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
|
268
|
|
|
|
26
|
|
Commercial
real estate
|
|
|
314
|
|
|
|
846
|
|
Commercial
loans
|
|
|
377
|
|
|
|
719
|
|
Consumer
loans
|
|
|
294
|
|
|
|
236
|
|
Total
loan charge-offs
|
|
|
1,253
|
|
|
|
1,827
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
Residential
real estate loans
|
|
|
160
|
|
|
|
7
|
|
Commercial
real estate loans
|
|
|
26
|
|
|
|
8
|
|
Commercial
loans
|
|
|
91
|
|
|
|
19
|
|
Consumer
loans
|
|
|
109
|
|
|
|
63
|
|
Total
loan recoveries
|
|
|
386
|
|
|
|
97
|
|
Net
charge-offs
|
|
|
(867
|
)
|
|
|
(1,730
|
)
|
Allowance
at the end of the period
|
|
$
|
21,379
|
|
|
$
|
17,691
|
|
|
|
|
|
|
|
|
|
|
Components
of allowance for credit losses:
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$
|
21,379
|
|
|
$
|
17,691
|
|
Liability
for unfunded credit commitments
|
|
|
47
|
|
|
|
—
|
|
Balance
of allowance for credit losses at end of the period
|
|
$
|
21,426
|
|
|
$
|
17,691
|
|
Average
loans outstanding
|
|
$
|
1,529,449
|
|
|
$
|
1,489,415
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs (annualized) to average loans outstanding
|
|
|
0.23
|
%
|
|
|
0.46
|
%
|
Provision
for credit losses (annualized) to average loans
outstanding
|
|
|
0.52
|
%
|
|
|
0.47
|
%
|
Allowance
for loan losses to total loans
|
|
|
1.40
|
%
|
|
|
1.20
|
%
|
Allowance
for credit losses to net charge-offs (annualized)
|
|
|
609.51
|
%
|
|
|
252.11
|
%
|
Allowance
for loan losses to non-performing loans
|
|
|
113.16
|
%
|
|
|
102.55
|
%
|
Allowance
for loan losses to non-performing assets
|
|
|
88.74
|
%
|
|
|
86.58
|
%
|
During
the first three months of 2010, the Company provided $2.0 million of expense to
the ALL compared to $1.7 million for the same period of 2009. 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 the level of non-performing assets and general economic
conditions. Non-performing assets as a percentage of total assets
amounted to 1.09% at March 31, 2010, compared to 0.89% and 1.13% at March 31,
2009 and December 31, 2009, 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 $21.4 million, or 1.40% of total loans
outstanding and 113.2% of total non-performing loans at March 31, 2010, 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 1.20% of total
loans outstanding and 102.6% of total non-performing loans at March 31, 2009,
and 1.33% of total loans outstanding and 103.0% of total non-performing loans at
December 31, 2009.
Liabilities
and Shareholders’ Equity
Total
liabilities have decreased $21.4 million, or 1.0%, since December 31, 2009, to
$2.0 billion at March 31, 2010. Borrowings declined $28.2 million
which was comprised primarily of a decrease of $30.1 million in advances from
the FHLBB and a slight increase in other borrowings of $1.9 million. Total
deposits including brokered deposits increased $5.2 million primarily due to
increases in interest checking, savings and money markets balances of $15.5
million and brokered deposits of $5.8 million, partially offset by declines in
demand deposits and retail certificates of deposit of $9.1 million and $7.0
million, respectively.
Total
shareholders’ equity increased $4.6 million, or 2.4%, since December 31, 2009
which was a result of current year earnings of $5.3 million and an increase in
other comprehensive income of $1.1 million offset by dividends declared to
shareholders of $1.9 million.
The
following table presents certain information regarding shareholders’ equity for
the periods ended:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Return
on average equity
|
|
|
11.14 |
% |
|
|
12.81 |
% |
Average
equity to average assets
|
|
|
8.69 |
% |
|
|
7.80 |
% |
Dividend
payout ratio
|
|
|
36.01 |
% |
|
|
33.56 |
% |
Dividends
declared per share
|
|
$ |
0.25 |
|
|
$ |
1.00 |
|
Book
value per share
|
|
|
25.50 |
|
|
|
24.93 |
|
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 March 31, 2010 and 2009, 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
utilize 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 three months of
2010, average deposits (including brokered deposits) of $1.5 billion increased
$30.1 million compared to the same period of 2009. Comparing average deposits
for the first three months of 2010 to the same period of 2009, we experienced a
decline in average retail certificates of deposit balances of $46.2 million,
while average demand deposits, interest checking, savings, and money market
balances increased $15.5 million, $32.7 million, $17.7 million and $8.1 million,
respectively. Average brokered deposits increased $2.4 million.
Included in the money market and interest checking deposit categories are
deposits from Acadia Trust, representing client funds. The balance in the Acadia
Trust client accounts, which was $77.9 million on March 31, 2010, could increase
or decrease depending upon changes in the portfolios of the clients of Acadia
Trust. The shift from retail certificates of deposit to other core deposit
categories reflects customers continuing to shift to more liquid deposit
instruments given the low interest rate 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 three months of 2010 was $522.3
million, a decrease of $138.9 million from the first three months of 2009. 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
$732.1 million and $679.1 million at March 31, 2010 and 2009, respectively. The
carrying value of securities pledged as collateral at the FHLBB was $26.1
million and $100.7 million at March 31, 2010 and 2009, respectively. Through our
bank subsidiary, we have an available line of credit with the FHLBB of $9.9
million at March 31, 2010 and 2009. We had no outstanding balance on the line of
credit with the FHLBB at March 31, 2010.
The
Company also has a $10.0 million line of credit through a correspondent bank
available to us through December 28, 2010. We had no outstanding
balance on this line of credit at March 31, 2010.
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 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 March 31, 2010 and 2009. The
Company’s Tier 1 capital to risk weighted assets was 12.65% and 11.68% at March
31, 2010 and 2009, respectively and total capital to risk weighted assets
was 13.90% and 12.91% at March 31, 2010 and 2009, 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 8.42% and 7.40% at March 31, 2010 and 2009,
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 March 31, 2010, $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
$195.2 million and $172.0 million at March 31, 2010 and 2009, respectively,
which amounted to 8.8% of total assets at March 31, 2010 and 7.5% of total
assets at March 31, 2009.
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 $1.9 million for both of the three month periods
ended March 31, 2010 and 2009, 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 $3.0 million for both the first
three months of 2010 and the first three months of 2009. 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.
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 March 31, 2010, 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
|
|
$
|
3,248
|
|
|
$
|
3,248
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial
Commitment Letters
|
|
|
10,876
|
|
|
|
10,876
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Residential
Loan Origination
|
|
|
16,539
|
|
|
|
16,539
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Home
Equity Line of Credit Commitments
|
|
|
156,808
|
|
|
|
17,411
|
|
|
|
8,031
|
|
|
|
3,285
|
|
|
|
128,081
|
|
Other
Commitments to Extend Credit
|
|
|
105,380
|
|
|
|
97,902
|
|
|
|
5,644
|
|
|
|
1,256
|
|
|
|
578
|
|
Total
|
|
$
|
292,851
|
|
|
$
|
145,976
|
|
|
$
|
13,675
|
|
|
$
|
4,541
|
|
|
$
|
128,659
|
|
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 March 31, 2010, 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
|
|
$
|
5,007
|
|
|
$
|
744
|
|
|
$
|
1,201
|
|
|
$
|
623
|
|
|
$
|
2,439
|
|
Capital
Leases
|
|
|
1,200
|
|
|
|
40
|
|
|
|
94
|
|
|
|
97
|
|
|
|
969
|
|
FHLBB
Borrowings – Overnight
|
|
|
36,560
|
|
|
|
36,560
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
FHLBB
Borrowings – Advances
|
|
|
179,607
|
|
|
|
57,055
|
|
|
|
60,104
|
|
|
|
31,001
|
|
|
|
31,447
|
|
Commercial
Repurchase Agreements
|
|
|
116,438
|
|
|
|
10,000
|
|
|
|
65,127
|
|
|
|
36,000
|
|
|
|
5,311
|
|
Other
Borrowed Funds
|
|
|
120,928
|
|
|
|
120,928
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Junior
Subordinated Debentures
|
|
|
43,538
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,538
|
|
Note
Payable
|
|
|
852
|
|
|
|
231
|
|
|
|
501
|
|
|
|
103
|
|
|
|
17
|
|
Other
Contractual Obligations
|
|
|
231
|
|
|
|
231
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
504,361
|
|
|
$
|
225,789
|
|
|
$
|
127,027
|
|
|
$
|
67,824
|
|
|
$
|
83,721
|
|
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 March 31, 2010, the Company had 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 first quarter of 2010
and 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. All rate changes were “ramped” over the first
12-month period and then maintained at those levels over the remainder of the
ALCO simulation horizon. In 2009 the +400 bps scenario was based on a
flattening rate curve.
|
|
Estimated Changes in NII
|
|
Rate Change
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
Year
1
|
|
|
|
|
|
|
+400
bp
|
|
|
(0.70 |
)% |
|
|
0.50 |
% |
+200
bp
|
|
|
(0.70 |
)% |
|
|
(2.40 |
)% |
-100
bp
|
|
|
(0.70 |
)% |
|
|
0.50 |
% |
Year
2
|
|
|
|
|
|
|
|
|
+400
bp
|
|
|
(1.40 |
)% |
|
|
3.80 |
% |
+200
bp
|
|
|
0.10 |
% |
|
|
(1.70 |
)% |
-100
bp
|
|
|
(4.00 |
)% |
|
|
0.30 |
% |
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 three months of 2010 were the decrease in the investment balances, higher
balances of retail deposits, and 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 increase slightly over year one with funding maturities
expected to continue to roll over at lower current rate levels, offsetting
declining loan yields. By the end of the first year, net interest
income levels come under pressure 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 more difficult while mortgage
related cashflows accelerate and are replaced at lower rate levels; resulting in
tighter spreads and a decrease in expected net interest income. In
the early stages of a rising rate environment, net interest income is projected
to trend slight below the base scenarios as the short-term funding base adjusts
upward producing funding cost increases while asset yields are slower to
respond. 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 March 31, 2010, we had 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.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
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.
ITEM
1A. RISK FACTORS
There
have 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,
2009.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
The
following table provides information as of and for the quarter ended March 31,
2010 regarding shares of common stock of the Corporation that were repurchased
under the 2003 Stock Option and Incentive Plan.
|
|
Total
number of
shares
purchased
|
|
|
Average
price paid
per share
|
|
|
Total number of
shares purchased
as part of publicly
announced plan
|
|
Purchases
of Equity Securities(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
1/1/2010
to 1/31/2010
|
|
|
—
|
|
|
$ |
—
|
|
|
|
—
|
|
2/1/2010
to 2/28/2010
|
|
|
1,249
|
|
|
$
|
30.64
|
|
|
|
1,249
|
|
3/1/2010
to 3/31/2010
|
|
|
136
|
|
|
|
33.05
|
|
|
|
136
|
|
Total
Purchases of Equity Securities
|
|
|
1,385
|
|
|
$
|
30.88
|
|
|
|
1,385
|
|
|
(1)
|
Pursuant to the Corporation’s
share-based compensation plans, employees may deliver back shares of stock
previously issued in payment of the exercise price of stock options or to
satisfy the minimum tax withholdings obligation in conjunction with
recipient’s vesting of stock-based
compensation.
|
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM
4. [RESERVED]
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.i 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 3.3 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
|
|
May 7, 2010
|
Gregory
A. Dufour
|
|
Date
|
President
and Chief Executive Officer
|
|
|
|
|
|
/s/
Deborah A. Jordan
|
|
May 7, 2010
|
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.i 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 3.3 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
|