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<SEC-DOCUMENT>0000927016-02-001744.txt : 20020415
<SEC-HEADER>0000927016-02-001744.hdr.sgml : 20020415
ACCESSION NUMBER: 0000927016-02-001744
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020329
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CAMDEN NATIONAL CORP
CENTRAL INDEX KEY: 0000750686
STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021]
IRS NUMBER: 010413282
STATE OF INCORPORATION: ME
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-13227
FILM NUMBER: 02593003
BUSINESS ADDRESS:
STREET 1: TWO ELM ST
CITY: CAMDEN
STATE: ME
ZIP: 04843
BUSINESS PHONE: 2072368821
MAIL ADDRESS:
STREET 1: 2 ELM ST
CITY: CAMDEN
STATE: ME
ZIP: 04843
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d10k405.txt
<DESCRIPTION>FORM 10-K405
<TEXT>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File No. 0-28190
CAMDEN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
MAINE 01-0413282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 ELM STREET, CAMDEN, ME 04843
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 236-8821
Securities registered pursuant to Section 12(g) of the Act
Common Stock, without par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 26, 2002 is: Common stock - $164,333,228.
Shares of the Registrant's common stock held by each executive officer and
director and by each person who beneficially owns 5% or more of the Registrant's
outstanding common stock have been excluded, in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares outstanding of each of the registrant's classes of
common stock, as of March 26, 2002 is: Common stock - 8,057,781.
Listed hereunder are documents incorporated by reference and the relevant
Part of the Form 10-K into which the document is incorporated by reference:
(1) Certain information required in response to into Items 5, 6, 7, 7A and
8 of Part II of this Form 10-K are incorporated by reference from Camden
National Corporation's Annual Report to Shareholders for the year ended December
31, 2001.
(2) Certain information required in response to into Items 10, 11, 12 and
13 of Part III of this Form 10-K are incorporated by reference from Camden
National Corporation's Definitive Proxy Statement for the 2002 Annual Meeting of
Shareholders to be filed with the Commission prior to April 30, 2002 pursuant to
Regulation 14A of the General Rules and Regulations of the Commission.
<PAGE>
Index
<TABLE>
<CAPTION>
Item Description Page
- ---- ----------- ----
<S> <C>
1 Business 3
2 Properties 11
3 Pending Legal Proceeding 11
4 Submission of Matters to a Vote of Security Holders 11
5 Market for Registrant's Common Equity and Related Stockholders Matters 11
6 Selected Financial Data 11
7 Management's Discussion and Analysis of Financial Condition
and Results of Operation 12
7A Quantitative and Qualitative Disclosures about Market Risks 19
8 Financial Statements and Supplementary Data 19
9 Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 19
10 Directors and Executive Officers of the Registrant 19
11 Executive Compensation 20
12 Security Ownership of Certain Beneficial Owners and Management 20
13 Certain Relationships and Related Transactions 20
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 20
Signatures 22
Exhibit Index 23
Exhibits 24
</TABLE>
Page 2
<PAGE>
PART I
The discussions set forth below and in the documents we incorporate by reference
herein contain certain statements that may be considered forward-looking
statements under the Private Securities Litigation Reform Act of 1995. The
Company may make written or oral forward-looking statements in other documents
we file with the SEC, in our annual reports to stockholders, in press releases
and other written materials, and in oral statements made by our officers,
directors or employees. You can identify forward-looking statements by the use
of the words "believe," "expect," "anticipate," "intend," estimate," "assume,"
"will," "should," and other expressions which predict or indicate future events
or trends and which do not relate to historical matters. You should not rely on
forward-looking statements, because they involve known and unknown risks,
uncertainties and other factors, some of which are beyond the control of the
Company. These risks, uncertainties and other factors may cause the actual
results, performance or achievements of the Company to be materially different
from the anticipated future results, performance or achievements expressed or
implied by the forward-looking statements.
Some of the factors that might cause these differences include the following:
changes in general, national or regional economic conditions; changes in loan
default and charge-off rates; reductions in deposit levels necessitating
increased borrowing to fund loans and investments; changes in interest rates;
changes in laws and regulations; changes in the size and nature of the Company's
competition; and changes in the assumptions used in making such forward-looking
statements. You should carefully review all of these factors, and you should be
aware that there may be other factors that could cause these differences,
including, among others, the factors listed under "Certain Factors Affecting
Future Operating Results," beginning on page 16. Readers should carefully review
the factors described under "Certain Factors Affecting Future Operating Results"
and should not place undue reliance on our forward-looking statements.
These forward-looking statements were based on information, plans and estimates
at the date of this report, and we do not promise to update any forward-looking
statements to reflect changes in underlying assumptions or factors, new
information, future events or other changes.
Item 1. Business
Overview. Camden National Corporation (the "Company") is a publicly held,
- --------
multi-bank, financial institution holding company incorporated under the laws of
the State of Maine and headquartered in Camden, Maine. The Company makes its
products services available directly and indirectly through its subsidiaries,
Camden National Bank ("CNB"), UnitedKingfield Bank ("UnitedKingfield"), Acadia
Trust, N.A. ("Acadia"), and Trust Company of Maine, Inc. ("TCOM"). The
Consolidated Financial Statements of the Company accompanying this Form 10-K
include the accounts of the Company, CNB, UnitedKingfield, Acadia and TCOM. All
inter-company accounts and transactions have been eliminated in consolidation.
Descriptions of the Company and the Company's Subsidiaries. A brief description
of each of the Company, CNB, UnitedKingfield, Acadia and TCOM follows.
The Company. The Company was founded in January 1984 following a corporate
reorganization in which the shareholders of CNB exchanged their shares of CNB
stock for shares of stock of the Company. As a result of this share exchange,
the Company became CNB's sole parent. In December 1995, the Company merged with
UnitedCorp, a bank holding company headquartered in Bangor, Maine, and, as a
result thereof, acquired (a) 100% of the outstanding stock of United Bank, a
Maine-chartered stock banking institution with its principal office in Bangor,
Maine, and (b) 51% of the outstanding stock of TCOM.
On December 20, 1999, the Company completed its acquisition of KSB Bancorp, Inc.
("KSB"), a publicly-held, bank holding company organized under the laws of the
State of Delaware and having its principal office in the State of Maine, with
one principal subsidiary, Kingfield Savings Bank ("Kingfield Bank"), a
Maine-chartered stock savings bank with its principal office in Kingfield,
Maine. The Company's acquisition of KSB was accounted for under the
pooling-of-interests method and, as such, financial information included in this
report presents the combined financial condition and results of operations of
both companies as if they had operated as a combined entity for all periods
presented.
Page 3
<PAGE>
On July 19, 2001, the Company completed its acquisition of Acadia and Gouws
Capital Management, Inc. ("Gouws Capital"). Acadia is a federally regulated,
non-depository trust company headquartered in Portland, Maine. Gouws Capital, an
investment advisory firm was merged into Acadia on December 31, 2001.
On October 24, 2001, the Company acquired the remaining minority interest in
TCOM.
As of December 31, 2001, the Company's securities consisted of one class of
common stock, no par value, of which there were 8,057,781 shares outstanding
held of record by approximately 1,004 shareholders.
The Company is a bank holding company ("BHC") registered under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and is subject to supervision,
regulation and examination by the Board of Governors of the Federal Reserve
System (the "FRB"). The Company is also considered a Maine financial institution
holding company for purposes of the laws of the State of Maine, and as such, is
also subject to the jurisdiction of the Superintendent of the Maine Bureau of
Financial Institutions (the "Superintendent").
Camden National Bank. CNB, a direct, wholly owned subsidiary of the Company, is
a national banking association chartered under the laws of the United States and
having its principal office in Camden, Maine. Originally founded in 1875, CNB
became a direct, wholly owned subsidiary of the Company as a result of a January
1984 corporate reorganization in which the shareholders of CNB exchanged their
shares of stock in CNB for shares of stock in the Company.
CNB offers its products and services primarily in the communities of Belfast,
Bucksport, Camden, Damariscotta, Portland, Rockland, Thomaston, Union,
Vinalhaven and Waldoboro, and focuses primarily on attracting deposits from the
general public through its branches and using such deposits to originate
residential mortgage loans, commercial business loans, commercial real estate
loans, and a variety of consumer loans. CNB customers may also access these
products and services using other mediums, including CNB's Internet web site
located at www.camdennational.com.
----------------------
CNB is a member bank of the Federal Reserve System and is subject to
supervision, regulation and examination by the Comptroller of the Currency (the
"OCC"). Its deposits are insured by the Federal Deposit Insurance Corporation
(the "FDIC") up to the maximum amount permitted by law.
UnitedKingfield Bank. UnitedKingfield, a direct, wholly owned subsidiary of the
Company, is a financial institution chartered under the laws of the State of
Maine and having its principal office in Bangor, Maine. UnitedKingfield is the
successor by merger, effective February 4, 2000, of United Bank and Kingfield
Bank, and is subject to regulation, supervision and examination by the FDIC and
the Superintendent. Its deposits are insured by the FDIC up to the maximum
amount permitted by law.
UnitedKingfield offers its products and services primarily in the communities of
Bangor, Bingham, Corinth, Dover-Foxcroft, Farmington, Greenville, Hampden,
Hermon, Jackman, Kingfield, Lewiston, Madison, Milo, Phillips, Rangeley,
Stratton and Strong, Maine, and focuses primarily on attracting deposits from
the general public through its branches and using such deposits to originate
residential mortgage loans, commercial business loans, commercial real estate
loans, and a variety of consumer loans. UnitedKingfield customers may also
access these products and services using other media, including
UnitedKingfield's Internet web site located at www.unitedkingfield.com.
-----------------------
Trust Company of Maine, Inc. TCOM, a direct, wholly owned subsidiary of the
Company, is a corporation with trust powers chartered under the laws of the
State of Maine and having its principal office in Bangor, Maine. The Company
acquired majority ownership of TCOM in December 1995 through the Company's
merger with UnitedCorp, the then parent of TCOM. On October 24, 2001, the
Company acquired the remaining minority interest in TCOM.
Page 4
<PAGE>
TCOM provides a broad range of trust, trust- related and investment services, in
addition to retirement and pension plan management services, to both individual
and institutional clients. The financial services provided by TCOM complement
the services provided by the Company's subsidiary banks by offering customers
investment management services.
TCOM is subject to supervision, regulation and examination by the Superintendent
and also is subject to supervision, examination and reporting requirements under
the BHC Act and the regulations of the FRB.
Acadia Trust, N.A. Acadia, a direct, wholly owned subsidiary of the Company, is
a national banking association chartered under the laws of the United States
with a limited purpose trust charter and having its principal office in
Portland, Maine.
Acadia provides a broad range of trust, investment and wealth management
services, to both individual and institutional clients. The financial services
provided by Acadia complement the services provided by the Company's subsidiary
banks by offering customers investment management services.
Acadia is a member bank of the Federal Reserve System and is subject to
supervision, regulation and examination by the OCC.
Competition. The Company competes principally in mid-coast Maine through CNB,
- -----------
its largest subsidiary bank. CNB considers its primary market areas to be in
Knox County and Waldo County, each in the State of Maine. The combined
population of these two counties is approximately 76,000 people, and their
economies are based primarily on tourism but also are supported by a substantial
population of retirees. Major competitors in these market areas include local
branches of large regional bank affiliates, as well as local independent banks,
thrift institutions and credit unions. Other competitors for deposits and loans
within CNB's primary market areas include insurance companies, money market
funds, consumer finance companies and financing affiliates of consumer durable
goods manufacturers.
The Company, through UnitedKingfield, also competes in both the central and
western Maine areas. Most of UnitedKingfield's offices are located in
communities that can generally be characterized as rural areas, with the
exception of Bangor and Lewiston. The Bangor and Lewiston areas have populations
of approximately 100,000 and 39,000 people, respectively. All UnitedKingfield
offices are located in the State of Maine. Major competitors in these market
areas include local branches of large regional bank affiliates, as well as local
independent banks, thrift institutions and credit unions. Other competitors for
deposits and loans within UnitedKingfield's market area include insurance
companies, money market funds, consumer finance companies and financing
affiliates of consumer durable goods manufacturers.
The Company and its banking subsidiaries generally have been able to compete
effectively with other financial institutions by emphasizing customer service,
including local decision-making, by establishing long-term customer
relationships and building customer loyalty and by providing products and
services designed to address the specific needs of customers. No assurance can
be given, however, that the Company and its banking subsidiaries will continue
to be able to compete effectively with other financial institutions in the
future.
The Company, through its non-bank subsidiaries, Acadia and TCOM, compete for
trust, trust- related, investment management, retirement and pension plan
management services with local banks and non-banks, which may now, or in the
future, offer a similar range of services, as well as with a number of brokerage
firms and investment advisors with offices in the Company's market area. In
addition, most of these services are widely available to the Company's customers
by telephone and over the Internet through firms located outside the Company's
market area.
The Company's Philosophy. The Company is committed to the philosophy of serving
- ------------------------
the financial needs of customers in local communities. The Company, through CNB
and UnitedKingfield, has branches that are located in small towns within the
Company's geographic market areas. The Company believes that the local needs and
its comprehensive retail and small business products, together with rapid
decision-making at the branch level, enable its
Page 5
<PAGE>
subsidiary banks to compete effectively. No single person or group of persons
provides a material portion of the Company's deposits, the loss of any one or
more of which would have a materially adverse effect on the business of the
Company, and no material portion of the Company's loans are concentrated within
a single industry or group of related industries.
The Company's Growth. The Company had consolidated asset growth of 7.8%, or
- --------------------
$78.5 million, during 2001. The primary factor contributing to this growth was
the increase in lending activity at the Company's subsidiary banks. As the
business continued to grow during this past year, each of the Company's
subsidiary banks focused on customer service. The Company's performance-based
compensation program also supported this growth by creating an environment where
employees have a more personal interest in the performance of the Company and
are rewarded for balancing profit with growth and quality with productivity.
The Company's Employees. The Company employs approximately 321 people on a
- -----------------------
full-time equivalent basis. The Company's management believes that employee
relations are good, and there are no known disputes between management and
employees.
The Company's Employee Incentives. All Company employees are eligible for
- ---------------------------------
participation in the Company's Retirement Savings 401(k) Plan and Profit Sharing
Plan, and certain Executive Officers of the Company may also participate in the
Company's 1993 Stock Option Plan and its Supplemental Executive Retirement Plan.
In addition, the Company, as successor to KSB, maintains a Bank Recognition and
Retention Plan ("BRRP") as a method of providing certain officers and other
employees of the Company with a proprietary interest in the Company. During
1994, the Company contributed funds to the BRRP to enable certain officers and
employees to acquire, in the aggregate, 56,045 shares of common stock of the
Company. Participants are vested at a rate of 20% per year commencing one year
from the date of the award. All previous awards made under the BRRP will be
vested in 2003. The Company does not intend to make any additional awards under
the BRRP.
Supervision and Regulation. The business in which the Company and its
- --------------------------
subsidiaries are engaged is subject to extensive supervision, regulation and
examination by various federal and state bank regulatory agencies, including the
FRB, the OCC, the FDIC and the Superintendent, as well as other governmental
agencies in the states in which the Company and its subsidiaries operate. The
supervision, regulation and examination to which the Company and its
subsidiaries are subject are intended primarily to protect depositors or are
aimed at carrying out broad public policy goals, and not necessarily for the
protection of shareholders.
Some of the more significant statutory and regulatory provisions applicable to
banks and BHCs to which the Company and its subsidiaries are subject are
described more fully below, together with certain statutory and regulatory
matters concerning the Company and its subsidiaries. The description of these
statutory and regulatory provisions does not purport to be complete and is
qualified in its entirety by reference to the particular statutory or regulatory
provision. Any change in applicable law or regulation may have a material effect
on the Company's business and operations, as well as those of its subsidiaries.
The Company's shareholders generally are not subject to these statutory and
regulatory provisions.
BHCs - Activities and Other Limitations. As a registered BHC and a Maine
financial institution holding company, the Company is subject to regulation
under the BHC Act and Maine law and to examination and supervision by the FRB
and the Superintendent, and is required file reports with, and provide
additional information requested by, the FRB and the Superintendent. The FRB has
the authority to issue orders to BHCs to cease and desist from unsound banking
practices and violations of conditions imposed by, or violations of agreements
with, the FRB. The FRB is also empowered to assess civil money penalties against
companies or individuals that violate the BHC Act or orders or regulations
thereunder, to order termination of non-banking activities of non-banking
subsidiaries of BHCs, and to order termination of ownership and control of a
non-banking subsidiary by a BHC.
Page 6
<PAGE>
Various other laws and regulations, including Sections 23A and 23B of the
Federal Reserve Act, as amended (the "FRA"), generally limit borrowings,
extensions of credit and certain other transactions between the Company and its
non-bank subsidiaries and its affiliate insured depository institutions. Section
23A of the FRA also generally requires that an insured depository institution's
loans to non-bank affiliates be secured in appropriate amounts, and Section 23B
of the FRA generally requires that transactions between an insured depository
institution and its non-bank affiliates be on arm's length terms. These laws and
regulations also limit BHCs and their subsidiaries from engaging in certain
tying arrangements in connection with any extension of credit, sale or lease of
property, or furnishing of services.
The BHC Act prohibits a BHC from acquiring substantially all the assets of a
bank or acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any bank, or increasing such ownership or control of any bank,
or merging or consolidating with any BHC without prior FRB approval. Unless a
BHC becomes a financial holding company ("FHC") under the Gramm-Leach-Bliley Act
("GLBA"), as discussed below, the BHC Act also prohibits a BHC from acquiring a
direct or indirect interest in or control of more than 5% of the voting shares
of any company which is not a bank or BHC and from engaging directly or
indirectly in activities other than those of banking, managing or controlling
banks or furnishing services to its subsidiary banks, except that it may engage
in and may own shares of companies engaged in certain activities the FRB
determined to be so closely related to banking or managing and controlling banks
as to be a proper incident thereto. In addition, Maine law imposes certain
approval and notice requirements with respect to acquisitions of banks and other
entities by a Maine financial institution holding company.
The GLBA established a comprehensive framework to permit affiliations among
commercial banks, insurance companies, securities firms, and other financial
service providers by revising and expanding the BHC Act framework to permit BHCs
that qualify and elect to be treated as FHCs to engage in a range of financial
activities broader than would be permissible for traditional BHCs that have not
elected to be treated as FHCs, such as the Company. "Financial activities" is
broadly defined to include not only banking, insurance, and securities
activities, but also merchant banking and additional activities that the FRB, in
consultation with the Secretary of the Treasury, determines to be financial in
nature, incidental to such financial activities, or complementary activities
that do not pose a substantial risk to the safety and soundness of depository
institutions or the financial system generally.
In order to elect to become an FHC, a BHC must meet certain tests and file an
election form with the FRB. To qualify, all of a BHC's subsidiary banks must be
well-capitalized and well-managed, as measured by regulatory guidelines. In
addition, to engage in the new activities, each of the BHC's banks must have
been rated `satisfactory' or better in its most recent federal Community
Reinvestment Act evaluation.
A BHC that elects to be treated as an FHC may face significant consequences if
its banks fail to maintain the required capital and management ratings,
including entering into an agreement with the FRB which imposes limitations on
its operations and may even require divestitures. Such possible ramifications
may limit the ability of a bank subsidiary to significantly expand or acquire
less than well-capitalized and well-managed institutions. The Company has not
elected to become an FHC.
Further, the GLBA permits national banks and state banks, to the extent
permitted under state law to engage in certain new activities which are
permissible for subsidiaries of an FHC. Further, the GLBA expressly preserves
the ability of national banks and state banks to retain all existing
subsidiaries. In order to form a financial subsidiary, a national bank or state
bank must be well-capitalized, and such banks would be subject to certain
capital deduction, risk management and affiliate transaction rules. Also, the
FDIC's final rules governing the establishment of financial subsidiaries adopt
the position that activities that a national bank could only engage in through a
financial subsidiary only may be conducted in a financial subsidiary by a state
nonmember bank. However, activities that a national bank could not engage in
through a financial subsidiary, such as real estate development or investment,
continue to be governed by the FDIC's standard activities rules. Moreover, to
mirror the FRB's actions with respect to state member banks, the final rules
provide that a state bank subsidiary that engages only in activities that the
bank could engage in directly (regardless of the nature of the activities) will
not be deemed to be a financial subsidiary.
Page 7
<PAGE>
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. The
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 generally
authorizes BHCs to acquire banks located in any state, possibly subject to
certain state-imposed age and deposit concentration limits, and also generally
authorizes interstate mergers and to a lesser extent, interstate branching.
Declaration of Dividends. According to its Policy Statement on Cash Dividends
Not Fully Covered by Earnings (the "FRB Dividend Policy"), the FRB considers
adequate capital to be critical to the health of individual banking
organizations and to the safety and stability of the banking system. Of course,
one of the major components of the capital adequacy of a bank or a BHC is the
strength of its earnings and the extent to which its earnings are retained and
added to capital or paid to shareholders in the form of cash dividends.
Accordingly, the FRB Dividend Policy suggests that banks and BHCs generally
should not maintain their existing rate of cash dividends on common stock unless
the organization's net income available to common shareholders over the past
year has been sufficient to fully fund the dividends and the prospective rate of
earnings retention appears consistent with the organization's capital needs,
asset quality and overall financial condition. The FRB Dividend Policy
reiterates the FRB's belief that a BHC should not maintain a level of cash
dividends to its shareholders that places undue pressure on the capital of bank
subsidiaries, or that can be funded only through additional borrowings or other
arrangements that may undermine the BHC's ability to serve as a source of
strength.
Under Maine law, a corporation's board of directors may declare, and the
corporation may pay, dividends on its outstanding shares in cash or other
property, generally only out of the corporation's unreserved and unrestricted
earned surplus, or out of the unreserved and unrestricted net earnings of the
current fiscal year and the next preceding fiscal year taken as a single period,
except under certain circumstances, including when the corporation is insolvent
or when the payment of the dividend would render the corporation insolvent or
when the declaration would be contrary to the corporation's charter. These same
limitations generally apply to investor-owned, Maine financial institutions.
Dividend payments by national banks, such as CNB, also are subject to certain
restrictions. For instance, national banks generally may not declare a dividend
in excess of the bank's undivided profits and, absent OCC approval, if the total
amount of dividends declared by the national bank in any calendar year exceeds
the total of the national bank's retained net income of that year to date
combined with its retained net income for the preceding two years. National
banks also are prohibited from declaring or paying any dividend it, after making
the dividend, the national bank would be considered "undercapitalized" (defined
by reference to other OCC regulations).
Federal bank regulatory agencies also have authority to prohibit banking
institutions from paying dividends if those agencies determine that, based on
the financial condition of the bank, such payment would constitute an unsafe or
unsound practice.
Capital Requirements.
FRB Guidelines. The FRB has adopted capital adequacy guidelines
pursuant to which it assesses the adequacy of capital in examining and
supervising a BHC and in analyzing applications to it under the BHC Act. The
FRB's capital adequacy guidelines apply on a consolidated basis to BHCs with
consolidated assets of $150 million or more; thus, these guidelines apply to the
Company on a consolidated basis.
The FRB's capital adequacy guidelines generally require BHCs to maintain total
capital equal to 8% of total risk-adjusted assets and off-balance sheet items,
with at least one-half of that amount consisting of Tier 1 or core capital and
the remaining amount consisting of Tier 2 or supplementary capital. Tier 1
capital for BHCs generally consists of the sum of common stockholders' equity
and perpetual preferred stock (subject in the case of the latter to limitations
on the kind and amount of such stocks which may be included as Tier 1 capital),
less goodwill and other non-qualifying intangible assets. Tier 2 capital
generally consists of hybrid capital instruments; perpetual preferred stock,
which is not eligible to be included as Tier 1 capital; term subordinated debt
and intermediate-term preferred stock; and, subject to limitations, general
allowances for loan losses. Assets are adjusted under the risk-based guidelines
to take into account different risk characteristics.
Page 8
<PAGE>
In addition to the risk-based capital requirements, the FRB requires BHCs to
maintain a minimum leverage capital ratio of Tier 1 capital (defined by
reference to the risk-based capital guidelines) to total assets of 3.0%. Total
assets for this purpose do not include goodwill and any other intangible assets
and investments that the FRB determines should be deducted from Tier 1 capital.
The FRB has announced that the 3.0% leverage ratio requirement is the minimum
for the strong BHCs without any supervisory, financial or operational weaknesses
or deficiencies or those, which are not experiencing or anticipating significant
growth. All other BHCs are required to maintain a minimum leverage ratio of at
least 4.0%. BHCs with supervisory, financial, operational, or managerial
weaknesses, as well as BHCs that are anticipating or experiencing significant
growth, are expected to maintain capital ratios well above the minimum levels.
The Company's risk-based capital ratio and leverage ratio currently
are, and its management expects these ratios to remain, in excess of regulatory
requirements.
OCC and FDIC Guidelines. The OCC and the FDIC each have promulgated
regulations and adopted a statement of policy regarding the capital adequacy of,
respectively, national banks and state-chartered banks that are not members of
the Federal Reserve System. These requirements are substantially similar to
those adopted by the FRB.
Moreover, the federal banking agencies have promulgated substantially
similar regulations to implement the system of prompt corrective action
established by Section 38 of the Federal Deposit Insurance Act, as amended (the
"FDIA"). Under the prompt correction action regulations, a bank generally shall
be deemed to be:
. "well capitalized" if it has a total risk-based capital ratio of 10.0% or
greater, has a Tier 1 risk-based capital ratio of 6.0% or greater, has a
leverage ratio of 5.0% or greater and is not subject to any written
agreement, order, capital directive or prompt corrective action directive;
. "adequately capitalized" if it has a total risk-based capital ratio of 8.0%
or greater, a Tier 1 risk-based capital ratio of 4.0% or greater, has a
leverage ratio of 4.0% or greater (3.0% under certain circumstances) and
does not meet the definition of "well capitalized;"
. "undercapitalized" if it has a total risk-based capital ratio that is less
than 8.0%, a Tier 1 risk-based capital ratio that is less than 4.0% or a
leverage ratio that is less than 4.0% (3.0% under certain circumstances);
. "significantly undercapitalized" if it has a total risk-based capital ratio
that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than
3.0% or a leverage ratio that is less than 3.0%; and
. "critically undercapitalized" if it has a ratio of tangible equity to total
assets that is equal to or less than 2.0%.
An institution generally must file a written capital restoration plan
which meets specified requirements with an appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. An institution, which is required to submit a
capital restoration plan, must concurrently submit a performance guaranty by
each company that controls the institution. A critically undercapitalized
institution generally is to be placed in conservatorship or receivership within
90 days unless the federal banking agency determines to take such other action
(with the concurrence of the FDIC) that would better protect the deposit
insurance fund.
Immediately upon becoming undercapitalized, the institution becomes
subject to the provisions of Section 38 of the FDIA, including for example, (i)
restricting payment of capital distributions and management fees, (ii) requiring
that the appropriate federal banking agency monitor the condition of the
institution and its efforts to restore its capital, (iii) requiring submission
of a capital restoration plan, (iv) restricting the growth of the institution's
assets and (v) requiring prior approval of certain expansion proposals.
At December 31, 2001, each of the Company's subsidiary banks was deemed
to be a well capitalized institution for the above purposes. The federal bank
regulatory agencies may raise capital requirements applicable to banking
organizations beyond current levels. The Company is unable to predict whether
higher capital requirements will be imposed and, if so, at what levels and on
what schedules. Therefore, the Company cannot predict what effect
Page 9
<PAGE>
such higher requirements may have on it. As is discussed above, each of the
Company's subsidiary banks would be required to remain a well-capitalized
institution at all times if the Company elected to be treated as an FHC.
Information concerning the Company and its subsidiaries with respect to
capital requirements is incorporated by reference from the section entitled
"Capital Resources" and from Note 21, "Regulatory Matters," of the Notes to
Consolidated Financial Statements, each in the Company's Annual Report for the
fiscal year ended December 31, 2001. U.S. bank regulatory authorities and
international bank supervisory organizations, principally the Basel Committee on
Banking Supervision, currently are considering changes to the risk-based capital
adequacy framework which ultimately could affect the appropriate capital
guidelines.
Activities and Investments of Insured State-Chartered Banks. FDIC insured,
state-chartered banks, such as UnitedKingfield, are also subject to similar
restrictions on their business and activities. Section 24 of the FDIA generally
limits the activities as principal and equity investments of FDIC-insured,
state-chartered banks to those that are permissible to national banks. In 1999,
the FDIC substantially revised its regulations implementing Section 24 of the
FDIA to ease the ability of state-chartered banks to engage in certain
activities not permissible for national banks, and to expedite FDIC review of
bank applications and notices to engage in such activities.
Activities and Investments of National Banking Associations. National banking
associations must comply with the National Bank Act and the regulations
promulgated thereunder by the OCC which limit the activities of national banking
associations to those that are deemed to be part of or incidental to the
"business of banking." Activities that are part of or incidental to the business
of banking include taking deposits, borrowing and lending money and discounting
or negotiating paper. Subsidiaries of national banking associations generally
may only engage in activities permissible for the parent national bank.
Other Regulatory Requirements
Customer Information Security. The OCC, the FDIC and other bank regulatory
agencies have published final guidelines establishing standards for safeguarding
nonpublic personal information about customers that implement provisions of the
GLBA (the "Guidelines"). Among other things, the Guidelines require each
financial institution, under the supervision and ongoing oversight of its Board
of Directors or an appropriate committee thereof, to develop, implement and
maintain a comprehensive written information security program designed to ensure
the security and confidentiality of customer information, to protect against any
anticipated threats or hazards to the security or integrity of such information,
and to protect against unauthorized access to or use of such information that
could result in substantial harm or inconvenience to any customer.
Privacy. The OCC, the FDIC and other regulatory agencies have published final
privacy rules pursuant to provisions of the GLBA ("Privacy Rules"). The Privacy
Rules, which govern the treatment of nonpublic personal information about
consumers by financial institutions, require a financial institution to provide
notice to customers (and other consumers in some circumstances) about its
privacy policies and practices, describe the conditions under which a financial
institution may disclose nonpublic personal information to nonaffiliated third
parties, and provide a method for consumers to prevent a financial institution
from disclosing that information to most nonaffiliated third parties by
"opting-out" of that disclosure, subject to certain exceptions.
USA Patriot Act. The USA Patriot Act of 2001 (the "Patriot Act"), designed to
deny terrorists and others the ability to obtain anonymous access to the United
States financial system, has significant implications for depository
institutions, broker-dealers and other businesses involved in the transfer of
money. The Patriot Act requires financial institutions to implement additional
policies and procedures with respect to money laundering, suspicious activities,
currency transaction reporting and due diligence on customers. Implementation of
the Patriot Act's requirements will occur in stages, as rules regarding its
provisions are finalized by government agencies.
Deposit Insurance. The FDIA does not require the FDIC to charge all banks
deposit insurance premiums when the ratio of deposit insurance reserves to
insured deposits is maintained above specified levels. However, as a result of
general economic conditions and recent bank failures, it is possible that the
ratio of deposit insurance reserves to
Page 10
<PAGE>
insured deposits could fall below the minimum ratio that FDIA requires, which
would result in the FDIC setting deposit insurance assessment rates sufficient
to increase deposit insurance reserves to the required ratio. A resumption of
assessments of deposit insurance premiums charged to well capitalized
institutions, such the Company's subsidiary banks, could have an effect on the
Company's net earnings. The Company cannot predict whether the FDIC will be
required increase deposit insurance assessments above their current levels.
Item 2. Properties
The Company operates in 29 facilities. The headquarters of the Company and the
headquarters and main office of CNB is located at Two Elm Street, Camden, Maine,
and CNB owns these premises. The building has 15,500 square feet of space on
three levels. CNB also owns seven of its branches and the facility in which the
operations departments of the Company are located. None of these owned
facilities is subject to a mortgage. CNB also leases four branches under
long-term leases, which expire in, respectively, August 2006, May 2010, January
2020, and December 2077.
The main office of UnitedKingfield is located at 145 Exchange Street, Bangor,
Maine, and is owned by UnitedKingfield. The building has 25,600 square feet of
space on two levels. UnitedKingfield occupies 16,975 square feet of space on
both floors. TCOM leases 2,100 square feet of office space on the second floor
and 2,042 square feet on the first floor of this building. The law firm of
Russell, Lingley & Silver, P.A., also leases 2,533 square feet on the second
floor. UnitedKingfield also owns 15 of its other facilities, none of which is
subject to a mortgage. UnitedKingfield also leases 2 branches and a parcel of
land, which expire in, respectively, September 2002, February 2003 and August
2009.
Acadia leases its facility at 511 Congress Street, Portland, Maine under a
long-term lease, which expires in October 2005. Acadia leases 18,966 square feet
on the 8/th/ and 9/th/ floors, occupying 11,767 square feet of this office
space. Acadia leases to the Law Office of David Hunt, Actuarial Designs &
Solutions, and Hopkinson & Abbondanza, 3,660 square feet, 2392 square feet, and
1,147 square feet, respectively, of office space on the 8/th/ floor.
Item 3. Pending Legal Proceedings
There are no material legal matters to which the Company is a party or to which
any of its property is subject; however, the Company is a party to ordinary
routine litigation incidental to its business.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters
The information appearing under the caption "Common Stock Information" on page
21 of the Company's Annual Report to Shareholders for the year ended December
31, 2001 is incorporated herein by reference.
Item 6. Selected Financial Data
Selected year-end financial information for the past five years appearing under
the caption "Selected Five-Year Financial Data" on page 23 of the Company's
Annual Report to Shareholders for the year ended December 31, 2001 is
incorporated herein by reference.
Page 11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report, including the information incorporated herein by reference,
contains certain statements that may be considered forward-looking statements
under the Private Securities Litigation Reform Act of 1995. You can identify
forward-looking statements by the use of the words "believe," "expect,"
"anticipate," "intend," estimate," "assume," "will," "should," and other
expressions which predict or indicate future events or trends and which do not
relate to historical matters. The Company's actual results could differ
materially from those projected in the forward-looking statements as a result
of, among other factors, the factors discussed on page 16 below, changes in
volume of loan originations, fluctuations in prevailing interest rates,
increases in costs to borrowers of loans held, increases in costs of funds, and
changes in assumptions used in making such forward-looking statements. Readers
should carefully review the factors described on page 16 below and should not
place undue reliance on our forward looking statements. The Company assumes no
obligations to update any forward-looking statements.
The information appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 10 through
21 of the Company's Annual Report to Shareholders for the year ended December
31, 2001 is incorporated herein by reference and should be read in conjunction
with the following text and tables.
The following tables set forth the Company's investment securities at book
carrying amount as of December 31, 2001, 2000 and 1999.
<TABLE>
<CAPTION>
2001 2000 1999
---- ---- ----
Dollars in thousands
<S> <C> <C> <C>
Securities available for sale:
- -----------------------------
U.S. Treasury and agency $ 61,098 $ 58,708 $ 65,046
Mortgage-backed securities 139,459 30,117 13,104
State and political subdivisions 8,780 7,928 7,520
Other debt securities 41,963 44,467 46,938
Equity securities 11,566 18,095 15,331
-------- --------- ---------
262,866 159,315 147,939
-------- --------- ---------
Securities held to maturity:
- ---------------------------
U.S. Treasury and agency 944 300 5,949
Mortgage-backed securities - 55,658 60,963
State and political subdivisions - 1,142 1,152
Other debt securities - 595 129
-------- --------- ---------
944 57,695 68,193
-------- --------- ---------
$263,810 $217,010 $216,132
======== ======== =========
</TABLE>
To enhance the Company's ability to manage liquidity, the investment portfolio
is divided into two parts: investments available for sale and investments held
to maturity. The ability to use securities as collateral for Federal Home Loan
Bank of Boston ("FHLBB") loans enables the Company to hold a portion of the
portfolio to maturity. The table on the following pages summarizes the
investment portfolios maturities and yields at December 31, 2001.
Page 12
<PAGE>
<TABLE>
<CAPTION>
Available for sale Held to maturity
------------------ ----------------
Book Yield to Amortized Yield to
Dollars in thousands Value Maturity Cost Maturity
----- -------- ---- --------
<S> <C> <C> <C> <C>
U.S. Treasury and Agency:
Due in 1 year or less $ 8,280 5.625% $ 944 1.612%
Due in 1 to 5 years 41,973 6.475% 0 0.000%
Due in 5 to 10 years 10,845 6.562% 0 0.000%
Due after 10 years - 0.000% 0 0.000%
--------- -------- -------- --------
61,098 6.376% 944 1.612%
--------- -------- -------- --------
Mortgage-backed securities:
Due in 1 year or less 83 8.435% - 0.000%
Due in 1 to 5 years 17,656 6.647% - 0.000%
Due in 5 to 10 years 13,115 6.508% - 0.000%
Due after 10 years 108,605 6.810% - 0.000%
--------- -------- -------- --------
139,459 6.762% - 0.000%
--------- -------- -------- --------
State and political subdivisions:
Due in 1 year or less 372 6.315% - 0.000%
Due in 1 to 5 years 2,967 4.261% - 0.000%
Due in 5 to 10 years 4,840 4.188% - 0.000%
Due after 10 years 601 5.000% - 0.000%
--------- -------- -------- --------
8,780 4.358% - 0.000%
--------- -------- -------- --------
Other debt securities:
Due in 1 year or less - 0.000% - 0.000%
Due in 1 to 5 years 377 7.788% - 0.000%
Due in 5 to 10 years - 0.000% - 0.000%
Due after 10 years 41,586 6.574% - 0.000%
--------- -------- -------- --------
41,963 6.585% - 0.000%
--------- -------- -------- --------
Other equity securities:
Due in 1 year or less - 0.000% 0 0.000%
Due in 1 to 5 years 2,043 6.959% 0 0.000%
Due in 5 to 10 years - 0.000% 0 0.000%
Due after 10 years 9,523 7.389% 0 0.000%
--------- -------- -------- --------
11,566 7.313% 0 0.000%
--------- -------- -------- --------
Total securities $ 262,866 6.588% $ 944 1.612%
========= ======== ======== ========
</TABLE>
Total loans increased by $22.7 million, or 3.2%, in 2001. The following table
provides a summary of the loan portfolio for the past five years. Management
does not foresee any significant changes occurring in the loan mix during the
coming year.
Page 13
<PAGE>
<TABLE>
<CAPTION>
Dollars in thousands
As of December 31, 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial $423,893 $364,169 $316,411 $269,747 $226,981
Residential real estate 204,043 235,554 226,548 202,952 193,327
Consumer 86,375 90,231 83,832 78,496 50,433
Municipal 9,234 10,924 8,307 17,199 10,727
Other 497 462 336 1,311 1,880
-------- -------- -------- -------- --------
$724,042 $701,340 $635,434 $569,705 $483,348
======== ======== ======== ======== ========
</TABLE>
Loan demand also affects the Company's liquidity position. However, of the loans
maturing over 1 year, approximately 62% are variable rate loans. The following
table presents the maturities of loans at December 31, 2000:
<TABLE>
<CAPTION>
Dollars in thousands Through More Than
1 Year 5 Years 5 Years Total
<S> <C> <C> <C> <C>
Maturity Distribution:
- ---------------------
Fixed Rate:
Commercial $ 13,503 $ 50,247 $ 16,872 $ 80,622
Residential real estate 2,833 5,123 141,079 149,035
Consumer 3,767 13,361 17,852 34,980
Variable Rate:
Commercial 41,198 48,606 253,467 343,271
Residential real estate 3 468 54,537 55,008
Consumer 6,740 10,666 34,486 51,892
Municipal 2,891 4,418 1,925 9,234
-------- -------- -------- --------
$ 70,935 $132,889 $520,218 $724,042
======== ======== ======== ========
</TABLE>
Management considers both the adequacy of the collateral and the other resources
of the borrower in determining the steps to be taken to collect non-accrual and
charged-off loans. Alternatives considered are foreclosure, collecting on
guarantees, restructuring the loan, or collection lawsuits.
The following table sets forth the amount of the Company's non-performing assets
as of the dates indicated:
<TABLE>
<CAPTION>
Dollars in thousands
As of December 31, 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
- -------------------
Non-accrual loans 7,302 4,644 6,135 $ 4,078 $ 3,305
Accruing loans past due 90 days or more 768 1,844 196 613 1,004
-------- -------- -------- -------- --------
Total nonperforming loans 8,070 6,488 6,331 4,691 4,309
-------- -------- -------- -------- --------
Other real estate owned 195 380 1,405 1,052 1,532
-------- -------- -------- -------- --------
Total nonperforming assets $ 8,265 $ 6,868 $ 7,736 $ 5,743 $ 5,841
======== ======== ======== ======== ========
</TABLE>
Page 14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratios:
- -------
Nonperforming loans to total loans 1.14% 0.98% 1.00% 0.82% 0.89%
Allowance for loan losses to nonperforming loans 167.46% 166.48% 148.32% 172.50% 162.03%
Nonperforming assets to total assets 0.73% 0.68% 0.83% 0.68% 0.80%
Allowance for loan losses to nonperforming assets 169.24% 157.27% 121.38% 140.90% 119.53%
</TABLE>
The maturity dates of certificates of deposit, including broker certificates of
deposit, in denominations of $100,000 or more are set forth in the following
table. These deposits are generally considered to be more rate sensitive than
other deposits and, therefore, more likely to be withdrawn to obtain higher
yields elsewhere if available.
Dollars in thousands
December 31, 2001
----
Time remaining until maturity:
Less than 3 months $ 24,437
3 months through 6 months 9,179
6 months through 12 months 15,920
Over 12 months 60,111
---------
$ 109,647
=========
The dividend payout ratio was 33.90%, 37.17%, 40.90%, 33.74%, and 29.31% for
2001, 2000, 1999, 1998 and 1997, respectively. The average equity to average
assets ratio was 9.44%, 8.55%, 8.71%, 10.05% and 10.07% for 2001, 2000, 1999,
1998 and 1997, respectively.
The borrowings utilized by the Company have primarily been advances from the
FHLBB. In addition, the Company uses Federal Funds, treasury, tax and loan
deposits, and repurchase agreements secured by the United States government or
agency securities. Approximately 15% of all borrowings mature or reprice within
the next 3 months.
The following table sets forth certain information regarding borrowed funds for
the years ended December 31, 2001, 2000, and 1999:
<TABLE>
<CAPTION>
At or for the year ended December 31,
Dollars in thousands 2001 2000 1999
---- ---- ----
<S> <C> <C> <C>
Average balance outstanding $199,615 $198,597 $146,627
Maximum amount outstanding at
any month-end during the year 228,414 209,652 173,924
Balance outstanding at end of year 210,843 168,440 173,924
Weighted average interest rate during the year 4.95% 5.87% 4.90%
Weighted average interest rate at end of year 5.04% 6.18% 5.07%
</TABLE>
Interest rate sensitivity or "gap" management involves the maintenance of an
appropriate balance between interest sensitive assets and interest sensitive
liabilities. This reduces interest rate risk exposure while also providing
liquidity to satisfy the cash flow requirements of operations and customers'
fluctuating demands for funds, either in terms of loan requests or deposit
withdrawals. Major fluctuations in net interest income and net earnings could
occur due to imbalances between the amounts of interest-earning assets and
interest-bearing liabilities, as well as different repricing characteristics.
Gap management seeks to protect earnings by maintaining an appropriate balance
between interest-earning assets and interest-bearing liabilities in order to
minimize fluctuations in the net interest margin and net earnings in periods of
volatile interest rates.
Page 15
<PAGE>
The following table sets forth the amount of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2001, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown:
<TABLE>
<CAPTION>
Through More Than
Dollars in thousands *1 Year 5 Years 5 Years Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest-earning assets:
Fixed rate loans $ 22,994 $ 73,149 $ 177,728 $ 273,871
Variable rate loans 450,171 - - 450,171
Investment securities
Available for sale 8,735 65,016 189,115 262,866
Held to maturity 944 - - 944
--------- --------- --------- ---------
Total interest-earning assets 482,844 138,165 366,843 987,852
--------- --------- --------- ---------
Interest-bearing liabilities:
Savings accounts 20,000 - 68,226 88,226
NOW accounts - - 95,664 95,664
Money market accounts 134,333 - - 134,333
Certificate accounts 218,511 126,242 4,430 349,183
Borrowings 24,578 88,254 56,000 168,832
--------- --------- --------- ---------
Total interest-bearing liabilities 397,422 214,496 224,320 836,238
--------- --------- --------- ---------
Interest sensitivity gap per period $ 85,422 $ (76,331) $ 142,523
========= ========= =========
Cumulative interest sensitivity gap $ 85,422 $ 9,091 $ 151,614
========= ========= =========
Cumulative interest sensitivity gap
as a percentage of total assets 8% 1% 14%
Cumulative interest-earning assets as a
percentage of interest-sensitive liabilities 121% 101% 118%
</TABLE>
* Less than
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
Interest Rate Volatility May Reduce Our Profitability.
The profitability of our banking subsidiaries depends to a large extent upon
their net interest income, which is the difference between their interest income
on interest-earning assets, such as loans and investments, and their interest
expense in interest bearing liabilities, such as deposits and borrowed funds.
Our net interest income can be affected significantly by changes in market
interest rates. In particular, changes in relative interest rates may reduce our
net interest income as the difference between interest income and interest
expense decreases. As a result, we have adopted asset and liability management
policies to minimize the potential adverse effects of changes in interest rates
on net interest income, primarily by altering the mix and maturity of loans,
investments and funding sources.
However, we cannot assure you that a decrease in interest rates will not
negatively impact our results from operations or financial position. Since
market interest rates may change by differing magnitudes and at different times,
significant changes in interest rates over an extended period of time could
reduce overall net interest income. An increase in interest rates could also
have a negative impact on our results of operations by reducing the ability of
borrowers to repay their current loan obligations, which could not only result
in increased loan defaults, foreclosures and write-offs, but also necessitate
further increases to our allowance for loan losses.
Page 16
<PAGE>
Our Allowance for Loan Losses May Not Be Adequate to Cover Actual Loan Losses.
We make various assumptions and judgments about the collectibility of our loan
portfolio and provide an allowance for potential losses based on a number of
factors. If our assumptions are wrong, our allowance for loan losses may not be
sufficient to cover the losses we actually experience, which would have an
adverse effect on our operating results, and may also cause us to increase the
allowance in the future. Further, our net income would decrease if we had to add
additional amounts to our allowance for loan losses.
Our Loans Are Concentrated in Certain Areas of Maine and Adverse Conditions in
those Markets Could Adversely Affect Our Operations.
We are exposed to real estate and economic factors in the central, southern,
western and midcoast areas of Maine because virtually all of our loan portfolio
is concentrated among borrowers in these markets. Further, because a substantial
portion of our loan portfolio is secured by real estate in this area, the value
of the associated collateral is also subject to regional real estate market
conditions. Adverse economic, political or business developments or natural
hazards may affect these areas and the ability of property owners in these areas
to make payments of principal and interest on the underlying mortgages. If these
regions experience adverse economic, political or business conditions, we would
likely experience higher rates of loss and delinquency on our mortgage loans
than if our loans were more geographically diverse.
If we do not maintain our historical growth rate, the market price of our common
stock could be adversely affected.
The Company's return on shareholders equity and other measures of profitability,
which affect the market price of our common stock, depend in part on the
Company's continued growth and expansion. Our growth strategy has two principal
components - internal and external growth. Our ability to generate internal
growth is affected by the competitive factors described below as well as by the
primarily rural characteristics and related demographic features of the markets
we serve. Our ability to continue to identify and invest in suitable acquisition
candidates on acceptable terms is crucial to our external growth. In pursuing
acquisition opportunities, we may be in competition with other companies having
similar growth strategies. As a result, we may not be able to identify or
acquire promising acquisition candidates on acceptable terms. Competition for
these acquisitions could result in increased acquisition prices and a diminished
pool of acquisition opportunities. An inability to find suitable acquisition
candidates at reasonable prices could slow our growth rate and have a negative
affect on the market price of our common stock.
We Experience Strong Competition within Our Markets Which May Impact Our
Profitability.
Competition in the banking and financial services industry is strong. In our
market areas, we compete for loans and deposits with local independent banks,
thrift institutions, savings institutions, mortgage brokerage firms, credit
unions, finance companies, mutual funds, insurance companies, and brokerage and
investment banking firms operating locally as well as nationally. Many of these
competitors have substantially greater resources and lending limits than those
of our banking subsidiaries and may offer services that our banking subsidiaries
do not or cannot provide. Our long-term success depends on the ability of our
banking subsidiaries to compete successfully with other financial institutions
in their service areas. Because we maintain a smaller staff and have fewer
financial and other resources than larger institutions with which we compete, we
may be limited in our ability to attract customers. If we are unable to attract
and retain banking customers, we may be unable to continue our loan growth and
our results of operations and financial condition may otherwise be negatively
impacted.
Page 17
<PAGE>
Our Cost of Funds for Banking Operations May Increase as a Result of General
Economic Conditions, Interest Rates and Competitive Pressures.
Our banking subsidiaries have traditionally obtained funds principally through
deposits and through borrowings. As a general matter, deposits are a cheaper
source of funds than borrowings, because interest rates paid for deposits are
typically less than interest rates charged for borrowings. If as a result of
general economic conditions, market interest rates, competitive pressures or
otherwise, the value of deposits at our banking subsidiaries decreases relative
to our overall banking operations, we may have to rely more heavily on
borrowings as a source of funds in the future.
Our Banking Business is Highly Regulated.
Bank holding companies, national banking associations and state-chartered banks
operate in a highly regulated environment and are subject to supervision,
regulation and examination by various federal and state bank regulatory
agencies, as well as other governmental agencies in the states in which they
operate. Federal and state laws and regulations govern numerous matters
including changes in the ownership or control of banks and BHCs, maintenance of
adequate capital and the financial condition of a financial institution,
permissible types, amounts and terms of extensions of credit and investments,
permissible non-banking activities, the level of reserves against deposits and
restrictions on dividend payments. The OCC, the FDIC and the Superintendent
possess cease and desist powers to prevent or remedy unsafe or unsound practices
or violations of law by banks subject to their regulation, and the FRB possesses
similar powers with respect to BHCs. These and other restrictions limit the
manner in which the Company and its subsidiaries may conduct business and obtain
financing.
Furthermore, our business is affected not only by general economic conditions,
but also by the economic, fiscal and monetary policies of the United States and
its agencies and regulatory authorities, particularly the FRB. The economic and
fiscal policies of various governmental entities and the monetary policies of
the FRB may affect the interest rates CNB and UnitedKingfield must offer to
attract deposits and the interest rates they must charge on loans, as well as
the manner in which they offer deposits and make loans. These economic, fiscal
and monetary policies have had, and are expected to continue to have,
significant effects on the operating results of depository institutions
generally including CNB and UnitedKingfield.
We Could Be Held Responsible for Environmental Liabilities of Properties We
Acquire Through Foreclosure.
If we are forced to foreclose on a defaulted mortgage loan to recover our
investment we may be subject to environmental liabilities related to the
underlying real property. Hazardous substances or wastes, contaminants,
pollutants or sources thereof may be discovered on properties during our
ownership or after a sale to a third party. The amount of environmental
liability could exceed the value of the real property. There can be no assurance
that we would not be fully liable for the entire cost of any removal and
clean-up on an acquired property, that the cost of removal and clean-up would
not exceed the value of the property or that we could recoup any of the costs
from any third party.
To the Extent that We Acquire Other Companies in the Future, Our Business May Be
Negatively Impacted by Certain Risks Inherent with such Acquisitions
Although we do not have an aggressive acquisition strategy, we have acquired,
and in the future will continue to consider the acquisition of, other banking
companies. To the extent that we acquire other companies in the future, our
business may be negatively impacted by certain risks inherent with such
acquisitions.
These risks include the following:
. the risk that the acquired business will not perform in accordance
with management's expectations;
Page 18
<PAGE>
. the risk that difficulties will arise in connection with the
integration of the operations of the acquired business with the
operations of our businesses;
. the risk that management will divert its attention from other aspects
of our business;
. the risk that we may lose key employees of the acquired business; and
. the risks associated with entering into geographic and product markets
in which we have limited or no direct prior experience.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
The information required by this item is included on pages 19 through 21 of the
Company's Annual Report to Shareholders for the year ended December 31, 2001,
and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The following financial statements and report of independent accountant are
included in the Company's Annual Report to Shareholders for the year ended
December 31, 2001 and are incorporated herein by reference. Page references are
to pages of the Company's Annual Report to Shareholders for the year ended
December 31, 2001.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Condition
December 31, 2001 and 2000 24
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999 25
Consolidated Statements of Changes in the Shareholders' Equity
for the years ended December 31, 2001, 2000 and 1999 26
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 27
Notes to Consolidated Financial Statements 28-47
Report of Independent Public Accountant 48
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
During the past two years, the Company has not made changes in, and has not had
disagreements with its independent accountant on, accounting and financial
disclosures.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by reference from the
material responsive to such item in the Company's definitive proxy statement
relating to the 2002 Annual Meeting of Shareholders to filed with the Securities
and Exchange Commission (the "Commission") prior to April 30, 2002.
Page 19
<PAGE>
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
material responsive to such item in the Company's definitive proxy statement
relating to the 2002 Annual Meeting of Shareholders to filed with the Commission
prior to April 30, 2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
material responsive to such item in the Company's definitive proxy statement
relating to the 2002 Annual Meeting of Shareholders to filed with the Commission
prior to April 30, 2002.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
material responsive to such item in the Company's definitive proxy statement
relating to the 2002 Annual Meeting of Shareholders to filed with the Commission
prior to April 30, 2002.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Index to Financial Statements:
A list of the consolidated financial statements of the Company and report
of the Company's independent public accountant incorporated herein is included
in Item 8 of this Report.
2. Financial Statement Schedules:
Schedules have been omitted because they are not applicable or are not
required under the instructions contained in Regulation S-X or because the
information required to be set forth therein is included in the consolidated
financial statements or notes thereto.
3. Exhibits:
(2.1) Agreement and Plan of Merger, dated as of July 27, 1999, by and among
the Company, Camden Acquisition Subsidiary, Inc., KSB, and Kingfield
Bank (incorporated by reference to Exhibit 2.1 to the Company's Form
8-K filed with the Commission on August 9, 1999).
(3.1) The Company's Articles of Incorporation, as amended to date
(incorporated by reference to Exhibit 3.i to the Company's Form 10-Q
filed with the Commission on August 10, 2001).
(3.2) The Company's Bylaws, as amended to date (incorporated herein by
reference to Exhibit 3.ii to the Company's Form 10-Q filed with the
Commission on November 14, 2001).
(10.1) CNB's 1993 Stock Option Plan (incorporated herein by reference to
Exhibit 99.1 to the Company's Form S-8 filed with the Commission on
August 29, 2001 (Commission No. 333-68598)).
(10.2) Amendment No. 1 to the 1993 Stock Option Plan (incorporated by
reference to Exhibit 99.2 to the Company's Form S-8 filed with the
Commission on August 29, 2001 (Commission No. 333-68598)).
(10.3) Employment Agreement, dated as of May 4, 1999, by and between the
Company and its Chief Executive
Page 20
<PAGE>
Officer (incorporated herein by reference to Exhibit 10.8 to the
Company's Form 10-Q/A for the quarter ended June 30, 1999 filed with
the Commission on November 15, 1999).
(10.4) KSB's 1993 Incentive Stock Option Plan (incorporated herein by
reference to Exhibit 99.1 to the Company's Form S-8 filed with the
Commission on January 21, 2000 (Commission No. 333-95157)).
(10.5) Amendment No. 1 to the KSB's 1993 Stock Option Plan (incorporated
herein by reference to Exhibit 99.2 to the Company's Form S-8 filed
with the Commission on January 21, 2000 (Commission No. 333-95157)).
(10.6) KSB's 1998 Long-Term Incentive Stock Benefit Plan (incorporated herein
by reference to Appendix A to KSB's Definitive Proxy Statement filed
with the Commission on April 15, 1998).
(10.7) Summary of the Company's Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit 10.13 to the Company's
Form 10-K for the year ended December 31, 1999 filed with the
Commission on March 30, 2000).
(10.8) Deferred Compensation Plan (incorporated herein by reference to
Exhibit 10.9 to the Company's Form 10-K for the year ended December
31, 2000 filed with the Commission on March 30, 2001).
(10.9)* Lease agreement for Acadia in Portland, ME.
(10.10)* Lease Agreement for CNB branch in Portland, Maine.
(13)* The Company's 2001 Annual Report to Shareholders.
(21)* Subsidiaries of the Company.
(23)* Consent of Berry, Dunn, McNeil & Parker relating to the Company's
financial statements.
_______________________
* Filed herewith
Deemed filed only with respect to those portions thereof incorporated herein by
reference:
(b) Reports on Form 8-K:
None.
Page 21
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAMDEN NATIONAL CORPORATION
/s/ Robert W. Daigle March 26, 2002
- -------------------------------------------------------- ------------------
Robert W. Daigle Date
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ Robert W. Daigle March 26, 2002 /s/ Gregory A. Dufour March 26, 2002
- ---------------------------------------------------------- ---------------------------------------------------
Robert W. Daigle Date Gregory A. Dufour Date
President, Director Senior Vice President-Finance
and Chief Executive Officer
/s/ Rendle A. Jones March 26, 2002 /s/ Johann Gouws March 26, 2002
- ---------------------------------------------------------- ---------------------------------------------------
Rendle A. Jones Date Johann Gouws Date
Chairman and Director Director
/s/ Robert J. Gagnon March 26, 2002 /s/ Richard N. Simoneau March 26, 2002
- ---------------------------------------------------------- ---------------------------------------------------
Robert J. Gagnon Date Richard N. Simoneau Date
Director Director
/s/ Ann W. Bresnahan March 26, 2002 /s/ Arthur E. Strout March 26, 2002
- ---------------------------------------------------------- ---------------------------------------------------
Ann W. Bresnahan Date Arthur E. Strout Date
Director Director
/s/ John W. Holmes March 26, 2002 /s/ Theodore C. Johanson March 26, 2002
- ---------------------------------------------------------- ---------------------------------------------------
John W. Holmes Date Theodore C. Johanson Date
Director Director
/s/ Winfield F. Robinson March 26, 2002 /s/ Ward I. Graffam March 26, 2002
- ---------------------------------------------------------- ---------------------------------------------------
Winfield F. Robinson Date Ward I. Graffam Date
Director Director
/s/ Robert J. Campbell March 26, 2002
- ----------------------------------------------------------
Robert J. Campbell Date
Director
</TABLE>
Page 22
<PAGE>
EXHIBIT INDEX
-------------
(2.1) Agreement and Plan of Merger, dated as of July 27, 1999, by and
among the Company, Camden Acquisition Subsidiary, Inc., KSB, and
Kingfield Bank (incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K filed with the Commission on August 9, 1999).
(3.1) The Company's Articles of Incorporation, as amended to date
(incorporated by reference to Exhibit 3.i to the Company's Form
10-Q filed with the Commission on August 10, 2001).
(3.2) The Company's Bylaws, as amended to date (incorporated herein by
reference to Exhibit 3.ii to the Company's Form 10-Q filed with
the Commission on November 14, 2001).
(10.1) CNB's 1993 Stock Option Plan (incorporated herein by reference to
Exhibit 99.1 to the Company's Form S-8 filed with the Commission
on August 29, 2001 (Commission No. 333-68598)).
(10.2) Amendment No. 1 to the 1993 Stock Option Plan (incorporated by
reference to Exhibit 99.2 to the Company's Form S-8 filed with the
Commission on August 29, 2001 (Commission No. 333-68598)).
(10.3) Employment Agreement, dated as of May 4, 1999, by and between the
Company and its Chief Executive Officer (incorporated herein by
reference to Exhibit 10.8 to the Company's Form 10-Q/A for the
quarter ended June 30, 1999 filed with the Commission on November
15, 1999).
(10.4) KSB's 1993 Incentive Stock Option Plan (incorporated herein by
reference to Exhibit 99.1 to the Company's Form S-8 filed with the
Commission on January 21, 2000 (Commission No. 333-95157)).
(10.5) Amendment No. 1 to the KSB's 1993 Stock Option Plan (incorporated
herein by reference to Exhibit 99.2 to the Company's Form S-8
filed with the Commission on January 21, 2000 (Commission No.
333-95157)).
(10.6) KSB's 1998 Long-Term Incentive Stock Benefit Plan (incorporated
herein by reference to Appendix A to KSB's Definitive Proxy
Statement filed with the Commission on April 15, 1998).
(10.7) Summary of the Company's Supplemental Executive Retirement Plan
(incorporated herein by reference to Exhibit 10.13 to the
Company's Form 10-K for the year ended December 31, 1999 filed
with the Commission on March 30, 2000).
(10.8) Deferred Compensation Plan (incorporated herein by reference to
Exhibit 10.9 to the Company's Form 10-K for the year ended
December 31, 2000 filed with the Commission on March 30, 2001).
(10.9)* Lease agreement for Acadia in Portland, ME.
(10.10)* Lease Agreement for CNB branch in Portland, Maine.
(13)* The Company's 2001 Annual Report to Shareholders.
(21)* Subsidiaries of the Company.
(23)* Consent of Berry, Dunn, McNeil & Parker relating to the Company's
financial statements.
Page 23
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>3
<FILENAME>dex109.txt
<DESCRIPTION>LEASE AGREEMENT FOR ACADIA IN PORTLAND, ME
<TEXT>
<PAGE>
Exhibit 10.9 Lease Agreement for Acadia in Portland, Maine
- --------------------------------------------------------------------------------
511 CONGRESS STREET LEASE
BASIC LEASE INFORMATION AND DEFINITIONS
Lease Date: August 21, 1995
Tenant: Acadia Trust, N.A. and Gouws Capital Management, Inc.
Tenant's Address: Two Monument Square, Portland, ME 04101
Contact: Frank E. Kemna, Jr./Phone: 774-3333
Landlord: October Corporation, a Maine corporation
Landlord's
Address: One Canal Plaza, P.O. Box 426 Portland, Maine 04112-0426
Contact: Boulos Property Management/Phone:871-1290
Leased Premises: All of the 9th floor and a portion of the 8th floor in the
office building known and numbered as 511 Congress Street,
Portland, Maine (the "Building". The term the "Building"
includes any parking areas, landscaping, sidewalks and other
facilities used in connection with the operation of the
Building.) The Leased Premises are outlined on the plan
attached to the Lease as Exhibit A. The Leased Premises
shall be deemed to contain 18,966 square feet of rentable
area. ("Rentable area" is a term of general usage in the
industry, and includes an allocated portion of the common
areas of the Building, as well as the usable area of the
Leased Premises). The Building shall be deemed to contain
128,400 square feet of rentable area. Included within the
Leased Premises is the right to use the common entrances,
hallways, restrooms, elevators, walkways and stairways in
the Building in common with the Landlord and others who are
entitled to use the same.
Lease Term: 123 months, (plus the partial month, if any, immediately
following the Commencement Date) commencing August 1, 1995
(the "Commencement Date") and ending at 5:00 PM on the last
-----------------
day of the 123rd full month subject to adjustment and
earlier termination as provided in the Lease. Rent shall
commence on the fourth (4th) month following Commencement
Date, as established.
<PAGE>
Base Rent: Base Rent at a rate per square foot of rentable area ("RSF") per
---
year, payable in monthly installments, and subject to
escalations (if any), as follows:
Annual Monthly
Months Rental Rate Installment
------ ----------- -----------
l-3 $ 0 per RSF $ 0*
4-15 $ 3.50 per RSF $ 5,531.75
16-27 $12.75 per RSF $20,151.38
28-39 $12.75 per RSF $20,151.38
40-51 $14.00 per RSF $22,127.00
52-63 $14.00 per RSF $22,127.00
64-75 $15.00 per RSF $23,707.56
76-87 $15.00 per RSF $23,707.56
88-99 $15.00 per RSF $23,707.56
100-111 $17.50 per RSF $27,658.75
112-123 $17.50 per RSF $27,658.75
Electric
Reimbursement: $1,580.00 Monthly to commence September 1, 1995.*
Said amount to increase periodically by the increase in rates
established by Central Maine Power Company.
Base Year for For real estate taxes and assessments: July 1, 1995 June 30,
Common Area 1996.
Maintenance For all other expenses: Calendar year 1995.
Expenses: Provided, however, that if the Landlord shall, at its expense,
upgrade the Building energy management system and convert the
heating system to natural gas on or before December 31, 1996,
the operating cost base will be recomputed based on the
resulting lower energy usage in the first calendar year of
operation at 1995 utility rates.
Security
Deposit: None
Rent: Base Rent, Electric Reimbursement, Excess Common Area
Maintenance Expenses and all other sums that Tenant may owe to
Landlord under the Lease.
Permitted Use: Business offices to provide trust, investment and related
services.
-2-
<PAGE>
Tenant's 14.77%, which is the percentage obtained by dividing (i) the
Proportionate 18,966 square feet of rentable area in the Leased Premises
Share: (which includes a portion of the common areas) by (ii) the
total 128,400 square feet of rentable area in the Building.
Option to Expand: Tenant shall have the right of first offer for the remaining
space on the 8th floor. Space to be leased on an "as is" basis
with Landlord having no obligation to expend Tenant
improvement monies. If Tenant exercises such right, base rent
for any additional space shall be an amount which is
consistent with prevailing market rates in effect at the time
for comparable unimproved space in Portland, Maine as
determined by a licensed real estate appraiser doing business
in the Greater Portland area, selected by Landlord and
reasonably acceptable to Tenant, paid for by both parties. The
term "unimproved space" shall be construed to mean space that
is available for lease without a tenant improvement allowance;
taking into consideration the age and wear of existing
improvements. Tenant's prorata share of the building and
associated costs will be appropriately increased.
Managing Agent: Boulos Property Management, Two City Center, Portland, Maine
04101
THE FOREGOING BASIC LEASE INFORMATION IS INCORPORATED INTO AND MADE A PART OF
THE LEASE, BUT DOES NOT CONSTITUTE THE ENTIRE LEASE. TENANT ACKNOWLEDGES THAT
IT HAS READ ALL OF THE PROVISIONS CONTAINED IN THE ENTIRE LEASE AND ALL EXHIBITS
WHICH ARE A PART THEREOF AND AGREES THAT THIS LEASE, INCLUDING THE BASIC LEASE
INFORMATION AND ALL EXHIBITS, REFLECTS THE ENTIRE UNDERSTANDING AND REASONABLE
EXPECTATIONS OF LANDLORD AND TENANT REGARDING THE PREMISES. TENANT ALSO
ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO REVIEW THIS LEASE PRIOR TO
EXECUTION WITH LEGAL COUNSEL AND SUCH OTHER ADVISORS AS TENANT DEEMS
APPROPRIATE. IN THE EVENT ANY CONFLICT EXISTS
-3-
<PAGE>
BETWEEN ANY BASIC LEASE INFORMATION AND THE LEASE, THEN THE LEASE SHALL CONTROL.
OCTOBER CORPORATION ACADIA TRUST, N.A.
LANDLORD TENANT
By: /s/ Owen W. Wells By: __________________________________
--------------------------------
Name: Owen W. Wells Name: ____________________________
Title: Clerk Title: ___________________________
GOUWS CAPITAL MANAGEMENT, INC. TENANT
By: __________________________________
Name: ____________________________
Title: ___________________________
<PAGE>
LEASE
by
OCTOBER CORPORATION
to
ACADIA TRUST, N.A. and GOUWS CAPITAL MANAGEMENT, INC.
LEASE AGREEMENT, made this 21 day of August, 1995, by and between October
Corporation, a Maine corporation with a place of business at Portland, Maine
(hereinafter referred to as "Landlord"), and Acadia Trust, N.A., a national
association, and Gouws Capital Management, Inc., a Maine corporation, both with
a place of business at Portland, Maine, (hereinafter collectively referred to as
"Tenant").
W I T N E S S E T H :
1. Leased Premises. Landlord leases to Tenant, in consideration of the Rent
---------------
to be paid by Tenant and subject to the terms and conditions set forth herein,
the Leased Premises.
2. Commencement and Term.
---------------------
(a) The term of this Lease shall commence on the Commencement Date and
shall be the Lease Term, unless earlier terminated by mutual agreement of the
parties or as otherwise provided in this Lease.
X (b) (Applicable only if checked) Beginning on or about the Commencement
-
Date, certain improvements to the Leased Premises shall be undertaken by Tenant
in accordance with the terms of Exhibit B attached hereto and made a part
hereof.
3. Rent. Tenant covenants and agrees to pay to Landlord at Landlord's
----
address, during the Lease Term, the Base Rent and the Electric Reimbursement,
without holdback or set-off in advance on the first day of each month during the
Lease Term. Other Rent shall be paid in accordance with the terms of this Lease.
If any payment of Rent is received by Landlord more than five (5) days after the
date when such payment is due, a late charge of five percent (5%) of the past
due payment shall be assessed, due and payable upon demand.
4. Security Deposit. Intentionally Omitted.
----------------
5. Option to Lease Additional Space. Provided that Tenant is not in default
--------------------------------
of any covenant, agreement or obligation contained in this Lease, Tenant shall
have the right of first offer for all of the remaining space on the 8th floor
when it becomes available (hereinafter "Additional Space"). This option is given
upon the following terms and conditions:
<PAGE>
(a) The Additional Space to be leased shall be on an "as is" basis
with Landlord having no obligation to expend Tenant improvement monies.
(b) If Tenant exercises such right, base rent for the Additional
Space shall be as set forth in the paragraph entitled "Option to Expand" as set
----------------
forth in the Basic Lease Information and Definitions summary. In addition to the
base rent for the Additional Space, Tenant shal1 also pay to Landlord as
additional rent the Electric Reimbursement and Tenant's prorata share of all
Common Area Maintenance Expenses.
(c) Landlord shall give Tenant written notice if the Additional
Space becomes available together with the Base Rent as determined by a licensed
real estate appraiser hired by Landlord reasonably acceptable to Tenant and paid
for equally by Landlord and Tenant. Tenant shall then have fifteen (15) days to
notify Landlord, in writing, of its decision to lease the Additional Space.
Tenant's failure to exercise this Option shall terminate this Option for all
times and it shall not again become available to Tenant unless otherwise agreed
to in writing by the parties hereto.
6. Common Area Maintenance Expenses.
--------------------------------
(a) In addition to the Base Rent, Tenant shall also pay to Landlord
as additional Rent hereunder Tenant's share of the amount of any increase in any
calendar year in the total of all Common Area Maintenance Expenses incurred by
Landlord in connection with the Building, over and above the Common Area
Maintenance Expenses incurred by Landlord during the Base Year. Tenant's share
of such increase shall be Tenant's Proportionate Share. Prior to the start of
each calendar year or as soon thereafter as possible, Landlord shall furnish the
Tenant with a statement showing an estimate of all of said Common Area
Maintenance Expenses to be paid by Landlord for that year and the amount by
which such estimate exceeds the Base Year expenses. Tenant shall pay to Landlord
the said estimated excess amount according to the Tenant's Proportionate Share,
in equal monthly installments, on the first day of each and every month
throughout each such calendar year. Within a reasonable period of time following
the end of each calendar year during the Lease Term, Landlord shall submit to
Tenant a statement showing actual Common Area Maintenance Expenses incurred by
Landlord during the preceding year. In the event that actual Common Area
Maintenance Expenses exceed the estimated Common Area Maintenance Expenses for
such year, Tenant shall pay to Landlord, as additional Rent hereunder, Tenant's
share (as determined above) of such excess, such amount to be paid within twenty
(20) days after the date of receipt of the statement of actual Common Area
Maintenance Expenses. If the actual Common Area Maintenance Expenses are
<PAGE>
less than the estimated Common Area Maintenance Expenses for such year and
Tenant is not in default under the terms of this Lease, an amount equal to
Tenant's share of such difference shall be applied against the installment of
Base Rent next falling due. Tenant shall have ninety (90) days following receipt
of said statement to contest the validity of, or verify the accuracy of said
statements. Thereafter, the statements shall be conclusively deemed correct. No
rights to contest or to verify shall be available to Tenant if Tenant is or has
been in default of any of its monetary obligations hereunder. If the Landlord
shall, at its expense, upgrade the building's energy management system and
convert the heating system to natural gas on or before December 31, 1996, the
operating cost base will be redetermined based on the resulting lower energy
usage in the first calendar year of operation at 1995 utility rates.
(b) "Common Area Maintenance Expenses'* shall mean all expenses and
disbursements of every kind which Landlord pays or incurs in connection with the
ownership, operation, maintenance, repair, replacement and security of the
Building, including but not limited to, the following:
(i) All salaries, wages, fringe benefits, payroll taxes and
worker's compensation insurance premiums related thereto of and for Landlord's
or its Property Manager's employees engaged in the operation, repair,
replacement, maintenance or security of the Building;
(ii) All costs, including monies paid to utility companies, the
City of Portland and any other entities, of furnishing electricity to the common
areas of the Building and all costs of furnishing heat, air conditioning, hot
water, water and sewer services and facilities to all areas of the Building,
including the common areas and the leased areas, and all costs of furnishing
such services and facilities;
(iii) All costs of any insurance carried by Landlord related to
the Building or its operation;
(iv) All costs, including material and equipment costs, for
common area cleaning and janitorial services and for window cleaning. Tenant
shall be responsible for obtaining and paying for the cost of janitorial
services provided to the Leased Premises;
(V) All costs of maintaining the Building, including the
operation and repair of the elevator, heating, air-conditioning and hot water
equipment and any other common Building equipment and all other repairs and
replacements necessary to keep the Building in the same condition as at the
execution of this Lease;
<PAGE>
(vi) All costs of snow removal, ice treatment, and ground
maintenance (including landscaping);
(vii) All costs of the management of the Building;
(viii) All tools, equipment, supplies and materials used in the
operation, maintenance, repair, replacement and security of the Building;
(ix) All costs of service and supply contracts relating to
services and supplies referred to in subparagraphs (i) through (viii)
hereinabove and relating in any way to the operation, maintenance and management
of the Building by Landlord;
(x) All taxes, betterments and assessments assessed and
levied against the real estate of the Landlord (which term shall include
personal property to the extent that elevators, heating and air-conditioning
equipment, or similar building appurtenances for the use and benefit of all of
the occupants of the Building are classified as personal property for tax
purposes and to the extent that any personal property, such as computers and
other business equipment is used by the Landlord or its Property Manager in the
operation of the Building) ("Real Estate Taxes") constituting the Building as
defined in this Lease. In the event Landlord is required to pay to any taxing
authority any amount as sales tax, gross receipt tax, or any tax of like nature
specifically measured as a percentage of, or fraction of, or other factors based
upon the rent payable hereunder (whether in lieu of, or in addition to real
estate taxes) then such amounts shall be treated as Real Estate Taxes hereunder.
Further, if the system of real estate taxation shall be altered or varied and
any new tax shall be levied or imposed on the Building, and/or Landlord in
substitution for real estate taxes presently levied or imposed, then any such
new tax or levy shall be included within the term "Real Estate Taxes" and the
provisions of this Paragraph shall apply.
(xi) With respect to the replacement of capital items, which
are expected to reduce the operating costs of the Building, the Tenant's
Proportionate Share shall be based upon the amortized costs of such items over a
useful life (not to exceed fifteen years) which shall be reasonably determined
by Landlord.
(c) The foregoing notwithstanding, Common Area Maintenance Expenses
shall not include marketing costs incurred in leasing space in the Building
(including, without limitation, leasing commissions), debt service on the
Building, the cost of repair of any damage that is the responsibility of any
other tenant of the Building, or build-out work preformed by Landlord for any
tenant of the Building; any expenses relating to the
<PAGE>
Fleet parking lot; electrical service to any area other than to the common
areas; and the cost of upgrading the Building's energy management system and
converting the heating system for the Building to natural gas, if such cost
results in a redetermination of the operating cost base pursuant to Section 6(a)
above.
(d) Notwithstanding any of the provisions in this Lease to the
contrary, for purposes of determining the Common Area Maintenance Expenses for
the Base Year (calendar year 1995), Landlord shall reasonably and equitably
adjust the operating expenses for such calendar year such that the operating
expenses shall be computed for such year as though the Building had been fully
occupied during the full calendar year 1995. If Landlord reasonably determines
that it is not practicable to make such adjustment in operating expenses,
Landlord shall instead use calendar year 1996 as the Base Year for Common Area
Maintenance Expenses by providing Tenant with written notice of such election.
7. Holdover. If Tenant continues to occupy the Leased Premises at the
--------
completion of the Lease Term, such continued occupancy shall be deemed a
tenancy-at-will under the terms and conditions stated herein and shall be
subject to a Base Rent equal to one and one-half times the Base Rent applicable
at the end of the Lease Term until Tenant shall vacate the Leased Premises.
Nothing contained in this Paragraph shall be deemed to constitute consent by
Landlord to such occupancy or holdover by Tenant.
8. Hazard Insurance. It is acknowledged and understood by the parties
----------------
hereto that such insurance for fire and extended coverage as Landlord elects to
purchase with respect to the Building and the Leased Premises shall be for the
sole benefit of Landlord, and that such insurance shall not cover Tenant's
personal property, trade fixtures, leasehold improvements, and other
appurtenances, and that in the event of damage to or loss of any such items,
Landlord shall have no obligation to repair or replace same. Landlord and Tenant
agree that to the extent Tenant has an insurable interest in the Leased
Premises, Tenant may obtain and maintain, at Tenant's own expense and for
Tenant's own benefit, a policy of insurance insuring said interest.
9. Utilities. During the Lease Term, Landlord covenants and agrees to
---------
pay all costs for electricity to the Leased Premises, subject to Tenant's
payment of the Electric Reimbursement. Tenant covenants and agrees to pay the
cost of all other utility service provided to or for the Leased Premises,
including but not limited to telephone and other communications services, and
all costs for cleaning and janitorial services on the Leased Premises, which
services shall be Tenant's sole responsibility.
<PAGE>
10. Repair and Maintenance. Tenant agrees that from and after the date that
----------------------
possession of the Leased Premises is delivered to Tenant, and until the end of
the Lease Term, it will keep neat and clean and maintain in good order,
condition and repair, and in compliance with all federal, state and local
statutes, ordinances, rules and regulations currently in effect or hereinafter
enacted, all portions of the Leased Premises and any and all alterations or
improvements made by Tenant pursuant to Paragraph 11 below. Landlord shall be
responsible for all structural repairs, including roof and mechanical system
repairs, deemed necessary by Landlord for a first-class office building, except
such repairs as are made necessary by the activities beyond reasonable use and
wear on the Leased Premises of Tenant, Tenant's employees, agents, customers and
invitees, which shall be Tenant's sole responsibility and expense. The
maintenance and repair of all equipment in the Leased Premises, including all
heating, air conditioning, plumbing, electrical and mechanical fixtures and
equipment, reasonable use and wear and damage by fire or casualty only excepted,
shall be the responsibility of the Tenant, except as such expenses are properly
chargeable to capital account. Tenant acknowledges that, as it is in possession
of the Leased Premises, it retains primary responsibility for notifying Landlord
or Landlord's Property Manager in a timely manner of plumbing, mechanical,
electrical or other problems in the Leased Premises of which it is aware or
should have been reasonably aware, and that Tenant's failure to provide such
timely notification could result in substantial damages to the Leased Premises.
11. Alterations, Renovations and Improvements. (a) Tenant shall have the
-----------------------------------------
right to make, upon prior written consent of Landlord, which consent shall not
be unreasonably withheld, such alterations, renovations and improvements to the
Leased Premises as are necessary or desirable for Tenant's use of the Leased
Premises as authorized herein, provided however, that Tenant shall perform such
alterations, renovations and improvements in a good, workmanlike and reasonable
manner, and in accordance with all applicable laws and provided further that
Tenant shall indemnify and hold Landlord harmless from and against all claims,
demands, costs and mechanic's liens which may arise as a direct or indirect
result of or in connection with such alterations, renovations and improvements,
and Tenant shall assume all cost, liability and responsibility for such
alterations, renovations and improvements. Any and all alterations, renovations
and improvements which may be made or installed by either Landlord or Tenant
upon the Leased Premises and which in any manner are attached to the floors,
walls or ceilings (including, without limitation, any linoleum or other floor
coverings of similar character which may be cemented or otherwise adhesively
affixed to the floor) shall, at Landlord's option, remain upon the Leased
Premises, and at the expiration or termination of this Lease
<PAGE>
shall be surrendered with the Leased Premises as a part thereof without
disturbance, molestation or injury. However, the usual trade fixtures and
furniture which may be installed in the Leased Premises prior to or during the
term hereof at the cost of Tenant may be removed by Tenant from the Leased
Premises upon the expiration or termination of this Lease, subject to the
provisions of Paragraph 14 below.
(b) Floor Load. Tenant agrees not to place a load upon the Leased
----------
Premises exceeding the load established by Landlord and not to remove any heavy
items into, about, or out of the Leased Premises except in such manner and at
such times as Landlord shall authorize.
12. Signs.
-----
(a) Tenant shall not place any signs or displays on the exterior of
or in the Leased Premises or the Building or any windows therein which signs or
displays are visible from outside of the Building, without Landlord's express
prior written consent, which may be withheld for any reason. Landlord hereby
agrees to permit Tenant to erect and maintain two (2) signs, one to be located
on the brick facing above the 9th floor on the Congress Street side and the
other on the side facing I-295. Neither sign may be illuminated. Both signs may
be in letters large enough to be generally visable for some distance but smaller
than those in the primary building signage to be located at the top of the
Building.
(b) Landlord shall provide appropriate designations of Tenant's
location in the Building, in the lobby and in other convenient and reasonable
locations in the Building.
13. Americans With Disabilities Act Compliance.
------------------------------------------
Notwithstanding anything set forth herein to the contrary, Tenant shall be
responsible for the execution of and cost for any alteration to, or removal of
architectural barriers from, the Leased Premises which is necessary to comply
with the Americans with Disabilities Act of 1990 (42 U.S.C. (S) (S) 12101-12117
and 12181-12213 as may be amended from time to time) (the "Act") and any
comparable state or local law or regulation, and Landlord shall be responsible
for the execution of and cost for any alteration to or removal of architectural
barriers from the common areas of the Building which is necessary to comply with
the Act or any such state or local law or regulation.
14. Trade Fixtures. All trade fixtures and furniture erected on and/or
--------------
attached to the Leased Premises by Tenant other than those items referred to in
Paragraph 11 above, may be removed by Tenant at the termination of this Lease,
provided (a) Tenant shall not then be in default in the performance of any of
its obligations under this Lease, (b) such removal shall not
-7-
<PAGE>
permanently or substantially damage any portion of the Leased Premises as they
existed prior to the commencement of the Lease Term, and any minor damage
created by such removal shall be repaired by Tenant at Tenant's expense prior to
the expiration of the Lease Term, and (c) such removal shall be made before the
expiration of the Lease Term.
15. Sublettinq and Assignment. (a) Tenant shall not be entitled to
-------------------------
assign this Lease or to sublet the Leased Premises or any portion thereof,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld. In the event that Landlord does give its consent to any
such assignment or subletting, it is agreed that any excess of the rent or other
charges payable to Tenant pursuant to such assignment or subletting over the
amount of Rent owed by Tenant pursuant to this Lease and reasonable costs
associated with the subletting, if any, shall be payable by Tenant to Landlord
immediately upon receipt by Tenant. Notwithstanding any provision contained in
this Paragraph, Tenant shall remain primarily liable for all Lease obligations.
Any corporate reorganization, except as provided in Paragraph 25 hereof, or
merger of Tenant into another organization or merger of one Tenant into the
other, or any transfer of Tenant or Tenant's assets to an affiliate, or similar
act or change in ownership or structure of Tenant shall not constitute an
assignment or sublease within the meaning of this Paragraph.
(b) Notwithstanding any other provision of this Lease to the
contrary, Landlord acknowledges that Tenant may wish to allow Tenant's
affiliates to use portions of the Premises. Landlord agrees, so long as all of
such affiliates are controlled by, and more than 50% owned by, some combination
of one or more of the following individuals, to wit: Johann H. Gouws, Frank E.
Kemna, Jr., Richard E. Curran, Jr., Cass Gilbert, Gregg A. Marston, John L.
Simpson and Paul J. White, and any other key employee whose name is submitted to
and approved by Landlord, that an agreement between Tenant and any such entities
for the use of all or any portion of the Premises will not be considered an
assignment or sublease for purposes of this Lease, and shall be expressly
permitted hereunder.
16. Indemnification and Liability Insurance.
---------------------------------------
(a) Tenant agrees to indemnify, protect and hold Landlord harmless
from and against all liabilities, injuries, claims, losses, or damages to
persons, including but not limited to other tenants in the Building, or property
occurring or arising on or about the Leased Premises, during the Lease Term,
which liabilities, losses or damages arise as a result of Tenant's use, misuse
or occupation of the Leased Premises or any part thereof, except to the extent
that said liabilities, losses or damages are the result of gross negligence or
willful
-8-
<PAGE>
misconduct of Landlord, Landlord's agents, contractors, or employees.
(b) Tenant agrees to maintain in full force during the term hereof a
policy of public liability and property damage insurance under which Landlord
and Tenant are named as insureds, in a minimum amount of One Million Dollars
($1,000,000.00) for injury or death to any one person or damage to property, and
Two Million Dollars ($2,000,000.00) for injury to or death of more than one
person in a single accident or occurrence, together with a contractual liability
endorsement covering Tenant's obligations under subparagraph (a) above. Such
policy shall contain a provision requiring that written notice be given to
Landlord not less than ten (10) days prior to cancellation, expiration or
alteration of the policy. Tenant agrees to deliver certificates of such
insurance to Landlord at the beginning of the term hereof and thereafter not
less than thirty (30) days prior to the expiration of any such policy.
17. Use and Business Operation. Tenant agrees to use and occupy the
--------------------------
Leased Premises for the Permitted Use, and for no other object or purpose
without the written consent of Landlord, and further agrees not to use the
Leased Premises for any purpose deemed extra hazardous or not covered by
insurance in force, without the prior written consent of Landlord. Further,
Tenant agrees that it shall at all times observe the Building Rules and
Regulations attached hereto as Exhibit C.
18. Permits and Licenses. Tenant agrees to maintain in full force and
--------------------
effect, during the Lease Term and, if applicable, any Renewal Term, at Tenant's
cost and expense, any and all federal, state and local permits, licenses and
registrations necessary for the use of the Leased Premises by Tenant pursuant to
Paragraph 17 hereof.
19. Right to Enter. Tenant agrees to permit Landlord or its duly
--------------
authorized agents to enter on the Leased Premises during Tenant's normal
business hours, without any prior notice, to examine the condition of said
Leased Premises and to show the same to prospective tenants or purchasers,
provided such access to the Leased Premises shall not unnecessarily interfere
with Tenant's use of the Leased Premises or the conduct of Tenant's business
activities thereon. In the event that Landlord wishes to enter the Leased
Premises at any time other than Tenant's normal business hours, Landlord shall
give Tenant such prior notice as is reasonable under the circumstances except
that in case of an emergency, Landlord shall be relieved of said prior notice
obligation but will give notice within a reasonable time thereafter.
20. Attorneys Fees. In the event Tenant defaults in any manner pursuant
--------------
to the terms of this Lease, including but not
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<PAGE>
limited to the institution of bankruptcy proceedings by or against Tenant such
as would constitute a default pursuant to Paragraph 25 of this Lease, Tenant
agrees to pay all reasonable costs, attorneys fees and expenses that shall be
made and incurred by Landlord in enforcing the terms of this Lease.
21. Total or Partial Destruction.
----------------------------
(a) If the Leased Premises shall be so damaged by fire or other
casualty as to render the Leased Premises untenantable, and if such damage shall
be so great that an architect selected by Landlord and approved by Tenant shall
certify in writing to Landlord and Tenant that the Leased Premises, with the
exercise of due diligence, but without the payment of overtime or other
premiums, cannot be made tenantable within ninety (90) days from the date
insurance proceeds are made available to Landlord, then this Lease may be
terminated by Landlord or Tenant giving written notice to the other party of
such termination within thirty (30) days after receipt of the architect's
certification, such certification to be made as soon as reasonably practical
following such damage; provided, however, that Tenant shall have no right to
terminate the Lease if Landlord commits to complete such repairs within ninety
(90) days after the award of insurance proceeds, notwithstanding the architect's
certification. Within thirty (30) days after receipt of such notice of
termination, Tenant shall surrender to Landlord the Leased Premises and all
interest therein under this Lease. Tenant shall pay the Rent and any additional
rent, duly apportioned as of the date of such termination of this Lease, and
Landlord and Tenant shall be free and discharged from all obligations arising
hereunder after the date of such termination. If, however, the damage shall be
such that Landlord's architect shall certify that the Leased Premises can be
made tenantable within such ninety (90) day period or if neither Landlord nor
Tenant elect to terminate this Lease as set forth above, then, except as
hereinafter provided, Landlord shall repair the damage within ninety (90) days
after the award of the insurance proceeds except that Landlord shall not be
required to repair, replace or restore any items installed by Tenant at Tenant's
expense and provided further that Landlord shall not be obligated to expend for
any repairs or reconstruction pursuant to this section a amount in excess of
insurance proceeds received, after deducting therefrom Landlord's reasonable
expenses in obtaining such proceeds. Until such repair is substantially
completed, the Rent shall be abated in proportion to the part of the Leased
Premises that is unusable by Tenant in the reasonable conduct of its business or
profession.
(b) If the Leased Premises shall be damaged by fire or other casualty
but not so as to render them untenantable, Landlord shall cause the damage to be
promptly repaired and there shall be no abatement of the Rent or the additional
rent; provided, however, that Landlord shall not be obligated to expend
-10-
<PAGE>
for any repairs or reconstruction pursuant to this section an amount in excess
of insurance proceeds received, after deducting therefrom Landlord's reasonable
expenses in obtaining such proceeds.
(c) Landlord agrees to keep the Building insured in an amount equal to the
greater of (i) 80% of full replacement value thereof above foundation walls or
(ii) the amount necessary to avoid any co-insurance provisions.
(d) Landlord's obligation to repair, restore or reconstruct the Leased
Premises pursuant to the provisions of this Paragraph shall be limited to the
Building shell and any improvements originally constructed in or on the Leased
Premises by Landlord or contained therein prior to the commencement of the Lease
Term, including roof and mechanical systems. Tenant, at Tenant's expense, shall
perform all repairs or restoration not required to be done by Landlord and shall
promptly re-enter the Leased Premises and commence doing business in accordance
with the provisions of this Lease. Landlord shall not be liable for delays
occasioned by adjustment of losses with insurance carriers or by any other cause
so long as Landlord shall proceed in good faith. Landlord shall not be liable to
Tenant for any loss, direct or indirect, in business revenues sustained by
Tenant as a result of said repair, restoration or reconstruction or delays in
completing said repairs, restoration or reconstruction.
(e) Notwithstanding anything set forth herein to the contrary, Tenant shall
be responsible for all repairs and replacements of damage and/or destruction of
the Leased Premises necessitated by burglary or attempted burglary, or any other
illegal or forcible entry into the Leased Premises which damage and/or
destruction is the direct and immediate result of an actual or attempted illegal
or forcible entry into the Leased Premises.
(f) Tenant covenants that it will make good faith attempts to contact
Landlord by telephone and by letter sent by regular mail within the time period
specified herein to give notice to Landlord of any accident or damage, other
than normal wear and tear, whether such damage is caused by insured or uninsured
casualty, occurring in, on or about the Leased Premises within twenty-four (24)
hours after Tenant has or should have had knowledge of the occurrence of such
accident or damage. If Tenant fails to give notice as provided herein, and as a
result thereof, Landlord's insurance company fails to pay all or any portion of
any loss that would otherwise have been payable but for Tenant's failure to
provide such notice, then in such event, Landlord shall be relieved of its
obligations under this paragraph to the extent that the insurance proceeds
recovered by Landlord are less than what would have been recovered had Tenant
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<PAGE>
given notice as provided herein, unless Landlord had or should have had
knowledge of the occurrence of such accident or damage.
22. Eminent Domain.
--------------
(a) If the Leased Premises shall be taken in whole by condemnation or
right of eminent domain, either party, upon written notice to the other, shall
be entitled to terminate this Lease provided that such notice is given not later
than thirty (30) days after Tenant has been deprived of possession. Should only
a part of the Leased Premises be so taken or condemned, Landlord shall have the
option after such taking or condemnation and the determination of Landlord's
award therein, to expend a portion or all of the net amount which may be awarded
to Landlord in such condemnation proceedings as may be necessary to restore the
Leased Premises to an architectural unit as nearly like their condition prior to
the commencement of the Lease Term as shall be practicable, or to terminate this
Lease, effective thirty (30) days after notice of said termination to Tenant.
Should the net amount so awarded to Landlord be insufficient to cover the cost
of restoring the Leased Premises, Landlord may supply the amount of such
insufficiency and restore the Leased Premises as above provided with all
reasonable diligence, or terminate this Lease. Landlord shall notify Tenant of
Landlord's election with respect to restoration in the event of an insufficient
award not later than ninety (90) days after the final determination of the
amount of the award.
(b) In the event of any award for any taking of the Leased Premises in
condemnation proceedings or by right of eminent domain, Landlord shall be
entitled to receive and retain the amounts awarded for the Leased Premises and
for Landlord's business loss, and Tenant shall be entitled to receive and retain
any amounts which may be specifically awarded to it in any such condemnation
proceedings because of its business loss or the taking of its trade fixtures,
furniture, or other property.
(c) In the event of any such taking of the Leased Premises, the rent,
or a fair and just proportion thereof according to the nature and extent of the
damage sustained, shall be suspended or abated.
23. Limitation of Landlord's Liability. Tenant agrees to look solely to
----------------------------------
Landlord's interest in the Building or Landlord's insurance coverage thereon for
recovery of any judgment from Landlord.
24. Waiver of Subrogation. Insofar as and to the extent that such
---------------------
agreement may be effective without invalidating or making it impossible to
secure insurance coverage obtainable from responsible insurance companies doing
business in the State of Maine, Landlord and Tenant agree that with respect to
any loss
-12-
<PAGE>
covered by insurance then carried by them, respectively, the one carrying
such insurance and suffering that loss releases the other of and from any
and all claims with respect to such loss; and they further agree that their
respective insurance companies shall have no right of subrogation against
one another on account of such agreement even though extra premiums may
result therefrom. If an extra premium is payable by Tenant as a result of
these provisions, Landlord shall not reimburse Tenant for any such extra
premium.
25. Landlord's Remedies.
-------------------
(a) It is covenanted and agreed that
(i) if Tenant shall neglect or fail to perform or observe,
or fail or neglect diligently to attempt to so perform or observe, any of
the covenants, terms, provisions or conditions contained in this Lease and
on Tenant's part to be performed or observed within thirty (30) days or
such additional time as is reasonably required to correct any such default
after notice of default (except for payment of Rent or other charges
payable by Tenant, in which case said period of notice shall be five (5)
days and except that Landlord shall be relieved of its notice obligations
with respect to the rent under this Paragraph if it gives any such notice
twice in any calendar year);
(ii) if the estate hereby created shall be taken on
execution or by other process of law, or if a petition in U.S. Bankruptcy
Court shall be filed by Tenant, or if any assignment shall be made of the
property of Tenant for the benefit of creditors;
(iii) if a receiver, guardian, conservator, trustee in
involuntary bankruptcy or other similar officer shall be appointed by a
court of competent jurisdiction to take charge of all or any substantial
part of Tenant's property and such appointment is not dismissed within
sixty (60) days; or
(iv) if an involuntary petition shall be filed for the
reorganization of Tenant under any provisions of the Federal Bankruptcy
Code now or hereafter enacted, and such proceeding is not dismissed within
sixty (60) days after it is begun, or if Tenant shall file a petition for
such reorganization under any provisions of the Federal Bankruptcy Code now
or hereafter enacted and such proceeding is not dismissed within sixty (60)
days;
then, and in an of said cases (notwithstanding any license of any former
breach of covenant or waiver of the benefit hereof or consent in a former
instance), Landlord lawfully may, immediately or at any time, in accordance
with Maine law, enter into and upon the Leased Premises or any part thereof
in the name of the whole
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<PAGE>
and repossess the same as of its former estate, and expel Tenant and those
claiming through or under it and remove it or their effects without being
deemed guilty of any manner of trespass, and without prejudice to any
remedies which might otherwise be used for collection of damages for breach
of covenant, and upon entry as aforesaid, this Lease shall terminate.
(b) Tenant covenants that in case of such termination under
subparagraph (a) Tenant shall pay to Landlord for the remainder of the
Lease Term (or Renewal Term, if applicable) on the last day of each
calendar month the difference, if any, between the Rent which would have
been due for such month had there been no such termination and the sum of
the amount being received by Landlord as rental from the then occupants of
the Leased Premises, if any. Landlord shall make reasonable efforts to
secure a rental equal to the prevailing local rate for the Leased Premises.
In addition, Tenant agrees to pay to Landlord as damages for any
above-described breach, all costs of reletting the Leased Premises,
including but not limited to commissions, attorneys fees, court costs and
renovations to the Leased Premises to suit the new tenant.
(c) If Tenant shall default in the performance or observance of
any covenant, agreement, or condition in this Lease contained on its part
to be performed or observed, other than an obligation to pay money, and
shall not cure any such default as provided herein, Landlord may, at its
option, without waiving any claim for damages for breach of this Lease, at
any time after the expiration of any applicable cure period, cure such
default. Any amount paid or any liability incurred by Landlord in so doing
shall be deemed paid or incurred for the account of Tenant, and Tenant
agrees to immediately reimburse Landlord therefor, as additional Rent, or
save Landlord harmless therefrom.
(d) Landlord shall in no event be in default in the performance of
any of its obligations hereunder unless and until Landlord shall have
failed to perform, or failed diligently to attempt to perform, such
obligations within thirty (30) days or such additional time as is
reasonably required to correct any such default after notice by Tenant to
Landlord properly specifying wherein Landlord has failed to perform any
such obligation.
26. Notices. All notices required to be given pursuant to this Lease,
-------
to be effective, shall be in writing and shall be delivered by hand or by
certified mail, postage prepaid, return receipt requested, to the following
addresses:
(i) To Tenant at: 511 Congress Street
Portland, ME 04101
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<PAGE>
with a copy to: Dennis C. Keeler, Esquire
Pierce, Atwood, Scribner,
Allen, Smith & Lancaster
One Monument Square
Portland, ME 04101-1110
(ii) To Landlord at: October Corporation
One Canal Plaza, P.O. Box 426
Portland, Maine 04112
with a copy to: Boulos Property Management
Two City Center
Portland, ME 04101
Any notice given pursuant to this Paragraph shall be deemed to have been given
upon the second day following the date of mailing in accordance with the
requirements of this Paragraph. Either party may, by such manner of notice,
substitute persons or addresses for notice other than those listed above.
27. Estoppel Certificate. (a) Landlord or Tenant shall at any time upon
--------------------
ten (10) days prior written notice from the other execute, acknowledge and
deliver to the requesting party or to a party designated by the requesting
party, within five (5) days following receipt of said notice, an estoppel
certificate which shall contain (i) a certification that this Lease is
unmodified and in full force and effect or, if modified, a statement of the
nature of any such modification and a certification that this Lease, as so
modified, is in full force and effect, (ii) the date to which the Rent and other
charges payable by Tenant are paid in advance, if any, and (iii) an
acknowledgment that there are not, to Landlord's or Tenant's knowledge, as the
case may be, any uncured events of default on the part of Landlord or Tenant
hereunder, or a specification of such events of default if any are claimed by
Landlord or Tenant. Landlord's or Tenant's failure to deliver such certificate
within the time frame set forth above shall, at the other party's option, be
conclusive proof that this Lease is in full force and effect without
modification except as may be represented by Landlord or Tenant, that there are
no uncured defaults in Landlord's or Tenant's performance of Landlord's or
Tenant's obligations, as the case may be, under this Lease, and that not more
than one month's Rent and other charges payable hereunder has been paid in
advance.
(b) If Landlord desires to finance, refinance, or sell the
Building, or any part thereof, Acadia Trust, N.A. hereby agrees to deliver to
any lender or purchaser designated by Landlord such financial statements of
Acadia Trust, N.A. as may be reasonably required by such lender or purchaser.
Such statements shall include the past three (3) years financial statements of
Acadia Trust, N.A. All such financial statements
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<PAGE>
shall be received by Landlord and such lender or purchaser in confidence and
shall be used only for the purposes herein set forth.
28. Hazardous Waste. Tenant covenants and agrees that it will permit no
---------------
hazardous or toxic waste, substance, material or matter, as those terms may be
defined from time to time by applicable state, local or federal law to be
brought, used, maintained or stored upon the Leased Premises, in violation of
law. Tenant hereby covenants and agrees to protect, exonerate, defend, indemnify
and save Landlord harmless from and against any and all loss, damage, cost,
expense or liability, including reasonable attorneys fees, court costs and
clean-up costs, and including but not limited to, such loss, damage, cost,
expense or liability based on personal injury, death, loss or damage to property
suffered or incurred by any person, corporation or other legal entity, which may
arise out of the removal or clean-up of any such waste, substance, material or
matter placed upon or within the Leased Premises by Tenant, whether or not in
violation of law, or as the result of a breach by Tenant of Tenant's obligations
under this Paragraph.
29. Subordination. This Lease, at Landlord's option, shall be subordinate
-------------
to any ground lease, mortgage, deed of trust, or any other hypothecation or
security now or hereafter placed upon the Building and to any and all advances
made on the security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof on the condition that Tenant's right to
quiet possession of the Leased Premises and its rights under this Lease shall
not be disturbed if Tenant is not in default and so long as Tenant shall pay the
Rent and observe and perform all of the provisions of this Lease, unless this
Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee,
or ground lessor shall elect to have this Lease made prior to the lien of its
mortgage, deed of trust or ground lease, and shall give written notice thereof
to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust, or
ground lease, whether this Lease is dated prior to or subsequent to the date of
said mortgage, deed of trust, or ground lease or the date of recording thereof.
Tenant agrees to execute any documents required to effectuate an attornment, a
subordination or to make this Lease prior to the lien of any mortgage, deed of
trust or ground lease, as the case may be. Tenant's failure to execute such
documents within ten (10) days after written demand shall constitute a material
default by Tenant hereunder.
30. Miscellaneous Provisions.
------------------------
(a) Invalidity of Particular Provisions. If any term or provision of
-----------------------------------
this Lease, or the application thereof to any person or circumstance shall, to
any extent, be invalid or
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<PAGE>
unenforceable, the remainder of this Lease, or the application of such term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
(b) Governing Law. This Lease shall be governed exclusively by the
-------------
provisions hereof and by the laws in effect in the State of Maine as those laws
may be amended from time to time.
(c) Paragraph Headings. The Paragraph headings throughout this
------------------
instrument are for convenience and reference only, and the words contained
therein shall in no way be held to explain, modify, amplify, or aid in the
interpretation, construction, or meaning of the provisions of this Lease.
(d) Interpretation. Whenever in this Lease provision is made for the
--------------
doing of any act by any party, it is understood and agreed that said act shall
be done by such party at its own cost and expense, unless a contrary intent is
expressed.
(e) Entire Agreement; Binding Effect. All negotiations, considerations,
--------------------------------
representations, and understandings between Landlord and Tenant are incorporated
herein and may be modified or altered only by agreement in writing between
Landlord and Tenant, and no act or omission of any employee or agent of Landlord
shall alter, change, or modify any of the provisions hereof. All rights,
obligations and liabilities contained herein given to, or imposed upon, Landlord
and Tenant shall extend to and bind the several respective administrators,
trustees, receivers, legal representatives, successors, heirs and permitted
assigns of Landlord and Tenant, and if there shall be more than one tenant, they
shall all be bound jointly and severally by the terms, covenants and agreements
herein.
(f) Compliance with Laws. Tenant agrees to abide by and comply with all
--------------------
federal, state and local statutes, ordinances, rules and regulations applicable
to Tenant's use of the Leased Premises.
(g) Basic Lease Information. The Basic Lease Information and
----------------------
efinitions form accompanying this Lease is incorporated into and made a part of
this Lease.
(h) Joint and Several Liability. The liabilities of Tenant under this
---------------------------
Lease are joint and several.
31. Force Majeure. In any case where Landlord is required to perform any
-------------
act pursuant to this Lease, the time for the performance thereof shall be
extended by a period of time equal
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<PAGE>
to the period of any delay caused by or resulting from an act of God; war; civil
commotion; fire or other casualty; labor difficulties; shortages of energy,
labor, materials, or equipment; government regulations; or delays caused by
Tenant to Landlord, whether such period be designated by a fixed date, a fixed
time, or as a reasonable date or time.
32. Landlord's Additional Rights. In addition to all other rights that the
----------------------------
Landlord has under this Lease and applicable law, and not by way of limitation,
Landlord shall have the following rights:
(a) Without unreasonably interfering with Tenant's business, to decorate
and to make inspections, repairs, alterations, additions, changes or
improvements, whether structural or otherwise, in and about the Building, or any
part thereof. To enter upon the Leased Premises for such purposes and, during
the continuance of any such work, to temporarily close doors, entryways, common
and public areas, and corridors in the Building; to interrupt or temporarily
suspend Building services and facilities; and to change the arrangement and
location of entrances or passageways, doors and doorways, corridors, elevators,
stairs, restrooms or other public or common areas of the Building (provided,
however, that any such changes to the Leased Premises shall not render it
inaccessible);
(b) To take such reasonable measures as Landlord deems advisable for the
security of the Building and its occupants, including without limitation
searching all persons entering or leaving the Building; evacuating the Building
for cause, suspected cause, or for drill purposes; temporarily denying access to
the Building; and closing the Building after normal business hours and on
Saturdays, Sundays, and holidays, subject, however to Tenant's right to enter
when the Building is closed after normal business hours under such reasonable
regulation as Landlord may prescribe from time to time which may include by way
of example, but not of limitation, that persons entering or leaving the
Building, whether or not during normal business hours, identify themselves to a
security officer by registration or otherwise and that such persons establish
their right to enter or leave the Building; and
(c) To change the name by which the Building is designated.
33. Relocation. Intentionally Omitted.
----------
34. Parking. Landlord agrees to take all reasonable action to obtain two (2)
-------
parking spaces for Tenant's clients in the parking lot maintained by Fleet
behind the Building. In the event Landlord or a related entity acquires surface
parking to serve 511 Congress Street, or constructs additional parking
-18-
<PAGE>
garages or additions to garages near 511 Congress Street, Landlord agrees to
endeavor, in good faith, to make parking for Tenant's staff available in such
lot or garage.
35. Satellite Antenna Dish. Tenant shall have the option, at its sole cost
----------------------
and expense, to install and operate a satellite antenna dish and cables thereto
on the roof of the Building. Landlord reserves the right to prior approval of
the location of its placement on the roof. Tenant is solely responsible for the
operation, maintenance and repair of the satellite dish and Tenant will repair,
at its own cost, any damage to the roof or Building resulting from said
installation or operation. If practical, Tenant agrees to install its satellite
antenna dish in a manner that does not require penetration of the roof of the
Building.
36. Waiver of Jury Trial. Landlord and Tenant waive the right to a trial by
--------------------
jury in any action or proceeding based upon, or related to, the subject matter
of this Lease. This waiver is knowingly, intentionally, and voluntarily made by
Tenant and Tenant acknowledges that neither Landlord nor any person acting on
behalf of Landlord has made any representations of fact to induce this waiver of
trial by jury or in any way to modify or nullify its effect. Tenant further
acknowledges that it has been represented (or has had the opportunity to be
represented) in the signing of this Lease and in the making of this waiver by
independent legal counsel, selected of its own free will, and that it has had
the opportunity to discuss this waiver with counsel. Tenant further acknowledges
that it has read and understands the meaning and ramifications of this waiver
provision and as evidence of this fact signs its initials.
________________________________________
Initials of Tenant or Tenant's
Authorized Representative
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease Agreement
as an instrument under seal as of the day and year first above-written.
WITNESS: OCTOBER CORPORATION
"LANDLORD"
______________________________________ By: /s/ Owen W. Wells
-------------------------------
Owen W. Wells
-------------------------------
(printed name)
Its: Clerk
-------------------------------
-19-
<PAGE>
ACADIA TRUST, N.A.
"TENANT"
___________________________________ By: _____________________________
_____________________________
(printed name)
Its:_________________________
GOUWS CAPITAL MANAGEMENT, INC.
"TENANT"
___________________________________ By: _____________________________
_____________________________
(printed name)
Its:_________________________
-20-
<PAGE>
EXHIBIT A
[FLOOR PLAN OF FLEET PLAZA CONGRESS STREET PORTLAND, MAINE EIGHT FLOOR]
<PAGE>
EXHIBIT A
[FLOOR PLAN OF FLEET PLAZA CONGRESS STREET PORTLAND, MAINE]
<PAGE>
EXHIBIT "B"
TENANT BUILD OUT
----------------
1. Except as set forth in this Exhibit, Tenant accepts the Leased Premises
in their "as is" condition on the date of this Lease.
2. Prior to commencement of construction, Tenant shall provide to Landlord
for Landlord's approval final working drawings, prepared by an architect that
has been approved by Landlord (which approval shall not unreasonably be
withheld), of all improvements that Tenant proposes to install in the Premises;
such working drawings shall include the partition layout, ceiling plan,
electrical outlets and switches, telephone outlets, drawings for any
modifications to the mechanical and plumbing systems of the Building, and
detailed plans and specifications for the construction of the improvements
called for under this Exhibit in accordance with all applicable government laws,
codes, rules and regulations. Further, if any of Tenant's proposed construction
work will affect the Building's HVAC, electrical, mechanical, or plumbing
systems, then the working drawings pertaining thereto shall be prepared by the
Building's engineer of record, if any, whom Tenant shall at its cost engage for
such purpose. Landlord's approval of such working drawings shall not be
unreasonably withheld, provided that (a) they comply with all applicable
governmental laws, codes, rules, and regulations, and (b) such working drawings
are sufficiently detailed to allow construction of the improvements in a good
and workmanlike manner. As used herein, "Working Drawings" shall mean the final
working drawings approved by Landlord, as amended from time to time by any
approved changes thereto, and "Work" shall mean all improvements to be
constructed in accordance with and as indicated on the Working Drawings.
Approval by Landlord of the Working Drawings shall not be a representation or
warranty of Landlord that such drawings are adequate for any use, purpose, or
condition, or that such drawings comply with any applicable law or code, but
shall merely be the consent of Landlord to the performance of the Work. Tenant
shall, at Landlord's request, sign the Working Drawings to evidence its review
and approval thereof. All changes in the Work must receive the prior written
approval of Landlord, and in the event of any such approved change Tenant
shall, upon completion of the Work, furnish Landlord with an accurate,
reproducible "as-built" plan of the improvements as constructed, which plan
shall be incorporated into this Lease by this reference for all purposes.
3. The Work shall be performed only by reputable contractors and
subcontractors approved in writing by Landlord, which approval shall not be
unreasonably withheld. All contractors and
<PAGE>
subcontractors shall be required to procure and maintain insurance against such
risks, in such amounts, and with such companies as Landlord may reasonably
require. Certificates of such insurance, with paid receipts therefor, and copies
of such bonds must be received by Landlord before the Work is commenced. The
Work shall be performed in a good and workmanlike manner that is free of defects
and is in strict conformity with the Working Drawings, and shall be performed in
such a manner and at such times as to maintain harmonious labor relations and
not to interfere with or delay Landlord's other contractors, the operation of
the Building, and the occupancy thereof by other Tenants. All contractors and
subcontractors shall contact Landlord and schedule time periods during which
they may use Building facilities in connection with the Work.
4. Regardless of whether the Leased Premises are ready for occupancy and
the Work is substantially completed by November 1, 1995, Tenant's obligation to
pay rent under the Lease shall commence November 1, 1995.
5. Except for the installation, by Landlord, in the Leased Premises of (i)
a full sprinkler system and (ii) a two-way communications system, as required
by law, to all areas of refuge constructed by Tenant, which installation shall
be performed by Landlord at its sole expense, Tenant shall bear the entire cost
of performing the Work (including, without limitation, design of the Work and
preparation of the Working Drawings, costs of construction labor and materials,
electrical usage during construction, additional janitorial services, general
Tenant signage, related taxes and insurance costs, all of which costs are herein
collectively called the "Total Construction Costs") in excess of the
------------------------
Construction Allowance, if any.
6. Landlord shall provide to Tenant a construction allowance (the
"Construction Allowance") for up to, but not more than, $400,000 for hard cost
----------------------
improvements to the Leased Premises upon presentation of invoice and up to
$30,000 for costs of architectural services.
-2-
<PAGE>
EXHIBIT "C"
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply to the Leased Premises and
the Building:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or deposited therein. Damage resulting to any such fixtures or
appliances from misuse by a tenant or its agents, employees or invitees, shall
be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on or to
any windows or doors or other part of the Building without prior written consent
of Landlord. No nails, hooks or screws shall be driven or inserted in any part
of the Building except by Building maintenance personnel. No curtains or other
window treatments shall be placed between the glass and the building standard
window treatments.
4. Landlord shall provide and maintain a directory for all tenants in the
main lobby of the Building. Landlord shall provide and install, at tenant's
cost, all letters and numerals on the door or doors to the tenants' premises.
All such letters and numerals shall be in building standard graphics and no
other graphics shall be used or permitted in connection with the tenant's
premises unless approved in writing by Landlord.
5. Landlord shall provide all door locks in each tenant's leased premises,
at the cost of such tenant, and no tenant shall place any additional door locks
or replace or rekey any locks in its leased premises without Landlord's prior
written consent. Landlord shall furnish to each tenant a reasonable number of
keys to such tenant's leased premises, at such tenant's cost, and no tenant
shall make a duplicate thereof.
6. Movement in or out of the building of furniture or office equipment, or
dispatch or receipt by tenants of any bulky material, merchandise or materials
which require use of elevators or stairways, or movement through the Building
entrances or lobby shall be conducted under Landlord's supervision at such times
and in such a manner as Landlord may reasonably require. Each tenant assumes all
risks of and shall be liable for all damage to
<PAGE>
articles moved and injury to persons engaged or not engaged in such movement,
including equipment, property and personnel of Landlord if damaged or injured as
a result of acts in connection with carrying out this service for such tenant.
7. Landlord may prescribe weight limitations and determine the locations
for safes and other heavy equipment or items, which shall in all cases be placed
in the Building so as to distribute weight in a manner acceptable to Landlord
which may include the use of such supporting devices as Landlord may require.
All damages to the Building caused by the installation or removal of any
property of a tenant, or done by a tenant's property while in the Building,
shall be repaired at the expense of such tenant.
8. Corridor doors, when not in use, shall be kept closed. Nothing shall be
swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals shall be brought into or kept in, on or about any tenant's
leased premises. No portion of any tenant's leased premises shall at any time be
used or occupied as sleeping or lodging quarters.
9. Tenant shall cooperate with Landlord's employees in keeping its leased
premises neat and clean. Tenants shall not employ any person for the purpose of
such cleaning other than the Building's cleaning and maintenance personnel.
10. To ensure orderly operation of the Building, no ice, mineral or other
water, towels, newspapers, etc. shall be delivered to any leased premises except
by persons approved by Landlord.
11. Tenant shall not make or permit its officers, employees, agents,
invitees and visitors to make, any improper, objectionable or unpleasant noises
or odors in the Building or otherwise create any nuisance, annoy, disturb or
interfere in any way with, other tenants or persons having business with them.
12. No machine of any kind (other than normal office equipment) shall be
operated by any tenant in its leased premises without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.
13. Landlord will not be responsible for lost or stolen personal property,
money or jewelry from tenant's leased premises or public or common areas,
regardless of whether such loss occurs when the area is locked against entry or
not.
14. No vending or dispensing machines of any kind may be maintained in any
leased premises without the prior written permission of Landlord, nor shall
tenant operate a kitchen,
-2-
<PAGE>
cafeteria or other eating establishment, except for occasional catered business
receptions, nor perform any cooking or food preparations on the leased premises;
provided that tenant may operate a coffee bar on the leased premises which may
include a microwave oven.
15. All mail chutes located in the Building shall be available for use by
Landlord and all tenants of the Building according to the rules of the United
States Postal Service.
16. For purposes of the Building, normal business hours will be from 8:00
a.m. to 6:00 p.m., Monday through Friday, and 9:00 a.m. through 1:00 p.m. on
Saturday. Heating or air conditioning service at hours other than normal
business hours must be requested in writing as provided in the Lease, and shall
be paid for by the Tenant.
17. Tenant shall provide at least one (1) Class ABC type fire extinguisher,
for each 3,000 square feet of space, and one (1) per floor otherwise.
18. Landlord shall have the right to make such further rules and
regulations for the Building as it deems necessary and agrees to use its good
faith efforts to enforce these rules against all tenants of the Building.
-3-
<PAGE>
MEMORANDUM OF LEASE
-------------------
Notice is hereby given of the following Lease:
LANDLORD: October Corporation, a Maine corporation with a mailing
address c/o Boulos Property Management, One City Center,
Portland, ME 04101
TENANT: Acadia Trust, N.A., a national association, and Gouws
Capital Management, Inc., a Maine corporation, with a place
of business at 511 Congress Street, Portland, Maine 04101.
DATE OF EXECUTION: August 21, 1995
LEASED PREMISES: All of the 9th floor and a portion of the 8th floor in the
office building known and numbered as 511 Congress Street,
Portland, Maine and outlined on Exhibit A attached hereto.
TERM OF LEASE: 123 months, commencing August 1, 1995.
RIGHT OF FIRST
REFUSAL: Tenant shall have the right of first offer for the remaining
space on the 8th floor.
RIGHT TO RENEW
OR EXTEND: None
OPTION TO PURCHASE: None
The parties hereto further expressly acknowledge that this Memorandum of
Lease is being executed pursuant to the provisions of the Lease, and is not
intended to vary the terms or conditions of the Lease.
<PAGE>
Executed as a sealed instrument as of this 21st day of August, 1995.
WITNESS: OCTOBER CORPORATION
LANDLORD
_____________________________________ By: /s/ Owen W. Wells
--------------------------------
Owen W. Wells
Its: Clerk
----------------------------
ACADIA TRUST, N.A.
TENANT
_____________________________________ By: _______________________________
Printed Name: _____________________
Its: ______________________________
GOUWS CAPITAL MANAGEMENT, INC.
_____________________________________ By: _______________________________
Printed Name: _____________________
Its: ______________________________
STATE OF MAINE
COUNTY OF CUMBERLAND, SS August 21, 1995
Then personally appeared the above-named Owen W. Wells and acknowledged the
foregoing instrument to be his free act and deed in his said capacity and the
free act of deed of said Landlord.
Before me,
/s/ Bruce E. Leddy
-----------------------------------
Attorney-at-Law
Printed Name: Bruce Leddy
----------------------
STATE OF MAINE
COUNTY OF CUMBERLAND, SS August ___, 1995
Then personally appeared the above-named ___________________________, as
______________________________ of Acadia Trust, N.A., and acknowledged the
foregoing instrument to be his free act and deed in his said capacity and the
free act of deed of said Tenant.
Before me,
______________________________
Notary Public/Attorney-at-Law
Printed Name:_________________
-2-
<PAGE>
STATE OF MAINE
COUNTY OF CUMBERLAND, SS August _____________, 1995
Then personally appeared the above-named ___________________________, as
______________________________ of Gouws Capital Management, Inc., and
acknowledged the foregoing instrument to be his free act and deed in his said
capacity and the free act of deed of said Tenant.
Before me,
______________________________
Notary Public-Attorney-at-Law
Printed Name:_________________
-3-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>4
<FILENAME>dex1010.txt
<DESCRIPTION>LEASE AGREEMENT FOR CNB BRANCH IN PORTLAND, MAINE
<TEXT>
<PAGE>
Exhibit 10.10 Lease Agreement for CNB branch in Portland, Maine
---------------------------------------------------------------
LEASE AGREEMENT
CERTAIN TERMS AND DEFINITIONS
Tenant: Camden National Bank
Landlord: Milk Street Associates, LLC
Lease: This Lease Agreement between Tenant and Landlord dated
as of July 24, 2001.
Building: 5 Milk Street and its walkways, parking lots, or
landscaped areas.
Premises: East corner entry level, described on Exhibit A hereto.
Term: Five (5) years beginning on August 15, 2001 (the
"Commencement Date").
Base Rent: Twenty-Seven Thousand Four Hundred Ninety-Six & 50/100
Dollars ($27,496.50) per year, payable in equal monthly
installments of Two Thousand Two Hundred Ninety-One &
38/100 Dollars ($2,291.38), to be increased annually as
provided herein.
Security Deposit: None Required
Proportionate Share: 9.49%.
Monthly Charges: The Base Rent payable on the first of each month during
the Term.
Rents: All payments by Tenant called for in the Lease,
including Monthly Charges and Tenant's Proportionate
Share of increases in Real Estate Taxes over Base Year
Real Estate Taxes.
RENTS; SECURITY DEPOSIT; SURRENDER ON TERMINATION
1.1 Lease of Premises; Rent. Landlord hereby rents and Tenant hereby leases
-----------------------
from Landlord the Premises for the Term and on the other terms and conditions
provided in this Lease. Tenant covenants and agrees to pay Monthly Charges to
Landlord in monthly installments, in advance without demand, notice, or setoff
on the first day of each month during the Term.
1.2 Annual Adjustments to Monthly Charges. Beginning on the first anniversary
-------------------------------------
of the Commencement Date and on each succeeding anniversary thereafter, the
Monthly Charges then in effect shall be increased by the annual percentage
increase of the Boston CPI-W (or its successor index) between the two most
recent months of May preceding each such adjustment.
1
<PAGE>
1.3 Increases in Real Estate Taxes. Landlord shall pay to the municipality all
------------------------------
Real Estate Taxes with respect to the Building and the Premises during the Term.
`Real Estate Taxes' means the total of all taxes, general and special, ordinary
and extraordinary, foreseen or unforeseen, including water and sewer taxes,
assessments for public improvements and public services, that are assessed,
levied or imposed with respect to the Building, including personal property to
the extent that all elevators, air conditioning equipment, or similar building
appurtenances for the use and benefit of the occupants of the building are
classified as real estate for tax purposes. Tenant covenants and agrees to pay
or cause to be paid to Landlord, as additional Rents, Tenant's Proportionate
Share of the increase in Real Estate Taxes over Base Year Real Estate Taxes,
notwithstanding the reason for or the cause, nature or character of such
increases, with payment made by the later of (i) 15 days before such taxes are
due and payable or (ii) within 15 days after Landlord shall have delivered to
Tenant a statement setting forth Tenant's Proportionate Share of the increase in
Real Estate Taxes for any particular tax period or portion thereof. `Base Year
Real Estate Taxes' means $18,251.49 per one-half of a tax year.
1.4 Accounting for Rents Received; Late Payment Charge. All payments received
--------------------------------------------------
from Tenant shall be applied to the oldest outstanding charges first. Landlord
may charge as a late payment charge three percent (3%) of any payment herein
required to be paid by Tenant which is more than five (5) days late.
1.5 Intentionally Deleted.
---------------------
1.6 Surrender on Lease Termination. On expiration of the Term or sooner
------------------------------
termination of the Lease, Tenant shall surrender the Premises to Landlord,
broomclean, free of subtenancies, and in good condition and repair, reasonable
wear and tear only excepted.
1.7 Intentionally Deleted.
TENANT'S RIGHTS AND OBLIGATIONS
So long as Tenant pays the Rents reserved by this Lease and performs and
observes all the covenants and provisions hereof, Tenant shall quietly enjoy the
Premises without hindrance by or from Landlord. Tenant understands that Landlord
will be making improvements, alterations and repairs to the Building and
portions thereof from time to time.
2.1 Use. Tenant shall use the Premises only for a branch bank for Camden
---
National Bank. Tenant acknowledges its awareness that another tenant in the
Building is a direct competitor of Acadia Trust/Gouws Capital Management
(affiliates of Tenant hereinafter referred to as "Acadia"). Tenant acknowledges
that neither Tenant's exterior signage nor any window signage at the Building
may include reference to Acadia. Tenant may provide marketing materials
related to Acadia to customers of Camden National Bank and its affiliates at the
Premises and may conduct incidental Acadia business with such customers at the
Premises as a convenience to such customers, but Tenant may not hold out the
Premises to the public as an Acadia office.
2
<PAGE>
2.2 Compliance with laws. Tenant shall comply with any law, ordinance and
--------------------
regulation, federal, state, county or municipal, now or hereafter in force,
applicable to the Building or Premises relating to use or occupancy thereof.
Tenant shall secure all necessary licenses and permits for the conduct of
Tenant's business at its own expense.
2.3 Payment of personal property taxes. Tenant shall pay all personal property
----------------------------------
taxes, including inventory taxes, levied or assessed relating to the personal
property and trade fixtures on the Premises belonging to Tenant or persons,
firms or corporations other than Landlord.
2.4 No waste. Throughout the Term, Tenant shall keep the Premises, and the
--------
appliances, improvements and fixtures therein, including but not limited to all
glass, lighting fixtures and lamping, in good order and repair and in clean,
safe, and sanitary conditions, reasonable wear and tear only excepted, subject
to damage by fire, taking and insured casualty. All injury or damage to the
Building or the Premises caused by Tenant or its agents, employees and invitees
shall be repaired or replaced with materials of the same quality.
2.5 No Assignment or Subletting. Tenant shall not sublet, pledge, encumber or
---------------------------
assign this Lease without the prior written consent of Landlord on each
occasion, which consent shall not be unreasonably withheld or delayed; any
sublet, pledge, encumbrance or assignment without Landlord's consent shall be
null and void. For a period of thirty days following receipt by Landlord of a
request for the written consent to a subletting or assignment, Landlord shall
have the right, exercisable by sending written notice to Tenant, to sublet or
assign the same area to another at the lesser of the Base Rent stated in this
Lease or the rate proposed in Tenant's sublet; upon Landlord's exercise of such
right, Tenant shall be relieved of further liability arising under the Lease
after the commencement date of the substitute tenant's term. In the event
Landlord waives its right or lets thirty days pass, Tenant may sublet or assign
such space upon the prior written consent of Landlord.
Landlord's consent shall be deemed reasonably withheld if, without
limitation, (i) the proposed assignment, sublease or other transfer would be for
the conduct of a business which is not in keeping with the quality standards for
tenants of the Building, or (ii) Tenant's proposed assignee, sublessee or other
transferee is not, in Landlord's reasonable judgment, financially creditworthy,
or (iii) Tenant is in default under this Lease, or (iv) Tenant's proposed
assignee, sublessee or other transferee has failed or refused to agree to
perform and observe all the terms, provisions, conditions and covenants of this
Lease, or (v) Tenant's proposed assignee, sublessee or other transferee would
burden the common areas and facilities to a greater extent than does Tenant or
would require more or additional services, or ( vi) use by the proposed
assignee, sublessee or other transferee would require structural changes to the
Building or the Premises, or (vii) Tenant's proposed assignee, sublessee or
other transferee is a governmental agency.
2.6 Restrictions. Tenant covenants and agrees as follows, not to:
------------
(i) Injure or deface the Premises or Building.
3
<PAGE>
(ii) Place a load upon any floor of the Premises in excess of 50
pounds live load per square foot or in violation of what is allowed by law.
(iii) Move heavy equipment, freight or heavy fixtures in or out of the
Building except at such times and in such manner as Landlord shall designate
after written request from Tenant.
(iv) Serve food or drink to the public, permit loud or live music to
be played in or about the Premises, or permit loud noises, offensive odors, or
excessive vibrations that unreasonably interfere with the quiet and peaceful use
and possession of the Building by other tenants, without the written consent of
Landlord, which consent may be withheld for any reason. Tenant shall place and
maintain business machines and mechanical equipment in such settings as will
most effectively reduce noise and vibration.
(v) Permit any person or firm not directly affiliated with Tenant to
maintain a business location or a mailing address in, on or about the Premises.
(vi) Permit the use of the Premises for any purpose other than set
forth herein or put them to a use that may invalidate or increase the premiums
for any insurance on the Building, its contents or other tenants, or which may
require any alterations to the Building. Without waiving Tenant's obligation
herein, if as the result of Tenant's conduct of its business Landlord or another
tenant of the Building suffers an increase in the cost of such insurance
premiums, Tenant shall immediately pay to the party suffering such increase the
amount of such increase; but in no event shall such payment abrogate or waive
Tenant's obligations under this subsection.
(vii) Permit any pets on or about the Premises without the prior
written consent of Landlord, which consent may be withheld for any reason.
(viii) Receive, handle, use, store, treat, ship or dispose on, at,
under or about the Premises or release therefrom any Hazardous Substance and
shall defend and save Landlord harmless from any and all losses, claims,
liabilities, judgments, damages (including exemplary or punitive), penalties,
expenditures, costs and legal or other expenses which Landlord may suffer or
incur as a direct or indirect result of Tenant's breach of this covenant.
"Hazardous Substance" for purposes of the Lease shall mean any material, the
generation, storage, handling or disposal of which is regulated by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601 et seq. or by the Maine Uncontrolled Hazardous Substance
Sites Act, 38 M.R.S.A. Section 1361 et seq., as either may be amended or
extended from time to time.
LANDLORD'S RIGHTS AND OBLIGATIONS
3.1 Finishes. Landlord shall finish the Premises in accordance with the
--------
provisions set forth under "Tenant Improvements" in Exhibit B attached hereto
and made a part hereof. Tenant acknowledges that Tenant has inspected the
Building and Premises, found them to be in satisfactory condition and repair and
agrees to accept the Premises in "as-is" condition, except for the obligations
which Landlord has agreed to undertake as set forth in Exhibit B. If the
Premises are not substantially complete at the commencement of the Term through
no fault of Tenant, Rents shall be abated until Landlord has substantially
completed its work as set forth in Exhibit B.
4
<PAGE>
3.2 Services. So long as Tenant is not in default under any of the provisions
--------
of this Lease, Landlord shall furnish the following services:
MSA Heat and air conditioning to maintain the Premises at comfortable
temperatures, except as otherwise required by law, executive order, rule or
other regulation, during the regular business hours of the business day.
Cold water in Premises bathroom for ordinary lavatory and toilet
facilities (hot water to be provided by hot water heater at the Premises wired
to Tenant's CMP meter).
Cleaning and maintenance services for the exterior area of the Building
and the common areas equal in scope, quality, and frequency to that provided in
office and retail buildings in the City of Portland.
Snow removal from sidewalks, parking lots, loading areas and access areas
between parking lots and the Premises.
Maintenance and repair of the roof, exterior walls, land areas, structure,
heating, air conditioning and plumbing systems, primary electrical system
(excluding electrical outlets and other electrical equipment installed by
Tenant) and common areas and common facilities of the Building as necessary to
maintain them in good order and condition; provided, however, that any such
maintenance or repairs made necessary by the fault or neglect of Tenant or the
employees, agents and invitees of Tenant shall be at the expense of Tenant, and
any such maintenance or repairs of any equipment installed by or at the
direction of Tenant or its employees or agents shall be at the expense of
Tenant.
Landlord shall not be liable to anyone for incidental or consequential
damages for failure or interruption of the services described in the Lease due
to accident, making repairs, alterations or improvements, labor difficulties,
inability to obtain fuel, electricity, service or supplies from sources from
which they are usually obtained for the Building, or any cause beyond the
reasonable control of Landlord. No such failure or interruption shall be
construed as an eviction of Tenant, nor work an abatement of any of the Rents,
nor relieve Tenant from Tenant's obligations under this Lease.
3.3 Rights. Landlord reserves the right to:
------
(i) install and maintain a sign or signs on the exterior of the
Building. All Tenant signage will be subject to the reasonable approval of
Landlord; (also see Section 2.1).
(ii) name the Building and to change the name or street address of the
Building after reasonable notice to Tenant.
(iii) restrict and control in a reasonable manner all sources from which
Tenant may obtain maintenance services for the Premises and any service in or to
the Building and its tenants.
(iv) if Tenant has already vacated the Premises, decorate, remodel,
repair, alter or otherwise prepare the Premises for reoccupancy during the last
ninety (90) days of the Term, without affecting Tenant's obligation to pay
Rents.
(v) Landlord shall not retain keys to the Premises; Tenant agrees to pay
immediately the cost to repair damage caused by forced entry to the Premises by
Landlord or its agents in the event that Landlord reasonably believes an
emergency condition exists at the Premises and Landlord is unable to gain access
to the Premises through Tenant within
5
<PAGE>
what Landlord deems a reasonable period at the time of the real or perceived
emergency. Tenant shall not modify any locks to the Premises, other than
rekeying, without the prior consent of Landlord.
(vi) enter the Premises at reasonable times (1) to examine, inspect and
maintain the Building, install equipment and make improvements, (2) in so doing,
to temporarily suspend operation of entrances, corridors, elevators and other
facilities, but in such a manner as to cause the least inconvenience
practicable, and (3) to show the Premises to prospective purchasers and
mortgagees, and to show the Premises to prospective tenants during the three
months preceding the expiration of this Lease. Landlord may enter upon the
Premises and exercise any and all of Landlord's rights without being deemed
guilty of an eviction or disturbance of Tenant's use or possession and without
being liable in any manner to Tenant.
(vii) promulgate from time to time and enforce reasonable rules and
regulations for the use and the occupancy of the Building by the tenants, and
Tenant agrees to comply with such rules and regulations.
ALTERATIONS; EQUIPMENT; PERSONAL PROPERTY
4.1 Alterations. Tenant shall not make any alterations or additions, including
-----------
but not limited to wall coverings, floor coverings and special light
installations, or permit the making of any holes in any part of the Building, or
paint or place any signs, curtains, shades, awnings, aerials or flagpoles or the
like which are visible from outside of the Premises, without on each occasion
obtaining prior written consent of Landlord.
Tenant shall procure all necessary permits before undertaking any
improvements, do all of such work in a good and workmanlike manner, employing
material of good quality, comply with all governmental requirements, and
promptly pay when due the entire cost of any work performed on its behalf.
Tenant shall not permit any mechanics' or other liens to be placed on the
Premises. Tenant covenants and agrees to indemnify and hold harmless Landlord
for any and all charges, expenses, claims and liens of any nature (including
payment of reasonable attorney's fees to enforce this provision) and any and all
liability arising out of or in connection with any improvements, changes, or
additions made by or on behalf of Tenant, or any lien arising thereby.
Any alteration, addition or improvement made by Tenant and any fixtures
installed as a part thereof, except movable trade fixtures, shall at Landlord's
option become the property of Landlord upon the expiration or other sooner
termination of this Lease; provided, however, that Landlord shall have the right
to require Tenant to remove such fixtures at Tenant's expense.
Landlord is aware of Tenant's interest in installing a night deposit box
at the Premises and agrees to work with Tenant to try to find a suitable
installation for such night deposit, consistent with the design, construction,
use, appearance and historic nature of the building.
4.2 Equipment and Movable Trade Fixtures. Tenant may install equipment and
------------------------------------
movable trade fixtures necessary to carry on its business on the Premises. All
such equipment and movable trade fixtures shall remain the personal property of
Tenant, and shall be removed by Tenant at any time before the end of the Term,
and Tenant shall promptly repair at its own expense any damage to the Premises
by reason of such removal. Landlord may require reasonable security from
6
<PAGE>
Tenant before commencement of any such removal. Unless Tenant and Landlord have
otherwise previously agreed, any personal property of Tenant left in the
Premises after the Lease term shall be deemed abandoned, and Landlord may have
such personal property removed and disposed of in Tenant's name and at Tenant's
expense.
INSURANCE; INDEMNIFICATION; CASUALTY; DAMAGE
5.1 Insurance. Throughout the Term, Tenant shall maintain for the mutual
---------
benefit of Landlord and Tenant comprehensive general liability insurance (with
broadened liability endorsement) with a combined limit of not less than
$1,000,000 and shall keep the contents of the Premises insured against loss or
damage by fire and any of the casualties included in All Risk insurance coverage
in an amount not less than the full insurable value thereof. All insurance
policies shall be placed with recognized insurers qualified to do business in
the State of Maine, shall name Tenant, Landlord and Landlord's managing agent,
if any, as insureds as their respective interests may appear, shall contain such
language as appropriate to avoid the effect of the co-insurance provisions of
such policies, and shall contain an agreement by the insurers that such policies
shall not be cancelled without at least ten (10) days prior written notice to
Landlord. Landlord shall be provided with copies of all policies.
5.2 Release. Landlord and Tenant each hereby release each other from liability
-------
for damage to property of the other to the extent of insurance required to be
maintained hereunder occurring at the Premises or the Building, or in any manner
growing out of or connected with Tenant's or Landlord's use and occupation of
the Premises and Building, or the condition thereof, whether or not caused by
the negligence or other fault of Landlord or Tenant or of their respective
agents, employees, subtenants, licensees, or assignees.
5.3 Indemnification. Tenant covenants and agrees forever to save and hold
---------------
Landlord and its managing agent harmless from and against all claims for damage
to or loss of property, and all claims for injuries to or death of persons, in
or about the Premises caused by the negligence, or willful act or omission of
Tenant, or its agents, employees, invitees or guests, and/or resulting from
Tenant's failure to observe or comply with any of Tenant's obligations
undertaken in this Lease; including without limitation all costs of defending
against such claims and in enforcing this indemnity provision,
including reasonable attorneys' fees for such purposes. The minimum insurance
limits above shall not be deemed to limit or restrict in any way Tenant's
liability ensuing under or out of this Lease.
5.4 Casualty. If the Premises or the Building or any part of either shall be
--------
damaged by fire or other casualty, rendering either untenantable in whole or in
part, then this Lease shall terminate at the election of Landlord. If Landlord
shall elect not to terminate this Lease then Landlord shall cause the Premises
or the Building to be put in proper condition for use and occupation and during
such period the Rents shall be reduced in proportion to the extent the Premises
are rendered untenantable; provided, however, that Landlord's obligation to put
the Premises or the Building in proper condition for use and occupation shall be
limited to the amount of net proceeds from any insurance policy or policies.
7
<PAGE>
Notwithstanding the above, if Landlord shall not have returned the Premises to
substantially the same condition as prior to the casualty within 120 days of the
casualty, then Tenant shall have the right to terminate the Lease on 7 days
advance notice to Landlord, unless the Premises shall be returned to
substantially the same condition as prior to the casualty within such 7 day
period.
5.5 Condemnation. If the Premises or the Building or any part of either shall
------------
be taken by the exercise of the right of eminent domain then this Lease shall
terminate at the election of Landlord. If Landlord shall elect not to terminate
this Lease and a substantial portion of the Premises is taken, Tenant may elect
to terminate this Lease upon thirty (30) days written notice to Landlord. If
neither party terminates, Landlord shall put the Premises or Building in proper
condition for use and occupation and during such period the Rents shall be
reduced in proportion to the extent the Premises are rendered untenantable;
provided, however that Landlord's obligation to put the Premises or Building in
proper condition for use and occupation shall be limited to the amount of net
proceeds from the receipts of the condemnation.
Landlord hereby reserves and Tenant hereby assigns to Landlord, all rights
to recovery for damages to the Premises or the Building and the leasehold
interest hereby created, and to compensation accrued or hereafter to accrue by
reason of any taking or condemnation. Nothing contained herein shall be deemed
or construed to prevent Tenant from prosecuting in any condemnation proceedings
a claim for relocation expenses, provided that such action shall not affect the
amount of compensation otherwise recoverable by Landlord from the taking
authority. If Landlord shall not have returned the Premises to substantially the
same condition as prior to the condemnation within 120 days of the effective
date of the condemnation, then Tenant shall have the right to terminate the
Lease on 7 days advance notice to Landlord, unless the Premises shall be
returned to substantially the same condition as prior to the effective date of
the condemnation within such 7 day period.
5.6 Liability For Damage to Personal Property and Person. All personal
----------------------------------------------------
property of Tenant, its employees, agents and invitees in the Premises or
Building shall be and remain at their sole risk. Landlord shall not be liable
for any damage to or loss of such personal property arising from any willful or
negligent act or omission of any person, or from any cause other than any damage
or loss resulting directly from the negligence of Landlord. Landlord shall not
be liable for any interruption or loss to Tenant's business, and shall not be
liable for any personal injury to Tenant, its employees, agents, or invitees,
arising from the use, occupancy and condition of the Premises or Building other
than from the willful or negligent act of Landlord. Notwithstanding the
foregoing, Landlord shall not be liable to Tenant for any loss or damage to
personal property, or injury to person, whether or not the result of Landlord's
negligence, to the extent that Tenant is compensated therefor by Tenant's
insurance.
DEFAULT AND REMEDIES
6.1 Tenant's Default. It shall be an event of default if:
----------------
8
<PAGE>
(i) Tenant shall fail to pay any installment of any Rents within five (5)
calendar days after written demand, provided that no such demand shall be
required if at least two such demands have been given within one calendar year
of the due date of the most recent unpaid installment of Rents,
(ii) Tenant shall default in the faithful observance or performance of any
other covenant to be performed or observed by Tenant under this Lease for ten
(10) or more calendar days after Landlord shall give to Tenant notice of such
default and a demand to cure the same,
(iii) the Premises shall be abandoned or vacated by Tenant, or the estate
hereby created shall be taken by process of law, or
(iv) there shall be filed by or against Tenant a petition under any
Chapter or Chapters of the Bankruptcy Code of the United States or any other
insolvency proceeding relating to the debts of Tenant shall be brought by or
against Tenant, or Tenant shall make an assignment for the benefit of creditors,
or shall be insolvent or unable to pay its debts as they mature or a receiver
shall be appointed for Tenant or any substantial part of its property.
6.2 Remedies. Upon Tenant's default, Landlord may:
--------
(1) terminate the Lease by written notice to Tenant;
(2) re-enter and repossess any or all of the Premises;
(3) declare the entire balance of the Rents for the remainder of the
Term to be due and payable immediately, and collect such balance in any lawful
manner (accelerated payments hereunder shall constitute payment of Rents in
advance and not a penalty or forfeiture or liquidated damages);
(4) relet all or a portion of the Premises for all or a portion of the
Term either in Landlord's own name or as agent for Tenant and collect and
receive the rents therefor;
(5) collect Rents directly from any subtenant or assignee; or
(6) pursue any combination of such remedies and/or any other right or
remedy available to Landlord on account of such event of default under this
Lease or at law or in equity.
In the event of reletting, Tenant shall have no right to any surplus which
may be derived by Landlord from any such reletting. Tenant hereby grants
Landlord the right, after Tenant's default, to relet on such terms and
conditions as are acceptable to Landlord in its sole and absolute discretion
(including offering concessions or incentives such as free rent or tenant
fit-up), and Tenant acknowledges that its obligation under the Lease shall not
be diminished by any concessions or incentives in the form of free rent or
otherwise either offered or refused to be offered by Landlord. Anything in this
Lease or applicable law to the contrary notwithstanding, upon Tenant's default
Landlord shall not have any duty or obligation to relet any or all of the
Premises in lieu of other vacant space in Landlord's inventory, or any liability
to Tenant or any other person for any failure to Lease the Premises or to
collect any rent or other sum due from any such reletting. Landlord acknowledges
its obligation to mitigate damages in its reletting activities. In the event
that Rents have not been accelerated pursuant to (3) immediately above, upon
reletting Tenant shall pay to Landlord (i) the installments of Rents accruing
during the remaining Term, had this Lease not been terminated, less any monies
received by Landlord with respect to such remainder from such reletting of any
or all of the Premises, (ii) the cost to Landlord of any such reletting
9
<PAGE>
(including, without limitation, any attorneys' fees, leasing or brokerage
commissions, repair or improvement expenses and any other expenses in connection
with such reletting), and (iii) any other sums for which the Tenant is liable
under the Lease.
Nothing herein contained shall limit or prejudice Landlord's right to prove
for and obtain as damages, by reason of such termination, an amount equal to the
maximum allowed by law.
On the occurrence of an event of default, Tenant shall, immediately on its
receipt of a written demand therefor from Landlord, reimburse Landlord for (a)
all expenses (including, without limitation, any and all repossession costs,
management expenses, operating expenses, legal expenses and attorneys' fees)
incurred by Landlord (i) in curing or seeking to cure any event of default
and/or (ii) in exercising or seeking to exercise any of the Landlord's rights
and remedies under the provisions of this Lease or in law or equity on account
of any event of default, and/or (iii) otherwise arising out of any event of
default, plus (b) interest on all such expenses at New York base rate plus 3%,
all of which expenses and interest shall be additional Rents and shall be
payable by the Tenant immediately on demand therefor by the Landlord.
Tenant hereby expressly waives, so far as permitted by law, the service of
any notice of intention to re-enter provided for in any statute, and except as
is herein otherwise provided, Tenant, for itself and all persons claiming
through or under Tenant (including any leasehold mortgagee or other creditors),
also waives any and all right of redemption or re-entry or repossession in case
Tenant is dispossessed by a judgment or warrant of any court or judge or in case
of re-entry or repossession by Landlord or in case of any expiration or
termination of this Lease. The terms "enter," "re-enter," "entry," or "re-entry"
as used in this Lease are not restricted to their technical legal meanings.
6.3 Landlord's Right to Cure. If Tenant defaults in making any payment or in
------------------------
doing any act required by this Lease, Landlord may, but shall not be required to
make such payment or do such act, and the amount of the expense thereof, with
interest thereon at the annual rate of fifteen percent (15%) from the date paid
by Landlord, shall be payable with the next monthly installment of Rents.
Landlord's payment in such case shall not be deemed to cure the default.
MORTGAGE LENDER ISSUES
7.1 Subordination; Attornment. Landlord may at any time assign, encumber,
-------------------------
pledge or hypothecate this Lease, which shall be subject and subordinate at all
times to the lien of existing mortgages and of mortgages which hereafter may be
made a lien on the Building or the Premises, provided that the holder of such
mortgage enters into an agreement with Tenant by the terms of which such holder
agrees not to disturb Tenant in its possession of the Premises so long as Tenant
continues to perform its obligations hereunder and, in the event of acquisition
of title by said holder through foreclosure proceedings or otherwise, to accept
Tenant as Tenant of the Premises under the terms and conditions of this Lease.
Although no instrument or act on the part of Tenant shall be necessary to
effectuate such subordination, Tenant will, nevertheless, promptly execute and
deliver such further instruments subordinating this Lease and Tenant's interests
herein to the lien of any such mortgages as may be desired by the mortgagee
(consistent with such mortgage holders non-
10
<PAGE>
disturbance obligation to Tenant). If required by the mortgagee, Tenant shall
agree not to prepay rent more than ten (10) days in advance, to provide said
mortgagee with notice of and reasonable opportunity to cure any defaults by
Landlord, and not to amend, modify or cancel this Lease without mortgagee's
written consent, and Tenant agrees to recognize such holder or any other person
acquiring title to the Premises as having the rights of Landlord and to attorn
to said holder or other person if requested.
7.2 Estoppel Certificates. Tenant and Landlord agree, at any time and from time
---------------------
to time, upon at least five (5) days prior written notice, to execute,
acknowledge and deliver to Landlord or its mortgagee or to Tenant, as the case
may be, a statement in writing (i) certifying that this Lease has been
unmodified since its execution and is in full force and effect (or if there have
been modifications, that this Lease is in full force and effect, as modified,
and stating the modifications), (ii) stating the dates, if any, to which the
Rents hereunder have been paid by Tenant, (iii) stating whether or not, to the
knowledge of Tenant or Landlord, there are then existing any defaults under this
Lease (and, if so, specifying the same), and (iv) stating the address to which
notices to Tenant or Landlord should be sent. Any such statement delivered
pursuant hereto may be relied upon by Tenant, Landlord or any prospective
purchaser or mortgagee of the Building or any part thereof or estate therein.
7.3 Assignment of Rents. With reference to any assignment by Landlord of
-------------------
Landlord's interest in this Lease, or the Rents payable hereunder, conditional
in nature or otherwise, which assignment is made to the holder of a mortgage of
the Premises, Tenant agrees: (i) that the execution thereof by Landlord, and the
acceptance thereof by such holder, shall never be deemed an assumption by such
holder of any of the obligations of Landlord hereunder, unless such holder
shall, by written notice sent to Tenant, specifically otherwise elect; and (ii)
that, except as aforesaid, such holder shall be treated as having assumed
Landlord's obligations hereunder only upon foreclosure of such holder's mortgage
or the taking of possession of the Premises.
LIMITATION ON LIABILITY
8.1 Notwithstanding any other provisions of this Lease, Tenant agrees to look
solely to Landlord's interest in the Building and any applicable insurance
coverage of Landlord for recovery of any judgment from Landlord; it being agreed
that Landlord is not personally liable for, and its other assets are not subject
to, any such judgment. The provision contained in the foregoing sentence shall
not limit any right that Tenant might otherwise have to obtain injunctive relief
against Landlord or its successors, or any other action not involving the
personal liability of Landlord.
MISCELLANEOUS PROVISIONS
9.1 Joint Liability. If Tenant is more than one person or party, Tenant's
---------------
obligations shall be joint and several. Unless repugnant to the context,
"Landlord" and "Tenant" mean the person or persons, natural or corporate, named
above as Landlord and Tenant respectively, and their respective heirs,
executors, administrators, successors and assigns.
11
<PAGE>
9.2 Non-Liability of Landlord's Agent. Tenant agrees that Landlord's property
---------------------------------
manager (currently Fore River Management Company) is serving solely as
Landlord's agent and shall not in any event be liable to Tenant for the
fulfillment or non-fulfillment of any of the terms or conditions of this Lease
or for any actions or proceedings that may be taken by Landlord against Tenant
or by Tenant against Landlord.
9.3 Memorandum of Lease. Landlord and Tenant agree that this Lease shall not be
-------------------
recordable. If Tenant desires, Landlord and Tenant shall enter into a Memorandum
of Lease in recordable form, setting forth such terms as are necessary under the
laws of Maine providing for the recording of memoranda of leases.
9.4 Holdover. (a) Any holdover by Tenant beyond the end of the Term provided
--------
for elsewhere in the Lease shall be automatically deemed to be a renewal
election made by Tenant and accepted by Landlord for a renewal term (and not a
tenancy at will) of one month, unless Landlord shall have previously notified
Tenant that the Lease shall terminate at the end of the Term otherwise specified
under the Lease, in which case the Lease shall so terminate. During any renewal
pursuant to this section, Rents shall be increased on the Commencement Date
anniversary by the most recently reported year to year changes in the Boston
CPI-W as provided in the Lease, and other terms and conditions of the Lease
shall apply.
Upon the commencement of any one month renewal term pursuant to this
subsection, Landlord and Tenant shall be deemed to have agreed to additional
consecutive one month renewal terms until either party shall terminate the Lease
on a minimum of 30 and a maximum of 60 days advance notice given at any time to
the other party, (which termination date need not be at the end of a one month
renewal term).
(b) Unauthorized Holdover. In the event that Tenant (or any subtenant or
---------------------
other person occupying all or part of the Premises) fails to quit the Premises
immediately upon the effective date of termination of the Lease, Tenant hereby
covenants to save and hold Landlord harmless against all direct or consequential
damages, costs or losses suffered by Landlord arising out of such failure to
quit, including without limitation, all costs associated with Landlord's
regaining of possession of the Premises, all costs, liability or loss of rents
arising out of Landlord's inability or delay in commencing renovations or
delivering the Premises to a new tenant, and Landlord's reasonable attorney's
fees arising out of such failure to quit or in enforcing this indemnity
provision.
9.5 Invalidity. If any provision of this Lease or its application to any person
----------
or circumstances shall to any extent be invalid or unenforceable, the remainder
of this Lease or the application of such provision to persons or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby and each provision of this Lease shall be valid and enforceable
to the fullest extent permitted by law.
9.6 No Waivers. No acceptance by Landlord of a lesser sum than of the Rents
----------
then due shall be deemed to be other than on account of the earliest installment
of such Rents due, nor shall any endorsement or statement on any check or any
letters accompanying any check or payment as Rents be deemed an accord and
satisfaction, and Landlord may accept such
12
<PAGE>
check or payment without prejudice to Landlord's right to recover the balance of
such installment or pursue any other remedy provided in this Lease.
No failure to act by either party shall be deemed to be a waiver by said
party of any of its rights hereunder, and no waiver or consent by either party
shall be deemed a waiver of such provision or of a subsequent breach or consent
to the same or any other provision. Any and all rights and remedies which either
party may have at law or in equity upon any breach shall be distinct, cumulative
and shall not be deemed inconsistent with each other; and no one of them,
whether exercised by a party or not, shall be deemed to be in exclusion of any
other; and any two or more or all of such rights and remedies may be exercised
at the same time.
9.7 Entire Agreement. No oral statement or prior written matter shall have
----------------
any force or effect. Tenant agrees that it is not relying on any representations
or agreements other than those contained in this Lease. This Lease shall not be
modified or cancelled except by writing subscribed by all parties. Landlord and
Tenant agree that the provisions of Rider(s) 1 & 2 attached hereto are
incorporated herein and form a part hereof.
9.8 Governing Law; Waiver of Jury Trial. This Lease and the performance
-----------------------------------
thereof shall be governed, interpreted, construed and regulated by the laws of
the State of Maine. Landlord and Tenant have mutually agreed that they have
waived trial by jury in any proceeding brought by either party against the other
arising out of this Lease.
9.9 Headings. Headings and sub-headings are for convenience only, and shall
--------
not be considered a part of this Lease.
9.10 Notices. All notices and other communications authorized or required
-------
hereunder shall be in writing and shall be given by mailing the same by
overnight mail, by facsimile transmission, by hand delivery, by certified mail
or registered mail, return receipt requested, postage prepaid, or by facsimile
transmission, with a copy by certified or registered mail, return receipt
requested. Any such notice or communication shall be effective, in the case of
overnight mail, one business day after said notice is deposited with the
overnight carrier, in the case of facsimile transmission, upon completion of
transmission, in the case of hand delivery, upon acceptance at the office of
Landlord or Tenant, in the case of mailing, three calendar days after said
notice is deposited in the United States mail as aforesaid. If intended for
Landlord, the same shall be mailed to Landlord at:
Milk Street Associates, LLC
5 Milk Street
P.O. Box 7525
Portland, Maine 04112
Fax # (207) 772-9078
or at such other address as Landlord may hereafter designate by notice to
Tenant. If intended for Tenant, the same shall be mailed to Tenant at:
13
<PAGE>
Camden National Bank
2 Elm Street
PO Box 310
Camden, ME 04843
Attn: Danny Swindler
Fax # (207) 236-____
or at such other address or addresses as Tenant may hereafter designate by
notice to Landlord.
IN WITNESS WHEREOF, the said Landlord has executed this Lease in its name
and sealed with its seal by Fore River Company, its Manager Member hereunto duly
authorized by __________, its __________ the said Tenant has executed this Lease
in its name and sealed with its seal all on the day and year first above
written.
SIGNED, SEALED and DELIVERED
In the Presence of: MILK STREET ASSOCIATES, LLC
Fore River Company, its Manager Member
_____________________________________ By:____________________________________
Its:
Camden National Bank
_____________________________________ By:____________________________________
Its:
14
<PAGE>
Rider 1 to the Lease dated July 24, 2001 between Milk Street Associates, LLC, as
Landlord, and Camden National Bank, as Tenant (the "Lease").
Renewal
- -------
In consideration of the covenants of the Tenant herein contained, Landlord
hereby grants to Tenant (but not to any assignee or sublessee of Tenant) the
irrevocable right and option to renew and extend the Lease and term for two
renewal terms of 24 months, said renewal terms to commence upon the expiration
of the initial term of the Lease, but said right and option shall be exercisable
only if Tenant is not in default on the Lease at the time of exercise. Tenant
may exercise the right and option to renew only by notice to Landlord in writing
delivered to Landlord at least 90 days before the commencement date of said
renewal terms. The Base Rent reserved for the said renewal terms shall be the
Base Rent in effect for the last month of the original term of the Lease,
adjusted during the renewal terms as provided in the Lease, treating the
commencement date of the renewal period as an anniversary of the Commencement
Date for such purposes. In addition, Tenant shall pay Tenant's Proportionate
Share of increases in Real Estate Taxes over Base Year Real Estate Taxes. Rents
shall be payable in consecutive monthly installments in advance, on the first
day of each and every month of the renewal terms. Said renewal terms shall be
subject to the same terms and conditions as the initial term. Terms not defined
in this rider shall have the meaning set forth in the Lease.
Witness: Milk Street Associates, LLC
Landlord
__________________________________ By __________________________________
Its:
Camden National Bank
Tenant
__________________________________ By __________________________________
Its:
<PAGE>
Rider 2 to the Lease dated July 24, 2001 between Milk Street Associates, LLC, as
Landlord, and Camden National Bank, as Tenant (the "Lease").
Right of First Offer
- --------------------
Upon the first availability for lease of the adjacent ground floor premises at
the corner of Milk and Silver Streets during the Term of Tenant's Lease
(including any renewal thereof), Landlord shall notify Tenant (but not any
sublessee or assignee of Tenant) that the space is available, the Base Rent at
which it will be offered for lease, and the term of the lease, including any
options.
Tenant will have a period of two weeks after notice from us to accept or reject
the proposed lease; in the event Tenant accepts, a lease substantially in the
form of the lease originally signed, with the rate and term specified in
Landlord's notice to Tenant must be signed within that two week period. If
Tenant rejects an offer to lease the space or fails to sign a lease within such
period, Tenant will have no further rights of offer with respect to that space,
except as provided below.
If at the time of Tenant's rejection, Tenant notifies Landlord that Tenant would
enter into the offered lease but for the Base Rent proposed by Landlord, and
Tenant specifies a Base Rent at which Tenant would lease the space, Landlord
will be further obligated to re-offer the space to Tenant before offering the
space to another prospective tenant at or below the rate specified by Tenant.
Upon such subsequent offer, Tenant would have an additional week to accept this
subsequent offer and sign a lease or reject it.
Tenant's right of first offer will be subordinate to the right of the existing
tenant to extend the term of its lease. Landlord will have no obligation to make
an offer to Tenant in the event Tenant is in default at the time the offer would
otherwise be required to be made.
Witness: Milk Street Associates, LLC
Landlord
__________________________________ By __________________________________
Its:
Camden National Bank
Tenant
__________________________________ By __________________________________
Its:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>5
<FILENAME>dex13.txt
<DESCRIPTION>2001 ANNUAL REPORT
<TEXT>
<PAGE>
Exhibit #13 The Company's 2001 Annual Report to Shareholders
------------------------------------------------------------
[PHOTO]
[LOGO]CNC
Camden National Corporation
Annual Report 2001
<PAGE>
[PHOTO]
Maine trees are the foundation of many finely handcrafted wood products.
Since 1875, we have provided a foundation for high-quality financial services in
Maine.
<PAGE>
Maine Trees...
have endured over the ages, ever changing and growing. Maples, pines,
cedars and birches are firmly rooted in the earth and reach upward with
their branches. From these trees, dedicated artisans craft a multitude of
fine-quality wood products that serve our everyday needs and even fulfill
our dreams.
Like these trees, Camden National Corporation serves as the foundation for
a myriad of high-quality financial products that are delivered by dedicated
employees in all our subsidiaries. Since 1875, we have been reaching out to
meet the ever-changing financial needs of our clients and to help make
their dreams a reality. Camden National proudly stands tall among financial
service providers.
[PHOTO]
[PHOTO]
[PHOTO]
Table of Contents
Shareholders' Letter .......................................2-3
Subsidiary Reports .........................................4-9
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ............................... 10-21
Summary of Financial Performance.............................22
Selected Five-Year Financial Data ...........................23
Consolidated Statements ................................. 24-27
Notes to Consolidated Statements .........................28-47
Auditor's Letter ............................................48
Boards of Directors and
Bank Administrations .....................................49-51
Announcement of Annual Meeting ..............................52
1
<PAGE>
[PHOTO]
Rendle A. Jones (right), Chairman of the Board of Directors, and Robert W.
Daigle, President & CEO of Camden National Corporation, work closely to ensure
our continuing financial success.
Craftsmen have a passion for creating works of art.
We have a passion for serving clients' financial needs.
Dear Shareholders
The true skill of a craftsman is to take raw material, readily available to
anyone, and through his or her own sense of quality and passion for
excellence, create a unique product that will withstand the test of time.
Camden National Corporation and its subsidiaries approach clients and
customers with that same unique sense of quality and passion for excellence
in crafting a set of financial services that will benefit them and their
families for generations. Our acquisitions, the introduction of a new line
of business, our expansion into a relatively new market, and the
recruitment of top-caliber personnel in 2001 reflect a continuation of our
126-year tradition of crafting and delivering the best possible financial
solutions for our customers and clients.
Diversification of the Company's revenues through the expansion of our
investment management products and expertise had been targeted as an area
of strategic importance for some time. However, the right selection of
partners to provide those services within our banking franchises was
determined to be one of the most critical factors to realizing success. We
were pleased that, after careful review, Acadia Trust, N.A. and Gouws
Capital Management, Inc., both controlled by Johann Gouws, joined Camden
National Corporation in July 2001. We further augmented our personal
investment management services by forming Acadia Financial Consultants, a
division of Camden National Bank, and hiring Marcia Mansfield as its
President in October 2001. Marcia had previously served
2
<PAGE>
over 500 clients through her own brokerage and investment advisory
enterprise based in mid-coast Maine. The final piece of our revenue
diversification strategy in 2001 was to gain 100 percent ownership of Trust
Company of Maine, Inc. through our acquisition of its remaining minority
interests.
In fulfillment of yet another strategic planning objective, we added
deposit-gathering capabilities to complement our commercial lending
activities in the Portland market. This was the culmination of a series of
steps designed to take advantage of changes in the southern Maine banking
landscape that provided an opportunity for Camden National's brand of
community banking. This began in 1999 when we traveled from Camden to
Portland to work with some existing customers who themselves were expanding
into that market. A loan production office followed in 2000, staffed with
first one and then two lenders. On October 9, 2001, we opened our newly
expanded Portland Office in the heart of the "Old Port" area. We designed
this office to specifically meet the financial needs of our Portland
customers, based on their direct input about what matters most in a
financial partnership. Our growth in this new market has exceeded our
expectations, and customers seem pleasantly surprised with the breadth of
our banking services and the personalized manner in which they are
delivered.
Several other important strategic initiatives were undertaken during 2001
to support our financial and organizational growth objectives. Management
implemented a number of capital and funding strategies triggered by
historically low interest rates. A balance sheet restructuring program,
which began in the third quarter, was implemented to provide flexibility in
managing the Company's assets and liabilities. A share repurchase program
was announced to give investors liquidity in a tax-efficient manner and to
take advantage of opportunities in our stock price valuation. A
state-ofthe- art telecommunications system was installed to efficiently
deliver enhanced voice and data communications throughout the Company.
Finally, we created a corporate risk management function that analyzes and
monitors credit risks for our banking subsidiaries and ensures proactive
and uniform management of those risks.
The Board of Directors of the Company changed its composition during the
year as John S. McCormick, Jr. retired from the Board after 26 years of
service. We wish to thank Jack for his nurturing guidance during a period
of considerable growth for our Company. The Board also welcomed Johann
Gouws as its newest member following the acquisition of Acadia Trust, N.A.
and Gouws Capital Management, Inc. Johann's extensive background in the
investment arena will serve as a valuable resource to the Board.
Through all these events and in the midst of a challenging economic
environment, your Company reported strong financial results for the year.
Diluted earnings per share grew 11.83% from 2000 to $1.89 in 2001,
resulting in a full-year average return on assets of 1.47%. The stock price
of the Company also increased over 31% from the end of December 2000 to the
end of December 2001. We encourage all shareholders to carefully review the
financial statements and associated footnotes, as well as the management
discussion and analysis that are included as part of this annual report.
As we look back at the economic, business and social changes that swirled
about us during the past year, we are proud of the efforts put forth by the
employees of your Company to meet each challenge as craftsmen in their own
right. We are optimistic that the strategies we've implemented in 2001 will
serve as the foundation to provide the flexibility necessary to take
advantage of new challenges and opportunities that await us in 2002 and
beyond.
Sincerely,
/s/ Rendle A. Jones
-------------------
Rendle A. Jones
Chairman of the Board of Directors
/s/ Robert W. Daigle
--------------------
Robert W. Daigle
President & Chief Executive Officer
3
<PAGE>
[PHOTO]
A sculptor meticulously details a wing to create a lifelike bird carving from a
piece of basswood.
With patience and skill, wood sculptors create realistic bird carvings.
With understanding and expertise, we help customers make their dreams a reality.
4
<PAGE>
Camden National Bank
In keeping with our promise to do whatever it takes to support our strategic
mission and commitments to our shareholders, customers, community and employees,
I am pleased to report on several initiatives that contributed to Camden
National Bank's success during 2001.
Commitment to Shareholders: To maximize our contribution to long-term
shareholder value.
To fulfill this most important commitment, we embarked on several exciting
initiatives designed to enhance our geographic and functional diversification.
By expanding the capabilities of our Portland office to gather deposits, we
created a new, low-cost funding resource that has exceeded our expectations. The
formation of Acadia Financial Consultants, our new full-service brokerage and
insurance division, will add further diversification to the Bank's revenue
stream. This puts Camden National Bank another step closer to providing its
customers with the convenience of one-stop shopping for their financial
services.
Commitment to Customers: To deliver high-quality financial solutions, which
create value for each targeted customer segment.
In January, we repositioned our entire deposit product line, providing thousands
of relationship customers with a better value proposition for services such as
checking accounts, loans, certificates of deposit and online banking. Combined
with enrolling over 160 of our employees in the Preferred Way of Selling
program, we equipped the sales force with the tools, resources and techniques to
better help customers with their financial needs.
Commitment to Community: To contribute, through community reinvestment and
employee volunteerism, to the social and economic well-being of the communities
we serve.
I am especially proud to report that Joanne T. Campbell, Senior Vice President
in the Residential Real Estate Loan Department, was the recipient of the
prestigious Volunteer Banker of the Year Award presented annually by the Maine
Bankers Association, in recognition of her outstanding community service in the
area of affordable-housing. Her dedication and commitment have served as an
inspiration to all of our employees, who combined provide over 850 hours per
month of community service in the Bank's four-county trade area.
Commitment to Employees: To foster an environment that attracts, rewards and
retains exceptional employees who, through performance and loyalty, demonstrate
a commitment to the success of our Company.
Based on the belief that "the organization with the best people wins," Camden
National Bank took several steps in 2001 to ensure our ability to attract and
retain the best possible work force. From the feedback we received in the 2000
corporate culture survey, we learned that employees want more recognition for
outstanding performance. As a result, we restructured our employee incentive
program and added the Top Performer Program, which is designed to reward those
who clearly demonstrate superior performance. In addition, new employees attend
a day-long orientation program that includes a welcome video highlighting our
core values and rich history. These programs resulted in an overall improvement
in productivity, increased focus on service quality and overall efficiency
improvements, as well as helping us retain our best performing employees.
In summary, our fundamental mission and commitments focus on strategies that put
the needs of our shareholders, customers, community and employees first. Through
a dedicated and motivated team, supported by state-of-the-art technology,
innovative products and premier service quality, we are creating a truly unique
and sustainable competitive advantage that will help ensure a successful future
for Camden National Bank.
Sincerely,
/s/ Robert W. Daigle
--------------------
Robert W. Daigle, President & CEO
5
<PAGE>
[PHOTO]
A wreath maker handpicks and wires boughs of balsam fir before adding the final
decorative touches.
Artisans select the best balsam branches to create fragrant, seasonal wreaths.
We select the best people and products to enhance our customers' experience.
6
<PAGE>
UnitedKingfield Bank
In 2001 UnitedKingfield Bank continued to build its value within Camden
National Corporation by strategically positioning itself to take advantage
of the unique opportunities in its marketplace. Our long-range plan focuses
the Bank's resources on the diverse financial needs of our consumer and
business customers, while maintaining our commitment to our communities. We
believe that we have great opportunities to grow in markets currently
underserved by our competitors, and that many of our prospects would
benefit from a relationship with a true "one-to-one financial partner."
One exciting opportunity involves focusing resources on growing our share
of the business banking markets in Androscoggin and Penobscot counties.
Since we know that the quality of a banking relationship depends on the
quality of the banker, we have named a market manager in each county with
the authority and expertise to serve the needs of our customers and the
communities. The market managers are responsible not only for business
development, but also to serve as advocates for the business owners and for
the communities in which they live and work.
Creating solutions to meet the diverse financial needs of our customers was
a priority in 2001. With the establishment of Acadia Financial Consultants,
a division of UnitedKingfield Bank, we now provide full-service brokerage
and insurance services to retail customers and business owners who desire
to work with a representative who will take the time to understand their
needs and financial objectives. In addition, our affiliation with Acadia
Trust, N.A. gives our customers access to trust, wealth management and
investment services. These services complement our traditional banking
products, providing clients with convenient access to a wide range of
solutions to meet the financial challenges which individuals and businesses
constantly face.
Another strategic initiative undertaken in 2001 was a review of the Bank's
allocation of resources. In order to focus on the opportunities for growth,
we concluded that our branch delivery system must become more efficient. As
a result of our study, we closed two offices and restructured the hours at
some of our smaller, less active branches. With expanded online banking and
bill payment services, these changes allow us to serve customers in smaller
communities in a more cost-effective manner.
UnitedKingfield Bank is uniquely positioned for success in 2002 and beyond.
We have an opportunity to grow our market share in Androscoggin and
Penobscot counties, the second and third largest markets in Maine. We have
realized greater cost and operating efficiencies through our corporate
affiliation, resulting in not only products and services clearly different
and better than those of the competition, but also in exceptional customer
service, technology and support. With these resources, an aggressive
strategic plan and a dedicated and experienced team, UnitedKingfield Bank
will continue to make significant financial contributions to Camden
National Corporation's success in building long-term shareholder value.
Sincerely,
/s/ John C. Witherspoon
-----------------------
John C. Witherspoon, President & CEO
7
<PAGE>
[PHOTO]
Boat builders exhibit their mastery of engineering and art with the mahogany and
cedar double-planked hull of this sloop.
Woodworkers build solid, finely crafted boats that ensure smooth sailing.
We build enduring client relationships that foster future financial success.
8
<PAGE>
Acadia Trust, N.A.
Trust Company of Maine, Inc.
Acadia Trust, N.A. ("Acadia") and Gouws Capital Management, Inc. ("Gouws
Capital") became the newest affiliates of Camden National Corporation in
July of last year. Acadia is a federally regulated, non-depository trust
company; Gouws Capital, an investment advisory firm, was merged into Acadia
at the end of 2001.
Our mission is to build enduring relationships with clients by helping them
accumulate, manage and conserve wealth. In conjunction with Trust Company
of Maine, Inc., Acadia offers a comprehensive set of trust, investment,
wealth management and retirement plan services to individuals, families,
businesses, endowments and foundations. Our strategic alliance with Camden
National Corporation gives each subsidiary bank the ability to offer their
clients access to a full range of financial services from any branch
location.
Like our parent company, we believe that client satisfaction is, by far,
our most important business objective. Every decision we make is measured
by its impact on our ability to service our clients. We work closely with
each client to understand and define objectives and explore various
strategies, before pursuing the plan to achieve those objectives. Indeed,
we judge our very success by the degree of client satisfaction.
As we continue to refine our product and service offerings, our thought
process parallels that of the highly skilled boat builders found along the
coast of Maine. No seafarer dares venture far offshore in a vessel of
unproven design or haphazard construction. Maine's leading boat builders
combine sophisticated hull construction techniques and innovative
technology with meticulous, handcrafted joinery and clarity of line that
satisfy the observer's aesthetic sense. The builder seeks to please the
owner, but avoids design and construction elements that jeopardize the
integrity of the vessel.
In many ways, we conduct our trust and investment business with a similar
mindset. The strategy fits the mission, which is to meet the financial
objectives of the client. Long-term goals cannot be achieved without a plan
which, as with the design of a vessel, requires tradeoffs among conflicting
considerations. Portfolio construction is based on what is realistic and
doable, and technology is used to enhance the result. On the surface, the
plan is well crafted and its execution is elegant, while behind the scenes
we fulfill our responsibility by steering around the risks that would
endanger the achievement of the client's stated objectives.
Looking forward to 2002, we envision that the synergies created in our
alliance with Camden National Corporation, along with our enhanced ability
to meet the financial needs of our mutual clients, bode well for our
continued success.
Sincerely,
/s/ Johann H. Gouws
--------------------
Johann H. Gouws, Chairman, President & CEO
9
<PAGE>
[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Management's discussion and analysis reviews the consolidated financial
condition of Camden National Corporation (the "Company") at December 31, 2001
and 2000, the consolidated results of operations for the past 3 years and, where
appropriate, factors that may affect future financial performance. This
discussion should be read in conjunction with the Consolidated Financial
Statements, Notes to Consolidated Financial Statements and Selected Consolidated
Financial Data.
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information contained in this
discussion, or in any other written or oral statements made by the Company, is
or may be considered to be forwardlooking.Forward-looking statements relate to
future operations, strategies, financial results or other developments, and
typically contain words or phrases such as "may," "believe," "expects," "should"
or similar expressions. Forward-looking statements are based upon estimates and
assumptions that are subject to significant business, economic and competitive
uncertainties, many of which are beyond the Company's control or are subject to
change.
Inherent in the Company's business are certain risks and uncertainties.
Therefore, the Company cautions the reader that its actual results could differ
materially from those expected to occur depending on factors such as economic
conditions in local markets as well as general economic conditions, including
changes in interest rates and the performance of financial markets, changes in
domestic and foreign laws, regulations and taxes, competition, industry
consolidation, credit risks and other factors. Other factors that could cause or
contribute to such differences include, but are not limited to, variances in the
actual versus projected growth in assets, return on assets, loan losses,
expenses, rates charged on loans and earned on investment securities, rates paid
on deposits, competitive effects, fee and other non-interest income earned, as
well as other factors. The Company disclaims any obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future developments, or otherwise.
GENERAL
Overview
Camden National Corporation (the "Company"), as a multi-bank holding company,
provides financial services to its customers through four principal
subsidiaries. Camden National Bank and UnitedKingfield Bank provide traditional
commercial and consumer banking services through 28 branch locations in central,
southern, mid-coast and western Maine and also by online access. Acadia Trust,
N.A. and Trust Company of Maine, Inc. provide trust and investment management
services to the Company's clients, who are primarily located in the State of
Maine, and to the clients of the Company's two banking affiliates. Additionally,
the Company invests in securities issued by the United States government and its
agencies, as well as mortgage backed securities and high grade corporate
securities to supplement and diversify its revenue base.
The Company has implemented a strategy to provide a diversified set of financial
products to its customers located within its geographic boundaries and to
opportunistically expand those boundaries. As part of this strategy, and to
diversify its sources of revenues, the Company acquired Acadia Trust, N.A.
("Acadia") and Gouws Capital Management Inc. ("Gouws Capital") on July 19, 2001.
These companies, which were merged on December 31, 2001, provide trust and
investment services, as well as investment management expertise. Also, in
furtherance of its strategy to diversify its revenue, the Company acquired the
remaining minority interests in Trust Company of Maine, Inc. on October 24,
2001. The Company had previously acquired its majority interest in Trust Company
of Maine, Inc. through its acquisition of UnitedCorp, a one-bank holding company
with two principal subsidiaries, United Bank and Trust Company of Maine, Inc.,
on December 31, 1995. The Acadia Trust, N.A., Gouws Capital Management Inc. and
Trust Company of Maine Inc. acquisitions were accounted for under the purchase
method of accounting as prescribed by SFAS No. 141, "Business Combinations."
As part of its geographic diversification strategy, on October 8, 2001, the
Company's Camden National Bank subsidiary converted its Portland, Maine loan
production office to a full service banking branch. This allowed the Company to
expand its deposit gathering activities to the Portland, Maine market.
10
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
REVIEW OF FINANCIAL STATEMENTS
The discussion and analysis which follows focuses on the factors affecting the
Company's consolidated results of operations during 2001, 2000 and 1999 and
financial condition at December 31, 2001 and 2000. The Consolidated Financial
Statements and Notes to Consolidated Financial Statements beginning on page 24
of this report should be read in conjunction with this review.
RESULTS OF OPERATIONS
Summary Financial Overview
The Company reported net income of $15.4 million, or $1.89 per diluted share,
for 2001 compared to $13.9 million and $1.69 per diluted share in 2000. Return
on average assets was 1.47% in 2001 compared to 1.40% in 2000 and return on
average shareholders' equity was 15.55% in 2001 compared to 16.43% in 2000. This
performance primarily reflected loan growth from its Portland, Maine location,
expansion of fee based revenues from its banking subsidiaries, revenues from its
acquired investment management subsidiaries, and control of its operating
expenses.
Total revenues for 2001 were $57.3 million compared to $48.4 million in 2000, an
increase of 18.3%, primarily reflecting improved non-interest income and
revenues from increased lending activities. Revenues of Acadia Trust, N.A.
contributed $676,000, while revenues from the sale of loans, securities and the
securitization of a portion of the Company's residential mortgage portfolio
contributed $1.3 million. Excluding these factors, revenues increased $6.9
million or 14.2% from the prior year.
Non-interest expenses for the Company during 2001 were $31.0 million compared to
$25.4 million in 2000, an increase of 22.1%. Expenses from the companies
acquired during the year and associated acquisition costs incurred by the
Company totaled $1.7 million during 2001 while the Company's UnitedKingfield
Bank subsidiary recorded costs of $1.0 million in connection with the settlement
of a lawsuit. Additionally, during 2000, the Company terminated its
defined-benefit noncontributory pension plan which resulted in a one-time
expense reduction of $645,000. Excluding these factors, non-interest expenses
increased $2.3 million, or 8.7%.
The Company's consolidated provision for loan losses was $3.7 million during
2001 compared to $2.9 million in 2000 which resulted in the Company increasing
its ratio of allowance for loan losses ("ALL") to total loans from 1.54% in 2000
to 1.87% in 2001. The reserve was increased in response to management's view of
probable economic deterioration in its central, eastern and western Maine
geographic markets which could negatively affect some of the Company's lending
relationships in those geographic areas. Reflective of this view, non-performing
assets, defined as non-accrual loans, accruing loans 90 days or more past due,
and other real estate owned, increased from $6.9 million in 2000 to $8.3 million
in 2001, resulting in the ratio of non-performing assets to total loans
increasing from 0.93% in 2000 to 1.11% in 2001.
The Company recorded a 7.8% growth in total assets during 2001 to $1.1 billion
at December 31, 2001. Loan growth of $22.7 million during 2001 was primarily a
result of the Company's continued expansion in the Portland, Maine market as
well as moderate growth throughout its geographic franchise.
Net Interest Income
Net interest income, which reflects revenues from interest earning assets less
associated funding expenses, was $44.7 million in 2001 compared to $40.0 million
in 2000, an increase of 11.8%. The following tables on pages 12 and 13, present
changes in interest income and interest expense by major asset and liability
category for 2001, 2000 and 1999, and illustrate the impact of average volume
growth and rate changes. The income from tax-exempt assets has been adjusted to
a tax-equivalent basis, thereby allowing a uniform comparison to be made between
asset yields.
11
<PAGE>
[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
Analysis of Change in Net Interest Margin on Earning Assets
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- -------- ------ -------- ------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest-earning assets:
Securities--taxable $ 234,835 $15,666 6.67% $224,698 $16,079 7.16% $216,666 $15,084 6.96%
Securities--nontaxable (1) 9,161 589 6.43% 8,993 595 6.62% 9,152 606 6.62%
Federal funds sold 3,399 83 2.44% 2,215 109 4.92% 1,784 69 3.87%
Loans (1) (2) 732,460 63,065 8.61% 675,316 61,899 9.17% 605,271 54,157 8.95%
---------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning assets 979,855 79,403 8.10% 911,222 78,682 8.64% 832,873 69,916 8.39%
---------- ------- ---- -------- ------- ---- -------- ------- ----
Cash and due from banks 24,742 27,544 24,122
Other assets 57,874 58,817 43,750
Less allowance for loan losses 12,200 10,541 8,895
---------- -------- --------
Total assets $1,050,271 $987,042 $891,850
========== ======== ========
Liabilities & Shareholders' Equity
- ----------------------------------
Interest-bearing liabilities:
NOW accounts $ 92,111 $ 733 0.80% $ 86,783 $ 889 1.02% $ 85,861 $ 1,129 1.31%
Savings accounts 84,201 1,646 1.95% 85,427 2,168 2.54% 109,078 3,050 2.80%
Money market accounts 128,106 4,333 3.38% 98,559 4,467 4.53% 64,562 2,347 3.64%
Certificates of deposit 321,503 16,047 4.98% 329,664 18,595 5.64% 312,019 16,317 5.23%
Broker certificates of deposit 34,659 2,136 6.16% 12,876 947 7.35% 6,010 344 5.72%
Borrowings 199,615 9,846 4.95% 198,597 11,650 5.87% 146,627 7,182 4.90%
---------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing liabilities 860,195 34,741 4.04% 811,906 38,716 4.77% 724,157 30,369 4.19%
---------- ------- ---- -------- ------- ---- -------- ------- ----
Demand deposits 82,572 84,357 79,764
Other liabilities 8,327 6,409 10,229
Shareholders' equity 99,177 84,370 77,700
---------- -------- --------
Total liabilities
and shareholders' equity $1,050,271 $987,042 $891,850
========== ======== ========
Net interest income 44,662 39,966 39,547
(fully-taxable equivalent)
Less: fully-taxable
equivalent adjustment (481) (561) (592)
------- ------- -------
$44,181 $39,405 $38,955
======= ======= =======
Net interest rate spread
(fully-taxable equivalent) 4.06% 3.87% 4.20%
==== ==== ====
Net interest margin
(fully-taxable equivalent) 4.56% 4.39% 4.75%
==== ==== ====
</TABLE>
(1) Reported on tax-equivalent basis calculated using a rate of 35%.
(2) Non-accrual loans are included in total average loans.
12
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
Analysis of Volume and Rate Changes on Net Interest Income
<TABLE>
<CAPTION>
DECEMBER 31, 2001 VS 2000 DECEMBER 31, 2000 VS 1999
(Dollars in thousands) INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
- ---------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities--taxable $ 725 $(1,138) $ (413) $ 559 $ 436 $ 995
Securities--nontaxable 11 (17) (6) (11) -- (11)
Federal funds sold 58 (84) (26) 17 23 40
Loans 5,238 (4,073) 1,165 6,264 1,478 7,742
------- ------- ------- ------- ------- -------
Total interest income 6,032 (5,312) 720 6,829 1,937 8,766
------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
NOW accounts 55 (211) (156) 12 (252) (240)
Savings accounts (31) (491) (522) (662) (220) (882)
Money market accounts 1,339 (1,473) (134) 1,237 883 2,120
Certificates of deposit (460) (2,124) (2,584) 923 1,355 2,278
Broker certificates of deposit 1,602 (413) 1,189 393 210 603
Borrowings 60 (1,828) (1,768) 2,547 1,921 4,468
------- ------- ------- ------- ------- -------
Total interest expense 2,565 (6,540) (3,975) 4,450 3,897 8,347
------- ------- ------- ------- ------- -------
Net interest income
(fully-taxable equivalent) $ 3,467 $ 1,228 $ 4,695 $ 2,379 $(1,960) $ 419
======= ======= ======= ======= ======= =======
</TABLE>
The Company reported increased net interest income of $44.7 million during
2001 compared to $40.0 million in 2000 due to changes in the yields, volumes and
compositions of its interest-earning assets and interest-bearing liabilities.
During 2001, the Company benefited from the declining interest rate environment
which affected income received on interest-earning assets and expenses on
interest-bearing liabilities. Interest income on variable rate earning assets
declined as a result of the declining interest rate environment and contributed
to the decline of $5.3 million in interest income attributed to the "rate"
component in the Analysis of Volume and Rate Changes on Net Interest Income
table above. This decrease was offset by an increase in interest earning assets
from 2000 to 2001, which contributed to the increase of $6.0 million related to
the "volume" component in the table above. The Company also benefited from the
declining interest rate environment as its interest expenses on variable rate
borrowings and deposit accounts were reduced during 2001. This contributed to a
reduction in interest expenses due to "rate" of $6.5 million which was partially
offset by increased "volume" of funding required to support the growth in
earning assets of $2.6 million.
Investments in U.S. government securities, U.S. government agency
securities and highly rated corporate bonds are used by the Company to diversify
its revenues as well as provide interest rate risk and credit risk
diversification. The Company periodically uses interest rate swaps, floors and
caps, which are common derivative financial instruments, to hedge interest rate
risk associated with its loan and investment portfolios as well as its deposit
and borrowing strategies. Footnote 20, "Financial Instruments" of the Notes to
Consolidated Financial Statements, on page 42, and the "Market Risk" section, on
page 19, should be reviewed for further discussion of the Company's derivative
and market risk strategies.
During 2001, the Company's taxable investment portfolio interest income
declined $413,000 primarily due to the declining interest rate environment,
while the Company's non-taxable investment portfolio interest income declined
$6,000, both partially offset by increased volumes in the portfolios. During
2001 and 2000, the Company was a party to several interest rate swap agreements
that were part of the Company's strategy to protect a portion of its interest
income revenue stream against a changing interest rate environment. These
instruments contributed $422,000 to interest income in 2001 and $108,000 in
2000. Interest rate swap agreements involve risks associated with counterparties
to the agreements and their abilities to meet the contractual terms of the
agreements as well as risks associated with a changing interest rate
environment. Notional principal amounts are used to reflect the volume of these
transactions, but credit risks associated with these agreements are limited to
the
13
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[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
forecasted payment stream expected from counterparties. The Company's
counterparties to these agreements had an investment grade rating by Moody's and
Standard and Poor's rating agencies. These instruments involve only the exchange
of fixed- and variable-rate interest payments based upon a notional principal
amount and maturity date. At December 31, 2001, the Company's notional value of
derivative financial instruments was $90.0 million, compared to $135.0 million
on December 31, 2000. Footnote 20 on page 42 should be reviewed for further
discussion of derivative instruments.
Non-interest Income
Non-interest income was $13.1 million and $8.9 million for the years ended
December 31, 2001 and 2000, respectively. During 2001, the increase of $4.2
million, or 46.9%, in total non-interest income compared to 2000 reflects the
effects of various balance sheet management activities which included the
securitization of $57.0 million of the Company's residential mortgages (i.e. the
sale of residential mortgages purchased back by the Company as mortgage-backed
securities) and sales of various investments which resulted in $1.2 million of
non-interest income. Additionally, due to the declining interest rate
environment, the Company recognized $932,000 of non-interest income from the
sale of interest rate derivatives. Service charges on deposit accounts increased
by $662,000, or 23.0%, over 2000 as a result of a product redesign initiative
focused on customer relationships and the introduction of a fee based overdraft
privilege service for its customers. Other service charges and fees increased by
$626,000, or 35.5%, over the same period primarily due to mortgage servicing
fees associated with the sale of residential real estate loans. Merchant program
fees increased $284,000, or 15.8%, over 2000 due to a combination of
restructured pricing and increased volumes, while trust fees increased $1.2
million, or 95.4%, during the same period. The major contributing factor for
this increase in trust fees was the acquisition of Acadia and Gouws Capital on
July 19, 2001.
Non-interest Expenses
Non-interest expenses increased to $31.0 million for the year ended
December 31, 2001 from $25.4 million in 2000, or 22.1%. Salaries and employee
benefits increased by $2.7 million, or 23.5%, during this same period
reflecting, in part, increased salaries and employee benefits associated with
the Acadia and Gouws Capital acquisitions of $854,900. Also included in 2000
results was a one-time expense reduction of $645,000 associated with the Company
terminating its defined-benefit noncontributory pension plan. Occupancy expenses
increased $409,000, or 24.5%, due to the renovation and expansion of several of
the Company's branch facilities and expansion of its operations center. Expenses
associated with the processing of merchant transactions increased $217,000, or
12.2%, during 2001 compared to 2000 reflecting increased volumes. Other expenses
increased by $2.3 million, or 32.2%, in 2001 compared to 2000 due to expenses
related to the Company's new subsidiaries, courier costs, debit card processing
costs, and closing and solicitation costs associated with a home equity loan
promotion.
Comparison of 2000 to 1999
The Company reported net income of $13.9 million, or $1.69, per diluted
share in 2000 compared to $10.2 million, or $1.27, per diluted share in 1999.
Return on average assets was 1.40% in 2000 compared to 1.15% in 1999, while
return on average shareholders' equity was 16.43% in 2000 compared to 13.16% in
1999. During 1999, the Company acquired Kingfield Savings Bank which was
accounted for under the pooling-of-interests method and accordingly, the
Consolidated Financial Statements of the Company have been restated to reflect
the acquisition as though it occurred at the beginning of each period presented.
On February 4, 2000, Kingfield Savings Bank, and the Company's United Bank
subsidiary were merged to create UnitedKingfield Bank.
Net interest income on a fully-taxable equivalent basis was $40.0 million
in 2000 compared to $39.5 million in 1999, reflecting increased yields on
earning assets and growth in the Company's loan and investment portfolios. The
increase of $419,000 was primarily due to an increase in earning asset volumes
and yields, partially offset by higher funding costs.
The Company reported $2.9 million of provision for loan losses in 2000
compared to $3.7 million in 1999. The allowance for loan losses increased from
1.48% of total loans at the end of 1999 to 1.54% at the end of 2000.
Non-interest income increased $1.2 million from $7.7 million in 1999 to
$8.9 million in 2000. The primary factors contributing to this increase were
increased trust fees of $505,000 and merchant program fees of $308,000.
Non-interest expenses were $25.4 million in 2000, compared to $27.6 million
in 1999. The primary factors contributing to the decrease in non-interest
expenses during the period were the Company's termination of its defined-benefit
noncontributory pension program which resulted in a one-time expense reduction
of $645,000 in 2000, and cost savings which were recognized as part of the
merger of United Bank and Kingfield Savings Bank in 2000.
14
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
FINANCIAL CONDITION
Overview
Total assets at December 31, 2001 were $1.1 billion, an increase of $78.5
million, or 7.8%, from December 31, 2000. The change in assets consisted
primarily of a $46.8 million increase in investment securities, an increase in
net loans of $20.0 million, an increase of $9.5 million in cash and due from
banks, an increase in premises and equipment of $1.4 million, and an increase in
other assets of $0.8 million. The asset growth was supported by an increase of
$42.4 million in total borrowings, a $19.2 million increase in deposits, a $2.7
million increase in other liabilities, and an increase of $14.1 million in total
shareholders' equity.
Investment Securities
Total investment securities increased $46.8 million, or 21.6%, to $263.8
million at December 31, 2001. The Company has investment securities in both the
available-for-sale and held-to-maturity categories. The largest portion is in
the available-for-sale category of the investment portfolio reflecting the
Company's desire for flexibility in managing liquidity and funding needs
pursuant to the policies developed by the Asset/Liability Committee ("ALCO").
The available-for-sale category increased during 2001 by $103.5 million. Upon
implementation of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," the Company transferred $68.2 million of its investment
securities classified as held to maturity to available for sale. In addition,
the Company implemented a balance sheet restructuring program that included the
conversion of over $57.0 million of fixed-rate residential mortgages into
mortgage-backed securities, which are classified as securities available for
sale and the sale of several long-term corporate bonds previously classified as
securities available for sale. The restructuring program was undertaken to take
advantage of the declining interest rate environment and management's desire to
provide flexibility and liquidity in the Company's balance sheet. Although these
securities are available for sale, the Company has the ability to hold the debt
securities in this portfolio until maturity. The ability to use these securities
as collateral for Federal Home Loan Bank of Boston ("FHLBB") loans enhances the
Company's ability to hold the securities to maturity consistent with liquidity
objectives. At December 31, 2001, the Company had $4.5 million of unrealized
gains on securities available for sale, net of the deferred tax expense,
compared to $0.8 million of unrealized losses, net of deferred tax benefits at
December 31, 2000. The increase in unrealized appreciation was attributed to a
decrease in market rates. Unrealized gains and losses do not impact income or
regulatory capital, but are recorded as adjustments to shareholders' equity net
of related deferred income taxes. Unrealized gains and losses, net of related
deferred income taxes are a component of the Company's other comprehensive
income contained in the Consolidated Statement of Changes in Shareholder's
Equity.
Loans
Loans, including loans held for sale, totaled $724.0 million at December
31, 2001, a 3.2% increase from total loans of $701.3 million at December 31,
2000. This reflects the continuation of strong loan growth experienced in the
commercial loan portfolio less the $57.0 million of fixed-rate residential
mortgage loans converted to securities available for sale by the Company during
2001.
Residential real estate mortgage loans decreased by $18.8 million, or 8.4%,
in 2001. During 2001 the Company securitized $57.0 million of fixed-rate
residential mortgage loans into mortgage-backed securities, which are classified
as securities available for sale. Residential real estate mortgage loans
increased by $3.1 million, or 1.4%, in 2000. During 2000, the Company originated
$11.8 million of fixed-rate residential loans that were sold to investors in the
secondary market. Residential real estate loans consist of loans secured by
one-to-four family residences. The Company generally retains adjustable-rate
mortgages in its portfolio and will, from time to time, retain fixed-rate
mortgages. With a relatively low interest rate environment, it was the Company's
asset/liability strategy during 2001 to sell the majority of its fixed-rate
residential mortgages in its loan portfolio.
Commercial loans increased by $59.7 million, or 16.4%, during 2001. In
2000, commercial loans increased by $47.8 million, or 15.1%. Commercial loans
consist of loans secured by various corporate assets, as well as loans to
provide working capital in the form of lines of credit, which may be secured or
unsecured. The commercial category also includes commercial real estate loans
secured by income producing commercial real estate. In addition, the Company
makes loans for the acquisition, development and construction of commercial real
estate. The Company focuses on lending to small- and medium-sized business
customers within its geographic market.
Consumer loans decreased by $3.9 million, or 4.3%, in 2001 as a result of
consumers taking advantage of a low interest rate environment and consolidating
their consumer debt into residential mortgages. In 2000, consumer loans
increased by $6.4 million, or 7.6%. Consumer loans are originated by the Company
for a wide variety of purposes to meet customers' needs. Consumer loans include
credit card, overdraft protection, automobile, boat, recreation vehicles, mobile
homes, home equity, and secured and unsecured personal loans.
15
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[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
It is the Company's policy to discontinue the accrual of interest on loans
when, in the opinion of management, there is an indication that the borrower may
be unable to meet payments as they become due. Upon such discontinuance,
interest income is reduced for all accrued but unpaid interest on such loans.
Non-performing loans, defined as non-accrual loans plus accruing loans 90 days
or more past due, totaled $8.1 million, or 1.1%, of total loans at December 31,
2001 compared to $6.5 million, or 0.9%, of total loans at December 31, 2000.
Allowance for Loan Losses / Provision for Loan Losses
In determining the allowance for loan losses ("ALL"), management relies
primarily on its review of the loan portfolio both to ascertain whether there
are specific loans to be reserved against, and to assess the collectibility of
the loan portfolio in the aggregate. Non-performing loans are examined on an
individual basis to determine the estimated probable loss on these loans. In
addition, each quarter management conducts a formal analysis of the ALL, which
considers the current loan mix and loan volumes, historical net loan loss
experience for each loan category, and current economic conditions affecting
each loan category. No assurance can be given, however, that adverse economic
conditions or other circumstances will not result in increased losses in the
portfolio. The Company continues to monitor and modify its ALL as conditions
dictate (see Note 6, "Allowance for Loan Losses," of the Notes to Consolidated
Financial Statements, on page 34, for further information).
During 2001, the Company recognized $3.7 million of expense to the
allowance for loan losses compared to $2.9 million and $3.7 million in 2000 and
1999, respectively. Net charge-offs to average loans outstanding were 0.13% in
2001 compared to 0.24% in 2000. During 2001, economic conditions indicated
potential weakening in the loan portfolio. Several large credits were downgraded
resulting in the necessity to increase the provision to the ALL. Determining an
appropriate level of ALL involves a high degree of judgment. Management believes
that the ALL at December 31, 2001 of $13.5 million, or 1.87%, of total loans
outstanding was appropriate given the current economic conditions in the
Company's service area and the overall condition of the loan portfolio. As a
percentage of total loans outstanding, the ALL was 1.54% in 2000.
The table on the next page sets forth information concerning the activity
in the Company's ALL during the periods indicated.
16
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
Five-Year Activity in the Allowance for Loan Losses
<TABLE>
<CAPTION>
(Dollars in thousands) YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Allowance at the beginning of period $ 10,801 $ 9,390 $ 8,092 $ 6,982 $ 5,365
Provision for loan losses 3,681 2,930 3,670 2,056 2,207
Charge-offs:
Commercial loans 536 1,296 1,520 417 671
Residential real estate loans 552 432 715 415 160
Consumer loans 461 417 425 444 400
-------- -------- -------- -------- --------
Total loan charge-offs 1,549 2,145 2,660 1,276 1,231
Recoveries:
Commercial loans 324 421 64 158 473
Residential real estate loans 64 29 54 35 36
Consumer loans 193 176 170 137 132
-------- -------- -------- -------- --------
Total loan recoveries 581 626 288 330 641
Net charge-offs 968 1,519 2,372 946 590
Allowance at the end of the period $ 13,514 $ 10,801 $ 9,390 $ 8,092 $ 6,982
======== ======== ======== ======== ========
Average loans outstanding $732,460 $675,316 $605,271 $521,559 $445,599
======== ======== ======== ======== ========
Ratio of net charge-offs to average loans outstanding 0.13% 0.22% 0.39% 0.18% 0.13%
Ratio of provision for loan losses
to average loans outstanding 0.50% 0.43% 0.61% 0.39% 0.50%
Ratio of allowance for loan losses
to total loans at end of period 1.87% 1.54% 1.48% 1.42% 1.44%
Ratio of allowance for loan losses to net charge-offs 1396.07% 711.06% 395.87% 855.39% 1183.39%
Ratio of allowance for loan losses
to non-performing loans at end of period 167.46% 166.48% 148.32% 172.50% 162.03%
</TABLE>
The allowance for loan losses is available to offset credit losses in connection
with any loan, but is internally allocated to various loan categories as part of
the Company's process for evaluating its adequacy. The following table sets
forth information concerning the allocation of the Company's ALL by loan
categories at the dates indicated.
Allocation of the Allowance for Loan Losses--Five-Year Schedule
<TABLE>
<CAPTION>
(Dollars in thousands) AS OF DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
Percent of Percent of Percent of Percent of Percent of
loans in loans in loans in loans in loans in
Balance at End each each each each each
of Period category to category to category to category to category to
Applicable to: Amount total loans Amount total loans Amount total loans Amount total loans Amount total loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans $11,079 60% $ 5,972 55% $5,286 52% $4,288 51% $4,672 49%
Residential real
estate loans 1,068 28% 2,329 32% 2,772 35% 2,166 35% 875 37%
Consumer loans 1,084 12% 1,218 13% 475 13% 729 14% 657 14%
Unallocated 283 N/A 1,282 N/A 857 N/A 909 N/A 778 N/A
------- --- ------- --- ------ --- ------ --- ------ ---
$13,514 100% $10,801 100% $9,390 100% $8,092 100% $6,982 100%
======= === ======= === ====== === ====== === ====== ===
</TABLE>
17
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[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
LIQUIDITY
Liquidity is defined as the ability to meet current and future financial
obligations of a short-term nature. The primary objective of liquidity
management is to maintain a balance between sources and uses of funds to meet
the cash flow needs of the Company in the most economical and expedient manner.
The liquidity needs of the Company require the availability of cash to meet the
withdrawal demands of depositors and credit commitments to borrowers. Due to the
potential for unexpected fluctuations in both deposits and loans, active
management of the Company's liquidity is necessary. The Company maintains
various sources of funding and levels of liquid assets in excess of regulatory
guidelines in order to satisfy its varied liquidity demands. The Company
monitors its liquidity in accordance with its internal guidelines and all
applicable regulatory requirements. As of December 31, 2001 and 2000, the
Company's level of liquidity exceeded its target levels. Management believes
that the Company currently has appropriate liquidity available to respond to
liquidity demands. Sources of funds utilized by the Company consist of deposits,
borrowings from the FHLBB and other sources, cash flows from operations,
prepayments and maturities of outstanding loans, investments and mortgage-backed
securities, and the sales of mortgage loans.
Deposits continue to represent the Company's primary source of funds. In
2001, total deposits increased by $19.2 million, or 2.6%, over 2000, ending the
year at $763.6 million. The Company experienced growth in all deposit categories
in 2001 except certificates of deposit. Comparing year-end balances 2001 to
2000, transaction accounts (demand deposits and NOW) increased by $20.9 million,
money market accounts by $13.0 million, and savings accounts by $6.5 million.
Certificates of deposit decreased by $21.3 million, in part, as a result of
depositors converting to more liquid deposit instruments during a period of low
interest rates. In 2000, total deposits increased by $76.6 million, or 11.5%,
over 1999, ending the year at $744.4 million.
Borrowings supplement deposits as a source of liquidity. In addition to
borrowings from the FHLBB, the Company purchases federal funds, sells securities
under agreements to repurchase and utilizes treasury tax and loan accounts.
Total borrowings were $210.8 million at December 31, 2001 compared to $168.4
million at December 31, 2000, an increase of $42.4 million, or 25.2%. The
majority of the borrowings were from the FHLBB, whose advances remained the
largest non-deposit-related, interest-bearing funding source for the Company in
both 2001 and 2000. Qualified residential real estate loans, certain investment
securities and certain other assets available to be pledged secure these
borrowings.
CAPITAL RESOURCES
Under Federal Reserve Board ("FRB") guidelines, bank holding companies such
as the Company are required to maintain capital based on risk-adjusted assets.
These guidelines apply to the Company on a consolidated basis. Under the current
guidelines, banking organizations must maintain a risk-based capital ratio of
8.0%, of which at least 4.0% must be in the form of core capital. The risk-based
ratios of the Company and its subsidiaries exceeded regulatory guidelines at
December 31, 2001 and December 31, 2000. The Company's Tier 1 capital to
risk-weighted assets was 12.9% and 11.8% at December 31, 2001 and 2000,
respectively (see Note 21, "Regulatory Matters," of the Notes to Consolidated
Financial Statements, on page 44, for other capital ratios). In addition to
risk-based capital requirements, the FRB requires bank holding companies to
maintain a minimum leverage capital ratio of core capital to total assets of
4.0%. Total assets for this purpose do not include goodwill and any other
intangible assets and investments that the FRB determines should be deducted.
The Company's leverage ratio at December 31, 2001 and 2000 was 8.7% and 8.6%,
respectively.
As part of the Company's goal to operate a safe, sound and profitable
financial organization, the Company is committed to maintaining a strong capital
base. Shareholders' equity totaled $105.1 million and $90.9 million, or 9.6% and
9.0%, of total assets at December 31, 2001 and 2000, respectively. The $14.1
million, or 15.6%, increase in shareholders' equity in 2001 was primarily
attributable to net income of $15.4 million, less the costs associated with open
market repurchases of approximately $1.4 million of the Company's common stock
in compliance with the Company's previously announced stock repurchase policy
and $5.2 million in cash dividends to the Company's shareholders, plus $5.3
million in unrealized gains on securities available for sale, net of deferred
tax expense.
The principal cash requirement of the Company is the payment of dividends
on the Company's common stock as and when declared by the Board of Directors.
Dividends paid per share during the year ended December 31, 2001 increased by
3.2% over the corresponding period in 2000. The Company is primarily dependent
upon the payment of cash dividends by its subsidiaries to service its
commitments. The Company, as the sole shareholder of its subsidiaries, is
entitled to dividends when and as declared by each subsidiary's Board of
Directors from legally available funds. Camden National Bank declared dividends
in the aggregate amount of $11.5 million and $5.9 million in 2001 and 2000,
respectively. UnitedKingfield Bank declared dividends in the aggregate amount of
$3.3 million and $1.9 million in 2001
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
and 2000, respectively. As of December 31, 2001, and subject to the limitations
and restrictions under applicable law, Camden National Bank and UnitedKingfield
Bank had a total of $7.9 million available for dividends to the Company,
although there is no assurance that dividends will be paid at any time in any
amount (see Note 15, "Shareholders' Equity," of the Notes to Consolidated
Financial Statements, on page 38, for additional information).
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and the Notes to Consolidated
Financial Statements presented elsewhere herein have been prepared in accordance
with accounting principles generally accepted in the United States which require
the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets and
virtually all of the liabilities of the Company are monetary in nature. As a
result, interest rates have a more significant impact on the Company's
performance than the general level of inflation. Over short periods of time,
interest rates may not necessarily move in the same direction or in the same
magnitude as inflation.
MARKET RISK
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates/prices, such as interest rates, foreign currency
exchange rates, commodity prices and equity prices. The Company's primary market
risk exposure is interest rate risk. The ongoing monitoring and management of
this risk is an important component of the Company's asset/liability management
process which is governed by policies established by the subsidiaries' Boards of
Directors that are reviewed and approved annually. Each subsidiary's Board of
Directors delegates responsibility for carrying out the asset/liability
management policies to Company's management ALCO. In this capacity, ALCO
develops guidelines and strategies impacting the Company's asset/liability
management-related activities based upon estimated market risk sensitivity,
policy limits and overall market interest rate levels/trends.
Interest Rate Risk
Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. As interest rates change, the interest income and
interest expenses associated with the Company's financial instruments also
change, thereby impacting net interest income ("NII"), the primary component of
the Company's earnings. ALCO utilizes the results of a detailed and dynamic
simulation model to quantify the estimated exposure of NII to sustained interest
rate changes. While ALCO routinely monitors simulated NII sensitivity over a
rolling 2-year horizon, it also utilizes additional tools to monitor potential
longer-term interest rate risk.
The simulation model captures the impact of changing interest rates on the
interest income received and interest expense paid on all interest-earning
assets and interestbearing liabilities reflected on the Company's balance sheet
as well as for derivative financial instruments. None of the assets used in the
simulation were held for trading purposes. This sensitivity analysis is compared
to ALCO policy limits which specify a maximum tolerance level for NII exposure
over a 1-year horizon, assuming no balance sheet growth, given both a 200 basis
point (bp) upward and downward shift in interest rates. A parallel and pro rata
shift in rates over a 12-month period is assumed. The following reflects the
Company's NII sensitivity analysis as measured periodically over the past 2
years.
2001
- ----------------------------------------
Estimated
Rate Change Changes in NII
- ----------------------------------------
High Low Average
+200bp (4.31%) 0.95% (1.80%)
- -200bp 2.14% (0.24%) 0.79%
2001
- ----------------------------------------
Estimated
Rate Change Changes in NII
- ----------------------------------------
High Low Average
+200bp (6.01%) (3.61%) (4.89%)
- -200bp 4.63% 1.96% 3.49%
The preceding sensitivity analysis does not represent a Company forecast
and should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including,
among others, the nature and timing of interest rate levels, yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, and reinvestment/replacement of asset and liability
cashflows. The assumptions differed in each of the periods included in the
sensitivity analysis above. While assumptions are developed based upon current
economic and local market conditions, the Company cannot make any assurances as
to the predictive nature of these assumptions, including how customer
preferences or competitor influences might change.
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[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
The most significant factors affecting the changes in market risk exposure
during 2001 compared to 2000 were the decrease in interest rates market-wide,
changes in the yield curve for U.S. government securities, the increase in the
aggregate principal amount in fixed-rate loans extended by the subsidiary banks,
and the increase of fixedrate FHLBB borrowings. With increases on the balance
sheet in fixed-rate loans and borrowings, the Company reduced its opportunity to
lower funding costs in a declining rate environment. Due to the current low
level of market rates the Company decreased its exposure in a rising rate
environment, while increasing its market risk in both a flat or declining
interest rate environment. The increased risk in the flat or declining interest
rate environment is well within the Company's policy limits.
When appropriate, the Company may utilize derivative financial instruments,
such as interest rate floors, caps and swaps, to hedge its interest rate risk
position. The Board of Directors' approved hedging policy statements govern the
use of these instruments by the subsidiaries. As of December 31, 2001, the
Company had a notional principal of $90 million in interest rate cap agreements.
In a purchased interest rate cap agreement, cash interest payments are received
only if current interest rates rise above predetermined interest rates. These
agreements were purchased to protect the Company's exposure to fixed rate
instruments in a rising rate environment. The estimated effects of these
derivative financial instruments on the Company's earnings are included in the
sensitivity analysis presented above. ALCO monitors derivative activities
relative to its expectation and the Company's hedging policy.
Recent Accounting Pronouncements
During 2001 several accounting pronouncements were promulgated by
the Financial Accounting Standards Board ("FASB") which affected the operations
of the Company. The following summarizes the specific pronouncements that
affected the Company, while the FASB may have issued additional pronouncements
which did not have a material impact on the Company.
On January 1, 2001, the Company implemented SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." These statements set accounting and reporting standards for
derivative instruments and hedging activities. They require an entity to
recognize all derivatives as either assets or liabilities in the statement of
condition and measure those instruments at fair value. Upon implementation of
SFAS No. 133, the Company transferred all of its investment securities
classified as held to maturity to available for sale. The impact of this
reclassification was an increase to other comprehensive income of $2.0 million,
net of applicable taxes. Comprehensive income does not impact net income or
regulatory capital, but is recorded as adjustments to shareholders' equity.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," is effective for transfers occurring after June
30, 2001. SFAS No. 140 replaces SFAS No. 125. The Company adhered to the
requirements of SFAS No. 140 upon the effective date for various transfers of
financial assets after June 30, 2001. This pronouncement also includes standards
for the accounting of various off-balance sheet financial vehicles, commonly
referred to bankruptcy remote Special Purpose Vehicles ("SPV"). The Company has
not sponsored SPVs or other similar off-balance sheet funding vehicles.
During 2001, the FASB issued Statement No. 141, "Business Combinations," and
Statement No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 improves
the transparency of the accounting and reporting for business combinations by
requiring that all business combinations be accounted for under a single
method--the purchase method. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 requires that the purchase method be used for business
combinations initiated after June 30, 2001. In recording its acquisitions of
Acadia, Gouws Capital and the minority interests of Trust Company of Maine,
Inc., the Company implemented this pronouncement.
SFAS No. 142 requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. The amortization of goodwill ceases upon
adoption of the Statement, which will be January 1, 2002. The goodwill resulting
from the Company's acquisitions of Acadia, Gouws Capital and Trust Company of
Maine, Inc. was accounted for under SFAS No. 142. (See Note 2 to the
Consolidated Financial Statements, on page 31, for more information.)
SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," were
promulgated during the year. SFAS Nos. 143 and 144 provide guidance concerning
the recognition and measurement of an impairment loss for certain types of
long-lived assets and obligations associated with the retirement of tangible
long-lived assets.
Management does not expect these statements to have a material effect on the
Company's consolidated financial condition and results of operations.
20
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
Related Party Transactions
The Company, in the normal course of business, has made loans to certain
officers and directors of the Company and its subsidiaries under such terms that
are consistent with the Company's lending policies. In addition to extending
loans to certain officers and directors of the Company and its subsidiaries at
terms consistent with the Company's lending policies, federal banking
regulations also require training, audit and examination of the Company's
adherence to this policy by representatives of the Company's federal, national
and state regulators. As described more fully in footnote 18 on page 41, the
Company has not entered into significant non-lending related party transactions.
Common Stock Information
The Company has paid quarterly dividends since its inception in 1985. The
market price (as quoted by AMEX) and cash dividends paid, per share of the
Company's common stock, by calendar quarter for the past 2 years were as
follows:
2001
- -----------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
High $18.80 $18.99 $17.10 $17.15
Low 16.15 15.40 12.70 12.82
Close 18.70 16.58 16.00 13.55
Dividend paid 0.16 0.16 0.16 0.16
2000
- -----------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
High $15.50 $15.75 $15.88 $16.88
Low 12.63 12.50 12.00 10.13
Close 14.25 15.75 13.50 11.88
Dividend paid 0.16 0.16 0.16 0.15
Information concerning restrictions on the ability of the Company's
subsidiaries to transfer funds to the Company in the form of cash dividends is
described in the Capital Resources section on page 18.
As of December 31, 2001, there were 8,057,781 shares of the Company's
common stock outstanding, held of record by approximately 1,004 shareholders.
21
<PAGE>
Summary of Financial Performance
NET INCOME
(IN MILLIONS)
[CHART]
1997 10.698
1998 11.451
1999 10.229
2000 13.859
2001 15.418
ASSETS
(IN MILLIONS)
[CHART]
1997 726.6
1998 839.3
1999 928.4
2000 1,010.9
2001 1,089.4
DEPOSITS
(IN MILLIONS)
[CHART]
1997 485.1
1998 641.6
1999 667.7
2000 744.4
2001 763.6
LOANS
(IN MILLIONS)
[CHART]
1997 483.3
1998 569.7
1999 635.4
2000 701.3
2001 724.0
EARNINGS PER SHARE
(IN DOLLARS)
[CHART]
1997 1.31
1998 1.40
1999 1.27
2000 1.70
2001 1.90
BOOK VALUE PER SHARE
(IN DOLLARS)
[CHART]
1997 9.01
1998 9.61
1999 9.51
2000 11.17
2001 13.04
22
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
Selected Five-Year Financial Data
<TABLE>
<CAPTION>
(In thousands, except number of shares and per share data) DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION DATA 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Assets $1,089,355 $1,010,883 $928,350 $839,280 $726,644
Loans 724,042 701,340 635,434 569,705 483,348
Allowance for Loan Losses 13,514 10,801 9,390 8,092 6,982
Investments 263,810 217,010 216,132 202,967 188,638
Deposits 763,568 744,360 667,720 641,553 485,132
Borrowings 210,843 168,440 173,924 113,682 160,697
Shareholders' Equity 105,068 90,923 77,623 77,789 74,112
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------
OPERATIONS DATA 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Interest Income $ 79,870 $ 79,555 $ 69,496 $ 61,591 $ 58,363
Interest Expense 35,689 40,042 30,504 27,007 27,270
---------- ---------- --------- -------- --------
Net Interest Income 44,181 39,513 38,992 34,584 31,093
Provision for Loan Losses 3,681 2,930 3,670 2,056 2,207
---------- ---------- -------- -------- --------
Net Interest Income after
Provision for Loan Losses 40,500 36,583 35,322 32,528 28,886
Non-interest Income 13,094 8,915 7,694 6,573 4,936
Non-interest Expense 31,014 25,396 27,604 22,220 17,916
---------- ---------- -------- -------- --------
Income before Provision for Income Tax 22,580 20,102 15,412 16,881 15,906
Income Tax Expense 7,162 6,243 5,183 5,430 5,209
---------- ---------- -------- -------- --------
Net Income $ 15,418 $ 13,859 $ 10,229 $ 11,451 $ 10,697
========== ========== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------
OTHER DATA 2001 2000 1999 1998 1997
<S> <C> <C> <C> <C> <C>
Basic Earnings Per Share $ 1.90 $ 1.70 $ 1.27 $ 1.40 $ 1.31
Diluted Earnings Per Share 1.89 1.69 1.27 1.38 1.27
Dividends Per Share 0.64 0.63 0.52 0.47 0.38
Book Value Per Share 13.04 11.17 9.51 9.61 9.01
Return on Average Assets 1.47% 1.40% 1.15% 1.52% 1.52%
Return on Average Equity 15.55% 16.43% 13.16% 15.09% 15.11%
Allowance for Loan Losses to Total Loans 1.87% 1.54% 1.48% 1.42% 1.44%
Non-Performing Loans to Total Loans 1.14% 0.98% 1.00% 0.82% 0.89%
Stock Dividend Payout Ratio 33.90% 37.17% 40.90% 33.74% 29.31%
</TABLE>
23
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
Consolidated Statements of Condition
<TABLE>
<CAPTION>
(In thousands, except number of shares and per share data) DECEMBER 31,
- --------------------------------------------------------------------------------------------------------
2001 2000
<S> <C> <C>
Assets
Cash and due from banks $ 38,861 $ 29,337
Securities available for sale, at market value 262,866 159,315
Securities held to maturity (market value $944 and $60,698
at December 31, 2001 and 2000, respectively) 944 57,695
Residential mortgages held for sale -- 12,838
Loans, less allowance for loan losses of $13,514 and $10,801
at December 31, 2001 and 2000, respectively 710,528 677,701
Premises and equipment 17,437 16,023
Other real estate owned 195 380
Interest receivable 5,054 6,959
Core deposit intangible 5,708 6,660
Other assets 47,762 43,975
---------- -----------
Total assets $1,089,355 $ 1,010,883
========== ===========
Liabilities
Deposits:
Demand $ 96,162 $ 83,631
NOW 95,664 87,270
Money market 134,333 121,292
Savings 88,226 81,730
Certificates of deposit 349,183 370,437
---------- -----------
Total deposits 763,568 744,360
Borrowings from Federal Home Loan Bank 168,832 132,348
Other borrowed funds 42,011 36,092
Accrued interest and other liabilities 9,876 6,984
Minority interest in subsidiary -- 176
---------- -----------
Total liabilities 984,287 919,960
---------- -----------
Commitments (Notes 4, 13, 15, 19, 20 and 21)
Shareholders' Equity
Common stock, no par value; authorized 10,000,000 shares,
issued 8,609,898 shares in 2001 and 2000 2,450 2,450
Surplus 5,795 5,909
Retained earnings 102,630 92,292
Accumulated other comprehensive income (loss)
Net unrealized gains (losses) on securities available for sale, net of tax 4,514 (812)
---------- -----------
115,389 99,839
Less remaining obligation under:
Bank recognition and retention plan 9 14
Less cost of 552,117 and 464,557 shares of treasury stock
on December 31, 2001 and 2000, respectively 10,312 8,902
---------- -----------
Total shareholders' equity 105,068 90,923
---------- -----------
Total liabilities and shareholders' equity $1,089,355 $ 1,010,883
========== ===========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
24
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
Consolidated Statements of Income
<TABLE>
<CAPTION>
(In thousands, except number of shares and per share data) Year Ended December 31,
- -------------------------------------------------------------------------------------------------
2001 2000 1999
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $ 62,362 $ 61,540 $ 53,771
Interest on U.S. government and agency obligations 14,659 14,753 14,041
Interest on state and political subdivision obligations 388 393 400
Interest on interest rate swap agreements 1,370 1,434 172
Interest on federal funds sold and other investments 1,091 1,435 1,112
---------- ---------- ----------
Total interest income 79,870 79,555 69,496
---------- ---------- ----------
Interest Expense
Interest on deposits 24,895 27,066 23,187
Interest on other borrowings 9,846 11,650 7,182
Interest on interest rate swap agreements 948 1,326 135
---------- ---------- ----------
Total interest expense 35,689 40,042 30,504
---------- ---------- ----------
Net interest income 44,181 39,513 38,992
Provision for Loan Losses 3,681 2,930 3,670
---------- ---------- ----------
Net interest income after provision for loan losses 40,500 36,583 35,322
---------- ---------- ----------
Other Income
Service charges on deposit accounts 3,542 2,880 2,773
Other service charges and fees 2,390 1,764 1,488
Merchant assessments 2,086 1,802 1,494
Trust fees 2,503 1,281 776
Gain on sale of derivatives 932 -- --
Gain on sale of securities 336 -- 151
Other income 1,305 1,188 1,012
---------- ---------- ----------
Total other income 13,094 8,915 7,694
---------- ---------- ----------
53,594 45,498 43,016
---------- ---------- ----------
Operating Expenses
Salaries and employee benefits 14,279 11,558 12,578
Net occupancy 2,075 1,666 1,579
Furniture, equipment and data processing 2,125 2,097 2,167
Merchant program 1,995 1,778 1,488
Amortization of core deposit intangible 952 986 1,011
Acquisition related 353 232 2,046
Other 9,235 7,079 6,735
---------- ---------- ----------
Total operating expenses 31,014 25,396 27,604
---------- ---------- ----------
Income before income taxes 22,580 20,102 15,412
Income Taxes 7,162 6,243 5,183
---------- ---------- ----------
Net Income $ 15,418 $ 13,859 $ 10,229
========== ========== ==========
Per Share Data
Basic earnings per share $ 1.90 $ 1.70 $ 1.27
Diluted earnings per share 1.89 1.69 1.27
Weighted average number of shares outstanding 8,123,928 8,164,188 8,033,757
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
25
<PAGE>
[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Net Unrealized
Gains (Losses) Employee
on Securities Stock
(In thousands, except number Common Retained Available Ownership
of shares and per share data) Stock Surplus Earnings for Sale Plan
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 2,449 $ 5,984 $ 77,581 $ 82 $ (68)
--------- ------- --------- --------- -----
Net income for 1999 -- -- 10,229 -- --
Change in unrealized gains (losses) on securities
available for sale, net of tax benefit of $3 million -- -- -- (5,864) --
--------- ------- --------- --------- -----
Total comprehensive income -- -- 10,229 (5,864) --
Purchase of treasury stock (102,740 shares) -- -- -- -- --
Sale of treasury stock (125,000 shares) -- -- -- -- --
Exercise and repurchase of stock options
(93,000 shares), net of tax benefit of $525 -- (338) -- -- --
Retirement of treasury stock (31,983 shares) -- (270) (66) -- --
Payment of obligation under
employee stock ownership plan -- 388 21 -- 68
Bank recognition and retention plan -- -- -- -- --
71,440 shares issued under stock option plans 1 226 -- -- --
Cash dividends declared ($0.52 / share) -- -- (4,182) -- --
--------- ------- --------- --------- -----
Balance at December 31, 1999 $ 2,450 $ 5,990 $ 83,583 $ (5,782) $ --
--------- ------- --------- --------- -----
Net income for 2000 -- -- 13,859 -- --
Change in unrealized gains on securities available
for sale, net of deferred taxes of $2.6 million -- -- -- 4,970 --
--------- ------- --------- --------- -----
Total comprehensive income -- -- 13,859 4,970 --
Purchase of treasury stock (24,950 shares) -- -- -- -- --
Exercise and repurchase of stock options
(8,680 shares), net of tax benefit of $6 -- (62) -- -- --
Exercise of stock options (2,933 shares),
net of tax benefit of $11 -- (19) -- -- --
Bank recognition and retention plan -- -- -- -- --
Cash dividends declared ($0.63 / share) -- -- (5,150) -- --
--------- ------- --------- --------- -----
Balance at December 31 2000 $ 2,450 $ 5,909 $ 92,292 $ (812) $ --
--------- ------- --------- --------- -----
Net income for 2001 -- -- 15,418 -- --
Cumulative effect to record unrealized appreciation
on securities held to maturity transferred to securities
available for sale (net of taxes of $1,021) -- -- -- 1,982 --
Change in unrealized gains on securities available
for sale, net of deferred taxes of $1.7 million -- -- -- 3,344 --
--------- ------- --------- --------- -----
Total comprehensive income -- -- 15,418 5,326 --
Purchase of treasury stock (87,560 shares) -- -- -- -- --
Exercise and repurchase of stock options
(19,926 shares), net of tax benefit of $41 -- (114) -- -- --
Bank recognition and retention plan -- -- -- -- --
Acquisition of minority interest -- -- 146 -- --
Cash dividends declared ($0.64 / share) -- -- (5,226) -- --
--------- ------- --------- --------- -----
Balance at December 31, 2001 $ 2,450 $ 5,795 $ 102,630 $ 4,514 $ --
========= ======= ========= ========= =====
<CAPTION>
Bank
Recognition Total
(In thousands, except number and Retention Treasury Shareholders'
of shares and per share data) Plan Stock Equity
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1998 $ (30) $ (8,209) $ 77,789
-------- -------- ---------
Net income for 1999 -- -- 10,229
Change in unrealized gains (losses) on securities
available for sale, net of tax benefit of $3 million -- -- (5,864)
-------- -------- ---------
Total comprehensive income -- -- 4,365
Purchase of treasury stock (102,740 shares) -- (2,337) (2,337)
Sale of treasury stock (125,000 shares) -- 2,249 2,249
Exercise and repurchase of stock options
(93,000 shares), net of tax benefit of $525 -- (637) (975)
Retirement of treasury stock (31,983 shares) -- 336 --
Payment of obligation under
employee stock ownership plan -- -- 477
Bank recognition and retention plan 10 -- 10
71,440 shares issued under stock option plans -- -- 227
Cash dividends declared ($0.52 / share) -- -- (4,182)
-------- -------- ---------
Balance at December 31, 1999 $ (20) $ (8,598) $ 77,623
-------- -------- ---------
Net income for 2000 -- -- 13,859
Change in unrealized gains on securities available
for sale, net of deferred taxes of $2.6 million -- -- 4,970
-------- -------- ---------
Total comprehensive income -- -- 18,829
Purchase of treasury stock (24,950 shares) -- (394) (394)
Exercise and repurchase of stock options
(8,680 shares), net of tax benefit of $6 -- 40 (22)
Exercise of stock options (2,933 shares),
net of tax benefit of $11 -- 50 31
Bank recognition and retention plan 6 -- 6
Cash dividends declared ($0.63 / share) -- -- (5,150)
-------- -------- ---------
Balance at December 31 2000 $ (14) $ (8,902) $ 90,923
-------- -------- ---------
Net income for 2001 -- -- 15,418
Cumulative effect to record unrealized appreciation
on securities held to maturity transferred to securities
available for sale (net of taxes of $1,021) -- -- 1,982
Change in unrealized gains on securities available
for sale, net of deferred taxes of $1.7 million -- -- 3,344
-------- -------- ---------
Total comprehensive income -- -- 20,744
Purchase of treasury stock (87,560 shares) -- (1,444) (1,444)
Exercise and repurchase of stock options
(19,926 shares), net of tax benefit of $41 -- 34 (80)
Bank recognition and retention plan 5 -- 5
Acquisition of minority interest -- -- 146
Cash dividends declared ($0.64 / share) -- -- (5,226)
-------- -------- ---------
Balance at December 31, 2001 $ (9) $(10,312) $ 105,068
====t=== ======== =========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
26
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands) YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------
2001 2000 1999
<S> <C> <C> <C>
Operating Activities
Net Income $ 15,418 $ 13,859 $ 10,229
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,681 2,930 3,670
Depreciation and amortization 2,545 1,371 1,089
Decrease in obligation under ESOP and BRRP 5 6 487
Decrease (increase) in interest receivable 1,905 (1,117) (551)
(Increase) decrease in other assets (1,659) 2,744 (3,755)
Increase (decrease) in other liabilities 2,474 (5,343) 6,004
Decrease (increase) in residential mortgage loans held for sale 12,838 (5,932) 1,322
(Decrease) increase in minority position (176) 61 25
Gain on sale of securities (336) -- (151)
----------- ----------- -----------
Net cash provided by operating activities 36,695 8,579 18,369
----------- ----------- -----------
Investing Activities
Proceeds from sales and maturities of securities held to maturity -- 10,587 29,909
Proceeds from sales and maturities of securities available for sale 39,805 8,509 20,402
Purchase of securities held to maturity (944) -- --
Purchase of securities available for sale (77,217) (12,456) (72,072)
Purchase of Federal Home Loan Bank Stock -- (174) (331)
Net increase in loans (36,508) (61,493) (69,424)
Net decrease (increase) in other real estate owned 185 1,025 (353)
Purchase of premises and equipment (3,503) (5,506) (1,421)
Net decrease (increase) in federal funds sold -- 415 (415)
Purchase of bank-owned life insurance -- (10,000) --
Cash paid in connection with acquisitions (4,563) -- --
Cash received through acquisitions 567 -- --
----------- ----------- -----------
Net cash used by investing activities (82,178) (69,093) (93,705)
----------- ----------- -----------
Financing Activities
Net increase in deposits 19,208 76,640 26,167
Proceeds from Federal Home Loan Bank borrowings 3,698,976 5,299,675 2,611,375
Repayments on Federal Home Loan Bank borrowings (3,662,492) (5,296,193) (2,565,421)
Net increase (decrease) in other borrowed funds 5,919 (8,966) 14,288
Purchase of treasury stock (1,444) (394) (2,337)
Sale of treasury stock -- -- 2,249
Proceeds from stock issuance under option plan -- 31 227
Exercise and repurchase of stock options (80) (22) (975)
Acquisition of minority interest 146 -- --
Cash dividends paid (5,226) (5,150) (4,182)
----------- ----------- -----------
Net cash provided by financing activities 55,007 65,621 81,391
----------- ----------- -----------
Net increase in cash and cash equivalents 9,524 5,107 6,055
Cash and cash equivalents at beginning of year 29,337 24,230 18,175
----------- ----------- -----------
Cash and cash equivalents at end of year $ 38,861 $ 29,337 $ 24,230
=========== =========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 36,594 $ 39,516 $ 30,270
Income tax 7,878 6,320 6,057
Non-Cash transactions:
Transfer from loans to other real estate owned 371 302 1,418
Securitization of mortgage loans 57,000 -- --
Transfer from securities held to maturity to available for sale 57,695 -- --
Transfer from loans held for sale to loan portfolio -- -- 24,637
</TABLE>
See Note 2, "Acquisitions," of the Notes to Consolidated Financial Statements,
on page 31, for acquisition disclosure.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
27
<PAGE>
[GRAPHIC]CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(Amounts in tables expressed in thousands, except number of shares and per share
data)
NATURE OF OPERATIONS.
Camden National Corporation (the "Company"), as a multi-bank holding
company, provides financial services to its customers through four principal
subsidiaries. Camden National Bank and UnitedKingfield Bank provide traditional
commercial and consumer financial services through 28 branch locations in
central, southern, mid-coast and western Maine and by online access. Acadia
Trust, N.A. and Trust Company of Maine, Inc. provide trust and investment
management services to their clients, who are primarily located in the State of
Maine, and to the clients of the Company's two banking subsidiaries.
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies conform to accounting principles generally
accepted in the United States and to general practice within the banking
industry. The following is a summary of the significant accounting and reporting
policies.
Principles of Consolidation. The accompanying Consolidated Financial
Statements include the accounts of the Company, its wholly owned bank
subsidiaries, Camden National Bank and UnitedKingfield Bank, and its wholly
owned non-bank subsidiaries, Acadia Trust, N.A. and Trust Company of Maine, Inc.
All intercompany accounts and transactions have been eliminated in
consolidation. Assets held by the non-bank subsidiaries in a fiduciary capacity
are not assets of the Company and, therefore, are not included in the
Consolidated Statement of Condition.
Use of Estimates in the Preparation of Financial Statements. The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for loan losses and the
carrying value of real estate owned, management obtains independent appraisals
for significant properties.
Cash. The Company is required to comply with various laws and regulations
of the Federal Reserve Bank ("FRB") which require the Company to maintain
certain amounts of cash on deposit and restrict the Company from investing those
amounts. The Company maintains those balances at the FRB of Boston. In the
normal course of business, the Company has funds on deposit at other financial
institutions in amounts in excess of the $100,000 insured by the Federal Deposit
Insurance Corporation ("FDIC"). For the statement of cash flows, cash
equivalents consist of cash and due from banks.
Investment Securities. The Company has classified its investment securities
into investments available for sale and investments to be held to maturity.
Securities Available for Sale. Debt and other securities that are to be
held for indefinite periods of time are stated at market value. Changes in net
unrealized gains or losses are recorded as an adjustment to shareholders' equity
until realized. Market values of securities are determined by prices obtained
from independent market sources. Realized gains and losses on securities sold
are computed on the identified cost basis on the trade date.
Securities Held to Maturity. Bonds and notes for which the Company has the
positive intent and ability to hold to maturity are reported at cost, adjusted
for amortization of premiums and accretion of discounts. Premiums and discounts
are recognized in interest income using the interest method over the period to
maturity.
Residential Mortgages Held for Sale. Residential mortgages held for sale
are primarily one-to-four family real estate loans which are valued at the lower
of cost or market on an individual basis, as determined by quoted market prices
from the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Gains and
losses from sales of residential mortgages held for sale are recognized upon
settlement with investors and recorded in other income. These activities,
together with underwriting residential mortgage loans, comprise the Company's
mortgage banking business.
28
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES[GRAPHIC]
Loan Servicing. The cost of mortgage servicing rights is amortized in
proportion to, and over the period of, estimated net servicing revenues.
Impairment of mortgage servicing rights is assessed based on the fair value of
those rights. Fair values are estimated using discounted cash flows based on a
current market interest rate. For purposes of measuring impairment, the rights
are stratified based on the following predominant risk characteristics of the
underlying loans: interest rate, fixed versus variable rate, and period of
origination. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights for a stratum exceed their fair value.
Loans. Interest on loans is accrued and credited to income based on the
principal amount outstanding. The accrual of interest on loans is discontinued
when, in the opinion of management, there is an indication that the borrower may
be unable to meet payments as they become due. Upon such discontinuance,
interest income is reduced for all accrued but unpaid interest.
Fees received and direct costs incurred for the origination of loans are
deferred and recognized as an adjustment of loan yield.
The allowance for loan losses is maintained at a level adequate to absorb
future charge-offs of loans deemed uncollectible. Management determines the
adequacy of the allowance based upon reviews of individual credits, recent loss
experience, current economic conditions, known and inherent risk characteristics
of the various categories of loans, adverse situations that may affect the
borrower's ability to repay, estimated value of underlying collateral, and other
pertinent factors. The allowance is increased by provisions charged to operating
expense and by recoveries on loans previously charged off. Credits deemed
uncollectible are charged against the allowance.
Loans considered to be impaired are reduced to the present value of
expected future cash flows or to the fair value of collateral, by allocating a
portion of the allowance for loan losses to such loans. If these allocations
cause the allowance for loan losses to require an increase, such increase is
reported as provision for loan losses.
The carrying values of impaired loans are periodically adjusted to reflect
cash payments, revised estimates of future cash flows, and increases in the
present value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as provision for loan losses.
Other Real Estate Owned. Other real estate owned represents real estate
acquired through foreclosure or upon receipt of a deed in lieu of foreclosure
and is recorded at the lower of the recorded amount of the loan or market value
of the underlying collateral, less estimated selling costs, determined by an
independent appraisal, with any difference at the time of acquisition treated as
a loan loss. Subsequent reductions in market value below the carrying cost are
charged directly to other operating expenses.
Premises and Equipment. Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives of the
related assets.
Intangible Assets. The value of core deposits premium with respect to
$104.0 million in deposits acquired by the Company in connection with the
acquisition, in 1998, of 8 branch locations is being amortized over periods
ranging from 10 to 15 years using the straight-line method. Accumulated
amortization of core deposit intangibles was $3,921,000 and $2,969,000 at
December 31, 2001 and 2000, respectively. Amortization of software is recognized
using the straight-line method over the estimated useful lives of the various
software items, which primarily is 3 years. On an ongoing basis, management
reviews the valuation and amortization of intangible assets to determine
possible impairment.
Other Borrowed Funds. Other borrowed funds consist of commercial and
consumer repurchase agreements and treasury tax and loan deposits. Securities
sold under agreements to repurchase generally mature within 30 days and are
reflected at the amount of cash received in connection with the transaction. The
Company may be required to provide additional collateral based on the fair value
of the underlying securities.
Treasury tax and loan deposits generally do not have fixed maturity dates.
Income Taxes. The Company uses the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax implications attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. If current available information raises doubt as to
the realization of the deferred tax assets, a valuation allowance is
established. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Principal temporary differences occur
with respect to pension and other postretirement benefits, depreciation and the
provision for loan losses.
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[GRAPHIC]CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
Earnings Per Share. Basic earnings per share data is computed based on the
weighted average number of the Company's common shares outstanding during each
year. Potential common stock is considered in the calculation of
weighted-average shares outstanding for diluted earnings per share, and is
determined using the treasury stock method.
Financial Instruments with Off-Balance Sheet Risk. In the ordinary course
of business, the Company has entered into credit related financial instruments
consisting of commitments to extend credit, commitments under credit card
arrangements, commercial letters of credit, and standby letters of credit. Such
financial instruments are recorded in the financial statements when they are
funded.
Derivative Financial Instruments Designated as Hedges. In June 1998, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which sets accounting and reporting standards for
derivative instruments and hedging activities. The Statement, as amended by SFAS
No. 138, requires the Company to recognize all derivatives in the Consolidated
Statement of Condition at fair value. The Company adopted the Statement
effective January 1, 2001 and transferred all of its investment securities
classified as held to maturity to the available-for-sale classification. The
impact of this reclassification was an increase to other comprehensive income of
$2.0 million, net of applicable taxes, which was reported as a cumulative effect
adjustment to other comprehensive income.
Under the provisions of SFAS No. 133, the Company recognizes all
derivatives in the Consolidated Statement of Condition at fair value. On the
date the derivative contract is entered into, the Company designates the
derivative as either a hedge of a forecasted transaction or of the variability
of cash flows to be received or paid related to a recognized asset or liability
("cash flow hedge"), a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment ("fair value hedge") or a "held
for trading" ("trading instrument") instrument. The Company formally documents
relationships between hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge transactions.
The Company also assesses, both at the hedge's inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows or fair values of hedged items.
Changes in fair value of a derivative that is highly effective and that
qualifies as a cash flow hedge are recorded in other comprehensive income and
are reclassified into earnings when the forecasted transaction or related cash
flows affect earnings. Changes in fair value of a derivative that qualifies as a
fair value hedge, and the change in fair value of the hedged item are both
recorded in earnings and offset each other when the transaction is highly
effective. Those derivatives that are classified as trading activities are
recorded at fair value with changes in fair value recorded in earnings. The
Company discontinues hedge accounting when it determines that the derivative is
no longer highly effective in offsetting changes in the cash flows of the hedged
item, that it is unlikely that the forecasted transaction will occur, or that
the designation of the derivative as a hedging instrument is no longer
appropriate.
Fair Value Disclosures. The following methods and assumptions were used by
the Company in estimating its fair value disclosures for financial instruments:
Cash and due from banks: The carrying amounts of cash and due from banks
approximates its fair value.
Securities held to maturity and securities available for sale: Fair values
of securities held to maturity and securities available for sale are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. The carrying amounts of other securities approximate their fair
value.
Residential mortgages held for sale: Fair values are based on quoted market
prices from Freddie Mac.
Loans receivable: For variable rate loans that reprice frequently and have
no significant change in credit risk, fair values are based on carrying values.
The fair value of other loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Interest receivable and payable: The carrying amounts of interest
receivable and payable approximate their fair value.
Life insurance policies: The carrying amounts of life insurance policies
approximate their fair value.
Deposits: The fair value of demand and NOW deposits, savings accounts, and
certain money market deposits is the amount payable on demand. The fair value of
fixed-maturity certificates of deposit is estimated using the rates currently
offered in the Company's market for deposits of similar remaining maturities.
Borrowings: The carrying amounts of short-term borrowings from the Federal
Home Loan Bank of Boston ("FHLBB"), securities under repurchase agreements and
other short-term borrowings approximate fair value. The fair value of long-term
borrowings is based on the discounted cash flows using current rates for
advances of similar remaining maturities.
30
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES[GRAPHIC]
Derivative financial instruments: Fair values for interest rate swaps,
floor and cap contracts are based on quoted market prices.
Credit related financial instruments: In the course of originating loans
and extending credit and standby letters of credit, the Company charges fees in
exchange for its lending commitment. While these commitment fees have value, the
Company does not believe their value is material to its financial statements due
to the short-term nature of the underlying commitments.
Effect of Recently Issued Financial Standards. During 2001, the FASB issued
SFAS No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Other
Intangible Assets," SFAS No. 143, "Accounting for Asset Retirement Obligations,"
and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets."
SFAS No. 141 requires that the purchase method be used to account for
business combinations initiated after June 30, 2001.
SFAS No. 142 requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. The amortization of goodwill ceases upon
adoption of the Statement on January 1, 2002.
SFAS Nos. 143 and 144 provide guidance concerning the recognition and
measurement of an impairment loss for certain types of long-lived assets and
obligations associated with the retirement of tangible long-lived assets.
Management does not expect these statements to have any material effect on the
Company's consolidated financial condition and results of operations.
Reclassification. Certain items from the prior year were restated to
conform with the current year presentation.
2.ACQUISITIONS
On July 19, 2001, the Company acquired 100% of the outstanding common stock of
Acadia Trust, N.A. ("Acadia") and Gouws Capital Management, Inc. ("Gouws
Capital"). Acadia, headquartered in Portland, Maine and founded in 1991, is a
nationally chartered trust company offering traditional trust services and was
custodian and trustee, at the date of acquisition, for approximately $300
million in assets. Gouws Capital, founded in 1984 and also headquartered in
Portland, Maine, offers investment advisory services to high net worth
individuals and institutions. Gouws Capital had approximately $342 million of
assets under management at the date of acquisition, of which approximately $300
million was held at Acadia. The purchase of Acadia and Gouws Capital was
accounted for as a "purchase" under SFAS No. 141, "Business Combinations."
The Company has recognized goodwill equal to the sum of the cost of the
acquisition and the difference between the fair value of the assets acquired
less the liabilities assumed as follows:
Cost ofacquisition $ 4,563
Fair value of assets acquired (2,479)
Liabilities assumed 1,076
-------
Goodwill related to acquisition $ 3,160
=======
On October 24, 2001, the Company acquired the remaining 49% of Trust Company of
Maine, Inc. ("TCOM"). The Company acquired the majority ownership (51%) of TCOM
in December 1995 through the Company's merger with UnitedCorp, then the parent
of TCOM. TCOM is a trust company chartered under the laws of the State of Maine
and has its principal office in Bangor, Maine. TCOM provides a broad range of
trust, trust-related and investment services, in addition to retirement and
pension plan management services, to both individual and institutional clients.
This transaction resulted in the recognition of $1.1 million in goodwill.
Goodwill recorded as part of the acquisitions has not been amortized and will be
measured for impairment as required by SFAS No. 142. In addition, under the
purchase method of accounting, the results of operations of the acquired
subsidiaries are included in the results of operations only from their
respective dates of acquisition.
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[GRAPHIC]CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
3. INVESTMENT SECURITIES
The following tables summarize the amortized costs and market values of
securities available for sale and held to maturity, as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 2001
- -------------------------------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury securities and obligations of
U.S.government corporations and agencies $ 58,204 $2,894 $ -- $ 61,098
Obligations of states and political subdivisions 8,923 21 (164) 8,780
Mortgage-backed securities 136,094 3,391 (26) 139,459
Other debt securities 41,295 826 (158) 41,963
-------- ------ ----- --------
Total debt securities 244,516 7,132 (348) 251,300
-------- ------ ----- --------
Equity securities 11,509 133 (76) 11,566
-------- ------ ----- --------
Total securities available for sale $256,025 $7,265 $(424) $262,866
======== ====== ===== ========
Held to maturity
U.S. Treasury securities and obligations of
U.S.government corporations and agencies $ 944 $ -- $ -- $ 944
-------- ------ ----- --------
Total securities held to maturity $ 944 $ -- $ -- $ 944
======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 2000
- -------------------------------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 57,919 $1,088 $ (299) $ 58,708
Obligations of states and political subdivisions 8,208 -- (280) 7,928
Mortgage-backed securities 30,174 179 (236) 30,117
Other debt securities 45,780 -- (1,313) 44,467
-------- ------ ------- --------
Total debt securities 142,081 1,267 (2,128) 141,220
-------- ------ ------- --------
Equity securities 18,464 150 (519) 18,095
-------- ------ ------- --------
Total securities available for sale $160,545 $1,417 $(2,647) $159,315
======== ====== ======= ========
Held to maturity
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 300 $ -- $ (25) $ 275
Obligations of states and political subdivisions 1,142 12 -- 1,154
Other debt securities 595 14 (11) 598
Mortgage-backed securities 55,658 3,038 (25) 58,671
-------- ------ ------- --------
Total securities held to maturity $ 57,695 $3,064 $ (61) $ 60,698
======== ====== ======= ========
</TABLE>
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES[GRAPHIC]
The amortized cost and fair values of debt securities by contractual maturity at
December 31, 2001 are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
AMORTIZED FAIR
COST VALUE
- --------------------------------------------------------------------------------
Available for sale
Due in one year or less $ 8,545 $ 8,812
Due after one year through five years 60,115 62,972
Due after five years through ten years 28,171 28,800
Due after ten years 147,685 150,716
-------- --------
$244,516 $251,300
======== ========
AMORTIZED FAIR
COST VALUE
- --------------------------------------------------------------------------------
Held to maturity
Due in one year or less $944 $944
---- ----
$944 $944
==== ====
For purposes of the maturity table, mortgage-backed securities, which are not
due at a single maturity date, have been allocated to the due-after-ten-years
category.
Proceeds from the sale of investments classified as available for sale during
2001 were $7,356,490, which resulted in gross realized gains of $336,423. There
were no sales in the held-to-maturity portfolio during 2001. There were no sales
in either the available-forsale or held-to-maturity portfolios during 2000.
Proceeds from the sale of investments classified as held to maturity during 1999
were $5,023,000, which resulted in a gross realized gain of $26,000. The
investments were sold within 3 months of the maturity date. In 1999, proceeds
from the sale of investments classified as available for sale were $10,637,000,
which resulted in a gross realized gain of $125,000.
At December 31, 2001 and 2000, securities with an amortized cost of $78,113,000
and $78,539,000 and a fair value of $80,934,000 and $79,504,000, respectively,
were pledged to secure public deposits, securities sold under agreements to
repurchase and other purposes required or permitted by law.
4.DERIVATIVE FINANCIAL INSTRUMENTS
The Company has interest rate protection agreements (caps) with notional amounts
of $90.0 million at December 31, 2001. These caps are used to limit the
Company's exposure to a rising rate environment. Under these agreements the
Company paid up front premiums of $239,000 for the right to receive cash flow
payments in excess of the predetermined cap rate; thus, effectively capping its
interest rate cost for the duration of the agreement. In accordance with SFAS
No. 133, management designates these caps as cash-flow hedges. For a qualifying
cash flow hedge, an interest rate cap will be carried on the Consolidated
Statement of Condition at fair value with the time and option volatility value
changes reflected in the current Consolidated Statement of Income. Any intrinsic
value will be recorded in other comprehensive income and recognized in future
Consolidated Statements of Income as an offset to related future interest costs.
As of December 31, 2001 the caps have no fair value and therefore there was no
effect on the Consolidated Statement of Income or other comprehensive income.
As part of its interest rate risk management, the Company used interest rate
swap agreements to hedge a portfolio of brokered certificates of deposit. These
swaps were designated as a fair value hedge since they were used to convert the
cost of the certificates of deposit from a fixed to a variable rate. These swaps
were called during the third quarter and subsequently the Company exercised the
call option on the brokered certificates of deposit offsetting the swaps. Since
the hedge relationship was estimated to be 100 percent effective (gain or loss
on the swap agreements will completely offset the gain or loss on the brokered
certificates of deposit) there was no impact on the Consolidated Statement of
Income or on the Consolidated Statement of Changes in Shareholders' Equity.
On April 11, 2001 the Company sold an interest rate floor agreement and an
interest rate swap agreement. The purpose of the interest rate floor was to
protect net interest income from falling interest rates by "flooring" certain
asset yields for a contracted period of time, and thus provide a minimum
earnings level from these assets. The purpose of the interest rate swap
agreement was to exchange a
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[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
variable rate asset for a fixed rate asset, thus protecting certain asset yields
from falling interest rates. With a substantial decline in the interest rate
environment, it was determined that it would be economically advantageous to
sell both the interest rate floor agreement and the interest rate swap agreement
rather than wait for the potential cash flows over the life of these
instruments. In addition, subsequent to the Company having purchased these
instruments, other strategies were implemented to protect the balance sheet in a
declining interest rate environment including the use of short-term funding and
the extension of fixed rate assets. The impact of the sale of the interest rate
floor and interest rate swap agreements was an increase to net income of
$614,800, net of applicable taxes.
5. LOANS
The composition of the Company's loan portfolio at December 31 was as follows:
2001 2000
- -------------------------------------------------------------------------------
Commercial loans $423,893 $364,169
Residential real estate loans 204,819 223,625
Consumer loans 86,375 90,231
Municipal loans 9,234 10,924
Other loans 497 462
-------- --------
Total loans 724,818 689,411
Less deferred loan fees net of costs 776 909
Less allowance for loan losses 13,514 10,801
-------- --------
$710,528 $677,701
======== ========
The Company's lending activities are conducted in mid-coast, southern, central
and western Maine. The Company makes single family and multi-family residential
loans, commercial real estate loans, business loans and a variety of consumer
loans. In addition, the Company makes loans for the construction of residential
homes, multi-family properties and commercial real estate properties. The
ability and willingness of borrowers to honor their repayment commitments is
generally dependent on the level of overall economic activity within the
geographic area and the general economy.
As of December 31, 2001 and 2000, nonaccrual loans were $7,022,000 and
$4,644,000, respectively. Interest foregone was approximately $505,000, $528,000
and $408,000 for 2001, 2000 and 1999, respectively.
6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
DECEMBER 31,
- -------------------------------------------------------------------------------
2001 2000 1999
Beginning balance $ 10,801 $ 9,390 $ 8,092
Provision for loan losses 3,681 2,930 3,670
Recoveries 581 626 288
Loans charged off (1,549) (2,145) (2,660)
-------- -------- --------
Net charge offs (968) (1,519) (2,372)
-------- -------- --------
Ending balance $ 13,514 $ 10,801 $ 9,390
======== ======== ========
Information regarding impaired loans is as follows:
DECEMBER 31,
- -------------------------------------------------------------------------------
2001 2000 1999
Average investment in impaired loans $ 6,030 $ 5,871 $ 5,455
Interest income recognized on impaired loans,
all on cash basis 330 241 452
Balance of impaired loans 7,022 4,644 6,136
Portion of impaired loan balance for which an
allowance for credit losses is allocated 7,022 4,644 6,136
Portion of allowance for loan losses allocated
to the impaired loan balance 1,862 860 1,179
34
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CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
7. SECURITIZATION OF MORTGAGE LOANS
During September 2001, the Company implemented a balance sheet restructuring
program that included the securitization, with Freddie Mac, of $57.0 million of
fixed rate residential mortgages. This transaction resulted in the Company's
loan balances decreasing, as those assets shifted to investment securities. The
Company will receive annual servicing fees as compensation for servicing the
outstanding balances. The Company has no retained interests in the securitized
residential mortgage loans. In addition, $677,300 of mortgage servicing rights
associated with this transaction were recognized in income during 2001. The
Company did not securitize any loans during 2000 or 1999.
8. MORTGAGE SERVICING
Residential real estate mortgages are originated by the Company both for
portfolio and for sale into the secondary market. The sale of loans is to
institutional investors such as Freddie Mac. Under loan sale and servicing
agreements with the investor, the Company generally continues to service the
residential real estate mortgages. The Company pays the investor an agreed-upon
rate on the loan, which, including a guarantee fee paid to Freddie Mac, is less
than the interest rate the Company receives from the borrower. The difference is
retained by the Company as a fee for servicing the residential real estate
mortgages. As required by SFAS No. 140, the Company capitalizes mortgage
servicing rights at their fair value upon sale of the related loans. Capitalized
servicing rights totaled $829,000, $107,000 and $171,000 during 2001, 2000 and
1999, respectively. Amortization expense totaled $217,000, $32,000 and $22,000
for 2001, 2000 and 1999, respectively.
Mortgage loans serviced for others are not included in the accompanying
Consolidated Statements of Condition of the Company. The unpaid principal
balance of mortgage loans serviced for others was $147,232,000, $111,002,000 and
$105,263,000 at December 31, 2001, 2000 and 1999, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were $341,000 and $267,000 at
December 31, 2001 and 2000, respectively.
9. PREMISES AND EQUIPMENT
Details of premises and equipment, at cost, at December 31 were as follows:
2001 2000
- -------------------------------------------------------------------------------
Land and buildings $ 15,857 $ 12,265
Furniture, fixtures and equipment 15,151 12,813
Leasehold improvements 1,222 1,186
Construction in process -- 2,524
-------- --------
32,230 28,788
Less: Accumulated depreciation and amortization 14,793 12,765
-------- --------
$ 17,437 $ 16,023
======== ========
Depreciation expense was $1,911,000, $1,529,000 and $1,553,000 for 2001, 2000
and 1999, respectively.
10. OTHER REAL ESTATE OWNED
The transactions in other real estate owned for the years ended December 31 were
as follows:
2001 2000 1999
- -------------------------------------------------------------------------------
Beginning balance $ 380 $ 1,405 $ 1,052
Additions 371 302 1,418
Properties sold 554 1,180 491
Writedowns 2 147 574
-------- -------- --------
Ending balance $ 195 $ 380 $ 1,405
======== ======== ========
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[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
11. DEPOSITS
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $63,451,000 and $74,329,000 at December 31, 2001 and
2000, respectively. Certificates of deposit included brokered deposits in the
amount of $46,196,000 and $26,931,000 at December 31, 2001 and 2000,
respectively.
At December 31, 2001, the scheduled maturities for all certificates of deposit
were as follows:
2002 $218,511
2003 53,161
2004 50,315
2005 16,700
2006 6,066
Thereafter 4,430
--------
$349,183
========
12. BORROWINGS
A summary of the borrowings, including the outstanding balance of lines of
credit, from the FHLBB is as follows:
DECEMBER 31, 2001
- --------------------------------------------------------------------------------
Principal Amounts Interest Rates Maturity Date
$ 24,578 4.82% - 5.19% 2002
45,000 4.24% - 6.12% 2003
12,000 3.27% - 5.19% 2004
31,254 3.97% - 5.55% 2006
12,000 4.88% - 4.97% 2009
10,000 4.95% 2010
34,000 4.07% - 5.02% 2011
--------
$168,832
========
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
Principal Amounts Interest Rates Maturity Date
$ 78,348 6.52% - 6.67% 2001
32,000 6.08% - 6.12% 2003
12,000 4.88% - 4.97% 2009
10,000 4.95% 2010
--------
$132,348
========
Short- and long-term borrowings from the FHLBB consist of both fixed and
adjustable rate borrowings and are collateralized by all stock in the FHLBB and
a blanket lien on qualified collateral consisting primarily of loans with first
mortgages secured by one-to-four family properties, certain unencumbered
investment securities and other qualified assets. The carrying value of loans
pledged as collateral was $194,659,000 and $228,511,000 at December 31, 2001 and
2000, respectively. The FHLBB at its discretion can call $86,000,000 of the
Company's long-term borrowings. The Company, through its bank subsidiaries, has
an available line of credit with FHLBB of $12,980,000 at December 31, 2001 and
2000. The Company had no outstanding balance on its line of credit with the
FHLBB at December 31, 2001 or December 31, 2000.
36
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
The Company utilizes other borrowings in the form of treasury, tax and loan
deposits and repurchase agreements secured by U.S. government or agency
securities. Balances outstanding at December 31 are shown in the table below:
2001 2000
- -------------------------------------------------------------------------------
Treasury, tax and loan deposits $ 1,058 $ 1,031
Securities sold under repurchase agreements 40,953 35,061
-------- --------
Total other borrowed funds $ 42,011 $ 36,092
======== ========
Weighted-average rate at the end of period 3.68% 4.24%
13. EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Plans
The Company's postretirement plans provide medical and life insurance to certain
eligible retired employees. It is the Company's policy to fund the cost of
postretirement health care and life insurance plans as premiums are paid;
therefore, there are no plan assets.
On October 17, 2000, the Company terminated the defined-benefit noncontributory
pension plan, which covered substantially all eligible employees over 21 years
of age with 1 year of employment. Total plan assets of $5,168,000 were
distributed to eligible employees during the first half of 2001. During 2000,
the Company recognized $437,000 of net income due to the overaccrual of the
benefit obligation at the date of plan termination.
Information regarding the postretirement benefit plan is as follows:
2001 2000 1999
- -------------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of the year $ 724 $ 481 $ 399
Service cost 43 38 25
Interest cost 50 32 28
Actuarial (gain) loss (22) 200 50
Benefits paid (30) (27) (21)
-------- -------- --------
Benefit obligation at end of year 765 724 481
-------- -------- --------
Funded status (765) (724) (481)
Unrecognized net actuarial loss 237 273 77
Unrecognized net prior service cost (78) (94) (110)
-------- -------- --------
Accrued benefit cost $ (606) $ (545) $ (514)
======== ======== ========
Weighted-average discount rate assumption 7.0% 7.0% 7.0%
2001 2000 1999
- -------------------------------------------------------------------------------
Components of net periodic benefit cost
Service cost $ 43 $ 38 $ 25
Interest cost 50 32 28
Amortization of prior service cost (16) (16) (16)
Recognized net actuarial loss 14 3 --
-------- -------- --------
Net periodic benefit cost $ 91 $ 57 $ 37
======== ======== ========
For measurement purposes, a 6.3% annual rate of increase in the per capita cost
to cover health care benefits was assumed for 2002. The rate was assumed to
decrease gradually to a 6.0% annual growth rate after 5 years, and remain at a
6.0% annual growth rate thereafter. A 1.0% increase or decrease in the assumed
health care cost trends rate would not have a material impact on the accumulated
postretirement benefit obligation due to a built-in cap on annual benefits.
The Company also sponsors an unfunded, non-qualified supplemental retirement
plan for certain officers. The agreement provides participants will be paid a
life annuity upon retirement or death. Prior to September 1, 1999 the plan
provided supplemental retirement payments over 15 years upon retirement or
death.
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[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
The expense of this supplemental plan was $399,000, $347,000 and $309,000 in
2001, 2000 and 1999, respectively. The accrued liability of this plan at
December 31, 2001 and 2000 was $1,562,000 and $1,318,000, respectively.
401(k) / Profit Sharing Plan
The Company has a 401(k) plan whereby substantially all employees participate in
the plan. Employees may contribute up to 15% of their compensation subject to
certain limits based on federal tax laws. The Company makes matching
contributions and may make additional contributions subject to the discretion of
the Board of Directors. For the years ended December 31, 2001, 2000 and 1999,
aggregate expenses under the plan amounted to $527,000, $214,000 and $171,000,
respectively.
Employee Stock Ownership Plan
During 1999, the Company, as successor to KSB Bancorp, Inc. ("KSB"), had an
Employee Stock Ownership Plan ("ESOP"). As of the merger date (December 20,
1999), all liabilities related to this plan were paid. Total ESOP expense was
$368,765 in 1999.
Bank Recognition and Retention Plan
The Company, as successor to KSB, maintains a Bank Recognition and Retention
Plan ("BRRP") as a method of providing certain officers and other employees of
the Company with a proprietary interest in the Company. During 1994, the Company
contributed funds to the BRRP to enable such Company officers and employees to
acquire, in the aggregate, 56,045 shares of common stock of the Company. The
Company recognizes expense related to the BRRP based on the vesting schedule.
Participants are vested at a rate of 20% per year commencing 1 year from the
date of the award. Total expense related to the BRRP was $5,712 for 2001 and
2000, and $9,726 for 1999.
14.SEGMENT REPORTING
The Company, through its bank and non-bank subsidiaries, provides a broad range
of financial services to individuals and companies in the State of Maine. These
services include lending, demand deposits, savings and time deposits, cash
management and trust services. While the Company's senior management team
monitors operations of each subsidiary, these subsidiaries primarily operate in
the banking industry. Substantially all revenues and services are derived from
banking products and services in Maine. Accordingly, the Company's subsidiaries
are considered by management to be aggregated in 1 reportable operating segment.
15.SHAREHOLDERS' EQUITY
The primary source of funds available to the Company for payment of dividends to
its shareholders are dividends paid to the Company by its subsidiaries. The
Company's subsidiary banks are subject to certain requirements imposed by state
and federal banking laws and regulations. These requirements, among other
things, establish minimum levels of capital and restrict the amount of dividends
that may be distributed by the subsidiary banks to the Company.
The Company has 3 stock option plans accounted for under Accounting Principles
Board Opinion 25 ("APB 25") and related interpretations, as permitted under SFAS
No. 123, "Accounting for Stock-Based Compensation." The 1993 stock option plan,
which is the plan currently available for future grants, allows the Company to
grant options to employees for up to 19,732 additional shares of Company common
stock. Under all 3 plans, the options are immediately vested when granted, and
expire 10 years from the date the option was granted. The exercise price of all
options equals the market price of the Company's stock on the date of grant.
Therefore, in accordance with APB 25, no compensation cost has been recognized
for the plans. Had compensation cost for the plans been determined based on the
fair value of the options at the grant dates consistent with the method of SFAS
No. 123, the Company's net income and earnings per share for 2001 and 1999 would
have been reduced to the pro forma amounts indicated below. The Company's net
income and earnings per share for 2000 are equal to pro forma amounts since
there were no options granted during the year ended December 31, 2000.
38
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
EARNINGS PER SHARE
NET INCOME BASIC DILUTED
- --------------------------------------------------------------------------------
2001
As reported $15,418 $1.90 $1.89
Pro forma 15,348 1.89 1.88
2000
As reported $13,859 $1.70 $1.69
Pro forma 13,859 1.70 1.69
1999
As reported $10,229 $1.27 $1.27
Pro forma 9,985 1.24 1.24
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for all grants; in 2001 dividend yield of 2.6%, expected
volatility of 1.35%, risk-free interest rate of 4.93%, and expected lives of 10
years; in 1999 dividend yield of 3.3%, expected volatility of 1.35%, risk-free
interest rate of 4.75%, and expected lives of 10 years.
A summary of the status of the Company's stock option plans as of December 31,
2001, 2000 and 1999, and changes during the years ended on those dates is
presented below.
<TABLE>
<CAPTION>
2001
- ----------------------------------------------------------------------------------------------------
Number of Weighted-average
Shares Exercise Price
<S> <C> <C>
Outstanding at beginning of year 183,729 $14.29
Granted during the year 5,000 16.00
Exercised during the year 19,926 11.13
Forfeited during the year 21,640 16.56
------- ------
Outstanding at end of year 147,163 $14.44
======= ======
Exercisable at end of year 147,163 $14.44
======= ======
Weighted-average fair value of options granted during the year $14.06
</TABLE>
<TABLE>
<CAPTION>
2000
- ----------------------------------------------------------------------------------------------------
Number of Weighted-average
Shares Exercise Price
<S> <C> <C>
Outstanding at beginning of year 199,842 $14.13
Exercised during the year 11,613 11.55
Forfeited during the year 4,500 14.47
------- ------
Outstanding at end of year 183,729 $14.29
======= ======
Exercisable at end of year 183,729 $14.29
======= ======
</TABLE>
39
<PAGE>
[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
1999
- ----------------------------------------------------------------------------------------------------
Number of Weighted-average
Shares Exercise Price
<S> <C> <C>
Outstanding at beginning of year 337,366 $ 9.62
Granted during the year 18,180 16.28
Exercised during the year 164,440 4.91
Reload options granted during the year 8,736 10.26
------- ------
Outstanding at end of year 199,842 $14.13
======= ======
Exercisable at end of year 184,393 $13.95
======= ======
Weighted-average fair value of options granted during the year $13.42
</TABLE>
The following table summarizes information related to options outstanding at
December 31, 2001:
Number Remaining Weighted-average
Outstanding Contractual Life Exercise Price
10,246 1.0 $12.80
67,500 4.0 12.33
59,917 6.0 16.67
4,500 7.0 18.38
5,000 10.0 16.00
------- ---- ------
147,163 4.9 $14.44
======= ==== ======
16.EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
2001 2000 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $ 15,418 $ 13,859 $ 10,229
Weighted-average shares 8,123,928 8,164,188 8,033,757
Effect of dilutive employee stock options 33,558 14,617 33,877
Adjusted weighted-average shares and assumed conversion 8,157,486 8,178,805 8,067,634
Basic earnings per share $ 1.90 $ 1.70 $ 1.27
Diluted earnings per share $ 1.89 $ 1.69 $ 1.27
</TABLE>
Options to purchase 10,500 and 93,908 shares of common stock at an average
exercise price of $18.75 and $16.54 per share were outstanding at December 31,
2001 and 2000, respectively, but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common stock.
17.INCOME TAXES
The current and deferred components of income tax expense were as follows:
2001 2000 1999
- --------------------------------------------------------------------------
Current:
Federal $5,759 $4,836 $5,095
State 241 219 188
------ ------ ------
6,000 5,055 5,283
Deferred:
Federal 1,162 1,188 (100)
------ ------ ------
$7,162 $6,243 $5,183
====== ====== ======
40
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
The actual expense differs from the expected tax expense computed by applying
the applicable U.S. federal corporate income tax rate to earnings before income
taxes, as follows:
<TABLE>
<CAPTION>
2001 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed tax expense $7,903 $7,036 $5,394
Increase (reduction) in income taxes resulting from:
Tax exempt income (342) (471) (349)
State taxes, net of federal benefit 157 142 122
Income from life insurance (305) (264) (92)
Acquisition costs 89 27 452
Low income housing credits (303) (303) (221)
Other (37) 76 (123)
------ ------ ------
$7,162 $6,243 $5,183
====== ====== ======
</TABLE>
Items which give rise to deferred income tax assets and liabilities and the tax
effect of each are as follows:
<TABLE>
<CAPTION>
2001 2000
- -----------------------------------------------------------------------------------------------------
Asset Liability Asset Liability
<S> <C> <C> <C> <C>
Allowance for possible losses on loans $4,643 $ -- $3,697 $ --
Allowance for investment losses 86 -- 86 --
Capitalized costs 175 -- 231 --
Pension and other benefits 760 -- 652 --
Depreciation 153 -- -- 183
Deferred loan origination fees -- 354 -- 226
Deferred compensation and benefits 336 -- 312 --
Unrealized (gains) losses on investments available for sale -- 2,325 418 --
Unrealized appreciation on loans held for sale 40 -- 167 --
Valuation of other real estate owned -- -- 20 --
Interest receivable 229 -- 185 --
Deposit premium 326 -- 80 --
Mortgage servicing rights -- 296 -- 82
Other 113 -- 26 --
------ ------ ------ ----
$6,861 $2,975 $5,874 $491
====== ====== ====== ====
</TABLE>
The related income taxes have been calculated using a rate of 35%. No valuation
allowance is deemed necessary for the deferred tax asset, which is included in
other assets.
Retained earnings include $222,000 representing an allocation for income tax bad
debt deductions prior to 1988, referred to as the base year reserve. No income
taxes have been provided for the base year reserve, though it continues to be
subject to provisions of present law that require recapture in the case of
certain excess distributions to shareholders.
18.RELATED PARTIES
In the ordinary course of business, the Company has made loans to certain
officers and directors and the companies with which they are associated. All
such loans were made under terms that are consistent with the Company's normal
lending policies. Changes in the composition of the board of directors or the
group comprising executive officers result in additions to or deductions from
loans outstanding to directors, executive officers, or principal shareholders.
Loans to related parties which in aggregate exceed $60,000 were as follows:
2001 2000
- --------------------------------------------------------------------
Balance, January 1, $14,298 $16,178
Loans made/advanced and additions 5,328 4,545
Repayments and reductions 5,089 6,425
------- -------
Balance, December 31 $14,537 $14,298
======= =======
41
<PAGE>
[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
In addition to the loans noted on the previous page, the Company had deposits at
December 31, 2001 and 2000 from the same individuals of $4,936,000 and
$4,763,000, respectively.
19. LEGAL CONTINGENCIES
Various legal claims arise from time to time in the normal course of business
which, in the opinion of management, will have no material effect on the
Company's Consolidated Financial Statements.
20. FINANCIAL INSTRUMENTS
Credit Related Financial Instruments
In the normal course of business, the Company is a party to credit related
financial instruments with off-balance sheet risk, which are not reflected in
the accompanying Consolidated Statements of Condition. These financial
instruments include lending commitments and letters of credit. Those instruments
involve varying degrees of credit risk in excess of the amount recognized in the
Consolidated Statements of Condition.
The Company follows the same credit policies in making commitments to extend
credit and conditional obligations as it does for on-balance sheet instruments,
including requiring similar collateral or other security to support financial
instruments with credit risk. The Company's exposure to credit loss in the event
of nonperformance by the customer is represented by the contractual amount of
those instruments. Since many of the commitments are expected to expire without
being drawn upon, the total amount does not necessarily represent future cash
requirements. The Company has not incurred any losses on its commitments in
2001, 2000 or 1999.
Derivative Financial Instruments
The Company uses derivative instruments as hedges against large fluctuations in
interest rates. The Company uses interest rate swap and floor instruments to
hedge against potentially lower yields on the variable prime rate loan category
in a declining rate environment. If rates were to decline, resulting in reduced
income on the adjustable rate loans, there would be an increased income flow
from the interest rate swap and floor instruments. The Company also uses cap
instruments to hedge against increases in short-term borrowing rates. If rates
were to rise, resulting in an increased interest cost, there would be an
increased income flow from the cap instruments.
At least quarterly, all financial instruments are reviewed as part of the
asset/liability management process. The financial instruments are factored into
the Company's overall interest rate risk position. The Company regularly reviews
the credit quality of the counterparty from which the instruments have been
purchased.
As of December 31, 2001, the Company had $90 million (notional principal amount)
in cap contracts ($20 million and $70 million) with strike rates of 7.50% and
7.00%, respectively, and both mature in 2002. During 2001, the Company had $25
million (notional principal amount) in callable interest rate swaps that were
called. The Company also sold $10 million (notional principal amount) in
interest rate swaps and $10 million (notional principal amount) in floor
contracts during 2001.
At December 31, 2001 and 2000, the contractual or notional amounts of credit
related and derivative financial instruments were as follows:
2001 2000
- ------------------------------------------------------------------------------
Contractual
Commitments to extend credit $124,261 $99,108
Letters of credit 1,506 1,865
Notional
Swaps -- 35,000
Floors -- 10,000
Caps 90,000 90,000
42
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
The estimated fair values of the Company's financial instruments reported in the
Consolidated Statements of Condition were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 2001 DECEMBER 31, 2000
- ------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 38,861 $ 38,861 $ 29,337 $ 29,337
Securities available for sale 262,866 262,866 159,315 159,315
Securities held to maturity 944 944 57,695 60,698
Residential mortgages held for sale -- -- 12,838 12,838
Loans receivable 710,528 703,750 677,701 674,814
Interest receivable 5,054 5,054 6,959 6,959
Life insurance policies 17,713 17,713 16,842 16,842
Financial liabilities:
Deposits $763,568 $763,298 $744,360 $745,291
Borrowings from Federal Home Loan Bank 168,832 163,834 132,348 131,680
Other borrowed funds 42,011 42,011 36,092 36,092
Interest payable 3,058 3,058 3,963 3,963
</TABLE>
The estimated fair values of the Company's derivative financial instruments were
as follows:
DECEMBER 31, 2001
- --------------------------------------------------------------------------------
Fair Value
Notional Contract Maturity Including
Principal Date Date Accruals
Interest Rate Caps $ 20,000 26-Jul-00 26-Jul-02 $ --
70,000 23-Oct-00 23-Oct-02 --
------ -----
$ 90,000 $ --
======== =====
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
Fair Value
Notional Contract Maturity Including
Principal Date Date Accruals
Interest Rate Swaps $ 10,000 23-Dec-99 23-Dec-04 $316
20,000 11-Aug-00 11-Aug-10 39
5,000 23-Aug-00 23-Feb-06 13
-------- ----
$ 35,000 $368
======== ====
Interest Rate Floors $ 10,000 10-May-00 12-May-05 $258
======== ====
Interest Rate Caps $ 20,000 26-Jul-00 26-Jul-02 $ 12
70,000 23-Oct-00 23-Oct-02 31
-------- ----
$ 90,000 $ 43
======== ====
43
<PAGE>
[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
21. REGULATORY MATTERS
The Company and its bank subsidiaries are subject to various regulatory capital
requirements administered by the FRB, the Comptroller of the Currency and the
FDIC. Failure to meet minimum capital requirements can result in mandatory and
possible additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's Consolidated Financial
Statements.
These capital requirements represent quantitative measures of the Company's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital classification is also
subject to qualitative judgments by its regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to average assets (as defined). Management believes that,
as of December 31, 2001, the Company and its bank subsidiaries meet all capital
requirements to which they are subject.
As of December 31, 2001, both bank subsidiaries were categorized by their
supervisory regulatory agencies as well capitalized. To be categorized as well
capitalized, each bank subsidiary of the Company must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
table. There are no conditions or events that management believes have changed
the banks' respective capital categories.
The ability of the Company to pay cash dividends depends on the receipt of
dividends from its subsidiaries. The Company, as the sole shareholder of its
subsidiaries, is entitled to dividends from legally available funds when and as
declared by each subsidiary's Board of Directors.
The Company's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount>= Ratio>= Amount>= Ratio>=
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 2001
Total Capital (To Risk-Weighted Assets):
Consolidated $100,533 14.2% $56,650 8.0% N/A
Camden National Bank 58,979 12.4% 37,996 8.0% $47,495 10.0%
UnitedKingfield Bank 26,722 11.6% 18,444 8.0% 23,055 10.0%
Tier 1 Capital (To Risk-Weighted Assets):
Consolidated $ 91,624 12.9% $28,325 4.0% N/A
Camden National Bank 53,010 11.2% 18,998 4.0% $28,497 6.0%
UnitedKingfield Bank 23,814 10.3% 9,222 4.0% 13,833 6.0%
Tier 1 Capital (To Average Assets):
Consolidated $ 91,624 8.7% $42,011 4.0% N/A
Camden National Bank 53,010 7.7% 27,733 4.0% $34,666 5.0%
UnitedKingfield Bank 23,814 6.8% 14,014 4.0% 17,517 5.0%
</TABLE>
44
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 2000
Total Capital (To Risk-Weighted Assets):
Consolidated $94,077 13.1% $57,618 8.0% N/A
Camden National Bank 59,373 12.3% 38,735 8.0% $48,419 10.0%
UnitedKingfield Bank 27,685 11.7% 18,883 8.0% 23,603 10.0%
Tier 1 Capital (To Risk-Weighted Assets):
Consolidated $85,074 11.8% $28,809 4.0% N/A
Camden National Bank 53,320 11.0% 19,368 4.0% $29,051 6.0%
UnitedKingfield Bank 24,734 10.5% 9,441 4.0% 14,162 6.0%
Tier 1 Capital (To Average Assets):
Consolidated $85,074 8.6% $39,482 4.0% N/A
Camden National Bank 53,320 8.3% 25,722 4.0% $32,152 5.0%
UnitedKingfield Bank 24,734 7.3% 13,548 4.0% 16,935 5.0%
</TABLE>
22. HOLDING COMPANY
Following are the condensed Statements of Condition, Income and Cash Flows for
the Company.
Statements of Condition
December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2001 2000
<S> <C> <C>
Assets
Cash $ 2,411 $ 216
Premises and equipment 6,034 4,731
Investment in subsidiaries:
Bank subsidiaries 90,266 83,903
Other subsidiaries 4,659 184
Amounts receivable from subsidiaries 292 --
Goodwill -- 41
Other assets 2,965 2,762
-------- -------
Total assets $106,627 $91,837
======== =======
Liabilities & Shareholders' Equity
Amounts due to subsidiaries $ -- $ 663
Accrued and other expenses 1,559 251
Shareholders' equity 105,068 90,923
-------- -------
Total liabilities and shareholders' equity $106,627 $91,837
======== =======
</TABLE>
45
<PAGE>
[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Statements of Income
For Years Ended December 31,
- --------------------------------------------------------------------------------------------
2001 2000 1999
<S> <C> <C> <C>
Operating Income
Dividend income from subsidiaries $14,787 $ 7,756 $ 8,256
Fees from subsidiaries 7,999 6,300 3,579
Other income 12 70 10
------- ------- -------
Total operating income 22,798 14,126 11,845
------- ------- -------
Operating Expenses
Salaries and employee benefits 4,537 3,698 2,158
Net occupancy 387 218 155
Furniture, equipment and data processing 893 886 709
Other operating expenses 2,275 1,558 1,353
Acquisition related expenses 271 129 1,019
------- ------- -------
Total operating expenses 8,363 6,489 5,394
------- ------- -------
Income before equity in undistributed earnings of subsidiaries 14,435 7,637 6,451
Equity in undistributed earnings of subsidiaries 961 6,240 3,705
------- ------- -------
Income before income taxes 15,396 13,877 10,156
Income tax benefit (expense) 22 (18) 73
------- ------- -------
Net Income $15,418 $13,859 $10,229
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
For Years Ended December 31,
- ----------------------------------------------------------------------------------------------
2001 2000 1999
<S> <C> <C> <C>
Operating Activities
Net income $15,418 $13,859 $10,229
Adjustments to reconcile net income earnings to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (961) (6,240) (3,705)
Depreciation and amortization 404 299 300
Decrease in obligation under ESOP and BRRP 5 6 487
Amortization of goodwill 41 5 5
(Increase) decrease in amount receivable from subsidiaries (292) 2,367 (427)
Increase in other assets (203) (131) (2,292)
Increase (decrease) in payables 645 (998) (1,799)
------- ------- -------
Net cash provided by operating activities 15,057 9,167 2,798
------- ------- -------
Investing Activities
Purchase of premises and equipment (1,707) (3,497) (347)
Investment in Acadia Trust, N.A (4,551) -- --
------- ------- -------
Net cash used by investing activities (6,258) (3,497) (347)
------- ------- -------
Financing Activities
Proceeds from sale of treasury stock -- -- 2,249
Exercise and repurchase of stock options (80) (22) (975)
Acquisition of minority interest 146 -- --
Purchase of treasury stock (1,444) (394) (2,337)
Dividends paid (5,226) (5,150) (4,182)
Proceeds from stock issuance under stock option plan -- 31 227
------- ------- -------
Net cash used by financing activities (6,604) (5,535) (5,018)
------- ------- -------
Net increase (decrease) in cash 2,195 135 (2,567)
Cash at beginning of year 216 81 2,648
------- ------- -------
Cash at end of year $ 2,411 $ 216 $ 81
======= ======= =======
</TABLE>
46
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
23. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2001 and 2000:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- --------------------------------------------------------------------------------
Mar 31 June 30 Sept 30 Dec 31
<S> <C> <C> <C> <C>
2001
Interest income $20,751 $20,552 $19,989 $18,578
Interest expense 10,483 9,423 8,469 7,314
Net interest income 10,268 11,129 11,520 11,264
Provision for loan losses 714 714 789 1,464
Income before income taxes 5,382 5,992 6,460 4,746
Applicable income taxes 1,762 1,989 1,980 1,431
Net income 3,620 4,003 4,480 3,315
Per common share:
Basic 0.44 0.50 0.55 0.41
Diluted 0.44 0.49 0.55 0.41
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- --------------------------------------------------------------------------------
Mar 31 June 30 Sept 30 Dec 31
<S> <C> <C> <C> <C>
2000
Interest income $18,694 $19,547 $20,386 $20,928
Interest expense 8,795 9,795 10,577 10,875
Net interest income 9,899 9,752 9,809 10,053
Provision for loan losses 644 644 609 1,033
Income before income taxes 4,632 4,781 5,902 4,787
Applicable income taxes 1,438 1,458 1,878 1,469
Net income 3,194 3,323 4,024 3,318
Per common share:
Basic 0.39 0.41 0.49 0.41
Diluted 0.39 0.41 0.49 0.40
</TABLE>
47
<PAGE>
[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
Auditor's Letter
- --------------------------------------------------------------------------------
BERRY DUNN MCNELL & PARKER
--------------
[LOGO]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Shareholders and Board of Directors
Camden National Corporation
We have audited the accompanying consolidated statements of condition of Camden
National Corporation and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and signigicant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Camden National
Corporation and Subsidaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 2001, in conformity
with U.S. generally accepted accounting principles.
/s/
- -------------------------
Portland, Maine
January 22, 2002
- --------------------------------------------------------------------------------
48
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
Boards of Directors and Bank Administrations
Camden National Corporation
DIRECTORS
Rendle A. Jones
Chairman, Camden National Corporation
Attorney & Partner,
Harmon, Jones, Sanford & Elliot, LLP
Ann W. Bresnahan
Civic Leader
Robert J. Campbell
Partner, Beck, Mack & Oliver Investments
Robert W. Daigle
President & CEO, Camden National
Corporation & Camden National Bank
Robert J. Gagnon
Civic Leader
Johann H. Gouws
Chairman, President & CEO,
Acadia Trust, N.A.
Ward I. Graffam
Graffam & Associates
John W. Holmes
President, Consumers Fuel Company
Theodore C. Johanson
Managing Director, Harbor Wharf, LLC
Winfield R. Robinson
President, Timber Resource Group, LLC
Richard N. Simoneau, CPA
Tax Partner,
Simoneau, Norton, Masters & Alex, P.A.
Arthur E. Strout
Attorney & Partner, Strout & Payson, P.A.
ADMINISTRATION
Robert W. Daigle
President & CEO, Camden National
Corporation & Camden National Bank
Laurel J. Bouchard
Senior Vice President, Corporate Administration
Joanne T. Campbell
Senior Vice President, Residential Real Estate
Gregory A. Dufour
Senior Vice President, Finance
Jeffrey D. Smith
Senior Vice President, Operations & Technology
John A. Gobel
Vice President, Information Technology
Kimberly J. Nason
Vice President, Residential Real Estate
June B. Parent
Vice President & Human Resource Manager
Susan M. Westfall
Vice President, Clerk, Treasurer & Controller
Scott R. Westhrin
Vice President, Loan Servicing
Eric Y. Boucher, CPA
Assistant Vice President &
Accounting Manager
Jennifer F. Mazurek
Assistant Vice President,
Deposit Services & Electronic Banking
Timothy J. Pratt
Assistant Vice President, Items Processing
Kathryn M. Ryder
Assistant Vice President,
Asset & Liability Manager
Lee Ann Szelog
Assistant Vice President &
Marketing Manager
Robert E. Cleveland, Jr.
Senior Network Administrator
Ann E. Filley
Training Manager
Lorraine M. Ivers
Quality Service Manager
Jane G. Pierce
Residential Real Estate Underwriter
Danny L. Swindler, II
Facilities & Purchasing Manager
Vanessa H. Tilton
Internet Banking Manager
Karen W. Vaughan
Call Center Manager
Camden National Bank
DIRECTORS
Rendle A. Jones
Chairman, Camden National Bank
Attorney & Partner,
Harmon, Jones, Sanford & Elliot, LLP
Ann W. Bresnahan
Civic Leader
Robert W. Daigle
President & CEO, Camden National
Corporation & Camden National Bank
David C. Flanagan
President, Viking Lumber, Inc.
Robert J. Gagnon
Civic Leader
John W. Holmes
President, Consumers Fuel Co.
Richard N. Simoneau, CPA
Tax Partner,
Simoneau, Norton, Masters & Alex, P.A.
Arthur E. Strout
Attorney & Partner, Strout & Payson, P.A.
Rosemary B. Weymouth
President, Megunticook Management Co.
ASSOCIATE DIRECTORS
Peter T. Allen
Private Investor
C.R. deRochemont
Realtor, C.R. deRochemont Realtor
Kenneth C. Dickey
Retired Vice Chairman,
Camden National Corporation
Haskell & Corthell Real Estate
Frederick G. "Ted" Hanley
Retired Executive Vice President,
Camden National Bank
John S. McCormick, Jr.
Engineer & Developer,
Consolidated Real Estate and Engineering
David H. Montgomery
Retired Chairman,
Camden National Corporation
Past Chairman, Allen Agency
Keith C. Patten
Retired Chairman, Camden National Bank
Retired President & CEO,
Camden National Corporation
continued
49
<PAGE>
[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
Boards of Directors and Bank Administrations
Camden National Bank
ADMINISTRATION
Robert W. Daigle
President & CEO, Camden National
Corporation & Camden National Bank
Michael A. McAvoy
Senior Vice President,
Senior Risk Management Officer
John P. "Jack" Williams
Senior Vice President, Senior Loan Officer
Jayne Crosby-Giles
Vice President, Commercial Services Group
Barbara B. Hanson
Vice President, Commercial Services Group
Michael F. Jones
Vice President, Commercial Services Group
Richard E. Littlefield
Vice President, Commercial Services Group
Stephen J. Matteo
Vice President, Credit Administration
Vera E. Rand
Vice President, Commercial Services Group
Stephen C. Staples
Vice President, Commercial Services Group
Stephen C. Wallace
Vice President, Retail Group
Todd L. Savage
Assistant Vice President,
Commercial Services Group
Barry J. King
Credit Analyst
John P. Quesnel
Special Assets Officer
BRANCH ADMINISTRATION
Tamara J. Bryant
Vice President & Manager,
Main Office & Camden Square Office
R. Todd Starbird
Assistant Vice President & Manager,
Rockland Office
Judith L. Brogden
Manager, Thomaston Office
Laverne M. Hatch
Manager, Belfast Office & Bucksport Office
Emily B. Lane
Manager, Vinalhaven Office
Richard H. Newell, Jr.
Manager, Damariscotta Office
Susan L. O'Brien
Manager, Union Office
William H. Pusey, III
Manager, Portland Office
Walter C. Reynolds
Manager, Waldoboro Office
UnitedKingfield Bank
DIRECTORS
Winfield F. Robinson
Chairman, UnitedKingfield Bank
President, Timber Resource Group, LLC
Robert W. Daigle
President & CEO, Camden National
Corporation & Camden National Bank
William Dubord
Attorney & Senior Partner,
Marden, Dubord, Bernier & Stevens
William T. Gardner
President, William T. Gardner & Sons, Inc.
Dr. Joyce B. Hedlund
President, Eastern Maine Technical College
Theodore C. Johanson
Managing Director, Harbor Wharf, LLC
Rendle A. Jones
Attorney & Partner,
Harmon, Jones, Sanford & Elliott, LLP
C. Charles Lumbert
President, Moose River Co., Inc.
Roger G. Spear
Chief Financial Officer,
University of Maine at Farmington
John C. Witherspoon
President & CEO, UnitedKingfield Bank
ADMINISTRATION
John C. Witherspoon
President & CEO
Timothy P. Nightingale
Vice President, Senior Loan Officer
& Market Manager,
Penobscot & Piscataquis Counties
Gordon A. Flint
Vice President & Market Manager,
Franklin & Somerset Counties
Robert D. Stone
Vice President & Market Manager,
Androscoggin County
Valarie A. Coolong
Commercial Loan Officer, Greater Bangor
John B. Ellrich
Commercial Loan Officer, Farmington
George C. Dilts
Commercial Loan Officer, Greater Bangor
Cynthia C. Wheeler
Commercial Loan Officer, Greater Bangor
Susan H. Froehlich
Retail Underwriting Manager
Brenda L. Gerow
Human Resources Manager & Sales Manager
Joseph T. McOscar
Credit Administrator
BRANCH ADMINISTRATION
Michael A. Durgin
Regional Sales Manager, Bangor
Linda D. Gilbert
Regional Sales Manager, Dover-Foxcroft
Cynthia J. Gilmore
Regional Sales Manager, Kingfield
Stephen D. Gray
Regional Sales Manager, Farmington
Joseph G. Poulin
Regional Sales Manager, Madison
Raymond B. Teixeira
Regional Sales Manager, Lewiston
Catherine L. Moore
Branch Administrator
Kathy Pelletier
Employee Benefits Officer
50
<PAGE>
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES [GRAPHIC]
Acadia Trust, N.A.
Directors
Johann H. Gouws
Chairman, President & CEO,
Acadia Trust, N.A.
Ward I. Graffam
Graffam & Associates
John M. Albin, CPA
Retired Senior Partner,
Albin, Randall and Bennett
Robert J. Campbell
Partner, Beck, Mack & Oliver Investments
Robert G. Fuller, Jr., Esq.
Private Trustee
Officers
Johann H. Gouws
Chairman, President & CEO
Frank E. Kemna, Jr.,
Senior Vice President & Senior Trust Officer
John L. Simpson
Senior Vice President &
Chief Investment Officer
Diane M. Aston
Vice President, Trust Operations
Lawrence A. Blaisdell
Vice President & Portfolio Manager
Patricia N. O'Donnell
Vice President, Marketing & Development
Jan F. Macleod
Vice President & Director of Research
Joan M. Smith
Vice President, Chief Financial Officer
& Chief Operating Officer
Barbara Brown
Trust Tax Officer
Trust Company of Maine, Inc.
DIRECTORS
Andrew P. Averill
Retired Chairman,
Trust Company of Maine, Inc.
Randall A. Bishop
Chief Financial Officer,
William T. Gardner & Sons, Inc.
Robert W. Daigle
President & CEO, Camden National
Corporation & Camden National Bank
Johann H. Gouws
Chairman, President & CEO,
Acadia Trust, N.A.
Richard N. Simoneau, CPA
Tax Partner,
Simoneau, Norton, Masters & Alex, P.A.
John C. Witherspoon
President & CEO, UnitedKingfield Bank
ADMINISTRATION
Johann H. Gouws
Chairman, President & CEO
R. Paul Pasquine
Executive Vice President & Senior Trust Officer
Shirley B. Kile
Executive Vice President,
Employee Benefits Division
Lynn M. Bowden
Vice President, New Business Development
Susan L. Kenney
Assistant Vice President & Trust Officer
Robert M. Parker, Jr.
Assistant Vice President & Trust Officer
Pamela M. Webster
Senior Employee Benefits Officer
Jana D. Hanscom
Employee Benefits Officer
Kathy Pelletier
Employee Benefits Officer
Acadia Financial Consultants
Marcia Mansfield
President
Lisa Masters
Account Executive,
Camden National Bank
Robert McKay
Account Executive,
UnitedKingfield Bank
Dorothy M. Peters,
Executive Assistant
51
<PAGE>
[GRAPHIC] CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES
Annual Meeting of Camden National Corporation
Tuesday, April 30, 2002, 3:00 p.m.
The Camden Opera House
The Company will provide, upon written request and without charge, a copy of
Camden National Corporation's 2001 Annual Report on Securities and Exchange
Commission Form 10K.
Please contact:
Gregory A. Dufour, Senior Vice President of Finance
Camden National Corporation
P.O. Box 310
Camden, Maine 04843
207-236-9131, ext. 2106
gdufour@camdennational.com
Credits:
Design & Layout Peggy Mason, ABC-webdesign & graphics, inc.
Copy Writing Joanne Miller
Photography Front and back covers ~ Thomas Mark Szelog(C)2002
Inside front cover ~ Sara Gray(C)2002
Table of Contents
Birds ~ Joe Devenney(C)2002
Wreath ~ Thomas Mark Szelog(C)2002
Ship's wheel ~ Benjamin Mendlowitz(C)2002
Page 2
Birch trees ~ Michele Stapleton(C)2002
Portrait ~ Benjamin Magro(C)2002
Page 4
Flying geese ~ Thomas Mark Szelog(C)2002
Bird sculptor ~ Joe Devenney(C)2002
Page 6
Pine trees ~ Michele Stapleton(C)2002
Wreath maker ~ Thomas Mark Szelog(C)2002
Page 8
Boat sailing ~ Benjamin Mendlowitz(C)2002
Boat hull ~ Benjamin Mendlowitz(C)2002
Financial pages
Various tree images ~ Michele Stapleton(C)2002 and Sara
Gray(C)2002
Inside back cover ~ Thomas Mark Szelog(C)2002
Printing Spectrum Printing & Graphics Inc.
52
<PAGE>
[RINGS OF TREE GRAPHIC APPEARS IN BACKGROUND]
The rings of a tree...
are the evidence of its growth and maturity.
Camden National Corporation's
record of financial performance...
is the evidence of its consistency and strength.
Constantly growing and changing,
we remain dedicated to our roots,
carefully crafting and delivering
the best financial products and services in Maine.
<PAGE>
[GRAPHIC OF TREES APPEARS HERE]
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<FILENAME>dex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE COMPANY
<TEXT>
<PAGE>
Exhibit #21 Subsidiaries of the Company
---------------------------------------
Camden National Bank, a national banking organization organized under the laws
of the United States of America.
UnitedKingfield Bank, a financial institution organized under the laws of the
State of Maine.
Trust Company of Maine, Inc., a corporation with trust powers chartered under
the laws of the State of Maine.
Acadia Trust, N.A., a national banking organization organized under the laws of
the United States of America with a limited purpose trust charter.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>7
<FILENAME>dex23.txt
<DESCRIPTION>CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<TEXT>
<PAGE>
Exhibit #23 Consent of Independent Public Accountants
-----------------------------------------------------
Consent of Independent Public Accountants
As the independent public accountants of Camden National Corporation, we hereby
consent to the incorporation of our report included in this Form 10-K, into the
Company's previously filed Registration Statements File Number 333-95157 and
333-68598.
Berry, Dunn, McNeil & Parker
Portland, Maine
March 27, 2002
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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