Company Quick10K Filing
Quick10K
Camden National
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$45.52 16 $710
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-01-29 Earnings, Exhibits
8-K 2019-01-22 Other Events, Exhibits
8-K 2018-12-21 Officers
8-K 2018-12-19 Officers
8-K 2018-12-18 Other Events, Exhibits
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-09-25 Other Events, Exhibits
8-K 2018-08-01 Regulation FD, Exhibits
8-K 2018-07-31 Officers, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-06-26 Other Events, Exhibits
8-K 2018-06-20 Regulation FD, Exhibits
8-K 2018-05-15 Regulation FD, Exhibits
8-K 2018-04-24 Officers, Exhibits
8-K 2018-03-27 Other Events, Exhibits
8-K 2018-01-30 Officers
BAC Bank of America
SHG Shinhan Financial Group
FHB First Hawaiian
EGBN Eagle Bancorp
LKFN Lakeland Financial
SBSI Southside Bancshares
BFST Business First Bancshares
CVCY Central Valley Community Bancorp
BOCH Bank of Commerce Holdings
CART Carolina Trust Bancshares
CAC 2018-09-30
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Recent Accounting Pronouncements
Note 3 - Eps
Note 4 - Investments
Note 5 - Loans and Allowance for Loan Losses
Note 6 - Regulatory Capital Requirements
Note 7 - Income Taxes
Note 8 - Employee Benefit Plans
Note 9 - Borrowings
Note 10 - Repurchase Agreements
Note 11 - Fair Value Measurement and Disclosure
Note 12 - Commitments, Contingencies and Derivatives
Item 2. Management's Discussion and Analysis of Financial Condition
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 exhibit311q318.htm
EX-31.2 exhibit312q318.htm
EX-32.1 exhibit321q318.htm
EX-32.2 exhibit322q318.htm

Camden National Earnings 2018-09-30

CAC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 cac-093018x10qdoc.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549
FORM 10-Q
x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
¨       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No.      0-28190
CAMDEN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
 
MAINE
01-0413282
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
 
2 ELM STREET, CAMDEN, ME
04843
(Address of principal executive offices)
(Zip Code)
 
Registrant's telephone number, including area code:  (207) 236-8821
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x          No ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 
Yes x          No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
 
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes ¨          No x
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:
Outstanding at October 26, 2018:  Common stock (no par value) 15,584,743 shares.



CAMDEN NATIONAL CORPORATION

 FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2018
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
 
 
PAGE
PART I.  FINANCIAL INFORMATION
 
 
 
ITEM 1.
FINANCIAL STATEMENTS
 
 
 
 
 
Consolidated Statements of Condition (unaudited) - September 30, 2018 and December 31, 2017
 
 
 
 
Consolidated Statements of Income (unaudited) - Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Consolidated Statements of Comprehensive Income (unaudited) - Three and Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended September 30, 2018 and 2017
 
 
 
 
Notes to the Unaudited Consolidated Financial Statements
 
 
 
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
 
 
ITEM 4.
CONTROLS AND PROCEDURES
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
ITEM 1.
LEGAL PROCEEDINGS
 
 
 
ITEM 1A.
RISK FACTORS
 
 
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
 
 
 
ITEM 4.
MINE SAFETY DISCLOSURES
 
 
 
ITEM 5.
OTHER INFORMATION
 
 
 
ITEM 6.
EXHIBITS
 
 
 
SIGNATURES

2



PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CONDITION
(unaudited)
(In thousands, except number of shares)
 
September 30,
 2018
 
December 31,
 2017
ASSETS
 
 

 
 

Cash and due from banks
 
$
48,124

 
$
44,057

Interest-bearing deposits in other banks
 
50,218

 
58,914

Total cash, cash equivalents and restricted cash
 
98,342

 
102,971

Investments:
 
 

 
 

Available-for-sale securities, at fair value
 
780,343

 
789,899

Held-to-maturity securities, at amortized cost (fair value of $90.6 million and $94.9 million, respectively)
 
92,933

 
94,073

Other investments
 
16,901

 
23,670

Total investments
 
890,177

 
907,642

Loans held for sale, at fair value
 
10,158

 
8,103

Loans
 
2,908,843

 
2,782,439

Less: allowance for loan losses
 
(23,526
)
 
(24,171
)
Net loans
 
2,885,317

 
2,758,268

Goodwill
 
94,697

 
94,697

Other intangible assets, net of amortization
 
4,411

 
4,955

Bank-owned life insurance
 
89,312

 
87,489

Premises and equipment, net
 
41,277

 
41,891

Deferred tax assets
 
25,738

 
22,776

Other assets
 
52,155

 
36,606

Total assets
 
$
4,191,584

 
$
4,065,398

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Liabilities
 
 

 
 

Deposits:
 
 

 
 

Demand
 
$
564,113

 
$
478,643

Interest checking
 
932,972

 
855,570

Savings and money market
 
996,790

 
985,508

Certificates of deposit
 
446,414

 
475,010

Brokered deposits
 
280,466

 
205,760

Total deposits
 
3,220,755

 
3,000,491

Short-term borrowings
 
409,732

 
541,796

Long-term borrowings
 
10,738

 
10,791

Subordinated debentures
 
59,028

 
58,911

Accrued interest and other liabilities
 
73,806

 
49,996

Total liabilities
 
3,774,059

 
3,661,985

Commitments and Contingencies
 


 


Shareholders’ Equity
 
 

 
 

Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 15,584,526 and 15,524,704 on September 30, 2018 and December 31, 2017, respectively
 
158,019

 
156,904

Retained earnings
 
292,741

 
266,723

Accumulated other comprehensive loss:
 
 

 
 

Net unrealized losses on available-for-sale debt securities, net of tax
 
(26,221
)
 
(10,300
)
Net unrealized losses on cash flow hedging derivative instruments, net of tax
 
(3,373
)
 
(5,926
)
Net unrecognized losses on postretirement plans, net of tax
 
(3,641
)
 
(3,988
)
Total accumulated other comprehensive loss
 
(33,235
)
 
(20,214
)
Total shareholders’ equity
 
417,525

 
403,413

Total liabilities and shareholders’ equity
 
$
4,191,584

 
$
4,065,398

The accompanying notes are an integral part of these consolidated financial statements.

3



CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(In thousands, except number of shares and per share data)
 
2018
 
2017
 
2018
 
2017
Interest Income
 
 

 
 

 
 
 
 
Interest and fees on loans
 
$
32,813

 
$
29,350

 
$
94,014

 
$
84,835

Interest on U.S. government and sponsored enterprise obligations (taxable)
 
4,408

 
4,177

 
13,019

 
12,788

Interest on state and political subdivision obligations (nontaxable)
 
659

 
686

 
1,989

 
2,079

Interest on deposits in other banks and other investments
 
677

 
497

 
1,902

 
1,362

Total interest income
 
38,557

 
34,710

 
110,924

 
101,064

Interest Expense
 
 

 
 

 
 

 
 

Interest on deposits
 
5,255

 
3,027

 
13,463

 
8,568

Interest on borrowings
 
2,021

 
1,665

 
6,099

 
4,302

Interest on subordinated debentures
 
858

 
858

 
2,556

 
2,553

Total interest expense
 
8,134

 
5,550

 
22,118

 
15,423

Net interest income
 
30,423

 
29,160

 
88,806

 
85,641

Provision for credit losses
 
354

 
817

 
840

 
2,797

Net interest income after provision for credit losses
 
30,069

 
28,343

 
87,966

 
82,844

Non-Interest Income
 
 

 
 

 
 

 
 

Debit card income
 
2,173

 
2,061

 
6,228

 
5,887

Service charges on deposit accounts
 
1,910

 
1,852

 
5,679

 
5,632

Mortgage banking income, net
 
1,758

 
2,076

 
4,758

 
5,566

Income from fiduciary services
 
1,339

 
1,229

 
4,029

 
3,831

Brokerage and insurance commissions
 
615

 
600

 
1,950

 
1,601

Bank-owned life insurance
 
606

 
603

 
1,823

 
1,750

Other service charges and fees
 
596

 
589

 
1,564

 
1,558

Net gain on sale of securities
 
664

 
827

 
695

 
827

Other income
 
731

 
462

 
1,971

 
2,107

Total non-interest income
 
10,392

 
10,299

 
28,697

 
28,759

Non-Interest Expense
 
 

 
 

 
 

 
 

Salaries and employee benefits
 
13,143

 
12,145

 
38,433

 
36,240

Furniture, equipment and data processing
 
2,575

 
2,429

 
7,710

 
7,204

Net occupancy costs
 
1,614

 
1,599

 
5,112

 
5,234

Consulting and professional fees
 
958

 
714

 
2,878

 
2,412

Debit card expense
 
833

 
662

 
2,339

 
2,034

Regulatory assessments
 
447

 
574

 
1,447

 
1,607

Other real estate owned and collection costs, net
 
239

 
258

 
565

 
558

Amortization of intangible assets
 
182

 
473

 
544

 
1,417

Other expenses
 
3,175

 
2,971

 
9,337

 
8,705

Total non-interest expense
 
23,166

 
21,825

 
68,365

 
65,411

Income before income tax expense
 
17,295

 
16,817

 
48,298

 
46,192

Income tax expense
 
3,238

 
5,478

 
9,204

 
14,543

Net Income
 
$
14,057

 
$
11,339

 
$
39,094

 
$
31,649

Per Share Data
 
 

 
 

 
 

 
 

Basic earnings per share
 
$
0.90

 
$
0.72

 
$
2.50

 
$
2.03

Diluted earnings per share
 
$
0.90

 
$
0.72

 
$
2.50

 
$
2.02

Weighted average number of common shares outstanding
 
15,580,782

 
15,515,189

 
15,565,355

 
15,505,698

Diluted weighted average number of common shares outstanding
 
15,638,986

 
15,589,008

 
15,621,400

 
15,580,072

Cash dividends declared per share
 
$
0.30

 
$
0.23

 
$
0.85

 
$
0.69


The accompanying notes are an integral part of these consolidated financial statements.  

4



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(In thousands)
 
2018
 
2017
 
2018
 
2017
Net Income
 
$
14,057

 
$
11,339

 
$
39,094

 
$
31,649

Other comprehensive (loss) income:
 
 
 
 

 
 
 
 
Net change in unrealized losses on available-for-sale securities:
 
 
 
 
 
 
 
 
Net change in unrealized losses on available-for-sale securities, net of tax of $887, $142, $4,376 and ($784), respectively
 
(3,240
)
 
(262
)
 
(15,963
)
 
1,458

Net reclassification adjustment for net losses (gains) included in net income, net of tax of ($59), $289, ($66) and $289, respectively(1)
 
216

 
(538
)
 
240

 
(538
)
Net change in unrealized losses on available-for-sale securities, net of tax
 
(3,024
)
 
(800
)
 
(15,723
)
 
920

Net change in unrealized losses on cash flow hedging derivatives:
 
 
 
 
 
 
 
 
Net change in unrealized losses on cash flow hedging derivatives, net of tax of ($127), $43, ($556) and $243, respectively
 
462

 
(80
)
 
2,031

 
(452
)
Net reclassification adjustment for effective portion of cash flow hedges, net of tax of ($38), ($128), ($143) and ($432), respectively(2)
 
139

 
238

 
522

 
802

Net change in unrealized losses on cash flow hedging derivatives, net of tax
 
601


158


2,553


350

Reclassification of amortization of net unrecognized actuarial loss and prior service cost, net of tax of ($31), ($23), ($94) and ($69), respectively(3)
 
115

 
42

 
347

 
128

Other comprehensive (loss) income
 
(2,308
)
 
(600
)
 
(12,823
)
 
1,398

Comprehensive Income
 
$
11,749

 
$
10,739

 
$
26,271

 
$
33,047

(1)
Reclassified into the consolidated statements of income within net gain on sale of securities.
(2)
Reclassified into the consolidated statements of income within interest on borrowings and subordinated debentures.
(3)
Reclassified into the consolidated statements of income within salaries and employee benefits and other expenses.
 
The accompanying notes are an integral part of these consolidated financial statements.

5



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)
 
 
Common Stock
 
 
 
Accumulated
Other Comprehensive
Loss
 
Total Shareholders’
Equity
(In thousands, except number of shares and per share data)
 
Shares
Outstanding
 
Amount
 
Retained
Earnings
 
 
Balance at December 31, 2016
 
15,476,379

 
$
156,041

 
$
249,415

 
$
(13,909
)
 
$
391,547

Net income
 

 

 
31,649

 

 
31,649

Other comprehensive income, net of tax
 

 

 

 
1,398

 
1,398

Stock-based compensation expense
 

 
1,135

 

 

 
1,135

Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings
 
39,198

 
(615
)
 

 

 
(615
)
Cash dividends declared ($0.69 per share)
 

 

 
(10,748
)
 

 
(10,748
)
Balance at September 30, 2017
 
15,515,577

 
$
156,561

 
$
270,316

 
$
(12,511
)
 
$
414,366

 
 
 
 
 
 
 
 
 
 

Balance at December 31, 2017
 
15,524,704

 
$
156,904

 
$
266,723

 
$
(20,214
)
 
$
403,413

Cumulative-effect adjustment (Note 2)
 

 

 
198

 
(198
)
 

Net income
 

 

 
39,094

 

 
39,094

Other comprehensive loss, net of tax
 

 

 

 
(12,823
)
 
(12,823
)
Stock-based compensation expense
 

 
1,405

 

 

 
1,405

Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings
 
59,822

 
(290
)
 

 

 
(290
)
Cash dividends declared ($0.85 per share)
 

 

 
(13,274
)
 

 
(13,274
)
Balance at September 30, 2018
 
15,584,526


$
158,019


$
292,741

 
$
(33,235
)
 
$
417,525


 The accompanying notes are an integral part of these consolidated financial statements.

6



CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Nine Months Ended 
 September 30,
(In thousands)
 
2018
 
2017
Operating Activities
 
 

 
 

Net Income
 
$
39,094

 
$
31,649

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Originations of mortgage loans held for sale
 
(157,736
)
 
(148,661
)
Proceeds from the sale of mortgage loans
 
159,740

 
155,086

Gain on sale of mortgage loans, net of origination costs
 
(4,126
)
 
(4,323
)
Depreciation and amortization expense
 
2,845

 
2,789

Investment securities amortization and accretion, net
 
2,428

 
2,350

Purchase accounting accretion, net
 
(1,484
)
 
(2,204
)
Stock-based compensation expense
 
1,405

 
1,135

Provision for credit losses
 
840

 
2,797

Amortization of intangible assets
 
544

 
1,417

Net (gain) loss on sale of premises and equipment
 
(34
)
 
11

Net gain on sale of investment securities
 
(695
)
 
(827
)
Net increase in other real estate owned valuation allowance and gain on disposition
 

 
(60
)
Increase in other assets
 
(5,444
)
 
(93
)
Increase in other liabilities
 
16,170

 
1,325

Net cash provided by operating activities
 
53,547

 
42,391

Investing Activities
 
 

 
 

Proceeds from the sale and maturity of available-for-sale securities
 
135,282

 
124,548

Purchase of available-for-sale securities
 
(148,842
)
 
(127,684
)
Proceeds from maturities of held-to-maturity securities
 
750

 

Net increase in loans
 
(126,860
)
 
(153,629
)
Purchase of bank-owned life insurance, net of death benefit proceeds
 

 
(7,000
)
Purchase of Federal Home Loan Bank stock
 
(9,391
)
 
(8,304
)
Proceeds from sale of Federal Home Loan Bank stock
 
16,943

 
6,947

Purchase of premises and equipment
 
(2,879
)
 
(2,378
)
Proceeds from the sale of premises and equipment
 
749

 
137

Proceeds from the liquidation of equity investment
 
205

 

Recoveries of previously charged-off loans
 
361

 
442

Proceeds from the sale of other real estate owned
 

 
641

Net cash used by investing activities
 
(133,682
)
 
(166,280
)
Financing Activities
 
 
 
 

Net increase in deposits
 
220,376

 
128,131

Net (repayments of) proceeds from borrowings less than 90 days
 
(132,098
)
 
33,841

Repayments of Federal Home Loan Bank long-term advances
 

 
(20,000
)
Repayments of wholesale repurchase agreements
 

 
(5,000
)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings
 
(290
)
 
(615
)
Cash dividends paid on common stock
 
(12,482
)
 
(10,740
)
Net cash provided by financing activities
 
75,506

 
125,617

Net (decrease) increase in cash, cash equivalents and restricted cash
 
(4,629
)
 
1,728

Cash, cash equivalents, and restricted cash at beginning of period
 
102,971

 
87,707

Cash, cash equivalents and restricted cash at end of period
 
$
98,342

 
$
89,435

Supplemental information
 
 

 
 

Interest paid
 
$
21,434

 
$
15,383

Unsettled purchases of investment securities
 

 
13,954

Income taxes paid
 
8,926

 
11,559

Transfer from loans to other real estate owned
 
55

 

The accompanying notes are an integral part of these consolidated financial statements.

7


NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in tables expressed in thousands, except per share data)


NOTE 1 – BASIS OF PRESENTATION
 
The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation (the "Company") as of September 30, 2018 and December 31, 2017, the consolidated statements of income for the three and nine months ended September 30, 2018 and 2017, the consolidated statements of comprehensive income for the three and nine months ended September 30, 2018 and 2017, the consolidated statements of changes in shareholders' equity for the nine months ended September 30, 2018 and 2017, and the consolidated statements of cash flows for the nine months ended September 30, 2018 and 2017. The consolidated financial statements include the accounts of the Company and Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company (which includes the consolidated accounts of Healthcare Professional Funding Corporation ("HPFC"), Property A, Inc. and Property P, Inc.). All significant intercompany transactions and balances are eliminated in consolidation. Certain items from the prior period were reclassified to conform to the current period presentation. The income reported for the three and nine months ended September 30, 2018, is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

8



The acronyms, abbreviations and definitions identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following is provided to aid the reader and provide a reference page when reviewing these sections of the Form 10-Q.
AFS:
Available-for-sale
 
HPFC:
Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank
ALCO:
Asset/Liability Committee
 
HTM:
Held-to-maturity
ALL:
Allowance for loan losses
 
IRS:
Internal Revenue Service
AOCI:
Accumulated other comprehensive income (loss)
 
LIBOR:
London Interbank Offered Rate
ASC:
Accounting Standards Codification
 
LTIP:
Long-Term Performance Share Plan
ASU:
Accounting Standards Update
 
Management ALCO:
Management Asset/Liability Committee
Bank:
Camden National Bank, a wholly-owned subsidiary of Camden National Corporation
 
MBS:
Mortgage-backed security
BOLI:
Bank-owned life insurance
 
MSPP:
Management Stock Purchase Plan
Board ALCO:
Board of Directors' Asset/Liability Committee
 
N.M.:
Not meaningful
CCTA:
Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation
 
OCC:
Office of the Comptroller of the Currency
CDs:
Certificate of deposits
 
OCI:
Other comprehensive income (loss)
Company:
Camden National Corporation
 
OREO:
Other real estate owned
CMO:
Collateralized mortgage obligation
 
OTTI:
Other-than-temporary impairment
DCRP:
Defined Contribution Retirement Plan
 
SBM:
SBM Financial, Inc., the parent company of The Bank of Maine
EPS:
Earnings per share
 
SERP:
Supplemental executive retirement plans
FASB:
Financial Accounting Standards Board
 
Tax Act:
Tax Cuts and Jobs Act of 2017, enacted on December 22, 2017
FDIC:
Federal Deposit Insurance Corporation
 
TDR:
Troubled-debt restructured loan
FHLB:
Federal Home Loan Bank
 
UBCT:
Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
FHLBB:
Federal Home Loan Bank of Boston
 
U.S.:
United States of America
FRB:
Federal Reserve System Board of Governors
 
2003 Plan:
2003 Stock Option and Incentive Plan
FRBB:
Federal Reserve Bank of Boston
 
2012 Plan:
2012 Equity and Incentive Plan
GAAP:
Generally accepted accounting principles in the United States
 
 
 

9




NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Standards Adopted

The Company has adopted the following new accounting standards in 2018, and such standards have been accounted for and presented within the accompanying consolidated financial statements for the three and nine months ended September 30, 2018 as follows:

ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09") and ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ("ASU 2015-14"): In May 2014, the FASB issued ASU 2014-09 followed by the issuance of ASU 2015-14 in August 2015, to defer the effective date of ASU 2014-09 by one year. ASU 2014-09 was issued to clarify the principles for recognizing revenue and to develop a common revenue standard. Effective January 1, 2018, the Company adopted ASU 2014-09 using the modified-retrospective transition method. As part of its assessment, the Company concluded that the following material revenue streams were within the scope of ASU 2014-09: (i) service charges on deposit accounts; (ii) debit card interchange income; (iii) income from fiduciary services and (iv) investment program income. Through the Company's assessment, it was determined that there will be no cumulative-effect adjustment to beginning shareholders' equity under the modified-retrospective transition method within the consolidated financial statements as there was no change in revenue recognition upon adoption of ASU 2014-09.

The details of the revenue streams within the scope of ASU 2014-09 are as follows:

Service charges on deposit accounts: Deposit-related fees, include, but are not limited to, overdraft income, service charge income, and other fees generated by the depositor relationship with the Bank. For each depositor relationship, an agreement and related disclosures outline the terms of the contract between the depositor and the Bank, including the assessment of fees and fee structure for its various products. The contract is day-to-day and can be closed by the customer or the Bank at any time. As such, the Company recognizes revenue at the time of the transaction as the performance obligation has been met.

The Company presents its revenues earned on service charges on deposit accounts within (i) service charges on deposit accounts and (ii) other service charges and fees on the consolidated statements of income.

Debit card interchange income: The Bank has separate contracts with intermediaries and earns interchange revenue and incurs related expenses on debit card transactions of its deposit customers. Income earned and expenses incurred by the Bank are dependent on its depositors' debit card usage, including depositor spend, transaction type and merchant. The rates earned are determined by the intermediaries. The Company determined that although the contract for which revenues are directly earned is with the intermediary rather than the depositor, that an underlying contract with each depositor is required for the generation of debit card interchange income and it is the depositors' debit card usage that drives the revenues earned and related expenses incurred. The contract with the depositor is day-to-day and can be closed by the customer or the Bank at any time. As such, the Company recognizes revenue at the time of the transaction as the performance obligation has been met.

The Company's debit card interchange revenue and related expenses are presented on a gross basis in accordance with ASU 2014-09 as clarified by ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations ("ASU 2016-08"), as it has control of the specified service prior to transfer to the depositor through the extension of credit.

The Bank pays to certain depositors cash rewards for debit card usage to promote usage and increase interchange revenue. Because the consideration paid to depositors is not for any separate or distinct service, upon adoption of ASU 2014-09, these costs are accounted for and presented as a reduction of debit card income for periods beginning on January 1, 2018. For the three and nine months ended September 30, 2018, cash rewards paid to certain depositors totaled $113,000 and $319,000, respectively. Because the modified-retrospective transition method was used, the Company did not revise prior period presentation on its consolidated statements of income.

The Company presents its revenues earned on debit card income within debit card income and related expenses on debit card transactions within debit card expense on the consolidated statements of income.


10



Fiduciary services income: The Company, through the Bank's wealth management and trust services department, doing business as Camden National Wealth Management, earns fees for its investment management and related services for its clients. Fees earned for its services are largely dependent on assets under management as of the last day of the month and do not contain performance clauses. Should the applicable services contract be terminated by either party, fees for services are earned up to the effective date of contract termination. As such, fiduciary services income is earned and recognized daily.

The Company presents its revenues earned on fiduciary services within income from fiduciary services on the consolidated statements of income.

Investment program income: Under an investment program offered by the Bank, doing business as Camden Financial Consultant (“Program”), its clients are provided access to brokerage, advisory and insurance products offered through an unaffiliated third party, LPL Financial LLC1 ("LPL Financial"). Certain Bank employees are registered securities representatives and/or registered investment advisor representatives of LPL Financial who operate in such capacity under Camden Financial Consultants to provide clients with brokerage, investment advisory and insurance related services. The Bank receives a portion of the commissions and fees received by LPL Financial from the sale of investment products and investment advisory services in accordance with the terms of the contract between the two parties.

The revenues earned by the Bank are net of administrative expenses and the portion retained by LPL Financial. The Bank does not have control of the specified services provided to its clients by LPL Financial under the Program. Revenues earned from Program-related services are presented on the consolidated statements of income on a net basis in accordance with ASU 2014-09 as clarified by ASU 2016-08.

The Company presents its revenues earned from Program-related services within brokerage and insurance commissions on the consolidated statements of income.

ASU No. 2016-01, Income Statement - Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities ("ASU 2016-01"): In January 2016, the FASB issued ASU 2016-01 to enhance the reporting model for financial instruments to provide the users of financial statements with more useful information for decisions. Effective January 1, 2018, the Company adopted ASU 2016-01 and applied the provisions of the standard within its consolidated financial statements for the three and nine months ended September 30, 2018, which included:
The Company's equity investments are no longer designated and accounted for as AFS securities, with the change in fair value recognized within AOCI, net of tax. Instead, the change in fair value of equity investments with a readily determinable fair value are to be recognized within net income. For the three and nine months ended September 30, 2018, the Company recognized an unrealized gain of $11,000 and an unrealized loss of $13,000, respectively, for the change in fair value of its equity investments within other income on the Company's consolidated statements of income. The recognition for the change in fair value within net income was applied prospectively, and the Company recorded a cumulative-effect adjustment as of January 1, 2018 for its equity investments to reclassify the unrealized gain of $198,000, net of tax, previously recognized within AOCI to retained earnings.
The Company used the "exit price" notion when measuring the fair value of financial instruments for disclosure purposes only. The Company previously used the "entry price" notion for purposes of measuring its loans held for investment for disclosure purposes only. The change in valuation methodology has been applied prospectively as it does not have a material effect on the comparability of the disclosure.
The Company no longer discloses the method or significant assumptions used to estimate the fair value for its financial instruments measured at amortized cost on its consolidated statements of condition for which fair value is provided for disclosure purposes only.

______________________________________________________________________________________________________
1
Securities are offered through LPL Financial, Member FINRA/SIPC. Camden Financial Consultants and the Bank are not registered broker/dealers and are not affiliated with LPL Financial. The investment products sold through LPL Financial are not insured by Bank deposits and are not insured by the Federal Deposit Insurance Corporation ("FDIC"). These products are not obligations of the Bank and are not endorsed, recommended or guaranteed by the Bank or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

11



ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"): In March 2017, the FASB issued ASU 2017-07 to improve the presentation of net periodic pension cost and net periodic postretirement cost by companies to disaggregate the service cost component from the other components of net benefit cost, as well as to provide other guidance to improve consistency, transparency and usefulness. Prior to adoption, the Company presented all components of net periodic benefit costs within the salaries and employee benefits on the Company's consolidated statements of income. Upon adoption, the Company now presents the service cost component of net periodic benefit cost in the salaries and employee benefits line and all other components of net periodic cost within other expenses on its consolidated statements of income. The change in presentation has been applied retrospectively to prior periods represented on the Company's consolidated statements of income using the amounts previously disclosed within its prior year financial statements as a practical expedient.

ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"): In August 2016, the FASB issued ASU 2016-15 to address eight specific cash flow presentation matters within the statement of cash flows and reduce diversity of presentation across companies. Of the eight specific cash flow presentation matters addressed by the standard, it is noted that one matter addressed is of relevance to the Company based on its current and past operations: proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies. The standard states that cash proceeds received from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, should be classified as cash inflows from investing activities within the consolidated statements of cash flows.

The Company adopted the standard for financial reporting periods beginning after December 15, 2017 and it has been applied within the accompanying consolidated statements of cash flows using a retrospective transition method.

ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"): In November 2017, the FASB issued ASU 2016-18 to reduce the diversity in practice for the classification and presentation of changes in restricted cash on the statement of cash flows. The standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As such, the statement of cash flows should consider the changes in amounts generally described as restricted cash or restricted cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown in the consolidated statements of cash flows.

The Company adopted the standard for financial reporting periods beginning after December 15, 2017 and it has been applied within the accompanying consolidated statements of cash flows using a retrospective transition method.

ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities ("ASU 2017-08"): In March 2017, the FASB issued ASU 2017-08 to shorten the amortization period for certain callable debt securities purchased and carried at a premium, by requiring the premium to be amortized to the earliest call date of the debt security. ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period.

ASU 2017-08 is not a change in practice for the Company. The Company’s historical accounting policy has been to amortize the premium on purchased callable debt securities using the interest method over the earlier of (i) period to maturity or (ii) the issuer call option date.

The Company adopted ASU 2017-08 in the third quarter of 2018, effective as of January 1, 2018, on a modified retrospective basis. As ASU 2017-08 did not constitute a change in accounting policy for the Company, it did not impact its overall financial statements upon adoption.

Accounting Standards Issued

The following are recently issued accounting pronouncements that have yet to be adopted by the Company:

ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"): In February 2016, the FASB issued ASU 2016-02 to increase transparency and comparability among organizations by recognizing lease assets and liabilities (including operating leases) on the balance sheet and disclosing key information about leasing arrangements. Current lease accounting does not require the

12



inclusion of operating leases in the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early application is permitted.

ASU 2016-02, and subsequently issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11"), provides companies with various practical expedients to offer transitional relief. At this time, the Company anticipates it will adopt the standard using the following transitional practical expedients:
An entity need not reassess whether any expired or existing contract are or contain leases. As such, the Company will not reassess expired or existing contracts to assess whether or not these contracts are or contain a lease within the scope of ASU 2016-02.
An entity need not reassess the lease classification for any expired or existing leases. As such, all existing leases that were classified as operating leases in according with Topic 840, Leases (“Topic 840”), will be classified as operating leases, and all existing leases that were classified as capital leases in accordance with Topic 840 will be classified as finance leases.
An entity need not reassess initial direct costs for any existing leases. Accordingly, the Company does not expect to reassess direct costs for any of its existing leases.
An entity may elect to apply hindsight to leases that existed during the period from the beginning of the earliest period presented in the financial statements until the effective date. As such, the Company will apply hindsight to determine the lease term (i.e., the entity should consider the outcome of lessee options to extend or terminate the lease and decisions to purchase the underlying asset) as well as to assess the impairment of right-of-use assets.
ASU 2018-11 provided another transition method in addition to the modified retrospective method provided for within ASU 2016-02. ASU 2018-11 allows companies initially to apply the new leases standards at the date of adoption and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Accordingly, the Company will utilize the optional transition method provided for within ASU 2018-11, and will continue to apply the disclosure requirements under Topic 840, for the comparative periods that are presented.

Upon adoption, ASU 2016-02 will increase the Company's total assets and liabilities on its consolidated statements of condition. The Company continues to finalize its assessment and implementation process for ASU 2016-02; however, at this time, the Company does not anticipate the ASU will have a material effect on its consolidated financial statements.

ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities ("ASU 2017-12"): In August 2017, the FASB issued ASU 2017-12 to make certain specific improvements to hedge accounting to better align hedge accounting with risk management activities, eliminate the separate measurement and recording of hedge ineffectiveness, improve presentation and disclosure, and make other simplifications. ASU 2017-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. All transition requirements and elections are to be applied to existing hedging relationships upon adoption. While the Company continues to assess the impact of ASU 2017-12, it does not believe it will have a material impact on its consolidated financial statements upon adoption.

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"): In June 2016, the FASB issued ASU 2016-13 to require timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, for public companies. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within that fiscal year. The Company will adopt the guidance under a modified-retrospective approach, whereby a cumulative-effect adjustment will be made to retained earnings upon adoption. The Company will use a prospective transition approach for debt securities for which an OTTI had been recognized before the effective date, as applicable.

While the Company continues to prepare for the adoption of ASU 2016-13 on January 1, 2020, it recognizes the changes to its consolidated financial statements upon adoption are imminent as the ASU requires:
A change in the Company's assessment of its ALL and allowance on unused commitments as it will transition from an incurred loss model to an expected loss model, which may result in an increase in the ALL upon adoption and may negatively impact the Company and Bank's regulatory capital ratios.

13



May reduce the carrying value of the Company's HTM investment securities as it will require an allowance on the expected losses over the life of these securities to be recorded upon adoption.
Changes to the considerations when assessing AFS debt securities for OTTI, including (i) no longer considering the amount of time a security has been in an unrealized loss position and (ii) no longer considering the historical and implied volatility of a security and recoveries or declines in the fair value after the balance sheet date, as well as the presentation of OTTI as an allowance rather than a permanent write-down of the debt security.
Changes to the disclosure requirements to reflect the transition from an incurred loss methodology to an expected credit loss methodology, as well as certain disclosures of credit quality indicators in relation to the amortized cost of financing receivables disaggregated by year of origination (or vintage).

The Company continues to assess the overall impact to its financial statements, and, at this time, it does not have an estimated impact to its financial statements.

ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"): In January 2017, the FASB issued ASU 2017-04 to reduce the cost and complexity of the goodwill impairment test. To simplify the subsequent measurement of goodwill, step two of the goodwill impairment test was eliminated. Instead, in accordance with ASU 2017-04, a Company will recognize an impairment of goodwill should the carrying value of a reporting unit exceed its fair value (i.e., step one). ASU 2017-04 will be effective for the Company on January 1, 2020 and will be applied prospectively. The Company does not expect the ASU to have a material impact on its consolidated financial statements upon adoption.

NOTE 3 – EPS
 
The following is an analysis of basic and diluted EPS, reflecting the application of the two-class method, as described below:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
$
14,057

 
$
11,339

 
$
39,094

 
$
31,649

Dividends and undistributed earnings allocated to participating securities(1)
 
(39
)
 
(46
)
 
(110
)
 
(134
)
Net income available to common shareholders
 
$
14,018

 
$
11,293

 
$
38,984

 
$
31,515

Weighted-average common shares outstanding for basic EPS
 
15,580,782

 
15,515,189

 
15,565,355

 
15,505,698

Dilutive effect of stock-based awards(2)
 
58,204

 
73,819

 
56,045

 
74,374

Weighted-average common and potential common shares for diluted EPS
 
15,638,986

 
15,589,008

 
15,621,400

 
15,580,072

Earnings per common share(1):
 
 

 
 

 
 
 
 
Basic EPS
 
$
0.90

 
$
0.72

 
$
2.50

 
$
2.03

Diluted EPS
 
$
0.90

 
$
0.72

 
$
2.50

 
$
2.02

(1) Represents dividends paid and undistributed earnings allocated to nonvested stock-based awards that contain non-forfeitable rights to dividends.
(2) Represents the effect of the assumed exercise of stock options and vesting of restricted shares and restricted stock units utilizing the treasury stock method. Not included are the unvested LTIP awards, which are the Company's performance-based awards.

For the three and nine months ended September 30, 2018 and 2017, there were no anti-dilutive stock based awards that have been excluded from the computation of potential common shares for purposes of calculating diluted EPS as the average market price of the Company's common stock is greater than the exercise prices.

Nonvested stock-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or

14



accumulated) and participation rights in undistributed earnings. Certain of the Company’s nonvested stock-based awards qualify as participating securities. 
  
Net income is allocated between the common stock and participating securities pursuant to the two-class method. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating nonvested stock-based awards. Diluted EPS is computed in a similar manner, except that the denominator includes the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.





15



NOTE 4 – INVESTMENTS

AFS and HTM Investments

The following table summarizes the amortized cost and estimated fair values of AFS and HTM securities, as of the dates indicated: 
 
Amortized
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
September 30, 2018
 

 
 

 
 

 
 

AFS Investments (carried at fair value):
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
4,778

 
$
44

 
$
(4
)
 
$
4,818

Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
479,836

 
350

 
(19,888
)
 
460,298

Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
320,543

 

 
(13,932
)
 
306,611

Subordinated corporate bonds
8,589

 
65

 
(38
)
 
8,616

Total AFS investments
$
813,746

 
$
459

 
$
(33,862
)
 
$
780,343

HTM Investments (carried at amortized cost):
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
92,933

 
$
58

 
$
(2,441
)
 
$
90,550

Total HTM investments
$
92,933

 
$
58

 
$
(2,441
)
 
$
90,550

December 31, 2017
 

 
 

 
 

 
 

AFS Investments (carried at fair value):
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
7,232

 
$
103

 
$

 
$
7,335

Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
510,176

 
597

 
(7,471
)
 
503,302

Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
279,575

 
14

 
(6,790
)
 
272,799

Subordinated corporate bonds
5,484

 
173

 

 
5,657

Equity investments(1)
554

 
252

 

 
806

Total AFS investments
$
803,021

 
$
1,139

 
$
(14,261
)
 
$
789,899

HTM Investments (carried at amortized cost):
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
94,073

 
$
1,077

 
$
(237
)
 
$
94,913

Total HTM investments
$
94,073

 
$
1,077

 
$
(237
)
 
$
94,913

(1)
As of December 31, 2017, equity investments were classified as AFS investments. Effective January 1, 2018, these investments were reclassified to other investments on the consolidated statements of condition as they are no longer eligible to be classified as AFS upon adoption of ASU 2016-01. Refer to Note 2 for further details.

Net unrealized losses on AFS investments at September 30, 2018 included in AOCI amounted to $26.2 million, net of a deferred tax benefit of $7.2 million. Net unrealized losses on AFS investments at December 31, 2017 included in AOCI amounted to $10.3 million, net of a deferred tax benefit of $2.8 million.

For the nine months ended September 30, 2018 and 2017, the Company purchased debt investments of $148.8 million and $141.6 million, respectively, all of which were designated as AFS investments.

Impaired AFS and HTM Investments:
Management periodically reviews the Company’s AFS and HTM investments to determine the cause, magnitude and duration of declines in the fair value of each security. Thorough evaluations of the causes of the unrealized losses are performed to determine whether the impairment is temporary or other-than-temporary in nature. Considerations such as the ability of the securities to meet cash flow requirements, levels of credit enhancements, risk of curtailment, and recoverability of invested amount over a reasonable period of time, and the length of time the security is in a loss position, for example, are applied in

16



determining OTTI. Once a decline in value is determined to be other-than-temporary, the cost basis of the security is permanently reduced and a corresponding charge to earnings is recognized.
 
The following table presents the estimated fair values and gross unrealized losses on AFS and HTM investments that were in a continuous loss position at September 30, 2018 and December 31, 2017, by length of time that an individual security in each category has been in a continuous loss position:  
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
September 30, 2018
 

 
 

 
 

 
 

 
 

 
 

AFS Investments:
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
1,516

 
$
(4
)
 
$

 
$

 
$
1,516

 
$
(4
)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
120,098

 
(2,544
)
 
328,180

 
(17,344
)
 
448,278

 
(19,888
)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
123,951

 
(2,220
)
 
181,524

 
(11,712
)
 
305,475

 
(13,932
)
Subordinated corporate bonds
5,051

 
(38
)
 

 

 
5,051

 
(38
)
Total AFS investments
$
250,616

 
$
(4,806
)
 
$
509,704

 
$
(29,056
)
 
$
760,320

 
$
(33,862
)
HTM Investments:
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
67,328

 
$
(1,755
)
 
$
12,546

 
$
(686
)
 
$
79,874

 
$
(2,441
)
Total HTM investments
$
67,328

 
$
(1,755
)
 
$
12,546

 
$
(686
)
 
$
79,874

 
$
(2,441
)
December 31, 2017
 

 
 

 
 

 
 

 
 

 
 

AFS Investments:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises
$
221,466

 
$
(2,393
)
 
$
233,971

 
$
(5,078
)
 
$
455,437

 
$
(7,471
)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises
102,612

 
(696
)
 
164,389

 
(6,094
)
 
267,001

 
(6,790
)
Total AFS investments
$
324,078

 
$
(3,089
)
 
$
398,360

 
$
(11,172
)
 
$
722,438

 
$
(14,261
)
HTM Investments:
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
$
9,317

 
$
(57
)
 
$
9,436

 
$
(180
)
 
$
18,753

 
$
(237
)
Total HTM investments
$
9,317

 
$
(57
)
 
$
9,436

 
$
(180
)
 
$
18,753

 
$
(237
)

At September 30, 2018 and December 31, 2017, the Company held 354 and 209 debt investments classified as AFS and HTM with a fair value of $840.2 million and $741.2 million that were in an unrealized loss position totaling $36.3 million and $14.5 million, respectively, that were considered temporary. Of these, MBS and CMOs with a fair value of $509.7 million and $398.4 million were in an unrealized loss position, and have been in an unrealized loss position for 12 months or more, totaling $29.1 million and $11.2 million at September 30, 2018 and December 31, 2017, respectively. The unrealized loss was reflective of current interest rates in excess of the yield received on debt investments and is not indicative of an overall change in credit quality or other factors with the Company's AFS and HTM investment portfolio. At September 30, 2018 and December 31, 2017, gross unrealized losses on the Company's AFS and HTM investments were 4.3% and 2.0%, respectively, of its respective fair value.

The Company has the intent and ability to retain its debt investments in an unrealized loss position at September 30, 2018 until the decline in value has recovered.


17



Sale of AFS Investments:
The following table details the Company's sales of AFS investments for the period indicated below:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2018
 
2017
 
2018
 
2017
Proceeds from sales of investments
 
$
22,830

 
$
20,269

 
$
32,728

 
$
20,269

Gross realized gains
 

 
841

 
31

 
841

Gross realized losses
 
(275
)
 
(14
)
 
(275
)
 
(14
)

For the three and nine months ended September 30, 2018, the Company sold certain AFS investments with a total carrying value of $23.1 million and $33.0 million and recorded net losses on the sale of these AFS securities of $275,000 and $244,000, respectively, within non-interest income in the consolidated statements of income. The Company had not previously recorded any OTTI on these securities sold.

For the three and nine months ended September 30, 2017 the Company sold certain AFS investments with a total carrying value of $19.4 million and recorded net gains on the sale of AFS securities of $827,000 within non-interest income in the consolidated statements of income. The Company had not previously recorded an OTTI on these securities sold.

AFS and HTM Investments Pledged:
At September 30, 2018 and December 31, 2017, AFS and HTM investments with an amortized cost of $696.6 million and $702.5 million and estimated fair values of $666.2 million and $691.2 million, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.
 
Contractual Maturities:
The amortized cost and estimated fair values of the Company's AFS and HTM investments by contractual maturity at September 30, 2018, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 
 
Amortized
Cost
 
Fair
Value
AFS Investments
 
 
 
Due in one year or less
$
7,933

 
$
7,907

Due after one year through five years
94,474

 
91,482

Due after five years through ten years
193,165

 
184,931

Due after ten years
518,174

 
496,023

 
$
813,746

 
$
780,343

HTM Investments
 
 
 
Due in one year or less
$
4,610

 
$
4,609

Due after one year through five years
1,529

 
1,538

Due after five years through ten years
19,960

 
19,670

Due after ten years
66,834

 
64,733

 
$
92,933

 
$
90,550

 


18



Other Investments

The following table summarizes the cost and estimated fair values of the Company's investment in equity securities, FHLBB stock and FRBB stock as presented within other investments on the consolidated statements of condition, as of the dates indicated: 
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value /
Carrying Value
September 30, 2018
 

 
 

 
 

 
 

Equity securities - bank stock (carried at fair value)(1)
$
544

 
$
239

 
$

 
$
783

FHLBB (carried at cost)
10,744

 

 

 
10,744

FRB (carried at cost)
5,374

 

 

 
5,374

Total other investments
$
16,662

 
$
239

 
$

 
$
16,901

December 31, 2017
 

 
 

 
 

 
 

FHLBB (carried at cost)
$
18,296

 
$

 
$

 
$
18,296

FRB (carried at cost)
5,374

 

 

 
5,374

Total other investments
$
23,670

 
$

 
$

 
$
23,670

(1)
Effective January 1, 2018, these investments were reclassified to other investments on the consolidated statements of condition as they are no longer eligible for AFS classification upon adoption of ASU 2016-01. Refer to Note 2 for further details.

For the three and nine months ended September 30, 2018, the Company recognized an unrealized gain (loss) of $11,000 and $(13,000), respectively, due to the change in fair value of its bank stock equity securities, which were presented within other income on the consolidated statements of income. In addition, the Company's investment in a reinsurance program liquidated during the three months ended March 31, 2018, and a gain of $195,000 was recognized within other income on the Company's consolidated statements of income for the nine months ended September 30, 2018.

For the three and nine months ended September 30, 2018, the Company sold its shares of Visa Inc. Class B common stock, with a carrying value of $441,000 that was presented within other assets on the consolidated statements of condition. The sale resulted in a gain of $939,000 that has been presented within net gain on sale of securities on the consolidated statements of income.

The Bank is a member of the FHLBB and FRBB, and as a member, the Bank is required to hold a certain amount of FHLBB and FRB common stock. This stock is a non-marketable equity security and is reported at cost. The Company evaluates its FHLBB and FRB common stock for impairment based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. For the three or nine months ended September 30, 2018 and 2017, the Company did not record any OTTI on its FHLBB and FRB stock.

NOTE 5 – LOANS AND ALLOWANCE FOR LOAN LOSSES
 
The composition of the Company’s loan portfolio, excluding residential loans held for sale, at September 30, 2018 and December 31, 2017 was as follows:   
 
September 30,
2018
 
December 31,
2017
Residential real estate
$
941,488

 
$
858,369

Commercial real estate
1,215,979

 
1,164,023

Commercial
368,837

 
373,400

Home equity
325,452

 
323,378

Consumer
20,258

 
18,149

HPFC
36,829

 
45,120

Total loans
$
2,908,843

 
$
2,782,439


19




The loan balances for each portfolio segment presented above are net of their respective unamortized fair value mark discount on acquired loans and net of unamortized loan origination costs totaling:
 
September 30,
2018
 
December 31,
2017
Net unamortized fair value mark discount on acquired loans
$
4,757

 
$
6,207

Net unamortized loan origination costs
(1,411
)
 
(963
)
Total
$
3,346

 
$
5,244


The Bank’s lending activities are primarily conducted in Maine, but also include loan production offices in Massachusetts and New Hampshire. The Company originates single family and multi-family residential loans, commercial real estate loans, business loans, municipal loans and a variety of consumer loans. In addition, the Company makes loans for the construction of residential homes, multi-family properties and commercial real estate properties. 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.

The HPFC loan portfolio consists of niche commercial lending to the small business medical field, including dentists, optometrists and veterinarians across the U.S. The ability and willingness of borrowers to honor their repayment commitments is generally dependent on the success of the borrower's business. In 2016, the Company closed HPFC's operations and is no longer originating HPFC loans.

The ALL is management’s best estimate of the inherent risk of loss in the Company’s loan portfolio as of the consolidated statement of condition date. Management makes various assumptions and judgments about the collectability of the loan portfolio and provides an allowance for potential losses based on a number of factors including historical losses. If those assumptions are incorrect, the ALL may not be sufficient to cover losses and may cause an increase in the allowance in the future. Among the factors that could affect the Company’s ability to collect loans and require an increase to the allowance in the future are: (i) financial condition of borrowers; (ii) real estate market changes; (iii) state, regional, and national economic conditions; and (iv) a requirement by federal and state regulators to increase the provision for loan losses or recognize additional charge-offs.

There were no significant changes in the Company's ALL methodology during the nine months ended September 30, 2018.

The Board of Directors monitors credit risk through the Directors' Loan Review Committee, which reviews large credit exposures, monitors the external loan review reports, reviews the lending authority for individual loan officers when required, and has approval authority and responsibility for all matters regarding the loan policy and other credit-related policies, including reviewing and monitoring asset quality trends, concentration levels, and the ALL methodology. Credit Risk Administration and the Credit Risk Policy Committee oversee the Company's systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, maintain the integrity of the loan rating system, determine the adequacy of the ALL and support the oversight efforts of the Directors' Loan Review Committee and the Board of Directors. The Company's practice is to proactively manage the portfolio such that management can identify problem credits early, assess and implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions.

For purposes of determining the ALL, the Company disaggregates its loans into portfolio segments, which include residential real estate, commercial real estate, commercial, home equity, consumer and HPFC. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. These risk characteristics unique to each portfolio segment include:

Residential Real Estate. Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Collateral consists of mortgage liens on one- to four-family residential properties.

Commercial Real Estate. Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational, health care facilities and other specific use properties. Commercial real estate loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Loan-to-value ratios at

20



origination are governed by established policy and regulatory guidelines. Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

Commercial. Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.

Home Equity. Home equity loans and lines are made to qualified individuals for legitimate purposes secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes. The home equity loan has a fixed rate and is billed as equal payments comprised of principal and interest. The home equity line of credit has a variable rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

Consumer. Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured.

HPFC. Prior to the Company's closing of HPFC's operations in 2016, it provided commercial lending to dentists, optometrists and veterinarians, many of which were start-up companies. HPFC's loan portfolio consists of term loan obligations extended for the purpose of financing working capital and/or purchase of equipment. Collateral consists of pledges of business assets including, but not limited to, accounts receivable, inventory, and/or equipment. These loans are primarily paid by the operating cash flow of the borrower and the original terms range from seven to ten years.

21



The following presents the activity in the ALL and select loan information by portfolio segment for the three and nine months ended September 30, 2018 and 2017, and for the year ended December 31, 2017
 
 
Residential
Real Estate
 
Commercial
Real Estate
 
Commercial
 
Home
Equity
 
Consumer
 
HPFC
 
Total
For The Three and Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALL for the three months ended:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Beginning balance
 
$
5,779

 
$
10,310

 
$
4,303

 
$
2,616

 
$
260

 
$
400

 
$
23,668

Loans charged off
 
(115
)
 

 
(150
)
 
(157
)
 
(28
)
 
(209
)
 
(659
)
Recoveries
 
37

 
4

 
117

 

 
3

 
1

 
162

Provision (credit)(1)
 
59

 
268

 
(302
)
 
116

 
38

 
176

 
355

Ending balance
 
$
5,760

 
$
10,582

 
$
3,968

 
$
2,575

 
$
273

 
$
368

 
$
23,526

ALL for the nine months ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
5,086

 
$
11,863

 
$
4,171

 
$
2,367

 
$
233

 
$
451

 
$
24,171

Loans charged off
 
(231
)
 
(512
)
 
(448
)
 
(381
)
 
(70
)
 
(209
)
 
(1,851
)
Recoveries
 
52

 
19

 
237

 
44

 
8

 
1

 
361

Provision (credit)(1)
 
853

 
(788
)
 
8

 
545

 
102

 
125

 
845

Ending balance
 
$
5,760

 
$
10,582

 
$
3,968

 
$
2,575

 
$
273

 
$
368

 
$
23,526

ALL balance attributable to loans:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Individually evaluated for impairment
 
$
619

 
$
23

 
$

 
$
114

 
$

 
$

 
$
756

Collectively evaluated for impairment
 
5,141

 
10,559

 
3,968

 
2,461

 
273

 
368

 
22,770

Total ending ALL
 
$
5,760

 
$
10,582

 
$
3,968

 
$
2,575

 
$
273

 
$
368

 
$
23,526

Loans:
 
 

 
 

 
 

 
 

 
 

 
 
 
 

Individually evaluated for impairment
 
$
5,184

 
$
5,007

 
$
1,548

 
$
373

 
$

 
$

 
$
12,112

Collectively evaluated for impairment
 
936,304

 
1,210,972

 
367,289

 
325,079

 
20,258

 
36,829

 
2,896,731

Total ending loans balance
 
$
941,488

 
$
1,215,979

 
$
368,837

 
$
325,452

 
$
20,258

 
$
36,829

 
$
2,908,843

For The Three and Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ALL for the three months ended:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
4,481

 
$
12,848

 
$
4,275

 
$
2,094

 
$
182

 
$
514

 
$
24,394

Loans charged off
 
(238
)
 
(69
)
 
(369
)
 
(11
)
 
(28
)
 
(193
)
 
(908
)
Recoveries
 
26

 
25

 
59

 
1

 
9

 
5

 
125

Provision (credit)(1)
 
273

 
(8
)
 
256

 
93

 
32

 
156

 
802

Ending balance
 
$
4,542

 
$
12,796

 
$
4,221

 
$
2,177

 
$
195

 
$
482

 
$
24,413

ALL for the nine months ended: