2016
ANNUAL REPORT
Greenville
Dover-Foxcroft
Milo
Bingham
Madison
Corinth
Old Town
Hermon
Newport
Hampden
Bangor (2)
Brewer
Waterville (2)
Oakland
Bucksport
Ellsworth (2)
Belfast (2)
Blue Hill
Town Hill
Milbridge
Calais
Machias
Jonesport
Manchester
Winthrop
Hallowell
Richmond
Augusta (4)
Randolph
Gardiner
Lewiston
Auburn
Union
Castine
Camden (2)
Bar Harbor
Rockland
Stonington
Vinalhaven
Waldoboro Thomaston
Damariscotta
Wiscasset
Bath
Topsham
Brunswick (2)
Falmouth
Portland
Saco
Kennebunk
Manchester
York
Braintree
Boothbay Harbor
LOCATION KEY
Camden National Bank
Camden National Wealth Management
Dear Fellow Shareholders:
One of the highest compliments we receive from customers, shareholders
and our communities is that Camden National makes things simple.
Recently, a new customer shared his story of why he chose Camden
National Bank after moving to Maine from a large city. He was initially
attracted by our mobile banking capabilities, but what amazed him was our
highly personal and responsive customer service. He called our Customer
Assistance team on two occasions, two weeks apart, and during the second
call our specialist mentioned, “I helped you a few weeks ago.” The customer
was elated to find a bank that offered cutting-edge mobile services along
with a simple, high-quality personal experience. It seems that only a few
years ago, remembering a customer by name at a banking center or by voice
on the phone would be the most basic expression of service, but in today’s
digital world, it is a point of differentiation.
While we pride ourselves on our Customer Assistance team, what
created this stand out experience is the support our specialist received
from our recently introduced customer relationship management (CRM)
technology. The implementation of this technology took several months
and many complicated steps—all to make individual customer interactions
simple. Today, our Customer Assistance Center supports over 100,000
customers and answers approximately 190,000 calls per year with the
average specialist handling 62 calls per day.
It’s just as important for us to find quick and easy loan solutions. For
example, during a commercial lender’s meeting with a local business
customer in our Bangor market, the customer indicated he was considering
a major facility expansion in the next 30 days. The customer wondered how
long it would take to obtain financing. We collected financials at the
meeting and came back to the client that afternoon with a commitment,
subsequently closing the loan within a week. It’s this type of flexibility and
responsiveness that makes doing business at Camden National Bank appear
seamless to the customer, even though behind the scenes, the loan process
can be complex.
In this year’s annual report, we will share examples of our efforts to
manage the complexity of banking and meeting our customers’ needs in an
ever-changing environment—all while making it look simple.
For You 24/7
Customers can call
any time –
day or night.
Security
First Maine-based bank
to offer EMV chip-
enabled debit cards.
Simple Banking—Superior Technology
Whether a customer is a young professional or retiree, an individual
or sophisticated business, we are dedicated to simplifying their banking
experience by constantly modernizing and improving our technology
capabilities.
In this arena, we have always competed with large multinational banks
that have the resources to experiment with cutting-edge technologies. In
2016, we witnessed the emergence of small, technology-based, non-bank
organizations—commonly referred to as “Fintech” companies. Typically
unburdened by regulation, these firms are highly innovative and nimble,
but not all that personal or customer focused.
We are staying ahead of the curve in this changing environment,
with upgrades to our mobile banking technology and the offering of
several mobile payment solutions including Apple Pay ®, Android Pay™ and
Samsung Pay.® Previously, we introduced Touch ID™, a secure technology
for iPhone® users.
Our digital banking offerings have been expanded to include the
delivery of online loan statements, notifications and year-end tax
information. At Camden National Bank, customers truly can bank
anywhere, anytime.
Moreover, our new website now serves as the online portal for all of
our banking, brokerage and wealth management services and provides
insightful articles to help our customers succeed at any stage of their
financial journey.
Additionally, we’re leveraging technology to offer customers greater
security than ever before. In 2016, we were the first community bank in
Maine to issue EMV, or “chip” debit cards. We’ve enhanced our round-the-
clock debit card fraud monitoring service to include real-time notification
by text, email or phone of suspicious activity so that customers can
immediately verify with us whether a transaction was authorized or not.
In the fourth quarter, we successfully completed the combination of
Acadia Trust, N.A. and Camden National Bank and launched a new brand,
“Camden National Wealth Management.” Acadia Trust, N.A. had been
operating as a wholly-owned subsidiary of Camden National Corporation
since 2001. This combination leverages the technology, capital and
resources of both companies to better serve our valuable clients. We can
now seamlessly offer clients access to a comprehensive range of deposit
and loan products, complimented by our brokerage services, which will
significantly enhance our wealth management clients’ experience.
Finally, we are the only Maine bank to offer live 24/7 customer
service—giving customers a highly personal banking experience at any
time—day or night. We approach every opportunity with creative, forward-
thinking strategies to help meet our customers’ evolving banking needs.
Whether it’s banking in person, online or by phone, we are committed to
making it convenient and simple.
Growing—And Giving
It is our belief that giving back to the community drives shareholder
value by building goodwill and customer loyalty. Highlighting this
contribution were three major efforts that demonstrated our leadership
in the communities we serve.
Our Hope@Home program achieved a major milestone with over
$140,000 in donations to homeless shelters throughout the state of Maine.
Every time a customer finances the purchase of a home through Camden
National Bank, an unrestricted $100 donation is made to a local shelter
that supports individuals, families, children, veterans, victims of domestic
violence and many others.
Our Leaders and Luminaries program recognizes individuals who
volunteer their time to support nonprofit boards across the state and
culminates in an annual celebration which acknowledges their effective use
of inspiration, creativity and ingenuity in board governance. This year we
recognized six nonprofit board members and donated a total of $22,000
to their respective nonprofit organizations.
Lastly, we donated five historic buildings in downtown Gardiner to the
nonprofit organization, Gardiner Main Street. This seemed like a simple
transfer to the community, but in reality it was a partnership between
Camden National Bank, city officials and Gardiner Main Street to transform
empty and unused building space into a source of economic development
for the city.
$140,000
Donations to
homeless shelters
throughout the
state of Maine.
$687,900,000
Market capitalization
at year-end.
Financial Performance
In recent years, we’ve focused on delivering strong financial results
by growing our core franchise while pursuing new opportunities through
acquisitions and expansion.
It is a major effort to manage the complexity of daily business while
also taking on major projects such as acquiring other companies or
branch networks. Our financial results for 2016 show our ability to manage
the acquisition of SBM Financial, Inc., the parent company of The Bank
of Maine, while also delivering on our long-term financial and strategic
commitments.
We reported record net income of $40.1 million for 2016, compared to
$21.0 million for 2015 which included acquisition related expenses. Diluted
earnings per share, adjusted for merger costs and security gains, increased
12% year over year to $2.61 for 2016 compared to $2.33 in 2015. Adjusted
return on assets for the twelve months ending December 31, 2016 was
1.06%, compared to 0.94% last year, while our adjusted return on tangible
equity was 14.95% and 13.20%, respectively, for the same time periods.
One of the key areas of focus in 2016 was the full integration of The
Bank of Maine and realizing the synergies of combining two organizations,
through both revenue and cost saving opportunities. Total revenues
grew 34% to $152.7 million in 2016, compared to $113.9 million in 2015
which reflects our first full year after merging with The Bank of Maine.
Our efficiency ratio for 2016 of 57.5% beat the 58.0% target since we can
generate higher revenue with moderate increases in operating expenses.
This strong financial performance provided the basis for two important
events directed at rewarding our shareholders. On September 30, 2016, a
3-for-2 stock split occurred which better aligned the trading price of our
shares with those of our peers and improved the liquidity of our stock.
This was followed by the announcement on December 20, 2016 of a 15%
increase in our quarterly cash dividend to shareholders payable on January
31, 2017. This results in an annualized dividend of $0.92 per share on a
post-split basis.
The culmination of strong financial performance and the heightened
interest in community bank stocks post-election resulted in a total
return to Camden National shareholders of 55% in 2016, surpassing the
SNL US Bank $1 to $5 Billion Index of 44%. At year-end, the Company’s
market capitalization reached a record $687.9 million and represents
approximately 15.5 million shares at a stock price of $44.45 as of
December 30, 2016 (the last trading day of 2016).
Governance
Balancing complexity and simplicity takes leadership and
strong corporate governance. Our corporate Board of Directors
consists of experienced business and community leaders. We have
11 independent directors including our non-executive Chair, Karen
Stanley. Our Company’s President and CEO also serves as a director.
These individuals ensure the company’s practices and strategies
align with shareholder expectations. On December 31, 2016, shares
owned by directors and executive officers totaled 346,000, up
from 308,000 shares on December 31, 2015. In December 2016, we
announced the appointment of board member Lawrence “Larry”
Sterrs to the position of Vice Chair. Larry has significant executive
level experience in the telecom industry as an executive and
Chairman of the Board of Unitek, a Maine-based telecommunications
provider. Additionally, he is Board Chair and CEO of the Unity
Foundation which invests in building the capacity of nonprofits that
serve both local Maine communities and statewide needs.
Making the complex appear simple has been a principle of
Camden National that we’ve carried from our founding in 1875 to
the present day. We combine cutting-edge mobile and online
services with a genuine customer focus, and work tirelessly to
provide the best customer experience—whether at a banking center,
online or on the phone. This success has been possible through the
dedication of our employees, loyalty of our customers and support
of our shareholders.
Sincerely,
Karen W. Stanley
Chair, Board of Directors
Gregory A. Dufour
President and Chief Executive Officer
Camden National Corporation Board of Directors
Pictured from left to right (back row): John W. Holmes, Carl J. Soderberg,
Lawrence J. Sterrs, David C. Flanagan, David J. Ott, John M. Rohman,
James H. Page, Ph.D., and Craig S. Gunderson; (front row):
Gregory A. Dufour, Karen W. Stanley (Chair), S. Catherine Longley,
and Ann W. Bresnahan
Camden National Bank Board of Directors
Pictured from left to right (back row): John W. Holmes, Carl J. Soderberg,
David J. Ott, John M. Rohman, Lawrence J. Sterrs, Robert D. Merrill,
David C. Flanagan, and James L. Markos, Jr., Esq.; (front row):
Gregory A. Dufour, Karen W. Stanley (Chair), William P. Dubord,
Ann W. Bresnahan, and Rosemary B. Weymouth
Executive Management
Pictured left to right: Gregory A. Dufour, Deborah A. Jordan, CPA,
Timothy P. Nightingale, June B. Parent, Edward C. Walbridge,
Renée D. Smyth, Edmund M. Hayden III, Mary Beth Haut, and
Joanne T. Campbell
Financial Highlights
Camden National Corporation is the largest publicly traded bank holding company in Northern New England
with $3.9 billion in assets and nearly 650 dedicated employees. Camden National Bank, its subsidiary, is a full-
service community bank that offers an array of consumer and business financial products and services, accompanied
by the latest in digital banking technology to empower customers to bank the way they want. The Bank provides
personalized service through a network of 61 banking centers, 84 ATMs, and lending offices in New Hampshire and
Massachusetts, all complimented by 24/7 live phone support. Comprehensive wealth management, investment,
and financial planning services are delivered by Camden National Wealth Management. Since its founding in 1875, the
Bank has enjoyed a well-established reputation for financial stability, consistent growth and strong community impact.
(Dollars in thousands, except per share data)
2016
2015(1)
2014
2016
2015
Year-over-Year Change
Earnings and Dividends
Total revenues(2)
$ 152,693
$ 113,934
$ 100,627
Total operating expenses
$ 89,896
$ 81,139
$ 62,397
Net income
Adjusted net income(3)
Dividends declared on common shares
$ 40,067
$ 40,597
$ 12,909
$ 20,952
$ 24,570
$ 28,186
$ 24,277
$ 10,602
$ 8,251
Per Share Data(4)
Diluted earnings per share
Adjusted diluted earnings per share(3)
Cash dividends declared per share
Book value at end of period
Tangible book value at end of period(3)
Closing stock price
At Year End
Total assets
Total investment securities
Total loans and loans held for sale
Total deposits
Total sharesholders’ equity
Financial Ratios
Return on average assets
Adjusted return on average assets(3)
Return on average equity
Return on average tangible equity(3)
Adjusted return on average
tangible equity(3)
Net interest margin
Efficiency ratio(3)
Tier I leverage capital ratio
Non-performing assets to total assets
$ 2.57
$ 2.61
$ 0.83
$ 25.30
$ 18.74
$ 44.45
$3,864,230
$ 897,679
$2,609,400
$ 2,828,529
$ 391,547
1.04%
1.06%
10.47%
14.76%
14.95%
3.32%
57.53%
8.83%
0.67%
$ 1.73
$ 2.19
$ 2.33
$ 2.16
$ 0.80 $ 0.74
$ 23.69
$ 22.00
$ 16.89
$ 17.68
$ 29.39
$ 26.56
$3,709,344
$2,789,853
$ 855,995
$ 803,633
$ 2,501,164
$ 1,772,610
$ 2,726,379
$ 1,932,097
$ 363,190
$ 245,109
0.70%
0.94%
7.54%
9.91%
13.20%
3.19%
61.13%
8.74%
0.66%
0.92%
0.90%
10.37%
13.46%
13.30%
3.11%
61.58%
9.26%
0.82%
34%
11%
91%
44%
22%
49%
12%
4%
7%
11%
51%
4%
5%
4%
4%
8%
13%
30%
-15%
16%
28%
-21%
8%
8%
8%
-4%
11%
33%
7%
41%
41%
48%
(1)
2015 includes SBM Financial, Inc.’s acquired assets
and liabilities, at fair value.
(2) Includes net interest income and non-interest income.
(3) This is a non-GAAP measure. Refer to the Company’s
2016 Annual Report on Form 10-K for detailed
calculation.
(4) Per share data has been adjusted to reflect the 3-for-2
stock split effective September 30, 2016, for all
periods presented.
For a complete set of Consolidated Financial Statements,
refer to the Company’s 2016 Annual Report on Form 10-K.
$44.45
$29.39 $26.56
2016 2015 2014
Closing Stock Price
$3.9
$3.7
$2.8
$152.7
$113.9 $100.6
2016
2015
2014
2016 2015 2014
Total Assets ($ Billions)
Total Revenue ($ Millions)
$40.6
$28.2
$24.3
$2.61
$2.33
$2.16
14.95%
13.20%
13.30%
2016
2015
2014
2016
2015
2014
2016
2015
2014
Adjusted Net Income
($ Millions)
Adjusted Diluted Earnings
Per Share
Return on Average
Tangible Equity
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Personal
Lending
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Camden National Corporation
(cid:129) Fiscal Year 2016 Form 10-K Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:2)
□
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2016
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
(State or Other Jurisdiction of
Incorporation or Organization)
2 Elm Street, Camden, ME
(Address of Principal Executive Offices)
01-0413282
(I.R.S. Employer
Identification No.)
04843
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (207) 236-8821
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, without par value
Name of Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes (cid:4) No (cid:2)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes (cid:4) No (cid:2)
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 (cid:2) No (cid:4)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes (cid:2) No (cid:4)
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. □
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 definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer □
Smaller reporting company □
Accelerated filer (cid:2)
Non-accelerated filer □
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:4) No (cid:2)
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business
day of the Registrant’s most recently completed second fiscal quarter: $316,376,401. Shares of the Registrant’s common stock held by
each executive officer, director and person who beneficially own 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 1, 2017 was 15,493,927.
Certain information required in response to Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K is incorporated by
reference from Camden National Corporation’s Definitive Proxy Statement for the 2017 Annual Meeting of Shareholders pursuant to
Regulation 14A of the General Rules and Regulations of the Commission.
[This page intentionally left blank.]
CAMDEN NATIONAL CORPORATION
2016 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1.
Business
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Properties
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.
Certain Relationships, Related Transactions and Director Independence . . . . . . . . . . . .
Item 14.
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Exhibits and Financial Statement Schedules
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Page
2
12
20
21
21
21
22
24
25
65
66
140
140
140
141
141
141
141
141
142
144
145
i
[This page intentionally left blank.]
FORWARD-LOOKING STATEMENTS
The discussions set forth below and in the documents we incorporate by reference herein contain certain
statements that may be considered forward-looking statements under the Private Securities Litigation Reform
Act of 1995, including certain plans, exceptions, goals, projections, and statements, which are subject to
numerous risks, assumptions, and uncertainties. Forward-looking statements can be identified by the use of the
words ‘‘believe,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘intend,’’ ‘‘estimate,’’ ‘‘assume,’’ ‘‘plan,’’ ‘‘target,’’ or ‘‘goal’’ or
future or conditional verbs such as ‘‘will,’’ ‘‘may,’’ ‘‘might,’’ ‘‘should,’’ ‘‘could’’ and other expressions which
predict or indicate future events or trends and which do not relate to historical matters. Forward-looking
statements should not be relied on, 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.
The following factors, among others, could cause the Company’s financial performance to differ
materially from the Company’s goals, plans, objectives, intentions, expectations and other forward-looking
statements:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
weakness in the United States economy in general and the regional and local economies within the
New England region and Maine, which could result in a deterioration of credit quality, an increase
in the allowance for loan losses or a reduced demand for the Company’s credit or fee-based
products and services;
changes in trade, monetary, and fiscal policies and laws, including interest rate policies of the
Board of Governors of the Federal Reserve System;
inflation, interest rate, market, and monetary fluctuations;
competitive pressures, including continued industry consolidation and the increased financial
services provided by non-banks;
volatility in the securities markets that could adversely affect the value or credit quality of the
Company’s assets, impairment of goodwill, the availability and terms of funding necessary to meet
the Company’s liquidity needs, and could lead to impairment in the value of securities in the
Company’s investment portfolio;
changes in information technology that require increased capital spending;
changes in consumer spending and savings habits;
changes in tax, banking, securities and insurance laws and regulations; and
changes in accounting policies, practices and standards, as may be adopted by the regulatory
agencies as well as the Financial Accounting Standards Board (‘‘FASB’’), and other accounting
standard setters.
You should carefully review all of these factors, and be aware that there may be other factors that could
cause differences, including the risk factors listed in Part I, Item 1A, ‘‘Risk Factors,’’ beginning on page 12.
Readers should carefully review the risk factors described therein and should not place undue reliance on our
forward-looking statements.
These forward-looking statements were based on information, plans and estimates at the date of this
report, and we do not promise to update any forward-looking statements to reflect changes in underlying
assumptions or factors, new information, future events or other changes.
1
Item 1. Business
PART I
Overview. Camden National Corporation (hereafter referred to as ‘‘we,’’ ‘‘our,’’ ‘‘us,’’ or the
‘‘Company’’) is a publicly-held bank holding company, with $3.9 billion in assets, 61 banking centers,
84 ATMs, and three lending offices at December 31, 2016, incorporated under the laws of the State of Maine
and headquartered in Camden, Maine. The Company, as a diversified financial services provider, pursues the
objective of achieving long-term sustainable growth by balancing growth opportunities against profit, while
mitigating risks inherent in the financial services industry. The primary business of the Company and its
subsidiary, Camden National Bank (the ‘‘Bank’’), is to attract deposits from, and to extend loans to, consumer,
institutional, municipal, non-profit and commercial customers. The Company, through the Bank, offers
commercial and consumer banking products and services, and through Camden Financial Consultants and
Camden National Wealth Management, divisions of the Bank, brokerage and insurance services as well as
investment management and fiduciary services.
The Company acquired SBM Financial, Inc. (‘‘SBM’’), the parent company of The Bank of Maine, on
October 16, 2015. Healthcare Professional Funding Corporation (‘‘HPFC’’), a wholly-owned subsidiary of The
Bank of Maine, became a wholly-owned subsidiary of the Bank. Effective February 19, 2016, the Company
ceased ongoing operations of HPFC and it is no longer originating loans. The Company will continue to earn
revenues from HPFC’s loan portfolio as it naturally runs off.
The consolidated financial statements of the Company accompanying this Form 10-K include the
accounts of the Company, the Bank and its subsidiaries and divisions. All inter-company accounts and
transactions have been eliminated in consolidation.
The Company is committed to the philosophy of serving the financial needs of customers in local
communities, as described in its core purpose: Through each interaction, we will enrich the lives of people,
help businesses succeed and vitalize communities.
The Company has achieved a five-year compounded annual asset growth rate of 11%, resulting in
$3.9 billion in total assets at December 31, 2016. The following is a chronological timeline of significant
events and factors contributing to the Company’s asset growth over the past five years:
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2012 — The acquisition of 14 branches, including $287.6 million in deposits and $5.7 million in
small business loans, from Bank of America, National Association, in October 2012.
2013 — The divestiture of our five Franklin County branches, including $46.0 million in loans and
$85.9 million in deposits and borrowings, in October 2013.
2014 — The Company had $192.2 million of organic loan growth, primarily within the commercial
real estate and commercial loan portfolios. Also, in 2014, we expanded our franchise outside of
Maine by opening a commercial loan office in Manchester, New Hampshire, providing us with a
wider reach across northern New England.
2015 — The Company achieved organic asset growth of $80.0 million, fueled by organic loan
growth of $102.4 million. The Company completed the acquisition of SBM on October 16, 2015.
SBM was approximately one-third the size of the Company pre-acquisition with total assets of
$840.1 million, total loans of $615.2 million and total deposits of $687.0 million. The acquisition
provided the Company with an expanded presence in Southern and Central Maine, significant low
cost deposits, and strengthened its mortgage banking platform, including two additional lending
offices in Falmouth, Maine and Braintree, Massachusetts.
2016 — The Company had $104.4 million of organic loan growth, primarily within the commercial
real estate and commercial loan portfolios. In 2016, the Company originated approximately
$370.0 million of residential mortgages and sold approximately 65% of its production. This resulted
in gains from loan sales of $6.2 million, compared to $1.3 million for 2015.
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The financial services industry continues to experience consolidations through mergers that could create
opportunities for the Company to promote its value proposition to customers. The Company evaluates the
possibility of expansion into new markets through both de novo expansion and acquisitions. In addition, the
Company is focused on maximizing the potential for growth in existing markets, especially in markets where
the Company has less of a presence. Further details on the Company’s financial information can be found
within the consolidated financial statements within Item 8 of this report.
Camden National Bank. The Bank is a national banking association chartered under the laws of the
United States headquartered in Camden, Maine. Originally founded in 1875, the Bank became a direct,
wholly-owned subsidiary of the Company as a result of a corporate reorganization in 1984. The Bank offers
its products and services across Maine, and focuses primarily on attracting deposits from the general public
through its branches, and then leveraging this relationship to originate residential mortgage loans, commercial
business loans, commercial real estate loans and a variety of consumer loans across New England. The
Company has locations within 13 of Maine’s 16 counties. Customers may also access the Bank’s products and
services using other channels, including online at www.CamdenNational.com.
Camden Financial Consultants. Camden Financial Consultants is a full-service brokerage and
insurance division of the Bank in the business of helping clients meet all of their financial needs by using a
total wealth management approach. Its financial offerings include college, retirement, and estate planning,
mutual funds, strategic asset management accounts, and variable and fixed annuities.
Camden National Wealth Management. Effective as of close of business November 30, 2016, the
Company’s wholly-owned subsidiary, Acadia Trust, N.A., merged into the Bank, and was rebranded as
Camden National Wealth Management. Prior to the merger, Acadia Trust, N.A. was a limited purpose national
banking association chartered under the laws of the U.S. headquartered in Portland, Maine. Now operating as
Camden National Wealth Management, a division of the Bank, it continues to provide a broad range of trust,
trust-related, investment and wealth management services to both individual and institutional clients. The
financial services provided by Camden National Wealth Management complement the services provided by the
Bank by offering high net worth individuals, businesses and non-profit institutional customers investment
management services, as well as serving as trustee.
Healthcare Professional Funding Corporation. HPFC is a wholly-owned subsidiary of the Bank and,
prior to the closing of ongoing operations on February 19, 2016, it provided specialized lending to dentists,
optometrists and veterinarians across the U.S. HPFC was acquired in connection with the acquisition of SBM.
HPFC’s website address is www.healthprofunding.com.
The Company’s Investor Relations information can be obtained through the Bank’s internet address,
www.CamdenNational.com. The Company makes available on or through its Investor Relations page, without
charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed
with, or furnished to, the SEC. The Company’s reports filed with, or furnished to, the SEC are also available
at the SEC’s website at www.sec.gov. In addition, the Company makes available, free of charge, its press
releases and Code of Ethics through the Company’s Investor Relations page. Information on our website is not
incorporated by reference into this document and should not be considered part of this report.
Competition. Through the Bank and its subsidiaries and division of, the Company competes throughout
Maine, New Hampshire and Massachusetts. Our primary markets within Maine run along Maine’s
coast — from Calais to Kittery — and mid-interior (along Interstate 95) through Bangor, Maine. We operate
and manage the Bank’s business within Maine’s various regions, including Mid Coast, Southern, Central,
Bangor and Downeast. Many of these markets that we operate in are characterized as rural areas. Major
competitors in the Company’s primary market area include local branches of large regional and national
banking organizations and brokerage houses, as well as local independent banks, financial advisors, thrift
institutions and credit unions. Other competitors for deposits and loans within the Bank’s primary market area
include insurance companies, money market funds, consumer finance companies and financing affiliates of
consumer durable goods manufacturers.
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The Company and the Bank generally have effectively competed with other financial institutions by
emphasizing customer service, which is branded as the Camden National Experience, highlighted by local
decision-making, establishing long-term customer relationships, building customer loyalty and providing
products and services designed to meet the needs of customers. The Company, through Camden National
Wealth Management and Camden Financial Consultants, competes for trust, trust-related, investment
management, individual retirement, foundation and endowment management services and brokerage 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.
Employees. The Company employed 631 people on a full- or part-time basis as of December 31, 2016
through the Bank, and its divisions.
Supervision and Regulation
The following discussion addresses elements of the regulatory framework applicable to bank holding
companies and their subsidiaries. This regulatory framework is intended primarily for the protection of the
safety and soundness of depository institutions, the federal deposit insurance system, and depositors, rather
than the protection of shareholders of a bank holding company such as the Company.
As a bank holding company, the Company is subject to regulation, supervision and examination by the
Board of Governors of the Federal Reserve System (the ‘‘FRB’’) under the Bank Holding Company Act of
1956, as amended (the ‘‘BHCA’’). The Bank is subject to regulation, supervision and examination by the
Office of the Comptroller of the Currency (the ‘‘OCC’’).
The following is a summary of certain aspects of various statutes and regulations applicable to the
Company and its direct and indirect subsidiaries. This summary is not a comprehensive analysis of all
applicable law, however, and you should refer to the applicable statutes and regulations for more information.
Regulation of the Company
The Company is subject to regulation, supervision and examination by the FRB, which has the authority,
among other things, to order bank holding companies to cease and desist from unsafe or unsound banking
practices; to assess civil money penalties; and to order termination of non-banking activities or termination of
ownership and control of a non-banking subsidiary by a bank holding company.
Source of Strength. Under the BHCA, as amended by the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the ‘‘Dodd-Frank Act’’), the Company is required to serve as a source of financial
strength for the Bank. This support may be required at times when the bank holding company may not have
the resources to provide support to the Bank. In the event of a bank holding company’s bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a
bank subsidiary will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Acquisitions and Activities. The BHCA prohibits a bank holding company, without prior approval of the
FRB, from acquiring all or substantially all the assets of a bank, acquiring control of a bank, merging or
consolidating with another bank holding company, or acquiring direct or indirect ownership or control of any
voting shares of another bank or bank holding company if, after such acquisition, the acquiring bank holding
company would control more than 5% of any class of the voting shares of such other bank or bank holding
company. The BHCA also prohibits a bank holding company from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing services to its subsidiary banks.
However, a bank holding company may engage in and may own shares of companies engaged in certain
activities that the FRB has determined to be closely related to banking or managing and controlling banks.
Limitations on Acquisitions of Company Common Stock. The Change in Bank Control Act prohibits a
person or group of persons from acquiring ‘‘control’’ of a bank holding company unless the FRB has been
notified and has not objected to the transaction. Under a rebuttable presumption established by the FRB, the
acquisition of 10% or more of a class of voting securities of a bank holding company with a class of
securities registered under Section 12 of the Exchange Act would constitute the acquisition of control of a
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bank holding company. In addition, the BHCA prohibits any company from acquiring control of a bank or
bank holding company without first having obtained the approval of the FRB. Among other circumstances,
under the BHCA, a company has control of a bank or bank holding company if the company owns, controls
or holds with power to vote 25% or more of a class of voting securities of the bank or bank holding company,
controls in any manner the election of a majority of directors or trustees of the bank or bank holding
company, or the FRB has determined, after notice and opportunity for hearing, that the company has the
power to exercise a controlling influence over the management or policies of the bank or bank holding
company.
Regulation of the Bank
The Bank is subject to regulation, supervision, and examination by the OCC. Additionally, the Federal
Deposit Insurance Corporation (the ‘‘FDIC’’) has secondary supervisory authority as the insurer of the Bank’s
deposits. Pursuant to the Dodd-Frank Act, the FRB may directly examine the subsidiaries of the Company,
including the Bank. The enforcement powers available to the federal banking regulators include, among other
things, the ability to issue cease and desist or removal orders; to terminate insurance of deposits; to assess
civil money penalties; to issue directives to increase capital; to place the Bank into receivership; and to initiate
injunctive actions against banking organizations and institution-affiliated parties.
Deposit Insurance. The deposit obligations of the Bank are insured up to applicable limits by the
FDIC’s Deposit Insurance Fund (‘‘DIF’’) and are subject to deposit insurance assessments to maintain the DIF.
The Dodd-Frank Act permanently increased the FDIC deposit insurance limit to $250,000 per depositor for
deposits maintained in the same right and capacity at a particular insured depository institution. The Federal
Deposit Insurance Act (the ‘‘FDIA’’), as amended by the Federal Deposit Insurance Reform Act and the
Dodd-Frank Act, requires the FDIC to take steps as may be necessary to cause the ratio of deposit insurance
reserves to estimated insured deposits — the designated reserve ratio — to reach 1.35% by September 30,
2020, and it mandates that the reserve ratio designated by the FDIC for any year may not be less than 1.35%.
Further, the Dodd-Frank Act required that, in setting assessments, the FDIC offset the effect of the increase in
the minimum reserve ratio from 1.15% to 1.35% on banks with less than $10 billion in assets.
To satisfy these requirements, on March 15, 2016, the FDIC’s Board of Directors approved a final rule to
increase the DIF’s reserve ratio to the statutorily required minimum ratio of 1.35% of estimated insured
deposits. The final rule imposes on large banks a surcharge of 4.5 basis points of their assessment base, after
making certain adjustments. Large banks will pay quarterly surcharges in addition to their regular risk-based
assessments. Overall regular risk-based assessment rates will decline once the reserve ratio reaches 1.15%.
Small banks, such as the Bank, will receive credits to offset the portion of their assessments that help to raise
the reserve ratio from 1.15% to 1.35%. After the reserve ratio reaches 1.38%, the FDIC will automatically
apply a small bank’s credits to reduce its regular assessment up to the entire amount of the assessment. The
final rule provided that these changes would become effective July 1, 2016 if the reserve ratio reached 1.15%
prior to that date. On June 30, 2016, the reserve ratio rose to 1.17%, which resulted in the revised deposit
insurance assessment pricing becoming effective on July 1, 2016.
Deposit premiums are based on assets. To determine its deposit insurance premium, the Bank computes
the base amount of its average consolidated assets less its average tangible equity (defined as the amount of
Tier 1 capital) and the applicable assessment rate. On April 26, 2016, the FDIC’s Board of Directors adopted
a final rule that changed the manner in which deposit insurance assessment rates are calculated for established
small banks, generally those banks with less than $10 billion of assets that have been insured for at least
five years. The rule updated the data and methodology that the FDIC uses to determine risk-based assessment
rates for these institutions with the intent of better reflecting risks and ensuring that banks that take on greater
risks pay more for deposit insurance than their less risky counterparts. The rule revised the financial ratios
method used to determine assessment rates for these banks so that it is based on a statistical model that
estimates the probability of failure over three years. The rule eliminated risk categories for established small
banks and uses the financial ratios method. Under this method each of seven financial ratios and a weighted
average of CAMELS component ratings will be multiplied by a corresponding pricing multiplier. The sum of
these products will be added to a uniform amount, with the resulting sum being an institution’s initial base
assessment rate (subject to minimum or maximum assessment rates based on a bank’s CAMELS composite
rating). This method takes into account various measures that are similar to the factors that the FDIC
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previously considered in assigning institutions to risk categories, including an institution’s leverage ratio,
brokered deposit ratio, one year asset growth, the ratio of net income before taxes to total assets and
considerations related to asset quality. Under the small bank pricing rule, beginning the first assessment period
after June 30, 2016, where the DIF’s reserve ratio has reached 1.15%, assessments for established small banks
with a CAMELS rating of 1 or 2 will range from 1.5 to 16 basis points, after adjustments, while assessment
rates for established small banks with a CAMELS composite rating of 4 or 5 may range from 11 to 30 basis
points, after adjustments. Assessments for established small banks with a CAMLES rating of 3 will range
from 3 to 30 basis points.
The FDIC has the power to adjust deposit insurance assessment rates at any time. In addition, under the
FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and
unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable
law, regulation, rule, order or condition imposed by the FDIC. The Bank’s FDIC insurance expense for the
year ended December 31, 2016 was $2.0 million.
Acquisitions and Branching. The Bank must seek prior regulatory approval from the OCC to acquire
another bank or establish a new branch office. Well capitalized and well managed banks may acquire other
banks in any state, subject to certain deposit concentration limits and other conditions, pursuant to the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended by the Dodd-Frank Act. In
addition, the Dodd-Frank Act authorizes a state-chartered bank, such as the Bank, to establish new branches
on an interstate basis to the same extent a bank chartered by the host state may establish branches.
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 promissory notes, drafts, bills of
exchange, and other evidences of debt. Subsidiaries of national banking associations generally may only
engage in activities permissible for the parent national bank. The Dodd-Frank Act bars the Bank from
engaging in proprietary trading and from sponsoring and investing in hedge funds and private equity funds,
except as permitted under certain limited circumstances.
Lending Restrictions. Federal law limits a bank’s authority to extend credit to its directors, executive
officers and 10% shareholders, as well as to entities controlled by such persons. Among other things,
extensions of credit to insiders are required to be made on terms that are substantially the same as, and follow
credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions
with unaffiliated persons. Also, the terms of such extensions of credit may not involve more than the normal
risk of repayment or present other unfavorable features and may not exceed certain limitations on the amount
of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the
amount of the bank’s capital. The Dodd-Frank Act explicitly provides that an extension of credit to an insider
includes credit exposure arising from a derivatives transaction, repurchase agreement, reverse repurchase
agreement, securities lending transaction or securities borrowing transaction. Additionally, the Dodd-Frank Act
requires that asset sale transactions with insiders must be on market terms, and if the transaction represents
more than 10% of the capital and surplus of the Bank, be approved by a majority of the disinterested directors
of the Bank.
Brokered Deposits. Section 29 of the FDIA and FDIC regulations generally limit the ability of an
insured depository institution to accept, renew or roll over any brokered deposit unless the institution’s capital
category is ‘‘well capitalized’’ or, with the FDIC’s approval, ‘‘adequately capitalized.’’ Depository institutions
that have brokered deposits in excess of 10% of total assets will be subject to increased FDIC deposit
insurance premium assessments. However, for institutions that are well capitalized and have a CAMELS
composite rating of 1 or 2, reciprocal deposits are deducted from brokered deposits.
Community Reinvestment Act. The Community Reinvestment Act (the ‘‘CRA’’) requires the OCC to
evaluate the Bank’s performance in helping to meet the credit needs of the entire communities it serves,
including low and moderate-income neighborhoods, consistent with its safe and sound banking operations, and
to take this record into consideration when evaluating certain applications. The FDIC’s CRA regulations are
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generally based upon objective criteria of the performance of institutions under three key assessment tests:
(i) a lending test, to evaluate the institution’s record of making loans in its service areas; (ii) an investment
test, to evaluate the institution’s record of investing in community development projects, affordable housing,
and programs benefiting low or moderate income individuals and businesses; and (iii) a service test, to
evaluate the institution’s delivery of services through its branches, ATMs, and other offices. Failure of an
institution to receive at least a ‘‘Satisfactory’’ rating could inhibit the Bank or the Company from undertaking
certain activities, including engaging in activities permitted as a financial holding company under the
Gramm-Leach-Bliley Act of 1999 (the ‘‘GLBA’’) and acquisitions of other financial institutions. The Bank
currently has an ‘‘Outstanding’’ CRA rating.
Capital Adequacy and Safety and Soundness
Regulatory Capital Requirements. The FRB and the OCC have issued substantially similar risk-based
and leverage capital guidelines applicable to United States banking organizations. These rules are intended to
reflect the relationship between the banking organization’s capital and the degree of risk associated with its
operations based on transactions recorded on-balance sheet as well as off-balance sheet items. The FRB and
the OCC may from time to time require that a banking organization maintain capital above the minimum
levels discussed below, due to the banking organization’s financial condition or actual or anticipated growth.
The capital adequacy rules define qualifying capital instruments and specify minimum amounts of capital
as a percentage of assets that banking organizations are required to maintain. Common equity Tier I capital
generally includes common stock and related surplus, retained earnings and, in certain cases and subject to
certain limitations, minority interest in consolidated subsidiaries, less goodwill, other non-qualifying intangible
assets and certain other deductions. Tier I capital for banks and bank holding companies generally consists of
the sum of common equity Tier I capital, non-cumulative perpetual preferred stock, and related surplus and, in
certain cases and subject to limitations, minority interest in consolidated subsidiaries that does not qualify as
common equity Tier I capital, less certain deductions. Tier II capital generally consists of hybrid capital
instruments, perpetual debt and mandatory convertible debt securities, cumulative perpetual preferred stock,
term subordinated debt and intermediate-term preferred stock, and, subject to limitations, allowances for loan
losses. The sum of Tier I and Tier II capital less certain required deductions represents qualifying total
risk-based capital. Prior to the effectiveness of certain provisions of the Dodd-Frank Act, bank holding
companies were permitted to include trust preferred securities and cumulative perpetual preferred stock in
Tier I capital, subject to limitations. However, the FRB’s capital rule applicable to bank holding companies
permanently grandfathers non-qualifying capital instruments, including trust preferred securities, issued before
May 19, 2010 by depository institution holding companies with less than $15 billion in total assets as of
December 31, 2009, subject to a limit of 25% of Tier I capital. In addition, under rules that became effective
January 1, 2015, accumulated other comprehensive income (positive or negative) must be reflected in Tier I
capital; however, the Company was permitted to make a one-time, permanent election to continue to exclude
accumulated other comprehensive income from capital. The Company has made this election.
Under the capital rules, risk-based capital ratios are calculated by dividing common equity Tier I, Tier I
and total risk-based capital, respectively, by risk-weighted assets. Assets and off-balance sheet credit
equivalents are assigned a risk weight based primarily on relative credit risk.
Under the FRB’s capital rules applicable to the Company and the OCC’s capital rules applicable to the
Bank, the Company and the Bank are each required to maintain a minimum common equity Tier I capital to
risk-weighted assets ratio of 4.5%, a minimum Tier I capital to risk-weighted assets ratio of 6%, a minimum
total capital to risk-weighted assets ratio of 8% and a minimum leverage ratio of 4%. Additionally, subject to
a transition schedule, these rules require an institution to establish a capital conservation buffer of common
equity Tier I capital in an amount above the minimum risk-based capital requirements for ‘‘adequately
capitalized’’ institutions equal to 2.5% of total risk weighted assets, or face restrictions on the ability to pay
dividends, pay discretionary bonuses, and to engage in share repurchases.
Under the FRB’s rules, a bank holding company, such as the Company, is considered ‘‘well capitalized’’
if the bank holding company (i) has a total risk based capital ratio of at least 10%, (ii) has a Tier I risk-based
capital ratio of at least 6%, and (iii) is not subject to any written agreement order, capital directive or prompt
corrective action directive to meet and maintain a specific capital level for any capital measure. Under the
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OCC’s rules, an OCC supervised institution is considered ‘‘well capitalized’’ if it (i) has a total risk-based
capital ratio of 10.0% or greater; (ii) a Tier I risk-based capital ratio of 8.0% or greater; (iii) a common Tier I
equity ratio of at least 6.5% or greater, (iv) a leverage capital ratio of 5.0% or greater; and (v) is not subject
to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a
specific capital level for any capital measure.
Generally, a bank, upon receiving notice that it is not adequately capitalized (i.e., that it is
‘‘undercapitalized’’), becomes subject to the prompt corrective action provisions of Section 38 of FDIA that,
for example, (i) restrict payment of capital distributions and management fees, (ii) require that is federal bank
regulator monitor the condition of the institution and its efforts to restore its capital, (iii) require submission of
a capital restoration plan, (iv) restrict the growth of the institution’s assets and (v) require prior regulatory
approval of certain expansion proposals. A bank that is required to submit a capital restoration plan must
concurrently submit a performance guarantee by each company that controls the bank. A bank that is
‘‘critically undercapitalized’’ (i.e., has a ratio of tangible equity to total assets that is equal to or less than
2.0%) will be subject to further restrictions, and generally will be placed in conservatorship or receivership
within 90 days.
Information concerning the Company and the Bank with respect to capital requirements is incorporated
by reference from Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Capital Resources,’’ and Item 8. ‘‘Financial Statements and Supplementary Data’’, in the section
entitled ‘‘Note 20, Regulatory Capital Requirements.’’
The Company and the Bank are considered ‘‘well capitalized’’ under all regulatory definitions.
Safety and Soundness Standards. The FDIA requires the federal bank regulatory agencies to prescribe
standards, by regulations or guidelines, relating to internal controls, information systems and internal audit
systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality,
earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial
standards as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies
establish general standards relating to internal controls and information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and
compensation, fees and benefits. In general, these guidelines require, among other things, appropriate systems
and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines
prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive
when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer,
employee, director or principal stockholder. In addition, the federal banking agencies adopted regulations that
authorize, but do not require, an agency to order an institution that has been given notice by an agency that it
is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so
notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to
implement an acceptable compliance plan, the agency must issue an order directing action to correct the
deficiency and may issue an order restricting asset growth, requiring an institution to increase its ratio of
tangible equity to assets or directing other actions of the types to which an undercapitalized institution is
subject under the ‘‘prompt corrective action’’ provisions of the FDIA. See ‘‘— Regulatory Capital
Requirements’’ above. If an institution fails to comply with such an order, the agency may seek to enforce
such order in judicial proceedings and to impose civil money penalties.
Dividend Restrictions
The Company is a legal entity separate and distinct from its subsidiaries. The revenue of the Company
(on a parent-only basis) is derived primarily from interest and dividends paid to it by the Bank. The right of
the Company, and consequently the right of shareholders of the Company, to participate in any distribution of
the assets or earnings of the Bank through the payment of such dividends or otherwise is necessarily subject
to the prior claims of creditors of the Bank (including depositors), except to the extent that certain claims of
the Company in a creditor capacity may be recognized.
Restrictions on Bank Holding Company Dividends. The FRB has the authority to prohibit bank holding
companies from paying dividends if such payment is deemed to be an unsafe or unsound practice. The FRB
has indicated generally that it may be an unsafe or unsound practice for bank holding companies to pay
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dividends unless the bank holding company’s net income over the preceding year is sufficient to fund the
dividends and the expected rate of earnings retention is consistent with the organization’s capital needs, asset
quality and overall financial condition. Further, the Company’s ability to pay dividends is restricted if it does
not maintain the capital conservation buffer. See ‘‘— Capital Adequacy and Safety and
Soundness — Regulatory Capital Requirements’’ above.
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.
Restrictions on Bank Dividends. 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 if, after making the dividend, the national bank would be considered
‘‘undercapitalized’’ (as defined by reference to other OCC regulations). The OCC has the authority to use its
enforcement powers to prohibit a national bank, such as the Bank, from paying dividends if, in its opinion, the
payment of dividends would constitute an unsafe or unsound practice.
Certain Transactions by Bank Holding Companies with their Affiliates
There are various statutory restrictions on the extent to which bank holding companies and their
non-bank subsidiaries may borrow, obtain credit from or otherwise engage in ‘‘covered transactions’’ with
their insured depository institution subsidiaries. The Dodd-Frank Act amended the definition of affiliate to
include an investment fund for which the depository institution or one of its affiliates is an investment adviser.
An insured depository institution (and its subsidiaries) may not lend money to, or engage in covered
transactions with, its non-depository institution affiliates if the aggregate amount of covered transactions
outstanding involving the bank, plus the proposed transaction exceeds the following limits: (i) in the case of
any one such affiliate, the aggregate amount of covered transactions of the insured depository institution and
its subsidiaries cannot exceed 10% of the capital stock and surplus of the insured depository institution; and
(ii) in the case of all affiliates, the aggregate amount of covered transactions of the insured depository
institution and its subsidiaries cannot exceed 20% of the capital stock and surplus of the insured depository
institution. For this purpose, ‘‘covered transactions’’ are defined by statute to include a loan or extension of
credit to an affiliate, a purchase of or investment in securities issued by an affiliate, a purchase of assets from
an affiliate unless exempted by the FRB, the acceptance of securities issued by an affiliate as collateral for a
loan or extension of credit to any person or company, the issuance of a guarantee, acceptance or letter of
credit on behalf of an affiliate, securities borrowing or lending transactions with an affiliate that creates a
credit exposure to such affiliate, or a derivatives transaction with an affiliate that creates a credit exposure to
such affiliate. Covered transactions are also subject to certain collateral security requirements. Covered
transactions as well as other types of transactions between a bank and a bank holding company must be on
market terms and not otherwise unduly favorable to the holding company or an affiliate of the holding
company. Moreover, the Bank Holding Company Act Amendments of 1970 provide that, to further
competition, a bank holding company and its subsidiaries are prohibited from engaging in certain tying
arrangements in connection with any extension of credit, lease or sale of property of any kind, or furnishing
of any service.
Consumer Protection Regulation
The Company and the Bank are subject to federal and state laws designed to protect consumers and
prohibit unfair or deceptive business practices, including the Equal Credit Opportunity Act, the Fair Housing
Act, the Home Ownership Protection Act, the Fair Credit Reporting Act, as amended by the Fair and Accurate
Credit Transactions Act of 2003 (the ‘‘FACT Act’’), the GLBA, the Truth in Lending Act, the CRA, the Home
Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act and
various state law counterparts. These laws and regulations mandate certain disclosure requirements and
9
regulate the manner in which financial institutions must interact with customers when taking deposits, making
loans, collecting loans and providing other services. Further, the Dodd-Frank Act established the CFPB, which
has the responsibility for making rules and regulations under the federal consumer protection laws relating to
financial products and services. The CFPB also has a broad mandate to prohibit unfair, deceptive or abusive
acts and practices and is specifically empowered to require certain disclosures to consumers and draft model
disclosure forms. Failure to comply with consumer protection laws and regulations can subject financial
institutions to enforcement actions, fines and other penalties. The OCC examines the Bank for compliance
with CFPB rules and enforces CFPB rules with respect to the Bank.
Mortgage Reform. The Dodd-Frank Act prescribes certain standards that mortgage lenders must
consider before making a residential mortgage loan, including verifying a borrower’s ability to repay such
mortgage loan, and allows borrowers to assert violations of certain provisions of the Truth in Lending Act as a
defense to foreclosure proceedings. Under the Dodd-Frank Act, prepayment penalties are prohibited for certain
mortgage transactions and creditors are prohibited from financing insurance policies in connection with a
residential mortgage loan or home equity line of credit. In addition, the Dodd-Frank Act prohibits mortgage
originators from receiving compensation based on the terms of residential mortgage loans and generally limits
the ability of a mortgage originator to be compensated by others if compensation is received from a consumer.
The Dodd-Frank Act requires mortgage lenders to make additional disclosures prior to the extension of credit,
in each billing statement and for negative amortization loans and hybrid adjustable rate mortgages.
Privacy and Customer Information Security. The GLBA requires financial institutions to implement
policies and procedures regarding the disclosure of nonpublic personal information about consumers to
nonaffiliated third parties. In general, the Bank must provide its customers with an initial and annual
disclosure that explains its policies and procedures regarding the disclosure of such nonpublic personal
information, and, except as otherwise required or permitted by law, the Bank is prohibited from disclosing
such information except as provided in such policies and procedures. However, an annual disclosure is not
required to be provided by a financial institution if the financial institution only discloses information under
exceptions from GLBA that do not require an opt out to be provided and if there has been no change in its
privacy policies and practices since its most recent disclosure provided to consumers. The GLBA also requires
that the Bank develop, implement and maintain a comprehensive written information security program
designed to ensure the security and confidentiality of customer information (as defined under GLBA), to
protect against 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. The Bank is also required to send a notice to customers whose sensitive
information has been compromised if unauthorized use of this information is reasonably possible. Most states,
including the states where the Bank operates, have enacted legislation concerning breaches of data security
and Congress is considering federal legislation that would require consumer notice of data security breaches.
Pursuant to the FACT Act, the Bank must develop and implement a written identity theft prevention program
to detect, prevent, and mitigate identity theft in connection with the opening of certain accounts or certain
existing accounts. Additionally, the FACT Act amends the Fair Credit Reporting Act to generally prohibit a
person from using information received from an affiliate to make a solicitation for marketing purposes to a
consumer, unless the consumer is given notice and a reasonable opportunity and a reasonable and simple
method to opt out of the making of such solicitations.
Anti-Money Laundering
The Bank Secrecy Act. Under the Bank Secrecy Act (‘‘BSA’’), a financial institution, is required to have
systems in place to detect certain transactions, based on the size and nature of the transaction. Financial
institutions are generally required to report to the United States Treasury any cash transactions involving more
than $10,000. In addition, financial institutions are required to file suspicious activity reports for any
transaction or series of transactions that involve more than $5,000 and which the financial institution knows,
suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or
has no lawful purpose. The Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (the ‘‘USA PATRIOT Act’’), which amended the BSA, together
with the implementing regulations of various federal regulatory agencies, has caused financial institutions,
such as the Bank, to adopt and implement additional policies or amend existing policies and procedures with
10
respect to, among other things, anti-money laundering compliance, suspicious activity, currency transaction
reporting, customer identity verification and customer risk analysis. In evaluating an application under
Section 3 of the BHCA to acquire a bank or an application under the Bank Merger Act to merge banks or
affect a purchase of assets and assumption of deposits and other liabilities, the applicable federal banking
regulator must consider the anti-money laundering compliance record of both the applicant and the target. In
addition, under the USA PATRIOT Act financial institutions are required to take steps to monitor their
correspondent banking and private banking relationships as well as, if applicable, their relationships with
‘‘shell banks.’’
OFAC. The U.S. has imposed economic sanctions that affect transactions with designated foreign
countries, nationals and others. These sanctions, which are administered by the U.S. Treasury’s Office of
Foreign Assets Control (‘‘OFAC’’), take many different forms. Generally, however, they contain one or more
of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including
prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on
‘‘U.S. persons’’ engaging in financial or other transactions relating to a sanctioned country or with certain
designated persons and entities; (ii) a blocking of assets in which the government or specially designated
nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S.
jurisdiction (including property in the possession or control of U.S. persons); and (iii) restrictions on
transactions with or involving certain persons or entities. Blocked assets (for example, property and bank
deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC.
Failure to comply with these sanctions could have serious legal and reputational consequences for the
Company.
Regulation of Other Activities
Volcker Rule Restrictions on Proprietary Trading and Sponsorship of Hedge Funds and Private Equity
Funds. The Dodd-Frank Act bars banking organizations, such as the Company and the Bank, from engaging
in proprietary trading and from sponsoring and investing in hedge funds and private equity funds, except as
permitted under certain circumstances, in a provision commonly referred to as the ‘‘Volcker Rule.’’ Under the
Dodd-Frank Act, proprietary trading generally means trading by a banking entity or its affiliate for its trading
account. Hedge funds and private equity funds are described by the Dodd-Frank Act as funds that would be
registered under the 1940 Act but for certain enumerated exemptions. The Volcker Rule restrictions apply to
the Company, the Bank and all of their subsidiaries and affiliates.
Legal Contingencies
In the normal course of business, the Company and its subsidiaries are subject to pending and threatened
legal actions. Although the Company is not able to predict the outcome of such actions, after reviewing
pending and threatened actions with counsel, management believes that based on the information currently
available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect
on the Company’s consolidated financial position as a whole.
Reserves are established for legal claims only when losses associated with the claims are judged to be
probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not possible to
determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability
until the case is close to resolution, in which case a reserve will not be recognized until that time.
11
Item 1A. Risk Factors
If our allowance for loan losses is not adequate to cover actual loan losses, our earnings could decrease.
We make various assumptions and judgments about the collectability of our loan portfolio and provide an
allowance for probable loan losses based on a number of factors. On a monthly basis, management reviews
the allowance for loan losses to assess recent asset quality trends and impact on the Company’s financial
condition. On a quarterly basis, the allowance for loan losses is brought before the Bank’s Board of Directors
for discussion, review, and approval. If our assumptions are incorrect, the allowance for loan losses may not
be sufficient to cover the losses we could experience, which would have an adverse effect on operating results,
and may also cause us to increase the allowance for loan losses in the future. In addition, bank regulators
periodically review our allowance for loan losses and may require us to increase our provisions for credit
losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs
as required by regulatory authorities could have a material adverse effect on our consolidated results of
operations and financial condition. If additional amounts are provided to the allowance for loan losses, our
earnings could decrease.
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 throughout Maine, as 85% of our loan portfolio is
concentrated among borrowers in Maine, with higher concentrations of exposure in Cumberland, Hancock,
Kennebec, Knox, and Penobscot counties. Further, because a substantial portion of the 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 these loans than if the loans were more
geographically diverse.
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, deposits and other financial products and services with large financial companies, 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. Some of these competitors have substantially greater resources and lending limits than those of the
Bank and may offer services that the Bank does not or cannot provide. There is also increased competition
by out-of-market competitors through the internet. Our long-term success depends on the ability of our
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
customers, we may be unable to achieve growth in the loan and core deposit portfolios, and our results of
operations and financial condition may be negatively impacted.
Interest rate volatility may reduce our profitability.
Our profitability depends to a large extent upon our net interest income, which is the difference between
interest income on interest-earning assets, such as loans and investments, and interest expense related to
interest-bearing liabilities, such as deposits and borrowed funds. 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, there can be no assurance that a change in interest rates will not negatively impact
our results of operations or financial condition. Because market interest rates may change by differing
magnitudes and at different times, significant changes in interest rates over an extended period of time could
12
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.
Our cost of funds for banking operations may increase as a result of general economic conditions, interest
rates and competitive pressures.
The Bank has traditionally obtained funds principally through deposits and borrowings. As a general
matter, deposits are a less costly source of funds than borrowings because interest rates paid for deposits are
typically less than interest rates paid for borrowings. If, as a result of general economic conditions, market
interest rates, competitive pressures or otherwise, total deposits at the Bank decrease relative to our overall
banking operations, we may have to rely more heavily on borrowings as a source of funds in the future.
Potential downgrades of U.S. government securities by one or more of the credit ratings agencies could
have a material adverse effect on our operations, earnings and financial condition.
A possible future downgrade of the sovereign credit ratings of the U.S. government and a decline in the
perceived creditworthiness of U.S. government-related obligations could impact our ability to obtain funding
that is collateralized by affected instruments, as well as affect the pricing of that funding when it is available.
A downgrade may also adversely affect the market value of such instruments. We cannot predict if, when
or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect
economic conditions. Such ratings actions could result in a significant adverse impact on us. Among other
things, a further downgrade in the U.S. government’s credit rating could adversely impact the value of our
securities portfolio and may trigger requirements that the Company post additional collateral for trades relative
to these securities. A downgrade of the sovereign credit ratings of the U.S. government or the credit ratings of
related institutions, agencies or instruments would significantly exacerbate the other risks to which we are
subject and any related adverse effects on the business, financial condition and results of operations.
We are subject to liquidity risk.
Liquidity risk is the risk of potential loss if we are unable to meet our funding requirements at a
reasonable cost. Our liquidity could be impaired by an inability to access the capital markets or by unforeseen
outflows of cash. This situation may arise due to circumstances that we may be unable to control, such as a
general market disruption or an operational problem that affects third parties or us.
Market changes may adversely affect demand for our services and impact results of operations.
Channels for servicing our customers are evolving rapidly, with less reliance on traditional branch
facilities, more use of online and mobile banking, and increased demand for universal bankers and other
relationship managers who can service multiples product lines. We compete with larger providers that are
rapidly evolving their service offerings and escalating the costs of evolving the Bank’s efforts to keep pace.
We have a process for evaluating the profitability of our branch system and other office and operational
facilities. The identification of unprofitable operations and facilities can lead to restructuring charges and
introduce the risk of disruptions to revenues and customer relationships.
Prepayments of loans may negatively impact our business.
Generally, our customers may prepay the principal amount of their outstanding loans at any time. The
speeds at which such prepayments occur, as well as the size of such prepayments, are within our customers’
discretion. Fluctuations in interest rates, in certain circumstances, may also lead to high levels of loan
prepayments, which may also have an adverse impact on our net interest income. If customers prepay the
principal amount of their loans, and we are unable to lend those funds to other borrowers or invest the funds
at the same or higher interest rates, our interest income will be reduced. A significant reduction in interest
income could have a negative impact on our results of operations and financial condition.
Our banking business is highly regulated, and we may be adversely affected by changes in law and
regulation.
We are subject to regulation and supervision by the FRB, and the Bank is subject to regulation and
supervision by the OCC and the FDIC. Federal laws and regulations govern numerous matters affecting us,
13
including changes in the ownership or control of banks and bank holding companies, maintenance of adequate
capital and the financial condition of a financial institution, permissible types, amounts and terms of
extensions of credit and investments, permissible nonbanking activities, the level of reserves against deposits
and restrictions on dividend payments. The OCC possesses the power to issue cease and desist orders 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 bank holding companies. These and other restrictions limit
the manner in which we may conduct business and obtain financing.
Our business is highly regulated and the laws, rules, regulations, and supervisory guidance and policies
applicable to us are subject to regular modification and change. These changes could adversely and materially
impact us. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory
regimes in light of the performance of and government intervention in the financial services sector. Other
changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation
of statutes, regulations, or policies, could subject us to additional costs, limit the types of financial services
and products we may offer, and/or increase the ability of non-banks to offer competing financial services and
products, among other things. Failure to comply with laws, regulations, policies or supervisory guidance could
result in enforcement and other legal actions by federal or state authorities, including criminal and civil
penalties, the loss of FDIC insurance, revocation of a banking charter, other sanctions by regulatory agencies,
civil money penalties, and/or reputational damage, which could have a material adverse effect on our business,
financial condition, and results of operations. See Item 1. ‘‘Business-Supervision and Regulation.’’
We have become subject to new capital and liquidity standards that require banks and bank holding
companies to maintain more and higher quality capital and greater liquidity that has historically been
the case.
We became subject to new capital requirements in 2015. These new standards, which now apply and will
be fully phased-by 2018, force bank holding companies and their bank subsidiaries to maintain substantially
higher levels of capital as a percentage of their assets, with a greater emphasis on common equity as opposed
to other components of capital. The need to maintain more and higher quality capital, as well as greater
liquidity, and generally increased regulatory scrutiny with respect to capital levels, may at some point limit
our business activities, including lending, and our ability to expand. It could also result in our being required
to take steps to increase our regulatory capital and may dilute shareholder value or limit our ability to pay
dividends or otherwise return capital to our investors through stock repurchases. Pursuant to the Dodd-Frank
Act, we were permitted to make a one-time, permanent election to continue to exclude accumulated other
comprehensive income from capital. We made this election.
We face significant legal risks, both from regulatory investigations and proceedings and from private
actions brought against us.
From time to time, we are named as a defendant or are otherwise involved in various legal proceedings,
including class actions and other litigation or disputes with third parties. There is no assurance that litigation
with private parties will not increase in the future. Future actions against us may result in judgments,
settlements, fines, penalties or other results adverse to us, which could materially adversely affect our
business, financial condition or results of operations, or cause serious reputational harm to us. As a participant
in the financial services industry, we are exposed to a high level of potential litigation related to our
businesses and operations. Although we maintain insurance, the scope of this coverage may not provide us
with full, or even partial, coverage in any particular case. As a result, a judgment against us in any such
litigation could have a material adverse effect on our financial condition and results of operation.
Our businesses and operations are also subject to increasing regulatory oversight and scrutiny, which may
lead to additional regulatory investigations or enforcement actions. These and other initiatives from federal
and state officials may subject us to further judgments, settlements, fines or penalties, or cause us to be
required to restructure our operations and activities, all of which could lead to reputational issues, or higher
operational costs, thereby reducing our revenue.
14
We may incur fines, penalties and other negative consequences from regulatory violations, possibly even
inadvertent or unintentional violations.
The financial services industry is subject to intense scrutiny from bank supervisors in the examination
process and aggressive enforcement of federal and state regulations, particularly with respect to
mortgage-related practices and other consumer compliance matters, and compliance with anti-money
laundering, Bank Secrecy Act and Office of Foreign Assets Control regulations, and economic sanctions
against certain foreign countries and nationals. Enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound practices. We maintain systems and procedures designed to ensure that we
comply with applicable laws and regulations; however, some legal/regulatory frameworks provide for the
imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or
unintentional and even though there were systems and procedures designed to ensure compliance in place at
the time. Failure to comply with these and other regulations, and supervisory expectations related thereto, may
result in fines, penalties, lawsuits, regulatory sanctions, reputation damage, or restrictions on our business.
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment
Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair
lending laws and regulations impose community investment and nondiscriminatory lending requirements on
financial institutions. The Consumer Financial Protection Bureau, the Department of Justice and other federal
agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an
institution’s performance under the Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair
Housing Act or other fair lending laws and regulations could result in a wide variety of sanctions, including
damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions, restrictions on
expansion and restrictions on entering new business lines. Private parties may also have the ability to
challenge an institution’s performance under fair lending laws in private class action litigation. Such actions
could have a material adverse effect on our business, financial condition and results of operations.
Our loan portfolio includes commercial real estate and commercial loans, which are generally riskier than
other types of loans.
At December 31, 2016, our commercial real estate and commercial loan portfolios comprised 56% of
our total loan balances. Commercial loans generally carry larger loan balances and involve a higher risk of
nonpayment or late payment than residential mortgage loans. These loans may lack standardized terms and
may include a balloon payment feature. The ability of a borrower to make or refinance a balloon payment
may be affected by a number of factors, including the financial condition of the borrower, prevailing economic
conditions and prevailing interest rates. Repayment of these loans is generally more dependent on the
economy and the successful operation of a business. Because of the risks associated with commercial loans,
we may experience higher rates of default than if the portfolio were more heavily weighted toward residential
mortgage loans. Higher rates of default could have an adverse effect on our financial condition and results of
operations.
As of December 31, 2016, the most significant industry concentration within our loan portfolio was
non-residential building operators (operators of commercial and industrial buildings, retail establishments,
theaters, banks and insurance buildings), which was 12% of our total loans and 31% of our total commercial
real estate portfolio. As of December 31, 2016, we had no other industry concentrations in excess of 10% of
total loans.
We may incur significant losses as a result of ineffective risk management processes and strategies.
We seek to monitor and control our risk exposure through a risk and control framework encompassing a
variety of separate but complementary financial, credit, operational, compliance and legal reporting systems,
internal controls, management review processes and other mechanisms. While we employ a broad and
diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that
accompany their application may not be effective and may not anticipate every economic and financial
15
outcome in all market environments or the specifics and timing of such outcomes. Market conditions over the
last several years have involved unprecedented dislocations and highlight the limitations inherent in using
historical data to manage risk.
We may be unable to attract and retain key personnel.
Our success depends, in large part, on our ability to attract and retain key personnel. Competition for
qualified personnel in the financial services industry can be intense and we may not be able to hire or retain
the key personnel that we depend upon for success. The unexpected loss of services of one or more of our
key personnel could have a material adverse impact on our business because of their skills, knowledge of the
markets in which we operate, years of industry experience and the difficulty of promptly finding qualified
replacement personnel.
We have credit and counterparty risk inherent in our securities portfolio and the soundness of other
financial institutions that could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions and
commercial soundness of other financial institutions. Financial services institutions are interrelated as a result
of trading, clearing, counterparty and other relationships. We maintain a diversified securities portfolio and
have exposure to many different counterparties, and we routinely execute transactions with counterparties in
the financial industry, including brokers and dealers, other commercial banks, investment banks, mutual and
hedge funds, and other financial institutions. As a result, defaults by, or even rumors or questions about, one
or more financial services institutions, or the financial services industry generally, could lead to market-wide
liquidity problems and losses or defaults by us or by other institutions and organizations. Many of these
transactions expose us to credit risk in the event of default of our counterparty or client. Furthermore, our
credit risk may be exacerbated when the collateral held by us cannot be liquidated or is liquidated at prices
not sufficient to recover the full amount of the financial instrument exposure due to us. There is no assurance
that any such losses would not materially and adversely affect our results of operations.
We believe that we have adequately reviewed our investment securities for impairment and we did not
recognize any other-than-temporary impairments on our investment securities portfolio in 2016. However, over
time, the economic and market environment may provide additional insight regarding the fair value of certain
securities, which could change our judgment regarding impairment. In addition, if the counter-party should
default, become insolvent, declare bankruptcy, or otherwise cease to exist, the value of our investment may be
impaired. This could result in realized losses relating to other-than-temporary declines being charged against
future income. Given the significant judgments involved, there is risk that material other-than-temporary
impairments may be charged to income in future periods, resulting in realized losses.
We could be held responsible for environmental liabilities of properties we acquired through foreclosure.
In the course of business, we may acquire, through foreclosure, properties securing loans originated or
purchased that are in default. Particularly in commercial real estate lending, there is a risk that material
environmental violations could be discovered on these properties. In this event, we might be required to
remedy these violations at the affected properties at our sole cost and expense. The cost of remedial action
could substantially exceed the value of affected properties. We may not have adequate remedies against the
prior owner or other responsible parties and could find it difficult or impossible to sell the affected properties.
These events could have an adverse effect on our financial condition and results of operations.
We are subject to reputational risk.
We are dependent on our reputation within our market area, as a trusted and responsible financial
company, for all aspects of our relationships with customers, employees, vendors, third-party service
providers, and others, with whom we conduct business or potential future business. Our actual or perceived
failure to (a) identify and address potential conflicts of interest, ethical issues, money-laundering, or privacy
issues; (b) meet legal and regulatory requirements applicable to the Bank and to the Company; (c) maintain
the privacy of customer and accompanying personal information; (d) maintain adequate record keeping;
(e) engage in proper sales and trading practices; and (f) identify the legal, reputational, credit, liquidity and
16
market risks inherent in our products could give rise to reputational risk that could cause harm to the Bank
and our business prospects. If we fail to address any of these issues in an appropriate manner, we could be
subject to additional legal risks, which, in turn, could increase the size and number of litigation claims and
damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs
and expenses. Our ability to attract and retain customers and employees could be adversely affected to the
extent our reputation is damaged.
We may be required to write down goodwill and other identifiable intangible assets.
When we acquire a business, a portion of the purchase price of the acquisition may be allocated to
goodwill and other identifiable intangible assets. The excess of the purchase price over the fair value of the
net identifiable tangible and intangible assets acquired determines the amount of the purchase price that is
allocated to goodwill acquired. At December 31, 2016, our goodwill and other identifiable intangible assets
totaled $101.5 million, which included goodwill and core deposit intangible assets created in connection with
the SBM acquisition on October 16, 2015 of $49.9 million and $6.6 million, respectively. Under current
accounting standards, if we determine goodwill or intangible assets are impaired, we would be required to
write down the value of these assets to fair value. We conduct an annual review, or more frequently if events
or circumstances warrant such, to determine whether goodwill is impaired. We recently completed our
goodwill impairment analysis as of November 30, 2016 and concluded goodwill was not impaired. We
conduct a review of our other intangible assets for impairment should events or circumstances warrant such.
There were no triggers for such review for impairment for other intangible assets for the year ended
December 31, 2016. We cannot provide assurance that we will not be required to take an impairment charge
in the future. Any impairment charge would have a negative effect on our shareholders’ equity and financial
results and may cause a decline in our stock price.
Systems failures, interruptions or breaches of security concerning our information base, including the
information we maintain relating to our customers, could have an adverse effect on our financial condition
and results of operations.
In the ordinary course of business, we rely on electronic communications and information systems to
conduct our business and to store sensitive data, including financial information regarding customers. We are
subject to certain operational risks, including, but not limited to, data processing system failures and errors,
inadequate or failed internal processes, customer or employee fraud, cyberattacks, hacking, identity theft and
catastrophic failures resulting from terrorist acts or natural disasters. We depend upon data processing,
software, communication, and information exchange on a variety of computing platforms and networks and
over the internet, and we rely on the services of a variety of vendors to meet our data processing and
communication needs. Despite instituted safeguards, we cannot be certain that all of our systems are entirely
free from vulnerability to attack or other technological difficulties or failures. Information security risks have
increased significantly due to the use of online, telephone and mobile banking channels by customers and the
increased sophistication and activities of organized crime, hackers, terrorists and other external parties. Our
technologies, systems, networks and our customers’ devices may be the target of, cyber-attacks, computer
viruses, malicious code, phishing attacks or information security breaches that could result in the unauthorized
release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary
and other information, the theft of customer assets through fraudulent transactions or disruption of our or our
customers’ or other third parties’ business operations. If information security is breached or other technology
difficulties or failures occur, information may be lost or misappropriated, services and operations may be
interrupted and we could be exposed to claims from customers. While we maintain a system of internal
controls and procedures, any of these results could have a material adverse effect on our business, financial
condition, results of operations or liquidity.
We regularly assess and test our security systems and disaster preparedness, including back-up systems,
but the risks are substantially escalating. As a result, cybersecurity and the continued enhancement of our
controls and processes to protect our systems, data and networks from attacks, unauthorized access or
significant damage remain a priority. Accordingly, we may be required to expend additional resources to
enhance our protective measures or to investigate and remediate any information security vulnerabilities or
exposures. Any breach of our system security could result in disruption of our operations, unauthorized access
17
to confidential customer information, significant regulatory costs, litigation exposure and other possible
damages, loss or liability. Such costs or losses could exceed the amount of available insurance coverage, if
any, and would adversely affect our earnings. Also, any failure to prevent a security breach or to quickly and
effectively deal with such a breach could negatively impact customer confidence, damaging our reputation and
undermining our ability to attract and keep customers.
We must adapt to information technology changes in the financial services industry, which could present
operational issues, require significant capital spending, or impact our reputation.
The financial services industry is constantly undergoing technological changes, with frequent
introductions of new technology-driven products and services. We invest significant resources in information
technology system enhancements in order to provide functionality and security at an appropriate level. The
effective use of technology increases efficiency and enables financial institutions to better serve customers and
reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers
by using technology to provide products and services that will satisfy customer demands for convenience, as
well as to create additional efficiencies in our operations. We may not be able to effectively implement new
technology-driven products and services or be successful in marketing these products and services to our
customers. Failure to successfully implement and integrate future system enhancements could adversely
impact the ability to provide timely and accurate financial information in compliance with legal and regulatory
requirements, which could result in sanctions from regulatory authorities. Such sanctions could include fines
and suspension of trading in our stock, among others. In addition, future system enhancements could have
higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated
with the implementation as well as ongoing operations.
Failure to properly utilize system enhancements that are implemented in the future could result in
impairment charges that adversely impact our financial condition and results of operations and could result in
significant costs to remediate or replace the defective components. In addition, we may incur significant
training, licensing, maintenance, consulting and amortization expenses during and after systems
implementations, and any such costs may continue for an extended period of time.
We rely on other companies to provide key components of our business infrastructure.
Third party vendors provide key components of our business infrastructure such as internet connections,
network access and core application processing. While we have selected these third party vendors carefully,
we do not control their actions. Any problems caused by these third parties, including as a result of their not
providing us their services for any reason or their performing their services poorly, could adversely affect our
ability to deliver products and services to our customers or otherwise conduct our business efficiently and
effectively. Replacing these third party vendors could also entail significant delay and expense.
The market value of wealth management assets under administration may be negatively affected by changes
in economic and market conditions.
A substantial portion of income from fiduciary services is dependent on the market value of wealth
management assets under administration, which are primarily marketable securities. Changes in domestic and
foreign economic conditions, volatility in financial markets, and general trends in business and finance, all of
which are beyond our control, could adversely impact the market value of these assets and the fee revenues
derived from the management of these assets.
We may not be able to attract and retain wealth management clients at current levels.
Due to strong competition, our wealth management division may not be able to attract and retain clients
at current levels. Competition is strong as there are numerous well-established and successful investment
management and wealth advisory firms including commercial banks and trust companies, investment advisory
firms, mutual fund companies, stock brokerage firms, and other financial companies. Our ability to attract and
retain wealth management clients is dependent upon our ability to compete with competitors’ investment
products, level of investment performance, client services, and marketing and distribution capabilities. If we
are not successful, our results of operations and financial condition may be negatively impacted.
18
If we do not maintain net income growth, the market price of our common stock could be adversely
affected.
Our return on shareholders’ equity and other measures of profitability, which affect the market price of
our common stock, depend in part on our continued growth and expansion. Our growth strategy has two
principal components: internal growth 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 an important component of our external growth strategy. 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 effect on the market price of our common stock.
We are a holding company and dependent upon our subsidiary for dividends, distributions and other
payments.
We are a legal entity separate and distinct from our direct and indirect subsidiaries. Our revenue (on a
parent-only basis) is derived primarily from interest and dividends paid to us by the Bank. Our right, and
consequently the right of our shareholders, to participate in any distribution of the assets or earnings of the
Bank through the payment of such dividends or otherwise is necessarily subject to the prior claims of
creditors of the Bank (including depositors), except to the extent that certain claims of us in a creditor
capacity may be recognized.
Holders of our common stock are entitled to receive dividends only when, and if declared by our Board
of Directors. Although we have historically declared cash dividends on our common stock, we are not
required to do so and our Board of Directors may reduce or eliminate our common stock dividend in the
future. The FRB has authority to prohibit bank holding companies from paying dividends if such payment is
deemed to be an unsafe or unsound practice. Additionally, the OCC has the authority to use its enforcement
powers to prohibit a bank from paying dividends if, in its opinion, the payment of dividends would constitute
an unsafe or unsound practice. Further, our ability to pay dividends would be restricted under current
regulatory capital rules if we do not maintain a capital conservation buffer. A reduction or elimination
of dividends could adversely affect the market price of our common stock. See Part I, Item 1.
‘‘Business-Supervision and Regulation-Dividend Restrictions’’ and ‘‘Business-Supervision and
Regulation-Regulatory Capital Requirements.’’
Changes in accounting standards can be difficult to predict and can materially impact how we record and
report our financial condition and results of operations.
Our accounting policies and methods are fundamental to how we record and report our financial
condition and results of operations. From time to time, the FASB changes the financial accounting and
reporting standards that govern the preparation of our financial statements. These changes can be hard to
anticipate and implement and can materially impact how we record and report our financial condition and
results of operations. For example, the FASB’s recently issued financial instruments standard will, among
other things, significantly change how loan loss provisions are determined once effective from an incurred loss
model to an expected loss model.
Differences in interpretation of tax laws and regulations and any potential resulting litigation may
adversely impact our financial statements.
Local, state or federal tax authorities may interpret tax laws and regulations differently than we do and
challenge tax positions that we have taken on tax returns. This may result in differences in the treatment of
revenues, deductions, credits and/or differences in the timing of these items. The differences in treatment may
result in payment of additional taxes, interest or penalties that could have a material adverse effect on our
results.
19
Our financial statements are based in part on assumptions and estimates, which, if wrong, could cause
unexpected losses in the future.
Pursuant to U.S. generally accepted accounting principles, we are required to use certain assumptions and
estimates in preparing our financial statements, including in determining credit loss reserves, reserves related
to litigation and the fair value of certain assets and liabilities, among other items. If assumptions or estimates
underlying our financial statements are incorrect, we may experience material losses. For additional
information, see Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Critical Accounting Policies.’’
Our financial condition and results of operations have been adversely affected, and may continue to be
adversely affected, by the U.S. and international financial market and economic conditions.
We have been, and continue to be, impacted by general business and economic conditions in the
United States and, to a lesser extent, abroad. These conditions include short-term and long-term interest rates,
inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and
equity capital markets, broad trends in industry and finance, unemployment and investor confidence, all
of which are beyond our control. While in recent years there has been gradual improvement in the
U.S. economy, deterioration in any of these conditions could result in increases in loan delinquencies and
non-performing assets, decreases in loan collateral values, the value of our investment portfolio and demand
for our products and services. Furthermore, while the U.S. economy is improving, the recovery has been slow
and there continues to be some uncertainty regarding the sustainability.
Continued market volatility may impact our business and the value of our common stock.
Our business performance and the trading price of shares of our common stock may be affected by many
factors affecting financial institutions, including volatility in the credit, mortgage and housing markets, the
markets for securities relating to mortgages or housing, and the value of debt and mortgage-backed and other
securities that we hold in our investment portfolio. Government action and legislation may also impact us and
the value of our common stock. We cannot predict what impact, if any, volatility will have on our business or
share price and for these and other reasons our shares of common stock may trade at a price lower than that
at which they were purchased.
Item 1B. Unresolved Staff Comments
None.
20
Item 2. Properties
At December 31, 2016, the Company owns or leases a total of 65 facilities, excluding any properties
designated other real estate owned. All facilities are fully utilized and considered suitable and adequate for the
purposes intended. The Company owns 42 of its facilities, none of which are subject to a mortgage, and the
remaining branches are leased by the Company. The Company has a 61 branch network located throughout
Maine, and two loan production offices located in New Hampshire and Massachusetts.
The following table presents the Company’s materially important locations and properties as of
December 31, 2016:
Location
Facility Name
Main Office . . . . . Camden, Maine
Canal Plaza . . . . . Portland, Maine
. . . Rockport, Maine
Hanley Center
Gardiner . . . . . . . Gardiner, Maine
Kennebunk . . . . . Kennebunk, Maine
Auburn . . . . . . . . Auburn, Maine
Bangor . . . . . . . . Bangor, Maine
Ellsworth . . . . . . Ellsworth, Maine
Rockland . . . . . . Rockland, Maine
Waterville . . . . . . Waterville, Maine
General Character
of the Physical
Property
3 story building
2 floors
2 story building
3 story building
2 story building
3 story building
1 floor
3 story building
3 story building
3 story building
Primary Business Segment
Principal executive office
Branch and executive office
Service center
Branch and service center
Branch and service center
Branch
Branch
Branch
Branch
Branch
Property
Status
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Property
Square Feet(1)
15,500
16,355
32,360
17,497
9,982
13,000
17,432
44,000(2)
21,600
17,099
(1) Total square footage for leased locations represents the amount of space the Company occupies.
(2)
Includes space leased to third parties.
For additional information regarding the Company’s premises and equipment and lease obligations see
Note 7 of the consolidated financial statements included in Item 8 hereof.
Item 3. Legal Proceedings
Various legal claims arise from time to time in the normal course of the Company’s business, which in
our opinion, are not expected to have a material effect on our consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
21
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
The Company’s common stock is currently traded on the NASDAQ Global Market (‘‘NASDAQ’’) under
the ticker symbol ‘‘CAC.’’ The Company has paid quarterly dividends since its foundation in 1984. The high
and low closing sales prices (as quoted by NASDAQ for 2016 and 2015) and cash dividends declared per
share of the Company’s common stock, by calendar quarter for the past two years, were as follows:
First Quarter(1)
. . . . . . . . . . . . .
Second Quarter(1)
. . . . . . . . . . .
Third Quarter(1)
. . . . . . . . . . . .
Fourth Quarter(1) . . . . . . . . . . . .
2016
Market Price
High
$28.87
$29.17
$32.32
$45.24
Low
$25.09
$26.97
$27.91
$29.70
Dividends
Declared
per Share
$0.20
$0.20
$0.20
$0.23
2015
Market Price
High
$26.56
$27.57
$27.25
$30.23
Low
$24.42
$25.03
$25.26
$26.06
Dividends
Declared
per Share
$0.20
$0.20
$0.20
$0.20
(1) Per share data has been adjusted to reflect the three-for-two split effective September 30, 2016, for all
periods presented. Refer to Note 13 of the consolidated financial statement within Item 8 for further
details.
As of March 1, 2017, there were 15,493,927 shares of the Company’s common stock outstanding by
approximately 1,200 shareholders, as obtained through our transfer agent. Such number of shareholders does
not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms
and other nominees, which is estimated to be 3,700 shareholders.
Although the Company has historically paid quarterly dividends on its common stock, the Company’s
ability to pay such dividends depends on a number of factors, including restrictions under federal laws
and regulations on the Company’s ability to pay dividends, and as a result, there can be no assurance
that dividends will be paid in the future. For further information on dividend restrictions, refer to
Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Capital Resources.’’
22
The following graph illustrates the annual percentage change in the cumulative total shareholder return of
the Company’s common stock for the period December 31, 2011 through December 31, 2016. For purposes of
comparison, the graph illustrates comparable shareholder returns of the SNL $1B — $5B Bank Index and the
Russell 2000 Stock Index. The graph assumes a $100 investment on December 31, 2011 in each case and
measures the amount by which the market value, assuming reinvestment of dividends, has changed as of
December 31, 2016.
Stock Performance Graph
e
u
l
a
V
x
e
d
n
I
$350
$300
$250
$200
$150
$100
$50
$0
Camden National Corporation
SNL $1B – $5B Bank Index
Russell 2000 Index
12/31/11
100.00
100.00
100.00
12/31/12
107.19
123.31
116.35
12/31/13
135.98
179.31
161.52
12/31/14
133.14
187.48
169.43
12/31/15
151.92
209.86
161.95
12/31/16
236.20
301.92
196.45
On September 24, 2013, the Board of Directors authorized a common stock repurchase program (the
‘‘2013 Repurchase Plan’’). The 2013 Repurchase Plan allows for the repurchase of up to 375,000 shares of the
Company’s outstanding common stock. This program is expected to continue until the authorized number of
shares is repurchased, or the Company’s Board of Directors terminates the program. There is no specified
expiration date of the 2013 Repurchase Plan. As of December 31, 2016, the Company had repurchased
374,250 shares at an average price of $26.55, or 99.8% of the program’s total allotment and 2.4% of total
outstanding shares. The Company did not repurchase any shares of Company common stock for the year
ended December 31, 2016.
Period
01/01/2016 to 12/31/2016 . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Total
Issuer’s Purchases of Equity Securities
Total
number of
shares
(or units)
purchased
—
—
Average
price paid
per share
(or unit)
—
$—
Total number of
shares (or units)
purchased
as part of publicly
announced plans
or programs
—
—
Maximum number
(or appropriate dollar
value) of shares (or
units) that may yet be
purchased under the
plans or programs
750
750
Other information required by this item is incorporated by reference to Item 12. ‘‘Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters.’’
23
Item 6. Selected Financial Data
The selected consolidated financial and other data of the Company set forth below does not purport to be
complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed
information, including the consolidated financial statements and related notes, appearing elsewhere herein.
(In Thousands, Except per Share Data)
Financial Condition Data
Investments . . . . . . . . . . . . . . . . . . . . . . . .
Loans and loans held for sale . . . . . . . . . . . . .
Allowance for loan losses . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . .
At or For The Year Ended
December 31,
2014
2015
2016
2013
2012
$ 897,679
2,609,400
(23,116)
3,864,230
2,828,529
599,675
391,547
$ 855,995
2,501,164
(21,166)
3,709,344
2,726,379
572,362
363,190
$ 803,633
1,772,610
(21,116)
2,789,853
1,932,097
577,002
245,109
$ 828,201
1,580,402
(21,590)
2,603,829
1,813,824
530,092
231,096
$ 802,084
1,563,866
(23,044)
2,564,757
1,929,469
360,163
233,815
Operating Data
Net interest income . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Non-interest income
Non-interest expense . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . .
$ 113,072
5,258
39,621
89,896
57,539
17,472
40,067
$
Ratios
Return on average assets . . . . . . . . . . . . . . . .
Return on average equity . . . . . . . . . . . . . . .
. . .
Net interest margin (fully-taxable equivalent)
Tier I leverage capital ratio(1) . . . . . . . . . . . . .
Total risk-based capital ratio(1)
. . . . . . . . . . . .
Non-performing assets to total assets
. . . . . . . .
Dividend payout ratio . . . . . . . . . . . . . . . . .
Per common share data(2)
Basic earnings per share . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . .
Dividends declared per share . . . . . . . . . . . . .
Book value per share . . . . . . . . . . . . . . . . . .
Non-GAAP measures(3)
Adjusted net income . . . . . . . . . . . . . . . . . .
Adjusted diluted earnings per share(2)
. . . . . . . .
Tangible book value per share(2)
. . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . .
Adjusted return on average assets
. . . . . . . . . .
Return on average tangible equity . . . . . . . . . .
Adjusted return on average tangible equity . . . . .
Tangible common equity ratio . . . . . . . . . . . .
1.04%
10.47%
3.32%
8.83%
14.04%
0.67%
32.22%
2.59
2.57
0.83
25.30
40,597
2.61
18.74
57.53%
1.06%
14.76%
14.95%
7.71%
$
$
$
$
$
$
$
$
$
$
86,452
1,936
27,482
81,139
30,859
9,907
20,952
0.70%
7.54%
3.19%
8.74%
12.98%
0.66%
50.60%
1.73
1.73
0.80
23.69
28,186
2.33
16.89
61.13%
0.94%
9.91%
13.20%
7.18%
$
$
$
$
76,257
2,220
24,370
62,397
36,010
11,440
24,570
0.92%
10.37%
3.11%
9.26%
15.16%
0.82%
33.73%
2.19
2.19
0.74
22.00
24,277
2.16
17.68
61.58%
0.90%
13.46%
13.30%
7.18%
$
$
$
$
75,441
2,028
27,835
66,333
34,915
12,132
22,783
0.88%
9.74%
3.20%
9.43%
16.45%
1.18%
36.30%
1.98
1.98
0.72
20.33
23,564
2.05
15.99
62.78%
0.92%
14.55%
13.42%
7.12%
73,745
3,816
23,412
59,031
34,310
10,882
23,428
0.98%
10.31%
3.36%
8.94%
15.56%
1.13%
32.73%
2.04
2.03
0.67
20.45
24,324
2.11
15.79
57.45%
1.02%
13.19%
13.68%
7.19%
(1) Effective January 1, 2015, the Company reported regulatory capital ratios in accordance with the Basel
III regulatory capital rule and framework.
(2) Per share data has been adjusted to reflect the three-for-two split effective September 30, 2016, for all
periods presented. Refer to Note 13 within the consolidated financial statements.
(3) Refer to Item 7. ‘‘Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Non-GAAP Financial Measures and Reconciliation to GAAP’’ for discussion and
reconciliations of non-GAAP measures.
24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion below focuses on the factors affecting our consolidated results of operations for the year
ended December 31, 2016, 2015 and 2014 and financial condition at December 31, 2016 and 2015 and, where
appropriate, factors that may affect our future financial performance, unless stated otherwise. The dollar
amounts within the tables are presented in thousands, except per share data. This discussion should be read in
conjunction with the consolidated financial statements, notes to the consolidated financial statements and
selected consolidated financial data.
Acronyms and Abbreviations
The acronyms and abbreviations identified below are used throughout Item 7. ‘‘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 this section of the Form 10-K.
Acadia Trust . . . . . . . . . . . . Acadia Trust, N.A. was a wholly-owned subsidiary of Camden National
Corporation until its merger with Camden National Bank, a wholly-owned
subsidiary of Camden National Corporation, on November 30, 2016.
AFS . . . . . . . . . . . . . . . . . Available-for-sale
ALCO . . . . . . . . . . . . . . . . Asset/Liability Committee
ALL . . . . . . . . . . . . . . . . . Allowance for loan losses
AOCI
. . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss)
ASC . . . . . . . . . . . . . . . . . Accounting Standards Codification
ASU . . . . . . . . . . . . . . . . . Accounting Standards Update
Bank . . . . . . . . . . . . . . . . . Camden National Bank, a wholly-owned subsidiary of Camden National
Corporation
Board ALCO . . . . . . . . . . . Board of Directors’ Asset/Liability Committee
BOLI . . . . . . . . . . . . . . . . . Bank-owned life insurance
BSA . . . . . . . . . . . . . . . . . Bank Secrecy Act
CCTA . . . . . . . . . . . . . . . . Camden Capital Trust A, an unconsolidated entity formed by Camden National
Corporation
CDARS . . . . . . . . . . . . . . . Certificate of Deposit Account Registry System
CDs . . . . . . . . . . . . . . . . . . Certificate of deposits
CMO . . . . . . . . . . . . . . . . . Collateralized mortgage obligation
Company . . . . . . . . . . . . . . Camden National Corporation
DCRP . . . . . . . . . . . . . . . . Defined Contribution Retirement Plan
EPS . . . . . . . . . . . . . . . . . . Earnings per share
FASB . . . . . . . . . . . . . . . . Financial Accounting Standards Board
FDIC . . . . . . . . . . . . . . . . . Federal Deposit Insurance Corporation
FHLB . . . . . . . . . . . . . . . . Federal Home Loan Bank
FHLBB . . . . . . . . . . . . . . . Federal Home Loan Bank of Boston
FRB . . . . . . . . . . . . . . . . . Federal Reserve System Board of Governors
FRBB . . . . . . . . . . . . . . . . Federal Reserve Bank of Boston
GAAP . . . . . . . . . . . . . . . . Generally accepted accounting principles in the United States
25
HPFC . . . . . . . . . . . . . . . . Healthcare Professional Funding Corporation, a wholly-owned subsidiary of
Camden National Bank
HTM . . . . . . . . . . . . . . . . . Held-to-maturity
IRS . . . . . . . . . . . . . . . . . . Internal Revenue Service
LIBOR . . . . . . . . . . . . . . . . London Interbank Offered Rate
LTIP . . . . . . . . . . . . . . . . . Long-Term Performance Share Plan
Management ALCO . . . . . . . Management Asset/Liability Committee
MBS . . . . . . . . . . . . . . . . . Mortgage-backed security
Merger . . . . . . . . . . . . . . . . On October 16, 2015, the two-step merger of Camden National Corporation,
SBM Financial, Inc. and Atlantic Acquisitions, LLC, a wholly-owned
subsidiary of Camden National Corporation, was completed
Merger Agreement . . . . . . . . Plan of Merger, dated as of March 29, 2015, by and among Camden National
Corporation, SBM Financial, Inc. and Atlantic Acquisitions, LLC, a wholly-
owned subsidiary of Camden National Corporation
MSHA . . . . . . . . . . . . . . . . Maine State Housing Authority
MSPP . . . . . . . . . . . . . . . . Management Stock Purchase Plan
MSRs
. . . . . . . . . . . . . . . . Mortgage servicing rights
NIM . . . . . . . . . . . . . . . . . Net interest margin on a fully-taxable basis
N.M.
. . . . . . . . . . . . . . . . . Not meaningful
Non-Agency . . . . . . . . . . . . Non-agency private issue collateralized mortgage obligation
NRV . . . . . . . . . . . . . . . . . Net realizable value
OCC . . . . . . . . . . . . . . . . . Office of the Comptroller of the Currency
OCI . . . . . . . . . . . . . . . . . . Other comprehensive income (loss)
OFAC . . . . . . . . . . . . . . . . Office of Foreign Assets Control
OREO . . . . . . . . . . . . . . . . Other real estate owned
OTTI . . . . . . . . . . . . . . . . . Other-than-temporary impairment
SBM . . . . . . . . . . . . . . . . . SBM Financial, Inc., the parent company of The Bank of Maine
SERP . . . . . . . . . . . . . . . . . Supplemental executive retirement plans
TDR . . . . . . . . . . . . . . . . . Troubled-debt restructured loan
UBCT . . . . . . . . . . . . . . . . Union Bankshares Capital Trust I, an unconsolidated entity formed by Union
Bankshares Company that was subsequently acquired by Camden National
Corporation
U.S. . . . . . . . . . . . . . . . . . . United States of America
2003 Plan . . . . . . . . . . . . . . 2003 Stock Option and Incentive Plan
2012 Plan . . . . . . . . . . . . . . 2012 Equity and Incentive Plan
2013 Repurchase Program . . . 2013 Common Stock Repurchase Program, approved by the Company’s Board
of Directors
26
Executive Overview
In the fourth quarter of 2015, we completed the acquisition of SBM, the parent company of The Bank of
Maine, and much of our attention for 2016 was focused on executing the merger strategies, integrating the
two banks, and delivering on the commitments we had made to our shareholders and stakeholders. Through
the successful execution of our merger strategies and the ongoing hard work and efforts of all our employees
and the Board of Directors, we were able to meet our commitments and report solid financial results for the
year ended December 31, 2016, including net income of $40.1 million and diluted EPS of $2.57 per share;
return on average assets and equity of 1.04% and 10.47%, respectively; and an efficiency ratio (non-GAAP) of
57.53%.
Our strong financial and operating results for the year ended December 31, 2016 was largely due to the
culmination of the Merger, which provided us with a larger presence in Southern and Central Maine, as well
as an established mortgage banking business, but also our focus and commitment on driving organic growth
through consistent delivery of our value proposition across all of our delivery channels. Total assets at
December 31, 2016 were $3.9 billion, representing an increase over last year of 4%. Our asset growth in 2016
was driven by solid loan growth (excluding loans held for sale) of 4% and higher investment balances of 5%.
Total deposits at December 31, 2016 were $2.8 billion, representing an increase over last year of 4%, which
was driven by core deposit growth (demand, interest checking, savings and money market) of 4%.
Our asset quality at December 31, 2016 continues to remain strong with non-performing assets to total
assets of 0.67% and non-performing loans to total loans of 0.97%, representing slight increases over last year
of 1 basis point and 4 basis points, respectively. Our ratio of loans 30 − 89 days past due to total loans at
December 31, 2016 was 0.24%, compared to 0.40% last year. Our provision for credit losses for the year
ended December 31, 2016 was $5.3 million compared to $1.9 million last year. The increase was driven by
our aforementioned loan growth year-over-year, as well as the credit deterioration of two significant loan
relationships during 2016: (i) a syndication relationship we acquired as part of the Merger that resulted in
incremental provision expense in 2016 of $1.4 million; and (ii) a large commercial real estate loan that was
downgraded from passing to substandard in 2016 that resulted in incremental provision expense for 2016 of
$1.3 million.
In the third and fourth quarter of 2016, we took certain steps to provide our shareholders with additional
returns, including increasing our stock liquidity through completion of a three-for-two stock split effective
September 30, 2016, and through a 15% increase in our quarterly cash dividend effective for the January 31,
2017 payout to our shareholders.
At December 31, 2016, the Company and the Bank, maintained risk-based capital ratios in excess of the
regulatory levels required for an institution to be considered ‘‘well capitalized’’.
27
OPERATING RESULTS
Net Income and Diluted EPS
)
s
’
0
0
0
$
(
e
m
o
c
n
I
t
e
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$50,000
$40,000
$30,000
$20,000
$10,000
$0
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(
e
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$50,000
$40,000
$30,000
$20,000
$10,000
$0
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
S
P
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$3.00
$2.50
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e
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s
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j
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A
12/31/12
12/31/13
12/31/14
Period Ended
12/31/15
12/31/16
Net Income
Diluted EPS
Adjusted Net Income and Diluted EPS (non-GAAP)
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
Period Ended
Adjusted Net Income
Adjusted Diluted EPS
28
Net income for the year ended December 31, 2016 was $40.1 million compared to $21.0 million last
year. Adjusted net income (non-GAAP) for the year ended December 31, 2016 was $40.6 million compared to
$28.2 million last year.
Diluted EPS for the year ended December 31, 2016 was $2.57 per share compared to $1.73 per share last
year. Adjusted diluted EPS (non-GAAP) for the year ended December 31, 2016 was $2.61 compared to $2.33
per share last year, representing an increase of 12% over last year.
The increase in adjusted net income (non-GAAP) of 44% and adjusted diluted EPS (non-GAAP) of 12%
in 2016 compared to 2015 highlights the benefits of the Merger and our successful execution of our merger
strategies, including an efficiency ratio of 57.53%, a return on average assets ratio of 1.04%, and a return on
average equity of 10.47%.
FINANCIAL CONDITION
Financial Condition
)
s
n
o
i
l
l
i
B
(
$4.000
$3.500
$3.000
$2,500
$2,000
$1,500
$1,00
$500
$0
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
Assets
Loans
Deposits
29
Total assets at December 31, 2016 of $3.9 billion increased $154.9 million, or 4%, since December 31,
2015 driven by organic loan growth of $104.4 million, or 4%, for the year.
Loan Mix
)
s
n
o
i
l
l
i
M
(
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
Period Ended
Retail
Commercial
Our 2016 loan growth was centered in commercial real estate loans and commercial loans of 13% and
12%, resulting in a loan mix of 56% commercial and 44% retail.
Deposit Mix
)
s
n
o
i
l
l
i
M
(
$1,200
$1,000
$800
$600
$400
$200
$0
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
Period Ended
Demand
Interest checking
Savings and money market
Retail certificates of deposit
Brokered deposits
Total deposits at December 31, 2016 grew 4% over last year to $2.8 billion. Core deposits (demand,
interest checking, saving and money market) increased 4% over last year to $2.1 billion. Our CD balances
at December 31, 2016 decreased $48.7 million since last year and was supplemented by an increase in
brokered deposits of $73.5 million. Total borrowings increased 5% over last year to $599.7 million at
December 31, 2016.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and
uncertainties, and could potentially result in materially different results under different assumptions and
conditions. In preparing the Company’s consolidated financial statements, management is required to make
30
significant estimates and assumptions that affect assets, liabilities, revenues, and expenses reported. Actual
results could materially differ from our current estimates, as a result of changing conditions and future events.
Several estimates are particularly critical and are susceptible to significant near-term change, including (i) the
allowance for loan losses; (ii) accounting for acquisitions and the subsequent review of goodwill and core
deposit intangible assets generated in an acquisition for impairment; (iii) OTTI of investments; (iv) accounting
for postretirement plans; and (v) income taxes.
Allowance for Loan Losses. Management is committed to maintaining an ALL that is appropriate to
absorb likely loss exposure in the loan portfolio. Evaluating the appropriateness of the ALL is a key
management function and one that requires the most significant amount of management estimates and
assumptions. The ALL, which is established through a charge to the provision for credit losses, consists of
two components: (i) a reduction to total gross loans in the asset section of the consolidated statements of
condition, and (ii) the reserve for unfunded commitments included in other liabilities on the consolidated
statements of condition. We regularly evaluate the ALL for adequacy by taking into consideration, among
other factors, historical trends in charge-offs and delinquencies, overall risk characteristics and size of the
portfolios, ongoing review of significant individual loans, trends in levels of watched or criticized assets,
business and economic conditions, local industry trends, regulatory guidance, and other relevant factors.
In determining the appropriate level of ALL, we use a methodology to systematically measure the
amount of estimated loan loss exposure inherent in the loan portfolio. The methodology focuses on three key
elements: (i) identification of loss allocations for specific loans, (ii) loss allocation factors for certain loan
types based on credit grade and loss experience, and (iii) general loss allocations for other qualitative and
environmental factors.
Loans for which a specific loss allocation may be required are identified and assessed at least quarterly
by reviewing individual loans with a principal balance of $250,000 or more that are risk rated as substandard
or doubtful and are on non-accrual status in accordance with Bank policy. We believe loans that meet the
above criteria most often demonstrate the qualities and characteristics of an impaired loan and are individually
significant enough to the Company to warrant individual assessment. An allowance is established for each of
these loans to reduce the net carrying value when the discounted cash flows (or collateral value or observable
market) of the impaired loan is lower than the recorded investment of the loan. Subsequent to December 31,
2016, we amended our internal policy for assessing individual loans for impairment by increasing the
principal balance threshold to $500,000. The qualitative factors for assessing a loan individually for
impairment remain unchanged. The change in our internal policy will be effective for periods beginning on
January 1, 2017.
The remaining loan portfolio is separated into risk pools by portfolio segment and subject to a general
reserve factor. At least annually, we reassess and revise the loss allocation factor used in constructing the
reserve for each risk pool. The factors we consider in constructing each risk pool include: (i) risk rating;
(ii) historical losses; (iii) market conditions; and (iv) other environmental factors.
In assessing the risk rating of a particular loan, we consider, among other factors, the obligor’s debt
capacity, financial condition, the level of the obligor’s earnings, the amount and sources of repayment, the
performance with respect to loan terms, the adequacy of collateral, the level and nature of contingent
liabilities, management strength, and the industry in which the obligor operates. These factors are based on an
evaluation of historical information, as well as a subjective assessment and interpretation of current conditions.
Emphasizing one factor over another, or considering additional factors that may be relevant in determining the
risk rating of a particular loan but which are not currently an explicit part of our methodology, could impact
the risk rating assigned to that loan.
Three times a year, management conducts a thorough review of adversely risk rated commercial and
commercial real estate exposures exceeding certain thresholds to re-evaluate the risk rating and identify
impaired loans. This extensive review takes into account the obligor’s repayment history and financial
condition, collateral value, guarantor support, local economic and industry trends, and other factors relevant to
the particular loan relationship.
31
Because the methodology is based upon historical experience and trends as well as management’s
judgment, factors may arise that result in different estimations. Significant factors that could give rise to
changes in these estimates may include, but are not limited to, changes in economic conditions in our market
area, concentration of risk, declines in local property values, and the results of regulatory examinations. While
management’s evaluation of the ALL as of December 31, 2016 determined it to be appropriate, under
adversely different conditions or assumptions, we may need to increase the ALL. Monthly, management
reviews the ALL to assess recent asset quality trends and impact on the Company’s financial condition.
Quarterly, the ALL is brought before the Bank’s Board of Directors for discussion, review, and approval.
The adequacy of the reserve for unfunded commitments is determined in a similar manner as the ALL,
with the exception that management must also estimate the likelihood of these commitments being funded and
becoming loans. This is accomplished by evaluating the historical utilization of each type of unfunded
commitment and estimating the likelihood that the historical utilization rates could change in the future.
Purchase Price Allocation and Impairment of Goodwill and Identifiable Intangible Assets. We record
all acquired assets and liabilities at fair value, which is an estimate determined by the use of internal valuation
techniques. We also may engage external valuation services to assist with the valuation of material assets and
liabilities acquired, including, but not limited to, loans, core deposit intangibles, real estate and time deposits.
As part of purchase accounting, we typically acquire goodwill and other intangible assets as part of the
purchase price. These assets are subject to ongoing periodic impairment tests under differing accounting
models. On October 16, 2015, we completed the acquisition of SBM, the parent company of The Bank of
Maine. We did not acquire any other company or assets in 2016.
Goodwill impairment evaluations are required to be performed at least annually, but may be required
more frequently if certain conditions indicate a potential impairment may exist. Our policy is to perform the
goodwill impairment analysis annually as of November 30th, or more frequently as warranted. The goodwill
impairment evaluation is required to be performed at the reporting unit level — (i) banking and (ii) financial
services — and is performed using the two-step process outlined in GAAP. The banking reporting unit is
representative of our core banking business line, while the financial services reporting unit is representative of
our wealth management and trust services business line.
For the year ended December 31, 2016 and 2015, we performed step one of the annual goodwill
impairment test for each reporting unit and in doing so, we concluded that the estimated fair value of each
reporting unit exceeded its respective carrying value. As such, we concluded that goodwill was not impaired
as of November 30, 2016 and 2015. Furthermore, we are not aware of any indications and/or triggers
subsequent to our goodwill impairment analysis performed as of November 30, 2016 that would lead us to
believe there may be subsequent impairment of goodwill.
Core deposit intangible assets have a finite life and are amortized over their estimated useful lives. Core
deposit intangible assets are subject to impairment tests if events or circumstances indicate a possible inability
to realize the carrying amount. Core deposit intangible assets are measured for impairment utilizing a cost
recovery model. We did not identify any events or circumstances that occurred for the year ended
December 31, 2016 or 2015 that would indicate that our core deposit intangible assets may be impaired and
should be evaluated for such.
OTTI of Investments. We record an investment impairment charge at the point we believe an
investment has experienced a decline in value that is other-than-temporary. In determining whether an
OTTI has occurred, we review information about the underlying investment that is publicly available,
analysts’ reports, applicable industry data and other pertinent information, and assess our intent and ability to
hold the security for the foreseeable future until recovered. The investment is written down to its current fair
value at the time the impairment is deemed to have occurred. Future adverse changes in market conditions,
continued poor operating results of underlying investments or other factors could result in further losses that
may not be reflected in an investment’s current carrying value, possibly requiring an additional impairment
charge in the future.
32
Accounting for Postretirement Plans. We use a December 31st measurement date to determine the
expenses for our postretirement plans and related financial disclosure information. Postretirement plan expense
is sensitive to changes in the number of eligible employees (and their related demographics), changes in the
discount rate, mortality rate, and other expected rates, such as medical cost trends rates and salary scale
assumptions.
Income Taxes. We account for income taxes by deferring income taxes based on the estimated future
tax effects of differences between the book and tax bases of assets and liabilities considering the provisions of
enacted tax laws. These differences result in deferred tax assets and liabilities, which are included in the
consolidated statements of condition. We must also assess the likelihood that any deferred tax assets will be
recovered from future taxable income and establish a valuation allowance for those assets determined not
likely to be recoverable. Judgment is required in determining the amount and timing of recognition of the
resulting deferred tax assets and liabilities, including projections of future taxable income. Although we have
determined a valuation allowance is not required for all deferred tax assets, there is no guarantee that these
assets will be realized. Income tax returns for the year ended December 31, 2013, 2014 and 2015 are open to
audit by federal and various state authorities and currently our federal income tax returns for 2013 and 2014
are undergoing an IRS examination. If we, as a result of an audit, were assessed interest and penalties, the
amounts would be recorded through other non-interest expense on the consolidated statements of income.
Non-GAAP Financial Measures and Reconciliation to GAAP
In addition to evaluating the Company’s results of operations in accordance with GAAP, management
supplements this evaluation with an analysis of certain non-GAAP financial measures, such as the efficiency
ratio; tax equivalent net interest income; tangible book value per share; tangible common equity ratio; adjusted
net income, adjusted diluted EPS, adjusted return on average assets, adjusted return on average equity and
average tangible equity, and adjusted NIM; and return on average tangible equity. We utilize these non-GAAP
financial measures for purposes of measuring our performance against our peer group and other financial
institutions and analyzing our internal performance. We also believe these non-GAAP financial measures help
investors better understand the Company’s operating performance and trends and allow for better performance
comparisons to other banks. In addition, these non-GAAP financial measures remove the impact of unusual
items that may obscure trends in the Company’s underlying performance. These disclosures should not be
viewed as a substitute for GAAP operating results, nor are they necessarily comparable to non-GAAP
performance measures that may be presented by other financial institutions.
33
Efficiency Ratio. The efficiency ratio represents an approximate measure of the cost required for the
Company to generate a dollar of revenue. This is a common measure within our industry and is a key ratio
for evaluating Company performance. The efficiency ratio is calculated as the ratio of (i) total non-interest
expense, adjusted for certain operating expenses to (ii) net interest income on a tax equivalent basis (assumed
35% tax rate) plus total non-interest income, adjusted for certain other income items.
Non-interest expense, as presented . . . . . . . . .
Less: merger and acquisition costs, and
divestiture cost . . . . . . . . . . . . . . . . . . .
Less: goodwill impairment
. . . . . . . . . . . .
Less: prepayment penalties on borrowings . .
Adjusted non-interest expense . . . . . . . . . . . .
Net interest income, as presented . . . . . . . . . .
Add: effect of tax-exempt income . . . . . . . .
Non-interest income . . . . . . . . . . . . . . . . . . .
Less: net gains on sale of securities, net of
OTTI
. . . . . . . . . . . . . . . . . . . . . . . . .
Less: gain on branch divestiture and branch
sale
. . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted net interest income plus non-interest
income . . . . . . . . . . . . . . . . . . . . . . . . . .
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . .
Non-interest expense, as presented, to total
For The Year Ended
December 31,
2014
$ 62,397
2015
$ 81,139
2013
$ 66,333
(10,415)
—
—
$ 70,724
$ 86,452
1,763
27,482
—
—
—
$ 62,397
$ 76,257
1,157
24,370
(374)
(2,830)
—
$ 63,129
$ 75,441
808
27,835
2016
$ 89,896
(866)
—
—
$ 89,030
$113,072
2,121
39,621
2012
$59,031
(2,324)
—
(2,030)
$54,677
$73,745
988
23,412
(51)
—
(4)
—
(451)
(785)
(2,498)
—
(2,742)
(479)
$154,763
$115,693
$101,333
$100,557
$95,168
57.53%
61.13%
61.58%
62.78%
57.45%
revenues(1)
. . . . . . . . . . . . . . . . . . . . . . .
58.87%
71.22%
62.01%
64.23%
60.76%
(1) Revenue is defined as net interest income plus non-interest income.
Tax Equivalent Net Interest Income. Tax-equivalent net interest income is net interest income plus the
taxes that would have been paid had tax-exempt securities been taxable (assuming a 35% tax rate). This
number attempts to enhance the comparability of the performance of assets that have different tax liabilities.
Net interest income, as presented . . . . . . . . . .
Effect of tax-exempt income . . . . . . . . . . .
Net interest income, tax equivalent . . . . . . . . .
For The Year Ended
December 31,
2014
$76,257
1,157
$77,414
2015
$86,452
1,763
$88,215
2013
$75,441
808
$76,249
2016
$113,072
2,121
$115,193
2012
$73,745
988
$74,733
34
Tangible Book Value per Share. Tangible book value per share is the ratio of (i) shareholders’ equity
less goodwill, premium on deposits and other acquisition-related intangibles (the numerator) to (ii) total
common shares outstanding at period end. The following table reconciles tangible book value per share to
book value per share. Tangible book value per share is a common measure within our industry when assessing
the value of a Company as it removes goodwill and other intangible assets generated within purchase
accounting upon a business combination.
Tangible Common Equity Ratio. Tangible common equity is the ratio of (i) shareholders’ equity less
goodwill and other intangible assets (the numerator) to (ii) total assets less goodwill and other intangible
assets. This ratio is a measure used within our industry to assess whether or not a company is highly
leveraged.
2016
2015
December 31,
2014
2013
2012
391,547 $
363,190 $
245,109 $
231,096 $
233,815
Tangible Book Value Per Share:
Shareholders’ equity, as presented . . . . . $
Less: goodwill and other intangible
assets
. . . . . . . . . . . . . . . . . . . . .
Tangible equity . . . . . . . . . . . . . . . . . . $
Shares outstanding at period end(1) . . . . . 15,476,379
Tangible book value per share(1)
. . . . . . $
Book value per share(1) . . . . . . . . . . . . . $
18.74 $
25.30 $
15,330,717
11,139,333
11,369,870
16.89 $
23.69 $
17.68 $
22.00 $
15.99 $
20.33 $
(101,461)
290,086 $
(104,324)
258,866 $
(48,171)
196,938 $
(49,319)
181,777 $
(53,299)
180,516
11,434,125
15.79
20.45
Tangible Common Equity Ratio:
Total assets . . . . . . . . . . . . . . . . . . . . . $ 3,864,230 $ 3,709,344 $ 2,789,853 $ 2,603,829 $ 2,564,757
(53,299)
. . . . . . . . . . . . . . . . . . $ 3,762,769 $ 3,605,020 $ 2,741,682 $ 2,554,510 $ 2,511,458
Less: goodwill and other intangibles . .
(101,461)
(104,324)
(48,171)
(49,319)
Tangible assets
Tangible common equity ratio . . . . . . . .
Shareholders’ equity to total assets . . . . .
7.71%
10.13%
7.18%
9.79%
7.18%
8.79%
7.12%
8.88%
7.19%
9.12%
(1) Share and per share amounts have been adjusted to reflect the three-for-two split effective September 30,
2016, for all periods presented. Refer to Item 8. ‘‘Financial Statements and Supplementary Data —
Note 13, Shareholders’ Equity.’’
35
Adjusted Net Income, Adjusted Diluted EPS, Adjusted Return on Average Assets and Adjusted Return
on Average Equity and Average Tangible Equity: The following tables provide a reconciliation of net
income, diluted EPS, return on average assets and average shareholders’ equity to exclude the financial impact
of certain transactions. The following adjusted financial ratios assist users of our financial statements with
their financial analysis period-over-period as it adjusts for certain non-recurring items.
Adjusted Net Income:
Net income, as presented . . . . . . . . . . .
Add: mergers and acquisition costs and
. . . . .
. . . . . . .
divestiture costs, net of tax(1)
Add: goodwill impairment(1)
Add: prepayment penalties on
borrowings(1)
. . . . . . . . . . . . . . . .
Less: net gains on sale of securities,
net of OTTI(1)
. . . . . . . . . . . . . . .
Less: gain on branch divestiture and
branch sale(1)
Adjusted net income
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
2016
2015
For The Year Ended
December 31,
2014
2013
2012
$40,067
$20,952
$24,570
$22,783
$23,428
563
—
—
(33)
7,237
—
—
(3)
—
—
—
243
2,830
1,511
—
—
1,320
(293)
(510)
(1,624)
—
$40,597
—
$28,186
—
$24,277
(1,782)
$23,564
(311)
$24,324
Adjusted Diluted EPS:
Diluted EPS, as presented(2)
. . . . . . . . .
$ 2.57
$
1.73
$
2.19
$
1.98
$
2.03
Impact of adjustments to arrive at
adjusted net income(2)
Adjusted diluted EPS(2)
. . . . . . . . . .
. . . . . . . . . . . .
Adjusted Return on Average Assets:
Return on average assets, as presented . .
Impact of adjustments to arrive at
0.04
2.61
$
0.60
2.33
$
(0.03)
2.16
$
0.07
2.05
$
0.08
2.11
$
1.04%
0.70%
0.92%
0.88%
0.98%
adjusted net income . . . . . . . . . . . .
Adjusted return on average assets . . . . . .
0.02%
1.06%
0.24%
0.94%
(0.02)%
0.90%
0.04%
0.92%
0.04%
1.02%
(1) Assumed a 35% tax rate for deductible expenses, with the exception of goodwill impairment as this was
a non-taxable event.
(2) Per share data has been adjusted to reflect the three-for-two split effective September 30, 2016, for all
periods presented. Refer to Note 13 in the consolidated financial statements.
36
Return on Average Tangible Equity: Return on average tangible equity is the ratio of (i) net income,
adjusted for tax effected amortization of intangible assets and goodwill impairment (the numerator) to
(ii) average shareholders’ equity, adjusted for average goodwill and other intangible assets. This adjusted
financial ratio reflects a shareholders’ return on tangible capital deployed in our business and is a common
measure within our industry.
Net income, as presented . . . . . . . . . . . $ 40,067
Add: amortization of intangible assets,
2016
For The Year Ended
December 31,
2014
$ 24,570
2015
$ 20,952
2013
$ 22,783
2012
$ 23,428
net of tax(1)
Add: goodwill impairment(1)
. . . . . . . . . . . . . . . . .
. . . . . . .
Net income, adjusted for amortization of
intangible assets and goodwill
impairment
Add: merger and acquisition costs and
. . . . . . . . . . . . . . . . . . .
divestiture costs, net of tax(1)
. . . . .
Add: prepayment penalties on
borrowings(1)
. . . . . . . . . . . . . . . .
Less: net gains on sale of securities,
net of OTTI(1)
. . . . . . . . . . . . . . .
Less: gain on branch divestiture and
1,237
—
849
—
746
—
747
2,830
427
—
41,304
21,801
25,316
26,360
23,855
563
—
(33)
7,237
—
(3)
—
—
243
—
1,511
1,320
(293)
(510)
(1,624)
branch sale(1)
. . . . . . . . . . . . . . . .
—
Adjusted tangible net income . . . . . . . . . $ 41,834
Average equity . . . . . . . . . . . . . . . . . . $ 382,507
—
$ 29,035
$277,716
—
$ 25,023
$236,849
(1,782)
$ 24,311
$233,888
(311)
$ 24,751
$227,129
Less: average goodwill and other
intangible assets . . . . . . . . . . . . . .
(102,711)
Average tangible equity . . . . . . . . . . . . $ 279,796
(57,833)
$219,883
(48,735)
$188,114
(52,708)
$181,180
(46,253)
$180,876
Adjusted return on average tangible
equity . . . . . . . . . . . . . . . . . . . . . . .
Return on average tangible equity . . . . .
Adjusted return on average equity . . . . .
Return on average equity . . . . . . . . . . .
14.95%
14.76%
10.94%
10.47%
13.20%
9.91%
10.45%
7.54%
13.30%
13.46%
10.56%
10.37%
13.42%
14.55%
10.39%
9.74%
13.68%
13.19%
10.90%
10.31%
(1) Assumed a 35.0% tax rate for deductible expenses, with the exception of goodwill impairment as this
was a non-taxable event.
Adjusted Net Interest Margin: The following tables provide a reconciliation of NIM on a fully-taxable
basis as presented within ‘‘— Results and Operations — Net Interest Income’’ to NIM on a fully-taxable basis,
adjusted for fair value mark accretion from purchase accounting and recoveries on previously charged-off
acquired loans. We believe this measure is meaningful as our NIM on fully-taxable basis as reported benefits
from these items and they are not representative of how we manage our business and our balance sheet.
37
Prior to the Merger in the fourth quarter of 2015, fair value mark accretion from purchase accounting and
recoveries on previously charged-off loans were not material to our consolidated financial condition or
operating results, and, thus, non-GAAP reconciliations for the year ended December 31, 2012, 2013 and 2014
were not provided.
Net interest income, tax equivalent, as presented . . . . . . . . . . . . . . . . . . . .
Less: fair value mark accretion from purchase accounting . . . . . . . . . . . .
. . . . . . . . . . . .
Less: collection of previously charged-off acquired loans
Adjusted net interest income, tax equivalent . . . . . . . . . . . . . . . . . . . . . . .
For The Year Ended
December 31,
2016
$ 115,193
(5,082)
(1,078)
$ 109,033
2015
88,215
(812)
(52)
87,351
$
$
Average total interest-earnings assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest margin (fully-taxable equivalent)
. . . . . . . . . . . . . . . . . . . . . .
Adjusted net interest margin (fully-taxable equivalent) . . . . . . . . . . . . . . . .
$3,466,601
$2,764,568
3.32%
3.15%
3.19%
3.16%
Results of Operations
For the year ended December 31, 2016, we reported net income of $40.1 million compared to
$21.0 million for the year ended December 31, 2015, and $24.6 million for the year ended December 31,
2014. Diluted EPS for each of these years were $2.57, $1.73, and $2.19, respectively. The major components
of these results, which include net interest income, provision for credit losses, non-interest income,
non-interest expense, and income tax expense, are discussed below.
Net Interest Income
Net interest income is interest earned on loans, securities, and other interest-earning assets, plus net loan
fees, origination costs and fair value marks on loans and/or time deposits created in purchase accounting, less
the interest paid on interest-bearing deposits and borrowings. Net interest income, which is our largest source
of revenue accounting for approximately 74% of total revenues, is affected by factors including, but not
limited to: changes in interest rates, loan and deposit pricing strategies and competitive conditions, loan
prepayment speeds, the volume and mix of interest-earning assets and interest-bearing liabilities, and the level
of non-performing assets. NIM is calculated as net interest income on a fully-taxable equivalent basis as
a percentage of average interest-earning assets. Our NIM on a fully-taxable equivalent basis for the year
ended December 31, 2016, 2015, and 2014 was 3.32%, 3.19%, and 3.11%.
2016 vs. 2015 Net Interest Income. Net interest income was $115.2 million on a fully-taxable
equivalent basis for 2016, compared to $88.2 million for 2015, representing an increase of $27.0 million,
or 31%.
Interest income on a fully-taxable equivalent basis for 2016 was $131.7 million, representing an increase
over 2015 of $30.8 million, or 31%. Our interest income growth for 2016 was primarily driven by an increase
in average interest-earning assets of $702.0 million, or 25%, over last year. We also benefited from a higher
yield on interest-earning assets of 15 basis points in 2016 compared to last year.
Average interest-earning assets totaled $3.5 billion for 2016, and our growth of 25% over last year was
fueled by higher average loan balance of $618.5 million, or 32%. The increase in average loan balances was
due to the Merger in the fourth quarter of 2015, in which we acquired $615.4 million of loan balances, as
well 4% organic loan growth during 2016.
Our yield on interest-earning assets for 2016 was 3.80% compared to 3.65% last year. The increase
reflects that benefits of the Merger as our loan yield increased 8 basis points in 2016 over last year. As part of
the Merger, we acquired HPFC and it earned an average yield of 8.82% for 2016. However, effective
February 19, 2016, we ceased HPFC’s operations and loans are no longer being originated by HPFC and
expect this loan portfolio to run off over the next several years. Also, due to the Merger, we benefited from
higher loan and CD net fair value mark accretion of $4.3 million compared to last year and one-time
recoveries on previously charged-off acquired SBM loans of $1.1 million for 2016. Our commercial real estate
loan yield decreased 34 basis points in 2016 compared to 2015 due to the combination of (i) the competitive
38
landscape across northern New England for strong credit commercial real estate loans, (ii) our strategy over
the past two years to utilize back-to-back customer loan swaps on originated commercial real estate loans to
protect us in a rising rate environment, and (iii) the low interest rate environment.
For 2016, our average deposits (excluding brokered deposits) totaled $2.6 billion, representing an
increase of $656.4 million, or 35%, over last year. Our average core deposits (demand, interest checking,
savings and money market) for 2016 were $2.1 billion, representing an increase of $525.4 million, or 34%,
over last year. The increase in average deposits (excluding brokered deposits) was primarily due to the Merger
in the fourth quarter of 2015, in which we acquired $687.0 million of deposit balances. Our cost of funds of
0.49% for 2016 increased 2 basis points over last year, which was driven by higher deposit and overnight
borrowings costs and $15.0 million of subordinated debentures we issued in the fourth quarter of 2015 at a
fixed interest rate of 5.50% per annum.
Our NIM on a fully-taxable equivalent basis for 2016 was 3.32%, representing an increase of 13 basis
points over 2015. Our adjusted NIM (non-GAAP) for 2016, which excludes fair value mark accretion
generated in purchase accounting and one-time recoveries on previously charged-off acquired loans, was
3.15%, representing a decrease of 1 basis point compared to last year.
2015 vs. 2014 Net Interest Income. Net interest income was $88.2 million on a fully-taxable equivalent
basis for 2015, compared to $77.4 million for 2014, representing an increase of $10.8 million, or 14%. The
increase was driven by higher average loan balance of $267.3 million, or 16%, and lower funding costs of
3 basis points. Our NIM on a fully-taxable equivalent basis for 2015 was 3.19%, representing an increase of
8 basis points over 2014. Our 2015 NIM on a fully-taxable equivalent basis benefited from certain
transactions. Our adjusted NIM (non-GAAP) on a fully-taxable equivalent basis for 2015 was 3.16%
For 2015, our interest income on fully-taxable equivalent basis reached $100.9 million, compared to
$89.5 million for 2014. The increase of $11.4 million was driven by an increase in our average loan balances
during 2015, which was a result of (i) organic loan growth during 2015 of $102.4 million, or 6%, and (ii) the
acquisition of SBM on October 16, 2015, which included $615.4 million of loans on the acquisition date. The
Merger not only provided us with higher average balances and interest income balances, but also improved
our interest rate risk position in a rising rate environment due to the level of floating rate loans within the
acquired loan portfolio as well as total deposits acquired of $687.0 million. Additionally, in 2015, we
increased our use of customer loans swaps within our commercial real estate loan portfolio to improve our
interest rate risk position in a rising rate environment by swapping fixed rate for variable rate. At
December 31, 2015, our total notional on customer loan swaps with our borrowers totaled $142.9 million
compared to $29.1 million at December 31, 2014 (we have matching notional agreements with a
counterparty).
For 2015, our interest expense associated with deposits and borrowings totaled $12.7 million, compared
to $12.1 million for 2014, representing an increase of $564,000, or 5%. The increase in total interest expense
was due to higher cost average balances on our total deposits, excluding brokered deposits, as well higher
borrowing costs, primarily associated with the issuance of $15.0 million of ten-year subordinated debentures
bearing interest at an annual rate of 5.50% on October 8, 2015. Throughout 2015, we were able to effectively
manage our borrowings by utilizing brokered deposits at lower interest rates than other borrowing means to
aid the funding of our loan growth throughout the year.
39
The following table presents, for the years noted, average balances, interest income, interest expense, and
the corresponding average yields earned and rates paid, as well as net interest income, net interest rate spread
and net interest margin:
Average Balance, Interest and Yield/Rate Analysis
For The Year Ended
December 31,
2015
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
2014
Interest
Yield/
Rate
Average
Balance
2016
Interest
.
.
. $ 796,423
103,086
.
$ 17,566
4,363
2.21% $ 739,168
76,779
4.23%
$ 15,715
3,397
2.13% $ 770,202
37,499
4.42%
$16,474
1,932
2.14%
5.15%
ASSETS
Interest-earning assets:
Securities − taxable .
.
Securities − nontaxable(1) .
.
.
.
.
Loans(2):
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Residential real estate .
Commercial real estate(3)
Commercial(1)
.
.
Municipal(1)
.
.
.
.
Consumer .
.
.
.
HPFC .
.
.
.
Total loans
Total interest-earning assets .
.
Cash and due from banks
.
.
Other assets .
.
.
.
Less: ALL .
.
.
.
.
Total assets
.
.
.
.
.
.
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.
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.
.
.
.
.
LIABILITIES & SHAREHOLDERS’ EQUITY
Deposits:
.
.
.
.
.
Demand .
.
.
Interest checking .
.
.
.
.
Savings
Money market
.
.
Certificates of deposit
.
Total deposits .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
.
.
.
.
.
.
.
.
.
Borrowings:
.
.
.
Brokered deposits .
.
Subordinated debentures .
.
Other borrowings .
.
.
.
.
.
.
.
.
.
.
.
Total liabilities and shareholders’ equity
.
Total borrowings .
Total funding liabilities
Other liabilities .
.
.
Shareholders’ equity .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net interest income (fully-taxable equivalent) .
.
Less: fully-taxable equivalent adjustment
.
.
Net interest income .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net interest rate spread (fully-taxable equivalent) .
Net interest margin (fully-taxable equivalent)
.
.
.
34,366
41,228
12,350
572
15,111
6,191
109,818
131,747
—
921
278
2,053
3,793
7,045
1,588
3,415
4,506
9,509
16,554
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
. .
.
822,690
1,004,169
292,709
19,238
358,098
70,188
2,567,092
3,466,601
87,319
305,440
(22,663)
. $3,836,697
$
.
.
.
.
.
.
. $ 386,189
724,222
.
461,794
.
490,155
.
489,040
.
2,551,400
.
. .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
231,610
.
58,718
.
557,684
.
848,012
.
3,399,412
.
54,778
.
.
382,507
. $3,836,697
26,505
31,859
9,726
471
12,053
1,181
81,795
100,907
4.16%
4.45%
3.82%
3.44%
3.88%
6.90%
4.20%
3.65%
636,516
4.18%
716,112
4.11%
254,514
4.22%
13,698
2.97%
310,664
4.22%
8.82%
17,117
4.28% 1,948,621
3.80% 2,764,568
55,256
200,857
(21,281)
$2,999,400
24,036
26,976
8,346
486
11,292
—
71,136
89,542
571,593
594,224
211,722
13,794
289,964
—
1,681,297
2,488,998
44,276
171,204
(21,691)
$2,682,787
—
427
180
1,283
3,126
5,016
1,495
2,724
3,457
7,676
12,692
$
—% $ 292,776
543,330
0.13%
306,536
0.06%
394,367
0.42%
0.78%
357,972
0.28% 1,894,981
229,079
0.69%
47,569
5.82%
511,632
0.81%
1.12%
788,280
0.49% 2,683,261
38,423
277,716
$2,999,400
—% $ 251,609
465,740
250,148
413,712
328,887
1,710,096
0.08%
0.06%
0.33%
0.87%
0.26%
157,265
43,973
504,803
706,041
2,416,137
29,801
236,849
$2,682,787
0.65%
5.73%
0.68%
0.97%
0.47%
3.18%
3.19%
$ —
325
142
1,206
3,116
4,789
1,478
2,532
3,329
7,339
12,128
77,414
(1,157)
$76,257
4.21%
4.54%
3.94%
3.52%
3.89%
—%
4.23%
3.60%
—%
0.07%
0.06%
0.29%
0.95%
0.28%
0.94%
5.76%
0.66%
1.04%
0.50%
3.10%
3.11%
.
.
.
.
.
.
.
.
.
.
115,193
(2,121)
$113,072
3.31%
3.32%
88,215
(1,763)
$ 86,452
(1) Reported on tax-equivalent basis calculated using a tax rate of 35%, including certain commercial loans.
(2) Non-accrual loans and loans held for sale are included in total average loans.
(3) For the year ended December 31, 2015, one loan paid-off that was on non-accrual status and resulted in
interest income of $734,000.
40
The following table presents certain information on a fully-taxable equivalent basis regarding changes in
interest income and interest expense for the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided with respect to changes attributable to rate and volume. The
changes in volume (change in volume multiplied by prior year’s rate), (b) changes in rates (change in rate
multiplied prior year’s volume), and (c) changes in rate/volume (change in rate multiplied by the change in
volume), which is allocated to the change due to rate column.
December 31, 2016 vs. 2015
Increase (Decrease) Due to:
Rate
Net
Volume
December 31, 2015 vs. 2014
Increase (Decrease) Due to:
Rate
Net
Volume
Interest-earning assets:
Securities − taxable . . . . . . . . . . . .
Securities − nontaxable . . . . . . . . .
Residential real estate . . . . . . . . . .
Commercial real estate(1) . . . . . . . .
Commercial . . . . . . . . . . . . . . . . .
Municipal
. . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . .
HPFC . . . . . . . . . . . . . . . . . . . . .
Total interest income . . . . . . . .
$ 1,220
1,163
7,745
12,819
1,459
191
1,840
3,662
30,099
$
631
(197)
116
(3,450)
1,165
(90)
1,218
1,348
741
$ 1,851
966
7,861
9,369
2,624
101
3,058
5,010
30,840
$ (664)
2,023
2,733
5,611
1,709
(3)
805
1,181
13,395
$
(95)
(558)
(264)
(728)
(329)
(12)
(44)
—
(2,030)
$ (759)
1,465
2,469
4,883
1,380
(15)
761
1,181
11,365
Interest-bearing liabilities:
Interest checking . . . . . . . . . . . . .
Savings . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Money market
Certificates of deposit
. . . . . . . . . .
Brokered deposits . . . . . . . . . . . . .
Subordinated debentures . . . . . . . .
Other borrowings . . . . . . . . . . . . .
Total interest expense . . . . . . . .
Net interest income (fully-taxable
145
93
316
1,140
16
639
313
2,662
349
5
454
(473)
77
52
736
1,200
494
98
770
667
93
691
1,049
3,862
54
34
(56)
276
675
206
45
1,234
48
4
133
(266)
(658)
(14)
83
(670)
102
38
77
10
17
192
128
564
equivalent) . . . . . . . . . . . . . . . . .
$27,437
$ (459)
$26,978
$12,161
$(1,360)
$10,801
(1) For the year ended December 31, 2016 and 2015, we executed customer loan swaps for many of our
large commercial real estate borrowers that qualified, which lowered our loan yield for our commercial
real estate portfolio. These commercial loan swaps have strengthened our interest rate position in a rising
interest rate environment as we receive a variable interest rate, while simultaneously meeting the needs of
our borrowers. Refer to ‘‘— Contractual Obligations and Off-Balance Sheet Commitments —
Derivatives — Customer Loan Swaps’’ for further discussion.
For the period indicated, we recognized within net interest income the following:
Loan fees (cost) . . . . . . . . . . . . . . . . . . . . . . . .
Net fair value mark accretion from purchase
accounting . . . . . . . . . . . . . . . . . . . . . . . . . .
Recoveries on previously charged-off acquired
loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Income Statement
Location
Interest income
Interest income and
Interest expense
Interest income
For The Year Ended
December 31,
2015
$ 735
2016
$ (394)
2014
$255
5,082
812
161
1,078
$5,766
52
$1,599
—
$416
41
Provision for Credit Losses
The provision for credit losses is made up of our provision for loan losses and the provision for unfunded
commitments.
The provision for loan losses, which makes up the vast majority of the provision for credit losses, is a
recorded expense determined by management that adjusts the ALL to a level that, in management’s best
estimate, is necessary to absorb probable losses within the existing loan portfolio. The provision for loan
losses reflects loan quality trends, including, among other factors, the levels of and trends related to
non-accrual loans, past due loans, potential problem loans, criticized loans, net charge-offs or recoveries and
growth in the loan portfolio. Accordingly, the amount of the provision for loan losses reflects both the
necessary increases in the ALL related to newly identified criticized loans, as well as the actions taken related
to other loans including, among other things, any necessary increases or decreases in required allowances for
specific loans or loan pools. The provision for loan losses for the year ended December 31, 2016 was
$5.3 million, or 0.21% of average loans, compared to $1.9 million, or 0.10% of average loans, and
$2.2 million, or 0.13% of average loans, for the year ended December 31, 2015 and 2014, respectively.
The increase in the provision for loan losses of $3.3 million in 2016 compared to 2015 was driven by
our loan growth of $104.4 million year-over-year, as well as the credit deterioration of two large loan
relationships: (i) a syndication relationship we acquired as part of the Merger that resulted in incremental
provision expense in 2016 of $1.4 million; and (ii) a large commercial real estate loan that was downgraded
from passing to substandard in 2016 that resulted in incremental provision expense for 2016 of $1.3 million.
Our net charge-offs to average loans ratio for the year ended December 31, 2016 increased to 0.13%
compared to 0.10% last year.
The decrease in the provision for credit losses of $284,000 in 2015 compared to 2014 was driven by
(i) continued asset quality improvement, highlighted by a 6 basis points improvement in our net charge-offs to
average loans ratio between 2015 and 2014 and (ii) acquired loans in the fourth quarter of 2015 of
$615.4 million in connection with the Merger for which no provision was provided for the year ended
December 31, 2015 as the fair value mark on the acquired loan portion was sufficient. Please see
‘‘— Financial Condition — Asset Quality’’ for additional discussion regarding the ALL.
The provision for unfunded commitments represents management’s estimate of the amount required to
reflect the probable inherent losses on outstanding letters and unused lines of credit. The reserve for unfunded
commitments is presented within accrued interest and other liabilities on the consolidated statement of
condition.
42
Non-Interest Income
The following table presents the components of non-interest income for the year ended December 31,
2016, 2015, and 2014:
For The Year Ended
December 31,
2016
Debit card income . . . . . . . . . . . . . . . $ 7,578
7,210
Service charges on deposit accounts . . .
6,258
Mortgage banking income, net
. . . . . .
4,960
Income from fiduciary services . . . . . .
2,594
Bank-owned life insurance . . . . . . . . .
2,074
Brokerage and insurance commissions. .
1,962
Other service charges and fees . . . . . .
51
Net gain on sale of securities . . . . . . .
6,934
Other income . . . . . . . . . . . . . . . . . .
Total non-interest income . . . . . . . $39,621
2015
$ 5,277
6,423
2,031
4,918
1,680
1,699
1,573
4
3,877
$27,482
Change from
2016 to 2015
$
$ 2,301
787
4,227
42
914
375
389
47
3,057
$12,139
%
2014
208%
44% $ 4,675
12% 6,229
282
1% 4,989
54% 1,437
22% 1,766
25% 1,461
451
79% 3,080
44% $24,370
1,175%
Change from
2015 to 2014
$
$ 602
194
1,749
(71)
243
(67)
112
(447)
797
$3,112
%
13%
3%
620%
(1)%
17%
(4)%
8%
(99)%
26%
13%
Non-interest income as a percentage of
total revenues(1) . . . . . . . . . . . . . . .
26%
24%
24%
(1) Revenue is defined as net interest income plus non-interest income.
2016 vs. 2015 Non-Interest Income. The significant changes in non-interest income for the year ended
December 31, 2016 compared to the same period of 2015 include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
An increase in mortgage banking income of $4.2 million from the sale of $232.0 million of
residential mortgages in 2016 that generated net gains on sale of $6.2 million compared to
$61.2 million of residential mortgage sales in 2015 that generated net gains on sale of $1.3 million.
The increase reflects our shift in our retail loan strategy and build-out of our mortgage banking team
after the Merger in the fourth quarter of 2015. In 2016, we sold approximately 65% of our
residential mortgage loan production.
An increase in other income of $3.1 million was driven by legal settlement proceeds of $638,000
related to a previously charged-off acquired loan, higher income on customer loan swaps of
$590,000, one-time proceeds of $577,000 upon liquidation of a mortgage insurance exchange, and
an increase in third party loan servicing income of $514,000.
An increase in debit card income of $2.3 million, and an increase in service charges on deposit
accounts of $787,000 and other service charges and fees of $389,000 was primarily due to the
addition of new customer accounts in connection with the Merger in the fourth quarter of 2015.
An increase in BOLI income due an additional investment of $16.7 million made during 2016 and
death benefit proceeds received of $507,000.
2015 vs. 2014 Non-Interest Income. The significant changes in non-interest income for the year ended
December 31, 2015 compared to the same period of 2014 include:
(cid:129)
An increase in mortgage banking income of $1.7 million from the sale of $61.2 million of
residential mortgages in 2015, which generated gains on sale of $1.4 million, compared to $31,000
in 2014. The increase reflects our change in strategy in 2015, as well as the expansion of our
mortgage banking platform in the fourth quarter of 2015 through the addition of SBM’s mortgage
banking platform.
43
(cid:129)
(cid:129)
(cid:129)
An increase in debit card income, service charges on deposit accounts and other service charges and
fees of $908,000, was driven by higher debit card income of $602,000 and overdraft fees of
$288,000. In the fourth quarter of 2015, debit card income, service charges and other service charges
revenues experienced increases due to the addition of approximately 55,000 new customer accounts
in connection with the Merger.
An increase in other income of $797,000 was driven by higher income on customer loan swaps of
$1.0 million, partially offset by lower third party loan servicing income of $113,000.
An increase in bank-owned life insurance of $243,000 due to the additional $10.0 million investment
made in the third quarter of 2014.
Non-Interest Expenses
The following table presents the components of non-interest expense for the year ended December 31,
2016, 2015, and 2014:
For The Year Ended December 31,
2016
Salaries and employee benefits . . . . . . $48,072
Furniture, equipment and data
processing . . . . . . . . . . . . . . . . . .
Net occupancy . . . . . . . . . . . . . . . . .
Consulting and professional fees . . . . .
OREO and collection costs
. . . . . . . .
Regulatory assessments . . . . . . . . . . .
Debit card expense . . . . . . . . . . . . . .
. . . .
Amortization of intangible assets
Merger and acquisition costs
. . . . . . .
Other expenses . . . . . . . . . . . . . . . . .
9,557
7,088
3,234
3,128
2,777
2,584
1,903
866
10,687
Total non-interest expenses . . . . . . $89,896
2015
$37,220
8,057
5,695
2,625
2,491
2,184
1,936
1,306
10,415
9,210
$81,139
Change from
2016 to 2015
$
$10,852
2014
%
29% $32,669
Change from
2015 to 2014
$
$ 4,551
%
14%
1,500
1,393
609
637
593
648
597
(9,549)
1,477
$ 8,757
7,316
5,055
2,368
2,289
1,982
1,725
1,148
19%
24%
23%
26%
27%
33%
46%
(92)%
16%
7,845
11% $62,397
741
640
257
202
202
211
158
— 10,415 N.M.
1,365
$18,742
10%
13%
11%
9%
10%
12%
14%
17%
30%
Efficiency ratio (non-GAAP)(1)
. . . . . .
57.53% 61.13%
61.58%
(1) Refer to ‘‘— Non-GAAP Financial Measures and Reconciliation to GAAP’’ for details of calculation.
2016 vs. 2015 Non-Interest Expense. The significant changes in non-interest expense for the year
ended December 31, 2016 compared to the same period of 2015 was primarily due to the incremental costs
associated with operating a larger organization upon completion of the Merger in the fourth quarter of 2015,
including, but not limited to, higher salary and employee costs due to an increase in headcount; higher costs
associated with furniture, equipment and data processing as well as net occupancy costs due to the addition of
over 20 new locations and facilities; higher regulatory fees due to an increase in average assets; and
incremental intangible amortization as we capitalized $6.6 million of core deposit intangible assets through
purchase accounting. In addition, we make note of the following changes in non-interest expenses in 2016
compared to 2015:
(cid:129)
(cid:129)
(cid:129)
A decrease in merger and acquisition costs associated with the Merger of $9.5 million as the Merger
occurred in the fourth quarter of 2015.
An increase in OREO and collections costs due to an increase in third party servicing costs and
collection-related costs of $1.1 million, partially offset by lower OREO-related costs of $446,000 as
our inventory of OREO properties decreased from nine at December 31, 2015 to six at
December 31, 2016.
An increase in bonuses and incentives of $931,000 due to the successful integration of SBM, and a
strong financial performance for 2016.
44
2015 vs. 2014 Non-Interest Expense. The significant changes in non-interest expense for the year
ended December 31, 2015 compared to the same period of 2014 include:
(cid:129)
(cid:129)
(cid:129)
An increase in merger and acquisition costs associated with the Merger of $10.4 million.
An increase in salaries and employee benefits of $4.6 million due to the addition of 168 employees
associated with the Merger, normal annual merit increases, and higher bonuses and incentives due to
the successful completion and integration of SBM and a strong financial performance for 2015
(assessed based on core operating earnings).
An increase in furniture, equipment and data processing and net occupancy costs of $1.4 million
primarily due to the Merger, which included 24 additional banking centers, two lending offices, and
the associated furniture and equipment within each.
Income Tax Expense
Income tax expense for the year ended December 31, 2016, 2015 and 2014 was $17.5 million,
$9.9 million, and $11.4 million, respectively. Our effective income tax rate was 30.4%, 32.1%, and 31.8% in
each of the past three years, respectively. Our effective tax rates differ from our marginal tax rate of 35.7%
(federal tax rate and state tax rate, net of federal tax benefit) largely due to our non-taxable interest income
from our municipal bonds and certain qualifying loans, non-taxable life insurance income, tax credits received,
and, effective January 1, 2016, the benefit (or detriment) from windfall tax benefits (or shortfall) upon vesting
of restricted stock awards and exercise of non-qualified stock options as we elected to early adopt the
provisions of ASU 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting (‘‘ASU 2016-09’’).
For 2016, our effective tax rate of 30.4% was lower than our marginal tax rate due to a tax benefit of
$2.2 million from tax exempt income on municipal bonds and BOLI income, a tax benefit of $701,000 upon
adoption of ASU 2016-09 and tax credits of $376,000. Our 2016 effective tax rate was 1.7% lower than last
year’s effective tax rate primarily due to an increase in BOLI income of $914,000, of which $507,000 was
related to death benefit proceeds, the adoption of ASU 2016-09 which was prospectively applied as of
January 1, 2016, partially offset by certain non-deductible expenses incurred in 2015 associated with the
Merger that increased our income tax expense by $467,000.
In 2015, our effective tax rate of 32.1% was lower than our marginal tax rate due to a tax benefit of
$1.7 million from tax exempt income on municipal bonds and BOLI income, and tax credits of $359,000.
However, we did incur certain non-deductible expenses in 2015 associated with the Merger that increased our
income tax expense by $467,000, which was also the driver of the increase in our effective tax rate for 2015
compared to 2014.
In connection with the Merger, we acquired certain net operating losses and tax credit carryforwards as
of the acquisition date, including federal net operating losses of $71.2 million and State of Maine net
operating losses of $213,000. We determined we would not be able to utilize $6.8 million of the acquired
federal net operating losses by the expiration date and wrote-off this amount within purchase accounting. Due
to Internal Revenue Code Section 382(g) limitations, our use of the federal net operating losses acquired is
limited to $3.9 million annually (and $803,000 for fiscal year 2015), which was determined using the
applicable federal rate and the fair value of consideration paid for the acquisition at the acquisition date. The
acquired federal net operating losses will expire between 2030 and 2034. We continuously monitor and assess
the need for a valuation allowance on the acquired federal net operating losses and, at December 31, 2016, we
determined that no valuation allowance was necessary.
At December 31, 2016 and 2015, the Company had net deferred tax assets of $39.3 million and
$39.7 million, respectively, that are determined and reported utilizing a deferred tax rate of 35.0% based on
current enacted tax rates. Should a change in the federal and/or state enacted tax rate occur, we would be
required to record our net deferred tax assets at the newly issued enacted tax rate at that time, and a
corresponding immediate benefit (assuming an increase in tax rates) or charge (assuming a decrease in tax
rates) to income tax expenses would be recorded.
45
Impact of Inflation and Changing Prices
The consolidated financial statements and the notes to the consolidated financial statements presented in
Item 8. ‘‘Financial Statements and Supplementary Data,’’ have been prepared in accordance with GAAP,
which require the measurement of the financial position and operating results in terms of historical dollars
and, in some case, current fair values without considering changes in the relative purchasing power of money
over time due to inflation. Unlike many industrial companies, substantially all of our assets and virtually all of
our liabilities are monetary in nature. As a result, interest rates have a more significant impact on our
performance than the general level of inflation. Over short periods of time, interest rates and the yield curve
may not necessarily move in the same direction or in the same magnitude as inflation.
Financial Condition
Investment Securities
We purchase and hold investment securities including municipal bonds, MBS (pass through securities and
CMOs), subordinated corporate bonds and FHLB and FRB stock to diversify our revenues, interest rate and
credit risk, and to provide for liquidity and funding needs. At December 31, 2016, our total holdings in
investment securities were $897.7 million, an increase of $41.7 million since December 31, 2015. Total
securities compared to total assets amounted to 23% at December 31, 2016 and 2015.
In 2016, we purchased $231.2 million of debt investment securities; we had sales of $28.8 million;
maturities, calls and principal pay-downs of $155.7 million; and net amortization of $3.1 million. For the year
ended December 31, 2016 and 2015, we recognized net gains on the sale of investment securities of $51,000
and $4,000, respectively. The investment securities sold in 2016 and 2015 were designated as AFS securities.
Of the investment securities purchased during 2016, we classified municipal bonds totaling $11.0 million
as HTM securities. These investments are carried at amortized cost, and at December 31, 2016 and 2015, they
were carried on our consolidated statements of condition at $94.6 million and $84.1 million, respectively. We
have the positive intent and ability, evidenced by our strong capital and liquidity ratios, to hold these
investments to maturity. The remaining investments purchased during 2016 were categorized as AFS securities
and are carried at fair value on the consolidated statements of condition with the associated unrealized gains
or losses recorded in AOCI, net of tax. At December 31, 2016, we had $6.1 million of net unrealized
losses on AFS securities, net of tax, compared to $3.8 million of net unrealized losses, net of tax, at
December 31, 2015. The increase in our unrealized losses on AFS securities was due to an increase in
long-term interest rates.
Our AFS securities portfolio is primarily invested in residential mortgage-backed securities, which
comprised 98% of our total AFS portfolio at December 31, 2016 and 97% of our total AFS portfolio at
December 31, 2015. During 2016, we purchased $215.7 million of mortgage-backed securities ($162.8 million
of pass-through securities and $52.9 million CMOs) and sold $23.7 million. We continuously monitor and
evaluate our AFS portfolio to identify and assess risks within our portfolio, including, but not limited to, the
impact of the current rate environment and the related prepayment risk and review credit ratings. The overall
mix of securities within our AFS portfolio at December 31, 2016 compared to December 31, 2015 remains
relatively unchanged and well positioned to provide a stable source of cash flow. The duration of our AFS
securities at December 31, 2016 was 4.08 years as compared to last year of 3.74 years. We continue to invest
in debt securities with a short period until maturity or call option to limit prepayment risk.
Our AFS portfolio of residential MBS securities is directly impacted by the interest rate environment and
yield curve. A low interest rate environment directly affects the interest income earned on our MBS
investment portfolio by accelerating prepayments and, consequently, the acceleration of our premium
amortization. Additionally, a low rate environment and a flatter yield curve also decrease the yield earned
upon reinvestment of the prepayment proceeds back into MBS securities, impacting our net interest income
and margin. As of December 31, 2016, the amount of net premiums on our investment securities to be
recognized in future periods totaled $12.7 million, which equated to a weighted-average premium above par of
approximately 1%. Subsequent changes to the interest rate environment will continue to impact our yield.
46
At December 31, 2016 and 2015, we held 209 and 109 investment securities with a fair value of
$658.5 million and $546.0 million that were in an unrealized loss position totaling $13.2 million and
$10.2 million, respectively, that we concluded was temporary. Of these, MBS and CMOs with a fair value of
$103.7 million and $192.8 million were in an unrealized loss position totaling $3.9 million and $6.7 million at
December 31, 2016 and 2015, respectively, for 12 months or more. The decline in the fair value of the debt
securities was reflective of current interest rates in excess of the yield received on investments and was not
indicative of an overall credit deterioration or other factors within our investment portfolio. At December 31,
2016 and 2015, gross unrealized losses on our AFS and HTM securities were 1% of amortized cost.
We review our investment securities portfolio quarterly for impairment, which includes our municipal
bonds portfolio, pass-through and collateralized mortgage obligations securities portfolios, and obligations of
U.S. sponsored government-enterprises, in accordance with our internal policy. Our assessment includes, but is
not limited to, reviewing available financial data, assessing credit rating changes, if any, and consideration of
our intent and ability to hold temporarily impaired investment securities until we expect them to recover. We
concluded that our investment securities in an unrealized loss position at December 31, 2016 and 2015 were
temporarily impaired and we have the intent and ability to hold these securities until they recover.
The following table sets forth the carrying value of AFS securities and HTM securities along with
the percentage distribution:
2016
December 31,
2015
2014
Carrying
Value
Percent of
Reported
Balance
Carrying
Value
Percent of
Reported
Balance
Carrying
Value
Percent of
Reported
Balance
AFS Securities:
Obligations of U.S. government sponsored
enterprises
. . . . . . . . . . . . . . . . . . . . . . $
—
—% $ 5,040
1% $
5,027
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . . . .
9,001
1%
17,694
2%
26,777
1%
3%
Mortgage-backed securities issued or
guaranteed by U.S. government-sponsored
enterprises
. . . . . . . . . . . . . . . . . . . . . .
Collateralized mortgage obligations issued or
guaranteed by U.S. government-sponsored
enterprises
. . . . . . . . . . . . . . . . . . . . . .
Private issue collateralized mortgage
480,622
62% 419,046
56% 381,308
50%
283,890
36% 306,857
41% 343,897
45%
obligations . . . . . . . . . . . . . . . . . . . . . .
Subordinated corporate bonds . . . . . . . . . . .
. . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . .
Total AFS securities . . . . . . . . . . . . . . . .
Total AFS debt securities
—
5,613
779,126
741
779,867
—%
1%
—
996
100% 749,633
—%
705
100% 750,338
—%
—%
6,054
—
100% 763,063
—%
—
100% 763,063
HTM Securities:
Obligations of states and political
subdivisions . . . . . . . . . . . . . . . . . . . . .
Total HTM securities . . . . . . . . . . . . . . .
94,609
94,609
100%
100%
84,144
84,144
100%
100%
Total
. . . . . . . . . . . . . . . . . . . . . . . . $874,476
$834,482
20,179
20,179
$783,242
1%
—%
100%
—%
100%
100%
100%
47
The following table presents the book value (i.e. amortized cost) and fully-taxable equivalent
weighted-average yields of debt investment securities by contractual maturity for the periods indicated. Actual
maturities will differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Due in
1 year or less
Due in
1 − 5 years
Due in
5 − 10 years
Due in
over 10 years
December 31,
2015
Book
Value
2014
Book
Value
2016
Book
Value
$ —
$
— $
— $
— $
— $ 4,971
$ 4,962
920
11,738
4,339
86,460
103,457
101,499
46,259
48,205
54,819
61,396
320,802
485,222
419,429
377,657
25,081
67,954
103,558
92,453
289,046
312,719
348,855
—
—
$74,206
—
—
$134,511
—
981
$170,274
—
4,500
$504,215
—
5,481
—
1,000
$883,206 $839,618
5,999
—
$783,732
2.45%
2.20%
2.26%
2.36%
2.33%
2.36%
2.25%
Debt securities:
Obligations of U.S. government
sponsored enterprises . . . . . .
Obligations of states and political
subdivisions . . . . . . . . . . . .
Mortgage-backed securities
issued or guaranteed by
U.S. government-sponsored
enterprises . . . . . . . . . . . . .
Collateralized mortgage
obligations issued or
guaranteed by
U.S. government-sponsored
enterprises . . . . . . . . . . . . .
Private issue collateralized
mortgage obligations
Subordinated corporate bonds
. . . . . .
. .
Total debt securities . . . . . .
Weighted-average yield on debt
securities
. . . . . . . . . . . . .
FHLBB and FRBB Stock
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 FRBB common stock. This stock is a non-marketable equity security and, is
reported at cost.
We are required to maintain a level of investment in FHLBB stock based on the level of our FHLBB
advances. As of December 31, 2016 and 2015, our investment in FHLBB stock totaled $17.8 million and
$20.6 million, respectively. We currently have no intention to terminate our FHLBB membership.
At December 31, 2016 and 2015, our investment in FRB stock was $5.4 million and $908,000,
respectively.
Loans
We provide loans primarily to customers located within our geographic market area. Our primary market
continues to be in Maine, making up 85% of our loan portfolio at December 31, 2016. In 2015, through the
acquisition of SBM, we expanded our geographic footprint to Massachusetts with a lending office located in
Braintree, Massachusetts. Additionally, in connection with the Merger, we acquired HPFC. Shortly after the
Merger, we reached a decision to close the operations of HPFC, effective February 19, 2016 and HPFC is no
longer originating loans. We continue to hold HPFC’s loans and will naturally run-off over the contract terms
or as prepayments occur.
At December 31, 2016, total loans increased $104.4 million, or 4%, to $2.6 billion from $2.5 billion at
December 31, 2015. Our 2016 loan growth was centered in commercial real estate loans and commercial
loans with growth of 13% and 12%, respectively, driving commercial real estate loans to $1.1 billion and
commercial loans to $333.6 million at December 31, 2016. Our retail portfolio at December 31, 2016
decreased 3% since last year to $1.1 billion. The decrease in our retail portfolio in 2016 was the result of our
home equity portfolio declining by 5% and residential mortgages decreasing 2%. In 2016, we committed to
selling the majority of our residential mortgage production, which for the year ended December 31, 2016
translated into selling approximately 65% of our $370.0 million residential mortgage originations.
48
The following table sets forth the composition of our loan portfolio at the dates indicated.
.
.
.
.
.
.
.
Residential real estate .
.
Commercial real estate .
Commercial
.
.
.
Consumer and home equity .
.
.
HPFC .
.
.
Total loans .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2016
. $ 802,494
1,050,780
.
333,639
.
347,239
.
.
60,412
. $2,594,564
2015
31% $ 820,617
927,951
41%
297,721
13%
366,587
13%
77,330
2%
100% $2,490,206
December 31,
2014
33% $ 585,468
640,661
37%
257,515
12%
288,966
15%
3%
2013
33% $ 569,819
541,099
36%
179,203
15%
290,281
16%
— —%
100% $1,772,610
100% $1,580,402
2012
36% $ 572,173
506,231
34%
190,454
11%
295,008
19%
—
— —%
100% $1,563,866
37%
32%
12%
19%
—%
100%
Loan portfolio mix:
.
.
.
Retail
.
Commercial
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
1,149,733
1,444,831
44% 1,187,204
56% 1,303,002
48%
52%
874,434
898,176
49%
51%
860,100
720,302
55%
45%
867,181
696,685
56%
44%
As discussed previously, on October 16, 2015, we completed our acquisition of SBM. The following
table presents the composition of the acquired loan portfolio from SBM as of October 16, 2015 (at fair value)
and the calculated organic loan growth in 2015 (excluding measurement-period adjustments of $137,000
recorded in 2016 as purchase accounting was finalized):
December 31,
2015
2014
Residential
Commercial real estate . . .
. . . . . . . . . .
Commercial
Home equity . . . . . . . . . .
Consumer . . . . . . . . . . . .
HPFC . . . . . . . . . . . . . .
. . . . . . . . . . . $ 820,617 $ 585,468
640,661
257,515
271,709
17,257
—
. . . . . . . . . $2,490,206 $1,772,610
927,951
297,721
348,634
17,953
77,330
Total loans
Change
($)
$235,149
287,290
40,206
76,925
696
77,330
$717,596
(%)
SBM
Acquisition
40% $234,619
45% 193,883
35,417
16%
71,005
28%
2,526
4%
77,773
40% $615,223
N.M.
Year Ended
December 31, 2015
Organic Growth
$
530
93,407
4,789
5,920
(1,830)
(443)
$102,373
—%
15%
2%
2%
(11)%
N.M.
6%
Residential Real Estate Loans. Residential real estate loans consist of loans secured by one-to
four-family residences. We generally retain in our portfolio adjustable rate mortgages and fixed rate mortgages
with original terms of 20 years or less. At December 31, 2016, our residential real estate loans totaled
$802.5 million, representing a decrease of $18.1 million since December 31, 2015. The decrease reflects our
decision to sell approximately 65% of our $370.0 million in residential mortgage originations in 2016, and the
natural run-off and amortization of residential mortgage loans.
Commercial Real Estate Loans. Commercial real estate loans consist of loans secured by income and
non-income producing commercial real estate. We focus on lending to financially sound business customers
primarily within our geographic marketplace, as well as offering loans for the acquisition, development and
construction of commercial real estate. At December 31, 2016, our commercial real estate loans totaled
$1.1 billion, representing an increase of $122.8 million, or 13%, over last year.
The most significant industry concentration within our commercial real estate loan portfolio at
December 31, 2016 was the non-residential building operators industry (operators of commercial and
industrial buildings, retail establishments, theaters, banks and insurance buildings). At December 31, 2016, the
non-residential building operators’ industry concentration was 31% of our total commercial real estate
portfolio and 12% of our total loan portfolio. There were no other industry concentrations within our loan
portfolio at December 31, 2016 that exceeded 10% of total loans.
49
Commercial Loans. 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. Municipal
loans primarily consist of short-term tax anticipation notes made to municipalities for fixed asset or
construction-related purposes and are included in commercial loans. We focus on lending to financially sound
business customers and municipalities within our geographic marketplace. At December 31, 2016, our
commercial loans totaled $333.6 million, representing an increase of $35.9 million, or 12%, over last year.
Consumer Loans and Home Equity Loans. Consumer loans and home equity loans are originated for a
wide variety of purposes designed to meet the needs of our customers. Consumer loans include overdraft
protection, automobile, boat, recreational vehicle, and mobile home loans, home equity loans and lines, and
secured and unsecured personal loans. At December 31, 2016, our consumer and home equity loans totaled
$347.2 million, representing a decrease of $19.3 million, or 5%, since December 31, 2015.
HPFC. HPFC is a wholly-owned subsidiary of the Bank that provided commercial lending to dentists,
optometrists and veterinarians, many of which are 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 may consist 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 terms range from seven to ten years. At December 31, 2016, our HPFC commercial loan portfolio totaled
$60.4 million, representing a decrease of $16.9 million, or 22%, since December 31, 2015. The HPFC loan
portfolio will continue to decrease until all loans have matured as we ceased operations of HPFC effective
February 19, 2016.
Asset Quality
The Bank’s 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 management’s systems and procedures to monitor the credit quality of the 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. Our 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, management continuously reassesses its underwriting standards in response to credit risk posed by
changes in economic conditions.
50
Non-Performing Assets. Non-performing assets include non-accrual loans, accruing loans 90 days or
more past due, accruing renegotiated loans, and OREO. The level of our non-performing assets over the past
five years is shown in the table below.
Non-accrual loans:
Residential real estate loans . . . . . . . . . $
Commercial real estate . . . . . . . . . . . .
Commercial loans
. . . . . . . . . . . . . . .
Consumer and home equity loans . . . . .
HPFC . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Non-accrual loans
Accruing loans past due 90 days
. . . . .
. .
Accruing TDRs (not included above)
Total non-performing loans . . . . . . . . .
Other real estate owned . . . . . . . . . . .
Total non-performing assets . . . . . . . . . $
Total loans, excluding loans held for
2016
2015
December 31,
2014
2013
2012
3,945
12,849
2,088
1,624
207
20,713
—
4,338
25,051
922
25,973
$
$
7,253
4,529
4,489
2,051
—
18,322
—
4,861
23,183
1,304
24,487
$
$
6,056
7,043
1,529
2,011
—
16,639
—
4,539
21,178
1,587
22,765
$
$
10,520
7,799
2,146
2,012
—
22,477
455
5,468
28,400
2,195
30,595
$
$
10,584
6,719
3,409
1,771
—
22,483
611
4,674
27,768
1,313
29,081
sale . . . . . . . . . . . . . . . . . . . . . . . $2,594,564
Total assets . . . . . . . . . . . . . . . . . . . . $3,864,230
23,116
Allowance for loan losses . . . . . . . . . . $
Non-accrual loans to total loans . . . . . .
Non-performing loans to total loans . . .
Allowance for loan losses to
non-performing loans
0.80%
0.97%
. . . . . . . . . . .
. .
92.28%
0.67%
Non-performing assets to total assets
Allowance for loan losses to
$2,490,206
$3,709,344
21,166
$
$1,772,610
$2,789,853
21,116
$
$1,563,866
$2,603,829
21,590
$
$1,514,028
$2,564,757
23,044
$
0.74%
0.93%
91.30%
0.66%
0.94%
1.19%
99.71%
0.82%
1.44%
1.82%
76.02%
1.18%
1.48%
1.83%
82.99%
1.13%
non-performing assets . . . . . . . . . . .
89.00%
86.44%
92.76%
70.57%
79.24%
Generally, a loan is classified as non-accrual when interest and/or principal payments are 90 days past
due or when management believes collecting all principal and interest owed is in doubt. All previously
accrued but unpaid interest on non-accrual loans is reversed from interest income in the current period.
Interest payments received on non-accrual loans (including impaired loans) are applied as a reduction of
principal. A loan remains on non-accrual status until all principal and interest amounts contractually due are
brought current, all future principal and interest payments are reasonably assured, and a consistent repayment
record, generally six consecutive payments, has been demonstrated. At this time, we may reclassify the loan to
performing. For loans that qualify as TDRs, we will classify the interest collected as interest income once the
aforementioned criteria for non-accrual loans is met and demonstrated. However, loans classified as TDRs
remain classified as such for the life of the loan, except in limited circumstances, when it is determined that
the borrower is performing under the modified terms and the loan is subsequently restructured and re-written
in a new agreement at an (i) interest rate greater than or equal to an acceptable market rate for a comparable
new loan at the time of the restructuring, and (ii) there has been no principal forgiveness.
At December 31, 2016, non-accrual loans were $20.7 million, representing an increase of $2.4 million,
or 13%, since December 31, 2015. The increase was driven by one significant loan within commercial real
estate that had a recorded investment balance at December 31, 2016 of $11.3 million. Excluding this one
commercial real estate loan, non-accrual for the loans at December 31, 2016 were $9.4 million, which would
have represented a decrease of $9.0 million, or 51%, since December 31, 2015. Overall, our asset quality at
December 31, 2016 continues to remain strong with non-performing assets to total assets of 0.67% and
non-performing loans to total loans of 0.97%.
51
At December 31, 2015, non-performing loans were $23.2 million, or 0.93% of total loans, representing
an increase of $2.0 million, or 9%, since December 31, 2014. The increase in non-performing loans was due
to the classification of $10.6 million of acquired loans (at fair value) as non-accrual as of the acquisition date.
Excluding these acquired loans designated as non-accrual, our total non-performing loans decreased
$8.9 million at December 31, 2015 compared to December 31, 2014 due to the ongoing resolution of
non-performing loans.
The following table highlights the interest income that would have been recognized if loans on
non-accrual status had been current in accordance with their original terms (‘‘foregone interest income’’) and
the interest income recognized on non-performing loans and performing TDRs for the periods indicated.
Foregone interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income recognized on non-performing loans and performing
For The Year Ended
December 31,
2015
$586
2016
$888
TDRs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
182
204
2014
$842
191
Potential Problem Loans. Potential problem loans consist of classified accruing commercial and
commercial real estate loans that were between 30 and 89 days past due. Such loans are characterized by
weaknesses in the financial condition of our borrowers or collateral deficiencies. Based on historical
experience, the credit quality of some of these loans may improve due to changes in collateral values or the
financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in some
amount of loss. These loans are not included in the above analysis of non-accrual loans. At December 31,
2016 potential problem loans amounted to $808,000, or 0.03% of total loans.
Past Due Loans. Past due loans consist of accruing loans that were between 30 and 89 days past due.
The following table presents the recorded investment of past due loans at the dates indicated:
December 31,
2016
2015
Loans 30 − 89 days past due:
Residential real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and home equity loans . . . . . . . . . . . . . . . . . . . . . . . . . .
HPFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans 30 − 89 days past due . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans 30 − 89 days past due to total loans . . . . . . . . . . . . . . . . . . . . .
$2,470
971
851
1,018
1,029
$6,339
$3,590
4,295
637
1,255
165
$9,942
0.24%
0.40%
ALL. We use a methodology to systematically measure the amount of estimated loan loss exposure
inherent in the loan portfolio for purposes of establishing a sufficient ALL. The ALL is management’s best
estimate of the probable loan losses as of the balance sheet date. The allowance is increased by provisions
charged to earnings and by recoveries of amounts previously charged-off, and is reduced by charge-offs on
loans.
As part of normal course, we continuously monitor, and, at least annually, update our factors used to
determine the general allowance for each loan portfolio segment. To derive our general allowance loss factors
we utilize: (i) our historical loss data for each respective loan portfolio segment; (ii) identify other inherent
risks within each portfolio segment, including, but not limited to, concentration risks, loans approved by the
Company’s Board of Directors that are an exception to our internal loan policy, and construction loans; and
(iii) consider certain qualitative factors that may influence a borrower’s ability to repay their loan.
52
Our policy is to individually evaluate for impairment loans with a principal balance greater than
$250,000 or more and are classified as substandard or doubtful and are on non-accrual status. Loans are
deemed impaired if it is probable that payment of interest and principal will not be made in accordance with
the contractual terms of the loan agreement are considered impaired. Loans that are individually-evaluated for
impairment in accordance with our policy are excluded from allocation of any general loss factor.
We did not have any ALL methodology changes in during 2016. In the fourth quarter of 2015, we
revised our methodology for the ALL whereby we no longer provided for an unallocated reserve, but, instead,
incorporated the qualitative factors into our general reserve. Historically, the unallocated reserve served as a
method to account for qualitative risks, including general economic and market risks, within our portfolio
without specifically assigning to any one or more portfolio segments. At December 31, 2015 and 2014, our
reported unallocated reserve was $0 and $2.4 million, respectively. The change in methodology did not have
any impact on our reported ALL or provision for loan losses at or for the year ended December 31, 2015.
Reserve for Unfunded Commitments. The reserve for unfunded commitments is based on
management’s estimate of the amount required to reflect the probable inherent losses on outstanding letters
and unused loan credit lines. Adequacy of the reserve is determined using a methodology similar to the one
that analyzes the allowance for loan losses. Additionally, management must also estimate the likelihood that
these commitments would be funded and become loans.
53
The following table sets forth information concerning the activity in our ALL during the periods
indicated:
ALL at the beginning of period . . . . $
Provision for loan losses
. . . . . . . .
2016
21,166
5,269
$
At or For the Year Ended
December 31,
2014
21,590
2,224
$
$
2015
21,116
1,938
2013
23,044
2,052
$
2012
23,011
3,791
Charge-offs:
Residential real estate . . . . . . . . .
Commercial real estate . . . . . . . .
Commercial
. . . . . . . . . . . . . . .
Consumer and home equity . . . . .
HPFC . . . . . . . . . . . . . . . . . . .
. . . . . . . . . .
Total loan charge-offs
Recoveries:
Residential real estate . . . . . . . . .
Commercial real estate . . . . . . . .
Commercial
. . . . . . . . . . . . . . .
Consumer and home equity . . . . .
HPFC . . . . . . . . . . . . . . . . . . .
Total loan recoveries . . . . . . . . . . .
Net charge-offs . . . . . . . . . . . . . . .
ALL at the end of the period . . . . . $
356
315
2,218
409
507
3,805
95
50
332
9
—
486
3,319
23,116
801
481
655
679
—
2,616
55
74
389
210
—
728
1,888
21,166
$
785
361
1,544
754
—
3,444
165
135
395
51
—
746
2,698
21,116
1,059
952
1,426
837
—
4,274
35
121
495
117
—
768
3,506
21,590
$
1,197
593
1,393
1,319
—
4,502
73
222
406
43
—
744
3,758
23,044
$
$
Components of allowance for credit
losses:
ALL . . . . . . . . . . . . . . . . . . . . . .
Liability for unfunded credit
commitments
. . . . . . . . . . . . . .
Balance of allowance for credit
$
23,116
$
21,166
$
21,116
$
21,590
$
23,044
11
22
17
21
45
losses at end of the period . . . . . $
23,127
$
21,188
$
21,133
$
21,611
$
23,089
Total loans, excluding loans held for
sale . . . . . . . . . . . . . . . . . . . . . $2,594,564
Average loans outstanding . . . . . . . $2,567,092
Net charge-offs to average loans
$2,490,206
$1,948,621
$1,772,610
$1,681,297
$1,563,866
$1,580,859
$1,514,028
$1,535,648
outstanding . . . . . . . . . . . . . . . .
0.13%
0.10%
0.16%
0.22%
0.24%
Provision for loan losses to average
loans outstanding . . . . . . . . . . . .
. . . . . . . . . . . .
ALL to total loans
Allowance for credit losses to net
0.21%
0.89%
0.10%
0.85%
0.13%
1.19%
0.13%
1.38%
0.25%
1.52%
charge-offs . . . . . . . . . . . . . . . .
696.81%
1,122.25%
783.28%
616.40%
614.40%
For the year ended December 31, 2016, 2015 and 2014, we provided $5.3 million, $1.9 million and
$2.2 million, respectively, of provision expense to the ALL. The increase in provision expense of $3.3 million
in 2016 compared to 2015 was driven by loan growth year-over-year of $104.4 million, as well as the credit
deterioration of two large loan relationships: (i) a syndication relationship we acquired as part of the Merger
that resulted in incremental provision expense in 2016 of $1.4 million; and (ii) a large commercial real estate
loan that was downgraded from passing to substandard in 2016 that resulted in incremental provision expense
for 2016 of $1.3 million. As of December 31, 2016, we had charged-off the entire syndication relationship,
except for $1.5 million, which resulted in an increase in our net charge-offs to average loans ratio in the third
quarter of 2016 and a modest increase of 3 basis points in our net charge-offs to average loans ratio to 0.13%
54
for the year ended December 31, 2016 compared to last year. We have provided for a specific reserve of
$1.3 million on the aforementioned commercial real estate loan for which the recorded investment balances
was $11.3 million at December 31, 2016. We have not charged-off any of the aforementioned commercial real
estate loan as of December 31, 2016.
The decrease in the provision for loan losses in 2015 was primarily attributable to the continued
improvement in the general economic condition of our borrowers supported by a decrease in annualized net
charge-offs to average loans of 6 basis points for 2015 compared to 2014. Furthermore, our asset quality
metrics have continued to show favorable trends as non-performing loans to total loans at December 31, 2015
was 0.93%, representing a decrease of 26 basis points since December 31, 2014, and non-performing assets to
total assets at December 31, 2015 was 0.66%, representing a decrease of 16 basis points. The improving asset
quality metrics was reflective of the resolution of problem loans over recent years.
For further discussion of the ALL, please refer to ‘‘— Critical Accounting Policies’’ within Item 7 hereof,
as well as Notes 1 and 4 of the consolidated financial statements within Item 8 of this report.
The following table sets forth information concerning the allocation of the ALL by loan categories at the
dates indicated.
2016
2015
December 31,
2014
2013
2012
Percent
of Loans
in Each
Category
to Total
Loans
Percent
of Loans
in Each
Category
to Total
Loans
Percent
of Loans
in Each
Category
to Total
Loans
Amount
Amount
Percent
of Loans
in Each
Category
to Total
Loans
Amount
Amount
Amount
.
.
.
.
.
.
$ 4,160
31% $ 4,545
33% $ 4,899
33% $ 5,603
36% $ 6,996
12,154
3,755
2,375
672
—
$23,116
41%
13%
10,432
3,241
37%
12%
7,951
3,354
36%
15%
4,374
6,220
34%
11%
4,549
5,933
13%
2%
—%
2,924
24
—
100% $21,166
15%
3%
—%
2,528
—
2,384
100% $21,116
16%
—%
—%
2,722
—
2,671
100% $21,590
19%
—%
—%
2,704
—
2,862
100% $23,044
Percent
of Loans
in Each
Category
to Total
Loans
37%
32%
12%
19%
—%
—%
100%
.
.
.
Residential real
estate loans .
Commercial real
estate loans .
.
Commercial loans .
Consumer and home
.
equity loans .
.
.
.
.
.
HPFC .
.
Unallocated .
.
.
.
.
Refer to Note 4 of the consolidated financial statements within Item 8 of this report for discussion of the
risk characteristics for each portfolio segment considered when evaluating the ALL.
Investment in BOLI
Our BOLI asset totaled $78.1 million and $59.9 million at December 31, 2016 and 2015, respectively.
The increase year-over-year reflects additional purchases in 2016 of $16.7 million. BOLI provides a means to
mitigate increasing employee benefit costs. We expect to benefit from the BOLI contracts as a result of the
tax-free growth in cash surrender value and death benefits that are expected to be generated over time. The
largest risk to the BOLI program is credit risk of the insurance carriers. To mitigate this risk, annual financial
condition reviews are completed on all carriers. BOLI is invested in the ‘‘general account’’ of quality
insurance companies or in separate account products. Each insurance carrier had an A.M. Best rating of ‘‘A-’’
or better at December 31, 2016. BOLI is included in the consolidated statements of condition at its cash
surrender value. Increases in BOLI’s cash surrender value are reported as a component of non-interest income
in the consolidated statements of income.
Deposits
The Company, through the Bank, receives checking, savings and time deposits primarily from customers
located within its geographic market area. Other forms of deposits include brokered deposits and CDARS.
Total deposits at December 31, 2016 were $2.8 billion, which included brokered deposits of $272.6 million.
Total deposits at December 31, 2016 increased $102.2 million over December 31, 2015.
55
The following table presents certain deposit information for the periods indicated.
2016
For the Year Ended
December 31,
2015
2014
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Average
Balance
Average
Rate Paid
Deposits:
Demand . . . . . . . . . . . . . . . $ 386,189
724,222
Interest checking . . . . . . . . .
461,794
Savings . . . . . . . . . . . . . . . .
490,155
. . . . . . . . . . .
Money market
2,062,360
. . . . . .
489,040
. . . . . .
2,551,400
Total deposits . . . . . . . . . .
231,610
Brokered deposits . . . . . . . . .
Total deposits, including
Total core deposits
Certificates of deposit
—% $ 292,776
543,330
306,536
394,367
1,537,009
357,972
1,894,981
229,079
0.13%
0.06%
0.42%
0.16%
0.78%
0.28%
0.69%
—% $ 251,609
465,740
250,148
413,712
1,381,209
328,887
1,710,096
157,265
0.08%
0.06%
0.33%
0.12%
0.87%
0.26%
0.65%
—%
0.07%
0.06%
0.29%
0.12%
0.95%
0.28%
0.94%
brokered deposits . . . . . . $2,783,010
0.31% $2,124,060
0.31% $1,867,361
0.34%
Borrowings and Advances
We utilize a variety of funding sources to manage our borrowings, including, but not limited to, FHLBB
and correspondent bank overnight borrowings, FHLBB advances due in less than 90 days and more than
90 days, customer and wholesale repurchase agreements, and subordinated debentures. We pro-actively
monitor our borrowings through Management and Board ALCO as part of prudent balance sheet, earnings,
and liquidity management. We manage and designate our borrowings internally, and manage to such, through
use of short-term borrowings and long-term borrowings. Short-term borrowings include, but are not limited to,
FHLBB and correspondent bank overnight borrowings, FHLBB advances due in less than 90 days, and
customer repurchase agreements. Long-term borrowings include, but are not limited to, FHLBB advances
greater than 90 days, wholesale repurchase agreements, and subordinated debentures.
At December 31, 2016, our total borrowings were $599.7 million, representing an increase since
December 31, 2015 of $27.3 million. Our borrowing strategy has been primarily to remain short given our
current interest rate risk position. We continue to assess the need to extend funding advances based on the
likelihood and timing of interest rates rising as part of Management and Board ALCO.
We issued $15.0 million of subordinated debt on October 8, 2015, which qualifies as Tier II regulatory
capital. The interest rate on the subordinated debt was 5.50% per annum, fixed for the ten-year term and
payable semi-annually on April 15 and October 15 each year. We may redeem the subordinated debt at par
starting on October 15, 2020 plus accrued and unpaid interest, or earlier if (i) they no longer qualify as Tier II
capital for regulatory capital purposes; (ii) a change in law that prevents us from deducting interest payable
for U.S. federal income tax purposes, or (iii) we are required to register as an investment company pursuant to
the Investment Company Act of 1940. The subordinated debt is schedule to mature on October 15, 2025.
56
The following table below provides certain information on our short-term borrowings (as described for
managing borrowings) at and for the period ended:
2016
December 31,
2015
2014
FHLBB and correspondent bank overnight borrowings:
Balance outstanding at end of year . . . . . . . . . . . . . . . .
Average daily balance outstanding . . . . . . . . . . . . . . . .
Maximum balance outstanding at any month end . . . . . .
Weighted average interest rate for the year . . . . . . . . . . .
Weighted average interest rate at end of year . . . . . . . . .
$ 89,450
36,492
157,197
$ 12,800
18,229
70,000
$ 43,100
21,368
50,700
0.57%
0.80%
0.35%
0.51%
0.31%
0.30%
FHLBB advances less than 90 days:
Balance outstanding at end of year . . . . . . . . . . . . . . . .
Average daily balance outstanding . . . . . . . . . . . . . . . .
Maximum balance outstanding at any month end . . . . . .
Weighted average interest rate for the year . . . . . . . . . . .
Weighted average interest rate at end of year . . . . . . . . .
$190,000
258,713
370,000
$230,000
253,679
285,000
$245,000
253,719
295,000
0.71%
0.76%
0.25%
0.46%
0.20%
0.24%
Customer repurchase agreements:
Balance outstanding at end of year . . . . . . . . . . . . . . . .
Average daily balance outstanding . . . . . . . . . . . . . . . .
Maximum balance outstanding at any month end . . . . . .
Weighted average interest rate for the year . . . . . . . . . . .
Weighted average interest rate at end of year . . . . . . . . .
$225,605
198,403
239,862
$184,989
153,101
194,625
$157,757
142,497
175,060
0.28%
0.31%
0.20%
0.24%
0.16%
0.17%
FHLBB short-term and long-term borrowings are collateralized by a blanket lien on qualified collateral
consisting primarily of loans with first mortgages secured by one- to four-family properties, certain
commercial real estate loans, certain pledged investment securities and other qualified assets. The carrying
value of residential real estate and commercial loans pledged as collateral was $1.1 billion at December 31,
2016 and 2015. The carrying value of securities pledged as collateral at the FHLBB was $400,000 and
$544,000 at December 31, 2016 and 2015, respectively.
Shareholders’ Equity
Total shareholders’ equity at December 31, 2016 was $391.5 million, which was an increase of
$28.4 million, or 8%, since December 31, 2015. The increase in our shareholders’ equity was driven by
normal operating activity, including, but not limited to, net income of $40.1 million for the year ended
December 31, 2016, partially offset by dividends declared to our shareholders of $12.9 million.
On August 30, 2016, the Company’s Board of Directors declared a three-for-two stock split for
shareholders of record on September 15, 2016 to be issued on September 30, 2016. The three-for-two stock
split was completed to increase liquidity in our common stock. At December 31, 2016, issued and outstanding
shares of Company common stock totaled 15.5 million shares of the total 20.0 million authorized.
In the fourth quarter, the Company’s Board of Directors approved an increase of $0.03 per share, or 15%,
to $0.23 per share in its fourth quarter dividend declared to shareholders of record on January 17, 2017 and
payable on January 31, 2017. For the year ended December 31, 2016, we issued dividends to our shareholders
of $0.83 per share, compared to $0.80 per share and $0.74 per share for the years ended December 31, 2015
and 2014, respectively.
57
The following table presents certain information regarding shareholders’ equity for the year ended:
Return on average assets
. . . . . . . . . . . . . . . . . . . . . . . .
Return on average equity . . . . . . . . . . . . . . . . . . . . . . . .
Average equity to average assets . . . . . . . . . . . . . . . . . . .
Dividend payout ratio(1)
. . . . . . . . . . . . . . . . . . . . . . . . .
Book value per share(2)
. . . . . . . . . . . . . . . . . . . . . . . . .
Tangible book value per share (non-GAAP)(2)
. . . . . . . . . .
Dividends declared per share(2)
. . . . . . . . . . . . . . . . . . . .
2016
1.04%
10.47%
9.97%
32.22%
$25.30
$18.74
$ 0.83
December 31,
2015
0.70%
7.54%
9.26%
50.60%
$23.69
$16.89
$ 0.80
2014
0.92%
10.37%
8.83%
33.73%
$22.00
$17.68
$ 0.74
(1) The increase in 2015 reflects an increase in shares outstanding of 4.1 million issued in connection with
the Merger, combined with merger and acquisition costs of $10.4 million associated with the Merger that
reduced 2015 net income.
(2) Per share data has been adjusted to reflect the three-for-two split effective September 30, 2016, for all
periods presented. Refer to Note 13 within Item 8.
Liquidity
Our liquidity needs require the availability of cash to meet the withdrawal demands of depositors and
credit commitments to borrowers. Liquidity is defined as our ability to maintain availability of funds to meet
customer needs, as well as to support our asset base. The primary objective of liquidity management is to
maintain a balance between sources and uses of funds to meet our cash flow needs in the most economical
and expedient manner. Due to the potential for unexpected fluctuations in both deposits and loans, active
management of liquidity is necessary. We maintain various sources of funding and levels of liquid assets in
excess of regulatory guidelines in order to satisfy their varied liquidity demands. We monitor liquidity in
accordance with internal guidelines and all applicable regulatory requirements. At December 31, 2016 and
2015, our level of liquidity exceeded target levels. We believe that we currently have appropriate liquidity
available to respond to liquidity demands. Sources of funds that we utilize consist of deposits, borrowings
from the FHLBB and other sources, cash flows from operations, prepayments and maturities of outstanding
loans, investments and mortgage-backed securities and the sale of mortgage loans.
Deposits continue to represent our primary source of funds. For the year ended December 31, 2016,
average deposits (excluding brokered deposits) of $2.6 billion increased $656.4 million, or 35%, compared to
the same period of 2015. The increase in average deposit balances (excluding brokered deposits) reflects our
strong organic deposit growth during 2016, as well as the full year impact of the deposits acquired in
connection with the Merger. Included within our money market deposits at December 31, 2016 and 2015 were
$72.1 million and $59.6 million, respectively, of deposits from Camden National Wealth Management which
represent client funds. These deposits fluctuate with changes in the portfolios of the clients of Camden
National Wealth Management.
Borrowings are used to supplement deposits as a source of liquidity. In addition to borrowings and
advances from the FHLBB, we utilize brokered deposits, purchase federal funds, and sell securities under
agreements to repurchase. For the year ended December 31, 2016 and 2015 average total borrowings
(including brokered deposits) were $848.0 million and $788.3 million, respectively. The increase in average
borrowings was driven by an increase of $45.3 million in retail repurchase agreements due to the Merger. We
secure borrowings from the FHLBB, whose advances remain the largest non-deposit-related funding source,
with qualified residential real estate loans, certain investment securities and certain other assets available to be
pledged. Through the Bank, we have available lines of credit with the FHLBB of $9.9 million, with PNC
Bank of $50.0 million, and with the FRB Discount Window of $72.3 million at December 31, 2016. We had
no outstanding balances on these lines of credit at December 31, 2016. Long-term borrowings represent
securities sold under repurchase agreements with major brokerage firms. Both wholesale and customer
repurchase agreements are secured by mortgage-backed securities and government-sponsored enterprises. The
Company also has a $10.0 million line of credit with a maturity date of December 20, 2017. We had no
outstanding balance on these lines of credit at December 31, 2016.
58
We believe the investment portfolio and residential loan portfolio provide a significant amount of
contingent liquidity that could be accessed in a reasonable time period through sales of those portfolios. We
also believe that we have additional untapped access to the brokered deposit market, wholesale reverse
repurchase transaction market and the FRB discount window. These sources are considered as liquidity
alternatives in our contingent liquidity plan. We believe that the level of liquidity is sufficient to meet current
and future funding requirements; however, changes in economic conditions, including consumer saving habits
and the availability or access to the national brokered deposit and wholesale repurchase markets, could
significantly impact our liquidity position.
The maturity dates of CDs, including brokered CDs, in denominations of $100,000 or more as of
December 31, 2016 are set forth in the following table. We did not hold any other time deposits in
denominations of $100,000 or more at December 31, 2016. 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.
Time remaining until maturity:
Less than 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 months through 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 months through 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over 12 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
$ 55,314
40,587
35,865
125,476
$257,242
Loan demand also affects our liquidity position. Of the loans maturing over one year, 57% were variable
rate loans. The following table presents the maturities of loans at December 31, 2016:
Maturity Distribution:
Fixed Rate:
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
Commercial
. . . . . . . . . . . . . . . . . . . .
Consumer and home equity . . . . . . . . . .
Total fixed rate . . . . . . . . . . . . . . . . .
Variable Rate:
Residential real estate . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Commercial
Consumer and home equity . . . . . . . . . .
. . . . . . . . . . . . . .
Total variable rate
< 1 Year
1 − 5 Years
More than
5 Years
Total
$
532
17,728
15,267
2,085
35,612
2,048
11,180
55,990
39
69,257
$104,869
$
6,206
77,788
57,539
13,478
155,011
2,075
50,794
87,312
2,505
142,686
$297,697
$ 467,604
107,915
71,823
260,706
908,048
324,029
785,375
106,120
68,426
1,283,950
$2,191,998
$ 474,342
203,431
144,629
276,269
1,098,671
328,152
847,349
249,422
70,970
1,495,893
$2,594,564
Capital Resources
As part of our goal to operate a safe, sound and profitable financial organization, we are committed to
maintaining a strong capital base. Shareholders’ equity totaled $391.5 million and $363.2 million at
December 31, 2016 and December 31, 2015, respectively, which amounted to 10% of total assets as of the
respective dates. Refer to ‘‘— Financial Condition — Liabilities and Shareholders’ Equity’’ for discussion
regarding changes in shareholders’ equity since December 31, 2015.
Our principal cash requirement is the payment of dividends on our common stock, as and when declared
by the Company’s Board of Directors. We paid dividends to shareholders in the aggregate amount of
$12.9 million, $10.6 million and $8.3 million for the year ended December 31, 2016, 2015 and 2014,
59
respectively. The Company’s Board of Directors approves cash dividends on a quarterly basis after careful
analysis and consideration of various factors, including the following: (i) capital position relative to total
assets, (ii) risk-based assets, (iii) total classified assets, (iv) economic conditions, (v) growth rates for total
assets and total liabilities, (vi) earnings performance and projections and (vii) strategic initiatives and related
capital requirements. All dividends declared and distributed by the Company will be in compliance with
applicable state corporate law and regulatory requirements.
We are primarily dependent upon the payment of cash dividends by the Bank, our wholly-owned
subsidiary, to service our commitments. We, as the sole shareholder of the Bank, are entitled to dividends,
when and as declared by the Bank’s Board of Directors from legally available funds. For the year ended
December 31, 2016, 2015, and 2014, the Bank declared dividends payable to the Company in the amount of
$16.0 million, $39.2 million, which included a $30.0 million special dividend that was paid in connection with
the Merger, and $12.8 million, respectively. Under regulations prescribed by the OCC, without prior OCC
approval, the Bank may not declare dividends in any year in excess of the Bank’s (i) net income for the
current year, (ii) plus its retained net income for the prior two years. If we are required to use dividends from
the Bank to service unforeseen commitments in the future, we may be required to reduce the dividends paid
to our shareholders going forward.
Please refer to Note 20 of the consolidated financial statements for discussion and details of the Company
and Bank’s capital regulatory requirements. At December 31, 2016 and 2015, the Company and Bank met all
regulatory capital requirements and the Bank continues to be classified as ‘‘Well Capitalized’’ under the
prompt correction action provisions.
Contractual Obligations and Off-Balance Sheet Commitments
In the normal course of business, we are a party to credit related financial instruments with off-balance
sheet risk, which are not reflected in the consolidated statements of condition. These financial instruments
include lending commitments and letters of credit. Those instruments involve varying degrees of credit risk in
excess of the amount recognized in the consolidated statements of condition. We follow the same credit
policies in making commitments to extend credit and conditional obligations as we do for on-balance sheet
instruments, including requiring similar collateral or other security to support financial instruments with credit
risk. Our exposure to credit loss in the event of nonperformance by the customer is represented by the
contractual amount of those instruments. Since many of the commitments are expected to expire without being
drawn upon, the total amount does not necessarily represent future cash requirements. At December 31, 2016,
we had the following levels of commitments to extend credit:
Home equity line of credit
commitments . . . . . . . . . . . . . . . .
Commercial commitment letters . . . . .
Residential loan origination . . . . . . . .
Letters of credit . . . . . . . . . . . . . . . .
. .
Other commitments to extend credit
. . . . . . . . . . . . . . . . . . . . .
Total
Total
Amount
Committed
$454,225
83,103
17,795
2,580
432
$558,135
< 1 Year
$181,473
83,103
17,795
2,580
432
$285,383
Commitment Expires in:
4 − 5 Years
1 − 3 Years
$31,220
—
—
—
—
$31,220
$9,046
—
—
—
—
$9,046
> 5 Years
$232,486
—
—
—
—
$232,486
60
We are a party to several off-balance sheet contractual obligations through lease agreements on a number
of branch facilities. Additionally, we enter into agreements routinely as part of our normal business to manage
deposits and borrowings. At December 31, 2016, we had an obligation and commitment to make future
payments under each of these contracts as follows:
Operating leases
. . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . .
FHLBB borrowings − overnight . . . . .
FHLBB advances less than 90 days . .
. . . . . . . . .
FHLBB advances − other
Commercial repurchase agreements
. .
Retail repurchase agreements . . . . . . .
. . . . .
Junior subordinated debentures
Subordinated debentures . . . . . . . . . .
Other contractual obligations . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Total
Total
Amount
Committed
$ 6,632
1,189
89,450
190,000
30,000
5,007
225,605
44,229
14,526
2,106
$608,744
< 1 Year
1,427
$
126
89,450
190,000
20,000
5,007
225,605
—
—
2,106
$533,721
Payments Due Per Period
4 − 5 Years
$ 1,091
256
—
—
10,000
—
—
—
—
—
$11,347
1 − 3 Years
$2,331
252
—
—
—
—
—
—
—
—
$2,583
> 5 Years
$ 1,783
555
—
—
—
—
—
44,229
14,526
—
$61,093
Borrowings from the FHLBB consist of short- and long-term fixed and variable rate borrowings that are
collateralized by all stock in the FHLBB and a blanket lien on qualified collateral consisting primarily of
loans with first mortgages secured by one-to four-family properties, certain pledged investment securities and
other qualified assets.
We have an obligation and commitment to repay all short- and long-term borrowings. These
commitments and borrowings and the related payments are made during the normal course of business.
Derivatives
Hedge Instruments. From time to time, we may enter into derivative instruments as partial hedges
against large fluctuations in interest rates. We may also enter into fixed-rate interest rate swaps and floor
instruments to partially hedge against potentially lower yields on the variable prime rate loan category in a
declining rate environment. If interest 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 instrument. We may
also enter into variable rate interest rate swaps and cap instruments to partially hedge against increases in
short-term borrowing rates. If interest rates were to rise, resulting in an increased interest cost, there would be
an increased income flow from the interest rate swaps and cap instruments. These financial instruments are
factored into our overall interest rate risk position. We regularly review the credit quality of the counterparty
from which the instruments have been purchased.
At December 31, 2016, we had $43.0 million of notional in interest rate swaps on our junior
subordinated debentures that have been designated as hedges in accordance with GAAP. The arrangement
allowed us to fix our floating rate debentures and mitigate our interest exposure in a rising rate environment.
Quarterly, in conjunction with financial reporting, we assess the hedge relationship for effectiveness. At
December 31, 2016 and 2015, we concluded that each individual hedge on our remaining cash flows continues
to be effective and no ineffectiveness on the hedge relationship has been recorded within our consolidated
statements of income for the year ended December 31, 2016, 2015 or 2014. At December 31, 2016 and 2015,
our hedge on the aforementioned junior subordinated debentures was in an unrealized loss position of
$8.4 million and $9.2 million, respectively. As these hedge was an effective hedge at December 31, 2016 and
2015, the unrealized loss was recorded within AOCI, net of taxes.
At December 31, 2016 and 2015, we had $50.0 million of notional on two tranches interest rate swaps
on 30-day FHLBB advances. One $25.0 million tranche has an expiration date of February 25, 2018 at a fixed
interest rate of 1.54%, while the other $25.0 million tranche has an expiration date of February 25, 2019 at a
fixed rate of 1.74%. We entered into these interest rate swaps to help mitigate our interest rate exposure on
short-term borrowings in a rising interest rate environment. At December 31, 2016 and 2015, we concluded
61
that each individual hedge on our remaining cash flows continues to be effective and no ineffectiveness on the
hedge relationship has been recorded within our consolidated statements of income for the year ended
December 31, 2016 and 2015 (that interest rate swap was not in effect at December 31, 2014). At
December 31, 2016 and 2015, our hedge on the aforementioned 30-day FHLBB advances was in an
unrealized loss position of $389,000 and $576,000, respectively. As these hedge was an effective hedge at
December 31, 2016 and 2015, the unrealized loss was recorded within AOCI, net of taxes.
We are required, as part of contractual arrangements with our interest rate swap counterparties, to pledge
collateral should our interest rate swap positions be in a net unrealized loss position, or receive collateral from
the counterparty if their interest rate swap positions are in a net unrealized loss position. We maintain a master
netting agreement with the counterparty and thus post collateral (or receive collateral) based on the net
position of the interest rate swaps. At December 31, 2016, we had pledged total cash collateral to the
counterparty of $10.2 million.
Refer to Note 18 of the consolidated financial statements within Item 8 for further discussion.
Customer Loan Swaps.
In our normal course of lending with commercial real estate customers, we enter
into interest rate swaps with qualifying commercial customers, from time to time, to provide them with a
means to lock into a long-term fixed rate, while simultaneously entering into an arrangement with a
counterparty to swap the long-term fixed rate loan to variable rate to allow us to effectively manage our
interest rate exposure. Unlike the aforementioned cash flow hedges above, these arrangements are not
designated as hedges and provide little risk to us as the interest rate swap agreements have substantially
equivalent and offsetting terms. We mitigate our commercial customer counterparty credit risk exposure
through our loan policy and underwriting process, which includes credit approval limits, monitoring
procedures, and obtaining collateral, where appropriate. We mitigate our institutional counterparty credit risk
exposure by limiting the institutions for which we will enter into interest swap arrangements through an
approved listing by the Company’s board of directors.
At December 31, 2016 and 2015, we had a notional amount of $266.3 million and $142.9 million,
respectively, in interest rate swap agreements with commercial customers and an equal notional amount with a
counterparty related to our commercial loan swap program. We did not elect to account for this derivative
program as a hedge in accordance with GAAP. At December 31, 2016 and 2015, the fair value of these
arrangements were $1.9 million and $3.2 million, respectively, and were recorded gross on our consolidated
statements of condition as assets and liabilities. As the interest rate swap agreements have substantially
equivalent and offsetting terms, they do not materially change our interest rate risk or present any material
exposure to our consolidated statements of income.
We are required, as part of contractual arrangements with our interest rate swap counterparties, to pledge
collateral should our interest rate swap positions be in a net unrealized loss position, or receive collateral from
the counterparty if their interest rate swap positions are in a net unrealized loss position. We maintain a master
netting agreement with the counterparty and thus post collateral (or receive collateral) based on the net
position of the interest rate swaps. At December 31, 2016, our customer loan swap position with the
counterparty was in an unrealized gain position, as such, we had not posted any cash as collateral. The
borrower’s (customer) commercial property serves as collateral for the swap agreement.
Refer to Note 18 of the consolidated financial statements within Item 8 for further discussion.
Interest Rate Locks and Forward Delivery Commitments. As part of our normal mortgage origination
process, we provide potential borrowers with the option to lock their interest rate based on current market
prices. During the period from commitment date to the loan closing date, we are subject to interest rate risk
as market rates fluctuate. In an effort to mitigate such risk, we may enter into forward delivery sales
commitments, typically on a ‘‘best-efforts’’ basis, with certain approved investors. We account for our interest
rate locks for which we intend to sell in the secondary market as derivatives. Furthermore, we do not account
for the forward delivery commitment to the secondary market investor as a derivative until the loan has been
originated.
62
At December 31, 2016 and 2015, we had a notional amount of $15.2 million and $20.7 million,
respectively, of interest rate lock commitments on mortgages within our loan pipeline for which we intend to
sell. At December 31, 2016 and 2015, the fair value of our interest rate locks was $187,000 and $139,000,
respectively. For the year ended December 31, 2016, 2015 and 2014, we recorded the change in unrealized
gains on these interest rate lock commitments of $48,000, $139,000, and $0, respectively, within mortgage
banking income, net within our consolidated statements of income.
At December 31, 2016 and 2015, we had a notional amount of $15.1 million and $0, respectively, of
forward delivery commitments to secondary market investors accounted for as a derivative. At December 31,
2016 and 2015, the fair value of our forward delivery commitments was $278,000 and $0, respectively. For
the year ended December 31, 2016, 2015 and 2014, we recorded the change in unrealized gains on these
forward delivery commitments of $278,000, $0, and $0, respectively, within mortgage banking income, net
within our consolidated statements of income.
Refer to Note 18 of the consolidated financial statements for further details.
Loan Servicing
At December 31, 2016 and 2015, as sub-servicer, we serviced loans for other third party investors
totaling $938.8 million and $963.0 million, respectively. At December 31, 2016 and 2015, custodial escrow
balances maintained in connection with the loans serviced totaled $11.1 million and $7.1 million, respectively.
For the year ended December 31, 2016, 2015 and 2014, we served as the primary sub-servicer of loans
originated by MSHA. The Company entered into a contract with MSHA to perform loan servicing on the
MSHA portfolio for a fee. For the year ended December 31, 2016, 2015 and 2014, the Company earned fees
of $1.7 million, $1.2 million, and $1.2 million, respectively, for the servicing of MSHA loans and was
presented within other income on the consolidated statements of income. Custodial escrow balances
maintained in connection with the foregoing loan servicing for MSHA, and included in demand deposits on
the consolidated statements of condition, were $6.3 million and $4.3 million at December 31, 2016 and 2015,
respectively. Effective close of business on December 31, 2016, we exited our sub-servicer relationship with
MSHA and all custodial escrow balances maintained in connection with the MSHA sub-servicing relationship
were paid out in January 2017.
The servicing agreements with our third party investors, generally, provide broad rights for them. For
example, each investor typically claims the right to demand that we repurchase loans that breach the seller’s
representations and warranties made in connection with the initial sale of the loans. In addition, as the servicer
of the loans, the servicer guides impose certain time-lines for resolving delinquent loans through workout
efforts or liquidation and impose compensatory fees on us if those deadlines are not satisfied other than for
reasons beyond our control. The investors also have a contractual right to demand indemnification or loan
repurchase for certain servicing breaches. For example, we would be required to indemnify them for or
against failures by us to perform our servicing obligations or acts or omissions that involve willful
malfeasance, bad faith or gross negligence in the performance of, or reckless disregard of, our duties. We
record expenses for servicing-related claims and loan repurchases when it is probable that such claims or
repurchases will be made and the amounts are reasonably estimable.
Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market
rates/prices, such as interest rates, foreign currency exchange rates, commodity prices and equity prices. Our
primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an
important component of our asset and liability management process, which is governed by policies established
by the Bank’s Board of Directors that are reviewed and approved annually. The Board ALCO delegates
responsibility for carrying out the asset/liability management policies to Management ALCO. In this capacity,
Management ALCO develops guidelines and strategies impacting our asset/liability management-related
activities based upon estimated market risk sensitivity, policy limits and overall market interest rate
levels/trends. Management ALCO and Board ALCO jointly meet on a quarterly basis to review strategies,
policies, economic conditions and various activities as part of the management of these risks.
63
Interest Rate Risk
Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates
change, the interest income and expense streams associated with our financial instruments also change, thereby
impacting net interest income, the primary component of our earnings. Board ALCO and Management ALCO
utilize the results of a detailed and dynamic simulation model to quantify the estimated exposure of net
interest income to sustained interest rate changes. While Board ALCO and Management ALCO routinely
monitor simulated net interest income sensitivity over a rolling two-year horizon, they also utilize additional
tools to monitor potential longer-term interest rate risk.
The simulation model captures the impact of changing interest rates on the interest income received and
interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on our consolidated
statements of condition, as well as for derivative financial instruments. This sensitivity analysis is compared
to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a
one- and two-year horizon, assuming no balance sheet growth, given a 200 basis point upward and downward
shift in interest rates. Although our policy specifies a downward shift of 200 basis points, this would results in
negative rates as many deposit and funding rates are now below 2.00%. Our current downward shift is
100 basis points. A parallel and pro rata shift in rates over a 12-month period is assumed. Using this
approach, we are able to produce simulation results that illustrate the effect that both a gradual change of rates
and a ‘‘rate shock’’ have on earnings expectations. In the down 100 basis points scenario, Federal Funds and
Treasury yields are floored at 0.01% while Prime is floored at 3.00%. All other market rates are floored
at 0.25%.
For the year ended December 31, 2016 and 2015, our net interest income sensitivity analysis reflected the
following changes to net interest income assuming no balance sheet growth and a parallel shift in interest
rates. All rate changes were ‘‘ramped’’ over the first 12-month period and then maintained at those levels over
the remainder of the ALCO simulation horizon.
Rate Change from Year 1 − Base
Year 1
+200 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-100 basis points
Year 2
+200 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-100 basis points
Estimated Changes in
Net Interest Income
2015
2016
(0.93)%
(1.45)%
(1.27)%
(1.39)%
3.63%
(7.73)%
2.46%
(7.74)%
The preceding sensitivity analysis does not represent a forecast and should not be relied upon as being
indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions
including, among others, the nature and timing of interest rate levels, yield curve shape, prepayments on loans
and securities, deposit decay rates, pricing decisions on loans and deposits and reinvestment/replacement of
asset and liability cash flows. While assumptions are developed based upon current economic and local market
conditions, we cannot make any assurances as to the predictive nature of these assumptions, including how
customer preferences or competitor influences might change.
If rates remain at or near current levels, net interest income is projected to be virtually flat as loan rates
have repriced to current rates and the cost of funds remains unchanged. Beyond the first year, net interest
income decreases slightly. If rates decrease 100 basis points, net interest income is projected to decrease as
loans reprice into lower yields and funding costs have limited capacity to reduce the cost of funds in the first
year. In the second year, net interest income is projected to continue to decrease as loans and investment cash
flow reprice into lower yields as prepayments increase while reduction in the cost of funds become limited. If
rates increase 200 basis points, net interest income is projected to decrease in the first year due to the
repricing of short-term funding. In the second year, net interest income is projected to increase as loan and
investment yields continue to reprice/reset into higher yields and the cost of funds lags.
64
The economic value of equity at risk simulation is conducted in tandem with the net interest income
simulations, to determine a longer term view of the Company’s interest rate risk position by capturing
longer-term re-pricing risk and option-risk embedded in the balance sheet. It measures the sensitivity of
economic value of equity to changes in interest rates. The economic value of equity at risk simulation values
only the current balance sheet. As with net interest income modeling, this simulation captures product
characteristics such as loan resets, re-pricing terms, maturity dates, rate caps and floors. Key assumptions
include loan prepayment speeds, deposit pricing betas and non-maturity deposit decay rates. These
assumptions can have significant impacts on valuation results as the assumptions remain in effect for the entire
life of each asset and liability. All key assumptions are subject to a periodic review.
Our base case economic value of equity at risk is calculated by estimating the net present value of all
future cash flows from existing assets and liabilities using current interest rates. The base case scenario
assumes that future interest rates remain unchanged.
+200 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
+100 basis points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-100 basis points
Economic Value of Equity
December 31,
2016
9.91%
10.15%
10.29%
9.78%
2015
9.92%
10.18%
10.32%
9.42%
Periodically, if deemed appropriate, we use interest rate swaps, floors and caps, which are common
derivative financial instruments, to hedge our interest rate risk position. The Board of Directors has approved
hedging policy statements governing the use of these instruments. As of December 31, 2016, we had
$43.0 million notional principal amount of interest rate swap agreements related to the junior subordinated
debentures, $50.0 million notional principal amount of forward-starting interest swap agreements related to our
short-term funding and $266.3 million notional principal amount of interest rate swap agreements related to
our commercial loan level derivative program. The Board and Management ALCO monitor derivative
activities relative to their expectations and our hedging policies.
Other Market Risk(s)
We are also subject to other market risks, including but not limited to, operational risks, actions of
government agencies, solvency of counter-parties, changes in investment markets, and changes in consumer
demand. For further descriptions of these additional market risks, refer to Item 1A. ‘‘Risk Factors.’’
Recent Accounting Pronouncements
See Note 1 to the consolidated financial statements for details of recently issued accounting
pronouncements and their expected impact on our financial statements.
Related Party Transactions
The Bank is permitted, in its normal course of business, to make loans to certain officers and directors
of the Company and its subsidiaries under terms that are consistent with the Bank’s lending policies and
regulatory requirements. In addition to extending loans to certain officers and directors of the Company and its
subsidiaries on terms consistent with the Bank’s lending policies, federal banking regulations also require
training, audit and examination of the adherence to this policy by representatives of the federal and national
regulators (also known as ‘‘Regulation O’’ requirements). Notes 4 and 9 to the consolidated financial
statements with Item 8 provide related party lending and deposit information, respectively. We have not
entered into significant non-lending related party transactions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information contained in the Market Risk section of Item 7. ‘‘Management’s Discussion and Analysis
of Financial Condition and Results of Operations’’ is incorporated herein by reference.
65
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except number of shares)
December 31,
2016
2015
ASSETS
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
87,707
$
79,488
Securities:
Available-for-sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Held to maturity, at amortized cost
. . . . . .
Federal Home Loan Bank and Federal Reserve Bank stock, at cost
Total securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans
Less: allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premises and equipment, net
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
779,867
94,609
23,203
897,679
14,836
2,594,564
(23,116)
2,571,448
94,697
6,764
78,119
42,873
39,263
8,654
922
21,268
$3,864,230
750,338
84,144
21,513
855,995
10,958
2,490,206
(21,166)
2,469,040
95,657
8,667
59,917
45,959
39,716
7,985
1,304
34,658
$3,709,344
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest checking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Savings and money market
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokered deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings
Subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 406,934
701,494
979,263
468,203
272,635
2,828,529
530,129
10,791
58,755
44,479
3,472,683
$ 357,673
740,084
912,668
516,867
199,087
2,726,379
477,852
35,911
58,599
47,413
3,346,154
Commitments and Contingencies
Shareholders’ Equity
Common stock, no par value: authorized 20,000,000 shares, issued and
outstanding 15,476,379 and 15,330,717 on December 31, 2016 and 2015,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings
Accumulated other comprehensive loss:
156,041
249,415
153,083
222,329
Net unrealized losses on available-for-sale securities, net of tax . . . . . . . . .
Net unrealized losses on cash flow hedging derivative instruments, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrecognized losses on postretirement plans, net of tax . . . . . . . . . . .
Total accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . .
(6,085)
(3,801)
(5,694)
(2,130)
(13,909)
391,547
$3,864,230
(6,374)
(2,047)
(12,222)
363,190
$3,709,344
The accompanying notes are an integral part of these consolidated financial statements.
66
CONSOLIDATED STATEMENTS OF INCOME
For The Year Ended December 31,
2015
2014
2016
(In thousands, except number of shares and per share data)
Interest Income
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest on U.S. government and sponsored enterprise obligations . .
Interest on state and political subdivision obligations . . . . . . . . . . .
Interest on federal funds sold and other investments . . . . . . . . . . .
Total interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense
Interest on deposits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Interest on subordinated debentures
Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net interest income after provision for credit losses . . . . . . . .
Non-Interest Income
Debit card income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . . . . .
Mortgage banking income, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from fiduciary services
. . . . . . . . . . . . . . . . . . . . . . . . .
Bank-owned life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brokerage and insurance commissions
. . . . . . . . . . . . . . . . . . . .
Other service charges and fees . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on sale of securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest income
Non-Interest Expense
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, equipment and data processing . . . . . . . . . . . . . . . . . .
Net occupancy costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Consulting and professional fees
Other real estate owned and collection costs
. . . . . . . . . . . . . . . .
Regulatory assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debit card expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . .
Merger and acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax expense . . . . . . . . . . . . . . . . . . . .
Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Per Share Data:
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average number of common shares outstanding . . . . . . .
Diluted weighted average number of common shares outstanding . .
70,654
16,118
1,256
357
88,385
6,267
3,329
2,532
12,128
76,257
2,220
74,037
4,675
6,229
282
4,989
1,437
1,766
1,461
451
3,080
24,370
32,669
7,316
5,055
2,368
2,289
1,982
1,725
1,148
—
7,845
62,397
36,010
11,440
24,570
109,224 $
16,082
2,836
1,484
129,626
81,221 $
15,091
2,208
624
99,144
8,633
4,506
3,415
16,554
113,072
5,258
107,814
7,578
7,210
6,258
4,960
2,594
2,074
1,962
51
6,934
39,621
6,511
3,457
2,724
12,692
86,452
1,936
84,516
5,277
6,423
2,031
4,918
1,680
1,699
1,573
4
3,877
27,482
48,072
9,557
7,088
3,234
3,128
2,777
2,584
1,903
866
10,687
89,896
57,539
17,472
40,067 $
37,220
8,057
5,695
2,625
2,491
2,184
1,936
1,306
10,415
9,210
81,139
30,859
9,907
20,952 $
2.59 $
2.57 $
1.73 $
1.73 $
15,422,160
15,504,239
12,031,294
12,074,579
2.19
2.19
11,176,468
11,205,888
The accompanying notes are an integral part of these consolidated financial statements.
67
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Net change in unrealized gains (losses) on available-for-sale securities:
Net change in unrealized gains (losses) on available-for-sale securities,
For The Year Ended December 31,
2015
2016
$20,952
$40,067
2014
$24,570
net of tax of $1,212, $1,873, and ($4,275), respectively . . . . . . . . .
(2,251)
(3,479)
7,938
Net reclassification adjustment for gains included in net income, net
of tax of $18, $1, and $158, respectively(1)
. . . . . . . . . . . . . . . . . .
Net change in unrealized gains (losses) on available-for-sale securities,
(33)
(3)
(293)
net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,284)
(3,482)
7,645
Net change in unrealized gains (losses) on cash flow hedging derivatives:
Net change in unrealized gains (losses) on cash flow hedging
derivatives, net of tax of $343, $825, and $2,431, respectively . . . . .
Net reclassification adjustment for effective portion of cash flow hedges
included in interest expense, net of tax of ($709), ($593), and ($600),
respectively(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in unrealized gains (losses) on cash flow hedging derivatives,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement plans:
Net actuarial loss, net of tax of $127, $21, and $225, respectively . . . .
Reclassification of amortization of net unrecognized actuarial loss and
of net prior service cost included in net periodic cost, net of tax of
($83), ($84), and ($51), respectively(3)
. . . . . . . . . . . . . . . . . . . . .
Net gain (loss) on postretirement plans, net of tax . . . . . . . . . . . . . . . .
Other comprehensive income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(637)
(1,533)
(4,515)
1,317
1,102
1,114
680
(431)
(3,401)
(235)
(39)
(418)
152
(83)
(1,687)
$38,380
155
116
(3,797)
$17,155
96
(322)
3,922
$28,492
(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 subordinated debentures.
(3) Reclassified into the consolidated statements of income within salaries and employee benefits.
The accompanying notes are an integral part of these consolidated financial statements.
68
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands, except number of shares and per share
data)
Balance at December 31, 2013 . . . . . . . . . . . .
2014 net income . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax . . . . . . .
Stock-based compensation expense
. . . . . . . . . .
Exercise of stock options and issuance of vested
share awards, net of repurchase for tax
withholdings and tax benefit
. . . . . . . . . . . . .
Common stock repurchased . . . . . . . . . . . . . . .
Cash dividends declared ($0.74 per share)(1) . . . . .
Balance at December 31, 2014 . . . . . . . . . . . .
2015 net income . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . . . . .
Stock-based compensation expense
. . . . . . . . . .
Exercise of stock options and issuance of vested
share awards, net of repurchase for tax
withholdings and tax benefit
. . . . . . . . . . . . .
Equity issuance costs . . . . . . . . . . . . . . . . . . .
SBM acquisition common stock issuance . . . . . . .
SBM acquisition non-qualified stock option
awards
. . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared ($0.80 per share)(1) . . . . .
Balance at December 31, 2015 . . . . . . . . . . . .
Cumulative effect adjustment (Note 1)
. . . . . . . .
Cash in lieu for fractional shares paid due to the
stock split (Note 13) . . . . . . . . . . . . . . . . . .
2016 net income . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . . . . .
Stock-based compensation expense
. . . . . . . . . .
Exercise of stock options and issuance of vested
share awards, net of repurchase for tax
withholdings and tax benefit
. . . . . . . . . . . . .
Cash dividends declared ($0.83 per share)(1) . . . . .
Balance at December 31, 2016 . . . . . . . . . . . .
Common Stock
Shares
Outstanding(1) Amount
$ 47,783
—
—
599
11,369,870
—
—
—
Accumulated
Other
Comprehensive
Loss
$(12,347)
—
3,922
—
Total
Shareholders’
Equity
$231,096
24,570
3,922
599
Retained
Earnings
$195,660
24,570
—
—
41,496
(272,033)
—
11,139,333
—
—
—
328
(7,155)
—
41,555
—
—
836
—
—
(8,251)
211,979
20,952
—
—
66,741
—
4,124,643
753
(612)
108,561
—
—
—
—
—
15,330,717
—
1,990
—
— (10,602)
222,329
(72)
153,083
72
(173)
—
—
—
(5)
—
—
1,997
—
40,067
—
—
—
—
—
(8,425)
—
(3,797)
—
—
—
—
—
—
(12,222)
—
—
—
(1,687)
—
328
(7,155)
(8,251)
245,109
20,952
(3,797)
836
753
(612)
108,561
1,990
(10,602)
363,190
—
(5)
40,067
(1,687)
1,997
145,835
—
15,476,379
894
—
— (12,909)
$249,415
$156,041
—
—
$(13,909)
894
(12,909)
$391,547
(1) Share and per share amounts have been adjusted to reflect the three-for-two stock split effective
September 30, 2016, for all periods presented. Refer to Note 13 for further discussion.
The accompanying notes are an integral part of these consolidated financial statements.
69
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Purchase accounting accretion, net
Investment securities amortization and accretion, net
. . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets
. . . . . . . . . . . . . . . . . . . .
Net gains on sale of securities . . . . . . . . . . . . . . . . . . . . . .
Net increase in other real estate owned valuation allowance
and (gain) loss on disposition . . . . . . . . . . . . . . . . . . . . .
Originations of mortgage loans held for sale . . . . . . . . . . . . .
Proceeds from the sale of mortgage loans
. . . . . . . . . . . . . .
Gain on sale of mortgage loans, net of origination costs . . . . .
Cost of fixed assets disposals associated with the SBM
acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Increase (decrease) in other liabilities
Net cash provided by operating activities . . . . . . . . . . . .
Investing Activities
Cash received in SBM acquisition, net of cash paid . . . . . . . . .
Proceeds from sales and maturities of available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of available-for-sale securities . . . . . . . . . . . . . . . . . .
Purchase of securities held-to-maturity . . . . . . . . . . . . . . . . . .
Net increase in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of premises and equipment
. . . . . . . . . .
Purchase of premises and equipment . . . . . . . . . . . . . . . . . . . .
Purchase of Federal Home Loan Bank and Federal Reserve Bank
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of Federal Home Loan Bank and Federal
Reserve Bank stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of other real estate owned . . . . . . . . . . . . .
Recoveries of previously charged-off loans
. . . . . . . . . . . . . . .
Purchase of bank-owned life insurance, net of death benefit
For The Year Ended December 31,
2015
2014
2016
$ 40,067
$ 20,952
$ 24,570
5,258
4,426
(5,048)
3,135
1,997
1,903
(51)
35
(236,450)
238,351
(6,201)
—
11,329
(1,333)
57,418
1,936
3,614
(367)
2,244
836
1,306
(4)
362
(72,032)
62,485
(1,278)
1,130
(7,062)
1,796
15,918
2,220
3,051
(554)
1,784
599
1,148
(451)
215
(799)
830
(31)
—
(3,349)
653
29,886
—
59,917
—
184,564
(220,169)
(10,986)
(103,699)
90
(1,671)
156,434
(111,170)
(64,355)
(94,811)
—
(3,189)
134,358
(78,355)
(20,338)
(196,670)
—
(1,316)
(7,342)
(1,594)
(718)
5,652
730
486
471
2,825
728
51
1,730
746
proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Net cash used in investing activities
(15,608)
(167,953)
—
(54,744)
(10,000)
(170,512)
The accompanying notes are an integral part of these consolidated financial statements.
70
CONSOLIDATED STATEMENTS OF CASH FLOWS − (continued)
(In thousands)
Financing Activities
Net increase in deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from (repayments of) borrowings less than
90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on Federal Home Loan Bank long-term advances . .
Proceeds from Federal Home Loan Bank long-term advances . . .
Repayments of wholesale repurchase agreements . . . . . . . . . . .
Issuance of subordinated debt, net of costs
. . . . . . . . . . . . . . .
Common stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options and issuance of restricted stock, net of
For The Year Ended December 31,
2015
2014
2016
103,027
71,825
118,435
77,227
(25,000)
—
(25,000)
—
—
—
(18,105)
(11,039)
10,000
—
14,464
—
(612)
46,954
(60,073)
60,000
—
—
(7,475)
—
repurchase for tax withholdings and tax benefit . . . . . . . . . . .
894
753
328
Cash dividends paid on common stock and cash in lieu for
fractional shares paid due to stock split
. . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . .
. . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year
Supplemental information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of loans and premises to other real estate owned . . . . .
Measurement-period adjustments (Note 2) . . . . . . . . . . . . . . . .
Assets acquired in SBM acquisition, excluding net cash received
. . . . . . . .
(not adjusted for measurement-period adjustments)
Liabilities assumed in SBM acquisition (not adjusted for
measurement-period adjustments)
. . . . . . . . . . . . . . . . . . . .
Common stock and stock options issued for SBM acquisition . . .
(12,394)
118,754
8,219
79,488
$ 87,707
$ 16,661
10,647
383
960
—
—
—
(9,785)
57,501
18,675
60,813
$ 79,488
$ 12,588
12,205
2,175
—
729,283
729,500
110,551
(8,085)
150,084
9,458
51,355
$ 60,813
$ 12,158
13,365
1,337
—
—
—
—
The accompanying notes are an integral part of these consolidated financial statements.
71
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
1. Business and Summary of Significant Accounting Policies
Acronyms and Abbreviations. The acronyms and abbreviations identified below are used in the notes to
the consolidated financial statements. The following is provided to aid the reader and provide a reference page
when reviewing these notes to the consolidated financial statements.
Acadia Trust . . . . . . . . . . . . Acadia Trust, N.A. was a wholly-owned subsidiary of Camden National
Corporation until its merger with Camden National Bank, a wholly-owned
subsidiary of Camden National Corporation, on November 30, 2016.
AFS . . . . . . . . . . . . . . . . . Available-for-sale
ALCO . . . . . . . . . . . . . . . . Asset/Liability Committee
ALL . . . . . . . . . . . . . . . . . Allowance for loan losses
AOCI
. . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss)
ASC . . . . . . . . . . . . . . . . . Accounting Standards Codification
ASU . . . . . . . . . . . . . . . . . Accounting Standards Update
Bank . . . . . . . . . . . . . . . . . Camden National Bank, a wholly-owned subsidiary of Camden National
Corporation
Board ALCO . . . . . . . . . . . Board of Directors’ Asset/Liability Committee
BOLI . . . . . . . . . . . . . . . . . Bank-owned life insurance
BSA . . . . . . . . . . . . . . . . . Bank Secrecy Act
CCTA . . . . . . . . . . . . . . . . Camden Capital Trust A, an unconsolidated entity formed by Camden National
Corporation
CDARS . . . . . . . . . . . . . . . Certificate of Deposit Account Registry System
CDs . . . . . . . . . . . . . . . . . . Certificate of deposits obligation
CMO . . . . . . . . . . . . . . . . . Collateralized mortgage obligation
Company . . . . . . . . . . . . . . Camden National Corporation
DCRP . . . . . . . . . . . . . . . . Defined Contribution Retirement Plan
EPS . . . . . . . . . . . . . . . . . . Earnings per share
FASB . . . . . . . . . . . . . . . . Financial Accounting Standards Board
FDIC . . . . . . . . . . . . . . . . . Federal Deposit Insurance Corporation Bank of Maine
FHLB . . . . . . . . . . . . . . . . Federal Home Loan Bank
FHLBB . . . . . . . . . . . . . . . Federal Home Loan Bank of Boston
FRB . . . . . . . . . . . . . . . . . Federal Reserve System Board of Governors
FRBB . . . . . . . . . . . . . . . . Federal Reserve Bank of Boston
GAAP . . . . . . . . . . . . . . . . Generally accepted accounting principles in the United States
HPFC . . . . . . . . . . . . . . . . Healthcare Professional Funding Corporation, a wholly-owned subsidiary of
Camden National Bank
HTM . . . . . . . . . . . . . . . . . Held-to-maturity
IRS . . . . . . . . . . . . . . . . . . Internal Revenue Service
72
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share
Data)
1. Business and Summary of Significant Accounting Policies − (continued)
LIBOR . . . . . . . . . . . . . . . . London Interbank Offered Rate
LTIP . . . . . . . . . . . . . . . . . Long-Term Performance Share Plan
Management ALCO . . . . . . . Management Asset/Liability Committee
MBS . . . . . . . . . . . . . . . . . Mortgage-backed security
Merger . . . . . . . . . . . . . . . . On October 16, 2015, the two-step merger of Camden National Corporation,
SBM Financial, Inc. and Atlantic Acquisitions, LLC, a
wholly-owned subsidiary of Camden
National Corporation, was completed
Merger Agreement . . . . . . . . Plan of Merger, dated as of March 29, 2015, by and among Camden National
Corporation, SBM Financial, Inc. and Atlantic Acquisitions, LLC, a wholly-
owned subsidiary of Camden National Corporation
MSHA . . . . . . . . . . . . . . . . Maine State Housing Authority
MSPP . . . . . . . . . . . . . . . . Management Stock Purchase Plan
MSRs
. . . . . . . . . . . . . . . . Mortgage servicing rights
NIM . . . . . . . . . . . . . . . . . Net interest margin on a fully-taxable basis
N.M.
. . . . . . . . . . . . . . . . . Not meaningful
Non-Agency . . . . . . . . . . . . Non-agency private issue collateralized mortgage obligation
NRV . . . . . . . . . . . . . . . . . Net realizable value
OCC . . . . . . . . . . . . . . . . . Office of the Comptroller of the Currency
OCI . . . . . . . . . . . . . . . . . . Other comprehensive income (loss)
OFAC . . . . . . . . . . . . . . . . Office of Foreign Assets Control
OREO . . . . . . . . . . . . . . . . Other real estate owned
OTTI . . . . . . . . . . . . . . . . . Other-than-temporary impairment
SBM . . . . . . . . . . . . . . . . . SBM Financial, Inc., the parent company of The Bank of Maine
SERP . . . . . . . . . . . . . . . . . Supplemental executive retirement plans
TDR . . . . . . . . . . . . . . . . . Troubled-debt restructured loan
UBCT . . . . . . . . . . . . . . . . Union Bankshares Capital Trust I, an unconsolidated entity formed by Union
Bankshares Company that was subsequently acquired by Camden National
Corporation
U.S. . . . . . . . . . . . . . . . . . . United States of America
2003 Plan . . . . . . . . . . . . . . 2003 Stock Option and Incentive Plan
2012 Plan . . . . . . . . . . . . . . 2012 Equity and Incentive Plan
2013 Repurchase Program . . . 2013 Common Stock Repurchase Program, approved by the Company’s Board
of Directors
73
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
1. Business and Summary of Significant Accounting Policies − (continued)
General Business. Camden National Corporation, a Maine corporation, is the bank holding company for
Camden National Bank. The Bank serves individuals, businesses, municipalities and non-profits through a
network of 61 banking offices and 84 ATMs across Maine, and two lending offices in New Hampshire and
Massachusetts. Effective the close of business, November 30, 2016, Acadia Trust merged into the Bank. Upon
completion of the Acadia Trust merger into the Bank, Camden National Wealth Management was created to
operate as a division of the Bank and provide trust and investment management services to its clients, who are
primarily located in Maine. The Company’s primary source of income is from providing loans to individuals
and small- to mid-sized companies through its market area. The Bank’s deposits are insured by the FDIC,
subject to regulatory limits.
Principles of Consolidation. The accompanying consolidated financial statements include the accounts
of the Company and the Bank (which includes the consolidated accounts of HPFC, Property A, Inc. and
Property P, Inc.). All intercompany accounts and transactions have been eliminated in consolidation. Assets
held by the Bank in a fiduciary capacity, through Camden National Wealth Management, are not assets of the
Company and, therefore, are not included in the consolidated statements of condition. The Company also
owns 100% of the common stock of CCTA and UBCT. These entities are unconsolidated subsidiaries of the
Company.
Reclassifications. Certain reclassifications have been made to prior year amounts to conform to the
current year’s presentation.
Use of Estimates. The preparation of the financial statements in conformity with GAAP 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 periods. Actual results could vary from these estimates. Several
estimates are particularly critical and are susceptible to significant near-term change, including the ALL, the
accounting for business combinations including subsequent impairment analyses for goodwill and other
intangible assets, accounting for income taxes, postretirement benefits and asset impairment judgments,
including OTTI of investment securities.
Subsequent Events. The Company has evaluated events and transactions subsequent to December 31,
2016 for potential recognition or disclosure as required by GAAP.
Significant Concentration of Credit Risk. The Bank grants loans primarily to customers in Maine.
Although the Bank has a diversified loan portfolio, a large portion of the Bank’s loans are secured by
commercial or residential real estate located in Maine and is subject to volatility within Maine’s real estate
market. Furthermore, the debtors’ ability to honor their contracts is highly dependent upon other economic
factors throughout Maine. The Bank does not generally engage in non-recourse lending and typically will
require the principals of any commercial borrower to obligate themselves personally on the loan.
Cash and Cash Equivalents. For the purposes of reporting cash flows, cash and cash equivalents
consist of cash on hand and amounts due from banks. The Bank is required by the FRB to maintain cash
reserves equal to a percentage of deposits. The Company maintains the reserve balances in cash on hand or at
the FRB.
At December 31, 2016 and 2015, the Company had $50.3 million and $42.9 million, respectively, of cash
on hand and in non-interest bearing accounts with other banks. At December 31, 2016 and 2015, the
Company had $37.4 million and $36.6 million, respectively, of cash held in interest-bearing accounts with
other banks.
Investment Securities.
Investment securities are classified at the time of purchase as AFS, HTM, or
trading. The classification of investment securities are constantly re-evaluated for consistency with corporate
goals and objectives.
74
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
1. Business and Summary of Significant Accounting Policies − (continued)
Trading securities are carried at fair value on the consolidated statements of condition with subsequent
changes to fair value recorded in earnings. At December 31, 2016 and 2015, the Company did not have any
investment securities classified as trading securities on its consolidated statements of condition.
Debt securities for which the Company has the positive intent and ability to hold to maturity are
classified as HTM and recorded at amortized cost on the consolidated statements of condition. At
December 31, 2016 and 2015, the Company had investment securities of $94.6 million and $84.1 million,
respectively, classified as HTM and carried at amortized cost on its consolidated statements of condition.
Investment securities that are not classified as HTM or trading securities are classified as AFS and are
carried at fair value on the Company’s consolidated statements of condition with subsequent changes to fair
value recorded within AOCI, net of tax. At December 31, 2016 and 2015, the Company had investment
securities of $779.9 million and $750.3 million, respectively, classified as AFS and carried at fair value on its
consolidated statements of condition.
Purchase premiums and discounts are recognized in interest income on the consolidated statements of
income using the interest method over the period to maturity (or issuer call option date, if earlier) and are
recorded on the trade date. Gains and losses on the sale of investment securities are recognized within
non-interest income on the consolidated statements of income and are recorded on the trade date using the
specific identification method.
Management conducts a quarterly review and evaluation of its debt and equity securities portfolio to
determine if the decline in fair value of any security appears to be other-than-temporary. The factors
considered by management in its review include, but are not limited to: the length of time and the extent to
which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, the
credit ratings of the security or issuer, whether the decline in fair value appears to be issuer specific or,
alternatively, a reflection of general market or industry conditions, and the Company’s intent and ability to
hold the security for a period of time sufficient to allow for a recovery in fair value.
Should the Company determine that the decline in the fair value of an equity security was
other-than-temporary, the Company recognizes the impairment on the equity security within non-interest
income on the consolidated statements of income when identified. For debt securities where the Company
does not intend to sell the security and it is not more-likely-than-not that the Company will be required to sell
the security before recovery of its amortized cost basis, the other-than-temporary decline in the fair value of
the debt security related to: (i) credit loss is recognized in non-interest income on the consolidated statements
of income; and (ii) other factors is recognized in AOCI, net of tax. For debt securities where the Company
intends to sell the security or more-likely-than-not will be required to sell the security before recovery of its
amortized cost, the Company recognizes the OTTI equal to the entire difference between the security’s cost
basis and its fair value within non-interest income 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 FRBB common stock. This stock is a non-marketable equity security and, is
reported at cost.
Loans Held for Sale. The Company has elected the fair value option for loans classified as held for
sale on the consolidated statements of condition. Designation of loans as held for sale is determined based on
the Company’s intent and is, typically, completed as the loans are underwritten. The fair value for loans held
for sale is determined using quoted secondary market prices or executed sales agreements. Management
constantly evaluates its loan portfolio, in conjunction with asset/liability management practices, and will opt to
sell certain loans, typically new 30-year residential mortgages, to manage the Company’s interest rate
exposure and for other business purposes, including generating fee income through mortgage sale gains. At
75
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
1. Business and Summary of Significant Accounting Policies − (continued)
December 31, 2016 and 2015, the Company had designated $14.8 million and $11.0 million, respectively, of
loans designated as held for sale on its consolidated statements of condition.
Originated Loans and Acquired Loans. Loans are reported at amortized cost, or amortized acquired
fair value in the case of acquired loans, adjusted for any partial charge-offs and net of any deferred loan fees
or costs. For originated loans, interest income is accrued based upon the daily principal amount outstanding
except for loans on non-accrual status. For acquired loans, interest income is also accrued based upon the
daily principal amount outstanding and is then further adjusted by the accretion of any discount or
amortization of any premium associated with the loan.
For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest
income over the contractual term of the loan using the level-yield method. When a loan is paid off, the
unamortized portion is recognized in interest income.
A loan is classified as non-accrual generally when it becomes 90 days past due as to interest or principal
payments, or sooner if management considers such action to be prudent. All previously accrued but unpaid
interest on non-accrual loans is reversed from interest income in the period in which the loan is considered
delinquent and the amortization of any unamortized net deferred origination loan fees/costs stops. Interest
payments received on non-accrual loans, including impaired loans, are applied as a reduction of principal. A
loan remains on non-accrual status until all principal and interest amounts contractually due are brought
current and future payments are reasonably assured. Should a loan transition from non-accrual status back to
accrual status, the unrecognized interest earned during the period the loan was on non-accrual status and
unamortized deferred origination fees and costs are recognized over the remaining contractual life of the loan
using the level-yield method.
ALL. The ALL is established through provisions for loan losses charged to income. Losses on loans,
including impaired loans, are charged to the ALL when all or a portion of a loan is deemed to be
uncollectible. Recoveries of loans previously charged off are credited to the ALL when realized.
In determining the appropriate level of ALL, the Company uses a methodology to systematically measure
the amount of estimated loan loss exposure inherent in the loan portfolio. The methodology includes three
elements: (1) identification of loss allocations for certain specific loans, (2) loss allocation factors for certain
loan types based on credit risk and loss experience, and (3) general loss allocations for other qualitative and
environmental factors.
The allocations for specific loans component relates to loans that have a principal balance of $250,000 or
more that are classified as substandard or doubtful and are on non-accrual status. For such loans that are also
classified as impaired, an allowance is established when the discounted expected future cash flows (or
collateral value or observable market price) of the impaired loan is lower than the recorded investment of that
loan. Loans that do not meet the above criteria are separated into risk pools by portfolio segment and risk
ratings. The Company then evaluates each risk pool collectively for impairment through loss allocation
factors. Subsequent to December 31, 2016, the Company amended its internal policy for assessing individual
loans for impairment by increasing the principal balance threshold to $500,000. The qualitative factors for
assessing a loan individually for impairment remain unchanged. The change in the Company’s internal policy
will be effective for periods beginning on January 1, 2017.
The Company uses a risk rating system for certain loan segments to determine the credit quality of these
loan pools and applies the related loss allocation factors. In assessing the risk rating of a particular loan, the
Company considers, among other factors, the obligor’s debt capacity, financial condition, the level of the
obligor’s earnings, the amount and sources of repayment, the performance with respect to loan terms, the
adequacy of collateral, the level and nature of contingent liabilities, management strength, and the industry in
which the obligor operates. These factors are based on an evaluation of historical information, as well as
76
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
1. Business and Summary of Significant Accounting Policies − (continued)
subjective assessment and interpretation of current conditions. Emphasizing one factor over another, or
considering additional factors that may be relevant in determining the risk rating of a particular loan but
which are not currently an explicit part of the Company’s methodology, could impact the risk rating assigned
to that loan.
The Company at least annually, and more frequently as deemed prudent by management, reassesses and
revises the loss allocation factors used in the assignment of loss exposure to appropriately reflect the analysis
of loss experience. Portfolios of more homogenous populations of loans including home equity and consumer
loans are analyzed as groups taking into account delinquency rates and other economic conditions which may
affect the ability of borrowers to meet debt service requirements, including interest rates and energy costs. The
Company also considers regulatory guidance, historical loss ranges, portfolio composition, and other changes
in the portfolio. An additional allocation is determined based on a judgmental process whereby management
considers qualitative and quantitative assessments of other environmental factors.
Since the methodology is based upon historical experience and trends, as well as management’s
judgment, factors may arise that result in different estimations. Significant factors that could give rise to
changes in these estimates may include, but are not limited to, changes in economic conditions in the
Company’s market areas, concentration of risk, declines in local property values, and regulatory guidance.
Loans past due 30 days or more are considered delinquent. In general, secured loans that are delinquent
for 90 consecutive days are placed on non-accrual status, and are subject to impairment and/or loss
assessment in accordance with established internal policy. In general, unsecured loans that are delinquent
for 90 consecutive days are charged off.
In cases where a borrower experiences financial difficulties and the Company makes certain
concessionary modifications to contractual terms, the loan is classified as a TDR. Modifications may include
adjustments to interest rates, extensions of maturity, and other actions intended to minimize economic loss and
avoid foreclosure or repossession of collateral. An allowance is established on a loan classified as a TDR if
the present value of expected future cash flows (or, alternatively, the observable market price of the loan or
the fair value of the collateral if the loan is collateral-dependent) is less than the recorded investment of the
loan. Non-accrual loans that are restructured as TDRs remain on non-accrual status for a period of at least
six months to demonstrate that the borrower can meet the restructured terms. If the restructured loan is on
accrual status prior to being modified, it is reviewed to determine if the modified loan should remain on
accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the
loan is classified as a non-accrual loan. Loans classified as TDRs remain classified as such for the life of the
loan, except in limited circumstances, when it is determined that the borrower is performing under the
modified terms and the restructuring agreement specified an interest rate greater than or equal to an acceptable
market rate for a comparable new loan at the time of the restructuring.
Goodwill and Core Deposit Intangible Assets. Goodwill represents the excess cost of an acquisition
over the fair value of the net assets acquired. Goodwill is not subject to amortization but rather is evaluated at
least annually for impairment, or as events and circumstances dictate, at the reporting unit level. The
Company’s two reporting unit levels are (i) banking and (ii) financial services. The banking reporting unit is
representative of the Company’s core banking business line, while the financial services reporting unit is
representative of the Company’s wealth management and trust services business line. Any impairment is
charged to non-interest expense on the consolidated statements of income. Goodwill is evaluated for
impairment by the Company utilizing several standard valuation techniques, including, but not limited to
discounted cash flow analyses and comparable transaction market multiples.
The Company tests goodwill for impairment annually as of November 30th utilizing the two-step process
and fair value guidance outlined in GAAP. Step one compares the fair value of the reporting unit to its
carrying value. If the fair value of the reporting unit is greater than its carrying value, then the reporting unit
77
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
1. Business and Summary of Significant Accounting Policies − (continued)
is not deemed to be impaired and no further assessment is required. However, if the fair value of the reporting
unit is below its carrying value, GAAP requires that step two of the goodwill impairment test be performed.
Step two involves a process similar to business combination accounting in which fair value is assigned to all
assets, liabilities and other identified intangibles to derive an implied fair value of goodwill for the reporting
unit. If the implied fair value of goodwill for the reporting unit is greater than its carrying value, then the
reporting unit’s goodwill is not impaired. However, if the reporting unit’s implied fair value of goodwill is
below its carrying value, an impairment charge is recorded to mark the carrying value of goodwill to the
calculated implied fair value. The Company completed its annual goodwill impairment testing as of
November 30, 2016, 2015 and 2014 for each reporting unit and passed step one. As such, step two of the
goodwill impairment test was not performed and no goodwill impairment was recognized for the year ended
December 31, 2016, 2015 or 2014.
Core deposit intangible assets represents the estimated value of acquired customer relationships and is
amortized on a straight-line basis over the estimated life of those relationships (5 to 10 years from the
acquisition dates). Core deposit intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If necessary, management will test
the core deposit intangibles for impairment by comparing its carrying value to the expected undiscounted cash
flows of the assets. If the undiscounted cash flows of the intangible assets exceed its carrying value then the
intangible assets are deemed to be fully recoverable and not impaired. However, if the undiscounted cash
flows of the intangible assets are less than its carrying value then management must compare the fair value of
the intangible assets to its carrying value. If the fair value of the intangible assets exceeds its carrying value
then the intangible assets are not impaired. If the fair value of the intangible assets is less than its carrying
value then an impairment charge is recorded to mark the carrying value of the intangible assets to fair value.
For the year ended December 31, 2016, 2015 or 2014, there were no events or changes in circumstances that
indicated the carrying amount may not be recoverable.
BOLI. BOLI represents the cash surrender value of life insurance policies on the lives of certain active
and retired employees where the Company is the beneficiary and is recorded as an asset on the Company’s
consolidated statements of condition. Increases in the cash surrender values of the policies, as well as death
benefits received, net of any cash surrender value, are recorded in non-interest income on the consolidated
statements of income, and are not subject to income taxes. The Company reviews the financial strength of the
insurance carriers prior to the purchase of life insurance policies and no less than annually thereafter. A life
insurance policy with any individual carrier is limited to 15% of Tier I capital (as defined for regulatory
purposes) and the total cash surrender value of life insurance policies is limited to 25% of Tier I capital.
Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation.
Acquired premises and equipment (through the acquisition of a company or branch acquisition) are stated at
their estimated fair values as of the acquisition date less accumulated depreciation that occurred subsequent to
the acquisition date. Depreciation and amortization are computed on the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the term
of the respective lease or the estimated life of the improvement. Land is carried at cost.
OREO. OREO properties acquired through foreclosure or deed-in-lieu of foreclosure are recorded
initially at estimated fair value less estimated costs to sell. Any write-down of the recorded investment in the
related loan is charged to the ALL upon transfer to OREO. Upon acquisition of a property, a current appraisal
is used or an internal valuation is prepared to substantiate fair value of the property. Any subsequent declines
in the fair value of a property are recorded as a valuation allowance on the asset. Any subsequent increases in
the fair value of a property are recorded as reductions of the valuation allowance, but not below zero. Upon a
sale of an OREO property, any excess of the carrying value over the sale proceeds is recognized as a loss on
sale. Any excess of sale proceeds over the carrying value of the OREO property is first applied as a recovery
to the valuation allowance, if any, with the remainder being recognized as a gain on sale. Operating expenses,
78
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
1. Business and Summary of Significant Accounting Policies − (continued)
including legal and other direct expenses, and changes in the valuation allowance relating to foreclosed assets
are included in other non-interest expense on the consolidated statements of income.
Mortgage Servicing. Servicing assets are recognized as separate assets when servicing rights are
acquired through the sale of residential mortgage loans with servicing rights retained. Capitalized servicing
rights, which are reported in other assets on the consolidated statements of condition, are initially recorded at
fair value and are amortized in proportion to, and over the period of, the estimated future servicing of the
underlying mortgages (typically, the contractual life of the mortgage). Servicing assets are evaluated for
impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined
by stratifying rights by predominant characteristics, such as interest rates and terms. Fair value is determined
using prices for similar assets with similar characteristics, when available, or based upon discounted cash
flows using market-based assumptions. Impairment is recognized through a valuation allowance to the extent
that fair value is less than the capitalized amount. If it is later determined that all or a portion of the
impairment no longer exists, a reduction of the allowance may be recorded increasing income, but not
below zero.
Servicing fee income is recorded for fees earned for servicing loans for investors. The fees are based on
a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income
within non-interest income on the consolidated statements of income when earned. The amortization of
mortgage servicing rights is recorded as a reduction of loan servicing fee income within non-interest income
on the consolidated statements of income.
Short-Term and Long-Term Borrowings. Short-term borrowings consist of borrowings maturing within
one year of the consolidated statement of condition date, while long-term borrowings consist of borrowings
maturing in one or more years. The Company’s borrowings include retail and wholesale repurchase
agreements, FHLBB overnight and short-term borrowings, federal funds purchased, a capital lease, and line of
credit advances. The Company is required to post collateral for certain borrowings, for which it, generally,
posts loans and/or investment securities as collateral.
Income Taxes.
Income taxes are accounted for using the asset and liability method. 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 information suggests that it is not more likely than not that the Company will be able to
realize 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.
The Company assesses quarterly whether or not a valuation allowance on its deferred tax assets is
necessary. If it is more likely than not that the Company will not be able to realize the benefit of the deferred
tax assets then a valuation allowance is established on the deferred tax asset not expected to be realized. At
December 31, 2016 and 2015, the Company did not carry a valuation allowance on its deferred tax assets.
EPS. Basic EPS excludes dilution and is computed by dividing net income applicable to common stock
by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if certain securities or other contracts to issue common stock (such as stock
options) were exercised or converted into additional common shares that would then share in the earnings
of the Company. Diluted EPS is computed by dividing net income applicable to common stock by the
weighted-average number of common shares outstanding for the period, plus an incremental number of
common-equivalent shares computed using the treasury stock method.
79
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
1. Business and Summary of Significant Accounting Policies − (continued)
Unvested share-based payment awards which include the right to receive non-forfeitable dividends are
considered to participate with common stock in undistributed earnings for purposes of computing EPS.
Restricted share grants and management stock purchase grants are considered participating securities for this
purpose. Accordingly, the Company is required to calculate basic and diluted EPS using the two-class method.
The calculation of EPS using the two-class method (i) excludes any dividends paid or owed on participating
securities and any undistributed earnings considered to be attributable to participating securities from the
numerator and (ii) excludes the dilutive impact of the participating securities from the denominator.
Effective September 30, 2016, the Company completed a three-for-two split of its common stock for
shareholders of record as of September 15, 2016. As a result, the Company has adjusted its weighted-average
shares outstanding, and basic and diluted EPS for the year ended December 31, 2015 and 2014 as presented
within Note 14 of the consolidated financial statements to account for the stock split. Refer to Note 13 of the
consolidated financial statements for further details of the three-for-two stock split.
Postretirement Plans. The Company sponsors various retirement plans for current and former
employees, including a postretirement health care plan and life insurance to certain eligible retired employees
and a SERP for certain officers of the Company. The cost of providing postretirement health care and life
insurance benefits is accrued during the active service period of the employee. The SERP is accrued on a
current basis and recognizes costs over the estimated employee service period.
Stock-Based Compensation. The fair value of restricted stock and stock options is determined on the
grant date. For restricted stock awards and units, compensation is recognized ratably over the requisite service
period equal to the fair value of the award. For stock option awards, the fair value is determined using the
Black-Scholes option-pricing model. Compensation expense for stock option awards is recognized ratably over
the requisite service period equal to the fair value of the award. For performance-based share awards, the
Company estimates the degree to which performance conditions will be met to determine the number of
shares that will vest and the related compensation expense. Compensation expense is adjusted in the period
such estimates change. Non-forfeitable dividends, if any, paid on shares of restricted stock are recorded to
retained earnings.
In the second quarter of 2016, the Company elected to early adopt ASU No. 2016-09,
Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting (‘‘ASU 2016-09’’), issued by the FASB in March 2016. The Company applied the provisions of
ASU 2016-09 effective as of January 1, 2016. Two of the more significant provisions of ASU 2016-09 that
impacted the Company’s consolidated financial statements were (i) the accounting for windfall tax benefits or
shortfalls within income tax expense as a discrete period item in the quarter the event occurred and (ii) a
policy election to not estimate the forfeiture rate on unvested share-based compensation awards. As a result of
the ASU adoption, net income for the year ended December 31, 2016 increased $697,000, and basic and
diluted EPS both increased $0.05 and $0.04 per share, respectively.
In accordance with ASU 2016-09, the Company applied the provisions to account for windfall tax
benefits or shortfalls within income tax expense on a prospective basis as of January 1, 2016. In accordance
with the ASU, the Company applied its policy election to not estimate the forfeiture rate on unvested
share-based compensation awards on a modified-retrospective basis. The impact of such resulted in a
reclassification of $72,000 from retained earnings to common stock shown as a cumulative effect adjustment
on the consolidated statements of changes in shareholders’ equity for the year ended December 31, 2016. The
other provisions of ASU 2016-09 did not have a material effect on the Company’s consolidated financial
statements.
Off-Balance Sheet Credit Related Financial Instruments.
In the ordinary course of business, the
Company enters into commitments to extend credit, including commercial letters of credit and standby letters
of credit. Such financial instruments are recorded as loans when they are funded.
80
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
1. Business and Summary of Significant Accounting Policies − (continued)
Derivative Financial Instruments Designated as Hedges. The Company recognizes all derivatives in
the consolidated statements of condition at fair value. On the date the Company enters into the derivative
contract, the Company designates the derivative as a hedge of either a forecasted transaction or 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 instrument (‘‘trading instrument’’). The Company formally documents relationships
between hedging instruments and hedged items, as well as its risk management objectives 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 effective in offsetting changes
in cash flows or fair values of hedged items. Changes in fair value of a derivative that is effective and that
qualifies as a cash flow hedge are recorded in OCI 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 effective. Those derivatives that are classified as trading instruments 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 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.
Segment Reporting. The Company, through its bank subsidiary, provides a broad range of financial
services to individuals and companies primarily in Maine. These services include lending, checking, savings
and time deposits, cash management, brokerage, wealth management and trust services. Substantially all of the
Company’s revenues, profits, and assets are derived by the Bank from banking products and services and,
therefore, the Company’s management did not provide the segment reporting disclosures as such was
determined to be immaterial.
Recent Accounting Pronouncements.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(‘‘ASU 2017-04’’). ASU 2017-04 was issued 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.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments (‘‘ASU 2016-13’’). ASU 2016-13 was issued 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.
While the Company continues to prepare for the adoption of ASU 2016-13 on January 1, 2020, it
anticipates the standard will have a material impact on the Company’s consolidated financial statements upon
adoption as it will require 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 will likely
result in an increase in the ALL upon adoption and may negatively impact the Company and Bank’s
regulatory capital ratios. Additionally, ASU 2016-13 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.
81
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
1. Business and Summary of Significant Accounting Policies − (continued)
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (‘‘ASU 2016-02’’).
ASU 2016-02 was issued 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 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, early application is permitted. The Company expects ASU 2016-02 will have
a material effect on its consolidated financial statements primarily due to the Bank’s existing lease agreements
for its banking centers. The Company continues to evaluate the impact of adoption of this standard.
In January 2016, the FASB issued ASU No. 2016-01, Income Statement — Financial Instruments — Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities (‘‘ASU 2016-01’’). ASU 2016-01
was issued to enhance the reporting model for financial instruments to provide the users of financial statements with
more useful information for decisions. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years.
The Company will adopt ASU 2016-01 effective January 1, 2018. Upon adoption, the Company will be
required to recognize unrealized gains and losses on its equity securities directly through the Company’s
consolidated statements of income, whereas these equity securities currently are designated as AFS and
unrealized gains and losses are recognized within AOCI. At December 31, 2016, the fair value of the
Company’s equity securities was $741,000 with a cost basis of $632,000. The Company does not anticipate
that portion of ASU 2016-01 will materially impact the Company’s financial position upon adoption.
ASU 2016-01 also requires Companies to utilize an ‘‘exit price’’ fair value methodology for purposes of
disclosing the fair value of financial assets and liabilities not measured and reported at fair value on a
recurring or non-recurring basis. The Company currently discloses the fair value of its loan portfolio segments
using an ‘‘entry price’’ fair value methodology (as disclosed within Note 19). The Company does not believe
ASU 2016-01 will materially affect its consolidated financial statements.
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date (‘‘ASU 2015-14’’). ASU 2015-14 was issued to defer the effective
date of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (‘‘ASU 2014-09’’), for all entities
by one year. ASU 2014-09 was issued to clarify the principles for recognizing revenue and to develop a
common revenue standard. ASU 2014-09 is now effective for annual reporting periods beginning after
December 15, 2017, including interim reporting periods within that reporting period.
Effective January 1, 2018, the Company will adopt ASU 2014-09 and, while it continues to evaluate the
potential impact of ASU 2014-09, it does not expect ASU 2014-09 will have a material effect on its
consolidated financial statements.
2. Mergers and Acquisitions
2016 Activity
On November 30, 2016, the Company completed its merger of Acadia Trust, the Company’s
wholly-owned subsidiary, into the Bank, also the Company’s wholly-owned subsidiary, and created a new
wealth management and trust division of the Bank, Camden National Wealth Management. The merger did not
qualify as a business combination and did not have any effect on the Company’s consolidated financial
condition.
2015 Activity (share, stock option and share price data have been adjusted for the three-for-two stock split
completed by the Company on September 30, 2016 — refer to Note 13)
On October 16, 2015, the Company completed its acquisition of 100% of SBM’s common stock. The
Merger qualified as a tax-free reorganization for federal income tax purposes and, pursuant to the terms and
82
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
2. Mergers and Acquisitions − (continued)
Merger Agreement, each share of SBM common stock outstanding at the effective time of the acquisition was
converted into the right to receive, at the election of the stockholder and subject to the allocation and
proration procedures described in the Merger Agreement, either: (1) $206.00 in cash, without interest or
(2) 8.132 shares of common stock of the Company; provided that 80% of the SBM shares outstanding
immediately prior to the effective time of the acquisition were converted into the right to receive common
stock of the Company and the remaining SBM shares were converted into the right to receive cash. The
total consideration paid by the Company was $136.7 million, consisting of (i) $26.1 million in cash;
(ii) 4,124,643 shares of Camden common stock valued at $108.6 million, based on the October 16, 2015
closing price of the Company’s common stock of $26.32 per share; and (iii) the fair value of 139,032
non-qualified stock options issued under the 2012 Plan of $2.0 million. Pursuant to the Merger Agreement, all
unexercised non-qualified stock options held by SBM option holders immediately vested upon completion of
the acquisition and were to roll into the Company’s non-qualified stock options using the 8.132 share
conversion ratio (rounded down to the nearest whole share). The non-qualified stock options issued under the
Company’s 2012 Plan maintained the same terms and conditions as previously held under SBM’s equity plan.
The fair value of the non-qualified stock options approximated the intrinsic value of the non-qualified stock
options at acquisition date.
The Merger complimented the Company’s existing footprint within Maine, while expanding its presence
in the higher growth Southern Maine market and into Massachusetts. In addition to providing incremental
market share and increasing its presence within Southern Maine, the acquisition improved the Company’s
interest rate risk exposure in a rising rate environment through a larger mix of variable rate loans
as percentage of total loans and additional core deposits (non-interest checking, interest checking, savings and
money market accounts).
The Company accounted for the Merger using the acquisition method. The acquisition method requires
the acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the
acquisition date (with limited exceptions), and does not provide for acquisition expenses to be capitalized as
part of the transaction.
For the year ended December 31, 2016, 2015 and 2014, the Company incurred $866,000, $10.4 million
and $0, respectively, of acquisition-related costs as detailed below:
Salaries and employee benefits(1)
. . . . . . . . . . . . . . . . . . . . .
Furniture, equipment and data processing . . . . . . . . . . . . . . . .
Net occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consulting and professional fees(2)
. . . . . . . . . . . . . . . . . . . .
Other expenses(3)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Total merger and acquisition costs
For The Year Ended December 31,
2015
2016
$ 3,240
8
$
1,531
279
1,237
439
2,453
80
1,954
60
$10,415
$866
2014
$—
—
—
—
—
$—
(1)
(2)
Includes the costs associated with pre-existing change-in-control agreements in place at the time of the
Merger and employee termination costs, including severance.
Includes the cost of a negotiated non-compete arrangement entered into in connection with the Merger of
$400,000 in 2015.
(3) Other expenses include marketing and insurance costs, certain contract termination costs, various printing
and mailing costs associated with various customer communications, and travel-related costs associated
with the integration of the two companies in 2015.
83
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
2. Mergers and Acquisitions − (continued)
Also in connection with the Merger, the Company incurred certain equity issuance costs totaling
$612,000 related to the registration of additional shares of the Company’s common stock. These costs have
been accounted for as a reduction to shareholders’ equity and have been presented as such within the
Company’s consolidated statements of changes in shareholders’ equity for the year ended December 31, 2015.
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as
of the date of the acquisition:
As
Acquired
Fair Value
Adjustments
(Previously
Reported)
Measurement-
Period
Adjustments
As Recorded
at Acquisition
Consideration Paid:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company common stock (4,124,643 shares at
$26.32 per share)
. . . . . . . . . . . . . . . . . .
Non-qualified stock options . . . . . . . . . . . . .
Total consideration paid . . . . . . . . . . . . . .
Recognized identifiable assets acquired and
liabilities assumed, at fair value:
Loans and loans held for sale . . . . . . . . . . . .
Cash and due from banks . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . .
Premises and equipment
. . . . . . . . . . . . . . .
OREO . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core deposit intangible assets . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . .
Deposits and borrowings . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Other liabilities
Total identified assets acquired and liabilities
assumed, at fair value . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
$639,390
86,042
39,716
26,293
16,851
2,530
—
5,421
719,640
8,512
$(11,497)
—
26
(1,177)
7,093
(1,801)
6,608
(170)
1,546
(198)
$ 88,091
$ (2,266)
$137
—
—
666
—
—
—
157
—
—
$960
$ 26,125
108,561
1,990
136,676
628,030
86,042
39,742
25,782
23,944
729
6,608
5,408
721,186
8,314
86,785
$ 49,891
The Company completed its purchase accounting for the Merger by June 30, 2016. In connection with
completion of its accounting for the acquisition, the Company made certain measurement-period adjustments
that decreased goodwill reported at December 31, 2015 by $960,000. The measurement-period adjustments did
not have a material effect on current year’s net income nor will it have a material effect on future years’ net
income. The Company accounted for the measurement period adjustment prospectively in 2016 in
accordance with ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments. Upon completion of purchase accounting, the Company recorded
$49.9 million of goodwill in connection with the Merger, which was allocated to the Company’s banking
reporting unit. The goodwill generated represents the synergies expected from combining operations of the
two organizations, including, but not limited to, systems conversion, consolidation of bank locations and
operation centers, and reduced headcount across operation teams. The goodwill generated from the transaction
is not deductible for tax purposes.
84
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
2. Mergers and Acquisitions − (continued)
Fair value adjustments to assets acquired and liabilities assumed are generally amortized using an
effective yield, straight-line basis, or other reasonable method consistent with the expected benefit over periods
consistent with the estimated useful life or contractual term of the related assets and liabilities.
3. Securities
The following tables summarize the amortized costs and estimated fair values of AFS and HTM
securities, as of the dates indicated:
December 31, 2016:
AFS Securities:
Obligations of states and political subdivisions . . . . . . . .
Mortgage-backed securities issued or guaranteed by
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
$ 8,848
$ 153
$
— $
9,001
U.S. government-sponsored enterprises . . . . . . . . . . . .
485,222
2,515
(7,115)
480,622
Collateralized mortgage obligations issued or guaranteed
by U.S. government-sponsored enterprises
. . . . . . . . .
Subordinated corporate bonds . . . . . . . . . . . . . . . . . . . .
Total AFS debt securities . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Total AFS securities
Equity securities
289,046
5,481
788,597
632
$789,229
265
132
3,065
109
$3,174
(5,421)
—
(12,536)
—
$(12,536)
283,890
5,613
779,126
741
$779,867
HTM Securities:
Obligations of states and political subdivisions . . . . . . . .
Total HTM securities . . . . . . . . . . . . . . . . . . . . . . . .
$ 94,609
$ 94,609
$ 618
$ 618
December 31, 2015:
AFS Securities:
Obligations of U.S. government-sponsored enterprises . . .
Obligations of states and political subdivisions . . . . . . . .
Mortgage-backed securities issued or guaranteed by
$
4,971
17,355
$
69
339
$
$
$
(631)
(631)
$ 94,596
$ 94,596
— $
—
5,040
17,694
U.S. government-sponsored enterprises . . . . . . . . . . . .
419,429
3,474
(3,857)
419,046
Collateralized mortgage obligations issued or guaranteed
by U.S. government-sponsored enterprises
. . . . . . . . .
Subordinated corporate bonds . . . . . . . . . . . . . . . . . . . .
Total AFS debt securities . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Total AFS securities
Equity securities
312,719
1,000
755,474
712
$756,186
409
—
4,291
2
$4,293
(6,271)
(4)
(10,132)
(9)
$(10,141)
306,857
996
749,633
705
$750,338
HTM Securities:
Obligations of states and political subdivisions . . . . . . . .
Total HTM securities . . . . . . . . . . . . . . . . . . . . . . . .
$ 84,144
$ 84,144
$1,564
$1,564
$
$
(61)
(61)
$ 85,647
$ 85,647
At December 31, 2016 and 2015, net unrealized losses on AFS securities included in AOCI amounted to
$6.1 million, net of a deferred tax benefit of $3.3 million, and $3.8 million, net of a deferred tax benefit of
$2.0 million, respectively.
Impaired Investment Securities
Management periodically reviews the Company’s investment portfolio 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
85
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
3. Securities − (continued)
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 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 of investment securities
that were in a continuous loss position at December 31, 2016 and 2015, by length of time that individual
securities in each category have been in a continuous loss position:
Less Than 12 Months
Fair
Value
Unrealized
Losses
12 Months or More
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
December 31, 2016:
AFS Securities:
Mortgage-backed securities
issued or guaranteed by
U.S. government-sponsored
enterprises . . . . . . . . . . . . . .
Collateralized mortgage
obligations issued or guaranteed
by U.S. government-sponsored
enterprises . . . . . . . . . . . . . .
Total AFS securities . . . . . . . .
HTM Securities:
Obligations of states and political
$348,579
$(5,780)
$ 29,496
$(1,335)
$378,075
$ (7,115)
163,412
$511,991
(2,906)
$(8,686)
74,212
$103,708
(2,515)
$(3,850)
237,624
$615,699
(5,421)
$(12,536)
subdivisions . . . . . . . . . . . . .
Total HTM securities . . . . . . .
$ 42,805
$ 42,805
$ (631)
$ (631)
$
$
—
—
$ —
$ —
$ 42,805
$ 42,805
$
$
(631)
(631)
December 31, 2015:
AFS Securities:
Mortgage-backed securities
issued or guaranteed by
U.S. government-sponsored
enterprises . . . . . . . . . . . . . .
Collateralized mortgage
obligations issued or guaranteed
by U.S. government-sponsored
enterprises . . . . . . . . . . . . . .
Subordinated corporate bonds . . .
Equity securities . . . . . . . . . . . .
Total AFS securities . . . . . . . .
HTM Securities:
Obligations of states and political
subdivisions . . . . . . . . . . . . .
Total HTM securities . . . . . . .
$234,897
$(2,351)
$ 45,629
$(1,506)
$280,526
$ (3,857)
111,143
996
615
$347,651
(1,068)
(4)
(9)
$(3,432)
147,180
—
—
$192,809
(5,203)
—
—
$(6,709)
258,323
996
615
$540,460
(6,271)
(4)
(9)
$(10,141)
$ 5,507
$ 5,507
$
$
(61)
(61)
$
$
—
—
$ —
$ —
$
$
5,507
5,507
$
$
(61)
(61)
At December 31, 2016 and 2015, the Company held 209 and 109 investment securities with a fair value
of $658.5 million and $546.0 million that were in an unrealized loss position totaling $13.2 million and
$10.2 million, respectively, that are considered temporary. Of these, MBS and CMOs with a fair value of
$103.7 million and $192.8 million were in an unrealized loss position, and have been in an unrealized loss
86
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
3. Securities − (continued)
position for 12 months or more totaling $3.9 million and $6.7 million at December 31, 2016 and 2015,
respectively. The decline in the fair value of the debt securities is reflective of current interest rates in excess
of the yield received on investments and was not indicative of an overall credit deterioration or other factors
with the Company’s investment portfolio. At December 31, 2016 and 2015, gross unrealized losses on the
Company’s AFS and HTM securities were 2% of the respective investment securities fair value.
The Company has the intent and ability to retain its investment securities in an unrealized loss position at
December 31, 2016 until the decline in value has recovered.
Security Gains and Losses and OTTI of Securities
The following table details the Company’s sales of AFS investment securities, the gross realized gains
and losses, and OTTI of securities:
Proceeds from sales of securities
. . . . . . . . . . . . . . .
Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . .
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . .
Previously recorded OTTI . . . . . . . . . . . . . . . . . . . .
For The Year Ended
December 31,
2015
$12,426
221
(217)
204
2014
$25,695
451
—
—
2016
$28,850
125
(74)
—
For the year ended December 31, 2016, 2015, and 2014, the Company sold certain AFS investment
securities with a total carrying value of $28.8 million, $12.4 million, and $25.2 million, respectively, to
manage its liquidity and interest rate risk, and recorded net gains on the sale of AFS securities of $51,000,
$4,000, and $451,000, respectively, within non-interest income in the consolidated statements of income. The
investments securities that were sold were primarily selected based on an assessment of their prepayment
speed.
FHLBB and FRB Stock
As of December 31, 2016 and 2015, the Company’s investment in FHLBB stock was $17.8 million and
$20.6 million, respectively. At December 31, 2016 and 2015, the Company’s investment in FRB stock was
$5.4 million and $908,000, respectively.
Securities Pledged
At December 31, 2016 and 2015, securities with an amortized cost of $597.3 million and $577.6 million,
respectively, and estimated fair values of $589.7 million and $570.9 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.
87
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
3. Securities − (continued)
Contractual Maturities
The amortized cost and estimated fair values of securities by contractual maturity at December 31, 2016
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.
AFS Securities
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after ten years
HTM Securities
Due after one year through five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after ten years
Amortized
Cost
Fair
Value
$ 1,034
86,362
129,521
571,680
$788,597
$
5,599
4,210
84,800
$ 94,609
$
1,039
86,299
129,248
562,540
$779,126
$
5,650
4,221
84,725
$ 94,596
4. Loans and Allowance for Loan Losses
The composition of the Company’s loan portfolio, excluding residential loans held for sale, at
December 31, 2016 and 2015 was as follows:
Residential real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home equity loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
HPFC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
$ 802,494
1,050,780
333,639
329,907
17,332
60,412
$2,594,564
2015
$ 820,617
927,951
297,721
348,634
17,953
77,330
$2,490,206
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) fees totaling:
Net unamortized fair value mark discount on acquired loans . . . . . . .
Net unamortized loan origination (costs) fees . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
$8,810
(66)
$8,744
2015
$13,083
370
$13,453
88
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
4. Loans and Allowance for Loan Losses − (continued)
The Bank’s lending activities are primarily conducted in Maine, and its footprint continues to expand into
other New England states, including New Hampshire and Massachusetts. 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. Unlike
the Bank’s loan portfolio, there is, generally, little to no indication of credit quality issues and/or concerns of
borrowers honoring their commitments until a payment is delinquent. Generally, once a payment is delinquent,
if the payment is not received shortly thereafter to bring the loan current, the loan is deemed impaired
(typically within 45 days). Effective February 19, 2016, the Company closed HPFC’s operations and is no
longer originating loans.
The Bank, in the normal course of business, has made loans to certain officers, directors and their
associated companies, under terms that are consistent with the Company’s lending policies and regulatory
requirements. Loans, including any unused lines of credit, to related parties were as follows:
Balance at beginning of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans made/advanced and additions . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments and reductions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year
December 31,
2016
$16,628
434
(1,120)
$15,942
2015
$17,469
374
(1,215)
$16,628
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.
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
89
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
4. Loans and Allowance for Loan Losses − (continued)
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 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, and/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, effective February 19, 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 terms range from seven to ten years.
90
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
4. Loans and Allowance for Loan Losses − (continued)
The following table presents the activity in the ALL and select loan information by portfolio segment for
the year ended December 31, 2016, 2015, and 2014:
Residential
Real Estate
Commercial
Real Estate Commercial
Home
Equity
Consumer
HPFC
Unallocated
Total
For The Year Ended December 31, 2016:
ALL:
Beginning balance . . . . . . . . . . . . . . . .
Loans charged off
. . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . .
Provision (credit)(1)
. . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . .
$ 4,545
(356)
95
(124)
$ 4,160
ALL balance attributable loans:
Individually evaluated for impairment
. .
. .
Collectively evaluated for impairment
Total ending ALL . . . . . . . . . . . . . . . .
$
483
3,677
$ 4,160
$
$
$
$
10,432
(315)
50
1,987
12,154
1,373
10,781
12,154
$
$
$
$
Loans:
3,241
(2,218)
332
2,400
3,755
$
$
2,731
(308)
2
(231)
2,194
$
$
193
(101)
7
82
181
$
$
24
(507)
—
1,155
672
$ — $
—
—
—
$ — $
21,166
(3,805)
486
5,269
23,116
— $
3,755
3,755
$
86
2,108
2,194
$ — $
181
181
$
$
65
607
672
$ — $
—
$ — $
2,007
21,109
23,116
. .
Individually evaluated for impairment
Collectively evaluated for impairment
. .
Total loan balances . . . . . . . . . . . . . . .
$ 4,348
798,146
$802,494
$
13,317
1,037,463
$1,050,780
$
2,028
331,611
$333,639
$
457
329,450
$329,907
$
7
17,325
$17,332
$
97
60,315
$60,412
$ — $
—
20,254
2,574,310
$ — $2,594,564
For The Year Ended December 31, 2015:
ALL:
Beginning balance . . . . . . . . . . . . . . . .
Loans charged off
. . . . . . . . . . . . . .
Recoveries . . . . . . . . . . . . . . . . . . .
Provision (credit)(1)
. . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . .
$ 4,899
(801)
55
392
$ 4,545
ALL balance attributable loans:
. .
Individually evaluated for impairment
Collectively evaluated for impairment
. .
Total ending ALL . . . . . . . . . . . . . . . .
$
544
4,001
$ 4,545
Loans:
$
$
$
$
7,951
(481)
74
2,888
10,432
644
9,788
10,432
$
$
$
$
3,354
(655)
389
153
3,241
92
3,149
3,241
$
$
$
$
2,247
(525)
188
821
2,731
89
2,642
2,731
$
$
281
(154)
22
44
193
$ —
—
—
24
24
$
$
$ 2,384
—
—
(2,384)
$ — $
21,116
(2,616)
728
1,938
21,166
$ — $ —
24
24
193
193
$
$
$ — $
—
$ — $
1,369
19,797
21,166
. .
Individually evaluated for impairment
Collectively evaluated for impairment
. .
Total loan balances . . . . . . . . . . . . . . .
$ 6,026
814,591
$820,617
$
4,610
923,341
$ 927,951
$
3,937
293,784
$297,721
$
588
348,046
$348,634
$
74
17,879
$17,953
$ —
77,330
$77,330
$ — $
—
15,235
2,474,971
$ — $2,490,206
91
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
4. Loans and Allowance for Loan Losses − (continued)
Residential
Real Estate
Commercial
Real Estate Commercial
Home
Equity
Consumer
HPFC
Unallocated
Total
For The Year Ended December 31, 2014:
ALL:
Beginning balance . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Loans charged off
Recoveries . . . . . . . . . . . . . . . . . . .
Provision (credit)(1)
. . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . .
$ 5,603
(785)
165
(84)
$ 4,899
$ 7,206
(361)
136
970
7,951
$
ALL balance attributable loans:
. .
Individually evaluated for impairment
Collectively evaluated for impairment
. .
Total ending ALL . . . . . . . . . . . . . . . .
$
787
4,112
$ 4,899
$
$
78
7,873
7,951
$
$
$
$
3,388
(1,544)
394
1,116
3,354
10
3,344
3,354
$
$
$
$
2,403
(611)
19
436
2,247
$
$
319
(143)
32
73
281
— $
2,247
2,247
$
78
203
281
Loans:
. .
Individually evaluated for impairment
Collectively evaluated for impairment
. .
Total loan balances . . . . . . . . . . . . . . .
$
6,411
579,057
$585,468
$ 5,379
635,282
$640,661
$
646
256,869
$257,515
$
331
271,378
$271,709
$
157
17,100
$17,257
$—
—
—
—
$—
$—
—
$—
$—
—
$—
$2,671
—
—
(287)
$2,384
$ —
2,384
$2,384
$ —
—
$ —
$
$
$
$
21,590
(3,444)
746
2,224
21,116
953
20,163
21,116
$
12,924
1,759,686
$1,772,610
(1) The provision (credit) for loan losses excludes any impact for the change in the reserve for unfunded
commitments, which represents management’s estimate of the amount required to reflect the probable
inherent losses on outstanding letters of credit and unused lines of credit. The reserve for unfunded
commitments is presented within accrued interest and other liabilities on the consolidated statements of
condition. At December 31, 2016, 2015, and 2014, the reserve for unfunded commitments was $11,000,
$22,000 and $17,000, respectively.
The following table reconciles the year ended December 31, 2016, 2015, and 2014 provision for loan
losses to the provision for credit losses as presented on the consolidated statement of income:
Provision for loan losses . . . . . . . . . . . . . . . . . . . . .
Change in reserve for unfunded commitments . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . .
For the Year Ended
December 31,
2015
$1,938
(2)
$1,936
2016
$5,269
(11)
$5,258
2014
$2,224
(4)
$2,220
The Company did not have any significant changes to its ALL methodology for the year ended
December 31, 2016. In the fourth quarter of 2015, the Company revised its methodology for the ALL whereby
it no longer provided for an unallocated reserve, but, instead, incorporated the qualitative factors into the
Company’s general reserve. Historically, the unallocated reserve served as a method to account for qualitative
risks, including general economic and market risks, within its portfolio without specifically assigning to any
one or more portfolio segments. At December 31, 2016 and 2015, the Company’s reported unallocated reserve
was $0. The change in methodology did not have any impact on the Company’s reported ALL or provision for
loan losses at or for the year ended December 31, 2015.
The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts,
it is recognized that credit concentrations may occasionally emerge as a result of economic conditions,
changes in local demand, natural loan growth and runoff. To ensure that credit concentrations can be
effectively identified, all commercial and commercial real estate loans are assigned Standard Industrial
Classification codes, North American Industry Classification System codes, and state and county codes. Shifts
92
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
4. Loans and Allowance for Loan Losses − (continued)
in portfolio concentrations are monitored by Credit Risk Administration. As of December 31, 2016, the
non-residential building operators’ industry concentration was 12% of the Company’s total loan portfolio and
31% of the total commercial real estate portfolio. There were no other industry concentrations exceeding 10%
of the Company’s total loan portfolio as of December 31, 2016.
To further identify loans with similar risk profiles, the Company categorizes each portfolio segment into
classes by credit risk characteristic and applies a credit quality indicator to each portfolio segment. The
indicators for commercial, commercial real estate and residential real estate loans are represented by Grades 1
through 10 as outlined below. In general, risk ratings are adjusted periodically throughout the year as updated
analysis and review warrants. This process may include, but is not limited to, annual credit and loan reviews,
periodic reviews of loan performance metrics, such as delinquency rates, and quarterly reviews of adversely
risk rated loans. The Company uses the following definitions when assessing grades for the purpose of
evaluating the risk and adequacy of the ALL:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Grade 1 through 6 — Grades 1 through 6 represent groups of loans that are not subject to adverse
criticism as defined in regulatory guidance. Loans in these groups exhibit characteristics that
represent low to moderate risks, which is measured using a variety of credit risk criteria, such as
cash flow coverage, debt service coverage, balance sheet leverage, liquidity, management experience,
industry position, prevailing economic conditions, support from secondary sources of repayment and
other credit factors that may be relevant to a specific loan. In general, these loans are supported by
properly margined collateral and guarantees of principal parties.
Grade 7 — Loans with potential weakness (Special Mention). Loans in this category are currently
protected based on collateral and repayment capacity and do not constitute undesirable credit risk,
but have potential weakness that may result in deterioration of the repayment process at some future
date. This classification is used if a negative trend is evident in the obligor’s financial situation.
Special mention loans do not sufficiently expose the Company to warrant adverse classification.
Grade 8 — Loans with definite weakness (Substandard). Loans classified as substandard are
inadequately protected by the current sound worth and paying capacity of the obligor or by collateral
pledged. Borrowers experience difficulty in meeting debt repayment requirements. Deterioration is
sufficient to cause the Company to look to the sale of collateral.
Grade 9 — Loans with potential loss (Doubtful). Loans classified as doubtful have all the
weaknesses inherent in the substandard grade with the added characteristic that the weaknesses make
collection or liquidation of the loan in full highly questionable and improbable. The possibility of
some loss is extremely high, but because of specific pending factors that may work to the advantage
and strengthening of the asset, its classification as an estimated loss is deferred until its more exact
status may be determined.
Grade 10 — Loans with definite loss (Loss). Loans classified as loss are considered uncollectible.
The loss classification does not mean that the asset has absolutely no recovery or salvage value, but
rather that it is not practical or desirable to defer writing off the asset because recovery and
collection time may be protracted.
Asset quality indicators are periodically reassessed to appropriately reflect the risk composition of the
Company’s loan portfolio. Home equity and consumer loans are not individually risk rated, but rather
analyzed as groups taking into account delinquency rates and other economic conditions which may affect the
ability of borrowers to meet debt service requirements, including interest rates and energy costs. Performing
loans include loans that are current and loans that are past due less than 90 days. Loans that are past due over
90 days and non-accrual loans, including TDRs, are considered non-performing.
93
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
4. Loans and Allowance for Loan Losses − (continued)
The following table summarizes credit risk exposure indicators by portfolio segment as of the following
dates:
Residential
Real Estate
Commercial
Real Estate
Commercial
Home Equity
Consumer
HPFC
Total
December 31, 2016:
Pass (Grades 1 − 6) . . . . . . . .
Performing . . . . . . . . . . . . . .
Special Mention (Grade 7) . . .
Substandard (Grade 8) . . . . . .
Doubtful (Grade 9) . . . . . . . .
Non-performing . . . . . . . . . .
. . . . . . . . . . . . . . . .
Total
December 31, 2015:
Pass (Grades 1 − 6) . . . . . . . .
Performing . . . . . . . . . . . . . .
Special Mention (Grade 7) . . .
Substandard (Grade 8) . . . . . .
Non-performing . . . . . . . . . .
. . . . . . . . . . . . . . . .
Total
$789,554
—
2,387
10,553
—
—
$802,494
$802,873
—
3,282
14,462
—
$820,617
$1,003,386
—
5,724
41,670
—
—
$1,050,780
$ 868,664
—
20,732
38,555
—
$ 927,951
$321,148
—
5,598
5,437
1,456
—
$333,639
$281,553
—
7,527
8,641
—
$297,721
$
—
328,287
—
—
—
1,620
$329,907
$
—
346,701
—
—
1,933
$348,634
$ —
17,328
—
—
—
4
$17,332
$ —
17,835
—
—
118
$17,953
$58,943
—
257
1,212
—
—
$60,412
$70,173
—
3,179
3,978
—
$77,330
$2,173,031
345,615
13,966
58,872
1,456
1,624
$2,594,564
$2,023,263
364,536
34,720
65,636
2,051
$2,490,206
The Company closely monitors the performance of its loan portfolio for both the Bank and HPFC. A loan
is placed on non-accrual status when the financial condition of the borrower is deteriorating, payment in full
of both principal and interest is not expected as scheduled or principal or interest has been in default for
90 days or more. Exceptions may be made if the asset is well-secured by collateral sufficient to satisfy both
the principal and accrued interest in full and collection is reasonably assured. When one loan to a borrower is
placed on non-accrual status, all other loans to the borrower are re-evaluated to determine if they should also
be placed on non-accrual status. All previously accrued and unpaid interest is reversed at this time. A loan will
return to accrual status when collection of principal and interest is assured and the borrower has demonstrated
timely payments of principal and interest for a reasonable period. Unsecured loans, however, are not normally
placed on non-accrual status because they are charged-off once their collectability is in doubt.
The following is a loan aging analysis by portfolio segment (including loans past due over 90 days and
non-accrual loans) and a summary of non-accrual loans, which include TDRs, and loans past due over 90 days
and accruing as of the following dates:
30 − 59
Days Past
Due
60 − 89
Days Past
Due
Greater
Than
90 Days
Total Past
Due
Current
Total Loans
Outstanding
Loans > 90
Days Past
Due and
Accruing
Non-Accrual
Loans
December 31, 2016:
Residential real estate . .
Commercial real estate . .
Commercial
. . . . . . . .
Home equity . . . . . . .
Consumer
. . . . . . . . .
HPFC . . . . . . . . . . . .
Total . . . . . . . . . . .
$1,783
855
633
892
38
438
$4,639
$ 924
223
218
134
—
688
$2,187
$ 2,904
12,625
1,675
1,321
4
110
$18,639
$ 5,611
13,703
2,526
2,347
42
1,236
$25,465
$ 796,883 $ 802,494
1,050,780
1,037,077
333,639
331,113
329,907
327,560
17,332
17,290
60,412
59,176
$2,569,099 $2,594,564
$—
—
—
—
—
—
$—
$ 3,945
12,849
2,088
1,620
4
207
$20,713
94
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
4. Loans and Allowance for Loan Losses − (continued)
30 − 59
Days Past
Due
60 − 89
Days Past
Due
Greater
Than 90
Days
Total Past
Due
Current
Total Loans
Outstanding
Loans > 90
Days Past
Due and
Accruing
Non-Accrual
Loans
December 31, 2015:
Residential real estate . .
Commercial real estate . .
Commercial
. . . . . . . .
Home equity . . . . . . .
Consumer
. . . . . . . . .
HPFC . . . . . . . . . . . .
Total . . . . . . . . . . .
$3,325
4,219
267
643
112
165
$8,731
$ 571
2,427
550
640
7
—
$4,195
$ 6,077
1,584
1,002
1,505
118
—
$10,286
$ 9,973
8,230
1,819
2,788
237
165
$23,212
$ 810,644 $ 820,617
927,951
297,721
348,634
17,953
77,330
$2,466,994 $2,490,206
919,721
295,902
345,846
17,716
77,165
$—
—
—
—
—
—
$—
$ 7,253
4,529
4,489
1,933
118
—
$18,322
Interest income that would have been recognized if loans on non-accrual status had been current in
accordance with their original terms for the year ended December 31, 2016, 2015, and 2014 was $888,000,
$586,000, and $842,000, respectively.
TDRs:
The Company takes a conservative approach with credit risk management and remains focused on
community lending and reinvesting. The Company works closely with borrowers experiencing credit problems
to assist in loan repayment or term modifications. TDR loans consist of loans where the Company, for
economic or legal reasons related to the borrower’s financial difficulties, granted a concession to the borrower
that it would not otherwise consider. TDRs, typically, involve term modifications or a reduction of either
interest or principal. Once such an obligation has been restructured, it will remain a TDR until paid in full, or
until the loan is again restructured at current market rates and no concessions are granted.
The specific reserve allowance was determined by discounting the total expected future cash flows from
the borrower at the original loan interest rate, or if the loan is currently collateral-dependent, using the NRV,
which was obtained through independent appraisals and internal evaluations. The following is a summary of
TDRs, by portfolio segment, and the associated specific reserve included within the ALL as of December 31:
Residential real estate . . . . . . . . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer and home equity . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Contracts Recorded Investment
2016
21
3
10
1
35
2015
22
6
9
1
38
2016
$3,221
1,008
1,502
16
$5,747
2015
$3,398
1,459
399
21
$5,277
Specific Reserve
2015
2016
$544
$483
48
—
11
—
—
—
$603
$483
At December 31, 2016, the Company had performing and non-performing TDRs with a recorded
investment balance of $4.3 million and $1.4 million, respectively. At December 31, 2015, the Company had
performing and non-performing TDRs with a recorded investment balance of $4.8 million and $446,000,
respectively.
95
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
4. Loans and Allowance for Loan Losses − (continued)
The following represents loan modifications that occurred for the year ended December 31, 2016, 2015
and 2014 that qualify as TDRs and the type of loan modification made by portfolio segment at December 31:
Number of Contracts
2015
2014
2016
Pre-Modification
Outstanding Recorded
Investment
2015
2014
2016
Post-Modification
Outstanding Recorded
Investment
2015
2014
2016
Specific Reserve
2015
2014
2016
Residential real estate:
Maturity concession . . . . . —
Court ordered . . . . . . . . . —
Commercial real estate:
Maturity concession . . . . . —
Commercial:
Maturity concession . . . . .
6
Court ordered . . . . . . . . . —
Home equity:
Principal forgiveness and
maturity . . . . . . . . . . . —
6
. . . . . . . . . . . . .
Total
—
1
—
—
—
—
1
1
—
1
—
3
1
6
$ — $—
74
—
$136
—
$ — $—
78
—
$149
—
$ — $—
27
—
$43
—
—
2,973
—
—
—
—
235
—
—
77
2,973
—
—
—
—
235
—
—
77
1,400
—
—
—
—
—
—
6
—
$2,973
—
$74
40
$488
—
$2,973
—
$78
30
$491
—
$1,400
—
$27
—
$49
During the third quarter of 2016, the Company completed the restructure of one commercial relationship
for which there were six individual commercial loans. The Company had a specific reserve on these loans
totaling $1.4 million that was charged-off subsequent to the loan modification. Additionally, as part of the
restructure, the Company committed to lend additional funds of up to $280,000, and, at December 31, 2016,
the Company had loaned $47,000 on its commitment. The Company did not have any other commitments to
lend additional funds to borrowers with loans classified as TDRs as of December 31, 2016.
For the year ended December 31, 2016, 2015 and 2014, the Company did not have any loans that had
been modified as a TDR within the previous 12 months and for which the borrower subsequently defaulted for
the periods indicated.
Impaired Loans:
Impaired loans consist of non-accrual and TDR loans that are individually evaluated for impairment in
accordance with the Company’s policy. The following is a summary of impaired loan balances and the
associated allowance by portfolio segment as of and for the year ended December 31, 2016, 2015 and 2014:
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
December 31, 2016:
With related allowance recorded:
Residential real estate . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . .
HPFC . . . . . . . . . . . . . . . . . . . . . . .
Ending Balance . . . . . . . . . . . . . . . . . .
$ 3,019
11,443
—
299
—
97
14,858
$ 3,019
11,443
—
299
—
97
14,858
$ 483
1,373
—
86
—
65
2,007
$3,088
5,165
762
305
—
98
9,418
$106
—
—
—
—
—
106
96
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
4. Loans and Allowance for Loan Losses − (continued)
Without related allowance recorded:
Residential real estate . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . .
HPFC . . . . . . . . . . . . . . . . . . . . . . .
Ending Balance . . . . . . . . . . . . . . . . . .
Total impaired loans . . . . . . . . . . . . .
December 31, 2015:
With related allowance recorded:
Residential real estate . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . .
HPFC . . . . . . . . . . . . . . . . . . . . . . .
Ending Balance . . . . . . . . . . . . . . . . . .
Without related allowance recorded:
Residential real estate . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . .
HPFC . . . . . . . . . . . . . . . . . . . . . . .
Ending Balance . . . . . . . . . . . . . . . . . .
Total impaired loans . . . . . . . . . . . . .
December 31, 2014:
With related allowance recorded:
Residential real estate . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . .
Ending Balance . . . . . . . . . . . . . . . . . .
Without related allowance recorded:
Residential real estate . . . . . . . . . . . .
Commercial real estate . . . . . . . . . . .
Commercial . . . . . . . . . . . . . . . . . . .
Home equity . . . . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . .
Ending Balance . . . . . . . . . . . . . . . . . .
Total impaired loans . . . . . . . . . . . . .
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
—
—
—
—
—
—
—
$2,007
$ 544
644
92
89
—
—
1,369
—
—
—
—
—
—
—
$1,369
$ 787
78
10
—
78
953
—
—
—
—
—
—
$ 953
2,057
2,214
2,507
180
12
—
6,970
$16,388
$ 6,064
1,753
945
900
195
—
9,857
2,175
2,719
1,412
369
20
—
6,695
$16,552
$ 9,254
4,721
2,366
1,428
348
18,117
2,257
2,869
791
399
21
6,337
$24,454
9
51
16
—
—
—
76
$182
$112
—
2
—
—
—
114
8
65
17
—
—
—
90
$204
$125
—
8
—
—
133
7
40
11
—
—
58
$191
Unpaid
Principal
Balance
1,800
2,369
3,209
368
10
—
7,756
$22,614
$ 3,191
1,857
156
303
—
—
5,507
4,353
3,426
4,325
688
150
—
12,942
$18,449
$ 4,468
1,140
183
—
140
5,931
2,604
4,502
606
581
37
8,330
$14,261
Recorded
Investment
1,329
1,874
2,028
158
7
—
5,396
$20,254
$ 3,191
1,825
156
303
—
—
5,475
2,835
2,785
3,781
285
74
—
9,760
$15,235
$ 4,468
1,140
183
—
140
5,931
1,943
4,239
463
331
17
6,993
$12,924
97
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
4. Loans and Allowance for Loan Losses − (continued)
The impaired loan information presented above as of and for the year ended December 31, 2015 and
2014 has been revised to disclose only those impaired loans that are individually evaluated for impairment in
accordance with the Company’s policy, which includes (i) loans with a principal balance greater than
$250,000 or more and are classified as substandard or doubtful and are on non-accrual status and (ii) all
TDRs. Previously, the Company’s impaired loan disclosures included certain non-accrual loans which were
collectively evaluated under ASC 450-20. The revision of prior period information had no impact on the
Company’s ALL, provision for loan losses, or its asset quality ratios as of and for the year ended
December 31, 2015 and 2014.
In-Process Foreclosure Proceedings:
At December 31, 2016 and 2015, the Company had $1.4 million and $2.9 million of consumer mortgage
loans secured by residential real estate properties for which foreclosure proceedings were in process. The
Company continues to be focused on working these consumer mortgage loans through the foreclosure process
to resolution; however, the foreclosure process, typically, will take 18 to 24 months due to the State of Maine
foreclosure laws.
5. Goodwill
The changes in goodwill for the year ended December 31, 2016 and 2015 for each reporting unit are
shown in the table below:
December 31, 2014:
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Reported goodwill
2015 activity(1)
December 31, 2015:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Accumulated impairment losses . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Reported goodwill
2016 activity(1)
Banking
$40,902
—
40,902
50,851
91,753
—
91,753
(960)
December 31, 2016:
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Reported goodwill
90,793
—
$90,793
Financial
Services
$ 7,474
(3,570)
3,904
—
7,474
(3,570)
3,904
—
7,474
(3,570)
$ 3,904
Total
$48,376
(3,570)
44,806
50,851
99,227
(3,570)
95,657
(960)
98,267
(3,570)
$94,697
(1) On October 16, 2015, the Company completed the Merger and goodwill of $49.9 million after recording
a measurement-period adjustment decreasing goodwill of $960,000 in 2016 upon completion of purchase
accounting. Refer to Note 2 for additional details and discussion.
The Company performs its annual goodwill impairment assessment as of November 30th, and at interim
periods if indicators of potential impairment exist. The Company completed its annual goodwill impairment
test as of November 30, 2016, 2015 and 2014 for each reporting unit and determined there was no goodwill
impairment.
98
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
6. Other Intangible Assets
The changes in core deposit intangible and trust relationship intangible assets for the year ended
December 31, 2016 and 2015 are shown in the table below:
Core Deposit Intangible
Accumulated
Amortization
Gross
Net
Trust Relationship Intangible
Accumulated
Amortization
Net
Gross
Total
Balance at December 31,
2014 . . . . . . . . . . . . . . . . $17,300
6,608
2015 activity . . . . . . . . . .
$(14,161)
(1,231)
$ 3,139
5,377
$753
—
$(527)
(75)
$226
(75)
$ 3,365
5,302
Balance at December 31,
2015 . . . . . . . . . . . . . . . .
2016 activity . . . . . . . . . .
23,908
—
(15,392)
(1,828)
8,516
(1,828)
753
—
(602)
(75)
151
(75)
8,667
(1,903)
Balance at December 31,
2016 . . . . . . . . . . . . . . . . $23,908
$(17,220)
$ 6,688
$753
$(677)
$ 76
$ 6,764
On October 16, 2015, the Company completed the Merger and, in doing so, recorded core deposit
intangible assets of $6.6 million. The core deposit intangible assets will amortize over a 10 year period using
an accelerated depreciation method that aligns with the estimated economic benefit of the asset.
For the year ended December 31, 2016, 2015 and 2014, the Company recorded amortization expense of
$1.9 million, $1.3 million and $1.1 million, respectively.
The following table reflects the expected amortization schedule for intangible assets over the period of
estimated economic benefit (assuming no additional intangible assets are created or impaired):
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core Deposit
Intangible
$1,735
725
705
682
655
2,186
$6,688
Trust
Relationship
Intangible
$76
—
—
—
—
—
$76
Total
$1,811
725
705
682
655
2,186
$6,764
7. Premises and Equipment
Details of premises and equipment, at cost, at December 31, were as follows:
Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Buildings and leasehold improvements
. . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . .
Net premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
$ 3,012
36,958
34,043
74,013
(31,140)
$ 42,873
2015
$ 3,102
37,926
35,083
76,111
(30,152)
$ 45,959
99
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
7. Premises and Equipment − (continued)
Depreciation and amortization expense for the Company for periods indicated were as follows:
Fixed Asset Type
Equipment and data . .
Premises . . . . . . . . .
Software . . . . . . . . .
Equipment, data and
Income Statement Line Item
Furniture, equipment and data processing
Net occupancy costs
Furniture, equipment and data processing
premises
Total . . . . . . . . . .
. . . . . . . Merger and acquisition costs
For The Year Ended
December 31,
2015
$1,620
1,140
337
517
$3,614
2014
$1,713
1,003
335
—
$3,051
2016
$1,942
1,757
275
452
$4,426
At December 31, 2016 and 2015, the Company has capitalized software costs of $3.6 million and
$3.8 million, respectively, and related accumulated depreciation expense of $3.2 million and $3.3 million,
respectively, and was presented within other assets on the consolidated statements of condition.
Included in merger and acquisition costs on the consolidated statements of income for the year ended
December 31, 2015 was $1.1 million of fixed asset disposal costs incurred as a result of the Merger.
The Company did not have any material gains or losses from the sale of premises and equipment for the
year ended December 31, 2016, 2015 or 2014.
The Company enters into noncancellable lease arrangements primarily for its office buildings and branch
facilities. Certain lease arrangements contain clauses requiring increasing rental payments over the lease term,
which may be indexed to an index (commonly the Consumer Price Index) or the increases may be
contractually stipulated. Furthermore, many of these lease arrangements provide the Company with the option
to renew the lease arrangement after the initial lease term. The Company incurred expenses of $1.8 million,
$1.7 million and $1.2 million for the year ended December 31, 2016, 2015 and 2014, respectively, associated
with its operating lease arrangements.
The Company has one capital lease for a branch facility with payments that extend until 2026 at an
interest rate of 9.75% per year. The capital lease, recorded in premises and equipment, has a cost basis of
$855,000 at December 31, 2016 and 2015 and accumulated depreciation of $459,000 and $416,000 at
December 31, 2016 and 2015, respectively. The associated depreciation expense was reported within net
occupancy costs on the consolidated statements of income.
In connection with the Merger, the Company assumed a lease arrangement between SBM’s wholly-owned
subsidiary, The Bank of Maine, and two of its employees. The lease is for a period of five years with an
expiration date of December 1, 2019 with two consecutive five year extension periods available at the option
of the Company. The lease arrangement contains certain termination clauses whereby the Company has the
right to terminate the lease arrangement should the employees be terminated and/or certain mortgage loan
production metrics not be met over a consecutive 12 month period.
100
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
7. Premises and Equipment − (continued)
At December 31, 2016, under current operating and capital lease contracts, the Company had the
following schedule of future minimum lease payments:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: amount representing interest(1)
. . . . . . . . . . . . . . . . . . . . . . .
Present value of net minimum lease payments(2)
. . . . . . . . . . . . . . .
Operating
$1,427
1,186
1,144
644
447
1,783
$6,631
Capital
$ 126
126
126
126
130
555
1,189
331
$ 858
(1) Amount necessary to reduce net minimum lease payments to present value calculated at the Company’s
incremental borrowing rate at lease inception.
(2) Reflects the liability reported within short- and long-term borrowings on the consolidated statements of
condition. At December 31, 2016 and 2015, the capital lease liability was $858,000 and $922,000,
respectively.
8. Mortgage Banking
Residential real estate mortgages are originated by the Company both for its portfolio and for sale into
the secondary market. The transfer of these financial assets is accounted for as sales when control over the
assets has been surrendered. Control over transferred assets is deemed to be surrendered when (i) the assets
have been isolated from the Company, (ii) the transferee obtains the right (free of conditions that constrain it
from taking advantage of that right) to pledge or exchange the transferred assets, and (ii) the Company does
not maintain effective control over the transferred assets through an agreement to repurchase them before their
maturity. The Company may sell its loans to institutional investors and may do so on either a servicing rights
released basis or servicing rights retained basis. Should the Company enter into an agreement with the
investor to retain or acquire the servicing rights, the Company will record a servicing asset. The Company
will enter into an agreement with the investor to pay an agreed-upon rate on the loan, which is less than the
interest rate received from the borrower. The Company will retain the difference as a fee for servicing the
loan. The Company will capitalize the MSR at fair value within other assets on the statements of condition
upon sale of the related loan, and subsequently amortize the asset over the estimated life of the serviced loan
and assesses quarterly the asset for impairment. For the year ended December 31, 2016, 2015 and 2014, the
Company earned servicing fee income for its servicing assets of $1.1 million, $597,000 and $484,000,
respectively, and was presented in mortgage banking income, net on the consolidated statements of income.
For the year ended December 31, 2016, 2015 and 2014, the Company sold $232.2 million, $61.2 million
and $799,000, respectively, of residential mortgage loans on the secondary market, which resulted in a net
gain on sale of loans (net of costs, including direct and indirect origination costs) of $6.2 million,
$1.3 million, and $31,000, respectively. Additionally, at December 31, 2016 and 2015, the Company had
identified and designated loans with an unpaid principal balance of $15.1 million and $10.8 million,
respectively, as held for sale. The Company elected the fair value option for its loans designated as held for
sale, and at December 31, 2016, the unrealized loss was $289,000 and at December 31, 2015 the unrealized
gain was $133,000. The unrealized gain or loss on its loans held for sale portfolio is driven by changes in
market interest rates and is not impacted by credit quality risks associated with the borrower due to the
short-term duration between time of closing and funding of the loan and sale. Included within the Company’s
101
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
8. Mortgage Banking − (continued)
mortgage banking income, net on its consolidated statements of income for the year ended December 31,
2016, 2015 and 2014 was the change in unrealized gains (losses) on loans held for sale of ($422,000),
$133,000 and $0, respectively. The Company mitigates its interest rate exposure on its loans designated as
held for sale through forward delivery commitments with investors at the onset of the mortgage origination
process, typically on a ‘‘best-efforts’’ basis, with certain approved investors. Refer to Note 18 for further
discussion of the Company’s forward delivery commitments at December 31, 2016 and 2015 and the
offsetting gain (losses) recorded on loans held for sale.
The Company’s MSRs, net of a valuation allowance, included in other assets on the consolidated
statements of condition at December 31, 2016 and 2015 was $1.2 million and $2.2 million, respectively.
The Company obtains third party valuations based on loan level data stratified by note rate, type and
term of the underlying loans to determine MSR amortization and valuation. The model utilizes a variety of
assumptions, the most significant of which are loan prepayment assumptions and the discount rate used to
discount future cash flows. Prepayment assumptions, which are impacted by loan rates and terms, are
calculated using a three-month moving average of weekly prepayment data published by the Public Securities
Association and modeled against the serviced loan portfolio by the third party valuation specialist. The
discount rate is the quarterly average 10-year U.S. Treasury rate plus a risk premium. At December 31, 2016
and 2015, the prepayment assumption used within the model was 14.6% and 11.0%, respectively, and the
discount rate was 7.8% and 7.5%. The estimated effect of a 10% and 20% adverse change to the prepayment
assumption at December 31, 2016 was a decrease of $97,000 and $185,000, respectively, while a 10% and
20% adverse change to the discount rate assumption was a decrease of $57,000 and $111,000. Other
assumptions include delinquency rates, foreclosure rates, servicing cost inflation, and annual unit loan cost.
All assumptions are adjusted periodically to reflect current circumstances.
The following summarizes MSRs capitalized and amortized, along with the activity in the related
valuation allowance:
MSRs:
Balance at beginning of year
Capitalized servicing right fees upon sale(1)
Acquired in connection with SBM acquisition, at fair
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . .
As of and For The Year Ended
December 31,
2015
2014
2016
$2,161
9
$ 493
294
$ 726
15
value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,608
—
Amortization charged against mortgage servicing fee
income(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation adjustment
(734)
(226)
$1,210
(231)
(3)
$2,161
Valuation Allowance:
Balance at beginning of year
. . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in impairment reserve(1) . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value, beginning of year(2) . . . . . . . . . . . . . . . . . . . . . . .
Fair value, end of year(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(4)
(226)
$ (230)
$2,947
$1,701
$
(1)
(3)
(4)
$
$1,447
$2,947
(262)
14
$ 493
$ (15)
14
(1)
$
$1,494
$1,447
(1) Reported within mortgage banking income, net on the Company’s consolidated statements of income.
(2) Reported fair value represents all MSRs currently being serviced by the Company.
102
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
8. Mortgage Banking − (continued)
Mortgage loans serviced for third party investors, including mortgage loans where the Company serves as
the sub-servicer for which it does not have a corresponding servicing right asset, are not included within the
Company’s loan portfolio on its consolidated statements of condition. The unpaid principal balance on
mortgage loans serviced for investors at December 31, 2016 and 2015 was $930.8 million and $963.0 million,
respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing for
investors, and included in demand deposits on the Company’s consolidated statements of condition, were
$11.9 million and $7.1 million at December 31, 2016 and 2015, respectively.
For the year ended December 31, 2016, 2015 and 2014, the Company served as the primary sub-servicer
of loans originated by MSHA. The Company entered into a contract with MSHA to perform loan servicing on
the MSHA portfolio for a fee. For the year ended December 31, 2016, 2015 and 2014, the Company earned
fees of $1.7 million, $1.2 million, and $1.2 million, respectively, for the servicing of MSHA loans and was
presented within other income on the consolidated statements of income. The MSHA unpaid principal
balances of loans serviced by the Company, which are not included in the Company’s portfolio loan balance
within its consolidated statements of condition, totaled $619.1 million and $612.1 million at December 31,
2016 and 2015, respectively. Custodial escrow balances maintained in connection with the foregoing loan
servicing for MSHA, and included in demand deposits on the consolidated statements of condition, were
$6.3 million and $4.3 million at December 31, 2016 and 2015, respectively. Effective close of business on
December 31, 2016, the Company exited its sub-servicer relationship with MSHA and all custodial escrow
balances maintained in connection with the MSHA sub-servicing relationship were paid out in January 2017.
As part of its agreement to service loans for investors and its own loan portfolio, the Company is
required to ensure the good-standing and priority lien position of the collateral for its mortgage loans. In
doing so, the Company will advance borrower escrows and incur certain costs that are reimbursable by the
borrowers, investors or other means, including mortgage insurance companies and governmental-backed
agencies. At December 31, 2016 and 2015, the Company advanced escrow balances of $2.0 million and
$4.9 million, respectively, and had a receivable of $2.7 million and $5.7 million, respectively, for the
aforementioned services. At December 31, 2016 and 2015, the Company carried an allowance on the
aforementioned receivable of $829,000 and $489,000, respectively. The Company estimated the allowance on
its receivable utilizing historical claim and reimbursement information, as well as information through ongoing
negotiations with its investors. The Company has presented its advanced escrows and aforementioned net
receivable within other assets on the Company’s consolidated statements of condition.
In addition to fees earned for servicing the portfolios of investors, servicer guides impose certain
time-lines for resolving delinquent loans through workout efforts or liquidation and impose compensatory fees
on the Company if those deadlines are not satisfied other than for reasons beyond our control. The investors
also have a contractual right to demand indemnification or loan repurchase for certain servicing breaches. For
example, the Company would be required to indemnify the investors for or against failures by the Company
to perform its servicing obligations or acts or omissions that involve willful malfeasance, bad faith or gross
negligence in the performance of, or reckless disregard of, its duties. The Company records expenses for
servicing-related claims and loan repurchases when it is probable that such claims or repurchases will be made
and the amounts are reasonably estimable.
103
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
9. Deposits
The following is a summary of scheduled maturities of CDs as of December 31, 2016:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retail
$230,853
89,497
54,453
47,776
32,260
13,364
$468,203
Brokered
$34,939
—
—
7,000
—
—
$41,939
Total
$265,792
89,497
54,453
54,776
32,260
13,364
$510,142
CDs issued in amounts that meet or exceed the FDIC insurance limit of $250,000 totaled $104.5 million
and $136.6 million at December 31, 2016 and 2015, respectively.
At December 31, 2016 and 2015, the Company, in the normal course of business, had deposits from
certain officers, directors, and their associated companies totaling $14.4 million and $15.7 million,
respectively.
The amount of overdraft deposits that were reclassified as loans at December 31, 2016 and 2015 was
$986,000 and $663,000, respectively.
10. Borrowings
Short-term borrowings consist of customer repurchase agreements, FHLBB advances due in less than
90 days, FHLBB and correspondent bank overnight borrowings, and other short-term borrowings due within
one year. The Bank had an available line of credit with the FHLBB of $9.9 million at December 31, 2016 and
2015. This line of credit serves as overdraft protection should the Company overdraw its account with the
FHLBB. The interest rate for this line of credit is set daily by the FHLBB. The Company had no outstanding
balance on the line of credit with the FHLBB at December 31, 2016 or 2015.
Long-term borrowings represent securities sold under repurchase agreements with major brokerage firms
and notes payable with maturity dates over one year. Both wholesale and retail repurchase agreements are
secured by mortgage-backed securities and securities of government sponsored enterprises.
At December 31, 2016, the Company has the following lines of credit available to it, for which it had no
outstanding balances:
(cid:129)
(cid:129)
(cid:129)
The Company has an unsecured $10.0 million line of credit with PNC Bank that has a maturity date
of December 20, 2017 for which the interest rate is LIBOR-based and is set daily by PNC Bank.
The Company, through the Bank, has an unsecured $50.0 million line of credit with PNC Bank for
which the interest rate is set daily by PNC Bank.
The Company, through the Bank, has a secured line of credit of $72.3 million through the FRB’s
Discount Window for which the interest rate is set by the FRB daily. At December 31, 2016, the
Bank pledged commercial loans with a carrying value of $115.0 million and investment securities of
$73,000.
104
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
10. Borrowings − (continued)
The following table summarizes short term and long term borrowings as presented on the consolidated
statements of condition at:
December 31,
2016
2015
Short-Term Borrowings (mature within one year):
Customer repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . .
FHLBB borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLBB and correspondent bank overnight borrowings . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Wholesale repurchase agreements
Capital lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Total short-term borrowings
$225,605
210,000
89,450
5,007
67
$530,129
Long-Term Borrowings (maturity greater than one year):
FHLBB borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Wholesale repurchase agreements
Total long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,000
791
—
$ 10,791
$184,989
255,000
12,800
25,000
63
$477,852
$ 30,000
859
5,052
$ 35,911
The table below provides information on the Company’s borrowings classified as short-term for the dates
indicated:
Balance outstanding at end of year
. . . . . . . . . . . . . . . . . . . . . . . .
Weighted average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
$530,129
2015
$477,852
0.74%
0.57%
At December 31, 2016, the terms of the Company’s outstanding FHLBB borrowings were as follows:
Balance Sheet Classification
Short-Term Borrowings
Short-Term Borrowings
Long-Term Borrowings
Outstanding
Balance
$190,000
20,000
10,000
Maturity
Date
January 2017
July 2017
April 2020
Interest Rate
Range
0.73% − 0.84%
3.99% − 4.06%
1.87%
Next Call
Date
N/A
January 2017
N/A
Call
Amount
—
$20,000
—
FHLBB borrowings are collateralized by a blanket lien on qualified collateral consisting primarily of
loans with first mortgages secured by one- to four-family properties, certain commercial real estate loans,
certain pledged investment securities and other qualified assets. The carrying value of residential real estate
and commercial loans pledged as collateral was $1.1 billion at December 31, 2016 and 2015. The carrying
value of securities pledged as collateral at the FHLBB was $400,000 and $544,000 at December 31, 2016 and
2015, respectively.
At December 31, 2016 and 2015, the Company had one outstanding wholesale repurchase agreement
totaling $5.0 million with a maturity date of March 1, 2017 at an interest rate of 4.67% per annum. There are
no remaining call dates prior to maturity.
Subordinated Debentures
The Company issued $15.0 million of subordinated debt on October 8, 2015, which qualifies as Tier II
regulatory capital. The interest rate on the subordinated debt is 5.50% per annum, fixed for the ten-year term
and payable semi-annually on April 15 and October 15 each year. The Company can redeem the subordinated
debt at par starting on October 15, 2020 plus accrued and unpaid interest, or earlier if (i) they no longer
105
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
10. Borrowings − (continued)
qualify as Tier II capital for regulatory capital purposes; (ii) a change in law that prevents the Company from
deducting interest payable for U.S. federal income tax purposes, or (iii) the Company is required to register as
an investment company pursuant to the Investment Company Act of 1940. The subordinated debt is schedule
to mature on October 15, 2025.
The Company incurred issuance costs of $536,000 associated with this debt issuance. The Company
capitalized these costs and they have been presented within subordinated debentures on the consolidated
statements of condition. The Company will amortize the issuance costs over the ten-year term of the
subordinated debt. The amortization costs incurred for the year ended December 31, 2016 and 2015 associated
with the debt issuance were $54,000 and $9,000, respectively, and was recognized as an increase to interest
expense within the consolidated statements of income.
In April 2006, the Company formed CCTA, which issued and sold trust preferred securities to the public.
The Company received $36.1 million from the issuance of the trust preferred securities in return for junior
subordinated debentures issued by the Company to CCTA. The Company owns all of the $1.1 million of
outstanding common securities of CCTA. The interest rate of the trust preferred securities was fixed at 6.71%
through June 2011 and now floats at the 3 month LIBOR plus 140 basis points. The proceeds from the
offering were used to repurchase Company common stock under the tender offer completed in May 2006. The
trust preferred securities, which pay interest quarterly at the same rate as the junior subordinated debentures
held by CCTA, are mandatorily redeemable on June 30, 2036, or may be redeemed by CCTA at par any time
on or after June 30, 2011.
In connection with the acquisition of Union Bankshares Company in 2008, the Company assumed
$8.0 million of trust preferred securities, held through a Delaware trust affiliate, UBCT. In 2006, Union
Bankshares Company issued an aggregate principal amount of $8.2 million of 30-year junior subordinated
deferrable interest debt securities to UBCT. The Company owns all of the $248,000 of outstanding common
securities of UBCT. The debt securities obligate the Company to pay interest on their principal sum quarterly
in arrears on January 7, April 7, July 7, and October 7 of each year. The interest rate of the trust preferred
securities until April 7, 2011 was a blended rate equal to the sum of (1) the product of 50% times the average
three-month LIBOR plus 1.42%, plus (2) the product of 50% times 6.4725%. The rate is now the average
three-month LIBOR plus 1.42%. The debt securities mature on April 7, 2036, but may be redeemed by the
Company, in whole or in part, beginning on April 7, 2011, on any interest payment date. The debt securities
may also be redeemed by the Company in whole or in part, within 90 days of the occurrence of certain
special redemption events as defined in the Indenture.
CCTA and UBCT are Delaware statutory trusts created for the sole purpose of issuing trust preferred
securities and investing the proceeds in junior subordinated debentures of the Company. The junior
subordinated debentures are the sole assets of the trusts. The Company is the owner of all of the common
securities of CCTA and UBCT and fully and unconditionally guarantees each trust’s securities obligations. In
accordance with GAAP, CCTA and UBCT are treated as unconsolidated subsidiaries. The common stock
investment in the statutory trusts is included in other assets on the consolidated statements of condition. At
December 31, 2016, $43.0 million of the trust preferred securities were included in the Company’s total Tier I
capital and amounted to 13.0% of Tier I capital of the Company.
The Company has a notional amount of $43.0 million in interest rate swap agreements on its junior
subordinated debentures. Further discussion on the terms and accounting for the interest rate swap agreements
is included within Note 18 of the consolidated financial statements.
106
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
10. Borrowings − (continued)
Interest expense on the subordinated debentures, including the effective portion of the associated interest
rate swaps on these debt instruments reclassified from OCI into earnings, totaled $3.4 million, $2.7 million
and $2.5 million for the year ended December 31, 2016, 2015 and 2014, respectively. Refer to Note 18 of the
consolidated financial statements for information pertaining to the reclassification of OCI into earnings on the
interest rate swaps.
11. Repurchase Agreements
The Company can raise additional liquidity by entering into repurchase agreements at its discretion. In a
security repurchase agreement transaction, the Company will generally sell a security, agreeing to repurchase
either the same or substantially identical security on a specified later date, at a greater price than the original
sales price. The difference between the sale price and purchase price is the cost of the proceeds, which is
recorded as interest expense on the consolidated statement of income. The securities underlying the
agreements are delivered to counterparties as security for the repurchase obligations. Since the securities are
treated as collateral and the agreement does not qualify for a full transfer of effective control, the transactions
does not meet the criteria to be classified as a sale, and is therefore considered a secured borrowing
transaction for accounting purposes. Payments on such borrowings are interest only until the scheduled
repurchase date. In a repurchase agreement the Company is subject to the risk that the purchaser may default
at maturity and not return the securities underlying the agreements. In order to minimize this potential risk,
the Company either deals with established firms when entering into these transactions or with customers
whose agreements stipulate that the securities underlying the agreement are not delivered to the customer and
instead are held in segregated safekeeping accounts by the Company’s safekeeping agents.
The tables below sets forth information regarding the Company’s repurchase agreements accounted for as
secured borrowings and types of collateral at December 31, 2016 and 2015:
December 31, 2016
Customer Repurchase Agreements:
Mortgage-backed securities issued or guaranteed
by U.S. government-sponsored enterprises
. .
Collateralized mortgage obligations issued or
guaranteed by U.S. government-sponsored
enterprises . . . . . . . . . . . . . . . . . . . . . . . .
Total Customer Repurchase Agreements . .
Wholesale Repurchase Agreements:
Mortgage-backed securities issued or guaranteed
by U.S. government-sponsored enterprises
. .
Collateralized mortgage obligations issued or
guaranteed by U.S. government-sponsored
enterprises . . . . . . . . . . . . . . . . . . . . . . . .
Total Wholesale Repurchase Agreements . .
. . . . . . . . . .
Total Repurchase Agreements(1)
Remaining Contractual Maturity of the Agreements
Overnight
and
Continuous
Up to 30
Days
30 − 90
Days
Greater
than
90 Days
Total
$117,784
$—
$ —
$—
$117,784
107,821
225,605
—
—
—
—
—
—
107,821
225,605
—
—
3,715
—
3,715
—
—
$225,605
—
—
$—
1,292
5,007
$5,007
—
—
$—
1,292
5,007
$230,612
(1) Total repurchase agreements are presented within short-term borrowings on the consolidated statements of
condition.
107
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
11. Repurchase Agreements − (continued)
December 31, 2015
Customer Repurchase Agreements:
Obligations of states and political subdivisions. .
Mortgage-backed securities issued or guaranteed
by U.S. government-sponsored enterprises
. .
Collateralized mortgage obligations issued or
guaranteed by U.S. government-sponsored
enterprises . . . . . . . . . . . . . . . . . . . . . . . .
Total Customer Repurchase Agreements . .
Wholesale Repurchase Agreements:
Mortgage-backed securities issued or guaranteed
by U.S. government-sponsored enterprises
. .
Collateralized mortgage obligations issued or
guaranteed by U.S. government-sponsored
enterprises . . . . . . . . . . . . . . . . . . . . . . . .
Total Wholesale Repurchase Agreements . .
. . . . . . . . . .
Total Repurchase Agreements(1)
Remaining Contractual Maturity of the Agreements
Overnight
and
Continuous
Up to 30
Days
30 − 90
Days
Greater
than
90 Days
Total
$
556
$—
$—
$ — $
556
95,967
88,466
184,989
—
—
—
—
—
—
—
95,967
—
—
88,466
184,989
—
—
—
22,016
22,016
—
—
$184,989
—
—
$—
—
—
$—
8,036
30,052
$30,052
8,036
30,052
$215,041
(1) Total repurchase agreements are presented within short- and long-term borrowings on the consolidated
statements of condition.
Certain customers held CDs totaling $917,000 and $914,000 with the Bank at December 31, 2016 and
2015, respectively, that were collateralized by CMO and MBS securities that were overnight repurchase
agreements.
Certain counterparties monitor collateral, and may request additional collateral to be posted from time to
time.
12. Income Taxes
The current and deferred components of income tax expense on the consolidated statements of income
were as follows:
For The Year Ended December 31,
2015
2014
2016
Current:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . .
$17,854
930
18,784
(1,258)
(54)
(1,312)
$17,472
$7,956
71
8,027
1,356
524
1,880
$9,907
$11,435
505
11,940
(500)
—
(500)
$11,440
108
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
12. Income Taxes − (continued)
The income tax expense differs from the amount computed by applying the statutory federal income tax
rate as a result of the following:
Computed tax expense . . . . . . . . . . . . . . . . . . . . . .
Increase (reduction) in income taxes resulting from:
Tax exempt income . . . . . . . . . . . . . . . . . . . . . . .
Income from life insurance . . . . . . . . . . . . . . . . . .
Share-based awards(1)
. . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . .
Low income housing credits . . . . . . . . . . . . . . . . .
Non-deductible acquisition-related costs . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Income tax expense . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . .
For The Year
Ended December 31,
2015
$10,801
(1,092)
(588)
—
373
(359)
467
305
$ 9,907
$30,859
2016
$20,139
(1,312)
(908)
(701)
565
(376)
—
65
$17,472
$57,539
2014
$12,604
(704)
(503)
—
328
(286)
—
1
$11,440
$36,010
30.4%
32.1%
31.8%
(1) Prior to the adoption of ASU 2016-09, the Company accounted for its windfall tax benefits or shortfalls
generated upon exercise of a non-qualified stock option or a disqualifying incentive stock option, or upon
vesting of its restricted shares through shareholders’ equity (or as income tax expense to the extent the
Company did not have a windfall tax benefit surplus). Upon adoption, the Company has accounted for its
windfall tax benefits and shortfalls generated within income tax expense on the consolidated statements
of income as a discrete period item in the quarter generated.
Temporary differences between the financial statements carrying amounts and the tax bases of assets and
liabilities gave rise to the following deferred tax assets and liabilities:
(Calculated using a 35% deferred income tax rate)
Net operating loss and tax credit carryforward . . .
Allowance for loan losses . . . . . . . . . . . . . . . . .
Pension and other benefits . . . . . . . . . . . . . . . . .
Net unrealized losses on AFS securities . . . . . . . .
Net unrealized losses on derivative instruments
. .
Purchase accounting and deposit premium . . . . . .
Deferred compensation and benefits . . . . . . . . . .
Net unrealized losses on postretirement plans . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred loan origination fees . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance on deferred tax assets
. . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . .
December 31,
2016
2015
Asset
$22,282
7,416
4,488
2,047
3,432
2,856
2,129
1,102
—
—
77
45,829
Liability
$ —
—
—
—
—
—
—
—
(4,520)
(2,046)
—
(6,566)
—
$39,263
Liability
$ —
—
—
—
—
—
—
—
(4,298)
(1,815)
—
(6,113)
—
$39,716
Asset
$20,977
8,094
5,141
3,227
3,066
1,430
1,791
1,147
—
—
956
45,829
109
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
12. Income Taxes − (continued)
In connection with the Merger, the Company acquired certain net operating losses and tax credit
carryforwards as of the acquisition date, including federal net operating losses of $71.2 million and State of
Maine net operating losses of $213,000. The Company determined it would not be able to utilize $6.8 million
of the acquired federal net operating losses and wrote-off this amount within purchase accounting. Due to
Internal Revenue Code of 1986, as amended, Section 382(g) limitations, the Company’s use of the federal net
operating losses acquired is limited to $3.9 million annually (and $803,000 for fiscal year 2015), which was
determined using the applicable federal rate and the fair value of consideration paid for the acquisition at the
acquisition date. The acquired federal net operating losses will expire between 2030 and 2034. The Company
has assessed the need for a valuation allowance on the acquired federal net operating losses and determined
that there was a high likelihood that it will be able to utilize all of the acquired allowable federal net
operating losses prior to expiration as the Company has a history of generating taxable income well in excess
of the limitation. As such, there was no valuation allowance established on any of the deferred tax assets
acquired as part of the Merger.
Income tax returns for the year ended December 31, 2013 through 2015 are open to audit by federal and
various state authorities and currently the Company’s federal income tax returns for 2013 and 2014 are
undergoing an IRS examination. If the Company, as a result of this audit or any future audit, was assessed
interest and penalties, the amounts would be recorded within non-interest expense on the consolidated
statements of income.
13. Shareholders’ Equity
Dividends
The primary source of funds available to the Company for the payment of dividends to its shareholders is
dividends paid to the Company by its subsidiary, the Bank. The Bank is subject to certain requirements
imposed by federal banking laws and regulations. These requirements, among other things, establish minimum
levels of capital and restrict the amount of dividends that a bank subsidiary may distribute. Under regulations
prescribed by the OCC, without prior OCC approval, a bank subsidiary may not declare dividends in any year
in excess of the bank’s (i) net income for the current year, (ii) plus its retained net income for the prior
two years. For the year ended December 31, 2016, 2015, and 2014, the Bank declared dividends for payment
to the Company in the amount of $16.0 million, $39.2 million, which included a $30.0 million special
dividend that was paid in connection with the Merger, and $12.8 million, respectively. Prior to Acadia Trust’s
merger into the Bank effective close of business November 30, 2016, Acadia Trust did not declare any
dividends for payment to the Company for the period January 1, 2016 to November 30, 2016. Furthermore,
Acadia Trust had not declared a dividend to the Company for the year ended December 31, 2015 or 2014. For
the year ended December 31, 2016, 2015 and 2014, the Company declared $12.9 million, $10.6 million and
$8.3 million, respectively, in dividends payable to its shareholders.
Common Stock Split
On August 30, 2016, the Company’s Board of Directors declared a three-for-two stock split, effected in
the form of a stock dividend, on the Company’s common stock. Each shareholder of record on September 15,
2016, received one additional share of common stock for every two shares of common stock owned. The
stock was issued September 30, 2016.
The Company paid shareholders cash in lieu of fractional shares of common stock in connection with the
split, at a price of $31.75 per share, the closing price of the Company’s common stock on September 14,
2016. The total cash paid for fractional shares was $5,000, and was accounted for as a reduction of capital
stock.
110
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
13. Shareholders’ Equity − (continued)
Common Stock Repurchase (adjusted for the three-for-two common stock split)
On September 24, 2013, the Board of Directors authorized the 2013 Repurchase Plan. The 2013
Repurchase Plan allows for the repurchase of up to 375,000 shares of the Company’s outstanding common
stock. This program is expected to continue until the authorized number of shares is repurchased, or the
Company’s board terminates the program. As of December 31, 2016, the Company had repurchased
374,250 shares at a weighted-average price of $26.55, or 99.8% of the program’s total allotment, and 2.4% of
total outstanding shares. The Company did not repurchase any of its outstanding common stock for the year
ended December 31, 2016.
14. EPS
The following is an analysis of basic and diluted EPS, reflecting the application of the two-class method,
as described below:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and undistributed earnings allocated to
participating securities(1)
. . . . . . . . . . . . . . . .
Net income available to common shareholders . . .
Weighted-average common shares outstanding for
basic EPS(2)
. . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of stock-based awards(2)(3) . . . . . . .
Weighted-average common and potential common
For The Year Ended
December 31,
2015
$
$
20,952
(59)
20,893
$
$
2016
40,067
(189)
39,878
$
$
2014
24,570
(75)
24,495
15,422,160
82,079
12,031,294
43,285
11,176,468
29,420
shares for diluted EPS(2)
. . . . . . . . . . . . . . . .
15,504,239
12,074,579
11,205,888
Earnings per common share(2):
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2.59
2.57
$
$
1.73
1.73
$
$
2.19
2.19
Awards excluded from the calculation of diluted
EPS(2)(4):
Stock options . . . . . . . . . . . . . . . . . . . . . . . .
—
19,875
20,625
(1) Represents dividends paid and undistributed earnings allocated to nonvested stock-based awards that
contain non-forfeitable rights to dividends.
(2) Share and per share amounts have been adjusted to reflect the three-for-two split effective September 30,
2016, for all periods presented. Refer to Note 13.
(3) Represents the effect of the assumed exercise of stock options, vesting of restricted shares, vesting of
restricted stock units, and vesting of LTIP awards that have met the performance criteria, utilizing the
treasury stock method.
(4) Represents stock-based awards not included in the computation of potential common shares for purposes
of calculating diluted EPS as the exercise prices were greater than the average market price of the
Company’s common stock, and, therefore, are considered anti-dilutive.
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
111
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
14. EPS − (continued)
security according to dividends declared (or 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. Stock-Based Compensation Plans
Stock-Based Compensation
On April 29, 2003 and May 1, 2012, the shareholders of the Company approved the 2003 Plan and 2012
Plan, respectively. The maximum number of shares of stock reserved and available for issuance under each
the 2003 Plan and 2012 Plan is 1.2 million shares. Awards may be granted in the form of incentive stock
options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units,
unrestricted stock, performance shares and dividend equivalent rights, or any combination of the preceding,
and the exercise price shall not be less than 100% of the fair market value on the date of grant in the case of
incentive stock options, or 85% of the fair market value on the date of grant in the case of non-qualified stock
options. No stock options are exercisable more than ten years after the date the stock option is granted. The
exercise price of all options granted equaled the market price of the Company’s stock on the date of grant,
except for the non-qualified stock options issued in conjunction with the Merger. Refer to Note 2 for
additional details.
Stock Option Awards
Stock options granted under the 2003 Plan and the 2012 Plan have been both incentive stock options and
non-qualified stock options. All incentive stock options and non-qualified stock options granted vest pro rata
over a five year period and have a contractual life of ten years.
On the date of each grant, the fair value of each award is derived using the Black-Scholes option pricing
model based on assumptions made by the Company as follows:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Dividend yield is based on the dividend rate of the Company’s stock at the date of grant.
Risk-free interest rate is based on the U.S. Treasury bond rate with a term equaling the expected life
of the granted options.
Expected volatility is based on the historical volatility of the Company’s stock price calculated over
the expected life of the option.
Expected life represents the period of time that granted options are expected to be outstanding based
on historical trends.
112
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
15. Stock-Based Compensation Plans − (continued)
The following table presents the option pricing assumptions and the estimated fair value of the options
using these assumptions for grants made for the year ended:
Weighted-average dividend yield . . . . . . . . . . . . . . . .
Weighted-average risk-free interest rate . . . . . . . . . . .
Weighted-average expected volatility . . . . . . . . . . . . .
Weighted-average expected life (in years)
. . . . . . . . .
Weighted-average fair value of options granted . . . . . .
2016
3.12%
1.52%
29.64%
5.3
$ 5.17
December 31,
2015
3.01%
1.50%
31.85%
5.3
$ 5.87
2014
2.90%
1.65%
35.39%
5.3
$ 5.95
Compensation expense is recognized on a straight-line basis over the option vesting period. For the year
ended December 31, 2016, 2015 and 2014, the Company issued only incentive stock options and the
associated compensation expense recognized was $30,000, $51,000 and $81,000, respectively. The Company
does not receive any tax benefit on its issuance of incentive stock options, unless upon exercise a
disqualifying disposition is made. The total tax benefit to the Company upon exercise of incentive stock
options for the year ended December 31, 2016, 2015 and 2014 was $36,000, $59,000, and $19,000,
respectively. Additionally, for the year ended December 31, 2016, the Company received a tax benefit upon
the exercise of non-qualified stock options that were issued as consideration in the Merger of $378,000.
Unrecognized compensation expense for nonvested stock options totaled $48,000 at December 31, 2016.
Effective January 1, 2016, the Company early adopted ASU 2016-09 and made a policy election to not apply
a forfeiture rate to account for its share-based compensation expense. This accounting policy change was
applied retrospectively, the cumulative-effect of such adjustment for prior periods totaled $72,000 and was
recorded within shareholders’ equity for the year ended December 31, 2016. Unrecognized compensation
expense on stock options is expected to be recognized over the remaining weighted-average vesting period of
3.1 years. The total intrinsic value of options exercised for the year ended December 31, 2016, 2015 and 2014
was $2.5 million, $573,000, and $134,000, respectively.
Stock option activity for the year ended December 31, 2016 is as follows:
Options outstanding at January 1, 2016 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited and expired . . . . . . . . . . . . . . . . . .
Options outstanding at December 31, 2016 . . . . .
Number of
Shares(1)
219,399
3,000
(157,956)
(5,700)
58,743
Options exercisable at December 31, 2016 . . . . . .
49,293
Weighted-
Average
Exercise
Price
$16.93
25.64
15.53
22.93
$20.38
$19.62
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
3.82
3.91
$1,558
$1,224
(1) Options outstanding at January 1, 2016 included 118,299 of non-qualified stock options issued in
conjunction with the Merger. Of these, 109,356 were exercised during 2016. At December 31, 2016,
8,943 non-qualified stock options issued in conjunction with the Merger were outstanding and
exercisable.
113
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
15. Stock-Based Compensation Plans − (continued)
A summary of the status of the Company’s nonvested stock options as of December 31, 2016 and
changes during the year then ended is presented below:
Nonvested at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-
Average
Grant Date
Fair Value
$7.40
5.17
8.13
5.92
$6.59
Awards
17,351
3,000
(7,751)
(3,150)
9,450
For the year ended December 31, 2016 and 2015, the Company received cash from the exercise of stock
options of $1.3 million and $736,000, respectively.
Restricted Stock, Restricted Stock Units and MSPP
The Company issued restricted stock awards to certain executives, directors, and employees. Restricted
stock awards are issued to certain employees and vest pro-rata over the requisite service period, which is
typically three or five years, and may contain certain performance-based conditions. The vesting period for
restricted stock awards issued to directors under the Independent Directors’ Equity Compensation Program is
determined when granted. Restricted stock awards issued to directors and employees participate in dividends
and recipients are entitled to vote these restricted shares during the vesting period.
The Company issued restricted stock units to certain Company directors who make a valid election to
defer under the Independent Directors’ Equity Compensation Program, a component of the 2012 Plan.
These units are deferred and have no voting or dividend rights until termination or retirement, at which time
shares will be issued based on the grant date fair value of the awards issued. The vesting period for these
awards is determined when granted. The Company did not issue restricted stock units to directors under the
Independent Directors’ Equity Compensation Program for the year ended December 31, 2016.
The Company offers the MSPP to provide an opportunity for certain executives and employees to receive
restricted shares of the Company’s common stock in lieu of their annual incentive bonus. Restricted shares
issued under the MSPP are granted at a discount of one-third of the fair market value of the stock on the date
of grant and cliff vests two years after the grant date. Restricted stock issued under the MSPP to executives
and employees participate in dividends and are entitled to vote these restricted shares during the vesting
period.
Compensation expense recognized in connection with the restricted stock units, restricted stock awards,
and MSPP is presented in the following table:
. . . . . . . . .
Restricted stock and restricted stock units
MSPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total compensation expense . . . . . . . . . . . . . . . . . . .
For The Year Ended December 31,
2015
$327
66
$393
2014
$254
67
$321
2016
$703
102
$805
Related income tax benefit . . . . . . . . . . . . . . . . . . . .
Fair value of grants vested . . . . . . . . . . . . . . . . . . . .
$282
$660
$137
$433
$112
$332
114
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
15. Stock-Based Compensation Plans − (continued)
The following table presents a summary of the activity related to restricted stock, restricted stock units
and MSPP for the period indicated:
Nonvested at January 1, 2016 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2016 . . . . .
Restricted Stock and
Restricted Stock Units
MSPP
Number of
Shares
38,391
32,016
(22,000)
(894)
47,513
Weighted-
Average
Grant Date
Fair Value
$27.09
28.88
27.40
26.55
$28.16
Number of
Shares
18,800
16,000
(6,988)
(1,113)
26,699
Weighted-
Average
Grant Date
Fair Value
$7.85
8.02
8.21
8.10
$7.85
At December 31, 2016, unrecognized compensation cost related to nonvested restricted stock awards and
MSPP was $1.1 million, which is expected to be recognized over a weighted-average period of 2.6 years.
LTIP
The LTIP is intended to attract and retain executives who will contribute to the Company’s future
success. The long-term performance period is a period of three consecutive years beginning on January 1 of
the first year and ending on December 31 of the third year. Awards are based upon either: (i) the attainment of
certain performance targets on specific performance measures selected by the Compensation Committee and
approved by the Board of Directors; or (ii) 50% weighted on the attainment of certain performance targets on
specific performance measures selected by the Compensation Committee and approved by the Board of
Directors and 50% weighted on meeting the requisite service period. The performance-based share units
granted will vest only if specific performance measures, as defined under the LTIP, are achieved. Failure to
achieve the specific performance measures will result in all or a portion of the shares being forfeited. The
service-based share units granted vest annually pro-rata over the three year period.
Compensation expense recognized in connection with the LTIP is presented in the following table:
Compensation expense(1)
. . . . . . . . . . . . . . . . . . . . .
Related income tax benefit . . . . . . . . . . . . . . . . . . . .
Fair value of grants vested . . . . . . . . . . . . . . . . . . . .
For The Year Ended December 31,
2015
$330
$116
$412
2014
$151
$ 53
$ —
2016
$1,080
$ 378
$ 725
(1) For the year ended December 31, 2016, $84,000 of compensation expense associated with the LTIP for
the plan year January 1, 2016 to December 31, 2018 was accounted for within total compensation
expense for restricted stock and restricted stock units above as this plan contains both performance- and
service-based conditions.
115
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
15. Stock-Based Compensation Plans − (continued)
The following table presents a summary of the activity related to LTIP for the period indicated:
Nonvested at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonvested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
64,165
17,385
(26,396)
(2,417)
52,737
Weighted-
Average
Grant Date
Fair Value
$26.71
28.87
27.45
27.45
$27.01
Based on current performance levels, unrecognized stock compensation expense for the performance
share awards was $417,000 with a weighted-average remaining amortization period of 1.4 years at
December 31, 2016.
DCRP
The DCRP is an unfunded deferred compensation plan for the benefit of certain Company executives.
The Company’s Compensation Committee determines eligibility in the DCRP and annually, participants will
receive a credit to an account administered by the Company of 10% of each participant’s annual base salary
and bonus for the prior performance period. Annual credits to a participant’s account will be denominated in
deferred stock awards (the right to receive a share of common stock of the Company upon the satisfaction of
certain restrictions) based on the fair market value of the common stock of the Company on the date of grant.
Vesting occurs ratably from the date of participation until the participant reaches the age of 65, at which time
the participant is 100% vested. Upon retirement or termination of employment, the participant will receive
shares of common stock equal to the Deferred Stock Awards in the account multiplied by the
vested percentage, reduced by the amount to be withheld for income taxes. The Company granted 4,094,
3,609, and 3,030 of deferred stock awards for the years ended December 31, 2016, 2015 and 2014,
respectively under the DCRP. Compensation expense totaled $81,000, $62,000, and $46,000 for the years
ended December 31, 2016, 2015 and 2014, respectively. Unrecognized stock compensation expense for the
deferred stock awards was $308,000 with a weighted-average remaining amortization period of 10.4 years at
December 31, 2016.
16. Employee Benefit Plans
401(k)/Profit Sharing Plan
The Company has a 401(k)/profit sharing plan and the majority of employees participate in the plan.
Employees may contribute pre-tax contributions to the 401(k)/profit sharing plan up to the maximum amount
allowed by federal tax laws. The Company makes matching contributions of up to 4% of an employee’s
eligible compensation. The Company may make additional matching contributions subject to the discretion of
the Board of Directors. For the year ended December 31, 2016, 2015 and 2014, these contributions amounted
to 3% of pre-tax compensation. For the year ended December 31, 2016, 2015 and 2014, expenses under the
401(k)/Profit Sharing plan amounted to $2.2 million, $1.5 million, and $1.4 million, respectively.
SERP and Other Postretirement Benefit Plan
The Company sponsors unfunded, non-qualified SERPs for certain officers. These agreements are
designed to make up the shortfall (when compared to a non-highly compensated employee) in replacing
income at retirement due to IRS compensation and benefit limits under the 401(k) plan and Social Security.
With a SERP in place, participants should be able to replace 65 − 75% of their final average compensation.
For those eligible for benefits, the SERP provides for a minimum 15-year guaranteed benefit for all vested
116
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
16. Employee Benefit Plans − (continued)
participants. In addition, the Company provides medical and life insurance to certain eligible retired
employees under the other postretirement benefit plan.
The following table summarizes changes in the benefit obligation and plan assets for (i) SERP and
(ii) the other postretirement benefit plan as of December 31, 2016 and 2015:
SERP
Other Postretirement Benefits
2016
2015
2016
2015
Benefit obligations:
Beginning of year . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . .
Business combinations(1)
. . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
End of year
Fair value of plan assets:
Beginning of year . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Funded status at end of year(2) . . . . . . . . . . . . . .
End of year
$11,052
308
432
219
—
(488)
11,523
—
488
(488)
—
$11,523
Amounts recognized in AOCI, net of tax:
Net actuarial loss . . . . . . . . . . . . . . . . . . . . .
Prior service cost (credit) . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,791
—
$ 1,791
$10,834
307
424
(32)
—
(481)
11,052
—
481
(481)
—
$11,052
$ 1,789
5
$ 1,794
$3,447
59
151
143
—
(165)
3,635
—
165
(165)
—
$3,635
$ 495
(156)
$ 339
$2,997
62
117
92
312
(133)
3,447
—
133
(133)
—
$3,447
$ 423
(170)
$ 253
(1)
In connection with the Merger, the Company assumed its post-retirement benefits for certain former
employees and their spouses whereby the Company will cover 100% of healthcare premiums.
(2) Reported within other liabilities on the consolidated statements of condition.
The accumulated benefit obligation for the SERP was $8.5 million at December 31, 2016 and 2015. In
2017, approximately $247,000 in net actuarial losses and no prior service costs, are expected to be recognized
as components of net period benefit cost for the SERP, and approximately $41,000 and $24,000 in net
actuarial losses and prior service credits, respectively, are expected to be recognized for the other
postretirement benefit plan.
117
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
16. Employee Benefit Plans − (continued)
The components of net period benefit cost and other amounts recognized in OCI, before taxes, were as
follows:
Net period benefit cost:
Service cost . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . .
Recognized net actuarial loss . . . . . . . .
Amortization of prior service cost
(credit)
. . . . . . . . . . . . . . . . . . . . .
Net period benefit cost . . . . . . . . . . .
Changes in funded status recognized in
OCI, before taxes:
Net actuarial (gain) loss
Reclassifications to net period benefit
. . . . . . . . . . .
cost:
Amortization of net unrecognized
2016
$ 308
432
220
7
967
SERP
2015
$ 307
424
218
19
968
2014
$ 270
456
140
19
885
Other Postretirement Benefits
2014
2015
2016
$ 59
151
30
(22)
218
$ 62
117
24
(22)
181
$ 45
132
10
(22)
165
219
(32)
777
143
92
(134)
actuarial loss . . . . . . . . . . . . . . . .
(220)
(218)
(140)
(30)
(24)
(10)
Amortization of prior service (cost)
credit . . . . . . . . . . . . . . . . . . . . .
Total recognized in OCI, before taxes . .
Total recognized in net period benefit
(7)
(8)
(19)
(269)
(19)
618
22
135
22
90
22
(122)
cost and OCI, before taxes . . . . . . . . .
$ 959
$ 699
$1,503
$353
$271
$ 43
In the first quarter of 2014, the Company amended the terms of its other postretirement benefit plan
impacting the eligibility of employees. The amendment to the plan reduced the Company’s benefit obligation
by $308,000 at December 31, 2014 and is reflected within the year ended December 31, 2014 other
postretirement benefits plan net actuarial gain.
The following assumptions were used in determining benefit obligations and net period benefit costs:
Weighted-average assumptions as of end
of year:
Discount rate for benefit obligation . . . .
Discount rate for net period benefit
2016
SERP
2015
2014
Other Postretirement Benefits
2014
2015
2016
4.00%
4.00%
4.00%
4.00%
4.50%
4.00%
cost . . . . . . . . . . . . . . . . . . . . . . . .
4.00%
4.00%
4.75%
4.50%
4.00%
5.02%
Rate of compensation increase for
benefit obligation . . . . . . . . . . . . . .
4.00%
4.00%
4.00%
Rate of compensation increase for net
periodic benefit cost
. . . . . . . . . . . .
4.00%
4.00%
4.50%
—
—
—
—
—
—
Health care cost trend rate assumed for
future years . . . . . . . . . . . . . . . . . .
—
—
—
7.00%
7.00%
7.00%
118
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
16. Employee Benefit Plans − (continued)
A 1.0% increase or decrease in the assumed health care cost trend rate would not materially increase or
decrease the Company’s accumulated postretirement benefit obligation and the related service and interest cost
at December 31, 2016. The postretirement plan has a built-in cap on annual benefits to participants and, thus,
the accumulated postretirement benefit obligation and the assumed health care cost trend are relatively stable
each period.
In 2017, the expected contribution is $475,000 for the SERP and $156,000 for the other postretirement
benefits plan. The expected benefit payments for the next ten years are presented in the following table:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 − 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Postretirement
Benefits
$ 156
163
166
169
182
1,043
SERP
$ 475
473
477
486
542
3,127
17. Other Non-Interest Income and Expenses
Detail of other income included in the consolidated statements of income is as follows:
Customer loan swap fee income(1)
. . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For The Year Ended
December 31,
2015
$1,514
2,363
$3,877
2014
$ 480
2,600
$3,080
2016
$2,104
4,830
$6,934
(1) Fee income recognized upon completion of customer loan swaps. Refer to Note 18 for further discussion.
Detail of other expenses included in the consolidated statements of income is as follows:
Postage, freight, and courier . . . . . . . . . . . . . . . . . . .
Donations and marketing . . . . . . . . . . . . . . . . . . . . .
Employee-related costs(1) . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expenses
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For The Year Ended
December 31,
2015
$1,430
1,841
1,437
4,502
$9,210
2014
$1,236
1,587
1,287
3,735
$7,845
2016
$ 1,754
1,660
1,616
5,657
$10,687
(1) Employee-related costs include hiring, training, education, meeting and business travel costs.
18. Commitments, Contingencies and Derivatives
Legal Contingencies
In the normal course of business, the Company and its subsidiaries are subject to pending and threatened
legal actions. Although the Company is not able to predict the outcome of such actions, after reviewing
pending and threatened actions with counsel, management believes that based on the information currently
119
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
18. Commitments, Contingencies and Derivatives − (continued)
available the outcome of such actions, individually or in the aggregate, will not have a material adverse effect
on the Company’s consolidated financial position as a whole.
Reserves are established for legal claims only when losses associated with the claims are judged to be
probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not possible to
determine whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability
until the case is close to resolution, in which case a reserve will not be recognized until that time.
As of December 31, 2016 and 2015, the Company did not have any material loss contingencies that were
provided for and/or disclosure was necessary.
Financial Instruments
In the normal course of business, the Company is a party to both on- and off-balance sheet financial
instruments involving, to varying degrees, elements of credit risk and interest rate risk in addition to the
amounts recognized in the consolidated statements of condition.
The following is a summary of the contractual and notional amounts of the Company’s financial
instruments:
Lending-Related Instruments:
Loan origination commitments and unadvanced lines of credit:
Home equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial and commercial real estate . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Residential
Letters of credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative Financial Instruments:
Customer loan swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FHLBB advance interest rate swaps . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debt interest rate swaps
. . . . . . . . . . . . . . . .
Interest rate lock commitments . . . . . . . . . . . . . . . . . . . . . . . . .
Forward delivery commitments . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
2015
$454,225
83,103
17,795
2,580
432
$532,526
50,000
43,000
15,249
15,125
$464,701
94,791
16,256
4,468
433
$285,888
50,000
43,000
20,735
—
Lending-Related Instruments
The contractual amounts of the Company’s lending-related financial instruments do not necessarily
represent future cash requirements since certain of these instruments may expire without being funded and
others may not be fully drawn upon. These instruments are subject to the Company’s credit approval process,
including an evaluation of the customer’s creditworthiness and related collateral requirements. Commitments
generally have fixed expiration dates or other termination clauses.
Derivative Financial Instruments
The Company uses derivative financial instruments for risk management purposes (primarily interest rate
risk) and not for trading or speculative purposes. The Company controls the credit risk of these instruments
through collateral, credit approvals and monitoring procedures. Additionally, as part of Company’s normal
mortgage origination process, it provides the borrower with the option to lock their interest rate based on
current market prices. During the period from commitment date to the loan closing date, the Company is
subject to the risk of interest rate change. In an effort to mitigate such risk the Company may enter into
120
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
18. Commitments, Contingencies and Derivatives − (continued)
forward delivery commitments, typically on a ‘‘best-efforts’’ basis, with certain approved investors. The
Company accounts for its interest rate lock commitments on loans within the normal origination process for
which it intends to sell as a derivative instrument. Furthermore, the Company records a derivative for its
‘‘best-effort’’ forward delivery commitments upon origination of a loan identified as held for sale. Should the
Company enter into a forward delivery commitment on a mandatory delivery arrangement with an investor it
accounts for the forward delivery commitment upon execution of the contract.
Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for
changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies and has been
designated as a hedge for accounting purposes, and further, by the type of hedging relationship.
The Company has designated its interest rate swaps on its junior subordinated debentures and its interest
rate swaps on forecasted 30-day FHLBB borrowings as cash flow hedges. The change in the fair value of the
Company’s cash flow hedges is accounted for within OCI, net of tax. Quarterly, in conjunction with financial
reporting, the Company assesses each cash flow hedge for ineffectiveness. To the extent any significant
ineffectiveness is identified, this amount is recorded within the consolidated statements of income.
Furthermore, the Company will reclassify the gain or loss on the effective portion of the cash flow hedge from
OCI into interest within the consolidated statements of income in the period the hedged transaction affects
earnings.
The change in fair value of the Company’s other derivative instruments, not designated and qualifying as
hedges, are accounted for within the consolidated statements of income.
Junior Subordinated Debt Interest Rate Swaps:
The Company, from time to time, will enter into an interest rate swap agreement with a counterparty to
manage interest rate risk associated with its variable rate borrowings. The Company has entered into a master
netting arrangement with its counterparty and settles payments with the counterparty quarterly on a net basis.
The interest rate swap agreements contain provisions that require the Company to post cash collateral with the
counterparty for contracts that are in a net liability position based on their fair values and the Company’s
credit rating. If the interest rate swaps are in a net asset position based on their fair value, the counterparty is
required to post cash collateral to the Company. The collateral posted by the Company was not readily
available and has been presented within cash and due from banks on the consolidated statements of condition.
At December 31, 2016 and 2015, the Company had a notional amount of $43.0 million in variable-for-fixed
interest rate swap agreements on its junior subordinated debentures and posted $9.7 million of cash as
collateral at December 31, 2016. The details of its interest rate swap agreements are outlined in the table
below:
Notional
Amount
$10,000
10,000
10,000
5,000
8,000
$43,000
Trade Date
3/18/2009
7/8/2009
5/6/2010
3/14/2011
5/4/2011
Maturity
Date
6/30/2021
6/30/2029
6/30/2030
3/30/2031
7/7/2031
Variable Index Received
3-Month USD LIBOR
3-Month USD LIBOR
3-Month USD LIBOR
3-Month USD LIBOR
3-Month USD LIBOR
Fixed
Rate Paid
5.09%
5.84%
5.71%
4.35%
4.14%
December 31,
2016
Fair Value(1)
$ (806)
(2,321)
(2,290)
(1,211)
(1,744)
$(8,372)
2015
Fair Value(1)
$(1,038)
(2,537)
(2,477)
(1,301)
(1,876)
$(9,229)
(1) Presented within accrued interest and other liabilities on the consolidated statements of condition.
For the years ended December 31, 2016, 2015 or 2014, the Company did not record any ineffectiveness
on these cash flow hedges within the consolidated statements of income.
121
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
18. Commitments, Contingencies and Derivatives − (continued)
Net payments to the counterparty for the year ended December 31, 2016 and 2015 were $1.5 million and
$1.7 million, respectively, and have been classified as cash flows from operating activities in the consolidated
statements of cash flows.
FHLBB Advance Interest Rate Swaps:
The Bank has two interest rate swap arrangements with a counterparty on two tranches of 30-day
FHLBB advances with a total notional amount of $50.0 million. Each derivative arrangement commenced on
February 25, 2016, with one contract set to expire on February 25, 2018 and the other on February 25, 2019.
The Bank entered into these interest rate swaps to mitigate its interest rate exposure on borrowings in a rising
interest rate environment. The Bank has designated each arrangement as a cash flow hedge in accordance with
GAAP, and, therefore, the change in unrealized gains or losses on the derivative instruments is recorded
within AOCI, net of tax. Also, quarterly, in conjunction with financial reporting, the Company assesses each
derivative instrument for ineffectiveness. To the extent any significant ineffectiveness is identified this amount
would be recorded within the consolidated statements of income. For the year ended December 31, 2016, the
Company did not record any ineffectiveness on these cash flow hedges within the consolidated statements of
income.
The Bank has entered into a master netting arrangement with its counterparty and settles payments with
the counterparty quarterly on a net basis. The Bank’s arrangement with the counterparty requires it to post
cash collateral for contracts in a net liability position based on their fair values and the Bank’s credit rating. If
the interest rate swaps are in a net asset position based on their fair value, the counterparty is required to post
collateral to the Company. The collateral posted by the Company (or counterparty) is not readily available and
is presented within cash and due from banks on the consolidated statements of condition. At December 31,
2016, the Bank posted cash collateral to the counterparty of $474,000.
The details of the interest rate swap agreements are as follows:
Notional
Amount
$25,000
25,000
$50,000
Trade Date
2/25/2015
2/25/2015
Maturity
Date
2/25/2018
2/25/2019
Variable Index Received
1-Month USD LIBOR
1-Month USD LIBOR
Fixed Rate
Paid
1.54%
1.74%
December 31,
2016
Fair Value(1)
$(152)
(237)
$(389)
2015
Fair Value(1)
$(230)
(346)
$(576)
(1) Presented within accrued interest and other liabilities on the consolidated statements of condition.
Net payments to the counterparty for the year ended December 31, 2016 were $490,000 and have been
classified as cash flows from operating activities in the consolidated statements of cash flows.
Customer Loan Swaps
The Bank will enter into interest rate swaps with its commercial customers, from time to time, to provide
them with a means to lock into a long-term fixed rate, while simultaneously the Bank enters into an
arrangement with a counterparty to swap the fixed rate to a variable rate to allow it to effectively manage its
interest rate exposure.
The Bank’s customer loan level derivative program is not designated as a hedge for accounting purposes.
As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not materially
change the Bank’s interest rate risk or present any material exposure to the Company’s consolidated
statements of income. The Company records its customer loan swaps at fair value and presents such on a
gross basis within other assets and accrued interest and other liabilities on the consolidated statements of
condition.
122
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
18. Commitments, Contingencies and Derivatives − (continued)
The following table presents the total positions, notional and fair value of the Bank’s customer loans
swaps with its commercial customers and the corresponding interest rate swap agreements with counterparty
for the periods indicated:
Balance Sheet Location
Other assets/(accrued interest and
other liabilities)
Other assets/(accrued interest and
other liabilities)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
December 31,
2016
Number of
Positions
Notional
Fair Value
Number of
Positions
2015
Notional
Fair
Value
50
50
100
$266,263
$(1,945)
266,263
$532,526
1,945
$ —
28
28
56
$142,944
$ 3,166
142,944
$285,888
(3,166)
$ —
.
.
variable .
Receive fixed, pay
.
Pay fixed, received
.
.
variable .
.
Total . .
.
.
.
.
The Bank seeks to mitigate its customer counterparty credit risk exposure through its loan policy and
underwriting process, which includes credit approval limits, monitoring procedures, and obtaining collateral,
where appropriate. The Bank seeks to mitigate its institutional counterparty credit risk exposure by limiting
the institutions for which it will enter into interest swap arrangements through an approved listing by the
Company’s Board of Directors. The Company has entered into a master netting arrangement with its
counterparty and settles payments with the counterparty quarterly on a net basis. The Bank’s arrangement with
an institutional counterparty requires it to post cash collateral for contracts in a net liability position based on
their fair values and the Bank’s credit rating or receive cash collateral for contracts in a net asset position. At
December 31, 2016, the Company did not have any cash posted as collateral with the counterparty.
Interest Rate Locks Commitments:
As part of the origination process of a residential loan, the Company may enter into rate lock agreement
with its borrower, which is considered an interest rate lock commitment. If the Company has the intention to
sell the loan upon origination, it will account for the interest rate lock commitment as a derivative. Our
pipeline of mortgage loans with fixed-rate interest rate lock commitments were as follows for the periods
indicated:
Fixed-rate mortgage interest rate locks
Fixed-rate mortgage interest rate locks
. . . . Other assets
. . . . Accrued interest and other
Balance Sheet Location
liabilities
December 31,
2016
2015
Notional
$12,310
2,939
Fair Value
$202
(15)
Notional
$12,669
8,066
Fair Value
$229
(90)
Total
. . . . . . . . . . . . . . . . . . . . . . . . .
$15,249
$187
$20,735
$139
For the year ended December 31, 2016, 2015 and 2014, the unrealized gains from the change in fair
value on the Company’s fixed-rate mortgage interest rate locks reported within mortgage banking income, net,
on the consolidated statements of income were $48,000, $139,000, and $0, respectively.
Forward Delivery Commitments:
The Company typically enters into a forward delivery commitment with a secondary market investor,
which has been approved by the Company within its normal governance process, at the onset of the loan
origination process. The Company may enter into these arrangements with the secondary market investors on
a ‘‘best effort’’ or ‘‘mandatory delivery’’ basis. The Company’s normal practice is to typically enter into these
arrangements on a ‘‘best effort’’ basis. The Company enters into these arrangements with the secondary market
investors to manage its interest rate exposure. The Company accounts for the forward delivery commitment as
a derivative (but does not designate as a hedge) upon origination of a loan for which it intends to sell. The
Company’s forward delivery commitments on loans held for sale was as follows for the periods indicated:
123
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
18. Commitments, Contingencies and Derivatives − (continued)
Balance Sheet Location
Notional
Fair Value
Notional
Fair Value
Forward delivery commitments
(‘‘best-effort’’) . . . . . . . . . . . . . . . . . Other assets
$14,250
$ 587
Forward delivery commitments
(‘‘best-effort’’) . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Total
Accrued interest and other
liabilities
875
$15,125
(309)
$ 278
$—
—
$—
$—
—
$—
December 31,
2016
2015
For the year ended December 31, 2016, 2015 and 2014, the unrealized gains from the change in fair
value on the Company’s forward delivery commitments reported within mortgage banking income, net on the
consolidated statements of income were $278,000, $0, and $0, respectively.
The table below presents the effect of the Company’s derivative financial instruments included in OCI
and current earnings for the periods indicated:
Derivatives designated as cash flow hedges
Effective portion of unrealized losses recognized within AOCI
during the period, net of tax . . . . . . . . . . . . . . . . . . . . .
Net reclassification adjustment for effective portion of cash
flow hedges included in interest expense, gross(1)
. . . . . . .
For The Year Ended
December 31,
2015
2014
2016
$ (637)
$(1,533)
$(4,515)
$2,026
$ 1,695
$ 1,714
(1) Reclassified into the consolidated statements of income within interest on subordinated debentures.
The Company expects approximately $1.6 million (pre-tax) to be reclassified to interest expense from
OCI, related to the Company’s cash flow hedges, in the next twelve months. This reclassification is due to
anticipated payments that will be made and/or received on the swaps based upon the forward curve as of
December 31, 2016.
19. Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value is best determined using quoted
market prices. However, in many instances, quoted market prices are not available. In such instances, fair
values are determined using various valuation techniques. Various assumptions and observable inputs must be
relied upon in applying these techniques. GAAP establishes a fair value hierarchy for valuation inputs that
gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs.
GAAP permits an entity to choose to measure certain eligible financial instruments and other items at fair
value. The Company elected the fair value option for its loans held for sale. Electing the fair value option for
loans held for sale enables the Company’s financial position to more clearly align with the economic value of
the actively traded asset.
124
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
19. Fair Value − (continued)
The fair value hierarchy for valuation of an asset or liability is as follows:
Level 1: Valuation is based upon unadjusted quoted prices in active markets for identical assets and
liabilities that the entity has the ability to access as of the measurement date.
Level 2: Valuation is determined from quoted prices for similar assets or liabilities in active markets,
from quoted prices for identical or similar instruments in markets that are not active or by
model-based techniques in which all significant inputs are observable in the market.
Level 3: Valuation is derived from model-based and other techniques in which at least one significant
input is unobservable and which may be based on the Company’s own estimates about the
assumptions that market participants would use to value the asset or liability.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices
are not available, fair value is based upon model-based techniques incorporating various assumptions
including interest rates, prepayment speeds and credit losses. Assets and liabilities valued using model-based
techniques are classified as either Level 2 or Level 3, depending on the lowest level classification of an input
that is considered significant to the overall valuation. A description of the valuation methodologies used for
instruments measured at fair value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below.
Financial Instruments Recorded at Fair Value on a Recurring Basis
Loans Held For Sale: The fair value of loans held for sale is determined using quoted secondary market
prices or executed sales agreements and is classified as Level 2.
AFS Securities: The fair value of debt AFS securities is reported utilizing prices provided by an
independent pricing service based on recent trading activity and other observable information including, but
not limited to, dealer quotes, market spreads, cash flows, market interest rate curves, market consensus
prepayment speeds, credit information, and the bond’s terms and conditions. The fair value of debt securities
are classified as Level 2.
The fair value of equity AFS securities is reported utilizing market prices based on recent trading activity.
The equity securities are traded on inactive markets and are classified as Level 2.
Derivatives: The fair value of the Company’s interest rate swaps, including its junior subordinated debt
interest rate swaps, FHLBB advance interest rate swaps and customer loan swaps, are determined using inputs
that are observable in the market place obtained from third parties including yield curves, publicly available
volatilities, and floating indexes and, accordingly, are classified as Level 2 inputs. The credit value
adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to
evaluate the likelihood of default by the Company and its counterparties. As of December 31, 2016 and 2015,
the Company has assessed the significance of the impact of the credit valuation adjustments on the overall
valuation of its derivative positions and has determined that the credit valuation adjustments are not significant
to the overall valuation of its derivatives due to collateral postings.
The fair value of the Company’s fixed rate interest rate lock commitments are determined using
secondary market pricing for loans with similar structures, including term, rate and borrower credit quality,
adjusted for the Company’s pull-through rate estimate (i.e. estimate of loans within its pipeline that will
ultimately complete the origination process and be funded). The Company has classified its fixed rate interest
rate lock commitments as Level 2 as the quoted secondary market prices are the more significant input, and
while the Company’s internal pull-through rate estimate is a Level 3 estimate it is not as critical to the
ultimate valuation.
125
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
19. Fair Value − (continued)
The fair value of the Company’s forward delivery commitments are determined using secondary market
pricing for loans with similar structures, including term, rate and borrower credit quality, and the locked and
agreed to price with the secondary market investor. The Company has classified its fixed rate interest rate lock
commitments as Level 2.
The following table summarizes financial assets and financial liabilities measured at fair value on a
recurring basis as of December 31, 2016 and 2015, segregated by the level of the valuation inputs within the
fair value hierarchy utilized to measure fair value:
Readily
Available
Market
Prices
(Level 1)
Observable
Market Data
(Level 2)
Company
Determined
Fair Value
(Level 3)
Fair Value
$ 14,836
$—
$ 14,836
$—
9,001
480,622
283,890
5,613
741
1,945
202
587
8,372
389
1,945
15
309
—
—
—
—
—
—
—
—
—
—
—
—
—
9,001
480,622
283,890
5,613
741
1,945
202
587
8,372
389
1,945
15
309
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 10,958
$—
$ 10,958
$—
5,040
17,694
419,046
306,857
996
705
3,166
229
9,229
576
3,166
90
—
—
—
—
—
—
—
—
—
—
—
—
5,040
17,694
419,046
306,857
996
705
3,166
229
9,229
576
3,166
90
—
—
—
—
—
—
—
—
—
—
—
—
December 31, 2016
Financial assets:
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AFS securities:
Obligations of states and political subdivisions . . . . . . . . . .
Mortgage-backed securities issued or guaranteed by
U.S. government-sponsored enterprises . . . . . . . . . . . . .
Collateralized mortgage obligations issued or guaranteed by
U.S. government-sponsored enterprises . . . . . . . . . . . . .
Subordinated corporate bonds . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer loan swaps . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed-rate interest rate lock commitments
. . . . . . . . . . . . . .
Forward delivery commitments . . . . . . . . . . . . . . . . . . . . .
Financial liabilities:
Junior subordinated debt interest rate swaps . . . . . . . . . . . . .
FHLBB advance interest rate swaps . . . . . . . . . . . . . . . . . .
Customer loan swaps . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed-rate interest rate lock commitments
. . . . . . . . . . . . . .
Forward delivery commitments . . . . . . . . . . . . . . . . . . . . .
December 31, 2015
Financial assets:
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AFS securities:
Obligations of U.S. government-sponsored enterprises . . . . .
Obligations of states and political subdivisions . . . . . . . . . .
Mortgage-backed securities issued or guaranteed by U.S.
government-sponsored enterprises . . . . . . . . . . . . . . . .
Collateralized mortgage obligations issued or guaranteed by
U.S. government-sponsored enterprises . . . . . . . . . . . . .
Subordinated corporate bonds . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer loan swaps . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Fixed-rate interest rate lock commitments
Financial liabilities:
Junior subordinated debt interest rate swaps . . . . . . . . . . . . .
FHLBB advance interest rate swaps . . . . . . . . . . . . . . . . . .
Customer loan swaps . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Fixed-rate interest rate lock commitments
126
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
19. Fair Value − (continued)
The Company did not have any transfers between Level 1 and Level 2 of the fair value hierarchy for the
year ended December 31, 2016. The Company’s policy for determining transfers between levels occurs at the
end of the reporting period when circumstances in the underlying valuation criteria change and result in
transfer between levels.
Financial Instruments Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain financial assets and financial
liabilities at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are
measured at the lower of cost or fair value that were recognized at fair value below cost at the end of the
period.
Collateral-Dependent Impaired Loans: Loans for which it is probable that payment of interest and
principal will not be made in accordance with the contractual terms of the loan agreement are considered
impaired. The Company’s policy is to individually evaluate for impairment loans with a principal balance
greater than $250,000 or more and are classified as substandard or doubtful and are on non-accrual status.
Once the population of loans is identified for individual impairment assessment, the Company measures these
loans for impairment by comparing NRV, which is the fair value of the collateral, less estimated costs to sell,
to the carrying value of the loan. If the NRV of the loan is less than the carrying value of the loan, then a
loss is recognized as part of the ALL to adjust the loan’s carrying value to NRV. Accordingly, certain
collateral-dependent impaired loans are subject to measurement at fair value on a non-recurring basis.
Management has estimated the fair values of these assets using Level 2 inputs, such as the fair value of
collateral based on independent third-party market approach appraisals for collateral-dependent loans, and
Level 3 inputs where circumstances warrant an adjustment to the appraised value based on the age of the
appraisal and/or comparable sales, condition of the collateral, and market conditions.
MSRs: The Company accounts for mortgage servicing assets at cost, subject to impairment testing.
When the carrying value of a tranche exceeds fair value, a valuation allowance is established to reduce the
carrying cost to fair value. Fair value is based on a valuation model that calculates the present value of
estimated net servicing income. The Company obtains a third-party valuation based upon loan level data
including note rate, type and term of the underlying loans. The model utilizes a variety of observable inputs
for its assumptions, the most significant of which are loan prepayment assumptions and the discount rate used
to discount future cash flows. Other assumptions include delinquency rates, servicing cost inflation and annual
unit loan cost. MSRs are classified within Level 2 of the fair value hierarchy.
Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Company has no non-financial assets or non-financial liabilities measured at fair value on a recurring
basis. Non-financial assets measured at fair value on a non-recurring basis consist of OREO and goodwill.
OREO: OREO properties acquired through foreclosure or deed in lieu of foreclosure are recorded at
NRV, which is the fair value of the real estate, less estimated costs to sell. Any write-down of the recorded
investment in the related loan is charged to the ALL upon transfer to OREO. Upon acquisition of a property, a
current appraisal is used or an internal valuation is prepared to substantiate fair value of the property. After
foreclosure, management periodically, but at least annually, obtains updated valuations of the OREO properties
and, if additional impairments are deemed necessary, the subsequent write-downs for declines in value are
recorded through a valuation allowance and a provision for losses charged to other non-interest expense within
the consolidated statements of income. As management considers appropriate, adjustments are made to the
appraisal obtained for the OREO property to account for recent sales activity of comparable properties,
changes in the condition of the property, and changes in market conditions. These adjustments are not
observable in an active market and are classified as Level 3.
127
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
19. Fair Value − (continued)
Goodwill and Other Intangible Assets: Goodwill represents the excess cost of an acquisition over the
fair value of the net assets acquired. The fair value of goodwill is estimated by utilizing several standard
valuation techniques, including discounted cash flow analyses, bank merger multiples, and/or an estimation of
the impact of business conditions and investor activities on the long-term value of the goodwill. Should an
impairment of either reporting unit’s goodwill occur, the associated goodwill is written-down to fair value and
the impairment charge is recorded within non-interest expense in the consolidated statements of income. The
Company conducts an annual impairment test of goodwill in the fourth quarter each year, or more frequently
as necessary. There were no indications or triggering events for the year ended December 31, 2016 or 2015
for which management believed that it was more likely than not that goodwill is impaired.
The Company’s core deposit intangible assets represent the estimated value of acquired customer
relationships and are amortized on a straight-line basis over the estimated life of those relationships. Core
deposit intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If necessary, management will test the core deposit intangibles for
impairment by comparing its carrying value to the expected undiscounted cash flows of the assets. If the
undiscounted cash flows of the intangible assets exceed its carrying value then the intangible assets are
deemed to be fully recoverable and not impaired. However, if the undiscounted cash flows of the intangible
assets are less than its carrying value than an impairment charge is recorded to mark the carrying value of the
intangible assets to fair value. There were no indications or triggering events for the year ended December 31,
2016 or 2015 for which management believes that the carrying amount may not be recoverable.
The table below highlights financial and non-financial assets measured and recorded at fair value on a
non-recurring basis as of December 31, 2016 and 2015:
Readily
Available
Market
Prices
(Level 1)
Observable
Market Data
(Level 2)
Company
Determined
Fair Value
(Level 3)
Fair
Value
December 31, 2016
Financial assets:
Collateral-dependent impaired loans
MSRs(1)
. . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 500
1,090
Non-financial assets:
OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . .
922
December 31, 2015
Financial assets:
Collateral-dependent impaired loans
MSRs(1)
. . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,971
440
Non-financial assets:
OREO . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,304
$—
—
—
$—
—
—
$ —
1,090
$ 500
—
—
922
$ —
440
$1,971
—
—
1,304
(1) Represents MSRs deemed to be impaired and a valuation allowance was established to carry at fair value
at December 31, 2016 and 2015.
128
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
19. Fair Value − (continued)
The following table presents the valuation methodology and unobservable inputs for Level 3 assets
measured at fair value on a non-recurring basis at December 31, 2016 and 2015:
Fair
Value
Valuation Methodology
Unobservable input
Discount Range
(Weighted-Average)
December 31, 2016
Collateral-dependent
impaired loans:
Partially charged-off
. . . $ 166 Market approach appraisal of
collateral
Specifically reserved . . .
334 Market approach appraisal of
collateral
OREO . . . . . . . . . . . . .
922 Market approach appraisal of
collateral
December 31, 2015
Collateral-dependent
impaired loans:
Partially charged-off
. . . $ 399 Market approach appraisal of
collateral
Specifically reserved . . .
1,572 Market approach appraisal of
collateral
OREO . . . . . . . . . . . . .
1,304 Market approach appraisal of
collateral
Management adjustment of
appraisal
Estimated selling costs
Management adjustment of
appraisal
Estimated selling costs
Management adjustment of
appraisal
Estimated selling costs
0%
(0)%
0 − 10%
0 − 50%
10%
0 − 73%
(5)%
(13)%
(10)%
(7)%
10%
(10)%
Management adjustment of
appraisal
Estimated selling costs
Management adjustment of
appraisal
Estimated selling costs
Management adjustment of
appraisal
Estimated selling costs
0%
(0)%
0 − 10%
0 − 57%
10%
0 − 43%
(7)%
(45)%
(10)%
(18)%
10%
(10)%
GAAP requires disclosure of the fair value of financial assets and financial liabilities, including those
financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or
non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities
that are measured at fair value on a recurring or non-recurring basis are discussed above. The following
methods and assumptions were used by the Company in estimating the fair values of its other financial
instruments.
Cash and Due from Banks: The carrying amounts reported in the consolidated statements of condition
approximate fair value that have original maturities of ninety days or less.
HTM securities: The fair value is estimated utilizing prices provided by an independent pricing service
based on recent trading activity and other observable information including, but not limited to, dealer quotes,
market spreads, cash flows, market interest rate curves, market consensus prepayment speeds, credit
information, and the bond’s terms and conditions. The fair value is classified as Level 2.
Loans: For variable rate loans that reprice frequently and have no significant change in credit risk, fair
values are based on carrying values. The fair value of other loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities.
Interest Receivable and Payable: The carrying amounts reported in the consolidated statements of
condition approximate fair value.
129
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
19. Fair Value − (continued)
Deposits: The fair value of demand, non-interest checking, savings and money market deposits is
determined as the amount payable on demand at the reporting date. The fair value of time deposits is
estimated by discounting the estimated future cash flows using market rates offered for deposits of similar
remaining maturities.
Borrowings: The carrying amounts of short-term borrowings from the FHLB, securities sold under
repurchase agreements, notes payable and other short-term borrowings approximate fair value. The fair values
of long-term borrowings and commercial repurchase agreements are based on the discounted cash flows using
current rates for advances of similar remaining maturities.
Subordinated Debentures: The fair values of are based on quoted prices from similar instruments in
inactive markets.
The following table presents the carrying amounts and estimated fair value for financial instrument assets
and liabilities at December 31, 2016:
Carrying Amount
Fair Value
Readily Available
Market Prices
(Level 1)
Observable
Market Prices
(Level 2)
Financial assets:
Cash and due from banks . . . . . . . . . . . . . . . . .
AFS securities
. . . . . . . . . . . . . . . . . . . . . . . .
HTM securities . . . . . . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . . . . . . .
Residential real estate loans(1)
. . . . . . . . . . . . . .
Commercial real estate loans(1)
. . . . . . . . . . . . .
Commercial loans(1)(2)
. . . . . . . . . . . . . . . . . . .
Home equity loans(1)
. . . . . . . . . . . . . . . . . . . .
Consumer loans(1)
. . . . . . . . . . . . . . . . . . . . . .
MSRs(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . .
Customer loan swaps . . . . . . . . . . . . . . . . . . . .
Fixed-rate interest rate lock
commitments . . . . . . . . . . . . . . . . . . . . . . . .
Forward delivery commitments . . . . . . . . . . . . .
Financial liabilities:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . . . . . . .
Subordinated debentures . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . .
Junior subordinated debt interest rate swaps
. . . .
Forward-starting interest rate swaps . . . . . . . . . .
Customer loan swaps . . . . . . . . . . . . . . . . . . . .
Fixed-rate interest rate lock
commitments . . . . . . . . . . . . . . . . . . . . . . . .
Forward delivery commitments . . . . . . . . . . . . .
$
87,707
779,867
94,609
14,836
798,334
1,038,626
389,624
327,713
17,151
1,210
8,654
1,945
$
87,707
779,867
94,596
14,836
800,122
1,006,249
391,493
327,292
16,845
1,701
8,654
1,945
202
587
202
587
$2,828,529
530,129
10,791
58,755
534
8,372
389
1,945
$2,826,484
530,435
10,836
41,660
534
8,372
389
1,945
15
309
15
309
$87,707
—
—
—
—
—
—
—
—
—
—
—
—
—
$ —
—
—
—
—
—
—
—
—
—
$
—
779,867
94,596
14,836
—
—
—
—
—
1,701
8,654
1,945
202
587
$2,826,484
530,435
10,836
41,660
534
8,372
389
1,945
15
309
Company
Determined
Market Prices
(Level 3)
$
—
—
—
—
800,122
1,006,249
391,493
327,292
16,845
—
—
—
$
—
—
—
—
—
—
—
—
—
—
—
—
(1) The presented carrying amount is net of the allocated ALL.
(2)
(3) Reported fair value represents all MSRs currently being serviced by the Company at December 31, 2016.
Includes the HPFC loan portfolio.
130
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
19. Fair Value − (continued)
The following table presents the carrying amounts and estimated fair value for financial instrument assets
and liabilities at December 31, 2015:
Carrying
Amount
Fair Value
Readily
Available
Market Prices
(Level 1)
Observable
Market Prices
(Level 2)
Company
Determined
Market Prices
(Level 3)
— $
Financial assets:
Cash and due from banks . . . . . . . . . . . . $
AFS securities
. . . . . . . . . . . . . . . . . . .
HTM securities . . . . . . . . . . . . . . . . . . .
Loans held for sale . . . . . . . . . . . . . . . .
Residential real estate loans(1)
. . . . . . . . .
Commercial real estate loans(1)
. . . . . . . .
Commercial loans(1)(2)
. . . . . . . . . . . . . .
Home equity loans(1)
. . . . . . . . . . . . . . .
Consumer loans(1)
. . . . . . . . . . . . . . . . .
MSRs(3) . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . .
Customer loan swaps . . . . . . . . . . . . . . .
Fixed-rate interest rate lock
$
79,488
750,338
84,144
10,958
808,180
922,257
371,684
349,215
17,704
2,161
7,985
3,166
$
79,488
750,338
85,647
10,958
820,774
911,316
371,854
348,963
18,163
2,947
7,985
3,166
$79,488
—
—
—
—
—
—
—
—
—
—
—
750,338
85,647
10,958
—
—
—
—
—
2,947
7,985
3,166
—
—
—
—
820,774
911,316
371,854
348,963
18,163
—
—
—
commitments . . . . . . . . . . . . . . . . . . .
229
229
—
229
Financial liabilities:
Deposits
Short-term borrowings . . . . . . . . . . . . . .
Long-term borrowings . . . . . . . . . . . . . .
Subordinated debentures . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . .
Junior subordinated debt interest rate
. . . . . . . . . . . . . . . . . . . . . . . $2,726,379
477,852
35,911
58,599
641
$2,726,300
479,403
36,307
42,950
641
$ — $2,726,300
479,403
36,307
42,950
641
—
—
—
—
$
swaps . . . . . . . . . . . . . . . . . . . . . . . .
Forward-starting interest rate swaps . . . . .
Customer loan swaps . . . . . . . . . . . . . . .
Fixed-rate interest rate lock
9,229
576
3,166
9,229
576
3,166
commitments . . . . . . . . . . . . . . . . . . .
90
90
—
—
—
—
9,229
576
3,166
90
—
—
—
—
—
—
—
—
—
—
(1) The presented carrying amount is net of the allocated ALL.
(2)
(3) Reported fair value represents all MSRs currently being serviced by the Company at December 31, 2015.
Includes the HPFC loan portfolio.
20. Regulatory Capital Requirements
The Company and Bank are subject to various regulatory capital requirements administered by the FRB
and the OCC. 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.
The Company and the Bank are required to maintain certain levels of capital based on risk-adjusted
assets. These capital requirements represent quantitative measures of their assets, liabilities and certain
131
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
20. Regulatory Capital Requirements − (continued)
off-balance sheet items as calculated under regulatory accounting practices. The Company and the Bank’s
capital classification is also subject to qualitative judgments by our regulators about components, risk
weightings and other factors. The quantitative measures established to ensure capital adequacy require us to
maintain minimum amounts and ratios of total, Tier I capital, and common equity Tier I to risk-weighted
assets, and of Tier I capital to average assets, or leverage ratio. These guidelines apply to the Company on a
consolidated basis.
Under the current guidelines, banking organizations must have a minimum total risk-based capital ratio of
8.0%, a minimum Tier I risk-based capital ratio of 6.0%, a minimum common equity Tier I risk-based capital
ratio of 4.5%, and a minimum leverage ratio of 4.0% in order to be ‘‘adequately capitalized.’’ In addition to
these requirements, banking organizations must maintain a 2.5% capital conservation buffer consisting of
common Tier I equity, subject to a transition schedule with a full phase-in by 2019. Effective January 1, 2016,
the Company and the Bank were required to establish a capital conservation buffer of 0.625%, increasing the
minimum required total risk-based capital, Tier I risk-based and common equity Tier I capital to risk-weighted
assets they must maintain to avoid limits on capital distributions and certain bonus payments to executive
officers and similar employees.
The Company and Bank’s risk-based capital ratios exceeded regulatory guidelines at December 31, 2016
and 2015, and, specifically, the Bank was ‘‘well capitalized’’ under prompt correct action provisions for each
period. There were no conditions or events that occurred subsequent to December 31, 2016 that would change
the Company or Bank’s regulatory capital categorization. The following table presents the Company and
Bank’s regulatory capital ratios at the periods indicated:
Minimum
Regulatory
Capital
Required
for Capital
Adequacy
plus Capital
Conservation
Buffer
Minimum
Regulatory
Provision To
Be ‘‘Well
Capitalized’’
Under
Prompt
Corrective
Action
Provisions
December 31, 2016
Ratio
Amount
December 31, 2015
Ratio
Amount
Minimum
Regulatory
Provision To
Be ‘‘Well
Capitalized’’
Under
Prompt
Corrective
Action
Provisions
Minimum
Regulatory
Capital
Required
For Capital
Adequacy
Purposes
Camden National Corporation:
Total risk-based capital ratio . . . . . . . . . . . . . .
Tier I risk-based capital ratio . . . . . . . . . . . . . .
Common equity Tier I risk-based capital
ratio . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier I leverage capital ratio . . . . . . . . . . . . . . .
Camden National Bank:
Total risk-based capital ratio . . . . . . . . . . . . . .
Tier I risk-based capital ratio . . . . . . . . . . . . . .
Common equity Tier I risk-based capital
ratio . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier I leverage capital ratio . . . . . . . . . . . . . . .
$368,856
330,729
296,120
330,729
$340,908
317,782
317,782
317,782
14.04%
12.59%
11.27%
8.83%
12.92%
12.05%
12.05%
8.54%
8.63%
6.63%
5.13%
4.00%
8.63%
6.63%
5.13%
4.00%
N/A
N/A
N/A
N/A
$335,740
299,552
269,350
299,552
10.00%
8.00%
$304,847
283,659
6.50%
5.00%
283,659
283,659
12.98%
11.58%
10.42%
8.74%
11.75%
10.93%
10.93%
8.33%
8.00%
6.00%
4.50%
4.00%
8.00%
6.00%
4.50%
4.00%
N/A
N/A
N/A
N/A
10.00%
8.00%
6.50%
5.00%
132
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
20. Regulatory Capital Requirements − (continued)
On October 8, 2015, the Company issued $15.0 million of 10 year subordinated debentures bearing
interest at an annual rate of 5.50%. In addition, $43.0 million of junior subordinated debentures were issued in
connection with the issuance of trust preferred securities in 2006 and 2008. Although the subordinated
debentures and the junior subordinated debentures are recorded as liabilities on the Company’s consolidated
statements of condition, the Company is permitted, in accordance with regulatory guidelines, to include,
subject to certain limits, each within its calculation of risk-based capital. At December 31, 2016 and 2015,
$15.0 million of subordinated debentures were included as Tier II capital and were included in the calculation
of the Company’s total risk-based capital, and, at December 31, 2016 and December 31, 2015, $43.0 million
of the junior subordinated debentures were included in Tier I and total risk-based capital for the Company.
The Company and Bank’s regulatory capital and risk-weighted assets fluctuate due to normal business,
including profits and losses generated by the Company and Bank as well as changes to their asset mix. Of
particular significance are changes within the Company and Bank’s loan portfolio mix due to the difference in
regulatory risk-weighting differences between retail and commercial loans. Furthermore, the Company and
Bank’s regulatory capital and risk-weighted assets are subject to change due to changes in GAAP and
regulatory capital standards. The Company and Bank proactively monitor their regulatory capital and
risk-weighted assets, and the impact of changes to their asset mix, and impact of proposed and pending
changes as a result of new and/or amended GAAP standards and regulatory changes.
21. Parent Company Financial Statements
Following are the condensed statements of condition, income and cash flows for the Company’s parent
company:
STATEMENTS OF CONDITION
December 31,
2016
2015
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 29,905
$ 26,581
Investment in subsidiaries:
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acadia Trust(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . .
429,100
—
107
12,420
$471,532
$ 58,755
37
21,193
391,547
$471,532
394,404
10,232
1,926
13,939
$447,082
$ 58,590
1,216
24,086
363,190
$447,082
(1) Effective at the close of business November 30, 2016, Acadia Trust merged into Camden National Bank.
133
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
21. Parent Company Financial Statements − (continued)
STATEMENTS OF INCOME
Operating Income
Dividend income from subsidiaries . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (loss)
Total operating income . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Expenses
Interest on borrowings
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Fees to Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses
Income before equity in undistributed earnings of subsidiaries
Equity in undistributed income (losses) of subsidiaries
and income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For The Year Ended
December 31,
2015
$ 39,200
(18)
39,182
2,734
160
469
3,363
35,819
(15,999)
19,820
1,132
$ 20,952
2014
$12,800
104
12,904
2,532
160
453
3,145
9,759
13,799
23,558
1,012
$24,570
2016
$16,000
239
16,239
3,415
160
748
4,323
11,916
26,773
38,689
1,378
$40,067
134
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
21. Parent Company Financial Statements − (continued)
STATEMENTS OF CASH FLOWS
For The Year
Ended December 31,
2015
2014
2016
$ 40,067
$ 20,952
$ 24,570
(26,651)
(4)
1,819
1,213
(1,179)
(2,519)
12,746
—
80
—
80
—
894
1,997
—
—
4,573
—
(1,901)
(2,175)
1,216
320
22,985
(25,319)
—
—
(25,319)
(13,799)
—
2,037
165
—
(2,106)
10,867
—
—
5,237
5,237
14,464
—
753
836
(612)
—
328
599
—
(7,475)
(8,085)
(14,633)
1,471
21,788
$ 23,259
(12,393)
(9,502)
3,324
26,581
$ 29,905
(9,785)
5,656
3,322
23,259
$ 26,581
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed (income) losses of subsidiaries . . . . . .
Gain on sale of investment securities . . . . . . . . . . . . . . . . . .
(Increase) decrease in receivable from subsidiaries
. . . . . . . .
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in due to subsidiaries . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Increase (decrease) in other liabilities
Net cash provided by operating activities . . . . . . . . . . . .
Investing Activities
Acquisition of SBM, net of cash acquired . . . . . . . . . . . . . . . .
Proceeds from sale of investment securities . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . .
Financing Activities
Issuance of subordinated debt, net of issuance costs . . . . . . . . .
Exercise of stock options and issuance of restricted stock, net of
repurchase for tax withholdings and tax benefit . . . . . . . . . . .
Capital contribution from subsidiaries . . . . . . . . . . . . . . . . . . .
Equity issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock repurchase
Cash dividends paid on common stock and cash in-lieu paid for
fractional shares due to stock split
. . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . .
Net increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . .
135
CAMDEN NATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Tables Expressed in Thousands, Except Per Share Data)
22. Quarterly Results of Operations (Unaudited)
The following table presents a summary of the quarterly results of operations for the year ended:
First
Quarter(1)
Interest income . . . . . . $31,981
4,029
Interest expense . . . . . .
Net interest income . . .
27,952
Provision for credit
2016
2015
December 31,
Second
Quarter
$32,775
4,271
28,504
Third
Quarter
$32,594
4,222
28,372
Fourth
Quarter
$32,276
4,032
28,244
First
Quarter
$22,448
3,014
19,434
Second
Quarter
$23,657
3,022
20,635
Third
Quarter
$23,056
3,044
20,012
Fourth
Quarter(2)
$29,983
3,612
26,371
losses . . . . . . . . . . .
Non-interest income . . .
Non-interest expense . .
Income before income
872
7,917
22,909
2,852
10,552
22,330
1,279
11,001
22,149
255
10,151
22,508
446
6,147
16,801
254
6,310
16,157
279
6,561
16,711
957
8,464
31,470
taxes
12,088
. . . . . . . . . . .
Income tax expense . . .
3,442
Net income . . . . . . . . . $ 8,646
13,874
4,258
$ 9,616
15,945
5,042
$10,903
15,632
4,730
$10,902
8,334
2,723
$ 5,611
10,534
3,341
$ 7,193
9,583
3,127
$ 6,456
2,408
716
$ 1,692
Per common share(3):
Basic . . . . . . . . . . . . . $
0.56
Diluted . . . . . . . . . . . . $ 0.56
$ 0.62
$ 0.62
$
$
0.70
0.70
$
$
0.70
0.70
$
$
0.50
0.50
$
$
0.64
0.64
$
$
0.58
0.57
$
$
0.11
0.11
(1)
In the second quarter of 2016, the Company adopted ASU 2016-09 effective as of January 1, 2016. As
such, first quarter 2016 financial results have been restated from previously reported within Form 10-Q.
(2) On October 16, 2015, the Company completed its acquisition of SBM. Fourth quarter 2015 results of
operations include revenues and expenses incurred as a combined organization from the acquisition date
through December 31, 2015. The decrease in basic and diluted EPS in the fourth quarter of 2015 was due
to acquisition costs and the issuance of 4.1 million shares of Company common stock (as adjusted for the
three-for-two common stock split effective September 30, 2016) in connection with the acquisition. Refer
to Note 2 for additional details of the acquisition.
(3) Earnings per share amounts have been adjusted to reflect the three-for-two split effective September 30,
2016, for all periods presented. Refer to Note 13.
136
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Camden National Corporation
We have audited the accompanying consolidated statements of condition of Camden National Corporation
and Subsidiary (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of
income, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended.
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 the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of its
operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting
principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based
on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013, and our report dated March 7, 2017 expressed an
unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ RSM US LLP
New York, New York
March 7, 2017
137
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Camden National Corporation
We have audited Camden National Corporation and Subsidiary’s (the Company) internal control over
financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated statements of condition of the Company as of December 31, 2016 and
2015, and the related consolidated statements of income, comprehensive income, changes in shareholders’
equity and cash flows for the years then ended, and our report dated March 7, 2017 expressed an unqualified
opinion.
/s/ RSM US LLP
New York, New York
March 7, 2017
138
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Directors
Camden National Corporation
We have audited the accompanying consolidated statements of income, comprehensive income, changes
in shareholders’ equity, and cash flows of Camden National Corporation and Subsidiaries (the Company) for
the year ended December 31, 2014. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated results of operations and consolidated cash flows of Camden National Corporation
and Subsidiaries for the year ended December 31, 2014, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Berry Dunn McNeil & Parker, LLC
Portland, Maine
March 10, 2015
139
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange
Act’’), the Company’s management conducted an evaluation with the participation of the Company’s Chief
Executive Officer and Chief Operating Officer and Chief Financial Officer & Principal Financial and
Accounting Officer, regarding the effectiveness of the Company’s disclosure controls and procedures, as of the
end of the last fiscal year. In designing and evaluating the Company’s disclosure controls and procedures, the
Company and its management recognize that any controls and procedures, no matter how well designed and
operated, can provide only a reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating and implementing possible controls
and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Operating Officer and
Chief Financial Officer & Principal Financial and Accounting Officer concluded that they believe the
Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed
by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms. We intend to continue to review
and document our disclosure controls and procedures, including our internal controls and procedures for
financial reporting, and we may from time to time make changes to the disclosure controls and procedures to
enhance their effectiveness and to ensure that our systems evolve with our business.
There was no change in our internal control over financial reporting that occurred during the period
covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
MANAGEMENT’S ANNUAL REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Management of the Company is responsible for the preparation and fair presentation of the financial
statements and other financial information contained in this Form 10-K. Management is also responsible for
establishing and maintaining adequate internal control over financial reporting and for identifying the
framework used to evaluate its effectiveness. Management has designed processes, internal controls and a
business culture that foster financial integrity and accurate reporting. The Company’s comprehensive system of
internal control over financial reporting was designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of the consolidated financial statements of the Company in
accordance with accounting principles generally accepted in the United States of America. The Company’s
accounting policies and internal control over financial reporting, established and maintained by management,
is under the general oversight of the Company’s Board of Directors, including the Board of Directors’ Audit
Committee.
Management has made a comprehensive review, evaluation, and assessment of the Company’s internal
control over financial reporting as of December 31, 2016. The standard measures adopted by management in
making its evaluation are the measures in Internal Control — Integrated Framework (2013) published by the
Committee of Sponsoring Organizations of the Treadway Commission. Based upon its review and evaluation,
management concluded that, as of December 31, 2016, the Company’s internal control over financial reporting
was effective and that there were no material weaknesses. However, Management recognizes a control system,
no matter how well designed and operated, has inherent limitations and can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met and may not prevent or detect all error and
fraud. Therefore, even a system determined to be effective can provide only reasonable assurance with respect
to financial statement preparation and presentation.
RSM US LLP, an independent registered public accounting firm, which has audited and reported on the
consolidated financial statements contained in this Form 10-K, has issued its written attestation report on
management’s assessment of the Company’s internal control over financial reporting which precedes this report.
Item 9B. Other Information
None.
140
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference from the material responsive to
such item in the Company’s Proxy Statement for the 2017 Annual Meeting of Shareholders to be held on
April 25, 2017.
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 Proxy Statement for the 2017 Annual Meeting of Shareholders to be held on
April 25, 2017.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Securities authorized for issuance under equity compensation plans are as follows:
Number of
Securities to Be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
(a)
Weighted Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(b)
Number of Securities
Remaining Available
for Future Issuance
(Excluding Securities
in Column (a))
(c)(2)
Equity compensation plans approved
by shareholders(1)
. . . . . . . . . . . .
Equity compensation plans not
approved by shareholders . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Total
211,691
—
211,691
$7.80
—
$7.80
978,436
—
978,436
(1) Share and per share amounts have been adjusted to reflect the three-for-two split effective September 30,
2016. Refer to Note 13 for further discussion.
(2) Represents the 1.2 million shares available under the 2012 Equity and Incentive Plan less awards granted
plus shares added back due to the forfeiture, cancellation or reacquisition by the Company for the
settlement of an award to cover the exercise price or tax withholding under the current and previous
plans.
Refer to Notes 1 and 15 to the consolidated financial statements within Item 8. ‘‘Financial Statements
and Supplementary Data’’ for further information related to the Company’s equity compensation plans.
The information required by this item is incorporated by reference from the material responsive to
such item in the Company’s Proxy Statement for the 2017 Annual Meeting of Shareholders to be held on
April 25, 2017.
Item 13. Certain Relationships, Related Transactions and Director Independence
The information required by this item is incorporated by reference from the material responsive to
such item in the Company’s Proxy Statement for the 2017 Annual Meeting of Shareholders to be held on
April 25, 2017.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference from the material responsive to
such item in the Company’s Proxy Statement for the 2017 Annual Meeting of Shareholders to be held on
April 25, 2017.
141
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Index to Financial Statements:
PART IV
The consolidated financial statements of the Company and report of the Company’s independent
registered public accounting firm incorporated herein are included in Item 8 of this Report, as follows:
Consolidated Statements of Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . .
2. Financial Statement Schedules:
Page
66
67
68
69
70
72
137
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 are included in the
consolidated financial statements or notes thereto.
3. Exhibits:
Exhibit
No.
2.1
2.2
3.1
3.2
10.1+
10.2+
10.3+
10.4+
10.5+
Definition
Purchase and Assumption Agreement, dated April 23, 2012, by and between Bank of America,
National Association and Camden National Bank (incorporated herein by reference to Exhibit 2.1
to the Company’s Form 8-K filed with the Commission on April 24, 2012).
Agreement and Plan of Merger dated as of March 29, 2015 by and among Camden National
Corporation, Atlantic Acquisitions, LLC, and SBM Financial, Inc. (incorporated herein
by reference to Exhibit 2.1 to the Company’s Form 8-K filed with the Commission on
March 30, 2015).
Articles of Incorporation of Camden National Corporation, as amended (incorporated herein
by reference to Exhibit 3.i.1 to the Company’s Form 10-K filed with the Commission on
March 2, 2011).
Amended and Restated Bylaws of Camden National Corporation (incorporated herein
by reference to Exhibit 3.2 to the Company’s Form 8-K/A filed with the Commission on
December 23, 2016).
Camden National Corporation 2003 Stock Option and Incentive Plan (incorporated by reference
to Exhibit 10.1 to the Company’s Form 10-Q filed with the Commission on August 8, 2008).
Form of Incentive Stock Option Agreement under the Camden National Corporation 2003 Stock
Option and Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the Company’s
Form 10-K filed with the Commission on March 2, 2011).
Form of Restricted Stock Award Agreement under the Camden National Corporation 2003 Stock
Option and Incentive Plan (incorporated herein by reference to Exhibit 10.5 to the Company’s
Form 10-K filed with the Commission on March 2, 2011).
Camden National Corporation Management Stock Purchase Plan under the Camden National
Corporation 2003 Stock Option and Incentive Plan (incorporated herein by reference to
Exhibit 10.3 to the Company’s Form 8-K filed with the Commission on May 1, 2008).
Camden National Corporation 2012 Equity and Incentive Plan (incorporated herein by reference
to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on May 8, 2012).
142
Exhibit
No.
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21
Definition
Amendment to Camden National Corporation 2012 Equity and Incentive Plan, dated as of
March 9, 2015 (incorporated herein by reference to Exhibit 10.6 to the Company’s Form 10-K
filed with the Commission on March 10, 2015).
Second Amendment to Camden National Corporation 2012 Equity and Incentive Plan, dated as
of March 31, 2015 (incorporated herein by reference to Exhibit 10.1 to the Company’s
Form 10-Q filed with the Commission on August 7, 2015).
Form of Incentive Stock Option Agreement under the Camden National Corporation 2012 Equity
and Incentive Plan (incorporated herein by reference to Exhibit 10.6 to the Company’s
Form 10-K filed with the Commission on February 28, 2013).
Form of Restricted Stock Award Agreement under the Camden National Corporation 2012 Equity
and Incentive Plan (incorporated herein by reference to Exhibit 10.7 to the Company’s
Form 10-K filed with the Commission on February 28, 2013).
Camden National Corporation Management Stock Purchase Plan under the Camden National
Corporation 2012 Equity and Incentive Plan (incorporated herein by reference to Exhibit 10.8 to
the Company’s Form 10-K filed with the Commission on February 28, 2013).
Camden National Corporation Amended and Restated Defined Contribution Retirement Plan
(incorporated herein by reference to Exhibit 10.10 to the Company’s Form 10-K filed with the
Commission on March 10, 2015).
Form of Confidentiality, Non-Competition and Non-Solicitation Agreement by and between
Camden National Corporation and certain executives (incorporated herein by reference to
Exhibit 11 to the Company’s Form 10-K filed with the Commission on March 10, 2015).
Amendment to Camden National Corporation Defined Contribution Retirement Plan, dated as of
March 9, 2015 (incorporated herein by reference to Exhibit 10.12 to the Company’s Form 10-K
filed with the Commission on March 10, 2015).
Supplemental Executive Retirement Program (incorporated herein by reference to Exhibit 99.1 to
the Company’s Form 8-K filed with the Commission on February 4, 2008).
Union Trust Company’s Amended and Restated Deferred Compensation Agreement (incorporated
herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the Commission on
May 12, 2008).
Camden National Corporation Executive Deferred Compensation Plan (incorporated herein
by reference to Exhibit 10.9 to the Company’s Form 10-K filed with the Commission on
March 17, 2008).
Amendment to Camden National Corporation Executive Deferred Compensation Plan, dated as of
February 26, 2013 (incorporated herein by reference to Exhibit 10.13 to the Company’s
Form 10-K filed with the Commission on February 28, 2013).
Amendment to Camden National Corporation Defined Contribution Retirement Plan, dated as of
March 31, 2015 (incorporated herein by reference to Exhibit 10.9 to the Company’s Form 10-Q
filed with the Commission on August 7, 2015).
Amendment and Restatement of Camden National Corporation Director Deferred Compensation
Plan (incorporated herein by reference to Exhibit 10.9 to the Company’s Form 10-K filed with
the Commission on March 9, 2007).
2007 Amendment to the Camden National Corporation Director Deferred Compensation Plan
(incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K filed with the
Commission on March 17, 2008).
Camden National Corporation Audit Committee Complaint Procedures (incorporated herein
by reference to Exhibit 10.12 to the Company’s Form 10-K filed with the Commission on
March 2, 2011).
143
Exhibit
No.
10.22+
10.23+
10.24+
10.25+
10.26+
11.1
14
21*
23.1*
23.2*
31.1*
31.2*
32.1**
32.2**
101
Definition
2010 Executive Incentive Compensation Program (incorporated herein by reference to
Exhibit 10.19 to the Company’s Form 10-K filed with the Commission on March 12, 2010).
Form of Change in Control Agreement for chief executive officer and other executive officers
(incorporated herein by reference to Exhibit 10.21 in the Company’s Form 10-K filed with the
Commission on March 10, 2015).
Camden National Corporation 2014-2016 Amended and Restated Long-Term Performance Share
Plan (incorporated herein by reference to Exhibit 10.24 to the Company’s Form 8-K filed with
the Commission on March 25, 2014).
Camden National Corporation 2015-2017 Amended and Restated Long-Term Performance Share
Plan (incorporated herein by reference to Exhibit 10.27 to the Company’s Form 8-K filed with
the Commission on July 6, 2015).
Camden National Corporation 2016-2018 Amended and Restated Long-Term Performance Share
Plan (incorporated herein by reference to Exhibit 10.26 to the Company’s Form 8-K filed with
the Commission on March 29, 2016).
Statement regarding computation of per share earnings (incorporated herein by reference to
Note 14 to the Notes to Consolidated Financial Statements in this report.)
Camden National Corporation Code of Business Conduct and Ethics (incorporated herein
by reference to Exhibit 14 to the Company’s Form 10-K filed with the Commission on
March 2, 2011).
Subsidiaries of the Company.
Consent of RSM US LLP.
Consent of Berry Dunn McNeil & Parker, LLC.
Certification of President and Chief Executive Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Financial and Accounting Officer required by Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as required by
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350,
as required by Section 906 of the Sarbanes-Oxley Act of 2002.
The following materials from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) the
Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the
Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of
Comprehensive Income (v) the Consolidated Statements of Cash Flows, and (vi) related notes to
these financial statements.
Filed herewith
*
** Furnished herewith
+ Management contract or a compensatory plan or arrangement.
Item 16. Form 10-K Summary
None.
144
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.
Date: March 7, 2017
CAMDEN NATIONAL CORPORATION
/s/ Gregory A. Dufour
Gregory A. Dufour
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.
Name
/s/ Gregory A. Dufour
Gregory A. Dufour
/s/ Deborah A. Jordan
Deborah A. Jordan
/s/ Karen W. Stanley
Karen W. Stanley
/s/ Ann W. Bresnahan
Ann W. Bresnahan
/s/ David C. Flanagan
David C. Flanagan
/s/ Craig S. Gunderson
Craig S. Gunderson
/s/ John W. Holmes
John W. Holmes
/s/ S. Catherine Longley
S. Catherine Longley
/s/ David J. Ott
David J. Ott
/s/ James H. Page
James H. Page
/s/ John M. Rohman
John M. Rohman
/s/ Carl J. Soderberg
Carl J. Soderberg
/s/ Lawrence J. Sterrs
Lawrence J. Sterrs
Position
Date
President, Director and Chief Executive Officer
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
Chief Operating Officer, Chief Financial Officer,
and Principal Financial and Accounting Officer
Chair and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
145
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Corporate Information
Common Stock
Camden National Corporation’s common stock is listed on
the NASDAQ Global Select Market and is traded under the
symbol CAC.
Annual Meeting
Camden National’s 2017 Annual Meeting of the Shareholders
will be held Tuesday, April 25th at 3:00 pm at the Point
Lookout Conference Center, Hedges Hall, Lincolnville, Maine.
Shareholder Services
Camden National’s shareholder services are provided by
American Stock Transfer & Trust Company, LLC (AST).
Shareholders may contact AST through one of the
following methods:
ONLINE
Registered shareholders can view their account information
through AST’s website, www.amstock.com, by clicking
on Shareholders/Account Access. This website provides
instructions on how to gain access to shareholder account
information, perform certain transactions, request forms or
participate in the Investors Choice Dividend Reinvestment
& Direct Stock Purchase and Sale Plan. Shareholders may
also e-mail our transfer agent at info@amstock.com.
TELEPHONE
Shareholders may call AST’s toll-free number
(800) 937-5449 for assistance.
WRITTEN CORRESPONDENCE
Shareholders should mail written account inquiries or other
requests for assistance regarding stock ownership to:
Camden National Corporation
c/o American Stock Transfer & Trust Co., LLC
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
Dividend Reinvestment, Stock Purchase and Sale
Camden National is pleased to offer the Investors Choice
Dividend Reinvestment & Direct Stock Purchase and Sale
Plan (Plan), a voluntary plan administered by AST. Under
the plan, shareholders may reinvest dividends, purchase
additional shares, sell all or part of shares owned, or deposit
their Camden National stock certificates for safekeeping or
sale. For more information, call (800) 937-5449 or visit
AST’s website at www.amstock.com.
Financial Publications Available at No Charge
Additional copies of Camden National’s Annual Report on
Form 10-K, quarterly reports and other corporate publications
are available, without charge, at www.CamdenNational.com
or upon request by emailing IR@CamdenNational.com,
calling (800) 860-8821 or by writing to:
Camden National Corporation
Attn: Investor Relations
P.O. Box 310
Camden, ME 04843-0310
Media Inquiries
Media representatives seeking general information
should contact:
Renée Smyth
Chief Marketing Officer
(207) 518-5607
rsmyth@CamdenNational.com
Analyst Coverage
The following analysts published research about
Camden National in 2016:
Keefe, Bruyette & Woods, Inc.
Piper Jaffray
In every community an
opportunity to help.
Hope@Home is our statewide program to help Maine’s
homeless and raise awareness around this issue by
donating $100 to a community shelter in Maine every
time a customer finances a new home through Camden
National Bank. Since 2015, Camden National Bank has
donated over $140,000 to homeless shelters in Maine,
and we hope to give even more in the years to come.
FAME Bank of the Year
In 2016, Camden National Bank was once again
recognized by the Finance Authority of Maine for
its commitment to helping businesses secure the
financing they need to grow and flourish. We are
proud to be named the Financial Institution of the
Year for seven of the last eight years.