Attached files
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EXCEL - IDEA: XBRL DOCUMENT - CAMDEN NATIONAL CORP | Financial_Report.xls |
EX-32.1 - EXHIBIT_32.1 - CAMDEN NATIONAL CORP | exhibit321q314.htm |
EX-31.1 - EXHIBIT_31.1 - CAMDEN NATIONAL CORP | exhibit311q314.htm |
EX-32.2 - EXHIBIT_32.2 - CAMDEN NATIONAL CORP | exhibit322q314.htm |
EX-23.1 - EXHIBIT_23.1 - CAMDEN NATIONAL CORP | exhibit231q314.htm |
EX-31.2 - EXHIBIT_31.2 - CAMDEN NATIONAL CORP | exhibit312q314.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-28190
CAMDEN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
MAINE | 01-0413282 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
2 ELM STREET, CAMDEN, ME | 04843 |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (207) 236-8821
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer x |
Non-accelerated filer ¨ | Smaller reporting company ¨ |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:
Outstanding at November 3, 2014: Common stock (no par value) 7,421,472 shares.
CAMDEN NATIONAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2014
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE | ||
PART I. FINANCIAL INFORMATION | ||
ITEM 1. | FINANCIAL STATEMENTS | |
Report of Independent Registered Public Accounting Firm | ||
Consolidated Statements of Condition - September 30, 2014 and December 31, 2013 | ||
Consolidated Statements of Income - Three and Nine Months Ended September 30, 2014 and 2013 | ||
Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2014 and 2013 | ||
Consolidated Statements of Changes in Shareholders’ Equity - Nine Months Ended September 30, 2014 and 2013 | ||
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2014 and 2013 | ||
Notes to Consolidated Financial Statements | ||
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK | |
ITEM 4. | CONTROLS AND PROCEDURES | |
PART II. OTHER INFORMATION | ||
ITEM 1. | LEGAL PROCEEDINGS | |
ITEM 1A. | RISK FACTORS | |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | |
ITEM 4. | MINE SAFETY DISCLOSURES | |
ITEM 5. | OTHER INFORMATION | |
ITEM 6. | EXHIBITS | |
SIGNATURES | ||
EXHIBIT INDEX | ||
EXHIBITS |
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Shareholders and Board of Directors
Camden National Corporation
We have reviewed the accompanying interim consolidated financial information of Camden National Corporation and Subsidiaries as of September 30, 2014, and for the three and nine-month periods ended September 30, 2014 and 2013. These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is to express an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
/s/ Berry Dunn McNeil & Parker, LLC | |
Berry Dunn McNeil & Parker, LLC |
Portland, Maine
November 7, 2014
3
CONSOLIDATED STATEMENTS OF CONDITION | ||||||||
(In Thousands, Except Number of Shares) | September 30, 2014 (unaudited) | December 31, 2013 | ||||||
ASSETS | ||||||||
Cash and due from banks | $ | 59,450 | $ | 51,355 | ||||
Securities: | ||||||||
Available-for-sale securities, at fair value | 771,806 | 808,477 | ||||||
Held-to-maturity securities, at amortized cost | 11,490 | — | ||||||
Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 20,379 | 19,724 | ||||||
Total securities | 803,675 | 828,201 | ||||||
Trading account assets | 2,418 | 2,488 | ||||||
Loans | 1,726,227 | 1,580,402 | ||||||
Less: allowance for loan losses | (21,585 | ) | (21,590 | ) | ||||
Net loans | 1,704,642 | 1,558,812 | ||||||
Bank-owned life insurance | 57,338 | 46,363 | ||||||
Goodwill and other intangible assets | 48,458 | 49,319 | ||||||
Premises and equipment, net | 24,370 | 25,727 | ||||||
Deferred tax assets | 14,987 | 16,047 | ||||||
Interest receivable | 6,162 | 5,808 | ||||||
Other real estate owned | 1,566 | 2,195 | ||||||
Other assets | 18,923 | 17,514 | ||||||
Total assets | $ | 2,741,989 | $ | 2,603,829 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Liabilities | ||||||||
Deposits: | ||||||||
Demand | $ | 281,811 | $ | 241,866 | ||||
Interest checking | 484,259 | 453,909 | ||||||
Savings and money market | 661,803 | 675,679 | ||||||
Certificates of deposit | 321,704 | 343,034 | ||||||
Brokered deposits | 178,966 | 99,336 | ||||||
Total deposits | 1,928,543 | 1,813,824 | ||||||
Federal Home Loan Bank advances | 56,058 | 56,112 | ||||||
Other borrowed funds | 441,171 | 430,058 | ||||||
Junior subordinated debentures | 43,998 | 43,922 | ||||||
Accrued interest and other liabilities | 32,307 | 28,817 | ||||||
Total liabilities | 2,502,077 | 2,372,733 | ||||||
Commitments and contingencies (Notes 6, 7, and 9) | ||||||||
Shareholders’ Equity | ||||||||
Common stock, no par value; authorized 20,000,000 shares, issued and outstanding 7,421,595 and 7,579,913 shares as of September 30, 2014 and December 31, 2013, respectively | 41,238 | 47,783 | ||||||
Retained earnings | 208,125 | 195,660 | ||||||
Accumulated other comprehensive loss: | ||||||||
Net unrealized losses on available-for-sale securities, net of tax | (3,151 | ) | (7,964 | ) | ||||
Net unrealized losses on derivative instruments, net of tax | (4,530 | ) | (2,542 | ) | ||||
Net unrecognized losses on postretirement plans, net of tax | (1,770 | ) | (1,841 | ) | ||||
Total accumulated other comprehensive loss | (9,451 | ) | (12,347 | ) | ||||
Total shareholders’ equity | 239,912 | 231,096 | ||||||
Total liabilities and shareholders’ equity | $ | 2,741,989 | $ | 2,603,829 |
See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF INCOME (unaudited) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In Thousands, Except Number of Shares and Per Share Data) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Interest Income | ||||||||||||||||
Interest and fees on loans | $ | 18,112 | $ | 17,470 | $ | 52,649 | $ | 53,324 | ||||||||
Interest on U.S. government and sponsored enterprise obligations | 3,896 | 4,091 | 12,250 | 12,441 | ||||||||||||
Interest on state and political subdivision obligations | 319 | 292 | 927 | 889 | ||||||||||||
Interest on federal funds sold and other investments | 95 | 38 | 278 | 144 | ||||||||||||
Total interest income | 22,422 | 21,891 | 66,104 | 66,798 | ||||||||||||
Interest Expense | ||||||||||||||||
Interest on deposits | 1,562 | 1,780 | 4,678 | 5,427 | ||||||||||||
Interest on borrowings | 848 | 767 | 2,500 | 2,352 | ||||||||||||
Interest on junior subordinated debentures | 638 | 637 | 1,894 | 1,894 | ||||||||||||
Total interest expense | 3,048 | 3,184 | 9,072 | 9,673 | ||||||||||||
Net interest income | 19,374 | 18,707 | 57,032 | 57,125 | ||||||||||||
Provision for credit losses | 539 | 665 | 1,675 | 2,034 | ||||||||||||
Net interest income after provision for credit losses | 18,835 | 18,042 | 55,357 | 55,091 | ||||||||||||
Non-Interest Income | ||||||||||||||||
Service charges on deposit accounts | 1,600 | 1,750 | 4,689 | 5,189 | ||||||||||||
Other service charges and fees | 1,646 | 1,568 | 4,584 | 4,510 | ||||||||||||
Income from fiduciary services | 1,212 | 1,149 | 3,745 | 3,567 | ||||||||||||
Brokerage and insurance commissions | 441 | 354 | 1,378 | 1,175 | ||||||||||||
Bank-owned life insurance | 377 | 334 | 975 | 986 | ||||||||||||
Net gain on sale of securities | — | 647 | 451 | 785 | ||||||||||||
Mortgage banking income, net | 55 | 93 | 197 | 1,251 | ||||||||||||
Other income | 618 | 580 | 2,119 | 1,724 | ||||||||||||
Total non-interest income | 5,949 | 6,475 | 18,138 | 19,187 | ||||||||||||
Non-Interest Expense | ||||||||||||||||
Salaries and employee benefits | 8,078 | 8,115 | 24,359 | 24,437 | ||||||||||||
Furniture, equipment and data processing | 1,704 | 1,668 | 5,236 | 5,203 | ||||||||||||
Net occupancy costs | 1,175 | 1,242 | 3,825 | 4,201 | ||||||||||||
Consulting and professional fees | 468 | 504 | 1,768 | 1,636 | ||||||||||||
Other real estate owned and collection costs | 637 | 489 | 1,665 | 1,355 | ||||||||||||
Regulatory assessments | 511 | 496 | 1,477 | 1,495 | ||||||||||||
Amortization of intangible assets | 287 | 289 | 861 | 863 | ||||||||||||
Branch Acquisition and Divestiture costs | — | 47 | — | 279 | ||||||||||||
Other expenses | 2,319 | 2,349 | 6,905 | 7,878 | ||||||||||||
Total non-interest expense | 15,179 | 15,199 | 46,096 | 47,347 | ||||||||||||
Income before income taxes | 9,605 | 9,318 | 27,399 | 26,931 | ||||||||||||
Income Taxes | 3,154 | 2,952 | 8,917 | 8,572 | ||||||||||||
Net Income | $ | 6,451 | $ | 6,366 | $ | 18,482 | $ | 18,359 | ||||||||
Per Share Data | ||||||||||||||||
Basic earnings per share | $ | 0.87 | $ | 0.83 | $ | 2.47 | $ | 2.40 | ||||||||
Diluted earnings per share | $ | 0.86 | $ | 0.83 | $ | 2.46 | $ | 2.39 | ||||||||
Weighted average number of common shares outstanding | 7,421,592 | 7,643,720 | 7,459,972 | 7,636,352 | ||||||||||||
Diluted weighted average number of common shares outstanding | 7,439,948 | 7,666,305 | 7,479,327 | 7,651,870 |
See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(In Thousands) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Net income | $ | 6,451 | $ | 6,366 | $ | 18,482 | $ | 18,359 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Available-for-sale securities: | ||||||||||||||||
Net unrealized gains (losses) on available-for-sale securities arising during the period, net of tax of $1,189, $1,111, ($2,749) and $9,426, respectively | (2,208 | ) | (2,063 | ) | 5,106 | (17,506 | ) | |||||||||
Reclassification of gains included in net income, net of tax of $0, $227, $158 and $275, respectively(1) | — | (420 | ) | (293 | ) | (510 | ) | |||||||||
Net change in unrealized gains (losses) on available-for-sale securities, net of tax | (2,208 | ) | (2,483 | ) | 4,813 | (18,016 | ) | |||||||||
Net change in unrealized (losses) gains on cash flow hedging derivatives, net of tax of $50, ($239), $1,070 and ($1,933), respectively | (93 | ) | 445 | (1,988 | ) | 3,591 | ||||||||||
Reclassification of amortization of net unrecognized actuarial loss and prior service credit, net of tax of ($13), ($25), ($40) and ($75), respectively(2) | 24 | 47 | 71 | 141 | ||||||||||||
Other comprehensive income (loss) | (2,277 | ) | (1,991 | ) | 2,896 | (14,284 | ) | |||||||||
Comprehensive income | $ | 4,174 | $ | 4,375 | $ | 21,378 | $ | 4,075 |
(1) Reclassified into the consolidated statements of income in net gain on sale of securities.
(2) Reclassified into the consolidated statements of income in salaries and employee benefits.
See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited) | |||||||||||||||||||
Common Stock | Accumulated Other Comprehensive Income (Loss) | Total Shareholders’ Equity | |||||||||||||||||
(In Thousands, Except Number of Shares and Per Share Data) | Shares Outstanding | Amount | Retained Earnings | ||||||||||||||||
Balance at December 31, 2012 | 7,622,750 | $ | 49,667 | $ | 181,151 | $ | 2,997 | $ | 233,815 | ||||||||||
Net income | — | — | 18,359 | — | 18,359 | ||||||||||||||
Other comprehensive loss, net of tax | — | — | — | (14,284 | ) | (14,284 | ) | ||||||||||||
Stock-based compensation expense | — | 340 | — | — | 340 | ||||||||||||||
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings and tax benefit | 23,914 | 258 | — | — | 258 | ||||||||||||||
Cash dividends declared ($0.81 per share) | — | — | (6,206 | ) | — | (6,206 | ) | ||||||||||||
Balance at September 30, 2013 | 7,646,664 | $ | 50,265 | $ | 193,304 | $ | (11,287 | ) | $ | 232,282 | |||||||||
Balance at December 31, 2013 | 7,579,913 | $ | 47,783 | $ | 195,660 | $ | (12,347 | ) | $ | 231,096 | |||||||||
Net income | — | — | 18,482 | — | 18,482 | ||||||||||||||
Other comprehensive income, net of tax | — | — | — | 2,896 | 2,896 | ||||||||||||||
Stock-based compensation expense | — | 453 | — | — | 453 | ||||||||||||||
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings and tax benefit | 23,037 | 157 | — | — | 157 | ||||||||||||||
Common stock repurchased | (181,355 | ) | (7,155 | ) | — | — | (7,155 | ) | |||||||||||
Cash dividends declared ($0.81 per share) | — | — | (6,017 | ) | — | (6,017 | ) | ||||||||||||
Balance at September 30, 2014 | 7,421,595 | $ | 41,238 | $ | 208,125 | $ | (9,451 | ) | $ | 239,912 |
See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.
7
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | ||||||||
Nine Months Ended September 30, | ||||||||
(In Thousands) | 2014 | 2013 | ||||||
Operating Activities | ||||||||
Net income | $ | 18,482 | $ | 18,359 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Provision for credit losses | 1,675 | 2,034 | ||||||
Depreciation and amortization expense | 2,199 | 2,300 | ||||||
Investment securities amortization and accretion, net | 1,301 | 1,745 | ||||||
Stock-based compensation expense | 453 | 340 | ||||||
Amortization of intangible assets | 861 | 863 | ||||||
Net gain on sale of investment securities | (451 | ) | (785 | ) | ||||
Net increase in other real estate owned valuation allowance and loss on disposition | 222 | 97 | ||||||
Originations of mortgage loans held for sale | (399 | ) | (29,515 | ) | ||||
Proceeds from the sale of mortgage loans | 416 | 28,886 | ||||||
Gain on sale of mortgage loans | (17 | ) | (684 | ) | ||||
Decrease (increase) in trading assets | 70 | (9 | ) | |||||
Increase in other assets | (3,508 | ) | (87 | ) | ||||
Increase (decrease) in other liabilities | 806 | (2,539 | ) | |||||
Net cash provided by operating activities | 22,110 | 21,005 | ||||||
Investing Activities | ||||||||
Proceeds from sales and maturities of available-for-sale securities | 105,818 | 121,793 | ||||||
Purchase of available-for-sale securities | (62,494 | ) | (138,300 | ) | ||||
Purchase of held-to-maturity securities | (11,589 | ) | — | |||||
Net increase in loans | (148,967 | ) | (29,168 | ) | ||||
Purchase of bank-owned life insurance | (10,000 | ) | — | |||||
Purchase of Federal Home Loan Bank stock | (706 | ) | — | |||||
Proceeds from sale of Federal Home Loan Bank and Federal Reserve Bank stock | 51 | 1,310 | ||||||
Proceeds from the sale of other real estate owned | 1,591 | 530 | ||||||
Recoveries of previously charged-off loans | 538 | 436 | ||||||
Cash settlement in Branch Acquisition | — | (3,278 | ) | |||||
Purchase of premises and equipment | (831 | ) | (1,203 | ) | ||||
Net cash used by investing activities | (126,589 | ) | (47,880 | ) | ||||
Financing Activities | ||||||||
Net increase in deposits | 114,850 | 44,210 | ||||||
Repayments on Federal Home Loan Bank long-term advances | (54 | ) | (271 | ) | ||||
Net increase (decrease) in other borrowed funds | 11,171 | (12,479 | ) | |||||
Common stock repurchased | (7,475 | ) | — | |||||
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings and tax benefit | 157 | 258 | ||||||
Cash dividends paid on common stock | (6,075 | ) | (6,047 | ) | ||||
Net cash provided by financing activities | 112,574 | 25,671 | ||||||
Net increase (decrease) in cash and cash equivalents | 8,095 | (1,204 | ) | |||||
Cash and cash equivalents at beginning of year | 51,355 | 58,290 | ||||||
Cash and cash equivalents at end of period | $ | 59,450 | $ | 57,086 | ||||
Supplemental information | ||||||||
Interest paid | $ | 9,129 | $ | 9,952 | ||||
Income taxes paid | 10,147 | 8,750 | ||||||
Transfer from loans to other real estate owned | 1,184 | 1,116 | ||||||
Securities purchased but unsettled | — | 14,363 |
See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Tables Expressed in Thousands, Except Number of Shares and per Share Data)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation as of September 30, 2014 and December 31, 2013, the consolidated statements of income for the three and nine months ended September 30, 2014 and 2013, the consolidated statements of comprehensive income for the three and nine months ended September 30, 2014 and 2013, the consolidated statements of changes in shareholders' equity for the nine months ended September 30, 2014 and 2013, and the consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013. All significant intercompany transactions and balances are eliminated in consolidation. Certain items from the prior year were reclassified to conform to the current year presentation. The income reported for the three and nine months ended September 30, 2014 is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the year ended December 31, 2013 Annual Report on Form 10-K.
The acronyms and abbreviations identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Other Information". The following is provided to aid the reader and provide a reference page when reviewing this Form 10-Q.
Acadia Trust: | Acadia Trust, N.A., a wholly-owned subsidiary of Camden National Corporation | DCRP: | Defined Contribution Retirement Plan | |
Act: | Medicare Prescription Drug, Improvement and Modernization Act | EPS: | Earnings per share | |
AFS: | Available-for-sale | FASB: | Financial Accounting Standards Board | |
ALCO: | Asset/Liability Committee | FDIC: | Federal Deposit Insurance Corporation | |
ALL: | Allowance for loan losses | FHLB: | Federal Home Loan Bank | |
AOCI: | Accumulated other comprehensive income (loss) | FHLBB: | Federal Home Loan Bank of Boston | |
ASC: | Accounting Standards Codification | FRB: | Federal Reserve Bank | |
ASU: | Accounting Standards Update | Freddie Mac: | Federal Home Loan Mortgage Corporation | |
Bank: | Camden National Bank, a wholly-owned subsidiary of Camden National Corporation | GAAP: | Generally accepted accounting principles in the United States | |
BOLI: | Bank-owned life insurance | HTM: | Held-to-maturity | |
Board ALCO: | Board of Directors' Asset/Liability Committee | IRS: | Internal Revenue Service | |
bp or bps: | Basis point(s) | LIBOR: | London Interbank Offered Rate | |
Branch Acquisition: | The acquisition of 14 branches from Bank of America, N.A. in 2012, after divesting of one branch as required by the Department of Justice | LTIP: | Long-Term Performance Share Plan | |
Branch Divestiture: | The divestiture of five Franklin County branches in 2013 | MaineHousing: | Maine State Housing Authority | |
BSA: | Bank Secrecy Act | Management ALCO: | Management Asset/Liability Committee | |
CCTA: | Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation | MBS: | Mortgage-backed security | |
CSV: | Cash surrender value | MSPP: | Management Stock Purchase Plan | |
CMO: | Collateralized mortgage obligation | MSRs: | Mortgage servicing rights | |
Company: | Camden National Corporation | NIM: | Net interest margin on a fully-taxable basis |
9
N/M: | Not meaningful | TDR: | Troubled-debt restructured loan | |
Non-Agency: | Non-agency private issue collateralized mortgage obligation | UBCT: | Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation | |
OCC: | Office of the Comptroller of the Currency | U.S.: | United States of America | |
OCI: | Other comprehensive income (loss) | 2003 Plan: | 2003 Stock Option and Incentive Plan | |
OFAC: | Office of Foreign Assets Control | 2012 Plan: | 2012 Equity and Incentive Plan | |
OREO: | Other real estate owned | 2012 Repurchase Program: | 2012 Common Stock Repurchase Program, approved by the Company's Board of Directors | |
OTTI: | Other-than-temporary impairment | 2013 Repurchase Program: | 2013 Common Stock Repurchase Program, approved by the Company's Board of Directors | |
SERP: | Supplemental executive retirement plans |
NOTE 2 – EPS
The following is an analysis of basic and diluted EPS, reflecting the application of the two-class method, as described below:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income | $ | 6,451 | $ | 6,366 | $ | 18,482 | $ | 18,359 | ||||||||
Dividends and undistributed earnings allocated to participating securities(1) | (20 | ) | (20 | ) | (57 | ) | (50 | ) | ||||||||
Net income available to common shareholders | $ | 6,431 | $ | 6,346 | $ | 18,425 | $ | 18,309 | ||||||||
Weighted-average common shares outstanding for basic EPS | 7,421,592 | 7,643,720 | 7,459,972 | 7,636,352 | ||||||||||||
Dilutive effect of stock-based awards(2) | 18,356 | 22,585 | 19,355 | 15,518 | ||||||||||||
Weighted-average common and potential common shares for diluted EPS | 7,439,948 | 7,666,305 | 7,479,327 | 7,651,870 | ||||||||||||
Earnings per common share: | ||||||||||||||||
Basic EPS | $ | 0.87 | $ | 0.83 | $ | 2.47 | $ | 2.40 | ||||||||
Diluted EPS | $ | 0.86 | $ | 0.83 | $ | 2.46 | $ | 2.39 | ||||||||
Awards excluded from the calculation of diluted EPS(3): | ||||||||||||||||
Stock options | 30,750 | 14,250 | 14,750 | 31,000 |
(1) Represents dividends paid and undistributed earnings allocated to nonvested stock-based awards that contain non-forfeitable rights to dividends.
(2) Represents the effect of the assumed exercise of stock options, vesting of restricted shares, vesting of restricted stock units, and vesting of LTIP awards that have met the performance criteria, as applicable, utilizing the treasury stock method.
(3) 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.
Nonvested stock-based payment awards that contain non-forfeitable rights to dividends are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or 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 is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares were issued using the treasury stock method.
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NOTE 3 – SECURITIES
The following tables summarize the amortized cost and estimated fair values of AFS and HTM securities, as of the dates indicated:
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||
September 30, 2014 | |||||||||||||||
AFS Securities: | |||||||||||||||
Obligations of U.S. government-sponsored enterprises | $ | 4,960 | $ | 22 | $ | — | $ | 4,982 | |||||||
Obligations of states and political subdivisions | 27,240 | 806 | — | 28,046 | |||||||||||
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises | 377,375 | 5,108 | (4,279 | ) | 378,204 | ||||||||||
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises | 360,830 | 867 | (7,384 | ) | 354,313 | ||||||||||
Private issue collateralized mortgage obligations | 6,249 | 76 | (64 | ) | 6,261 | ||||||||||
Total AFS securities | $ | 776,654 | $ | 6,879 | $ | (11,727 | ) | $ | 771,806 | ||||||
HTM Securities: | |||||||||||||||
Obligations of states and political subdivisions | $ | 11,490 | $ | 210 | $ | (41 | ) | $ | 11,659 | ||||||
Total HTM securities | $ | 11,490 | $ | 210 | $ | (41 | ) | $ | 11,659 | ||||||
December 31, 2013 | |||||||||||||||
AFS Securities: | |||||||||||||||
Obligations of states and political subdivisions | $ | 30,143 | $ | 1,075 | $ | (11 | ) | $ | 31,207 | ||||||
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises | 397,409 | 5,528 | (7,034 | ) | 395,903 | ||||||||||
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises | 385,847 | 912 | (12,324 | ) | 374,435 | ||||||||||
Private issue collateralized mortgage obligations | 7,329 | 10 | (407 | ) | 6,932 | ||||||||||
Total AFS securities | $ | 820,728 | $ | 7,525 | $ | (19,776 | ) | $ | 808,477 |
Net unrealized losses on AFS securities at September 30, 2014 and December 31, 2013 included in AOCI amounted to $3.2 million and $8.0 million, net of a deferred tax benefit of $1.7 million and $4.3 million, respectively.
During the first nine months of 2014, the Company purchased investment securities totaling $74.1 million. The Company designated $62.5 million as AFS securities and $11.6 million as HTM securities. The Company did not carry any HTM securities at December 31, 2013.
Impaired 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 nature. Considerations such as the ability of the securities to meet cash flow requirements, levels of credit enhancements, risk of curtailment, recoverability of invested amount over a reasonable period of time, and the length of time the security is in a loss position, for example, are applied in determining OTTI. Once a decline in value is determined to be other-than-temporary, the value of the security is permanently reduced and a corresponding charge to earnings is recognized.
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The following table presents the estimated fair values and gross unrealized losses of investment securities that were in a continuous loss position at September 30, 2014 and December 31, 2013, by length of time that individual securities in each category have been in a continuous loss position:
Less Than 12 Months | 12 Months or More | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
September 30, 2014 | |||||||||||||||||||||||
AFS Securities: | |||||||||||||||||||||||
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises | $ | 61,223 | $ | (460 | ) | $ | 127,219 | $ | (3,819 | ) | $ | 188,442 | $ | (4,279 | ) | ||||||||
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises | 80,475 | (393 | ) | 195,373 | (6,991 | ) | 275,848 | (7,384 | ) | ||||||||||||||
Private issue collateralized mortgage obligations | 4,719 | (64 | ) | — | — | 4,719 | (64 | ) | |||||||||||||||
Total AFS securities | $ | 146,417 | $ | (917 | ) | $ | 322,592 | $ | (10,810 | ) | $ | 469,009 | $ | (11,727 | ) | ||||||||
HTM Securities: | |||||||||||||||||||||||
Obligations of states and political subdivisions | $ | 3,401 | $ | (41 | ) | $ | — | $ | — | $ | 3,401 | $ | (41 | ) | |||||||||
Total HTM securities | $ | 3,401 | $ | (41 | ) | $ | — | $ | — | $ | 3,401 | $ | (41 | ) | |||||||||
December 31, 2013 | |||||||||||||||||||||||
AFS Securities: | |||||||||||||||||||||||
Obligations of states and political subdivisions | $ | 2,143 | $ | (11 | ) | $ | — | $ | — | $ | 2,143 | $ | (11 | ) | |||||||||
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises | 145,424 | (4,189 | ) | 43,915 | (2,845 | ) | 189,339 | (7,034 | ) | ||||||||||||||
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises | 239,278 | (7,738 | ) | 73,376 | (4,586 | ) | 312,654 | (12,324 | ) | ||||||||||||||
Private issue collateralized mortgage obligations | 122 | (4 | ) | 4,945 | (403 | ) | 5,067 | (407 | ) | ||||||||||||||
Total AFS securities | $ | 386,967 | $ | (11,942 | ) | $ | 122,236 | $ | (7,834 | ) | $ | 509,203 | $ | (19,776 | ) |
At September 30, 2014, the Company held 83 investment securities with a fair value of $472.4 million with unrealized losses totaling $11.8 million that are considered temporary. Of these, the Company had 49 MBS and CMO investments with a fair value of $322.6 million that have been in an unrealized loss position for 12 months or more. The decline in the fair value of securities is reflective of current interest rates in excess of the yield received on investments and is not indicative of an overall credit deterioration or other factors with the Company's investment portfolio. At September 30, 2014, the Company had no Non-Agency investments in an unrealized loss position for 12 months or more.
Stress tests are performed monthly on the Company's Non-Agency investments, which are higher risk bonds within the investment portfolio, using current statistical data to determine expected cash flows and forecast potential losses. The results of the stress tests during the first nine months of 2014 indicated potential future credit losses that were lower than previously recorded OTTI and, as such, no additional OTTI was recorded during the first nine months of 2014.
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Sale of Securities
The following table details the Company’s sales of AFS securities for the period indicated below:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Proceeds from sales of securities | $ | — | $ | 12,738 | $ | 25,695 | $ | 17,613 | |||||||
Gross realized gains | — | 647 | 451 | 785 | |||||||||||
Gross realized losses | — | — | — | — |
For the three months ended September 30, 2014, the Company did not sell any securities. For the three months ended September 30, 2013, the Company sold certain AFS securities with a total carrying value of $12.1 million and recorded net gains on the sale of AFS securities of $647,000 within non-interest income in the consolidated statements of income. The Company had not previously recorded any OTTI on these securities sold.
For the nine months ended September 30, 2014 and 2013, the Company sold certain AFS securities with a total carrying value of $25.2 million and $16.8 million, respectively. For the nine months ended September 30, 2014 and 2013, the Company recorded net gains on the sale of AFS securities of $451,000 and $785,000, respectively, within non-interest income in the consolidated statements of income. The Company had not previously recorded any OTTI on these securities sold.
The cost basis of securities sold is measured on a specific identification basis.
Securities Pledged
At September 30, 2014 and December 31, 2013, securities with an amortized cost of $480.5 million and $479.2 million and estimated fair values of $478.9 million and $474.7 million, respectively, were pledged to secure FHLBB advances, public deposits, and securities sold under agreements to repurchase and for other purposes required or permitted by law.
Contractual Maturities
The amortized cost and estimated fair values of debt securities by contractual maturity at September 30, 2014, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Cost | Fair Value | ||||||
AFS Securities | |||||||
Due in one year or less | $ | 2,186 | $ | 2,209 | |||
Due after one year through five years | 82,230 | 82,383 | |||||
Due after five years through ten years | 112,277 | 113,046 | |||||
Due after ten years | 579,961 | 574,168 | |||||
$ | 776,654 | $ | 771,806 | ||||
HTM Securities | |||||||
Due in one year or less | $ | — | $ | — | |||
Due after one year through five years | — | — | |||||
Due after five years through ten years | 2,334 | 2,358 | |||||
Due after ten years | 9,156 | 9,301 | |||||
$ | 11,490 | $ | 11,659 |
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NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the Company’s loan portfolio at September 30, 2014 and December 31, 2013 was as follows:
September 30, 2014 | December 31, 2013 | ||||||
Residential real estate loans | $ | 577,515 | $ | 570,391 | |||
Commercial real estate loans | 613,510 | 541,099 | |||||
Commercial loans | 245,612 | 179,203 | |||||
Home equity loans | 271,858 | 272,630 | |||||
Consumer loans | 18,149 | 17,651 | |||||
Deferred loan fees, net of costs | (417 | ) | (572 | ) | |||
Total loans | $ | 1,726,227 | $ | 1,580,402 |
The Company’s lending activities are primarily conducted in Maine. 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 Company did not sell any loans during the three months ended September 30, 2014. For the three months ended September 30, 2013, the Company sold $7.3 million of fixed-rate residential mortgage loans on the secondary market that resulted in net gains on the sale of loans of $32,000. For the nine months ended September 30, 2014 and 2013, the Company sold $399,000 and $28.2 million, respectively, of fixed-rate residential mortgage loans on the secondary market that resulted in net gains on the sale of loans of $17,000 and $684,000, respectively.
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 ALL 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.
In the second quarter of 2014, the Company made one revision to its ALL methodology specific to the allowance allocation for overdrawn checking accounts. Historically, the allocation was determined using the previous four quarters gross charge-offs. The methodology was revised to calculate the allowance using the previous four quarters net charge-off information, which is now consistent with the Company's overall allowance methodology and approach. The change in methodology was reviewed and approved by the Company's Board of Directors prior to implementation. The change resulted in a decrease of $165,000 in the unallocated portion of the ALL.
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The Company'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. The Corporate Risk Management Group 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 timely as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. For purposes of determining the ALL, the Company disaggregates its loans into portfolio segments, which include residential real estate, commercial real estate, commercial, home equity, and consumer.
The following table presents the activity in the ALL and select loan information by portfolio segment for the three and nine months ended September 30, 2014:
Residential Real Estate | Commercial Real Estate | Commercial | Home Equity | Consumer | Unallocated | Total | |||||||||||||||||||||
ALL for the three months ended: | |||||||||||||||||||||||||||
Beginning balance | $ | 5,141 | $ | 4,361 | $ | 6,484 | $ | 2,752 | $ | 318 | $ | 2,849 | $ | 21,905 | |||||||||||||
Loans charged off | (9 | ) | (100 | ) | (675 | ) | (166 | ) | (59 | ) | — | (1,009 | ) | ||||||||||||||
Recoveries | 2 | 17 | 117 | 8 | 11 | — | 155 | ||||||||||||||||||||
Provision (reduction) | 122 | 82 | 35 | (63 | ) | 23 | 335 | 534 | |||||||||||||||||||
Ending balance | $ | 5,256 | $ | 4,360 | $ | 5,961 | $ | 2,531 | $ | 293 | $ | 3,184 | $ | 21,585 | |||||||||||||
ALL for the nine months ended: | |||||||||||||||||||||||||||
Beginning balance | $ | 5,603 | $ | 4,374 | $ | 6,220 | $ | 2,403 | $ | 319 | $ | 2,671 | $ | 21,590 | |||||||||||||
Loans charged off | (370 | ) | (276 | ) | (1,201 | ) | (272 | ) | (99 | ) | — | (2,218 | ) | ||||||||||||||
Recoveries | 136 | 67 | 286 | 19 | 30 | — | 538 | ||||||||||||||||||||
Provision (reduction) | (113 | ) | 195 | 656 | 381 | 43 | 513 | 1,675 | |||||||||||||||||||
Ending balance | $ | 5,256 | $ | 4,360 | $ | 5,961 | $ | 2,531 | $ | 293 | $ | 3,184 | $ | 21,585 | |||||||||||||
ALL balance attributable to loans: | |||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,420 | $ | 222 | $ | 121 | $ | 573 | $ | 111 | $ | — | $ | 2,447 | |||||||||||||
Collectively evaluated for impairment | 3,836 | 4,138 | 5,840 | 1,958 | 182 | 3,184 | 19,138 | ||||||||||||||||||||
Total ending ALL | $ | 5,256 | $ | 4,360 | $ | 5,961 | $ | 2,531 | $ | 293 | $ | 3,184 | $ | 21,585 | |||||||||||||
Loans: | |||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 10,964 | $ | 6,710 | $ | 3,380 | $ | 1,860 | $ | 309 | $ | — | $ | 23,223 | |||||||||||||
Collectively evaluated for impairment | 566,134 | 606,800 | 242,232 | 269,998 | 17,840 | — | 1,703,004 | ||||||||||||||||||||
Total ending loans balance | $ | 577,098 | $ | 613,510 | $ | 245,612 | $ | 271,858 | $ | 18,149 | $ | — | $ | 1,726,227 |
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The following table presents the activity in the ALL and select loan information by portfolio segment for the three and nine months ended September 30, 2013:
Residential Real Estate | Commercial Real Estate | Commercial | Home Equity | Consumer | Unallocated | Total | |||||||||||||||||||||
ALL for the three months ended: | |||||||||||||||||||||||||||
Beginning balance | $ | 6,232 | $ | 3,590 | $ | 5,788 | $ | 3,428 | $ | 221 | $ | 4,062 | $ | 23,321 | |||||||||||||
Loans charged off | (340 | ) | (591 | ) | (379 | ) | (86 | ) | (42 | ) | — | (1,438 | ) | ||||||||||||||
Recoveries | — | 14 | 77 | 8 | 12 | — | 111 | ||||||||||||||||||||
Provision (reduction) | 709 | 547 | 465 | 137 | 40 | (1,231 | ) | 667 | |||||||||||||||||||
Ending balance | $ | 6,601 | $ | 3,560 | $ | 5,951 | $ | 3,487 | $ | 231 | $ | 2,831 | $ | 22,661 | |||||||||||||
ALL for the nine months ended: | |||||||||||||||||||||||||||
Beginning balance | $ | 6,996 | $ | 4,549 | $ | 5,933 | $ | 2,520 | $ | 184 | $ | 2,862 | $ | 23,044 | |||||||||||||
Loans charged off | (687 | ) | (762 | ) | (823 | ) | (423 | ) | (175 | ) | — | (2,870 | ) | ||||||||||||||
Recoveries | 5 | 106 | 275 | 10 | 40 | — | 436 | ||||||||||||||||||||
Provision (reduction) | 287 | (333 | ) | 566 | 1,380 | 182 | (31 | ) | 2,051 | ||||||||||||||||||
Ending balance | $ | 6,601 | $ | 3,560 | $ | 5,951 | $ | 3,487 | $ | 231 | $ | 2,831 | $ | 22,661 | |||||||||||||
ALL balance attributable to loans: | |||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,655 | $ | 686 | $ | 177 | $ | 449 | $ | 81 | $ | — | $ | 3,048 | |||||||||||||
Collectively evaluated for impairment | 4,946 | 2,874 | 5,774 | 3,038 | 150 | 2,831 | 19,613 | ||||||||||||||||||||
Total ending ALL | $ | 6,601 | $ | 3,560 | $ | 5,951 | $ | 3,487 | $ | 231 | $ | 2,831 | $ | 22,661 | |||||||||||||
Loans: | |||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 14,059 | $ | 11,016 | $ | 3,369 | $ | 1,521 | $ | 498 | $ | — | $ | 30,463 | |||||||||||||
Collectively evaluated for impairment | 550,493 | 511,594 | 174,486 | 304,782 | 18,128 | — | 1,559,483 | ||||||||||||||||||||
Total ending loans balance | $ | 564,552 | $ | 522,610 | $ | 177,855 | $ | 306,303 | $ | 18,626 | $ | — | $ | 1,589,946 |
The following table presents the activity in the ALL and select loan information by portfolio segment for the year ended December 31, 2013:
Residential Real Estate | Commercial Real Estate | Commercial | Home Equity | Consumer | Unallocated | Total | |||||||||||||||||||||
ALL: | |||||||||||||||||||||||||||
Beginning balance | $ | 6,996 | $ | 4,549 | $ | 5,933 | $ | 2,520 | $ | 184 | $ | 2,862 | $ | 23,044 | |||||||||||||
Loans charged off | (1,059 | ) | (952 | ) | (1,426 | ) | (647 | ) | (190 | ) | — | (4,274 | ) | ||||||||||||||
Recoveries | 35 | 121 | 495 | 56 | 61 | — | 768 | ||||||||||||||||||||
Provision (reduction) | (369 | ) | 656 | 1,218 | 474 | 264 | (191 | ) | 2,052 | ||||||||||||||||||
Ending balance | $ | 5,603 | $ | 4,374 | $ | 6,220 | $ | 2,403 | $ | 319 | $ | 2,671 | $ | 21,590 | |||||||||||||
ALL balance attributable to loans: | |||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 1,750 | $ | 526 | $ | 132 | $ | 433 | $ | 140 | $ | — | $ | 2,981 | |||||||||||||
Collectively evaluated for impairment | 3,853 | 3,848 |