CAMDEN NATIONAL CORP - FORM 10-Q

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - CAMDEN NATIONAL CORP	exhibit321q115.htm
EX-10.2 - EXHIBIT 10.2 - CAMDEN NATIONAL CORP	camdenamendmenttodeferre.htm
EX-31.2 - EXHIBIT 31.2 - CAMDEN NATIONAL CORP	exhibit312q115.htm
EX-10.1 - EXHIBIT 10.1 - CAMDEN NATIONAL CORP	camdenamendmentto2012equ.htm
EX-31.1 - EXHIBIT 31.1 - CAMDEN NATIONAL CORP	exhibit311q115.htm
EX-32.2 - EXHIBIT 32.2 - CAMDEN NATIONAL CORP	exhibit322q115.htm
EXCEL - IDEA: XBRL DOCUMENT - CAMDEN NATIONAL CORP	Financial_Report.xls

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 March 31, 2015

¨ 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 May 5, 2015: Common stock (no par value) 7,442,559 shares.

CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2015

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT



		PAGE
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Statements of Condition - March 31, 2015 and December 31, 2014	3

	Consolidated Statements of Income - Three Months Ended March 31, 2015 and 2014	5

	Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2015 and 2014	6

	Consolidated Statements of Changes in Shareholders’ Equity - Three Months Ended March 31, 2015 and 2014	7

	Consolidated Statements of Cash Flows - Three Months Ended March 31, 2015 and 2014	8

	Notes to Consolidated Financial Statements	9

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	35

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	51

ITEM 4.	CONTROLS AND PROCEDURES	53

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	54

ITEM 1A.	RISK FACTORS	54

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	54

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	54

ITEM 4.	MINE SAFETY DISCLOSURES	54

ITEM 5.	OTHER INFORMATION	54

ITEM 6.	EXHIBITS	55

SIGNATURES		56

EXHIBITS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION

(In Thousands, Except Number of Shares)	March 31, 2015 (unaudited)			December 31, 2014
ASSETS
Cash and due from banks	$	53,074		$	60,813
Securities:
Available-for-sale securities, at fair value	752,164			763,063
Held-to-maturity securities, at amortized cost	41,010			20,179
Federal Home Loan Bank and Federal Reserve Bank stock, at cost	20,391			20,391
Total securities	813,565			803,633
Trading account assets	2,308			2,457
Loans held for sale	625			—
Loans	1,791,080			1,772,610
Less: allowance for loan losses	(21,265		)	(21,116		)
Net loans	1,769,815			1,751,494
Bank-owned life insurance	58,222			57,800
Goodwill and other intangible assets	47,884			48,171
Premises and equipment, net	23,606			23,886
Deferred tax assets	14,118			14,434
Interest receivable	6,458			6,017
Other real estate owned	1,381			1,587
Other assets	20,148			19,561
Total assets	$	2,811,204		$	2,789,853
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Demand	$	255,574		$	263,013
Interest checking	480,528			480,521
Savings and money market	653,834			653,708
Certificates of deposit	314,532			317,123
Brokered deposits	261,706			217,732
Total deposits	1,966,174			1,932,097
Federal Home Loan Bank advances	56,020			56,039
Other borrowed funds	447,530			476,939
Junior subordinated debentures	44,050			44,024
Accrued interest and other liabilities	45,631			35,645
Total liabilities	2,559,405			2,544,744
Commitments and contingencies (Notes 6, 7, and 9)

CONSOLIDATED STATEMENTS OF CONDITION (CONTINUED)

(In Thousands, Except Number of Shares)	March 31, 2015 (unaudited)			December 31, 2014
Shareholders’ Equity
Common stock, no par value; authorized 20,000,000 shares, issued and outstanding 7,438,929 and 7,426,222 shares as of March 31, 2015 and December 31, 2014, respectively	41,889			41,555
Retained earnings	215,361			211,979
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on available-for-sale securities, net of tax	3,789			(319		)
Net unrealized losses on derivative instruments, net of tax	(7,115		)	(5,943		)
Net unrecognized losses on postretirement plans, net of tax	(2,125		)	(2,163		)
Total accumulated other comprehensive loss	(5,451		)	(8,425		)
Total shareholders’ equity	251,799			245,109
Total liabilities and shareholders’ equity	$	2,811,204		$	2,789,853

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

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three Months Ended March 31,
(In Thousands, Except Number of Shares and Per Share Data)	2015		2014
Interest Income
Interest and fees on loans	$	18,084	$	16,780
Interest on U.S. government and sponsored enterprise obligations	3,872		4,230
Interest on state and political subdivision obligations	387		294
Interest on federal funds sold and other investments	108		89
Total interest income	22,451		21,393
Interest Expense
Interest on deposits	1,529		1,551
Interest on borrowings	860		807
Interest on junior subordinated debentures	625		625
Total interest expense	3,014		2,983
Net interest income	19,437		18,410
Provision for credit losses	446		493
Net interest income after provision for credit losses	18,991		17,917
Non-Interest Income
Service charges on deposit accounts	1,487		1,469
Other service charges and fees	1,510		1,395
Income from fiduciary services	1,220		1,184
Brokerage and insurance commissions	449		478
Bank-owned life insurance	422		306
Mortgage banking income, net	239		72
Net gain on sale of securities	—		166
Other income	817		615
Total non-interest income	6,144		5,685
Non-Interest Expense
Salaries and employee benefits	8,375		7,980
Furniture, equipment and data processing	1,923		1,789
Net occupancy	1,472		1,380
Consulting and professional fees	591		518
Other real estate owned and collection costs	562		513
Regulatory assessments	510		481
Amortization of intangible assets	287		287
Merger and acquisition costs	735		—
Other expenses	2,346		2,177
Total non-interest expense	16,801		15,125
Income before income taxes	8,334		8,477
Income Taxes	2,723		2,762
Net Income	$	5,611	$	5,715

Per Share Data
Basic earnings per share	$	0.75	$	0.76
Diluted earnings per share	$	0.75	$	0.75
Weighted average number of common shares outstanding	7,431,065		7,528,751
Diluted weighted average number of common shares outstanding	7,453,875		7,551,785

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three Months Ended March 31,
(In Thousands)	2015			2014
Net income	$	5,611		$	5,715
Other comprehensive income:
Available-for-sale securities:
Net unrealized gains on available-for-sale securities arising during the period, net of tax of ($2,212) and ($1,041), respectively	4,108			1,933
Reclassification of gains included in net income, net of tax of $0 and $58, respectively⁽¹⁾	—			(108		)
Net change in unrealized gains on available-for-sale securities, net of tax	4,108			1,825
Net change in unrealized losses on cash flow hedging derivatives, net of tax of $631, and $583, respectively	(1,172		)	(1,083		)
Reclassification of amortization of net unrecognized actuarial loss and prior service cost, net of tax of ($21) and ($15), respectively⁽²⁾	38			27
Other comprehensive income	2,974			769
Comprehensive Income	$	8,585		$	6,484

(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.

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)

	Common Stock								Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
(In Thousands, Except Number of Shares and Per Share Data)	Shares Outstanding		Amount			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance at December 31, 2013	7,579,913		$	47,783		$	195,660		$	(12,347	)	$	231,096
Net income	—		—			5,715			—			5,715
Other comprehensive income, net of tax	—		—			—			769			769
Stock-based compensation expense	—		176			—			—			176
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings and tax benefit	18,174		118			—			—			118
Common stock repurchased	(113,527	)	(4,393		)	—			—			(4,393		)
Cash dividends declared ($0.27 per share)	—		—			(2,012		)	—			(2,012		)
Balance at March 31, 2014	7,484,560		$	43,684		$	199,363		$	(11,578	)	$	231,469

Balance at December 31, 2014	7,426,222		$	41,555		$	211,979		$	(8,425	)	$	245,109
Net income	—		—			5,611			—			5,611
Other comprehensive income, net of tax	—		—			—			2,974			2,974
Stock-based compensation expense	—		198			—			—			198
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings and tax benefit	12,707		136			—			—			136
Cash dividends declared ($0.30 per share)	—		—			(2,229		)	—			(2,229		)
Balance at March 31, 2015	7,438,929		$	41,889		$	215,361		$	(5,451	)	$	251,799

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Three Months Ended March 31,
(In Thousands)	2015			2014
Operating Activities
Net income	$	5,611		$	5,715
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	446			493
Depreciation expense	764			944
Investment securities amortization and accretion, net	509			411
Stock-based compensation expense	198			176
Amortization of intangible assets	287			287
Net gain on sale of investment securities	—			(166		)
Net increase in other real estate owned valuation allowance and loss on disposition	81			15
Originations of mortgage loans held for sale	(5,425		)	—
Proceeds from the sale of mortgage loans	4,935			—
Gain on sale of mortgage loans	(129		)	—
Decrease in trading assets	149			180
Decrease (increase) in other assets	169			(1,278		)
Increase (decrease) in other liabilities	412			(366		)
Net cash provided by operating activities	8,007			6,411
Investing Activities
Proceeds from sales and maturities of available-for-sale securities	37,132			33,205
Purchase of available-for-sale securities	(20,344		)	(19,395		)
Purchase of held-to-maturity securities	(16,076		)	(5,976		)
Net increase in loans	(20,293		)	(40,892		)
Purchase of Federal Home Loan Bank stock	—			(693		)
Proceeds from the sale of other real estate owned	1,564			—
Recoveries of previously charged-off loans	133			237
Purchase of premises and equipment	(464		)	(283		)
Net cash used by investing activities	(18,348		)	(33,797		)
Financing Activities
Net increase in deposits	34,112			22,899
Repayments on Federal Home Loan Bank long-term advances	(19		)	(18		)
Net (decrease) increase in other borrowed funds	(29,392		)	11,309
Common stock repurchased	—			(4,355		)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings and tax benefit	136			118
Cash dividends paid on common stock	(2,235		)	(2,045		)
Net cash provided by financing activities	2,602			27,908
Net (decrease) increase in cash and cash equivalents	(7,739		)	522
Cash and cash equivalents at beginning of year	60,813			51,355
Cash and cash equivalents at end of period	$	53,074		$	51,877
Supplemental information
Interest paid	$	3,015		$	3,019
Income taxes paid	5			1,500
Transfer from loans to other real estate owned	1,439			532
Held-to-maturity securities purchased but unsettled	4,830			1,008
Common stock repurchased but unsettled	—			358

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

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 March 31, 2015 and December 31, 2014, the consolidated statements of income for the three months ended March 31, 2015 and 2014, the consolidated statements of comprehensive income for the three months ended March 31, 2015 and 2014, the consolidated statements of changes in shareholders' equity for the three months ended March 31, 2015 and 2014, and the consolidated statements of cash flows for the three months ended March 31, 2015 and 2014. All significant intercompany transactions and balances are eliminated in consolidation. The income reported for the three months ended March 31, 2015 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, 2014 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	FASB:	Financial Accounting Standards Board
Act:	Medicare Prescription Drug, Improvement and Modernization Act	FDIC:	Federal Deposit Insurance Corporation
AFS:	Available-for-sale	FHLB:	Federal Home Loan Bank
ALCO:	Asset/Liability Committee	FHLBB:	Federal Home Loan Bank of Boston
ALL:	Allowance for loan losses	FRB:	Federal Reserve Bank
AOCI:	Accumulated other comprehensive income (loss)	Freddie Mac:	Federal Home Loan Mortgage Corporation
ASC:	Accounting Standards Codification	GAAP:	Generally accepted accounting principles in the United States
ASU:	Accounting Standards Update	HTM:	Held-to-maturity
Bank:	Camden National Bank, a wholly-owned subsidiary of Camden National Corporation	IRS:	Internal Revenue Service
BOLI:	Bank-owned life insurance	LIBOR:	London Interbank Offered Rate
Board ALCO:	Board of Directors' Asset/Liability Committee	LTIP:	Long-Term Performance Share Plan
BSA:	Bank Secrecy Act	MaineHousing:	Maine State Housing Authority
CCTA:	Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation	Management ALCO:	Management Asset/Liability Committee
CDARS:	Certificate of Deposit Account Registry System	MBS:	Mortgage-backed security
CDs:	Certificate of deposits	MSRs:	Mortgage servicing rights
Company:	Camden National Corporation	MSPP:	Management Stock Purchase Plan
CSV:	Cash surrender value	OTTI:	Other-than-temporary impairment
CMO:	Collateralized mortgage obligation	NIM:	Net interest margin on a fully-taxable basis
DCRP:	Defined Contribution Retirement Plan	N.M.:	Not meaningful
EPS:	Earnings per share	Non-Agency:	Non-agency private issue collateralized mortgage obligation



NRV:	Net realizable value	TDR:	Troubled-debt restructured loan
OCC:	Office of the Comptroller of the Currency	UBCT:	Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation
OCI:	Other comprehensive income (loss)	U.S.:	United States of America
OFAC:	Office of Foreign Assets Control	2003 Plan:	2003 Stock Option and Incentive Plan
OREO:	Other real estate owned	2012 Plan:	2012 Equity and Incentive Plan
SERP:	Supplemental executive retirement plans	2013 Repurchase Program:	2013 Common Stock Repurchase Program, approved by the Company's Board of Directors

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 March 31,
	2015			2014
Net income	$	5,611		$	5,715
Dividends and undistributed earnings allocated to participating securities⁽¹⁾	(17		)	(17		)
Net income available to common shareholders	$	5,594		$	5,698
Weighted-average common shares outstanding for basic EPS	7,431,065			7,528,751
Dilutive effect of stock-based awards⁽²⁾	22,810			23,034
Weighted-average common and potential common shares for diluted EPS	7,453,875			7,551,785
Earnings per common share:
Basic EPS	$	0.75		$	0.76
Diluted EPS	$	0.75		$	0.75
Awards excluded from the calculation of diluted EPS⁽³⁾:
Stock options	15,250			15,250

(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.

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
March 31, 2015
AFS Securities:
Obligations of U.S. government-sponsored enterprises	$	4,964	$	121	$	—		$	5,085
Obligations of states and political subdivisions	22,574		593		—			23,167
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	378,675		6,977		(930		)	384,722
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	334,364		2,150		(3,133		)	333,381
Private issue collateralized mortgage obligations	5,757		85		(33		)	5,809
Total AFS securities	$	746,334	$	9,926	$	(4,096	)	$	752,164
HTM Securities:
Obligations of states and political subdivisions	$	41,010	$	529	$	(40	)	$	41,499
Total HTM securities	$	41,010	$	529	$	(40	)	$	41,499
December 31, 2014
AFS Securities:
Obligations of U.S. government-sponsored enterprises	$	4,962	$	65	$	—		$	5,027
Obligations of states and political subdivisions	26,080		697		—			26,777
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	377,657		5,656		(2,005		)	381,308
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	348,855		953		(5,911		)	343,897
Private issue collateralized mortgage obligations	5,999		63		(8		)	6,054
Total AFS securities	$	763,553	$	7,434	$	(7,924	)	$	763,063
HTM Securities:
Obligations of states and political subdivisions	$	20,179	$	265	$	(19	)	$	20,425
Total HTM securities	$	20,179	$	265	$	(19	)	$	20,425

Net unrealized gains on AFS securities at March 31, 2015 included in AOCI amounted to $3.8 million, net of a deferred tax liability of $2.0 million. Net unrealized losses on AFS securities at December 31, 2014 included in AOCI amounted to $319,000, net of a deferred tax benefit of $172,000.

During the first three months of 2015, the Company purchased investment securities totaling $36.4 million. The Company designated $20.3 million as AFS securities and $16.1 million as HTM securities.

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.

The following table presents the estimated fair values and gross unrealized losses of investment securities that were in a continuous loss position at March 31, 2015 and December 31, 2014, by length of time that individual securities in each category have been in a continuous loss position:



	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2015
AFS Securities:
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	$	10,308	$	(26	)	$	73,476	$	(904	)	$	83,784	$	(930	)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	9,308		(171		)	161,546		(2,962		)	170,854		(3,133		)
Private issue collateralized mortgage obligations	1,818		(33		)	—		—			1,818		(33		)
Total AFS securities	$	21,434	$	(230	)	$	235,022	$	(3,866	)	$	256,456	$	(4,096	)
HTM Securities:
Obligations of states and political subdivisions	$	6,160	$	(40	)	$	—	$	—		$	6,160	$	(40	)
Total HTM securities	$	6,160	$	(40	)	$	—	$	—		$	6,160	$	(40	)
December 31, 2014
AFS Securities:
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	$	42,856	$	(171	)	$	125,439	$	(1,834	)	$	168,295	$	(2,005	)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	75,723		(432		)	182,512		(5,479		)	258,235		(5,911		)
Private issue collateralized mortgage obligations	1,785		(8		)	—		—			1,785		(8		)
Total AFS securities	$	120,364	$	(611	)	$	307,951	$	(7,313	)	$	428,315	$	(7,924	)
HTM Securities:
Obligations of states and political subdivisions	$	5,756	$	(19	)	$	—	$	—		$	5,756	$	(19	)
Total HTM securities	$	5,756	$	(19	)	$	—	$	—		$	5,756	$	(19	)

At March 31, 2015, the Company held 60 investment securities with a fair value of $262.6 million with unrealized losses totaling $4.1 million that are considered temporary. Of these, the Company had 38 MBS and CMO investments with a fair value of $235.0 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 March 31, 2015, 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 three months of 2015 and 2014 indicated potential future credit losses that were lower than previously recorded OTTI and, as such, no additional OTTI was recorded during the first three months of 2015 or 2014.

The Company has the intent and ability to retain its investment securities in an unrealized loss position at March 31, 2015 until the decline in value has recovered.

Sale of Securities

The following table details the Company’s sales of AFS securities for the period indicated below:



	Three Months Ended March 31,
	2015		2014
Proceeds from sales of securities	$	—	$	9,437
Gross realized gains	—		166
Gross realized losses	—		—

For the three months ended March 31, 2015, the Company did not sell any investment securities. For the three months ended March 31, 2014, the Company sold certain AFS securities with a total carrying value of $9.3 million and recorded net gains on the sale of AFS securities of $166,000 within non-interest income in the consolidated statements of income. The Company had not previously recorded any OTTI on these securities sold.

Securities Pledged

At March 31, 2015 and December 31, 2014, securities with an amortized cost of $476.0 million and $486.2 million and estimated fair values of $479.4 million and $485.6 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 March 31, 2015, 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	$	2,535	$	2,588
Due after one year through five years	89,461		90,309
Due after five years through ten years	96,423		98,530
Due after ten years	557,915		560,737
	$	746,334	$	752,164
HTM Securities
Due in one year or less	$	—	$	—
Due after one year through five years	1,118		1,159
Due after five years through ten years	2,299		2,316
Due after ten years	37,593		38,024
	$	41,010	$	41,499

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the Company’s loan portfolio, excluding residential loans held for sale, at March 31, 2015 and December 31, 2014 was as follows:



	March 31, 2015			December 31, 2014
Residential real estate	$	585,008		$	585,996
Commercial real estate	657,461			640,661
Commercial	257,763			257,515
Home equity	274,784			271,709
Consumer	16,599			17,257
Deferred fees, net of costs	(535		)	(528		)
Total	$	1,791,080		$	1,772,610

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

There were no significant changes in the Company's ALL methodology during the first quarter of 2015.

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. 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 promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. For purposes of determining the ALL, the Company disaggregates its loans into portfolio segments, which include residential real estate, commercial real estate, commercial, home equity, and consumer.

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 & equipment, or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans may be secured or unsecured.

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

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

The following table presents the activity in the ALL and select loan information by portfolio segment for the three months ended March 31, 2015 and 2014, and for the year ended December 31, 2014:



	Residential Real Estate			Commercial Real Estate			Commercial			Home Equity			Consumer			Unallocated			Total
For The Three Months Ended March 31, 2015
ALL:
Beginning balance	$	4,899		$	4,482		$	6,823		$	2,247		$	281		$	2,384		$	21,116
Loans charged off	(113		)	(55		)	(159		)	(89		)	(8		)	—			(424		)
Recoveries	3			10			104			5			11			—			133
Provision (reduction)	46			324			132			84			(14		)	(132		)	440
Ending balance	$	4,835		$	4,761		$	6,900		$	2,247		$	270		$	2,252		$	21,265
ALL balance attributable to loans:
Individually evaluated for impairment	$	1,103		$	278		$	264		$	488		$	100		$	—		$	2,233
Collectively evaluated for impairment	3,732			4,483			6,636			1,759			170			2,252			19,032
Total ending ALL	$	4,835		$	4,761		$	6,900		$	2,247		$	270		$	2,252		$	21,265
Loans:
Individually evaluated for impairment	$	9,103		$	4,696		$	1,790		$	1,689		$	253		$	—		$	17,531
Collectively evaluated for impairment	575,370			652,765			255,973			273,095			16,346			—			1,773,549
Total ending loans balance	$	584,473		$	657,461		$	257,763		$	274,784		$	16,599		$	—		$	1,791,080
For The Three Months Ended March 31, 2014
ALL:
Beginning balance	$	5,603		$	4,374		$	6,220		$	2,403		$	319		$	2,671		$	21,590
Loans charged off	(183		)	(171		)	(219		)	(62		)	(14		)	—			(649		)
Recoveries	92			39			96			3			7			—			237
Provision (reduction)	(101		)	286			195			329			(2		)	(215		)	492
Ending balance	$	5,411		$	4,528		$	6,292		$	2,673		$	310		$	2,456		$	21,670
ALL balance attributable to loans:
Individually evaluated for impairment	$	1,628		$	557		$	177		$	754		$	141		$	—		$	3,257
Collectively evaluated for impairment	3,783			3,971			6,115			1,919			169			2,456			18,413
Total ending ALL	$	5,411		$	4,528		$	6,292		$	2,673		$	310		$	2,456		$	21,670
Loans:
Individually evaluated for impairment	$	13,041		$	9,339		$	2,372		$	2,011		$	446		$	—		$	27,209
Collectively evaluated for impairment	554,702			565,356			188,699			267,900			16,320			—			1,592,977
Total ending loans balance	$	567,743		$	574,695		$	191,071		$	269,911		$	16,766		$	—		$	1,620,186
For The Year Ended December 31, 2014
ALL:
Beginning balance	$	5,603		$	4,374		$	6,220		$	2,403		$	319		$	2,671		$	21,590
Loans charged off	(785		)	(361		)	(1,544		)	(611		)	(143		)	—			(3,444		)
Recoveries	165			135			395			19			32			—			746
Provision (reduction)	(84		)	334			1,752			436			73			(287		)	2,224
Ending balance	$	4,899		$	4,482		$	6,823		$	2,247		$	281		$	2,384		$	21,116
ALL balance attributable to loans:
Individually evaluated for impairment	$	1,220		$	251		$	168		$	496		$	104		$	—		$	2,239
Collectively evaluated for impairment	3,679			4,231			6,655			1,751			177			2,384			18,877
Total ending ALL	$	4,899		$	4,482		$	6,823		$	2,247		$	281		$	2,384		$	21,116
Loans:
Individually evaluated for impairment	$	9,656		$	7,658		$	1,853		$	1,741		$	271		$	—		$	21,179
Collectively evaluated for impairment	575,812			633,003			255,662			269,968			16,986			—			1,751,431
Total ending loans balance	$	585,468		$	640,661		$	257,515		$	271,709		$	17,257		$	—		$	1,772,610

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 in portfolio concentrations are monitored by the Corporate Risk Management Group. As of March 31, 2015, the Company did not have any industry exposures exceeding 10% of the Company's total loan portfolio. At March 31, 2015, the two most significant industry exposures within the commercial real estate loan portfolio were: (i) non-residential building operators (operators of commercial and industrial buildings, retail establishments, theaters, banks and insurance buildings) at 26%; and (ii) lodging (inns, bed & breakfasts, ski lodges, tourist cabins, hotels and motels) at 25%.

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:

•

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.

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		Total
March 31, 2015
Pass (Grades 1-6)	$	572,006	$	621,799	$	245,990	$	—	$	—	$	1,439,795
Performing	—		—		—		273,095		16,346		289,441
Special Mention (Grade 7)	3,416		8,022		5,588		—		—		17,026
Substandard (Grade 8)	9,051		27,640		6,185		—		—		42,876
Non-performing	—		—		—		1,689		253		1,942
Total	$	584,473	$	657,461	$	257,763	$	274,784	$	16,599	$	1,791,080
December 31, 2014
Pass (Grades 1-6)	$	572,589	$	606,387	$	244,930	$	—	$	—	$	1,423,906
Performing	—		—		—		269,968		16,986		286,954
Special Mention (Grade 7)	3,579		4,690		6,023		—		—		14,292
Substandard (Grade 8)	9,300		29,584		6,562		—		—		45,446
Non-performing	—		—		—		1,741		271		2,012
Total	$	585,468	$	640,661	$	257,515	$	271,709	$	17,257	$	1,772,610

The Company closely monitors the performance of its loan portfolio. 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 by a specific event such as the closing of a pending sale contract. 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 may be returned 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
March 31, 2015
Residential real estate	$	934	$	288	$	4,197	$	5,419	$	579,054	$	584,473	$	—	$	5,630
Commercial real estate	1,133		784		1,633		3,550		653,911		657,461		—		4,083
Commercial	142		2		1,253		1,397		256,366		257,763		—		1,442
Home equity	684		354		1,052		2,090		272,694		274,784		—		1,689
Consumer	54		2		251		307		16,292		16,599		—		253
Total

CAMDEN NATIONAL CORP - FORM 10-Q - May 7, 2015

Attached files