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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, 2009

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 ¨         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 October 30, 2009:  Common stock (no par value) 7,644,829 shares.
 
 
 

 

CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2009
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT

   
PAGE
   
PART I.  FINANCIAL INFORMATION
 
   
ITEM 1.
FINANCIAL STATEMENTS
 
     
 
Report of Independent Registered Public Accounting Firm
  3
     
 
Consolidated Statements of Condition
September 30, 2009 and December 31, 2008
  4
     
 
Consolidated Statements of Income
Three and Nine Months Ended September 30, 2009 and 2008
  5
     
 
Consolidated Statements of Changes in Shareholders’ Equity
Nine Months Ended September 30, 2009 and 2008
  6
     
 
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2009 and 2008
  7
     
 
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2009 and 2008
  8-20
     
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  21-32
     
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  33-34
     
ITEM 4.
CONTROLS AND PROCEDURES
  35
     
PART II. OTHER INFORMATION
 
     
ITEM 1.
LEGAL PROCEEDINGS
  36
     
ITEM 1A.
RISK FACTORS
  36
     
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS
  36
     
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
  36
     
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  36
     
ITEM 5.
OTHER INFORMATION
  36
     
ITEM 6.
EXHIBITS
  37
     
SIGNATURES
  38
     
EXHIBIT INDEX
  39
     
EXHIBITS
40-44
 
Page 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, 2009, and for the nine-month and three-month periods ended September 30, 2009 and 2008. 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
Berry, Dunn, McNeil & Parker

Bangor, Maine
October 30, 2009

 
Page 3

 

CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

  
 
September 30,
   
December 31,
 
   
2009
   
2008
 
(In Thousands, Except Number of Shares and per Share Data)
 
(unaudited)
       
ASSETS
           
Cash and due from banks
 
$
30,081
   
$
35,195
 
Securities
               
Securities available for sale, at fair value
   
525,966
     
606,031
 
Securities held to maturity, at amortized cost (fair value $41,751 and $41,954 at September 30, 2009 and December 31, 2008, respectively)
   
39,366
     
42,040
 
Federal Home Loan and Federal Reserve Bank stock, at cost
   
21,965
     
21,969
 
Total securities
   
587,297
     
670,040
 
Trading account assets
   
1,667
     
1,304
 
Loans held for sale
   
1,298
     
 
Loans
   
1,519,681
     
1,500,908
 
Less allowance for loan losses
   
(19,435
)   
   
(17,691
)   
Net loans
   
1,500,246
     
1,483,217
 
Goodwill
   
41,780
     
41,857
 
Bank-owned life insurance
   
41,310
     
40,459
 
Premises and equipment, net
   
25,234
     
25,872
 
Interest receivable
   
7,649
     
8,325
 
Core deposit intangible
   
4,142
     
4,518
 
Other real estate owned
   
5,465
     
4,024
 
Other assets
   
26,577
     
26,685
 
Total assets
 
$
2,272,746
   
$
2,341,496
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Liabilities
               
Deposits:
               
Demand
 
$
201,451
   
$
180,407
 
Interest checking, savings and money market
   
699,230
     
632,664
 
Retail certificates of deposit
   
567,210
     
593,013
 
Brokered deposits
   
45,443
     
83,433
 
Total deposits
   
1,513,334
     
1,489,517
 
Federal Home Loan Bank advances
   
210,495
     
258,925
 
Other borrowed funds
   
290,427
     
359,470
 
Junior subordinated debentures
   
43,487
     
43,410
 
Accrued interest and other liabilities
   
28,232
     
23,774
 
Total liabilities
   
2,085,975
     
2,175,096
 
                 
Shareholders’ Equity
               
Common stock, no par value; authorized 20,000,000 shares, issued and outstanding 7,644,829 and 7,638,713 shares on September 30, 2009 and December 31, 2008, respectively
   
3,150
     
2,851
 
Surplus
   
46,139
     
46,133
 
Retained earnings
   
130,320
     
118,564
 
Accumulated other comprehensive income (loss)
               
Net unrealized gains (losses) on securities available for sale, net of tax
   
8,163
     
(89
Net unrealized gains on derivative instruments, net of tax
   
11
     
 
Net unrecognized losses on postretirement plans, net of tax
   
(1,012
)   
   
(1,059
)   
Total accumulated other comprehensive income (loss)
   
7,162
     
(1,148
)
Total shareholders’ equity
   
186,771
     
166,400
 
Total liabilities and shareholders’ equity
 
$
2,272,746
   
$
2,341,496
 

See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.

 
Page 4

 
 
CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES

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)
 
2009
   
2008
   
2009
   
2008
 
Interest Income
                       
Interest and fees on loans
 
$
21,121
   
$
24,080
   
$
64,012
   
$
73,803
 
Interest on U.S. government and sponsored enterprise obligations
   
6,229
     
6,412
     
20,229
     
18,921
 
Interest on state and political subdivision obligations
   
602
     
674
     
1,876
     
2,026
 
Interest on federal funds sold and other investments
   
28
     
318
     
99
     
1,726
 
Total interest income
   
27,980
     
31,484
     
86,216
     
96,476
 
Interest Expense
                               
Interest on deposits
   
5,413
     
7,752
     
17,743
     
24,253
 
Interest on borrowings
   
3,630
     
5,466
     
11,267
     
17,500
 
Interest on junior subordinated debentures
   
712
     
752
     
2,136
     
2,195
 
Total interest expense
   
9,755
     
13,970
     
31,146
     
43,948
 
Net interest income
   
18,225
     
17,514
     
55,070
     
52,528
 
Provision for Loan Losses
   
2,000
     
1,170
     
6,514
     
2,120
 
Net interest income after provision for loan losses
   
16,225
     
16,344
     
48,556
     
50,408
 
Non-Interest Income (Loss)
                               
Service charges on deposit accounts
   
1,361
     
1,377
     
3,943
     
4,069
 
Other service charges and fees
   
778
     
724
     
2,202
     
2,059
 
Income from fiduciary services
   
1,471
     
1,653
     
4,332
     
5,031
 
Brokerage and insurance commissions
   
378
     
345
     
1,021
     
1,068
 
Mortgage banking income (loss), net
   
351
     
(1
)
   
1,222
     
(216
)
Bank-owned life insurance
   
368
     
305
     
1,108
     
883
 
Net gain (loss) on sale of securities
   
1
     
(804
)
   
1
     
(624
)
Other income
   
441
     
98
     
918
     
529
 
Total non-interest income before security impairment write-down
   
   5,149
     
3,697
     
14,747
     
12,799
 
Loss on security impairment write-down
   
     
(13,950
)
   
     
(13,950
)
Total non-interest income (loss)
   
5,149
     
(10,253
)
   
14,747
     
(1,151
)
Non-Interest Expenses
                               
Salaries and employee benefits
   
6,071
     
6,079
     
18,195
     
19,130
 
Net occupancy
   
862
     
927
     
2,954
     
3,008
 
Furniture, equipment and data processing
   
1,123
     
1,038
     
3,233
     
3,467
 
Consulting and service fees
   
698
     
786
     
2,140
     
2,229
 
Other real estate owned and collection costs
   
779
     
119
     
1,941
     
518
 
Regulatory assessments
   
693
     
417
     
3,304
     
676
 
Amortization of core deposit intangible
   
125
     
193
     
376
     
697
 
Other expenses
   
1,801
     
2,100
     
5,716
     
6,108
 
Total non-interest expenses
   
12,152
     
11,659
     
37,859
     
35,833
 
Income (loss) before income taxes
   
9,222
     
(5,568
   
25,444
     
13,424
 
Income Taxes
   
2,894
     
2,452
     
7,898
     
8,143
 
Net Income (Loss)
 
$
6,328
   
$
(8,020
 
$
17,546
   
$
5,281
 
                                 
Per Share Data
                               
Basic earnings (loss) per share – common stock
 
$
0.83
   
$
(1.05
 
$
2.30
   
$
0.69
 
Basic earnings (loss) per share – unvested share-based payment awards
   
0.83
     
(1.05
   
2.30
     
0.69
 
Diluted earnings (loss) per share – common stock
   
0.83
     
(1.05
   
2.29
     
0.69
 
Diluted earnings (loss) per share– unvested share-based payment awards
   
0.83
     
(1.05
   
2.29
     
0.69
 
Weighted average number of common shares outstanding
   
7,644,829
     
7,659,811
     
7,641,705
     
7,682,737
 

See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.

 
Page 5

 

CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)

(In Thousands, Except Number of
Shares and per Share Data)
 
Common
Stock
   
Surplus
   
Retained
Earnings
   
Net
Unrealized
Gains
(Losses) on
Securities
Available
for Sale
   
Net
Unrealized
Gains on
Derivative
Instruments
   
Net
Unrecognized
Losses on
Postretirement
Plans
   
Total
Shareholders’
Equity
 
Balance at December 31, 2007
 
$
2,522
   
$
2,629
   
$
 114,289
   
$
1,516
   
$
   
$
(753
)
 
$
120,203
 
                                                         
Net income
   
     
     
5,281
     
     
     
     
5,281
 
Change in net unrealized gains on securities available for sale, net of taxes of $1,969
   
     
     
     
(3,656
)
   
     
     
(3,656
)
Change in net unrecognized losses on post-retirement plans, net of taxes of ($216)
   
     
     
     
     
     
402
     
402
 
Total comprehensive income
   
     
     
5,281
     
(3,656
)
   
     
402
     
2,027
 
Shares issued during acquisition of Union Bankshares Company (1,222,497 shares)
   
     
43,523
     
     
     
     
     
43,523
 
Equity compensation expense
   
     
182
     
     
     
     
     
182
 
Exercise of stock options and issuance of restricted stock (total 9,733 shares)
   
292
     
(146
)
   
     
     
     
     
146
 
Common stock repurchase (109,362 shares)
   
     
(134
)
   
(3,383
)
   
     
     
     
(3,517
)
Cash dividends declared ($0.50/share)
   
     
     
(3,853
)
   
     
     
     
(3,853
)
Balance at  September 30, 2008
 
$
$ 2,814
   
$
46,054
   
$
112,334
   
$
(2,140
)
 
$
   
$
(351
)
 
$
158,711
 
                                                         
Balance at December 31, 2008
 
$
2,851
   
$
46,133
   
$
118,564
   
$
(89
)
 
$
   
$
(1,059
)
 
$
166,400
 
                                                         
Net income
   
     
     
17,546
     
     
     
     
17,546
 
Change in unrealized losses on securities available for sale, net of taxes of ($4,443)
   
     
     
     
8,252
     
     
     
8,252
 
Change in unrealized gains on derivative instruments at fair value, net of taxes of ($6)
   
     
     
     
     
11
     
     
11
 
Change in net unrecognized losses on postretirement plans, net of taxes of ($25)
   
     
     
     
     
     
47
     
47
 
Total comprehensive income
   
     
     
17,546
     
8,252
     
11
     
47
     
25,856
 
Equity compensation expense
   
     
295
     
     
     
     
     
295
 
Exercise of stock options and issuance of restricted stock (total 6,116 shares)
   
299
     
(289
)
   
(55
)
   
     
     
     
(45
)
Cash dividends declared ($0.75/share)
   
     
     
(5,735
)
   
     
     
     
(5,735
)
                                                         
Balance at September 30, 2009
 
$
3,150
   
$
46,139
   
$
130,320
   
$
8,163
   
$
11
   
$
(1,012
)
 
$
186,771
 
 
 See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.

 
Page 6

 

CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

  
 
Nine Months Ended September 30,
 
(In Thousands)
 
2009
   
2008
 
Operating Activities
           
Net income
  $ 17,546     $ 5,281  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    6,514       2,120  
Depreciation and amortization
    2,028       1,643  
Equity compensation expense
    295       182  
Decrease in interest receivable
    676       405  
Amortization of core deposit intangible
    376       697  
Net increase in trading assets
    (363 )      
Net investment securities (gains) losses
    (1     624  
Write-down of other-than-temporarily impaired security
          13,950  
Increase in other real estate owned valuation allowance
    1,011        
Originations of mortgage loans held for sale
    (72,529 )      
Proceeds from the sale of mortgage loans
    71,231        
Gain on sale of mortgage loans
    (102 )      
Liquidation of defined benefit pension plan
    (735 )      
Increase in other assets
    (4,350 )     (1,579 )
Increase (decrease) in other liabilities
    898       (3,703 )
Net cash provided by operating activities
    22,495       19,620  
Investing Activities
               
Acquisition of Union Bankshares Company
          (29,299 )
Proceeds from sales and maturities of securities held to maturity
    2,606       90  
Proceeds from sales and maturities of securities available for sale
    138,200       183,807  
Purchase of securities held to maturity
          (39 )
Purchase of securities available for sale
    (45,616 )     (211,485 )
Purchase of bank-owned life insurance
          (7,450 )
Premium received on deposit sale
          1,400  
Net increase in loans
    (22,468     (8,592 )
Proceeds from the sale of other real estate owned
    448       420  
Purchase of premises and equipment
    (1,152 )     (882 )
Net cash provided (used) by investing activities
    72,018       (72,030 )
Financing Activities
               
Net increase in deposits
    23,794       75,525  
Proceeds from Federal Home Loan Bank long-term advances
    8,163       199,278  
Repayments on Federal Home Loan Bank long-term advances
    (56,593 )     (218,336 )
Net change in short-term Federal Home Loan Bank borrowings
    (116,375 )     (23,965 )
Net increase in other borrowed funds and junior subordinated debentures
    47,164       38,008  
Common stock repurchase
          (3,517 )
Exercise of stock options
    (45 )     146  
Cash dividends paid on common stock
    (5,735 )     (5,405 )
Net cash (used) provided by financing activities
    (99,627 )     61,734  
Net (decrease) increase in cash and cash equivalents
    (5,114     9,324  
Cash and cash equivalents at beginning of year
    35,195       28,790  
Cash and cash equivalents at end of period
  $ 30,081     $ 38,114  
Supplemental information
               
Interest paid
  $ 31,837     $ 44,322  
Income taxes paid
    5,200       8,419  
Common stock issued in acquisition
          43,523  
Transfer from loans to loans held for sale
    1,298        
Transfer from loans to other real estate owned
    2,900       2,599  
 
See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.

 
Page 7

 

CAMDEN NATIONAL CORPORATION AND SUBSIDIARIES

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 (the “Company”) as of September 30, 2009 and December 31, 2008, the consolidated statements of income for the three and nine months ended September 30, 2009 and 2008, the consolidated statements of changes in shareholders' equity for the nine months ended September 30, 2009 and 2008, and the consolidated statements of cash flows for the nine months ended September 30, 2009 and 2008. 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-month and nine-month periods ended September 30, 2009 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 December 31, 2008 Annual Report on Form 10-K.

NOTE 2 – EARNINGS PER SHARE

Basic earnings per share (“EPS”) is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Unvested restricted shares and stock options outstanding are not included in common shares outstanding. Diluted EPS reflects the potential that could occur if contracts to issue common stock (such as stock options) were exercised or converted into common shares that would then share in the earnings of the Company. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period, plus an incremental number of common-equivalent shares computed using the treasury stock method. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. The Company’s restricted share grants and management stock purchase grants receive non-forfeitable dividends at the same rate as common stock. The following table sets forth the computation of basic and diluted earnings per share under the two-class method:

 
Page 8

 

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Net income (loss), as reported
 
$
6,328
   
$
(8,020
)
 
$
17,546
   
$
5,281
 
Weighted-average common shares outstanding – basic
   
7,644,829
     
7,659,811
     
7,641,705
     
7,682,737
 
Dilutive effect of stock-based compensation
   
9,346
     
     
4,119
     
1,066
 
Weighted-average common and potential common shares – diluted
  
 
7,654,175
     
7,659,811
     
7,645,824
     
7,683,803
 
Basic earnings (loss) per share – common stock
 
$
0.83
   
$
(1.05
)
 
$
2.30
   
$
0.69
 
Basic earnings (loss) per share – unvested share-based payment awards
   
0.83
     
(1.05
)
   
2.30
     
0.69
 
Diluted earnings (loss) per share – common stock
   
0.83
     
(1.05
)
   
2.29
     
0.69
 
Diluted earnings (loss) per share– unvested share-based payment awards
   
0.83
     
(1.05
)
   
2.29
     
0.69
 

At September 30, 2009 and 2008, options to purchase 64,750 and 60,750 shares, respectively, of common stock were not considered in the computation of potential common shares for purposes of diluted EPS, since the exercise prices of the options were greater than the average market price of the common stock for the respective periods.

NOTE 3 – SECURITIES

The following tables summarize the amortized costs and fair values of securities available for sale and held to maturity, as of the dates indicated:

   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
September 30, 2009
                       
Available for sale
                       
Obligations of U.S. government sponsored enterprises
 
$
4,503
   
$
9
   
$
   
$
4,512
 
Obligations of states and political subdivisions
   
21,525
     
637
     
     
22,162
 
Mortgage-backed securities issued or guaranteed by U.S. government sponsored enterprises
   
437,654
     
18,606
     
(56
)
   
456,204
 
Private issue collateralized mortgage obligations
   
44,726
     
25
     
(5,985
)
   
38,766
 
Total debt securities
   
508,408
     
19,277
     
(6,041
)
   
521,644
 
Equity securities
   
5,000
     
     
(678
)
   
4,322
 
Total securities available for sale
 
$
513,408
   
$
19,277
   
$
(6,719
)
 
$
525,966
 
Held to maturity
                               
Obligations of states and political subdivisions
 
$
39,366
   
$
2,385
   
$
   
$
41,751
 
Total securities held to maturity
 
$
39,366
   
$
2,385
   
$
   
$
41,751
 
 
                               
December 31, 2008
                               
Available for sale
                               
Obligations of U.S. government sponsored enterprises
 
$
4,539
   
$
64
   
$
   
$
4,603
 
Obligations of states and political subdivisions
   
25,457
     
105
     
(215
)   
   
25,347
 
Mortgage-backed securities issued or guaranteed by U.S. government sponsored enterprises
   
514,049
     
11,339
     
(52
)   
   
525,336
 
Private issue collateralized mortgage obligations
   
57,123
     
1
     
(10,347
)   
   
46,777
 
Total debt securities
   
601,168
     
11,509
     
(10,614
)   
   
602,063
 
Equity securities
   
5,000
     
     
(1,032
)   
   
3,968
 
Total securities available for sale
 
$
606,168
   
$
11,509
   
$
(11,646
)
 
$
606,031
 
Held to maturity
                               
Obligations of states and political subdivisions
 
$
42,040
   
$
213
   
$
(299
)
 
$
41,954
 
Total securities held to maturity
 
$
42,040
   
$
213
   
$
(299
)
 
$
41,954
 

For the first nine months of 2009, there were three sales totaling $530,000 in the available for sale and one sale for $224,000 in the held to maturity portfolios. The sale in the held to maturity portfolio was due to a drop in credit rating.  Unrealized gains on securities available for sale arising during the first three quarters of 2009 and included in other comprehensive income amounted to $12.6 million, net of deferred taxes of $4.4 million.
 
 
Page 9

 
 
At September 30, 2009, securities with an amortized cost of $396.5 million and a fair value of $412.1 million were pledged to secure Federal Home Loan Bank (“FHLBB”) advances, public deposits, securities sold under agreements to repurchase and other purposes required or permitted by law.
 
The amortized cost and fair values of debt securities by contractual maturity at September 30, 2009 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
 
Available for sale
   
  
   
  
 
Due in one year or less
 
$
8,438
 
$
8,496
 
Due after one year through five years
   
36,147
   
37,434
 
Due after five years through ten years
   
59,777
   
61,693
 
Due after ten years
   
404,046
   
414,021
 
  
 
$
508,408
 
$
521,644
 
Held to maturity
             
Due after one year through five years
 
$
1,456
 
$
1,471
 
Due after five years through ten years
   
23,830
   
25,414
 
Due after ten years
   
14,080
   
14,866
 
  
 
$
39,366
 
$
41,751
 

Management reviews the investment portfolio on a periodic basis 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 other than temporary impairment.

The following table shows the gross unrealized losses and fair values of investment securities at September 30, 2009 and December 31, 2008, 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, 2009
                                   
Mortgage-backed securities
 
$
10,793
   
$
(55
)
 
$
59
   
$
(1
)
 
$
10,852
   
$
(56
)
Private issue collateralized mortgage obligations
   
507
     
(94
)
   
32,628
     
(5,891
)
   
33,135
     
(5,985
)
Equity securities
   
4,322
     
(678
)
   
     
     
4,322
     
(678
)
Total
 
$
15,622
   
$
(827
)
 
$
32,687
   
$
(5,892
)
 
$
48,309
   
$
(6,719
)
                                                 
December 31, 2008
                                               
Obligations of states and political subdivisions
 
$
32,393
   
$
(477
)
 
$
770
   
$
(37
)
 
$
33,163
   
$
(514
)
Mortgage-backed securities
   
18,440
     
(38
)
   
4,407
     
(14
)
   
22,847
     
(52
)
Private issue collateralized mortgage obligations
   
37,106
     
(6,193
)
   
9,652
     
(4,154
)
   
46,758
     
(10,347
)
Equity securities
   
3,968
     
(1,032
)
   
     
     
3,968
     
(1,032
)
Total
 
$
91,907
   
$
(7,740
)
 
$
14,829
   
$
(4,205
)
 
$
106,736
   
$
(11,945
)
 
 
Page 10

 

At September 30, 2009, $48.3 million of the Company’s investment securities had unrealized losses that are considered temporary. The majority of the unrealized loss was related to the private issue collateralized mortgage obligations (“CMOs”), which are all rated as Triple-A except for $10.6 million that have been downgraded to non-investment grade. The Company’s share of these downgraded CMOs is in the senior tranches. Management believes the unrealized loss for the CMOs is the result of current market illiquidity and the underestimation of value in the market. Including the CMOs, there were 20 securities with a fair value of $32.7 million in the portfolio which had unrealized losses for twelve months or longer. Management currently has the intent and ability to retain these investment securities with unrealized losses until the decline in value has been recovered.

At September 30, 2009, the Company held Duff & Phelps Select Income Fund Auction Preferred Stock with an amortized cost of $5.0 million which has failed at auction. The security is rated Triple-A by Moody’s and Standard and Poor’s. Management believes the failed auctions are a temporary liquidity event related to this asset class of securities. The Company is currently collecting all amounts due according to contractual terms and has the ability and intent to hold the securities until they clear auction, are called, or mature; therefore, the securities are not considered other than temporarily impaired.
 
NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

The composition of the Company’s loan portfolio, including residential loans held for sale, at September 30, 2009 and December 31, 2008 was as follows:

   
September 30,
   
December 31,
 
   
2009
   
2008
 
Residential real estate loans
 
$
627,662
   
$
620,956
 
Commercial real estate loans
   
428,059
     
400,312
 
Commercial loans
   
195,818
     
213,683
 
Consumer loans
   
269,919
     
265,865
 
Deferred loan fees net of costs
   
(479
)
   
92
 
Total loans
 
$
1,520,979
   
$
1,500,908
 

Non-accrual loans at September 30, 2009 were $16.6 million, or 1.09% of total loans, compared to $12.5 million, or 0.83% of total loans, at December 31, 2008. Non-accrual loans at September 30, 2009 were comprised of $4.2 million in commercial loans, $5.3 million in