Camden National (CAC) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for Camden National Corporation as of and for the three months ended March 31, 2022, including detailed notes on presentation and accounting policies Consolidated Statements of Condition (Balance Sheet) As of March 31, 2022, total assets decreased slightly to $5.42 billion from $5.50 billion at year-end 2021, primarily due to a reduction in available-for-sale securities' fair value Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $5,420,415 | $5,500,356 | ($79,941) | | Net Loans | $3,502,448 | $3,398,218 | $104,230 | | Total Investments | $1,437,410 | $1,523,485 | ($86,075) | | Total Deposits | $4,576,664 | $4,608,889 | ($32,225) | | Total Shareholders' Equity | $482,446 | $541,294 | ($58,848) | - The significant drop in Shareholders' Equity was primarily caused by a large increase in 'Accumulated other comprehensive loss' from $(6,229) thousand to $(75,913) thousand, driven by unrealized losses on available-for-sale securities[11] Consolidated Statements of Income For Q1 2022, net income decreased by 15% to $16.8 million from $19.7 million in Q1 2021, mainly due to a $6.1 million drop in mortgage banking income, partially offset by increased net interest income Q1 2022 vs Q1 2021 Performance (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $36,365 | $32,364 | +12.4% | | Credit for Credit Losses | ($1,075) | ($1,956) | -45.0% | | Non-Interest Income | $9,825 | $15,215 | -35.4% | | Net Income | $16,795 | $19,740 | -14.9% | | Diluted EPS | $1.13 | $1.31 | -13.7% | - The primary driver for the drop in non-interest income was a significant decrease in mortgage banking income, which fell from $7.1 million in Q1 2021 to $1.0 million in Q1 2022[14] - Cash dividends declared per share increased to $0.40 in Q1 2022 from $0.36 in Q1 2021[14] Notes to the Unaudited Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial results, covering investment portfolio changes, loan portfolio details, allowance for credit losses, derivative use, and regulatory capital ratios - The company's investment portfolio, primarily Available-for-Sale (AFS) debt securities, had gross unrealized losses of $95.5 million as of March 31, 2022, a substantial increase from $17.7 million at year-end 2021, primarily due to rising interest rates[35][40] - The Allowance for Credit Losses (ACL) on loans decreased by $1.5 million to $31.8 million in Q1 2022, mainly due to the release of $1.9 million in reserves for hospitality-related loans impacted by the COVID-19 pandemic[76] - The company uses interest rate swaps and other derivatives to manage interest rate risk, with a notional amount of $243 million designated as hedging instruments as of March 31, 2022[118][127] - Both the company and its bank subsidiary exceeded all regulatory capital requirements to be considered 'well capitalized' as of March 31, 2022, despite the negative impact of rising rates on tangible common equity[144][146] Management's Discussion and Analysis (MD&A) Management discusses the company's Q1 2022 financial performance and condition, highlighting a 15% decrease in net income driven by lower mortgage banking income, strong net interest income growth, stable asset quality, and capital impacts from unrealized investment losses Executive Overview Net income for Q1 2022 was $16.8 million ($1.13 diluted EPS), down 15% from Q1 2021, primarily due to a $6.1 million drop in mortgage banking income, partially offset by $4.0 million growth in net interest income - Revenues for Q1 2022 totaled $46.2 million, a 3% decrease from Q1 2021, primarily driven by a $6.1 million drop in mortgage banking income as rising rates, competition, and low housing inventory slowed sales[236] - Net interest income increased by $4.0 million, supported by a 43% increase in average investments and a 7% increase in average loans year-over-year[236] - Shareholders' equity and capital ratios decreased due to a sharp rise in interest rates causing unrealized losses on the AFS investment portfolio, with the tangible common equity ratio (non-GAAP) falling to 7.25% from 8.22% at year-end[241] - The company initiated a new share repurchase program for up to 750,000 shares in Q1 2022 and repurchased 13,086 shares during the quarter[242] Results of Operations Net interest income (FTE) increased 12% to $35.6 million in Q1 2022, while non-interest income fell 35% to $9.8 million due to an 85% plunge in mortgage banking income, and non-interest expense rose 5% to $26.2 million Key Operating Metrics (Q1 2022 vs Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Interest Income (FTE, non-GAAP) | $35.6M | $31.6M (est.) | | Net Interest Margin (FTE) | 2.87% | 2.88% | | Mortgage Banking Income, net | $1.0M | $7.1M | | Total Non-Interest Expense | $26.2M | $24.9M | - The decrease in mortgage banking income was driven by a significant reduction in residential mortgage sales to the secondary market, with only 23% of production sold in Q1 2022 compared to 66% in Q1 2021[258] - The increase in non-interest expense was primarily due to higher salary costs from merit cycles and an off-cycle increase in October 2021 to address inflation and a competitive labor market[260] Financial Condition As of March 31, 2022, total assets were $5.5 billion, with the investment portfolio decreasing by $86.1 million due to fair value adjustments, while total loans grew by $102.7 million (3%), and asset quality remained very strong - The investment portfolio's fair value decreased by $92.8 million in Q1 2022 as the 10-year Treasury yield rose 80 basis points, causing bond prices to fall[264] Loan Portfolio Composition Change (Q1 2022) | Loan Category | Change ($) | Change (%) | | :--- | :--- | :--- | | Residential Real Estate | +$85.8M | +7% | | Commercial | +$39.7M | +11% | | SBA PPP | -$29.6M | -82% | | Total Loans | +$102.7M | +3% | Asset Quality Metrics | Metric | March 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Non-performing assets to total assets | 0.12% | 0.13% | | ACL on loans to total loans | 0.90% | 0.97% | | Net charge-offs to average loans (annualized) | 0.03% | N/A (0.02% for FY21) | Liquidity and Capital Resources The company maintains a strong liquidity position, primarily funded by a stable deposit base of $4.6 billion, and robust capital resources despite a decrease in shareholders' equity due to AOCI impacts, exceeding all regulatory capital requirements - Primary sources of liquidity include deposits ($4.6 billion), borrowings ($282.0 million), and cash flows from loans and investments, with available credit lines of $109.6 million from the FHLBB and a correspondent bank[314][316][319] - Shareholders' equity decreased to $482.5 million at March 31, 2022, from $541.3 million at year-end 2021, primarily due to the mark-to-market valuation decrease of the AFS securities portfolio[333] - The company declared a quarterly dividend of $0.40 per share and repurchased 13,086 shares in Q1 2022, while the Bank upstreamed $8.1 million in dividends to the parent company during the quarter[309][334][335] Quantitative and Qualitative Disclosure about Market Risk This section incorporates by reference the information on market risk, particularly interest rate risk, detailed in the 'Risk Management' section of the Management's Discussion and Analysis (MD&A) - The required information regarding market risk is provided in the 'Risk Management' section of Item 2, MD&A[353] Net Interest Income Sensitivity Analysis (as of March 31, 2022) | Rate Change Scenario | Estimated Change in NII (Year 1) | Estimated Change in NII (Year 2) | | :--- | :--- | :--- | | +200 basis points | -0.79% | +6.04% | | -100 basis points | -0.24% | -1.91% | Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the quarter, with no material changes in internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures are effective in ensuring that information is recorded, processed, and reported in a timely manner as required by SEC rules[356] - No changes occurred during the first quarter of 2022 that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[357] PART II. OTHER INFORMATION Legal Proceedings The company is subject to various pending and threatened legal actions in the normal course of business, with management believing outcomes will not have a material adverse effect on its consolidated financial position - In the normal course of business, the Company is subject to legal actions, but management does not expect these to have a material adverse effect on its financial position[360] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - The report refers to the 'Risk Factors' section in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, for a discussion of risks, indicating no material changes[361] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or related use of proceeds during the period - The company reported 'None' for this item[361] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to bylaws, various equity and compensation plans, forms of award agreements, and CEO/CFO certifications - Exhibits filed include amendments to corporate bylaws, the 2022 Equity and Incentive Plan, various other compensation program documents, and required CEO/CFO certifications[364]