Camden National (CAC) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Presents the unaudited consolidated financial statements and accompanying notes for the period ended March 31, 2023 Consolidated Statements of Condition Total assets grew to $5.72 billion, driven by loan growth, while deposits decreased and borrowings increased Consolidated Balance Sheet Highlights (unaudited) | (In thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $5,716,605 | $5,671,850 | | Net Loans | $4,035,974 | $3,973,431 | | Total Investments | $1,249,882 | $1,259,161 | | Total Liabilities | $5,251,731 | $5,220,572 | | Total Deposits | $4,642,734 | $4,826,929 | | Short-term borrowings | $486,318 | $265,176 | | Total Shareholders' Equity | $464,874 | $451,278 | Consolidated Statements of Income Net income decreased to $12.7 million due to higher interest expense and a provision for credit losses Quarterly Income Statement Summary (unaudited) | (In thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net Interest Income | $34,280 | $36,365 | | Provision (credit) for credit losses | $2,002 | $(1,075) | | Non-Interest Income | $9,866 | $9,825 | | Non-Interest Expense | $26,165 | $26,209 | | Net Income | $12,727 | $16,795 | | Diluted EPS | $0.87 | $1.13 | Notes to the Unaudited Consolidated Financial Statements Details significant accounting policies, including new standards, and provides breakdowns of financial instruments - The company adopted ASU 2022-02 effective January 1, 2023, which eliminates the accounting and disclosure requirements for Troubled Debt Restructurings (TDRs)[112] - In June 2022, the company transferred securities with a fair value of $520.3 million from Available-for-Sale (AFS) to Held-to-Maturity (HTM) to manage its capital position[90] - A provision for credit losses of $1.8 million was recorded for HTM debt securities in Q1 2023 due to the write-off of a Signature Bank bond following its failure[96] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Analyzes Q1 2023 performance, focusing on margin compression, asset quality, liquidity, and capital adequacy Executive Overview Highlights a strong financial position despite a 24% decline in net income due to market volatility - Net income for Q1 2023 was $12.7 million, a 24% decrease from Q1 2022, with diluted EPS falling 23% to $0.87[346] - The decrease in net income was driven by a $2.1 million drop in net interest income and a $3.1 million increase in provision for credit losses, which included a $1.8 million write-off of a Signature Bank bond[347] - The company emphasizes its strong financial footing, with uninsured and uncollateralized deposits at 15% of total deposits and primary liquidity sources of $1.3 billion, covering 1.9 times these deposits[314][394] Results of Operations Details the impact of net interest margin compression and credit provisions on quarterly operational results Net Interest Margin Analysis | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Interest Margin (FTE) | 2.54% | 2.87% | | Yield on Interest-Earning Assets | 3.92% | 3.07% | | Cost of Total Funding Liabilities | 1.45% | 0.21% | Provision for Credit Losses Components (in thousands) | Component | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Provision (credit) for loan losses | $439 | $(1,236) | | (Credit) provision for off-balance sheet | $(276) | $161 | | Provision for HTM debt securities | $1,839 | $— | | Total Provision (credit) | $2,002 | $(1,075) | - Non-interest income was stable, with a 31% decrease in mortgage banking income offset by a 40% increase in other income, driven by higher customer loan swap fees[29] - Non-interest expense was flat, with a 6% decrease in salaries and benefits due to lower incentive accruals, offset by increases in other operational expenses[31][32][33] Financial Condition Maintains a strong financial position with $5.7 billion in assets, loan growth, and stable asset quality - The total investment portfolio was $1.2 billion at March 31, 2023, a decrease of $9.3 million from year-end 2022, including a $1.8 million write-off of a Signature Bank bond[14][15] Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2023 | Dec 31, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Commercial Real Estate | $1,666,617 | $1,624,937 | 2.6% | | Commercial | $421,099 | $430,131 | (2.1)% | | Residential Real Estate | $1,733,147 | $1,700,266 | 1.9% | | Consumer and Home Equity | $252,245 | $255,019 | (1.1)% | | Total Loans | $4,073,108 | $4,010,353 | 1.6% | Key Asset Quality Ratios | Ratio | March 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Non-performing assets to total assets | 0.09% | 0.09% | | Non-performing loans to total loans | 0.13% | 0.13% | | ACL on loans to total loans | 0.91% | 0.92% | - Deposits totaled $4.6 billion, a decrease of $184.2 million (4%) from year-end 2022, largely due to a single large municipal deposit outflow[370][399] Liquidity and Capital Resources Details the company's robust liquidity sources and capital ratios, which exceed regulatory requirements - Total available primary liquidity was approximately $1.3 billion as of March 31, 2023, which was 1.9 times the level of uninsured and uncollateralized deposits[378][409] - Subsequent to quarter-end, the company became eligible to borrow up to $146.0 million from the Federal Reserve's Bank Term Funding Program (BTFP)[440] - The company's Common Equity Tier 1 (CET1) risk-based capital ratio was 11.90%, well above the 7.00% required to be considered well-capitalized[249][314] - A quarterly cash dividend of $0.42 per share was declared, payable on April 28, 2023[374] Quantitative and Qualitative Disclosure About Market Risk Analyzes market risk, primarily interest rate risk, using net interest income sensitivity modeling Net Interest Income Sensitivity Analysis (Year 1) | Rate Change from Base | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | +200 basis points | (2.24)% | (0.79)% | | -200 basis points | 1.87% | N/A | - The company's interest rate risk position has improved, with the projected decrease in net interest income from a +200 bps rate shock narrowing to 2.24% from 3.93% at the end of 2022[366] Controls and Procedures Confirms the effectiveness of disclosure controls and procedures with no material changes during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[470] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[463] PART II. OTHER INFORMATION Legal Proceedings States that pending legal actions are not expected to have a material adverse effect on financial position - Management does not expect pending legal actions to have a material adverse effect on the company's financial position[434] Risk Factors Refers to the company's 2022 Annual Report on Form 10-K for a detailed discussion of risk factors - The report refers to the Risk Factors section of the Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of potential risks[464]