Camden National (CAC) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements and related notes for Camden National Corporation as of September 30, 2023 Consolidated Statements of Condition Total assets increased to $5.78 billion as of September 30, 2023, driven by cash growth, while liabilities and shareholders' equity also rose Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $5,779,675 | $5,671,850 | | Total cash, cash equivalents and restricted cash | $211,514 | $75,427 | | Net loans | $4,022,006 | $3,973,431 | | Total investments | $1,157,618 | $1,259,161 | | Total Liabilities | $5,316,377 | $5,220,572 | | Total deposits | $4,678,406 | $4,826,929 | | Short-term borrowings | $470,140 | $265,176 | | Total Shareholders' Equity | $463,298 | $451,278 | Consolidated Statements of Income Net income declined for both the third quarter and nine months ended September 30, 2023, primarily due to decreased net interest income and a loss on securities sales Income Statement Summary (in thousands) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $32,584 | $37,813 | $99,554 | $110,712 | | (Credit) Provision for Credit Losses | ($574) | $2,764 | $1,531 | $4,034 | | Total Non-Interest Income | $5,072 | $9,954 | $25,048 | $30,920 | | Total Non-Interest Expense | $26,207 | $27,091 | $79,515 | $79,856 | | Net Income | $9,787 | $14,267 | $34,903 | $46,088 | | Diluted EPS | $0.67 | $0.97 | $2.39 | $3.12 | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income improved significantly for both the quarter and nine months ended September 30, 2023, driven by reduced unrealized losses on debt securities Comprehensive Income (Loss) Summary (in thousands) | Component | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $9,787 | $14,267 | $34,903 | $46,088 | | Other Comprehensive Loss | ($8,274) | ($21,490) | ($4,253) | ($130,227) | | Comprehensive Income (Loss) | $1,513 | ($7,223) | $30,650 | ($84,139) | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased as of September 30, 2023, primarily due to net income, partially offset by dividends and stock repurchases - For the nine months ended September 30, 2023, total shareholders' equity increased to $463.3 million. Key drivers included $34.9 million in net income, offset by $18.4 million in cash dividends and $2.0 million in stock repurchases[243] Consolidated Statements of Cash Flows Net cash increased significantly for the nine months ended September 30, 2023, driven by operating, investing, and financing activities, including security sales and borrowings Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $78,805 | $84,715 | | Net Cash from Investing Activities | $21,549 | ($364,404) | | Net Cash from Financing Activities | $35,733 | $141,076 | | Net Increase (Decrease) in Cash | $136,087 | ($138,613) | Notes to the Unaudited Consolidated Financial Statements This section details accounting policies and financial data, covering recent pronouncements, investments, loans, credit losses, borrowings, derivatives, capital, and fair value measurements - The Company adopted ASU 2022-02 effective January 1, 2023, which eliminated the accounting and disclosure requirements for Troubled Debt Restructurings (TDRs)[223] - The Company adopted ASU 2022-01 effective January 1, 2023, and used the "portfolio layer" method to hedge fixed-rate residential mortgages with interest rate swaps during the first nine months of 2023[249] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance and condition, highlighting the impact of the inverted yield curve and banking industry turmoil on net interest margin and earnings Forward-Looking Statements This section contains cautionary language regarding forward-looking statements, listing factors that could cause actual results to differ materially, including economic conditions, interest rates, and industry turmoil - The report identifies several key risks that could impact future performance, including: - Deterioration in the value of investment securities - Weakness in the U.S. and regional economies - Inflation and interest rate fluctuations - Turmoil in the financial services industry, including bank failures and their impact on deposit stability[59][417][418] Non-GAAP Financial Measures The company uses non-GAAP financial measures like adjusted net income and tangible common equity ratios to supplement GAAP results, providing reconciliations for comparability and trend analysis - The company utilizes non-GAAP measures like adjusted net income, tangible book value per share, and the efficiency ratio to measure performance against peers and analyze internal trends, removing the impact of unusual items[62] Non-GAAP Reconciliation: Adjusted Net Income (in thousands) | Description | Q3 2023 | Nine Months 2023 | | :--- | :--- | :--- | | Net income, as presented | $9,787 | $34,903 | | Adjustment for net loss on sale of securities | $5,335 | $5,335 | | Adjustment for Signature Bank bond write-off | — | $1,838 | | Tax impact of above adjustments | ($1,120) | ($1,506) | | Adjusted net income | $14,002 | $40,570 | Tangible Book Value Per Share | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Book value per share | $31.82 | $30.98 | | Tangible book value per share (non-GAAP) | $25.24 | $24.37 | Executive Overview The company's performance was affected by the inverted yield curve and banking liquidity concerns, leading to a strategic shift towards deposit and net interest margin optimization while maintaining strong credit quality - The company's short-term priorities have shifted to deposit and net interest margin optimization and maintaining strong credit quality in response to the inverted yield curve and banking industry liquidity crisis in early 2023[101] Operating Results Summary | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income (GAAP, $M) | $9.8 | $14.3 | $34.9 | $46.1 | | Diluted EPS (GAAP) | $0.67 | $0.97 | $2.39 | $3.12 | | Adjusted Net Income (Non-GAAP, $M) | $14.0 | $14.3 | $40.6 | $46.1 | | Adjusted Diluted EPS (Non-GAAP) | $0.96 | $0.97 | $2.77 | $3.12 | - The company announced the upcoming retirement of President and CEO Gregory Dufour, effective December 31, 2023, to be succeeded by Simon Griffiths[78] - A cash dividend of $0.42 per share was announced, payable on October 31, 2023[77] Results of Operations Net interest income decreased due to margin compression, while a credit for loan losses was recorded, and non-interest income was impacted by a loss on securities sales, partially offset by lower non-interest expenses Net Interest Margin (Fully-Taxable Equivalent) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Q3 | 2.39% | 2.88% | | Nine Months | 2.44% | 2.86% | - The decrease in net interest income was driven by a 139 basis point increase in the average cost of funds to 1.93% in Q3 2023, reflecting the higher interest rate environment and a shift in deposit mix to higher-cost accounts[108] - The company executed five pay-fixed, receive-floating interest rate swaps totaling $375.0 million notional value to reduce interest rate risk, which generated $1.4 million of interest income in Q3 2023[108] - A credit for loan losses of $456,000 was recorded in Q3 2023, driven by a 1% decrease in loans during the quarter and strong asset quality metrics[89] - Total non-interest income decreased by 49% in Q3 2023 compared to Q3 2022, primarily due to a $5.3 million pre-tax loss on the sale of securities as part of a balance sheet repositioning strategy[90][148] - Total non-interest expense decreased by 3% in Q3 2023, mainly due to lower salary and employee benefit costs, which were down 7% year-over-year[149][119] Financial Condition The company's financial condition remains strong, with decreased investments due to strategic sales, a growing loan portfolio with stable asset quality, decreased deposits, and increased borrowings to supplement funding - In Q3 2023, the company sold $66.7 million of AFS securities with a 2.31% yield at a pre-tax loss of $5.3 million. $30.0 million of the proceeds were reinvested into securities yielding 6.06%[122] Loan Portfolio Composition (in thousands) | Loan Type | Sep 30, 2023 | Dec 31, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Commercial Real Estate | $1,653,288 | $1,624,937 | 2% | | Commercial | $400,031 | $430,131 | (7)% | | Residential Real Estate | $1,752,401 | $1,700,266 | 3% | | Consumer and Home Equity | $252,693 | $255,019 | (1)% | | Total Loans | $4,058,413 | $4,010,353 | 1% | - Asset quality remains strong, with non-performing assets at 0.11% of total assets and non-performing loans at 0.16% of total loans as of September 30, 2023[134] - The Allowance for Credit Losses (ACL) on loans was $36.4 million, or 0.90% of total loans, at September 30, 2023, down from $36.9 million (0.92%) at year-end 2022[170] - Total deposits decreased by 3% to $4.7 billion in the first nine months of 2023, with a notable shift from checking/savings accounts to higher-yielding CDs and money market accounts[185][173] - Total borrowings increased by 66% to $514.5 million since year-end 2022, including $135.0 million from the Bank Term Funding Program (BTFP)[146] Liquidity The company maintains a strong liquidity position, exceeding internal targets with $1.5 billion in primary liquidity sources as of September 30, 2023, covering uninsured deposits by 2.1 times Primary Liquidity Sources as of Sep 30, 2023 (in thousands) | Source | Amount | | :--- | :--- | | Excess cash | $118,805 | | Unpledged investment securities | $470,301 | | FHLBB Borrowing Capacity | $720,009 | | Fed Discount Window | $39,456 | | BTFP | $27,874 | | Unsecured borrowing lines | $104,872 | | Total available primary liquidity | $1,538,975 | - Total available primary liquidity of $1.5 billion was approximately 2.1 times the total uninsured and uncollateralized deposits of $717.3 million[484][175] Capital Resources The company and Bank maintain strong capital bases, exceeding all regulatory requirements as of September 30, 2023, with the Bank classified as "well capitalized" - At September 30, 2023, the Company and the Bank exceeded all regulatory capital requirements, with the Bank meeting the criteria to be considered "well capitalized"[450] Company Capital Ratios - Sep 30, 2023 | Ratio | Actual | Requirement + Buffer | | :--- | :--- | :--- | | Common equity Tier 1 | 12.16% | 7.00% | | Tier 1 risk-based capital | 13.22% | 8.50% | | Total risk-based capital | 14.19% | 10.50% | | Tier 1 leverage | 9.35% | 4.00% | Risk Management The company manages various risks through its ERM program, with a focus on interest rate risk, and has completed its transition from LIBOR to alternative reference rates - The company's risk management program covers credit, liquidity, market, interest rate, capital, operational, and other risks, overseen by the Chief Risk Officer and the Board[479] Net Interest Income Sensitivity Analysis (Year 1) | Rate Change Scenario | Estimated NII Change (Sep 30, 2023) | | :--- | :--- | | +200 basis points | (1.26)% | | -200 basis points | 2.15% | - The company no longer offers new contracts referencing LIBOR and has transitioned all legacy contracts to SOFR-based or other alternative rates in accordance with the LIBOR Act[512][455] Quantitative and Qualitative Disclosure about Market Risk This section incorporates by reference the information on market risk, primarily interest rate risk, discussed in the "Risk Management" section of the MD&A - Information required by this item is included in the "Risk Management" section of the MD&A[456] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the period - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[514] - No material changes occurred in internal control over financial reporting during the quarter[457] PART II. OTHER INFORMATION Legal Proceedings The company is subject to various legal actions in the normal course of business, with management believing outcomes will not have a material adverse effect on its financial position - The company states that pending legal actions are not expected to have a material adverse effect on its financial position[458] Risk Factors This section refers the reader to the "Risk Factors" discussion in the company's Annual Report on Form 10-K for the year ended December 31, 2022, for a comprehensive list of factors that may adversely affect the business - There are 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, 2022[465] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any stock during Q3 2023, with 684,308 shares remaining available under the January 2023 repurchase program - The Company did not repurchase any of its stock during the three months ended September 30, 2023[465][516] - In January 2023, the Board authorized a new common stock repurchase program for up to 750,000 shares[459] Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None[502] Mine Safety Disclosures This item is not applicable to the company - Not applicable[466] Other Information There was no other information to report for this item - None[517] Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications, employment agreements, and iXBRL data files - Exhibits filed include CEO/CFO certifications and iXBRL data[503]