Camden National Corporation 2021 Form 10-K Summary
Business Context and Reporting Period
Camden National Corporation is a Maine-based bank holding company for Camden National Bank. The Company provides commercial and consumer banking, mortgage, wealth management, trust, brokerage, investment advisory and insurance services primarily in Maine, with operations in New Hampshire and Massachusetts. The report covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. Total assets were $5.5 billion at year-end 2021.
The Bank operated 57 branches in Maine, two New Hampshire locations, a Massachusetts mortgage production office and 66 ATMs. Net interest income represented 73% of total revenue in both 2021 and 2020.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net income | $69.0 million | $59.5 million | Up 16% |
| Diluted EPS | $4.60 | $3.95 | Up 16% |
| Net interest income | $137.4 million | $136.3 million | Up 1% |
| Fully taxable-equivalent net interest margin | 2.84% | 3.09% | Down 25 basis points |
| Non-interest income | $49.7 million | $50.5 million | Down 1% |
| Non-interest expense | $103.7 million | $100.0 million | Up 4% |
| Return on average assets | 1.31% | 1.23% | Up 8 basis points |
| Return on average equity | 12.72% | 11.81% | Up 91 basis points |
| Return on average tangible equity | 15.61% | 14.79% | Up 82 basis points |
| Efficiency ratio | 54.85% | 52.56% | Higher costs relative to revenue |
Net income benefited primarily from a $15.6 million year-over-year improvement in the provision for credit losses. The Company recorded a $3.2 million credit for credit losses in 2021 versus $12.4 million of provision expense in 2020. Income before taxes was $86.6 million and income tax expense was $17.6 million, producing a 20.3% effective tax rate.
Balance Sheet, Liquidity and Capital
- Total assets increased 12% to $5.50 billion, from $4.90 billion.
- Total loans increased 7% to $3.43 billion. Excluding SBA PPP loans, loans increased to $3.40 billion from $3.08 billion.
- Total deposits increased 15% to $4.61 billion. Core deposits increased 22% to $4.09 billion, while certificates of deposit declined 13% to $309.6 million.
- Cash, cash equivalents and restricted cash increased to $220.6 million from $145.8 million.
- Total investments increased 34% to $1.52 billion, primarily through purchases of available-for-sale securities funded by deposit growth.
- Total borrowings were $255.9 million at year-end, including $211.6 million of short-term borrowings and $44.3 million of subordinated debentures. The Company terminated a $25.0 million FHLBB borrowing and redeemed $15.0 million of subordinated debt during 2021.
- The loan-to-deposit ratio was 74%. Management stated that liquidity exceeded its target and was sufficient for current and expected funding needs.
- Shareholders’ equity increased 2% to $541.3 million. The common equity ratio was 9.84% and the tangible common equity ratio was 8.22%.
- The Company and Bank exceeded applicable regulatory capital requirements. The Bank’s total risk-based capital ratio was 13.78%, CET1 ratio was 12.75% and leverage ratio was 8.31%; the Bank remained “well capitalized.”
Cash Flow and Capital Returns
- Net cash provided by operating activities was $142.7 million, compared with $18.2 million in 2020.
- Investing activities used $649.1 million, primarily due to $758.8 million of purchases of available-for-sale debt securities and a $212.1 million net increase in loans.
- Financing activities provided $581.2 million, primarily from $603.6 million of deposit growth.
- Cash dividends paid were $21.1 million, and share repurchases totaled $10.1 million for 217,931 shares at a weighted-average price of $46.25.
- Dividends declared increased to $1.48 per share from $1.32 per share in 2020. In January 2022, the Board authorized a new repurchase program for up to 750,000 shares through January 3, 2023, subject to market and regulatory conditions.
Material Changes Versus Prior Comparable Period
- Profitability improved despite continued low interest rates: net income rose 16%, while net interest income rose only 1% as lower funding costs offset lower asset yields.
- Net interest margin compressed from 3.09% to 2.84%, reflecting lower interest rates and excess liquidity.
- Mortgage banking income declined 26% to $13.7 million because the Company retained more residential mortgage production to manage liquidity and interest-rate risk. Residential mortgage originations nevertheless reached a record $1.1 billion, up 5%.
- Debit card income increased 26% to $13.1 million, while fiduciary services income increased 7% and brokerage and insurance commissions increased 38%.
- Non-interest expense increased 4%, driven principally by a 5% increase in salaries and employee benefits, including wage increases in response to labor-market pressures, and continued technology and cybersecurity investment.
- Asset quality improved. Non-performing assets declined to $6.9 million, or 0.13% of total assets, from $10.7 million, or 0.22%. Net charge-offs remained low at 0.02% of average loans.
- The allowance for credit losses on loans declined to $33.3 million, or 0.97% of loans, from $37.9 million, or 1.18%, as expected economic conditions improved and anticipated COVID-related deterioration did not materialize.
- Unrealized losses on available-for-sale securities reduced accumulated other comprehensive income by $30.5 million after tax. Management stated that the losses were interest-rate-related rather than credit-related and recorded no related allowance or impairment.
Guidance, Outlook, Risks and Unusual Items
Management reported that the Company’s balance sheet was asset sensitive as of December 31, 2021. It expects higher short-term interest rates to increase net interest income and net interest margin as assets reprice faster than funding costs. However, management cautioned that a flattening or inverted yield curve could reduce loan demand and adversely affect growth. Sensitivity analysis estimated that a 200-basis-point increase in rates would increase net interest income by 1.52% in year one and 7.72% in year two, assuming no balance-sheet growth; a 100-basis-point decrease would reduce net interest income by 0.67% in year one and 7.78% in year two. These are hypothetical scenarios, not forecasts.
- COVID-19, inflation, supply-chain disruptions, labor shortages and economic weakness could increase credit losses, operating costs and business disruption.
- Loan exposure is geographically concentrated: 72% of loans were to borrowers in Maine, and commercial real estate and commercial loans represented approximately 54% of total loans.
- Nonresidential building operators represented 14% of total loans and 32% of commercial real estate loans. Hospitality, senior living, restaurants, travel and recreation remain areas of particular COVID-related sensitivity.
- Cybersecurity, technology, third-party vendor and remote-work risks remain elevated and could cause operational disruption, regulatory action, litigation or reputational damage.
- The transition away from LIBOR remains a risk for contracts, derivatives and other instruments linked to the benchmark. The Company expects commonly used U.S. dollar LIBOR settings to cease after June 30, 2023.
- Goodwill of $94.7 million was not impaired in 2021. The Company had no material legal loss contingencies or material litigation reserves at year-end based on currently available information.
- The $514,000 prepayment penalty on the terminated FHLBB borrowing was an unusual item in 2021. The Company also redeemed $15.0 million of subordinated debt during the year.
- The independent auditor issued an unqualified opinion on the financial statements and effective internal control over financial reporting. The allowance for credit losses was identified as the critical audit matter because of significant modeling judgments and estimation uncertainty.
Most Important Facts for Investors to Verify
- Whether future interest-rate increases improve net interest income as management expects, or whether deposit repricing and yield-curve changes compress margins.
- Whether the low level of non-performing assets and net charge-offs remains sustainable as pandemic support fades and economic conditions evolve.
- The adequacy of the $33.3 million loan allowance under CECL, including assumptions for Maine unemployment, GDP, housing prices, probability of default and loss given default.
- Concentration risk in Maine, commercial real estate and nonresidential building operators, including collateral values and borrower refinancing capacity.
- The effect of the larger available-for-sale securities portfolio and its 5.9-year weighted-average life on accumulated other comprehensive income, capital and liquidity if rates rise.
- The sustainability of mortgage banking and debit card fee income after the unusually strong pandemic-era mortgage and consumer-spending environment.
- The Company’s progress and costs associated with LIBOR transition, cybersecurity controls and reliance on third-party technology providers.
- Whether continued dividends and share repurchases remain consistent with regulatory capital, liquidity needs and the Bank’s ability to upstream dividends to the holding company.