Camden National Corporation 2022 Form 10-K Summary
Business context and reporting period
Camden National Corporation is a Maine-based bank holding company for Camden National Bank, providing consumer, commercial, municipal and nonprofit banking, mortgage, wealth management, trust, brokerage, investment advisory and insurance services across Maine and selected markets in New Hampshire and Massachusetts. The filing covers the fiscal year ended December 31, 2022, with comparisons to 2021 and 2020. The Company reported $5.7 billion of assets and operated 57 Maine branches, two New Hampshire locations, a Massachusetts mortgage office and 65 ATMs at year-end.
Financial performance and condition
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net income | $61.4 million | $69.0 million | Down 11% |
| Diluted EPS | $4.17 | $4.60 | Down 9% |
| Net interest income | $147.7 million | $137.4 million | Up 7% |
| Provision for credit losses | $4.5 million | $(3.2) million credit | Increase of $7.7 million |
| Non-interest income | $40.7 million | $49.7 million | Down 18% |
| Non-interest expense | $106.8 million | $103.7 million | Up 3% |
| Net interest margin, fully taxable equivalent | 2.86% | 2.84% | Up 2 basis points |
| Return on average equity | 13.15% | 12.72% | Improved |
| Return on average tangible equity | 16.71% | 15.61% | Improved |
| Total assets | $5.672 billion | $5.500 billion | Up 3% |
| Total loans | $4.010 billion | $3.431 billion | Up 17% |
| Total deposits | $4.827 billion | $4.609 billion | Up 5% |
| Shareholders’ equity | $451.3 million | $541.3 million | Down 17% |
Loan growth was led by residential real estate loans, which increased 30%, and commercial loans, which increased 8%. Commercial real estate and commercial loans represented 51% of total loans. Core deposits increased 6% to $4.345 billion, while brokered deposits were $181.3 million, or approximately 4% of total deposits.
Cash, cash equivalents and restricted cash declined to $75.4 million from $220.6 million as cash was redeployed to fund loan growth. Short-term borrowings increased to $265.2 million, and total borrowings were $309.5 million, including $44.3 million of junior subordinated debentures. Management stated that liquidity exceeded its internal target and was sufficient for current and anticipated funding needs. Available borrowing capacity was reported at approximately $710.8 million, in addition to various credit lines.
Asset quality remained strong. Non-performing loans were $5.1 million, or 0.13% of total loans, compared with 0.20% in 2021. Non-performing assets were 0.09% of total assets, compared with 0.13%. Net charge-offs were 0.02% of average loans. The allowance for credit losses on loans increased to $36.9 million, or 0.92% of total loans, from $33.3 million, or 0.97%.
Regulatory capital remained above required levels. Camden National Bank reported a total risk-based capital ratio of 13.03%, a common equity Tier 1 ratio of 12.03% and a Tier 1 leverage ratio of 8.65% at December 31, 2022, and continued to qualify as well capitalized.
Net cash provided by operating activities was $105.2 million. Investing activities used $487.7 million, primarily because of a $579.4 million net increase in loans. Financing activities provided $237.3 million, mainly from deposit growth and increased borrowings. Net cash decreased by $145.2 million during the year.
Material changes versus the prior comparable period
- Net income declined $7.6 million, primarily because of higher credit-loss provisioning, lower mortgage banking income and higher operating expenses.
- Net interest income increased $10.3 million as average loans grew 12% and interest-earning asset yields increased. The benefit was partly offset by a $14.0 million increase in interest expense as deposit and borrowing costs rose sharply.
- Mortgage banking income fell $9.5 million, or 69%, as residential mortgage production declined 30% and the Company sold 20% of originations compared with 44% in 2021.
- The Company recorded a $4.5 million credit-loss provision, compared with a $3.2 million credit in 2021, reflecting loan growth and more adverse macroeconomic forecasts.
- The efficiency ratio increased to 56.16% from 54.85% on a non-GAAP basis, reflecting lower revenue and higher expenses.
- The Company transferred securities with a fair value of $520.3 million from available-for-sale to held-to-maturity. The transfer reduced the effect of future market-value changes on regulatory capital, but the investment portfolio still had significant unrealized losses from higher interest rates.
- Accumulated other comprehensive loss increased to $126.0 million from $6.2 million, primarily because of after-tax unrealized losses on available-for-sale debt securities. Management stated that the losses were interest-rate related rather than credit related.
- The Company repurchased 225,245 shares for $10.2 million and declared dividends of $1.62 per share, compared with $1.48 per share in 2021.
Guidance, outlook, commentary, risks and unusual items
Management did not provide formal earnings guidance. It expects continued volatility from inflation, interest rates and economic conditions. The balance sheet was liability-sensitive at year-end, meaning further increases in short-term rates could reduce net interest income because funding costs may reprice faster than asset yields. The Company’s sensitivity analysis estimated that a 200-basis-point rate increase would reduce first-year net interest income by 3.93%, assuming no balance-sheet growth or compositional changes.
The Federal Reserve raised the federal funds target range to 4.25%–4.50% by December 31, 2022 and to 4.50%–4.75% in February 2023. Subsequent to year-end, the Company entered into four fixed-for-floating interest-rate swaps totaling $300 million of notional to hedge a designated pool of fixed-rate residential mortgage loans.
Key risks include concentration of lending in Maine and New England real estate markets; commercial real estate and commercial-credit exposure; deposit pricing and potential deposit migration; reliance on wholesale and brokered funding; interest-rate and securities-market volatility; unrealized losses in the securities portfolio; cybersecurity and third-party technology risks; regulatory and consumer-compliance changes; LIBOR-to-SOFR transition risk; climate and natural-disaster exposure; and potential increases in credit losses if economic conditions deteriorate.
Unusual or notable items included a $912,000 realized loss on sales of available-for-sale securities, $387,000 of write-downs related to one bank-owned life insurance contract, the securities reclassification described above, and a $119.7 million after-tax other comprehensive loss. Goodwill of $94.7 million was tested and was not impaired. The Company reported no material legal contingencies and no material allowance for credit losses on its debt securities.
The Company adopted ASU 2022-02 on January 1, 2023, eliminating certain troubled-debt restructuring accounting requirements, with no material expected impact. It also adopted the portfolio-layer hedge method and used it for the post-year-end mortgage hedges.
Most important facts for investors to verify
- Whether deposit costs and deposit mix continue to pressure net interest margin as interest rates remain elevated.
- Whether the 17% loan growth rate can continue without deterioration in commercial real estate, commercial or residential credit quality.
- The magnitude, duration and regulatory-capital effect of unrealized securities losses and accumulated other comprehensive loss.
- Liquidity coverage, borrowing availability and the refinancing or repricing of 2023 maturities, including $98.9 million of brokered CDs maturing during 2023.
- The sustainability of mortgage banking, wealth management and other fee income following the 2022 decline in mortgage production and assets under management.
- Management’s allowance-for-credit-loss assumptions, particularly Maine unemployment, GDP, housing prices, forecast periods and qualitative adjustments.
- The effect of further rate changes, the LIBOR-to-SOFR transition and the $300 million of mortgage-related interest-rate swaps.
- The Company’s ability to maintain capital ratios, dividends and share repurchases while funding loan growth and managing liquidity.
- Exposure to uninsured deposits, which totaled approximately $2.0 billion at December 31, 2022.