Camden National Corporation Reports an 8% Increase in Fourth Quarter 2022 Net Income over Third Quarter 2022
CAMDEN, Maine, Jan. 31, 2023 /PRNewswire/ -- Camden National Corporation (NASDAQ®: CAC; "Camden National" or the "Company"), a $5.7 billion bank holding company headquartered in Camden, Maine, closed the year with fourth quarter 2022 earnings of $15.4 million and diluted earnings per share ("EPS") of $1.05, each an 8% increase over the third quarter of 2022. The Company posted solid returns for the fourth quarter of 2022, including a return on average equity of 14.03%, return on average tangible equity (non-GAAP) of 18.18% and return on average assets of 1.09%, compared to 12.50%, 16.02% and 1.03%, respectively, for the third quarter of 2022.
For the year ended 2022, the Company reported net income of $61.4 million, which was down 11% from last year's record annual earnings of $69.0 million. The change in earnings year-over-year reflects the significant change in market dynamics between periods as short-term interest rates rose rapidly in 2022 and COVID 19 pandemic-related stimulus stopped. In response, residential mortgage activity decreased sharply, Small Business Administration Paycheck Protection Program ("SBA PPP") loan income abated, and the Company increased its allowance for credit losses ("ACL") to strengthen its financial position in light of current and forecasted economic conditions. For the year ended 2022, earnings adjusted for income taxes, provision for credit losses, and SBA PPP loan income (non-GAAP) totaled $80.3 million, an increase of 7% over the year ended 2021.
"We're pleased to report annual earnings of $61.4 million for 2022 and $15.4 million for the fourth quarter of 2022. The strength of our core operating earnings allowed us to further build loan loss reserves throughout the year in response to growing economic concerns, while our asset quality continues to remain extremely favorable," said Gregory A. Dufour, President and Chief Executive Officer of the Company. "We are confident that our capital levels and strong credit quality position us for continued success in light of a dynamic and, at times, uncertain future economic conditions."
Dufour added, "The sharp rise in interest rates in 2022 resulted in a prolonged and steep yield curve, which we anticipate will continue in 2023. While this will challenge all financial institutions, our strong core deposit base, excellent credit quality, disciplined expense management, solid capital position, and commitment to long-term sustainable growth will help us navigate through the coming quarters."
In December, the Company announced a $0.02 per share, or 5%, increase in its quarterly cash dividend. Over the past ten years, the Company has increased its cash dividend from $0.67 to $1.68 per share on an annualized basis, highlighting its ability to generate long-term, sustainable earnings and its commitment to deliver returns to its shareholders. The dividend is payable on January 31, 2023 to shareholders of record on January 13, 2023. The Company's annualized dividend yield at December 30, 2022 (last business day) was 4.03%, based on the Company's closing stock price of $41.69.
FOURTH QUARTER 2022 HIGHLIGHTS
Net income increased by $1.1 million, or 8%, over the third quarter of 2022, while earnings before income taxes, provision and SBA PPP (non-GAAP) decreased $861,000, or 4%, compared to the third quarter of 2022.
Net interest margin decreased 12 basis points to 2.76%, compared to the third quarter of 2022, as rising funding costs of 42 basis points outpaced rising interest-earning asset yields of 27 basis points.
Deposit beta, which is calculated using core deposits (non-GAAP) and certificates of deposits, was 20.2% for the year ended 2022, and our overall funding beta was 21.0% over the same period.
Loans grew $149.7 million, or 4%, during the fourth quarter of 2022, resulting in loan growth of 17% for the year ended 2022.
Deposits grew $258.3 million, or 6%, during the fourth quarter of 2022, and core deposits grew $146.0 million, or 3%, over this period. For the year ended 2022, deposits grew 5% and core deposits grew 6%.
The ACL on loans to total loans ratio was 0.92% at December 31, 2022, a decrease of 3 basis points in the fourth quarter of 2022 and a decrease of 5 basis points compared to December 31, 2021. As of December 31, 2022, asset quality remained historically strong with non-performing assets totaling 0.09% of total assets, compared to 0.09% as of September 30, 2022 and 0.13% at December 31, 2021.
Repurchased 225,245 shares of the Company's common stock at a weighted-average price of $45.46 per share during the year ended 2022.
Total assets grew $171.5 million, or 3%, during 2022 to $5.7 billion as of December 31, 2022. The increase in assets was primarily driven by the increase in loans of $578.9 million, or 17%, partially offset by a decrease in investments of $264.3 million, or 17%, and cash of $145.2 million, or 66%. Throughout 2022, the Company redeployed investment cash flows and excess cash balances to fund higher interest-earning loan growth.
As of December 31, 2022, loans totaled $4.0 billion and represented 71% of total assets. During 2022, loan growth was led by: (1) residential mortgage loans, which grew $393.8 million, or 30%, (2) commercial real estate loans, which grew $129.5 million, or 9%, and (3) commercial loan balances, which grew $65.8 million, or 18%. Loan pipelines at December 31, 2022, have slowed in comparison to recent periods as demand begins to wane and we are committed to maintaining loan pricing discipline through this current period of yield-curve inversion. At December 31, 2022, the retail and commercial loan portfolio pipelines were each approximately $50.0 million.
As of December 31, 2022, investments totaled $1.3 billion, or 22% of total assets, compared to $1.5 billion, or 28%, of total assets as of December 31, 2021. The decrease in investment balances as of December 31, 2022, was driven by the overall decrease in market value of the investment portfolio designated as available-for-sale ("AFS"), primarily due to the sharp rise in interest rates throughout 2022, and the continued redeployment of investment cash flows to fund loan growth. The net unrealized loss on the AFS investment portfolio was $167.6 million at December 31, 2022, which included $66.5 million of un-accreted unrealized losses from the transfer of AFS investments to held-to-maturity ("HTM") in the second quarter of 2022, and $1.5 million at December 31, 2021.
As of December 31, 2022, the weighted-average life and duration of the AFS investment portfolio was 6.4 years and 4.9 years, respectively, and the weighted-average life and duration of the held-to-maturity investment portfolio was 9.6 years and 7.0 years, respectively. As of December 31, 2022, agency-issued mortgage-backed, collateralized mortgage obligations and debt securities comprised 91% of the book value of the Company's investment portfolio.
As of December 31, 2022, deposits totaled $4.8 billion, an increase of $218.0 million, or 5%, over last year. The increase was driven by a 6% increase in core deposits (non-GAAP). As short-term interest rates continued to rise in the fourth quarter of 2022, customers continued to migrate from non-interest-bearing checking to interest-bearing checking. Interest-bearing checking balances grew $303.3 million, or 21%, in the fourth quarter, while non-interest checking balances decreased $103.4 million, or 8%. Although brokered deposits decreased $27.2 million, or 13%, during 2022 to $181.3 million at December 31, 2022, the Company increased $91.5 million of brokered deposits in the fourth quarter of 2022 using a laddered strategy of 12 months as a supplement to borrowings to protect against short-term interest rates continuing to rise.
As of December 31, 2022, total borrowings were $309.5 million, an increase of $53.6 million, or 21%, since December 31, 2021. Total borrowings at December 31, 2022, were comprised of $196.5 million of repurchase agreements, $68.7 million of Federal Home Loan Bank short-term borrowings and $44.3 million of subordinated debentures.
As of December 31, 2022, the Company's regulatory capital ratios were each well in excess of regulatory capital requirements. Despite the Company's regulatory capital ratios remaining strong, the decreases in the market value of the AFS investment portfolio due to the rise in interest rates throughout 2022, caused decreases across the common equity ratio and tangible common equity ratio (non-GAAP), as well as book value per share and tangible book value per share (non-GAAP) over this period. The Company anticipates these decreases are temporary and not reflective of underlying credit risk within the investment portfolio. The Company's non-regulatory capital ratios and book value as of the dates indicated were as follows:
As of December 31, 2022, the Company's common equity ratio was 7.96% and its tangible common equity ratio (non-GAAP) was 6.37%, compared to 7.76% and 6.13% as of September 30, 2022, respectively, and 9.84% and 8.22% as of December 31, 2021, respectively.
As of December 31, 2022, the Company's book value per share was $30.98 and its tangible book value per share (non-GAAP) was $24.37, compared to $29.59 and $22.97 as of September 30, 2022, respectively, and $36.72 and $30.15 as of December 31, 2021, respectively.
In January 2023, the Company announced a new share repurchase program for 750,000 shares of Company common stock, or approximately 5% of outstanding stock at December 31, 2022. The new share repurchase program replaces the prior program, which expired upon the announcement of the new program.
Through the fourth quarter of 2022, asset quality remained very strong with non-performing assets of 0.09% of total assets at December 31, 2022, compared to 0.09% at September 30, 2022 and 0.13% at December 31, 2021. Annualized net charge-offs for the fourth quarter of 2022 were negligible at 0.03% of average loans, compared to 0.02% for the third quarter of 2022 and 0.03% for the fourth quarter of 2021.
The Company continues to actively monitor its loan portfolio for signs of credit stress and, as of December 31, 2022, there have been no materials trends or concerns identified. As of December 31, 2022, loans 30-89 days past due were 0.06% of total loans, compared to 0.12% at September 30, 2022 and 0.04% at December 31, 2021.
ALLOWANCE FOR CREDIT LOSSES ("ACL")
At December 31, 2022, the ACL on loans was $36.9 million, or 0.92% of total loans, compared to $36.5 million, or 0.95% of total loans, as of September 30, 2022, and $33.3 million, or 0.97% of total loans, as of December 31, 2021. The decrease in the ACL on loans to total loans ratio of 3 basis points in the fourth quarter of 2022 reflects the Company's strong asset quality and release of certain qualitative reserves as our ACL model continues to mature. As of December 31, 2022, the ACL on loans covered 7.2 times non-performing loans, compared to 7.2 times at September 30, 2022 and 4.9 times at December 31, 2021.
Overall, the global and national markets continue to be volatile and carry a high degree of uncertainty. These factors are currently forecasted using external economic data in the ACL model and subject our ACL estimate to a high risk of fluctuation between periods based on actual macroeconomic conditions and changes to updated forecasted factors. We continue to monitor economic factors and proactively assess the portfolio for any future risk.
FINANCIAL OPERATING RESULTS (Q4 2022 vs. Q3 2022)
Net income for the fourth quarter of 2022 was $15.4 million, an increase of $1.1 million, or 8%, over the third quarter of 2022. Diluted EPS for the fourth quarter of 2022 was $1.05, an increase of $0.08, or 8%, on a linked quarter-basis. Earnings before income taxes, provision and SBA PPP income (non-GAAP) for the fourth quarter of 2022 was $19.8 million, a decrease of $861,000 or 4%, compared to the third quarter of 2022.
Net Interest Income and Net Interest Margin. Net interest income for the fourth quarter of 2022 was $37.0 million, a decrease of $831,000, or 2%, compared to the third quarter of 2022.
Interest income for the fourth quarter of 2022 of $49.3 million was $4.7 million, or 11%, higher than the previous quarter. Our yield on average interest-earning assets for the fourth quarter increased 27 basis points over the third quarter of 2022 to 3.67% driven by a 30 basis points increase in our loan yield to 4.21% for the fourth quarter of 2022. The increase in interest-earning asset yields reflects the continued increase in interest rates through the fourth quarter of 2022 and continued redeployment of lower yielding cash and investments to fund strong average loan growth between quarters of $148.4 million, or 4%.
Interest expense for the fourth quarter of 2022 of $12.3 million was $5.6 million, or 82%, higher than the third quarter of 2022 driven by higher funding costs as short-term interest rates continued to rise in the fourth quarter of 2022, as the Fed Funds rate increased 125 basis points bringing the range at the end of the year to 4.25% - 4.50%. Costs of deposits for the fourth quarter of 2022 were 0.84%, an increase of 39 basis points over the previous quarter, primarily the result of interest checking costs increasing 71 basis points between periods to 1.56% and money market funds increasing 62 basis points to 1.46% in the fourth quarter of 2022. Total borrowing costs also increased during this period, increasing 76 basis points between quarters to 2.14% for the fourth quarter of 2022.
Net interest margin for the fourth quarter of 2022 was 2.76%, a decrease of 12 basis points compared to the third quarter of 2022.
Provision for Credit Losses. The change in provision for credit losses between periods is highlighted in the table below:
($ in thousands)
Provision for credit losses - loans
Provision (credit) for credit losses - off-balance sheet credit exposures
Provision for credit losses
The decrease in provision for credit losses on loans between periods was driven by the reduction of qualitative reserves as we completed our annual ACL model review in the fourth quarter. This release was offset by another quarter of strong loan growth of 4% in the fourth quarter of 2022.
The decrease in provision for credit losses on off-balance sheet credit exposures between periods reflects the decrease in loan pipelines between quarters of $67.7 million as loan demand has slowed and we remain committed to discipline loan pricing in the current interest rate environment.
Non-Interest Income. Non-interest income for the fourth quarter of 2022 was $9.8 million, a decrease of $172,000, or 2%, compared to the third quarter of 2022, primarily led by:
A loss on the sale of investment securities of $903,000 in the fourth quarter of 2022 as the Company executed a restructure trade; and
A decrease in other income of $264,000 driven by a gain recognized on the sale of a property in the third quarter of 2022, partially offset by;
An increase in debit card income of $735,000 as we recognized our annual debit card volume-based incentive in the fourth quarter of 2022 of $806,000, and;
An increase in mortgage banking of $400,000 primarily driven by a positive fair value adjustment on the Company's residential mortgage loan pipeline designated for sale between periods.
Non-Interest Expense. Non-interest expense for the fourth quarter of 2022 was $27.0 million, a decrease of $98,000, compared to the third quarter of 2022. The decrease was driven by lower salaries and benefits costs of $587,000 as incentive accruals were adjusted to reflect annual performance to target. The decrease in salaries and benefits expense was offset by higher customer fraud claims of $259,000 between quarters, higher consulting and professional fees of $145,000, and higher equipment and data processing fees of $100,000.
The Company's GAAP efficiency ratio and non-GAAP efficiency ratio for the fourth quarter of 2022 was 57.72% and 56.35%, respectively, compared to 56.71% and 56.43%, respectively, for the third quarter of 2022.
SUMMARY OF ANNUAL FINANCIAL OPERATING RESULTS
Net income for the year ended 2022 was $61.4 million, a decrease of $7.6 million, or 11%, compared to the year ended 2021. Diluted EPS for the year ended 2022 was $4.17, a decrease of $0.43, or 9%. The decrease in earnings between periods reflects the changing environment between years as Federal stimulus programs in response to the pandemic stopped, recessionary fears grew, and interest rates increased rapidly and ultimately the yield-curve inverted during the second half of 2022. Earnings before income taxes, provision and SBA PPP loan income (non-GAAP) for the year ended totaled $80.3 million, an increase of $5.0 million, or 7%, over last year.
Net interest income for the year ended 2022 increased $10.3 million, or 7%, over last year as average interest-earning assets grew 7% driven by average loan growth of 12%. The interest rate environment saw a dramatic shift between years as the Federal Open Markets Committee aggressively raised interest rates to curb inflation. The Federal Funds Target Range started 2022 at 0.00% - 0.25% and closed 2022 at 4.25% - 4.50%. As a result, asset yields and funding costs rose sharply in 2022 and net interest margin increased 2 basis points over last year to 2.86% for the year ended 2022.
Provision for credit losses for the year ended 2022 was $4.5 million, compared to a credit of $3.2 million last year. The increase reflects the strong loan growth during 2022 of 17% and growing recessionary fears in 2022 that are being accounted for within the ACL model.
Non-interest income for the year ended 2022 decreased $9.0 million, or 18%, compared to last year, primarily the result of lower mortgage banking income of $9.5 million, a decrease 69%. The rapid rise in interest rates during 2022 increased residential mortgage rates sharply, which slowed residential mortgage production between years by 30%. Additionally, local market factors contributed to lower residential mortgage sales as local market interest rates did not keep pace with secondary market interest rates.
Non-interest expense for the year ended 2022 increased $3.1 million, or 3%. The Company's GAAP efficiency ratio and non-GAAP efficiency ratio for the year ended 2022 was 56.72% and 56.16%, respectively, compared to 55.41% and 54.85% for the year ended 2021, respectively.
Q4 2022 CONFERENCE CALL
Camden National will host a conference call and webcast at 3:00 p.m., Eastern Time, on Tuesday, January 31, 2023 to discuss its fourth quarter and year ended 2022 financial results and outlook. Participants should dial in to the call 10 - 15 minutes before it begins. Information about the conference call is as follows:
Live dial-in (Domestic): (844) 200-6205
Live dial-in (Canada): (833) 950-0062
Live dial-in (All other locations): (929) 526-1599
Participant access code: 266790
Live webcast: https://events.q4inc.com/attendee/812519935
A link to the live webcast will be available on Camden National's website under "Investor Relations" at www.CamdenNationalCorporation.com prior to the meeting, and a replay of the webcast will be available on Camden National's website following the conference call. The transcript of the conference call will also be available on Camden National's website approximately two days after the conference call.
ABOUT CAMDEN NATIONAL CORPORATION
Camden National Corporation (NASDAQ®: CAC) is the largest publicly traded bank holding company in Northern New England with $5.7 billion in assets, and was proudly listed as one of the Best Places to Work in Maine in 2021 and 2022. Founded in 1875, Camden National Bank is a full-service community bank dedicated to customers at every stage of their financial journey. With 24/7 live phone support, 58 banking centers, and additional lending offices in New Hampshire and Massachusetts, Camden National Bank offers the latest in digital banking, complemented by award-winning, personalized service. To learn more, visit CamdenNational.bank. Member FDIC. Equal Housing Lender.
Comprehensive wealth management, investment and financial planning services are delivered by Camden National Wealth Management.
Certain statements contained in this press release that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, including certain plans, expectations, goals, projections and other statements, which are subject to numerous risks, assumptions and uncertainties. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "would," "should," "could" or "may." Certain factors that could cause actual results to differ materially from expected results include increased competitive pressures; inflation; ongoing competition in labor markets and employee turnover; deterioration in the value of Camden National's investment securities; changes in consumer spending and savings habits; changes in the interest rate environment; changes in general economic conditions; operational risks including, but not limited to, cybersecurity, fraud and natural disasters; legislative and regulatory changes that adversely affect the business in which Camden National is engaged; changes in the securities markets and other risks and uncertainties disclosed from time to time in Camden National's Annual Report on Form 10-K for the year ended December 31, 2021, as updated by other filings with the Securities and Exchange Commission ("SEC"). Further, statements regarding the potential effects of the war in Ukraine, the COVID-19 pandemic and other notable and global current events on the Company's business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possible materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond the Company's control. Camden National does not have any obligation to update forward-looking statements.
USE OF NON-GAAP MEASURES
In addition to evaluating the Company's results of operations in accordance with generally accepted accounting principles in the United States ("GAAP"), management supplements this evaluation with certain non-GAAP financial measures, such as earnings before income taxes and provision and earnings before income taxes, provision and SBA PPP loan income; return on average tangible equity; the efficiency and tangible common equity ratios; tangible book value per share; core deposits and average core deposits; adjusted yield on interest-earning assets and adjusted net interest margin (fully-taxable equivalent); and total loans, excluding SBA PPP loans. Management utilizes these non-GAAP financial measures for purposes of measuring our performance against our peer group and other financial institutions and analyzing our internal performance. We also believe these non-GAAP financial measure help investors better understand the Company's operating performance and trends and allow for better performance comparisons to other financial institutions. In addition, these non-GAAP financial measures remove the impact of unusual items that may obscure trends in the Company's underlying performance. These disclosures should not be viewed as a substitute for GAAP operating results, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other financial institutions. Reconciliation to the comparable GAAP financial measure can be found in this document.
Certain returns, yields and performance ratios are presented on an "annualized" basis. This is done for analytical and decision-making purposes to better discern underlying performance trends when compared to full-year or year-over-year amounts. Annualized data may not be indicative of any four-quarter period, and are presented for illustrative purposes only.
Selected Financial Data
At or For The
Three Months Ended
At or For The
(In thousands, except number of shares and per share data)
Financial Condition Data
Loans and loans held for sale
Allowance for credit losses on loans
Net interest income
Provision (credit) for credit losses
Income before income tax expense
Income tax expense
Return on average assets
Return on average equity
GAAP efficiency ratio
Net interest margin (fully-taxable equivalent)
Non-performing assets to total assets
Common equity ratio
Tier 1 leverage capital ratio
Common equity tier 1 risk-based capital ratio
Total risk-based capital ratio
Per Share Data
Basic earnings per share
Diluted earnings per share
Cash dividends declared per share
Book value per share
Earnings before income taxes and provision for credit losses
Earnings before income taxes and provision (credit) for credit
Tangible book value per share
Tangible common equity ratio
Return on average tangible equity
Adjusted net interest margin (fully-taxable equivalent)
Please see "Reconciliation of non-GAAP to GAAP Financial Measures (unaudited)."
Consolidated Statements of Condition Data
Cash, cash equivalents and restricted cash
Available-for-sale securities, at fair value (amortized cost of $796,960, $883,887 and $1,508,981, respectively)
Held-to-maturity securities, at amortized cost (fair value of $506,193, $491,760, and $1,380, respectively)
Loans held for sale, at fair value (book value of $5,259, $4,863, and $5,786 respectively)
Commercial real estate
Residential real estate
Consumer and home equity
Less: allowance for credit losses on loans
Goodwill and core deposit intangible assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Savings and money market
Certificates of deposit
Accrued interest and other liabilities
Commitments and Contingencies
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,567,325, 14,563,828, 14,739,956 on