Camden National Corporation Reports Third Quarter 2021 Financial Results

CAMDEN, Maine, Oct. 26, 2021 /PRNewswire/ -- Camden National Corporation (NASDAQ: CAC; "Camden National" or the "Company"), a $5.5 billion bank holding company headquartered in Camden, Maine, reported net income of $52.5 million and diluted earnings per share ("EPS") of $3.49 for the nine months ended September 30, 2021, an increase of 27% and 28%, respectively, compared to the same period in 2020. The Company's solid year-to-date earnings translated into a return on average equity of 12.96% and return on average tangible equity (non-GAAP) of 15.91% for the same period.

"We have much to be proud of here at Camden National," said Gregory A. Dufour, President and Chief Executive Officer. "We were recently named as one of the best places to work in Maine for 2021 by an independent group and we just received our latest internal engagement scores showing positive growth and momentum. The commitment and dedication of our team here at Camden National resonates loud and clear, and it translated directly into shareholder value through record earnings for the first nine months of the year with net income of $52.5 million and diluted earnings per share of $3.49."

Dufour added, "In response to the historically challenging job market we find ourselves facing, in late-September, we communicated to our employees that effective early-October their wages were increasing at a minimum of 3%, and our starting minimum wage was increasing from $15 to $17 per hour. These adjustments were made to attract new talent, and retain and recognize the value our current employees continuously provide."

Net income for the third quarter of 2021 was $14.6 million and diluted earnings per share ("EPS") was $0.97, a decrease of 13%, respectively, compared to the third quarter of 2020. The decrease was driven by a shift in the Company's strategy to hold more of its residential mortgage production within its loan portfolio.

Net income and diluted EPS for the third quarter of 2021 decreased 19% and 20%, respectively, compared to the second quarter of 2021. The decrease was driven by growth within our loan portfolio and pipeline that resulted in provision expense for the third quarter of 2021 of $939,000, compared to a provision release of $3.4 million last quarter. On a pre-tax, pre-provision-basis (non-GAAP), third quarter 2021 earnings increased 2% over last quarter.

In September, the Company announced a cash dividend of $0.36 per share, payable on October 29, 2021, to shareholders of record on October 15, 2021, representing an annualized dividend yield of 3.01%, based on the Company's closing share price of $47.90, as reported by NASDAQ as of September 30, 2021.

THIRD QUARTER 2021 HIGHLIGHTS

• Net income decreased by $2.1 million, or 13%, compared to the third quarter of 2020 and decreased $3.5 million, or 19%, compared to the second quarter of 2021.
• Pre-tax, pre-provision earnings (non-GAAP) decreased $2.4 million, or 11%, compared to third quarter of 2020, and increased $323,000, or 2%, over the second quarter of 2021.
• Net interest margin on a fully-taxable equivalent basis ("net interest margin") for the third quarter of 2021 was 2.76%, compared to 3.00% for the third quarter of 2020 and 2.83% for the second quarter of 2021.
• Adjusted net interest margin (non-GAAP), which excludes Small Business Administration Paycheck Protection Program ("SBA PPP") average loans and related income, and average excess liquidity and related income, for the third quarter of 2021 was 2.82%, compared to 3.04% for the third quarter of 2020 and 2.89% for the second quarter of 2021.
• Loans grew 3% during the nine months ended September 30, 2021, and excluding SBA PPP loans (non-GAAP), grew 5% during the same period.
• Non-performing assets were 0.14% of total assets and loans 30-89 days past due were 0.06% of total loans at September 30, 2021, compared to 0.22% and 0.10% at December 31, 2020, respectively.
• Repurchased 106,502 shares of the Company's common stock during the third quarter of 2021.

FINANCIAL CONDITION

As of September 30, 2021, total assets were $5.5 billion, an increase of $604.2 million, or 12%, since December 31, 2020. Asset growth for the nine months ended September 30, 2021 was driven by: (1) an increase in investment balances of $338.3 million, or 30%, (2) an increase in cash balances of $233.9 million, or 160%, and (3) an increase in loan balances of $95.5 million, or 3%.

• Through the nine months ended September 30, 2021, the Company purchased $618.7 million of debt securities, which continue to be primarily mortgage-backed securities and collateralized mortgage obligations. As of September 30, 2021, the weighted-average life of the Company's debt securities portfolio was 6.0 years compared to 5.1 years as of December 31, 2020. At September 30, 2021, the investment portfolio was 27% of total assets, compared to 23% as of December 31, 2020.
• The increase in cash balances was driven by strong deposit growth of 15% since December 31, 2020. The Company has and continues to take certain actions to manage its liquidity position, including paying-off borrowings, managing depositor relationships, increasing investments and growing loans.
• Loan balances grew 3% during the nine months ended September 30, 2021, and excluding SBA PPP loans (non-GAAP), grew $148.6 million, or 5% over the same period. During the nine months ended September 30, 2021, residential loans grew $167.3 million, or 16%, and commercial real estate loans grew $50.2 million, or 4%. Loan growth within these two loan portfolios was partially offset by a decrease across the other product lines, including a decrease in SBA PPP loans of $53.1 million, consumer and home equity loans of $39.9 million, and commercial loans of $29.0 million during the same period.

In response to the Company's interest rate risk and liquidity positions, in recent quarters the Company began holding more of its residential mortgage production within its loan portfolio. For the nine months ended September 30, 2021, the Company held 53%, or $441.2 million, of its residential mortgage production within its loan portfolio, which includes holding 67% of its originations for the third quarter of 2021. As of September 30, 2021, 69% of the Company's residential mortgage pipeline was designated to be held in its portfolio.

As of September 30, 2021, the Company's loan pipelines were robust and included $222.0 million of residential and home equity loans, and $147.1 million of commercial and commercial real estate loans, of which $55.8 million were construction loans and credit lines. Loan prepayments continue to run at elevated levels, particularly within the commercial loan portfolios primarily due to customers having excess liquidity and business sales. Based on current conditions, the Company expects continued pressure from prepayment activity.

As of September 30, 2021, total deposits were $4.6 billion, an increase of $599.9 million, or 15%, since December 31, 2020. Deposit growth for the nine months ended September 30, 2021 was primarily due to core deposit (non-GAAP) growth of $628.8 million, or 19%, which was driven by additional government stimulus programs in response to the COVID-19 pandemic during the first quarter of 2021 and seasonal inflows throughout the summer months. The Company's loan-to-deposit ratio was 72% at September 30, 2021, compared to 80% at December 31, 2020.

As of September 30, 2021, total borrowings were $255.9 million, an increase of $9.1 million, or 4%, since December 31, 2020. Repurchase agreements increased $49.1 million over this period, offsetting other actions taken by the Company in light of its capital and liquidity position, including early termination of a $25.0 million long-term borrowing contract during the first quarter of 2021, and full redemption of its $15.0 million of subordinated notes during the second quarter of 2021.

As of September 30, 2021, the Company's capital position remained well in excess of regulatory requirements, including a total risk-based capital ratio of 15.06% and a tier 1 leverage ratio of 9.13%. The Company's shareholders' equity to total assets position and tangible common equity ratio (non-GAAP) was 9.92% and 8.30% at September 30, 2021, respectively, compared to 10.81% and 8.99% at December 31, 2020.

In the first quarter of 2021, the Company initiated a new share repurchase program for up to 750,000 shares of its common stock, or approximately 5% of the Company's shares outstanding. This share repurchase program replaces the program that terminated in January 2021. For the three and nine months ended September 30, 2021, the Company repurchased 106,502 shares for $4.9 million.

ASSET QUALITY

As of September 30, 2021, the Company's asset quality metrics remained very strong with non-performing assets of 0.14% of total assets and loans 30-89 days past due of 0.06% of total loans. In comparison, at December 31, 2020, non-performing assets were 0.22% of total assets, and loans 30-89 days past due were 0.10% of total loans.

ALLOWANCE FOR CREDIT LOSSES ("ACL")

In the fourth quarter of 2020, the Company adopted the current expected credit loss methodology, commonly referred to as "CECL," to account for the ACL on loans and certain off-balance credit exposures, effective as of January 1, 2020. Interim periods prior to the fourth quarter of 2020 continue to be presented under the incurred loss methodology.

At September 30, 2021, the ACL on loans was $32.3 million, or 0.97% of total loans, compared to $37.9 million, or 1.18% of total loans, at December 31, 2020. The decrease in the allowance reflects the Company's strong asset quality and overall improvement in the current and forecasted market conditions over its forecast period. There have been no significant changes in the Company's CECL methodology since year-end.

FINANCIAL OPERATING RESULTS (Q3 2021 vs. Q3 2020)

Net income for the third quarter of 2021 was $14.6 million, a decrease of $2.1 million, or 13%, compared to the third quarter of 2020. Diluted EPS for the third quarter of 2021 was $0.97, a decrease of $0.14, or 13%, compared to the same period last year.

Net Interest Income and Net Interest Margin. Net interest income for the third quarter of 2021 was $34.7 million, an increase of $265,000, or 1%, over the third quarter of 2020. Interest income decreased $1.3 million, or 3%, between periods, but was offset by a decrease in interest expense of $1.6 million, or 37%.

• The decrease in interest income between periods was driven by a 40 basis point decrease in the Company's interest-earning asset yield to 2.97% for the third quarter of 2021. The pressure on asset yields was driven by higher cash balances, and the current interest rate environment as assets reprice, customers refinance and new assets are originated at lower yields. Additionally, SBA PPP income earned for the third quarter of 2021 of $2.0 million, was $407,000 lower than that earned for the same period last year.
• The decrease in interest expense between periods was driven by a lower cost of funds of 16 basis points falling to 0.22% for the third quarter of 2021. The decrease in cost of funds between periods reflects certain actions taken to manage deposit and borrowing costs lower.

Net interest margin for the third quarter of 2021 was 2.76%, a decrease of 24 basis points compared to the third quarter of 2020. Adjusted net interest margin, which excludes SBA PPP loans and excess liquidity (non-GAAP), for the third quarter of 2021 was 2.82%, decreased 22 basis points compared to the third quarter of 2020.

Provision for Credit Losses. The provision for credit losses for the third quarter of 2021 was reported using the CECL methodology, whereas the provision for credit losses for the third quarter of 2020 was reported using the incurred loss methodology.

The change in provision for credit losses between periods is highlighted in the table below:

For the third quarter of 2021, the Company recorded $269,000 in provision for credit losses on loans. The provision expense for the quarter accounts for the increase in loan balances, excluding SBA PPP loans (non-GAAP), the Company's strong asset quality and minimal net charge-offs for the quarter of $57,000 and improved economic conditions. In comparison, at this time last year, the Company was still operating in very volatile and uncertain market conditions, and although its asset quality remained strong and net charge-offs were not elevated, $1.0 million of provision expense related to loan balances was recognized to reflect current market conditions at that time.

The provision (credit) for credit losses on off-balance sheet credit exposures accounts reflects the change between periods on the Company's future expected credit losses on funding commitments, which includes the unfunded portion of its construction loans, credit lines, and committed loan pipeline. As of September 30, 2021, the allowance for credit losses on its off-balance sheet credit exposures was $3.2 million, compared to $2.5 million as of June 30, 2021 and $9,000 as of September 30, 2020.

Non-Interest Income. Non-interest income for the third quarter of 2021 was $11.1 million, a decrease of $1.6 million, or 13%, compared to the third quarter of 2020. The decrease was driven by lower mortgage banking income of $2.8 million. In early-2021, the Company shifted its strategy to hold more residential mortgage loans within its loan portfolio, and, as a result, the Company sold 33% of its residential mortgage production during the third quarter of 2021, compared to 69% for the third quarter of 2020. The decrease in mortgage banking income was partially offset by an increase in debit card income of $651,000, an increase in both fiduciary income and brokerage income totaling $361,000, and an increase in service charges fees of $138,000.

Non-Interest Expense. Non-interest expense for the third quarter of 2021 was $26.3 million, an increase of $1.0 million, or 4%, compared to the third quarter of 2020. Compensation and related costs for the third quarter of 2021 increased $2.2 million, or 16%, over the third quarter of 2020 and was driven by: (1) higher performance-based incentive accruals of $1.2 million due to the Company's year-to-date financial performance, and (2) higher wages of $545,000, or 6%. The increase in compensation and related costs was partially offset by a decrease in other expenses between periods of $1.1 million as the Company accrued in the third quarter of 2020 $1.2 million for a legal matter.

Effective October 3, 2021, the Company provided a minimum 3% wage increase to all of its employees and increased its starting minimum wage $2 per hour to $17 per hour. The off-cycle wage adjustment was in response to the challenging job market and need to retain and attract talent. This off-cycle wage adjustment is not in replacement of the Company's normal merit cycle in March each year. Beginning in 2022, the Company will suspend its profit sharing contribution to employees' 401(k) accounts to partially fund the impact of the off-cycle wage adjustment.

FINANCIAL OPERATING RESULTS (Q3 2021 vs. Q2 2021)

Net income for the third quarter of 2021 decreased $3.5 million, or 19%, compared to the second quarter of 2021. On a linked-quarter-basis, diluted EPS decreased $0.24, or 20%.

Net Interest Income and Net Interest Margin. Net interest income for the third quarter of 2021 increased $1.2 million, or 4%, compared to the second quarter of 2021. On a linked-quarter basis, interest income increased $1.1 million, or 3%, and interest expense decreased $104,000, or 4%.

• The increase in interest income between periods was driven by: (1) an increase in average investment balances of $154.4 million, or 12%, and an increase in average loan balances of $30.1 million, or 1%, and (2) an increase in SBA PPP income of $291,000 due to elevated payoffs, offsetting continued yield pressures on the Company's core loan segments, including residential real estate, commercial real estate and commercial loans.
• The decrease in interest expense between periods was driven by a decrease in cost of funds of 2 basis points to 0.22% led by lower interest rates on certificates of deposit, repurchase agreements and subordinated debentures, as the Company called its subordinated notes in the second quarter of 2021.

Net interest margin for the third quarter of 2021 decreased 7 basis points compared to the second quarter of 2021. Adjusted net interest margin, which excludes SBA PPP loans and excess liquidity (non-GAAP), for the third quarter of 2021 was 2.82%, a decrease of 7 basis points compared to the second quarter of 2021.

Provision for Credit Losses. The change in provision for credit losses between periods is highlighted in the table below:

For the third quarter of 2021, the Company recorded $269,000 of provision for credit losses on loans primarily due to loan growth, excluding SBA PPP loans (non-GAAP), of $73.5 million, whereas the previous quarter it recorded a credit for provision expense of $3.5 million related to its loan balances because of improving current and forecasted market conditions.

On a linked-quarter-basis, the increase in the provision for credit losses on off-balance sheet credit exposures was driven by strong growth within its unfunded loan commitments and loan pipeline of $96.5 million led by the commercial and commercial real estate loan pipelines.

Non-Interest Income. Non-interest income for the third quarter of 2021 decreased $221,000, or 2%, compared to the second quarter of 2021. The decrease between periods was driven by lower mortgage banking income of $685,000 as the Company sold 33% of its residential mortgage loan production during the third quarter of 2021, compared to 40% during the second quarter of 2021. The change in percentage sold reflects the Company's shift in strategy as it looks to hold more residential mortgages within its loan portfolio. The decrease in mortgage banking income was partially offset by: (1) an increase service charge income of $227,000 due to the redesign of its consumer checking products in the second quarter of 2021, and (2) debit card income of $166,000.

Non-Interest Expense. Non-interest expense for the third quarter of 2021 increased $673,000, or 3%, compared to the second quarter of 2021. The increase was driven by an increase in compensation-related expenses of $584,000, or 4%, which was driven by an increase in incentive-based accruals of $366,000 based on year-to-date financial performance.

Q3 2021 CONFERENCE CALL

Camden National will host a conference call and webcast at 3:00 p.m., Eastern Time, on Tuesday, October 26, 2021 to discuss its third quarter 2021 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:

A link to the live webcast will be available on Camden National's website under "Investor Relations" at www.CamdenNational.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 $5.5 billion in assets and approximately 600 employees. Camden National Bank, its subsidiary, is a full-service community bank founded in 1875 in Camden, Maine. Dedicated to customers at every stage of their financial journey, the bank offers the latest in digital banking, complemented by personalized service with 58 banking centers, 24/7 live phone support, 68 ATMs, and additional lending offices in New Hampshire and Massachusetts. For the past three years, Camden National Bank was named a Customer Experience (CX) Leader by leading independent research firm, Greenwich Associates. In 2020, it received awards in two CX categories: U.S. Retail Banking and U.S. Commercial Small Business. The Finance Authority of Maine has awarded Camden National Bank as "Lender at Work for Maine" for eleven years, and the bank was included in the 2021 list of Best Places to Work in Maine. Comprehensive wealth management, investment and financial planning services are delivered by Camden National Wealth Management. To learn more, visit CamdenNational.com. Member FDIC.

FORWARD-LOOKING STATEMENTS

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; 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, 2020, as updated by other filings with the Securities and Exchange Commission ("SEC"). Further, statements about the potential effects of the COVID-19 pandemic on our business, results of operations and financial condition may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly 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 our control, including the scope and duration of the pandemic, action taken by government authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, service providers and on economies and markets more generally. 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 pre-tax, pre-provision earnings; 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.

ANNUALIZED DATA

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.