CAMDEN NATIONAL CORP [CAC] Filings

10-Q 1 cac-20220331.htm 10-Q cac-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-28190

CAMDEN NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)


Maine			01-0413282
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)

2 ELM STREET	CAMDEN	ME	04843
(Address of principal executive offices)			(Zip Code)

Registrant's telephone number, including area code: (207) 236-8821

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, without par value	CAC	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:

Outstanding at April 29, 2022: Common stock (no par value) 14,656,487 shares.

CAMDEN NATIONAL CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2022

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT


		PAGE
PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Consolidated Statements of Condition (unaudited) - March 31, 2022 and December 31, 2021	3

	Consolidated Statements of Income (unaudited) - Three Months Ended March 31, 2022 and 2021	4

	Consolidated Statements of Comprehensive Income (unaudited) - Three Months Ended March 31, 2022 and 2021	5

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - Three Months Ended March 31, 2022 and 2021	6

	Consolidated Statements of Cash Flows (unaudited) - Three Months Ended March 31, 2022 and 2021	7

	Notes to the Unaudited Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	41

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	68

ITEM 4.	CONTROLS AND PROCEDURES	69

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	70

ITEM 1A.	RISK FACTORS	70

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	70

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	70

ITEM 4.	MINE SAFETY DISCLOSURES	70

ITEM 5.	OTHER INFORMATION	70

ITEM 6.	EXHIBITS	71

SIGNATURES		72

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION

(unaudited)


(In thousands, except number of shares)	March 31, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	53,875	$	38,902
Interest-bearing deposits in other banks (including restricted cash)	85,508		181,723
Total cash, cash equivalents and restricted cash	139,383		220,625
Investments:
Trading securities	4,124		4,428
Available-for-sale securities, at fair value (amortized cost of $1,516,057 and $1,508,981, respectively)	1,421,809		1,507,486
Held-to-maturity securities, at amortized cost (fair value of $1,300 and $1,380, respectively)	1,290		1,291
Other investments	10,187		10,280
Total investments	1,437,410		1,523,485
Loans held for sale, at fair value (book value of $6,818 and $5,786, respectively)	6,705		5,815
Loans	3,534,218		3,431,474
Less: allowance for credit losses on loans	(31,770)		(33,256)
Net loans	3,502,448		3,398,218
Goodwill	94,697		94,697
Core deposit intangible assets	2,032		2,188
Bank-owned life insurance	97,816		97,241
Premises and equipment, net	37,226		37,775
Deferred tax assets	36,131		19,210
Other assets	66,567		101,102
Total assets	$	5,420,415	$	5,500,356
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits:
Non-interest checking	$	1,200,807	$	1,279,565
Interest checking	1,440,390		1,351,736
Savings and money market	1,474,300		1,459,472
Certificates of deposit	299,865		309,648
Brokered deposits	161,302		208,468
Total deposits	4,576,664		4,608,889
Short-term borrowings	237,668		211,608

Subordinated debentures	44,331		44,331
Accrued interest and other liabilities	79,306		94,234
Total liabilities	4,937,969		4,959,062
Commitments and Contingencies
Shareholders’ Equity
Common stock, no par value: authorized 40,000,000 shares, issued and outstanding 14,746,410 and 14,739,956 shares on March 31, 2022 and December 31, 2021, respectively	123,012		123,111
Retained earnings	435,347		424,412
Accumulated other comprehensive loss:
Net unrealized loss on available-for-sale debt securities, net of tax	(73,984)		(1,173)
Net unrealized gain (loss) on cash flow hedging derivative instruments, net of tax	1,166		(1,779)
Net unrecognized loss on postretirement plans, net of tax	(3,095)		(3,277)
Total accumulated other comprehensive loss	(75,913)		(6,229)
Total shareholders’ equity	482,446		541,294
Total liabilities and shareholders’ equity	$	5,420,415	$	5,500,356

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three Months Ended March 31,
(In thousands, except number of shares and per share data)	2022		2021
Interest Income
Interest and fees on loans	$	32,035	$	30,560
Taxable interest on investments	5,789		3,829
Nontaxable interest on investments	764		728
Dividend income	106		105
Other interest income	164		166
Total interest income	38,858		35,388
Interest Expense
Interest on deposits	1,833		2,063
Interest on borrowings	131		156
Interest on subordinated debentures	529		805
Total interest expense	2,493		3,024
Net interest income	36,365		32,364
Credit for credit losses	(1,075)		(1,956)
Net interest income after credit for credit losses	37,440		34,320
Non-Interest Income
Debit card income	2,924		2,736
Service charges on deposit accounts	1,833		1,539
Income from fiduciary services	1,631		1,526
Mortgage banking income, net	1,034		7,109
Brokerage and insurance commissions	994		953
Bank-owned life insurance	576		594


Other income	833		758
Total non-interest income	9,825		15,215
Non-Interest Expense
Salaries and employee benefits	15,506		14,522
Furniture, equipment and data processing	3,132		3,027
Net occupancy costs	2,144		1,951
Debit card expense	1,066		986
Consulting and professional fees	1,007		863
Regulatory assessments	655		503
Amortization of core deposit intangible assets	156		164
Other real estate owned and collection recoveries, net	(85)		(191)
Other expenses	2,628		3,074
Total non-interest expense	26,209		24,899
Income before income tax expense	21,056		24,636
Income Tax Expense	4,261		4,896
Net Income	$	16,795	$	19,740
Per Share Data
Basic earnings per share	$	1.14	$	1.32
Diluted earnings per share	$	1.13	$	1.31
Weighted average number of common shares outstanding	14,741,271		14,916,387
Diluted weighted average number of common shares outstanding	14,822,332		14,994,534
Cash dividends declared per share	$	0.40	$	0.36

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended March 31,
(In thousands)	2022		2021
Net Income	$	16,795	$	19,740
Other comprehensive loss:
Net change in unrealized gain on available-for-sale securities, net of tax	(72,811)		(17,509)
Net change in unrealized loss on cash flow hedging derivatives, net of tax	2,945		5,164
Net change in other comprehensive income for supplemental executive retirement plan and other postretirement benefit plan, net of tax	182		170
Other comprehensive loss	(69,684)		(12,175)
Comprehensive (Loss) Income	$	(52,889)	$	7,565

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)


	Three Months Ended
	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
(In thousands, except number of shares and per share data)	Shares Outstanding	Amount
Balance at December 31, 2020	14,909,097	$	131,072	$	377,502	$	20,740	$	529,314
Net income	—	—		19,740		—		19,740
Other comprehensive income, net of tax	—	—		—		(12,175)		(12,175)
Stock-based compensation expense	—	703		—		—		703
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	19,337	(80)		—		—		(80)
Common stock repurchased	—	—		—		—		—
Cash dividends declared ($0.36 per share)	—	—		(5,382)		—		(5,382)
Balance at March 31, 2021	14,928,434	$	131,695	$	391,860	$	8,565	$	532,120
Balance at December 21, 2021	14,739,956	$	123,111	$	424,412	$	(6,229)	541,294
Net income	—	—		16,795		—		16,795
Other comprehensive income, net of tax	—	—		—		(69,684)		(69,684)
Stock-based compensation expense	—	624		—		—		624
Exercise of stock options and issuance of vested share awards, net of repurchase for tax withholdings	19,540	(114)		—		—		(114)
Common stock repurchased	(13,086)	(609)		—		—		(609)

Cash dividends declared ($0.40 per share)	—	—		(5,860)		—		(5,860)
Balance at March 31, 2022	14,746,410	$	123,012	$	435,347	$	(75,913)	$	482,446

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three Months Ended March 31,
(In thousands)	2022		2021
Operating Activities
Net Income	$	16,795	$	19,740
Adjustments to reconcile net income to net cash provided by operating activities:
Originations of mortgage loans held for sale	(47,671)		(174,370)
Proceeds from the sale of mortgage loans	47,771		198,799
Gain on sale of mortgage loans, net of origination costs	(1,132)		(6,173)
Credit for credit losses	(1,075)		(1,956)
Depreciation and amortization expense	899		927
Investment securities amortization and accretion, net	1,217		1,971
Stock-based compensation expense	624		703
Amortization of core deposit intangible assets	156		164
Purchase accounting accretion, net	(80)		(234)



Net decrease in derivative collateral posted	24,070		24,380
Decrease in other assets	998		591
Increase (decrease) in other liabilities	178		(2,484)
Net cash provided by operating activities	42,750		62,058
Investing Activities
Proceeds from available-for-sale debt securities	69,572		94,697
Purchase of available-for-sale debt securities	(77,865)		(118,707)


Net increase in loans	(102,976)		(17,277)

Purchase of Federal Home Loan Bank stock	(1,799)		—
Proceeds from sale of Federal Home Loan Bank stock	1,892		1,329
Purchase of premises and equipment	(393)		(320)


Recoveries of previously charged-off loans	62		51
Proceeds from the sale of other real estate owned	287		350
Net cash used in investing activities	(111,220)		(39,877)
Financing Activities
Net (decrease) increase in deposits	(32,225)		206,386
Net proceeds from borrowings less than 90 days	26,060		23,969

Repayments of Federal Home Loan Bank long-term advances	—		(25,000)



Common stock repurchases	(542)		(11)
Exercise of stock options and issuance of restricted stock, net of repurchase for tax withholdings	(114)		(80)
Cash dividends paid on common stock	(5,911)		(4,934)
Finance lease payments	(40)		(38)
Net cash (used in) provided by financing activities	(12,772)		200,292
Net (decrease) increase in cash, cash equivalents and restricted cash	(81,242)		222,473
Cash, cash equivalents, and restricted cash at beginning of period	220,625		145,774
Cash, cash equivalents and restricted cash at end of period	$	139,383	$	368,247
Supplemental information
Interest paid	$	2,470	$	3,117
Income taxes paid	150		176

Unsettled common stock repurchase	67		—
Transfer from premises to other real estate owned	—		204

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated statements of condition of Camden National Corporation (the "Company") as of March 31, 2022 and December 31, 2021, the consolidated statements of income for the three months ended March 31, 2022 and 2021, the consolidated statements of comprehensive income for the three months ended March 31, 2022 and 2021, the consolidated statements of changes in shareholders' equity for the three months ended March 31, 2022 and 2021, and the consolidated statements of cash flows for the three months ended March 31, 2022 and 2021. The consolidated financial statements include the accounts of the Company and Camden National Bank (the "Bank"), a wholly-owned subsidiary of the Company (which includes the consolidated accounts of Healthcare Professional Funding Corporation ("HPFC") and Property A, Inc. as of and for the three months ended March 31, 2022 and 2021). All intercompany accounts and transactions have been eliminated in consolidation. Assets held by the Bank in a fiduciary capacity, through Camden National Wealth Management, a division of the Bank, are not assets of the Company and, therefore, are not included in the consolidated statements of condition. The Company also owns 100% of the common stock of Camden Capital Trust A and Union Bankshares Capital Trust I. These entities are unconsolidated subsidiaries of the Company. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Such reclassifications did not impact net income or shareholders' equity as previously reported. Net income reported for the three months ended March 31, 2022, is not necessarily indicative of the results that may be expected for the full year. The information in this report should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

The acronyms, abbreviations and definitions identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following is provided to aid the reader and provide a reference page when reviewing these sections of the Form 10-Q.

Acronym

Description

Acronym

Description

AFS:

Available-for-sale

GAAP:

Generally accepted accounting principles in the United States

ALCO:

Asset/Liability Committee

GDP:

Gross domestic product

ACL:

Allowance for credit losses

HPFC:

Healthcare Professional Funding Corporation, a wholly-owned subsidiary of Camden National Bank

AOCI:

Accumulated other comprehensive income (loss)

HTM:

Held-to-maturity

ASC:

Accounting Standards Codification

IRS:

Internal Revenue Service

ASU:

Accounting Standards Update

LGD:

Loss given default

Bank:

Camden National Bank, a wholly-owned subsidiary of Camden National Corporation

LIBOR:

London Interbank Offered Rate

BOLI:

Bank-owned life insurance

LTIP:

Long-Term Performance Share Plan

Board ALCO:

Board of Directors' Asset/Liability Committee

Management ALCO:

Management Asset/Liability Committee

CARES Act:

Coronavirus Aid, Relief, and Economic Security Act, signed into law in March 2020 in response to COVID-19

MBS:

Mortgage-backed security

CCTA:

Camden Capital Trust A, an unconsolidated entity formed by Camden National Corporation

MSPP:

Management Stock Purchase Plan

CDs:

Certificate of deposits

N/A:

Not applicable

CECL:

Current Expected Credit Losses

N.M.:

Not meaningful

Company:

Camden National Corporation

OCC:

Office of the Comptroller of the Currency

CMO:

Collateralized mortgage obligation

OCI:

Other comprehensive income (loss)

CUSIP:

Committee on Uniform Securities Identification Procedures

OREO:

Other real estate owned

DCRP:

Defined Contribution Retirement Plan

OTTI:

Other-than-temporary impairment

EPS:

Earnings per share

PD:

Probability of default

FASB:

Financial Accounting Standards Board

SBA:

U.S. Small Business Administration

FDIC:

Federal Deposit Insurance Corporation

SBA PPP:

U.S. Small Business Administration Paycheck Protection Program

FHLB:

Federal Home Loan Bank

SERP:

Supplemental executive retirement plans

FHLBB:

Federal Home Loan Bank of Boston

SOFR:

Secured Overnight Financing Rate

FHLMC:

Federal Home Loan Mortgage Corporation

TDR:

Troubled-debt restructured loan

FNMA:

Federal National Mortgage Association

UBCT:

Union Bankshares Capital Trust I, an unconsolidated entity formed by Union Bankshares Company that was subsequently acquired by Camden National Corporation

FRB:

Federal Reserve System Board of Governors

U.S.:

United States of America

FRBB:

Federal Reserve Bank of Boston

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

The following provides a brief description of recently issued accounting pronouncements that have yet to be adopted by the Company:

ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). The FASB issued ASU 2022-02 to provide new guidance on troubled debt restructuring and write offs for entities who have adopted ASU 2016-13. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the effect of ASU 2022-02 on its consolidated financial statements and does not anticipate a material impact upon adoption.

ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging- Portfolio Layer Method ("ASU 2022-01"). The FASB issued ASU 2022-01 to amend ASU 2017-12 which was adopted by the Company in 2018. This amendment expands and renames the last-of-layer method the portfolio layer method, expands the scope and provides additional guidance for entities that apply the portfolio layer method of hedge accounting in accordance with Topic 815. The amendment is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the amendment and does not anticipate a material impact on its consolidated financial statements upon adoption of this guidance.

NOTE 3 – INVESTMENTS

Trading Securities

Trading securities are reported on the Company's consolidated statements of condition at fair value. As of March 31, 2022 and December 31, 2021, the fair value of the Company's trading securities were $4.1 million and $4.4 million, respectively. These securities are held in a rabbi trust account and invested in mutual funds. The trading securities will be used for future payments associated with the Company's deferred compensation plan for eligible employees and directors.

AFS Debt Securities

AFS debt securities are reported on the Company's consolidated statements of condition at fair value. The following table summarizes the amortized cost, estimated fair value, and unrealized gains (losses) of AFS debt securities, as of the dates indicated:


(In thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
March 31, 2022
Obligations of U.S. government-sponsored enterprises	$	8,585	$	—	$	(915)	$	7,670
Obligations of states and political subdivisions	113,388		587		(2,019)		111,956
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	1,029,454		435		(69,051)		960,838
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	341,998		145		(22,252)		319,891
Subordinated corporate bonds	22,632		55		(1,233)		21,454
Total AFS debt securities	$	1,516,057	$	1,222	$	(95,470)	$	1,421,809
December 31, 2021
Obligations of U.S. government-sponsored enterprises	$	8,585	$	—	$	(241)	$	8,344
Obligations of states and political subdivisions	112,086		5,392		—		117,478
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	1,003,869		7,856		(11,468)		1,000,257
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	361,781		2,835		(5,767)		358,849
Subordinated corporate bonds	22,660		152		(254)		22,558
Total AFS debt securities	$	1,508,981	$	16,235	$	(17,730)	$	1,507,486

As of March 31, 2022 and December 31, 2021, there was no allowance carried on AFS debt securities.

The net unrealized losses on AFS debt securities reported within AOCI at March 31, 2022, were $74.0 million, net of a deferred tax asset of $20.3 million. The net unrealized losses on AFS debt securities reported within AOCI at December 31, 2021, were $1.2 million, net of a deferred tax asset of $321,000.

For the three months ended March 31, 2022 and 2021, the Company did not sell any AFS debt securities.

The following table presents the Company's AFS debt securities with gross unrealized losses, for which an ACL has not been recorded, segregated by the length of time the securities have been in a continuous loss position, as of the dates indicated:


		Less Than 12 Months				12 Months or More				Total
(In thousands, except number of holdings)	Number of Holdings	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2022
Obligations of U.S. government-sponsored enterprises	4	$	3,033	$	(352)	$	4,637	$	(563)	$	7,670	$	(915)
Obligations of states and political subdivisions	30	46,149		(2,019)		—		—		46,149		(2,019)
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	215	819,454		(58,095)		99,504		(10,956)		$	918,958	(69,051)
Collateralized mortgage obligations issued or guaranteed by U.S. government-sponsored enterprises	98	196,036		(10,751)		102,752		(11,501)		298,788		(22,252)
Subordinated corporate bonds	12	19,433		(1,199)		966		(34)		20,399		(1,233)
Total AFS debt securities	359	$	1,084,105	$	(72,416)	$	207,859	$	(23,054)	$	1,291,964	$	(95,470)



December 31, 2021
Obligations of U.S. government-sponsored enterprises	4	$	8,344	$	(241)	$	—	$	—	$	8,344	$	(241)
Obligations of states and political subdivisions	—	—		—		—		—		—		—
Mortgage-backed securities issued or guaranteed by U.S. government-sponsored enterprises	113	659,851		(8,999)		61,978		(2,469)		721,829		(