Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CAC > SEC Filings for CAC > Form 10-Q on 2-May-2014All Recent SEC Filings

Show all filings for CAMDEN NATIONAL CORP

Form 10-Q for CAMDEN NATIONAL CORP


2-May-2014

Quarterly Report


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

FORWARD-LOOKING STATEMENTS

The discussions set forth below and in the documents we incorporate by reference herein contain certain statements that may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995, including certain plans, exceptions, goals, projections, and statements, which are subject to numerous risks, assumptions, and uncertainties. Forward-looking statements can be identified by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "plan," "target," or "goal" or future or conditional verbs such as "will," "may," "might," "should," "could" and other expressions which predict or indicate future events or trends and which do not relate to historical matters. Forward-looking statements should not be relied on, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

The following factors, among others, could cause the Company's financial performance to differ materially from the Company's goals, plans, objectives, intentions, expectations and other forward-looking statements:

continued weakness in the United States economy in general and the regional and local economies within the New England region and Maine, which could result in a deterioration of credit quality, an increase in the allowance for loan losses or a reduced demand for the Company's credit or fee-based products and services;

changes in trade, monetary, and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

inflation, interest rate, market, and monetary fluctuations;

competitive pressures, including continued industry consolidation and the increased financial services provided by non-banks;

volatility in the securities markets that could adversely affect the value or credit quality of the Company's assets, impairment of goodwill, the availability and terms of funding necessary to meet the Company's liquidity needs, and could lead to impairment in the value of securities in the Company's investment portfolio;

changes in information technology that require increased capital spending;

changes in consumer spending and savings habits;

changes in tax, banking, securities and insurance laws and regulations; and

changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the FASB, and other accounting standard setters.

You should carefully review all of these factors, and be aware that there may be other factors that could cause differences, including the risk factors listed in

Part II, Item 1A. "Risk Factors" of this Form 10-Q and in our Annual Report on
Form 10-K for the year ended December 31, 2013. Readers should carefully review the risk factors described therein and should not place undue reliance on our forward-looking statements.

These forward-looking statements were based on information, plans and estimates at the date of this report, and we do not promise to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.


CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. In preparing the Company's consolidated financial statements, management is required to make significant estimates and assumptions that affect assets, liabilities, revenues and expenses reported. Actual results could materially differ from our current estimates, as a result of changing conditions and future events. Several estimates are particularly critical and are susceptible to significant near-term change, including the allowance for credit losses; accounting for acquisitions and the review of goodwill and other identifiable intangible assets for impairment; valuation of OREO; OTTI of investments; effectiveness of hedging derivatives; and accounting for postretirement plans, stock-based compensation, and income taxes. There have been no material changes to our critical accounting policies as disclosed within our Annual Report on Form 10-K for the year ended December 31, 2013. Refer to the Annual Report on Form 10-K for the year ended December 31, 2013 for discussion of the Company's critical accounting policies.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATION TO GAAP

In addition to evaluating the Company's results of operations in accordance with GAAP, management supplements this evaluation with an analysis of certain non-GAAP financial measures, such as the efficiency ratio, tax equivalent net interest income, return on average tangible shareholders' equity, and tangible book value per share. We believe these non-GAAP financial measures help investors in understanding the Company's operating performance and trends and allow for better performance comparisons to other banks. 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.

Efficiency Ratio. The efficiency ratio, which represents an approximate measure of the cost required for the Company to generate a dollar of revenue, is the ratio of (i) total non-interest expense, excluding Branch Acquisition costs (the numerator) to (ii) net interest income on a fully taxable equivalent basis (assumed 35% tax rate) plus total non-interest income, excluding the net gain on sale of securities (the denominator).

                                                           Three Months Ended
                                                                March 31,
(Dollars in Thousands)                                      2014          2013
Non-interest expense, as presented                      $   15,125     $ 16,500
Less: Branch Acquisition costs                                   -          161
Non-interest expense, adjusted                          $   15,125     $ 16,339
Net interest income, as presented                       $   18,410     $ 19,168
Add: effect of tax-exempt income                               198          210
Non-interest income, as presented                            5,685        6,336
Less: net gain on sale of securities                           166          138
Net interest income and non-interest income, adjusted   $   24,127     $ 25,576
Non-GAAP efficiency ratio                                    62.69 %      63.88 %
GAAP efficiency ratio                                        62.77 %      64.70 %

Tax Equivalent Net Interest Income. Tax-equivalent net interest income is net interest income plus the taxes that would have been paid had had tax-exempt securities been taxable. This number attempts to enhance the comparability of the performance of assets that have different tax liabilities. The following table provides a reconciliation of tax equivalent net interest income to GAAP net interest income using a 35% tax rate.

                                          Three Months Ended
                                                March 31,
(Dollars in Thousands)                      2014           2013
Net interest income, as presented     $    18,410        $ 19,168
Add: effect of tax-exempt income              198             210
Net interest income, tax equivalent   $    18,608        $ 19,378


Return on Average Tangible Shareholders' Equity. Return on average tangible shareholders' equity is the ratio of (i) net income, adjusted for tax-effected amortization of intangible assets (the numerator) to (ii) average shareholders' equity, adjusted for average goodwill and other intangibles (the denominator). We believe this is a meaningful measure of our financial performance as it reflects the return on the equity deployed in our business and is a common measure within our industry. The following table reconciles return on average tangible shareholders' equity to return on average shareholders' equity.

                                                                   Three Months Ended
                                                                        March 31,
(Dollars in Thousands)                                             2014           2013
Net income, as presented                                       $    5,715     $    5,662
Add: tax-effected amortization of intangible assets                   187            187
Net income, adjusted                                                5,902          5,849
Average shareholders' equity                                      232,539        234,176
Less average goodwill and other intangibles                        49,168         53,157
Average tangible shareholders' equity                          $  183,371     $  181,019
Return on average tangible shareholders' equity (annualized)        13.05 %        13.10 %
Return on average shareholders' equity (annualized)                  9.97 %         9.81 %

Tangible Book Value per Share. Tangible book value per share is the ratio of (i) shareholders' equity less goodwill and other intangibles (the numerator) to (ii) total common shares outstanding at period end (the denominator). We believe this is a meaningful measure as it provides information to assess capital adequacy and is a common measure within our industry. The following table reconciles tangible book value per share to book value per share.

                                         March 31,       December 31,       March 31,
(In Thousands, Except per Share Data)       2014              2013             2013
Shareholders' equity                    $    231,469            231,096    $    235,575
Less: goodwill and other intangibles          49,032             49,319          53,011
Tangible shareholders' equity           $    182,437    $       181,777    $    182,564
Shares outstanding at period end           7,484,560          7,579,913       7,635,957
Tangible book value per share           $      24.38    $         23.98    $      23.91
Book value per share                    $      30.93    $         30.49    $      30.85


EXECUTIVE OVERVIEW

Net income for the first quarter of 2014 was $5.7 million, representing a $53,000, or 1%, increase compared to the first quarter of 2013. The increase was led by a decrease in operating costs and provision for credit losses of $1.6 million, offsetting the decrease in revenues of $1.4 million. These financial results exclude the earnings contribution of the Branch Divestiture, which included the sale of $46.0 million of loans and $85.9 million of deposits and borrowings, in October 2013. For the first quarter of 2013, the five Franklin County branches contributed approximately $146,000 to net income. Return on average shareholders' equity for the first quarter of 2014 increased 16 bps to 9.97% compared to the first quarter of 2013, while our return on average assets remained relatively stable at 0.89%, decreasing 1 bp compared to a year ago.

Total assets at March 31, 2014 increased $36.8 million, or 1%, to $2.6 billion since December 31, 2013. This increase was driven by strong loan growth of $39.8 million, a 10% annualized growth rate since year-end. Loan growth was centered in our commercial real estate and commercial portfolios with increases of $33.6 million and $11.9 million, respectively. Growth within these portfolios was offset by a decrease in our retail portfolio, including residential real estate, home equity and consumer, of $5.7 million. Retail activity has been impacted by higher interest rates as well as a prolonged winter throughout Maine.

Total liabilities at March 31, 2014 increased $36.5 million, or 2%, since December 31, 2013. The increase was primarily attributable to growth in brokered deposits of $31.9 million used to fund loan growth and supplement the decrease in certificates of deposits of $9.0 million. Core deposits (demand, interest checking, savings, and money market) remained consistent compared to year-end balances, which we are pleased with as core deposits typically decline in the first quarter in the calendar year due to the seasonality and cyclical nature of deposit flows within our market.

Shareholders' equity at March 31, 2014 was $231.5 million, representing an increase of $373,000 since December 31, 2013. The primary factors attributable to the net increase are:

Net income of $5.7 million for the three months ended March 31, 2014;

OCI increased $769,000 for the three months ended March 31, 2014;

Partially offset by repurchases of 113,527 shares of the Company's common stock totaling $4.4 million; and

Dividends declared of $0.27 per share totaling $2.0 million.

RESULTS OF OPERATIONS

Net Interest Income
Net interest income is the interest earned on loans, securities, and other earning assets, plus loan fees, less the interest paid on interest-bearing deposits and borrowings. Net interest income, which is our largest source of revenue and accounts for approximately 76% of total revenues (net interest income and non-interest income), is affected by factors including, but not limited to, changes in interest rates, loan and deposit pricing strategies and competitive conditions, the volume and mix of interest-earning assets and liabilities, and the level of non-performing assets.


Net interest income earned for the first quarter of 2014 was $18.4 million, representing a decrease of $758,000, or 4%, compared to the same period in 2013. The decrease is due to both the Branch Divestiture, which included the sale of $46.0 million of loans and $85.9 million of deposits and borrowings in October 2013, and continued net interest margin compression as the yield on interest-earning assets declines due to the prolonged low-interest rate environment. The Company's yield on interest-earning assets for the three months ended March 31, 2014 decreased 25 bps to 3.57% compared to the same period in 2013. The Company has been able to partially offset the impact of a decreasing yield on net interest income through:

An increase in average loans of $22.2 million compared to the first quarter of 2013, even with loan sales of $46.0 million in the fourth quarter of 2013;

An increase in average investments of $25.0 million compared to the first quarter of 2013; and

A 6 bps decrease in our cost of funds to 0.52% compared to the first quarter of 2013, even with core deposit sales of $80.4 million in the fourth quarter of 2013.

The following table presents average balances, interest income, interest expense, and the corresponding average yields earned and cost of funds, as well as net interest income, net interest rate spread and net interest margin for the three months ended March 31, 2014 and 2013:


                                     Quarterly Average Balance, Interest and Yield/Rate Analysis (unaudited)

                                               At or for the Three Months Ended                        At or for the Three Months Ended
                                                        March 31, 2014                                          March 31, 2013
(Dollars In Thousands)                Average Balance        Interest        Yield/Rate       Average Balance        Interest        Yield/Rate
Assets
Interest-earning assets:
Securities - taxable                 $       793,696       $     4,318           2.18 %      $       769,995       $     4,314           2.24 %
Securities - nontaxable(1)                    32,709               452           5.52 %               31,681               470           5.93 %
Trading account assets                         2,486                 2           0.26 %                2,237                12           2.11 %
Loans(2):
Residential real estate                      568,205             5,965           4.20 %              575,154             6,576           4.57 %
Commercial real estate                       553,472             6,282           4.54 %              503,799             6,074           4.82 %
Commercial                                   170,146             1,690           3.98 %              176,536             1,970           4.46 %
Municipal(1)                                  10,900               114           4.23 %               11,579               132           4.61 %
Consumer                                     288,725             2,768           3.89 %              302,131             3,088           4.15 %
Total loans                                1,591,448            16,819           4.24 %            1,569,199            17,840           4.56 %
Total interest-earning assets              2,420,339            21,591           3.57 %            2,373,112            22,636           3.82 %
Cash and due from banks                       41,502                                                  44,744
Other assets                                 165,762                                                 166,704
Less: ALL                                    (21,604 )                                               (23,267 )
Total assets                         $     2,605,999                                         $     2,561,293
Liabilities & Shareholders' Equity
Deposits:
Demand                               $       227,426       $         -     $        -        $       221,796       $         -     $        -
Interest checking                            461,544                77           0.07 %              478,944                67           0.06 %
Savings                                      244,460                33           0.06 %              230,128                32           0.06 %
Money market                                 421,607               306           0.29 %              456,333               373           0.33 %
Certificates of deposit                      338,211               803           0.96 %              415,034               987           0.96 %
Total deposits                             1,693,248             1,219           0.29 %            1,802,235             1,459           0.33 %
Borrowings:
Brokered deposits                            103,246               332           1.30 %              126,078               360           1.16 %
Junior subordinated debentures                43,935               625           5.77 %               43,832               621           5.75 %
Other borrowings                             504,024               807           0.65 %              318,198               818           1.04 %
Total borrowings                             651,205             1,764           1.10 %              488,108             1,799           1.50 %
Total funding liabilities                  2,344,453             2,983           0.52 %            2,290,343             3,258           0.58 %
Other liabilities                             29,007                                                  36,774
Shareholders' equity                         232,539                                                 234,176
Total liabilities & shareholders'
equity                               $     2,605,999                                         $     2,561,293

Net interest income (fully-taxable
equivalent)                                                     18,608                                                  19,378
Less:  fully-taxable equivalent
adjustment                                                        (198 )                                                  (210 )
Net interest income                                        $    18,410                                             $    19,168

Net interest rate spread
(fully-taxable equivalent)                                                       3.05 %                                                  3.24 %
Net interest margin (fully-taxable
equivalent)                                                                      3.08 %                                                  3.27 %

(1) Reported on tax-equivalent basis calculated using a tax rate of 35%.
(2) Non-accrual loans and loans held for sale are included in total average loans.


Provision and Allowance for Loan Losses
The provision for loan losses is a recorded expense determined by management that adjusts the ALL to a level that, in management's best estimate, is necessary to absorb probable losses within the existing loan portfolio. The provision for loan losses reflects loan quality trends, including, among other factors, the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans, net charge-offs or recoveries and growth in the loan portfolio. Accordingly, the amount of the provision reflects both the necessary increases in the ALL related to newly identified criticized loans, as well as the actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools. The provision for credit losses for the three months ended March 31, 2014 and 2013 was $493,000 and $674,000, respectively. Please see "- Financial Condition - Asset Quality" below for additional discussion regarding the ALL and overall asset quality.

Non-Interest Income
The following table presents the components of non-interest income for the three
months ended March 31, 2014 and 2013:
                                                  Three Months Ended
                                                       March 31,                    Change
(Dollars in thousands)                            2014            2013           $           %
Service charges on deposit accounts          $     1,469      $    1,684     $  (215 )      (13 )%
Other service charges and fees                     1,395           1,429         (34 )       (2 )%
Income from fiduciary services                     1,184           1,143          41          4  %
Brokerage and insurance commissions                  478             412          66         16  %
Bank-owned life insurance                            306             338         (32 )       (9 )%
Mortgage banking income, net                          72             574        (502 )      (87 )%
Net gain on sale of securities                       166             138          28         20  %
Other income                                         615             618          (3 )        -  %
Total non-interest income                    $     5,685      $    6,336     $  (651 )      (10 )%
Non-interest income as a percentage of
total revenues(1)                                     24 %            25 %

(1) Revenue is defined as net interest income plus non-interest income.

Non-interest income for the three months ended March 31, 2014 was $5.7 million, representing a decrease of $651,000, or 10%, compared to the three months ended March 31, 2013. The significant changes in non-interest income for the three months ended March 31, 2014 compared to the same period for 2013 include:
A decrease in mortgage banking income of $502,000 as there were no mortgage sales in the first quarter of 2014; and

A decrease in deposit-related service fees and other service charges and fees totaling $249,000, primarily driven by the Branch Divestiture in the fourth quarter of 2013, which accounted for $173,000 of the decrease. The remaining decrease was largely attributable to a decrease in service charge income related to lower overdraft and debit card transaction volume.


Non-Interest Expense
The following table presents the components of non-interest expense for the
three months ended March 31, 2014 and 2013:
                                                  Three Months Ended
                                                        March 31,                   Change
(Dollars in thousands)                             2014          2013           $            %
Salaries and employee benefits                 $    7,980     $   8,361     $   (381 )       (5 )%
Furniture, equipment and data processing            1,789         1,604          185         12  %
Net occupancy                                       1,380         1,552         (172 )      (11 )%
Consulting and professional fees                      518           547          (29 )       (5 )%
Other real estate owned and collection costs          513           888         (375 )      (42 )%
Regulatory assessments                                481           499          (18 )       (4 )%
Amortization of intangible assets                     287           288           (1 )        -  %
Branch Acquisition costs                                -           161         (161 )     (100 )%
Other expenses                                      2,177         2,600         (423 )      (16 )%
Total non-interest expense                     $   15,125     $  16,500     $ (1,375 )       (8 )%
Efficiency ratio (non-GAAP)                         62.69 %       63.88 %

Non-interest expense for the three months ended March 31, 2014 was $15.1 million, representing a decrease of $1.4 million, or 8%, compared to the three months ended March 31, 2013. The significant changes in non-interest expense for the three months ended March 31, 2014, compared to the same period for 2013 include:

A decrease in salaries and employee benefits of $381,000, or 5%, due to a reduction in headcount at the Company, primarily related to the positions associated with the Branch Divestiture in the fourth quarter of 2013;

A decrease in OREO and collection costs of $375,000, or 42%, due to the establishment of a reserve on a servicing-related claim in the first quarter of 2013 of $215,000 that did not recur in the first quarter of 2014 and a decrease in foreclosure- and collection-related costs;

An increase in furniture, equipment and data processing of $185,000, or 12%, as the Company continues to focus its strategic efforts on technology and innovation to enhance the customer experience. Through our initiatives and as customers continue to transition to more on-line banking activity, general data processing and on-line banking costs have increased $183,000, representing the majority of the change compared to the same period last year;

A decrease in net occupancy of $172,000, or 11%, due to a reduction in branch occupancy costs as we divested the five Franklin County branches in the fourth quarter of 2013 accounting for $67,000 of the decrease and the . . .

  Add CAC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CAC - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.