Camden National Corporation Reports An 11% Increase In Second Quarter 2016 Net Income

CAMDEN, Maine, July 26, 2016 /PRNewswire/ -- Camden National Corporation (NASDAQ: CAC; "Camden National" or the "Company"), a $3.9 billion bank holding company headquartered in Camden, Maine, reported net income for the second quarter of 2016 of $9.6 million and diluted earnings per shares ("EPS") of $0.92 per share, representing an increase over the first quarter of 2016 of 11% and 10%, respectively. Total revenues¹ for the second quarter of 2016 reached $39.1 million, representing a 9% increase over prior quarter, and operating expenses were $22.3 million, a decrease of 3% over prior quarter. For the second quarter of 2016, the Company's return on average assets was 1.01%, return on tangible equity was 14.50%, and efficiency ratio² was 56.53%.

"We continue to see positive momentum across the organization with total assets reaching $3.9 billion at June 30, 2016 and strong operating results for the second quarter, highlighting the successes and accomplishments over the past nine months as we continue to leverage the benefits of The Bank of Maine merger and implement several strategic initiatives," said Gregory A. Dufour, president and chief executive officer of Camden National. "We had solid net income growth of 11% for the second quarter of 2016 over last quarter, driven by strong loan growth and higher fee income, as well as lower operating costs."

Dufour added, "We continuously assess all aspects of our business to ensure we are making the right strategic decisions for the longevity of the Company, and in doing so, we will close two banking centers located in Bangor and Orono, Maine."

Subject to the regulatory notice periods, the Company anticipates that the Bangor and Orono, Maine banking centers will close in the fourth quarter of 2016. Affected customers will not need to take any action, and there will be no interruption of service. All employees from the closing locations will be provided other opportunities through open positions within the Company.

Dufour continued, "We weigh the opening and closing of banking centers very heavily and our decision was based on many factors, including local economic conditions, financial considerations and the impact to our customers, who will continue to be served by existing banking centers located less than five miles from the closed locations, as well as our extensive online and mobile banking channels."

SECOND QUARTER 2016 FINANCIAL HIGHLIGHTS (compared to the first quarter of 2016, unless otherwise stated)

• Net income reached $9.6 million, representing a $970,000, or 11%, increase over last quarter.
• Diluted EPS reached $0.92 per share, representing a $0.08 per share, or 10%, increase over last quarter.
• The return on average assets was 1.01% compared to 0.93% last quarter.
• The return on average tangible equity was 14.50% compared to 13.56% last quarter.
• The efficiency ratio for the second quarter of 2016 improved to 56.53% compared to 61.18% last quarter as the Company implemented all of its planned synergies and cost saving strategies from its acquisition of SBM Financial, Inc. ("SBM"), the parent company of The Bank of Maine, in October 2015.
• Tangible book value per share² increased 8% to $27.47 per share since year-end.
• Annualized loan growth through the first half of 2016 was 9%, while annualized core deposits growth for the same period was 6%.
• The provision for credit losses was $2.9 million, representing a $2.0 million increase over last quarter, primarily due to the deterioration of two commercial loans. Overall asset quality remains strong with lower net charge-offs and 30-89 days past due loans compared to last quarter.

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¹ Revenue is defined as the sum of net interest income and non-interest income.

² This is a non-GAAP measure. Please refer to "Reconciliation of non-GAAP to GAAP Financial Measures" for further details.

FINANCIAL CONDITION

Total assets at June 30, 2016 were $3.9 billion compared to $3.7 billion at December 31, 2015, representing an increase of $201.0 million, or 11% annualized. Our asset growth for the first half of 2016 was driven by strong loan growth of $107.1 million, a $66.0 million increase in our investment portfolio, and a $16.7 million investment in bank-owned life insurance.

Loan growth (excluding loans held for sale) of $95.1 million was driven by our commercial loan portfolio, which increased $121.9 million since year-end, partially offset by a decrease within our retail loan portfolio of $26.8 million since year-end. We experienced strong positive momentum throughout the first half of 2016 within our commercial real estate loan portfolio, which made up 74% of our commercial loan growth through the first six months of 2016. We continue to see commercial borrowers looking to lock in long-term fixed rate borrowings at today's low interest rates, and we continue to utilize our commercial loan swap program to achieve this for our commercial customers, while simultaneously improving our interest rate sensitivity. At June 30, 2016, the Company had $232.3 million of back-to-back loans swaps with its commercial customers and dealer banks, compared to $142.9 million at December 31, 2015. The decrease in our retail loan portfolio since year-end was primarily driven by a decrease in residential mortgage loans of $20.1 million. The Company has sold approximately 70% of its originated residential mortgages through the first six months of 2016 to generate fee income and enhance its interest rate sensitivity. For the six months ended June 30, 2016, the Company sold $95.2 million of residential mortgage loans compared to $12.5 million for the same period a year ago.

Total deposits at June 30, 2016 were $2.8 billion, representing an increase of $47.1 million since year-end. Core deposits (demand, interest checking, savings and money market) at June 30, 2016 totaled $2.1 billion, representing an increase of $63.5 million since year-end. Total borrowings at June 30, 2016 increased $118.1 million to $690.5 million.

The Company and its wholly-owned subsidiary Camden National Bank, continue to maintain risk-based capital ratios in excess of the regulatory levels required for an institution to be considered "well capitalized." At June 30, 2016, the Company's total risk-based capital ratio, Tier I risk-based capital ratio, common equity Tier I risk-based capital ratio, and Tier I leverage capital ratio were 12.94%, 11.51%, 10.25%, and 8.44%, respectively.

FINANCIAL OPERATING RESULTS

SECOND QUARTER 2016 COMPARED TO FIRST QUARTER 2016:

Net income for the second quarter of 2016 was $9.6 million, representing an increase of $970,000, or 11%, over the prior quarter. Diluted EPS for the second quarter of 2016 was $0.92 per share compared to $0.84 per share last quarter.

Core operating earnings² for the second quarter of 2016 was $9.7 million, representing an increase over last quarter of $666,000, or 7%. Core diluted EPS² for the second quarter of 2016 increased $0.05 per share to $0.93 per share over last quarter. Our core return on average assets² and tangible equity² for the second quarter was 1.02% and 14.67%, respectively, compared to 0.97% and 14.19% last quarter.

Revenues increased $3.2 million, or 9%, for the second quarter of 2016 to $39.1 million compared to last quarter. The increase in revenues was driven by a $2.6 million increase in non-interest income and a $552,000 increase in net interest income.

• Net interest income of $28.5 million increased 2% due to:
  • Average interest-earning assets for the second quarter of 2016 grew $75.1 million, or 2%, compared to last quarter, driven by higher average loan balances of $54.2 million and higher average investment balances of $20.9 million.
  • Net interest margin decreased one basis point to 3.34% in the second quarter of 2016 compared to last quarter. Excluding the impact of the fair value mark accretion from purchase accounting and collection of previously charged-off acquired loans, our normalized net interest margin⁽²⁾ was 3.09%, compared to 3.14% last quarter. The decrease in our normalized margin was driven by a higher loan mix of variable rate commercial loans as we continue to see growth within this portfolio and utilize commercial loan swaps.
• Non-interest income of $10.6 million increased 33% due to:
  • An increase in fee income generated from our commercial back-to-back loan swap program of $937,000. Total fees generated in the second quarter of 2016 were $1.2 million on $73.1 million of back-to-back loan swap agreements.
  • An increase in mortgage banking income of $898,000 primarily due to an increase in mortgage gains of $528,000 as a result of higher loan sale volume in the second quarter of 2016 of $17.4 million. Additionally, mortgage servicing rights ("MSR") costs from amortization and valuation adjustments were $280,000 lower in the second quarter of 2016 compared to last quarter primarily as the valuation adjustment of our MSRs largely occurred last quarter with the sharp fall in U.S. Treasury rates.
  • An increase in bank-owned life insurance income of $470,000 primarily due to death benefits of $394,000 received on an insured.

Non-interest expenses for the second quarter of 2016 totaled $22.3 million, representing a decrease of $579,000 compared to last quarter. Our efficiency ratio for the second quarter of 2016 was 56.53% compared to 61.18% last quarter. The decrease in non-interest expenses was driven by:

• Lower merger and acquisition expenses of $467,000 as non-recurring costs associated with the SBM acquisition in October 2015 wind-down.
• Lower other real estate owned ("OREO") and collection costs of $160,000 primarily due to the sale of three OREO properties resulting in gains of $218,000, whereas last quarter a loss of $66,000 was recognized on the sale of an OREO property. Partially offsetting the gains on sale in the second quarter were higher costs associated with collections and foreclosure activity of $123,000.
• Lower operating costs, including marketing costs of $166,000, check and debit card fraud losses of $66,000, and other expenses.
• Partially offset by higher compensation and employee benefit costs of $408,000 due to timing of merit increases and an increase in incentive compensation based on year-to-date performance.

In the second quarter of 2016, the Company adopted Accounting Standards Update 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). The standard was adopted effective as of the beginning of 2016 and, thus, the first quarter 2016 financial information was revised to present such accordingly.

The Company's effective tax rate for the second quarter of 2016 was 30.7% compared to 28.5% last quarter, reflecting the discrete period impact of windfall tax benefits recognized within the first and second quarter of 2016 of $299,000 and $65,000, respectively, upon adoption of ASU 2016-09.

SIX MONTHS ENDED JUNE 30, 2016 COMPARED TO SIX MONTHS ENDED JUNE 30, 2015:

Net income for the six months ended June 30, 2016 was $18.3 million compared to $12.8 million for the same period in 2015, representing an increase of $5.5 million, or 43%. Diluted EPS for the six months ended June 30, 2016 was $1.76 per share compared to $1.71 per share for the same period in 2015, representing an increase of $0.05 per share, or 3%. The increase in net income and diluted EPS for the six months ended June 30, 2016 over the same period a year ago highlights the benefits of the SBM acquisition completed in October 2015.

Our return on average assets and average tangible equity for the six months ended June 30, 2016 was 0.97% and 14.04%, respectively, compared to 0.92% and 13.08% for the six months ended June 30, 2015. Our efficiency ratio for the six months ended June 30, 2016 was 58.77% compared to 60.24% for the same period a year ago.

Core operating earnings for the six months ended June 30, 2016 was $18.8 million, representing an increase over the same period last year of $5.2 million, or 38%. Core diluted EPS for the six months ended June 30, 2016 and 2015 was $1.81 per share. Our core return on average assets and tangible equity for the six months ended June 30, 2016 was 1.00% and 14.44%, respectively, compared to 0.98% and 13.84% for the same period last year.

ASSET QUALITY

The provision for credit losses was $2.9 million for the second quarter of 2016, representing an increase of $2.0 million over last quarter. The increase was a combination of seasonality, growth in the commercial portfolio and deterioration of one commercial real estate and one commercial credit accounting for $2.3 million of the second quarter provision for credit losses. Aside from these two loans, which we view as borrower specific, we saw positive momentum across our portfolio through loan credit rating upgrades. For the second quarter, annualized quarter-to-date net charge-offs to average loans were 0.07%, representing a decrease of 0.04% from last quarter.

Non-performing loans at June 30, 2016 increased $8.4 million since March 31, 2016 as the commercial real estate loan noted above totaling $11.7 million was placed on non-performing status in the second quarter of 2016. At June 30, 2016, our ratio of non-performing loans to total loans was 1.10%, representing an increase of 0.30% since March 31, 2016 and 0.17% since year-end, while our ratio of loans 30-89 days past due to total loans was 0.27%, representing a decrease of 0.03% since March 31, 2016 and 0.13% since year-end.

SECOND QUARTER 2016 DIVIDEND

The board of directors approved a dividend of $0.30 per share, payable on July 29, 2016, to shareholders of record as of July 15, 2016. This distribution represents an annualized dividend yield of 2.86%, based on the June 30, 2016 closing price of Camden National's common stock at $42.00 per share as reported by NASDAQ.

CONFERENCE CALL

Camden National will host a conference call and webcast at 3:30 p.m. eastern time on July 26, 2016 to discuss our second quarter 2016 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 will be available on Camden National's website under "Investor Relations" at www.CamdenNational.com prior to the meeting. 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 is the holding company of Camden National Bank and Acadia Trust, N.A. Headquartered in Camden, Maine, Camden National Corporation has $3.9 billion in assets and is the largest publicly traded bank holding company in Northern New England (NASDAQ: CAC). Camden National Bank is a full-service community bank that employs over 650 people, features a network of 63 banking centers and 85 ATMs in Maine, and offers state-of-the-art online and mobile banking resources as well as investment, insurance and financial planning services through its division, Camden Financial Consultants. With offices in Portland, Bangor, and Ellsworth, Acadia Trust, N.A. provides comprehensive wealth management, investment management and trust services to individual and institutional clients throughout Maine and New England. To learn more, visit www.CamdenNational.com.

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, 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 difficulties in achieving cost savings in connection with the recent acquisition of SBM or in achieving such cost savings within the expected time frame, increased competitive pressures, changes in the interest rate environment, changes in general economic conditions, 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 in Camden National's Annual Report on Form 10-K for the year ended December 31, 2015, as updated by other filings with the Securities and Exchange Commission ("SEC"). 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 GAAP, management supplements this evaluation with certain non-GAAP financial measures, such as the efficiency, core operating expenses to total average assets, tangible common equity, and core return ratios; core operating earnings; core diluted EPS; core operating expenses; normalized net interest margin; tangible book value per share; and tax-equivalent net interest income. Management believes 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. 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.

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SOURCE Camden National Corporation