EX-99.1 2 earningsreleaseq418.htm EXHIBIT 99.1 Exhibit
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CONTACT:                                
Michael Archer
Senior Vice President
Corporate Controller
Camden National Corporation
(800) 860-8821
marcher@camdennational.com

FOR IMMEDIATE RELEASE


CAMDEN NATIONAL CORPORATION REPORTS
FOURTH QUARTER AND ANNUAL EARNINGS FOR 2018

Company Sets Record Net Income of $53.1 Million for 2018

CAMDEN, Maine, January 29, 2019/PRNewswire/--Camden National Corporation (NASDAQ: CAC; “Camden National” or the “Company”), a $4.3 billion bank holding company headquartered in Camden, Maine, reported net income for 2018 of $53.1 million and diluted earnings per share ("EPS") of $3.39, representing an increase of 86% over 2017. Net income and diluted EPS for 2018 each grew 24% over last year, adjusted for a $14.3 million income tax charge recorded in the fourth quarter of 2017 after the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was enacted1. Return on average assets for 2018 was 1.28%, and return on average equity was 12.92% for the same period.

"We are pleased to report that 2018 was a banner year for the Company,” said Gregory A. Dufour, President and Chief Executive Officer of the Company. "We delivered outstanding operating and financial performance driven by the realization of many key investments we've made over the past several years and the benefit of a lower federal income tax rate. We experienced strong deposit growth of 15% during the year and loan growth of 9% over the same period. At the same time, asset quality continues to be excellent with non-performing assets comprising just 34 basis points of total assets at year-end."

Net income for the fourth quarter of 2018 was $14.0 million and diluted EPS was $0.89, representing an increase over the fourth quarter of 2017 of $17.2 million and $1.09 per share, respectively, and a slight decrease compared to the third quarter of 2018 of $80,000 and $0.01 per share, respectively. Fourth quarter 2018 net income and diluted EPS grew $2.9 million and $0.18 per share, respectively, over the fourth quarter of 2017, adjusted for a $14.3 million income tax charge recorded in the fourth quarter of 2017 due to the Tax Act1.

"We had a great fourth quarter as loan balances grew 4% and deposits grew 8%," said Dufour. "Our loan growth was funded by low-cost deposits2, thus expanding net interest margin to 3.21%, a 7 basis point increase over last quarter. Our loan-to-deposit ratio at December 31, 2018, was 87%, positioning us well as we enter 2019."

In December 2018, the Company's Board of Directors announced a dividend of $0.30 per share, reflecting a dividend yield of 3.34% on December 31, 2018. On January 22, 2019, the Company announced the approval of its common share repurchase program for up to 775,000 shares, or approximately 5% of the Company's outstanding common stock.

Dufour added, "In November 2018, we announced the opening of our new prototype, state-of-the-art banking center located in the Bill & Joan Alfond Main Street Commons in downtown Waterville, Maine, following the sale of the Company's Waterville property to Colby College earlier this year. The revitalization efforts by the City and Colby College have been nothing short of extraordinary, and we are excited to be part of it."
______________________________________________________________________________________________________
1 This is a non-GAAP measure. Please refer to "Reconciliation of non-GAAP to GAAP Financial Measures" for further details.
2 Low-cost deposits includes non-interest checking, interest checking, savings and money market accounts.

1

Fourth Quarter 2018 Highlights:
 
Year-to-Date 2018 Highlights:
l Net income of $14.0 million and diluted EPS of $0.89
 
l Net income of $53.1 million and diluted EPS of $3.39
l Return on average assets was 1.32% and return on average equity was 13.19%
 
l Return on average assets was 1.28% and return on average equity was 12.92%
l Efficiency ratio on a GAAP basis was 57.42% and on a non-GAAP basis was 56.50%1
 
l Efficiency ratio on a GAAP basis was 57.98% and on a non-GAAP basis was 57.71%1
l Loan growth of 4% and deposit growth of 8%
 
l Loan growth of 9% and deposit growth of 15%
l Net recoveries of $1.2 million
 
l Net charge-offs of $304,000 and 0.01% of average loans

FINANCIAL CONDITION

Total assets at December 31, 2018, grew 6% over last year to $4.3 billion. The loan portfolio increased $243.8 million, or 9%, in 2018 to $3.0 billion at December 31, 2018, led by residential and commercial real estate growth of $134.5 million and $105.5 million, respectively, while consumer and home equity loan balances grew 2%. Over the same period, commercial loans decreased 1% as the Healthcare Professional Funding Corporation ("HPFC") loan portfolio continues to run-off.

Total deposits at December 31, 2018, grew 15% over last year to $3.5 billion. Over this period, low-cost deposits2 increased $337.7 million, or 15%, to $2.7 billion at December 31, 2018, led by an increase in checking account deposits of $185.9 million and savings and money market deposits of $151.8 million. At December 31, 2018, interest checking balances included $75.0 million of temporary funds which we anticipate will be fully withdrawn by March 31, 2019.

For 2018, average low-cost deposits2 balances grew $221.1 million, or 10%, to $2.4 billion for the year-ended December 31, 2018. Over the same period, average total borrowings decreased 10%.

The Company's capital position at December 31, 2018 was well in excess of regulatory requirements, including a total risk-based capital ratio of 14.36% and a Tier I leverage ratio of 9.53%. At December 31, 2018, the Company's book value per share was $27.95, representing an 8% increase over December 31, 2017, and its tangible book value per share1 increased 10% over the same period to $21.61 at December 31, 2018.

ASSET QUALITY

Asset quality as of December 31, 2018 was very strong, continuing the trend from the previous quarter. At December 31, 2018, non-performing assets were 0.34% of total assets, and non-performing loans were 0.48% of total loans, representing a decrease of 0.12% and 0.17%, respectively, since September 30, 2018 and 0.16% and 0.25%, respectively, since December 31, 2017. Loans 30-89 days past due were 0.29% of total loans at December 31, 2018.

In the fourth quarter of 2018, a significant commercial credit relationship previously on non-accrual was favorably resolved, which drove a net recovery of $1.2 million for the quarter and net charge-offs of 0.01% of average loans for the year. With this recovery, the provision for credit losses was $7,000 for the fourth quarter of 2018, and $847,000 for the year ended December 31, 2018. At December 31, 2018, the allowance for loan losses was 0.82% of total loans and 171.17% of non-performing loans.

Q4 2018 FINANCIAL OPERATING RESULTS (linked quarter)

The Company reported net income of $14.0 million for the fourth quarter of 2018 and diluted EPS of $0.89, representing a decrease of $80,000 and $0.01 per share, respectively, compared to the third quarter of 2018.

Net interest income of $31.6 million in the fourth quarter of 2018 increased $1.2 million over last quarter. The 4% increase was driven by average deposits growth of $140.9 million, or 5%, between quarters. This enabled the Company to fund its average loan growth of $75.0 million between quarters with lower-cost funding and expand its net interest margin by 7 basis points to 3.21% for the fourth quarter of 2018.




______________________________________________________________________________________________________
1 This is a non-GAAP measure. Please refer to "Reconciliation of non-GAAP to GAAP Financial Measures" for further details.
2 Low-cost deposits includes non-interest checking, interest checking, savings and money market accounts.

2

Non-interest income of $9.5 million in the fourth quarter of 2018 decreased $913,000 compared to last quarter. The 9% decrease was driven by (i) net losses from the sale of investment securities of $420,000 recorded in the fourth quarter of 2018 as a result of a portfolio re-balancing effort, compared to net gains from the sale of investment securities of $664,000 the previous quarter, and (ii) a decrease in mortgage banking income of $602,000 as we sold 36% of our residential mortgage originations in the fourth quarter of 2018, compared to 46% last quarter. This was partially offset by an increase in debit card income of $666,000, of which $530,000 was attributable to an annual incentive bonus received in the fourth quarter from VISA©.

The provision for credit losses for the fourth quarter was $7,000, compared to $354,000 last quarter. The decrease was due to $1.2 million in net recoveries in the fourth quarter upon the favorable resolution of a large commercial credit relationship.

Non-interest expense of $23.6 million for the fourth quarter of 2018 increased $414,000 over last quarter. The 2% increase was driven by (i) an increase in donation and marketing-related costs of $194,000, (ii) an increase in occupancy costs of $150,000 due to higher utility, heating and ground maintenance costs during the winter months, and (iii) an increase in collection-related costs of $131,000.

YEAR-TO-DATE FINANCIAL OPERATING RESULTS
The Company reported net income of $53.1 million and diluted EPS of $3.39 for the year ended December 31, 2018, representing an increase of $24.6 million and $1.57 per share, respectively, over the same period last year. In the fourth quarter of 2017 the Tax Act was passed, reducing the federal income tax rate from 35% to 21%, effective January 1, 2018, and a $14.3 million income tax expense charge was recorded. For the year-ended December 31, 2018, it's estimated that the lower federal income tax rate benefit was $9.2 million.

Net interest income of $120.4 million in 2018 increased $5.1 million over 2017. The 4% increase was driven by:
•
Average deposits growth of $222.4 million, or 8%, over last year.
•
Average loans growth of $155.9 million, or 6%, over last year.
•
Net interest margin on a fully-taxable basis for 2018 was 3.16%, compared to 3.19% last year. The decrease between periods was due to lower accretion income on acquired loans and time deposits of $902,000. Excluding accretion income on acquired loans and time deposits, net interest margin on a fully-taxable basis for 2018 was 3.10% for 2018 and 2017.
Non-interest income of $38.2 million in 2018 decreased 1% compared to 2017. The decrease was driven by (i) a decrease in mortgage banking income of $1.4 million as we sold 44% of our residential mortgage originations in 2018, compared to 53% in 2017, (ii) a decrease in loan swap fee income of $619,000, and (iii) a decrease in net gains from the sale of investment securities of $580,000. This was partially offset by (i) an increase in debit card income of $988,000, of which $506,000 was attributable to an increase in the VISA© incentive bonus, and (ii) an increase in brokerage and insurance commissions of $468,000.

The provision for credit losses for the year ended December 31, 2018, was $847,000, compared to $3.0 million for the same period last year. The decrease was due to a decrease in non-performing loans of 29% since December 31, 2017, and net charge-offs of 0.01% of average loans for the year ended December 31, 2018, compared to 0.07% for the same period last year.

Non-interest expense for the year ended December 31, 2018, was $91.9 million, compared to $88.5 million for the same period last year. The 4% increase was driven by:

•
An increase in compensation and related expenses of 5%, driven by normal merit increases, additional positions added throughout 2018, and an 11% increase in health insurance costs.
•
An increase in other expense of $864,000, of which $734,000 was employee- and business-related travel costs.
•
An increase in consulting and professional fees of $634,000, data processing costs of $608,000, and debit card expense of $425,000.
•
The increase was partially offset by a decrease in intangible amortization expense of $1.1 million.


3

ANNUAL MEETING

Camden National has scheduled its annual meeting of shareholders for Tuesday, April 30, 2019, at 3:00 p.m. local time, at Point Lookout Resort and Conference Center, 67 Atlantic Highway, Northport, Maine 04849. The date for determining the Company's shareholders of record for the annual meeting is February 22, 2019.

CONFERENCE CALL

Camden National will host a conference call and webcast at 3:00 p.m. Eastern Time on January 29, 2019 to discuss our fourth quarter and year-to-date 2018 financial results and outlook. Participants should dial in to the call 10 - 15 minutes before it begins. Information about the conference call is as follows:

Live dial-in (domestic):         (888) 349-0139
Live dial-in (international):    (412) 542-4154
Live webcast:            https://services.choruscall.com/links/cac190129.html

A link to the live webcast will be will be available on Camden National's website under "Investor Relations" at CamdenNational.com prior to the meeting. The transcript of the conference call will also be available on Camden National's website approximately two business days after the conference call.

ABOUT CAMDEN NATIONAL CORPORATION

Camden National Corporation (NASDAQ:CAC), headquartered in Camden, Maine, is the largest publicly traded bank holding company in Northern New England with $4.3 billion in assets and nearly 650 employees. Camden National Bank, its subsidiary, is a full-service community bank founded in 1875 that offers an array of consumer and business financial products and services, accompanied by the latest in digital banking technology to empower customers to bank the way they want. The Bank provides personalized service through a network of 60 banking centers, 71 ATMs, and lending offices in New Hampshire and Massachusetts, all complemented by 24/7 live phone support. Greenwich Associates named Camden National Bank a 2018 Greenwich Customer Experience (CX) Leader in U.S. Retail Banking, a designation that recognizes top U.S. banks in customer experience. In 2018, Camden National Bank received the “Lender at Work for Maine” Award from the Finance Authority of 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 in Camden National’s Annual Report on Form 10-K for the year ended December 31, 2017, as updated by other filings with the Securities and Exchange Commission ("SEC"). Camden National does not have any obligation to update forward-looking statements.


4

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 adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average equity, and adjusted return on average tangible equity; tangible common equity ratio; tangible book value per share; and the efficiency ratio. 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. Annualized data may not be indicative of any four-quarter period, and are presented for illustrative purposes only.


5


Selected Financial Data
(unaudited)


 
 
At or For The
Three Months Ended
 
At or For The
Year Ended
(In thousands, except number of shares and per share data)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Financial Condition Data
 
 
 
 
 
 
 
 
 
 
Investments
 
$
926,678

 
$
887,835

 
$
907,642

 
$
926,678

 
$
907,642

Loans and loans held for sale
 
3,030,625

 
2,919,001

 
2,790,542

 
3,030,625

 
2,790,542

Allowance for loan losses
 
24,712

 
23,526

 
24,171

 
24,712

 
24,171

Total assets
 
4,297,435

 
4,189,745

 
4,065,398

 
4,297,435

 
4,065,398

Deposits
 
3,464,474

 
3,220,755

 
3,000,491

 
3,464,474

 
3,000,491

Borrowings
 
341,515

 
479,498

 
611,498

 
341,515

 
611,498

Shareholders' equity
 
435,825

 
415,686

 
403,413

 
435,825

 
403,413

Operating Data
 
 
 
 
 
 
 
 
 
 
Net interest income
 
$
31,587

 
$
30,423

 
$
29,659

 
$
120,393

 
$
115,300

Provision for credit losses
 
7

 
354

 
238

 
847

 
3,035

Non-interest income
 
9,479

 
10,392

 
9,840

 
38,176

 
38,599

Non-interest expense
 
23,580

 
23,166

 
23,099

 
91,945

 
88,510

Income before income tax expense
 
17,479

 
17,295

 
16,162

 
65,777

 
62,354

Income tax expense
 
3,502

 
3,238

 
19,335

 
12,706

 
33,878

Net income (loss)
 
$
13,977

 
$
14,057

 
$
(3,173
)
 
$
53,071

 
$
28,476

Key Ratios
 
 
 
 
 
 
 
 
 
 
Return on average assets
 
1.32
 %
 
1.34
%
 
(0.31
)%
 
1.28
%
 
0.71
%
Return on average equity
 
13.19
 %
 
13.44
%
 
(3.02
)%
 
12.92
%
 
7.00
%
Net interest margin
 
3.21
 %
 
3.14
%
 
3.20
 %
 
3.16
%
 
3.19
%
Non-performing loans to total loans
 
0.48
 %
 
0.65
%
 
0.73
 %
 
0.48
%
 
0.73
%
Non-performing assets to total assets
 
0.34
 %
 
0.46
%
 
0.50
 %
 
0.34
%
 
0.50
%
Annualized net (recoveries) charge-offs to average loans
 
(0.16
)%
 
0.07
%
 
0.07
 %
 
0.01
%
 
0.07
%
Tier I leverage capital ratio
 
9.53
 %
 
9.42
%
 
9.07
 %
 
9.53
%
 
9.07
%
Total risk-based capital ratio
 
14.36
 %
 
14.55
%
 
14.14
 %
 
14.36
%
 
14.14
%
Per Share Data
 
 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.90

 
$
0.90

 
$
(0.20
)
 
$
3.40

 
$
1.83

Diluted earnings per share
 
$
0.89

 
$
0.90

 
$
(0.20
)
 
$
3.39

 
$
1.82

Cash dividends declared per share
 
$
0.30

 
$
0.30

 
$
0.25

 
$
1.15

 
$
0.94

Book value per share
 
$
27.95

 
$
26.79

 
$
25.99

 
$
27.95

 
$
25.99

Weighted average number of common shares outstanding
 
15,589,310

 
15,580,782

 
15,521,447

 
15,571,387

 
15,509,665

Diluted weighted average number of common shares outstanding
 
15,646,540

 
15,638,986

 
15,521,447

 
15,626,303

 
15,588,347

Non-GAAP Measures(1)
 
 
 
 
 
 
 
 
 
 
Adjusted net income
 
$
13,977

 
$
14,057

 
$
11,090

 
$
53,071

 
$
42,739

Adjusted return on average assets
 
1.32
 %
 
1.34
%
 
1.09
 %
 
1.28
%
 
1.07
%
Adjusted return on average equity
 
13.19
 %
 
13.44
%
 
10.56
 %
 
12.92
%
 
10.51
%
Adjusted return on average tangible equity
 
17.43
 %
 
17.84
%
 
14.20
 %
 
17.22
%
 
14.35
%
Tangible common equity ratio
 
8.02
 %
 
7.74
%
 
7.66
 %
 
8.02
%
 
7.66
%
Tangible book value per share
 
$
21.61

 
$
20.31

 
$
19.57

 
$
21.61

 
$
19.57

Adjusted diluted earnings per share
 
$
0.89

 
$
0.90

 
$
0.71

 
$
3.39

 
$
2.73

Efficiency ratio
 
56.50
 %
 
57.33
%
 
57.75
 %
 
57.71
%
 
57.05
%
(1)
Please see "Reconciliation of non-GAAP to GAAP Financial Measures (unaudited)."


6

Consolidated Statements of Condition Data
(unaudited)
 
 
 
 
 
 
 
(In thousands, except number of shares)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
ASSETS
 
 

 
 
 
 

Cash and due from banks
 
$
52,240

 
$
48,124

 
$
44,057

Interest-bearing deposits in other banks
 
14,759

 
50,218

 
58,914

Total cash, cash equivalents and restricted cash
 
66,999

 
98,342

 
102,971

Investments:
 
 

 
 
 
 

Available-for-sale securities, at fair value(1)
 
910,692

 
869,626

 
789,899

Held-to-maturity securities, at amortized cost (fair value of $1,291, $1,267 and $94,913, respectively)(1)
 
1,307

 
1,308

 
94,073

Other investments
 
14,679

 
16,901

 
23,670

Total investments
 
926,678

 
887,835

 
907,642

Loans held for sale, at fair value (book value of $4,315, $10,188 and $8,065, respectively)
 
4,403

 
10,158

 
8,103

Loans:
 
 
 
 
 
 
Commercial real estate
 
1,269,533

 
1,215,979

 
1,164,023

Residential real estate
 
992,866

 
941,488

 
858,369

Commercial(2)
 
415,436

 
405,666

 
418,520

Consumer and home equity
 
348,387

 
345,710

 
341,527

Total loans
 
3,026,222

 
2,908,843

 
2,782,439

      Less: allowance for loan losses
 
(24,712
)
 
(23,526
)
 
(24,171
)
       Net loans
 
3,001,510

 
2,885,317

 
2,758,268

Goodwill
 
94,697

 
94,697

 
94,697

Other intangible assets
 
4,230

 
4,411

 
4,955

Bank-owned life insurance
 
89,919

 
89,312

 
87,489

Premises and equipment, net
 
42,495

 
41,277

 
41,891

Deferred tax assets
 
23,053

 
26,241

 
22,776

Other assets
 
43,451

 
52,155

 
36,606

Total assets
 
$
4,297,435

 
$
4,189,745

 
$
4,065,398

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 
 
 

Liabilities
 
 

 
 
 
 

Deposits:
 
 

 
 
 
 

Non-interest checking
 
$
592,781

 
$
564,113

 
$
478,643

Interest checking
 
927,321

 
932,972

 
855,570

Savings and money market
 
1,137,356

 
996,790

 
985,508

Certificates of deposit
 
443,912

 
446,414

 
475,010

Brokered deposits
 
363,104

 
280,466

 
205,760

Total deposits
 
3,464,474

 
3,220,755

 
3,000,491

Short-term borrowings
 
270,868

 
409,732

 
541,796

Long-term borrowings
 
11,580

 
10,738

 
10,791

Subordinated debentures
 
59,067

 
59,028

 
58,911

Accrued interest and other liabilities
 
55,621

 
73,806

 
49,996

Total liabilities
 
3,861,610

 
3,774,059

 
3,661,985

Shareholders’ equity
 
435,825

 
415,686

 
403,413

Total liabilities and shareholders’ equity
 
$
4,297,435

 
$
4,189,745

 
$
4,065,398

(1)
In the fourth quarter of 2018, the Company adopted ASU 2017-12, effective January 1, 2018, and transferred its qualifying held-to maturity debt securities to available-for-sale securities.
(2)
Includes the HPFC loan portfolio.


7

Consolidated Statements of Income Data
(unaudited)
 
 
For The
Three Months Ended
(In thousands, except per share data)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
Interest Income
 
 

 
 
 
 

Interest and fees on loans
 
$
34,532

 
$
32,813

 
$
29,728

Interest on U.S. government and sponsored enterprise obligations (taxable)
 
4,708

 
4,408

 
4,091

Interest on state and political subdivision obligations (nontaxable)
 
659

 
659

 
685

Interest on deposits in other banks and other investments
 
554

 
677

 
536

Total interest income
 
40,453

 
38,557

 
35,040

Interest Expense
 
 

 
 

 
 

Interest on deposits
 
6,650

 
5,255

 
3,243

Interest on borrowings
 
1,357

 
2,021

 
1,283

Interest on subordinated debentures
 
859

 
858

 
855

Total interest expense
 
8,866

 
8,134

 
5,381

Net interest income
 
31,587

 
30,423

 
29,659

Provision for credit losses
 
7

 
354

 
238

Net interest income after provision for credit losses
 
31,580

 
30,069

 
29,421

Non-Interest Income
 
 

 
 

 
 

Debit card income
 
2,839

 
2,173

 
2,192

Service charges on deposit accounts
 
1,984

 
1,910

 
1,897

Mortgage banking income, net
 
1,156

 
1,758

 
1,797

Income from fiduciary services
 
1,347

 
1,339

 
1,277

Brokerage and insurance commissions
 
665

 
615

 
546

Bank-owned life insurance
 
607

 
606

 
620

Other service charges and fees
 
516

 
596

 
471

Net (loss) gain on sale of securities
 
(420
)
 
664

 
28

Other income
 
785

 
731

 
1,012

Total non-interest income
 
9,479

 
10,392

 
9,840

Non-Interest Expense
 
 

 
 
 
 

Salaries and employee benefits
 
13,080

 
13,143

 
12,869

Furniture, equipment and data processing
 
2,649

 
2,575

 
2,690

Net occupancy costs
 
1,764

 
1,614

 
1,650

Consulting and professional fees
 
874

 
958

 
706

Debit card expense
 
841

 
833

 
721

Regulatory assessments
 
490

 
447

 
559

Other real estate owned and collection costs, net
 
370

 
239

 
413

Amortization of intangible assets
 
181

 
182

 
392

Other expenses
 
3,331

 
3,175

 
3,099

Total non-interest expense
 
23,580

 
23,166

 
23,099

Income before income tax expense
 
17,479

 
17,295

 
16,162

Income Tax Expense
 
3,502

 
3,238

 
19,335

Net income (loss)
 
$
13,977

 
$
14,057

 
$
(3,173
)
Per Share Data:
 
 

 
 
 
 

Basic earnings per share
 
$
0.90

 
$
0.90

 
$
(0.20
)
Diluted earnings per share
 
$
0.89

 
$
0.90

 
$
(0.20
)


8

Consolidated Statements of Income Data
(unaudited)
 
 
Year Ended
 December 31,
(In thousands, except per share data)
 
2018
 
2017
Interest Income
 
 
 
 
Interest and fees on loans
 
$
128,546

 
$
114,563

Interest on U.S. government and sponsored enterprise obligations (taxable)
 
17,727

 
16,879

Interest on state and political subdivision obligations (nontaxable)
 
2,648

 
2,764

Interest on deposits in other banks and other investments
 
2,456

 
1,898

Total interest income
 
151,377

 
136,104

Interest Expense
 
 

 
 

Interest on deposits
 
20,113

 
11,811

Interest on borrowings
 
7,456

 
5,585

Interest on subordinated debentures
 
3,415

 
3,408

Total interest expense
 
30,984

 
20,804

Net interest income
 
120,393

 
115,300

Provision for credit losses
 
847

 
3,035

Net interest income after provision for credit losses
 
119,546

 
112,265

Non-Interest Income
 
 

 
 

Debit card income
 
9,067

 
8,079

Service charges on deposit accounts
 
7,663

 
7,529

Mortgage banking income, net
 
5,914

 
7,363

Income from fiduciary services
 
5,376

 
5,108

Brokerage and insurance commissions
 
2,615

 
2,147

Bank-owned life insurance
 
2,430

 
2,370

Other service charges and fees
 
2,080

 
2,029

Net gain on sale of securities
 
275

 
855

Other income
 
2,756

 
3,119

Total non-interest income
 
38,176

 
38,599

Non-Interest Expense
 
 

 
 

Salaries and employee benefits
 
51,513

 
49,109

Furniture, equipment and data processing
 
10,359

 
9,894

Net occupancy costs
 
6,876

 
6,884

Consulting and professional fees
 
3,752

 
3,118

Debit card expense
 
3,180

 
2,755

Regulatory assessments
 
1,937

 
2,166

Other real estate owned and collection costs, net
 
935

 
971

Amortization of intangible assets
 
725

 
1,809

Other expenses
 
12,668

 
11,804

Total non-interest expense
 
91,945

 
88,510

Income before income tax expense
 
65,777

 
62,354

Income Tax Expense
 
12,706

 
33,878

Net income
 
$
53,071

 
$
28,476

Per Share Data:
 
 

 
 

Basic earnings per share
 
$
3.40

 
$
1.83

Diluted earnings per share
 
$
3.39

 
$
1.82





9

Quarterly Average Balance and Yield/Rate Analysis
(unaudited)
 
 
Average Balance
 
Yield/Rate
 
 
For the Three Months Ended
 
For the Three Months Ended
(In thousands)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits in other banks(1)
 
$
24,620

 
$
45,824

 
$
49,826

 
1.57
%
 
1.85
%
 
1.11
%
Securities - taxable
 
830,097

 
826,541

 
811,006

 
2.49
%
 
2.36
%
 
2.21
%
Securities - nontaxable(2)
 
97,192

 
97,775

 
101,371

 
3.43
%
 
3.41
%
 
4.16
%
Loans(3):
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
1,230,791

 
1,198,677

 
1,153,842

 
4.60
%
 
4.46
%
 
4.15
%
Residential real estate
 
973,124

 
934,029

 
861,658

 
4.29
%
 
4.16
%
 
4.15
%
Commercial(2)
 
364,253

 
351,980

 
343,921

 
4.50
%
 
4.56
%
 
4.12
%
Consumer and home equity
 
346,494

 
344,740

 
343,942

 
5.36
%
 
5.16
%
 
4.54
%
HPFC
 
35,163

 
38,356

 
46,565

 
7.66
%
 
7.64
%
 
8.14
%
Municipal(2)
 
17,520

 
24,603

 
18,442

 
3.28
%
 
3.06
%
 
3.73
%
Total loans 
 
2,967,345

 
2,892,385

 
2,768,370

 
4.60
%
 
4.49
%
 
4.26
%
Total interest-earning assets(1)
 
3,919,254

 
3,862,525

 
3,730,573

 
4.11
%
 
3.97
%
 
3.77
%
Other assets(1)
 
294,178

 
301,489

 
308,523

 
 
 
 
 
 
Total assets
 
$
4,213,432

 
$
4,164,014

 
$
4,039,096

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities & Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest checking
 
$
577,177

 
$
517,651

 
$
486,753

 
—
%
 
—
%
 
—
%
Interest checking
 
941,439

 
865,012

 
824,247

 
0.80
%
 
0.54
%
 
0.28
%
Savings
 
483,651

 
483,577

 
497,929

 
0.06
%
 
0.06
%
 
0.06
%
Money market
 
553,785

 
512,650

 
489,426

 
1.07
%
 
0.89
%
 
0.58
%
Certificates of deposit
 
444,769

 
481,059

 
490,779

 
1.26
%
 
1.18
%
 
0.90
%
Total deposits
 
3,000,821

 
2,859,949

 
2,789,134

 
0.65
%
 
0.53
%
 
0.36
%
Borrowings:
 
 
 
 
 
 
 
 
 
 
 
 
Brokered deposits
 
307,559

 
272,471

 
217,328

 
2.28
%
 
2.07
%
 
1.35
%
Customer repurchase agreements
 
265,675

 
244,189

 
254,529

 
1.22
%
 
1.08
%
 
0.50
%
Subordinated debentures
 
59,048

 
59,009

 
58,892

 
5.77
%
 
5.77
%
 
5.76
%
Other borrowings
 
93,181

 
249,341

 
257,420

 
2.29
%
 
2.16
%
 
1.48
%
Total borrowings
 
725,463

 
825,010

 
788,169

 
2.18
%
 
2.07
%
 
1.45
%
Total funding liabilities
 
3,726,284

 
3,684,959

 
3,577,303

 
0.94
%
 
0.88
%
 
0.60
%
Other liabilities
 
66,805

 
64,119

 
44,979

 
 
 
 
 
 
Shareholders' equity
 
420,343

 
414,936

 
416,814

 
 
 
 
 
 
Total liabilities & shareholders' equity
 
$
4,213,432

 
$
4,164,014

 
$
4,039,096

 
 
 
 
 
 
Net interest rate spread (fully-taxable equivalent)(1)
 
3.17
%
 
3.09
%
 
3.17
%
Net interest margin (fully-taxable equivalent)(1)
 
3.21
%
 
3.14
%
 
3.20
%
Net interest margin (fully-taxable equivalent), excluding fair value mark accretion and collection of previously charged-off acquired loans(1)(4)
 
3.14
%
 
3.09
%
 
3.13
%
(1)
Average balance for the three months ended December 31, 2017, was revised to include average interest-bearing deposits in other banks in total average interest-earning assets.
(2) Reported on tax-equivalent basis calculated using the corporate federal income tax rate in effect for the period, including certain commercial loans.
(3) 
Non-accrual loans and loans held for sale are included in total average loans.
(4) Excludes the impact of the fair value mark accretion on loans and certificates of deposit generated in purchase accounting and collection of previously charged-off acquired loans for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, totaling $686,000, $434,000 and $689,000, respectively.

10

Year-to-Date Average Balance and Yield/Rate Analysis
(unaudited)
 
 
Average Balance
 
Yield/Rate
 
 
For the Year Ended
 
For the Year Ended
(In thousands)
 
December 31,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Assets
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
Interest-bearing deposits in other banks(1)
 
$
45,155

 
$
40,611

 
1.62
%
 
1.06
%
Securities - taxable
 
829,462

 
$
826,749

 
2.35
%
 
2.22
%
Securities - nontaxable(2)
 
98,128

 
101,898

 
3.42
%
 
4.17
%
Loans(3):
 
 
 
 
 
 
 
 
Commercial real estate
 
1,195,544

 
1,120,591

 
4.47
%
 
4.11
%
Residential real estate
 
913,593

 
838,781

 
4.19
%
 
4.12
%
Commercial(2)
 
354,508

 
336,685

 
4.50
%
 
4.21
%
Consumer and home equity
 
343,292

 
343,457

 
5.08
%
 
4.45
%
HPFC
 
39,588

 
52,031

 
7.89
%
 
8.53
%
Municipal(2)
 
20,361

 
19,428

 
3.18
%
 
3.43
%
Total loans 
 
2,866,886

 
2,710,973

 
4.49
%
 
4.25
%
Total interest-earning assets(1)
 
3,839,631

 
3,680,231

 
3.97
%
 
3.76
%
Other assets(1)
 
295,837

 
308,375

 
 
 
 
Total assets
 
$
4,135,468

 
$
3,988,606

 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities & Shareholders' Equity
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
Non-interest checking
 
$
503,287

 
$
430,706

 
—
%
 
—
%
Interest checking
 
870,125

 
750,543

 
0.55
%
 
0.21
%
Savings
 
485,986

 
492,483

 
0.06
%
 
0.06
%
Money market
 
515,590

 
480,119

 
0.87
%
 
0.52
%
Certificates of deposit
 
467,631

 
466,418

 
1.13
%
 
0.88
%
Total deposits
 
2,842,619

 
2,620,269

 
0.52
%
 
0.32
%
Borrowings:
 
 
 
 
 
 
 
 
Brokered deposits
 
264,711

 
296,261

 
1.98
%
 
1.13
%
Customer repurchase agreements
 
248,743

 
232,762

 
1.02
%
 
0.46
%
Subordinated debentures
 
58,990

 
58,834

 
5.79
%
 
5.79
%
Other borrowings
 
249,544

 
329,988

 
1.97
%
 
1.37
%
Total borrowings
 
821,988

 
917,845

 
1.96
%
 
1.35
%
Total funding liabilities
 
3,664,607

 
3,538,114

 
0.85
%
 
0.59
%
Other liabilities
 
60,106

 
43,864

 
 
 
 
Shareholders' equity
 
410,755

 
406,628

 
 
 
 
Total liabilities & shareholders' equity
 
$
4,135,468

 
$
3,988,606

 
 
 
 
Net interest rate spread (fully-taxable equivalent)(1)
 
3.12
%
 
3.17
%
Net interest margin (fully-taxable equivalent)(1)
 
3.16
%
 
3.19
%
Net interest margin (fully-taxable equivalent), excluding fair value mark accretion and collection of previously charged-off acquired loans(1)(4)
 
3.10
%
 
3.10
%
(1)
Average balance for the year ended December 31, 2017, was revised to include average interest-bearing deposits in other banks in total average interest-earning assets.
(2)
Reported on tax-equivalent basis calculated using the corporate federal income tax rate in effect for the period, including certain commercial loans.
(3)
Non-accrual loans and loans held for sale are included in total average loans.
(4)
Excludes the impact of the fair value mark accretion on loans and certificates of deposit generated in purchase accounting and collection of previously charged-off acquired loans for the years ended December 31, 2018 and 2017, totaling $2.3 million and $3.2 million, respectively.


11

Asset Quality Data
(unaudited)
(In thousands)
 
At or For The
Year Ended
December 31, 2018
 
At or For The
Nine Months Ended
September 30, 2018
 
At or For The
Six Months Ended
June 30, 2018
 
At or For The
Three Months Ended
March 31, 2018
 
At or For The
Year Ended
December 31, 2017
Non-accrual loans:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
5,492

 
$
4,720

 
$
5,742

 
$
6,185

 
$
4,979

Commercial real estate
 
1,380

 
5,517

 
5,600

 
4,603

 
5,642

Commercial 
 
1,279

 
2,402

 
1,934

 
1,991

 
2,000

Consumer
 
1,861

 
1,647

 
1,700

 
1,464

 
1,650

HPFC
 
518

 
591

 
834

 
655

 
1,043

Total non-accrual loans
 
10,530

 
14,877

 
15,810

 
14,898

 
15,314

Loans 90 days past due and accruing
 
14

 
14

 
—

 
—

 
—

   Accruing troubled-debt restructured loans not included above
 
3,893

 
4,039

 
4,000

 
4,361

 
5,012

Total non-performing loans
 
14,437

 
18,930

 
19,810

 
19,259

 
20,326

Other real estate owned
 
130

 
185

 
130

 
130

 
130

Total non-performing assets
 
$
14,567

 
$
19,115

 
$
19,940

 
$
19,389

 
$
20,456

Loans 30-89 days past due:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
$
4,833

 
$
3,816

 
$
2,222

 
$
2,777

 
$
5,277

Commercial real estate
 
2,130

 
574

 
309

 
1,121

 
1,135

Commercial 
 
169

 
723

 
1,490

 
243

 
518

Consumer
 
1,467

 
902

 
1,258

 
1,190

 
1,197

HPFC
 
183

 
1,078

 
455

 
528

 
887

Total loans 30-89 days past due
 
$
8,782

 
$
7,093

 
$
5,734

 
$
5,859

 
$
9,014

Allowance for loan losses at the beginning of the period
 
$
24,171

 
$
24,171

 
$
24,171

 
$
24,171

 
$
23,116

Provision (credit) for loan losses
 
845

 
845

 
490

 
(500
)
 
3,026

Charge-offs:
 
 
 
 
 
 
 
 
 
 
Residential real estate
 
173

 
231

 
116

 
31

 
482

Commercial real estate
 
512

 
512

 
512

 
426

 
124

Commercial 
 
736

 
448

 
298

 
171

 
1,014

Consumer 
 
572

 
451

 
266

 
175

 
558

HPFC
 
255

 
209

 
—

 
—

 
290

Total charge-offs 
 
2,248

 
1,851

 
1,192

 
803

 
2,468

Total recoveries 
 
(1,944
)
 
(361
)
 
(199
)
 
(122
)
 
(497
)
Net charge-offs
 
304

 
1,490

 
993

 
681

 
1,971

Allowance for loan losses at the end of the period
 
$
24,712

 
$
23,526

 
$
23,668

 
$
22,990

 
$
24,171

Components of allowance for credit losses:
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
$
24,712

 
$
23,526

 
$
23,668

 
$
22,990

 
$
24,171

Liability for unfunded credit commitments
 
22

 
15

 
16

 
23

 
20

Allowance for credit losses 
 
$
24,734

 
$
23,541

 
$
23,684

 
$
23,013

 
$
24,191

Ratios:
 
 
 
 
 
 
 
 
 
 
Non-performing loans to total loans
 
0.48
 %
 
0.65
%
 
0.69
%
 
0.69
%
 
0.73
%
Non-performing assets to total assets
 
0.34
 %
 
0.46
%
 
0.48
%
 
0.47
%
 
0.50
%
Allowance for loan losses to total loans
 
0.82
 %
 
0.81
%
 
0.83
%
 
0.82
%
 
0.87
%
Net (recoveries) charge-offs to average loans (annualized)
 
 
 
 
 
 
 
 
 
 
Quarter-to-date
 
(0.16
)%
 
0.07
%
 
0.04
%
 
0.10
%
 
0.07
%
Year-to-date
 
0.01
 %
 
0.07
%
 
0.07
%
 
0.10
%
 
0.07
%
Allowance for loan losses to non-performing loans
 
171.17
 %
 
124.28
%
 
119.48
%
 
119.37
%
 
118.92
%
Loans 30-89 days past due to total loans
 
0.29
 %
 
0.24
%
 
0.20
%
 
0.21
%
 
0.32
%


12

Reconciliation of non-GAAP to GAAP Financial Measures (unaudited)
Adjusted Net Income; Adjusted Diluted EPS; and Adjusted Return on Average Assets:
 
 
For the
Three Months Ended
 
For the
Year Ended
(In thousands, except per share data)
 
December 31,
 2018
 
September 30,
 2018
 
December 31,
 2017
 
December 31,
 2018
 
December 31,
 2017
Adjusted Net Income:
 
 
 
 
 
 
 
 
 
 
Net income (loss), as presented
 
$
13,977

 
$
14,057

 
$
(3,173
)
 
$
53,071

 
$
28,476

Add: impact of the revaluation of deferred tax assets and liabilities due to the Tax Act
 
—

 
—

 
14,263

 
—

 
14,263

Adjusted net income
 
$
13,977

 
$
14,057

 
$
11,090

 
$
53,071

 
$
42,739

Adjusted Diluted EPS:
 
 
 
 
 
 
 
 
 
 
Diluted EPS, as presented
 
$
0.89

 
$
0.90

 
$
(0.20
)
 
$
3.39

 
$
1.82

Add: impact of the revaluation of deferred tax assets and liabilities due to the Tax Act
 
—

 
—

 
0.91

 
—

 
0.91

Adjusted diluted EPS
 
$
0.89

 
$
0.90

 
$
0.71

 
$
3.39

 
$
2.73

Adjusted Return on Average Assets:
 
 
 
 
 
 
 
 
 
 
Return on average assets, as presented
 
1.32
%
 
1.34
%
 
(0.31
)%
 
1.28
%
 
0.71
%
Add: impact of the revaluation of deferred tax assets and liabilities due to the Tax Act
 
—
%
 
—
%
 
1.40
 %
 
—
%
 
0.36
%
Adjusted return on average assets
 
1.32
%
 
1.34
%
 
1.09
 %
 
1.28
%
 
1.07
%


Adjusted Return on Average Equity and Adjusted Return on Average Tangible Equity:
 
 
For the
Three Months Ended
 
For the
Year Ended
(In thousands)
 
December 31,
 2018
 
September 30,
 2018
 
December 31,
 2017
 
December 31,
 2018
 
December 31,
 2017
Net income (loss), as presented
 
$
13,977

 
$
14,057

 
$
(3,173
)
 
$
53,071

 
$
28,476

Add: impact of the revaluation of deferred tax assets and liabilities due to the Tax Act
 
—

 
—

 
14,263

 
—

 
14,263

Adjusted net income
 
13,977

 
14,057

 
11,090

 
53,071

 
42,739

Add: amortization of intangible assets, net of tax(1)
 
143

 
144

 
255

 
573

 
1,176

Adjusted tangible net income
 
$
14,120

 
$
14,201

 
$
11,345

 
$
53,644

 
$
43,915

Average equity, as presented
 
$
420,343

 
$
414,936

 
$
416,814

 
$
410,755

 
$
406,628

Less: average goodwill and other intangible assets
 
(99,015
)
 
(99,195
)
 
(99,823
)
 
(99,287
)
 
(100,513
)
Average tangible equity
 
$
321,328

 
$
315,741

 
$
316,991

 
$
311,468

 
$
306,115

Return on average equity
 
13.19
%
 
13.44
%
 
(3.02
)%
 
12.92
%
 
7.00
%
Adjusted return on average equity
 
13.19
%
 
13.44
%
 
10.56
 %
 
12.92
%
 
10.51
%
Adjusted return on average tangible equity
 
17.43
%
 
17.84
%
 
14.20
 %
 
17.22
%
 
14.35
%
(1)
Reported on a tax-equivalent basis using the corporate federal income tax rate in effect for the respective period.


13

Efficiency Ratio:
 
 
For the
Three Months Ended
 
For the
Year Ended
(In thousands)
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
 
December 31,
2018
 
December 31,
2017
Non-interest expense, as presented
 
$
23,580

 
$
23,166

 
$
23,099

 
$
91,945

 
$
88,510

Net interest income, as presented
 
$
31,587

 
$
30,423

 
$
29,659

 
$
120,393

 
$
115,300

Add: effect of tax-exempt income(1)
 
251

 
260

 
525

 
1,022

 
2,105

Non-interest income, as presented
 
9,479

 
10,392

 
9,840

 
38,176

 
38,599

Add: net loss (gain) on sale of securities
 
420

 
(664
)
 
(28
)
 
(275
)
 
(855
)
Adjusted net interest income plus non-interest income
 
$
41,737

 
$
40,411

 
$
39,996

 
$
159,316

 
$
155,149

GAAP efficiency ratio
 
57.42
%
 
56.76
%
 
58.48
%
 
57.98
%
 
57.51
%
Non-GAAP efficiency ratio
 
56.50
%
 
57.33
%
 
57.75
%
 
57.71
%
 
57.05
%
(1) Reported on a tax-equivalent basis using the corporate federal income tax rate in effect for the respective period.


Tangible Book Value Per Share and Tangible Common Equity Ratio:
 
 
December 31,
2018
 
September 30,
2018
 
December 31,
2017
(In thousands, except number of shares and per share data)
 
Tangible Book Value Per Share:
 
 
 
 
 
 
Shareholders' equity, as presented
 
$
435,825

 
$
415,686

 
$
403,413

Less: goodwill and other intangible assets
 
(98,927
)
 
(99,108
)
 
(99,652
)
Tangible shareholders' equity
 
$
336,898

 
$
316,578

 
$
303,761

Shares outstanding at period end
 
15,591,914

 
15,584,526

 
15,524,704

Tangible book value per share
 
$
21.61

 
$
20.31

 
$
19.57

Book value per share
 
$
27.95

 
$
26.67

 
$
25.99

Tangible Common Equity Ratio:
Total assets
 
$
4,297,435

 
$
4,189,745

 
$
4,065,398

Less: goodwill and other intangibles
 
(98,927
)
 
(99,108
)
 
(99,652
)
Tangible assets
 
$
4,198,508

 
$
4,090,637

 
$
3,965,746

Common equity ratio
 
10.14
%
 
9.92
%
 
9.92
%
Tangible common equity ratio
 
8.02
%
 
7.74
%
 
7.66
%









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