Q3 2019 Earnings Call

The presentation, we will be conducting a question answer session. If you require operator assistance at any time during the call. Please press Star then zero <unk>.

Please note that this presentation contains forward looking statements, which involve significant risks and uncertainties that may cause actual results to vary materially from those projected in the forward looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in such forward. Looking statements are described in the company's earnings press release. The Companys 2018 annual report on Form 10-K , and other filings with the FCC.

The company does not undertake any obligation to update any forward looking statements to reflect circumstances or events that occur. After the forward looking statements are made any references in today's presentation to non-GAAP financial measure measures are intended to provide meaningful insights and are reconciled with GAAP in your press release today's.

Centers are Greg do for President Chief Executive Officer, and director and Deborah Jordan Executive Vice President Chief Operating Officer, and Chief Financial Officer. Please also note that this event is being recorded.

At this time I would like to turn the conference over to Greg do for please go ahead Sir.

Good afternoon. Welcome earlier today, we released our third quarter 2019 earnings of 14, and a half million dollars, which reflected a 3% increase over a third quarter 2018 earnings.

Earnings per diluted share reached 94 cents for the quarter, a 4% increase over he asked for the third quarter 2018.

The performance ratios for the quarter were strong with return on average assets of 1.29% return on average equity of 12.26% and non-GAAP efficiency ratio of 55.32%.

On a year to date basis net income totaled $42 million, 7% increase over the same time period last year and diluted earnings per share reached $2.70, 8% increase over that same time period.

Last quarter I expressed caution regarding various pricing strategies were experiencing in our markets. We still remain cautious regarding the competitive pricing for loans and deposits as well as what we're seeing in loan structure. Our focus remains as it always has been a long term performance of our company.

Well the past several years, we've discussed areas strategic efforts, we've undertaken including our focus on deposits small business lending and shareholder performance.

I'm pleased to share that over the past few months. We've reached several milestones are received recognition for our work.

In those areas.

Our focus on deposits as confirmed by the June 32019, FDIC summary of deposit reports, which shows came to national 11.4% deposit market share Cross main the largest of any main based bank.

We've been recognized by both the finance authority of Maine in the small business administration.

Business lending programs, we've been named a large financial institution of the year by the Finance authority of main for 2019 and 10th year in a row proceeding that recognition.

Also this quarter. The main district of this small business as administration has named Camden National Its 2019 SP A district Director Award recipient.

Finally during the quarter can the national was named to Sandler O'neill small stars list of 2019 were 130 publicly traded banks in thrifts out of 400 in our size class and the only bank headquartered in new England to be recognized.

Kim to National is thrilled to be selected Sandler O'neill Award.

From amongst the highest performing institutions nationwide to testament to this access for our major balanced approach and to the outstanding dedication of our talented employees.

Based on our consistently strong performance in confidence we have in our business going forward.

We returned over $31 million, a capital to our shareholders through the repurchase of over 400000 shares of our common stock.

And paid $14 million dividends through the first nine months of this year.

Before I turn the discussion over to Debbie I want to recognize and thank her for 11 years of service company.

Last Friday, Debbie announced their intention to retire in April 2000, 20-F, 27 years and banking.

Her contributions came the national is significant and deeply appreciated to say the least.

Im pleased that you'll be with us for a transition period.

I expect to engage our we have engaged I should say a recruiting from Russell Reynolds to assist us in the search for the Chief Financial Officer position and Debbie's remaining responsibilities will be assessed in the context the appropriate needs of the organization over the next several weeks I'd like to now turn it over to Debbie.

Good afternoon, everyone as Greg mentioned, we're pleased with our third quarter results with net income up 3% over the same period last year due to strong loan and deposit growth.

When comparing results to the previous quarter net income of $14.5 million increased $1.3 million or 10% due to revenue growth of 3% combined with lower levels of loan loss provision and operating expenses.

On a linked quarter basis revenue increased $1.1 million, primarily due to a nice pickup in mortgage activity, which drove an increase in mortgage banking fees of $926000 between quarters, our mortgage pipeline at September Thirtyth reached $135 million, which includes.

From the refinancing activity.

Net interest income grew $350000 from the previous quarter with average loan growth of 1% between periods and average checking balance growth of 5%, primarily due to seasonality of our customer base.

Our net interest margin declined two basis points between periods with our asset yields declined seven basis points in our funding costs decreasing five basis points.

The company's average cost of deposits was 0.85% for the third quarter, representing a one basis point decline on a linked quarter basis.

Deposit rates on interest checking and savings accounts re priced lower between periods Reds rates trended a little higher for money market and certificates of deposit we anticipate lower rates across all deposit categories in the fourth quarter, both us index deposits reprice and through active management of deposit.

Option pricing.

We experienced modest loan growth during the quarter of $10.3 million with residential mortgages being up $26.1 million for the quarter, while commercial real estate and commercial loans were down for the quarter by $16.3 million year to date loans have grown 3% led by residential mortgages.

Commercial real estate loans are down 1% year to date, largely due to elevated prepayments we experienced in the first quarter of the share prepayment speeds for the last two quarters have normalized on the commercial real estate side.

Although we continue to review commercial real estate deals, we are being more selective on our appetite for certain transactions. We've been believe now's. The time to maintain what has historically served us well, our strong credit and disciplined pricing culture.

And providing net interest margin expectations for 2020, our objective is to maintain a net interest margin of 3%.

To accomplish this we will continue to be disciplined with our loan and deposit pricing.

Our focus continues to be on profitable growth to drive long term sustainable shareholder value.

Means being more selective for growth opportunities.

Although we experienced a higher level of loan charge offs in the third quarter asset quality remains very strong with nonperforming assets of $13.5 million or just 0.3.

30% of total assets at September Thirtyth.

For the nine month period, our annual charged off rate of seven basis points is consistent with the same level as a year ago.

Operating expenses of $23.7 million for the third quarter declined 1% compared to the previous quarter as we benefited from the FDIC assessment credit on our third quarter fees like many other qualifying community banks, we anticipate future FDIC assessment credits in coming quarters should the.

Depository insurance fund continue to exceed its required ratio.

That concludes our comments on the third quarter results on a personal now I want to follow up on my retirement announcement last week I'm very excited for the next phase of my life I've been fortunate to work for Great company with great people and I'm very confident of the company's continued success well now open the call is up for questions. Thank you.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone keypad. If you are using speakerphone. Please pick up your handset before pressing the keys.

Withdraw your question. Please press Star then too.

Our first question comes from Damon Delmonte with KBW.

Hey, good afternoon, guys has gone today.

Good day and how are you good thanks for asking my question first off congrats Debbie.

Your your announcement I know, we'll be talking over the next few months, but just wanted to actually say congratulations and I wish you all the best Thanks Devin.

So first question I had.

We've talked little bit about the margin in kind of your expectations for.

I know you said your goal is to keep it above 3% as you go into 2020, but could you talk little bit about the dynamics of repricing opportunities on the deposit side and the pressures you're feeling on the assets that.

Sure I'd be happy too and we were joking before the call whether I'm really actually allowed to forecast for next year some cycle here, but I'll I'll take a stab and Greg can jump in so.

You know the margin typically as you know our deposits cycle, we have a high level seasonality in the last half of the year and so we usually have a higher net interest margin.

On the back half of each year, we did see.

A slight decline and margin between quarters and you know last quarter I was hoping that we could maintain it. So we were down two basis points.

Part of it is the level cash that we have on the balance sheet as of September thirtyth.

Part of that relates to derivatives and how we have to post cash collateral and Jeff the deposit inflow that we received.

The fourth quarter.

Were working pretty aggressively on the deposit exception pricing side. We had we had were assuming the fed funds get.

It dropped again in October .

And you know our goal is with pricing maybe a one to two basis point decline and the fourth quarter.

Really depending on.

What we can do on the cash side of things.

The loan side, you know although Cree.

Prepayments slowed down and the third quarter, what we did see is elevation on the residential mortgage side.

The CPR really doubled in the second and third quarter compared to the first quarter. So.

Our challenges we're going to continue to have cash flow come at us whether it's on the investment or the loan side getting reinvested that lower rates.

We do.

The funding side have some offset capability, we have brokered deposits that we will be repricing.

Shortly and then continue to manage.

CD Certex deposit on the short end and bring those rates down and then managing exception pricing further and then more importantly, growing checking accounts, we have a strong treasury management function, we've been very successful and attracting.

Business accounts and to the extent, we can have continued to have that success that should also help us with the margin it's going to be a challenge next year, though.

Got it Okay. That's helpful. I appreciate the color.

And then with regard to expenses you alluded to the potential of having a FDIC assessment credits again next quarter and potentially probably carrying into 2020.

How should we think about the overall expense base next quarter.

That component of it.

You know I had provided guidance that I've thought for the entire year 19, we'd be at 24 million I still think will you know 24 million minus 300000.

It is probably where we'll land for the fourth quarter.

Okay and then.

From a modeling standpoint here you guys kind of have around what four or 500000 per quarter and FDIC costs is that correct.

While we received a credit on 300000.

And so.

I would build that in.

Just the 300000 okay.

Got it Okay, and then question for Greg on on the loan growth outlook.

You kind of reiterated your you're cautious outlook with the pricing in terms of.

Some of the competition in the marketplace, how do we think about overall loan growth as we when we go through the last quarter and and into 2020.

Yeah, I typically say that were in the mid single digit range.

Loan growth and I would say probably that but with a caution and probably on the lower end of.

That mid single digit range.

From that is purely a.

Risk reward tradeoff.

We are seeing is really aggressive pricing.

And we we want to be cautious on on how much it fixed rate.

Asset we put on our books, even though we do have capacity, but at some point, we've got to make sure we're doing the right thing.

Which we will do for high quality credits were seeing some extension.

You know when the loan structuring actually amortization is a stretching out especially increase.

We're probably a passing quarters, it's gone from.

We'd be looking 20 to 25 year amortization is now we're seeing 25 to 30.

Even some rumors are going above 30.

And and that.

That's causing us pause, but it's the block and tackling banking that we got to refocus on the higher credit quality customers and there we have flexibility in pricing and then.

And ones that we take more risk, we just want to be compensated for that more risk.

Got it got it okay.

I'll step out first second and see if anybody else is a has a question for now thank you.

Again, if you have questions. Please press Star then one.

As we have no further questions. This concludes our question answer session I would like to turn the conference back over to Greg do for for any closing remarks.

Great well again I want to thank everybody on the call for your interest in Camden National Your support as there are several investors there as well.

Just to reinforce I want to think Debbie very much has been a real trusted advisor and partner not just to me, but everybody throughout the company really fortunate that.

She will be here until April 2020, So we'll have a smooth transition between now and then.

And we will keep you all posted as that progressive.

Thank you all very much and have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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