Q4 2019 Earnings Call
Cover Camden since 2015 early today. We announced record annual earnings for $29.
7.2 million dollars or $3.69 per diluted share and fourth quarter earnings of 15.2 million or $0.99 per diluted share Thursday. We're very pleased with our strong finished a 2019 which led to a return on average assets or 1.3% return on average Equity of 12.44% and a non-GAAP efficiency ratio under 56% that interest income increased 8% over 2018 and EPS was up 9%
Debbie will provide a deeper look into our financial performance, but I'd like to take a few moments to highlight some additional information during 2019. Our average loans grew 8% over 2018 while I'm deposits grew 14% over the similar time. This resulted in a loan deposit ratio of 87% which positions us very well against our Northern New England. Into and long growth 2% in 2019 due to elevated prepayments throughout the year our guidance for 2020 is still mid-single-digit loan growth a foam deposits will continue as we enjoy both the pricing and liquidity impact of the strong deposit base, but I'll repeat my caution from prior quarters that we do remain cautious as we see aggressive pricing on deposits particularly from competitors who have higher loan-to-deposit ratios and less liquidity than we do.
I'd like to
Share that our wealth manager group reached an important Milestone by achieving over 1 billion dollars of assets under management at December Thirty One 2019, when combined with assets administered by of Courage group, we oversee nearly 1.5 billion dollars of client assets behind the scenes that commercial retail wealth brokerage and treasury management teams working collaboratively to present Kim the Nationals whole set of products and services more importantly our analytical capabilities such as credit underwriting investment research combined wage technology capabilities because they students are strongly against competitors much larger than we are which complements our ability to position our decision-makers at the table with customers and Club.
Although we've seen great progress on many strategic runs. We have not not lost sight of asset quality as of December Thirty One 2019 non-performing assets reached a historical low of 0.25% of total assets and non-performing loans that were 0.36% of total loans. This is the result of a strong credit card culture starting with a wonders and working through underwriting teams equally as important are are the special assets and collection teams, who do a great job in those instances when our customers are behind on loan payments am unable to pay their loans.
You know.
Of the banks require to adopt a new accounting standard Cecil in the first quarter 2020 and continue to be very pleased with our work on Cecil up to this point and and our overall rating for adoption in the first quarter. We are currently working with our Auditors as they wrap up their their reviews and we fully expect to share the impact at the end of the first quarter our Capital 2019 was well in excess of regulatory Capital requirements as shown by our total risk-based Capital ratio of 14.44% and a tier 1 leverage ratio of 9.55% Our total common Equity was 8.66% which we failed positions us very well in the current environment with a strong Capital position. We were still able to walk over twenty point eight million dollars a capital through the repurchase of over four hundred eighty eight thousand shares of our stock during the year and pay $19 in cash dividend wage.
to our shareholders in 2019
In addition in the fourth quarter, we announced an increase in our quarterly dividend of $0.03 per share or 10% but it's most recent increase our payout ratio for the month was 33% and current yield was 2.86% based on last Friday's close of business stock price at book value per share ended the year and thirty $1.26 check up 12% or $27.95 at the end of 2018.
We announced last quarter that Debbie will be retiring on April 13th, 2020. We're currently working with a Prudence to find a replacement. But the goal of having the person on board just prior to Debbie's retirement home. I do want to thank Debbie for not only her service but working hard to make a smooth transition. And with that. I'd like to turn it over to Debbie to review our financial performance.
Dragon good afternoon, everyone. We are pleased to report strong fourth-quarter operating results with netting, fifteen point two million dollars a return on average assets of $1,000 percent and a return on tangible common Equity of 16.26% Net income increased 9% compared to the fourth quarter of 2018 with a growth of 8% in operating expenses up 5% in comparing results to the previous quarter. Net income increased $750,000 or 5% with our growth of 4% in a lower credit provision partially offset by a 4% increase in operating costs between periods on a linked quarter basis the income increased 1.2 million or 11% with growth in most categories plus an unrealized gain on Equity Securities of $866,000.
Mortgage Banking
Use declined almost five hundred thousand dollars between periods due to seasonality. However, we posted strong gains of 2.2 million for the quarter as we benefited from refinance activity. Our mortgage pipeline at December 31st was $90 compared to $135 million at September thirtieth net interest income grew 316000 or 1% from the previous quarter with a 3 basis point increase in our net interest. Margin to 3.12% The margin expansion was the result of a 14 Volt this point decline in funding costs from the third quarter while the asset yield decreased 9 basis points or 12% 12 basis-point decline when excluding loan prepayment, we were able to lower funding costs to 94 basis points for the fourth quarter due to changes in rates and funding mix overall borrowing costs declined twenty basis points reflect. Yep.
the cuts in the FED funds rate
Total deposit cost decreased 8 basis points when the repricing of index deposits and active management of exception pricing. We also experienced our typical deposit season wage and flow with average checking accounts growing 3% between the third and fourth quarter, which allowed us to reduce higher cost of borrowing. We are extremely happy to have margin expansion during the fourth quarter. However, we maintain our Outlook of margin compression and two twenty20 Camden National remains asset-sensitive and the ability to reprice deposit slower May to do the market competition total loans outstanding of 3.1 billion dollars declined slightly from September 30th with the portfolio decreasing 1% in the back home equity balance is declining 3% This was partially offset by growth in the residential portfolio of 1% It's Greg mentioned elevated prepayments has impacted my life.
of the year
Operating expenses of 24.8 million dollars for the fourth quarter increased 4% compared to the previous quarter primarily due to an increase in incentive compensation associated with succeeding budget expectations for the year on a non-GAAP efficiency ratio for the quarter reached 55.64% as disclosed in our earnings release. We will be closing agent banking centers in April of 2020 current employees at these locations will be redeployed into surrounding banking centers and will be integral to the customer transition zone. No annual basis this translates to a reduction in operating expenses of approximately 1 million dollars that concludes our comments on the fourth quarter results. We're now happy to open it up for questions. Thank you.
Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your phone set before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.
Our first question comes from Daman Daman with KBW, please go ahead. Hey, good afternoon, guys, how you doing today? Good gaming home. So first question is want to talk a little bit about the margin, you know Debbie in your prepared remarks you indicated you expect some pressure likely as we go through 2020. Can you put a little framework around around that as far as you know, how much you're You're Expecting and maybe a range of that sure and glad to hear your voice Damon. We had a great day fourth quarter on margin and it did exceed expectation part of it was the prepayment income that was recorded in the fourth quarter. And so that was about a 3 basis-point left off. But even with that we did have a slight increase in our margin between quarters, you know, we have as we talked about in the past the seasonality of our deposit base wage.
or really strong
And we were we were fairly aggressive on the exception pricing of readjusting some of our preferred pricing down. So very happy with our management of the cost of funds, We look at the first quarter. We expect about a 5% outflow of deposits. So we'll have shifting from checking accounts into you know, borrowed funds and wage so that certainly impacts the margin for the first and second quarter of each year. I you know, my my tank is will be down around 3:05 3 0 6 months for the first half of next year this year. Okay. Great.
Okay, that's helpful. Thank you. And then with regards to the three branches that are being closed believe you said in April that goes into effect so we can kind of build in some of those cost savings start in the second quarter. And would that just be in the occupancy line or how should we think about modeling that?
Yeah, I would build it instantly in the lot of part of the second quarter occupancy Personnel. There's seven employees in those banking centers. Now, they will be filling vacant positions that are in other locations. And so certainly in the Personnel cost line. They'll be a reduction in run rate as well. Okay, great. I can just squeeze one more and just kind of broadly on the loan Outlook. You know, where are you seeing the the best opportunities in your footprint for for growth right now? Sure I'll take that Damon. You know, we're still seeing it, you know, obviously it's oriented in in Southern Maine and New Hampshire. Some of that is due to just the the economy in that part. It's tends to be stronger than than north of Portland. But also we've hired some lenders in there that have done extremely. Well, the other part of it is is dead.
we've been
Doing hiring focusing on my lenders as well. So we do get a little bit of a product diversification coming through there with that said, you know, we've had some good years and our bank or Market probably had one of our stronger years lending wise Lewiston-Auburn also had a a good 2019 and then in Midcoast, I'll be there. We have a much higher market share, but that's held up real well, so it was it was one of these same time periods of you know, every everything was kind of
You know focused and doing the right things, you know that did temper the prepayments. We expect the same thing to continue in 2020, you know, our goal is to have all markets are important to us and to get more than our fair share of any growth. It's up there grape. Okay. That's all that he'll step out for now. Appreciate the call every thank you. Thank you.
Our next question comes from William Wallace with Raymond James, please go ahead thanks for taking my call. Good afternoon, Greg Debbie Molly. Maybe just to follow up on the last line of questioning. You know, your loans are actually down in the second half of the year what gives you confidence that I'm assuming there's payoff pressure. That's that's driving that I I'm just curious what gives you confidence in the mid single-digit guide for 2020. Is there anything you're seeing that gives you confidence in your outlook page that prepays will decline or that production will accelerate. Well, it's
You know, I won't say it's necessarily on the prepayments declining cuz you know, they'll still pretty steady because of the interest rate cycle. I I think it's really just as we're expanding and developing the talent that we have in the lending staff as well as in our underwriting capabilities it it gives us that Focus the economy and what we're seeing in activity so we can pick that up and and cover what's being prepaid and then some albeit not that any year is easy, but it's it's it will be tougher off point.
Wally
I I hope we see a prepayment settle down a little bit. Cuz when we look at fourth quarter CPR both on the side and and the residential side where in the 20,000 historically it's around 15 each and so my hope is we'll see some of these larger transactions came through and certainly impact that rate we had record Mortgage originations in 2019, and we're still investing in that and new lenders on the mortgage side and the presiding we actually had strong origination. So I think his record origination in the free side too. So continuing to do more of that with a little relief on the outside. Okay, and then if you take a look Debbie to the commentary you said around that interest margin you you said 305-3006 just in in the first half of the year the next 2 quarters or so, you'll start to get wage.
deposits back which
You think that there's a decent chance that you could see a bottom in the first half of the year and then assuming the FED is on pause and then some expansion in the second half as you get the the deposits back and can shift your funding mix a little bit Yeah. Typically we would see that the one caution that and Greg and I both referenced it is the competitive environment wage would be the one wild card but normally yes, we would see that lift in the first the second half of the year. We've been successful at hope we continue to be successful to manage the pricing down.
Okay, and it's good to see that you identified some opportunity in the branch Network are there is I think you said based on I can't remember reading in the press release a an analysis or something of the of the network. Is there is there more work being done around the branch Network to to find Opportunities or or do you feel like you've you kind of identify the opportunities for now with these three?
It is that you know, we do it on a more continuous basis. So obviously, you know, these three were the ones that that we landed on for this round and as we've discussed before summer Wally is dependent upon you know lease is expiring. It could be even looking at the staff. I'll be at with this one. All of them will be redeployed in the franchise. So we take all of those factors in so on on one hand, you know, I do want to stress. It's something that we're always looking at buying tuning majoring those things, you know here they're more on the list but on the other hand, I I don't want to and sometimes this is more internally as well as for communities that you know, there's there's so many others that are kind of on the bubble here because then you get staff and communities and customers waiting for the other shoe to drop. So we typically just say look this is what what is obvious to us now dead.
We'll do this and we'll keep looking.
And if something becomes obvious will announce it at that time.
Okay. Thank you for that color. I'll step out and let somebody else ask you a question. Thanks. Thank you.
again, if you have questions, please press * then 1
as there are no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Greg before for any closing remarks. Great. Well. Thank you all for pretending to call your interest in Camden National again, you know Wally and his team and and here from Jake next quarter. When his travel Iraq is it but as well as Damon, we do appreciate the coverage that we have. It's important not only to us but obviously to our shareholders and and keeps everybody on their toes and having good choice questions. Other than that, I just want to congratulate the Camden National Team for really putting in a great effort. I can't I can't overemphasize of these results are really the hard work of many people.
whether they're on the front lines or
Support areas or Finance asking, you know the tough questions and pushing things forward and Underwriters. It's a true team effort and and reflecting on that. We did also announce that we took $750 bonus to all non-executive non Senior Management employees and and recognition and and sharing the success of the company with them and Thursday. It's going over very well today here at the company, but that thank you all and look forward to chatting with you over the next quarter.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.