Q2 2020 Camden National Corp Earnings Call
Materially from those in such forward looking statements I guess scrap in the Companys earnings press release, the company's 29 <unk> annual report on form 10-K.
I live far away well see the company does not undertake any obligation to update any forward looking statements to reflect circumstances or fab.
After the forward looking statements made.
Referenced in todays presentation to non-GAAP financial measures are intended to provide meaningful insight and reconciled with GAAP and get press release.
Today's call centers that Greg Dufour, President Chief Executive Officer, and Greg Right Executive Vice President Chief Financial Officer. Please note that this event is being recorded.
I would like to turn the conference over to Greg just for please go ahead Sir.
Thank you Kate and I want to welcome everyone to 10, the National Corporation's earnings Conference call for the second quarter.
I hope that you when you loved ones are safe and healthy.
Earlier today, we reported second quarter net income of $10.9 million or 17% below the second quarter 20, my team and diluted earnings per share 73 cents for 14% below the same period last year.
On a year to date basis, net income was $24.4 million, 11% below prior year levels, Oh diluted earnings per share were dollar 60% to 80% below the first six months 2019.
I'm more positive note our pretax pre provision earnings of $23.1 million second quarter 2020 was the increase of 5.4 million over the second quarter 2019, demonstrating the underlying operations or the company.
This performance was driven by higher provision for loan losses increased revenues from mortgage banking and revenues from our participation in the PPP program.
Our CFO, Greg the White, who you met last quarter, what provides additional detail into our performance in a moment I'd like to provide some additional insights as well.
Camden National delayed its adoption Cecil has a lot by the cures act so usually incurred loss model to determine the reported allowance for credit losses, resulting provision expense year to date. However, we have run both Cecil any incurred loss loss model in parallel and provide additional discussion in <unk>.
Supplemental investor package on what our allowance for credit losses.
Potentially have been addressed Cecil.
We expect to provide even more discussion in our 10-Q, Greg will also elaborate on this in his comments.
I'd like to switch gears, a discuss a few other items before turning the call over to Greg.
We're closely monitoring economic conditions nationally regionally and locally.
I mean, it's taken a stronger stance regarding opening up public places such as restaurants, and hotels, which is negatively impacting the tourist season.
But at the same time incidence of new covert 19 cases, a favorable when compared to many other areas of the country.
This is stressing our hospitality loan portfolio in retail customers. However by utilizing the flexibility afforded to us under the care Sac and regulatory guidance, our special asset and lending teams have been able to work with impacted customers over to provide temporary relief well avoiding a ramifications of trouble.
Debt restructuring accounting.
Through June 30, we have seen strong residential mortgage volumes from both a refinance and purchase side and although commercial demand is down we've been involved in a reviewing several request.
In both cases, when very cautious or a credit perspective, and we'll continue our strong underwriting standards, which are enhanced by even stronger due diligence requirements.
Kevin National is also taking a majored approach in our return to working at our offices.
Our retail banking centers are open, but our operating on a reduced hours, while we have not seen a full monkey out of those centers being completely open we're estimating a second quarter banking traffic is down 20% from last years levels, well digital banking activity is up 33% and call center volumes are up.
69%.
Our investments in technology and digital digital based products over the past several years have provided a strong foundation and resource base to adapt when new environment.
Finally, I want to share that like many of you. Another companies. We watch was sympathy the various events over the past several weeks regarding racial injustice to.
The board of directors and management have reaffirmed our employees that we do not discriminate no tolerate discrimination based on race gender sexual orientation religion or any other biased.
Our basis.
We've always taken steps to educate our employees in communities and we're developing even more opportunities to improve inclusiveness.
As a community bank, we understand and have reaffirmed that one of our most important roles is to ensure we provide banking services and products to all members of our communities.
I'd like to now turn our discussion over to Greg White, our executive Vice President and Chief Financial Officer.
Thank you Greg good afternoon, everyone.
Again my name is Greg why I had been the CFO of Camden National a little over three months now and I'm really excited to be a part of this team.
With that said, let me just jumping into the second quarter results.
So despite a 9.4 million dollar provision expense, which I will comment on further in a moment, we had a strong second quarter on a pretax pre provision earnings.
Basis, we were up 4.4 million or 24% on a linked quarter basis, and as Greg do Forman trend up 5.4 million or 31 per cent compared to the same quarter last year.
The growth in our pretax pre provision earnings was primarily driven by a 9% increase in our net interest income in the second quarter 2020, compared to both linked and prior year quarters.
Net income was up 2.7 million and the second quarter of 2020 compared to last quarter. It up 3 million compared to the second quarter of 2019.
Net interest margin for the second quarter was up three basis points to 3.11 per cent compared to three away in the first quarter due to very effective cost of funds management strategies and this low interest rate environment.
Which resulted in a 42 basis point decrease in our cost of funds on a linked quarter basis.
Net interest margin for the second quarter 2020 was flat compared to the prior prior year quarter at 3.11 per side.
Assuming interest rates stay around the current levels, we do expect our margin to have downward pressure and we estimate our fourth quarter net interest margin will decline to approximately three to three or 5%.
During the fourth quarter.
Total loans grew by 5% or 168 million during the second quarter 2020.
Excluding the 2000 219 million in growth.
From the P.P.P. loans or loans were down 51 million or 2% since March 31st of this year.
Total deposits were up 12% or 433 million during the quarter. Despite our CD book declining by 21% were 114 million as a part of our bonds management strategy.
Noninterest bearing checking was up 33% or 176 million during the quarter.
Again net income for the second quarter 2020 was down 17% to 10.9 million and diluted earnings per share was down 14% to 73 cents per share.
Compared to the same quarter a year ago that decrease was driven by provision expense of 9.4 million during the second quarter due to the economic environment created by the pandemic compared to 1.2 million for the second quarter at 2019.
Our return on assets was 90 basis points for the second quarter 2020.
And our return on average tangible common equity was 11.9%.
As mentioned in our first quarter 2020 earnings release, we opted not to implement Cecil during the first quarter up this year.
Under the terms other carriers that we will now implements Cecil during the first during the fourth quarter or this year or during the third quarter, if that covert 19 national emergency is lifted during the third quarter.
Under the incurred loss reserve methodology and as mentioned previously we recorded a 9.4 million dollar provision expense for the second quarter a 2020.
Which resulted in a 23 basis point increase in our allowance for loan losses to 1.07% of loans up from 84 basis points at the end of last quarter.
If we back out P.P.P. loans from our allowance for loan our allowance for loan losses stood at 1.14% of loans.
We're on that basis up 30 basis points during the second quarter compare to the first quarter.
As noted in the earnings release, we implemented.
So.
Hi, I'm, sorry, excuse me as noted in the earnings release had we implemented Cecil early this year, we estimate that as a June 30, if our allowance for credit losses, what a band between 1.20, you had 1.32% of total loan.
Including the P.P.P. loans.
Given relatively stable nonperforming loan numbers on a linked quarter basis, 0.34% of total loans at June 30, compared <unk>, 0.33%, a total loans at March 31st.
Our coverage ratio up reserves to nonperforming loans increased to 3.11 times at June Thirtyth from 2.57 times at March 31st.
Net charge offs were five basis points of average loans for both the first and second quarters of 2020.
We have provided additional information on our differ or deferred loan program on page 12 of the supplemental deck that we provided with our earnings release, including an update on balances of deferred bonds as of July 23rd.
At June Thirtyth, our total deferred loans were 400 and were 547 million or 16% of total walls and as of July 23rd total long deferments, including 68 million a read deferred loans.
Was 351 million or 11% of total loans.
We continue to work with certain customers that have returned back to their original loan terms. It may possibly again redifer their loan payments in full and part.
We continue to have a strong capital position and there was more detail on capital and the supplemental information that was provided with the earnings release.
From a regulatory capital perspective, we may remain well above regulatory minimums are total risk based capital ratio increased 75 basis points during the second quarter to 14.56% from 13.81% at the end of the first quarter in our tier.
One risk based capital ratio increased by 45 basis points during the quarter to 13.01% to from 12.56% at the ended the first quarter.
Due to balance sheet growth, our tangible common equity did drop a little bit during the quarter. It was 8.41% as at June Thirtyth.
Lastly, I'm happy to report our tangible book value per share was up 92 cents during the second quarter 2020.
It was at 27.31 at the ended the quarter.
That concludes our comments on the second quarter, we'll now open the call up for questions. Thanks.
Thank you we will now begin the question and answer session to ask a question you made press Star then one on your Touchstone.
So if you're using to speakerphone. Please pick up your handset before passing the keys to withdraw your question. Please press Star then too.
Hi move a pause momentarily to assemble a roster.
Our first question comes from Damon demand.
The Montana from KBW go ahead.
Hey, Good afternoon, guys has gone today, good David How're you doing good walkman welcome aboard Greg.
You're welcome so out my my first question just wanted to touch on expenses, a little bit you know they came in coming down on a linked quarter basis and I know you identified a couple of those drivers can just talk a little bit about the go forward outlook.
For expenses, then would you expect some of those okapi theater related costs to come back into the expense base in the third quarter.
We would think expenses in the third quarter should be similar to the second quarter expenses.
Beyond that it's a difficult to predict but you know.
If you had a best yes for the fourth quarter, maybe up slightly but third quarter, probably similar to second quarter here.
Got it okay.
And then with respect to the loan deferrals you guys know said this and I missed it but what do you see in the way of kinda that round to request from from borrowers to extend that another 90 days.
A damian actually let me back up on expenses a little bit.
The the one thing is there.
Total compensation expense might increase slightly but with that said it's possible that total expense number is similar to the second quarter.
But maybe adding a half million dollars to that number.
It's probably inappropriate estimate.
Got it okay.
So on on the loan referrals Damon what I would you know really say what we're seeing is when we originally started doing deferrals. We're just doing it 90 day primarily.
A basis out of the allow will want to 80, so we're still in the midst of.
Really relooking at that first wave if you will and what we're seeing is you know some borrowers are still you know looking to get a call. It that another 90 days some were working with more of a loan modification approach some of that's driven not only by.
By what we want to do but also we're asking our.
Borrowers, who do want loan modifications for a lot more information.
And take more of a negotiation approach to going beyond that second 90 day traunch.
But when they do a they are looking for you know interest only really type of thing.
You know, we have returned some two or well billing status and.
You know, we're working with them to make sure that are those warming current and within the the long terms.
Got it okay.
And then with regard to you know your outlook for provision, obviously, a very challenging.
Component income statement that the forecast, but when you look at the build than the reserve level this quarter or do you feel like this was kinda like step one of a process that will continue for the next couple of quarters.
Or do you feel you know get given your underlying.
You know strength of your credit in your portfolio that you're you're comfortable at this level.
I would <unk> Damon and that's why it you know in the supplemental package, we've addressed what Cecil would be so we kind of makes it.
You know a big change because were alluding to.
I would see so on a seasonal basis, you know, we gave a range of $40 million to $44 million or what the the allowance for credit losses would be compared to the 35.6 million suggest from Cecil we expect that to happen.
So it's kinda I would say the big change will come from adoption Cecil.
And we will play out on called the loan portfolio looks quarter by quarter.
Right. Okay, and then just back my last question just could you just give us a little update on kind of how the tourism season is going across southern Maine and other areas of your new England footprint.
Yeah, well, obviously, a you know the state as I mentioned has taken a very strict approach to reopening.
Yeah, I think that's allowed you know good numbers from recorded infection perspective, the impact has been to tourism and it's been very slow.
However, in the past a few weeks, where the governance did open up.
Tourism and loosening the quarantine restrictions for residents are some states, we have seen an uptick starting but that's probably a couple of weeks old we're seeing some people who are now coming to the summer homes and an increase in the activity towards building up a little more each day, but we're not expecting it to.
Call in August of 2020, they'd be like what August 2019 will be.
Got it Okay, Oh, that's all that thanks, a lot for taking my question.
Thanks.
Our next question is from Jake Civiello from Jamie go ahead.
Hey, good afternoon guys.
Hi, Jason.
Kinda wanted to start on the the investment securities portfolio. So that end of period balance was up almost 10% over the first quarter can you talk a little bit about the timing yield and duration of any new securities purchases in the corner.
Yeah. So I mean that in part is because of all liquidity build up.
Batsmen or certainly earning more than cash.
And kinda drove the the variance there originally the bank had extended duration earlier in this year.
Given the possibility of long rates coming down.
And that is still happening to some extent the yield is now and kind of that low one to.
1.5%, but it is not our goal to build investments from here Oh, you could almost look at that is a little bit in lieu of loans short term, we do have a lot of cash flow coming off the investment portfolio over the next.
12 months.
That's a quick summary, yeah, and if you look at our you know the targeted duration in the quarters four to six years.
And so.
You know that.
In this stage of what we're seeing that's probably a pretty decent target range that we find palatable and we're still throwing off $15 million to $20 million cash flow off the portfolio.
Okay that makes sense and it sounds like the.
Decline in the securities portfolio balances over the course of the next 12 months, what kind of coincide with what I would expect your decline in deposit balances would be as as as P. P. P kind of deposits are.
Forgiveness transpires and they exit the bank because that is that kind of whats the thought process is.
You know if it was solely based off PPP I'd agree with you check on that but we are seeing overall depositors customers no maintaining higher balances and all and I think.
It is because you all are well aware many banks are seeing that as well. So thanks for building up liquidity you know at this point in a in the situation that we're in.
So we're we're balancing that out we'll be looking to hold probably more mortgages or residential mortgage productivity than.
Then we potentially have in the past those are some of the tools that are levers that we can pull going forward.
Okay, I'm kind of kind of on that latter topic in terms of mortgage banking revenue.
You mean sounds like.
You kind of have some confidence in the sustainability of mortgage banking revenue in the second half a year or is that am I am I interpreting that correctly.
What I would say is you know we are seeing a big inflow. Our pipelines are you know at record levels from refined purchase activity.
You know that's driven by all kinds of different factors from low interest rates to read by a we are seeing.
Purchasing activity going on.
Some from people on core metropolitan areas looking to come to main especially now that the realized they can work remotely from anywhere in their searching up a quality alike.
Whether that's sustainable.
The interest rate environment will be sustainable however, at some point everyone to refinance.
That happens without a mortgage activity, that's all dependent on the real estate market.
That makes sense.
Nest, if I can if I could just asked a couple of questions about ppt yeah. Yeah. What are your total P.P.P. fees that you expect Jersey.
That is approximately $7 million.
Okay.
And then of the 226 million in in PPP loans that you booked.
What percentage do you anticipate would be forgiven or I guess, another way of asking would be how much do you anticipate would potentially remain on the books for the full term or I guess, what at least through 2021.
You know the short answer is we hope none of them remain on the books, meaning that they are forgiven.
But that.
We're probably going to know a lot more over the next.
Eight months here.
To be able answer that that he's on point.
A lot of what we've done is you know obviously with Maine.
Don't have the percentages, we can get back to on that on ones that are below $150000 and that will be driven by you know obviously.
You know.
Whatever's passed in Congress and signed by the President.
You know obviously, we hope you Morse forgiven in easily forgiven that.
Really is better on our call it operational throughput.
So a that that's going to play out over the next a.
A few weeks I I guess in months or if they're not on the ones that aren't forgiven.
The other thing on the revenues just kinda.
Come back and then put a finer point on it we recognize 7 million of season in total will have a point 4 million.
Got it okay.
And the.
The the the margin number that Greg White mentioned for the fourth quarter is that excluding PPP fees that you're assuming.
There is still a little residual.
In that range.
There is some is not excluding.
Okay.
Okay.
And this isn't my my last question I realize this is in the weeks a little bit. So we might have to follow up at some that's come later date, but do you happen to know what the that the customer overlap is that received some level of deferral and then also received Oh, well PD lone.
I.
We'd have to get back on that I I don't know that answer.
Okay. I also follow up at some point later, but thanks for the time I appreciate it I.
My pleasure.
Again, if you have a Christian please press Star then one.
Oh, sorry, I have no further questions. This concludes our question and answer session I would like to turn the conference back over to Greg Dufour for closing remarks.
Well.
First of all thank you okay. Thank you Damon and Jay for your questions and all other people that are on the line.
Maybe just a message to leave with you is that.
Really this performance, especially when you look at our pretax pre provision of performance a when you look at the sheer amount of work that has been done whether it's through PPP owned deferrals.
Moving customers around from going more digital our call centers, it's really successful because of our employees here and I just want to publicly thank all of them. These folks are working out.
Major hours a many from their kitchen tables, all were trying to balance.
Kids, who don't have school a day care to go to we're asking a lot from our employees and we're really proud of.
The effort that they put in the results the driven with that we look forward to one continuing the discussion as time goes on and again I hope everyone stay safe and healthy happened today.
The conference has now concluded. Thank you for attending todays presentation you may now disconnect.