Q4 2020 Camden National Corp Earnings Call

Good day and welcome to the Camden National Corporation's fourth quarter, 'twenty and 'twenty earnings Conference call. My name is Tom and I will be your operator for today's call.

All participants will be in a listen only mode. During today's presentation.

Following the presentation, we will conduct a question and answer session.

If you require and operator during this call. Please press star and then zero to be connected.

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 and the forward looking statements additional.

Information concerning factors that could cause actual results to differ materially from those and such forward. Looking statements are described in the company's earnings press release, the company's 2019 of annual report on form 10-K, and other filings with the S. E C.

The company does not undertake any obligation to update any forward looking statements to reflect the circumstances or events that occur. After the forward looking statements are made.

Any references and today's presentation of two non G. A a P financial measures are intended to provide meaningful insights and are reconciled which with G. A a P and your press release todays.

Today's presenters are Greg do for President and Chief Executive Officer, and Greg White Executive Vice President and Chief Financial Officer. Please note that this event is being recorded.

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

Great. Thank you, Tom and good afternoon, and welcome to Camden National Corporation's fourth quarter and year end 2020 earnings call.

Earlier today, we announced that we achieved record earnings and 2020 of $59 $5 million or $3.95 per diluted share.

Greg White will provide an overview of our performance and a few minutes, but I'd like to just take.

A few moments to provide my perspective on our financial performance and positioning for 'twenty and 'twenty one.

Our yearend results demonstrate our strong asset quality position and equally as important the strength of our allowance for loan losses, we adopted the current expected credit loss of Cecil accounting standard during the quarter effective January one 'twenty 'twenty.

I'll point out that we were coughing there on our second quarter provision for credit losses of $9 $4 million per reflect both the impact of the pandemic and Cecil adoption.

This was proved out as our fourth quarter provision of $258000 resulted in the allowance to loan ratio of 1.18% at December 31, 2020, confirming our actions we're on target and that we are adequately prepared for 'twenty and 'twenty one.

Our asset quality metrics also reflect our preparedness.

Many of you were tracking of deferred loans and the ended the year and a negligible 0.8% of total loans compared to five 5% at September 32020, and 16, 4% at June 30, 'twenty and 'twenty.

This decrease across periods of occurred without seeing a migration to nonperforming status and past due status or charge offs.

Nonperforming assets were only zero point, and two 2% of total assets and past due loans for zero point of 1% of the total loans at year end, while net charge offs for the year, which is two basis points of average loans.

With that said, we continue to monitor economic and asset quality indicators of 'twenty 'twenty one.

COVID-19, and the ability to vaccinate people will be critical health and economic factors for the nation and our markets.

Our teams are on constant contact with our borrowers and commercial customers, which provides us insight into the local economies and it helps us determine how to be proactive if a borrower a commercial customer facing financial difficulties.

Our team kicked off the next round of PPP lending on January 19th and through the end of last weeks last week. We had received 495 applications of which about 92% were second request.

Since the first round of PPP loans, we've strengthened our technology and deepened our training for our staff as well as our remaining confident that we'll be positioned to help our customers through this process.

While we're proud of our strong financial performance during 'twenty and 'twenty, we understand many businesses and people have not had the same experience this past year I.

And I believe our efforts and deferring payments on many loans and participating and the P. P. P program speak the car where concern as Willie as well as our willingness to help our customers and their time of need.

We've supported many community organizations and dressing needs such as homelessness and victims of domestic violence.

We've also supported our hard working employees, including those who work with the public and our banking centers to ensure a safe and healthy work environment.

Finally, our donations commodity led an effort well we've made donations to community organizations, where our employees volunteered their time and expertise during 2020. These funds.

The more than 50, local non profits and our market areas.

It's now my pleasure to turn over the discussion of our CFO, Greg White, who will provide further insights to our financial performance.

Great.

Thank you, Greg and good afternoon, everyone. It's.

And as Greg mentioned, we had record earnings last year and I'm happy to report the fourth quarter was a record as well our fourth quarter return on tangible common equity exceeded 17% and our diluted earnings per share was $1.22 compared to 99 cents and the fourth quarter of two.

And of 19, which is a 23% increase period over period.

On a linked quarter basis, our diluted earnings per share increased 10% compared to $1.11 and the third quarter of 'twenty and 'twenty.

During the fourth quarter, our board of directors approved a dividend of <unk> 33 cents, which is a 27% payout ratio and we continued to repurchase shares opportunistically, while growing and strengthening our capital position.

Our total risk based capital ratio increased by 25 basis points during the quarter to 15, 4% from 15.15% at September 30th.

We had strong tangible book value per share growth during the quarter, increasing 3% or 82 cents to $28.96 from $28.14 as of the end of the third quarter.

Our net interest margin increased to three point O six for the fourth quarter from 3% the prior quarter, but adjusting for the impact of both P. P. P loan income and excess liquidity on margin declined slightly to 2.99% from 3.0 of 3% on that basis.

Quarter over quarter.

We continue to focus on driving down our cost of deposits and our overall cost of funds, which declined by six and five basis points respectively.

Excluding P. P. P loans total loans at December 31, 2020 were flat compared to December 31 2019.

But were up 4% annualized during the fourth quarter much of that quarterly growth occurred and the commercial real estate portfolio, which grew out of 11% on an annualized basis during the quarter.

Average total deposits grew by $465 million or 14% compared to the fourth quarter 2019, while average noninterest bearing checking grew by $242 million or 43% during the same period.

During the fourth quarter, despite $44 million of time deposit run off total average deposits grew by $42 million or 4% annualized and average noninterest bearing checking grew by 59 million or 32% on an annualized basis.

Asset quality remained strong with nonperforming loans to total loans at point of three 3%.

At the end of.

At the end of the quarter down one basis point from the end of the third quarter.

And down from 0.36% at the end of 2019.

We also had annualized net recoveries of two basis points of average loans during the fourth quarter and net charge offs for the full year were two basis points of average loans.

During the fourth quarter, we adopted the Cecil with and effective date of January one 2020.

Our total provision for credit losses for the quarter was 258000 and our allowance for loan losses, excluding PPP loans at December 31, 2020 was 1.23 per cent compared to 1.19% at the end of the third quarter and 0.81% at.

December 31 2019.

Our coverage ratio of reserves to nonperforming loans increased to three six times at December 31, 2020 up from three three times at September 32020, and two three times at December 31 2019.

Lastly, we have provided additional information on our deferred loans on page nine of the supplemental deck that we provided with our earnings release as of December 31, 2020, our loans remaining on sharp short term deferrals were $26.5 million, whereas Greg do for my mention Paul.

8% of total loans down from $181 million or 5.5 per cent of loans as of September 30th.

That concludes our comments on the fourth quarter, we will now open up the call for questions. Thank you.

Thank you we will now begin the question answer session.

To ask a question you May press Star and then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star and then two.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Damon Delmonte with K B W. Please go ahead.

Hey, good afternoon, guys hows it going on today.

Good day, and How're you doing what are you doing the good thing good.

So first question on just wanted to talk a little bit about the margin on you know Greg you gave some color on on the core margin I think you had said basically the decline from like three or three last quarter to $2 99, when you kind of strip out.

Couple of a couple of items and there Directionally, we know where what are you. What are you thinking at this point of view you feel that you've kind of reached the bottom or do you think that theres still going to be additional pressure on the on the asset side.

Are there the there could be a little bit more pressure on the little more asset yield compression and.

With that said, we might get a little help from the mix our investment portfolio grow a pretty significantly last year, we don't necessarily expect that this year.

You know certainly.

And.

If you look and the average balance table cash and liquidity was higher on an average balance basis in Q4 than Q3, but on a spot that basis was quite a bit lower at the end of the year than the end of the third quarter. So certainly that speaks to a little bit less of the liquidity drag as we enter the new year here.

For.

David and I I think it's also worth mentioning.

And our cost of funds came down five basis points last quarter six of the quarter before so we're still working hard and and have some opportunity to offset a little bit of that asset compression. If in fact, it does continue a little bit here.

Got it okay.

And then and the way about loan growth you know I think excluding the P. P. P. AR balances there you know you're looking at about 4% linked quarter annualized growth here on the fourth quarter, how are the pipeline and working on the commercial side and Oh, what would what are the thoughts and you go into 'twenty and 'twenty. One do you think that sentiment has improved.

And with your with your borrowers and would you expect them to be.

More of quote and the market for for for for more borrowings.

Sure I can take that one and it's Greg do for and Damon, Yes, we have over the past quarter or two seen our commercial loan pipeline buildup.

And we're getting pleased to it.

And I would say it's.

It's probably approaching maybe not the high peaks pre COVID-19, but but you know pretty and the much and the solid average of what we normally see.

And you know looking out next year.

And you know we're call it cautiously optimistic.

That Oh, you know the pipeline should hold up and our balances and growth should hold up.

And.

You know and its so we're expecting really kind of of a good solid year that way.

On the residential side, we're still seeing a lot of activity, obviously that you know.

It will drive both the gain.

Gain on sales as well as those are.

The mortgages that we may choose to hold.

So and in a way where.

Like I said optimistic about the next year.

Got it okay, Great and then just one final question on on the expense side, Greg can you give a little color on the you know the the higher comp costs this quarter and kind of what that means.

For the run rate going forward in 'twenty and 'twenty one.

Yeah sure David.

So obviously the most of that comp expense was incentive base. So you know had a strong year. So we did add quite a bit and the fourth quarter for the bonus accrual and typically we don't like to give too specific of guidance, but in this case, there has been a little bit of noise.

On the expense side. So I think for Q1 of this year kind of a reasonable range for total expenses in that 24, and a half the 25 million $25 million on the high side 24, and a half on the LOE is a reasonable starting point for for.

And you and others.

Got it okay. That's helpful.

So all of that I had for now I'll step back. Thank you very much.

Thank you Dan and thank them.

Our next question comes from William Wallace with Raymond James. Please go ahead.

Thanks, Good afternoon, good credit.

Good. Thank you maybe just kind of following up on that last question.

It seems across the industry and there's a lot of commentary about how the pandemic and and work from home has changed how not only retail but commercial customers are using the branch.

Assuming that's the same in in Maine is there opportunity with your branch network too.

And maybe.

Accelerate consolidation opportunities and and could that 24 and a half the 25 million.

The expense range could there be a potential levers for that to even decline.

Or for perhaps at least the offset any kind of natural pressures from reinvesting in the businesses and inflation et cetera.

Greg do you want to kick off.

Yep.

Yeah sure.

You know I I guess.

You know I I.

First of all reference if you look we did.

The closed three branches in April of 'twenty and 'twenty beef.

And obviously the pandemic was going on at that point, but that analysis was done pre pandemic.

I guess the point Wally as the bank has always look and rationalize cost and.

Those branches were either unprofitable or work.

You know low profitability I should say you know so that's kind of I E.

A good way to think about Camden National Bank I think is.

Always what.

With that said I'd also add debt.

You know.

We're very.

Focused on the efficiency ratio and and.

Both components revenue and expense side, making sure that that.

You know it doesn't go much beyond the.

Mid 50 ish type of level so yes.

Yeah, maybe maybe if I can jump in a little bit and and Wally I think we agree with what you're saying and what a lot of other organizations doing and announcing.

Our branch closures and that's one aspect of it and I will point out in addition to what Greg said of you know call. It our track record of constantly looking at our branches and trimming when we can.

You know as I looked at some of those other announcements, especially when you get on those larger organizations, they're dealing with a high concentration of branches you know a lot of overlap whether it's within a couple of miles or not.

You know the main geography doesn't give us call at those somewhat you know more logical choices to make that if we have two branches within five miles of each other to go through that analysis and ours tend to be spread out a little bit more of.

Albeit you know we always look at those opportunities where we can.

And you know gain efficiency by call it closing of branch and.

And maintaining a high level of retention of those customers.

The other aspect, though is we are seeing is all the organizations a lot more customer behavior.

Going into the digital channels.

We're really focused on not only call.

All of it expanding on that and deepening that with our customers, but also making investments and it to make sure that we're keeping pace with what our customers want and more importantly, what some of the bigger organizations can do and the great News is we're starting with a great.

Platform, that's driven by Q2 E banking for us. So we're looking forward to that and that will help US again further worked into call. It the calculus of what do we do with this branch network that we have the.

The final piece of it that is.

Somewhat more interesting is as we're looking at return to work and we're still.

And our non banking staffing level on non in person and branches were probably still about 80 per cent of the remaining employees were working remotely and those 20% may range from being in the office five days of week towards the little as one day of week, and we're tracking that quite a bit and as you can tell we're operating really well.

Well when we put up these results.

As time goes on and that will allow us to really like.

A lot of organizations banking and elsewhere.

What what does our work force look like and that I think is going to be the interesting one where we look at call. It on non banking of non branch.

Locations and say what is our real estate needs there and can we reduce that fixed cost that's built into the system of you know running offices and et cetera, I think all of that you know and some of those things that we're looking at are there on the table.

You know we have teams of people are considering that.

Now with that said a lot of variables to go in there, especially with.

You know I would call. It just the COVID-19 vaccination impact so we're not prepared to say here's the estimate of the upside for all of those things but.

And at least we have them and the scope of what we're looking on strategically.

Okay, all right I appreciate all of that commentary.

I believe you said in your prepared remarks that you'd taken of fleet. I think you said 92 applications of the most recent round of the P. P. P. What's the dollar amount of those and and ultimately where do you think you could shake out.

Oh, yeah and actually.

And I think it was 495 applications I don't have the install and number off the top of my head.

And 90% of those are give or take were.

The second draws.

You know actually right now and <unk> and.

And somebody just whispered in my ear.

Is $40 million of applications, so far we have.

Right now, it's really kind of hard to gauge of what we expect the total volume to be we do know, it's starting off I won't say slower because I think part of it as well.

We're ready for PPP the SBA is.

More importantly customers are so theres not call it that huge rush that we saw a little less than a year ago on the first round of PPP.

You know we're prepared to do a lot more volume but of course it comes down to what we're going to see from our customers, but we're proactively going out there reaching out to our existing customers with PPP and and double checking to make sure.

They're looking at the records and case, you want to come in for a second draw and.

And we can't forget at the same time, we got to work through some of forgiveness on the first round is going through so the the teams involved there relatively busy for quite a while.

Okay.

And then last and I see you continue to buy some.

Shares during the quarter.

As the stock is at still at levels that you would consider attractive to utilize repurchases as the capital management tool and and if so.

How do you think about maybe target or where you say, you're you have excess capital or just kind of how do you manage that part of the equation.

Yeah, we really don't.

Well, you know give a call it an indication of you'll see of what what value. We think we're at with and and like any bank CEO of any public company CEO and my socks always undervalued no matter what level, we're at right.

We do have parameters that we institute that program on.

On that for you know all of the great reasons are confidential and I will say when you look at our capital we are holding a lot more I would call. It at this point and the dry powder phase as we're trying to see things.

Play out economically.

From all of the factors that we all know about I will say when you look the overtime, we have a pretty good track record of.

Maintaining our capital levels. So this institution stays strong, but also redeploying that back to shareholders either through.

The dividends through repurchases or.

Other things that we've done over the spectrum of years of you know at least I had been here.

So it's something that we constantly looked at I will say from call. It and inside perspective, we do have a committee of the board that is the capital Committee. So that's something that the.

The board is playing an active role and as how we manage those capital levels.

Thanks, Greg and I'll, let someone else asked the question Youre.

You're welcome thank you.

As a quick reminder, if you have a question press star and then one to be joined into the queue.

Our next question comes from Jake Civvy yellow with Janney. Please go ahead.

Hi, good afternoon guys.

Afternoon.

First question is that you referenced mortgage banking being really strong and the quarter.

Do you have the breakdown of refi versus purchase for the fourth quarter and mortgage originations.

Okay.

Let me see if we can and gather that while we're on the phone I don't have it at my fingertips, Jake, but I will point out our debt.

Debt the activity was strong we reached the $1 billion of mortgage of volume within that.

And have that specific.

The breakout right now, but I would say the vast majority of that.

You're a good majority of that was refi. However, we have seen and as you know of.

And being in the main market that the purchase activity was significant but there may be something that we can come back and get out to you. All so you know.

Okay and I appreciate that thanks.

And then thus far in the and the first quarter in January with.

And with the move in the 10 year to of over 1% have you noticed any demands and for specifically for mortgage refis.

You know I was just chatting with Trish rose who runs our.

E V P of retail banking and mortgages and we are still.

At a fever pitch. So we haven't seen of a big drop off of that but you know as you know it's all it's of lag, we're probably still working through.

You know stuff that was coming through the latter part of the year, but it continues to pick up on us and so it's a pretty strong market still for us.

That's good to hear.

Yes.

One more yeah.

Just one more one more question for me.

And the economic environment stays on it on the same trajectory or on a similar trajectory through the rest of the 2021 could you envision releasing reserves at some point during the year.

And sorry, if I'm laughing because.

You're talking to and old Baker, who has been you know here, probably doing and banking 30 plus years and.

Under the incurred model and prior models.

You know that would be and easier answer right now that's all driven by seasonal now that we're on that which as you know is driven by.

You know economic factors and outlooks and what have you I will say with that said.

The model does give us flexibility to look at.

You know different factors specific factors, especially as we drive into the data on a very <unk>.

Industry segments that we have.

So I guess my best answer would be Jake is when when we have an opportunity to release and that aligns up with our longer term view and we.

We will release of when those indicators say that we need to be.

You know is fortunate and somebody just shocked.

<unk> me and note that in the fourth quarter on residential mortgage activity, 45% was was refi. So a lot lower then and what we expected for the volume level.

So it's good because of the rest of it 55 of us purchase which is the.

No great business to have.

Yeah, most of the most definitely I mean I guess.

One last question would be on.

To that last point do you think you're taking market share or are these the existing customers that you're the ear, garnering new business for them.

Hum.

I think we're well I know were gaining new customers through that and I would say and when.

And you look at the numbers.

You know, we're the third largest mortgage volume producer.

By the accounts that we have and so that's pretty steady for what we've been having however, when you look at and the other list.

They like everybody else and Ed.

For the market you're seeing.

Non banks getting a bigger market share, especially our digital base lenders as well.

And so that's something that's part of the competition that wasn't there a few years ago and we're fortunate we have our mortgage touch automated application process that can compete with that.

But as well as provide our personal service that we have through our origination teams and branch teams that the digital lenders can off.

Great I appreciate the time, thank you the our pleasure. Thank you.

Yeah.

As we have no further questions. This concludes our question and answer session.

I would now like to turn the conference back over to Greg do for for any closing remarks.

Great well.

The one thing I've told a lot of different audiences and especially here internally over the past couple of weeks as we've.

It started to close the books and and understand what happened to 'twenty and 'twenty. If you would have asked me.

Eight or nine months ago, if we would be sitting here talking about record earnings.

Nearly $60 million of net income I wouldnt have taken that.

Sitting in April of 'twenty, and 'twenty at the start of the pandemic.

So we're extremely grateful to be able to.

Share these results with you, but I do want to just say.

It there's been a lot of hard work done here by teams, whether it's folks and the PPP.

Obviously and our mortgage areas, we've asked banking center employees too.

Show up to work and be in person to serve our customers that do come in.

And so it has been truly truly a team effort and I will just give you and aside we take care of our engagement of employees here of very seriously and we.

And the Gallup to measure our engagement and through all of this and through all the the trials and tribulations of the pandemic our engagement has actually gone up.

In 'twenty and 'twenty versus 2019, so I just wanted to share.

Publicly give thanks for the employees of the of Camden National and as well as the say you're you're in good hands for folks of that carrying about your investment.

With that I hope, everyone stays safe and healthy and the best wishes for great.

Great 'twenty 'twenty one thank.

Thank you all.

Okay.

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

Okay.

Yeah.