Q1 2021 Camden National Corp Earnings Call
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Good day and welcome to the Camden National Corporation's first quarter 2021 earnings conference call. My name is <unk> and I'll be your operator for today's call all participants will be in listen only mode. During today's presentation.
Following the presentation, we will conduct a question and answer session. If you require operator assistance at any time during the call Press Star then zero.
Please note that this presentation contains forward looking statements, which will involve significant risks and uncertainties that may cause the 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 company's 2020 annual report on form 10-K, and other filings with the SEC.
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 for non G. A a key financial measures are included to provide meaningful insights and are reconciled with G. A a P.
In your press release, today's presenters are Greg Dufour, President Chief Executive Officer, and Greg White Executive Vice President Chief Financial Officer. Please note that this event is being recorded at this time I would like to turn the conference over to Greg before please go ahead Sir.
Thank you Garrett and welcome everyone to Camden National Corporation's first quarter 2021 earnings call.
I'm pleased to share that earlier today, we announced record quarterly earnings for the first quarter 2021 of $19 $7 million for $1.31 per diluted share.
This continues the trend we saw on the latter half of 'twenty 'twenty strong residential mortgage activity M. P. P P lending.
We also released $2 million pretax per.
Provision, reflecting our solid asset quality position and improving economic data.
Recall that we adopted the current expected credit losses are seasonal model S.
The December 31 2020.
Great White will review our performance on a few moments, but I'd like to first provide some background on observations.
Staying with the asset quality theme, we recorded approximately $10 million of nonperforming assets on March 31, 2020, or just 2% of total assets.
Loans past due 30 to 89 days were just pointing zero five per cent of total loans on that day.
After a provision release, our allowance for credit losses on loans on March 31, 2020.
One was 1.11% down from 1.18% at 12, 31, 2020, but higher than the 0.4% level.
We recorded on March 31, 2020 prior to the impact from the pandemic.
Preliminary discussions around our market areas indicate a strong upcoming summer season, which we'll expect to benefit our local economies.
Overall levels of people being vaccinated, along with the governor of Maine proactively outlining our plan for people visiting our state has caused a significant increase in reservations in the hospitality industry, which we expect will also drive other parts of our local economy.
We continue to expect loan growth on the single digit range as loan pipelines are showing positive trends and we also have the liver of holding additional residential mortgages if needed.
I'd also like to note that since we last met we were named to the S&P Global list of top community banks and named a Raymond James Community Top award recipient, which recognizes top 10 per cent of community banks.
I'll now turn the discussion over to our executive Vice President and Chief Financial Officer, Craig White.
Thank you, Greg and good afternoon, everyone as Greg do for mentioned, we had record net income of $19 $7 million for the first quarter, an increase of $1.5 million compared to our previous quarterly earnings record in the fourth quarter last year of $18 3 million.
Our diluted earnings per share was one dollar and 31 cents compared to $1.22 in the prior quarter.
Our return on tangible common equity was 18 point for 7% for the quarter compared to 17.27% in the fourth quarter of last year.
During the first quarter, our board approved a quarterly dividend of 36, 36 cents, which is 9%.
Other than the 33 cents approved in the prior quarter.
In both quarters, the payout ratio was 27% of earnings.
Our capital position remains strong as evidenced by the 60 basis point increase in our total risk based capital ratio to 16% at the end of the first quarter compared to 15.4% at the end of the prior quarter on.
Our tangible book value per share grew to $29.12 during the quarter compared to $28.96 at the end of the prior quarter.
Our net interest margin decreased to two point 88 per cent for the first quarter of this year from 3.06 per cent the prior quarter, but adjusting for the impact of both PPP loan income in excess liquidity, our margin declined by eight basis points to 2.91.
Per cent from 2.99% quarter over quarter on this basis.
We continue to focus on driving down our cost of deposits on our overall cost of funds both of which declined by four basis points compared to the prior quarter.
Our efficiency ratio declined to 52 per cent for the first quarter of this year from 54% in the fourth quarter of last year.
Our core efficiency ratio fell to 51% from 53% during the same period.
Total assets were 5.1 billion at March 31 of this year, an increase of $191 million or 4% since the end of last year.
Total loans increased $17 million during the quarter, excluding PPP loans total loans at March 31st were down $17 million compared to the prior quarter. The commercial real estate portfolio grew by 2% during the quarter, partially offsetting the decrease across other key.
Core loan portfolios.
As Greg mentioned earlier, we do we do have the option to hold more residential real estate loans and that is something we continue to monitor.
Total deposits grew by $206 million or 5%.
In the fourth Corp.
Since the fourth quarter of last year, while non interest bearing checking grew by 67 million or 9% during the same period.
Asset quality remains strong with nonperforming loans at 0.31%.
At the end of the quarter.
I'm, sorry, nonperforming loans to total loans.
At 0.31% at the end of the quarter down two basis points from <unk>.
Three three at the end of the fourth quarter of last year.
Annualized net charge offs for the quarter were three basis points of average loans and a ratio of past due loans 30 to 89 days to total loans fell by five basis points down from 10 basis points the prior quarter.
Due to improving economic forecasts and continued strong asset quality, we did released $2 million provision during the quarter 1.9 million related to loans and point 1 million related to unfunded commitments, our allowance for credit losses on loans to total loans.
Ended the quarter at 1.11% down from 1.18% at the end of the prior quarter.
Our coverage ratio of ACL on loans to nonperforming loans was 3.52 times at the end of the quarter down slightly from 3.62 times as of December 31, 2020, but continues to be well above the level of 2.57 times at March 31 2000.
And in 'twenty the start of the pandemic.
This concludes our comments on our first quarter results, we will now open up the call for questions. Thank you.
Thank you we will now begin question and answer session to ask a question you May Press Star then one you touched on phone keypad.
Using a speakerphone please pick up your headset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
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Our first question comes from David Damon Delmonte from K B W. Go ahead.
Hey, guys hope everybody's doing well today.
Moving you to day. So first question on just looking for a little perspective on the outlook for the provision going forward just given the health of the overall portfolio and the and the.
Current level of the reserve.
Hum.
Do you would you foresee taking additional negative provisions or do you think do you think things will go back to normal level of provisioning or what can you provide us on that.
Yeah.
So damian.
As you know seasonal is very forecast based and that's the reason we did have the negative provision first quarter.
So with forecasts continue to improve unless there is a change in the asset quality. Because then you can make an argument either at the loan level or a pooled level to hold onto some of those reserves.
If the forecast keeps improve and will be yeah that'll be a challenge to.
Continue to hold all the reserves that we currently have unless we have significantly more loan growth than we've been experiencing.
Got it okay.
And then just on that point of loan growth I think Greg Greg you're dead.
You had thought maybe mid single digit for the year was it was still a reasonable outlook for growth is that correct.
Yeah, I would probably work that in there Damon we've been seeing the pipelines.
As I mentioned.
You know on the commercial side.
Really from a pretty diverse source from manufacturing to some business lines, you know our real estate.
You know is also picking up as well and so we've been pleased with what we're seeing there and again you know the the real estate production activity is.
Still very strong so we can always.
Augment that by holding more than what we have been.
Got it okay.
Is that is that something you guys have mentioned that the holding of residential real estate a couple of times on that cause that that's something that you guys are strongly considering to do in order to keep balances.
Moving on the right direction.
Well first of all this is.
Greg.
Yeah, I'll I'll, let Greg give his.
He is for you, but I think Damon.
We look at it in a couple of different ways obviously.
Not just to have the loans, but more importantly have the recurring income of holding those loans.
But we balance that against you know the you know the interest rate.
Outlook as.
As well as you know the gains that we're going to get from selling now so it's something that we run through both pricing and Alco.
As a management team on know, Greg if you want to weigh in as well.
Yeah, the only thing I'd add David so excess cash we've been running in the 150 to 200 million of excess cash in.
So if we start to hold more residential we're also looking at what we could do on the security side mortgage backed securities.
And kind of prudent investments for the bank and looking at the pickup on the loan versus.
The investment yield too.
Got it okay, so rather than buying mortgage backed securities just hold the residential mortgages themselves.
That's what we're that's part of the assessment that we're looking at correct.
Gotcha.
Okay, and then I guess just last question you know what.
When you look at that kind of on a core margin and directionally, how its shaping up here as we go into 2021.
Do you think you're able to keep it kind of flat at this level or do you expect that the liquidity is going to continue to weigh on it and put a little bit more modest downward pressure.
Ah well, even if it's not love liquidity based I think we'll continue to see some assets yield compression here.
On the cost of fund side, we did bring down four basis points last quarter, but that's getting per.
Aspect of Li that's going to be a little more challenging than it has been given the low level already and we're going to continue to keep doing that and and probably be able to be successful, but not to the extent we have in the.
Previous quarters.
So I think asset yield does.
Unfortunately will probably.
A press more than we're able to bring cost of funds down at least for the next few quarters here if rates stay here.
Got it okay. That's all that I had thank you very much appreciate the color.
Thank you David.
Again to ask a question you May Press Star then one on your touch on keypad.
Our next question comes from William Wallace of Raymond James.
Yeah, Hi, Thanks for taking my questions and good afternoon.
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Look just trying to keep the line on the net interest margin.
Does your expectation for some kind of continued downward pressure does that.
Include any anticipation that you might be able to deploy some of the excess liquidity.
Into the securities portfolio or.
Yeah.
Yeah, I mean it it does.
You know, we could certainly tomorrow invest the excess liquidity, obviously get our stated margin up and.
It's more just the you know certainly it's kind of that consumer callable.
Residential portfolio in the mortgage backed securities, that's where we've seen the.
The compression so.
Again, I qualify that by rates staying here and prepayment levels staying up at the levels that they had been then we'd probably continue to see a little asset compression.
And then we're always looking at whether or not it's a prudent time to invest that excess liquidity as well.
And we have gotten a little more active there with a backup on the tenure recently okay. Okay.
And.
In the residential mortgage loans that you might supplement loan growth with that what's the nature of those from a from a structure per se are they mostly fixed rate or would you only balance sheet.
Arms et cetera.
We we would look to do both but.
Probably the majority of the pipeline right now is fixed rate. So you know.
That's kind of the short answer.
Not really.
Too much activity in the hybrid arm market at this point, but.
Certainly if there is we thought that would be a good balance sheet product for us.
Okay. So it's safe to assume that that would also then add some some pricing pressures on the loan portfolio.
Demand on the commercial front.
Flows.
Yeah.
Yeah, I mean right exactly so if if we don't have the pickup in demand on the commercial side that's.
Where we would.
We look to book more of the residential.
Okay. So as it stands today, you know almost a third through the quarter as the commercial pipelines have they picked up and as the pay off activity slowed or sort of stabilized on the commercial side.
I could.
Certainly the former part of that question the portfolio the pipelines are.
Alright record levels I mean, they are robust on the commercial side.
With that said, we do still continue to have a little bit of pressure obviously.
With refinancings and and.
Yeah. So.
At least near term, we're still going to have that pressure as well, but the pipelines are R. I spoke with our senior lenders yesterday and I'm quoting him when I say at this stage they're at record levels.
Okay alright, thank you.
On the P. P P for and I apologize if this was in the release, but how much did you all originated in the most recent round.
Yeah.
I'm, sorry ask that again I'm sorry.
The most recent round of P. P. P loans debt that started from February how much did you all end up.
Yeah. So.
The supplemental is as of March 31st we have 85 million out there, but we've done another 15 million since we're at 100 million on the most recent round of originations.
Okay Alright. Thank you and then one last question if I can.
The expense in the quarter was 24.9 million I'm, assuming that you don't get gains in your Oreo portfolio every quarter is a is that a good run rate or were there some deferred costs associated with P. P P or anything else that that might come out or come back in.
That's a that's a reasonable run rate with our races going on towards the latter part of the quarter there.
But it's that's a good starting point.
Okay. Okay, great alright, Thank you I'll hop out and let somebody else ask yes. Thanks Paul.
Our next question comes from Jake Zambello Janney.
Hi, everyone. Good afternoon.
Hey, Jake Jake.
Yeah.
What.
Can you can you identify the amount of impact.
Impact on.
Sequential tangible book value per share that I'm, assuming the negative hit to Aoc I had in the quarter.
Okay.
Yes.
I I I haven't calculated that let me.
Yeah.
Do it back the envelope for you.
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Yes.
Yes.
Okay.
Okay.
Yeah, probably.
Yeah.
You know what yeah, you could ask your next question at all.
I have an answer but I, just kind of want to double check it here.
Yeah, Yeah, no I'm happy to ask my other question too.
Does do you think that the first quarter, probably represents the high watermark for mortgage banking income that you record through.
Through fee income, especially if you decide to portfolio more production.
Yeah, I believe debt.
Net is the case, it's very close to a.
A record, which was second quarter last year, it's about 95 per side of that so.
Yeah, that's probable.
With that said April has been strong.
But.
So we wouldn't expect much of a dip there.
For Q2, but.
It's likely are you seeing any changes in.
In geography in terms of where the originations are coming from.
Yeah.
No I would say there, it's pretty much held consistent and which tends to be more southern Maine.
As well as our <unk>.
Production office out in Massachusetts.
And picking up and in between New Hampshire.
And again, it's not to say the other markets that we operate in aren't doing well its just.
There are further south you go the average deal size is larger.
And more of them.
And then Jack on your LCR.
Let me give you just a.
Faculty envelope reasonable estimate there.
Debt, it's probably.
In the 50 to 70 <unk> range.
Okay, Alright that helps me directionally. So thank you for yeah Yep.
That's all I have for now guys. Thanks, Greg.
Great. Thank you Jake Thank you.
As we have no further questions. This concludes our question and answer session I would like to turn the conference back over to Greg Dufour for any closing remarks.
Great well. Thank you Gary. Thank you everyone for attending the call and for analysts for the questions and for all of you for the support and interest that you've shown on the company.
We're looking forward to talking to you next quarter take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yeah.