Q3 2021 Camden National Corp Earnings Call

October 26, 2021

Okay.

Good day and welcome to the Camden National Corporation third quarter 2021 earnings Conference call. My name is Breaker and I'll be your operator for today's call.

All participants will be in a listen-only mode during today's presentation all. Following the presentation, we will conduct a question and answer session.

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

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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 earnings press release. The company's 2020 annual report on Form 10-K, I don't have a filing with the SEC.

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

Any references in today's presentation to non-GAAP's financial measures are intended to provide meaningful insights and all reconciled with G. A a P. In your press release.

Today's presenters are Greg Dufour, 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 like to turn the conference over to Greg Dufour. Please go ahead Sir. Thank you and good afternoon, and welcome to Camden National Corporation's third-quarter 2021 earnings Conference call.

Thank you and good afternoon, and welcome to Camden National Corporation's third quarter 2021 earnings Conference call.

As mentioned joining me today is Greg White, the company's Executive Vice President and Chief Financial Officer. Earlier today, we announced quarterly earnings of $14.6 million for the third quarter of 2021, or 97 cents per diluted share. Earnings for the quarter decreased 13% compared to the third quarter 2020. And reflect several factors that Greg will discuss in more detail in a few moments.

Earlier today, we announced quarterly earnings of $14 6 million for the third quarter of 2021, or <unk> 97 per diluted share.

Earnings for the quarter decreased 13% compared to the third quarter 2020.

Reflect several factors that Greg will discuss in more detail in a few moments.

But at a high level. The decline can be primarily attributed lower gains on sales of residential mortgages. As we are now holding for residential mortgages on our books a strategy we discussed last quarter.

The decline can be primarily attributed lower gains on sales of residential mortgages.

We are now holding for residential mortgages on our books a strategy we discussed last quarter.

Year to date earnings were at record levels of 52 and a half million dollars a $3 and 9 cents per diluted share, an increase of 27% and 28% respectively when compared to earnings for the first nine months of 2020. Asset quality remains strong with total nonperforming loans to total loans of 0.3% at September 30 2021. One basis point annualized net charge off ratio for the third quarter.

Nine cents per diluted share, an increase of 27% and 28% respectively when compared to earnings.

First nine months of 2020.

Asset quality remains strong with total nonperforming loans to total loans of zero to 3% at September 32021.

One basis point annualized net charge off ratio for the third quarter.

You'll note that this quarter's provision for credit losses of 939000 broader allowance credit losses as a percent of total loans to 0.97%.

Which excludes $3.2 million of allowance for credit losses for off-balance sheet credit exposures.

Nearly 700000 this quarters recorded provision expense was for the off balance sheet credit exposure exposures, reflecting a buildup in our loan pipelines. Like most companies and businesses, we've experienced a very challenging job mark to attract and retain talent and reward our employees for great work during this challenging time.

Like most companies and businesses, we've experienced a very challenging job mark to attract and retain talent and reward our employees for great work during this challenging time.

In October we raised our starting minimum wage from $15 an hour to $17 an hour and increased all other employees salaries by at least 3%.

I am pleased to report that over 60% of these increases going to employees, earning less than $75000 per year.

From a strategic perspective, we received several recognitions that demonstrate the effectiveness and impact of our strategic plan coalition Greenwich, a division of S&P Global recognized Camden National as a 2021 customer experience leader in retail banking and small business banking. This is the fourth consecutive year, our retail efforts have been recognized in the second year of our small business efforts have received this designation. Gallup the global leader in employee engagement reported engagement among our employees increase to 4.25 on a scale of 1 to 5 up from 4.09 before the pandemic.

Fourth consecutive year, our retail efforts have been recognized in the second year of our small business efforts have received this designation.

Gallup the global leader in employee engagement reported engagement among our employees increase to four to five on a scale of one to five up from.

4.09 before the pandemic.

We're also named a best place to work and main the main chapter Society of human resource managers and Best Places to work Association. From a shareholder perspective, our dividend at 36 cents per share for the third quarter reflects a dividend yield of 3.01% based on our closing price of $47.90 on September 30, 2021. We also repurchased 106502 shares of our common stock, which will provide a solid earn back on this investment and return of capital to our shareholders. I'd now like to introduce Greg White, our Chief Financial Officer, Craig.

From a shareholder perspective, our dividend at <unk> 36 per share for the third quarter reflects a dividend yield of three point or 1% based on our closing price of $47 90.

Timber 32021, we also repurchased.

106502 shares of our common stock, which will provide a solid earn back on this investment and return of capital to our shareholders.

I'd now like to introduce Greg White, our Chief Financial Officer Craig.

Thank you, Greg and good afternoon, everyone. As Greg mentioned for the nine months ended September 30 of this year, we earned a record $52.5 million or $3.49 per diluted share, which was up significantly 27, and 28% respectively from the same period last year.

For the third quarter. This year, we reported earnings of $14.6 million or 97 cents per diluted share, which was down from $18.1 million or $1.21 per diluted share reported last year.

The decrease in earnings on a linked quarter basis was driven by provision expense of $939000 during the quarter related to loan and line pipeline growth compared to a provision release of $3.4 million during the second quarter of 2021.

On a pretax pre-provision income for the third quarter was $19.6 million up 2% compared to the prior quarter as Greg mentioned during the third quarter. Our board of directors approved a quarterly dividend of 36 cents, which was a payout ratio of 37%.

Our capital position remains strong as evidenced by a 15.06% total risk-based capital ratio and an 8.3% tangible common equity ratio as of September 30th.

Our tangible book value per share grew 1% to $30.23 during the quarter compared to $29.99 at the end of the second quarter.

During the quarter, we repurchased 106502 shares at an average price of $46.13.

Our net interest margin decreased seven basis points to $2.76 for the third quarter of 2021 from 2.83% the prior quarter driven by a 3 basis point decline in our loan yield and a 12% increase in the investment portfolio on an average balance basis.

Point to point, our investment portfolio grew by 4% during the quarter. Our net interest margin adjusted for PPP loan income in excess liquidity also declined by 7 basis points to 2.82% for the third quarter 2021, compared to 2.89% for the second quarter.

Our net interest margin adjusted for PPP loan income in excess liquidity also declined by seven basis points to 282% for the third quarter 2021, compared to $2, 89% for the second quarter.

We continue to focus on driving down our cost of deposits and our overall cost of funds, which declined by one and two basis points, respectively for the third quarter compared to the prior quarter.

Despite the decline in net interest margin net interest income was $1.1 million higher on a linked quarter basis, driven by higher average loan and investment balances and was 822000 higher when adjusting for PPP loan income.

Noninterest income for the third quarter was down 221000, or 2% compared to the second quarter due to a decline of 685000 in mortgage banking income largely related to our decision to hold more residential loans in our portfolio.

Debit card income and deposit service charge income for the third quarter was up five and 15% respectively compared to the prior quarter related to an increase in total consumer spend and our consumer deposit redesign program, which consolidated checking accounts and adjusted minimum balance and paper statement fees.

Operating expenses increased by 673000 in the third quarter compared to the second quarter. 584000 of that increase was related to employee and salary benefit costs largely due to increases in incentive compensation.

584 that increased 584000 of that increase was related to employee and salary benefit costs largely due to increases in incentive compensation.

As mentioned in our press release in October all employees received a minimum salary adjustment of 3% and we're increasing our started minimum wage to $17 per hour from $15 per hour. To help pay for this increase in compensation, we will be suspending our profit-sharing plan effective January 1st 2022. At a 3% funding rate for our profit-sharing plan, which is the level we anticipate for 2021 calendar year, we estimate that the annual cost of this off-cycle wage adjustment will largely be offset by the suspension of the profit-sharing plan.

To help pay for this increase in compensation, we will be suspending our profit sharing plan effective January one 2022.

At a 3% funding rate for our profit sharing plan, which is the level. We anticipate for 2021 calendar year, we estimate that the annual cost of this off cycle wage adjustment will largely be offset by the suspension of the profit sharing plan.

The company is planning to continue with its normal merit cycle in March of next year as well. Total assets increased by 351 million or 7% during the quarter to $5.5 billion at September 30th from $5.2 billion as of June 30th.

Total assets increased by 351 million or 7% during the quarter to $5 5 billion at September 30th from $5 2 billion as of June 30th.

Total loans increased by 1% during the third quarter and grew by 2% when excluding the impact of PPP loans. Loan growth was driven by residential real estate portfolio, which grew by 9% during the third quarter.

Loan growth was driven by residential real estate portfolio, which grew by 9% during the third quarter.

Overall loan growth was negatively impacted by heavy prepayments and payoffs in our commercial loan portfolios during the quarter. Approximately $80 million of our commercial loan book prepaid during the quarter, primarily from high credit borrowers either selling their businesses or using their cash balance to pay off or pay down their loans.

Owns <unk>.

Fortunately, commercial pipelines are near record levels and were $147.1 million as of September 30th in our residential and home equity pipelines remained robust as well and stood at $222 million at the end of the quarter.

Yes.

Total deposits grew by $311 million or 7% during the third quarter of 2021, and we're up $239 million or 6% on an average balance basis, while bringing down our cost of deposits by one basis point during the quarter.

Total interest and noninterest bearing checking grew by 10% during the third quarter, while our certificates of deposit declined by 3% during the quarter.

Our loan to deposit ratio ended the third quarter at 72% compared to 77% as of June 30th. It will certainly provide us some financial flexibility as we move forward.

Asset quality remains strong with nonperforming loans to total loans at 20.23% at the end of the third quarter down three basis points from .26% at the end of the second quarter.

Annualized net charge offs were one basis point of average loans for the third quarter and two basis points year to date.

Our allowance for credit losses on loans to total loans at September 30th was .97% down from .98% at the end of the prior quarter, our coverage ratio of ACL on loans to nonperforming loans increased to 4.23 times at the end of the third quarter from 3.82 times as of June 30th. This concludes our comments on the second-quarter results. We will now open up the call for questions. Thank you. Thank you.

<unk>. This concludes our comments on the second quarter results. We will now open up the call for questions. Thank you.

Thank you.

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Okay.

And the first question we have on the phone lines comes from Damon DelMonte from KBW. Please go ahead Damon, your line is open.

Damon Delmonte from K B W. Shai. Please go ahead Damian your line is open.

Hey, Good afternoon, guys. Hope you guys are doing well today. Thank you, Damon. Thanks. So first question could you just repeat Greg probably Greg White.

Thank you Damon.

Thanks.

So first question could you just repeat Greg probably Greg White.

The loan pipeline balances at quarter end for a commercial insurer for residential mortgages.

Yeah, so the residential including home equities is $222 million and the commercial is up 147.1 million. Okay, and because of the growth in these pipelines that's what led you guys to allocated provision for the unfunded commitments is that correct? Yeah. Yeah exactly yes.

Okay and because of the growth in these pipelines that's what led you guys to.

Allocated provision for the unfunded commitments is that correct.

Yeah, Yeah exactly yes.

Okay. So how do we think about the provision going forward? Credit quality is obviously pristine that's very very strong. But do you see yourself releasing reserves in the coming quarters or do you feel like you're going to need to provide for this growth as it actually hits the balance sheet?

Credit quality is obviously pristine that's very very strong.

But do you see yourself releasing reserves in the coming quarters or do you feel like you're going to need to provide for this growth is it actually hits the balance sheet.

Yeah. So so it's really the answer given the way our model is, it's really sensitive to the economic forecasts, which because of the Delta Variant you know the pace of improvement in the forecast slowed up a little bit and then it was the growth in that unfunded commitments the pipelines, especially on the commercial side.

The improvement in the forecast slowed up a little bit and then it was the growth in that unfunded commitments the pipelines, especially on the commercial side.

When you think about it those loans already have a reserve against them. So when they close they don't need that much of that addition to the reserve. So if those pipelines grew which they did significantly in the third quarter.

That's kind of what drove the provision expense this quarter. So the short answer to your question is the 97 basis points to total loans, we think will continue to trend down over time.

The short answer to your question is the 97 basis points to total loans, we think will continue to trend down over time we.

We were 82 basis points pre-COVID-19, not that that's the answer but just given if forecast continue to prove we think that 97 basis points would continue to go down a little bit whether or not that.

Our results in our release is certainly dependent on growth in pipelines and close loans as well.

Got it. Okay. That's helpful. Thank you and then. With respect to the outlook for loan growth. The last few quarters you've had pretty sizeable residential mortgages as you indicated you're choosing the portfolio of those you know those are almost half the portfolio now. Do you expect to continue at this pace or do you think you've kind of taken out as much as you wanted to over the last six months? Well, Jamie we kind of take it as the total portfolio.

With respect to the outlook for loan growth.

The last few quarters, you've had pretty sizeable residential mortgages as you indicated you're choosing the portfolio of those.

You know those are almost half the portfolio now do you expect to continue at this pace or do you think you've kind of taken out as much as you wanted to over the last six months.

Well, Jamie we kind of take it as the.

The total portfolio.

And so one of those factors are the call it the allocation or how much residential we're holding we don't have a hard fast number to do it we look at we look at that as an opportunity and what's right in the long term balancing it against liquidity needs.

But with that said you know as commercial is improving. We'll take that into assessment, but we don't have a hard fast number that we're tracking to.

Is improving.

We'll take that into assessment, but we don't have a hard fast number that we're tracking to.

Got it okay. And then I guess, just lastly, and then I'll step back. The outlook for the core margin.

And then I guess, just lastly, and then I'll step back.

The outlook for the core margin.

Do you feel like you've kind of reached a floor here you've got some stability or do you think there's still a little bit more downward pressure?

If rates stay here, there might be a little bit of downward pressure for the next quarter or two with that said, we did grow our net interest income as you know. Part of that margin decline was certainly mixed this quarter as investments grew and in cash balances but I guess I'd point you to the loan yield went down three basis points is probably a better indication.

Part of that margin decline was.

Certainly mix this quarter as investments grew and in cash balances but.

I guess I'd point, you to the loan yield went down three basis points is probably a better indication.

And then we're confident we could continue to you know the quarters and bring down our cost of funds for five six basis points are gone, but we're going to continue to work that cost of funds down as well.

You know the quarters and bring down our cost of funds for five six basis points are gone, but we're going to continue to work work that cost of funds down as well.

Okay, Great. That's all I had thank you very much.

Thank you.

Thank you we now have the next question on the line from Matthew Breese from Stephens. Please go ahead Matthew.

Good afternoon.

Hi, Matt. Hey, Matt Hey, Greg you know in the release in the prepared remarks, you discussed wage pressure not surprised to hear that there's wage pressure just given what's going on nationwide, but I was hoping maybe you could provide some anecdotes or some background about what you've experienced the last six to 12 months to drive this decision.

And are you feeling the most pressure is it in the branch or the back office is it new employees or tenured just a little bit more color on the decision?

Sure. Well, the main driver and again addressing it from a starting wage perspective was obviously and in those banking centers or call center employees that you know have been under a lot of pressure. Facing call it the brunt of the pandemic related items and even servicing customers through that all.

Well the main driver and again addressing it from a starting wage perspective was obviously and in those banking centers or call center employees that.

You know <unk> been under a lot of pressure.

Facing call it the brunt of the pandemic related items and even servicing customers through that all.

But we have seen as competitors have increased their wages. It's become a tough market I think you'll hear that from everybody but the best antidote as you drive down any road in at least in Maine, and probably in America and you know our competition for employees is expanded I mean when Mcdonald's Walmart et cetera are offering anywhere 17, $20 an hour.

It's become a tough market I think you'll hear that from everybody but.

Best Antidote as you drive down any any road in at least in Maine, and probably in America and you know our competition firm for employees is expanded I mean win.

Mcdonald's Walmart et cetera offering.

Anywhere 17, $20 an hour.

It makes us less competitive, in the past we could compete by a good starting wage good benefits upward mobility, but what we're finding is a lot of those folks really needed to focus more on the short term. Call it pay increase. So we saw that, I think the big tipping point was two things one was the right thing to do. To attract people in. The second was we started to see signs where people would come in to our managers say loved the company but.

In the past we could compete by.

Good starting wage good benefits upward mobility, but.

What we're finding is a lot of those folks really needed to focus more on the short term.

Call it pay increase.

So we saw that.

I think the big tipping point was two things one was the right thing to do.

To attract people in the second was we started to see signs where people would come in to our managers say loved the company but.

I can get 2 a $3 more an hour and in the past, we could you know. They would probably stay and they weren't. And then as we looked across the board. Just needed to remain competitive and that's, what led us to that 3% raise.

They would probably stay and they weren't.

And then as we looked across the board.

Just needed to remain competitive and Thats, what led us to that 3% raise.

So as Greg said, we offset that with profit sharing and part of that was a reflection of with conversations with many employees. Primarily in the lower to moderate compensated range.

Primarily in the lower to moderate compensated range.

They wanted to cash upfront rather than put it in profit sharing their four okay and that was probably the biggest struggle for us. But our conversations with employees and plus we still have the ability to increase their pro 1K contribution to put that in if they want it too.

Or reflected our.

In our conversations with employees and plus we still have the ability to increase their pro <unk> contribution to put that in if they want it.

Understood, is there any concern longer term is the thinking around inflation goes from temporary to permanent that perhaps the salaries and benefits line item could just be growing at a faster pace for the foreseeable future? Is that a concern or how are you guys discussed that internally?

Yeah, I think it is a concern Matt for us for all companies no matter what industry that you're in. There is a labor shortage that coming out of the pandemic that we're seeing and it's across the board.

There is a labor shortage that.

Coming out of the pandemic that we're seeing and it's across the board.

I think with us strategically how we're addressing that in addition to remaining competitive pay wise. We're also looking at many opportunities to automate a lot of task that we have through robotic process automation, we have a great team of people doing that we're seeing some great strides in that.

Some great strides in that.

There's other automation opportunities that we have to. What I would say is allow us to scale, but more importantly to make these jobs better for people.

Opportunities that we have to.

What I would say is.

Allow us to scale, but more importantly to make these jobs better for people is.

I think earlier today, our head of technology, who is overseeing the automation project, you take away that staring compare work and automate it through these bots that we have. And the employees are happier because they're doing meaningful work and then we can scale as we grow so there's opportunities strategically for us to address the labor shortages.

Overseeing the automd.

Automation project, you take away that staring compare work and automate it through these bots that we have and the employees are happier because theyre doing meaningful work and then we can scale as we grow so theres theres opportunities strategically for us to address the labor shortages.

Great I appreciate that.

Just drilling down a little bit more. I was curious quarter to date, what you're seeing on the prepayment and payoff front. If you feel like what you saw in the third quarter is likely to continue and then on the overall pipeline what is the blended yield versus what we saw this quarter?

I was curious quarter to date, what you're seeing on the prepayment and payoff front. If you feel like what you saw in the third quarter is likely to continue and then on the on the overall pipeline what is the blended yield versus what we saw this.

This quarter.

Let me. I'll do the second question first. The overall pipeline of other than residential most of the originations are pretty much going on our portfolio yields you can see that in the yield rate table, except commercial came down, that was more some LIBOR floating rate loans that went on right at the end of the second quarter, which has more than that half of the impact or that third quarter, but everything else, even commercial now is pretty much going on except rosy raises a mid three portfolio and the marginal growth is 305-ish, 310.

I'll do the second question first the overall pipeline of other than residential most of the originations are pretty much going on our portfolio yields you can see that in the yield rate table, except commercial came down that was more some LIBOR floating rate loans that went on right at the edge.

The second quarter, which has more than that half of the impact or that third quarter, but everything else, even even commercial now is pretty much going on except rosy raises a mid three portfolio and the marginal growth is three O five ish 310.

Looking at the prepayments that we saw. We really dove into that in a lot of it, in summary, is we are seeing a lot of the higher quality loans and customers that we're working with. They're selling businesses. In Maine, we're seeing more hedge fund activity come in they will come in either with cash or with a prearranged financing outside of the state.

Looking at the prepayments that we saw.

We really dove into that in a lot of it in summary is.

We are seeing.

Are a lot of the higher quality.

Lola and customers that we're working with.

They're selling businesses in.

In Maine, we're seeing more hedge fund activity come in they will come in either with cash or with a prearranged financing outside of the state.

We're seeing several properties being sold again to reach or our hedge funds on that so it's a little bit of a phenomenon that we hadn't seen before at least in this market. As far as losing deals on rate and structure. Yes, it's a competitive market, so I don't want to discount that aspect of it.

Several properties being sold again to reach or our hedge funds on that so it's a little bit of a phenomenon that we hadn't seen before at least in this market.

As far as losing deals on rate and structure.

Yes, it's a competitive market, so I don't want to discount that aspect of it.

But typically you can keep up with that on your pipeline because you're competitive on getting new deals in. It is seeing some of these again higher-quality properties. Transfer ownership. And as I thought about it I said you know it's an indication that we are dealing with high quality and it makes it marketable that way.

It is seeing some of these.

Again higher quality properties.

Transfer ownership.

And as I thought about it I said you know it's an.

Indication that.

We are dealing with high quality and it makes it marketable that way.

Hum.

I think at the end of the day and we were just talking about this is I think it's going to make some of this lumpier. As we go forward.

As we go forward.

Because you can do a good job on building our pipeline and our lenders are motivated for that. But you can come in and have somebody say I've sold my business and. To X y Z and the financing is already arranged by the buyer.

Right.

You can come in and have somebody say sylvite business and.

To X y Z.

The financing is already arranged by the buyer.

So again, that's something that we're getting used to but again I think it's just the economics and the business activity that's out there.

Understood. Okay. And then maybe just a little bit on the cash position of the balance sheet, it's still stubbornly high. Curious if we should expect a continued increase in the securities portfolio, especially given the rise in yields. And if that's the case to what extent might we see the securities portfolio grow.

And then maybe just a little bit on the cash position of the balance sheet, it's still stubbornly high.

Curious if we should expect a continued increase in the securities portfolio, especially given the rise in yields.

And if that's the case to what extent might we see the securities portfolio grow.

Yeah. So it's up about 30% this year. If you look our deposits year to date are up $600 million. Certainly, that's driving it.

If you look our deposits year to date are up $600 million.

Certainly thats driving it.

We expect to slow the pace of increase of the securities portfolio with that said youre still going to see some increases kind of to put a growth rate on it.

I'd be kind of guessing a little I'd say in the 5% ish range is not unreasonable. And then we do have some. We do have some deposit outflows coming in towards the end of the year, which makes investment growth, a little less necessary, but you know.

And a little I'd say in the 5% ish range is.

Not unreasonable.

And then we do have some.

We do have some deposit outflows coming in the.

Towards the end of the year, which.

Makes investment growth, a little less necessary, but you know.

It's tough to tell Matt if deposits keep coming in the door like they have been over the past quarter here.

And I think if I could just add that it's kind of a good news. Challenging news, if you will let's say bad news situation as well.

Challenging news, if you will let's say bad news situation as well.

We always prefer to make alone and to put something in the investment portfolio. But when you look at it, albeit with some anticipated outflows were very large deposit customers.

To make alone and to put something in the investment portfolio.

Right.

And when you look at it, albeit with some.

<unk> outflows were very large.

Deposit customers.

We're building our core deposit franchise here and especially when you look at these numbers.

Yes, the cost of that as more liquidity more investments, but I think as the long term strength of the organization.

Deposits are going to be more valuable in the future.

In the future.

So we're not giving it by pricing up obviously, were redesigned our products and they are doing extremely well. So I think it's really.

We're not giving it by pricing up obviously were redesigned our products and they are doing extremely well. So I think it's really.

That's a long term factor for us to keep the core deposits off like we are.

To keep the core deposits off like we are.

Got it okay, and Greg just to be clear on that.

The five ish.

Our range for growth, that's an annualized figure so figure out over the next handful of quarters that would be an annualized growth rate.

Exactly Matt, yes, Okay Yep Yep.

Yep.

Sorry, I didn't mean to cut you off Greg Oh.

Sorry.

Last one for me.

What are the remaining PPP fees and that's all I had thank you.

$3.7 million.

Great.

I appreciate you taking my questions. Thank you.

Oh, thanks pleasure. Thank you.

Thank you as a reminder is star followed by one.

On the same pad if you would like to ask a question.

We now have another question on the line from.

William Wallace of Raymond James Sorry, William Please go ahead.

Thank you good afternoon.

I wanted to.

Circle back on a couple of Matt's questions like Hey, let's just start with kind of where the last final questioning around deposits. If you look at.

All of the new customers that came on around PTP. What are you seeing what kind of trends are you seeing with that customer base and are you seeing the pace of deposit inflows slowing at all.

The latter part of that question. About half of the deposit growth year to date as occurred in the third quarter.

About half of the deposit growth year to date.

As occurred in the third quarter.

I don't know about the past few weeks here, but it was a really strong quarter.

And then.

For fourth quarter, we would expect we typically have some seasonal inflows, which is part of that third quarter answer we would expect them to start slowing a little bit here.

Here as well.

And then the PPP.

But we don't have detail on that.

Matt.

Okay sorry.

So I mean.

Is there.

Is there any reason not to be more aggressive in investing in the securities portfolio or are you just worried that.

Rates will work against you if you mixed in duration or are you worried about liquidity and wanting to stay.

Short and liquid.

Yeah, no we're not worried about.

Interest rate risk or it's more just keeping our powder dry and trying to lend it out instead of Avon Securities.

Growth.

Again, we have grown the security book, 30% this year Wally so yeah.

We are.

Yes long term, we'd like to lend it out.

And earnings are still strong even with our liquidity.

Okay.

And then and then as far as the liquidity build on the balance sheet.

What level do you guys feel comfortable with from a capital ratio, others, TCE or leverage maybe.

TCE is eight three and.

I think yes.

We've had this organization over the past several years.

And I think even in the low seven TCE range.

And we feel that is adequate for us not to say, that's what we'd want to go down too but.

Yeah.

We're kind of comfortable where we are and we can adjust accordingly.

That way.

Okay.

Handle our capital appropriately.

Okay.

And then switching gears back to expense.

We talked about wage pressures, we talked about some of the investments that youre looking at to try to automate processes et cetera.

I'm just kind of wondering if you step back and.

Put it all together.

What kind of expense growth would you anticipate maybe over the near term.

Is there is there a reason that there might be more expense growth upfront as you as you invest in technologies to try to automate to maybe have slower expense growth down the road.

Trying to think about the movie.

Well, we really don't.

Give kind of a specific indication of what we think our expense growth is going to be plus you know we're currently in the budgeting cycle.

But what I can say to your point on call it technology.

From prior investments that we've made.

We're in that.

Call it maintaining.

Phase.

We don't have to do a big uplift for obsolescence equipment.

Whether it's a laptop schroeder service across the board that's part of our normal run rate.

Because of those prior investments and staying ahead of the curve.

That means though is that when we are doing spending on technology. It is on.

Customer facing or information security related items and by customer facing that could be.

Assistance or make us faster close close deals faster.

Investments in business technology.

And of course in cyber we're always investing there and we're willing to invest and they had a remainder.

As much ahead of the curve as we can.

So.

The short answer there is.

The belief that we can absorb what we need to do to be current.

On the technology front.

Call it give or take within our current run rate.

And the wildcard there is if its cyber then we'll step in and will invest but thats again.

Our business critical items.

Okay. Okay. Thank you very much that's all I had.

Welcome. Thanks.

Yeah.

Thank you.

We now have another question on the line from Jacobina from Janney Hi, Jay I think in your line. Please go ahead when you're ready.

Yeah.

Good afternoon guys.

Hi, Jacob.

With respect to the loan pipeline can you give us any additional details about the commercial and commercial real estate by geography.

You know I would say by geography.

They're all.

Within our franchise and by defining that as Maine, New Hampshire and.

Selective transactions in.

Call, It northeast, Massachusetts, including the greater Boston area.

They are and they are spread out call from asset class to.

Various asset classes industrial multifamily.

It's retail it tends to be small retail not big box. So it was pretty diverse.

Diverse exposure that would occur.

Our diverse pipeline that we have built there.

Okay.

Isn't why I ask is that if deposit growth does continue at a similar rate of increase is what we've seen in 2021.

How does it impact your thought process about about growing loans I mean, do you think about.

Doing.

Syndicated loans or extending outside of your historical.

Areas, either by maybe loan category or geography.

Sure. So we do two syndicated loans now and we have for several years and we've.

Yeah.

Both from a credit as well as a lender perspective, we built up that expertise or.

Our acquired if you will as we hired people several years ago. So that that is still there.

I can't remember the exact exposure we have in shared national credits, but.

Relatively modest.

There, but it does it does.

Work in there.

As far as geographic.

What I would expect US is that we will lend outside of our call. It physical geography, if we have a customer really existing customer relationship.

And we are working with several high quality.

Sponsors businesses that.

If they're based in Maine are based in New Hampshire, and they are buying a property out of out of our region would be more than happy to work with them that way.

And we can get our hands around that.

As we expand geography outside of that.

This would be probably for me.

Pending.

You know what our.

They had a commercial banking would do is that we'd like to go in markets that are adjacent to the ones that we have we typically go in there as we have weather years and years ago in Portland, more recently, though in New Hampshire go in with a lender, who we have a lot of confidence with the right people to deal with.

And so it's kind of a contiguous market growth versus leapfrogging.

Big market and.

The good news is is that we have the people and the talent to do that not just from the lending side, but also from the credit side.

And I think Thats, one key that and one thing that we've proven is that.

We maintain our quality of our credit team to understand the deals.

Whether it's a new asset class kind of a new geography et cetera, and that's one.

Worked well in the past is as you can see with our asset quality today.

No I appreciate that Greg. Thank you for taking the time to walk through it.

One last question from for me how are you thinking about I think you might've touched on this a little bit but how are you thinking about capital return and in particular the buyback going forward.

Yeah.

Obviously, we are.

Want to make sure that.

We maintain enough capital for call it regulatory business reasons for other.

The infamous quote unquote.

Corporate regions.

But short of that we understand our shareholders.

What's the opportunity to use their investment and so whether it's through dividend or the buyback those are tools that we use.

Probably one nuance is that we're looking at more of an earn back perspective, when we pig.

Where we will repurchase.

And much like you would do.

Analyzing a deal Thats, how we analyze rich.

The returns that we feel that we can get at an adequate price for our own investment because that's probably the lowest risk out there for us to buy our own stock.

Okay, great. Thanks, guys.

My pleasure. Thank you.

Thank you we have no further questions. This concludes our question and answer session I would like to turn the conference back to Bob <unk> for any closing remarks.

Great well.

I think we've heard from all of our.

Analysts today, which is just great.

It shows interest that you have in our organization.

And we very much appreciate that not only from your perspective, but also.

All our shareholder and owner perspectives.

Okay.

Really we just moving forward here.

And looking forward to.

Good quarter and as we said we've got some good.

Pipeline information coming in and so closing deals before the end of the year. So I. Thank you for your interest and have a good day.

The conference has now concluded.

For attending today's presentation you may now disconnect your lines.

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Q3 2021 Camden National Corp Earnings Call

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