Q1 2022 Camden National Corp Earnings Call
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Good day and welcome to the Camden National Corporation's first quarter 2022 earnings conference call. My name is Jason and I'll be the operator for today's call all participants will be on listen mode. Only during today's presentation. Following the presentation. We will conduct a question and answer session. If you read.
Choir operational assistance at any time during the call. Please press star and then zero.
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. Additionally, 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 2021 annual report on Form 10-K .
And other filings with the S E C. The.
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 to non G. A a P <unk>.
Financial measures are intended to provide meaningful insights and are reconciled with G. A a P. In the press release today's presenters are David do for President and Chief Executive Officer, and Mike Archer 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.
Great. Thank you Jay sorry, good afternoon, and welcome to Camden, National's first quarter 2022 earnings call.
Earlier today, we reported first quarter 2022 earnings of $16 $8 million or $1 13 on a diluted share basis. This is up 2% from the fourth quarter 'twenty one.
And 15% lower.
Net income basis, when compared to the first quarter of 2021.
Mike will provide more detail in a few moments, but I want to comment.
We believe this is a solid start to the year in light of several factors and conditions first as we all know the economy and interest rate environment are dramatically different.
And then they were just a few months ago, and certainly a year ago.
Like most banks, we have seen a decline in residential mortgage activity and related income as well as declines in P. P. P related revenues as those loans are being forgiven.
Finally, and reflective of our strong asset quality, we continue to see benefits from provision releases has a number of loans that were modified during COVID-19 , having come out of the curing period.
As Mike will provide further details there is some potential for additional provision releases in the coming quarters as we expect more loans previously modified to meet the internal metrics, we've established for ourselves at which time, we release those reserves as needed.
From a market perspective, I would summarize by saying conditions of what we expected.
I've seen the 29% decline in residential mortgage activity tracking near what national numbers are caused by increased mortgage rates, but also.
A significant lack of inventory throughout all of our markets.
As we've all read there are bidding wars for homes on the market and we're seeing more and more instances where cash buyers winning those bids.
We've seen strong commercial lending activity ranging from small business to commercial and commercial real estate.
Commercial grew $40 million of 11% pulling into last year, while Korea originations for the quarter were solid but somewhat muted by one large pay off as the property sold to a large large national off.
This provides a buffer to the decline in residential mortgage activity I will point out that the competition for lending is still very hot we are seeing very competitive situations on both rates as well as deal structure, which results in us opting to pick our spots in those situations.
From a long term perspective, including understanding a strong deposit base will we feel we're in a good position, although we will see some pressure in the coming weeks and months. It's now my pleasure to turn the discussion over to Mike. Thank.
Thank you Greg and good afternoon, everyone I'm pleased to report that we got off to a solid start this year with reported net income for the first quarter of $16 8 million and diluted earnings per share of $1 13, each representing an increase of 2% over last quarter.
Through favorable earnings and capital management strategies, we've deployed in recent periods, including continued opportunistic share repurchases and dividends.
Our return on average tangible equity for the first quarter was just over 16%.
For the first quarter of 2022 net interest net interest income decreased 432, 1% compared to the fourth quarter of 2021, driven by a decrease in SBA PPP loan income of $1 7 million as it relates to loan balances continue to run off at an accelerated pace as borrowers take advantage of loan forgiveness offer.
Right.
As of March 31, 2022, SBA PPP loan balances stood at $6 3 million in remaining unrecognized origination fees were just over 200000.
Strong loan growth the last two quarters was able to largely offset the impact of lower PPP income and will prove beneficial as we continue throughout the year.
Net interest margin for the first quarter of 2022 was 287% an increase of five basis points over last quarter and on a non-GAAP adjusted basis. It also increased by five basis points over this period.
We believe our balance sheet competition positions us to farewell as interest rates rise and we anticipate to see further NIM expansion as our current book continues to reprice and new loans and investments come on at higher yields, which should drive asset yield growth. We believe the amount of NIM expansion over the course of the year will be predicated on our ability to manage fund.
Of course with that said, we have a strong core deposit franchise, and we will prudently manage as we enter into this cycle.
Although loan growth for the first quarter was 3% or 4% of our non-GAAP basis adjusting for SBA PPP loans.
Loan growth for the quarter was centered within our residential mortgage portfolio, which grew $86 million or 7% and our C&I portfolio, which grew $40 million or 11%.
As discussed last quarter, we anticipated that we would hold more of our production in our loan portfolio in the first quarter than we had seen in most in more recent quarters. This held true there was slightly higher than anticipated with 77% of our residential mortgage production for the first quarter, making its way to portfolio.
Within our markets, we are seeing an extremely competitive environment as competitors look to deploy excess liquidity and are doing so through competitively pricing mortgages and holding these within their portfolio as.
As a result market rates have been lower than what the secondary market would otherwise called for and pressuring scalable loan volumes more.
More recently, we have seen market rates shift higher and do you foresee more sell more volume going forward as a percentage of production. However for these reasons, we anticipate the majority of our residential mortgage production will continue to be held within portfolio over the coming quarters.
Lastly on the loan front as Greg mentioned, we are pleased with our C&I growth during the quarter as it reflects the ramp up and positive momentum of our small business team.
On a linked quarter basis noninterest income was down $2 3 million mortgage banking income for the first quarter totaled $1 million, which was half of what was reported last quarter.
We sold 23% of our residential mortgage volume in the first quarter compared to 33% last quarter.
Also debit card income was lower $1 1 million between periods. This was due to timing of recognition of our annual visa bonus in the fourth quarter of last year, 741000, and lower seasonal volume.
Our non-GAAP efficiency ratio for the first quarter of 2022 was $56, 47%, while our annualized ratio of noninterest expense to average assets was 193% compared to 54, 9% and 194% respectively for the fourth quarter of 2021.
Noninterest expense for the first quarter was $26 2 million, a 3% decrease from last quarter.
Discussed last quarter, we expect quarterly run rate operating expenses to be closer to $27 million for the remainder of the year as the full impact of annual merit increases take effect.
Credit quality across our loan portfolio continues to be favorable highlighted by nonperforming loans totaling 19 basis points of total loans as of the end of the first quarter of 2022 compared to 20 basis points at December 31, 2021, and 31 basis points a year ago.
We also continue to have low delinquencies at March 31, 2022, and December 31, 2021 loans past due 30 to 80 989 days were only four basis points of total loans.
At March 31, 2022, our allowance to total loans ratio was <unk>, 9%, representing a seven basis point decrease from year end and resulted in a negative provision for the first quarter of 2022 of $1 1 million. The decrease in the allowance for credit losses. During the first quarter was driven by the.
Release of $1 9 million of reserves that were established during the pandemic on certain COVID-19 modified hospitality loads, given the elevated credit risk profile.
This release more than offset the provisions that were necessary otherwise to cover solid loan growth during the first quarter.
Included within our allowance balance of $31 8 million as of March 31, 2022 is another $3 2 million of reserves related to these hospitality loans sub.
<unk> released over the coming quarters should these loans they are pre established internal requirements.
While there is the potential for future reserve releases as we expect the remaining previously modified loans to cure. This may be offset by other factors factors such as loan growth or a shift in our economic outlook within our seasonal model.
While we have seen our allowance for loan to total loans ratio has steadily come down since the peak of the pandemic. It continues to be above our pre pandemic level under CSO as of March 31, 2022, our allowance was four seven times nonperforming loans, providing what we believe to be sufficient and appropriate coverage.
Like many other financial institutions, we too saw a decrease in the shareholders equity during the first quarter of 2022 because of the decrease in market value of our bond portfolio due to the sharp increase in the yield curve.
March 31, 2022, our TCE ratio was seven 5% compared to $8 two 2% at December 31 2021.
And tangible book value per share decreased $26 16 at March 31, compared to $30 15.
At the end of last year.
While we certainly never like to see shareholders equity decreased we understand why it did and are confident that as temporary and driven by the change in the interest rate environment being an asset sensitive bank rising entrance interest rates are generally a good thing and will likely translate into higher earnings and capital generation from our current balance sheet.
Also our investment portfolio is made primarily up of amortizing bonds industrial naturally naturally see balances that are currently underwater runoff lastly, we have the ability to leverage held to maturity or HTM designation and may consider to do so on future investments there are longer dated and present greater price.
Utility risk.
The company continues to be well capitalized supporting strong core equity, which can be seen within our regulatory capital ratios.
Our all in well in excess of our regulatory capital requirements as of quarter end.
This concludes our comments on our on our first quarter results. We will now open the call up for questions. Thank you.
Thank you we will now begin the question answer session to ask a question press Star followed by one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question Press Star one.
At this time, we will pause momentarily as questions registered.
Our first question is from Damon Delmonte with <unk>. Please proceed.
Hey, good afternoon, guys hope everybody's doing well today.
So just wondering great good to hear Gregg just wanted to start off with our with the margin and kind of your thoughts going forward.
I know you guys are asset sensitive and just kind of wondering what you guys internally project the margin to do for a.
25 basis point increase here coming up in may or even a 50 basis point as it seems like the market is kind of moving towards that stance.
I guess, David while we're saying internally right now is our models are kind of looking at it from where does the fed looked like at $2 50 by year end.
On that basis from a margin perspective.
We think where we are right now at $2 87 for the first quarter is a pretty good indicator of where we may end up I'd say plus or probably are more on the upside maybe plus five basis points.
Within our first quarter margin.
Our interest income there is a few items in there that are call it a little higher than not higher nonrecurring items.
So because of that we think will will cover that but also we have some potential upside from here too.
Got it okay. So.
What would you put the core margin this quarter closer to like $2 80.
Yes.
Yes, probably three basis points down from what we reported from the core basis, Okay, Thats $2 80, 279 to learn there.
Okay.
Got it okay.
Great and then.
You talked a little bit about your outlook for expenses and kind of.
How you see them trending going forward and when they came in a little bit lighter than what we were looking for but just wondering.
Wage inflation in any other projects or internal initiatives you have going on kind of how you see that the expense base trending.
Yes, I think like we said I mean, we expected on average kind of our run rate for the rest of the year be closer to the 27.
This quarter I agree or certainly a little bit lower we do in the second quarter as well.
We have our annual director equity grants that come through that pushed us up a little bit as well. So my expectation for the second quarter as we could be slightly above 27%, but from there we will level out in roughly the 27 for the year.
Great and then just lastly on loan growth, obviously off to a really strong start helped in part by the portfolio.
Residential mortgages I guess first part do you expect to continue to portfolio Reggie mortgages.
And then second part how do you look at this quarter's result, and kind of extrapolate that over the coming quarters. Thanks.
Yes, so the on the <unk> on the resi mortgage side.
As I mentioned in my comments and certainly Greg too is it's a really hot market on the residential mortgage side.
We sold 23% to <unk>, 77% in our portfolio for the first quarter I think based on our current pipeline and the way that shaping up but it'll be somewhere in the 70% to 75% likely again for the second quarter that will will hold.
I think from there is certainly a big question Mark in terms of what the competition does we're seeing are just that the market the market around us is pricing well below the secondary secondary market.
We hope and believe that we'll see over the next 60 to 90 days that start to have call. It correct itself a little bit.
But I think to that point where rate at right now we're kind of internally thinking about what does that look like what is that balance.
For loan in our portfolio as well as sold we partially we'd like to see a closer to the 50 50 mix, but we do think that that's going to be a real challenge getting there. This year remainder of the year and maybe I can just add the payments on.
On the commercial side and <unk>.
Including within that small business, obviously off to a strong start.
And that's reflective of.
The buildout of our small business efforts that we're doing.
Both from people as well as processing to make it more streamlined and then on the larger commercial side I know typically we say mid single digit loan growth.
I think if you annualized out our growth that's probably on the higher end for what we have.
Could you go back to my old thing of mid single digit probably were a little bit higher than that.
For you to think about.
Going forward.
We're pleased what were seeing but as I mentioned in my comments.
It's just competitive.
It's competitive on the rate side competitive on the structure side.
And I always want to maintain the flexibility to pick our spots.
Because that will be best long term growth, especially.
If theres a potential change in the.
Asset quality cycle coming up.
Got it that's great. Thank you very much.
You're welcome thank you.
Thank you for your question.
Our next question comes from Matthew Breese with Stephens. Please proceed.
Good afternoon.
Hi, I was hoping you could help me.
Couple of questions. So the first one is just on incremental loan yields what are the incremental blended yields.
Versus the existing book and have we hit the crossover point yet.
We have so right now our pipeline is we're seeing it on the upper end of for now from a rate perspective.
And then from the resi side and then on the commercial side, we're starting to get into the fours and into the into the high fours low fours to high for US too. So we are starting to certainly seen in yields and.
And pricing start to tick up now.
Got it Okay, and then behind your NIM forecast through the end of the year.
Are your assumed deposit betas, and how does that compare to last cycle.
Yes, so we are assuming a I'll call it over the economic cycle.
95% data.
We hope it will certainly be better than that.
Then that though within that forecast, we're not assuming any lag again I don't think.
I don't think that'll be the case as we as we always have them will lag the market. We have a strong liquidity position strong deposit core deposit franchise, but in terms of what I shared there from a margin outlook. It assumes there is no lag.
And are you starting to see the market get a bit more competitive on the deposit front, Mike do you think youll be able to lag or is it intensifying.
More than you thought already.
We're starting to hear a little bit, but it's at this point, it's not prevalent.
Prevalent.
We do anticipate that we will lag we do think Thats a reality I think realistically the first 7500 basis points.
We will lag and then from there it's going to be certainly competitive one of the things that it would be a big factor just like on the loan side will be what competition does not all the banks certainly within our market to have our position.
I'd have to chase deposits, a little bit higher we will pick and choose those relationships and we'll do it prudently.
Okay.
The other one I had was the commercial reserves.
That are predicated on certain behaviors. The release there is that in all at once type event or should we think about kind of evenly dispersing that throughout the course of the year.
Likely that the bulk of that could come through in this next quarter.
Just wanted to be.
Cautious of what that actually means I mean, certainly we will have to release some reserves to extent they meet those internal metrics we spoke of.
But at the same time as we all know the macroeconomic zaireans pretty pretty volatile and a function of loan growth in terms of how that pans out for the second quarter. So I guess my point being is is.
Reserve.
It probably isn't a likely outcome there we expect to have some loan growth.
Probably similar and comparable to what we saw this quarter.
Or that was as I mentioned, just the macro environment and how that impacts are more volatile accounting model as well maybe.
Maybe if I add in that and have more repeating what Mike. Just said is we wanted to put out there the math.
Max potential.
We're a leaf that could come but.
But we don't expect it to be out there.
Again, just as the economy plays out as Mike said, and obviously, we want to use it up in loan growth, but we.
Just wanted to communicate that situation, there, but I would put that whole amount in your models.
Understood Okay.
The last one is just in regards to the C&I portfolio. Specifically, obviously was that it was a very nice quarter growth wise I wanted to get a sense for utilization rates at yearend and today how much of that was due to increased utilization do you expect that to continue and how much of that was just kind of new customers and organic growth.
We have seen the working capitalized pick up a bit from year end, but we're still below pre pandemic levels at this point Matt.
Okay.
Alright.
That's all I had the honor to C&I.
Oh, sorry go ahead.
No no you go ahead and finish that was my last question.
Well I was going to say on the C&I side I think it's a small the small business team has done a lot of ramp up and we've seen some pretty solid momentum. There. So that's certainly like in our comments as we alluded to we're excited about that and where that goes.
Got it okay. Thank you for taking my questions I appreciate it.
Yes, my pleasure.
Thank you for your question.
As we have no further questions. This concludes the question answer session I would now like to pass the conference over to our management team for closing remarks.
Great. Thank you really.
The only closing remarks is to thank you all for your attendance and listening in later this afternoon at three o'clock, we'll have our annual shareholder meeting.
Some of you are there we look forward to.
Hosting you virtually on that so take care.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
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