Q2 2022 Camden National Corp Earnings Call

At <unk> 40.

Per share during the quarter, which translates to a three 6% dividend yield. We also repurchased 148470 shares during the quarter at an average price of $45 83 per share.

I'd like to now introduce Mike Archer, our executive Vice President and Chief Financial Officer.

Thank you Greg Good afternoon, everyone. We reported net income of $15 million for the second quarter of 2022 and diluted EPS of $1 two.

Which was a decrease of 11% and 10% respectively compared to the first quarter of this year.

On a non-GAAP basis pre tax pre provision earnings for the second quarter grew 6% over the first quarter and if adjusted further to remove SBA PPP income earnings were up 11% between quarters.

As mentioned earlier loans grew 5% during the second quarter and 9% through the first half of the year we.

We've seen solid loan growth across our segments led by residential mortgage and commercial.

Much of our residential mortgage production through the first half of 2022 has been the jumbo products, which in part is driven a higher percentage of our originations to be held in portfolio.

For the second quarter, we held 80% of our residential mortgage loans in our loan portfolio and anticipate we will see a similar level next quarter as well.

We're also pleased with our positive momentum within our C&I portfolio C&I loans for the second quarter grew 4% and through the first half of 2022 grew 16%.

For the second quarter 2022, we provisioned $2 $3 million of expense for expected credit losses, which was an increase of $3 4 million over the first quarter of 2022.

While asset quality through the second quarter and as of June 30 continues to be very strong additional loan loss reserves were provided for given our strong loan growth and the uncertain and volatile environment in which we continue to find ourselves.

The impact of the increased allowance for credit losses was partially offset by the release of $2 4 million of reserves that were established during the pandemic on certain COVID-19 modified hospitality loans.

As of June 30, there was less than $1 million reserves remaining on these loans.

While it is certainly challenging to predict the timing and severity of a possible downturn in the credit cycle. Our philosophy philosophy is to manage the risk proactively and establish appropriate reserves protect our balance sheet and capital position.

In doing so we increased our ACL to total loans ratio this quarter from 90 basis points at March 31 to 92 basis points at June 30.

Net interest income for the second quarter was $36 5 million up just slightly over the first quarter as SBA PPP loan income for the second quarter was 868000 lower than the first quarter.

Lower SBA PPP loan income largely accounted for the decrease in net interest margin of three basis points between periods to 284% for the second quarter of 2022.

On a non-GAAP basis adjusted for SBA, PPP loan income and excess liquidity net interest margin for the second quarter was $2 eight 5% compared to 284% last quarter. However, remember that last quarter, we had the additional benefit from certain nonrecurring items that contributed approximately three basis points to our <unk>.

First quarter net interest margin.

Accounting for accounting for that our core our core margin expanded at closer to four basis points. We.

We anticipate net interest margin will continue to expand over the coming quarters and the current interest rate environment.

During the second quarter, our total funding costs rose eight basis points over the first quarter to <unk> two 9% led by an increase in borrowing cost at 12 basis points in deposit costs was six basis points, our deposit pricing strategy has been to lag the market and so far the increase in deposit cost is largely been driven by repricing of index.

Deposits as.

As noted in our earnings release.

Our all in funding cost beta was below 11% for the first six months of the year.

Noninterest income for the second quarter of 2022 was $11 1 million, which was 13% higher than the first quarter of 2022.

Increases in mortgage banking income brokerage fees and debit card income led the way.

Noninterest expense for the second quarter of 2022 was $26 6 million, which is 1% higher than the first quarter of 2022.

Our non-GAAP efficiency ratio for the second quarter of 2022 was 50, 542% compared to $56, 47% for the first quarter.

We continue to estimate quarterly run rate operating expenses will be near $27 million for the remainder of the year.

As noted earlier, our credit quality across our loan portfolio continues to be very strong at June 30, non performing loans were 0.1 per six zero.

<unk>, 6% of total loans down three basis points from the end of the last quarter and delinquencies were 0.0% to 6% of total loans at June 30, which was two basis points below.

At the end of last quarter, but still well below historic norms.

During the second quarter of 2022, we transferred certain investment securities that are more sensitive to further interest rate movements for mail from available for sale to held to maturity to protect shareholder capital from further decreasing should interest rates continue to rise.

Tangible book value per share decreased 9% during the second quarter to $23 92 at June 32022.

Our tangible common equity ratio decreased 74 basis points in the quarter to $6 five 1%.

We continue to be confident that the decrease in tangible capital interest rate related and temporary.

The Companys regulatory capital ratios continue to be well in excess of regulatory capital requirements as of June 30th supporting the strength of our core capital position.

During the second quarter, we repurchased 148470 shares of our common stock, bringing our total shares repurchased through the first half of 2022 to 161 556 shares.

This concludes our comments on our second quarter results, we will now open the call up for questions.

Thank you.

We will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone keypad.

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

Your question. Please press Star then two.

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

Okay.

First question.

It's from the line of Damon Delmonte K B W. You May proceed.

Hey, Good afternoon, guys Hope I hope you guys are doing well today.

Okay.

And thank you.

So first question just wanted to talk a little bit about the margin.

I think you noted that the core margin ex PPP and liquidity drag would have been closer to $2 85.

How should we think about excess liquidity as far as like <unk>.

Getting the balance sheet and kind of getting back to a more normalized level over the next couple of quarters. It seems like it's been going down every quarter by how much longer do you think it remains a headwind for you.

I think we're kind of at that tipping point honestly, David I think as we move forward the concept of excess liquidity starts to be muted and go away.

Okay, Great and then can.

Can you kind of give a little little bit might be a little more guidance as far as how you think the core margin is going to react with you now.

The 75 basis points, we saw in June .

A full quarter impact of that and then kind of what we're expecting probably another 75 later this week.

How the margin could shape up in the back half of the year.

Sure. So what we're thinking again is all of course highly dependent on what happens but in terms of.

If the fed gets to call it 3% by the end of the end of the quarter third quarter and keeps moving forward to three five by the end of the year, we're thinking for the third quarter, we're going to see margin expansion in neighborhood of three to three to five basis points and Thats off of our 285 core margin that we're speaking of.

Okay.

Alright, great that's helpful.

And then.

The uncertainty you guys alluded to.

Can I ask backdrop in Canada.

Just to add a couple of basis points. The reserve how do we think about the reserve at this level going forward with.

Our expectation for loan growth to continue and potentially you know continued softening economic backdrop. So we look for provisioning can be something in <unk>.

The level of this range that you had this quarter or do you think you can kind of.

Pulls back.

Less than $1 million type level.

Sure Jamie this is Greg.

I'll take that and Mike can add some color.

If he wants to I think it's really all dependent on the.

Economic forecast and we have a very robust seasonal model that we use.

Obviously, there's two factors that we can.

Can add into that but I think it's really in my mind, what we are.

Seeing and reading from even larger banks.

It's real.

The potential and risk of a recession and how that impacts us.

And we're always going to err on the side in this situation of being prudent and add when possible and if needed.

That said if things improve.

We won't be will be stabilizing call it.

B allowance.

However, it will always be impacted by loan growth, which I think is a good thing.

If we have loan growth Thats, a good thing to add into your.

Provision in your allowance.

Got it got it okay.

And then are there any areas.

And any lending areas.

So much geographic, but any segments that you.

You are seeing early signs of.

Softness or weakening.

Whether it be hospitality or <unk>.

Commercial real estate or manufacturing or something like that.

No.

Not anything that.

I would say to start trending off from call it from a softening perspective.

Obviously residential real estate that is slowing down that's happening nationally through all the markets.

We're still seeing.

Good activity tends to be on the jumbo side, but.

That's obviously very interest rate driven at this point.

On the call at nonresidential, so youre, primarily getting into the commercial including small business and we're seeing strong activity, especially in the small business. When you look more on the industry segments out of the commercial book increased book.

They're all they're all operating pretty good theres nothing that I would say is shutting down right now.

We see some good activity.

Specialized lending area of senior housing good activity in the warehouse spaces that we're seeing.

And so it's out there.

As I mentioned, we saw a little bit of softening this month, but we usually see that in July and August .

However, even with that where our pipelines are above pre pandemic levels, which is great.

Got it okay, great. That's all that I had for now thank you great. Thank you.

Sure.

Thank you.

The next question is from the line of Matthew Breese with Stephens you May proceed.

Good afternoon.

Hi, Matt I wanted to go back to the topic of the net interest margin you mentioned the outlook for next quarter is up 3% to five basis points.

I'm curious what does that contemplate for loan yields and deposit betas and and maybe you could just give us some color on your expectations around deposit betas longer.

Long term over the next year or so.

Sure.

So from a deposit side that we have.

Expecting to see deposit certainly deposit costs rise next quarter again all of this is predicated on the fact that the fed move.

But we're expecting somewhere around 15 to 20 basis points. So call. It next quarter all in probably 45 to 50 is what kind of what we're looking at from a funding side.

With that said, we're also expecting to see as mentioned yield start to rise at a faster clip.

Neil Empire, we have floors on our home equity products with now tip. The scale there and we're starting to do that we're going to start to see those repricing sorry, getting the full benefit there.

Our loans.

Loan book.

Trying to see again from a pipeline perspective, right now we are four and a half closer to 5%.

Being so we're going to start seeing a rise in the yields.

And again like I said, we were expecting the three to five but again I think all of this is clearly driven off of what happens with rates. The 10 year, we're seeing that move around still we've seen that dip a little bit now closer to $2 80.

And we're keeping a watchful eye on that.

Understood. Okay, and then maybe you could just give us a sense for how the pipeline looks I mean, one of the things that struck me. This quarter was obviously residential real estate growth was.

Led the way and it's been leading the way for some time now but every other category contributed so as you think about the rest of the year do you think we see a similar kind of breakdown of loan growth.

Or where do you think we will see the most slowdown from.

So I think certainly for next quarter, we're going to see residential.

This call will be fairly consistent and as Greg mentioned, the pipeline is softening a little bit, but still ROE certainly still robust there.

We're not seeing any signs in terms of that mix between portfolio and sale changing so I do think for the third quarter.

<unk>.

We continue to see a strong quarter there from the resi side the residential side the commercial side again be seen that pullback from a pipeline perspective, but one of the things as we go through the second half of the year, we do have some construction funding lined up.

So that will help our balance help support some of that loan growth as we go into the second half but.

I don't I, certainly don't foresee our loan growth being what it was what we saw here in the first half of 9%, that's certainly a pretty robust.

Okay.

And then I wanted to go back to the provision and reserve discussion.

I've asked so far all my quote cold weather banks. This but is there any concern around just the overall rise in heating and fuel costs for the most recent CPI home heating costs are up a 100% year over year.

Youre winters tend to be longer in harsher than a lot of other areas of the country does that play into your thinking as we head into the colder months.

Matt I'm glad you asked that yes. It does it is the short answer.

That does influence, especially when you get into some qualitative factors and reasoning behind that.

Because that one will impact directly the consumer and that trickle through.

And like I say, it's the cold weather part and the heating fuel if it's 450 <unk> college of gallons each house.

That's a strong drag.

On our economy up here.

And just as an aside and I worry about it for my own employees here.

However, I will say, what we're seeing now from tourism, even though gas.

Until a few weeks ago was $475 million 80, plus a gallon strong tourism, we see that.

Pretty much any community.

Coastal or or tourist related even the inland ones, especially in the more populated ones like.

Portland, Southern Maine down the kind of box and even here in Camden extremely extremely busy seeing a lot of traffic come through so I think that wave me.

Help get those small businesses and people related to the tourism industry get them over that hump to help soften that but we are monitoring.

Fuel costs for the coming winter.

Got it okay.

Thats all I had I appreciate you taking my questions. Thank you.

Thank you.

Thank you.

Okay.

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

I would like to turn the conference back over to Greg <unk> for any closing remarks.

Sure well Damian Matt Thanks for.

Asking questions and your interest.

Other people that are joining the call. Thank you very much for taking the time out of your data to Hilli Camden National story.

All have a good day bye now.

The conference has now concluded.

Thank you for attending today's presentation you may now disconnect.

Okay.

Yes.