Q3 2023 Camden National Corp Earnings Call
Good day and welcome to Camden National Corporation third quarter 2023 earnings Conference call. My name is Hannah and I will be your operator for today's call all participants will be in a listen only mode. During today's presentation.
During the presentation, we will conduct a question and answer session. If you require operator assistance at any time during the call. Please press Star 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.
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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 and supplemental earnings materials. The company's 2022 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 to non-GAAP financial measures are intended to provide meaningful insights and are reconciled with GAAP in your press release.
Today's presenters are Greg Dufour, 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.
Thank you Hannah and good afternoon, and welcome to Camden National Corporation's third quarter 2023 earnings call.
Before I begin my comments on our third quarter performance.
To acknowledge the traumatic events that our communities have faced over the past several days since the mass shooting in Lewiston, Maine on October 25th.
We have two locations in the direct area and nearly 60 employees, who live in the Louis Sullivan area as well as many customers friends and community members.
Although our employees and families are safe they are impacted by this tragedy.
And we will support them and our communities throughout this ordeal and its aftermath.
We reported net income of $9 $8 million or <unk> 67 per <unk>.
Diluted share for the third quarter 2023.
This included the impact of repositioning a portion of our investment portfolio, which generated a $5 $3 million pre tax loss on the sale of securities.
Excluding that impact our adjusted non-GAAP earnings for the quarter would have been $14 million or <unk> 96 per diluted share on a non-GAAP basis.
We expect the changes to our investment portfolio will provide future benefits to our net interest margin earnings and capital.
Overall, we're projecting a two and a half year earn back on the transaction, which is within our target range from major financial transactions.
Even with the investment loss income.
After dividends was accretive to capital for the quarter.
Our earnings release also included several reconciliations between GAAP and non-GAAP measurements that exclude the impact of the repositioning of the investment portfolio.
Like many banks were not performing to our historical levels, but were showing signs of stabilization and improvement.
Strategically we remain focused on three major efforts maximizing our net interest margin bill.
Building deposits and liquidity.
And maintaining our asset quality.
Our net interest margin for the third quarter was 239%, which was one basis point less than the previous quarter and with the expect within the expectations. We shared on our last call and a non-GAAP efficiency ratio for the quarter.
Improved to 66, 3%.
In addition to seeing our core earnings improved this quarter, our loan to deposit ratio of 87% and a tangible common equity ratio of 647% as of September 30th Derma.
Demonstrate the many strategies, we have undertaken throughout 2023 and fortified our financial strength and resiliency.
I believe our transactions and actions position us well for the future and they will enable us to capitalize on any disruption in our markets as we believe that all of our competitors are as well positioned as we are.
I'd be remiss not to recognize this will be the last time I'll be joining this call as president and Chief Executive Officer of Camden National Corporation.
We are anticipating the arrival my successors Simon Griffitts on November 20th that have many have made many plans for a smooth transition when Simon takes over as president and CEO on January one.
He will be an adviser to Simon and the board until March 31 2024.
And after getting to know Simon over the past several months and seeing how Camden's management team has operated through this difficult environment I know that we and by that I mean shareholders of which I will remain <unk>.
Hans.
I want to extend my appreciation to our owners, both institutional and the individuals who make up one of the four major groups. We serve which also includes our customers communities and employees.
I also want to thank the stock research analyst, who take the time to provide research on our stock and as well as to keep us on our toes and calls like this.
And it's been an honor to be part of this great organization for 22 years.
<unk> two have been CEO for 2014 of those now I would like to turn it over to Mike Archer.
Thank you Greg and good afternoon, everyone. This morning, we reported net income for the third quarter of $9 8 million and diluted EPS of <unk> 67.
Each lowered by 21% on a linked quarter basis.
As we reported in our earnings release in the third quarter, we sold just over $66 million of lower yielding securities to adjust our balance sheet and then doing so we recognized a pre tax loss of $5 3 million.
We will discuss the details of this transaction further in a few minutes.
Adjusting for this loss on a tax effected basis non-GAAP adjusted net income for the third quarter was $14 million and non-GAAP adjusted diluted EPS was <unk> 96.
Each an increase of 13% on a linked quarter basis.
The strength of our core operating earnings and capital allowed us to take a loss at this size comfortably in order to improve our balance sheet position for today's interest rates.
For the third quarter, our non-GAAP financial return metrics, which excludes the investment loss improved over last quarter.
Our adjusted return on average assets was <unk>, 97% for the third quarter compared to 0.87% last quarter and our adjusted return on average tangible equity increased to $14, 94% for the third quarter compared to $13 five 5% last quarter.
We have been consistently communicating that deposits net interest margin and asset quality, our short term priorities over the last few quarters and we are seeing the benefits of this play out in our core earnings and key financial metrics.
Net interest margin for the third quarter was $2 three 9% down one basis point from last quarter and within our guidance. We gave in our last quarterly earnings call.
We are certainly pleased to see signs of net interest margin stabilizing during the quarter.
Various strategies, we've executed over the last several quarters, including loan deposit pricing derivatives and funding have all proven beneficial.
Loan balances in the third quarter decreased 1% due to a few larger commercial loan payoffs on the residential mortgage business. We continue to sell all saleable originations and eliminate portfolio volume to manage net growth in the product.
On the commercial side, we continue to be selective in our deals are focused on growing and developing formulations ships.
For the third quarter, our weighted average interest rate for new on books originations was over seven 6%.
Unknown Executive: Good day, and welcome to Camden National Corporation, 3rd quarter, 2023, earning a conference call. My name is Hannah, and I will be your operator for today's call. All participants will be in a listen only mode during today's presentation.
Loan pipelines continued to be favorable fairly stable, but we do see signs of activity slowing down across our markets.
Deposit balances in the third quarter were relatively flat decreasing less than 1% driven primarily by nearly $98 million of broker Cds maturing and interest checking balances decreasing by 3%.
Unknown Executive: Following the presentation, we will conduct a question and answer session. If you require operator assistance at any time during the call, please press star then zero.
Unknown Executive: Please note that this presentation contains board looking statements which involve significant risks and uncertainties that may cause actual results very materially from those projected in the board looking statement. Additional information concerning factors that could cause actual results to differ materially from those in such board looking statements are described in the company's earnings press release and supplemental earnings materials. The company's 2022 annual report on form 10K and other filings to the FTC. The company does not undertake any obligation to update any board looking statements to use like circumstances or events that occur after the board looking statements are made.
CD balances grew $102 8 million or 23% during the third quarter, mostly offsetting this.
Decreases excuse me.
Our CD strategy has been both to generate new relationships and deepen existing relationships, while attracting new deposits.
Noninterest income for the third quarter totaled $5 1 million and was half of what we reported for the second quarter. The driver for the decrease was a pre tax investment loss of $5 3 million that we recorded on the sale of certain investment securities to reposition our balance sheet, we sold $66 million of bonds, yielding 231% and reinvested 30 million.
The proceeds.
Unknown Executive: Any references in today's presentation to non-GAAP financial measures are intended to provide meaningful insights and are reconciled with GAAP in your press release.
Into bonds, yielding just over 6%.
The remaining proceeds as of September 30th primarily sat in cash due to timing of the transaction.
Subsequent to quarter end, we have used these proceeds to reduce higher cost funding alternatives.
Unknown Executive: Today's presenters are Greg Dufour, President and Chief Executive Officer, and Mike Archer, Executive Vice President and Chief Financial Officer. Please note that this event is being recorded.
As we analyze the transaction.
We took into consideration the yield and life of the securities being sold our interest rate forecast and the earn back on tangible book value dilution, which we expect to be approximately two and a half years.
Hannah: At this time, I would like to turn the conference over to Greg Dufour. Please go ahead, sir. Thank you, Hannah.
Gregory Dufour: Good afternoon and welcome to Canada National Corporation's third quarter 2023 earnings call. Before I begin my comments about our third quarter performance, I'd like to acknowledge the traumatic events that our communities have faced over the past several days since the mass shooting in Lewis and Maine on October 25th. We have two locations in the direct area and nearly 60 employees who live in the Lewis and Auburn area, as well as many customers, friends, and community members.
Noninterest expense for the third quarter was $26 2 million down 3% on a linked quarter basis, we continue to manage costs closely in light of current and forecasted market conditions in the near term comps.
Gregory Dufour: Although our employees and families are safe, they are impacted by this tragedy and will support them in our communities throughout this ordeal and its aftermath. We reported net income of $9.8 million or 67 cents per diluted share for the third quarter 2023. This included the impact of repositioning a portion of our investment portfolio, which generated a $5.3 million pre-tax loss on the sale of securities. Excluding that impact, our adjusted non-gap earnings of the quarter would have been $14 million or 96 cents per diluted share on a non-gap basis.
Compensation related costs for the third quarter were down 4% from last quarter as we closely managed staffing levels and adjust incentive related accruals.
Faulting and professional fees were also lower on a linked quarter basis by 478000, primarily due to the timing of our annual equity Award grant the company's directors in the second quarter each year.
Our non-GAAP efficiency ratio for the third quarter was 66, 3% compared to $63 zero percent.
<unk> excuse me, 8% the prior quarter.
As we work through the CEO transition over the next several months, we anticipate elevated nonrecurring costs as a result.
Our current estimate for related costs for all of 2023 is approximately 900000.
Gregory Dufour: We expect the changes to our investment portfolio will provide future benefits to our net interest margin, earnings, and capital. Overall, we're projecting a two and a half year earn back on the transaction, which is within our target range for major financial transactions. Even with the investment loss, income after dividends was accrued to capital for the quarter. Our earnings release also included several reconciliations between gap and non-gap measurements that exclude the impact of the repositioning of the investment portfolio. Like many banks, we're not performing to our historical levels, but we're showing signs of stabilization and improvement. 37.
Another $1 2 million for 2024.
Due to the nine months ended September 30, we have recognized approximately 600000 of related expenses.
Including legal and consulting fees recruiter fees and other equity related costs.
Our total cost estimate for 2023 and 2024 include costs for the overlap of Greg and Simon as we head towards year end and into the first quarter of 2024 to ensure a smooth transition.
The company's financial position continues to be very strong credit quality across our loan portfolio remains on solid foot solid footing with nonperforming loans of <unk>, one 6% of total loans and delinquencies were 0.09% of total loans.
As of September 30th.
Up slightly from June 30, but still favorable.
Company's total criticized classified loans improved quarter over quarter and stood at 1.0% to 6% of total loans as of September 30.
We continue to monitor our Cree office loan portfolio closely through September 30, we've not seen any material degradation in this portfolio.
Gregory Dufour: Strategically, we remain focused on three major efforts, maximizing a net interest margin, building deposits and liquidity, and maintaining our asset quality. Our net interest margin for the third quarter was 2.39%, which was one basis point less than the previous quarter, and within the expectations we shared on our last call, and our non-gap efficiency ratio for the quarter improved to 60.63%. In addition to seeing our core earnings improve this quarter, I loaned a deposit ratio of 87%, an attainable common equity ratio of 6.47% as of September 30th, demonstrate the many strategies we have undertaken throughout 2023 fortified our financial strength and resiliency.
<unk> office loan exposure as of September 30 was 5% of total loans consistent with last quarter.
Total loan reserves stood at <unk>, 9% of total loans at quarter end consistent with the second quarter.
The combination of lower loan balances minimal net charge offs and continued favorable credit quality metrics.
It led to a negative provision expense for the third quarter of 574000.
Uninsured deposits as of September 30.
We're at 24% of total deposits and total uninsured deposits and uncollateralized deposits as of December 30, or 15% of total deposits each consistent with last quarter.
Available liquidity sources as of September 30 were one four times uninsured deposits and two one times uninsured and uncollateralized deposits as of September 30, compared to one three times and two times, respectively as of the end of last quarter.
Gregory Dufour: I believe our transactions and actions position as well for the future, and they will able us to capitalize on any disruption in our markets as we believe that all of our competitors are as well positioned as we are.
Gregory Dufour: I'd be remiss not to recognize this will be the last time I'll be joining this call as President Chief Executive Officer of Canton National Corporation. We are anticipating the arrival of my successor Simon Griffiths on November 20th, and have many plans for a smooth transition when Simon takes over his President and CEO on January 1st. I'll be an advisor to Simon and the board until March 31st, 2024, and after getting to those Simon over the past several months and seeing how Camden's manager team has operated through this difficult environment, I know that we and by that I mean shareholders of which I will remain are in great hands.
As of the end of the third quarter of 2023, our capital position remains strong measured on both a GAAP and regulatory basis at the end of the third quarter, our tangible common equity ratio was 647% down 11 basis points from last quarter and all of our regulatory capital ratios continue to be well in excess of capital.
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This concludes our comments, we'll now open up the call for questions.
Certainly.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
For any reason.
You would like to remove that question. Please press star followed by two again to ask a question press Star one.
Gregory Dufour: I want to extend my appreciation to our owners, both institutional and individuals, who make up one of the four major groups we serve, which also includes our customers, communities, and employees. I also want to thank the stock research analyst who take the time to provide research on our stock and as well as to keep us on our toes and calls like this.
As a reminder, if you are using a speaker phone please.
Please remember to pick up your handset before asking your question, we will pause here briefly to some.
Ross day.
Our first question comes from the line of Steve Moss with Raymond James You May proceed.
Gregory Dufour: It has been an honor to be part of this great organization for 22 years humbling to have been CEO for 14 of those.
Good afternoon, Greg and Mike.
Hi, Steve Frank.
Michael Archer: Now I'd like to turn it over to Mike Archer. Thank you Greg and good afternoon everyone. This morning we reported net income for the third quarter of $9.8 million in diluted EPS at 67 cents each lower by 21% on a link quarter basis.
The second one.
Best wishes on your retirement here.
Okay and join here.
Well thank you.
Maybe just starting.
Maybe just starting on the <unk>.
Margin here.
Im curious you obviously have a lot of moving pieces.
Michael Archer: As we reported in our earnings release in the third quarter we sold just over 66 million of lower yielding securities to adjust our balance sheet and in doing so we recognized a pre-tax loss of 5.3 million. We will discuss the details of this transaction further in a few minutes. Adjusting for this loss on a tax-affected basis non-gap adjusted net income for the third quarter was 14 million and non-gap adjusted diluted EPS was 96 cents each an increase of 13% on a link quarter basis.
With the late quarter restructuring and higher cash position.
Just curious as to how you all are thinking about that.
Over the near to intermediate term.
Sure Great question.
So first off just because of the to your point because the timing we didn't see that full benefit for.
The transaction this quarter so to that to that end, we see this transaction being five to six basis points accretive from a margin perspective, Steve.
Michael Archer: The strength of our core operating earnings in capital allowed us to take a loss of this size comfortably in order to improve our balance sheet position for today's interest. Trades. For the third quarter, our non-gap financial return metrics, which exclusive investment loss, improved over last quarter. Our adjusted return on average assets was 0.97% for the third quarter, compared to 0.87% last quarter, and our adjusted return on average tangible equity increased to 14.94% for the third quarter, compared to 13.5% loss quarter.
As we as we think about margin for the fourth quarter, where we're kind of thinking that $2 35 to $2 40, plus or minus a few basis points.
And that is including that benefit.
Okay.
And just in terms of the.
Deposit dynamic like you guys have used the broker market and obviously.
It looks like you guys are looking to remix towards just more traditional Cds.
How are you thinking about the deposit beta going forward here and a higher for longer environment.
Michael Archer: We have been consistently communicating that deposits net interest margin and asset quality are a short-term priority to the last few quarters, and we are seeing the benefits of this play out in our core earnings and key financial metrics. Net interest margin for the third quarter was 2.39% down one basis point from last quarter, and within our guidance we gave our last quarterly earnings call. We are certainly pleased to see signs of net interest margins stabilizing during the quarter.
Yes. It gets on the funding side I mean, we I think we communicated last quarter that overall, we anticipated our beta to be 35, 40%.
I think we're inching up that way and I would say probably the same on the retail deposit side call. It excluding the brokered somewhere in that neighborhood as well as what we're thinking for full cycle.
I think to your point to the extent that we are in this rate environment for longer than maybe even we anticipate or expect certainly we could continue to see some upward pressure on that but.
Michael Archer: The various strategies we've executed in the last several quarters, including loan deposit pricing, derivatives, and funding have all proven beneficial. Loan balances in third quarter decrease 1% due to a few larger commercial loan payoffs. On the residential mortgage center of the business, we continue to sell all saleable originations and are limiting portfolio volume to manage net growth in the product. On the commercial side, we continue to be selective in our deals and focused on growing and developing full relationships.
Just on where we're at right now that's what we're thinking.
Okay.
And in terms of just the.
Okay.
In terms of just on the loan pipeline here just curious.
How is activity. These days I hear you guys controlling the resi side, but just curious about the pipeline and where is loan pricing as well.
Michael Archer: For the third quarter, our weighted average interest rate for new on-books originations was over 7.6%. Loan pipelines continue to be fairly stable, but we do see signs of activities flowing down across our markets. Deposit balances in the third quarter were relatively flat, decreasing less than 1%, driven primarily by nearly 98 million of broker CDs maturing, and interest checking balances decreasing by 3%. CD balances grew to 102.8 million or 23% during the third quarter, mostly offsetting these decreases.
Sure Steve This is Greg I'll take that.
We are still increasing rates.
Shooting up now honestly Kaufman.
An 8% handle.
Not there completely across all products, but getting there so that has slowed down the pipeline and as Mike mentioned one of the reasons why we saw a small reversal of <unk>.
Some of our reserves because of that.
So.
We're really.
<unk>.
Net interest margin over loan growth and.
Michael Archer: Our CD strategy has been both to generate new relationships and deep and existing relationships while attracting new deposits. Not an interesting come for the third quarter total 5.1 million and was half of what we reported for the second quarter. The driver for the decrease was a pre-tax investment loss of 5.3 million that we recorded on the sale of certain investments security to reposition our balance sheet. We sold 66 million of bonds, yielding 2.31% and reinvested 30 million of proceeds into bond yielding just over 6%.
Letting that settle in and seeing what opportunities will present itself in the future.
Keeping our powder dry if you will.
Okay great.
And then.
Maybe just one.
Just one more here just on.
Yeah.
The competitive environment like.
Historically have talked about.
Loans and deposits very competitive have things eased up overall or kind of just curious what your sense for the overall market.
Michael Archer: The remaining proceeds, as of September 30th, primarily sat in cash due to timing of the transaction. Subsequent to quarter end, we have used these proceeds to reduce higher cost funding alternatives. As we analyze the transaction, we took into consideration the yield and life of the securities, being sold, our interest rate forecast, and the earnback contents will book value evolution, which we expect to be approximately 2.5 years. Now an interest expense for the third quarter was 26.2 million down 3% on a link quarter basis.
Okay.
It's still.
Extremely competitive.
Sides, but especially deposits.
As you and a lot of folks know in Maine, we have.
Credit unions have lot of Mutuals.
Turning to see their loan to deposit ratios run higher.
So their pricing up deposits to reflect that.
And so what we have done is that we do.
Michael Archer: We continue to manage costs closely in light of current and forecasted market conditions in the near term. Competition related costs for the third quarter were down 4% from last quarter, as we closely manage staffing levels and adjust incentive related accruals. Consulting and professional fees are also lower on a link quarter basis by 478,000. Primarily due to timing of our annual equity award grant that's company's directors in the second quarter each year. Our non-gap efficiency ratio for the third quarter was 60.6% compared to 63.0%, 0.7%, excuse me, percent, the prior quarter.
We just mentioned it earlier to our group.
Almost like hand to hand combat on deposit pricing, but we're prioritizing relationships versus transactions.
Okay.
Great I'll step back in the queue.
So I appreciate all the color.
Great. Thanks, Steve.
Thank you Mark.
Our next question comes from the line of Damon Delmonte with <unk> you May proceed.
Hey, good afternoon, guys hope everybody is doing well and Greg Congrats on.
Michael Archer: As we work through the CEO transition of the next several months, we anticipate elevated non-recurring costs as a result. Our current estimate for related costs for all of 2023 is approximately 900,000 and another 1.2 million per 2024. To the nine months end at September 30, we have recognized approximately 600,000 of related expenses, including legal and consulting fees, recruiter fees, and other equity-related costs. Our total cost estimate for 2023 and 2024 include costs for the overlap of Greg and Simon, as we head towards year end and into the first quarter of 2024 to ensure smooth transition.
Anytime before you I wish you the best in retirement.
Alright move too far because means a common destination for retirees and youre already there. So good luck with everything absolutely. Thanks, Tom.
Sure.
So I just wanted to start off on and kind of circle back on the loan growth side I think so.
I hear you guys, saying youre focusing on relationships over transactions in.
That's a great approach so as you kind of look at.
How things are shaping up here for the fourth quarter I mean, do you expect it to show positive.
Loan growth to end the year and kind of how does that impact your outlook for 2020 for growth.
Yes.
Michael Archer: The company's financial position continues to be very strong. Credit quality across the loan portfolio remains on solid footing with non-performing loans of 0.16% of total loans, and the link with these were 0.09% of total loans as of September 30. Up slightly from June 30, but still favorable. The company's total criticized, justified loans, improved quarter of a quarter, and stood at 1.06% of total loans as of September 30. We continue to monitor our pre-office loan portfolio closely.
Right now I would say, we're expecting flat loan growth just trying to keep up.
Any amortization payoffs.
Definitely the coming quarter.
As we.
Look out what the next year, we will come into play I think that's where we may see some opportunity.
Especially as people wont have the deposit liquidity base to support loan growth that may provide opportunities, but right now were kind enough.
Michael Archer: Through September 30, we have not seen any material degradation in this portfolio. Our pre-office loan exposure, as of September 30, was 5% of total loans consistent with last quarter. Total loan reserves stood at 0.9% of total loans at quarter end, consistent with a second quarter. The combination of lower loan balances, minimal net charge loss, and continued favorite credit quality metrics, led to negative provision expense for the third quarter of 574,000. Uninsured deposits as of September 30, were at 24% of total deposits, and total uninsured deposits, and unclierized deposits as of September 30, were 15% of total deposits, each consistent with last quarter.
Lack of a better term color on a holding pattern on loan growth I will try to try to keep it flat.
But only if the pricing makes sense as well as the credit quality mix.
Got it and then kind of tying that outlook for growth with.
With credit quality, which continues to be very strong I mean, how do we think about provision.
The release this quarter.
The negative $1 6 million in the provision line this quarter I mean should we.
Do you think you'll be booking some provision.
Yeah.
It's a good question I think.
Looking at it David just as 90 basis points total loans, we feel pretty good at we're certainly.
Yes.
Cognizant and being aware of what protects advise ahead in.
Michael Archer: Available with liquidity sources as of September 30, were 1.4 times uninsured deposits, and 2.1 times uninsured in unclierized deposits as of September 30, compared to 1.3 times and two times respectively as of the end of last quarter. As of the end of the third quarter of 2023, our capital position remains strong, measured on both a gap and regulatory basis. At the end of the third quarter, our tangible common equity ratio was 6.47%, down 11 basis points from last quarter, and all of our regulatory capital ratios continue to be well in excess of capital requirements.
I wouldn't see us probably going below the 90 basis points is certainly very much I would think if anything there might be a few basis points upside.
Ahead of US again, it all depends on what happens around us from a macro environment.
To your comment on asset quality looks really good credit trends within the portfolio liquidity. We look really good we continue to be very proactive and really digging in is doing some stress testing other things that we can to identify.
Any potential issues for the horizon.
Knock on wood, we're certainly not seeing that yet.
To the.
While card to it certainly will be loan growth I think I definitely agree with Greg I think we're kind of aimed and looking at probably something more flat for the fourth quarter.
Unknown Executive: This concludes our comments. We'll now open up the call for questions. Certainly. If you would like to ask a question, please press star, followed by one on your telephone keypad. If for any reason, you would like to remove that question, please press star, followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speaker phone, please remember to pick up your hand said before asking your question. You will pause your briefly to assemble our roster. Thank you.
So to that end holding of 90 basis points and anticipating minimal charge offs I expect the provision to be fairly fairly low.
Got it Okay, and then if I could just ask one more quick one on the expense outlook.
Mike could you just repeat your comments on the expected.
Costs related to the CEO transition.
And given the decline this quarter I mean are you factoring in those cost is like being operating costs or you're calling those out to be kind of like one time expenses.
Stephen Moss: Our first question comes from the line of Steve Moss with Raymond James. You may proceed. Back in afternoon, Greg and Mike. Nice to see you. Brian, good.
Yes, it's good question so just.
Just to repeat what I said there so all in for 2023, we are estimating the total cost of the transition around 900000.
And then for 2020 for $1 2 million.
Gregory Dufour: You know, Dufour, I want to wish you best wishes on your retirement here. So, I hope you, we enjoyed here. Well, thank you.
And then just year to date through 930 of this year, we've recognized about 600000 of that so call. It another 300000, probably in that in that arena for the fourth quarter of 2023.
Michael Archer: Maybe just starting, maybe just starting on the, the margin here. Just kind of curious, you know, you obviously have a lot of moving pieces, you know, with the lake quarter restructuring and the higher cash position. Just curious as to how you all are thinking about that over the near center media term.
Some of those expenses are just call it the pure accounting of it and we have to have to recognize it over.
Several months, we can't just take it in the fourth quarter. Unfortunately, so we will see some of that play out into 2024.
Michael Archer: Sure, no, great question. So, you know, first off, just because it's your point, because the timing, we didn't see that full benefit for the transaction this quarter. So to that, to that end, we, we see this transaction being, you know, five to six basis points, and that is including that benefit. Okay.
Got it okay.
And then any other notable trends from this quarter that you expect to kind of reverse as far as.
Accruals for bonuses or occupancy or anything like that.
Too early to tell right now David is to that end I mean, I think we've communicated in previous quarters that our normal run rate for operating expenses as private closer to $27 million.
As we think about it we certainly beat that this go around as we mentioned we had some incentive accruals and some other items that we're getting some benefit from we may we may see a level of that as we close out the year to be determined.
Michael Archer: And just in terms of the, you know, deposit dynamic, like you guys have used the broker market and obviously, you know, I just look like you guys looking to remix it towards just more traditional CDs. Just kind of how are you thinking about the deposit data going forward here enough in a higher for longer environment? Yeah, they get so on the funding side. I mean, we, we, I think we communicated last quarter that overall, we anticipated, you know, our beta to be 35, 40%.
But as we also as we enter into the fourth quarter, we started to see a level of just seasonal costs associated with the winter months and being in Maine.
Michael Archer: I think we're inching up that way. And I would say probably the same on the retail deposit side, call it excluding the broker somewhere in that neighborhood as well is what we're thinking for full cycle. You know, I think to your point, to the extent that we're in this rate environment for longer than maybe even we anticipate or expect, certainly we, we could continue to see some upward pressure on that. But, you know, based on where we're at right now, that's, that's what we're thinking.
There could be a slight uptick there, but I don't think anything overly material just to call. It normal normal course so.
Unknown Executive: Okay.
Do you think this excuse me $26 2 million.
For the third quarter expenses, I do think it will be higher than that probably closer to.
$227 million, plus or minus call it a quarter over quarter million somewhere in there.
Okay perfect. Thank you so much for the color that's all that I had.
Okay great.
Thank you Mr Delmonte.
Once again it is star one to ask a question.
Yes.
Gregory Dufour: And in terms of just the, in terms of just the, on the loan pipeline here, just curious, you know, how is activity these days? I hear you guys controlling, you know, the rubber side. We're just curious about the pipeline and, you know, where is loan pricing as well. Yeah, sure.
We have no further questions at this time, we will.
I'll now conclude our question and answer your question I would like to turn the call conference back over to Greg <unk> for any closing remarks.
Great really just to close out I want to just again thank everybody.
And for your interest in the company and our quarterly reports.
Gregory Dufour: See, well, this is Greg. I'll take that. And, you know, we are still increasing rates, you know, shooting up now, honestly, close to, you know, an 8% handle. Not there completely across all products, but getting there. So that is slowed down the pipeline. And as Mike mentioned, one of the reasons why we saw a small reversal of some of our reserves because of that. So, you know, we're really, you know, prioritizing, you know, net interest margin over loan growth and, you know, letting that settle in and seeing what opportunities will present itself in the future.
Also just to think.
The whole management team, you've gotten to know Mike really well the past several quarters.
Backed up just by not only executive colleagues and teammates, but also his own finance teams. So.
You are in great hands and.
Thank you all have a good day.
The conference has now concluded thank you for attending todays presentation.
Correct.
Unknown Executive: Kind of keeping our part of dry, if you will. Okay, great.
Gregory Dufour: And then, you know, maybe just one, just one more here just on, you know, the competitive environment, like, you know, historically talk about, you know, loans and deposits, very competitive, have things eased up overall or, you know, kind of just curious what your sense for the overall market. No, it's still extremely competitive, you know, on both sides, but especially deposits, you know, as you and a lot of folks know and mean, we have, you know, a lot of credit unions and a lot of mutuals, they tend to see their loan to deposit ratios run higher. So they're pricing up deposits to reflect that.
Stephen Moss: And so what we have done is that we do, you know, we just mentioned it earlier to a group that it's almost like hand-to-hand combat on deposit pricing, but we're prioritizing relationships versus transactions. Okay, great. I'll step back in the queue for now, but appreciate all the color, but great. Thank you. Thank you, Mr. Monk.
Damon Delmonte: Our next question is from the line of Damon Dumonteng with KBW, you may proceed. Hey, good afternoon, guys. Hope everybody's doing well and Greg congrats on a exciting time for you.
Damon Delmonte: I wish you the best in retirement and probably don't have to move too far because it means a common destination for retirees and you're already there. So good luck with everything. Absolutely.
Gregory Dufour: So just wanted to start off on the kind of circle back on the loan growth side of things. So I hear you guys saying you're focusing on relationships over transactions and think that's a great approach.
Gregory Dufour: So as you kind of look at how things are shaping up here for the fourth quarter, I mean, do you expect to show positive long growth to end the year and kind of how does that impact your outlook for 2024 growth? Yeah, I, you know, right now, I would say we're expecting flat long growth, just trying to keep ahead of any any amortization, payoffs, you know, for, you know, definitely the becoming quarter.
Gregory Dufour: You know, as we look out to what the next year will come into play, I think that's where we may see some opportunity, you know, especially as people won't have the deposit liquidity base to support long growth, that may provide opportunities. But in a right now, we're kind enough.
Michael Archer: Like a better term call on a holding pattern on long growth will try to try to keep it flat, but only if the pricing makes sense, as well as the credit quality makes sense. Yeah, and then kind of tying that outlook for growth with credit quality, which continues to be very strong. I mean, how do we think about provision? You know, you had the release this quarter or, you know, the negative, what, 0.6 million in the provision line this quarter, I mean, should we, do you think you'll be at least booking some provision?
Michael Archer: Good question. I think, you know, we're kind of looking at it, Damon, just as 90 basis points total loans, we feel pretty good at. We're certainly cognizant of being aware of what potential rise ahead. And I wouldn't see us probably going below the 90 basis points certainly very much. I would think if anything, there might be a few basis points up side, you know, ahead of us, again, it all depends on, you know, what happens around us from a macro environment. To your, to your common, you know, asset quality looks really good, the credit trends, within the portfolio look really good.
Michael Archer: We continue to be very proactive and really like digging in, doing some stress testing, other things that we can to identify, you know, any potential issues for the arise and, you know, knock on woodware, we're certainly not seeing that yet. I think that, to the, you know, the wildcard to certainly will be loan growth. I think, I definitely agree with Greg. I think we're kind of aimed in looking at probably something more flat for the fourth quarter. So to that end, you know, holding a 90 basis points and, you know, anticipating minimal charge offs, I expect the provision to be fairly, fairly low. Got it.
Michael Archer: Okay. And then if I could just ask one more quick one on the expense outlook. I guess Mike, could you just repeat your comments on the expected costs related to the CEO transition? And, you know, given the decline in this quarter, I mean, are you factoring in those costs as like being operating costs, or are you calling those out to be kind of like one time expenses? Yeah, it's a good question.
Michael Archer: So just to repeat what I said there. So all went for 2023. We were estimating the total cost of the transition around 900,000. And then for 2024, 1.2 million. And then just a year to date through 930 of this year, we've recognized about 600,000 of that. So you'll call another 300,000 probably in that in that arena for the fourth quarter of 2023. Some of those expenses are just, you know, call the peer accounting of it.
Michael Archer: We know several months. We can't just take it in the fourth quarter, unfortunately. So we'll see some of that now play out into 2024. Got it. Okay. And then any other notable trends from this quarter that you expect to kind of reverse as far as, you know, accruals for bonuses or occupancy or anything like that? Too early to tell right now, Damon, as you know, to that end, I mean, I think we have communicated in previous quarters that are normal run rate for operating expenses is probably closer to 27 million.
Michael Archer: You know, as we think about it, we certainly beat that this go around. As we mentioned, we had some incentive accruals and some other items that were getting some benefit from. We may, you know, we may see a level of that as we close out the year to be determined. But as we also, as we enter into the fourth quarter, we start to see a level of just seasonal costs associated with the winter months and being in Maine.
Michael Archer: You know, there could be a slight uptick there, but I don't think anything overly material, just call it normal, normal core. So, you know, I do think that six, excuse me, 26.2 million for the third quarter of expenses. I do think we'll be higher than that, probably closer to, you know, the 27 million plus or minus and we'll call it a quarter, quarter million to run there.
Michael Archer: Okay, perfect. Thank you so much for the caller.
Damon Delmonte: That's all that I had. Okay, great. Thank you, Mr. DelMonte. Once again, I need to start one to ask a question.
Gregory Dufour: As we have no further questions at this time, we will now conclude our question and answer session. I would like to turn the call or conference back over to Greg before for any closing remarks. Great, really just to close out. I want to just again thank everybody for your interest in the company and in our quarterly reports and also just to thank the whole management team. You know, you've gotten to know Mike really well. The past several quarters, but he's backed up just by not only executive colleagues and teammates, but also his own finance team. So you're in great hands and thank you all. Have a good day.
Unknown Executive: The conference is now concluded. Thank you for attending today's presentation.
Unknown Executive: You may now be able to come back.