Q4 2023 Camden National Corporation Earnings Call
Good day and welcome to Camden National Corporation's fourth quarter 2023 earnings Conference call. My name is cole and I'll be the operator for today's call all participants will be in a listen only mode. During today's presentation.
Following the presentation, we will conduct a question and answer session.
Any time you require operator assistance. 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 forward looking statements.
Information concerning factors that could cause actual results to differ supplemental earnings materials. The company's 2020 annual report on Form 10-K, and other filings from the FCC.
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.
Today's presenters are Simon Griffiths, 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 Simon Gressett Griffiths. Please go ahead.
Good afternoon. Thank you Paul and welcome to Camden National Corporation's fourth quarter, 2000, 22023 earnings call.
I'd like to start by introduce myself I joined Camden National Corporation last November and took over as the President and Chief Executive Officer on January 1st and it's an absolute pleasure and honor to join the company.
Since joining I've been impressed with the strength of the management team and their focus on delivering an outstanding experience for our customers.
As I meet with team members and their customers have come to realize how deeply rooted Camden national is in the communities. We serve in my first months with the company have confirmed for me the pivotal role we play for.
From large commercial customers to small business owners. There is strong momentum for these businesses to grow.
Teammates can deliver the products and services and have the customer relationships to guide them along the way.
I'm also impressed by the robust technology advancement as the company has made the team has been driving innovation and utilizing sophisticated tools to automate process leverage data and deliver digital products to aid our customers.
And our team members earlier.
Earlier. This morning, we reported net income of $8 5 million or <unk> 58 earnings per share diluted share for the fourth quarter of 2023.
This is this included the impact of repositioning a portion of our investment portfolio, which generated a $5 million pre tax loss on the sale of securities excluding.
Excluding that impact our adjusted non-GAAP earnings for the quarter would have been $12 4 million or <unk> 85 per diluted share.
The company continues to look for opportunities to adjust and optimize the balance sheet and we expect the changes we made in 2023 will provide future benefits to our net interest margin earnings and capital.
The strength of our balance sheet continues to position us well for growth and to capitalize on market opportunities as the broader market showed signs of normalization.
Our capital position remains strong and improving highlighted by an increase in the tangible common equity ratio to 7.11% at December 31, 2023, compared to $6, 47% at September 32023.
Operator: Good day and welcome to Camden National Corporation's fourth quarter 2023 earnings conference call. My name is Cole, and I'll be the operator for today's call. All participants will be in a listen-only mode during today's presentation.
Operator: Following the presentation, we will conduct a question and answer session. If at any time you require operator assistance, please press star then zero. Please note that this presentation contains forward-looking statements that involve significant risks and uncertainties that may cause actual results to vary materially from those projected and forward-looking statements. Additional information concerning factors that could cause actual results to differ. Supplemental earning 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. Today's presenters are Simon Griffiths, 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 Simon Griffiths. Please go ahead.
We continue to see solid demand for loans in the communities that we serve and our pipeline remains steady.
We are excited by the addition of a new director of commercial banking in New Hampshire with more than 22 years of banking experience.
We are already seeing positive momentum in the market and we'll continue to look at opportunities just to strengthen our team and expand our market presence.
We remain focused on full relationship banking to strengthen customer loyalty, leveraging our robust balance sheet and actively managing new loan yields tightly given the decrease in the 10 year treasury yield over recent months.
Personally I am invigorated by the opportunity to work with a talented and dedicated team to make an impact and build on that many successes the swift actions taken throughout the year, including steps to stabilize our net interest margin fortify our balance sheet and position the company for future earnings capacity to drive long term shareholder.
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These actions have positioned us well for the future and will enable us to capitalize on opportunities within our market.
Our priorities for 2024 will be to continue to manage the business with a focus on actions to prioritize long term shareholder value, while having a prudent offense mindset.
Simon Griffiths: Good afternoon. Thank you, Cole, and welcome to Camden National Corporation's fourth quarter 2023 earnings. I'd like to start by introducing myself. I joined Camden National Corporation last November and took over as the President's Chief Executive Officer on January 1st, and it's an absolute pleasure and honor to join the company. Since joining, I've been impressed with the strength of the management team and their focus on delivering an outstanding experience for our customers. As I meet with team members and their customers, I've come to realize how deeply rooted Camden National is in the communities we serve, and my first months with the company have confirmed for me the pivotal role we play. From large commercial customers to small business owners, there is strong momentum for these businesses to grow, and our teammates can deliver the products and services and have the customer relationships to guide them along the way.
We have many exciting capabilities into delivery roadmap across our technology digital data analytics and AI roadmap that will continue to drive growth.
The team remains laser focused on our long term strategic plan to drive stability profitability and growth with strong expense discipline complemented by a talented team.
I am confident in our ability to adapt to the changing environment and economic landscape, while continuing to provide long term shareholder value now.
Now I am going to turn it over to Mike to provide some additional insights into our financial performance for the quarter.
Thank you Simon and good afternoon, everyone. This morning, we reported net income for the fourth quarter and annual financial results for the year ended 2023.
Simon Griffiths: I'm also impressed by the robust technological advancements the company has made. The team has been driving innovation and utilizing sophisticated tools to automate processes, leverage data, and deliver digital products to aid our customers and our team members. Earlier this morning, we reported net income of $8.5 million or 58 cents per diluted share for the fourth quarter of 2023. This included the impact of repositioning a portion of our investment portfolio, which generated a $5 million pre-tax loss on the sale of security.
Many others across the banking industry, our annual financial results for the year were impacted either macroeconomic conditions and other challenges faced during the year.
Which included higher short short term rates and an inverted yield curve.
Compounded by several well known larger regional bank failures, bringing deposits and related pricing and to further focus across the banking industry.
Our response to these market conditions and events included prioritizing deposits on liquidity, taking steps to help optimize our net interest margin and maintaining our strong asset quality.
Simon Griffiths: Excluding that impact, adjusted non-GAAP earnings for the quarter would have been $12.4 million or $0.85 per diluted share. The company continues to look for opportunities to adjust and optimize the balance sheet, and we expect the changes we made in 2023 will provide future benefits to our net interest margin, earnings, and capital. The strength of our balance sheet continues to position us well for growth and to capitalise on market opportunities, as the broader market shows signs of normalization. Our capital position remains strong and improving, highlighted by an increase in the Tangible Common Equity Ratio to 7.11% at December 31, 2023, compared to 6.47% at September 30, 2023. We continue to see solid demand for loans in the communities that we serve, and our pipeline remains steady. We're excited by the addition of a new Director of Commercial Banking in New Hampshire with more than 22 years of banking experience.
Believe our capital reserve level, when liquidity position us well for future growth and shareholder value creation.
These priorities continue throughout the fourth quarter and remain key priorities today.
Net income net income for the year ended December 31, 2023 was $43 4 million and diluted EPS totaled $2 97.
Each a decrease of 29% compared to 2022 annual financial results.
<unk> within within these results are pretax investment losses of $10 3 million as we sold lower yielding investments in the third and fourth quarters. This year to reposition our balance sheet with a focus on driving future earnings and improved profitability.
As well as a $1 $8 million write off of a signature bank Bonn.
Adjusting for these items our annual earnings on a non-GAAP basis for 2023 was $53 million.
Diluted EPS on a non-GAAP basis of $3 63.
Decreases of 15% and 14% respectively compared to 2022.
Simon Griffiths: We're already seeing positive momentum in the market, and we'll continue to look at opportunities to strengthen our team and expand our market presence. We remain focused on full relationship Strength in Customer Loyalty, Leveraging our Robust Balance, actively managing new loan yields tightly, given the decrease in the 10-year Treasury yield over recent months. Personally, I'm invigorated by this opportunity to work with a talented and dedicated team to make an impact and build on their many successes. Swift actions taken throughout the year, including steps to stabilize our net interest margin, fortify our balance sheet, and position the company for future earnings capacity to drive long-term shareholder value. These actions have positioned us well for the future and will enable us to capitalise on opportunities within our market.
Net income for the fourth quarter of 2023 was $8 5 million and diluted EPS was <unk> 58.
Each a decrease of 13% compared to the third quarter. This year as noted in my earlier comments, we sold investments at a loss in the third and fourth quarters, which affected our financial results for each quarter.
Adjusting for these investment losses, our earnings on a non-GAAP basis for the fourth quarter were $12 4 million diluted EPS was <unk> 85 each.
Each a decrease of 11% on a linked quarter basis.
Highlights for our fourth quarter operating results included seeing signs of our net interest margin stabilizing improving capital ratios and finishing the year with excellent asset quality.
Our net interest margin for the fourth quarter was $2 four zero percent.
Which was up one basis point from last quarter, we continue to redeploy our investment cash flows primarily to fund loan originations in order to improve overall asset yields.
Simon Griffiths: Our priorities for 2024 will be to continue to manage the business, with a focus on actions that prioritize long-term shareholder value while having a prudent offense mindset. We have many exciting capabilities and delivery roadmaps across our technology, digital, data analytics, and AI roadmaps that will continue to drive growth. The team remains laser-focused on a long-term strategic plan to drive stability, profitability, and growth with strong expense discipline, complemented by a talented team.
And anticipate we will continue to do so.
We believe this asset Remixing should help continue to stabilize net interest margin through the winter months within our markets as we generally see a level of seasonal deposit outflows.
As we continue to see pressures on funding costs from deposit mix shift.
The strength of our liquidity positions.
<unk> affords us the flexibility to continue to leverage the strategy.
In order to deploy all of the proceeds from the sale of securities in the fourth quarter. We also reinvested a portion of the proceeds into new securities.
Simon Griffiths: I'm confident in our ability to adapt to the changing environment and economic landscape while continuing to provide long-term shareholder value. Now, I'm going to turn it over to Mike to provide some additional insights into our financial performance for the quarter. Thank you, Simon. Good afternoon, everyone.
They're just above 6% and that were purchased at a slight discount.
Our investment portfolio continues to produce cash flow. We expect we will continue to leverages cash flow to support loan fundings.
Mike Archer: This morning, we reported net income for the fourth quarter and annual financial results for the year ended 2023. Like many others across the banking industry, our annual financial results for the year were impacted by macroeconomic conditions and other challenges faced during the year, which included higher short-term rates in an inverted yield curve compounded by several well-known larger regional bank failures, bringing deposits and related pricing into further focus across the banking industry. Our response to these marketing conditions and events included prioritizing deposits and liquidity, taking steps to help optimize our net interest margin, and maintaining our strong asset quality. We believe our capital, reserve level, and liquidity position us well for future growth and shareholder value creation. These priorities will continue throughout the fourth quarter and remain key priorities today.
Our book in regulatory capital ratios improved across the board in the fourth quarter and we finished the year with a TCE ratio of seven 1%.
Up from 647% at September 32023, and.
A $6 three 7% at December 31, 2022.
Our capital position continues to be one of our strength.
In.
And it positions us.
Well to capitalize on market growth opportunities.
Our asset quality as of December 31, 2023 remained very strong by all measures at year end, our nonperforming assets to total assets were 0.13% of past due loans were 0.12% of total loans and net charge offs for the fourth quarter were 358000 or 0.0% to 4% of average loans on an annualized basis.
Yes.
The overall health of our customer base continues to be very positive highlighted by criticized and classified assets of 113% of total loans at year end, which is up from one 5% for the third quarter, but down from 167% at December 31 2022.
Mike Archer: Net income for the year ended December 31st, 2023 was $43.4 million, and diluted EPS totaled $2.97, each a decrease of 29% compared to 2022 annual financial results. Included within these results are pre-tax investment losses of $10.3 million as we sold lower yielding investments in the third and fourth quarters this year to reposition our balance sheet, with a focus on driving future earnings and improved profitability, as well as Adjusting for these items, annual earnings on a non-GAAP basis for 2023 are $53 million, and diluted EPS on a non-GAAP basis of $3.63, decreases of 15% and 14%, respectively, compared to 2022. Net income for the fourth quarter of 2023 was $8.5 million, and diluted EPS was $0.58, each a decrease of 13% compared to the third quarter, as noted in my earlier comments. We sold investments at a loss in the third and fourth quarters, which affected our financial results for each quarter.
We continue to monitor our loan portfolio proactively to identify any early signs of stress and to date, we're not seeing any systemic trends or material concerns.
The increase in provision expense between the third and fourth quarters was $1 1 million and contributed to the decrease on a linked quarter earnings on a GAAP and non-GAAP adjusted basis.
In the third quarter, we recorded a negative provision expense or credit primarily driven by a decrease in loan balances of 1% during the third quarter, whereas in the fourth quarter, we provisioned 569000, driven by loan growth of 1% <unk>.
Like last quarter, we maintained our loan loss reserve levels, 0.90% of total loans as we take into account, our overall asset quality and with the macroeconomic forecasts.
Noninterest income for the fourth quarter totaled $6 million and was higher than reported for the third quarter by 18%.
Mike Archer: Adjusting for these investment losses, earnings on a non-gap basis for the fourth quarter were $12.4 million, and diluted DPS was $0.85, each a decrease of 11% on a lean quarter basis. Highlights for our fourth quarter operating results included seeing signs of our net interest margin stabilizing, improving capital ratios, and finishing the year with excellent asset quality. Our net interest margin for the fourth quarter was 2.40 percent, which was up one basis point from last quarter. We continue to redeploy our investment cash flows, primarily to fund loan originations, in order to improve overall asset yield, and Anticipate will continue to do so. We believe this asset mixing should help continue to stabilize net interest margin through the winter months within our markets as we generally see a level of seasonal deposit outflows and as we continue to see pressures on funding costs from deposit mix shifts. The strength of our liquidity position affords us the flexibility to continue to leverage the strategy. In order to deploy all the proceeds from the sale of securities in the fourth quarter, we also reinvested a portion of the proceeds into new securities that yielded just about six percent and that were purchased at a slight discount.
Primarily driven by a few noncore items, including mortgage banking and fair value adjustments and.
And a smaller loss on sale of investment securities compared to the third quarter.
Adjusting for these items noninterest income for the fourth quarter would have been $10 6 million, which included the benefit of our annual visa incentive bonus of 400000 in the fourth quarter compared to $10 5 million of fee income for the third quarter.
We continue to estimate that our normal recurring noninterest income will be $9 $5 million to $10 million $10 million quarterly in the near term.
Noninterest expense for the fourth quarter was $27 8 million, an increase of $1 6 million or 6% on a linked quarter basis as.
As anticipated operating operating costs increased over the last quarter, given various factors, including timing of incentive accrual true ups senior leader transition costs and normal seasonal costs during the winter months.
Higher noninterest expense for the fourth quarter translated into a non-GAAP efficiency ratio of $63 four 8% for the quarter.
As we look forward, we anticipate we anticipate noninterest expenses will tick higher for the first quarter of 2024 and range between 28 and $28 5 million.
As incentive accruals reset to target levels, and we continue to work through transition costs.
Mike Archer: As our investment portfolio continues to produce cash flow, we expect to continue to leverage this cash flow to support loan funding. Our book and regulatory capital ratio improved across the board in the fourth quarter. We finished the year with a TCE ratio of 7.11%, up from 6.47% on September 30th, 2020, and 6.37% on December 31st, 2022. Our capital position continues to be one of our strengths and is in a position to capitalize on market growth opportunities. Our asset quality as of December 31st, 2023 remained very strong by all measures.
We have taken and continue to take steps to manage costs and we are focused on managing our efficiency ratio lower throughout 2024.
The last item I'll touch on is our effective tax rate, we saw our effective tax rate for 2023 decreased to 19, 4% compared to 23% for 2022 and.
In the fourth quarter, we participated in a renewable solar energy product projects excuse me and as a result, we are currently estimating an effective tax rate for 2024 of 18, 6%.
This concludes our comments will now open the call for questions.
Mike Archer: At year-end, our non-performing assets to total assets were 0.13 percent, our past-due loans were 0.12 percent of total loans, and net charge-offs for the fourth quarter were $358,000, or 0.04 percent of average loans on an annualized basis. The overall health of our customer base continues to be very positive, highlighted by criticized and classified assets of 1.13% of total loans at year-end, which is up from 1.05% for the third quarter but down from 1.67% at December 31st, 2022. We continue to monitor our loan portfolio proactively to identify any early signs of stress, and to date, we are not seeing any systemic trends or material concerns. The increase in provision expense between the third and fourth quarters was $1.1 million and contributed to the decrease in our linked quarter earnings on a GAAP and non-GAAP adjusted basis. In the third quarter, we recorded negative provision expense or credit, primarily driven by a decrease in loan balances of 1% during the third quarter.
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Our first question is from Steve Moss with Raymond James Your line is now open.
Good afternoon and.
Welcome aboard.
Thanks, Steve maybe just starting.
Youre welcome maybe just starting on on loan growth here just curious how you guys are feeling about the loan pipeline.
Especially on the commercial side these days.
How loan pricing.
Yes. Thanks for the question, Steve I think we anticipate throughout the year.
Low single digit loan growth for the first quarter, we continued to see.
A solid resilience at the client level across our sectors and we certainly obviously going to look at the interest rate environment is a key driver of expectations as we move throughout the year, but overall I think we see continue to see solid demand.
Mike Archer: Whereas in the fourth quarter, we provisioned $569,000 driven by loan growth of 1%. Like last quarter, we maintained our loan loss reserve levels at 0.90% of total loans as we took into account our overall asset quality and weighed the macroeconomic force. Non-interest income for the fourth quarter totaled $6 million and was higher than reported for the third quarter by 18%, primarily driven by a few non-core items, including mortgage banking, fair value adjustments, and a smaller loss on our sales and investment securities compared to the third quarter.
<unk> continued to leverage our balance sheet to support our communities and deepen customer relationships and I think see a positive outlook suddenly in the particularly as the posture sorry.
Okay. That's helpful and just maybe in terms of.
It's probably going to cut rates. This year just curious how you guys are thinking about the impact on on the margin with rate cuts.
Mike Archer: Suggesting for these items, non-interest income for the fourth quarter would have been $10.6 million, which included the benefit of our annual visa incentive bonus of $400,000 in the fourth quarter compared to $10.5 million of fee income for the third quarter. We continue to estimate that our normal recurring non-interest income will be $9.5 to $10 million quarterly in the near term. Non-interest expense for the fourth quarter was $27.8 million, an increase of $1.6 million, or 6% on a lean quarter basis, as anticipated operating costs increased over the last quarter, given various factors, including timing of the incentive accrual true-up, Senior Leader Transition Costs, and Normal Seasonal Costs during the winter months. Higher non-interest expense for the fourth quarter translated into a non-gap efficiency ratio of 63.48% for the quarter.
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I realize Blake.
Cold months out just how youre thinking about the margin here.
Near term given.
Obviously, some deposit pricing pressures.
And the second.
Sure I can take that one Steve.
I would say on the margin on the near term.
Certainly.
We're seeing it we're at $2 40, right now ended the quarter I think as we think about the next three months to six months I would say that we're thinking about margin being flattish plus or minus a few basis points overall.
Certainly in the first quarter, we generally have the seasonal outflows from a deposit perspective that are impactful to us.
We're also seeing some asset remix remix continue excuse me deposit remix continue.
So we're we're certainly focused on that we've also done some things on the funding side I'm really trying to optimize where we can to the extent that we.
Mike Archer: As we look forward, we anticipate non-interest expenses will tick higher for the first quarter of 2024 and range between $28 and $28.5 million, as incentive accruals reset to target levels, and we continue to work through transition costs. We have taken and continue to take steps to manage costs, and we are focused on managing our efficiency ratio lower throughout 2024. The last item I'll touch on is our effective tax rate. We saw our effective tax rate for 2023 decrease to 19.4% compared to 20.3% for 2022.
Some higher a higher cost.
Less of a relationship if you will on the deposit side really trying to find alternate funding.
To optimize and think that should certainly help out as well in the first quarter, but long story short is I think for the first half and it will be pretty flattish.
Envisioning that win rate cuts do happen that we will see a benefit.
We do think that it will certainly take some time to see that come through in the funding side, we want to be able to push.
Certainly rates and deposit costs, lower but also recognizing that deposit.
Operator: In the fourth quarter, we participated in a renewable solar energy project, and as a result, we are currently estimating an effective tax rate for 2024 of 18.6%. This concludes our comments. We will now open the call to questions. If you would like to queue for a question, please press star followed by one on your telephone keypad. If, for any reason, you'd like to remove a question, please press star followed by two.
In our market and I'm sure others, it's very competitive and.
Recognizing that but that being said I think in the second half, we do anticipate to see some level of margin expansion from there.
Okay, great I appreciate that color.
Just one on expenses here.
The guide for the first quarter, Mike You mentioned was $22 5 million.
Stephen M. Moss: Again, to join the queue for a question, please press star one. We'll pause here briefly as questions are registered. Our first question is from Steve Moss with Raymond James. Your line is now open.
With some transition costs.
Curious.
Because it back down a little bit.
From there for the rest of the year or should we think about maybe there is some ongoing investments and we stay closer to a $28 million range for the upcoming quarter.
Stephen M. Moss: Good afternoon, and Damon, welcome aboard. Thanks, Steve. You're welcome.
Yes, I think I think realistically at least as of right now, we're probably that 28% to 28 and a half I do think we will probably on a run rate basis be closer to 20.
Simon Griffiths: Maybe just starting on loan growth here. Just curious, you know, how you guys are feeling about the loan pipeline, especially on the commercial side these days, and, you know, how long pricing is. Yeah, thanks for the question, Steve.
<unk> 2008 and normal.
Norm there Steve.
We like I think Simon spoke to in his comments aim in mind as we certainly are focused on the expenses and being prudent there.
From an efficiency ratio perspective, we keep a very watchful eye on that and always have historically and we'll continue to do so.
Simon Griffiths: You know, I think we anticipate throughout the year, low single-digit loan growth for the first quarter. We continue to see, you know, solid resilience at the client level across our sectors. And we're certainly, you know, obviously going to look at the interest rate environment as a key driver of expectations as we move throughout the year. But overall, I think we will continue to see solid demand and, you know, continue to leverage our balance sheet to support our communities and deepen customer relationships. And I think we will see a positive outlook, certainly as the year passes through. Okay, that's helpful.
But we certainly were trying to balance the management of expenses short term with also making sure that we're continuing to reinvest for the long term. So we're trying to strike that right balance.
Steve I think that's spot on I think is that short term focus and we have very specific actions and are managing obviously, all personal staffing levels, another incremental investments and I've been really impressed with the team's work.
On automation.
We've got some really great work on the data side and other areas that I think allowing us to provide identify opportunities for process improvement and efficiencies and we just actually had a 100 and process automation.
Mike Archer: And maybe, you know, the Fed is probably going to cut rates this year. Just curious how you guys are thinking about the impact on the margin from rate cuts. And, you know, I realize, you know, rate cuts might be a couple months out. But just how you're thinking about the margin here near term, given, you do see, obviously, some deposit pricing pressures in the sector, or I can take that one, Steve. I think on the margin, on the near-term, certainly... We're seeing it at, we're at 240 right now, end of the quarter. I think as we think about the next three to six months, I would say that we think about margin being flattish, plus or minus a few basis points overall. Certainly, in the first quarter, we generally have seasonal outflows from a deposit perspective that are impactful to us. We're also seeing some asset remix continue, excuse me, deposit remix continue.
That's automated over 1 million transactions in just one example, Steve with the kind of work. The team is doing that I think can drive long term productivity.
And efficiency in the organization. So I think Thats, obviously, a near time focus, but leveraging some of that technology is an opportunity for us.
Okay, Great I appreciate all the color. Thank you very much guys.
Thanks, Steve.
Our next question is from Damon Delmonte with <unk>. Your line is now open.
Hey, good afternoon, guys hope everybody is doing well and welcome aboard Simon.
Just wanted to follow up on the commentary around the margin.
Yes.
I appreciate the color that you gave I'm just wondering did you do you anticipate doing any additional restructuring here in the early part of 'twenty four or do you think those are done.
Mike Archer: So we're certainly focused on that. We've also done some things on the funding side, really trying to optimize where we can to the extent that we have some higher costs, less of a relationship, if you will, on the deposit side, really trying to find alternate funding to optimize, and I think that should certainly help out as well in the first quarter. But, you know, the long story short is I think for the first half, we'll be pretty flattish.
Yeah.
I would say nothing imminent.
<unk> say to that though Damon we're constantly evaluating opportunities to optimize if it if it makes sense and meet our ultimate financial parameters.
Gotcha Okay.
And with regards to the outlook for loan growth I think you had said low single digit for the year.
Kind of how are the commercial pipeline shaping up right now and how is that kind of split between C&I and CRE.
Mike Archer: We're assuming that when rates cuts do happen, we will see a benefit. We do think that it'll certainly take some time to see that come through on the funding side. We want to be able to push, you know, certainly rates and deposit costs lower, but, you know, also recognizing that deposits, particularly in our market, and I'm sure others, are very competitive, you'll be, you know, we'll recognize that. But that being said, I think in the second half, we do anticipate to see some level of margin expansion from there. Okay, great. I appreciate that color.
Has there been any increase in demand on the C&I side or is it more real estate driven.
I think we're seeing some nice strength from the C&I and the real estate side.
And certainly as rates start to come down I think the resi side as well there is going to pick up, particularly probably in the spring season, but we're seeing a nice nice demand from our clients and.
That's across the footprint as well that certainly across the mid coast and then obviously into some of the southern areas, which I think is an area of focus for us. So that definitely is the demand out there and I think that's a strategic.
Mike Archer: And just one on expenses here. I think the guide for the first quarter, Mike, you mentioned was 20 to 20 and a half million with some transition costs. Just kind of curious, you know, does it back down a little bit from there for the rest of the year?
The strength that we have with the balance sheet in the position to continue to lend and I think that's it.
Something will be very focused on this year.
Okay, great. Thank you for that and then just lastly, if I could sneak one more in here.
Simon Griffiths: Or should we think about maybe there's some ongoing investments and we stay, you know, closer to a $28 million range for the upcoming year quarter? Yeah, I think I think realistically, at least as of right now, we're probably that 28 to 28 and a half. I do think we'll probably be, on a run rate basis, closer to 28 and normal, you know, on the norm there, Steve. You know, we like, I think Simon spoke to in some of his comments, same in mine, we certainly are focused on the expenses and being prudent there, and, you know, from an efficiency ratio perspective, we keep a very watchful eye on that and always have historically and will continue to do so.
Outlook for the provision.
As you kind of look at your reserve level, it's pretty flat over the course of 2023 do you envision kind of keeping that flat.
Kind of a low low charge offs and the provision just basically supporting the growth that you get to keep that that reserve level flat.
Yes, I think Thats I think Thats fair, David I think we right now feel good at the 90 basis points and considering our view on the macro outlook I do think to the extent that.
Things start to shake out and it becomes a clearer light on what the path forward from a macro position in call. It normalization.
There is certainly opportunity over time to potentially release reserves.
Simon Griffiths: But we certainly were trying to balance the management of expenses in the short term with also making sure that we're continuing to reinvest for the long term. So we're trying to strike that right balance. I'll just add, Steve, you know, I think that's spot on. I think it's that short-term focus, and we have very specific actions, and obviously manage our personal staffing levels and other incremental investments, and I've been really impressed with the team's work on automation. You know, we've got some really great work on the data side and other areas that I think are allowing us to provide and identify opportunities for process improvement and efficiencies. And we just actually had our 100th process automation, which sort of made it over a million transactions.
I think it was before we adopted the <unk> accounting method or when we did we are around 80 82 basis points. So I do I do think that we have some opportunity there of course will depend on macro conditions and just overall credit quality metrics, but right now things certainly look good.
Great. Okay. That's all I had thank you very much.
Thanks Damon.
Our next question is from Matthew Breese with Stephens, Inc. Your line is now open.
Hey, good afternoon.
Two questions from me.
Stephen M. Moss: And just one example, Steve, of the kind of work the team's doing that I think can drive long-term productivity and efficiency in the organization. So I think that's obviously a near-term focus, but leveraging some of that technology is an opportunity for us. Okay, great. I appreciate all the color.
First wanted to start with Mike you had mentioned that the tax rate this year.
Sounds like it's going to be a step down in 2018 kind of 18% range.
I'm, assuming that lower range is partly because of the tax credit investments. So one is that in fact correct too.
Stephen M. Moss: Thank you very much, guys. Thanks, James. Our next question is from Damon DelMonte with KBW. Your line is now open. Hey, good afternoon, guys. Hope everybody's doing well, and welcome aboard, Simon.
I have seen historically when folks invest in the tax credits is usually some sort of <unk>.
Spencer or contract and combine them disclose through fees.
If that's the case could you just enlighten us.
What that is and how much is that included in the overall guidance you provided.
Damon Delmonte: Just wanted to follow up on the commentary around the margin, Mike. I appreciate the color that you gave. I'm just wondering, do you anticipate doing any additional restructurings here in the early part of 2024, or do you think those are done? Um, I would say nothing imminent. I will just say to that though, Damon, we're constantly evaluating opportunities to optimize if it makes sense and meets our ultimate financial parameters. Got you.
Sure Great question, Matt So we.
Our effective rate to be right around $18 seven.
In part the rationale.
Before I get to the renewable energy project there Matt is just the.
The makeup of our.
Our revenue sources, if you will just the changing over time as our revenues come down some of our tax exempt income is just a larger percentage in part that's driving the lower tax rate right now.
As we think about the renewable energy project.
Simon Griffiths: Okay. And with regard to the outlook for loan growth, I think you said low single digits for the year. You know, kind of how are the commercial pipelines shaping up right now? And how is that kind of split between C&I and CRE? Has there been any, you know, increase in demand on the C&I side? Or is it more real estate driven?
The project.
From an accounting perspective, we will account for that all within the income tax line item. So we do not anticipate that running through any of the operating expenses I think that the new accounting method out.
The proportional amortization method that we're now allowed to use for those so I think it makes it ultimately a little bit cleaner from an overall income statement perspective, and Thats, our intention to run it through the income tax expense.
Simon Griffiths: I think we're seeing some nice strength from the C&I and the real estate side, and certainly as rates start to come down, I think the resi side as well is going to pick up, particularly probably in the spring season. But we're seeing nice demand from our clients, and that's across the footprint as well. That's certainly across the mid-coast and then obviously into some of the southern areas, which I think is an area of focus for us. So there definitely is a demand out there, and I think that's a strategic strength that we have with the balance sheet and the position to continue to lend. I think that's something we'll be very focused on this year. Okay, great. Thank you for that.
Yes completely agree with you there.
The second thing I wanted to touch on that.
Not going to get an exact answer here, but would love your thoughts as I think about what's unfolded for Camden. During this higher rate environment, you've done pretty well on the deposit front with a less and less than 190, all in cost deposits, but the thing that's held up the margin as loan yields have been kind of slowly reprice and there's a good chunk of loans that are in.
Mike Archer: And then just lastly, if I could sneak one more in here on the outlook for the provision. You know, as you kind of look at your reserve level, you know, it's pretty flat over the course of 2023. Do you envision kind of keeping that flat and, you know, kind of low, low charge-offs, and then the provision just basically, you know, supporting the growth that you get to keep that reserve level flat? Yeah, I think that's fair, Damon.
Lower yielding buckets such as resin.
And so as we look at the entirety of the loan portfolio.
How much is yielding on the lower end of the spectrum call it 4% or below and as you think about that bucket.
Repaying and flowing into higher yielding on our maturity.
How long is that going to take what is the duration of some of the lower yielding paper book.
Mike Archer: I think we right now feel good at the 90 basis points and considering our view on the macro outlook. I do think, to the extent that, you know, things start to shake out, and there becomes a clearer light on the path forward from a macro position. Call it normalization. You know, there is certainly opportunity over time to potentially release reserves. I think it was before we adopted the Cecil accounting method, or when we did, we were around 80-82 basis points. So I do think that we have some opportunity there. Of course, it will depend on macro conditions and just overall credit quality metrics. But, you know, right now, things certainly look good. Great. Okay, that's all that I have. Thank you very much. Our next question is from Matthew Breese with Stephen Zink. Your line is now open. Hey, good afternoon.
It's a great great question Matt.
Don't have probably a direct answer for you there, but I do think I mean, we do have a certainly a good chunk of our residential portfolio and some of the commercial side certainly to your point that <unk>.
I think it was 21 and 'twenty two in particular, we're adding.
Quite a bit on the resi portfolio onto our book at coupons in the three three and a half call. It.
I do think it will take some time certainly for those from those coupons too.
They're way off or just a normal cash flow off so we will see a bit of compression. There I do think for the long long term in terms of those asset yields on the resi side.
Picking up we are in terms of the residential mortgages. We are trying to be very prudent in terms of what we put on now.
In terms of rates that said.
Right as you know, which is the 10 year dropping recently, we're seeing a lot of competitive pricing in the low sixes.
Matthew M. Breese: A few questions for me. First of all, Mike, you had mentioned that the tax rate this year sounds like it's going to be a step down in the 18% range. I'm assuming that lower range is partly because of the tax credit investments. So one, is that in fact correct?
Right now we're not we're not there from a pricing perspective on the resi side.
But certainly something of our overall pressure and market perspective that is something that we're dealing with at the moment.
So I don't know if I answered your question there directly map, but I don't know.
Matthew M. Breese: Two, from what I've seen historically, when folks invest in the tax credits, there's usually some sort of, you know, expense or contra income item that flows through fees. If that's the case, could you just enlighten us as to what that is and how much, and is that included in the overall guidance you provided? Great question, Matt.
I don't have the duration piece right in front of me at the moment.
Well I'll try it another way.
There is some optimism there as we get to the back half of the year and rate cuts.
And assuming that continues into 2025.
When do you think can that can get back to earning and above 1% ROA that we're all kind of used to.
Mike Archer: We anticipate our effective rate to be around 18.7. In part, the rationale, call it, before I get to the renewable energy project there, Matt, is just the make-up of our revenue sources, if you will, just the changing over time as our revenues come down. Some of our tax-exempt income is just a larger percentage, and in part, that's driving a lower tax rate right now. As we think about the renewable energy project, the solar project, from an accounting perspective, we will account for that all within the income tax line item. So we do not anticipate that running through any of the operating expenses.
Yes, I think it's I think it's we anticipate the back half of the year, we're going to see some level of margin expansion even.
I made a comment to this earlier.
Set fed rate cuts aside we have a $100 million of derivative today on the commercial real estate book that will be falling off that has been a drag we anticipate that alone will be somewhere in the neighborhood of six to eight basis points of margin pick up there.
When you couple that with just our CD repricing I think 90 over 90% of our book of Cds repricing over the next.
Next year, so we'll get some benefit there as those continue to reprice and.
Certainly we anticipate those repricing down.
Mike Archer: I think that the new accounting method outperforms the proportional amortization method that we're now allowed to use for those. So I think it makes it ultimately a little bit cleaner from an overall income statement perspective. And that's our intention to run it through the income tax. Yeah, completely agree with you there.
And then just coupled with the continued investment in <unk>.
Cash flow going into higher asset yields and really leveraging our investment book as well. So we do anticipate our margin picking up.
So probably when we think about an ROA north of 1%, we're probably looking into next year realistically, but I think over the course of the year, we're making strides in the right direction to get back there.
Matthew M. Breese: The second thing I wanted to touch on, and I'm probably not going to get an exact answer here, but we'd love your thoughts, you know, as I think about what's unfolded for Camden during this higher rate environment. You've done pretty well on the deposit front with a, you know, less than less than 190 all-in cost deposits. But the thing that's held up the margin is that loan yields have been kind of slow to reprice, and there's a good chunk of loans that are in lower yielding buckets, such as resi. As we look at the entirety of the loan portfolio, how much is yielding on the lower end of the spectrum, call it 4% or below, and as you think about that bucket and repaying and flowing to higher yielding on maturity, how long is that going to take? What is the duration of some of the lower yielding pay-flows? It's a great question, Matt.
Got it okay.
Simon just a couple more for you if you don't mind.
First of all welcome.
As you've kind of spent time with all of the various business lines, just curious where do you see the greatest potential for change.
Within Camden.
And what opportunities or geographies are there that Camden. It's currently not involved in today, but could be soon.
Yes, thanks for the question Matt.
I appreciate it.
No I think look I think from a.
From a growth perspective, I think about it in a couple of ways I think the.
Existing footprint I think all office continued opportunities to deepen our relationships in the mid coast and down East markets. We have obviously high share in those markets, but I think great opportunities to continue to strengthen see particular opportunities around business banking I think the wealth business as well as a strong business for us and I think we're looking to.
Mike Archer: I don't have probably a direct answer for you there, but I do think, I mean, we do have certainly a good chunk of our residential portfolio and some of the commercial sites, really, to your point, during, I think it was 21 and 22 in particular, we were adding quite a, you know, quite a bit into the Resi portfolio and onto our book at coupons in the, you know, three, three and a half, call it. I do think it'll take some time, certainly for those, from those coupons to, you know, make their way off or, or just, you know, normal cash flow off. So we will see a bit of compression there, I do think for, from the long, you know, long term in terms of those asset yields on the Resi side, you know, picking up. We are, you know, in terms of the residential mortgages, we are trying to be very prudent in terms of what we put on now, you know, in terms of rates, that said.
Continue that strength I think there is you'll see new other markets as well, we have less market share lower market Sharon on the southern end, Portland, Portsmouth markets and some of the markets on the southern end I think also a great opportunity for us to continue to develop relationships. We have a strong commercial franchise as you know that operates in those markets.
I think we can continue to build out there and again a long day.
The commercial strength that we have and the relationships, we have and look to deepen those relationships and particularly on the wealth side.
Home equity is another business that interests us and I think is a nice.
A component of our residential business and I think that's another area, we're looking at but I am excited by the footprint.
It's got some nice.
And opportunities to continue to grow and one of the thing up as being struck within my meeting with colleagues and customers is just the tremendous.
Partnership that.
Our colleagues all stakeholders have and the relationships they have in the community and I think that's a great foundation to build on.
I appreciate that just the last one is I would love your perspective on M&A.
Historically Camden, if you look back over the last 2025 years is one kind of a.
50, 50, or 60, 40 mix between organic growth and M&A.
To drive overall balance sheet growth.
And older metric at this point, but I think it still holds true long term.
What are your thoughts on M&A and if that's something that will be part of the repertoire here going forward.
Yeah. Thanks Pat.
Strength of our position, obviously affords us to be opportunistic with regard to M&A, but it is.
Same time I don't think we have feel pressure to do a deal unless it makes sense financially I don't think it's always going to be the right deal and we're not going to chase anything over a hill.
And we have plenty of organic opportunities to grow we've got a great team and great markets and we see tremendous opportunity there and but if the right opportunity came along we will be opportunistic and Thats certainly I think part of the playbook.
Understood. That's all I had I know go long winded, but I appreciate taking all my questions. Thank you.
We have no further questions registered so this concludes our question and answer session I would like to turn the conference back over to Simon for closing remarks.
Thanks, a lot and I just want to thank you all for your time today and of course your interest in Camden National Corporation. We wish you all have a great rest of your day thanks for joining.
That concludes today's call. Thank you all for attending today's presentation. You may now disconnect your line.
Thank you good day, thanks for joining.