Q3 2024 Camden National Corp Earnings Call
Good day and welcome to come to National Corporations 3rd Corps to 2024 earnings conference call My name is Lydia and I will be your operator for today's call.
All participants will be in a lesson on only my during today's presentation and following the presentation will conduct a question and answer the session.
If you require operator assistance at any time during the call to express the garden zero, on how to turn the call over to Rene Smyth, Executive Vice President Chief Experience and Marketing Officer.
Rene Smyth: Thank you Lydia, good afternoon and welcome to Camden National Corporations Conference for the third quarter of 2024.
Speaker Change: Joining us this afternoon, our members of Camden National Corporations Executive Team, Simon Griffiths, President and Chief Executive Officer, and Mike Archer, Executive Vice President Chief Financial Officer.
Speaker Change: Please note that today's presentation contains four-odd looking statements and actual results could differ materially from what is discussed on today's call.
Speaker Change: Coshinary Language regarding these forward-looking statements is contained in our third quarter 2020-4 earnings release issued this morning and another report we filed with the SEC.
Speaker Change: All of these materials and public filings are available on our Investor Relations website at www.candinnational.bank.
Speaker Change: Camped International Corporation trades on the NASDAQ under the symbol CAC.
Speaker Change: In addition, today's presentation includes discussions of non-gap financial measures, any references to non-gap financial measures are intended to provide meaningful insights in our reconciled with Gap in our earnings release, which is also available on our investor relations website.
Speaker Change: I am pleased to introduce Camps and National Corporations Hope, President and Chief Executive Officer, Simon Griffiths.
Simon Griffiths: Thank you Renee, good afternoon everyone. We appreciate you joining our call today. I've revived a few comments on our most recent quarter and then turned it over to Mike to discuss our third quarter financial performance. We will then open up the call for Q&A.
Simon Griffiths: The third quarter marked a significant event for Canada National as we announced on September 10, we were required northway financial, a strong community bank franchise in New Hampshire.
Simon Griffiths: The combination provides canned and national unique opportunity to strengthen its competitive position and build market share in Northern New England in a high-growth, contiguous market.
Simon Griffiths: We have filed all the bank regulatory applications for approvals required for the merger which we expect to be completed in the first quarter of 2025.
Simon Griffiths: Both Canada National and Northway teams are highly engaged in planning the integration of our companies and preparing for a seamless transition for customers and employees.
Simon Griffiths: As we dive deep into our preparation, we remain convinced that this merger represents a rare opportunity to combine two high-quality and culturally aligned franchises to build a premiere Northern New England Bank.
Simon Griffiths: In the midst of the significant transaction, we produce strong operating results during the third quarter. Earlier this morning, we reported net income of 13.1 million on 90 cents diluted earnings per share.
Simon Griffiths: for the third quarter of 2024, an increase of 9% and 11% respectively over the second quarter of 2024.
Simon Griffiths: The Merger and Acquisition Costs incurred through September 30, 2024. On a numgap basis, netting come to the third quarter of 2024 was 13.6 million.
Simon Griffiths: and EPS was 94 cents and increased 13 and 16 percent respectively over the second quarter of 2024.
Speaker Change: A strong third quarter financial performance is highlighted by a 10 basis point increase in net interest margin over the previous quarter. Disciplined expense management would continue franchise investment and strong asset quality, which are the hallmarks of Canada National.
Speaker Change: These results demonstrate the strength of our franchise and we believe they also represent critical momentum and improving operating environment as short-term interest rates are forecasted to drive lower over the coming quarters.
Speaker Change: In September our teams swiftly adjusted our ratebook and develop proactive strategies to preserve and enhance our solid customer base during the downward changing rate environment. We proactively responded the Fed Fund rate cut in mid September through both front and back book pricing changes.
Speaker Change: Our strong customer relationships continue to serve as well with a 1% increase in deposits compared to the previous quarter.
Speaker Change: We continue to see a strong commercial pipeline and welcome two strategic commercial enders in New Hampshire and one in the list and all the market to expand our presence in these high growth markets.
Speaker Change: As we actively seek new commercial customers we remain committed to our prudent customer due diligence and a discipline, pricing strategy you maintain our risk management approach.
Speaker Change: We continue to make strategic investments in our business while managing operating expenses and driving positive operating leverage.
Speaker Change: During the third quarter of 2024, our revenues increased 5% over the previous quarter, non-interesting spence increased modestly by 3% when excluding M&A expenses.
Speaker Change: Now, interesting come to the third quarter, increase 7% over the previous quarter and we benefited from seasonal mortgage activity, lower interest rates, which grow increased activity in greater sale of business into the sector markets.
Speaker Change: Aracic quality remains strong as September 30th. We continue to monitor our loan portfolio actively and to date, we have not seen any signs of credit deterioration across any pockets or industries.
Speaker Change: are lending anchored teams work to proactively manage any loan at the first sign of any challenge. This proactive approach is served and continues to serve us and our customers well.
Speaker Change: On September 30, 2024, past U-Lones were just three basis points of total loans, down from five basis points of the last quarter, and number forming loans were 17 basis points of loans, down from 23 basis points at June 30.
Speaker Change: While acid quality remains strong across the board, we maintain an allowance for losses of 0.86% of total loans.
Speaker Change: That September 30, 2024, consistent with the previous quarter.
Speaker Change: We continue to believe this reserve level is appropriate as we balance current macroeconomic conditions The forecasted path ahead and our current asset quality metrics.
Speaker Change: The strategic transformation of our count-opening process is on track and scheduled for a year-end launch. We have successfully completed development and are at the midst of full end-to-end testing.
Speaker Change: This will allow complete accounts opening and funding within minutes from mobile and online devices and is a first step towards enhancing our deposit accounting process across all channels.
Speaker Change: Our customers will be able to experience the convenience of our digital experience with the security and ease of human back service excellence.
Speaker Change: As I laid out, we continue to lean into our strengths, including exceptional talent, execution capable of listening and wrist managing expertise. This allows us to serve our customers effectively against a complex backdrop and deliver key results for our shareholders.
Speaker Change: Looking ahead we are very excited about the future opportunities as we merge with Northway to enhance our market position and increase our scale and capabilities.
Speaker Change: We are confident that combined entity will provide meaningful value creation.
Speaker Change: for shareholders and strong, perform a profitability. Our expanded customer base will benefit from our strategic technology investments, business diversification, and large a balance sheet.
Speaker Change: which we believe will provide a more robust platform for future earnings growth. We look forward to providing you with additional details as we move through the regulatory approval process and closing. Now Michael provide more details about our financial results.
Michael: Thank you, Simon and good afternoon everyone. This morning we reported an increase in net income to the third quarter, 9% over last quarter. Justing for merger related costs for reported an increase in the quarter of 14% over the second quarter.
Michael: Our core financial results continues to demonstrate the positive momentum we are building to our actions to drive net interest margin improvement over the past several quarters, as well as our continued focus on asset quality and expense management.
Michael: Through these results, many of our key financial metrics improved over the last quarter. A particular note, our core return on average assets for the third quarter was 95 basis points. Our core return on average tangible equity was 12.94% and our efficiency ratio was 62.39%.
Michael: Additionally, our tangible book value per share group 5% in the third quarter.
Michael: Certainly one of the highlights for the third quarter of 2024 was an end interest margin expansion of 10 basis points. To 2.46% on a link quarter basis, beating our guidance provided on last quarter's call.
Michael: and Interest Martin and Spanter for the third quarter drove an Interest St. Cumbgrove, 4% over the last quarter. I've lighted by an expanding, Interest Learning Acid, yield of 11 basis points and flat funding costs, and gaining at 2.35% between quarters.
Michael: Now I'd interesting comes the third quarter of 2024, total 11.4 million, increased to 7% over the second quarter of this year. We saw strong residential mortgage activity in third quarter, throughout the summer months in our markets, and we close the third quarter with the strong residential mortgage pipeline.
Michael: We continue to sell our eligible residential mortgage production for the third quarter, we sold 64% of our residential mortgage production compared to 52% in the second quarter.
Michael: Also contributing to the increase on a link quarter basis was the increase in debit card income and back to back loans swap fees of 100,000 and 133,000 respectively.
Michael: Not interested expenses for the third quarter of 2024, so the 28.9 million, which includes a cost of 727,000 associated with the recent announced.
Michael: Plan Merger with Northway Financial. As we continue to work our way to the anticipated acquisition in conversion date in the first quarter of 2025, we expect most of the estimated one-time deal cost being curled over the next two quarters.
Michael: Excluding these merger-related costs, not interest expenses with third quarter, or 28.2 million, and increase 3% over the second quarter of 2024. As we continue, we'll pass into our franchise.
Michael: Stronger Avenue Growth, the 5% on a link quarter basis, Strover Improvement Air, Quarterly Efficiency Ratio, to 62.9% for the third quarter. Compared to 63.53% to the second quarter of 2024.
Michael: We have to make operating expenses for the fourth quarter before any murder related costs will be in line with recent quarters
Michael: Now shifting to the balance, she total assets of 5.7 billion as of September 30, 2024, relatively unchanged, struggling quarter basis.
Michael: Loan balances of those September 30th were 4.1 billion if decrease the 1% compared to the 2nd quarter of 2024. Investment balances increase 2% as well as low-reendrous rates provided relief to investment valuations and we purchase 26 million of securities.
Michael: Total deposits as of September 30, 2024 were $4.6 billion, an increase of 1% compared to the second quarter.
Michael: As we saw the lift, excuse me, from normal seasonal inflows and continued success within our high-yield savings deposit product, which increased another 8% this quarter and resulted in savings growth year-to-date of 16%.
Michael: The credit quality of our loan portfolio continues to be very strong, supported by excellent credit quality metrics. On a lean quarter basis, we saw several key quality metrics improve at September 30th, including non-performing loans, decreasing six basis points to 17 basis points of total loans.
Michael: Annualized quarterly net charge-off decreasing one basis point to three basis points of average loans and path to loans decreasing two basis points to three basis points of total loans.
Michael: We maintained a loan loss reserve coverage ratio of 86 basis points of total loans on September 30th, consistent with the past two quarters. This reserve level continues to reflect our view on the strength of our loan portfolio.
Michael: but also provide sufficient reserves for the risk that continue to persist at a macro level.
Michael: During the third quarter, we saw our capital levels grow at healthy levels across the board, highlighted by our total risk-based capital ratio expansion of 39 basis points to 14.85%, and our TCE ratio increasing 35 basis points to 7.69% at September 30th.
Michael: This concludes our comments. We'll now open the call up for questions.
Speaker Change: Thank you Mike. We'll now begin the question and answer session. To ask a question you may press star then one on your touchtone phone keypad. If you're using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question, please press star then J.
Speaker Change: At this time, we'll pause momentarily to assemble our roster.
Speaker Change: Our first question comes from Steve Moss with Raymond James. Please go ahead, your line is open.
Steve Moss: Good afternoon.
Steve Moss: Maybe just starting here on the margin here, I'm curious with regard to the rate cut we just had in September and probably called more common, what are you guys seeing for deposit pricing here and kind of how we think about that translating to the margin?
Speaker Change: Hey, Steve. Thanks for the question. You know, I think broadly, you know, we see the back end of the year in line with the October net interest margin. We continue to be very, very disciplined in our pricing and demonstrated that over the last quarter when we saw the two rate cuts.
Speaker Change: We have two rate cuts in the ballpark for the back end of the year, which is pretty in line with expectations, and we'll continue to manage that very carefully as we look out towards the next couple of months.
Steve Moss: Okay, yeah, and in terms of just kind of the
Speaker Change: The debt restructuring that occurred here, or the paydown of the BTFP and swap use, was that, that was a, I'm assuming
Speaker Change: received variable payfix, or maybe I got my things reversed, but just talk about the structure there and kind of how that impacted your asset liability mix.
Speaker Change: Sure. Yeah. Hi, Steve. So you're spot on. We did pay down the full remaining $170 million of the BTFP.
Speaker Change: during the quarter. Essentially what we we ended up doing is
Speaker Change: We went out and did some swaps there for the FHLB, essentially, and we're able to lower our rate from, I believe it was 476 down to a weighted, I think it was 409.
Speaker Change: Immediately picking up positive carry there, but also to your point from an interest rate risk perspective, you know, our risk continues to be for, you know, rate higher for longer, certainly rates up. And so when we did that, we also spread that out. We did a little bit longer. There went out 12 and 18 months.
Speaker Change: Also, knowing that the BTFP was going to fall off for us in January 2025. So try to be proactive there, position ourselves a little bit better for just the risk that our balance sheet presents.
Speaker Change: Okay, so you're between that the positive trends you guys have seen just on on loan yield improving nicely here last couple quarters.
Speaker Change: You know, is it a similar pace of expansion for the upcoming quarter? Or, you know, or do you guys stabilize in like the September, month, March? I'm just kind of curious how to think about that. Unknown Speaker
Speaker Change: I mean, for our margin outlook for next quarter, Steve, we're kind of probably more in the, you know, call it three to five or two to five basis points, somewhere in the neighborhood right around 250 is.
Speaker Change: plus, you know, 250 plus or minus is what we're thinking. You know, I think we're certainly watching just in terms of what happens with the overall curve. Certainly the more recent rebound there on the mid and long end of the curve was certainly helpful, but
Speaker Change: I think that's the other area, of course, is we expect the rates on the short end to be down with the Fed funds cut. But, you know, I think it does matter as well, of course, on the mid and mid and long end and how that, you know, how that reacts.
Speaker Change: Okay.
Speaker Change: Great. And then in terms of hiring here, Simon, you mentioned, I think, two hires during the quarter, if I heard you correctly. Just curious, you know, what kind of book of business are they bringing and kind of how you're thinking about any additional hires?
Speaker Change: Yeah, I think it's.
Speaker Change: We've discussed on previous calls, we continue to see really a nice opportunity on the southern end of our market.
Speaker Change: and continue to invest in that, those geographies.
Speaker Change: We've got, as I say, some nice momentum there. We have some nice momentum out in the New Hampshire market as well.
Speaker Change: Just really continue to see opportunities to push into those markets. We see nice opportunities certainly in the multi-family housing area.
Speaker Change: We see strong C&I demand.
Speaker Change: particularly in the equipment space right now. And but really, it's just continues to be Steve through that lens of quality. You know, we definitely aren't chasing deals, we're looking for the right deal, right relationship, and really pushing into those deep, you know, long term strategic relationships that are long term value for the client and long term value to Camden National.
Steve Moss: Okay, guys, I mean, maybe just thinking about
Steve Moss: You know, the investments you're making and the overall, you know, underlying business momentum you guys have kind of think maybe, you know, we're on pace for maybe let's call it one, one to 2% loan growth this this year, but maybe stepping up kind of a into next
Speaker Change: Yeah, I think we're still seeing next year, Steve, you know, 1 to 3% loan growth, excluding Northway impact.
Speaker Change: So maybe a slight pick up. I mean, I think it's going to depend a lot on the rate environment. You know, if the rate environment comes down, obviously materially was certainly
Speaker Change: I think likely see a pickup in the resi volumes. Certainly, you know, I think it's quite competitive out there right now. And I think there's that caution, particularly with the election cycle coming up. And I think folks are sitting on the sidelines. But certainly, I think it could be a slight tick up from where we are right now. But still modest loan growth overall, as I say, excluding Northway. Unknown Speaker
Speaker Change: Okay.
Speaker Change: Great, I really appreciate the color and I'll step back into the queue here.
Speaker Change: Thanks, Steve.
Speaker Change: Our next question comes from Damon Dalmonte with KPWU. Please go ahead.
Speaker Change: Hey, good afternoon, guys. Thanks for taking my questions. Just to kind of keep the discussion on loans here, during the quarter, it looks like C&I loans had come down a decent amount during the quarter. Was just some larger payoffs that happened there or what kind of was driving that?
Speaker Change: Hey David, this is Mike. You're caught on. Just a few paydowns, primarily some of the syndication loans, just as rates came down and a few of those just refinanced. But nothing overall from a trend perspective, just a few larger loans there.
Speaker Change: Got it. And I think the commentary on the income in mortgage banking in particular were that the residential mortgage loan pipelines remain strong kind of at quarter end. So, I know there's obviously seasonal factors with weather and whatnot within your footprint.
Speaker Change: Can we expect another strong quarter out of mortgage banking to close out the year, or would you not expect it to be as strong as this quarter?
Speaker Change: Yeah, we're definitely seeing strong, strong pipelines right now. We've got about 72 million in the resi.
Speaker Change: and about 124 approved loans in the commercial pipeline.
Speaker Change: So we certainly see, you know, some nice momentum through year end. And, you know, I think with certainly the rates coming down potentially another 50 basis points, I think you could certainly start to see that picking up into next year. But as I say, contingent probably on the rate environment for the for them to the degree of the momentum that we'll see.
Steve Moss: Got it. Okay, great. And then lastly, I think, Mike, you may have touched on on the expenses, but you know, if you kind of take out the
Speaker Change: The one-time merger charges, it kind of puts you in the $28.2 million range. Is that a decent starting point to kind of model going forward to close out 24 and kind of, you know, modest growth X the Northway deal in 25?
Speaker Change: Yeah, I think that's fair game, and I think we'll be rating that 28, 28-ish kind of neighborhood 20, you know, 28.2 is a pretty good spot right in the middle. Could be a tick, you know, tick higher or, you know, closer to 28, but it's a pretty good spot.
Speaker Change: Yeah, and I just would emphasize, Damon, that we continue to invest and, you know, I think that's the nice part of the story here is...
Speaker Change: We really are self-funding a lot of these investments, so we talked earlier.
Speaker Change: and I'm putting in some commercial, you know, folk down in the southern end of our market and that's going to be really the focus. We've got this really exciting release of this online account opening capability. Again, you know, we're really putting those investments into our customer experience, into great people, and really continuing to build out the franchise but managing the expenses in a really disciplined way.
Speaker Change: Excellent. Appreciate that color. That's all that I had. Thank you.
Speaker Change: Transcription by Trans-Expert at Fiverr.com
Speaker Change: Our next question comes from David Miroshnik with Stephen. Please go ahead, your line is open.
Speaker Change: Good afternoon, this is David Marochnik. I'm from MapBreeze.
David Marochnik: To start, I would just love to hear some thoughts and expectations around your loan and deposit betas, kind of through into 2025 through 2025, and whether you expect those figures to be fairly similar to what they were on the way up.
Speaker Change: Yeah, I can take that one, David. I mean, I would just say for 2025 in particular, we're still working through some budgets. I mean, the reality is, you know, our betas are certainly going to depend on
Speaker Change: What the Fed does, maybe to maybe to state the obvious, you know, we are, you know, liability sensitive, our expectation is
Speaker Change: Rene Smyth, Gregory Dufour, Simon Griffiths, Michael Archer, Unknown Executive
Speaker Change: I think more near term, you know, we do expect some effect cuts here in the coming weeks and months. And, you know, we expect to see funding costs pull down and start to, you know, it's believable continue to see a level of margin expansion for the fourth quarter as well.
Speaker Change: Great. And then just staying on that, can you talk a little bit about, I guess, since the first 50 basis points, maybe actions you guys have taken so far, how customers responded and where you were successful? And you kind of mentioned some adjustments in September and just if you had any more color there.
Speaker Change: Yeah, I think we've certainly taken some actions. And, you know, I would just, I'm sure Michael build on this, but we'll just say, you know, I think we're very disciplined, very thoughtful about the client relationships. We saw a nice build in deposits in the third quarter, obviously, some of that's underlying seasonality. But we're going to continue to obviously manage that very proactively, and continue to be disciplined in terms of our pricing, but also putting, you know, relationships of our customers front and center.
Speaker Change: Yeah, I would just add, I mean, ultimately, we repriced, I think, right around 30% of our non-maturity deposit base.
Speaker Change: And, you know, we went in.
Speaker Change: I want to say on a whole 50 basis points, I mean, overall, we saw, we monitored those customers, we've seen the balances grow into October, so we haven't seen any significant runoff. I think Simon's point as we move forward, we'll certainly be thoughtful about that. And you know, at the end of the day, we want to maintain those core customer relationships, but, you know, just while managing funding costs down.
Speaker Change: David
Speaker Change: Great, I appreciate that. And last one for me is just on the securities. Can you talk about kind of security maturities coming up and maybe where you want that security to asset ratio to kind of sit at or move to in the future?
Speaker Change: Yeah, we have about $10 million or so of monthly runoff on the investment portfolio. Ideally, we would be putting it to loan growth. As we mentioned, there are some timing items. We did a small security purchase in the third quarter for the first time in a while.
Speaker Change: really just trying to put some assets to work there, try to squeak out a little bit of yield. You know, same thing. I would just say that point is.
Speaker Change: So it's keeping the weighted average life and the duration of what we purchase pretty short to give us some flexibility as we move into the future as well. I think in terms of investment to assets ratio, historically we've been in the 20 to 25.
Speaker Change: I would say we're probably close to the 20-ish now, and we feel pretty good in that neighborhood.
Speaker Change: We'll continue to monitor. We, you know, certainly leverage our investment portfolio for liquidity purposes. And, you know, again, if commercial loan growth and other things pick up, we could see ourselves, you know, maybe going a tick down there, but certainly feel good at that level.
Speaker Change: Great. I really appreciate all the color. I'll step back.
Speaker Change: Thanks, David. Thanks, sir.
Speaker Change: Thank you. As we have no further questions, this concludes our question and answer session. I'd like to turn the conference back over to Simon Griffiths for any closing remarks.
Speaker Change: Unknown Speaker.
Simon Griffiths: Thank you, Lydia. I want to thank you all for your time today and your interest in Camden National Corporation. We wish you all a great rest of your day.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.