Camden National Corporation

Good day and welcome to the Camden National Corporation's fourth quarter 2020 earnings conference call. My name is Tom and I will be your 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. If you require an operator during this call, please press star and then zero to be connected. Please note that this presentation contains forward-looking statements which involve significant risks and uncertainties that may cause actual results to vary materially from those projected in the forward-looking statements. 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, the company's 2019 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 Greg White, Executive Vice President and Chief Financial Officer. Please note that this event is being recorded. At this time, I would now like to turn the conference over to Greg Dufour. Please go ahead, sir.

Great. Thank you, Tom, and good afternoon, and welcome to Camden National Corporation's fourth quarter and year-end 2020 earnings call. Earlier today, we announced that we achieved record earnings in 2020 of $59.5 million or $3.95 per diluted share. Greg White will provide an overview of our performance in a few minutes, but I'd like to just take a few moments to provide my perspective on our financial performance and positioning for 2021. Our year-end results demonstrate our strong asset quality position and equally as important, the strength of our allowance for loan losses. we adopted the current expected credit loss or CECL accounting standard during the quarter effective January 1, 2020. I'll point out that we were confident our second quarter provision for credit losses of $9.4 million would reflect both the impact of the pandemic and CECL adoption. This was proved out as our fourth quarter provision of $258,000 resulted in an allowance-to-loan ratio of 1.18% at December 31, 2020, confirming our actions are on target and that we are adequately prepared for 2021. Our asset quality metrics also reflect our preparedness. Many of you were tracking our deferred loans, and they ended the year at a negligible 0.8% of total loans compared to 5.5% at September 30, 2020, and 16.4% at June 30, 2020. This decrease across periods occurred without seeing a migration to non-performing status, past due status, or charge-off. Non-performing assets were only 0.22% of total assets, and past due loans were 0.1% of total loans at year-end, while net charge-offs for the year were just two basis points of average loans. With that said, We continue to monitor economic and asset quality indicators for 2021. COVID-19 and the ability to vaccinate people will be critical health and economic factors for the nation and our markets. Our teams are in constant contact with our borrowers and commercial customers, which provides us insight into the local economies and helps us determine how to be proactive if our borrower or commercial customer faces financial difficulties. Our team kicked off the next round of PPP lending on January 19th, and through the end of last week, we had received 495 applications, of which about 92% were second request. Since the first round of PPP loans, we've strengthened our technology and deepened our training for our staff, as well as remaining confident that we'll be positioned to help our customers through this process. While we're proud of our strong financial performance during 2020, we understand many businesses and people have not had the same experience this past year. I believe our efforts in deferring payments on many loans and participating in the PPP program speak to our concern as well as our willingness to help our customers in their time of need. We've supported many community organizations addressing needs such as homelessness and victims of domestic violence. We've also supported our hardworking employees, including those who work with the public in our banking centers to ensure a safe and healthy work environment. Finally, our donations committee led an effort where we made donations to community organizations where our employees volunteered their time and expertise during 2020. These funds helped more than 50 local nonprofits in our market areas. It's now my pleasure to turn over the discussion to our CFO, Greg White, will provide further insights to our financial performance. Greg?

Thank you, Greg, and good afternoon, everyone. As Greg mentioned, we had record earnings last year, and I'm happy to report the fourth quarter was a record as well. Our fourth quarter return on tangible common equity exceeded 17 percent, and our diluted earnings per share was $1.22. compared to 99 cents in the fourth quarter of 2019, which is a 23% increase period over period. On a linked quarter basis, our diluted earnings per share increased 10% compared to $1.11 in the third quarter of 2020. During the fourth quarter, our board of directors approved a dividend of 33 cents, which is a 27% payout ratio, and we continue to repurchase shares opportunistically while growing and strengthening our capital position. Our total risk-based capital ratio increased by 25 basis points during the quarter to 15.4% from 15.15% at September 30th. We had strong tangible book value per share growth during the quarter, increasing 3% or 82 cents to $28.96 from $28.14 as of the end of the third quarter. Our net interest margin increased to 3.06 for the fourth quarter from 3% the prior quarter, but adjusting for the impact of both PPP loan income and excess liquidity, our margin declined slightly to 2.99% from 3.03% on that basis quarter over quarter. We continue to focus on driving down our cost of deposits and our overall cost of funds, which decline by six and five basis points respectively. Excluding PPP loans, total loans at December 31st, 2020 were flat compared to December 31st, 2019. but were up 4% annualized during the fourth quarter. Much of that quarterly growth occurred in the commercial real estate portfolio, which grew at 11% on an annualized basis during the quarter. Average total deposits grew by $465 million, or 14%, compared to the fourth quarter of 2019, while average non-interest bearing checking grew by $242 million, or 43 percent during the same period. During the fourth quarter, despite 44 million of time deposit runoff, total average deposits grew by 42 million or 4 percent annualized, and average non-interest bearing checking grew by 59 million or 32 percent on an annualized basis. Asset quality remained strong with non-performing loans to total loans at 0.33 percent at the end of the quarter, down one basis point from the end of the third quarter, and down from 0.36% at the end of 2019. We also had annualized net recoveries of two basis points of average loans during the fourth quarter, and net charge-offs for the full year were two basis points of average loans. During the fourth quarter, we adopted CECL with an effective date of January 1st, 2020. Our total provision for credit losses for the quarter was $258,000 and our allowance for loan losses excluding PPP loans at December 31st, 2020 was 1.23% compared to 1.19% at the end of the third quarter and 0.81% at December 31st, 2019. Our coverage ratio of reserves to non-performing loans increased to 3.6 times at December 31st, 2020, up from 3.3 times at September 30th, 2020 and 2.3 times at December 31st, 2019. Lastly, we have provided additional information on our deferred loans on page nine of the supplemental deck that we provided with our earnings release. As of December 31st, 2020, our loans remaining on short-term deferrals were $26.5 million, or as Greg Dufour mentioned, 0.8% of total loans, down from $181 million, or 5.5% of loans as of September 30th. That concludes our comments on the fourth quarter. We will now open up the call for questions. Thank you.