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spk06: 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.
spk01: 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?
spk03: 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.
spk06: Thank you. We will now begin the question and answer session. To ask a question, you may press star and then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Damon Del Monte with KBW. Please go ahead.
spk02: Hey, good afternoon guys. How's it going today?
spk01: Good Damon. How you doing?
spk02: How you doing?
spk01: Good. Thanks.
spk02: Good. Um, so first question, um, just wanted to talk a little bit about the margin. Um, you know, Greg, you gave some color on, on the core margin. I think you had said basically it declined from like three Oh three last quarter to two 99 when you kind of strip out, um, a couple, a couple items in there. Um, Directionally, what are you thinking at this point? Do you feel that you've kind of reached the bottom or do you think that there's still going to be additional pressure on the asset side?
spk03: There could be a little bit more pressure on a little more asset yield compression. With that said, we might get a little help from the mix. Our investment portfolio grew pretty significantly last year. We don't necessarily expect that this year. You know, certainly, you know, if you look at the average balance table, cash and liquidity was higher on an average balance basis in Q4 than Q3, but on a spot basis was quite a bit lower at the end of the year than the end of the third quarter. So certainly, you know, that speaks to a little bit less of a liquidity drag as we enter the new year here. You know, Damon, I think it's also worth mentioning, you know, our, our cost of funds came down five basis points last quarter, six the quarter before. So we're still working hard and have some opportunity to, um, offset a little bit of that asset compression. If, if in fact it does continue a little bit here.
spk02: Got it. Okay. Um, and then in the way of a loan growth, you know, I think, uh, excluding the PPP, uh, balances there, you know, you're looking at about 4% length quarter annualized growth here in the fourth quarter. Um, How are the pipelines looking on the commercial side? And, you know, what are the thoughts as you go into 2021? Do you think that sentiment has improved with your borrowers? And would you expect them to be more in the market for more borrowing?
spk01: Sure, I can take that one. It's Greg Dufour. Damon, we have over the past quarter or two seen our commercial loan pipeline build up, and we're getting – pleased to it. You know, I would say it's probably approaching maybe not the high peaks pre-COVID, but, you know, pretty much in the solid average of what we'd normally see. You know, looking out next year, you know, we're cautiously optimistic that, you know, the pipeline should hold up and our balances and growth should hold up. And, you know, and it's so we're expecting really kind of a good solid year that way. You know, on the residential side, we're still seeing a lot of activity. Obviously that, you know, will drive both gain on sales as well as those mortgages that we may choose to hold. So in a way we're, like I said, optimistic about next year.
spk02: Got it. Okay, great. And then just one final question on the expense side. Greg, can you give a little color on the, you know, the higher comp costs this quarter and kind of what that means for the run rate going forward in 2021?
spk03: Yeah, sure, Damon. So obviously most of that comp expense was incentive-based, so, you know, had a strong year, so we did add quite a bit in the fourth quarter for the bonus accrual. Um, typically we don't like to give too specific of guidance, but in this case, there has been a little bit of noise on the expense side. So I think for Q1 of this year, kind of a reasonable range for total expenses in that 24 and a half to 25 million, um, you know, 25 million on the high side, 24 and a half on the low is a reasonable starting point for, for you and others.
spk02: Got it. Okay. That's helpful. Um, that's all that I had for now. I'll step back. Thank you very much.
spk06: Thank you. Thanks. Our next question comes from William Wallace with Raymond James. Please go ahead. Thanks.
spk04: Good afternoon, Greg. Good. Thank you. Maybe just kind of following up on that last question. Um, it seems across the industry there's a lot of commentary about how the pandemic and work from home has changed how not only retail but commercial customers are using the branch. Assuming that's the same in Maine, is there opportunity with your branch network to maybe accelerate consolidation opportunities and could that $24.5 to $25 million expense range, could there be potential levers for that to even decline or perhaps at least offset any kind of natural pressures from reinvesting in the business and inflation, et cetera?
spk01: Greg White, do you want to kick off that?
spk03: Yeah, sure. You know, I guess, you know, I'd first of all reference, if you look, we did closed three branches in April of 2020. You know, obviously the pandemic was going on at that point, but that analysis was done pre-pandemic. So I guess the point, Wally, is the bank is always looking to rationalize cost and, you know, those branches were either unprofitable or weren't, you know, low profitability, I should say. So that's kind of a good way to think about Camden National Bank, I think, is always. With that said, I'd also add that we're very focused on the efficiency ratio in both components, revenue and expense side, making sure that that doesn't go much beyond the mid-50-ish type of level.
spk01: Maybe if I can jump in a little bit, and Wally, I think we agree with what you're saying and what a lot of other organizations are doing in announcing branch closures, and that's one aspect of it. I will point out, in addition to what Greg said of, call it our track record of constantly looking at our branches and trimming when we can, You know, as I looked at some of those other announcements, especially when you get into those larger organizations, they're dealing with a high concentration of branches, you know, a lot of overlap, whether it's within a couple of miles or not. You know, the main geography doesn't give us, call it those somewhat, you know, more logical choices to make that if we have two branches within five miles of each other to go through that analysis, ours tend to be spread out a little bit more. albeit we always look at those opportunities where we can gain efficiency by, call it, closing a branch and maintaining a high level of retention of those customers. The other aspect, though, is we are seeing, as all organizations, a lot more customer behavior going into the digital channels. We're really focused on not only, call it, expanding on that and deepening that with our customers, but also making investments in it to make sure that we're keeping pace with what our customers want and, more importantly, what some of the bigger organizations can do. And the great news is we're starting with a great platform that's driven by Q2 e-banking for us. So we're looking forward to that, and that will help us, again, further work into call it the calculus of what do we do with this branch network that we have. You know, the final piece of it that is somewhat more interesting is as we're looking at return to work and we're still in a non-banking staffing level, a non-in-person branches, we're probably still about 80% of the remaining employees are working remotely. And those 20% may range from being in the office five days a week to as little as one day a week. And we're tracking that quite a bit. And as you can tell, we're operating really well when we put up these results. As time goes on, that will allow us to really, like a lot of organizations, banking and elsewhere, what does our workforce look like? And that, I think, is going to be the interesting one where we look at, call it our non-banking or non-branch locations to say, what does our real estate need there? And can we reduce that fixed cost that's built in the system of you know, running offices and et cetera. I think all of that, you know, is some of those things that we're looking at. They're on the table. You know, we have teams of people considering that. Now, you know, with that said, a lot of variables to go in there, especially with, you know, we call it just a COVID-19 vaccination impact. So we're not prepared to say, here's the estimate of the upside for all of those things, but at least we have them in the scope of what we're looking at strategically.
spk04: Okay. All right. Appreciate all that commentary. I believe you said in your prepared remarks that you'd taken, I think you said 92 applications of the most recent round of PPP. What's the dollar amount of those? And ultimately, where do you think you could shake out?
spk01: And actually, I think it was 495 applications. I don't have the dollar number off the top of my head. And 90% of those, give or take, were second draws. Actually, right now, and somebody just whispered in my ear, is $40 million of applications so far we have. Right now, it's really kind of hard to gauge what we expect the total volume to be. We do know it's starting off... I won't say slower because I think part of it is, you know, we're ready for PPP. The SBA is. More importantly, customers are. So there's not, call it, that huge rush that we saw a little less than a year ago on the first round of PPP. You know, we're prepared to do a lot more volume, but, of course, it comes down to what we're going to see from our customers. But we're proactively going out there, reaching out to, Our existing customers who have PPP and double-checking to make sure, you know, they're looking at their records in case you want to come in for a second draw. And we can't forget at the same time we've got to work through some forgiveness on the first rounds going through. So the teams involved there are relatively busy for quite a while.
spk04: Okay. And then lastly, I see you continue to buy some equipment. shares during the quarter? Is the stock, is it still at levels that you consider attractive to utilize repurchases as a capital management tool? And if so, how do you think about maybe target or where you say you have excess capital or just kind of how do you manage that part of the equation?
spk01: Yeah, we really don't, you know, give a, call it an indication, obviously, of what value we think we're at with And like any bank CEO or any public company CEO, my stock's always undervalued no matter what level we're at, right? We do have parameters that we institute that program on that for all the right reasons are confidential. I will say when you look at our capital, we are holding a lot more, I would call it at this point in the dry powder phase as we're trying to see things play out economically. you know, from all the factors that we all know about. I will say when you look over time, we have a pretty good track record of, you know, maintaining our capital levels so this institution stays strong, but also redeploying that back to shareholders either through dividends, through repurchases, or, you know, other things that we've done, you know, over the spectrum of years that, you know, at least I've been here. So it's something that we constantly look at. I will say from call it an inside perspective, we do have a committee of the board that is a capital committee. So that's something that the board is playing an active role in is how we manage those capital levels.
spk04: Thanks, Greg. I'll let someone else ask a question.
spk01: You're welcome. Thank you.
spk06: As a quick reminder, if you have a question, press star and then one to be joined into the queue. Our next question comes from Jake Civiello with Jani. Please go ahead. Hi, good afternoon, guys.
spk05: Good afternoon. First question is that you referenced mortgage banking being really strong in the quarter. Do you have the breakdown of refi versus purchase for the fourth quarter mortgage originations?
spk01: Let me see if we can gather that while we're on the phone. I don't have it at my fingertips, Jake, but I will point out that the activity was strong. We reached a billion dollars of mortgage volume within that. I don't have that specific breakout right now, but I would say the vast majority of that, or a good majority of that was refi. However, we have seen, and as you know, you know, being in the main market, that the purchase activity was significant. But that may be something that we can come back and get out to you all so you know.
spk05: Okay. I appreciate that. Thanks. And then thus far in the first quarter in January, with the move in the 10-year to over 1%, have you noticed any demand change specifically for mortgage resize?
spk01: You know, I was just chatting with Trish Rose, who runs our – EVP of retail banking and mortgages. And we are still at a fever pitch. So we haven't seen a big drop off of that. But as you know, it's a lag. We're probably still working through stuff that was coming through a lot of part of the year. But it continues to pick up on us. So it's a pretty strong market still for us.
spk05: That's good to hear. Yeah, absolutely. One more. Yeah. Just one more question for me. If the economic environment stays on the same trajectory or on a similar trajectory through the rest of 2021, could you envision releasing reserves at some point during the year?
spk01: Well, sorry if I'm laughing because, you know, you're talking to an old banker who's been, you know, here probably doing in banking, you know, 30 plus years and Under the incurred model and prior models, that would be an easier answer. Right now, that's all driven by CECL, now that we're on that, which, as you know, is driven by economic factors and outlooks and what have you. I will say, with that said, the model does give us flexibility to look at different factors, specific factors, especially as we drive into the data on on various industry segments that we have. So I guess my best answer would be, Jake, is, you know, when we have an opportunity to release and that aligns up with our longer-term view and, you know, we will release when those indicators say that we need to be. You know, I was fortunate somebody just shot me a note that in the fourth quarter on residential mortgage activity, 45% was refi, so a lot lower than what we expected for that volume level. So it's good because the rest of it, 55 is purchased, which is great business to have.
spk05: Yeah, most definitely. I mean, I guess... One last question would be to that last point, do you think you're taking market share or are these existing customers that you're garnering new business from?
spk01: You know, I think we're gaining, well, I know we're gaining new customers through that. And I would say when you look at the numbers, you know, we're the third largest mortgage volume producer in by the accounts that we have. And so that's pretty steady to what we've been having. However, when you look at the other list, like everybody else, in every market you're seeing non-banks getting a bigger market share, especially digital-based lenders as well. And so that's part of the competition that wasn't there a few years ago. And we're fortunate we have our Mortgage Touch app automated application process that can compete with that, but as well as provide our personal service that we have through our origination teams and branch teams that the digital lenders can offer.
spk05: Great. I appreciate the time. Thank you, Justin. Our pleasure. Thank you.
spk06: Thank you. As we have no further questions, this concludes our question and answer session. I would now like to turn the conference back over to Greg Dufour for any closing remarks.
spk01: Great. Well, probably the one thing I've told a lot of different audiences, and especially here internally over the past couple of weeks as we've started to close the books and understand what happened in 2020, if you would have asked me eight or nine months ago if we would be sitting here talking about record earnings, nearly $60 million of net income. I wouldn't have taken that sitting in April of 2020 at the start of the pandemic. So we're extremely grateful to be able to share these results with you, but I do want to just say there's been a lot of hard work done here by teams, whether it's folks in PPP, obviously in our mortgage areas. We've asked banking center employees to show up to work be in person to serve our customers that do come in. And so it's been truly, truly a team effort. And I will just give you an aside. We take our engagement employees here very seriously, and we use Gallup to measure our engagement. And through all of this and through all the trials and tribulations of the pandemic, our engagement has actually gone up in 2020 versus 2019. So I just wanted to share, you know, publicly give thanks to the employees of the of Camden National and as well as, say, your own good hands for folks that are caring about your investment. With that, I hope everyone stays safe and healthy, and best wishes for a great 2021. Thank you all. The conference is now concluded.
spk06: Thank you for attending today's presentation. You may now disconnect.
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