Camden National Corporation

Good day and welcome to Camden National Corporation's second quarter 2021 earnings conference call. My name is Betsy and I will be your conference operator for today. 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 operator assistance at any time during the call, please press star then zero. Please note that this presentation contains forward-looking statements, which involve significant risks and uncertainties that may cause actual results to differ 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 2020 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 Doug DeFore, President, Chief Executive Officer, and Greg White, Executive Vice President, Chief Financial Officer. Please note that this event is being recorded. At this time, I would like to turn the conference over to Greg DeFore. Please go ahead, sir.

Great. Thank you. And welcome to Canada National's second quarter 2021 earnings call. I'd like to begin by wishing you and your loved ones a good health. We are pleased to see strong vaccination rates in our communities, which has helped both businesses and people resume many normal activities while remaining cautious about COVID-19. At Canada National, we announced during the quarter that we would operate in a hybrid environment, which allows our employees, when appropriate, more flexibility in their work schedules and locations. We have begun to have employees return to the office and expect to complete the movement to our new schedules after Labor Day. We continue to monitor many elements of this work environment, including both productivity metrics as well as employee engagement data as remote work evolves. I'm pleased to share with you that earlier today we reported net income of $18.1 million for the second quarter of 2021, which resulted in year-to-date net income of $37.9 million. Earnings per share were $1.21 and $2.52, respectively, for those time periods. Greg White will provide more detail on our financial performance for the quarter in a moment, but I'd like to take a few minutes to highlight a couple of items. we have continued to see significant volumes in our residential mortgage business, which allowed us to take advantage of those conditions as we retained 60% of our production in the second quarter. This was higher than prior quarters, but provided us a strong return when compared to investment alternatives. As we've seen rates on the 10-year retreat over the past several months, we're pleased with this strategy. I would also point out, that the investments we've made both in the residential mortgage business as well as support areas, including our secondary sales team and financial staff, allow us to be agile in light of market conditions. We continue to analyze the interest rate environment and take the necessary steps to position us for the long term. Loan growth for the first half of 2021 increased. was driven by residential and commercial real estate, which grew 6% and 4%, respectively. We continue to see a strengthening of our commercial real estate pipelines and commercial pipelines, but I should point out that there continues to be a significant amount of payoff activity to the sales of properties and businesses, as well as refinancing of existing debt. Our expertise in both CREE and CNI allows us to participate in those transactions as well as proactively support fires of assets. Shifting to our local economies, we're seeing a significant amount of tourism, continued residential purchases, and other business activity. Like many areas across the country, the biggest challenges for our customers are labor shortages, wage inflation, and general inflation, especially in the building and construction materials. I would also like to welcome Matt Brees from Stevens, Inc., who recently initiated coverage on Camden National Corporation. We now have four analysts and firms covering our stock, which further strengthens our support of shareholders and provides for lively discussions. We announced a dividend of $0.36 per common share during the quarter, which relates to an annualized dividend yield of 3.02% based on our closing stock price on June 30, 2021. A tangible book value per share increased 3% over the past quarter and 10% over the past 12 months. And our tangible common equity ratio was 8.87% in June 30, 2021, which provides a significant resource to have at our disposal. I'd now like to turn the discussion over to Greg White, our Executive Vice President and Chief Financial Officer.

Thank you, Greg, and good afternoon, everyone. As Greg mentioned, we reported net income of $18.1 million for the second quarter of $1.21 per diluted share, which was down slightly from our record quarterly earnings of $19.7 million last or $1.31 per diluted share in the first quarter of this year. For the six months ended June 30th, we earned 37.9 million or $2.52 per diluted share, which was up significantly, 55 and 56% respectively from the same period last year. Our pre-tax pre-provision income of 19.3 million for the second quarter was down on a link quarter basis due to the strategy that Greg mentioned to hold more a higher percent of residential mortgages in our loan portfolio. Adjusting for mortgage banking, pre-tax, pre-provision income was 1.1 million higher during the second quarter compared to the first quarter of this year. And our tangible common equity ratio was 16.6% for the quarter compared to 18.47% in the first quarter of this year. As Greg mentioned, during the quarter, our Board of Directors approved a quarterly dividend of 36 cents, which was just under a 30% payout ratio. Our capital position remained strong, as evidenced by a 15.26% total risk-based capital ratio as of June 30th, which includes the effect of our $15 million subordinated debt call during the quarter and an 8.87% tangible common equity ratio. Our tangible book value per share grew 3% to $29.99 during the quarter compared to $29.12 at the end of the first quarter. Our net interest margin decreased five basis points to 2.83 for the quarter from 2.88 the prior quarter. However, adjusting for the impact of both PPP loan income and excess liquidity, we our margin declined by only two basis points to 2.89% on a linked quarter basis. We continue to focus on driving down our cost of deposits and our overall cost of funds, both of which declined by three and five basis points respectively compared to the first quarter. Our net interest income was 1.2 million higher on a linked quarter basis and 1.4 million higher when adjusting for PPP loan income. PPP loan income for the second quarter was 1.7 million, which was 217,000 lower than the previous quarter. Total loans increased 2% during the quarter and grew by 3% when excluding the impact of PPP loans. The residential real estate and the commercial real estate portfolio grew by 7 and 2% respectively during the same period. Total deposits grew by 82 million or 2% during the second quarter and were up 214 million or 6% on an average balance basis compared to the prior quarter. Asset quality remained strong with non-performing loans to total loans at 0.26% at the end of the quarter, down five basis points from 0.31 at the end of the first quarter. Annualized net charge-offs for the quarter and year-to-date were three basis points, In our past due loans, 30 to 89 days fell to an all-time low of two basis points, down from five basis points the prior quarter. Due to improving economic forecasts and continued strong asset quality, we released provisions of $3.4 million during the quarter. Our allowance for credit losses on loans to total loans ended the quarter at 0.98, down from 1.11 as of the end of the prior quarter. Our coverage ratio of ACL on loans to non-performing loans increased to 3.82 times at the end of the quarter from 3.52 times as of March 31st, 2021. This concludes our comments on the first quarter results. We will now open up the call for questions. Thank you.