Camden National Corporation

Good day and welcome to the Camden National Corporation's third quarter 2021 earnings conference call. My name is Brica and I'll 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 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 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 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 Greg Defer, 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 like to turn the conference over to Greg Defer. Please go ahead, sir.

Thank you, and good afternoon, and welcome to Canada National Corporation's third quarter 2021 earnings conference call. As mentioned, joining me today is Greg White, the company's Executive Vice President and Chief Financial Officer. Earlier today, we announced quarterly earnings of $14.6 million for the third quarter of 2021, or 97 cents per diluted share. Earnings for the quarter decreased 13% compared to the third quarter 2020, and reflect several factors that Greg will discuss in more detail in a few moments. But at a high level, The decline can be primarily attributed to lower gains on sales of residential mortgages, as we are now holding more residential mortgages on our books, a strategy we discussed last quarter. Year-to-date earnings are at record levels of $52.5 million, or $3.49 per diluted share, an increase of 27% and 28%, respectively, when compared to earnings for the first nine months of 2020. Asset quality remains strong, with total non-performing loans to total loans of 0.23% at September 30, 2021, and a one basis point annualized net charge-off ratio for the third quarter. You'll note that this quarter's provision for credit losses of $939,000 brought our allowance credit losses as a percent of total loans to 0.97%, which excludes $3.2 million of allowance for credit losses for off-balance sheet credit exposures. Nearly 700,000 of this quarter's recorded provision expense was for the off-balance sheet credit exposures, reflecting a buildup in our loan pipelines. Like most companies and businesses, we've experienced a very challenging job market. To attract and retain talent and reward our employees for great work during this challenging time, In October, we raised our starting minimum wage from $15 an hour to $17 an hour and increased all other employees' salaries by at least 3%. I'm pleased to report that over 60% of these increases went to employees earning less than $75,000 per year. From a strategic perspective, we received several recognitions that demonstrate the effectiveness and impact of our strategic plan. Coalition Greenwich A division of S&P Global recognized Camden National as a 2021 customer experience leader in retail banking and small business banking. This is the fourth consecutive year our retail efforts have been recognized, and the second year our small business efforts have received this designation. Gallup, the global leader in employee engagement, reported engagement among our employees increased to 4.25 on a scale of 1 to 5, up from 4.09 before the pandemic. We're also named the Best Place to Work in Maine by the Maine Chapter Society of the Union Resource Managers and Best Places to Work Association. From a shareholder perspective, our dividend of 36 cents per share for the third quarter reflects a dividend yield of 3.01% based on our closing price of $47.90 on September 30, 2021. We also repurchased 106,502 shares of our common stock, which will provide a solid earn-back on this investment and return of capital to our shareholders. I'd now like to introduce Greg White, our Chief Financial Officer. Greg.

Thank you, Greg, and good afternoon, everyone. As Greg mentioned, for the nine months ended September 30th this year, we earned a record $52.5 million, or $3.49 per diluted share, which was up significantly 27% and 28% respectively from the same period last year. For the third quarter this year, we reported earnings of $14.6 million or $0.97 per diluted share, which was down from $18.1 million or $1.21 per diluted share reported last year. The decrease in earnings on a linked quarter basis was driven by provision expense of $939,000 during the quarter related to loan and line pipeline growth compared to a provision release of 3.4 million during the second quarter of 2021. On a pre-tax, pre-provision income for the third quarter was 19.6 million, up 2% compared to the prior quarter. As Greg mentioned, during the third quarter, our board of directors approved a quarterly dividend of $0.36, which was a payout ratio of 37%. Our capital position remains strong, as evidenced by a 15.06% total risk-based capital ratio and an 8.3% tangible common equity ratio as of September 30th. Our tangible book value per share grew 1% to $30.23 during the quarter, compared to $29.99 at the end of the second quarter. During the quarter, we repurchased 106,502 shares at an average price of $46.13. Our net interest margin decreased seven basis points to 2.76 for the third quarter of 2021 from 2.83%, the prior quarter driven by a three basis point decline in our loan yield and a 12% increase in the investment portfolio on an average balance basis. Point to point, our investment portfolio grew by 4% during the quarter. Our net interest margin adjusted for PPP loan income and excess liquidity also declined by seven basis points to 2.82% for the third quarter of 2021 compared to 2.89% for the second quarter. We continue to focus on driving down our cost of deposits and our overall cost of funds, which declined by one and two basis points respectively for the third quarter compared to the prior quarter. Despite the decline in net interest margin, net interest income was $1.1 million higher on a linked quarter basis, driven by higher average loan and investment balances, and was $822,000 higher when adjusting for PPP loan income. Non-interest income for the third quarter was down $221,000 or 2% compared to the second quarter due to a decline of $685,000 in mortgage banking income, largely related to our decision to hold more residential loans in our portfolio. Debit card income and deposit service charge income for the third quarter was up 5% and 15% respectively compared to the prior quarter. related to an increase in total consumer spend in our consumer deposit redesign program, which consolidated checking accounts and adjusted minimum balance and paper statement fees. Operating expenses increased by $673,000 in the third quarter compared to the second quarter. $584,000 of that increase was related to employee and salary benefit costs largely due to increases in incentive compensation. As mentioned in our press release, in October all employees received a minimum salary adjustment of 3% and we're increasing our started minimum wage to $17 per hour from $15 per hour. To help pay for this increase in compensation, we will be suspending our profit sharing plan effective January 1st, 2022. At a 3% funding rate for our profit-sharing plan, which is the level we anticipate for 2021 calendar year, we estimate that the annual cost of this off-cycle wage adjustment will largely be offset by the suspension of the profit-sharing plan. The company is planning to continue with its normal merit cycle in March of next year as well. Total assets increased by 351 million or 7% during the quarter to 5.5 billion at September 30th from 5.2 billion as of June 30th. Total loans increased by 1% during the third quarter and grew by 2% when excluding the impact of PPP loans. Loan growth was driven by residential real estate portfolio which grew by 9% during the third quarter. Overall, loan growth was negatively impacted by heavy prepayments and payoffs in our commercial loan portfolios during the quarter. Approximately $80 million of our commercial loan book prepaid during the quarter, primarily from high credit borrowers either selling their businesses or using their cash balance to pay off or pay down their loans. Fortunately, commercial pipelines are near record levels and were $147.1 million as of September 30th, and our residential and home equity pipelines remain robust as well and stood at $222 million at the end of the quarter. Total deposits grew by $311 million or 7% during the third quarter of 2021 and we're up $239 million or 6% on an average balance basis while bringing down our cost of deposits by one basis point during the quarter. Total interest and non-interest bearing checking grew by 10% during the third quarter, while our certificates of deposit declined by 3% during the quarter. Our loan to deposit ratio ended the third quarter at 72% compared to 77% as of June 30th. It will certainly provide us some financial flexibility as we move forward. Asset quality remains strong with non-performing loans to total loans at 0.23% at the end of the third quarter, down three basis points from 0.26% at the end of the second quarter. Annualized net charge-offs were one basis point of average loans for the third quarter and two basis points year-to-date. Our allowance for credit losses on loans to total loans at September 30th was 0.97% down from 0.98% at the end of the prior quarter. Our coverage ratio of ACL on loans to non-performing loans increased to 4.23 times at the end of the third quarter from 3.82 times as of June 30th. This concludes our comments on the second quarter results. We will now open up the call for questions. Thank you.