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spk02: Good day and welcome to Camden National Corporation's first quarter 2024 earnings conference call. My name is Seb 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 operator assistance at any time during the call, please press star then zero. I will now turn the call over to Renee Smith, Executive Vice President, Chief Experience and Marketing Officer.
spk00: Thank you, Seb. Good afternoon and welcome to Camden National Corporation's conference call for the first quarter of 2024. Joining us this afternoon are members of Camden National Corporation's executive team, Simon Griffith, President and Chief Executive Officer, and Mike Archer, Executive Vice President, Chief Financial Officer. Please note that today's presentation contains forward-looking statements and actual results could differ materially from what is discussed on today's call. Cautionary language regarding these forward-looking statements is contained in our first quarter 2024 earnings release, which was issued this morning as well as in other reports we file with the SEC. All these materials and public filings are available on our investor relations website at camdennational.bank. Camden National Corporation trades on the NASDAQ under the symbol CAC. In addition, today's presentation includes discussion of non-GAAP financial measures. Any reference to non-GAAP financial measures are intended to provide meaningful insights and are reconciled with GAAP in our earnings release, which is also available on our investor relations website. I'm pleased to introduce Camden National Corporation's host, President and Chief Executive Officer, Simon Griffiths.
spk06: Thank you, Renee, and good afternoon, everyone, and thank you for joining us on our call today. We sincerely appreciate your time and interest. I will give some comments, and then Mike will dive into our first quarter performance, and then we will open up the call for Q&A. First, I would like to report, as I'm now over 90 days into the role as President and Chief Executive Officer, I continue to be impressed with the depth and experience of the management team and the talented team members executing diligently throughout the organization. Each team member is focused on executing on our strategies, including growing our primary banking relationships and leveraging our position of strength. Earlier this morning, we reported net income of $13.3 million, or $0.91 earnings per diluted share, for the first quarter of 2024. Overall, we are pleased with our quarterly financial results supported by strong capital, asset quality, and liquidity. Our regulatory capital ratios continue to be well in excess of required regulatory levels and steadily grow, as we close the first quarter with a reported tangible common equity ratio of 7.12%, up one basis point since year end. We continue to manage credit rigorously, consistent with our disciplined credit culture, which continues to serve us well. For the first quarter, we reported strong asset quality evidenced by non-performing assets at just 13 basis points of total assets. Our commercial loan portfolio remains well balanced with no meaningful concentration risks. Our credit and special asset teams continue to proactively review our portfolio and have not found any systematic areas of concern. For example, we continue to look at areas such as interest rate risk in the context of rate resets on maturing loans, lease rollover in certain asset classes, and credit score migration amongst other early indicators. This is a testament to our significant due diligence efforts, strong relationships with our borrowers, and in-depth knowledge of the communities that we serve. As our credit team indicates, our commercial customers have depth and character, which continues to fuel our strength. We continue to see moderate loan demand in our communities with our approved pipeline remaining reasonably consistent over the past few quarters. Our teams are developing new customers and relationships in both commercial and consumer categories. Expense control remains a key focus and was evident as non-interest expense for the first quarter of 2024 decreased 2% compared to the fourth quarter of 2023. During this quarter, we took actions to maintain and manage costs in response to revenue pressure caused by decreasing net interest margin. This month, our wealth management leader, Jennifer, retired after nearly 40 years in the industry. And we welcome Garrett McKnight to the executive team to lead our wealth transformation efforts. Garrett is a former senior managing director at the Northern Trust Company and has more than 20 years of experience leading wealth management teams and serving clients and their families in the areas of investment management, financial planning, and fiduciary services. We're incredibly excited to bolster our wealth management services by adding Gareth's expertise and our recent launch of a new wealth mobile app and client portal to provide our clients with unprecedented access to market intelligence and portfolio insight anytime, anywhere. Our technology advancements also include a new state-of-the-art mobile and online account opening platform scheduled to go live at year-end, allowing customers to open, fund, and use deposit accounts within minutes, whenever and wherever they choose. This is the latest milestone on our successful digital transformation roadmap, further unifying our digital and in-person customer experience and efforts to expand our customer base. In summary, although the financial services industry continues to face economic uncertainty, we are confident in our ability to adapt to the changing landscape and deliver solid returns through the current challenges. We are well positioned to capitalize on exceptional customer relationships and are investing in our future. Our confidence comes from having a clear strategic plan to drive profitable growth and having a talented team focused on executing it. Now, Mike will provide some first quarter highlights.
spk05: Excellent. Thank you, Simon. Good afternoon, everyone. This morning we reported net income of $13.3 million and diluted earnings per share of $0.91 for the first quarter of 2024. Overall, we are pleased with these results as we continue to navigate through a challenging interest rate cycle. Net income for the first quarter was 57% higher than the last quarter and 4% higher than a year ago. On a non-GAAP basis, adjusting for realized investment losses and a $910,000 recovery on the sale of the signature bank bond that we previously wrote off in 2023, adjusted net income increased 1% over the fourth quarter of last year and decreased 11% compared to the first quarter of 2023. Our adjusted return on average assets was up one basis point to 0.88% for the first quarter of 2024, and our tangible capital continues to build, highlighted by an increase in tangible book value per share of 1% during the first quarter of 2024 and an increase of 10% over the past 12 months. In the first quarter, our net interest margin decreased 10 basis points to 2.30%, which was lower than the expectations we communicated at our last earnings call. Funding costs on a linked quarter basis increased 17 basis points to 2.27% for the first quarter. It was a few basis points higher than anticipated. We experienced normal seasonal deposit outflows in our markets during the first quarter, and we continue to see the remix from lower to higher cost deposit products. Our attention continues to be on optimizing net interest margin to maintain and grow revenues and increase profitability. Through the first quarter, we continue to take calculated actions to optimize our balance sheet and net interest margin. A few examples include replacing higher cost deposits, which included $72 million of interest checking balances and 50 million of CDs with more cost advantageous funding alternatives, including the bank term funding program, broker deposits, and the balance sheet derivative. As we look to the second quarter, we currently anticipate net interest margin will hold at or around 2.30 percent with possible upside as certain balance sheet derivatives mature in early June, and we anticipate normal seasonal deposit inflows picking up towards the back half of the second quarter. In response to continued pressure on our net interest margin, we took actions during the first quarter to manage expenses closely. In doing so, we were able to manage expenses lower on a linked quarter basis by 2% to $227.4 million, which is well below our previously communicated expense forecast for the first quarter of $28 to $28.5 million. As we look forward, we do anticipate operating expenses will trend slightly higher for the rest of the year and closer in line with prior guidance. In the first quarter, loans grew 1% driven by commercial real estate loan balances, increasing by $30.6 million. We continue to be disciplined with loan pricing across our products in the current interest rate environment. Based on our current loan pipelines and strategy, we currently anticipate similar loan growth and a mix for the second quarter. Our asset quality for the first quarter continues to be very strong, supported by excellent credit quality metrics, including non-performing loans of 0.19% of total loans, annualized net charge-offs of two basis points of average loans, and past due loans of five basis points of total loans. The strength of our current and past asset quality, combined with modest loan growth and internal stress testing we have performed on certain loan segments, gave us the confidence to reduce our loan loss reserves to 0.86% of total loans at March 31st. This resulted in a credit for loan losses of $1.2 million for the first quarter, and combined with the $910,000 recovery on the signature bank bond, we recognize a total negative provision expense of $2.1 million for the first quarter. Our capital and liquidity positions also continue to be strong. Our book and regulatory capital ratio has improved across the board in the first quarter. Our tangible common equity ratio was 7.12% at March 31st, 2024, compared to 7.11% at December 31st, 2023 and 6.56% at March 31st, 2023. Our uninsured and uncollateralized deposits at March 31st, 2024 were 14.8% of total deposits and our available liquidity sources were 2.1 times uninsured and uncollateralized deposits, which continues to be very consistent with previous periods. This concludes our comments. We'll now open the call for questions.
spk02: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, please press star two. Our first question comes from Steve Moss from Raymond James. Please go ahead.
spk03: Good afternoon. Maybe just starting with loan pricing here, curious as to what you're getting for loan pricing in your markets these days, and also along that front, I noticed commercial loans went down by about 20 base points in yield quarter-to-quarter. Just kind of curious if there was anything unique there.
spk05: Sure. Just on your first part there, in terms of loan pricing, what we're currently seeing, we continue to hold really pretty steady in terms of keeping rates or keeping some of our interest rates higher. We originated, I think, for the quarter in the neighborhood of 7.5% to 8% was our origination yield, and our pipelines continue to be right in that neighborhood too, Steve. So, we continue to be very focused on that and where we can getting that getting that price and being disciplined. On the on the 2nd page there for the. I'm sorry, go ahead Steve.
spk03: Oh, no, go ahead Mike. I'm sorry.
spk05: So, I was going to say on the CNI piece, we did have 1 syndication loan that essentially repriced or refinance rather during the quarter. And that's the primary driver for the CNI decrease, but nothing really atypical or abnormal there.
spk03: Okay. Got it. And then in terms of the derivatives you referenced, Mike, it sounds like you added some during the quarter and then just what do you have maturing come June, just to kind of help with some of the puts and takes of the balance sheet moves here.
spk05: Sure. So we actually executed the derivative in the December timeframe. I think it was with a Ford start in January. I want to say it was either 50 or 75 million off the top of my head. Really with the sole idea of replacing that more expensive CD that we had mentioned that was $50 million. Just again, trying to be advantageous in terms of funding costs where we can. And then in terms of the derivatives rolling off in the June timeframe, essentially we have $100 million of balance sheet swaps. They've been on our books for quite some time. And that really has been compressing some of our CRE yields that are showing up in our margin tables. So we do anticipate those rolling off here, and we do anticipate that should provide six, seven basis points to margin on a go-forward basis once we get past that point.
spk03: Okay. Guy, I appreciate that. So basically kind of the margin, if rates kind of hold in this range, 230-ish this quarter, and then some upside as we head into the third quarter.
spk05: Yeah, I think that's a fair summary.
spk03: Okay. Appreciate that. And in terms of just on the mortgage side here, you guys, I saw sold more mortgages this quarter. Just kind of curious, you know, your appetite or the business mix. Should we think about just higher volumes given more saleable production here going forward?
spk06: Yeah. Hey, Steve, Simon. You know, I'd say overall, you know, low single digit growth is where we're seeing it. We continue to see nice demand on the resi side, which is, you know, continues to reflect, I think, the strength of the economy and the consumer in general. So, you know, certainly modest growth, and that's sort of how we're positioning that within our loan growth. But, you know, certainly continue to see some strong demand out there.
spk03: Okay. Appreciate that. And then also, Simon, just with regard to the reserve release and, you know, I heard the reference about a deeper dive in credit. Just curious, you know, it gives a little more color as to, you know, how you looked at buckets and just the dynamics that maybe gave some comfort around the reserve release this quarter. You know, should we expect any more reviews in the upcoming quarter or two?
spk06: Yeah, I think, look, as we talked about in the opening remarks, you know, we just have a very strong credit portfolio. and see just very strong performance and continue to stress test. And I think the team identified this opportunity. I think going forward, we're going to just look at it as a case-for-case, but certainly felt this quarter certainly made sense. Obviously, the outlook for the rest of the year, I think, is a key driver of how that potentially could change. And, you know, there's obviously a lot of uncertainty right now in terms of the back half of the year, but I think overall the team feels just The credit position is a very strong position, and we felt it was appropriate for a release on this quarter. I don't know, Mike, you want to add anything?
spk05: Yeah, I would just say specifically our credit risk team really dove into some of the problem headline areas that we're seeing in the news around rent controls and some of the interest-only loans and so forth, Steve, just as examples, and stressing debt service and LTVs and other factors there from an interest rate perspective. We just felt really, you know, we continue to have a very strong book. We're not seeing anything systemic or any material issues there across those portfolios. And I think just coupled with, like I said, in commentary is where we've been and how we performed combined with, you know, our own stress testing and how we're continuing to monitor. We just felt it was prudent and appropriate, you know, at this time to release some of the reserves, but we'll continue to monitor. And if, you know, macroeconomic factors change, et cetera, we'll, We'll adjust accordingly, but certainly we feel very good at this level.
spk03: Okay, great. Really appreciate all the color, and I'll step back in the queue.
spk02: Our next question comes from Damon Del Monte from KBW. Please go ahead.
spk01: Hey, good afternoon, guys. Hope you're all doing well. Just to kind of follow up on the questioning on the credit and provision outlook, If you're expecting low single-digit loan growth, absent any net charge-offs, should we expect a little bit of provisioning just to cover the new loan growth? If so, what would be a targeted reserve you guys would be putting on new loans that come on the books?
spk05: Hey, David. It's Mike. Yeah, I think if we anticipate some further loan growth there, like we said in our commentary, probably low single digits for next quarter. I mean, I do think just in terms of the ACL, we'll continue to hold around mid-80s where we are right now. So to that end, probably pretty low provisions. Certainly, if we have net charge-offs, again, nothing expected or anticipated of size at this point, certainly. But if we were, we will We'll account for that accordingly, but really feel pretty strong about where we are right now at this level.
spk01: Great. Thank you for that. And then I think you guys noted that you increased your BTFP drawdown before the end of the quarter. Just wondering, is that being used for actual funding purposes, or did you guys use that as kind of an ARB opportunity where you took the funds and put it in cash and are able to kind of clip a small spread?
spk05: No, we didn't really use it for that in that regard to drive any incremental call it expansion. It was more from a, from a just optimization of margin. Truly. We were able to get into that before some of the program dynamics change. So, you know, at this point we have 225M locked in for a year and 3 different tranches at 476 and. Honestly, from an interest rate risk position, and some of those other considerations, it's just really. favorable given our, you know, any risk to rising rates. It proves beneficial. Rates come down, we can prepay or, you know. And so, again, we just saw the opportunity and thought it made sense to really bolster that.
spk01: Got it. Okay. And then just lastly, your commentary on expenses kind of ticking higher to your prior guidance. Could you just remind us, was the prior guidance like $28 to $28.5 million per quarter? Yes, that's right, Damon.
spk05: Okay. I think, you know, just to provide some additional clarity, I think in the second quarter we could see, you know, it closer to the 20, you know, somewhere in that mid-range there. I think after that in this back half of the year, probably on the lower end, again, plus or minus, but just some of the seasonality items that flush through in the second quarter. But that is certainly a good range still.
spk06: Yeah, and if I can just add, Damian, you know, we continue to balance the short term with the longer term, and You know, getting that balance right, I think, as Mike said, pushes us probably up a little bit in the next quarter. But, you know, we've got, as we mentioned, some great investments on the technology side and continue to invest in the long-term health and health of the franchise.
spk01: Okay, great. That's all that I had. Thank you.
spk05: Thanks, Damon.
spk02: The next question comes from Matthew Brees from Stevens, Inc. Please go ahead. Hey, good afternoon, everybody.
spk04: Hey, Mike, I was hoping you could help me out with kind of the month-over-month trends in deposit costs and the margin and whether or not there are any signs of, you know, early signs of stability in either of those items.
spk05: Yeah, great question, Matt. You know, we are pleased to see in more recent months that we're starting to see a level of maybe stabilized stability. is or isn't the right word, but certainly the increase in deposit costs and funding costs on a month-to-month basis is slowing. So, you know, I think in part it's starting to look like it's more in line with what we're seeing on the earning asset yield, and that kind of speaks to the 230, if you will, kind of staying relatively flat in the near term until we kind of start to see the seasonal inflows as well as the benefit from the derivatives.
spk04: Got it. Okay. And then, you know, on the deposit mix front, you know, felt like reading between the lines a little bit of, you know, frustration or capitulation just in the continued mix of that of noninterest bearing into interest bearing. If you have to look ahead and say, hey, here's how I think we shake out a year from now in terms of deposit mix and then deposit growth, I would love to get your thoughts on those two items.
spk06: Yeah. Hey, Matthew, Simon. That is a great question. And obviously, I think a lot of it depends on the rate environment and, you know, how the Fed moves. But I think generally, you know, we've seen, as Mike indicated, sort of maturity in a customer base around sort of moving into from low no cost into higher cost. We start to see the CD, you know, certainly front book stabilizing in terms of volumes. And I think that sort of consistent sort of trend is likely to continue. But obviously, that's going to depend a lot on the Fed and the customer. I'd say as a team, we certainly have a strong playbook around that potential downward rate environment. And we'll look to manage that very effectively with our customers with a focus on customer relationships and continuing to drive value And that's one of the things I think the team's done extremely well as well is as we've brought in new customers into the CD portfolio, we certainly look to build those relationships, deepen those relationships. And we mentioned in the call, the earnings call at the beginning, the addition of Garrett to the team. And I think that's another tremendous opportunity for us and the communities we serve in Maine to take those relationships, deepen them and leverage the capabilities. We have both digital, the new platform in wealth, and then the new leader that, uh, that we, uh, mentioned. So I think those are the things that can be certainly leveraged going on a go forward basis.
spk04: I appreciate all that. And then just thinking about your NIM commentary sounds stable for the second quarter. It might be a little bit of a bump in the third quarter. If we had to look out even a couple more quarters beyond that, assuming no fed cuts or no fed hikes, Are you more optimistic about the year-forward NIM as some of these dynamics more fully flush out in terms of deposits repricing and earning asset yield expansion?
spk05: Yeah, I think the short answer is yes, Matt. I think we're kind of at a little bit of that inflection point, honestly. I think for us, I do see opportunity for us to continue to increase even in this environment to start seeing margin expansion from here. I think certainly if the Fed were to make cuts, that would be beneficial and be added upside. If we hold here for longer, I think we're well positioned to see margin expansion to get in the second half and certainly hopefully beyond.
spk04: Got it. Okay. And then just the last one for me, cash position at quarter end was a little bit elevated versus what we've seen historically, 3% cash to assets. Is that where you want to be? Should we maintain that level of liquidity from here on out?
spk05: No, I mean, admittedly, that was just some timing of flows. I would share with you that, you know, right now our cash positions come down to more normal levels. So just timing, really, Matt.
spk04: That's all I had. I appreciate some of the questions. Thank you.
spk06: Thanks, Matt.
spk02: As a reminder, for any further questions, please press star 1 on your telephone keypad now. We have no further questions on the call, so I'll hand the floor back to Simon Griffiths.
spk06: Thank you, Simon. I just want to thank all of you for your time today and for your interest in Camden National Corporation, and we wish you all a great rest of your day.
spk04: This concludes the conference call. Thank you all very much for joining.
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