Camden National Corp (CAC) 2015 Q3 法說會逐字稿

Good morning and welcome to the Camden National Corporation third-quarter 2015 earnings conference call. (Operator Instructions). Note the event is being recorded.

Please note that this presentation contains forward-looking statements which involve significant risks and uncertainties. Actual results could differ materially from the results discussed. The risk factors are described in the Company's annual report on Form 10-K and in other filings with the SEC.

Today's call presenters are Greg Dufour, President, Chief Executive Officer, and Director; and Deborah Jordan, Chief Operating Officer and Chief Financial Officer. Our first presenter is Greg Dufour. Please go ahead.

Great, thank you, and good morning. I would like to welcome you all to the first earnings release call held by Camden National Corporation.

This morning, I would like to provide an update on our recent acquisition, SBM Financial, and its subsidiary, the Bank of Maine; provide some market insight; and then turn it over to Debbie Jordan for a financial update.

On Friday, October 16, we finalized the acquisition of SBM Financial, a transaction which we announced back in March of this year. In addition to closing on the transaction that day, we also merged and integrated the Bank of Maine into Camden National Bank. This entailed numerous projects, ranging from changing both interior and exterior signage, consolidating four branch locations, and a full conversion of our core processing and digital banking platforms.

When we announced the transaction in March, we noted two of our strengths to minimize the risk of execution were Camden's previous track record of acquiring whole banks and branches, as well as divesting branches. The second strength is that the two banks use the same core processing vendor, Jack Henry & Associates, as well as several other key systems, including debit card processing and mortgage platform processing.

I am pleased to report we had a very successful integration. Over the course of the weekend of the 16th, we welcomed 55,000 new customers, 24 banking centers, and nearly 200 employees to our organization. The core system conversion went extremely well and, in fact, the ATMs at our new locations were converted and working that Friday night.

One critical integration milestone was the conversion of the Bank of Maine's Web and mobile customers to Camden's digital experience. We had previously notified customers that they would not be able to access those services from Saturday evening until 10 AM on Monday morning. In actuality, we are able to bring those systems back online by 6 PM Sunday evening, approximately 16 hours ahead of schedule.

All branches opened for business on time Monday morning, as did our call center, which was running extended hours. We're very happy with the results of the conversion and appreciative of the hard work of our employees.

From the customer perspective, we've seen minimal runoff. We believe all one-time costs are within our targets and will largely be recorded in 2015. We are also on track to meet our cost-savings targets. We've reduced the combined organizational staffing levels by 34 individuals by consolidating and filling positions with existing employees, which allowed us to absorb many individuals who otherwise would've been let go.

As you will hear from Debbie in a few minutes, Camden experienced another solid quarter of financial performance, while at the same time making plans for a successful acquisition and conversion. We closed over 3,000 commercial and retail loans so far this year for a gross loan volume of $390 million. And looking at our pipelines, we have seen some strong activity in residential mortgage lending, commercial real estate, and C&I loans. All this builds on the very strong year we had last year and I believe reflects the investments we previously made in recruiting lenders, strengthening our credit underwriting areas, and investing in various production systems to support higher volume.

Throughout our markets, we are experiencing pressure on rates and, in some cases, what we would call loosening of credit structures. The position we've taken in the past, especially in 2006 and 2007, is that we'll assess the risk/reward trade-off in those situations and make decisions based on what we feel will be the long-term benefits. It served us well then as we saw our loan portfolio perform very well in the financial crises and feel it will serve us well in the future.

Earlier this morning, we issued an 8-K announcing the retirement of Peter Greene, our Executive Vice President of Operations and Technology. Peter has over 30 years of banking experience and joined us through our acquisition of Union Bankshares in 2007. Peter has provided the strategic leadership in advancing both our operational and technology platforms, much of which came to fruition over the past few weeks with the exceptional integration of the Bank of Maine.

Much like that baseball player who hits the walkoff home run to win the game, Peter announced his intention to retire at year-end. This role currently reports to Debbie Jordan, our Chief Operating Officer and Chief Financial Officer, and we'll actually split Peter's job.

We have named Dan Swindler to be Senior Vice President of Support Services. Dan is another veteran of Camden National, rising through the ranks over 20 years. Most recently, Dan served as Senior Vice President of Office and Project Management and was the on-the-ground leader of our conversion of the Bank of Maine. We will conduct a search for the Director of Technology role that will also report to Debbie.

I feel this highlights one of our strategic strengths. We are fortunate enough to have a deep bench that we can tap into for succession, but at the same time we have the willingness to take a broader view and bring in people from the outside with their different talents and perspectives.

Looking forward, we are all very excited about our expanded and stronger banking franchise. We have more locations, but, more importantly, more people in customer-facing roles to generate additional business and revenues. Our added scale has already shown ways that we will become more efficient and I think will also provide additional efficiency opportunities in the future.

We are also pleased to have two directors from SBM Financial join us, David Ott and Carl Soderberg, who joined both the Camden National Corporation and Camden National Bank Board of Directors.

I would like to now ask Debbie Jordan to provide a financial update.

Thank you, Greg, and good morning, everyone.

We are pleased to report strong third-quarter results. When excluding non-core items of merger-related costs, both core operating earnings and core diluted EPS increased 8% for the third quarter of 2015, compared to the third quarter last year. On an operating basis, the return on average assets was 97 basis points and the return on average equity was 10.76% for the quarter.

This solid performance is the result of revenue growth of 5%, with our net interest income increasing 3% and fee income up over 10% compared to the third quarter of 2014. Net interest income reached $20 million for the third quarter as our average loan balances grew 6% to $1.8 billion.

The net interest margin of 3.08% for the third quarter of 2015 was down 2 basis points as our loan yield continues to decline due to the rate environment and a shift to variable rates on commercial deals.

We had a nice pickup in fee income for the quarter, driven by mortgage banking income of $390,000 as we began selling secondary eligible 30-year mortgage production this year. In addition, we recorded customer loan derivative income of $435,000 as we swap longer-term fixed rates on new commercial real estate transactions to LIBOR-based pricing.

Our loan-loss provision is slightly lower than a year ago as we continue to see improvement in all asset-quality metrics, with lower nonperforming asset levels, lower past-due loans, and annualized net charge-off ratio at just 8 basis points for the quarter.

Operating costs were up 5% for the quarter, after excluding merger expenses, with the primary increase coming from salaries and benefits due to a combination of new positions, merit increases, and higher incentive compensation due to strong financial results. We continued to see our efficiency ratio trend lower, with the ratio under 59% for the third quarter.

As mentioned by Greg, the SBM transaction closed about two weeks ago and we couldn't be more pleased with the conversion and integration efforts. This transaction results in a 33% increase in loans outstanding, or $646 million, and a 28% increase in deposits and customer [repos], or $710 million.

On a pro forma basis, our loan portfolio mix remains consistent with about a 50-50 mix between commercial and retail lending. We anticipate a lift in our overall loan yield due to the higher rates on the specialty healthcare portfolio.

With the addition of $710 million of stable low-cost deposits and a reduction in the combined investment portfolio, we expect a reduction in our short-term borrowings position.

Also as part of the transaction, we are pleased to report that earlier this month we completed a $15 million sub-debt offering, resulting in a 10-year term with a five-year call provision at an interest rate of 5.5%. Our capital ratios post-merger will exceed well-capitalized regulatory requirements. We anticipate a total risk-based capital ratio over 13% and a tangible common equity ratio of 7%.

We are confident in the importance of the SBM transaction and what we can accomplish as a combined organization with the added scale and market expansion. We're still in line with the estimated merger and acquisition costs of $15 million with a goal of recognizing the majority of costs by year-end. We are on track for achieving the targeted operating cost saves of 37% in 2016 and providing EPS accretion of approximately 14% next year.

That concludes my comments and we will now open up the call for questions. Operator?

(Operator Instructions). Matthew Kelley, Piper Jaffray.

Just a question on the SBM deal now being completed, your thoughts on the specialty lending group, the medical lending group there that you acquired, and your plans for that, and when should we learn more about what will transpire there?

Sure. And as you know and as we actually disclosed, I believe, back in May in an S-4 filing, we said we were going to review the strategic options within that business line.

As way of background, especially the lending group at the Bank of Maine had some constraints, some regulatory wise, some by just the sheer capital level at the Bank of Maine. So we decided to look at that. Actually, we know a lot more now than we did back in May, a lot more than we did just a few weeks ago post conversion.

Right now, we are still going through that analysis. What we want to look at is what is going to be the resource and capital to scale that up to a business that will be material on the bottom line for us on a net income basis. So we're still going through that, as well as looking at the other options.

I think for folks that know us, we tend to go through these things in a pretty methodical and deliberate way. In reality, I don't have a huge sense of urgency to have to decide something immediately on that. However, if -- when we get the answers, we will be right out there and executing whichever way it comes.

Okay. And then, can you give us a sense of how much of your loan growth came from some of your newer markets as you push further south into New Hampshire, in particular, how those are progressing?

Sure. I don't have the exact breakdown off the top of my head, Matt. And we can look to report that a little bit better in the future and maybe beef it up when we file the Q.

But what I can tell you, call it from a high level, in the existing Camden structure that we have now, which includes the investments and the work that we've been doing in southern Maine already, which primarily was coming from the launching pad of the Bank of America branch acquisition in 2012, but also our expansion over into Manchester, New Hampshire, that we hired an individual and opened an LPO in February 2015. We are seeing a shift of the growth coming from those markets as we anticipated and as anyone would really anticipate when you look at the economic, call it, structure of northern New England.

We're pleased with it. We're finding those markets to be highly competitive. Portland is becoming more and more competitive, both with existing competitors and new competitors entering the market.

But with all that said, we still see strong growth coming from some of the more core markets, midcoast Maine, where we've been based out of since our founding in 1875. The Bangor region is showing some good opportunity for us. So in a way, even though the split may be more growth coming from southern Maine, we're not taking our eye off the ball in those other markets, even though they may not be as headline grabbing as some of the other ones.

Got it. And then just the last question for Deb, any thoughts now that the deal is done on the tax rate we should be using for full-year 2016?

Good question. Actually, our year-to-date effective tax rate is about 32.5%. I would use that as a go-forward rate for next year.

Okay. All right, thank you.

(Operator Instructions). As we have no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Greg Dufour for any closing remarks.

Great. Thank you and I want to thank Matt for your questions, as well as for the participants who may be listening in. And again, just want to reiterate we had a very strong conversion. We really have a great launching pad for the future for this organization, not only from what we have here in Maine, but also other markets as well. We are very, very excited at this point. Thank you all for your time.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.