Good day, and welcome to the Camden National Corporation's first quarter 2022 earnings conference call. My name is Jason, and I'll be the operator for today's call. All participants will be on listen-only mode during today's presentation. Following the presentation, we will conduct a question and answer session. If you require operational assistance at any time during the call, please press star and 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. Additionally, 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 2021 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 the press release. Today's presenters are Greg Dufour , President and Chief Executive Officer, and Mike Archer, 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 Dufour. Please go ahead, sir.
Great. Thank you, Jason. Good afternoon, and welcome to Camden National's first quarter 2022 earnings call. Earlier today, we reported first quarter 2022 earnings of $16.8 million, or $1.13 on a diluted share basis. This is up 2% from the fourth quarter 2021 and 15% lower on a net income basis when compared to the first quarter of 2021. Mike will provide more detail in a few moments, but I wanna comment that we believe this is a solid start to the year in light of several factors and conditions. First, as we all know, the economy and interest rate environment are dramatically different than they were just a few months ago, and certainly a year ago.
Second, like most banks, we've seen a decline in residential mortgage activity and related income, as well as declines in PPP-related revenues as those loans are being forgiven. Finally, and reflective of our strong asset quality, we continue to see benefits from provision releases as a number of loans that were modified during COVID have come out of the accruing period. As Mike will provide further details, there is some potential for additional provision releases in the coming quarters as we expect more loans previously modified to meet the internal metrics we've established for ourselves, at which time we'd release those reserves, as needed. From a market perspective, I would summarize by saying conditions are what we expected.
We have seen a 29% decline in residential mortgage activity tracking near what national numbers are caused by increased mortgage rates, but also a significant lack of inventory throughout all of our markets. As we have all read, there are bidding wars for homes on the market, and we're seeing more and more instances where cash buyers win those bids. We've seen strong commercial lending activity ranging from small business to commercial and commercial real estate. Commercial grew to $40 million, 11% from the end of last year. While CRE originations for the quarter were solid, but somewhat muted by one large payoff as the property sold to a large national outfit. This provides a buffer to the decline in residential mortgage activity, but I will point out that the competition for lending is still very hot.
We are seeing very competitive situations on both rates as well as deal structure, which results in us opting to pick our spots in those situations. From a long-term perspective, including understanding our strong deposit base, we feel we're in a good position, although we'll see some pressure in the coming weeks and months. It's now my pleasure to turn the discussion over to Mike.
Thank you, Greg, and good afternoon, everyone. I'm pleased to report that we got off to a solid start this year with reported net income for the first quarter of 16.8 million and diluted earnings per share of 1.13, each representing an increase of 2% over last quarter. Through favorable earnings and capital management strategies we deployed in recent periods, including continued opportunistic share repurchase and dividends, our return on average tangible equity for the first quarter was just over 16%.
For the first quarter of 2022, net interest income decreased 432,000 or 1% compared to the fourth quarter of 2021, driven by a decrease in SBA PPP loan income of 1.7 million as related loan balances continue to run off at an accelerated pace as borrowers take advantage of loan forgiveness offered. As of March 31, 2022, SBA PPP loan balances stood at 6.3 million, and remaining unrecognized origination fees were just over 200,000. Strong loan growth the last two quarters was able to largely offset the impact of lower PPP income and will prove beneficial as we continue throughout the year. Net interest margin for the first quarter of 2022 was 2.87%, an increase of five basis points over last quarter.
On a non-GAAP adjusted basis, it also increased five basis points over this period. We believe our balance sheet composition positions us to fare well as interest rates rise, and we anticipate to see further NIM expansion as our current book continues to reprice and new loans and investments come on at higher yields, which should drive asset yield growth. We believe the amount of NIM expansion over the course of the year will be predicated on our ability to manage funding costs. With that said, we have a strong core deposit franchise and we will prudently manage as we enter into this cycle. Our loan growth for the first quarter was 3% or 4% on non-GAAP basis, adjusting for SBA PPP loans.
Loan growth for the quarter was centered within our residential mortgage portfolio, which grew 86 million or 7%, and our C&I portfolio, which grew 40 million or 11%. As discussed last quarter, we anticipated that we would hold more of our production in our loan portfolio in the first quarter than we had seen in more recent quarters. This held true, though slightly higher than anticipated, with 77% of our residential mortgage production for the first quarter making its way to portfolio. Within our markets, we are seeing extremely competitive environment as competitors look to deploy excess liquidity and are doing so through competitively pricing mortgages and holding these within their portfolio. As a result, market rates have been lower than what the secondary market would otherwise call for in pressuring saleable loan volumes.
More recently, we have seen market rates shift higher and do foresee more saleable volume going forward as a percentage of production. However, for these reasons, we anticipate the majority of our residential mortgage production will continue to be held within portfolio over the coming quarters. Lastly, on the loan front, as Greg mentioned, we are pleased with our C&I growth during the quarter as it reflects the ramp-up and positive momentum of our small business team. On a linked quarter basis, non-interest income was down 2.3 million. Mortgage banking income for the first quarter totaled one million, which was half of what was reported last quarter. We sold 23% of our residential mortgage volume in the first quarter compared to 33% last quarter. Also, debit card income was lower 1.1 million between periods.
This was due to timing of recognition of our annual Visa bonus in the fourth quarter last year, 741,000 in lower seasonal volume. Our non-GAAP efficiency ratio for the first quarter of 2022 was 56.47%, while our annualized ratio of non-interest expense to average assets was 1.93% compared to 54.9% and 1.94% respectively for the fourth quarter of 2021. Non-interest expense for the first quarter was $26.2 million, a 3% decrease from last quarter. As discussed last quarter, we expect quarterly run rate operating expenses to be closer to 27 million for the remainder of the year as the full impact of annual merit increases take effect.
Credit quality across our loan portfolio continues to be favorable, highlighted by non-performing loans totaling 19 basis points of total loans as of the end of the first quarter of 2022 compared to 20 basis points at December 31, 2021 and 31 basis points a year ago. We also continue to have low delinquencies. At March 31, 2022 and December 31, 2021, loans past due 30- 89 days were only four basis points of total loans. At March 31, 2022, our allowance to total loans ratio was 0.9%, representing a seven basis point decrease from year-end and resulted in a negative provision for the first quarter of 2022 of 1.1 million.
The decrease in the allowance for credit losses during the first quarter was driven by the release of 1.9 million in reserves that were established during the pandemic on certain COVID-modified hospitality loans, given the elevated credit risk profile. This release more than offset the provisions that were necessary otherwise to cover solid loan growth during the first quarter. Included within our allowance balance of 31.8 million as of March 31, 2022 is another 3.2 million in reserves related to these hospitality loans subject to release over the coming quarters should these loans meet their pre-established internal requirements. While there is the potential for future reserve releases as we expect the remaining previously modified loans to cure, this may be offset by other factors such as loan growth or a shift in our economic outlook within our CECL model.
While we have seen our allowance to total loans ratio steadily come down since the peak of the pandemic, it continues to be above our pre-pandemic level under CECL. As of March 31, 2022, our allowance was 4.7 times non-performing loans, providing what we believe to be sufficient and appropriate coverage. Like many other financial institutions, we too saw a decrease in the shareholders' equity during the first quarter of 2022 because of the decrease in market value of our AFS bond portfolio due to the sharp increase in the yield curve. On March 31, 2022, our TCE ratio was 7.25% compared to 8.22% at December 31, 2021.
Tangible book value per share decreased to 26.16 at March 31 compared to 30.15 at the end of last year. While we certainly never like to see shareholders' equity decrease, we understand why it did and are confident that it's temporary and driven by the change in the interest rate environment. Being an asset-sensitive bank, rising interest rates are generally a good thing and will likely translate into higher earnings and capital generation from our current balance sheet. Also, our investment portfolio is made primarily up of amortizing bonds and thus we will naturally see balances that are currently underwater run off. Lastly, we have the ability to leverage held-to-maturity or HTM designation and may consider to do so on future investments that are longer dated and present greater price volatility risk.
The company continues to be well capitalized, supporting strong core equity, which can be seen within our regulatory capital ratios that are all in well in excess of our regulatory capital requirements as of quarter end. This concludes our comments on our first quarter results. We'll now open the call up for questions. Thank you.
Thank you. We will now begin the question and answer session. To ask a question, press star followed by one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing in the keys. To withdraw your question, press star one. At this time, we will pause momentarily as questions are registered. Our first question is from Damon DelMonte with KBW. Please proceed.
Hey, good afternoon, guys. Hope everybody's doing well today.
We are, Damon.
Great. Good to hear, Greg. Just wanted to start off with the margin and kind of your thoughts going forward. I know you guys are asset sensitive and just kind of wondering what you guys internally you know project the margin to do for a 25 basis point increase here coming up in May or even a 50 basis point as it seems like the market is kind of moving towards that stance.
I guess, Damon, what we're saying internally right now is, you know, our models are kind of looking at it from where does the Fed look like at 2.50% by year-end. On that basis from a margin perspective, we think where we are right now at 2.87% for the first quarter is a pretty good indicator of where we may end up. I'd say plus or, you know, probably more on the upside, maybe plus 5 basis points. Within our first quarter margin, there's our interest income. There's a few items in there that are a little higher, non-recurring items. Because of that, we think we'll cover that, but also we have some potential upside from here too.
Got it. Okay. Where would you put the core margin at this quarter? Closer to, like, 2.80%?
Yeah, probably 3 basis points down from what we reported from the core.
The basis. Okay.
That's 2.80, 2.79, somewhere in there.
Can you talk a little bit about your outlook for expenses and kind of how you see them trending going forward? You know, they came in a little bit lighter than what we were looking for, but just wondering, you know, with wage inflation and any other projects or, you know, internal initiatives you have going on, kind of how you see the expense base trending.
Yeah. I think like we said, I mean, we expected, on average kind of our run rate for the rest of the year be closer to the 27%. This quarter, I agree, is certainly a little bit lower. We do in the second quarter as well. We have our annual director equity grants that come through that push us up a little bit as well. My expectation for the second quarter is we could be slightly above 27%, but from there we'll level out and roughly be at 27% for the year.
Great. Then just lastly, you know, loan growth obviously off to a really strong start, helped in part by the portfolio of residential mortgages. I guess first part, you know, do you expect to continue to portfolio resi mortgages? Then second part, you know, how do you look at this quarter's result and kind of extrapolate that over the coming quarters? Thanks.
Yeah. The, on the resi mortgage side, you know, as I mentioned in my comments and certainly Greg too, it's a really hot market on the residential mortgage side. We sold 23%, so held 77% in our portfolio for the first quarter. I think based on our current pipeline and the way that's shaping up, it'll be somewhere in the 70%-75% likely again for the second quarter that we'll hold. I think from there, you know, certainly a big question mark in terms of what the competition does. We're seeing it just that the market around us is pricing well below the secondary market.
We hope and believe that what we'll see over the next 60, 90 days that starts to kinda correct itself a little bit. But I think to that point, we're right now kind of internally thinking about what does that look like? What does that balance for loan and on our portfolio as well as sold. We personally would like to see it closer to the 50/50 mix, but we do think that that's going to be a real challenge getting there this year for the remainder of the year. Yeah. Maybe I can just add, Damon, you know, on the commercial side and, you know, including within that small business, obviously off to a strong start.
You know, and that's reflective of build out of our small business efforts that we're doing both from people as well as processing to make it more streamlined. On the larger commercial side, I know typically we say mid-single-digit loan growth. You know, I think if you annualized out our growth, we you know, that's probably on the higher end for what we have. If you go back to my old thing of mid-single-digit, probably we're a little bit higher than that for you to think about going forward. You know, we're pleased what we're seeing, but as I mentioned in my comments, it's just competitive. You know, it's competitive on the rate side, competitive on the structure side.
I always want to maintain the flexibility to pick our spots and because that will be best long-term growth, especially if there's a potential change in the asset quality cycle coming up.
Got it. That's great. Thank you very much.
You're welcome. Thank you.
Thank you for your question. Our next question comes from Matthew Breese with Stephens. Please proceed.
Good afternoon. Hey, I was hoping you could help me, a couple of questions. The first one is just on incremental loan yields. What are the incremental blended yields versus the existing book? Have we hit the crossover point yet?
Right now our pipeline is, you know, we're seeing it on the upper end of 4% now from a rate perspective, and then from the resi side. On the commercial side, we're starting to get into the 4s, into the high 4s, low 4s to high 4s too. We're starting to certainly seeing yields and pricing start to tick up, Matt.
Got it. Okay. Behind your NIM forecasts for the end of the year, what are your assumed deposit betas and how does that compare to last cycle?
Yeah. We're assuming a, you know, call it over the economic cycle, 25% beta. You know, we hope it'll certainly be better than that. Within that though, within that forecast, we're not assuming any lag. Again, I don't think that'll be the case as we always have been. We'll lag the market. We have a strong liquidity position, strong deposit, core deposit franchise. In terms of what I shared there from a margin outlook, it assumes there's no lag.
Okay. Are you starting to see the market get a bit more competitive on the deposit front? Like, do you think you'll be able to lag or is it intensifying for, you know, more than you thought already?
We're starting to hear a little bit, but it's at this point, it's not, you know, prevalent. We do anticipate that we will lag. We do think that's a reality. I think realistically the first 75-100 basis points will lag, and then from there it's going to be, you know, certainly competitive. One of the things that would be a big factor, just like on the loan side, will be what competition does. Not all the banks certainly within our markets have our position, and might have to chase deposits a little bit higher. We'll pick and choose those relationships and we'll do it prudently.
Okay. The other one I had was the commercial reserves, that are predicated on certain behaviors, the release there. Is that an all at once type event or should we think about, you know, kind of evenly dispersing that throughout the course of the year?
It's likely that the bulk of that could come through in this next quarter. I just want to be, you know, cautious of what that actually means. I mean, certainly we'll have to release some reserves to the extent they meet those internal metrics we spoke of. At the same time, as we all know, the macroeconomic environment's pretty volatile, and a function of loan growth in terms of how that pans out for the second quarter. I guess my point being is, you know, a reserve, you know, it probably isn't a likely outcome there. We expect to have some loan growth, probably similar and comparable to what we saw this quarter.
On top of that was, as I mentioned, just the macro environment and how that impacts a more volatile accounting model as well.
Yeah.
Maybe if I could just add in that, Matt, and I'm more repeating what Mike just said is, you know, we wanted to put out there the max potential relief that could come. We don't expect it to be out there, you know, again, just as the economy plays out, as Mike said, and obviously we want to use it up in loan growth. We, you know, just wanted to communicate that situation there, but I wouldn't put that whole amount in your models.
Understood. Okay. My last one is just in regards to, you know, the C&I portfolio specifically. You know, obviously it was a very nice quarter growth-wise. I wanted to get a sense for utilization rates at year-end and today. How much of that was due to increased utilization? Do you expect that to continue? And how much of that was just kind of new customers and, you know, organic growth?
Yeah. We have seen the working capital lines tick up a bit from year-end, but we're still below pre-pandemic levels at this point, Matt.
Okay. All right. That's all I had.
Oh, sorry, go ahead. Yep.
No. You go ahead and finish. That was my last question.
Well, I was going to say on the C&I side, I think it's the small business team has done a lot of ramp up, and we've seen some pretty solid momentum there. Certainly making our comments, as we alluded to, we're excited about that and where that goes.
Got it. Okay. Thank you for taking my questions. I appreciate it.
Yep. Our pleasure.
Thank you for your question. As we have no further questions, this concludes the question and answer session. I would now like to pass the conference over to our management team for closing remarks.
Great. Thank you. Really, the only closing remarks is to thank you all for your attendance and listening in. Later this afternoon at 3:00 P.M., we'll have our annual shareholder meeting. If some of you are there, we look forward to hosting you virtually on that. Take care.