Good day, and welcome to Camden National Corporation's First Quarter 2021 Earnings Conference Call. My name is Derek Kolar, and I will be your operator for today's call. All participants will be in listen only mode during today's presentation. Following the presentation, we will conduct a question and answer session. Please note that this presentation contains forward looking statements, which will involve significant risks and uncertainties that may cause the 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 ks 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 included to provide meaningful insights and are reconciled with GAAP in your press release. Today's presenters are Greg Dufour, President and 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 Dufour. Please go ahead, sir.
Thank you, Garrett, and welcome, everyone, to Camden National Corporation's Q1 2021 earnings call. I'm pleased to share that earlier today we announced record quarterly earnings for the Q1 of 2021 of $19,700,000 or $1.31 per diluted share. This continued the trend we saw in the latter half of twenty twenty, strong residential mortgage activity and PPP lending. We also released $2,000,000 of pre tax provision, reflecting our solid asset quality position and improving economic data. You may recall that we adopted the current expected credit losses of CECL model as of December 31, 2020.
Greg White will review our performance in a few moments, but I'd like to first provide some background and observations. Staying with the asset quality theme, we recorded approximately $10,000,000 of non performing assets on March 31, 2020 or just 0.2% of total assets. Loans past due 30 to 89 days were just 0.05 percent of total loans on that date. After our provision release, our allowance for credit losses on loans on March 31, 2021 was 1.11 percent, down from 1.18% at Twelvethirty Onetwenty 20, but higher than the 0.4% level we recorded on March 31, 2020 prior to the impact of the pandemic. Preliminary discussions around our market areas indicate a strong upcoming summer season, which we'll expect to benefit our local economies.
Overall levels of people being vaccinated, along with the governor of Maine proactively outlining a plan for people visiting our state has caused a significant increase in reservations in the hospitality industry, which we expect will also drive other parts of the local economy. We continue to expect loan growth in the single digit range as loan pipelines are showing positive trends and we also have the lever of holding additional residential mortgages if needed. I'd also like to note that since we last met, we were named the S and P Global List of Top Community Banks and named the Raymond James Community Cup award recipient, which recognizes top 10% of community banks. I'll now turn the discussion over to our Executive Vice President and Chief Financial Officer, Greg White.
Thank you, Greg, and good afternoon, everyone. As Greg Dufour mentioned, we had record net income of 19 $700,000 for the Q1, an increase of $1,500,000 compared to our previous quarterly earnings record in the Q4 last year of $18,300,000 Our diluted earnings per share was $1.31 compared to $1.22 in the prior quarter. Our return on tangible common equity was 18.47 percent for the quarter compared to 17.27% in the Q4 of last year. During the Q1, our Board approved a quarterly dividend of 0 point 3 $6 which is 9% higher than the $0.33 approved in the prior quarter. In both quarters, the payout ratio was 27% of earnings.
Our capital position remains strong as evidenced by the 60 basis point increase in our total risk based capital ratio to 16% at the end of the Q1 compared to 15.4% at the end of the prior quarter. Our tangible book value per share grew to $29.12 during the quarter compared to $28.96 at the end of the prior quarter. Our net interest margin decreased to 2.88% for the Q1 of this year from 3.06% the prior quarter, but adjusting for the impact of both PPP loan income and excess liquidity, our margin declined by 8 basis points to 2.91% from 2.99% quarter over quarter on this basis. We continue to focus on driving down our cost of deposits and our overall cost of funds, both of which declined by 4 basis points compared to the prior quarter. Our efficiency ratio declined to 52% for the Q1 of this year from 54% in the Q4 of last year.
Our core efficiency ratio fell to 51% from 53% during the same period. Total assets were $5,100,000,000 at March 31st this year, an increase of $191,000,000 or 4% since the end of last year. Total loans increased $17,000,000 during the quarter. Excluding PPP loans, total loans at March 31 were down $17,000,000 compared to the prior quarter. The commercial real estate portfolio grew by 2% during the quarter, partially offsetting the decrease across other core loan portfolios.
As Greg mentioned earlier, we do have the option to hold more residential real estate loans and that is something we continue to monitor. Total deposits grew by $206,000,000 or 5 percent since the Q4 of last year, while non interest bearing checking grew by $67,000,000 or 9% during the same period. Asset quality remained strong with non performing loans at 0.31% at the end of the quarter I'm sorry, non performing loans to total loans at 0.31% at the end of the quarter, down 2 basis points from 0.33% at the end of the Q4 of last year. Annualized net charge offs for the quarter were 3 basis points of average loans in our ratio of past due loans 30 to 89 days to total loans fell by 5 basis points down from 10 basis points the prior quarter. Due to improving economic forecasts and continued strong asset quality, we did release $2,000,000 provision during the quarter, dollars 1,900,000 related to loans and $100,000 related to unfunded commitments.
Our allowance for credit losses on loans to total loans ended the quarter at 1.11 percent, down from 1.18 percent at the end of the prior quarter. Our coverage ratio of ACL on loans to non performing loans was 3.52x at the end of the quarter, down slightly from 3.62x as of December 31, 2020, but continues to be well above the level of 2.57x at March 31, 2020, the start of the pandemic. This concludes our comments on the Q1 results. We will now open up the call for questions. Thank you.
Thank you. We will now begin question and answer session. Our first question comes from Damon DelMonte from KBW. Go ahead.
Hi, guys. Hope everybody is doing well today.
Hi, Damon.
You too, Damon.
So, first question, just looking for a little perspective on the outlook for the provision going forward, just given the health of the overall portfolio and the current level of the reserve, would you foresee taking additional negative provisions? Or do do you think things will go back to normal level of provisioning? Or what can you provide us on that?
Yes. So Damon, as you know, CECL is very forecast based and that's the reason we did have the negative provision Q1. So if forecasts continue to improve, unless there is a change in the asset quality, because then you can make an argument either at the loan level or a pooled level to hold on to some of those reserves. If the forecast keeps improving, we'll be that'll be a challenge to continue to hold all the reserves that we currently have unless we have significantly more loan growth than we've been experiencing.
Got it. Okay. And then just on that point of loan growth, I think, Greg, you had said you had thought maybe mid single digits for the year was still a reasonable outlook for growth. Is that correct?
Yes, I would probably work that in there, Damon. We've been seeing the pipelines improve, as I mentioned, on the commercial side, really from a pretty diverse source from manufacturing to some business lines, our real estate is also picking up as well. And so we've been pleased with what we're seeing there. And again, the real estate production activity is still very strong. So we can always augment that by holding more than what we have been.
Got it. Okay. Is that something you guys have mentioned the holding of residential real estate a couple of times on the call. Is that something you guys are strongly considering to do in order to keep balances moving in the right direction
versus selling
production? Yes, I'll let Greg give his view. But I think Damon, it's a we look at it in a couple different ways. Obviously, not just to have the loans, but more importantly have the recurring income holding those loans. But we balance that against the interest rate outlook as well as the gains that we get from selling now.
So it's something that we run through both pricing and ALCO as a management team. I know Greg if you want to weigh in as well.
Yes. The only thing I'd add, Damon, so excess cash, we've been running in the $150,000,000 to $200,000,000 of excess cash. And so if we start to hold more residential, we're also looking at what we could do on the security side, mortgage backed securities and kind of prudent investments for the bank and looking at the pickup on the loan versus the investment yield too.
Got it. Okay. So rather than buy mortgage backed securities, just hold the residential mortgages themselves?
That's what we're that's part of the assessment that we're looking at, correct.
Got you. Okay. And then I guess just last question, when you look at that kind of the core margin and directionally how it's shaping up here as we go into 2021, you think you're able to keep it kind of flat at this level? Or do you expect that the liquidity is going to continue to weigh on it and put a little bit more modest downward pressure?
Well, even if it's not liquidity based, I think we'll continue to see some asset yield compression here. The cost of fund side, we did bring down 4 basis points last quarter, but that's getting prospectively, that's going to be a little more challenging than it has been given the low level already. We're going to continue to keep doing that and probably be able to be successful, but not to the extent we have in the previous quarters. So I think asset yield does unfortunately will probably compress more than we're able to bring cost of funds down at least for the next few quarters here, if rates stay here.
Got it. Okay. That's all that I had. Thank you very much. Appreciate the color.
Yes. Thank you, Damon.
Our next question comes from William Wallace of Raymond James.
Yes. Hi. Thanks for taking my question. Good afternoon. Look, just trying to keep the line on the net interest margin, does your expectation for some kind of continued downward pressure, does that include any anticipation that you might be able to deploy some of the excess liquidity into the securities portfolio or?
I mean, it does. We could certainly tomorrow invest the excess liquidity and obviously get our stated margin up. And it's more just the certainly, it's kind of that consumer callable, the residential portfolio and the mortgage backed securities, that's where we've seen the compression. So again, I qualify that by rate staying here and prepayment levels staying at the levels that they have been, then we probably continue to see a little asset compression. And then we're always looking at whether or not it's a prudent time to invest that excess liquidity as well.
And we have gotten a little more active there with the backup of the 10 year recently.
Okay. Okay. And the residential mortgage loans that you might supplement loan growth with, what's the nature of those from a structure perspective? Are they mostly fixed rate or do you would you only balance sheet arms, etcetera?
We would look to do both, but probably the majority of the pipeline right now is fixed rate. So that's kind of the short answer, Not really too much activity in the hybrid arm market at this point. But certainly if there is, we thought that would be a good balance sheet product for us.
Okay. And so safe to assume that that would also then add some pricing pressures in the loan portfolio if the demand on the commercial front slows?
Yes, I mean, right, exactly. So if we don't have the pickup in demand on the commercial side, that's where we would probably look to book more of the residential.
Okay. And so as it stands today, almost a third through the quarter, as the commercial pipelines, have they picked up and is the payoff activity slowed or stabilized on the commercial side?
I could certainly the former part of that question, the portfolio the pipelines are at record levels. I mean, they're robust on the commercial side. With that said, we do still continue to have a little bit of pressure obviously with refinancings. And so at least near term, we're still going to have that pressure as well. But the pipelines are I spoke with our senior lenders yesterday and I'm quoting them when I say it's they're at record levels.
Okay. All right. Thank you. On the PPP front, I apologize if this was in the release, but how much did you all originate in the most recent round?
I'm sorry, ask that again, I'm sorry.
The most recent round of PPP loans that started funding in February, how much did you all end up?
Yes. So the supplemental is as of March 31. We have $85,000,000 out there, but we've done another $15,000,000 since. So we're at $100,000,000 on the most recent round of originations.
Okay. All right.
Thank you. And then one last question, if I can. The expense in the quarter was $24,900,000 assuming that you don't get gains in your REO portfolio every quarter, is that a good run rate or were there some deferred costs associated with PPP or anything else that might come out or come back in?
That's a reasonable run rate with raises going in toward the latter part of the quarter there, but it's that's a good starting point.
Okay, great. All right. Thank you. I'll hop out and let somebody else ask you. Thanks, Wally.
Our next question comes from Jake Sevello of Janney.
What
can you identify the amount of impact on sequential tangible book value per share that I'm assuming the negative hit to AOCI had in the quarter?
Yes.
I haven't calculated that. Let me do it back at the envelope for you. Yes, probably, Jake, you could ask your next question and I'll I have an answer, but I just kind of want
to double check it here. Yes. No, I'm happy to ask my other question too. Do you think that the Q1 probably represents the high watermark for mortgage banking income that you record through fee income, especially if you decide to portfolio more production?
Yes, I believe that is the case. It's very close to a record, which was Q2 last year. It's about 95% of that. So yes, that's probable. With that said, April has been strong, but so we wouldn't expect much of a dip there for Q2, but it's likely.
Are you seeing any changes in geography in terms of where the originations are coming from?
No, I would say it's pretty much all consistent and which tends to be more Southern Maine as well as our production office out of Massachusetts and picking up in between New Hampshire. And again, it's not to say the other markets that we operate in aren't doing well. It's just the further south you go, the average deal size is larger and more of them.
And then, Jake, on your AOCI, let me give you just a back of the envelope reasonable estimate there that it's probably in the $0.50 to $0.70 range.
Okay. That helps me directionally. So thank you for
that. Yes.
That's all I have for now guys. Thanks.
Great. Thank you, Jake. Thank you.
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. Well, thank you, Garrett. Thank you, everyone, for attending the call and for our analysts for the questions and for all of you for the support and interest that you've shown the company. We're looking forward to talking to you next quarter. Take care.