Camden National Corp
NASDAQ:CAC
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Camden National Corp
Earnings Call Analysis
Summary
Q2-2024
Camden National Corporation reported a net income of $12 million or $0.81 per diluted share for Q2 2024, driven by a 6 basis point increase in net interest margin. The company saw a 3% revenue increase and maintained flat noninterest expenses. Their high-yield savings product boosted savings deposits by 8%. Despite modest loan growth, asset quality remained strong with nonperforming loans at 0.23% of total loans. Camden's tangible book value per share rose to $28.34, marking an 11% YoY increase. Management is optimistic about near-term net interest margin improvements and remains committed to leveraging technology for better customer experience.
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Good day, and welcome to Camden National Operations Second Quarter 2024 Earnings Conference Call. My name is Lydia, and I will be your operator for today's call. [Operator Instructions]. I'll now turn the call over to Renee Smyth, Executive Vice President, Chief Experience and Marketing Officer.
Thank you, Lydia. Good afternoon, and welcome to Camden National Corporation's Conference Call for the Second Quarter of 2024. Joining us this afternoon are members of Camden National Corporation's executive team Simon Griffiths, 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 second quarter 2024 earnings release issued this morning and in other reports we file with the SEC. All of 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 discussions of non-GAAP financial measures. Any references 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 am pleased to introduce Camden National Corporation's host, President and Chief Executive Officer, Simon Griffiths.
Thank you, Renee, and good afternoon, everyone. We appreciate you joining our call today. I will provide a few comments on our most recent quarter, and then I'll turn it over to Mike to dive into our second quarter financial performance, and then we'll open up for Q&A. I'm pleased to report, as we mark the halfway point through 2024, we continue to execute well in the uncertain environment. Despite macroeconomic headwinds, we remain committed to executing our long-term strategy of optimizing our balance sheet and deepening customer relationship through advice-based conversations and exceptional customer experience.
Our team is building momentum and leveraging process automation and innovative solutions to deliver stellar advice to our loyal customer base. Earlier this morning, we reported net income of $12 million or $0.81 earnings per diluted share for the second quarter of 2024. Highlights for the second quarter include a 6 basis point increase in net interest margin over the previous quarter. Disciplined execution and expense control, which exceeded our expectations and guidance previously communicated for the second quarter and continued strong asset quality demonstrated by favorable credit quality metrics, which benefit from our disciplined underwriting culture and keen asset management.
Our reported net interest margin increase as a result of deposit cost pressure beginning to ease during the back half of the second quarter as we started to benefit from seasonal deposit flows in our markets are taking decisive action on certain high-cost, noncore deposit relationships and continued asset allocation remix as we utilize investment cash flows to fund loan growth.
Mike will expand on the net interest margin discussion and drivers in a few minutes. Our team continues to focus on driving deposit growth, both through new customer acquisition and by deepening relationships with our existing customers. Including by leveraging data and analytics to make informed, swift decisions.
As Fed rate cuts become increasingly likely, we are ready to quickly act to manage our funding costs. As we saw, while interest rates were increasing, we expect the first 25 to 50 basis point rate cut likely will result in a lower beta than subsequent rate cuts as we balance customer needs and market competition. We remain focused on improving our operating leverage. During the second quarter of 2024, revenues increased 3% over the previous quarter, and noninterest expense remained flat. We continue to take disciplined actions to maintain and manage costs in response to net interest margin pressure while also driving opportunities to increase fee income and diversify our revenue base.
Credit continues to perform in line with expectations and by all measures, our credit metrics continue to perform better than pre-pandemic levels. We continue to manage credit rigorously consistent with our disciplined credit culture. For the second quarter, we reported strong asset quality with just a marginal uptick in nonperforming assets, which accounted for just 17 basis points of total assets as of June 30, 2024.
Our commercial loan portfolio remains well balanced with no meaningful concentration risk. Our credit risk team continues to review our portfolio proactively and have not identified any systemic areas of concern. We continue to see moderate loan demand in our communities. Our residential mortgage pipeline has remained consistent quarter-to-quarter. And at the same time, we have seen a sizable uptick in our commercial loan pipeline primarily driven by a few larger commercial real estate opportunities.
We are seeing nice momentum in fee income spurred by a focus on investment in wealth management and brokerage services. Combined, our wealth and brokerage services generated revenue of $3.3 million in the second quarter, an increase of 11% over the first quarter of this year. The increase is driven by sales activity and continued strength in the financial markets, we have crossed over $2 billion in assets under administration as of June 30, 2024, representing an increase of 12% compared to June 30, 2023.
We are well positioned to expand our advisory distribution by leveraging our new wealth operating platform and mobile app as we stay committed to full relationship banking and growing and diversifying our fee income. We continue to make significant progress on digital road map and innovation ideation. Last quarter, we shared we invested in new online deposit account opening platform, and I'm pleased to report that it remains on schedule to go live at year-end. This new technology will enable customers to open fund and use deposit accounts for the minutes whenever and wherever they choose.
We will leverage this technology to steer into our omnichannel approach which aims to provide a consistent customer experience across all digital and brick-and-mortar sales and marketing channels to provide a uniform customer experience. Our robotics automation team continues to surpass expectations. We recently celebrated processing over 2 million support service transactions through our digital platform.
At our current velocity, we will process 1 million transactions every 6 months. Additionally, our robotics automation reached a milestone with a newly developed API integration into our customer service work for management tool. For the first time, this allows true end-to-end automation predictable, repeatable customer service activities creating real capacity across multiple internal departments.
Further, our data analytics team partnered on AI beta, pilot with a third party for data scientist simulation, simplifying the technical skills needed to request higher-order analytic models. If successful, this has the potential to drive sophisticated analytics further into the hands of business units and the pilot will be completed in Q4.
We believe our investments in talent, technology, products and services will continue to benefit as macroeconomic conditions improve and that our strong foundation will permit us to generate consistent, sustainable and long-term performance as we remain focused on execution and involving the bank to meet customer and shareholder expectations. Now Mike will provide some highlights from the second quarter.
Thank you, Simon, and good afternoon, everyone. This morning, we reported net income of $12 million and diluted earnings per share of $0.81 for the second quarter of 2024 and net income of $25.3 million and diluted EPS of $1.72 through the first 6 months of the year. We are pleased with our second quarter financial results as they demonstrate real momentum within our core business, as highlighted by our reported non-GAAP pretax pre-provision income of $15.5 million, which was up 9% on a linked quarter basis.
As a reminder, in the first quarter of this year, we recorded a negative provision expense of $2 million as we released loan reserves due to the strength of our loan portfolio and we recovered $910,000 of proceeds upon the sale of our Signature Bank bond. With our solid earnings for the second quarter, our tangible capital position grew during the quarter.
As of June 30, 2024, on a non-GAAP basis, our tangible book value per share stood at $28.34, up 2% from the first quarter and 11% over the past 12 months. Total revenues for the second quarter of 2024 increased 3% over the first quarter of 2024. Net interest income grew 3% during the second quarter to $32.2 million, led by an increase in net interest margin of 6 basis points to 2.36%.
In June, a $100 million balance sheet interest rate swap mature, providing approximately 5 basis points of lift for the partial month, and we anticipate 6 to 7 basis points for a full month's benefit at current interest rates. In June, we also began to see normal inflows from seasonal deposits in our market. Looking forward, we anticipate continued net interest margin expansion during the third quarter due to the aforementioned factors, along with the continued redeployment of investment cash flows to support new loan originations at current market rates.
Noninterest income for the second quarter of 2024 totaled $10.6 million, an increase of 3% over the first quarter of this year. As Simon noted in his comments, we are seeing positive momentum across our brokerage and wealth business lines. Regarding mortgage banking, we continue to sell our qualifying residential mortgage production. For the second quarter, we sold 52% of our residential mortgage production. And through the first 6 months, we sold 51% of our production. As we work our way back to historical financial performance levels, we are focused on the management of operating expenses and driving positive operating leverage while continuing to invest in the organization.
Noninterest expenses for the second quarter of 2024 were $27.3 million, a small decrease from the first quarter of this year. The positive combination of lower noninterest expense and revenue growth for the second quarter improved our non-GAAP efficiency ratio on a linked-quarter basis. Our efficiency ratio for the second quarter of 2024 was 63.53% compared to 65.55% for the first quarter of 2024. Based on these results for the second quarter, we are now estimating our quarterly operating expenses will range between $27.5 million to $28 million for the remainder of the year.
Moving to the balance sheet. Total loans as of June 30, 2024, were $4.1 billion and grew less than 1% in the second quarter of 2024 and 1% through the first 6 months of this year. Our loan growth for the first half of 2024 has been mixed across our loan segment. We continue to maintain our loan pricing discipline across our products in the current interest rate environment. Total deposits as of June 30, 2024, were $4.5 billion, a decrease of 1% during the second quarter of 2024 and 2% through the first half of the year. The decrease in deposits during the second quarter and the first half of the year reflects the decisive actions we took to manage and optimize net interest margin.
Through the first 6 months of the year, we managed out approximately $150 million of high cost municipal interest checking and CD balance as part of this effort. Our loan and deposit products are geared towards driving full relationship banking and us being the primary bank for our customers. In the second quarter, we launched our high-yield savings product which is a new money product requiring that the customer also maintained a checking account with us. We've been pleased with these results of the product, which includes an 8% growth in savings deposits in the second quarter of 2024.
Our asset quality for the second quarter continued to be strong, supported by excellent credit quality metrics, including nonperforming loans of 0.23% of total loans, annualized net charge-offs of 4 basis points of average loans and past due loans of 5 basis points of total loans. Nonperforming loans and net charge-offs modestly increased in the second quarter compared to the first quarter but we do not believe they reflect any signs of systemic stress within our loan portfolio.
The strength of our asset quality, combined with modest loan growth gave us the confidence to hold loan loss reserves at 0.86% of total loans as of June 30, 2024, which was consistent with the loan loss reserve coverage ratio as of the end of last quarter. Our capital and liquidity positions also continue to be strong. Our non-GAAP tangible common equity ratio increased 22 basis points from the second quarter to 7.34% as of June 30, 2024, which included the repurchase of 50,000 shares of common stock totaling $1.6 million of capital.
Our uninsured and uncollateralized deposits as of June 30, 2024, were 14.6% of total deposits and our available liquidity sources were 2x uninsured and uncollateralized deposits. This concludes our comments. We'll now open the call up for questions.
[Operator Instructions]. Our first question comes from Steve Moss with Raymond James.
Maybe starting off with the margin guidance here. Start the margin guidance here. In terms of the -- Mike, you said you had a 5 basis point lift from the swap expiring this quarter and then additional -- or you expect 6 to 7 basis points of benefit for a full month. So am I hearing you correctly in thinking about, call it, 11 or 12 basis points of additional margin upside going forward here in the third quarter?
No. No, Steve. Good question. So as we think about margin for next quarter, we're thinking that we're probably in the neighborhood of 3 to 7 basis points, let's call it, 2.39 to 2.43-ish for the third quarter, which is a function of what you just mentioned there, the additional lift of the $100 million loan swap that ran off as well as some of the seasonal flows and other activity occurring.
Okay. And just as we think about the seasonal flows on deposit costs, I mean definitely seeing -- nice seeing your guys as the deposit cost increases slow down here, but definitely seeing it across the board. Curious if you think like in addition to seasonal flows, you could get a little bit more of a lift here just given that deposit costs are likely stabalize you get the massive repricing.
Yes. I think -- so in terms of just deposit costs, I want to say, for June, we landed on 230, 236 off the top of my head for -- excuse me, all-in funding costs, not deposit costs. I do anticipate that we'll continue just to hang around there, maybe up a basis point or 2, but then we'll just continue to have the continued asset yield expansion as well as we move forward. So as we're thinking about our seasonal deposit flows. I do think we are seeing the benefit there. I think one of the questions is we still see a level of remix as well.
So as we're thinking about that on a go forward over the next few months, Steve, we think that could level itself off and call it, 1 or 2 basis points up on, from a remix could be offset by the seasonal flow. So that's how we're thinking about deposits and funding cost rate at this moment.
Okay. Great. That's helpful. And then, Simon, in your comments, you mentioned, I guess, like moderate loan demand, but that you're seeing some sizable -- I think commercial realty opportunities is what you said. Just kind of curious if you can give a little color around those larger commercial real estate opportunities you're seeing.
Yes. Thanks, Steve. I mean, just overall, we see -- continue to see a nice demand across our business. We're seeing low single-digit loan growth for the third quarter and that's been pretty consistent with this quarter. Certainly seeing some nice opportunities, particularly in the commercial real estate side. We're also seeing on the resi side, nice pickup in our home equity business and solid demand on the resi mortgage side as well.
So overall, I think it continues the theme that we've been articulating, Steve, which is we're leveraging the balance sheet, focusing on relationships, being conscious, obviously, of quality and broadening that out and leveraging the opportunities we have to commit to the communities that we serve and continue to lend into those communities.
Got you. And are the projects multifamily in nature or industrial? Just kind of curious as to like where you're seeing the type of demand, if you will.
Yes, it's a mix. It's definitely a mix. We definitely have some of those multifamily, couple of -- we have a couple of multifamilies that particularly. We've had a couple of hotels, high-quality hotel locations in some great locations as well. I take those sort of -- probably the two kind of things we've seen come through.
Our next question comes from Matthew Breese with Stephen.
I was hoping you could talk a little bit more about the high-yield savings program. I guess, first, what rate are you offering on that program so long as folks meet all the criteria? Two, does it continue? And three, what's the expectation for how that program might impact deposit cost overall, but in particularly the savings category, given at least on the average balance sheet, still at a really low level, just some thoughts there.
Yes, sure. I can start off there, Matt. So we did -- as I mentioned, I think our savings growth for the quarter was 8%. I want to saying that was in the neighborhood of around $50 million. The majority -- the vast majority of that certainly was from that high-yield product. Overall, I want to say that the weighted rate that we put on the high yield of 4.13% for the quarter. So we do have a couple, call it, tiers there around 4%, 4.4%, 4.5% that we're out there selling and marketing and have had good traction. And as we said, I mean, we're really trying to drive new customer acquisition along with that product as well.
I think one of the things that we're also in the back of our heads thinking about is CDs start to reprice and start to roll off here over the coming months as well as being thoughtful of trying to get the money back into a look of products, have the ability to roll down the curve if and when that happens. So we're trying to balance all those factors, and we certainly very thoughtful about that.
Matt, this is Simon. So just add to that. Matt, I'll just add just a comment to that. It's continue to see one of the nice things about the CD roll off and we continue to have about 80% retention, which is very favorable, leverage these relationships to really deep and expand into other products as well. So we're really seeing that opportunity to engage our clients and look for opportunities deepen as I mentioned.
I appreciate that color. Maybe just looking at the NIM, it feels like we're at that inflection point for you all where deposit cost increases start to slow, while asset yields really start to reprice higher. As you extend and look at your outlook for beyond '24 and into 2025, how much of the lost ground on the NIM can we recapture? Can we get back to a, call it, a 2.75 type NIMM based on forward curve. I think there's 3 or 4 cuts in there. Just some overall thoughts on the longer-term trajectory of the NIM, not just the next 1 or 2 quarters, but in the '25.
Yes, it's a great question. I think to your comment there, Matt, is certainly going to matter what the shape of the curve is. I mean, I certainly hope that we get back to margin levels that we were at certainly a few years ago. How fast we get there to be seen. Certainly, as we think about Fed rate cuts, hopefully over coming months and quarters, assuming that the yield curve doesn't the long end doesn't go down with it. That will certainly be beneficial to us.
And as you anticipate, to your comment there, I do anticipate us getting back to $270 million I don't know off the top of my head how fast that is. But certainly, something we're certainly steering into. And as we've been communicating now for years and quarters is we really are focused on optimizing margin, and we want to get that. We're focused on growing the business, but we want to do it profitably, and that's top of mind for us.
I appreciate that. The last one for me is just some help on the fee income front. Outlook for the rest of the year. But then within that, just to point where you have some additional leverage. Could you just update us on the wealth management business, assets under management, what you're doing to grow that, the mortgage banking effort as well?
Yes. Thanks for the question, Matt. On the fee income front, for the third quarter, I think very much in line with what we reported this quarter. We've got an estimated range of about $10.5 million to $11 million. And certainly, we think that the fourth quarter fee income might come in will probably come in a little higher than that, about $10.75 million to $11.25 million, that's due to the annual leisure incentive bonus that we have in the fourth quarter. So overall, I think the underlying picture for us is continuing to invest in that business and the wealth business. I think we've got some nice traction there.
As we reported, we were up just over 10% and I think we see nice momentum on the brokerage side. We brought Garrett in to lead the wealth business, and he's starting to certainly build that out, and that's certainly an area that we believe has a lot of opportunity for us given our geography and given the momentum we have with that team. So it's an area that we continue to look to and I think can be a nice area of growth for us going forward.
We have no further questions. So this concludes our question-and-answer session. I'd now like to turn the conference back over to Simon Griffiths for any closing comments.
Well, thank you. I want to thank you for your time today and your interest in Camden National Corporation. We wish you all a great rest of your day, and thanks for your time.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.