Good day and welcome to the Camden National Corporation Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. Later, we will conduct a question-and-answer session.

[Operator Instructions] Please note that this presentation contains forward-looking statements, which involve significant risks and 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; as well as Deborah Jordan, Executive Vice President, Chief Operating Officer and Chief Financial Officer. Please also note that today's event is being recorded. At this time, I’d like to turn the conference call over to Greg Dufour. Please go ahead Sir..

Thank you, Rachel and welcome everyone to Camden National Corporation's conference call to discuss our third quarter 2017 financial and operating results. Debbie Jordan or COO and CFO will give a more detailed review of quarterly financial results in a few moments.

We're pleased to share with you our results for the third quarter of 2017 highlighted by $11.3 million net income for the quarter, or $0.72 per diluted share. This brought year-to-date net income to $31.6 million or $2.02 per diluted share.

As Debbie will explain in a few moments, we're very pleased with our performance measured by return on assets, return on equity, efficiency and asset quality. Before that though, I would like to provide an update on a few strategic items.

We continue to invest in technology to ensure we're strengthening our infrastructure as we grow, as well as evolving to meet the needs of our consumers, customers and clients.

During the quarter, we introduced our treasury management technology, which we call TreasuryLink, which provides more services for our large commercial depositors as well as a strong package of online tools. We've already onboarded several new deposit relationships.

We also expanded our call center services by introducing online and mobile chat capabilities. These services are provided through our secure online and banking suite and complement our 24X7 call center services we introduced almost a year ago.

Finally, on the technology front, we continue to invest in our branches to streamline distribution and improve customer experiences by implementing a new account opening platform working with our core processor, Jack Henry.

I highlight these projects demonstrate that by operating to a 50% efficiency ratio, we're able to provide strong returns to our shareholders while at the same time investing in our organization for the future. Few weeks ago, the FDIC released its Annual Summary of Deposits Report based on June 30, 2017 data.

We're pleased to share the Camden National Bank now has the second largest deposit market share in maintenance 10.6% and the largest of any bank headquartered in the State. Also during the quarter, we announced several leadership changes.

We welcomed Trish Rose as Executive Vice President of Retail and Mortgage Banking and Jennifer Mirabile as Managing Director of Camden National Wealth Management. Larry Sterrs has been Chair of the Board of Directors as Karen Stanley, our previous Chair reached the Board's mandatory retirement age of 72.

John Holmes, another director also reached the mandatory retirement age in September. We're grateful for Karen and John's leadership and are looking forward to Larry's new role. I'd now like to turn the discussion over to Debbie/.

Thank you, Greg and good afternoon, everyone. We are pleased to report solid financial results for the third quarter of 2017 with net income of $11.3 million and diluted EPS of $0.72 per share. Net income is up 11% over the previous quarter and up 4% compared to the third quarter of last year.

For the quarter, our return on average assets reached 1.12%, our return on average tangible equity was 14.85% and our efficiency ratio was 55.72%.

The key drivers for net income growth over the previous quarter included an increase in net interest income due to average loan balances and a stable net interest margin, improved credit quality translating to a lower loan loss provision and lower operating cost.

Our loan portfolio was up slightly since June 30, bringing our year-to-date loan growth rate to 6%. The loans surged in the second quarter of this year was reflected an average loan balances for the third quarter, driving a 2% increase in net interest income between quarters.

We also experienced a 2% increase in average deposits between the linked quarters. Our net interest margin was 3.19% for both the second and third quarter; however, when excluding purchase accounting accretion and income from charged-off acquired loans, our adjusted net interest margin improved by two basis points to 3.11% for the third quarter.

The increase in the adjusted net interest margin is primarily due to growth in low cost deposits as we enter the bank's seasonal deposit cycle combined with a slight shift on the asset side of the balance sheet with investment security cash flows being reinvested in the loan portfolio via jumbo residential mortgages.

The resolution of one large commercial real estate loan during the quarter, improved our asset quality metrics with nonperforming assets at $20 million or 50 basis points of total assets at September 30. Current loan loss provision for the third quarter was $817,000 or 12 basis points to average loans.

Fee income for the third quarter reached $10.3 million, an increase of 4% over the second quarter. The third quarter includes gains on investment securities of $827,000 as we liquidated securities with small remaining balances.

In addition, we recorded fees of just $17,000 on our back-to-back loan swap program compared to $662,000 for the previous quarter. Mortgage banking income totaled $2.1 million for the quarter up 7% compared to the second quarter. Operating cost declined to $21.8 million for the quarter resulting in an efficiency ratio of 55.72%.

Between quarters, we experienced decreases in a number of expense categories including consulting and professional fees, occupancy cost in Oreo and collection costs.

Our year-to-date efficiency ratio remains under 57%, however we anticipate it will trend higher as we continue to make investments in both people and technology with a focus on growing revenue. That concludes our comments on the third quarter financial results.

We'll now open the call for questions, Rachel?.

We'll now begin the question-and-answer session. [Operator instructions] The first question comes from Damon DelMonte with KBW. Please go ahead..

Hey, good afternoon, guys.

How is it going today?.

Great. Thanks..

So, first question just dealing with loan growth, just wondering if you could talk a little bit about what you guys saw this quarter? I know residential mortgages, led the way there up around 10%, but on the commercial side it looks like CRE and C&I have pulled back.

Any color on what's going on there and what the outlook looks like?.

Damon, probably the best way to summarize it is that we've seen the market temporal little bit especially during the summer months and then really from a competitive perspective it gets down to some pricing competition that we're seeing that you can only change so far if you will..

Okay. And so how are you looking at the balance of the year and as head into 2018? I think previously you guys were looking at around 5% annualized growth.

Does that still hold?.

Yes, that still holds. We do anticipate we've seen the past couple of years. There tends to be a little bit of a flurry of activity to get things close prior to yearend and that's what we're starting to see up now..

Okay. Great.

With regards to the margin, Debbie what was the actual accretable yield this quarter?.

Hi Damon. The accretable yields for the third quarter in the earnings release..

Sorry about that, I must have missed it..

That's okay. There is two-line items when you look at the quarterly average balances. So, I have the net interest margin reported and then I have the core adjusted net interest margin. So, for the third quarter, the accretable was eight basis points. So, our core margin was 3.11%..

Okay. Perfect..

And so, a two-basis point pick up compared to the second quarter was good news and I think the one thing that makes me happy is if you look a year ago third quarter of 2016, we were up one basis points.

So, I think it's very good on the margin front and over the last few years, we've made strides to reduce our liability exposure and the latest net interest income we have is we're slightly asset sensitive for the first time. And so, we're seeing that benefit in the third quarter of this year..

Okay. So, as we look ahead to the core margin going forward it doesn’t look like you're seeing a lot of pressure on deposit pricing.

So, would you be comfortable in saying that the core margin could expand a little bit from this level?.

I would say flat to slightly up. I think the one thing and I am sure you're talking to all the bankers on, we have held our rates for a long period of time. At some point the Wall Street Journal articles don't have that, some point we will all pressure to do above themselves.

One was doing modelling I think our deposit beta for simulation modeling is up 200 increase overall deposit rates by 30% so….

Okay. One more question then I can hop out, on the expenses this quarter, good expense control, lower than I think what we were looking for at least, you alluded to the fact that you could see some increase in expenses just given ongoing investments in the franchise.

Can you frame you what a good run rate would be for us to look towards in the coming quarters?.

First, usually the third quarter is our best quarter, usually where the revenue was up and our expenses typically dipped down on the third quarter.

We also saw some of these investments, technology investments that we're going to do would go live in the third quarter, but they're kind of hit in the fourth quarter and so when I look at 2017, I think we'll be around the 57.5%. Going forward our commitment is to manage under that 58%.

So, you're going to see a bump in operating expenses next quarter and then thereafter..

Okay. That's all I had for now. I can hop out and let somebody else get in. Thank you..

You're welcome. Thank you..

The next question comes from Matthew Breese with Piper Jaffray. Please go ahead..

Good afternoon, everybody..

Hi Matt..

Debbie just on your margin commentaries, it sounds a little bit more optimistic than the last few quarters.

As we think about the moving parts there, is that driven by just a better deposit cost outlook or on the loan yield side and with the loan yield side I was hoping you could just you share with us maybe your pipeline rate versus the average rate that we saw this quarter?.

Yeah, I think it's a combination. Currently holding our core deposit rates down have helped us, but over the last few years, we booked a lot more on the variable loan rate side. LIBOR is in prime and we've done a lot of back to back loan swaps. So that certainly has helped us from turning slightly asset sensitive.

On the loan yield for the third quarter, I think the residential portfolio is roughly little over 4% of the average yield booked. On the commercial side, I don't have that because it's been a mix of the variable and the fixed rate. So, I would have to go back to on that..

Okay. And then you did note in your commentary that some of the margin expansion is quarterly driven by a mix shift and earning assets from securities and the loans, do you think that will continue? As I look back securities have been roughly 23% to 24% of total assets for some time.

Is that about the change at all or do you think that'll hold up roughly around historical levels?.

Yeah, I think well 20% to 23% on the investment side. We are portfoling more on the mortgage side the residential real estate side than we have in the last year and half. So certainly, swapping out the two thirds is 4% beneficial and we'll continue to do a little bit of that..

Okay. And then staying on the residential side, saw some really good gain on sales volume this quarter.

I was hoping you could just frame for us, is that a product of more people and investments on the technology front or is there anything you would say was unusual this quarter to drive that and just taken that one step further it just seems like a step up in terms of the rate of revenue, is this a level we should be working off of going forward, understanding 3Q is a seasonally strong quarter?.

Yes, yes and no. The first yes is we did bring on new lender in the year and so we're starting to see that benefit. We also launched the blend, the MortgageTouch, which is application to make it quicker and easier to apply for mortgage. So, I think those two things are positives that have helped us.

We're not forecasting -- the third quarter volume was the highest that we had actually and so we don't believe -- I am going to be conservative and we're not going to sustain that rate. I think we'll see -- we'll get about $120 million of production that's closed in the third quarter.

I would think it's going to be around $90 million to $100 million in the fourth quarter..

Okay. And then my last question is really on the hiring front, I know early in the year we had a departure on the wealth side and that's been filled.

Can you just talk about that business and some of the trends going on and whether or not we should see any sort of change from an operating perspective and a revenue and expense perspective?.

Yes Matt. The change that we had was due to personal reason for the personal who was in the job. We were fortunate that we had a personnel on staff Jennifer Mirabile who could step into it, has been in the main wealth market for probably 25, 30 years. So very well connected. So, in many ways we have that bench. We're not missing a beat.

We continue to be looking at wealth management as a very important future revenue stream for us. We're seeing some of the things come in as far as new business and all. But I think when we look out to it is we'll continue to invest in that business.

We have to broaden the investment offerings that we have as well as probably bring in some more people from the business development front as well as of the support areas from a relationship managers and portfolio managers.

So, what I would say is probably on the topline, we should see incrementally that build up over the next couple of quarters, but we'll be reinvesting back into that business quite a bit. The other major change that we had mentioned I mentioned Trish Rose joined us who was formally with Citizens Bank.

She's running -- she's EVP of Retail and Mortgage Banking for us. Has brought in a very strong retail administration perspective, but more excitingly for us is a sales management and sales culture perspective.

So, we're looking forward to deepening that area and that expertise in the sale side, especially as we get into those more competitive Southern Maine Southern New Hampshire markets..

Got it. Okay.

And you just remind us what assets under management ended the quarter at versus a year ago or lest quarter?.

Sure, under the wealth management, our total under management at September 30 was a little over $800 million, which is flat compared to a year ago, but included in assets under management are Camden National Bank funds and that's actually down $10 million year-over-year.

So, we've had if you just look at clients under management a 1% increase or $10 million increase..

Got it. Okay. That's all I had. Thank you very much..

Welcome. 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. Well, thank you all for the time that you've taken to hear the story about our quarterly earnings. We on behalf of all of us at Camden National Bank, I want to thank you all for your attention this afternoon as well as for your support and I look forward to talking to you soon, take care..

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