Good day. And welcome to the Camden National Corporation Third Quarter 2018 Earnings Conference Call. My name is Austin 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’ll conduct a question-and-answer session [Operator Instructions].

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.

Additional information concerning factors that could cause actually results to differ materially from those in such forward-looking statements are described in the Company's earnings press release, the Company’s 2017 Annual Report on Form 10-K and in 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 our press release.

Today's call presenters are Greg Dufour, President, Chief Executive Officer and Director and 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 would like to turn the conference over to Greg Dufour. Please go ahead..

Good afternoon. And thank you for joining the Camden National Corporation third quarter earnings conference call. We’re pleased to announce record quarterly earnings of $14.1 million for the third quarter of 2018 or $0.90 per diluted share. This brought year-to-date earnings to $39.1 million or $2.50 per diluted share.

We’re really happy with our third quarter performance with solid loan and deposit growth, strong asset quality and an increase in our net interest margin for the quarter of 4 basis points to 3.14%, as well as our efficiency ratio at 58.14% on a year-to-date basis.

We continue to expand our products and services during this past quarter, and we recently introduced business touch, our online loan application and instant decisioning product for small business.

At this point in time, we are using this for commercial loan request up to $75,000, but it the potential to deleverage to higher levels as we grow into that system. This is an important part of our digital suit of products, which meets our customers' demand to online services while at the same time provides us internal efficiencies.

I'd be remiss not to mention the recent stock market activity that has impacted all stocks, and bank stocks, in particular, including Camden National.

We believe we’re positioned well in this turbulent market with strong asset quality, a focus on maximizing our net interest margin to our deposit gathering efforts, which complements loan teams and a consistent ability to be efficient, which will serve us and our investors well over the long-term.

We've backed this up by also increasing our dividend over the past few quarters and consistently think in terms of how our actions will benefit shareholder value. I would now like to turn the discussion over to Debbie who will give you some more details on the results..

Thank you, Greg and good afternoon everyone. We are pleased to report net income of $14.1 million for the third quarter of 2018, which drove a return on average assets of 1.34% and a return on average tangible equity of 17.84%.

Comparing our financial results to the second quarter of 2018, we experienced net income growth of $1.8 million or 15% as a result of total revenue growth of 5%, a lower loan loss provision and a slight increase in operating expenses.

Linked quarter revenue growth of $1.8 million was due to an increase in net interest income of $942,000 and fee income of $891,000. Net interest income was up 3% over the previous quarter due to solid average loan and deposit growth and an increase in our net interest margin of 4 basis points.

Fee income growth was primarily related to an increase in security gains of $633,000. We benefited from our deposit generation efforts, as well as our seasonal deposit inflow where we peak in deposit balances typically in the third quarter of each year.

We are particularly pleased to see average demand deposit and checking account growth of $204 million or 17% compared to the third quarter of last year. Our loan portfolio grew $41 million between quarters, representing a 6% annualized growth rate.

We continue to experience growth in the residential loan portfolio, which increased $32.6 million between linked quarters due to expanded mortgage offerings and capabilities in Southern Maine and Northern Massachusetts.

The commercial real-estate portfolio grew $25.9 million between linked quarters, while our C&I portfolio declined $20.7 million, primarily due to one large loan pay-off of $18 million.

Our loan loss provision for the quarter of 5 basis points on average loans was primarily the result of strong asset quality with net charge offs for the third quarter of 7 basis point combined with loan upgrades and resolutions that drove lowered non-performing asset levels.

Our operating expenses increased 1% between quarters to $23.2 million for the third quarter. Our efficiency ratio of 57.3% for the quarter help bring the year-to-date efficiency ratio closer to our 58% target level. That concludes our comments on the third quarter financial results. We'll now open the call up for questions..

Thank you. We will now begin the question-and-answer session [Operator Instructions]. And our first question today will come from Matthew Breese with Piper Jaffray. Please go ahead..

Deb, Greg, I thought it was a pretty straightforward quarter. I don't want to queue too many questions but maybe just a couple. The first one is really point to some of the seasonality in the deposit lines. Non-interest bearing deposits were up very strong this quarter.

As those as roll-off, could you just give us two ideas; one, an idea of how much we should expect to roll off; and then, two, when you backfill it, what are you backfilling it with and what margin pressure do you think that could cause?.

Typically, in third and fourth quarter we'll have higher core deposit levels and in the first quarter, we will supplement that with borrowings. So, it will be brokered deposits or overnight funding. When I look at the quarter, about 4 basis points of the margin improvement really is due to that seasonality of the deposit outflow.

And so when you look at the first quarter of next year, you could expect about 4 basis points decline -- three to five, so....

And then going to expenses, just a hair higher than what I was anticipating. It looks like the salaries line picked up a little bit.

What were the drivers there? Did it have anything to do with mortgage, which is also you've up the trend there and put up a nice mortgage number?.

Expenses were -- typically, the third quarter is our lowest expense base. We did see a little pick up on the salary, commission and incentives side. We're also hiring lenders, not just on the mortgage side but the commercial side.

So, we are adding to staff so that's contributing legal fees and some consulting fees were a little higher this quarter also. And I really think we'll be above that $23 million run rate on a quarterly basis but we're still managing to that 58% efficiency ratio..

Could you just give us an idea of to the extent your hirings, the successes you're having and what impact? I think your longer term loan growth outlook is like 5%, whether or not that'll maintain or expand with the hires?.

Sure, Matt. Again, our hiring we look at it strategically. If we can find a good solid revenue producer, whether it's a lender, mortgage originator, or even a wealth manager, we'll hire them. Really that reflects the shortage of great talent that’s out there, especially in our markets, including new Hampshire and Massachusetts and of course Maine.

The other aspect -- so with that aspect, we would anticipate after a ramp up period of those folks as they would start contributing positively to bottom line. So as long as we keep on having that wave of people come in that will help.

Some of that is to really just maintain the growth factor that we have, and we are growing our balance sheet as bigger than what it was just three or four years ago. So we need more hands on deck to do that.

We do monitor portfolio levels, especially on the lending side to ensure that our people can maintain the customer service and experience as their portfolios grow. So, we always need a churn of new people building portfolios for us.

The other aspect of hiring of course is in our support areas and that’s when you get into looking at technology staff and related to that. And that also is a reflection of our growth as we bring in more digital products that requires more technology people, more information security people.

And as we know, those people are pricy in the about, so we keep up with that as well. What we try to do though as to look in how can we leverage that? So we look at it more on that efficiency ratio basis..

My last one, Greg, just you pointed to some of the recent stock action compared to the solid fundamental grounds that you look to be on.

Would you think about buybacks if the stock doesn’t perform the way or peers under value it in your eyes?.

We would. And if you look in our history, even though not recently because of the trend that we've been at, we have a very good track record, I believe, of buybacks.

When it's the opportunities presenting itself to us; in a lot of ways, as you know first step, do we need the capital for, call it, to invest into the business directly; then if that’s not the case and we look at it is the value there on the market? And obviously, when the price goes down a little bit and we're still confident in what we have, that's an opportunity for us to buy.

That’s how we view it. So, we'd always keep that as an option and as a tool as we have in the past..

Maybe just one more, Deb, just going back to your commentary on the deposit front as demand deposits, not assuming demand deposits fall out in the beginning of next year, that would be a 4 basis points drag on the NIM, which might put you back to where you were on a core basis during the first half of the year, threes or fours.

Is that a good place to be in 2019 or at least the first half?.

Yes..

[Operator Instructions] And our next question will come from Damon DelMonte with KBW. Please go ahead..

So, just to touch on loan growth, decent quarter -- this quarter for you guys.

Can you just talk a little bit about your outlook as we go into the end of the year and how the pipeline is shaping up for 2019?.

What I would say is, overall, we do give the guidance in range mid single-digit overall loan growth. And so we will stick with that, we'll track to that.

What we're seeing probably more from a loan activity perspective, as you probably hear from all bank CEOs, especially from new bank CEOs, very competitive out there, a lot of different things and competitors coming into various markets looking for volume.

What I would say from our pipeline perspective we're pleased with what we're seeing, especially as we make that final push into the fourth quarter. And then very quickly, maybe in a matter of days, we start looking and saying what's happening in the fourth quarter and how we're going to kick off the first quarter '19.

And right now, the pipelines pretty good, both on the commercial and retail side..

And could you help us, Deb, I think a little about the provision and what we could expect in the upcoming quarters after this quarter's level?.

The guidance I had been saying is roughly 15 basis points with the improvement we had in some loans that were upgraded and then some pay-offs we were able to back down the provision this quarter. When I look at 2019, I think something in that 15 basis points makes a lot of sense, going forward..

And then I guess just lastly on the margin this quarter. I apologize if you had said it.

But what was the accretion from purchase loans?.

For the quarter, third quarter, it was $434,000 for the quarter. So it was about 5 basis points..

And then should we assume that same level, going forward?.

That’s ramping down quite a bit. And so when I take a step back and look at the year, I think it will be priced 50% of 2018 run rate for next year..

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..

Well, first of all, obviously, we’re very pleased with a great strong quarter. I would like to just recognize a lot of that is by the great staff that we have here, not only from the revenue side but also from the support side and the teams that really make this happen for us.

And obviously, I want to thank all of you for your interest in Camden National. Have a great day..

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