Good day, and welcome to Camden National Corporation's Fourth Quarter 2023 Earnings Conference Call. My name is Cole, and I'll be the operator for today's call. 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 forward-looking statements. Additional information concerning factors that could cause actual results to differ, supplemental earnings materials, the company's 2022 annual report on Form 10-K and other filings from 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 your press release today. Today's presenters are Simon Griffiths, 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 this conference over to Simon Griffiths. Please go ahead.

Good afternoon. Thank you, Cole, and welcome to Camden National Corporation's fourth quarter 2023 earnings call. I'd like to start by introducing myself. I joined Camden National Corporation last November and took over as the President and Chief Executive Officer on January 1, and it's an absolute pleasure and honor to join the company. Since joining, I've been impressed with the strength of the management team and their focus on delivering an outstanding experience for our customers. As I meet with team members and their customers, I've come to realize how deeply rooted Camden National is in the communities we serve, and my first months with the company have confirmed for me the pivotal role we play from large commercial customers to small business owners. There is strong momentum for these businesses to grow, and our teammates can deliver the products and services and have the customer relationships to guide them along the way. I'm also impressed by the robust technology advancements the company has made. The team has been driving innovation and utilizing sophisticated tools to automate processes, leverage data and deliver digital products to aid our customers and our team members. Earlier this morning, we reported net income of $8.5 million or $0.58 earnings per diluted share for the fourth quarter of 2023. This included the impact of repositioning a portion of our investment portfolio, which generated a $5 million pretax loss on the sale of securities. Excluding that impact, our adjusted non-GAAP earnings for the quarter would have been $12.4 million or $0.85 per diluted share. The company continues to look for opportunities to adjust and optimize the balance sheet, and we expect the changes we made in 2023 will provide future benefits to our net interest margin, earnings and capital. The strength of our balance sheet continues to position us well for growth and to capitalize on market opportunities as the broader market shows signs of normalization. Our capital position remains strong and improving, highlighted by an increase in the tangible common equity ratio to 7.11% at December 31, 2023, compared to 6.47% at September 30, 2023. We continue to see solid demand for loans in the communities that we serve, and our pipeline remains steady. We're excited by the addition of a new Director of Commercial Banking in New Hampshire with more than 22 years of banking experience. We are already seeing positive momentum in the market, and we'll continue to look at opportunities to strengthen our team and expand our market presence. We remain focused on full relationship banking to strengthen customer loyalty, leveraging our robust balance sheet and actively managing new loan yields tightly given the decrease in the 10-year treasury yield over recent months. Personally, I'm invigorated by this opportunity to work with a talented and dedicated team to make an impact and build on their many successes. The swift actions taken throughout the year, including steps to stabilize our net interest margin, fortify our balance sheet and position the company for future earnings capacity to drive long-term shareholder value. These actions have positioned us well for the future and will enable us to capitalize on opportunities within our market. Our priorities for 2024 will be to continue to manage the business with a focus on actions that prioritize long-term shareholder value while having a prudent offensive mindset. We have many exciting capabilities and the delivery roadmap across our technology, digital, data analytics and AI roadmap that will continue to drive growth. The team remains laser-focused on our long-term strategic plan to drive stability, profitability and growth with strong expense discipline complemented by a talented team. I'm confident in our ability to adapt to the changing environment and economic landscape while continuing to provide long-term shareholder value. Now I'm going to turn it over to Mike to provide some additional insights into our financial performance for the quarter.

Thank you, Simon, and good afternoon, everyone. This morning, we reported net income for the fourth quarter and annual financial results for the year ended 2023. Like many others across the banking industry, our annual financial results for the year were impacted by macroeconomic conditions and other challenges faced during the year, which included higher short-term rates in an inverted yield curve, compounded by several well-known larger regional bank failures, bringing deposits and related pricing and deferring the focus across the banking industry. Our response to these marketing conditions and events included prioritizing deposits and liquidity, taking steps to help optimize our net interest margin and maintaining our strong asset quality. We believe our capital reserve level and liquidity position us well for future growth and shareholder value creation. These priorities continue throughout the fourth quarter and remain key priorities today. Net income for the year ended December 31, 2023, was $43.4 million and diluted EPS totaled $2.97, each a decrease of 29% compared to 2022 annual financial results. Included within these results are pretax investment losses of $10.3 million as we sold lower yielding investments in the third and fourth quarters this year to reposition our balance sheet, focusing on driving future earnings and improving profitability, as well as a $1.8 million write-off of the Signature Bank bond. Adjusting for these items, our annual earnings on a non-GAAP basis for 2023 was $53 million and a diluted EPS on a non-GAAP basis of $3.63, decreases of 15% and 14%, respectively compared to 2022. Net income for the fourth quarter of 2023 was $8.5 million and diluted EPS was $0.58, each a decrease of 13% compared to the third quarter this year. As noted in my earlier comments, we sold investments at a loss in the third and fourth quarters, which affected our financial results for each quarter. Adjusting for these investment losses, our earnings on a non-GAAP basis for the fourth quarter were $12.4 million and diluted EPS was $0.85, each a decrease of 11% on a linked-quarter basis. Highlights for our fourth quarter operating results included seeing signs of our net interest margin stabilizing, improving capital ratios and finishing the year with excellent asset quality. Our net interest margin for the fourth quarter was 2.40%, which was up 1 basis point from last quarter. We continue to redeploy our investment cash flows primarily to fund loan originations in order to improve overall asset yields and anticipate we'll continue to do so. We believe this asset remixing should help continue to stabilize net interest margin through the winter months within our markets as we generally see a level of seasonal deposit outflows and as we continue to see pressures on funding costs from deposit mix shift. The strength of our liquidity position affords us the flexibility to continue to leverage the strategy. In order to deploy all of the proceeds from the sales securities in the fourth quarter, we also reinvested a portion of the proceeds into new securities that yielded just above 6%, and that were purchased at a slight discount. As our investment portfolio continues to produce cash flow, we expect we'll continue to leverage this cash flow to support loan funding. Our book and regulatory capital ratio has improved across the board in the fourth quarter, and we finished the year with a TCE ratio of 7.11%, up from 6.47% at September 30, 2023, and 6.37% at December 31, 2022. Our capital position continues to be one of our strengths, and it positions us well to capitalize on market growth opportunities. Our asset quality as of December 31, 2023, remains very strong by all measures. At year-end, our nonperforming assets to total assets were 0.13%, our past due loans were 0.12% of total loans and net charge-offs for the fourth quarter were $358,000 or 0.04% of average loans on an annualized basis. The overall health of our customer base continues to be very positive, highlighted by criticized and classified assets of 1.13% of total loans at year-end, which is up from 1.05% for the third quarter, but down from 1.67% at December 31, 2022. We continue to monitor our loan portfolio proactively to identify any early signs of stress. And to date, we're not seeing any systemic trends or material concerns. The increase in provision expense between the third and fourth quarters was $1.1 million and contributed to the decrease in our linked quarter earnings on a GAAP and non-GAAP adjusted basis. In the third quarter, we reported negative provision expense or credit primarily driven by a decrease in loan balances of 1% during the third quarter. Whereas in the fourth quarter, we provisioned $569,000 driven by loan growth of 1%. Like last quarter, we maintained our loan loss reserve levels of 0.90% of total loans as we take into account our overall asset quality and the macroeconomic forecast. Noninterest income for the fourth quarter totaled $6 million and was higher than reported for the third quarter by 18%, primarily driven by a few non-core items, including mortgage banking, fair value adjustments, and a smaller loss on our sale of investment securities compared to the third quarter. Adjusting for these items, noninterest income for the fourth quarter would have been $10.6 million, which included the benefit of our annual Visa incentive bonus of $400,000 in the fourth quarter compared to $10.5 million of fee income for the third quarter. We continue to estimate that our normal recurring noninterest income will be $9.5 million to $10 million quarterly in the near term. Noninterest expense for the fourth quarter was $27.8 million, an increase of $1.6 million or 6% on a linked-quarter basis. As anticipated, operating costs increased over the last quarter given various factors, including timing of incentive accrual true-ups, senior leader transition costs and normal seasonal costs during the winter months. Higher noninterest expense for the fourth quarter translated into a non-GAAP efficiency ratio of 63.48% for the quarter. As we look forward, we anticipate noninterest expenses will tick higher for the first quarter of 2024 and range between $28 million and $28.5 million as incentive accruals reset to target levels and we continue to work through transition costs. We have taken and continue to take steps to manage costs and we are focused on managing our efficiency ratio lower throughout 2024. The last item I'll touch on is our effective tax rate. We saw our effective tax rate for 2023 decrease to 19.4% compared to 20.3% for 2022. In the fourth quarter, we participated in a renewable solar energy project. As a result, we are currently estimating an effective tax rate for 2024 of 18.6%. This concludes our comments. We'll now open the call up for questions.

Good afternoon, and Simon, welcome aboard.

Thanks Steve.

Maybe just starting on loan growth here, just curious how you guys are feeling about the loan pipeline, especially on the commercial side these days and how loan pricing is?

Thank you for the question, Steve. We expect low single-digit loan growth in the first quarter throughout the year. We are seeing strong resilience among our clients across different sectors. The interest rate environment will play a significant role in shaping our expectations as the year progresses. Overall, we are experiencing solid demand and plan to use our balance sheet to support our communities and strengthen customer relationships. I see a positive outlook as the year advances.

Okay. That's helpful. And just maybe in terms of the Fed probably going to cut rates this year. Just curious how you guys are thinking about the impact on the margin with rate cuts? And I realize rate cuts might be a couple of months out. Just how you're thinking about the margin here, near term, given you continue to see obviously some deposit pricing pressures in the sector?

Sure. I can address that. Currently, our margin stands at 240 at the end of the quarter. Looking ahead to the next three to six months, we expect our margin to remain relatively flat, with slight variations. In the first quarter, we typically experience seasonal outflows in deposits that significantly affect us. We are also noticing ongoing changes in deposit remixing, which we are closely monitoring. We have taken steps on the funding side to optimize our resources, particularly by seeking alternative funding options to mitigate higher costs associated with less valuable deposits. This should positively impact our first-quarter performance. Overall, I anticipate that for the first half of the year, our margins will remain stable. When rate cuts occur, we expect some benefits, though it may take time for these effects to materialize on the funding side. We aim to lower rates and deposit costs, understanding the competitive nature of deposits in our market. Nevertheless, we foresee some margin expansion in the second half of the year.

Okay. Great. Appreciate that color. And just one on expenses here. I think the guide for the first quarter, Mike, you mentioned was $28 million to $28.5 million with some transition costs. Just kind of curious, does it back down a little bit from there for the rest of the year? Or should we think about maybe there's some ongoing investments and we stay closer to a $28 million range for the upcoming quarter?

Yes, I believe that currently we are likely looking at an expense range of $28 to $28.5 million. I anticipate we will be closer to $28 million on a run rate basis. As Simon mentioned in his remarks and I echo, we are definitely focused on managing expenses prudently. We maintain a vigilant approach to our efficiency ratio, which has been a historical practice and will remain a priority. However, we are also working to balance short-term expense management with long-term reinvestment, aiming to find that optimal balance.

Yes, I'll just add that I agree with you, Steve. The short-term focus is important, and we are taking specific actions to manage our staffing levels and make incremental investments. I've been very impressed with the team's efforts. On the automation front, we have made significant progress with our data initiatives and other areas that help us identify opportunities for process improvement and efficiency. We recently achieved our 100th process automation, which has resulted in over 1 million transactions. This is just one example of the work the team is doing that can enhance long-term productivity and efficiency in the organization. While focusing on the near term, we also see leveraging technology as a key opportunity for us.

Okay. Great. I appreciate all the color. Thank you very much guys.

Thanks, Steve.

Hi, good afternoon, guys. Hope everybody's doing well, and welcome aboard, Simon. Just wanted to follow up on the commentary around the margin, Mike, I appreciate the color that you gave. Just wondering, do you anticipate doing any additional restructurings here in the early part of '24? Or do you think those are done?

I would say nothing imminent, but I will just say to that, though, Damon, we're constantly evaluating opportunities to optimize if it makes sense and meet our ultimate financial parameters.

Got you. Okay. And with regards to the outlook for loan growth, I think you had said low single digit for the year. Kind of how are the commercial pipelines shaping up right now? And how is that kind of split between C&I and CRE? Has there been any increase in demand on the C&I side? Or is it more real estate driven?

I think we're seeing some nice strength from the C&I and the real estate side. And certainly, as rates start to come down, I think the residential side as well is going to pick up, particularly probably in the spring season. But we're seeing a nice demand from our clients, and that's across the footprint as well. That's certainly across the Midcoast and then obviously into some of the Southern areas, which I think is an area of focus for us. So there definitely is the demand out there, and I think that's a strategic strength that we have with the balance sheet and the position to continue to lend. And I think that's something we'll be very focused on this year.

Okay. Great. Thank you for that. And then just lastly, if I could sneak one more in here. On the outlook for the provision. As you kind of look at your reserve level, it's pretty flat over the course of 2023. Do you envision kind of keeping that flat and kind of low charge-offs and then the provision just basically supporting the growth that you get to keep that reserve level flat?

Yes, I think that's fair, Damon. I think we right now feel good at the 90 basis points considering our view on the macro outlook. I do think to the extent that things start to shake out and there becomes a clear light on what the path forward from a macro position and call it normalization. There is certainly opportunity over time to potentially release reserves. I think it was before we adopted the CECL accounting method or when we did, we were around 80, 82 basis points. So I do think that we have some opportunity there. Of course, it will depend on macro conditions and just overall credit quality metrics. But right now, things certainly look good.

Great. Okay, that's all that I had. Thank you very much.

Thanks, Damon.

Hi. Good afternoon. I have a few questions. I wanted to start with Mike. You mentioned that the tax rate this year is expected to drop to around 18%. Is that correct? I assume this lower rate is partly due to the tax credit investments. Also, in my experience, when companies invest in tax credits, there often tends to be some kind of expense or contract income item that affects fees. If this is the case, could you explain what that is and how much it amounts to? Is it included in the overall guidance you provided?

Sure. Great question, Matt. So, we anticipate our effective rate to be around 18.7%. In part, the rationale before I get to the renewable energy project there, Matt, is just the makeup of our revenue sources, if you will, just the changing over time as our revenues come down, some of our tax-exempt income is just a larger percentage in part, that's driving a lower tax rate right now. As we think about the renewable energy project, solar project, that, from an accounting perspective, we will account for that all within the income tax line item. So we do not anticipate that running through any of the operating expenses. I think the new accounting method out, the proportional amortization method that we're now allowed to use for those. So I think it makes it ultimately a little bit cleaner from an overall income statement perspective, and that's our intent just to run it through the income tax expense.

Yes, I completely agree with you there. The second thing I wanted to touch on, and I'm probably not going to get an exact answer here, but would love your thoughts. As I think about what's unfolded for Camden during this higher rate environment, you've done pretty well on the deposit front with less than 190 all-in-cost of deposits. But the thing that's held up the margin is loan yields have been kind of slow to reprice and there's a good chunk of loans that are in lower-yielding buckets such as resi. And so as we look at the entirety of the loan portfolio, how much is yielding on the lower end of the spectrum, call it, 4% or below? And as you think about that bucket and repaying and flowing to higher yielding on maturity, how long is that going to take? What is the duration of some of the lower-yielding paper on your book?

That's a great question, Matt. I don't have a direct answer for you. However, we do have a significant portion of our residential portfolio and some on the commercial side. In particular, during 2021 and 2022, we were adding quite a bit to the residential portfolio at rates around 3 to 3.5. It will take some time for those rates to phase out or for us to experience normal cash flow loss, so we can expect some compression there. Long-term, I believe the asset yields on the residential side will improve. We're being very cautious about the rates we are putting on now for residential mortgages. That said, with the recent drop in the 10-year rate, we've noticed a lot of competitive pricing in the low 6s. Currently, we aren't matching that pricing on the residential side, but it is definitely a pressure we're facing in the market. I'm not sure I answered your question directly, but I don't have the details on duration in front of me right now.

Well, I'll try it another way. There is some optimism there as we get to the back half of the year in rate cuts and assuming that continues into 2025. When do you think Camden can get back to earning an above 1% ROA that we're all kind of used to?

Yes. We expect to see some level of margin expansion in the second half of the year. Setting aside the potential for Fed rate cuts, we currently have $100 million in derivatives on our commercial real estate book that will be expiring, which has been a drag on our margins. We believe this will contribute approximately 6 to 8 basis points to margin improvement. Additionally, over 90% of our CDs will be repricing within the next year, allowing us to benefit from that as well. We will continue to reprice, anticipating that these repricings will result in lower rates. Combined with our ongoing investments and cash flow going into higher asset yields and effectively utilizing our investment portfolio, we are optimistic that our margin will increase. In terms of return on assets exceeding 1%, we realistically see that happening next year, but we are making progress throughout this year to get back to that level.

Got it. Okay, Simon, a couple more questions for you, if you don't mind. First of all, welcome. Since you've been involved with all the different business lines, I'm curious about where you see the greatest potential for change within Camden. What opportunities or regions is Camden not currently engaged in but could consider in the near future?

Thank you for the question, Matt. I appreciate it. From a growth perspective, I see a few avenues to explore. Our existing footprint provides ongoing opportunities to enhance our relationships in the Midcoast and Down East markets. We hold a significant share in those areas, but there’s still room to strengthen our position. I see particular potential in business banking and our wealth management services, which are both performing well, and we intend to maintain that momentum. Additionally, we have opportunities in other markets where we have a smaller presence, like the southern regions of Portland and Portsmouth, which can help us foster more relationships. Our commercial franchise is robust in these areas, and we aim to expand our reach there while deepening connections, especially in wealth management. Home equity is another segment we're keen on, complementing our residential business. Overall, I'm excited about our footprint and the prospects for continued growth. My meetings with colleagues and customers have highlighted the strong partnerships and community relationships we've established, which provide a solid foundation for our future development.

I appreciate that. Just the last one is, I would love your perspective on M&A. Historically, Camden, if you look back over the last 20, 25 years, is one kind of a 50-50 or 60-40 mix between organic growth and M&A to drive overall balance sheet growth. That's probably an older metric at this point, but I think it still holds true over the long term. What are your thoughts on M&A? And is that something that will be part of the repertoire here going forward?

Yes, thanks, Matt. Our strong position allows us to be opportunistic with M&A, but we don't feel pressured to pursue a deal unless it makes financial sense. It is essential that any deal aligns with our goals. We won't chase after anything that isn't right for us. We have numerous organic growth opportunities, supported by a fantastic team and promising markets, which we believe hold great potential. However, if the right opportunity arises, we will take advantage of it as that is definitely a part of our strategy.

Understood. That's all I had. I know it's a little long-winded, but I appreciate you taking all my questions. Thank you.

We have no further questions registered. So this concludes our question-and-answer session. I would like to turn the conference back over to Simon for closing remarks.

Thanks a lot, and I just want to thank you all for your time today. And of course, your interest in Camden National Corporation. We wish you all a great rest of your day. Thanks for joining.

That concludes today's call. Thank you all for attending today's presentation. You may now disconnect your line.