Camden National Corporation
Gregory A. Dufour
TWST: Would you begin with a brief historical sketch of the company and a picture of its operations at the present time?
Mr. Dufour: Camden National Corporation (CAC) traces its roots back to the founding of Camden National Bank in 1875. Six local businesspeople founded the bank to provide banking services and capital to the Camden, Maine, community. Over the years, it was a typical community bank, primarily serving Camden and a few surrounding communities, and only opened its first branch location in 1960, in Union, Maine. In 1984, Camden National Corporation was created, and we listed on the American Stock Exchange in 1997 to provide some liquidity for the local owners of the stock.
In the mid-1990s, Camden National started buying and acquiring a few of its competitors. It acquired United Bank & Trust Company of Maine in 1995; Kingfield Savings, which is based in the western part of the state, in 1999; and Union Bankshares, the parent company of Union Trust, in 2008. In 2001, we acquired our wealth management subsidiary, Acadia Trust. Even though the geographic footprint expanded, our focus on great service and local communities, which is highlighted by local decision makers, remains true to what our founding fathers wanted way back in 1875.
Today, we are at $2.3 billion in assets, and we focus primarily on Maine. Our uniqueness lies with the fact that we're a community bank who is very much ingrained with our communities, our customers and our shareholders, while possessing the financial capacity to accommodate larger transactions, along with small business loans and retail loans. It's a great way to play at all different levels and to really serve our community and our customers here in Maine.
TWST: Please tell us about the area and the economy the company serves and then some of its key products or services.
Mr. Dufour: Maine is an interesting market. The state's economy does not experience big economic booms, and it's somewhat shielded from large economic busts. The lack of a high growth rate is offset by a certain level of economic stability. Maine's economic drivers are focused on tourism and marine-related industries, health care and several service industries. But the backbone of Maine's economy is a strong core of small businesses. Camden National Bank is positioned to help small businesses throughout the state, while at the same time have the expertise and capacity to handle many large transactions. On a typical day, we make a loan to a small businessperson looking to buy a piece of equipment, such as a new truck, and work with a large commercial real estate developer looking for a multimillion-dollar financing package.
On the consumer front, we are a full-service retail bank providing residential mortgages, home equity lines, credit and loans, auto loans, as well as a full suite of retail products. Our wealth management subsidiary, Acadia Trust, N.A., provides investment management and fiduciary services throughout the state and follows a disciplined value-oriented investment process that uses original bottom-up research in the selection of large-cap stocks for client portfolios.
TWST: How is the economic picture in Maine compared with others of the Northeast?
Mr. Dufour: As I mentioned before, what Maine lacks in periods of high growth, it makes up for in its stability. We have experienced some downturn like everybody around the country, but in the most recent economic recession, the retraction was less severe than in most other regions. Looking at the economic data, it appears that the northern New England states have performed somewhat better than those in southern New England and the Mid-Atlantic region. We have seen some declines in home values and in home sales, as well as higher than normal unemployment, but again, not at the more severe levels that some other regions of the country have experienced. We've had our fair share of pain, but it hasn't been as distressing as in many other areas.
TWST: What's the competitive landscape for Camden National and what do you see as some of its competitive advantages?
Mr. Dufour: Maine's banking landscape is extremely competitive. In addition to a group of very good commercial banks, Maine also has a very strong group of mutual savings banks and credit unions. And several of the megabanks have a presence in Maine. Needless to say, a typical customer, whether retail or commercial, has many options for their banking business.
Our competitive advantage is that we are small enough to focus on our customers, while at the same time, large enough to provide expert advice and the financial capacity to work with our customers. Especially on the commercial side, we want to make sure that we can develop the relationships and grow with our customers - and more importantly, not have our customers outgrow us. At our $2.3 billion asset size, we are able to operate in both worlds exceedingly well.
So for a typical business customer, we are able to leverage many areas of our organization, which allows us to create a relationship with that customer. We can provide insights and observations gained from working with many businesses in the same industry or area, and bring that knowledge base to our customers. Because we are a flat organization, we are also able to leverage that expertise for our customers who may need a more specific look at their business. For example, our team of credit analysts often meets with the lender and the customer, so that we can better understand their business and structure a financial package that benefits all parties.
TWST: What's your outlook for the industry in Maine and for the company in particular?
Mr. Dufour: The community banking industry's outlook is going to be determined by any individual organization's ability to address the issues associated with the overall economy, pressures on revenues, compliance and costs. Let me break each section apart.
From an economic perspective, you have to have the ability to generate capital, to see your organization through the tough times. Luckily, Camden National is well positioned that way. We've maintained strict underwriting standards, and we've been able to focus on growth over the past three years rather than working out asset-quality issues. For example, we have expanded our lending staff, invested in our infrastructure and added new capabilities, all while the economy was operating at a weak level. As a $2.3 billion organization, we are able to add new products and capabilities to help address the pressures on revenues. For example, over the past three years, we have significantly expanded our corporate services area, which has yielded new sources of low cost deposits for us. Also at our size, we are able to provide the needed human and technological resources to help handle added compliance requirements and regulations. We believe that organizations will need to have the right mixture of human talent and automation to stay ahead of the compliance requirements that will pop up. Smaller organizations won't be able to keep up with the future resource demand, especially if they can't invest in technology to automate their processes.
From a cost perspective, Camden National has always been considered to be an efficient organization. We like to run the organization with a 50% to 55% efficiency ratio range, which we believe allows us to invest in our franchise, while providing returns to shareholders and pricing advantages to customers. We can only operate at this level by having a team of dedicated and hardworking employees, which we attribute to the good, strong Maine work ethic.
TWST: Would you provide a brief snapshot of the bank's financial situation? I gather it's pretty strong.
Mr. Dufour: Through the first nine months of 2011, we reported earnings per diluted share of $2.65 compared to $2.39 for the same period the previous year. This resulted in return on assets of 1.17% and return on equity of 12.73%. From a capital perspective, our total risk-based capital was 16.05%, and tangible capital was 7.67%. This combined with an allowance for loan losses as a percent of total loans of 1.52% provides a strong balance sheet for our organization. With our nonperforming assets of about 1.26% of total assets, we feel our capital and reserve levels position us well in the current economic environment. Also at Sept. 30, 2011, we increased our tangible book value per share 11% to $22.99 per share as compared to the same period the prior year.
TWST: In the past few months, you've announced a share repurchase program, and then in November, a special dividend. Would you speak to what those two actions say about the bank from an investor's perspective?
Mr. Dufour: We are very proud that since the financial crisis started in 2008, we did not participate in TARP, and we also kept our quarterly dividend at $0.25 per share during that time. However, with the economic and regulatory uncertainty during that time period, we wanted to build our capital levels until things settled down. From an investor's standpoint, I hope they perceive the benefit of our strong underwriting culture, which allowed us to fund any asset-quality changes, build capital through earnings and not take any negative actions for our shareholders.
Additionally, I hope they understand that a special dividend indicates that we feel positive about our current capital levels as they relate to our current economic outlook while remaining somewhat cautious about the future. The share repurchase program reflects our belief that at certain times, the stock market is not adequately valuing our stock, and at those times, we believe the best use of our capital is to invest in ourselves by repurchasing some stock.
TWST: Was that unusual among your peers?
Mr. Dufour: It's probably a little unusual to do both at the same time and announce them at the same time. But the thinking behind it indicates that we are sensitive to the needs of our investors. Some institutional investors do prefer a share repurchase program, whereas some retail investors prefer dividends. We believe by taking these two actions, we address the needs of both groups, while at the same time, allowing us to continue to build capital, during what we still consider to be challenging economic times.
TWST: In reporting earnings last quarter, you mentioned several headwinds faced by CAC and other banks. Let's run through each one and get a sense of how the bank is dealing with them. Let's start with the low interest rate environment. Spreads appear tough these days.
Mr. Dufour: Right. Spreads are very tough today. To deal with that situation, we take a very analytical approach to the interest rate environment. Executive management, the finance team and a group of line managers meet monthly in our asset and liability committee meeting to review economic data and forecasts. This effort is aimed at developing various strategies, ranging from loan and deposit pricing to product strategies, as well as fortifying our balance sheet from an interest rate perspective. Because the decision makers at our organization are so close to the field, we can be nimble and innovative in a changing interest rate environment and make those decisions based on the best available data at the best possible time.
TWST: The second one is the regulatory environment. My sense from talking to other folks is that at least some of the uncertainties come out of that a little bit. Would you speak to that?
Mr. Dufour: Obviously, the passage of Dodd-Frank changes a lot of things within our industry. Our risk management team spends a lot of time researching the new regulations as well as talking to our regulators. We've found the sooner we are engaged with them, the better we understand their requirements, and the better they understand us.
Also within this regulatory environment, we have strengthened our audit and loan review processes. Really, with our audit and loan reviews, our attitude is, don't tell us what we know - tell us what we don't know. We really want to understand what's going on in our organization, so we can deal with the new and changing regulatory environment with a very strong operating process to build from. This has really created, for us, an environment of finding solutions quickly when it would otherwise be a long process.
TWST: Finally, you referred to "what some are terming a potential double-dip recession." What's your philosophy on dealing with difficult global and domestic trends?
Mr. Dufour: Whether it's a situation in Greece or a situation in Europe, we have to be aware that global trends can impact a community bank in Maine. No longer can banks our size - and probably any bank - ignore these global events, because they ripple through the interest rate environment that we operate in. We always plan for a best and a worst case, and as more assumptions get firm and more data is available, we are able to pick through which strategies we'll follow. It's more of an analytical process, probably a little bit more than what you may find in a lot of organizations at this level. We feel preparing for various events keeps us better connected on the actions that we'll need to take.
TWST: Please tell us about Camden National's investor relations philosophy. Do you believe the investment community understands what the company has to offer and if not, what do you believe people are missing?
Mr. Dufour: Our investment philosophy is for us to always be available to our investors at their convenience. With that said, I do plan to be more active in the future at various investor conferences, and I feel we need to get the word out about Camden National. I think the story that is being missed is that we have a very strong organization here - one that shows some very good returns and top-quartile peer group performance based on several different measures.
At the same time, I don't want to lose focus on our retail investors, especially those who are long-term owners of our stock. The great thing about being in a community-based organization is that our owners are local. They can see me and the rest of the executive team out in the community.
TWST: Looking ahead, what may be some year-by-year milestones or indicators investors should be watching if they are keeping an eye on CAC?
Mr. Dufour: I would encourage the investment community to really observe how we compare to our peers on the national, state and regional levels. I believe this will tell the story of our strategic focus and our ability to execute our plans in challenging economic or competitive environments.
TWST: What would be the two or three best reasons for a long-term investor to look closely at CAC?
Mr. Dufour: First, just as your question stated, we tend to be better suited for long-term investors. The board of directors and I talk about building a business and doing it the right way. First is managing for the long-term, regardless of fads. If an investor is looking for a board and management team that plans with those long-term views in mind, we would be very much aligned with them.
Secondly, we deliver more consistent, top-quartile performance compared to our peer group. For investors who like financial stocks, our business model will consistently outperform our peers based on our competitive ratios such as return on assets and return on equity. Also, our focus on capital and reserve levels is a critical part of our strong, consistent performance. We want to be the steady performer in good times as well as in bad times - that's something for which an investor can count on us.
Finally, I'll encourage investors to look at how we manage our business. The executive team is passionate about Maine, about banking and about Camden National. In many ways, what you see is what you get. I personally write each quarterly shareholder letter and collaborate with my board Chair on the annual shareholder letter. Each of the executives lead project teams and dig into running the business and are very much a hands-on group of individuals. These talented individuals and the size of our organization make us all accountable for our performance.
TWST: Thank you. (MJW)
Gregory A. Dufour
President & CEO
Camden National Corporation
2 Elm St.
Camden, ME 04843
(207) 236-6256 - FAX