Camden National Corporation (NASDAQ:CAC) Q1 2025 Earnings Call Transcript

Camden National Corporation (NASDAQ:CAC) Q1 2025 Earnings Call Transcript May 6, 2025

Camden National Corporation misses on earnings expectations. Reported EPS is $0.95 EPS, expectations were $0.99.

Operator: Good day. And welcome to Camden National Corporation’s First Quarter 2025 Earnings Conference Call. My name is Elliot, and I’ll 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] I’ll now turn the call over to Renée Smyth, Executive Vice President, Chief Experience and Marketing Officer.

Renée Smyth: Thank you. Good afternoon. And welcome to the Camden National Corporation’s conference call for the first quarter of 2025. 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 and 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 first quarter 2025 earnings release issued this morning and in other reports we filed 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 a discussion of non-GAAP financial measures and 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 our host, President and Chief Executive Officer, Simon Griffiths.

Simon Griffiths: Thank you, Renée, and good afternoon, everyone. We appreciate you joining our call today. And thank you for your patience and flexibility with today’s earnings call. When you cut through it, we had a very solid quarter financially, highlighted by core net income of $16 million, led by strong fundamentals and continued momentum within our core operations. In a few minutes, we will discuss our financial results in more detail, and Mike will provide details of our purchase accounting before we turn to Q&A. Before we dive into our numbers, I want to take a moment to reflect on our historic accomplishments this quarter. On January 2nd, we successfully closed our merger with Northway Financial and welcomed over 28,000 new customers into our network and over 100 new team members to our franchise.

74 days later, we successfully completed the full systems integration and we are now operating on one platform. As a quarter ends, Camden National Bank grew to 73 branches across Maine and New Hampshire and reached $7 billion in assets. I’m incredibly proud of the many team members across both companies who worked tirelessly to make this a smooth and successful transition. Their dedication, obsession with the customer experience, and focus on the cultural alignment are commendable. I’m pleased to report that we are on track to achieve our previously reported annual cost saving goal of 35% of Northway’s operating expenses, and we expect to realize 75% of this goal during 2025. We anticipate cost savings to begin materializing in the second quarter of 2025.

We are also on target to likely come in under our pre-tax merger cost target of $13.5 million. We have a well-established history of prudently managing expenses and will continue to do so as a combined company to drive shareholder value. We are confident that meaningful revenue synergies will emerge over time driven by expanded capabilities and customer reach. While this growth will build gradually, we’re excited about the long-term opportunities it will unlock, and we are well underway in benefiting from the deal’s strategic and financial merits. Earlier this morning we reported GAAP net income of $7.3 million or $0.43 of diluted earnings per share for the first quarter of 2025. Excluding merger-related costs and other non-recurring items, non-GAAP core net income increased 6% over the fourth quarter of 2024, while non-GAAP core diluted EPS decreased 8% between periods.

We are very pleased with our first quarter performance and believe we are well prepared to face current market uncertainty. Our franchise’s strength and soundness can be seen in our reported net interest margin, which reached 3.04% for the first quarter and benefited from the impact of purchase accounting. However, more importantly, we saw our core net interest margin expand another 11 basis points from last quarter to 2.68% for the first quarter of 2025. When we combine our core net interest margin momentum with the benefit of cost savings from the acquisition that will begin to materialize next quarter, we believe we are well positioned for solid core earnings growth moving forward. Asset quality and a well-diversified portfolio remain core strengths of our organization.

As of March 2025, we continue to have strong confidence in the overall health of our loan portfolio. Our credit and special assets teams maintain active oversight and have not observed any material signs of credit deterioration across sectors or industries. Thanks to the proactive and disciplined approach of our experienced lending and credit teams, we are well positioned in all economic environments. We are able to identify and address any potential risks and early and head on an approach that has consistently protected both the bank and our customers. The increase in our allowance to loan ratio of 9 basis points to 0.96% was not a reflection of growing concern within our credit portfolio, but rather the prudent move to add reserves due to the macro environment and level of uncertainty that persisted at quarter end.

We believe this positions us well regardless of how the macro factors play out. Our growing commercial team remains diligent and benefits from deep and solid relationships. Recently, we’ve seen momentum in our pipeline with solid activity throughout our markets. However, we remain selective and measured. Our mortgage pipeline is strong while inventory remains low, echoing national trends. From a business perspective, the combined impacts of tariffs and other potential federal government actions has increased economic uncertainty. While it is too early to tell, most of our clients have not seen an immediate impact, while others are taking a wait and see approach which may temper our loan growth in the short-term. We continue to invest in and monetize our technology investments.

In January, we fully launched our online consumer and business account opening platform. Through strategic marketing throughout the high growth New Hampshire and Maine markets, we have successfully welcomed new customers. A human-backed approach will allow us to penetrate these markets further and grow our customer relationships. Looking ahead, we continue to celebrate Camden National Bank’s 150th anniversary this year. We remain focused on delivering our long-term strategy of deepening customer relationships through advice-based conversations and bolstering our New Hampshire presence in our growing contiguous market. Our current capital position and strong capital generation capability give us confidence in our ability to perform across a range of economic scenarios.

The expansion of our footprint enhances access to stable low-cost core deposit base, further strengthening our balance sheet. At the same time, our business development teams are actively pursuing opportunities to leverage our scale technology, expanded advisory capabilities and larger balance sheets to drive growth across a broader customer base. We are well positioned to generate consistent results and support our clients regardless of the broader market or economic conditions. We remain committed to our longstanding strategic pillars of soundness, profitability and growth, which drives sustainable long-term performance. I will now turn it over to Mike to provide more details about our first quarter financial results.

Mike Archer: Thank you, Simon, and good afternoon, everyone. With the closing of the Northway acquisition on January 2nd, our reported first quarter financial results include the combined results of the two franchises. Because the integration did not occur until mid-March 2025, our first quarter results largely reflect us effectively running two franchises and we fully expect that cost energies will begin to materialize in the second quarter. Within our GAAP earnings for the first quarter of 2025 are the impact of purchase accounting for the Northway acquisition, which we’ll discuss in more detail in a few minutes. For the first quarter of 2025, we reported GAAP net income of $7.3 million and GAAP diluted EPS of $0.43. Within our GAAP — within our reported GAAP earnings was a pre-tax charge of $7.5 million for acquisition-related costs, a pre-tax charge of $6.5 million for one-time loan loss provisions associated with the acquired loan portfolio and unfunded commitments, and a one-time tax benefit of $2.4 million from the revaluation of Camden’s legacy deferred tax assets.

Excluding the impact of these items, net of tax, the company reported adjusted net income of $16 million and adjusted diluted EPS of $0.95. On a linked-quarter basis, adjusted net income was higher by nearly $1 million or 6%, while adjusted diluted EPS was down $0.08 or 8%, which reflects the impact of the issuance of nearly 2.3 million shares for the acquisition of Northway. Overall, we had a great start to the year and remain on track to deliver on our financial commitments, which include strong EPS accretion and profitability as we move forward. We reported a net interest margin of 3.04% for the first quarter, which was 47 basis points higher than reported in the previous quarter. Included within net interest income this quarter was $5 million of net accretion income for purchase accounting, which contributed 36 basis points to net interest margin expansion quarter-over-quarter.

On Page 3 of the earnings supplement we filed this morning with our earnings release, we outlined the impact of purchase accounting on net interest income for the first quarter. Adjusting for the impact of this net accretion income, our core net interest margin expanded 11 basis points on a linked-quarter basis to 2.68% for the first quarter, continuing the positive momentum we’ve seen over the past 12 months. Our core net interest margin expansion highlights our success in lowering funding costs as the Fed lowered interest rates in the second half of 2024. In the first quarter of 2025, we saw the full benefit of those actions flow through to our funding costs. As we combine Camden and Northway’s strong low-cost deposit franchises, we see the full power of a funding base with a total funding cost of 1.94% for the first quarter of 2025.

While the Fed’s future path for rates is less clear, we are well balanced in our interest rate risk position as a combined franchise and anticipate being able to continue to capitalize on future Fed rate cuts if and when they occur. Asset quality continues to be one of Camden’s strengths. Camden and Northway had very similar credit cultures with limited historical charge-offs. On March 31, 2025, non-performing loans were just 15 basis points of total loans, and delinquent loans were just 7 basis points of total loans. Net charge-offs for the first quarter of 2025 are 8 basis points of average loans on an annualized basis. Our reported provision expense for the first quarter of 2025 total of $9.4 million. We designated 88% of Northway’s acquired loan portfolio as non-purchase credit deteriorated or non-PCD, which speaks to the credit quality of the acquired loan portfolio.

We designated the remaining acquired loans as PCD. We were required to establish a reserve on non-PCD loans through provision expense on the acquisition date, resulting in a one-time charged provision expense of $6.3 million. Additionally, as we closed out the quarter, we increased our loan loss reserve levels by $2.6 million to account for the heightened macroeconomic risk. On March 31, 2025, our loan loss reserve coverage ratio stood at 96 basis points, compared to 87 basis points at year end. At this level, our loan loss reserve represents 6.4 times non-performing loans at March 31st. Details of our allowance bill during the quarter can be found on Page 5 of the earnings supplement. Non-interest income for the first quarter of 2025 was $11.2 million.

Non-interest income was lowered by 8% on a linked-quarter basis, which reflects the timing and seasonality within our fee income base. As we transition out of the winter months and integrate Northway’s customers into our products and services, we anticipate non-interest income will continue to build throughout the year, as it has historically done for us. Non-interest expense for the first quarter of 2025 totaled $44.5 million, including $7.5 million of acquisition-related costs, core deposit and tangible amortization expense of $1.5 million. Excluding acquisition-related costs and CDI amortization expense, total operating expenses were $35.4 million for the first quarter, compared to $27.8 million for the fourth quarter of 2024. As stated earlier, we fully expect cost savings to accelerate in the second quarter and continue to build throughout the remainder of the year.

We reported an income tax benefit of $1.2 million for the first quarter of 2025. With the Northway acquisition, our expected income allocation across states has shifted, requiring us to revalue Camden’s legacy deferred tax assets. This resulted in a one-time tax benefit of $2.4 million during the quarter. We estimate our current effective tax rate at 20.6% and we should trend closer to that this next quarter. As we shift to the balance sheet, we will first start with an update on purchase accounting for the Northway acquisition. In total, we issued approximately 2.3 million shares as consideration for Northway, which resulted in a purchase price of $96.5 million. Further details can be found on Pages 2 and 4 of the earnings supplement. Loans totaled $4.9 billion on March 31st, including $77, excuse me, $775.7 million of acquired Northway loans, net of the fair value mark of $96.7 million as of the acquisition date.

Organic loan balances were flat during the first quarter, which was expected given the level of seasonality within our markets. Our loan pipelines are healthy, and we have seen them continue to build recently. Deposits totaled $5.6 billion on March 31, 2025, including $971.7 million of acquired Northway deposits, net of the fair value mark as of the acquisition date. Like loans, organic deposit balances were relatively flat in the first quarter. Overall, we were pleased with the balances staying flat in the first quarter, given the seasonality within our markets and the expected drawdown during the first quarter of $62 million in temporary deposits that were placed with us in the fourth quarter. We continue to monitor Northway’s legacy customer base for attrition, and to-date, we have been very pleased with the results.

We’re very pleased with where our capital ratios stand at March 31st, after having just completed the acquisition in the first quarter. By all accounts, our book and regulatory capital ratios came in either at or above our initial projections at announcement, which largely has to do with our strong second half of 2024. We fully expect to rebuild capital at an accelerated pace, given the earnings power of the combined franchise moving forward. Lastly, I wanted to quickly mention that we filed the shelf registration statement in March. We did this solely for capital planning and preparedness purposes. This concludes our comments. We’ll now open the call for questions.

Q&A Session

Operator: Thank you. [Operator Instructions] First question comes from Steve Moss with Raymond James. Your line is open. Please go ahead.

Steve Moss: Good afternoon.

Simon Griffiths: Hi, Steve.

Steve Moss: Maybe, Mike, starting off with you on the margin here, just curious as to how you’re thinking about core margin expectations for the second quarter, if we could continue to see a little bit more of a bump-up in that margin here?

Mike Archer: Yeah. Great question, Steve. Yeah. That’s our thought. We do think we’ll continue to see a level of just core net interest margin expansion from here. We’re kind of pegging it in maybe additional 2 basis points to 5 basis points, so net 270 basis points, 275 basis points range on a core basis.

Steve Moss: Okay. Great. And then in terms of the purchase accounting accretion, you ended up with bigger marks here. Just curious if there’s a little bit more of a step-up from the call $5.1-ish million of accretion we saw this quarter?

Mike Archer: Yeah. That’s another great question, Steve. I mean, I think the reality is that that $5 million on a net basis feels like a good midpoint for us, certainly if, there’s potential for things to slow. But overall, when we looked at what went through this quarter, $5 million feels like a pretty good number. Certainly, if we see acceleration of the yield curve from the longer end kind of come down, that could certainly accelerate prepays, as you know, and get some additional benefit there. But I think all intents and purposes, $5 million is a pretty good solid number for us.

Steve Moss: Okay. Great. And then in terms of, you mentioned you’re well-positioned for rate cuts. Just curious, like, how — what you project in terms of benefit from a 25-basis-point Fed rate cut here going forward or if you’re a little more liability-sensitive or a little more neutral these days?

Simon Griffiths: Hey. Steve, thanks for the question. Yeah. We’re a little bit liability-sensitive, but we certainly predict forecasts, we certainly see some strength on a 0.25-point rate cut and we forecast around a $1.25 million for a 0.25-point rate cut as a benefit. So, that certainly would be accretive to us going forward in addition to the underlying core momentum that we have. I think that’s some part of the story, and I’ll just expand that. I think on the expense side, we talked in the opening remarks about the strength of the expense discipline that the management team has and the philosophy we’ve shown, and feel confident around the 35% expense takeout, which starts obviously in the second quarter. So, I think you put those pieces together.

I think the outlook for the next nine months through the end of the year is quite positive. Obviously, a lot going on right now in the macroeconomic environment, but I think we’re very well set up, very stable from a credit perspective as well, and I think those pieces are giving a lot of confidence to the management team.

Steve Moss: Right. And Simon, I hear you in terms of the crosswinds with regard to the economy, your pipeline headed the right way is definitely encouraging, especially the activity continuing here now. Just kind of curious, as you think about loan growth here, maybe where you’ve seen the most, the best activity on the commercial side and is it still kind of like low single-digit type of loan growth for the current year?

Simon Griffiths: Yeah. Low single-digit loan growth still is where we’re holding to, Steve. We are seeing some nice momentum on the residential side. Current pipelines at $83 million, that’s total pipeline. Commercial as well, we’ve seen particularly picking up over the last — I’d say last month or so, we’re up to $97 million pipeline, which is pretty strong, Steve. I think it’s certainly one of the strongest numbers I’ve seen in my time here. So, I think those pieces are playing very positively. We’re seeing nice momentum in the home equity space, business banking, commercial holding up well and it’s a nice balanced picture across the geographies. Of course, we continue now to see momentum over New Hampshire, Southern New England. And I think the scale we’ve added from the team coming over from Northway is really sort of adding to the opportunities there and seeing, I think, a lot of exciting opportunities for the team to tap into.

Steve Moss: Okay. Great. Really appreciate the color there. I’ll step back in the queue and let others to ask questions here. Thanks.

Simon Griffiths: Thanks, Steve.

Operator: Our next question comes from Matthew Breese with Stephens. Your line is open. Please go ahead.

Matthew Breese: Hey. Good afternoon. I was hoping to talk…

Simon Griffiths: Hey, Matt.

Matthew Breese: … a little bit about the other areas of the P&L, maybe starting with fee income. Standalone Camden was coming in the fourth quarter at around $12 million of fees. Northway was a little over a $1 million. At what point do we get on that kind of $13 million quarterly run rate for fees? And is that a fair estimation?

Mike Archer: Yeah. I think that’s a good question, Matt. Certainly, I would just maybe just back up a moment. I think in part a little bit of the disconnect maybe being seen is, we had a really strong Camden standalone fourth quarter on the fee income base. Overall, that’s certainly a function of the timing. We had our annual debit card bonus in the fourth quarter. We also benefited as well from some derivative income and some other items that kind of are a little less predictable. But I think as we move forward here, as we think about fee income, I think we’re thinking for this next quarter as we see mortgage banking pick up and to Simon’s comments earlier, we’re seeing the production and the pipelines build there.

We are kind of anticipating that we could be in the $12 million, $12.5 million range for the second quarter. And then to your comment, as we make our way to the end of the year, we would definitely, I think in my mind, start approaching that $12.5 million, $13 million from there.

Matthew Breese: Yeah. And similar question — I appreciate all that. Similar question for expenses. Just kind of putting the two franchises together, the 35% cost saves, plus a little bit of inflation. Is it fair to assume on a core basis, we’re looking at, call it, $34 million, $35 million in quarterly expenses over the next year? Is that the right bogey or is there more on the cost save front than we talked about in the deal document?

Simon Griffiths: Yeah. That feels very much in line $34.5 million to $35 million before obviously M&A costs and CDI amortization. But I think that’s certainly a good kind of estimate. I don’t know Mike do you have anything to add.

Mike Archer: Yeah. I would just — I think — to Simon’s comment, I think, that’s the near-term as we get this back half of 2025, we anticipate further just takeout occurring. I mean, a function of this is just takes time to get the systems wind down and other bills and some of the just the things behind the scenes, if you will. But I think as we approach the second half is really when we expect the full benefit of the cost saves to start kicking in as we start to work our way to the fourth quarter and approaching 2026, Matt. But I would definitely think that $34 million, $35 million is a good spot for us, certainly, in the — for 2020, excuse me, for 2025 and beyond there, there might be some additional opportunity.

Matthew Breese: Okay. And then maybe, Simon, I was hoping you could touch just on how overall integration is going. Camden hasn’t done a whole bank deal in some time. How is it going on the employee integration retention front, the client disruption front? And is this something we might see more of, meaning whole bank deals at Camden?

Simon Griffiths: Yeah. Thanks. Thanks for that question. I think, I’m just very, very proud of the management team and the partnership across the organization. The overall conversion, I think, went exceptionally well. The customer, employee, client, you just look across the Board and we just saw, just a very smooth transition. We’ve seen particularly very strong retention on the employee side, which I think is just been — it’s been exceptional. Client feedback’s been very positive. Engagement in our products has been very, very high. In fact, we’ve been told that, we’ve had some best-in-class early engagement and some — and activation around our online and usage, which is very good. Deposits, which I think is a good indicator, have been strong through the quarter and good — very, very good retention of deposits.

And then we’ve — I think just all other indicators have been positive. So, overall, I think the team did a fabulous job and really put — just put a great foot forward and very proud of the work we did. In terms of going forward, as I’ve said previously, Matt, we certainly do have an appetite to do additional M&A deals. And as always, it’s really finding the right deal of, that really is accretive to the business, is a good fit from a culture perspective, certainly have a lean towards contiguous markets. And those core pieces, I think, remain consistent in terms of our sort of philosophy. But, yeah, I think we — I think it went very well. And really now, I think, it’s starting to now take a breath or maybe I think we’ve taken a breath, and now sort of get on the front foot of really activating the two franchises and creating awareness of the product set, the capabilities that we have and I’m pretty excited around that and the opportunities that it’s going to present.

Matthew Breese: Excellent. I appreciate all that. I’ll step back. Thank you.

Simon Griffiths: Thanks, Matt.

Operator: [Operator Instructions] We now turn to Damon DelMonte with KBW. Your line is open. Please go ahead.

Damon DelMonte: Hey. Good afternoon, guys. Hope everybody’s doing well and thanks for taking my questions. Just a question on the loan growth outlook. I think, Simon, you said you guys are sticking with kind of that low single-digit guide for the year. Does that contemplate any type of run-off from the Northway side? Are there some credits that you guys might want to exit and kind of move on from that could or that maybe are factored in that growth number or they’re not factored in that number?

Simon Griffiths: No. No. Thanks for the question, Damon. Not factored in. And I think across the — I think, Mike said earlier, and very similar credit philosophy over there, strong portfolio of loans and we feel really good. And look, we’re certainly, there’s obviously a lot in front of us from a macroeconomic perspective and I think we’re certainly seeing some pockets of strength. We’ve been talking to a lot of our clients, Damon, and there’s certainly — there are certainly areas of positivity, but there’s also obviously some concerns. But there’s an underlying I think appetite from the — to invest and we certainly could see, I think, that the low single-digit remains a really good kind of outlook right now, but you can certainly see a potential for that to improve as other — as more certainty reaches into the market. But I think right now that’s a really good forecast.

Damon DelMonte: Got it. Okay. And then kind of trying to draw the connection between the growth and the level of provisioning going forward and where your reserve is, you guys called out that you added to the reserve given the economic uncertainty. So, if we don’t see a material change in kind of the way things are progressing right now, should we expect kind of a little bit higher provisioning going forward to keep building that reserve off the 96-basis-point?

Simon Griffiths: Yeah. I mean, I think obviously we’re taking sort of a look at where things progress over the next 90 days. I mean, I think as we always have just a really thoughtful kind of approach to the provisioning and we put in some provisioning just based on the macroeconomic environment and that potential for recession, which is certainly across the Board somewhere in that 40% to 70% likelihood being forecasted by sort of most groups. I think it’s, potential that that would be something we’d look at in the second quarter and continue to make sure we are well-reserved and represent that potential risk. But I think we took an early kind of bite at that just to be conservative and cautious given just the outlook — macroeconomic outlook.

Damon DelMonte: Got it. Okay. That’s all that I had. Everything else was asked and answered. So, thank you.

Simon Griffiths: Okay, Damon.

Operator: As we have no further questions, this concludes our question-and-answer session. I would now like to turn the conference back over to Simon Griffiths for any closing remarks.

Simon Griffiths: I just want to thank you all for your time today and interest in Camden National Corporation. We wish you all a great rest of your day. Thanks, everyone.

Operator: Conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.