Camden National Corporation

good day and welcome to camden national corporation's fourth quarter 2024 earnings conference call my name is elliot and i'll be your operator for today's call all participants will be in this anonymous during today's presentation following the presentation we will conduct a question and answer session if you require operator assistance at any time during the call please press star then zero and i'll turn the call over to renee smith executive vice Vice President, Chief Experience, and Marketing Officer.

Thank you, Elliot. Elliot, good afternoon and welcome to Camden National Corporation's conference call for the fourth quarter of 2024. Joining this afternoon are members of Camden National Corporation's executive team, Simon Griffiths, President and CEO, 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 fourth quarter 2024 earnings release issued this morning and in other reports we file 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. Any references to non-GAAP financial measures are intended to provide meaningful insights and are reconciled with GAAP and our earnings relief, which is also available on our Investor Relations site. I am pleased to introduce our host, President and Chief Executive Officer, Simon Griffith.

Thank you, Renee. Good afternoon, everyone. We appreciate you joining our call today. I will provide a few comments on our most recent quarter and then turn it over to Mike to discuss our fourth quarter financial performance. We'll then open for Q&A. However, before discussing the fourth quarter, I want to remark on a transformational moment in Camden National's history. On January 2nd, we successfully closed our merger with Northway Financial in less than four months from our announcement in early September. As of the closing of the merger, the combined institution had total assets of approximately 7 billion and 73 branches in Maine and New Hampshire. This combination represents a powerful step forward in bolstering our New Hampshire presence in a growing, contiguous market and positioning us as a premier publicly traded bank headquartered in northern New England. We are on track to successfully achieve the merger-related financial targets announced in September. We are confident in our ability to unlock meaningful growth opportunities and swiftly expand our market presence. The business development teams have already identified opportunities to leverage our significant technology investments, larger balance sheet, and advice-based capabilities across an expanded customer base. I deeply appreciate the dedication of all team members, their thorough due diligence, commitment to aligning cultures, and focus on our strategic vision were all instrumental in the success of this transaction. The conversion of Northway's banking products and services to Canada National System is on target and expected to occur in mid-March. We look forward to the future as a newly combined, more robust organization. As we look back at the fourth quarter and full year, it can only be described as incredible momentum. In the midst of our significant acquisition of Northway, we produced another quarter with strong operating results. Earlier this morning, we reported gap net income of $14.7 million, or $1 of diluted earnings per share, for the fourth quarter of 2024, an increase of 12% and 11%, respectively, over the third quarter of 2024. Excluding merger and acquisition costs incurred through December 31st, 2024, net income for the fourth quarter of 2024 was $15.1 million, and EPS was $1.25. an increase of 9% and 8% respectively over the third quarter of 2024. Our strong fourth quarter financial performance was marked by another quarter of strong net interest margin expansion, growing 11 basis points compared to the third quarter, coupled with continued disciplined expense management and robust asset quality, which are Camden National's key strengths. We proactively managed deposit costs lower in response to recent Fed rate cuts in the second half of 24, including the fourth quarter, and this directly translated into further net interest margin expansion quarter over quarter, all while continuing to grow our deposit base 1% in the fourth quarter. In particular, I would highlight the success in our high-yield savings product introduced earlier this year, which reached $201 million in deposits at December 31st, to 2024 and has been a key catalyst for us to attract new deposits and customers. Our commercial team ended the year with strong momentum and a solid pipeline leading into 2025. We continue to see strong activity throughout our markets but remain selective and measured. In particular, our pre-acquisition New Hampshire team realized 18% growth in their market during 2024 with a limited group of lenders. We are opportunistic as we enter 2025 as we have now expanded that group to eight commercial lenders in New Hampshire with the addition of the Northway team. We're experiencing strong momentum in fee income driven by our strategic focus and investments in wealth management and brokerage services. Our assets under administration reached $2.1 billion as of December 31st, 2024, reflecting a 12% increase compared to December 31st, 2023. With our new wealth operating platform and mobile app, we are well positioned to expand our advisory distribution, further supporting our commitment to full relationship banking and the growth and diversification of our fee income. We continue to feel very good about our overall asset quality. Our credit and special asset team continue to monitor our loan portfolio actively, and we have not seen any meaningful signs of credit deterioration across any sectors or industries at the end of 2024. Our experienced lending and credit team's proactive approach seeks to address potential challenges immediately, a strategy that has consistently benefited our organization and our customers. During the fourth quarter, we completed the strategic transformation of our online consumer business account opening process. After a successful soft launch in December, it was broadly available in early January. This completes the first step towards enhancing our deposit account opening process across all channels. We have already begun to leverage the platform's operational efficiencies and enhanced fraud protection capabilities. This platform will assist us in welcoming new customers in our expanded geography with a seamless account opening platform backed by human-backed service excellence. Our technology momentum continues to prevail forward with our investments in process automation, which enhances operational efficiency by streamlining repetitive tasks. These efforts increase productivity, reduce errors, improve compliance, and provide greater agility in responding to market changes. In December, we celebrated our bots processing a record 1.7 million transactions that humans used to perform. Notably, less than 13,000 of the transactions were sent to manual review, or less than 1% of the total. Looking ahead, we are very excited to celebrate our 150th anniversary. Over the past century and a half, we have built a legacy of trust, innovation, and dedication driven by a passion for continually evolving to meet the needs of our customers and our communities. Of course, delivering all this requires a total team effort from all my incredibly experienced and caring colleagues at Camden National. Their hard work, dedication, and commitment to our customers and each other make these results possible, delivering greater value for our shareholders and support for our communities. Now Mike will provide more details about our financial results. Thank you, Simon.

Excuse me. And good afternoon, everyone. For clarity, since the Northway acquisition closed on January 2nd, all the full year and fourth quarter numbers do not reflect the acquisition. However, I will provide some color on Northway's fourth quarter and full year results after going through Camden's results. To start, we are very pleased with our finish to 2024. Throughout 2024, our quarterly financial performance improved both on an earnings and profitability basis, which reflects the actions across our team in a level of relief in the second half of the year as the Fed cut interest rates. Net income for the fourth quarter of 2024 totaled $14.7 million and grew 12% over the third quarter of 2024. And on a non-GAAP core basis, totaled $15.1 million and grew 9% over the last quarter. The increase in earnings reflects momentum within our net interest margin and directly translated into an increase in net interest income of 5% between quarters. We also continue to manage our operating costs well. Non-interest expenses for the fourth quarter, excluding merger-related costs, totaled $27.9 million and were 1% lower than the third quarter of 2024. For the year ended 2024, we were able to hold the increase in non-interest expense before merger-related costs to an annual increase of 3% while continuing to invest into the franchise. The improvement in our net interest margin and our ability to manage operating costs translate into an improved core return on average assets for the fourth quarter of 1.04%, compared to 0.96% in the third quarter, and a non-GAAP efficiency ratio of 58.5%, compared to 62.4% the previous quarter. We've been consistently focused on expanding our net interest margin over the past several quarters. We've done this through various strategies, and we are very pleased to see our net interest margin tick up 11 basis points in the fourth quarter, to 257, which included approximately three basis points of benefit from certain non-recurring items. We took quick action after each Fed cut to lower deposit costs, and in doing so, our deposit costs decreased 18 basis points on a linked quarter basis to 1.91% for the fourth quarter of 2024. Our total cost of funds decreased 19 basis points on a linked quarter basis to 2.16% for the fourth quarter of 2024. Non-interest income for the fourth quarter of 2024 totaled $12.2 million, an increase of 7% over the third quarter of this year. The increase on only quarter basis was primarily the result of recognition of the annual Visa debit card bonus in the fourth quarter, totaling $407,000 and higher back-to-back loan swap fees of $232,000. Loans on December 31, 2024 totaled $4.1 billion, which was fairly flat with balances reported last quarter and a year ago. A few larger commercial and commercial real estate loans paid off this quarter, muting growth in the fourth quarter. Our commercial loan pipeline at December 31 remained solid at nearly $85 million, with approximately $45 million committed. On the residential side, our mortgage loan pipeline has slowed slightly as we enter the winter months. Our residential mortgage pipeline continues to hover around 50 to 55 million, of which we had nearly 42 million committed at December 31st. Excuse me. Our credit quality across our loan portfolio continues to be very strong. We finished 2024 with excellent asset quality metrics, including non-agro loans totaling 4.8 million or 12 basis points of total loans, FDU loans totaling 2.3 million or 5 basis points of total loans. Given the mix and strength of our loan portfolio, we believe an allowance to loans ratio of 87 basis points is appropriate and provides us with sufficient reserves. This can be seen by a 5.5 times allowance for loan loss to non-performing loans ratio at December 31st. Deposits in the fourth quarter grew 1% to $4.6 billion at December 31, 2024. We continue to see strong demand for our high-yield savings product in the fourth quarter, with saving balances growing 7% for the fourth quarter and 23% for the calendar year. As we noted in our earnings release, one of our large customer relationships temporarily deposited approximately $62 million with us in the fourth quarter, and we anticipate these funds to leave in the first quarter of 2025. Overall, we're very pleased with our exposit activities and flows in the fourth quarter, as we generally see a level of normal seasonal outflows begin during the back half of the fourth quarter. Our regulatory capital ratios continue to exceed regulatory requirements. In the fourth quarter, our CET1 capital ratio and total risk-based capital ratio each grew 26 basis points to 13.09%. and 15.11% respectively at December 31st. Our tangible common equity ratio at year end was 7.64%, which was slightly down from the third quarter due to the shift in interest rates between quarters. I'll now shift my comments to the Northway Financial Acquisition and provide a brief update. As previously reported, we closed the acquisition of Northway Financial on January 2nd, 2025. Based on the closing stock of Canada National, stock on January 2nd, the total consideration paid was 96.5 million in an all-stock transaction, whereby we issued 0.83 shares of Camden National Common Stock for each share of Northway Financial Common Stock. In total, we issued approximately 2.3 million shares of Camden National Common Stock, and on a post-merger basis, the company has approximately 16.9 million shares outstanding as of January 2nd. Northway Financial finished 2024 very much in line with our financial projections as announcement. As of December 31st, 2024, total assets were $1.2 billion, total loans were $872 million, and total deposits were $972 million. I would also note that from a credit perspective, Northway's asset quality continued to be strong through the close of the merger. Upon acquisition, we took certain actions to optimize our combined pro forma balance sheet including the pay down of $45 million of long-term borrowings, as well as the sale of roughly $65 million of bond securities to reposition the investment portfolio on a combined basis. As we work our way through the integration process over the next few weeks, we'll continue to evaluate balancing opportunities as a combined organization. This concludes our comments, and we'll now open up the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Steve Moss with Raymond James. Your line is open. Please go ahead.

Good afternoon. Steve DeRoy- i'm maybe just starting here with lending activity you guys saw for the quarter here, you know I hear you guys on the pay down just kind of curious on the lending environment is shaking out here going forward and kind of what your thoughts are as you integrate north by.

Simon Miller- The question. Steve, you know, certainly continue to see low single-digit growth this year, continue to be selective across our markets. But having said that, we certainly also do see some strength across our footprint, see some nice momentum on the commercial side. We're also seeing some good momentum in the home equity business as well. So, you know, certainly we're picking our spots right now and continue to just focus on that right balance between growth, credit quality. and investing in the markets that we have. We also talked about, as we mentioned in the script, we have a nice team now in the New Hampshire market. They had a strong year last year and certainly can see a very strong outlook ahead for 2025 in the New Hampshire market as we continue to assimilate and work with the former Northway team. So I think that's another real area of strength for us, but certainly some nice momentum, but continue to be selective.

Okay. Great. Appreciate that. And Simon, you mentioned the investments you've made in the franchise over the past year, whether it's wealth management or the online platform, online account openings. Just kind of curious here for 2025, what type of investments you're looking to do and how we kind of think about expenses for you in 2025?

Sorry, Steve, you're just breaking up a little bit. Would you mind just repeating that question?

Oh, sure. So just in terms of the investments you made in the franchise, you know, you mentioned wealth management growth and the opportunities you have there. You also have the online account openings. Just kind of curious, you know, how you're thinking about investments for the upcoming year and where you want to invest and how you're thinking about expense growth.

Yeah, thanks, Steve. Appreciate you repeating that question. Steve, yeah, I mean, exactly as you say, look, we made some great investments last year, but I think positioned us very, very well for 2025. We're certainly seeing a lot of efficiencies from the wealth platform. I think it's opening up new operational efficiencies for us, customer improvements, experience improvements, and I think a lot of opportunity for momentum there in the wealth business, and we talked about that momentum in my opening remarks. But the new account opening opportunity, I think it's certainly going to give us a much broader reach. We're also looking at continued acceleration of our digital capabilities, which I think can enhance the customer experience. I think putting these pieces together is certainly going to create real potential strength for us this year as we work towards acquiring more customers and deepening those relationships And, of course, we've got a new market to focus on as well with New Hampshire. So I think putting all those pieces together, we feel very bullish about this year. I think another piece I just want to tie into that is we continue the philosophy of managing the investing but earning that right to invest through driving efficiencies. And I think that balance between self-funding, the investments that we make continues to be a philosophy of the management team.

Okay, great. And then in terms of the margin here, just, you know, kind of curious, you had, you know, healthy margin expansion here this quarter. Mike, I hear you on the three bits of non-recurring items. I'm assuming that's from the prepays on loans. Just kind of curious, you know, underlying core margin expansion. Do you expect that will continue? And then kind of, is there any range you have early for the Northway close in terms of where the margin settles out on a gap basis? I'm assuming like the high.

Yeah, let me just focus. Yeah. Let me just focus on the core, and then I'll let Mike just sort of build on that, Steve. You know, I think plus or minus 260, I think, fills, you know, plus or minus five bits around 260. We certainly see in the first quarter, you know, some traditional runoff of deposits. And, you know, we'll see some modest outflow this quarter. I think there's also some underlying strength from obviously the Fed cuts at the back end of last year. So I think, you know, we continue to sort of be very disciplined, focused on, you know, the approach across markets. both the yield and also deposit costs and really focusing on that core franchise of low-cost deposits, growing that with some of the technology linking it back to your previous question. So, yeah, I think there's certainly momentum there, but certainly there's some puts and takes in the first quarter. But I think that sort of plus or minus five basis points on 260 feels a pretty good guide right now. I don't know, Mike, if you want to add anything.

No, I think that sums it up. I mean, I would just say, you know, Steve, you know, certainly that's the core side. I mean, the gap basis, as you would imagine, you know, we'll see a pretty hefty lift there. I would just share, you know, with the audience that we continue, as you would imagine, to work through some of the purchase accounting areas, and we'll have that shake out, but certainly we anticipate a healthy lift above and beyond core from that.

Okay, great. Appreciate all the calling here, guys, and a nice quarter. I'll step back and queue.

Thanks, Steve. Thanks, Steve. Appreciate it.

Our next question comes from Damon Del Monte with KBW. Your line is open. Please go ahead.

Hey, good afternoon, guys. Hope you're both doing well. Just wanted to kind of circle back on the commentary assignment on loan growth. I think you're kind of hopeful for like low single-digit growth here in 25. Does that contemplate any type of maybe runoff or work out of some of the acquired bones that you might not want to keep around? Or was that just, you know, kind of organic growth on a standalone basis?

That's organic growth on a standalone basis. I think we feel, you know, it certainly represents that's a low single digit.

Got it. Okay. And then Mike, could you just repeat some of your final commentary on some of the actions you took, uh, post-closing of the transaction, I think you had said you, uh, you had paid down some borrowings that they had, and I didn't hear what you said on the securities portfolio.

Yeah, sure. Happy to, Damon. Um, yeah, so just two things. We, we essentially paid down some, some higher, some, some longer term debt that had a little bit higher cost on it. MFHOB borrowings, um, that was about 45 million, just optimized the balance sheet. And as you probably saw at year end, we had a little bit of excess cash and we were, So really just a pure balance sheet optimization play on a pro forma basis there. We also sold about $65 billion of their bond securities, largely some of their munis and some of the callables. Really, again, just not kind of what we were looking for and the opportunity just to optimize from a yield current market perspective and really just bring down the duration as well. So just a couple of small plays and we'll continue to evaluate going forward.

Okay. And then just from like a pro forma earning asset base, is something in the like six and a half billion range reasonable?

Was that pro forma earning assets? Is that what you asked, Damon?

Yeah. Sorry. Pro forma earning assets, you know, like for first quarter.

Yeah. I think that feels reasonable. Yes.

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

Thanks, Damon. Thanks, Steven.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad now. We now turn to Matthew Brees with Stevens. Your line is open. Please go ahead. Hey, good afternoon.

I was hoping just to follow up on a couple of the deal questions since it's closed. The first one is, do you have what the CECL Day 2 provision was?

Mike Pratt- To Madison Mike, are you asking just in terms of what we announced or what what it is where we landed with us.

Mike Pratt- Where you where you landed the fields fields closed.

Mike Pratt- So we're still working through the purchase accounting matt I would tell you that you know we we haven't. Mike Pratt- You know, we have no reason to believe it's going to be materially different from the credit side than what we you know what we expected to begin with, I think i'm going off top my head here, I want to say we. and estimated 12 to 15% of the portfolio would be PCD or, you know, purchase credits curated there. The remaining would be the non-PCD portion. But again, I mean, they close very strong from a credit perspective and, you know, we're still scrubbing and doing kind of some final due diligence, if you will, on our side. But, you know, to my knowledge, you know, certainly no surprises coming out of that.

Okay. And then going back to the original deal deck, understanding that the core name, it sounds like it's in the two 60 range. I think you also had about $3 million a quarter in a credible yield. So that's about 15 to 20 dips, uh, of kind of a creation on the NIM. So is it fair to say that the reported NIM is probably in the two 70 range all in two 80 range, all in when it's said and done.

Yeah, I mean, so I think it obviously could be a little bit higher, Matt. I would say that, again, we're still running numbers, certainly, but I would kind of add in my own head probably, you know, 290, 285, 290, up towards three. One of the things, certainly, that's evolved since we closed or announced the deal, rather, is just the movement in rates and, you know, moved a little bit higher on us. So, There will be some additional markets, what we expect as we close, which will play into that as well, Matt.

Got it. Okay. And then I don't suppose you have anything related to goodwill or intangibles created dollar-wise?

Nothing new from what we previously disclosed. I want to say off the top of my head, it was in the $45 million range. Matt Pinyan, Certainly, the purchase price picked up a little bit as well, and certainly just the asset mark is probably a little bit lower so again we haven't translated that yet, I guess, at this point map and certainly be I would anticipate it being slightly higher than we had originally forecasted.

Matt Pinyan, Okay i'm sorry if I missed this if we think about the core name. in your overall balance sheet versus the curve, it feels like your balance sheet relative to the curve should be pretty well positioned in the current environment. As you think about beyond the first quarter, and I'm referring to the core NIM, to what extent might we see more expansion throughout 2025 and throw out a bogey? When do you think you can get above a 3% core NIM again?

Ooh, that's a big question there, Matt. You know, it certainly will take some time. I agree with you. We're certainly well positioned, you know, in the current rate environment. I think if rates stay here, we perform well. If rates tick up higher, that's, you know, certainly not beneficial. I would say that's not our base case either. Certainly if they come down, that's beneficial. We're slightly liability sensitive, as you know. We do foresee just continued margin expansion. We have some CDs that will continue to price down over time, so does Northway as well. We'll continue to see a level of asset yield expansion is what we anticipate once we get out of January and get the full impact of that more recent cut coming through. i think that you know honestly the future for us looks looks pretty pretty strong as we look out a few quarters but um you know i think if i were to guess on when we hit three the only thing i'd be sure of is i'll probably be wrong um probably not as quick as i want that or any of us want but i think that the trajectory is certainly a positive all right and then just one for you simon um you know pretty shortly after you took the the reins at the helm we had a a nice deal

announced and closed in short order. What do you think on the M&A front from here? When are you ready to pursue whole bank deals again? And if you are ready, what kind of geographies are you looking at? That's all I had. Thank you.

Yeah, thanks, Matt. You know, I think as we communicated, we chatted earlier about it, it really continues to be the right deal, something that the contiguous market, I think, continues to really appeal to us. you know, a bank like Northway that I think has the same DNA, same kind of credit profile, same mindset, focus in local communities that we serve in Maine. And I think that that's going to be continued to be our focus. You know, right now, obviously, you know, we're heads down and focused on customer integration mid-March. But, you know, certainly we have an appetite, but not an appetite for deal's sake. So, you know, definitely be the right deal at the right time. And we certainly, I think, have the support of the management team and the expertise and the skill set to clearly execute on these deals. And I think we can leverage that going forward when the right opportunity arises.

Perfect. I'll leave it there. Thank you for taking my questions.

Yeah, thanks, Matt. Appreciate it, Matt.

As a final reminder, if you'd like to ask a question, please press star 1 now or pause for a moment. As we have no further questions, this concludes our question and answer session. I would like to turn the conference back over to Simon Griffiths for any closing remarks.

Thanks, Elliot. I want to thank you all for your time today and interesting Camden National Corporation. We wish you all a great rest of your day. Thanks, everyone.

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.