Camden National Corporation

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. If you require operator assistance at any time during the call, please press star, then zero. I'll now turn the call over to Renee Smith, Executive Vice President, Chief Experience and Marketing Officer.

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 Griffith.

Thank you, Renee, 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 come through it, we had a very solid quarter financially, highlighted by core net income of $16 million and 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 end, 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 gap net income of $7.3 million, or 43 cents, of diluted earnings per share for the first quarter of 2025. Excluding merger-related costs and other non-recurring items, non-gap core net income increased 6% over the fourth quarter of 2024, while non-gap 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 nine 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 action 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. Our 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 capabilities 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 sheet 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 long-standing strategic pillars of soundness, profitability, and growth, which drive sustainable, long-term performance. I will now turn it over to Mike to provide more details about our first quarter financial results.

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 synergies will begin to materialize in the second quarter. Within our gap earnings for the first quarter of 2025 are the impacts 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 43 cents. 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 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 includes 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 three 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 24. In the first quarter of 2025, we saw the full benefit of those actions flow through to our funding costs. As we combine Canada 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 25. 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 31st, 25, non-performing loans were just 15 basis points of total loans and delinquent loans were just seven basis points of total loans. Net charge-offs for the first quarter of 2025 are eight basis points of average loans on an annualized basis. Our reported provision expense for the first quarter of 2025 totaled $9.4 million. We designated 88 percent 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 charge to 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 a year end. At this level, our loan loss reserves represent 6.4 times non-performing loans at March 31st. Details of our allowance bills 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 Northways 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 Kansas' 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 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 $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 market. 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 We did this solely for capital planning and preparedness purposes. This concludes our comments. We'll now open the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. First question comes from Steve Moss with Raymond James. Your line is open. Please go ahead.

Good afternoon. Hey, Steve. 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. You know, if we could continue to see a little bit more of a bump up in that margin here.

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 two to five basis points, so in that 270, 275 range on the core basis.

Okay, great. And then in terms of the purchase accounting accretion, you know, you ended up with bigger marks here. I'm 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.

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

Okay, great. And then in terms of, you know, you mentioned you were well positioned for rate cuts. Just, you know, curious, like, what you project in terms of benefit from a 25 base point Fed rate cut here. going forward, or if you're a little more liability sensitive or a little more neutral these days.

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 quarter point rate cut, and we forecast around a million and a quarter for a quarter point rate cut as a benefit. So that certainly would be accretive to us going forward in addition to the the underlying coordinate 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.

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

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. You know, 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, you know, we continue now to see momentum over in New Hampshire, southern New England, and I think the scale we've added from the team coming over from Northway is really sort of, you know, adding to the opportunities there and seeing, you know, I think a lot of a lot of exciting opportunities for the team to tap into.

Okay, great. Really appreciate the call there. I'll step back in the queue with other who have questions here. Thanks. Thanks, Steve.

Our next question comes from Matthew Breeze with Stevens. Your line is open. Please go ahead.

Hey, good afternoon. I was hoping to talk a little bit about the other areas of the P&L. Maybe starting with fee income, you know, standalone Camden was coming in, you know, the fourth quarter at around 12 million in fees. Northway was a little over a million. At what point do we get on that kind of $13 million quarterly run rate for fees? And is that a fair estimation?

Yeah, I think that's a good question, Matt, certainly. I would just maybe just back up a moment. I think in part, You know a little bit the disconnect, maybe being seen is we had a really strong camden standalone fourth quarter on the fee income base. You know, overall, that 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 that kind of are a little less predictable, but I think as we as we move forward here as we think about free income, I think we're thinking for this 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, $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, $13 million from there.

Yeah, and similar question. I appreciate all that. Similar question for expenses. you know, just kind of putting the two franchises together, the 35% cost saves plus a little bit of inflation. Is it fair to assume, you know, on a core basis, you know, we're looking at, you know, call it 34, 35 million in quarterly expenses over the next year. Is that the right bogey or, or is there more on the cost safe front than, uh, than we talked about in the deal deck?

Yeah, that feels, uh, you know, very much in line 34.5 to 35 before obviously M&A costs and CDI amortization, but I think that's certainly a good kind of estimate. I don't know, Mike, you want to go?

Yeah, I think, you know, to Simon's comment, I think that's a near term. As we get this back half of 25, you know, we anticipate further just takeout occurring. I mean, a function of this is just it takes time to get the systems wind down and other bills and some of the just, you know, the things behind the scenes, if you will. But I think as we approach the second half is really when we expect the, you know, the full benefit of the cost days to start kicking in as we start to work our way to the fourth quarter and, you know, approaching 26 map. But I would definitely think that 34, 35 is a good spot for us, you know, certainly in the, for 20, excuse me, for 25 and beyond there, there might be some additional opportunity. 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 fund, the client disruption front? And is this something we might see more of, meaning whole bank deals out of Camden?

Yeah, 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 has just been exceptional. Client feedback has 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 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 very, very good retention of deposits. And then I think just all other indicators have been positive. You know, overall, I think the team did a fabulous job and really put, you know, just put a great foot forward and very proud of the work we did. In terms of going forward, you know, as I've said previously, Matt, you know, we certainly do have an appetite to do additional M&A deals. And, you know, as always, it's really finding the right deal, you know, that really is accretive to the business, is a good fit from a culture perspective. You know, 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 it went very well. And, you know, really now I think it's starting to now, you know, 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, you know, I'm pretty excited around that and the opportunities that's going to present.

Excellent. I appreciate all that. I'll step back. Thank you.

Thanks, Matt.

As another reminder, if you'd like to ask a question, please press star 1 on your telephone keypad now. We now turn to Damon Del Monte with KBW. Your line is open. Please go ahead.

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 runoff from the Northway side? Are there some credits that you guys might want to exit and kind of move on from that maybe are factored in that growth number or they're not factored in that number?

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

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 points?

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, you know, really thoughtful kind of approach to provisioning, and we put in some provisioning just based on the macroeconomic environment and that potential for recession, which is, you know, certainly across the board somewhere, you know, in that 40 to 70 percent likelihood. being forecasted by sort of most groups. I think it's, you know, potential that that would, you know, be something we'd look at in the second quarter and continue to make sure we are well-reserved and, you know, represent that potential risk. But, you know, I think we took an early kind of bite at that just to be conservative and cautious given just the outlook, macroeconomic outlook.

Got it. Okay. That's all that I had. Everything else was asked and answered. So thank you.

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.

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.

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