Q4 2024 Camden National Corp Earnings Call
[inaudible]
Elliot: 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 listen only mode 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.
Elliot: I'll now turn the call over to Rene Smyth, Executive Vice President, Chief Experience and Marketing Officer.
Thank you.
Speaker Change: Thank you, Elliot. Good afternoon and welcome to Camden National Corporation's conference call for the fourth quarter of 2024.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: All of these materials and public filings are available on our Investor Relations website at CamdenNational.Bank.
Speaker Change: Camden National Corporation trades on the NASDAQ under the symbol CAC.
Speaker Change: 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 in our Reconciled with GAAP and our Earnings Relief, which is also available on our Investor Relations site.
Speaker Change: I am pleased to introduce our host, President and Chief Executive Officer, Simon Griffiths. Thank you, Rene. Good afternoon, everyone. We appreciate you joining our call today.
Speaker Change: 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're then open for Q&A.
Mike Archer: However, before discussing the fourth quarter, I want to remark on a transformational moment in Camden Nationals history.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: The conversion of Northway's banking products and services to Camden National System is on target and expected to occur in mid-March. We look forward to the future as a newly combined, more robust organisation.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: Excluding merger and acquisition costs incurred through December 31, 2024, net income for the full quarter of 2024 was $15.1 million and EPS was $1.03, an increase of 9% and 8% respectively over the third quarter of 2024.
Mike Archer: 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 Nationals' key strengths.
Mike Archer: We proactively managed deposit costs lower in response to recent Fed rate cuts in the second half of 2024, 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.
Mike Archer: In particular, I would highlight the success in our high-yield savings product introduced earlier this year, which reached $201 million in deposits on December 31, 2024, and has been a key catalyst for us to attract new deposits and customers.
Mike Archer: 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.
Mike Archer: In particular, our pre-acquisition New Hampshire team realized 18% growth in their market during 2024 with a limited group of lenders.
Mike Archer: 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.
Mike Archer: We're experiencing strong momentum in fee income, driven by a strategic focus on investments in wealth management and brokerage services.
Mike Archer: Our assets under administration reached $2.1 billion as of December 31st, 2024, reflecting a 12% increase compared to December 31st, 2023.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: Our experience learning and credit team's proactive approach seeks to address potential challenges immediately, a strategy that has consistently benefited our organization and our customers.
Mike Archer: During the fourth quarter, we completed the strategic transformation of our online consumer business account opening process.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: Our technology momentum continues to prevail forward with our investments in process automation, which enhances operational efficiency by streamlining repetitive tasks.
Mike Archer: These efforts increase productivity, reduce errors, improve compliance, and provide greater agility in responding to market changes.
Mike Archer: 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.
Mike Archer: Of course, delivering all this requires a total team effort from all my incredibly experienced and caring colleagues at Camden National.
Mike Archer: 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.
Mike Archer: Thank you, Simon, 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.
Mike Archer: However, I will provide some color on Northway's fourth quarter and four-year results after going through campus results.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: That income for the fourth quarter of 2024 totaled $14.7 million and grew 12% over the third quarter of 2024.
Mike Archer: And on a non-GAAP core basis, totaled $15.1 million and grew 9% over the last quarter.
Thank you.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: The improvement in our 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 percent.
Mike Archer: compared to 0.96% in the third quarter and a non-gap efficiency ratio of 58.5% compared to 62.4% the previous quarter.
Mike Archer: 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.
Mike Archer: to 257, which included approximately three basis points of benefit from certain non-recurring items.
Mike Archer: 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 link quarter basis to 1.91% for the fourth quarter of 2024.
Mike Archer: Our total cost of funds decreased 19 basis points on only a quarter basis to 2.16% for the fourth quarter of 2024.
Mike Archer: Non-interest income for the fourth quarter of 2024 totaled $12.2 million, an increase of 7% over the third quarter of this year.
Mike Archer: The increase on a one-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.
Mike Archer: Loans on December 31, 2024 totaled $4.1 billion, which was fairly flat with balances reported last quarter and a year ago.
Mike Archer: 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 31st remained solid at nearly $85 million, with approximately $45 million committed.
Mike Archer: On the residential side, our mortgage loan pipeline has slowed slightly as we enter the winter months.
Mike Archer: A residential mortgage pipeline continues to hover around $50 to $55 million, of which we had nearly $42 million committed on December 31.
Mike Archer: Our credit quality across our Loan Fork portfolio continues to be very strong. We finished 2024 with excellent asset quality metrics.
Mike Archer: Including nonaccrual loans totaling $4.8 million or 12 basis points of total loans, AFDU loans totaling $2.3 million or 5 basis points of total loans.
Mike Archer: 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.
Mike Archer: This can be seen by a five-and-a-half times allowance for loan loss and non-performing loans ratio at December 31st.
Mike Archer: Deposits in the fourth quarter grew 1% to $4.6 billion at December 31, 2024.
Mike Archer: 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.
Mike Archer: As we noted in our earnings release, one of our large customer relationships temporarily deposited approximately $62 million with us in the fourth quarter. We anticipate these funds will leave in the first quarter of 2025.
Mike Archer: 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.
Mike Archer: 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.
Mike Archer: Our tangible common equity ratio at year-end was 7.64%, which is slightly down from the third quarter due to the shift in interest rates between quarters.
Mike Archer: 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 2, 2025.
Mike Archer: Based on the closing stock of Canada National Stock on January 2nd, the total consideration date was $96.5 million in an all-stock transaction, whereby we issued 0.83 shares of Canada National Common Stock for each share of Northway Financial Common Stock.
Mike Archer: In total, we issued approximately 2.3 million shares in Camden National Common Stock, and on a post-merger basis, the company has approximately 16.9 million shares outstanding as of January 2nd.
Mike Archer: Northway Financial, Business 2024, very much in line with our financial projections as announced.
Mike Archer: As of December 31st, 2024, total assets were $1.2 billion, total loans were $872 million, and total deposits were $972 million.
Mike Archer: I would also note that from a credit perspective, Northway's asset quality continued to be strong through the close of the merger.
Mike Archer: Upon acquisition, we took certain actions to optimize our combined pro forma balance sheet.
Mike Archer: including the paid-out 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.
Mike Archer: 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.
Mike Archer: This concludes our comments and we will now open up the call for questions.
Thank you.
Thank you. Thank you.
Mike Archer: 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 1 and 2.
At this time, we'll pause momentarily to assemble our roster.
Mike Archer: Our first question comes from Steve Moss with Raymond James. Your line is open, please go ahead.
Good afternoon.
Speaker Change: Maybe just starting here with lending activity you guys saw for the quarter here. You know, I hear you guys on the paydowns, just kind of curious how the lending environment is shaking out here going forward and kind of what your thoughts are as you integrate North Byte.
Hey Steve, this is Simon, thanks for the question.
Speaker Change: See some nice momentum on the commercial side, we're also seeing some...
Speaker Change: Good momentum in the home equity business as well. So we, you know, certainly we're picking our spots right now and continue to just focus on that right balance between growth.
Credit Quality.
Speaker Change: and investing in the markets that we have. We also talked about, as we mentioned in the script...
Speaker Change: 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
Speaker Change: continue to assimilate and work with the former Northway team. So I think that's another real area of strength for us. But, you know, certainly some nice momentum, but continue to be selective.
Speaker Change: Okay, great. Appreciate that. And Simon, you know, you mentioned the investments you've made in the franchise over the past year, whether it's wealth management or, you know, the online platform, online account openings.
Speaker Change: Just kind of curious here for 2025, you know, what type of investments you're looking to do and how we kind of think about expenses for you in 2025?
The End.
Speaker Change: Sorry, Steve, you're just breaking up a little bit. Would you mind just repeating that question?
Speaker Change: Oh, sure. So just in terms of the investments you made in the franchise, you know, you mentioned wealth management growth.
Speaker Change: 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.
Speaker Change: and I think a lot of opportunity for momentum there in the wealth business and we talked about that momentum in my opening remarks.
Speaker Change: with 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. And I think putting these pieces together...
Speaker Change: are certainly going to create real potential strength for us this year as we work towards acquiring more customers and deepening those relationships.
Speaker Change: 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, you know, the investing but earning that right to invest through, you know, driving efficiencies. And I think that balance between self-funding, you know, the investments that we make continues to be a philosophy of the management team.
Speaker Change: 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 assuring that, assuming that's from the prepays on loans.
Speaker Change: 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 2 million.
Speaker Change: 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 Phil's, you know, plus or minus five bits around 260. We certainly see in the first quarter, you know, some traditional runoff of deposits.
Thank you very much.
Thank you.
Speaker Change: 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'd imagine, to work through some of the purchase accounting areas, and we'll have that shake out. But certainly, we anticipate a healthy, healthy lift above and beyond core from that.
Speaker Change: Okay, great. I appreciate all the color here, guys, and a nice quarter. I'll step back in a few.
Thanks, Steve. Appreciate it.
Speaker Change: 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.
Speaker Change: I just wanted to kind of circle back on the commentary, Simon, 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 loans that you might not want to keep around? Or was that just, you know...
Kind of organic growth on a standalone basis
Speaker Change: That's organic growth on a stand-alone basis. I think we feel, you know, it certainly represents that for low single-digit.
Speaker Change: Got it. Okay. And then, Mike, could you just repeat some of your final commentary on some of the actions you took post-closing of the transaction? I think you had said you had paid down some borrowings that they had, and I didn't hear what you said on the securities portfolio.
Speaker Change: Yeah, sure. Happy to, Damon. Yeah, so just two things. We essentially paid down some higher, some longer term debt that had a little bit higher cost on it, some FHLB borrowings.
Speaker Change: That's about $45 million just to optimize the balance sheet, and as you probably saw at year-end, we had a little bit of excess cash that we were holding on to, so really just a pure balance sheet optimization play on a pro forma basis there.
Speaker Change: We also sold about $65 million of their bond securities, largely some of their mutis and some of the callables, really, again, just not kind of what we were looking for.
Speaker Change: The opportunity is just to optimize from a yield and 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.
Speaker Change: Okay and then just from like a pro-forma earning asset base is something in the like six and a half billion range reasonable?
Speaker Change: Who is that pro forma earning asset, is that what you asked, Damon?
Speaker Change: 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, Simon.
Speaker Change: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad now.
Speaker Change: We now turn to Matthew Brees with Stephens. Your line is open, please go ahead.
Hey, good afternoon.
Speaker Change: I was hoping just to follow up on a couple of the deal questions since it's closed.
Speaker Change: The first one is, do you have what the Cecil Day 2 provision was?
Speaker Change: and I'm going to turn it over to our moderator, Rene Smyth, who is going to talk to us a little bit about the work that we're doing. Rene, thank you so much for joining us today. Thank you. Great to be here. Thank you. I'm excited to be here. I'm excited to be here. I'm excited to be here. I'm excited to be here. I'm excited to be here. I'm excited to be here. I'm excited to be here.
Speaker Change: Matt, this is Mike. Are you asking just in terms of what we announced or what it is, where we landed with it?
Where you landed, the deals are closed.
Speaker Change: So we're still working through the purchase accounting, Matt, I would tell you that, you know, we
PCD, or, you know...
The remaining would be the non-PCD portion.
Speaker Change: But again, they closed very strong from a credit perspective, and we're still scrubbing and doing some final due diligence, if you will, on our side. But to my knowledge, certainly no surprises coming out of that.
Speaker Change: And then going back to the original deal deck, understanding that the core NIM sounds like it's in the 260 range.
Speaker Change: I think you also had about $3 million a quarter in accredible yield, so that's about 15 to 20 BIPs.
Speaker Change: of kind of accretion on the NIM. So is it fair to say that the reported NIM is...
Speaker Change: probably in the 270 range all-in, 280 range all-in when it's said and done.
Thank you.
at 285, 290, up towards 3.
Speaker Change: One of the things, certainly, that's evolved since we closed, or announced, rather, is just the movement in rates and moved a little bit higher on us. So there'll be some additional markets, what we expect as we close, which will play into that as well, Matt.
Got it, okay.
Speaker Change: And then I don't suppose you have anything related to goodwill or intangibles created dollar-wise.
Speaker Change: Nothing new from what we previously disclosed. I want to say off the top of my head it was in the $40-$45 million range. Certainly the purchase price ticked up a little bit as well.
Speaker Change: 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, Matt, but it will certainly be, I would anticipate it being slightly higher than what we had originally forecasted.
Okay.
I'm sorry if I missed this.
Speaker Change: As you think about, you know, beyond the first quarter, and I'm referring to the core NIM, to what extent might we see more expansion throughout 2025? And, you know, throw out a bogey, you know, when do you think you can get above?
a 3% core name again.
That's a big question there, Matt.
Matt: Yeah, it certainly will take some time. I agree with you. We're certainly well-positioned.
Matt: and I'm going to be talking about the current rate environment. I think if rates stay here, we perform well. If rates tick up higher, that's 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.
I know we do have four stages continued.
Matt: as well, so 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. So I think the, you know, obviously the future for us looks looks pretty, pretty strong as we look at a few borders, but.
Matt: 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. Probably not as quick as I want Matt or any of us want, but I think that the trajectory is certainly a positive.
Matthew Breese, Stephen
Speaker Change: All right, and then just one for you, Simon, you know, pretty shortly after you took the reins at the helm, we had a nice deal announced and closed in short order.
Um...
Speaker Change: What do you think on the M&A front from here? When are you ready to pursue whole bank fields again? And if you are ready, what kind of geographies are you looking at? That's all I had, thank you.
Speaker Change: Yeah, thanks Matt. You know, I think as we communicated, we chatted earlier about it, it's...
Speaker Change: you know a bank like Northway that I think has the same DNA.
Speaker Change: same kind of credit profile, same mindset, focused on local communities that we serve in Maine, and I think that that's going to continue 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, you know, but we certainly I think have the support of the management team and the expertise and the skillset to clearly execute on these
Speaker Change: and I think we can leverage that going forward when the right opportunity arises.
Speaker Change: Perfect. I'll leave it there. Thank you for taking my questions.
Yeah, thanks, Matt. Appreciate it, Matt.
Speaker Change: As a final reminder, if you'd like to ask a question, please press star one now or pause for a moment.
Speaker Change: 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.
Simon Griffiths: Thanks Elliot. I 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.
Thank you.
Simon Griffiths: Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Music