Camden National - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 adjusted diluted EPS was $0.89 and GAAP diluted EPS was $0.83; versus S&P Global consensus EPS of $1.09*, results were a miss. S&P’s revenue actual of $55.4M also missed consensus $61.1M*, despite company-reported net interest + non-interest income totaling ~$62.3M, up 4% sequentially.*
• Efficiency ratio improved materially: GAAP to 60.37% and non-GAAP to 55.47% (from 74.02% and 58.72% in Q1), driven by Northway synergy capture and lower merger costs.
• Net interest margin expanded 2 bps to 3.06% (core NIM 2.70%); management guided another 5–10 bps potential expansion in Q3, contingent on rates.
• A $12M syndicated C&I credit entered bankruptcy, elevating provision expense ($6.9M) and lifting NPLs to 0.37% of loans; management expects resolution later in 2025.
• Shares fell ~11% on the print, with concern around the NPL uptick; management flagged potential buyback optionality post-window.

What Went Well and What Went Wrong

What Went Well

• Non-GAAP efficiency ratio improved to 55.47%, the best since Q2 2022, as merger costs declined and synergy realization progressed; pre-tax, pre-provision income rose 13% QoQ to $26.1M.
• Net interest margin expanded to 3.06% (core 2.70%), with CFO targeting further core margin expansion in Q3 on seasonal deposit flows and earning asset yield momentum.
• Loan pipelines strengthened: committed pipeline reached ~$149.5M (+40% QoQ), with home equity balances growing $16.7M in Q2 and strong commercial activity in ME/NH.
• Tangible book value per share increased 3% QoQ to $26.90; TCE ratio rose to 6.77%.
• Management emphasized digital wins (Round Up, Zogo) and wealth/brokerage fee growth (+16% YoY fiduciary/brokerage), indicating diversification of revenue.

Quotes:

• “Pre-tax, pre-provision income… increased 13% over the prior quarter. This performance reflects achievement of cost synergies and solid revenue growth…” — CEO Simon Griffiths.
• “We remain on track to deliver the financial targets outlined as part of the acquisition, including achieving our targeted cost reductions.” — CFO Mike Archer.

What Went Wrong

• Consensus miss: S&P Global EPS consensus $1.09* vs actual $0.89*, and revenue consensus $61.1M* vs actual $55.4M*, reflecting elevated provisioning and an NPL-related NIM impact (~1 bp).*
• Credit event: a $12M syndicated C&I loan entered bankruptcy, raising provision to $6.9M and NPLs to 0.37% of loans (from 0.15% in Q1).
• Deposits declined 1% QoQ to $5.5B; loan-to-deposit ratio rose to 89% (from 87% in Q1), albeit with management citing normal seasonal outflows early in the quarter.
• Non-interest income had valuation-related volatility (BOLI, mortgage pipeline fair value), prompting cautious Q3 guidance.

Transcript

Speaker 4

Today, and welcome to Camden National Corporation's second 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. If you require operator assistance at any time during the call, please press star, then zero. Now, I'll turn the call over to Renée Smyth, Executive Vice President, Chief Experience and Marketing Officer.

Speaker 2

Thank you. Good afternoon and welcome to Camden National Corporation's conference call for the second 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 second quarter 2025 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 discussion of non-GAAP financial measures.

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 CEO, Simon Griffiths.

Speaker 4

Good afternoon, everyone, and thank you, Renée. We appreciate you taking the time to join us today. We're pleased to report on our strong performance in our first full quarter as a unified organization following the acquisition of Northway Financial earlier this year, which bolstered our presence in the New Hampshire market. This quarter marked the beginning of unlocking the financial potential of our combined franchise with pre-tax, pre-provision income, excluding one-time merger-related expenses, rising 13% from the prior quarter. Earlier this morning, we reported strong quarterly earnings of $14.1 million, resulting in diluted earnings per share of $0.83. On a non-GAAP basis, adjusted earnings were $15.2 million, or $0.89 per share. Our strong quarterly earnings accretion continues to rebuild our capital levels following the completion of the Northway acquisition and to enhance shareholder value.

This is evidenced by the expansion of our tangible common equity ratio to 6.77% at June 30 and a 3% increase in tangible book value during the second quarter, reaching $26.90 per share. These outstanding results reflect early success in realizing cost synergies from the Northway acquisition and the ability to drive solid revenue growth, underscoring the strategic value of the acquisition for all our constituents, customers, employees, communities, and shareholders. Several of our key performance indicators continue to trend positively. Net interest margin expanded by an additional two basis points, and our non-GAAP efficiency ratio improved to 55.5%. We believe these outcomes demonstrate that we are well positioned to sustain interest margin expansion and earnings growth through the second half of 2025. As reported, one commercial borrower filed for bankruptcy during the second quarter, resulting in the need for additional provisioning on this loan.

We are actively engaged with a small group of other lenders involved in this loan and anticipate resolution later this year. In a few minutes, Mike will provide more details on our provision and loan loss reserve levels for the second quarter. We remain confident in the overall health of our loan portfolio and that this is not a broader trend across our well-diversified loan portfolio, as evidenced by our continued strong asset quality metrics. Our second quarter performance reflects the continued benefits of our strategic investments, both digital and talent-focused, across the organization, along with the disciplined execution of proactive deposit gathering and management. While average deposits were down 1% on a linked quarter basis due to seasonal trends, we have seen encouraging growth more recently as the summer months are upon us.

While average loans remained stable during the quarter, we grew ending loan balances in both the consumer and commercial businesses. Our commercial team remains highly engaged, leveraging strong, long-standing relationships and increased visibility in the high-growth markets of Southern New Hampshire and Maine. We are seeing consistent pipeline activity across our markets, signaling strong demand and sustained momentum. At the same time, we remain firmly committed to our underwriting discipline. During the quarter, we achieved robust growth in home equity loan balances and in our high-yield savings accounts, which require a consumer checking account, helping us expand and deepen relationships. We also achieved significant success in growing and diversifying our fee revenue. Our fiduciary and brokerage fee income organically grew 16% year over year. Our growing wealth management team is realizing substantial operational efficiencies from its new platform, which was implemented last year.

We continue to see strong opportunities to expand our services within our existing customer base, particularly as we prioritize advice-driven conversations and extend our treasury management services into the New Hampshire market. We continue to advance our innovation agenda with strategic investments to modernize our mobile app, aimed at attracting and retaining a digitally savvy customer base. This quarter, we successfully launched both our Roundup feature and Zogo, a digital financial literacy program. The response has been strong. Within the first 60 days, customers completed over 140,000 Roundup transactions, automatically directing spare change into savings and charitable giving accounts, and engaging in more than 13,000 learning activities through our financial education tool. We are proud of our second quarter financial performance, which reflects the dedication of our 700-plus united teammates and their unwavering focus on serving our customers and executing our strategy.

Their efforts have fueled strong results and built momentum we expect to carry through the second half of 2025 and beyond. We are well positioned to continue delivering exceptional outcomes and unlocking meaningful long-term value for shareholders. With that, I'll hand over to Mike to provide some additional financial highlights regarding the quarter.

Speaker 5

Thank you, Simon, and good afternoon, everyone. Our second quarter operating results gave us a first look at our earnings power as a larger organization, having completed the acquisition of Northway Financial and much of our integration in the first quarter of this year. As we enter the second half of the year, I'm pleased to report that we remain on track to deliver the financial targets outlined as part of the acquisition, including achieving our targeted cost reductions. For the second quarter, we reported GAAP net income of $14.1 million and diluted earnings per share of $0.83, representing increases of 92% and 93%, respectively, over the previous quarter. On a non-GAAP basis, pre-tax, pre-provision net income, excluding merger-related expenses, totaled $26.1 million for the second quarter and increased 13% over the previous quarter.

This increase highlights the improvement in our efficiency ratio during the second quarter, which reached 55.5%, our lowest level since the second quarter of 2022. Total revenues for the second quarter grew 4% over the last quarter to $62.3 million, driven by both net interest income and non-interest income growth. Net interest margin and non-GAAP core net interest margin each expanded two basis points during the second quarter to 3.06% and 2.70%, respectively. We continue to focus on driving core net interest margin expansion and anticipate further expansion in the third quarter, as we'll benefit from seasonal deposit flows and continued steady expansion of our earning asset yield. Non-interest income reached $13.1 million for the second quarter, which beat our guidance provided last quarter. We are currently estimating a range for non-interest income for the third quarter of $12 million to $13 million.

Reported non-interest expense for the second quarter was $37.6 million, which was 15% lower than the first quarter. Non-interest expense, excluding merger-related expenses for the second quarter, was $36.2 million, a 2% decrease compared to the prior quarter. For the third quarter, we currently anticipate non-interest expenses, excluding merger-related expenses and CDI amortization, to land closer to $34 million, as we realize a full quarter of cost synergy savings from the Northway Financial acquisition. Weighing on our reported financial results for the second quarter were elevated provision expenses of $6.9 million. During the second quarter, a borrower under a syndicated loan in which Camden...

Speaker 4

Ladies and gentlemen, we have lost connection with our speaker. Thank you for your patience as we reconnect them.

Speaker 5

This is Mike. Sorry for the disconnection there. We'll jump back into the meeting here. Weighing on the reported financial results for the second quarter, we're elevated provision expenses of $6.9 million. During the second quarter, a borrower under a syndicated loan in which Camden's participation totaled $12 million entered bankruptcy, and we placed the loan on non-accrual status. As of June 30, we carried an allowance on this credit of $6 million, which represents our best estimate of the potential loss as of the end of the second quarter. This credit was the driver of the elevated provision expense and the increase in our allowance coverage ratio of 12 basis points during the second quarter to 1.08% at June 30. As noted in our earnings release earlier today, we currently anticipate that this credit will be fully resolved later this year.

Overall, our credit trends across the broader loan portfolio remain very strong. Past due loans account for 8 basis points of total loans at June 30, net charge-off for 2 basis points of average loans for the second quarter, and non-performing loans for 37 basis points of total loans at June 30. We experienced nice loan growth during the quarter of 1%, coming primarily from commercial and home equity loans. Our loan pipelines were robust at June 30, with $150 million committed loan pipeline, representing a 40% increase over the last quarter.

Lastly, our capital position remains very strong, supported by growing ratios as we rebuild capital following the Northway Financial acquisition earlier this year. Our tangible common equity ratio grew to 6.77% at June 30, an increase of 28 basis points from the previous quarter, and our regulatory capital ratios continue to be well in excess of requirements and continue to build as well. We anticipate strong capital generation in the second half of the year, driven by the full realization of synergies and sustained revenue growth. This concludes our comments. We'll now open it up to the call for questions.

Speaker 4

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Steve Moss with Raymond James. Your line is open. Please go ahead.

Speaker 1

Good afternoon, guys. Maybe just starting here on the credit front. Hey, Mike. Just starting on the credit front here, just curious, what type of C&I loan was it? Did the placement on non-accrual here this quarter also impact net interest income? Yeah. That was one of our C&I loans. It was a syndication, Steve. As mentioned in the comments, we're working with a small group of vendors on that. Certainly, our credit team is working very closely and diligently trying to work through the resolution there. As we mentioned, you anticipate that full resolution here a little bit later this year. It did impact net interest income for the quarter. Overall, it was about a basis point of net interest margin, core margin for the quarter. I'm sorry, maybe I should have been more specific. Just curious as to what kind of industry the borrower is active in.

Speaker 3

Steve, yeah, I'd characterize it as a service company.

Speaker 1

Got you. In terms of the loan pipeline here, just curious the color around the drivers of the improvement in the pipeline and kind of what's the coupon you're seeing on new originations?

Speaker 3

I'll take that, Steve. Just to go back a click here, I think obviously we've mentioned the one loan, but I think we still feel very confident around our credit position. When you look at non-accruals, at 15 basis points absent that loan, it really is flat quarter over quarter. We feel very good about that. As we push into this quarter, we are seeing a pickup, particularly on the commercial side. We're seeing a lot of activity. We're also seeing some great results in the home equity front. We grew $16.7 million in the second quarter in balances. This compares to $18 million all of last year. That's very positive momentum there, which I think is really good to see. We're seeing a nice balance across C&I, small loans, business loans, mortgages actually quite resilient as well. It's a broad-based sort of pickup.

We certainly, as we say, have got a very, very positive pipeline.

Speaker 1

Okay. Got you. In terms of the margin expansion here, just kind of thinking about the asset repricing, obviously originations help here too. We do think about it as a couple basis points a quarter. Just kind of curious how you guys are thinking about that dynamic.

Speaker 3

I was going to say, Steve, I think we do see continued momentum back end of this year. Obviously, contingent in terms of the Fed, but we see plus minus 5, 10 basis points for the next quarter, dependent obviously on where the Fed goes.

Speaker 1

Okay. Great. Appreciate all the color. I'll step back in the queue.

Speaker 3

Thanks, Steve.

Speaker 4

We now turn to Matthew Breese with Stephens. Your line is open. Please go ahead.

Speaker 0

Good afternoon. Just on the C&I credit, a couple from me here, you noted you're actively involved with other lenders on the note. Can you give us some sense for the ultimate size of this loan? What is your exposure overall with syndicated loans?

Speaker 3

Our total exposure, Matt, is $12 million at quarter end. I can certainly say there are five or six other banks in this group. Total exposure for the group is around the $200 million mark.

Speaker 0

Just in terms of unfunded there, Matt, there's a small piece of remaining exposure out there. I think it's around $1 million or so. Maybe it will get over, but it's in that neighborhood.

Speaker 1

The $200 million, are those, you know, how would you characterize those in terms of, you know, geography? Are they mostly local or are they national? What kind of, broadly speaking, what kind of businesses are they attached to?

Speaker 3

It's a mix, you know, from national to large regional, local.

Speaker 1

Is there no other sign of deterioration in the broader book?

Speaker 3

No, we feel very good. I mean, again, just coming back to my earlier points, Matt, non-accruals are 15 basis points, that's pretty much flat quarter over quarter. Delinquencies are 8 basis points, up 1 basis point from Q1. Charge-offs are 2 basis points annualized. We feel very good about the overall book, but inevitably, sometimes you have these one-off situations, and that's exactly what this is.

Speaker 1

Understood. Got it. Okay. Mike, you had mentioned a couple of guidance items I was hoping to kick the tires on. The first one was just the income of $12 to $13 million next quarter, a little bit of a pullback. I'm curious as to where we might see that pullback occur.

Speaker 0

Yeah, it's a couple of good questions, Matt. A couple of things in there. One, just on the mortgage side, there is some fair value accounting that's giving a bit of a pop, if you will, on just the pipeline loans at quarter end. The other item is within the BOLI, you would have seen a pop there as well. Obviously, just with the acquisition from different securities supporting one of the underlying BOLI policies, it's more tied to the equity markets and just has more volatility, as you can imagine, in some of that. That's a little bit of my caution out there. That said, I think mortgage will be strong from a sales perspective this go around. I think we pegged that somewhere in the $750,000 to $1 million. That could be pretty stable.

My hope would be we'd be in the 12.5 to 13, kind of more in that range. There's a couple of items out there that are a little less in our control, if you will, from a valuation perspective.

Speaker 1

Got it. Okay. On expenses, I think you had said $34 to $35 million for the rest of the year. At that point, at year-end, have you kind of done all you can from Northway, and do we expect a little bit of growth from the year-end figure, whether it's $34 or $35 million? Just trying to get some sense for the inflection point on expenses at year-end.

Speaker 0

Yeah, I mean, we're targeting something closer to $34 million for the third quarter, Matt. We anticipate that we'll have certainly the high majority, vast majority of the cost synergies by that point. There could be some items that continue to fall out there, but certainly the material significant items, we would have gained most of that benefit as we close down the third quarter, possibly into the early fourth. All things considered, I do think we'll see most of that in the third quarter. There is a little bit of lumpiness just in the second quarter that is in our numbers in terms of some of the expenses. We just have annual equity grants for board members and directors that flush through, so it's a little bit higher than maybe you would have otherwise expected.

That, again, is just more of a seasonality factor and something that we've always had.

Speaker 1

Understood. Okay. Simon, just on the credit piece, the stock is down 11% today. It feels like it's mostly tied to the increase in non-accruals and a bit of a mismatch between your commentary today. Just curious if the stock kind of stays here, would you be interested in the buyback as soon as the window opens up? That's all I had. Thank you.

Speaker 3

Yeah, I mean, certainly, I think in the context of the credit and the comments, I think we're very well positioned for the second half of the year. I think we see a lot of positives. We're starting to really see the traction, which we hope for with the New Hampshire franchise. We're certainly picking up a lot of the momentum in the commercial volume in New Hampshire, which I think is really positive. We have a buyback open and as an option for us, if that makes sense. Certainly that optionality is there. We certainly feel very good about the core kind of net interest margin, as we've talked about. I think that the continued focus on the team with a trajectory to focusing on getting to 3% is certainly something the team are very committed to. I think that's a real positive for us.

We've got cost discipline in place and really landing the commitments we made around the integration. You put all those pieces together, I think the back half of the year looks very positive. We're excited as a management team to continue to execute on the integration and opening up the markets in New Hampshire and obviously the organic growth we have in the Maine markets.

Speaker 1

I'll end it there. I appreciate you taking all my questions. Thank you.

Speaker 4

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

Hey everybody, this is Matt Rank filling in for Damon DelMonte. Hope everybody's doing okay today. Just as a follow-up on the fee income side of things, just kind of hoping to see how early wealth management conversations are going in New Hampshire and what you think that business and franchise could maybe grow to over the next year.

Speaker 3

Yeah, I think it's, you know, we've added, particularly in the Maine footprint, we've added a couple of wealth folk. We see, you know, that potential. We're certainly investing into our core market where we've got strong relationships and certainly continuing to build that out and seeing some very nice growth both within our brokerage services business, but also with our wealth franchise. We've certainly started to take a step into the New Hampshire market. We're certainly right now focused more on the lending side, the commercial, you know, as I said earlier, my earlier comments, very positive results. Home equity loans, of course, as I talked about, we're seeing a lot of traction there, which is exciting. That wasn't a product that the Northway Financial team had. That's, I think, bringing a real asset to our customers.

With those loans, we're bringing in deposits as well and seeing a lot of traction on that side. I think that helps the funding side, which is real positive. I think the sort of the wealth picture for us is really probably more, you know, as we build into next year, but certainly going to continue to invest and, you know, have the potential, I think, some very attractive markets there to continue to build out the wealth team. That's not a this year thing. I think that's a next year thing.

Okay. Got it. Just one follow-up. You mentioned a new wealth platform, new mobile app. I was just curious if you're investing in any other technologies that you think could drive efficiencies or maybe revenue generation opportunities. Thanks.

Yeah, thanks for the question. Certainly that has gone well. The team, I think the wealth team felt very good about both the operational efficiencies and the improved customer experience from the mobile app. That's a very real positive. As you know from previous calls, we've talked about the Terrafina platform, the new online account opening platform. It's been very positive. We're seeing a lot of traction there. Just under 10% now of our accounts are coming in through that platform, which is really positive. I think a great customer experience. We'll continue to leverage that platform and build that platform out. We've also had some great innovations recently. We've rolled out some fabulous new innovations around Roundup, Roundup to save, Roundup to donate. We're seeing a lot of energy and traction, as I referenced in my comments. I think that's real positive, as well as a learning platform.

Starting to see a lot of engagement from our young customers around that. I think it's a very digital-forward strategy. We've got other pieces in the pipeline, which we're not ready to talk about. I think when you start to put all these pieces together, it's driving engagement, driving account acquisition, which, of course, is going to be crucial to funding and just the overall health and growth of the bank. I feel very good about the digital strategy and the momentum that we have.

Great. Thank you. I'll set that.

Speaker 4

We have no further questions, so I'll now hand back to Simon Griffiths for any final remarks.

Speaker 3

Thank you for your time today and your continued interest in Camden National Corporation. We appreciate your support and wish you a productive and restful summer. Thanks, everyone.

Speaker 4

Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.