Renee Smyth; Executive Vice President, Chief Experience and Marketing Officer; Camden National Corp
Simon Griffiths; President, Chief Executive Officer, Director; Camden National Corp
Michael Archer; Chief Financial Officer, Executive Vice President; Camden National Corp
Stephen Moss; Analyst; Raymond James
Matthew Breese; Analyst; Stephen
Damon Del Monte; Analyst; KBW
Operator
Good day, and welcome to Camden National Corporation's first-quarter 2025 earnings conference call. My name is Elliot, and I'll be your operator for today's call. (Operator instructions)
I'll now turn the call over to Renee Smyth, Executive Vice President, Chief Experience and Marketing Officer.
Renee Smyth
Thank you. Good afternoon, and welcome to the Camden National Corporation's conference call for the first quarter of 2025. Joining us this afternoon are members of Camden National Corporation's executive team, Simon Griffiths, President and Chief Executive Officer; and Mike Archer, Executive Vice President and Chief Financial Officer.
Please note that today's presentation contains forward-looking statements, and actual results could differ materially from what is discussed on today's call. Cautionary language regarding these forward-looking statements is contained in our first quarter 2025 earnings release issued this morning and in other reports we 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 in our earnings release. which is also available on our Investor Relations website.
I am pleased to introduce our host, President and Chief Executive Officer, Simon Griffiths.
Simon Griffiths
Thank you, 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 go through it, we had a very solid quarter financially, highlighted by core net income of $16 million, led by strong fundamentals and continued momentum within our core operations. In a few minutes, we will discuss our financial results in more detail, and Mike will provide details of our purchase accounting before we turn to Q&A.
Before we dive into our numbers, I want to take a moment to reflect on our historic accomplishments this quarter. On January 2, 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 of 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 pretax 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 that will unlock and we are well underway in benefiting from the deal strategic and financial merits.
Earlier this morning, we reported GAAP net income of $7.3 million or $0.43 of diluted earnings per share for the first quarter of 2025. Excluding merger-related costs and other nonrecurring items, non-GAAP core net income increased 6% over the fourth quarter of 2024, while non-GAAP core diluted EPS decreased 8% between periods.
We are very pleased with our first quarter performance and believe we are well prepared to face current market uncertainty. Our franchises' 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 strength 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 early and head on an approach that has consistently protected both the bank and our customers.
The increase in our allowance to loan ratio of 9 basis points to 0.96% and 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 in 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 main 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 drives sustainable long-term performance.
I will now turn it over to Mike to provide more details about our first quarter financial results.
Michael Archer
Thank you, Simon, and good afternoon, everyone. With the closing of the Northway acquisition on January 2, 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 GAAP 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 $0.43.
Within our reported GAAP earnings was a pretax charge of $7.5 million for acquisition-related costs, a pretax charge of $6.5 million for onetime loan loss provisions associated with the acquired loan portfolio and unfunded commitments and a onetime tax benefit of $2.4 million from the revaluation of Camden's legacy deferred tax assets.
Excluding the impact of these items, net of tax, the company reported adjusted net income of $16 million and adjusted diluted EPS of $0.95. On a linked-quarter basis, adjusted net income was higher by nearly $1 million or 6% and 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 of net interest margin expansion quarter-over-quarter. On page 3 of the earnings supplement we filed this morning with our earnings release, we outlined the impact of purchase accounting on net interest income for the first quarter.
Adjusting for the impact of this net accretion income, our core net interest margin expanded 11 basis points on a linked-quarter basis to 2.68% for the first quarter, continuing the positive momentum we've seen over the past 12 months. Our core net interest margin expansion highlights our success in lowering funding costs as the Fed lowered interest rates in the second half of '24. In the first quarter of 2025, we saw the full benefit of those actions flow through to our funding costs.
As we combine Camden and Northway's strong low-cost deposit franchises, we see the full power of our 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 have very similar credit cultures with limited historical charge-offs. At March 31, '25, nonperforming loans were just 15 basis points of total loans and delinquent loans were just 7 basis points of total loans.
Net charge-offs for the first quarter of 2025 were 8 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% 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 onetime 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. At March 31, 2025, our loan loss reserve coverage ratio stood at 96 basis points compared to 87 basis points at year-end.
At this level, our loan loss reserves represent 6.4 times nonperforming loans at March 31. Details of our allowance bill during the quarter can be found on page 5 of the earnings supplement. Noninterest income for the first quarter of 2025 was $11.2 million.
Non-interest income was lower by 8% on a linked-quarter basis, which reflects the timing and seasonality within our fee income base. As we transition out of the winter months and integrate Northway's customers into our products and services, we anticipate non-interest income will continue to build throughout the year as it has historically done for us.
Non-interest expense for the first quarter of 2025 totaled $44.5 million, including $7.5 million of acquisition-related costs, core deposit intangible amortization expense of $1.5 million. Excluding acquisition-related costs and CDI amortization expense, total operating expenses were $35.4 million for the first quarter compared to $27.8 million for the fourth quarter of 2024.
As stated earlier, we fully expect cost savings to accelerate in the second quarter and continue to build throughout the remainder of the year. We reported an income tax benefit of $1.2 million for the first quarter of 2025. With the Northway acquisition, our expected income allocation across states has shifted, requiring us to revalue Camden's legacy deferred tax assets.
This resulted in a onetime tax benefit of $2.4 million during the quarter. We estimate our current effective tax rate of 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 at March 31, including 77 -- excuse me, $775.7 million of acquired Northway loans, net of the fair value mark of $96.7 million as of the acquisition date.
Organic loan balances were flat during the first quarter, which was expected given the level of seasonality within our markets. Our loan pipelines are healthy, and we have seen them continue to build recently. Deposits totaled $5.6 billion at 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 market and the expected drawdown during the first quarter of $62 million and temporary deposits are replaced 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 ratio stand at March 31, 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 a shelf registration statement in March. We did this solely for capital planning and preparedness purposes.
This concludes our comments. We'll now open the call up for questions.
Operator
Thank you. We will now begin the question and answer session.(Operator instructions)
Steve Moss, Raymond James.
Stephen Moss
Hi, good afternoon. 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, if we could continue to see a little bit more of a bump up in that margin here?
Michael Archer
Yes. Great question, Steve. Yes, that's our thought. We do think we'll continue to see a level of just core net interest margin expansion from her. We're kind of pegging in maybe additional 2 to 5 basis points. So net $2.70, $2.75 range on a core basis.
Stephen Moss
Okay. Great. And then in terms of the purchase accounting accretion, you ended up with bigger marks here. Just curious if there's a little bit more of a step-up from the, call it, $5.1-ish million of accretion we saw this quarter.
Michael Archer
Yes. 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 there's potential for things to slow. But overall, when we looked at what went through this quarter, $5 million feels like a pretty good number.
Certainly, if we see acceleration of the yield curve and the longer end kind of come down, that could certainly accelerate prepays as you know, and get some additional benefit there. But I think all intent and purposes, $5 million is a pretty good solid number for us.
Stephen Moss
Okay. Great. And then in terms of, you mentioned we're well positioned for rate cuts. Just curious like how -- what do you project in terms of benefit from a 25 basis point Fed rate cut here going forward? Or if you're a little more liability sensitive or a little more neutral these days?
Simon Griffiths
Hey, Steve, thanks for the question. Yes, we're a little bit liability sensitive, but we certainly predict -- forecast. We certainly see some strength on the quarter point rate cut, and we forecast around $1.5 million for 0.25 point rate cut as a benefit. So that certainly would be accretive to us going forward in addition to the underlying core NIM 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 are 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.
Stephen Moss
Right. And Simon, I hear you in terms of the cross wins with regard to the economy. Your pipeline headed the right way is definitely encouraging, especially the activity continuing here now. Just kind of curious, as you think about loan growth here, maybe where are you seeing the most -- the best activity on the commercial side? And is it still kind of like low single-digit type loan growth for the current year?
Simon Griffiths
Yes, 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 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 my time here.
So I think those pieces are playing very positively. We're seeing nice momentum in the home equity space, business banking, commercial, holding up well, and it's a nice balanced picture across the geographies. Of course, we continue now to see momentum over 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 adding to the opportunities there and seeing, I think, a lot of exciting opportunities for the team to tap into.
Stephen Moss
Okay, great. Really appreciate the color there. I'll step back in the queue but other last questions here. Thanks.
Simon Griffiths
Thanks Steve.
Operator
Matthew Breese, Stephen.
Matthew Breese
Hey, good afternoon. I was hoping you can talk a little bit about the other areas of the P&L. Maybe starting with fee income. Stand-alone Camden was coming in the fourth quarter at around $12 million of fees, Northway was a little over $1 million. At what point do we get on that kind of $13 million quarterly run rate for fees? And is that a fair estimation?
Michael Archer
Yes. I think that's a good question, Matt. Certainly, I would just maybe just back up a moment. I think in part, a little bit of the disconnect maybe being seen is we had a really strong Camden stand-alone fourth quarter on the fee income base. Overall, that's certainly a function of the timing. We had our annual debit card bonus in the fourth quarter. We also benefited as well from some derivative income and some other items that kind of are a little less predictable.
But I think as we move forward here, as we think about fee income, I think we're thinking for this next quarter as we see mortgage banking pick up and to Simon's comments earlier, we're seeing the production and the pipelines build there.
We were kind of anticipating that we could be in the $12 million, $12.5 million range for the second quarter. And then to your comment, as we make our way to the end of the year, we would definitely, I think, in my mind, start approaching that $12.5 million, $13 million from there.
Matthew Breese
Yes. And similar question -- I appreciate all that. Similar question for expenses. Just kind of putting the two franchises together, the 35% cost saves, plus a little bit of inflation, is it fair to assume on a core basis, we're looking at, call it, $34 million, $35 million in quarterly expenses over the next year? Is that the right bogey? Or is there more on the cost save front than we talked about in the deal deck?
Simon Griffiths
Yes, that feels very much in line, $34.5 million to $35 million before obviously, M&A costs and CDI amortization. But I think that's certainly a good kind of estimate. I don't know, Mike, do you want to?
Michael Archer
Yes, I would just -- I think to Simon's comment, I think that's a near term. As we get this back half of '25, we anticipate further just take out occurring. I mean, a function of this is just takes time to get the systems wind down and other bills and some of the just -- the things behind the scenes, if you will.
But I think as we approach the second half is really when we expect the full benefit of the cost saves to start kicking in as we start to work our way to the fourth quarter and approaching '26 math. But I would definitely think that $34 million, $35 million is a good spot for us, certainly in the -- for 20 -- excuse me, for '25 and beyond there, there might be some additional opportunity.
Matthew Breese
Okay. And then maybe, Simon, I was hoping you could touch just on how overall integration is going. Camden hasn't done a whole bank deal in some time. How is it going on the employee integration retention fund, the client disruption front? And is this something we might see more of, meaning whole bank fields at of Camden.
Simon Griffiths
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 a very strong retention on the employee side, which I think is just -- it's 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 in some -- and activation around our online and usage which is very good. Deposits, which I think is a good indicator, has been strong through the quarter and good, very, very good retention of deposits.
And then we -- I think just the all other indicators have been positive. So overall, I think the team did a fabulous job and really just put a great foot forward and very proud of the work we did. In terms of going forward, as I've said previously, Matt, we certainly do have an appetite to do additional M&A deals.
And as always, it's really finding the right deal that really is accretive to the business is a good fit from a culture perspective. Certainly have a lean towards contiguous markets, and those core pieces, I think, remain consistent in terms of our philosophy.
But yes, I think we -- I think it went very well. And really now, I think it's starting to now take a breath or maybe I think we've taken a breath. And now, sort of get on the front foot of really activating the two franchises and creating awareness of the product set, the capabilities that we have, and I'm pretty excited around that and the opportunities that's going to present.
Matthew Breese
Excellent. Appreciate. I will step back. Thank you.
Simon Griffiths
Thanks, Matt.
Operator
(Operator instructions)
Damon Del Monte, KBW.
Damon Del Monte
Hey, good afternoon guys. Hope everybody is doing well. Thanks for taking my question. 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 could -- or maybe are factored in that growth number or they're not factored in that number?
Simon Griffiths
No, no. Thanks for the question, Damon. Not factored in, and I think across the -- I think Mike said earlier, very similar credit philosophy over there, strong portfolio of loans, and we feel really good. And look, we certainly -- there's obviously a lot in front of us from a macroeconomic perspective. And I think we're certainly seeing some pockets of strength. We've been talking to a lot of our clients, Damon.
And certainly, there are certainly areas of positivity, but there's also obviously some concerns. But there's an underlying, I think, appetite from -- to invest and we certainly could see, I think that the low single digit remains a really good kind of outlook right now, but you can certainly see a potential for that to improve as other -- as more certainty reaches into the market. But I think right now, that's a really good forecast.
Damon Del Monte
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?
Simon Griffiths
Yes. I mean I think, obviously, we're taking sort of a look at where things progress over the next 90 days. I mean, I think as we always have, just a really thoughtful kind of approach to provisioning, and we put in some provisioning just based on the macroeconomic environment and that potential for recession, which is certainly across the board somewhere in that 40% to 70% likelihood being forecasted by sort of most groups.
I think it's potential that, that would be something we'd look at in the second quarter and continue to make sure we are well reserved. And represent that potential risk. But I think we took an early kind of bite at that just to be conservative and cautious given just the outlook macroeconomic outlook.
Damon Del Monte
Got it. Okay. That's all that I had everything else was asked and answered, so thank you.
Operator
As we have no further questions, this concludes our question and answer session. I would now like to turn the conference back over to Simon Griffiths for any closing remarks.
Simon Griffiths
I just want to thank you all for your time today and interest in Camden National Corporation. We wish you all a great rest of your day. Thanks, everyone.
Operator
Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
