Camden National Corporation ($CAC)

Good day, and welcome to Camden National Corporation's First Quarter 2026 Earnings Conference Call. My name is Lucas, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Renee Smyth, Executive Vice President, Chief Experience and Marketing Officer. Go ahead, Renee.

Welcome to Camden National Corporation's First Quarter 2026 Conference Call. Joining us this afternoon are members of Camden National Corporation's executive team, Simon Griffiths, President and CEO; and Mike Archer, Executive Vice President and CFO. 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 included in our first quarter 2026 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 NASDAQ under the symbol CAC. In addition, today's presentations include 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.

Good afternoon, everyone, and thank you, Renee. Earlier this morning, we reported strong first quarter results with net income of $21.9 million and earnings per share of $1.29. Excluding noncore acquisition-related items from last year, adjusted net income and adjusted diluted EPS increased 39% year-over-year in the first quarter of 2026. We are pleased that these results. We're near our record earnings reported last quarter, reflecting the continued value generated by the Northway Financial acquisition and ongoing organic financial improvements across the franchise. Despite macroeconomic headwinds and the seasonal softening we typically experience in the first quarter, these results demonstrate continued progress against our strategic priorities of growing the franchise, operating with discipline, and adapting our capabilities to better serve our customers and communities. Our balance sheet remains a source of strength, supported by strong and building capital levels, reserves that we believe are [ probably ] aligned with loan quality and solid liquidity. We continue to maintain regulatory capital well in excess of required levels and internal targets, with our tangible common equity ratio increasing to 7.64% at quarter's end. Our disciplined credit approach continues to deliver strong asset quality with past-due loans and nonperforming assets remaining at very low levels in the first quarter. Although loan growth was tempered this quarter, due primarily to typical seasonality within our markets, we saw continued growth in our home equity loan portfolio, which increased $10.6 million during the quarter. We're encouraged by the continued strengthening of our commercial team with recent key hires already making meaningful contributions. Our production pipeline reflects healthy customer demand across our markets, even as quarterly balances are impacted by payoffs and seasonality. As we head into the spring and summer months, loan pipelines continue to build, reinforced by the talent added to our commercial and retail teams. As we build commercial capacity, we are deepening engagement with small and middle market businesses and positioning Camden National as a primary banking partner for a full suite of lending and treasury management solutions. Our deposit base reached $5.6 billion at March 31, representing a 1% increase from the prior quarter. Given the cyclical nature of our deposit flows, we are pleased with this level of growth in the first quarter as it reflects our continued success with our high-yield savings accounts and recent wins by our commercial and treasury management teams. We are focused on relationship deposits, attracting deposits through service, convenience and disciplined pricing. Our goal is to build long-term customer relationships, not simply pursue rate-driven volume. At the same time, we remain disciplined towards stewards of our capital. And with strong capital levels, we are focused on balancing reinvestment in the franchise with returning capital to shareholders, including through our recently announced share repurchase program and regular cash dividend. We continue to advance our digital strategy by equipping our bankers with practical time-saving tools. Our internally developed AI platform, Camden IQ, anchors our AI initiatives, which operate within an established government's framework designed to drive productivity while remaining aligned with our moderate risk profile and value-driven, people-centered culture. Recently, we launched Prep IQ, which delivers a real-time integrated view of customer information across platforms, enabling more informed and productive conversations. Loan IQ, another internally developed tool, further enhances efficiency by streamlining access to loan policy and supporting faster, more consistent decision-making. We're encouraged by the rapid adoption and early benefits of these tools. Expanded use of automation continues to improve efficiency and redeploy capacity toward higher-value customer interactions, supporting our disciplined approach to expense management. Overall, our first quarter performance reflects the effectiveness of our strategy: maintaining a resilient balance sheet, driving high-quality growth and staying relentlessly focused on delivering value for our customers, communities and shareholders. We believe we are well positioned for the remainder of 2026. With that, I'll hand over to Mike to provide additional financial details for the quarter.

Good afternoon. As Simon noted, we had a strong start to the year, delivering solid earnings for the first quarter. And importantly, our financial operating metrics continue to trend favorably, including a reported return on average assets of 1.28%, a return on average tangible equity of 18. 17%, and a non-GAAP efficiency ratio of 53.21%. We continue to be focused on growing the franchise and delivering shareholder value. For the first quarter, we reported a net interest margin of 3.24%, which was up 20 basis points year-over-year and down 5 basis points from the previous quarter. The decrease on a linked-quarter basis was driven by lower fair value mark accretion income of $956,000. Our underlying core net interest margin remained stable at 2.92% between periods. As we move into the second quarter, we anticipate net interest margin expansion of 2 to 5 basis points on a core basis. Our current interest rate outlook calls for slower and more gradual net interest margin expansion throughout 2026 as the likelihood of further Fed rate cuts has decreased. Noninterest income fell on a linked-quarter basis, largely due to normal seasonality across many of our fee income categories, including debit card, mortgage banking and swap fee income. Despite market volatility, assets under administration across our wealth and brokerage business remained essentially flat during the first quarter and were $2.4 billion at March 31. We continue to be focused on growing our wealth channels, and we are pleased to see AUA grow 11% year-over-year and quarterly revenues continuing to grow. As we move into the second quarter, we anticipate noninterest income to rebound to approximately $13 million. On the expense front, noninterest expenses totaled $35.7 million in the first quarter, down 3% from the previous quarter. For the second quarter, we anticipate our expense base to normalize as we benefited from the true-up of our incentive accrual bond payout in the first quarter. And as in prior years, our annual merit cycle and other seasonal costs will be recognized in the second quarter. We are currently estimating noninterest expense of approximately $37.5 million for the second quarter. Our credit quality across our loan portfolio continued to be very strong at March 31. Nonperforming loans were just 22 basis points of total loans and past due loans were just 6 basis points of total loans. Net charge-offs for the quarter totaled $506,000 or 4 basis points of average loans annualized, and were the driver of our first quarter provision expense of $553,000. Our allowance for credit losses on March 31 was 92 basis points, compared to 91 basis points at year-end. Given the strength of our loan portfolio and our overall loan mix, we continue to believe we are appropriately reserved at this level as evidenced by a 4.2x coverage ratio of nonperforming loans at quarter-end. Lastly, I wanted to note that our capital continues to rebuild following our acquisition of Northway Financial last year, supporting both balance sheet strength and ongoing capital returns to shareholders. During the first quarter of 2026, our tangible book value per share grew 3% to $30.58 at March 31, which included the repurchase of just over 33,000 shares during the quarter. Through regular cash dividends and share repurchases, the company returned $8.6 million in capital to shareholders. This concludes our comments. We'll now open up the call for questions.

[Operator Instructions] Your first question comes from the line of Damon DelMonte from KBW.

I hope everybody is doing well today. First question, Mike, just wanted to talk a little bit about the margin. Got your comments there about 2 to 5 basis points of core expansion. Could you just talk about some of the dynamics behind that? Is that more on the liability side or is that kind of going to be driven by the expected rebound in loan growth as we progress through the year?

Damon, yes, good question. Yes, primarily on the liability side, as we get into some of the seasonal months, we anticipate some continued benefit there just from normal deposit flows, if you will. We also, as CDs continue to reprice, there will be some benefits there as that continues to roll. And then I would just say on the derivative front as well, as we get into the back half, we'll start to see some benefit there. Some of our derivatives start to roll off. We do on the asset side, I'd say albeit at a slower pace, new loan volume, certainly, there's an opportunity for us to continue to squeak out some basis points, if you will, just on the earning asset yield. And I would just lastly add there too, Damon, that I think strategically, one of the things that we're focused on is just redeploying our investment cash flow where we can, one, to optimize certainly funding, but ideally to just fund loan growth on a go-forward basis. So lots of pieces there, but I think that kind of summarizes it.

Got it. Okay. That's helpful. And then from the fair value accretion standpoint, I think it was like $4.5 million or so this quarter. Is that right? And if so, like kind of what's your outlook going forward?

Yes. No, good question. So overall, I think we're about $4.3 million for the quarter. I would still say $4.5 million, maybe a little bit north of that is still a pretty good run rate estimate for us for now.

Okay. Great. And then with regards to the loan growth and the outlook there, Simon, heard the call-out on the home equity line doing quite well. Can you just talk about some of the other expectations on the commercial side, CRE and C&I and kind of what are some of the key factors behind that, driving that outlook? .

Yes, David. And I think overall, we see -- continue to see strength across our business. Obviously, there's a lot of macroeconomic uncertainty out there, but I think the underlying continues to be positive. We certainly see on the commercial side, we see some nice momentum, and certainly some businesses wanting to get out and invest. And obviously, as we start to get into the spring, summer months, that obviously kind of comes into focus as they're getting investments, making investments ready for the summer. We see nice momentum around the resi business as well. We talked about home equity, which I think is strong, and continue to see nice momentum on that business as well. So I think overall, it's a positive outlook. And we talked a little bit about in our script around some of the additions we're making, some of the strengthening of the team that we've made in the New Hampshire market, that also is strong. I was out with them a couple of weeks ago. I'm really excited by the opportunities we're starting to see in the southern New Hampshire market and the strength of the team there. And I think all these pieces together definitely lead to a positive outlook.

So would you kind of expect to get sort of like low to mid-single digit on a full year basis? Is that a reasonable assumption? .

Yes. That feels reasonable. Obviously, this year, lots going on. But I think where we sit right now, I think low sort of single-digit, low mid-single-digit seems a good range.

Your next question comes from Steve Moss from Raymond James.

Maybe just starting here on -- or following up on the new hires in New Hampshire. Just kind of curious the type of talent you're seeing and the opportunity you guys are seeing to hire, and any thoughts on maybe the potential expenses beyond the second quarter if there's maybe more incremental adds?

Steve, thanks for the question. Yes, we continue to be extremely disciplined, as we've talked about in previous calls with you. Our focus is really on self-funding, reinvesting, providing -- finding efficiencies across our business. So we don't see a material impact to the expense side. Some of those hires are certainly replacing existing positions. We see opportunities, obviously, with some of the southern end markets. There's been a lot of disruption, some M&A, and so we're picking up some great hires from some of those pieces. And I think honestly, they're very attractive to the Camden story. I think they see the opportunity here. We've got a lot of ambition to continue to grow. We've obviously got the Northway acquisition, which I think has provided a great platform. And we're continuing to invest. So we're seeing that opportunity and I think continued at a steady, measured pace, continue to make those investments throughout this year and into next.

Okay. I appreciate that color. And then just maybe in terms of -- I hear your comments on the home equity and resi stuff. Kind of curious on the commercial loan pipeline, where are you guys seeing pricing these days and what you are expecting there?

Steve, it's Mike. Yes, I mean, I would say, overall, what we're seeing is, I would say, on average, deals kind of in that 6% to low sixes on average. I mean certainly, there's sort of a premium, if you will, for just credit quality these days and certainly aggressive and just market. But we, as we think about loan growth, we certainly want to maintain our discipline there. And that's kind of who we are and who we've been and continue to be. But overall, I would say just on a weighted basis, it's probably closer to 6% at this point or a little bit higher. .

Okay. Appreciate the color there. And maybe just one last one on M&A here. You've integrated the Northway deal, Simon, and done a good job with it. Maybe just updated thoughts on talks and what you're thinking on the deal front here these days?

Yes, I think on the -- you just broke up a little bit there, Steve. But I think you said costs, update on the costs. Is that correct?

No. On M&A activity and just the thoughts around deal activity post -- now that you've integrated Northway, you're doing -- you've been doing well here with the transaction. Just kind of curious where M&A discussions are and just updated thoughts there.

Overall, M&A. Yes, we -- I mean, just to continue to recap. I mean, I think Northway obviously went very, very well. We're very proud of the work there. I was out of New Hampshire last week or so, and just seeing just a lot of energy from our clients, from our customers. Really proud of the New Hampshire teams and the way we're really sort of getting some traction in the market and excited to be part of the Camden franchise. I think on a look-forward, Steve, we continue to -- look, we've said publicly, we're certainly interested in opportunities, but it has to be the right opportunities for Camden. We feel like we've got tremendous opportunities on the organic growth front. We're seeing great capital rebuild. We're seeing this has been highly accretive from an income perspective and lots of opportunities there. So we don't feel pressure to make a deal, but we're certainly looking. We've talked about contiguous markets as sticking to our DNA as an organization. And really organizations with a similar sort of footprint and feel and look to Camden National Bank and a culture that really would assimilate well. So we're certainly open to those opportunities, but not getting pressure and certainly not going to overreach at the same time. So it's a balanced approach, a thoughtful approach and one where we're going to continue to obviously really focus on the core business and driving the performance and continuing that path with top quartile returns.

Your next question comes from the line of Matthew Breese from Stephens.

Mike, I wanted to drill into your comment on margin expansion being driven by the liability side. Could you just provide a little bit more color on the areas where you see the most potential for improvement? And one thing I was just focusing on was the cost of CDs, the 3.17% seems like a pretty low starting point to begin with. What else -- where else do you see the opportunities?

Yes. I mean I think, Matt, as you know, certainly, as we think about second quarter and beyond, I mean part of the opportunity for us is just the remix of our deposit base as we get into the spring/summer season. Generally speaking, I would say, call it, late May, into June, we start to really see some of the seasonal deposits come in. So we fully anticipate that to be the case again this year. No reason to believe that wouldn't be the case. So we certainly see opportunity there. And we also have -- as I mentioned, we have some derivatives. I don't know the number off the top of my head here, that are rolling off. But some of those have served us really well over the last few years just given the Fed position today, are a little bit under water. So as we think about opportunity there, there continues to be some opportunity. I think overall, as you think about the funding base, we do think that there's probably that 2 to 5 basis points is where we can see some margin expansion here in the second quarter. And I think we're -- we feel pretty good that as we continue even with the Fed holding as they are, that as we get to the back half of the year, there could be an opportunity where we start approaching 3% on a margin -- core margin basis. So we do see core margin expansion here over the next few quarters.

Great. And then for loan growth this quarter, how much of what we saw or a bit of the sluggishness on the loan growth front, how much of that was seasonality? How much of that do you think was competition? We've heard a lot about prepays and prepayment. And what gives you the confidence, maybe some color on the pipeline, that will get back into that low to mid-single-digit range for the remainder of the year?

Yes. No, I think -- I mean, we're seeing pipelines building that. I mean I think that gives us confidence, I think, just on a year-over-year basis, we're seeing it. I think as Simon had mentioned in his comments, we really added some strong talent just across the New Hampshire franchise and really being -- really just activate that this year. It's an incredible opportunity for the organization. At the same time, we've made some nice adds just to our main franchise in some of our markets that we've been in for quite some time, and we see some upside there. Certainly, on the retail franchise, we've had a nice strategy that we're executing on. We continue to add bankers in that space as well, that are out selling residential mortgages. Home equity has been really strong for us and small business. So I think as we think about our opportunity for low to mid-single-digit growth here on the loan front, I think the reality is, yes, the first quarter is normally sluggish for us. I think we're starting to see the pipelines build. And generally speaking, the back half of the year is kind of where we start to see it typically play out, if you will. But again, all signs point to that at this point. So we still feel like that's a pretty good range estimate.

Got it. Okay. And then 2 others for me. One, just focusing on the resi loan category. What's the current breakdown between loans being sold into the secondary market versus held for balance sheet at this point? And when do we start to see that portfolio -- is that a growth category for you or more one that we should think about as stable?

Yes. I would say overall, Matt, we're generally plus or minus 50-50, in that neighborhood. Certainly, quarter-to-quarter, it will could move a little bit. But generally speaking, that's kind of how we're thinking about it. I think overall, for the resi portfolio, I would say we're definitely thinking about probably slower growth and more relationship-based growth, is what I would say, less just transactional, just in thinking about how we want to position our loan portfolio and balance sheet over time. Certainly, I wouldn't say our expectation is it's flat. But certainly, I don't think it's also growing at the mid-single digit level as the expectation.

Okay. And then last one for me is just, historically, I don't know if I remember Camden being much of a prolific repurchaser of your own stock. You talked a little bit about that in your opening comments. To what extent might that fit in on a go-forward basis? How much in the way of share repurchases should we be thinking about?

Yes, it's a good question. I would say that we're kind of -- I mean, we kind of talk internally about one of our challenges, kind of jokingly, is we generate lots of capital and we have to put it to work, Matt. So I think just in terms of organic growth that we're focused on, positioning our capital level so we can be opportunistic as that occurs, as well as deploying in terms of share repurchase and dividend, I think that's going to play into the mix. I would say on the share repurchase front, again, I wouldn't -- I don't think I could sit here and quote a number of what we're targeting, but it will continue to be opportunistic. The shares that we did buy over this past quarter, let's say we saw different in our share price. And for us, given the valuation of that, that made sense. So I would envision that we continue to play that out a little bit over the coming quarters. But again, I think it will depend in large part on our share price.

Your next question comes from the line of Daniel Cardenas from Brean Capital.

Maybe if you could give me a little bit of color on competitive factors, both on the loan side and the deposit side, whether they've become more intense or less intense and if competition is rational.

Yes. Daniel, appreciate the question. Yes, I would say, overall, we definitely felt a pickup in competition over the last 3, 6 months. Having said all that, I think there's still plenty of room out there when we can demonstrate the tremendous value we can bring around our products, around our value of our people, conversations, advice, treasury and other capabilities. So I think it's certainly opportunities are to be had, but there's definitely a feeling that there's been a pickup in pressure and focus on assets over the last, let's say, 6 months or so, and that certainly showed up a little bit of the pricing pressure that we've talked about. Having said all that, as I say, I do see lots of positives for the particularly New Hampshire and the main markets. You're seeing customers wanting to get out and invest, see great opportunities. And we're having lots of active combinations and seeing that kind of sharpen our pipelines, which is certainly in a good position, I think, heading into the second quarter. So overall, we feel well positioned. I think we're -- the talent we're bringing in as well gives us an added kind of a little bit of a tailwind there and I think gives us momentum. So looking forward to the second quarter and the rest of the year.

Okay. And then I mean, what are your customers telling you in terms of the current economic environment? Are they becoming perhaps a little bit more cautious? Or is it more business as usual?

I would say it's a mixed picture. I would say, definitely, consumer spend remains steady. Have a stable outlook in terms of the consumer, which obviously impacts a lot of our businesses. I'd say business investment is certainly measured, but at a positive pace. I was at a business in the mid-coast recently, and they're looking to expand [indiscernible] expansion, certainly on the front foot. I think we're seeing that across clients. I think there's certainly some pockets of particular strength, Daniel, certainly areas like [indiscernible] a couple of other areas just given demographics and other kind of pieces that we see, certainly some momentum there. We don't see AI spend showing up with our customers. It's really on core capabilities, core infrastructure, capital spend that really is where the focus is. And it's a tight labor market. So that's certainly still a factor that plays in the main market, New Hampshire market. So I think overall, it's a mixed picture. Certainly, when we talk to some of our tourism-related, hotel-related kind of areas, they see a certainly decent start, good start to the year in terms of bookings and their outlook for the summer months. How that plays out, obviously, with fuel costs and other factors is going to be an interesting play. But certainly, Maine does well. It's a steady. When there's these macroeconomic pressures or other factors, Maine is always steady down the middle of the fairway. We don't see the highs of the highs and we don't see the lows of the low. So we see that sort of solid kind of middle ground and stability. And I think that's going to show up well this year, particularly given obviously, some of those macroeconomic concerns that are out there right now. So overall, a bit of a mixed picture, but generally, I think quite favorable, and I think look -- sets us up for a good year.

Excellent. All right. And then, what are line utilization rates looking like right now on your commercial portfolio? And then how does that compare to, say, 6 months or so ago?

Sorry, Daniel. So did you say the commercial utilization? .

Yes.

Yes. I think -- so we're kind of in that 35%, 40% neighborhood, and generally speaking, I know you didn't ask, but the same on the home equity front as well.

Okay. Last question for me, just as I think about fee income growth in 2026, I know Q1 can be a little seasonally soft. But is a mid-single-digit type of growth on a year-over-year basis an achievable objective on the fee income side?

Yes. Yes, I think that's fair, Daniel.

I was just going to add that we have a, I think, strong wealth strategy. Obviously, there's a lot of moving parts in the fee income, and there's -- obviously, the consumer fee income is a key part of that. But just generally, we're investing in that business, both in the CFC business and the wealth business. We added a couple of key hires last year, and that's certainly building out some important markets for us. And we're seeing some nice growth. We see, particularly on the CFC side, our brokerage business, we saw some very nice growth last year, and that momentum, I think, will continue this year. And then the wealth business as well, seeing some high single-digit growth there, certainly in the first quarter and some good momentum. So I think overall, it's a business that is going to add, of course, we have the resi business as well, which is a real core strength of Camden. So those pieces. And then we see some nice fees coming out of the commercial business as well on the swap front. So I think overall, it was a little bit of a soft start to the year. But certainly, as we get into the second, third, fourth quarter, I think we can see some momentum from there moving forward.

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.

Thank you for your time today and your continued interest in Camden National Corporation. We truly appreciate your support. Have a great day.

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