Camden National Corporation (CAC) Earnings Call Transcript & Summary

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

Welcome to Camden National Corporation's Third Quarter 2026 Earnings Conference Call. With me today are Simon Griffiths, our President and Chief Executive Officer; and Mike Archer, our Executive Vice President and Chief Financial Officer. Before we begin, please note that today's remarks include forward-looking statements, and actual results could differ materially from what we discuss on the call. You can find cautionary language about these statements in our third quarter 2026 earnings release issued this morning and in our other SEC filings. 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. We'll also refer to non-GAAP financial measures during this call. These measures provide additional insight into our performance and reconciliations to GAAP are included in today's earnings release. With that, I'll turn the call over to Simon.

Good afternoon, everyone, and thank you, Renee. Earlier this morning, we reported third quarter net income of $22.8 million and diluted earnings per share of $1.34. Compared with third quarter 2025, net income rose 8% and diluted EPS rose 7%, reflecting strong earnings momentum driven by continued execution across our core franchise. These results were driven by strong core deposit growth led to an improved funding mix and drove 15 basis points of net interest margin expansion over the last quarter. I'm pleased to report disciplined expense management complemented this performance even as we continue to invest in the franchise. Pretax pre-provision income for the third quarter rose 4% from the second quarter and 6% from a year ago to $31.2 million, reflecting stronger core operating performance and improved operating leverage. The [indiscernible] also showed in record total revenue which rose to $68.7 million and $67.4 million in the second quarter. We ended the quarter with approximately $7.1 billion in total assets and a strong balance sheet, supported by ample liquidity, solid capital and sound credit quality. This strength positions us well to support future growth across evolving market conditions. Total loans were essentially unchanged from both the prior quarter and a year ago at $5 billion. Home equity remains a notable growth driver, up 7% during the quarter and 25% year-over-year reaching a high of $392 million, while residential real estate grew modestly. Commercial balances declined slightly during the quarter, reflecting payoffs and the planned exit of certain credits that no longer aligned with our portfolio objectives. During the quarter, we added 4 experienced commercial bankers, 2 covering the Massachusetts market and 2 in the Southern main market. While they are ramping up, we are encouraged by the strength of the pipelines they are building. The [indiscernible] Camden also speaks to the appeal of our strategy, culture and growth prospects. We expect these additions to support commercial growth over time, while we remain disciplined on structure and pricing. On the funding side, seasonal deposit inflows, strong customer retention and new customer relationships supported deposit growth and improved our funding mix during the third quarter. Total deposits increased 5% from the second quarter and 8% from a year ago to $5.8 billion. This outstanding performance improves our balance sheet flexibility and supports future asset growth, particularly in a rising rate environment. Within our fee-based businesses, we remain focused on expanding recurring fee streams and densifying our revenue mix. Our strategy to expand financial services and deepen customer relationships is yielding positive results. One brokerage assets under administration reached $2.6 billion at the quarter end, up 10% year-over-year, highlighting our ability to maintain a balanced revenue mix over time. To support deeper customer relationships and more effective execution, we are investing in our data capabilities. Our early partnership with Snowflake is already changing how we operate. For example, business teams are actively using Snowflake Explorer to access customer and performance insights directly, reducing reliance on menu analysis and enabling faster, better informed decisions. This is already supporting more targeted sales outreach and demonstrating how our early adopter technology investments can improve execution, productivity and customer engagement. In summary, the third quarter demonstrated the strength of our relationship-based model, continued progress on our growth strategy and record year-to-date earnings. We are investing in experienced talent, deeper customer relationships, and technology capabilities that position Camden for sustainable growth. We feel good about our Q4 outlook, and we believe we are well positioned for 2027. With that strategic overview, I'll turn it over to Mike to walk through the financial results in more detail.

Good afternoon, everyone. As Simon highlighted, for the third quarter, we delivered strong financial results, headlined by net income of $22.8 million and diluted EPS of $1.34. Both were up nicely from a year ago and fell just short of last quarter's record results. Profitability also remained strong with a return on average assets of 1.31% and a return on average tangible common equity of 17.47%. Net interest income totaled $55.4 million for the third quarter. Reported net interest margin rose 15 basis points from the second quarter to 3.41%, exceeding our guidance range provided on our last call. On a non-GAAP basis, core net interest margin increased 13 basis points to 3.10%. The increase reflected a more favorable funding mix and lower funding costs. Average funding costs for the third quarter declined to 1.63% from 1.7% in the second quarter, and average deposit costs edged down to 1.55%. For the fourth quarter, we are estimating our net interest margin to be relatively consistent with the third quarter. Turning to fee income. Noninterest income was $13.2 million for the third quarter, down 8% from the second quarter and 6% from a year ago. The linked quarter decline was driven by lower BOLI and mortgage banking income both of which are sensitive to market conditions. On a linked-quarter basis, the change in fair value accounting was $921,000 lower between periods. For the fourth quarter, we currently estimate noninterest income to increase to $13.5 million to $14.5 million. Noninterest expense totaled $37.5 million for the third quarter essentially unchanged from the second quarter and up 4% from a year ago. We continue to actively manage our expense base while making targeted investments in the franchise, including the key hires Simon mentioned earlier. As a result, we reported a non-GAAP efficiency ratio of 52.44% for the third quarter, down from 53.23% in the second quarter. We anticipate noninterest expense for the fourth quarter to approximate our current quarterly run rate, and we are currently estimating a range of $37.5 million to $38 million. Over the longer term, we remain focused on managing our efficiency ratio in the mid-50s, plus or minus. We believe this level balances continued investment in the franchise with strong shareholder returns. On credit, key metrics improved from the second quarter. Nonperforming loans declined to 16 basis points of total loans at September 30 from 24 basis points last quarter and past due loans were 14 basis points of total loans at quarter end down from 15 basis points last quarter. Net charge-offs were 7 basis points of average loans on an annualized basis for the third quarter and 5 basis points on a year-to-date basis. As of September 30, the allowance for credit losses was 0.92% of total loans, up 1 basis point from last quarter. The increase in the ACL coverage ratio contributed to provision expense of $1.9 million for the third quarter of 2026 compared to $710,000 in the second quarter. The increase in provision expense reflected changes in the economic outlook and an increase in unfunded reserves driven by strong HELOC production. Overall credit performance remained sound throughout the third quarter. Capital remains strong at the end of the third quarter. The total risk-based capital ratio increased to 14.82%, and the Tier 1 leverage ratio increased to 9.92% during the quarter. At quarter end, the tangible common equity ratio was 7.73% and tangible book value per share was $31.40. Both declined from June 30 due to the impact of higher market interest rates on accumulated other comprehensive loss. Overall, the quarter reflected solid profitability, improved operating leverage, sound credit performance and strong capital. We believe these results demonstrate the strength of core earnings profile and position us well heading into the fourth quarter. That concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Fed Strickland with Hovde Group.

Yes, still fighting the AI tool. How are you guys doing this afternoon?

Good. How are you?

Good. Just wanted to ask, I guess, first about deposits here. Really strong deposit growth in the quarter, particularly strong DDAs. And I know there's some seasonality in there. But can you give us a sense for maybe how much of the growth is more seasonal versus what's more likely to stick around maybe from new operating accounts or residential customers?

Yes. I would say -- I mean, we generally see neighborhood of 1%, 2% just overall deposit growth just in terms of seasonality. But I mean, we have seen some nice growth just from new customer acquisitions, some of our larger customers, we've seen some nice deposit inflows there as well. And certainly, we've highlighted in past calls, our high-yield savings product has been a nice growth tool, growth engine for us and driving privacy and accounts. So certainly, we're very pleased with what we saw in deposit growth this quarter, and I think it sets us up very well here heading into the fourth quarter, end of the year.

Yes. I'll just add to that, Fed, that as a team, we've been very focused on building out and focusing on prime relationships and relationship banking. We filled the technology we've built. The innovation is really building a tremendous customer experience that we're seeing showing up in a number of fronts, and that's driving certainly underlying strength of our deposit growth and certainly is a piece of the story here.

Great. And just wanted to switch to the margin, Mike, I appreciate the NIM guide for flat [indiscernible]. But as we think out to '27, do you think you can defend that [ 340-ish ] level even if we see some hikes just given the level of loan and securities opportunity for yield to move up? Or do funding costs maybe eat into a little bit if we get 1 to 2 more hikes?

Yes. I mean I think we're positioned well to see continued margin expansion into 2027. I do think is pending rate hikes, if you will, that the pace in which we've been seeing it will likely slow. And I think the other reality is, is between quarters, just given some seasonality, it could be choppy. But I think on an annual basis, certainly, we're thinking about it continuing to move forward.

Great. And just one last one for me, if I could squeeze it in on loan growth. Could we see a return to commercial growth in the fourth quarter? Or are there any other kind of larger maturities coming up that could drive a decline there?

Yes, I think in the fourth quarter, I said we going to see modest growth, but we are feeling very good about the potential moving forward. We have just strong pipelines and it's showing, obviously, up with the momentum that we're building with the additions we're seeing in the commercial team. We have 2 new folks in the Massachusetts market. And we have a commercial loan pipeline of $127 million, which is strong for us. Residential was also strong. So I think that the momentum is there and we're building the platform for a strong 2027. I think the fourth quarter will be certainly in the ballpark of where we were for the third quarter.

Your next question comes from the line of Steve Moss with Raymond James.

Simon, just following up on your commercial lender hires there. Just wondering if you can give a little color on the types of hires and kind of what types of books of business do you expect them to bring over?

Steve, good to hear from you. We've been talking in an earlier call, Steve, about the momentum and investment in that business. We've -- as we've mentioned in earlier calls, talked about our growth in the New Hampshire market. We build out a couple of -- we've added a couple of great hires into the Massachusetts market. And I think already seeing some early signs of some positive momentum there. We're also starting to build out on the Southern New Hampshire side and also Southern Maine side, we're starting to build out the team strengthen and picking up some good hires across those markets as well. And I think that's just a sort of continued focus on investment, but as you can see from our efficiency ratio, Steve, we're doing this in a very thoughtful way. We're self-funding a lot of these hires with continued investment in technology and build efficiencies that we're leveraging to create that capacity. So it's really a full approach, but we certainly continue to do that, and we'll continue to do that through 2027.