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
Damon Del Monte; Analyst; KBW
Matthew Breese; Analyst; Stephen
Operator
Good day and welcome to Camden National Corporation's fourth quarter, 2024 earnings conference call. My name is Elliot and I'll be your operator for today's call.
(Operator Instructions)
I'll now turn the call over to Renee Smyth, Executive Vice President; Chief experience and Marketing Officer.
Renee Smyth
Thank you, Elliot. Good afternoon and welcome to Camden National Corporation's conference call for the fourth quarter of 2024. Joining this afternoon are members of Camden National Corporation's Executive team, Simon Griffiths, President and CEO and Michael 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 fourth quarter, 2024 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 Camden National Bank. Camden National Corporation Trades on the Nasdaq, the symbol C.
In addition, today's presentation includes a discussion of non-GAAP financial measures. Any references to non-GAAP financial measures are intended to provide meaningful insights in our reconcile the GAAP in our earnings release, which is also available on our investor relations site. I am pleased to introduce our host, President and Chief Executive Officer Simon Griffiths.
Simon Griffiths
Thank you, Renee. Good afternoon, everyone. We appreciate you joining our call today. I will provide a few comments on our most recent quarter and then turn it over to Mike to discuss our fourth quarter financial performance. We'll then open for Q&A. However, before discussing the fourth quarter, I want to remark on a transformational moment in Camden National's history on January 2.
We successfully closed our merger with Norway Financial in less than four months from our announcement in early September as of the closing of the merger, the combined institution had total assets of approximately $7 billion and 73 branches in Maine and New Hampshire.
This combination represents a powerful step forward in bolstering our New Hampshire presence in a growing contiguous market and positioning us as a premier publicly traded bank headquartered in northern New England.
We are on track to successfully achieve the merger related financial targets announced in September. We are confident in our ability to unlock meaningful growth opportunities and swiftly expand our market presence.
The business development teams have already identified opportunities to leverage our significant technology investments, larger balance sheet and advice-based capabilities across an expanded customer base.
I deeply appreciate the dedication of all team members, their thorough due diligence, commitment to aligning cultures and focus on our strategic vision were all instrumental in the success of this transaction.
The conversion of Northway banking products and services to Camden national system is on target and expected to occur in mid-March. We look forward to the future as a newly combined more robust organization.
As you look back at the fourth quarter and full year, it can only be described as incredible momentum in the midst of our significant acquisition in Norway. We produced another quarter with strong operating results. Earlier this morning, we reported GAAP net income of $14.7 million or $1 of diluted earnings per share for the fourth quarter of 2024 an increase of 12% and 11% respectively over the third quarter of 2024 excluding merger and acquisition costs incurred through December 31, 2024, net income for the fourth quarter of 24 was $15.1 million and EPS was $1.03.
An increase of 9% and 8% respectively over the third quarter of 2024 our strong fourth quarter financial performance was marked by another quarter of strong net interest margin expansion growing 11 basis points compared to the third quarter, coupled with continued disciplined expense management and robust asset quality. Which are Camden National's key strengths.
We proactively managed deposit costs lower response to recent fed rate cuts in the second half of 24 including the fourth quarter. And this directly translated into further net interest margin expansion quarter over quarter or while continuing to grow our deposit base 1% in the fourth quarter.
In particular, I would highlight the success in our high yield savings product introduced earlier this year, which reached $201 million in deposits at December 31, this 2024 and has been a key catalyst for us to attract new deposits and customers.
Our commercial team ended the year with strong momentum and a solid pipeline leading into 2025. We continue to see strong activity throughout our markets but remain selective and measured in particular. Our preacquisition, New Hampshire team realized 18% growth in their market during 2024 with a limited group of lenders.
We are opportunistic as we enter 2025 as we have now expanded that group to eight commercial lenders in New Hampshire. With addition of the Northway, we're experiencing strong momentum in fee income driven by our strategic focus and investments in wealth management and brokerage services.
Our assets under administration reached $2.1 billion as of December 31, 2024, reflecting a 12% increase compared to December 31, 2023, with our new world operating platform and mobile app. We are well positioned to expand our advisory distribution. Further supporting our commitment to full relationship, banking and the growth and diversification of our fee income.
We continue to feel very good about our overall asset quality. Our credit special asset team continue to monitor our loan portfolio actively and we have not seen any meaningful signs of credit deterioration across any sectors or industries. At the end of 2024 our experienced lending and credit team's proactive approach seeks to address potential challenges immediately. A strategy that has consistently benefited our organization and our customers.
During the fourth quarter, we completed the strategic transformation of our online consumer and business account opening process. After a successful soft launch in December, it was broadly available in early January. This completes the first step towards enhancing our deposit account opening process across all channels.
We have already begun to leverage the platform's operational efficiencies and enhanced fraud protection capabilities. This platform will assist us in welcoming new customers in our expanded geography with a seamless account opening platform backed by human backed service excellence.
Our technology momentum continues to prevail forward with our investments in process automation which enhances operational efficiency by streamlining repetitive tasks.
These efforts to increase productivity, reduce errors, improve compliance and provide greater agility in responding to market changes. In December. We celebrated our bots processing a record 1.7 million transactions that humans used to perform. Notably, less than 13,000 of the transactions were sent to manual review or less than 1% of the total.
Looking ahead, we are very excited to celebrate our 150th anniversary over the past century and a half, we have built a legacy of trust, innovation and dedication driven by a passion for continually evolving to meet the needs of our customers and our communities.
Of course, delivering all this requires a total team effort from all my incredibly experienced and caring colleagues at Camden National, their hard work, dedication and commitment to our customers and each other make these results possible, delivering greater value for our shareholders and support for our communities.
Now, Mike will provide more details about our financial results.
Michael Archer
Thank you, Simon. Excuse me and good afternoon, everyone for clarity since the Northway acquisition closed on January 2, all the full year and fourth quarter numbers do not reflect the acquisition. However, I will provide some color on Northway fourth quarter and full year results.
After going through Camden's results to start, we are very pleased with our finish to 2024. Throughout 2024 our quarterly financial performance approved both on an earnings and profitability basis which reflects the actions across our team in a level of relief in the second half of the year as the fed cut interest rates, net income for the fourth quarter of 2024 totaled $14.7 million and grew 12% over the third quarter of 2024, and on a non-GAAP core basis totaled $15.1 million and grew 9% over the last quarter.
The increase in earnings reflects momentum within our net interest margin and directly translated into an increase in net interest income of 5% between quarters.
We also continue to manage our operating costs. Well, noninterest expenses for the fourth quarter excluding merger related costs totaled $27.9 million and were 1% lower than the third quarter of 2024.
For the year ended 2024. We were able to hold the increase in noninterest expense before merger related costs to an annual increase of 3% while continuing to invest into the franchise.
The improvement in our interest margin and our ability to manage operating costs translate into an improved core return on average assets for the fourth quarter at 1.04% compared to 0.96% in the third quarter. In a non-GAAP efficiency ratio of 58.5% compared to 62.4% in the previous quarter.
We've been consistently focused on expanding our net interest margin over the past several quarters. We've done this through various strategies and we are very pleased to see our net interest margin pick up 11 basis points in the fourth quarter to 257 which included approximately three basis points of benefit from certain nonrecurring items.
We took quick action after each fed cut to lower deposit costs. And in doing so, our deposit cost decreased 18 basis points on a linked quarter basis to 1.91% for the fourth quarter of 2024.
Our total cost of funds decreased 19 basis points on a lien quarter basis to 2.16% for the fourth quarter of 2024 noninterest income for the fourth quarter of 2024. A total of $12.2 million an increase of 7% over the third quarter of this year.
The increase on a quarter basis was primarily the result of recognition of the annual visa debit card bonus in the fourth quarter totaling $407,000 in higher loan swap fees of $232,000 loan on December 31,2024 totaled $4.1 billion which was fairly flat with balances reported last quarter and a year ago, a few larger commercial and commercial real estate loans paid off this quarter muting growth in the fourth quarter.
Our commercial loan pipeline at December 31, remained solid at nearly $85 million with approximately $45 million committed on the residential side. Our mortgage loan pipeline has slowed slightly as we enter the winter months.
A residential mortgage pipeline continues to hover around $50 million to $55 million of which we had nearly $42 million committed at December 31st. Excuse me, our credit quality across our loan portfolio continues to be very strong. We finish 2024 with excellent asset quality metrics including nonaccrual loans totaling $4.8 million or 12 basis points of total loans, loans totaling $2.3 million or five basis points of total loans.
Given the mix and strength of our loan portfolio. We believe an allowance to loan allowance to loans ratio of 87 basis points is appropriate and provides us with sufficient reserves.
This can be seen by a five allowance for loan loss and nonperforming loans ratio. At December 31, deposits in the fourth quarter grew 1% to $4.6 billion at December 31, 2024.
We continue to see strong demand for our high yield savings product in the fourth quarter with saving balances growing 7% for the fourth quarter and 23% of the calendar year.
As we noted in our earnings release, one of our large customer relationships temporarily deposited approximately $62 million with us in the fourth quarter and we anticipate these funds to leave in the first quarter of 2025 overall. We're very pleased with our deposit activities that flow in the fourth quarter as we generally see a level of normal seasonal outflows begin during the back half of the fourth quarter.
Our regulatory capital ratios continue to see regulatory requirements in the fourth quarter. Our [CET1] capital ratio and total risk-based capital ratio each grew 26 basis points to 13.09% and 15.11% respectively. At December 31, our tangible common equity ratio at year end was 7.64% which was slightly down from the third quarter due to the shift in interest rates between quarters.
I'll now shift my comments to the Northway Financial acquisition and provide a brief update. As previously reported. We closed the acquisition of Northway Financial on January 2, 2025, based on the closing stock of CDON National stock on January 2nd, the total consideration paid was $96.5 million in an all stock transaction whereby we issued 0.83 shares of CDON National Common Stock for each share of Northway Financial Common Stock.
In total, we issued approximately $2.3 million shares of Camden National Common Stock and on a post merger basis, the company has approximately $16.9 million shares outstanding as of January 2nd.
Northway Financial finished 2024 very much in line with our financial projections as an announcement as of December 31, ,2024 total assets were $1.2 billion total loans were $872 million total deposits were $972 million.
I would also note that from a credit perspective, Northwest asset quality continued to be strong through the close of the merger upon acquisition. We took certain actions to optimize our combined pro forma balance sheet including the payout of $45 million of long-term borrowings as well as the sale of roughly $65 million of bond securities to reposition the investment portfolio on a combined basis. As we work our way through the integration process over the next few weeks, we'll continue to evaluate balancing opportunities as a combined organization.
This concludes our comments, and we'll now open the call for questions.
Operator
(Operator Instructions)
Stephen Moss with Raymond James.
Stephen Moss
Good afternoon. Maybe just starting here with lending activity you guys saw for the quarter here. You know, I hear you guys on the pay downs. Just kind of curious how the lending environment is shaking out here Going forward and kind of what your thoughts are as you integrate. Northway.
Simon Griffiths
Hey, Steve, this is Simon. Thanks for the question, Steve. You know, certainly continue to see low single digit growth this year and continue to be selective across our markets. But having said that we certainly also do see some, strength across our footprint, see some nice momentum on the commercial side. We're also seeing some good momentum in the home equity business as well.
So we, certainly we're picking our spots right now and continue to focus on that right, balancing growth, credit quality and, but and investing in the markets that we have, we also talked about as you, as we mentioned in the script, we have a nice team now in the New Hampshire market.
They had a strong year last year and certainly can see a very strong outlook ahead for 2025 in the New Hampshire market as we continue to assimilate and work with the former Northway team. So I think that's another real area of strength for us, but, certainly some nice momentum but continue to be selective.
Stephen Moss
Okay, great, appreciate that. And Simon, you mentioned the investments that you've made in the franchise over the past year. Whether it's wealth management or, the online platform, online account openings. Just kind of curious here for 2025 you know, what type of investments you're looking to do and how we kind of think about the expenses for.
Simon Griffiths
For you in 25. Sorry, so you're just breaking up a little bit. Would you mind just repeating that question?
Stephen Moss
Oh, sure. So just in terms of the investments you made in the franchise, you made, you mentioned wealth management growth and the opportunity you have there. You also have the online account openings. Just kind of curious, you know how you think about investment for the upcoming year and where you want to invest in and how you're thinking about expense growth.
Simon Griffiths
Yeah, thanks Steve. Appreciate you repeating that question. Yeah, I mean, exactly as you say, look, we made some great investments last year, but I think position us very, very well for 2025. We're certainly seeing a lot of efficiencies from the wealth platform. I think it's opening up new operational efficiencies for us customer improvements, experience improvements.
And I think a lot of opportunity for momentum there in the wealth business. And we talked about that momentum in my opening remarks. But the new account opening opportunity, I think it's certainly going to, give us a much broader reach. We're also looking at continued acceleration of our digital capabilities, which I think enhance the customer experience.
And I think putting these pieces together is certainly going to create real potential strength for us. This year, we work towards acquiring more customers and deepening those relationships. And of course, we've got a new market to focus on as well with New Hampshire.
So I think putting all those pieces together, we feel very bullish about this year. I think another piece I just want to tie into that is the philosophy of managing the investing, but earning that right to invest through driving efficiencies. And I think that balance between self funding, the investments that we make is continues to be a philosophy of the management team.
Stephen Moss
Okay, great. And then in terms of the margin here, just, kind of curious you had, healthy margin expansion here this quarter, Mike, I hear you on the three bits of, of non-recurring items. I'm assuring that assuming that's from the prepaids on loans. Just kind of curious, underlying core margin expansion, do you expect that will continue? And then kind of is there any range you have early for the Northway close in terms of where the margins settle out on a GAAP basis? I'm assuming like the highs.
Simon Griffiths
Let me just focus on the core and then I'll let Mike just sort of build on that, I think plus or minus 260 I think plus or minus five around 260. We certainly see in the first quarter, some traditional run off of deposits and you know, we'll see some modest outflow this quarter.
I think there's also some underlying strength from the fed cuts at the back end of last year. So I think we continue to sort of be very focus on the approach across both the yield and also deposit costs and really focusing on that core franchise of low cost deposits growing that with some of the technology linking back to your previous questions.
So I think there's certainly momentum there. But, certainly there's some puts and takes in the first quarter. But I think that sort of plus or minus five basis points on 260 is a pretty good guide right now. I don't mind if you anything.
Michael Archer
No, I think that's something. I mean, I would just say, Steve, certainly that's the core side. I mean, the GAAP basis, as you would imagine, we'll see a pretty hefty lift there. I would just share, with the audience that we continue as you would imagine to work through some of the purchase accounting areas and we'll, we'll have that shake out, but certainly we anticipate a healthy, healthy lift above and beyond core from that.
Stephen Moss
Okay, great. I appreciate all the, all the color you guys in the next quarter. I'll step, I can.
Michael Archer
See.
Simon Griffiths
Thanks.
Operator
Our next question comes from Damon Delmonte with KBW. Your line is open. Please go ahead.
Damon Del Monte
Hey, good afternoon, guys. Hope you're both doing well. Just wanted to kind of circle back on the commentary Simon loan growth. I think you're kind of hopeful for like low single digit growth here in 25. Does that contemplate any type of maybe runoff or work out of some of the acquired loans that you might not want to keep around? Or was that just, kind of organic growth on a standalone basis.
Simon Griffiths
That's organic growth on a standalone basis. I think we feel, it certainly represents that sort of low, single digit.
Damon Del Monte
Got it. Okay. And then Mike, could you just repeat some of your final commentary on some of the actions you took, post-closing of the transaction? I think you had said you would pay down some borrowings that they had, and I didn't hear what you said on the securities portfolio.
Michael Archer
Yeah, sure. Happy to Damon. Yeah, so just two things, we essentially paid down some, some higher, some longer-term debt that had a little bit of higher cost on it. That hob borrowings that was about $45 million just optimized the balance sheet.
And as you probably saw at year end, we had a little bit of excess cash that we were holding on to. So really just a pure balance sheet optimization play on a pro forma basis there. We also sold about $65 million of their bond securities, largely some of their Muni and some of the callables really again, just not going to what we were looking for and the opportunity just to optimize you know, from a from a yield current market perspective and really just bring down the duration as well. So just a couple of small plays and we'll, we'll continue to evaluate going forward.
Damon Del Monte
Okay. And then just from like a pro forma earning asset base is something in the like $6.5 billion range reasonable.
Michael Archer
What was that pro forma earning asset? Is that what you asked, Damon?
Damon Del Monte
Yeah. Yeah, sorry. Proforma earning assets, like for first quarter.
Michael Archer
Yeah, I think that that feels reasonable enough.
Damon Del Monte
Okay, great. Okay, that's all that I had. Thank you very much.
Simon Griffiths
Thanks Stephen.
Operator
(Operator Instructions) Matthew Breese with Stephen
Matthew Breese
Hey, good afternoon. I was hoping just to follow up on a couple of the deal questions since it's closed. The first one is, do you have what the Cecil day two provision was?
Michael Archer
The Madis Mike. Are you asking just in terms of what we announced or what, what it is where we landed with us.
Matthew Breese
Where you landed? The fields, the fields are closed.
Michael Archer
So we're still working through the purchase accounting matter. I would tell you that, we haven't, we have no reason to believe it's going to be materially different from the credit side than what we, you know what we expected to begin with. I think I'm going off the top of my head here.
I want to say we had estimated 12% to 15% of the portfolio would be PCD or you know, purchase credit deteriorated there and the remaining would be the non PCD portion. But again, I mean, they closed, they closed very strong from a credit perspective. And, we're still scrubbing and, and doing kind of some final due diligence if you will on our side. But, to my knowledge, you know, certainly no, no surprises coming out of that.
Matthew Breese
Okay and then going back to the original deal deck, understanding that the core new, it sounds like it's in the 260 range. I think you also had about $3 million a quarter in a credible yield. So that's about 15 to 20 dips of kind of a CRE on the NIMs. So is it fair to say that the reported NIM is probably in the, 270 range all in 280 range all in when it's said and done?
Michael Archer
Yeah, I mean, I, so I think it could be a little bit higher than that. I would say that again, we're still running numbers certainly, but I would, I would kind of had it in my own head probably, [285 to 290 up towards three]. And one of the things that's evolved since we closed or announced the deal rather is just the movement and rights and, moved a little bit higher on us. So there'll be some additional market what we expect as we close, which will, play into that as Well, Matt.
Matthew Breese
Got it. Okay. And then I don't suppose you have anything related to goodwill or intangibles created dollar wise.
Michael Archer
Nothing, nothing new from what we previously disclosed. I want to say off the top of my head. It was in the $40 million to $45 million range. Certainly, the purchase price picked up a little bit as well and certainly just the asset mark is probably a little bit lower. So again, we haven't translated that yet, I guess at this point, Matt, but it will certainly be, I would anticipate it being slightly higher than what we had originally forecasted.
Matthew Breese
Okay. I'm sorry if I missed this, if we think about the core name in your overall balance sheet versus the curve, it feels, it feels like your balance sheet relative to the curve should be pretty well positioned in the current environment as you think about, beyond the first quarter. And I'm referring to the core nim to what extent might, might we see more expansion throughout 2025, and you know, throw at a bogey you, when do you think you can get above a 3% core name again?
Michael Archer
Oh, that's a, that's a big question there, Matt.
You know, it certainly will take some time. I agree with you. We're certainly well positioned, in the current current rate environment. I think if rates stay here, we perform well, if rates pick up higher. That's, certainly not, not beneficial. I would say that's not our base case either. Certainly, if they come down, that's beneficial, we're, we're slightly liability sensitive as, we do foresee this continued margin expansion.
We have some CDs that will continue to price down over time. So it does sort of Northway as well. We continue to see a level of asset yield expansion is what we anticipate once we get out of January and get the full impact of that more recent cut coming through.
So I think that, obviously the future for us looks, looks pretty, pretty strong as we look out a few quarters. But, I think if I were to guess on when we hit three, the only thing I'd be sure of is I'll probably be wrong. Probably not as quick as I want that or any of us want, but I think that the trajectory is certainly a positive.
Matthew Breese
All right. And then. Just one for you, Simon. You know, pretty shortly after you took the reins at the helm, we had a nice deal announced and closed in short order.
What do you think on the M&A front from here? When are you ready to pursue whole bank deals again? And if you are ready, what kind of geographies are you looking at? That's all I had. Thank you.
Simon Griffiths
Yeah, thanks Matt. You know, I think as we communicated, we chatted earlier about it. It really continues to be the right deal. Something that's a contiguous market I think continues to really appeal to us a bank like North way that I think has the same DNA, same kind of credit profile, same mindset focus in local communities that we serve in Maine.
And I think that that's going to be continued to be our focus right now. Obviously, we're heads down and focused on customer integration, mid-March. But certainly, we have an appetite and not an appetite for deal's sake. So, it would definitely be the right deal at the right time, and you know, but we certainly,
I think have the support of the management team and the expertise and the skill set to clearly execute on these deals. And I think we can leverage that going forward when the right opportunity arises.
Matthew Breese
Perfect. I'll leave it there. Thank you for taking my questions.
Simon Griffiths
Yeah. Thanks, mat. I appreciate that.
Operator
(Operator Instructions) I would like to turn the conference back over to Simon Griffiths for any closing remarks.
Simon Griffiths
Thanks, Elliot. I want to thank you all for your time today and interest in Canada National Corporation and we wish you all a great rest of your day. Thanks everyone.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
