Earnings Call Transcript - CAC Q1 2026

Operator, Operator

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. I will now turn the call over to Renee Smyth, Executive Vice President, Chief Experience and Marketing Officer. Go ahead, Renee.

Renee Smyth, Executive Vice President, Chief Experience and Marketing Officer

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 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, President and Chief Executive Officer

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 were 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 appropriately 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 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 governance 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.

Michael Archer, Executive Vice President and Chief Financial Officer

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 a 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 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 a 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 was 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 its shareholders. This concludes our comments. We'll now open up the call for questions.

Operator, Operator

Your first question comes from the line of Damon Del Monte from KBW.

Damon Del Monte, Analyst (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 going to be driven by the expected rebound in loan growth as we progress through the year?

Michael Archer, Executive Vice President and Chief Financial Officer

Damon, yes, good question. Primarily on the liability side, as we get into some of the seasonal months, we anticipate some continued benefit there from normal deposit flows. As CDs continue to reprice, there will be some benefits as that continues to roll. On the derivative front as well, as we get into the back half, we'll start to see some benefit there as some of our derivatives start to roll off. On the asset side, at a slower pace, new loan volume presents an opportunity for us to gain some basis points on earning asset yields. Strategically, one of the things we're focused on is redeploying our investment cash flow where we can: one, to optimize funding; and two, to fund loan growth on a go-forward basis. So there are multiple drivers, but that summarizes it.

Damon Del Monte, Analyst (KBW)

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, what's your outlook going forward?

Michael Archer, Executive Vice President and Chief Financial Officer

Yes. Good question. Overall, we're about $4.3 million for the quarter. I would still say $4.5 million, maybe a little bit north of that, is a reasonable run rate estimate for now.

Damon Del Monte, Analyst (KBW)

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 what are some of the key factors behind that outlook?

Simon Griffiths, President and Chief Executive Officer

Yes, Damon. Overall, we continue to see strength across our business. There's a lot of macroeconomic uncertainty, but the underlying trends continue to be positive. On the commercial side, we see nice momentum and businesses wanting to get out and invest. As we move into the spring and summer months, that comes into focus as they prepare investments for the season. We see nice momentum around the residential business as well. Home equity is strong and continues to show momentum. We have made additions and strengthened the team in the New Hampshire market; those hires are performing well. I was out with them a couple of weeks ago and am excited by the opportunities we are starting to see in the Southern New Hampshire market and the strength of the team there. All these pieces together lead to a positive outlook.

Damon Del Monte, Analyst (KBW)

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

Simon Griffiths, President and Chief Executive Officer

Yes. That feels reasonable. Obviously, there are many moving parts this year, but where we sit today, low single-digit to low mid-single-digit seems like a good range.

Operator, Operator

Your next question comes from Steve Moss from Raymond James.

Stephen Moss, Analyst (Raymond James)

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

Simon Griffiths, President and Chief Executive Officer

Steve, yes, we continue to be extremely disciplined. Our focus is on self-funding, reinvesting and finding efficiencies across the business. We don't see a material impact to expenses. Some of the hires are replacing existing positions. In some southern end markets where there has been disruption and M&A, we are picking up great hires. They see the opportunity in the Camden story, and we have ambition to continue to grow. The Northway acquisition has provided a great platform. We are continuing to invest at a steady, measured pace and expect to make further investments throughout this year and into next.

Stephen Moss, Analyst (Raymond James)

I appreciate that color. Regarding the home equity and residential comments, curious on the commercial loan pipeline: where are you seeing pricing today and what are you expecting there?

Michael Archer, Executive Vice President and Chief Financial Officer

Steve, on average we're seeing deals pricing in the mid-6% range on average, closer to 6% or slightly higher. There's a premium for credit quality and some aggressive pricing in the market, but we intend to maintain our credit discipline as we pursue loan growth.

Stephen Moss, Analyst (Raymond James)

Maybe one last question on M&A. You've integrated the Northway deal well. Any updated thoughts on deal activity and how you're thinking about M&A now?

Simon Griffiths, President and Chief Executive Officer

Overall on M&A, Northway went very well and we're proud of the integration. I was in New Hampshire recently and saw a lot of energy from clients and the New Hampshire teams; we're getting traction in those markets. Looking forward, we're certainly interested in opportunities, but only the right ones for Camden. We have strong organic opportunities, capital rebuilding, and the transaction has been accretive. We don't feel pressure to make a deal and will not overreach. We focus on contiguous markets that align with Camden's DNA—organizations with a similar footprint, culture and feel that would assimilate well. We're taking a balanced, thoughtful approach, focusing on the core business and driving top-quartile returns.

Operator, Operator

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

Matthew Breese, Analyst (Stephens)

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

Michael Archer, Executive Vice President and Chief Financial Officer

Matt, as we think about the second quarter and beyond, part of the opportunity is a remix of our deposit base with seasonal deposits coming in, typically late May into June. We anticipate that again this year. We also have some derivatives that are rolling off; those have served us well but are somewhat underwater given the Fed position, so their roll-off presents opportunity. Overall, we think that 2 to 5 basis points in the second quarter is reasonable, and into the back half there could be an opportunity to approach a 3% core margin.

Matthew Breese, Analyst (Stephens)

For loan growth this quarter, how much of the sluggishness was seasonality versus competition and prepayments? What gives you confidence—some color on the pipeline—that you'll get back into the low to mid-single-digit range for the remainder of the year?

Michael Archer, Executive Vice President and Chief Financial Officer

We're seeing pipelines build, which gives us confidence. We added strong talent in the New Hampshire franchise and other markets, and our retail strategy continues to add bankers selling residential mortgages and home equity, which has been strong. The first quarter is normally sluggish for us, and we expect pipelines to build with more activity in the back half of the year. All signs point to low to mid-single-digit loan growth as a reasonable estimate.

Matthew Breese, Analyst (Stephens)

On the residential loan category, what's the current breakdown between loans sold into the secondary market versus held on the balance sheet? When should we expect that portfolio to be a growth category versus stable?

Michael Archer, Executive Vice President and Chief Financial Officer

Generally, we are around a plus-or-minus 50/50 split between loans sold into the secondary market and loans held on the balance sheet, though it can move quarter-to-quarter. For the residential portfolio, we expect slower, relationship-based growth rather than transactional growth. We don't expect it to be flat necessarily, but it is unlikely to be growing at a mid-single-digit pace this year.

Matthew Breese, Analyst (Stephens)

Historically Camden hasn't been a prolific repurchaser of stock. You mentioned repurchases earlier—what should we think about for share repurchase on a go-forward basis?

Michael Archer, Executive Vice President and Chief Financial Officer

We generate capital and need to put it to work. We'll be opportunistic with repurchases, positioning capital so we can be opportunistic for organic growth and deploy capital via dividends and repurchases. I can't quote a target number, but the repurchases we did this past quarter were opportunistic when we saw a dip in our share price and it made sense given the valuation. We'll continue to do that depending in large part on our share price.

Operator, Operator

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

Daniel Cardenas, Analyst (Brean Capital)

Could you give a little 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?

Simon Griffiths, President and Chief Executive Officer

Daniel, we have felt a pickup in competition over the last three to six months. That said, there is still room where we can demonstrate the value we bring with our products, people, advice, treasury and other capabilities. There has been some pricing pressure over the last six months, but we see positives in our New Hampshire and main markets. Customers are investing and we are having active conversations that are sharpening our pipelines. The talent we're bringing in gives us momentum heading into the second quarter.

Daniel Cardenas, Analyst (Brean Capital)

What are your customers telling you about the current economic environment? Are they becoming more cautious, or is it more business as usual?

Simon Griffiths, President and Chief Executive Officer

It's a mixed picture. Consumer spending remains steady and consumer outlook is stable, which impacts many of our businesses. Business investment is measured but positive—many businesses are on the front foot and expanding. We see pockets of particular strength in coastal communities and a few other areas given demographics. We are not seeing AI-driven capital spend among our customers; the focus is on core capabilities, infrastructure and capital spend. The labor market is tight, which affects some main markets. Tourism and hotel-related businesses reported a good start to the year and a positive outlook for the summer months. Overall, Maine is steady and tends to be middle-of-the-road—neither extreme highs nor extreme lows—so that gives us stability this year amid macro concerns.

Daniel Cardenas, Analyst (Brean Capital)

What are line utilization rates looking like right now on your commercial portfolio, and how does that compare to six months ago?

Michael Archer, Executive Vice President and Chief Financial Officer

Did you mean commercial utilization?

Daniel Cardenas, Analyst (Brean Capital)

Yes.

Michael Archer, Executive Vice President and Chief Financial Officer

We're generally in that 35% to 40% neighborhood. On the home equity front, utilization is in a similar range.

Daniel Cardenas, Analyst (Brean Capital)

Last question: thinking about fee income growth in 2026—Q1 can be seasonally soft—is mid-single-digit year-over-year fee income growth an achievable objective?

Michael Archer, Executive Vice President and Chief Financial Officer

Yes. I think that's fair.

Simon Griffiths, President and Chief Executive Officer

I'll add that we have a strong wealth strategy and are investing in CFC and wealth businesses. We added key hires last year that are building out important markets and we're seeing nice growth. The brokerage business grew well last year and momentum continues. The wealth business saw high single-digit growth in the first quarter and has good momentum. The residential business remains a core strength for Camden. We also see fees coming from the commercial business on the swap front. Q1 was a soft start, but we expect momentum in the second, third and fourth quarters.

Operator, Operator

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.

Simon Griffiths, President and Chief Executive Officer

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

Operator, Operator

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