Kerr Blokhin
Camden National’s earnings (NASDAQ: CAC) is likely to decline this year due to lower margins. On the other hand, slower loan growth will provide some support to earnings.Overall, I expect Camden National EPS of $3.39 The share in 2023 is down 19% YoY.compared to mine last report For the company, I lowered my earnings estimates because I lowered my margin expectations. Camden National offers a high dividend yield of over 5% and attractive price upside. As such, I maintain my Buy rating on Camden National.
Loan growth expected to stabilize at slightly lower levels
Loan growth continues to slow in the second quarter of 2023. Camden National reported loan growth of 4.5% (annualized) for the first half, broadly in line with my expectations.management is As mentioned in the report, plans are intentionally slowing down loan growth in favor of margins introduction in august. Therefore, the balance of new loans in the second half of the year may be lower than the balance of new loans in the first half of the year.
I expect the residential loan sector to be the biggest contributor to the slowdown as it is highly sensitive to borrowing costs (i.e. interest rates). Residential lending is an important area of focus for Camden National, as residential real estate loans and home equity lines of credit represent approximately 49% of total lending. Due to the size of the segment, a slowdown in the residential loan segment will have a significant impact on the overall loan portfolio.
The outlook for business loan growth is much better. Camden National operates primarily in Maine, with some operations in New Hampshire and Massachusetts. As you can see below, all three states have fairly low unemployment rates compared to the national average.
Taking these factors into account, I expect the loan portfolio to grow at an annualized rate of 4.0% in the second half of the year. To be conservative, I assume loan growth will continue to grow at roughly the same rate next year, although expected rate cuts should lead to higher loan growth rates. Also, I expect deposits to grow in tandem with loans. The table below shows my balance sheet estimates.
| Financial status | Fiscal Year 2019 | Fiscal Year 2020 | FY21 | FY22 | FY23 Forecast | FY24E |
| net loan | 3,070 | 3,182 | 3,398 | 3,973 | 4,145 | 4,313 |
| net loan growth | 2.3% | 3.7% | 6.8% | 16.9% | 4.3% | 4.1% |
| other earning assets | 985 | 1,271 | 1,710 | 1,289 | 1,273 | 1,312 people |
| deposit | 3,538 | 4,005 | 4,609 | 4,827 | 4,788 | 4,983 |
| Borrowing and subordinated debt | Chapter 338 | Chapter 247 | 256 | 310 | 500 | 515 |
| common stock | Chapter 473 | Chapter 529 | Chapter 541 | Chapter 451 | Chapter 480 | 508 |
| Book value per share (USD) | 30.6 | 35.2 | 36.2 | 30.7 | 32.8 | 34.8 |
| Tangible BVPS ($) | 24.3 | 28.7 | 29.7 | 24.1 | 26.3 | 28.2 |
| Source: SEC filings, authors’ estimates (in millions of dollars unless otherwise noted) | ||||||
Profit margins will rise from next year
Camden National’s net interest margin shrank for the third consecutive quarter in the second quarter of 2023. Net interest margin fell 36 basis points in the first half of the year as soaring funding costs far outpaced growth in asset returns. The first half was worse than I expected.
Management’s focus on originating new loans at high interest rates (as noted above) could benefit margins for the rest of the year. On the flip side, an environment of rising interest rates could put pressure on margins. As mentioned in the presentation, only 20% of the total loans will be repriced within 12 months. Meanwhile, floating rate deposits accounted for 64% of total deposits. As such, margins are likely to continue to suffer as long as interest rates continue to rise.
The results of interest rate sensitivity analysis given by the management in the presentation show that a 200 basis point rate hike may increase net interest income by 16.57% in the second year of the rate hike. So next year is expected to be better than this year as the rate hike cycle is likely to end in 2023.
august speech
Taking these factors into account, I expect NIM to decline by 4 bps in the second half of this year before rising by 8 bps in 2024. Compared to my last report on the company, I have lowered my NIM forecast for the second half of this year, as the rate hike cycle may now be longer than I previously expected. Also, margins have shrunk more than I expected in the first half of the year.
Earnings are expected to plunge 19%
Camden National’s earnings are likely to fall this year due to pressure on margins. On the other hand, loan growth will support profits. Overall, I expect the company to report EPS of $3.39 in 2023, down 19% year-over-year. I expect 2024 earnings to grow 6% to $3.60 per share. The table below shows my income statement estimates.
| proof of income | Fiscal Year 2019 | Fiscal Year 2020 | FY21 | FY22 | FY23 Forecast | FY24E |
| net interest income | 128 | 136 | 137 | 148 | 132 | 136 |
| loan loss provision | 3 | 12 | (3) | 5 | 4 | 4 |
| non-interest income | 42 | 50 | 50 | 41 | 40 | 41 |
| non-interest expense | 95 | 100 | 104 | 107 | 106 | 107 |
| Net Profit – Ordinary SH. | 57 | 59 | 69 | 61 | 50 | 53 |
| Earnings per share – diluted ($) | 3.69 | 3.95 | 4.60 | 4.17 | 3.39 | 3.60 |
| Sources: SEC filings, earnings releases, author’s estimates ($ in millions unless otherwise noted) | ||||||
In my last report, I expected EPS to decline 1.4% YoY to $4.11. I’m lowering my earnings estimates now, mostly because I cut my earnings estimates.
risk is not a problem
Camden National Bank appears to have a low level of risk due to the following factors.
- As mentioned in the presentation, uninsured and unsecured deposits accounted for only 15% of total deposits at the end of last quarter. Available primary liquidity is 2.0 times that of uninsured and unsecured deposits.
- Unrealized losses on the available-for-sale securities portfolio amounted to $99.8 million, or 21 percent of the book value of total equity. That’s not too bad considering Camden National’s stock has lost 20.51% of its value so far this year.
- The credit quality of the loan portfolio is quite good. As mentioned in the 10Q report, as of the end of June, non-performing loans accounted for only 0.13% of total loans.
High total expected return justifies a Buy rating
Camden National currently pays a quarterly dividend of $0.42 per share for a yield of 5.1%. Earnings and dividend forecasts point to a payout ratio of 49.5% in 2023, above the five-year average of 32%. While the expected payout ratio is higher than the historical average, I don’t expect the payout level to decline, as 49.5% is easily maintained.
I value Camden National using historical price-to-tangible book value (“P/TB”) and price-to-earnings (“P/E”) multiples. The stock has an average P/E ratio of 1.61 in the past, as you can see below.
| Fiscal Year 2019 | Fiscal Year 2020 | FY21 | FY22 | Average | ||
| T. Book value per share (USD) | 24.3 | 28.7 | 29.7 | 24.1 | ||
| Average Market Price (USD) | 43.3 | 35.1 | 45.9 | 45.5 | ||
| Historical P/TB | 1.78 times | 1.22 times | 1.55 times | 1.89 times | 1.61 times | |
| Source: Company Financials, Yahoo Finance, Author’s Estimates | ||||||
Multiplying the average P/E by the projected tangible book value of $26.3 per share yields an end-2023 price target of $42.2. The target price implies an upside of 27.0% from the September 1 closing price. The table below shows the sensitivity of target prices to price-to-book ratios.
| P/TB multiple | 1.41 times | 1.51 times | 1.61 times | 1.71 times | 1.81 times |
| TBVPS – December 2023 ($) | 26.3 | 26.3 | 26.3 | 26.3 | 26.3 |
| Target Price (USD) | 37.0 | 39.6 | 42.2 | 44.9 | 47.5 |
| Market Price (USD) | 33.3 | 33.3 | 33.3 | 33.3 | 33.3 |
| up/(down) | 11.2% | 19.1% | 27.0% | 34.9% | 42.8% |
| Source: Author’s estimates |
The stock has traded at an average price-to-earnings ratio of about 10.4 in the past, as you can see below.
| Fiscal Year 2019 | Fiscal Year 2020 | FY21 | FY22 | Average | ||
| Earnings per share (USD) | 3.69 | 3.95 | 4.60 | 4.17 | ||
| Average Market Price (USD) | 43.3 | 35.1 | 45.9 | 45.5 | ||
| historical price-earnings ratio | 11.7 times | 8.9 times | 10.0 times | 10.9 times | 10.4 times | |
| Source: Company Financials, Yahoo Finance, Author’s Estimates | ||||||
Multiplying the average P/E ratio by the $3.39 forecast EPS yields an end-2023 price target of $35.2. The target price implies an upside of 5.8% from the Sept. 1 closing price. The table below shows the sensitivity of target prices to P/E ratios.
| P/E multiple | 8.4 times | 9.4 times | 10.4 times | 11.4 times | 12.4 times |
| 2023 EPS (USD) | 3.39 | 3.39 | 3.39 | 3.39 | 3.39 |
| Target Price (USD) | 28.4 | 31.8 | 35.2 | 38.6 | 42.0 |
| Market Price (USD) | 33.3 | 33.3 | 33.3 | 33.3 | 33.3 |
| up/(down) | (14.6)% | (4.4)% | 5.8% | 16.0% | 26.2% |
| Source: Author’s estimates |
Equally weighted target prices for both valuation methods to arrive at a combined result Target price $38.7, which represents an increase of 16.4% from the current market price. Combined with the forward dividend yield, the total expected return is 21.5%. As such, I maintain my Buy rating on Camden National.
